<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND
SCHEDULE 13D
(AMENDMENT NO. 2)
CONRAIL INC.
(Name of Subject Company)
NORFOLK SOUTHERN CORPORATION
ATLANTIC ACQUISITION CORPORATION
(Bidders)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
(Title of Class of Securities)
208368 10 0
(CUSIP Number of Class of Securities)
SERIES A ESOP CONVERTIBLE JUNIOR
PREFERRED STOCK, WITHOUT PAR VALUE
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
(Title of Class of Securities)
NOT AVAILABLE
(CUSIP Number of Class of Securities)
JAMES C. BISHOP, JR.
EXECUTIVE VICE PRESIDENT-LAW
NORFOLK SOUTHERN CORPORATION
THREE COMMERCIAL PLACE
NORFOLK, VIRGINIA 23510-2191
TELEPHONE: (757) 629-2750
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications on Behalf of Bidder)
with a copy to:
RANDALL H. DOUD, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
TELEPHONE: (212) 735-3000
CALCULATION OF FILING FEE
TRANSACTION VALUATION* AMOUNT OF FILING FEE**
$12,243,317,910 $2,448,664
* For purposes of calculating the filing fee only. This calculation
assumes the purchase of all outstanding shares of Common Stock, par
value $1.00 per share (the "Common Shares"), and Series A ESOP
Convertible Junior Preferred Stock, without par value (the "ESOP
Preferred Shares"), of Conrail Inc. (the "Company") at $115 net per
share in cash. According to information in the Company's Proxy
Statement Supplement mailed to Company shareholders on or about
December 24, 1996, as of December 5, 1996, 82,244,475 Common Shares and
7,303,920 ESOP Preferred Shares were outstanding. Also, according to
information included in the Tender Offer Statement on Schedule 14D-1,
dated December 6, 1996, filed with the Securities and Exchange
Commission by CSX Corporation ("CSX") and attributed to the Company, on
November 27, 1996, 8,263,682 Common Shares were reserved for issuance
pursuant to outstanding employee stock options or upon conversion of
the ESOP Preferred Shares. Also according to such Schedule 14D-1,
pursuant to a Stock Option Agreement, dated as of October 14, 1996, by
and between the Company and CSX, the Company has granted CSX the option
to purchase in certain circumstances up to 15,955,477 Common Shares.
** The amount of the filing fee, calculated in accordance with Rule
0-11(d) of the Securities Exchange Act of 1934, as amended, equals
1/50th of one percent of the aggregate value of cash offered by
Atlantic Acquisition Corporation for such number of Shares. Payment of
the filing fee due in connection herewith has been completely offset by
a previous payment by Bidders in the amount of $2,456,439. Accordingly,
a credit of $7,778 remains on account of the Bidders.
[X] Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Amount Previously Paid: $2,456,439 Filing Party: Norfolk Southern Corporation and
Form or Registration No.: Schedule 14D-1 Atlantic Acquisition Corporation
Date Filed: October 24, 1996 and November 8, 1996
</TABLE>
<PAGE>
CUSIP NO. 208368 10 0 PAGE 1 OF 2
14D-1
1. NAMES OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
NORFOLK SOUTHERN CORPORATION (E.I.N.: 52-1188014)
- -----------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
- -----------------------------------------------------------------------------
3. SEC USE ONLY
- -----------------------------------------------------------------------------
4. SOURCE OF FUNDS
BK, WC, OO
- -----------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(e) or 2(f) [ ]
- -----------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Virginia
- -----------------------------------------------------------------------------
7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,200,100 Common Shares
- -----------------------------------------------------------------------------
8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES
[ ]
- -----------------------------------------------------------------------------
9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
9.9% of outstanding Common Shares
- -----------------------------------------------------------------------------
10. TYPE OF REPORTING PERSON
HC and CO
- -----------------------------------------------------------------------------
<PAGE>
CUSIP NO. 208368 10 0 PAGE 2 OF 2
14D-1
1. NAMES OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
ATLANTIC ACQUISITION CORPORATION (E.I.N.: 54-1823555)
- -----------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
- -----------------------------------------------------------------------------
3. SEC USE ONLY
- -----------------------------------------------------------------------------
4. SOURCE OF FUNDS
AF
- -----------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(e) or 2(f) [ ]
- -----------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Pennsylvania
- -----------------------------------------------------------------------------
7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,200,000 Common Shares
- -----------------------------------------------------------------------------
8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES
[ ]
- -----------------------------------------------------------------------------
9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
9.9% of outstanding Common Shares
- -----------------------------------------------------------------------------
10. TYPE OF REPORTING PERSON
CO
- -----------------------------------------------------------------------------
<PAGE>
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is Conrail Inc., a Pennsylvania
corporation (the "Company"). The address of the Company's principal executive
offices is 2001 Market Street, Two Commerce Square, Philadelphia,
Pennsylvania 19101-1417.
(b) This Tender Offer Statement on Schedule 14D-1 relates to the offer by
Atlantic Acquisition Corporation ("Purchaser"), a Pennsylvania corporation
and a wholly owned subsidiary of Norfolk Southern Corporation, a Virginia
corporation ("Parent"), to purchase all outstanding shares of (i) Common
Stock, par value $1.00 per share (the "Common Shares"), and (ii) Series A
ESOP Convertible Junior Preferred Stock, without par value (the "ESOP
Preferred Shares" and, together with the Common Shares, the "Shares"), of the
Company, including, in each case, the associated Common Stock Purchase
Rights, upon the terms and subject to the conditions set forth in the Offer
to Purchase, dated February 12, 1997, and in the related Letter of
Transmittal (which, together with any amendments or supplements thereto,
constitute the "Second Offer") at a purchase price of $115 per Share, net to
the tendering shareholder in cash. According to information in the Company's
Proxy Statement Supplement mailed to Company shareholders on or about
December 24, 1996, as of December 5, 1996, 82,244,475 Common Shares and
7,303,920 ESOP Preferred Shares were outstanding. Also, according to
information included in the Tender Offer Statement on Schedule 14D-1, dated
December 6, 1996, filed with the Securities and Exchange Commission by CSX
Corporation ("CSX") and attributed to the Company, on November 27, 1996,
8,263,682 Common Shares were reserved for issuance pursuant to outstanding
employee stock options or upon conversion of the ESOP Preferred Shares. Also
according to such Schedule 14D-1, pursuant to a Stock Option Agreement, dated
as of October 14, 1996, by and between the Company and CSX, the Company has
granted CSX the option to purchase in certain circumstances up to 15,955,477
Common Shares. The information set forth under "Introduction" in the Offer to
Purchase annexed hereto as Exhibit (a)(1) (the "Offer to Purchase") is
incorporated herein by reference.
(c) The information set forth under "Price Range of Shares; Dividends" in
the Offer to Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d); (g) This Statement is being filed by Purchaser and Parent. The
information set forth under "Introduction" and "Certain Information
Concerning Purchaser and Parent" in the Offer to Purchase and Schedule I
thereto is incorporated herein by reference.
(e)-(f) During the last five years, neither Purchaser, Parent nor any
persons controlling Purchaser, nor, to the best knowledge of Purchaser or
Parent, any of the persons listed on Schedule I to the Offer to Purchase (i)
has been convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction as a result of which any
such person was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a)-(b) The information set forth under "Introduction," "Background of the
Second Offer; Contacts with the Company," "Purpose of the Second Offer and
the Merger; Plans for the Company; Certain Considerations," "Certain
Information Concerning the Company" and "Certain Information Concerning
Purchaser and Parent" in the Offer to Purchase is incorporated herein by
reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) The information set forth under "Introduction" and "Source and
Amount of Funds" in the Offer to Purchase is incorporated herein by
reference.
(c) Not applicable.
1
<PAGE>
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(e) The information set forth under "Introduction," "Background of the
Second Offer; Contacts with the Company" and "Purpose of the Second Offer and
the Merger; Plans for the Company; Certain Considerations" in the Offer to
Purchase is incorporated herein by reference.
(f)-(g) The information set forth under "Introduction" and "Effect of the
Second Offer on the Market for the Common Shares; Exchange Listing and
Exchange Act Registration; Margin Regulations" in the Offer to Purchase is
incorporated herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a)-(b) The information set forth under "Introduction," and "Certain
Information Concerning Purchaser and Parent" in the Offer to Purchase is
incorporated herein by reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES.
The information set forth under "Introduction," "Purpose of the Second
Offer and the Merger; Plans for the Company; Certain Considerations" and
"Certain Legal Matters; Regulatory Approvals; Certain Litigation" in the
Offer to Purchase is incorporated herein by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth under "Fees and Expenses" in the Offer to
Purchase is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth under "Certain Information Concerning Purchaser
and Parent" in the Offer to Purchase is incorporated herein by reference.
ITEM 10. ADDITIONAL INFORMATION.
(a) Not applicable.
(b)-(c) The information set forth under "Introduction" and "Certain Legal
Matters; Regulatory Approvals; Certain Litigation" in the Offer to Purchase
is incorporated herein by reference.
(d) The information set forth under "Effect of the Second Offer on the
Market for the Common Shares; Exchange Listing and Exchange Act Registration;
Margin Regulations" in the Offer to Purchase is incorporated herein by
reference.
(e) The information set forth under "Certain Legal Matters; Regulatory
Approvals; Certain Litigation" in the Offer to Purchase is incorporated
herein by reference.
(f) The information set forth in the Offer to Purchase and the Letter of
Transmittal, copies of which are attached hereto as Exhibits (a)(1) and
(a)(2), respectively, is incorporated herein by reference.
2
<PAGE>
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
<S> <C>
(a)(1) Offer to Purchase, dated February 12, 1997.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
(a)(7) Press Release issued by Parent on February 12, 1997.
(a)(8) Summary Advertisement, dated February 12, 1997.
(b)(1) Credit Agreement, dated as of February 10, 1997, by and among Parent, Morgan Guaranty Trust Company of
New York, as administrative agent, Merrill Lynch Capital Corporation, as documentation agent, and the
banks from time to time parties thereto.
(c)(1) Voting Trust Agreement, dated as of February 10, 1997, by and among Parent, Purchaser and First American
National Bank (incorporated by reference to Exhibit (c)(2) to Parent's and Purchaser's Tender Offer Statement
on Schedule 14D-1, dated October 24, 1996, as amended on February 11, 1997).
(c)(2) Notice, dated February 10, 1997, delivered by Parent to the Company regarding Parent's intention to nominate
directors to the Company Board and to conduct certain other business at the Company's 1997 Annual Meeting
of Shareholders (incorporated by reference to Exhibit (c)(3) to Parent's and Purchaser's Tender Offer
Statement on Schedule 14D-1, dated October 24, 1996, as amended on February 11, 1997).
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g)(1) Transcript of oral ruling of Judge VanArtsdalen (dated November 19, 1996, United States District Court for
the Eastern District of Pennsylvania).
(g)(2) Emergency Motion for an Injunction Pending Appeal filed by Parent, Purchaser and Kathryn B. McQuade against
the Company, CSX et al. (dated November 19, 1996, United States Court of Appeals for the Third Circuit
and incorporated by reference to Exhibit (g)(4) to Parent's and Purchaser's Tender Offer Statement on
Schedule 14D-1, dated October 24, 1996, as amended on November 21, 1996).
(g)(3) Motion for an Expedited Appeal filed by Parent, Purchaser and Kathryn B. McQuade (dated November 19,
1996, United States Court of Appeals for the Third Circuit and incorporated by reference to Exhibit (g)(5)
to Parent's and Purchaser's Tender Offer Statement on Schedule 14D-1, dated October 24, 1996, as amended
on November 21, 1996).
(g)(4) Answer and Defenses of the Company, CSX et al. to Parent's, Purchaser's and Kathryn B. McQuade's Second
Amended Complaint and the Counterclaim of the Company and CSX (dated December 5, 1996, United States
District Court for the Eastern District of Pennsylvania and incorporated by reference to Exhibit (g)(6)
to Parent's and Purchaser's Tender Offer Statement on Schedule 14D-1, dated October 24, 1996, as amended
on December 6, 1996).
(g)(5) Preliminary Injunction Motion and related brief and proposed form of Order filed by Parent, Purchaser
and Kathryn B. McQuade against the Company, CSX et al. (dated December 13, 1996, United States District
Court for the Eastern District of Pennsylvania and incorporated by reference to Exhibit (g)(8) to Parent's
and Purchaser's Tender Offer Statement on Schedule 14D-1, dated October 24, 1996, as amended on December
16, 1996).
(g)(6) Transcript of oral ruling of Judge VanArtsdalen (dated December 17, 1996, United States District Court for
the Eastern District of Pennsylvania).
3
<PAGE>
(g)(7) Order of Judge VanArtsdalen (dated December 17, 1996, United States District Court for the Eastern District
of Pennsylvania).
(g)(8) Motion for Leave to Amend the Complaint filed by Parent, Purchaser and Kathryn B. McQuade, including
as an exhibit thereto, Parent's, Purchaser's and Kathryn B. McQuade's Fourth Amended Complaint (dated
December 20, 1996, United States District Court for the Eastern District of Pennsylvania and incorporated
by reference to Exhibit (g)(9) to Parent's and Purchaser's Tender Offer Statement on Schedule 14D-1,
dated October 24, 1996, as amended on December 23, 1996).
(g)(9) Motion to Dismiss Counterclaim of the Company, CSX et al., filed by Parent, Purchaser and Kathryn B.
McQuade (dated December 20, 1996, United States District Court for the Eastern District of Pennsylvania
and incorporated by reference to Exhibit (g)(10) to Parent's and Purchaser's Tender Offer Statement on
Schedule 14D-1, dated October 24, 1996, as amended on December 23, 1996).
(g)(10) Petition for Declaratory Order and Other Appropriate Relief, filed by Parent and Norfolk Southern Railway
Company against the Company, CSX et al. (dated December 27, 1996, Surface Transportation Board and incorporated
by reference to Exhibit (g)(11) to Parent's and Purchaser's Tender Offer Statement on Schedule 14D-1,
dated October 24, 1996, as amended on December 30, 1996).
(g)(11) Motion for Preliminary Injunction filed by Parent, Purchaser and Kathryn B. McQuade against the Company,
CSX et al. (dated January 2, 1997, United States District Court for the Eastern District of Pennsylvania
and incorporated by reference to Exhibit (g)(12) to Parent's and Purchaser's Tender Offer Statement on
Schedule 14D-1, dated October 24, 1996, as amended on January 2, 1997).
(g)(12) Motion for Partial Summary Judgment filed by Parent, Purchaser and Kathryn B. McQuade against the Company,
CSX et al. (dated January 2, 1997, United States District Court for the Eastern District of Pennsylvania
and incorporated by reference to Exhibit (g)(13) to Parent's and Purchaser's Tender Offer Statement on
Schedule 14D-1, dated October 24, 1996, as amended on January 2, 1997).
(g)(13) Decision of Chairman Morgan and Vice Chairman Owen (dated January 8, 1997, Surface Transportation Board).
(g)(14) Transcript of oral ruling of Judge VanArtsdalen (dated January 9, 1997, United States District Court for
the Eastern District of Pennsylvania).
(g)(15) Order of Judge VanArtsdalen (dated January 9, 1997, United States District Court for the Eastern District
of Pennsylvania).
(g)(16) Motion for Expedited Appeal filed by Parent, Purchaser and Kathryn B. McQuade (dated January 10, 1997,
United States Court of Appeals for the Third Circuit and incorporated by reference to Exhibit (g)(14)
to Parent's and Purchaser's Tender Offer Statement on Schedule 14D-1, dated October 24, 1996, as amended
on January 10, 1997).
(g)(17) Order of Judges Stapleton, Scirica and Nygaard (dated January 15, 1997, United States Court of Appeals
for the Third Circuit).
</TABLE>
4
<PAGE>
SIGNATURE
After due inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is
true, complete and correct.
Dated: February 12, 1997
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
5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<S> <C>
(a)(1) Offer to Purchase, dated February 12, 1997.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
(a)(7) Press Release issued by Parent on February 12, 1997.
(a)(8) Summary Advertisement, dated February 12, 1997.
(b)(1) Credit Agreement, dated as of February 10, 1997, by and among Parent, Morgan Guaranty Trust Company
of New York, as administrative agent, Merrill Lynch Capital Corporation, as documentation agent,
and the banks from time to time parties thereto.
(c)(1) Voting Trust Agreement, dated as of February 10, 1997, by and among Parent, Purchaser and First
American National Bank (incorporated by reference to Exhibit (c)(2) to Parent's and Purchaser's
Tender Offer Statement on Schedule 14D-1, dated October 24, 1996, as amended on February 11, 1997).
(c)(2) Notice, dated February 10, 1997, delivered by Parent to the Company regarding Parent's intention
to nominate directors to the Company Board and to conduct certain other business at the Company's
1997 Annual Meeting of Shareholders (incorporated by reference to Exhibit (c)(3) to Parent's
and Purchaser's Tender Offer Statement on Schedule 14D-1, dated October 24, 1996, as amended
on February 11, 1997).
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g)(1) Transcript of oral ruling of Judge VanArtsdalen (dated November 19, 1996, United States
District Court for the Eastern District of Pennsylvania).
(g)(2) Emergency Motion for an Injunction Pending Appeal filed by Parent, Purchaser and Kathryn B. McQuade
against the Company, CSX et al. (dated November 19, 1996, United States Court of Appeals for
the Third Circuit and incorporated by reference to Exhibit (g)(4) to Parent's and Purchaser's
Tender Offer Statement on Schedule 14D-1, dated October 24, 1996, as amended on November 21,
1996).
(g)(3) Motion for an Expedited Appeal filed by Parent, Purchaser and Kathryn B. McQuade (dated November
19, 1996, United States Court of Appeals for the Third Circuit and incorporated by reference
to Exhibit (g)(5) to Parent's and Purchaser's Tender Offer Statement on Schedule 14D-1, dated
October 24, 1996, as amended on November 21, 1996).
(g)(4) Answer and Defenses of the Company, CSX et al. to Parent's, Purchaser's and Kathryn B. McQuade's
Second Amended Complaint and the Counterclaim of the Company and CSX (dated December 5, 1996,
United States District Court for the Eastern District of Pennsylvania and incorporated by reference
to Exhibit (g)(6) to Parent's and Purchaser's Tender Offer Statement on Schedule 14D-1, dated
October 24, 1996, as amended on December 6, 1996).
6
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
(g)(5) Preliminary Injunction Motion and related brief and proposed form of Order filed by Parent, Purchaser
and Kathryn B. McQuade against the Company, CSX et al. (dated December 13, 1996, United States
District Court for the Eastern District of Pennsylvania and incorporated by reference to Exhibit
(g)(8) to Parent's and Purchaser's Tender Offer Statement on Schedule 14D-1, dated October 24,
1996, as amended on December 16, 1996).
(g)(6) Transcript of oral ruling of Judge VanArtsdalen (dated December 17, 1996, United States District
Court for the Eastern District of Pennsylvania).
(g)(7) Order of Judge VanArtsdalen (dated December 17, 1996, United States District Court for the Eastern
District of Pennsylvania).
(g)(8) Motion for Leave to Amend the Complaint filed by Parent, Purchaser and Kathryn B. McQuade, including
as an exhibit thereto, Parent's, Purchaser's and Kathryn B. McQuade's Fourth Amended Complaint
(dated December 20, 1996, United States District Court for the Eastern District of Pennsylvania
and incorporated by reference to Exhibit (g)(9) to Parent's and Purchaser's Tender Offer Statement
on Schedule 14D-1, dated October 24, 1996, as amended on December 23, 1996).
(g)(9) Motion to Dismiss Counterclaim of the Company, CSX et al., filed by Parent, Purchaser and Kathryn
B. McQuade (dated December 20, 1996, United States District Court for the Eastern District of
Pennsylvania and incorporated by reference to Exhibit (g)(10) to Parent's and Purchaser's Tender
Offer Statement on Schedule 14D-1, dated October 24, 1996, as amended on December 23, 1996).
(g)(10) Petition for Declaratory Order and Other Appropriate Relief, filed by Parent and Norfolk Southern
Railway Company against the Company, CSX et al. (dated December 27, 1996, Surface Transportation
Board and incorporated by reference to Exhibit (g)(11) to Parent's and Purchaser's Tender Offer
Statement on Schedule 14D-1, dated October 24, 1996, as amended on December 30, 1996).
(g)(11) Motion for Preliminary Injunction filed by Parent, Purchaser and Kathryn B. McQuade against the
Company, CSX et al. (dated January 2, 1997, United States District Court for the Eastern District
of Pennsylvania and incorporated by reference to Exhibit (g)(12) to Parent's and Purchaser's
Tender Offer Statement on Schedule 14D-1, dated October 24, 1996, as amended on January 2, 1997).
(g)(12) Motion for Partial Summary Judgment filed by Parent, Purchaser and Kathryn B. McQuade against
the Company, CSX et al. (dated January 2, 1997, United States District Court for the Eastern
District of Pennsylvania and incorporated by reference to Exhibit (g)(13) to Parent's and Purchaser's
Tender Offer Statement on Schedule 14D-1, dated October 24, 1996, as amended on January 2, 1997).
(g)(13) Decision of Chairman Morgan and Vice Chairman Owen (dated January 8, 1997, Surface Transportation
Board).
(g)(14) Transcript of oral ruling of Judge VanArtsdalen (dated January 9, 1997, United States District
Court for the Eastern District of Pennsylvania).
(g)(15) Order of Judge VanArtsdalen (dated January 9, 1997, United States District Court for the Eastern
District of Pennsylvania).
(g)(16) Motion for Expedited Appeal filed by Parent, Purchaser and Kathryn B. McQuade (dated January
10, 1997, United States Court of Appeals for the Third Circuit and incorporated by reference
to Exhibit (g)(14) to Parent's and Purchaser's Tender Offer Statement on Schedule 14D-1, dated
October 24, 1996, as amended on January 10, 1997).
(g)(17) Order of Judges Stapleton, Scirica and Nygaard (dated January 15, 1997, United States Court of
Appeals for the Third Circuit).
</TABLE>
7
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES
OF
COMMON STOCK AND SERIES A ESOP CONVERTIBLE JUNIOR PREFERRED STOCK
(INCLUDING, IN EACH CASE, THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
CONRAIL INC.
AT
$115 NET PER SHARE
BY
ATLANTIC ACQUISITION CORPORATION,
A WHOLLY OWNED SUBSIDIARY OF
NORFOLK SOUTHERN CORPORATION
THE SECOND OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON WEDNESDAY, MARCH 12, 1997, UNLESS THE SECOND OFFER
IS EXTENDED.
THE SECOND OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING
VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE
SECOND OFFER A NUMBER OF COMMON SHARES AND ESOP PREFERRED SHARES WHICH,
TOGETHER WITH THE 8,200,100 COMMON SHARES ALREADY OWNED BY NORFOLK SOUTHERN
CORPORATION ("PARENT"), ATLANTIC ACQUISITION CORPORATION ("PURCHASER"), A
WHOLLY OWNED SUBSIDIARY OF PARENT, OR ANY DIRECT OR INDIRECT SUBSIDIARY OF
PARENT, CONSTITUTE AT LEAST A MAJORITY OF THE SHARES OUTSTANDING ON A FULLY
DILUTED BASIS, (2) PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT
SUBCHAPTER F OF CHAPTER 25 OF THE PENNSYLVANIA BUSINESS CORPORATION LAW HAS
BEEN COMPLIED WITH OR IS INVALID OR OTHERWISE INAPPLICABLE TO THE SECOND
OFFER AND THE PROPOSED MERGER, (3) THE COMMON STOCK PURCHASE RIGHTS HAVING
BEEN REDEEMED BY THE BOARD OF DIRECTORS OF CONRAIL INC. (THE "COMPANY") OR
PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT SUCH RIGHTS ARE
INVALID OR OTHERWISE INAPPLICABLE TO THE SECOND OFFER AND THE PROPOSED
MERGER, AND (4) PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT THE
PREVIOUSLY ANNOUNCED AGREEMENT AND PLAN OF MERGER, AS AMENDED, BETWEEN THE
COMPANY AND CSX CORPORATION HAS BEEN TERMINATED IN ACCORDANCE WITH ITS TERMS
OR OTHERWISE. SEE SECTION 14.
The Dealer Managers for the Second Offer are:
J.P. MORGAN & CO. MERRILL LYNCH & CO.
February 12, 1997
<PAGE>
IMPORTANT
Consistent with Parent's pledge that it will not be a party to any
agreement with CSX Corporation ("CSX") or the Company that delivers anything
less to Company shareholders than a $115 per Share (as defined herein)
all-cash transaction, Parent and Purchaser intend to continue to seek to
negotiate with the Company with respect to the acquisition of the Company by
Parent or Purchaser.
Any shareholder desiring to tender all or any portion of such
shareholder's Shares should either (i) complete and sign the Letter of
Transmittal (or a facsimile thereof) in accordance with the instructions in
the Letter of Transmittal, have such shareholder's signature thereon
guaranteed if required by Instruction 1 to the Letter of Transmittal, mail or
deliver the Letter of Transmittal (or such facsimile thereof) and any other
required documents to the Depositary and either deliver the certificates for
such Shares and, if separate, the certificates representing the associated
Rights (as defined herein) to the Depositary along with the Letter of
Transmittal (or a facsimile thereof) or deliver such Shares (and Rights, if
applicable) pursuant to the procedure for book-entry transfer set forth in
Section 3 prior to the expiration of the Second Offer or (ii) request such
shareholder's broker, dealer, commercial bank, trust company or other nominee
to effect the transaction for such shareholder. A shareholder having Shares
(and, if applicable, Rights) registered in the name of a broker, dealer,
commercial bank, trust company or other nominee must contact such broker,
dealer, commercial bank, trust company or other nominee if such shareholder
desires to tender such Shares (and, if applicable, Rights). Unless and until
Purchaser declares that the Rights Condition (as defined herein) is
satisfied, shareholders will be required to tender one Right for each Share
tendered in order to effect a valid tender of such Share. The tender of
Rights is also required for the valid tender of ESOP Preferred Shares (as
defined herein).
Participants in the Company's Matched Savings Plan (the "ESOP") desiring
that Fidelity Management Trust Company, as trustee under the ESOP (the "ESOP
Trustee"), tender the Common Shares (as defined herein), if any, or the ESOP
Preferred Shares allocated to their accounts, which ESOP Preferred Shares
will be converted into Common Shares upon consummation of the Second Offer,
should so instruct the ESOP Trustee by completing the form that will be
provided to participants for that purpose. ESOP participants cannot tender
Shares allocated to their ESOP accounts by executing the Letter of
Transmittal.
Any shareholder who desires to tender Shares (and, if applicable, Rights)
and whose certificates for such Shares (and, if applicable, Rights) are not
immediately available, or who cannot comply with the procedures for
book-entry transfer described in this Offer to Purchase on a timely basis,
may tender such Shares (and, if applicable, Rights) by following the
procedures for guaranteed delivery set forth in Section 3.
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Managers at their respective addresses and telephone
numbers set forth on the back cover of this Offer to Purchase. Additional
copies of this Offer to Purchase, the Letter of Transmittal or other tender
offer materials may be obtained from the Information Agent.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
INTRODUCTION ............................................................................... 1
1.Terms of the Second Offer; Expiration Date ............................................... 7
2.Acceptance for Payment and Payment for Shares ............................................ 8
3.Procedures for Tendering Shares .......................................................... 9
4.Withdrawal Rights ........................................................................ 12
5.Certain Federal Income Tax Consequences .................................................. 12
6.Price Range of Shares; Dividends ......................................................... 13
7.Effect of the Second Offer on the Market for the Common Shares; Exchange Listing and
Exchange Act Registration; Margin Regulations ........................................... 14
8.Certain Information Concerning the Company ............................................... 14
9.Certain Information Concerning Purchaser and Parent ...................................... 18
10.Source and Amount of Funds .............................................................. 21
11.Background of the Second Offer; Contacts with the Company ............................... 23
12.Purpose of the Second Offer and the Merger; Plans for the Company; Certain
Considerations ......................................................................... 31
13.Dividends and Distributions ............................................................. 36
14.Conditions of the Second Offer .......................................................... 37
15.Certain Legal Matters; Regulatory Approvals; Certain Litigation ......................... 40
16.Fees and Expenses ....................................................................... 49
17.Miscellaneous ........................................................................... 50
Schedule I -- Information Concerning the Directors and Executive Officers of Parent and
Purchaser ................................................................................. I-1
</TABLE>
<PAGE>
TO THE HOLDERS OF COMMON STOCK AND
SERIES A ESOP CONVERTIBLE JUNIOR PREFERRED STOCK OF CONRAIL INC.:
INTRODUCTION
Atlantic Acquisition Corporation ("Purchaser"), a Pennsylvania corporation
and a wholly owned subsidiary of Norfolk Southern Corporation, a Virginia
corporation ("Parent"), hereby offers to purchase all outstanding shares of
(i) common stock, par value $1.00 per share (the "Common Shares"), and (ii)
Series A ESOP Convertible Junior Preferred Stock, without par value (the
"ESOP Preferred Shares" and, together with the Common Shares, the "Shares"),
of Conrail Inc., a Pennsylvania corporation (the "Company"), including, in
each case, the associated Common Stock Purchase Rights (the "Rights") issued
pursuant to the Rights Agreement, dated as of July 19, 1989, as amended,
between the Company and First Chicago Trust Company of New York, as Rights
Agent (the "Rights Agreement"), at a price of $115 per Share, net to the
seller in cash, without interest thereon (the "Offer Price"), upon the terms
and subject to the conditions set forth in this Offer to Purchase and in the
related Letter of Transmittal (which, as amended from time to time, together
constitute the "Second Offer"). Unless the context otherwise requires, all
references to Common Shares, ESOP Preferred Shares or Shares shall include
the associated Rights, and all references to the Rights shall include the
benefits that may inure to holders of the Rights pursuant to the Rights
Agreement, including the right to receive any payment due upon redemption of
the Rights.
Promptly upon the purchase by Parent, Purchaser or their affiliates of
Shares pursuant to the Second Offer, such Shares will be deposited in an
independent voting trust (the "Voting Trust") in accordance with the terms of
a Voting Trust Agreement (the "Voting Trust Agreement") dated as of February
10, 1997 among Parent, Purchaser and First American National Bank, as voting
trustee (the "Voting Trustee"), pending approval by the Surface
Transportation Board (the "STB") of the acquisition of control by Parent of
the Company. The Second Offer is not conditioned upon such STB approval. The
Proposed Merger (as defined below) would also not be conditioned on such STB
approval. Immediately prior to consummation of the Proposed Merger, Parent
would place all of the shares of common stock of Purchaser (which may become
stock of the surviving corporation upon consummation of the Proposed Merger)
into the Voting Trust. The 8,200,000 Common Shares acquired by Purchaser
pursuant to its cash tender offer which was commenced on October 24, 1996
(the "First Offer", and together with the Second Offer, the "Offers") were
deposited into the Voting Trust upon their purchase by Purchaser.
Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares by Purchaser
pursuant to the Second Offer. Purchaser will pay all charges and expenses of
J.P. Morgan Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as Dealer Managers (in such capacity, the "Dealer Managers"),
The Bank of New York, as Depositary (the "Depositary"), and Georgeson &
Company Inc., as Information Agent (the "Information Agent"), incurred in
connection with the Second Offer. See Section 16.
Participants in the Company's Matched Savings Plan (the "ESOP") desiring
that Fidelity Management Trust Company, as trustee under the ESOP (the "ESOP
Trustee"), tender the Common Shares, if any, or the ESOP Preferred Shares
allocated to their accounts, which ESOP Preferred Shares will be converted
into Common Shares upon consummation of the Second Offer, should so instruct
the ESOP Trustee by completing the form that will be provided to participants
for that purpose. ESOP participants cannot tender Shares allocated to their
ESOP accounts by executing the Letter of Transmittal.
The purpose of the Second Offer is for Parent, through Purchaser, to
acquire control of, and the entire equity interest in, the Company. Pursuant
to the First Offer, which expired at 12:00 Midnight, New York City time, on
February 4, 1997, Purchaser acquired an aggregate of 8,200,000 Common Shares.
Consistent with Parent's pledge that it will not be a party to any agreement
with CSX Corporation, a Virginia corporation ("CSX"), or the Company that
delivers anything less to Company shareholders than a $115 per share all-cash
transaction, Parent and Purchaser intend to continue to seek to negotiate
with the Company a definitive merger agreement pursuant to which the Company
would, as soon as practicable following consummation of the Second Offer,
consummate a merger or similar business combination with
<PAGE>
Purchaser or another direct or indirect subsidiary of Parent (the "Proposed
Merger"). In the Proposed Merger, each Common Share and ESOP Preferred Share
then outstanding (other than Shares held by the Company or any subsidiary of
the Company and Shares owned by Parent, Purchaser or any direct or indirect
subsidiary of Parent) would be converted into the right to receive an amount
in cash equal to the price per Share paid pursuant to the Second Offer. If
after consummation of the Second Offer, Parent (together with Purchaser and
any direct or indirect subsidiary of Parent) owns 80% or more of the
outstanding Shares, Purchaser intends to effect the Proposed Merger as a
"short-form" merger under the Pennsylvania Business Corporation Law (the
"PBCL"), without a vote of Company shareholders or the Board of Directors of
the Company (the "Company Board"). See Section 11 and Section 12.
For a number of years, certain members of senior management of Parent,
including David R. Goode, Chairman, President and Chief Executive Officer of
Parent, have spoken numerous times with senior management of the Company
concerning a possible business combination between Parent and the Company. On
two occasions, in late September and again on October 4, 1996, Mr. Goode
contacted David M. LeVan, the Company's Chairman, President and Chief
Executive Officer, to reiterate Parent's strong interest in acquiring the
Company and to request a meeting at which he could present a concrete
proposal. In each case, Mr. Goode emphasized that he wished to communicate
Parent's proposal so that the Company Board would be aware of it during their
next meeting. Also in each case, Mr. LeVan stated that it was unnecessary for
Mr. Goode to do so.
On October 15, 1996, the Company and CSX announced that they had entered
into a definitive merger agreement (the "Original CSX Merger Agreement" and,
as amended on November 5, 1996 and December 18, 1996, the "CSX Merger
Agreement") pursuant to which control of the Company would be swiftly sold to
CSX pursuant to the CSX Offers (as defined below) and then the Proposed CSX
Merger (as defined below) would be consummated following satisfaction of
certain conditions thereto. The CSX Offers and the Proposed CSX Merger are
sometimes referred to collectively herein as the "Proposed CSX Transaction".
Integral to the Proposed CSX Transaction are covenants substantially
increasing Mr. LeVan's compensation and severance benefits and guaranteeing
that he will succeed John Snow, the Chairman and Chief Executive Officer of
CSX, as the combined company's Chairman and Chief Executive Officer. The
Proposed CSX Transaction also includes covenants that, subject to certain
limited exceptions, prohibit the Company, CSX and their respective
subsidiaries and representatives from participating in discussions or
negotiations or entering into any agreement or taking any other action to
facilitate any third party acquisition proposal for the Company (such as a
proposal by Parent) or any acquisition by any other company engaged in the
operation of railroads (including Parent) of any securities or assets of the
Company or CSX or any trackage rights or other concessions relating to the
assets or operations of the Company or CSX. See Section 11.
In connection with the execution of the Original CSX Merger Agreement, the
Company and CSX entered into an option agreement (the "CSX Lockup Option
Agreement") pursuant to which the Company granted to CSX an option (the "CSX
Lockup Option"), exercisable in certain events, to purchase 15,955,477 Common
Shares at an exercise price of $92.50 per Common Share, subject to adjustment
as set forth therein.
On October 23, 1996, Parent submitted to the Company Board a written
proposal for the acquisition of the Company by Purchaser pursuant to the
First Offer and the Proposed Merger and the following day commenced the First
Offer. Also on October 23, 1996, Parent, Purchaser and a shareholder of the
Company commenced litigation against the Company, the members of the Company
Board and CSX (the "Pennsylvania Litigation") in the United States District
Court for the Eastern District of Pennsylvania (the "District Court") seeking
relief relating to various matters, including the Company Board's approval of
the CSX Merger Agreement and actions taken by the Company Board in
furtherance of the Proposed CSX Transaction. See Section 15.
On November 21, 1996, CSX announced that Green Acquisition Corp., a wholly
owned subsidiary of CSX, had accepted for payment 17,860,124 Shares,
purportedly representing 19.9% of the Company's then outstanding Shares, at a
price of $110 in cash per Share pursuant to its cash tender offer commenced
on October 16, 1996 (the "CSX First Offer"). CSX subsequently announced that
it had sold 85,000 of such Shares.
2
<PAGE>
On December 6, 1996, CSX commenced a second tender offer (the "CSX Second
Offer") to purchase for cash an aggregate of up to 18,344,845 Shares of the
Company at a price of $110 in cash per Share. The CSX Second Offer is
currently scheduled to expire at 5 p.m., New York City time, on February 14,
1997, unless further extended. Under the CSX Merger Agreement, the 60% of the
Shares expected to be outstanding at the time of the consummation of the
proposed merger of the Company with a subsidiary of CSX (the "Proposed CSX
Merger") (assuming the Proposed CSX Merger is consummated) and not owned by
CSX would be exchanged for (i) CSX common stock at a rate of 1.85619 shares
of CSX common stock for each Share and (ii) an additional $16 per Share in
CSX convertible preferred stock, the terms of which will be set prior to the
Proposed CSX Merger so that such securities would trade at par on a fully
distributed basis. As of February 11, 1997, the value of such consideration
in the Proposed CSX Merger (assuming that the CSX convertible preferred stock
is worth its purported $16 per Share) was $101.62 per Share. As of
February 11, 1997, the blended value of the consideration which would be
received by Company shareholders (other than CSX) in the CSX Second Offer and
the Proposed CSX Merger for their Shares was $103.76 per Share.
On January 13, 1997, Parent announced its pledge that, if Company
shareholders defeated the Company's proposal to amend the Company's Articles
of Incorporation (the "Articles Amendment") to "opt out" of Subchapter E of
Chapter 25 of the PBCL (the "Pennsylvania Control Transaction Law") at the
special meeting of Company shareholders called for such purpose (the
"Pennsylvania Special Meeting"), Parent and Purchaser would promptly amend
the First Offer to eliminate all of the conditions thereto and to reduce the
number of Shares sought in the First Offer to 8,200,000 Shares, approximately
the maximum number of Shares (based on then available information as to the
number of outstanding Common Shares) that Purchaser could acquire without
becoming an "Acquiring Person" under the Rights Agreement. See Section 12.
At the Pennsylvania Special Meeting which was held on January 17, 1997,
Company shareholders overwhelmingly defeated the Articles Amendment.
Accordingly, the First Offer was amended consistent with Parent's pledge and,
following expiration of the First Offer at Midnight, New York City time, on
February 4, 1997, the Purchaser accepted 8,200,000 Shares for payment at a
price of $115 per Share. A total of approximately 65,000,000 Shares were
validly tendered under the First Offer, which represented more than 90% of
the Company's then outstanding Shares, excluding Shares held by CSX. Payment
for the 8,200,000 Shares purchased under the First Offer commenced on
February 11, 1997.
The Company has stated that it may call another special meeting of Company
shareholders to consider the Articles Amendment. However, the Company has not
stated whether or when such meeting would be held. Company shareholders need
not approve the Articles Amendment to facilitate the Second Offer because,
unlike CSX's coercive front-end loaded proposal, Purchaser is willing to pay
the same $115 in cash per Share for all outstanding Shares and, therefore,
the Articles Amendment is not needed.
In connection with the Second Offer and during its pendency, or in the
event the Second Offer is terminated or not consummated, or after the
expiration of the Second Offer and pending the consummation of the Proposed
Merger, in accordance with applicable law and subject to the terms of any
merger agreement that it may enter into with the Company, Parent (alone or
through affiliates) may explore any and all options which may be available to
it in connection with the acquisition of the Company. In this regard, Parent
intends to solicit proxies against the adoption of the Articles Amendment and
the Proposed CSX Merger at any meeting of Company shareholders convened for
such purpose. In addition, as required by the Company's Amended and Restated
By-Laws (the "Company By-Laws"), Parent notified the Company of its intention
to conduct a proxy contest in connection with the Company's 1997 annual
meeting of shareholders currently scheduled for December 19, 1997 (the
"Annual Meeting") seeking, among other things, to remove certain of the
current members of the Company Board and elect a new slate of directors
designated by Parent. See Section 12.
After expiration or termination of the Second Offer, Parent may seek to
acquire additional Shares, through open market purchases, privately
negotiated transactions, a tender offer or exchange offer or otherwise, upon
such terms and at such prices as it may determine, which may be more or less
than the price to be paid per Share pursuant to the Second Offer and could be
for cash or other consideration.
THE SECOND OFFER DOES NOT CONSTITUTE A SOLICITATION OF PROXIES FOR ANY
MEETING OF COMPANY SHAREHOLDERS. ANY SUCH SOLICITATION WHICH PARENT OR
PURCHASER MIGHT MAKE WOULD BE MADE ONLY PURSUANT TO SEPARATE PROXY MATERIALS
COMPLYING WITH THE REQUIREMENTS OF SECTION 14(A) OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT").
3
<PAGE>
CERTAIN CONDITIONS TO THE SECOND OFFER
Consummation of the Second Offer is subject to the fulfillment of a number
of conditions, including the following:
THE MINIMUM CONDITION. CONSUMMATION OF THE SECOND OFFER IS CONDITIONED
UPON THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION
OF THE SECOND OFFER A NUMBER OF COMMON SHARES AND ESOP PREFERRED SHARES
WHICH, TOGETHER WITH THE 8,200,100 COMMON SHARES ALREADY OWNED BY PARENT,
PURCHASER OR ANY DIRECT OR INDIRECT SUBSIDIARY OF PARENT, CONSTITUTE AT LEAST
A MAJORITY OF THE SHARES OUTSTANDING ON A FULLY DILUTED BASIS (THE "MINIMUM
CONDITION").
According to information contained in the Company's Proxy Statement
Supplement mailed to Company shareholders on or about December 24, 1996 in
connection with the Pennsylvania Special Meeting, as of December 5, 1996,
82,244,475 Common Shares were issued and outstanding and 7,303,920 ESOP
Preferred Shares were issued and outstanding, which shares are convertible
into Common Shares on a one-for-one basis. According to the Tender Offer
Statement on Schedule 14D-1, dated December 6, 1996, as amended, filed by CSX
in connection with the Second CSX Offer (the "CSX Schedule 14D-1"), and based
on information provided to CSX by the Company, on November 27, 1996,
8,263,682 Common Shares were reserved for issuance pursuant to the Company's
stock-based incentive plans ("Incentive Shares") or upon conversion of the
ESOP Preferred Shares. Also according to the CSX Schedule 14D-1, 15,955,477
Common Shares have been reserved for issuance pursuant to the CSX Lockup
Option Agreement. An aggregate of approximately 904,128 ESOP Preferred Shares
were accepted for payment in the First Offer. Upon the transfer of any ESOP
Preferred Shares to Purchaser at the time of acceptance for payment of the
ESOP Preferred Shares tendered pursuant to the Offers, such ESOP Preferred
Shares were or will be automatically converted into Common Shares.
Accordingly, as a result of the conversion of 904,128 ESOP Preferred Shares
into 904,128 Common Shares following the acceptance for payment of such ESOP
Preferred Shares in the First Offer and based on the foregoing information,
Purchaser believes that approximately 83,148,603 Common Shares and 6,399,792
ESOP Preferred Shares are presently outstanding.
Based on the foregoing and disregarding for such purposes the 15,955,477
Common Shares purportedly issuable pursuant to the CSX Lockup Option
Agreement, Purchaser believes there are presently 90,508,157 Shares
outstanding on a fully diluted basis. Accordingly, Purchaser believes that,
after giving effect to the 8,200,100 Common Shares already owned by Parent,
the Minimum Condition would be satisfied if at least an aggregate of
37,053,979 Common Shares and ESOP Preferred Shares are validly tendered
pursuant to the Second Offer if no Common Shares are then issued or validly
issuable under the CSX Lockup Option Agreement, or if at least an aggregate
of 45,031,718 Common Shares and ESOP Preferred Shares are validly tendered
pursuant to the Second Offer if all 15,955,477 Common Shares issuable under
the CSX Lockup Option Agreement have then been issued or are then validly
issuable. For purposes of the Second Offer, "fully diluted basis" assumes (i)
no dilution due to Rights, (ii) the issuance of all of the Incentive Shares,
(iii) the conversion of the ESOP Preferred Shares into Common Shares, (iv)
that no Shares were issued or acquired by the Company after December 5, 1996
(other than Common Shares issued pursuant to clauses (ii) and (iii) above)
and no options, warrants, rights or other securities convertible into or
exercisable or exchangeable for Shares were issued or granted after November
27, 1996, and (v) as of the date of purchase the Company has no other
obligations to issue Shares or other securities convertible into or
exercisable for Shares.
4
<PAGE>
THE SUBCHAPTER F CONDITION. CONSUMMATION OF THE SECOND OFFER IS
CONDITIONED UPON PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT
SUBCHAPTER F OF CHAPTER 25 OF THE PBCL HAS BEEN COMPLIED WITH OR IS INVALID
OR OTHERWISE INAPPLICABLE TO THE SECOND OFFER AND THE PROPOSED MERGER (THE
"SUBCHAPTER F CONDITION").
The Proposed Merger, including the timing and details thereof, is subject
to, among other things, the provisions of the PBCL, including Subchapter F of
Chapter 25 thereof ("Subchapter F"). In general, Subchapter F purports to
prohibit a Pennsylvania corporation such as the Company from engaging in a
"Business Combination" (defined to include a variety of transactions
including mergers) with an "Interested Shareholder" (defined generally as a
person owning shares entitled to cast at least 20% of the voting power of a
corporation) for a period of five years following the date such person became
an Interested Shareholder, unless, among other exceptions described in
Section 15, (i) before such person became an Interested Shareholder, the
board of directors of the corporation approved either the Business
Combination or the transaction in which the Interested Shareholder became an
Interested Shareholder, or (ii) the Business Combination is approved by a
majority of the corporation's voting shares, other than shares held by the
Interested Shareholder, no earlier than three months after the Interested
Shareholder became, and provided that at the time of such vote the Interested
Shareholder is, the beneficial owner of shares entitled to cast at least 80%
of votes of the corporation, and the Business Combination satisfies certain
fair price criteria.
The Subchapter F Condition would be satisfied if, prior to the purchase of
Shares pursuant to the Second Offer, (i) the Company Board approves either
the Proposed Merger or the purchase of Shares pursuant to the Second Offer,
or (ii) Purchaser, in its sole discretion, were satisfied that Subchapter F
was invalid or otherwise inapplicable to the Proposed Merger for any reason,
including, without limitation, those specified in Subchapter F. See Section
15.
Purchaser believes that, under applicable law and under the circumstances
of the Second Offer including the Company Board's approval of the CSX Merger
Agreement, the Company Board is obligated by its fiduciary responsibilities
to approve the Second Offer and the Proposed Merger for purposes of
Subchapter F and that its failure to do so would be a violation of law.
Purchaser is hereby requesting that the Company Board adopt a resolution
approving the Second Offer and the Proposed Merger for purposes of Subchapter
F as promptly as it may do so without violating its obligations under the CSX
Merger Agreement. In the Pennsylvania Litigation, Purchaser is seeking, among
other things, an order requiring the Company Board to approve the Second
Offer and the Proposed Merger and thereby render Subchapter F inapplicable.
See Section 15.
THE RIGHTS CONDITION. CONSUMMATION OF THE SECOND OFFER IS CONDITIONED UPON
THE RIGHTS HAVING BEEN REDEEMED BY THE COMPANY BOARD OR PURCHASER BEING
SATISFIED, IN ITS SOLE DISCRETION, THAT THE RIGHTS ARE INVALID OR OTHERWISE
INAPPLICABLE TO THE SECOND OFFER AND THE PROPOSED MERGER (THE "RIGHTS
CONDITION").
The following is based upon the Form 8-K, dated July 31, 1989, filed by
Consolidated Rail Corporation ("CRC"), which is the Company's current
operating subsidiary and which prior to the Company's adoption of a holding
company structure on February 17, 1993 operated on a stand alone basis (the
"July 1989 Form 8-K"), the Company's Form 8-B, dated as of September 25,
1995, and other information filed with the Securities and Exchange Commission
(the "SEC").
On July 19, 1989, the Board of Directors of CRC declared a dividend
distribution of one Right for each share of common stock of CRC and executed
the Rights Agreement. Upon adoption by the Company of a holding company
structure on February 17, 1993, CRC assigned all of CRC's title and interest
under the Rights Agreement to the Company. On October 2, 1995, one Right was
distributed with respect to each outstanding ESOP Preferred Share. Under the
Rights Agreement, each Right entitles the holder to purchase one Common Share
at an exercise price of $205.00, subject to adjustment.
Under the Rights Agreement, until the close of business on the
Distribution Date (which, as modified by the Company Board on November 4,
1996 under pressure from Parent, is defined as the tenth business day after
the acquisition by a person or group of affiliated or associated persons (the
"Acquiring Person")
5
<PAGE>
of beneficial ownership of 10% or more of the outstanding Shares), the Rights
will be evidenced by the certificates evidencing Shares (the "Share
Certificates") and will be transferred with and only with Share Certificates.
As soon as practicable after the Distribution Date, certificates evidencing
the Rights (the "Rights Certificates") will be mailed to holders of record of
the Shares as of the close of business on the Distribution Date, and
thereafter the separate Rights Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire at the close of business on September 20, 2005 unless earlier
redeemed by the Company as described below.
At any time prior to the Distribution Date, the Company may redeem the
Rights in whole, but not in part, at a price of $.005 per Right (the
"Redemption Price"). Immediately upon the action of the Company Board
ordering redemption of the Rights, the Rights will terminate, and the only
right to which the holders of Rights will be entitled will be the right to
receive the Redemption Price.
Pursuant to the CSX Merger Agreement, the Company amended the Rights
Agreement to render the Rights Agreement inapplicable to the CSX Offers, the
Proposed CSX Merger and the other transactions contemplated by the CSX Merger
Agreement and the CSX Lockup Option Agreement and to ensure, among other
things, that CSX is not deemed to be an Acquiring Person and that a
Distribution Date does not occur by reason of such agreements or
transactions. The Company also agreed in the CSX Merger Agreement that it may
not further amend the Rights Agreement or otherwise take action thereunder
without the prior consent of CSX in its sole discretion.
Based on publicly available information, Purchaser believes that, as of
the date of this Offer to Purchase, the Rights were not exercisable, Rights
Certificates had not been issued and the Rights were evidenced by the Share
Certificates.
Purchaser believes that, under applicable law and under the circumstances
of the Second Offer, including the Company Board's approval of the CSX Merger
Agreement and the transactions contemplated thereby, the Company Board is
obligated by its fiduciary responsibilities not to redeem the Rights or
render the Rights Agreement inapplicable to any offer by CSX without, at the
same time, taking the same action as to Parent, the Second Offer and the
Proposed Merger, and that the Company Board's failure to do so would be a
violation of law. In the Pennsylvania Litigation, Purchaser is seeking, among
other things, to enjoin the Company Board from taking any such action or to
invalidate the provision of the Rights Agreement that was added in September
1995 and which limits the power of the Company Board to redeem the Rights
without the approval of a majority of the members of the Company Board who
were members as of September 1995 or their nominated successors. See Section
15.
CSX TERMINATION CONDITION. CONSUMMATION OF THE SECOND OFFER IS CONDITIONED
UPON PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT THE CSX MERGER
AGREEMENT HAS BEEN TERMINATED IN ACCORDANCE WITH ITS TERMS OR OTHERWISE (THE
"CSX TERMINATION CONDITION").
Purchaser does not intend to consummate the Second Offer if at the time of
such consummation the Company is obligated to consummate the Proposed CSX
Merger. If Company shareholders vote to approve the Proposed CSX Merger and
the CSX Merger Agreement remains in effect, Purchaser will determine what
action to take, which might include withdrawal of the Second Offer. In the
event that the CSX Merger Agreement has not been terminated and the Company
is believed by Purchaser to be taking steps to seek shareholder approval of
the CSX Merger Agreement, Parent and Purchaser intend to solicit proxies in
opposition to the Proposed CSX Merger.
Certain other conditions to consummation of the Second Offer are described
in Section 14. Purchaser expressly reserves the right in its sole discretion
to waive any one or more of the conditions to the Second Offer. See Section
14.
6
<PAGE>
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS
MADE WITH RESPECT TO THE SECOND OFFER.
1. TERMS OF THE SECOND OFFER; EXPIRATION DATE. Upon the terms and subject
to the conditions of the Second Offer (including, if the Second Offer is
extended or amended, the terms and conditions of any extension or amendment),
Purchaser will accept for payment and pay for all Shares which are validly
tendered prior to the Expiration Date (as hereinafter defined) and not
properly withdrawn in accordance with Section 4. The term "Expiration Date"
means 12:00 Midnight, New York City time, on Wednesday, March 12, 1997,
unless and until Purchaser, in its sole discretion, shall have extended the
period of time during which the Second Offer is open, in which event the term
"Expiration Date" shall refer to the latest time and date at which the Second
Offer, as so extended by Purchaser, shall expire.
The Second Offer is conditioned upon, among other things, satisfaction of
the Minimum Condition, the Subchapter F Condition, the Rights Condition and
the CSX Termination Condition. If any or all of such conditions are not
satisfied or if any or all of the other events set forth in Section 14 shall
have occurred prior to the Expiration Date, Purchaser reserves the right (but
shall not be obligated) to (i) decline to purchase any of the Shares tendered
in the Second Offer and terminate the Second Offer, and return all tendered
Shares to the tendering shareholders, (ii) waive or reduce the Minimum
Condition or waive or amend any or all other conditions to the Second Offer
to the extent permitted by applicable law, and, subject to complying with
applicable rules and regulations of the SEC, purchase all Shares validly
tendered, or (iii) extend the Second Offer and the Expiration Date and, subject
to the right of shareholders to withdraw Shares until the Expiration Date,
retain the Shares which have been tendered during the period or periods for
which the Second Offer is extended.
Purchaser expressly reserves the right, in its sole discretion, at any
time and from time to time, to extend for any reason the period of time
during which the Second Offer is open, including the occurrence of any of the
events specified in Section 14, by giving oral or written notice of such
extension to the Depositary. During any such extension, all Shares previously
tendered and not properly withdrawn will remain subject to the Second Offer,
subject to the rights of a tendering shareholder to withdraw its Shares in
accordance with the procedures set forth in Section 4.
Subject to the applicable regulations of the SEC, Purchaser also expressly
reserves the right, in its sole discretion, at any time and from time to
time, (i) to delay acceptance for payment of, or, regardless of whether such
Shares were theretofore accepted for payment, payment for, any Shares pending
receipt of any regulatory approval specified in Section 15 (other than
approval by the STB of the acquisition of control of the Company by Parent)
or in order to comply in whole or in part with any other applicable law, (ii)
to terminate the Second Offer and not accept for payment any Shares if any
condition referred to in Section 14 has not been satisfied or upon the
occurrence of any of the events specified in Section 14 and (iii) to waive
any condition or otherwise amend the Second Offer in any respect by giving
oral or written notice of such delay, termination, waiver or amendment to the
Depositary and by making a public announcement thereof.
Purchaser acknowledges that (i) Rule 14e-1(c) under the Exchange Act
requires Purchaser to pay the consideration offered or return the Shares
tendered promptly after the termination or withdrawal of the Second Offer,
and (ii) Purchaser may not delay acceptance for payment of, or payment for
(except as provided in clause (i) of the first sentence of the preceding
paragraph), any Shares upon the occurrence of any of the conditions specified
in Section 14 without extending the period of time during which the Second
Offer is open.
Any such extension, delay, termination, waiver or amendment will be
followed as promptly as practicable by public announcement thereof, with such
announcement in the case of an extension to be made no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Subject to applicable law (including Rules 14d-4(c),
14d-6(d) and 14e-1 under the Exchange Act, which require that material
changes be promptly disseminated to shareholders in a manner reasonably
designed to inform them of such changes) and without limiting the manner in
which Purchaser may choose to make any public announcement, Purchaser shall
have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a press release to the Dow Jones
News Service.
7
<PAGE>
If Purchaser makes a material change in the terms of the Second Offer or
the information concerning the Second Offer, or if it waives a material
condition of the Second Offer, Purchaser will disseminate additional tender
offer materials and extend the Second Offer to the extent required by Rules
14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period
during which the Second Offer must remain open following material changes in
the terms of the Second Offer or information concerning the Second Offer,
other than a change in price or a change in percentage of securities sought,
will depend upon the facts and circumstances, including the relative
materiality of the changed terms or information. In the SEC's view, an offer
generally should remain open for a minimum of five business days from the
date a material change is first published, sent or given to shareholders.
With respect to a change in price or a change in percentage of securities
sought, a minimum ten business day period is required to allow for adequate
dissemination to shareholders and investor response. As used in this Offer to
Purchase, "business day" has the meaning set forth in Rule 14d-1 under the
Exchange Act. Accordingly, if, prior to the Expiration Date, Purchaser
decreases the number of Shares being sought, or increases or decreases the
consideration offered pursuant to the Second Offer, and if the Second Offer
is scheduled to expire at any time earlier than the period ending on the
tenth business day from the date that notice of such increase or decrease is
first published, sent or given to holders of Shares, the Second Offer will be
extended at least until the expiration of such 10 business day period.
As of the date of this Offer to Purchase, the Rights are evidenced by the
Share Certificates and do not trade separately. Accordingly, by tendering a
Share Certificate, a shareholder is automatically tendering the associated
Rights. If, however, pursuant to the Rights Agreement or for any other reason,
the Rights detach and separate Rights Certificates are issued, shareholders
will be required to tender one Right for each Share tendered in order to effect
a valid tender of such Share.
A request is being made to the Company for the use of the Company's
shareholder list and security position listing for the purpose of
disseminating the Second Offer to shareholders. Upon compliance by the
Company with such request, this Offer to Purchase and the related Letter of
Transmittal will be mailed to record holders of Shares and Rights and will be
furnished to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on the
shareholder list, and list of holders of Rights, if applicable, who are
listed as participants in a clearing agency's security position listing for
subsequent transmittal to beneficial owners of Shares or Rights. A request is
also being made to the ESOP Trustee to transmit this Offer to Purchase and
any required election materials to participants in the ESOP who are
beneficial owners of any Shares owned of record by the ESOP Trustee.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms and
subject to the conditions of the Second Offer (including, if the Second Offer
is extended or amended, the terms and conditions of any such extension or
amendment), Purchaser will purchase, by accepting for payment, and will pay
for, all Shares which are validly tendered prior to the Expiration Date (and
not properly withdrawn in accordance with Section 4) promptly after the later
to occur of (i) the Expiration Date and (ii) the satisfaction or waiver of
the conditions set forth in Section 14. Purchaser expressly reserves the
right, in its discretion, to delay acceptance for payment of, or, subject to
applicable rules of the SEC, payment for, Shares in order to comply in whole
or in part with any applicable law. In all cases, payment for Shares
purchased pursuant to the Second Offer will be made only after timely receipt
by the Depositary of (i) the Share Certificates and Rights Certificates, if
the Rights are at such time separately traded, or timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") of such Shares (and Rights,
if applicable), if such procedure is available, into the Depositary's account
at The Depository Trust Company or the Philadelphia Depository Trust Company
(each a "Book-Entry Transfer Facility" and, collectively, the "Book-Entry
Transfer Facilities") pursuant to the procedures set forth in Section 3, (ii)
the Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, or, in the case of a book-entry transfer, an Agent's Message (as
defined below) and (iii) any other documents required by the Letter of
Transmittal.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such
8
<PAGE>
Book-Entry Transfer Facility has received an express acknowledgment from the
participant in such Book-Entry Transfer Facility tendering the Shares (and
Rights, if applicable) that such participant has received and agrees to be
bound by the terms of the Letter of Transmittal and that Purchaser may
enforce such agreement against the participant.
For purposes of the Second Offer, Purchaser will be deemed to have
accepted for payment, and thereby purchased, Shares (including the associated
Rights) validly tendered and not properly withdrawn if, as and when Purchaser
gives oral or written notice to the Depositary of Purchaser's acceptance of
such Shares for payment. Payment for Shares (including the associated Rights)
accepted pursuant to the Second Offer will be made by deposit of the purchase
price therefor with the Depositary, which will act as agent for tendering
shareholders for the purpose of receiving payments from Purchaser and
transmitting payments to such tendering shareholders. Under no circumstances
will interest on the purchase price for Shares be paid by Purchaser,
regardless of any delay in making such payment. Upon the deposit of funds
with the Depositary for the purpose of making payments to tendering
shareholders, Purchaser's obligation to make such payment shall be satisfied
and tendering shareholders must thereafter look solely to the Depositary for
payment of amounts owed to them by reason of the acceptance for payment of
Shares pursuant to the Second Offer. Purchaser will pay any stock transfer
taxes incident to the transfer to it of validly tendered Shares, except as
otherwise provided in Instruction 6 of the Letter of Transmittal, as well as
any charges and expenses of the Depositary and the Information Agent.
If any tendered Shares are not accepted for payment for any reason
pursuant to the terms and conditions of the Second Offer or if Share
Certificates are submitted evidencing more Shares than are tendered, Share
Certificates evidencing unpurchased Shares will be returned, without expense
to the tendering shareholder (or, in the case of Shares tendered by
book-entry transfer into the Depositary's account at a Book-Entry Transfer
Facility pursuant to the procedure set forth in Section 3, such Shares will
be credited to an account maintained at such Book-Entry Transfer Facility),
as promptly as practicable following the expiration or termination of the
Second Offer.
If, prior to the Expiration Date, Purchaser increases the consideration to
be paid per Share pursuant to the Second Offer, Purchaser will pay such
increased consideration for all such Shares purchased pursuant to the Second
Offer, whether or not such Shares were tendered prior to such increase in
consideration.
Purchaser reserves the right to transfer or assign, in whole at any time,
or in part from time to time, to Parent or one or more direct or indirect
wholly owned subsidiaries of Parent, the right to purchase all or any portion
of the Shares tendered pursuant to the Second Offer, provided that any such
transfer or assignment will not relieve Purchaser of its obligations under
the Second Offer and will in no way prejudice the rights of tendering
shareholders to receive payment for Shares validly tendered and accepted for
payment pursuant to the Second Offer.
3. PROCEDURES FOR TENDERING SHARES.
Valid Tender of Shares. In order for Shares to be validly tendered
pursuant to the Second Offer, the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, or an Agent's Message (in the case of any book-entry transfer)
and any other required documents, must be received by the Depositary at one
of its addresses set forth on the back cover of this Offer to Purchase prior
to the Expiration Date and either (i) the Share Certificates evidencing
tendered Shares must be received by the Depositary at one of such addresses
or Shares must be tendered pursuant to the procedure for book-entry transfer
described below and a Book-Entry Confirmation must be received by the
Depositary, in each case prior to the Expiration Date, or (ii) the tendering
shareholder must comply with the guaranteed delivery procedures described
below.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT
THE SOLE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND THE DELIVERY WILL
BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS
BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
9
<PAGE>
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at each Book-Entry Transfer Facility for purposes of the Second
Offer within two business days after the date of this Offer to Purchase, and
any financial institution that is a participant in either of the Book-Entry
Transfer Facilities' systems may make book-entry delivery of Shares by
causing a Book-Entry Transfer Facility to transfer such Shares into the
Depositary's account at a Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However,
although delivery of Shares may be effected through book-entry transfer at a
Book-Entry Transfer Facility, the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, or an Agent's Message in connection with a book-entry delivery of
Shares, and any other required documents must, in any case, be transmitted to
and received by the Depositary at one of its addresses set forth on the back
cover of this Offer to Purchase prior to the Expiration Date or the tendering
shareholder must comply with the guaranteed delivery procedures described
below. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE
WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE
DELIVERY TO THE DEPOSITARY.
Signature Guarantee. Signatures on all Letters of Transmittal must be
guaranteed by a firm which is a bank, broker, dealer, credit union, savings
association or other entity that is a member in good standing of the
Securities Transfer Agents Medallion Program (each, an "Eligible
Institution"), unless the Shares tendered thereby are tendered (i) by a
registered holder of Shares who has not completed either the box entitled
"Special Delivery Instructions" or the box entitled "Special Payment
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution. See Instruction 1 of the Letter of Transmittal.
If a Share Certificate is registered in the name of a person other than
the signer of the Letter of Transmittal, or if payment is to be made, or a
Share Certificate not accepted for payment or not tendered is to be returned,
to a person other than the registered holder(s), then the Share Certificate
must be endorsed or accompanied by appropriate stock powers, in either case
signed exactly as the name(s) of the registered holder(s) appear on the Share
Certificate, with the signature(s) on such Share Certificate or stock powers
guaranteed as described above. See Instructions 1 and 5 of the Letter of
Transmittal.
Guaranteed Delivery. If a shareholder desires to tender Shares pursuant to
the Second Offer and such shareholder's Share Certificates are not
immediately available or time will not permit all required documents to reach
the Depositary prior to the Expiration Date or the procedure for book-entry
transfer cannot be completed on a timely basis, such Shares may nevertheless
be tendered if all the following conditions are satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Purchaser herewith, is
received by the Depositary as provided below prior to the Expiration Date;
and
(iii) in the case of a guarantee of Shares, the Share Certificates for
all tendered Shares, in proper form for transfer, or a Book-Entry
Confirmation, together with a properly completed and duly executed Letter
of Transmittal (or manually signed facsimile thereof) with any required
signature guarantee (or, in the case of a book-entry transfer, an Agent's
Message) and any other documents required by such Letter of Transmittal,
are received by the Depositary within three New York Stock Exchange
("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery.
Any Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, facsimile transmission or mail to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in the
Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares purchased
pursuant to the Second Offer will, in all cases, be made only after timely
receipt by the Depositary of (i) the Share Certificates evidencing such
Shares, or a Book-Entry Confirmation of the delivery of such Shares, if
available, (ii) a properly completed and duly executed Letter of Transmittal
(or manually signed facsimile thereof) (or in the case of a book-entry
transfer, an Agent's Message) and (iii) any other documents required by the
Letter of Transmittal.
10
<PAGE>
Distribution of Rights. Holders of Shares will be required to tender one
Right for each Share tendered to effect a valid tender of such Share. Unless
and until the Distribution Date of the Rights occurs, the Rights are
represented by and transferred with the Shares. Accordingly, if the
Distribution Date does not occur prior to the Expiration Date of the Second
Offer, a tender of Shares will constitute a tender of the associated Rights.
If a Distribution Date has occurred, certificates representing a number of
Rights equal to the number of Shares being tendered must be delivered to the
Depositary in order for such Shares to be validly tendered. If a Distribution
Date has occurred, a tender of Shares without Rights constitutes an agreement
by the tendering shareholder to deliver certificates representing a number of
Rights equal to the number of Shares tendered pursuant to the Second Offer to
the Depositary within three NYSE trading days after the date such
certificates are distributed. Purchaser reserves the right to require that it
receive such certificates prior to accepting Shares for payment. Payment for
Shares tendered and purchased pursuant to the Second Offer will be made only
after timely receipt by the Depositary of, among other things, such
certificates, if such Rights certificates have been distributed to holders of
Shares. Purchaser will not pay any additional consideration for the Rights
tendered pursuant to the Second Offer.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tendered Shares pursuant to any of the procedures described above will be
determined by Purchaser in its sole discretion, whose determination will be
final and binding on all parties. Purchaser reserves the absolute right to
reject any or all tenders of any Shares determined by it not to be in proper
form or if the acceptance for payment of, or payment for, such Shares may, in
the opinion of Purchaser's counsel, be unlawful. Purchaser also reserves the
absolute right, in its sole discretion, to waive any of the conditions of the
Second Offer or any defect or irregularity in any tender with respect to
Shares of any particular shareholder, whether or not similar defects or
irregularities are waived in the case of other shareholders. No tender of
Shares will be deemed to have been validly made until all defects and
irregularities have been cured or waived.
Purchaser's interpretation of the terms and conditions of the Second Offer
(including the Letter of Transmittal and the instructions thereto) will be
final and binding. None of Parent, Purchaser, the Dealer Managers, the
Depositary, the Information Agent or any other person will be under any duty
to give notification of any defects or irregularities in tenders or will
incur any liability for failure to give any such notification.
Appointment as Proxy. By executing a Letter of Transmittal as set forth
above, a tendering shareholder irrevocably appoints designees of Purchaser as
such shareholder's proxies, each with full power of substitution, to the full
extent of such shareholder's rights with respect to the Shares (including the
associated Rights) tendered by such shareholder and accepted for payment by
Purchaser (and any and all noncash dividends, distributions, rights, other
Shares, or other securities issued or issuable in respect of such Shares on
or after the date of this Offer to Purchase). All such proxies shall be
considered coupled with an interest in the tendered Shares or Rights. This
appointment will be effective if, when, and only to the extent that,
Purchaser accepts such Shares for payment pursuant to the Second Offer. Upon
such acceptance for payment, all prior proxies given by such shareholder with
respect to such Shares, Rights and other securities will, without further
action, be revoked, and no subsequent proxies may be given. The designees of
Purchaser will, with respect to the Shares and other securities for which the
appointment is effective, be empowered (subject to the terms of Voting Trust
Agreement for so long as it shall be in effect with respect to the Shares or
Rights) to exercise all voting and other rights of such shareholder as they
in their sole discretion may deem proper at any annual, special, adjourned or
postponed meeting of Company shareholders, by written consent or otherwise,
and Purchaser reserves the right to require that, in order for Shares or
other securities to be deemed validly tendered, immediately upon Purchaser's
acceptance for payment of such Shares, Purchaser (including through the
Voting Trust) must be able to exercise full voting rights with respect to
such Shares.
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO PAYMENT
TO CERTAIN SHAREHOLDERS OF THE PURCHASE PRICE FOR SHARES PURCHASED PURSUANT
TO THE SECOND OFFER, EACH SUCH SHAREHOLDER MUST PROVIDE THE DEPOSITARY WITH
SUCH SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT
11
<PAGE>
SUCH SHAREHOLDER IS NOT SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY
COMPLETING THE SUBSTITUTE FORM W-9 IN THE LETTER OF TRANSMITTAL. IF BACKUP
WITHHOLDING APPLIES WITH RESPECT TO A SHAREHOLDER, THE DEPOSITARY IS REQUIRED
TO WITHHOLD 31% OF ANY PAYMENTS MADE TO SUCH SHAREHOLDER. SEE INSTRUCTION 9
OF THE LETTER OF TRANSMITTAL.
ESOP Preferred Shares. According to documents filed by the Company with
the SEC, all outstanding ESOP Preferred Shares are owned of record by the
ESOP Trustee and, accordingly, only the ESOP Trustee can effect a valid
tender of such shares. The ESOP Trustee is required to request instructions
from each participant in the ESOP as to whether ESOP Preferred Shares and
Common Shares, if any, allocated to such participant's account should be
tendered pursuant to the Second Offer, and to tender such shares in
accordance with such instructions. Pursuant to the organizational documents
of the ESOP, the ESOP Trustee may not tender allocated ESOP Preferred Shares
and Common Shares, if any, as to which no instructions are received.
Unallocated shares are required to be tendered or not tendered in the same
proportion as allocated shares for which instructions from participants are
received.
Purchaser's acceptance for payment of Shares tendered pursuant to the
Second Offer will constitute a binding agreement between the tendering
shareholder and Purchaser upon the terms and subject to the conditions of the
Second Offer.
4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Second Offer
are irrevocable except that such Shares may be withdrawn at any time prior to
the Expiration Date and, unless theretofore accepted for payment by Purchaser
pursuant to the Second Offer, may also be withdrawn at any time after April
12, 1997.
If Purchaser extends the Second Offer, is delayed in its acceptance for
payment of Shares or is unable to accept Shares for payment pursuant to the
Second Offer for any reason, then, without prejudice to Purchaser's rights
under the Second Offer, the Depositary may, nevertheless, on behalf of
Purchaser, retain tendered Shares, and such Shares may not be withdrawn
except to the extent that tendering shareholders are entitled to withdrawal
rights as described in this Section 4. Any such delay will be by an extension
of the Second Offer to the extent required by law.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary
at one of its addresses set forth on the back cover of this Second Offer to
Purchase. Any such notice of withdrawal must specify the name of the person
who tendered the Shares to be withdrawn, the number of Shares to be withdrawn
and the name of the registered holder, if different from that of the person
who tendered such Shares. If Share Certificates evidencing Shares to be
withdrawn have been delivered or otherwise identified to the Depositary,
then, prior to the physical release of such Share Certificates, the serial
numbers shown on such Share Certificates must be submitted to the Depositary
and the signature(s) on the notice of withdrawal must be guaranteed by an
Eligible Institution, unless such Shares have been tendered for the account
of an Eligible Institution. If Shares have been tendered pursuant to the
procedure for book-entry transfer as set forth in Section 3, any notice of
withdrawal must also specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Shares and
otherwise comply with such Book-Entry Transfer Facility's procedures. All
questions as to the form and validity (including time of receipt) of notices
of withdrawal will be determined by Purchaser, in its sole discretion, whose
determination will be final and binding. None of Parent, Purchaser, the
Dealer Managers, the Depositary, the Information Agent or any other person
will be under any duty to give notification of any defects or irregularities
in any notice of withdrawal or incur any liability for failure to give any
such notification.
Any Shares properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the Second Offer. However, withdrawn Shares
may be retendered at any time prior to the Expiration Date by following the
procedures described in Section 3.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The receipt of cash pursuant
to the Second Offer or the Proposed Merger will be a taxable transaction for
federal income tax purposes under the Internal Revenue Code of 1986, as
amended (the "Code"), and may also be a taxable transaction under applicable
state, local, foreign and other tax laws. Generally, for federal income tax
purposes, a tendering
12
<PAGE>
shareholder will recognize gain or loss equal to the difference, if any,
between the amount of cash received by the shareholder pursuant to the Second
Offer or Proposed Merger and the aggregate tax basis in the Shares tendered
by the shareholder and purchased by Purchaser pursuant to the Second Offer or
converted into cash in the Proposed Merger, as the case may be. Gain or loss
will be computed separately for each block of Shares (i.e., Shares acquired at
the same time and price) tendered and purchased pursuant to the Second Offer
or converted in the Proposed Merger, as the case may be.
If Shares are held by a shareholder as capital assets, gain or loss
recognized by the shareholder will be capital gain or loss, which will be
long-term capital gain or loss if such shareholder's holding period for the
Shares exceeds one year. Under present law, long-term capital gains
recognized by an individual shareholder generally will be taxed at up to a
maximum federal marginal tax rate of 28%, and long-term capital gains
recognized by a corporate shareholder will be taxed at up to a maximum
federal marginal tax rate of 35%.
THE FOREGOING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY
NOT BE APPLICABLE WITH RESPECT TO SHARES RECEIVED PURSUANT TO THE EXERCISE OF
EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION OR WITH RESPECT TO
HOLDERS OF SHARES WHO ARE SUBJECT TO SPECIAL TAX TREATMENT UNDER THE CODE,
SUCH AS NON-U.S. PERSONS, LIFE INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS
AND FINANCIAL INSTITUTIONS, AND MAY NOT APPLY TO A HOLDER OF SHARES IN LIGHT
OF INDIVIDUAL CIRCUMSTANCES. SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM (INCLUDING THE
APPLICATION AND EFFECT OF ANY STATE, LOCAL OR OTHER TAX CONSEQUENCES) OF THE
SECOND OFFER AND THE PROPOSED MERGER.
6. PRICE RANGE OF SHARES; DIVIDENDS. According to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 (the "Company Form
10-K"), the Common Shares are listed and principally traded on the NYSE and
are also listed and traded on the Philadelphia Stock Exchange. The Common
Shares are quoted under the symbol "CRR". The following table sets forth, for
the quarters indicated, the high and low sales prices per Common Share on the
NYSE and the amount of cash dividends paid per Common Share, as reported in
the Company Form 10-K for periods in 1995, and as reported by published
financial sources with respect to periods in 1996 and 1997:
<TABLE>
<CAPTION>
CASH
HIGH LOW DIVIDENDS
-------- -------- -----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
First Quarter ........................... 57 5/8 50 1/2 .375
Second Quarter .......................... 56 1/4 51 1/8 .375
Third Quarter ........................... 70 1/4 55 1/8 .425
Fourth Quarter .......................... 74 3/8 65 1/2 .425
YEAR ENDING DECEMBER 31, 1996:
First Quarter ........................... 77 1/4 67 5/8 .425
Second Quarter .......................... 73 1/4 66 1/4 .425
Third Quarter ........................... 74 5/8 63 3/4 .475
Fourth Quarter .......................... 100 7/8 68 1/2 .475
YEAR ENDING DECEMBER 31, 1997:
First Quarter (through February 11,
1997) .................................. 107 3/4 98 1/2 N.A.
</TABLE>
On February 11, 1997, the last full trading day prior to the commencement
of the Second Offer, the reported closing sales price of the Common Shares on
the NYSE Composite Tape was $106 1/8 per Common Share. SHAREHOLDERS ARE URGED
TO OBTAIN A CURRENT MARKET QUOTATION FOR THE COMMON SHARES.
All of the outstanding ESOP Preferred Shares are held of record by the
ESOP Trustee. There is no trading market for the ESOP Preferred Shares. Since
issuance of the ESOP Preferred Shares, the
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<PAGE>
Company has declared quarterly cash dividends on the ESOP Preferred Shares of
$.54125 per Share. Each ESOP Preferred Share is convertible under certain
circumstances into one Common Share.
7. EFFECT OF THE SECOND OFFER ON THE MARKET FOR THE COMMON SHARES;
EXCHANGE LISTING AND EXCHANGE ACT REGISTRATION; MARGIN REGULATIONS. The
purchase of Common Shares pursuant to the Second Offer will reduce the number
of Common Shares that might otherwise trade publicly and could reduce the
number of holders of Common Shares, which could adversely affect the
liquidity and market value of the remaining Common Shares held by the public.
Following consummation of the Second Offer, a large percentage of the
outstanding Common Shares will be owned by Purchaser.
According to the NYSE's published guidelines, the NYSE would consider
delisting the Common Shares if, among other things, the number of record
holders of at least 100 Common Shares should fall below 1,200, the number of
publicly held Common Shares (exclusive of holdings of officers, directors and
their families and other concentrated holdings of 10% or more (the "NYSE
Excluded Holdings")) should fall below 600,000 or the aggregate market value
of publicly held Common Shares (exclusive of NYSE Excluded Holdings) should
fall below $5,000,000. If, as a result of the purchase of Common Shares
pursuant to the Second Offer or otherwise, the Common Shares no longer meet
the requirements of the NYSE for continued listing and the listing of the
Common Shares is discontinued, the market for the Common Shares could be
adversely affected.
If the NYSE were to delist the Common Shares, it is possible that the
Common Shares would continue to trade on another securities exchange or in
the over-the-counter market and that price or other quotations would be
reported by such exchange or through the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or other sources. The extent of
the public market therefor and the availability of such quotations would
depend, however, upon such factors as the number of shareholders and/or the
aggregate market value of such securities remaining at such time, the
interest in maintaining a market in the Common Shares on the part of
securities firms, the possible termination of registration under the Exchange
Act as described below and other factors. Purchaser cannot predict whether
the reduction in the number of Common Shares that might otherwise trade
publicly would have an adverse or beneficial effect on the market price for
or marketability of the Common Shares or whether it would cause future market
prices to be higher or lower than the Offer Price. The Common Shares are
currently registered under the Exchange Act. Such registration may be
terminated upon application by the Company to the SEC if the Common Shares
are not listed on a national securities exchange and there are fewer than 300
record holders of the Common Shares. The termination of registration of the
Common Shares under the Exchange Act would substantially reduce the
information required to be furnished by the Company to holders of Common
Shares and to the SEC and would make certain provisions of the Exchange Act,
such as the short-swing profit recovery provisions of Section 16(b), the
requirement of furnishing a proxy statement in connection with shareholders'
meetings pursuant to Section 14(a), and the requirements of Rule 13e-3 under
the Exchange Act with respect to "going private" transactions, no longer
applicable to the Common Shares. In addition, "affiliates" of the Company and
persons holding "restricted securities" of the Company may be deprived of the
ability to dispose of such securities pursuant to Rule 144 promulgated under
the Securities Act of 1933, as amended (the "Securities Act").
If registration of the Common Shares under the Exchange Act were
terminated, the Common Shares would no longer be eligible for NASDAQ
reporting.
8. CERTAIN INFORMATION CONCERNING THE COMPANY. The information concerning
the Company contained in this Offer to Purchase, including financial
information, has been taken from or based upon the Company Form 10-K and
other publicly available documents and records on file with the SEC and other
public sources. Neither Parent, Purchaser, the Dealer Managers nor the
Information Agent assumes any responsibility for the accuracy or completeness
of the information concerning the Company contained in such documents and
records or for any failure by the Company to disclose events which may have
occurred or may affect the significance or accuracy of any such information
but which are unknown to Parent, Purchaser, the Dealer Managers or the
Information Agent.
According to information filed by the Company with the SEC, the Company is
a Pennsylvania corporation whose principal executive offices are located at
2001 Market Street, Two Commerce Square,
14
<PAGE>
Philadelphia, Pennsylvania 19101. Through its wholly owned subsidiary, CRC, a
Pennsylvania corporation, the Company provides freight transportation
services within the northeast and midwest United States. The Company
interchanges freight with other United States and Canadian railroads for
transport to destinations within and outside the Company's service region. As
of December 31, 1995, CRC (excluding its subsidiaries) maintained 17,715
miles of track on its 10,701 mile route system. Of total route miles, 8,860
are owned, 100 are leased or operated under contract and 1,741 are operated
under trackage rights, including approximately 300 miles operated pursuant to
an easement over Amtrak's Northeast Corridor. Also as of December 31, 1995,
the Company had (owned or subject to capital lease) 2,023 locomotives and
51,404 freight cars (including 21,948 subject to operating leases), excluding
locomotives and freight cars held by subsidiaries other than CRC, which have
an immaterial number of locomotives and freight cars. The Company operates no
significant line of business other than the freight railroad business and
does not provide common carrier passenger or commuter train service.
According to information filed by the Company with the SEC, the Company
serves a heavily industrial region that is marked by dense population centers
which constitute a substantial market for consumer durable and non-durable
goods, and a market for raw materials used in manufacturing and by electric
utilities.
Financial Information. Set forth below is certain selected consolidated
financial information relating to the Company and its subsidiaries which has
been excerpted or derived from the financial statements contained in the
Company Form 10-K, the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1996 (the "Company Form 10-Q") and other
documents filed by the Company with the SEC. More comprehensive financial
information is included in the Company Form 10-K, the Company Form 10-Q and
such other documents filed by the Company with the SEC. The financial
information that follows is qualified in its entirety by reference to the
Company Form 10-K, the Company Form 10-Q and such other documents, including
the financial statements and related notes contained therein. The Company
Form 10-K, the Company Form 10-Q and such other documents may be examined at
and copies may be obtained from the offices of the SEC or the NYSE in the
manner set forth below.
15
<PAGE>
CONRAIL INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
ENDED SEPTEMBER
30, YEAR ENDED DECEMBER 31,
------------------ ----------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues .................................. $2,771 $2,735 $3,686 $3,733 $3,453
Operating expenses ........................ 2,413 2,233 3,230 3,127 2,862
Operating income .......................... 358 502 456 606 591
Net income to common shareholders ........ 195 294 264 324 160
INCOME PER COMMON SHARE INFORMATION:
Net earnings per Common Share before the
cumulative effect of changes in
accounting principles
Primary .................................. $ 2.39 $ 3.61 $ 3.19 $ 3.90 $ 2.74
Fully diluted ............................ 2.21 3.28 2.94 3.56 2.51
Net per Common Share cumulative effect of
changes in accounting principles (1)
Primary .................................. -- -- -- -- (.92)
Fully diluted ............................ -- -- -- -- (.81)
Net earnings per Common Share
Primary .................................. 2.39 3.61 3.19 3.90 1.82
Fully diluted ............................ 2.21 3.28 2.94 3.56 1.70
AT SEPTEMBER 30, AT DECEMBER 31,
------------------ ----------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
BALANCE SHEET DATA:
Current assets ............................ $1,199 $1,187 $1,206 $1,125 $1,062
Property and equipment (net) .............. 6,495 6,680 6,408 6,498 6,313
Total assets .............................. 8,387 8,683 8,424 8,322 7,948
Current liabilities ....................... 1,250 1,238 1,170 1,201 1,075
Long-term debt, excluding current portion 1,891 2,037 1,911 1,940 1,959
Total shareholders' equity ................ 2,938 3,080 2,977 2,925 2,784
</TABLE>
- ------------
(1) Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions" and SFAS 109, "Accounting
for Income Taxes."
On January 22, 1997, the Company issued an earnings press release in which
it reported the following results for the fiscal year ended December 31, 1996
as compared to the comparable period for 1995: revenues, $3,714 million
versus $3,686 million; income from operations, $601 million versus $456
million; net income, $342 million versus $264 million; net income per Common
Share, $4.25 (primary) and $3.89 (fully diluted) versus $3.19 (primary) and
$2.94 (fully diluted).
16
<PAGE>
The Company is subject to the information and reporting requirements of
the Exchange Act and is required to file reports and other information with
the SEC relating to its business, financial condition and other matters.
Information, as of particular dates, concerning the Company's directors and
officers, their remuneration, stock options granted to them, the principal
holders of the Company's securities, any material interests of such persons
in transactions with the Company and other matters is required to be
disclosed in proxy statements distributed to the Company's shareholders and
filed with the SEC. These reports, proxy statements and other information
should be available for inspection at the public reference facilities of the
SEC located in Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and also should be available for inspection and copying at prescribed
rates at the following regional offices of the SEC: Seven World Trade Center,
New York, New York 10048; and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of this material may also be obtained by mail, upon
payment of the SEC's customary fees, from the SEC's principal office at 450
Fifth Street, N.W., Washington, D.C. 20549. The SEC also maintains an
Internet web site at http://www.sec.gov that contains reports, proxy
statements and other information. Reports, proxy statements and other
information concerning the Company should also be available for inspection at
the offices of the NYSE, 20 Broad Street, New York, New York 10005.
Certain Operating Relationships. Various subsidiaries of each of Parent,
on the one hand, and the Company, on the other hand, have operating
relationships with each other. The principal interchange points between
railroads of Parent and the Company are located at Hagerstown, Maryland,
Buffalo, New York, and Cincinnati, Cleveland and Toledo, Ohio. In 1993, 1994
and 1995, the percentage of total loads handled by Parent and interchanged to
or from the Company was 6.6%, 6.2% and 6.3%, respectively. In connection with
interchanges, either or both railroads of Parent and the Company may be the
party billing the shipper of such interchange freight, and in cases where one
of the parties bills for the entire shipment, such party periodically will
remit to the other party the net amount of the proceeds due to such other
carrier in accordance with standard industry practice. In addition, Parent
and the Company, together with other railroads, cooperate in terminal
switching operations at certain major locations and also have proprietary
interests in various terminal companies in their service territories.
In addition to the foregoing, the railroads of Parent and the Company are
parties to various trackage rights and haulage agreements. Haulage involves
movement by the owning railroad, with its crews, of traffic in the account of
the using railroad to and from points on the owning railroad. Under trackage
rights agreements the using railroad operates its own trains with its
employees carrying traffic in its account over the lines of the owning
railroad. Among the various cooperative arrangements between Parent and the
Company are: (i) Parent trackage rights on the Company's line between
Cincinnati and Columbus, Ohio, (ii) haulage by Parent of the Company's
automotive traffic from Bloomington, Illinois, to Lafayette, Indiana, and
haulage by Parent of certain other Company traffic between Peoria, Illinois
and Lafayette, Indiana, and (iii) Parent trackage rights on the Company's
line at Cincinnati, Ohio. In addition to the foregoing, Parent and the
Company (together with Union Pacific Railroad) operate a fleet of intermodal
containers that are free to move over the lines of each participant.
Between 1993 and 1995, Parent purchased from the Company, for
approximately $11 million, approximately 120 miles of the Company's Fort
Wayne line extending from Gary to Fort Wayne, Indiana. At various times
during this period, Parent operated over the Company's lines under trackage
rights agreements. Currently, the Company continues to serve several
customers in the Fort Wayne area using trackage rights over former Company
lines now owned by Parent.
Triple Crown Services Company. On April 1, 1993, Parent and the Company
formed Triple Crown Services Company ("TCS"), a Delaware partnership, to
provide intermodal services previously operated by a wholly owned subsidiary
of Parent. The Company paid Parent $15 million for a one-half interest in
TCS. Since 1993 both Parent and the Company have made additional capital
contributions to TCS and guaranteed financing of TCS equipment purchases. TCS
provides intermodal services throughout the eastern United States. Intermodal
services involve the movement of traffic both over the highway and on rail
lines. Major TCS initiatives, policies, budgets, and other matters are
subject to approval by a Management Committee consisting of equal numbers of
Parent and Company senior officers. The TCS Management Committee establishes
overall strategy for TCS. Relationships among TCS, Parent and the Company are
governed by numerous bilateral and trilateral written agreements. TCS's
revenues after April 1, 1993 were $101.7 million; for 1994 and 1995, they
were $148.2 million and $143.0 million, respectively.
17
<PAGE>
Doublestack Clearances. In connection with the creation of the TCS
partnership, Parent and the Company agreed to cooperate to eliminate
doublestack clearance impediments between New Jersey on the Company's lines
and Atlanta, Georgia, on lines of Parent's railroads. Doublestacking of
intermodal containers permits one container to be placed on top of another
container for movement in specialized railcars. However, because the height
of doublestacked containers often is greater than that of a standard railcar,
certain structures over rail lines, such as tunnels, overpasses and bridges,
must be modified to permit doublestack service to be operated. Elimination of
such clearance restrictions is costly. Parent's cost for clearance work
between its connections with the Company at Hagerstown, Maryland, and
Atlanta, Georgia, was approximately $4 million.
9. CERTAIN INFORMATION CONCERNING PURCHASER AND PARENT.
Purchaser. Purchaser is a Pennsylvania corporation organized in October
1996 in connection with the Offers and the Proposed Merger and has not
carried on any activities other than in connection with the Offers and the
Proposed Merger. The principal offices of Purchaser are located at Three
Commercial Place, Norfolk, Virginia 23510. The Purchaser is a wholly owned
subsidiary of Parent. Other than the 8,200,000 Shares acquired in the First
Offer, all of which are held in the Voting Trust, Purchaser does not have any
significant assets or liabilities or engage in activities other than those
incidental to its formation and capitalization and the transactions
contemplated by the Offers and the Proposed Merger. Because Purchaser has no
operating assets and minimal capitalization, no meaningful financial
information regarding Purchaser is available.
Parent. Parent is a Virginia corporation with its principal executive
offices located at Three Commercial Place, Norfolk, Virginia 23510. Parent is
a holding company that owns all the common stock of and controls a major
freight railroad, Norfolk Southern Railway Company; a motor carrier, North
American Van Lines, Inc. ("North American"); and a natural resources company,
Pocahontas Land Corporation ("Pocahontas Land"). The railroad system's lines
extend over more than 14,300 miles of road in 20 states, primarily in the
Southeast and Midwest, and the Province of Ontario, Canada. North American
provides household moving and specialized freight handling services in the
United States and Canada, and offers certain motor carrier services
worldwide. Pocahontas Land manages approximately 900,000 acres of coal,
natural gas and timber resources in Alabama, Illinois, Kentucky, Tennessee,
Virginia and West Virginia.
Parent is subject to the information and reporting requirements of the
Exchange Act and is required to file reports and other information with the
SEC relating to its business, financial condition and other matters.
Information, as of particular dates, concerning Parent's directors and
officers, their remuneration, stock options granted to them, the principal
holders of Parent's securities, any material interests of such persons in
transactions with Parent and other matters is required to be disclosed in
proxy statements distributed to Parent's shareholders and filed with the SEC.
These reports, proxy statements and other information should be available for
inspection and copies may be obtained in the same manner as set forth for the
Company in Section 8. Parent's common stock is listed on the NYSE, and
reports, proxy statements and other information concerning Parent should also
be available for inspection at the offices of the NYSE, 20 Broad Street, New
York, New York 10005.
Set forth below is certain selected historical consolidated financial
information relating to Parent and its subsidiaries which has been excerpted
or derived from audited financial statements presented in Parent's 1995
Annual Report to Shareholders and from Parent's unaudited consolidated
financial statements contained in Parent's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 1996. More comprehensive financial
information is included in such reports and other documents filed by Parent
with the SEC. The financial information summary set forth below is qualified
in its entirety by reference to such reports and other documents which have
been filed with the SEC, including the financial information and related
notes contained therein, which are incorporated herein by reference. Such
reports and other documents may be inspected at and copies may be obtained
from the offices of the SEC or the NYSE in the manner set forth above.
18
<PAGE>
NORFOLK SOUTHERN CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues ....................... $ 3,590.1 $ 3,512.8 $ 4,668.0 $ 4,581.3 $ 4,460.1
Operating expenses ....................... 2,702.9 2,681.5 3,581.7 3,515.9 3,599.7
Operating income ......................... 887.2 831.3 1,086.3 1,065.4 860.4
Net income to common shareholders ....... 569.9 535.8 712.7 667.8 772.0
PER SHARE INFORMATION:
Net earnings per common share before the
cumulative effect of changes in
accounting principles ................... 4.49 4.07 5.44 4.90 3.94
Net per common share cumulative effect of
changes in accounting principles for:
Income taxes ............................ -- -- -- -- 3.34
Postretirement benefits other than
pensions; and postemployment benefits -- -- -- -- (1.74)
NET EARNINGS PER COMMON SHARE ............ 4.49 4.07 5.44 4.90 5.54
AT SEPTEMBER 30, AT DECEMBER 31,
---------------------- ----------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
BALANCE SHEET DATA:
Current assets ........................... $ 1,456.6 $ 1,340.3 $ 1,342.8 $ 1,337.5 $ 1,563.5
Property, less accumulated depreciation . 9,460.2 9,233.1 9,258.8 8,987.1 8,730.7
Total assets ............................. 11,261.5 10,872.9 10,904.8 10,587.8 10,519.8
Current liabilities ...................... 1,208.4 1,180.9 1,205.8 1,131.8 1,197.9
Long-term debt, excluding current portion 1,811.2 1,588.3 1,553.3 1,547.8 1,481.5
Total shareholders' equity ............... 4,854.6 4,808.1 4,829.0 4,684.8 4,620.7
</TABLE>
On January 29, 1997, Parent issued an earnings press release in which it
reported the following results for its fiscal year ended December 31, 1996 as
compared to the comparable period for 1995: revenues, $4,770 million versus
$4,668 million; income from operations, $1,197.0 million versus $1,086.3
million; net income, $770.4 million versus $712.7 million; and net income per
common share, $6.09 versus $5.44.
Parent has identified a number of synergies related to the Proposed Merger
which its management believes can be achieved that will yield aggregate
annual contribution to operating income by the year 2000 (in year 2000
dollars) of approximately $660 million, consisting of approximately $515
million of operating savings and $145 million of additional operating income
from revenue enhancements. The operating savings are expected to result from
reduced general and administrative expenses ($170 million), improved
equipment utilization and improved equipment maintenance ($107 million) and
improved use of rail yards and routes coupled with maintenance of way
efficiencies ($77 million), and from more efficient transportation operations
($161 million). The net new business revenues totalling $525 million which
will yield the $145 million of incremental operating income are expected to
be comprised of increased revenues generated by improved single line service
($215 million), revenues generated by new coal traffic ($134 million) and
revenues generated by diverting truck traffic from highways ($316 million, of
which $126 million is expected to come from highway to carload growth and the
balance from
19
<PAGE>
conventional intermodal growth), decreased by $140 million of lost revenue
due to enhanced competition. Partially based on such synergies, Parent
projects that the impact of the Offers and the Proposed Merger on its
earnings per share will be modestly dilutive in the first year, modestly
accretive in the second year and significantly accretive thereafter, and that
on a pro forma basis for fiscal year 1998 it will have revenues of $9.4
billion, EBITDA of $3.5 billion, an EBITDA to interest coverage of 3.2 to 1
and a total debt to total capitalization ratio of 69%.
The foregoing estimates of cost savings, synergies, projected earnings per
share and pro forma financial information are "forward-looking" and
inherently subject to significant uncertainties and contingencies, many of
which are beyond the control of Parent and Purchaser, including: (a) future
economic conditions in the markets in which Parent and the Company operate;
(b) financial market conditions; (c) inflation rates; (d) changing
competition; (e) changes in the economic regulatory climate in the United
States railroad industry; (f) the ability to eliminate duplicative
administrative functions; and (g) adverse changes in applicable laws,
regulations or rules governing environmental, tax or accounting matters.
There can be no assurance that the estimated savings, revenue increases,
synergies, projected earnings per share and pro forma financial information
will be achieved and actual savings, revenue increases, synergies, projected
earnings per share and pro forma financial information may vary materially
from those estimated. The inclusion of such estimates herein should not be
regarded as an indication that Parent, Purchaser or any other party considers
such estimates an accurate prediction of future events.
The name, citizenship, business address, principal occupation or
employment and five-year employment history for each of the directors and
executive officers of Purchaser and Parent are set forth in Schedule I
hereto.
On October 18, 1996, Atlantic Investment Company, a wholly owned
subsidiary of Parent ("Atlantic"), purchased in a market transaction 100
Common Shares at a price of $86.00 per Share. On October 23, 1996 Atlantic
transferred beneficial ownership of such shares to Purchaser, which Purchaser
subsequently transferred back to Atlantic on February 4, 1997. In addition,
L.I. Prillaman, the Executive Vice President-Marketing of Parent, owns 20
Common Shares, and Kathryn B. McQuade, Vice President-Internal Audit of
Parent, owns 50 Common Shares. Further, the spouse of E.B. Leisenring, Jr., a
director of Parent, is (i) the sole beneficiary of three trusts, the trustee
of which is Mellon Bank, that hold 5,869 Common Shares and (ii) a one-fourth
beneficiary of a trust (the "CSB Trust"), the trustee of which is CoreStates
Bank, that holds 1,500 Common Shares. On October 18, 1996, the CSB Trust sold
500 Common Shares at $85.625 per Share. Except as set forth in this Offer to
Purchase, none of Parent or Purchaser or, to the best knowledge of Parent or
Purchaser, any of the persons listed in Schedule I hereto, or any associate
or majority-owned subsidiary of such persons, beneficially owns any equity
security of the Company, and none of Parent or Purchaser or, to the best
knowledge of Parent or Purchaser, any of the other persons referred to above,
or any of the respective directors, executive officers or subsidiaries of any
of the foregoing, has effected any transaction in any equity security of the
Company during the past 60 days.
Except as set forth in this Offer to Purchase, none of Parent or Purchaser
or, to the best knowledge of Parent or Purchaser, any of the persons listed
in Schedule I hereto has any contract, arrangement, understanding or
relationship with any other person with respect to any securities of the
Company, including, without limitation, any contract, arrangement,
understanding or relationship concerning the transfer or the voting of any
securities of the Company, joint ventures, loan or option arrangements, puts
or calls, guaranties of loans, guaranties against loss or the giving or
withholding of proxies. Except as set forth in this Offer to Purchase, none
of Parent or Purchaser or, to the best knowledge of Parent or Purchaser, any
of the persons listed in Schedule I hereto has had any transactions with the
Company, or any of its executive officers, directors or affiliates that would
require reporting under the rules of the SEC.
Except as set forth in this Offer to Purchase, there have been no
contacts, negotiations or transactions between Parent or Purchaser, or their
respective subsidiaries, or, to the best knowledge of Parent or Purchaser,
any of the persons listed in Schedule I hereto, on the one hand, and the
Company or its executive officers, directors or affiliates, on the other
hand, concerning a merger, consolidation or acquisition, tender offer or
other acquisition of securities, election of directors, or a sale or other
transfer of a material amount of assets. See Introduction and Section 11.
20
<PAGE>
10. SOURCE AND AMOUNT OF FUNDS. Purchaser estimates that the total amount
of funds required to purchase Shares pursuant to the Offers and the Proposed
Merger, to pay all related costs and expenses, to refinance Parent's and the
Company's existing debt and for working capital purposes will be
approximately $13 billion (of which approximately $1.0 billion was expended
in connection with the First Offer). See also Section 16.
Purchaser plans to obtain the necessary funds through capital
contributions, loans or advances made, directly or indirectly, by Parent.
Parent plans to obtain the funds for such capital contributions or advances
from its available cash and working capital, and either through the issuance
of long-term or short-term debt securities (including, without limitation,
commercial paper notes) or under the Credit Facility, as defined and
described below.
Parent's commercial paper program involves the private placement of
unsecured, commercial paper notes with varying maturities of up to 270 days.
The commercial paper issuances generally have an effective interest rate
approximating the then market rate of interest for commercial paper of
similar rating. Currently the weighted average interest rate for commercial
paper outstanding is approximately 5.4%. Parent may refinance any commercial
paper borrowings used to finance the purchase of Shares pursuant to the
Offers through private placements of additional commercial paper, borrowings
under the Credit Facility or, depending on market or business conditions and
subject to certain restrictions on the incurrence of indebtedness set forth
in the Credit Agreement (as defined below), through such other financing as
Parent may deem appropriate.
To finance payment of the Offers, Parent issued and sold $1.0 billion in
commercial paper, supported by the Credit Agreement.
As of February 10, 1997, Parent entered into a Credit Agreement (the
"Credit Agreement") with Morgan Guaranty Trust Company of New York, as
administrative agent (the "Administrative Agent"), Merrill Lynch Capital
Corporation, as documentation agent (in such capacity and together with the
Administrative Agent, the "Arrangers"), and certain financial institutions
(the "Lenders"), under which the Lenders agreed to provide Parent with a
senior credit facility (the "Credit Facility") providing an aggregate
principal amount not to exceed $13 billion in loans to finance the Offers and
the Proposed Merger, to pay related fees and expenses, to refinance Parent's
and the Company's existing debt and for working capital purposes.
The Lenders' obligations to make loans to Parent to fund the purchase
price of Shares purchased in the Second Offer are subject to the following
conditions, among others: (i) all conditions to the Second Offer having have
been satisfied without waiver or amendment (unless consented to by Lenders
holding at least 51% of the exposures under the Credit Facility), (ii)
receipt of all material governmental and third party approvals (excluding STB
approval) necessary in connection with the consummation of the Second Offer
having been obtained and being in full force and effect, and (iii) the
absence of material adverse change in the consolidated financial condition,
operations, assets, business or prospects of Parent and its consolidated
subsidiaries, taken as a whole.
On and after the Acquisition Date, certain "Significant Subsidiaries" (as
such term is defined in the Credit Agreement, which in any event includes
Purchaser) of Parent will provide an unconditional guarantee of all amounts
payable by Parent under the Credit Agreement and the Credit Facility (the
"Subsidiary Guarantee"). As security for Parent's obligations under the
Credit Facility, Parent will, on the Acquisition Date and as a condition to
borrowing of loans under the Credit Agreement to fund the purchase of Shares
in the Second Offer, enter into a pledge agreement pursuant to which it will
grant a security interest to the Administrative Agent (for the benefit of the
Lenders) in and pledge over to the Administrative Agent (for the benefit of
the Lenders) (i) all of the stock held by Parent in the Significant
Subsidiaries, (ii) all debt owing by the Significant Subsidiaries to Parent
and (iii) Parent's interest in the Voting Trust, unless Parent's senior
unsecured long-term debt is rated BBB-or higher by Standard & Poor's
Corporation and Baa3 or higher by Moody's Investors Services, Inc. (after giving
effect to the Second Offer and the Proposed Merger) (the "Minimum Rating"),
in which event no such pledge agreement is required. In addition, as security
for its respective obligations under the Subsidiary Guarantee, each Significant
Subsidiary will, on the Acquisition Date and as a condition to Parent's
borrowing of loans under the Credit Agreement to fund the purchase of Shares
21
<PAGE>
in the Second Offer, enter into a subsidiary pledge agreement pursuant to
which it will grant a security interest to the Administrative Agent (for the
benefit of the Lenders) in and pledge over to the Administrative Agent (for
the benefit of the Lenders) (i) all stock which it owns of each other
Significant Subsidiary, (ii) all debt owed to it by each other Significant
Subsidiary and (iii) such Significant Subsidiary's interest in the Voting
Trust, unless the Minimum Rating has been attained, in which event no such
pledge agreement is required. Such pledge agreements will, in any event, be
terminated once the Minimum Rating is obtained.
The Credit Facility consists of four facilities. Three of these facilities
are term loan facilities. One term loan has a principal amount of $3.5
billion, $1 billion of which will be repayable on the first anniversary of
the Acquisition Date and the remainder of which will be repayable on the date
(the "Final Term Loan I Maturity Date") which is the earlier of (i) six
months from the date on which the STB issues its final order with respect to
the acquisition of control of the Company by Parent and (ii) February 10,
2000, the third anniversary of the date of the execution and delivery of the
Credit Agreement (the "Closing Date"). The second term loan facility has a
principal amount of $3.5 billion repayable 24 months after the Final Term
Loan I Maturity Date. The third term loan facility has a principal amount of
$3 billion repayable in unequal quarterly installments during the period from
and including March 31, 1997 (subject to extension under certain
circumstances) through and including June 30, 2003. Each of the term loans
will bear interest at a rate per annum equal to, at the option of Parent and
Purchaser, any of (i) the Eurodollar rate plus a margin (A) of 0.1% in the
case of loans outstanding under the Credit Facility prior to the date on
which the Borrower owns at least 51% of the Shares (the "Acquisition Date")
and (B) between .875% and .225% depending upon Parent's senior unsecured
long-term debt ratings in the case of loans outstanding under the Credit
Facility on or after the Acquisition Date, (ii) an adjusted CD rate plus a
margin of (A) 0.225% in the case of loans outstanding under the Credit
Facility prior to the Acquisition Date and (B) between 0.350% and 1.00%
depending upon Parent's senior unsecured long-term debt ratings in the case
of loans outstanding under the Credit Facility on or after the Acquisition
Date or (iii) the higher of Morgan's prime rate or the federal funds rate
plus .50% (the "Base Rate") plus a margin of (A) 0% in the case of loans
outstanding prior to the Acquisition Date and (B) 0.25% depending upon
Parent's senior unsecured long-term debt ratings in the case of loans
outstanding under the Credit Facility on or after the Acquisition Date (such
rates together with the applicable margins, the "Variable Rate"). The fourth
facility is a revolving credit facility of $3 billion, which will bear
interest at the Variable Rate or a money market rate, and will mature five
years after the Closing Date. The Credit Facility also provides for a
facility fee accruing on the total amount available or outstanding thereunder
at a rate which will initially be .25% per annum and may be adjusted
depending upon Parent's senior unsecured long-term debt ratings to between
.125% and .375% per annum. In addition, during all times that both Parent's
senior unsecured long-term debt and the loans under the Credit Facility have
ratings below investment grade, such loans will bear interest at a rate per
annum equal to the rates described above that would otherwise be applicable
to such loans plus an additional margin of .125%.
The Credit Agreement also contains certain financial covenants as well as
certain restrictions on, among other things, (i) maturities or amortization
of indebtedness prior to six months after the final maturity of the loans
under the Credit Facility, (ii) indebtedness of subsidiaries, (iii) liens,
(iv) mergers, consolidations, liquidations, dissolutions and sales of assets,
(v) transactions with affiliates, and (vi) the ability of subsidiaries to pay
dividends. The financial covenants require Parent to maintain specified (i)
minimum interest coverage ratios, (ii) minimum consolidated net worth, and
(iii) maximum leverage ratios. The covenants also restrict payments,
transfers or other distributions from Parent to the Company prior to the
later of the consummation of the Proposed Merger or the date on which the
approval of the STB shall have been obtained.
The Credit Agreement contains certain representations and warranties
regarding, among other things, corporate existence, power and authority,
enforceability of the Credit Agreement and other loan documents, no
conflicts, financial information, absence of material adverse change, absence
of material litigation, compliance with certain laws and regulations, certain
environmental matters, taxes, matters related to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and absence
22
<PAGE>
of material misstatements. In addition, the Credit Agreement contains certain
covenants regarding, among other things, maintenance of corporate existence,
maintenance of the business, maintenance of insurance, payment of taxes,
delivery of financial statements and reports, compliance with laws and use of
proceeds.
Events of Default (as defined in the Credit Agreement) include, subject
(in certain instances) to customary notice and cure periods, material
breaches of representations or warranties, failure to pay principal or
interest, breach of covenants, cross default to certain other debt, material
judgments, bankruptcy, failures to make payments required to be made under
ERISA, the acquisition of a 30% beneficial interest in the common stock of
Parent by any person or group of persons (within the meaning of Section 13 or
14 of the Exchange Act) and, commencing after the Acquisition Date, quarterly
dividends received by Parent in respect to Company stock being less than
$0.40375 per share in any calendar quarter. Upon the occurrence of an Event
of Default, the Lenders with a majority of the exposures under the Credit
Facility can cause the Administrative Agent to terminate the commitments and
declare all outstanding loans immediately due and payable. If a bankruptcy
Event of Default occurs, the commitments will terminate automatically and the
loans will become due and payable immediately without any action by the
Administrative Agent or the Lenders.
In connection with the Credit Agreement, Parent has agreed to pay the
Arrangers and the Lenders certain fees, to reimburse the Arrangers and the
Lenders for certain expenses and to provide certain indemnities, as is
customary for commitments of the type described herein.
It is anticipated that the indebtedness incurred by Parent and Purchaser
under the Credit Facility will be repaid from funds generated internally by
Parent and its subsidiaries (including, after the Proposed Merger, if
consummated, funds generated by the Company and its subsidiaries), through
additional borrowings, or through a combination of such sources. No final
decisions have been made concerning the method Parent will employ to repay
such indebtedness. Such decisions when made will be based on Parent's review
from time to time of the advisability of particular actions, as well as on
prevailing interest rates and financial and other economic conditions.
The foregoing description of the Credit Agreement is qualified in its
entirety by reference to the full text of the Credit Agreement, a copy of
which has been included as an exhibit to the Tender Offer Statement on
Schedule 14D-1, dated February 12, 1997, filed by Parent and Purchaser in
connection with the Second Offer.
11. BACKGROUND OF THE SECOND OFFER; CONTACTS WITH THE COMPANY. For a
number of years, certain members of senior management of Parent, including
David R. Goode, Chairman, President and Chief Executive Officer of Parent,
have spoken numerous times with senior management of the Company, including
the Company's former Chairman and Chief Executive Officer, James A. Hagen,
and the Company's current Chairman and Chief Executive Officer, David M.
LeVan, concerning a possible business combination between Parent and the
Company. The Company's management encouraged such discussions prior to Mr.
Hagen's retirement as Chief Executive Officer of the Company. The Company
discontinued such discussions in September 1994, when the Company announced
that Mr. LeVan would succeed Mr. Hagen.
Prior to 1994, senior management of Parent and the Company discussed, from
time to time, opportunities for business cooperation between the companies,
and, in some of those discussions, the general concept of a business
combination. While the companies determined to proceed with certain business
cooperation opportunities, including TCS, no decisions were reached
concerning a business combination at that time.
In March 1994, Mr. Hagen approached Mr. Goode to suggest that, under the
current regulatory environment, the Company's management now believed that a
business combination between the Company and Parent could be accomplished,
and that the companies should commence discussion of such a transaction. Mr.
Goode agreed to schedule a meeting between legal counsel for Parent and the
Company for the purpose of discussing regulatory issues. Following that
meeting, Mr. Goode met with Mr. Hagen to discuss in general terms a
combination of the Company and Parent. Thereafter, during the
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<PAGE>
period from April through August 1994, management and senior financial
advisors of the respective companies met on numerous occasions to negotiate
the terms of a combination of the Company and Parent. The parties entered
into a confidentiality agreement on August 17, 1994. During these
discussions, Mr. Hagen and other representatives of the Company pressed for a
premium price to reflect the acquisition of control over the Company by
Parent. Initially, Parent pressed instead for a stock-for-stock merger of
equals in which no control premium would be paid to the Company's
shareholders. The Company's management insisted on a control premium,
however, and ultimately the negotiations turned toward a premium
stock-for-stock acquisition of the Company.
By early September 1994, the negotiations were in an advanced stage.
Parent had proposed an exchange ratio of 1-to-1, but the Company's management
was still pressing for a higher premium. In a meeting in Philadelphia on
September 23, 1994, Mr. Goode increased the proposed exchange ratio to
1.1-to-1, and left the door open to a higher ratio. Mr. Hagen then told Mr.
Goode that they could not reach agreement because the Company Board had
determined to remain independent and pursue the Company's stand alone policy.
The meeting then concluded.
Following the termination of acquisition negotiations between Parent and
the Company in September of 1994, Mr. Goode from time to time had
conversations with Mr. LeVan. During virtually all of these conversations,
Mr. Goode expressed Parent's strong interest in negotiating an acquisition of
the Company. Mr. LeVan responded that the Company wished to remain
independent. Nonetheless, Mr. Goode was led to believe that if and when the
Company Board determined to pursue a sale of the Company, it would pursue
such a transaction through a process in which Parent would have an
opportunity to bid.
At its September 24, 1996 meeting, the Parent Board reviewed its strategic
alternatives and determined that Parent should press for an acquisition of
the Company. Accordingly, Mr. Goode contacted Mr. LeVan to reiterate Parent's
strong interest in acquiring the Company and to request a meeting at which he
could present a concrete proposal. Mr. LeVan responded that the Company Board
would be holding a strategic planning meeting and that he and Mr. Goode would
be in contact after that meeting. Mr. Goode emphasized that he wished to
communicate Parent's proposal so that the Company Board would be aware of it
during the strategic planning meeting. Mr. LeVan stated that it was
unnecessary for Mr. Goode to do so. At this point, the conversation
concluded.
Following September 24, Mr. LeVan did not contact Mr. Goode. Finally, on
Friday, October 4, 1996, Mr. Goode telephoned Mr. LeVan. Mr. Goode again
reiterated Parent's strong interest in making a proposal to acquire the
Company. Mr. LeVan responded that the Company Board would be meeting on
October 16, 1996, and that he assumed that he and Mr. Hagen would contact Mr.
Goode following that meeting. Mr. Goode again stated that Parent wanted to
make a proposal so that the Company Board would be aware of it. Mr. LeVan
stated that it was unnecessary to do so.
On October 15, 1996, the Company and CSX announced that they had entered
into the CSX Merger Agreement contemplating the Proposed CSX Transaction.
Integral to the Proposed CSX Transaction are covenants substantially
increasing Mr. LeVan's compensation and severance benefits and guaranteeing
that he will succeed John Snow, the Chairman and Chief Executive Officer of
CSX, as the combined company's Chairman and Chief Executive Officer.
On October 16, 1996, Mr. Goode met in Washington, D.C. with Mr. Snow at
Mr. Snow's invitation to discuss the Proposed CSX Transaction and certain
regulatory issues it raised. Mr. Snow advised Mr. Goode during that meeting
that the Company's counsel and investment bankers had ensured that the
Proposed CSX Transaction is "bulletproof," implying that the sale of control
of the Company to CSX is now a fait accompli. Mr. Snow added that the
Pennsylvania statute, referring to the PBCL, was "great", adding that the
Company's directors have almost no fiduciary duties. Parent believes that Mr.
Snow's comments were intended to discourage Parent from making a competing
offer for control of the Company and to suggest that Parent had no choice but
to negotiate with CSX for access to such portions of the Company's rail
system as would be necessary to address the regulatory concerns that would be
raised by consummation of the Proposed CSX Transaction. After Mr. Snow told
Mr. Goode what CSX was willing to offer to Parent in this regard, the meeting
concluded.
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On October 22, the Parent's Board of Directors (the "Parent Board") met to
review its strategic options in light of announcement of the Proposed CSX
Transaction. Because the Parent Board believes that a combination of Parent
and the Company would offer compelling benefits to both companies, their
shareholders, and their other constituencies, it determined that Parent
should make a competing bid for the Company. On October 23, 1996, Parent
publicly announced its intention to commence the First Offer, to be followed
by the Proposed Merger. On the same day, Mr. Goode sent the following letter
to Mr. LeVan:
October 23, 1996
Board of Directors
Conrail Inc.
2001 Market Street
Two Commerce Square
Philadelphia, Pennsylvania 19101
Attention: David M. LeVan, Chairman
Dear Members of the Board:
For a number of years, other members of our senior management and I have
spoken numerous times with Mr. LeVan, your current Chairman, and with Mr.
Hagen, your former Chairman, and with other senior officers of your
company. During many of these conversations, we at Norfolk Southern
expressed a desire to join our companies together.
On two recent occasions, in late September and again on October 4, I
contacted Mr. LeVan to reiterate our strong interest in acquiring Conrail
and request a meeting at which I could present a concrete proposal. In
each case, I emphasized that I wished to communicate our proposal so that
the Conrail Board would be aware of it during their next meeting. Also in
each case, Mr. LeVan stated that it was unnecessary for me to do so.In
view of this background, it came as a disappointment to me when it was
announced on October 15 that you had agreed to the proposed acquisition of
Conrail by CSX Corporation. We regret that, despite knowing our long-term
interest in joining Conrail with Norfolk Southern, your Chairman ignored
our long-standing offer to submit a business combination proposal to you.
Since October 15, we have been analyzing the proposed CSX transaction
and have been considering the possibility of making a proposal that would
be demonstrably superior to your proposed transaction with CSX. We now
have completed that process and are using this letter to communicate our
conclusions to you.
On behalf of Norfolk Southern, I am hereby making the following
proposal. Our proposal is that Norfolk Southern would acquire all of the
outstanding shares of Conrail common stock for cash at a price of $100.00
per share. This would be accomplished by a "first step" cash tender offer
for all outstanding shares of Conrail, followed by a "second step" merger
in which Conrail's remaining shareholders would receive the same cash
purchase price per share paid in the offer. This offer represents a
premium of $11.49 (13%) over the blended value of CSX's proposal based on
yesterday's closing price of CSX shares. Our offer will provide for a
voting trust to hold the Conrail shares acquired in the tender offer and
merger and thereby allow Conrail shareholders to receive immediate payment
for all their shares in the tender offer and merger.
To underscore the seriousness of our intentions, we are commencing
promptly a cash tender offer, which can serve as the "first step" tender
offer contemplated by our proposal. On the other hand, unless and until
you terminate your pending proposed transaction with CSX in a manner
permitted under the terms of your merger agreement with CSX and enter into
an agreement with us, our cash tender offer will stand on its own as an
offer made directly to your shareholders.
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<PAGE>
Subject to your Board's favorable response to our proposal, we are
prepared to negotiate a merger agreement on substantially the same terms
and conditions as your proposed transaction with CSX, except as it would
be modified to reflect the all-cash consideration that we are offering. In
addition, we are prepared to offer significant representation of Conrail
directors on the Norfolk Southern Board, to consider locating the
corporate headquarters of the combined company in Philadelphia and to
discuss an appropriate position for your Chairman following a transaction
with us. We believe that we offer your senior management opportunities for
continued career growth that appear to us not to exist with CSX. Although
we determined that it was appropriate, under the circumstances, to
commence our cash tender offer, our strong preference would be to
negotiate a merger agreement with you.
The price we are offering in our proposal, $100 per share, clearly
provides significantly greater and more certain value to your shareholders
than the proposed transaction with CSX. In addition, we believe our
proposed transaction can be completed on a more timely basis than the
proposed CSX transaction. Accordingly, we strongly believe that, pursuant
to Section 4.2 of your agreement with CSX, you should promptly request and
obtain from your counsel their advice confirming that you are obligated by
principles of fiduciary duty to consider our proposal. Also, we expect
that, upon your receipt of such advice and consistent with your clear
fiduciary duties, you will give us access to at least all the same
information you furnished to CSX in the course of your discussions and
negotiations with them and that you will discuss and negotiate with us the
details of our proposal. In addition, you should take whatever other
actions are reasonably necessary or appropriate so that we may operate on
a level playing field with CSX and any other companies which may be
interested in acquiring Conrail.
Besides the benefits for your shareholder constituency, we are confident
that Conrail's employees, suppliers, customers, creditors and the
communities in which Conrail is located will be better served by the
combination of Norfolk Southern and Conrail as compared with the CSX
proposal. Moreover, because a Norfolk Southern merger presents a
substantially more favorable competitive and regulatory picture, our
proposal is more consistent with both the long and short-term interests of
Conrail. We look forward to the opportunity to directly discuss these
matters with you in the manner they would have been communicated before
the hasty attempt to lock-up a deal with CSX. To ensure that your Board
fulfills its fiduciary obligations and to resolve certain other issues, we
have today commenced litigation in the Federal District Court for the
Eastern District of Pennsylvania.Our Board of Directors is fully
supportive of our proposal and has authorized and approved it. Consistent
with our Board's action, we and our advisors stand ready, willing and able
to meet with you and your advisors at your earliest convenience. I want to
stress that we are flexible as to all aspects of our proposal, including
the possibility of substituting a substantial equity component to our
present offer so that your shareholders could have a continuing interest
in the combined enterprise, and are anxious to proceed to discuss and
negotiate it with you as soon as possible.
Personally and on behalf of my colleagues at Norfolk Southern, I look
forward to hearing from you soon and working with you on our proposal.
Sincerely,
David R. Goode
cc: All Directors
During the weekend of November 2 and November 3, 1996, representatives of
Parent and CSX met to discuss matters related to their respective offers to
acquire the Company. Such discussions were commenced at the suggestion of
CSX, were represented by CSX to have been held with the knowledge of the
Company and were pursued by Parent consistent with Parent's previously
announced position of
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<PAGE>
favoring a balanced competitive structure for Eastern railroad service. These
discussions included an exchange of term sheets, first from CSX to Parent and
then from Parent to CSX. Parent announced on November 4, 1996 that it had
terminated such discussions and reaffirmed its $100 per Share offer for all
Shares.
On November 4, 1996, Parent filed its definitive proxy statement with the
SEC relating to its solicitation of proxies against the adoption of the
Articles Amendment at the Pennsylvania Special Meeting and provided copies of
the proxy statement to the Company for dissemination to Company shareholders.
Also on November 4, 1996, the Company provided a shareholder list and a
substantial portion of the other information requested by Parent and
Purchaser pursuant to Pennsylvania law.
On November 7, 1996, the Company issued a news release in the form of a
letter purportedly from the "Independent Directors" of the Company and
ostensibly addressed to the Parent Board. The letter reiterated such
directors' publicized commitment to the Proposed CSX Transaction and to Mr.
LeVan. Also on November 7, 1996, the Parent Board met to review events
surrounding the Offer and the revised CSX Offer and authorized the increase
in the Offer Price to $110 per Share. On November 8, 1996, Parent publicly
announced the increased Offer Price.
On December 8, 1996, Parent announced its pledge that it will not be a
party to any agreement with CSX or the Company that delivers anything less to
Company shareholders than a $110 all-cash, all-Shares offer--with prompt
payment through use of a voting trust--so long as Company shareholders reject
the maneuvering by CSX and the Company's management to pay shareholders less
than what Parent believes Company shareholders deserve for their Shares.
On December 11, 1996, Parent delivered the following letter to the Company
Board:
December 11, 1996
BY FAX
Board of Directors
Conrail Inc.
2001 Market Street
Two Commerce Square
Philadelphia, Pennsylvania 19101
Attn: Chairman
Gentlemen:
As you know, both in a press release and in newspaper advertisements
earlier this week, Norfolk Southern issued the following pledge to Conrail
shareholders:
"Norfolk Southern will not be a party to any agreement with CSX or
Conrail that delivers anything less to Conrail shareholders than a $110
all-cash, all-shares offer--with prompt payment through use of a voting
trust--so long as Conrail shareholders reject the maneuvering by CSX and
Conrail's management to pay you less than you deserve for your shares."
I am writing to underscore the seriousness of Norfolk Southern's pledge.
We intend that the foregoing pledge be treated as a binding commitment to
the Conrail shareholders. However, should you deem it necessary or
otherwise appropriate, Norfolk Southern stands ready to enter into a
written agreement with Conrail, on behalf of the Conrail shareholders,
confirming this pledge.
Our attorneys are available to work with your attorneys to promptly work
out the language of such an agreement. We look forward to your response.
Very truly yours,
David R. Goode
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On December 17, 1996, the District Court issued an order enjoining the
Company from failing to convene, and/or from postponing, and/or from
adjourning the Pennsylvania Special Meeting which was then scheduled for
Monday, December 23, 1996, by reason of the Company or its nominees not
having received sufficient proxies to assure approval of the proposal set
forth in the Company's "Notice of Special Meeting of Shareholders" and in the
Company's proxy materials to "opt-out" of Subchapter E of Chapter 25 of the
PBCL.
On December 19, 1996, the Company and CSX announced that an amendment to
the CSX Merger Agreement had been entered into pursuant to which CSX
increased the consideration to be paid in the Proposed CSX Merger. Also on
December 19, 1996, the Company announced that the date of the Pennsylvania
Special Meeting had been changed to January 17, 1997.
On December 20, 1996, Parent increased the consideration offered in the
First Offer to $115 per Share and extended its December 8, 1996 pledge to its
$115 per Share offer.
On January 13, 1997, Parent announced its pledge that if Company
shareholders defeated the Company proposal to approve the Articles Amendment
at the Pennsylvania Special Meeting, Parent and Purchaser would promptly
amend the First Offer to eliminate all of the conditions thereto and to
reduce the aggregate number of Shares sought in the First Offer to
approximately 8,200,000 Shares, the maximum number of Shares (based on then
currently available information as to the number of outstanding Common
Shares) that Purchaser could acquire without becoming an "Acquiring Person"
under the Rights Agreement. At such time, Parent also announced that,
following Purchaser's acceptance for payment of Shares in such amended First
Offer, Purchaser would commence the Second Offer for all the remaining Shares
at $115 per Share and upon essentially the same terms and subject to the same
conditions as the First Offer as in effect before January 13, 1997.
On January 17, 1997, the Pennsylvania Special Meeting was held and Company
shareholders overwhelmingly defeated the Articles Amendment.
On January 21, 1997, Mr. Goode sent the following letter to Messrs. LeVan
and Snow:
January 21, 1997
<TABLE>
<CAPTION>
<S> <C>
Mr. David M. LeVan Mr. John W. Snow
Chairman, President and Chairman, President and
Chief Executive Officer Chief Executive Officer
Conrail Inc. CSX Corporation
2001 Market Street 901 East Cary Street
Philadelphia, PA 19101 Richmond, VA 23219
</TABLE>
Dear David and John:
The Conrail shareholders' vote last Friday places a responsibility on us
to work out a rail structure in the East that will be in the long-term
interests of all constituencies served by our companies. I believe that
this can be accomplished if we sit down and try.
I believe that we can achieve balanced competition in the East with the
greatest continuity in existing operations by combining Norfolk Southern
and Conrail and providing to a competitor such as CSX its own routes into
the Northeast/Mid-Atlantic region from the West and South, so that the
result is competing networks of equivalent scope, scale and market access.
You have a different, but perhaps not irreconcilable, vision of the 21st
century railroad map. Accordingly, we are prepared to enter into
discussions with no preconditions other than recognition of our pledge to
the Conrail shareholders that Norfolk Southern will only enter into an
agreement with Conrail or CSX that gives to Conrail shareholders an all
cash offer of $115 per share.
I look forward to your reply. Your initiative and our determination are
hallmarks of great companies capable of finding a public interest
resolution of their differences.
Sincerely,
David R. Goode
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On January 22, 1997, Messrs. LeVan and Snow sent a letter to Mr. Goode,
responding to Mr. Goode's letter dated January 21, 1997. In their letter,
Messrs. LeVan and Snow indicated their willingness to meet with Mr. Goode to
begin meaningful and candid discussions without any preconditions that would
limit discussions or otherwise prejudice each other's respective positions.
On January 22, 1997, the First Offer was amended consistent with Parent's
pledge and, following expiration of the First Offer, Purchaser accepted
8,200,000 Shares for payment at a price of $115 per Share. A total of
approximately 65,000,000 Shares were validly tendered under the First Offer,
which represented more than 90% of the Company's then outstanding Shares,
excluding Shares held by CSX. Payment for the 8,200,000 Shares purchased
under the First Offer commenced on February 11, 1997.
On January 31, 1997, representatives of Parent, CSX and the Company had a
meeting to discuss matters relating to the Offers and the CSX Offers.
Following such meeting, the three companies issued the following press
release:
FOR IMMEDIATE RELEASE:
WASHINGTON, DC--Jan. 31, 1997--Conrail Inc. (NYSE: CRR), CSX Corp.
(NYSE: CSX) and Norfolk Southern Corporation (NYSE: NSC) today
released the following statement following the initial meeting between
the parties:
"Conrail, CSX and Norfolk Southern have concluded their meeting and
have agreed that no further details on this meeting or timing of
future meetings will be announced."
On January 31, 1997, the Company announced that it had set December 19,
1997 as the date of the Annual Meeting.
On February 10, 1997, Parent notified the Company, pursuant to the
requirements of the Company By-Laws, of its intention at the Annual Meeting
to conduct a proxy contest in connection with the Annual Meeting seeking to
elect a slate of directors designated by Parent, to remove certain incumbent
directors, to declassify the Company Board and to decrease the size of the
Company Board (collectively, the "Company Business"). See Section 12. Each of
Parent's nominees to the Company Board has committed to seek the most
advantageous transaction for holders of Shares and to evaluate fairly and
impartially all acquisition or other proposals received by the Company,
whether made by Parent, CSX or by any other potential acquiror, and has
delivered to Parent an undertaking, if elected, to use his or her best
efforts to cause the Company to place all of the shares of CRC into a voting
trust promptly following election to the Company Board. Based on the
transactions proposed by each of Parent and CSX pending as of the date of
this Offer to Purchase, it is currently contemplated that Parent's nominees
to the Company Board will support Parent's proposal.
On February 10, 1997, the Company issued a statement asserting that
Parent's nomination of a slate of directors to the Company Board appears to
violate federal transportation law and that Parent's efforts to remove
incumbent directors from the Company Board before their terms expire and to
reduce the size of the Company Board were invalid under Pennsylvania law.
The CSX Merger Agreement. The following is a description of certain
provisions of the CSX Merger Agreement as it has been amended to the date of
this Offer to Purchase.
In the CSX Merger Agreement, the Company agreed to a provision (the "No
Negotiation Provision") providing that neither the Company nor any of its
subsidiaries, officers, directors, employees or representatives will,
directly or indirectly through another person, solicit, initiate or encourage
(including by way of furnishing information), or take any other action
designed to facilitate, directly or indirectly, any inquiries or the making
of any proposal relating to the acquisition or purchase of more than 50% of
the assets of the Company and its subsidiaries or more than 50% of the equity
securities of the Company entitled to vote generally in the election of
directors, any tender offer or exchange offer that if consummated would
result in any person beneficially owning more than 50% of the equity
securities of the Company entitled to vote generally in the election of
directors, or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
the Company (a
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<PAGE>
"Takeover Proposal"), other than the transactions contemplated by the CSX
Merger Agreement or the CSX Lockup Option Agreement. The No Negotiation
Provision also provides that neither the Company nor any of its subsidiaries,
officers, directors, employees or representatives will participate in any
discussions or negotiations regarding any Takeover Proposal. Notwithstanding
the No Negotiation Provision, the CSX Merger Agreement provides that if, at
any time after December 31, 1998, the Board of Directors of the Company or
CSX, as applicable, determined in good faith, based on the advice of outside
counsel, that it was necessary to do so to avoid a breach of its fiduciary
duties to the Company under applicable law, the Company or CSX, as
applicable, may, in response to a Takeover Proposal which was not solicited
by it or which did not otherwise result from a breach of the terms of the CSX
Merger Agreement described in this paragraph, and subject to compliance with
certain notice provisions of the CSX Merger Agreement, (x) furnish
information with respect to it and its subsidiaries to any person pursuant to
a customary confidentiality agreement (as determined by the party receiving
such Takeover Proposal after consultation with its outside counsel) the
benefits of the terms of which, if more favorable to the other party to such
confidentiality agreement than those in place with the other party to the CSX
Merger Agreement, shall be extended to the other party to the CSX Merger
Agreement, and (y) participate in negotiations regarding such Takeover
Proposal.
Except as permitted by the CSX Merger Agreement, the Company and CSX
agreed that neither the Board of Directors of the Company or CSX, as
applicable, nor any committee thereof will (i) withdraw or modify (or propose
publicly to do so), in a manner adverse to the other party, its approval or
recommendation of the CSX Offers or its adoption and approval of the matters
to be considered at the respective shareholders meetings of the Company or
CSX, (ii) approve or recommend (or propose publicly to do so), any Takeover
Proposal, or (iii) cause the Company or CSX, as applicable, to enter into any
agreement (the "Acquisition Agreement") related to a Takeover Proposal.
However, the CSX Merger Agreement provides that if at any time following
December 31, 1998 and prior to the earlier of (a) the time that at least 40%
of the outstanding Shares on a fully diluted basis had been deposited in the
voting trust contemplated by the CSX Merger Agreement and (b) the obtaining
of Company Shareholder Approval (as defined below) (in the case of the
Company) or CSX Shareholder Approval (as defined below) (in the case of CSX)
(such earlier date referred to in clause (a) or (b) being the "Approval
Date") there existed a Superior Proposal (as defined below), and such Board
of Directors determined that (x) in the case of the Board of Directors of the
Company, there was no substantial probability that CSX would succeed in
acquiring 40% of the Shares in the CSX Offers or otherwise (or if the
approval by Company shareholders of an amendment to the Company's Articles to
"opt out" of the Pennsylvania Control Transaction Law has not been obtained,
there was no substantial probability that the Company Shareholder Approval
would be obtained), in either case due to the existence of such Superior
Proposal with respect to the Company or (y) in the case of the Board of
Directors of CSX, there was no substantial probability that the CSX
Shareholder Approval would be obtained due to the existence of such Superior
Proposal with respect to CSX, the Board of Directors of the Company or CSX,
as applicable, may (subject to this and the following sentence) withdraw or
modify its approval or recommendation of the CSX Offers, the Proposed CSX
Merger or the adoption and approval of the matters to be considered at their
respective shareholder meetings and approve or recommend such Superior
Proposal or terminate the CSX Merger Agreement (and concurrently, if it so
chose, cause the Company or CSX, as applicable, to enter into an Acquisition
Agreement with respect to such Superior Proposal), but only after giving the
notice required by the CSX Merger Agreement. As used in the CSX Merger
Agreement, a "Superior Proposal" means any proposal made by a third party to
acquire, directly or indirectly, for consideration consisting of cash and/or
securities, more than 50% of the voting equity securities of the Company or
CSX, as the case may be, or all or substantially all the assets of the
Company or CSX, as the case may be, and otherwise on terms which the Board of
Directors of such party determines in its good faith judgment (x) (based on
the written opinion of a nationally recognized financial advisor) to be more
favorable from a financial point of view to its shareholders than the CSX
Offers and the Proposed CSX Merger and for which any required financing is
then committed and (y) to be more favorable to such party than the CSX Offers
and the Proposed CSX Merger after taking into account all constituencies
(including shareholders) and pertinent factors permitted under applicable
Pennsylvania or Virginia law, as the case may be.
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The CSX Merger Agreement provides that, in the event that (i) a Takeover
Proposal in respect of the Company shall have been made known to the Company
or any of its subsidiaries or has been made directly to its shareholders
generally or any person shall have publicly announced an intention (whether
or not conditional) to make such a Takeover Proposal and thereafter the CSX
Merger Agreement is terminated by either CSX or the Company as a result of
the CSX Merger not having been consummated by December 31, 1998, or if the
Company Shareholder Approval is not obtained in a meeting of Company
shareholders duly convened therefor or at any adjournment or postponement
thereof, to the extent such meeting was held after the earlier of (x)
December 31, 1998 or (y) the purchase of an aggregate of 40% of the fully
diluted Shares under the CSX Offers, or (ii) the CSX Merger Agreement is
terminated (x) by the Company pursuant to the No Negotiation Provision of the
Merger Agreement or (y) by CSX if (I) the Company Board or, if applicable,
any committee thereof, withdraws or modifies in a manner adverse to CSX its
approval or recommendation of the CSX Offers or the Proposed CSX Merger or
the matters to be considered at the meetings of Company shareholders called
to approve the Proposed CSX Merger and the other transactions contemplated by
the CSX Merger Agreement or fails to reconfirm its recommendation within 15
business days after a written request to do so, or approves or recommends any
Takeover Proposal in respect of the Company or (II) the Company Board or any
committee thereof has resolved to take any of the foregoing actions; then the
Company will (A) promptly, but in no event later than two days after the date
of the termination, pay CSX a cash fee of $300 million (the "Termination
Fee") (except that no Termination Fee will be payable pursuant to clause (i)
of this sentence unless and until within 24 months of such termination the
Company or any of its subsidiaries enters into an Acquisition Agreement or
consummates a Takeover Proposal). In the event that the CSX Termination Fee
is paid and the CSX Lockup Option Agreement is exercised by CSX, the
aggregate additional cost to an acquiror of the Company by reason of the CSX
Lockup Option Agreement and the CSX Termination Fee will amount to
approximately $660 million (assuming an acquisition of the Company at $115
per Share). In the Pennsylvania Litigation, Parent and Purchaser are
contesting the validity of both the CSX Lockup Option Agreement and the CSX
Termination Fee. See Section 11 and Section 15.
Pursuant to the CSX Merger Agreement, the Company and CSX also agreed,
among other things, to a provision (the "No Discussions Provision") providing
that, subject to certain exceptions, neither the Company nor CSX will, nor
will they permit any of their subsidiaries to, nor will they authorize or
permit any of their officers, directors or employees or any investment
banker, financial advisor, attorney, accountant or other representative
retained by them or any of their subsidiaries to, directly or indirectly
through another person, participate in any conversations, discussions or
negotiations, or enter into any agreement or understanding, with any other
company engaged in the operation of railroads (including Parent) with respect
to the acquisition by any such other company (including Parent) of any
securities or assets of the Company and its subsidiaries or CSX and its
subsidiaries, or any trackage rights or other concessions relating to the
assets or operations of the Company and its subsidiaries or CSX and its
subsidiaries, other than with respect to certain sales, leases, licenses,
mortgages or other disposals of assets or properties.
The obligations of CSX and the Company to effect the Proposed CSX Merger
are subject to various conditions, including the approval of Company
shareholders of the Proposed CSX Merger (the "Company Shareholder Approval")
and the approval of the shareholders of CSX with respect to, among other
things, the issuance of shares of CSX Common Stock in the Proposed CSX Merger
(the "CSX Shareholder Approval").
The foregoing description of the CSX Merger Agreement is qualified in its
entirety by reference to the full text of the CSX Merger Agreement, and the
amendments thereto, copies of which have been included or incorporated by
reference as exhibits to the CSX Schedule 14D-1.
12. PURPOSE OF THE SECOND OFFER AND THE MERGER; PLANS FOR THE COMPANY;
CERTAIN CONSIDERATIONS.
General. The purpose of the Offers is for Parent to acquire control of,
and the entire equity interest in, the Company. The Second Offer, as the
second step in the acquisition of the Company, is intended to facilitate the
acquisition of all Shares. Purchaser is seeking to consummate the Proposed
Merger with the Company as promptly as practicable following consummation of
the Second Offer. The purpose of the Proposed Merger is to acquire all Shares
not beneficially owned by Purchaser following consummation of the Second
Offer.
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Pursuant to the Proposed Merger, each Share outstanding (other than Shares
held by the Company or any subsidiary of the Company and Shares owned by
Parent, Purchaser or any direct or indirect subsidiary of Parent) would be
converted into the right to receive an amount in cash equal to the price per
Share paid pursuant to the Second Offer. Although it is the current intention
of Parent and Purchaser to seek to enter into a definitive merger agreement
pursuant to which the Proposed Merger would be consummated as promptly as
practicable following consummation of the Second Offer, such consummation
depends upon a number of factors and circumstances, and there can be no
assurance that the Proposed Merger will be consummated, or, if consummated,
the timing thereof.
Consummation of the Proposed Merger will require approval by the Company
Board and the affirmative vote of the holders of a majority of the votes cast
by all outstanding Common Shares and ESOP Preferred Shares, voting as a
single class. The Voting Trust Agreement provides, among other things, that
the Voting Trustee will seek to vote all Shares held in the Voting Trust in
favor of the Proposed Merger, in favor of any proposal or action necessary or
desirable to effect, or consistent with the effectuation of, the Proposed
Merger and in favor of a slate of nominees to the Company Board which favors
the Proposed Merger and against any other acquisition transaction involving
the Company but not involving Parent or any of its subsidiaries or affiliates.
Accordingly, it is expected that the Shares held in the Voting Trust will be
voted against the Articles Amendment and the Proposed CSX Merger at any
meeting of Company shareholders convened for such purpose and will be voted
for the Company Business at the Annual Meeting.
If Purchaser purchases Shares pursuant to the Second Offer and the Minimum
Condition is satisfied, the Voting Trustee would have a sufficient number of
Shares to approve the Proposed Merger without the affirmative vote of any
other holder of Shares and to elect directors as described above. Although
consummation of the Proposed Merger would be sought as soon as practicable
following the purchase of Shares pursuant to the Second Offer, the exact
timing and details of the Proposed Merger would depend on a variety of
factors and legal requirements. As described below, certain provisions of the
Company's Articles of Incorporation (the "Company Articles") and the Company
By-Laws may impair and delay the ability of the Voting Trustee to elect a
majority of the Company Board and to approve consummation of the Proposed
Merger.
Alternatively, the "short-form" merger provisions of the PBCL provide that
if, following completion of the Second Offer, Purchaser owns 80% or more of
the Shares, the Voting Trustee would have the power to consummate the
Proposed Merger without any action by the Company Board and without the vote
of any of the Company's other shareholders.
Although Parent has sought to enter into negotiations with the Company
with respect to the Proposed Merger and continues to pursue such
negotiations, there can be no assurance that such negotiations will occur or,
if such negotiations occur, as to the outcome thereof. Consistent with
Parent's pledge that it will not be a party to any agreement with CSX or the
Company that delivers anything less to Company shareholders than a $115 per
Share all-cash transaction, Parent and Purchaser reserve the right to amend
the Second Offer (including amending the number of Shares to be purchased,
the purchase price and the proposed second-step merger consideration) if
Parent enters into a definitive merger agreement with the Company with
respect to the Proposed Merger or to negotiate a merger agreement with the
Company not involving a tender offer pursuant to which Purchaser would
terminate the Second Offer.
Parent believes that the Offers and the Proposed Merger will ensure
balanced competition among railroads in the Eastern portion of the United
States with the least disruption to operations and service. In order to
continue to ensure balanced competition, Parent intends to hold discussions
with other railroads (including CSX) to address regulatory requirements and
other competition issues arising from the Offers and the Proposed Merger.
Such discussions are expected to lead to various concessions, such as the
grant of trackage rights or other dispositions of assets, by the post-merger
combined company.
Plans for the Company. In connection with the Second Offer and during its
pendency, or in the event the Second Offer is terminated or not consummated,
or after the expiration of the Second Offer and
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pending the consummation of the Proposed Merger, in accordance with
applicable law and subject to the terms of any merger agreement that it may
enter into with the Company, Parent (alone or through affiliates) may explore
any and all options which may be available to it in connection with the
acquisition of the Company. In this regard, Parent intends to solicit proxies
against the adoption of the Articles Amendment and the Proposed CSX Merger at
any meeting of Company shareholders convened for such purpose. In addition,
on February 10, 1997, Parent notified the Company, pursuant to the
requirements of the Company By-Laws, of its intention at the Annual Meeting
to (i) nominate George A. Butler, Stephen P. Lamb, Mary Patterson McPherson,
Bernard C. Watson and J. Roger Williams, Jr. for election as directors of the
Company, (ii) introduce a proposal to amend Section 3.01 of the Company
By-Laws to declassify the Company Board, (iii) introduce a proposal which
would effect the removal of all of the directors of the Company from the
Company Board, other than the individuals nominated to the Company Board by
Parent and Daniel B. Burke, David B. Lewis and John C. Marous, and (iv)
introduce a proposal to amend Section 3.01 of the Company By-Laws to decrease
the size of the Company Board to a total of eight directors.
Except as indicated in this Offer to Purchase, neither Parent nor
Purchaser has any present plans or proposals which relate to or would result
in an extraordinary corporate transaction, such as a merger, reorganization
or liquidation, involving the Company or any of its subsidiaries, a sale or
transfer of a material amount of assets of the Company or any of its
subsidiaries or any material change in the Company's capitalization or
dividend policy or any other material changes in the Company's corporate
structure or business, or the composition of the Company Board or management.
Dissenters' Rights and Other Matters. No appraisal rights are available in
connection with the Second Offer. In accordance with the United States
Supreme Court decision, Schwabacher v. United States, 334 U.S. 192 (1948), if
the Proposed Merger were approved by the STB in connection with Parent's
acquisition of control of the Company, Company shareholders would not have
any dissenters' rights under state law, unless the STB (or any successor
agency) or a court of competent jurisdiction determines that state-law
dissenters' rights are available to holders of Shares. Parent considers it
unlikely that the STB or a court would determine that state-law dissenters'
rights are available to holders of Shares.
Although the Proposed Merger is to be effected prior to an STB decision,
Parent believes that this doctrine may be a bar to the assertion of
dissenters' rights under state law and may assert such position in respect of
any claims of dissenters' rights. In the event that there is an STB denial,
dissenters' rights may be available if the STB or a court of competent
jurisdiction provides for such rights. In such event, any issued and
outstanding Shares held by persons who object to the Proposed Merger and
comply with all the provisions of the PBCL concerning the right of holders of
Shares to dissent from the Proposed Merger and require valuation of their
Shares (a "Dissenting Shareholder") will not be converted into the right to
receive the consideration to be paid pursuant to the Proposed Merger but will
become the right to receive payment of the "fair value" of their Shares
(exclusive of any element of appreciation or depreciation in anticipation of
the Proposed Merger); provided, however, that the Shares outstanding
immediately prior to the effective time of the Proposed Merger and held by a
Dissenting Shareholder who will, after such time, withdraw his demand for
payment or lose his right to dissent, in either case pursuant to the PBCL,
will be deemed to be converted as of the effective time of the Proposed
Merger into the right to receive the consideration to be paid pursuant to the
Proposed Merger without interest. Dissenters' rights cannot be exercised at
this time. Shareholders who will be entitled to dissenters' rights, if any,
in connection with the Proposed Merger (or similar business combination) will
receive additional information concerning any available dissenters' rights
and the procedures to be followed in connection therewith before such
shareholders have to take any action relating thereto.
Shareholders who sell shares in the Second Offer will not be entitled to
exercise any dissenters' rights with respect to Shares purchased but, rather,
will receive the Offer Price.
The Proposed Merger would have to comply with any applicable federal law
operative at the time of its consummation. The SEC has adopted Rule 13e-3
under the Exchange Act which is applicable to certain "going private"
transactions and which may under certain circumstances be applicable to the
Proposed Merger. However, Rule 13e-3 would be inapplicable if (i) the Shares
are deregistered under the
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Exchange Act prior to the Proposed Merger or other business combination or
(ii) the Proposed Merger or other business combination is consummated within
one year after the purchase of the Shares pursuant to the Second Offer and
the amount paid per Share in the Proposed Merger or other business
combination is at least equal to the amount paid per Share in the Second
Offer. If applicable, Rule 13e-3 requires, among other things, that certain
financial information concerning the fairness of the proposed transaction and
the consideration offered to minority shareholders in such transaction be
filed with the SEC and disclosed to shareholders prior to consummation of the
transaction.
The Company Articles and the Company By-Laws. The Company Articles and the
Company By-Laws contain several provisions that may delay a change in control
of the Company following the purchase of Shares by Purchaser pursuant to the
Second Offer, including, among others, (i) a provision that provides that the
Company Board shall be classified, with each class elected for a term of
three years and one class elected each year at the Company's annual meeting
of shareholders, (ii) a provision requiring advance notice to the Company of
any shareholder nominations for directors at, or shareholder proposals or
business to be brought before, an annual meeting of shareholders, and (iii) a
provision that special meetings of shareholders may be called only by the
Chairman of the Company Board, the Company Board or an Interested
Shareholder.
Pursuant to Article III of the Company By-Laws, the Company Board is
divided into three classes, one of which consists of five members, and two of
which consists of four members each, with each class elected for a term of
three years and one class elected at the Company's annual meeting of
shareholders each year. The number of members of the Company Board is
currently limited to 13 members pursuant to Article III of the Company
By-Laws. Amendment of the foregoing provisions of the Company Articles
requires a majority vote of all shareholders entitled to vote. Amendment of
the foregoing provisions of the Company By-Laws requires a majority vote of
directors present at a meeting at which at least a majority of the directors
is present or a majority vote of all shareholders entitled to vote at a
regular or special meeting.
If, following consummation of the Second Offer, the members of the Company
Board in office at such time were to refuse to approve the Proposed Merger
(or any other transaction or corporate action proposed by Purchaser to
effectuate the Proposed Merger), Parent or the Voting Trustee, in order to
consummate the Proposed Merger (or any such other transaction or corporate
action), would first have to replace at least a majority of the Company Board
with either of their own designees. Parent believes that in such event the
entire Company Board could be removed with or without cause at the next
Annual Meeting. Parent intends, whether or not the Second Offer is then
pending, to conduct a proxy contest in connection with the Annual Meeting
seeking, among other things, to remove certain of the current members of the
Company Board and elect a new slate of directors designated by Parent. To
this end, Parent has notified the Company of its intention, at the Annual
Meeting, to introduce proposals to take such action as well as to introduce
proposals to amend the Company By-Laws to declassify the Company Board and to
reduce the size of the Company Board to eight. See "--Plans for the Company."
In the Pennsylvania Litigation, Parent and Purchaser are seeking a
declaratory judgment that the members of the Company Board can be removed and
replaced with a new slate of directors proposed by Parent. See "--Certain
Litigation" below.
Pursuant to the terms of the Voting Trust Agreement, the Voting Trustee
has agreed to vote all Shares held in the Voting Trust at any meeting of
Company shareholders in favor of the Proposed Merger, in favor of any
proposal or action necessary or desirable to effect, or consistent with the
effectuation of, the Proposed Merger and in favor of a slate of nominees for
director of the Company which favors the Proposed Merger and against any
other acquisition transaction involving the Company but not involving Parent
or one of its subsidiaries or affiliates. Accordingly, it is expected that
the Shares held in the Voting Trust will be voted for the Company Business at
the Annual Meeting. See Section 15.
THE SECOND OFFER DOES NOT CONSTITUTE A SOLICITATION OF SUCH PROXIES AT ANY
MEETING OF THE COMPANY'S SHAREHOLDERS. ANY SUCH SOLICITATION WHICH PARENT OR
PURCHASER MAY MAKE WILL BE MADE ONLY PURSUANT TO SEPARATE PROXY MATERIALS IN
COMPLIANCE WITH THE REQUIREMENTS OF SECTION 14(A) OF THE EXCHANGE ACT.
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The foregoing description of the Company Articles and the Company By-Laws
is qualified in its entirety by reference to the full text of the Company
Articles and the Company By-Laws, copies of which have been filed by the
Company as exhibits to documents filed with the SEC and may be obtained in
the manner described in Section 8 (except that copies may not be available at
regional offices of the SEC).
The Rights. The following is based upon the July 1989 Form 8-K, the
Company's Form 8-B, dated as of September 25, 1995, and other information
filed with the SEC.
On July 19, 1989, the Board of Directors of CRC declared a dividend
distribution of one Right for each share of common stock of CRC and executed
the Rights Agreement. Upon adoption by the Company of a holding company
structure on February 17, 1993, CRC assigned all of CRC's title and interest
under the Rights Agreement to the Company. On October 2, 1995, one Right was
distributed with respect to each outstanding ESOP Preferred Share. Under the
Rights Agreement, each Right entitles the holder to purchase one Common Share
at an exercise price of $205.00, subject to adjustment. Based on publicly
available information, Purchaser believes that, as of the date of this Offer
to Purchase, the Rights were not exercisable, Rights Certificates have not
been issued and the Rights were evidenced solely by the Share Certificates. A
general summary of certain provisions of the Rights and the Rights Agreement
appears below.
Under the Rights Agreement, as amended, until the close of business on the
Distribution Date (which, as modified by the Company Board on November 4,
1996 under pressure from Parent, is defined as the tenth business day after
an Acquiring Person has acquired beneficial ownership of 10% or more of the
outstanding Shares), the Rights will be evidenced by the Share Certificates
and will be transferred with and only with such Share Certificates. As soon
as practicable after the Distribution Date, Rights Certificates will be
mailed to holders of record of the Shares as of the close of business on the
Distribution Date, and thereafter the separate Rights Certificates alone will
evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire at the close of business on September 20, 2005 unless earlier
redeemed by the Company as described below.
In the event that the Company is acquired in a merger or consolidation in
which the Company is not the surviving corporation or 50% or more of the
Company's consolidated assets or earning power is sold or transferred, each
holder of a Right will thereafter have the right to receive, upon the
exercise thereof at then current exercise price of the Right, that number of
shares of common stock of the acquiring company which at the time of such
transaction will have a value equal to two times the exercise price of the
Right.
In the event that an Acquiring Person becomes the beneficial owner of 10%
or more of the outstanding Shares, each holder of a Right will thereafter
have the right to receive, upon exercise, Common Shares (or, in certain
circumstances, cash, property or other securities of the Company), having a
value equal to two times the exercise price of the Right.
At any time prior to the Distribution Date, the Company may redeem the
Rights in whole, but not in part, at the Redemption Price of $.005 per Right.
Immediately upon the action of the Company Board ordering redemption of the
Rights, the Rights will terminate, and the only right to which the holders of
Rights will be entitled will be the right to receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a shareholder of the Company, including without limitation, the right to
vote or to receive dividends.
The terms of the Rights may be amended by the Company Board without the
consent of the holders of the Rights; provided that from and after such time
that an Acquiring Person becomes such, the Rights may not be amended in any
manner which would adversely affect the interests of holders of Rights or to
shorten or lengthen any time period under the Rights Agreement.
Actions or determinations made by the Company Board in the administration
of the Rights Agreement require the concurrence of a majority of (and at
least two) Continuing Directors. A "Continuing Director" is a director who is
not an Acquiring Person (or a representative or nominee
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thereof), and who either (i) was a member of the Company Board prior to
September 20, 1995 or (ii) subsequently became a director of the Company and
whose election or nomination for election is approved or recommended by a
majority of the then Continuing Directors.
Pursuant to the CSX Merger Agreement, the Company has amended the Rights
Agreement to render the Rights Agreement inapplicable to the CSX Offers, the
Proposed CSX Merger and the other transactions contemplated by the CSX Merger
Agreement and the CSX Lockup Option Agreement and to ensure, among other
things, that CSX is not deemed to be an Acquiring Person and that a
Distribution Date does not occur by reason of such agreements or
transactions. The Company has also agreed in the CSX Merger Agreement that it
may not further amend the Rights Agreement without the prior consent of CSX
in its sole discretion.
The foregoing summary of the Rights Agreement does not purport to be
complete and is qualified in its entirety by reference to the July 1989 Form
8-K, the full text of the Rights Agreement as an exhibit thereto filed with
the SEC, the Assignment, and subsequent amendments to the Rights Agreement as
filed with the SEC. Copies of these documents may be obtained in the manner
set forth above.
Purchaser believes that, under applicable law and under the circumstances
of the Second Offer, including the Company Board's approval of the CSX Merger
Agreement and the transactions contemplated thereby, the Company Board is
obligated by its fiduciary responsibilities not to redeem the Rights or
render the Rights Agreement inapplicable to any offer by CSX without, at the
same time, taking such action as to Parent, the Second Offer and the Proposed
Merger, and that its failure to do so would be a violation of law. In the
Pennsylvania Litigation, Purchaser is seeking, among other things, to enjoin
the Company Board from taking any such action or to invalidate the provision
of the Rights Agreement that was added in September 1995 and which limits the
power of the Company Board to redeem the Rights without the approval of a
majority of the Continuing Directors. See Section 15.
If the Rights Condition is not satisfied and Purchaser elects, in its sole
discretion, to waive such condition and consummate the Second Offer, and if
there are outstanding Rights which have not been acquired by Purchaser,
Purchaser will evaluate its alternatives. Such alternatives could include
purchasing additional Rights in the open market, in privately negotiated
transactions, in another tender or exchange offer or otherwise. Any such
additional purchase of Rights could be for cash or other consideration. Under
such circumstances, the Proposed Merger might be delayed or abandoned as
impracticable. The form and amount of consideration to be received by the
holders of Shares in the Proposed Merger, if consummated, might be subject to
adjustment to compensate Purchaser for, among other things, the costs of
acquiring Rights and a portion of the potential dilution cost of Rights not
owned by Purchaser and its affiliates at the time of Proposed Merger. In such
event, the value of the consideration to be exchanged for Shares in Proposed
Merger could be substantially less than the consideration paid in the Second
Offer. In addition, Purchaser may elect under such circumstances not to
consummate the Proposed Merger.
UNLESS THE RIGHTS ARE REDEEMED, SHAREHOLDERS WILL BE REQUIRED TO TENDER
ONE RIGHT FOR EACH COMMON SHARE AND ESOP PREFERRED SHARE TENDERED IN ORDER TO
EFFECT A VALID TENDER OF SUCH COMMON SHARES AND ESOP PREFERRED SHARES IN
ACCORDANCE WITH THE PROCEDURES SET FORTH IN SECTION 3. IF SEPARATE
CERTIFICATES FOR THE RIGHTS ARE NOT ISSUED, A TENDER OF COMMON SHARES AND
ESOP PREFERRED SHARES WILL ALSO CONSTITUTE A TENDER OF THE ASSOCIATED RIGHTS.
SEE SECTIONS 1 AND 3.
CONSUMMATION OF THE SECOND OFFER IS CONDITIONED UPON THE RIGHTS HAVING
BEEN REDEEMED BY THE COMPANY BOARD OR PURCHASER OTHERWISE BEING SATISFIED, IN
ITS SOLE DISCRETION, THAT THE RIGHTS ARE INVALID OR OTHERWISE INAPPLICABLE TO
THE SECOND OFFER AND TO THE PROPOSED MERGER.
13. DIVIDENDS AND DISTRIBUTIONS. If, on or after the date of this Offer to
Purchase, the Company should (i) split, combine or otherwise change the
Shares or its capitalization, (ii) issue or sell any additional securities of
the Company or otherwise cause an increase in the number of outstanding
securities of the Company or (iii) acquire currently outstanding Shares or
otherwise cause a reduction in the number of outstanding Shares, then,
without prejudice to Purchaser's rights under Sections 1 and 14, Purchaser,
in its sole discretion, may make such adjustments as it deems appropriate in
the purchase price and other terms of the Second Offer, including, without
limitation, the amount and type of securities offered to be purchased.
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If, on or after the date of this Offer to Purchase, the Company should
declare or pay any dividend on the Shares, other than regular quarterly
dividends, or make any distribution (including, without limitation, the
issuance of additional Shares pursuant to a stock dividend or stock split,
the issuance of other securities or the issuance of rights for the purchase
of any securities) with respect to the Shares that is payable or
distributable to shareholders of record on a date prior to the transfer to
the name of Purchaser or its nominee or transferee on the Company's stock
transfer records of the Shares purchased pursuant to the Second Offer, then,
without prejudice to Purchaser's rights under Sections 1 and 14, (i) the
purchase price per Share payable by Purchaser pursuant to the Second Offer
will be reduced by the amount of any such cash dividend or cash distribution
and (ii) any such non-cash dividend, distribution or right to be received by
the tendering shareholders will be received and held by such tendering
shareholders for the account of Purchaser and will be required to be promptly
remitted and transferred by each such tendering shareholder to the Depositary
for the account of Purchaser, accompanied by appropriate documentation of
transfer. Pending such remittance and subject to applicable law, Purchaser
will be entitled to all rights and privileges as owner of any such non-cash
dividend, distribution or right and may withhold the entire purchase price or
deduct from the purchase price the amount of value thereof, as determined by
Purchaser in its sole discretion.
14. CONDITIONS OF THE SECOND OFFER. Notwithstanding any other provisions
of the Second Offer, and in addition to (and not in limitation of)
Purchaser's rights to extend and amend the Second Offer at any time in its
sole discretion, Purchaser shall not be required to accept for payment or,
subject to any applicable rules and regulations of the SEC, including Rule
14e-1(c) under the Exchange Act (relating to Purchaser's obligation to pay
for or return tendered Shares promptly after termination or withdrawal of the
Second Offer), pay for, and may delay the acceptance for payment of or,
subject to the restriction referred to above, the payment for, any tendered
Shares, and may terminate the Second Offer as to any Shares not then paid
for, if, in the sole judgment of Purchaser (1) at or prior to the expiration
of the Second Offer any one or more of the Minimum Condition, the Subchapter
F Condition, the Rights Condition or the CSX Termination Condition has not
been satisfied, or (2) at any time on or after February 12, 1997 and prior to
the acceptance for payment of Shares, any of the following events shall
occur:
(a) there shall have been threatened, instituted or pending any action,
proceeding, application or counterclaim before any court or governmental
regulatory or administrative agency, authority, tribunal or commission,
domestic or foreign, by any government or governmental authority or agency
or commission, domestic or foreign, or by any other person, domestic or
foreign (whether brought by the Company, an affiliate of the Company or
any other person), which (i) challenges or seeks to challenge the
acquisition by Parent or Purchaser or any affiliate of either of them of
the Shares, restrains, delays or prohibits or seeks to restrain, delay or
prohibit the making of the Second Offer, consummation of the transactions
contemplated by the Second Offer or any other subsequent business
combination, restrains or prohibits or seeks to restrain or prohibit the
performance of any of the contracts or other arrangements entered into by
Purchaser or any of its affiliates in connection with the acquisition of
the Company or obtains or seeks to obtain any material damages or
otherwise directly or indirectly relating to the transactions contemplated
by the Second Offer, the Proposed Merger or any other subsequent business
combination, (ii) prohibits or limits or seeks to prohibit or limit
Parent's or Purchaser's ownership or operation of all or any portion of
their or the Company's business or assets (including without limitation
the business or assets of their respective affiliates and subsidiaries) or
to compel or seeks to compel Parent or Purchaser to dispose of or hold
separate all or any portion of their own or the Company's business or
assets (including without limitation the business or assets of their
respective affiliates and subsidiaries) or imposes or seeks to impose any
limitation on the ability of Parent, Purchaser or any affiliate of either
of them to conduct its own business or own such assets as a result of the
transactions contemplated by the Second Offer or any other subsequent
business combination, (iii) makes or seeks to make the acceptance for
payment, purchase of, or payment for, some or all of the Shares pursuant
to the Second Offer or the Proposed Merger illegal or results in a delay
in, or restricts, the ability of Parent or Purchaser, or renders Parent or
Purchaser unable, to accept for payment, purchase or pay for some or all
of the Shares or to consummate the Proposed Merger, (iv) imposes or seeks
to impose limitations on the ability of
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Parent or Purchaser or any affiliate of either of them effectively to
acquire or hold or to exercise full rights of ownership of the Shares,
including, without limitation, the right to vote the Shares purchased by
them on an equal basis with all other Shares on all matters properly
presented to the shareholders of the Company, (v) in the sole judgment of
Parent or Purchaser, might adversely affect the Company or any of its
subsidiaries or affiliates or Parent, Purchaser, or any of their
respective affiliates or subsidiaries, (vi) in the sole judgment of Parent
or Purchaser, might result in a diminution in the value of the Shares or
the benefits expected to be derived by Parent or Purchaser as a result of
the transactions contemplated by the Second Offer, (vii) in the sole
judgment of Parent or Purchaser, imposes or seeks to impose any material
condition to the Second Offer unacceptable to Parent or Purchaser or
(viii) otherwise directly or indirectly relates to the Second Offer, the
Proposed Merger or any other business combination with the Company;
(b) there shall be any action taken, or any statute, rule, regulation or
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed or become applicable to the Second Offer, the
Proposed Merger or other subsequent business combination between Purchaser
or any affiliate of Purchaser and the Company or any affiliate of the
Company or any other action shall have been taken, proposed or threatened,
by any government, governmental authority or other regulatory or
administrative agency or commission or court, domestic, foreign or
supranational, that, in the sole judgment of Parent or Purchaser, might,
directly or indirectly, result in any of the consequences referred to in
clauses (i) through (vii) of paragraph (a) above;
(c) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the
business, properties, assets, liabilities, capitalization, shareholders'
equity, condition (financial or otherwise), operations, licenses,
franchises, permits, permit applications, results of operations or
prospects of the Company or any of its subsidiaries or affiliates which,
in the sole judgment of Parent or Purchaser, is or may be materially
adverse to the Company or any of its subsidiaries or affiliates, or Parent
or Purchaser shall have become aware of any fact which, in the sole
judgment of Parent or Purchaser, has or may have material adverse
significance with respect to either the value of the Company or any of its
subsidiaries or the value of the Shares to Parent or Purchaser;
(d) there shall have occurred (i) a declaration of a banking moratorium
or any suspension of payments in respect of banks in the United States
(whether or not mandatory), (ii) any limitation (whether or not mandatory)
by any governmental authority or agency on, or other event which, in the
sole judgment of Parent or Purchaser, might affect the extension of credit
by banks or other lending institutions, (iii) a commencement of a war,
armed hostilities or other national or international crisis directly or
indirectly involving the United States, (iv) any significant change in
United States or any other currency exchange rates or any suspension of,
or limitation on, the markets therefor (whether or not mandatory), (v) any
significant adverse change in the market price of the Shares or in the
securities or financial markets of the United States, or (vi) in the case
of any of the foregoing existing at the time of the commencement of the
Second Offer, in the sole judgment of Parent or Purchaser, a material
acceleration or worsening thereof;
(e) other than the redemption of the Rights at the Redemption Price, the
Company or any subsidiary of the Company shall have, at any time after
February 12, 1997, (i) issued, distributed, pledged, sold or authorized,
proposed or announced the issuance of or sale, distribution or pledge to
any person of (A) any shares of its capital stock (other than sales or
issuances pursuant to options outstanding on February 12, 1997 in
accordance with their terms as disclosed on such date or conversions of
the ESOP Preferred Shares in accordance with their terms) of any class
(including without limitation the Common Shares and the ESOP Preferred
Shares) or securities convertible into any such shares of capital stock,
or any rights, warrants or options to acquire any such shares or
convertible securities or any other securities of the Company, or (B) any
other securities in respect of, in lieu of or in substitution for Common
Shares and ESOP Preferred Shares outstanding on February 12, 1997, (ii)
purchased, acquired or otherwise caused a reduction in the number of, or
proposed or offered to purchase, acquire or otherwise reduce the number
of, any outstanding Common Shares, ESOP Preferred Shares or other
securities, (iii) declared, paid or proposed to
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declare or pay any dividend or distribution on any Shares (other than the
regular quarterly dividend on the Common Shares not in excess of the
amount per share, and with record and payment dates, in accordance with
recent practice) or on any ESOP Preferred Shares (other than the regular
semi-annual dividend on the ESOP Preferred Shares not in excess of the
amount per share payable in accordance with recent practice) or on any
other security or issued, authorized, recommended or proposed the issuance
or payment of any other distribution in respect of the Common Shares or
the ESOP Preferred Shares, whether payable in cash, securities or other
property, (iv) altered or proposed to alter any material term of any
outstanding security, (v) incurred any debt other than in the ordinary
course of business and consistent with past practice or any debt
containing burdensome covenants, (vi) issued, sold or authorized or
announced or proposed the issuance of or sale to any person of any debt
securities or any securities convertible into or exchangeable for debt
securities or any rights, warrants or options entitling the holder thereof
to purchase or otherwise acquire any debt securities or incurred or
announced its intention to incur any debt other than in the ordinary
course of business and consistent with past practice, (vii) split,
combined or otherwise changed, or authorized or proposed the split,
combination or other change of the Common Shares, the ESOP Preferred
Shares or its capitalization, (viii) authorized, recommended, proposed or
entered into or publicly announced its intent to enter into any merger,
consolidation, liquidation, dissolution, business combination, acquisition
or disposition of a material amount of assets or securities, any material
change in its capitalization, any waiver, release or relinquishment of any
material contract rights or comparable right of the Company or any of its
subsidiaries or any agreement contemplating any of the foregoing or any
comparable event not in the ordinary course of business, or taken any
action to implement any such transaction previously authorized,
recommended, proposed or publicly announced, (ix) transferred into escrow
any amounts required to fund any existing benefit, employment or severance
agreements with any of its employees or entered into any employment,
severance or similar agreement, arrangement or plan with any of its
employees other than in the ordinary course of business and consistent
with past practice or entered into or amended any agreements, arrangements
or plans so as to provide for increased benefits to the employees as a
result of or in connection with the transactions contemplated by the
Second Offer or any other change in control of the Company, (x) except as
may be required by law, taken any action to terminate or amend any
employee benefit plan (as defined in Section 3(2) of ERISA) of the Company
or any of its subsidiaries, or Parent or Purchaser shall have become aware
of any such action which was not previously disclosed in publicly
available filings, (xi) amended or proposed or authorized any amendment to
its articles of incorporation or bylaws or similar organizational
documents, (xii) authorized, recommended, proposed or entered into any
other transaction that in the sole judgment of Parent or Purchaser could,
individually or in the aggregate, adversely affect the value of the Shares
to Parent or Purchaser or (xiii) agreed in writing or otherwise to take
any of the foregoing actions or Parent or Purchaser shall have learned
about any such action which has not previously been publicly disclosed by
the Company and also set forth in filings with the SEC;
(f) the Company and Parent or Purchaser shall have reached an agreement
or understanding that the Second Offer be terminated or amended or Parent
or Purchaser (or one of their respective affiliates) shall have entered
into a definitive agreement or an agreement in principle to acquire the
Company by merger or similar business combination, or purchase of Shares
or assets of the Company;
(g) Parent or Purchaser shall become aware (i) that any material
contractual right of the Company or any of its subsidiaries or affiliates
shall be impaired or otherwise adversely affected or that any material
amount of indebtedness of the Company or any of its subsidiaries shall
become accelerated or otherwise become due prior to its stated due date,
in either case with or without notice or the lapse of time or both, as a
result of the transactions contemplated by the Second Offer or the
Proposed Merger, or (ii) of any covenant, term or condition in any of the
Company's or any of its subsidiaries' instruments or agreements that are
or may be materially adverse to the value of the Shares in the hands of
the Purchaser or any other affiliate of Parent (including, but not limited
to, any event of default that may ensue as a result of the consummation of
the Second Offer, consummation of the Proposed Merger or any other
business combination or the acquisition of control of the Company); or
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(h) Parent or Purchaser shall not have obtained any waiver, consent,
extension, approval, action or non-action from any governmental authority
or agency (other than approval by the STB of the acquisition of control of
the Company) which in its judgment is necessary to consummate the Second
Offer;
which, in the sole judgment of Parent or Purchaser in any such case, and
regardless of the circumstances (including any action or inaction by Parent
or Purchaser or any of their affiliates), giving rise to any such condition,
makes it inadvisable to proceed with the Second Offer and/or with such
acceptance for payment or payment. Parent and Purchaser have the right to
rely on any condition set forth in the immediately preceding sentence being
satisfied in determining whether to consummate the Second Offer; however, if
Parent or Purchaser asserts the failure of any such condition without relying
on the exercise of its reasonable judgment or some other objective criteria,
Parent and Purchaser shall promptly disclose such assertion and the
Expiration Date will be (and, if necessary, will be extended to be) at least
five business days after the date of such disclosure.
The foregoing conditions are for the sole benefit of Parent and Purchaser
and may be asserted by Parent or Purchaser in their sole discretion
regardless of the circumstances (including any action or omission by Parent
or Purchaser) giving rise to any such conditions or may be waived by Parent
or Purchaser in their sole discretion in whole or in part at any time and
from time to time. The failure by Parent or Purchaser at any time to exercise
any of the foregoing rights shall not be deemed a waiver of any such right
and each such right shall be deemed an ongoing right which may be asserted at
any time and from time to time. Any determination by the Parent or Purchaser
concerning any condition or event described in this Section 14 shall be final
and binding upon all parties.
15. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS; CERTAIN LITIGATION.
General. Except as otherwise disclosed herein, based on a review of
publicly available information by the Company with the SEC, neither Purchaser
nor Parent is aware of (i) any license or regulatory permit that appears to
be material to the business of the Company and its subsidiaries, taken as a
whole, that might be adversely affected by the acquisition of Shares by
Parent or Purchaser pursuant to the Second Offer or the Proposed Merger,
respectively, or (ii) any approval or other action by any governmental,
administrative or regulatory agency or authority, domestic or foreign, that
would be required for the acquisition or ownership of Shares by Parent or
Purchaser as contemplated herein. Should any such approval or other action be
required, Parent and Purchaser currently contemplate that such approval or
action would be sought. While Purchaser does not currently intend to delay
the acceptance for payment of Shares tendered pursuant to the Second Offer
pending the outcome of any such matter, there can be no assurance that any
such approval or action, if needed, would be obtained or would be obtained
without substantial conditions or that adverse consequences might not result
to the business of the Company, Purchaser or Parent or that certain parts of
the businesses of the Company, Purchaser or Parent might not have to be
disposed of in the event that such approvals were not obtained or any other
actions were not taken. Purchaser's obligation under the Second Offer to
accept for payment and pay for Shares is subject to certain conditions.
Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), and the rules that have been promulgated
thereunder by the Federal Trade Commission (the "FTC"), certain acquisition
transactions may not be consummated unless certain information has been
furnished to the Antitrust Division of the Department of Justice (the
"Antitrust Division") and to the FTC and certain waiting period requirements
have been satisfied. The notice and waiting period requirements of the HSR
Act do not apply to the Second Offer and the Proposed Merger, provided that
information and documentary material filed with the STB in connection with
the seeking of STB approval of the acquisition by Parent of control of the
Company and its subsidiaries are contemporaneously filed with the Antitrust
Division and the FTC. Parent intends to comply with these contemporaneous
filing requirements and therefore believes that the notice and waiting period
requirements of the HSR Act do not apply to the Second Offer and the Proposed
Merger.
STB Matters; The Voting Trust. Certain activities of subsidiaries of the
Company are regulated by the STB. Provisions of subtitle IV, title 49 of the
United States Code require approval of, or the granting
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of an exemption from approval by, the STB for the acquisition of control of
two or more carriers subject to the jurisdiction of the STB ("Carriers") by a
person that is not a Carrier and for the acquisition or control of a Carrier
by a person that is not a Carrier but that controls any number of Carriers.
STB approval or exemption is required for, among other things, Purchaser's
acquisition of control of the Company. Purchaser intends, simultaneous with
the acquisition of the Shares pursuant to the Second Offer, to deposit the
Shares purchased pursuant to the Second Offer in the Voting Trust in order to
ensure that Parent and its affiliates do not acquire and directly or
indirectly exercise control over the Company and its affiliates prior to
obtaining necessary STB approvals or exemptions. STB approval of the
acquisition by Parent of control of the Company and its subsidiaries is not a
condition to the Second Offer. On November 18, 1996, the staff of the STB
issued an informal, nonbinding opinion that the use of a voting trust
substantially in the form of the Voting Trust is consistent with the policies
of the STB against unauthorized acquisitions of control of a regulated
carrier. Under STB regulations that have been in effect since 1979, the STB
staff has the power to issue such opinions.
Pursuant to the terms of the Voting Trust Agreement, the Voting Trustee
will hold such Shares until (i) the receipt of STB approval or (ii) the
Shares are sold to a third party or otherwise disposed of or (iii) the Voting
Trust is otherwise terminated. The Voting Trust Agreement provides that the
Voting Trustee will have sole power to vote the Shares in the Trust, will
vote those Shares in favor of the Proposed Merger, in favor of any proposal
or action necessary or desirable to effect, or consistent with the
effectuation of, the Proposed Merger and in favor of a slate of nominees for
director of the Company which favors the Proposed Merger, and against any
other acquisition transaction involving the Company but not involving Parent
or one of its subsidiaries or affiliates, will vote the Shares in favor of
any permitted disposition of the Shares and, on all other matters, will vote
the Shares in accordance with its best judgement concerning the interests of
the Company. The Voting Trust Agreement contains certain other terms and
conditions designed to ensure that neither Purchaser nor Parent will control
the Company during the pendency of the STB proceedings. In addition, the
Voting Trust Agreement provides that Purchaser or its successor in interest
will be entitled to receive any cash dividends paid by the Company.
Parent has requested that the staff of the STB issue an informal written
opinion that (i) certain amendments to the Voting Trust Agreement, which
would permit the Voting Trustee to vote the Shares held in the Voting Trust
to elect as directors of the Company persons (other than officers, directors
or employees of Parent or Purchaser) nominated or sponsored by Parent or
Purchaser if such persons have agreed to use their best efforts to cause the
Company to place all of the shares of CRC into a separate voting trust (the
"CRC Voting Trust") as promptly following their election as possible, and
(ii) the use of the CRC Voting Trust in connection with the election of
Parent nominees to the Company Board is consistent with the policies of the
STB against unauthorized acquisitions of control of a regulated carrier. Each
of Parent's nominees to the Company Board has agreed, if elected, to use his
or her best efforts to cause the Company to place all of the shares of CRC
into the CRC Voting Trust promptly following election to the Company Board.
Pursuant to the terms of the proposed agreement creating the CRC Voting
Trust (the "CRC Voting Trust Agreement"), it is expected that the voting
trustee would hold the CRC shares until (i) the receipt of STB approval, (ii)
the STB issues an order denying, or approving subject to conditions
unacceptable to Parent, the STB Application (as defined below), in which case
Parent's nominees on the Company Board have agreed to resign, or (iii) the
CRC Voting Trust is otherwise terminated. The proposed CRC Voting Trust
Agreement provides that the voting trustee thereunder will have sole power to
vote the CRC shares in the CRC Voting Trust in accordance with its best
judgment concerning the interests of CRC. The proposed CRC Voting Trust
Agreement contains certain other terms and conditions designed to ensure that
neither Parent nor Purchaser will control CRC during the pendency of the STB
proceedings. In addition, the proposed CRC Voting Trust provides that the
Company will be entitled to receive any cash dividends paid by CRC. There can
be no assurance that the STB will not seek changes in, or request public
comment regarding, the proposed CRC Voting Trust Agreement.
STB Matters; Acquisition of Control. Set forth below is information
relating to approval by the STB of the acquisition of control over the
Company by Parent and Purchaser. Parent plans to file an application (the
"STB Application") seeking approval of the STB for the acquisition of control
over the
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Company and its affiliates by Parent and its affiliates. Under applicable law
and regulations, the STB will hold a public hearing on such application,
unless it determines that a public hearing is not necessary in the public
interest. In ruling on the STB Application, the STB is expected to consider
at least the following: (a) the effect of the proposed control transaction on
the adequacy of transportation to the public; (b) the effect on the public
interest of including, or failing to include, other rail carriers in the area
involved in the proposed transaction; (c) the total fixed charges that result
from the proposed transaction; (d) the interest of rail carrier employees
affected by the proposed transaction; and (e) whether the proposed
transaction would have an adverse effect on competition among rail carriers
in the affected region or in the national rail system. The STB has the
authority to impose conditions on its approval of a control transaction to
alleviate competitive or other concerns. If such conditions are imposed,
Parent can elect to consummate the control transaction subject to the
conditions or can elect not to consummate the transaction.
Three of the five factors listed above are, in Parent's view, unlikely to
affect whether the STB Application is approved by the STB. As to factor
(b)--inclusion of other carriers--in past rail merger proceedings, requests
for inclusion have rarely been made. As to factor (c)--effect on fixed
charges--the capital structure of the resulting company will be sufficiently
strong that this factor is unlikely, in Parent's view, to be given weight by
the STB in deciding whether to approve a combination of the Company and
Parent. As to factor (d)--the interest of affected carrier employees--the STB
has adopted a standard set of labor protective conditions which it imposes in
rail merger and control transactions, and Parent expects that those
conditions would be imposed upon the acquisition by Parent of control of the
Company and that this would not affect approval of the transaction.
As to factor (a)--effect on the adequacy of transportation--and factor
(e)--effect on rail competition--the STB applies a public interest balancing
test in reviewing railroad mergers like the proposed combination of Parent
and the Company. On the one hand, the STB considers the public benefits of
the transaction in terms of better service to shippers, efficiencies, cost
savings and the like. On the other hand, the STB considers any public harms
from the transaction. The principal harm of concern to the STB, and the
principal issue that is likely to be raised by parties opposing approval of a
merger of Purchaser and the Company or seeking the imposition of conditions
thereto, is reduction in competition. In applying the public interest
balancing test, the STB is guided by Congress' intent to encourage mergers,
consolidations and joint use of facilities that tend to rationalize and
improve the nation's rail system.
Parent is willing to provide competitive access to another railroad in
appropriate situations. Such access may take various forms, any of which
could diminish the value to Parent or the Company of its rail properties. The
identity of the railroad or railroads that will be provided such competitive
access, the forms it will take, and the terms and conditions that would apply
thereto have not been determined and will be subject to negotiations. The STB
may impose and enforce those arrangements, when reached, as conditions to its
approval of the Proposed Merger and may require the modification of such
arrangements or require other arrangements regarding rail competition or
other aspects of the public interest, which could be more burdensome, as
conditions to its approval of the acquisition by Parent of control of the
Company.
Parent intends to present to the STB its case that the acquisition of
control of the Company by Parent satisfies the public interest balancing
test. First, Parent will seek to show that a combination of the Company and
Parent has significant public benefits. Second, Parent will seek to show that
a combination of the Company and Parent, especially with
competition-preserving conditions that Parent is prepared to agree to, will
create a more balanced competitive rail structure in the East, will have no
significant adverse effect on rail competition, and indeed will strengthen
such competition. While Parent will seek to present a highly persuasive case,
there can be no assurance that the STB Application will not be denied, or
will not be granted subject to conditions that are so onerous that the
acquisition by Parent of control of the Company is not consummated.
On November 6, 1996, Parent and Purchaser filed with the STB a Notice of
Intent to File Railroad Control Application. On or before May 1, 1997, Parent
and various of its affiliates plan to file an application seeking approval of
the STB for the acquisition of control over the Company and its affiliates by
Parent and its affiliates.
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On December 27, 1996, Parent filed a petition with the STB, which on
January 9, 1997 was denied as premature, alleging that the No Negotiation
Provision, as in effect after the second amendment to the CSX Merger
Agreement, constituted unlawful control of the Company by CSX for the
purposes of the federal statute that requires prior STB approval of control
and seeking, among other things, a declaratory order that CSX was in
violation of such federal law by reason of the No Negotiation Provision and
that such provision was unlawful and unenforceable.
In denying the petition, the STB stated that the No Negotiation Provision
would not preclude the STB from approving the Proposed Merger. The STB, which
indicated that the No Negotiation Provision "appears excessive on its face,"
also stated that the No Negotiation Provision could not be used to prevent
the Company from negotiating or agreeing to a Parent-Company merger agreement
once the STB approves the Proposed Merger.
The STB explained that applicable law can preempt contractual rights,
including the No Negotiation Provision, if necessary to permit consummation
of an STB-approved transaction. Thus, CSX and the Company cannot preclude or
delay consummation of a STB-approved transaction by entering into a contract
that purports to prevent all alternatives to their own preferred outcome.
Under existing law, the STB is required to enter a final order with
respect to the STB Application within approximately 15 months after such
application is accepted. However, the STB can process such cases more
quickly. Parent asked the STB to adopt a more expedited schedule. On January
30, 1997, the STB, after a public comment process, issued a final procedural
schedule under which the STB would issue a final order 365 days from the
filing of the STB Application. Parent has not yet filed the STB Application.
The STB also announced it would have a single proceeding for determining the
control or merger of the Company and reserved the right to modify the
procedural process should circumstances warrant.
Under existing law, other railroads and other interested parties may seek
to intervene to oppose the STB Application or to seek protective conditions
in the event approval by the STB is granted. In addition, any appeals from
the STB final order might not be resolved for a substantial period of time
after the entry of such order by the STB.
Pending receipt of the STB approval, it is expected that the business and
operations of the Company will be conducted in the usual and ordinary course
of business, and the Company's employees and management will continue in
their present positions.
RECEIPT OF STB APPROVAL IS NOT A CONDITION TO CONSUMMATION OF THE SECOND
OFFER OR THE PROPOSED MERGER. IF THE STB APPROVAL IS NOT OBTAINED OR THE STB
IMPOSES UNACCEPTABLE CONDITIONS, PURCHASER WILL BE REQUIRED TO USE ITS BEST
EFFORTS TO SELL OR OTHERWISE DISPOSE OF THE SHARES DEPOSITED IN THE VOTING
TRUST AFTER THE STB ORDER DENYING SUCH APPROVAL BECOMES FINAL OR PARENT
DETERMINES NOT TO CONSUMMATE THE PROPOSED CONTROL TRANSACTION BECAUSE OF
UNACCEPTABLE CONDITIONS. IN SUCH CASE, PURCHASER WOULD BE ENTITLED TO ANY
PROCEEDS OF SUCH SALE OR OTHER DISPOSITION.
State Takeover Statutes. Various states throughout the United States have
enacted takeover statutes that purport, in varying degrees, to be applicable
to attempts to acquire securities of corporations that are incorporated or
have assets, shareholders, executive offices or places of business in such
states. In Edgar v. Mite Corp., the Supreme Court of the United States held
that the Illinois Business Takeover Act, which involved state securities laws
that made the takeover of certain corporations more difficult, imposed a
substantial burden on interstate commerce and therefore was unconstitutional.
In CTS Corp. v. Dynamics Corp. of America, however, the Supreme Court of the
United States held that a state may, as a matter of corporate law and, in
particular, those laws concerning corporate governance, constitutionally
disqualify a potential acquiror from voting on the affairs of a target
corporation without prior approval of the remaining shareholders, provided
that such laws were applicable only under certain conditions.
The Pennsylvania Takeover Disclosure Law (the "PTDL") purports to regulate
certain attempts to acquire a corporation which (1) is organized under the
laws of Pennsylvania or (2) has its principal place of business and
substantial assets located in Pennsylvania. The PTDL requires, among other
things, that the offeror, 20 days prior to any takeover offer, file a
registration statement for the takeover offer with the
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Pennsylvania Securities Commission and publicly disclose the offering price
of the disclosed offer. However, in Crane Co. v. Lam, 509 F. Supp. 782 (E.D.
Pa. 1981), the District Court preliminarily enjoined, on grounds arising
under the United States Constitution, enforcement of at least the portion of
the PTDL involving the pre-offer waiting period thereunder.
On November 8, 1996, the District Court approved and entered a Consent
Order, agreed to by Parent, Purchaser, the Commissioners of the Pennsylvania
Securities Commission, the Attorney General of Pennsylvania and the Company,
enjoining enforcement of the Pennsylvania Takeover Disclosure Law as it would
relate to the First Offer. It is anticipated that the November 8 Consent Order
will be supplemented by consent of such parties to apply to the Second Offer.
Chapter 25 of the PBCL contains other provisions relating generally to
takeovers and acquisitions of certain publicly owned Pennsylvania
corporations such as the Company that have a class or series of shares
entitled to vote generally in the election of directors registered under the
Exchange Act (a "registered corporation"). The following discussion is a
general and highly abbreviated summary of certain features of such chapter,
is not intended to be complete or to completely address potentially
applicable exceptions or exemptions, and is qualified in its entirety by
reference to the full text of Chapter 25 of the PBCL.
In addition to other provisions not applicable to the Second Offer or the
Proposed Merger, Subchapter D of Chapter 25 of the PBCL ("Subchapter D")
includes provisions requiring approval of a merger of a Registered
Corporation with an "interested shareholder" in which the "interested
shareholder" is treated differently from other shareholders, by the
affirmative vote of the shareholders entitled to cast at least a majority of
the votes that all shareholders other than the interested shareholder are
entitled to cast with respect to the transaction without counting the votes
of the interested shareholders. This disinterested shareholder approval
requirement is not applicable to a transaction (i) approved by a vote of the
board of directors, without counting the votes of directors who are directors
or officers of, or who have a material equity interest in, the interested
shareholder, (ii) in which the consideration to be received by shareholders
is not less than the highest amount paid by the interested shareholder in
acquiring his shares, or (iii) effected without submitting the proposed
merger to a vote of shareholders as permitted in Section 1924(b)(1)(ii) of
the PBCL. Purchaser believes that the approval requirements under Subchapter
D would not apply to the Proposed Merger because, among other things,
Purchaser expects that the value of the consideration offered to Company
shareholders pursuant to the Proposed Merger would not be less than the
highest amount paid by Purchaser in acquiring Shares pursuant to the Offers.
If the approval requirements under Subchapter D were applicable to the
Proposed Merger, the Proposed Merger would have to be approved by the
affirmative vote of the holders of a majority of the votes which all
shareholders other than Purchaser are entitled to cast. Purchaser reserves
the right to challenge the applicability and validity of Subchapter D.
Subchapter E of Chapter 25 of the PBCL ("Subchapter E"), among other
things, governs "control transactions" (defined generally as a transaction in
which a person acquires at least 20% of the voting power of a corporation)
involving a "registered corporation" and provides that the shareholders of
such corporation are entitled to demand that they be paid the fair value of
their shares. Pursuant to Subchapter E, the minimum value the shareholders
can receive may not be less than the highest price paid per share by the
control person within the 90-day period ending on and including the date of
the control transaction. Purchaser expects that the value of the
consideration offered to Company shareholders pursuant to the Proposed Merger
would not be less than the highest amount paid by Purchaser in acquiring
Shares pursuant to the Offers.
Subchapter F purports to prohibit under certain circumstances a
"registered corporation" from engaging in a "Business Combination" with an
"Interested Shareholder" for a period of five years following the date such
person became an "Interested Shareholder" unless: (i) before such person
became an Interested Shareholder, the board of directors of the corporation
approved either the Business Combination or the transaction in which the
Interested Shareholder became an Interested Shareholder; (ii) the Business
Combination is approved by a majority vote of the corporation's voting
shares, other than shares held by the Interested Shareholder, no earlier than
three months after the Interested Shareholder
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became, and provided that at the time of such vote the Interested Shareholder
is, the beneficial owner of shares entitled to cast at least 80% of votes of
the corporation, and the Business Combination satisfies the "fair price"
criteria (generally, the higher of (a) the highest price per share paid by
the Interested Shareholder at a time when the Interested Shareholder was the
beneficial owner of at least five percent of the voting power of the
corporation and (b) the market value per share on the announcement date with
respect to the Business Combination or on the Interested Shareholder's
acquisition date, whichever is higher, plus, in any case, interest and less
the value of any distributions on the shares); (iii) the Business Combination
is approved by all of the holders of the corporation's outstanding common
shares; (iv) the Business Combination is approved by a majority vote of the
corporation's voting shares, other than shares held by the Interested
Shareholder, no earlier than five years after the Interested Shareholder
became an Interested Shareholder; or (v) the Business Combination is approved
by a majority vote of the corporation's voting shares no earlier than five
years after the Interested Shareholder became an Interested Shareholder and
the Business Combination satisfies the "fair price" criteria described above.
Subchapter F provides that during such five-year period the corporation
may not engage in certain business transactions with the Interested
Shareholder or any affiliate or associate thereof, including, without
limitation, (i) any merger, consolidation, share exchange or division of the
corporation or any subsidiary of the corporation (a) with the Interested
Shareholder or (b) with, involving or resulting in any other corporation
which is, or after the merger, consolidation, share exchange or division
would be, an affiliate or associate of the Interested Shareholder, (ii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition to or
with an Interested Shareholder or any affiliate or associate thereof of
assets having an aggregate market value equal to at least 10% of the
aggregate market value of all assets on a consolidated basis or all
outstanding shares, or representing at least 10% of the net income on a
consolidated basis, in each case of such business corporation, and (iii)
other specified self-dealing transactions between the corporation and an
Interested Shareholder or any affiliate or associate thereof.
Under Subchapter F, the restrictions described above do not apply if,
among other things, (i) the corporation's original certificate of
incorporation contains a provision expressly electing not to be governed by
Subchapter F, (ii) the board of directors of a corporation adopted an
amendment to its by-laws by June 21, 1988 (and not subsequently rescinded by
an amendment to the certificate of incorporation or by-laws) expressly
electing not to be governed by Subchapter F, or (iii) the corporation, by
action of its shareholders, adopts an amendment to its certificate of
incorporation expressly electing not to be governed by Subchapter F, provided
that, in addition to any other vote required by law, such amendment to the
certificate of incorporation must be approved by a majority of the
corporation's voting shares, other than shares held by the Interested
Shareholders, which amendment would not be effective until 18 months after
the vote of such shareholders and would not apply to any Business Combination
between the corporation and any person who became an Interested Shareholder
prior to the effective date of the amendment. The Company is not exempt from
operation of Subchapter F by reason of any of the foregoing exceptions.
Purchaser believes that, under applicable law and under circumstances of
the Second Offer including the Company Board's approval of the CSX Merger
Agreement, the Company Board is obligated by its fiduciary responsibilities
to approve the Second Offer and the Proposed Merger for purposes of
Subchapter F and that its failure to do so would be a violation of law.
Purchaser is hereby requesting that the Company Board adopt a resolution
approving the Second Offer and the Proposed Merger for purposes of Subchapter
F as promptly as it may do so without violating its obligations under the CSX
Merger Agreement. In the Pennsylvania Litigation, Purchaser is seeking, among
other things, an order requiring the Company Board to approve the Second
Offer and the Proposed Merger and thereby render Subchapter F inapplicable.
See "--Certain Litigation" below.
If Subchapter F applies to the Company, and if Subchapter F is not invalid
on its face or as applied to the Proposed Merger (by action of the Company
Board or otherwise), Subchapter F would prohibit, among other transactions,
consummation of the Proposed Merger for a period of five years after
consummation of the Second Offer.
CONSUMMATION OF THE SECOND OFFER IS CONDITIONED UPON PURCHASER BEING
SATISFIED, IN ITS SOLE DISCRETION, THAT SUBCHAPTER F HAS BEEN COMPLIED WITH
OR IS INVALID OR OTHERWISE INAPPLICABLE TO THE SECOND OFFER AND THE PROPOSED
MERGER.
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Subchapter G of Chapter 25 of the PBCL ("Subchapter G"), relating to
"control-share acquisitions," prevents under certain circumstances the owner
of a control-share block of shares of a registered corporation from voting
such shares unless a majority of the "disinterested" shares approve such
voting rights. Failure to obtain such approval may result in a forced sale by
the control-share owner of the control-share block to the corporation at a
possible loss. The Company Articles specifically provide that Subchapter G
does not apply to the Company.
Subchapter H of Chapter 25 of the PBCL ("Subchapter H"), relating to
disgorgement by certain controlling shareholders of a registered corporation,
provides that under certain circumstances any profit realized by a
controlling person from the disposition of shares of the corporation to any
person (including to the corporation under Subchapter G or otherwise) will be
recoverable by the corporation. The Company Articles specifically provide
that Subchapter H does not apply to the Company.
Subchapter I of Chapter 25 of the PBCL ("Subchapter I") entitles "eligible
employees" of a registered corporation to a lump sum payment of severance
compensation under certain circumstances if the employee is terminated, other
than for willful misconduct, within two years after voting rights lost as a
result of a control-share acquisition are restored by a vote of disinterested
shareholders ("Control-share Approval") or, in the event the termination was
accomplished pursuant to an agreement, arrangement or understanding with the
acquiring person, within 90 days prior to Control-share Approval. Subchapter
J of Chapter 25 of the PBCL ("Subchapter J") provides protection against
termination or impairment under certain circumstances of "covered labor
contracts" of a registered corporation as a result of a "business
combination" transaction if the business operation to which the covered labor
contract relates was owned by the registered corporation at the time voting
rights are restored by shareholder vote after a control-share acquisition.
Subchapters I and J apply only in the event of a "control-share acquisition"
specified in Subchapter G. The Company Articles specifically provide that
Subchapter G does not apply to the Company.
Section 2504 of the PBCL provides that the applicability of Chapter 25 of
the PBCL to a registered corporation having a class or series of shares
entitled to vote generally in the election of directors registered under the
Exchange Act or otherwise satisfying the definition of a registered
corporation under Section 2502(1) of the PBCL shall terminate immediately
upon the termination of the status of the corporation as a registered
corporation. Purchaser intends to seek to cause the Company to terminate the
registration of the Shares under the Exchange Act as soon after consummation
of the Proposed Merger as the requirements for termination of the
registration of the Shares are met.
Neither Purchaser nor Parent has currently complied with any state
takeover statute or regulation. Purchaser reserves the right to challenge the
applicability or validity of any state law purportedly applicable to the
Second Offer or the Proposed Merger and nothing in this Offer to Purchase or
any action taken in connection with the Offers or the Proposed Merger is
intended as a waiver of such right. If it is asserted that any state takeover
statute is applicable to the Second Offer or the Proposed Merger and an
appropriate court does not determine that it is inapplicable or invalid as
applied to the Second Offer or the Proposed Merger, Purchaser might be
required to file certain information with, or to receive approvals from, the
relevant state authorities, and Purchaser might be unable to accept for
payment or pay for Shares tendered pursuant to the Second Offer, or be
delayed in consummating the Second Offer or the Proposed Merger. In such
case, Purchaser may not be obliged to accept for payment or pay for any
Shares tendered pursuant to the Second Offer.
A number of other states have adopted laws and regulations applicable to
attempts to acquire securities of corporations which are incorporated, or
have substantial assets, shareholders, principal executive offices or
principal places of business, or whose business operations otherwise have
substantial economic effects, in such states. Purchaser does not know whether
any of these laws will, by their terms, apply to the Second Offer and has not
complied with any such laws. Should any person seek to apply any state
takeover law, Purchaser will take such action as then appears desirable,
which may include challenging the validity or applicability of any such
statute in appropriate court proceedings. In the event it is asserted that
one or more state takeover laws are applicable, and an appropriate court does
not determine that such law is, or such laws are inapplicable or invalid as
applied to the Second Offer,
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Purchaser might be required to file certain information with, or receive
approvals from, the relevant state authorities. In addition, if enjoined,
Purchaser might be unable to accept for payment any Shares tendered pursuant
to the Second Offer, or be delayed in continuing or consummating the Second
Offer. In such case, Purchaser may not be obligated to accept for payment any
Shares tendered. See Section 14.
Certain Litigation. On October 23, 1996, Parent, Purchaser and Kathryn B.
McQuade, a shareholder of the Company (collectively, the "Plaintiffs"), filed
a Complaint for Declaratory and Injunctive Relief (the "Complaint") against
the Company, its directors and CSX (collectively, the "Defendants") in the
District Court. The Plaintiffs have amended their Complaint on several
occasions to update the facts and to add certain additional allegations and
claims. The Complaint, as amended, alleges, among other things, that the
Defendants have breached their fiduciary duties with respect to the coercive
nature of the Proposed CSX Transaction, the Rights Agreement, Subchapter F,
the No Negotiation Provision and certain lock-up provisions contained in the
CSX Merger Agreement; that the "Continuing Director" requirement of the
Rights Agreement is void under Pennsylvania law and under the Company
Articles and Company By-Laws and constitutes a breach of the director
defendants' duty of loyalty; that the provisions in the CSX Merger Agreement
which prohibit the Company Board from redeeming the Rights, and 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 Defendants have
violated Sections 14 (a), (d) and (e) of the Exchange Act and the rules and
regulations promulgated thereunder; that the Company and its directors are
estopped from effectuating a sale of the Company without giving Parent an
adequate opportunity to present its competing offer; that Section 5.1(b) of
the CSX Merger Agreement ("Section 5.1(b)"), constitutes a breach of
fiduciary duty in that it purports to delegate the Company directors'
fiduciary responsibilities relating to the processes of corporate democracy,
and, alternatively, that Section 5.1(b) is void and ultra vires; that the
entire Company Board, or one or more Company directors, can be removed
without cause; and that consummation of the CSX First Offer caused a "control
transaction" to occur with respect to the Company pursuant to Subchapter E,
thus obligating the group consisting of CSX, the Company directors and
certain executive officers of the Company to pay to each demanding Company
shareholder at least $110 cash per share.
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,
among other things, commencing or continuing a tender offer for Shares or
other securities of the Company; seeking the approval by Company shareholders
of the Articles Amendment, or, in the event it has been approved by Company
shareholders, from taking any steps to make the Articles Amendment effective;
taking any action to redeem the Rights or render the Rights Agreement
inapplicable as to any offer by CSX without, at the same time, taking the
same action as to the Offers; taking any action to enforce the "Continuing
Director" requirement of the Rights Agreement; taking any action to enforce
the CSX Termination Fee granted to CSX by the Company, the CSX Lockup Option
Agreement or other lock-up or lock-out provisions contained in the CSX Merger
Agreement; failing to take such action as is necessary to exempt Parent's
proposed acquisition of the Company from the provisions of Subchapter F; and
holding any Pennsylvania Special Meeting until all necessary corrective
disclosures have been made and adequately disseminated to Company
shareholders. Plaintiffs also seek declaratory relief concerning certain of
the other claims summarized in the preceding paragraph.
On November 1, 1996, Plaintiffs filed a motion, supporting brief and
proposed form of order with the District Court seeking a temporary
restraining order in the Pennsylvania Litigation (the "TRO Motion"). In the
TRO Motion, Plaintiffs requested that the District Court temporarily enjoin
Defendants and all persons acting on their behalf or in concert with them
from taking any action to enforce Sections 3.1(n) and 5.13 of the CSX Merger
Agreement and any other provisions of the CSX Merger Agreement which purport
to limit the ability of the Company Board to take action or make any
determination with regard to the Rights Agreement and temporarily enjoin
Defendants and all persons acting on their behalf or in concert with them
from distributing any Rights pursuant to the Rights Agreement. Plaintiffs
also requested that the District Court require Defendants to take such action
as necessary to prevent a
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"Distribution Date" from occurring pursuant to the Rights Agreement. At the
hearing on November 4, 1996 to hear arguments concerning the TRO Motion,
counsel to the Company advised the District Court that the Company Board had
on that date adopted a resolution deferring the "Distribution Date" under the
Rights Agreement until such date as the Rights become exercisable (i.e., ten
days after a party other than CSX acquires more than 10% of the Shares).
Counsel to CSX advised the District Court that CSX had consented to the terms
of such resolution. In view of the fact that the Company and CSX had taken
the action that Plaintiffs requested be ordered by the District Court, the
District Court stated that it was not necessary for the District Court to
take further action and therefore denied the TRO Motion as moot.
On November 19, 1996, the District Court issued an oral ruling denying
Plaintiffs' motion for preliminary injunctive relief concerning the CSX First
Offer and the No Negotiation Provision after two days of hearings. After the
ruling, Plaintiffs asked the District Court for an injunction pending appeal
which was denied. On the same date, Plaintiffs filed an emergency motion for
an injunction pending appeal and a motion seeking an expedited appeal to the
United States Court of Appeals for the Third Circuit (the "Third Circuit"),
which was denied on November 20, 1996. Plaintiffs continue to pursue their
appeal on an unexpedited basis.
On December 5, 1996, Defendants filed their an answer and defenses
generally denying, and asserting various defenses to, the allegations
contained in the Complaint, as it then existed, and requesting judgment on
all claims and an award of costs and attorneys' fees. The Company and CSX
also filed a Counterclaim (the "Counterclaim"), naming Plaintiffs as
counterclaim defendants, alleging that David R. Goode and another executive
officer of Parent are co-conspirators/aiders and abettors, and purporting to
state the following claims: tortious interference with current and
prospective contractual relationships; intentional infliction of harm; unfair
competition; and civil conspiracy. Further, the Counterclaim alleges that
Parent and certain of its executive officers have engaged in (i)
dissemination of materially false and misleading information, (ii) promotion
of an illusory tender offer, (iii) purportedly improper commencement of a
lawsuit, (iv) false and misleading solicitation of proxies for the Company
shareholder vote at the Pennsylvania Special Meeting and (v) efforts to
manipulate the market through unfair, tortious conduct, in violation of the
federal securities laws. The Counterclaim requests a jury trial and an award
of damages, punitive damages, costs and attorneys' fees. Parent believes that
the Counterclaim is without merit and intends to defend it vigorously. On
December 20, 1996, Plaintiffs filed a Motion to Dismiss the Counterclaim for
failure to state a claim pursuant to Rule 12(b) of the Federal Rules of Civil
Procedure and an accompanying brief.
On December 17, 1996, the District Court held a hearing to consider
Plaintiffs' Motion for a Preliminary Injunction as to Plaintiffs' claims (i)
that Defendants' stated intention not to convene the special meeting of the
Company's shareholders scheduled for December 23, 1996 constitutes a breach
of fiduciary duty; and (ii) that Defendants' stated intention to successively
postpone the vote of Company shareholders scheduled for December 23, 1996
until such shareholders submit to Defendants' will constitutes fraudulent and
fundamentally unfair conduct. At the conclusion of the hearing, the District
Court issued an order enjoining Defendants from failing to convene, and/or
from postponing, and/or from adjourning the Pennsylvania Special Meeting
scheduled for Monday, December 23, 1996, by reason of the Company or its
nominees not having received sufficient proxies to assure approval of the
proposal set forth in the Company's "Notice of Special Meeting of
Shareholders" and in the Company's proxy materials to "opt-out" of Subchapter
E.
On January 2, 1997, Plaintiffs filed a Motion for Preliminary Injunction
and a Motion for Partial Summary Judgment in the District Court. In their
Motion for Partial Summary Judgment, Plaintiffs requested an order stating
that consummation of the CSX First Offer caused a "Control Transaction" with
respect to the Company to occur under the Pennsylvania Control Transaction
Law and created joint and several liability among the members of the Control
Transaction Group to pay at least $110 cash per Share to each demanding
Company shareholder. In their Motion for Preliminary Injunction, Plaintiffs
requested that the District Court enjoin Defendants, and all persons acting
in concert with them, from seeking to enforce or requiring compliance with,
the No Negotiation Provision, as extended, and to enjoin Defendants from
convening the Pennsylvania Special Meeting until ten business days after
Company shareholders receive notice of the District Court's ruling on
Plaintiffs' Motions for Preliminary Injunction
48
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and Partial Summary Judgment. On January 8, 1997, Plaintiffs filed a
Supplemental Motion for Preliminary Injunction requesting that Defendants be
enjoined from convening the Pennsylvania Special Meeting until ten business
days after Company shareholders receive notice of the District Court's final
judgment on the Pennsylvania Control Transaction Law issue. Such motions were
denied on January 9, 1997.
On January 10, 1997, Plaintiffs filed a motion for expedited appeal or, in
the alternative, an injunction pending appeal with the Third Circuit which
was denied on January 15, 1997.
On January 28, 1997, the Third Circuit issued an order consolidating the
pending appeals and setting a briefing schedule and an oral argument for
February 25, 1997.
16. FEES AND EXPENSES. Except as set forth below, neither Parent nor
Purchaser will pay any fees or commissions to any broker, dealer or other
Person for soliciting tenders of Shares pursuant to the Second Offer. The
Dealer Managers are acting in such capacity in connection with the Offers and
are acting as financial advisors to Parent in connection with its effort to
acquire the Company. Parent paid each of the Dealer Managers an advisory fee
of $2,500,000 upon the commencement of the First Offer. Upon the earliest to
occur of (i) the successful closing of any tender offer by Parent for
securities of the Company (defined as the acceptance for payment by Parent of
a majority of the Company's outstanding capital stock), (ii) the execution of
a definitive agreement providing for (a) any merger, consolidation,
reorganization or other business combination pursuant to which the business
of the Company is combined with that of Parent or one or more persons formed
by or affiliated with Parent, including, without limitation, any joint
venture (a "Business Combination"), (b) the acquisition by Parent by way of a
tender or exchange offer, negotiated purchase or other means of a majority of
the then outstanding capital stock of the Company, or (c) the acquisition by
Parent of all or a substantial portion of the assets, revenues or income of
the Company (an "Asset Acquisition"), and (iii) the acquisition by Parent of
control of the Company through a proxy contest (a "Successful Proxy
Contest"), Parent has agreed to pay each of the Dealer Managers an additional
advisory fee of $2,500,000. In addition, Parent has agreed to pay each of the
Dealer Managers a success fee of .125% of the aggregate transaction value
(less the amount of any previously paid advisory fees) upon the consummation
of a Business Combination or Asset Acquisition. Parent has also agreed to
reimburse the Dealer Managers (in their capacities as Dealer Managers and
financial advisors) for their reasonable out-of-pocket expenses, including
the reasonable fees and expenses of their legal counsel, incurred in
connection with their engagement, and to indemnify such firms and certain
related persons against certain liabilities and expenses in connection with
their engagement, including certain liabilities under the federal securities
laws. The Dealer Managers have rendered various investment banking and other
advisory services to Parent and its affiliates in the past and are expected
to continue to render such services, for which they have received and will
continue to receive customary compensation from Parent and its affiliates.
The Dealer Managers and/or their affiliates, in their capacity as Arrangers
and/or Lenders, will also be receiving fees from Parent as described in
Section 10.
Purchaser has retained Georgeson & Company Inc. to act as the Information
Agent in connection with the Offers and to assist Parent and Purchaser in its
communications with Company shareholders with respect to, and to provide
other services in connection with the Annual Meeting or any Special Meeting
of Company shareholders. The Information Agent may contact holders of Shares
and participants in the ESOP by mail, telephone, facsimile, telegraph and
personal interviews and may request brokers, dealers and other nominee
shareholders to forward materials relating to the Second Offer or any meeting
of Company shareholders to beneficial owners of Shares. The Information Agent
will receive reasonable and customary compensation for its services, will be
reimbursed for certain reasonable out-of-pocket expenses and will be
indemnified against certain liabilities and expenses in connection therewith,
including certain liabilities under the federal securities laws.
In addition, The Bank of New York has been retained as the Depositary. The
Depositary has not been retained to make solicitations or recommendations in
its role as Depositary. The Depositary will receive reasonable and customary
compensation for its services, will be reimbursed for certain reasonable
out-of-pocket expenses and will be indemnified against certain liabilities
and expenses in connection
49
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therewith, including certain liabilities under the federal securities laws.
Brokers, dealers, commercial banks and trust companies will be reimbursed by
Purchaser for customary mailing and handling expenses incurred by them in
forwarding offering material to their customers.
17. MISCELLANEOUS. Purchaser is not aware of any jurisdiction where the
making of the Second Offer is prohibited by any administrative or judicial
action pursuant to any valid state statute. If Purchaser becomes aware of any
valid state statute prohibiting the making of the Second Offer or the
acceptance of the Shares pursuant thereto, Purchaser will make a good faith
effort to comply with such state statute. If, after such good faith effort,
Purchaser cannot comply with any such state statute, the Second Offer will
not be made to (nor will tenders be accepted from or on behalf of) the
holders of Shares in such state. In any jurisdiction where the securities,
blue sky or other laws require the Second Offer to be made by a licensed
broker or dealer, the Second Offer shall be deemed to be made on behalf of
Purchaser by J.P. Morgan Securities Inc. or Merrill Lynch & Co. or by one or
more registered brokers or dealers which are licensed under the laws of such
jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF PARENT OR PURCHASER NOT CONTAINED IN THIS OFFER
TO PURCHASE OR IN THE RELATED LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
Parent and Purchaser have filed with the SEC the Schedule 14D-1, together
with exhibits, pursuant to Rule 14d-3 of the General Rules and Regulations
under the Exchange Act, furnishing certain additional information with
respect to the Second Offer. The Schedule 14D-1, and any amendments thereto,
may be inspected at, and copies may be obtained from, the same places and in
the same manner as set forth in Section 8 (except that they may not be
available at the regional offices of the SEC).
ATLANTIC ACQUISITION CORPORATION
February 12, 1997
50
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SCHEDULE I
INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE
OFFICERS OF PARENT AND PURCHASER
1. Directors and Executive Officers of Parent. Set forth below is the
name, current business address, citizenship and the present principal
occupation or employment and material occupations, positions, offices or
employments for the past five years of each director and executive officer of
Parent. Unless otherwise indicated, each person identified below is employed
by Parent. The principal address of Parent and, unless otherwise indicated
below, the current business address for each individual listed below is Three
Commercial Place, Norfolk, Virginia 23510. Directors are identified by an
asterisk. Each such person is a citizen of the United States.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
BUSINESS ADDRESS AND FIVE-YEAR EMPLOYMENT HISTORY
- -------------------------------------- -------------------------------------------------------------------
<S> <C>
David R. Goode* Chairman, President and Chief Executive Officer (since September
1992); President (from October 1991 to September 1992); and prior
thereto was Executive Vice President-Administration; Director,
Caterpillar, Inc. (since June 1993); Director, Georgia-Pacific
Corporation (since July 1992); Director, TRINOVA Corporation (since
January 1993); Director, Texas Instruments (since February 1996).
James C. Bishop, Jr. Executive Vice President-Law (since March 1996); and prior thereto
was Vice President-Law.
R. Alan Brogan Executive Vice President-Transportation Logistics and President,
P.O. Box 988 North American Van Lines, Inc. (since December 1992); Vice
Fort Wayne, IN 46801-0988 President-Quality Management (from April 1991 to December 1992);
and prior thereto was Vice President-Material Management and
Property Services.
L. I. Prillaman Executive Vice President-Marketing (since October 1995); Vice
President-Properties (from December 1992 to October 1995); and
prior thereto was Vice President and Controller.
Stephen C. Tobias Executive Vice President-Operations (since July 1994); Senior Vice
President-Operations (from October 1993 to July 1994); Vice
President-Strategic Planning (from December 1992 to October 1993);
and prior thereto was Vice President-Transportation; Director, TTX
Company (since January 1993).
Henry C. Wolf Executive Vice President-Finance (since June 1993); and prior
thereto was Vice President-Taxation; Director, Greater Norfolk
Corporation (since May 1994); Director, Shenandoah Life (since
November 1995).
William B. Bales Senior Vice President-International (since October 1995); Vice
110 Franklin Rd., S.E. President-Coal Marketing (from August 1993 to October 1995); and
Roanoke, VA 24012 prior thereto was Vice President-Coal and Ore Traffic.
Paul N. Austin Vice President-Personnel (since June 1994); Assistant Vice
President-Personnel (from February 1993 to June 1994); and prior
thereto was Director-Compensation.
John F. Corcoran Vice President-Public Affairs (since March 1992); and prior thereto
1500 K Street, N.W., was Assistant Vice President-Public Affairs.
Suite 375
Washington, DC 20005
I-1
<PAGE>
NAME AND PRINCIPAL PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
BUSINESS ADDRESS AND FIVE-YEAR EMPLOYMENT HISTORY
- -------------------------------------- -------------------------------------------------------------------
David A. Cox Vice President-Properties (since December 1995); and prior thereto
was Assistant Vice President-Industrial Development.
Thomas L. Finkbiner Vice President-Intermodal (since August 1993); Senior Assistant
Vice President-International and Intermodal (from April to August
1993); and prior thereto was Assistant Vice President-International
and Intermodal.
Robert C. Fort Vice President-Public Relations (since December 1996); and prior
thereto was Assistant Vice President-Public Relations.
John W. Fox, Jr. Vice President-Coal Marketing (since October 1995); Assistant Vice
110 Franklin Rd., S.E. President-Coal Marketing (from August 1993 to October 1995); and
Roanoke, VA 24042 prior thereto was General Manager Eastern Region.
Thomas J. Golian Vice President (since October 1995); Executive Assistant to the
Chairman, President and Chief Executive Officer (from April 1993 to
October 1995); and prior thereto was Special Assistant to the
President.
James L. Granum Vice President-Public Affairs (since March 1992); and prior thereto
1500 K Street, N.W. was Assistant Vice President-Public Affairs.
Suite 375
Washington, DC 20005
James A. Hixon Vice President-Taxation (since June 1993); and prior thereto was
Assistant Vice President-Tax Counsel.
Jon L. Manetta Vice President-Transportation & Mechanical (since December 1995);
Vice President-Transportation (from June 1994 to December 1995);
Assistant Vice President-Transportation (from October 1993 to June
1994); Assistant Vice President-Strategic Planning (from January
1993 to October 1993); Director Joint Facilities and Budget (from
March 1992 to January 1993); and prior thereto was Assistant
Terminal Superintendent-Transportation; Director, Beaver Street
Tower Company (since July 1994); Director, Norfolk and Portsmouth
Belt Line Railroad Company (since July 1994); Director, Belt
Railway Company of Chicago (since September 1994).
Harold C. Mauney, Jr. Vice President-Operations Planning and Budget (since December
1996); Vice President-Quality Management (from December 1992 to
December 1996); Assistant Vice President-Quality Management (from
April 1991 to December 1992); and prior thereto was General
Manager-Intermodal Transportation Services.
Donald W. Mayberry Vice President-Research and Tests (since December 1995); and prior
110 Franklin Rd., S.E. thereto was Vice President-Mechanical.
Roanoke, VA 24042
James W. McClellan Vice President-Strategic Planning (since October 1993); Assistant
Vice President-Corporate Planning (from March 1992 to October
1993); and prior thereto was Director-Corporate Development.
I-2
<PAGE>
NAME AND PRINCIPAL PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
BUSINESS ADDRESS AND FIVE-YEAR EMPLOYMENT HISTORY
- -------------------------------------- -------------------------------------------------------------------
Kathryn B. McQuade Vice President-Internal Audit (since December 1992);
110 Franklin Rd., S.E. Director-Income Tax Administration (from May 1991 to December
Roanoke, VA 24042 1992); and prior thereto was Director-Federal Income Tax
Administration.
Charles W. Moorman Vice President-Information Technology (since October 1993); Vice
President-Employee Relations (from December 1992 to October 1993);
Vice President-Personnel and Labor Relations (from February to
December 1992); Assistant Vice President-Stations, Terminals and
Transportation Planning (from March 1991 to February 1992); and
prior thereto was Senior Director Transportation Planning.
Phillip R. Ogden Vice President-Engineering (since December 1992); and prior thereto
99 Spring Street, SW was Assistant Vice President-Maintenance; Director, Norfolk and
Atlanta, GA 30303 Portsmouth Belt Line Railroad Company (since December 1993).
John P. Rathbone Vice President and Controller (since December 1992); and prior
thereto was Assistant Vice President-Internal Audit.
William J. Romig Vice President and Treasurer (since April 1992); and prior thereto
was Assistant Vice President-Finance.
Donald W. Seale Vice President-Merchandise Marketing (since August 1993); Assistant
Vice President-Sales and Service (from May 1992 to August 1993);
and prior thereto was Director-Metals, Waste and Construction.
Robert S. Spenski Vice President-Labor Relations (since June 1994); and prior thereto
was Senior Assistant Vice President-Labor Relations.
Rashe W. Stephens Vice President-Quality Management (since December 1996); and prior
thereto was Assistant Vice President-Public Affairs.
William C. Wooldridge Vice President-Law (since March 1996); prior thereto was General
Counsel-Corporate.
Dezora M. Martin Corporate Secretary (since April 1995); Assistant Corporate
Secretary (from October 1993 to April 1995); and prior thereto was
Assistant Corporate Secretary-Planning.
Gerald L. Baliles* Director (since 1990); Partner, Hunton & Williams (since 1990);
Hunton & Williams Director, Dibrell Brothers, Inc. (from March 1992 to March 1995).
951 E. Byrd St.
Riverfront Plaza, East Tower
Richmond, VA 23219-4074
Carroll A. Campbell, Jr.* Director (since July 1996); President and Chief Executive Officer,
American Council of Life Insurance American Council of Life Insurance (since January 1995); Governor
1001 Pennsylvania Ave., N.W. of South Carolina (from January 1987 to January 1995); Director,
Washington, D.C. 20004 AVX (since July 1995), Director, FLUOR (since January 1995).
I-3
<PAGE>
NAME AND PRINCIPAL PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
BUSINESS ADDRESS AND FIVE-YEAR EMPLOYMENT HISTORY
- -------------------------------------- -------------------------------------------------------------------
Gene R. Carter* Director (since 1992); Executive Director, Association for
Association for Supervision Supervision and Curriculum Development (since July 1992);
and Curriculum Development Superintendent of Schools, Norfolk, Virginia (from July 1983 to
1250 N. Pitt Street June 1992).
Alexandria, VA 22314-1403
L. E. Coleman* Director (since 1982); Chairman, The Lubrizol Corporation (from
14849 Trappers Trail January 1996 to March 1996); Chairman of the Board and CEO (from
Novelty, OH 44072 April 1982 to December 1995); Director, Harris Corporation (since
January 1985).
T. Marshall Hahn, Jr.* Director (since 1985); Honorary Chairman of the Board,
Georgia-Pacific Corporation Georgia-Pacific Corporation (since December 1993), Chairman of the
P. O. Box 105605 Board (from May 1993 to December 1993), Chairman of the Board and
Atlanta, GA 30348-5605 Chief Executive Officer (from February 1985 to May 1993); Director,
SunTrust Banks, Inc. (since July 1984); Director, Coca-Cola
Enterprises (since 1987).
Landon Hilliard* Director (since 1992); Partner, Brown Brothers Harriman & Co.
Brown Brothers Harriman & Co. (since January 1979); Director, Owens-Corning Fiberglass
59 Wall Street Corporation (since April 1989).
New York, NY 10005
E. B. Leisenring, Jr.* Director (since 1982); Chairman of the Philadelphia
Philadelphia Contributionship Contributionship (since January 1996); Chairman and Chief Executive
One Tower Bridge, Suite 501 Officer, Penn Virginia Corporation (from December 1988 to April
Philadelphia, PA 19428 1992); Director, Penn Virginia Corporation (from September 1952 to
October 1992); Director, Westmoreland Coal Company (from September
1952 to June 1996); Director, Fidelity Bank, N.A. (a wholly-owned
subsidiary of First Fidelity Bancorporation) (from 1960 to January
1994); Director, PICO Products, Inc. (since November 1994);
Director, SKF USA Inc. (a controlled subsidiary of Aktiebolaget
SKF, Swedish corporation) (from January 1966 to March 1996).
Arnold B. McKinnon* Director (since 1986); Chairman and Chief Executive Officer,
Norfolk Southern Corporation (from September 1991 to August 1992);
Chairman, President and Chief Executive Officer, Norfolk Southern
Corporation (from March 1987 to September 1991).
Jane Margaret O'Brien* Director (since 1994); President, St. Mary's College of Maryland
St. Mary's College of Maryland (since July 1996); President, Hollins College (from July 1991 to
St. Mary's City, MD 20686 June 1996); Dean of the Faculty, Middlebury College (from 1989 to
1991); Director, Landmark Communications, Inc. (since 1994).
Harold W. Pote* Director (since 1988); Partner, The Beacon Group (since April
The Beacon Group 1993); President, PBS Properties, Inc. (since November 1990),
399 Park Ave. President and Chief Executive Officer, First Fidelity
New York, NY 10022 Bancorporation (from April 1984 to December 1988); Director,
Turecamo Maritime, Inc. (from June 1990 to June 1996).
</TABLE>
I-4
<PAGE>
2. Directors and Executive Officers of Purchaser. Set forth below is the
name, current business address, citizenship and the present principal
occupation or employment and material occupations, positions, offices or
employments for the past five years of each director and officer of
Purchaser. Unless otherwise indicated, each person identified below is
employed by Purchaser and has held such position since the formation of
Purchaser on October 23, 1996. The principal address of Purchaser and, unless
otherwise indicated below, the current business address for each individual
listed below is Three Commercial Place, Norfolk, Virginia 23510. Directors
are identified by an asterisk. Each such person is a citizen of the United
States.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
BUSINESS ADDRESS AND FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- -----------------------------------------------------------------
<S> <C>
David R. Goode* President; see part 1 above for five-year employment history.
James C. Bishop, Jr.* Vice President and General Counsel; see part 1 above for five-year
employment history.
L.I. Prillaman Vice President; see part 1 above for five-year employment history.
Henry C. Wolf* Vice President and Treasurer; see part 1 above for five-year employment
history.
Dezora M. Martin Corporate Secretary; see part 1 above for five-year employment history.
</TABLE>
I-5
<PAGE>
Facsimile copies of the Letter of Transmittal, properly completed and duly
signed, will be accepted. The Letter of Transmittal, certificates for the
Shares and any other required documents should be sent by each shareholder of
the Company or his broker, dealer, commercial bank, trust company or other
nominee to the Depositary as follows:
The Depositary for the Second Offer is:
THE BANK OF NEW YORK
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Hand or Overnight Courier:
Tender & Exchange Department Tender & Exchange Department
P.O. Box 11248 By Facsimile Transmission: 101 Barclay Street
Church Street Station (for Eligible Institutions Only) Receive & Deliver Window
New York, New York 10286-1248 (212) 815-6213 New York, New York 10286
</TABLE>
For Information Telephone:
(800) 507-9357
Any questions or requests for assistance may be directed to the
Information Agent or the Dealer Managers at their respective telephone
numbers and locations listed below. Additional copies of the Offer to
Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may
be obtained from the Information Agent at its address and telephone numbers
set forth below. Holders of Shares may also contact their broker, dealer,
commercial bank or trust company or other nominee for assistance concerning
the Second Offer.
The Information Agent for the Second Offer is:
[GEORGESON & COMPANY INC. LOGO]
Wall Street Plaza
New York, NY 10005
Banks and Brokers Call Collect: (212) 440-9800
All Others Call Toll-Free: (800) 223-2064
The Dealer Managers for the Second Offer are:
J.P. MORGAN & CO. MERRILL LYNCH & CO.
60 Wall Street World Financial Center
Mail Stop 2860 North Tower
New York, New York 10260 New York, New York 10281-1305
(800) 576-5070 (toll free) (212) 449-8211 (call collect)
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK AND
SERIES A ESOP CONVERTIBLE JUNIOR PREFERRED STOCK
(INCLUDING, IN EACH CASE, THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
CONRAIL INC.
PURSUANT TO THE OFFER TO PURCHASE, DATED FEBRUARY 12, 1997
BY
ATLANTIC ACQUISITION CORPORATION,
A WHOLLY OWNED SUBSIDIARY
OF
NORFOLK SOUTHERN CORPORATION
THE SECOND OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON WEDNESDAY, MARCH 12, 1997, UNLESS THE SECOND OFFER IS
EXTENDED.
The Depositary for the Second Offer is:
THE BANK OF NEW YORK
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
Tender & Exchange Department (for Eligible Institutions Only) Tender & Exchange Department
P.O. Box 11248 (212) 815-6213 101 Barclay Street
Church Street Station Receive & Deliver Window
New York, New York 10286-1248 New York, New York 10286
For Information Telephone:
(800) 507-9357
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN
AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS
LETTER OF TRANSMITTAL WHERE INDICATED BELOW AND COMPLETE THE SUBSTITUTE FORM
W-9 PROVIDED BELOW.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL
SHOULD BE READ CAREFULLY BEFORE THIS LETTER
OF TRANSMITTAL IS COMPLETED.
THIS LETTER OF TRANSMITTAL IS TO BE COMPLETED BY SHAREHOLDERS OF CONRAIL
INC. EITHER IF CERTIFICATES EVIDENCING SHARES AND/OR RIGHTS (EACH AS DEFINED
BELOW) ARE TO BE FORWARDED HEREWITH, OR IF DELIVERY OF SHARES AND/OR RIGHTS
IS TO BE MADE BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT THE
DEPOSITORY TRUST COMPANY OR THE PHILADELPHIA DEPOSITORY TRUST COMPANY (EACH,
A "BOOK-ENTRY TRANSFER FACILITY" AND COLLECTIVELY, THE "BOOK-ENTRY TRANSFER
FACILITIES") PURSUANT TO THE BOOK-ENTRY TRANSFER PROCEDURE DESCRIBED IN
"PROCEDURES FOR TENDERING SHARES" OF THE OFFER TO PURCHASE (AS DEFINED
BELOW). DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE
WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE
DELIVERY TO THE DEPOSITARY.
Holders of Shares will be required to tender one Right for each Share
tendered to effect a valid tender of such Share. Until the Distribution Date
(as defined in the Offer to Purchase) occurs, the Rights are represented by
and transferred with the Shares. Accordingly, if the Distribution Date does
not occur prior to the Expiration Date (as defined in the Offer to Purchase),
a tender of Shares will constitute a tender of the associated Rights. If a
Distribution Date has occurred and (i) Purchaser (as defined below) has
waived that portion of the Rights Condition (as defined in the Offer to
Purchase) requiring that a Distribution Date not have occurred and (ii)
separate certificates ("Rights Certificates") have been distributed by the
<PAGE>
Company (as defined below) to holders of Shares prior to the date of tender
pursuant to the Offer to Purchase, Rights Certificates representing a number
of Rights equal to the number of Shares being tendered must be delivered to
the Depositary in order for such Shares to be validly tendered. If a
Distribution Date has occurred and (i) Purchaser has waived any portion of
the Rights Condition (as defined in the Offer to Purchase) and (ii) Rights
Certificates have not been distributed prior to the time Shares are tendered
pursuant to the Offer to Purchase, a tender of Shares without Rights
constitutes an agreement by the tendering shareholder to deliver Rights
Certificates representing a number of Rights equal to the number of Shares
tendered pursuant to the Second Offer (as defined in the Offer to Purchase)
to the Depositary within three business days after the date Rights
Certificates are distributed. Purchaser reserves the right to require that it
receive such Rights Certificates prior to accepting Shares for payment.
Payment for Shares tendered and purchased pursuant to the Offer to Purchase
will be made only after timely receipt by the Depositary of, among other
things, Rights Certificates, if such certificates have been distributed to
holders of Shares. Purchaser will not pay any additional consideration for
the Rights tendered pursuant to the Offer to Purchase.
Shareholders whose certificates for Shares and, if applicable, Rights, are
not immediately available or who cannot deliver such certificates and all
other documents required hereby to the Depositary prior to the Expiration
Date or who cannot complete the procedure for delivery by book-entry transfer
on a timely basis and who wish to tender their Shares and Rights must do so
pursuant to the guaranteed delivery procedure described in "Procedures for
Tendering Shares" of the Offer to Purchase. See Instruction 2.
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER
FACILITIES AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
-----------------------------------------------------------------------
Check Box of Applicable Book-Entry Transfer Facility:
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
Account Number:
- -----------------------------------------------------------------------------
Transaction Code Number:
- -----------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED RIGHTS ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER
FACILITIES AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
-----------------------------------------------------------------------
Check Box of Applicable Book-Entry Transfer Facility:
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
Account Number:
- -----------------------------------------------------------------------------
Transaction Code Number:
- -----------------------------------------------------------------------------
2
<PAGE>
[ ] CHECK HERE IF TENDERED SHARES ARE BEING TENDERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s):
-----------------------------------------------------------------------
Window Ticket Number (if any):
-----------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-----------------------------------------------------------------------
Name of Institution which Guaranteed Delivery:
-----------------------------------------------------------------------
If Delivered by Book-Entry Transfer, Check Box of Book-Entry Transfer
Facility:
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
Account Number:
- -----------------------------------------------------------------------------
Transaction Code Number:
- -----------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED RIGHTS ARE BEING TENDERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s):
-----------------------------------------------------------------------
Window Ticket Number (if any):
-----------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-----------------------------------------------------------------------
Name of Institution which Guaranteed Delivery:
-----------------------------------------------------------------------
If Delivered by Book-Entry Transfer, Check Box of Book-Entry Transfer
Facility:
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
Account Number:
- -----------------------------------------------------------------------------
Transaction Code Number:
- -----------------------------------------------------------------------------
3
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION OF SHARES TENDERED
- --------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED
HOLDER(S) SHARE CERTIFICATE(S) TENDERED
(PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL LIST IF NECESSARY)
- -------------------------------------------- ----------------------------------------------------------
TOTAL NUMBER OF NUMBER OF
CERTIFICATE SHARES REPRESENTED SHARES
NUMBER(S)* BY CERTIFICATE(S) TENDERED**
- -------------------------------------------- ------------------ ---------------------- --------------
<S> <C> <C> <C>
------------------ ---------------------- --------------
------------------ ---------------------- --------------
------------------ ---------------------- --------------
------------------ ---------------------- --------------
------------------ ---------------------- --------------
------------------ ---------------------- --------------
Total Shares
- -------------------------------------------- ------------------ ---------------------- --------------
* Need not be completed by shareholders tendering by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares being delivered to the Depositary
are being tendered. See Instruction 4.
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DESCRIPTION OF RIGHTS TENDERED
- ---------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED
HOLDER(S) RIGHTS CERTIFICATE(S) TENDERED*
(PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL LIST IF NECESSARY)
- -------------------------------------------- -----------------------------------------------------------
TOTAL NUMBER OF NUMBER OF
CERTIFICATE RIGHTS REPRESENTED RIGHTS
NUMBER(S)** BY CERTIFICATE(S) TENDERED***
- -------------------------------------------- ------------------ ---------------------- ---------------
<S> <C> <C> <C>
------------------ ---------------------- ---------------
------------------ ---------------------- ---------------
------------------ ---------------------- ---------------
------------------ ---------------------- ---------------
------------------ ---------------------- ---------------
------------------ ---------------------- ---------------
Total Rights
- -------------------------------------------- ------------------ ---------------------- ---------------
* If the tendered Rights are represented by separate Rights Certificates, provide the certificate
numbers of such Rights Certificates. Shareholders tendering Rights which are not represented by
separate certificates will need to submit an additional Letter of Transmittal if Rights Certificates
are distributed.
** Need not be completed by shareholders tendering by book-entry transfer.
*** Unless otherwise indicated, it will be assumed that all Rights being delivered to the Depositary are
being tendered. See Instruction 4.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The names and addresses of the registered holders should be printed, if
not already printed above, exactly as they appear on the certificates
representing Shares and/or Rights tendered hereby. The certificates and
number of Shares and/or Rights that the undersigned wishes to tender should
be indicated in the appropriate boxes.
4
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL
CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to Atlantic Acquisition Corporation, a
Pennsylvania corporation ("Purchaser") and a wholly owned subsidiary of
Norfolk Southern Corporation, a Virginia corporation, the above described
shares of common stock, par value $1.00 per share (the "Common Shares"), or
shares of Series A ESOP Convertible Junior Preferred Stock, without par value
(the "ESOP Preferred Shares" and, together with the Common Shares, the
"Shares"), of Conrail Inc., a Pennsylvania corporation (the "Company"),
including, in each case, the associated Common Stock Purchase Rights (the
"Rights") issued pursuant to the Rights Agreement, dated as of July 19, 1989,
as amended, between the Company and First Chicago Trust Company of New York,
as Rights Agent (the "Rights Agreement"), pursuant to Purchaser's offer to
purchase all outstanding shares, including, in each case, the associated
Rights, at a price of $115 per Share, net to the seller in cash, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
February 12, 1997 (the "Offer to Purchase"), receipt of which is hereby
acknowledged, and in this Letter of Transmittal (which, as amended from time
to time, together constitute the "Second Offer"). UNLESS THE CONTEXT REQUIRES
OTHERWISE, ALL REFERENCES HEREIN TO THE COMMON SHARES, ESOP PREFERRED SHARES
OR SHARES SHALL INCLUDE THE ASSOCIATED RIGHTS, AND ALL REFERENCES TO THE
RIGHTS SHALL INCLUDE ALL BENEFITS THAT MAY INURE TO THE HOLDERS OF THE RIGHTS
PURSUANT TO THE RIGHTS AGREEMENT.
The undersigned understands that Purchaser reserves the right to transfer
or assign, in whole at any time, or in part from time to time, to one or more
of its affiliates, the right to purchase all or any portion of the Shares
and/or Rights tendered pursuant to the Second Offer, but any such transfer or
assignment will not relieve Purchaser of its obligations under the Second
Offer and will in no way prejudice the rights of tendering shareholders to
receive payment for Shares validly tendered and accepted for payment pursuant
to the Second Offer.
Subject to, and effective upon, acceptance for payment of the Shares and
Rights tendered herewith, in accordance with the terms of the Second Offer
(including, if the Second Offer is extended or amended, the terms and
conditions of any such extension or amendment), the undersigned hereby sells,
assigns and transfers to, or upon the order of, Purchaser all right, title
and interest in and to all the Shares and Rights that are being tendered
hereby (and any and all non-cash dividends, distributions, rights, other
Shares or other securities issued or issuable in respect thereof or declared,
paid or distributed in respect of such Shares on or after February 12, 1997
(collectively, "Distributions")), and irrevocably appoints the Depositary the
true and lawful agent and attorney-in-fact of the undersigned with respect to
such Shares, Rights and all Distributions, with full power of substitution
(such power of attorney being deemed to be an irrevocable power coupled with
an interest), to (i) deliver certificates for such Shares (individually, a
"Share Certificate"), Rights and all Distributions, or transfer ownership of
such Shares, Rights and all Distributions on the account books maintained by
a Book-Entry Transfer Facility, together, in either case, with all
accompanying evidence of transfer and authenticity to, or upon the order of
Purchaser, (ii) present such Shares, Rights and all Distributions for
transfer on the books of the Company and (iii) receive all benefits and
otherwise exercise all rights of beneficial ownership of such Shares, Rights
and all Distributions, all in accordance with the terms of the Second Offer.
If, on or after February 12, 1997, the Company should declare or pay any
cash or stock dividend or other distribution on (other than regular quarterly
cash dividends), or issue any rights (other than the Rights), or make any
distribution with respect to, the Shares that is payable or distributable to
shareholders of record on a date prior to the transfer to the name of
Purchaser or its nominee or transferee on the Company's stock transfer
records of the Shares accepted for payment pursuant to the Second Offer,
then, subject to the provisions of Section 13 of the Offer to Purchase, (i)
the purchase price per Share payable by Purchaser pursuant to the Second
Offer will be reduced by the amount of any such cash dividend or cash
distribution and (ii) any such non-cash dividend, distribution or right to be
received by the tendering shareholder will be received and held by such
tendering shareholder for the account of Purchaser and will be required to be
remitted promptly and transferred by each such tendering shareholder to the
Depositary for the account of Purchaser, accompanied by appropriate
documentation of transfer. Pending such remittance, Purchaser will be
entitled to all rights and privileges as owner of any such non-cash dividend,
distribution or right and may withhold the entire purchase price or deduct
from the purchase price the amount of value thereof, as determined by
Purchaser in its sole discretion.
By executing this Letter of Transmittal, the undersigned irrevocably
appoints David R. Goode, James C. Bishop, Jr. and Henry C. Wolf as proxies of
the undersigned, each with full power of substitution, to the full extent of
the undersigned's rights with respect to the Shares and Rights tendered by
the undersigned and accepted for payment by Purchaser (and any and all
Distributions). All such proxies shall be considered coupled with an interest
in the tendered Shares and Rights. This
5
<PAGE>
appointment will be effective if, when, and only to the extent that,
Purchaser accepts such Shares and Rights for payment pursuant to the Second
Offer. Upon such acceptance for payment, all prior proxies given by the
undersigned with respect to such Shares, Rights, Distributions and other
securities will, without further action, be revoked, and no subsequent
proxies may be given. The individuals named above as proxies will, with
respect to the Shares, Rights, Distributions and other securities for which
the appointment is effective, be empowered (subject to the terms of the
Voting Trust Agreement (as defined in the Offer to Purchase) so long as it
shall be in effect with respect to the Shares) to exercise all voting and
other rights of the undersigned as they in their sole discretion may deem
proper at any annual, special, adjourned or postponed meeting of Company
shareholders, by written consent or otherwise, and Purchaser reserves the
right to require that, in order for Shares, Rights, Distributions or other
securities to be deemed validly tendered, immediately upon Purchaser's
acceptance for payment of such Shares and Rights, Purchaser or Purchaser's
designee must be able to exercise full voting rights with respect to such
Shares and Rights.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares and
Rights tendered hereby and all Distributions, that the undersigned own(s) the
Shares and Rights tendered hereby and that, when such Shares and Rights are
accepted for payment by Purchaser, Purchaser will acquire good, marketable
and unencumbered title thereto and to all Distributions, free and clear of
all liens, restrictions, charges and encumbrances, and that none of such
Shares, Rights and Distributions will be subject to any adverse claim. The
undersigned, upon request, shall execute and deliver all additional documents
deemed by the Depositary or Purchaser to be necessary or desirable to
complete the sale, assignment and transfer of the Shares and Rights tendered
hereby and all Distributions. In addition, the undersigned shall remit and
transfer promptly to the Depositary for the account of Purchaser all
Distributions in respect of the Shares and Rights tendered hereby,
accompanied by appropriate documentation of transfer, and, pending such
remittance and transfer or appropriate assurance thereof, Purchaser shall be
entitled to all rights and privileges as owner of each such Distribution and
may withhold the entire purchase price of the Shares and Rights tendered
hereby or deduct from such purchase price the amount or value of such
Distribution as determined by Purchaser in its sole discretion.
No authority herein conferred or agreed to be conferred shall be affected
by, and all such authority shall survive, the death or incapacity of the
undersigned. All obligations of the undersigned hereunder shall be binding
upon the heirs, executors, personal and legal representatives,
administrators, trustees in bankruptcy, successors and assigns of the
undersigned. Except as stated in the Offer to Purchase, this tender is
irrevocable, provided that Shares and Rights tendered pursuant to the Second
Offer may be withdrawn at any time prior to their acceptance for payment.
The undersigned understands that tenders of Shares and Rights pursuant to
any one of the procedures described in "Procedures for Tendering Shares" of
the Offer to Purchase and in the Instructions hereto will constitute the
undersigned's acceptance of the terms and conditions of the Second Offer.
Purchaser's acceptance for payment of Shares and Rights tendered pursuant to
the Second Offer will constitute a binding agreement between the undersigned
and Purchaser upon the terms and subject to the conditions of the Second
Offer. The undersigned recognizes that under certain circumstances set forth
in the Offer to Purchase, Purchaser may not be required to accept for payment
any of the Shares and Rights tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Payment
Instructions," please issue the check for the purchase price and/or return
any certificates evidencing Shares or Rights not tendered or accepted for
payment, in the name(s) of the registered holder(s) appearing above under
"Description of Shares Tendered." Similarly, unless otherwise indicated in
the box entitled "Special Delivery Instructions," please mail the check for
the purchase price and/or return any certificates evidencing Shares or Rights
not tendered or accepted for payment (and accompanying documents, as
appropriate) to the address(es) of the registered holder(s) appearing above
under "Description of Shares Tendered." In the event that the boxes entitled
"Special Payment Instructions" and "Special Delivery Instructions" are both
completed, please issue the check for the purchase price and/or return any
certificates for Shares or Rights not purchased or not tendered or accepted
for payment in the name(s) of, and mail such check and/or return such
certificates to, the person(s) so indicated. Unless otherwise indicated
herein in the box entitled "Special Payment Instructions," please credit any
Shares or Rights tendered hereby and delivered by book-entry transfer, but
which are not purchased, by crediting the account at the Book-Entry Transfer
Facility designated above. The undersigned recognizes that Purchaser has no
obligation, pursuant to the Special Payment Instructions, to transfer any
Shares or Rights from the name of the registered holder(s) thereof if
Purchaser does not accept for payment any of the Shares or Rights tendered
hereby.
6
<PAGE>
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7 OF THIS
LETTER OF TRANSMITTAL)
To be completed ONLY if certificates for Shares and/or Rights not tendered or
not purchased and/or the check for the purchase price of Shares and/or Rights
purchased are to be issued in the name of someone other than the undersigned,
or if Shares and/or Rights delivered by book-entry transfer which are not
purchased are to be returned by credit to an account maintained at a
Book-Entry Transfer Facility other than that designated above.
Issue check and/or certificates to:
Name:
- -----------------------------------------------------------------------------
(PLEASE PRINT)
Address:
- -----------------------------------------------------------------------------
(INCLUDE ZIP CODE)
- -----------------------------------------------------------------------------
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER)
(ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW)
[ ] Credit unpurchased Shares and/or Rights delivered by book-entry transfer
to the Book-Entry Transfer Facility account set forth below:
Check appropriate box:
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
------------------------------------------------------------------------
ACCOUNT NUMBER
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7 OF THIS
LETTER OF TRANSMITTAL)
To be completed ONLY if certificates for Shares and/or Rights not tendered or
not purchased and/or the check for the purchase price of Shares and/or Rights
purchased are to be sent to someone other than the undersigned, or to the
undersigned at an address other than that shown above.
Mail check and/or certificates to:
Name:
- -----------------------------------------------------------------------------
(PLEASE PRINT)
Address:
- -----------------------------------------------------------------------------
(INCLUDE ZIP CODE)
- -----------------------------------------------------------------------------
7
<PAGE>
SIGN HERE
(COMPLETE SUBSTITUTE FORM W-9 ON REVERSE)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(SIGNATURE(S) OF HOLDER(S))
Dated: , 199
-------- ---
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
Common or ESOP Preferred stock certificate(s) or on a security position
listing or by person(s) authorized to become registered holder(s) by
certificates and documents transmitted herewith. If signature is by
trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
please provide the following information. See Instruction 5 of this Letter
of Transmittal.)
Name(s):
- -----------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title):
- -----------------------------------------------------------------------------
Address:
- -----------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number:
- -----------------------------------------------------------------------------
Tax Identification or Social Security Number:
- -----------------------------------------------------------------------------
(COMPLETE SUBSTITUTE FORM W-9 ON REVERSE)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5 OF THIS LETTER OF TRANSMITTAL)
Authorized Signature:
- -----------------------------------------------------------------------------
Name:
- -----------------------------------------------------------------------------
(PLEASE PRINT)
Title:
- -----------------------------------------------------------------------------
Name of Firm:
- -----------------------------------------------------------------------------
Address:
- -----------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number:
- -----------------------------------------------------------------------------
Dated: , 199
-------- --
8
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE SECOND OFFER
1. Guarantee of Signatures. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a firm which
is a bank, broker, dealer, credit union, savings association or other entity
that is a member in good standing of the Securities Transfer Agents Medallion
Program (each, an "Eligible Institution"). No signature guarantee is required
on this Letter of Transmittal (a) if this Letter of Transmittal is signed by
the registered holder(s) (which term, for purposes of this document, shall
include any participant in a Book-Entry Transfer Facility whose name appears
on a security position listing as the owner of Shares or Rights) of Shares
and/or Rights tendered herewith, unless such holder(s) has completed either
the box entitled "Special Delivery Instructions" or the box entitled "Special
Payment Instructions" on the reverse hereof, or (b) if such Shares or Rights
are tendered for the account of an Eligible Institution. See Instruction 5.
If a certificate evidencing Shares and/or Rights (a "Certificate") is
registered in the name of a person other than the signer of this Letter of
Transmittal, or if payment is to be made, or a Certificate not accepted for
payment or not tendered is to be returned, to a person other than the
registered holder(s), then the Certificate must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on the Certificate, with the signature(s) on
such Certificate or stock powers guaranteed as described above. See
Instruction 5.
2. Delivery of Letter of Transmittal and Share Certificates. This Letter
of Transmittal is to be used either if Certificates are to be forwarded
herewith or if Shares and/or Rights are to be delivered by book-entry
transfer pursuant to the procedure set forth in "Procedures for Tendering
Shares" of the Offer to Purchase. Certificates evidencing all tendered Shares
and/or Rights, or confirmation of a book-entry transfer of such Shares and/or
Rights, if such procedure is available, into the Depositary's account at one
of the Book-Entry Transfer Facilities pursuant to the procedures set forth in
"Procedures for Tendering Shares" of the Offer to Purchase, together with a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof) with any required signature guarantees (or, in the case of a
book-entry transfer, an Agent's Message, as defined below) and any other
documents required by this Letter of Transmittal, must be received by the
Depositary at one of its addresses set forth on the reverse hereof prior to
the Expiration Date (as defined in "Terms of the Second Offer; Expiration
Date" of the Offer to Purchase). If Certificates are forwarded to the
Depositary in multiple deliveries, a properly completed and duly executed
Letter of Transmittal must accompany each such delivery. Shareholders whose
Certificates are not immediately available, who cannot deliver their
Certificates and all other required documents to the Depositary prior to the
Expiration Date or who cannot complete the procedure for delivery by
book-entry transfer on a timely basis may tender their Shares or Rights
pursuant to the guaranteed delivery procedure described in "Procedures for
Tendering Shares" of the Offer to Purchase. Pursuant to such procedure: (i)
such tender must be made by or through an Eligible Institution; (ii) a
properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by Purchaser herewith, must be received by
the Depositary prior to the Expiration Date; and (iii) in the case of a
guarantee of Shares or Rights, the Certificates, in proper form for transfer,
or a confirmation of a book-entry transfer of such Shares or Rights, if such
procedure is available, into the Depositary's account at one of the
Book-Entry Transfer Facilities, together with a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile thereof) with
any required signature guarantees (or, in the case of a book-entry transfer,
an Agent's Message), and any other documents required by this Letter of
Transmittal, must be received by the Depositary within three New York Stock
Exchange, Inc. trading days after the date of execution of the Notice of
Guaranteed Delivery, all as described in "Procedures for Tendering Shares" of
the Offer to Purchase. The term "Agent's Message" means a message,
transmitted by a Book-Entry Transfer Facility to, and received by the
Depositary and forming a part of a Book-Entry Confirmation, which states that
such Book-Entry Transfer Facility has received an express acknowledgment from
the participant in such Book-Entry Transfer Facility tendering the Shares or
Rights, that such participant has received and agrees to be bound by the
terms of this Letter of Transmittal and that Purchaser may enforce such
agreement against the participant.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, CERTIFICATES AND ALL
OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER
FACILITY, IS AT THE SOLE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND
THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares or Rights will be purchased. By execution of this Letter of
Transmittal (or a facsimile hereof), all tendering shareholders waive any
right to receive any notice of the acceptance of their Shares or Rights for
payment.
9
<PAGE>
3. Inadequate Space. If the space provided herein under "Description of
Shares Tendered" is inadequate, the Certificate numbers, the number of Shares
or Rights evidenced by such Certificates and the number of Shares or Rights
tendered should be listed on a separate schedule and attached hereto.
4. Partial Tenders. (Not applicable to shareholders who tender by
book-entry transfer.) If fewer than all the Shares or Rights evidenced by any
Certificate delivered to the Depositary herewith are to be tendered hereby,
fill in the number of Shares or Rights which are to be tendered in the box
entitled "Number of Shares Tendered." In such cases, new Certificate(s)
evidencing the remainder of the Shares or Rights that were evidenced by the
Certificates delivered to the Depositary herewith will be sent to the
person(s) signing this Letter of Transmittal, unless otherwise provided in
the box entitled "Special Delivery Instructions," as soon as practicable
after the expiration or termination of the Second Offer. All Shares or Rights
evidenced by Certificates delivered to the Depositary will be deemed to have
been tendered unless otherwise indicated.
5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the
Shares or Rights tendered hereby, the signature(s) must correspond with the
name(s) as written on the face of the Certificate(s) evidencing such Shares
or Rights without alteration, enlargement or any other change whatsoever.
If any Shares or Rights tendered hereby are owned of record by two or more
persons, all such persons must sign this Letter of Transmittal.
If any of the Shares or Rights tendered hereby are registered in the names
of different holders, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal as there are different registrations of
such certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares or Rights tendered hereby, no endorsements of Certificates or separate
stock powers are required, unless payment is to be made to, or Certificates
evidencing Shares or Rights not tendered or not purchased are to be issued in
the name of, a person other than the registered holder(s), in which case, the
Certificate(s) evidencing the Shares or Rights tendered hereby must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear(s) on such
Certificate(s). Signatures on such Certificate(s) and stock powers must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares or Rights tendered hereby, the Share or
Rights Certificate(s) evidencing the Shares or Rights tendered hereby must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear(s) on such
Certificate(s). Signatures on such Certificate(s) and stock powers must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal or any Certificate(s) or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and
proper evidence satisfactory to Purchaser of such person's authority so to
act must be submitted.
6. Stock Transfer Taxes. Except as otherwise provided in this Instruction
6, Purchaser will pay all stock transfer taxes with respect to the sale and
transfer of any Shares or Rights to it or its order pursuant to the Second
Offer. If, however, payment of the purchase price of any Shares or Rights
purchased is to be made to, or Certificate(s) evidencing Shares or Rights not
tendered or not purchased are to be issued in the name of, a person other
than the registered holder(s), the amount of any stock transfer taxes
(whether imposed on the registered holder(s), such other person or otherwise)
payable on account of the transfer to such other person will be deducted from
the purchase price of such Shares or Rights purchased, unless evidence
satisfactory to Purchaser of the payment of such taxes, or exemption
therefrom, is submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATE(S) EVIDENCING THE SHARES
TENDERED HEREBY.
7. Special Payment and Delivery Instructions. If a check for the purchase
price of any Shares or Rights tendered hereby is to be issued, or
Certificate(s) evidencing Shares or Rights not tendered or not purchased are
to be issued, in the name of a person other than the person(s) signing this
Letter of Transmittal or if such check or any such Certificate is to be sent
to someone other than the person(s) signing this Letter of Transmittal or to
the person(s) signing this Letter of Transmittal but at an address other than
that shown in the box entitled "Description of Shares Tendered," the
appropriate boxes on this Letter of Transmittal must be completed.
Shareholders tendering Shares or Rights by book-entry transfer may request
that Shares or Rights not purchased be credited to such account maintained at
a Book-Entry Transfer Facility as such shareholder may designate in the box
entitled "Special Payment Instructions" on the reverse hereof. If no such
instructions are given, all such Shares or Rights not purchased will be
returned by crediting the account at the Book-Entry Transfer Facility
designated on the reverse hereof as the account from which such Shares or
Rights were delivered.
10
<PAGE>
8. Requests for Assistance or Additional Copies. Requests for assistance
may be directed to the Information Agent or the Dealer Managers at their
respective addresses or telephone numbers set forth below. Additional copies
of the Offer to Purchase, this Letter of Transmittal, the Notice of
Guaranteed Delivery and the Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 may be obtained from the
Information Agent or the Dealer Managers or from brokers, dealers, commercial
banks or trust companies.
9. Substitute Form W-9. Each tendering shareholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN") on the
Substitute Form W-9 which is provided under "Important Tax Information"
below, and to certify, under penalties of perjury, that such number is
correct and that such shareholder is not subject to backup withholding of
federal income tax. If a tendering shareholder has been notified by the
Internal Revenue Service that such shareholder is subject to backup
withholding, such shareholder must cross out item (2) of the Certification
box of the Substitute Form W-9, unless such shareholder has since been
notified by the Internal Revenue Service that such shareholder is no longer
subject to backup withholding. Failure to provide the information on the
Substitute Form W-9 may subject the tendering shareholder to 31% federal
income tax withholding on the payment of the purchase price of all Shares or
Rights purchased from such shareholder. If the tendering shareholder has not
been issued a TIN and has applied for one or intends to apply for one in the
near future, such shareholder should write "Applied For" in the space
provided for the TIN in Part I of the Substitute Form W-9, and sign and date
the Substitute Form W-9. If "Applied For" is written in Part I and the
Depositary is not provided with a TIN within 60 days, the Depositary will
withhold 31% on all payments of the purchase price to such shareholder until
a TIN is provided to the Depositary.
10. Lost, Destroyed or Stolen Certificates. If any certificate(s)
representing Shares or Rights has been lost, destroyed or stolen, the
shareholder should promptly notify the Depositary. The shareholder will then
be instructed as to the steps that must be taken in order to replace the
certificate(s). This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost or destroyed certificates
have been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), PROPERLY
COMPLETED AND DULY EXECUTED, WITH ANY REQUIRED SIGNATURE GUARANTEES, OR AN
AGENT'S MESSAGE (TOGETHER WITH SHARE CERTIFICATES OR CONFIRMATION OF
BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A PROPERLY COMPLETED
AND DULY EXECUTED NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE
DEPOSITARY PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE OFFER TO
PURCHASE).
11
<PAGE>
IMPORTANT TAX INFORMATION
Under the federal income tax law, a shareholder whose tendered Shares or
Rights are accepted for payment is required by law to provide the Depositary
(as payer) with such shareholder's correct TIN on Substitute Form W-9 below.
If such shareholder is an individual, the TIN is such shareholder's social
security number. If the Depositary is not provided with the correct TIN, the
shareholder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, payments that are made to such shareholder with respect
to Shares or Rights purchased pursuant to the Second Offer may be subject to
backup withholding of 31%.
Certain shareholders (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In order for a foreign individual to qualify as an
exempt recipient, such individual must submit a statement, signed under
penalties of perjury, attesting to such individual's exempt status. Forms of
such statements can be obtained from the Depositary. See the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 for additional instructions.
If backup withholding applies with respect to a shareholder, the
Depositary is required to withhold 31% of any payments made to such
shareholder. Backup withholding is not an additional tax. Rather, the tax
liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a shareholder
with respect to Shares or Rights purchased pursuant to the Second Offer, the
shareholder is required to notify the Depositary of such shareholder's
correct TIN by completing the form below certifying (a) that the TIN provided
on Substitute Form W-9 is correct (or that such shareholder is awaiting a
TIN), and (b) that (i) such shareholder has not been notified by the Internal
Revenue Service that such shareholder is subject to backup withholding as a
result of a failure to report all interest or dividends or (ii) the Internal
Revenue Service has notified such shareholder that such shareholder is no
longer subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The shareholder is required to give the Depositary the social security
number or employer identification number of the record holder of the Shares
or Rights tendered hereby. If the Shares or Rights are in more than one name
or are not in the name of the actual owner, consult the enclosed Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9
for additional guidance on which number to report. If the tendering
shareholder has not been issued a TIN and has applied for a number or intends
to apply for a number in the near future, the shareholder should write
"Applied For" in the space provided for the TIN in Part I, and sign and date
the Substitute Form W-9. If "Applied For" is written in Part I and the
Depositary is not provided with a TIN within 60 days, the Depositary will
withhold 31% of all payments of the purchase price to such shareholder until
a TIN is provided to the Depositary.
12
<PAGE>
<TABLE>
<CAPTION>
PAYER'S NAME: THE BANK OF NEW YORK, AS DEPOSITARY
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE PART I -- PLEASE PROVIDE YOUR TIN IN THE BOX AT
FORM W-9 RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. ----------------------------
Department of the Treasury Social Security Number
Internal Revenue Service OR
----------------------------
Employer Identification
Number
(If awaiting TIN write
"Applied For")
- ------------------------------ -------------------------------------------------- ---------------------------
PAYER'S REQUEST FOR PART II -- For Payees Exempt From Backup Withholding, see the enclosed
TAXPAYER IDENTIFICATION Guidelines and complete as instructed therein.
NUMBER (TIN)
CERTIFICATION -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or a Taxpayer Identification Number has not been issued to me and
either (a) I have mailed or delivered an application to receive a
Taxpayer Identification Number to the appropriate Internal Revenue
Service ("IRS") or Social Security Administration office or (b) I intend
to mail or deliver an application in the near future. I understand that
if I do not provide a Taxpayer Identification Number within sixty (60)
days, 31% of all reportable payments made to me thereafter will be
withheld until I provide a number), and
(2) I am not subject to backup withholding because (a) I am exempt from
backup withholding, (b) I have not been notified by the IRS that I am
subject to backup withholding as a result of failure to report all
interest or dividends or (c) the IRS has notified me that I am no longer
subject to backup withholding.
CERTIFICATE INSTRUCTIONS -- You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding you
received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out item (2). (Also see instructions in the
enclosed Guidelines.)
- ------------------------------ -------------------------------------------------------------------------------
SIGNATURE: DATE: , 199
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE SECOND
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
Questions and requests for assistance or additional copies of the Offer to
Purchase, Letter of Transmittal and other tender offer materials may be
directed to the Information Agent or the Dealer Managers as set forth below:
The Information Agent for the Second Offer is:
[GEORGESON & COMPANY INC. LOGO]
Wall Street Plaza
New York, New York 10005
(800) 223-2064 (toll free)
Banks and Brokers Call: (212) 440-9800 (call collect)
The Dealer Managers for the Second Offer are:
J.P. MORGAN & CO. MERRILL LYNCH & CO.
60 Wall Street World Financial Center
Mail Stop 2860 North Tower
New York, New York 10260 New York, New York 10281-1305
(800) 576-5070 (toll free) (212) 449-8211 (call collect)
13
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF
COMMON STOCK AND SERIES A ESOP CONVERTIBLE JUNIOR PREFERRED STOCK
(INCLUDING, IN EACH CASE, THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
CONRAIL INC.
TO
ATLANTIC ACQUISITION CORPORATION,
A WHOLLY OWNED SUBSIDIARY OF
NORFOLK SOUTHERN CORPORATION
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
This Notice of Guaranteed Delivery, or one substantially in the form
hereof, must be used to accept the Second Offer (as defined below) if (i)
certificates ("Share Certificates") evidencing shares of common stock, par
value $1.00 per share (the "Common Shares"), or shares of Series A ESOP
Convertible Junior Preferred Stock, without par value (the "ESOP Preferred
Shares" and, together with the Common Shares, the "Shares"), of Conrail Inc.,
a Pennsylvania corporation (the "Company"), including the associated Common
Stock Purchase Rights (the "Rights") issued pursuant to the Rights Agreement,
dated July 19, 1989, as amended, between the Company and First Chicago Trust
Company of New York, as Rights Agent (the "Rights Agreement"), are not
immediately available, (ii) time will not permit all required documents to
reach The Bank of New York, as Depositary (the "Depositary"), prior to the
Expiration Date (as defined in the Offer to Purchase) or (iii) the procedure
for book-entry transfer cannot be completed on a timely basis. All references
herein to the Common Shares, ESOP Preferred Shares or Shares shall include
the associated Rights. This Notice of Guaranteed Delivery may be delivered by
hand or transmitted by telegram, facsimile transmission or mail to the
Depositary. See "Procedures for Tendering Shares" of the Offer to Purchase.
The Depositary for the Second Offer is:
THE BANK OF NEW YORK
<TABLE>
<CAPTION>
<S> <C> <C>
By Hand or by
By Mail: By Facsimile Transmission: Overnight Delivery:
Tender & Exchange Department (for Eligible Institutions Only) Tender & Exchange Department
P.O. Box 11248 (212) 815-6213 101 Barclay Street
Church Street Station Receive and Deliver Window
New York, New York 10286-1248 New York, New York 10286
For Information Telephone:
(800) 507-9357
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION
OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible
Institution" under the instructions thereto, such signature guarantee must
appear in the applicable space provided in the signature box on the Letter of
Transmittal.
<PAGE>
LADIES AND GENTLEMEN:
The undersigned hereby tenders to Atlantic Acquisition Corporation, a
Pennsylvania corporation and a wholly owned subsidiary of Norfolk Southern
Corporation, a Virginia corporation, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated February 12, 1997 (the
"Offer to Purchase"), and the related Letter of Transmittal (which, as
amended from time to time, together constitute the "Second Offer"), receipt
of each of which is hereby acknowledged, the number of Shares specified
below pursuant to the guaranteed delivery procedures described in
"Procedures for Tendering Shares" of the Offer to Purchase.
Number of Shares (including the associated Rights):
---------------------------------------------------------------------------
Name(s) of Record Holder(s):
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address(es):
---------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number:
---------------------------------------------------------------------------
Certificate Number(s) (if available):
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Check ONE box if Shares or Rights will be tendered by book-entry transfer:
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
Signature(s):
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Account Number:
---------------------------------------------------------------------------
Dated: , 199
------- --
2
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in
the United States, hereby guarantees delivery to the Depositary, at one of
its addresses set forth above, of certificates evidencing the Shares and
Rights tendered hereby in proper form for transfer, or confirmation of
book-entry transfer of such Shares and Rights into the Depositary's
accounts at The Depository Trust Company or the Philadelphia Depository
Trust Company, in each case with delivery of a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) with any required
signature guarantees, or an Agent's Message (as defined in "Acceptance for
Payment and Payment for Shares" of the Offer to Purchase), and any other
documents required by the Letter of Transmittal, (x) in the case of Shares,
within three New York Stock Exchange, Inc. trading days after the date of
execution of this Notice of Guaranteed Delivery, or (y) in the case of
Rights, within a period ending the later of (i) three New York Stock
Exchange, Inc. trading days after the date of execution of this Notice of
Guaranteed Delivery or (ii) three business days after the date Rights
Certificates are distributed to shareholders.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and
certificates for Shares and Rights to the Depositary within the time period
shown herein. Failure to do so could result in financial loss to such
Eligible Institution.
Name of Firm:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
Address:
---------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and
Telephone Number:
---------------------------------------------------------------------------
Name:
---------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Title:
---------------------------------------------------------------------------
Dated: ____________, 199__
NOTE: DO NOT SEND CERTIFICATES FOR SHARES OR RIGHTS WITH THIS NOTICE. SUCH
CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
3
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES
OF
COMMON STOCK AND SERIES A ESOP CONVERTIBLE JUNIOR PREFERRED STOCK
(INCLUDING, IN EACH CASE, THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
CONRAIL INC.
AT
$115 NET PER SHARE
BY
ATLANTIC ACQUISITION CORPORATION,
A WHOLLY OWNED SUBSIDIARY OF
NORFOLK SOUTHERN CORPORATION
THE SECOND OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON WEDNESDAY, MARCH 12, 1997, UNLESS THE SECOND OFFER
IS EXTENDED.
February 12, 1997
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been engaged by Atlantic Acquisition Corporation, a Pennsylvania
corporation ("Purchaser") and a wholly owned subsidiary of Norfolk Southern
Corporation, a Virginia corporation ("Parent"), to act as Dealer Managers in
connection with Purchaser's offer to purchase all outstanding shares of (i)
common stock, par value $1.00 per share (the "Common Shares"), and (ii)
Series A ESOP Convertible Junior Preferred Stock, without par value (the
"ESOP Preferred Shares" and, together with the Common Shares, the "Shares"),
of Conrail Inc., a Pennsylvania corporation (the "Company"), including in
each case, the associated Common Stock Purchase Rights (the "Rights") issued
pursuant to the Rights Agreement, dated July 19, 1989, as amended, between
the Company and First Chicago Trust Company of New York, as Rights Agent (the
"Rights Agreement"), at a price of $115 per Share, net to the seller in cash,
upon the terms and subject to the conditions set forth in the Offer to
Purchase, dated February 12, 1997 (the "Offer to Purchase"), and the related
Letter of Transmittal (which, as amended from time to time, together
constitute the "Second Offer") enclosed herewith.
Unless the Rights are redeemed prior to the Expiration Date (as defined in
the Offer to Purchase) of the Second Offer, holders of Shares will be
required to tender one associated Right for each Share tendered in order to
effect a valid tender of such Share. Accordingly, shareholders who sell their
Rights separately from their Shares and do not otherwise acquire Rights may
not be able to satisfy the requirements of the Second Offer for the tender of
Shares. If the Distribution Date (as defined in the Offer to Purchase) has
not occurred prior to the Expiration Date, a tender of Shares will also
constitute a tender of the associated Rights. If the Distribution Date has
occurred and Purchaser has waived that portion of the Rights Condition (as
defined in the Offer to Purchase) requiring that a Distribution Date not have
occurred and Rights Certificates (as defined in the Offer to Purchase) have
been distributed to holders of Shares prior to the time a holder's Shares are
purchased pursuant to the Second Offer, in order for Rights (and the
corresponding Shares) to be validly tendered, Rights Certificates
representing a number of Rights equal to the number of Shares tendered must
be delivered to the Depositary (as defined in the Offer to Purchase) or, if
available, a Book-Entry Confirmation (as defined in the Offer to Purchase)
must be received by the Depositary with respect thereto. If the Distribution
Date has occurred and Purchaser has waived that portion of the Rights
Condition requiring that a Distribution Date not have occurred and Rights
Certificates have not been distributed prior to the time Shares are purchased
pursuant to the Second Offer, Rights may be tendered prior to a shareholder
receiving Rights Certificates by use of the guaranteed delivery procedure
described in Section 3 of the Offer to
<PAGE>
Purchase. In any case, a tender of Shares constitutes an agreement by the
tendering shareholder to deliver Rights Certificates representing a number of
Rights equal to the number of Shares tendered pursuant to the Second Offer to
the Depositary within three business days after the date that Rights
Certificates are distributed. Purchaser reserves the right to require that
the Depositary receive Rights Certificates, or a Book-Entry Confirmation, if
available, with respect to such Rights prior to accepting the related Shares
for payment pursuant to the Second Offer if the Distribution Date has
occurred prior to the Expiration Date.
If a shareholder desires to tender Shares and Rights pursuant to the
Second Offer and such shareholder's Share Certificates (as defined in the
Offer to Purchase) or, if applicable, Rights Certificates are not immediately
available (including, if the Distribution Date has occurred and Purchaser
waives that portion of the Rights Condition requiring that a Distribution
Date not have occurred, because Rights Certificates have not yet been
distributed) or time will not permit all required documents to reach the
Depositary prior to the Expiration Date or the procedure for book-entry
transfer cannot be completed on a timely basis, such Shares or Rights may
nevertheless be tendered according to the guaranteed delivery procedures set
forth in Section 3 of the Offer to Purchase. See Instruction 2 of the Letter
of Transmittal. Delivery of documents to a Book-Entry Transfer Facility (as
defined in the Offer to Purchase) in accordance with the Book-Entry Transfer
Facility's procedures does not constitute delivery to the Depositary.
THE SECOND OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING
VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE
SECOND OFFER A NUMBER OF COMMON SHARES AND ESOP PREFERRED SHARES WHICH,
TOGETHER WITH THE 8,200,100 COMMON SHARES ALREADY OWNED BY PARENT, PURCHASER
OR ANY DIRECT OR INDIRECT SUBSIDIARY OF PARENT, CONSTITUTE AT LEAST A
MAJORITY OF THE SHARES OUTSTANDING ON A FULLY DILUTED BASIS, (2) PURCHASER
BEING SATISFIED, IN ITS SOLE DISCRETION, THAT SUBCHAPTER F OF CHAPTER 25 OF
THE PENNSYLVANIA BUSINESS CORPORATION LAW HAS BEEN COMPLIED WITH OR IS
INVALID OR OTHERWISE INAPPLICABLE TO THE SECOND OFFER AND THE PROPOSED
MERGER, (3) THE RIGHTS HAVING BEEN REDEEMED BY THE BOARD OF DIRECTORS OF THE
COMPANY OR PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT SUCH
RIGHTS ARE INVALID OR OTHERWISE INAPPLICABLE TO THE SECOND OFFER AND THE
PROPOSED MERGER, AND (4) PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION,
THAT THE PREVIOUSLY ANNOUNCED AGREEMENT AND PLAN OF MERGER, AS AMENDED,
BETWEEN THE COMPANY AND CSX CORPORATION HAS BEEN TERMINATED IN ACCORDANCE
WITH ITS TERMS OR OTHERWISE.
For your information and for forwarding to your clients for whom you hold
Shares registered in your name or in the name of your nominee, or who hold
Shares registered in their own names, we are enclosing the following
documents:
1. Offer to Purchase, dated February 12, 1997;
2. Letter of Transmittal to be used by holders of shares in accepting the
Second Offer and tendering Shares and Rights;
3. Notice of Guaranteed Delivery to be used to accept the Second Offer if
the certificates evidencing such Shares and Rights are not immediately
available or time will not permit all required documents to reach the
Depositary prior to the Expiration Date or the procedure for book-entry
transfer cannot be completed on a timely basis;
4. A letter which may be sent to your clients for whose accounts you hold
Shares registered in your name or in the name of your nominees, with space
provided for obtaining such clients' instructions with regard to the
Second Offer;
5. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9; and
6. Return envelope addressed to the Depositary.
Upon the terms and subject to the conditions of the Second Offer
(including, if the Second Offer is extended or amended, the terms and
conditions of any such extension or amendment), Purchaser will purchase, by
accepting for payment, and will pay for, all Shares (and, if applicable,
Rights) validly tendered prior to the Expiration Date promptly after the
later to occur of (i) the Expiration Date and (ii) the satisfaction or waiver
of the conditions set forth in "Conditions of the Second Offer" of the Offer
to Purchase. For purposes of the Second Offer, Purchaser will be deemed to
have accepted for payment, and thereby purchased, tendered Shares and Rights
if, as and when Purchaser gives oral
2
<PAGE>
or written notice to the Depositary of Purchaser's acceptance of such Shares
and Rights for payment. In all cases, payment for Shares and Rights purchased
pursuant to the Second Offer will be made only after timely receipt by the
Depositary of (i) the certificates evidencing such Shares and Rights or
timely confirmation of a book-entry transfer of such Shares and Rights, if
such procedure is available, into the Depositary's account at The Depository
Trust Company or the Philadelphia Depository Trust Company pursuant to the
procedures set forth in "Procedures for Tendering Shares" of the Offer to
Purchase, (ii) the Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, or an Agent's Message (as defined in the Offer
to Purchase) and (iii) any other documents required by the Letter of
Transmittal.
Purchaser will not pay any fees or commissions to any broker or dealer or
any other person (other than the Dealer Managers and the Information Agent as
described in "Fees and Expenses" of the Offer to Purchase) in connection with
the solicitation of tenders of Shares and Rights pursuant to the Second
Offer. Purchaser will, however, upon request, reimburse you for customary
mailing and handling expenses incurred by you in forwarding the enclosed
materials to your clients.
Purchaser will pay any stock transfer taxes incident to the transfer to it
of validly tendered Shares, except as otherwise provided in Instruction 6 of
the Letter of Transmittal.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. THE SECOND OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, MARCH 12, 1997, UNLESS THE
SECOND OFFER IS EXTENDED.
In order to take advantage of the Second Offer, a duly executed and
properly completed Letter of Transmittal (or facsimile thereof), with any
required signature guarantees and any other required documents, should be
sent to the Depositary, and certificates evidencing the tendered Shares
should be delivered or such Shares and Rights should be tendered by
book-entry transfer, all in accordance with the Instructions set forth in the
Letter of Transmittal and the Offer to Purchase.
If holders of Shares and Rights wish to tender, but it is impracticable
for them to forward their certificates or other required documents prior to
the Expiration Date, a tender may be effected by following the guaranteed
delivery procedures specified under "Procedures for Tendering Shares" of the
Offer to Purchase.
Any inquiries you may have with respect to the Second Offer should be
addressed to the Dealer Managers or the Information Agent at their respective
addresses and telephone numbers set forth on the back cover page of the Offer
to Purchase.
Additional copies of the enclosed materials may be obtained from J.P.
Morgan Securities Inc. at 60 Wall Street, New York, New York 10260, telephone
(800) 576-5070 (toll free), Merrill Lynch & Co., at World Financial Center,
North Tower, New York, New York 10281-1305, telephone (212) 449-8211 (call
collect) or by calling the Information Agent, Georgeson & Company Inc., at
Wall Street Plaza, New York, New York 10005, telephone (800) 223-2064 (toll
free), or from brokers, dealers, commercial banks or trust companies.
Very truly yours,
J.P. MORGAN & CO. MERRILL LYNCH & CO.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON AS AN AGENT OF PARENT, PURCHASER, THE DEPOSITARY, THE
INFORMATION AGENT OR THE DEALER MANAGERS, OR ANY AFFILIATE OF ANY OF THE
FOREGOING, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE
ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE SECOND OFFER
OTHER THAN THE DOCUMENTS ENCLOSED AND THE STATEMENTS CONTAINED THEREIN.
3
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES
OF
COMMON STOCK AND SERIES A ESOP CONVERTIBLE JUNIOR PREFERRED STOCK
(INCLUDING, IN EACH CASE, THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
CONRAIL INC.
AT
$115 NET PER SHARE
BY
ATLANTIC ACQUISITION CORPORATION,
A WHOLLY OWNED SUBSIDIARY OF
NORFOLK SOUTHERN CORPORATION
THE SECOND OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON WEDNESDAY, MARCH 12, 1997, UNLESS THE SECOND OFFER
IS EXTENDED.
February 12, 1997
To Our Clients:
Enclosed for your consideration is an Offer to Purchase, dated February
12, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal
(which, as amended from time to time, together constitute the "Second Offer")
in connection with the offer by Atlantic Acquisition Corporation, a
Pennsylvania corporation ("Purchaser") and a wholly owned subsidiary of
Norfolk Southern Corporation, a Virginia corporation ("Parent"), to purchase
all of the outstanding shares of (i) common stock, par value $1.00 per share
(the "Common Shares"), and (ii) Series A ESOP Convertible Junior Preferred
Stock, without par value (the "ESOP Preferred Shares" and, together with the
Common Shares, the "Shares"), of Conrail Inc., a Pennsylvania corporation
(the "Company"), including, in each case, the associated Common Stock
Purchase Rights (the "Rights") issued pursuant to the Rights Agreement, dated
as of July 19, 1989, as amended, between the Company and First Chicago Trust
Company of New York, as Rights Agent (the "Rights Agreement"), at a price of
$115 per Share, net to the seller in cash, upon the terms and subject to the
conditions set forth in the Second Offer. All references herein to the Common
Shares, ESOP Preferred Shares or Shares shall, unless the context otherwise
requires, include the associated Rights.
Unless the Rights are redeemed prior to the Expiration Date (as defined in
the Offer to Purchase), holders of Shares will be required to tender one
associated Right for each Share tendered in order to effect a valid tender of
such Share. Accordingly, shareholders who sell their Rights separately from
their Shares and do not otherwise acquire Rights may not be able to satisfy
the requirements of the Second Offer for the tender of Shares. If the
Distribution Date (as defined in the Offer to Purchase) has not occurred
prior to the Expiration Date, a tender of Shares will also constitute a
tender of the associated Rights. If the Distribution Date has occurred and
(i) Purchaser has waived that portion of the Rights Condition (as defined in
the Offer to Purchase) requiring that a Distribution Date not have occurred
and (ii) Rights Certificates (as defined in the Offer to Purchase) have been
distributed to holders of Shares prior to the time a holder's Shares are
purchased pursuant to the Second Offer, in order for Rights (and the
corresponding Shares) to be validly tendered, Rights Certificates
representing a number of Rights equal to the number of Shares tendered must
be delivered to the Depositary (as defined in the Offer to Purchase) or, if
available, a Book-Entry Confirmation (as defined in the Offer to Purchase)
must be received by the Depositary with respect thereto. If the Distribution
Date has occurred and (i) Purchaser has waived that portion of the Rights
Condition requiring that a Distribution Date not have occurred and (ii)
Rights Certificates have not been distributed prior to the time Shares are
purchased pursuant to the Second Offer, Rights may be tendered prior to a
shareholder receiving
<PAGE>
Rights Certificates by use of the guaranteed delivery procedure described in
Section 3 of the Offer to Purchase. In any case, a tender of Shares
constitutes an agreement by the tendering shareholder to deliver Rights
Certificates representing a number of Rights equal to the number of Shares
tendered pursuant to the Second Offer to the Depositary within three business
days after the date that Rights Certificates are distributed. Purchaser
reserves the right to require that the Depositary receive Rights
Certificates, or a Book-Entry Confirmation, if available, with respect to
such Rights prior to accepting the related Shares for payment pursuant to the
Second Offer if the Distribution Date has occurred prior to the Expiration
Date.
If a shareholder desires to tender Shares and Rights pursuant to the
Second Offer and such shareholder's Share Certificates (as defined in the
Offer to Purchase) or, if applicable, Rights Certificates are not immediately
available (including, if the Distribution Date has occurred and Purchaser
waives that portion of the Rights Condition requiring that a Distribution
Date not have occurred, because Rights Certificates have not yet been
distributed) or time will not permit all required documents to reach the
Depositary prior to the Expiration Date or the procedure for book-entry
transfer cannot be completed on a timely basis, such Shares or Rights may
nevertheless be tendered according to the guaranteed delivery procedures set
forth in Section 3 of the Offer to Purchase. See Instruction 2 of the Letter
of Transmittal. Delivery of documents to a Book-Entry Transfer Facility (as
defined in the Offer to Purchase) in accordance with the Book-Entry Transfer
Facility's procedures does not constitute delivery to the Depositary.
THE MATERIAL IS BEING SENT TO YOU AS THE BENEFICIAL OWNER OF SHARES HELD
BY US FOR YOUR ACCOUNT BUT NOT REGISTERED IN YOUR NAME. WE ARE THE HOLDER OF
RECORD OF SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER OF SUCH SHARES CAN BE
MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS.
THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND
CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish to have us tender on your
behalf any or all of the Shares held by us for your account, upon the terms
and subject to the conditions set forth in the Second Offer.
Your attention is invited to the following:
1. The tender price is $115 per Share, net to the seller in cash.
2. The Second Offer and withdrawal rights will expire at 12: 00 Midnight,
New York City time, on Wednesday, March 12, 1997, unless the Second Offer is
extended.
3. The Second Offer is being made for all of the outstanding Shares.
4. The Second Offer is conditioned upon, among other things, (1) there
being validly tendered and not properly withdrawn prior to the expiration of
the Second Offer a number of Common Shares and ESOP Preferred Shares which,
together with the 8,200,100 Common Shares already owned by Parent, Purchaser
or any direct or indirect subsidiary of Parent, constitute at least a
majority of the Shares outstanding on a fully diluted basis, (2) Purchaser
being satisfied, in its sole discretion, that Subchapter F of Chapter 25 of
the Pennsylvania Business Corporation Law has been complied with or is
invalid or otherwise inapplicable to the Second Offer and the Proposed
Merger, (3) the Rights having been redeemed by the Board of Directors of the
Company or Purchaser being satisfied, in its sole discretion, that such
Rights are invalid or otherwise inapplicable to the Second Offer and the
Proposed Merger, and (4) Purchaser being satisfied, in its sole discretion,
that the previously announced Agreement and Plan of Merger, as amended,
between the Company and CSX Corporation has been terminated in accordance
with its terms or otherwise.
5. Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares by Purchaser
pursuant to the Second Offer.
The Second Offer is made solely by the Offer to Purchase and the related
Letter of Transmittal and is being made to all holders of Shares. Purchaser
is not aware of any state where the making of the Second Offer is prohibited
by administrative or judicial action pursuant to any valid state statute. If
Purchaser becomes aware of any valid state statute prohibiting the making of
the Second Offer or the acceptance of Shares pursuant thereto, Purchaser will
make a good faith effort to comply with such state statute. If, after such
good faith effort, Purchaser cannot comply with such state statute, the
Second Offer will not be made to (nor will tenders be accepted from or on
behalf of) the holders of Shares in such state. In any jurisdiction where the
securities, blue sky or other laws require the Second Offer to be made by a
licensed broker or dealer, the Second Offer shall be deemed to be made on
behalf of Purchaser by the Dealer Managers or one or more registered brokers
or dealers licensed under the laws of such jurisdiction.
2
<PAGE>
If you wish to have us tender any or all of your Shares, please so
instruct us by completing, executing and returning to us the instruction form
contained in this letter. An envelope in which to return your instructions to
us is enclosed. If you authorize the tender of your Shares, all such Shares
will be tendered unless otherwise specified on the instruction form set forth
in this letter. YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO
PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE
SECOND OFFER.
3
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE OFFER.
TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK
AND SERIES A ESOP CONVERTIBLE JUNIOR PREFERRED STOCK
OF
CONRAIL INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase, dated February 12, 1997, and the related Letter of
Transmittal (which, as amended from time to time, together constitute the
"Second Offer"), in connection with the offer by Atlantic Acquisition
Corporation, a Pennsylvania corporation ("Purchaser") and a wholly owned
subsidiary of Norfolk Southern Corporation, a Virginia corporation
("Parent"), to purchase all outstanding shares of (i) common stock, par value
$1.00 per share (the "Common Shares"), and (ii) Series A ESOP Convertible
Junior Preferred Stock, without par value (the "ESOP Preferred Shares" and,
together with the Common Shares, the "Shares"), of Conrail Inc., a
Pennsylvania corporation (the "Company"), including, in each case, the
associated Common Stock Purchase Rights (the "Rights") issued pursuant to the
Rights Agreement, dated July 19, 1989, as amended, between the Company and
First Chicago Trust Company of New York, as Rights Agent. All references
herein to the Common Shares, ESOP Preferred Shares or Shares shall include
the associated Rights.
This will instruct you to tender to Purchaser the number of Shares and
Rights indicated below (or, if no number is indicated in either appropriate
space below, all Shares and Rights) held by you for the account of the
undersigned, upon the terms and subject to the conditions set forth in the
Second Offer.
NUMBER OF SHARES AND RIGHTS
TO BE TENDERED:*
__________ Shares and Rights
Account Number:
- ------------------------------------
Dated: ________________, 199__
SIGN HERE
--------------------------------------------
--------------------------------------------
Signature(s)
--------------------------------------------
--------------------------------------------
Please Type or Print Name(s)
--------------------------------------------
--------------------------------------------
Please Type or Print Address(es) Here
--------------------------------------------
Area Code and Telephone Number
--------------------------------------------
Taxpayer Identification or Social Security
Number(s)
- ------------
* Unless otherwise indicated, it will be assumed that all Shares and
Rights held by us for your account are to be tendered.
4
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER--Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated
by only one hyphen: i.e., 00-0000000. The table below will help determine the
number to give the payer.
<TABLE>
<CAPTION>
GIVE THE
TAXPAYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF--
- --------------------------------------- ----------------------------
<S> <C>
1.An individual's account The individual
2.Two or more individuals The actual owner of
(joint account) the account or, if
combined funds, any
one of the
individuals(1)
3.Husband and wife The actual owner of
(joint account) the account or, if joint
funds, either person(1)
4.Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5.Adult and minor (joint account) The adult or, if the
minor is the only
contributor, the
minor(1)
6.Account in the name of guardian or The ward, minor, or
committee for a designated ward, incompetent
minor, or incompetent person(3)
7.a.The usual revocable savings trust The grantor-trustee(1)
account (grantor is also trustee)
b.So-called trust account that is not The actual owner(1)
a legal or valid trust under State
law
8.Sole proprietorship account The owner(4)
- --------------------------------------- ----------------------------
</TABLE>
<TABLE>
<CAPTION>
GIVE THE
TAXPAYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF--
- -------------------------------------- ----------------------------------
<S> <C>
9.A valid trust, estate or pension The legal entity (Do not furnish
trust the identifying number of the
personal representative or trustee
unless the legal entity itself is
not designated in the account
title.)(5)
10.Corporate account The corporation
11.Religious, charitable, or The organization
educational organization account
12.Partnership account held in the The partnership
name of the business
13.Association, club, or other The organization
tax-exempt organization
14.A broker or registered nominee The broker or nominee
15.Account with the Department of The public entity
Agriculture in the name of a public
entity (such as a State or local
government, school district, or
prison) that receives agricultural
program payments
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number
will be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you do not know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local
office of the Social Security Administration or the Internal Revenue Service
and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
o A corporation.
o A financial institution.
o An organization exempt from tax under section 501(a), or an individual
retirement plan.
o The United States or any agency or instrumentality thereof.
o A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
o A foreign government, a political subdivision of a foreign government,
or any agency or instrumentality thereof.
o An international organization or any agency or instrumentality thereof.
o A registered dealer in securities or commodities registered in the U.S.
or a possession of the U.S.
o A real estate investment trust.
o A common trust fund operated by a bank under section 584(a).
o An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
o An entity registered at all times under the Investment Company Act of
1940.
o A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
o Payments to nonresident aliens subject to withholding under section
1441.
o Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
o Payments of patronage dividends where the amount received is not paid in
money.
o Payments made by certain foreign organizations.
Payments of interest not generally subject to backup withholding include the
following:
o Payments of interest on obligations issued by individuals.
NOTE: You may be subject to backup withholding if this interest is $600
or more and is paid in the course of the payer's trade or business and
you have not provided your correct taxpayer identification number to the
payer.
o Payments of tax-exempt interest (including exempt-interest dividends
under section 852).
o Payments described in section 6049(b)(5) to nonresident aliens.
o Payments on tax-free covenant bonds under section 1451.
o Payments made by certain foreign organizations.
o Payments of mortgage interest to you.
Exempt payees described above should file Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND
RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE
DIVIDENDS, ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file a tax return. Payers must generally withhold
31% of taxable interest, dividend, and certain other payments to a payee who
does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER--If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being
due to negligence and will be subject to a penalty of 20% on any portion of
an underpayment attributable to that failure unless there is clear and
convincing evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING--If you
make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE
<PAGE>
FOR IMMEDIATE RELEASE
February 12, 1997
Media Contact: Robert C. Fort
(757) 629-2710
NORFOLK SOUTHERN COMMENCES SECOND TENDER OFFER TO ACQUIRE
CONRAIL SHARES FOR $115 PER SHARE
NORFOLK, VA -- Norfolk Southern Corporation
(NYSE: NSC) announced today that a wholly owned subsid-
iary is commencing its previously announced all-
cash tender offer for all of the outstanding Common
Shares and Series A ESOP Convertible Junior Preferred
Shares of Conrail Inc. (NYSE: CRR) not already owned by
Norfolk Southern at a price of $115 per share. The
tender offer will expire on Wednesday, March 12,
1997, at 12:00 Midnight, New York City time, unless the
offer is extended. On February 11, 1997, Norfolk South-
ern commenced payment for the 8,200,000 Conrail shares
acquired pursuant to Norfolk Southern's prior tender
offer.
Following completion of the tender
offer, which is subject to certain minimum tender and
other conditions, Norfolk Southern intends to consummate a
merger in which all remaining Conrail shares would be
converted into the right to receive the same cash price
per share paid in Norfolk Southern's tender offers.
Norfolk Southern is a Virginia-based holding
company with headquarters in Norfolk, Va. It owns a
major freight railroad, Norfolk Southern Railway Company,
which operates about 14,300 miles of road in 20 states,
primarily in the Southeast and Midwest, and the Province
of Ontario, Canada. The corporation also owns North
American Van Lines, Inc., and Pocahontas Land Corpora-
tion, a natural resources company.
###
World Wide Web Site - http://www.nscorp.com
<PAGE>
This announcement is neither an offer to purchase nor a solicitation of an
offer to sell Shares. The Second Offer is made solely by the Offer to
Purchase, dated February 12, 1997, and the related Letter of Transmittal and
is being made to all holders of Shares. The Second Offer is not being made to
(nor will tenders be accepted from or on behalf of) holders of Shares in any
jurisdiction in which the making of the Second Offer or the acceptance thereof
would not be in compliance with the laws of such jurisdiction. In those
jurisdictions where securities, blue sky or other laws require the Second
Offer to be made by a licensed broker or dealer, the Second Offer shall be
deemed to be made on behalf of Atlantic Acquisition Corporation by J.P. Morgan
Securities Inc., Merrill Lynch & Co., or one or more registered brokers or
dealers licensed under the laws of such jurisdiction.
NOTICE OF OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES
OF
COMMON STOCK AND SERIES A ESOP CONVERTIBLE JUNIOR PREFERRED STOCK
(including, in each case, the associated Common Stock Purchase Rights)
OF
CONRAIL INC.
AT
$115 NET PER SHARE
BY
ATLANTIC ACQUISITION CORPORATION,
A WHOLLY OWNED SUBSIDIARY OF
NORFOLK SOUTHERN CORPORATION
Atlantic Acquisition Corporation ("Purchaser"), a Pennsylvania
corporation and a wholly owned subsidiary of Norfolk Southern Corporation, a
Virginia corporation ("Parent"), hereby offers to purchase all of the
outstanding shares of (i) common stock, par value $1.00 per share (the
<PAGE>
"Common Shares"), and (ii) Series A ESOP Convertible Junior Preferred Stock,
without par value (the "ESOP Preferred Shares" and, together with the Common
Shares, the "Shares"), of Conrail Inc., a Pennsylvania corporation (the
"Company"), including, in each case, the associated Common Stock Purchase
Rights (the "Rights") issued pursuant to the Rights Agreement, dated as of
July 19, 1989, as amended, between the Company and First Chicago Trust Company
of New York, as Rights Agent (the "Rights Agreement"), at a price of $115 per
Share, net to the seller in cash, without interest thereon (the "Offer
Price"), upon the terms and subject to the conditions set forth in the Offer
to Purchase, dated February 12, 1997 (the "Offer to Purchase"), and in the
related Letter of Transmittal (which, as amended from time to time, together
constitute the "Second Offer"). Unless the context otherwise requires, all
references to Common Shares, ESOP Preferred Shares or Shares shall include the
associated Rights, and all references to the Rights shall include the benefits
that may inure to holders of the Rights pursuant to the Rights Agreement,
including the right to receive any payment due upon redemption of the Rights.
- -----------------------------------------------------------------------------
THE SECOND OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON WEDNESDAY, MARCH 12, 1997, UNLESS THE SECOND OFFER IS
EXTENDED.
- -----------------------------------------------------------------------------
THE SECOND OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING
VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE
SECOND OFFER A NUMBER OF COMMON SHARES AND ESOP PREFERRED SHARES WHICH,
TOGETHER WITH THE 8,200,100 COMMON SHARES ALREADY OWNED BY PARENT, PURCHASER
OR ANY DIRECT OR INDIRECT SUBSIDIARY OF PARENT, CONSTITUTE AT LEAST A MAJORITY
OF THE SHARES OUTSTANDING ON A FULLY DILUTED BASIS, (2) PURCHASER BEING
SATISFIED, IN ITS SOLE DISCRETION, THAT SUBCHAPTER F OF CHAPTER 25 OF THE
PENNSYLVANIA BUSINESS CORPORATION LAW HAS BEEN COMPLIED WITH OR IS INVALID OR
OTHERWISE INAPPLICABLE TO THE SECOND OFFER AND THE PROPOSED MERGER, (3) THE
RIGHTS HAVING BEEN REDEEMED BY THE BOARD OF DIRECTORS OF THE COMPANY OR
PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT SUCH RIGHTS ARE
INVALID OR OTHERWISE INAPPLICABLE TO THE SECOND OFFER AND THE PROPOSED MERGER,
AND (4) PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT THE PREVIOUSLY
ANNOUNCED AGREEMENT AND PLAN OF MERGER, AS AMENDED, BETWEEN THE COMPANY AND
CSX CORPORATION ("CSX") HAS BEEN TERMINATED IN ACCORDANCE WITH ITS TERMS OR
OTHERWISE.
The purpose of the Second Offer is for Parent to acquire control of, and the
entire equity interest in, the Company. Consistent with Parent's pledge that
it will not be a party to any agreement with CSX or the Company that delivers
anything less to Company shareholders than $115 per Share all-cash
transaction, Parent is seeking to negotiate with the Company a definitive
merger agreement pursuant to which the Company would, as soon as practicable
following consummation of the Second Offer, consummate a merger or similar
business combination with Purchaser or another direct or indirect subsidiary
of Parent (the "Proposed Merger"). In the Proposed Merger, each Common Share
and ESOP Preferred Share then outstanding (other than Shares held by the
Company or any subsidiary of the Company and Shares owned by Parent, Purchaser
or any direct or indirect subsidiary of Parent) would be converted into the
right to receive an amount in cash equal to the price per Share paid pursuant
to the Second Offer.
Purchaser expressly reserves the right, in its sole judgment, at any time and
from time to time and regardless of whether any of the events set forth in
Section 14 of the Offer to Purchase shall have occurred or shall have been
determined by Purchaser to have occurred, (i) to extend the period of time
during which the Second Offer is open and thereby delay acceptance for payment
of, and the
2
<PAGE>
payment for, any Shares, by giving oral or written notice of such extension to
the Depositary (as defined in the Offer to Purchase) and (ii) to amend the
Second Offer in any respect by giving oral or written notice of such amendment
to the Depositary. Any such extension or amendment will be followed as
promptly as practicable by a public announcement thereof, such announcement in
the case of an extension, to be issued not later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date
(as defined in the Offer to Purchase). During any such extension, all Shares
previously tendered and not withdrawn will remain subject to the Second Offer,
subject to the right of a tendering shareholder to withdraw such shareholder's
Shares.
For purposes of the Second Offer, Purchaser will be deemed to have accepted
for payment, and thereby purchased, Shares validly tendered and not properly
withdrawn as, if and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance of such Shares for payment pursuant to
the Second Offer. In all cases, upon the terms and subject to the conditions
of the Second Offer, payment for Shares purchased pursuant to the Second Offer
will be made by deposit of the aggregate purchase price therefor with the
Depositary, which will act as agent for tendering shareholders for the purpose
of receiving payment from Purchaser and transmitting payment to validly
tendering shareholders. Under no circumstances will interest on the purchase
price for Shares be paid by Purchaser by reason of any delay in making such
payment.
In all cases, payment for Shares purchased pursuant to the Second Offer will
be made only after timely receipt by the Depositary of (i) certificates for
such Shares ("Certificates") or a book-entry confirmation of the book-entry
transfer of such Shares into the Depositary's account at The Depository Trust
Company or the Philadelphia Depository Trust Company (collectively, the
"Book-Entry Transfer Facilities"), pursuant to the procedures set forth in
Section 3 of the Offer to Purchase, (ii) the Letter of Transmittal (or
facsimile thereof) properly completed and duly executed, with any required
signature guarantees, or an Agent's Message (as defined in the Offer to
Purchase) in connection with a book-entry transfer, and (iii) any other
documents required by the Letter of Transmittal.
If, for any reason whatsoever, acceptance for payment of any Shares tendered
pursuant to the Second Offer is delayed, or if Purchaser is unable to accept
for payment or pay for Shares tendered pursuant to the Second Offer, then,
without prejudice to Purchaser's rights set forth in the Offer to Purchase,
the Depositary may, nevertheless, on behalf of Purchaser, retain tendered
Shares and such Shares may not be withdrawn except to the extent that the
tendering shareholder is entitled to and duly exercises withdrawal rights as
described in Section 4 of the Offer to Purchase. Any such delay will be
followed by an extension of the Second Offer to the extent required by law.
Except as otherwise provided in Section 4 of the Offer to Purchase, tenders of
Shares made pursuant to the Second Offer are irrevocable. Shares tendered
pursuant to the Second Offer may be withdrawn at any time prior to 12:00
Midnight, New York City time, on Wednesday, March 12, 1997 (or if Purchaser
shall have extended the period of time for which the Second Offer is open, at
the latest time and date at which the Second Offer, as so extended by
Purchaser, shall expire) and unless theretofore accepted for payment and paid
for by Purchaser pursuant to the Second Offer, may also be withdrawn at any
time after April 12, 1997. In order for a withdrawal to be effective, a
written, telegraphic or facsimile transmission notice of withdrawal must be
timely received by the Depositary at one of its addresses set forth on the
back cover of the Offer to Purchase. Any notice of withdrawal must specify the
name of the person who tendered the Shares to be withdrawn, the number of
Shares to be withdrawn, and, if Certificates for Shares have been tendered,
the name of the registered holder
3
<PAGE>
of the Shares as set forth in the tendered Certificate, if different from that
of the person who tendered such Shares. If Certificates for Shares to be
withdrawn have been delivered or otherwise identified to the Depositary, then
prior to the physical release of such Certificates, the serial numbers shown
on such Certificates evidencing the Shares to be withdrawn must be submitted
to the Depositary and the signature on the notice of withdrawal must be
guaranteed by a firm which is a bank, broker, dealer, credit union, savings
association or other entity that is a member in good standing of the
Securities Transfer Agent's Medallion Program (an "Eligible Institution"),
unless such Shares have been tendered for the account of an Eligible
Institution. If Shares have been tendered pursuant to the procedures for
book-entry transfer set forth in Section 3 of the Offer to Purchase, any
notice of withdrawal must also specify the name and number of the account at
the appropriate Book-Entry Transfer Facility to be credited with the withdrawn
Shares and otherwise comply with such Book-Entry Transfer Facility's
procedures. Withdrawal of tenders of Shares may not be rescinded, and any
Shares properly withdrawn will be deemed not to be validly tendered for
purposes of the Second Offer. Withdrawn Shares may, however, be retendered by
repeating one of the procedures set forth in Section 3 of the Offer to
Purchase at any time before the Expiration Date. Purchaser, in its sole
judgment, will determine all questions as to the form and validity (including
time of receipt) of notices of withdrawal, and such determination will be
final and binding.
The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), is contained in the Offer to Purchase and is
incorporated herein by reference.
A request is being made to the Company pursuant to Rule 14d-5 of the Exchange
Act for the use of the Company's shareholder list, its list of holders of
Rights, if any, and security position listings for the purpose of
disseminating the Second Offer to the holders of Shares. The Offer to Purchase
and the related Letter of Transmittal and other relevant materials will be
mailed to record holders of Shares and Rights and will be furnished to
brokers, dealers, commercial banks, trust companies and similar persons whose
names, or the names of whose nominees, appear on the shareholder lists and
list of holders of Rights or, if applicable, who are listed as participants in
a clearing agency's security position listing for subsequent transmittal to
beneficial owners of Shares.
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE SECOND OFFER.
Questions and requests for assistance may be directed to the Information Agent
or the Dealer Managers at their respective addresses and telephone numbers as
set forth below. Additional copies of the Offer to Purchase, the Letter of
Transmittal or other tender offer materials may be obtained from the
Information Agent. Such copies will be furnished promptly at Purchaser's
expense. No fees or commissions will be paid to brokers, dealers or other
persons (other than the Information Agent and the Dealer Managers) for
soliciting tenders of Shares pursuant to the Second Offer.
4
<PAGE>
The Information Agent for the Second Offer is:
[GEORGESON & COMPANY INC. LOGO]
Wall Street Plaza
New York, New York 10005
Banks and Bankers Call Collect: (212) 440-9800
ALL OTHERS CALL TOLL FREE: (800) 223-2064
The Dealer Managers for the Second Offer are:
[J.P. MORGAN & CO. LOGO] [MERRILL LYNCH & CO. LOGO]
60 Wall Street World Financial Center
Mail Stop 2860 North Tower
New York, New York 10260 New York, New York 10251-1305
800 576-5070 (toll free) (212) 449-8211 (call collect)
February 12, 1997
<PAGE>
CONFORMED COPY
$13,000,000,000
CREDIT AGREEMENT
dated as of
February 10, 1997
among
Norfolk Southern Corporation,
The Banks From Time to Time Parties Hereto,
Morgan Guaranty Trust Company of New York,
as Administrative Agent
and
Merrill Lynch Capital Corporation,
as Documentation Agent
-----------------------------
J.P. Morgan Securities Inc.
and
Merrill Lynch & Co.,
Arrangers
<PAGE>
TABLE OF CONTENTS
-------------
PAGE
----
ARTICLE 1
DEFINITION
SECTION 1.01. Definitions....................................... 1
SECTION 1.02. Accounting Terms and Determinations.............. 22
SECTION 1.03. Classes and Types of Loans and Borrowings........ 22
ARTICLE 2
THE CREDIT
SECTION 2.01. Commitments to Lend.............................. 23
SECTION 2.02. Notice of Committed Borrowings................... 24
SECTION 2.03. Money Market Borrowings.......................... 24
SECTION 2.04. Notice to Banks; Funding of Loans................ 28
SECTION 2.05. Maturity of Loans................................ 29
SECTION 2.06. Interest Rates................................... 30
SECTION 2.07. Regulation D Compensation........................ 33
SECTION 2.08. Facility Fees.................................... 34
SECTION 2.09. Optional Termination or Reduction of
Commitments.................................... 34
SECTION 2.10. Method of Electing Interest Rates................ 34
SECTION 2.11. Optional Prepayments............................. 36
SECTION 2.12. Mandatory Reduction and Termination of
Commitments; Mandatory Prepayments............. 36
SECTION 2.13. General Provisions as to Payments................ 38
SECTION 2.14. Funding Losses................................... 39
SECTION 2.15. Computation of Interest and Fees................. 39
SECTION 2.16. Registry......................................... 39
ARTICLE 3
CONDITIONS TO BORROWING
SECTION 3.01. First Borrowing Date............................. 40
SECTION 3.02. Acquisition Date................................. 41
SECTION 3.03. Merger Date...................................... 43
SECTION 3.04. Borrowings....................................... 43
SECTION 3.05. Waiver by Banks.................................. 44
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Corporate Existence and Power.................... 44
i
<PAGE>
PAGE
----
SECTION 4.02. Corporate and Governmental Authorization;
No Contravention............................... 45
SECTION 4.03. Binding Effect................................... 45
SECTION 4.04. Financial Information............................ 45
SECTION 4.05. Litigation....................................... 46
SECTION 4.06. Compliance with Laws............................. 46
SECTION 4.07. Environmental Matters............................ 47
SECTION 4.08. Taxes............................................ 47
SECTION 4.09. Significant Subsidiaries......................... 47
SECTION 4.10. Not an Investment Company or a Holding
Company........................................ 48
SECTION 4.11. Full Disclosure.................................. 48
SECTION 4.12. Representations in Other Loan Documents
True and Correct............................... 48
SECTION 4.13. Ownership of Property, Liens..................... 49
SECTION 4.14. No Default....................................... 49
ARTICLE 5
COVENANTS
SECTION 5.01. Information...................................... 49
SECTION 5.02. Maintenance of Property; Insurance............... 53
SECTION 5.03. Conduct of Business and Maintenance
of Existence................................... 53
SECTION 5.04. Compliance with Laws............................. 53
SECTION 5.05. Payment of Obligations........................... 54
SECTION 5.06. Inspection of Property, Books and Records........ 54
SECTION 5.07. Financial Covenants.............................. 54
SECTION 5.08. Negative Pledge.................................. 56
SECTION 5.09. Consolidations, Mergers and Sales of Assets...... 57
SECTION 5.10. Use of Proceeds.................................. 59
SECTION 5.11. Limitation on Debt............................... 59
SECTION 5.12. Transactions with Affiliates..................... 60
SECTION 5.13. No Modification of the Voting Trust Agreement
Without Bank Consent........................... 61
SECTION 5.14. Limitation on Restrictions Affecting
Subsidiaries................................... 61
SECTION 5.15. Fiscal Year...................................... 61
SECTION 5.16. Hedging Facilities............................... 62
SECTION 5.17. Restricted Investments........................... 62
SECTION 5.18. Consummation..................................... 62
SECTION 5.19. Additional Guarantors............................ 62
ii
<PAGE>
PAGE
----
ARTICLE 6
DEFAULT
SECTION 6.01. Events of Default................................ 62
SECTION 6.02. Notice of Default................................ 65
ARTICLE 7
THE AGENT
SECTION 7.01. Appointment and Authorization.................... 65
SECTION 7.02. Agents and Affiliates............................ 66
SECTION 7.03. Action by Administrative Agent................... 66
SECTION 7.04. Consultation with Experts........................ 66
SECTION 7.05. Liability of Agents.............................. 66
SECTION 7.06. Indemnification.................................. 66
SECTION 7.07. Credit Decision.................................. 67
SECTION 7.08. Successor Agent.................................. 67
SECTION 7.09. Agents' Fees..................................... 67
ARTICLE 8
CHANGE IN CIRCUMSTANCE
SECTION 8.01. Basis for Determining Interest Rate
Inadequate or Unfair........................... 68
SECTION 8.02. Illegality....................................... 68
SECTION 8.03. Increased Cost and Reduced Return................ 69
SECTION 8.04. Taxes............................................ 71
SECTION 8.05. Base Rate Loans Substituted for Affected
Fixed Rate..................................... 74
SECTION 8.06. Substitution of Bank............................. 74
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices.......................................... 75
SECTION 9.02. No Waivers....................................... 75
SECTION 9.03. Expenses; Indemnification........................ 75
SECTION 9.04. Sharing of Set-Offs.............................. 76
SECTION 9.05. Amendments and Waivers........................... 76
SECTION 9.06. Successors and Assigns........................... 77
SECTION 9.07. Governing Law; Submission to Jurisdiction,
WAIVER OF JURY TRIAL........................... 79
SECTION 9.08. Counterparts; Integration; Effectiveness......... 79
SECTION 9.09. Confidentiality.................................. 79
SECTION 9.10. Termination...................................... 80
iii
<PAGE>
SECTION 9.11. Collateral....................................... 80
SECTION 9.12. Representations of Banks......................... 80
<PAGE>
Commitment Schedule
Pricing Schedule
Exhibit A-1 - Borrower Pledge Agreement
Exhibit A-2 - Subsidiary Pledge Agreement
Exhibit B - Subsidiary Guarantee Agreement
Exhibit C - Note
Exhibit D-1 - Opinion of Special Counsel for the Borrower
(First Borrowing Date)
Exhibit D-2 - Opinion of General Counsel of the Borrower
(First Borrowing Date)
Exhibit D-3 - Opinion of Special Counsel for the Borrower
(Acquisition Date)
Exhibit D-4 - Opinion of General Counsel of the Borrower
(Acquisition Date)
Exhibit D-5 - Opinion of Williams Kelly & Greer
Exhibit E - Opinion of Special Counsel for the Agents
Exhibit F - Assignment and Assumption Agreement
Exhibit G - Money Market Quote Request
Exhibit H - Invitation for Money Market Quotes
Exhibit I - Money Market Quote
2
<PAGE>
CREDIT AGREEMENT
AGREEMENT dated as of February 10, 1997, among NORFOLK SOUTHERN
CORPORATION, the BANKS from time to time parties hereto, MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Administrative Agent and MERRILL LYNCH CAPITAL
CORPORATION, as Documentation Agent.
The parties hereto agree as follows:
ARTICLE 1
DEFINITION
SECTION 1.01. Definitions. The following terms, as used herein, have
the following meanings:
"Acquisition" means the acquisition by the Borrower, directly or
indirectly (including without limitation through the Voting Trust), of Conrail
pursuant to the Second Offer and the Merger.
"Acquisition Date" means the date of the first Borrowing of the Term
Loans hereunder. The Acquisition Date may occur on or after the First Borrowing
Date.
"Absolute Rate Auction" means a solicitation of Money Market Quotes
setting forth Money Market Absolute Rates pursuant to Section 2.03.
"Adjusted CD Rate" has the meaning set forth in Section 2.06(b).
"Administrative Agent" means Morgan Guaranty Trust Company of New York
in its capacity as Administrative Agent for the Banks under the Loan Documents,
and its successors in such capacity.
"Administrative Questionnaire" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Administrative Agent
and submitted to the Administrative Agent (with a copy to the Borrower) duly
completed by such Bank.
"Affiliate" means (i) any Person that directly, or indirectly through
one or more intermediaries, controls the Borrower (a "Controlling Person") or
(ii) any
<PAGE>
Person (other than the Borrower or a Subsidiary) which is controlled by or is
under common control with a Controlling Person. As used herein, the term
"CONTROL" means possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.
"Agent" means the Administrative Agent or the Documentation Agent, and
"Agents" means both of them.
"Applicable Lending Office" means, with respect to any Bank, (i) in
the case of its Domestic Loans, its Domestic Lending Office, (ii) in the case
of its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case
of its Money Market Loans, its Money Market Lending Office.
"Applicable Margin" means, with respect to Loans of any Type at any
time, the applicable percentage rate per annum set forth in the Pricing
Schedule with respect to Loans of such Type which is applicable at such time in
accordance with the Pricing Schedule; provided that (i) the Applicable Margin
on any date with respect to any Loan shall be the sum of the percentage so
determined in accordance with the Pricing Schedule plus 2.00%, if on such date
a Default exists under Section 6.01(a) with respect to such Loan and (ii) the
Applicable Margin on any date with respect to all Loans shall be the sum of the
percentage so determined in accordance with the Pricing Schedule plus 2.00%, if
on such date an Event of Default exists under Section 6.01(a).
"Assessment Rate" has the meaning set forth in Section 2.06(b).
"Asset Sale" means any sale, lease or other disposition (including any
such transaction effected by way of merger or consolidation) by the Borrower or
any of its Subsidiaries of any asset (including without limitation any capital
stock held by the Borrower or such Subsidiary), including without limitation
any sale-leaseback transaction, whether or not involving a capital lease, but
excluding (i) dispositions to the Borrower or a Consolidated Subsidiary of the
Borrower, (ii) any sale, transfer or other disposition of inventory or obsolete
equipment in the ordinary course of business, (iii) any sale, lease or other
disposition (or series of related sales, leases or other dispositions) the Net
Cash Proceeds of which do not exceed $40,000,000 on an individual basis,
(iv)leases with respect to tangible property entered into in the ordinary
course of business, (v) any sale, transfer or other disposition of temporary
cash investments in the ordinary course of business, (vi) any sale, transfer or
other disposition of any assets if the Borrower notifies the Administrative
Agent promptly after the receipt of the proceeds thereof that such proceeds
will be committed by the Borrower and its Subsidiaries to be used to purchase
similar assets within three months of the date of such notice and will be so
used within twelve months of the date
2
<PAGE>
of such notice, but only to the extent such proceeds are actually so used,
(vii) any sale, transfer or other disposition of any "margin stock" (within the
meaning of the Margin Regulations) for fair value, (viii) any dispositions
resulting in Major Property Insurance Proceeds and (ix) any transfer to the
Voting Trust of securities of Conrail or of a Subsidiary intended to be merged
with Conrail.
"Assignee" has the meaning set forth in Section 9.06(c).
"Bank" means each financial institution listed on the signature pages
hereof, each Assignee which becomes a Bank pursuant to Section 9.06(c), and
their respective successors.
"Base Rate" means, for any day, a rate per annum equal to the higher
of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus Federal
Funds Rate for such day.
"Base Rate Loan" means a Committed Loan which bears interest at a rate
per annum based upon the Base Rate pursuant to the applicable Notice of
Borrowing or Notice of Interest Rate Election or the provisions of Section
2.06(e) or Article 8.
"Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by the
Borrower.
"Borrower" means Norfolk Southern Corporation, a Virginia corporation,
its successors, and any Person with which the Borrower merges or consolidates,
or to which it sells substantially all of its assets, in accordance with
Section 5.09.
"Borrower's 1995 Form 10-K" means the Borrower's annual report on Form
10-K for 1995, as filed with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934.
"Borrower Pledge Agreement" means the Pledge Agreement to be entered
into between the Borrower and the Administrative Agent for the benefit of the
Secured Parties named therein, in substantially the form of Exhibit A-1, in
respect of the Trust Certificates (as defined in the Voting Trust Agreement),
if any, held by the Borrower, the capital stock of any Significant Subsidiary
owned directly by the Borrower and certain Debt held by the Borrower.
"Borrowing" has the meaning set forth in Section 1.03.
"CD Base Rate" has the meaning set forth in Section 2.06(b).
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<PAGE>
"CD Loan" means a Committed Loan which bears interest at a CD Rate
pursuant to the applicable Notice of Borrowing or Notice of Interest Rate
Election.
"CD Rate" means a rate of interest determined pursuant to Section
2.06(b) on the basis of an Adjusted CD Rate.
"CD Reference Banks" means The First Bank of Chicago, Wachovia Bank of
North Carolina and Morgan Guaranty Trust Company of New York.
"Class" has the meaning set forth in Section 1.03.
"Closing Date" means the date this Agreement becomes effective in
accordance with Section 9.08(b).
"Collateral" means the collateral purported to be subject to the Liens
of the Collateral Documents.
"Collateral Documents" means the Pledge Agreements, any additional
pledges required to be delivered pursuant to the Loan Documents and any
instruments of assignment or other instruments or agreements executed pursuant
to the foregoing.
"Commitment" means any Term Loan Commitment or Revolving Credit
Commitment, and "Commitments" means any or all of the foregoing, as the context
may require.
"Commitment Schedule" means the Schedule attached hereto and identified
as such.
"Committed Loan" means a loan made by a Bank pursuant to Section 2.01.
"Conrail" means Conrail Inc., a Pennsylvania corporation, and its
successors (including, without limitation, the survivor of the Merger, whether
or not Conrail, Inc.).
"Consolidated Capital Expenditures" means, for any period, the
expenditures for additions to property, plant and equipment and other capital
expenditures of the Borrower and its Consolidated Subsidiaries for such period,
as the same are or would be set forth in a consolidated statement of cash flows
of the Borrower and its Consolidated Subsidiaries for such period.
"Consolidated EBITDA" means, for any fiscal period, Consolidated Net
Income for such period plus, to the extent deducted in determining such
Consolidated Net Income for such period, the aggregate amount of (i)
Consolidated Interest
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Expense, (ii) consolidated income tax expense, (iii) consolidated depreciation
and amortization expense and (iv) special charges, restructuring charges and
charges taken in connection with unusual or infrequent accounting adjustments
and minus, to the extent reflected in Consolidated Net Income, non-recurring
items of gain (it being understood that gains realized by the Borrower and its
Consolidated Subsidiaries upon sales of assets consistent with past practices
are not non-recurring for this purpose). On the basis set forth in the
immediately preceding sentence, (x) Consolidated EBITDA for the fiscal quarter
ended June 30, 1996 was $731,000,000 and (y) Consolidated EBITDA for the fiscal
quarter ended September 30, 1996 was $780,000,000.
"Consolidated Interest Expense" means, for any period, the
aggregate interest expense of the Borrower and its Consolidated Subsidiaries
determined on a consolidated basis for such period; provided that if any
determination of Consolidated Interest Expense is required to be made for any
period commencing prior to the Consummation Date, such determination shall be
made on a pro forma basis as if all Debt outstanding at the date of
determination had been outstanding since the first day of the relevant period.
On the basis set forth in the immediately preceding sentence, Consolidated
Interest Expense for the fiscal quarters ended June 30, 1996 and September 30,
1996, respectively, was $265,000,000.
"Consolidated Net Income" means, for any fiscal period, the net income
of the Borrower and its Consolidated Subsidiaries, determined on a consolidated
basis for such period, exclusive, solely for purposes of the definition of
Consolidated EBITDA, of the effect of any extraordinary gain or loss.
"Consolidated Net Worth" means at any date the consolidated
stockholders' equity of the Borrower and its Consolidated Subsidiaries as of
such date.
"Consolidated Subsidiary" means at any date with respect to any Person
, any Subsidiary or other entity the accounts of which would be consolidated
with those of such Person in its consolidated financial statements if such
statements were prepared as of such date. Unless otherwise specified, a
"Consolidated Subsidiary" shall be a Consolidated Subsidiary of the Borrower;
provided that, for purposes of Article 3 and Sections 4.04(c) and 5.07 and
related definitions as used for purposes thereof, on any date prior to the
Consummation Date, Conrail shall be deemed to be (and to have at all times
been) a wholly-owned Consolidated Subsidiary of the Borrower.
"Consummation Date" means the later of the Merger Date and the STB
Approval Date.
"Continuing Director" has the meaning set forth in Section 6.01(l).
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"Debt" of any Person means at any date, without duplication, (i) all
indebtedness of such Person for borrowed money, (ii) all indebtedness of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business, (iv) all obligations of such Person as lessee which are
capitalized in accordance with generally accepted accounting principles, (v)
any obligation (whether fixed or contingent) to reimburse any bank or other
Person in respect of amounts paid or payable under a standby letter of credit,
(vi) any capital stock of such Person which is redeemable otherwise than at the
sole option of such Person, (vii) all Debt of others secured by a Lien on any
asset of such Person, whether or not such Debt is assumed by such Person, and
(viii) all Debt of others Guaranteed by such Person.
"Derivatives Obligations" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency
option or any other similar transaction (including any option with respect to
any of the foregoing transactions) or any combination of the foregoing
transactions.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Documentation Agent" means Merrill Lynch Capital Corporation in its
capacity as Documentation Agent for the Banks hereunder.
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized by law to
close.
"Domestic Lending Office" means, as to each Bank, its office located
at its address set forth in its Administrative Questionnaire (or identified in
its Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Administrative Agent; provided that any Bank may
so designate separate Domestic Lending Offices for its Base Rate Loans, on the
one hand, and its CD Loans, on the other hand, in which case all references
herein to the Domestic Lending Office of such Bank shall be deemed to refer to
either or both of such offices, as the context may require.
"Domestic Loans" means CD Loans or Base Rate Loans or both.
6
<PAGE>
"Domestic Reserve Percentage" has the meaning set forth in Section
2.06(b).
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
other governmental restrictions relating to the environment, to the effect of
the environment on human health or to emissions, discharges or releases of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes into the environment
including, without limitation, ambient air, surface water, ground water, or
land, or otherwise relating to the transport, manufacture, processing,
distribution, use, treatment, storage, disposal or handling of pollutants,
contaminants, petroleum or petroleum products, chemicals or industrial, toxic
or hazardous substances or wastes or the clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Borrower, any Consolidated Subsidiary and all
members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control which, together with the
Borrower or any Consolidated Subsidiary, are treated as a single employer under
Section 414 of the Internal Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Bank, its office,
branch or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its
Euro-Dollar Lending Office) or such other office, branch or affiliate of such
Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice
to the Borrower and the Administrative Agent.
"Euro-Dollar Loan" means a Committed Loan which bears interest at a
Euro-Dollar Rate pursuant to the applicable Notice of Borrowing or Notice of
Interest Rate Election.
"Euro-Dollar Rate" means a rate of interest determined pursuant to
Section 2.06(c) on the basis of a London Interbank Offered Rate.
"Euro-Dollar Reference Banks" means the principal London offices of The
First National Bank of Chicago, Wachovia Bank of North Carolina and Morgan
Guaranty Trust Company of New York.
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"Euro-Dollar Reserve Percentage" has the meaning set forth in Section
2.07.
"Event of Default" has the meaning set forth in Section 6.01.
"Existing Credit Agreement" means the Credit Agreement dated as of
March 29, 1994, and amended and restated as of July 31, 1996, among the
Borrower, the banks parties thereto and Morgan Guaranty Trust Company of New
York, as agent for such banks.
"Exposure" means, at any time as to any Bank, the sum of (i) such
Bank's Term Loan Commitment(s), plus (ii) the outstanding principal amount of
such Bank's Term Loans plus (iii) such Bank's Revolving Credit Commitment, if
still in existence, or the outstanding principal amount of such Bank's
Revolving Credit Loans and Money Market Loans, if its Revolving Credit
Commitment is no longer in existence.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, provided that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to Morgan Guaranty Trust Company of New
York on such day on such transactions as determined by the Administrative
Agent.
"First Borrowing Date" means the date of the first Borrowing
hereunder. The First Borrowing Date may occur on or prior to the Acquisition
Date.
"First Offer" means the offer by the Offeror to purchase up to 9.9% of
the outstanding shares of Common Stock and Series A ESOP Convertible Junior
Preferred Stock of Conrail at $115 net per share pursuant to the First Offer to
Purchase.
"First Offer to Purchase" means the Offer to Purchase dated October
24, 1996 by the Offeror to the stockholders of Conrail, as supplemented as of
January 22, 1997, and as further amended from time to time in accordance with
its terms.
"Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or Money Market
Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate
pursuant to Section 8.01(a)) or any combination of the foregoing.
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<PAGE>
"Group of Loans" means at any time a group of Loans of any Class
consisting of (i) all Loans of such Class which are Base Rate Loans at such
time or (ii) all Loans of such Class which are Euro-Dollar Loans or CD Loans
having the same Interest Period at such time, provided that, if a Loan of any
particular Bank is converted to or made as a Base Rate Loan pursuant to Article
8, such Loan shall be included in the same Group or Groups of Loans from time
to time as it would have been in if it had not been so converted or made.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Debt (whether arising by virtue of partnership arrangements, by agreement
to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or
(ii) entered into for the purpose of assuring in any other manner the obligee
of such Debt of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part), provided that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Indemnitee" has the meaning set forth in Section 9.03(b).
"Information Memorandum" means the Information Memorandum dated
October 28, 1996 furnished to the Banks in connection with this Agreement.
"Initial Conrail Investment" means the purchase by the Borrower,
directly or indirectly (including without limitation through the Voting Trust),
of up to (but not in excess of) 9.9% in the aggregate of the outstanding shares
of Common Stock and Series A ESOP Convertible Junior Preferred Stock of Conrail
pursuant to the First Offer.
"Interest Coverage Ratio" means, at any date, the ratio of (i)
Consolidated EBITDA less Net Consolidated Capital Expenditures to (ii)
Consolidated Interest Expense, in each case for the period of four consecutive
fiscal quarters most recently ended on or prior to such date.
"Interest Period" means: (1) with respect to each Euro-Dollar Loan,
the period commencing on the date of borrowing specified in the applicable
Notice of Borrowing or on the date specified in the applicable Notice of
Interest Rate Election and ending one, two, three or six months thereafter, as
the Borrower may elect in the applicable notice; provided that:
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<PAGE>
(a) any Interest Period which would otherwise end on a day which
is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business
Day falls in another calendar month, in which case such Interest
Period shall end on the next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clauses (c) and (d) below, end on
the last Euro-Dollar Business Day of a calendar month;
(c) no Interest Period for any Revolving Credit Loan shall extend
beyond the Revolving Credit Termination Date; and
(d) no Interest Period applicable to any Term Loan of any Class
shall extend beyond any date upon which is due any scheduled principal
payment in respect of the Term Loans of such Class unless the
aggregate principal amount of Term Loans of such Class represented by
Base Rate Loans, or by Fixed Rate Loans having Interest Periods that
will expire on or before such date, equals or exceeds the amount of
such principal payment.
(2) with respect to each CD Loan, the period commencing on the date of
borrowing specified in the applicable Notice of Borrowing or on the date
specified in the applicable Notice of Interest Rate Election and ending 30, 60,
90 or 180 days thereafter, as the Borrower may elect in the applicable notice;
provided that:
(a) any Interest Period (other than an Interest Period determined
pursuant to clause (b) or (c) below) which would otherwise end on a
day which is not a Euro-Dollar Business Day shall be extended to the
next succeeding Euro-Dollar Business Day;
(b) no Interest Period for any Revolving Credit Loan shall extend
beyond the Revolving Credit Termination Date; and
(c) no Interest Period applicable to any Term Loan of any Class
shall extend beyond any date upon which is due any scheduled principal
payment in respect of the Term Loans of such Class unless the
aggregate principal amount of Term Loans of such Class represented by
Base Rate Loans, or by Fixed Rate Loans having Interest Periods that
will expire on or before such date, equals or exceeds the amount of
such principal payment.
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(3) with respect to each Money Market LIBOR Borrowing, the period
commencing on the date of such Borrowing and ending such whole number of months
thereafter as the Borrower may elect in accordance with Section 2.03; provided
that:
(a) any Interest Period which would otherwise end on a day which
is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business
Day falls in another calendar month, in which case such Interest
Period shall end on the next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Revolving Credit Termination Date shall end on the Revolving Credit
Termination Date.
(4) with respect to each Money Market Absolute Rate Borrowing, the
period commencing on the date of such Borrowing and ending such number of days
thereafter (but not less than 14 days) as the Borrower may elect in accordance
with Section 2.03; provided that:
(a) any Interest Period which would otherwise end on a day which
is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Revolving Credit Termination Date shall end on the Revolving Credit
Termination Date.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Investment" means any investment in any Person, whether by means of
share purchase, capital contribution, loan, time deposit or otherwise.
"Leverage Ratio" means, at any date, the ratio of Total Debt at such
date to Consolidated EBITDA for the period of four consecutive fiscal quarters
most recently ended on or prior to such date.
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<PAGE>
"LIBOR Auction" means a solicitation of Money Market Quotes setting
forth Money Market Margins based on the London Interbank Offered Rate pursuant
to Section 2.03.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, the Borrower or any Subsidiary shall be
deemed to own subject to a Lien any asset which it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement relating to such
asset.
"Loan" means a Base Rate Loan, a CD Loan, a Euro-Dollar Loan or a
Money Market Loan and "Loans" means any combination of the foregoing, as the
context may require; provided that, if any such Loan or Loans (or portions
thereof) are combined or subdivided pursuant to a Notice of Interest Rate
Election, the term "Loan" shall refer to the combined principal amount
resulting from such combination or to each of the separate principal amounts
resulting from such subdivision, as the case may be.
"Loan Documents" means this Agreement, the Collateral Documents, the
Subsidiary Guarantee Agreement and any Notes delivered pursuant hereto.
"London Interbank Offered Rate" has the meaning set forth in Section
2.06(c).
"Major Property Insurance Proceeds" means:
(i) the aggregate insurance proceeds from third parties in excess
of $25,000,000 received in connection with one or more related events
by the Borrower or any of its Subsidiaries under any insurance policy
maintained by the Borrower or any of its Subsidiaries covering losses
with respect to tangible real or personal property or improvements or
(ii) any award or other compensation in excess of $25,000,000
received with respect to any condemnation of property (or, in the case
of any transfer or disposition of property in lieu of condemnation,
the book value of such property) by the Borrower or any of its
Subsidiaries,
provided that such proceeds, award or other compensation shall not constitute
Major Property Insurance Proceeds if the Borrower notifies the Administrative
Agent promptly after the receipt thereof that such proceeds, award or other
compensation will be committed by the Borrower and its Subsidiaries to be used
to repair or replace the asset so affected within three months of the date of
such notice and will be so used
12
<PAGE>
within twelve months of the date of such notice, but only to the extent such
proceeds, award or other compensation is actually so used.
"Margin Regulations" means Regulations G, T, U and X of the Board of
Governors of the Federal Reserve System, as amended and in effect from time to
time.
"Material Adverse Change" has the meaning specified in Section 4.04(c).
"Material Debt" means Debt (other than under the Loan Documents ) of
the Borrower and/or one or more of its Subsidiaries, arising in one or more
related or unrelated transactions, in an aggregate principal amount exceeding
$50,000,000.
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $100,000,000.
"Merger" means the "Proposed Merger" between Conrail and the Offeror
(or any other wholly-owned Subsidiary of the Borrower party to the Subsidiary
Pledge Agreement) as described and defined in the First Offer to Purchase,
pursuant to which Conrail shall become a wholly-owned Subsidiary of the
Borrower and its outstanding stock shall cease to be "margin stock" within the
meaning of the Margin Regulations.
"Merger Date" means the date of consummation of the Merger.
"Moody's" means Moody's Investors Service, Inc.
"Money Market Absolute Rate" has the meaning set forth in Section
2.03(d).
"Money Market Absolute Rate Loan" means a loan to be made by a Bank
pursuant to an Absolute Rate Auction.
"Money Market Lending Office" means, as to each Bank, its Domestic
Lending Office or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Money Market Lending Office by notice to the
Borrower and the Administrative Agent; provided that any Bank may from time to
time by notice to the Borrower and the Administrative Agent designate separate
Money Market Lending Offices for its Money Market LIBOR Loans, on the one hand,
and its Money Market Absolute Rate Loans, on the other hand, in which case all
references herein to the Money Market Lending Office of such Bank shall be
deemed to refer to either or both of such offices, as the context may require.
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"Money Market LIBOR Loan" means a loan to be made by a Bank pursuant
to a LIBOR Auction (including such a loan bearing interest at the Base Rate
pursuant to Section 8.01(a)).
"Money Market Loan" means a Money Market LIBOR Loan or a Money
Market Absolute Rate Loan.
"Money Market Margin" has the meaning set forth in Section 2.03(d).
"Money Market Quote" means an offer by a Bank to make a Money Market
Loan in accordance with Section 2.03.
"Multiemployer Plan" means at any time an employee pension benefit
plan within the meaning of Section 4001(a)(3) of ERISA to which any member of
the ERISA Group is then making or accruing an obligation to make contributions
or has within the preceding five plan years made contributions, including for
these purposes any Person which ceased to be a member of the ERISA Group during
such five year period.
"Net Cash Proceeds" means, with respect to any Reduction Event, an
amount equal to the cash proceeds received by the Borrower or any of its
Subsidiaries from or in respect of such Reduction Event (including any cash
proceeds received as interest or similar income or other proceeds of any
noncash proceeds of any Asset Sale), less (a) any fees, costs and expenses
reasonably incurred by such Person in respect of such Reduction Event and (b)
if such Reduction Event is an Asset Sale, (i) the amount of any Debt secured by
a Lien on any asset disposed of in such Asset Sale and discharged from the
proceeds thereof, (ii) any taxes actually paid or to be payable by such Person
(as estimated by a senior financial or accounting officer of the Borrower,
giving effect to the overall tax position of the Borrower) in respect of such
Asset Sale, (iii) all payments made with respect to liabilities associated with
the assets which are the subject of the Asset Sale, including, without
limitation, trade payables and other accrued liabilities, (iv) appropriate
amounts to be provided by such Person or any Subsidiary thereof, as the case
may be, as a reserve in accordance with generally accepted accounting
principles against any liabilities associated with such assets and retained by
such Person or any Subsidiary thereof, as the case may be, after such Asset
Sale, including, without limitation, liabilities under any indemnification
obligations and severance and other employee termination costs associated with
such Asset Sale, until such time as such amounts are no longer reserved or such
reserve is no longer necessary (at which time any remaining amounts will become
Net Cash Proceeds); and (v) all distributions and other payments required to be
made (or made on a pro rata basis) to minority interest holders in Subsidiaries
of such Person as a result of such Reduction Event.
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<PAGE>
"Net Consolidated Capital Expenditures" means, for any period with
respect to the Borrower and its Consolidated Subsidiaries, (i) Consolidated
Capital Expenditures for such period plus (ii) to the extent not included in
such Consolidated Capital Expenditures, the aggregate amount of expenditures or
additions to property, plant and equipment and other capital expenditures
financed with the proceeds of capital leases or other Debt minus (iii) the Net
Cash Proceeds of any sale, transfer or other disposition of assets described in
clause (iii) or (vi) of the definition of "Asset Sale" and consummated during
such period or any prior period or (y) insurance proceeds received during such
period or any prior period. On the basis set forth in the immediately preceding
sentence, (x) Net Consolidated Capital Expenditures for the fiscal quarter
ended June 30, 1996 were $306,000,000 and (y) Net Consolidated Capital
Expenditures for the fiscal quarter ended September 30, 1996 were $238,000,000.
"Notes" has the meaning set forth in Section 2.16(b).
"Notice of Borrowing" means a Notice of Committed Borrowing (as
defined in Section 2.02) or a Notice of Money Market Borrowing (as defined in
Section 2.03(f)).
"Notice of Interest Rate Election" has the meaning set forth in
Section 2.10.
"Obligor" means the Borrower or any Subsidiary Guarantor, and
"Obligors" means all of the foregoing.
"Offeror" means Atlantic Acquisition Corporation, a Pennsylvania
corporation and a wholly-owned Subsidiary of the Borrower, and its successors.
"Parent" means, with respect to any Bank, any Person controlling such
Bank.
"Participant" has the meaning set forth in Section 9.06(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan (other than
a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for
15
<PAGE>
employees of any member of the ERISA Group or (ii) has at any time within the
preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.
"Pledge Agreement" means the Borrower Pledge Agreement or the
Subsidiary Pledge Agreement, and "Pledge Agreements" means both of them.
"Pricing Schedule" means the Schedule attached hereto identified as
such.
"Prime Rate" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"Quarterly Dates" means each March 31, June 30, September 30 and
December 31.
"Reduction Event" means (i) any Asset Sale, (ii) the incurrence of any
Debt by the Borrower or any of its Subsidiaries in reliance on subsection (c)
or (j) of Section 5.11, (iii) the incurrence of any Debt by the Borrower or a
Subsidiary in reliance on subsection (i) of Section 5.11 ("CP Debt") if, and
solely to the extent that, (A) such CP Debt is incurred after the Acquisition
Date ("Post Acquisition CP Debt"), (B) after giving effect thereto and the
application of the proceeds thereof, the aggregate outstanding principal amount
of CP Debt (whenever incurred) is increased and (C) after giving effect thereto
and the application of the proceeds thereof, the aggregate outstanding
principal amount of Post Acquisition CP Debt exceeds the aggregate principal
amount of Post Acquisition CP Debt which has previously given rise to a
Reduction Event pursuant to this clause (iii) , (iv) the issuance of any equity
securities by the Borrower or any of its Subsidiaries (other than (w) equity
securities issued in consideration for the acquisition of any assets
(including, without limitation, any equity interests of any other Person), (x)
equity securities issued to the Borrower or any of its Subsidiaries, (y)
directors' qualifying shares and (z) equity securities issued in the ordinary
course of business in connection with now or hereafter existing employee stock
purchase plans and other employee compensation arrangements (but excluding from
this clause (z) any equity securities issued or sold to Conrail's Matched
Savings Plan (or any successor plan) and purchased by such Plan (or any
successor plan), (v) receipt of Major Property Insurance Proceeds, (vi) any
Extraordinary Distribution (as defined in either Pledge Agreement) by the
Voting Trust or (vii) receipt by the Borrower or any of its Subsidiaries at any
time on or after the Consummation Date of any payment with respect to amounts
outstanding under the loan between Conrail and the trust under Conrail's
Matched Savings Plan (other than repayments in an amount not exceeding the sum
of (a) any amounts contributed by the Borrower or any of its Subsidiaries to
such trust and (b) any dividends received
16
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by such trust with respect to stock of the Borrower or any of its
Subsidiaries). The description of any transaction as falling within the above
definition does not affect any limitation on such transaction imposed by
Article 5 of this Agreement.
"Reference Banks" means the CD Reference Banks or the Euro-Dollar
Reference Banks, as the context may require, and "Reference Bank" means any one
of such Reference Banks.
"Release Event" means that the Borrower's senior unsecured long-term
debt is rated BBB-or higher by S&P and Baa3 or higher by Moody's. The credit
ratings to be utilized for purposes of this definition shall be the new (or
confirmed) ratings of the Borrower's senior unsecured long-term debt announced
(either before or after the Acquisition) by Moody's and S&P giving effect to
the Acquisition (and, if applicable, giving effect to the termination of the
Collateral Documents as a consequence of such rating).
"Required Banks" means at any time Banks having at least 51% of the
aggregate amount of the Exposures at such time.
"Restricted Investment" means any Investment in Conrail or any of its
Subsidiaries, including without limitation any purchase of any shares of Common
Stock, Series A ESOP Convertible Junior Preferred Stock or any other capital
stock of Conrail, other than (i) the Acquisition itself and (ii) the Initial
Conrail Investment.
"Revolving Credit Bank" means each Bank identified in the Commitment
Schedule as having a Revolving Credit Commitment and each Assignee which
acquires a Revolving Credit Commitment and/or Revolving Credit Loans pursuant
to Section 9.06(c), and their respective successors.
"Revolving Credit Commitment" means,
(i) with respect to each Revolving Credit Bank listed on the
signature pages hereof, the amount set forth opposite the name of such
Bank under the heading "Revolving Credit Commitment" in the Commitment
Schedule, or
(ii) with respect to each Assignee which becomes a Revolving
Credit Bank pursuant to Section 9.06(c), the amount of the Revolving
Credit Commitment thereby assumed by it,
in each case as such amount may be reduced from time to time pursuant to
Section 2.09 or 2.12 or increased or reduced by reason of an assignment to or
by such Bank in accordance with Section 9.06(c).
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"Revolving Credit Loan" means a loan made by a Revolving Credit Bank
pursuant to Section 2.01(d).
"Revolving Credit Period" means the period from and including the
Closing Date to but not including the Revolving Credit Termination Date.
"Revolving Credit Termination Date" means August 1, 1997; provided
that the Revolving Credit Termination Date shall be extended to the date which
is the fifth anniversary of the Closing Date if on or prior to August 1, 1997
the Acquisition Date shall have occurred (or, if such fifth anniversary date is
not a Euro-Dollar Business Day, the next succeeding Euro-Dollar Business Day
unless such Euro-Dollar Business Day falls in another calendar month, in which
case the Revolving Credit Termination Date shall be the next preceding
Euro-Dollar Business Day).
"Second Offer" means the offer by the Offeror to purchase all the
outstanding shares of Common Stock and Series A ESOP Convertible Junior
Preferred Stock of Conrail at $115 net per share pursuant to the Second Offer
to Purchase.
"Second Offer to Purchase" means an Offer to Purchase by the Offeror
to the stockholders of Conrail, the terms and conditions of which Offer to
Purchase shall be substantially identical to those of the First Offer to
Purchase as supplemented as of December 20, 1996, as amended from time to time
in accordance with its terms; provided that no such amendment (other than (i)
any amendment effecting an extension of the expiration date of the Second Offer
and (ii) any amendments not affecting the conditions to or any material term of
the Second Offer) shall be effective for purposes of references thereto in this
Agreement unless approved in writing by the Required Banks.
"Significant Subsidiary" means, at any time, (i) Norfolk Southern
Railway Company, (ii) Norfolk and Western Railway Company, (iii) the Offeror,
(iv) solely on and after the Consummation Date, Conrail and (v) each other
Subsidiary (x) whose assets (or, in the case of a Subsidiary which has
subsidiaries, consolidated assets) as shown on the latest financial statements
delivered by the Borrower pursuant to, prior to the Consummation Date, Section
5.01(a)(ii) or (b)(y) and, on or after the Consummation Date, Section
5.01(a)(i) or (b)(x), as the case may be, are (A) at least 5% of the
consolidated assets of the Borrower and its Consolidated Subsidiaries
(including for such purpose Conrail and its Subsidiaries, all as shown on such
financial statements) at such time and (B) at least $1,500,000,000 or (y) whose
operating income (or, in the case of a Subsidiary which has subsidiaries,
consolidated operating income) as shown on the latest financial statements
delivered by the Borrower pursuant to, prior to the Consummation Date, Section
5.01(a)(ii) or (b)(y) and, on or after the Consummation Date, Section
5.01(a)(i) or (b)(x), as the case may be, is (A) at least 5% of the
consolidated operating income of the Borrower and its
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Consolidated Subsidiaries (including for such purpose Conrail and its
Subsidiaries, all as shown on such financial statements) at such time and (B)
at least $150,000,000.
"STB" means the Surface Transportation Board, an agency of the Federal
Government of the United States of America.
"STB Approval Date" means the date on which the STB approves the
acquisition of control of Conrail by the Borrower, without any terms or
conditions not satisfactory to the Borrower.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by
such Person; unless otherwise specified, a "Subsidiary" means a Subsidiary of
the Borrower. Except as otherwise specified, the Voting Trust and Conrail and
its Subsidiaries shall not be deemed Subsidiaries of the Borrower prior to the
Consummation Date.
"Subsidiary Guarantee Agreement" means a Subsidiary Guarantee
Agreement by the Subsidiary Guarantors in favor of the Administrative Agent in
substantially the form of Exhibit B.
"Subsidiary Guarantors" means the Significant Subsidiaries from time
to time parties to the Subsidiary Guarantee Agreement.
"Subsidiary Pledge Agreement" means the Pledge Agreement to be entered
into between the Significant Subsidiaries and the Administrative Agent for the
benefit of the Secured Parties named therein, in substantially the form of
Exhibit A-2, in respect of the Trust Certificates (as defined in the Voting
Trust Agreement) held by Offeror and the capital stock and indebtedness of any
Significant Subsidiary owned directly by any such Significant Subsidiary.
"Term Availability Period" means the period from and including the
Closing Date to and including the Merger Date.
"Term Loan" means a Term Loan-I, a Term Loan-II or a Term Loan-III.
"Term Loan Bank" means a Term Loan-I Bank, a Term Loan-II Bank or a
Term Loan-III Bank.
"Term Loan Commitment" means a Term Loan-I Commitment, a Term Loan-II
Commitment or a Term Loan-III Commitment.
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"Term Loan-I" means a loan made by a Term Loan-I Bank pursuant to
Section 2.01(a).
"Term Loan-I Bank" means each Bank identified in the Commitment
Schedule as having a Term Loan-I Commitment and each Assignee which acquires a
Term Loan-I Commitment and/or Term Loan-I pursuant to Section 9.06(c), and
their respective successors.
"Term Loan-I Commitment" means,
(i) with respect to each Term Loan-I Bank listed on the signature
pages hereof, the amount set forth opposite the name of such Bank
under the heading "Term Loan-I Commitment" in the Commitment Schedule,
or
(ii) with respect to each Assignee which becomes a Term Loan-I
Bank pursuant to Section 9.06(c), the amount of the Term Loan-I
Commitment thereby assumed by it,
in each case as such amount may be reduced from time to time pursuant to
Section 2.09 or 2.12 or increased or reduced by reason of an assignment to or
by such Bank in accordance with Section 9.06(c).
"Term Loan-II" means a loan made by a Term Loan-II Bank pursuant to
Section 2.01(b).
"Term Loan-II Bank" means each Bank identified in the Commitment
Schedule as having a Term Loan-II Commitment and each Assignee which acquires a
Term Loan-II Commitment and/or Term Loan-II pursuant to Section 9.06(c), and
their respective successors.
"Term Loan-II Commitment" means,
(i) with respect to each Term Loan-II Bank listed on the
signature pages hereof, the amount set forth opposite the name of such
Bank under the heading "Term Loan-II Commitment" in the Commitment
Schedule, or
(ii) with respect to each Assignee which becomes a Term Loan-II
Bank pursuant to Section 9.06(c), the amount of the Term Loan-II
Commitment thereby assumed by it,
in each case as such amount may be reduced from time to time pursuant to
Section 2.09 or 2.12 or increased or reduced by reason of an assignment to or
by such Bank in accordance with Section 9.06(c).
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"Term Loan-III" means a loan made by a Term Loan-III Bank pursuant to
Section 2.01(c).
"Term Loan-III Bank" means each Bank identified in the Commitment
Schedule as having a Term Loan-III Commitment and each Assignee which acquires
a Term Loan-III Commitment and/or Term Loan-III pursuant to Section 9.06(c),
and their respective successors.
"Term Loan-III Commitment" means,
(i) with respect to each Term Loan-III Bank listed on the
signature pages hereof, the amount set forth opposite the name of such
Bank under the heading "Term Loan-III Commitment" in the Commitment
Schedule, or
(ii) with respect to each Assignee which becomes a Term Loan-III
Bank pursuant to Section 9.06(c), the amount of the Term Loan-III
Commitment thereby assumed by it,
in each case as such amount may be reduced from time to time pursuant to
Section 2.09 or 2.12 or increased or reduced by reason of an assignment to or
by such Bank in accordance with Section 9.06(c).
"Total Debt" means at any date the aggregate amount of Debt of the
Borrower and its Consolidated Subsidiaries, determined on a consolidated basis
as of such date.
"Type" has the meaning set forth in Section 1.03.
"Unfunded Liabilities" means, with respect to any Plan at any time,
the amount (if any) by which (i) the present value of all benefit liabilities
under such Plan exceeds (ii) the fair market value of all Plan assets allocable
to such benefit liabilities (excluding any accrued but unpaid contributions),
but only to the extent that such excess represents a potential liability of a
member of the ERISA Group to the PBGC or any other Person under Title IV of
ERISA.
"United States" means the United States of America, including the
States and the District of Columbia, but excluding its territories and
possessions.
"Voting Trust" means the voting trust established pursuant to the
Voting Trust Agreement.
"Voting Trust Agreement" means the Voting Trust Agreement contemplated
by the First Offer to Purchase, as amended and in effect on the Acquisition
Date and
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as the same may be further amended from time to time in accordance with the
provisions thereof and hereof.
SECTION 1.02. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time,
applied on a basis consistent (except for changes concurred in by the
Borrower's independent public accountants) with the then most recent audited
consolidated financial statements of the Borrower and its Consolidated
Subsidiaries delivered to the Banks; provided that, if the Borrower notifies
the Administrative Agent that the Borrower wishes to amend any covenant in
Article 5 to eliminate the effect of any change in generally accepted
accounting principles on the operation of such covenant (or if the
Administrative Agent notifies the Borrower that the Required Banks wish to
amend Article 5 for such purpose), then the Borrower's compliance with such
covenant shall be determined on the basis of generally accepted accounting
principles in effect immediately before the relevant change in generally
accepted accounting principles became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory to the Borrower
and the Required Banks. The pro forma condensed financial statements to be
delivered by the Borrower pursuant to Sections 5.01(a)(ii) or 5.01(b)(y)(A)
shall be prepared on a basis consistent with the pro forma condensed financial
information presented in the Information Memorandum.
SECTION 1.03. Classes and Types of Loans and Borrowings. The term
"Borrowing" denotes the aggregation of Loans of one or more Banks to be made to
the Borrower pursuant to Article 2 on the same date, all of which Loans are of
the same Class and Type (subject to Article 8) and, except in the case of Base
Rate Loans, have the same initial Interest Period. Loans hereunder are
distinguished by "Class" and by "Type". The "Class" of a Loan (or of a
Commitment to make such a Loan or of a Borrowing comprised of such Loans)
refers to the determination whether such Loan is a Term Loan-I, Term Loan-II,
Term Loan-III or Revolving Credit Loan, each of which constitutes a Class. The
"Type" of a Loan refers to the determination whether such Loan is a Euro-Dollar
Loan, a CD Loan, a Base Rate Loan or a Money Market Loan, each of which
constitutes a "Type". Identification of a Loan (or a Borrowing) by both Class
and Type (e.g., a "Euro-Dollar Term Loan-I") indicates that such Loan is both a
Term Loan-I and a Euro-Dollar Loan (or that such Borrowing is comprised of such
Loans).
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ARTICLE 2
THE CREDIT
SECTION 2.01. Commitments to Lend. (a) Term Loan-I Facility. During
the Term Availability Period each Term Loan-I Bank severally agrees, on the
terms and conditions set forth in this Agreement, to make a Term Loan-I to the
Borrower on each of the Acquisition Date and the Merger Date in amounts not to
exceed in the aggregate the amount of its Term Loan-I Commitment. The Term
Loan-I Commitments are not revolving in nature, and amounts repaid or prepaid
pursuant to Section 2.11 or Section 2.12 shall not be reborrowed.
(b) Term Loan-II Facility. During the Term Availability Period each
Term Loan-II Bank severally agrees, on the terms and conditions set forth in
this Agreement, to make a Term Loan-II to the Borrower on each of the
Acquisition Date and the Merger Date in amounts not to exceed in the aggregate
the amount of its Term Loan-II Commitment. The Term Loan-II Commitments are not
revolving in nature, and amounts repaid or prepaid pursuant to Section 2.11 or
Section 2.12 shall not be reborrowed.
(c) Term Loan-III Facility. During the Term Availability Period each
Term Loan-III Bank severally agrees, on the terms and conditions set forth in
this Agreement, to make a Term Loan-III to the Borrower on each of the
Acquisition Date and the Merger Date in amounts not to exceed in the aggregate
the amount of its Term Loan-III Commitment. The Term Loan-III Commitments are
not revolving in nature, and amounts repaid or prepaid pursuant to Section 2.11
or Section 2.12 shall not be reborrowed.
(d) Revolving Credit Facility. During the Revolving Credit Period,
each Revolving Credit Bank severally agrees, on the terms and conditions set
forth in this Agreement, to make Revolving Credit Loans to the Borrower from
time to time in an aggregate amount at any time outstanding not to exceed the
amount of its Revolving Credit Commitment. Within the limits specified in this
Agreement, the Borrower may borrow under this Section 2.01(d), prepay Revolving
Credit Loans to the extent permitted by Section 2.11 and reborrow at any time
during the Revolving Credit Period pursuant to this Section 2.01(d).
(e) Minimum Amount. Each Borrowing under this Section 2.01 shall be
in the aggregate principal amount of $25,000,000 or any larger multiple of
$1,000,000 (except that any such Borrowing may be in the aggregate amount of
the unused Commitments of the relevant Class) and shall be made from the
several Banks ratably in proportion to their respective Commitments of the
relevant Class.
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SECTION 2.02. Notice of Committed Borrowings. The Borrower shall give
the Administrative Agent notice (a "Notice of Committed Borrowing") not later
than 10:30 A.M. (New York City time) on (x) the date of each Base Rate
Borrowing, (y) the second Domestic Business Day before each CD Borrowing and
(z) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing,
specifying:
(a) the date of such Borrowing, which shall be a Domestic Business
Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the
case of a Euro-Dollar Borrowing,
(b) the aggregate amount of such Borrowing,
(c) the Class and initial Type of Loans comprising such Borrowing; and
(d) in the case of a Fixed Rate Borrowing, the duration of the
initial Interest Period applicable thereto, subject to the provisions of the
definition of Interest Period.
SECTION 2.03. Money Market Borrowings.
(a) The Money Market Option. In addition to Revolving Credit
Borrowings pursuant to Section 2.01, but within the limitations of the
Revolving Credit Commitments as contemplated by Sections 3.04(b) and (c), the
Borrower may, as set forth in this Section, request (but is not obligated to
request) the Banks from time to time prior to the Revolving Credit Termination
Date to make offers to make Money Market Loans to the Borrower. The Banks may
make, but shall have no obligation to make, such offers and the Borrower may
accept, but shall have no obligation to accept, any such offers in the manner
set forth in this Section.
(b) Money Market Quote Request. When the Borrower wishes to request
offers to make Money Market Loans under this Section, it shall transmit to the
Administrative Agent by telex or facsimile transmission a Money Market Quote
Request substantially in the form of Exhibit G hereto so as to be received no
later than 10:30 A.M. (New York City time) on (x) the fifth Euro-Dollar
Business Day prior to the date of Borrowing proposed therein, in the case of a
LIBOR Auction or (y) the Domestic Business Day next preceding the date of
Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in
either case, such other time or date as the Borrower and the Administrative
Agent shall have mutually agreed and shall have notified to the Banks not later
than the date of the Money Market Quote Request for the first LIBOR Auction or
Absolute Rate Auction for which such change is to be effective) specifying:
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(i) the proposed date of Borrowing, which shall be a Euro-Dollar
Business Day in the case of a LIBOR Auction or a Domestic Business Day
in the case of an Absolute Rate Auction,
(ii) the proposed aggregate amount of such Borrowing, which shall
be $25,000,000 or a larger multiple of $1,000,000,
(iii) the duration of the Interest Period applicable thereto,
subject to the provisions of the definition of Interest Period, and
(iv) whether the Money Market Quotes requested are to set forth a
Money Market Margin or a Money Market Absolute Rate.
The Borrower may request offers to make Money Market Loans for more than one
Interest Period in a single Money Market Quote Request. No Money Market Quote
Request shall be given within five Euro-Dollar Business Days (or such other
number of days as the Borrower and the Administrative Agent may agree) of any
other Money Market Quote Request.
(c) Invitation for Money Market Quotes. Promptly upon receipt of a
Money Market Quote Request, the Administrative Agent shall send to the Banks by
telex or facsimile transmission an Invitation for Money Market Quotes
substantially in the form of Exhibit H hereto, which shall constitute an
invitation by the Borrower to each Bank to submit Money Market Quotes offering
to make the Money Market Loans to which such Money Market Quote Request relates
in accordance with this Section.
(d) Submission and Contents of Money Market Quotes. (i) Each Bank may
submit a Money Market Quote containing an offer or offers to make Money Market
Loans in response to any Invitation for Money Market Quotes. Each Money Market
Quote must comply with the requirements of this subsection (d) and must be
submitted to the Administrative Agent by telex or facsimile transmission at its
offices specified in or pursuant to Section 9.01 not later than (x) 2:00 P.M.
(New York City time) on the fourth Euro-Dollar Business Day prior to the
proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M.
(New York City time) on the proposed date of Borrowing, in the case of an
Absolute Rate Auction (or, in either case, such other time or date as the
Borrower and the Administrative Agent shall have mutually agreed and shall have
notified to the Banks not later than the date of the Money Market Quote Request
for the first LIBOR Auction or Absolute Rate Auction for which such change is
to be effective); provided that Money Market Quotes submitted by the
Administrative Agent (or any affiliate of the Administrative Agent) in the
capacity of a Bank may be submitted, and may only be submitted, if the
Administrative Agent or such affiliate notifies the Borrower of the terms of
the offer or offers contained therein not later than (x) one hour prior to the
deadline for the
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other Banks, in the case of a LIBOR Auction or (y) 15 minutes prior to the
deadline for the other Banks, in the case of an Absolute Rate Auction. Subject
to Articles 3 and 6, any Money Market Quote so made shall be irrevocable except
with the written consent of the Administrative Agent given on the instructions
of the Borrower.
(ii) Each Money Market Quote shall be in substantially the form of
Exhibit I hereto and shall in any case specify:
(A) the proposed date of Borrowing,
(B) the principal amount of the Money Market Loan for which
each such offer is being made, which principal amount (w) may be
greater than or less than the Commitment of the quoting Bank, (x)
must be $5,000,000 or a larger multiple of $1,000,000, (y) may
not exceed the principal amount of Money Market Loans for which
offers were requested and (z) may be subject to an aggregate
limitation as to the principal amount of Money Market Loans for
which offers being made by such quoting Bank may be accepted,
(C) in the case of a LIBOR Auction, the margin above or
below the applicable London Interbank Offered Rate (the "Money
Market Margin") offered for each such Money Market Loan,
expressed as a percentage (specified to the nearest 1/10,000th of
1%) to be added to or subtracted from such base rate,
(D) in the case of an Absolute Rate Auction, the rate of
interest per annum (specified to the nearest 1/10,000th of 1%)
(the "Money Market Absolute Rate") offered for each such Money
Market Loan, and
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate offers by the quoting
Bank with respect to each Interest Period specified in the related Invitation
for Money Market Quotes.
(iii) Any Money Market Quote shall be disregarded if it:
(A) is not substantially in conformity with Exhibit I hereto
or does not specify all of the information required by subsection
(d)(ii);
(B) contains qualifying, conditional or similar language;
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(C) proposes terms other than or in addition to those set
forth in the applicable Invitation for Money Market Quotes; or
(D) arrives after the time set forth in subsection (d)(i).
(e) Notice to Borrower. The Administrative Agent shall promptly notify
the Borrower of the terms (x) of any Money Market Quote submitted by a Bank
that is in accordance with subsection (d) and (y) of any Money Market Quote
that amends, modifies or is otherwise inconsistent with a previous Money Market
Quote submitted by such Bank with respect to the same Money Market Quote
Request. Any such subsequent Money Market Quote shall be disregarded by the
Administrative Agent unless such subsequent Money Market Quote is submitted
solely to correct a manifest error in such former Money Market Quote. The
Administrative Agent's notice to the Borrower shall specify (A) the aggregate
principal amount of Money Market Loans for which offers have been received for
each Interest Period specified in the related Money Market Quote Request, (B)
the respective principal amounts and Money Market Margins or Money Market
Absolute Rates, as the case may be, so offered and (C) if applicable,
limitations on the aggregate principal amount of Money Market Loans for which
offers in any single Money Market Quote may be accepted.
(f) Acceptance and Notice by Borrower. Not later than 10:30 A.M. (New
York City time) on (x) the third Euro-Dollar Business Day prior to the proposed
date of Borrowing, in the case of a LIBOR Auction or (y) the proposed date of
Borrowing, in the case of an Absolute Rate Auction (or, in either case, such
other time or date as the Borrower and the Administrative Agent shall have
mutually agreed and shall have notified to the Banks not later than the date of
the Money Market Quote Request for the first LIBOR Auction or Absolute Rate
Auction for which such change is to be effective), the Borrower shall notify
the Administrative Agent of its acceptance or non-acceptance of the offers so
notified to it pursuant to subsection (e). In the case of acceptance, such
notice (a "Notice of Money Market Borrowing") shall specify the aggregate
principal amount of offers for each Interest Period that are accepted. The
Borrower may accept any Money Market Quote in whole or in part; provided that:
(i) the aggregate principal amount of each Money Market Borrowing
may not exceed the applicable amount set forth in the related Money
Market Quote Request,
(ii) the aggregate principal amount of each Money Market
Borrowing must be $25,000,000 or a larger multiple of $1,000,000,
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(iii) acceptance of offers may only be made on the basis of
ascending Money Market Margins or Money Market Absolute Rates, as the
case may be, and
(iv) the Borrower may not accept any offer that is described in
subsection (d)(iii) or that otherwise fails to comply with the
requirements of this Agreement.
(g) Allocation by Administrative Agent. If offers are made by two or
more Banks with the same Money Market Margins or Money Market Absolute Rates,
as the case may be, for a greater aggregate principal amount than the amount in
respect of which such offers are accepted for the related Interest Period, the
principal amount of Money Market Loans in respect of which such offers are
accepted shall be allocated by the Administrative Agent among such Banks as
nearly as possible (in such multiples, not greater than $1,000,000, as the
Administrative Agent may deem appropriate) in proportion to the aggregate
principal amounts of such offers. Determinations by the Administrative Agent of
the amounts of Money Market Loans shall be conclusive in the absence of
manifest error.
SECTION 2.04. Notice to Banks; Funding of Loans.
(a) Upon receipt of a Notice of Borrowing, the Administrative Agent
shall promptly notify each Bank participating therein of the contents thereof
and of such Bank's share (if any) of such Borrowing and such Notice of
Borrowing shall not thereafter be revocable by the Borrower.
(b) Not later than 12:00 Noon (New York City time) on the date of each
Borrowing, each Bank participating therein shall make available its share of
such Borrowing, in Federal or other funds immediately available in New York
City, to the Administrative Agent at its address specified in or pursuant to
Section 9.01. Unless the Administrative Agent determines that any applicable
condition specified in Article 3 has not been satisfied, the Administrative
Agent will make the funds so received from the Banks available to the Borrower
at the Administrative Agent's aforesaid address.
(c) Unless the Administrative Agent shall have received notice from a
Bank prior to the date of any Borrowing that such Bank will not make available
to the Administrative Agent such Bank's share of such Borrowing, the
Administrative Agent may assume that such Bank has made such share available to
the Administrative Agent on the date of such Borrowing in accordance with
subsection (b) of this Section 2.04 and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so
made such share available to the
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Administrative Agent, such Bank and the Borrower severally agree to repay to
the Administrative Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made available
to the Borrower until the date such amount is repaid to the Administrative
Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher
of the Federal Funds Rate and the interest rate applicable thereto pursuant to
Section 2.06 and (ii) in the case of such Bank, the Federal Funds Rate. If such
Bank shall repay to the Administrative Agent such corresponding amount, such
amount so repaid shall constitute such Bank's Loan included in such Borrowing
for purposes of this Agreement.
SECTION 2.05. Maturity of Loans. (a) Each Term Loan-I shall mature,
and the principal amount thereof shall be due and payable in full together with
accrued interest thereon, on the earlier of (i) the date which falls six months
after the date on which the STB issues its final order with respect to the
acquisition of control of Conrail by the Borrower (regardless of whether such
date is the STB Approval Date) and (ii) the third anniversary of the Closing
Date; provided that, in any event, $1,000,000,000 of the principal amount of
Term Loan - I shall be payable on the date which is 12 months after the
Acquisition Date.
(b) Each Term Loan-II shall mature, and the principal amount thereof
shall be due and payable in full together with accrued interest thereon, on the
earlier of the date falling thirty months after the date on which the STB
issues its final order with respect to the acquisition of control of Conrail by
the Borrower (regardless of whether such date is the STB Approval Date) and the
fifth anniversary of the Closing Date.
(c) Each Term Loan-III shall mature, and the principal thereof shall
be payable, in installments as set forth below; provided that (i) solely with
respect to the installments of the Term Loan-III payable on March 31, 1997, if
the Merger Date shall not have occurred on or prior to such date, (x) the
amount of the installment to be repaid on such date shall be $0 and (y) the
amount of the installment payable on the last date set forth below shall be
increased by $75,000,000 and (ii) solely with respect to the installments of
the Term Loan-III payable on June 30, 1997, if the Merger Date shall not have
occurred on or prior to such date, (x) the amount of the installment to be
repaid on such date shall be $0 and (y) the amount of the installment payable
on the last date set forth below shall be further increased by $75,000,000:
Date Amount Due
3/31/97 75,000,000
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6/30/97 75,000,000
9/30/97 75,000,000
12/31/97 75,000,000
3/31/98 75,000,000
6/30/98 75,000,000
9/31/98 75,000,000
12/31/98 75,000,000
3/31/99 125,000,000
6/30/99 125,000,000
9/30/99 125,000,000
12/31/99 125,000,000
3/31/00 125,000,000
6/30/00 125,000,000
9/30/00 125,000,000
12/31/00 125,000,000
3/31/01 125,000,000
6/30/01 125,000,000
9/30/01 125,000,000
12/31/01 125,000,000
3/31/02 125,000,000
6/30/02 125,000,000
9/30/02 125,000,000
12/31/02 125,000,000
3/31/03 100,000,000
6/30/03 300,000,000
(d) Each Revolving Credit Loan shall mature, and the principal amount
thereof shall be payable in full together with accrued interest thereon, on the
Revolving Credit Termination Date.
(e) Each Money Market Loan included in any Money Market Borrowing
shall mature, and the principal amount thereof shall be due and payable, on the
last day of the Interest Period applicable to such Borrowing.
SECTION 2.06. Interest Rates. (a) Each Base Rate Loan shall bear
interest on the outstanding principal amount thereof, for each day from the day
such Loan is made to but excluding the day it becomes due, at a rate per annum
equal to the sum of the Applicable Margin plus the Base Rate for such day. Such
interest shall be payable at maturity, quarterly in arrears on each Quarterly
Date prior to maturity and, with respect to the principal amount of any Base
Rate Loan converted to a Fixed Rate Loan, on the date such Loan is so
converted.
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(b) Each CD Loan shall bear interest on the outstanding principal
amount thereof, for each day during each Interest Period applicable thereto, at
a rate per annum equal to the sum of the Applicable Margin for such day plus
the Adjusted CD Rate applicable to such Interest Period; provided that if any
CD Loan or any portion thereof shall, as a result of the definition of Interest
Period, have an Interest Period of less than 30 days, such portion shall bear
interest for each day during such Interest Period at the rate applicable to
Base Rate Loans for such day. Such interest shall be payable for each Interest
Period on the last day thereof and, if such Interest Period is longer than 90
days, 90 days after the first day thereof.
The "Adjusted CD Rate" applicable to any Interest Period means a rate
per annum determined pursuant to the following formula:
[ CDBR ] *
--------------
ACDR = [ 1.00 - DRP ] + AR
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
----------
* The amount in brackets being rounded upward, if necessary, to
the next higher 1/100 of 1%
The "CD Base Rate" applicable to any Interest Period is the rate of
interest determined by the Administrative Agent to be the average (rounded
upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates
per annum bid at 10:00 A.M. (New York City time) (or as soon thereafter as
practicable) on the first day of such Interest Period by two or more New York
certificate of deposit dealers of recognized standing for the purchase at face
value from each CD Reference Bank of its certificates of deposit in an amount
comparable to the principal amount of the CD Loan of such CD Reference Bank to
which such Interest Period applies and having a maturity comparable to such
Interest Period.
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"Domestic Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including without limitation any
basic, supplemental or emergency reserves) for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of new non-personal time deposits in dollars in New York City having a
maturity comparable to the related Interest Period and in an amount of $100,000
or more. The Adjusted CD Rate shall be adjusted automatically on and as of the
effective date of any change in the Domestic Reserve Percentage.
"Assessment Rate" means for any day the annual assessment rate in
effect on such day which is payable by a member of the Bank Insurance Fund
classified as adequately capitalized and within supervisory subgroup "A" (or a
comparable successor assessment risk classification) within the meaning of 12
C.F.R. ss. 327.4(a) (or any successor provision) to the Federal Deposit
Insurance Corporation (or any successor) for such Corporation's (or such
successor's) insuring time deposits at offices of such institution in the
United States. The Adjusted CD Rate shall be adjusted automatically on and as
of the effective date of any change in the Assessment Rate.
(c) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for each day during each Interest Period applicable
thereto, at a rate per annum equal to the sum of the Applicable Margin for such
day plus the London Interbank Offered Rate applicable to such Interest Period.
Such interest shall be payable for each Interest Period on the last day thereof
and, if such Interest Period is longer than three months, three months after
the first day thereof.
The "London Interbank Offered Rate" applicable to any Interest Period
means the average (rounded upward, if necessary, to the next higher 1/16 of 1%)
of the respective rates per annum at which deposits in dollars are offered to
each of the Euro-Dollar Reference Banks in the London interbank market at
approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the
first day of such Interest Period in an amount approximately equal to the
principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to
which such Interest Period is to apply and for a period of time comparable to
such Interest Period.
(d) Subject to Section 8.01(a), each Money Market LIBOR Loan shall
bear interest on the outstanding principal amount thereof, for the Interest
Period applicable thereto, at a rate per annum equal to the sum of the London
Interbank Offered Rate for such Interest Period (determined in accordance with
Section 2.06(c) as if the related Money Market LIBOR Borrowing were a
Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the
Bank making such Loan in
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accordance with Section 2.03. Each Money Market Absolute Rate Loan shall bear
interest on the outstanding principal amount thereof, for the Interest Period
applicable thereto, at a rate per annum equal to the Money Market Absolute Rate
quoted by the Bank making such Loan in accordance with Section 2.03. Such
interest shall be payable for each Interest Period on the last day thereof and,
if such Interest Period is longer than three months, at intervals of three
months after the first day thereof.
(e) Any overdue principal of or interest on any Loan shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to the sum of the Applicable Margin for Base Rate Loans plus the Base Rate for
such day.
(f) The Administrative Agent shall determine each interest rate
applicable to the Loans hereunder. The Administrative Agent shall give prompt
notice to the Borrower and the participating Banks of each rate of interest so
determined, and its determination thereof shall be conclusive in the absence of
manifest error.
(g) Each Reference Bank agrees to use its best efforts to furnish
quotations to the Administrative Agent as contemplated by this Section. If any
Reference Bank does not furnish a timely quotation, the Administrative Agent
shall determine the relevant interest rate on the basis of the quotation or
quotations furnished by the remaining Reference Bank or Banks or, if none of
such quotations is available on a timely basis, the provisions of Section 8.01
shall apply.
SECTION 2.07. Regulation D Compensation. Each Bank may require the
Borrower to pay, contemporaneously with each payment of interest on the
Euro-Dollar Loans, additional interest on the related Euro-Dollar Loan of such
Bank at a rate per annum determined by such Bank up to but not exceeding the
excess of (i) (A) the applicable London Interbank Offered Rate divided by (B)
one minus the Euro-Dollar Reserve Percentage over (ii) the applicable London
Interbank Offered Rate. Any Bank wishing to require payment of such additional
interest (x) shall so notify the Borrower and the Administrative Agent, in
which case such additional interest on the Euro-Dollar Loans of such Bank shall
be payable to such Bank at the place indicated in such notice with respect to
each Interest Period commencing at least three Euro-Dollar Business Days after
the giving of such notice and (y) shall notify the Borrower at least five
Euro-Dollar Business Days prior to each date on which interest is payable on
the Euro-Dollar Loans of the amount then due it under this Section.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of
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"Eurocurrency liabilities" (or in respect of any other category of liabilities
which includes deposits by reference to which the interest rate on Euro-Dollar
Loans is determined or any category of extensions of credit or other assets
which includes loans by a non-United States office of any Bank to United States
residents). The compensation payable pursuant to this Section shall be adjusted
automatically on and as of the effective date of any change in the Euro-Dollar
Reserve Percentage.
SECTION 2.08. Facility Fees. The Borrower shall pay to the
Administrative Agent, for the account of the Banks ratably in accordance with
their respective Exposures, a facility fee for each day at a rate per annum
equal to the Facility Fee Rate for such day (determined in accordance with the
Pricing Schedule), on the aggregate amount of the Exposures on such day. Such
facility fees shall accrue for each day from and including the Closing Date to
but excluding the date on which no Bank has any Exposure (the "Termination
Date"). Accrued fees under this Section shall be payable quarterly in arrears
on each Quarterly Date and on the Termination Date.
SECTION 2.09. Optional Termination or Reduction of Commitments. The
Borrower may, upon at least three Domestic Business Days' notice to the
Administrative Agent, (i) terminate the Commitments of any Class at any time,
if no Loans of such Class are outstanding at such time (after giving effect to
any mandatory or optional prepayments to be made at such time) or (ii) ratably
reduce from time to time by an aggregate amount of $10,000,000 or a larger
multiple of $1,000,000, the aggregate amount of the Commitments of any Class in
excess of the aggregate outstanding amount of the Loans of such Class.
SECTION 2.10. Method of Electing Interest Rates. (a) The Committed
Loans included in each Borrowing shall bear interest initially at the type of
rate specified by the Borrower in the applicable Notice of Borrowing.
Thereafter, the Borrower may from time to time elect to change or continue the
type of interest rate borne by each Group of Term Loans and Revolving Credit
Loans (subject in each case to the provisions of Article 8 and the last
sentence of this subsection (a)), as follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect to
convert such Loans to CD Loans as of any Domestic Business Day or to
Euro-Dollar Loans as of any Euro-Dollar Business Day;
(ii) if such Loans are CD Loans, the Borrower may elect to
convert such Loans to Base Rate Loans or Euro-Dollar Loans or elect to
continue such Loans as CD Loans for an additional Interest Period, in
either case effective on the last day of the then current Interest
Period applicable to such Loans; and
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(iii) if such Loans are Euro-Dollar Loans, the Borrower may elect
to convert such Loans to Base Rate Loans or CD Loans or elect to
continue such Loans as Euro-Dollar Loans for an additional Interest
Period, in either case effective on the last day of the then current
Interest Period applicable to such Loans.
Each such election shall be made by delivering a notice (a "Notice of Interest
Rate Election") to the Administrative Agent not later than 10:30 A.M. (New York
City time) on the third Euro-Dollar Business Day before the conversion or
continuation selected in such notice is to be effective. A Notice of Interest
Rate Election may, if it so specifies, apply to only a portion of the aggregate
principal amount of the relevant Group of Loans; provided that (i) such portion
is allocated ratably among the Loans comprising such Group and (ii) the portion
to which such Notice applies, and the remaining portion to which it does not
apply, are each $25,000,000 or any larger multiple of $1,000,000. If no such
notice is timely received prior to the end of an Interest Period, the Borrower
shall be deemed to have elected that all Loans having such Interest Period be
converted to Base Rate Loans. Notwithstanding the foregoing, the Borrower may
not elect to convert any Loan to, or continue any Loan as, a Fixed Rate Loan
pursuant to any Notice of Interest Rate Election if at the time such notice is
delivered a Default shall have occurred and be continuing.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such notice
applies;
(ii) the date on which the conversion or continuation selected in
such notice is to be effective, which shall comply with the applicable
clause of subsection (a) above;
(iii) if the Loans comprising such Group are to be converted, the
new Type of Loans and, if the Loans being converted are to be Fixed
Rate Loans, the duration of the next succeeding Interest Period
applicable thereto; and
(iv) if such Loans are to be continued as Fixed Rate Loans for an
additional Interest Period, the duration of such additional Interest
Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.
(c) Upon receipt of a Notice of Interest Rate Election from the
Borrower pursuant to subsection (a) above, the Administrative Agent shall
promptly notify each
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Bank of the contents thereof and such notice shall not thereafter be revocable
by the Borrower.
(d) An election by the Borrower to change or continue the rate of
interest applicable to any Group of Loans pursuant to this Section shall not
constitute a "Borrowing" subject to the provisions of Section 3.04.
SECTION 2.11. Optional Prepayments. (a) The Borrower may, (i) upon at
least one Domestic Business Day's notice to the Administrative Agent, prepay
the Group of Base Rate Loans of any Class (or any Money Market Borrowing
bearing interest at the Base Rate pursuant to Section 8.01(a)) or (ii) upon at
least (x) in the case of CD Loans, one Domestic Business Day's notice to the
Administrative Agent and (y) in the case of Euro-Dollar Loans, three
Euro-Dollar Business Days' notice to the Administrative Agent, and subject, in
each case, to Section 2.14, prepay any Group of Fixed Rate Loans of any Class,
in each case in whole at any time, or from time to time in part in amounts
aggregating $25,000,000 or any larger multiple of $1,000,000, by paying the
principal amount to be prepaid together with accrued interest thereon to the
date of prepayment. Each such optional prepayment of a Group of Loans shall be
applied to prepay ratably the Loans of the Banks included in such Group.
(b) Except as provided in subsection (a) of this Section 2.11, the
Borrower may not prepay all or any portion of the principal amount of any Money
Market Loan prior to the maturity thereof without the consent of the Bank
holding such Loan.
(c) Upon receipt of a notice of prepayment pursuant to this Section,
the Administrative Agent shall promptly notify each Bank of the contents
thereof and of such Bank's ratable share (if any) of such prepayment and such
notice shall not thereafter be revocable by the Borrower.
SECTION 2.12. Mandatory Reduction and Termination of Commitments;
Mandatory Prepayments. (a) Subject to subsection (b) below, the Term
Commitments shall terminate at the close of business on the last day of the
Term Availability Period and the Revolving Credit Commitments shall terminate
on the Revolving Credit Termination Date.
(b) If the Acquisition Date shall not have occurred on or prior to
August 1, 1997, all Term Commitments shall terminate on such date.
(c) Each Term Commitment shall be reduced on the date of and by the
principal amount of each Term Loan made pursuant thereto.
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(d) If a Reduction Event shall occur, an amount equal to the Net Cash
Proceeds thereof shall be applied in the following order of priority until such
amount has been fully applied:
First, to the reduction of the unused portion of the Term
Loan-I Commitments until such unused portion shall have been
reduced to zero;
Second, to the reduction of the unused portion of the Term
Loan-II Commitments until such unused portion shall have been
reduced to zero;
Third, to the reduction of the unused portion of the Term
Loan-III Commitments until such unused portion shall have been
reduced to zero;
Fourth, to the prepayment of Term Loans-I, until the Term
Loans-I shall have been prepaid in full;
Fifth, to the prepayment of Term Loans-II, until the Term
Loans-II shall have been prepaid in full; and
Sixth, to the prepayment of Term Loans-III, until the Term
Loans-III shall have been prepaid in full.
Each such reduction and/or prepayment shall be made within five
Euro-Dollar Business Days receipt by the Borrower or any of its Subsidiaries,
as the case may be, of such Net Cash Proceeds, provided that
(i) if the Net Cash Proceeds in respect of any Reduction Event
are less than $5,000,000, such reduction and/or prepayment shall be
effective upon receipt of proceeds such that, together with all other
such amounts not previously applied, the Net Cash Proceeds are equal
to at least $5,000,000; and
(ii) if any prepayment would otherwise require prepayment of
Fixed Rate Loans or portions thereof prior to the last day of the then
current Interest Period, then such prepayment shall, unless the
Administrative Agent otherwise notifies the Borrower upon the
instructions of the Required Banks, be deferred to the last day of
such Interest Period.
The Borrower shall give the Administrative Agent at least five Euro-Dollar
Business Days' notice of each prepayment required to be made pursuant to this
subsection (d).
(e) Applications of Reductions and Prepayments.
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(i) Each reduction of the Term Commitments and/or prepayment of
Term Loans shall be applied ratably to the respective Term Commitments
and/or Term Loans of the relevant Class of all Term Loan Banks.
(ii) The amount of any reduction of the Term Loan-I Commitments
and/or prepayments of Term Loans-I pursuant to Sections 2.09, this
Section 2.12 or Section 2.11 shall be applied to reduce the amount of
the scheduled prepayments of the Term Loans-I required pursuant to the
proviso set forth in Section 2.05(a) until such amount is reduced to
zero.
(iii) The amount of any reduction of the Term Loan-III
Commitments and/or prepayment of Term Loans-III pursuant to Section
2.09, this Section 2.12 or Section 2.11 shall be applied to reduce
ratably by amount the then remaining amounts of subsequent scheduled
payments of the Term Loans-III required pursuant to Section 2.05.
(iv) Each payment of principal of the Term Loans of any Class
shall be made together with interest accrued and unpaid on the amount
repaid to the date of payment.
(v) Each payment of the Term Loans of any Class shall be applied
to such Group or Groups of Loans of such Class as the Borrower may
designate (or, failing such designation, as determined by the
Administrative Agent).
SECTION 2.13. General Provisions as to Payments. (a) The Borrower
shall make each payment of principal of, and interest on, the Loans and of fees
hereunder, not later than 12:00 Noon (New York City time) on the date when due,
in Federal or other funds immediately available in New York City, to the
Administrative Agent at its address referred to in Section 9.01. The
Administrative Agent will promptly distribute to each Bank, for the account of
its Applicable Lending Office, its ratable share of each such payment received
by the Administrative Agent for the account of the Banks. Whenever any payment
of principal of, or interest on, the Domestic Loans or of fees shall be due on
a day which is not a Domestic Business Day, the date for payment thereof shall
be extended to the next succeeding Domestic Business Day. Whenever any payment
of principal of, or interest on, the Euro-Dollar Loans shall be due on a day
which is not a Euro-Dollar Business Day, the date for payment thereof shall be
extended to the next succeeding Euro-Dollar Business Day unless such
Euro-Dollar Business Day falls in another calendar month, in which case the
date for payment thereof shall be the next preceding Euro-Dollar Business Day.
Whenever any payment of principal of, or interest on, the Money Market Loans
shall be due on a day which is not a Euro-Dollar Business Day, the date for
payment thereof shall be
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extended to the next succeeding Euro-Dollar Business Day, unless such
Euro-Dollar Business Day falls in another calendar month, in which case the
date for payment thereof shall be the next preceding Euro-Dollar Business Day.
If the date for any payment of principal is extended by operation of law or
otherwise, interest thereon shall be payable for such extended time.
(b) Unless the Administrative Agent shall have received notice from
the Borrower prior to the date on which any payment is due to the Banks
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Bank on such due
date an amount equal to the amount then due such Bank. If and to the extent
that the Borrower shall not have so made such payment, each Bank shall repay to
the Administrative Agent forthwith on demand such amount distributed to such
Bank together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Administrative Agent, at the Federal Funds Rate.
SECTION 2.14. Funding Losses. If the Borrower makes any payment of
principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is
converted (pursuant to Article 6 or 8 or otherwise) on any day other than the
last day of the Interest Period applicable thereto, or if the Borrower fails to
borrow, prepay, convert or continue any Fixed Rate Loans after notice has been
given to any Bank in accordance with Section 2.04(a), 2.10(c) or 2.11(c), the
Borrower shall reimburse each Bank within 15 days after demand for any
resulting loss or expense incurred by it (or by an existing or prospective
Participant in the related Loan), including (without limitation) any loss
incurred in obtaining, liquidating or employing deposits from third parties,
but excluding loss of margin for the period after any such payment or failure
to borrow, provided that such Bank shall have delivered to the Borrower a
certificate as to the amount of such loss or expense indicating in reasonable
detail the computation thereof, which certificate shall be conclusive in the
absence of manifest error.
SECTION 2.15. Computation of Interest and Fees. Interest based on the
Prime Rate hereunder shall be computed on the basis of a year of 365 days (or
366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
SECTION 2.16. Registry. (a) The Administrative Agent shall maintain a
register (the "Register") on which it will record the Commitment(s) of each
Bank, each Loan made by such Bank and each repayment of any Loan made by such
Bank.
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Any such recordation by the Administrative Agent on the Register shall be
conclusive, absent manifest error. With respect to any Bank, the assignment or
other transfer of the Commitments of such Bank and the rights to the principal
of, and interest on, any Loan made and Note issued pursuant to this Agreement
shall not be effective until such assignment or other transfer is recorded on
the Register and otherwise complies with Section 9.06(c). The registration of
assignment or other transfer of all or part of any Commitments, Loans and Notes
for a Bank shall be recorded by the Administrative Agent on the Register only
upon the acceptance by the Administrative Agent of a properly executed and
delivered Assignment and Assumption Agreement referred to in Section 9.06(c).
The Register shall be available at the offices where kept by the Administrative
Agent for inspection by the Borrower and any Bank at any reasonable time upon
reasonable prior notice to the Administrative Agent. The Borrower may not
replace any Bank pursuant to Section 8.06 unless, with respect to any Notes
held by such Bank, the requirements of this subsection have been satisfied.
Each Bank shall record on its internal records (including computerized systems)
the foregoing information as to its own Commitment(s) and Loans. Failure to
make any such recordation, or any error in such recordation, shall not affect
the obligations of any Obligor under the Loan Documents in respect of the
Loans.
(b) The Borrower hereby agrees that, upon the request of any Bank at
any time, such Bank's Loans shall be evidenced by a promissory note or notes of
the Borrower (each a "Note"), substantially in the form of Exhibit C hereto,
payable to the order of such Bank and representing the obligation of the
Borrower to pay the unpaid principal amount of the Loans made by such Bank,
with interest as provided herein on the unpaid principal amount from time to
time outstanding.
ARTICLE 3
CONDITIONS TO BORROWING
The obligation of each Bank to make a Loan on the occasion of any
Borrowing is subject to the satisfaction of the following conditions:
SECTION 3.01. First Borrowing Date. In the case of the Borrowing on
the First Borrowing Date:
(a) receipt by the Administrative Agent, to the extent requested by
any Bank not less than five Domestic Business Days prior to the First Borrowing
Date, of any Notes so requested duly executed by the Borrower;
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(b) the fact that all fees and expenses payable on or before the First
Borrowing Date by the Borrower for the account of the Banks and their
affiliates in connection with this Agreement shall have been paid in full on or
before such date in the amounts previously agreed upon in writing;
(c) receipt by the Administrative Agent of opinions of (i) Skadden,
Arps, Slate, Meagher & Flom LLP, special counsel for the Borrower and (ii) Gary
Lane, General Counsel-Corporate of the Borrower (or another counsel for the
Borrower reasonably satisfactory to the Administrative Agent) substantially in
the respective forms of Exhibits D-1 and D-2 hereto;
(d) receipt by the Administrative Agent of an opinion of Davis Polk &
Wardwell, special counsel for the Agents, substantially in the form of Exhibit
E hereto;
(e) receipt by the Lenders of the financial statements referred to in
Section 4.04(b);
(f) the fact that the Borrower shall have (i) terminated the
commitments of the banks under the Existing Credit Agreement, (ii) repaid in
full all loans (if any) outstanding thereunder and all interest (if any)
accrued thereon and (iii) paid all facility fees accrued thereunder to but not
including the date on which such commitments terminated;
(g) the fact that, immediately after giving effect to such Borrowing
and the application of the proceeds of the Loans included therein, the Borrower
shall be in compliance, on a pro forma basis, on the First Borrowing Date with
the provisions of subsection (b) of Section 5.07; and
(h) receipt by the Administrative Agent of all documents it may
reasonably request relating to the existence of the Borrower, the corporate
authority for and the validity of this Agreement and any other matters relevant
thereto, all in form and substance satisfactory to the Administrative Agent.
SECTION 3.02. Acquisition Date. In the case of the Borrowing on the
Acquisition Date:
(a) receipt by the Administrative Agent of counterparts of the
Subsidiary Guarantee Agreement, duly executed by the Borrower and by each
Subsidiary of the Borrower which is a Significant Subsidiary as of the
Acquisition Date and, solely if a Release Event shall not have occurred prior
to the Acquisition Date, duly executed counterparts of each Pledge Agreement
together with certificates for the Pledged
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Stock (as defined in each Pledge Agreement) and the Pledged Certificates (as
defined in each Pledge Agreement);
(b) the fact that 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 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 governmental authority which has restrained, prevented or
otherwise imposed materially adverse conditions on the Acquisition, and the
Administrative Agent shall have received copies, certified by the Secretary or
an Assistant Secretary of the Borrower, of all filings made with any
governmental authority in connection with the Acquisition which the Agent shall
have requested;
(c) the fact that all fees and expenses payable on or before the
Acquisition Date by the Borrower for the account of the Banks and their
affiliates in connection with this Agreement shall have been paid in full on or
before such date in the amounts previously agreed upon in writing;
(d) receipt by the Administrative Agent of a certificate of the chief
executive officer or the chief financial officer of the Borrower that the
Second Offer has been consummated in accordance with the Second Offer to
Purchase, without, unless consented to in writing by the Required Banks, waiver
of any of the conditions thereof other than the financing condition;
(e) the fact that the Administrative Agent shall not have received
notice from the Required Banks that, in their reasonable determination, any of
the conditions of the Second Offer has not been fulfilled other than the
financing condition;
(f) receipt by the Administrative Agent of opinions of (i) Skadden,
Arps, Slate, Meagher & Flom LLP, special counsel for the Borrower, (ii) Gary
Lane, General Counsel-Corporate of the Borrower (or another counsel for the
Borrower reasonably satisfactory to the Administrative Agent) and (iii)
Williams Kelly & Greer, special Virginia counsel to the Borrower, substantially
in the respective forms of Exhibits D-3, D-4 and D-5 hereto;
(g) the fact that, immediately after giving effect to such Borrowing
and the application of the proceeds of the Loans included therein, the Borrower
shall be in compliance, on a pro forma basis, on the Acquisition Date with the
provisions of each subsection of Section 5.07 (it being understood that with
respect to subsections (a) and (c) of such Section the Borrower shall be
required to be in compliance on the Acquisition Date with the ratio set forth
in each such subsection opposite the period in which the Acquisition Date
occurs);
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(h) the fact that the Voting Trust Agreement shall have been executed
and delivered and shall be substantially in the form distributed to the Banks
prior to the date hereof; and
(i) receipt by the Administrative Agent of all documents it may
reasonably request relating to the existence of the Obligors, the corporate
authority for and the validity of this Loan Documents and any other matters
relevant thereto, all in form and substance satisfactory to the Administrative
Agent.
SECTION 3.03. Merger Date. In the case of the Borrowing on the Merger
Date:
(a) the fact that substantially simultaneously therewith, the Merger
shall be consummated and all capital stock of Conrail, after giving effect
thereto, shall be held by the Voting Trust (if the Merger Date occurs prior to
the STB Approval Date) or by the Borrower or a Significant Subsidiary party to
a Pledge Agreement (if the Merger Date occurs on or after the STB Approval
Date); and
(b) the fact that, immediately after giving effect to such Borrowing
and the application of the proceeds of the Loans included therein, the Borrower
shall be in compliance on a pro forma basis on the Merger Date with the
provisions of each subsection of Section 5.07 (it being understood that with
respect to subsections (a) and (c) of such Section the Borrower shall be
required to be in compliance on the Merger Date with the ratio set forth in
each such subsection opposite the period in which the Merger Date occurs).
SECTION 3.04. Borrowings. The obligation of any Bank to make a Loan on
the occasion of any Borrowing is subject to the satisfaction of the following
conditions:
(a) receipt by the Administrative Agent of a Notice of Borrowing
as required by Section 2.02 or 2.03, as the case may be;
(b) in the case of a Revolving Credit Borrowing or a Money Market
Borrowing, the fact that, immediately after such Borrowing and
application of the proceeds thereof, the aggregate outstanding
principal amount of the Revolving Credit Loans and the Money Market
Loans will not exceed the aggregate amount of the Revolving Credit
Commitments;
(c) in the case of a Revolving Credit Borrowing or a Money Market
Borrowing made prior to the Acquisition Date, the fact that,
immediately after such Borrowing and application of the proceeds
thereof, the aggregate
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outstanding principal amount of the Revolving Credit Loans and the
Money Market Loans will not exceed $1,650,000,000;
(d) the fact that, immediately before and after such Borrowing,
no Default shall have occurred and be continuing; and
(e) the fact that the representations and warranties of the
Borrower contained in each Loan Document shall be true in all material
respects on and as of the date of such Borrowing.
Each Borrowing hereunder shall be deemed to be a representation and warranty by
the Borrower on the date of such Borrowing as to the facts specified in clauses
(b), (c), (d) and (e) of this Section.
SECTION 3.05. Waiver by Banks. In order to facilitate the satisfaction
of the condition set forth in Section 3.01(f) above, each of the parties hereto
which is a party to the Existing Credit Agreement waives (i) the requirement in
Section 2.09 thereof that a notice terminating the commitments of the banks
thereunder must be given at least three Domestic Business Days prior to such
termination, (ii) to the extent necessary, the requirement in Section 2.11(a)
thereof that a notice of prepayment of any Base Rate Borrowing (as defined in
the Existing Credit Agreement) must be given at least one Domestic Business Day
prior to such termination and (iii) to the extent necessary, the prohibition in
Section 2.11 thereof on the prepayment of Fixed Rate Loans (as defined in the
Existing Credit Agreement) prior to the maturity thereof (subject to the
obligations of the Borrower to pay to each bank party to the Existing Credit
Agreement all amounts payable by the Borrower to such bank pursuant to Section
2.13 of the Existing Credit Agreement as a result of any such prepayment).
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants on the date hereof that:
SECTION 4.01. Corporate Existence and Power. The Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of Virginia (or, if another corporation has become the Borrower as
permitted by Section 5.09, the laws of its jurisdiction of incorporation). The
Borrower has all corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted, except where the failure
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to have such licenses, authorizations, consents and approvals could not be
reasonably expected to result in a Material Adverse Change.
SECTION 4.02. Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by the Borrower of the
Loan Documents are within the Borrower's corporate powers, have been duly
authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official (except
for (i) the filing of UCC-1 financing statements referred to in the Pledge
Agreement and (ii) filings with governmental agencies (x) which filings are
necessary or desirable in order for the Borrower to comply with disclosure
obligations under applicable laws or with Section 5.18 and (y) which filings,
if not made, would not have any effect on the validity or enforceability of the
Loan Documents and the obligations of the Borrower thereunder) and do not
contravene, or constitute a default under, any provision of law or regulation
applicable to the Borrower (including without limitation the Margin
Regulations) or of the articles of incorporation or by-laws of the Borrower, or
of any agreement under which Debt may be incurred or any other material
agreement, judgment, injunction, order, decree or other instrument binding upon
the Borrower or any of its Consolidated Subsidiaries or result in the creation
or imposition of any Lien (other than the Liens of the Pledge Agreements) on
any asset of the Borrower or any of its Consolidated Subsidiaries.
SECTION 4.03. Binding Effect. This Agreement constitutes, and when
executed and delivered in accordance with this Agreement, each other Loan
Document will constitute, a valid and binding obligation of the Borrower,
enforceable against it in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting creditors' rights generally from time to time in effect and (ii)
equitable principles of general applicability.
SECTION 4.04. Financial Information.
(a) The consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of December 31, 1995 and the related consolidated
statements of income, cash flows and changes in stockholders' equity for the
fiscal year then ended, reported on by KPMG Peat Marwick and set forth in the
Borrower's 1995 Form 10-K, a copy of which has been delivered to each of the
Banks, fairly present, in conformity with generally accepted accounting
principles, the consolidated financial position of the Borrower and its
Consolidated Subsidiaries as of such date and their consolidated results of
operations, cash flows and changes in stockholders' equity for such fiscal
year.
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(b) The unaudited pro forma condensed balance sheet of the Borrower
and Conrail as of December 31, 1996 set forth in the Information Memorandum has
been prepared on the basis described therein and otherwise in conformity with
generally accepted accounting principles applied on a basis consistent with the
financial statements referred to in subsection (a) of this Section and shows
the combined financial position of the Borrower and Conrail as if the
Consummation Date had occurred on December 31, 1996.
(c) Except as reflected in the pro forma condensed balance sheet
referred to in subsection (b) or elsewhere in the Information Memorandum, since
the respective dates as of which information is stated in the Information
Memorandum, there has been no material adverse change in the consolidated
financial condition, operations, assets, business or prospects of the Borrower
and its Consolidated Subsidiaries (including for this purpose Conrail and its
Consolidated Subsidiaries), taken as a whole (a "Material Adverse Change").
SECTION 4.05. Litigation. There is no action, suit or proceeding
(including any rate-setting hearing) pending against, or to the knowledge of
the Borrower threatened against or affecting, the Borrower or any of its
Consolidated Subsidiaries before any court or arbitrator or any governmental
body, agency or official which could reasonably be expected to result in a
Material Adverse Change or which in any manner draws into question the validity
or enforceability of this Agreement or (prior to a Release Event) the
Collateral Documents.
SECTION 4.06. Compliance with Laws. (a) The Borrower and its
Consolidated Subsidiaries are in compliance in all material respects with all
applicable provisions of the United States Interstate Commerce Act, as amended,
and all regulations, orders, rulings and interpretations thereunder, except
where the failure to so comply could not reasonably be expected to result in a
Material Adverse Change.
(b) Each member of the ERISA Group has fulfilled its obligations under
the minimum funding standards of ERISA and the Internal Revenue Code with
respect to each Plan and is in compliance in all material respects with the
presently applicable provisions of ERISA and the Internal Revenue Code with
respect to each Plan. No member of the ERISA Group has (i) sought a waiver of
the minimum funding standard under Section 412 of the Internal Revenue Code in
respect of any Plan, (ii) failed to make any material contribution or payment
due under any Multiemployer Plan in which more than 100 employees of members of
the ERISA Group participate or under any Plan or in respect of any Benefit
Arrangement, or made any amendment to any Plan or Benefit Arrangement, any of
which has resulted in the imposition of a Lien under Section 412(n) of the
Internal Revenue Code or Section 302(f) of ERISA or could reasonably be
expected to result in the posting of a bond or other security
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under Section 401(a)(29) of the Internal Revenue Code or Section 307 of ERISA
or (iii) incurred any material liability under Title IV of ERISA other than a
liability to the PBGC for premiums under Section 4007 of ERISA.
SECTION 4.07. Environmental Matters. In the ordinary course of its
business, the Borrower reviews the effect of applicable Environmental Laws on
the business and operations and properties of the Borrower and its Consolidated
Subsidiaries, in the course of which it identifies and evaluates actual and
potential associated liabilities and costs (including, without limitation, any
capital or operating expenditures required for clean-up or closure of
properties presently or previously owned or as a result of accidents or
occurrences involving property or employees of the Borrower and its
Consolidated Subsidiaries, any capital or operating expenditures required to
achieve or maintain compliance with environmental protection standards imposed
by law or as a condition of any license, permit or contract, any related
constraints on operating activities, including any periodic or permanent
shutdown of any facility, restriction on transportation of any substance or
reduction in the level of or change in the nature of operations and any actual
or potential liabilities to third parties, including employees, and any related
costs and expenses). On the basis of its review, the Borrower has reasonably
concluded that applicable Environmental Laws, as they relate to matters known
to the Borrower, cannot reasonably be expected to result in a Material Adverse
Change.
SECTION 4.08. Taxes. United States consolidated Federal income tax
returns of the Borrower and its Subsidiaries as of the First Borrowing Date
have been examined and revenue agent reports have been received for all years
up to and including the fiscal year ended December 31, 1992. United States
consolidated Federal income tax returns of (i) Norfolk and Western Railway
Company and its consolidated subsidiaries have been examined and revenue agent
reports have been received through the fiscal year ended December 31, 1981 and
(ii) Southern Railway Company and its consolidated subsidiaries have been
examined and closed through the fiscal year ended May 31, 1982. The Borrower
and its Subsidiaries have filed all United States Federal income tax returns
and all other material tax returns which are required to be filed by them and
have paid all taxes due pursuant to such returns or pursuant to any assessment
received by the Borrower or any Subsidiary or are contesting such assessment in
good faith by appropriate proceedings, except where the failure to so pay or
file could not be reasonably expected to result in a Material Adverse Change.
The charges, accruals and reserves on the books of the Borrower and its
Subsidiaries in respect of taxes or other governmental charges are, in the
opinion of the Borrower, adequate.
SECTION 4.09. Significant Subsidiaries. (a) Each of the Borrower's
Significant Subsidiaries is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation, and
has all corporate
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powers and all material governmental licenses, authorizations, franchises,
consents and approvals required to carry on its business as now conducted,
except where the failure to have such licenses, authorizations, franchises,
consents and approvals could not be reasonably expected to result in a Material
Adverse Change.
(b) As of the date hereof the Borrower owns, and as of the Acquisition
Date the Borrower will own, directly or indirectly, all of the shares of
capital stock or other ownership interests of Norfolk Southern Railway Company
(or the successor thereto by merger, consolidation or share exchange or the
Person, if any, who has acquired substantially all of such corporation's
assets) except (i) directors' qualifying shares and (ii) not more than
1,100,000 shares of such corporation's $2.60 Cumulative Preferred Stock, Series
A. As of the date hereof the Borrower owns, and as of the Acquisition Date the
Borrower will own, directly or indirectly, all of the shares of capital stock
or other ownership interests of Norfolk and Western Railway Company (or the
successor thereto by merger, consolidation or share exchange or the Person, if
any, who has acquired substantially all of such corporation's assets) except
directors' qualifying shares.
SECTION 4.10. Not an Investment Company or a Holding Company. The
Borrower is not an "investment company" within the meaning of the Investment
Company Act of 1940, as amended. The Borrower is not a "holding company", a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
SECTION 4.11. Full Disclosure. All written information, taken as a
whole, heretofore furnished by the Borrower to any Agent or Bank for purposes
of or in connection with this Agreement or any transaction contemplated hereby
is, and all such information hereafter furnished by the Borrower to the
Administrative Agent or Bank will be, true and accurate in all material
respects on the date as of which such information is stated or certified, it
being understood that any such representation and warranty as to the accuracy
of information in respect of Conrail and its Subsidiaries with respect to any
period ending, or at any time, prior to the Consummation Date is limited to the
Borrower's having no actual knowledge that such information is not accurate.
The Borrower has disclosed to the Banks or to the Administrative Agent for
circulation to the Banks pursuant to Section 5.01 in writing any and all facts
known to the Borrower which materially and adversely affect the business,
operations or financial condition of the Borrower and its Consolidated
Subsidiaries, taken as a whole, or the ability of the Borrower to perform its
obligations under this Agreement.
SECTION 4.12. Representations in Other Loan Documents True and
Correct. Each of the representations and warranties of each Obligor contained
in the other Loan Documents is true and correct in all material respects.
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SECTION 4.13. Ownership of Property, Liens. The Borrower and its
Subsidiaries have good and marketable title (subject only to Liens permitted by
the Loan Documents) to or have valid leasehold interests in, and are in lawful
possession of, or, in the case of intellectual property, have valid rights to
use, all material properties and other material assets (real or personal,
tangible, intangible or mixed) necessary for the continued operation of their
businesses, taken as a whole.
SECTION 4.14. No Default. No Default has occurred and is continuing
and neither the Borrower nor any of its Subsidiaries is in default under or
with respect to any material contract, agreement, lease or other instrument to
which it is a party or by which its property is bound or affected where such
default could reasonably be expected to result in a Material Adverse Change.
ARTICLE 5
COVENANTS
The Borrower agrees that, so long as any Bank has any Commitment
hereunder or any principal of or interest on any Loan remains unpaid:
SECTION 5.01. Information. The Borrower will deliver to the
Administrative Agent for circulation to each of the Banks:
(a) promptly after they are publicly available, and in any event
within 105 days after the end of each fiscal year of the Borrower, (i)
a consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as of the end of such fiscal year and the related
consolidated statements of income, cash flows and changes in
stockholders' equity for such fiscal year, setting forth in each case
in comparative form the figures for the previous fiscal year, all
reported on in accordance with regulations of the Securities and
Exchange Commission by KPMG Peat Marwick or other independent public
accountants of nationally recognized standing, (ii) solely if such
fiscal year ended on or prior to the Consummation Date, a pro forma
condensed balance sheet of the Borrower and its Consolidated
Subsidiaries as of the end of such fiscal year and the related pro
forma condensed statements of income, cash flows and changes in
stockholders' equity for such fiscal year, prepared in each case on
the basis of the assumption that Conrail is a wholly-owned
Consolidated Subsidiary of the Borrower at the end of such fiscal year
and at all times during such fiscal year and setting forth in each
case in comparative form the figures for the previous fiscal year and
certified in each case by the chief financial officer or the chief
accounting officer of the Borrower as to
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having been prepared on a basis consistent with the pro forma
financial information in the Information Memorandum and (iii) solely
if such fiscal year ended on or prior to the Consummation Date, a
consolidated balance sheet of Conrail and its Consolidated
Subsidiaries as of the end of such fiscal year and the related
consolidated statements of income, cash flows and changes in
stockholders' equity for such fiscal year, setting forth in each case
in comparative form the figures for the previous fiscal year;
(b) promptly after they are publicly available, and in any event
within 60 days after the end of each of the first three quarters of
each fiscal year of the Borrower, (x) (i) a consolidated balance sheet
of the Borrower and its Consolidated Subsidiaries as of the end of
such quarter, setting forth in comparative form the figures at the end
of the Borrower's previous fiscal year, (ii) the related consolidated
statement of income for such quarter and for the portion of the
Borrower's fiscal year ended at the end of such quarter, setting forth
in comparative form the figures for the corresponding quarter and the
corresponding portion of the Borrower's previous fiscal year, and
(iii) the related consolidated statement of cash flows for the portion
of the Borrower's fiscal year ended at the end of such quarter,
setting forth in comparative form the figures for the corresponding
portion of the Borrower's previous fiscal year, and (y) solely if such
fiscal quarter ended on or prior to the Consummation Date, (A) (i) a
pro forma condensed balance sheet of the Borrower and its Consolidated
Subsidiaries as of the end of such quarter, setting forth in
comparative form the figures at the end of the Borrower's previous
fiscal year, (ii) the related pro forma condensed statement of income
for such quarter and for the portion of the Borrower's fiscal year
ended at the end of such quarter, setting forth in comparative form
the figures for the corresponding quarter and the corresponding
portion of the Borrower's previous fiscal year, and (iii) the related
pro forma condensed statement of cash flows for the portion of the
Borrower's fiscal year ended at the end of such quarter, setting forth
in comparative form the figures for the corresponding portion of the
Borrower's previous fiscal year and prepared in each case on the basis
of the assumption that Conrail is a wholly-owned Consolidated
Subsidiary of the Borrower at the end of such fiscal quarter and at
all times during the portion of such fiscal year ended on the last day
of such fiscal quarter and (B)(i) a consolidated balance sheet of
Conrail and its Consolidated Subsidiaries as of the end of such
quarter, setting forth in comparative form the figures at the end of
Conrail's previous fiscal year, (ii) the related consolidated
statement of income for such quarter and for the portion of Conrail's
fiscal year ended at the end of such quarter, setting forth in
comparative form the figures for the corresponding quarter and the
corresponding portion of Conrail's previous fiscal year, and (iii) the
related consolidated statement of cash flows for the portion of
Conrail's fiscal year
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ended at the end of such quarter, setting forth in comparative form
the figures for the corresponding portion of Conrail's previous fiscal
year, certified by the chief financial officer or the chief accounting
officer of the Borrower (m) in the case of information delivered by
the Borrower pursuant to clause (x) of this subsection (b) (subject to
normal year-end adjustments) as to fairness of presentation, generally
accepted accounting principles and consistency (except for changes in
generally accepted accounting principles concurred in by the
Borrower's independent public accountants) and (n) in the case of
information delivered by the Borrower pursuant to clause (y)(A) of
this subsection (b), as to having been prepared on a basis consistent
with the pro forma financial information in the Information
Memorandum;
(c) simultaneously with the delivery of the financial statements
referred to in clauses (a) and (b) above, a certificate of the chief
financial officer, the chief accounting officer, treasurer or any
assistant treasurer of the Borrower (i) setting forth in reasonable
detail the calculations required to establish whether the Borrower was
in compliance with the requirements of Section 5.07 on the date of
such financial statements and (ii) stating whether any Default exists
on the date of such certificate and, if any Default then exists,
setting forth the details thereof and the action which the Borrower is
taking or proposes to take with respect thereto;
(d) within ten days after any officer of the Borrower obtains
knowledge of any Default, if such Default is then continuing, a
certificate of the chief financial officer or the chief accounting
officer of the Borrower setting forth the details thereof and the
action which the Borrower is taking or proposes to take with respect
thereto;
(e) promptly after the mailing thereof to the shareholders of the
Borrower generally, copies of all financial statements, reports and
proxy statements so mailed;
(f) promptly after the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration
statements on Form S-8 or its equivalent) and reports on Forms 10-K,
10-Q and 8-K (or their equivalents) which the Borrower shall have
filed with the Securities and Exchange Commission;
(g) if and within ten days after the date any member of the ERISA
Group (i) gives or is required to give notice to the PBGC of any
"reportable event" (as defined in Section 4043 of ERISA) with respect
to any Plan which could reasonably be expected to constitute grounds
for a termination of such Plan under Title IV of ERISA or knows that
the plan administrator of any
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Plan has given or is required to give notice of any such reportable
event, in each case which could, when considered together with all
other such reportable events which have occurred after the date
hereof, reasonably be expected to give rise in the aggregate to a
liability of members of the ERISA Group in excess of $50,000,000, a
copy of the notice of such reportable event given or required to be
given to the PBGC; (ii) receives notice of complete or partial
withdrawal liability under Title IV of ERISA or notice that any
Multiemployer Plan in which more than 100 employees of members of the
ERISA Group participate is in reorganization, is insolvent or has been
terminated, a copy of such notice; (iii) receives notice from the PBGC
under Title IV of ERISA of an intent to terminate, impose liability
(other than for premiums under Section 4007 of ERISA) in respect of,
or appoint a trustee to administer any Plan, a copy of such notice;
(iv) applies for a waiver of the minimum funding standard under
Section 412 of the Internal Revenue Code, a copy of such application;
(v) gives notice of intent to terminate any Plan under Section 4041(c)
of ERISA, a copy of such notice and other information filed with the
PBGC; (vi) gives notice of withdrawal from any Plan pursuant to
Section 4063 of ERISA, a copy of such notice; or (vii) fails to make
any payment or contribution due under any Multiemployer Plan in which
more than 100 employees of members of the ERISA Group participate or
any Plan or in respect of any Benefit Arrangement or makes any
amendment to any Plan or Benefit Arrangement, any of which has
resulted in the imposition of a Lien under Section 412(n) of the
Internal Revenue Code or Section 302(f) of ERISA or could reasonably
be expected to result in the posting of a bond or other security under
Section 401(a)(29) of the Internal Revenue Code or Section 307 of
ERISA, a certificate of the chief financial officer or the chief
accounting officer of the Borrower setting forth details as to such
occurrence and action, if any, which the Borrower or applicable member
of the ERISA Group is required or proposes to take;
(h) as soon as reasonably practicable after any officer of the
Borrower obtains knowledge of the commencement of, or of a threat of
the commencement of, any actions, suits or proceedings against the
Borrower or any of its Subsidiaries before any court or arbitrator or
any governmental body, agency or official which could reasonably be
expected to result in a Material Adverse Change or which in any manner
questions the validity or enforceability of the Loan Documents, a
certificate of the chief financial officer or the chief accounting
officer of the Borrower setting forth the nature of such pending or
threatened action, suit or proceeding and such additional information
with respect thereto as may be reasonably requested by any Bank; and
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(i) from time to time such additional publicly available
information regarding the financial position or business of the
Borrower and its Consolidated Subsidiaries as any Bank through the
Administrative Agent may reasonably request.
SECTION 5.02. Maintenance of Property; Insurance.
(a) The Borrower will keep, and will cause each Consolidated
Subsidiary to keep, all property deemed by the Borrower to be useful
and necessary to its business in such order and condition as the
Borrower shall consider prudent.
(b) The Borrower will maintain purchased insurance and
self-insurance consistent with prudent industry and financial
practice, covering (without limitation) the risk of (i) physical
damage to real and personal property of the Borrower and each of its
Subsidiaries on an all risks basis and (ii) public liability of the
Borrower and each of its Subsidiaries. The Borrower will maintain
sufficient purchased insurance to prevent a material increase in the
Leverage Ratio as a result of a property or casualty loss or as a
result of the imposition of any reasonably foreseeable liability.
SECTION 5.03. Conduct of Business and Maintenance of Existence. The
Borrower will preserve, renew and keep in full force and effect its corporate
existence, except as permitted by Section 5.09, and its rights, privileges and
franchises reasonably deemed by the Borrower to be necessary or desirable in
the normal conduct of business, except where the failure to maintain such
rights, privileges and franchises could not be reasonably expected to result in
a Material Adverse Change. The Borrower will cause each of its Significant
Subsidiaries to continue to engage in business of the same general type as now
conducted by it, and will cause each of them to preserve, renew and keep in
full force and effect their respective corporate existence and their respective
rights, privileges and franchises reasonably deemed by the Borrower to be
necessary or desirable in the normal conduct of business, except where the
failure to maintain such rights, privileges and franchises could not be
reasonably expected to result in a Material Adverse Change. Nothing in this
Section 5.03 shall prohibit a merger, consolidation or share exchange pursuant
to which any two corporations shall be combined into a single corporation or
the acquisition by any corporation of substantially all of the assets of
another corporation.
SECTION 5.04. Compliance with Laws. The Borrower will comply, and
cause each Subsidiary to comply, in all material respects with all applicable
laws, ordinances, rules, regulations, and requirements of governmental
authorities (including, without limitation, the Interstate Commerce Act,
Environmental Laws and ERISA and the rules and regulations thereunder) except
where the necessity of compliance therewith
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is contested in good faith by appropriate proceedings or where such failure
could not be reasonably expected to result in a Material Adverse Change.
SECTION 5.05. Payment of Obligations. The Borrower will pay and
discharge, and will cause each Significant Subsidiary to pay and discharge, at
or before maturity, all their respective material obligations and liabilities
(including, without limitation, tax liabilities and claims of materialmen,
warehousemen and the like which if unpaid would by law give rise to a Lien not
permitted by this Agreement), except where the same may be contested in good
faith by appropriate proceedings or could not be reasonably expected to result
in a Material Adverse Change, and will maintain, and will cause each
Significant Subsidiary to maintain, in accordance with generally accepted
accounting principles, appropriate reserves for the accrual of any of the same.
SECTION 5.06. Inspection of Property, Books and Records. The Borrower
will keep, and will cause each Significant Subsidiary to keep, proper books of
record and account in which full, true and correct entries shall be made of all
transactions in relation to its business and activities; and will permit, and
will cause each Subsidiary to permit, representatives designated in writing by
any Bank at such Bank's expense, and subject to such limitations as the
Borrower may reasonably impose to insure safety or compliance with any
applicable legal or contractual restrictions, to visit and inspect any of their
respective properties, to examine and make abstracts from any of their
corporate books and financial records and to discuss their respective affairs,
finances and accounts with their respective principal officers, all at such
reasonable times during normal business hours, after reasonable prior notice
and as often as may reasonably be desired.
SECTION 5.07. Financial Covenants. (a) Interest Coverage Ratio. As of
the last day of each fiscal quarter of the Borrower ended on or after the
Acquisition Date and ending during each period set forth below, the Interest
Coverage Ratio will not be less than the ratio set forth below opposite such
period:
PERIOD RATIO
3/31/97-6/29/98 1.45
6/30/98-12/30/98 1.70
12/31/98-12/30/99 1.95
12/31/99-12/30/00 2.35
12/31/00-12/30/01 2.85
Thereafter 3.40
(b) Minimum Consolidated Net Worth. At the last day of any fiscal
quarter ended on or after the First Borrowing Date, Consolidated Net Worth of
the Borrower
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plus the Net Worth Add Back, in each case at such date, will not be less than
an amount equal to the sum of (i) $4,000,000,000 plus (ii) an amount equal to
50% of Adjusted Consolidated Net Income for each fiscal quarter of the Borrower
commencing on or after the First Borrowing Date and ending on or prior to the
date of determination, in each case, for which Adjusted Consolidated Net Income
is positive (but with no deduction on account of negative Adjusted Consolidated
Net Income for any fiscal quarter of the Borrower) plus (iii) 100% of the
aggregate net proceeds, including the fair market value of property other than
cash (as determined in good faith by the Board of Directors of the Borrower),
received by the Borrower from the issuance and sale after the First Borrowing
Date of any capital stock of the Borrower (other than the proceeds of any
issuance and sale of any capital stock (w) to a Subsidiary of the Borrower, (x)
to directors as qualifying shares, (y) in the ordinary course of business in
connection with now or hereafter existing employee stock purchase plans and
other employee compensation arrangements or (z) which is required to be
redeemed, or is redeemable at the option of the holder, at any time) or in
connection with the conversion or exchange of any Debt of the Borrower into
capital stock of the Borrower after the date hereof. For purposes of this
subsection (b), the following terms have the following meanings:
"Net Worth Add Back" means, at any date, an amount equal to the lesser
of (A) $600,000,000 and (B) the aggregate amount of Adjustment Amounts for all
fiscal quarters of the Borrower commencing on or after the First Borrowing Date
and ending on or prior to the date of determination.
"Adjustment Amount" means, for any fiscal quarter, an amount equal to
the absolute amount by which Consolidated Net Income for such quarter was
reduced by reason of special charges taken by the Borrower and its Consolidated
Subsidiaries in connection with the Acquisition and the Initial Conrail
Investment.
"Adjusted Consolidated Net Income" means, for any fiscal quarter, an
amount equal to Consolidated Net Income for such fiscal quarter plus the
Adjustment Amount, if any, for such fiscal quarter; provided that the aggregate
amount of the Adjustment Amounts added to Consolidated Net Income for purposes
of such computations hereunder shall not exceed $600,000,000.
(c) Leverage Ratio. The Leverage Ratio will not exceed, at any time
on or after the Acquisition Date during any period set forth below, the
applicable ratio set forth below for such period:
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PERIOD RATIO
3/31/97-6/29/98 5.50
6/30/98-12/30/98 5.10
12/31/98-12/30/99 4.75
12/31/99-12/30/00 4.00
12/31/00-12/30/01 3.30
12/31/01-12/30/02 2.75
Thereafter 2.35
SECTION 5.08. Negative Pledge. The Borrower will not create, assume or
suffer to exist any Lien on any Investment in a Subsidiary now directly owned
or hereafter directly acquired by the Borrower, except Liens created by the
Collateral Documents and Liens described in clause (i) below. Neither the
Borrower nor any Subsidiary will create, assume or suffer to exist any Lien on
any other asset now owned or hereafter acquired by it except:
(a) Liens created by the Collateral Documents;
(b) Liens existing on the date of this Agreement that have attached
(or that hereafter attach, pursuant to agreements in effect on the date hereof,
to assets not owned by Persons subject to such agreements on the date hereof)
securing Debt in an aggregate principal amount not exceeding $900,000,000;
(c) any Lien existing on any asset of any Person at the time such
Person becomes a Subsidiary and not created in contemplation of such event;
(d) any Lien (created pursuant to an equipment trust agreement,
conditional sale agreement, chattel mortgage or lease or otherwise) on any
asset securing Debt incurred or assumed for the purpose of financing all or any
part of the cost of acquiring, constructing or rebuilding such asset;
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(e) any Lien on any asset of any Person existing at the time such
Person is merged or consolidated with or into the Borrower or a Subsidiary and
not created in contemplation of such event;
(f) any Lien existing on any asset prior to the acquisition thereof by
the Borrower or a Subsidiary and not created in contemplation of such
acquisition;
(g) Liens created, assumed or existing on assets associated with real
estate development projects or development joint ventures;
(h) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the foregoing
clauses of this Section, provided that such Debt is not increased and is not
secured by any additional assets;
(i) inchoate tax Liens;
(j) Liens arising in the ordinary course of its business which (i) do
not secure Debt or Derivatives Obligations, (ii) do not secure any obligation
in an amount exceeding $600,000,000 and (iii) do not in the aggregate
materially detract from the value of its material assets or materially impair
the use thereof in the operation of its business;
(k) Liens on "margin stock" (as defined in the Margin Regulations), if
and to the extent that the value of such margin stock exceeds 25% of the total
assets of the Borrower and its Subsidiaries subject to this Section; and
(l) Liens not otherwise permitted by the foregoing clauses of this
Section securing Debt in an aggregate principal amount at any time outstanding
not in excess of $600,000,000.
SECTION 5.09. Consolidations, Mergers and Sales of Assets. (a) The
Borrower will not (i) consolidate or merge with or into any other Person or
(ii) sell, lease or otherwise transfer, directly or indirectly, all or
substantially all of its assets to any other Person; provided that the Borrower
may merge or consolidate with another Person or sell all or substantially all
of its assets to another Person if:
(A) the Person surviving such merger or consolidation, or the Person
that acquires substantially all of the Borrower's assets, is a business
corporation incorporated under the laws of a State of the United States of
America;
(B) the Person surviving such merger or consolidation, if not the
Borrower, or the Person that acquires substantially all of the Borrower's
assets, (i) executes and
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delivers to the Administrative Agent and each of the Banks an instrument in
form reasonably satisfactory to the Administrative Agent pursuant to which such
Person assumes all of the Borrower's obligations under the Loan Documents as
theretofore amended or modified, including the full and punctual payment
(whether at stated maturity, upon acceleration or otherwise) of the principal
of and interest on each Loan made to the Borrower pursuant to this Agreement,
the full and punctual payment of all other amounts payable hereunder and the
performance of all of the other covenants and agreements contained herein and
(ii) if requested by the Required Banks, delivers an opinion of counsel
satisfactory to the Required Banks covering the matters set forth in Exhibits
D-1 through D-5, in each case after giving effect to such merger, consolidation
or sale of assets, as the case may be; and
(C) immediately after giving effect to such merger, consolidation or
sale of assets, no Default shall have occurred and be continuing and the
representations and warranties of the Borrower contained in this Agreement
shall be true in all material respects as if made immediately after such
merger, consolidation or sale of assets.
It is understood that: (i) the reference in Section 4.04(c) to changes
in respect of the Borrower and its Consolidated Subsidiaries refers to changes
from the business and consolidated financial position of Norfolk Southern
Corporation and its Consolidated Subsidiaries at such date, including changes
that occur as a result of another Person becoming the Borrower pursuant to such
a merger, consolidation or sale of assets and (ii) the references in Section
6.01(l) to individuals who were directors of the Borrower at any time before
such a merger, consolidation or sale of assets refers only to individuals who
were directors of the Person who was the Borrower at that time. No Person who
was the Borrower shall be released from any of its obligations hereunder upon
the assumption of such obligations by another Person. For purposes of this
Section, the term "consolidate with" means a transaction in which the Borrower
and another corporation consolidate to form a new corporation pursuant to the
laws of their jurisdictions of incorporation and in which the Borrower and such
other corporation cease to exist as separate corporate entities.
(b) The Borrower will not, and will not permit any of its Subsidiaries
to, make any Asset Sale (i) unless the consideration therefor is not less than
the fair market value of the related asset (as determined in good faith by the
chief financial officer of the Borrower) and (ii) unless, after giving effect
thereto, (a) the aggregate fair market value of the assets disposed of in all
Asset Sales (other than Acquisition Asset Sales) (1) during any fiscal year of
the Borrower ended after the Closing Date would not exceed $350,000,000 and (2)
from and after the Closing Date would not exceed $1,000,000,000 and (b) the
aggregate fair market value of the assets disposed of in all Acquisition Asset
Sales from and after the Closing Date would not exceed $1,500,000,000; provided
that (x) the consideration for any Asset Sale shall consist solely of (A) cash
payable at closing or (B) instruments obligating the purchaser (or
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an affiliate) to make cash payments at a subsequent date, in an aggregate
amount not to exceed 50% of the purchase price with respect to such Asset Sale
and (y) the aggregate principal amount of instruments described in clause (x)
(B) of this proviso at any one time held by the Borrower and its Subsidiaries
will not exceed $200,000,000 with respect to all Asset Sales (other than
Acquisition Asset Sales) and will not exceed $0 with respect to all Acquisition
Asset Sales. For purposes of this subsection, "Acquisition Asset Sale" means
any Asset Sale (i) the consummation of which is an express condition (either
precedent or subsequent) to the approval by the STB of the direct or indirect
acquisition of control of Conrail by the Borrower or (ii) which is consummated
in connection with, or as a condition precedent to, the consummation of a
merger or other business combination between the Borrower or any of its
Subsidiaries and Conrail (including without limitation the Merger).
SECTION 5.10. Use of Proceeds. The proceeds of the Term Loans will be
used by the Borrower to finance the Acquisition, to pay related fees and
expenses and, at the option of the Borrower, to refinance Debt of the Borrower
or any Subsidiary incurred in reliance on Section 5.11(i), Revolving Credit
Loans or Money Market Loans outstanding on the Acquisition Date. The proceeds
of the Revolving Credit Loans and Money Market Loans made prior to the
Acquisition Date will be used by the Borrower to make the Initial Conrail
Investment, to refinance a portion of the existing bank debt of the Borrower
(including the Existing Credit Agreement), and for other general corporate
purposes and may be used by the Borrower to repay maturing commercial paper.
The proceeds of the Revolving Credit Loans and Money Market Loans made on or
after the Acquisition Date will be used by the Borrower to finance the
Acquisition, to pay related fees and expenses, and for other general corporate
purposes (including without limitation, at the option of the Borrower, to
refinance Debt of the Borrower or any Subsidiary incurred in reliance on
Section 5.11(i), Revolving Credit Loans or Money Market Loans outstanding on
the Acquisition Date).
SECTION 5.11. Limitation on Debt. The Borrower will not, and will not
permit any of its Subsidiaries to, incur or at any time be liable with respect
to any Debt except:
(a) Debt under the Loan Documents;
(b) Debt owing to the Borrower or a Subsidiary all of the outstanding
common stock of which (other than directors' qualifying shares) is owned
directly or indirectly by the Borrower;
(c) Debt of Subsidiaries not otherwise permitted by this Section in an
aggregate principal amount at any time outstanding not exceeding $500,000,000;
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(d) Debt of the Borrower (and not of any Subsidiary) not otherwise
permitted by this Section in an aggregate principal amount at any time
outstanding not exceeding $100,000,000;
(e) Guarantees (i) by the Borrower of the Debt of a Subsidiary, (ii)
by any Significant Subsidiary of Debt of the Borrower and (iii) by any
Subsidiary of Debt of its own Subsidiaries, provided that the Guaranteed Debt
is permitted under this Section;
(f) Debt of any Person at the time such Person becomes a Subsidiary
and not incurred in contemplation of such event;
(g) Debt of the Borrower or a Subsidiary in existence on the Closing
Date and extensions, renewals and refinancings thereof (it being understood
that any Debt under the Existing Credit Agreement shall be refinanced on the
First Borrowing Date solely with Loans);
(h) Debt of Subsidiaries incurred or assumed (in connection with an
equipment trust agreement, conditional sale agreement, chattel mortgage or
lease or otherwise) for the purpose of directly or indirectly financing all or
any part of the cost of acquiring, constructing or rebuilding any asset and any
renewal, extension or refinancing thereof; provided that the aggregate
principal amount of such Debt (other than extensions, renewals and
refinancings) incurred or assumed in any fiscal year of the Borrower pursuant
to this clause (h) shall not exceed $350,000,000;
(i) short-term Debt of the Borrower (and not of any Subsidiary)
evidenced by commercial paper or similar instruments; and
(j) Debt of the Borrower (and not of any Subsidiary) which matures not
earlier than six months after the final maturity date of the Term Loans.
SECTION 5.12. Transactions with Affiliates. The Borrower will not, and
will not permit any Subsidiary to, directly or indirectly, pay any funds to or
for the account of, make any Investment in, lease, sell, transfer or otherwise
dispose of any assets, tangible or intangible, to, or participate in, or
effect, any transaction with, any Affiliate except on an arm's-length basis on
terms no less favorable in any material respect to the Borrower or such
Subsidiary than could have been obtained from a third party who was not an
Affiliate; provided that the foregoing provisions of this Section shall not
prohibit (i) the declaration or payment of any lawful dividend or other payment
ratably in respect of all of its capital stock of the relevant class or (ii)
transactions entered into in the ordinary course of business with joint
ventures in which the Borrower has a direct or indirect interest to the extent
the Borrower has determined
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in its reasonable judgment that the business purpose achieved by such
transactions renders the terms thereof reasonable.
SECTION 5.13. No Modification of the Voting Trust Agreement Without
Bank Consent. The Borrower will not, and will not permit any of its
Subsidiaries to, consent to or solicit any amendment or supplement to, or any
waiver or other modification of, the Voting Trust Agreement in any manner which
could reasonably be expected to materially adversely affect the rights of the
Banks under the Loan Documents or their ability to enforce the same.
SECTION 5.14. Limitation on Restrictions Affecting Subsidiaries.
Neither the Borrower nor any of its Subsidiaries will enter into, or suffer to
exist, any agreement with any Person, other than the Loan Documents, which
prohibits or limits the ability of any Subsidiary to (a) pay dividends or make
other distributions or pay any Debt owed to the Borrower or any Subsidiary, (b)
make loans or advances to the Borrower or any Subsidiary, (c) transfer any of
its properties or assets to Borrower or any Subsidiary or (d) create, incur,
assume or suffer to exist any Lien upon any of its property, assets or
revenues, whether now owned or hereafter acquired as security for the
obligations of the Borrower under the Loan Documents; provided that the
foregoing shall not apply to (i) restrictions in effect on the date of this
Agreement contained in agreements governing Debt outstanding on the date of
this Agreement (or in the case of Debt of a Person which hereafter becomes a
Subsidiary, outstanding on the date such Person becomes a Subsidiary and not
created in contemplation of that event) and, if such Debt is renewed, extended
or refinanced, restrictions in the agreements governing the renewed, extended
or refinancing Debt (and successive renewals, extensions and refinancings
thereof) if such restrictions are no more restrictive in any material respect
than those contained in the agreements governing the Debt being renewed,
extended or refinanced, (ii) restrictions contained in agreements governing
Debt incurred pursuant to Section 5.11(c), (d), (e) and (j) provided that such
restrictions are no more restrictive in any material respect than those
contained in the Loan Documents, (iii) customary non-assignment provisions in
leases, licenses and other contracts, (iv) restrictions contained in agreements
governing Debt incurred by special purpose Subsidiaries in connection with the
financing of equipment and other asset acquisitions, provided that such
restrictions only apply to such special purpose Subsidiaries and their
respective assets, (v) in the case of non-wholly-owned Subsidiaries, customary
restrictions contained in joint venture or similar agreements, (vi)
restrictions required by applicable law and (vii) restrictions in agreements
establishing consensual Liens permitted under Section 5.08 with respect to the
assets subject to such Liens.
SECTION 5.15. Fiscal Year. The Borrower will not change its fiscal
year from a fiscal year ending December 31.
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SECTION 5.16. Hedging Facilities. The Borrower will, at its sole cost
and expense not later than 60 days following the Acquisition Date, enter into
and thereafter maintain in full force and effect interest rate cap or swap
agreements or similar agreements on such terms as shall be reasonably
acceptable to the Administrative Agent and that shall result in the interest
rate payable on not less than (i) at any time prior to the Consummation Date,
30% of Total Debt at such time and (ii) at any time on and after the
Consummation Date, 40% of Total Debt at such time, being effectively (or in
fact) fixed.
SECTION 5.17. Restricted Investments. The Borrower will not, and will
not permit any Subsidiary to, make any Restricted Investments prior to the
Consummation Date.
SECTION 5.18. Consummation. The Borrower will use its commercially
reasonable best efforts to cause the Consummation Date to occur at the earliest
practicable time.
SECTION 5.19. Additional Guarantors. The Borrower will cause each
Person which becomes a Significant Subsidiary after the Acquisition Date to
become a Subsidiary Guarantor as promptly as practicable after (but in any
event within 30 days of) the date it becomes a Significant Subsidiary.
ARTICLE 6
DEFAULT
SECTION 6.01. Events of Default. If one or more of the following
events ("Events of Default") shall have occurred and be continuing:
(a) the Borrower shall default in the payment when due of any
principal of any Loan, or shall default in the payment, within five
days of the due date thereof, of any interest, fees or other amount
payable hereunder;
(b) the Borrower shall fail to observe or perform any covenant
contained in Sections 5.07 to 5.19, inclusive;
(c) any Obligor shall fail to observe or perform any covenant or
agreement contained in any Loan Document (other than those covered by
clause (a) or (b) above) for 10 Domestic Business Days after written
notice thereof has been given to the Borrower by the Administrative
Agent at the request of any Bank;
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(d) any representation, warranty or certification made (or deemed
made) by any Obligor in any Loan Document or in any certificate,
financial statement or other document delivered pursuant to any Loan
Document shall prove to have been incorrect in any material respect
when made (or deemed made);
(e) the Borrower or any Subsidiary shall fail to make any payment
in respect of any Material Debt when due or within any applicable
grace period;
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Material Debt or enables the
holder of such Debt or any Person acting on such holder's behalf to
accelerate the maturity thereof;
(g) the Borrower or any Significant Subsidiary (including for
purposes of this subsection Conrail and, to the extent they would meet
the criteria specified in the definition of Significant Subsidiary,
its Subsidiaries) shall commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of
it or any substantial part of its property, or shall consent to any
such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against
it, or shall make a general assignment for the benefit of creditors,
or shall fail generally to pay its debts as they become due, or shall
take any corporate action to authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced
against the Borrower or any Significant Subsidiary (including for
purposes of this subsection Conrail and, to the extent they would meet
the criteria specified in the definition of Significant Subsidiary,
its Subsidiaries) seeking liquidation, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and
unstayed for a period of 60 days; or an order for relief shall be
entered against the Borrower or any Significant Subsidiary under the
federal bankruptcy laws as now or hereafter in effect;
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(i) any member of the ERISA Group shall fail to pay when due an
amount or amounts aggregating in excess of $50,000,000 which it shall
have become liable to pay under Title IV of ERISA; or notice of intent
to terminate a Material Plan shall be filed under Title IV of ERISA by
any member of the ERISA Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings
under Title IV of ERISA to terminate, to impose liability (other than
for premiums under Section 4007 of ERISA) in respect of, or to cause a
trustee to be appointed to administer any Material Plan; or a
condition shall exist by reason of which the PBGC would be entitled to
obtain a decree adjudicating that any Material Plan must be
terminated; or there shall occur a complete or partial withdrawal
from, or a default, within the meaning of Section 4219(c)(5) of ERISA,
with respect to, one or more Multiemployer Plans which, in any such
case, could reasonably be expected to cause one or more members of the
ERISA Group to incur a current payment obligation in excess of
$100,000,000;
(j) a judgment or order for the payment of money in excess of
$50,000,000 shall be rendered against the Borrower or any Significant
Subsidiary and such judgment or order shall continue unsatisfied,
unreversed, unvacated, undischarged and unstayed for a period of 30
days;
(k) any person or group of persons (within the meaning of Section
13 or 14 of the Securities Exchange Act of 1934, as amended) shall
have acquired beneficial ownership (within the meaning of Rule 13d-3
promulgated by the Securities and Exchange Commission under said Act)
of 30% or more of the outstanding shares of common stock of the
Borrower;
(l) at any time Continuing Directors shall not constitute a
majority of the board of directors of the Borrower ("Continuing
Director" means at any time each (i) individual who was a director of
the Borrower 24 months before such time or (ii) individuals who were
nominated or elected to be a director of the Borrower by at least
two-thirds of the Continuing Directors at the time of such nomination
or election);
(m) any Lien created by any of the Collateral Documents shall at
any time fail to constitute a valid and (to the extent required by the
Collateral Documents) perfected Lien on any material portion of the
Collateral purported to be subject thereto, securing the obligations
purported to be secured thereby, with the priority required by the
Loan Documents, or any Obligor shall so assert in writing;
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(n) the Guarantee of any Subsidiary Guarantor under the
Subsidiary Guarantee Agreement shall be invalid or unenforceable, or
any Obligor shall so assert in writing; or
(o) for any calendar quarter commencing after the Acquisition
Date (or if the record date with respect to Conrail dividends or
distributions payable during the first such quarter shall have been
prior to the Acquisition Date, for any calendar quarter after the
first such quarter) the aggregate amount of dividends or distributions
received by the Borrower in respect of shares of capital stock of
Conrail (either directly, through a dividend or distribution made by
the trustee under the Voting Trust or through a dividend or
distribution made by the Offeror to the Borrower with respect to a
dividend or distribution made by the trustee under the Voting Trust to
the Offeror or otherwise ) shall be less than $0.40375 per share;
then, and in every such event, the Administrative Agent shall (i) if requested
by the Required Banks by notice to the Borrower terminate the Commitments and
they shall thereupon terminate, and (ii) if requested by the Required Banks, by
notice to the Borrower declare the Loans (together with accrued interest
thereon) to be, and the Loans (together with accrued interest thereon) shall
thereupon become, immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by the
Borrower; provided that in the case of any of the Events of Default specified
in clause (g) or (h) above with respect to any Obligor, without any notice to
any Obligor or any other act by the Administrative Agent or the Banks, the
Commitments shall thereupon terminate and the Loans (together with accrued
interest thereon) shall become immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower.
SECTION 6.02. Notice of Default. The Administrative Agent shall give
notice to the Borrower under Section 6.01(c) promptly upon being requested to
do so by any Bank and shall thereupon notify all the Banks thereof.
ARTICLE 7
THE AGENT
SECTION 7.01. Appointment and Authorization. Each Bank irrevocably
appoints and authorizes the Administrative Agent to take such action as agent
on its behalf and to exercise such powers under the Loan Documents as are
delegated to the
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Administrative Agent by the terms thereof, together with all such powers as are
reasonably incidental thereto.
SECTION 7.02. Agents and Affiliates. Morgan Guaranty Trust Company of
New York and Merrill Lynch Capital Corporation shall have the same rights and
powers under the Loan Documents as any other Bank and may exercise or refrain
from exercising the same as though it were not an Agent, and Morgan Guaranty
Trust Company of New York and Merrill Lynch Capital Corporation and their
respective affiliates may engage in any kind of business with the Borrower or
any Subsidiary or affiliate of the Borrower as if each of them were not an
Agent hereunder.
SECTION 7.03. Action by Administrative Agent. The obligations of the
Administrative Agent hereunder are only those expressly set forth herein.
Without limiting the generality of the foregoing, the Administrative Agent
shall not be required to take any action with respect to any Default, except as
expressly provided in the Loan Documents.
SECTION 7.04. Consultation with Experts. The Administrative Agent may
consult with legal counsel (who may be counsel for the Borrower), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken by it in good faith in accordance with
the advice of such counsel, accountants or experts.
SECTION 7.05. Liability of Agents. Neither Agent nor any of their
respective affiliates nor any of the respective directors, officers, agents or
employees of the foregoing shall be liable for any action taken or not taken by
it in connection herewith (i) with the consent or at the request of the
Required Banks or (ii) in the absence of its own gross negligence or willful
misconduct. Neither Agent nor any of their respective affiliates nor any of the
respective directors, officers, agents or employees of the foregoing shall be
responsible for or have any duty to ascertain, inquire into or verify (i) any
statement, warranty or representation made in connection with this Agreement or
any borrowing hereunder; (ii) the performance or observance of any of the
covenants or agreements of any Obligor; (iii) the satisfaction of any condition
specified in Article 3, except, in the case of the Administrative Agent,
receipt of items required to be delivered to it; or (iv) the validity,
effectiveness or genuineness of any Loan Document or any other instrument or
writing furnished in connection therewith. The Administrative Agent shall not
incur any liability by acting in reliance upon any notice, consent,
certificate, statement, or other writing (which may be a bank wire, telex or
similar writing) believed by it to be genuine or to be signed by the proper
party or parties.
SECTION 7.06. Indemnification. Each Bank shall, ratably in accordance
with its Commitment, indemnify each Agent, its affiliates and their respective
directors,
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officers, agents and employees (to the extent not reimbursed by the Borrower)
against any cost, expense (including reasonable counsel fees and
disbursements), claim, demand, action, loss or liability (except such as result
from such indemnitee's gross negligence or willful misconduct) that such
indemnitee may suffer or incur in connection with this Agreement or any action
taken or omitted by such indemnitee hereunder.
SECTION 7.07. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon any Agent or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon any Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.
SECTION 7.08. Successor Agent. The Administrative Agent may resign at
any time by giving written notice thereof to the Banks and the Borrower. Upon
any such resignation, the Required Banks shall have the right to appoint a
successor Administrative Agent reasonably acceptable to the Borrower. If no
successor Agent shall have been so appointed by the Required Banks, and shall
have accepted such appointment, within 30 days after the retiring Agent gives
notice of resignation, then the retiring Administrative Agent may, on behalf of
the Banks, appoint a successor Administrative Agent, which shall be a
commercial bank organized or licensed under the laws of the United States of
America or of any State thereof and having a combined capital and surplus of at
least $500,000,000. Upon the acceptance of its appointment as Agent hereunder
by a successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. After any retiring
Agent's resignation hereunder as Administrative Agent, the provisions of this
Article shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Administrative Agent.
SECTION 7.09. Agents' Fees. The Borrower shall pay to each Agent for
its own account fees in the amounts and at the times previously agreed upon
between the Borrower and the Agents.
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ARTICLE 8
CHANGE IN CIRCUMSTANCE
SECTION 8.01. Basis for Determining Interest Rate Inadequate or
Unfair. If on or prior to the first day of any Interest Period for any Fixed
Rate Loan:
(a) the Administrative Agent is advised by the Reference Banks
that deposits in dollars (in the applicable amounts) are not being
offered to the Reference Banks in the relevant market for such
Interest Period, or
(b) in the case of a Committed Borrowing, Banks having 50% or
more of the aggregate amount of the Commitments advise the
Administrative Agent that the Adjusted CD Rate or the London Interbank
Offered Rate, as the case may be, as determined by the Administrative
Agent will not adequately and fairly reflect the cost to such Banks of
funding their CD Loans or Euro-Dollar Loans, as the case may be, for
such Interest Period,
the Administrative Agent shall forthwith give notice thereof to the Borrower
and the Banks, whereupon until the Administrative Agent notifies the Borrower
that the circumstances giving rise to such suspension no longer exist (which
notice the Administrative Agent shall deliver forthwith upon its becoming aware
thereof), (i) the obligations of the Banks to make CD Loans or Euro-Dollar
Loans, as the case may be, or to continue or convert outstanding Loans as or
into CD Loans or Euro-Dollar Loans, as the case may be, shall be suspended and
(ii) each outstanding CD Loan or Euro-Dollar Loan, as the case may be, shall be
converted into a Base Rate Loan on the last day of the then current Interest
Period applicable thereto. Unless the Borrower notifies the Administrative
Agent at least two Domestic Business Days before the date of any Fixed Rate
Borrowing for which a Notice of Borrowing has previously been given that it
elects not to borrow on such date, (i) if such Fixed Rate Borrowing is a
Committed Borrowing, such Borrowing shall instead be made as a Base Rate
Borrowing and (ii) if such Fixed Rate Borrowing is a Money Market LIBOR
Borrowing, the Money Market LIBOR Loans comprising such Borrowing shall bear
interest for each day from and including the first day to but excluding the
last day of the Interest Period applicable thereto at the Base Rate for such
day.
SECTION 8.02. Illegality. If, on or after the date of this Agreement,
the adoption of any applicable law, rule or regulation, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Bank (or its Euro-Dollar Lending Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency shall make it
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unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to
make, maintain or fund its Euro-Dollar Loans and such Bank shall so notify the
Administrative Agent, the Administrative Agent shall forthwith give notice
thereof to the other Banks and the Borrower, whereupon until such Bank notifies
the Borrower and the Administrative Agent that the circumstances giving rise to
such suspension no longer exist (which notice such Bank shall give forthwith
upon its becoming aware thereof), the obligation of such Bank to make
Euro-Dollar Loans, or to convert outstanding Loans into Euro-Dollar Loans,
shall be suspended. Before giving any notice to the Administrative Agent
pursuant to this Section, such Bank shall designate a different Euro-Dollar
Lending Office if such designation will avoid the need for giving such notice
and will not, in the judgment of such Bank, be otherwise disadvantageous to
such Bank. If such notice is given, each Euro-Dollar Loan of such Bank then
outstanding shall be converted to a Base Rate Loan either (a) on the last day
of the then current Interest Period applicable to such Euro-Dollar Loan if such
Bank may lawfully continue to maintain and fund such Loan to such day or (b)
immediately if such Bank shall determine that it may not lawfully continue to
maintain and fund such Loan to such day.
SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after
(x) the date hereof, in the case of any Committed Loan or any obligation to
make Committed Loans or (y) the date of the related Money Market Quote, in the
case of any Money Market Loan, the adoption of any applicable law, rule or
regulation, or any change in any applicable law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency shall impose, modify
or deem applicable any reserve, special deposit, insurance assessment or
similar requirement (including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve System, but excluding
(i) with respect to any CD Loan any such requirement included in an applicable
Domestic Reserve Percentage or Assessment Rate and (ii) with respect to any
Euro-Dollar Loan, any such requirement with respect to which such Bank is
entitled to compensation during the relevant Interest Period under Section
2.07) against assets of, deposits with or for the account of, or credit
extended by, any Bank (or its Applicable Lending Office) or shall impose on any
Bank (or its Applicable Lending Office) or on the United States market for
certificates of deposit or the London interbank market any other condition
affecting its Fixed Rate Loans or its obligation to make Fixed Rate Loans, and
the result of any of the foregoing is to increase the cost to such Bank (or its
Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or to
reduce the amount of any sum received or receivable by such Bank (or its
Applicable Lending Office) under this Agreement with respect thereto, by an
amount deemed by such Bank to be material, then, within 15
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days after demand by such Bank (with a copy to the Administrative Agent), the
Borrower shall pay to such Bank such additional amount or amounts as will
compensate such Bank for such increased cost or reduction.
(b) If any Bank shall have determined that, after the date hereof, the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change in any applicable law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on capital
of such Bank (or its Parent) as a consequence of such Bank's obligations
hereunder to a level below that which such Bank (or its Parent) could have
achieved but for such adoption, change, request or directive (taking into
consideration its policies with respect to capital adequacy) by an amount
deemed by such Bank to be material, then from time to time, within 15 days
after demand by such Bank (with a copy to the Administrative Agent), the
Borrower shall pay to such Bank such additional amount or amounts as will
compensate such Bank (or its Parent) for such reduction.
(c) Each Bank will promptly notify the Borrower and the Administrative
Agent of any event, past or prospective, of which it has knowledge which will
entitle such Bank to compensation pursuant to this Section, or which such Bank
believes is reasonably likely to entitle such Bank to compensation pursuant to
this Section, and will designate a different Applicable Lending Office if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the judgment of such Bank, be otherwise disadvantageous to
such Bank. A certificate of any Bank claiming compensation under this Section
(for itself or for a Participant) and setting forth the additional amount or
amounts to be paid to it hereunder and indicating in reasonable detail the
computation thereof shall be conclusive in the absence of manifest error. In
determining such amount, such Bank may use any reasonable averaging and
attribution methods.
(d) The Borrower shall not be liable pursuant to this Section to any
Bank to compensate it for any cost or reduction incurred or suffered more than
45 days before receipt by the Borrower of a notice from such Bank referring to
the event that gave rise to such cost or reduction.
(e) This Section 8.03 shall not require the Borrower to reimburse any
Bank for any Taxes or Other Taxes which are otherwise covered by the payment of
additional amounts or the indemnity set forth in Section 8.04(b) or (c),
respectively.
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SECTION 8.04. Taxes. (a) For the purposes of this Section 8.04 the
following terms have the following meanings:
"Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings with respect to any payment by the
Borrower pursuant to this Agreement or under any Note, and all liabilities with
respect thereto, excluding (i) in the case of each Bank and the Administrative
Agent, taxes imposed on its income, and franchise, branch profits or similar
taxes imposed on it, by a jurisdiction under the laws of which such Bank or the
Administrative Agent (as the case may be) is organized or in which its
principal executive office is located or, in the case of each Bank, in which
its Applicable Lending Office is located and (ii) in the case of each Bank, any
United States withholding tax imposed on such payments but only to the extent
that such Bank is subject to United States withholding tax at the time such
Bank first becomes a party to this Agreement.
"Other Taxes" means any present or future stamp or documentary taxes
and any other excise or property taxes, or similar charges or levies, which
arise from any payment made pursuant to this Agreement or under any Note or
from the execution or delivery of, or otherwise with respect to, this Agreement
or any Note.
(b) Any and all payments by the Borrower to or for the account of any
Bank or the Administrative Agent hereunder or under any Note shall be made
without deduction for any Taxes or Other Taxes; provided that, if the Borrower
shall be required by law to deduct any Taxes or Other Taxes from any such
payments, (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section) such Bank or the Administrative Agent (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the Borrower shall make such deductions, (iii)
the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law and (iv) the
Borrower shall furnish to the Administrative Agent, at its address referred to
in Section 9.01, the original or a certified copy of a receipt evidencing
payment thereof.
(c) The Borrower agrees to indemnify each Bank and the Administrative
Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on
amounts payable under this Section) paid by such Bank or the Administrative
Agent (as the case may be) and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto; provided, however, that
the Borrower shall not be required to indemnify any Bank or the Administrative
Agent under this Section 8.04 for any liability arising as a result of such
Bank's or Administrative Agent's willful misconduct or gross negligence. This
indemnification shall be paid within 30 days
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after such Bank or the Administrative Agent (as the case may be) makes written
demand therefor (which demand shall identify the nature and the amount of Taxes
and Other Taxes for which indemnification is being sought).
(d) Each Bank organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Bank listed on the signature pages hereof and on
or prior to the date on which it becomes a Bank in the case of each other Bank,
and from time to time thereafter if requested in writing by the Borrower (but
only so long as such Bank remains lawfully able to do so), shall provide the
Borrower and the Administrative Agent with true, accurate and complete (i)
Internal Revenue Service forms 1001 or 4224, as appropriate, or any successor
form prescribed by the Internal Revenue Service, executed in duplicate,
certifying that such Bank is entitled to benefits under an income tax treaty to
which the United States is a party which exempts the Bank from United States
withholding tax or reduces the rate of withholding tax on payments of interest
for the account of such Bank or certifying that the income receivable pursuant
to this Agreement is effectively connected with the conduct of a trade or
business in the United States or (ii) if the interest payments made to a Bank
constitute "portfolio interest" as defined under Section 881(c) of the Internal
Revenue Code, Internal Revenue Service form W-8, or any successor form
prescribed by the Internal Revenue Service, executed in duplicate, and a
certificate representing that such Bank is not a bank for purposes of Section
881(c) of the Internal Revenue Code, is not a 10 percent shareholder of the
Borrower (within the meaning of Section 871(h)(3)(B) of the Internal Revenue
Code) and is not a "controlled foreign corporation" related to the Borrower
(within the meaning of Section 864(d)(4) of the Internal Revenue Code). Each
such Bank further agrees (but only so long as such Bank is lawfully able to do
so) to deliver to the Borrower and the Administrative Agent duly completed
copies of the above-mentioned Internal Revenue Service forms on or before the
earlier of (i) the date that any such form expires or becomes obsolete or
otherwise is required to be resubmitted as a condition to obtaining an
exemption from withholding of U.S. federal income tax and (ii) 30 days after
the occurrence of any event which would require a change in the most recent
form previously delivered to the Borrower and the Administrative Agent.
(e) For any period with respect to which a Bank has failed to provide
the Borrower or the Administrative Agent with the appropriate form or
certificate pursuant to Section 8.04(d) (unless such failure is due to a change
in treaty, law or regulation occurring subsequent to the date on which such
form or certificate originally was required to be provided), or with respect to
which any representation or certification on any such form or certificate is,
or proves to be, materially incorrect, false or misleading when so made such
Bank shall not be entitled to receive additional amounts or indemnification
under Section 8.04(b) or (c), respectively with respect to Taxes imposed by the
United States and such Bank shall indemnify and reimburse the
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Borrower for any Taxes or Other Taxes which were required to be withheld but
which were not withheld as a result of such Bank's failure to provide the
appropriate form or certificate or such Bank's materially incorrect, false or
misleading representations or certifications; provided that if a Bank, which is
otherwise exempt from or subject to a reduced rate of withholding tax, becomes
subject to Taxes because of its failure to deliver a form required hereunder,
the Borrower shall take such steps (at such Bank's cost and expense) as such
Bank shall reasonably request to assist such Bank to recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or for
the account of any Bank pursuant to this Section, then (i) such Bank will
change the jurisdiction of its Applicable Lending Office if, in the judgment of
such Bank, such change (x) will eliminate or reduce any such additional payment
which may thereafter accrue and (y) is not otherwise disadvantageous to such
Bank or (ii) if such Bank does not change the jurisdiction of its Applicable
Lending Office pursuant to (i), the Borrower shall have the right to designate
a substitute bank or banks pursuant to Section 8.06 hereof.
(g) Upon the reasonable request of the Borrower, and at the Borrower's
expense, each Bank shall use reasonable efforts to cooperate with the Borrower
with a view to obtain a refund of any Taxes which were not correctly or legally
imposed and for which the Borrower has indemnified such Bank under this Section
8.04 if obtaining such refund would not, in the sole judgment of such Bank, be
disadvantageous to such Bank; provided that nothing in this Section 8.04(g)
shall be construed to require any Bank to institute any administrative
proceeding (other than the filing of a claim for any such refund) or judicial
proceeding to obtain any such refund. If a Bank shall receive a refund from a
taxing authority (as a result of any error in the imposition of Taxes by such
taxing authority) of any Taxes paid by the Borrower pursuant to subsection (b)
or (c) above, such Bank shall promptly pay to the Borrower the amount so
received without interest (other than interest received from the taxing
authority with respect to such refund) and net of out-of-pocket expenses;
provided that such Bank shall only be required to pay to the Borrower such
amounts as such Bank in its sole discretion determines are attributable to
Taxes paid by the Borrower. In the event such Bank or the Administrative Agent
is required to repay the amount of such refund (including interest, if any),
the Borrower, upon the request of such Bank or the Administrative Agent (as the
case may be), agrees to promptly return to such Bank or the Administrative
Agent the amount of such refund and interest, if any (plus penalties, interest
and other charges imposed in connection with the repayment of such amounts by
such Bank or the Administrative Agent).
(h) Notwithstanding the foregoing, nothing in this Section 8.04 shall
be construed to (i) entitle the Borrower or any other Persons to any
information determined by any Bank or the Administrative Agent, in its sole
discretion, to be
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confidential or proprietary information of such Bank or the Administrative
Agent, to any tax or financial information of any Bank or the Administrative
Agent or to inspect or review any books and records of any Bank or the
Administrative Agent, or (ii) interfere with the rights of any Bank or the
Administrative Agent to conduct its fiscal or tax affairs in such manner as it
deems fit.
SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate. If
(i) the obligation of any Bank to make, or convert outstanding Loans to,
Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank
has demanded compensation under Section 8.03(a) or 8.04, or the Borrower is
required to make any additional payments under Section 8.04 in respect of any
payments to any Bank, in either case with respect to its Euro-Dollar Loans or
its CD Loans, and the Borrower shall, by at least five Euro-Dollar Business
Days' prior notice to such Bank through the Administrative Agent, have elected
that the provisions of this Section shall apply to such Bank, then, unless and
until such Bank notifies the Borrower that the circumstances giving rise to
such suspension or demand for compensation no longer apply:
(a) all Loans which would otherwise be made by such Bank as (or
continued as or converted into) CD Loans or Euro-Dollar Loans, as the case may
be, shall instead be Base Rate Loans (on which interest and principal shall be
payable contemporaneously with the related Fixed Rate Loans of the other
Banks), and
(b) after each of its CD Loans or Euro-Dollar Loans, as the case may
be, has been repaid (or converted to a Base Rate Loan), all payments of
principal which would otherwise be applied to repay such Fixed Rate Loans shall
be applied to repay its Base Rate Loans instead.
If such Bank notifies the Borrower that the circumstances giving rise to such
notice no longer apply, the principal amount of each such Base Rate Loan shall
be converted into a CD Loan or Euro-Dollar Loan, as the case may be, on the
first day of the next succeeding Interest Period applicable to the related CD
Loans or Euro-Dollar Loans of the other Banks.
SECTION 8.06. Substitution of Bank. If any Bank has demanded
compensation under Section 8.03 or 8.04, the Borrower is required to make any
additional payments under Section 8.04 in respect of any payment to any Bank or
any Bank defaults in any of its obligations to make any Loan, the Borrower
shall have the right to designate a substitute bank or banks reasonably
acceptable to the Administrative Agent (which may be one or more of the Banks)
to purchase the Loans and assume the Commitments of such Bank and each Bank
agrees in such event, if the Borrower so designates a substitute or
substitutes, it will sell its Loans and assign its rights under this Agreement
to such a substitute or substitutes as soon
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as reasonably possible (and in any event within 30 days) after such designation
on substantially the terms set forth in Exhibit F for a payment equal to the
principal amount of its Loans plus all interest on such Loans and all facility
fees accrued but unpaid to but excluding the date of such payment plus any loss
or expense incurred by it (or by an existing or prospective Participant in the
related Loan), in connection with such payment, including (without limitation)
any loss incurred in obtaining, liquidating or employing deposits from third
parties, but excluding loss of margin for the period after any such payment, as
reasonably determined by it.
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including bank wire, facsimile
transmission or similar writing) and shall be given to such party: (x) in the
case of the Borrower or the Administrative Agent, at its address set forth on
the signature pages hereof, (y) in the case of any Bank, at its address set
forth in its Administrative Questionnaire or (z) in the case of any party, such
other address as such party may hereafter specify for the purpose by notice to
the Administrative Agent and the Borrower. Each such notice, request or other
communication shall be effective (i) if given by mail, 72 hours after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (ii) if given by any other means, when delivered at
the address specified in this Section; provided that notices to the
Administrative Agent under Article 2 or Article 8 shall not be effective until
received.
SECTION 9.02. No Waivers. No failure or delay by any party hereto in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies provided in the Loan Documents shall be
cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.03. Expenses; Indemnification. (a) The Borrower shall pay
(i) all reasonably incurred out-of-pocket expenses of the Agents, including
fees and disbursements of special counsel for the Agents, in connection with
the preparation and administration of this Agreement, any waiver or consent
hereunder or any amendment hereof or any Default or alleged Default hereunder
and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by
the Administrative Agent and each Bank, including fees and disbursements of
counsel, in connection with such
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Event of Default and collection, bankruptcy, insolvency and other enforcement
proceedings resulting therefrom.
(b) The Borrower agrees to indemnify each Agent and Bank, their
respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an ""Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in
connection with any investigative, administrative or judicial proceeding
(whether or not such Indemnitee shall be designated a party thereto) brought or
threatened relating to or arising out of this Agreement or any actual or
proposed use of proceeds of Loans hereunder; provided that no Indemnitee shall
have the right to be indemnified hereunder for such Indemnitee's gross
negligence or willful misconduct.
SECTION 9.04. Sharing of Set-Offs. Each Bank agrees that if it shall,
by exercising any right of set-off or counterclaim or otherwise, receive
payment of a proportion of the aggregate amount of principal and interest due
with respect to any Loan payable to it which is greater than the proportion
received by any other Bank in respect of the aggregate amount of principal and
interest due with respect to any Loan payable to such other Bank, the Bank
receiving such proportionately greater payment shall purchase such
participations in the Loans payable to the other Banks, and such other
adjustments shall be made, as may be required so that all such payments of
principal and interest with respect to the Loans shall be shared by the Banks
pro rata; provided that nothing in this Section shall impair the right of any
Bank to exercise any right of set-off or counterclaim it may have against any
Obligor and to apply the amount subject to such exercise to the payment of
indebtedness of such Obligor other than its indebtedness under the Loan
Documents. Each Obligor agrees, to the fullest extent it may effectively do so
under applicable law, that any holder of a participation in a Loan acquired
pursuant to the foregoing arrangements may exercise rights of set-off or
counterclaim and other rights with respect to such participation as fully as if
such holder of a participation were a direct creditor of such Obligor in the
amount of such participation.
SECTION 9.05. Amendments and Waivers. (a) Any provision of this
Agreement may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed by the Borrower and the Required Banks (and, if the
rights or duties of any Agent are affected thereby, by such Agent); provided
that no such amendment or waiver shall, unless signed by all the Banks having
Exposures in respect of the affected Class, (i) increase any Commitment of any
Bank or subject any Bank to any additional obligation, (ii) reduce the
principal of or rate of interest on any Loan or any fees hereunder, (iii)
postpone the date fixed for any payment of principal of or interest on any Loan
or any fees hereunder or for the termination of any
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Commitment; and provided further that no such amendment or waiver shall, unless
signed by all Banks, (x) change the percentage of the Exposures which shall be
required for the Banks to take any action under this Section or any other
provision of the Loan Documents; (y) permit termination of the Subsidiary
Guarantee Agreement (except, as to any Guarantor, as provided in Section 16
thereof) or (z) permit the release of all or substantially all of the
Collateral (except as provided in Section 9.05(b)); and provided further that
no such amendment or waiver shall reduce the principal of or rate of interest
on any Money Market Loan or postpone the date fixed for any payment of
principal of or interest on any Money Market Loan unless signed by the Bank
which has made such Money Market Loan.
(b) Any provision of the Collateral Documents may be amended or waived
if, but only if, such amendment or waiver is in writing and is signed by the
relevant Obligor and the Administrative Agent with the consent of the Required
Banks; provided that no such amendment or waiver shall, unless signed by all
the Banks, effect or permit a release of all or substantially all of the
Collateral. Notwithstanding the foregoing, Collateral shall be released from
the Lien of the Collateral Documents (i) from time to time as necessary to
effect any sale of assets permitted by the Loan Documents and (ii) promptly
upon the occurrence of a Release Event, and in either such case the
Administrative Agent shall, at the expense of the Borrower, execute and deliver
all documents reasonably requested to evidence such release.
SECTION 9.06. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, provided that the Borrower may not
assign or otherwise transfer any of its rights under this Agreement except as
contemplated by Section 5.09 or with the prior written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in any or all of
its Commitments or Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to the
Borrower and the Administrative Agent, such Bank shall remain responsible for
the performance of its obligations hereunder, and the Borrower and the
Administrative Agent shall continue to deal solely and directly with such Bank
in connection with such Bank's rights and obligations under this Agreement. Any
agreement pursuant to which any Bank may grant such a participating interest
shall provide that such Bank shall retain the sole right and responsibility to
enforce the obligations of the Borrower hereunder including, without
limitation, the right to approve any amendment, modification or waiver of any
provision of this Agreement; provided that such participation agreement may
provide that such Bank will not agree to any modification, amendment or waiver
of this Agreement described in clause (i), (ii) or (iii) or (x), (y) or (z) of
Section 9.05(a) without the consent of the Participant. The Borrower agrees
that each
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Participant shall, to the extent provided in its participation agreement, be
entitled to the benefits of Section 2.07 and Article 8 with respect to its
participating interest. An assignment or other transfer which is not permitted
by subsection (c) or (d) below shall be given effect for purposes of this
Agreement only to the extent of a participating interest granted in accordance
with this subsection (b).
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "Assignee") all or a portion of its rights and
obligations under this Agreement, and such Assignee shall assume such rights
and obligations, pursuant to an Assignment and Assumption Agreement in
substantially the form of Exhibit F hereto executed by such Assignee and such
transferor Bank; provided that no Bank may so assign to one Assignee an
Exposure less than $10,000,000; and provided further that after giving effect
to such assignment, the Exposure of the assignor Bank (together with its
affiliates) shall be either zero or $25,000,000 or more. Each such assignment
shall be made with (and subject to) the subscribed consent of the Borrower and
the Administrative Agent (which shall not, in either case, be unreasonably
withheld); provided that if an Assignee is an affiliate of such transferor Bank
or is a Bank immediately prior to such assignment, or if at the time an Event
of Default shall have occurred and be continuing, no such consent shall be
required. Upon execution and delivery of such instrument, recording of such
instrument as provided in Section 2.16(a), obtainment of the foregoing required
consents (if any) and payment by such Assignee to such transferor Bank of an
amount equal to the purchase price agreed between such transferor Bank and such
Assignee, such Assignee shall be a Bank party to this Agreement and shall have
all the rights and obligations of a Bank with Commitment(s) and/or Loan(s) as
set forth in such instrument of assumption, and the transferor Bank shall be
released from its obligations hereunder to a corresponding extent, and no
further consent or action by any party shall be required. In connection with
any such assignment, the transferor Bank shall pay to the Administrative Agent
an administrative fee for processing such assignment in the amount of $3,000.
If the Assignee is not incorporated under the laws of the United States of
America or a state thereof, it shall, prior to the first date on which interest
or fees are payable hereunder for its account, deliver to the Borrower and the
Administrative Agent certification as to exemption from deduction or
withholding of any United States federal income taxes in accordance with
Section 8.04.
(d) Any Bank may at any time assign all or any portion of its rights
under this Agreement to a Federal Reserve Bank. No such assignment shall
release the transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's rights
shall be entitled to receive any greater payment under Section 8.03 or 8.04,
(and the Borrower shall not incur any greater liability for Taxes or Other
Taxes pursuant to
78
<PAGE>
Section 8.04), than such Bank would have been entitled to receive with respect
to the rights transferred (or than the Borrower was liable for with respect to
the transferor Bank), unless such transfer is made with the Borrower's prior
written consent or by reason of the provisions of Section 8.02, 8.03 or 8.04
requiring such Bank to designate a different Applicable Lending Office under
certain circumstances or at a time when the circumstances giving rise to such
greater payment did not exist.
SECTION 9.07. Governing Law; Submission to Jurisdiction, WAIVER OF
JURY TRIAL. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York. The Borrower hereby submits to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York and of any New York State court sitting in New York City
for purposes of all legal proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby. The Borrower irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court has
been brought in an inconvenient forum. EACH OF THE BORROWER, THE AGENTS AND THE
BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
SECTION 9.08. Counterparts; Integration; Effectiveness. (a) This
Agreement may be signed in any number of counterparts, each of which shall be
an original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. The Loan Documents constitute the entire agreement
and understanding among the parties hereto and supersede any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof.
(b) This Agreement shall become effective on the date that the
Administrative Agent shall have received counterparts hereof signed by each of
the parties hereto (or, in the case of any party as to which an executed
counterpart shall not have been received, receipt by the Administrative Agent
in form satisfactory to it of telegraphic, telex or other written confirmation
from such party of execution of a counterpart hereof by such party); provided
that this Agreement shall not become effective unless the Closing Date is on or
prior to March 1, 1997.
SECTION 9.09. Confidentiality. Each Agent and each Bank agrees to keep
any information delivered or made available by any Obligor pursuant to the Loan
Documents confidential from anyone other than persons employed or retained by
such Bank and its affiliates who are engaged in evaluating, approving,
structuring or administering the credit facility contemplated hereby; provided
that nothing herein shall prevent either Agent or any Bank from disclosing such
information (a) to any
79
<PAGE>
other Bank or to any Agent, (b) to any other Person if reasonably incidental to
the administration of the credit facility contemplated hereby, (c) upon the
order of any court or administrative agency, (d) upon the request or demand of
any regulatory agency or authority, (e) which had been publicly disclosed other
than as a result of a disclosure by any Agent or any Bank prohibited by this
Agreement, (f) in connection with any litigation to which any Agent, any Bank
or its subsidiaries or Parent may be a party, (g) to the extent necessary in
connection with the exercise of any remedy hereunder, (h) to such Bank's or
Agent's legal counsel and independent auditors and (i) subject to provisions
substantially similar to those contained in this Section, to any actual or
proposed Participant or Assignee.
SECTION 9.10. Termination. This Agreement shall terminate upon the
termination of all Commitments and repayment in full of the aggregate
outstanding principal amount of the Loans, accrued interest thereon, and all
fees and expenses and other amounts due and payable at such time; provided that
the provisions of Sections 7.06, 8.03, 8.04 and 9.03 shall survive such
termination.
SECTION 9.11. Collateral. Each of the Banks represents to the Agent
and each of the other Banks that it in good faith is not relying upon any
"margin stock" (as defined in the Margin Regulations) as collateral in the
extension or maintenance of the credit provided for in this Agreement. Each of
the Banks acknowledges that the proceeds of the Loans hereunder will be used as
described in Section 5.10.
SECTION 9.12. Representations of Banks. (a) Each of the Banks
represents and warrants to the Borrower that it is a corporation or association
duly incorporated or organized and validly existing under the laws of its
jurisdiction of incorporation or organization, as the case may be.
(b) Each of the Banks represents and warrants to the Borrower that
this Agreement constitutes a valid and binding agreement of it enforceable
against it in accordance with the terms hereof subject to (i) applicable
receivership, insolvency, reorganization, moratorium and other laws affecting
the rights of creditors of banks or other institutions generally from time to
time in effect and (ii) equitable principles of general applicability.
80
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
NORFOLK SOUTHERN CORPORATION
By /s/ William J. Romig
----------------------------------------
Title: Vice President and Treasurer
Three Commercial Place
Norfolk, Virginia 23510-2191
Attention: William J. Romig
Vice President and Treasurer
Facsimile number: 804-629-2798
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By /s/ Douglas A. Cruikshank
----------------------------------------
Title: Vice President
MERRILL LYNCH CAPITAL
CORPORATION
By /s/ Christopher Birosak
----------------------------------------
Title: Vice President
<PAGE>
BANK OF MONTREAL
By /s/ R.J. McClorey
----------------------------------------
Title: Director
THE BANK OF NEW YORK
By /s/ Gregory P. Shefrin
----------------------------------------
Title: Vice President
BANKERS TRUST COMPANY
By /s/ Mary Zadroga
----------------------------------------
Title: Vice President
CANADIAN IMPERIAL BANK OF
COMMERCE
By /s/ Brian E. O'Callahan
----------------------------------------
Title: Director, CIBC Wood Gundy
Securities Corp., as Agent
CREDIT LYONNAIS ATLANTA AGENCY
By /s/ David M. Cawrse
----------------------------------------
Title: First Vice President
<PAGE>
THE DAI-ICHI KANGYO BANK, LTD.,
NEW YORK BRANCH
By /s/ Robert P. Gallagher
----------------------------------------
Title: Assistant Vice President
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES
By /s/ Andrew K. Mittag
----------------------------------------
Title: Vice President
By /s/ Anthony Berti
----------------------------------------
Title: Assistant Treasurer
THE FIRST NATIONAL BANK OF
CHICAGO
By /s/ Greg Sullie
----------------------------------------
Title: Assistant Vice President
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By /s/ Henry R. Biedrzycki
----------------------------------------
Title: Vice President
<PAGE>
THE FUJI BANK, LTD.
By /s/ Masanobu Kobayashi
----------------------------------------
Title: Vice President and Manager
THE INDUSTRIAL BANK OF JAPAN,
LIMITED - NEW YORK BRANCH
By /s/ John V. Veltri
----------------------------------------
Title: Senior Vice President
LTCB TRUST COMPANY
By /s/ John J. Sullivan
----------------------------------------
Title: Executive Vice President
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By /s/ Patricia Loret de Mola
----------------------------------------
Title: Senior Vice President
ROYAL BANK OF CANADA
By /s/ Michael J. Madnick
----------------------------------------
Title: Manager
<PAGE>
THE SANWA BANK, LIMITED
By /s/ William M. Plough
----------------------------------------
Title: Vice President
By /s/ Andrew N. Hammond
----------------------------------------
Title: Vice President
SOCIETE GENERALE
By /s/ Ralph Saheb
----------------------------------------
Title: Vice President, Manager
THE SUMITOMO BANK, LIMITED
NEW YORK BRANCH
By /s/ John C. Kissinger
----------------------------------------
Title: Joint General Manager
THE TOKAI BANK, LIMITED, NEW YORK
BRANCH
By /s/ Stuart M. Schulman
----------------------------------------
Title: Deputy General Manager
TORONTO DOMINION (NEW YORK), INC.
By /s/ Debbie A. Greene
----------------------------------------
Title: Vice President
<PAGE>
UNION BANK OF SWITZERLAND,
NEW YORK BRANCH
By /s/ Dieter Hoeppli
----------------------------------------
Title: Vice President
By /s/ Samuel Azizo
----------------------------------------
Title: Vice President
WACHOVIA BANK OF NORTH
CAROLINA, N.A.
By /s/ W. Charles Blocker, Jr.
----------------------------------------
Title: Vice President
ABN AMRO BANK N.V., NEW YORK
BRANCH
By /s/ Parker H. Douglas
----------------------------------------
Title: Group Vice President
By /s/ Thomas T. Rogers
----------------------------------------
Title: Assistant Vice President
<PAGE>
BANCA COMMERCIALE ITALIANA,
NEW YORK BRANCH
By /s/ C. Dougherty
----------------------------------------
Title: Vice President
By /s/ B. Carlson
----------------------------------------
Title: Assistant Vice President
THE BANK OF TOKYO-MITSUBISHI, LTD.
By /s/ William L. Otott, Jr.
----------------------------------------
Title: Vice President
BANQUE PARIBAS
By /s/ Mary T. Finnegan
----------------------------------------
Title: Group Vice President
By /s/ John J. McCormick
----------------------------------------
Title: Vice President
<PAGE>
COMMERZBANK AG, NEW YORK
BRANCH
By /s/ Juergen Schmieding
----------------------------------------
Title: Vice President
By /s/ Subash R. Viswanathan
----------------------------------------
Title: Vice President
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
By /s/ Brian O'Leary
----------------------------------------
Title: Vice President
By /s/ Dora DeBlasi-Hyduk
----------------------------------------
Title: Vice President
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
RABOBANK NEDERLAND
By /s/ Ian Reece
----------------------------------------
Title: Vice President and Manager
By /s/ Angela R. Reilly
----------------------------------------
Title: Vice President
<PAGE>
CREDIT SUISSE FIRST BOSTON
By /s/ Christopher J. Eldin
----------------------------------------
Title: Director
By /s/ Steven E. Janauschek
----------------------------------------
Title: Associate
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK
By /s/ Norah McCann
----------------------------------------
Title: Senior Vice President
By /s/ Karen A. Brinkman
----------------------------------------
Title: Vice President
FLEET NATIONAL BANK
By /s/ Robert J. Lord
----------------------------------------
Title: Vice President
KEYBANK NATIONAL ASSOCIATION
By /s/ Michael J. Landini
----------------------------------------
Title: Assistant Vice President
<PAGE>
HE ASAHI BANK, LTD.
By /s/ Tatsuo Kase
----------------------------------------
Title: Manager
THE ROYAL BANK OF SCOTLAND PLC
By /s/ Derek Bonnar
----------------------------------------
Title: Vice President
THE SAKURA BANK, LIMITED
By /s/ Yasuhiro Terada
----------------------------------------
Title: Senior Vice President
THE TOYO TRUST & BANKING
COMPANY, LIMITED
By /s/ T. Mikumo
----------------------------------------
Title: Vice President
<PAGE>
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By /s/ Cynthia M. Niesen
----------------------------------------
Title: Managing Director
By /s/ Karen E. Hoplock
----------------------------------------
Title: Vice President
BAYERISCHE LANDESBANK
By /s/ Wilfried Freudenberger
----------------------------------------
Title: Executive Vice President and
General Manager
By /s/ Peter Obermann
----------------------------------------
Title: Senior Vice President
Manager Lending Division
DEUTSCHE BANK AG, NEW YORK
AND/OR CAYMAN ISLANDS BRANCH
By /s/ Angela Bozorgmir
----------------------------------------
Title: Assistant Vice President
By /s/ Robert M. Wood, Jr.
----------------------------------------
Title: Vice President
<PAGE>
LLOYDS BANK PLC
By /s/ Michael J. Gilligan
----------------------------------------
Title: Vice President (G311)
By /s/ Paul D. Briamonte
----------------------------------------
Title: Vice President (B374)
THE NIPPON CREDIT BANK, LTD.
By /s/ Yoshihide Watanabe
----------------------------------------
Title: Vice President and Manager
THE YASUDA TRUST & BANKING
CO., LIMITED
By /s/ Morikazu Kimura
----------------------------------------
Title: Chief Representative
BAYERISCHE HYPOTHEKEN-UND
WECHSEL-BANK AG, NEW YORK
BRANCH
By /s/ Steve Atwell
----------------------------------------
Title: Vice President
By /s/ Une Roeder
----------------------------------------
Title: Vice President
<PAGE>
BAYERISCHE VEREINSBANK AG,
NEW YORK BRANCH
By /s/ Marianne Weinzinger
----------------------------------------
Title: Vice President
By /s/ Walter H. Eckmeier
----------------------------------------
Title: Vice President
BHF - BANK AKTIENGESELLSCHAFT
By /s/ John Sykes
----------------------------------------
Title: Assistant Vice President
By /s/ Maria V. Busby
----------------------------------------
Title: Assistant Vice President
CAISSE NATIONALE DE CREDIT
AGRICOLE
By /s/ Dean Balice
----------------------------------------
Title: Senior Vice President
Branch Manager
<PAGE>
CREDIT LOCAL DE FRANCE
By /s/ Philippe Ducos
----------------------------------------
Title: Deputy General Manager
By /s/ Mary Power
----------------------------------------
Title: Vice President
THE MITSUI TRUST AND BANKING
COMPANY, LIMITED NEW YORK
BRANCH
By /s/ William W. Hunter
----------------------------------------
Title: Vice President
SUNTRUST BANK, ATLANTA
By /s/ Ruth E. Whitner
----------------------------------------
Title: Assistant Vice President
By /s/ Frank R. Callison
----------------------------------------
Title: Vice President
<PAGE>
BANCA NAZIONALE DEL LAVORO
SPA - NEW YORK BRANCH
By /s/ Giuliano Violetta
----------------------------------------
Title: First Vice President
By /s/ Giulio Giovine
----------------------------------------
Title: Vice President
BANQUE FRANCAISE DU
COMMERCE EXTERIEUR
By /s/ Kevin Dooley
----------------------------------------
Title: Vice President
By /s/ Frederick K. Kammler
----------------------------------------
Title: Vice President
CREDITANSTALT-BANKVEREIN
By /s/ Christina T. Schoen
----------------------------------------
Title: Vice President
By /s/ Richard P. Buckanavage
----------------------------------------
Title: Vice President
CRESTAR BANK
By /s/ Sigor E. Whitaker
----------------------------------------
Title: Senior Vice President
<PAGE>
THE SUMITOMO TRUST & BANKING
CO., LTD., NEW YORK BRANCH
By /s/ Suraj P. Bhatia
----------------------------------------
Title: Senior Vice President
Manager, Corporate Finance
CHIAO TUNG BANK CO., LTD.
By /s/ Liang Yuh Tseng
----------------------------------------
Title: Senior Vice President and
General Manager
NATIONAL BANK OF KUWAIT SAK
By /s/ Muhannad Kamal
----------------------------------------
Title: Executive Manager
By /s/ Stephen A. Larson
----------------------------------------
Title: Executive Manager
STAR BANK, N.A.
By /s/ Richard W. Neltner
----------------------------------------
Title: Vice President
PER PRO BROWN BROTHERS
HARRIMAN & CO.
By /s/ Richard J. Ragoza
----------------------------------------
Title: Senior Credit Officer
<PAGE>
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as
Administrative Agent
By /s/ Douglas A. Cruikshank
----------------------------------------
Title: Vice President
60 Wall Street
New York, New York 10260
Attention: Loan Department
Facsimile number: (212) 648-5336
Telex number: 177615
MERRILL LYNCH CAPITAL
CORPORATION, as Documentation
Agent
By /s/ Christopher Birosak
----------------------------------------
Title: Vice President
World Financial Center
North Tower
250 Vesey Street
New York, New York 10281
Attention:
Facsimile number: 212-449-8230
<PAGE>
<TABLE>
<CAPTION>
COMMITMENT SCHEDULE
-------------------
REVOLVING CREDIT TERM LOAN III TERM LOAN II TERM LOAN I
BANK NAME COMMITMENT COMMITMENT COMMITMENT COMMITMENT
--------- ---------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Morgan Guaranty Trust Company $108,692,307.69 $108,692,307.69 $126,807,692.31 $126,807,692.31
of New York
Merrill Lynch Capital Corporation $108,692,307.69 $108,692,307.69 $126,807,692.31 $126,807,692.31
Bank of Montreal $73,153,846.15 $73,153,846.15 $85,346,153.85 $85,346,153.85
The Bank of New York $73,153,846.15 $73,153,846.15 $85,346,153.85 $85,346,153.85
Bankers Trust Company $73,153,846.15 $73,153,846.15 $85,346,153.85 $85,346,153.85
Canadian Imperial Bank of Commerce $73,153,846.15 $73,153,846.15 $85,346,153.85 $85,346,153.85
Credit Lyonnais Atlanta Agency $73,153,846.15 $73,153,846.15 $85,346,153.85 $85,346,153.85
The Dai-Ichi Kangyo Bank, Ltd., New York $73,153,846.15 $73,153,846.15 $85,346,153.85 $85,346,153.85
Branch
Dresdner Bank AG, New York and Grand $73,153,846.15 $73,153,846.15 $85,346,153.85 $85,346,153.85
Cayman Branches
The First National Bank of Chicago $73,153,846.15 $73,153,846.15 $85,346,153.85 $85,346,153.85
First Union National Bank of North Carolina $73,153,846.15 $73,153,846.15 $85,346,153.85 $85,346,153.85
The Fuji Bank, Ltd. $73,153,846.15 $73,153,846.15 $85,346,153.85 $85,346,153.85
The Industrial Bank of Japan, Limited - New $73,153,846.15 $73,153,846.15 $85,346,153.85 $85,346,153.85
York Branch
LTCB Trust Company $73,153,846.15 $73,153,846.15 $85,346,153.85 $85,346,153.85
The Mitsubishi Trust and Banking $73,153,846.15 $73,153,846.15 $85,346,153.85 $85,346,153.85
Corporation
Royal Bank of Canada $73,153,846.15 $73,153,846.15 $85,346,153.85 $85,346,153.85
The Sanwa Bank, Limited $73,153,846.15 $73,153,846.15 $85,346,153.85 $85,346,153.85
Societe Generale $73,153,846.15 $73,153,846.15 $85,346,153.85 $85,346,153.85
The Sumitomo Bank, Limited New York $73,153,846.15 $73,153,846.15 $85,346,153.85 $85,346,153.85
Branch
The Tokai Bank, Limited, New York Branch $73,153,846.15 $73,153,846.15 $85,346,153.85 $85,346,153.85
Toronto Dominion (New York), Inc. $73,153,846.15 $73,153,846.15 $85,346,153.85 $85,346,153.85
Union Bank of Switzerland, New York Branch $73,153,846.15 $73,153,846.15 $85,346,153.85 $85,346,153.85
<PAGE>
REVOLVING CREDIT TERM LOAN III TERM LOAN II TERM LOAN I
BANK NAME COMMITMENT COMMITMENT COMMITMENT COMMITMENT
--------- ---------------- ------------- ------------ -----------
Wachovia Bank of North Carolina, N.A. $73,153,846.15 $73,153,846.15 $85,346,153.85 $85,346,153.85
ABN AMRO Bank N.V., New York Branch $52,153,846.15 $52,153,846.15 $60,846,153.85 $60,846,153.85
Banca Commerciale Italiana, New York $52,153,846.15 $52,153,846.15 $60,846,153.85 $60,846,153.85
Branch
The Bank of Tokyo-Mitsubishi, Ltd. $52,153,846.15 $52,153,846.15 $60,846,153.85 $60,846,153.85
Banque Paribas $52,153,846.15 $52,153,846.15 $60,846,153.85 $60,846,153.85
Commerzbank AG, New York Branch $52,153,846.15 $52,153,846.15 $60,846,153.85 $60,846,153.85
Compagnie Financiere de CIC et de L'Union $52,153,846.15 $52,153,846.15 $60,846,153.85 $60,846,153.85
Europeenne
Cooperatieve Centrale Raiffeisen- $52,153,846.15 $52,153,846.15 $60,846,153.85 $60,846,153.85
Boerenleenbank B.A., Rabobank Nederland
Credit Suisse First Boston $52,153,846.15 $52,153,846.15 $60,846,153.85 $60,846,153.85
DG Bank Deutsche Genossenschaftsbank $52,153,846.15 $52,153,846.15 $60,846,153.85 $60,846,153.85
Fleet National Bank $52,153,846.15 $52,153,846.15 $60,846,153.85 $60,846,153.85
KeyBank National Association $52,153,846.15 $52,153,846.15 $60,846,153.85 $60,846,153.85
The Asahi Bank, Ltd. $52,153,846.15 $52,153,846.15 $60,846,153.85 $60,846,153.85
The Royal Bank of Scotland plc $52,153,846.15 $52,153,846.15 $60,846,153.85 $60,846,153.85
The Sakura Bank, Limited $52,153,846.15 $52,153,846.15 $60,846,153.85 $60,846,153.85
The Toyo Trust & Banking Company, Limited $52,153,846.15 $52,153,846.15 $60,846,153.85 $60,846,153.85
Westdeutsche Landesbank Girozentrale, New $52,153,846.15 $52,153,846.15 $60,846,153.85 $60,846,153.85
York Branch
Bayerische Landesbank $34,615,384.62 $34,615,384.62 $40,384,615.38 $40,384,615.38
Deutsche Bank AG, New York and/or Cayman $34,615,384.62 $34,615,384.62 $40,384,615.38 $40,384,615.38
Islands Branch
Lloyds Bank plc $34,615,384.62 $34,615,384.62 $40,384,615.38 $40,384,615.38
The Nippon Credit Bank, Ltd. $34,615,384.62 $34,615,384.62 $40,384,615.38 $40,384,615.38
The Yasuda Trust & Banking Co., Limited $34,615,384.62 $34,615,384.62 $40,384,615.38 $40,384,615.38
Bayerische Hypotheken-und Wechsel-Bank $23,076,923.08 $23,076,923.08 $26,923,076.92 $26,923,076.92
AG, New York Branch
2
<PAGE>
REVOLVING CREDIT TERM LOAN III TERM LOAN II TERM LOAN I
BANK NAME COMMITMENT COMMITMENT COMMITMENT COMMITMENT
--------- ---------------- ------------- ------------ -----------
Bayerische Vereinsbank AG, New York $23,076,923.08 $23,076,923.08 $26,923,076.92 $26,923,076.92
Branch
BHF-Bank Aktiengesellschaft $23,076,923.08 $23,076,923.08 $26,923,076.92 $26,923,076.92
Caisse Nationale de Credit Agricole $23,076,923.08 $23,076,923.08 $26,923,076.92 $26,923,076.92
Credit Local de France $23,076,923.08 $23,076,923.08 $26,923,076.92 $26,923,076.92
The Mitsui Trust and Banking Company, $23,076,923.08 $23,076,923.08 $26,923,076.92 $26,923,076.921
Limited, New York Branch
Suntrust Bank, Atlanta $23,076,923.08 $23,076,923.08 $26,923,076.92 $26,923,076.92
Banca Nazionale del Lavoro S.p.A. - New $11,538,461.54 $11,538,461.54 $13,461,538.46 $13,461,538.46
York Branch
Banque Francaise du Commerce Exterieur $11,538,461.54 $11,538,461.54 $13,461,538.46 $13,461,538.46
Creditanstalt-Bankverein $11,538,461.54 $11,538,461.54 $13,461,538.46 $13,461,538.46
Crestar Bank $11,538,461.54 $11,538,461.54 $13,461,538.46 $13,461,538.46
The Sumitomo Trust & Banking Co., Ltd., $11,538,461.54 $11,538,461.54 $13,461,538.46 $13,461,538.46
New York Branch
Chiao Tung Bank Co., Ltd. $5,769,230.77 $5,769,230.77 $6,730,769.23 $6,730,769.23
National Bank of Kuwait SAK $5,769,230.77 $5,769,230.77 $6,730,769.23 $6,730,769.23
Star Bank, N.A. $5,769,230.77 $5,769,230.77 $6,730,769.23 $6,730,769.23
Per Pro Brown Brothers Harriman & Co. $2,307,692.31 $2,307,692.31 $2,692,307.69 $2,692,307.69
3
</TABLE>
<PAGE>
PRICING SCHEDULE
"Base Rate Margin" means (x) for any day prior to the Acquisition
Date, 0% and (y) for any day on or after the Acquisition Date, the percentage
set forth below in the applicable row under the column corresponding to the
Status that exists on such day; provided that in the event that (i) Level IV
Status or Level V Status exists on such day and (ii) the Loans are rated BB+ or
lower by S&P or Ba1 or lower by Moody's, 0.125% shall be added to the Base Rate
Margin for such day.
"CD Margin" means (x) for any day prior to the Acquisition Date,
0.225% and (y) for any day on or after the Acquisition Date, the percentage set
forth below in the applicable row under the column corresponding to the Status
that exists on such day; provided that in the event that (i) Level IV Status or
Level V Status exists on such day and (ii) the Loans are rated BB+ or lower by
S&P or Ba1 or lower by Moody's, 0.125% shall be added to the CD Margin for such
day.
"Euro-Dollar Margin" means (x) for any day prior to the Acquisition
Date, 0.1% and (y) for any day on or after the Acquisition Date, the percentage
set forth below in the applicable row under the column corresponding to the
Status that exists on such day; provided that in the event that (i) Level IV
Status or Level V Status exists on such day and (ii) the Loans are rated BB+ or
lower by S&P or Ba1 or lower by Moody's, 0.125% shall be added to the
Euro-Dollar Margin for such day.
"Facility Fee Rate" means (x) for any day prior to the Acquisition
Date, 0.25% and (y) for any day on or after the Acquisition Date, the
percentage set forth below in the applicable row under the column corresponding
to the Status that exists on such day.
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================================
Level Level Level Level Level
Status I II III IV V
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Base Rate Margin 0.00% 0.00% 0.00% 0.00% 0.250%
- ---------------------------------------------------------------------------------------------------------
Euro-Dollar 0.225% 0.350% 0.475% 0.750% 0.875%
- ---------------------------------------------------------------------------------------------------------
Margin
- ---------------------------------------------------------------------------------------------------------
CD Margin 0.350% 0.475% 0.600% 0.875% 1.00%
- ---------------------------------------------------------------------------------------------------------
Facility Fee Rate 0.125% 0.150% 0.175% 0.250% 0.375%
=========================================================================================================
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings, subject to the final paragraph of this Schedule:
"Level I Status" exists at any date if, at such date, the Borrower's
senior unsecured long-term debt is rated BBB+/Baa1 or higher.
"Level II Status" exists at any date if, at such date, the Borrower's
senior unsecured long-term debt is rated BBB/Baa2.
"Level III Status" exists at any date if, at such date, the Borrower's
senior unsecured long-term debt is rated BBB-/Baa3.
"Level IV Status" exists at any date if, at such date, the Borrower's
senior unsecured long-term debt is rated BB+/Ba1.
"Level V Status" exists at any date if, at such date, no other Status
exists.
"Moody's" means Moody's Investors Service, Inc.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"Status" refers to the determination of which of Level I Status, Level
II Status, Level III Status, Level IV Status or Level V Status exists at any
date.
The credit ratings to be utilized for purposes of this Schedule are
those assigned to the senior unsecured long-term debt securities of the
Borrower without third-party credit enhancement, and any rating assigned to
any other debt security of the Borrower shall be disregarded provided that
unless and until Moody's and S&P shall have announced new ratings giving effect
to the Acquisition, Level IV Status shall exist. The
2
<PAGE>
rating in effect at any date is that in effect at the close of business on such
date. In the event of split ratings from Moody's and S&P, (i) if the ratings
are one full rating category apart, Status shall be determined by the higher of
the two ratings (unless the lower of such two ratings is BB+ (Ba1) or lower, in
which case Status shall be determined by the lower of such two ratings) and
(ii) if the ratings are more than one full rating category apart, Status shall
be determined based on the rating at the midpoint between the two ratings,
provided that if there is no rating at the midpoint between the two ratings,
the higher of the two intermediate ratings (unless the lower of such two
ratings is BB+ (Ba1) or lower, in which case Status shall be determined by the
lower of such two ratings) shall apply (e.g., BBB+/Baa2 results in Level I
Status, BBB+/Baa3, BBB/Baa3 and BBB+/Ba1 all result in Level II Status while
BBB-/Ba1 and BBB/Ba2 result in Level IV Status).
3
<PAGE>
[EXHIBIT (g)(3)]
THE COURT: First I want to thank all counsel very
much for the very excellent briefs that have been submitted,
the pleadings that have been submitted in this matter, the very
fine presentations that have been made on behalf of their
respective clients. I'm sorry that we are pressed for time and
have been throughout this whole proceeding. That's the way
preliminary injunction applications always seem to have to
operate.
This is an important matter. As I said, I think that
even though I won't be citing a lot of cases or anything of
that sort, I think that it's more important that I make the
decision now so that the parties will have whatever appellate
rights they may have and have them promptly.
I say it is an important matter. Wasn't it Everett
Dirksen who used to say "a billion dollars here and a billion
dollars there and pretty soon you're talking about real money"?
Well, that's what this case seems to be.
First it's here in Federal Court because of claimed
Williams Act violations. The purpose of the Williams Act as to
tender offer, as I understand it at least, is to assure that
there is adequate and fair and full information provided to
shareholders so that they will be able to have an informed
basis upon which to decide whether to tender their shares, hold
their shares or perhaps sell them on the open market.
<PAGE>
Plaintiffs have presented evidence and arguments that
certain of the information constituted either misstatements of
fact or omitted information that it was necessary to make in
order that the information that was provided was not mislead-
ing.
Most of those contentions, quite frankly, appear to
me to be what is generally called nitpicking or insignificant
matters. Even if there were questions about the original ten-
der offer, I am convinced that the amendments that were pro-
vided were clearly adequate to correct any deficiencies. Cer-
tainly all of the shareholders have been literally deluged in
the last few weeks with information about the proposed CSX Con-
rail merger agreement and the CSX and competing Norfolk South-
ern tender offers.
In addition there has been significant coverage in
the financial and news sections of many of the newspapers.
Obviously I would concede of course that even though other
information was provided in the papers and news media that the
Williams Act does require that the tender offeror and the
responding target corporation provide full and adequate infor-
mation. And therefore if there were incorrect statements made
in the tender offer or in the responding information by the
target corporation, it would not necessarily be corrected
because there was other public information to the contrary or
that would have corrected those statements.
-2-
<PAGE>
However it is hard for me to conceive of any inter-
ested shareholder being misled in any way by the information
provided by either CSX or Conrail in their respective public
disclosures or lack of information.
Although I agree that the persistent and repeated
reference by both CSX and Conrail that the proposed merger will
be a merger of equals is somewhat indefinite in its meaning,
certainly any reasonable shareholder would recognize this ter-
minology as being a statement of opinion and that the assertion
could be made in good faith notwithstanding the rather obvious
fact that if this merger proposal as contemplated in the merger
agreement goes through, Conrail shareholders will have in
aggregate less than a controlling interest and it apparently
would be approximately one-third stake in the newly-merged
corporation.
Some of the information that plaintiffs contend must
be included would indeed make the information so voluminous
that shareholders would be inundated, and that has also been
held to be improper. The tender offers that have been provided
to the shareholders with the accompanying documents already
take several hours of careful study to read, and that's without
any of the attached exhibits.
The only relief that ordinarily would be granted or
could be granted would be to enjoin the tender offer going for-
ward until and unless proper amendments were provided to the
-3-
<PAGE>
shareholders, and to extend the period of time that the tender
offer should remain open.
Of course that is one of the primary things and that
is what the plaintiffs seek by way of this preliminary injunc-
tion. To do that, it seems to me, that such preliminary
injunction would have to spell out in detail exactly what defi-
ciencies would need to be corrected. And as I understand it,
at least the primary contentions now are that it did not suf-
ficiently spell out how Lazard & Freres and the other financial
institution that provided an opinion as to a fair valuation or
fair pricing reached their conclusions and that it did not con-
tain sufficient information as to all of the factors that were
taken into consideration and how they arrived at what the syn-
ergies, what savings will be brought about by the synergies.
I don't think that those details, since they do state
in the information given what those total savings will be or
what they are projected to be, it seems to me that going into
further detail as to that would be certainly not required under
the Williams Act.
I am not convinced that the plaintiffs have estab-
lished that they are likely to succeed on any of their Williams
Act claims, particularly in light of all of the disclosures
that have been made to the shareholders.
-4-
<PAGE>
Therefore, the motions for preliminary injunction for
violations of the Williams Act against the CSX tender offer
going forward will be denied.
I might add, of course, that most of the complaints
about the information that has been given is the information
that was provided by Conrail in its -- as a target in its
responses, whereas the tender offer is actually being made by
CSX. I'm not suggesting that that makes any particular differ-
ence, but I think that it may have some significance as to
whether or not the information provided by CSX complies with
the Williams Act.
There is also a question of irreparable harm. Now,
it is my understanding that in Williams Act cases where there
is a Williams Act violation that it is appropriate under cer-
tain conditions to enjoin the tender offer going forward. So I
don't think there need be shown any further irreparable harm
ordinarily in an injunction based on Williams Act violations
other than the violation itself. As I say, however, it is my
conclusion that on the basis of all of the evidence that's been
presented that there is no Williams Act violation and certainly
it's not so clear that a preliminary injunction should be
entered.
Plaintiffs also seek to jettison the merger agreement
proceeding because they claim that the board of directors of
Conrail have violated their fiduciary duties to Conrail share-
holders. Defendants counter by contending that all actions
-5-
<PAGE>
they have taken and intend to take are strictly in accordance
with the law. These claims of course are all based on state
law and because Conrail's incorporated in and has its principal
place of business in Pennsylvania, it seems clear and I believe
everyone agrees that Pennsylvania corporate law applies as to
the duties of corporate directors and the rights of the share-
holders in this particular case.
In substance, as I understand it, plaintiff's primary
arguments are founded on the contention that the so-called two-
tiered back-ended merger is illegal under Pennsylvania law
because it unfairly coerces the shareholders to tender their
shares to CSX -- or rather I believe it's actually Green Acqui-
sition Corporation, but I'm using those two corporations inter-
changeably. It coerces them to do so in fear that if they fail
to tender their shares they will receive less consideration in
the later exchange of CSX stock for Conrail stock. That is,
that the back end portion or the 60 percent stock that would be
exchanged -- of Conrail stock that would be exchanged in the
back end of the deal would not be worth the amount that is
presently offered for the front end which is $110 a share.
Until the merger actually goes through, if it does,
the actual amount or valuation of the back end cannot be accu-
rately determined. CSX stock has apparently -- may advance or
it may decline in the open market prior to the time that the
exchange actually takes place. And we really have no way of
knowing what that is. There are ways of valuing it as of
-6-
<PAGE>
today's market value, and it would seem clear that if you apply
today's market value and using the formulas that economists
like to use of the value of money and so on, reducing it and so
on, it would appear that the back end would not be worth the
$110.
That, however, as I see it does not make the matter
inherently unfair, unlawful or coercive as that term is being
used. By statute under the so-called Pennsylvania business
corporation law that was enacted, most recently enacted or
amended in 1990, the general duties of directors is set forth
in Section 1712 which imposes a fiduciary obligation on direc-
tors to perform their duties in a good-faith manner as direc-
tors believed to be in the best interests of the corporation.
I note that this duty is to the corporation; not necessarily to
the shareholders. These duties must be performed with such
care including reasonable inquiry, skill and diligence as a
person of ordinary prudence under similar circumstances would
exercise.
In doing this, directors by statute may rely on
information from officers and employees of the corporation
which the directors reasonably believe to be competent and
reliable, including also attorneys, CPAs and corporate commit-
tees.
The express fiduciary duties are further spelled out
in subchapter B. Section 1715 expressly and perhaps uniquely
provides that directors may consider all groups that may be
-7-
<PAGE>
affected by their actions, including shareholders, employees,
customers, communities in which the corporate offices and
facilities are located and may consider both the short-term and
the long-term interests of the corporation. I note in this
regard that under the merger agreement and/or probably the
Norfolk Southern which I'll refer to as NS tender offer Conrail
will probably no longer exist as an independent stand-alone
corporate enterprise.
In addition, directors may consider the resources,
intent and conduct, both past and potential, of any party seek-
ing to acquire control. Section 1715(b) expressly provides
that in considering the best interests of the corporation or
the effects of any action, the directors are not required to
consider the interests of any group, obviously including share-
holders, as a dominant or controlling factor, nor does it spec-
ify how those interests shall be quantified or weighed by the
corporate directors.
Section 1715(c) further qualifies directors' obliga-
tions by expressly providing that the director's fiduciary
duties shall not be deemed to require directors to, one, redeem
any rights under or to modify or render inapplicable any share-
holders' rights plans. I understand that as meaning that the
directors cannot be compelled under the rubric of performing
their fiduciary duties to redeem the so-called poison pill plan
that will become applicable in this case if NS acquires more
than 10 percent of Conrail stock.
-8-
<PAGE>
This section to me says that the Court may not
through a mandatory injunction compel a redemption of the
poison pill as to Norfolk Southern. Notwithstanding that under
the merger agreement the poison pill will not become applicable
to CSX acquisition when it acquires more than 10 percent of the
Conrail stock.
Section 1715(c)2 provides that the directors' fidu-
ciary duties shall not be deemed to require them to render
inapplicable or make determinations under subchapter E relating
to control transactions. In this case, the proposed opt-out of
subchapter E insofar as applicable to the CSX-Conrail merger.
In other words, the directors shall not be deemed to require
them to render inapplicable the proposed opt-out of subchapter
E insofar as applicable to this merger, and that would, I
believe, include also the proposed tender offer by -- or the
tender offer rather by NS.
Subchapter F relating to business combinations
between an acquiring party and the corporation acquired; again,
one of the things that the plaintiffs want to have the Court
enjoin. And also it does not require that subchapter F not be
applicable to NS because the merger agreement will make inap-
plicable subchapter F as to CSX. In other words, a I read the
statute, they could make it applicable to their merger partner
-- or they could make it inapplicable rather to their merger
partner and not applicable to any other potential acquirer.
-9-
<PAGE>
Section 1715(c)3 further provides that fiduciary
duties do not require directors to act solely because of the
effect such action might have on an acquisition or potential
acquisition of control, or the consideration that might be
offered or paid to shareholders in such an acquisition.
And finally, Section 1715(d) states that absent
breach of fiduciary duty, lack of good faith or self-dealing,
any act by the board of directors shall be presumed to be in
the best interests of the corporation. In determining whether
the general standard of care of Section 1712 has been satis-
fied, there shall be no greater obligation to justify or a
higher burden of proof by a board of directors or individual
directors relating to or affecting an acquisition or attempted
acquisition of control than is applied to any other act by the
board of directors.
The statute goes on to say notwithstanding anything
above, any act relating to an acquisition to which a majority
of the disinterested directors shall have assented shall be
presumed to satisfy the general standards of fiduciary care set
forth in Section 1712, unless it is proven by clear and con-
vincing evidence that the disinterested directors did not
assent to such act in good faith after reasonable investiga-
tion.
I note that in this case the board of directors con-
sists of 12 persons and all except one, Mr. LeVan, are under
-10-
<PAGE>
and by statutory definition disinterested directors, and obvi-
ously therefore that section of the statute is applicable in
this case.
Section 1716 reiterates that in considering the
effects of any action, directors may consider the effects on
stockholders, employees, suppliers, customers and the communi-
ties in which the officers and/or facilities are located and
all pertinent factors, and that no factor need be predominant.
In this case there has not been shown any type of
lack of good faith after a reasonable investigation by any
director so far as I have been able to determine from the evi-
dence that has been presented, including any of the exhibits
that have been presented, and clearly if there is any evidence
at all of such of which I say I find absolutely none on the
present record, it has not been proven by clear and convincing
evidence. Although there may be some argument that the direc-
tors should have made some further inquiry, they have the right
to rely on recommendations of corporate officers and those who
negotiate on their behalf and by their committees by statute.
For this reason alone, the grant of preliminary
injunction as I see it may not be granted. Basically it seems
to me that the plaintiffs are contending that the sole or at
least the primary consideration by a board of directors in con-
sidering a competing offer by potential acquirers of the
control of a corporation should be which competitor offers the
best short-range price or profit for shareholders. Clearly
-11-
<PAGE>
Pennsylvania statutory law is expressly against such a
contention.
There have been allegations suggesting that the whole
CSX-Conrail merger is being motivated by Mr. LeVan or because
it would assure him by contract of certain higher personal
income. I see nothing wrong with the merger agreement provid-
ing who will be the main executive officers for the first few
years after the completion of the merger, and I think the wit-
nesses who testified explained very clearly why it was really
important that they have this assurance in order that the
merger should succeed.
I can see why the directors of Conrail might very
well want to be sure that their existing top executive officer
would continue in top management in the merged corporation, and
that the first board of directors at least will consist equally
of former CSX and former Conrail board members.
It seems clear that the Pennsylvania statutes to
which I have referred were enacted with the decisions of the
Delaware State Courts and particularly Unicol Corporation v.
Mesa Petroleum Corporation, and Revlon, Incorporated v.
MacAndrews and Forbes Holdings, Incorporated, that they had
that clearly in mind and in order to exclude those in similar
decisions that seem to mandate or suggest that the primary or
perhaps only consideration in a situation where there is an
attempted takeover or a rival competition for a takeover or a
merger between corporations is what is the best financial deal
-12-
<PAGE>
for the stockholders in the short term. And most of the evi-
dence that has been presented in this case is based on the con-
tention that somehow the offer that has been made by NS is a
superior offer financially.
Although those decisions may be fine for the share-
holders whose only interest is that of a short-term financial
investment to maximize their profits, it completely ignores the
economic utility and value of corporations as a form of busi-
ness enterprise that produces goods and services for the public
and the national economy, in this case railroad services.
Directors have the right to consider these matters,
and by statute in Pennsylvania they have the right to consider
all matters including not only the rights of shareholders and
the financial interests of shareholders, but these other so-
called constituencies.
It also has not been established certainly by clear
and convincing evidence that the financial deal for the Conrail
shareholders under the merger agreement will inevitably or in
the long run prove less valuable than the offer by NS, assuming
that the NS offer could go through.
There are practical problems with the Unicol and
Revlon line of cases as I see it, aside from their myopic view
that because stockholders are at least in theory the owners of
the corporation that only their interests should be considered
-13-
<PAGE>
or at a minimum must be given the highest priority and impor-
tance. The primary practical problem is that it replaces the
discretion of a corporate board of directors who hopefully are
sophisticated practical business managers, and eventually under
Unicol and those decisions place it in the hands of judges
whose business judgment, however altruistic, is certainly apt
to be less reliable than that of business managers.
Other provisions of the Pennsylvania business corpo-
rate law further confirm that the board of directors have wide
discretion in how to react to so-called takeover bids, such as
that of NS. Section 1502(a)18 provides that directors may
accept, reject, respond to or take no action in respect of an
actual or proposed acquisition, tender offer, takeover or other
fundamental change or otherwise.
The committee notes to this section say in part that
this section is intended to make clear in conjunction with
Section 1721(a) that in the first instance the decision to
accept or reject the merger or other similar proposal rests
with the directors. It is not intended that there by a manda-
tory obligation to respond to a takeover proposal. It is
intended to include among other things whether to adopt a poi-
son pill plan and if a plan is or has been adopted, whether to
redeem rights subject only to the general applicable business
judgment rule.
Section 2513 also provides that securities issued,
such as stock, may limit the rights of shareholders who own or
-14-
<PAGE>
offer to acquire a specified number or percentage of shares.
The comment to Section 2513 states that the section intends to
expressly validate the adoption of poison pills including flip-
in and flip-over plans such as are apparent in the poison pill
plan applicable to Conrail. I also note in this case that the
so-called poison pill plan was adopted in 1989, long before the
present situation came into being.
Also the CSX-Conrail merger agreement was entered
into before there was any NS proposal outstanding except that
there had been some informal discussions, and it was known that
NS might be interested.
There is also a contention that somehow the CSX-
Conrail merger unlawfully and unfairly coerces Conrail share-
holders to tender their shares to Green Acquisition and to not
offer the shares to Norfolk Southern's tender offer. So far as
I can find, there is no case law, at least involving Pennsyl-
vania state law, to support the so-called coercion theory of
the type of merger proposed here.
Stockholders of Conrail do have multiple options, and
that is clear from the evidence. They may of course tender
their shares and support the CSX-Conrail merger. If all tender
their shares and the deal goes through as contemplated, share-
holders would receive $110 in cash for 40 percent of their
stock, and 1.85617 shares of CSX stock for each remaining share
of Conrail stock. They could also tender their shares and sell
19.9 percent of their stock, if all tendered, at $110 per share
-15-
<PAGE>
and then all or a majority of the shareholders could vote
against the proposed opt-out of subchapter E. In the event I
don't know what NS would do with the shares of stock which
everyone agrees would be at a premium price based on the pre-
mium of acquiring control.
The evidence is clear that no one can really predict
what will be the outcome of the proposed vote on opting out of
subchapter E. It has been suggested somehow that it is illegal
or unlawful or unfair, I'm not sure what, that the new
acquirer, CSX, be allowed to vote on that opting out of chapter
E. It seems to me that all shareholders, if they are share-
holders of record on the record date have the right under the
law to vote on that matter and therefore I can see nothing
wrong with them being allowed to do so if they at that time
have acquired shares of stock in Conrail.
Shareholders have other options. They can do noth-
ing, as the board of directors and some of the witnesses who
testified do not intend to do, and could retain their shares.
If all did so, then the initial acquisition would fail utterly.
Of course it is generally believed, although there is no evi-
dence to establish this, but I would assume that it is probably
a correct prognostication that there will be enough shares ten-
dered to make the 19.9 percent.
Conrail shareholders may also tender their shares to
NS and hope that NS would be able to get their contingencies
finally met by reason perhaps of insufficient tenders to the
-16-
<PAGE>
CSX offer. And if so, they might eventually receive $110 for
all of their shares.
Shareholders can also, of course, sell their shares
on the open market and let others decide what is to the best
financial advantage. With all of these options, some of which
may be more profitable to them than others in the short term
while others may, as some of the board of directors of both CSX
and Conrail apparently hope and predict and anticipate may be
more profitable in the long run.
I do not see any coercion, but only several options,
any of which will undoubtedly end up being a net return to most
shareholders far in excess of whatever their original invest-
ment may have been.
Under our laws, ordinarily corporations are operated
by a board of directors. And the board of directors have
rights to enter into certain contracts subject to limitations
in their charter and in the charter of the corporation, to the
extent that they are within their corporate powers and pursuant
to the corporate business. There is nothing that has been
called to my attention that is alleged to be beyond the board
of directors' rights in entering into the CSX-Conrail merger
agreement, despite arguments to the contrary.
Under doctrines of ordinary contract law where a law-
ful contract is entered into there is a duty of fair dealing
between the parties to carry out the terms of the agreement.
-17-
<PAGE>
Although a breach of contract is not in itself unlawful in the
sense of constituting a civil tort, a breach does make that
breaching party subject to damages. In this case a break-up
fee has been stipulated to, which may be analogous to an agree-
ment for liquidated damages; that may or may not be too high,
but that is certainly at this point purely a hypothetical situ-
ation as I see it until someone attempts to assert the right to
claim a break-up fee, and then it conceivably could be liti-
gated as to whether that was excessive or so unreasonable as to
not be a proper term in the agreement.
Although a breach of contract is not a tort, there is
a tort of interference with contract. I am troubled that
everyone seems to assume that Conrail would have the right, in
fact it is contended that it has a duty to breach the essential
terms of the contract of merger, which as I see it was properly
entered into and contains no terms that are prohibited by Penn-
sylvania law, and that somehow they have the further right to
sabotage the contract, that is that somehow the board of direc-
tors have not only a right, but a duty to somehow sabotage the
contract by supporting the NS proposal. As I see it, they
would have this right and perhaps duty only if the terms of the
agreement are illegal or contrary to public policy. And, as I
pointed out, each of the alleged illegalities appear to be
authorized or at least not prohibited under Pennsylvania statu-
tory law.
-18-
<PAGE>
I can find no principle difference between this and
any other contract. I won't go into any examples that might be
given, but it has been suggested that perhaps some different
law should be applied to a merger situation because sharehold-
ers are affected. Obviously any contract that is entered into
by a corporation that extends into the future may affect the
corporation's net profits or losses and also, thereby, have
effects; sometimes very disastrous effects, sometimes very fine
effects for the shareholders' financial well being.
Basically the law of Pennsylvania leaves decisions
such as what is best for the corporation to be that of the duly
elected board of directors rather than by second guessing by
the courts. In this case I am sure that the board of directors
of Conrail are in fact in a far better position than the courts
to decide what is the best interest of the corporation, which
is the test in Pennsylvania. The shareholders themselves are
in the best position to decide which of the several options are
best for them.
Finally, it has been suggested that the Pennsylvania
statutes that provide board of directors with broad discretion
in deciding mergers and how to react to takeover bids were
enacted to prevent two-tier, back-end mergers and takeovers of
the type that are here contemplated. That argument of course
is a possible argument, but I think that I am bound to follow
what are the clear wording of the statutes. I think that it is
clear from the Pennsylvania statutes, which are not ambiguous
-19-
<PAGE>
and have not been argued to be ambiguous, that it is up to the
board of directors and they alone, so long as they act in good
faith after reasonable investigation, as to what is in the best
interest of the corporation. And that the directors have every
right to favor one competing bid over another and particularly
have the right to resist hostile takeovers by such methods as
poison pills, shareholders' rights, making recommendations to
shareholders, favoring one proposed corporate party over the
other, and using stock options in favor of one corporation over
another, and include extensive so-called break-up fees. And
certainly it seems to me that it can agree not to stop their
proposal after signing a merger agreement, which is essentially
what as I see it is the arguments made that somehow this merger
should be enjoined at this stage of the proceeding.
Again, let me repeat I am unable to find that the
plaintiffs are likely to succeed on any of the claims for which
they seek preliminary injunctive relief. I do not find that
the grant of a preliminary injunction would be in the best
interest of the public. A preliminary injunction would not
maintain the status quo, which is one of the things it is sup-
posed to do, but would radically alter the position of the par-
ties. I do not find that there has been irreparable harm; as I
pointed out before, that probably would not be required if
there was a Williams Act violation, but I do not find that they
have shown the probability of success on any of the Williams
Act claims.
-20-
<PAGE>
One other feature, of course, of this action, so far
as the state law claims are filed, it is said that they are
filed as representative actions on behalf of the corporation.
I think it's very questionable whether injunctive relief would
be appropriate in any event, because it seems to me that in the
normal situation where there is a claim that the directors have
violated their fiduciary duties it's a claim for monetary dam-
ages and not for equitable relief. That has not been argued in
this case and I don't want to go into that at this time, but it
is certainly a matter that would make it seem to me that it
would be questionable whether equitable relief should be given.
Therefore, for the reasons that I have stated, all
requests and all present motions for preliminary injunctive
relief will be and are denied.
-21-
<PAGE>
[EXHIBIT (g)(6)]
THE COURT: Please be seated, everybody. Again it seems to me that it is
important that I decide these issues very promptly, so whatever litigants may
feel that they may have some appellate rights and an immediate application
for an appeal might be taken, and conceivably some further relief could be
obtained before the deadline date which at least at the present time would be
5:00 o'clock on December the 23rd, which is next Monday.
The plaintiffs have sought to obtain what amounts to a mandatory
preliminary injunction to preclude the nonconvening, the postponing or the
adjourning of a special meeting of the shareholders of Conrail which has been
set and notice has gone out for Monday, December the 23rd at 5:00 p.m., I
believe. They seek to prevent any of the defendants, but primarily of course
this would be Conrail acting as a corporation, and its board of directors
from postponing or not convening or adjourning the special meeting.
It is clear from the arguments that have been given and it is clear from
what is contained in the proxy materials that were sent out and in the notice
of the shareholders-special shareholders meeting that the corporation,
Conrail, does not intend to have a vote on the proposal until and unless it
is assured in its own mind that it has sufficient votes to get an affirmative
vote in favor of the proposition.
The notice that went out for the special meeting, the proposal was and I
presume that it will be submitted following resolution, and the notice said
that the following resolution be directed that it be submitted to a vote of
the shareholders at a special meeting, and that resolution is as follows:
"An amendment of the articles of incorporation of Conrail is hereby
approved and adopted by which upon the effectiveness of such amendment,
Article 10 thereof will be amended to and restated in its entirety as
follows:
'Subchapter E, subchapter G and subchapter H of chapter 25, Pennsylvania
Business Corporation Law of 1988 as amended shall not be applicable to the
corporation.' "
In the proxy materials that were sent out among other things it was stated
that "under the merger agreement Conrail has agreed not to convene, adjourn
or postpone the special meeting without the prior consent of CSX, which
consent will not be unreasonably withheld. As a result, it is expected that
the special meeting will not be convened if Conrail has not received
sufficient proxies to assure approval of the proposal."
Now, before of course a preliminary injunction may be granted there must
be a showing of irreparable, likelihood of success, take into consideration
the public interest that is involved in this case. There is of course a
continuing issue as to the standing of the plaintiffs Norfolk and Southern
Corporation, Atlantic Acquisition Corporation and Kathryn B. McQuade to bring
this action and particularly as to this motion before the Court.
However, there are allegations which I think are not disputed -they may
be disputed, I'm not sure of that -that Norfolk and Southern Corporation is
a shareholder of Conrail and that Kathryn B. McQuade is a shareholder of
Conrail. Of course the major suit was brought on the theory that they were
acting in a representative capacity on behalf of the corporation against the
board of directors for breaches of fiduciary duties. In this motion, however,
it seems to me that they are acting, and the only way I can consider them as
being properly before the Court is as shareholders.
In any event, the other related action -- I always get that one mixed up,
too, -- of Peter D. Ferrara, et al. against David Levan and others, Civil
Action 96-7350, are shareholders and therefore it seems to me that they would
have a proper interest in bringing this particular action.
Under Pennsylvania law shareholders do have certain rights and if they are
aggrieved by action of the corporation under certain conditions they may
bring an action for relief.
Now, as I have stated at the oral argument, it seems to me that no matter
what I decide it may not make very much difference in the final outcome. I
think everybody agrees that if there is a vote held and
<PAGE>
the vote goes against the proposal, there is nothing to preclude Conrail and
the board of directors from proceeding with further elections on the same
proposal or calling special meetings for the same proposal which would be a
little different than simply adjourning the meeting or postponing the
meeting.
On the other hand, if the meeting goes ahead, if Conrail is satisfied and
the vote proceeds and is not postponed, then of course the proposal would be
approved.
The harm as I see it is that it effectively disenfranchises those
shareholders who may be opposed to the proposal because it says to them that
even though a vote is required, an approval is required, we will not allow
the vote to go ahead if there is any -if in our judgment it is likely that
the proposal will not be approved.
So that that as far as I can see makes practically a sham election, except
to the extent of course that eventually if there is a vote held -- I say an
election, an election to opt out of the subchapter E of Chapter 25 of the
business corporation law, that it says to them that it's merely going to be a
formality and we're not going to have a vote unless we're assured of it. I do
not think that that is a proper way to hold an election or a vote on this
particular proposal.
As to irreparable harm, I think it effectively disenfranchises those
shareholders who do not approve or will not approve of the proposal.
As to the likelihood of success, it seems to me that this goes to the
issue whether or not this procedure is proper under Pennsylvania law. Now,
neither side has cited any case that to my way of thinking is reasonably
analogous to the situation at hand in this case, except for general
fundamental principles that when a vote is to be taken it should be a fair
and open vote, and that the shareholders should be treated fairly and
properly.
Ordinarily of course a Court should not interfere with the corporate
affairs of a corporation absent fraud or some fundamental unfairness. And to
me the way this vote is to be held is fundamentally unfair to those who may
be opposed to the transaction.
As I see it, the granting of a preliminary injunction will cause no harm
to Conrail. The general argument has been made, well, it may present some
sort of bad publicity. I don't see how it could provide any type of bad
publicity or even whether that would be a cognizable harm in any event.
If the injunction is not granted, if the election -- if the meeting is
postponed or adjourned because Conrail is not satisfied that it has
sufficient votes, then it seems to me that it's going to cause harm to those
shareholders who are opposed to the proposal that could not be in any
effective way corrected at a later time. If, however, an injunction is
granted in this case and it is later held that that should not have been
granted, then certainly it would seem that Conrail would have the option of
saying, well, absent such an injunction from the Court we would have gone
ahead and adjourned or postponed the meeting, and it might be then that any
vote that would be taken at the meeting would thereby become a nullity.
As I see it, therefore, the balance of harms and balance of advantages
favor that of the plaintiffs in this particular case.
Another matter that must be taken into consideration is the matter of
public interest. Now, it's a little hard to say what's in the public interest
when we're talking about actions taken by private corporations certainly as
to all of the parties at interest in this case. The shareholders, Conrail,
CSX, Norfolk and Southern, any other persons that have some interest in it.
Certainly it would be in the general interest of everyone to know exactly
what the view is or the sentiment is among the shareholders of Conrail.
I have concluded, therefore, that a limited injunction should be granted,
and that the defendants should be enjoined from not convening, postponing or
adjourning the special meeting set for December 23rd, 1996 to vote on the
proposal that has been submitted in the notice to the shareholders which I'll
reiter again. "An amendment of the Articles of Incorporation of Conrail is
hereby approved and adopted, by which upon the effectiveness of such
amendment article 10 thereof will be amended and restated in its entirety as
follows:
<PAGE>
'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 they will be enjoined from postponing, not
convening or adjourning that special meeting by reason of Conrail not having
received sufficient proxies to assure approval of the proposal.' "
And that will be the limit of the injunction. It may well be in fact that
there may be other reasons that will arise that would permit an adjournment
or a postponement such as some change in the law -- not change in the law, I
mean some legal impediment to the proceeding, if there be other offers or
something of that sort. All I'm enjoining them from doing is to not proceed
because they -- when I say they I'm speaking of Conrail and its officers --
being assured in their own minds that they have sufficient proxies to assure
approval of the proposal.
So an order to that effect will be entered as soon as we can get it typed
up.
Now, as to the question of the bond, I see no need for any bond to be
imposed on either party here. For the preliminary injunction bond I can think
of no monetary injury or harm that would result to any of the parties by
reason of this injunction. If counsel have any thoughts as to any bond, I'll
be glad to hear you on that however. I think as a practical matter it would
make no difference. All right then, no bond will be required.
All right, I guess that's all the further we can go then this afternoon.
Thank you very much, ladies and gentlemen.
(Proceedings concluded at 1:05 o'clock p.m.)
<PAGE>
[EXHIBIT (g)(7)]
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
NORFOLK SOUTHERN CORPORATION, :
ET AL., : CIVIL ACTION
Plaintiffs :
:
v. :
:
CONRAIL INC., ET AL., : No. 96-7167
Defendants :
- -----------------------------------------------------------------------------
PETER D. FERRARA, ET AL., :
Plaintiffs :
:
v. :
:
DAVID M. LEVAN, ET AL., : No. 96-7350
Defendants :
O R D E R
Plaintiffs in the above-captioned cases have moved for a preliminary
injunction, oral argument on the plaintiffs' motions has been held, and upon
consideration of plaintiffs' motions, defendants' response thereto, and for
the reasons stated on the record in open court, it is ORDERED that defendants
are enjoined from failing to convene, and/or from postponing, and/or from
adjourning the Special Meeting of Conrail Shareholders scheduled for Monday,
December 23, 1996, by reason of Conrail or its nominees not having received
sufficient proxies to assure approval of the proposal set forth in the
"Notice of Special Meeting of Shareholders" and in the Proxy Materials to
"opt-out" of Subchapters E, G, and H of Chapter 25 of the Pennsylvania
Business Corporation Law of 1988, as amended.
It is FURTHER ORDERED, for the reasons set forth on the record in
open court, that no bond shall be required.
BY THE COURT:
/s/ Donald W. VanArtsdalen, S.J.
----------------------------------------
Donald W. VanArtsdalen, S.J.
December 17, 1996
<PAGE>
[EXHIBIT (g)(13)]
SERVICE DATE - JANUARY 9, 1997
SURFACE TRANSPORTATION BOARD
DECISION
STB Finance Docket No. 33220
CSX CORPORATION AND CSX TRANSPORTATION, INC.
--CONTROL AND MERGER--
CONRAIL INC. AND CONSOLIDATED RAIL CORPORATION
[Decision No. 5]
Decided: January 8, 1997
BACKGROUND
On October 18, 1996, CSX Corporation (CSXC), CSX
Transportation, Inc. (CSXT),1 Conrail Inc. (CRI), and Consoli-
dated Rail Corporation (CRC)2 (collectively, applicants) filed
a notice of intent (CSX/CR-1) to file an application (hereinaf-
ter referred to as the primary application) seeking Board au-
thorization under 49 U.S.C. 11323-25 for: (1) the acquisition
of control of CRI by Green Acquisition Corp. (Acquisition), a
wholly owned subsidiary of CSXC; (2) the merger of CRI into
Acquisition; and (3) the resulting common control of CSXT and
CRC by CSXC. Applicants indicate that they expect to file
their primary application, and any related applications, on or
before March 1, 1997.3
_____________________
1 CSXC and CSXT are referred to collectively as CSX.
2 CRI and CRC are referred to collectively as Conrail.
3 Decision No. 1, served October 25, 1996, granted ap-
plicants' request for a protective order. Decision No. 2,
served and published in the Federal Register (61 FR 58613) on
November 15, 1996, gave notice to the public of applicants'
CSX/CR-1 pre-filing notification, and found that the transac-
tion proposed by applicants is a "major" transaction, as de-
fined at 49 CFR 1180.2(a). Decision No. 3, served and pub-
lished in the Federal Register (61 FR 58611) on November 15,
1996, invited comments from interested persons on a proposed
procedural schedule. Decision No. 4, served December 13, 1996,
assigned this proceeding to Administrative Law Judge Jacob Lev-
enthal for the handling of all discovery matters and the ini-
(continued...)
<PAGE>
CSXC, Acquisition, and CRI entered into an Agreement
and Plan of Merger (the Merger Agreement) dated October 14,
1996, which they amended on November 5, 1996, and further
amended on December 18, 1996.4 On December 27, 1996, Norfolk
Southern Corporation and Norfolk Southern Railway Company (col-
lectively, NS) filed a petition for declaratory order that
CSXC, CSXT, and Acquisition are in violation of 49 U.S.C. 11323
by reason of a "lock-out provision" in Section 4.2 of the
Merger Agreement, as amended on December 18, 1996, and that the
amendment to Section 4.2 is void and unenforceable.5
_____________________
3(continued...)
tial resolution of all discovery disputes.
We will address, in a separate decision, applicants' CSX/
CR-6 petition for waiver or clarification of certain railroad
consolidation procedures, and for related relief, filed on De-
cember 27, 1996.
4 The Merger Agreement, as first entered into, envisioned:
(1) the acquisition by Acquisition of approximately 19.9% of
the common stock of CRI; (2) the acquisition by Acquisition of
an additional approximately 20.1% of the common stock of CRI;
and (3) after Board approval of the primary application, the
merger of CRI with and into Acquisition. As amended, however,
the Merger Agreement now envisions that the merger of CRI with
and into Acquisition will occur prior to Board approval of the
primary application. This change means that applicants no
longer seek Board authorization for the acquisition of control
of CRI by Acquisition, or for the merger of CRI into Acquisi-
tion. Applicants, however, continue to seek Board authoriza-
tion for the common control, by CSXC, of CSXT and CRC. Ap-
plicants continue to indicate that they expect to file their
primary application, and any related applications, on or before
March 1, 1997.
5 NS requests expedited consideration of its petition for
declaratory order. NS alternatively requests that, if the
Board is unable to reach a decision on the question of unlawful
control substantially before January 17, 1997, it should issue
a temporary cease and desist order barring Conrail from holding
the shareholder meeting now scheduled for January 17, 1997, or
barring CSX from requiring the trustee under CSX's voting trust
to vote any Conrail shares held in the voting trust in favor of
opting out of Subchapter 25E of the Pennsylvania Business Cor-
poration Act or in favor of a CSX/Conrail merger, until the
(continued...)
<PAGE>
On December 30, 1996, CSX and Conrail respectively
filed letters notifying the Board of their objection to NS'
request for expedited consideration, and of their intent to
file responses to NS' petition for declaratory order within the
time provided by the Board's rules.
We are granting NS' request for expedited consider-
ation, and will deny its petition for declaratory order at this
time, as we discuss further below.
DISCUSSION AND CONCLUSIONS
Section 4.2 of the Merger Agreement. Section 4.2 of
the Merger Agreement (hereinafter, the "lock-out provision")
prohibits Conrail's management for a specified period from tak-
ing various actions with respect to any proposal by any entity
other than CSX to acquire more than 50 percent of the assets or
voting stock of Conrail (defined in the agreement as a "Take-
over Proposal"). Section 4.2(a) provides that Conrail may not
"(i) solicit, initiate or encourage (including by way of fur-
nishing information) or take any other action designed to fa-
cilitate, directly and indirectly, any inquiries or the making
of any proposal which constitutes any Takeover Proposal or (ii)
participate in any discussions or negotiations regarding any
Takeover Proposal . . . ." Section 4.2(b) prohibits Conrail's
board of directors for a specified period from (1) withdrawing
or modifying its approval or recommendation that shareholders
approve the CSX/Conrail merger agreement, (2) approving or rec-
ommending any merger agreement with any party other than CSX,
or (3) entering into any letter of intent or merger agreement
related to any Takeover Proposal.
_____________________
5(continued...)
Board is able to decide the question. See Pa. Stat. Ann., tit.
15, Sections 2541 through 2548 (West 1995). Without such opt-
out, CSX would be required to purchase all Conrail shares for
the same cash price as it paid for the first 19.9 percent
(Merger Agreement, Section 5.1(b)). Because we are issuing
this decision in advance of the January 17, 1997 shareholder
meeting, this alternative request for relief is moot.
<PAGE>
Under the original Merger Agreement, Conrail was per-
mitted to negotiate with respect to other unsolicited takeover
proposals after April 12, 1997, if Conrail's board concluded,
on advice of counsel, that their fiduciary duties required them
to do so. The original Merger Agreement also permitted Conrail
to enter into a letter of intent or agreement with another
party after April 12, 1997, if Conrail's board concluded that
the other party's proposal was superior to CSX's and that CSX
was unlikely to acquire 40% of Conrail's stock. In the first
amendment (November 5, 1996), the lock-out period was extended
90 days to July 12, 1997. The second amendment (December 18,
1996) extends the lock-out period to December 31, 1998. (Sec-
ond Amendment at 18.)
NS' Arguments. NS states that it wishes to acquire
Conrail and is prepared to pay Conrail's shareholders substan-
tially more than CSX is willing to pay; however, provisions of
the Merger Agreement have prevented NS from reaching an agree-
ment, or even discussing NS' proposal, with Conrail's manage-
ment.6 NS challenges the second amendment to the extent that
it prohibits Conrail, without CSX's consent, from entering into
a merger agreement with any other company, or even discussing
such an agreement with any other company, until 1999, even if
Conrail shareholders vote in the next few months to disapprove
the proposed CSX merger and even if the Board issues a decision
in 1997 refusing to approve that merger.
NS makes three main arguments: (1) by the amended
lock-out provision, CSX has acquired unlawful control of
Conrail in violation of 49 U.S.C. 11323;7 (2) the lock-out
_____________________
6 On December 19, 1996, NS increased its all-cash offer for
all of Conrail's outstanding shares to $115 per share. Accord-
ing to NS, its offer would provide Conrail shareholders other
than CSX almost $16 per share more than the blended value of
cash and securities that CSX is offering current Conrail share-
holders for their shares, based on the market price of CSX com-
mon stock at closing on December 26, 1996. On that basis, NS
estimates that the total amount it is offering to Conrail
shareholders other than CSX is approximately $1.16 billion more
than what CSX is offering.
7 Under 49 U.S.C. 11323 (formerly 49 U.S.C. 11343), certain
transactions may be carried out only with the prior approval
and authorization of this Board. These include "[a]cquisition
of control of a rail carrier by any number of rail carriers,"
"[a]cquisition of control of at least two carriers by a person
that is not a rail carrier," and "[a]cquisition of control of a
(continued...)
<PAGE>
restraint cannot be justified as reasonably related to CSX's
desire to preserve the status quo pending corporate and regula-
tory approval; and (3) CSX's unlawful control threatens NS and
Conrail's stockholders with immediate irreparable injury which
the Board must act to prevent. NS also asserts that, to the
extent the lock-out provision precludes Conrail from developing
more competitive and innovative services through a combination
with NS, the provision shields CSX from increased competition
from its two main competitors.8
Our Analysis. We note that NS has challenged the
legality of the amended lock-out provision, as well as other
provisions of the CSX/Conrail merger agreement, in an action
pending in the United States District Court for the Eastern
District of Pennsylvania with claims based on the Pennsylvania
corporation laws and the fiduciary duties of Conrail's board of
directors. Contrary to NS' assertion that the amended lock-out
provision involves an issue of illegal control under 49 U.S.C.
11323 that the Board must address and enforce independently of
any issue of state law, we do not find that NS' request is ripe
for our consideration, as discussed further below.
NS argues that CSX will unlawfully control Conrail
because the lock-out will remain in effect until December 31,
1998, even if the Conrail stockholders vote not to approve the
proposed CSX/Conrail merger,9 and even if the Board disapproves
the CSX/Conrail merger before the lock-out period expires or
imposes conditions unacceptable to the applicants. Conrail has
pointed out, however, in its December 30 letter, that NS' case
is founded on the uncertainty of future events, rather than on
any actual controversy or complaint, and we agree.
_____________________
7(continued...)
rail carrier by a person that is not a rail carrier but that
controls any number of rail carriers." 49 U.S.C. 11323(a)(3),
(4) and (5).
8 CSX and Conrail compete throughout large areas of the
Northeast and Midwest, and NS and CSX compete throughout the
Southeast and Midwest.
9 CSX and Conrail expect that vote to take place before
March 31, 1997.
<PAGE>
NS acknowledges that a rationale for permitting such
an agreement (prior to Board approval) would be to provide a
reasonable period of time for parties to an agreement to deter-
mine whether their shareholders and their regulators will ap-
prove the transaction. NS argues, however, that the lock-out
period here is too long because it goes beyond what may be rea-
sonably expected for the Board to consider and act upon the
consolidation application of the two railroads themselves, and
because it may extend beyond other actions (such as a share-
holder vote rejecting the merger) that effectively foreclose
the possibility of the transaction taking place as proposed.
NS' argument that the amendment increases CSX's control over
Conrail is based on the extension of the termination date of
the lock-out period by an additional 18 months -- from July 12,
1997, to December 11, 1998. While the now 2-year lock-out pe-
riod appears excessive on the face, we do not find the extended
termination date, in and of itself, to be unreasonable at this
time, given the complicated and controversial matters facing
the parties concerning the proposed control transaction, and
given that provision's lack of any meaningful constraint on our
jurisdiction as discussed below.
As for NS' concern that CSX will be able to use un-
lawful control afforded by the lock-out provision to coerce a
critical vote of Conrail shareholders scheduled for January 17,
1997, by portraying CSX as the only choice available to them,
and effectively preclude the possibility of NS' offer from be-
ing realized, we believe that the Conrail shareholders are
aware of their choices in this highly public controversy, and
can pursue legal remedies if they believe that their board of
directors breached its fiduciary duty. NS protests the
agreement between CSX and Conrail's board of directors to amend
the Merger Agreement to preclude Conrail and CSX from pursuing
other transactions without the consent of the other through
December 31, 1998. We find that voiding or overriding the
amendment at this time is premature.
As discussed above, we find that NS' petition for
relief is premature and unwarranted at this time. We advise
the parties, however, that, if a CSX/Conrail merger application
is filed, we may exercise our 49 U.S.C. 11324(e) conditioning
power to impose certain conditions and/or grant any inconsis-
tent or responsive applications that are found to be in the
public interest. We emphasize that, under those circumstances,
the preemptive immunizing force of 49 U.S.C. 11321(a) can pre-
empt contractual rights, including those resulting from the
lock-out provision, if necessary to permit a Board-approved
transaction to go forward. See Norfolk & Western R. Co. v.
Train Dispatchers, 499 U.S. 117 (1991) (Dispatchers) (the im-
munity provision, which provides that a carrier, corporation,
<PAGE>
or person participating in a transaction that is approved under
49 U.S.C. 11324 (old 49 U.S.C. 11344) is "exempt from the anti-
trust laws and from all other law, including State and munici-
pal law, as necessary to let that person carry out the transac-
tion," extends not only to laws but also to contracts). A per-
son cannot effectively preclude our approval of a transaction
from going forward simply by entering into a contract that pur-
ports to prevent all alternatives to its own preferred outcome.
Thus, the lock-out provision would in no way preclude Board
approval, as appropriate, of an NS/Conrail merger proposal, or
any other Conrail merger proposal, or the consummation of such
a merger, if approved.
This decision will not significantly affect either
the quality or the human environment or the conservation of
energy resources.
It is ordered:
1. NS' petition for declaratory order is denied.
2. This decision is effective on the date of ser-
vice.
By the Board, Chairman Morgan and Vice Chairman Owen.
Vernon A. Williams
Secretary
<PAGE>
[EXHIBIT (g)(14)]
1 (The following occurred in open court at 2:00 p.m.)
2 THE COURT: Good afternoon. I hope all of you had a
3 long and pleasant lunch hour.
4 As I've always said in these matters, I think it's
5 important that they be decided promptly. I never won any
6 contest in extemporaneous speaking. I try to explain the
7 reasons for whatever decision I make in this case as best I
8 can on such limited time to decide just exactly what's to be
9 done here.
10 In these two cases, there is as we all know a
11 shareholders meeting of Conrail scheduled for January the
12 17th, 1997 which is next week. And that meeting is to decide
13 whether Conrail should, as I call it, opt-out of subchapter
14 25E of the Pennsylvania business corporation law whereby CSX
15 may thereafter proceed by tender offer to acquire
16 approximately 20.1 percent more of Conrail voting stock in
17 order to proceed with the next step of the merger agreement
18 between CSX and Conrail.
19 Plaintiffs in Civil Action 96-7167, which I will
20 call the Norfolk Southern or the NS Corporation plaintiffs,
21 alleging that they are Conrail shareholders seek by a
22 preliminary injunction to prohibit the shareholders meeting
23 from going ahead until a partial summary judgment motion is
24 decided that seeks a declaration that a controlled
25 transaction has occurred by reason of CSX's purchase of 19.9
<PAGE>
1 percent of Conrail outstanding stock pursuant to the original
2 tender offer and along with aggregating with various
3 directors and officers stock control alleging that they have
4 formed a group pursuant to 15 Pennsylvania CSA Section 2543,
5 which is a part of the Pennsylvania State Statue on
6 controlling party transactions.
7 And thereby the plaintiffs contend that it triggers
8 the shareholders' rights to obtain fair value and a fair
9 value appraisal for their stock. Also they seek a
10 preliminary injunction against enforcement of a revision to
11 the merger agreement that provided for what I call a no-shop,
12 what some of the witnesses have called no-shop, some have
13 called it a lockout, extension of the -- until I believe
14 December 31st, 1998. It was an extension of about 18 months
15 beyond that which was in the original merger agreement.
16 Now, the so-called Ferrara plaintiffs, which is the
17 other civil action, Number 96-7350, likewise seek an
18 injunction and a declaration that the so-called 720-day
19 lockout provision is invalid.
20 I specially set this hearing because I was advised
21 that there would be an application for a preliminary
22 injunction in light of the revised merger agreement which had
23 been apparently made public.
24 There are two, as everybody seems to recognize, two
25 distinct and discrete issues. One is the extension of the
<PAGE>
1 so-called no-shop or lockout agreement until 12-31-98, which
2 will coincide with the termination date of the merger
3 agreement itself, or what is often referred to as the so-
4 called drop dead date, whereby if the merger doesn't go
5 through by that date, then under certain conditions at least
6 the agreement can be in effect terminated.
7 And the second issue is whether any of the
8 defendants, that is, Conrail and its board of directors are
9 liable to pay fair share because of the triggering of the
10 control transaction as provided in the business corporation
11 law.
12 As to the 720-day period no-shop or lockout period,
13 the arguments that have been made on the present motions are
14 essentially those or a rehash of the arguments which were
15 made at the prior hearing, in which I denied any relief by
16 reason of the period of lockout that was contained in the
17 original merger agreement. There is no essential difference,
18 as I see it, even though the new agreement as apparently
19 opposed to the prior agreement has a so-called "fiduciary
20 duty opt-out" provision. Beyond that the only change is that
21 the agreement -- as to the lockout provision, is that the
22 agreement sets a final date for completion of the merger and
23 government approvals of 12-31-98, and provides that the so-
24 called lockout period shall continue until that time.
25 I see no principled reason, and apparently neither
<PAGE>
1 did Professor Coffee who testified at the prior hearing, as I
2 recall his testimony, as to why the lockout could not extend
3 for the full period of the contract, nor is there any reason
4 to think that any particular line of demarcation need be
5 drawn so far as the facts of this case presently before me
6 are concerned. After all, as it seems to me, and I think I
7 expressed this previously, that where a contract is entered
8 into, it is expected that the parties will act in good faith
9 and will not deliberately go out and attempt to shop the
10 contract, if you will, with some other party or to see if
11 they can get a better deal after having entered into a valid
12 contract.
13 If by reason something occurs in the future by which
14 it could be determined that there was a fiduciary duty upon
15 the board of directors to go ahead and take some action by
16 reason of some offer that had been made, if the fiduciary
17 duty so required it, I see no reason why that should make any
18 difference that it is not specifically set forth in the
19 contract. After all, if a contract imposes upon certain of
20 the parties certain fiduciary duties, it seems to me that
21 then becomes practically an unwritten term of the contract or
22 the agreement. And therefore whether this one did not have
23 such a fiduciary duty opt-out and the earlier one did seems
24 to me should make no difference. In addition to which there
25 has been absolutely no showing or no claim that any situation
<PAGE>
1 has arisen as yet or will or is likely to arise in the future
2 that would impose any sort of a fiduciary duty upon the board
3 of directors to disregard the lockout or the no-shop
4 provisions of the merger agreement.
5 In addition, defendants have taken no action
6 pursuant to that clause that I am aware of, or about which
7 there has been any testimony that would give rise to any
8 basis for presently prohibiting the meeting of January 17th,
9 1997 going ahead so far as the no-shop provision is
10 concerned. In other words, even if it could conceivably be
11 that there was something invalid about that particular
12 provision that would have nothing to do as I see it with
13 precluding the shareholders meeting which is in no way to
14 consider anything other than whether or not they should opt-
15 out of the 20 percent rule under the Pennsylvania business
16 corporation law.
17 Now, there is a so-called controlling person or
18 controlling transaction problem. Plaintiffs contend that the
19 fair valuation provisions of 15 Pennsylvania CSA, I think
20 it's Section 2544 has been triggered. In other words, it's
21 the contention of plaintiffs that there was a controlled
22 transaction, and therefore the argument seems to be that
23 because there was a controlled transaction at the meeting of
24 January the 17th, 1997 which is presently scheduled should be
25 enjoined from proceeding.
<PAGE>
1 As to the controlled transaction, the argument as I
2 understand it is that the shares acquired by CSX under its
3 original tender offer which was approximately 19.9 percent of
4 the voting shares should be aggregated with the shares held
5 by certain -- or perhaps all of the directors and certain of
6 the officers, who it is contended formed a group, and by
7 aggregating those shares, the total number of shares
8 presently held by CSX and the group exceed 20 percent;
9 therefore, controlled transaction has taken place.
10 Formation of a group acting in concert, and that is
11 of course the contention here, that this is a group acting in
12 concert under Section 2543 would normally to me appear to be
13 a fact-specific matter and would not ordinarily be subject to
14 summary judgment and certainly would not be a proper basis
15 for a preliminary injunction.
16 However, on the basis of the evidence presented
17 which as I understand it is probably all of the evidence that
18 would be intended to be presented on this issue at any time,
19 the likelihood of success on the contention that there was a
20 controlled transaction is to me very doubtful. Although it
21 may be expected, it may fully be expected that the board of
22 directors and the officers will continue to support the
23 merger, and to the extent that they are called upon to vote
24 their shares will vote in its favor. But there is certainly
25 no evidence that there was any agreement, express or implied,
<PAGE>
1 that the individual -- that the officers and directors as
2 individuals would vote their own shares of stock in locked
3 step with that of CSX.
4 In that regard the evidence is pretty clear that the
5 amendment to the merger agreement was negotiated and worked
6 out after very extension negotiations and at a truly arm's
7 length proceeding. It is clear from this that at least
8 during those negotiations CSX and the board of directors of
9 Conrail and the officers of Conrail were not acting as a
10 group or in locked step.
11 I do not find under the present facts that have been
12 established, at least as so far developed, that there has
13 been and established a controlled transaction. To do that I
14 think everybody agrees that they have to aggregate the shares
15 of stock originally purchased by CSX plus some stock held by
16 some one or more of the other directors and officers.
17 Even if there had been a controlled transaction;
18 that is to say, even if they had operated as a group within
19 the meaning of the statute, and I think everybody agrees that
20 there is no case law on the subject except for an opinion
21 written by Judge Gawthrop some years ago, and I'm not sure
22 about the date of that.
23 Although I don't think that it would really make any
24 difference, but I believe that that decision was before the
25 last amendments of the Pennsylvania business corporation law.
<PAGE>
1 I don't believe that that would make any difference, because
2 the wording is substantially the same. But I think the facts
3 were somewhat different in that case, and I am not here to
4 judge the validity of the contentions made by the judge in
5 that particular case.
6 It does seem to me, however, that there does have to
7 be some sort of an agreement, express or implied, and I do
8 not find that the evidence establishes that at this
9 particular time under the facts that have been established.
10 But even if there had been, the statute has what I would call
11 an inadvertence escape valve under Section 2541B.
12 After the contention was first raised that there had
13 been a controlled transaction by reason of CSX purchasing
14 19.9 percent of the stock, CSX sold on the open market 85,000
15 shares. Now, I have tried somewhat roughly to calculate the
16 various methods by which and the different groups of
17 plaintiffs make different contentions as to who should be
18 considered in the group. But it seems to me no matter how
19 liberally you compute the plaintiff's figures, with CSX
20 having divested itself of 85,000 shares, the present number
21 of shares and those shares of the persons claimed to be
22 members of the group would not at the present time equal 20
23 percent, even including voting control over the ESOP and the
24 EBT shares, as to which there is some question as to the
25 federal duties that are imposed by Federal Law on the
<PAGE>
1 trustees of such shares. Clearly, if inadvertent means
2 unintentional in the subjective sense of the word, clearly
3 there never was an intention to obtain control or to have a
4 control transaction. The whole merger agreement with the so-
5 called two-tiered arrangement was carefully structured not to
6 be -- not to offend the, if you will -- if I may use that
7 expression -- the provisions of the Pennsylvania Business
8 Corporation Law which imposes certain rights upon the
9 shareholders to receive fair value if a controlled
10 transaction takes place. If they overlook the possibility of
11 aggregation, I think at best, that would have been
12 negligence, which is by some definitions of the word
13 inadvertent, included within the term of inadvertence.
14 It's clear, of course, that the number of shares
15 they bought were bought advertently. It's clear that they
16 were aware certainly, that officers and directors probably
17 held some shares of stock, although I don't know that there's
18 any evidence that there may or may not be, that they knew the
19 exact numbers at the time of the purchase.
20 Also, it has been argued and I think the record may
21 show that the 19.9 percent that was originally calculated was
22 in error through misinformation as to the number of shares
23 that were outstanding of Conrail at the time. And it has
24 been argued and I have not been able to compute this
25 accurately, but at least, it has been argued that if that
<PAGE>
1 were considered, that part of it was considered inadvertence
2 and if they had bought only 19.9 percent of the stock that
3 was actually outstanding as of the time of the purchase, that
4 no matter how you would aggregate, it would still not reach
5 the 20 percent limit.
6 In any event, the statute provides that if the -- if
7 there is an inadvertent going over the 20 percent limit, that
8 the fair value rights will not -- will not accrue if the
9 controlled transaction -- if the party having those shares of
10 stock divests itself of those shares as soon -- I think the
11 word is as soon as practical. I'm trying to find the
12 terminology there.
13 Now, CSX did, after it was called to their
14 attention, sell 85,000 shares and as I just read the briefs
15 rather quickly on that score, it would appear to me that to
16 do so cost CSX approximately $900,000. There is no one that
17 has made any argument that they did not divest themselves of
18 the stock as soon as practical. Perhaps plaintiffs would
19 like to make that argument, but I think another thing that
20 must be borne in mind is, even if there was some technical
21 violation of the controlled transaction problem, the purpose
22 of that is to -- or one of the purposes certainly, is that
23 there be no votes taken by the controlling parties under
24 those circumstances, unless the other shareholders have a
25 right to obtain fair value.
<PAGE>
1 And there has been no vote -- there was no vote
2 taken and at the proposed vote to be taken on January the
3 17th, it is clear that no matter how you compute the matter,
4 the shares of stock, that CSX in combination with any other
5 group of shareholders that could be aggregated under any of
6 the theories submitted by the plaintiffs, would not
7 constitute 20 percent.
8 Consequently, I can see where there has been
9 absolutely no harm done by reason of the purchase of the CSX
10 shares, whether or not and as I say, it's my view from what
11 has been presented here, that it is not a controlled
12 transaction. But even if it were a controlled transaction
13 and even if the shareholders are entitled to receive fair
14 value, that still doesn't explain to me why the meeting set
15 for January the 17th should be enjoined or give any basis for
16 an injunction against it.
17 First of all, shareholders to have received fair
18 value and have no basis under the statute, as I see it, to
19 object to somebody acquiring more than 20 percent or any
20 group acquiring more than 20 percent of the shares of stock.
21 Their only right is to receive fair value. And to do that,
22 they must, as the statute says, object. And I don't know how
23 that's done, but that's what the statute seems to say. And
24 to make a demand to have the shares appraised for fair value.
25 And then there is a rather long -- a lot of
<PAGE>
1 statutory requirements as to how that procedure would be
2 required to take place. No one has made any demand to
3 receive fair value. No one has objected, as I see it, but
4 aside from that, there is a, as is clear from the statute,
5 there is a complete legal remedy and I would see no reason
6 therefore to enjoin the meeting that is set for January the
7 17th.
8 In addition to -- in addition to that, the meeting
9 that is set for January 17th, one of the arguments that's
10 been made by the plaintiffs is, well, the meeting would be a
11 nullity and therefore, it should be enjoined. Well, if it's
12 a nullity, it's a nullity. But that doesn't mean --
13 therefore, I see no harm that could occur to anyone in that
14 event. I fail to see how, if the meeting is held and if
15 there's a vote and if it's later determined that that's a
16 nullity, I fail to see how the shareholders would in any
17 meaningful way have been harmed. Although, some might have
18 been disappointed if they personally went to attend the
19 meeting.
20 It is clear that Norfolk Southern, as a shareholder,
21 is seeking in every conceivable way to block this merger from
22 proceeding. And of course, to the extent that they do so
23 through legal and lawful means, there is nothing too wrong
24 about that nor are they to be -- is it to be criticized for
25 attempting to do so. However, there is no showing on this
<PAGE>
1 record that Norfolk Southern, as a shareholder, would be
2 harmed in any way if the shareholders vote on the proposition
3 to opt-out of the provisions of the Pennsylvania Corporation
4 Law proceeds on January the 17th.
5 Now, before a preliminary injunction may be granted,
6 as we all know, there must be first a finding of likelihood
7 of success. On the so-called 20 day no-shop clause, it is my
8 evaluation at this point, that there is no likelihood at all
9 of success on that claim.
10 On the controlled transaction claim, I think that
11 it's unlikely that there would be -- they would be -- or that
12 the plaintiffs would be successful on that contention.
13 Because, first, I think it's unlikely that there ever was a
14 controlled transaction and if there was, it was clearly
15 inadvertent, at least, if inadvertence means unintentional.
16 And because there was a divesting of a sufficient number of
17 excess shares, so that there would no longer be a control
18 group having more than 20 percent of the stock. That there
19 would be no harm if the vote is taken on January the 17th and
20 there is no showing of any likelihood of harm occurring in
21 the future.
22 Now, as to the harm to the parties, as I think I've
23 said several times, I can see no harm to the plaintiffs by
24 this meeting proceeding on January the 17th. It's
25 conceivable that it could amount, eventually amount to a
<PAGE>
1 nullity, but that would not cause any legal harm as I see it.
2 As to the defendants, of course, anything that slows
3 up this progress and the progress of the merger is -- does
4 cause severe and substantial harm and injury. And clearly,
5 that is one of the things that the plaintiffs seek in this,
6 by these proceedings, is to impede or slow up the progress of
7 the merger. If I granted either preliminary injunctive
8 relief or granted the summary judgment as requested here, one
9 of the claims, as I understand it, is that I should
10 preliminarily enjoin the hearing set for January 17th until
11 the summary judgment motion is decided.
12 Whatever order I make here or decide here,
13 undoubtedly if granted, would be appealed. And of course,
14 during the appeal, I have no doubt that the plaintiffs would
15 intend to seek to have any injunctive relief continued during
16 the course of that appeal. And I think that the practical
17 effect of that might well be to so upset the timing of these
18 -- of this merger as to perhaps completely throw it off
19 track.
20 In addition, before a preliminary injunction may be
21 given, there must be shown that there is no adequate legal
22 remedy. As I point out clearly under the controlled
23 transaction, there is a complete statutory legal proceeding
24 and remedy, so that there would be no reason to make any
25 injunction as to that.
<PAGE>
1 As to the 720-day period during which it's agreed
2 that the Conrail board and directors will take no action
3 toward any other bid that might come in, at least until such
4 time as there is some showing that there is some other bid,
5 it is clear that it would not be appropriate to enter an
6 injunction really in affect, while all the -- as I see it --
7 the plaintiffs are asking for is some type of declaratory
8 judgment and I don't think that that would be a proper
9 situation to grant a declaratory judgment. I think it would
10 be more in the nature of an advisory opinion.
11 Consequently, to the extent that this is an
12 application for a preliminary injunction, the application
13 will be denied. To the extent that there is an application
14 that I grant summary judgment, the application for a grant of
15 summary judgment is also denied.
16 All right, ladies and gentlemen, thank you very
17 much. I guess that's all we can do.
18 MS. McLAUGHLIN: Your Honor, if I may, your Honor?
19 Just for the record --
20 THE COURT: Yes?
21 MS. McLAUGHLIN: -- we would request an injunction
22 pending appeal.
23 THE COURT: I beg your pardon?
24 MS. McLAUGHLIN: For the record, we would request an
25 injunction pending appeal.
<PAGE>
1 THE COURT: Okay, you may make that application to
2 the Court of Appeals, if you wish to do so.
3 MS. McLAUGHLIN: Thank you.
4 THE COURT: I will not grant an injunction pending
5 appeal.
6 MS. McLAUGHLIN: Thank you.
7 MR. SAVETT: Does that apply to the plaintiffs?
8 THE COURT: That applies to all plaintiffs and
9 applicants in this Court.
10 MR. SAVETT: Thank you.
11 THE COURT: All right.
12 (Proceedings concluded at 2:30 o'clock p.m.)
<PAGE>
[EXHIBIT (g)(15)]
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
NORFOLK SOUTHERN CORPORATION, :
ET AL., : CIVIL ACTION
Plaintiffs :
:
v. :
:
CONRAIL INC., ET AL., : No. 96-7167
Defendants :
O R D E R
After an evidentiary hearing, and for the reasons set forth on the
record in open court, it is ORDERED that:
(1) Plaintiffs' motion for a preliminary injunction dated January 2,
1997, is DENIED;
(2) Plaintiffs' motion for partial summary judgment dated January 2,
1997, is DENIED; and
(3) Plaintiffs' supplemental motion for a preliminary injunction
dated January 8, 1997, is DENIED.
BY THE COURT:
/s/ Donald W. VanArtsdalen, S.J.
---------------------------------------
Donald W. VanArtsdalen, S.J.
January 9, 1997
<PAGE>
[EXHIBIT (g)(17)]
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
January 10, 1997
E-24-E
No. 97-1006, 97-1009
NORFORK SOUTHERN CORPORATION, et al., Appellants
v.
CONRAIL INC., et al.
(E.D. of PA. Civil No. 96-cv-07167 (DWVA))
For 97-1007
PETER D. FERRERA, et al., Appellants
v.
DAVID M. LEVAN, et al.
(E.D. of PA. Civil No. 96-cv-07350 (DWVA))
For 97-1009
Present: STAPLETON, SCIRICA and NYGAARD, Circuit Judges.
1. Emergency Motion by Appellants in 97-1006 for an injunction on the
District Court's 1/9/97 Order denying Appellants' Motion for a
preliminary injunction pending the appeal.
2. Emergency Motion by Appellants in 97-1009 for an injunction on the
District Court's 1/9/97 Order denying Appellants' Motion for a
preliminary injunction pending the appeal.
3. Response by Appellee CSX Corporation in Opposition to the Motions for
injunction pending the appeals.
4. Response by Appellees Conrail Inc., etc. in Opposition to the Motions
for injunction pending the appeals.
/s/ Anthony Infante
-----------------------------------
Anthony Infante 597-3137
Deputy Clerk
Response due: 1/13/97 at 4:00 PM.
Emergency Date: 1/17/97.
See 96-2025 & 96-2026.
O R D E R
The foregoing
MOTIONS FOR AN INJUNCTION PENDING APPEAL ARE DENIED.
By the Court,
/s/ Circuit Judge Scirica
-----------------------------------
Circuit Judge
Dated: JAN 15, 1997
