Aggregate No. Pages: 167
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission File # 0-12985
DELAWARE OTSEGO CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
New York 16-0913491
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1 Railroad Ave., Cooperstown, New York 13326
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (607) 547-2555
--------------
Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.125 per share
---------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes ___X___ No_______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was $13,718,240 as of March 21, 1996.
1,744,177
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(Number of shares of Common Stock outstanding as of March 21, 1996)
DOCUMENTS INCORPORATED BY REFERENCE
Information with respect to Directors in Item 10 and the information required
by Items 11-13 is incorporated herein by reference from the proxy material of
the Registrant in connection with its annual meeting of shareholders
scheduled for June 1, 1996.
<PAGE>
PART I
Item 1. BUSINESS
- -----------------
General
- -------
Delaware Otsego Corporation, a New York corporation, is a
railroad holding company. The Company's principal executive offices
are located at 1 Railroad Avenue, Cooperstown, New York 13326, and
its telephone number is (607) 547-2555. As used in this Form 10-K,
unless the context requires otherwise, the term "Company" or "DOC"
refers to Delaware Otsego Corporation and its wholly-owned
subsidiaries: Susquehanna Properties, Inc. (SPI); Fonfulco, Inc.
(Fonfulco); Lackawaxen and Stourbridge Railroad Corporation (LASB);
Syracuse, Binghamton and New York Railroad Corporation (SBNY); The New
York, Susquehanna and Western Railway Corporation (NYS&W); Cooperstown
and Charlotte Valley Railway Corporation (CACV); Delta Warehousing
Corporation (DWC); Central New York Railroad Corporation (CNY);
Delaware Otsego Equipment Corporation (DOE); Susquehanna Bulk Systems,
Inc. (SBS); Staten Island Railway Corporation (SIRY); Rahway Valley
Company, Lessee (RVC); and Rahway Valley Railroad Company (RVRR).
The Company operates in one business segment - railroad
transportation. DOC's rail system provides rail service for customers
along its routes and access to the national rail system through
interchange facilities with two of the major northeastern railroads,
Conrail, Inc. ("Conrail") and the CP Rail System ("CP").
Additionally, pursuant to a Haulage Agreement with CP, the Company has
direct access with the Norfolk Southern rail system and other carriers
in Buffalo, NY. DOC's railroad system is devoted principally to
carrying freight, but also generates revenue through the operation of
passenger excursion trains. DOC seeks to encourage development on and
near, and utilization of, its real estate and rights-of-way by
potential shippers and as a possible source of additional revenue.
The Company also generates revenues by granting to various entities,
such as utilities, pipeline and communication companies and
non-industrial tenants, the right to occupy its railroad right-of-way
and other real property. The Company also hires rail equipment to,
and repairs rail equipment owned by, others, provides services related
to the transfer of bulk commodities from railcar to truck, and
provides administrative services related to railroad operations.
In January, 1996, the Company acquired a 40% interest in The
Toledo, Peoria and Western Railroad Corporation ("TP&W"). The
investment will be accounted for under the provisions of APB 18, The
Equity Method of Accounting for Investments in Common Stock. TP&W owns a 284
mile Class III regional railroad which provides rail service on a generally
East-West route from Fort Madison, Iowa through Central Illinois
(approximately 70 miles south of Chicago) to Logansport, Indiana. TP&W hauls
agricultural products, chemicals, coal, fertilizer, food products, steel and
manufactured goods and consumer products, and operates two intermodal
facilities. The TP&W's geographic location and connections with over 20
rail carriers, including seven Class I railroads, present opportunities for
growth, and the acquisition provides the Company with an opportunity to
diversify its rail holdings and to provide improved service to its
intermodal customers.
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<PAGE>
Railroad Operations
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The Company operates a 500 mile regional railroad in New York,
New Jersey and Pennsylvania, of which 200 miles consist of trackage rights
over the lines of other railroads. The Company's rail lines have been
integrated into a coordinated rail system which connects upstate New York
with the Northern New Jersey - New York City metropolitan area and provides
rail service via two Class I carriers (through its connections with Conrail
and CP).
The Company presently serves over 110 customers in its railroad
operations, two of which accounted for approximately 72% of its traffic
volume. In 1995, the Company earned approximately $17.2 million from CSX
Intermodal, Inc., representing 50% of operating revenues, on traffic moving to
CSXI's owned facility located adjacent to the NYS&W at Little Ferry, NJ.
1995 revenues for container traffic moved on behalf of Hanjin Shipping Lines
to the Resources Warehousing and Consolidation Services, Incorporated
facility ("RWCS"), were approximately $7.5 million, representing 22% of
operating revenues. No assurance can be given that such revenue levels will
be attained in the future. The principal freight carried by the Company
consists of manufactured goods, industrial raw materials, paper products,
and agricultural commodities.
The operation of a railroad requires significant expenditures for
maintenance-of-way and equipment, the availability of railcars in diverse
locations for the carriage of customer freight, and reliance upon other
carriers who participate in the transportation of almost all freight
transported by the Company.
The Company, as a substantial property owner, is subject to potential
liability for personal injury and property damages to trespassers and others
present on its property. Additionally, attendant to the Company's railroad
operations is potential liability for personal injury and property damage
arising from derailments, collisions at highway-rail grade crossings, and
from job-related employee injuries pursuant to Federal Employer Liability Act.
Real Estate Activities & Other Operations
- -----------------------------------------
Through its subsidiaries, the Company seeks to maximize utilization of
and revenues from its real estate holdings. Leasing and right-of-way
agreements, sales where favorable prices can be obtained for property that
is deemed unnecessary for the Company's rail operations, and the encouragement
of industrial development are the focus of the Company's activities in this
regard.
Marketing
- ---------
The Company markets its services primarily through its sales and customer
service personnel, under the supervision of its Executive Vice President and
Vice President-Marketing and Sales of its NYS&W subsidiary. In addition,
the Company's executive officers are occasionally involved in formulating
and making presentations to customers and potential customers.
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<PAGE>
Suppliers
- ---------
The Company is able to acquire the equipment, parts and other materials
it needs in the operation of its business from several suppliers. The
Company does not believe that the loss of any supplier would have a material
adverse effect on its business, as there are alternative suppliers available.
Competition
- -----------
The Company's regional rail system is relatively small in an industry
dominated by carriers with far greater resources and facilities. In the
Company's area of operation, it competes with Conrail, particularly with
respect to bulk and intermodal traffic, and with both long-haul and
short-haul trucking companies which may be able to offer more extensive
facilities and resources than the Company. Deregulation of the railroad
industry has intensified competition and will likely continue to do so,
placing pressure on pricing and routing schedules of the Company. The
Company believes that it is able to compete for railroad business on the
basis of its quality of customer service, pricing, scheduling and
concentration on its principal rail corridors. There can be no assurance,
however, that the Company will be able to maintain its present competitive
position.
The Company relies on, and its ability to compete is dependent upon,
its rail connections with CP and Conrail for a substantial portion of its
rail traffic. Changes in the operations of either of these carriers could
have a material adverse impact on the Company.
With respect to its real estate activities, the Company competes with
other railroads, developers and real estate businesses for purchasers,
tenants and users of its real property. For example, other railroads seek
some of the same customers for fiber optics cable installation, and real
estate developers and other railroads seek the same type of industrial user
as is sought by the Company. Such competitors may have greater financial
resources, more experience in real estate development or a greater ability to
offer incentives than does the Company. No assurance can be given that the
Company's efforts to develop, lease or sell its real estate resources will
be successful.
Regulation
- ----------
The Company is subject to regulation by the Surface Transportation
Board, the Federal Railroad Administration, and certain state and local
authorities, including state Departments of Transportation, in connection
with some aspects of its railroad operations. Such regulation affects rates,
safety rules, maintenance of track, other facilities, and rights-of-way,
and may affect the Company's revenues and expenses.
- 4 -
<PAGE>
Environmental Matters
- ---------------------
The Company transports hazardous materials on behalf of certain of its
customers, and uses certain hazardous materials in the normal course of the
repair and maintenance of its locomotives, rail cars and other equipment.
The operation of a railroad includes the risk of derailments which could
result in the release or spillage of diesel fuel and hazardous materials
from locomotives and rail cars to property of the Company and adjoining
properties. The Company is not aware of any such spills or releases which
have not been remediated in compliance with applicable statutes and
regulations.
The Company, as the owner of real estate, may be responsible under
certain circumstances for remediation of environmental conditions on its
property, whether or not such conditions arose from the Company's
operations. The Company has, with one exception, no knowledge of the
existence of any such conditions, but cannot assure that such will not
arise or occur in the future. During 1993, The New York, Susquehanna and
Western Railway Corporation, a Company railroad operating subsidiary,
received notice from the Environmental Protection Agency (EPA) that it is a
potentially responsible party under the Comprehensive Environmental
Response, Compensation and Liability Act (Superfund) and may be required to
share in the cost to clean up a certain site identified by the EPA. The
information presently available to the Company indicates that the estimated
liability is less than ten thousand dollars and, therefore, will not have a
material effect on the consolidated financial condition or results of
operation.
Employees
- ---------
At December 31, 1995, the Company employed 191 people, of whom 115 were
operating personnel, 12 were supervisors, 46 were office and sales
personnel, and 18 were executive officers and managerial personnel. 33 of
the Company's operating personnel are subject to a collective bargaining
agreement with the Brotherhood of Locomotive Engineers (BLE) which sets
their general level of compensation and working conditions through December
31, 1996. In 1995, the Company reached a collective bargaining agreement
with the Brotherhood of Maintenance of Way Employes ("BMWE") covering 49
employees of the Company's Track Department which sets the general level of
compensation and working conditions through December 31, 2000. The Company
considers its employee relations to be good.
At January 31, 1996, TP&W employed 117 people of whom 81 were operating
personnel, 21 were supervisors and officers, and 15 were sales and office
personnel. 44 of TP&W operating personnel are subject to collective
bargaining agreement with the United Transportation Union which sets their
general level of compensation and working conditions through December 31,
1999. 19 of TP&W operating personnel are subject to a collective bargaining
agreement with the BMWE, which is currently in the process proscribed by the
Railway Labor Act for renegotiation.
- 5 -
<PAGE>
Item 2. PROPERTIES
- -------------------
The Company's executive offices are located in approximately 4,500
square feet of space at 1 Railroad Avenue, Cooperstown, New York, a property
owned by the Company. The Company also owns the Edgewater Executive Offices
in Cooperstown. This structure, containing 10,000 square feet of space,
presently is used for offices, conferences, and facilities for overnight
accommodations for Company guests.
The Company owns 140 route miles of track and right-of-way and owns
jointly with the County of Sussex, New Jersey an additional 8.8 miles of
line. The Company leases 186.2 miles of line. Included in this total are
164.35 miles of line leased from several Industrial Development Agencies at
nominal cost, which leases expire in April, 1997, at which time ownership
of the lines revert to the Company for nominal consideration. As these
Industrial Development Agency lease agreements result in real estate tax
savings, the Company intends to request that they be extended past their
current expiration date. Additionally, the Company has agreements enabling
it to use track owned by other railroads including trackage rights from
Warwick, New York to Binghamton, New York of 175 miles. Although unlikely,
such trackage rights may be terminated if their use is abandoned by its
owners upon compliance with certain statutory procedures which may require
approval of the Surface Transportation Board.
The properties of the Company are subject to various easements,
occupations, licenses, leases and rights-of-way. The trackage and other
operating rights pursuant to which the Company is authorized to carry
freight over track belonging to others are subject to contractual agreements
which may be subject to termination or restriction, either of which may
have a significant adverse effect on the railroad operations of the Company.
Substantially all the Company's properties are subject to lien, or
mortgage, in connection with obligations of the Company to Manufacturers
and Traders Trust Company, New Jersey Economic Development Authority, and
Federal Railroad Administration.
A description of the Company's railroad properties, by subsidiary, is
as follows:
a) NYS&W. The NYS&W is the main operating subsidiary of the Company,
and consists of two divisions. The Southern Division consists of 82.6
miles of Company-owned track which, together with 8.8 miles of track owned
jointly with the County of Sussex, NJ, run from Jersey City, NJ to Warwick,
NY. NYS&W has trackage and other operating rights to run over track owned
by Conrail from Warwick, NY to Binghamton, NY and, alternatively, from
Passaic Junction, NJ to Binghamton, NY. The Northern Division consists of
track from Binghamton, NY to Chenango Forks, NY, and then to Jamesville, NY
(the Syracuse Branch) and Utica, NY (the Utica Branch), a total of 164.35
miles. The Northern Division properties were acquired pursuant to a lease
purchase agreement with the industrial development agencies of the counties
of location. NYS&W also has trackage rights to run over approximately 11
miles of trackage from Jamesville, NY to interchange with Conrail at Syracuse,
NY on tracks leased by SBNY. The Southern Division and the Syracuse
- 6 -
<PAGE>
Branch of the Northern Division of NYS&W consist mainly of Class II track
in accordance with Federal Railroad Administration ("FRA") standards,
allowing operation at speeds of up to 40 mph. Generally, all other trackage
owned or leased by the Company, with the exception of industrial spurs and
sidings, are designated Class III tracks, thereby allowing speeds of up to
25 mph. While existing track conditions and speeds allow the Company to
adequately serve all its existing customers, maintenance and rehabilitation
of rail facilities is an ongoing project.
b) CNY. The CNY consists of 21.7 miles of Company-owned track from
its connection with NYS&W in Richfield Junction, NY to Richfield Springs,
NY. Rail operations on all but 2.3 miles of this track were abandoned in
1995, and the Company intends to begin to dispose of this property in 1996.
The remaining 2.3 miles are operated by NYS&W.
c) SBNY. SBNY operates passenger excursion and shuttle trains on 11
miles of track located in Syracuse, NY and owned by Onondaga County
Industrial Development Agency.
d) CACV. CACV consists of 15.9 miles of Company-owned track from an
interchange with D&H at Cooperstown Junction, NY to Cooperstown, NY. The
Company abandoned all rail operations on CACV in 1995, and intends to
dispose of substantially all of CACV's assets in 1996.
e) RVC, RVRR. The RVC and RVRR are related companies which owned
11.6 miles of track running from Cranford Junction, NJ to Summit, NJ. The
Company sold these assets to the New Jersey Department of Transportation in
1995 and intends to dissolve RVC and RVRR in 1996.
The Company owns 14 locomotives of various manufacture, age and size,
three of which were acquired new in 1995, and leases an additional 9
locomotives. The Company believes it has an adequate supply of locomotives
for its current needs. The Company owns fewer than 50 railcars of various
types and manufacture, and depends on connecting rail lines and customers
to provide cars for outbound loadings.
TP&W owns approximately 195 miles of railroad and has operating rights
over approximately 90 miles of track owned by other railroads as part of its
integrated railroad system between Fort Madison, Iowa and Logansport,
Illinois. TP&W owns 22 locomotives of various age, manufacture and size,
and believes it has an adequate supply of locomotives for its current needs.
Substantially all the assets of TP&W are subject to lien or mortgage in
connection with obligations of TP&W to Creditanstalt Corporate Finance, Inc.
Item 3. LEGAL PROCEEDINGS
- --------------------------
There are no material pending legal proceedings other than ordinary
routine litigation, incidental to the Company's business, to which the
Company or any of its subsidiaries is a party or of which any of its or
their property is the subject.
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<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None.
Executive Officers and Key Employees of the Registrant
- ------------------------------------------------------
Each of the following officers of the Company has been elected by the
Board of Directors and serves at the discretion of the Board.
Position with Officer
Name Age the Registrant Since
- -------------------------- --- ---------------------------- ------------
Walter G. Rich 50 President, Chief Executive 1968
Officer & Director
C. David Soule 45 Executive Vice President 1981
& Director
William B. Blatter 61 Senior Vice President & 1988
Chief Financial Officer
Nathan R. Fenno 37 Vice President-Law, General 1988
Counsel & Secretary
Robert E. Pierce 49 Vice President/Controller 1982
Frank Quattrocchi 46 Vice President & Treasurer 1993
Mr. Rich has been a member of the Board of Directors of the Company since
1968, and has been President and Chief Executive Officer since 1971. Mr.
Rich is also a director of Norwich Aero Products, Inc., New York State
Business Development Corporation, and Security Mutual Life Insurance Company
of New York. Mr. Rich was appointed in 1993 to the New York State Public
Transportation Safety Board.
Mr. Soule has been Executive Vice President of the Company since June,
1983. He was elected to the Board of Directors in June, 1984.
Mr. Blatter joined the Company as Vice President-Finance and Chief
Financial Officer in April, 1988, and was named Senior Vice President and
Chief Financial Officer in June, 1990.
Mr. Fenno joined the Company as Attorney in July, 1987. Mr. Fenno was
appointed General Counsel and Corporate Secretary in July, 1988, and Vice
President-Law in September, 1991.
Mr. Pierce joined the Company in September, 1981 and has served as Vice
President/Controller since February 1, 1986.
Mr. Quattrocchi joined the NYS&W in June, 1983. Mr. Quattrocchi was
promoted to Vice President & Treasurer of the Company in April, 1993.
- 8 -
<PAGE>
The following are other key employees of the Registrant's operating
subsidiaries:
Mr. Joseph G. Senchyshyn became Vice President-Operations of NYS&W on
September 3, 1985.
Mr. Robert A. Kurdock was appointed Vice President of NYS&W in June of
1985. He has been employed by the Company since September, 1980, serving in
increasingly responsible positions.
Mr. Richard J. Hensel became Vice President-Engineering of NYS&W in
April, 1987.
Mr. Paul Garber joined the NYS&W in 1989, and was appointed Vice
President-Marketing & Sales in October, 1990.
Mr. Phillip England joined the NYS&W as Vice President-Mechanical in
August, 1994. He was previously employed by Consolidated Rail Corporation
for over five years in various positions in its Mechanical Department.
Mr. Gordon Fuller joined NYS&W as an Executive Vice President in
January, 1996 and will be active in the areas of railroad sales and
marketing, governmental relations, industrial development and similar
executive level functions. He previously was President of Toledo, Peoria &
Western Railway Corporation for over five years.
PART II
-------
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
- -------------------------------------------------------------
Market Information
- ------------------
The Company's common stock trades in the over-the-counter market
and is quoted on the Nasdaq National Market ("Nasdaq"). The symbol for the
common stock is "DOCP". The following table sets forth the quarterly high
and low sale prices of the Company's common stock as reported by NASDAQ
for the two years ending December 31, 1995.
1995 High Low
------------------- --------- ---------
First Quarter $11 $9 3/4
Second Quarter $10 1/4 $9 1/4
Third Quarter $10 1/2 $9 1/2
Fourth Quarter $10 $9
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<PAGE>
1994 High Low
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First Quarter $ 10 3/4 $ 9 1/2
Second Quarter $ 10 3/4 $ 9 1/2
Third Quarter $ 10 3/4 $ 9 1/2
Fourth Quarter $ 11 $ 10 1/4
Holders of Record
- -----------------
As of December 31, 1995, the approximate number of record holders of
the Company's common stock was 1,519.
Dividends
- ---------
During 1995, the Company paid a 5% stock dividend payable to
stockholders of record February 17, 1995. The dividend was paid on March
20, 1995, resulting in the issuance of an additional 72,518 shares.
Subsequent to year-end, the Company declared a 5% stock dividend payable to
stockholders of record February 17, 1996. The dividend was paid on March
20, 1996 and 82,297 shares were issued accordingly.
The Company's loan with Manufacturers and Traders Trust Company
provides that the Company may not declare any cash dividends in any fiscal
year in excess of 40% of Consolidated Net Income in such fiscal year, and
that cumulative dividends paid during the term of the loan may not exceed
10% of cumulative retained earnings. In addition, the Financing Agreement
between the Company and its subsidiary NYS&W, and the Federal government
through the FRA 505 Redeemable Preference Share Program provides that yearly
dividends may not exceed 50% of the total additions to retained earnings
of the Company for the previous year, nor 50% of the total additions to
retained earnings for 1985 and each year thereafter.
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<PAGE>
<TABLE>
Item 6. SELECTED FINANCIAL DATA
- --------------------------------
(Thousands except per share amounts)
<CAPTION>
Year Ended December 31,
------------------------------------------------
RESULTS OF OPERATIONS: 1995 1994 1993 1992 1991
- ----------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating Revenues $ 34,524 $ 27,463 $ 22,610 $ 22,922 $ 26,886
Directed Service Revenues (1) - - - 149 743
Loss from Operations (1,562) (2,459) (2,979) (2,093) (1,372)
Other Income (Expense), Net 4,055 (889) 1,098 166 3,959
-------- -------- -------- -------- --------
Income (Loss) Before Income
Taxes & Extraordinary Item 2,493 (3,348) (1,881) (1,927) 2,587
Provision for Income Tax
(Expense) Benefit (878) 1,128 603 605 (551)
Extraordinary Item
(Net of Tax) (2) - (228) - 765 -
-------- -------- -------- -------- --------
Net Income (Loss) $ 1,615 $ (2,448) $ (1,278) $ (557) $ 2,036
======== ======== ======== ======== ========
Primary Earnings
(Loss) per Share:
- -----------------------------
Income (Loss) before
Extraordinary Item $ 1.00 $ (1.37) $ (0.79) $ (0.82) $ 1.26
Extraordinary Item - (0.14) - 0.47 -
-------- -------- -------- -------- --------
Net Income (Loss) per Share $ 1.00 $ (1.51) $ (0.79) $ (0.35) $ 1.26
======== ======== ======== ======== ========
Fully Diluted Earnings
(Loss) per Share:
- -----------------------------
Income (Loss) before
Extraordinary Item $ 0.91 $ (1.37) $ (0.79) $ (0.82) $ 1.26
Extraordinary Item - (0.14) - 0.47 -
-------- -------- -------- -------- --------
Net Income (Loss) per Share $ 0.91 $ (1.51) $ (0.79) $ (0.35) $ 1.26
======== ======== ======== ======== ========
Cash Dividends Per Share (3) - - - $ 0.08 $ 0.06
FINANCIAL POSITION:
- -----------------------------
Total Assets $ 74,778 $ 68,877 $ 65,619 $ 63,530 $ 60,536
Long-Term Debt 12,802 10,066 11,167 13,092 13,825
Property, Plant & Equipment 92,401 84,185 79,680 73,101 64,266
Stockholders' Equity (3) $ 32,446 $ 29,511 $ 29,493 $ 28,844 $ 28,031
</TABLE>
[FN]
(1) Revenue from the Company's temporary operations over lines of the
Delaware & Hudson Railway.
(2) See Management's Discussion and Analysis for discussion of the 1994
extraordinary item. The 1992 extraordinary item relates to a debt
forgiveness transaction in connection with the termination of a
land lease.
(3) All data in the accompanying financial statements and related notes
have been restated to give effect to a 5% stock dividend declared
on January 26, 1996.
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<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------------------
RESULTS OF OPERATIONS (In thousands)
- ---------------------
Recent Acquisition
- ------------------
Subsequent to the balance sheet date, the Company completed the
purchase of a 40% interest in The Toledo, Peoria and Western Railroad
Corporation ("TP&W") for consideration totalling $2.25 million,
including 25,000 shares of the Company's common stock. The non-stock
portion of the consideration for the acquisition was funded through
a $1 million loan and the private placement of 100,000 shares of the
Company's common stock. Additionally, the Company issued warrants to
purchase 60,000 common shares to another party involved in the
transaction. The Company will perform administrative services which
will have a positive impact on general and administrative expenses for
1996 and beyond. At December 31, 1995, the Company had incurred $592
of advances related to the purchase which were recorded in other
current assets. The $592 was reimbursed at closing on January 31,
1996. The investment will be accounted for under the provisions of
APB 18, The Equity Method of Accounting for Investments in Common
Stock.
The TP&W owns a 284 mile Class III regional railroad which provides
rail service on a generally East-West route across one of the top
grain producing regions in the world from Fort Madison, Iowa through
Central Illinois (approximately 70 miles south of Chicago) to
Logansport, Indiana. The TP&W hauls agricultural products, chemicals,
coal, fertilizer, food products, steel and manufactured goods and
consumer products for such customers as ADM, Cilco, Witco, Lonza and
Caterpillar and to two company-operated intermodal facilities. The
TP&W's geographic location and connections with over 20 rail carriers,
including seven Class I railroads, present opportunities for growth,
and the acquisition provides the Company with an opportunity to
diversify its rail holdings and to provide improved service to its
intermodal customers.
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations relates to the continuing
operations of the Company.
1995 COMPARED TO 1994
- ---------------------
Operating Revenues
- ------------------
1995 railway operating revenues, which include intermodal, carload and
all other rail operating revenues, were $32,484 compared with railway
operating revenues of $24,981 for 1994.
Two major customers account for approximately 72% and 64% of the
Company's 1995 and 1994 operating revenues, respectively. During 1995
and 1994, the Company earned approximately $17.2 million and
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<PAGE>
$9.8 million , respectively from CSX Intermodal, Inc. During the same
periods, the Company earned approximately $7.5 million and $7.7
million, respectively from Hanjin Shipping Lines. The loss of either
customer or a material reduction in their operations would have a
material adverse effect on the Company's results of operations.
The Company relies on, and its ability to compete is dependent upon,
its rail connections with CP and with Conrail for a substantial
portion of its rail traffic. Changes in the operations of either of
these carriers could have a material adverse impact on the Company.
Intermodal revenues for 1995 increased $7,230 compared to 1994.
Intermodal revenues from CSX Intermodal, Inc. ("CSXI") increased
$7,438 due to two new intermodal services that began in the second and
third quarters of 1994. Both services transport containerized traffic
to CSXI's Little Ferry Terminal in New Jersey. Intermodal revenues
derived from shipments on behalf of Hanjin Shipping Lines to the
Resources facility declined $208, due mainly to market re-distribution
factors and a general softness in international business in the fourth
quarter.
1995 carload revenues improved by $162 compared to 1994, due
principally to volume improvements in newsprint and printing paper,
contaminated soil, liquid food-grade commodities and automobiles.
Other railway operating revenues in the aggregate for 1995 improved
$112 compared to 1994, due mostly to improved auto terminal and
passenger revenues of $210, offset by declines in demurrage and other
incidental revenues of $98.
Real property revenues for 1995 were $165 greater than 1994, due
mostly to unearned rent revenues recognized as earned when certain
property was sold by a Company subsidiary in the second quarter.
Other operating revenues in 1995 declined $607 compared to 1994, due
mostly to declines in construction activity.
Operating Expenses
- ------------------
Maintenance of way and structures expenses in the aggregate for 1995
were $663 greater than 1994 due to a $126 bonus paid to employees in
the second quarter, and an increase of $780 in trackage rights
expenses due to increased intermodal traffic. Partially offsetting
the increased expenses was a $243 decrease in expenses relating to
litigation settlements, snow removal, environmental clean-up,
insurance, professional services and utilities.
Maintenance of equipment expenses in the aggregate were $520 higher
during 1995 as compared to 1994 due to increased locomotive
maintenance expenses necessary to meet power requirements of the
Company's increased intermodal business. The principal components of
the increase were: $170 for compensation and benefits; $312 for
- 13 -
<PAGE>
materials and supplies; and $28 for independent contractors. Railcar
and other equipment expenses in the aggregate for 1995 declined
insignificantly.
Transportation expenses in the aggregate for 1995 exceeded 1994 by
$3,733, due principally to the increase in the Company's intermodal
business. The most significant increases were: $603 for compensation
and benefits; $590 for fuel; $2,237 for haulage and terminal expenses;
$123 for security; and $50 for operations administration. Derailment
and other transportation expenses for 1995 declined approximately $270
compared to 1994. Increased activity during 1995 for the Company's
passenger shuttle and scenic excursion business resulted in
approximately $400 of additional expenses compared to 1994.
Car hire expenses for 1995 were $261 greater than 1994, due mostly to
the increase in intermodal traffic.
Depreciation and amortization expense for 1995 exceeded 1994 by $301,
due principally to additional property, plant and equipment.
General, administrative and other expenses for 1995 were $673 greater
than 1994, due principally to the following: $624 for compensation
and benefits of which $337 represents a company wide bonus paid during
the second quarter; $161 for professional fees; $36 for telephones and
other communications expense; offset by declines of approximately $148
in other overhead expenses.
As a result of the foregoing, operating expenses increased $6,164 in
1995 compared to 1994. For the twelve month period ended December 31,
1995, the operating loss declined by $897 compared to the 1994 period.
The operating ratio for 1995 was 104.5% compared to 108.9% for 1994.
Other Income (Expense)
- ----------------------
Interest expense net, comprised of interest expense (net of
capitalized interest) and interest income, for 1995 increased $50
compared to 1994. Total interest expense for 1995 increased
insignificantly compared to 1994.
Gain on sale of property, equipment and other for 1995 increased
$4,994 compared to 1994, due principally to the sale of an 8.8 mile
railroad line located in Union County, New Jersey to the State of New
Jersey for $6.2 million resulting in gain of $5.2 million.
Taxes
- -----
The Company provides for income taxes in accordance with the liability
method as set forth in Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes. The Company's provision for income
taxes on income (loss) before extraordinary item resulted in a $878
tax expense in 1995 compared to a tax benefit of $1,128 for 1994. See
Note 7 to financial statements for further information concerning
income taxes.
- 14 -
<PAGE>
1994 COMPARED TO 1993
- ---------------------
Operating Revenues
- ------------------
Railway operating revenues, which include intermodal, carload and all
other rail operating revenues, were $4,117 greater in 1994 than 1993.
Two major customers account for approximately 64% and 60% of the
Company's 1994 and 1993 operating revenues, respectively. During 1994
and 1993, the Company earned approximately $9.8 million and $6.3
million, respectively from CSX Intermodal, Inc. During the same
periods, the Company earned approximately $7.7 million and $7.2
million, respectively from Hanjin Shipping Lines. The loss of either
customer or a material reduction in their operations would have a
material adverse effect on the Company's results of operations.
Intermodal revenues in the aggregate for 1994 increased $4,011
compared to 1993. Intermodal revenues from CSX Intermodal, Inc.
("CSXI") increased $3,475 due to two new intermodal services that
began in June and August, respectively in 1994. Both services
transport containerized traffic to CSXI's Little Ferry Terminal in New
Jersey. Revenue from intermodal shipments on behalf on Hanjin
shipping lines to the Resources facility in New Jersey improved $536
compared to 1993.
Carload revenues were $116 higher in 1994 compared with 1993, due
mainly to greater commodity shipments for paper, lumber and stone
ballast, combined with favorable shipper rebate arrangements.
Other railway operating revenues in the aggregate declined
insignificantly in 1994 compared to 1993. Components include
passenger revenues, which were $78 greater in 1994 than 1993 due to
the initiation of the passenger shuttle service in Syracuse, New York.
Demurrage, switching and other incidental railway operating revenue
for 1994 declined approximately $87 compared to 1993.
Real property revenues for 1994 improved $120 compared to 1993.
Other operating revenues in 1994 were $616 greater than 1993.
Operating Expenses
- ------------------
Maintenance of way and structures expenses for 1994 were $459 greater
than 1993, due mainly to $360 of increased trackage rights costs
attributable to additional business over Conrail track and
approximately $99 of increased expenses for compensation and benefits,
utilities and independent contractors.
Maintenance of equipment expenses for 1994 were $233 higher than 1993,
due mainly to greater expenses for labor costs, increased maintenance
of locomotives and railcars resulting from increased traffic and
increased maintenance of track equipment due to higher levels of
construction activity.
- 15 -
<PAGE>
Transportation expenses in the aggregate for 1994 rose by $3,407 over
1993 levels, due principally to increases in traffic levels from two
new intermodal services. The principal components of the increase
were: $384 in compensation and benefits, which reflects a 5%
scheduled wage increase for contract employees; $210 in diesel fuel;
$155 for increased costs of road locomotive utilization; haulage costs
of $1,665; $263 in terminal operating expenses; $147 in drayage
charges and $68 for additional security at terminal facilities.
Derailment expenses in 1994 exceeded 1993 by $280; the 1993 period
included a favorable adjustment of $130 necessary to reduce a
previously established reserve for a major derailment in which all
claims had been settled. Passenger expenses for 1994 exceeded 1993
amounts by $134, due to start-up and other operating expenses from
initiating the shuttle service in Syracuse, New York.
Car hire expenses for 1994 increased by $195 compared to 1993.
Depreciation and amortization expenses for 1994 increased $175
compared with 1993.
As a result of the foregoing, operating expenses increased $4,333 in
1994 compared to 1993. For the twelve month period ended December 31,
1994, the operating loss declined $520 from the 1993 period. The
operating ratio for 1994 improved to 108.9% compared to 113.2% in
1993.
Other Income (Expense)
- ----------------------
Interest expense net, comprised of interest expense (net of
capitalized interest) and interest income, for 1994 increased $128
compared to 1993. Total interest expense for 1994 was $1,444 compared
to $1,246 for 1993, due principally to higher interest rates,
additional interest from the issuance of $3,580 of 6.5% convertible
subordinated notes in September, 1993 and increased borrowings from
the construction line of credit.
The Company's gain on sale of property, equipment and other declined
$1,859 in 1994 compared to 1993, due principally to gain of $1,911
recognized in the 1993 period from the sale of a permanent easement
to Public Service Electric and Gas Company.
Taxes
- -----
The Company provides for income taxes in accordance with the liability
method as set forth in Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes. The Company's provision for income
taxes on income (loss) before extraordinary item resulted in a $1,128
tax benefit in 1994 compared to a benefit of $603 for 1993. See Note
7 to the financial statements for further information concerning
income taxes.
Extraordinary Item
- ------------------
During 1994, the Company completed the refinancing of its major bank
debt with Manufacturers and Traders Trust Company. In
- 16 -
<PAGE>
conjunction with this refinancing, the Company wrote-off $334,
representing the unamortized balance of deferred financing costs
incurred in 1990 in conjunction with its prior loans. The write-off
was recorded as an extraordinary item in the statement of earnings,
net of applicable income taxes of $106.
LIQUIDITY AND CAPITAL RESOURCES (In thousands, except share amounts)
- -------------------------------
At December 31, 1995, the Company had a working capital deficit of
$5,284 compared to a deficit of $7,149 at December 31, 1994. The
improved working capital was due principally to a real estate sale for
$6,203 that occurred in the second quarter of 1995.
Liquidity refers to the ability of an organization to generate
adequate amounts of cash, principally from operating results or
through borrowing power to meet its short-term and long-term cash
requirements. At December 31, 1995, the Company had cash and cash
equivalents of $1,213 compared to $1,308 at December 31, 1994.
Total long-term liabilities at December 31, 1995 were $26,780, an
increase of $4,433 compared to December 31, 1994. Long-term debt
exclusive of current maturities, as a percentage of equity at December
31, 1995, was 39.5% compared to 34.1% at December 31, 1994, and total
capitalization (long-term debt, 6.5% convertible subordinated notes
and equity) was $48,828 at December 31, 1995, compared to $43,157 at
December 31, 1994.
Subsequent to year-end, the Company entered into an equipment line of
credit with Key Bank of New York, whereby it may borrow up to $500.
The interest rate is the lender's base rate plus three quarters
percent (3/4%.) The line expires on April 30, 1997.
Property, plant and equipment additions for 1995 were $9,879 of which
$2,021 was funded by grants from the New York and New Jersey
Departments of Transportation. The $7,858 balance was provided by
additional debt and sales of real property.
During the fourth quarter of 1995, the Company entered into a contract
to sell certain parcels of railroad property of a non-operating
Company subsidiary for $500, which is anticipated to close during
1996. The carrying amount is estimated at $110. A portion of the
purchase price is subject to the buyers obtaining government funding.
The proceeds will be used for working capital purposes.
The Company's capital spending program for 1996, including commit-
ments, is projected at approximately $14 million, of which $9 million
will be for railway projects and $5 million for acquisition of land
for terminals and improvements to locomotives and other rolling stock.
(Refer to Note 11 - Commitments to the consolidated financial
statements.) The expenditures are expected to be funded from grants
from participating state governments which are expected to continue
beyond 1996, cash from operations, debt financing and
- 17 -
<PAGE>
proceeds from sales of non-operating property.
During 1995, the Company paid a 5% stock dividend payable to
stockholders of record February 17, 1995. The dividend was paid on
March 20, 1995, resulting in the issuance of an additional 72,518
shares. Subsequent to year end, the Company declared a 5% stock
dividend payable to stockholders of record February 17, 1996. The
dividend will be paid on March 20, 1996 and 82,297 shares will be
issued accordingly.
SEASONALITY AND EFFECTS OF INFLATION
- ------------------------------------
The Company's container revenues are affected by seasonal demands for
consumer goods, generally resulting in higher intermodal revenues in
the third quarter. The effects of inflation have not had a material
effect on the Company's operating expenses in the aggregate.
The Company enters into a diesel fuel supply agreement to hedge its
exposure to price fluctuations on approximately 27% of its anticipated
fuel requirements during a seven month period, generally late fall -
early spring, for its freight transportation business. The nature of
the hedging transaction does not result in any significant risk to the
Company.
Generally accepted accounting principles require the use of historical
costs in preparing financial statements. This approach disregards the
effects of inflation on the replacement cost of property and
equipment. The Company is a capital-intensive company and has
approximately $92.4 million invested in such assets. The replacement
costs of these assets, as well as the related depreciation expense,
would be substantially greater than the amounts reported on the basis
of historical costs.
ENVIRONMENTAL MATTERS
- ---------------------
During 1993, The New York, Susquehanna and Western Railway
Corporation, a Company railroad operating subsidiary, received notice
from the Environmental Protection Agency (EPA) that it is a
potentially responsible party under the Comprehensive Environmental
Response, Compensation and Liability Act (Superfund) and may be
required to share in the cost to clean up a certain site identified
by the EPA. The information presently available to the Company
indicates that the estimated liability is less than ten thousand
dollars and therefore, will not have a material affect on the
consolidated financial condition or results of operations.
- 18 -
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data begin on the next
page.
- 19 -
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Delaware Otsego Corporation
We have audited the accompanying consolidated balance sheets of Delaware
Otsego Corporation and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Delaware
Otsego Corporation and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Syracuse, New York
February 26, 1996
- 20 -
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
DELAWARE OTSEGO CORPORATION AND SUBSIDIARIES
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------
<CAPTION>
Year ended December 31,
--------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING REVENUES
Railway operating revenues $ 32,484 $ 24,981 $ 20,864
Real property revenues 1,448 1,283 1,163
Other operating revenue 592 1,199 583
---------- ---------- ----------
TOTAL OPERATING REVENUES 34,524 27,463 22,610
---------- ---------- ----------
OPERATING EXPENSES
Maintenance of way and structures 4,267 3,604 3,145
Maintenance of equipment 2,969 2,449 2,216
Transportation 18,021 14,288 10,881
Car hire expense 1,455 1,194 999
Depreciation and amortization 4,186 3,885 3,710
Taxes other than income taxes 256 243 365
General, administrative and other 4,932 4,259 4,273
---------- ---------- ----------
TOTAL OPERATING EXPENSES 36,086 29,922 25,589
---------- ---------- ----------
LOSS FROM OPERATIONS (1,562) (2,459) (2,979)
OTHER INCOME (EXPENSE)
Interest expense, net (1,276) (1,226) (1,098)
Gain on sale of property,
equipment and other 5,331 337 2,196
---------- ---------- ----------
OTHER INCOME (EXPENSE), NET 4,055 (889) 1,098
Income (Loss) before income taxes and
extraordinary item 2,493 (3,348) (1,881)
Provision for income tax (expense) benefit (878) 1,128 603
---------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 1,615 (2,220) (1,278)
Extraordinary item net of tax - (228) -
---------- ---------- ----------
NET INCOME (LOSS) $ 1,615 $ (2,448) $ (1,278)
========== ========== ==========
Primary Earnings (Loss) per Share:
Income (Loss) before Extraordinary Item $ 1.00 $ (1.37) $ (0.79)
Extraordinary Item - (0.14) -
---------- ---------- ----------
Net Income (Loss) per Share $ 1.00 $ (1.51) $ (0.79)
========== ========== ==========
Fully Diluted Earnings (Loss) per Share:
Income (Loss) before Extraordinary Item $ 0.91 $ (1.37) $ (0.79)
Extraordinary Item - (0.14) -
---------- ---------- ----------
Net Income (Loss) per Share $ 0.91 $ (1.51) $ (0.79)
========== ========== ==========
</TABLE>
[FN]
See notes to consolidated financial statements
- 21 -
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
DELAWARE OTSEGO CORPORATION AND SUBSIDIARIES
(THOUSANDS, EXCEPT SHARE AMOUNTS)
- -----------------------------------------------------------------------
<CAPTION>
ASSETS
------
December 31,
---------------------
1995 1994
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,213 $ 1,308
Accounts receivable 5,406 6,085
Reimbursable construction costs 1,212 1,106
Materials and supplies 742 587
Deferred income taxes 332 317
Prepaid expenses 698 179
Other current assets - Note 12 665 288
---------- ----------
TOTAL CURRENT ASSETS 10,268 9,870
PROPERTY, PLANT AND EQUIPMENT
Land 1,658 2,373
Buildings, machinery, equipment
and leasehold improvements 90,743 81,812
---------- ----------
92,401 84,185
Less accumulated depreciation and amortization (29,414) (25,961)
---------- ----------
TOTAL PROPERTY, PLANT AND EQUIPMENT 62,987 58,224
OTHER ASSETS
Other assets 1,134 376
Intangible assets, net 389 407
---------- ----------
TOTAL OTHER ASSETS 1,523 783
---------- ----------
TOTAL ASSETS $ 74,778 $ 68,877
========== ==========
</TABLE>
[FN]
See notes to consolidated financial statements
- 22 -
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
DELAWARE OTSEGO CORPORATION AND SUBSIDIARIES
(THOUSANDS, EXCEPT SHARE AMOUNTS)
- -----------------------------------------------------------------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
December 31,
---------------------
1995 1994
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to bank $ 2,100 $ 3,400
Accounts payable 10,400 10,018
Accrued and other current liabilities 1,977 2,481
Current maturities of long-term debt - Note 4 1,075 1,120
---------- ----------
TOTAL CURRENT LIABILITIES 15,552 17,019
LONG-TERM LIABILITIES
Long-term debt - Note 4 12,802 10,066
Deferred income tax 10,398 8,582
Deferred revenue and other liabilities - 119
SUBORDINATED NOTES
6.5% Convertible subordinated notes 3,580 3,580
---------- ----------
TOTAL LONG-TERM LIABILITIES 26,780 22,347
---------- ----------
TOTAL LIABILITIES 42,332 39,366
STOCKHOLDERS' EQUITY
Common stock, par value, $.125 per share -
authorized 10,000,000 shares; issued and
outstanding - 1,612,927 in 1995 and
1,536,880 in 1994 202 192
Additional paid-in capital 4,029 3,278
Contributed capital 18,021 16,687
Retained earnings 10,194 9,354
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 32,446 29,511
COMMITMENTS - Notes 8 and 11
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 74,778 $ 68,877
========== ==========
</TABLE>
[FN]
See notes to consolidated financial statements
- 23 -
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
DELAWARE OTSEGO CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(THOUSANDS)
- ----------------------------------------------------------------------------
<CAPTION>
Additional
Paid - in Contributed Retained
Common Stock Capital Capital Earnings
--------------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992 $ 174 $ 1,856 $ 12,288 $ 14,526
Net Loss (1,278)
5% Stock Dividend
declared January 10, 1994 9 682 (696)
Rehabilitation Subsidies 1,926
Exercise of Employee Stock Options 6
--------------- ----------- ----------- ----------
BALANCE AT DECEMBER 31, 1993 183 2,544 14,214 12,552
Net Loss (2,448)
5% Stock Dividend
declared January 12, 1995 9 734 (750)
Rehabilitation Subsidies 2,473
--------------- ----------- ----------- ----------
BALANCE AT DECEMBER 31, 1994 192 3,278 16,687 9,354
Net Income 1,615
5% Stock Dividend
declared January 29, 1996 10 751 (775)
Rehabilitation Subsidies 1,334
--------------- ----------- ----------- ----------
BALANCE AT DECEMBER 31, 1995 $ 202 $ 4,029 $ 18,021 $ 10,194
=============== =========== =========== ==========
</TABLE>
[FN]
See notes to consolidated financial statements
- 24 -
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
DELAWARE OTSEGO CORPORATION AND SUBSIDIARIES
(THOUSANDS)
- ----------------------------------------------------------------------------
<CAPTION>
Year ended December 31,
--------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,615 $(2,448) $(1,278)
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities:
Depreciation and amortization 4,186 3,885 3,710
Provision for losses on accounts receivable 110 31 10
Provision for deferred income taxes 829 (1,346) (359)
Gain on sale of fixed assets (5,336) (328) (2,288)
Amortization of deferred income (158) (8) (35)
Proceeds of deferred rent - - 4
Write-off of loan origination fees - 334 -
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 569 (1,914) 625
(Increase) decrease in materials, supplies,
prepaids and other current assets (1,173) 954 (1,199)
Increase in accounts payable and
accrued expenses 135 1,932 394
(Increase) decrease in other assets (338) (71) 94
-------- -------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 439 1,021 (322)
-------- -------- --------
INVESTING ACTIVITIES
Additions to property, plant and equipment (9,879) (7,182) (6,573)
Acquisition of intangible assets - (282) (126)
Proceeds and deposits from sale of assets
and easement 6,346 1,357 2,124
Contributed capital 2,021 4,491 3,567
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (1,512) (1,616) (1,008)
-------- -------- --------
FINANCING ACTIVITIES
Release of escrowed cash for
property improvements - - 194
(Decrease) increase in notes payable (1,300) 2,185 (1,095)
Proceeds from long-term borrowings 4,680 5,565 222
Principal payments on long-term debt (1,990) (7,057) (2,486)
(Payments on) proceeds from other borrowings (406) 406 -
Dividends paid (6) (6) (5)
Proceeds from convertible subordinated notes - - 3,580
Proceeds of employee stock options - - 6
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 978 1,093 416
-------- -------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (95) 498 (914)
Cash and cash equivalents at beginning of year 1,308 810 1,724
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,213 $ 1,308 $ 810
======== ======== ========
</TABLE>
[FN]
See notes to consolidated financial statements
- 25 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DELAWARE OTSEGO CORPORATION AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
- --------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Business: The Company operates a 500 mile regional railroad system
extending into the states of New York, Pennsylvania and New Jersey.
The principal freight carried by the Company consists of manufactured
goods, industrial raw materials, paper products and agricultural
commodities. The principal markets for this freight are the New York
City metropolitan area, Northern New Jersey and Central New York. The
Company relies on, and its ability to compete is dependent upon, its
rail connections with the CP Rail System and Consolidated Rail
Corporation. Changes in the operations of either of these carriers
could have a material adverse impact on the Company.
Two major customers account for approximately 72%, 64% and 60% of the
Company's operating revenues for 1995, 1994 and 1993, respectively.
During 1995, 1994 and 1993, the Company earned approximately $17.2
million, $9.8 million and $6.3 million from CSX Intermodal, Inc.
During the same periods, the Company earned $7.5 million, $7.7 million
and $7.2 million from Hanjin Shipping Lines. The loss of either
customer or a material reduction in their operations would have a
material adverse effect on the Company's results of operations.
Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries,
all of which are wholly-owned. All significant intercompany
transactions and balances have been eliminated in consolidation.
Accounts Receivable and Revenue Recognition: Accounts receivable and
accounts payable in the consolidated balance sheet reflect interline
transactions with other railroads which the Company is required to
enter into as part of settling freight payments received from
customers. The system follows Railway Accounting Rules as adopted by
member railroads of The Association of American Railroads, of which
the Company is a member. At year end, in accordance with industry
practice, accrued revenue on a completed service basis is reflected
in the consolidated statements of operations for unsettled freight not
yet part of the interline accounting system.
At December 31, 1995 and 1994, the Company's trade receivables include
approximately $4.1 million and $3.4 million, respectively of total
receivables, representing balances due from two major customers. The
December 31, 1995 and 1994 receivables from the two customers
constitute 75.8% and 55.3%, respectively of total receivables. The
Company does not require collateral. The credit risk associated with
this concentration is not deemed significant.
Allowances for doubtful accounts of $171 thousand and $190 thousand
have been applied as a reduction of accounts receivable at December
- 26 -
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
- ---------------------------------------------------
31, 1995 and 1994, respectively.
Materials and Supplies: Materials and supplies are stated at the
lower of cost or market determined by the average cost method.
Materials and supplies are charged to expense, construction-
in-progress or property, plant and equipment at the time of use.
Property, Plant and Equipment: Property, plant and equipment is
recorded at cost including capitalized interest during periods of
construction. Depreciation is provided over the estimated useful
lives of the related assets and is computed principally by the
straight-line method for financial statement purposes.
Costs of reimbursable rehabilitation projects not yet complete are
recorded in reimbursable construction costs. Charges incurred during
the project phase are billed to the respective state or federal
government agency. The proceeds from these subsidies are recorded in
the consolidated statement of stockholders' equity as contributed
capital at the time of receipt, net of applicable income taxes.
The cost of property retired or sold and related accumulated
depreciation are removed from the asset and allowance accounts. Gain
or loss on disposition of property is reflected in earnings.
Maintenance and repairs are charged to earnings as incurred. Renewals
and betterments are capitalized.
Leasehold improvements are amortized on the straight-line method over
the remaining life of the lease or the estimated life of the
improvement, whichever is shorter.
Impact of Recently Issued Accounting Standards: In March, 1995 the
Financial Accounting Standards Board issued Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. The statement requires impairment losses
to be recorded on long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying
amount. Statement No. 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company
adopted Statement No. 121 in the fourth quarter of 1995 without any
material effect.
Intangible Assets: Intangibles are amortized by the straight-line
method over a period of 5 to 40 years. Accumulated amortization was
$1.1 million and $1.4 million at December 31, 1995 and 1994,
respectively.
Estimated Self-Insurance Liability: The Company is self-insured to
various limits for public liability and property loss. The liability
for self-insurance is generally accrued based on occurrence, with
liability for possible escalation on unsettled claims being estimated
based on individual situations. The Company does not accrue an
estimated liability for unasserted claims unless
- 27 -
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
- ---------------------------------------------------
(i) it is aware of the possibility of such claim; (ii) it is
considered probable such claim will be asserted at a future date; and
(iii) it has a basis to estimate its potential exposure and there is a
reasonable possibility of an unfavorable outcome. In the opinion of
management, after review with attorneys for the Company, such claims
are of a nature that they will not have a material adverse effect on
the financial position of the Company.
Income Taxes: The Company provides for income taxes in accordance
with the liability method as set forth in Statement of Financial
Accounting Standards No. 109, Accounting For Income Taxes. Under the
liability method, deferred taxes are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. (See Note 7.)
Per Share Amounts: Primary net income per share is computed by
dividing net income by the weighted average number of shares
outstanding of 1,612,817 in 1995, 1994 and 1993, respectively,
including the effects of a 5% stock dividend declared January 26,
1996. Fully diluted net income per share is computed by dividing net
income plus after tax interest incurred on the convertible debentures
by the weighted average number of common shares outstanding after
giving effect to dilutive stock options and shares assumed to be
issued on conversion of the convertible debentures of approximately
1,951,000 shares in 1995. Reported fully diluted and primary net
income per share are the same for 1994 and 1993 as dilution from the
assumed conversion of the convertible debentures issued in 1993 is
antidilutive.
Cash Equivalents: The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash
equivalents.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Stock Based Compensation: The Company accounts for its stock
compensation arrangements under the provisions of APB 25, Accounting
for Stock Issued to Employees and intends to continue with this
accounting treatment.
Prior-Year Data: Certain amounts in the 1994 and 1993 financial
statements have been reclassified to conform to the 1995 presentation.
- 28 -
<PAGE>
NOTE 2 - PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------
A summary of property, plant and equipment balances by major classes
at December 31, 1995 and 1994, is as follows: (in thousands)
1995 1994
--------- ---------
Land $ 1,658 $ 2,373
Buildings and bridges 6,527 6,337
Machinery, equipment and roadway 83,604 74,989
Leasehold improvements 612 486
--------- ---------
92,401 84,185
Less allowance for depreciation
and amortization (29,414) (25,961)
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET $62,987 $58,224
========= =========
NOTE 3 - NOTES PAYABLE TO BANK
- ------------------------------
Notes payable at December 31, 1995 and 1994 consist of a secured
advance under a $5 million line of credit with Manufacturers and
Traders Trust Company. Interest on these borrowings is at Prime plus
1%. (Prime at December 31, 1995 was 8.5%.) Available borrowings are
based on and secured by eligible accounts receivable. At December 31,
1995 and 1994, eligible accounts receivable were $3.6 million and $3.8
million, respectively. At December 31, 1995 and 1994, borrowings on
the line were $2.1 million and $3.4 million, respectively. The
weighted average interest rate on the borrowings is 9.7% and 7.9% for
1995 and 1994, respectively.
NOTE 4 - LONG-TERM DEBT
- -----------------------
Long-term debt obligations at December 31 are summarized as follows:
(in thousands)
1995 1994
---------- ----------
Term loan payable to Manufacturers and
Traders Trust Company with $50 thousand of
principal due in the last quarter of 1996
and thirty quarterly principal installments
of approximately $91.7 thousand plus
interest due thereafter through 2004, with a
balloon payment of $1.33 million due in the
same year. During 1995, two quarterly
payments of $91.7 and a $1 million
prepayment of principal was made. Interest
on portions of the term loan are based on
the prime rate plus 1.5% or LIBOR, and the
greater of a 3.5% fixed rate above the yield
on United States Treasury Obligations, or
8%. (Prime at 8.5% on December 31, 1995.) $ 4,133 $ 5,317
- 29 -
<PAGE>
NOTE 4 - LONG-TERM DEBT - Continued
- -----------------------
Loan payable to the New Jersey Economic
Development Authority due in monthly
installments of $18 - $20 thousand plus
interest, through 1999, with interest at a
rate between 2% and 9% (6% at December 31,
1995) secured by a mortgage on real
property. 927 1,125
Loan payable to the federal government
through the Federal Railroad Administration
(FRA) due in quarterly installments of $88
thousand, including interest at 6.276% with
a balloon payment of $1.5 million on March
31, 2000, secured by a mortgage on real
property. 2,356 2,552
Loan payable to the federal government
through the Federal Railroad Administration
(FRA) due in quarterly installments of $93
thousand, including interest at 6.4% through
2015, secured by railway equipment. 4,143 -
Various promissory notes, mortgage notes and
capital leases payable, due in monthly
installments, with interest varying from
4.9% - 9.4% at December 31, 1995. The notes
are secured by land, buildings or
equipment. 2,318 2,192
---------- ----------
13,877 11,186
Less current portion (1,075) (1,120)
---------- ----------
Long-term debt $12,802 $10,066
========== ==========
During 1994, the Company completed the refinancing of its major
bank debt with Manufacturers and Traders Trust Company. In
conjunction with this refinancing, the Company wrote-off $334
thousand, representing the unamortized balance of deferred
financing costs incurred in 1990 in conjunction with its prior
loans. The write-off was recorded as an extraordinary item net of
applicable income taxes of $106.
Substantially all assets of the Company are pledged as collateral
under debt agreements. In addition to other requirements, the
Company is required to meet certain minimum tangible net worth,
working capital, and current ratio requirements under certain debt
agreements. At December 31, 1995, the Company met all the minimum
requirements.
The Company's loan with Manufacturers and Traders Trust Company
provides that the Company may not declare any cash dividends in any
fiscal year in excess of 40% of Consolidated Net Income in such
fiscal year, and that cumulative dividends paid during the term of
the loan may not exceed 10% of cumulative retained earnings.
- 30 -
<PAGE>
NOTE 4 - LONG-TERM DEBT - Continued
- -----------------------
In addition, the financing agreements between the Company and its
subsidiary, NYS&W, and the federal government provide that yearly
dividends may not exceed 50% of the total additions to retained
earnings of the Company for the previous year, nor 50% of the total
additions to retained earnings for 1985 and each year thereafter.
Interest expense, net (in thousands) is comprised of interest
expense of $1,465, $1,444 and $1,246 for 1995, 1994 and 1993
respectively, net of respective amounts for capitalized interest of
$104, $147 and $91, and interest income of $85, $71 and $57.
Interest paid (in thousands) was $1,455, $1,332 and $1,131 for the
1995, 1994 and 1993 periods.
A summary of maturities of long-term debt at December 31, 1995 is
as follows (in thousands):
1996 $ 1,075
1997 1,415
1998 1,301
1999 1,269
2000 2,201
Thereafter 6,616
-------
$13,877
=======
NOTE 5 - 6.5% CONVERTIBLE SUBORDINATED NOTES
- --------------------------------------------
During 1993, the Company completed a private placement of $3.6
million of 6.5% convertible subordinated notes due September 1,
2003. The notes are convertible into shares of the Company's
presently authorized common stock at a conversion price of $10.58
per share, after giving effect to stock dividends. Interest on the
notes is payable semi-annually on the first day of March and
September of each year. The notes may be converted into shares
anytime prior to maturity. The Company has reserved 338 thousand
shares of authorized common stock for the conversion of the notes.
Directors of the Company purchased $850 thousand of the notes.
NOTE 6 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------
The estimated fair values of the Company's financial instruments at
December 31, 1995 and the methods and assumptions used to estimate
the fair value of each class of financial instruments held by the
Company were as follows:
Cash and Cash Equivalents: The carrying amount approximated fair
value because of the short maturity of these instruments.
Long-Term Debt: The fair value of the Company's long-term debt is
estimated using discounted cash flow analyses, based on the
- 31 -
<PAGE>
NOTE 6 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS -
Continued
- ----------------------------------------------------------------
Company's current incremental borrowing rates for similar types of
borrowing arrangements. The carrying amount reported in the
balance sheet approximates its fair value.
NOTE 7 - INCOME TAXES
- ---------------------
The components of the provision for federal and state income taxes
are as follows (in thousands):
1995 1994 1993
-------- -------- --------
Current tax (expense) benefit ($ 49) ($ 218) $ 244
Deferred tax (expense) benefit (829) 1,346 359
-------- -------- --------
TOTAL INCOME TAX
(EXPENSE) BENEFIT ($878) $1,128 $ 603
======== ======== ========
A reconciliation of the statutory U.S. federal income tax rate to
the effective income tax rate follows:
1995 1994 1993
-------- -------- --------
Statutory income tax rate 34.00% 34.00% 34.00%
State taxes,
net of federal tax benefit 1.28 (2.72) (1.53)
Other (.06) 2.41 ( .40)
-------- -------- --------
EFFECTIVE TAX RATE 35.22% 33.69% 32.07%
======== ======== ========
State taxes are based on a combination of pre-tax earnings,
allocated capital and gross transportation receipts. Amounts
included in current tax expense were $49 thousand, $218 thousand
and $44 thousand for 1995, 1994 and 1993 respectively.
The Company has general business credit carryovers of approximately
$1.5 million which expire at various dates through the year 2003,
net operating loss carryforwards of $11.6 million which expire at
various dates through 2010 and alternative minimum tax credits of
$983 thousand available to reduce income taxes otherwise currently
payable.
Net income tax payments (refunds) amounted to $237 thousand, $28
thousand, and ($211 thousand) in 1995, 1994 and 1993, respectively.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes. Significant components of the Company's deferred tax
- 32 -
<PAGE>
NOTE 7 - INCOME TAXES - Continued
- ---------------------
liabilities and assets as of December 31 are as follows: (in
thousands)
1995 1994
------- -------
Deferred tax liabilities:
Book basis in excess of tax basis of
property, plant & equipment $16,811 $14,127
------- -------
Deferred tax assets:
Vacation reserve $ 142 $ 115
Bad debt reserve 58 65
Litigation reserve 55 82
Other-net 59 35
Net operating loss carryforwards 3,929 3,065
General business credit carryforwards 1,519 1,519
AMT credit carryforwards 983 981
------- -------
Total deferred tax assets 6,745 5,862
------- -------
Net deferred tax liabilities $10,066 $ 8,265
======= =======
Classification of deferred taxes:
Non-current liabilities $10,398 $ 8,582
Current assets (332) (317)
------- -------
$10,066 $ 8,265
======= =======
NOTE 8 - LEASES
- ---------------
The Company leases certain equipment and real estate under
operating lease agreements for periods ranging from one to eight
years. The annual rental expenses were $2.9 million, $2.9 million
and $2.8 million for 1995, 1994 and 1993, respectively.
Future minimum lease payments for noncancelable operating leases as
of December 31, 1995, are as follows (in thousands):
Year ending December 31,
1996 $ 711
1997 628
1998 626
1999 652
2000 652
Thereafter 1,534
------
TOTAL MINIMUM OPERATING LEASE PAYMENTS $4,803
======
- 33 -
<PAGE>
NOTE 9 - STOCK OPTIONS
- ----------------------
The Stockholders of the Company have approved stock option plans
for officers, directors and key employees. At December 31, 1995,
there are 175,208 exercisable shares under option, which includes
6,300 options granted to certain directors during the fourth
quarter of 1995. 62,104 options are available for future grants.
The exercise price of options granted is equal to the fair market
value of the common stock on the date of grant adjusted for stock
dividends. The options expire ten years from the date of grant.
The status of these plans at December 31, is as follows (the stock
option data has been restated to reflect the effects of the 1996 5%
stock dividend):
Shares Option
Under Price
Option Range
--------- -------------
1995 175,208 $8.43 - $9.50
Options Exercise
Exercised Price
--------- -------------
1995 - -
1994 - -
1993 525 $10.50
NOTE 10 - EMPLOYEE BENEFIT PLAN
- -------------------------------
On August 1, 1990, the Company established a defined contribution
plan covering substantially all employees. Employees can
contribute a portion of their salary or wages as prescribed under
section 401(k) of the Internal Revenue Code and, subject to certain
limitations, the Company will match a portion of the employees'
contribution. The amounts of employer contributions were $91
thousand in 1995, $78 thousand in 1994 and $75 thousand in 1993.
NOTE 11 - COMMITMENTS
- ---------------------
The Company has outstanding commitments of approximately $4.8
million in connection with the completion of various rehabilitation
projects and construction in progress. Completion dates range from
six months to three years. The commitments are expected to be
partially offset by government agency funding of approximately $4.4
million.
The Company entered into an agreement in August, 1992 to purchase
certain property currently under lease for a total inflation
adjusted purchase price of approximately $3.5 million. During the
second quarter, the Company deposited $500 thousand towards the
purchase. The Company will be required to pay an additional $500
thousand at closing, which is anticipated to occur during the first
half of 1996. Subsequent to year-end, the Company received a
- 34 -
<PAGE>
NOTE 11 - COMMITMENTS - Continued
- ---------------------
commitment for a credit facility from Manufacturers and Traders
Trust Company for $2.5 million to finance the purchase. The
commitment expires on May 31, 1996. The property is presently
being used for relocation and expansion of its bulk distribution
operations.
During the fourth quarter of 1995, the Company entered into a
contract to sell certain parcels of railroad property of a non-
operating Company subsidiary for $500 thousand, which is
anticipated to close during 1996. The carrying amount is estimated
at $110 thousand. A portion of the purchase price is subject to
the buyers obtaining government funding. The proceeds will be used
for working capital purposes.
Certain claims have been filed against the Company or its
subsidiaries and have not been finally adjudicated. These claims
when finally concluded and determined, will not, in the opinion of
management based upon information that it presently possesses, have
a material adverse effect on the consolidated financial position and
results of operations.
NOTE 12 - SUBSEQUENT EVENTS - Unaudited
- ---------------------------
Subsequent to the balance sheet date, the Company completed the
purchase of a 40% interest in The Toledo, Peoria and Western
Railroad Corporation ("TP&W") for consideration totalling $2.25
million, including 25,000 shares of the Company's common stock.
The non-stock portion of the consideration for the acquisition was
funded through a $1 million loan and the private placement of
100,000 shares of the Company's common stock. Additionally, the
Company issued warrants to purchase 60,000 common shares to another
party involved in the transaction. The Company will perform
administrative services which will have a positive impact on
general and administrative expenses for 1996 and beyond. At
December 31, 1995, the Company had incurred $592 of advances
related to the purchase which were recorded in other current
assets. The $592 was reimbursed at closing on January 31, 1996.
The investment will be accounted for under the provisions of APB
18, The Equity Method of Accounting for Investments in Common
Stock.
The TP&W owns a 284 mile Class III regional railroad which provides
rail service on a generally East-West route across one of the top
grain producing regions in the world from Fort Madison, Iowa
through Central Illinois (approximately 70 miles south of Chicago)
to Logansport, Indiana. The TP&W hauls agricultural products,
chemicals, coal, fertilizer, food products, steel and manufactured
goods and consumer products for such customers as ADM, Cilco,
Witco, Lonza and Caterpillar and to two company-operated intermodal
facilities. The TP&W's geographic location and connections with
over 20 rail carriers, including seven Class I railroads, present
opportunities for growth, and the acquisition provides the Company
with an opportunity to diversify its rail holdings and to provide
improved service to its intermodal customers.
- 35 -
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
- --------------------------------------------------------------------
None.
PART III
--------
The information required in Item 10 (Directors and Executive Officers
of the Registrant), Item 11 (Executive Compensation), Item 12 (Security
Ownership of Certain Beneficial Owners and Management), and Item 13
(Certain Relationships and Related Transactions) except for the information
set forth at the end of Part I with respect to Executive Officers of the
Company, is incorporated herein by reference to the Company's Proxy
Statement to be filed within 120 days of December 31, 1995.
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following financial statements of Delaware Otsego Corporation are
included in Part II, Item 8:
Page
----
Report of Independent Auditors 20
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993 21
Consolidated Balance Sheets at December 31, 1995 and 1994 22
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1995, 1994, and 1993 24
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994, and 1993 25
Notes to Consolidated Financial Statements 26
Schedules called for under Regulation S-X are not submitted because
they are not applicable or not required or because the required information
is not material or is included in the financial statements or notes thereto.
(b) Reports on Form 8-K
- 36 -
<PAGE>
No reports on Form 8-K were filed by the Company in the fourth quarter.
(c) Exhibits
Filed herewith (-) or
Incorporated by Reference to
-------------------------------
3.1 Restated Certificate of Incorporation Exhibit 3.1 to Registrant's
of the Delaware Otsego Corporation Annual Report on Form 10-K dated
dated June 1, 1991 December 31, 1991
3.2 By-Laws of DOC dated April 5, 1988 Exhibit 3.8 to Registrant's
Annual Report on Form 10-K
dated December 31, 1988
10.1 Employment Agreement between DOC Exhibit 10.1 to Registrant's
and Walter Rich dated June 3, 1995 Quarterly Report on Form 10-Q
dated June 30, 1995
10.2 Direct Loan Agreement between New Exhibit 10(g) to Registration
Jersey Economic Development Authority Statement on Form S-1,
and NYS&W dated August 6, 1982 No. 2-94319
10.3 Agreement between Conrail and NYS&W Exhibit 10(p) to Registration
dated March 30, 1982 relating to Statement on Form S-1,
trackage rights over line of Conrail No. 2-94319
from Binghamton, New York to Warwick,
New York via Campbell Hall and
Maybrook, New York
10.4 Financing Agreement between NYS&W Exhibit 19.11 to Form 10-Q dated
and FRA dated September 30, 1985 November 13, 1986
10.5 Agreement Amending Financing Exhibit 19.12 to Form 10-Q dated
Agreement between FRA and NYS&W November 13, 1986
dated July 30, 1986
10.6 Amendment to Direct Loan Agreement Exhibit 19.18 to Form 10-Q
between New Jersey Economic dated November 13, 1986
Development Authority and NYS&W
dated July 15, 1986
10.7 Amendment to Direct Loan Agreement Exhibit 19.19 to Form 10-Q dated
between New Jersey Economic November 13, 1986
Development Authority and NYS&W
dated September 2, 1986
- 37 -
<PAGE>
10.8 Amended and Restated Credit Agreement Exhibit 10.8 to Form 10-Q dated
between Manufacturers and Traders November 11, 1994
Trust Company and DOC dated
May 27, 1994
10.9 Agreement between NYS&W and Exhibit 10.9 to Registrant's
Brotherhood of Locomotive Engineers Annual Report on Form 10-K
dated March 30, 1994 dated March 27, 1995
10.10 Agreement between NYS&W and -
Brotherhood of Maintenance of Way
Employes dated October 13, 1995
10.11 Modification to Direct Loan Agreement Exhibit 10(hh) to Registration
and Direct Loan Promissory Note dated Statement on Form S-1,
as of August 6, 1982 between the New No. 2-94319
Jersey Economic Development Authority
and NYS&W dated July 17, 1984
10.12 Amendment to Operating Agreement Exhibit 10(qq) to Registration
Under Branchline Assistance Program Statement on Form S-1,
between NYS&W and New York State No. 2-94319
Department of Transportation dated
January 10, 1984
10.22 Delaware Otsego Corporation Exhibit B to Definitive Proxy
1987 Stock Option Plan Statement Dated October 7, 1987
10.23 Delaware Otsego Corporation Exhibit B to Definitive Proxy
1993 Stock Option Plan Statement Dated May 5, 1993
10.27 Form of Delaware Otsego Corporation Exhibit 1 to Registrant's
6.5% Convertible Subordinated Note Form 8-K dated October 19, 1993
Due on September 1, 2003
10.28 Guarantee Commitment between the Exhibit 10.28 to Registrant's
Federal Railroad Administration and Annual Report on Form 10-K
DOC dated September 29, 1994 dated March 27, 1995
10.29 Warrant Agreement between DOC and -
Creditanstalt Corporate Finance, Inc.
dated January 31, 1996
10.30 Deficiency Guarantee among DOC and -
others and Creditanstalt Corporate
Finance, Inc. dated January 31, 1996
- 38 -
<PAGE>
10.31 Cash Collateral Agreement among DOC -
and others and Creditanstalt Corporate
Finance, Inc. dated January 31, 1996
21 Subsidiaries of Registrant -
23 Consent of Ernst & Young LLP -
- 39 -
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Delaware Otsego Corporation has duly caused this
Annual Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DELAWARE OTSEGO CORPORATION
- ---------------------------
Registrant
By: s/ Walter G. Rich
-------------------------------------
Walter G. Rich, Director
President and Chief Executive Officer
Date: March 24, 1996
By: s/ William B. Blatter
-------------------------------------
William B. Blatter, Senior Vice
President and Chief Financial Officer
Date: March 24, 1996
By: s/ Robert E. Pierce
-------------------------------------
Robert E. Pierce, Vice President,
Controller & Chief Accounting Officer
Date: March 24, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
s/ Albert B. Aftoora s/ Richard A. White
- ------------------------------ ------------------------------
Albert B. Aftoora, Director Richard A. White, Director
March 24, 1996 March 24, 1996
s/ Robert L. Marcalus s/ David B. Common
- ------------------------------ ------------------------------
Robert L. Marcalus, Director David B. Common, Director
March 24, 1996 March 24, 1996
s/ Charles S. Brenner s/ Malcolm C. Hughes
- ------------------------------ ------------------------------
Charles S. Brenner, Director Malcolm C. Hughes, Director
March 24, 1996 March 24, 1996
s/ Niles F. Curtis s/ Gerald D. Groff
- ------------------------------ ------------------------------
Niles F. Curtis, Director Gerald D. Groff, Director
March 24, 1996 March 24, 1996
- 40 -
<PAGE>
EXHIBIT INDEX
-------------
Page
----
10.10 Agreement between NYS&W and Brotherhood
of Maintenance of Way Employes dated
October 13, 1995 42
10.29 Warrant Agreement between DOC and
Creditanstalt Corporate Finance, Inc.
dated January 31, 1996 121
10.30 Deficiency Guarantee among DOC and
others and Creditanstalt Corporate Finance,
Inc. dated January 31, 1996 151
10.31 Cash Collateral Agreement among DOC
and others and Creditanstalt Corporate
Finance, Inc. dated January 31, 1996 162
21 Subsidiaries of Registrant 166
23 Consent of Ernst & Young LLP 167
- 41 -
<PAGE>
TABLE OF CONTENTS
-----------------
Rule 1 - Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Rule 2 - Seniority. . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Rule 3 - Seniority Classes. . . . . . . . . . . . . . . . . . . . . . . .47
Rule 4 - Seniority Rosters & Working Zones. . . . . . . . . . . . . . . .48
Rule 5 - Guarantee Work Week. . . . . . . . . . . . . . . . . . . . . . .50
Rule 6 - Pay Basis, Shifts, Starting Times and Meal Periods . . . . . . .51
Rule 7 - Rates of Pay . . . . . . . . . . . . . . . . . . . . . . . . . .55
Rule 8 - Compensatory Time. . . . . . . . . . . . . . . . . . . . . . . .56
Rule 9 - Beginning and Ending Day/Hours of Service. . . . . . . . . . . .58
Rule 10 - Qualifications for Positions . . . . . . . . . . . . . . . . . .60
Rule 11 - Filling Vacant Positions . . . . . . . . . . . . . . . . . . . .62
Rule 12 - Cancellations/Abolishments . . . . . . . . . . . . . . . . . . .65
Rule 13 - Return to Service. . . . . . . . . . . . . . . . . . . . . . . .66
Rule 14 - Displacements. . . . . . . . . . . . . . . . . . . . . . . . . .67
Rule 15 - Time Limit on Claims Not Involving Discipline. . . . . . . . . .69
Rule 16 - Examination, Training, Qualifying. . . . . . . . . . . . . . . .71
Rule 17 - System Production Gangs. . . . . . . . . . . . . . . . . . . . .72
Rule 18 - Away From Home Expenses. . . . . . . . . . . . . . . . . . . . .77
Rule 19 - Discipline . . . . . . . . . . . . . . . . . . . . . . . . . . .79
Rule 20 - Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
Rule 21 - Sick Leave Days. . . . . . . . . . . . . . . . . . . . . . . . .84
Rule 22 - Health and Welfare . . . . . . . . . . . . . . . . . . . . . . .85
Rule 23 - Vacation . . . . . . . . . . . . . . . . . . . . . . . . . . . .86
Rule 24 - Retention of Seniority . . . . . . . . . . . . . . . . . . . . .90
Rule 25 - Leaves of Absence. . . . . . . . . . . . . . . . . . . . . . . .92
Rule 26 - Bereavement Days . . . . . . . . . . . . . . . . . . . . . . . .94
Rule 27 - Attending Court, Inquests, Investigations. . . . . . . . . . . .95
Rule 28 - Jury Duty. . . . . . . . . . . . . . . . . . . . . . . . . . . .96
- 42 -
<PAGE>
Rule 29 - Physical Condition - Board of Doctors. . . . . . . . . . . . . .97
Rule 30 - Use of Personal Auto While on Duty . . . . . . . . . . . . . . .99
Rule 31 - Application for Employment . . . . . . . . . . . . . . . . . . 100
Rule 32 - Duly Accredited Representative . . . . . . . . . . . . . . . . 101
Rule 33 - Union Shop Agreement. . . . . . . . . .. . . . . . . . . . . . 102
Rule 34 - Dues Deduction . . . . . . . . . . . . . . . . . . . . . . . . 109
Rule 35 - BMWE Political League Deductions . . . . . . . . . . . . . . . 115
Rule 36 - Employee Information . . . . . . . . . . . . . . . . . . . . . 119
Rule 37 - Moratorium . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Rule 38 - Printing of Agreement. . . . . . . . . . . . . . . . . . . . . 120
- 43 -
<PAGE>
RULE 1
SCOPE
------
1.1 The Rules contained shall govern the hours of service, working
conditions and rates of pay of the Engineering Department Employees
represented by the Brotherhood of Maintenance of Way Employes
(BMWE) who are working on Track, Bridges and Buildings on The New
York, Susquehanna and Western Railway Corporation (Carrier). These
employees will perform the work generally recognized as Maintenance
of Way work, such as inspection, construction, demolition,
dismantling of bridges, culverts, buildings and other structures,
tracks, fences and roadbed in accordance with the Carrier s rules,
procedures and policies. It is also understood that work not
covered by this Agreement which was being performed on the NYS&W
Railway prior to this Agreement by past practice or agreement will
not be removed from the regular work assignments and work that was
previously done by others by past practice or agreement, such as
Track Inspection and maintenance of insulated joints, may continue
to be done by others.
1.2 In the event the Carrier plans to contract out work within the
scope of this Agreement, except in emergencies, the Carrier shall
notify the General Chairman involved, in writing, as far in
advance of the date of the contracting transaction as is
practicable and in any event not less than fifteen (15) days prior
thereto. Emergencies" apply to fires, floods, earthquakes,
derailments and like circumstances resulting in removal of track
from service.
1.3 If the General Chairman, or his representative, requests a meeting
- 44 -
<PAGE>
to discuss matters relating to the said contracting transaction,
the designated representative of the Carrier shall promptly meet
with him for that purpose. Said Carrier and Organization
representatives shall make a good faith effort to reach an
understanding concerning said contracting but, if no understanding
is reached, the Carrier may nevertheless proceed with said
contracting and the Organization may file and progress claims in
connection therewith.
1.4 No such claims will be filed if the General Chairman or his
representative fails to request a meeting as provided in Rule 1.3
or where the contract work is for any of the following:
- Emergencies;
- Installation, repair or maintenance of fencing;
- Installation of continuous welded rail, over half track mile
in length;
- Construction, repair, maintenance, alteration or
demolition of buildings;
- Salvage of rail materials not to be reused by the NYS&W;
- Operation of equipment that reasonably requires
specialized qualifications where no qualified employee is
available;
- Operation of equipment of a type not owned by the Carrier
that is not available to rent without an operator;
- Site preparation below the base of the ballast;
- Installation, repair, maintenance or removal of non-rail
facilities, including but not limited to utilities,
pipelines, data transmission facilities, tenants
facilities and terminal facilities, but not including any
track work.
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RULE 2
SENIORITY
---------
2.1 Seniority Date
Seniority begins at the time the employee s pay starts. If two (2)
or more employees start to work on the same date, their seniority
rank on the roster will be in alphabetical order. An employee
assigned to a position of higher class than trackman will begin to
earn seniority as a trackman on the same date.
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<PAGE>
RULE 3
SENIORITY CLASSES
-----------------
The seniority classes and primary duties of each class are as follows:
3.1 Track Department
Foreman:
Direct and work with employees assigned under his jurisdiction.
Trackman:
Construct, dismantle, maintain, repair and inspect track and
appurtenances thereto.
3.2 Equipment Operators
Operate the following:
Class One - Mark III Tampers, Crane (20 ton), Grapple Truck,
Fuel Truck (HazMat CDL), Stork, Tractor Trailer, Grad-All with
Hyrail, Geometry Car, Combination Dump Truck, Trailer and
Backhoe, TR-10 Tie Extractor-Inserter.
Class Two - Spiker, Loram Tie Inserter, Tie Crane, Scarifier,
Mark I Tamper, Front-end Loaders, Dozers, Backhoes, Ballast
Regulators, Forklift, Mack Tilt Bed, Boom Truck, 3-way Dump,
Jordan Spreader, Snow Plow, Brushcutter.
Additional equipment may be added by agreement of the parties.
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<PAGE>
RULE 4
SENIORITY ROSTERS & WORKING ZONES
---------------------------------
4.1 Track Rosters
Single rosters of employees will be created for each of the
following classes within the Track category. For each roster,
employees will be listed in order of their seniority in that
particular class.
A) Foremen, Trackmen
B) Equipment Operators
4.2 All employees will designate a home Seniority Zone: either Northern
or Southern. Employees may change their zone each year between
January 1st and March 1st by notifying the Chief Engineer and
General Chairman. In the selection of a work zone, each individual
must be prepared to cover assignments outside of normal work hours,
which include nights and weekends.
4.3 Rosters of Employees will be issued each year by January 31 and
sent to all active employees with their paychecks and to all
furloughed employees and the General Chairman by certified mail and
will also be posted at all Headquarters. Protests to the Annual
Rosters must be addressed to the Chief Engineer and the General
Chairman by March 1st of each year. Decisions will be rendered
within thirty (30) days of date of such protest. Protests not
submitted as specified will not be considered. Typographical
errors may be corrected at any time.
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<PAGE>
4.4 No changes shall be made to the roster, other than pursuant to Rule 2,
without a conference and agreement between the Chief Engineer and the
General Chairman.
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<PAGE>
RULE 5
GUARANTEE WORK WEEK
-------------------
5.1 Subject to the provisions of Rules 12.1 and 12.5, the Carrier will
make available to all employees holding advertised positions an
opportunity to earn a minimum of forty (40) hours pay per work
week, including all pay pursuant to Rules 8, 20, 21, 23, 26, 27 and
28. For twenty-three (23) employees (the Basic Force), this
provision will apply year round. It is agreed that, in the event
the Basic Force needs to be adjusted, the provisions of Rules 5.5
and 5.6 will apply.
5.2 The Carrier will establish a work week of forty (40) hours,
consisting of five (5) days of eight (8) hours each with two (2)
consecutive days off in each seven (7) or 4 days of 10 hours each
with three consecutive days off in each seven (7).
5.3 Except as otherwise provided in this Agreement, all reference to
days shall mean calendar days.
5.4 For positions, the duties of which can reasonably be met in five
(5) days, the rest days will be Saturday and Sunday. In the event
the Carrier is operationally prohibited from assigning Saturday and
Sunday rest days, assigned rest days will be Friday and Saturday or
Sunday and Monday.
5.5 In the event there is a need to adjust the Basic Force, the Chief
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Engineer will notify, in writing, the General Chairman within
thirty (30) days of such change. Such notification will fully
describe the reason/s for such change, such as decline in traffic
or a sale of portion of Carrier s railroad.
The Organization may, within ten (10) days of such notification,
request a conference to evaluate and clarify the reason/s for such
change.
If the parties fail to agree on any modification of the Basic
Force, the matter shall be referred to a Special Board of
Adjustment in which the burden shall be upon the Carrier to prove
it would incur a substantially adverse effect if the proposed
modifications were not put into effect.
5.6 In the event a request of the Carrier for modification of the
Agreement is progressed to a Special Board of Adjustment, and a
final decision has not been reached by the Neutral Arbitrator
within thirty (30) days of the date of the initial conference
referenced in Rule 5.5, the Carrier may nevertheless put the
proposed modification into effect. In the event the Arbitrator
decides that the Carrier would not be substantially affected by the
change in conditions, any modifications made shall be discontinued
within fifteen (15) days of the date of the decision and the Force
shall be readjusted.
5.7 Any dispute or controversy with respect to the interpretation,
application, or enforcement of the provisions of this Agreement,
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<PAGE>
which has not been resolved within sixty (60) days other than
modification, may be submitted by either party to a Special Board
of Adjustment.
5.8 The Parties agree to meet and establish a Special Board of
Adjustment within 30 days of notice by either party.
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<PAGE>
RULE 6
PAY BASIS, SHIFTS, STARTING TIMES AND MEAL PERIODS
--------------------------------------------------
6.1 Payment for all service performed for the Carrier will be based on
the hourly rate of pay as specified in this Agreement.
6.2 Eight (8) hours shall constitute a day's work for all regularly
assigned employees, exclusive of lunch period.
6.3 One, two or three shifts may be established where necessary to meet
service requirements. The starting time of any shift or position
may be changed on thirty-six (36) hours notice to the employees
effected and not more often than every seven (7) days. When a
single shift is assigned, it will start work between 6:00AM and
8:00AM. The starting time for employees assigned to a second shift
will be immediately after the end of the first shift. When three
(3) shifts are regularly established no shift will have a starting
time between 12:00 o'clock midnight and 6:00AM. These starting and
notice times may be adjusted by mutual agreement between the local
chairman and the Vice President Engineering.
6.4 Meal period will be between the end of the fourth hour and
beginning of the sixth hour after starting time. The meal period
shall be thirty (30) minutes.
6.5 Employees shall not be required to work more than six (6) hours
after their first meal period without being furnished meals by the
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<PAGE>
Carrier. Subsequent meal periods will be allowed at five (5) hour
intervals. The second and subsequent meals shall be furnished by
the Carrier. If the meal period is not afforded within the allowed
or agreed time limit and is worked, it will be paid for at the
straight time hourly rate and twenty (20) minutes allowed for lunch
at the first opportunity without loss of pay.
6.6 Except as provided in Rule 17 (System Production Gangs), employees'
time will begin and end at fixed assembling points such as
toolhouses or shops.
6.7 Each of these assembly points will be supplied with lockers,
washing and toilet facilities, proper heating, electrical fixtures,
table and benches and will be maintained in a clean and sanitary
condition.
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<PAGE>
RULE 7
RATES OF PAY
------------
Hourly Rates
------------
Operators Operators
Foreman Class A Class B Trackman
------------ ------------ ------------ ------------
1-1-95 15.25 13.75 12.75 11.75
1-1-96 15.70 14.16 13.13 12.10
1-1-97 16.18 14.59 13.53 12.47
1-1-98 16.66 15.02 13.93 12.84
1-1-99 17.16 15.48 14.35 13.22
Trackman Entry Level Rate Schedule
--------------------------------------
First Year 90% of hourly rate
Second Year 95% of hourly rate
Third Year 100% of hourly rate
Employees covered by rate progression will be credited with two (2)
months of employment for each month he performs compensated service
provided:
A) Not more than twelve (12) months of service will be credited
in any twelve (12) consecutive month period).
B) An employee cannot advance into the next rate progression
category until at least twelve (12) months after establishing
seniority, and on that anniversary date forward.
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RULE 8
COMPENSATORY TIME
-----------------
8.1 Time worked (i) in excess of 40 hours in a work week (ii) or on a
holiday shall be paid at the hourly rate of pay as specified in
this Agreement. In addition, half hour of compensatory time off with
pay ( Compensatory Time ) shall be accrued for each such hour with
proportionate accruals for partial hours.
8.2 Compensatory Time will be paid for at the hourly rate of pay in
effect at the time it is taken.
8.3 Compensatory Time shall be added to the employee s vacation
allowance, and shall be subject to and governed by Rule 23.2, 23.4,
23.5, 23.6, 23.8, 23.9, and 23.10 of the Vacation provisions of
this Agreement. Notwithstanding the foregoing, the Carrier, in its
sole discretion, may allow an employee to use Compensatory Time
without regard to Section 23.4 of the Vacation provisions of this
Agreement.
8.4 Employees called to perform work not continuous with the regular
work period will be allowed a minimum of three (3) hours work.
8.5 When necessary to work employees under this Rule, the senior
available qualified employees will be called according to the
following:
A) Preference to overtime work on a regular work day
which precedes or follows and is
continuous with a regular assignment
shall be to the senior available
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<PAGE>
qualified employee of the gang or the
employee assigned to that work.
B) Preference to overtime work other than in A) above,
shall be to the senior available qualified employee
at the headquarters who ordinarily and customarily
performs such work. In the case of a specific
project, the employees assigned to that project
will be given preference.
8.6 Notwithstanding other provisions of this Agreement, in the event
that an employee working on a four-ten hour day schedule works more
that ten hours on any of the first three days of a week, the
Carrier may proportionately reduce his fourth day, but not to less
than eight hours.
8.7 Employees will be compensated as if on continuous duty in all cases
where the release from duty does not exceed one (1) hour.
8.8 This Rule shall not apply prior to October 16, 1995.
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<PAGE>
RULE 9
BEGINNING AND ENDING DAY/HOURS OF SERVICE
-----------------------------------------
9.1 Employees' time will commence at the time they report for duty at
their headquarters, except System Production Gangs, and shall
continue until they are relieved from duty by the Carrier.
9.2 Employees assigned to positions scheduled to work eight (8) hours
per day exclusive of meal periods, five (5) days per week will have
two consecutive days off. On positions the duties of which can
reasonably be met in five (5) days, the rest days will be Saturday
and Sunday.
9.3 Employees assigned to positions scheduled to work ten (10) hours
per day exclusive of meal periods, four (4) days per week will have
three (3) consecutive days off. The rest days will be either
Friday, Saturday and Sunday or Saturday, Sunday and Monday, unless
operationally prohibited.
9.4 Track Inspection and FRA patrols may be established with rest days
being either Friday and Saturday or Sunday and Monday, in the case
of five (5) day work weeks and either Thursday, Friday and Saturday
or Sunday, Monday and Tuesday in the case of four (4) day work
weeks.
9.5 For vacation purposes or any other situation where work days are
counted as accumulative days, employees working a four (4) ten (10)
hour day work week, will be credited with working five (5) work
days in that work week.
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<PAGE>
9.6 Where employees are working a four (4) day, ten (10) hour per day
work week and a holiday falls on a work day in that week, they
shall be paid ten (10) hours holiday pay for that holiday providing
the bridging requirements of the Holiday Rule are met.
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RULE 10
QUALIFICATIONS FOR POSITIONS
----------------------------
10.1 Effective with this Agreement, employees may utilize their
seniority in any direction, subject to their being qualified.
10.2 In making application for an advertised position or vacancy, or in
the exercise of seniority, employees may be required to give a
reasonable practical demonstration of their qualifications to
perform the duties of the position.
10.3 In the event employees are required to give a reasonable practical
demonstration of their qualifications for a position, the Carrier
must give uniform job related tests based on job related criteria
in order to ascertain initial qualifications for positions.
10.4 Disqualification of employees for failure to maintain required
licenses, rules qualifications, and/or FRA certifications, or for
medical reasons will not be considered discipline.
10.5 When on-the-job training opportunities to operate Maintenance of
Way machinery occur in a gang, employees with that gang who request
such training in writing to the Foreman or higher level supervisor
of that gang shall be given the opportunity in seniority order.
Such employees shall first be given the opportunity to qualify on
rules, as appropriate, and then, if so qualified, the opportunity
to train with a qualified machine operator as requirements of
service permit.
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<PAGE>
Should an employee so covered fail to make sufficient progress
and/or qualify within a thirty (30) day period, he will be removed
from such training and will be ineligible for consideration for
future on-the-job training on the involved and similar machinery
for a period of one (1) year unless otherwise agreed to by the
General Chairman and Chief Engineer. If the employee so removed
disputes his removal, the employee, or his representative may file
a claim. After removal, the employee must return to his former
position unless it has been abolished or filled by a senior
employee, in which case he may exercise seniority.
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<PAGE>
RULE 11
FILLING VACANT POSITIONS
------------------------
11.1 In the assignment of employees to positions under this
Agreement, qualification being sufficient seniority shall
govern.
11.2 Positions subject to advertisement will be newly created
permanent positions and temporary positions expected to be
available for more than thirty (30) work days and will be
advertised for at least seven (7) calendar days.
Advertisements shall be posted on Monday and shall close at
5:00PM on the following Monday. Bids which are postmarked or
received anytime during the application period shall be
accepted.
11.3 Advertisements of positions will be distributed to all
locations. Employees will submit bids for positions to the
Chief Engineer on a form provided by the Carrier and must
assure that such bids are postmarked by the closing date
specified on the job advertisement.
Bid for a position advertised under this Rule must be filed
with the official whose name appears on the advertisement.
Each furloughed employee shall be an automatic bidder for
advertised positions for which he has seniority and is
qualified, in his seniority territory within fifty (50) miles
from home.
11.4 Advertisements will specify location of position, hours of
service, rest days, type of machine, closing date of bid,
general description of the work and headquarters.
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<PAGE>
11.5 Positions will be awarded to the senior qualified employee
bidding for same. Notices of positions awarded will be posted
within seven (7) calendar days of the closing date specified
on the advertisement. Employees awarded positions will occupy
those positions the first Monday following such award. All
awards will be made on the same day after the closing day
specified. This Rule shall not be construed so as to require
the placing of employees on their awarded positions when
properly qualified employees are not available at the time to
fill their places, but physical transfers must be made within
ten (10) days, or such longer periods as may be mutually
agreed upon by the Chief Engineer and the General Chairman or
his authorized representative.
11.6 A position or vacancy may be filled temporarily pending
assignment. When vacancies occur, the senior qualified
available employee will be given preference.
In the event no requests are received, the Carrier may assign
the junior employee who must accept the assignment.
11.7 An advertisement may be canceled within seven (7) days from
the date advertisement is posted.
11.8 An employee who desires to withdraw his bid or application for
an advertised position must file his request, in writing, with
the official whose name appears on the advertisement within
seven (7) days from the date the advertisement is posted.
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<PAGE>
11.9 Copy of advertisements, awards, and abolishments will be
furnished to the General Chairman or his designated representative.
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RULE 12
CANCELLATIONS/ ABOLISHMENTS
---------------------------
12.1 Notice of force reduction or abolishment of positions shall be
given not less than five (5) working days (four (4) working
days for four (4) day gangs) in advance and such notice shall
be promptly posted identifying the positions to be abolished.
Employees whose positions are abolished must fulfill the
requirements of Rule 14 (Displacements) of this Agreement.
12.2 The Carrier has the right to cancel any assignment provided
the employee(s) affected are notified at least twelve (12)
hours prior to scheduled starting time.
12.3 A copy of the notice shall be furnished to the designated
union representative.
12.4 Employees affected by cancellation of their assignments will
be paid for the number of hours necessary to meet the forty
(40) hour guarantee of Rule 5 (Guarantee Work Week) of this
Agreement.
12.5 The Carrier has the right at any time to abolish or cancel any
assignment due to emergencies such as flood, snow storm,
hurricane, tornado, earthquake, fire, or labor dispute,
provided the Carrier's operations are suspended in whole or in
part. Such assignments will be restored as soon as possible
once the emergency has ended. The provisions of Rule 5
(Guarantee Work Week) of this Agreement will not apply to
employees whose assignments are canceled under this paragraph.
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RULE 13
RETURN TO SERVICE
-----------------
13.1 An employee not in service will be subject to return to work
from furlough in seniority order in any class in which he
holds seniority in his working zone. If he fails to return
within ten (10) days from the date notified by certified mail
to his last recorded address for a position or vacancy of
thirty (30) days or more duration, he will forfeit all
seniority under this Agreement. Forfeiture of seniority under
this paragraph will not apply when an employee has furnished
satisfactory evidence to the officer signatory to the
notification that failure to respond within ten (10) days was
due to conditions beyond his control. Copy of recall letter
shall be furnished the designated union representative. All
employees will be required to designate a home Seniority Zone
which will be used for recall purposes.
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<PAGE>
RULE 14
DISPLACEMENTS
-------------
14.1 An employee whose position is abolished may exercise his
seniority to any position for which he is qualified held by a
junior employee within seven (7) calendar days after the
effective time and date of abolishment. An employee who is
displaced may exercise his seniority to any position for which
he is qualified held by a junior employee within seven (7)
calendar days after the time and date of displacement.
Displacements must occur prior to the start of the shift and
an employee reporting to the supervisor in charge of the gang
in which the displacement is to be made prior to shift start
will be allowed a displacement on that date.
14.2 An employee who elects to exercise seniority may exercise
seniority to any position for which he is qualified by bid or
displacement without loss of seniority.
14.3 An employee whose regular position is abolished or who is
displaced from his regular position while on leave of absence,
sick leave, vacation or suspension may, within seven (7)
calendar days after his return, exercise his seniority to any
position for which he is qualified held by a junior employee.
14.4 An employee returning from a leave of absence, sick leave,
vacation or suspension may return to his former position or,
within seven (7) calendar days after his return, may exercise
his seniority to any position for which he is qualified and
holds seniority which was bulletined and assigned in his
absence to a junior employee.
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<PAGE>
14.5 Employees who fail or are unable to exercise their seniority
will be considered furloughed.
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RULE 15
TIME LIMIT ON CLAIMS NOT INVOLVING DISCIPLINE
---------------------------------------------
15.1 All claims for compensation alleged to be due must be made in
writing no later than fourteen (14) days from the date of the
occurrence on which the claim is based. The claimant, or his
duly accredited representative, must submit two (2) copies of
the claim containing the information specified below to a
representative of the Carrier. The representative of the
Carrier who receives the copies must acknowledge receipt by
signing and dating them and returning the duplicate copy to
the claimant or his duly accredited representative. If not
presented in the manner outlined in this paragraph, a claim
will not be subject to payment or denial.
15.2 To file a claim, a claimant or his duly accredited
representative will be required to furnish sufficient
information to identify the basis of claim, such as:
1) Name, Occupation
2) On and off duty times.
3) Date and time that work was performed.
4) Location and details of work performed on which claim is
based.
5) Claim being made, rule, if known, and reason supporting
claim.
15.3 When a claim for compensation alleged to be due is not
allowed, or should payment be made for less than the full
amount claimed, the claimant will be so informed in writing
within fourteen (14) days from the date the claim is received.
If claimant is not so notified, the claim will be allowed, but
such payment will not validate any other such claim nor will
such payment establish any precedent.
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15.4 All time claims which are denied in whole or in part within
the proper time limit may be appealed by the BMWE General
Chairman to the Carrier's highest designated appeals officer
within sixty (60) days from the date of denial. Within sixty
(60) days from receipt of such appeal, a date, time and place
for conference will be set. Decision on appeal will be made at
conference or no later than thirty (30) days thereafter.
15.5 The decision of the Carrier's highest designated appeals
officer will be final and binding unless within six (6) months
of such final denial the claim is disposed of on the property
or proceedings for disposition of the claim are instituted by
the BMWE to a tribunal having jurisdiction by law or
agreement.
15.6 Carrier officers designated to receive claims and appeals will
be specified by the Chief Engineer. BMWE General Chairman will
be given a list of the officers so designated.
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RULE 16
EXAMINATION, TRAINING, QUALIFYING
---------------------------------
16.1 All employees who are required by law or the Carrier to attend
classes for operating rules, safety rules, medication and/or
eye tests (including drug and/or alcohol tests), including
time spent qualifying on physical characteristics or other
specific training shall be paid for as time worked for the
actual time involved at the training rate. Employees will be
paid the mileage rate if required to travel more than thirty
(30) miles for such examinations, training, or qualifying.
When required to remain overnight, actual expenses will be
paid.
16.2 An employee who is required to travel outside of regular hours
of work to school will be paid four (4) hours at the straight
time rate for each day of travel.
16.3 The Carrier will pay up to twenty-five dollars ($25.00) twice
per year, or fifty dollars ($50.00) once per year per employee
for safety shoes, will provide one (1) pair of safety glasses
per employee, and will provide hardhats at no charge to the
employee.
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RULE 17
SYSTEM PRODUCTION GANGS
-----------------------
17.1 A) The Carrier may establish System Production Gangs with no
assigned basic headquarters to work throughout the
System, wherever their use may be required. Tie Gangs,
Surface Gangs, Rail Gangs, Bridge Gangs and other gangs
agreed upon by the parties will be considered as
Production Gangs.
B) Such System Production Gangs shall be assigned to start
their assignment at a safe, accessible reporting point.
If said point creates a major problem, the General
Chairman may handle such matter immediately with the
Chief Engineer, who will respond thereon in writing
within ten (10) days providing the basis for final
resolution.
17.2 When such System Production Gangs are to be established, the
Carrier will give written notice thereof to the General
Chairman indicating at least the following:
A) Type of productional unit.
B) Estimated territory over which programmed to work.
C) Estimated length of time Production Gang will operate.
D) Number of positions by class to be assigned.
E) Number of days per week unit will work.
17.3 A) Positions to be established will include the information
set forth in Section 17.2 above and will be bulletined in
accordance with Rule 11.
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<PAGE>
B) Assignments to these System Production Gang positions
will be made on the basis of the earliest seniority date
of an employee in the class required.
C) Employees assigned to these System Production Gangs may
perform the duties of their positions recognized as work
of their particular classification through the System
without regard to seniority districts. However, in
performing such duties, they will be restricted from
performing normal, day to day maintenance work if such
work could be performed more efficiently by employees on
the separate seniority district or section gangs.
17.4 Four (4) Day/Ten (10) Hour Day Assignments
A) The Carrier may establish System Production Gangs with
assignments of four (4) days/ten (10) hour days or five
(5) days/eight (8) hour days. In the event the work week
is changed to a five (5) day basis or vice versa for any
gang the General Chairman shall be given at least five
(5) days written notice thereof by the Chief Engineer
Maintenance of Way except that such changes may be made
in less than five (5) days upon concurrence of the
General Chairman.
B) Employees working in System Production Gangs having a
four (4) day work week will have the actual time worked
for each of the four (4) work days posted on the time
cards. Employees assigned to a four (4) day work week
will receive a credit of 1.25 days for each day of
compensated service towards vacation accrual.
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C) On agreed upon holidays System Production Gangs shall
receive one (1) day's pay at the appropriate rate of the
assignment for the holiday. By agreement between the
General Chairman and the Chief Engineer the day
designated as the holiday may be changed from the
assigned agreed upon day to the last day or the first day
of the work week.
D) The days designated as relief days may be Friday,
Saturday and Sunday or Saturday, Sunday and Monday, or,
if service dictates, there will be two (2) consecutive
rest days given within a seven (7) day period from the
initial assignment, and may not be changed without an
agreement once the entered assignment is advertised on a
specific Production Gang. However, such agreement will
not be unreasonably withheld.
17.5 Changes made in accordance with Rule 17.4 (D), hereof will not
require rebulletining of the positions. Neither will they be
the basis to permit employees assigned to positions in these
System Gangs to exercise displacement rights. They may,
however, bid off the assignment or gang in accordance with the
provisions of Rules 11 and 14. Also, when a position is
abolished or they are displaced by a senior employee, they may
then exercise seniority in accordance with the provisions of
Rules 11 and 14.
17.6 A) The Carrier will furnish camp cars or other lodging for
each System unit. Such lodging shall be facilities
maintained in a clean, healthful, and sanitary condition
and will be furnished with individual lockers, washing,
shower and toilet facilities located within the place of
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lodging, and shall have sufficient ventilation and air
space (which will include adequate fans or air
conditioners).
Dining and sleeping cars will be screened at the
beginning of each season or as necessary. Kitchen and
dining cars will be equipped with the necessary cooking
facilities, dishes, tableware, and utensils. Sleeping
quarters shall be equipped with a sufficient number of
bunks to accommodate all those in the cars. Bunks shall
be equipped with adequate mattresses, blankets, clean
sheets, pillows, and pillow slips, and an adequate supply
of water and fuel for domestic purposes shall be
furnished. Safeguards will be established for the safety
and health of the employees.
The above-listed facilities and camp cars will be
inspected every year by the proper Carrier officer and a
union representative and a joint report will be made to
the Chief Engineer, Maintenance of Way, as to their
findings, and any improper conditions will be corrected.
However, should a complaint be filed in the interim of
the one (1) year period, a joint inspection will be made
immediately or as soon as is possible, and any improper
conditions will be corrected immediately.
B) The Carrier and the General Chairman may enter into a per
diem agreement in lieu of meals and/or lodging allowances
as provided in this Agreement.
17.7 The estimated length of time for a System Production Gang as
referred to in Rule 17.2 C hereof is not a guarantee. These
gangs may be terminated earlier than the estimated length of
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time by abolishment of all positions therein by proper notice
to the individual employee, or in an emergency. If it is
intended to continue the gang in operation beyond the
estimated length of time as specified in Rule 17.2 C, written
notice shall be given to the General Chairman as promptly as
possible setting forth an estimate of the additional length of
time the gang will operate.
17.8 The estimated territory over which a System Production Gang is
programmed to work as referred to in Rule 17.2 (B), hereof
does not limit the operation of such production gang to that
territory exclusively. They may be used to perform service
throughout the entire System.
17.9 It is agreed that the provisions of Rule 13, which requires an
employee to protect his seniority rights in his home seniority
district will not apply to any employee while he is working is
a System Production Gang.
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RULE 18
AWAY FROM HOME EXPENSES
-----------------------
18.1 An employee taken off his assigned territory to work elsewhere
will be furnished lodging and per diem, or meals at the
Carrier s option, by the Carrier. If lodging is not furnished
by the Carrier, the employee will be compensated for actual
lodging expenses he may incur. This Section applies only to
employees held away from assigned territory an unreasonable
time beyond the evening meal hour.
18.2 Employees assigned to positions on System Production Gangs
will be allowed expenses as follows:
A) If the assembly point is more than 50 miles from the
employee s home, then the Carrier will provide lodging
and per diem and actual mileage for travel to the
assembly point on the first day and from the assembly
point on the last day unless the Carrier provides such
transportation.
B) If the assembly point is 50 miles or less from the
employee s home, then a reporting payment of $10 per day
through 12/31/96, $11.50 as of 1/1/97 and $13.00 as of
1/1/99.
18.3 When lodging is provided, other than at the Butler facility or
in camp cars, it shall mean not more than two (2) employees
per room.
18.4 Personal expenses will be paid within fifteen (15) days of the
date submitted.
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18.5 Per Diem shall be paid at the following rates: $14.50 starting
10-16-95 through 12-31-95; $15.00 as of 1-1-96; $15.75 as of
1-1-97; $16.50 as of 1-1-98; $17.50 as of 1-1-99.
18.6 Carrier shall only until such time as the terms of this
Agreement are modified pursuant to Rules 37.1 and 37.2,
continue to provide those employees now receiving it, lodging
at the Butler facility, per diem and mileage as has been past
practice. Such employees are indicated by an asterisk on the
roster.
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RULE 19
DISCIPLINE
----------
19.1 No employee will be disciplined without a fair hearing. The
notice of hearing will be mailed to the employee within ten
(10) days if held out of service or within twenty (20) days of
the Carrier's first knowledge of the act or occurrence. The
notice of hearing will contain information sufficient to
apprise the employee of the act or occurrence to be
investigated, including the rule(s) alleged to have been
violated. Such information will include date, time, location,
assignment, and occupation of employee at the time of the
incident. The notice of hearing will also include a list of
witnesses to be called. The hearing will be scheduled to take
place within twenty (20) days if held out of service or within
thirty (30) days of the Carrier's first knowledge of the act
or occurrence. The hearing may be postponed by either party
due to sickness, injury, or vacation of principals or
witnesses. The hearing may be postponed for other reasons by
mutual agreement of the parties. The hearing may be adjourned
to secure necessary witnesses or if it cannot be completed in
a day.
19.2 An employee may not be suspended pending a hearing except when
the act or occurrence to be investigated is of a serious
nature such as Rule G, Insubordination, Gross Negligence,
Dishonesty, or when continuing an employee in service may
constitute a threat to Carrier personnel, carrier property, or
property entrusted to the custody of the Carrier. Suspension
pending a hearing will not be considered as prejudicial to the
employee.
19.3 The employee will have the opportunity to request that the
Carrier provide necessary witnesses not listed on the notice
of hearing and will have the opportunity to secure the
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presence of witnesses in his own behalf. The employee will
have the right to representation and he and his representative
will have the right to question all witnesses. The employee
and his representative will be provided with a copy of the
hearing transcript.
19.4 The employee must be notified within fifteen (15) days of the
completion of the hearing if discipline will be assessed. The
types of discipline which may be assessed are reprimand,
disqualification, deferred suspension, relevant training,
actual suspension, and dismissal. The types of discipline may
be assessed individually or in combination.
19.5 If the finding of the hearing is that the employee is not at
fault, he will be compensated for the actual wages lost, if
any. If no wages are lost, employee will be paid in
accordance with the Agreement.
19.6 If the finding of the hearing is that the employee is at
fault, appeal of discipline assessed must be made within
thirty (30) days of the date of the discipline notice. Such
appeal must be made in writing by the BMWE General Chairman to
the Carrier's highest designated appeals officer.
Conference must be scheduled within ten (10) days of receipt
of appeal. Written response to the appeal will be issued
within fifteen (15) days from the date of the conference. If
the decision of the Carrier on appeal is in favor of the
employee, he will be paid in accordance with Rule 19.5. If
the appeal is denied, that decision will be final and binding
unless within six (6) months of such denial the case is
disposed of on the property or proceedings for disposition of
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the case are instituted by the BMWE to a tribunal having
jurisdiction by law or agreement.
19.7 If the Carrier's discipline decision is modified or overturned
at any stage of handling resulting in a payment to the
employee, such payment may be offset by any compensation
received by the employee during the relevant time period.
19.8 A hearing can be disposed of informally by agreement between
the parties.
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RULE 20
HOLIDAYS
--------
20.1 Subject to the qualifying requirements specified below,
eligible employees will receive eight (8) hours pay at the
straight time hourly rate for each of the following holidays:
New Year's Day Good Friday
Memorial Day Fourth of July
Labor Day Thanksgiving Day
Day after Thanksgiving Christmas Eve (the day before
Christmas is observed)
Christmas Day New Year's Eve (the day before
New Year's is observed)
Such other days as may be allowed to other Carrier
employees.
20.2 To be eligible for holiday pay provided in Rule 20.1,
regularly assigned employees must either work or be available
for work on the last work day before and the first work day
after the holiday. If required to work the holiday, employees
must protect their assignment in order to be eligible for
holiday pay.
20.3 Subject to the applicable qualifying requirements above, other
than regularly assigned employees will be eligible for the
paid holidays or pay in lieu thereof, provided (1)
compensation for service paid them by the Company is credited
to eleven (11) or more of the thirty (30) days immediately
preceding the holiday and (2) they have had a seniority date
for at least sixty (60) days or have sixty (60) days of
continuous active service preceding the holiday beginning with
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the first day of compensated service, provided employment was
not terminated prior to the holiday by resignation, for cause,
retirement, death, non-compliance with the union shop
agreement, or disapproval of application for employment.
20.4 A holiday which falls during an employee's vacation period
will be allowed to be used to extend that vacation period, or
to be used at a later date. Subject to the eligibility
requirements of this Rule, the holiday pay specified in Rule
20.1 will be paid in addition to the vacation allowance.
20.5 When employees are working a four (4) day, ten (10) hours per
day work week and a holiday falls on a work day in that work
week, the holiday pay provided in Rule 20.1 will be modified
to ten (10) hours at the straight time hourly rate and be paid
to all eligible employees.
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RULE 21
SICK LEAVE DAYS
---------------
21.1 Employees off sick will be granted sick leave each calendar
year as follows:
Length of Service as of January 1 Sick leave Days
Five (5) Years. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Ten (10) Years. . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Fifteen (15) Years. . . . . . . . . . . . . . . . . . . . . . . . . .3
21.2 Sick leave days provided above which remain unused at the end
of each calendar year will not be accumulated.
21.3 Payment for sick leave days will be eight (8) hours (ten (10)
hours if the employee is assigned to a position working four
(4) ten (10) hour days) at seventy-five percent (75%) of the
straight time hourly rate. Sick leave payments will not be
offset by any RRUI sickness benefits the employee may receive.
No sick leave benefits will be paid on any day the employee
qualifies for compensation under any other Rule of this
Agreement or the Supplemental Sickness Benefit Plan.
21.4 The Carrier may require satisfactory evidence in the form of
a letter or certificate from a physician confirming the
employee's sickness.
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RULE 22
HEALTH AND WELFARE
------------------
22.1 The Carrier and the BMWE have agreed that the employees will
be provided the same Group Insurance Plan, including dental
coverage, provided by the Delaware Otsego Corporation for its
employees and extended to the employees of The New York,
Susquehanna and Western Railway Corporation, and will be
covered by any changes to such plan.
22.2 Notwithstanding the above, it is agreed that employees will
not request, or be provided, dependent coverage if that
employee has coverage for his dependents available elsewhere
at no charge.
22.3 Carrier shall provide, at its expense, the Supplemental
Sickness Benefits Agreement currently available from Trustmark
Insurance Company.
22.4 Subrogation: The Carrier shall be subrogated to any right of
recovery an employee may have against any party for loss to
the extent that the Carrier or its group health insurance has
made payments pursuant to this Rule, and all such payments
shall operate as an offset against any right of recovery the
employee may have against the Carrier for hospital, surgical,
medical, related expenses or damages of any kind.
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RULE 23
VACATION
--------
23.1 Each employee who has been employed by the Carrier for one (1)
year or more and who worked for a minimum of 100 working days
during the previous calendar year, shall be entitled to one
(1) week's vacation allowance; each employee who has been so
employed for two (2) years shall be entitled to two (2) weeks
vacation allowance; each employee who has been so employed for
nine (9) years shall receive three (3) weeks vacation
allowance; each employee who has been so employed for fifteen
(15) years shall receive four (4) weeks vacation allowance;
each employee who has been so employed for twenty (20) years
or more shall receive five (5) weeks vacation allowance. All
such vacations shall be taken as hereinafter provided. It is
understood and agreed that employees will establish vacation
qualifications based on the date of hire on the seniority
roster or date of hire by the Carrier, whichever is earlier.
23.2 Vacations should normally be taken in units of one (1) or more
weeks but where service requirements permit, an individual
employee may be permitted by the supervising officer to take
a vacation period of less than one (1) week. A full work day
is the minimum vacation period to be taken.
23.3 Employee's weekly vacation allowance will be forty (40) times
the straight time hourly rate of pay of the last service
performed prior to taking vacation.
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23.4 Seniority in employee selection will be the basis for the
establishment of vacation schedules. Vacation schedules will
be established each year as follows:
A) On or before February 1, the Northern Division and
Southern Division written blank vacation schedules will
be provided by the Carrier to the employees.
B) On or before February 7, the three (3) most senior MOW
employees on each roster will chose their vacation time
for the ensuing year.
C) On or before February 14, the next three (3) most senior
MOW employees on each roster will chose their vacation
time for the ensuing year.
D) The procedure described in subsections (B) and (C) shall
continue in periods of seven (7) days and three (3) MOW
employees until the bottom of the roster is reached.
E) Any MOW employee who fails to designate his vacation
during the seven (7) days provided in the procedure
described above will be allowed to designate his vacation
after the bottom of the roster is reached, in seniority
order with any other MOW employee who failed to designate
his vacation in the procedure described above.
23.5 Vacations will be taken between January 1st and December 31st.
However, it is recognized that the requirements of the service
may create practical difficulties in providing vacations in
all instances. Due regard, consistent with requirements of
the service, shall be given to the preference of the employee
in his seniority order when granting vacations.
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Representatives of the Carrier and of the employees will
cooperate in arranging vacation periods, administering
vacations and releasing employees when requirements of the
service will permit.
23.6 Vacations shall not be accumulated or carried over from one
year to another. In cases where vacations have not been taken
due to sickness, suspension or carrier request, vacation time
will be rescheduled or paid for within that calendar year.
23.7 In the event that an employee takes all or part of the earned
vacation, prior to reaching the anniversary date in the
anniversary year, the amount of vacation allowance will be the
same as if the anniversary date has been reached.
23.8 The vacation provided for in this Rule shall be considered to
have been earned when the employee has qualified under Section
23.1 hereof. If an employee's employment status is terminated
for any reason except voluntary resignation without two (2)
weeks notice, the full vacation pay earned, up to the time of
leaving the service, shall be granted upon request. If an
employee entitled to vacation or vacation pay shall die, the
vacation pay earned and not received shall be paid according
to law.
23.9 Employees who take vacation in a weekly block shall be
considered to be on vacation (Monday-Friday) but will be
permitted to mark up for work on Saturday and Sunday if they
so desire by giving their supervisor at least seven (7) days
advance notice.
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23.10 The parties hereto having in mind conditions which may
exist or may arise in making provisions for vacation with
pay, agree that additional understandings may be entered
into to implement the purpose of this Agreement, provided
that such understandings shall not be inconsistent with
this Rule.
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RULE 24
RETENTION OF SENIORITY
----------------------
24.1 Employees who are presently or subsequently appointed to
positions not subject to the application or exercise of
seniority under this Agreement shall retain all their
seniority rights and shall continue to accumulate seniority
provided they pay a fee no greater than the current dues
and assessments being paid by the Carrier's employees
covered by this Agreement from the effective date of this
Agreement and shall have all rights and privileges granted
by the Constitution and By-Laws of the BMWE.
24.2 In the event an employee fails to comply with Rule 24.1
above, the duly accredited representative shall so notify
the Chief Engineer and the employee. Within thirty (30)
days after receipt of a subsequent notification from the
Chief Engineer the employee will forfeit his seniority
unless the employee involved remits all monies due the
union.
24.3 Employees appointed to positions covered by Rule 24.1 who
are subsequently removed from such positions by the Carrier
(other than through dismissal for cause) may displace any
employee with less seniority or may bid on a bulletined
vacancy. However, employees suspended from service for
sixty (60) days or less while in their appointed positions
may not displace any employee under this Agreement nor bid
a bulletined vacancy. Employees suspended for more than
sixty (60) days (other than dismissal for cause) may bid on
any bulletined vacancy to be effective after sixty (60)
days but may not displace any regular assigned employee.
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24.4 Employees appointed to positions covered by Rule 24.1 who
voluntarily demote themselves may bid on any advertised
position thereafter, but may not displace any regular
assigned employee.
24.5 The Carrier shall provide the Organization with the names
and addresses of all employees who appear on any roster
covered by the scope of this Agreement and who are covered
by Rule 24.1 within thirty (30) days of the execution of
this Agreement or, in the case of employees not presently
holding such positions with the Carrier, within thirty (30)
days of appointment to such a position.
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RULE 25
LEAVES OF ABSENCE
-----------------
25.1 Employees with one (1) year or more of continuous service
may request leaves of absence. Requests for leaves of
absence must contain specific reasons for the request
including need for leave and length of time required,
subject to the limitations of Rule 25.3 below.
25.2 Requests for leaves of absence or extensions thereof must
be in writing to the Chief Engineer with a copy to the
General Chairman.
25.3 Except as specified below, leaves of absence or extensions
thereof will be limited to a minimum of fourteen (14) days
and a maximum of six (6) months. Employees who engage in
other work while on leaves of absence will forfeit
seniority, unless specials arrangements have been made
therefor with the Chief Engineer and the General Chairman.
25.4 Requests for leaves of absence or extensions thereof will
only be considered when the needs of the service allow. If
a request for a leave of absence or extension thereof is
denied, such denial will be in writing with a copy to the
General Chairman.
25.5 Employees appointed to official positions with the Carrier
or who accept a full-time Union position will be granted
leaves of absence for the duration of the assignment. This
individual will be credited for time on leave of absence as
continuous service for the length of his vacation
entitlement.
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25.6 Employees returning from leaves of absence as specified in
Rule 25.3 must report for duty upon the expiration of leave
or extension thereof. Failure to return to duty or to
provide satisfactory reasons for not doing so will result
in forfeiture of seniority. Employees may return to
service prior to the expiration of leave or extension
thereof provided they furnish seven (7) calendar days
advance notice.
25.7 Employees returning from leaves of absence as specified in
Rule 25.5 must report for duty within thirty (30) days from
the conclusion of their assignments and the expiration of
leave or be subject to the provisions of Rule 25.6.
25.8 Employees returning to service under Rules 25.6 and 25.7
above will do so pursuant to the provisions of Rule 14
(Displacements) of this Agreement.
25.9 Employees who absent themselves for more than fourteen (14)
days without written authorized leaves of absence as
provided in this Rule will forfeit their seniority.
25.10 Leaves of Absence are not required when employees are
unable to perform service due to a bona fide sickness
or injury.
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RULE 26
BEREAVEMENT DAYS
----------------
26.1 Employees will be allowed bereavement leave not to exceed
three (3) working days in relation to the death of a
spouse, child, stepchild, parent, stepparent,
parent-in-law, stepparent-in-law, sibling, grandparent or
grandchild.
26.2 Employees will be paid eight (8) hours (ten (10) hours in
the case of employees assigned to work four (4) ten (10)
hour days) at the straight time rate for each working day
lost during bereavement leave with a maximum of three (3)
days.
26.3 Bereavement pay will not be allowed to employees who are
otherwise absent from work and will not duplicate payments
made for holidays or vacation.
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RULE 27
ATTENDING COURT, INQUESTS, INVESTIGATIONS
-----------------------------------------
27.1 Employees required to attend court, inquests,
investigations, etc., by or on behalf of the Carrier will
be paid for actual time consumed at the straight time
hourly rate and shall be allowed actual expenses incurred,
with the understanding that employees will furnish written
receipt for such expenses before being reimbursed. If
prevented from working their assignments, employees will be
paid for time lost. It is understood that the provisions of
this Rule do not apply in the case of employees attending
hearings where they are subject to discipline.
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RULE 28
JURY DUTY
---------
28.1 When employees are summoned for jury duty and are required
to lose time from their assignments as a result thereof,
they shall be paid for actual time lost with a maximum of
eight (8) hours at the straight time hourly rate for each
calendar day lost (or ten (10) hours in the case of
employees assigned to work four (4) ten (10) hour days, but
not to exceed forty (40) hours in any work week) less the
amount allowed by the Court (not to include allowances paid
for meals, lodging, or transportation). No jury duty pay
will be allowed for any day on which employees are
otherwise entitled to vacation or holiday pay.
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RULE 29
PHYSICAL CONDITION - BOARD OF DOCTORS
-------------------------------------
When an employee covered by this Agreement has been removed from
or is withheld from service on account of his physical condition
and the Organization desires the question of his physical
fitness to be finally decided before he is permanently removed
from his position or restricted from resuming service, the case
shall be handled in the following manner:
A) The General Chairman will bring the matter to the
attention of the Chief Engineer. He and the General
Chairman shall then each select a doctor to represent
them, each notifying the other of the name and address
of the doctors selected. The two (2) doctors thus
selected shall confer and if they disagree on the
nature of illness, they shall appoint a third doctor.
B) Such board of doctors shall then fix a time and place
for the employee to meet them. After completion of the
examination they shall make a report in triplicate:
one (1) copy to be sent to the Medical Director, one
(1) copy to the Chief Engineer of the New York,
Susquehanna and Western Railway, and one (1) copy to
the General Chairman.
C) The decision of the board of doctors on the physical
fitness of the employee to continue in his regular
occupation or to resume service shall be final, but
this does not mean that a change in physical condition
shall preclude a re-examination at a later time.
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D) The doctors selected for such board shall be qualified
in the disease from which the employee is alleged to
be suffering, and they shall be located at a
convenient point so that it will be only necessary for
the employee to travel a minimum distance, and if
possible, not be away from home for a longer period
than one (1) day.
E) The Carrier and the Organization shall each defray the
expenses of its respective appointee. At the time
their report is made, a bill for the fee, and
traveling expenses if there are any, of the third
appointee should be made in duplicate and one (1) copy
sent to the Medical Director and one (1) copy sent to
the General Chairman. The Carrier and the
Organization shall each pay one-half of the fee and
traveling expenses of the third appointee.
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RULE 30
USE OF PERSONAL AUTO WHILE ON DUTY
----------------------------------
30.1 Employees who use their personal autos while on duty and
under pay will be allowed twenty-two cents ($.22) per mile
for such use or such higher rate as may be paid to other
carrier employees.
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RULE 31
APPLICATION FOR EMPLOYMENT
--------------------------
31.1 Applications for employment will be rejected within sixty
(60) calendar days after seniority date is established, or
applicant shall be considered accepted. Applications
rejected by the Carrier must be declined in writing to the
applicant.
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RULE 32
DULY ACCREDITED REPRESENTATIVE
------------------------------
32.1 The term "duly accredited representative", as used in this
Agreement, shall be understood to mean the representative
or System Officer of the Organization signatory hereto.
32.2 The Organization will notify the Chief Engineer in January
of each year of who the duly accredited representatives
are.
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RULE 33
UNION SHOP AGREEMENT
--------------------
Union Shop
33.1 In accordance with and subject to the terms and conditions
hereinafter set forth, all employees of the Carrier now or
hereafter subject to the Rules and Working Conditions
Agreement between the parties hereto shall, as a condition
of their continued employment subject to such Agreement,
become members of the union party to this Agreement
representing their crafts or classes within sixty (60)
calendar days of the date they first perform compensated
service as such employees after the effective date of this
Agreement, and thereafter shall maintain membership in good
standing in such union; except that such membership shall
not be required of any individual until he has performed
thirty (30) days of such compensated service within a
period of twelve (12) consecutive calendar months. Nothing
in this agreement shall alter, enlarge or otherwise change
the coverage of the present or future Rules and Working
Conditions Agreement. Any employee whose employment is
terminated prior to the time such employee is required to
become a member of BMWE shall have no time or money claim
by reason thereof.
33.2 A) Employees who have secured seniority under the Rules
and Working Conditions Agreement and who are
subsequently regularly assigned or transferred to
full-time employment not covered by such Agreement or
are furloughed on account of force reduction will not
be required to maintain membership as provided in Rule
33.1 of this agreement so long as they remain in such
other employment or furloughed as herein provided, but
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they may do so at their option. Should such employees
return to any service covered by the said Rules and
Working Conditions Agreement they shall, as a
condition of their continued employment subject to
such Agreement, be required to become and remain
members in good standing in the union within thirty
(30) days from date of their return to such service.
B) The seniority status and rights of employees granted
leave of absence to serve in the Armed Forces shall
not be terminated by reason of any of the provisions
of this agreement but such employees shall, upon
resumption of employment, be governed by Rule 33.1 of
this Agreement.
33.3 Nothing is this agreement shall require an employee to
become or to remain a member of the union if such
membership is not available to such employee upon the same
terms and conditions as are generally applicable to any
other members, or if the membership of such employee is
denied or terminated for any reason other than the failure
of the employee to tender the periodic dues, initiation
fees, and assessments (not including fines and penalties)
uniformly required as a condition of acquiring or retaining
membership. For purposes of this Rule, dues, fees, and
assessments shall be deemed to be "uniformly required" if
they are required of all employees in the same status at
the same time in the union.
33.4 A) The Carrier will furnish to the union information with
respect to the employment status of employees
represented by it, and which information is pertinent
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to the administration of this agreement. The union
will notify the Carrier in writing of any employee who
by reason of failure to comply with the terms of this
agreement is not entitled to continue in employment.
Upon receipt of such notice, the Carrier will, as
promptly as possible but within ten (10) calendar days
of such receipt, so notify the employee concerned in
writing by certified mail, return receipt requested,
or by personal delivery evidenced by receipt. Copy of
such notice shall be given the union. Any employee so
notified who disputes the fact that he has failed to
comply with the terms of this agreement, shall, within
a period of ten (10) calendar days from the date of
such notice, request the Carrier in writing to accord
him a hearing which shall be held as soon as possible
and within ten (10) calendar days of receipt of
request therefor. Notice of the date set for hearing
shall be promptly given the employee in writing by
certified mail, return receipt requested, or by
personal delivery evidenced by receipt. Copy of notice
of such hearing shall be given to the union and the
union shall attend and participate in the hearing. The
receipt by the Carrier of a request for a hearing
shall operate to stay action on the termination of
employment until the hearing is held and the decision
of the Carrier is rendered. In the event the employee
concerned fails to request a hearing as provided
herein, the Carrier shall proceed to terminate his
employment and seniority not later than thirty (30)
calendar days from receipt of the above described
notice from the union, unless the Carrier and the
union agree otherwise in writing.
B) The Carrier shall determine on the basis of the
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evidence produced at the hearing whether or not the
employee has complied with the terms of this
agreement, and shall render a decision accordingly.
Such decision shall be rendered within ten (10)
calendar days of the hearing date and the employee and
the union shall be promptly advised thereof. If the
decision is that the employee has not complied with
the terms of this agreement, his employment and
seniority shall be terminated within ten (10) calendar
days of the date of said decision, unless the Carrier
and the union agree otherwise in writing. If the
decision of the Carrier is not satisfactory to the
employee or to the union, it may be appealed directly
to the highest officer of the Carrier designated to
handle such appeals. Such appeals shall be taken
within ten (10) calendar days of the date of the
decision appealed from, and if taken, shall operate to
stay action on the termination of employment, until
the decision on appeal is rendered. The Carrier shall
promptly notify the other party in writing of any such
appeal. The decision on such appeal shall be rendered
within ten (10) calendar days of the date the appeal
is taken, and the employee and the union shall be
promptly advised thereof. If the decision on such
appeal is that the employee has not complied with the
terms of this agreement, his employment and seniority
shall be terminated within ten (10) calendar days of
the date of said decision unless the Carrier and the
union otherwise agree in writing. Such decision on
appeal shall be final and binding unless within ten
(10) calendar days thereof the union or the employee
involved requests the selection of a neutral person to
decide the dispute as provided in Rule 33.4(C) below.
Any request for selection of a neutral person as
provided in Rule 33.4(C) below, shall operate to stay
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<PAGE>
action on the termination of seniority and employment
until not more than ten (10) calendar days from the
date decision is rendered by the neutral person.
C) If within ten (10) calendar days after the date of a
decision on appeal by the highest officer of the
Carrier designated to handle appeals under this
agreement, the union or the employee involved requests
such highest officer in writing that a neutral person
be appointed to decide the dispute, a neutral person
to act as sole arbitrator to decide the dispute shall
be selected by the highest officer of the Carrier
designated to handle appeals under this agreement or
his designated representative, the Chief Executive of
the union or his designated representative, and the
employee involved or his representative. If they are
unable to agree upon the selection of a neutral
person, any one of them may request the Chairman of
the National Mediation Board in writing to appoint
such neutral person. The Carrier, the union and the
employee involved shall have the right to appear and
present evidence at a hearing before such neutral
person. Any decision by such neutral person shall be
made within thirty (30) calendar days from the date of
receipt of the request for his appointment and shall
be final and binding upon the parties. The Carrier,
the employee and the union shall be promptly advised
thereof in writing. If the position of the employee is
sustained, such fees, salary and expenses shall be
borne in equal shares by the Carrier and the union. If
the position of the employee is not sustained, such
fees, salary and expenses shall be borne in equal
shares by the Carrier and the union and the employee.
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<PAGE>
D) Time limits specified in this Rule may be extended in
individual cases by written agreement of the Carrier
and the union.
E) The union shall notify the Carrier in writing of the
title(s) and address(es) of its officers or
representatives who are authorized to serve and
receive notices described in this Rule. The Carrier
shall notify the union of the title(s) and address(es)
of its officers or representatives who are authorized
to receive the notices described in this Rule.
33.5 The Carrier shall not be required to terminate the
employment of any employee until such time as the services
of a qualified replacement are available. The
determination of whether a qualified replacement is
available shall be made jointly by the designated
representative of the Carrier and the designated
representative of the union. The Carrier may not, however,
retain any employee in service under the provisions of this
paragraph for a period in excess of ninety (90) calendar
days from the date of the union's original notice or sixty
(60) calendar days from the date of the last decision
rendered in accordance with Rule 33.4(C) above. Employees
whose service is extended under the provisions of this Rule
shall not, during such extension, retain or acquire any
seniority rights.
33.6 An employee whose employment and seniority is terminated
pursuant to the provisions of this agreement shall have no
time or money claim by reason thereof.
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<PAGE>
33.7 In the event that seniority and employment under the Rules
and Working Conditions Agreement is terminated by the
Carrier under the provisions of this agreement, and such
termination of seniority and employment is subsequently
determined to be improper, unlawful, or unenforceable, the
union shall indemnify and save harmless the Carrier against
any and all liability arising as the result of such
improper, unlawful, or unenforceable termination of
seniority and employment; provided, however, that this
sentence shall not apply to any case in which the Carrier
is the plaintiff or the moving party in the action in which
the aforesaid determination is made or in which case the
Carrier acts in collusion with any employee; provided
further, that the aforementioned liability shall not extend
to the expense to the Carrier in defending suits by
employees whose seniority and employment are terminated by
the Carrier under the provisions of this agreement.
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<PAGE>
RULE 34
DUES DEDUCTION
--------------
34.1 A) Subject to the terms and conditions hereinafter set
forth, the Carrier will deduct from the wages of
employees, membership dues, fees and assessments
(excluding fines and penalties) whenever applicable
each calendar month which are uniformly required as a
condition of acquiring or retaining membership in the
union upon written and unrevoked authorization of the
employee on the form, WAGE DEDUCTION AUTHORIZATION
agreed upon by the parties hereto, a copy of which is
attached and made a part of this Agreement.
B) The designated representative of the union shall
promptly notify in writing the officer or officers
designated by the Carrier of any special assessments
or changes in amounts of fees or dues, and shall also
furnish to such designated officer or officers of the
Carrier, the individual authorization forms as
provided for herein.
34.2 A) Individual authorizations to be effective for a
particular calendar month must be in the possession of
the Carrier not later than the twentieth (20th) day of
the month preceding the month in which such deductions
are to be made.
B) The designated representative of the union shall
furnish to the Carrier an initial statement in
alphabetical order, showing the employee's name, lodge
number, Social Security number, and amount to be
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<PAGE>
deducted, such statement to be furnished together with
individual authorization forms to cover, not later
than the twentieth (20th) day of the month preceding
the month in which the deductions become effective.
Subsequent monthly deductions will be based on the
initial statement, plus a monthly statement showing
additions or deletions, furnished in the same manner
as the initial statement required hereby.
34.3 Said deductions will be made monthly and shall be remitted
to the Officer designated by the union not later than the
end of the month in which deductions are made, accompanied
by a list in alphabetical order showing the name of each
employee for whom a deduction was made, his lodge number,
Social Security number, and the amount of the deduction and
the total amount of money deducted. If the earnings of the
employees are insufficient in the pay period in which
deductions are made to permit the full amount of the
deduction, no deduction will be made for that month. In
the event of any excess or shortage in said deductions for
an individual employee, said excess or shortage will be
subject to adjustment by the union and individual employee.
34.4 The following payroll deductions will have priority over
the deductions covered by this agreement:
Federal, state and local taxes.
Other deductions required by law and court orders.
Amounts due Carrier.
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<PAGE>
34.5 The deductions provided for herein shall not be effective
with respect to any individual employee until the Carrier
has been furnished with written authorization of assignment
of wages of such monthly membership dues, initiation fees,
reinstatement fees, and assessments. Such assignment shall
be revocable in writing after the expiration of one (1)
year, or upon termination of this Agreement.
34.6 Responsibility of the Carrier under this arrangement shall
be limited to remitting to the union the amount actually
deducted from wages of employees pursuant hereto and the
Carrier shall not be responsible financially or otherwise
for failure to make deductions or for improper or
inaccurate deductions. Any question arising as to the
correctness of the amount deducted shall be handled between
the employee involved and the union, and any complaints
against the Carrier in connection therewith shall be
handled by the union on behalf of the employees concerned.
34.7 The union shall indemnify and save harmless the Carrier
from and against any and all claims, demands, liability,
losses or damage resulting from the entering into of this
agreement or arising or growing out of any dispute or
litigation from any deductions made by the Carrier pursuant
to this agreement; except for remitting to the union the
monies deducted pursuant to this agreement; provided,
however, that this sentence shall not apply to any case in
which the Carrier is the plaintiff or the moving party in
the action or in which case the Carrier acts in collusion
with any employee; provided further, that the
aforementioned liability shall not extend to the expense to
the Carrier in defending suits by employees as a result of
the Carrier's action under this agreement.
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<PAGE>
34.8 In the event of a change in representation of employees now
represented by the union this agreement shall be
automatically terminated as of the date official
notification is received from the National Mediation Board
of such change in representation.
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<PAGE>
WAGE DEDUCTION AUTHORIZATION
----------------------------
Between The
THE NEW YORK, SUSQUEHANNA AND WESTERN RAILWAY CORPORATION
And The
BROTHERHOOD OF MAINTENANCE OF WAY EMPLOYES
------------------------------
Employee Identification Number
- -----------------------------------------------------------------
PRINT LAST NAME FIRST NAME MIDDLE INITIAL
- -----------------------------------------------------------------
HOME STREET ADDRESS CITY STATE ZIP
PAYROLL DIRECTOR:
I hereby assign to the Brotherhood of Maintenance of Way
Employes that part of my wages necessary to pay initiation fees,
periodic dues and assessments (not including fines and
penalties) as certified to the Carrier by the
Secretary-Treasurer of the Brotherhood of Maintenance of Way
Employes as provided in the dues deduction rule and authorize
the Carrier to deduct such sum from my wages and pay it to the
Organization in accordance with the Dues Deduction Agreement.
Dues, contributions or gifts to the Brotherhood of Maintenance
of Way Employes are not deductible as charitable contributions
for Federal income tax purposes. Dues paid to the Brotherhood
of Maintenance of Way Employes, however, may qualify as business
expenses and may be deductible in limited circumstances subject
to various restrictions imposed by the Internal Revenue Code.
- -------------------------- --------------------------------------
DATE SIGNATURE
- -------------------------- --------------------------------------
LODGE NUMBER SOCIAL SECURITY NUMBER
- 113 -
<PAGE>
WAGE DEDUCTION REVOCATION
Between The
THE NEW YORK, SUSQUEHANNA AND WESTERN RAILWAY CORPORATION
And The
BROTHERHOOD OF MAINTENANCE OF WAY EMPLOYES
-----------------------
Employee Name
-----------------------
Social Security #
The New York, Susquehanna and Western Railway Corporation
1 Railroad Avenue
Cooperstown, NY 13326
Attn: Payroll Department
Dear Sir/Madam:
Effective in the next calendar month, I hereby revoke the wage
assignment now in effect assigning to the Brotherhood of
Maintenance of Way Employes that part of my wages necessary to
pay initiation fees, periodic dues and assessments (not
including fines and penalties), and I hereby cancel the
authorization.
Sincerely yours,
------------------------------
Employee's Signature
------------------------------
Employee Identification Number
Date
- ---------------------------------
Signature of Union Representative
-------------------------------
Lodge #
- ---------------------------------
- 114 -
<PAGE>
RULE 35
BMWE POLITICAL LEAGUE DEDUCTIONS
--------------------------------
35.1 A) Subject to the terms and conditions hereinafter set
forth, the Carrier will deduct from the wages of
employees voluntary political contributions upon their
written authorization on the form, CONTRIBUTION
DEDUCTION AUTHORIZATION, agreed upon by the parties
hereto, copy of which is attached, designated and made
a part hereof.
B) Voluntary political contributions will be made monthly
from the compensation of employees who have executed
a written authorization providing for such deductions.
The first such deduction will be made in the month
following the month in which the authorization is
received. Such authorization will remain in effect
for a minimum of twelve (12) months and thereafter
until canceled by thirty (30) days' advance written
notice from the employee to the BMWE and the Carrier.
Changes in the amount to be deducted will be limited
to one (1) change in each twelve (12) month period,
and any change will coincide with a date on which dues
deduction amounts may be changed under the Dues
Deduction Rule.
35.2 The General Chairman or his designated representative shall
furnish the Carrier with a copy to appropriate units of the
BMWE, an initial statement by lodges, in alphabetical order
and certified by him, showing the amounts of deductions to
be made from each employee, such statement to be furnished
together with individual authorization forms to cover, and
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<PAGE>
payroll deductions of such amounts will commence in the
month immediately following. Subsequent monthly deductions
will be based on the initial statement plus a monthly
statement showing additions and/or deletions furnished in
the same manner as the initial statement required
hereinabove.
35.3 Monthly voluntary political contribution deductions will be
made from wages at the same time that membership dues are
deducted from the employee's paycheck.
35.4 Concurrent with making remittance to the Organization of
monthly membership dues, the Carrier will make separate
remittance of voluntary political contributions to the
Treasurer, Maintenance of Way Political League, together
with a list prepared in accordance with the requirements of
the Dues Deduction Rule pertaining to the remittance of
monthly membership dues, with a copy to the General
Chairman.
35.5 The requirements of this Rule shall not be effective with
respect to any individual employee until the employer has
been furnished with a written authorization of assignment
of wages of such monthly voluntary political contribution.
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<PAGE>
MAINTENANCE OF WAY POLITICAL LEAGUE
-----------------------------------
CONTRIBUTION DEDUCTION AUTHORIZATION
Between The
THE NEW YORK, SUSQUEHANNA AND WESTERN RAILWAY CORPORATION
And The
BROTHERHOOD OF MAINTENANCE OF WAY EMPLOYES
PAYROLL MANAGER:
I hereby authorize you to deduct from my wages the sum of $
_______________for each month in which compensation is due. This
authorization is voluntarily made, with the understanding that
the monies deducted will be deposited in the account of the
Maintenance of Way Political League and will be used solely for
the purpose of making political contributions in connection with
Federal, State and Local Elections.
I understand that contributions or gifts to the Maintenance of
Way Political League are not deductible as charitable
contributions for Federal income tax purposes.
It is understood that this authorization will remain in effect
for a minimum of twelve (12) months and may thereafter be
revoked by giving the Carrier and the Organization thirty (30)
days advance notice in writing of my desire to do so.
- -----------------------------------------------------------------
PRINT LAST NAME FIRST NAME MIDDLE INITIAL
- -----------------------------------------------------------------
HOME STREET ADDRESS CITY STATE ZIP
- ---------------------------------- ------------------------------
DATE SIGNATURE
- ---------------------------------- ------------------------------
LODGE NUMBER SOCIAL SECURITY NUMBER
- 117 -
<PAGE>
MAINTENANCE OF WAY POLITICAL LEAGUE
-----------------------------------
CONTRIBUTION DEDUCTION REVOCATION
Between The
THE NEW YORK, SUSQUEHANNA AND WESTERN RAILWAY CORPORATION
And The
BROTHERHOOD OF MAINTENANCE OF WAY EMPLOYES
Employee Name
------------------------------------
Social Security #
------------------------------------
The New York, Susquehanna and Western Railway Corporation
1 Railroad Avenue
Cooperstown, NY 13326
Attn: Payroll Department
Dear Sir/Madam:
Effective in the next calendar month, I hereby revoke the
contribution deduction authorization now in effect assigning to
the Brotherhood of Maintenance of Way Employes' Political League
that part of my wages contributed to the Maintenance of Way
Political League, and I hereby cancel the authorization.
Sincerely yours,
-------------------------------
Employee s Signature
-------------------------------
Employee Identification Number
Date
- ----------------------------------
Signature of Union Representative
--------------------------------
Lodge #
- ----------------------------------
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<PAGE>
RULE 36
EMPLOYEE INFORMATION
--------------------
36.1 The Carrier will provide the General Chairman with a list
of employees who are hired or terminated, their home
addresses, and if available, the employee's identification
numbers. This information will be limited to the employees
covered by this Agreement and will be furnished to the
General Chairman within whose jurisdiction the employees
are hired or terminated. The data will be supplied within
thirty (30) days after the end of the month in which the
employee is hired or terminated. Where Carrier cannot meet
the thirty (30) day requirement, the matter will be worked
out with the General Chairman.
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<PAGE>
RULE 37
MORATORIUM
----------
37.1 This Agreement shall remain in effect until changed or
modified in accordance with the provisions of the Railway
Labor Act.
37.2 No party to this Agreement shall serve notice prior to July
1, 1999, (not to become effective before January 1, 2000.
37.3 This Rule will not bar the Carrier and BMWE from agreeing
upon any subject of mutual interest.
RULE 38
PRINTING OF AGREEMENT
---------------------
The Carrier will print and distribute this entire Agreement to
the employees covered by this Agreement, within sixty (60) days
from final ratification.
Signed in Cooperstown, New York this__________day__________ of,19_____.
FOR: BROTHERHOOD OF MAINTENANCE OF WAY EMPLOYES
- ---------------------------------- -----------------------------------
General Chairman Local Chairman
FOR: THE NEW YORK, SUSQUEHANNA AND WESTERN RAILWAY CORPORATION
- ---------------------------------- -----------------------------------
President Vice President-Engineering
- 120 -
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of January 31, 1996 between Delaware
Otsego Corporation, a New York corporation (the "Issuer"), and
Creditanstalt Corporate Finance, Inc., a Connecticut corporation (the
"Initial Holder," and together with any other registered holders of
Warrants or Warrant Shares (each as hereinafter defined) from time to
time, the "Holders").
W I T N E S S E T H :
WHEREAS, the Issuer has executed a Deficiency Guarantee dated as
of the date hereof (the "Guarantee") in favor of the Initial Holder,
as agent (the "Agent") for certain lenders (the "Lenders") party to
a certain Credit Agreement dated as of the date hereof (as amended,
modified and supplemented from time to time, the "Credit Agreement")
among The Toledo, Peoria and Western Railroad Corporation and Toledo,
Peoria and Western Railway Corporation (together, the "Borrowers"),
the Agent and the Lenders, pursuant to which Guarantee the Issuer has
guaranteed, among other things, the collection of the amounts due and
becoming due under the Credit Agreement.
WHEREAS, it is a condition precedent to the effectiveness of the
Credit Agreement that the Issuer shall (i) issue and deliver to the
Initial Holder Warrants evidencing rights to purchase in the
aggregate, 60,000 shares of the Common Stock of the Issuer on a fully
diluted basis.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
Section 1. Definitions. As used in this Warrant Agreement,
terms defined in the Credit Agreement shall, unless the context
otherwise requires, have such defined meanings when used herein and
the following terms shall have the following meanings:
"Affiliated Transferee" shall mean, with respect to a
Holder, an Affiliate of such Holder or a partnership or
corporation or other entity whose partners, stockholders or
members, as the case may be, are Affiliates, officers, directors
or employees of such Holder.
"Capital Stock" shall mean any and all shares, interests,
participations or other equivalents (however designated) of
capital stock of the Issuer and any and all warrants or options
to purchase any of the foregoing.
"Commission" shall mean the Securities and Exchange
Commission or any entity succeeding to any or all of its
functions under the Securities Act.
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<PAGE>
"Common Stock" shall mean the shares of common stock, par
value $0.0125 per share, of the Issuer.
"Effective Date" shall mean the Effective Date under the
Credit Agreement.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, or any successor federal statute.
"Exercise Price" shall mean the exercise price of a
Warrant, which shall be $10.00 per share, subject to adjustment
as provided in Section 12.
"Majority Holders" shall mean the Holders which own,
individually or in the aggregate, more than 50% of the
outstanding Warrants and Non-Public Warrant Shares.
"Non-Public Warrant Shares" shall mean Warrant Shares that
have not been sold to the public and bear the legend set forth
in Section 14(b).
"Public Offering" shall mean a public offering of securi-
ties by the Issuer for cash under a registration statement filed
and declared effective under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor federal statute.
"Subordinated Notes" shall mean the Issuer's 6.5%
Convertible Subordinated Notes due September 1, 2003, which
notes are in the aggregate principal amount outstanding as of
the date hereof of $3,580,000.
"Warrant" shall mean a warrant issued pursuant to this
Agreement entitling the Holder thereof to purchase from the
Issuer at the Warrant Office one share of Common Stock (subject
to adjustment as provided in Section 12) at the Exercise Price
at any time.
"Warrant Agreement" shall mean this Warrant Agreement,
between the Issuer and the Initial Holder, and as amended,
modified or supplemented from time to time.
"Warrant Certificate" shall mean a certificate evidencing
one or more Warrants, substantially in the form of Exhibit A
hereto, with such changes therein as may be required to reflect
any adjustments made pursuant to Section 12.
"Warrant Office" shall mean the office or agency of the
Issuer at which the Warrant Register shall be maintained and
where the Warrants may be presented for exercise, exchange,
substitution and transfer, which office or agency will be the
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<PAGE>
office of the Issuer at 1 Railroad Avenue, Cooperstown, New York
13326, which office or agency may be changed by the Issuer
pursuant to notice in writing to the Persons named in the
Warrant Register as the Holders.
"Warrant Register" shall mean the register, substantially
in the form of Exhibit B hereto, maintained by the Issuer at the
Warrant Office.
"Warrant Shares" shall mean the shares of Common Stock
issuable upon exercise of the Warrants, as the number of such
shares may be adjusted from time to time pursuant to Section 12.
Section 2. Representations and Warranties. The Issuer hereby
represents and warrants as follows:
(a) The Issuer is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of New
York, has the corporate power and authority to execute and
deliver this Agreement and the Warrant Certificates, to issue
the Warrants and the Warrant Shares and to perform its
obligations under this Agreement and the Warrant Certificates.
(b) The execution, delivery and performance by the Issuer
of this Agreement and the Warrant Certificates, the issuance of
the Warrants and the issuance of the Warrant Shares upon
exercise of the Warrants have been duly authorized by all
necessary corporate action and do not violate, or result in a
breach of, or constitute a default under, or require any consent
under, or result in the creation of a Lien upon the assets of
the Issuer pursuant to, (A) any provision of law or the
certificate or articles of incorporation or the by-laws of the
Issuer, (B) any order of any court, or any rule, regulation or
order of any other agency of government or (C) any provision of
any indenture, agreement or other instrument to which the Issuer
is a party, or by which the Issuer or any of its properties or
assets are bound.
(c) This Agreement has been duly executed and delivered by
the Issuer and constitutes a legal, valid and binding obligation
of the Issuer enforceable against the Issuer in accordance with
its terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws relating to or
affecting the rights and remedies of creditors generally. When
the Warrants and Warrant Certificates have been issued as
contemplated hereby, (i) the Warrants and the Warrant
Certificates will each constitute legal, valid and binding
obligations of the Issuer enforceable against the Issuer in
accordance with its terms and (ii) each of the Warrant Shares,
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<PAGE>
when issued upon exercise of the Warrants in accordance with the
terms hereof, will be duly authorized, validly issued, fully
paid and nonassessable shares of the Common Stock with no
personal liability attaching to the ownership thereof.
(d) On the Effective Date, the Issuer will have 1,740,000
shares of Common Stock outstanding, which shall constitute all
of the outstanding Capital Stock of the Issuer, exclusive of the
Warrants, and shares reserved for issuance under the
Subordinated Notes and the Issuer's stock option plans.
Section 3. Issuance of Warrants. On the Effective Date, the
Issuer shall issue and deliver to the Initial Holder Warrants
evidencing rights to purchase 60,000 shares of the outstanding Common
Stock, subject to adjustment as provided in Section 12, at any time
after the Effective Date, at a price per share equal to the Exercise
Price. On the Effective Date, the Issuer shall deliver to the Initial
Holder one or more Warrant Certificates evidencing such 60,000
Warrants.
Section 4. Registration, Transfer and Exchange of Certificates.
(a) The Issuer shall maintain at the Warrant Office the Warrant
Register for registration of the Warrants and Warrant Certificates and
transfer thereof. On the Effective Date, the Issuer shall register
the outstanding Warrants and Warrant Certificates in the name of the
Initial Holder. The Issuer may deem and treat the registered
holder(s) of the Warrant Certificates as the absolute owner(s) thereof
and the Warrants represented thereby (notwithstanding any notation of
ownership or other writing on the Warrant Certificates made by any
person) for the purpose of any exercise thereof or any distribution
to the Holder(s) thereof, and for all other purposes, and the Issuer
shall not be affected by any notice to the contrary.
(b) Subject to Section 14, the Issuer shall register the
transfer of any outstanding Warrants in the Warrant Register upon
surrender of the Warrant Certificate(s) evidencing such Warrants to
the Issuer at the Warrant Office, accompanied by a written instrument
or instruments of transfer in form reasonably satisfactory to it, duly
executed by the Holder thereof or by the duly appointed legal
representative thereof. Upon any such registration of transfer, (i)
new Warrant Certificate(s) evidencing such transferred Warrants shall
be issued to the transferee(s) and the surrendered Warrant
Certificate(s) shall be canceled and (ii) each such transferee shall
be party hereto and shall have the rights and obligations of a Holder
hereunder. If less than all the Warrants evidenced by a Warrant
Certificate surrendered for transfer are to be transferred, a new
Warrant Certificate or Certificates shall be issued to the Holder
surrendering such Warrant Certificate evidencing such remaining number
of Warrants.
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<PAGE>
(c) Warrant Certificates may be exchanged at the option of
the Holder(s) thereof, when surrendered to the Issuer at the Warrant
Office, for another Warrant Certificate or other Warrant Certificates
of like tenor and representing in the aggregate a like number of
Warrants. Warrant Certificates surrendered for exchange shall be
canceled.
(d) No charge shall be made for any such transfer or
exchange except for any tax or other governmental charge imposed in
connection therewith. Except as provided in Section 14(b), each
Warrant Certificate issued upon transfer or exchange shall bear the
legend set forth in Section 14(b) if the Warrant Certificate presented
for transfer or exchange bore such legend.
Section 5. Mutilated or Missing Warrant Certificates. If any
Warrant Certificate shall be mutilated, lost, stolen or destroyed, the
Issuer shall issue, in exchange and substitution for and upon
cancellation of the mutilated Warrant Certificate, or in lieu of and
substitution for the Warrant Certificate lost, stolen or destroyed,
a new Warrant Certificate of like tenor and representing an equivalent
number of Warrants, but only upon receipt of evidence satisfactory to
the Issuer of such loss, theft or destruction of such Warrant
Certificate and, if requested, indemnity reasonably satisfactory to
it. No service charge shall be made for any such substitution, but
all expenses and reasonable charges associated with procuring such
indemnity and all stamp tax and other governmental duties that may be
imposed in relation thereto shall be borne by the Holder(s) of such
Warrant Certificate. Each Warrant Certificate issued in any such
substitution shall bear the legend set forth in Section 14(b) if the
Warrant Certificate for which such substitution was made bore such
legend.
Section 6. Duration and Exercise of Warrants. (a) The Warrants
evidenced by a Warrant Certificate shall be exercisable from time to
time in whole or in part by the Holder thereof on any Business Day
after the Effective Date.
(b) Subject to the provisions of this Agreement, upon
presentation of the one or more Warrant Certificates evidencing the
Warrants to be exercised by a Holder, with the form of election to
purchase on the reverse thereof duly completed and signed, to the
Issuer at the Warrant Office, and upon payment of the aggregate
Exercise Price for the number of Warrant Shares in respect of which
such Warrants are being exercised in lawful money of the United States
of America, the Issuer shall issue and cause to be delivered to or
upon the written order of such Holder of such Warrants and in such
name or names as such Holder may designate, a certificate for the
fully paid and nonassessable Warrant Shares issuable upon such
exercise of such Warrants. Any Person(s) so designated to be named
therein shall be deemed to have become holder(s) of record of such
Warrant Shares as of the date of exercise of such Warrants. Notwith-
standing anything to the contrary contained herein, in lieu of payment
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<PAGE>
of the applicable Exercise Price, the Holder may elect to return to
the Company Warrants having an aggregate fair market value equal to
the applicable Exercise Price for the number of Warrant Shares in
respect of which Warrants are being exercised.
(c) If less than all of the Warrants evidenced by a Warrant
Certificate are exercised at any time, a new Warrant Certificate or
Certificates shall be issued for the remaining number of Warrants
evidenced by such Warrant Certificate. Each new Warrant Certificate
so issued shall bear the legend set forth in Section 14(b) if the
Warrant Certificate presented in connection with partial exercise
thereof bore such legend. All Warrant Certificates surrendered upon
exercise of Warrants shall be canceled.
(d) Notwithstanding any other provision of this Agreement,
the Initial Holder or any Affiliated Transferee of the Initial Holder
of Warrants may exercise Warrants solely to the extent such exercise
would not result in the Initial Holder or such Affiliated Transferee
of the Initial Holder holding, directly or indirectly, in excess of
4.99% of any class of the outstanding Common Stock (or voting stock)
of the Issuer, except for an exercise in connection with (i) a widely
dispersed public offering of the Warrant Shares or (ii) a private
placement or sale, including pursuant to Rule 144A under the
Securities Act, so long as the transferee and its affiliates do not
collectively acquire from such Initial Holder or such Affiliated
Transferee of the Initial Holder more than 2% of the Common Stock or
voting stock of the Issuer pursuant to such transfer.
Section 7. Fractional Shares. The Issuer shall not be required
to issue fractional shares of Common Stock upon exercise of the
Warrants but shall pay for any such fraction of a share an amount in
cash equal to the current market price per share of Common Stock of
such share (determined in accordance with the provisions of Section
12(d)) multiplied by such fraction.
Section 8. Payment of Taxes. The Issuer will pay all taxes
attributable to the initial issuance of Warrant Shares upon the
exercise of the Warrants; provided, that the Issuer shall not be
required to pay (i) any income taxes which may be payable by the
Holder with respect to any gain realized upon such Holder's exercise
of the Warrants and (ii) any transfer taxes which may be payable as
a result of any transfer involved in the issuance of any Warrant
Certificate or any certificate for Warrant Shares in a name other than
that of the Holder thereof.
Section 9. No Stockholder Rights. Except as expressly provided
herein, nothing contained in this Agreement or in any of the Warrant
Certificates shall be construed as conferring upon the Holders, with
respect to the Warrants (prior to their exercise into Warrant Shares),
the right to vote or to consent or to receive notice as a stockholder
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in respect of the meetings of stockholders or the election of
directors of the Issuer or any other matter, or any rights whatsoever
as a stockholder of the Issuer.
Section 10. Reservation and Issuance of Warrant Shares. (a)
The Issuer will at all times have authorized, and reserve and keep
available, free from preemptive rights, for the purpose of enabling
it to satisfy any obligation to issue Warrant Shares upon the exercise
of the Warrants, the maximum number of shares of Common Stock
deliverable upon exercise of all outstanding Warrants.
(b) Before taking any action which would cause an
adjustment pursuant to Section 12 reducing the Exercise Price below
the then par value (if any) of the Warrant Shares issuable upon
exercise of the Warrants, the Issuer will take any corporate action
which may be necessary in order that the Issuer may validly and
legally issue fully paid and nonassessable Warrant Shares at the
Exercise Price as so adjusted.
(c) The Issuer covenants that all Warrant Shares will, upon
issuance in accordance with the terms of this Agreement, be fully paid
and nonassessable, free of preemptive rights and free from all taxes,
liens, charges and security interests with respect to the issuance
thereof. The Issuer further covenants that at or prior to the time
of its issuance of Warrant Shares to a Holder as provided in this
Agreement, it will provide to such Holder a written opinion of the
Issuer's counsel to the effect that, upon such issuance, such Warrant
Shares, will be validly issued and outstanding, fully paid and
nonassessable and free of preemptive rights.
Section 11. Obtaining of Governmental Approvals and Stock
Exchange Listings. The Issuer will, at its own expense, from time to
time take all action which may be necessary to obtain and keep
effective any and all permits, consents and approvals of Governmental
Authorities which may be or become required in connection with the
issuance, sale, transfer and delivery of the Warrant Certificates and
the exercise of the Warrants and the issuance, sale, transfer and
delivery of the Warrant Shares and all action which may be necessary
so that such Warrant Shares, immediately upon their issuance upon the
exercise of the Warrants, will be listed on each securities exchange,
if any, on which the Common Stock is then listed.
Section 12. Adjustment of Exercise Price and Number of Warrant
Shares Purchasable. The Exercise Price and the number of Warrant
Shares purchasable upon the exercise of each Warrant are subject to
adjustment from time to time upon the occurrence of any of the events
enumerated in this Section 12. For purposes of this Section 12,
"Common Stock" means shares now or hereafter authorized of any class
of common stock of the Issuer and any other Capital Stock of the
Issuer, however designated, that has the right (subject to any prior
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rights of any class or series of preferred stock) to participate in
any distribution of the assets or earnings of the Issuer without limit
as to per share amount.
(a) In the event that the Issuer shall at any time after the
date of this Agreement (i) declare a dividend on the Common Stock in
shares of its capital stock (whether shares of Common Stock or of
capital stock of any other class); (ii) split or subdivide the
outstanding Common Stock; (iii) combine the outstanding Common Stock
into a smaller number of shares; (iv) make a distribution on its
Common Stock in shares of its capital stock other than Common Stock;
or (v) issue by reclassification of its Common Stock any shares of its
capital stock, the Exercise Price in effect at the time of the record
date for such dividend or of the effective date of such split,
subdivision or combination shall be multiplied by a fraction the
numerator of which shall be the number of shares of Common Stock
outstanding at the time of the record date for such dividend or of the
effective date of such split, subdivision or combination, but without
giving effect thereto, and the denominator of which shall be the
number of shares of Common Stock outstanding at the time of the record
date for such dividend or the effective date of such split,
subdivision or combination, after giving effect thereto. The
adjustment shall become effective immediately after the record date
in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or
reclassification. If after an adjustment a Holder upon exercise of
its Warrants may receive shares of two or more classes of capital
stock of the Issuer, the Issuer shall determine the allocation of the
adjusted Exercise Price between the classes of capital stock. After
such allocation, the exercise privilege and the Exercise Price of each
class of capital stock shall thereafter be subject to adjustment on
terms comparable to those applicable to Common Stock in this Section.
Such adjustment shall be made successively whenever any event listed
above shall occur.
(b) In the event that the Issuer shall at any time after
the date of this Agreement (i) issue any shares of Common Stock (other
than (w) Warrant Shares, (x) shares issuable upon exercise of options
by management or employees of the Issuer pursuant to its currently
existing stock option plans, (y) shares issuable upon conversion of
the outstanding Subordinated Notes, and (z) shares of the Issuer
issued at a price per share equal to or greater than the Exercise
Price) or (ii) issue options, rights or warrants to subscribe for or
purchase Common Stock (or securities convertible into Common Stock),
the Exercise Price in effect at the time of such issuance shall be
adjusted so that each Holder of a Warrant exercised shall be entitled
to receive the aggregate number of shares of Common Stock which would
result in the ratio of (x) the number of shares of Common Stock such
Warrant is exercisable into at the time of such issuance (after giving
effect thereto) to (y) the number of shares of Common Stock
outstanding, after giving effect to such issuance or the exercise of
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such options, rights or warrants, being equal to such ratio
immediately prior to such issuance; and, in the event that, prior to
the exercise of the Warrants, such shares or options, rights or
warrants are not so issued, or any such option, right or warrant is
canceled, including any such option, right or warrant outstanding on
the Effective Date, the Exercise Price shall again be adjusted to be
the Exercise Price which would then be in effect if the date of such
issuance had not been fixed or such option, right or warrant had not
been outstanding on the Effective Date.
(c) In case the Issuer shall make a distribution to all
holders of Common Stock (including any such distribution made in
connection with a consolidation or merger in which the Issuer is the
surviving corporation) of evidences of its indebtedness or assets,
each Warrant outstanding on the date of such distribution shall
thereafter entitle the holder of such Warrant to receive a number of
shares of Common Stock equal to the product of (i) the number of
shares of Common Stock to which such Warrant was entitled immediately
prior to such date of distribution and (ii) a fraction of which the
numerator shall be the current market price per share of Common Stock
(as defined in Section 12(d) hereof) on such date, prior to giving
effect to such distribution, and of which the denominator shall be
such current market price per share of Common Stock (as determined in
accordance with subsection 12(d)) on such date, but after giving
effect to such distribution. Such adjustment shall be made
successively whenever a date for such distribution is fixed (which
date of distribution shall be the record date for such distribution
if a record date therefor is fixed); and, if such distribution is not
so made, the Exercise Price shall again be adjusted to be the Exercise
Price which would then be in effect if such date of distribution had
not been fixed.
(d) For the purpose of any computation under this
Agreement, the "current market price per share" of Common Stock on any
date shall be deemed to be (i) the average of the daily closing prices
for the 20 consecutive trading days, commencing before such date as
reported on the Composite Transactions Tape, or (ii) if the Common
Stock is not reported on the Composite Transactions Tape, the last
sale price regular way of the Common Stock on the principal national
securities exchange on which the Common Stock is listed or admitted
to trading or, in case no such sale takes place on such day, the
average of the closing bid and asked prices regular way, in either
case on such securities exchange or, (iii) if the Common Stock is not
listed or admitted to trading on such an exchange, the closing sales
price, or, if there is no closing sales price, the average of the
closing bid and asked prices, in the over-the-counter market as
reported by the National Association of Securities Dealers' Automated
Quotation System ("NASDAQ"), or, if not so reported, as reported by
the National Quotation Bureau, Incorporated, or any successor thereof,
or, if not so reported, the average of the closing bid and asked
prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by the Board of
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Directors of the Issuer for that purpose, or (iv) if no such prices
are furnished, the higher of (x) the Exercise Price or (y) the fair
market value of a share of Common Stock as determined by an
independent investment banking firm or independent appraisal firm (in
either case the cost of which engagement shall be borne by the Issuer)
reasonably acceptable to the Majority Holders. In making its
determination, such independent investment banking firm or such
independent appraisal firm shall not consider items such as discounts
for minority interests, lack of marketability of the Common Stock or
restrictions on exercise of any options, rights or warrants to
purchase Common Stock.
(e) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at
least 1% in such price; provided, that, any adjustments which by
reason of this Section 12(e) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 12 shall be made to the nearest
hundredth of a share.
(f) If at any time, as a result of an adjustment made
pursuant to Section 12(a) hereof, any Holder of a Warrant thereafter
exercised shall become entitled to receive any shares of the Issuer
other than shares of Common Stock, thereafter the number of such other
shares so receivable upon exercise of any Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the
Warrant Shares contained in this Section 12, and the provisions of
this Agreement with respect to the Warrant Shares shall apply on like
terms to such other shares.
(g) Each Warrant outstanding immediately prior to any
adjustment of the Exercise Price shall thereafter evidence the right
to purchase, at the adjusted Exercise Price, that number of Warrant
Shares (calculated to the nearest hundredth) obtained by (A)
multiplying the number of Warrant Shares purchasable upon exercise of
a Warrant immediately prior to such adjustment of the number of
Warrant Shares by the Exercise Price in effect immediately prior to
such adjustment of the Exercise Price and (B) dividing the product so
obtained by the Exercise Price in effect immediately after such
adjustment of the Exercise Price.
(h) In the event of any capital reorganization of the
Issuer, or of any reclassification of the Common Stock (other than a
subdivision or combination of outstanding shares of Common Stock), or
in case of the consolidation of the Issuer with or the merger of the
Issuer with or into any other corporation or of the sale of the
properties and assets of the Issuer as, or substantially as, an
entirety to any other corporation, each Warrant shall after such
capital reorganization, reclassification of Common Stock,
consolidation, merger or sale be exercisable, upon the terms and
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conditions specified in this Agreement, for the number of shares of
stock or other securities or assets to which a Holder of the number
of Warrant Shares purchasable (at the time of such capital
reorganization, reclassification of Common Stock, consolidation,
merger or sale) upon exercise of such Warrant would have been entitled
upon such capital reorganization, reclassification of Common Stock,
consolidation, merger or sale; and in any such case, if necessary, the
provisions set forth in this Section 12 with respect to the rights
thereafter of the Holders shall be appropriately adjusted so as to be
applicable, as nearly as may reasonably be, to any shares of stock or
other securities or assets thereafter deliverable on the exercise of
the Warrants. The Issuer shall not effect any such consolidation,
merger or sale, unless prior to or simultaneously with the
consummation thereof, the successor corporation (if other than the
Issuer) resulting from such consolidation or merger or the corporation
purchasing such assets or the appropriate corporation or entity shall
assume, by written instrument, the obligation to deliver to each
Holder the shares of stock, securities or assets to which, in
accordance with the foregoing provisions, such Holder may be entitled
and all other obligations of the Issuer under this Agreement.
(i) Irrespective of any adjustments in the Exercise Price
or the number or kind of shares purchasable upon the exercise of the
Warrant, Warrant Certificates theretofore or thereafter issued may
continue to express the same Exercise Price per share and number and
kind of shares are as stated on the Warrant Certificates initially
issuable pursuant to this Agreement.
(j) If any questions shall at any time arise with respect
to the adjusted Exercise Price, the resolution of such question shall
be determined by an independent certified public accountant of
recognized national standing (the cost of which engagement shall be
borne by the Issuer) reasonably acceptable to the Majority Holders and
such determination shall be binding upon the Issuer and each Holder.
(k) Anything in this Section 12 to the contrary
notwithstanding, the Issuer shall be entitled to make such reductions
in the Exercise Price or increase in the number of Warrant Shares
purchasable upon the exercise of each Warrant, in addition to those
adjustments required by this Section 12, as it in its sole discretion
shall determine to be advisable in order that any consolidation or
subdivision of the Common Stock, or any issuance wholly for cash of
shares of Common Stock or securities which by their terms are
convertible into or exchangeable for shares of Common Stock, or any
stock dividend, or any issuance of rights, options or warrants
referred to hereinabove in this Section 12, hereinafter made by the
Issuer to the holders of its Common Stock shall not be taxable to
them.
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(l) In the event that, as a result of an adjustment of the
Exercise Price in respect of the occurrence of any event set forth in
this Section 12, the Exercise Price to be in effect after such event
pursuant to Section 12(a), (b) or (c) would be less than the par value
of the Common Stock, the Exercise Price to be in effect following such
event shall be the par value of the Common Stock and each Warrant
shall thereafter evidence the right to purchase, at an Exercise Price
equal to such par value, that number of Warrant Shares (calculated to
the nearest hundredth) obtained by (A) multiplying the number of
Warrant Shares purchasable upon exercise of a Warrant immediately
prior to such adjustment of the number of Warrant Shares by the
Exercise Price in effect immediately prior to such adjustment of the
Exercise Price (giving effect to any limitations on such adjustment
theretofore made pursuant to this Section 12(l)) and (B) dividing the
product so obtained by the Exercise Price which would have been in
effect pursuant to Section 12(a), (b) or (c) but for the limitation
on such adjustment required by this Section 12(l).
Section 13. Notices to Holders. (a) Upon any adjustment
of the Exercise Price pursuant to Section 12, the Issuer shall
promptly, but in any event within 20 calendar days thereafter, cause
to be given to each Holder, at its address appearing on the Warrant
Register, by first-class mail, postage prepaid, a certificate signed
by its chief financial officer setting forth the Exercise Price as so
adjusted and the number of shares of Common Stock issuable upon the
exercise of each Warrant as so adjusted and describing in reasonable
detail the facts accounting for such adjustment and the method of
calculation used. Where appropriate, such certificate may be given
in advance and included as a part of the notice required to be mailed
under the other provisions of this Section 13.
(b) In the event:
(i) the Issuer shall authorize the distribution to
all holders of Common Stock of evidences of its
indebtedness or assets (including, without
limitation, cash dividends or cash distributions
payable out of consolidated earnings or earned
surplus or dividends payable in Common Stock); or
(ii) of any consolidation or merger to which the
Issuer is a party and for which approval of any
stockholders of the Issuer is required, or of the
conveyance or transfer of the properties and
assets of the Issuer substantially as an
entirety, or of any capital reorganization or
reclassification or change of the Common Stock
(other than a change in par value, or from par
value to no par value, or from no par value to
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par value, or as a result of a subdivision or
combination); or
(iii) of the voluntary or involuntary dissolution,
liquidation or winding up of the Issuer; or
(iv) the Issuer proposes to take any other action
which would require an adjustment of the Exercise
Price pursuant to Section 12(c);
then the Issuer shall cause to be given to each Holder at its address
appearing on the Warrant Register, at least 20 calendar days prior to
the applicable record date hereinafter specified by first-class mail,
postage prepaid, a written notice stating (A) the date as of which the
holders of record of Common Stock to be entitled to receive any such
capital stock, rights, options, warrants or distribution are to be
determined, or (B) the date on which any such consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected
that holders of record of Common Stock shall be entitled to exchange
their shares of securities or other property, if any, deliverable upon
such reclassification, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up. The failure to given the
notice required by this Section 13(b) or any defect therein shall not
affect the legality or validity of any capital stock, right, option,
warrant, distribution, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up, or the vote upon any action.
(c) The Issuer shall furnish to each Holder:
(i) as soon as available, but in any event within 90
calendar days after the end of each fiscal year of
the Issuer, a copy of the report on Form 10-K (or
its equivalent) for such fiscal year, which the
Issuer shall have filed with the Securities and
Exchange Commission;
(ii) as soon as available, but in any event not later
than 45 calendar days after the end of each of the
first three calendar quarters, copies of the reports
on Form 10-Q (or its equivalent) for such quarter,
which the Issuer shall have filed with the
Securities and Exchange Commission; and
(iii) promptly upon the distribution thereof, a copy of
the annual report of the Issuer for each year.
Section 14. Restrictions on Transfer. (a) The Holders
represent that they are acquiring the Warrants for their own account,
for investment and not with a view to any distribution or public
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offering within the meaning of the Securities Act. The Holders
acknowledge that the Warrants and the Warrant Shares issuable upon
exercise thereof have not been registered under the Securities Act and
agree that they will not sell or otherwise transfer any of their
Warrants or Warrant Shares except to an Affiliated Transferee or
another transferee upon the terms and conditions specified herein and
that they will cause any transferee thereof (including an Affiliated
Transferee) to agree to take and hold the same subject to the terms
and conditions specified herein.
(b) Except as provided in Section 14(d) hereof, each
Warrant Certificate and each certificate for the Warrant Shares issued
to the Initial Holder or to a subsequent transferee pursuant to
Section 14(c) shall include a legend in substantially the following
form; provided, that such legend shall not be required if such
transfer is being made in connection with a sale which is exempt from
registration pursuant to Rule 144 under the Securities Act or if the
opinion of counsel referred to in Section 14(c) is to the further
effect that neither such legend nor the restrictions on transfer in
this Section 14 are required in order to ensure compliance with the
Securities Act:
"THE WARRANTS AND WARRANT SHARES REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAW AND MAY NOT BE SOLD OR TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAW. SUCH WARRANTS
AND WARRANT SHARES MAY BE TRANSFERRED ONLY IN
COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THE
WARRANT AGREEMENT, DATED AS OF JANUARY 31, 1996,
BETWEEN THE ISSUER AND THE INITIAL HOLDER OF THE
WARRANTS NAMED THEREIN, A COMPLETE AND CORRECT
COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE
PRINCIPAL OFFICE OF THE ISSUER AND WILL BE
FURNISHED TO THE HOLDER HEREOF UPON WRITTEN
REQUEST AND WITHOUT CHARGE. THE WARRANTS AND
WARRANT SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO CERTAIN OTHER TERMS AND CONDITIONS
SET FORTH IN THE WARRANT AGREEMENT."
(c) Prior to any proposed assignment, transfer or sale of
any Warrant or any Warrant Shares, other than to an Affiliated
Transferee, for which no notice or other action specified in this
Section 14(c) shall be required, the Holder thereof shall give written
notice to the Issuer of such Holder's intention to effect such
assignment, transfer or sale, which notice shall set forth the date
of such proposed assignment, transfer or sale and the price to be paid
to such Holder of such Warrants or Warrant Shares. Each Holder
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wishing to effect such a transfer of any Warrant or Warrant Shares
shall also furnish to the Issuer (i) an agreement by the transferee
thereof that it is taking and holding the same subject to the terms
and conditions specified herein and (ii) a written opinion of such
Holder's counsel to the effect that the proposed transfer may be
effected without registration under the Securities Act or the
securities laws of any state or other jurisdiction; provided, that no
such opinion shall be required in connection with any transfer
pursuant to Rule 144A under the Securities Act, and each request to
register a transfer of Warrants or Warrant Shares pursuant to the
exemption from registration provided by Rule 144A shall be deemed to
be a representation by the purchaser and the seller that the transfer
was effected in compliance with Rule 144A and that the transferee is
a "qualified institutional buyer" as defined in Rule 144A.
(d) The restrictions set forth in this Section 14 shall
terminate and cease to be effective with respect to any Warrants or
Warrant Shares registered under the Securities Act or as to which the
proviso to Section 14(b) is applicable. Whenever such restrictions
shall so terminate, each Holder of such Warrants or Warrant Shares
shall be entitled to receive from the Issuer, without expense (other
than transfer taxes, if any), Warrant Certificates or certificates for
such Warrant Shares not bearing the legend set forth in Section 14(b)
at which time the Issuer will rescind any transfer restrictions
relating thereto.
(e) With a view to making available to the Holders the
benefits of certain rules and regulations of the Commission
(including, without limitation, Rule 144 under the Securities Act)
which may permit the sale of Warrant Shares to the public without
registration, the Issuer agrees, after such time as a public market
exists for the Common Stock, to take any and all such actions as may
be required of it to make available to the Holders such benefits,
including, without limitation, to:
(i) make and keep public information available as those
terms are understood and defined in Rule 144 under
the Securities Act or any successor provisions
thereto;
(ii) file with the Commission in a timely manner all
reports and other documents required of the Issuer
under the Securities Act and the Exchange Act; and
(iii) furnish the Holders forthwith upon request a
written statement by the Issuer as to its com-
pliance with the reporting requirements of Rule 144
or any successor provision thereto, and of the
Securities Act and the Exchange Act, a copy of the
most recent annual and quarterly report of the
Issuer with the Commission, and such other reports
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and documents of the Issuer and other information
in the possession of or reasonably obtainable by
the Issuer as the Holders may reasonably request in
availing themselves of any rule or regulation of
the Commission allowing the Holders to sell any
such securities without registration.
Section 15. Registration. (a) (i) If, at any time, the Issuer
shall be requested in writing (which request shall state the intended
method of disposition) by one or more Holders to effect the
registration under the Securities Act of Non-Public Warrant Shares
aggregating at least 50% of the outstanding Non-Public Warrant Shares
(assuming exercise of all outstanding Warrants) issued pursuant to
this Agreement (as adjusted to the date of such request), the Issuer
shall promptly give written notice of such proposed registration to
all of the Holders. Upon receipt of a request to effect registration
as aforesaid, the Issuer shall, as expeditiously as possible, use its
best efforts to effect registration on an appropriate form under the
Securities Act of the Warrant Shares which the Issuer has been
requested to register (i) in such request and (ii) in any response to
such notice given by or on behalf of a Holder to the Issuer within 20
calendar days after the Issuer's giving of such notice, in order to
permit the sale or other disposition of such Warrant Shares in
accordance with the intended method of sale or other disposition
described in such request and in any such response.
(ii) The Issuer shall not be required to effect any
registration requested pursuant to this Section 15(a) if the
registration rights granted pursuant to this Section 15(a) have been
exercised by the Holders on a previous occasion. The right of the
Holders under this Section 15(a) shall not be deemed to have been
exercised (x) if the requisite notice given by Holders pursuant to
this Section 15(a) is withdrawn prior to the date of filing of a
registration statement or if a registration statement filed by the
Issuer under the Securities Act pursuant to this Section 15(a) is
withdrawn prior to its effective date, in either case, by written
notice to the Issuer from the Holders of not less than a majority of
the Warrant Shares to be included or which are included in such
registration statement, stating that such Holders have elected not to
proceed with the offering contemplated by such registration statement
because (A) general market conditions are unfavorable, (B) a
development in the Issuer's affairs has occurred or has become known
to such Holders subsequent to the date of the notice by the Holders
to the Issuer requesting registration of Warrant Shares or the filing
of such registration statement which, in the judgment of such Holders
or the managing underwriter of the proposed public offering, adversely
affects the market price or marketability of such Warrant Shares or
(C) a registration statement filed by the Issuer pursuant to this
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Section 15(a), in the judgment of such Holders or the managing
underwriter of the proposed public offering, contains an untrue
statement of material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading and the Issuer has not, promptly after written notice
thereof, corrected such statement or omission in an amendment filed
to such registration statement pursuant to Section 15(f), (y) if a
registration statement pursuant to this Section 15(a) shall have
become effective under the Securities Act and (A) the underwriters
shall not purchase any Warrant Shares, because of a failure of
condition contained in the underwriting agreement (other than a
condition to be performed by the Holders) relating to the offering
covered by such registration statement or (B) the offering of the
Warrant Shares pursuant to such registration statement is interfered
with by any stop order, injunction or other order or requirement of
the Commission or other governmental agency or court.
(b) If the Issuer proposes to register any shares of its
equity securities under the Securities Act (except pursuant to an
exercise of the registration rights granted by Section 15(a) hereof
and except pursuant to a registration statement filed on Form S-8 or
Form S-4 or such other form as shall be prescribed under the
Securities Act for the same purposes), it will at each such time given
written notice to all of the Holders of its intention to do so and,
upon the written request of any Holder given within 30 calendar days
after the Issuer's giving of such notice (which request shall state
the intended method of disposition thereof by the prospective
sellers), the Issuer will use its best efforts to effect the
registration of the Warrant Share which it shall have been so
requested to register by including the same in such registration
statement, all to the extent required to permit the sale or other
disposition thereof in accordance with the intended method of sale or
other disposition given in each such request. If the registration of
which the Issuer gives notice pursuant to this Section 15(b) is for
an underwritten public offering, only Warrant Shares which are to be
included in the underwriting may be included in such registration, and
the Issuer shall have the right to designate the underwriters (which
shall be reasonably acceptable to the Majority Holders seeking to
effect registration of Warrant Shares), including the managing
underwriter(s), in any such underwritten public offering. It shall
be a condition to the inclusion of any Holder's Warrant Shares in such
underwriting that the Holder enter into an underwriting agreement in
the customary form with the underwriter or underwriters selected by
the Issuer; provided that any indemnity contained therein shall be
only with respect to information relating to such Holder furnished to
the Issuer in writing by such Holder expressly for use in the regis-
tration statement, any prospectus, or preliminary prospectus contained
therein or any amendment or any supplement thereto.
(c) If the Issuer's managing underwriters shall advise the
Issuer and the Holders in writing that the inclusion in any
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registration pursuant to this Agreement of some or all of the Warrant
Shares sought to be registered by the Holders requesting such
registration creates a substantial risk that the proceeds or price per
unit the Issuer will derive from such registration will be reduced or
that the number of securities to be registered (including those sought
to be registered at the instance of the Issuer and any other party
entitled to participate in such registration as well as those sought
to be registered by the Holders) is too large a number to be
reasonably sold, the Issuer will include in such registration to the
extent of the number which the Issuer is so advised can be sold in
such offering:
(i) if such registration is pursuant to Section 15(a)
hereof, (A) first, Warrant Shares requested to be
included in such registration, pro rata, among the
Holders in proportion to the number of Warrant Shares
sought to be registered by all such Holders and (B)
second, shares of Common Stock sought to be
registered at the instance of the Issuer and any
other party entitled to participate in such
registration, pro rata among the sellers in pro-
portion to the number of shares of Common Stock
sought to be registered by all such sellers; or
(ii) if such registration is pursuant to Section 15(b),
first, the number of shares of Common Stock sought to
be registered by each of the Issuer and the Holders,
pro rata among the Issuer and each Holder in
proportion to the number of shares of Common Stock
sought to be registered by the Issuer and all such
Holders, and then, the number of shares of Common
Stock sought to be registered by each other seller
(which term shall include each holder of shares of
Common Stock other than the Issuer and the Holders),
pro rata among each other seller in proportion to the
number of shares of Common Stock sought to be
registered by all such other sellers.
(d) If a registration under Section 15(a) or 15(b) shall
be in connection with an underwritten public offering, each Holder of
Warrant Shares shall be deemed to have agreed by acquisition of such
Warrant Shares not to effect any public sale or distribution,
including any sale pursuant to Rule 144, of any Warrant Shares, and
to use such Holder's best efforts not to effect any such public sale
or distribution of any other equity security of the Issuer or of any
security convertible into or exchangeable or exercisable for any
equity security of the Issuer (other than as part of such underwritten
public offering) within seven calendar days before or 90 calendar days
after the effective date of such registration statement (and the
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Issuer hereby also so agrees and agrees to cause each holder of any
equity security, or of any security convertible into or exchangeable
or exercisable for any equity security, of the Issuer purchased from
the Issuer at any time other than in a public offering so to agree).
(e) As a condition to the inclusion of a Holder's Warrant
Shares in any registration statement, each Holder requesting
registration thereof will furnish to the Issuer such information with
respect to such Holder as is required to be disclosed in the
registration statement (and the prospectus included therein) by the
applicable rules, regulations and guidelines of the Commission.
Failure of a Holder to furnish such information shall not affect the
obligations of the Issuer under this Section 15 to the remaining
Holders who furnish such information.
(f) If and whenever the Issuer is required to use its best
efforts to effect the registration of Warrant Shares under the
Securities Act, the Issuer shall:
(i) as expeditiously as possible, prepare and file with
the Commission (in the case of a registration pursuant
to Section 15(a), not later than 60 calendar days
after the requisite request therefor) a registration
statement on the appropriate form with respect to such
Warrant Shares and use its best efforts to cause such
registration statement to become effective as soon as
practicable after such filing;
(ii) as expeditiously as possible, prepare and file with
the Commission such amendments and supplements
(including post-effective amendments and supplements)
to the registration statement covering such Warrant
Shares and the prospectus used in connection
therewith as may be necessary to keep such
registration statement effective and to comply with
the provisions of the Securities Act with respect to
the disposition of all Warrant Shares covered by such
registration statement until such time as all of the
Warrant Shares registered thereunder have been
disposed of in accordance with the intended method of
disposition of the sellers set forth therein;
(iii) as expeditiously as possible, furnish to each seller
of such Warrant Shares registered, or to be
registered, under the Securities Act, and to each
underwriter, if any, of such Warrant Shares such
number of copies of a prospectus and preliminary
prospectus in conformity with the requirements of the
Securities Act, and such other documents as such
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<PAGE>
seller or underwriter may reasonably request, in order
to facilitate the public sale or other disposition of
such Warrant Shares;
(iv) as expeditiously as possible notify each seller of
such Warrant Shares if, at any time when a prospectus
relating to such Warrant Shares is required to be
delivered under the Securities Act, any event shall
have occurred as a result of which the prospectus then
in use with respect to such Warrant Shares would
include an untrue statement of a material fact or omit
to state a material fact required to be stated therein
or necessary to make the statements therein not
misleading or for any other reason it shall be
necessary to amend or supplement such prospectus in
order to comply with the Securities Act and prepare
and furnish to all sellers a reasonable number of
copies of a supplement to or an amendment of such
prospectus which will correct such statement or
omission or effect such compliance;
(v) as expeditiously as possible, use its best efforts to
register or qualify such Warrant Shares under such
other securities or blue sky laws of such
jurisdictions as such seller shall reasonably request
(insofar as the registration thereof shall be
permitted under applicable law) and do any and all
other acts and things which may be necessary or
desirable to enable such seller to consummate the
public sale or other disposition in each such
jurisdiction of the Warrant Shares included in the
registration statement; provided, that, the Issuer
shall not be required to consent to the general
service of process or to qualify to do business in any
jurisdiction where it is not then qualified;
(vi) use its best efforts to keep the Holders of such
Warrant Shares informed of the Issuer's best estimate
of the earliest date on which such registration
statement or any post-effective amendment or
supplement thereto will become effective and will
promptly notify such Holders and the managing
underwriters, if any, participating in the distri-
bution pursuant to such registration statement of the
following: (A) when such registration statement or
any post-effective amendment or supplement thereto
becomes effective or is approved; (B) of the issuance
by any competent authority of any stop order
suspending the effectiveness or qualification of such
registration statement or the prospectus then in use
or the initiation or threat of any proceeding for that
purpose; and (C) of the suspension of the
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qualification of any Warrant Shares included in such
registration statement for sale in any jurisdiction;
(vii) furnish to the sellers of such Warrant Shares, on the
date that such Warrant Shares are delivered to the
underwriters for sale in connection with a
registration, if such Warrant Shares are being sold
through underwriters or, if such Warrant Shares are
not being sold through underwriters, on the date that
the registration statement with respect to such
Warrant Shares becomes effective, (A) an opinion of
the independent counsel representing the Issuer for
the purposes of such registration, dated such date, in
form and substance as is customarily given by counsel
to underwriters in an underwritten public offering,
and (B) a "comfort" letter dated such date from the
independent public accountants who have certified the
Issuer's financial statements included in the
registration statement, in form and substance as is
customarily given by independent certified public
accountants to underwriters in an underwritten public
offering;
(viii) make available to its security holders, as soon as
practicable, an earnings statement covering a period
of at least twelve months which satisfies the
provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder;
(ix) cooperate with the sellers of such Warrant Shares and
the underwriters, if any, of such Warrant Shares, give
each seller of such Warrant Shares, and the
underwriters, if any, of such Warrant Shares or, if
there is no underwriter, the sellers, and their
respective counsel and accountants, such access to its
books and records and such opportunities to discuss
the business of the Issuer with its officers and
independent public accountants as shall be necessary
to enable them to conduct a reasonable investigation
within the meaning of the Securities Act, and in the
event that Warrant Shares are to be sold in an
underwritten offering, enter into an underwriting
agreement containing customary representations and
warranties, covenants, conditions and indemnification
provisions; and
(x) in the case of the registration effected pursuant to
Section 15(a) and each registration of Warrant Shares
pursuant to Section 15(b), pay all costs and expenses
incident to the performance and compliance by the
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<PAGE>
Issuer of this Section 15, including, without
limitation, (A) all registration and filing fees; (B)
all printing expenses; (C) all fees and disbursements
of counsel and independent public accountants for the
Issuer; (D) all blue sky fees and expenses (including
fees and expenses of counsel in connection with blue
sky surveys); (E) the entire expense of any special
audits required by the rules and regulations of the
Commission; (F) the cost of distributing prospectuses
in preliminary and final form as well as any
supplements thereto; (G) the fees and expenses of one
counsel for the Holders of the Warrant Shares being
registered and (H) underwriting discounts and commis-
sion relating to the Warrant Shares sold.
(g) (i) the issuer will indemnify and hold harmless each
seller thereof and each other person, if any, who controls such seller
within the meaning of the Securities Act or the Exchange Act from and
against any and all losses, claims, damages, liabilities and legal and
other expenses (including costs of investigation) caused by any untrue
statement or alleged untrue statement of a material fact contained in
any registration statement under which such Warrant Shares were
registered under the Securities Act, any prospectus or preliminary
prospectus contained therein or any amendment or supplement thereto,
or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses,
claims, damages, liabilities or expenses are caused by any such untrue
statement or omission or alleged untrue statement or omission based
upon information relating to such seller and furnished to the Issuer
in writing by such seller expressly for use therein.
(ii) it shall be a condition to the obligation of the Issuer
to effect a registration of Warrant Shares under the Securities Act
pursuant hereto that each seller, severally and not jointly, indemnify
and held harmless the issuer and each person, if any, who controls the
issuer within the meaning of the Securities Act or the Exchange Act
to the same extent as the indemnity from the Issuer in the foregoing
paragraph (i), but only with reference to information relating to such
seller furnished to the Issuer in writing by such seller expressly for
use in the registration statement, any prospectus or preliminary
prospectus contained therein or any amendment or supplement thereto.
(iii) In case any claim shall be made or any proceeding
(including any governmental investigation) shall be instituted
involving any indemnified party in respect of which indemnity may be
sought pursuant to this Section 15(g), such indemnified party shall
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<PAGE>
promptly notify the indemnifying party in writing of the same;
provided, that failure to notify the indemnifying party shall not
relieve it from any liability it may have to an indemnified party
otherwise that under this Section 15(g). The indemnifying party, upon
request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified
party in such proceeding and shall pay the fees and disbursements of
such counsel. In any such proceeding, any indemnified party shall
have the right to retain its own counsel, but the fees and
disbursements of such counsel shall be at the expense of such
indemnified party unless (i) the indemnifying party shall have failed
to retain counsel for the indemnified party as aforesaid, (ii) the
indemnifying party and such indemnified party shall have mutually
agreed to the retention of such counsel or (iii) representation of
such indemnified party by the counsel retained by the indemnifying
party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party
represented by such counsel in such proceeding; provided, that the
Issuer shall not be liable for the fees and disbursements of more than
one additional counsel for all indemnified parties. The indemnifying
party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent
or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any
loss or liability by reason of such settlement or judgment.
Section 16. Amendments and Waivers. Any provisions of this
Agreement may be amended, supplemented, waived, discharged or
terminated by a written instrument signed by the Issuer and the
Majority Holders; provided, that the Exercise Price may not be
increased or the number of Warrant Shares issuable upon exercise of
the Warrants may not be reduced (except pursuant to Section 12 hereof)
and this Section may not be amended except with the consent of all the
Holders.
Section 17. Specific Performance. The Holders shall have the
right to specific performance by the Issuer of the provisions of this
Agreement. The Issuer hereby irrevocably waives, to the extent that
it may do so under applicable law, any defense based on the adequacy
of a remedy at law which may be asserted as a bar to the remedy of
specific performance in any action brought against the Issuer for
specific performance of this Agreement by the Holders.
Section 18. Notices. (a) Any notice or demand to be given or
made by the Holders to or on the Issuer pursuant to this Agreement
shall be sufficiently given or made if sent by mail, first-class or
registered, postage prepaid, addressed to the Issuer at the Warrant
Office.
(b) Any notice to be given by the Issuer to the Holders
shall be sufficiently given if sent by first-class mail, postage
prepaid, addressed to such Holder as such Holder's name and address
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<PAGE>
shall appear on the Warrant Register or the Common Stock registry of
the Issuer, as the case may be.
Section 19. Binding Effect. This Agreement shall be binding
upon and insure to the sole and exclusive benefit of the Issuer, its
successors and assigns, and each Holder from time to time party
hereto.
Section 20. Continued Validity. This Agreement shall remain
in full force and effect notwithstanding the exercise of the Warrants
by one or more Holders.
Section 21. Counterparts. This Agreement may be executed in
one or more separate counterparts and all of said counterparts taken
together shall be deemed to constitute one and the same instrument.
Section 22. GOVERNING LAW. THIS AGREEMENT AND EACH WARRANT
CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
Section 23. Severability. Any provisions of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or rendered unenforceable such
provision in any other jurisdiction.
Section 24. Benefits of This Agreement. Nothing in this
Agreement shall be construed to give to any Person other than the
Issuer and each Holder any legal or equitable right, remedy or claim
under this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be duly executed and delivered by their proper and duly
authorized officers, as of the date and year first above written.
Date: January 31, 1996
DELAWARE OTSEGO CORPORATION
WALTER G. RICH
--------------------------------------
Walter G. Rich
President and
Chief Executive Officer
CREDITANSTALT CORPORATE FINANCE, INC.,
as a Holder
CHRISTINA T. SCHOEN
--------------------------------------
Christina T. Schoen
Vice President
DIETER BOEHME
--------------------------------------
Dieter Boehme
Senior Vice President
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<PAGE>
WARRANT CERTIFICATE
-------------------
THE WARRANTS AND WARRANT SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAW AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAW. SUCH WARRANTS AND WARRANT SHARES MAY
BE TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THE
WARRANT AGREEMENT, DATED AS OF JANUARY 31, 1996, BETWEEN THE ISSUER
AND THE INITIAL HOLDER OF THE WARRANTS NAMED THEREIN, A COMPLETE AND
CORRECT COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL
OFFICE OF THE ISSUER AND WILL BE FURNISHED TO THE HOLDER HEREOF UPON
WRITTEN REQUEST AND WITHOUT CHARGE. THE WARRANTS AND WARRANT SHARES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN OTHER TERMS AND
CONDITIONS SET FORTH IN THE AMENDED AND RESTATED WARRANT AGREEMENT.
No. ___ 60,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that CREDITANSTALT CORPORATE
FINANCE, INC., or registered assigns, is the registered holder of
60,000 Warrants (the "Warrants") to purchase Common Stock of DELAWARE
OTSEGO CORPORATION, a Delaware corporation (the "Issuer"). Each
Warrant entitles the holder, but only subject to the conditions set
forth herein and in the Warrant Agreement referred to below, to
purchase from the Issuer after the Effective Date referred to in the
Warrant Agreement (the "Exercise Date") one fully paid and nonassess
able share of the Common Stock of the Issuer (the "Warrant Shares")
at an exercise price (the "Exercise Price") of $10.00 per Warrant
Share payable in lawful money of the United States of America, upon
surrender of this Warrant Certificate, execution of the annexed Form
of Election to Purchase and payment of the Exercise Price at the
office of the Issuer at 1 Railroad Avenue, Cooperstown, New York
13326, or such other address as the Issuer may specify in writing to
the registered holder of the Warrants evidenced hereby (the "Warrant
Office"). The Exercise Price and number of Warrant Shares purchasable
upon exercise of the Warrants are subject to adjustment upon the
occurrence of certain events as set forth in the Warrant Agreement.
As more particularly described in the Warrant Agreement, the
Issuer is entitled to purchase all or any part of the outstanding
Warrants on the terms and subject to the conditions specified in the
Warrant Agreement.
The Issuer may deem and treat the registered holder(s) of the
Warrants evidenced hereby as the absolute owner(s) thereof (notwith-
standing any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise and of any distribution to
the holder(s) hereof, and for all other purposes, and the Issuer shall
not be affected by any notice to the contrary.
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<PAGE>
Warrant Certificates, when surrendered at the Warrant Office by
the registered holder hereof in person or by a legal representative
duly authorized in writing, may be exchanged, in the manner and
subject to the limitations provided in the Warrant Agreement, but
without payment of any service charge, for another Warrant Certificate
or Warrant Certificates of like tenor evidencing in the aggregate a
like number of Warrants.
Upon due presentment for registration of transfer of this Warrant
Certificate at the office of the Issuer at the above-mentioned
address, a new Warrant Certificate or Warrant Certificates of like
tenor and evidencing in the aggregate a like number of Warrants shall
be issued in exchange for this Warrant Certificate to the trans
feree(s) and, if less than all the Warrants evidenced hereby are to
be transferred, to the registered holder hereof, subject to the
limitations provided in the Warrant Agreement, without charge except
for any transfer tax or other governmental charge imposed as a result
of the transfer thereof.
This Warrant Certificate is one of the Warrant Certificates
referred to in the Warrant Agreement, dated as of January 31, 1996
(the "Warrant Agreement"), between the Issuer and the Initial Holder
of Warrants named therein. Said Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and
is hereby referred to for a description of the rights, limitation of
rights, obligations, duties and immunities thereunder of the Issuer
and the holders.
IN WITNESS WHEREOF, the Issuer has caused this Warrant Certifi
cate to be signed by its duly authorized officers and has caused its
corporate seal to be affixed hereunto.
Date: January 31, 1996
DELAWARE OTSEGO CORPORATION
WALTER G. RICH
---------------------------
Walter G. Rich
President and
Chief Executive Officer
(CORPORATE SEAL)
ATTEST:
NATHAN R. FENNO
- ---------------------------
Nathan R. Fenno
Secretary
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<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this
31st day of January, 1996 by Walter Rich, the President of Delaware
Otsego Corporation, a Delaware corporation, on behalf of the
Corporation.
Ann B. Silva
----------------------
Notary Public
My commission expires: May 31, 1996
------------
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<PAGE>
ANNEX to Form
of
Warrant Certificate
[FORM OF ELECTION TO PURCHASE]
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ___ Warrant
Shares and herewith tenders payment for such Warrant Shares to the
order of the Issuer in the amount of $___________ in accordance with
the terms hereof. The undersigned requests that a certificate for
such Warrant Shares be registered in the name of _______________ whose
address is _______________________________ and that such certificate
be delivered to _______________________ whose address is
_____________________________. If said number of Warrant Shares is
less than all of the Warrant Shares purchasable hereunder, the
undersigned requests that a new Warrant Certificate representing the
remaining balance of the Warrant Shares be registered in the name of
________________________ whose address is
____________________________________ and that such Warrant Certificate
be delivered to __________________________ whose address is
__________________________________________.
Signature:
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant
Certificate.)
Date:
----------------
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<PAGE>
EXHIBIT B
TO
WARRANT AGREEMENT
WARRANT REGISTER
Original Number
Warrant of Warrants and Certificate Names and Addresses
Certificate No. Warrant Shares Legended (Y/N) of Warrant Holders
- ------------------- ----------------- ------------------ -------------------
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DEFICIENCY GUARANTEE
DEFICIENCY GUARANTEE, dated as of January 31, 1996 (the
"Guarantee") made by Delaware Otsego Corporation, a New York
corporation ("DOC"), CSX Transportation, Inc., a Virginia
corporation ("CSX"), Charles Brenner ("Brenner"; and together with
DOC and CSX, the "Guarantors"), in favor of Creditanstalt Corporate
Finance, Inc. ("CCF"), as agent (the "Agent") for certain Lenders
(as hereinafter defined). Capitalized terms not otherwise defined
herein shall have the meanings assigned to such terms in the Credit
Agreement (as hereinafter defined).
WHEREAS, The Toledo, Peoria and Western Railroad
Corporation ("Newco") and Toledo, Peoria & Western Railway
Corporation ("TPW", and together with Newco, the "Borrowers"), the
Agent and certain lenders (including CCF, the "Lenders") have
entered into a Credit Agreement dated as of the date hereof (as
amended, modified and supplemented from time to time, the "Credit
Agreement");
WHEREAS, the Guarantors have substantial economic and
voting interests in Newco;
WHEREAS, it is a condition to the effectiveness of the
Credit Agreement and to all extensions of credit thereunder that
the Guarantors shall have executed and delivered to the Agent this
Guarantee;
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged by the Guarantors, and, in order to
induce the Lenders to extend credit under the Credit Agreement,
each of the Guarantors agrees with the Agent as follows:
SECTION 1. Guarantee. (a) Each of the Guarantors
hereby unconditionally severally guarantees the punctual payment
when due, whether at stated maturity, by acceleration or otherwise,
of all obligations of every kind or character now or hereafter
existing whether matured or unmatured, contingent or liquidated, of
the Borrowers under the Credit Agreement and the other Loan
Documents, whether for principal, interest, indemnities, fees,
expenses or otherwise (all such obligations being collectively
referred to as the "Obligations"), and any and all reasonable
expenses (including reasonable counsel fees and expenses) incurred
by the Agent or the Lenders in enforcing any rights under this
Guarantee; provided, that the maximum aggregate amount payable by
each Guarantor under this Section 1 shall not exceed such
Guarantor's Percentage (as hereinafter defined) of the Maximum
Amount (as hereinafter defined); and provided further that no
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<PAGE>
demand for payment or performance hereunder may be made prior to
the Determination Date (as hereinafter defined).
(b) As used herein, the following terms shall have the
following meanings:
"Collateral" shall have the meaning given such term in
the Security Agreement.
"Determination Date" shall mean the date as of which (i)
the Loans shall be due and payable, whether at stated maturity, by
acceleration or otherwise, (ii) the Obligations shall not have been
paid in full and (iii) Total Collateral Security in an amount equal
to 75% of the stated value set forth on Schedule I for such Total
Collateral Security shall have been sold.
"Guarantor's Percentage" shall mean, as to any Guarantor,
the percentage provided on Schedule II annexed hereto.
"Maximum Amount" shall mean up to $2,000,000 of any
shortfall between Realized Liquidation Receipts and the remaining
unpaid Obligations.
"Mortgaged Property" shall have the meaning given such
term in the Mortgages.
"Pledged Stock" shall have the meaning given such term in
the Pledge Agreements, dated as of the date hereof, between the
Agent and each of Newco and Marksman, and the Pledge and
Hypothecation Agreement, dated as of the date hereof, among DOC,
CSX, Brenner and the Agent, as the same may be amended, modified
and supplemented from time to time.
"Realized Liquidation Receipts" shall mean the proceeds
of any Total Collateral Security net of collection costs which is
Sold.
"Sold" shall mean, with respect to the Total Collateral
Security, any of such assets or stock which is sold by public or
private sale, through foreclosure (including without limitation if
the Agent bids in an amount at such foreclosure) or barter or as
otherwise provided under the Uniform Commercial Code or other
applicable law; provided, that any item of Collateral or Mortgaged
Property shall be deemed to have been Sold if such item is
abandoned by the Borrowers, if it cannot be sold and is of
negligible value (for purposes of this Guarantee, assets valued at
less than $1,000 shall be presumed to be of negligible value), or
if it is not available for sale because it has previously been
disposed of by the Borrowers and provided further that accounts
receivable which are outstanding for 90 days or more after payment
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<PAGE>
is due shall be deemed to have been Sold, and provided further that
if there are no bids at any public sale or foreclosure sale, the
items of Total Collateral Security to have been sold at such sales
shall be deemed to be Sold for purposes of calculating, under
clause (iii) of the definition of Determination Date, whether the
Determination Date has occurred, but shall not be deemed to be Sold
for purposes of calculating the shortfall of the Maximum Amount.
"Total Collateral Security" shall mean the Collateral,
the Mortgaged Property, the Pledged Stock, and such other
collateral security as shall have been granted pursuant to the
Security Documents.
SECTION 2. Type of Guarantee. The Guarantors and the
Agent hereby agree that the Guarantee herein provided is a
guarantee of collection.
SECTION 3. Guarantee Absolute. Subject to the
provisions of Section 1 hereof, the Guarantors severally guarantee
that the Obligations will be paid strictly in accordance with the
terms of the Credit Agreement, regardless of any law, regulation or
order now or hereafter in effect in any jurisdiction affecting any
of such terms or the rights of the Agent and the Lenders with
respect thereto and is not subject to any setoff, counterclaim or
defense. The obligations of each of the Guarantors hereunder are
independent of the obligations of other persons under any other
related document, and a separate action or actions may be brought
and prosecuted hereunder whether the action is brought against any
such person or whether any such person is joined in any such action
or actions, except that the obligations of each of the Guarantors
is subject to the Agent's prior resort to the Borrowers and the
Total Collateral Security as set forth in Section 1 hereof.
Subject to the provisions of Section 1 hereof, the liability of the
Guarantors under this Guarantee shall be absolute and
unconditional, and shall not be affected or released in any way,
irrespective of:
(i) any lack of validity or enforceability of the Credit
Agreement, the Security Documents or any other agreement or
instrument relating thereto;
(ii) any change in the time, manner or place of payment
of, or in any other term of, all or any of the Obligations, or
any other amendment or waiver of or any consent to departure
from the Credit Agreement or the Security Documents, includ-
ing, but not limited to, an increase or decrease in the
Obligations;
(iii) any taking and holding of Collateral or any other
collateral or additional guaranties for all or any of the
Obligations, or any amendment, alteration, exchange, substitu-
tion, transfer, enforcement, waiver, subordination, termina-
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<PAGE>
tion, or release of any Collateral or any other collateral or
such guaranties, or any non-perfection of any Collateral or
any other collateral or any consent to departure from any such
guaranty;
(iv) any manner of application of Collateral or any other
collateral, or proceeds thereof, to all or any of the Obliga-
tions, or the manner of sale of any Collateral or any other
collateral;
(v) any consent by the Agent and the Lenders to the
change, restructuring or termination of the corporate
structure or existence of the Borrowers or any affiliate
thereof and any corresponding restructuring of the
Obligations, or any other restructuring or refinancing of the
Obligations or any portion thereof;
(vi) any modification, compromise, settlement or release
by the Agent and the Lenders, by operation of law or
otherwise, collection or other liquidation of the Obligations
or the liability of the Borrowers and any other guarantor, or
of the Total Collateral Security, in whole or in part, and any
refusal of payment by the Agent and the Lenders, in whole or
in part, from any obligor or guarantor in connection with any
of the Obligations, whether or not with notice to, or further
assent by, or any reservation of rights against, the
Guarantors;
(vii) the waiver of the performance or observance by the
Borrowers of any agreement, covenant, term or condition to be
performed by it;
(viii) the voluntary or involuntary liquidation,
dissolution, sale of all or substantially all of the property,
marshalling of assets and liabilities, receivership,
insolvency, bankruptcy, assignment for the benefit of credi-
tors, reorganization, arrangement, composition or readjustment
of, or other similar application or proceeding affecting
either or both of the Borrowers or any of their assets;
(ix) the release of the Borrowers from the performance or
observance of any agreements, covenants, terms or conditions
contained in the Credit Agreement or the Security Documents by
operation of law or otherwise; or
(x) any other circumstance (including, but not limited
to, any statute of limitations) which might otherwise consti-
tute a defense available to, or a discharge of, the
Obligations.
- 154 -
<PAGE>
Without limiting the generality of the foregoing, subject
to the provisions of Section 1 hereof, each of the Guarantors
hereby consents, and hereby agrees, that the rights of the Agent
for the benefit of the Lenders hereunder, and the liability of such
Guarantor hereunder, shall not be affected by any and all releases
of any of the Total Collateral Security from the liens and security
interests created by the Credit Agreement, the Security Documents
or any other document. This Guarantee shall continue to be
effective or be reinstated, as the case may be, if at any time any
payment of any of the Obligations is rescinded or must otherwise be
returned by the Lenders upon the insolvency, bankruptcy or
reorganization of the Borrowers or otherwise, all as though such
payment had not been made.
SECTION 4. Waivers. Each of the Guarantors waives
presentment to, demand for payment from and protest to the
Borrowers, or any other guarantor of any of the Obligations, and
also waives notice of acceptance of its guarantee and notice of
protest for non-payment. The Guarantors hereby further waive
promptness, diligence, notice of acceptance and any other notice
with respect to any of the Obligations and this Guarantee and any
requirement that the Agent or the Lenders protect, secure, perfect
or insure any security interest or lien or any property subject
thereto or exhaust any right or take any action against the
Borrowers, or any other person or any of the Total Collateral
Security.
SECTION 5. Covenants. (a) Each of DOC and CSX,
respectively, hereby agrees that it shall furnish to the Agent:
(a) within 90 days after the end of each fiscal year, a
copy of the report on Form 10-K (or its equivalent) for such fiscal
year which DOC and CSX Corporation shall have filed with the
Securities and Exchange Commission;
(b) within 45 days after the end of each of the first
three fiscal quarters of each fiscal year, a copy of the report on
Form 10-Q (or its equivalent) for such fiscal year which DOC and
CSX Corporation shall have filed with the Securities and Exchange
Commission; and
(c) promptly upon the distribution thereof, a copy of
the annual report for such year for DOC and CSX Corporation.
(b) Brenner hereby agrees that, so long as he is a party to
this Agreement, he will deliver to the Agent annually one of the
following: (i) a statement of net worth, (ii) his tax return for
such year or (iii) another form of information reasonably
satisfactory to the Agent as to Brenner's financial position.
- 155 -
<PAGE>
SECTION 6. Representations. Each of DOC and CSX
hereby represent and warrant that (a) it is a corporation duly
organized, validly existing and in good standing under the laws of
its jurisdiction of its organization, (b) has all requisite power
and authority to own its property and assets and to carry on its
business as now conducted and as proposed to be conducted, (c) is
qualified to do business in every jurisdiction where such
qualification is required, except where the failure so to qualify
would not result in a material adverse effect, and (d) has the
corporate power and authority to execute, deliver and perform its
obligations under this Guarantee.
SECTION 7. Subrogation. Upon payment by each
Guarantor of any sums to the Agent for the benefit of the Lenders
hereunder, all rights of such Guarantor against the Borrowers
arising as a result thereof by way of right of subrogation or
otherwise, shall in all respects be subordinate and junior in right
of payment to the prior final and indefeasible payment in full of
all the Obligations. If any amount shall be paid to or property
transferred to any Guarantor for the account of the Borrowers,
which payment arises as a result of such Guarantor's payment of its
obligations hereunder, such amount or property shall be held in
trust for the benefit of the Agent and shall forthwith be paid or
transferred to the Agent for the benefit of the Lenders to be
credited and applied to the Obligations, whether matured or
unmatured.
SECTION 8. Execution of Loan Documentation. The
Guarantors consent to and authorize the due execution and delivery
by the necessary parties of each of the Credit Agreement, the
Security Documents and any and all other related documentation
executed in connection with the foregoing.
SECTION 9. Amendments, Etc. No amendment or waiver
of any provision of this Guarantee nor consent to any departure by
the Guarantors herefrom shall in any event be effective unless the
same shall be in writing and signed by the Agent and then such
waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given, provided, however,
that no amendment, waiver or consent shall, unless in writing and
signed by the Agent and each of the Guarantors, (a) further limit
the liability of the Guarantors hereunder, (b) postpone any date
fixed for payment hereunder, or (c) amend this Section 8, and
provided, further, that no amendment, waiver or consent shall,
unless in writing and signed by the Agent, affect the rights or
duties of the Agent, under or in connection with this Guarantee.
SECTION 10. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing and shall
be given in the manner set forth in Section 9.01 of the Credit
Agreement and with copies specified therein, if to a Guarantor,
addressed to it at the address set forth on its signature page
hereof, and if to the Agent, to it at its address specified in the
Credit Agreement.
- 156 -
<PAGE>
SECTION 11. No Waiver, Remedies. No failure on the
part of the Agent to exercise, and no delay in exercising, any
right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right hereunder preclude any
other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law, the Credit Agreement or
the Security Documents.
SECTION 12. Continuing Guarantee; Transfer of Note;
Release of Guarantee. This Guarantee is a continuing guaranty and
shall (i) remain in full force and effect until the payment in full
of all of the Obligations and all other amounts payable under this
Guarantee, (ii) be binding upon the Guarantors, their successors
and assigns, and (iii) inure to the benefit of and be enforceable
by the Agent and its respective successors, transferees and
assigns. Without limiting the generality of the foregoing clause
(iii), the Agent may assign or otherwise transfer any instrument of
indebtedness of the Borrowers held by it, or any interest therein,
or grant any participation in its rights or obligations under the
Credit Agreement and the Security Documents subject to the
provisions of the Credit Agreement and the Security Documents to
any other person, and such other person shall thereupon become
vested with all the rights in respect thereof granted to the Agent.
SECTION 13. Jurisdiction; Waiver of Jury Trial. (a)
EACH OF THE GUARANTORS HEREBY IRREVOCABLY SUBMITS ITSELF TO THE
JURISDICTION OF BOTH THE SUPREME COURT OF THE STATE OF NEW YORK,
NEW YORK COUNTY, AND THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK, FOR THE PURPOSE OF ANY SUIT, ACTION
OR OTHER PROCEEDING ARISING OUT OF OR RELATING TO THIS Guarantee,
AND HEREBY WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A
DEFENSE OR OTHERWISE, IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF THE ABOVE-
NAMED COURTS FOR ANY REASON WHATSOEVER, THAT SUCH SUIT, ACTION OR
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THIS
GUARANTEE MAY NOT BE ENFORCED IN OR BY SUCH COURTS. NONE OF THE
GUARANTORS OR THE AGENT SHALL SEEK A JURY TRIAL IN ANY PROCEEDING
ARISING OUT OF THIS GUARANTEE. NONE OF THE GUARANTORS OR THE AGENT
WILL SEEK TO CONSOLIDATE SUCH PROCEEDING INTO ANY ACTION IN WHICH A
JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. EACH OF THE
GUARANTORS AGREES THAT ANY ACTION BROUGHT BY IT AGAINST THE AGENT
ARISING OUT OF OR RELATED TO THIS GUARANTEE SHALL ONLY BE BROUGHT
IN ONE OF THE AFOREMENTIONED COURTS.
SECTION 14. Applicable Law. THIS GUARANTEE SHALL IN
ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO
BE PERFORMED WHOLLY WITHIN SUCH STATE.
- 157 -
<PAGE>
SECTION 15. Expenses of the Agent. Subject to the
limitation set forth in Section 1 hereof, the Guarantors agree to
pay all reasonable and necessary out-of-pocket expenses incurred by
the Agent in connection with the enforcement or protection of its
rights or the rights of the Agent generally in connection with the
Guarantee including, but not limited to, the reasonable fees and
disbursements of counsel for the Agent.
SECTION 16. Cause of Action. Each of the under-signed
hereby agrees and acknowledges that this Guarantee is an instrument
for the payment of money, and hereby consents that the Agent, at
its sole option, in the event of a default by the Guarantor in the
payment of any of the moneys due hereunder, shall have the right to
bring a motion for summary judgment in lieu of complaint under New
York CPLR Section 3213.
- 158 -
<PAGE>
IN WITNESS WHEREOF, each of the Guarantors has caused
this Guarantee to be duly executed and delivered by its officer
thereunto duly authorized as of the date first above written.
Date: January 31, 1996
DELAWARE OTSEGO CORPORATION
WALTER G. RICH
---------------------------
Walter G. Rich
President
1 Railroad Ave.
Cooperstown, NY 13326
CSX TRANSPORTATION, INC.
A. B. AFTOORA
---------------------------
A. B. Aftoora
Vice President
500 Water Street
Jacksonville, Fl 32202
CHARLES BRENNER
---------------------------
Charles Brenner
P.O. Box 10
Maplewood, NJ 07040
- 159 -
<PAGE>
Schedule I
----------
Assets Stated Value
Locomotives, other $1,200,000
rolling stock, vehicles
and equipment
Real property and $16,600,000
all improvements
- 160 -
<PAGE>
Schedule II
-----------
Guarantors Percentages
DOC 40%
CSX 20%
Charles Brenner 33%
- 161 -
CASH COLLATERAL AGREEMENT
CASH COLLATERAL AGREEMENT, dated as of January 31, 1996, among
Delaware Otsego Corporation ("DOC"), CSX Transportation, Inc. ("CSX"),
and Charles Brenner ("Brenner", and collectively, with DOC and CSX,
the "Pledgors") and CREDITANSTALT CORPORATE FINANCE, INC. ("CCF"), as
agent for the lenders (the "Lenders") parties to that certain Credit
Agreement, dated as of January 31, 1996 (as amended, modified and
supplemented from time to time, the "Credit Agreement") among The
Toledo, Peoria and Western Railroad Corporation ("Newco"), Toledo,
Peoria & Western Railway Corporation ("TPW Railway" and together with
Newco, the "Borrowers") named therein and CCF, as agent for the
Lenders (in such capacity, the "Agent").
WHEREAS, pursuant to the Credit Agreement, the Borrowers have
executed as part of the Loan Documents a Revolving Credit Note in the
principal sum of $1,000,000.00 and a Term Note in the principal sum
of $7,000,000.00, in favor of the Lenders; and
WHEREAS, in order to secure the Borrowers' due and punctual
payment of principal of and interest on the Term Loans and the Term
Notes and all other present and future, fixed or contingent, monetary
obligations of the Borrowers to the Lenders and the Agent under the
Loan Documents relative to the Term Loans and the Term Notes
(including those payable under Section 9.05 of the Credit Agreement)
(collectively, the "Obligations"), and in order to induce the Lenders
to make the Loans under the Credit Agreement, the Pledgors have
determined to pledge and hypothecate one million dollars
($1,000,000.00) as set forth herein; and
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Definitions. All capitalized terms herein not
otherwise defined herein shall have the respective meanings assigned
to such terms in the Credit Agreement.
Section 2. Cash Collateral.
(a) The Agent will cause Creditanstalt-Bankverein, as
its agent, to establish and maintain on its books at an
office in New York City a cash collateral account entitled
"TPW Cash Collateral Account" (the "Cash Collateral
Account") which shall be subject to debit and withdrawal
solely by the Agent as provided herein.
(b) Pledgors are, on the date hereof, depositing One
Million Dollars ($1,000,000.00) with the Agent for credit
to the Cash Collateral Account.
(c) The funds in the Cash Collateral Account shall be
deposited, in the first instance, in an interest-bearing
account at the full branch of Creditanstalt-Bankverein.
- 162 -
<PAGE>
After the Closing Date, the Pledgors may, once per year,
direct the Agent to invest the funds in (i) short-term
United States government obligations with a maturity not to
exceed six months or (ii) a deposit account at the full
branch of Creditanstalt-Bankverein provided, that DOC shall
give written notice on or before the date which is two
Business Days prior to the maturity of any investment as to
the investment for the next two six-month periods.
Whenever any investment hereunder shall become due, or
otherwise would become due, on a day that is not a Business
Day, such investment shall be deemed to mature on the next
Business Day. Failure by DOC to specify a different
investment at the end of the second six-month period shall
constitute authority for the Agent to continue the
investment so maturing. All income earned on the balance
in the Cash Collateral Account shall be paid to DOC semi-
annually for distribution to the Pledgors so long as no
Default under Article VII(b) and (c) of the Credit
Agreement has occurred.
(d) As collateral security for the prompt payment and
performance of the Obligations, the Pledgors hereby pledge
and grant a security interest in the Cash Collateral
Account, all balances therein, all earnings thereon, and
all proceeds thereof, to the Agent for the benefit of the
Lenders.
(e) The Agent shall apply amounts in the Cash
Collateral Account in accordance with Section 3 of this
Agreement.
Section 3. Default. If any Event of Default under Article
VII(b) or (c) of the Credit Agreement shall have occurred and be
continuing, the Agent shall have all the rights and remedies of a
secured party under the New York Uniform Commercial Code, or other
applicable law, and all rights and remedies provided herein and in the
Credit Agreement and the other Loan Documents, all of which rights and
remedies shall, to the full extent permitted by law, be cumulative.
Without limiting the generality of the foregoing, upon the occurrence
of an Event of Default under Article VII(b) or (c) of the Credit
Agreement and the acceleration of or demand for payment of the
Obligations, the Agent may apply any cash then held by the Agent
hereunder to:
(a) First, the payment of the costs and expenses,
liabilities and advances made or incurred by the Agent in
connection with its duties hereunder;
(b) Second, the payment of the Obligations, pro rata
among the Lenders, in accordance with the provisions of the
Loan Documents; and
- 163 -
<PAGE>
(c) Third, to the Pledgors, or their successors or
assigns, or as a court of competent jurisdiction may
direct, of any surplus then remaining from such proceeds.
Section 4. No Waiver. No failure on the part of the Agent to
exercise, and no delay in exercising, any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise by the Agent of any right, power or remedy hereunder
preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies herein provided are
cumulative and are exclusive of any remedies provided by law.
Section 5. Duration. The Cash Collateral Account and this
Agreement shall remain in full force and effect until the earlier to
occur of: (i) the indefeasible payment in full of the Term Loans and
all other monetary obligations in respect thereof and (ii) the first
fiscal year on or after December 31, 1998 in which the Borrower's
EBITDA as reported on their audited consolidated statements of income
is $4,000,000 or greater. Upon the occurrence of either of the
foregoing events, any balance remaining in the Cash Collateral Account
shall be paid to the Pledgors and this Agreement shall thereupon
terminate.
Section 6. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall constitute an original but
all of which taken together shall constitute but one instrument.
Section 7. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
Section 8. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the Pledgors and the Agent
and their respective successors and assigns; provided, that the
Pledgors may not assign their rights or obligations hereunder without
the prior written consent of the Agent, except that Brenner may assign
his rights hereunder to DOC.
Section 9. Appointment. The Pledgors hereby appoint the Agent
the attorney-in-fact of the Pledgors, with full power of substitution,
for the purposes of carrying out the provisions and intentions of this
Agreement and taking any action and executing any instrument which the
Agent may deem necessary or desirable to accomplish the purposes
hereof, which appointment as attorney-in-fact is irrevocable and
coupled with an interest; and the Pledgors also agree that, from time
to time upon the written request of the Agent, it will take such
action and execute any such instruments as the Agent may request in
order fully to carry out the provisions and intentions of this
Agreement.
- 164 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first above written.
Date: January 31, 1996
DELAWARE OTSEGO CORPORATION
WALTER G. RICH
-------------------------------------
Walter G. Rich
President and Chief Executive Officer
CSX TRANSPORTATION, INC.
A. B. AFTOORA
-------------------------------------
A. B. Aftoora
Vice President
CHARLES BRENNER
-------------------------------------
Charles Brenner
CREDITANSTALT CORPORATE FINANCE, INC., as Agent
DIETER BOEHME
-------------------------------------
Dieter Boehme
Senior Vice President
CHRISTINA T. SCHOEN
-------------------------------------
Christina T. Schoen
Vice President
- 165 -
EXHIBIT 21
----------
SUBSIDIARIES OF REGISTRANT
--------------------------
STATE OF
NAME OF SUBSIDIARY INCORPORATION
- ------------------ -------------
Cooperstown and Charlotte Valley Railway Corporation New York
Central New York Railroad Corporation New York
Syracuse, Binghamton and New York Railroad Corporation New York
Lackawaxen and Stourbridge Railroad Corporation Pennsylvania
Delaware Otsego Equipment Corporation New York
Fonfulco, Inc. New York
The New York, Susquehanna and Western Railway Corporation New Jersey
Susquehanna Properties, Inc. New York
Staten Island Railway Corporation New York
Delta Warehousing Corporation New Jersey
Rahway Valley Company, Lessee New Jersey
Rahway Valley Railroad Company New Jersey
Susquehanna Bulk Systems, Inc. New Jersey
- 166 -
Exhibit 23 - Consent of Independent Auditors
- --------------------------------------------
We consent to the incorporation by reference in the Registration Statement
(Form S-8 and Form S-3 No. 33-34587) pertaining to the 1987 Stock Option
Plan of Delaware Otsego Corporation of our report dated February 26, 1996,
with respect to the consolidated financial statements of Delaware Otsego
Corporation included in this Annual Report (Form 10-K) for the year ended
December 31, 1995.
Ernst & Young LLP
Syracuse, New York
March 27, 1996
- 167 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-01-1995
<PERIOD-END> Dec-31-1995
<PERIOD-TYPE> 12-MOS
<CASH> 1213
<SECURITIES> 0
<RECEIVABLES> 5406
<ALLOWANCES> 0
<INVENTORY> 742
<CURRENT-ASSETS> 10268
<PP&E> 92401
<DEPRECIATION> 29414
<TOTAL-ASSETS> 74778
<CURRENT-LIABILITIES> 15552
<BONDS> 16382
0
0
<COMMON> 202
<OTHER-SE> 32244
<TOTAL-LIABILITY-AND-EQUITY> 74778
<SALES> 34524
<TOTAL-REVENUES> 34524
<CGS> 0
<TOTAL-COSTS> 36086
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1465
<INCOME-PRETAX> 2493
<INCOME-TAX> 878
<INCOME-CONTINUING> 1615
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1615
<EPS-PRIMARY> 1.00
<EPS-DILUTED> .91
</TABLE>
