SCHEDULE 14A INFORMATION
------------------------
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule 14a-11(c) or Rule 14a-12
DELAWARE OTSEGO CORPORATION
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(Name of Registrant as Specified in its Charter)
Nathan R. Fenno
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock
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2) Aggregate number of securities to which transaction applies:
1,744,177
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: _/
N/A
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4) Proposed maximum aggregate value of transaction:
N/A
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_/ Set forth the amount on which the filing fee is calculated and state
how it was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
1) Amount Previously Paid:
------------------------------------------------
2) Form Schedule or Registration Statement No.:
------------------------------------------------
3) Filing Party:
------------------------------------------------
4) Date Filed:
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<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
DELAWARE OTSEGO CORPORATION
1 Railroad Ave.
Cooperstown, New York 13326
(607) 547-2555
To Shareholders:
The 1996 Annual Meeting of Shareholders of Delaware Otsego Corporation,
a New York corporation (the ""), will be held on Saturday, June 1, 1996
at 11:00 AM at the Cooperstown High School, Linden Avenue, Cooperstown,
New York, for the following purposes:
1. To elect three Class A Directors to serve a term of four years
or until their successors are duly elected and qualified;
2. To consider and act upon a proposal to amend the Company's
Certificate of Incorporation to increase the aggregate number of
shares which the Company shall have authority to issue by
authorizing a new class of 1,000,000 shares of preferred stock
issuable in series, the voting, dividend, liquidation and other
rights of which may be determined from time to time by the Board
of Directors;
3. To consider and act upon a proposal to ratify the selection of
Ernst & Young LLP as the Company's auditors;
4. To transact such other business as may properly come before the
meeting or any and all adjournments thereof.
Holders of record of the Company's common stock, par value $.125 per share,
at the close of business on April 12, 1996 will be entitled to vote at the
meeting.
By Order of the Board of Directors,
s/ NATHAN R. FENNO
-----------------------------------
Nathan R. Fenno, Secretary
Dated: April 22, 1996
You are requested to fill in, sign, date and return the Proxy submitted
herewith in the return envelope provided for your use. The return of such
Proxy will not affect your right to revoke such Proxy or to vote in person
should you later decide to attend the meeting.
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<PAGE>
DELAWARE OTSEGO CORPORATION
1 Railroad Avenue
Cooperstown, New York 13326
(607) 547-2555
-----------------------------
PROXY STATEMENT
-----------------------------
1996 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 1, 1996
This Proxy Statement and accompanying form of proxy are being
distributed to shareholders on or about April 22, 1996, in connection with
the solicitation by the Board of Directors of Delaware Otsego Corporation,
a New York corporation (the "Company"), of proxies for use at the Annual
Meeting of Shareholders of the Company to be held on June 1, 1996 at 11:00
AM at the Cooperstown High School, Linden Avenue, Cooperstown, New York,
and at any and all adjournments thereof (the "meeting").
VOTING
- - ------
On April 12, 1996, the record date for the determination of
shareholders entitled to notice of, and to vote at, the meeting (the
"Record Date"), 1,744,177 shares were issued and outstanding of the
Company's Common Stock, par value $.125 per share (the "Common Stock").
Each share is entitled to one vote.
Shareholders may vote their shares in person at the meeting.
Shareholders who do not plan to be present at the meeting are requested to
date and sign the enclosed form of proxy and return it in the postage-paid
return envelope provided. Proxies will be voted in accordance with the
instructions contained therein. To the extent that instructions are not
set forth in any proxy, such proxy will be voted in favor of each person
nominated herein to the Board of Directors, in favor of the amendment of
the Company's Certificate of Incorporation proposed herein, and in favor
of the ratification of Ernst & Young LLP as the Company's auditors.
Directors will be elected by a plurality of the votes cast at
the meeting and a vote of a majority of the votes cast at the meeting will
be required to approve the ratification of Ernst & Young LLP as auditors.
Therefore, shareholders present in person or by proxy at the meeting who
do not vote, who withhold their vote from one or more nominees or who
abstain from voting will not affect the outcome of the election or the
other proposals provided that a quorum is present at the meeting. Brokers
who hold shares of Common Stock as nominees will have discretionary
authority to vote such shares if they have not received voting instructions
from the beneficial owners by the tenth day before the meeting.
Authorization of the proposed amendment to the Certificate of
Incorporation requires the affirmative vote of a majority of all the
outstanding shares of Common Stock on the Record Date. Therefore,
shareholders who do not vote or who vote to abstain will, in effect, be
voting against the amendment. Brokers who hold shares of common Stock as
nominees will not have discretionary authority to vote such shares for the
amendment proposal.
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<PAGE>
Shareholders have the right to revoke their proxies by notifying
the Secretary of the Company in writing at the above address at any time
prior to the time the shares are actually voted, by executing and returning
a proxy bearing a later date, or by attending the meeting and voting in
person.
All costs incurred in preparing and mailing this Proxy Statement
and form of proxy, and the return mailing of proxies, will be borne by
the Company.
BENEFICIAL OWNERSHIP OF COMMON STOCK
- - ------------------------------------
The following table sets forth information as of the Record Date
concerning the number of shares of Common Stock beneficially owned by those
persons known by the Company to be the beneficial owners of more than five
percent of the outstanding shares of Common Stock, by those executive
officers named in the Summary Compensation Table below, and by all
directors and executive officers of the Company as a group. The address of
all such persons other than CSX Transportation, Inc. is that of the Company
shown above.
Amount and Nature of Percent
Name Beneficial Ownership of Class
- - ---------------------------- ------------------------------- --------
Walter G. Rich 268,547 (1) 15.4%
C. David Soule 11,247 (2) 0.7%
William B. Blatter 7,446 (3) 0.4%
Paul Garber 6,647 (4) 0.4%
Nathan R. Fenno 4,793 (5) 0.3%
CSX Transportation, Inc., 105,000 (6) 6.0%
500 Water Street
Jacksonville, FL 32202
All directors and
executive officers
as a group (15 persons) 617,585 (7) 35.4%
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(1) Includes 8,285 shares issuable upon exercise of stock options and
9,451 shares issuable upon conversion of debt.
(2) Includes 10,959 shares issuable upon exercise of stock options.
(3) Includes 6,840 shares issuable upon exercise of stock options.
(4) Includes 6,647 shares issuable upon exercise of stock options.
(5) Includes 4,793 shares issuable upon exercise of stock options.
(6) The information with respect to the beneficial ownership of Common
Stock by CSX Transportation, Inc. is derived from its statement on
Schedule 13D dated February 12, 1996, filed with the Securities and
Exchange Commission.
(7) Includes 87,285 shares issuable upon exercise of stock options and
92,622 shares issuable upon conversion of debt.
EXECUTIVE COMPENSATION
- - ----------------------
The following tables set forth information concerning total
compensation paid or accrued by the Company for the last three fiscal years
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<PAGE>
to the Company's Chief Executive Officer and its four other most highly
compensated executive officers employed at December 31, 1995 who had
aggregate salary and bonus in excess of $100,000 in fiscal year 1995, and
information regarding stock options for the same executive officers during
the 1995 fiscal year.
Summary Compensation Table
- - --------------------------
Long-Term
Compensation
Annual Compensation 1/ Awards
------------------------ ------------
Other Securities All
Annual Underlying Other
Name and Salary Bonus Compen- Options/ Compen-
Principal Position Year ($) ($) sation 2/ SARs(#) 4/ sation 3/
- - ------------------- ---- ------- ------ --------- ------------ ---------
Walter G. Rich 1995 187,735 70,000 3,000 0 1,792
Chief Executive 1994 203,827 0 4,126 0 1,791
Officer 1993 197,097 0 4,660 7,890 1,791
C. David Soule 1995 131,060 70,000 146 0 1,496
Executive Vice 1994 139,905 0 2,843 0 1,496
President 1993 136,540 0 3,461 10,437 1,496
William B. Blatter 1995 100,000 40,000 2,883 0 4,167
Senior Vice 1994 100,000 0 2,083 0 4,167
President 1993 100,000 0 2,083 6,514 4,167
Paul Garber 1995 116,368 1,000 2,360 0 1,624
Vice President- 1994 106,805 0 2,184 0 1,936
Marketing & Sales 1993 91,288 0 1,871 6,330 1,936
Nathan R. Fenno 1995 90,348 30,000 2,432 0 1,256
Vice President-Law, 1994 92,079 0 1,867 0 1,256
General Counsel 1993 94,502 0 1,915 4,565 1,256
& Secretary
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[FN]
1/ Annual Compensation deferred at election of an executive is included
in the salary or bonus column, as appropriate, for the fiscal year in
which earned.
2/ Consists of Company contributions to the Company's 401(k) Savings Plan
on behalf of such officer.
3/ Consists of insurance premiums paid by the Company on life insurance
policies owned by such officers.
4/ Includes a re-grant of options for 5,488 shares for Mr. Rich, 9,103
shares for Mr. Soule, 5,523 shares for Mr. Blatter, 5,593 shares for
Mr. Garber, and 3,568 shares for Mr. Fenno. These figures have been
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<PAGE>
adjusted to reflect changes required under the Company's Stock Option
Plans resulting from stock dividends declared by the Company in 1994
and 1995.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values
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Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Fiscal Options at
Shares Value Year-End (#) Fiscal Year-End
Acquired on Realized Exercisable/ ($) Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable 1/
- - ------------------ ------------ -------- ----------------- ----------------
Walter G. Rich 0 0 7,890/0 0/0
C. David Soule 0 0 10,437/0 137.76/0
William B. Blatter 0 0 6,514/0 97.80/0
Paul Garber 0 0 6,330/0 78.20/0
Nathan R. Fenno 0 0 4,565/0 90.92/0
- - ---------------------------------------------------------------------------
[FN]
1/ Market value of underlying shares at year-end, minus the exercise price
of he options.
Employment Agreements
- - ---------------------
The Company has an Employment Agreement with Mr. Rich pursuant to
which he is employed as President and Chief Executive Officer for a 5-year
term ending June 3, 2000, renewable at the option of the Company for an
additional five-year term. Mr. Rich's minimum salary under this Agreement
is $187,000 per year, subject to review for increase by the Board of
Directors from time to time, and he is entitled to reimbursement for
expenses incurred in connection with his conduct of business on behalf of
the Company, and to coverage at current levels under the Company's life and
health insurance plans. If Mr. Rich is not elected as director or President
and Chief Executive Officer at any time during the term of the Agreement and
any renewal thereof, he shall continue to be entitled to the benefits of
the Agreement until it expires and shall be obligated to perform consulting
services for a maximum of four days per month. Mr. Rich is entitled under
the Agreement to full compensation during any period of long-term
disability.
The Company has Employment Agreements with each of Messrs. Soule,
Blatter and Fenno pursuant to which they are employed as Executive Vice
President, Senior Vice President and Vice President-Law, respectively, for
five year terms ending June 3, 2000, at a minimum salary of $125,000,
$100,000, and $90,000, respectively. The agreements allow for increases
in compensation by the Board of Directors from time to time, reimbursement
for expenses incurred on behalf of the Company, coverage under the Company's
life and health insurance plans, and full compensation during any period
of long-term disability. They further provide for an automatic extension
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<PAGE>
of the term of the agreement for a period of five years in the event of a
"change in control" of the Company, as defined as (i) any such change
required to be reported to the Securities and Exchange Commission under
Item 1 in a Current Report on Form 8-K (or a successor provision thereof);
(provided, however, that no change in control shall be deemed to have
occurred which involves the acquisition, holding, voting or disposing of
less than 40% of the Company's outstanding voting securities, or (ii) the
sale of all or a substantial portion of the productive assets of the
Company. For purposes of this provision, the Company includes both
jointly and severally Delaware Otsego Corporation and The New York,
Susquehanna and Western Railway Corporation.
Committee Report on Executive Compensation
- - ------------------------------------------
The Executive Committee of the Board of Directors has been
designated to act as a Compensation Committee for determining compensation
of the Company's executive officers. The following is a general discussion
of the Committee's policies in recommending levels of executive compensation
for approval by the Board of Directors.
For all executive officers, salary levels are based on a
combination of factors, including but not limited to relative position
within the Company, the officer's training and expertise, the Committee's
view of the level of compensation available to the officer from other
employers, and the financial condition of the Company. For officers other
than the Chief Executive Officer, the Committee considers the recommendations
of the Chief Executive Officer. For all officers, the Committee considers,
from time to time, the recommendations of compensation consultants employed
by the Committee. During 1995, the Committee considered an Executive
Compensation and Benefits Review prepared at its request by William M.
Mercer, Inc. In summary, this report stated that current executive
compensation levels are somewhat below competitive norms, primarily due to
low long-term incentive opportunities and the lack of a pension plan. The
Committee is considering but has taken no action in regard to, methods to
provide long-term incentive opportunities to the Company's executives based
on the Company's financial performance.
Mr. Rich, a member of the Committee who is also an executive
officer of the Company, abstains from any discussion or determination of his
compensation.
There currently is no direct quantitative relationship between
the Company's performance and compensation of the Chief Executive Officer
or other executives.
The Company may grant stock options to its executive officers and
other employees pursuant to the terms of its 1987 and 1993 Stock Option
Plans. No such grants were made in 1995.
In 1995, no changes in annual salary levels paid to the Chief
Executive Officer and certain other senior executive officers from prior
year levels were made. The Company did pay a bonus to all non-union
employees in 1995 from the proceeds of the Company's sale of the assets of
its subsidiary Rahway Valley Railroad Company. The amount of bonus paid
was determined generally by a formula based on each such employee's relative
salary level and years of service to the Company.
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<PAGE>
Robert L. Marcalus, Chairman
Charles S. Brenner
Everett A. Gilmour
Walter G. Rich
Richard A. White
Compensation Committee Interlocks and Insider Participation
- - -----------------------------------------------------------
The directors of the Company who served as members of the Board's
Executive Committee (which acts as its Compensation Committee) with respect
to 1995 executive compensation are named above. Mr. Rich, a member of the
Executive Committee, is the Company's President and Chief Executive Officer.
Also, as noted below under the caption "Certain Transactions", Robert L.
Marcalus, the Chairman of the Executive Committee, is Chairman of the Board
of Marcal Paper Mills, Inc., which in 1995 generated freight revenue to the
Company of approximately $265,300.00.
PERFORMANCE GRAPH
- - -----------------
The following graph compares the annual change in the cumulative
total return on the Company's Common Stock with the annual change in the
cumulative total return of the NASDAQ Total Return Index for the NASDAQ
Stock Market (U.S. Companies) ("NASDAQ U.S. Companies Index") and the NASDAQ
Total Return Industry Index for NASDAQ Trucking and Transportation Stocks
("NASDAQ Transportation Index"). The returns are calculated assuming that
$100 was invested in the Company's Common Stock, the NASDAQ U. S. Companies
Index and the NASDAQ Transportation Index on December 31, 1990, and that
all dividends were reinvested during the relevant periods.
COMPARISON OF FIVE YEAR CUMLATIVE TOTAL RETURN
AMONG DELAWARE OTSEGO CORPORATION,
NASDAQ US COMPANIES INDEX AND NASDAQ TRANSPORTATION INDEX
- - ---------------------------------------------------------------------------
12/90 12/91 12/92 12/93 12/94 12/95
------- ------- ------- ------- ------- -------
DOC $100.00 $102.42 $106.70 $128.04 $137.80 $132.34
NASDAQ $100.00 $145.37 $177.90 $216.13 $196.16 $223.11
(TRANS)
NASDAQ $100.00 $160.56 $186.87 $214.51 $209.69 $296.30
(US CO'S)
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<PAGE>
SEC DISCLOSURE
- - --------------
Section 16(a) of the Securities Exchange Act of 1934 and the rules
thereunder of the Securities and Exchange Commission (the "Commission")
require the Company's directors and executive officers, and persons who own
more than 10% of the Company's outstanding Common Stock, to file with the
Commission reports of ownership and changes in ownership of common stock
and other equity securities of the Company. Persons who file such reports
are required by SEC regulation to furnish the Company with copies of all
Section 16(a) reports.
Based solely on a review of such reports furnished to the Company
and written representations that no other reports were required, the
Company believes that, during the 1995 fiscal year, all filing requirements
applicable to its officers, directors and persons who own more than 10% of
the Company's outstanding Common Stock were timely complied with, except
that a Form 4 report was filed late by Phillip A. England and a Form 3
report was filed late by Gordon R. Fuller.
ELECTION OF DIRECTORS (PROPOSAL 1)
----------------------------------
The Board of Directors is divided into four classes with terms
expiring on four successive Annual Meeting dates. At the meeting, the
following three persons are the nominees of the Board for election as
directors in Class A for four-year terms expiring in 2000:
Walter G. Rich
Charles Brenner
Harvey Polly
Mr. Rich and Mr. Polly were elected to their present terms of
office at the Annual Meeting of Shareholders held June 6, 1992. Mr.
Brenner was elected to his present term of office at the Annual Meeting
of Shareholders held June 4, 1994 as a Class C director, and is nominated
as Class A to comply with New York Business Corporation Law requirements
that classes be as equal in number as possible.
The other Directors of the Company, who are not up for election at
the meeting, are as follows:
Class B, to serve until the 1997 Annual Meeting of
Shareholders and until their successors are elected
and qualified:
C. David Soule
Niles F. Curtis
Malcolm C. Hughes
Class C, to serve until the 1998 Annual Meeting of
Shareholders and until their successors are elected
and qualified:
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<PAGE>
Richard A. White
Gerald D. Groff, M.D.
David B. Common
Class D, to serve until the 1999 Annual Meeting of
Shareholders and until their successors are elected
and qualified:
Robert L. Marcalus
Everett A. Gilmour
Albert B. Aftoora
No family relationships exist among the executive officers
and directors of the Company.
The Directors receive $600 per Board or Committee meeting
attended.
The name and age of each Director are set forth on the following
pages with a brief statement of the present principal occupation of each
Director, the year in which the Director was first elected a Director of
the Company, and pertinent biographical information for at least the past
five years. Also stated is the amount of Common Stock beneficially owned as
of the Record Date by each Director. Unless otherwise indicated, each
Director has sole voting and dispositive power with respect to such Common
Stock. No Director is the beneficial owner of any other equity securities
of the Company or any of its subsidiaries. The information set forth on
the following pages with respect to each Director has been furnished by
such Director.
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Common Stock
No. of Year
Shares Became
Current Beneficially Percentage a Company
Directors Age Principal Occupation Owned (1) of Class Director
- - ------------- --- ----------------------- ------------ ---------- ---------
Albert B.
Aftoora (a) 56 Vice President-Corridor 1,758 * 1995
Development,
CSX Transportation, Inc.
Charles S.
Brenner (b) 40 President, 74,770 (2) 4.3% 1993
J.L. Schiffman & Co.
David B.
Common (c) 35 Vice President, 48,295 2.8% 1993
JP Morgan & Co., Inc.
Niles F.
Curtis (d) 55 President and Owner, 5,468 (3) * 1971
N. Curtis, Inc. d/b/a
Cooperstown Agway
Everett A.
Gilmour (e) 74 Chairman of the Board, 25,587 1.5% 1980
The National Bank & Trust
Co., Norwich, NY and
NBT Bancorp, Inc.
Gerald D.
Groff (f) 45 Senior Attending Physician, 3,745 * 1993
Dept. of Medicine,
M. I. Bassett Hospital
Malcolm C.
Hughes (g) 59 Attorney 31,867 (4) 1.8% 1970
Robert L.
Marcalus (h) 75 Chairman , Marcal Paper 32,680 1.9% 1980
Mills, Inc.
Harvey J.
Polly (i) 67 President & C.E.O., 8,202 * 1988
H/R Industries, Inc.
Walter G.
Rich (j) 50 President & C.E.O. of the 268,545 15.4% 1968
Company and all wholly-
owned subsidiaries
C. David
Soule (k) 45 Executive Vice President 11,246 * 1984
of the Company and all
whollyowned subsidiaries
Richard A.
White (l) 76 Retired Business Executive 26,586 1.5% 1970
- - ---------------------------------------------------------------------------
* Less than 1.0%
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<PAGE>
(1) Includes 1,575 shares issuable upon the exercise of stock options
granted under the Company's stock option plans to each person named
in the table, except Mr. Rich (8,285 shares), Mr. Soule (10,959
shares). Also includes shares issuable upon conversion of debt
investments held by Messrs. Brenner (51,983 shares), Common (18,903
shares), Gilmour (2,835 shares), Groff (945 shares), Hughes (2,835
shares), Marcalus (4,725 shares), Rich (9,451 shares), and White (945
shares).
(2) Includes 9,894 shares held by Mr. Brenner as custodian of minor
children, and 1,214 shares held by Mr. Brenner's wife.
(3) Excludes 126 shares held by Mr. Curtis' son, as to which shares Mr.
Curtis disclaims beneficial ownership.
(4) Excludes 1,020 shares held by Mr. Hughes' daughter, as to which
shares Mr. Hughes disclaims beneficial ownership.
Mr. Aftoora has been employed for over five years by CSX Transportation,
Inc., a Class I railroad as Vice President-Corridor Development since 1995
and, prior thereto, as Assistant Vice President and Treasurer.
Mr. Brenner has been President of J. L. Schiffman & Co., Inc., a stock
brokerage firm, since 1981. Mr. Brenner is also Chairman of the Board of
RWC Inc., a Michigan metal forming machine manufacturer, and a director of
The Toledo, Peoria and Western Railroad Corporation.
Mr. Common has been employed since May, 1993 as Vice President-Corporate
Finance of J. P. Morgan & Co., Inc. Prior thereto, he was employed by The
Toronto-Dominion Bank most recently as Director-Corporate Accounts.
Mr. Curtis has been the President and owner for over five years of
Cooperstown Agway, a distributor of hardware and related products in
Cooperstown, New York.
Mr. Gilmour is Chairman of the Board of the National Bank & Trust
Company of Norwich, New York and its holding company, NBT Bancorp, Inc.
Mr. Gilmour also serves on the Boards of Directors of NYSEG, Inc., Deposit
Telephone Co., Preferred Mutual Insurance Co., and Norwich Aero Products
Inc.
Dr. Groff has been a senior attending physician at the Mary Imogene
Bassett Hospital in Cooperstown since 1987. Dr. Groff is also Assistant
Professor of Clinical Medicine at Columbia Presbyterian Medical School,
and Medical Director of the Community Health Plan of Bassett Hospital.
Mr. Hughes served as the Company's Secretary from 1970 until 1984 and
General Counsel from 1970 until 1981. He is currently an attorney in
private practice in Margaretville, New York.
Mr. Marcalus has been Chairman and Chief Executive Officer of Marcal
Paper Mills, Inc. for over five years.
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<PAGE>
Mr. Polly has been President and Chief Executive Officer of H/R
Industries, Inc. for over five years. Prior thereto, he was Chairman of
Hanover Bank of Florida and President of Chief Executive Officer of Railway
Freight Car Services. Mr. Polly also serves on the Board of Directors of
Columbus and Greenville Railway.
Mr. Rich has been President and Chief Executive Officer of the Company
since 1971. He joined the Company in 1966 as General Manager. Mr. Rich is
also a director of Norwich Aero Products, Inc., New York State Business
Development Corp., Security Mutual Life Insurance Company of New York and
The Toledo, Peoria and Western Railroad Corporation. Mr. Rich was appointed
in 1993 to the New York State Public Transportation Safety Board.
Mr. Soule has been Executive Vice President and Chief Operating Officer
of the Company since 1983.
Before retiring in 1989, Mr. White was President of Bruce Hall Corp.,
Cooperstown, New York and Bruce Hall-Richfield, Inc., Richfield, New York,
companies which sell building supplies. Mr. White is also a director of
Northeast Treaters, Inc.
Certain Transactions
- - --------------------
During 1995, Marcal Paper Mills, Inc., of which Mr. Marcalus is
Chairman of the Board and Chief Executive Officer, generated freight
revenue to the Company of approximately $265,300.00. Management of the
Company believes that the terms of the foregoing were no less favorable
to the Company than if Mr. Marcalus had not been affiliated with the Company.
Directors and Officers Liability Insurance
- - ------------------------------------------
Pursuant to Section 726 of the New York Business Corporation Law, the
Company hereby reports that on February 12, 1996, a policy of directors and
officers liability insurance in the aggregate amount of $5,000,000 was
obtained for a one-year term with Continental Casualty Insurance Company at
a cost of $62,150 covering all directors and officers of the Company and
affiliated companies serving at any time during the term of the policy.
Board Meetings and Attendance of Directors
- - ------------------------------------------
The Company's Board of Directors held five meetings during 1995. The
Company's Board of Directors has two Committees, whose members are selected
in June of each year immediately after the Annual Meeting of Shareholders.
The Committees and their functions are as follows:
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<PAGE>
The Audit Committee is responsible for supervising the audit of
Company financial statements and related material and internal accounting
controls, for reviewing any potential conflict of interest situations, and
providing guidance on ethical and environmental matters. The current
members of the Audit Committee are Niles F. Curtis (Chairman), Malcolm C.
Hughes and Gerald D. Groff. The Audit Committee met four times during 1995.
The Executive Committee generally performs the functions of the Board
of Directors between meetings of the Board of Directors, to the extent
permitted by law, and acts as a Compensation Committee for determining
compensation of the Company's executive officers. The current members of
the Executive Committee are Robert L. Marcalus (Chairman), Charles S.
Brenner, Everett A. Gilmour, Walter G. Rich and Richard A. White. The
Executive Committee met nine times in 1995.
The Board of Directors has designated the Executive Committee to
consider possible candidates for membership on the Board of Directors.
The Executive Committee will consider recommendations from shareholders
for nominees for election to the Board of Directors, provided such
recommendations, together with the following:
(i) such information regarding each nominee as would be required
to be included in a proxy statement filed pursuant to the
Securities Exchange Act of 1934, as amended;
(ii) a description of all arrangements or understandings among the
recommending shareholder and each nominee and any other person
with respect to such nomination;
and
(iii) the consent of each nominee to serve as a director of the
Company if so elected;
are received by the Secretary of the Company, (a) in the case of an annual
meeting of shareholders, not later than the date specified in the most
recent proxy statement of the Company as the date by which shareholder
proposals for consideration at the next annual meeting of shareholders must
be received (see "Other Business" below), and (b) in the case of a special
meeting of shareholders at which directors are to be elected, not later
than the tenth day after the giving of notice of such meeting.
Each Director attended 75% or more of the aggregate of all meetings
of the Board of Directors and Committees on which he served (held during
the period for which he served) during 1995, except for Harvey Polly, who
attended 20%, and David Common, who attended 60%.
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<PAGE>
PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION
(PROPOSAL 2)
- - ---------------------------------------------------------------------------
The capital stock which is currently authorized by the Company's
Certificate of Incorporation is limited to 10,000,000 shares of common
stock, par value $.125 per share. No preferred stock is currently
authorized. The Board of Directors has authorized, and proposes to the
shareholders, an amendment and restatement of ARTICLE FIFTH of the
Certificate of Incorporation as follows (the "Amendment Proposal"):
(a) The aggregate number of shares of all classes which the
Corporation shall have authority to issue is 11,000,000
shares, consisting of 1,000,000 Preferred Shares having
a par value of $.125 and 10,000,000 common shares having
a par value $.125 per share.
(b) Authority is hereby expressly granted to the Board of
Directors, subject to the provisions of this ARTICLE, to
establish and designate from time to time one or more
series of Preferred Shares, each of which shall have such
number of shares, designation, relative rights, preferences
and limitations as are fixed by the Board of Directors.
The Amendment Proposal was motivated by the desire to increase the
authorized share capital of the Company, and to provide the Company with
greater flexibility when seeking sources of financing, by conferring on
management the ability to negotiate the terms of special series of Company
stock in response to the requirements or requests of potential Company
investors. If the Amendment proposal is effected, the Board of Directors
would have the authority to issue preferred shares and set their terms
without having to obtain further shareholder approval, unless such approval
is otherwise required by law or the rules of the National Association of
Securities Dealers, Inc. or any stock exchange on which the Common Shares
may be listed, or unless such approval were deemed appropriate by the Board.
Management would thus be able to take prompt action to meet changing
conditions in the financial markets and to take advantage of financing
opportunities as they arise.
The effectuation of the Amendment Proposal would not, by itself, have
any immediate effect on the rights of the current shareholders of the
Company. If the Amendment Proposal is effected, new preferred shares would
be available for issuance from time to time as required for general
corporate purposes, including stock dividends, employee stock options and
other employee benefit plans, the raising of capital, the formation of new
companies, the acquisition of established businesses, and other programs to
facilitate the Company's expansion and growth. No specific plans have been
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<PAGE>
formulated, and there are no commitments, understandings or negotiations at
this time, with respect to the issuance by the Company of preferred shares
or rights to acquire preferred shares. However, the issuance of preferred
shares was discussed and considered in connection with the Company's recent
acquisition of 40% ownership of The Toledo, Peoria and Western Railroad
Corporation ("TP&W"), and may be reconsidered in the future in connection
with the possible acquisition by the of a greater ownership interest in
TP&W.
No determination has yet been made as to the rights and preferences
of any series of preferred shares, which rights and preferences may be
designated by the Board of Directors without the approval of the Company's
shareholders. It is likely, however, that any series of preferred shares
to be issued by the Company would in some manner rank prior to the Common
Shares with respect to any or all of voting, dividend and liquidation
rights and may be convertible into Common Shares on potentially favorable
terms. The Company's Certificate of Incorporation explicitly denies the
Company's shareholders nay statutory pre-emptive rights with respect to
the future issuance of securities by the Company.
ANTITAKEOVER CONSIDERATIONS
- - ---------------------------
The Amendment Proposal could be deemed an "antitakeover measure"
inasmuch as it provides for a new class of preferred shares which may be
issued, and the voting rights of which may be fixed, by the Board of
Directors without shareholder approval. Such voting rights could
materially dilute the voting rights of the holders of the Company's Common
Stock if, for example, the preferred shares were given more than one vote
per share, or were given the right as a class to elect one or more
directors of the Company without participation by the holders of Common
Stock. Accordingly, one overall effect of the Amendment Proposal may be
to render more difficult or to discourage any attempt to remove incumbent
management or obtain control of the Company, by means of a merger, tender
offer, proxy contest, acquisition of a large block of Common Stock, or
otherwise, even if the accomplishment of any of the foregoing would be
favorable to the interests of the Company's shareholders.
The Amendment Proposal is not the result of management's knowledge
of any specific effort by any person to accumulate the Common Stock or
otherwise to obtain control of the Company. Also, the Amendment Proposal
is not part of a plan by management to adopt a series of antitakeover
measures, nor does management presently intend to propose other potentially
antitakeover measures to the Company's shareholders in future proxy
solicitations.
The principal antitakeover provisions currently applicable to the
Company are summarized below in accordance with requirements of the
Securities and Exchange Commission.
Restrictions of "Business Combinations"
- - ---------------------------------------
The Company, as a New York "resident domestic corporation", is subject
to Section 912 of the New York Business Corporation Law (the "BCL").
Section 912 provides that unless a potential acquiror of the Company's
stock obtains approval of a "business combination" or such stock acquisition
from the Board of Directors of the Company prior to the time such acquiror
becomes the beneficial owner of 20% or more of the outstanding voting stock
of the Company (an "Interested Shareholder"), the potential acquiror will
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<PAGE>
be prohibited, for a minimum of five years from the date of becoming an
Interested Shareholder, from engaging in a "business combination" with the
Company. Section 912 does not, however, prohibit a potential acquiror from
becoming an Interested Shareholder or from increasing his stock ownership
during the five-year period when "business combinations" are prohibited.
"Business Combination" is defined broadly to include in general:
(a) any merger or consolidation of the Company or any of
its subsidiaries with (i) an Interested Shareholder or (ii)
any other corporation which is, or after such merger or
consolidation would be, an affiliate or associate (as defined)
of such Interested Shareholder ("Affiliate or Associate");
(b) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition, to or with an Interested Shareholder or any
Affiliate or Associate, of assets of the Company or any
subsidiary (i) having an aggregate market value equal to ten
percent or more of the aggregate market value of all the
assets of the Company, or ten percent or more of the aggregate
market value of all the outstanding stock of the Company, or
(ii) representing ten percent or more of the earning power or
net income of the Company;
(c) the issuance or transfer by the Company or any subsidiary
of any stock of the Company or any subsidiary which has an
aggregate market value equal to five percent or more of the
aggregate market value of all the outstanding stock of the
Company, to an Interested Shareholder or any Affiliate or
Associate;
(d) the adoption of any plan or proposal for the liquidation or
dissolution of the Company proposed by, or pursuant to any
agreement, arrangement or understanding with, an Interested
Shareholder or any Affiliate or Associate;
(e) any transaction proposed by, or pursuant to any agreement,
arrangement or understanding with, an Interested Shareholder or
any Affiliate or Associate which has th16e effect, directly or
indirectly, of increasing the proportionate share of the
outstanding shares of any class or series of voting stock, or
securities convertible into voting stock, of the Company or any
subsidiary which is directly or indirectly owned by such
Interested Shareholder or any Affiliate or Associate; or
(f) any receipt by an Interested Shareholder or any Affiliate
or Associate of the benefit, directly or indirectly (except
proportionately as a shareholder of the Company) of any loans,
advances, guarantees, pledges or other financial assistance or
any tax credits or other tax advantages provided by or through
the Company.
After the five-year restricted period, an Interested Shareholder may
engage in a business combination with the Company if (i) the business
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<PAGE>
combination is approved after the five-year period by the affirmative vote
of the holders of a majority of the shares of the Company's voting stock
other than shares beneficially owned by the Interested Shareholder and his
Affiliates and Associates, or (ii) the value of the aggregate consideration
to be paid by the Interested Shareholder in connection with the business
combination satisfies certain "fair price" formulas specified in the Section
912, and the Interested Shareholder, after becoming such, has not acquired
any additional shares of voting stock of the Company, except as provided
in Section 912.
Greenmail Statute
- - -----------------
The BCL includes a "greenmail" type of antitakeover provision,
designed to prevent a corporation from buying at a premium price a
corporate raider's interest in the corporation. Section 513(c) of the BCL
provides that the Company, as a "resident domestic corporation", may not
purchase or agree to purchase more than 10% of its stock from a shareholder
for more than the market value thereof(as defined) unless such purchase or
agreement to purchase is approved by the affirmative vote of the Company's
Board of Directors followed by the affirmative vote of the holders of a
majority of all outstanding shares entitled to vote thereon, or such greater
percentage as the Company's Certificate of Incorporation may require. The
foregoing prohibition does not apply if the Company should offer to purchase
shares from all holders of its stock, or with respect to stock which the
holder has owned beneficially for more than two years.
Classification of Directors
- - ---------------------------
The Company's By-Laws, pursuant to a proposal adopted by the
shareholders at the Annual Meeting, provides for the classification of
directors in four classes of not less than three directors each.
Classification of directors is generally considered to be an antitakeover
measure which has the overall effect to render more difficult the assumption
of control of the Company by a principal shareholder and to make difficult
the removal of management. As a result of classification of directors, at
least two and possibly three annual meetings have to occur to change the
majority of the directors by a vote of the shareholders.
The Company's Certificate of Incorporation and By-Laws currently do
not contain other provisions having an antitakeover effect. Although
management has no current intent to propose other antitakeover measures,
such may be proposed in future proxy solicitations. Certain of the
Company's agreements with other railroads contain provisions which could,
subject to regulatory approval, terminate the agreements in the event of a
change of control of the Company. Management believe these contractual
provisions are antitakeover in effect.
The Board of Directors unanimously recommends a vote FOR Proposal 2.
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<PAGE>
PROPOSAL TO APPROVE APPOINTMENT OF
AUDITORS OF THE COMPANY (PROPOSAL 3)
------------------------------------
At its meeting on March 24, 1996, the Board of Directors of the
Company, upon the recommendation of its Audit Committee, engaged the
accounting firm of Ernst & Young LLP as independent accountants for the
Company for 1996, subject to approval of shareholders. Ernst & Young LLP
has acted as the Company's independent auditors since 1986. Management
intends to introduce a resolution at the Annual Meeting that its designation
of Ernst & Young LLP be ratified and approved by the shareholders. If such
designation is not ratified and approved by the shareholders, the Board of
Directors, with the advice of the Audit Committee, will consider the
appointment of other independent accountants.
Representatives of Ernst & Young LLP are expected to be present at the
meeting, will be given opportunities to make statements if they desire to
do so, and will be available to respond to appropriate questions from
shareholders.
The Board of Directors recommends a vote FOR ratification of Ernst
& Young LLP as the Company's independent accountants.
OTHER BUSINESS
- - --------------
The Board of Directors knows of no other matters which may properly
be, or are likely to be, brought before the meeting. If other proper
matters are introduced, the persons named in the enclosed proxy will vote
the shares represented by such proxy as the Board recommends.
If a proposal of a shareholder for the 1997 Annual Meeting of
Shareholders is to be considered for inclusion in the Company's Proxy
Statement for that meeting, such proposal must be received by the Company
no later than December 23, 1996.
A copy of the Company's 1995 Annual Report on Form 10-K (except
exhibits) filed with the Securities and Exchange Commission will be
furnished to any shareholder on written request addressed to Nathan R.
Fenno, Corporate Secretary, Delaware Otsego Corporation, 1 Railroad Avenue,
Cooperstown, New York 13326.
Date: April 22, 1996 By Order of the Board of Directors,
s/ NATHAN R. FENNO
-----------------------------------
Nathan R. Fenno, Secretary
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<PAGE>
APPENDIX TO PRELIMINARY PROXY STATEMENT
FORM OF PROXY
- - ---------------------------------------------------------------------------
- 20 -
<PAGE>
PROXY OF DELAWARE OTSEGO CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS FOR THE ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD ON JUNE 1, 1996.
- - ---------------------------------------------------------------------------
The undersigned hereby appoints Nadine Steckler and Elizabeth Legiec,
jointly and individually with full power of substitution, as proxies to
vote all shares of common stock which the undersigned may be entitled to
vote at the Annual Meeting of Shareholders of DELAWARE OTSEGO CORPORATION
(the "Company") to be held on June 1, 1996 or adjournments thereof, on
Items 1, 2 and 3 as specified on the reverse side hereof (with discretionary
authority under Item 1 to vote for a new nominee if any nominee has become
available) and on such other matters as may properly come before the
meeting.
You are encouraged to specify your choices by marking the appropriate
boxes, but you need not mark any boxes if you wish to vote in accordance
with the Board of Directors' recommendations. The persons appointed above
cannot vote your shares unless you sign and return this card.
This Proxy, when properly executed, will be voted as you specify below.
If you do not specify otherwise, the Proxy will be voted FOR Items 1, 2 and
3.
SHAREHOLDERS ARE URGED TO VOTE AND TO SIGN, DATE AND RETURN
THIS PROXY PROMPTLY IN THE ENVELOPE PROVIDED.
(Continued on Other Side)
- 21 -
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
- - ---------------------------------------------------------------------------
ITEM 1. ELECTION OF DIRECTORS. Nominees for Director:
Walter G. Rich, Charles S. Brenner, Harvey Polly
FOR all nominees listed WITHHOLD AUTHORITY to vote
------ ------
FOR, EXCEPT VOTE WITHHELD FROM THE FOLLOWING NOMINEES:
--------------------------------------------------------------
ITEM 2. PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION to
authorize a new class of 1,000,000 shares of preferred stock
issuable in series.
FOR AGAINST ABSTAIN
---------- ---------- ----------
ITEM 3. PROPOSAL TO APPROVE THE APPOINTMENT OF ERNST & YOUNG LLP as the
independent public accountants of the Company.
FOR AGAINST ABSTAIN
---------- ---------- ----------
DATED:
--------------------- ----------------------------------------------
(Please sign exactly as your name or names
appear hereon. If signing as an attorney,
executor, administrator, trustee or guardian,
or on behalf of a corporation, give your full
title as such.
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