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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
DELAWARE OTSEGO CORPORATION
(NAME OF SUBJECT COMPANY)
DELAWARE OTSEGO CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, $.125 PAR VALUE
(TITLE OF CLASS OF SECURITIES)
246244 10 7
(CUSIP NUMBER OF CLASS OF SECURITIES)
NATHAN R. FENNO, ESQ.
VICE PRESIDENT -- LAW,
GENERAL COUNSEL AND SECRETARY
DELAWARE OTSEGO CORPORATION
1 RAILROAD AVENUE
COOPERSTOWN, NY 13326
607-547-2555
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS
ON BEHALF OF THE PERSON(S) FILING STATEMENT)
COPY TO:
STEVEN J. GLUSBAND, ESQ.
CARTER, LEDYARD & MILBURN
2 WALL STREET
NEW YORK, NEW YORK 10005
(212) 732-3200
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INTRODUCTION
This Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9") relates to an offer by CSX Corporation, a Virginia corporation ("CSX"),
Norfolk Southern Corporation, a Virginia corporation ("NSC"), and Walter G. Rich
("Mr. Rich") to purchase all of the Shares (as defined below) of Delaware Otsego
Corporation, a New York corporation ("DOC"), through DOCP Acquisition LLC, a New
York limited liability company ("Purchaser") formed by CSX, NSC and Mr. Rich,
who is the President and Chief Executive Officer of DOC.
ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Delaware Otsego Corporation. The address
of the principal executive offices of DOC is 1 Railroad Avenue, Cooperstown, New
York 13326. The title of the class of equity securities to which this Schedule
14D-9 relates is common stock, par value $0.125 per share of DOC (the "Shares").
ITEM 2. OFFER OF THE BIDDER
This Schedule 14D-9 relates to the tender offer (the "Offer") disclosed in
the Schedule 14D-1, dated August 22, 1997 (as amended or supplemented, the
"Schedule 14D-1"), filed with the Securities and Exchange Commission (the "SEC")
by CSX, NSC, Mr. Rich and Purchaser, with respect to the Offer by Purchaser, on
behalf of CSX, NSC and Mr. Rich, to purchase all outstanding Shares at a price
of $22.00 per Share, net to the seller in cash (the "Offer Price"), without
interest thereon, upon the terms and subject to the conditions set forth in
Purchaser's Offer to Purchase dated August 22, 1997 (the "Offer to Purchase"), a
copy of which is filed as Exhibit (a)(1) to this Schedule 14D-9. The principal
executive offices of CSX are located at One James Center, 901 E. Cary Street,
Richmond, VA 23219, the principal executive offices of NSC are located at Three
Commercial Place, Norfolk, VA 23510-2191, the business address of Mr. Rich is 1
Railroad Avenue, Cooperstown, NY 13326, and the principal executive offices of
Purchaser are located at 1 Railroad Avenue, Cooperstown, NY 13326.
The Offer is being made pursuant to an Agreement and Plan of Merger dated
August 17, 1997 (the "Merger Agreement") by and among DOC, CSX, NSC and Mr.
Rich. A copy of the Merger Agreement is filed as Exhibit (c) (1) to this
Schedule 14D-9, and is hereby incorporated herein by reference. The Merger
Agreement provides that, among other things, as promptly as practicable after
the satisfaction of the conditions set forth in the Merger Agreement, and in
accordance with the Business Corporation Law of the State of New York (the "New
York Law"), a corporate subsidiary of Purchaser to be organized prior to the
Merger ("Buyer") will be merged with and into DOC (the "Merger"). As a result of
the Merger, the separate existence of Buyer will cease and DOC will continue as
the surviving corporation (the "Surviving Corporation") and will be a
wholly-owned subsidiary of Purchaser. At the time when the Merger shall become
effective (the "Effective Time"), each Share issued and outstanding immediately
prior thereto (other than Shares held by DOC or its subsidiaries, or owned by
Purchaser or its subsidiary, and other than Shares as to which appraisal rights
are perfected under the New York Law), will be converted into the right to
receive an amount in cash equal to the Offer Price, without interest. At the
Effective Time, each outstanding employee stock option to purchase Shares
("Stock Option"), whether or not then exercisable, other than any Stock Options
held by DOC or any of its subsidiaries or owned by Purchaser or its subsidiary,
will be canceled, and the holder thereof will be entitled to receive, in full
consideration therefor from the Surviving Corporation, cash in an amount equal
to the product of (a) the difference between the Offer Price and the per share
exercise price thereof, and (b) the number of Shares subject to such Stock
Option. In addition, each share of common stock, par value $1.00 per share, of
Buyer issued and outstanding immediately prior to the Effective Time (the "Buyer
Capital Stock") shall be converted into and become one share of a class of
capital stock of the Surviving Corporation with the same rights, powers and
privileges as the share of Buyer Capital Stock so converted, and shall
constitute the only outstanding shares of capital stock of the Surviving
Corporation.
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ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of DOC, which is the person filing this
Schedule 14D-9, are set forth in Item 1 above. Unless the context otherwise
requires, references to DOC in this Schedule 14D-9 are to DOC and its
subsidiaries, viewed as a single entity.
(b) The following are the material contracts, agreements, arrangements or
understandings, and actual or potential conflicts of interest, between DOC or
its affiliates and (i) certain of DOC's executive officers, directors or
affiliates or (ii) CSX, NSC, Mr. Rich and Purchaser and their respective
executive officers, directors or affiliates.
Employment Agreements and Change in Control Agreements
DOC is party to an employment agreement with Mr. Rich dated June 3, 1995,
as amended July 14, 1997 (the "Rich Agreement"). Under the Rich Agreement, DOC
employs Mr. Rich as its President and Chief Executive Officer for a term of five
years ending June 3, 2000 at a minimum annual compensation of $187,000 (which
was reduced with the consent of Mr. Rich in 1996 to $176,906) and which may be
increased during the term of the Rich Agreement at the discretion of the Board
of Directors of DOC (the "DOC Board"). Under the terms of the Rich Agreement,
Mr. Rich is also entitled to insurance coverage under DOC's group life and
health insurance plans. The Rich Agreement may be terminated prior to its
expiration at the election of Mr. Rich or DOC (such election must be evidenced
by written notice), if DOC experiences a Change of Control (as defined below).
Upon the giving of such termination notice (regardless of which party gives such
notice), DOC must pay Mr. Rich, subject to possible adjustments for income tax
effects, 2.99 times the highest annual cash compensation (consisting solely of
salary and bonus) paid to Mr. Rich during any calendar year in each of the three
calendar years immediately prior to the Change of Control, and continue to
provide to him for a period of 2.99 years after such termination certain
benefits provided to him prior to his termination. "Change of Control" is
defined, under the terms of the Rich Agreement, as (i) any change of control
required to be reported to the SEC in a Form 8-K Report, unless less than 40% of
DOC's outstanding voting securities are acquired, or (ii) the sale of all or
substantially all of DOC's assets. The Rich Agreement has been filed as part of
Exhibit (c)(2) to this Schedule 14D-9 and is hereby incorporated herein by
reference. The Offer and Merger would constitute a Change of Control for
purposes of the Rich Agreement. However, Mr. Rich has advised DOC that he does
not expect to give or receive such termination notice, consistent with the
arrangements regarding his continuing employment with the Surviving Corporation
following the Merger. See " -- Interests of Certain Persons in the Merger."
DOC also has employment agreements (collectively, the "Employment
Agreements") with each of C. David Soule ("Soule"), Gordon R. Fuller ("Fuller"),
Paul Garber ("Garber"), Nathan R. Fenno ("Fenno") and William B. Blatter
("Blatter") (collectively, the "Employees," and each also referred to as an
"Employee"), pursuant to which the Employees are employed as Executive Vice
President, Executive Vice President, Vice President Marketing & Sales, Vice
President-Law, General Counsel & Secretary, and Senior Vice President & Chief
Financial Officer, respectively, for five year terms ending June 3, 2000,
February 1, 2001, June 3, 1999, June 3, 2000 and June 25, 1999, respectively, at
minimum annual salaries of $125,000, $145,000, $100,000, $90,000 and $100,000,
respectively. The Employment Agreements allow for increases in the Employees'
compensation by the DOC Board from time to time, coverage under DOC's group life
and health insurance plans, and full compensation during any period of long-term
disability for the duration of the Employment Agreements. They also grant DOC or
each of the Employees termination rights in the event of a Change of Control of
DOC (defined as in the Rich Agreement), in which event DOC is required to pay
(i) with respect to Fuller and Garber, a sum equal to each of such Employee's
then current annual salary multiplied by the remaining term of his Employment
Agreement, and (ii) with respect to Soule, Fenno and Blatter, subject to
possible adjustments for income tax effects, 2.99 times the highest annual cash
compensation (consisting solely of salary and bonus) paid to each of such
Employees during any calendar year in each of the three calendar years
immediately prior to the Change of Control, and must continue to provide each of
such Employees for a period of 2.99 years after such termination with certain
benefits provided to them prior to their termination. The Employment Agreements
have been filed as part of Exhibit (c)(2) to this Schedule 14D-9 and are hereby
incorporated herein by reference. The Offer and the Merger would constitute
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a Change of Control for purposes of the Employment Agreements. It is currently
unknown whether any termination rights under the Employment Agreements will be
exercised.
DOC and certain of its subsidiaries have also entered into change in
control agreements (collectively, the "Change in Control Agreements"), each
dated June 9, 1997, with each of Richard J. Hensel ("Hensel"), Joseph G.
Senchyshyn ("Senchyshyn"), William Bloomfield ("Bloomfield"), Robert Kurdock
("Kurdock"), William Matteson ("Matteson"), David Boyd ("Boyd") and Frank
Quattrocchi ("Quattrocchi") (each also referred to as a "Beneficiary"). Under
the terms of the Change in Control Agreements, in the event that the position of
a Beneficiary is terminated as a result of a Change in Control of DOC and
certain of its subsidiaries, such Beneficiary is entitled to (i) compensation,
on a monthly basis, at the rate in effect at the date of such Change in Control,
and such benefits as the Beneficiary was entitled to at the date of such Change
in Control, until the earlier of (y) the Beneficiary obtaining other employment,
or (z) a date two years after the date of such Change in Control (one year with
respect to the Change in Control Agreements with Matteson and Quattrocchi); or
(ii) in the event that the Beneficiary obtains other employment within two years
after the date of such Change in Control (one year with respect to Matteson and
Quattrocchi at a rate lower than, or providing fewer benefits than the
Beneficiary was entitled to under clause (i) above, such Beneficiary shall be
entitled, on a monthly basis, to the shortfall of such compensation and
additional benefits, until the earlier of (y) the date on which such shortfall
in compensation and/or benefits is eliminated, or (z) two years after the date
of the Change in Control. "Change in Control" is defined in the Change in
Control Agreements as (i) any such change required to be reported to the SEC in
a Form 8-K Report, unless less than 40% of DOC's outstanding voting securities
are acquired, (ii) the sale of all or substantially all of DOC's assets, or
(iii) a merger, inclusion, business combination or other transaction of like
nature. The Change in Control Agreements may be terminated by DOC or its
subsidiaries in writing at any time for cause (which includes willful and
continued failure by the Beneficiary to perform his duties after receiving at
least one warning in writing, commission by the Beneficiary of a felony, or
gross negligence or willful misconduct in the performance of the Beneficiary's
duties that results in detriment to the employer). The Change in Control
Agreements have been filed as Exhibit (c)(3) to this Schedule 14D-9 and are
hereby incorporated herein by reference. The Offer and the Merger would
constitute a Change in Control for purposes of the Change in Control Agreements.
It is currently unknown whether any termination rights under the Change in
Control Agreements will be exercised.
The Merger Agreement
The material terms of the Merger Agreement are summarized in the Offer to
Purchase under the caption "Special Factors -- 9. The Merger Agreement and
Related Agreements," which summary is hereby incorporated herein by reference.
Such summary is qualified in its entirety by reference to the Merger Agreement,
a copy of which has been filed as Exhibit (c)(1) to this Schedule 14D-9.
Interests of Certain Persons in the Merger
On August 17, 1997, CSX, NSC and Mr. Rich entered into a letter agreement
(the "Letter Agreement") setting forth their understanding with respect to the
acquisition of DOC. The Letter Agreement provides, among other things, (a) that
CSX, NSC and Mr. Rich shall negotiate in good faith towards definitive
documentation in connection with final arrangements with respect to the
transaction along the lines described in the term sheet attached to their
Proposal Letter to DOC dated August 8, 1997, as modified by the Merger Agreement
(the "Term Sheet"), and (b) that in the event of a termination of the Merger
Agreement, Mr. Rich shall not participate in any termination fee under the
Merger Agreement, other than with respect to any arrangements which may exist
respecting expenses. The material terms of the Term Sheet are summarized in the
Offer to Purchase under the caption "Special Factors -- 9. The Merger Agreement
and Related Agreements -- the Term Sheet," which summary is incorporated herein
by reference. Such summary is qualified in its entirety by reference to the
Proposal Letter and Term Sheet, a copy of which has been filed as Exhibit (c)(7)
to this Schedule 14D-9.
Pursuant to the terms of DOC's 1987 and 1993 Stock Option Plans, DOC may
grant Stock Options to its executive officers and other employees, and as of the
date of the filing of this Schedule 14D-9, Stock Options
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to purchase an aggregate of 164,049 Shares have been granted. Under the terms of
the Merger Agreement, at the Effective Time each Stock Option, whether or not
exercisable, other than Stock Options held in the treasury of DOC or owned by
Purchaser, shall be canceled and the holder thereof shall be entitled to receive
cash in an amount equal to the difference between the Offer Price and the per
share exercise price thereof, multiplied by the number of Shares subject to such
Stock Option. All Stock Options currently held by DOC directors and executive
officers of DOC are fully exercisable.
Albert B. Aftoora ("Aftoora"), a DOC director whose term expires in 1999,
is employed by CSX Transportation, Inc., a subsidiary of CSX, as Vice
President-Corridor Development. On May 9, 1997, Aftoora requested and was
granted a leave of absence from the DOC Board due to his assignment by CSX to a
team of executives addressing issues related to the impact of the Conrail
acquisition by CSX and NSC on other carriers, including DOC. Accordingly,
Aftoora did not serve on the DOC Board or otherwise participate in the
discussions or determinations made with respect to the Offer and the Merger.
DOC owns 40% of the outstanding shares of, and provides administrative
services to, The Toledo, Peoria and Western Railway Corporation ("TP&W"). Other
shareholders representing 40% of the outstanding shares of TP&W, including
Charles S. Brenner, a director of DOC, are, upon a change in control of DOC,
contractually entitled to (i) require DOC to purchase those shareholders' shares
of TP&W at a price determined through negotiation, subject to certain agreed
upon limitations; and (ii) if the parties fail to agree upon a price within such
limitations or DOC fails to acquire such shares of TP&W, then to cause the sale
of all or a portion of the stock or assets of TP&W in one or a series of
transactions for consideration at least sufficient to repay the TP&W's
commercial debt, and shall be entitled to priority for return of their equity
investment as to any remaining proceeds of such sale or sale(s). These described
contractual rights may also, regardless of a change in control of DOC, be
exercised at any time between November 2 and December 31 in the years 1999,
2000, 2001 and 2002. The Offer and the Merger would constitute a change in
control for purposes of such arrangements.
DOC acquired its 40% interest in TP&W on January 31, 1996. That purchase
was made in connection with a restructuring of TP&W's outstanding debt. CSX was
then a creditor of TP&W, with a claim asserted against TP&W for $5,200,000. In
exchange for releasing its claim, CSX received a $1,000,000 interest-bearing
promissory note from DOC, 100,000 Shares and 20% of the outstanding common
shares of TP&W. CSX has certain governance rights with respect to TP&W,
including the right to participation on its board of directors and the right to
approve certain major decisions.
DOC's subsidiary, The New York, Susquehanna and Western Railway Corporation
("NYS&W"), operates over approximately 180 miles of tracks owned by Consolidated
Rail Corporation ("Conrail") pursuant to a Trackage Rights Agreement, which
agreement contains provisions which might be construed as permitting termination
of the agreement upon a change in control of NYS&W and/or DOC.
It is anticipated that at least one of DOC's executive officers (Mr. Rich)
will enter into an employment agreement with Purchaser. Although this employment
agreement has not yet been finalized, the Term Sheet provides that, it will be
for a term of three years, renewable automatically for successive one-year terms
unless Purchaser gives written termination notice to Mr. Rich. Under the terms
of the proposed employment agreement, Mr. Rich will be Chairman and CEO of the
Surviving Corporation. Mr. Rich's salary and benefits are anticipated to remain
at current levels. The Term Sheet has been filed as Exhibit (c)(7) to this
Schedule 14D-9. Purchaser anticipates creating a Management Incentive Bonus
Program, which will provide cash bonuses to operating management upon
achievement of certain financial targets.
Mr. Rich and the other ongoing DOC management (which persons are to be
determined by Mr. Rich) will receive commissions on certain asset dispositions,
payable in cash at the rate of 7% of the gross consideration received by
Purchaser. A more detailed description of such commissions can be found in the
Offer to Purchase under the caption "Special Factors -- 9. The Merger Agreement
and Related Agreements -- Certain Dispositions," which description is hereby
incorporated herein by reference.
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Indemnification
The Restated Certificate of Incorporation of DOC (the "Certificate of
Incorporation") provides that no DOC director shall be personally liable to DOC
or its shareholders for damages for any breach of duty in such capacity unless a
judgment establishes that such director's acts or omissions were in bad faith or
involved intentional misconduct or a knowing violation of law, that such
director personally gained a financial profit or other advantage to which such
director was not legally entitled, or that such director's acts caused him to be
liable to DOC under Section 719 of the New York Law. The Certificate of
Incorporation has been filed as Exhibit (c)(4) to this Schedule 14D-9 and is
hereby incorporated herein by reference. In addition, Article XI of the Bylaws
of DOC (the "Bylaws") provide in pertinent part that DOC shall indemnify (i) any
person made a party to an action or proceeding by or in the right of DOC to
procure a judgment in its favor, by reason of the fact that he, his testator or
intestate, is or was a director, officer or employee of DOC, against the
reasonable expenses actually and necessarily incurred by him in connection with
the defense of such action and/or with an appeal therein, and (ii) any person
made or threatened to be made a party to any action or proceeding, other than
one by or in the right of DOC, which any director, officer or employee of DOC
service in any capacity at the request of DOC by reason of the fact that he, his
testator or intestate, is or was a director, officer or employee of DOC, or
served such other corporation in any capacity, against judgment, fines, amounts
paid in settlement and reasonable expenses actually and necessarily incurred as
a result of such action. The Bylaws incorporate the restrictions on
indemnification to or on behalf of a director or officer set forth in Section
721 of the New York Law. A copy of the Bylaws has been filed as Exhibit (c)(5)
to this Schedule 14D-9 and is hereby incorporated by reference.
Pursuant to the Merger Agreement, all rights to indemnification and
exculpation from liabilities for acts or omissions occurring at or prior to the
Effective Time existing in favor or the current or former directors or officers
of DOC (and its subsidiaries) will be assumed by the Surviving Corporation and
the Surviving Corporation will, for a period of one year after the Effective
Time, maintain the current policies of directors' and officers' liability
insurance maintained by DOC (or comparable policies with terms not less
advantageous to such directors and officers), but is not required to expend more
than 150% of the current annualized payments paid by DOC for such insurance.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
RECOMMENDATION OF THE DOC BOARD
The DOC Board has, by the vote of all directors present with one abstention
(David B. Common), determined that the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, are fair to and in the
best interests of DOC and the holders of Shares, (other than CSX and Mr. Rich),
has approved and adopted the Merger Agreement and the transactions contemplated
thereby, including the Offer and the Merger, and recommends that DOC
shareholders accept the Offer and tender their Shares. David B. Common, a DOC
director and Vice President of JP Morgan & Co., Inc. ("Morgan"), did not vote on
the proposals respecting the Merger Agreement and the transactions contemplated
thereby, because of his affiliation with Morgan, which has acted from time to
time as NSC's financial adviser. Mr. Rich was not present at the meeting at
which the vote on the Merger and the Merger Agreement was taken. As set forth in
the Merger Agreement, subject to the terms and conditions thereof, Purchaser
will purchase all outstanding Shares tendered prior to the expiration of the
Offer if the conditions to the Offer have been satisfied (or waived).
SHAREHOLDERS CONSIDERING NOT TENDERING THEIR SHARES IN ORDER TO WAIT FOR
THE MERGER SHOULD NOTE THAT IF THE MINIMUM CONDITION OF THE OFFER IS NOT
SATISFIED (THE VALID TENDER OF A NUMBER OF SHARES WHICH, TOGETHER WITH SHARES
HELD BY MR. RICH, PURCHASER OR ITS SUBSIDIARY, OR TO BE CONTRIBUTED TO PURCHASER
PURSUANT TO BINDING AGREEMENTS WHICH PURCHASER, IN ITS REASONABLE JUDGMENT,
BELIEVES WILL BE PERFORMED, REPRESENTS 66 2/3% OF THE OUTSTANDING SHARES AS
DESCRIBED IN THE OFFER TO PURCHASE), PURCHASER IS NOT OBLIGATED TO ACCEPT FOR
PAYMENT, OR SUBJECT
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TO SEC RULES OR REGULATIONS PAY FOR, ANY SHARES AND CAN TERMINATE THE
OFFER. IN ADDITION, SHAREHOLDERS WHO DO NOT TENDER THEIR SHARES SHOULD NOTE
THAT, EVEN IF THE MINIMUM CONDITION IS SATISFIED AND SHARES ARE PURCHASED IN
ACCORDANCE WITH THE OFFER, THERE ARE ADDITIONAL CONDITIONS TO THE OBLIGATION OF
PURCHASER TO EFFECT THE MERGER. IF THESE CONDITIONS ARE NOT SATISFIED OR WAIVED,
THE MERGER MAY NOT BE COMPLETED, AND ANY SHARES NOT TENDERED WOULD REMAIN
OUTSTANDING AND WOULD NOT RECEIVE THE OFFER PRICE. IN SUCH CIRCUMSTANCES,
SHAREHOLDERS MIGHT BE UNABLE TO SELL THEIR SHARES OR TO DO SO ONLY AT A PRICE
BELOW THE OFFER PRICE.
Under the New York Law, the approval of the DOC Board and the affirmative
vote of the holders of two-thirds of the outstanding Shares are required to
approve the Merger. Accordingly, if after the Offer Purchaser and Mr. Rich hold
at least two-thirds of the outstanding Shares, Purchaser will have sufficient
voting power to cause the approval of the Merger without the affirmative vote of
any other shareholder. Under the New York Law, if Purchaser acquires pursuant to
the Offer or otherwise at least 90% of the then outstanding Shares, Purchaser
will be able to approve and adopt the Merger Agreement and effectuate the Merger
without a vote of DOC's shareholders. If Purchaser does not acquire at least 90%
of the then outstanding Shares pursuant to the Offer or otherwise, and a vote of
DOC's shareholders is required under New York Law, a longer period of time will
be required to effect the Merger.
The Merger Agreement may be terminated by Purchaser or DOC if the Merger
shall not have been consummated by June 30, 1998. A copy of the press release
issued by DOC announcing the execution of the Merger Agreement is filed as
Exhibit (a)(2) to this Schedule 14D-9 and is hereby incorporated herein by
reference.
BACKGROUND OF THE OFFER; REASONS FOR THE RECOMMENDATION
Background of the Offer: DOC operates a 500-mile regional railroad in New
York, New Jersey and Pennsylvania, of which 180 miles consist of trackage rights
over the lines of other railroads, including Conrail. DOC'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 the
CP Rail System ("CP"). Additionally, pursuant to a Haulage Agreement with CP,
DOC has direct access with the NSC rail system and other carriers in Buffalo,
New York.
DOC relies on, and its ability to compete is dependent upon, its rail
connections with Conrail for a substantial portion of its rail traffic. This
business mainly relates to freight traffic to the northern New Jersey and New
York City metropolitan area. Revenue derived by DOC from CSX and NSC relating to
freight traffic to the northern New Jersey-New York City metropolitan area
amounted to (i) $9,800,000 and $7,700,000, respectively, in 1994, (ii)
$17,200,000 and $7,500,000, respectively, in 1995, (iii)$15,800,000 and
$6,300,000, respectively, in 1996, and (iv) $7,530,000 and $3,070,000,
respectively, in the six months ended June 30, 1997. For 1994, 1995, 1996 and
the six months ended June 30, 1997, DOC derived approximately 39%, 49%, 49% and
49% of its operating revenue from traffic hauled for a CSX subsidiary, and
approximately 31%, 21%, 16% and 20% of its operating revenue from intermodal
traffic interchanged with NSC's rail subsidiary.
On October 15, 1996, CSX and Conrail announced plans to merge. Thereafter,
NSC announced a competing tender offer to acquire ownership of Conrail. During
February and March, 1997, as a result of public statements by governmental
officials and others, it became apparent that the likely resolution of the
competing offers to acquire Conrail would be a roughly equal division of Conrail
between CSX and NSC. Although DOC's management was not able to predict the
impact on DOC of the restructuring of the eastern U.S. railroad system, the DOC
Board was concerned that DOC's future revenue base might be significantly
impaired, and accordingly determined that it should explore all options for the
future of DOC, including a possible sale or other transaction, and should retain
an investment banking firm to such end.
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One of such options was to seek "inclusion" in the proceeding before the
Surface Transportation Board (the "STB") regarding the application of CSX and
NSC to acquire and control Conrail and thereby be acquired, by order of the STB,
by some or all such carriers. The governing statute dictates that, in
considering such application, the STB must consider "the effect on the public
interest of including, or failing to include, other rail carriers in the area
involved in the proposed transaction." DOC's wholly-owned subsidiary, NYS&W, is
a rail carrier in the area involved in the proposed transaction involving
Conrail. For NYS&W to be successful in a request to the STB that it be included
in the Conrail transaction ("Inclusion"), it would be necessary for NYS&W to
establish that (i) there is no other reasonable alternative for providing
essential services, (ii) the facilities of the carrier to be included fit
operationally into the new system, and (iii) Inclusion could be accomplished
without endangering the operational or financial success of the new company. The
STB's concern would be "preservation of essential services, not the survival of
individual carriers. A service is essential if there is sufficient public need
for the service and adequate alternative transportation is not available." As an
alternative to Inclusion, an applicant may request that conditions, such as
grants of trackage rights or other rights, be imposed in connection with
approval of a control proceeding.
With respect to such options, DOC's commerce counsel advised that the STB
(and its predecessor, the Interstate Commerce Commission) has not considered or
issued an order of Inclusion in the past 25 years. Additionally, DOC's commerce
counsel has advised that the standards for granting Inclusion are difficult to
show, and require submission of substantial documentary, economic and expert
evidence. Counsel also advised that it is difficult, based on past precedent, to
predict what value DOC should expect to receive in the event that Inclusion of
NYS&W was ordered by the STB, noting that the determination of what would be
"fair and reasonable" is heavily dependent on the individual circumstances
involved.
Based on the advice of counsel, DOC determined that it must be prepared to
seek Inclusion and other conditions from the STB in the Conrail proceeding.
However, given the relative financial strength of DOC, CSX and NSC, the
financial burden that DOC would have to bear to prepare an application for
inclusion and/or for conditions, the amount of time that would pass before any
such application was finally determined, and the doubtful outcome of any such
application, DOC determined that it would be in the interests of its
shareholders to vigorously pursue alternative transactions.
On March 12, 1997, members of the DOC Board and management interviewed
several investment banking firms. Thereafter in March 1997, the DOC Board
retained Smith Barney Inc. ("Smith Barney") to advise and represent DOC in a
possible sale or other transaction. During the course of the next several months
approximately 14 parties that were considered to have potential interest in a
transaction with DOC were contacted. Of those 14 parties, six signed
confidentiality agreements and received non-public information pertaining to
DOC. Of the six, possible interest in a transaction with DOC as an entirety was
expressed only by CSX and NSC jointly, and by one other party (the "Strategic
Investor"). Additional confidential information regarding DOC's assets and
operations was thereafter provided to CSX and NSC and to the Strategic Investor
upon their request.
Given the market performance of the Shares prior to March 1997, and based
upon conversations with representatives of CSX, NSC and the Strategic Investor,
DOC's management believed that the prospective purchasers considered the current
market price of the Shares to be overvalued. In an effort to persuade them to
consider a range of values, DOC's management prepared a "DOC Asset Valuation
Package" as a negotiating tool. The valuation was based on data available to
DOC's management, such as the purchase price of recently acquired land, the
actual cost of improvements, and on the experience of DOC's management in
disposing of rail lines which no longer operate. However, such analysis
contained no adjustment for or consideration of (i) the income tax consequences
of a sale of DOC's assets, (ii) the value that DOC could receive for its
facilities from parties other than another railroad, (iii) the costs that DOC
would incur in disposing of its assets, (iv) the expense, or likelihood of,
obtaining regulatory approval to sell its railroad assets, (v) the amount of
time that a disposition of assets would likely take, or (vi) the relatively few
number of prospective buyers which had been identified.
In preparing the DOC Asset Valuation Package, DOC's management set values
for those of its rail unloading facilities that it believed could be of use to
railroads based on the cost of property in the region and
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the actual cost of improvements located on those lands, without regard for
depreciation. Certain contractual rights, including the existing revenues DOC
receives from allowing public utilities and others to use its properties, were
valued based on a capitalization of income. Using this DOC Asset Valuation
Package, DOC's management proposed in negotiations that the underlying asset
value of DOC was approximately $108 million after payment of debt.
On May 5, 1997, during a regularly scheduled meeting, the Executive
Committee of the DOC Board (the "Executive Committee") consisting of Messrs.
Rich, Charles S. Brenner ("Brenner"), Niles F. Curtis ("Curtis"), Everett A.
Gilmour ("Gilmour") and Robert L. Marcalus (Chairman of the Executive Committee)
("Marcalus"), reviewed the status of the discussions with CSX and NSC and with
the Strategic Investor.
On May 6, 1997, representatives of DOC's management and representatives of
Smith Barney met with representatives of CSX and NSC to discuss CSX's and NSC's
joint interest in a transaction with DOC.
On May 9, 1997, Mr. Aftoora, a director of DOC and an officer of CSX
Transportation, Inc., a CSX subsidiary, requested and was granted a leave of
absence from the DOC Board as described above in Item 3 under the caption
"Interests of Certain Persons in the Merger."
On May 14, 1997, representatives of DOC and representatives of Smith Barney
met with representatives of the Strategic Investor to discuss the Strategic
Investor's interest in DOC.
Representatives of DOC and Smith Barney again met with representatives of
CSX and NSC on May 21, 1997 and met with representatives of the Strategic
Investor on May 22, 1997 to review and discuss the possible acquisition of DOC
by such parties.
On June 4, 1997, Messrs. Rich and C. David Soule, Executive Vice President
of DOC, met with John W. Snow, Chairman and CEO of CSX, and David R. Goode,
Chairman and CEO of NSC, to discuss the potential of a transaction involving the
three companies.
On June 7, 1997, at a regularly scheduled meeting, the Executive Committee
reviewed the status (summarized above) of the discussions with CSX and NSC and
the Strategic Investor.
On June 26, 1997, at a regularly scheduled meeting of the Executive
Committee, Mr. Rich reported that the Strategic Investor was continuing to move
forward with its due diligence. Mr. Rich also reported that CSX and NSC had
informed him that they did not wish to control DOC, and that they might consider
in general terms the possibility of providing financing in a transaction in
which one or more members of DOC's management, including Mr. Rich, would buy DOC
in a "market" transaction.
On July 1, 1997, representatives of DOC met with representatives of CSX and
NSC, the legal advisor to CSX, and Mr. Rich. CSX and NSC discussed in general
terms the possibility of Mr. Rich (and possibly other members of management of
DOC) acquiring DOC with financing from CSX and NSC. The potential conflict of
interest that this created was discussed and it was determined that Mr. Rich
would be kept apart from the other representatives of DOC in all matters
regarding the proposed transaction.
In May and July 1997, indications of interest were received from two
parties with respect to the purchase of TPW. Both of these indications were
predicated upon the purchase of all of the outstanding shares of TPW, the
majority of which shares are not owned by DOC. As a result, the indications did
not become the subject of subsequent negotiations.
On July 10, 1997, at the request of the Strategic Investor, Messrs. Rich
and Soule met with officers of the Strategic Investor to discuss the potential
for and the structure of a possible transaction.
On July 14, 1997, at a regularly scheduled meeting of the Executive
Committee, Mr. Rich disclosed that he anticipated that an offer from CSX and NSC
and himself would be received by the DOC Board within several days. It was
determined that Mr. Rich would excuse himself from any DOC Board or Executive
Committee meeting which considered any offer for an acquisition transaction
involving DOC.
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During the early summer of 1997, the DOC Board determined that it would be
in the best interest of DOC's shareholders if a firm offer from one of the
prospective purchasers could be obtained in early August 1997 so that the DOC
Board would have sufficient time to assess the offer or offers with its advisors
and determine whether to accept such offer or offers prior to August 22, 1997.
This was the final date established by the STB for it to receive descriptions of
anticipated responsive applications to be filed in connection with the
application of CSX and NSC to acquire and control Conrail. Based on the advice
of counsel, the DOC Board determined that DOC should be prepared to seek
Inclusion or other conditions from the STB in the Conrail proceeding in order to
protect itself from the competitive effects of the CSX and NSC acquisition of
Conrail. The DOC Board, having determined that a consensual transaction would
likely be more favorable to shareholders, instructed Smith Barney and DOC's
management to notify the prospective purchasers that they should submit their
offers, if any, promptly.
On August 4, 1997, representatives of the Strategic Investor toured DOC's
properties and facilities in New Jersey. On August 5 and 6, 1997,
representatives of the Strategic Investor met with Messrs. Soule and Fenno to
conduct due diligence regarding the values and ownership of DOC's real property.
During the evening of Friday, August 8, 1997, CSX, NSC and Mr. Rich
delivered a written offer to the DOC Board to begin negotiations with respect to
an acquisition of DOC, including a non-binding term sheet describing the
potential structure for such a transaction involving the acquisition of all of
the outstanding Shares at a price of $19.00 per Share. A copy of the Purchaser's
letter dated August 8, 1997 (the "Proposal Letter") is filed as Exhibit (c)(7)
to this Schedule 14D-9. The Proposal Letter provided that the offer contained
therein would expire if the Proposal Letter were not executed by DOC prior to
5:00 p.m. on August 10. It also provided for exclusive negotiations between the
parties until August 22, 1997, and for certain expense reimbursements. Later
that evening, a confidential letter was sent to Mr. Gilmour, Chairman of the DOC
Board, by the Strategic Investor outlining the basis upon which it might pursue
the acquisition of DOC. The letter indicated that an offer would be subject to
the satisfactory completion of its due diligence investigation and would be
subject to various material conditions, including the receipt of certain
regulatory approvals and the approval of the Board of Directors of the Strategic
Investor. The letter indicated that the Strategic Investor would consider a bid
consisting of both an initial payment at a price slightly lower than the offer
made by CSX, NSC and Mr. Rich, and a contingent payment equal to 75% of the
initial payment based on certain other conditions being fulfilled within one
year of the transaction. Both payments would consist of cash and stock
components having an equal value. Also in its letter, the Strategic Investor
stated its belief that the retention of DOC's senior management, particularly
Mr. Rich, would be important to a successful acquisition, and stated its
intention that Mr. Rich would remain as CEO of NYS&W.
On Saturday, August 9, 1997, a Special Meeting of the DOC Board was
convened to review the sale process with DOC's legal and financial advisors.
Present at such meeting were Mr. Blatter, Senior Vice President and Chief
Financial Officer of DOC, Mr. Fenno, Vice President-Law, General Counsel and
Secretary of DOC, the legal advisor to Mr. Rich and various legal advisors to
DOC. Mr. Rich and his legal advisor presented the offer that was delivered to
the DOC Board the prior evening. Mr. Rich and his legal advisor were then
excused from the meeting. Representatives of Smith Barney then reviewed with the
DOC Board the trading history of the Shares during the period from August 8,
1996 through August 7, 1997, and provided the DOC Board with certain financial
data relating to comparable companies and to comparable transactions in the
railroad industry. A summary description of those parties which had expressed an
interest in acquiring DOC, including two parties that expressed an interest in
acquiring TP&W, was also provided. The DOC Board also reviewed the Strategic
Investor's letter of August 8, 1997, which was addressed to Mr. Gilmour.
A representative from Carter, Ledyard & Milburn, DOC's corporate and
securities counsel, then advised the members of the DOC Board on their fiduciary
responsibilities and other legal issues arising from the receipt of the offer on
August 8, 1997 from CSX, NSC and Mr. Rich. Representatives from Gollatz, Griffin
& Ewing, P.C., DOC's railroad regulatory counsel, discussed the regulatory
conditions relating to the Strategic Investor's preliminary proposal, the
likelihood and timing of the resolution of those conditions, the alternative
actions available to DOC of requesting Inclusion in the pending application of
CSX and NSC to acquire
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Conrail and the existing schedule that would affect the filings that DOC may
consider making in the STB's Conrail proceeding.
The DOC Board then appointed a Special Committee consisting of Messrs.
Marcalus (Chairman), Brenner, Curtis and Gilmour for the purpose of conducting
further discussions with CSX, NSC and Mr. Rich on the one hand, and the
Strategic Investor, on the other hand, and for evaluating proposals received
from, and conducting further discussions with, such parties. The DOC Board
authorized the Special Committee to retain financial and legal advisors at DOC's
expense.
On Sunday, August 10, 1997, the DOC Board (without Mr. Rich) met by
telephone conference. Also in attendance were its financial and legal advisors
and Mr. Fenno. The DOC Board determined not to approve the Proposal Letter
(which requested exclusivity) in order to continue discussions with the
Strategic Investor aimed at reducing the contingency of its interest, as well as
with any other interested parties which might contact DOC in light of the public
disclosure of the Proposal Letter, and directed its financial advisors to
continue to negotiate both with CSX, NSC, and Mr. Rich and with the Strategic
Investor. The Proposal Letter was publicly disclosed on Monday, August 11, 1997.
Also on that date, the DOC Board (without Mr. Rich) met by telephone
conference call with its financial and legal advisors in attendance. Also in
attendance was Mr. Fenno. Representatives of Smith Barney informed the DOC Board
that representatives of the Strategic Investor had informed Smith Barney that
certain of the regulatory conditions included in the Strategic Investor's letter
of August 8, 1997, could be removed, but that management of the Strategic
Investor did not yet have board authority to present a firm offer.
Representatives from Smith Barney also reported on several phone conversations
with representatives of the Strategic Investor wherein such representatives
informed Smith Barney that the initial payment to DOC's shareholders might be
structured so as not to contain the conditions contained in the Strategic
Investor's August 8 letter. The DOC Board expressed concern about the contingent
nature of the Strategic Investor's proposal. Smith Barney was directed to
continue to work with the Strategic Investor to attempt to obtain a firm offer,
and to negotiate a higher price with CSX, NSC and Mr. Rich.
On Tuesday, August 12, 1997, the Special Committee met by conference call
with its financial and legal advisors. Also in attendance were Messrs. Fenno and
Soule. A representative of Smith Barney reported that representatives of the
Strategic Investor had informed Smith Barney that a revised letter from the
Strategic Investor would be submitted later that day, and that counsel for the
Strategic Investor had been instructed to provide a draft of its legal
documentation to DOC's legal advisor for review. The DOC's financial and legal
advisors both reported that they had requested a higher offer in discussions
with representatives of CSX, NSC and Mr. Rich, but that such an offer had not
been made. The Special Committee determined to receive and review the legal
documentation expected from the Strategic Investor prior to taking further
action and instructed their advisors to do so.
Also on August 12, the legal advisors to CSX, NSC and Mr. Rich submitted a
proposed merger agreement to DOC's legal advisor. Later that day, the Strategic
Investor delivered a second confidential letter to Mr. Gilmour that provided
additional information with respect to the basis upon which it would be prepared
to pursue discussions relating to the acquisition of DOC. The confidential
letter, while it contained a slightly improved initial payment, continued to
indicate that any offer would be subject to several material conditions and to
the approval of the Strategic Investor's Board of Directors. The letter further
indicated that management of the Strategic Investor could not assure Mr. Gilmour
that its Board of Directors would necessarily follow its recommendation.
On Wednesday, August 13, 1997, the DOC Board (without Mr. Rich) met by
conference call with its financial and legal advisors in attendance. Also in
attendance was Mr. Fenno. DOC's legal advisor and Mr. Fenno reported that they
had received and were reviewing the legal documents submitted by CSX, NSC and
Mr. Rich. A representative of Smith Barney reviewed with the DOC Board the
August 12, 1997 letter of the Strategic Investor and indicated that such letter
addressed some but not all of the contingencies previously raised with
representatives of the Strategic Investor. The DOC Board was informed that
representatives of the Strategic Investor had stated that the Strategic Investor
could not provide a definitive offer at that time, since it had not completed
its due diligence investigation. A representative of DOC's legal advisor
discussed the tax
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implications of the structure of the transaction contained in the August 12,
1997 letter, particularly with respect to the current taxability of the proposed
contingent payment portion of the consideration to be paid to DOC's
shareholders. Smith Barney reported that discussions with the Strategic Investor
were continuing and that they had informed the representatives of the Strategic
Investor of the importance of obtaining an unconditional and firm offer in light
of the relative firmness of the offer by CSX, NSC and Mr. Rich and the impending
deadline in the Conrail transaction. The DOC Board was informed that a draft
merger agreement from counsel for the Strategic Investor was expected on the
following day and that a meeting would take place the following day to discuss
the proposed agreement and the status of the discussions between the parties.
On Thursday, August 14, 1997, DOC's legal advisor and Mr. Fenno met with
the Strategic Investor's counsel to discuss the draft legal documents that had
been submitted. It was determined that it was premature to discuss the legal
documents in depth since the Strategic Investor had not completed its due
diligence investigation. Mr. Fenno continued to assist the representatives of
the Strategic Investor with their due diligence, particularly relating to
identification and ownership of real property. Representatives of Smith Barney
continued to have conversations with representatives of the Strategic Investor
regarding the unresolved conditions to their proposal.
Later in the afternoon of August 14, 1997, the DOC Board (without Mr. Rich)
met by conference call with its financial and legal advisors. DOC's legal
advisor noted that a class action suit had been commenced against DOC, each of
the members of the DOC Board, CSX, NSC and Mr. Rich. DOC's legal advisor also
reported on the meeting that had taken place earlier that afternoon with counsel
for the Strategic Investor, noting that the Strategic Investor's proposal
provided for a two-step merger that would require the vote of shareholders and
the issuance to the Strategic Investor of an option to purchase an undetermined
number of Shares at an undetermined price to discourage other proposals, and
that the proposed agreement would limit the DOC Board's ability to consider any
competing "Superior Offer" that may be submitted and to terminate the proposed
merger agreement. A representative of Smith Barney reported that representatives
of the Strategic Investor had informed Smith Barney that they would not have the
authority to submit a firm proposal that week. Representatives of Smith Barney
also reported that they had continued to request that CSX, NSC and Mr. Rich
increase the price they would offer for each Share, but no increase had yet been
made.
On Friday, August 15, 1997, Mr. Fenno continued to provide the
representatives of the Strategic Investor with assistance in their due diligence
investigation. The Special Committee held several conference calls during the
course of the day with DOC's financial and legal advisors and Messrs. Soule and
Fenno to discuss the status of discussions with the Strategic Investor and with
CSX, NSC and Mr. Rich. Representatives of Smith Barney reported that they had
continued to request a higher per Share proposal from CSX, NSC and Mr. Rich but
that they had not received a response to such request. DOC's legal counsel and
Mr. Fenno reported on the terms of the proposed merger agreement that was
presented on behalf of CSX, NSC and Mr. Rich. The Special Committee directed
Smith Barney to continue to negotiate for a higher price from CSX, NSC and Mr.
Rich and to be prepared to move quickly to finalize the process since it was
unclear as to when or if a firm offer would be forthcoming from the Strategic
Investor.
On Saturday, August 16, 1997, the Special Committee met by conference call
with DOC's financial and legal advisors. Also present were Messrs. Soule and
Fenno. A representative of Smith Barney reported that CSX, NSC and Mr. Rich had
not raised their proposed offer although they did indicate a willingness to
consider a higher price. Mr. Fenno and DOC's legal advisor discussed certain
issues relating to the break-up fee requested by CSX, NSC and Mr. Rich in the
letter of August 8, 1997. A representative of Smith Barney indicated that
representatives of the Strategic Investor had informed Smith Barney that it was
unlikely that the Strategic Investor would present a firm offer that week, if at
all. The Special Committee expressed concern over the length of time that the
offer by CSX, NSC and Mr. Rich had been outstanding and the possibility that it
could be withdrawn. The Special Committee directed Smith Barney to continue to
negotiate for a higher price with CSX, NSC and Mr. Rich and to inform them that
the DOC Board would convene a special meeting on Sunday night, August 17, 1997.
The Special Committee instructed its legal advisor and Mr. Fenno to attempt to
resolve any legal issues with the legal advisors for CSX, NSC and Mr. Rich.
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Later in the afternoon of Saturday, August 16, 1997, DOC's legal advisor
met with the legal advisors to CSX and NSC. Mr. Fenno participated by telephone.
During the course of the meeting, DOC's legal advisor and Mr. Fenno discussed
and negotiated certain issues relating to the proposed merger agreement with
CSX's and NSC's legal advisors and also informed them that the Special Committee
requested a reduction in the termination fee from the $5,000,000 figure then
proposed and the deletion of certain of the conditions to the closing of the
merger. The advisors to CSX, NSC and Mr. Rich were also informed that the
Special Committee did not believe it was appropriate for Mr. Rich to receive any
portion of the termination fee if paid. Later that afternoon, the legal advisors
to CSX and NSC advised DOC's legal advisor that their clients had agreed to all
of the changes requested by the Special Committee, including the agreement among
CSX, NSC and Mr. Rich that Mr. Rich would not participate in the termination fee
if paid, other than a request for the deletion of one of the conditions to the
closing of the tender offer, which condition would continue to be discussed.
During the morning and afternoon of Sunday, August 17, 1997, telephone
discussions continued between DOC's financial and legal advisors and
representatives of CSX, NSC and Mr. Rich with respect to the remaining
contractual issue and the price of the offer. At approximately 8:00 p.m.,
Eastern time, on Sunday, August 17, 1997, DOC's legal advisor was informed that
the outstanding issue had been resolved and that the condition to the closing
had been modified as had been requested.
At approximately 8:30 p.m. on Sunday, August 17, 1997, a meeting of the DOC
Board was convened. All of the directors of DOC were present except for Mr. Rich
and Messrs. Gerald D. Groff, Richard Nasti and Harvey J. Polly, each of whom had
previously indicated that they would be unable to attend. Also present at the
meeting were Mr. Fenno, Vice President - Law, Secretary and General Counsel of
DOC, Mr. Blatter, Senior Vice President and Chief Financial Officer of DOC,
representatives of Smith Barney and DOC's legal advisor.
Representatives of Smith Barney described the negotiations among the
Special Committee and its advisors and representatives of CSX, NSC and Mr. Rich,
on the one hand, and the representatives of the Strategic Investor, on the other
hand. A representative of Smith Barney indicated that CSX, NSC and Mr. Rich had
agreed to increase their proposal to $22.00 per Share and had informed Smith
Barney that CSX, NSC and Mr. Rich were unwilling to increase their offer beyond
that price. Smith Barney then reviewed with the DOC Board the sale process and
the proposals received by interested parties, and made a financial presentation
to the DOC Board with respect to the proposed Offer from CSX, NSC and Mr. Rich.
Smith Barney noted that based on DOC's lack of profitability in recent years,
DOC was not directly comparable to other companies with respect to certain
financial analyses. Smith Barney then rendered to the DOC Board an oral opinion
(subsequently confirmed by delivery of a written opinion dated August 17, 1997)
to the effect that, as of the date of such opinion and based upon and subject to
certain matters stated therein, the $22.00 per Share cash consideration to be
received in the Offer and the Merger by holders of Shares (other than CSX, NSC,
Mr. Rich and their respective affiliates) was fair, from a financial point of
view, to such holders.
DOC's legal advisor then reviewed at length the activities of the Special
Committee and its advisors since August 9, 1997, and described in detail the
terms of the Merger Agreement and certain other legal matters, including the
ability to terminate the Merger Agreement, under certain circumstances, in the
event of a superior proposal.
The members of the DOC Board then expressed their views with respect to the
proposed Merger and the Special Committee and its advisors then responded to a
series of questions. It was the consensus of the members of the DOC Board that
extensive work had been done by the Special Committee with the assistance of
DOC's financial and legal advisors, and that based on the presentations at the
meeting, it would not be possible to obtain a better price from CSX, NSC and Mr.
Rich or from any other potential buyer in the near term. Each of the members of
the Special Committee expressed a similar view. The members of the Special
Committee stated that they unanimously concluded that the transactions proposed
by CSX, NSC and Mr. Rich were in the best interests of DOC and its shareholders.
After further extensive discussion and deliberation, including
consideration of the factors noted below under "-- Reasons for the
Recommendation," the DOC Board approved the Merger Agreement and the
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transactions contemplated thereby. A motion to recommend approval of the Merger
Agreement and the transactions contemplated thereby to the shareholders of DOC
was made, seconded and unanimously carried by a vote of all those directors
present and voting. Mr. Common expressed concurrence with the DOC Board's action
but abstained from voting on the motion due to his employment with Morgan.
Reasons for the Recommendation. As described above, the decision of the
Special Committee of the DOC Board to approve, and recommend adoption and
approval by DOC shareholders of, the Merger Agreement, and the transactions
contemplated thereby, including the Offer and the Merger, followed extensive
discussions of the Special Committee, including those with its financial and
legal advisors. Such decisions were based on deliberations which included a
detailed review of DOC's business, results of operations and prospects,
including the likelihood of effecting an alternative transaction, the ranges of
values to DOC shareholders that might be achievable in an alternative
transaction and the financial and other terms of the Merger. In connection with
its approval and recommendation set forth above, the DOC Board considered a
number of factors, including, but not limited to, the following:
(i) historical information concerning DOC's business prospects,
financial performance and condition, operations, management and competitive
position;
(ii) the financial condition, results of operations, business and
strategic objectives of DOC, the risks involved in achieving those
objectives, and DOC's capability in reaching those objectives;
(iii) the performance of DOC on a historical basis and the prospects
and risks of DOC going forward as a public company in light of the Conrail
acquisition;
(iv) the impact on DOC's business prospects, operations and financial
condition, as well as on its customers and employees, of the proposed Offer
and Merger;
(v) current financial market conditions, historical market prices and
trading information with respect to the common stock of DOC;
(vi) a review of the possible alternatives to the Offer and the Merger
(including the possibility of continuing to operate DOC as a public
company), the range of possible benefits and risks to DOC's shareholders of
such alternatives and the timing and the likelihood of actually
accomplishing any of such alternatives;
(vii) the uncertainty of whether DOC would be successful in seeking
Inclusion before the STB in its review of the acquisition of Conrail by CSX
and NSC, and the uncertainty of the value which might result from any such
Inclusion;
(viii) the consideration to be received by DOC shareholders in the
Offer and the Merger and a comparison of merger and acquisition
transactions deemed to be comparable to the Offer and the Merger or
otherwise relevant to the deliberations of the DOC Board;
(ix) the terms of the Merger Agreement, including the parties'
representations, warranties and covenants, and the conditions to their
respective obligations;
(x) the potential for other third parties, particularly other
railroads, to acquire DOC;
(xi) the opinion of Smith Barney dated August 17, 1997, to the effect
that, as of such date and based upon and subject to certain matters stated
in such opinion, the $22.00 per Share cash consideration to be received by
holders of Shares (other than CSX, NSC, Mr. Rich and their respective
affiliates) in the Offer and the Merger was fair, from a financial point of
view, to such holders. The full text of Smith Barney's written opinion
dated August 17, 1997, which sets forth the assumptions made, matters
considered and limitations on the review undertaken by Smith Barney, is
attached hereto as Annex A and is incorporated herein by reference. Smith
Barney's opinion is directed to the DOC Board and relates only to the
fairness, from a financial point of view, of the cash consideration to be
received in the Offer and the Merger by holders of Shares (other than CSX,
NSC, Mr. Rich and their respective affiliates), and is not intended to
constitute, and does not constitute, a recommendation as to whether any
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shareholder should tender Shares pursuant to the Offer. HOLDERS OF SHARES
ARE URGED TO READ SUCH OPINION CAREFULLY IN ITS ENTIRETY;
(xii) the fact that pursuant to the Merger Agreement, DOC is not
prohibited from furnishing information or data relating to DOC and
participating in negotiations with respect to an unsolicited Superior
Proposal (as defined in the Merger Agreement) to acquire DOC in certain
circumstances, and that DOC may, in certain circumstances, terminate the
Merger Agreement and accept any such Superior Proposal subject to DOC's
obligation to pay a termination fee as described in the Merger Agreement;
(xiii) the relationship of the Offer Price to historical market prices
of the Shares and to DOC's book value per Share, and the fact that the
Offer Price of $22.00 per Share represented a premium of 6% over the sale
price of the Shares on July 29, 1997 (the last trading day before the
confirmation of discussions with CSX, NSC and Mr. Rich), a premium of
approximately 18.9% over the average sale price of the Shares on July 15,
1997 (one month preceding confirmation of such discussions), a premium of
approximately 31.3% over the average sale price of the Shares on May 15,
1997 (three months preceding confirmation of such discussions), and a
premium of approximately 137% over the average sale price of the Shares on
February 15, 1997 (six months preceding confirmation of such discussions);
(xiv) the likelihood that the proposed acquisition would be
consummated, including the experience, reputation and financial condition
of CSX, NSC and Mr. Rich and the risks to DOC if the acquisition were not
consummated; and
(xv) the availability of appraisal rights in the Merger under the New
York Law.
In view of the wide variety of factors considered in connection with its
evaluation of the Offer and the Merger, the DOC Board did not find it
practicable, and did not, quantify or otherwise attempt to assign relative
weights to the factors it considered.
IN LIGHT OF ALL THE FACTORS SET FORTH ABOVE, THE DOC BOARD HAS DETERMINED,
WITH MR. RICH NOT PRESENT AND MR. COMMON ABSTAINING, THAT THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER,
ARE FAIR AND IN THE BEST INTERESTS OF THE HOLDERS OF THE SHARES (OTHER THAN CSX
AND MR. RICH), HAS APPROVED AND ADOPTED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, AND
RECOMMENDS THAT THE HOLDERS OF THE SHARES ACCEPT THE OFFER AND TENDER THEIR
SHARES THEREUNDER.
SIX OF THE EIGHT MEMBERS OF THE BOARD WHO VOTED TO APPROVE THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, AND ALL OF THE MEMBERS OF
THE SPECIAL COMMITTEE, WERE NOT EMPLOYEES OF DOC OR ITS SUBSIDIARIES.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
DOC retained Smith Barney as its financial advisor in connection with the
Offer and the Merger. Pursuant to the terms of Smith Barney's engagement, DOC
has agreed to pay Smith Barney for its services in connection with the Offer and
the Merger an aggregate financial advisory fee equal to 1.2% of the total
consideration (including liabilities assumed), payable in connection with the
Offer and the Merger, but not less than $650,000. DOC currently estimates that
the Smith Barney fee will be approximately $875,000. DOC has also agreed to
reimburse Smith Barney for travel and other out-of-pocket expenses, including
reasonable legal fees and expenses, and to indemnify Smith Barney and certain
related parties against certain liabilities, including liabilities under the
federal securities laws, arising out of Smith Barney's engagement. In the
ordinary course of business, Smith Barney and its affiliates may actively trade
or hold the securities of DOC, CSX and NSC for their own account or for the
account of customers and, accordingly, may at any time hold a long or short
position in such securities.
DOC has a Consulting Agreement with McKenna Management Corp. ("McKenna")
with respect to DOC's operations and profit improvement. Pursuant to the terms
of that agreement, if a sale of 40% or more of the Shares or DOC's assets is
consummated, McKenna is entitled to receive a commission of 1% of the gross
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sale price applicable to DOC's shareholders. DOC currently estimates that the
McKenna commission will be approximately $550,000.
Neither DOC nor any person acting on its behalf has or currently intends to
employ, retain or compensate any person to make solicitations or recommendations
to the shareholders of DOC on its behalf with respect to the Offer, except that
such solicitations or recommendations may be made by directors, officers or
employees of DOC, for which services no additional compensation will be paid.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
During the past 60 days, no transactions in Shares have been effected by
DOC or, to DOC's knowledge, by any of its executive officers, directors,
affiliates or subsidiaries, except that (i) on August 4, 1997 Richard A. White,
a director of DOC, sold 5,000 shares of DOC, (ii) on July 30, 1997, Robert
Kurdock, an officer of DOC, sold 426 Shares, (iii) on August 1, 1997, Joseph
Senchyshyn, an officer of DOC, exercised a Stock Option and sold 698 Shares, and
(iv) on August 7, 1997, William Matteson, an officer of DOC, exercised a Stock
Option and sold 3,358 Shares.
To DOC's knowledge, all of DOC's executive officers and directors who own
Shares currently intend to tender all of their Shares pursuant to the Offer
(other than a portion of the Shares held by Mr. Rich which will be contributed
to the Purchaser, and other than Shares, if any, held by an executive officer or
director that, if tendered, could cause such person to incur liability under the
provisions of Section 16(b) of the Exchange Act).
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
Except as set forth herein, no negotiation is being undertaken or is
underway by DOC in response to the Offer that relates to or would result in: (i)
an extraordinary transaction, such as a merger or reorganization involving DOC
or any subsidiary thereof; (ii) a purchase, sale or transfer of a material
amount of assets by DOC or any subsidiary thereof; (iii) an offer for or other
acquisition of securities by or of DOC; or (iv) any material change in the
present capitalization or dividend policy of DOC. Except as may be set forth
herein, there is no material pending legal proceeding, other than ordinary
routine litigation incidental to DOC's business, to which DOC or any of its
subsidiaries is a party or of which any of its or their property is subject.
Except as set forth herein, there is no transaction, DOC Board resolution,
agreement in principle or signed contract in response to the Offer that relates
to or would result in one or more of the events referred to in the immediately
preceding paragraph.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
There is no additional information which, as the date of this filing, may
be necessary to make the required statements, in light of the circumstances
under which they are made, not materially misleading.
15
<PAGE> 17
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<C> <S>
(a)(1) Purchaser's Offer to Purchase dated August 22, 1997.
(a)(2) Press release issued by DOC on August 11, 1997.
(a)(3) Opinion of Smith Barney Inc. dated August 17, 1997.(1)
(a)(4) Letter to Shareholders dated August 22, 1997 from Everett A. Gilmour, Chairman of
the DOC Board.(2)
(c)(1) Agreement and Plan of Merger, dated as of August 17, 1997, among CSX, NSC, Mr. Rich
and DOC.
(c)(2) Employment Agreements between DOC or its subsidiaries and each of Messrs. Rich,
Soule, Fuller, Garber, Fenno and Blatter and Riders to Employment Agreements (Rich,
Soule, Fenno and Blatter).
(c)(3) Change in Control Agreements for Matteson, Bloomfield, Hensel, Kurdock, Quattrocchi,
Senchyshyn and Boyd.
(c)(4) Restated Certificate of Incorporation of DOC.
(c)(5) Bylaws of DOC.
(c)(6) Letter Agreement, dated August 17, 1997, by and among CSX, NSC and Mr. Rich.
(c)(7) Proposal Letter and Term Sheet, dated August 8, 1997.
</TABLE>
- ---------------
(1) Attached hereto as Annex A.
(2) Included with copies mailed to shareholders.
16
<PAGE> 18
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
accurate.
DELAWARE OTSEGO CORPORATION
By: /s/ Nathan R. Fenno
------------------------------
Nathan R. Fenno
Vice President -- Law,
General Counsel and Secretary
Date: August 22, 1997
17
<PAGE> 19
[SMITH BARNEY LETTERHEAD]
Annex A
August 17, 1997
The Board of Directors
Delaware Otsego Corporation
1 Railroad Avenue
Cooperstown, NY 13326
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of Delaware Otsego Corporation ("DOC")
of the consideration to be received by such holders pursuant to the terms and
subject to the conditions set forth in the Agreement and Plan of Merger, dated
as of August 17, 1997 (the "Merger Agreement"), by and among CSX Corporation
("CSX"), Norfolk Southern Corporation ("NSC"), Walter G. Rich ("Management
Investor"), DOC Acquisition LLC, an entity to be jointly owned by CSX, NSC and
the Management Investor ("DOC Acquisition" and, together with CSX, NSC and the
Management Investor, "Buyer"), and DOC. As more fully described in the Merger
Agreement, (i) DOC Acquisition will commence a tender offer to purchase all
outstanding shares of the common stock, par value $0.125 per share, of DOC (the
"DOC Common Stock"), other than shares of DOC Common Stock beneficially
owned by the Buyer, at a purchase price of $22.00 per share, net to the seller
in cash (the "Tender Offer") and (ii) subsequent to the Tender Offer, a
subsidiary of DOC Acquisition will be merged with and into DOC (the "Merger"
and, together with the Tender Offer, the "Transaction") and each outstanding
share of DOC Common Stock not previously tendered will be converted into the
right to receive $22.00 in cash.
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of DOC and certain senior officers and other representatives of
Buyer concerning the business, operations and prospects of DOC. We examined
certain publicly available business and financial information relating to DOC as
well as certain financial forecasts and other information and data for DOC which
were provided to or otherwise discussed with us by the management of DOC. We
reviewed the financial terms of the Transaction as set forth in the Merger
Agreement in relation to, among other things: current and historical market
prices and trading volumes of DOC Common Stock; the historical and projected
earnings and other operating data of DOC; and the capitalization and financial
condition of DOC. We considered, to the extent publicly available, the financial
terms of certain other similar transactions recently effected which we
considered relevant in evaluating the Transaction and analyzed certain
financial, stock market and other publicly available information relating to the
businesses of other companies whose operations we considered relevant in
evaluating those of DOC. In addition to the foregoing, we conducted such other
analyses and examinations and considered such other financial, economic and
market criteria as we deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed
by or discussed with us. With respect to financial forecasts and other
information and data provided to or otherwise reviewed by or discussed with us,
we have been
A-1
<PAGE> 20
The Board of Directors
Delaware Otsego Corporation
August 17, 1997
Page 2
advised by the management of DOC that such forecasts and other information and
data were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the management of DOC as to the future financial
performance of DOC. We have not made or been provided with an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of DOC nor have we made any physical inspection of the properties or assets of
DOC. In connection with our engagement, we were requested to approach, and held
discussions with, third parties to solicit indications of interest in a
possible acquisition of DOC. Our opinion is necessarily based upon information
available to us, and financial, stock market and other conditions and
circumstances existing and disclosed to us, as of the date hereof.
Smith Barney has been engaged to render financial advisory services to DOC in
connection with the proposed Transaction and will receive a fee for such
services, a significant portion of which is contingent upon the consummation of
the Transaction. We also will receive a fee upon the delivery of this opinion.
In the ordinary course of our business, we and our affiliates may actively
trade or hold the securities of DOC, CSX and NSC for our own account or for the
account of our customers and, accordingly, may at any time hold a long or short
position in such securities. In addition, we and our affiliates (including
Travelers Group Inc. and its affiliates) may maintain relationships with DOC,
CSX, NSC and their respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of DOC in its evaluation of the proposed
Transaction, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to whether or not such stockholder should
tender shares of DOC Common Stock in the Tender Offer or how such stockholder
should vote on the proposed Merger. Our opinion may not be published or
otherwise used or referred to, nor shall any public reference to Smith Barney
be made, without our prior written consent; provided, that this opinion letter
may be included in its entirety in the Solicitation/Recommendation Statement of
DOC relating to the proposed Transaction.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the cash consideration to be received in
the Transaction by the holders of DOC Common Stock (other than Buyer and its
affiliates) is fair, from a financial point of view, to such holders.
Very truly yours,
/s/ Smith Barney Inc.
- ---------------------
SMITH BARNEY INC.
A-2
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------- -------------------------------------------------------------------------
<C> <S> <C>
(a)(1) Purchaser's Offer to Purchase dated August 22, 1997.
(a)(2) Press Release issued by DOC on August 11, 1997.
(a)(3) Opinion of Smith Barney Inc. dated August 17, 1997.(1)
(a)(4) Letter to Shareholders dated August 22, 1997 from Everett A. Gilmour,
Chairman of the DOC Board.(2)
(c)(1) Agreement and Plan of Merger, dated as of August 17, 1997, among CSX,
NSC, Mr. Rich and DOC.
(c)(2) Employment Agreements between DOC or its subsidiaries and each of Messrs.
Rich, Soule, Fuller, Garber, Fenno and Blatter and Riders to Employment
Agreements (Rich, Soule, Fenno and Blatter).
(c)(3) Change in Control Agreements for Matteson, Bloomfield, Hensel, Kurdock,
Quattrocchi, Senchyshyn and Boyd.
(c)(4) Restated Certificate of Incorporation of DOC.
(c)(5) Bylaws of DOC.
(c)(6) Letter Agreement, dated August 17, 1997, by and among CSX, NSC and Mr.
Rich.
(c)(7) Proposal Letter and Term Sheet dated August 8, 1997.
</TABLE>
- ---------------
(1) Attached hereto as Annex A.
(2) Included with copies mailed to shareholders.
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
DELAWARE OTSEGO CORPORATION
AT
$22.00 NET PER SHARE
BY
DOCP ACQUISITION LLC
A NEW YORK LIMITED LIABILITY COMPANY
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT NEW YORK
CITY TIME, ON FRIDAY, SEPTEMBER 19, 1997, UNLESS THE OFFER IS EXTENDED.
THE OFFER (AS DEFINED HEREIN) IS CONDITIONED UPON, AMONG OTHER THINGS,
THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE
OFFER A NUMBER OF SHARES OF COMMON STOCK, PAR VALUE $0.125 PER SHARE (THE
"SHARES"), OF DELAWARE OTSEGO CORPORATION (THE "COMPANY") WHICH, TOGETHER WITH
THE SHARES OWNED BY MR. RICH (AS HEREINAFTER DEFINED), PURCHASER (AS DEFINED
HEREIN) OR ANY SUBSIDIARY OF PURCHASER OR TO BE CONTRIBUTED TO PURCHASER
PURSUANT TO BINDING AGREEMENTS (WHICH PURCHASER, IN ITS REASONABLE JUDGMENT,
BELIEVES WILL BE PERFORMED), REPRESENTS, ON A FULLY DILUTED BASIS, AT LEAST
66 2/3% OF THE OUTSTANDING
SHARES.
------------------------
THE BOARD OF DIRECTORS OF THE COMPANY, ACTING ON THE UNANIMOUS
RECOMMENDATION OF A SPECIAL COMMITTEE OF INDEPENDENT DIRECTORS, BY THE VOTE OF
ALL DIRECTORS PRESENT WITH ONE ABSTENTION, (A) HAS DETERMINED THAT THE MERGER
AGREEMENT (AS DEFINED HEREIN) AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE OFFER AND THE MERGER (AS DEFINED HEREIN), ARE FAIR TO AND IN THE
BEST INTERESTS OF THE COMPANY AND THE SHAREHOLDERS OF THE COMPANY (OTHER THAN
CSX CORPORATION AND WALTER RICH), (B) HAS APPROVED AND ADOPTED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE
MERGER, AND (C) RECOMMENDS ACCEPTANCE OF THE OFFER BY SHAREHOLDERS OF THE
COMPANY.
------------------------
IMPORTANT
Any shareholder desiring to tender all or any portion of such shareholder's
Shares should either (a) complete and sign the Letter of Transmittal (or a
facsimile thereof) in accordance with the instructions set forth therein, have
such shareholder's signature thereon guaranteed if required by Instruction 1
thereto, mail or deliver the Letter of Transmittal (or such facsimile thereof)
and any other required documents to Citibank, N.A., who is acting as depositary
in connection with the Offer ("the Depositary"), and either deliver the Share
Certificates (as defined herein) to the Depositary along with the Letter of
Transmittal (or a facsimile thereof) or deliver such Shares pursuant to the
procedure for book-entry transfer set forth in "THE TENDER OFFER -- Procedures
for Accepting the Offer and Tendering Shares" or (b) request such shareholder's
broker, dealer, commercial bank, trust company or other nominee to effect the
transaction for such shareholder. A shareholder having Shares registered in the
name of a broker, dealer, commercial bank, trust company or other nominee, must
contact such broker, dealer, commercial bank, trust company or other nominee if
such shareholder desires to tender such Shares.
Any shareholder who desires to tender Shares and whose Share Certificates
are not immediately available, or who cannot comply with the procedures for
book-entry transfer described in this Offer to Purchase on a timely basis, may
tender such Shares by following the procedures for guaranteed delivery set forth
in "THE TENDER OFFER -- Procedures for Accepting the Offer and Tendering
Shares".
<PAGE> 2
Questions and requests for assistance or for additional copies of this
Offer to Purchase, the Letter of Transmittal or other related materials may be
directed to MacKenzie Partners, Inc., who is acting as information agent in
connection with the Offer (the "Information Agent"), at its address and
telephone number set forth on the back cover of this Offer to Purchase.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION OR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The Information Agent for the Offer is:
[MacKenzie Partners, Inc. Logo]
August 22, 1997
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
INTRODUCTION.......................................................................... 1
SPECIAL FACTORS....................................................................... 3
1. Background of the Offer and the Merger......................................... 3
2. Recommendation of the Special Committee and the Company Board; Fairness of the
Offer and the Merger........................................................... 3
3. Opinion of Financial Advisor to the Company.................................... 3
4. Position of Purchaser, CSX, NSC and Mr. Rich Regarding Fairness of the Offer
and the Merger................................................................. 3
5. Purpose and Effects of the Offer and the Merger; Reasons for the Offer and the
Merger......................................................................... 3
6. Plans for the Company after the Offer and the Merger........................... 4
7. Rights of Shareholders in the Merger........................................... 4
8. Interests of Certain Persons in the Offer and the Merger....................... 6
9. The Merger Agreement and Related Agreements.................................... 8
10. Certain U.S. Federal Income Tax Consequences................................... 18
11. Certain Litigation Relating to the Offer and the Merger........................ 19
THE TENDER OFFER...................................................................... 20
1. Terms of the Offer; Expiration Date............................................ 20
2. Acceptance for Payment and Payment for Shares.................................. 22
3. Procedures for Accepting the Offer and Tendering Shares........................ 23
4. Withdrawal Rights.............................................................. 25
5. Price Range of Shares.......................................................... 25
6. Effect of the Offer on the Market for the Shares; Exchange Listing and Exchange
Act Registration............................................................... 26
7. Certain Information Concerning the Company..................................... 22
8. Certain Information Concerning Purchaser, CSX, NSC and Mr. Rich................ 24
9. Source and Amount of Funds..................................................... 34
10. Purpose of the Offer and the Merger; Plans for the Company..................... 34
11. Dividends and Distributions.................................................... 35
12. Certain Conditions of the Offer................................................ 35
13. Certain Legal Matters; Regulatory Approvals.................................... 36
14. Fees and Expenses.............................................................. 38
15. Miscellaneous.................................................................. 39
</TABLE>
SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER, CSX AND NSC
SCHEDULE II DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
SCHEDULE III TEXT OF SECTIONS 910 AND 623 OF THE STATE OF NEW YORK BUSINESS
CORPORATION LAW
ANNEX A OPINION OF SMITH BARNEY INC.
i
<PAGE> 4
To the Holders of Shares of Common Stock
of Delaware Otsego Corporation:
INTRODUCTION
DOCP Acquisition LLC, a New York limited liability company ("Purchaser")
formed by CSX Corporation, a Virginia corporation ("CSX"), Norfolk Southern
Corporation, a Virginia corporation ("NSC"), and Walter G. Rich ("Mr. Rich"),
hereby offers to purchase all outstanding shares of common stock, par value
$0.125 per share (the "Shares"), of Delaware Otsego Corporation, a New York
corporation (the "Company"), other than Shares owned beneficially by or of
record by the Company, Purchaser, CSX, NSC, Mr. Rich or any of their respective
subsidiaries, at a price of $22.00 per Share, net to the seller in cash, without
interest (the "Offer Price"), upon the terms and subject to the conditions set
forth in this Offer to Purchase and in the related Letter of Transmittal (which
together constitute the "Offer").
Tendering shareholders will not be obligated to pay brokerage fees or
commissions, or, except as otherwise provided in Instruction 6 of the Letter of
Transmittal, stock transfer taxes with respect to the purchase of Shares by
Purchaser pursuant to the Offer. Purchaser will pay all charges and expenses of
Citibank, N.A., who is acting as depositary in connection with the Offer (the
"Depositary"), and MacKenzie Partners, Inc., who is serving as information agent
in connection with the Offer (the "Information Agent"), incurred in connection
with the Offer. See "THE TENDER OFFER -- Fees and Expenses".
THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD"), ACTING ON THE
UNANIMOUS RECOMMENDATION OF A SPECIAL COMMITTEE OF INDEPENDENT DIRECTORS (THE
"SPECIAL COMMITTEE"), BY THE UNANIMOUS VOTE OF ALL DIRECTORS PRESENT WITH ONE
ABSTENSION, (A) HAS DETERMINED THAT THE MERGER AGREEMENT (AS DEFINED HEREIN) AND
THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER (AS
DEFINED HEREIN), ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND THE
SHAREHOLDERS OF THE COMPANY (OTHER THAN CSX AND MR. RICH), (B) HAS APPROVED AND
ADOPTED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE OFFER AND THE MERGER, AND (C) RECOMMENDS ACCEPTANCE OF THE OFFER
BY SHAREHOLDERS OF THE COMPANY.
The Company's financial advisor, Smith Barney Inc. ("Smith Barney"), has
delivered to the Company Board a written opinion, dated August 17, 1997, to the
effect that, as of such date and based upon and subject to certain matters
stated in such opinion, the $22.00 per Share cash consideration to be received
by the holders of Shares (other than CSX, NSC, Mr. Rich and their respective
affiliates) in the Offer and the Merger was fair from a financial point of view
to such holders. A copy of the opinion of Smith Barney is set forth in Annex A
hereto and is contained in the Solicitation/Recommendation Statement on Schedule
14D-9 filed by the Company with the United States Securities and Exchange
Commission (the "Commission") in connection with the Offer (together with any
exhibits, annexes, amendments or supplements thereto, the "Schedule 14D-9"),
which is being mailed to Company shareholders herewith and should be read
carefully in its entirety. The opinion of Smith Barney is directed to the
Company Board and relates only to the fairness of the cash consideration to be
received in the Offer and the Merger by holders of Shares (other than CSX, NSC,
Mr. Rich and their respective affiliates) from a financial point of view, does
not address any other aspect of the Offer or the Merger or related transactions,
and is not intended to constitute, and does not constitute, a recommendation to
any shareholder as to whether such shareholder should tender Shares in the
Offer. See "SPECIAL FACTORS -- Opinion of Financial Advisor to the Company".
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF
SHARES WHICH, TOGETHER WITH SHARES OWNED BY MR. RICH, PURCHASER OR ANY
SUBSIDIARY OF PURCHASER OR TO BE CONTRIBUTED TO PURCHASER PURSUANT TO BINDING
AGREEMENTS (WHICH PURCHASER, IN ITS REASONABLE JUDGMENT, BELIEVES WILL BE
PERFORMED), REPRESENTS, ON A FULLY DILUTED BASIS, AT LEAST 66 2/3% OF THE
OUTSTANDING SHARES (THE "MINIMUM CONDITION"). SEE "THE TENDER OFFER -- CERTAIN
CONDITIONS OF THE OFFER", WHICH SETS FORTH IN FULL THE CONDITIONS TO THE OFFER.
<PAGE> 5
The Company has advised Purchaser that, as of August 17, 1997, there were
1,893,219 Shares issued and outstanding, approximately 1,504 record holders of
Shares and 168,251 Shares subject to employee stock options (the "Options"). As
of August 21, 1997, CSX (through its wholly owned subsidiary, CSX
Transportation, Inc. ("CSXT")) beneficially owned 110,250 Shares representing
approximately 5.8% of the Shares outstanding as of such date, and Mr. Rich owned
255,313 Shares and Options to acquire 8,698 Shares, collectively representing
approximately 14.5% of the Shares outstanding as of such date. In connection
with the transactions contemplated by the Merger Agreement, all of the Shares
owned by CSX and a portion of the Shares and Options owned by Mr. Rich having an
aggregate value of approximately $3,013,247 will be contributed to Purchaser
prior to the consummation of the Offer; and, in the event that a meeting of the
Company's shareholders is called to consider the approval and adoption of the
Merger and the Merger Agreement, all Shares contributed or owned by CSX or Mr.
Rich will be voted in favor of such matters. The Company has advised Purchaser
that, as of August 17, 1997, 66,150 shares were issuable upon exercise of all
outstanding warrants (as defined herein) and 355,159 Shares were issuable upon
conversion of all Convertible Notes (as defined herein). Based upon the
foregoing information, the Minimum Condition would be satisfied if 1,289,623
Shares were validly tendered.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of August 17, 1997, by and among CSX, NSC, Mr. Rich and the Company (the
"Merger Agreement"). The Merger Agreement provides that, among other things, as
promptly as practicable after the satisfaction of the other conditions set forth
in the Merger Agreement, and in accordance with the relevant provisions of the
New York Business Corporation Law (the "NYBCL"), a corporate subsidiary of
Purchaser to be organized by Purchaser prior to the Merger ("Buyer") will be
merged with and into the Company (the "Merger"). Following consummation of the
Merger, the Company will continue as the surviving corporation (the "Surviving
Corporation") and will be a wholly owned subsidiary of Purchaser. At the
Effective Time, (as defined herein) each Share outstanding immediately prior
thereto (other than Shares held by the Company or its subsidiary or by Purchaser
or its subsidiary, and other than Shares held by shareholders who shall have
demanded and perfected appraisal rights under the NYBCL) will be canceled and
converted into the right to receive the Offer Price. The Merger Agreement is
more fully described in "SPECIAL FACTORS -- The Merger Agreement and Related
Agreements".
Consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including the approval and adoption of the Merger and the
Merger Agreement by the affirmative vote of the holders of 66 2/3% of the
outstanding Shares, if required. In the event required, the Company has agreed
to call a meeting of shareholders to consider such matters. If the Minimum
Condition is satisfied and such a meeting is called, Purchaser will own a
sufficient number of Shares to approve and adopt the Merger and the Merger
Agreement without requiring the vote or proxy of any other shareholder. See
"SPECIAL FACTORS -- Purpose and Effects of the Offer and the Merger; Reasons for
the Offer and the Merger". In addition, under the NYBCL, if Purchaser acquires
(pursuant to the Offer, the contributions of Mr. Rich and CSX to Purchaser or
otherwise) at least 90% of then outstanding Shares, Purchaser will be able to
approve and adopt the Merger and the Merger Agreement without calling a meeting
of the Company's shareholders and without the approval of any shareholders other
than Purchaser. Therefore, in accordance with the NYBCL, in the event that
Purchaser acquires at least 90% of then outstanding Shares pursuant to the
Offer, the contributions of Mr. Rich and CSX to Purchaser or otherwise, all
necessary and appropriate action will be taken to cause the Merger to become
effective as soon as reasonably practicable after such acquisition without a
meeting of shareholders. If, however, Purchaser does not acquire at least 90% of
then outstanding Shares pursuant to the Offer, the contributions of Mr. Rich and
CSX to Purchaser or otherwise, and a meeting and the approval of the Company's
shareholders is required under the NYBCL, as described above, a longer period of
time will be required to effect the Merger. Under the Merger Agreement, even if
the Minimum Condition is satisfied, if at any scheduled expiration date of the
Offer all conditions to the Offer shall have been satisfied but less than a
number of Shares that, together with the number of Shares to be contributed by
CSX and Mr. Rich to Purchaser, represents less than 90% of the outstanding
Shares, on a fully-diluted basis, shall have been tendered into the Offer,
Purchaser shall be entitled to extend the Offer from time to time without the
consent
2
<PAGE> 6
\of the Company (for not more than 10 business days (as defined herein)) in
order to permit Purchaser to solicit additional Shares to be tendered into the
Offer. See "SPECIAL FACTORS -- Purpose and Effects of the Offer and the Merger;
Reasons for the Offer and the Merger".
No appraisal rights are available in connection with the Offer, but may be
available in connection with the Merger. See "SPECIAL FACTORS -- Rights of
Shareholders in the Merger."
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
SPECIAL FACTORS
1. BACKGROUND OF THE OFFER AND THE MERGER.
PURCHASE ALL OUTSTANDING SHARES TENDERED PRIOR TO THE EXPIRATION OF THE OFFER IF
THE CONDITIONS TO THE OFFER HAVE BEEN SATISFIED (OR WAIVED).
Background of the Offer: The Company 10-K states: 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,
including Conrail. 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 the CP Rail System ("CP").
Additionally, pursuant to a Haulage Agreement with CP, the Company has direct
access with the NSC rail system and other carriers in Buffalo, New York.
The Company relies on, and its ability to compete is dependent upon, its
rail connections with Conrail for a substantial portion of its rail traffic.
This business mainly relates to freight traffic to the northern New Jersey and
New York City metropolitan area. Revenue derived by the Company from CSX and NSC
relating to freight traffic to the northern New Jersey-New York City
metropolitan area amounted to (i) $9,800,000 and $7,700,000, respectively, in
1994, (ii) $17,200,000 and $7,500,000, respectively, in 1995, (iii)$15,800,000
and $6,300,000, respectively, in 1996, and (iv) $7,530,000 and $3,070,000,
respectively, in the six months ended June 30, 1997. For 1994, 1995, 1996 and
the six months ended June 30, 1997, the Company derived approximately 39%, 49%,
49% and 49% of its operating revenue from traffic hauled for a CSX subsidiary,
and approximately 31%, 21%, 16% and 20% of its operating revenue from intermodal
traffic hauled in conjunction with NSC over Conrail rail lines.
On October 15, 1996, CSX and Conrail announced plans to merge. Thereafter,
NSC announced a competing tender offer to acquire ownership of Conrail. During
February and March, 1997, as a result of public statements by governmental
officials and others, it became apparent that the likely resolution of the
competing offers to acquire Conrail would be a roughly equal division of Conrail
between CSX and NSC.
On March 12, 1997, members of the Company Board and management interviewed
several investment banking firms. Thereafter in March 1997, the Company Board
retained Smith Barney Inc. ("Smith Barney") to advise and represent the Company
in a possible sale or other transaction. During the course of the next several
months approximately 14 parties that were considered to have potential interest
in a transaction with the Company were contacted. Of those 14 parties, six
signed confidentiality agreements and received non-public information pertaining
to the Company. Of the six, possible interest in a transaction with the Company
as an entirety was expressed only by CSX and NSC jointly, and by one other party
(the "Strategic Investor"). Additional confidential information regarding the
Company's assets and operations was thereafter provided to CSX and NSC and to
the Strategic Investor upon their request.
Given the market performance of the Shares prior to March 1997, and based
upon conversations with representatives of CSX, NSC and the Strategic Investor,
the Company's management believed that the prospective purchasers considered the
current market price of the Shares to be overvalued. In an effort to
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<PAGE> 7
persuade them to consider a range of values, the Company's management prepared a
"the Company Asset Valuation Package" as a negotiating tool. The valuation was
based on data available to the Company's management, such as the purchase price
of recently acquired land, the actual cost of improvements, and on the
experience of the Company's management in disposing of rail lines which no
longer operate. However, such analysis contained no adjustment for or
consideration of (i) the income tax consequences of a sale of the Company's
assets, (ii) the value that the Company could receive for its facilities from
parties other than another railroad, (iii) the costs that the Company would
incur in disposing of its assets, (iv) the expense, or likelihood of, obtaining
regulatory approval to sell its railroad assets, (v) the amount of time that a
disposition of assets would likely take, or (vi) the relatively few number of
prospective buyers which had been identified.
In preparing the Company Asset Valuation Package, the Company's management
set values for those of its rail unloading facilities that it believed could be
of use to CSX or NSC based on the cost of property in the region and the actual
cost of improvements located on those lands, without regard for depreciation.
Certain contractual rights, including the existing revenues the Company receives
from allowing public utilities and others to use its properties, were valued
based on a capitalization of income. Using the Company Asset Valuation Package,
the Company's management proposed that the underlying asset value of the Company
was approximately $108 million after payment of debt.
On May 5, 1997, during a regularly scheduled meeting, the Executive
Committee of the Company Board (the "Executive Committee") consisting of Messrs.
Rich, Charles S. Brenner ("Brenner"), Niles F. Curtis ("Curtis"), Everett A.
Gilmour ("Gilmour") and Robert L. Marcalus (Chairman of the Executive Committee)
("Marcalus"), reviewed the status of the discussions with CSX and NSC and with
the Strategic Investor.
On May 6, 1997, representatives of the Company's management and
representives of Smith Barney met with representatives of CSX and NSC to discuss
CSX's and NSC's joint interest in a transaction with the Company.
On May 9, 1997, Mr. Aftoora, a director of the Company and an officer of
CSX Transportation, Inc., a CSX subsidiary, requested and was granted a leave of
absence from the Company Board as described above in Item 3 under the caption
"Interests of Certain Persons in the Merger."
On May 14, 1997, representatives of the Company and representatives of
Smith Barney met with representatives of the Strategic Investor to discuss the
Strategic Investor's interest in the Company.
Representatives of the Company and Smith Barney again met with
representatives of CSX and NSC on May 21, 1997 and met with representatives of
the Strategic Investor on May 22, 1997 to review and discuss the possible
acquisition of the Company by such parties.
On June 4, 1997, Messrs. Rich and C. David Soule, Executive Vice President
of the Company, met with John W. Snow, Chairman and CEO of CSX, and David R.
Goode, Chairman and CEO of NSC, to discuss the potential of a transaction
involving the three companies.
On June 7, 1997, at a regularly scheduled meeting, the Executive Committee
reviewed the status (summarized above) of the discussions with CSX and NSC and
the Strategic Investor.
On June 26, 1997, at a regularly scheduled meeting of the Executive
Committee, Mr. Rich reported that the Strategic Investor was continuing to move
forward with its due diligence. Mr. Rich also reported that CSX and NSC had
concluded that they did not wish to control the Company. Instead, they had
proposed in general terms a transaction in which one or more members of the
Company's management, including Mr. Rich, would buy, with financing provided by
CSX and NSC, the publicly-held Shares for a price of at or near "market."
On July 1, 1997, representatives of the Company met with representatives of
CSX and NSC, the legal advisor to CSX, and Mr. Rich. CSX and NSC presented the
general structure of a proposed purchase by Mr. Rich (and possibly other members
of management of the Company) of the outstanding publicly-held Shares with
financing to be provided by CSX and NSC. The potential conflict of interest that
this created was discussed and it was determined that Mr. Rich would be kept
apart from the other representatives of the Company in all matters regarding the
proposed transaction.
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<PAGE> 8
In May and July 1997, indications of interest were received from two
parties with respect to the purchase of TPW. Both of these indications were
predicated upon the purchase of all of the outstanding shares of TPW, the
majority of which shares are not owned by the Company. As a result, the
indications did not become the subject of subsequent negotiations.
On July 10, 1997, at the request of the Strategic Investor, Messrs. Rich
and Soule met with officers of the Strategic Investor to discuss the potential
for and the structure of a possible transaction.
On July 14, 1997, at a regularly scheduled meeting of the Executive
Committee, Mr. Rich disclosed that he anticipated that an offer from CSX and NSC
and himself would be received by the Company Board within several days. It was
determined that Mr. Rich would excuse himself from any Company Board or
Executive Committee meeting which considered any offer for an acquisition
transaction involving the Company.
During the early summer of 1997, the Company Board determined that it would
be in the best interest of the Company's shareholders if a firm offer from one
of the prospective purchasers could be obtained in early August 1997 so that the
Company Board would have sufficient time to assess the offer or offers with its
advisors and determine whether to accept such offer or offers prior to August
22, 1997. This was the final date established by the STB for it to receive
notices of intent to file comments, objections or claims in the course of its
review of the application of CSX and NSC to acquire and control Conrail. Based
on the advice of counsel, the Company Board determined that the Company should
be prepared to seek Inclusion or other conditions from the STB in the Conrail
proceeding in order to protect itself from the competitive effects of the CSX
and NSC acquisition of Conrail. The Company Board, having determined that a
consensual transaction would likely be more favorable to shareholders,
instructed Smith Barney and the Company's management to notify the prospective
purchasers that they should submit their offers, if any, promptly.
On August 4, 1997, representatives of the Strategic Investor toured the
Company's properties and facilities in New Jersey. On August 5 and 6, 1997,
representatives of the Strategic Investor met with Messrs. Soule and Fenno to
conduct due diligence regarding the values and ownership of the Company's real
property.
On August 5, 1997 representatives of J.P. Morgan Securities Inc.
("Morgan"), which has an ongoing role serving generally as financial advisor to
NSC on various matters, participated in a telephonic meeting of the Executive
Committee of the NSC Board of Directors. At such meeting such representatives
discussed with the Executive Committee in general terms the financial
implications of the proposed transaction to NSC. Morgan was not specifically
retained by NSC with respect to the Offer or the Merger.
During the evening of Friday, August 8, 1997, CSX, NSC and Mr. Rich
delivered a written offer to the Company Board to begin negotiations with
respect to an acquisition of the Company, including a non-binding term sheet
describing the potential structure for such a transaction involving the
acquisition of all of the outstanding Shares at a price of $19.00 per Share. A
copy of the Purchaser's letter dated August 8, 1997 (the "Proposal Letter") is
filed as Exhibit (c)(7) to this Schedule 14D-9. The Proposal Letter provided
that the offer contained therein would expire if the Proposal Letter were not
executed by the Company prior to 5:00 p.m. on August 10. It also provided for
exclusive negotiations between the parties until August 22, 1997, and for
certain expense reimbursements. Later that evening, a confidential letter was
sent to Mr. Gilmour, Chairman of the Company Board, by the Strategic Investor
outlining the basis upon which it might pursue the acquisition of the Company.
The letter indicated that an offer would be subject to the satisfactory
completion of its due diligence investigation and would be subject to various
material conditions, including the receipt of certain regulatory approvals and
the approval of the Board of Directors of the Strategic Investor. The letter
indicated that the Strategic Investor would consider a bid consisting of both an
initial payment at a price slightly lower than the offer made by CSX, NSC and
Mr. Rich, and a contingent payment equal to 75% of the initial payment based on
certain other conditions being fulfilled within one year of the transaction.
Both payments would consist of cash and stock components having an equal value.
Also in its letter, the Strategic Investor stated its belief that the retention
of the Company's senior management, particularly Mr. Rich, would be important to
a successful acquisition, and its intention that Mr. Rich would remain as CEO of
NYS&W.
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<PAGE> 9
On Saturday, August 9, 1997, a Special Meeting of the Company Board was
convened to review the sale process with the Company's legal and financial
advisors. Present at such meeting were Mr. Blatter, Senior Vice President and
Chief Financial Officer of the Company, Mr. Fenno, Vice President-Law, General
Counsel and Secretary of the Company, the legal advisor to Mr. Rich and various
legal advisors to the Company. Mr. Rich and his legal advisor presented the
offer that was delivered to the Company Board the prior evening. Mr. Rich and
his legal advisor were then excused from the meeting. Representatives of Smith
Barney then reviewed with the Company Board the trading history of the Shares
during the period from August 8, 1996 through August 7, 1997, and provided the
Company Board with certain financial data relating to comparable companies and
to comparable transactions in the railroad industry. A summary description of
those parties which had expressed an interest in acquiring the Company,
including two parties that expressed an interest in acquiring TP&W, was also
provided. The Company Board also reviewed the Strategic Investor's letter of
August 8, 1997, which was addressed to Mr. Gilmour.
A representative from Carter, Ledyard & Milburn, the Company's corporate
and securities counsel, then advised the members of the Company Board on their
fiduciary responsibilities and other legal issues arising from the receipt of
the offer on August 8, 1997 from CSX, NSC and Mr. Rich. Representatives from
Gollatz, Griffin & Ewing, P.C., the Company's railroad regulatory counsel,
discussed the regulatory conditions relating to the Strategic Investor's
preliminary proposal, the likelihood and timing of the resolution of those
conditions, the alternative actions available to the Company of requesting
Inclusion in the pending application of CSX and NSC to acquire Conrail and the
existing schedule that would affect the filings that the Company may consider
making in the STB's Conrail proceeding.
The Company Board then appointed a Special Committee consisting of Messrs.
Marcalus (Chairman), Brenner, Curtis and Gilmour for the purpose of conducting
further discussions with CSX, NSC and Mr. Rich on the one hand, and the
Strategic Investor, on the other hand, and for evaluating proposals received
from, and conducting further discussions with, such parties. The Company Board
authorized the Special Committee to retain financial and legal advisors at the
Company's expense.
On Sunday, August 10, 1997, the Company Board (without Mr. Rich) met by
telephone conference. Also in attendance were its financial and legal advisors
and Mr. Fenno. The Company Board determined not to approve the Proposal Letter
(which requested exclusivity) in order to continue discussions with the
Strategic Investor aimed at reducing the contingency of its interest, as well as
with any other interested parties which might contact the Company in light of
the public disclosure of the Proposal Letter, and directed its financial
advisors to continue to negotiate both with CSX, NSC, and Mr. Rich and with the
Strategic Investor. The Proposal Letter was publicly disclosed on Monday, August
11, 1997.
Also on that date, the Company Board (without Mr. Rich) met by telephone
conference call with its financial and legal advisors in attendance. Also in
attendance was Mr. Fenno. Representatives of Smith Barney informed the Company
Board that representatives of the Strategic Investor had informed Smith Barney
that certain of the regulatory conditions included in the Strategic Investor's
letter of August 8, 1997, could be removed, but that management of the Strategic
Investor did not yet have board authority to present a firm offer.
Representatives from Smith Barney also reported on several phone conversations
with representatives of the Strategic Investor wherein such representatives
informed Smith Barney that the initial payment to the Company's shareholders
might be structured so as not to contain the conditions contained in the
Strategic Investor's August 8 letter. The Company Board expressed concern about
the contingent nature of the Strategic Investor's proposal. Smith Barney was
directed to continue to work with the Strategic Investor to attempt to obtain a
firm offer, and to negotiate a higher price with CSX, NSC and Mr. Rich.
On Tuesday, August 12, 1997, the Special Committee met by conference call
with its financial and legal advisors. Also in attendance were Messrs. Fenno and
Soule. A representative of Smith Barney reported that representatives of the
Strategic Investor had informed Smith Barney that a revised letter from the
Strategic Investor would be submitted later that day, and that counsel for the
Strategic Investor had been instructed to provide a draft of its legal
documentation to the Company's legal advisor for review. The Company's financial
and legal advisors both reported that they had requested a higher offer in
discussions with representatives of CSX, NSC and Mr. Rich, but that such an
offer had not been made. The Special Committee determined to
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<PAGE> 10
receive and review the legal documentation expected from the Strategic Investor
prior to taking further action and instructed their advisors to do so.
Also on August 12, the legal advisors to CSX, NSC and Mr. Rich submitted a
proposed merger agreement to the Company's legal advisor. Later that day, the
Strategic Investor delivered a second confidential letter to Mr. Gilmour that
provided additional information with respect to the basis upon which it would be
prepared to pursue discussions relating to the acquisition of the Company. The
confidential letter, while it contained a slightly improved initial payment,
continued to indicate that any offer would be subject to several material
conditions and to the approval of the Strategic Investor's Board of Directors.
The letter further indicated that management of the Strategic Investor could not
assure Mr. Gilmour that its Board of Directors would necessarily follow its
recommendation.
On Wednesday, August 13, 1997, the Company Board (without Mr. Rich) met by
conference call with its financial and legal advisors in attendance. Also in
attendance was Mr. Fenno. The Company's legal advisor and Mr. Fenno reported
that they had received and were reviewing the legal documents submitted by CSX,
NSC and Mr. Rich. A representative of Smith Barney reviewed with the Company
Board the August 12, 1997 letter of the Strategic Investor and indicated that
such letter addressed some but not all of the contingencies previously raised
with representatives of the Strategic Investor. The Company Board was informed
that representatives of the Strategic Investor had stated that the Strategic
Investor could not provide a definitive offer at that time, since it had not
completed its due diligence investigation. A representative of the Company's
legal advisor discussed the tax implications of the structure of the transaction
contained in the August 12, 1997 letter, particularly with respect to the
current taxability of the proposed contingent payment portion of the
consideration to be paid to the Company's shareholders. Smith Barney reported
that discussions with the Strategic Investor were continuing and that they had
informed the representatives of the Strategic Investor of the importance of
obtaining an unconditional and firm offer in light of the relative firmness of
the offer by CSX, NSC and Mr. Rich and the impending deadline of the Conrail
transaction. The Company Board was informed that a draft merger agreement from
counsel for the Strategic Investor was expected on the following day and that a
meeting would take place the following day to discuss the proposed agreement and
the status of the discussions between the parties.
On Thursday, August 14, 1997, the Company's legal advisor and Mr. Fenno met
with the Strategic Investor's counsel to discuss the draft legal documents that
had been submitted. It was determined that it was premature to discuss the legal
documents in depth since the Strategic Investor had not completed its due
diligence investigation. Mr. Fenno continued to assist the representatives of
the Strategic Investor with their due diligence, particularly relating to
identification and ownership of real property. Representatives of Smith Barney
continued to have conversations with representatives of the Strategic Investor
regarding the unresolved conditions to their proposal.
Later in the afternoon of August 14, 1997, the Company Board (without Mr.
Rich) met by conference call with its financial and legal advisors. The
Company's legal advisor noted that a class action suit had been commenced
against the Company, each of the members of the Company Board, CSX, NSC and Mr.
Rich. the Company's legal advisor also reported on the meeting that had taken
place earlier that afternoon with counsel for the Strategic Investor, noting
that the Strategic Investor's proposal provided for a two-step merger that would
require the vote of shareholders and the issuance to the Strategic Investor of
an option to purchase an undetermined number of Shares at an undetermined price
to discourage other proposals, and that the proposed agreement would limit the
Company Board's ability to consider any competing "Superior Offer" that may be
submitted and to terminate the proposed merger agreement. A representative of
Smith Barney reported that representatives of the Strategic Investor had
informed Smith Barney that they would not have the authority to submit a firm
proposal that week. Representatives of Smith Barney also reported that they had
continued to request that CSX, NSC and Mr. Rich increase the price they would
offer for each Share, but no increase had yet been made.
On Friday, August 15, 1997, Mr. Fenno continued to provide the
representatives of the Strategic Investor with assistance in their due diligence
investigation. The Special Committee held several conference calls during the
course of the day with the Company's financial and legal advisors and Messrs.
Soule and Fenno to
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<PAGE> 11
discuss the status of discussions with the Strategic Investor and with CSX, NSC
and Mr. Rich. Representatives of Smith Barney reported that they had continued
to request a higher per Share proposal from CSX, NSC and Mr. Rich but that they
had not received a response to such request. The Company's legal counsel and Mr.
Fenno reported on the terms of the proposed merger agreement that was presented
on behalf of CSX, NSC and Mr. Rich. The Special Committee directed Smith Barney
to continue to negotiate for a higher price from CSX, NSC and Mr. Rich and to be
prepared to move quickly to finalize the process since it was unclear as to when
or if a firm offer would be forthcoming from the Strategic Investor.
On Saturday, August 16, 1997, the Special Committee met by conference call
with the Company's financial and legal advisors. Also present were Messrs. Soule
and Fenno. A representative of Smith Barney reported that CSX, NSC and Mr. Rich
had not raised their proposed offer although they did indicate a willingness to
consider a higher price. Mr. Fenno and the Company's legal advisor discussed
certain issues relating to the break-up fee requested by CSX, NSC and Mr. Rich
in the letter of August 8, 1997. A representative of Smith Barney indicated that
representatives of the Strategic Investor had informed Smith Barney that it was
unlikely that the Strategic Investor would present a firm offer that week, if at
all. The Special Committee expressed concern over the length of time that the
offer by CSX, NSC and Mr. Rich had been outstanding and the possibility that it
could be withdrawn. The Special Committee directed Smith Barney to continue to
negotiate for a higher price with CSX, NSC and Mr. Rich and to inform them that
the Company Board would convene a special meeting on Sunday night, August 17,
1997. The Special Committee instructed its legal advisor and Mr. Fenno to
attempt to resolve any legal issues with the legal advisors for CSX, NSC and Mr.
Rich.
Later in the afternoon of Saturday, August 16, 1997, the Company's legal
advisor met with the legal advisors to CSX and NSC. Mr. Fenno participated by
telephone. During the course of the meeting, the Company's legal advisor and Mr.
Fenno discussed and negotiated certain issues relating to the proposed merger
agreement with CSX's and NSC's legal advisors and also informed them that the
Special Committee requested a reduction in the termination fee from the
$5,000,000 figure then proposed and the deletion of certain of the conditions to
the closing of the merger. The advisor to CSX, NSC and Mr. Rich were also
informed that the Special Committee did not believe it was appropriate for Mr.
Rich to receive any portion of the termination fee if paid. Later that
afternoon, the legal advisors to CSX and NSC advised the Company's legal advisor
that their clients had agreed to all of the changes requested by the Special
Committee, including the agreement among CSX, NSC and Mr. Rich that Mr. Rich
would not participate in the termination fee if paid, other than a request for
the deletion of one of the conditions to the closing of the tender offer, which
condition would continue to be discussed.
During the morning and afternoon of Sunday, August 17, 1997, telephone
discussions continued between the Company's financial and legal advisors and
representatives of CSX, NSC and Mr. Rich with respect to the remaining
contractual issue and the price of the offer. At approximately 8:00 p.m.,
Eastern time on Sunday, August 17, 1997, the Company's legal advisor was
informed that the outstanding issue had been resolved and that the condition to
the closing had been modified as had been requested.
At approximately 8:30 p.m. on Sunday, August 17, 1997, a meeting of the
Company Board was convened. All of the directors of the Company were present
except for Mr. Rich and Messrs. Gerald D. Groff, Richard Nasti and Harvey J.
Polly, each of whom had previously indicated that they would be unable to
attend. Also present at the meeting were Mr. Fenno, Vice President - Law,
Secretary and General Counsel of the Company, Mr. Blatter, Senior Vice President
and Chief Financial Officer of the Company, representatives of Smith Barney and
the Company's legal advisor.
Representatives of Smith Barney described the negotiations among the
Special Committee and its advisors and representatives of CSX, NSC and Mr. Rich,
on the one hand, and the representatives of the Strategic Investor, on the other
hand. A representative of Smith Barney indicated that CSX, NSC and Mr. Rich had
agreed to increase their proposal to $22.00 per Share and had informed Smith
Barney that CSX, NSC and Mr. Rich were unwilling to increase their offer beyond
that price. Smith Barney then reviewed with the Company Board the sale process
and the proposals received by interested parties, and made a financial
presentation to the Company Board with respect to the proposed Offer from CSX,
NSC and Mr. Rich. Smith
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Barney noted that based on the Company's lack of profitability in recent years,
the Company was not directly comparable to other companies with respect to
certain financial analyses. Smith Barney then rendered to the Company Board an
oral opinion (subsequently confirmed by delivery of a written opinion dated
August 17, 1997) to the effect that, as of the date of such opinion and based
upon and subject to certain matters stated therein, the $22.00 per Share cash
consideration to be received in the Offer and the Merger by holders of Shares
(other than CSX, NSC, Mr. Rich and their respective affiliates) was fair, from a
financial point of view, to such holders.
The Company's legal advisor then reviewed at length the activities of the
Special Committee and its advisors since August 9, 1997, and described in detail
the terms of the Merger Agreement and certain other legal matters, including the
ability to terminate the Merger Agreement, under certain circumstances, in the
event of a superior proposal.
The members of the Company Board then expressed their views with respect to
the proposed Merger and the Special Committee and its advisors then responded to
a series of questions. It was the consensus of the members of the Company Board
that extensive work had been done by the Special Committee with the assistance
of the Company's financial and legal advisors, and that based on the
presentations at the meeting, it would not be possible to obtain a better price
from CSX, NSC and Mr. Rich or from any other potential buyer in the near term.
Each of the members of the Special Committee expressed a similar view. The
members of the Special Committee stated that they unanimously concluded that the
transactions proposed by CSX, NSC and Mr. Rich were in the best interests of the
Company and its shareholders.
After further extensive discussion and deliberation, including
consideration of the factors noted below under "-- Reasons for the
Recommendation," the Company Board approved the Merger Agreement and the
transactions contemplated thereby. A motion to recommend approval of the Merger
Agreement and the transactions contemplated thereby to the shareholders of the
Company was made, seconded and unanimously carried by a vote of all those
directors present and voting. Mr. Common expressed concurrence with the Company
Board's action but abstained from voting on the motion due to his employment
with Morgan.
2. RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE COMPANY BOARD; FAIRNESS OF
THE OFFER AND THE MERGER.
The Company Board has, by the vote of all directors present with one
abstention (David B. Common), determined that the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger, are fair
to and in the best interests of the Company and the holders of Shares, (other
than CSX and Mr. Rich), has approved and adopted the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger, and
recommends that the Company shareholders accept the Offer and tender their
Shares. David B. Common, the Company director and Vice President of JP Morgan &
Co., Inc. ("Morgan"), did not vote on the proposals respecting the Merger
Agreement and the transactions contemplated thereby, because of his affiliation
with Morgan, which has acted from time to time as NSC's financial adviser. Mr.
Rich was not present at the meeting at which the vote on the Merger and the
Merger Agreement was taken. As set forth in the Merger Agreement, subject to the
terms and conditions thereof, Purchaser will purchase all outstanding Shares
tendered prior to the expiration of the Offer if the conditions to the Offer
have been satisfied (or waived).
Reasons for the Recommendation. As described above, the decision of the
Special Committee of the Company Board to approve, and recommend adoption and
approval by the Company shareholders of, the Merger Agreement, and the
transactions contemplated thereby, including the Offer and the Merger, followed
extensive discussions of the Special Committee, including those with its
financial and legal advisors. Such decisions were based on deliberations which
included a detailed review of the Company's business, results of operations and
prospects, including the likelihood of effecting an alternative transaction, the
ranges of values to the Company shareholders that might be achievable in an
alternative transaction and the financial and other
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terms of the Merger. In connection with its approval and recommendation set
forth above, the Company Board considered a number of factors, including, but
not limited to, the following:
(i) historical information concerning the Company's business
prospects, financial performance and condition, operations, management and
competitive position;
(ii) the financial condition, results of operations, business and
strategic objectives of the Company, the risks involved in achieving those
objectives, and the Company's capability in reaching those objectives;
(iii) the performance of the Company on a historical basis and the
prospects and risks of the Company going forward as a public company in
light of the Conrail acquisition;
(iv) the impact on the Company's business prospects, operations and
financial condition, as well as on its customers and employees, of the
proposed Offer and Merger;
(v) current financial market conditions, historical market prices and
trading information with respect to the common stock of the Company;
(vi) a review of the possible alternatives to the Offer and the Merger
(including the possibility of continuing to operate the Company as a public
company), the range of possible benefits and risks to the Company's
shareholders of such alternatives and the timing and the likelihood of
actually accomplishing any of such alternatives;
(vii) the uncertainty of whether the Company would be successful in
seeking Inclusion before the STB in its review of the acquisition of
Conrail by CSX and NSC, and the uncertainty of the value which might result
from any such Inclusion;
(viii) the consideration to be received by the Company shareholders in
the Offer and the Merger and a comparison of merger and acquisition
transactions deemed to be comparable to the Offer and the Merger or
otherwise relevant to the deliberations of the Company Board;
(ix) the terms of the Merger Agreement, including the parties'
representations, warranties and covenants, and the conditions to their
respective obligations;
(x) the potential for other third parties, particularly other
railroads, to acquire the Company;
(xi) the opinion of Smith Barney dated August 17, 1997, to the effect
that, as of such date and based upon and subject to certain matters stated
in such opinion, the $22.00 per Share cash consideration to be received by
holders of Shares (other than CSX, NSC, Mr. Rich and their respective
affiliates) in the Offer and the Merger was fair, from a financial point of
view, to such holders. The full text of Smith Barney's written opinion
dated August 17, 1997, which sets forth the assumptions made, matters
considered and limitations on the review undertaken by Smith Barney, is
attached hereto as Annex A and is incorporated herein by reference. Smith
Barney's opinion is directed to the Company Board and relates only to the
fairness, from a financial point of view, of the cash consideration to be
received in the Offer and the Merger by holders of Shares (other than CSX,
NSC, Mr. Rich and their respective affiliates), and is not intended to
constitute, and does not constitute, a recommendation as to whether any
shareholder should tender Shares pursuant to the Offer. HOLDERS OF SHARES
ARE URGED TO READ SUCH OPINION CAREFULLY IN ITS ENTIRETY;
(xii) the fact that pursuant to the Merger Agreement, the Company is
not prohibited from furnishing information or data relating to the Company
and participating in negotiations with respect to an unsolicited Superior
Proposal (as defined in the Merger Agreement) to acquire the Company in
certain circumstances, and that the Company may, in certain circumstances,
terminate the Merger Agreement and accept any such Superior Proposal
subject to the Company's obligation to pay a termination fee as described
in the Merger Agreement;
(xiii) the relationship of the Offer Price to historical market prices
of the Shares and to the Company's book value per Share, and the fact that
the Offer Price of $22.00 per Share represented a
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premium of 6% over the sale price of the Shares on July 29, 1997 (the last
trading day before the confirmation of discussions with CSX, NSC and Mr.
Rich), a premium of approximately 18.9% over the average sale price of the
Shares on July 15, 1997 (one month preceding confirmation of such
discussions), a premium of approximately 31.3% over the average sale price
of the Shares on May 15, 1997 (three months preceding confirmation of such
discussions), and a premium of approximately 137% over the average sale
price of the Shares on February 15, 1997 (six months preceding confirmation
of such discussions);
(xiv) the likelihood that the proposed acquisition would be
consummated, including the experience, reputation and financial condition
of CSX, NSC and Mr. Rich and the risks to the Company if the acquisition
were not consummated; and
(xv) the availability of appraisal rights in the Merger under the
NYBCL.
In view of the wide variety of factors considered in connection with its
evaluation of the Offer and the Merger, the Company Board did not find it
practicable, and did not, quantify or otherwise attempt to assign relative
weights to the factors it considered.
IN LIGHT OF ALL THE FACTORS SET FORTH ABOVE, THE COMPANY BOARD HAS
DETERMINED, WITH MR. RICH NOT PRESENT AND MR. COMMON ABSTAINING, THAT THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE
MERGER, ARE FAIR AND IN THE BEST INTERESTS OF THE HOLDERS OF THE SHARES (OTHER
THAN CSX AND MR. RICH), HAS APPROVED AND ADOPTED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, AND
RECOMMENDS THAT THE HOLDERS OF THE SHARES ACCEPT THE OFFER AND TENDER THEIR
SHARES THEREUNDER.
SIX OF THE EIGHT MEMBERS OF THE BOARD WHO VOTED TO APPROVE THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, AND ALL OF THE MEMBERS OF
THE SPECIAL COMMITTEE, WERE NOT EMPLOYEES OF THE COMPANY OR ITS SUBSIDIARIES.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The Company retained Smith Barney as its financial advisor in connection
with the Offer and the Merger. Pursuant to the terms of Smith Barney's
engagement, the Company has agreed to pay Smith Barney for its services in
connection with the Offer and the Merger an aggregate financial advisory fee
equal to 1.2% of the total consideration (including liabilities assumed),
payable in connection with the Offer and the Merger, but not less than $650,000.
The Company currently estimates that the Smith Barney fee will be approximately
$875,000. The Company has also agreed to reimburse Smith Barney for travel and
other out-of-pocket expenses, including reasonable legal fees and expenses, and
to indemnify Smith Barney and certain related parties against certain
liabilities, including liabilities under the federal securities laws, arising
out of Smith Barney's engagement. In the ordinary course of business, Smith
Barney and its affiliates may actively trade or hold the securities of the
Company, CSX and NSC for their own account or for the account of customers and,
accordingly, may at any time hold a long or short position in such securities.
The Company has a Consulting Agreement with McKenna Management Corp.
("McKenna") with respect to The Company's operations and profit improvement.
Pursuant to the terms of that agreement, if a sale of 40% or more of the Shares
or the Company's assets is consummated, McKenna is entitled to receive a
commission of 1% of the gross sale price applicable to the Company's
shareholders. The Company currently estimates that the McKenna commission will
be approximately $550,000.
Neither the Company nor any person acting on its behalf has or currently
intends to employ, retain or compensate any person to make solicitations or
recommendations to the shareholders of the Company on its behalf with respect to
the Offer, except that such solicitations or recommendations may be made by
directors, officers or employees of the Company, for which services no
additional compensation will be paid.
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3. OPINION OF FINANCIAL ADVISOR TO THE COMPANY.
Smith Barney was retained by the Company to act as its financial advisor in
connection with the proposed Offer and the Merger. In connection with such
engagement, the Company requested that Smith Barney evaluate the fairness, from
a financial point of view, to the holders of Shares (other than CSX, NSC, Mr.
Rich and their respective affiliates) of the consideration to be received by
such holders in the Offer and the Merger. On August 17, 1997, at a meeting of
the Company Board held to evaluate the proposed Offer and the Merger, Smith
Barney delivered to the Company Board an oral opinion (subsequently confirmed by
delivery of a written opinion dated August 17, 1997, the date of execution of
the Merger Agreement) to the effect that, as of the date of such opinion and
based upon and subject to certain matters stated therein, the $22.00 per Share
cash consideration to be received in the Offer and the Merger by holders of
Shares (other than CSX, NSC, Mr. Rich and their respective affiliates) was fair,
from a financial point of view, to such holders.
In arriving at its opinion, Smith Barney reviewed the Merger Agreement and
held discussions with certain senior officers, directors and other
representatives and advisors of the Company and certain senior officers and
other representatives of CSX, NSC and Mr. Rich concerning the business,
operations and prospects of the Company. Smith Barney examined certain publicly
available business and financial information relating to the Company as well as
certain financial forecasts and other information and data for the Company which
were provided to or otherwise discussed with Smith Barney by the management of
the Company. Smith Barney reviewed the financial terms of the Offer and the
Merger as set forth in the Merger Agreement in relation to, among other things:
current and historical market prices and trading volumes of the Shares; the
historical and projected earnings and other operating data of the Company; and
the capitalization and financial condition of the Company. Smith Barney also
considered, to the extent publicly available, the financial terms of certain
other similar transactions recently effected which Smith Barney considered
relevant in evaluating the Offer and the Merger, and analyzed certain financial,
stock market and other publicly available information relating to the businesses
of other companies whose operations Smith Barney considered relevant in
evaluating those of the Company. In connection with its engagement, Smith Barney
was requested to approach, and held discussions with, third parties to solicit
indications of interest in a possible acquisition of the Company. In addition to
the foregoing, Smith Barney conducted such other analyses and examinations and
considered such other financial, economic and market criteria as Smith Barney
deemed appropriate in arriving at its opinion. Smith Barney noted that its
opinion was necessarily based upon information available, and financial, stock
market and other conditions and circumstances existing and disclosed, to Smith
Barney as of the date of its opinion.
In rendering its opinion, Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Smith Barney. With respect to financial forecasts
and other information and data provided to or otherwise reviewed by or discussed
with Smith Barney, the management
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<PAGE> 16
of the Company advised Smith Barney that such forecasts and other information
and data were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of the Company as to the
future financial performance of the Company. Smith Barney did not make and was
not provided with an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Company, nor did Smith Barney make
any physical inspection of the properties or assets of the Company. Although
Smith Barney evaluated, from a financial point of view, the cash consideration
to be received in the Offer and the Merger by holders of Shares (other than CSX,
NSC, Mr. Rich and their respective affiliates), Smith Barney was not asked to
and did not recommend the specific consideration payable in the Offer and the
Merger, which was determined through negotiation between the Company, CSX, NSC
and Mr. Rich. No other limitations were imposed by the Company on Smith Barney
with respect to the investigations made or procedures followed by Smith Barney
in rendering its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SMITH BARNEY, DATED AUGUST 17,
1997, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN, IS SET FORTH IN ANNEX A HERETO AND IS INCORPORATED
HEREIN BY REFERENCE. HOLDERS OF SHARES ARE URGED TO READ THIS OPINION CAREFULLY
IN ITS ENTIRETY. THE OPINION OF SMITH BARNEY IS DIRECTED TO THE COMPANY BOARD
AND RELATES ONLY TO THE FAIRNESS OF THE CASH CONSIDERATION TO BE RECEIVED IN THE
OFFER AND THE MERGER BY HOLDERS OF SHARES (OTHER THAN CSX, NSC, MR. RICH AND
THEIR RESPECTIVE AFFILIATES) FROM A FINANCIAL POINT OF VIEW, DOES NOT ADDRESS
ANY OTHER ASPECT OF THE OFFER OR THE MERGER OR RELATED TRANSACTIONS, AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO WHETHER SUCH
SHAREHOLDER SHOULD TENDER SHARES IN THE OFFER. THE SUMMARY OF THE OPINION
OF SMITH BARNEY SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF SUCH OPINION.
In preparing its opinion, Smith Barney performed a variety of financial and
comparative analyses, including those described below, and provided the Company
Board and the Special Committee with a written presentation with respect to such
analyses. A copy of Smith Barney's written presentation has been filed as an
exhibit to the Schedule 13E-3 and will be available for inspection and copying
at the principal executive offices of the Company during regular business hours
by any interested shareholder of the Company or representatives of such
shareholder who has been so designated in writing and may be inspected and
copied, and obtained by mail, from the Commission. The summary of such analyses
does not purport to be a complete description of Smith Barney's analyses
underlying Smith Barney's opinion or presentation to the Company Board and the
Special Committee. The preparation of a fairness opinion is a complex analytic
process involving various determinations as to the most appropriate and relevant
methods of financial analyses and the application of those methods to the
particular circumstances, and, therefore, such an opinion is not readily
susceptible to summary description. Accordingly, Smith Barney believes that its
analyses must be considered as a whole, and that selecting portions of its
analyses and factors, without considering all analyses and factors, could create
a misleading or incomplete view of the processes underlying such analyses and
opinion. In its analyses, Smith Barney made numerous assumptions with respect to
the Company, industry performance, general business, economic, market and
financial conditions, and other matters, many of which are beyond the control of
the Company. The estimates contained in such analyses and the valuation ranges
resulting from any particular analysis are not necessarily indicative of actual
values or predictive of future results from any particular analysis are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by such analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty. Smith Barney's
opinion and analyses were only one of many factors considered by the Company
Board and the Special Committee in its evaluation of the Offer and the Merger
and should not be viewed as determinative of the views of the Company Board, the
Special Committee or management of the Company with respect to the proposed
Offer or Merger or the cash consideration to be received in the Offer and the
Merger by holders of Shares.
Selected Company Analysis. Using publicly available information,
Smith Barney analyzed, among other things, the market values and trading
multiples of the Company and the following selected publicly traded companies in
the railroad industry: Emons Transportation Group, Inc.; Providence & Worcester
Railroad Company; RailAmerica, Inc.; and Railtex, Inc. (collectively, the
"Selected Companies"). Smith
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<PAGE> 17
Barney compared market values as multiples of, among other things, estimated
calendar 1997 net income and adjusted market values (equity value, plus total
debt, minority interest and preferred stock, less cash and cash equivalents) as
multiples of, among other things, latest 12 months revenue, earnings before
interest, taxes, depreciation and amortization. All multiples were based on
closing stock prices as of August 15, 1997. Given the Company's lack of net
income and operating income, net income and operating income multiples for the
Selected Companies were not utilized. Applying a range of selected multiples for
the Selected Companies of latest 12 months revenue and EBITDA of 2.0x to 2.4x
and 8.8x to 10.8x, respectively, to corresponding financial data for the Company
resulted in an equity reference range for the Company of approximately $17.27 to
$22.50 per Share, as compared to the cash consideration in the Offer and the
Merger of $22.00 per Share.
Selected Merger and Acquisition Transactions Analysis. Using publicly
available information, Smith Barney analyzed the purchase price and implied
transaction value multiples paid in the following selected transactions in the
railroad industry (acquiror/target): NSC and CSX/Conrail Inc.; Union Pacific
Corporation/Southern Pacific Rail Corporation; Union Pacific Corporation/Chicago
and North Western Transportation Company; Burlington Northern Inc./Santa Fe
Pacific Corporation (Rail Operations); Fieldcrest Cannon, Inc./Amoskeag Company;
Kansas City Southern Industries, Inc./MidSouth Corporation; Wisconsin
Central/Fox River Valley Railroad; CSX/RF&P Corporation (Railroad Operations);
Canadian Pacific Limited/Soo Line Corporation; CNW Acquisition Co./CNW Railway;
and The Prospect Group, Inc./Illinois Central Transportation Company
(collectively, the "Selected Transactions"). Smith Barney compared purchase
prices as multiples of, among other things, forward net income and transaction
values as multiples of, among other things, latest 12 months revenue, EBITDA and
operating income. All multiples for the Selected Transactions were based on
information available at the time of announcement of the transaction. Given the
Company's lack of net income and operating income, net income and operating
income multiples for the Selected Transactions were not utilized. Applying a
range of selected multiples for the Selected Transactions of latest 12 months
revenue and EBITDA of 1.9x to 2.3x and 8.6x to 10.5x, respectively, to
corresponding financial data for the Company resulted in an equity reference
range for the Company of approximately $16.35 to $21.37 per Share, as compared
to the cash consideration in the Offer and the Merger of $22.00 per Share.
No company, transaction or business used in the "Selected Company Analysis"
or "Selected Merger and Acquisition Transactions Analysis" as a comparison is
identical to the Company, the Offer or the Merger. Accordingly, an analysis of
the results of the foregoing is not entirely mathematical; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics and other factors that could affect the acquisition,
public trading or other values of the Selected Companies, Selected Transactions
or the business segment, company or transaction to which they are being
compared.
Other Factors and Comparative Analyses. In rendering its opinion, Smith
Barney considered certain other factors and conducted certain other comparative
analyses, including, among other things, a review of (a) indications of interest
received from, and discussions with, third parties other than CSX, NSC and Mr.
Rich; (b) the Company's historical and projected financial results, including,
among other things, the uncertainty of the Company's future revenue base; (c)
the history of trading prices and volume for the Shares, the low and high
trading prices of which were approximately $7.14 per Share and $24.50 per Share,
respectively, over the 52-week period preceding August 15, 1997; and (d) the
implied premiums payable in the Offer over the closing price of the Shares on
July 29, 1997 (the date on which the Company confirmed that it was in merger
discussions), and the one-month, three-month and six-month periods preceding
August 15, 1997, of approximately 6.0%, 18.9%, 31.3% and 137.0%, respectively.
Pursuant to the terms of Smith Barney's engagement, the Company has agreed
to pay Smith Barney for its services in connection with the Offer and the Merger
an aggregate financial advisory fee equal to 1.2% of the total consideration
(including liabilities assumed) payable in connection with the Offer and the
Merger, but not less than $650,000. The fee payable to Smith Barney is currently
estimated to be approximately $875,000. The Company has also agreed to reimburse
Smith Barney for travel and other out-of-pocket expenses incurred by Smith
Barney in performing its services, including the reasonable fees and expenses of
its legal counsel, and to indemnify Smith Barney and related persons against
certain liabilities, including liabilities under the United States federal
securities laws, arising out of Smith Barney's engagement.
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<PAGE> 18
Smith Barney has advised the Company that, in the ordinary course of
business, Smith Barney and its affiliates may actively trade or hold the
securities of the Company, CSX and NSC for their own account or for the account
of customers, and, accordingly, may at any time hold a long or short position in
such securities. In addition, Smith Barney and its affiliates (including
Travelers Group Inc. and its affiliates) may maintain relationships with the
Company, CSX, NSC and their respective affiliates.
Smith Barney is an internationally recognized investment banking firm and
was selected by the Company based on Smith Barney's experience and expertise.
Smith Barney regularly engages in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive bids, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes.
4. POSITION OF PURCHASER, CSX, NSC AND MR. RICH REGARDING FAIRNESS OF THE OFFER
AND THE MERGER.
CSX, NSC, Mr. Rich and Purchaser believe that the Offer Price is fair to
the Company's shareholders. CSX, NSC, Mr. Rich and Purchaser base their belief
on: (a) the fact that the Special Committee, consisting solely of independent
directors, was appointed in connection with the Merger Agreement to represent
the interests of shareholders other than CSX and Mr. Rich, (b) the fact that the
Special Committee was advised by independent financial and legal advisors, (c)
the fact that the Company Board, acting upon the unanimous recommendation of the
Special Committee, and the Special Committee, based on the factors considered by
the Special Committee set forth above, concluded that the Offer and Merger are
fair to and in the best interests of the Company and the Company's shareholders,
(d) the fact that CSX, NSC, Mr. Rich, Purchaser and the Company Board (through
the Special Committee), with their respective financial and legal advisors,
negotiated the terms of the Merger and the Merger Agreement with the Special
Committee on an arm's-length basis over a period of time and (e) the fact that
the consideration to be paid in the Offer and the Merger represents a
significant premium over the historical range of closing prices for the Shares
on The Nasdaq National Market. CSX, NSC, Mr. Rich and Purchaser have reviewed
the factors considered by the Special Committee and the Company Board in support
of its decision described above and had no basis to question its consideration
of or reliance on those factors. CSX, NSC, Mr. Rich or Purchaser did not find it
practicable to, and none of them did, assign relative weights to the individual
factors discussed above in reaching their conclusion as to fairness.
5. PURPOSE AND EFFECTS OF THE OFFER AND THE MERGER; REASONS FOR THE OFFER AND
THE MERGER.
The Offer and the Merger are being made pursuant to the Merger Agreement.
The purpose of the Offer and the Merger is for Purchaser to acquire the entire
equity interest in the Company. In order to facilitate a prompt and orderly
transfer of ownership to Purchaser of the Shares owned by public shareholders,
the transaction has been structured as a cash tender offer followed by a merger
of Buyer with and into the Company in which the remaining equity interest in the
Company not acquired by Purchaser pursuant to the Offer, the contributions of
CSX and Mr. Rich to Purchaser or otherwise will be converted into the right to
receive cash, as provided in the Merger Agreement, and will, thus, be indirectly
acquired by Purchaser.
Through their respective interests in Purchaser, the interests of CSX, NSC
and Mr. Rich in the Company's net book value and net income will increase to the
extent of the number of Shares acquired under the Offer. If the Merger is
consummated, Purchaser's interest in such items will increase to 100% and
Purchaser will be entitled to all benefits resulting from that interest,
including all income generated by the Company's operations and any future
increase in the Company's value. Similarly, Purchaser will also bear the risk of
any decrease in the earnings or value of the Company after the Merger.
Consummation of the Merger is subject to obtaining the approval and
adoption of the Merger and the Merger Agreement by the requisite vote, if
required by the NYBCL. Under the NYBCL and the Merger Agreement, the approval of
the Company Board and the affirmative vote of the holders of 66 2/3% of the
outstanding Shares is required to approve and adopt the Merger and the Merger
Agreement. The Company Board, by the unanimous vote of all directors present
with one abstention, (a) has determined that the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger, are fair
to and in
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the best interest of the Company and the holders of Shares (other than CSX and
Mr. Rich), (b) has approved and adopted the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger, and (c)
recommends acceptance of the Offer, and, if applicable, approval and adoption of
the Merger Agreement and the Merger, by the holders of the Shares. In the Merger
Agreement, the Company has agreed to take all action necessary to convene a
meeting of shareholders as soon as practicable after the consummation of the
Offer for the purpose of considering and taking action on the Merger Agreement
and the transactions contemplated thereby, if required to do so.
Following the Offer, if the Minimum Condition is satisfied and a meeting of
shareholders of the Company is called, Purchaser will own a sufficient number of
Shares to approve and adopt the Merger and the Merger Agreement without
requiring the vote or proxy of any other shareholder. See "SPECIAL FACTORS --
Purpose and Effects of the Offer and the Merger; Reasons for the Offer and the
Merger". In addition, under the NYBCL, if Purchaser acquires (pursuant to the
Offer, the contributions of CSX and Mr. Rich to Purchaser or otherwise) at least
90% of then outstanding Shares, Purchaser will be able to approve and adopt the
Merger and the Merger Agreement without calling a meeting of the Company's
shareholders and without the approval of any shareholders other than the
Purchaser. Therefore, in accordance with the NYBCL, in the event that Purchaser
acquires at least 90% of then outstanding Shares (pursuant to the Offer, the
contributions of CSX and Mr. Rich to Purchaser or otherwise), all necessary and
appropriate action will be taken to cause the Merger to become effective as soon
as reasonably practicable after such acquisition without a meeting of
shareholders. If, however, Purchaser does not acquire at least 90% of then
outstanding Shares pursuant to the Offer or otherwise, and a meeting and the
approval of the Company's shareholders is required under the NYBCL, as described
above, a longer period of time will be required to effect the Merger. Under the
Merger Agreement, even if the Minimum Condition is satisfied, if at any
scheduled expiration date of the Offer all conditions to the Offer shall have
been satisfied but less than a number of Shares that, together with the number
of Shares to be contributed by CSX and Mr. Rich to Purchaser, represents less
than 90% of the outstanding Shares, on a fully-diluted basis, shall have been
tendered into the Offer, Purchaser shall be entitled to extend the Offer from
time to time without the consent of the Company (for not more than 10 business
days) in order to permit Purchaser to solicit additional Shares to be tendered
into the Offer. See "SPECIAL FACTORS -- Purpose and Effects of the Offer and the
Merger; Reasons for the Offer and the Merger".
For shareholders of the Company other than Purchaser and its affiliates,
the Merger will result in a termination of their rights as shareholders. They
will not participate in any earnings or growth of the Surviving Corporation
after the Merger and will not have any right to vote on corporate matters. Such
shareholders also will not face the risk of any decline in the earnings or value
of the Company after the Merger.
On August 15, 1997, the last full trading day prior to the announcement of
the execution of the Merger Agreement and of Purchaser's intention to commence
the Offer, the closing price per Share was $22.00. On August 21, 1997, the last
full trading day prior to commencement of the Offer, the closing price per Share
was $21 9/16. See "THE TENDER OFFER -- Price Range of Shares".
Following consummation of the Offer, the Shares may cease to be listed on
The Nasdaq National Market and registration of the Shares under the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder (the "Exchange Act"), may be terminated. In addition, as a result of
the Offer and the Merger, the Shares may cease to be "margin securities." See
"THE TENDER OFFER -- Effect of the Offer on the Market for the Shares, Exchange
Listing and Exchange Act Registration" for further information concerning the
effect of the de-listing and de-registration of the Shares or of the Shares no
longer being "margin securities".
6. PLANS FOR THE COMPANY AFTER THE OFFER AND THE MERGER.
Pursuant to the Merger Agreement, promptly following consummation of the
Offer, Purchaser intends to effect the Merger in accordance with the terms
thereof. Following the Merger, the board of directors or equivalent body of
Purchaser (the "Purchaser Board"), which will be the parent of the Surviving
Corporation,
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<PAGE> 20
will be composed of seven members, of whom one will be Mr. Rich, four will be
designees of Mr. Rich, one will be a designee of CSX and one will be a designee
of NSC. Accordingly, Mr. Rich and his designees will control a majority of the
Purchaser Board and will control the Company, other than with respect to certain
actions which, under the organizational documents of Purchaser (the "LLC
Agreement"), will require the concurrence of the nominees of CSX and NSC on the
Purchaser Board to be effective. In addition, it is expected that Mr. Rich will
serve as President and Chief Executive Officer of the Surviving Corporation
following the Merger. While the definitive LLC Agreement has not yet been
negotiated, the Term Sheet (as defined herein) that CSX, NCS and Mr. Rich agreed
will be the basis for the LLC Agreement, provides that, prior to the Merger,
CSX, NSC and Mr. Rich will negotiate a mutually acceptable initial business plan
and budget for the management of the Surviving Corporation's business and that
the annual approval of a business plan and budget for the Surviving Corporation,
which business plan and budget will be proposed by Mr. Rich to the Purchaser
Board in the first instance, will require the concurrence of the nominees of CSX
and NSC on the Purchaser Board. CSX, NSC and Mr. Rich have agreed that the
business plans and budgets will be designed with the goals of (a) ensuring
repayment of contributions and (b) maximizing Purchaser's value, which may
include the disposition of assets. Therefore, such business plans and budgets
may include the rationalization of operations, disposition of assets and other
significant transactions that may be advisable in connection with the changing
railroad environment in the northeastern United States.
For more information with respect to the Term Sheet, see "SPECIAL
FACTORS -- The Merger Agreement and Related Agreements." For more information
concerning the changing railroad environment in the northeastern United States,
see "SPECIAL FACTORS -- Background of the Offer and the Merger".
7. RIGHTS OF SHAREHOLDERS IN THE MERGER.
No appraisal rights are available in connection with the Offer. However, if
the Merger is consummated, shareholders may, if certain statutory procedures are
complied with, have certain rights under the NYBCL to dissent and demand
appraisal and to receive payment in cash for the fair value of their Shares.
The following summary of the applicable provisions of Sections 623 and 910
of the NYBCL is not intended to be a complete statement of such provisions and
is qualified in its entirety by reference to the full text of Sections 623 and
910 of the NYBCL, copies of which Sections 623 and 910 of the NYBCL are attached
as Schedule III hereto. A person having a beneficial interest in the Shares that
are held of record in the name of another person, such as a broker or nominee,
must act promptly to cause the record holder to follow the steps summarized
below properly and in a timely manner to perfect whatever appraisal rights the
beneficial owner may have.
Section 910 of the NYBCL sets forth the rights of shareholders of the
Company who object to the adoption of the Merger Agreement. Any record holder of
the Shares as of the record date for voting on the Merger who does not vote in
favor of the adoption of the Merger Agreement, or who duly revokes such holder's
vote in favor of the adoption of the Merger Agreement, may, if the Merger is
consummated, obtain payment, in cash, for the fair market value of such holder's
shares by strictly complying with the requirements of Section 623 of the NYBCL.
THIS SUMMARY AND SCHEDULE III SHOULD BE REVIEWED CAREFULLY BY HOLDERS OF
THE SHARES WHO WISH TO EXERCISE STATUTORY APPRAISAL RIGHTS OR WHO WISH TO
PRESERVE THE RIGHT TO DO SO BECAUSE FAILURE TO STRICTLY COMPLY WITH ANY OF THE
PROCEDURAL REQUIREMENTS OF SECTION 623 OR 910 OF THE NYBCL MAY RESULT IN A
TERMINATION OR WAIVER OF APPRAISAL RIGHTS UNDER SECTION 623 AND 910 OF THE
NYBCL.
A dissenting shareholder of the Company must file with the Company, before
the taking of the vote on the adoption of the Merger Agreement, a written
objection, including a notice of election to dissent, such holder's name and
residence address, the number and class of Shares as to which such holder
dissents (which number may not be less than all of the Shares as to which such
holder has a right to dissent) and a demand for payment of the fair value of
such Shares if the Merger is consummated. Any such written objection should be
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addressed to: Delaware Otsego Corporation, One Railroad Avenue, Cooperstown, New
York 13326, Attention: Secretary.
Should the Purchaser acquire at least 90% of then issued and outstanding
Shares pursuant to the Offer, the Merger may be consummated pursuant to Section
905 of the NYBCL without shareholder approval. In order to elect to dissent in
the event of a merger pursuant to Section 905 of the NYBCL, a shareholder must
file a written notice of such election to dissent within 20 days after having
received a copy of the plan of merger or an outline of the material features
thereof.
For purposes of perfecting appraisal rights pursuant to Section 623 of the
NYBCL, the written objection of a holder of Shares which is addressed as
provided above shall be deemed filed with the Company upon receipt of such
objection by the Company. Neither voting against nor failure to vote for the
Merger Agreement will constitute the written objection required to be filed by
an objecting shareholder. Failure to vote against the Merger Agreement, however,
will not constitute a waiver of rights under Sections 623 and 910 of the NYBCL,
provided that a written objection has been properly filed. A shareholder voting
to adopt the Merger Agreement will be deemed to have waived such shareholder's
appraisal rights.
A shareholder of the Company may not dissent as to less than all the Shares
entitled to vote and held of record that such holder beneficially owns. A
nominee or fiduciary may not dissent on behalf of any beneficial owner as to
less than all the Shares of such beneficial owner, as to which such nominee or
fiduciary has a right to dissent, held of record by such nominee or fiduciary.
Furthermore, if the Shares are owned of record in a fiduciary capacity, such as
by a trustee, guardian or custodian, the demand must be made in that capacity,
and, if the Shares are owned of record by more than one person, as in a joint
tenancy or tenancy in common, the demand must be made by or for all owners of
record. An authorized agent, including one of two or more joint owners, may
execute the demand for appraisal for a holder of record; however, such agent
must identify the record owner or owners and expressly state in such demand that
the agent is acting as agent for the record owner or owners of such Shares. A
record holder, such as a broker or an agent, who holds Shares as a nominee for
beneficial owners, some of whom desire to demand appraisal, must exercise
appraisal rights on behalf of such beneficial owners who desire to demand
appraisal with respect to the Shares entitled to vote and held for such
beneficial owners.
Within 10 days after the vote of the Company shareholders authorizing the
adoption of the Merger Agreement, the Company must give written notice of such
authorization to each dissenting shareholder of the Company. At the time of
filing the notice of election to dissent or within one month thereafter, the
dissenting shareholder must submit certificates representing such holder's
Shares (the "Share Certificates") to the Company or their respective transfer
agents for notation thereon of the election to dissent, after which such Share
Certificates will be returned to the shareholder. Any such shareholder who fails
to submit such holder's Share Certificates for notation will, at the option of
the Company, exercised by written notice to the shareholder within 45 days from
the date of filing of the notice of election to dissent, lose such holder's
appraisal rights unless a court, for good cause shown, otherwise directs.
Within 15 days after the expiration of the period within which shareholders
may file their notices of election to dissent or within 15 days after the
Effective Time, whichever is later (but not later than 90 days after the
shareholders' vote authorizing the adoption of the Merger Agreement), the
Company must make a written offer (which, if the Merger has not been
consummated, may be conditioned upon such consummation) to each shareholder who
has filed such notice of election to dissent to pay for such holder's Shares at
a specified price which the Company considers to be their fair value. If the
Company and the dissenting shareholder are unable to agree as to such value,
Section 623(h) of the NYBCL provides for judicial determination of fair value.
In the event of such a disagreement, a court proceeding shall be commenced by
the Company in the Supreme Court of the State of New York, or by the dissenting
shareholder if the Company fails to commence the proceeding within the time
required by Section 623 of the NYBCL. The Company intends to commence such a
proceeding in the event of such a disagreement.
9
<PAGE> 22
8. INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE MERGER.
In considering the recommendations of the Company Board and the Special
Committee with respect to the Offer and the Merger and the fairness of the
consideration to be paid under the Offer and in the Merger, shareholders of the
Company should be aware that certain officers and directors of the Company have
interests in the Offer and the Merger, including those referred to below, that
present them with potential conflicts of interest. The Special Committee and the
Company Board were aware of these potential conflicts prior to the approval and
execution of the Merger Agreement.
The following are the material contracts, agreements, arrangements or
understandings, and actual or potential conflicts of interest, between the
Company or its affiliates and (i) certain of the Company's executive officers,
directors or affiliates or (ii) CSX, NSC, Mr. Rich and Purchaser and their
respective executive officers, directors or affiliates.
Employment Agreements and Change in Control Agreements
The Company is party to an employment agreement with Mr. Rich dated June 3,
1995, as amended July 14, 1997 (the "Rich Agreement"). Under the Rich Agreement,
the Company employs Mr. Rich as its President and Chief Executive Officer for a
term of five years ending June 3, 2000 at a minimum annual compensation of
$187,000 (which was reduced with the consent of Mr. Rich in 1996 to $176,906)
and which may be increased during the term of the Rich Agreement at the
discretion of the Board of Directors of the Company (the "Company Board"). Under
the terms of the Rich Agreement, Mr. Rich is also entitled to insurance coverage
under the Company's group life and health insurance plans. The Rich Agreement
may be terminated prior to its expiration at the election of Mr. Rich or the
Company (such election must be evidenced by written notice), if the Company
experiences a Change of Control (as defined below). Upon the giving of such
termination notice (regardless of which party gives such notice), the Company
must pay Mr. Rich, subject to possible adjustments for income tax effects, 2.99
times the highest annual cash compensation (consisting solely of salary and
bonus) paid to Mr. Rich during any calendar year in each of the three calendar
years immediately prior to the Change of Control, and continue to provide to him
for a period of 2.99 years after such termination certain benefits provided to
him prior to his termination. "Change of Control" is defined, under the terms of
the Rich Agreement, as (i) any change of control required to be reported to the
Commission in a Form 8-K Report, unless less than 40% of the Company's
outstanding voting securities are acquired, or (ii) the sale of all or
substantially all of the Company's assets. The Rich Agreement has been filed as
part of Exhibit (c)(2) to this Schedule 14D-9 and is hereby incorporated herein
by reference. The Offer and Merger would constitute a Change of Control for
purposes of the Rich Agreement. However, Mr. Rich has advised the Company that
he does not expect to give or receive such termination notice, consistent with
the arrangements regarding his continuing employment with the Surviving
Corporation following the Merger. See " -- Interests of Certain Persons in the
Merger."
Pursuant to the terms of the Company's 1987 and 1993 Option Plans, the
Company may grant Options to its executive officers and other employees, and as
of the date of the filing of this Schedule 14D-9, Options to purchase an
aggregate of 164,049 Shares have been granted. Under the terms of the Merger
Agreement, at the Effective Time each Option, whether or not exercisable, other
than Options held in the treasury of the Company or owned by Purchaser, shall be
canceled and the holder thereof shall be entitled to receive cash in an amount
equal to the difference between the Offer Price and the per share exercise price
thereof, multiplied by the number of Shares subject to such Option. All Options
currently held by the Company directors and executive officers of the Company
are fully exercisable.
Albert B. Aftoora ("Aftoora"), a the Company director whose term expires in
1999, is employed by CSX Transportation, Inc., a subsidiary of CSX, as Vice
President-Corridor Development. On May 9, 1997, Aftoora requested and was
granted a leave of absence from the Company Board due to his assignment by CSX
to a team of executives addressing issues related to the impact of the Conrail
acquisition by CSX and NSC on other carriers, including the Company.
Accordingly, Aftoora did not serve on the Company Board or otherwise participate
in the discussions or determinations made with respect to the Offer and the
Merger.
10
<PAGE> 23
The Company owns 40% of the outstanding shares of, and provides
administrative services to, The Toledo, Peoria and Western Railway Corporation
("TP&W"). Other shareholders representing 40% of the outstanding shares of TP&W,
including Charles S. Brenner, a director of the Company, are, upon a change in
control of the Company, contractually entitled to (i) require the Company to
purchase those shareholders' shares of TP&W at a price determined through
negotiation, subject to certain agreed upon limitations; and (ii) if the parties
fail to agree upon a price within such limitations or the Company fails to
acquire such shares of TP&W, then to cause the sale of all or a portion of the
stock or assets of TP&W in one or a series of transactions for consideration at
least sufficient to repay the TP&W's commercial debt, and shall be entitled to
priority for return of their equity investment as to any remaining proceeds of
such sale or sale(s). These described contractual rights may also, regardless of
a change in control of the Company, be exercised at any time between November 2
and December 31 in the years 1999, 2000, 2001 and 2002. The Offer and the Merger
would constitute a change in control for purposes of such arrangements.
On January 31, 1996, the Company completed the purchase of a 40% interest
in TP&W. That purchase was made in connection with a restructuring of TP&W's
outstanding debt. CSX was then a creditor of TP&W, with a claim asserted against
TP&W for $5,200,000. In exchange for releasing its claim, CSX received a
$1,000,000 interest-bearing promissory note from the Company, 100,000 Shares and
20% of the outstanding common shares of TP&W. CSX has certain governance rights
with respect to TP&W, including the right to participation on its board of
directors and the right to approve certain major decisions.
The Company's subsidiary, The New York, Susquehanna and Western Railway
Corporation ("NYS&W"), operates over approximately 180 miles of tracks owned by
Consolidated Rail Corporation ("Conrail") pursuant to a Trackage Rights
Agreement, which agreement contains provisions which might be construed as
allowing Conrail at its option to terminate the agreement upon a change in
control of NYS&W and/or the Company.
It is anticipated that at least one of the Company's executive officers
(Mr. Rich) will enter into an employment agreement with Purchaser. Although this
employment agreement has not yet been finalized, the Term Sheet provides that,
it will be for a term of three years, renewable automatically for successive
one-year terms unless Purchaser gives written termination notice to Mr. Rich.
Under the terms of the proposed employment agreement, Mr. Rich will be Chairman
and CEO of the Surviving Corporation. Mr. Rich's salary and benefits are
anticipated to remain at current levels. The Term Sheet has been filed as
Exhibit (c)(7) to this Schedule 14D-9. Purchaser anticipates creating a
Management Incentive Bonus Program, which will provide cash bonuses to operating
management upon achievement of certain financial targets.
Mr. Rich and the other ongoing the Company management (which persons are to
be determined by Mr. Rich) will receive commissions on certain asset
dispositions, payable in cash at the rate of 7% of the gross consideration
received by Purchaser. A more detailed description of such commissions can be
found in the Offer to Purchase under the caption "Special Factors -- 9. The
Merger Agreement and Related Agreements -- Certain Dispositions," which
description is hereby incorporated herein by reference.
Indemnification
The Restated Certificate of Incorporation of the Company (the "Certificate
of Incorporation") provides that the Company director shall be personally liable
to the Company or its shareholders for damages for any breach of duty in such
capacity unless a judgment establishes that such director's acts or omissions
were in bad faith or involved intentional misconduct or a knowing violation of
law, that such director personally gained a financial profit or other advantage
to which such director was not legally entitled, or that such director's acts
caused him to be liable to the Company under Section 719 of the NYBCL. The
Certificate of Incorporation has been filed as Exhibit (c)(4) to this Schedule
14D-9 and is hereby incorporated herein by reference. In addition, Article XI of
the Bylaws of the Company (the "Bylaws") provide in pertinent part that the
Company shall indemnify (i) any person made a party to an action or proceeding
by or in the right of the Company to procure a judgment in its favor, by reason
of the fact that he, his testator or intestate, is or was a director, officer or
employee of the Company, against the reasonable expenses actually and
necessarily incurred by him in connection with the defense of such action and/or
with an appeal therein, and (ii) any person made or threatened to be made a
party to any action or proceeding, other than one by or in the right of
11
<PAGE> 24
the Company, which any director, officer or employee of the Company service in
any capacity at the request of the Company by reason of the fact that he, his
testator or intestate, is or was a director, officer or employee of the Company,
or served such other corporation in any capacity, against judgment, fines,
amounts paid in settlement and reasonable expenses actually and necessarily
incurred as a result of such action. The Bylaws incorporate the restrictions on
indemnification to or on behalf of a director or officer set forth in Section
721 of the NYBCL. A copy of the Bylaws has been filed as Exhibit (c)(5) to this
Schedule 14D-9 and is hereby incorporated by reference.
Pursuant to the Merger Agreement, all rights to indemnification and
exculpation from liabilities for acts or omissions occurring at or prior to the
Effective Time existing in favor or the current or former directors or officers
of the Company (and its subsidiaries) will be assumed by the Surviving
Corporation and the Surviving Corporation will, for a period of one year after
the Effective Time, maintain the current policies of directors' and officers'
liability insurance maintained by the Company (or comparable policies with terms
not less advantageous to such directors and officers), but is not required to
expend more than 150% of the current annualized payments paid by the Company for
such insurance.
BENEFICIAL OWNERSHIP OF COMMON STOCK. The following table sets forth
certain information, as of August 20, 1997, regarding the ownership of the
Shares by each person known by the Company to be the beneficial owner of more
than 5% of the outstanding Shares, each director of the Company, the Chief
Executive Officer of the Company, the four most highly compensated officers of
the Company and all executive officers and directors of the Company as a group.
All such persons, other than CSX and Mr. Rich (to the extent of Mr. Rich's
contribution to Purchaser), whose Shares or Options will be contributed to
Purchaser and canceled in the Merger, may receive cash in the Offer or the
Merger as shareholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY APPROXIMATE
NAME OWNED(1) PERCENT OWNED
---------------------------------------------- ------------------- -------------
<S> <C> <C>
Albert B. Aftoora............................. 1,846 *
Charles S. Brenner............................ 78,486(2) 4.1%
David B. Common............................... 50,702 2.7%
Niles F. Curtis............................... 5,741(3) *
Gordon R. Fuller.............................. 26,492(4) 1.4%
Paul Garber................................... 0 *
Everett A. Gilmour............................ 26,865 1.4%
Gerald D. Groff............................... 3,932 *
Richard J. Hensel............................. 8,930(5) *
Malcolm C. Hughes............................. 33,458(6) 1.8%
Robert L. Marcalus............................ 34,312 1.8%
Richard T. Nasti.............................. 1,736 *
Harvey J. Polly............................... 6,511 *
Walter G. Rich................................ 274,465(7) 14.5%
C. David Soule................................ 11,808(8) *
Richard A. White.............................. 22,274 1.2%
CSXT.......................................... 110,250 5.8%
All executive officers and directors as a
group (25 individuals)...................... 622,212(9) 32.8%
</TABLE>
- ---------------
* Less than 1%
(1) Includes the following number of Shares issuable to the following
individuals upon exercise of Options granted under the Company's Option
plans: 1,914 Shares to Messrs. Curtis, Gilmour, Hughes, Marcalus, Polly and
White; 1,736 Shares to Messrs. Aftoora, Brenner, Common, Groff and Nasti;
8,698 Shares to Mr. Rich; and 11,506 Shares to Mr. Soule. Also includes the
following number of Shares issuable to the following individuals upon
conversion of the Company's 6.5% convertible subordinated notes due
September 1, 2003 (the "Convertible Notes"): Messrs. Brenner (54,562
Shares), Common (19,841
12
<PAGE> 25
Shares), Gilmour (2,976 Shares), Groff (992 Shares), Hughes (2,976 Shares),
Marcalus (4,960 Shares), Rich (9,920 Shares) and White (992 Shares).
13
<PAGE> 26
(2) Includes 10,387 Shares held by Mr. Brenner as custodian of minor children,
and 1,274 Shares held by Mr. Brenner's wife.
(3) Excludes 132 Shares held by Mr. Curtis' son, as to which Shares Mr. Curtis
disclaims beneficial ownership.
(4) Includes 1,433 Shares issuable upon exercise of Options.
(5) Includes 6,830 Shares issuable upon exercise of Options.
(6) Excludes 1,071 Shares held by Mr. Hughes' daughter, as to which Shares Mr.
Hughes disclaims beneficial ownership.
(7) Includes 8,698 Shares issuable upon exercise of Options and 9,920 Shares
issuable upon conversion of Convertible Notes.
(8) Includes 11,506 Shares issuable upon exercise of Options.
(9) Includes 78,901 Shares issuable upon exercise of Options and 97,219 Shares
issuable upon conversion of the Convertible Notes.
[DOCP/CLM to supply other interests of directors and officers, including
change of control and severance payments.]
Mr. Rich may be deemed to have an interest in the Offer and the Merger by
virtue of his ownership of Shares, as described above, as well as by virtue of
arrangements with respect to his membership interest in Purchaser, governance
rights with respect to Purchaser and continued employment with the Company
following the Merger. For a description of such arrangements, see "SPECIAL
FACTORS -- The Merger Agreement and Related Agreements".
Mr. Rich and members of the ongoing management of the Surviving Corporation
which he may designate may also have an interest in commissions to be paid by
the Surviving Corporation to such management in respect of certain asset
dispositions. See "SPECIAL FACTORS -- The Merger Agreement and Related
Agreements".
CSX may be deemed to have an interest as a result of its ownership of TP&W
Shares. See "THE TENDER OFFER -- Certain Information Concerning Purchaser, CSX,
NSC and Mr. Rich".
9. THE MERGER AGREEMENT AND RELATED AGREEMENTS.
The following is a summary of the material terms of the Merger Agreement, a
copy of which is filed as an exhibit to the Tender Offer Statement on Schedule
14D-1 filed by CSX, NSC, Mr. Rich and Purchaser pursuant to Rule 14d-3 of the
Exchange Act and the Transaction Statement on Schedule 13E-3 filed by Purchaser,
CSX, NSC and Mr. Rich pursuant to Rule 13e-3 of the Exchange Act with the
Commission in connection with the Offer (together with any amendments,
supplements, schedules, annexes and exhibits thereto, the "Schedule 14D-1" and
the "Schedule 13E-3", respectively). Such summary is qualified in its entirety
by reference to the Merger Agreement, which is filed as Exhibit (c)(1) to the
Offer.
The Offer. The Merger Agreement provides for the commencement of the Offer
as promptly as reasonably practicable after the execution of the Merger
Agreement, but in no event later than five business days following the public
announcement of the terms of the Merger Agreement. The Merger Agreement further
provides that Purchaser shall not be required to accept for payment or pay for
any Shares tendered pursuant to the Offer if the Shares tendered pursuant to the
Offer and not withdrawn, together with the Shares owned by Purchaser or any
subsidiary of Purchaser or to be contributed to Purchaser pursuant to binding
agreements (which Purchaser, in its sole discretion, believes will be
performed), do not satisfy the Minimum Condition, and if certain other
conditions that are described in "THE TENDER OFFER -- Certain Conditions of the
Offer" are not satisfied. The parties to the Merger Agreement have agreed that,
without the consent of the Company, no change in the terms or conditions of the
Offer may be made which is adverse to
14
<PAGE> 27
the holders of Shares, decreases the Offer Price or the number of Shares sought
in the Offer or imposes conditions to the Offer other than those described in
"THE TENDER OFFER -- Certain Conditions of the Offer". If on any scheduled
Expiration Date all conditions to the Offer shall have been satisfied, but less
than a number of Shares that, together with the number of Shares to be
contributed by CSX and Mr. Rich to Purchaser, represents less than 90% of the
outstanding Shares, on a fully diluted basis, shall have been tendered into the
Offer, Purchaser may extend the Offer from time to time without the consent of
the Company (for not more than 10 business days) in order to permit Purchaser to
solicit additional Shares to be tendered into the Offer. In addition, if on any
scheduled expiration date of the Offer all conditions to the Offer shall not
have been satisfied or waived, the Offer may, but need not, be extended by the
Purchaser from time to time without the consent of the Company for such period
of time as is reasonably expected by Purchaser to be necessary to satisfy the
unsatisfied conditions.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions set forth in the Merger Agreement, and in accordance with the
NYBCL, at the Effective Time, Buyer will be merged with and into the Company.
The Merger Agreement provides that the Merger will become effective when a
certificate of merger is filed with the Secretary of State of the State of New
York or at such later time, such time not to exceed 30 days from the date of
such filing, as specified in such certificate of merger (the "Effective Time").
As a result of the Merger, the separate corporate existence of Buyer will cease,
and the Company will continue as the Surviving Corporation. At the election of
Purchaser, any direct or indirect wholly owned subsidiary of Purchaser may be
substituted for Buyer as a constituent party of the Merger. In such event, the
parties to the Merger Agreement have agreed to execute an appropriate amendment
to the Merger Agreement to reflect such substitution.
Purchaser or the Depositary shall be entitled to deduct and withhold from
the consideration otherwise payable pursuant to the Merger Agreement to any
holder of Shares such amounts that Purchaser or the Depositary is required to
deduct and withhold with respect to the making of such payment under the United
States Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the "Code"), or any provision of United States state or
local, or foreign tax law.
Pursuant to the Merger Agreement, each Share issued and outstanding
immediately prior to the Effective Time (other than Shares held by the Company,
its subsidiary or by Purchaser or its subsidiary, which will be canceled and
extinguished without consideration, or Shares as to which appraisal rights are
exercised) shall be converted into the right to receive an amount in cash equal
to the Offer Price, without interest. In addition, each share of common stock of
Buyer issued and outstanding immediately prior to the Effective Time shall be
converted into and become one share of a class of capital stock of the Surviving
Corporation with the same rights, powers and privileges as the share of capital
stock so converted, and shall constitute the only outstanding shares of capital
stock of the Surviving Corporation. Each Share or Option held by the Company or
its subsidiary or by Purchaser or its subsidiary, including each Share or Option
to be contributed to Purchaser by CSX and Mr. Rich, will be cancelled and
extinguished without consideration. Notwithstanding any other provision of the
Merger Agreement to the contrary, Shares outstanding immediately prior to the
Effective Time and held by shareholders who shall have not voted in favor of the
Merger or consented thereto in writing and who shall be entitled to and shall
have demanded properly in writing payment for such Shares in accordance with
Sections 910 and 623 of the NYBCL and who shall not have withdrawn such demand
or otherwise have forfeited appraisal rights shall not be converted into or
represent the right to receive cash pursuant to the Merger Agreement.
The Merger Agreement provides that the directors of Buyer at the Effective
Time will be the directors of the Surviving Corporation and that the officers of
the Company at the Effective Time will be the officers of the Surviving
Corporation, in each case, until successors are duly elected or appointed and
qualified in accordance with applicable law. The Merger Agreement also provides
that the certificate of incorporation of Buyer in effect at the Effective Time
will be the certificate of incorporation of the Surviving Corporation, and that
the bylaws of Buyer will be the bylaws of the Surviving Corporation, in each
case, until amended in accordance with applicable law.
12
<PAGE> 28
At the Effective Time, each holder of an Option, whether or not then
exercisable, other than those to be canceled as provided above, shall become
entitled to receive in full consideration therefor from the Surviving
Corporation, for each such Option, cash in an amount equal to the product of (a)
the difference between the Offer Price and the per Share exercise price thereof
and (b) the number of Shares subject to such Option.
Upon consummation of the Merger, warrants (the "Warrants) to purchase
66,150 Shares, pursuant to the Warrant Agreement, dated as of January 31, 1996,
by and between the Company and Creditanstalt Corporate Finance, Inc., and the
Convertible Notes shall cease to represent any right to purchase or otherwise
obtain any capital stock of the Company or the Surviving Corporation, and all
rights of the holders of such Warrants and Convertible Notes to purchase or
otherwise obtain any capital stock of the Company shall, pursuant to the terms
of such instruments, solely represent the right, upon proper exercise or
conversion of such instruments, to obtain an amount in cash equal to the product
of the Offer Price and the number of Shares for or into which such Warrants or
Convertible Notes were exercisable or convertible immediately prior to the
Effective Time.
Conduct of Business Prior to Consummation of the Merger. The Merger
Agreement provides that the Company shall, if required by applicable law in
order to consummate the Merger, as promptly as practicable following
consummation of the Offer, duly call, give notice of, convene and hold a meeting
of shareholders to consider approval and adoption of the Merger and the Merger
Agreement. At such a meeting, each of Purchaser, CSX, NSC and Mr. Rich shall
vote all Shares then owned by such person in favor of approving the Merger
Agreement and the transactions contemplated thereby. Notwithstanding the
foregoing, in the event that at any time Purchaser acquires at least 90% of the
outstanding Shares, Purchaser and the Company have agreed to take all necessary
and appropriate action to cause the Merger to become effective, in accordance
with Section 905 of the NYBCL, as promptly as practicable after expiration of
the Offer and the satisfaction or waiver of the conditions set forth in Article
VII of the Merger Agreement without a meeting of shareholders.
The Merger Agreement provides that the Company shall, if required by
applicable law in connection with the Merger, as promptly as practicable after
consummation of the Offer, prepare and file with the Commission a proxy or
information statement relating to the meeting of shareholders, under the
Exchange Act (together with any supplements and amendments thereto, the "Proxy
Statement"), and shall use its reasonable best efforts to have such Proxy
Statement cleared by the Commission. Purchaser, CSX, NSC and Mr. Rich shall
furnish to the Company all information concerning such party as the Company may
reasonably request in connection with the preparation of the Proxy Statement.
The Company is required to include in the Proxy Statement the determination and
recommendation of the Company Board to the effect that the Company Board, having
determined that the Merger Agreement and the transactions contemplated therein,
including the Offer and the Merger, are fair to and in the best interests of the
Company and the holders of Shares (other than CSX and Mr. Rich), has approved
and adopted the Merger Agreement and the transactions contemplated hereby, and,
unless otherwise required due to the applicable fiduciary duties of the Company
Board as determined by the members thereof in good faith based on the advice of
outside counsel, recommends that such holders vote in favor of the approval and
adoption of the Merger Agreement and the Merger.
Pursuant to the Merger Agreement, the Company has agreed that, among other
things and subject to certain exceptions, between the date of the Merger
Agreement and the Effective Time, other than with Purchaser's prior written
consent, the Company and its subsidiaries shall not, voluntarily or
involuntarily, (a) take any action, regulatory or otherwise, inconsistent with
facilitating the transactions contemplated by the Merger Agreement or (b) take
any of the following actions: (i) conduct its business in any manner other than
in the ordinary course of business and in a manner consistent with past practice
and in compliance in all material respects with all applicable laws and
regulations, and, to the extent consistent therewith, shall not fail to use all
reasonable efforts to preserve intact their current business organizations, use
reasonable efforts to keep available the services of their current officers and
other key employees as a group and preserve their relationships with those
persons having business dealings with them to the end that their goodwill and
ongoing businesses shall be unimpaired at the Effective Time; (ii) adopt,
propose or agree to any amendment of its articles of incorporation, bylaws or
other comparable organizational documents; (iii) issue, deliver, sell, pledge
13
<PAGE> 29
or otherwise encumber (A) any Shares or shares of capital stock of any of its
subsidiaries, or, subject to certain exceptions, any rights, options or warrants
to acquire any such shares or (B) any material assets or properties; (iv) other
than dividends and distributions by a direct or indirect wholly owned subsidiary
of the Company to its parent, (A) declare, set aside, make or pay any dividend
or other distribution, payable in cash, stock, property or otherwise, in respect
of any capital stock, (B) subdivide, reclassify, recapitalize, split, combine or
exchange any shares of the Company or any of its subsidiaries, (C) issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares of capital stock of the Company or any of its
subsidiaries, or (D) purchase, redeem or otherwise acquire any capital stock of
the Company or any of its subsidiaries or any securities thereof, or any rights,
warrants or options to acquire any such shares or securities; (v) incur any
indebtedness for borrowed money or guarantee any such indebtedness of another
person, issue or sell any debt securities or warrants or other rights to acquire
any debt securities of the Company or its subsidiary, guarantee any debt
securities of another person, enter into any "keep well" or other agreement to
maintain any financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing, except for
short-term borrowings incurred in the ordinary course of business consistent
with past practice and pursuant to existing agreements, or make any loans,
advances or capital contributions to, or investments in, any other person, other
than to the Company or one of its subsidiaries; (vi) except for expenditures
made under the Company's capital budget, make or agree to make any new capital
expenditure or new capital expenditures which individually is in excess of
$50,000 or in the aggregate is in excess of $100,000; (vii) increase the
compensation payable or to become payable to its executive officers, employees
or consultants or grant any bonus, incentive, severance or termination pay to,
or enter into any commission, bonus, incentive, employment or severance
agreement with, any director, executive officer or consultant of it or any of
its subsidiaries, or establish, adopt, enter into or amend in any material
respect or take action to accelerate any rights or benefits under any collective
bargaining agreement or any Company employee benefit plan, agreement or policy;
(viii) enter into, modify, amend or terminate any material contract or agreement
involving the assets or properties of the Company or to which the Company or any
of its subsidiaries is a party or waive, release or assign any material rights
or claims thereunder; (ix) make any change to its accounting methods, principles
or practices, except as may be required by general accounting principles or take
any other action, other than reasonable and usual actions in the ordinary course
of business and consistent with past practice, with respect to accounting
policies or procedures (including tax accounting policies and procedures); (x)
make any material tax election or settle or compromise any material income tax
liability; (xi) acquire by merger or consolidation, or by purchase of assets, or
by any other manner, any business; (xii) mortgage or otherwise encumber or
subject to lien any of its properties or assets; (xiii) pay, discharge, settle
or satisfy any material claims, liabilities or obligations (whether absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge, settlement or satisfaction of such claims, liabilities or
obligations in the ordinary course of business consistent with past practice or
in accordance with their terms; (xiv) (A) enter into any agreement containing
any provision or covenant limiting in any material respect the ability to
compete with any person which would bind any party to the Merger Agreement (or
its operations) after the Effective Time or (B) except to the extent required by
any existing disclosed contract or agreement, acquire any interest in any
railroad line or terminal facility or dispose of any interest in any railroad
line or terminal facility owned, used or operated by the Company or its
subsidiary (including through a grant of concessions or trackage rights); or
(xv) authorize or commit or agree to take any of the foregoing actions.
Other Covenants. Under the Merger Agreement, the Company is obligated,
until the Effective Time, to allow the officers, employees and agents of each of
the other parties to the Merger Agreement and its respective subsidiaries (the
"Respective Representatives") reasonable access at all reasonable times to its
officers, employees, agents, properties, offices, plants and other facilities,
books and records, and shall furnish to such Respective Representatives all
financial, operating and other data and information as may be reasonably
required. All such information obtained is subject to certain confidentiality
arrangements set forth in the Merger Agreement.
Further Action; Best Efforts. Under the Merger Agreement, each of the
parties to the Merger Agreement has agreed to (i) make promptly its respective
filings, and thereafter make any other required submissions, under any
applicable laws with respect to the transactions contemplated thereby and not
make
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any filing or submission, and the Company may not take any position, in
connection with regulatory authorities (in respect of the transactions
contemplated hereby or otherwise) without the consent of Mr. Rich, CSX and NSC
and (ii) use its best efforts to take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations or otherwise to consummate and
make effective the transactions contemplated thereby. In connection with, and
without limiting the foregoing, each of the parties to the Merger Agreement has
agreed to take all actions necessary to ensure that no state anti-takeover
statute or similar statute or regulation is or becomes operative with respect to
the Merger Agreement, the Offer, the Merger or any other transaction
contemplated by the Merger Agreement and (ii) if any state anti-takeover statute
or similar statute or regulation is or becomes operative with respect to the
Merger Agreement, the Offer, the Merger or any other transaction contemplated by
the Merger Agreement, take all actions necessary to ensure that the Merger
Agreement, the Offer, the Merger and any other transactions contemplated by the
Merger Agreement may be consummated as promptly as practicable on the terms
contemplated by the Merger Agreement and otherwise to minimize the effect of
such statute or regulation on the Merger, the Offer and the other transactions
contemplated by the Merger Agreement.
Publicity. Pursuant to the Merger Agreement, CSX, NSC, Mr. Rich and the
Company have agreed to consult with one another before issuing any press release
or otherwise making any public statements with respect to the Merger Agreement
or the transactions contemplated thereby. CSX, NSC, Mr. Rich and the Company
have further agreed not to issue any such press release or public statement
without the prior consent of the other parties, except as may be required by law
or any listing agreement with a national securities exchange by which such party
is bound, if such party has used reasonable efforts to consult with the other
parties and to obtain such parties' consent but has been unable to do so in a
timely manner.
No Solicitation. In the Merger Agreement, the Company has agreed that it
will not, nor will it permit any subsidiary of the Company, or its or any such
subsidiary's officers, directors, employees, agents or representatives
(including, without limitation, any investment banker, attorney or accountant)
to initiate, solicit or encourage, directly or indirectly, any inquiries or the
making of any proposal with respect to an Alternative Transaction (as defined
herein), engage in any discussions or negotiations concerning, or provide to any
other person any information or data relating to it or any subsidiary of the
Company for the purposes of, or otherwise cooperate in any way with or assist or
participate in, facilitate or encourage, any inquiries or the making of any
proposal which constitutes, or may reasonably be expected to lead to, a proposal
to seek or effect an Alternative Transaction, or agree to or endorse any
Alternative Transaction; provided, however, that the foregoing will not prohibit
the Company or the Company Board from taking and disclosing to its shareholders
a position as required by Exchange Act Rule 14e-2; and provided further that,
prior to acceptance for payment of any Shares pursuant to the Offer, the Company
Board, on behalf of the Company, may, in response to an unsolicited, bona fide
Superior Proposal (as defined herein), furnish information or data (including
confidential information or data) relating to the Company and participate in
negotiations with a person making such unsolicited Superior Proposal, but only
after such person enters into arrangements regarding confidentiality on terms at
least as favorable to the Company as the confidentiality arrangements contained
in the Merger Agreement and only in the event that (a) the Company Board
determines in good faith, on the basis of advice of independent counsel
furnished prior thereto to Purchaser, that such action is legally required by
the fiduciary obligations of the Company Board and (b) the Company advises
Purchaser of its intention to make such determination to do so prior thereto.
The Company will promptly advise Purchaser of, and communicate the terms of, any
proposal respecting an Alternative Transaction it may receive, or any inquiries
it receives which may reasonably be expected to lead to a proposal respecting an
Alternative Transaction, and the identity of the person making such proposal.
Prior to taking any such action, if the Company intends to participate in any
such discussion or negotiation or provide any such information or data to any
such third party, it will give reasonable notice to Purchaser and will consult,
and thereafter will continue to consult, with Purchaser. Notwithstanding the
foregoing, the foregoing will not (a) permit the Company to enter into any
agreement with respect to or to facilitate an Alternative Transaction during the
term of the Merger Agreement (it being understood that the Company will not
enter into any agreement with any person that provides for, or in any way
facilitates, the development of a proposal for an Alternative Transaction, other
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<PAGE> 31
than a confidentiality agreement in customary form in respect of a Superior
Proposal as described above) or (b) affect any other obligation of the Company
under the Merger Agreement.
For purposes of the Merger Agreement, "Alternative Transaction" means a
transaction or series of related transactions resulting in (a) any change of
control of the Company, (b) any merger or consolidation of the Company in which
another person acquires 25% or more of the aggregate voting power of all voting
securities of the Company or the Surviving Corporation, as the case may be, (c)
any tender offer or exchange offer for, or any acquisitions of, any securities
of the Company which, if consummated, would result in another person owning 25%
or more of the aggregate voting power of all voting securities of it or (d) any
sale or other disposition of assets of the Company or any of its subsidiaries if
the Fair Market Value (as defined herein) of such assets exceeds 25% of the
aggregate Fair Market Value of the assets of the Company and all its
subsidiaries taken as a whole before giving effect to such sale or other
disposition. For purposes of the Merger Agreement, the "Fair Market Value" of
any assets or securities means the fair market value of such assets or
securities, as determined by the Company Board in good faith. For purposes of
the Merger Agreement, "Superior Proposal" means a bona fide proposal made by a
third party for an Alternative Transaction on terms which the Company Board
determines in its good faith judgment to be more favorable to the shareholders
than the Offer and the Merger and for which financing, to the extent required,
is then committed or which, in the good faith judgment of the Company Board, is
reasonably capable of being obtained by such third party.
Conditions to the Merger. Under the Merger Agreement, the respective
obligations of the Company and Purchaser to effect the Merger are subject to the
satisfaction or waiver of the following conditions prior to the Effective Time:
(a) if required by the NYBCL, the Merger Agreement and the Merger shall have
been approved and adopted by the requisite vote of the shareholders of the
Company; (b) no United States federal or state, or foreign governmental
authority or other agency or commission (each a "Governmental Entity") or United
States federal or state, or foreign court of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any law, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which materially delays,
restricts, prevents or prohibits consummation of the transactions contemplated
by the Merger Agreement, provided however, that the parties to the Merger
Agreement will use their reasonable efforts to cause any such decree, judgment,
injunction or other order to be vacated or lifted; and (c) subject to certain
exceptions, other than the filing of Merger documents in accordance with the
NYBCL, all material authorizations and other approvals shall have been obtained
from, and made with, all required Governmental Entities.
In addition, prior to consummation of the Offer, the obligations of the
Company to effect the Merger are subject to the satisfaction or waiver of the
following condition prior to the Effective Time: none of Purchaser, Buyer, CSX,
NSC or Mr. Rich shall have breached or failed to observe or perform in any
material respect any of its or his covenants or agreements in favor of the
Company under the Merger Agreement to be performed by it or him at or prior to
the Effective Time, and the representations and warranties of Purchaser, Buyer,
CSX, NSC and Mr. Rich set forth in the Merger Agreement shall be true and
accurate both when made and at and as of the Effective Time, as if made at and
as of such time (except to the extent expressly made as of an earlier date, in
which case as of such date), except where the breach or failure to observe or
perform such covenants and agreements, or the failure of such representations
and warranties to be so true and correct (without giving effect to any
limitation as to "materiality" or "material adverse effect" or similar language
set forth therein), does not, and is not likely to, individually or in the
aggregate, prevent consummation of the Merger.
In addition, the obligations of Purchaser to effect the Merger are subject
to the satisfaction or waiver of the following conditions prior to the Effective
Time: (a) the Company shall not have breached or failed to observe or perform in
any material respect any of its covenants or agreements under the Merger
Agreement to be performed by it at or prior to the Effective Time, and the
representations and warranties of the Company set forth in the Merger Agreement
shall be true and accurate both when made and at and as of the Effective Time,
as if made at and as of such time (except to the extent expressly made as of an
earlier date, in which case as of such date), except where the breach or failure
to observe or perform such covenants and agreements, or the failure of such
representations and warranties to be so true and correct (without giving effect
to any limitation as to "materiality" or "material adverse effect" or similar
language set forth therein),
16
<PAGE> 32
does not have, and is not likely to have, individually or in the aggregate, a
material adverse effect with respect to the Company or Buyer; and (b) at any
time after the date of the Merger Agreement, there shall not have occurred any
material adverse effect with respect to the Company.
Representations and Warranties. The Merger Agreement contains customary
representations and warranties by the Company, Purchaser, Buyer, CSX, NSC and
Mr. Rich.
Indemnification and Insurance. Pursuant to the Merger Agreement,
Purchaser, CSX, NSC and Mr. Rich have agreed that all rights to indemnification
and exculpation from liabilities for acts or omissions occurring at or prior to
the Effective Time now existing in favor of the current or former directors and
officers of the Company and its subsidiaries as provided in their respective
certificates of incorporation or bylaws and any indemnification agreements in
effect as of the Company which do not constitute a breach of the Merger
Agreement will be assumed by the Surviving Corporation in the Merger without
further action as of the Effective Time, and will survive the Merger and will
continue in full force and effect in accordance with their respective terms.
The Merger Agreement provides that the Surviving Corporation will, for a
period of one year after the Effective Time, maintain in effect the current
policies of directors' and officers' liability insurance maintained by the
Company (provided that the Surviving Corporation may substitute policies of at
least the same coverage) with respect to claims arising from facts or events
which occurred before the Effective Time; provided, however, that in no event
will the Surviving Corporation be required to expend more than an amount equal
to 150% of the current annualized premiums paid by the Company for such
insurance.
Termination; Fees and Expenses. The Merger Agreement may be terminated at
any time prior to the Effective Time, in the case of Purchaser, or prior to the
purchase of Shares under the Offer, in the case of the Company, whether before
or after approval of the Merger and the Merger Agreement by the shareholders of
the Company: (a) by mutual consent of Purchaser and the Company; (b)(i) by
Purchaser, upon a material breach of any covenant or agreement on the part of
the Company set forth in the Merger Agreement which has not been cured or is
incapable of being cured within 30 days after the giving of written notice to
the Company of such breach or untruth, provided that such breach or untruth is
material and that Purchaser is not then in material breach of the Merger
Agreement or (ii) by the Company, in the event of a material breach of any
representation, warranty, agreement or covenant of Purchaser set forth in the
Merger Agreement that has not been cured within 30 days after the giving of
written notice to Purchaser and will prevent consummation of the Merger,
provided that the Company is not then in material breach of the Merger
Agreement; (c) by either Purchaser or the Company, if any permanent injunction
or action by any Governmental Entity preventing the consummation of the Merger
shall have become final and nonappealable; (d) by either Purchaser or the
Company, if the Effective Time shall not have occurred on or before June 30,
1998, provided, that the right to terminate the Merger Agreement under such
clause shall not be available to any party whose failure to perform any of its
obligations thereunder results in the failure of the Merger to be consummated by
such date; (e) by Purchaser, (i) if the Company Board or any committee thereof
shall withdraw, modify or change its recommendation so that it is not in favor
of the Merger Agreement, the Offer or the Merger (or make any recommendation in
favor of an Alternative Transaction), or shall have resolved to do any of the
foregoing or (ii) if the Company shall take any action that would be proscribed
by the provisions of the Merger Agreement set forth above under "No
Solicitation" but for the exceptions contained in such provisions; or (f) by
Purchaser, if the Company Board or any committee thereof shall have approved or
entered into an agreement respecting a Superior Proposal or recommended or
resolved to recommend to its shareholders a Superior Proposal, or by the Company
in connection with the Company Board or any committee thereof approving or
entering into an agreement respecting a Superior Proposal, provided that, in the
case of any such termination by the Company, the Company complies with the
provisions of the Merger Agreement set forth in the paragraphs following, and
prior thereto has complied with the provisions of the Merger Agreement set forth
above under "No Solicitation," and provided further that the party seeking to
terminate under such clause is not then in material breach of the Merger
Agreement. No party to the Merger Agreement may rely on the failure of any
condition set forth in the Merger Agreement to be satisfied if such failure was
caused by such party's failure to use reasonable efforts to consummate the
transactions contemplated by the Merger Agreement.
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In the event of the termination of the Merger Agreement, the Merger
Agreement shall forthwith become void and there shall be no liability on the
part of any party thereto, except as otherwise described herein, except nothing
therein shall relieve any party thereto from liability for any willful breach
thereof.
The Merger Agreement provides that, except as otherwise provided therein,
all costs and expenses, including, without limitation, fees and disbursements of
counsel, financial advisors and accountants, incurred by the parties thereto
will be borne solely and entirely by the party which has incurred such costs and
expenses (with respect to such party, its "Expenses"); provided that, except in
the event that the payment provided in the following sentence becomes payable,
if the Company breaches any material term of this Agreement or if the Merger is
not consummated, and this Agreement is thereafter terminated, and within one
year of the date of such termination the Company enters into an agreement
respecting an Alternative Transaction, the Company will pay the reasonable fees
and expenses of one firm of legal counsel advising Mr. Rich, up to $50,000, plus
50% of any such fees in excess of $50,000, for the benefit of Mr. Rich in
connection with the transactions contemplated by the Merger Agreement. In
addition, if (i) the Merger Agreement shall be terminated by Purchaser pursuant
to the provisions summarized under clause (e) above or by Purchaser or the
Company pursuant to the provisions summarized under clause (f) above, or (ii)
(A) after the date of the Merger Agreement any person or "group" (within the
meaning of Section 13(d)(3) of the Exchange Act) shall have publicly made a
proposal with respect to an Alternative Transaction, (B) the Offer shall have
remained open until at least the scheduled expiration date immediately following
the date such proposal is made, (C) the Minimum Condition shall not have been
satisfied at the expiration of the Offer and (D) the Merger Agreement shall
thereafter be terminated pursuant to the provisions summarized under clause (d)
above, then the Company shall pay to Purchaser $3,000,000 plus all Expenses of
Purchaser, CSX, NSC and Mr. Rich as promptly as practicable but not later than
two business days after termination of the Merger Agreement (unless required
simultaneously with termination under the provisions summarized under clause (f)
above) by wire transfer of immediately available funds to an account designated
by Purchaser.
Amendment; Waiver. The Merger Agreement may be amended by the parties to
the Merger Agreement in writing at any time prior to the Effective Time,
provided, however, that, after the approval of the Merger by the shareholders of
the Company, no amendment, which under applicable law may not be made without
the approval of the shareholders of the Company, may be made without such
approval. According to its terms, the Merger Agreement may not be amended except
by an instrument in writing signed by the parties thereto. At any time prior to
the Effective Time, any of the parties to the Merger Agreement may in writing
extend the time period for the performance of any of the obligations of another
party thereto, waive any inaccuracies in the representations and warranties of
another party thereto, or waive compliance by another party thereto with any of
the agreements or conditions contained in the Merger Agreement. Any such
extension or waiver will be valid only if set forth in writing signed by the
parties to be bound by such extension or waiver.
Guarantee. The obligations in the Merger Agreement with respect to the
transactions contemplated by the Merger Agreement are solely obligations of
Purchaser and Buyer and are guaranteed by each of CSX and NSC on a 50% basis.
The parties to the Merger Agreement agree and understand that, prior to the
consummation of the Offer, all rights of Purchaser and Buyer under the Merger
Agreement will be exercised solely by CSX and NSC acting collectively.
The Term Sheet. On August 17, 1997 CSX, NSC and Mr. Rich entered into a
letter agreement (the "Letter Agreement") to set forth their understanding with
respect to the transaction. The Letter Agreement provides, among other things,
(a) that CSX, NSC and Mr. Rich shall negotiate in good faith towards definitive
documentation in connection with final arrangements with respect to the
transaction along the lines set forth in the Term Sheet attached to their
proposal letter to the Company, dated August 8, 1997, as modified by the Merger
Agreement (as so modified, the "Term Sheet") and (b) that, in the event of the
termination of the Merger Agreement, Mr. Rich shall not participate in any
termination fee under the Merger Agreement other than with respect to any
arrangements which may exist respecting Expenses. The foregoing summary of the
material terms of the Letter Agreement is qualified in its entirety by reference
to the Letter Agreement, a copy of which has been filed with the Commission as
an Exhibit to the Schedule 14D-1 and the Schedule 13E-3. While the parties have
agreed to negotiate definitive final arrangements along the lines set
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<PAGE> 34
forth in the Term Sheet, such arrangements have yet to be negotiated and may
vary from the Term Sheet to the favor or disfavor any of CSX, NSC or Mr. Rich.
The following summary of certain provisions of the Term Sheet is qualified
in its entirety by reference to the Term Sheet, a copy of which has been filed
with the Commission as an Exhibit to the Schedule 14D-1 and the Schedule 13E-3.
Capitalization of Purchaser.
The Term Sheet provides that two series of a single class of senior
preferred interests of Purchaser (each, a "Senior Preferred Interest") will be
established, which two series will differ only as to redemption, one class of
junior preferred interests of Purchaser (each, a "Junior Preferred Interest")
and one class of common interests of Purchaser (each, a "Common Interest", and
with the Senior Preferred Interests and the Junior Preferred Interests, the
"Interests"). The Interests will have rights, preferences and privileges as
follows.
The Senior Preferred Interests will have distribution and liquidation
preference over all other Interests. Distributions on Senior Preferred Interests
will cumulate at the rate of 10% compounded annually until the Purchaser Board
determines that sufficient cash is available to pay distributions in cash. The
series of Senior Preferred Interests held by CSX and NSC (but not the series
held by Mr. Rich) will have a redemption preference over all other Interests.
Upon redemption, Senior Preferred Interests will be redeemed at liquidation
preference plus accrued and unpaid distributions. The series of Senior Preferred
Interests held by CSX and NSC will be mandatorily redeemable upon achieving
certain cash levels from cash flow from operations and from dispositions of
assets; the series of Senior Preferred Interests held by Mr. Rich will be
redeemable at Mr. Rich's option at any time at which there is to be a cash
redemption of the series of Senior Preferred Interests held by CSX and NSC or of
Junior Preferred Interests. Senior Preferred Interests will be redeemed ratably
when redeemed for cash.
The Junior Preferred Interests will have a distribution, liquidation and
redemption preference over all Common Interests, but will be subordinate, with
respect to distributions and liquidation payments, to all Senior Preferred
Interests (and, with respect to all redemption payments, to the series of Senior
Preferred Interests held by CSX and NSC, but not to the series held by Mr.
Rich). Distributions on Junior Preferred Interests will cumulate at the rate of
4% compounded annually until the Purchaser Board determines that sufficient cash
is available to pay distributions in cash, provided that no distributions on
Junior Preferred Interests will be paid until all Senior Preferred Interests,
with cumulative distributions, have been redeemed. Junior Preferred Interests
will be mandatorily redeemable following redemption of the series of Senior
Preferred Interests held by CSX and NSC at liquidation preference plus accrued
and unpaid distributions, upon achieving certain cash levels from cash flow from
operations and from dispositions of assets. Junior Preferred Interests (and, if
applicable, Senior Preferred Interests held by Mr. Rich) will be redeemed
ratably when redeemed for cash.
Common Interests will be the only Interests entitled to vote. No
distributions or liquidation payments shall be made on Common Interests until
all Senior Preferred Interests, with cumulative distributions, and all Junior
Preferred Interests, with cumulative distributions, have been redeemed.
Contributions To Purchaser.
The Term Sheet provides that (a) Mr. Rich will contribute a portion of his
Shares and Options to Purchaser having an aggregate value of approximately
$3,013,247, in exchange for a Senior Preferred Interest and a Common Interest as
set forth below, (b) CSX will contribute to Purchaser its 110,250 Shares (the
"CSX Share Contribution") having an aggregate value of approximately $2,425,500,
together with 50% of the cost to acquire all outstanding Shares in the Offer and
the Merger (other than the Shares to be contributed to Purchaser by Mr. Rich and
CSX) and related Expenses (after taking into account the value, based upon the
Offer Price, of the CSX Share Contribution) in cash in exchange for a Senior
Preferred Interest, a Junior Preferred Interest and a Common Interest as set
forth below, (c) NSC shall contribute 50% of the cost to acquire all outstanding
Shares in the Offer and the Merger (other than the Shares to be contributed to
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<PAGE> 35
Purchaser by Mr. Rich and CSX) and related Expenses in cash, in exchange for a
Senior Preferred Interest, a Junior Preferred Interest and a Common Interest as
set forth below.
Interests of Members in Purchaser.
The Term Sheet provides that (a) the Common Interests shall be owned 80% by
Mr. Rich, 10% by CSX and 10% by NSC, (b) Mr. Rich shall receive a Senior
Preferred Interest, and, to the extent that Mr. Rich contributes Options to
Purchaser, an option to purchase a Senior Preferred Interest, with a liquidation
preference equal to the value of the Shares and Options, respectively,
contributed to Purchaser by Mr. Rich, (c) each of CSX and NSC shall receive a
Senior Preferred Interest, each with the same liquidation preference to be equal
to the value of their respective contributions to Purchaser, (d) each of CSX and
NSC shall receive a Junior Preferred Interest with a liquidation preference of
$50 million.
Put and Call Rights.
The Term Sheet provides that, subject to all necessary approvals from
Governmental Entities, Purchaser may call, in whole but, except as provided
below, not in part, and Mr. Rich may put to Purchaser, in whole or, except as
provided below, in part, Mr. Rich's Senior Preferred Interest, options to
purchase a Senior Preferred Interest and Common Interest for a price equal to
the sum of (a) in respect of a Senior Preferred Interest or option to purchase a
Senior Preferred Interest, the liquidation preference of the Senior Preferred
Interest put or called (or underlying the option put or called) plus accrued and
unpaid distributions on such Senior Preferred Interest plus (b) in respect of a
Common Interest, a nominal amount in respect of the Common Interest put or
called. The foregoing put and call rights may be exercised at any time after the
earlier of (a) the termination of Mr. Rich's employment as Chief Executive
Officer by the Company or by reason of Mr. Rich's death or disability and (b)
the third anniversary of the consummation of the Merger. Purchaser may assign
its call right or put obligation to CSX and NSC (or to a voting trust
established by them) in equal proportions, and, in the event that Purchaser has
insufficient cash, Mr. Rich, exercising his put right, may put to CSX and NSC
(or to a voting trust established by them) in equal proportions. In addition,
CSX and NSC may, upon exercising the call rights or responding to an exercise of
Mr. Rich's put rights, provide that the subject securities be conveyed to a
third party; provided that, the event of any assignment of the put obligation by
CSX or NSC, the payment of the put price shall be guaranteed by CSX and NSC in
equal proportions. Notwithstanding the foregoing, in the event of a termination
of Mr. Rich's employment as Chief Executive Officer by the Company for cause,
until the third anniversary of the Merger, Mr. Rich's put right will be limited
to his Common Interest and will not extend to his Senior Preferred Interest or
option to purchase a Senior Preferred Interest and Purchaser will have the right
to call Mr. Rich's Common Interest without Mr. Rich's Senior Preferred Interest
or option to purchase a Senior Preferred Interest.
Corporate Governance.
The Term Sheet provides that the Purchaser Board will be comprised of seven
individuals: Mr. Rich, four individuals designated by Mr. Rich and one
individual designated by each of NSC and CSX. Major decisions outside the
ordinary course of business (including material asset dispositions and approval
of Purchaser's business plan and budget described below) will require the
concurrence of the designees of CSX and NSC, consistent with regulatory
requirements. Employment and put and call decisions with respect to Mr. Rich
will be made by the disinterested directors on the Purchaser Board. Except with
respect to day-to-day railroad operations, the Company shall follow a mutually
agreed upon business plan and budget which shall be designed prior to the
Effective Time (and updated by the Purchaser Board annually thereafter) with the
goals of ensuring repayment of member contributions and maximizing the Company's
value, which may include the disposition of assets. It is intended that the
definitive documentation will contain customary provisions relating to corporate
governance, put and call rights, and transferability restrictions.
Management.
The Term Sheet provides that Mr. Rich will enter into a three-year
employment agreement to be Chief Executive Officer of the Company (the "New
Employment Agreement"). It is expected that, pursuant to the
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New Employment Agreement, (a) after the initial three-year term, Mr. Rich's
employment will be renewed automatically for one-year terms unless the Company
delivers written notice of termination to Mr. Rich during the period from 120 to
90 days prior to expiration of such term, and (b) Mr. Rich's salary and benefits
(including, in lieu of receiving such benefits in connection with the
transaction, severance benefits) will remain at current levels. It will be a
condition of employment that Mr. Rich retain his Interests (subject to the put
and call rights described herein) and that Mr. Rich live on the grounds of the
Company's Edgewater property in Cooperstown, New York for the convenience and
security of the Company and to ensure Mr. Rich's availability in the event of an
emergency. The Term Sheet provides that Mr. Rich will enter into a customary
non-compete and exclusive service agreement, subject to standard permissible
activities, and that the Company will create a management incentive bonus
program, to be approved with the concurrence of the disinterested directors on
the Purchaser Board, which management incentive bonus program will provide cash
bonuses to operating management upon achievement of certain financial targets
following the transaction, to be determined without giving effect to the
financing and transaction costs of the transaction.
Certain Dispositions.
The Term Sheet provides that Mr. Rich and the other on-going Company
management will receive a commission on asset dispositions as follows: other
than with respect to certain offers with respect to a non-freight transaction
west of Passaic Junction, New Jersey described below, commissions will be
payable only with respect to a transaction (a) consummated during Mr. Rich's
employment as Chief Executive Officer of the Company or (b) arising from an
opportunity identified to the CSX and NSC representatives on the Purchaser Board
and significantly pursued by Mr. Rich (except in the event of a termination of
Mr. Rich's employment by the Company prior to the third anniversary of the
Merger without cause, in which case a lesser standard to be established in the
definitive documentation will apply), the negotiation of which was approved by
the CSX and NSC representatives on the Purchaser Board during such employment,
and consummated within two years of the termination of such employment, in the
case of non-passenger transactions, and four years of the termination of such
employment, in the case of passenger transactions. The commissions will be paid
in cash at the rate of 7% of the gross consideration received by the Company
(or, in the case of a non-cash transaction, the fair market value of the asset
disposed) in such transaction and shall be allocated among such Company
management (and in such amounts) as is determined by Mr. Rich. No commission
will be payable with respect to any freight transaction east of or including
Passaic Junction, New Jersey. A commission will be payable with respect to any
consummated non-freight transaction east of or including Passaic Junction that
does not, in the reasonable judgment of both CSX and NSC, interfere with freight
rights and operations if such non-freight transaction is approved by a
supermajority of the Company Board and consummated. A commission will be payable
with respect to a consummated freight transaction west of Passaic Junction, New
Jersey and a commission will be payable with respect to (a) a consummated non-
freight transaction west of Passaic Junction, New Jersey, or (b) a reasonable,
bona fide and firm offer with respect to a non-freight transaction west of
Passaic Junction, New Jersey which is rejected by the Purchaser Board.
The Term Sheet also provides that either CSX or NSC will have a right of
first refusal with respect to any transaction with respect to the Company's
properties and assets west of Passaic Junction, New Jersey and, subject to the
approval of the Purchaser Board with the concurrence of the CSX and NSC
designees, CSX or NSC may use Senior Preferred Interests in connection with a
purchase of any assets of the Company by such party.
Expenses.
The Term Sheet provides that each of CSX, NSC and Mr. Rich will bear its
own Expenses with respect to the transactions, except that CSX and NSC have
agreed to pay the reasonable fees and Expenses of one firm of legal counsel, up
to $50,000 plus 50% of any such fees in excess of $50,000, for the benefit of
Mr. Rich in connection with the transactions.
21
<PAGE> 37
10. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES.
The receipt of cash for Shares pursuant to the Offer or the Merger will be
a taxable transaction for United States federal income tax purposes. In general,
a shareholder will recognize gain or loss for United States federal income tax
purposes equal to the difference between the amount of cash received in exchange
for the Shares sold and such shareholder's adjusted tax basis in such Shares.
Such gain or loss will be capital gain or loss if the Shares constitute capital
assets in the hands of the shareholder. Pursuant to recently enacted
legislation, in the case of an individual holder of Shares, any such capital
gain will be subject to a maximum United States federal income tax rate of (a)
20% if the holder's holding period in such shares was more than 18 months at the
Effective Time, and (b) 28% if the holder's holding period was more than one
year but not more than 18 months at the Effective Time. Any such capital loss
will be subject to certain limitations on deductibility for United States
federal income tax purposes.
THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO CERTAIN TYPES OF
SHAREHOLDERS, SUCH AS FINANCIAL INSTITUTIONS, BROKER-DEALERS, SHAREHOLDERS WHO
ACQUIRED SHARES PURSUANT TO THE EXERCISE OF OPTIONS OR OTHERWISE AS
COMPENSATION, INDIVIDUALS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED
STATES, FOREIGN CORPORATIONS AND PERSONS WHO RECEIVED PAYMENTS IN RESPECT OF
OPTIONS OR WARRANTS TO ACQUIRE SHARES.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND IS BASED UPON PRESENT LAW. SHAREHOLDERS ARE
URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX
CONSEQUENCES OF THE OFFER AND THE MERGER TO THEM, INCLUDING THE APPLICATION AND
EFFECT OF THE UNITED STATES ALTERNATIVE MINIMUM TAX, STATE AND LOCAL, AND
FOREIGN TAX LAWS.
11. CERTAIN LITIGATION RELATING TO THE OFFER AND THE MERGER.
On or about August 14, 1997, a complaint respecting a purported class
action, captioned Bernabe v. Walter G. Rich et al., Index No. 97-114690, was
filed in the Supreme Court of the State of New York for the County of New York
(the "Complaint"). The Complaint names as defendants the Company and the members
of the Company Board, including Mr. Rich, as well as CSX and NSC. The Complaint
alleges, among other things, that the proposed acquisition referred to herein is
the product of unfair dealing, that the proposed purchase price therefor is
grossly inadequate, that the individual defendants have breached their fiduciary
duties in failing to disclose material information, and that defendant Mr. Rich
has breached his fiduciary duties by acting in a manner designed to benefit
himself at the expense of the public shareholders. The Complaint further alleges
that CSX and NSC have aided and abetted the alleged breaches of fiduciary duty
by Mr. Rich. The Complaint seeks preliminary and permanent injunctive relief,
rescission in the event a transaction is consummated and rescissory damages.
Purchaser, Mr. Rich, CSX, NSC and the Company believe the claims are meritless.
The foregoing summary is qualified in its entirety by reference to the
Complaint, a copy of which has been filed with the Commission as an exhibit to
the Schedule 14D-1.
22
<PAGE> 38
THE TENDER OFFER
1. TERMS OF THE OFFER; EXPIRATION DATE.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of such extension or
amendment), Purchaser will accept for payment and pay for all Shares validly
tendered prior to the Expiration Date (as defined herein) and not withdrawn, as
described under "THE TENDER OFFER -- Withdrawal Rights". The term "Expiration
Date" means 12:00 Midnight, New York City time, on Friday, September 19, 1997,
unless and until Purchaser, in its reasonable judgment (but subject to the terms
and conditions of the Merger Agreement), shall have extended the period during
which the Offer is open, in which event the term "Expiration Date" shall mean
the latest time and date at which the Offer, as so extended by Purchaser, shall
expire. The Offer is subject to the Minimum Condition and to certain other
conditions. See "THE TENDER OFFER -- Certain Conditions of the Offer".
Consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including the approval and adoption of the Merger and the
Merger Agreement by the affirmative vote of the holders of 66 2/3% of the
outstanding Shares, if required.
Purchaser expressly reserves the right, in its sole discretion (but subject
to the terms and conditions of the Merger Agreement), at any time and from time
to time, to extend for any reason the period of time during which the Offer is
open, including the failure of any of the conditions specified in "THE TENDER
OFFER -- Certain Conditions of the Offer" to be satisfied, by giving oral or
written notice of such extension to the Depositary. During any such extension,
all Shares previously tendered and not withdrawn will remain subject to the
Offer, subject to the rights of a tendering shareholder to withdraw his Shares.
See "THE TENDER OFFER -- Withdrawal Rights".
Subject to the applicable regulations of the Commission, Purchaser also
expressly reserves the right, in its sole discretion (but subject to the terms
and conditions of the Merger Agreement), at any time and from time to time, (a)
to delay acceptance for payment of, or, regardless of whether such Shares were
theretofore accepted for payment, payment for, any Shares in order to comply
with any applicable laws, (b) to terminate the Offer and not accept for payment
any Shares upon the failure of any of the conditions specified in "THE TENDER
OFFER -- Certain Conditions of the Offer" to be satisfied and (c) to waive any
condition or otherwise amend the Offer in any respect, by giving oral or written
notice of such delay, termination, waiver or amendment to the Depositary and by
making a public announcement thereof.
If Purchaser extends the Offer, if Purchaser (whether before or after its
acceptance for payment of the Shares) is delayed in its acceptance for payment
of or payment for any Shares validly tendered and not withdrawn in the Offer or
if Purchaser is unable to accept for payment or pay for such Shares pursuant to
the Offer for any reason, then, without prejudice to Purchaser's rights under
the Offer, the Depositary may retain tendered Shares on behalf of Purchaser, and
such Shares may not be withdrawn except to the extent tendering shareholders are
entitled to withdrawal rights as described in "THE TENDER OFFER -- Withdrawal
Rights". Purchaser acknowledges that (a) Rule 14e-1(c) under the Exchange Act
requires Purchaser to pay the consideration offered or to return the Shares
tendered promptly after the termination or withdrawal of the Offer and (b)
Purchaser may not delay acceptance for payment of, or payment for (except as
provided in clause (a) above), any Shares upon the occurrence of any of the
conditions specified in "THE TENDER OFFER -- Certain Conditions of the Offer"
without extending the period of time during which the Offer is open.
The Merger Agreement provides that Purchaser shall not, without the prior
written consent of the Company, make any change in the terms or conditions of
the Offer that is adverse to the holders of Shares, decrease the Offer Price or
the number of Shares sought in the Offer or impose conditions to the Offer other
than those set forth in the Merger Agreement (it being agreed that a waiver by
Purchaser of any condition, in its discretion, shall not be deemed to be adverse
to the holders of Shares); provided that, if on any scheduled expiration date of
the Offer all conditions to the Offer shall not have been satisfied or waived,
the Offer may, but need not, be extended from time to time without the consent
of the Company for such period of time as is reasonably expected by Purchaser to
be necessary to satisfy the unsatisfied conditions; provided further that
23
<PAGE> 39
the Offer may be extended by Purchaser without the consent of the Company for
any period required by any rule, regulation, interpretation or position of the
Commission or the staff thereof applicable to the Offer; and provided further
that, if at any scheduled expiration date of the Offer all conditions to the
Offer shall have been satisfied but less than a number of Shares that, together
with the number of Shares to be contributed by CSX and Mr. Rich to Purchaser,
represent less than 90% of the outstanding Shares, on a fully-diluted basis,
shall have been tendered into the Offer, Purchaser shall be entitled to extend
the Offer from time to time without the consent of the Company (for not more
than 10 business days) in order to permit Purchaser to solicit additional Shares
to be tendered into the Offer. The conditions to the Offer are solely for the
benefit of Purchaser and may be asserted by Purchaser regardless of the
circumstances giving rise to any such condition (including any action or
inaction by Purchaser) or may, but need not, be waived by Purchaser, in whole or
in part at any time and from time to time, in its sole discretion.
Any such extension, delay, termination, waiver or amendment will be
followed as promptly as practicable by public announcement thereof, such
announcement, in the case of an extension to be made no later than 9:00 a.m.,
New York City time, on the next business day (as defined herein) after the
previously scheduled Expiration Date. Subject to applicable law (including Rules
14d-4(c) and 14d-6(d) under the Exchange Act, which require that material
changes be promptly disseminated to shareholders in a manner reasonably designed
to inform them of such changes) and without limiting the manner in which
Purchaser may choose to make any public announcement, Purchaser shall have no
obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a press release to the Dow Jones News
Service.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer, or if Purchaser waives a material condition of
the Offer, Purchaser will extend the Offer to the extent required by Rules
14d-4(c) and 14d-6(d) under the Exchange Act. The minimum period during which
the Offer must remain open following material changes in the terms of the Offer
or information concerning the Offer, other than a change in price or a change in
percentage of securities sought, will depend upon the facts and circumstances,
including the relative materiality of the changed terms or information. In the
Commission's view, an offer should generally remain open for a minimum of five
business days from the date a material change is first published, sent or given
to shareholders. With respect to a change in price or a change in percentage of
securities sought (other than an increase in the number of Shares sought not in
excess of 2% of the outstanding Shares), a minimum 10-business-day period is
required to allow for adequate dissemination to shareholders and investor
response. As used in this Offer to Purchase, "business day" has the meaning set
forth in Rule 14d-1 under the Exchange Act. Accordingly, if, prior to the
Expiration Date, Purchaser decreases the number of Shares being sought, or
increases or decreases the consideration offered pursuant to the Offer, and if
the Offer is scheduled to expire at any time earlier than the period ending on
the 10th business day from the date that notice of such increase or decrease is
first published, sent or given to holders of Shares, the Offer will be extended
at least until the expiration of such 10-business-day period.
Subject to the terms of the Merger Agreement, if, prior to the Expiration
Date, Purchaser should decide to increase the Offer Price, such increase in the
Offer Price will be applicable to all shareholders whose Shares are accepted for
payment pursuant to the Offer, whether or not such Shares were tendered prior to
the date of such increase, and, if at the time notice of such increase in the
Offer Price is first published, sent or given to holders of such Shares, the
Offer is scheduled to expire at any time earlier than the period ending on the
10th business day from and including the date that such notice is first so
published, sent or given, the Offer will be extended at least until the
expiration of such 10-business-day period.
The Company has provided Purchaser with the Company's shareholder list and
security position listings for the purpose of disseminating the Offer to holders
of Shares. This Offer to Purchase and the related Letter of Transmittal will be
mailed to record holders of Shares whose names appear on the Company's
shareholder list, and will be furnished, for subsequent transmittal to
beneficial owners of Shares, to brokers, dealers, commercial banks, trust
companies and similar persons whose names, or the names of whose nominees,
appear on the shareholder list or, if applicable, who are listed as participants
in a clearing agency's security position listing.
24
<PAGE> 40
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), Purchaser will purchase, by accepting for payment, and will pay
for, any and all Shares which are validly tendered prior to the Expiration Date
(and not properly withdrawn in accordance with "THE TENDER OFFER -- Withdrawal
Rights") promptly after the later to occur of (a) the Expiration Date and (b)
the satisfaction or waiver of the conditions set forth in "THE TENDER
OFFER -- Miscellaneous". Purchaser expressly reserves the right, in its
discretion, to delay acceptance for payment of, or, subject to applicable rules
of the Commission, payment for, Shares in order to comply, in whole or in part,
with any applicable law.
In all cases, payment for Shares purchased pursuant to the Offer will be
made only after timely receipt by the Depositary of (a) the Share Certificates
or timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of
such Shares, if such procedure is available, into the Depositary's account at
The Depository Trust Company or the Philadelphia Depository Trust Company (each
a "Book-Entry Transfer Facility" and, collectively, the "Book-Entry Transfer
Facilities") pursuant to the procedures set forth in "THE TENDER
OFFER -- Procedures for Accepting the Offer and Tendering Shares", (b) the
Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, or, in the case of a book-entry transfer, an Agent's Message (as
defined herein) and (c) any other documents required by the Letter of
Transmittal.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has
received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Shares, that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that Purchaser
may enforce such agreement against the participant.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares validly tendered and not properly
withdrawn if, as and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance of such Shares for payment. Payment for
Shares accepted pursuant to the Offer will be made by deposit of the purchase
price therefor with the Depositary, which will act as agent for tendering
shareholders for the purpose of receiving payments from Purchaser and
transmitting payments to such tendering shareholders. Under no circumstances
will interest on the purchase price for Shares be paid by Purchaser, regardless
of any delay in making such payment. Upon the deposit of funds with the
Depositary for the purpose of making payments to tendering shareholders,
Purchaser's obligation to make such payment shall be satisfied and tendering
shareholders must thereafter look solely to the Depositary for payment of
amounts owed to them by reason of the acceptance for payment of Shares pursuant
to the Offer. Purchaser will pay any stock transfer taxes incident to the
transfer to it of validly tendered Shares, except as otherwise provided in
Instruction 6 of the Letter of Transmittal, as well as any charges and expenses
of the Depositary and the Information Agent.
If any tendered Shares are not accepted for payment for any reason pursuant
to the terms and conditions of the Offer, or if Share Certificates are submitted
evidencing more Shares than are tendered, Share Certificates evidencing
unpurchased Shares will be returned, without expense to the tendering
shareholder (or, in the case of Shares tendered by book-entry transfer into the
Depositary's account at a Book-Entry Transfer Facility pursuant to the procedure
set forth in "THE TENDER OFFER -- Procedures for Accepting the Offer and
Tendering Shares", such Shares will be credited to an account maintained at such
Book-Entry Transfer Facility), as promptly as practicable following the
expiration or termination of the Offer.
Purchaser reserves the right to transfer or assign, in whole at any time,
or in part from time to time, to one or more direct or indirect wholly owned
subsidiaries of Purchaser, the right to purchase all or any portion of the
Shares tendered pursuant to the Offer, provided that any such transfer or
assignment will not relieve Purchaser of its obligations under the Offer and
will in no way prejudice the rights of tendering shareholders to receive payment
for Shares validly tendered and accepted for payment pursuant to the Offer.
25
<PAGE> 41
3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES.
Valid Tender of Shares. In order for Shares to be validly tendered
pursuant to the Offer, the Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees, or
an Agent's Message (in the case of any book-entry transfer) and any other
required documents, must be received by the Depositary at one of its addresses
set forth on the back cover of this Offer to Purchase prior to the Expiration
Date, and either (a) the Share Certificates evidencing tendered Shares must be
received by the Depositary at one of such addresses or Shares must be tendered
pursuant to the procedure for book-entry transfer described below and a
Book-Entry Confirmation must be received by the Depositary, in each case, prior
to the Expiration Date, or (b) the tendering shareholder must comply with the
guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND THE DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at each Book-Entry Transfer Facility for purposes of the Offer
within two business days after the date of this Offer to Purchase, and any
financial institution that is a participant in either of the Book-Entry Transfer
Facilities' systems may make book-entry delivery of Shares by causing a
Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account at a Book-Entry Transfer Facility in accordance with such Book-Entry
Transfer Facility's procedures for transfer. However, although delivery of
Shares may be effected through book-entry transfer at a Book-Entry Transfer
Facility, the Letter of Transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees, or an Agent's Message
in connection with a book-entry delivery of Shares, and any other required
documents must, in any case, be transmitted to and received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase prior
to the Expiration Date or the tendering shareholder must comply with the
guaranteed delivery procedures described below. DELIVERY OF DOCUMENTS TO A
BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER
FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
Signature Guarantee. Signatures on all Letters of Transmittal must be
guaranteed by a firm which is a bank, broker, dealer, credit union, savings
association or other entity that is a member in good standing of the Securities
Transfer Agents Medallion Program (each, an "Eligible Institution"), unless the
Shares tendered thereby are tendered (a) by a registered holder of Shares who
has not completed either the box entitled "Special Delivery Instructions" or the
box entitled "Special Payment Instructions" on the Letter of Transmittal or (b)
for the account of an Eligible Institution. See Instruction 1 of the Letter of
Transmittal.
If a Share Certificate is registered in the name of a person other than the
signer of the Letter of Transmittal, or if payment is to be made, or a Share
Certificate not accepted for payment or not tendered is to be returned, to a
person other than the registered holder(s), then the Share Certificate must be
endorsed or accompanied by appropriate stock powers, in either case, signed
exactly as the name(s) of the registered holder(s) appear on the Share
Certificate, with the signature(s) on such Share Certificate or stock powers
guaranteed as described above. See Instructions 1 and 5 of the Letter of
Transmittal.
Guaranteed Delivery. If a shareholder desires to tender Shares pursuant to
the Offer and such shareholder's Share Certificates are not immediately
available or time will not permit all required documents to reach the Depositary
prior to the Expiration Date or the procedure for book-entry transfer cannot be
26
<PAGE> 42
completed on a timely basis, such Shares may nevertheless be tendered if all the
following conditions are satisfied:
(a) the tender is made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Purchaser herewith, is
received by the Depositary as provided below prior to the Expiration Date;
and
(c) in the case of a guaranteed delivery of Shares, the Share
Certificates for all tendered Shares, in proper form for transfer, or a
Book-Entry Confirmation, together with a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile thereof) with
any required signature guarantee (or, in the case of a book-entry transfer,
an Agent's Message) and any other documents required by such Letter of
Transmittal, are received by the Depositary within three trading days on
The Nasdaq National Market after the date of execution of the Notice of
Guaranteed Delivery.
Any Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, facsimile transmission or mail to the Depositary and must include a
guarantee by an Eligible Institution in the form set forth in the Notice of
Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares purchased
pursuant to the Offer will, in all cases, be made only after timely receipt by
the Depositary of (a) the Share Certificates evidencing such Shares, or a
Book-Entry Confirmation of the delivery of such Shares, if available, (b) a
properly completed and duly executed Letter of Transmittal (or manually signed
facsimile thereof) or, in the case of a book-entry transfer, an Agent's Message
and (c) any other documents required by the Letter of Transmittal.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tendered Shares pursuant to any of the procedures described above will be
determined by Purchaser, in its sole discretion, whose determination will be
final and binding on all parties, and which discretion may be delegated to the
Depositary or other persons. In addition, Purchaser's or Purchaser's designees,
interpretation of the terms and conditions of the Offer (including the Letter of
Transmittal and the instructions thereto) will be final and binding. None of
CSX, NSC, Mr. Rich, Purchaser, the Company, the Depositary, the Information
Agent or any other person will be under any duty to give notification of any
defects or irregularities in tenders or will incur any liability for failure to
give any such notification. Purchaser reserves the absolute right to reject any
or all tenders of any Shares determined by it not to be in proper form or if the
acceptance for payment of, or payment for, such Shares may, in the opinion of
Purchaser's counsel, be unlawful. Purchaser also reserves the absolute right, in
its sole discretion, to waive any of the conditions of the Offer or any defect
or irregularity in any tender with respect to Shares of any particular
shareholder, whether or not similar defects or irregularities are waived in the
case of other shareholders. No tender of Shares will be deemed to have been
validly made until all defects and irregularities have been cured or waived.
Appointment as Proxy. By executing a Letter of Transmittal, as set forth
above, a tendering shareholder irrevocably appoints designees of Purchaser as
such shareholder's proxies, each with full power of substitution, to the full
extent of such shareholder's rights with respect to the Shares tendered by such
shareholder and accepted for payment by Purchaser (and any and all noncash
dividends, distributions, rights, other Shares, or other securities issued or
issuable in respect of such Shares on or after August 22, 1997). All such
proxies shall be considered coupled with an interest in the tendered Shares.
This appointment will be effective if, when and only to the extent that
Purchaser accepts such Shares for payment pursuant to the Offer. Upon such
acceptance for payment, all prior proxies given by such shareholder with respect
to such Shares and other securities will, without further action, be revoked,
and no subsequent proxies may be given. The designees of Purchaser will, with
respect to the Shares and other securities for which the appointment is
effective, be empowered to exercise all voting and other rights of such
shareholder as they, in their sole discretion, may deem proper at any annual,
special, adjourned or postponed meeting of the Company's shareholders, by
written consent or otherwise, and Purchaser reserves the right to require that,
in order for Shares or other
27
<PAGE> 43
securities to be deemed validly tendered, immediately upon Purchaser's
acceptance for payment of such Shares, Purchaser must be able to exercise full
voting rights with respect to such Shares.
Purchaser's acceptance for payment of Shares tendered pursuant to the Offer
will constitute a binding agreement between the tendering shareholder and
Purchaser upon the terms and subject to the conditions of the Offer.
4. WITHDRAWAL RIGHTS.
Tenders of Shares made pursuant to the Offer are irrevocable except that
such Shares may be withdrawn at any time prior to the Expiration Date, and,
unless theretofore accepted for payment by Purchaser pursuant to the Offer, may
also be withdrawn at any time after October 20, 1997. If Purchaser extends the
Offer, is delayed in its acceptance for payment of Shares or is unable to accept
Shares for payment pursuant to the Offer for any reason, then, without prejudice
to Purchaser's rights under the Offer, the Depositary may, nevertheless, on
behalf of Purchaser, retain tendered Shares, and such Shares may not be
withdrawn except to the extent that tendering shareholders are entitled to
withdrawal rights as described in the paragraph below. Any such delay will be by
an extension of the Offer to the extent required by law.
For a withdrawal to be effective, a written, telegraphic, telex or
facsimile transmission notice of withdrawal must be timely received by the
Depositary at one of its addresses set forth on the back cover page of this
Offer to Purchase. Any such notice of withdrawal must specify the name of the
person who tendered the Shares to be withdrawn, the number of Shares to be
withdrawn, and the name of the registered holder of such Shares if different
from that of the person who tendered such Shares. If Share Certificates
evidencing Shares to be withdrawn have been delivered or otherwise identified to
the Depositary, then, prior to the physical release of such Share Certificates,
the serial numbers shown on such Share Certificates must be submitted to the
Depositary and the signature(s) on the notice of withdrawal must be guaranteed
by an Eligible Institution, unless such Shares have been tendered for the
account of an Eligible Institution. If Shares have been tendered pursuant to the
procedure for book-entry transfer as set forth in "THE TENDER
OFFER -- Procedures for Accepting the Offer and Tendering Shares", any notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Shares.
Any Shares properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the Offer. However, withdrawn Shares may be
re-tendered at any time prior to the Expiration Date by following one of the
procedures described in "THE TENDER OFFER -- Procedures for Accepting the Offer
and Tendering Shares".
5. PRICE RANGE OF SHARES.
The Shares are listed and principally traded on The Nasdaq National Market
under the symbol "DOCP". The following table sets forth, for the quarters
indicated, the high and low sales prices per Share on The Nasdaq National Market
as reported by the Dow Jones News Service.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C> <C> <C>
1994:
First Quarter.............................................. $ 8 3/4 $ 8 3/4
Second Quarter............................................. 9 1/4 8
Third Quarter.............................................. 9 1/4 8 1/4
Fourth Quarter............................................. 9 1/2 8 1/4
1995:
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
</TABLE>
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<PAGE> 44
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C> <C> <C>
1996:
First Quarter.............................................. $11 $ 9 1/4
Second Quarter............................................. 11 8 3/4
Third Quarter.............................................. 9 1/4 7 1/2
Fourth Quarter............................................. 11 7 1/2
1997:
First Quarter.............................................. $17 $ 9
Second Quarter............................................. 23 14 3/4
Third Quarter (through August 22, 1997).................... 24 1/2 17 3/4
</TABLE>
On August 15, 1997, the last trading day prior to the announcement of the
proposed transaction, the closing price per Share as reported on The Nasdaq
National Market was $22.00. As of August 21, 1997, no cash dividends were paid
by the Company on the Shares or declared as payable on a future date.
SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
6. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; EXCHANGE LISTING AND
EXCHANGE ACT REGISTRATION.
The purchase of Shares pursuant to the Offer will reduce the number of
Shares that might otherwise trade publicly and could reduce the number of
holders of Shares, which could adversely affect the liquidity and market value
of any remaining Shares held by the public. It is expected that, following the
Offer, a large percentage of the outstanding Shares will be owned by Purchaser.
Possible Effects of the Offer on the Market for the Shares. The purchase
of Shares pursuant to the Offer will reduce the number of Shares that might
otherwise trade publicly and could adversely affect the liquidity and market
value of the remaining Shares held by the public. The purchase of Shares
pursuant to the Offer can also be expected to reduce the number of holders of
Shares. Purchaser cannot predict whether the reduction in the number of Shares
that might otherwise trade publicly would have an adverse or beneficial effect
on the market price for or marketability of the Shares or whether it would cause
future market prices to be greater or less than the Offer Price therefor.
Stock Quotation. Depending upon the number of Shares purchased pursuant to
the Offer, the Shares may no longer meet the requirements of the National
Association of Securities Dealers, Inc. (the "NASD") for continued inclusion in
The Nasdaq National Market, which require that an issuer have at least 200,000
publicly held shares, held by at least 400 stockholders or 300 stockholders of
round lots, with a market value of at least $1,000,000, and have net tangible
assets of at least $1,000,000 or $4,000,000, depending on profitability levels
during the issuer's four most recent fiscal years. If these standards are not
met, the Shares might nevertheless continue to be included in The Nasdaq Stock
Market, with quotations published in the NASD Automatic Quotation System
("NASDAQ") "additional list" or in one of the "local lists". However, if the
number of holders of the Shares were to fall below 300, or if the number of
publicly held Shares were to fall below 100,000 or there were not at least two
registered and active market makers for the Shares, the NASD's rules provide
that the Shares would no longer be "qualified" for The Nasdaq Stock Market
reporting, and The Nasdaq Stock Market would cease to provide any quotations.
Shares held directly or indirectly by directors, officers or beneficial owners
of more than 10% of the Shares are not considered as being publicly held for
this purpose. If, as a result of the purchase of Shares pursuant to the Offer or
otherwise, the Shares no longer meet the requirements of the NASD for continued
inclusion in The Nasdaq National Market or in any other tier of The Nasdaq Stock
Market and the Shares are no longer included in The Nasdaq National Market or in
any other tier of The Nasdaq Stock Market, as the case may be, the market for
Shares could be adversely affected.
In the event that the Shares no longer meet the requirements of the NASD
for continued inclusion in any tier of The Nasdaq Stock Market, it is possible
that the Shares would continue to trade in the over-the-counter market and that
price quotations would be reported by other sources. The extent of the public
market for the Shares and the availability of such quotations would, however,
depend upon the number of holders of
29
<PAGE> 45
Shares remaining at such time, the interests in maintaining a market in Shares
on the part of securities firms, the possible termination of registration of the
Shares under the Exchange Act, as described below, and other factors.
Margin Regulations. The Shares may currently be "margin securities" under
the regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), which would have the effect, among other things, of
allowing brokers to extend credit on the collateral of such Shares for the
purpose of buying, carrying or trading in securities ("Purpose Loans").
Depending upon factors, such as the number of record holders of the Shares and
the number and market value of publicly held Shares, following the purchase of
Shares pursuant to the Offer, the Shares might no longer constitute "margin
securities" for purposes of the Federal Reserve Board's margin regulations and,
therefore, could no longer be used as collateral for Purpose Loans made by
brokers. In addition and in any event, if registration of the Shares under the
Exchange Act were terminated, the Shares would no longer constitute "margin
securities".
Exchange Act Registration. The Shares are currently registered under the
Exchange Act. The purchase of the Shares pursuant to the Offer may result in the
Shares becoming eligible for de-registration under the Exchange Act. Such
registration may be terminated upon application by the Company to the Commission
if the Shares are not listed on a national securities exchange and there are
fewer than 300 record holders of the Shares. The termination of registration of
the Shares under the Exchange Act would substantially reduce the information
required to be furnished by the Company to holders of Shares and to the
Commission, and would make certain provisions of the Exchange Act, such as the
short-swing profit recovery provisions of Section 16(b) of the Exchange Act, the
requirement of furnishing a proxy statement in connection with meetings of
shareholders meetings pursuant to Section 14(a) of the Exchange Act, and the
requirements of Rule 13e-3 under the Exchange Act with respect to "going
private" transactions, no longer applicable to the Shares. In addition,
"affiliates" of the Company and persons holding "restricted securities" of the
Company may be deprived of the ability to dispose of such securities pursuant to
Rule 144 promulgated under the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder (the "Securities Act").
If registration of the Shares under the Exchange Act were terminated, the
Shares would no longer be eligible for reporting on The Nasdaq National Market.
7. CERTAIN INFORMATION CONCERNING THE COMPANY.
Except as otherwise set forth herein, the information concerning the
Company contained in this Offer to Purchase, including financial information,
has been furnished by the Company or has been taken from or based upon publicly
available documents and records on file with the Commission and other public
sources. None of Purchaser, CSX, NSC or Mr. Rich assumes any responsibility for
the accuracy or completeness of the information concerning the Company furnished
by the Company or contained in such documents and records, or for any failure by
the Company to disclose events which may have occurred or may affect the
significance or accuracy of any such information but which are unknown to
Purchaser, CSX, NSC and Mr. Rich.
General. The Company is a New York corporation with its principal
executive offices located at 1 Railroad Avenue, Cooperstown, New York 13326.
According to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "Company's 10-K"). The Company operates in one business
segment -- railroad transportation. The Company's rail system provides rail
service for customers along its routes in Upstate New York and Northern New
Jersey and access to the national rail system through interchange facilities
with two of the major northeastern railroads, Conrail, Inc. and the CP Rail
System. Additionally, pursuant to a Haulage Agreement with CP, the Company has
direct access with the Norfolk Southern rail system and other carriers in
Buffalo, New York. The Company's railroad system is devoted principally to
carrying freight, but also generates revenue through the operation of passenger
excursion trains. The Company 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
30
<PAGE> 46
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. The Company was founded in 1965.
On January 31, 1996, the Company acquired a 40% interest in The Toledo,
Peoria and Western Railroad Corporation. The investment is accounted for under
the provisions of AFB 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. In addition to its ownership interest, the Company
derives revenue by providing certain administrative services to TP&W.
Directors and Officers. The name, address, principal occupation or
employment, five-year employment history, and citizenship of each director and
executive officer of the Company is set forth in Schedule II hereto.
Financial Information. Set forth below is certain selected consolidated
financial information relating to the Company and its subsidiaries which has
been excerpted or derived from the audited financial statements contained in the
Company's 10-K and the unaudited financial statements contained in the Company's
Quarterly Report on Form 10-Q, as amended, for the quarter ended June 30, 1997
(the "Company's 10-Q"). More comprehensive financial information is included in
the Company's 10-K, the Company's 10-Q and other documents filed by the Company
with the Commission. The financial information that follows is qualified in its
entirety by reference to such reports and other documents, including the
financial statements and related notes contained therein. Such reports and other
documents may be examined and copies may be obtained from the offices of the
Commission in the manner set forth below.
DELAWARE OTSEGO CORPORATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(UNITED STATES DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER SIX MONTHS ENDED
31, JUNE 30,
----------------------------- ------------------
1996 1995 1994 1997 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue...................................... $32,282 $34,524 $27,463 $15,362 $15,326
Income (Loss) from Operations................ 789 1,562 2,459 (429) (1,672)
Income (Loss) Before Income Taxes,
Extraordinary Items and Equity Interest in
Income (Loss) of Affiliate................. 1,867 (2,493) 3,348 (1,255) (2,175)
Net Income (Loss)............................ (1,165) 1,615 (2,448) (813) (1,495)
Net Income (Loss) Per Share.................. $ (0.64) $ 0.86 $ 1.44 $ (0.44) $ (0.87)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1996 1995 AT JUNE 30, 1997
------- ------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current Assets............................................. $10,852 $10,268 $ 10,745
Property and Equipment (Net)............................... 63,934 62,987 63,375
Total Assets............................................... 78,323 74,778 77,695
Current Liabilities........................................ 16,874 15,552 16,578
Long-Term Liabilities...................................... 26,855 26,780 26,055
Total Shareholders' Equity................................. 34,594 32,446 35,062
</TABLE>
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<PAGE> 47
Ratio of Earnings to Fixed Charges; Book Value per Share. The Company's
ratio of earnings to fixed charges for the fiscal year ended December 31, 1996
was (.46). The ratio of earnings to fixed charges for the fiscal year ended
December 31, 1995 was (1.07). The ratio of earnings to fixed charges for the
fiscal half-year ended June 30, 1997 was (.48). For purposes of this paragraph,
"earnings" is the Company's pre-tax income from continuing operations adjusted
for the profit/loss input of items considered in fixed costs and "fixed costs"
is the Company's (a) interest (whether expensed or capitalized), (b)
amortization of debt expense, discounts, or premiums, (c) such portion of rent
expense representative of interest, and (d) preferred stock dividends due
majority owned interests.
The Company's book value per share and common share equivalent was $18.89
per Share for the year ended December 31, 1996 and $18.65 per Share for the
quarter ended June 30, 1997.
Certain Other Information. The Company does not, as a matter of course,
make public its business plans, forecasts as to future earnings or financial
performance or estimated values or appraisals of its assets. In the course of
its discussions with Mr. Rich, CSX and NSC described under "SPECIAL FACTORS --
Background of the Offer and the Merger", the Company provided Mr. Rich, CSX and
NSC with certain business and financial information which Mr. Rich, CSX and NSC
believe was not publicly available. Such information included, among other
things, (i) an estimate of certain projected 1997 income statement and balance
sheet data (the "1997 Estimates") and an estimate of values for certain of the
Company's assets prepared by management of the Company (the "Company Estimates"
and, together with the 1997 Estimates, the "Estimates"). The Estimates do not
take into account any of the potential effects of the transactions contemplated
by the Offer and/or the Merger. However, the Company Estimates contained no
adjustment for or consideration of (i) the income tax consequences of a sale of
assets, (ii) the value that the Company could receive for its facilities from
parties other than another railroad, (iii) the costs that the Company would
incur in disposing of its assets, (iv) the expense, or likelihood of, obtaining
regulatory approval to sell railroad assets, (v) the amount of time that a
disposition of assets would likely take, or (vi) the relatively few number of
prospective buyers which had been identified.
The 1997 Estimates for total operating revenues, total operating expenses,
income from operations and net income (loss) for fiscal year 1997 was
$33,413,000, $32,230,000, $2,142,000 and $2,340,000, respectively. The 1997
Estimates for total assets, total liabilities and total shareholders' equity for
year-end 1997 were $87,676,000, $45,527,000 and $42,149,000, respectively.
32
<PAGE> 48
In the Company Estimates, the Company's total assets were estimated at
$117,156,000, the Company's net long-term debt was estimated at $8,570,000 and,
therefore, the net value of the Company was estimated at $108,586,000.
The Estimates were not prepared with a view to public disclosure or
compliance with published guidelines of the Commission or the guidelines
established by The American Institute of Certified Public Accountants. The
Estimates are included in this Offer to Purchase only because such information
was provided to Mr. Rich, CSX and NSC. None of CSX, NSC, Mr. Rich, Purchaser or
any party to whom the Estimates were provided assumes any responsibility for the
accuracy of such information. While presented with numerical specificity, the
Estimates are based upon a variety of assumptions relating to the businesses of
the Company and its subsidiaries (including TP&W) and the railroad business
environment, among other things, which may not be realized and are subject to
significant uncertainties and contingencies, many of which are beyond the
control of the Company, Purchaser, NSC, CSX or Mr. Rich. There can be no
assurance that the Estimates could be realized, and actual realized values could
vary materially from those shown. The Estimates have not been examined or
compiled by the Company's independent public accountants. For these reasons, as
well as the bases on which such Estimates were compiled, there can be no
assurance that such Estimates will be realized, or that actual realized values
would not be higher or lower than those estimated. The inclusion of such
Estimates herein should not be regarded as an indication that CSX, NSC, Mr.
Rich, purchaser or any other party who received such information considers it an
accurate prediction of realizeable values for the relevant assets.
The Company is subject to the informational filing requirements of the
Exchange Act, and, in accordance therewith, is required to file periodic
reports, proxy statements and other information with the Commission relating to
its business, financial condition and other matters. Information as of
particular dates concerning the Company's directors and officers, their
remuneration, Options granted to them, the principal holders of the
33
<PAGE> 49
Company's securities and any material interest of such persons in transactions
with the Company is required to be disclosed in proxy statements distributed to
the Company's shareholders and filed with the Commission. Such reports, proxy
statements and other information should be available for inspection at the
public reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and also should be available for
inspection at the Commission's regional offices located at 7 World Trade Center,
Suite 1300, New York, New York 10048 and the Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials may
also be obtained by mail, upon payment of the Commission's customary fees, by
writing to its principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
8. CERTAIN INFORMATION CONCERNING PURCHASER, CSX, NSC AND MR. RICH.
Purchaser. Purchaser is a newly formed New York limited liability company
organized in connection with the Offer and the Merger and has not carried on any
activities other than in connection with the Offer and the Merger. The principal
offices of Purchaser are located in the County of Otsego, State of New York. All
interests in Purchaser are or will be owned by CSX (or its subsidiary), NSC (or
its subsidiary) and Mr. Rich as Purchaser's members.
Until immediately prior to the time that Purchaser purchases Shares
pursuant to the Offer, it is not anticipated that Purchaser will have any
significant assets or liabilities or engage in activities other than those
incident to its formation and capitalization and the transactions contemplated
by the Offer and the Merger. Because Purchaser is newly formed and has minimal
assets and capitalization, no meaningful financial information regarding
Purchaser is available. Buyer will be organized by Purchaser as a New York
corporation shortly prior to the Merger and will have minimal assets and
capitalization.
CSX. CSX is a Virginia corporation with its principal executive offices
located at One James Center, 901 East Cary Street, Richmond, Virginia 23219.
CSX provides rail, intermodal, ocean container-shipping, barging, trucking,
and contract logistics services worldwide. Through its subsidiary, CSXT, CSX
provides rail freight transportation and distribution services over
approximately 18,500 route miles in 20 states in the United States east, midwest
and south, and in Ontario, Canada. CSXT interchanges freight with western
railroads at key gateways in Chicago, East St. Louis, Memphis and New Orleans.
CSXT's service territory includes 26 port cities for international transport. In
1995, the principal commodities hauled by CSXT were coal, chemicals, automotive
parts, finished vehicles, agricultural products, forest products (including
paper, paper products, and lumber products), minerals, fertilizers, and metals.
CSX also transports freight through subsidiaries that conduct
container-shipping, intermodal and barge operations. CSX's subsidiary, Sea-Land
Service Inc. ("Sea-Land"), is the largest container-shipping line in the United
States and one of the three largest container-shipping companies in the world.
Sea-Land operates more than 100 container ships and nearly 200,000 containers
throughout the world. CSX's subsidiary, American Commercial Lines Inc., is the
largest and most diversified barge transportation firm in both North and South
America. CSXT Intermodal, Inc. provides shippers with nationwide intermodal
service for moving domestic and international freight in trailers, domestic
containers and international steamship containers, often in close alignment with
CSXT and Sea-Land.
NSC. NSC is a Virginia corporation with its principal executive offices
located at Three Commercial Place, Norfolk, Virginia 23510-9421.
NSC is a holding company that owns all the common stock of and controls a
major freight railroad, Norfolk Southern Railway Company; a motor carrier, North
American Van Lines, Inc. ("North American"); and a natural resources company,
Pocahontas Land Corporation ("Pocahontas Land"). Norfolk Southern Railway
Company's lines extend over more than 14,300 miles of road in 20 states,
primarily in the United States southeast and midwest, and in the Province of
Ontario, Canada. North American provides household moving and specialized
freight handling services in the United States and Canada, and offers certain
motor
34
<PAGE> 50
carrier services worldwide. Pocahontas Land manages approximately 900,000 acres
of coal, natural gas and timber resources in Alabama, Illinois, Kentucky,
Tennessee, Virginia and West Virginia.
Other. Subsidiaries of NSC and CSX, on the one hand, and the Company, on
the other hand, participate in the normal interchange of rail freight traffic
and are parties to agreements relating to the provision of rail transportation
services. In connection with interchange traffic, either or both railroads of
NSC or CSX and the Company may be the party billing the shipper of such
interchange freight, and, in cases where one of the parties bills for the entire
shipment, such party periodically will remit to the other party the net amount
of the proceeds due to such other carrier in accordance with standard industry
practice. NSC's rail subsidiary interchanges traffic to or from the account of
the Company's principal rail subsidiary, the New York, Susquehanna and Western
Railway Company ("NYS&W"), at Buffalo, New York. NYS&W does not itself haul
freight to Buffalo and directly interchange with NSC. Instead, freight traffic
is hauled for the account of NYS&W between Buffalo and Binghamton, New York, by
a subsidiary of Canadian Pacific Railway Company pursuant to a haulage
arrangement between the Canadian Pacific Railway Company subsidiary and NYS&W.
In 1994, 1995 and 1996, the total loads handled by NSC's rail subsidiary that
were interchanged at Buffalo to or from the account of NYS&W were approximately
40,000, 83,000 and 86,000, respectively.
On January 31, 1996, the Company completed the purchase of a 40% interest
in TP&W. That purchase was made in connection with a restructuring of TP&W's
outstanding debt. CSX was then a creditor of TP&W, with a claim asserted against
TP&W for $5,200,000. In exchange for releasing its claim, CSXT received a
$1,000,000 interest-bearing promissory note from the Company, 100,000 Shares and
20% of the outstanding common shares of TP&W. CSXT has certain governance rights
with respect to TP&W, including the right to participation on its board of
directors and the right to approve certain major decisions.
In May 1997, CSX and NSC, through a jointly owned limited liability
company, acquired more than 50% of the voting stock of Conrail Inc. ("Conrail")
and thereafter effected a merger pursuant to which still outstanding Conrail
stock was canceled and converted into the right to receive cash. Conrail owns
the largest freight railroad in the northeastern United States. CSX and NSC have
entered into certain agreements pursuant to which the assets and liabilities of
Conrail will be allocated to CSX and NSC or shared by CSX and NSC following
approval of such transactions by the United States Surface Transportation Board,
which approval is expected to be obtained by July 1998. Until such approval,
Conrail stock will be held by a voting trust established for such purpose.
CSX and NSC are both subject to the information and reporting requirements
of the Exchange Act and are required to file reports and other information with
the Commission relating to their business, financial condition and other
matters. Information, as of particular dates, concerning CSX's and NSC's
directors and officers, their remuneration, stock options granted to them, the
principal holders of CSX's and NSC's securities, any material interests of such
persons in transactions with CSX and NSC and other matters is required to be
disclosed in proxy statements distributed to CSX's and NSC's shareholders and
filed with the Commission. These reports, proxy statements and other information
should be available for inspection and copies may be obtained in the same manner
as set forth for the Company in "THE TENDER OFFER -- Certain Information
Concerning the Company." The shares of both CSX's and NSC's common stock are
listed on the New York Stock Exchange, Inc. (the "NYSE"), and reports, proxy
statements and other information concerning CSX and NSC should also be available
for inspection at the offices of the NYSE, 20 Broad Street, New York, New York
10005.
The name, citizenship, business address, principal occupation or employment
and five-year employment history for each of the directors and executive
officers of CSX, NSC and Purchaser are set forth in Schedule I hereto.
Mr. Rich. Mr. Rich is President and Chief Executive Officer of Purchaser.
He has been President and Chief Executive Officer of the Company since 1971, and
joined the Company in 1966 as General Manager. Mr. Rich also serves as a
director of Norwich Aero Products, Inc., New York State Business Development
35
<PAGE> 51
Corp., Security Mutual Life Insurance Company of New York, New York State
Electric and Gas Company and TP&W. Mr. Rich was appointed to the New York State
Public Transportation Safety Board in 1993.
Except as set forth in this Offer to Purchase, none of CSX, NSC, Mr. Rich
or Purchaser, nor, to the best knowledge of CSX, NSC and Purchaser, any of the
persons listed in Schedule I hereto, or any associate or majority owned
subsidiary of such persons, beneficially owns any equity security of the
Company, and none of CSX, NSC, Mr. Rich nor Purchaser, nor, to the best
knowledge of CSX, NSC, Mr. Rich and Purchaser, any of the other persons referred
to above, or any of the respective directors, executive officers or subsidiaries
of any of the foregoing, has effected any transaction in any equity security of
the Company during the past 60 days.
Except as set forth in this Offer to Purchase, none of CSX, NSC, Mr. Rich
or Purchaser, nor, to the best knowledge of CSX, NSC, Mr. Rich and Purchaser,
any of the persons listed in Schedule I hereto, has any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of the Company, including, without limitation, any contract,
arrangement, understanding or relationship concerning the transfer or the voting
of any securities of the Company, joint ventures, loan or option arrangements,
puts or calls, guaranties of loans, guaranties against loss, or the giving or
withholding of proxies. Except as set forth in this Offer to Purchase, none of
CSX, NSC, Mr. Rich or Purchaser, nor, to the best knowledge of CSX, NSC, Mr.
Rich and Purchaser, any of the persons listed in Schedule I hereto has had any
transactions with the Company, or any of its executive officers, directors or
affiliates that would require reporting under the rules of the Commission.
Except as set forth in this Offer to Purchase, there have been no contacts,
negotiations or transactions between CSX, NSC or Purchaser, or their respective
subsidiaries, or, to the best knowledge of CSX, NSC or Purchaser, any of the
persons listed in Schedule I hereto, on the one hand, and the Company or its
executive officers, directors or affiliates, on the other hand, concerning a
merger, consolidation or acquisition, tender offer or other acquisition of
securities, election of directors, or a sale or other transfer of a material
amount of assets.
All per share data for periods prior to December 21, 1995 have been
adjusted for the two-for-one common stock split distributed to shareholders on
that date.
9. SOURCE AND AMOUNT OF FUNDS.
Purchaser estimates that the total amount of funds required to purchase
Shares pursuant to the Offer, if fully subscribed, and to pay all related costs
and expenses will be approximately $50 million. See "THE TENDER OFFER -- Fees
and Expenses".
Purchaser plans to obtain the necessary funds through capital contributions
or advances made by CSX and NSC. Each of CSX and NSC plan to obtain the funds
for such capital contributions or advances from its available cash and working
capital.
10. PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY.
The purpose of the Offer is for Purchaser to obtain sufficient equity
interest in the Company to consummate a business combination between Buyer and
the Company. Upon consummation of the Merger, Purchaser intends to continue to
review the combined company and its assets, businesses, operations, properties,
policies, corporate structure, capitalization and management, and consider if
any changes would be desirable in light of the circumstances then existing. See
"SPECIAL FACTORS -- Purpose and Effects of the Offer and the Merger; Reasons for
the Offer and the Merger".
Except as noted in this Offer to Purchase, none of CSX, NSC, Mr. Rich nor
Purchaser has any present plans or proposals that relate to or would result in
(a) an extraordinary corporate transaction, such as a merger, reorganization,
liquidation, or sale or transfer of a material amount of assets, involving the
Company or any of its subsidiaries, (b) any changes in the Company Board or
management, (c) any material change in
36
<PAGE> 52
the Company's present capitalization, corporate structure or business, (d)
causing a class of the Company's securities to be delisted from a national
securities exchange or to cease to be authorized to be quoted in an inter-dealer
quotation system of a registered national securities association, or (e) a class
of the Company's securities becoming eligible for termination of registration
pursuant to Section 12(g)(4) of the Exchange Act.
11. DIVIDENDS AND DISTRIBUTIONS.
As of the date hereof, the Company has not declared or paid any cash
dividends or made any cash distributions, and does not intend to declare or pay,
prior to the Merger, any dividends or make any distributions.
Payment of dividends and distributions by the Company is subject to certain
restrictions contained in agreements in respect of the Company's credit
arrangements.
On February 20, 1997, the Company declared a 5% stock dividend payable to
shareholders of record on February 28, 1997. Such dividend was paid on March 31,
1997, resulting in the issuance of 86,703 Shares. On January 30, 1996, the
Company declared a 5% stock dividend payable to shareholders of record on
February 14, 1996. Such dividend was paid on March 20, 1996, resulting in the
issuance of 82,297 Shares. On December 21, 1995 the Company distributed a
two-for-one common stock split to shareholders.
12. CERTAIN CONDITIONS OF THE OFFER.
Notwithstanding any other provision of the Offer, and in addition to and
not in limitation of Purchaser's rights to extend or amend the Offer at any
time, in its sole discretion (subject to the Merger Agreement), Purchaser shall
not be required to accept for payment of, or, subject to any applicable rules or
regulations of the Commission, pay for any Shares, and may delay the acceptance
of payment of, or, subject to any restriction referred to above, the payment
for, and may terminate the Offer, if (a) the number of Shares tendered pursuant
to the Offer prior to the expiration of the Offer and not withdrawn, together
with the Shares owned by Mr. Rich, Purchaser or any subsidiary of Purchaser or
to be contributed to Purchaser pursuant to binding agreements (which Purchaser,
in its reasonable judgment, believes will be performed) represents, on a fully
diluted basis, less than 66 2/3% of the outstanding Shares, (b) the waiting
periods under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as
amended, and the rules and regulations promulgated thereunder (the "HSR Act")
applicable to the transactions contemplated by the Merger Agreement shall not
have expired or been terminated, if the HSR Act is applicable, or any other
regulatory approvals required under applicable law for consummation of the Offer
shall not have been obtained; or (c) at any time prior to the acceptance for
payment of Shares, any of the following conditions exist:
(i) there shall be instituted, pending or threatened any action,
investigation or proceeding by any domestic or foreign government or
Governmental Entity, or there shall be instituted, pending or threatened
any action or proceeding by any other person, domestic or foreign, before
any domestic or foreign court or Governmental Entity (other than
shareholder litigation by shareholders of the Company acting in their
capacity as shareholders of the Company and other than actions or
proceedings by any person before a Governmental Entity to the extent that
such person seeks the imposition of conditions in proceedings pending as of
the date of the Merger Agreement), (A) challenging or seeking to make
illegal, to delay materially or otherwise, directly or indirectly, to
restrain or prohibit the making of the Offer, the acceptance for payment of
or payment for some of or all the Shares by Purchaser or the consummation
of the Merger, seeking to obtain material damages or imposing any material
adverse conditions in connection therewith or otherwise, directly or
indirectly, relating to the transactions contemplated by the Offer or the
Merger, (B) seeking to restrain, prohibit or delay the exercise of full
rights of ownership or operation by Purchaser or its affiliates of all or
any portion of the business or assets of the Company and its subsidiaries,
taken as a whole, or of Purchaser or any of its affiliates, or to compel
Purchaser or any of its affiliates to dispose of or hold separate all or
any material portion of the business or assets of the Company and its
subsidiaries, taken as a whole, or of Purchaser or any of its affiliates,
(C) seeking to impose or confirm limitations on the ability of Purchaser or
any of its affiliates effectively
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<PAGE> 53
to exercise full rights of ownership of the Shares, including, without
limitation, the right to vote any Shares acquired or owned by Purchaser or
any of its affiliates on all matters properly presented to the
38
<PAGE> 54
Company's shareholders or (D) seeking to require divestiture by Purchaser
or any of its affiliates of any Shares; or
(ii) there shall be any action taken, or any statute, rule,
regulation, injunction, order or decree proposed, enacted, enforced,
promulgated, issued or deemed applicable to, or any consent or approval
withheld with respect to the Offer, the acceptance for payment of or
payment for any Shares or the Merger, by any domestic or foreign court or
government or Governmental Entity that, in the reasonable judgment of
Purchaser, might, directly or indirectly, result in any of the consequences
referred to in sub-clauses (A) through (D) of clause (i) above; or
(iii) the Company shall have breached or failed to perform in any
material respect any of its covenants or agreements under the Merger
Agreement, which breach or failure to perform shall not have been cured, or
any of the representations and warranties of the Company set forth in the
Merger Agreement shall not be true in any material respect when made or at
any time prior to consummation of the Offer as if made at and as of such
time and shall continue to be untrue; or
(iv) the Merger Agreement shall have been terminated in accordance
with its terms or all conditions (other than the condition pertaining to
shareholder approval) to the consummation of the Merger shall not have been
satisfied;
which, in the reasonable judgment of Purchaser in any such case, and regardless
of the circumstances giving rise to any such condition, makes it inadvisable to
proceed with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Purchaser and may be
asserted by Purchaser regardless of the circumstances giving rise to any such
condition (including any action or omission by Purchaser) or may be waived by
Purchaser, in whole or in part, at any time and from time to time, in its
reasonable discretion. The failure by Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right; the waiver
of any such right with respect to particular facts and other circumstances shall
not be deemed a waiver with respect to any other facts and circumstances; and
each such right shall be deemed an ongoing right that may be asserted at any
time and from time to time.
13. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS.
Rule 13e-3. The Commission has adopted Rule 13e-3 under the Exchange Act
which is applicable to the Merger and other such "going private" transactions in
which a purchaser seeks to acquire the remaining Shares not held by it. Rule
13e-3 under the Exchange Act requires, among other things, that certain
financial information concerning the Company and certain information relating to
the fairness of the proposed transaction and the consideration offered to
minority shareholders in such transaction, be filed with the Commission and
disclosed to shareholders prior to consummation of the transaction.
General. Except as otherwise disclosed herein, based on representations
and warranties made by the Company in the Merger Agreement and a review of
publicly available information filed by the Company with the Commission, neither
Purchaser nor CSX, NSC or Mr. Rich is aware of (a) any license or regulatory
permit that appears to be material to the business of the Company and its
subsidiaries, taken as a whole, that might be adversely affected by the
acquisition of Shares by Purchaser pursuant to the Offer or the Merger,
respectively, or (b) any approval or other action by any Governmental Entity,
that would be required for the acquisition or ownership of Shares by Purchaser
as contemplated herein. Should any such approval or other action be required,
Purchaser currently contemplates that such approval or action would be sought.
While Purchaser does not currently intend to delay the acceptance for payment of
Shares tendered pursuant to the Offer pending the outcome of any such matter,
there can be no assurance that any such approval or action, if needed, would be
obtained or would be obtained without substantial conditions or that adverse
consequences might not result to the business of the Company or Purchaser or
that certain parts of the businesses of the Company might not have to be
disposed of in the event that any such approvals were not obtained or any other
actions were not taken. Purchaser's obligation under the Offer to accept for
payment and pay for Shares is subject to certain conditions. See "THE TENDER
OFFER -- Certain Conditions of the Offer."
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<PAGE> 55
Antitrust. Under the HSR Act, certain acquisition transactions may not be
consummated unless certain information has been furnished to the Antitrust
Division of the United States Department of Justice (the "Antitrust Division")
and the United States Federal Trade Commission (the "FTC") and certain waiting
period requirements have been satisfied. Purchaser does not believe that the HSR
Act is applicable to the Offer or the Merger.
Notwithstanding the inapplicability of the HSR Act, the FTC and the
Antitrust Division frequently scrutinize the legality under the antitrust laws
of transactions such as the proposed acquisition of Shares by Purchaser pursuant
to the Offer. At any time before or after the purchase by Purchaser of Shares
pursuant to the Offer, the FTC or the Antitrust Division could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the purchase of Shares pursuant to the
Offer or seeking the divestiture of Shares purchased by Purchaser. Private
parties and state governments may also bring legal action under the antitrust
laws under certain circumstances. There can be no assurance that a challenge to
the Offer on antitrust grounds will not be made, or if such a challenge is made,
of the result. See "THE TENDER OFFER -- Certain Conditions Of the Offer" for the
certain conditions to the Offer, including conditions with respect to litigation
and certain government actions.
Surface Transportation Board. Purchaser does not believe that the Offer or
the Merger will require the approval of, or exemption from, the United States
Surface Transportation Board.
State Takeover Statutes. A number of states throughout the United States
have enacted takeover statutes that purport, in varying degrees, to be
applicable to attempts to acquire securities of corporations that are
incorporated or have assets, shareholders, executive offices or places of
business in such states. In Edgar v. Mite Corp., the Supreme Court of the United
States held that the Illinois Business Takeover Act, which involved state
securities laws that made the takeover of certain corporations more difficult,
imposed a substantial burden on interstate commerce and therefore was
unconstitutional. In CTS Corp. v. Dynamics Corp. of America, however, the
Supreme Court of the United States held that a state may, as a matter of
corporate law and, in particular, those laws concerning corporate governance,
constitutionally disqualify a potential acquiror from voting on the affairs of a
target corporation without prior approval of the remaining shareholders,
provided that such laws were applicable only under certain conditions.
The Company, directly or through subsidiaries, conducts business in a
number of states throughout the United States, some of which states have enacted
takeover laws. Purchaser does not know whether any of these laws will, by their
terms, apply to the Offer and has not complied with any such laws. Should any
person seek to apply any state takeover law, Purchaser will take such action as
then appears desirable, which may include challenging the validity or
applicability of any such statute in appropriate court proceedings. In the event
it is asserted that one or more state takeover laws are applicable to the
transactions, and an appropriate court does not determine that such law is, or
such laws are inapplicable or invalid as applied to the Offer, Purchaser might
be required to file certain information with, or receive approvals from, the
relevant state authorities. In addition, if enjoined, Purchaser might be unable
to accept for payment any Shares tendered pursuant to the Offer, or be delayed
in continuing or consummating the Offer. In such case, Purchaser may not be
obligated to accept for payment any Shares tendered. See "THE TENDER OFFER --
Miscellaneous".
In general, Section 912 of the NYBCL (the "New York Takeover Statute")
prevents an "interested shareholder" (defined in the New York Takeover Statute
generally as a person that is the "beneficial owner" (as defined in the New York
Takeover Statute)) of 20% or more of a domestic New York corporation's
outstanding voting stock from engaging in a "business combination" (defined in
the New York Takeover Statute as a variety of transactions, including mergers,
as set forth in the second following paragraph) with such corporation for five
years following the date such person became an interested shareholder unless the
board of directors approved such business combination or stock acquisition prior
to the date the shareholder became an interested shareholder. In addition, no
domestic New York corporation may engage in a business combination at any time
other than as follows: (a) the board of directors of the corporation approved
the business combination before the interested shareholder party to such
business combination became an interested shareholder, (b) not earlier than five
years after the shareholder became an interested shareholder,
40
<PAGE> 56
a majority of the outstanding voting stock not beneficially owned by the
interested shareholder approved the business combination; or (c) the business
combination meets certain conditions, including minimum per share and aggregate
prices (determined in accordance with the statutory rules contained in the New
York State Takeover Statute), the form of consideration used in such business
combination, the application of such rules to all shareholders (other than the
interested shareholder), and certain restrictions on the acquisition of
additional shares by the interested shareholder after the date such shareholder
became an interested shareholder and prior to the consummation of such business
combination.
Under the New York Takeover Statute, the restrictions described above do
not apply if, among other things: (a) a corporation does not have a class of
voting securities registered with the Commission pursuant to the Exchange Act,
unless the corporation's certificate of incorporation provides otherwise; (b) a
corporation has amended its certificate of incorporation to subject the
corporation to the provisions of the New York Takeover Statute and, at the time
of such amendment, (i) the corporation did not have any class of voting
securities registered with the Commission pursuant to the Exchange Act and (ii)
the business combination in question is with an interested shareholder whose
stock acquisition date is prior to the effective date of such amendment; (c) the
corporation's original certificate of incorporation contains a provision
expressly electing not to be governed by the New York Takeover Statute; (d) the
corporation, by action of its board of directors, adopts an amendment to its
bylaws prior to March 31, 1986 expressly electing not to be governed by the New
York Takeover Statute; (e) the corporation, by action of a majority of its
shareholders (other than interested shareholders and their affiliates and
associates), adopts an amendment to its bylaws expressly electing not to be
governed by the New York Takeover Statute, which amendment (i) does not take
effect until 18 months after the adoption of such amendment and (ii) does not
apply to any business combination with any person who became an interested
shareholder of the corporation on or prior to the effective date of such
amendment; (f) a shareholder becomes an interested shareholder "inadvertently"
and (i) as soon as practicable thereafter divests itself of a sufficient number
of shares so that such shareholder ceases to be an interested shareholder and
(ii) but for the inadvertent acquisition, would not have been an interested
shareholder at any time during the last five years; and (g) an interested
shareholder was the beneficial owner of 5% or more of the outstanding voting
stock of such corporation on October 30, 1985 and remained such through the time
such shareholder became an interested shareholder.
The New York Takeover Statute provides that, during the five-year period
following the date a person becomes an interested shareholder, the corporation
may not merge or consolidate with an interested shareholder or any affiliate or
associate thereof, and also may not engage in certain other transactions with an
interested shareholder or any affiliate or associate thereof, including, without
limitation, the following: (a) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of assets having an aggregate market value equal
to 10% or more of (i) the aggregate market value of either (A) all of the
corporation's assets or (B) all of the corporation's outstanding stock or (ii)
the corporation's earning power or net income (determined on a consolidated
basis); (b) any transaction which results in the issuance or transfer by the
corporation (or any of its subsidiaries) of any stock of the corporation (or any
of its subsidiaries) having an aggregate market value equal to 5% or more of the
aggregate market value of all the outstanding stock of such corporation (or
subsidiary) to the interested shareholder, subject to certain pro rata
distributions; (c) a plan or proposal to liquidate or dissolve the corporation
proposed by an interested shareholder; (d) any transaction involving the
corporation or any majority owned subsidiary thereof which has the effect of
increasing the proportionate shares of any class or series, or securities
convertible into the shares of any class or series, of voting stock of the
corporation or any such subsidiary which is owned by the interested shareholder
(except as a result of immaterial changes due to fractional share adjustments);
or (e) the receipt by an interested shareholder of the benefit (other than
proportionately as a shareholder of such corporation) of any loans, advances,
guarantees, pledges or other financial benefits provided by or through the
corporation.
14. FEES AND EXPENSES.
Except as set forth below, Purchaser will not pay any fees or commissions
to any broker, dealer or other person for soliciting tenders of Shares pursuant
to the Offer.
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<PAGE> 57
The Merger Agreement provides, except in certain cases in which the Merger
is not consummated, as summarized under "SPECIAL FACTORS -- The Merger Agreement
and Related Agreements", that all fees, costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
shall be paid by the party incurring such fees, costs and expenses, whether or
not the transactions contemplated by the Merger Agreement are consummated; and
it is expected that such fees, other than printing fees and certain legal fees
incurred by Mr. Rich, which are expected to be paid by the Company following the
Merger, will be paid by such parties.
Purchaser, Mr. Rich, CSX and NSC have retained MacKenzie Partners, Inc., as
the Information Agent, and Citibank, N.A., as the Depositary, in connection with
the Offer. The Information Agent may contact holders of Shares by mail,
telephone, telex, telecopy, telegraph and personal interview, and may request
banks, brokers, dealers and other nominee shareholders to forward materials
relating to the Offer to beneficial owners.
As compensation for acting as Information Agent, Purchaser will pay
MacKenzie Partners, Inc. a reasonable and customary fee and will also be
reimbursed for certain out-of-pocket expenses and may be indemnified against
certain liabilities and expenses in connection with the Offer, including certain
liabilities under the United States federal securities laws. Purchaser will pay
the Depositary reasonable and customary compensation for its services, plus
reimbursement for out-of-pocket expenses, and will indemnify the Depositary
against certain liabilities and expenses in connection therewith, including
under United States federal securities laws. Brokers, dealers, commercial banks
and trust companies will be reimbursed by Purchaser for customary handling and
mailing expenses incurred by them in forwarding material to their customers.
The following is an estimate of expenses to be incurred in connection with
the Offer and the Merger:
<TABLE>
<S> <C>
EXPENSES TO BE PAID BY PURCHASER AND ITS AFFILIATES:
Legal Fees............................................................. $ 750,000
Printing and Mailing................................................... 100,000
Advertising............................................................ 70,000
Filing Fees............................................................ 10,000
Depositary Fees........................................................ 2,500
Information Agent Fees................................................. 15,000
Miscellaneous.......................................................... 5,000
----------
Total.......................................................... $ 952,500
==========
EXPENSES TO BE PAID BY THE COMPANY:
Financial Advisor...................................................... $ 875,000
Legal Fees............................................................. 150,000
Miscellaneous.......................................................... 5,000
----------
Total.......................................................... $1,030,000
==========
</TABLE>
15. MISCELLANEOUS.
Purchaser is not aware of any jurisdiction where the making of the Offer is
prohibited by any administrative or judicial action pursuant to any valid United
States state statute. If Purchaser becomes aware of any such valid United States
state statute prohibiting the making of the Offer or the acceptance of Shares
pursuant thereto, Purchaser will make a good faith effort to comply with any
such United States state statute. If, after such good faith effort, Purchaser
cannot comply with any such United States state statute, the Offer will not be
made to (nor will tenders be accepted from or on behalf of) the holders of
Shares in such state. In any jurisdiction where the securities, blue sky or
other laws require the Offer to be made by a licensed broker
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<PAGE> 58
or dealer, the Offer shall be deemed to be made on behalf of Purchaser by one or
more registered brokers or dealers licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF PURCHASER OR THE COMPANY NOT CONTAINED IN THIS OFFER
TO PURCHASE OR IN THE LETTER OF TRANSMITTAL, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
CSX, NSC, Mr. Rich and Purchaser have filed the Schedule 14D-1 and the
Schedule 13E-3, and the Company has filed the Schedule 14D-9. The Company's
recommendation with respect to the Offer and other information required to be
disseminated to shareholders of the Company pursuant to Rule 14d-9 under the
Exchange Act is contained in this Offer to Purchase. Such statements, which
furnish certain additional information with respect to the Offer, may be
examined and copies may be obtained at the same places and in the same manner
set forth in "THE TENDER OFFER -- Certain Information Concerning the Company"
(except that they will not be available at regional offices of the Commission).
The Schedule 14D-1 and the Schedule 13E-3, including exhibits, may be inspected
at, and copies may be obtained from, the same places and in the same manner as
set forth in "THE TENDER OFFER -- Certain Information Concerning the Company"
(except that they will not be available at the regional offices of the
Commission).
DOCP ACQUISITION LLC
August 22, 1997
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<PAGE> 59
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS
OF PURCHASER, CSX AND NSC
1. Directors and Executive Officers of Purchaser. The following table sets
forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employments, and business addresses thereof for the past five years of each
person currently expected to be a director or executive officer of Purchaser.
Each such individual is a citizen of the United States and has held the
positions as set forth below for the past five years. Unless otherwise
indicated, each occupation set forth opposite an individual's name refers to
employment with Purchaser. As stated under "SPECIAL FACTORS -- The Merger
Agreement and Related Agreements," Purchaser's Board will consist of Mr. Rich,
four designees of Mr. Rich and one designee of each of CSX and NSC. It is
currently not known who will be Mr. Rich's, NSC's or CSX's designees or who will
serve as executive officers other than Mr. Rich. Directors are indicated by an
asterisk.
<TABLE>
<CAPTION>
NAME AND CURRENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS
BUSINESS ADDRESS HELD DURING THE PAST FIVE YEARS
- --------------------------------- ----------------------------------------------------------
<S> <C>
Walter G. Rich*.................. President & Chief Executive Officer, the Company and all
wholly
1 Railroad Avenue owned subsidiaries, since 1971. Director of Norwich Aero
Cooperstown, New York 13326 Products, Inc., New York State Business Development Corp.,
Security Mutual Life Insurance Company of New York, New
York State Electric and Gas Company and The Toledo, Peoria
and Western Railroad Corporation. Member, New York Public
Transportation Safety Board (since 1993). Director of the
Company since 1968.
</TABLE>
2. Directors and Executive Officers of CSX. The following table sets forth
the name, current business address, citizenship and present principal occupation
or employment, and material occupations, positions, offices or employments, and
business addresses thereof for the past five years of each director and
executive officer of CSX. Unless otherwise indicated, the current business
address of each individual is One James Center, 901 East Cary Street, Richmond,
VA 23219. Unless otherwise indicated, each such individual is a citizen of the
United States and has held his or her present position as set forth below for
the past five years. Unless otherwise indicated, each occupation set forth
opposite an individual's name refers to employment with CSX. Where no date is
given for the commencement of the indicated office or position, such office or
position was assumed prior to December 6, 1991. Directors are indicated by an
asterisk.
<TABLE>
<CAPTION>
NAME AND CURRENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS
BUSINESS ADDRESS HELD DURING THE PAST FIVE YEARS
- --------------------------------- ----------------------------------------------------------
<S> <C>
John Q. Anderson................. Executive Vice President, Sales and Marketing, CSXT, since
May 1996. Prior thereto, Senior Vice President -- Coal,
Metals and Minerals Business of Burlington Northern Santa
Fe Corporation and Executive Vice President of Burlington
Northern Railroad.
Mark G. Aron..................... Executive Vice President -- Law and Public Affairs, CSX,
since April 1995. Prior thereto, Senior Vice
President -- Law and Public Affairs, CSX.
Elizabeth E. John C. Hower Professor of Public Policy and Management,
Bailey*.......................... The Wharton School of the University of Pennsylvania.
3620 Spruce Street Director of College Retirement Equities Fund, Honeywell,
Philadelphia, PA 19104 Inc. and Philip Morris Companies, Inc. Director of CSX
since November 1989.
</TABLE>
I-1
<PAGE> 60
<TABLE>
<CAPTION>
NAME AND CURRENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS
BUSINESS ADDRESS HELD DURING THE PAST FIVE YEARS
- --------------------------------- ----------------------------------------------------------
<S> <C>
Robert L. Burrus, Partner in and Chairman of McGuire, Woods, Battle &
Jr.*............................. Boothe, a Virginia law firm. Director of Concepts Direct,
One James Center Inc., Heilig-Meyers Company; O'Sullivan Corporation, S&K
901 East Cary Street Famous Brands, Inc. and Smithfield Foods, Inc., Director
Richmond, VA 23219 of CSX since April 1993.
Alvin R. Carpenter............... President and Chief Executive Officer, CSXT, since January
1992.
John P. Clancey.................. President and Chief Executive Officer, Sea-Land, since
August 1991.
Donald D. Davis.................. Senior Vice President -- Employee Relations, CSXT, since
April 1992.
Andrew B. Fogarty................ Senior Vice President -- Corporate Services, CSX, since
August 1997. Prior thereto, Senior Vice
President -- Finance & Planning, Sea-Land, beginning June
1996, Vice President -- Audit and Advisory Services, CSX,
from February 1995 to June 1996, and Vice
President -- Executive Department, CSX.
Paul R. Goodwin.................. Executive Vice President -- Finance and Chief Financial
Officer, CSX, since April 1995, Executive Vice
President -- Finance and Administration, CSXT, from
February 1995 to April 1995. Prior thereto, Senior Vice
President -- Finance, CSXT.
Bruce C. Chairman and Chief Executive Officer of Ethyl Corporation,
Gottwald*........................ a worldwide producer of petroleum additives. Director of
330 South Fourth Street James River Corporation and Tredegar Industries, Inc.
P.O. Box 2189 Director of CSX since April 1988.
Richmond, VA 23219
Robert J. Grassi................. Senior Vice President -- Finance and Planning and Chief
Financial Officer, Sea-Land, since August 1997. Prior
thereto, Senior Vice President -- Atlantic, AME Services,
Sea-Land, beginning June 1996 and, Senior Vice
President -- Finance and Planning, Sea-Land.
Michael C. Hagan................. President and Chief Executive Officer, American Commercial
Lines, Inc., since May 1992.
John R. Retired Chairman of Ashland Inc., a diversified energy
Hall*............................ company with operations in petroleum refining and
100 Ashland Dr. marketing, chemicals, highway construction, oil and gas
Russell, KY 41169 applications and coal. Director of Banc One Corporation,
The Canada Life Assurance Company, Humana Inc., LaRoche
Industries Inc., Reynolds Metals Company and UCAR
International Inc. Director of CSX since May 1994.
Robert D. Vice Chairman of HFS, Inc. and Chairman, President and
Kunisch*......................... Chief Executive Officer, PHH Corporation, provider of
11333 McCormick Rd. value added business services, including vehicle
Hunt Valley, MD 21031 management services, real estate and mortgage banking
services. Director of Mercantile Bankshares Corporation
and GenCorp. Director of CSX since October 1990.
</TABLE>
I-2
<PAGE> 61
<TABLE>
<CAPTION>
NAME AND CURRENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS
BUSINESS ADDRESS HELD DURING THE PAST FIVE YEARS
- --------------------------------- ----------------------------------------------------------
<S> <C>
Hugh L. McColl Chief Executive Officer, NationsBank Corporation, a bank
Jr.*............................. holding company. Prior thereto, Chairman and Chief
NationsBank Corporate Center Executive Officer, NCNB Corporation, a predecessor of
Charlotte, NC 28255 NationsBank Corporation. Director of Jefferson-Pilot
Corporation, Jefferson-Pilot Life Insurance Company,
Ruddick Corporation and Sonoco Products Co. Director of
CSX since February 1992.
James W. Chairman and Chief Executive Officer of The United
McGlothlin*...................... Company, a diversified energy company. Director of Basset
P.O. Box 1280 Furniture Industries, Inc. Director of CSX since November
Bristol, VA 24203 1989.
Southwood J. Chairman and Chief Executive Officer of Dana Corporation,
Morcott*......................... a manufacturer of automotive and truck parts and provider
4500 Dorr Street of commercial credit. Previously, Chairman, President and
Toledo, OH 43615 Chief Executive Officer of Dana Corporation. Director of
Johnson Controls, Inc. and Phelps Dodge Corporation.
Director of CSX since July 1990.
Jesse R. Mohorovic............... Vice President -- Executive Department, CSX, since
February 1995. From April 1994 to February 1995, Vice
President -- Corporate Communications, CSXT. Prior
thereto, Vice President -- Corporate Communications,
Sea-Land.
Richard E. Murphy................ Senior Vice President -- Corporate Marketing, Sea-Land,
since June 1996. Prior thereto, Senior Vice
President -- Atlantic AME Services, Sea-Land, from June
1995 to June 1996; Vice President -- Pacific Services,
Sea-Land, from 1993 to 1995, and Vice President -- Pacific
Services, Sea-Land.
Gerald L. Nichols................ Executive Vice President and Chief Operating Officer,
CSXT, since February 1995. Prior thereto, Senior Vice
President -- Administration, CSXT.
Charles G. Raymond............... Senior Vice President and Chief Transportation Officer,
Sea-Land, since May 1995. Prior thereto, Senior Vice
President -- Operations and Inland Transportation,
Sea-Land.
Charles E. Chairman and Chief Executive Officer, Barnett Banks, Inc.,
Rice*............................ a bank holding company. Director of Sprin Corporation.
50 North Laura Street Director of CSX since April 1990.
Jacksonville, FL 32202
William C. President and Chief Executive Officer, W.K. Kellogg
Richardson*...................... Foundation, a major philanthropic institution, since 1995.
1 Michigan Avenue Prior thereto, President, The Johns Hopkins University.
Battle Creek, MI 49017 Director of The Kellogg Company, Mercantile Bankshares
Corporation and Mercantile Safe Deposit & Trust Company.
Director of CSX since December 1992.
James L. Ross.................... Vice President and Controller, CSX, since May 1996. Prior
thereto, President -- Special Projects, CSX, from October
1995 to May 1996, and Audit Partner, Ernst Young, LLP.
Frank S. Physician. Director of Columbia/HCA Healthcare
Royal*........................... Corporation, Crestar Financial Corporation, Chesapeake
1122 North 25th Street Corporation and Dominion Resources, Inc. Director of CSX
Richmond, VA 23223 since January 1994.
</TABLE>
I-3
<PAGE> 62
<TABLE>
<CAPTION>
NAME AND CURRENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS
BUSINESS ADDRESS HELD DURING THE PAST FIVE YEARS
- --------------------------------- ----------------------------------------------------------
<S> <C>
John W. Snow*.................... Chairman of the Board, President and Chief Executive
Officer, CSX, since February 1991. Director of Circuit
City Stores, Inc., NationsBank Corporation, Bassett
Furniture Industries, Inc., Textron, Inc. and USX
Corporation. Director of CSX since April 1988.
Ronald T. Sorrow................. Chairman, President and Chief Executive Officer, CSX
Intermodal, Inc., since January 1997. Prior thereto,
President and Chief Executive Officer, CSX Intermodal,
Inc., from January 1996 to January 1997, and Vice
President -- Sales and Marketing, CSX Intermodel, Inc.
William H. Sparrow............... Vice President -- Financial Planning, CSX, since February
1996. Vice President -- Capital Budgeting, CSX, from May
1994 to February 1996. Prior thereto, Vice President and
Treasurer, CSX.
Michael J. Ward.................. Executive Vice President, CSXT, since June 1996. Senior
Vice President -- Finance, CSXT, from April 1995 to June
1996. Prior thereto, General Manager -- C&O Business Unit,
from 1994 to April 1995, and Vice President -- Coal, CSXT.
Gregory W. Weber................. Vice President and Treasurer, CSX, since May 1996. Prior
thereto, Vice President and Controller, CSX, and
Treasurer, CSX, from May 1994 to May 1996.
</TABLE>
3. Directors and Executive Officers of NSC. The following table sets forth
the name, current business address, citizenship and present principal occupation
or employment, and material occupations, positions, offices or employments and
business addresses thereof for the past five years of each director and
executive officer of NSC. Unless otherwise indicated, the current business
address of each individual is Three Commercial Place, Norfolk, Virginia 23510.
Unless otherwise indicated, each such individual is a citizen of the United
States and has held his or her present position as set forth below for the past
five years. Unless otherwise indicated, each occupation set forth opposite an
individual's name refers to employment with NSC. Directors are indicated by an
asterisk.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR
NAME AND CURRENT EMPLOYMENT; MATERIAL POSITIONS
BUSINESS ADDRESS HELD DURING THE PAST FIVE YEARS
<S> <C>
David R. Goode*.................. Chairman, President and Chief Executive Officer, NSC,
since September 1992. Prior thereto, President, NSC.
Director of Caterpillar, Inc., since June 1993,
Georgia-Pacific Corporation, since July 1992,
Aeroquip-Vickers, Inc. (formerly TRINOVA Corporation),
since January, 1993, and Texas Instruments Incorporated,
since February 1996.
James C. Bishop, Jr.............. Executive Vice President -- Law, NSC, since March 1996.
Prior thereto, Vice President -- Law, NSC.
R. Alan Executive Vice President -- Transportation Logistics, NSC,
Brogan........................... and President, North American, since December 1992. Prior
P.O. Box 988 thereto, Vice President -- Quality Management, NSC.
Fort Wayne, IN 46801-0988
L.I. Prillaman................... Executive Vice President -- Marketing, NSC, since October
1995. Prior thereto, Vice President -- Properties, NSC,
from December 1992 to October 1995, and Vice President and
Controller, NSC.
</TABLE>
I-4
<PAGE> 63
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR
NAME AND CURRENT EMPLOYMENT; MATERIAL POSITIONS
BUSINESS ADDRESS HELD DURING THE PAST FIVE YEARS
<S> <C>
Stephen C. Tobias................ Executive Vice President -- Operations, NSC, since July
1994. Prior thereto, Senior Vice President -- Operations,
NSC, from October 1993 to July 1994, Vice
President -- Strategic Planning, NSC, from December 1992
to October 1993, and Vice President -- Transportation,
NSC.
Henry C. Wolf.................... Executive Vice President -- Finance, NSC, since June 1993.
Prior thereto, Vice President -- Taxation, NSC.
John F. Senior Vice President -- Public Affairs, NSC, since August
Corcoran......................... 1997. Prior thereto, Vice President -- Public Affairs,
1500 K Street, N.W., NSC.
Suite 375
Washington, DC 20005
Paul N. Austin................... Vice President -- Personnel, NSC, since June 1994,
Assistant Vice President -- Personnel, NSC from February
1993 to June 1994. Prior thereto,
Director -- Compensation, NSC.
David A. Cox..................... Vice President -- Properties, NSC, since December 1995.
Prior thereto, Assistant Vice President -- Industrial
Development, NSC.
Thomas L. Finkbiner.............. Vice President -- Intermodal, NSC, since August 1993.
Prior thereto, Senior Assistant Vice
President -- International and Intermodal, NSC, from April
to August 1993, and Assistant Vice
President -- International and Intermodal, NSC.
Nancy S. Fleischman.............. Vice President, NSC, since August 1997. Prior thereto,
Assistant Vice President -- Strategic Planning, NSC, from
November 1993 to August 1997, and Senior General Attorney,
NSC.
Robert C. Fort................... Vice President -- Public Relations, NSC, since December
1996. Prior thereto, Assistant Vice President -- Public
Relations, NSC.
John W. Fox, Vice President -- Coal Marketing, NSC, since October 1995.
Jr............................... Prior thereto, Assistant Vice President -- Coal Marketing,
110 Franklin Rd., S.E. NSC, from August 1993 to October 1995, and General Manager
Roanoke, VA 24042 Eastern Region, NSC.
Thomas J. Golian................. Vice President, NSC, since October 1995. Prior thereto,
Executive Assistant to the Chairman, President and Chief
Executive Officer, NSC, from April 1993 to October 1995,
and Special Assistant to the President, NSC.
James L. Vice President -- Public Affairs, NSC, since March 1992.
Granum...........................
1500 K Street, N.W.
Suite 375
Washington, DC 20005
James A. Hixon................... Vice President -- Taxation, NSC, since June 1993. Prior
thereto, Assistant Vice President -- Tax Counsel, NSC.
</TABLE>
I-5
<PAGE> 64
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR
NAME AND CURRENT EMPLOYMENT; MATERIAL POSITIONS
BUSINESS ADDRESS HELD DURING THE PAST FIVE YEARS
<S> <C>
Jon L. Manetta................... Vice President -- Transportation & Mechanical, NSC, since
December 1995. Prior thereto, Vice
President -- Transportation, NSC, from June 1994 to
December 1995, Assistant Vice President -- Transportation,
NSC from October 1993 to June 1994, Assistant Vice
President -- Strategic Planning, NSC, from January 1993 to
October 1993, and Director Joint Facilities and Budget,
NSC.
Harold C. Mauney, Jr............. Vice President -- Public Affairs, NSC, since August 1997.
Prior thereto, Vice President -- Operations Planning and
Budget, NSC, from December 1996 to August 1997, and Vice
President -- Quality Management, NSC.
Donald W. Vice President -- Research and Tests, NSC since December
Mayberry......................... 1995. Prior thereto, Vice President -- Mechanical, NSC.
110 Franklin Rd., S.E.
Roanoke, VA 24042
James W. McClellan............... Vice President -- Strategic Planning, NSC since October
1993. Prior thereto, Assistant Vice President -- Corporate
Planning, NSC.
Kathryn B. Vice President -- Internal Audit, NSC since December 1992.
McQuade.......................... Prior thereto, Director -- Income Tax Administration, NSC.
110 Franklin Rd., S.E.
Roanoke, VA 24042
Charles W. Moorman............... Vice President -- Information Technology, NSC since
October 1993. Prior thereto, Vice President -- Employee
Relations, NSC, from December 1992 to October 1993, and
Vice President -- Personnel and Labor Relations, NSC.
Phillip R. Vice President -- Engineering, NSC, since December 1992.
Ogden............................ Prior thereto, Assistant Vice President -- Maintenance,
99 Spring Street, S.W. NSC. Director of Norfolk and Portsmouth Belt Line Railroad
Atlanta, GA 30303 Company, since December 1993.
John P. Rathbone................. Vice President and Controller, NSC, since December 1992.
Prior thereto, Assistant Vice President -- Internal Audit,
NSC.
William J. Romig................. Vice President and Treasurer, NSC, since April 1992.
Donald W. Seale.................. Vice President -- Merchandise Marketing, NSC, since August
1993. Prior thereto, Assistant Vice President -- Sales and
Service, NSC, from May 1992 to August 1993, and
Director -- Metals, Waste and Construction, NSC.
Robert S. Spenski................ Vice President -- Labor Relations, NSC, since June 1994.
Prior thereto, Senior Assistant Vice President -- Labor
Relations, NSC.
Rashe W. Stephens, Jr............ Vice President -- Quality Management, NSC, since December
1996. Prior thereto, Assistant Vice President -- Public
Affairs, NSC, from February 1993 to December 1996, and
Director, Equal Employment Officer and Manpower Planning,
NSC.
William C. Wooldridge............ Vice President -- Law, NSC, since March 1996. Prior
thereto, General Counsel -- Corporate, NSC.
Dezora M. Martin................. Corporate Secretary, NSC, since April 1995. Prior thereto,
Assistant Corporate Secretary, NSC, from October 1993 to
April 1995, and Assistant Corporate Secretary -- Planning,
NSC.
</TABLE>
I-6
<PAGE> 65
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR
NAME AND CURRENT EMPLOYMENT; MATERIAL POSITIONS
BUSINESS ADDRESS HELD DURING THE PAST FIVE YEARS
<S> <C>
Gerald L. Partner, Hunton & Williams, since 1990. Director of
Baliles*......................... Dibrell Brothers, Inc., from March 1992 to March 1995, and
Hunton & Williams Newport News Shipbuilding Inc. (since 1997). Director of
951 E. Byrd St. NSC since 1990.
Riverfront Plaza, East Tower
Richmond, VA 23219-4074
Carroll A. Campbell, President and Chief Executive Officer, American Council of
Jr.*............................. Life Insurance, since January 1995. Prior thereto,
American Council of Governor of South Carolina, from January 1987 to January
Life Insurance 1995. Director of AVX Corporation, since July 1995, FLUOR
1001 Pennsylvania Ave., N.W. Corporation (since January 1995 and Wackenhut Corporation,
Washington, DC 20004 since April 1997. Director of NSC, since July 1996.
Gene R. Executive Director, Association for Supervision and
Carter*.......................... Curriculum Development (since July 1992), Superintendent
Association for Supervision of Schools, Norfolk, Virginia (from July 1983 to June
and Curriculum Development 1992). Director of NSC, since 1992.
1250 N. Pitt Street
Alexandria, VA 22314-1403
L.E. Chairman, The Lubrizol Corporation, from January 1996 to
Coleman*......................... March 1996. Prior thereto, Chairman of the Board and Chief
7 Trillium Lane, Eastman Executive Officer, from April 1982 to December 1995.
Grantham, NH 03753 Director of The Lubrizol Corporation, since 1982, and
Harris Corporation, since January 1985. Director of NSC,
since 1982.
T. Marshall Hahn, Honorary Chairman of the Board, Georgia-Pacific
Jr.*............................. Corporation, since December 1993. Prior thereto, Chairman
Georgia-Pacific Corporation of the Board, NSC, from May 1993 to December 1993, and
P.O. Box 105605 Chairman of the Board and Chief Executive Officer, NSC,
Atlanta, GA 30348-5605 from February 1985 to May 1993. Director of SunTrust
Banks, Inc., from 1984 to April 1997, Trust Company Bank
of Georgia from 1987 to April 1997, and Coca-Cola
Enterprises, from 1987 to April 1997. Director of NSC,
since 1985.
Landon Partner, Brown Brothers Harriman & Co., since January
Hilliard*........................ 1979. Director of Owens-Corning Corporation, since April
Brown Brothers Harriman & Co. 1989. Director of NSC, since 1992.
59 Wall Street
New York, NY 10005
E.B. Leisenring, Chairman, The Philadelphia Contributionship, since January
Jr.*............................. 1996. Prior thereto, Chairman, Penn Virginia Corporation,
The Philadelphia from December [1933] to April 1992 and Chief Executive
Contributionship Officer, from January 1978 to December 1988. Director of
One Tower Bridge, Suite 501 Penn Virginia Corporation, from September 1952 to October
West Conshohocken, PA 19428 1992, Westmoreland Coal Company, from September 1952 to
June 1996, Fidelity Bank, N.A. a wholly owned subsidiary
of First Fidelity Bancorporation, from 1960 to January
1994, PICO Products, Inc., since November 1994 and SKF USA
Inc., a controlled subsidiary of Aktiebolaget SKF, a
Swedish corporation, from January 1966 to March 1996.
Director of NSC, since 1992.
Arnold B. McKinnon*.............. Chairman and Chief Executive Officer, NSC (from September
1991 to August 1992). Prior thereto, Chairman, President
and Chief Executive Officer, NSC, from March 1987 to
September 1991. Director of NSC, since 1988.
</TABLE>
I-7
<PAGE> 66
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR
NAME AND CURRENT EMPLOYMENT; MATERIAL POSITIONS
BUSINESS ADDRESS HELD DURING THE PAST FIVE YEARS
<S> <C>
Jane Margaret President, St. Mary's College of Maryland, since July
O'Brien*......................... 1996. Prior thereto, President Hollins College, from July
St. Mary's College of Maryland 1991 to June 1996. Director, Landmark Communications, Inc.
St. Mary's City, MD 20686 (since 1994). Director of NSC, since 1994.
Harold W. Partner, The Beacon Group, since April 1993, and
Pote*............................ President, PBS Properties, Inc., since November 1990.
The Beacon Group Director of Turecamo Maritime, Inc., from June 1990 to
399 Park Avenue, 17th Floor June 1996. Director of NSC, since 1988.
New York, NY 10022
</TABLE>
I-8
<PAGE> 67
SCHEDULE II
DIRECTORS AND EXECUTIVE OFFICERS
OF THE COMPANY
Directors and Executive Officers of the Company. The following table sets
forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employments and business addresses thereof for the past five years of each
director and executive officer of the Company. Unless otherwise indicated, the
current business address of each person is 1 Railroad Avenue, Cooperstown, New
York 13326. Unless otherwise indicated, each such person is a citizen of the
United States and has held his or her present position as set forth below for
the past five years. Unless otherwise indicated, each occupation set forth
opposite an individual's name refers to employment with the Company. Directors
are indicated by an asterisk.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR
NAME AND CURRENT EMPLOYMENT; MATERIAL POSITIONS
BUSINESS ADDRESS HELD DURING THE PAST FIVE YEARS
- --------------------------------- --------------------------------------------------------
<S> <C>
Walter G. Rich*.................. President & Chief Executive Officer, the Company and all
wholly owned subsidiaries, since 1971. Director of
Norwich Aero Products, Inc., New York State Business
Development Corp., Security Mutual Life Insurance
Company of New York, New York State Electric and Gas
Company and The Toledo, Peoria and Western Railroad
Corporation. Member, New York Public Transportation
Safety Board (since 1993). Director of the Company since
1968.
C. David Soule*.................. Executive Vice President and Chief Operating Officer,
the Company and all wholly owned subsidiaries, since
1983. Director of the Company since 1984.
Gordon R. Fuller*................ Executive Vice President, NYS&W, since 1996. Prior
thereto, President, The Toledo, Peoria and Western
Railroad Corporation, prior to 1996. Director of the
Company since January 1996.
Paul Garber...................... Vice President -- Marketing & Sales, NYS&W, since 1990.
Richard J. Hensel................ Vice President -- Engineering, NYS&W, since 1987.
Albert B. Aftoora*............... Vice President -- Corridor Development, CSXT, since
1995. Prior thereto, Assistant Vice President and
Treasurer, CSXT. Director of First American Railways,
Inc. and The Toledo, Peoria and Western Railroad
Corporation. Director of the Company since 1995.
William B. Blatter............... Senior Vice President and Chief Financial Officer, the
Company, since 1990. Prior thereto, Vice
President -- Finance and Chief Financial Officer, the
Company, beginning April 1988.
David Boyd....................... Vice President -- Mechanical and Chief Mechanical
Officer, the Company, since 1996. Prior thereto, Vice
President -- Operations, TP&W.
Charles S. Brenner*.............. President, J.L. Schiffman & Co., Inc., since 1981. Prior
thereto, Chairman of the Board, RWC Inc. Director of The
Toledo, Peoria and Western Railroad Corporation.
Director of the Company since 1993.
</TABLE>
II-1
<PAGE> 68
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR
NAME AND CURRENT EMPLOYMENT; MATERIAL POSITIONS
BUSINESS ADDRESS HELD DURING THE PAST FIVE YEARS
- --------------------------------- --------------------------------------------------------
<S> <C>
David B. Common*................. Vice President, JP Morgan & Co., Inc., since 1993. Prior
thereto, Director -- Corporate Accounts, The
Toronto-Dominion Bank. Director of the Company since
1993.
Niles F. Curtis*................. President and Owner, Cooperstown Agway, Cooperstown, New
York, for over five years. Director of the Company since
1971.
Nathan R. Fenno.................. Vice President -- Law, the Company, since September
1991, and General Counsel and Secretary, the Company,
since July 1988.
Everett A. Gilmour*.............. Chairman of the Board, The National Bank & Trust Co.,
Norwich, NY, and NBT Bancorp, Inc. Director of New York
State Electric & Gas, Inc., Preferred Mutual Insurance
Co. and Norwich Aero Products Inc. Director of the
Company since 1980.
Gerald D. Groff*................. Senior Attending Physician, Department of Medicine, Mary
Imogene Bassett Hospital, Cooperstown, New York, since
1987, Assistant Professor of Clinical Medicine at
Columbia Presbyterian Medical School, and Medical
Director of the Community Health Plan of Bassett
Hospital, Director of the Company since 1993.
Malcolm C. Hughes*............... Attorney, Margaretville, New York. Director of the
Company since 1970.
Robert A. Kurdock................ Vice President, NYS&W, since 1985. Prior thereto,
employed by the Company, since September 1980.
Robert L. Marcalus*.............. Chairman, Marcal Paper Mills, Inc. for over five years.
Director of the Company since 1980. .
Harvey J. Polly*................. President and Chief Executive Officer, H/R Industries,
Inc., for over five years. President, Chief Executive
Officer and Director, Banyan Hotel Investment Trust.
Director of the Company since 1988.
William H. Matteson.............. Vice President-Administration, the Company, since
January 1991. Prior thereto, employed by the Company,
since October, 1987.
Richard T. Nasti*................ Senior Vice President and Chief Financial Officer of
H.J. Kalikow & Co., LLC. Trustee of Iona College.
Director of the Company since 1997.
Frank Quattrocchi................ Vice President & Treasurer, the Company, since April
1993. Prior thereto, employed by NYS&W beginning June
1983.
Joseph G. Senchyshyn............. Vice President-Operations, NYS&W, since 1985.
Richard A. White*................ Retired Business Executive. Director of Northeast
Treaters, Inc. Director of the Company since 1970.
</TABLE>
II-2
<PAGE> 69
SCHEDULE III
NEW YORK BUSINESS CORPORATION LAW
CHAPTER 4 OF THE CONSOLIDATED LAWS
ARTICLE 6. SHAREHOLDERS
sec.623. PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE PAYMENT FOR SHARES
(a) A shareholder intending to enforce his right under a section of this
chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the meeting
of shareholders at which the action is submitted to a vote, or at such meeting
but before the vote, written objection to the action. The objection shall
include a notice of his election to dissent, his name and residence address, the
number and classes of shares as to which he dissents and a demand for payment of
the fair value of his shares if the action is taken. Such objection is not
required from any shareholder to whom the corporation did not give notice of
such meeting in accordance with this chapter or where the proposed action is
authorized by written consent of shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date, which term
as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall give
written notice of such authorization or consent by registered mail to each
shareholder who filed written objection or from whom written objection was not
required, excepting any shareholder who voted for or consented in writing to the
proposed action and who thereby is deemed to have elected not to enforce his
right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any shareholder
from whom written objection was not required and who elects to dissent shall
file with the corporation a written notice of such election, stating his name
and residence address, the number and classes of shares as to which he dissents
and a demand for payment of the fair value of his shares. Any shareholder who
elects to dissent from a merger under section 905 (Merger of subsidiary
corporation) or paragraph (c) of section 907 (Merger or consolidation of
domestic and foreign corporations) or from a share exchange under paragraph (g)
of section 913 (Share exchanges) shall file a written notice of such election to
dissent within twenty days after the giving to him of a copy of the plan of
merger or exchange or an outline of the material features thereof under section
905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as to
which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any beneficial
owner as to less than all of the shares of such owner, as to which such nominee
or fiduciary has a right to dissent, held of record by such nominee or
fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall cease
to have any of the rights of a shareholder except the right to be paid the fair
value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his acceptance
in writing of an offer made by the corporation, as provided in paragraph (g),
but in no case later than sixty days from the date of consummation of the
corporate action except that if the corporation fails to make a timely offer, as
provided in paragraph (g), the time for withdrawing a notice of election shall
be extended until sixty days from the date an offer is made. Upon expiration of
such time, withdrawal of a notice of election shall require the written consent
of the corporation. In order to be effective, withdrawal of a notice of election
must be accompanied by the return to the corporation of any advance payment made
to the shareholder as provided in paragraph (g). If a notice of election is
withdrawn, or the corporate action is rescinded, or a court shall determine that
the shareholder is not entitled to receive payment for his shares, or the
shareholder shall otherwise lose his dissenter's rights, he shall not have the
right to receive payment for his shares and he shall be reinstated to all his
rights as a shareholder as of the consummation of the corporate action,
including any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights have expired
or any such dividend or distribution other than in cash has been completed, in
lieu thereof,
III-1
<PAGE> 70
at the election of the corporation, the fair value thereof in cash as determined
by the board as of the time of such expiration or completion, but without
prejudice otherwise to any corporate proceedings that may have been taken in the
interim.
(f) At the time of filing the notice of election to dissent or within one
month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the shareholder
or other person who submitted them on his behalf. Any shareholder of shares
represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct. Upon transfer of a certificate bearing
such notation, each new certificate issued therefor shall bear a similar
notation together with the name of the original dissenting holder of the shares
and a transferee shall acquire no rights in the corporation except those which
the original dissenting shareholder had at the time of the transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later (but
in no case later than ninety days from the shareholders' authorization date),
the corporation or, in the case of a merger or consolidation, the surviving or
new corporation, shall make a written offer by registered mail to each
shareholder who has filed such notice of election to pay for his shares at a
specified price which the corporation considers to be their fair value. Such
offer shall be accompanied by a statement setting forth the aggregate number of
shares with respect to which notices of election to dissent have been received
and the aggregate number of holders of such shares. If the corporate action has
been consummated, such offer shall also be accompanied by (1) advance payment to
each such shareholder who has submitted the certificates representing his shares
to the corporation, as provided in paragraph (f), of an amount equal to eighty
percent of the amount of such offer, or (2) as to each shareholder who has not
yet submitted his certificates a statement that advance payment to him of an
amount equal to eighty percent of the amount of such offer will be made by the
corporation promptly upon submission of his certificates. If the corporate
action has not been consummated at the time of the making of the offer, such
advance payment or statement as to advance payment shall be sent to each
shareholder entitled thereto forthwith upon consummation of the corporate
action. Every advance payment or statement as to advance payment shall include
advice to the shareholder to the effect that acceptance of such payment does not
constitute a waiver of any dissenters' rights. If the corporate action has not
been consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for not less than a
twelve month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the foregoing,
the corporation shall not be required to furnish a balance sheet or profit and
loss statement or statements to any shareholder to whom such balance sheet or
profit and loss statement or statements were previously furnished, nor if in
connection with obtaining the shareholders' authorization for or consent to the
proposed corporate action the shareholders were furnished with a proxy or
information statement, which included financial statements, pursuant to
Regulation 14A or Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such offer, the
corporation making the offer and any shareholder agree upon the price to be paid
for his shares, payment therefor shall be made within sixty days after the
making of such offer or the consummation of the proposed corporate action,
whichever is later, upon the surrender of the certificates for any such shares
represented by certificates.
III-2
<PAGE> 71
(h) The following procedure shall apply if the corporation fails to make
such offer within such period of fifteen days, or if it makes the offer and any
dissenting shareholder or shareholders fail to agree with it within the period
of thirty days thereafter upon the price to be paid for their shares:
(1) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a
special proceeding in the supreme court in the judicial district in which
the office of the corporation is located to determine the rights of
dissenting shareholders and to fix the fair value of their shares. If, in
the case of merger or consolidation, the surviving or new corporation is a
foreign corporation without an office in this state, such proceeding shall
be brought in the county where the office of the domestic corporation,
whose shares are to be valued, was located.
(2) If the corporation fails to institute such proceeding within such
period of twenty days, any dissenting shareholder may institute such
proceeding for the same purpose not later than thirty days after the
expiration of such twenty day period. If such proceeding is not instituted
within such thirty day period, all dissenter's rights shall be lost unless
the supreme court, for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid
for their shares, shall be made parties to such proceeding, which shall
have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in such proceeding upon each
dissenting shareholder who is a resident of this state in the manner
provided by law for the service of a summons, and upon each nonresident
dissenting shareholder either by registered mail and publication, or in
such other manner as is permitted by law. The jurisdiction of the court
shall be plenary and exclusive.
(4) The court shall determine whether each dissenting shareholder, as
to whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation does not
request any such determination or if the court finds that any dissenting
shareholder is so entitled, it shall proceed to fix the value of the
shares, which, for the purposes of this section, shall be the fair value as
of the close of business on the day prior to the shareholders'
authorization date. In fixing the fair value of the shares, the court shall
consider the nature of the transaction giving rise to the shareholder's
right to receive payment for shares and its effects on the corporation and
its shareholders, the concepts and methods then customary in the relevant
securities and financial markets for determining fair value of shares of a
corporation engaging in a similar transaction under comparable
circumstances and all other relevant factors. The court shall determine the
fair value of the shares without a jury and without referral to an
appraiser or referee. Upon application by the corporation or by any
shareholder who is a party to the proceeding, the court may, in its
discretion, permit pretrial disclosure, including, but not limited to,
disclosure of any expert's reports relating to the fair value of the shares
whether or not intended for use at the trial in the proceeding and
notwithstanding subdivision (d) of section 3101 of the civil practice law
and rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so
determined.
(6) The final order shall include an allowance for interest at such
rate as the court finds to be equitable, from the date the corporate action
was consummated to the date of payment. In determining the rate of
interest, the court shall consider all relevant factors, including the rate
of interest which the corporation would have had to pay to borrow money
during the pendency of the proceeding. If the court finds that the refusal
of any shareholder to accept the corporate offer of payment for his shares
was arbitrary, vexatious or otherwise not in good faith, no interest shall
be allowed to him.
(7) Each party to such proceeding shall bear its own costs and
expenses, including the fees and expenses of its counsel and of any experts
employed by it. Notwithstanding the foregoing, the court may, in its
discretion, apportion and assess all or any part of the costs, expenses and
fees incurred by the corporation against any or all of the dissenting
shareholders who are parties to the proceeding, including
III-3
<PAGE> 72
any who have withdrawn their notices of election as provided in paragraph
(e), if the court finds that their refusal to accept the corporate offer
was arbitrary, vexatious or otherwise not in good faith. The court may, in
its discretion, apportion and assess all or any part of the costs, expenses
and fees incurred by any or all of the dissenting shareholders who are
parties to the proceeding against the corporation if the court finds any of
the following: (A) that the fair value of the shares as determined
materially exceeds the amount which the corporation offered to pay; (B)
that no offer or required advance payment was made by the corporation; (C)
that the corporation failed to institute the special proceeding within the
period specified therefor; or (D) that the action of the corporation in
complying with its obligations as provided in this section was arbitrary,
vexatious or otherwise not in good faith. In making any determination as
provided in clause (A), the court may consider the dollar amount or the
percentage, or both, by which the fair value of the shares as determined
exceeds the corporate offer.
(8) Within sixty days after final determination of the proceeding, the
corporation shall pay to each dissenting shareholder the amount found to be
due him, upon surrender of the certificates for any such shares represented
by certificates.
(i) Shares acquired by the corporation upon the payment of the agreed value
therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in section 515
(Reacquired shares), except that, in the case of a merger or consolidation, they
may be held and disposed of as the plan of merger or consolidation may otherwise
provide.
(j) No payment shall be made to a dissenting shareholder under this section
at a time when the corporation is insolvent or when such payment would make it
insolvent. In such event, the dissenting shareholder shall, at his option:
(1) Withdraw his notice of election, which shall in such event be
deemed withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if it
is liquidated, be subordinated to the rights of creditors of the
corporation, but have rights superior to the non-dissenting shareholders,
and if it is not liquidated, retain his right to be paid for his shares,
which right the corporation shall be obliged to satisfy when the
restrictions of this paragraph do not apply.
(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment
for his shares cannot be made because of the restrictions of this
paragraph. If the dissenting shareholder fails to exercise such option as
provided, the corporation shall exercise the option by written notice given
to him within twenty days after the expiration of such period of thirty
days.
(k) The enforcement by a shareholder of his right to receive payment for
his shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other right to which he might otherwise be entitled by virtue
of share ownership, except as provided in paragraph (e), and except that this
section shall not exclude the right of such shareholder to bring or maintain an
appropriate action to obtain relief on the ground that such corporate action
will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice to
be given by a corporation to a shareholder under this section shall be given in
the manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as provided
in subparagraph (e)(2) of section 907 (Merger or consolidation of domestic and
foreign corporations).
III-4
<PAGE> 73
ARTICLE 9. MERGER OR CONSOLIDATION; GUARANTEE;
DISPOSITION OF ASSETS; SHARE EXCHANGES
sec.910. RIGHT OF SHAREHOLDER TO RECEIVE PAYMENT FOR SHARES UPON MERGER OR
CONSOLIDATION, OR SALE, LEASE, EXCHANGE OR OTHER DISPOSITION OF
ASSETS, OR SHARE EXCHANGE
(a) A shareholder of a domestic corporation shall, subject to and by
complying with section 623 (Procedure to enforce shareholder's right to receive
payment for shares), have the right to receive payment of the fair value of his
shares and the other rights and benefits provided by such section, in the
following cases:
(1) Any shareholder entitled to vote who does not assent to the taking
of an action specified in subparagraphs (A), (B) and (C). (A) Any plan of
merger or consolidation to which the corporation is a party; except that
the right to receive payment of the fair value of his shares shall not be
available: (i) To a shareholder of the parent corporation in a merger
authorized by section 905 (Merger of parent and subsidiary corporations),
or paragraph (c) of section 907 (Merger or consolidation of domestic and
foreign corporations); and (ii) To a shareholder of the surviving
corporation in a merger authorized by this article, other than a merger
specified in subparagraph (i), unless such merger effects one or more of
the changes specified in subparagraph (b)(6) of section 806 (Provisions as
to certain proceedings) in the rights of the shares held by such
shareholder. (B) Any sale, lease, exchange or other disposition of all or
substantially all of the assets of a corporation which requires shareholder
approval under section 909 (Sale, lease, exchange or other disposition of
assets) other than a transaction wholly for cash where the shareholders'
approval thereof is conditioned upon the dissolution of the corporation and
the distribution of substantially all of its net assets to the shareholders
in accordance with their respective interests within one year after the
date of such transaction. (C) Any share exchange authorized by section 913
in which the corporation is participating as a subject corporation; except
that the right to receive payment of the fair value of his shares shall not
be available to a shareholder whose shares have not been acquired in the
exchange.
(2) Any shareholder of the subsidiary corporation in a merger
authorized by section 905 or paragraph (c) of section 907, or in a share
exchange authorized by paragraph (g) of section 913, who files with the
corporation a written notice of election to dissent as provided in
paragraph (c) of section 623.
III-5
<PAGE> 74
[SMITH BARNEY LETTERHEAD]
Annex A
August 17, 1997
The Board of Directors
Delaware Otsego Corporation
1 Railroad Avenue
Cooperstown, NY 13326
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of Delaware Otsego Corporation ("DOC")
of the consideration to be received by such holders pursuant to the terms and
subject to the conditions set forth in the Agreement and Plan of Merger, dated
as of August 17, 1997 (the "Merger Agreement"), by and among CSX Corporation
("CSX"), Norfolk Southern Corporation ("NSC"), Walter G. Rich ("Management
Investor"), DOC Acquisition LLC, an entity to be jointly owned by CSX, NSC and
the Management Investor ("DOC Acquisition" and, together with CSX, NSC and the
Management Investor, "Buyer"), and DOC. As more fully described in the Merger
Agreement, (i) DOC Acquisition will commence a tender offer to purchase all
outstanding shares of the common stock, par value $0.125 per share, of DOC (the
"DOC Common Stock"), other than shares of DOC Common Stock beneficially
owned by the Buyer, at a purchase price of $22.00 per share, net to the seller
in cash (the "Tender Offer") and (ii) subsequent to the Tender Offer, a
subsidiary of DOC Acquisition will be merged with and into DOC (the "Merger"
and, together with the Tender Offer, the "Transaction") and each outstanding
share of DOC Common Stock not previously tendered will be converted into the
right to receive $22.00 in cash.
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of DOC and certain senior officers and other representatives of
Buyer concerning the business, operations and prospects of DOC. We examined
certain publicly available business and financial information relating to DOC as
well as certain financial forecasts and other information and data for DOC which
were provided to or otherwise discussed with us by the management of DOC. We
reviewed the financial terms of the Transaction as set forth in the Merger
Agreement in relation to, among other things: current and historical market
prices and trading volumes of DOC Common Stock; the historical and projected
earnings and other operating data of DOC; and the capitalization and financial
condition of DOC. We considered, to the extent publicly available, the financial
terms of certain other similar transactions recently effected which we
considered relevant in evaluating the Transaction and analyzed certain
financial, stock market and other publicly available information relating to the
businesses of other companies whose operations we considered relevant in
evaluating those of DOC. In addition to the foregoing, we conducted such other
analyses and examinations and considered such other financial, economic and
market criteria as we deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed
by or discussed with us. With respect to financial forecasts and other
information and data provided to or otherwise reviewed by or discussed with us,
we have been
A-1
<PAGE> 75
The Board of Directors
Delaware Otsego Corporation
August 17, 1997
Page 2
advised by the management of DOC that such forecasts and other information and
data were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the management of DOC as to the future financial
performance of DOC. We have not made or been provided with an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of DOC nor have we made any physical inspection of the properties or assets of
DOC. In connection with our engagement, we were requested to approach, and held
discussions with, third parties to solicit indications of interest in a
possible acquisition of DOC. Our opinion is necessarily based upon information
available to us, and financial, stock market and other conditions and
circumstances existing and disclosed to us, as of the date hereof.
Smith Barney has been engaged to render financial advisory services to DOC in
connection with the proposed Transaction and will receive a fee for such
services, a significant portion of which is contingent upon the consummation of
the Transaction. We also will receive a fee upon the delivery of this opinion.
In the ordinary course of our business, we and our affiliates may actively
trade or hold the securities of DOC, CSX and NSC for our own account or for the
account of our customers and, accordingly, may at any time hold a long or short
position in such securities. In addition, we and our affiliates (including
Travelers Group Inc. and its affiliates) may maintain relationships with DOC,
CSX, NSC and their respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of DOC in its evaluation of the proposed
Transaction, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to whether or not such stockholder should
tender shares of DOC Common Stock in the Tender Offer or how such stockholder
should vote on the proposed Merger. Our opinion may not be published or
otherwise used or referred to, nor shall any public reference to Smith Barney
be made, without our prior written consent; provided, that this opinion letter
may be included in its entirety in the Solicitation/Recommendation Statement of
DOC relating to the proposed Transaction.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the cash consideration to be received in
the Transaction by the holders of DOC Common Stock (other than Buyer and its
affiliates) is fair, from a financial point of view, to such holders.
Very truly yours,
/s/ Smith Barney Inc.
- ---------------------
SMITH BARNEY INC.
A-2
<PAGE> 76
Facsimiles of the Letter of Transmittal will be accepted. The Letter of
Transmittal and certificates evidencing Shares and any other required documents
should be sent or delivered by each shareholder or his broker, dealer,
commercial bank, trust company or other nominee to the Depositary at one of its
addresses set forth below.
The Depositary for the Offer is:
CITIBANK, N.A.
<TABLE>
<S> <C> <C>
By Hand: By Mail: By Overnight Courier:
Citibank, N.A. Citibank, N.A. Citibank, N.A.
Corporate Trust Window c/o Citicorp Data c/o Citicorp Data
111 Wall Street, 5th Floor Distribution, Inc. Distribution, Inc.
New York, New York 10043 P.O. Box 7072 404 Setle Drive
Paramus, New Jersey 07653 Paramus, New Jersey 07652
</TABLE>
Facsimile for Eligible Institutions:
(201) 262-3240
To confirm fax only:
(800) 422-2077
Questions or requests for assistance may be directed to the Information
Agent at its address and telephone numbers listed below. Additional copies of
this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed
Delivery may be obtained from the Information Agent. A shareholder may also
contact brokers, dealers, commercial banks or trust companies for assistance
concerning the Offer.
The Information Agent for the Offer is:
[MacKenzie Partners, Inc. Logo]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (call collect)
or
CALL TOLL FREE: (800) 322-2885
<PAGE> 1
Exhibit (a)(2)
[DELAWARE OTSEGO CORPORATION LETTERHEAD]
For Immediate Release Contact:
Phil Pepe, Jr., Ext. 267, or
914-968-6303 days/eves
voice mail.
- ------------------------------------------------------------------------------
DELAWARE OTSEGO CORPORATION CONFIRMS RECEIPT OF PURCHASE OFFER
Cooperstown, NY; August 11, 1997 . . . Everett Gilmour, Chairman of the Board
of Directors of Delaware Otsego Corporation (NASDAQ Symbol "DOCP"), announced
today that the Company has received an offer from a group comprised of CSX
Corporation, Norfolk Southern Corporation and Walter G. Rich to acquire 100% of
the Company's outstanding stock at a price of $19.00 per share. The offer was
received Friday evening (August 8, 1997). Mr. Rich is President and Chief
Executive Officer of the Company.
Company spokesperson Phil Pepe, Jr. said "The Company's Board of
Directors met over the weekend with its financial and legal advisors to review
the offer as well as other possible alternatives." The Board of Directors is
reviewing all matters relating to interest in the company and plans to continue
discussions with the offering group. Pepe said, "No further information can be
made available at this time."
Delaware Otsego Corporation is a non-rail holding company whose
principal subsidiary. The New York, Susquchanna and Western Railway
Corporation, provides rail freight service to customers in New York and New
Jersey.
# # #
<PAGE> 1
DELAWARE OTSEGO CORPORATION
1 Railroad Ave.
Cooperstown, New York 13326
Ph. 607 547-2555
AUGUST 22, 1997
TO THE SHAREHOLDERS OF DELAWARE OTSEGO CORPORATION
I am pleased to report that on August 17, 1997, Delaware Otsego Corporation
("DOC") entered into an Agreement and Plan of Merger (the "Merger Agreement")
with CSX Corporation, a Virginia corporation ("CSX"), Norfolk Southern
Corporation, a Virginia corporation ("NSC"), and Walter G. Rich, President and
Chief Executive Officer of DOC ("Mr. Rich"). The Merger Agreement provides for
the acquisition of all of the common stock of DOC, par value $0.125 per share
(the "Shares"), at a price of $22.00 per Share (the "Offer Price") by DOCP
Acquisition LLC, a New York limited liability company formed by CSX, NSC and Mr.
Rich ("Purchaser"). Under the terms of the Merger Agreement, Purchaser has
commenced a tender offer (the "Offer") for all outstanding Shares at the Offer
Price. The Offer is currently scheduled to expire on Friday, September 19, 1997.
Following the successful completion of the Offer, with the approval of the
holders of the outstanding Shares if required by New York law, a subsidiary of
Purchaser will be merged with and into DOC (the "Merger"), and all Shares not
purchased in the Offer will be converted into the right to receive the Offer
Price, without interest.
THE BOARD OF DIRECTORS OF DOC (THE "DOC BOARD") BY THE VOTE OF ALL
DIRECTORS PRESENT, WITH MR. RICH BEING ABSENT AND ONE OTHER DIRECTOR ABSTAINING,
(A) HAS DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE OFFER AND THE MERGER, ARE FAIR TO AND IN THE BEST
INTERESTS OF DOC AND THE HOLDERS OF SHARES OTHER THAN CSX AND MR. RICH, (B) HAS
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE OFFER AND THE MERGER, AND (C) RECOMMENDS THAT THE HOLDERS OF
SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES THEREUNDER.
The recommendation of the DOC Board is described in the
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
filed by DOC with the Securities and Exchange Commission and enclosed with this
letter. In arriving at its recommendation, the DOC Board gave careful
consideration to a number of factors, which are more fully described in the
attached Schedule 14D-9. These factors included the opinion dated August 17,
1997, of Smith Barney Inc., financial advisor to DOC, to the effect that, as of
such date, and based upon and subject to certain matters stated therein, the
$22.00 per Share cash consideration to be received in the Offer and the Merger
by the holders of Shares (other than CSX, NSC, Mr. Rich and their respective
affiliates) was fair, from a financial point of view, to such holders. We urge
you to read carefully the Schedule 14D-9 in its entirety so that you will be
more fully informed as to the DOC Board's recommendation.
Also accompanying this letter are a copy of the Purchaser's Offer to
Purchase dated August 22, 1997, and a Letter of Transmittal for use in tendering
Shares. These documents set forth the terms and conditions of the Offer and
provide instructions as to how to tender your Shares. We urge you to read each
of the enclosed materials carefully.
The management and directors of DOC thank you for the support you have
given DOC.
On behalf of the DOC Board,
Sincerely,
[E.A. GILMOUR SIGNATURE]
Everett A. Gilmour
Chairman of the Board
<PAGE> 1
Exhibit (c)(1)
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CSX CORPORATION,
A VIRGINIA CORPORATION,
NORFOLK SOUTHERN CORPORATION,
A VIRGINIA CORPORATION,
WALTER G. RICH
AND
DELAWARE OTSEGO CORPORATION,
A NEW YORK CORPORATION,
DATED AS OF AUGUST 17, 1997.
<PAGE> 2
TABLE OF CONTENTS
-----------------
PAGE
----
ARTICLE I
THE OFFER AND THE MERGER
Section 1.1. The Offer .................................................1
Section 1.2. Company Action ............................................3
Section 1.3. The Merger ................................................3
Section 1.4. Action by Shareholders ....................................4
Section 1.5. Proxy Statement ...........................................4
Section 1.6. Closing ...................................................5
Section 1.7. Effective Time ............................................5
Section 1.8. Effects of the Merger .....................................5
Section 1.9. Certificate of Incorporation ..............................5
Section 1.10. Bylaws ....................................................5
Section 1.11. Directors and Officers ....................................5
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 2.1. Conversion of Securities ...................................5
Section 2.2. Exchange of Certificates and Cash ..........................6
Section 2.3. Stock Transfer Books .......................................8
Section 2.4. Stock Options; Payment Rights ..............................8
Section 2.5. Dissenting Shares ..........................................8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF DOCP
Section 3.1. Organization and Qualifications; Subsidiaries .............9
Section 3.2. Certificate of Incorporation and Bylaws ...................9
Section 3.3. Capitalization ............................................9
Section 3.4. Authority Relative to This Agreement .....................10
Section 3.5. No Conflict; Required Filings and Consents ...............11
Section 3.6. Compliance ...............................................12
Section 3.7. Litigation ...............................................12
Section 3.8. SEC Filings; Financial Statements ........................12
Section 3.9. Absence of Certain Changes and Events ....................13
Section 3.10. Employee Benefit Plans ...................................14
Section 3.11. Environmental Matters ....................................14
Section 3.12. [Intentionally omitted.] ..................................16
Section 3.13. Transactions with Affiliates .............................16
-i-
<PAGE> 3
Section 3.14. Contracts ................................................16
Section 3.15. Tax Matters ..............................................16
Section 3.16. Opinion of Financial Advisor .............................17
Section 3.17. Brokers ..................................................17
Section 3.18. Information Supplied .....................................17
Section 3.19. State Takeover Statutes ..................................17
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER, CSX, NSC AND THE MANAGEMENT
INVESTOR
Section 4.1. Organization and Qualification ............................18
Section 4.2. Authority Relative to This Agreement ......................18
Section 4.3. No Conflict; Required Filings and Consents ................18
Section 4.4. Information Supplied ......................................19
Section 4.5. Brokers ...................................................19
ARTICLE V
COVENANTS RELATING TO THE CONDUCT OF BUSINESS
Section 5.1. Conduct of Business by DOCP Pending the Merger ............20
Section 5.2. Other Actions .............................................22
ARTICLE VI
ADDITIONAL COVENANTS
Section 6.1. Access to Information; Confidentiality ....................22
Section 6.2. No Solicitation ...........................................23
Section 6.3. Indemnification, Exculpation and Insurance ................24
Section 6.4. Notification of Certain Matters ...........................24
Section 6.5. Further Action; Best Efforts ..............................25
Section 6.6. Public Announcements ......................................25
Section 6.7. Conveyance Taxes ..........................................25
ARTICLE VII
CLOSING CONDITIONS
Section 7.1. Conditions to Obligations of Each Party to Effect the
Merger .....................................................26
Section 7.2. Conditions to Obligations of DOCP to Effect the Merger ....26
Section 7.3. Conditions to Obligations of Buyer to Effect the Merger ...27
Section 7.4. Frustration of Closing Conditions .........................27
-ii-
<PAGE> 4
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1. Termination ...............................................27
Section 8.2. Effect of Termination .....................................28
Section 8.3. Amendment .................................................28
Section 8.4. Waiver ....................................................29
Section 8.5. Fees, Expenses and Other Payments .........................29
ARTICLE IX
GENERAL PROVISIONS
Section 9.1. Effectiveness of Representations, Warranties and
Agreements ................................................29
Section 9.2. Notices ..................................................30
Section 9.3. Certain Definitions ......................................32
Section 9.4. Interpretation ...........................................32
Section 9.5. Severability .............................................33
Section 9.6. Entire Agreement .........................................33
Section 9.7. Assignment ...............................................33
Section 9.8. Parties in Interest ......................................33
Section 9.9. Governing Law ............................................33
Section 9.10. Enforcement ..............................................34
Section 9.11. Counterparts .............................................34
Section 9.12. Guarantee ................................................34
Annex I - Conditions of the Offer
-iii-
<PAGE> 5
INDEX OF DEFINED TERMS
----------------------
TERM PAGE
- ---- ----
affiliate.........................32
Agreement..........................1
Alternative Transaction...........23
business day......................32
Buyer..............................1
Buyer Material Adverse Effect.....18
Certificates.......................6
Cleanup...........................15
Code...............................7
Confidential Information..........22
control, controlled, controlled
by, under common control with ....32
Convertible Debt..................10
CSX................................1
Dissenting Shares..................8
DOCP...............................1
DOCP Board.........................1
DOCP Disclosure Schedule...........9
DOCP Material Adverse Effect.......9
DOCP Plans........................14
DOCP SEC Reports..................12
DOCP Shares........................1
DOCP Stock Options.................9
DOCP Subsidiary....................9
Effective Time.....................5
Environmental Laws................15
ERISA.............................14
Exchange Act......................11
Exchange Agent.....................6
Exchange Fund......................6
Expenses..........................29
Fair Market Value.................24
Governmental Entity...............11
Hazardous Substances..............15
HSR Act...........................11
Indemnified Parties...............24
IRS...............................14
knowledge.........................32
LLC................................1
Management Investor................1
material, materially..............32
Merger.............................1
Merger Meeting.....................4
Minimum Condition................A-1
New York Law.......................1
NSC................................1
Offer..............................1
Offer Documents....................2
Offer Price........................1
Options...........................10
Permits...........................12
person............................32
Property..........................14
Proxy Statement....................4
Release...........................15
Respective Representatives........22
Schedule 13E-3.....................2
Schedule 14D-1.....................2
Schedule 14D-9.....................3
SEC................................2
Securities Act....................12
subsidiary, subsidiaries..........32
Superior Proposal.................24
Surviving Corporation..............1
taken as a whole..................32
Transmittal Documents..............7
Warrants..........................10
-iv-
<PAGE> 6
AGREEMENT AND PLAN OF MERGER, dated as of August 17, 1997 (this
"Agreement"), by and among CSX CORPORATION, a Virginia corporation ("CSX"),
NORFOLK SOUTHERN CORPORATION, a Virginia corporation ("NSC"), WALTER G. RICH
(the "Management Investor") and DELAWARE OTSEGO CORPORATION, a New York
corporation ("DOCP").
W I T N E S S E T H:
WHEREAS, the parties to this Agreement desire to effect the
acquisition of DOCP by a corporate subsidiary ("Buyer") of a limited liability
company ("LLC") to be formed by CSX, NSC and the Management Investor;
WHEREAS, no later than the Effective Time, the Management Investor,
together with CSX and NSC, will collectively own all of the outstanding
membership interests of LLC;
WHEREAS, in furtherance of the foregoing, upon the terms and subject
to the conditions of this Agreement and in accordance with the Business
Corporation Law of the State of New York (collectively, the "New York Law"),
Buyer will make the cash tender offer described in Section 1.1 hereof (the
"Offer") and thereafter will merge with and into DOCP (the "Merger"), with DOCP
as the surviving corporation (the "Surviving Corporation");
WHEREAS, the Board of Directors of DOCP (the "DOCP Board") has
determined that the Offer and the Merger are fair to, and in the best interests
of, DOCP and the holders of DOCP Shares (other than CSX and the Management
Investor) and has approved and adopted this Agreement, including the Offer, the
Merger and the other transactions contemplated hereby; and
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto, intending to be legally bound, hereby agree as
follows:
ARTICLE I
THE OFFER AND THE MERGER
Section 1.1. The Offer. () Provided that nothing shall have occurred
that would result in a failure to satisfy any of the conditions set forth in
paragraphs (i) through (iv) of Annex I hereto, as promptly as practicable after
the date hereof, but in no event later than five business days following the
public announcement of the terms of this Agreement, Buyer (or its subsidiary)
shall commence an offer to purchase all of the outstanding shares of common
stock, par value $.125 per share, of DOCP (the "DOCP Shares") at a price of $22
per DOCP Share, net to the seller in cash (the "Offer Price").
-1-
<PAGE> 7
(b) The Offer shall be subject to the conditions set forth in Annex
I hereto. Buyer shall not, without the prior written consent of DOCP, make any
change in the terms or conditions of the Offer that is adverse to the holders of
DOCP Shares, decrease the Offer Price or the number of DOCP Shares sought in the
Offer or impose conditions to the Offer other than those set forth in Annex I
hereto (it being agreed that a waiver by Buyer of any condition, in its
discretion, shall not be deemed to be adverse to the holders of DOCP Shares);
provided that, if on any scheduled expiration date of the Offer all conditions
to the Offer shall not have been satisfied or waived, the Offer may, but need
not, be extended from time to time without the consent of DOCP for such period
of time as is reasonably expected by Buyer to be necessary to satisfy the
unsatisfied conditions; provided further that the Offer may be extended by Buyer
without the consent of DOCP for any period required by any rule, regulation,
interpretation or position of the United States Securities and Exchange
Commission (the "SEC") or the staff thereof applicable to the Offer; and
provided further that, if at any scheduled expiration date of the Offer all
conditions to the Offer shall have been satisfied but less than a number of DOCP
Shares that, together with the number of DOCP shares to be contributed by CSX
and the Management Investor to Buyer, represent less than 90% of the outstanding
DOCP Shares, on a fully-diluted basis, shall have been tendered into the Offer,
Buyer shall be entitled to extend the Offer from time to time without the
consent of DOCP (for not more than 10 business days) in order to permit Buyer to
solicit additional DOCP Shares to be tendered into the Offer. It is agreed that
the conditions to the Offer are solely for the benefit of Buyer and may be
asserted by Buyer regardless of the circumstances giving rise to any such
condition (including any action or inaction by Buyer) or may, but need not, be
waived by Buyer, in whole or in part at any time and from time to time, in its
sole discretion.
(c) As soon as practicable on the date of commencement of the Offer,
Buyer (and, to the extent required by law, CSX, NSC and the Management Investor,
as co-bidders) shall file with the SEC a Tender Offer Statement on Schedule
14D-1 (together with all supplements and amendments thereto, the "Schedule
14D-1") and, together with DOCP, a Rule 13E-3 Transaction Statement on Schedule
13E-3 (together with all supplements and amendments thereto, the "Schedule
13E-3") with respect to the Offer, which shall contain the offer to purchase and
form of the related letter of transmittal (together with any supplements or
amendments thereto, collectively, the "Offer Documents"). DOCP shall provide
Buyer (and, if applicable, CSX, NSC and the Management Investor) with such
information concerning DOCP as may reasonably be requested in connection with
the preparation of the Schedule 13E-3. Each party hereto shall promptly
supplement, update and correct any information provided by it for use in the
Offer Documents if and to the extent that it is or shall have become incomplete,
false or misleading. In any such event, Buyer shall take all steps necessary to
cause the Offer Documents as so supplemented, updated or corrected to be filed
with the SEC and to be disseminated to the holders of DOCP Shares, in each case,
as and to the extent required by applicable federal securities laws. DOCP and
its counsel, with respect to the Schedule 14D-1, and each party hereto and its
respective counsel, with respect to the Schedule 13E-3, shall be given an
opportunity to review and comment on such filing and each supplement, amendment
or response to comments with respect thereto prior to its being filed with or
delivered to the SEC.
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Section 1.2. Company Action. (a) DOCP hereby consents to the Offer
and represents that the DOCP Board, at a meeting duly called and held, has, by
the vote of all directors present with one abstension, (i) determined that this
Agreement and the transactions contemplated hereby, including the Offer and the
Merger, are fair to and in the best interest of DOCP and the holders of DOCP
Shares (other than CSX and the Management Investor), (ii) approved and adopted
this Agreement and the transactions contemplated hereby, including the Offer and
the Merger, which approval satisfies in full the requirements of the New York
Law (including all approvals required under Section 912 of the New York Law in
connection with the consummation of the transactions contemplated hereby) and
(iii) resolved to recommend acceptance of the Offer, and, if applicable,
approval and adoption of this Agreement and the Merger, by the holders of DOCP
Shares. DOCP further represents that Smith Barney, Inc. has delivered to the
DOCP Board its opinion, dated the date of this Agreement (which will be
confirmed in writing as promptly as practicable after the date of this
Agreement), that, as of such date, the cash consideration to be received in the
Offer and the Merger by the holders of DOCP Shares (other than CSX, NSC and the
Management Investor and their respective affiliates) is fair to such holders
from a financial point of view. DOCP shall promptly furnish Buyer with a list of
its shareholders, mailing labels, and any available listing or computer file
containing the names and addresses of all record holders of DOCP Shares and
lists of securities positions of DOCP Shares held in stock depositories, in each
case, true and correct as of the most recent practicable date, and will provide
to Buyer such additional information (including updated lists of shareholders,
mailing labels and lists of securities positions) and such other assistance as
Buyer may reasonably request in connection with the Offer.
(b) As soon as practicable on the day that the Offer is commenced,
DOCP shall file with the SEC a Solicitation/Recommendation Statement on Schedule
14D-9 (together with all supplements and amendments thereto, the "Schedule
14D-9") which, unless otherwise required due to the applicable fiduciary duties
of the DOCP Board as determined by the members thereof in good faith based on
the advice of outside counsel, shall reflect the recommendations of the DOCP
Board referred to above. Each party shall promptly supplement, update and
correct any information provided by it for use in the Schedule 14D-9 if and to
the extent that it is or shall have become incomplete, false or misleading. In
any such event, DOCP shall take all steps necessary to cause the Schedule 14D-9
as so supplemented, updated or corrected to be filed with the SEC and to be
disseminated to the holders of DOCP Shares, in each case, as and to the extent
required by applicable United States federal securities laws. Each other party
hereto and its respective counsel shall be given an opportunity to review and
comment on the Schedule 14D-9 and each supplement, amendment or response to
comments with respect thereto prior to its being filed or delivered with the
SEC.
Section 1.3. The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the New York Law,
at the Effective Time Buyer shall be merged with and into DOCP. As a result of
the Merger, the separate existence of Buyer shall cease and DOCP shall continue
as the Surviving Corporation. At the election of Buyer, any direct or indirect
wholly owned subsidiary of Buyer may be substituted for Buyer as a constituent
party of the Merger. In such event, the parties hereto shall execute an
appropriate amendment to this agreement to reflect such substitution.
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Section 1.4. Action by Shareholders. If required by applicable law
to consummate the Merger, DOCP, acting through the DOCP Board, shall, in
accordance with applicable law, its certificate of incorporation and bylaws: (a)
as soon as practicable after consummation of the Offer, duly call, give notice
of, convene and hold a special meeting of shareholders (the "Merger Meeting")
for the purpose of adopting this Agreement and approving the Merger; (b) include
in the Proxy Statement (as defined below) the determination and recommendation
of the DOCP Board to the effect that the DOCP Board, having determined that this
Agreement and the transactions contemplated hereby, including the Offer and the
Merger, are fair to and in the best interests of DOCP and the holders of DOCP
Shares (other than CSX and the Management Investor), has approved and adopted
this Agreement and the transactions contemplated hereby and, unless otherwise
required due to the applicable fiduciary duties of the DOCP Board as determined
by the members thereof in good faith based on the advice of outside counsel,
recommends that such holders vote in favor of the approval and adoption of this
Agreement and the Merger; and (c) use its best efforts to obtain the necessary
approval of this Agreement and the Merger by such holders. In the event of the
Merger Meeting, each of CSX, NSC, Buyer and the Management Investor shall vote
all DOCP Shares owned by such person in favor of the adoption of this Agreement
and the transactions contemplated hereby.
Section 1.5. Proxy Statement. (a) If required by applicable law in
connection with the Merger, as promptly as practicable after consummation of the
Offer, DOCP shall prepare and file with the SEC a proxy or information statement
relating to the Merger Meeting (together with any supplements or amendments
thereto, the "Proxy Statement"), and shall use its reasonable best efforts to
have such filing cleared by the SEC. CSX, NSC, Buyer and the Management Investor
shall furnish to DOCP all information concerning such party as DOCP may
reasonably request in connection with the preparation of the Proxy Statement. As
promptly as practicable after the Proxy Statement has been cleared by the SEC,
DOCP shall mail the Proxy Statement to the holders of DOCP Shares. The Proxy
Statement shall include the recommendation of the DOCP Board in favor of the
Merger as described in Section 1.4.
(b) The information supplied by each of CSX, NSC, LLC, Buyer and the
Management Investor for inclusion in the Proxy Statement shall not, at the time
the Proxy Statement (or any supplement or amendment thereto) is first mailed to
the holders of DOCP Shares or, unless promptly corrected, during the pendency of
the Merger Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading. If at any time prior to the
Effective Time any event or circumstance relating to any party hereto, or their
respective officers or directors, should be discovered by such party which
should be set forth in a supplement or an amendment to the Proxy Statement, such
party shall promptly inform the other parties hereto thereof and shall take
appropriate action in respect thereof.
(c) Notwithstanding anything in the foregoing to the contrary, in
the event that at any time Buyer and/or any other direct or indirect subsidiary
of Buyer shall acquire at least 90% of the outstanding DOCP Shares, Buyer and
DOCP shall take all necessary and appropriate action to cause the Merger to
become effective as promptly as practicable after the expiration of
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the Offer and the satisfaction or waiver of the conditions set forth in Article
VII without the Merger Meeting in accordance with Section 905 of the New York
Law.
Section 1.6. Closing. Unless this Agreement shall have been
terminated and the transactions contemplated hereby shall have been abandoned
pursuant to Section 8.1, and subject to the satisfaction or waiver of the
conditions set forth in Article VII, the closing of the Merger shall take place
as promptly as practicable (and, in any event, within 10 business days) after
the satisfaction or waiver of the conditions set forth in Article VII at the
offices of Kelley, Drye & Warren LLP, New York, New York, unless another date,
time or place is agreed to in writing by the parties hereto.
Section 1.7. Effective Time. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VII, the parties
hereto shall cause the Merger to be consummated by filing a certificate of
merger with the Secretary of State of the State of New York and by making any
related filings required under the New York Law in connection with the Merger.
The Merger shall become effective at such time as the certificate of merger is
duly filed with the Secretary of State of the State of New York or at such later
time, not to exceed 30 days from the date of such filing, as is specified in the
certificate of merger (the "Effective Time").
Section 1.8. Effects of the Merger. From and after the Effective
Time, the Surviving Corporation shall possess all the rights, privileges, powers
and franchises and be subject to all of the restrictions, disabilities and
duties of DOCP and Buyer, and the Merger shall otherwise have the effects as
provided by New York law.
Section 1.9. Certificate of Incorporation. The certificate of
incorporation of Buyer in effect at the Effective Time shall be the certificate
of incorporation of the Surviving Corporation until amended in accordance with
applicable law.
Section 1.10. Bylaws. The bylaws of Buyer in effect at the Effective
Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable law.
Section 1.11. Directors and Officers. From and after the Effective
Time, until successors are duly elected or appointed and qualified (or earlier
resignation or removal) in accordance with applicable law, (a) the directors of
Buyer at the Effective Time shall be the directors of the Surviving Corporation
and (b) the officers of DOCP at the Effective Time shall be the officers of the
Surviving Corporation.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 2.1. Conversion of Securities. At the Effective Time, by
virtue of the Merger and without any action on the part of Buyer, DOCP or the
holders of any of DOCP securities:
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(a) Each DOCP Share issued and outstanding immediately prior to the
Effective Time (other than any DOCP Shares to be canceled pursuant to
Section 2.1(b) and any Dissenting Shares) shall be converted into the
right to receive an amount in cash equal to the Offer Price, without
interest.
(b) Each DOCP Share or DOCP Stock Option held in the treasury of
DOCP (or any DOCP Subsidiary) and each DOCP Share or DOCP Stock Option
owned by Buyer (or its subsidiary) immediately prior to the Effective Time
shall automatically be canceled and extinguished without any conversion
thereof, and no payment shall be made with respect thereto.
(c) Each share of capital stock (and any option to purchase any
share of capital stock) of Buyer outstanding immediately prior to the
Effective Time shall be converted into and become one share of a class of
capital stock (or an option to purchase one share of a class of capital
stock) of the Surviving Corporation with the same rights, powers and
privileges as the share of capital stock (or option to purchase a share of
capital stock) so converted and shall constitute the only outstanding
shares (or options to purchase shares) of capital stock of the Surviving
Corporation.
(d) On and after the Effective Time, holders of certificates which
immediately prior to the Effective Time represented issued and outstanding
DOCP Shares ("Certificates") shall cease to have any rights as
shareholders of DOCP, except the right to receive the consideration set
forth in this Article II with respect to each DOCP Share held by them.
Section 2.2. Exchange of Certificates and Cash. (a) Exchange Agent.
From time to time as may be necessary to make payments of cash pursuant to
Section 2.1(a), Buyer shall deposit, or shall cause to be deposited, with or for
the account of a bank or trust company designated by Buyer, which shall be
reasonably satisfactory to DOCP (the "Exchange Agent"), for exchange in
accordance with this Article II through the Exchange Agent, amounts in cash to
be paid in respect of outstanding DOCP Shares (all such cash funds, the
"Exchange Fund"). The Exchange Agent shall, pursuant to Buyer's instructions,
deliver such cash from the Exchange Fund to holders of DOCP Shares pursuant to
the exchange procedures set forth below. Any interest, dividends or other income
earned on the investment of the Exchange Fund shall be for the account of Buyer.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Buyer shall instruct the Exchange Agent to mail to each holder
of record of a Certificate or Certificates, (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to a
Certificate shall pass, only upon proper delivery of such Certificate to the
Exchange Agent and shall be in such form and have such other provisions as Buyer
may reasonably specify) and (ii) instructions to effect the surrender of
Certificates in exchange for cash. Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by Buyer together with such letter of transmittal, duly executed, and
such other customary documents as may be required pursuant to such instructions
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(collectively, the "Transmittal Documents"), the holder of such Certificate
shall be entitled to receive in exchange therefor the amount in cash which such
holder has the right to receive pursuant to Section 2.1(a) and the Certificate
so surrendered shall forthwith be canceled. In the event of a transfer of
ownership of DOCP Shares which is not registered in the transfer records of
DOCP, the applicable Exchange Fund cash may be paid in accordance with this
Article II to a transferee only if the Certificate evidencing such transferred
DOCP Shares is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Exchange Fund cash shall be
delivered by the Exchange Agent as promptly as practicable following surrender
of a Certificate and the related Transmittal Documents, and Exchange Fund cash
payments may be made by check (unless otherwise required by a depositary
institution in connection with the book-entry delivery of securities). No
interest shall be payable on any Exchange Fund cash to be delivered in respect
of DOCP Shares regardless of any delay in making payments. Until surrendered as
contemplated by this Section 2.2(b), each Certificate shall be deemed, at any
time after the Effective Time, to evidence only the right to receive, upon such
surrender, the applicable Exchange Fund cash.
(c) Termination of Exchange Fund. Any portion of the Exchange Fund
which is not distributed to the holders of DOCP Shares by the six-month
anniversary of the Effective Time shall be delivered to Buyer, upon demand, and
any holders of DOCP Shares who have not theretofore complied with this Article
II and received Exchange Fund cash may thereafter look only to Buyer for the
applicable cash to which they are entitled pursuant to this Article II.
(d) No Liability. Neither Buyer, CSX, NSC, the Management Investor,
the Surviving Corporation nor DOCP shall be liable to any holder of DOCP Shares
for any Exchange Fund cash delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(e) Withholding Rights. Buyer or the Exchange Agent shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of DOCP Shares such amounts as Buyer or
the Exchange Agent is required to deduct and withhold with respect to the making
of such payment under the United States Internal Revenue Code of 1986, as
amended, and the rules and regulations thereunder (the "Code"), or any provision
of United States state or local or foreign tax law. To the extent that amounts
are so deducted or withheld, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the DOCP Shares
in respect of which such deduction and withholding was made.
(f) Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
Buyer or the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as Buyer or the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent shall issue in exchange for such lost, stolen or destroyed
Certificate the cash deliverable in respect thereof pursuant to this Article.
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(g) No Further Ownership Rights. All cash paid pursuant to this
Article upon the surrender or exchange of Certificates shall be deemed to have
been paid in full satisfaction of all rights pertaining to the DOCP Shares
theretofore represented by such Certificates.
Section 2.3. Stock Transfer Books. At the Effective Time, the stock
transfer books of DOCP shall be closed and there shall be no further
registration of transfers of DOCP Shares on the records of DOCP. On or after the
Effective Time, any Certificate presented to the Exchange Agent or the Surviving
Corporation for any reason shall be exchanged for the consideration into which
the DOCP Shares represented by such Certificate have been converted pursuant to
this Article.
Section 2.4. Stock Options; Payment Rights. At the Effective Time,
each outstanding DOCP Stock Option to purchase DOCP Shares, whether or not then
exercisable, other than any DOCP Stock Option held in the treasury of DOCP (or
any DOCP Subsidiary) or owned by Buyer (or its subsidiary) which shall be
treated as provided in Section 2.1(b), shall be canceled, and the holder thereof
shall be entitled to receive in full consideration therefor cash in an amount
equal to the difference between the Offer Price and the per share exercise price
thereof, multiplied by the number of DOCP Shares subject to such DOCP Stock
Option; and DOCP shall obtain consents from the holders of any DOCP Stock
Options to the extent necessary or appropriate to effect the foregoing.
Section 2.5. Dissenting Shares. (a) Notwithstanding any other
provision of this Agreement to the contrary, DOCP Shares outstanding immediately
prior to the Effective Time and held by shareholders who shall have not voted in
favor of the Merger or consented thereto in writing and who shall be entitled to
and shall have demanded properly in writing payment for such DOCP Shares in
accordance with Sections 910 and 623 of the New York Law and who shall not have
withdrawn such demand or otherwise have forfeited appraisal rights
(collectively, "Dissenting Shares") shall not be converted into or represent the
right to receive cash pursuant to Section 2.1. Such shareholders shall be
entitled to receive payment of the appraised value of such DOCP Shares held by
them in accordance with the provisions of the New York Law, except that all
Dissenting Shares held by shareholders who shall have failed to perfect or who
effectively shall have withdrawn, forfeited or lost their rights to appraisal of
such DOCP Shares under the New York Law shall thereupon be deemed to have been
converted into and to have become exchangeable, as of the Effective Time, for
the right to receive, without any interest thereon, the applicable consideration
provided in Section 2.1, upon surrender, in the manner provided in Section 2.2,
of the Certificate or Certificates that formerly evidenced such DOCP Shares.
(b) DOCP shall give Buyer prompt notice of any demands for appraisal
received by it, withdrawals of such demands, and any other instruments served
pursuant to the New York Law received by DOCP and relating thereto. DOCP and
Buyer shall jointly direct all negotiations and proceedings with respect to
demands for appraisal under the New York Law. Neither DOCP nor Buyer shall,
except with the prior written consent of the other, make any payment with
respect to any demands for appraisal, or offer to settle, or settle, any such
demands.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF DOCP
DOCP hereby represents and warrants to each of the other parties
hereto that:
Section 3.1. Organization and Qualifications; Subsidiaries. Each of
DOCP, each DOCP subsidiary and each other person in which DOCP has an investment
of greater than $1,000,000 (each, a "DOCP Subsidiary") is a corporation,
partnership or other legal entity duly incorporated or organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has the requisite power and authority and all
necessary governmental approvals to own, lease and operate its properties and to
carry on its business as it is now being conducted, except where the failure to
be so organized, existing or in good standing or to have such power, authority
and governmental approvals would not, individually or in the aggregate, have a
material adverse effect on the business, results of operations, financial
condition, assets, properties or prospects of DOCP and the DOCP Subsidiaries,
taken as a whole, or otherwise delay in any material respect or prevent
consummation of the Offer or the Merger or otherwise prevent DOCP from
performing its obligations under this Agreement in any material respect (any
such event, a "DOCP Material Adverse Effect"). DOCP and each DOCP Subsidiary is
duly qualified or licensed as a foreign corporation to transact business, and is
in good standing, in each jurisdiction where the character of the properties
owned, leased or operated by it or the nature of its business makes such
qualification or licensing necessary, except for such failures to be so
qualified or licensed and in good standing that could not reasonably be expected
to, individually or in the aggregate, have a DOCP Material Adverse Effect.
Section 3.1 of the written disclosure schedule previously delivered by DOCP to
Buyer (the "DOCP Disclosure Schedule") sets forth a complete and correct list of
all DOCP Subsidiaries. Except for the capital stock of the DOCP Subsidiaries,
DOCP does not beneficially or of record own, directly or indirectly, any capital
stock or other ownership interest in any corporation, partnership, joint venture
or other entity.
Section 3.2. Certificate of Incorporation and Bylaws. DOCP has
heretofore made available to Buyer a complete and correct copy of the
certificate of incorporation and bylaws or equivalent organizational documents,
each as amended to the date hereof, of DOCP and each DOCP Subsidiary. Such
certificates of incorporation, bylaws and equivalent organizational documents
are in full force and effect. Neither DOCP nor any DOCP Subsidiary is in
violation of any provision of its certificate of incorporation, bylaws or
equivalent organizational documents.
Section 3.3. Capitalization. The authorized capital stock of DOCP
consists of 10,000,000 DOCP Shares and 1,000,000 shares of preferred stock of
DOCP, par value $1.25 per share. As of August 7, 1997, (a) 1,893,219 DOCP Shares
were issued and outstanding, all of which were validly issued, fully paid and
nonassessable, (b) 168,251 DOCP Shares were reserved for issuance upon the
exercise of outstanding stock options granted pursuant to DOCP employee stock
plans ("DOCP Stock Options"), (c) 421,309 DOCP Shares were reserved for issuance
upon conversion of all outstanding Convertible Debt and Warrants of DOCP, (d)
110
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DOCP Shares were held in the treasury of DOCP, (e) no DOCP Shares were held
by DOCP Subsidiaries and (f) no shares of preferred stock of DOCP were issued
and outstanding. Except as set forth in this Section 3.3, as of August 7, 1997,
no shares of capital stock or other voting securities of DOCP were issued,
reserved for issuance or outstanding. Except as set forth in this Section 3.3,
other than warrants to purchase 66,150 DOCP Shares, pursuant to the Warrant
Agreement, dated as of January 31, 1996, by and between DOCP and Creditanstalt
Corporate Finance, Inc. (the "Warrants") and other than DOCP's 6.5% Convertible
Subordinated Notes due September 1, 2003 (the "Convertible Debt"), there are no
options, stock appreciation rights, warrants or other rights, agreements,
arrangements or commitments of any character (collectively, "Options") relating
to the issued or unissued capital stock of DOCP or any DOCP Subsidiary or
obligating DOCP or any DOCP Subsidiary to issue, grant or sell any shares of
capital stock of, or other equity interests in, or convertible into equity
interests in, DOCP or any DOCP Subsidiary. Upon consummation of the Merger, the
Warrants and the Convertible Debt shall cease to represent any right to purchase
or otherwise obtain any capital stock of DOCP or the Surviving Corporation, and
all rights of the holders of such Warrants and Convertible Debt to purchase or
otherwise obtain any capital stock of DOCP shall, pursuant to the terms of such
instruments, solely represent the right, upon proper exercise or conversion of
such instruments, to obtain an amount in cash equal to the product of the Offer
Price and the number of DOCP Shares for or into which such Warrants or
Convertible Debt were exercisable or convertible immediately prior to the
Effective Time. Section 3.3 of the DOCP Disclosure Schedule sets forth a
complete and correct list as of August 16, 1997 of the number of DOCP Shares
subject to DOCP Stock Options, the exercise prices and holders thereof and the
terms of all stock option plans and agreements relating thereto. Since August 7,
1997, DOCP has not issued any shares of its capital stock or Options in respect
thereof, except upon the conversion of the Convertible Debt or the exercise of
the Warrants or DOCP Stock Options referred to above. All outstanding DOCP
Shares have been, and all DOCP Shares subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, will be, duly authorized, validly issued, fully paid
and nonassessable. Except as set forth in Section 3.3 of the DOCP Disclosure
Schedule, there are no outstanding contractual obligations of DOCP or any DOCP
Subsidiary to repurchase, redeem or otherwise acquire any shares of DOCP Shares
or any capital stock of any DOCP Subsidiary, or make any investment (in the form
of a loan, capital contribution or otherwise) in, any DOCP Subsidiary or any
other person. Except as set forth in Section 3.3 of the DOCP Disclosure
Schedule, each outstanding share of capital stock of each DOCP Subsidiary is
duly authorized, validly issued, fully paid and nonassessable and is owned by
DOCP or wholly owned another DOCP Subsidiary free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, agreements,
limitations on DOCP's or such other DOCP Subsidiary's voting rights, charges and
other encumbrances of any nature whatsoever. Except as set forth in this Section
3.3, there are no outstanding bonds, debentures, notes or other indebtedness
having the right to vote or convertible into or exchangeable for securities
having the right to vote on any matters upon which holders of DOCP Shares may
vote.
Section 3.4. Authority Relative to This Agreement. DOCP has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by DOCP and
the consummation by DOCP of the transactions contemplated
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hereby have been duly and validly authorized by all necessary corporate action,
and no other corporate proceedings on the part of DOCP or holders of its
securities or indebtedness are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby (other than, with respect to
consummation of the Merger, except as contemplated by Section 1.5(c) hereof, the
approval and adoption of this Agreement by the holders of two-thirds of the
then-outstanding DOCP Shares and the filing and recordation of appropriate
merger and similar documents as required by the New York Law). This Agreement
has been duly and validly executed and delivered by DOCP, and, assuming the due
authorization, execution and delivery by the other parties hereto, constitutes
the legal, valid and binding obligation of DOCP, enforceable against DOCP in
accordance with its terms.
Section 3.5. No Conflict; Required Filings and Consents. (a) Except
as set forth in Section 3.5 of the DOCP Disclosure Schedule, the execution and
delivery of this Agreement by DOCP do not, and the performance of this Agreement
and the consummation of the transactions contemplated hereby by DOCP will not,
(i) conflict with or violate the certificate of incorporation or bylaws or
equivalent organizational documents of DOCP or any DOCP Subsidiary, (ii)
conflict with or violate any law, rule, regulation, order, judgment or decree
applicable to DOCP or any DOCP Subsidiary or by which any property or asset of
DOCP or any DOCP Subsidiary is bound or affected or (iii) result in any breach
of or constitute a default (or an event which, with notice or lapse of time or
both, would become a default) under, result in the loss of a material benefit
under, or give to others any right of termination, amendment, acceleration,
increased payments or cancellation of, or result in the creation of a lien or
other encumbrance on any property or asset of DOCP or any DOCP Subsidiary
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which DOCP or
any DOCP Subsidiary is a party or by which DOCP or any DOCP Subsidiary or any
property or asset of DOCP or any DOCP Subsidiary is bound or affected, except,
in the case of clauses (ii) and (iii), for any such conflicts, violations,
breaches, defaults or other occurrences as could not reasonably be expected to,
individually or in the aggregate, have a DOCP Material Adverse Effect.
(b) The execution and delivery of this Agreement by DOCP do not, and
the performance of this Agreement and the consummation of the transactions
contemplated hereby by DOCP will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, domestic or foreign (each a "Governmental Entity"),
except (i) for (A) applicable filings under the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder (the "Exchange
Act"), (B) the requirements of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations thereunder (the "HSR Act"),
if applicable, and (C) the filing and recordation of appropriate merger and
similar documents as required by the New York Law and (ii) where failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, could not reasonably be expected to, individually or
in the aggregate, have a DOCP Material Adverse Effect.
Section 3.6. Compliance. Except as set forth in Section 3.6 of the
DOCP Disclosure Schedule, neither DOCP nor any DOCP Subsidiary is in conflict
with, or in default or
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violation of, (a) any law, rule, regulation, order, judgment or decree
applicable to DOCP or any DOCP Subsidiary or by which any property or asset of
DOCP or any DOCP Subsidiary is bound or affected, or (b) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which DOCP or any DOCP Subsidiary is a party
or by which DOCP or any DOCP Subsidiary or any property or asset of DOCP or any
DOCP Subsidiary is bound or affected, except for such conflicts, defaults or
violations as could not reasonably be expected to, individually or in the
aggregate, have a DOCP Material Adverse Effect. The business of DOCP is not
being conducted in violation of any law, ordinance or regulation of any
Governmental Entity, including environmental laws, and DOCP and each DOCP
Subsidiary possess all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities required therefor ("Permits"), including
as required under Environmental Laws, and there has occurred no default under
any such Permits, except for the lack of Permits and for defaults under Permits
as could not reasonably be expected to, individually or in the aggregate, have a
DOCP Material Adverse Effect.
Section 3.7. Litigation. Except as set forth in Section 3.7 of the
DOCP Disclosure Schedule, (a) there is no single or series of related suits,
actions, notices, demands, claims, investigations or proceedings pending or, to
the knowledge of DOCP, threatened against DOCP or any DOCP Subsidiary, or any
unsatisfied judgment against DOCP or any DOCP Subsidiary, relating to or
involving an amount greater than $100,000 and (b) there is no judgment, decree,
injunction or similar order of any Governmental Entity or arbitrator outstanding
against DOCP or any DOCP Subsidiary or other single or series of related suits,
actions or proceedings pending or, to the knowledge of DOCP, threatened that,
individually or in the aggregate, could reasonably be expected to have a DOCP
Material Adverse Effect.
Section 3.8. SEC Filings; Financial Statements. (a) DOCP has filed
all forms, reports and documents required to be filed by it with the SEC since
January 1, 1995 and has heretofore made available to Buyer, in the form filed
with the SEC all such forms, reports and documents (all such forms, reports and
documents, collectively, with exhibits, schedules or information incorporated
therein by reference, the "DOCP SEC Reports"). The DOCP SEC Reports and any
forms, reports and other documents filed by DOCP with the SEC after the date of
this Agreement (i) were or will be prepared in accordance with the requirements
of the Securities Act of 1933, as amended, and the rules and regulations
thereunder (the "Securities Act"), and the Exchange Act, as the case may be, and
(ii) did not at the time they were filed and, except as amended prior the date
hereof, at any time since filing or will not at the time they are filed contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. No DOCP Subsidiary is required to file any form, report or other
document with the SEC.
(b) Each of the consolidated financial statements (including, in
each case, any notes thereto) contained in the DOCP SEC Reports (i) was prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as may be indicated in
the notes thereto), (ii) fairly presents the consolidated financial position,
results of operations and cash flows of DOCP and the consolidated DOCP
Subsidiaries
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as at the respective dates thereof and for the respective periods indicated
therein (subject, in the case of unaudited statements, to normal and recurring
year-end adjustments which were not and are not expected, individually or in the
aggregate, to be material in amount) and (iii) complies as to form, as of its
respective date of filing with the SEC, with all applicable accounting
requirements and SEC rules and regulations. Since December 31, 1994, there has
been no change in any of the significant accounting (including tax accounting)
policies, practices or procedures of DOCP or any DOCP Subsidiary except insofar
as required by a change in generally accepted accounting principles.
(c) Except as set forth in Section 3.8 of the DOCP Disclosure
Schedule or as and to the extent set forth on the audited DOCP balance sheets
contained in DOCP SEC Reports filed with the SEC prior to the date of this
Agreement, DOCP and the DOCP Subsidiaries do not have any liability or
obligation of any nature (whether accrued, absolute, contingent or otherwise)
other than liabilities and obligations incurred in the ordinary course of
business and which could not reasonably be expected to, individually or in the
aggregate, have a DOCP Material Adverse Effect.
Section 3.9. Absence of Certain Changes and Events. Except as set
forth in Section 3.9 of the DOCP Disclosure Schedule, since December 31, 1996:
(a) DOCP and the DOCP Subsidiaries have conducted their businesses only in the
ordinary course consistent with past practice, (b) there have not been any
events or changes in circumstances which has resulted in or could, individually
or in the aggregate, reasonably be expected to result in, a DOCP Material
Adverse Effect, (c) there has not been (i) except as disclosed in DOCP SEC
Reports filed prior to the date hereof, any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any DOCP capital stock, (ii) except as disclosed in
DOCP SEC Reports filed prior to the date hereof, any split, combination or
reclassification of any DOCP capital stock or any issuance or the authorization
of any issuance of any other securities in respect of, in lieu of or in
substitution for DOCP capital stock, except for issuances of DOCP Shares upon
the exercise of DOCP Stock Options or the Warrants or the conversion of the
Convertible Debt, in each case in accordance with the terms thereof, (iii) (A)
any granting by DOCP or any DOCP Subsidiary to any current or former employee,
officer, director or consultant of DOCP of any options to purchase DOCP Shares
or any increase in compensation (including bonuses or commissions), except for
normal increases in the ordinary course of business consistent with past
practice or as required under employment or consulting agreements in effect as
of the date of the most recent audited financial statements included in the DOCP
SEC Reports filed prior to the date hereof, (B) any granting by DOCP or any DOCP
Subsidiary to any current or former employee, officer, director or consultant of
any increase in severance or termination pay, except as required under any
employment, consulting, severance or termination agreements in effect as of the
date of the most recent audited financial statements included in the DOCP SEC
Reports filed prior to the date hereof or (C) any entry by DOCP or any DOCP
Subsidiary into any employment, consulting, severance, termination or
indemnification agreements, arrangements, or understandings with any such
current or former employee, officer, director or consultant, (iv) except as
disclosed in DOCP SEC Reports filed prior to the date hereof, any change in
accounting methods, principles or practices by DOCP materially affecting its
assets, liabilities or business, except insofar as may have been required by a
change
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in generally accepted accounting principles, or (v) any action which would have
been prohibited without Buyer's approval under Section 5.1 if taken between the
date of this Agreement and the Effective Time.
Section 3.10. Employee Benefit Plans. With respect to all the
employee benefit plans, programs and arrangements maintained for the benefit of
any current or former employee, officer or director of DOCP or any DOCP
Subsidiary (the "DOCP Plans"), except as set forth in Section 3.10 of the DOCP
Disclosure Schedule: (a) none of the DOCP Plans is a multi-employer plan within
the meaning of the Employee Retirement Income Security Act of 1974, as amended,
and the rules and regulations thereunder ("ERISA"); (b) none of the DOCP Plans
promises or provides retiree medical or life insurance benefits to any person;
(c) each DOCP Plan intended to be qualified under Section 401(a) of the Code has
received a favorable determination letter from the United States Internal
Revenue Service (the "IRS") that it is so qualified and nothing has occurred
since the date of such letter that could reasonably be expected to affect the
qualified status of such DOCP Plan other than occurrences that could not
reasonably be expected to, individually or in the aggregate, have a DOCP
Material Adverse Effect; (d) each DOCP Plan has been operated in all material
respects in accordance with its terms and the requirements of applicable law;
(e) neither DOCP nor any DOCP Subsidiary has incurred any direct or indirect
liability under, arising out of or by operation of Title IV of ERISA in
connection with the termination of, or withdrawal from, any DOCP Plan or other
retirement plan or arrangement, and no fact or event exists that could
reasonably be expected to give rise to any such liability, other than any
liability that could not reasonably be expected to, individually or in the
aggregate, have a DOCP Material Adverse Effect; and (f) DOCP and the DOCP
Subsidiaries have not incurred any liability under, and have complied in all
material respects with, the federal Worker Adjustment Retraining Notification
Act, and no fact or event exists that could give rise to liability under such
act, other than any liability that could not reasonably be expected to,
individually or in the aggregate, have a DOCP Material Adverse Effect. Except as
set forth in Section 3.9 of the DOCP Disclosure Schedule, the aggregate
accumulated benefit obligations of each DOCP Plan subject to Title IV of ERISA
(as of the date of the most recent actuarial valuation prepared for such DOCP
Plan) do not exceed the fair market value of the assets of such DOCP Plan (as of
the date of such valuation).
Section 3.11. Environmental Matters. Except as set forth in Section
3.11 of the DOCP Disclosure Schedule:
(a) DOCP and the DOCP Subsidiaries have not, and, to DOCP's
knowledge, no other person has, Released, placed, stored, buried or dumped any
material quantities of Hazardous Substances on, beneath or adjacent to each
property owned, operated or leased by DOCP and the DOCP Subsidiaries (the
"Property"), or, to the knowledge of DOCP, any property formerly owned, operated
or leased by DOCP or the DOCP Subsidiaries, except for the presence of such
Hazardous Substances as would not have a DOCP Material Adverse Effect.
(b) Neither DOCP nor any DOCP Subsidiary has entered into any
agreement that requires them to pay to, reimburse, guarantee, pledge, defend,
indemnify or hold harmless any person for or against any liabilities or costs in
connection with any pending or threatened suit,
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action, notice, proceeding or investigation relating to alleged noncompliance
with, or liability under, Environmental Laws.
(c) Neither DOCP nor any DOCP Subsidiary has received any written
notice or written order from any Governmental Entity or private entity advising
them that they are responsible for or potentially responsible for Cleanup, or
paying for the cost of Cleanup, of any Hazardous Substances on or adjacent to
the Property or at any location containing Hazardous Substances generated,
treated, transported or stored by DOCP or the DOCP Subsidiaries or on behalf of
DOCP or the DOCP Subsidiaries, and neither DOCP nor any DOCP Subsidiary has
entered into any agreements concerning such Cleanup, nor is DOCP aware of any
material facts which DOCP has reasonable grounds to believe will give rise to
such notice, order or agreement.
(d) As used in this Agreement: "Cleanup" shall mean all actions
required to (i) cleanup, remove, treat or remediate Hazardous Substances in the
indoor or outdoor environment, (ii) prevent the Release of Hazardous Substances
so that they do not migrate, endanger or threaten to endanger public health or
welfare or the indoor or outdoor environment, (iii) perform pre-remedial studies
and investigations and post-remedial monitoring and care, (iv) respond to any
government requests for information or documents in any way relating to cleanup,
removal, treatment or remediation or potential cleanup, removal, treatment or
remediation of Hazardous Substances in the indoor or outdoor environment or (v)
any administrative, judicial, or other proceedings related to the above;
"Environmental Laws" shall mean all applicable United States federal, state and
local, and foreign laws, regulations, rules and ordinances relating to pollution
or protection of the environment or human health and safety, including laws
relating to Releases or threatened Releases of Hazardous Substances into the
indoor or outdoor environment (including ambient air, surface water,
groundwater, land, surface and subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, Release,
transport or handling of Hazardous Substances, and all laws and regulations with
regard to recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Substances, and all laws relating to endangered or
threatened species of fish, wildlife and plants and the management or use of
natural resources; "Hazardous Substance" shall mean: (i) any petrochemical or
petroleum products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation, transformers or other
equipment that contain dielectric fluid containing levels of polychlorinated
biphenyls and radon gas, (ii) any chemicals, materials or substances defined as
or included in the definition of: "hazardous substances," "hazardous wastes,"
"hazardous materials," "restricted hazardous materials," "extremely hazardous
substances," "toxic substances," "contaminants" or "pollutants" or words of
similar meaning and regulatory effect or (iii) any other chemical, material or
substance exposure to which is prohibited, limited or regulated by any
Environmental Law; and "Release" shall mean any release, spill, emission,
discharge, leaking, pumping, injection, deposit, disposal, discharge, dispersal,
leaching or migration into the indoor or outdoor environment (including ambient
air, surface water, groundwater and surface or subsurface strata) or into or out
of any property, including the movement of Hazardous Substances through or in
the air, soil, surface water, groundwater or property.
Section 3.12. [Intentionally omitted.]
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Section 3.13. Transactions with Affiliates. As of the date hereof,
except as set forth in Section 3.13 of the DOCP Disclosure Schedule, (a) there
are no outstanding amounts payable to or receivable from, or advances by DOCP or
any DOCP Subsidiary to, and neither DOCP nor any DOCP Subsidiary is otherwise a
creditor of or debtor to, any officer, director, consultant or employee of DOCP
or any DOCP Subsidiary and (b) neither DOCP nor any DOCP Subsidiary is a party
to any transaction, agreement, arrangement or understanding with any officer,
director, consultant or employee of DOCP or any DOCP Subsidiary, other than,
with respect to both clauses (a) and (b), items arising out of the ordinary
course of employment with DOCP or any DOCP Subsidiary.
Section 3.14. Contracts. Except as set forth in the DOCP SEC Reports
filed prior to the date hereof, neither DOCP nor any DOCP Subsidiary is a party
to or bound by (a) any "material contract" (as such term is defined in Item
601(b)(10) of Regulation S-K of the SEC), (b) any non-competition agreement or
any other agreement or obligation which purports to limit in any material
respect the manner in which, or the localities in which, all or any material
portion of the business of DOCP and the DOCP Subsidiaries, taken as a whole, is
or would be conducted or (c) any contract or other agreement which would
prohibit or materially delay the consummation of the Merger or any of the
transactions contemplated by this Agreement.
Section 3.15. Tax Matters. (a) Each of DOCP and each DOCP Subsidiary
has filed all tax returns that it was required to file or has obtained extension
with respect to any unfiled tax returns. All such tax returns were correct and
complete in all material respects. All taxes owed by any of DOCP or a DOCP
Subsidiary (whether or not shown on any tax return) have been paid. Neither DOCP
nor any DOCP Subsidiary currently is the beneficiary of any extension of time
within which to file any tax return.
(b) There is no dispute or claim concerning any material tax liability
of any of DOCP or the DOCP Subsidiaries either (i) claimed or raised by any
authority in writing or (ii) as to which any of the directors and officers of
DOCP or the DOCP Subsidiaries has knowledge based upon personal contact with any
agent of such authority.
(c) None of DOCP nor the DOCP Subsidiaries (i) is a party to any tax
allocation or sharing agreement, (ii) has been a member of an affiliated group
(within the meaning of Section 1504(a) of the Code) filing a consolidated income
tax return (other than a group the common parent of which was DOCP) or (iii) has
any liability for the taxes of any person (other than DOCP or a DOCP Subsidiary)
under Treasury Regulation Section 1.1502-6 promulgated under the Code (or any
similar provision of United States state or local, or foreign law), as a
transferee or successor, by contract, or otherwise.
(d) The unpaid taxes of DOCP and the DOCP Subsidiaries as of the
Closing Date do not exceed the reserve for tax liability (rather than any
reserve for deferred taxes established to reflect timing differences between
book and taxable income) set forth in the most recent audited balance sheets
contained in DOCP SEC Reports filed with the SEC prior to the date of this
Agreement.
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(e) The United States federal income tax returns of DOCP and the DOCP
Subsidiaries have not been audited by the IRS since at least 1987.
(f) Neither DOCP nor any DOCP Subsidiary has filed an election under
Section 341(f) of the Code to be treated as a consenting corporation.
Section 3.16. Opinion of Financial Advisor. The DOCP Board has received
the opinion of Smith Barney Inc., dated the date of this Agreement (which will
be confirmed in writing as promptly as practicable after the date of this
Agreement), to the effect that, as of such date, the cash consideration to be
received by the holders of DOCP Shares (other than CSX, NSC and the Management
Investor and their respective affiliates) pursuant to the Offer and the Merger
is fair to such holders from a financial point of view, a copy of which opinion
will be delivered to Buyer after receipt thereof by DOCP.
Section 3.17. Brokers. Except as described in Section 3.17 of the DOCP
Disclosure Schedule, no broker, finder or investment banker (other than Smith
Barney, Inc.) is entitled to any brokerage, finder's or other fee or commission
in connection with the transactions contemplated hereby based upon arrangements
made by or on behalf of DOCP. DOCP has heretofore furnished to Buyer a complete
and correct copy of all agreements between DOCP and Smith Barney, Inc. pursuant
to which such firm would be entitled to any payment, reimbursement or
indemnification from DOCP or otherwise relating to the transactions contemplated
hereby.
Section 3.18. Information Supplied. None of the information supplied or
to be supplied by DOCP for inclusion or incorporation by reference in the
Schedule 14D-1 or the Schedule 13E-3 will, at the date such documents are first
published, sent or delivered to shareholders or, unless promptly corrected, at
any time during the pendency of the Offer, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. Neither the Schedule
14D-9 at the date such document is first published, sent or delivered to
shareholders or, unless promptly corrected, at any time during the pendency of
the Offer, nor the Proxy Statement (if applicable) at the date such document is
first published, sent or delivered to shareholders or, unless promptly
corrected, at any time during the pendency of the Merger Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The
Schedule 14D-9 and the Proxy Statement (if applicable) will comply as to form in
all material respects with the requirements of the Exchange Act. Notwithstanding
the foregoing, no representation or warranty is made by DOCP with respect to
statements made or incorporated by reference therein based on information
supplied by LLC, Buyer, CSX, NSC or the Management Investor (acting in such
capacity) for inclusion or incorporation by reference in any of the foregoing
documents.
Section 3.19. State Takeover Statutes. DOCP and the DOCP Board have
taken all action necessary or advisable so as to render inoperative with respect
to the transactions contemplated hereby (including the Offer and the Merger) all
applicable state anti-takeover
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statutes and all anti-takeover provisions of the organizational documents of
DOCP and each DOCP Subsidiary. Without limiting the generality of the foregoing,
DOCP and the DOCP Board have taken all actions necessary to exempt all future
transactions contemplated by this Agreement (including the Offer and the
Merger), on the one hand, and each of the other parties and their respective
"affiliates" and "associates" (each as defined in Section 912 of the New York
Law), on the other hand, from the provisions of such Section 912 of the New York
Law.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF BUYER, CSX, NSC
AND THE MANAGEMENT INVESTOR
Each of LLC, Buyer, CSX, NSC and the Management Investor (except, as
regards the Management Investor, with respect to Section 4.1) hereby represents
and warrants (or, in the cases of LLC and Buyer, will be deemed to represent and
warrant upon their respective formations) to each of the other parties hereto
that:
Section 4.1. Organization and Qualification. Such person is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization and has the
requisite power and authority and all necessary governmental approvals to own,
lease and operate its properties and to carry on its business as it is now being
conducted, except where the failure to be so organized, existing or in good
standing or to have such power, authority and governmental approvals could not
reasonably be expected to, individually or in the aggregate, have a material
adverse effect on the ability of such party to consummate the transactions
contemplated hereby (a "Buyer Material Adverse Effect"). Such person is not in
violation of any provision of its certificate of incorporation, bylaws or
equivalent organizational documents.
Section 4.2. Authority Relative to This Agreement. Such person has all
necessary power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by such person and the
consummation by such person of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action (and in the case
of the Management Investor, all necessary action) and no other corporate
proceedings on the part of such person (and, in the case of the Management
Investor, no other proceedings) are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby (other than the filing and
recordation of appropriate merger documents as required by the New York Law).
This Agreement has been duly and validly executed and delivered by such person,
and, assuming the due authorization, execution and delivery by the other parties
hereto, constitutes the legal, valid and binding obligation of such person,
enforceable against such person in accordance with its terms.
Section 4.3. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by such person do not, and the
performance of this Agreement and the transactions contemplated hereby by such
person, will not (i) other than with respect to the
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Management Investor, conflict with or violate the certificate of incorporation
or bylaws or equivalent organizational documents of such person, (ii) conflict
with or violate any law, rule, regulation, order, judgment or decree applicable
to such person or by which any property or asset of such person is bound or
affected or (iii) result in any breach of or constitute a default (or an event
which, with notice or lapse of time or both, would become a default) under,
result in the loss of a material benefit under or give to others any right of
termination, amendment, acceleration, increased payments or cancellation of, or
result in the creation of a lien or other encumbrance on any property or asset
of such person pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or any other instrument or
obligation to which such person is a party or by which such person or any
property or asset of such person is bound or affected, except in the case of
clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults
or other occurrences as could not reasonably be expected to, individually or in
the aggregate, have a Buyer Material Adverse Effect.
(b) The execution and delivery of this Agreement by such person do not,
and the performance of this Agreement and the consummation of the transactions
contemplated hereby by such person will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any Governmental
Entity, except (i) for (A) applicable disclosures, if any, under the Exchange
Act, (B) the requirements of the HSR Act, if applicable, and (C) filing and
recordation of appropriate merger and similar documents as required by the New
York Law and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, could not
reasonably be expected to, individually or in the aggregate, have a Buyer
Material Adverse Effect.
Section 4.4. Information Supplied. None of the information supplied or
to be supplied by such person for inclusion or incorporation by reference in the
Schedule 14D-9 or the Proxy Statement (if applicable) will, at the date such
documents are first published, sent or delivered to shareholders or, unless
promptly corrected, at any time during the pendency of the Offer, contain any
untrue statement of a material fact required to be stated therein or necessary
to make the statements therein not misleading. None of the Schedule 14D-1 nor
the Schedule 13E-3 will, at the date such document is first published, sent or
delivered to shareholders or, unless promptly corrected, at any time during the
pendency of the Offer, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. The Schedule 14D-1 and the Schedule 13E-3 will comply
as to form in all material respects with the requirements of the Exchange Act
and the rules and regulations thereunder. Notwithstanding the foregoing, no
representation or warranty is made by such person with respect to statements
made or incorporated by reference therein based on information supplied by DOCP
for inclusion or incorporation by reference in any of the foregoing documents.
Section 4.5. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated hereby based upon arrangements made by or on
behalf of such person.
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ARTICLE V.
COVENANTS RELATING TO THE CONDUCT OF BUSINESS
Section 5.1. Conduct of Business by DOCP Pending the Merger. Except as
set forth in this Agreement or in Section 5.1 of the DOCP Disclosure Schedule,
during the period from the date of this Agreement to the Effective Time, other
than with LLC's prior written consent, DOCP and each DOCP Subsidiary shall not,
voluntarily or involuntarily, (a) take any action, regulatory or otherwise,
inconsistent with facilitating consummation of the transactions contemplated
hereby or (b) take any of the following actions:
(i) conduct its business in any manner other than in the ordinary
course of business consistent with past practice and in compliance in all
material respects with all applicable laws and regulations, and, to the
extent consistent therewith, shall not fail to use all reasonable efforts to
preserve intact their current business organizations, use reasonable efforts
to keep available the services of their current officers and other key
employees as a group and preserve their relationships with those persons
having business dealings with them to the end that their goodwill and
ongoing businesses shall be unimpaired at the Effective Time;
(ii) adopt, propose or agree to any amendment to its articles of
incorporation, laws or other comparable organizational documents;
(iii) issue, deliver, sell, pledge, or otherwise encumber (A) any
shares of DOCP's or any DOCP Subsidiary's capital stock or any rights,
warrants or options to acquire any such shares (other than the issuance of
DOCP Shares in connection with the exercise of DOCP Stock Options or
Warrants outstanding as of the date of this Agreement and in accordance with
the terms of such DOCP Stock Options or the Warrants, as the case may be, or
upon conversion of the Convertible Debt in accordance with its terms, in
each case, in effect on the date of this Agreement) or (B) any material
assets or properties;
(iv) other than dividends and distributions (including liquidating
distributions) by a direct or indirect wholly owned subsidiary of DOCP to
its parent, (A) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, in respect of
any capital stock or (B) subdivide, reclassify, recapitalize, split, combine
or exchange any shares of capital stock of DOCP or any DOCP Subsidiary; (C)
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of capital stock of DOCP or any DOCP
Subsidiary; (D) purchase, redeem or otherwise acquire any capital stock of
DOCP or any DOCP Subsidiary or any other securities thereof, or any rights,
warrants or options to acquire any such shares or other securities;
(v) (A) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights
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to acquire any debt securities of DOCP or any DOCP Subsidiary,
guarantee any debt securities of another person, enter into any "keep well"
or other agreement to maintain any financial statement condition of another
person, or enter into any arrangement having the economic effect of any of
the foregoing, except for short-term borrowings incurred in the ordinary
course of business consistent with past practice and pursuant to existing
agreements, or (B) make any loans, advances or capital contributions to, or
investments in, any other person, other than to DOCP or any DOCP Subsidiary;
(vi) except for expenditures made under the DOCP capital budget
described in DOCP SEC Reports filed prior to the date hereof, make or agree
to make any new capital expenditure or new capital expenditures which
individually is in excess of $50,000 or in the aggregate is in excess of
$100,000;
(vii) increase the compensation payable or to become payable to its
executive officers, employees or consultants, or grant any bonus, incentive,
severance or termination pay to, or enter into any commission, bonus,
incentive, employment or severance agreement with, any director, executive
officer or consultant of it or any of its subsidiaries, or establish, adopt,
enter into or amend in any material respect or take action to accelerate any
rights or benefits under any collective bargaining agreement or any DOCP
Plan, agreement or policy;
(viii) make any change to its accounting methods, principles or
practices, except as may be required by general accounting principles or
take any other action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with respect
to accounting policies or procedures (including tax accounting policies and
procedures);
(ix) make any material tax election or settle or compromise any
material income tax liability;
(x) enter into, modify, amend or terminate any material contract,
agreement, right or privilege involving the assets or properties of DOCP or
to which DOCP or any DOCP Subsidiary is a party, or waive, release or assign
any material rights or claims thereunder;
(xi) acquire by merger or consolidation, or by purchase of assets, or
by any other manner, any business;
(xii) mortgage or otherwise encumber or subject to any lien any of its
properties or assets;
(xiii) pay, discharge, settle or satisfy any material claims,
liabilities or obligations (whether absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge,
settlement or satisfaction of such claims, liabilities or obligations in the
ordinary course of business consistent with past practice or in accordance
with their terms;
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(xiv) (A) enter into any agreement containing any provision or covenant
limiting in any material respect the ability to compete with any person
which would bind any party hereto (or its operations) after the Effective
Time or (B) except to the extent required by any existing contract or
agreement disclosed in Section 5.1 of the DOCP Disclosure Schedule, acquire
any interest in any railroad line or terminal facility or dispose of any
interest in any railroad line or terminal facility owned, used or operated
by DOCP or any DOCP Subsidiary (including through a grant of concessions or
trackage rights); or
(xv) authorize or commit or agree to take any of the foregoing actions.
Section 5.2. Other Actions. DOCP shall not, and shall not permit any of
the DOCP Subsidiaries to, take any action that would, or that could reasonably
be expected to, result in (a) any of the representations and warranties of DOCP
set forth in this Agreement that are qualified as to materiality becoming
untrue, (b) any of such representations and warranties that are not so qualified
becoming untrue in any material respect or (c) except as otherwise permitted by
Section 6.2, any of the conditions to the Offer set forth in Annex I or any of
the conditions to the Merger set forth in Article VII not being satisfied.
ARTICLE VI.
ADDITIONAL COVENANTS
Section 6.1. Access to Information; Confidentiality. (a) From the date
hereof through the Effective Time (subject to applicable law), DOCP shall (and
shall cause its subsidiaries and officers, directors, employees, auditors and
agents to) afford the officers, employees and agents of each of the other
parties hereto and its respective subsidiaries (the "Respective
Representatives") reasonable access at all reasonable times to its officers,
employees, agents, properties, offices, plants and other facilities, books and
records, and shall furnish such Respective Representatives with all financial,
operating and other data and information as may be reasonably requested. All
such information obtained will be subject to the following confidentiality
arrangements between DOCP and each of the other parties hereto:
(i) None of the parties hereto nor any of their Respective
Representatives shall disclose any Confidential Information to any person
without the consent of the other parties, other than (A) to the other
parties hereto or their Respective Representatives and their officers,
directors, partners, employees, agents and advisors, and then only on a
confidential basis, or (B) as required by any law, rule or regulation or
judicial process, provided that such party shall, unless prohibited by
applicable law or regulation or court order, give notice to the party of
such requirement to disclose Confidential Information, and, if practicable,
such notice shall be given prior to such disclosure, provided, however, that
the failure to give such notice shall not prohibit such disclosure.
(ii) "Confidential Information" means information furnished by the
parties hereto to one another designated as confidential, but does not
include any such information that is or becomes generally available to the
public other than as a result of a breach by any of
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the parties hereto of their obligations hereunder or that is or becomes
available to a party hereunder from a source other than any of the other
parties hereunder that is not, to the best of such party's knowledge, acting
in violation of a confidentiality agreement with any of the parties hereto.
(d) No investigation pursuant to this Section shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
Section 6.2. No Solicitation. DOCP shall not, nor shall it permit any
DOCP Subsidiary, or its or any DOCP Subsidiary officers, directors, employees,
agents or representatives (including, without limitation, any investment banker,
attorney or accountant) to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making of any proposal with respect to an
Alternative Transaction, engage in any discussions or negotiations concerning,
or provide to any other person any information or data relating to it or any
DOCP Subsidiary for the purposes of, or otherwise cooperate in any way with or
assist or participate in, facilitate or encourage, any inquiries or the making
of any proposal which constitutes, or may reasonably be expected to lead to, a
proposal to seek or effect an Alternative Transaction, or agree to or endorse
any Alternative Transaction; provided, however, that nothing contained in this
Section shall prohibit DOCP or the DOCP Board from taking and disclosing to its
shareholders a position as required by Exchange Act Rule 14e-2; and provided
further that, prior to acceptance for payment of any DOCP Shares pursuant to the
Offer, the DOCP Board, on behalf of DOCP, may, in response to an unsolicited,
bona fide Superior Proposal, furnish information or data (including confidential
information or data) relating to DOCP and participate in negotiations with a
person making such unsolicited Superior Proposal, but only after such person
enters into arrangements regarding confidentiality on terms at least as
favorable to DOCP as the confidentiality arrangements contained herein and only
in the event that (a) the DOCP Board determines in good faith, on the basis of
advice of independent counsel furnished prior thereto to Buyer, that such action
is legally required by the fiduciary obligations of the DOCP Board and (b) DOCP
advises Buyer of its intention to make such determination to do so prior
thereto. DOCP shall promptly advise Buyer of, and communicate the terms of, any
proposal respecting an Alternative Transaction it may receive, or any inquiries
it receives which may reasonably be expected to lead to a proposal respecting an
Alternative Transaction, and the identity of the person making such proposal.
Prior to taking any such action, if DOCP intends to participate in any such
discussion or negotiation or provide any such information or data to any such
third party, it shall give reasonable notice to Buyer and shall consult, and
thereafter shall continue to consult, with Buyer. Notwithstanding the foregoing,
nothing in this Section 6.2 shall (a) permit DOCP to enter into any agreement
with respect to or to facilitate an Alternative Transaction during the term of
this Agreement (it being understood that DOCP shall not enter into any agreement
with any person that provides for, or in any way facilitates, the development of
a proposal for an Alternative Transaction, other than a confidentiality
agreement in customary form in respect of a Superior Proposal as described
above) or (b) affect any other obligation of DOCP under this Agreement.
"Alternative Transaction" means a transaction or series of related transactions
resulting in (a) any change of control of DOCP, (b) any merger or consolidation
of DOCP in which another person acquires 25% or more of the aggregate voting
power of all voting securities of it or the surviving corporation, as the
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case may be, (c) any tender offer or exchange offer for, or any acquisitions of,
any securities of DOCP which, if consummated, would result in another person
owning 25% or more of the aggregate voting power of all voting securities of it
or (d) any sale or other disposition of assets of DOCP or any of its
subsidiaries if the Fair Market Value of such assets exceeds 25% of the
aggregate Fair Market Value of the assets of DOCP and all DOCP Subsidiaries
taken as a whole before giving effect to such sale or other disposition. The
"Fair Market Value" of any assets or securities means the fair market value of
such assets or securities, as determined by the DOCP Board in good faith.
"Superior Proposal" means a bona fide proposal made by a third party for an
Alternative Transaction on terms which the DOCP Board determines in its good
faith judgment to be more favorable to DOCP's shareholders than the Offer and
the Merger and for which financing, to the extent required, is then committed or
which, in the good faith judgment of the DOCP Board, is reasonably capable of
being obtained by such third party.
Section 6.3. Indemnification, Exculpation and Insurance. (a) Buyer,
CSX, NSC and the Management Investor agree that all rights to indemnification
and exculpation from liabilities for acts or omissions occurring at or prior to
the Effective Time now existing in favor of the current or former directors or
officers of DOCP and the DOCP Subsidiaries (collectively, the "Indemnified
Parties"), as provided in their respective certificates of incorporation or
bylaws (or comparable organizational documents) and any indemnification
agreements of DOCP, the existence of which does not constitute a breach of this
Agreement, shall be assumed by the Surviving Corporation in the Merger without
further action as of the Effective Time, and shall survive the Merger and shall
continue in full force and effect in accordance with their respective terms.
(b) For a period of one year after the Effective Time, the Surviving
Corporation shall cause to be maintained in effect the current policies of
directors' and officers' liability insurance maintained by DOCP (provided that
the Surviving Corporation may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are, in the
aggregate, not less advantageous to such officers and directors) with respect to
claims arising from facts or events which occurred before the Effective Time;
provided, however, that in no event shall the Surviving Corporation be required
to expend pursuant to this Section 6.3 more than an amount equal to 150% of the
current annualized premiums paid by DOCP for such insurance (which premiums DOCP
represents and warrants to be approximately $100,000 for 1997, in the aggregate
on an annualized basis).
Section 6.4. Notification of Certain Matters. DOCP shall give prompt
notice to Buyer, and Buyer shall give prompt notice to DOCP, of (a) the
occurrence, or non-occurrence, of any event the occurrence, or non-occurrence,
of which would be likely to cause (i) any representation or warranty contained
in this Agreement to be untrue or inaccurate or (ii) any covenant, condition or
agreement contained in this Agreement not to be complied with or satisfied and
(b) any failure of DOCP or Buyer, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 6.4 shall not limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
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Section 6.5. Further Action; Best Efforts. (a) Upon the terms and
subject to the conditions hereof, each of the parties hereto shall (i) make
promptly its respective filings, and thereafter make any other required
submissions, under any applicable laws with respect to the transactions
contemplated hereby and shall not make any filing or submission, or take any
position, in connection with regulatory authorities (in respect of the
transactions contemplated hereby or otherwise) without the consent of the
Management Investor, CSX and NSC and (ii) use its best efforts to take, or cause
to be taken, all appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations or
otherwise to consummate and make effective the transactions contemplated hereby.
(b) In connection with, and without limiting the foregoing, each of the
parties hereto shall (i) take all actions necessary to ensure that no state
anti-takeover statute or similar statute or regulation is or becomes operative
with respect to this Agreement, the Offer, the Merger or any other transaction
contemplated by this Agreement and (ii) if any state anti-takeover statute or
similar statute or regulation is or becomes operative with respect to this
Agreement, the Offer, the Merger or any other transaction contemplated by this
Agreement, take all actions necessary to ensure that this Agreement, the Offer,
the Merger and any other transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger, the Offer and the other transactions contemplated by this Agreement.
Section 6.6. Public Announcements. The parties hereto shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or the transactions contemplated
hereby, and shall not issue any such press release or make any such public
statement without the prior consent of the other parties, which consent shall
not be unreasonably withheld; provided, however, that a party may, without the
prior consent of the other parties, issue such press release or make such public
statement as may be required by law or any listing agreement or arrangement to
which such party is bound with a national securities exchange or The Nasdaq
Stock Market if it has used reasonable efforts to consult with the other parties
and to obtain such parties' consent but has been unable to do so in a timely
manner.
Section 6.7. Conveyance Taxes. Buyer and DOCP shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications,
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar taxes which become payable in
connection with the transactions contemplated hereby that are required or
permitted to be filed on or before the Effective Time.
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ARTICLE VII.
CLOSING CONDITIONS
Section 7.1. Conditions to Obligations of Each Party to Effect the
Merger. The respective obligations of each of DOCP and Buyer to effect the
Merger shall be subject to the satisfaction or waiver of the following
conditions prior to the Effective Time:
(a) Shareholder Approval. If required by the New York Law, this
Agreement and the Merger shall have been approved and adopted by the
requisite vote of DOCP shareholders.
(b) No Order. No Governmental Entity or United States federal or state
court of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which materially restricts, prevents or prohibits
consummation of the transactions contemplated hereby; provided, however,
that the parties shall use their reasonable efforts to cause any such
decree, judgment, injunction or other order to be vacated or lifted.
(c) Other Approvals. Other than the filing of Merger documents in
accordance with the New York Law, all authorizations, consents, waivers,
orders or approvals required to be obtained, and all filings, notices or
declarations required to be made, by any of the parties hereto prior to the
consummation of the Merger, shall have been obtained from, and made with,
all required Governmental Entities, except for such authorizations,
consents, waivers, orders, approvals, filings, notices or declarations the
failure to obtain or make which would not have a DOCP Material Adverse
Effect or a Buyer Material Adverse Effect.
Section 7.2. Conditions to Obligations of DOCP to Effect the Merger.
Prior to consummation of the Offer, the obligations of DOCP to effect the Merger
shall be subject to the satisfaction or waiver of the following conditions prior
to the Effective Time:
(a) Compliance. None of LLC, Buyer, CSX, NSC or the Management Investor
shall have breached or failed to observe or perform in any material respect
any of its covenants or agreements in favor of DOCP hereunder to be
performed by it at or prior to the Effective Time, and the representations
and warranties of LLC, Buyer, CSX, NSC and the Management Investor set forth
herein shall be true and accurate both when made and at and as of the
Effective Time, as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case as of such date), except
where the breach or failure to observe or perform such covenants and
agreements, or the failure of such representations and warranties to be so
true and correct (without giving effect to any limitation as to
"materiality" or "material adverse effect" or similar language set forth
therein), does not, and is not likely to, individually or in the aggregate,
prevent consummation of the Merger.
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Section 7.3. Conditions to Obligations of Buyer to Effect the Merger.
The obligations of Buyer to effect the Merger shall be subject to the
satisfaction or waiver of the following conditions prior to the Effective Time:
(a) Compliance. DOCP shall not have breached or failed to observe or
perform in any material respect any of its covenants or agreements hereunder
to be performed by it at or prior to the Effective Time, and the
representations and warranties of DOCP set forth herein shall be true and
accurate both when made and at and as of the Effective Time, as if made at
and as of such time (except to the extent expressly made as of an earlier
date, in which case as of such date), except where the breach or failure to
observe or perform such covenants and agreements, or the failure of such
representations and warranties to be so true and correct (without giving
effect to any limitation as to "materiality" or "material adverse effect" or
similar language set forth therein), does not have, and is not likely to
have, individually or in the aggregate, a DOCP Material Adverse Effect or a
Buyer Material Adverse Effect.
(b) No Material Adverse Change. At any time after the date of this
Agreement, there shall not have occurred any DOCP Material Adverse Effect.
Section 7.4. Frustration of Closing Conditions. No party hereto may
rely on the failure of any condition set forth in this Article to be satisfied
if such failure was caused by such party's failure to use reasonable efforts to
consummate the transactions contemplated by this Agreement.
ARTICLE VIII.
TERMINATION, AMENDMENT AND WAIVER
Section 8.1. Termination. This Agreement may be terminated at any time
prior to the Effective Time, in the case of Buyer, or prior to the purchase of
DOCP Shares under the Offer, in the case of DOCP, whether before or after
approval of this Agreement and the Merger by the shareholders of DOCP:
(a) by mutual consent of DOCP and Buyer;
(b) (i) by Buyer upon a breach of any covenant or agreement on the part
of DOCP set forth in this Agreement which has not been cured, or if any
representation or warranty of DOCP shall have become untrue, in either case,
such that such breach or untruth is incapable of being cured within 30 days
after the giving of written notice to DOCP of such breach or untruth,
provided that such breach or untruth is material and that Buyer is not then
in material breach of this Agreement or (ii) by DOCP in the event of a
breach of any representation, warranty, agreement or covenant of Buyer set
forth in this Agreement, in any case, such that such breach has not been
cured within 30 days after the giving of written notice to Buyer of such
breach or untruth and will prevent consummation of the Merger, provided that
DOCP is not then in material breach of this Agreement;
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(c) by either Buyer or DOCP, if any permanent injunction or action by
any Governmental Entity preventing the consummation of the Merger shall have
become final and nonappealable, provided that the party seeking to terminate
this Agreement pursuant to this clause (c) shall have used all reasonable
efforts to prevent the entry of and to remove such permanent injunction or
action;
(d) by either Buyer or DOCP, if the Merger shall not have been
consummated before June 30, 1998, provided that the right to terminate this
Agreement pursuant to this clause (d) shall not be available to any party
whose failure to perform any of its obligations hereunder results in the
failure of the Merger to be consummated by such date;
(e) by Buyer (i) if the DOCP Board or any committee thereof shall
withdraw, modify or change its recommendation so that it is not in favor of
this Agreement, the Offer or the Merger (or make any recommendation in favor
of an Alternative Transaction) or shall have resolved to do any of the
foregoing or (ii) if DOCP shall take any action that would be proscribed by
Section 6.2 of this Agreement but for the exceptions contained in the
provisions thereof; or
(f) by Buyer if the DOCP Board or any committee thereof shall have
approved or entered into an agreement respecting a Superior Proposal or
recommended or resolved to recommend to its shareholders a Superior
Proposal, or by DOCP in connection with the DOCP Board or any committee
thereof approving or entering into an agreement respecting a Superior
Proposal, provided that, in the case of any such termination by DOCP,
simultaneously with such termination, DOCP complies with Section 8.5(b) of
this Agreement and prior thereto has complied with Section 6.2 of this
Agreement and provided, further, that the party seeking to terminate under
this clause (f) is not then in material breach of this Agreement.
The right of any party hereto to terminate this Agreement pursuant to this
Section shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any party hereto, any person controlling
any such party, or any of their respective officers or directors, whether prior
to or after the execution of this Agreement.
Section 8.2. Effect of Termination. Except as provided in Section 8.5
or Section 9.1, in the event of the termination of this Agreement pursuant to
Section 8.1, this Agreement shall forthwith become void, there shall be no
liability on the part of any party hereto, or any of their respective officers
or directors, to the other and all rights and obligations of any party hereto
shall cease; provided, however, that nothing herein shall relieve any party from
liability for the willful breach of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
Section 8.3. Amendment. This Agreement may be amended by the parties
hereto at any time prior to the Effective Time; provided, however, that, after
approval of this Agreement and the Merger by the shareholders of DOCP, no
amendment, which under applicable law may not be made without the approval of
the shareholders of DOCP, may be made without such
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approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
Section 8.4. Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other party hereto, (b) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document delivered pursuant hereto or (c) waive compliance by the other party
with any of the agreements or conditions contained herein. Any such extension or
waiver shall be valid only if set forth in an instrument in writing signed by
the party or parties to be bound thereby.
Section 8.5. Fees, Expenses and Other Payments. (a) Except as otherwise
provided in this Agreement, all costs and expenses, including, without
limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred by the parties hereto shall be borne solely and entirely
by the party which has incurred such costs and expenses (with respect to such
party, its "Expenses"); provided that, except in the event that the payment
provided in Section 8.5(b) becomes payable, if DOCP breaches any material term
of this Agreement or if the Merger is not consummated, and this Agreement is
thereafter terminated, and within one year of the date of such termination DOCP
enters into an agreement respecting an Alternative Transaction, DOCP shall pay
the reasonable fees and expenses of one firm of legal counsel advising the
Management Investor, up to $50,000, plus 50% of any such fees in excess of
$50,000, for the benefit of the Management Investor in connection with the
transactions contemplated hereby.
(b) If (i) this Agreement shall be terminated by Buyer pursuant to
Section 8.1(e) or by Buyer or DOCP pursuant to Section 8.1(f), or (ii) (A) after
the date of this Agreement any person or "group" (within the meaning of Section
13(d)(3) of the Exchange Act) shall have publicly made a proposal with respect
to an Alternative Transaction, (B) the Offer shall have remained open until at
least the scheduled expiration date immediately following the date such proposal
is made, (C) the Minimum Condition shall not have been satisfied at the
expiration of the Offer and (D) this Agreement shall thereafter be terminated
pursuant to Section 8.1(d), then DOCP shall pay to Buyer $3,000,000 plus all
Expenses of Buyer, CSX, NSC and the Management Investor as promptly as
practicable but not later than two business days after termination of this
Agreement (unless required simultaneously with termination under Section 8.1(f))
by wire transfer of immediately available funds to an account designated by
Buyer.
ARTICLE IX.
GENERAL PROVISIONS
Section 9.1. Effectiveness of Representations, Warranties and
Agreements. (a) Except as set forth in Section 9.1(b), the representations,
warranties and agreements of each party hereto shall remain operative and in
full force and effect, regardless of any investigation made by or on behalf of
any other party hereto, any person controlling any such party or any of their
respective officers or directors, whether prior to or after the execution of
this Agreement.
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(b) The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Article VIII, except that the agreements set forth in Articles I, II
and IX, and Section 6.3 shall survive the Effective Time and those set forth in
Sections 6.1(a), 8.2 and 8.5, and Article IX shall survive termination.
Section 9.2. Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the date delivered or transmitted, and shall be effective
upon receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or sent by electronic transmission to the telecopier number
specified below:
(a) If to Buyer:
then c/o CSX, NSC and the Management Investor at the
respective addresses set forth below;
(b) If to CSX:
c/o CSX Corporation
One James Center
901 East Cary Street
Richmond, VA 23219
Attention: Peter J. Shudtz
Telecopier No.: (804) 783-1355
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attention: Pamela S. Seymon
Telecopier No.: (212) 403-2000
(c) If to NSC:
Norfolk Southern Corporation
Three Commercial Place
Norfolk, VA 23510
Attention: William C. Wooldridge
Telecopier No.: (757) 629-2345
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with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Attention: Eric J. Friedman
Telecopier No.: (212) 735-2000
(d) If to the Management Investor;
Walter G. Rich
c/o Delaware Otsego Corporation
One Railroad Avenue
Cooperstown, NY 13326
Telecopier No.: (607) 547-9834
with a copy to:
Kelley Drye & Warren, LLP
101 Park Avenue
New York, NY 10178
Attention: Ronald B. Risdon
Telecopier No.: (212) 808-7897
(e) If to DOCP:
Delaware Otsego Corporation
One Railroad Avenue
Cooperstown, NY 13326
Attention: General Counsel
Telecopier No.: (607) 547-9834
with a copy to:
Carter Ledyard & Milburn
2 Wall Street
New York, NY 10005
Attention: Steven J. Glusband
Telecopier No: (212) 732-3232
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Section 9.3. Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliate" means a person that, directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person;
(b) "business day" means any day other than a day on which (i) banks in
the State of New York are authorized or obligated to be closed or (ii) the
SEC is closed;
(c) "control" (including the terms "controlled," "controlled by" and
"under common control with") means the possession, directly or indirectly or
as trustee or executor, of the power to direct or cause the direction of the
management or polices of a person, whether through the ownership of stock or
as trustee or executor, by contract or credit arrangement or otherwise;
(d) "material" means, with respect to a person, material to the
business, financial condition, results of operations, properties, assets or
prospects of such person and its subsidiaries taken as a whole or materially
impairing the ability of such person to consummate the transactions
contemplated hereby (including the Offer and the Merger), and the term
"materially" has a correlative meaning;
(e) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity;
(f) "subsidiary" or "subsidiaries" of any person means any corporation,
partnership, joint venture or other legal entity of which such person
(either alone or through or together with any other subsidiary) owns,
directly or indirectly, 50% or more of the stock or other equity interests,
the holders of which are generally entitled to vote for the election of the
board of directors or other governing body of such corporation or other
legal entity;
(g) "knowledge" of any person which is not an individual means the
knowledge of such person's executive officers after reasonable inquiry; and
(h) "taken as a whole," with respect to any person and its
subsidiaries, means taken as a whole to the extent of such person's interest
in each of such subsidiaries.
Section 9.4. Interpretation. When a reference is made in this Agreement
to an Article, Section or Annex, such reference shall be to an Article or
Section of, or an Annex to, this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. All terms defined in this
Agreement shall have the defined meanings when used in
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any certificate or other document made or delivered pursuant hereto unless
otherwise defined therein. The definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of such term. Any
agreement, instrument or statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such agreement,
instrument or statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver or consent and
(in the case of statutes) by succession of comparable successor statutes and
references to all attachments thereto and instruments incorporated therein.
References to a person are also to its permitted successors and assigns.
Section 9.5. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
Section 9.6. Entire Agreement. This Agreement, together with the Annex,
the DOCP Disclosure Schedule and the other documents delivered as of the date
hereof in connection herewith, constitute the entire agreement of the parties
and supersede all prior agreements and understandings, both written and oral,
between the parties, or any of them, with respect to the subject matter hereof.
Section 9.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties hereto without the
prior consent of the other party (other than an assignment by CSX, NSC or Buyer
to a controlled subsidiary). Any assignment in violation of the preceding
sentence shall be void. Subject to the preceding sentence, this Agreement will
be binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
Section 9.8. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any person
any right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, except that the provisions of Section 6.3 should inure to the benefit
of the indemnified parties.
Section 9.9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF
LAWS THEREOF; PROVIDED, HOWEVER, THAT THE LAWS OF THE RESPECTIVE STATES OF
INCORPORATION OF
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<PAGE> 39
EACH OF THE PARTIES HERETO SHALL GOVERN THE RELATIVE RIGHTS, OBLIGATIONS,
POWERS, DUTIES AND OTHER INTERNAL AFFAIRS OF SUCH PARTY AND ITS BOARD OF
DIRECTORS.
Section 9.10. ENFORCEMENT. THE PARTIES AGREE THAT IRREPARABLE DAMAGE
WOULD OCCUR AND THAT THE PARTIES WOULD NOT HAVE ANY ADEQUATE REMEDY AT LAW IN
THE EVENT THAT ANY OF THE PROVISIONS OF THIS AGREEMENT WERE NOT PERFORMED IN
ACCORDANCE WITH THEIR SPECIFIC TERMS OR WERE OTHERWISE BREACHED. IT IS
ACCORDINGLY AGREED THAT THE PARTIES SHALL BE ENTITLED TO AN INJUNCTION OR
INJUNCTIONS TO PREVENT BREACHES OF THIS AGREEMENT AND TO ENFORCE SPECIFICALLY
THE TERMS AND PROVISIONS OF THIS AGREEMENT IN ANY UNITED STATES FEDERAL COURT
LOCATED IN THE STATE OF NEW YORK OR IN NEW YORK STATE COURT, THIS BEING IN
ADDITION TO ANY OTHER REMEDY TO WHICH THEY ARE ENTITLED AT LAW OR IN EQUITY. IN
ADDITION, EACH OF THE PARTIES HERETO (A) CONSENTS TO SUBMIT ITSELF TO THE
PERSONAL JURISDICTION OF ANY UNITED STATES FEDERAL COURT LOCATED IN THE STATE OF
NEW YORK OR ANY NEW YORK STATE COURT IN THE EVENT ANY DISPUTE ARISES OUT OF THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, (B) AGREES THAT IT
WILL NOT ATTEMPT TO DENY OR DEFEAT SUCH PERSONAL JURISDICTION BY MOTION OR OTHER
REQUEST FOR LEAVE FROM ANY SUCH COURT AND (C) AGREES THAT IT WILL NOT BRING ANY
ACTION RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY
IN ANY COURT OTHER THAN A FEDERAL COURT SITTING IN THE STATE OF NEW YORK OR A
NEW YORK STATE COURT.
Section 9.11. Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
Section 9.12. Guarantee. The obligations hereunder with respect to the
transactions contemplated hereby shall be solely obligations of LLC and Buyer
and shall be guaranteed by each of CSX and NSC on a 50% basis. The parties
hereto agree and understand that, prior to the consummation of the Offer, all
rights of LLC and Buyer hereunder shall be exercised solely by CSX and NSC
acting collectively.
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<PAGE> 40
IN WITNESS WHEREOF, CSX, NSC, the Management Investor and DOCP have
caused this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
CSX CORPORATION
By /s/ Mark G. Aron
Name:
Title:
NORFOLK SOUTHERN CORPORATION
By /s/ William J. Romig
Name:
Title:
/s/ Walter G. Rich
WALTER G. RICH
DELAWARE OTSEGO CORPORATION
By /s/ Everett Gilmour
Name:
Title:
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<PAGE> 41
ANNEX I
CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, and in addition to
and not in limitation of Buyer's rights to extend or amend the Offer at any
time, in its sole discretion (subject to the Merger Agreement), Buyer shall not
be required to accept for payment or, subject to any applicable rules or
regulations of the SEC, pay for any DOCP Shares, and may delay the acceptance of
payment of or, subject to any restriction referred to above, the payment for,
and may terminate the Offer, if (a) the DOCP Shares tendered pursuant to the
Offer by the expiration of the Offer and not withdrawn, together with the DOCP
Shares owned by Buyer or any subsidiary of Buyer or to be contributed to Buyer
pursuant to binding agreements (which Buyer, in its sole discretion, believes
will be performed) represent, on a fully diluted basis less than 66 2/3% of the
outstanding DOCP Shares (the "Minimum Condition"), (b) the waiting periods under
the HSR Act applicable to the transactions contemplated by the Merger Agreement
shall not have expired or been terminated, if such Act is applicable, or any
other regulatory approvals required under applicable law for the consummation of
the Offer shall not have been obtained; or (c) at any time prior to the
acceptance for payment of DOCP Shares, any of the following conditions exist:
(i) there shall be instituted, pending or threatened any action,
investigation or proceeding by any domestic or foreign government or
Governmental Entity, or there shall be instituted, pending or threatened any
action or proceeding by any other person, domestic or foreign, before any
domestic or foreign court or Governmental Entity (other than shareholder
litigation by DOCP Shareholders acting in their capacity as DOCP
shareholders and other than actions or proceedings by any person before a
Governmental Entity to the extent that such person seeks the imposition of
conditions in proceedings pending as of the date hereof), (A) challenging or
seeking to make illegal, to delay materially or otherwise, directly or
indirectly, to restrain or prohibit the making of the Offer, the acceptance
for payment of or payment for some of or all the DOCP Shares by Buyer or the
consummation of the Merger, seeking to obtain material damages or imposing
any material adverse conditions in connection therewith or otherwise,
directly or indirectly, relating to the transactions contemplated by the
Offer or the Merger, (B) seeking to restrain, prohibit or delay the exercise
of full rights of ownership or operation by Buyer or its affiliates of all
or any portion of the business or assets of DOCP and the DOCP Subsidiaries,
taken as a whole, or of Buyer or any of its affiliates, or to compel Buyer
or any of its affiliates to dispose of or hold separate all or any material
portion of the business or assets of DOCP and the DOCP subsidiaries, taken
as a whole, or of Buyer or any of its affiliates, (C) seeking to impose or
confirm limitations on the ability of Buyer or any of its affiliates
effectively to exercise full rights of ownership of the DOCP Shares,
including, without limitation, the right to vote any DOCP Shares acquired or
owned by Buyer or any of its affiliates on all matters properly presented to
DOCP's shareholders or (D) seeking to require divestiture by Buyer or any of
its affiliates of any DOCP Shares; or
(ii) there shall be any action taken, or any statute, rule, regulation,
injunction, order or decree proposed, enacted, enforced, promulgated, issued
or deemed applicable to,
A-1
<PAGE> 42
or any consent or approval withheld with respect to the Offer, the
acceptance for payment of or payment for any DOCP Shares or the Merger, by
any domestic or foreign court or government or Governmental Entity that, in
the reasonable judgment of Buyer, might, directly or indirectly, result in
any of the consequences referred to in clauses (A) through (D) of paragraph
(i) above; or
(iii) DOCP shall have breached or failed to perform in any material
respect any of its covenants or agreements under the Merger Agreement which
breach or failure to perform shall not have been cured, or any of the
representations and warranties of DOCP set forth in the Merger Agreement
shall not be true in any material respect when made or at any time prior to
consummation of the Offer as if made at and as of such time and shall
continue to be untrue;
(iv) the Merger Agreement shall have been terminated in accordance with
its terms or all conditions (other than the condition pertaining to DOCP
shareholder approval) to the consummation of the Merger shall not have been
satisfied; or
which, in the reasonable judgment of Buyer in any such case, and regardless of
the circumstances giving rise to any such condition, makes it inadvisable to
proceed with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Buyer and may be
asserted by Buyer regardless of the circumstances giving rise to any such
condition (including any action or omission by Buyer) or may be waived by Buyer
in whole or in part at any time and from time to time in its reasonable
discretion. The failure by Buyer at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right; the waiver of any such
right with respect to particular facts and other circumstances shall not be
deemed a waiver with respect to any other facts and circumstances; and each such
right shall be deemed an ongoing right that may be asserted at any time and from
time to time.
A-2
<PAGE> 1
Exhibit (c)(2)
EMPLOYMENT AGREEMENT
AGREEMENT made this 3rd day of June, 1995, by and between DELAWARE OTSEGO
CORPORATION, a New York corporation, with its principal office and place of
business at 1 Railroad Avenue, Cooperstown, New York 13326 (hereinafter called
"Employer") and WALTER G. RICH, an individual, residing at 122 Main Street,
Franklin, NY 13775 (hereinafter called "Employee").
W I T N E S S E T H :
WHEREAS, Employee currently serves as President, Chief Executive Officer
and Director of Employer; and
WHEREAS, Employer acknowledges and recognizes the value of Employee's
services and deems it necessary and desirable to retain Employee's full-time
services for the period set forth herein; and
WHEREAS, both Employee and Employer desire to embody the terms and
conditions of Employee's employment in a written agreement which will supersede
all prior agreements of employment, whether written or oral; and
WHEREAS, the employment, the duration thereof, the compensation to be paid
to Employee, and the other terms and provisions of this Agreement were duly
approved by action of Employer's Board of Directors at a meeting held on the 3rd
day of June, 1995.
NOW, THEREFORE, the parties hereto agree as follows:
FIRST: TERM:
Employer does hereby employ Employee as its President and Chief Executive
Officer for an initial term of five (5) years commencing on the date hereof.
The Employer shall have the option to renew this Agreement and extend
Employee's employment upon the same terms and provisions as are contained herein
except as to compensation for an additional period of five (5) years. The
minimum compensation to be paid to Employee during such renewal term shall be
an amount mutually agreeable to the Employer and Employee. The Employer shall
give to Employee written notice of its election to renew this Agreement at
least six (6) months prior to expiration of the initial term.
SECOND: COMPENSATION:
Employer shall pay to Employee for services to be rendered hereunder
compensation at a minimum rate of $187,000.00 per annum during the initial term
hereof, payable in weekly installments or on such other basis as may be agreed
upon. Employee's compensation
<PAGE> 2
shall be reviewed from time to time by the Board of Directors of Employer or an
appropriate committee thereof, after which such compensation may be increased in
such amount as may be determined by such Board or committee, as the case may be,
in its sole discretion. Nothing contained in this Agreement shall preclude
Employer from granting or Employee from receiving benefits under or
participating in any bonus, incentive, profit sharing, stock option, stock
purchase, retirement, pension, insurance or similar benefit plan of Employer now
or hereinafter in effect for its management personnel.
THIRD: OTHER BENEFITS:
Employee will be provided continued coverage at not less than current
levels under all Employer's life insurance, health, hospitalization, dental and
Major Medical plans. Employee shall also be provided an automobile suitable and
appropriate to his position with Employer.
FOURTH: DUTIES AND SERVICES:
Employee is engaged as President and Chief Executive Officer of
Employer during the term hereof. Employer will use its best efforts and powers
to sustain and continue Employee's election as Director and his designation as
President and Chief Executive Officer; and Employee will serve in such capacity
or capacities for Employer, and will serve in such other capacities for any
controlled affiliate of Employer to which he may be elected or appointed from
time to time. Employee shall devote his full time, attention and efforts to the
business and affairs of Employer, except during usual vacation periods and
reasonable periods of illness or incapacity, and shall perform his duties
faithfully, diligently and to the best of his ability. Subject to Paragraph
SEVENTH, nothing contained herein shall be construed to prevent Employee; (1)
from acting as a member of the Board of Directors of any other corporation and
from receiving compensation therefor; (2) from making investments of any
character in any business; or (3) from otherwise engaging in other business
activities, provided in each cash, however, that such service as a director,
investments, or any business activities do not interfere substantially with the
performance of Employee's duties hereunder. If Employee is not elected as
Director or designated as President and Chief Executive Officer of Employer, or
is removed from either of such positions, in each case without cause and
without his approval, such failure to elect or designate or such removal shall
constitute a default hereunder on the part of Employer and Employee shall
continue to be compensated as provided in Paragraph SECOND hereof, as the case
may be, but from and after any such default (1) Employee's employment shall,
nevertheless, continue in accordance with the terms and provisions of this
Agreement and as a consultant to the Employer, (2) Employee shall thereupon be
obligated to perform consulting services for the Employer at the Employer's
offices in Cooperstown, New York for a maximum, of four (4) days during each
calendar month, and (3) Employee shall not be restricted in performing services
elsewhere for other parties. In such event, Employee shall also receive service
credit under any retirement or pension plan of
2
<PAGE> 3
Employer than in effect as if Employee had continued to render uninterrupted
services for the remainder of the term of this Agreement. For the purpose of
this Paragraph, a substantial reduction in Employee's authority, powers or
duties shall constitute removal from his position.
FIFTH: EXPENSES:
The Employer shall arrange for the payment of expenses incurred by
Employee in furtherance of or in connection with the business of the Employer,
including but not limited to all traveling expenses and all entertainment
expenses (whether incurred at Employee's residence, while traveling, or
otherwise). If any such expenses are paid in the first instance by Employee, the
Employer will arrange for his reimbursement therefor. The Employer recognizes
that, in the performance of his duties. Employee may be required to entertain
various persons and representatives of organizations with whom the Employer has
or would like to have business relationships. The Employer will arrange for the
reimbursement of Employee upon presentation of expense vouchers for any such
expenses which are adaptable to the usual accounting procedures established by
the Employer.
SIXTH: WORKING FACILITIES:
Employee shall be furnished with a private office in Cooperstown, New
York and a secretary and such other facilities and services suitable to his
positions and adequate to his needs for the performance of his duties
including, without limitation, suitable transportation at least equal to that
which Employee currently receives from Employer. Employee shall, on a monthly
basis, furnish Employer with itemized information in conformity with its usual
accounting procedures concerning his personal use of any such facilities or
services and shall reimburse Employer for such personal use at rates prescribed
by it.
SEVENTH: CONFIDENTIAL INFORMATION:
Employee shall not, during or subsequent to his employment hereunder,
divulge, furnish or make accessible to anyone (otherwise than in the regular
course of the business of Employer) any knowledge or information, techniques,
plans, trade or business secrets or confidential information relating to the
business of Employer or with respect to any other confidential or secret aspect
of the business of Employer, nor shall Employee make any use of the same for
his own purposes or for the benefit of anyone under any circumstances; provided
that, after the term of his employment, these restrictions shall not apply to
such knowledge, techniques, plans, trade or business secrets or confidential
information which is then in, or subsequently becomes part of, the public
domain, except because of disclosure by Employee without Employer's consent.
It is the desire of the parties that the provisions of this Paragraph
be enforced to the fullest extent permissible under the laws and public
policies in each jurisdiction in which enforcement might be sought.
Accordingly, if any particular portion of this Paragraph be adjudicated as
invalid or unenforceable, this Paragraph shall be deemed amended to delete
3
<PAGE> 4
therefrom such portion so adjudicated, such deletion to apply only with respect
to the operation of this Paragraph in the particular jurisdiction so
adjudicating. If there be a breach or threatened breach of this Paragraph,
Employer shall be entitled to an injunction restraining Employee from such
breach, but nothing herein shall be construed as prohibiting Employer from
pursuing any other remedies for such breach or threatened breach. The
provisions of this paragraph SEVENTH shall survive the termination or
expiration of this Agreement.
EIGHTH: DISABILITY:
If (1) Employee shall suffer any illness, disability or incapacity so
that he is unable to perform his duties hereunder and such illness, disability
or incapacity shall be deemed by a duly licensed physician (who may be
Employee's personal physician) to be permanent or (2) Employee is unable to
render full-time services to the Employer of the character required hereunder
for services to the Employer of the character required hereunder for a period of
six (6) consecutive months by reason of illness, disability or incapacity and
the Board of Directors of the Employer and if the Company determines that
Employee has been permanently disabled, then and in either of such events,
Employee will continue to render such advisory and consultative services as he
is able, and as may be reasonably requested of him by the directors and officers
of the Employer and he shall receive his annual compensation for the balance of
the term of this Agreement in such installments as he shall then be currently
receiving. Compensation during any period of disability shall be adjusted for
reimbursement from any disability insurance paid for by Employer.
NINTH: DEATH:
In the event of Employee's death during the term of this Agreement,
the Employer shall pay to Employee's designated beneficiary or beneficiaries,
or, in default of such designation, to his estate, the annual salary due for
the balance of the Agreement prorated for any partial year thereof and payable
in a lump sum within ninety (90) days from the date of his death.
TENTH: EARLY TERMINATION:
This Agreement may be terminated prior to the end of the Term provided
in paragraph FIRST under and subject to the following conditions:
a) Employee shall have the right to terminate this Agreement during the
Term by giving thirty (30) days advance written notice. Upon the expiration
of such notice period, Employee shall not be entitled to any further
compensation hereunder.
b) In the event of any change in control of Employer from and after the
date hereof, either Employer or Employee may, at his/its independent election,
such election to be evidenced by written notice, terminate this Agreement.
Effective upon the giving of such notice, regardless of which party elects to
give such notice, Employer shall pay to Employee a sum equal to Employee's then
4
<PAGE> 5
current annual salary multiplied by the years (including fractional years)
remaining in the Term of this Agreement prior to the giving of such notice, less
any legally required withholdings. As used in this Paragraph THIRD, "change in
control" means (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 Employer's outstanding voting
securities, or (ii) the sale of all or a substantial portion of the productive
assets of Employer. For purposes of this Paragraph, "Employer" shall include
both jointly and severally, Delaware Otsego Corporation and The New York,
Susquehanna and Western Railway Corporation.
c) Employer may terminate this Agreement at any time without cause by
giving thirty (30) days advance written notice to Employee. Effective upon the
giving of such notice, Employer shall pay to Employee a sum equal to Employee's
then current annual salary multiplied by the years (including fractional years)
remaining in the Term of this Agreement prior to the giving of such notice,
less any legally required withholdings.
d) Employer may terminate this Agreement at any time for cause. For
purposes of this Agreement, "cause" shall include any one or more of the
following:
1. A material breach of any covenant, provision or condition
of this Agreement by Employee.
2. Commission by Employee of a felony or a crime involving
moral turpitude.
3. Any gross negligence or willful misconduct in the
performance of Employee's duties that results in detriment to Employer.
Upon any such termination, Employee shall not be entitled to any further
compensation hereunder.
ELEVENTH: NOTICE:
Any notice required or given under this Agreement shall be sufficient if in
writing and sent by registered or certified mail to his residence in the case
of Employee or to Attention: Secretary, Delaware Otsego Corporation in the case
of Employer, at the addresses hereinabove set forth, or to such other addresses
as may be designated.
5
<PAGE> 6
subsequently by the parties hereto. Any such notice shall be deemed given when
so addressed and mailed.
TWELFTH: WAIVER OF BREACH:
A waiver by Employer or Employee of a breach of any provision of this Agreement
by the other party shall not operate or be construed as a waiver of any
subsequent breach by the other party.
THIRTEENTH: ENTIRE AGREEMENT:
This Agreement contains the entire understanding and agreement between the
parties and cannot be amended, modified or supplemented in any respect, except
by an agreement in writing signed by the party against whom enforcement of any
amendment, modification or supplement is sought.
FOURTEENTH: SUCCESSORS AND ASSIGNS:
This Agreement shall inure to the benefit of and be binding upon Employer and
its successors and assigns including, without limitation, any corporation or
other entity which may acquire all or substantially all of the capital stock,
assets and/or business of Employer or with or into which Employer may be
consolidated or merged, and Employee, his heirs, executors, administrators and
legal representatives.
FIFTEENTH: GOVERNING LAW:
This Agreement shall be governed by the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day first hereinabove written.
DELAWARE OTSEGO CORPORATION
/s/ EVERETT A. GILMOUR
-----------------------------
Everett A. Gilmour
Chairman of the Board
/s/ WALTER G. RICH
-----------------------------
Walter G. Rich
Chief Executive Officer
6
<PAGE> 7
RIDER TO EMPLOYMENT AGREEMENT
This Rider to Employment Contract (hereinafter "this Rider") is entered into as
of July 14, 1997 by and between Walter G. Rich , (hereafter "Employee") and
DELAWARE OTSEGO CORPORATION (hereafter "Employer").
WHEREAS, Employer and Employee entered into an Employment Agreement dated June
3, 1995 (hereinafter the "Employment Agreement"); and
WHEREAS, Employer and Employee, after receiving certain advice regarding the
income tax treatment of certain payments that Employee may be entitled to
receive under the Employment Agreement, wish to enter into this Rider for their
mutual benefit;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth hereinafter and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties, intending to be legally bound,
covenant and agree as follows:
1. In the event of a termination of the Employment Agreement pursuant to the
provisions of Section NINTH (b) or (c) upon or as a result of a change in
control of Employer then, notwithstanding any inconsistent provisions of the
Employment Agreement to the contrary, the amount to be paid to Employee by
Employer shall be equal to 2.99 times the highest annual cash compensation,
consisting solely of salary and bonus, paid to the Employee during any calendar
year in each of the three calendar years immediately prior to the change in
control. In addition,
7
<PAGE> 8
the Employer shall continue to provide the Employee for a period of 2.99 years
after such termination with health, hospitalization and medical insurance as
were provided at the time of the termination, at the Employer's expense. In
making such payment, Employer shall cooperate with Employee, at Employee's
election, in deferring payment of part or all of such sum over a period of three
calendar years.
2. Notwithstanding the foregoing, prior to the payment of any amount payable as
set forth above, the certified public accountants of the Employer immediately
prior to the change in control, (the "Certified Public Accountants") shall
determine as promptly as practical and in any event within 20 business days
following such termination the deductibility of any payment or distribution by
the Employer to or for the benefit of the Employee (whether paid or payable or
distributed or distributable pursuant to the terms of the Employment Agreement,
this Rider or otherwise) (the "Agreement Payments") by the Employer for Federal
income purposes because of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"). The Certified Public Accountants will determine the
amount, if any, that the Agreement Payments shall be increased or decreased to
maximize the aggregate present value of Agreement Payments without causing any
portion of such Agreement Payments to be nondeductible by the Employer because
of said Section 280G of the Code.
3. If under paragraph 2 of this Rider the Certified Public Accountants determine
that any adjustment to the Agreement Payments is required, the Employer shall
promptly give the Employee notice to that effect and a copy of the detailed
calculation thereof , together with a statement showing which and how much of
the Agreement Payments shall be adjusted.
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<PAGE> 9
4. As a result of the uncertainty in the application of Section 280G of the
Code, it is possible that Agreement Payments may be made by the Employer which
should not have been made ("Overpayment") or that additional Agreement Payments
which will have not been made by the Employer could have been made
("Underpayment"), in each case, consistent with the determination made by the
Certified Public Accountants under paragraph 2 and 3 of this Rider. In the event
that advice and determination of the Certified Public Accountants under
paragraphs 2 and 3 is followed by Employer and Employee and the Certified Public
Accountants, based upon the assertion of a deficiency by the Internal Revenue
Service, determines that an Overpayment has been made, then the Employer shall
make additional payments to Employee sufficient to (i) reimburse Employee for
his expenses, if any, for representation before the Internal Revenue Service,
and (ii) result in the net payment received by Employee after income taxes,
after consideration of any additional tax, interest or penalties imposes by the
Internal Revenue Service, being equal to the amount Employee would have received
had no Overpayment been made. In the event that the Certified Public
Accountants, based upon controlling precedent, determine that an Underpayment
has occurred, any such Underpayment shall be promptly paid by the Employer to or
for the benefit of the Employee.
5. Payment by the Employer of the sums provided for herein, together with any
wages earned prior to the termination of the employment Agreement, shall
constitute full settlement of any land all claims which Employee may have
against Employer. Employee and Employer shall, upon Employer's reasonable
request, execute a mutual release of all claims.
6. Except as expressly set forth herein, the terms and conditions of the
Employment
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<PAGE> 10
Agreement shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Rider on the 14th day
of July, 1997.
DELAWARE OTSEGO CORPORATION Employee
by: s/ Everett Gilmour s/Walter G. Rich
------------------------------------ -----------------------------------
Chairman of the Board of Directors
10
<PAGE> 11
EMPLOYMENT AGREEMENT
AGREEMENT made this 3rd day of June, 1995, by and between DELAWARE OTSEGO
CORPORATION, a New York corporation, with its principal office and place of
business at 1 Railroad Avenue, Cooperstown, New York 13326 (hereinafter called
"Employer") and C. DAVID SOULE, an individual, residing at P.O. Box 174,
Cooperstown, New York 13326 (hereinafter called "Employee").
W I T N E S S E T H :
WHEREAS, Employee currently serves as Executive Vice President and Chief
Operating Officer of Employer; and
WHEREAS, Employer acknowledges and recognizes the value of Employee's
services and deems it necessary and desirable to retain Employee's full-time
services for the period set forth herein; and
WHEREAS, both Employee and Employer desire to embody the terms and
conditions of Employee's employment in a written agreement which will supersede
all prior agreements of employment, whether written or oral; and
WHEREAS, the employment, the duration thereof, the compensation to be paid
to Employee, and the other terms and provisions of this Agreement were duly
approved by action of Employer's Board of Directors at a meeting held on the 3rd
day of June, 1995.
NOW, THEREFORE, the parties hereto agree as follows:
FIRST: TERM: Employer does hereby employ Employee as its Executive Vice
President and Chief Operating Officer for a period of five (5) years commencing
on the date hereof, unless sooner terminated as provided herein. This Agreement
may be renewed for such term or terms as may be mutually agreed upon by Employer
and Employee. Not later than six (6) months prior to the expiration date of the
initial term of this Agreement, Employer shall, at the request of Employee,
discuss with Employee the subject of the renewal of the term of this Agreement.
Notwithstanding any other provision of this Agreement to the contrary, this
Agreement, if still then in effect, shall terminate on Employee's 65th birthday.
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SECOND: COMPENSATION: Employer shall pay to Employee for services to be
rendered hereunder compensation at a minimum rate of $125,000.00 per annum,
payable in weekly installments or on such other basis as may be agreed upon.
Employee's compensation shall be reviewed from time to time by the Board of
Directors of Employer or an appropriate committee thereof, after which such
compensation may be increased in such amount as may be determined by such Board
or committee, as the case may be, in its sole discretion. Nothing contained in
this Agreement shall preclude Employer from granting or Employee from receiving
benefits under or participating in any bonus, incentive, profit sharing, stock
option, stock purchase, retirement, pension, insurance or similar benefit plan
of Employer now or hereinafter in effect for its management personnel.
THIRD: DUTIES AND SERVICES: Employee is engaged as Executive Vice President
and Chief Operating Officer of Employer during the term hereof. Employer will
use its best efforts and powers to sustain and continue Employee's election as
Executive Vice President and Chief Operating Officer and his designation as
Executive Vice President and Chief Operating Officer; and Employee will serve in
such capacity or capacities for Employer, and will serve in such capacity or
capacities for any controlled affiliate of Employer to which he may be elected
or appointed from time to time. Employee shall devote his full time, attention
and efforts to the business and affairs of Employer, except during usual
vacation periods and reasonable periods of illness or incapacity, and shall
perform his duties faithfully, diligently and to the best of his ability.
Subject to Paragraph SEVENTH, nothing contained herein shall be construed to
prevent Employee: (1) from acting as a member of the Board of Directors of any
other corporation and from receiving compensation therefor; (2) from making
investments of any character in any business; or (3) from otherwise engaging in
other business activities, provided in each case, however, that such service as
a director, investments, or any business activities do not interfere
substantially with the performance of Employee's duties hereunder. In the event
of Employer's breach of Paragraph SIXTH herein, or if Employee is not designated
as Executive Vice President and Chief Operating Officer of Employer, or is
removed from such position(s), in each case without cause and without his
approval, Employee shall continue to be compensated for the remainder of the
Term of this Agreement as provided in Paragraph SECOND hereof, but from and
after any such default Employee's employment shall, nevertheless, continue in
accordance with the terms and provisions of this Agreement and as a consultant
to the Employer, (2) Employee shall thereupon be obligated to perform consulting
services for the Employer at the Employer's offices in Cooperstown, New York for
a maximum of four (4) days during each calendar month, and (3) Employee shall
not be restricted in performing services elsewhere for other parties. In the
event of any such default, Employee shall also receive service credit under any
retirement or pension plan of Employer then in effect as if Employee had
continued to render uninterrupted services for the remainder of the term of this
Agreement had it remained in full force and effect. For the purpose of this
Paragraph, a substantial reduction in Employee's authority, powers or duties
shall constitute removal from his position.
FOURTH: EXPENSES: Employee is authorized to incur reasonable and necessary
expenses for promoting the business of Employer, including expenses for
entertainment, travel and similar items.
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Employer will reimburse Employee for all such expenses upon presentation by him,
from time to time, of an itemized account thereof in conformity with Employer's
usual accounting procedures.
FIFTH: WORKING FACILITIES: Employee shall be furnished witha private office
in Cooperstown, New York, or such other location as may be mutually agreed upon,
and a secretary and such other facilities and services suitable to his positions
and adequate to his needs for the performance of his duties including, without
limitation, suitable transportation, at least equal to that which Employee
currently receives from Employer. Employee shall, on a monthly basis, furnish
Employer with itemized information in conformity with its usual accounting
procedures concerning his personal use of any such facilities or services and
shall reimburse Employer for such personal use at rates prescribed by it.
SIXTH: CONFIDENTIAL INFORMATION: Employee shall not, during or subsequent
to his employment hereunder, divulge, furnish or make accessible to anyone
(otherwise than in the regular course of the business of Employer) any knowledge
or information, techniques, plans, trade or business secrets or confidential
information relating to the business of Employer or with respect to any other
confidential or secret aspect of the business of Employer, nor shall Employee
make any use of the same for his own purposes or for the benefit of anyone under
any circumstances; provided that, after the term of his employment, these
restrictions shall not apply to such knowledge, techniques, plans, trade or
business secrets or confidential information which is then in, or subsequently
becomes part of, the public domain, except because of disclosure by Employee
without Employer's consent.
It is the desire of the parties that the provisions of this Paragraph
be enforced to the fullest extent permissible under the laws and public policies
in each jurisdiction in which enforcement might be sought. Accordingly, if any
particular portion of this Paragraph be adjudicated as invalid or unenforceable,
this Paragraph shall be deemed amended to delete therefrom such portion so
adjudicated, such deletion to apply only with respect to the operation of this
Paragraph in the particular jurisdiction so adjudicating. If there be a breach
or threatened breach of this Paragraph, Employer shall be entitled to an
injunction restraining Employee from such breach, but nothing herein shall be
construed as prohibiting Employer from pursuing any other remedies for such
breach or threatened breach. The provisions of this paragraph SEVENTH shall
survive the termination or expiration of this Agreement.
SEVENTH: DISABILITY: If (1) Employee shall suffer any illness, disability
or incapacity so that he is unable to perform his duties hereunder and such
illness, disability or incapacity shall be deemed by a duly licensed physician
(who may be Employee's personal physician) to be permanent; or (2) Employee
shall suffer any illness, disability or incapacity so that he is unable to
render full-time services to Employer of the character required hereunder with
reasonable efficiency for a period of six (6) consecutive months by reason of
illness, disability or incapacity and the Employer determines that Employee has
been permanently disabled, then, and in either of such events, Employee will
continue to render such advisory and consultative services as he is able, and as
may be reasonably requested of him by the directors and officers of Employer,
and he shall receive his annual
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<PAGE> 14
compensation for the balance of the term of this Agreement in such installments
as he shall then be currently receiving. Compensation during any period of
disability shall be adjusted for reimbursement from any disability insurance
paid for by Employer.
EIGHTH: DEATH: In the event of Employee's death during the term of this
Agreement, the Employer shall pay to Employee's designated beneficiary or
beneficiaries, or, in default of such designation, to his estate, the annual
salary due for the balance of the Agreement prorated for any partial year
thereof and payable in a lump sum within ninety (90) days from the date of his
death.
NINTH: EARLY TERMINATION: This Agreement may be terminated prior to the end
of the Term provided in paragraph FIRST under and subject to the following
conditions:
a) Employee shall have the right to terminate this Agreement during
the Term by giving thirty (30) days advance written notice. Upon the expiration
of such notice period, Employee shall not be entitled to any further
compensation hereunder.
b) In the event of any change in control of Employer from and after the date
hereof, either Employer or Employee may, at his/its independent election, such
election to be evidenced by written notice, terminate this Agreement. Effective
upon the giving of such notice, regardless of which party elects to give such
notice, Employer shall pay to Employee a sum equal to Employee's then current
annual salary multiplied by the years (including fractional years) remaining in
the Term of this Agreement prior to the giving of such notice, less any legally
required withholdings. As used in this Paragraph THIRD, "change in control"
means (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 Employer's outstanding voting securities, or (ii) the sale of
all or a substantial portion of the productive assets of Employer. For purposes
of this Paragraph, "Employer" shall include both jointly and severally, Delaware
Otsego Corporation and The New York, Susquehanna and Western Railway
Corporation.
c)Employer may terminate this Agreement at any time without cause by giving
thirty (30) days advance written notice to Employee. Effective upon the giving
of such notice, Employer shall pay to Employee a sum equal to Employee's then
current annual salary multiplied by the years (including fractional years)
remaining in the Term of this Agreement prior to the giving of such notice, less
any legally required withholdings.
d)Employer may terminate this Agreement at any time for cause by written notice.
For purposes of this Agreement, "cause" shall include any one or more of the
following:
1. A material breach of any covenant, provision or condition of this
Agreement by Employee.
2. Commission by Employee of a felony or a crime involving moral turpitude.
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<PAGE> 15
3. Any gross negligence or willful misconduct in the performance of
Employee's duties that results in detriment to Employer.
Upon any such termination, Employee shall not be entitled to any further
compensation hereunder.
e) In the event of termination under subparagraphs (a) or (d) above,
Employee hereby expressly agrees that the giving of such notice under such
subparagraphs shall also constitute the termination and cancellation of any
incentive stock options to purchase the common stock of Delaware Otsego
Corporation Employee may then hold.
TENTH: NOTICE: Any notice required or given under this Agreement shall be
sufficient if in writing and sent by registered or certified mail to his
residence in the case of Employee or to Attention: Secretary, Delaware Otsego
Corporation in the case of Employer, at the addresses hereinabove set forth, or
to such other addresses as may be designated subsequently by the parties hereto.
Any such notice shall be deemed given when so addressed and mailed.
ELEVENTH: WAIVER OF BREACH: A waiver by Employer or Employee of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.
TWELFTH: ENTIRE AGREEMENT: This Agreement contains the entire understanding
and agreement between the parties and cannot be amended, modified or
supplemented in any respect, except by an agreement in writing signed by the
party against whom enforcement of any amendment, modification or supplement is
sought.
THIRTEENTH: SUCCESSORS AND ASSIGNS: This Agreement shall inure to the
benefit of and be binding upon Employer and its successors and assigns
including, without limitation, any corporation or other entity which may acquire
all or substantially all of the capital stock, assets and/or business of
Employer or with or into which Employer may be consolidated or merged, and
Employee, his heirs, executors, administrators and legal representatives.
FOURTEENTH: GOVERNING LAW: This Agreement shall be governed by the laws of
the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day first hereinabove written.
DELAWARE OTSEGO CORPORATION
By: s/ Walter G. Rich
-------------------------------------
Title: President
----------------------------------
s/ C. David Soule
----------------------------------------
C. DAVID SOULE
15
<PAGE> 16
RIDER TO EMPLOYMENT AGREEMENT
This Rider to Employment Contract (hereinafter "this Rider") is entered into as
of July 14, 1997 by and between C. David Soule , (hereafter "Employee") and
DELAWARE OTSEGO CORPORATION (hereafter "Employer").
WHEREAS, Employer and Employee entered into an Employment Agreement dated June
3, 1995 (hereinafter the "Employment Agreement"); and
WHEREAS, Employer and Employee, after receiving certain advice regarding the
income tax treatment of certain payments that Employee may be entitled to
receive under the Employment Agreement, wish to enter into this Rider for their
mutual benefit;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth hereinafter and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties, intending to be legally bound,
covenant and agree as follows:
1. In the event of a termination of the Employment Agreement pursuant to the
provisions of Section NINTH (b) or (c) upon or as a result of a change in
control of Employer then, notwithstanding any inconsistent provisions of the
Employment Agreement to the contrary, the amount to be paid to Employee by
Employer shall be equal to 2.99 times the highest annual cash compensation,
consisting solely of salary and bonus, paid to the Employee during any calendar
year in each of the three calendar years immediately prior to the change in
control. In addition,
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<PAGE> 17
the Employer shall continue to provide the Employee for a period of 2.99 years
after such termination with health, hospitalization and medical insurance as
were provided at the time of the termination, at the Employer's expense. In
making such payment, Employer shall cooperate with Employee, at Employee's
election, in deferring payment of part or all of such sum over a period of three
calendar years.
2. Notwithstanding the foregoing, prior to the payment of any amount payable as
set forth above, the certified public accountants of the Employer immediately
prior to the change in control, (the "Certified Public Accountants") shall
determine as promptly as practical and in any event within 20 business days
following such termination the deductibility of any payment or distribution by
the Employer to or for the benefit of the Employee (whether paid or payable or
distributed or distributable pursuant to the terms of the Employment Agreement,
this Rider or otherwise) (the "Agreement Payments") by the Employer for Federal
income purposes because of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"). The Certified Public Accountants will determine the
amount, if any, that the Agreement Payments shall be increased or decreased to
maximize the aggregate present value of Agreement Payments without causing any
portion of such Agreement Payments to be nondeductible by the Employer because
of said Section 280G of the Code.
3. If under paragraph 2 of this Rider the Certified Public Accountants determine
that any adjustment to the Agreement Payments is required, the Employer shall
promptly give the Employee notice to that effect and a copy of the detailed
calculation thereof , together with a statement showing which and how much of
the Agreement Payments shall be adjusted.
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<PAGE> 18
4. As a result of the uncertainty in the application of Section 280G of the
Code, it is possible that Agreement Payments may be made by the Employer which
should not have been made ("Overpayment") or that additional Agreement Payments
which will have not been made by the Employer could have been made
("Underpayment"), in each case, consistent with the determination made by the
Certified Public Accountants under paragraph 2 and 3 of this Rider. In the event
that advice and determination of the Certified Public Accountants under
paragraphs 2 and 3 is followed by Employer and Employee and the Certified Public
Accountants, based upon the assertion of a deficiency by the Internal Revenue
Service, determines that an Overpayment has been made, then the Employer shall
make additional payments to Employee sufficient to (i) reimburse Employee for
his expenses, if any, for representation before the Internal Revenue Service,
and (ii) result in the net payment received by Employee after income taxes,
after consideration of any additional tax, interest or penalties imposes by the
Internal Revenue Service, being equal to the amount Employee would have received
had no Overpayment been made. In the event that the Certified Public
Accountants, based upon controlling precedent, determine that an Underpayment
has occurred, any such Underpayment shall be promptly paid by the Employer to or
for the benefit of the Employee.
5. Payment by the Employer of the sums provided for herein, together with any
wages earned prior to the termination of the employment Agreement, shall
constitute full settlement of any land all claims which Employee may have
against Employer. Employee and Employer shall, upon Employer's reasonable
request, execute a mutual release of all claims.
6. Except as expressly set forth herein, the terms and conditions of the
Employment
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<PAGE> 19
Agreement shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Rider on the 14th day
of July, 1997.
DELAWARE OTSEGO CORPORATION Employee
by: s/ Walter G. Rich s/ C. David Soule
------------------------------- -----------------------------------
President
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<PAGE> 20
EMPLOYMENT AGREEMENT
AGREEMENT made this 31st day of January, 1996, by and between THE NEW YORK,
SUSQUEHANNA AND WESTERN RAILWAY CORPORATION, a New Jersey corporation, with its
principal office and place of business at 1 Railroad Avenue, Cooperstown, New
York 13326 (hereinafter called "Employer"), and GORDON R. FULLER, an individual,
residing at ________________________________, (hereinafter called "Employee").
WITNESSETH:
WHEREAS, Employer acknowledges and recognizes the value of Employee's
services and deems it necessary and desirable to retain Employee's full-time
services for the period set forth herein; and
WHEREAS, both Employee and Employer desire to embody the terms and
conditions of Employee's employment in a written agreement which will supersede
all prior agreements of employment, whether written or oral; and
WHEREAS, the employment, the duration thereof, the compensation to be
paid to Employee, and the other terms and provisions of this Agreement were
duly approved by action of Employer's Board of Directors at a meeting held on
the 30th day of January, 1996.
NOW, THEREFORE, the parties hereto agree as follows:
FIRST: TERM: Employer does hereby employ Employee as its Executive Vice
President for a period of five (5) years commencing on the date hereof, unless
sooner terminated as provided herein. This Agreement may be renewed for such
term or terms as may be mutually agreed upon by Employer and Employee. Not
later than six (6) months prior to the expiration date of the initial term of
this Agreement, Employer shall, at the request of Employee, discuss with
Employee the subject of the renewal of the term of this Agreement.
Notwithstanding any other provision of this Agreement to the contrary, this
Agreement, if still then in effect, shall terminate on Employee's 65th birthday.
SECOND: COMPENSATION: Employer shall pay to Employee for services to be
rendered hereunder compensation at a minimum rate of $140,000.00 per annum,
payable in weekly
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<PAGE> 21
installments or on such other basis as may be agreed upon. Employee's
compensation shall be reviewed from time to time by the Board of Directors of
Employer or an appropriate committee thereof, after which such compensation may
be increased in such amount as may be determined by such Board or committee, as
the case may be, in its sole discretion. Nothing contained in this Agreement
shall preclude Employer from granting or Employee from receiving benefits under
or participating in any bonus, incentive, profit sharing, stock option, stock
purchase, retirement, pension, insurance or similar benefit plan of Employer now
or hereinafter in effect for its management personnel.
THIRD: DUTIES AND SERVICES: Employee is engaged as Executive Vice
President of Employer during the term hereof and shall report directly to and
have duties assigned by the President and Chief Executive Officer. Such duties
shall be consistent with his title and position. For purposes of example only,
and not as an inclusive or exclusive list, such duties shall include management
of rail operations, railroad sales and marketing, governmental relations,
industrial development and similar executive level functions; and Employee will
serve in such capacity or capacities for Employer, and will serve in such
capacity or capacities for any controlled affiliate of Employer to which he may
be elected or appointed from time to time. Employee shall devote his full time,
attention and efforts to the business and affairs of Employer, except during
usual vacation periods and reasonable periods of illness or incapacity, and
shall perform his duties faithfully, diligently and to the best of his ability.
Subject to Paragraph SEVENTH, nothing contained herein shall be construed to
prevent Employee: (1) from acting as a member of the Board of Directors of any
other corporation and from receiving compensation therefor; (2) from making
investments of any character in any business; or (3) from otherwise engaging in
other business activities, provided in each case, however, that such service as
a director, investments, or any business activities do not interfere
substantially with the performance of Employee's duties hereunder. In the event
of Employer's breach of Paragraph SIXTH herein, or if Employee is not designated
as Executive Vice President of Employer, or is removed from such position(s), in
each case without cause and without his approval, Employee shall continue to be
compensated for the remainder of the Term of this Agreement as provided in
Paragraph SECOND hereof, but from and after any such default Employee's
employment shall, nevertheless, continue in accordance with the terms and
provisions of this Agreement and as a consultant to the Employer, (2) Employee
shall thereupon be obligated to perform consulting services for the Employer at
the Employer's offices in Cooperstown, New York for a maximum of four (4) days
during each calendar month, and (3) Employee shall not be restricted in
performing services elsewhere for other parties. In the event of any such
default, Employee shall also receive service credit under any retirement or
pension plan of Employer then in effect as if Employee had continued to render
uninterrupted services for the remainder of the term of this Agreement had it
remained in full force and effect. For the purpose of this Paragraph, a
substantial reduction in Employee's authority, powers or duties shall constitute
removal from his position.
FOURTH: EXPENSES: Employee is authorized to incur reasonable and
necessary expenses for promoting the business of Employer, including expenses
for entertainment, travel and similar items. Employer will reimburse Employee
for all such expenses upon presentation by him, from
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time to time, of an itemized account thereof in conformity with Employer's usual
accounting procedures.
FIFTH: WORKING FACILITIES: Employee shall be furnished with a private
office in the State of New Jersey, or such other location as may be mutually
agreed upon, and such other facilities and services suitable to his positions
and adequate to his needs for the performance of his duties. Employee shall, on
a monthly basis, furnish Employer with itemized information in conformity with
its usual accounting procedures concerning his personal use of any such
facilities or services and shall reimburse Employer for such personal use at
rates prescribed by it.
SIXTH: CONFIDENTIAL INFORMATION: Employee shall not, during or subsequent
to his employment hereunder, divulge, furnish or make accessible to anyone
(otherwise than in the regular course of the business of Employer) any knowledge
or information, techniques, plans, trade or business secrets or confidential
information relating to the business of Employer or with respect to any other
confidential or secret aspect of the business of Employer, nor shall Employee
make any use of the same for his own purposes or for the benefit of anyone under
any circumstances; provided that, after the term of his employment, these
restrictions shall not apply to such knowledge, techniques, plans, trade or
business secrets or confidential information which is then in, or subsequently
becomes part of, the public domain, except because of disclosure by Employee
without Employer's consent.
It is the desire of the parties that the provisions of this Paragraph be
enforced to the fullest extent permissible under the laws and public policies in
each jurisdiction in which enforcement might be sought. Accordingly, if any
particular portion of this Paragraph be adjudicated as invalid or unenforceable,
this Paragraph shall be deemed amended to delete therefrom such portion so
adjudicated, such deletion to apply only with respect to the operation of this
Paragraph in the particular jurisdiction so adjudicating. If there be a breach
or threatened breach of this Paragraph, Employer shall be entitled to an
injunction restraining Employee from such breach, but nothing herein shall be
construed as prohibiting Employer from pursuing any other remedies for such
breach or threatened breach. The provisions of this paragraph SEVENTH shall
survive the termination or expiration of this Agreement.
SEVENTH: DISABILITY: If (1) Employee shall suffer any illness, disability
or incapacity so that he is unable to perform his duties hereunder and such
illness, disability or incapacity shall be deemed by a duly licensed physician
(who may be Employee's personal physician) to be permanent; or (2) Employee
shall suffer any illness, disability or incapacity so that he is unable to
render full-time services to Employer of the character required hereunder with
reasonable efficiency for a period of six (6) consecutive months by reason of
illness, disability or incapacity and the Employer determines that Employee has
been permanently disabled, then, and in either of such events, Employee will
continue to render such advisory and consultative services as he is able, and as
may be reasonably requested of him by the directors and officers of Employer,
and he shall receive his annual compensation for the balance of the term of this
Agreement in such installments as he shall then be currently receiving.
Compensation during any period of disability shall be adjusted for
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<PAGE> 23
reimbursement from any disability insurance paid for by Employer.
EIGHTH: DEATH: In the event of Employee's death during the term of this
Agreement, the Employer shall pay to Employee's designated beneficiary or
beneficiaries, or, in default of such designation, to his estate, the annual
salary due for the balance of the Agreement prorated for any partial year
thereof and payable in a lump sum within ninety (90) days from the date of his
death.
NINTH: EARLY TERMINATION: This Agreement may be terminated prior to the
end of the Term provided in paragraph FIRST under and subject to the following
conditions:
a) Employee shall have the right to terminate this Agreement
during the Term by giving thirty (30) days advance written notice. Upon the
expiration of such notice period, Employee shall not be entitled to any further
compensation hereunder.
b) In the event of any change in control of Employer from and
after the date hereof, either Employer or Employee may, at his/its independent
election, such election to be evidenced by written notice, terminate this
Agreement. Effective upon the giving of such notice, regardless of which party
elects to give such notice, Employer shall pay to Employee a sum equal to
Employee's then current annual salary multiplied by the years (including
fractional years) remaining in the Term of this Agreement prior to the giving
of such notice, less any legally required withholdings. As used in this
Paragraph THIRD, "change in control" means (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 Employer's
outstanding voting securities, or (ii) the sale of all or a substantial portion
of the productive assets of Employer. For purposes of this Paragraph,
"Employer" shall include both jointly and severally, Delaware Otsego
Corporation and The New York, Susquehanna and Western Railway Corporation.
c) Employer may terminate this Agreement at any time without
cause by giving thirty (30) days advance written notice to Employee. Effective
upon the giving of such notice, Employer shall pay to Employee a sum equal to
Employee's then current annual salary multiplied by the years (including
fractional years) remaining in the Term of this Agreement prior to the giving
of such notice, less any legally required withholdings.
d) Employer may terminate this Agreement at any time for cause
by written notice. For purposes of this Agreement, "cause" shall include any
one or more of the following:
1. A material breach of any covenant, provision or
condition of this Agreement by Employee.
2. Commission by Employee of a felony or a crime
involving moral turpitude.
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3. Any gross negligence or willful misconduct in the
performance of Employee's duties that results in
detriment to Employer.
Upon any such termination, Employee shall not be entitled to any further
compensation hereunder.
e) In the event of termination under subparagraphs (a) or (d)
above, Employee hereby expressly agrees that the giving of such notice under
such subparagraphs shall also constitute the termination and cancellation of
any incentive stock options to purchase the common stock of Delaware Otsego
Corporation Employee may then hold.
TENTH; NOTICE: Any notice required or given under this Agreement shall
be sufficient if in writing and sent by registered or certified mail to his
residence in the case of Employee or to Attention: Secretary, Delaware Otsego
Corporation in the case of Employer, at the addresses hereinabove set forth, or
to such other addresses as may be designated subsequently by the parties
hereto. Any such notice shall be deemed given when so addressed and mailed.
ELEVENTH; WAIVER OF BREACH: A waiver by Employer or Employee of a
breach of any provision of this Agreement by the other party shall not operate
or be construed as a waiver of any subsequent breach by the other party.
TWELFTH; ENTIRE AGREEMENT: This Agreement contains the entire
understanding and agreement between the parties and cannot be amended, modified
or supplemented in any respect, except by an agreement in writing signed by the
party against whom enforcement of any amendment, modification or supplement is
sought.
THIRTEENTH; SUCCESSORS AND ASSIGNS: This Agreement shall inure to the
benefit of and be binding upon Employer and its successors and assigns
including, without limitation, any corporation or other entity which may acquire
all or substantially all of the capital stock, assets and/or business of
Employer or with or into which Employer may be consolidated or merged, and
Employee, his heirs, executors, administrators and legal representatives.
FOURTEENTH; GOVERNING LAW: This Agreement shall be governed by the laws
of the State of New York.
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<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day first hereinabove written.
THE NEW YORK, SUSQUEHANNA AND
WESTERN RAILWAY CORPORATION
By: /s/ Walter G. Rich
--------------------------
Title: President
-----------------------
/s/ Gordon R. Fuller
--------------------------
GORDON R. FULLER
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EMPLOYMENT AGREEMENT
AGREEMENT made this 3rd day of June, 1995, by and between THE NEW YORK,
SUSQUEHANNA AND WESTERN RAILWAY CORPORATION, a New Jersey corporation, with its
principal office and place of business at 1 Railroad Avenue, Cooperstown, New
York 13326 (hereinafter called "Employer") and PAUL GARBER, an individual,
residing at 256 Highwood Avenue, Ridgewood, New Jersey 07450 (hereinafter called
"Employee").
W I T N E S S E T H :
WHEREAS, Employee currently serves as Vice President-Marketing & Sales
of Employer; and
WHEREAS, Employer acknowledges and recognizes the value of Employee's
services and deems it necessary and desirable to retain Employee's full-time
services for the period set forth herein; and
WHEREAS, both Employee and Employer desire to embody the terms and
conditions of Employee's employment in a written agreement which will supersede
all prior agreements of employment, whether written or oral; and
WHEREAS, the employment, the duration thereof, the compensation to be
paid to Employee, and the other terms and provisions of this Agreement were duly
approved by action of Employer's Board of Directors at a meeting held on the 3rd
day of June, 1995.
NOW, THEREFORE, the parties hereto agree as follows:
FIRST: TERM: Employer does hereby employ Employee as its Vice
President-Marketing & Sales for a period of one (1) year commencing on the date
hereof, unless sooner terminated as provided herein. This Agreement may be
renewed for such term or terms as may be mutually agreed upon by Employer and
Employee. Not later than three (3) months prior to the expiration date of the
initial term of this Agreement, Employer shall, at the request of Employee,
discuss with Employee the subject of the renewal of the term of this Agreement.
SECOND: COMPENSATION: Employer shall pay to Employee for services to be
rendered hereunder compensation at a minimum rate of $100,000.00 per annum,
payable in weekly installments or on such other basis as may be agreed upon.
Employee's compensation shall be
26
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reviewed from time to time by the Board of Directors of Employer or an
appropriate committee thereof, after which such compensation may be increased in
such amount as may be determined by such Board or committee, as the case may be,
in its sole discretion. Nothing contained in this Agreement shall preclude
Employer from granting or Employee from receiving benefits under or
participating in any bonus, incentive, profit sharing, stock option, stock
purchase, retirement, pension, insurance or similar benefit plan of Employer now
or hereinafter in effect for its management personnel.
THIRD: DUTIES AND SERVICES: Employee is engaged as Vice
President-Marketing & Sales of Employer during the term hereof. Employer will
use its best efforts and powers to sustain and continue Employee's election as
Vice President-Marketing & Sales and his designation as Vice President-Marketing
& Sales; and Employee will serve in such capacity or capacities for Employer,
and will serve in such capacity or capacities for any controlled affiliate of
Employer to which he may be elected or appointed from time to time. Employee
shall devote his full time, attention and efforts to the business and affairs of
Employer, except during usual vacation periods and reasonable periods of illness
or incapacity, and shall perform his duties faithfully, diligently and to the
best of his ability. Subject to Paragraph SEVENTH, nothing contained herein
shall be construed to prevent Employee: (1) from acting as a member of the Board
of Directors of any other corporation and from receiving compensation therefor;
(2) from making investments of any character in any business; or (3) from
otherwise engaging in other business activities, provided in each case, however,
that such service as a director, investments, or any business activities do not
interfere substantially with the performance of Employee's duties hereunder. In
the event of Employer's breach of Paragraph SIXTH herein, or if Employee is not
designated as Vice President-Marketing & Sales of Employer, or is removed from
such position(s), in each case without cause and without his approval, Employee
shall continue to be compensated for the remainder of the Term of this Agreement
as provided in Paragraph SECOND hereof, but from and after any such default, (1)
Employee's employment shall, nevertheless, continue in accordance with the terms
and provisions of this Agreement and as a consultant to the Employer, (2)
Employee shall thereupon be obligated to perform consulting services for the
Employer at the Employer's offices in Cooperstown, New York for a maximum of
four (4) days during each calendar month, and (3) Employee shall not be
restricted in performing services elsewhere for other parties. In the event of
any such default, Employee shall also receive service credit under any
retirement or pension plan of Employer then in effect as if Employee had
continued to render uninterrupted services for the remainder of the term of this
Agreement had it remained in full force and effect. For the purpose of this
Paragraph, a substantial reduction in Employee's authority, powers or duties
shall constitute removal from his position.
FOURTH: EXPENSES: Employee is authorized to incur reasonable and
necessary expenses for promoting the business of Employer, including expenses
for entertainment, travel and similar items. Employer will reimburse Employee
for all such expenses upon presentation by him, from time to time, of an
itemized account thereof in conformity with Employer's usual accounting
procedures.
27
<PAGE> 28
FIFTH: WORKING FACILITIES: Employee shall be furnished with a private
office in Rochelle Park, New Jersey, or such other location as may be mutually
agreed upon, and a secretary and such other facilities and services suitable to
his positions and adequate to his needs for the performance of his duties
including, without limitation, suitable transportation, at least equal to that
which Employee currently receives from Employer. Employee shall, on a monthly
basis, furnish Employer with itemized information in conformity with its usual
accounting procedures concerning his personal use of any such facilities or
services and shall reimburse Employer for such personal use at rates prescribed
by it.
SIXTH: CONFIDENTIAL INFORMATION: Employee shall not, during or
subsequent to his employment hereunder, divulge, furnish or make accessible to
anyone (otherwise than in the regular course of the business of Employer) any
knowledge or information, techniques, plans, trade or business secrets or
confidential information relating to the business of Employer or with respect to
any other confidential or secret aspect of the business of Employer, nor shall
Employee make any use of the same for his own purposes or for the benefit of
anyone under any circumstances; provided that, after the term of his employment,
these restrictions shall not apply to such knowledge, techniques, plans, trade
or business secrets or confidential information which is then in, or
subsequently becomes part of, the public domain, except because of disclosure by
Employee without Employer's consent.
It is the desire of the parties that the provisions of this Paragraph
be enforced to the fullest extent permissible under the laws and public policies
in each jurisdiction in which enforcement might be sought. Accordingly, if any
particular portion of this Paragraph be adjudicated as invalid or unenforceable,
this Paragraph shall be deemed amended to delete therefrom such portion so
adjudicated, such deletion to apply only with respect to the operation of this
Paragraph in the particular jurisdiction so adjudicating. If there be a breach
or threatened breach of this Paragraph, Employer shall be entitled to an
injunction restraining Employee from such breach, but nothing herein shall be
construed as prohibiting Employer from pursuing any other remedies for such
breach or threatened breach. The provisions of this paragraph SEVENTH shall
survive the termination or expiration of this Agreement.
SEVENTH: DISABILITY: If (1) Employee shall suffer any illness,
disability or incapacity so that he is unable to perform his duties hereunder
and such illness, disability or incapacity shall be deemed by a duly licensed
physician (who may be Employee's personal physician) to be permanent; or (2)
Employee shall suffer any illness, disability or incapacity so that he is unable
to render full-time services to Employer of the character required hereunder
with reasonable efficiency for a period of six (6) consecutive months by reason
of illness, disability or incapacity and the Employer determines that Employee
has been permanently disabled, then, and in either of such events, Employee will
continue to render such advisory and consultative services as he is able, and as
may be reasonably requested of him by the directors and officers of Employer,
and he shall receive his annual compensation for the balance of the term of this
Agreement in such installments as he shall then be currently receiving.
Compensation during any period of disability shall be adjusted for reimbursement
from any disability insurance paid for by Employer.
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<PAGE> 29
EIGHTH: DEATH: In the event of Employee's death during the term of this
Agreement, the Employer shall pay to Employee's designated beneficiary or
beneficiaries, or, in default of such designation, to his estate, an amount
equal to twelve months salary hereunder, due for the balance payable in a lump
sum within ninety (90) days from the date of his death.
NINTH: EARLY TERMINATION: This Agreement may be terminated prior to the
end of the Term provided in paragraph FIRST under and subject to the following
conditions:
a) Employee shall have the right to terminate this Agreement
during the Term by giving thirty (30) days advance written notice. Upon the
expiration of such notice period, Employee shall not be entitled to any further
compensation hereunder.
b) In the event of any change in control of Employer from and
after the date hereof, either Employer or Employee may, at his/its independent
election, such election to be evidenced by written notice, terminate this
Agreement. Effective upon the giving of such notice, regardless of which party
elects to give such notice, Employer shall pay to Employee a sum equal to
Employee's then current annual salary multiplied by the years (including
fractional years) remaining in the Term of this Agreement prior to the giving of
such notice, less any legally required withholdings. As used in this Paragraph
THIRD, "change in control" means (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 Employer's outstanding voting
securities, or (ii) the sale of all or a substantial portion of the productive
assets of Employer. For purposes of this Paragraph, "Employer" shall include
both jointly and severally, Delaware Otsego Corporation and The New York,
Susquehanna and Western Railway Corporation.
c) Employer may terminate this Agreement at any time without
cause by giving thirty (30) days advance written notice to Employee. Effective
upon the giving of such notice, Employer shall pay to Employee a sum equal to
Employee's then current annual salary multiplied by the years (including
fractional years) remaining in the Term of this Agreement prior to the giving of
such notice, less any legally required withholdings.
d) Employer may terminate this Agreement at any time for
cause. For purposes of this Agreement, "cause" shall include any one or more of
the following:
1. A material breach of any covenant, provision or
condition of this Agreement by Employee.
2. Commission by Employee of a felony or a crime
involving moral turpitude.
3. Any gross negligence or willful misconduct in the
performance of Employee's duties that results in detriment to Employer.
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<PAGE> 30
Upon any such termination, Employee shall not be entitled to any further
compensation hereunder.
TENTH: NOTICE: Any notice required or given under this Agreement shall
be sufficient if in writing and sent by registered or certified mail to his
residence in the case of Employee or to Attention: Secretary, Delaware Otsego
Corporation in the case of Employer, at the addresses hereinabove set forth, or
to such other addresses as may be designated subsequently by the parties hereto.
Any such notice shall be deemed given when so addressed and mailed.
ELEVENTH: WAIVER OF BREACH: A waiver by Employer or Employee of a
breach of any provision of this Agreement by the other party shall not operate
or be construed as a waiver of any subsequent breach by the other party.
TWELFTH: ENTIRE AGREEMENT: This Agreement contains the entire
understanding and agreement between the parties and cannot be amended, modified
or supplemented in any respect, except by an agreement in writing signed by the
party against whom enforcement of any amendment, modification or supplement is
sought.
THIRTEENTH: SUCCESSORS AND ASSIGNS: This Agreement shall inure to the
benefit of and be binding upon Employer and its successors and assigns
including, without limitation, any corporation or other entity which may acquire
all or substantially all of the capital stock, assets and/or business of
Employer or with or into which Employer may be consolidated or merged, and
Employee, his heirs, executors, administrators and legal representatives.
FOURTEENTH: GOVERNING LAW: This Agreement shall be governed by the laws
of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day first hereinabove written.
THE NEW YORK, SUSQUEHANNA AND
WESTERN RAILWAY CORPORATION
By: s/ Walter G. Rich
-------------------------------------
Title: President
----------------------------------
s/ Paul Garber
----------------------------------------
PAUL GARBER
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<PAGE> 31
EMPLOYMENT AGREEMENT
AGREEMENT made this 3rd day of June, 1995, by and between DELAWARE OTSEGO
CORPORATION, a New York corporation, with its principal office and place of
business at 1 Railroad Avenue, Cooperstown, New York 13326 (hereinafter called
"Employer") and NATHAN R. FENNO, an individual, residing at 38 Delaware Street,
Cooperstown, New York 13326 (hereinafter called "Employee").
W I T N E S S E T H :
WHEREAS, Employee currently serves as Vice President-Law, Secretary and
General Counsel of Employer; and
WHEREAS, Employer acknowledges and recognizes the value of Employee's
services and deems it necessary and desirable to retain Employee's full-time
services for the period set forth herein; and
WHEREAS, both Employee and Employer desire to embody the terms and
conditions of Employee's employment in a written agreement which will supersede
all prior agreements of employment, whether written or oral; and
WHEREAS, the employment, the duration thereof, the compensation to be paid
to Employee, and the other terms and provisions of this Agreement were duly
approved by action of Employer's Board of Directors at a meeting held on the 3rd
day of June, 1995.
NOW, THEREFORE, the parties hereto agree as follows:
FIRST: TERM: Employer does hereby employ Employee as its Vice
President-Law, Secretary and General Counsel for a period of five (5) years
commencing on the date hereof, unless sooner terminated as provided herein. This
Agreement may be renewed for such term or terms as may be mutually agreed upon
by Employer and Employee. Not later than six (6) months prior to the expiration
date of the initial term of this Agreement, Employer shall, at the request of
Employee, discuss with Employee the subject of the renewal of the term of this
Agreement. Notwithstanding any other provision of this Agreement to the
contrary, this Agreement, if still then in effect, shall terminate on Employee's
65th birthday.
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<PAGE> 32
SECOND: COMPENSATION: Employer shall pay to Employee for services to be
rendered hereunder compensation at a minimum rate of $90,000.00 per annum,
payable in weekly installments or on such other basis as may be agreed upon.
Employee's compensation shall be reviewed from time to time by the Board of
Directors of Employer or an appropriate committee thereof, after which such
compensation may be increased in such amount as may be determined by such Board
or committee, as the case may be, in its sole discretion. Nothing contained in
this Agreement shall preclude Employer from granting or Employee from receiving
benefits under or participating in any bonus, incentive, profit sharing, stock
option, stock purchase, retirement, pension, insurance or similar benefit plan
of Employer now or hereinafter in effect for its management personnel.
THIRD: DUTIES AND SERVICES: Employee is engaged as Vice President-Law,
Secretary and General Counsel of Employer during the term hereof. Employer will
use its best efforts and powers to sustain and continue Employee's election as
Vice President-Law, Secretary and General Counsel and his designation as Vice
President-Law, Secretary and General Counsel; and Employee will serve in such
capacity or capacities for Employer, and will serve in such capacity or
capacities for any controlled affiliate of Employer to which he may be elected
or appointed from time to time. Employee shall devote his full time, attention
and efforts to the business and affairs of Employer, except during usual
vacation periods and reasonable periods of illness or incapacity, and shall
perform his duties faithfully, diligently and to the best of his ability.
Subject to Paragraph SEVENTH, nothing contained herein shall be construed to
prevent Employee: (1) from acting as a member of the Board of Directors of any
other corporation and from receiving compensation therefor; (2) from making
investments of any character in any business; or (3) from otherwise engaging in
other business activities, provided in each case, however, that such service as
a director, investments, or any business activities do not interfere
substantially with the performance of Employee's duties hereunder. In the event
of Employer's breach of Paragraph SIXTH herein, or if Employee is not designated
as Vice President-Law, Secretary and General Counsel of Employer, or is removed
from such position(s), in each case without cause and without his approval,
Employee shall continue to be compensated for the remainder of the Term of this
Agreement as provided in Paragraph SECOND hereof, but from and after any such
default Employee's employment shall, nevertheless, continue in accordance with
the terms and provisions of this Agreement and as a consultant to the Employer,
(2) Employee shall thereupon be obligated to perform consulting services for the
Employer at the Employer's offices in Cooperstown, New York for a maximum of
four (4) days during each calendar month, and (3) Employee shall not be
restricted in performing services elsewhere for other parties. In the event of
any such default, Employee shall also receive service credit under any
retirement or pension plan of Employer then in effect as if Employee had
continued to render uninterrupted services for the remainder of the term of this
Agreement had it remained in full force and effect. For the purpose of this
Paragraph, a substantial reduction in Employee's authority, powers or duties
shall constitute removal from his position.
FOURTH: EXPENSES: Employee is authorized to incur reasonable and necessary
expenses for promoting the business of Employer, including expenses for
entertainment, travel and similar items. Employer will reimburse Employee for
all such expenses upon presentation by him, from time to
32
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time, of an itemized account thereof in conformity with Employer's usual
accounting procedures.
FIFTH: WORKING FACILITIES: Employee shall be furnished with a private
office in Cooperstown, New York, or such other location as may be mutually
agreed upon, and a secretary and such other facilities and services suitable to
his positions and adequate to his needs for the performance of his duties
including, without limitation, suitable transportation, at least equal to that
which Employee currently receives from Employer. Employee shall, on a monthly
basis, furnish Employer with itemized information in conformity with its usual
accounting procedures concerning his personal use of any such facilities or
services and shall reimburse Employer for such personal use at rates prescribed
by it.
SIXTH: CONFIDENTIAL INFORMATION: Employee shall not, during or subsequent
to his employment hereunder, divulge, furnish or make accessible to anyone
(otherwise than in the regular course of the business of Employer) any knowledge
or information, techniques, plans, trade or business secrets or confidential
information relating to the business of Employer or with respect to any other
confidential or secret aspect of the business of Employer, nor shall Employee
make any use of the same for his own purposes or for the benefit of anyone under
any circumstances; provided that, after the term of his employment, these
restrictions shall not apply to such knowledge, techniques, plans, trade or
business secrets or confidential information which is then in, or subsequently
becomes part of, the public domain, except because of disclosure by Employee
without Employer's consent.
It is the desire of the parties that the provisions of this Paragraph
be enforced to the fullest extent permissible under the laws and public policies
in each jurisdiction in which enforcement might be sought. Accordingly, if any
particular portion of this Paragraph be adjudicated as invalid or unenforceable,
this Paragraph shall be deemed amended to delete therefrom such portion so
adjudicated, such deletion to apply only with respect to the operation of this
Paragraph in the particular jurisdiction so adjudicating. If there be a breach
or threatened breach of this Paragraph, Employer shall be entitled to an
injunction restraining Employee from such breach, but nothing herein shall be
construed as prohibiting Employer from pursuing any other remedies for such
breach or threatened breach. The provisions of this paragraph SEVENTH shall
survive the termination or expiration of this Agreement.
SEVENTH: DISABILITY: If (1) Employee shall suffer any illness, disability
or incapacity so that he is unable to perform his duties hereunder and such
illness, disability or incapacity shall be deemed by a duly licensed physician
(who may be Employee's personal physician) to be permanent; or (2) Employee
shall suffer any illness, disability or incapacity so that he is unable to
render full-time services to Employer of the character required hereunder with
reasonable efficiency for a period of six (6) consecutive months by reason of
illness, disability or incapacity and the Employer determines that Employee has
been permanently disabled, then, and in either of such events, Employee will
continue to render such advisory and consultative services as he is able, and as
may be reasonably requested of him by the directors and officers of Employer,
and he shall receive his annual compensation for the balance of the term of this
Agreement in such installments as he shall
33
<PAGE> 34
then be currently receiving. Compensation during any period of disability shall
be adjusted for reimbursement from any disability insurance paid for by
Employer.
EIGHTH: DEATH: In the event of Employee's death during the term of this
Agreement, the Employer shall pay to Employee's designated beneficiary or
beneficiaries, or, in default of such designation, to his estate, the annual
salary due for the balance of the Agreement prorated for any partial year
thereof and payable in a lump sum within ninety (90) days from the date of his
death.
NINTH: EARLY TERMINATION: This Agreement may be terminated prior to the end
of the Term provided in paragraph FIRST under and subject to the following
conditions:
a) Employee shall have the right to terminate this Agreement during
the Term by giving thirty (30) days advance written notice. Upon the expiration
of such notice period, Employee shall not be entitled to any further
compensation hereunder.
b) In the event of any change in control of Employer from and after the date
hereof, either Employer or Employee may, at his/its independent election, such
election to be evidenced by written notice, terminate this Agreement. Effective
upon the giving of such notice, regardless of which party elects to give such
notice, Employer shall pay to Employee a sum equal to Employee's then current
annual salary multiplied by the years (including fractional years) remaining in
the Term of this Agreement prior to the giving of such notice, less any legally
required withholdings. As used in this Paragraph THIRD, "change in control"
means (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 Employer's outstanding voting securities, or (ii) the sale of
all or a substantial portion of the productive assets of Employer. For purposes
of this Paragraph, "Employer" shall include both jointly and severally, Delaware
Otsego Corporation and The New York, Susquehanna and Western Railway
Corporation.
c)Employer may terminate this Agreement at any time without cause by giving
thirty (30) days advance written notice to Employee. Effective upon the giving
of such notice, Employer shall pay to Employee a sum equal to Employee's then
current annual salary multiplied by the years (including fractional years)
remaining in the Term of this Agreement prior to the giving of such notice, less
any legally required withholdings.
d)Employer may terminate this Agreement at any time for cause by written notice.
For purposes of this Agreement, "cause" shall include any one or more of the
following:
1. A material breach of any covenant, provision or condition of this
Agreement by Employee.
2. Commission by Employee of a felony or a crime involving moral turpitude.
3. Any gross negligence or willful misconduct in the performance of
Employee's duties that
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<PAGE> 35
results in detriment to Employer.
Upon any such termination, Employee shall not be entitled to any further
compensation hereunder.
e) In the event of termination under subparagraphs (a) or (d) above,
Employee hereby expressly agrees that the giving of such notice under such
subparagraphs shall also constitute the termination and cancellation of any
incentive stock options to purchase the common stock of Delaware Otsego
Corporation Employee may then hold.
TENTH: NOTICE: Any notice required or given under this Agreement shall be
sufficient if in writing and sent by registered or certified mail to his
residence in the case of Employee or to Attention: Secretary, Delaware Otsego
Corporation in the case of Employer, at the addresses hereinabove set forth, or
to such other addresses as may be designated subsequently by the parties hereto.
Any such notice shall be deemed given when so addressed and mailed.
ELEVENTH: WAIVER OF BREACH: A waiver by Employer or Employee of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.
TWELFTH: ENTIRE AGREEMENT: This Agreement contains the entire understanding
and agreement between the parties and cannot be amended, modified or
supplemented in any respect, except by an agreement in writing signed by the
party against whom enforcement of any amendment, modification or supplement is
sought.
THIRTEENTH: SUCCESSORS AND ASSIGNS: This Agreement shall inure to the
benefit of and be binding upon Employer and its successors and assigns
including, without limitation, any corporation or other entity which may acquire
all or substantially all of the capital stock, assets and/or business of
Employer or with or into which Employer may be consolidated or merged, and
Employee, his heirs, executors, administrators and legal representatives.
FOURTEENTH: GOVERNING LAW: This Agreement shall be governed by the laws of
the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day first hereinabove written.
DELAWARE OTSEGO CORPORATION
By: s/ Walter G. Rich
-------------------------------------
Title: President
----------------------------------
s/ Nathan R. Fenno
--------------------------------------
NATHAN R. FENNO
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<PAGE> 36
RIDER TO EMPLOYMENT AGREEMENT
This Rider to Employment Contract (hereinafter "this Rider") is entered into as
of July 14, 1997 by and between Nathan R. Fenno , (hereafter "Employee") and
DELAWARE OTSEGO CORPORATION (hereafter "Employer").
WHEREAS, Employer and Employee entered into an Employment Agreement dated June
3, 1995 (hereinafter the "Employment Agreement"); and
WHEREAS, Employer and Employee, after receiving certain advice regarding the
income tax treatment of certain payments that Employee may be entitled to
receive under the Employment Agreement, wish to enter into this Rider for their
mutual benefit;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth hereinafter and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties, intending to be legally bound,
covenant and agree as follows:
1. In the event of a termination of the Employment Agreement pursuant to the
provisions of Section NINTH (b) or (c) upon or as a result of a change in
control of Employer then, notwithstanding any inconsistent provisions of the
Employment Agreement to the contrary, the amount to be paid to Employee by
Employer shall be equal to 2.99 times the highest annual cash compensation,
consisting solely of salary and bonus, paid to the Employee during any calendar
year in each of the three calendar years immediately prior to the change in
control. In addition,
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<PAGE> 37
the Employer shall continue to provide the Employee for a period of 2.99 years
after such termination with health, hospitalization and medical insurance as
were provided at the time of the termination, at the Employer's expense. In
making such payment, Employer shall cooperate with Employee, at Employee's
election, in deferring payment of part or all of such sum over a period of three
calendar years.
2. Notwithstanding the foregoing, prior to the payment of any amount payable as
set forth above, the certified public accountants of the Employer immediately
prior to the change in control, (the "Certified Public Accountants") shall
determine as promptly as practical and in any event within 20 business days
following such termination the deductibility of any payment or distribution by
the Employer to or for the benefit of the Employee (whether paid or payable or
distributed or distributable pursuant to the terms of the Employment Agreement,
this Rider or otherwise) (the "Agreement Payments") by the Employer for Federal
income purposes because of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"). The Certified Public Accountants will determine the
amount, if any, that the Agreement Payments shall be increased or decreased to
maximize the aggregate present value of Agreement Payments without causing any
portion of such Agreement Payments to be nondeductible by the Employer because
of said Section 280G of the Code.
3. If under paragraph 2 of this Rider the Certified Public Accountants determine
that any adjustment to the Agreement Payments is required, the Employer shall
promptly give the Employee notice to that effect and a copy of the detailed
calculation thereof , together with a statement showing which and how much of
the Agreement Payments shall be adjusted.
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<PAGE> 38
4. As a result of the uncertainty in the application of Section 280G of the
Code, it is possible that Agreement Payments may be made by the Employer which
should not have been made ("Overpayment") or that additional Agreement Payments
which will have not been made by the Employer could have been made
("Underpayment"), in each case, consistent with the determination made by the
Certified Public Accountants under paragraph 2 and 3 of this Rider. In the event
that advice and determination of the Certified Public Accountants under
paragraphs 2 and 3 is followed by Employer and Employee and the Certified Public
Accountants, based upon the assertion of a deficiency by the Internal Revenue
Service, determines that an Overpayment has been made, then the Employer shall
make additional payments to Employee sufficient to (i) reimburse Employee for
his expenses, if any, for representation before the Internal Revenue Service,
and (ii) result in the net payment received by Employee after income taxes,
after consideration of any additional tax, interest or penalties imposes by the
Internal Revenue Service, being equal to the amount Employee would have received
had no Overpayment been made. In the event that the Certified Public
Accountants, based upon controlling precedent, determine that an Underpayment
has occurred, any such Underpayment shall be promptly paid by the Employer to or
for the benefit of the Employee.
5. Payment by the Employer of the sums provided for herein, together with any
wages earned prior to the termination of the employment Agreement, shall
constitute full settlement of any land all claims which Employee may have
against Employer. Employee and Employer shall, upon Employer's reasonable
request, execute a mutual release of all claims.
6. Except as expressly set forth herein, the terms and conditions of the
Employment
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<PAGE> 39
Agreement shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Rider on the 14th day
of July, 1997.
DELAWARE OTSEGO CORPORATION Employee
by: s/ Walter G. Rich s/ Nathan R. Fenno
------------------------------- -----------------------------------
President
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<PAGE> 40
EMPLOYMENT AGREEMENT
AGREEMENT made this 3rd day of June, 1995, by and between DELAWARE OTSEGO
CORPORATION, a New York corporation, with its principal office and place of
business at 1 Railroad Avenue, Cooperstown, New York 13326 (hereinafter called
"Employer") and WILLIAM B. BLATTER, an individual, residing at 42 Wadsworth
Road, New Hartford, New York 13413 (hereinafter called "Employee").
W I T N E S S E T H :
WHEREAS, Employee currently serves as Senior Vice President and Chief
Financial Officer of Employer; and
WHEREAS, Employer acknowledges and recognizes the value of Employee's
services and deems it necessary and desirable to retain Employee's full-time
services for the period set forth herein; and
WHEREAS, both Employee and Employer desire to embody the terms and
conditions of Employee's employment in a written agreement which will supersede
all prior agreements of employment, whether written or oral; and
WHEREAS, the employment, the duration thereof, the compensation to be paid
to Employee, and the other terms and provisions of this Agreement were duly
approved by action of Employer's Board of Directors at a meeting held on the 3rd
day of June, 1995.
NOW, THEREFORE, the parties hereto agree as follows:
FIRST: TERM: Employer does hereby employ Employee as its Senior Vice
President and Chief Financial Officer for a period of five (5) years commencing
on the date hereof, unless sooner terminated as provided herein. This Agreement
may be renewed for such term or terms as may be mutually agreed upon by Employer
and Employee. Not later than six (6) months prior to the expiration date of the
initial term of this Agreement, Employer shall, at the request of Employee,
discuss with Employee the subject of the renewal of the term of this Agreement.
Notwithstanding any other provision of this Agreement to the contrary, this
Agreement, if still then in effect, shall terminate on Employee's 65th birthday.
40
<PAGE> 41
SECOND: COMPENSATION: Employer shall pay to Employee for services to be
rendered hereunder compensation at a minimum rate of $100,000.00 per annum,
payable in weekly installments or on such other basis as may be agreed upon.
Employee's compensation shall be reviewed from time to time by the Board of
Directors of Employer or an appropriate committee thereof, after which such
compensation may be increased in such amount as may be determined by such Board
or committee, as the case may be, in its sole discretion. Nothing contained in
this Agreement shall preclude Employer from granting or Employee from receiving
benefits under or participating in any bonus, incentive, profit sharing, stock
option, stock purchase, retirement, pension, insurance or similar benefit plan
of Employer now or hereinafter in effect for its management personnel.
THIRD: DUTIES AND SERVICES: Employee is engaged as Senior Vice President
and Chief Financial Officer of Employer during the term hereof. Employer will
use its best efforts and powers to sustain and continue Employee's election as
Senior Vice President and Chief Financial Officer and his designation as Senior
Vice President and Chief Financial Officer; and Employee will serve in such
capacity or capacities for Employer, and will serve in such capacity or
capacities for any controlled affiliate of Employer to which he may be elected
or appointed from time to time. Employee shall devote his full time, attention
and efforts to the business and affairs of Employer, except during usual
vacation periods and reasonable periods of illness or incapacity, and shall
perform his duties faithfully, diligently and to the best of his ability.
Subject to Paragraph SEVENTH, nothing contained herein shall be construed to
prevent Employee: (1) from acting as a member of the Board of Directors of any
other corporation and from receiving compensation therefor; (2) from making
investments of any character in any business; or (3) from otherwise engaging in
other business activities, provided in each case, however, that such service as
a director, investments, or any business activities do not interfere
substantially with the performance of Employee's duties hereunder. In the event
of Employer's breach of Paragraph SIXTH herein, or if Employee is not designated
as Senior Vice President and Chief Financial Officer of Employer, or is removed
from such position(s), in each case without cause and without his approval,
Employee shall continue to be compensated for the remainder of the Term of this
Agreement as provided in Paragraph SECOND hereof, but from and after any such
default Employee's employment shall, nevertheless, continue in accordance with
the terms and provisions of this Agreement and as a consultant to the Employer,
(2) Employee shall thereupon be obligated to perform consulting services for the
Employer at the Employer's offices in Cooperstown, New York for a maximum of
four (4) days during each calendar month, and (3) Employee shall not be
restricted in performing services elsewhere for other parties. In the event of
any such default, Employee shall also receive service credit under any
retirement or pension plan of Employer then in effect as if Employee had
continued to render uninterrupted services for the remainder of the term of this
Agreement had it remained in full force and effect. For the purpose of this
Paragraph, a substantial reduction in Employee's authority, powers or duties
shall constitute removal from his position.
FOURTH: EXPENSES: Employee is authorized to incur reasonable and necessary
expenses for promoting the business of Employer, including expenses for
entertainment, travel and similar items.
41
<PAGE> 42
Employer will reimburse Employee for all such expenses upon presentation by him,
from time to time, of an itemized account thereof in conformity with Employer's
usual accounting procedures.
FIFTH: WORKING FACILITIES: Employee shall be furnished with a private
office in Cooperstown, New York, or such other location as may be mutually
agreed upon, and a secretary and such other facilities and services suitable to
his positions and adequate to his needs for the performance of his duties
including, without limitation, suitable transportation, at least equal to that
which Employee currently receives from Employer. Employee shall, on a monthly
basis, furnish Employer with itemized information in conformity with its usual
accounting procedures concerning his personal use of any such facilities or
services and shall reimburse Employer for such personal use at rates prescribed
by it.
SIXTH: CONFIDENTIAL INFORMATION: Employee shall not, during or subsequent
to his employment hereunder, divulge, furnish or make accessible to anyone
(otherwise than in the regular course of the business of Employer) any knowledge
or information, techniques, plans, trade or business secrets or confidential
information relating to the business of Employer or with respect to any other
confidential or secret aspect of the business of Employer, nor shall Employee
make any use of the same for his own purposes or for the benefit of anyone under
any circumstances; provided that, after the term of his employment, these
restrictions shall not apply to such knowledge, techniques, plans, trade or
business secrets or confidential information which is then in, or subsequently
becomes part of, the public domain, except because of disclosure by Employee
without Employer's consent.
It is the desire of the parties that the provisions of this Paragraph
be enforced to the fullest extent permissible under the laws and public policies
in each jurisdiction in which enforcement might be sought. Accordingly, if any
particular portion of this Paragraph be adjudicated as invalid or unenforceable,
this Paragraph shall be deemed amended to delete therefrom such portion so
adjudicated, such deletion to apply only with respect to the operation of this
Paragraph in the particular jurisdiction so adjudicating. If there be a breach
or threatened breach of this Paragraph, Employer shall be entitled to an
injunction restraining Employee from such breach, but nothing herein shall be
construed as prohibiting Employer from pursuing any other remedies for such
breach or threatened breach. The provisions of this paragraph SEVENTH shall
survive the termination or expiration of this Agreement.
SEVENTH: DISABILITY: If (1) Employee shall suffer any illness, disability
or incapacity so that he is unable to perform his duties hereunder and such
illness, disability or incapacity shall be deemed by a duly licensed physician
(who may be Employee's personal physician) to be permanent; or (2) Employee
shall suffer any illness, disability or incapacity so that he is unable to
render full-time services to Employer of the character required hereunder with
reasonable efficiency for a period of six (6) consecutive months by reason of
illness, disability or incapacity and the Employer determines that Employee has
been permanently disabled, then, and in either of such events, Employee will
continue to render such advisory and consultative services as he is able, and as
may be reasonably requested of him by the directors and officers of Employer,
and
42
<PAGE> 43
he shall receive his annual compensation for the balance of the term of this
Agreement in such installments as he shall then be currently receiving.
Compensation during any period of disability shall be adjusted for reimbursement
from any disability insurance paid for by Employer.
EIGHTH: DEATH: In the event of Employee's death during the
term of this Agreement, the Employer shall pay to Employee's designated
beneficiary or beneficiaries, or, in default of such designation, to his estate,
the annual salary due for the balance of the Agreement prorated for any partial
year thereof and payable in a lump sum within ninety (90) days from the date of
his death.
NINTH: EARLY TERMINATION: This Agreement may be terminated prior to the end
of the Term provided in paragraph FIRST under and subject to the following
conditions:
a) Employee shall have the right to terminate this Agreement during
the Term by giving thirty (30) days advance written notice. Upon the expiration
of such notice period, Employee shall not be entitled to any further
compensation hereunder.
b) In the event of any change in control of Employer from and after the date
hereof, either Employer or Employee may, at his/its independent election, such
election to be evidenced by written notice, terminate this Agreement. Effective
upon the giving of such notice, regardless of which party elects to give such
notice, Employer shall pay to Employee a sum equal to Employee's then current
annual salary multiplied by the years (including fractional years) remaining in
the Term of this Agreement prior to the giving of such notice, less any legally
required withholdings. As used in this Paragraph THIRD, "change in control"
means (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 Employer's outstanding voting securities, or (ii) the sale of
all or a substantial portion of the productive assets of Employer. For purposes
of this Paragraph, "Employer" shall include both jointly and severally, Delaware
Otsego Corporation and The New York, Susquehanna and Western Railway
Corporation.
c)Employer may terminate this Agreement at any time without cause by giving
thirty (30) days advance written notice to Employee. Effective upon the giving
of such notice, Employer shall pay to Employee a sum equal to Employee's then
current annual salary multiplied by the years (including fractional years)
remaining in the Term of this Agreement prior to the giving of such notice, less
any legally required withholdings.
d)Employer may terminate this Agreement at any time for cause by written notice.
For purposes of this Agreement, "cause" shall include any one or more of the
following:
1. A material breach of any covenant, provision or condition of this
Agreement by Employee.
43
<PAGE> 44
2. Commission by Employee of a felony or a crime involving moral turpitude.
3. Any gross negligence or willful misconduct in the performance of
Employee's duties that results in detriment to Employer.
Upon any such termination, Employee shall not be entitled to any further
compensation hereunder.
e) In the event of termination under subparagraphs (a) or (d) above,
Employee hereby expressly agrees that the giving of such notice under such
subparagraphs shall also constitute the termination and cancellation of any
incentive stock options to purchase the common stock of Delaware Otsego
Corporation Employee may then hold.
TENTH: NOTICE: Any notice required or given under this Agreement shall be
sufficient if in writing and sent by registered or certified mail to his
residence in the case of Employee or to Attention: Secretary, Delaware Otsego
Corporation in the case of Employer, at the addresses hereinabove set forth, or
to such other addresses as may be designated subsequently by the parties hereto.
Any such notice shall be deemed given when so addressed and mailed.
ELEVENTH: WAIVER OF BREACH: A waiver by Employer or Employee of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.
TWELFTH: ENTIRE AGREEMENT: This Agreement contains the entire understanding
and agreement between the parties and cannot be amended, modified or
supplemented in any respect, except by an agreement in writing signed by the
party against whom enforcement of any amendment, modification or supplement is
sought.
THIRTEENTH: SUCCESSORS AND ASSIGNS: This Agreement shall inure to the
benefit of and be binding upon Employer and its successors and assigns
including, without limitation, any corporation or other entity which may acquire
all or substantially all of the capital stock, assets and/or business of
Employer or with or into which Employer may be consolidated or merged, and
Employee, his heirs, executors, administrators and legal representatives.
FOURTEENTH: GOVERNING LAW: This Agreement shall be governed by the laws of
the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day first hereinabove written.
DELAWARE OTSEGO CORPORATION
By: s/ Walter G. Rich
-------------------------------------
Title: President
----------------------------------
s/ William B. Blatter
----------------------------------------
WILLIAM B. BLATTER
44
<PAGE> 45
RIDER TO EMPLOYMENT AGREEMENT
This Rider to Employment Contract (hereinafter "this Rider") is entered into as
of July 14, 1997 by and between William B. Blatter , (hereafter "Employee") and
DELAWARE OTSEGO CORPORATION (hereafter "Employer").
WHEREAS, Employer and Employee entered into an Employment Agreement dated June
3, 1995 (hereinafter the "Employment Agreement"); and
WHEREAS, Employer and Employee, after receiving certain advice regarding the
income tax treatment of certain payments that Employee may be entitled to
receive under the Employment Agreement, wish to enter into this Rider for their
mutual benefit;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth hereinafter and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties, intending to be legally bound,
covenant and agree as follows:
1. In the event of a termination of the Employment Agreement pursuant to the
provisions of Section NINTH (b) or (c) upon or as a result of a change in
control of Employer then, notwithstanding any inconsistent provisions of the
Employment Agreement to the contrary, the amount to be paid to Employee by
Employer shall be equal to 2.99 times the highest annual cash compensation,
consisting solely of salary and bonus, paid to the Employee during any calendar
year in each of the three calendar years immediately prior to the change in
control. In addition,
45
<PAGE> 46
the Employer shall continue to provide the Employee for a period of 2.99 years
after such termination with health, hospitalization and medical insurance as
were provided at the time of the termination, at the Employer's expense. In
making such payment, Employer shall cooperate with Employee, at Employee's
election, in deferring payment of part or all of such sum over a period of three
calendar years.
2. Notwithstanding the foregoing, prior to the payment of any amount payable as
set forth above, the certified public accountants of the Employer immediately
prior to the change in control, (the "Certified Public Accountants") shall
determine as promptly as practical and in any event within 20 business days
following such termination the deductibility of any payment or distribution by
the Employer to or for the benefit of the Employee (whether paid or payable or
distributed or distributable pursuant to the terms of the Employment Agreement,
this Rider or otherwise) (the "Agreement Payments") by the Employer for Federal
income purposes because of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"). The Certified Public Accountants will determine the
amount, if any, that the Agreement Payments shall be increased or decreased to
maximize the aggregate present value of Agreement Payments without causing any
portion of such Agreement Payments to be nondeductible by the Employer because
of said Section 280G of the Code.
3. If under paragraph 2 of this Rider the Certified Public Accountants determine
that any adjustment to the Agreement Payments is required, the Employer shall
promptly give the Employee notice to that effect and a copy of the detailed
calculation thereof , together with a statement showing which and how much of
the Agreement Payments shall be adjusted.
46
<PAGE> 47
4. As a result of the uncertainty in the application of Section 280G of the
Code, it is possible that Agreement Payments may be made by the Employer which
should not have been made ("Overpayment") or that additional Agreement Payments
which will have not been made by the Employer could have been made
("Underpayment"), in each case, consistent with the determination made by the
Certified Public Accountants under paragraph 2 and 3 of this Rider. In the event
that advice and determination of the Certified Public Accountants under
paragraphs 2 and 3 is followed by Employer and Employee and the Certified Public
Accountants, based upon the assertion of a deficiency by the Internal Revenue
Service, determines that an Overpayment has been made, then the Employer shall
make additional payments to Employee sufficient to (i) reimburse Employee for
his expenses, if any, for representation before the Internal Revenue Service,
and (ii) result in the net payment received by Employee after income taxes,
after consideration of any additional tax, interest or penalties imposes by the
Internal Revenue Service, being equal to the amount Employee would have received
had no Overpayment been made. In the event that the Certified Public
Accountants, based upon controlling precedent, determine that an Underpayment
has occurred, any such Underpayment shall be promptly paid by the Employer to or
for the benefit of the Employee.
5. Payment by the Employer of the sums provided for herein, together with any
wages earned prior to the termination of the employment Agreement, shall
constitute full settlement of any land all claims which Employee may have
against Employer. Employee and Employer shall, upon Employer's reasonable
request, execute a mutual release of all claims.
6. Except as expressly set forth herein, the terms and conditions of the
Employment
47
<PAGE> 48
Agreement shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Rider on the 14th day
of July, 1997.
DELAWARE OTSEGO CORPORATION Employee
by: s/ Walter G. Rich s/ William B. Blatter
------------------------------- -----------------------------------
President
48
<PAGE> 1
Exhibit (c)(3)
CHANGE IN CONTROL AGREEMENT
This agreement made this 9th day of June, 1997, by and between THE NEW YORK,
SUSQUEHANNA AND WESTERN RAILWAY CORPORATION, a New Jersey corporation, with its
principal office and place of business at 1 Railroad Avenue, Cooperstown, New
York 13326 (hereinafter called "Employer") and WILLIAM MATTESON, an individual,
residing at R.D.#2, Box 427A, Ilion, New York 13357 (hereinafter called
"Employee").
W I T N E S S E T H :
WHEREAS, Employee has been employed by Employer as an at-will employee
for several years, with Employee currently serving as Vice
President-Administration; and
WHEREAS, if Employer (or its parent, affiliate or subsidiary
corporations, which together with Employer are hereafter jointly and severally
referred to as "Employer" for purposes of this Agreement) receives any proposal
from a third party concerning a possible business combination with, or
acquisition of the equity securities of a substantial portion of the assets of
Employer, the Board of Directors of Employer believes it is imperative that
Employer and its Board of Directors be able to rely upon the Employee to
continue in his position, and that they be able to receive and rely upon his
advice, if they request it, as to the best interests of Employer and its
shareholders, without concern that Employee might be distracted by the personal
risks and uncertainties created by such a proposal; and
WHEREAS, the terms and provisions of this Agreement were duly approved
by action of Employer's Board of Directors' Executive Committee at a meeting
held on the 7th day of June, 1997.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth hereafter, and other good and valuable consideration, the parties
hereto, intending to be legally bound, agree as follows:
1
<PAGE> 2
FIRST: CHANGE IN CONTROL PROTECTION:
A) In the event that Employee's position with Employer, its
successors or assigns is terminated as a result of a Change In Control of
Employer (a "Termination"), then the following shall apply:
1. Employer shall, notwithstanding such
Termination, continue to compensate Employee
on a monthly basis at the rate in effect at
the date of such Change In Control, and
continue such other benefits as Employee may
be entitled to at the date of such Change In
Control, until the earlier of (i) Employee
obtaining employment, and (ii) a date one
year after the date of such Change In
Control.
2. In the event, after such Termination, that
Employee obtains employment within one year
after the date of such Change In Control at
a rate lower than, or providing fewer
benefits than Employee is entitled to under
subparagraph 1 above, then Employer shall
pay to Employee on a monthly basis the
shortfall of such compensation, and provide
such additional benefits, until the earlier
of (i) such shortfall in compensation and/or
benefits being eliminated, and (ii) one year
after the date of such Change In Control.
For the purpose of this subparagraph A), a material change in
the nature of Employee's duties or a reduction in salary or benefits shall
constitute a Termination of his position.
B) As used herein, "Change In Control" means
(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 Employer's outstanding
voting securities,
(ii) the sale of all or a substantial portion of
the productive assets of Employer, or
(iii) a merger, inclusion, business combination or
other transaction of like nature.
For purposes of this Paragraph, "Employer" shall include both
jointly and severally, Delaware Otsego Corporation and The New York, Susquehanna
and Western Railway Corporation.
2
<PAGE> 3
C) Nothing contained in this Agreement shall preclude Employer
from granting or Employee from receiving benefits under or participating in any
bonus, incentive, profit sharing, stock option, stock purchase, retirement,
pension, insurance or similar benefit plan of Employer now or hereinafter in
effect for its management personnel.
D) This Agreement shall not affect any rights of Employee or
Employer or constitute or imply a contract of employment except to the extent
specifically set forth herein.
E) Notwithstanding any other provisions of this Agreement,
Employer may terminate this Agreement at any time for Cause by written notice.
For purposes of this Agreement, "Cause" shall include any one or more of the
following:
1. Willful and continued failure by Employee to
perform his duties for Employer after at
least one warning in writing from Employer's
Board of Directors identifying specifically
any such failure.
2. Commission by Employee of a felony or a
crime involving moral turpitude.
3. Any gross negligence or willful misconduct
in the performance of Employee's duties that
results in detriment to Employer.
Upon any such termination, Employee shall not be entitled to
any further compensation hereunder.
SECOND: NOTICE: Any notice required or given under this Agreement shall
be sufficient if in writing and sent by registered or certified mail to his
residence in the case of Employee or to Attention: Secretary, Delaware Otsego
Corporation in the case of Employer, at the addresses hereinabove set forth, or
to such other addresses as may be designated subsequently by the parties hereto.
Any such notice shall be deemed given when so addressed and mailed.
THIRD: WAIVER OF BREACH: A waiver by Employer or Employee of a breach
of any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.
FOURTH: ENTIRE AGREEMENT: This Agreement contains the entire
understanding and agreement between the parties regarding its subject matter and
cannot be amended, modified or supplemented in any respect, except by an
agreement in writing signed by the party against whom enforcement of any
amendment, modification or supplement is sought. No oral or unsigned written
statement or any past or future practice or course of dealing shall have any
binding legal effect between Employer and Employee.
3
<PAGE> 4
FIFTH: SUCCESSORS AND ASSIGNS: This Agreement shall inure to the
benefit of and be binding upon Employer and its successors and assigns
including, without limitation, any corporation or other entity which may acquire
all or substantially all of the capital stock, assets and/or business of
Employer or with or into which Employer may be consolidated or merged, and
Employee, his heirs, executors, administrators and legal representatives.
SIXTH: GOVERNING LAW: This Agreement shall be governed by the laws of
the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day first hereinabove written.
THE NEW YORK, SUSQUEHANNA AND
WESTERN RAILWAY CORPORATION
By: s/ Walter G. Rich
--------------------------------
Title: President
----------------------------
WILLIAM MATTESON
s/ William Matteson
-----------------------------------
4
<PAGE> 5
CHANGE IN CONTROL AGREEMENT
This agreement made this 9th day of June, 1997, by and between THE NEW YORK,
SUSQUEHANNA AND WESTERN RAILWAY CORPORATION, a New Jersey corporation, with its
principal office and place of business at 1 Railroad Avenue, Cooperstown, New
York 13326 (hereinafter called "Employer") and WILLIAM BLOOMFIELD, an
individual, residing at ___________________________________________ (hereinafter
called "Employee").
W I T N E S S E T H :
WHEREAS, Employee has been employed by Employer as an at-will employee
for several years, with Employee currently serving as
_____________________________; and
WHEREAS, if Employer (or its parent, affiliate or subsidiary
corporations, which together with Employer are hereafter jointly and severally
referred to as "Employer" for purposes of this Agreement) receives any proposal
from a third party concerning a possible business combination with, or
acquisition of the equity securities of a substantial portion of the assets of
Employer, the Board of Directors of Employer believes it is imperative that
Employer and its Board of Directors be able to rely upon the Employee to
continue in his position, and that they be able to receive and rely upon his
advice, if they request it, as to the best interests of Employer and its
shareholders, without concern that Employee might be distracted by the personal
risks and uncertainties created by such a proposal; and
WHEREAS, the terms and provisions of this Agreement were duly approved
by action of Employer's Board of Directors' Executive Committee at a meeting
held on the 7th day of June, 1997.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth hereafter, and other good and valuable consideration, the parties
hereto, intending to be legally bound, agree as follows:
5
<PAGE> 6
FIRST: CHANGE IN CONTROL PROTECTION:
A) In the event that Employee's position with Employer, its
successors or assigns is terminated as a result of a Change In Control of
Employer (a "Termination"), then the following shall apply:
1. Employer shall, notwithstanding such
Termination, continue to compensate Employee
on a monthly basis at the rate in effect at
the date of such Change In Control, and
continue such other benefits as Employee may
be entitled to at the date of such Change In
Control, until the earlier of (i) Employee
obtaining employment, and (ii) a date two
years after the date of such Change In
Control.
2. In the event, after such Termination, that
Employee obtains employment within two years
after the date of such Change In Control at
a rate lower than, or providing fewer
benefits than Employee is entitled to under
subparagraph 1 above, then Employer shall
pay to Employee on a monthly basis the
shortfall of such compensation, and provide
such additional benefits, until the earlier
of (i) such shortfall in compensation and/or
benefits being eliminated, and (ii) two
years after the date of such Change In
Control.
For the purpose of this subparagraph A), a material change in
the nature of Employee's duties or a reduction in salary or benefits shall
constitute a Termination of his position.
B) As used herein, "Change In Control" means
(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 Employer's outstanding
voting securities,
(ii) the sale of all or a substantial portion of
the productive assets of Employer, or
(iii) a merger, inclusion, business combination or
other transaction of like nature.
For purposes of this Paragraph, "Employer" shall include both
jointly and severally, Delaware Otsego Corporation and The New York, Susquehanna
and Western Railway Corporation.
6
<PAGE> 7
C) Nothing contained in this Agreement shall preclude Employer
from granting or Employee from receiving benefits under or participating in any
bonus, incentive, profit sharing, stock option, stock purchase, retirement,
pension, insurance or similar benefit plan of Employer now or hereinafter in
effect for its management personnel.
D) This Agreement shall not affect any rights of Employee or
Employer or constitute or imply a contract of employment except to the extent
specifically set forth herein.
E) Notwithstanding any other provisions of this Agreement,
Employer may terminate this Agreement at any time for Cause by written notice.
For purposes of this Agreement, "Cause" shall include any one or more of the
following:
1. Willful and continued failure by Employee to
perform his duties for Employer after at
least one warning in writing from Employer's
Board of Directors identifying specifically
any such failure.
2. Commission by Employee of a felony or a
crime involving moral turpitude.
3. Any gross negligence or willful misconduct
in the performance of Employee's duties that
results in detriment to Employer.
Upon any such termination, Employee shall not be entitled to
any further compensation hereunder.
SECOND: NOTICE: Any notice required or given under this Agreement shall
be sufficient if in writing and sent by registered or certified mail to his
residence in the case of Employee or to Attention: Secretary, Delaware Otsego
Corporation in the case of Employer, at the addresses hereinabove set forth, or
to such other addresses as may be designated subsequently by the parties hereto.
Any such notice shall be deemed given when so addressed and mailed.
THIRD: WAIVER OF BREACH: A waiver by Employer or Employee of a breach
of any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.
FOURTH: ENTIRE AGREEMENT: This Agreement contains the entire
understanding and agreement between the parties regarding its subject matter and
cannot be amended, modified or supplemented in any respect, except by an
agreement in writing signed by the party against whom enforcement of any
amendment, modification or supplement is sought. No oral or unsigned written
statement or any past or future practice or course of dealing shall have any
binding legal effect between Employer and Employee.
7
<PAGE> 8
FIFTH: SUCCESSORS AND ASSIGNS: This Agreement shall inure to the
benefit of and be binding upon Employer and its successors and assigns
including, without limitation, any corporation or other entity which may acquire
all or substantially all of the capital stock, assets and/or business of
Employer or with or into which Employer may be consolidated or merged, and
Employee, his heirs, executors, administrators and legal representatives.
SIXTH: GOVERNING LAW: This Agreement shall be governed by the laws of
the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day first hereinabove written.
THE NEW YORK, SUSQUEHANNA AND
WESTERN RAILWAY CORPORATION
By: s/ Walter G. Rich
--------------------------------
Title: President
----------------------------
WILLIAM BLOOMFIELD
s/ William Bloomfield
-----------------------------------
8
<PAGE> 9
CHANGE IN CONTROL AGREEMENT
This agreement made this 9th day of June, 1997, by and between THE NEW YORK,
SUSQUEHANNA AND WESTERN RAILWAY CORPORATION, a New Jersey corporation, with its
principal office and place of business at 1 Railroad Avenue, Cooperstown, New
York 13326 (hereinafter called "Employer") and ROBERT A. KURDOCK, an individual,
residing at 202 May Street, Hawthorne, New Jersey 07506 (hereinafter called
"Employee").
W I T N E S S E T H :
WHEREAS, Employee has been employed by Employer as an at-will employee
for several years, with Employee currently serving as Vice President; and
WHEREAS, if Employer (or its parent, affiliate or subsidiary
corporations, which together with Employer are hereafter jointly and severally
referred to as "Employer" for purposes of this Agreement) receives any proposal
from a third party concerning a possible business combination with, or
acquisition of the equity securities of a substantial portion of the assets of
Employer, the Board of Directors of Employer believes it is imperative that
Employer and its Board of Directors be able to rely upon the Employee to
continue in his position, and that they be able to receive and rely upon his
advice, if they request it, as to the best interests of Employer and its
shareholders, without concern that Employee might be distracted by the personal
risks and uncertainties created by such a proposal; and
WHEREAS, the terms and provisions of this Agreement were duly approved
by action of Employer's Board of Directors' Executive Committee at a meeting
held on the 7th day of June, 1997.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth hereafter, and other good and valuable consideration, the parties
hereto, intending to be legally bound, agree as follows:
13
<PAGE> 10
FIRST: CHANGE IN CONTROL PROTECTION:
A) In the event that Employee's position with Employer, its
successors or assigns is terminated as a result of a Change In Control of
Employer (a "Termination"), then the following shall apply:
1. Employer shall, notwithstanding such
Termination, continue to compensate Employee
on a monthly basis at the rate in effect at
the date of such Change In Control, and
continue such other benefits as Employee may
be entitled to at the date of such Change In
Control, until the earlier of (i) Employee
obtaining employment, and (ii) a date two
years after the date of such Change In
Control.
2. In the event, after such Termination, that
Employee obtains employment within two years
after the date of such Change In Control at
a rate lower than, or providing fewer
benefits than Employee is entitled to under
subparagraph 1 above, then Employer shall
pay to Employee on a monthly basis the
shortfall of such compensation, and provide
such additional benefits, until the earlier
of (i) such shortfall in compensation and/or
benefits being eliminated, and (ii) two
years after the date of such Change In
Control.
For the purpose of this subparagraph A), a material change in
the nature of Employee's duties or a reduction in salary or benefits shall
constitute a Termination of his position.
B) As used herein, "Change In Control" means
(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 Employer's outstanding voting
securities,
(ii) the sale of all or a substantial portion of the
productive assets of Employer, or
(iii) a merger, inclusion, business combination or other
transaction of like nature.
For purposes of this Paragraph, "Employer" shall include both
jointly and severally, Delaware Otsego Corporation and The New York, Susquehanna
and Western Railway Corporation.
14
<PAGE> 11
C) Nothing contained in this Agreement shall preclude Employer
from granting or Employee from receiving benefits under or participating in any
bonus, incentive, profit sharing, stock option, stock purchase, retirement,
pension, insurance or similar benefit plan of Employer now or hereinafter in
effect for its management personnel.
D) This Agreement shall not affect any rights of Employee or
Employer or constitute or imply a contract of employment except to the extent
specifically set forth herein.
E) Notwithstanding any other provisions of this Agreement,
Employer may terminate this Agreement at any time for Cause by written notice.
For purposes of this Agreement, "Cause" shall include any one or more of the
following:
1. Willful and continued failure by Employee to
perform his duties for Employer after at
least one warning in writing from Employer's
Board of Directors identifying specifically
any such failure.
2. Commission by Employee of a felony or a
crime involving moral turpitude.
3. Any gross negligence or willful misconduct
in the performance of Employee's duties that
results in detriment to Employer.
Upon any such termination, Employee shall not be entitled to
any further compensation hereunder.
SECOND: NOTICE: Any notice required or given under this Agreement shall
be sufficient if in writing and sent by registered or certified mail to his
residence in the case of Employee or to Attention: Secretary, Delaware Otsego
Corporation in the case of Employer, at the addresses hereinabove set forth, or
to such other addresses as may be designated subsequently by the parties hereto.
Any such notice shall be deemed given when so addressed and mailed.
THIRD: WAIVER OF BREACH: A waiver by Employer or Employee of a breach
of any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.
FOURTH: ENTIRE AGREEMENT: This Agreement contains the entire
understanding and agreement between the parties regarding its subject matter and
cannot be amended, modified or supplemented in any respect, except by an
agreement in writing signed by the party against whom enforcement of any
amendment, modification or supplement is sought. No oral or unsigned written
statement or any past or future practice or course of dealing shall have any
binding legal effect between Employer and Employee.
15
<PAGE> 12
FIFTH: SUCCESSORS AND ASSIGNS: This Agreement shall inure to the
benefit of and be binding upon Employer and its successors and assigns
including, without limitation, any corporation or other entity which may acquire
all or substantially all of the capital stock, assets and/or business of
Employer or with or into which Employer may be consolidated or merged, and
Employee, his heirs, executors, administrators and legal representatives.
SIXTH: GOVERNING LAW: This Agreement shall be governed by the laws of
the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day first hereinabove written.
THE NEW YORK, SUSQUEHANNA AND
WESTERN RAILWAY CORPORATION
By: s/ Walter G. Rich
------------------------------
Title: President
------------------------------
ROBERT A. KURDOCK
s/ Robert A. Kurdock
------------------------------
16
<PAGE> 13
CHANGE IN CONTROL AGREEMENT
This agreement made this 9th day of June, 1997, by and between THE NEW YORK,
SUSQUEHANNA AND WESTERN RAILWAY CORPORATION, a New Jersey corporation, with its
principal office and place of business at 1 Railroad Avenue, Cooperstown, New
York 13326 (hereinafter called "Employer") and RICHARD J. HENSEL, an individual,
residing at 15 Harrogate Road, New Hartford, New York 13413 (hereinafter called
"Employee").
W I T N E S S E T H :
WHEREAS, Employee has been employed by Employer as an at-will employee
for several years, with Employee currently serving as Vice
President-Engineering; and
WHEREAS, if Employer (or its parent, affiliate or subsidiary
corporations, which together with Employer are hereafter jointly and severally
referred to as "Employer" for purposes of this Agreement) receives any proposal
from a third party concerning a possible business combination with, or
acquisition of the equity securities of a substantial portion of the assets of
Employer, the Board of Directors of Employer believes it is imperative that
Employer and its Board of Directors be able to rely upon the Employee to
continue in his position, and that they be able to receive and rely upon his
advice, if they request it, as to the best interests of Employer and its
shareholders, without concern that Employee might be distracted by the personal
risks and uncertainties created by such a proposal; and
WHEREAS, the terms and provisions of this Agreement were duly approved
by action of Employer's Board of Directors' Executive Committee at a meeting
held on the 7th day of June, 1997.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth hereafter, and other good and valuable consideration, the parties
hereto, intending to be legally bound, agree as follows:
9
<PAGE> 14
FIRST: CHANGE IN CONTROL PROTECTION:
A) In the event that Employee's position with Employer, its
successors or assigns is terminated as a result of a Change In Control of
Employer (a "Termination"), then the following shall apply:
1. Employer shall, notwithstanding such
Termination, continue to compensate Employee
on a monthly basis at the rate in effect at
the date of such Change In Control, and
continue such other benefits as Employee may
be entitled to at the date of such Change In
Control, until the earlier of (i) Employee
obtaining employment, and (ii) a date two
years after the date of such Change In
Control.
2. In the event, after such Termination, that
Employee obtains employment within two years
after the date of such Change In Control at
a rate lower than, or providing fewer
benefits than Employee is entitled to under
subparagraph 1 above, then Employer shall
pay to Employee on a monthly basis the
shortfall of such compensation, and provide
such additional benefits, until the earlier
of (i) such shortfall in compensation and/or
benefits being eliminated, and (ii) two
years after the date of such Change In
Control.
For the purpose of this subparagraph A), a material change in
the nature of Employee's duties or a reduction in salary or benefits shall
constitute a Termination of his position.
B) As used herein, "Change In Control" means
(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 Employer's outstanding voting
securities,
(ii) the sale of all or a substantial portion of the
productive assets of Employer, or
(iii) a merger, inclusion, business combination or other
transaction of like nature.
For purposes of this Paragraph, "Employer" shall include both
jointly and severally, Delaware Otsego Corporation and The New York, Susquehanna
and Western Railway Corporation.
10
<PAGE> 15
C) Nothing contained in this Agreement shall preclude Employer
from granting or Employee from receiving benefits under or participating in any
bonus, incentive, profit sharing, stock option, stock purchase, retirement,
pension, insurance or similar benefit plan of Employer now or hereinafter in
effect for its management personnel.
D) This Agreement shall not affect any rights of Employee or
Employer or constitute or imply a contract of employment except to the extent
specifically set forth herein.
E) Notwithstanding any other provisions of this Agreement,
Employer may terminate this Agreement at any time for Cause by written notice.
For purposes of this Agreement, "Cause" shall include any one or more of the
following:
1. Willful and continued failure by Employee to
perform his duties for Employer after at
least one warning in writing from Employer's
Board of Directors identifying specifically
any such failure.
2. Commission by Employee of a felony or a
crime involving moral turpitude.
3. Any gross negligence or willful misconduct
in the performance of Employee's duties that
results in detriment to Employer.
Upon any such termination, Employee shall not be entitled to
any further compensation hereunder.
SECOND: NOTICE: Any notice required or given under this Agreement shall
be sufficient if in writing and sent by registered or certified mail to his
residence in the case of Employee or to Attention: Secretary, Delaware Otsego
Corporation in the case of Employer, at the addresses hereinabove set forth, or
to such other addresses as may be designated subsequently by the parties hereto.
Any such notice shall be deemed given when so addressed and mailed.
THIRD: WAIVER OF BREACH: A waiver by Employer or Employee of a breach
of any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.
FOURTH: ENTIRE AGREEMENT: This Agreement contains the entire
understanding and agreement between the parties regarding its subject matter and
cannot be amended, modified or supplemented in any respect, except by an
agreement in writing signed by the party against whom enforcement of any
amendment, modification or supplement is sought. No oral or unsigned written
statement or any past or future practice or course of dealing shall have any
binding legal effect between Employer and Employee.
11
<PAGE> 16
FIFTH: SUCCESSORS AND ASSIGNS: This Agreement shall inure to the
benefit of and be binding upon Employer and its successors and assigns
including, without limitation, any corporation or other entity which may acquire
all or substantially all of the capital stock, assets and/or business of
Employer or with or into which Employer may be consolidated or merged, and
Employee, his heirs, executors, administrators and legal representatives.
SIXTH: GOVERNING LAW: This Agreement shall be governed by the laws of
the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day first hereinabove written.
THE NEW YORK, SUSQUEHANNA AND
WESTERN RAILWAY CORPORATION
By: s/ Walter G. Rich
------------------------------
Title: President
------------------------------
RICHARD J. HENSEL
s/ Richard J. Hensel
------------------------------
12
<PAGE> 17
CHANGE IN CONTROL AGREEMENT
This agreement made this 9th day of June, 1997, by and between THE NEW YORK,
SUSQUEHANNA AND WESTERN RAILWAY CORPORATION, a New Jersey corporation, with its
principal office and place of business at 1 Railroad Avenue, Cooperstown, New
York 13326 (hereinafter called "Employer") and FRANK QUATTROCCHI, an individual,
residing at P.O. Box 422, Cooperstown, New York 13326 (hereinafter called
"Employee").
W I T N E S S E T H :
WHEREAS, Employee has been employed by Employer as an at-will employee
for several years, with Employee currently serving as Vice President &
Treasurer; and
WHEREAS, if Employer (or its parent, affiliate or subsidiary
corporations, which together with Employer are hereafter jointly and severally
referred to as "Employer" for purposes of this Agreement) receives any proposal
from a third party concerning a possible business combination with, or
acquisition of the equity securities of a substantial portion of the assets of
Employer, the Board of Directors of Employer believes it is imperative that
Employer and its Board of Directors be able to rely upon the Employee to
continue in his position, and that they be able to receive and rely upon his
advice, if they request it, as to the best interests of Employer and its
shareholders, without concern that Employee might be distracted by the personal
risks and uncertainties created by such a proposal; and
WHEREAS, the terms and provisions of this Agreement were duly approved
by action of Employer's Board of Directors' Executive Committee at a meeting
held on the 7th day of June, 1997.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth hereafter, and other good and valuable consideration, the parties
hereto, intending to be legally bound, agree as follows:
17
<PAGE> 18
FIRST: CHANGE IN CONTROL PROTECTION:
A) In the event that Employee's position with Employer, its
successors or assigns is terminated as a result of a Change In Control of
Employer (a "Termination"), then the following shall apply:
1. Employer shall, notwithstanding such
Termination, continue to compensate Employee
on a monthly basis at the rate in effect at
the date of such Change In Control, and
continue such other benefits as Employee may
be entitled to at the date of such Change In
Control, until the earlier of (i) Employee
obtaining employment, and (ii) a date one
year after the date of such Change In
Control.
2. In the event, after such Termination, that
Employee obtains employment within one year
after the date of such Change In Control at
a rate lower than, or providing fewer
benefits than Employee is entitled to under
subparagraph 1 above, then Employer shall
pay to Employee on a monthly basis the
shortfall of such compensation, and provide
such additional benefits, until the earlier
of (i) such shortfall in compensation and/or
benefits being eliminated, and (ii) one year
after the date of such Change In Control.
For the purpose of this subparagraph A), a material change in
the nature of Employee's duties or a reduction in salary or benefits shall
constitute a Termination of his position.
B) As used herein, "Change In Control" means
(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 Employer's outstanding voting
securities,
(ii) the sale of all or a substantial portion of the
productive assets of Employer, or
(iii) a merger, inclusion, business combination or other
transaction of like nature.
For purposes of this Paragraph, "Employer" shall include both
jointly and severally, Delaware Otsego Corporation and The New York, Susquehanna
and Western Railway Corporation.
18
<PAGE> 19
C) Nothing contained in this Agreement shall preclude Employer
from granting or Employee from receiving benefits under or participating in any
bonus, incentive, profit sharing, stock option, stock purchase, retirement,
pension, insurance or similar benefit plan of Employer now or hereinafter in
effect for its management personnel.
D) This Agreement shall not affect any rights of Employee or
Employer or constitute or imply a contract of employment except to the extent
specifically set forth herein.
E) Notwithstanding any other provisions of this Agreement,
Employer may terminate this Agreement at any time for Cause by written notice.
For purposes of this Agreement, "Cause" shall include any one or more of the
following:
1. Willful and continued failure by Employee to
perform his duties for Employer after at
least one warning in writing from Employer's
Board of Directors identifying specifically
any such failure.
2. Commission by Employee of a felony or a
crime involving moral turpitude.
3. Any gross negligence or willful misconduct
in the performance of Employee's duties that
results in detriment to Employer.
Upon any such termination, Employee shall not be entitled to
any further compensation hereunder.
SECOND: NOTICE: Any notice required or given under this Agreement shall
be sufficient if in writing and sent by registered or certified mail to his
residence in the case of Employee or to Attention: Secretary, Delaware Otsego
Corporation in the case of Employer, at the addresses hereinabove set forth, or
to such other addresses as may be designated subsequently by the parties hereto.
Any such notice shall be deemed given when so addressed and mailed.
THIRD: WAIVER OF BREACH: A waiver by Employer or Employee of a breach
of any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.
FOURTH: ENTIRE AGREEMENT: This Agreement contains the entire
understanding and agreement between the parties regarding its subject matter and
cannot be amended, modified or supplemented in any respect, except by an
agreement in writing signed by the party against whom enforcement of any
amendment, modification or supplement is sought. No oral or unsigned written
statement or any past or future practice or course of dealing shall have any
binding legal effect between Employer and Employee.
19
<PAGE> 20
FIFTH: SUCCESSORS AND ASSIGNS: This Agreement shall inure to the
benefit of and be binding upon Employer and its successors and assigns
including, without limitation, any corporation or other entity which may acquire
all or substantially all of the capital stock, assets and/or business of
Employer or with or into which Employer may be consolidated or merged, and
Employee, his heirs, executors, administrators and legal representatives.
SIXTH: GOVERNING LAW: This Agreement shall be governed by the laws of
the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day first hereinabove written.
THE NEW YORK, SUSQUEHANNA AND
WESTERN RAILWAY CORPORATION
By: s/ Walter G. Rich
------------------------------
Title: President
------------------------------
FRANK QUATTROCCHI
s/ Frank Quattrocchi
------------------------------
20
<PAGE> 21
CHANGE IN CONTROL AGREEMENT
This agreement made this 9th day of June, 1997, by and between THE NEW YORK,
SUSQUEHANNA AND WESTERN RAILWAY CORPORATION, a New Jersey corporation, with its
principal office and place of business at 1 Railroad Avenue, Cooperstown, New
York 13326 (hereinafter called "Employer") and JOSEPH G. SENCHYSHYN, an
individual, residing at 25 Mill Street, Cooperstown, New York 13326 (hereinafter
called "Employee").
W I T N E S S E T H :
WHEREAS, Employee has been employed by Employer as an at-will employee
for several years, with Employee currently serving as Vice President-Operations;
and
WHEREAS, if Employer (or its parent, affiliate or subsidiary
corporations, which together with Employer are hereafter jointly and severally
referred to as "Employer" for purposes of this Agreement) receives any proposal
from a third party concerning a possible business combination with, or
acquisition of the equity securities of a substantial portion of the assets of
Employer, the Board of Directors of Employer believes it is imperative that
Employer and its Board of Directors be able to rely upon the Employee to
continue in his position, and that they be able to receive and rely upon his
advice, if they request it, as to the best interests of Employer and its
shareholders, without concern that Employee might be distracted by the personal
risks and uncertainties created by such a proposal; and
WHEREAS, the terms and provisions of this Agreement were duly approved
by action of Employer's Board of Directors' Executive Committee at a meeting
held on the 7th day of June, 1997.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth hereafter, and other good and valuable consideration, the parties
hereto, intending to be legally bound, agree as follows:
21
<PAGE> 22
FIRST: CHANGE IN CONTROL PROTECTION:
A) In the event that Employee's position with Employer, its
successors or assigns is terminated as a result of a Change In Control of
Employer (a "Termination"), then the following shall apply:
1. Employer shall, notwithstanding such
Termination, continue to compensate Employee
on a monthly basis at the rate in effect at
the date of such Change In Control, and
continue such other benefits as Employee may
be entitled to at the date of such Change In
Control, until the earlier of (i) Employee
obtaining employment, and (ii) a date two
years after the date of such Change In
Control.
2. In the event, after such Termination, that
Employee obtains employment within two years
after the date of such Change In Control at
a rate lower than, or providing fewer
benefits than Employee is entitled to under
subparagraph 1 above, then Employer shall
pay to Employee on a monthly basis the
shortfall of such compensation, and provide
such additional benefits, until the earlier
of (i) such shortfall in compensation and/or
benefits being eliminated, and (ii) two
years after the date of such Change In
Control.
For the purpose of this subparagraph A), a material change in
the nature of Employee's duties or a reduction in salary or benefits shall
constitute a Termination of his position.
B) As used herein, "Change In Control" means
(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 Employer's outstanding voting
securities,
(ii) the sale of all or a substantial portion of the
productive assets of Employer, or
(iii) a merger, inclusion, business combination or other
transaction of like nature.
For purposes of this Paragraph, "Employer" shall include both
jointly and severally, Delaware Otsego Corporation and The New York, Susquehanna
and Western Railway Corporation.
22
<PAGE> 23
C) Nothing contained in this Agreement shall preclude Employer
from granting or Employee from receiving benefits under or participating in any
bonus, incentive, profit sharing, stock option, stock purchase, retirement,
pension, insurance or similar benefit plan of Employer now or hereinafter in
effect for its management personnel.
D) This Agreement shall not affect any rights of Employee or
Employer or constitute or imply a contract of employment except to the extent
specifically set forth herein.
E) Notwithstanding any other provisions of this Agreement,
Employer may terminate this Agreement at any time for Cause by written notice.
For purposes of this Agreement, "Cause" shall include any one or more of the
following:
1. Willful and continued failure by Employee to
perform his duties for Employer after at
least one warning in writing from Employer's
Board of Directors identifying specifically
any such failure.
2. Commission by Employee of a felony or a
crime involving moral turpitude.
3. Any gross negligence or willful misconduct
in the performance of Employee's duties that
results in detriment to Employer.
Upon any such termination, Employee shall not be entitled to
any further compensation hereunder.
SECOND: NOTICE: Any notice required or given under this Agreement shall
be sufficient if in writing and sent by registered or certified mail to his
residence in the case of Employee or to Attention: Secretary, Delaware Otsego
Corporation in the case of Employer, at the addresses hereinabove set forth, or
to such other addresses as may be designated subsequently by the parties hereto.
Any such notice shall be deemed given when so addressed and mailed.
THIRD: WAIVER OF BREACH: A waiver by Employer or Employee of a breach
of any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.
FOURTH: ENTIRE AGREEMENT: This Agreement contains the entire
understanding and agreement between the parties regarding its subject matter and
cannot be amended, modified or supplemented in any respect, except by an
agreement in writing signed by the party against whom enforcement of any
amendment, modification or supplement is sought. No oral or unsigned written
statement or any past or future practice or course of dealing shall have any
binding legal effect between Employer and Employee.
23
<PAGE> 24
FIFTH: SUCCESSORS AND ASSIGNS: This Agreement shall inure to the
benefit of and be binding upon Employer and its successors and assigns
including, without limitation, any corporation or other entity which may acquire
all or substantially all of the capital stock, assets and/or business of
Employer or with or into which Employer may be consolidated or merged, and
Employee, his heirs, executors, administrators and legal representatives.
SIXTH: GOVERNING LAW: This Agreement shall be governed by the laws of
the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day first hereinabove written.
THE NEW YORK, SUSQUEHANNA AND
WESTERN RAILWAY CORPORATION
By: s/ Walter G. Rich
------------------------------
Title: President
------------------------------
JOSEPH G. SENCHYSHYN
s/ Joseph G. Senchyshyn
------------------------------
24
<PAGE> 25
CHANGE IN CONTROL AGREEMENT
This agreement made this 9th day of June, 1997, by and between THE NEW YORK,
SUSQUEHANNA AND WESTERN RAILWAY CORPORATION, a New Jersey corporation, with its
principal office and place of business at 1 Railroad Avenue, Cooperstown, New
York 13326 (hereinafter called "Employer") and DAVID BOYD, an individual,
residing at 11 Jasper Drive, Morton, Illinois 61550 (hereinafter called
"Employee").
W I T N E S S E T H :
WHEREAS, Employee has been employed by Employer as an at-will employee
for several years, with Employee currently serving as Vice President-Mechanical;
and
WHEREAS, if Employer (or its parent, affiliate or subsidiary
corporations, which together with Employer are hereafter jointly and severally
referred to as "Employer" for purposes of this Agreement) receives any proposal
from a third party concerning a possible business combination with, or
acquisition of the equity securities of a substantial portion of the assets of
Employer, the Board of Directors of Employer believes it is imperative that
Employer and its Board of Directors be able to rely upon the Employee to
continue in his position, and that they be able to receive and rely upon his
advice, if they request it, as to the best interests of Employer and its
shareholders, without concern that Employee might be distracted by the personal
risks and uncertainties created by such a proposal; and
WHEREAS, the terms and provisions of this Agreement were duly approved
by action of Employer's Board of Directors' Executive Committee at a meeting
held on the 7th day of June, 1997.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth hereafter, and other good and valuable consideration, the parties
hereto, intending to be legally bound, agree as follows:
25
<PAGE> 26
FIRST: CHANGE IN CONTROL PROTECTION:
A) In the event that Employee's position with Employer, its
successors or assigns is terminated as a result of a Change In Control of
Employer (a "Termination"), then the following shall apply:
1. Employer shall, notwithstanding such
Termination, continue to compensate Employee
on a monthly basis at the rate in effect at
the date of such Change In Control, and
continue such other benefits as Employee may
be entitled to at the date of such Change In
Control, until the earlier of (i) Employee
obtaining employment, and (ii) a date two
years after the date of such Change In
Control.
2. In the event, after such Termination, that
Employee obtains employment within two years
after the date of such Change In Control at
a rate lower than, or providing fewer
benefits than Employee is entitled to under
subparagraph 1 above, then Employer shall
pay to Employee on a monthly basis the
shortfall of such compensation, and provide
such additional benefits, until the earlier
of (i) such shortfall in compensation and/or
benefits being eliminated, and (ii) two
years after the date of such Change In
Control.
For the purpose of this subparagraph A), a material change in
the nature of Employee's duties or a reduction in salary or benefits shall
constitute a Termination of his position.
B) As used herein, "Change In Control" means
(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 Employer's outstanding voting
securities,
(ii) the sale of all or a substantial portion of the
productive assets of Employer, or
(iii) a merger, inclusion, business combination or other
transaction of like nature.
For purposes of this Paragraph, "Employer" shall include both
jointly and severally, Delaware Otsego Corporation and The New York, Susquehanna
and Western Railway Corporation.
26
<PAGE> 27
C) Nothing contained in this Agreement shall preclude Employer
from granting or Employee from receiving benefits under or participating in any
bonus, incentive, profit sharing, stock option, stock purchase, retirement,
pension, insurance or similar benefit plan of Employer now or hereinafter in
effect for its management personnel.
D) This Agreement shall not affect any rights of Employee or
Employer or constitute or imply a contract of employment except to the extent
specifically set forth herein.
E) Notwithstanding any other provisions of this Agreement,
Employer may terminate this Agreement at any time for Cause by written notice.
For purposes of this Agreement, "Cause" shall include any one or more of the
following:
1. Willful and continued failure by Employee to
perform his duties for Employer after at
least one warning in writing from Employer's
Board of Directors identifying specifically
any such failure.
2. Commission by Employee of a felony or a
crime involving moral turpitude.
3. Any gross negligence or willful misconduct
in the performance of Employee's duties that
results in detriment to Employer.
Upon any such termination, Employee shall not be entitled to
any further compensation hereunder.
SECOND: NOTICE: Any notice required or given under this Agreement shall
be sufficient if in writing and sent by registered or certified mail to his
residence in the case of Employee or to Attention: Secretary, Delaware Otsego
Corporation in the case of Employer, at the addresses hereinabove set forth, or
to such other addresses as may be designated subsequently by the parties hereto.
Any such notice shall be deemed given when so addressed and mailed.
THIRD: WAIVER OF BREACH: A waiver by Employer or Employee of a breach
of any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.
FOURTH: ENTIRE AGREEMENT: This Agreement contains the entire
understanding and agreement between the parties regarding its subject matter and
cannot be amended, modified or supplemented in any respect, except by an
agreement in writing signed by the party against whom enforcement of any
amendment, modification or supplement is sought. No oral or unsigned written
statement or any past or future practice or course of dealing shall have any
binding legal effect between Employer and Employee.
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FIFTH: SUCCESSORS AND ASSIGNS: This Agreement shall inure to the
benefit of and be binding upon Employer and its successors and assigns
including, without limitation, any corporation or other entity which may acquire
all or substantially all of the capital stock, assets and/or business of
Employer or with or into which Employer may be consolidated or merged, and
Employee, his heirs, executors, administrators and legal representatives.
SIXTH: GOVERNING LAW: This Agreement shall be governed by the laws of
the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day first hereinabove written.
THE NEW YORK, SUSQUEHANNA AND
WESTERN RAILWAY CORPORATION
By: s/ Walter G. Rich
------------------------------
Title: President
------------------------------
DAVID BOYD
s/ David Boyd
------------------------------
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EXHIBIT (c)(4)
RESTATED CERTIFICATE OF INCORPORATION
OF
DELAWARE OTSEGO CORPORATION
UNDER SECTION 807 OF THE BUSINESS CORPORATION LAW, WE, THE UNDERSIGNED, BEING
THE PRESIDENT AND SECRETARY, RESPECTIVELY, OF THE DELAWARE OTSEGO CORPORATION,
PURSUANT TO SECTION 807 OF THE BUSINESS CORPORATION LAW OF NEW YORK STATE, DO
HEREBY RESTATE AND CERTIFY AND SET FORTH:
1. The name of the Corporation is DELAWARE OTSEGO CORPORATION.
2. The Certificate of Incorporation was filed by the Department
of State on April 20, 1965, under the name DELAWARE OTSEGO
RAILROAD CO., INC.
3. The text of the Certificate of Incorporation is hereby
restated without amendment or change to read as herein set
forth in full:
CERTIFICATE OF INCORPORATION
OF
DELAWARE OTSEGO CORPORATION
Under Section 5 of the Railroad Law:
FIRST: The name of the corporation is Delaware Otsego Corporation.
SECOND: The purpose or purposes of the Corporation are to construct,
reconstruct, own, lease, operate, extend, change and maintain transportation
systems by railroad and other means of transportation and to have and exercise
all rights, privileges, immunities and franchises heretofore and hereafter
granted in connection with such transportation systems or otherwise.
To generally do all things which those engaged in the above lines of
business ordinarily do or perform.
THIRD: The duration of the Corporation is to be perpetual.
FOURTH: The place where its principal office is to be located is the
Village of Cooperstown, County of Otsego and State of New York.
<PAGE> 2
FIFTH: The aggregate number of shares that the Corporation shall have
authority to issue is 10,000,000 shares having a par value of $.125 per share.
SIXTH: The Secretary of State is designated as agent of the Corporation
upon whom process against it may be served. The post office address to which the
Secretary of State shall mail a copy of process against the Corporation served
upon him/her is 1 Railroad Avenue, Cooperstown, New York 13326.
SEVENTH: The holders of shares of the Corporation shall have no
pre-emptive or preferential right to subscribe for or purchase any shares of the
Corporation or any rights or options to purchase shares of the Corporation or
any shares or other securities convertible into or carrying rights or options to
purchase shares of the Corporation.
EIGHTH: No Director shall be personally liable to the Corporation or
its shareholders for damages for any breach of duty in such capacity, except
that this provision shall not eliminate or limit the liability of any Director
if a judgment or other final adjudication adverse to such Director establishes
that such Director's acts or omissions were in bad faith or involved intentional
misconduct or a knowing violation of law or that such Director personally gained
in fact a financial profit or other advantage to which such Director was not
legally entitled or that such Director's acts violated Section 719 of the
Business Corporation Law, nor shall this provision eliminate or limit the
liability of any Director for any act or omission prior to the adoption of this
provision.
4. This restatement of the Certificate of Incorporation was
authorized by a vote of the Board of Directors of the
Corporation.
IN WITNESS WHEREOF, we have executed this Certificate this 1st day of June,
1991.
s/ Walter G. Rich
--------------------------------
Walter G. Rich, President
s/ Nathan R. Fenno
--------------------------------
Nathan R. Fenno, Secretary
STATE OF NEW YORK )
) ss.:
COUNTY OF OTSEGO )
Nathan R. Fenno, being duly sworn, deposes and says that he is the
Secretary of DELAWARE OTSEGO CORPORATION, the corporation named herein, and one
of the persons who signed the foregoing Restatement of the Certificate of
Incorporation; that he has read the Restatement of
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<PAGE> 3
Certificate of Incorporation; and knows the contents thereof and that the same
is true to his knowledge.
s/ Nathan R. Fenno
--------------------------------
Nathan R. Fenno, Secretary
Sworn to before me this 1st day of June, 1991.
s/ Michael F. Armani
- ------------------------
Notary Public
Michael F. Armani
Notary Public, State of New York
Otsego County Reg. No. 4954269
Commission expires 8/7/91
3
<PAGE> 1
EXHIBIT (c)(5)
BY-LAWS
OF
DELAWARE OTSEGO CORPORATION
ARTICLE I
OFFICES
SECTION 1. OFFICE. The office of the Corporation shall be located in the Village
of Cooperstown, County of Otsego, State of New York.
SECTION 2. ADDITIONAL OFFICES. The Corporation may also have and places of
business at such other places, within or without the State of New York, as the
Board of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II
MEETING OF SHAREHOLDERS
SECTION 1. TIME AND PLACE. All meetings of shareholders shall be held at such
time and place, whether within or without the State of New York, as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
SECTION 2. ANNUAL MEETING. The annual meeting of shareholders shall be held on
the first Saturday in June of each year, or, if such day be a legal holiday, on
the next business day following; provided, that if the Board of Directors shall
determine that in any year it is not advisable or convenient to hold the meeting
on such day, then in such year the annual meeting shall instead be held on such
other day, not more than sixty (60) days before or after the third Saturday in
May and not a legal holiday, as the Board shall prescribe. At each annual
meeting, the shareholders shall elect a Board of Directors and transact such
other business as may properly be brought before the meeting.
SECTION 3. SPECIAL MEETINGS. Special meetings of shareholders, for any purpose
or purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called by the Chairman of the Board, the President or the
Board of Directors, and shall be called by the Chairman of the Board, the
President or the Secretary at the request in writing of any one or more
shareholders owning at least twenty-five percent (25%) in amount of the shares
of the Corporation issued and outstanding and entitled to vote. Any such request
shall state the purpose or purposes of the proposed meeting.
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SECTION 4. NOTICE OF MEETINGS. Written notice of each meeting of shareholders
stating the place, date and hour thereof, and, in the case of a special meeting,
specifying the purpose or purposes thereof and the person or persons by whom or
at whose direction such meeting has been called, shall be given in the manner
prescribed in Article VI, Section 1 of these By-Laws, to each shareholder
entitled to vote thereat, not less than ten (10) nor more than fifty (50) days
prior to the meeting.
SECTION 5. QUORUM. Except as otherwise provided by statute or the Certificate of
Incorporation, the holders of one third (1/3) of the shares of the Corporation
issued and outstanding and entitled to vote thereat, present in person or by
proxy, shall be necessary to and shall constitute a quorum for the transaction
of business at each meeting of shareholders.
A report of the number of shares issued and outstanding and the number
of shares present at the meeting shall be determined and reported to the
shareholders at each meeting. If a quorum shall not be present at the time fixed
for any meeting, the shareholders present in person or by proxy and entitled to
vote thereat shall have power to adjourn the meeting from time to time, without
notice other than an announcement at the meeting of the place, date and hour of
the adjourned meeting, until a quorum shall be present. At any such adjourned
meeting at which a quorum shall be present, any business may be transacted that
may have been transacted had a quorum been present at the time originally fixed
for the meeting.
SECTION 6. VOTE REQUIRED. At any meeting of shareholders at which a quorum is
present, each shareholder having the right to vote shall be entitled to vote in
person or by proxy; and except as otherwise provided by statute, each
shareholder of record shall be entitled to one vote for each outstanding share
standing in his name on the books of the Corporation as of the record date for
determining the shareholders entitled to notice of and to vote at such meeting.
All corporate action shall be determined by a vote of a majority of the votes
cast at a meeting of shareholders by the holders of shares present and entitled
to vote thereon, except as otherwise required by statute or the Certificate of
Incorporation.
SECTION 7. PROXIES. Every proxy must be executed in writing by the shareholder
or by his attorney-in-fact. No proxy shall be valid after the expiration of
eleven (11) months from the date thereof, unless otherwise provided in the
proxy. Every proxy shall be revocable at the pleasure of the shareholder
executing it, except in those cases where an irrevocable proxy is permitted by
law.
SECTION 8. CONSENTS. Whenever by any provision of law or of the Certificate of
Incorporation, the vote of shareholders at a meeting thereof is required or
permitted to be taken in connection with any corporate action, the meeting and
vote of the shareholders may be dispensed with if all the shareholders who would
have been entitled to vote upon the action if such meeting were held shall
consent in writing to such corporate action being taken. However, this Section
shall not be construed to alter or modify any provision of law or of the
Certificate of Incorporation under which the written consent of the holders of
less than all outstanding shares is sufficient for corporate action.
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SECTION 9. CONDUCT OF MEETINGS. The Chairman of the Board of Directors shall
preside at each meeting of shareholders. In the absence of the Chairman, the
meeting shall be chaired by a director designated by the Board of Directors. The
Board of Directors shall be entitled to make such rules or regulations for the
conduct of meetings of shareholders as it shall deem necessary, appropriate or
convenient. Subject to such rules and regulations of the Board of Directors, if
any, the chairman of the meeting shall have the right and authority to prescribe
such rules, regulations and procedures and to do all such acts as, in the
judgment of the chairman, are necessary, appropriate or convenient for the
proper conduct of the meeting, including without limitation establishing an
agenda or order of business for the meeting, rules and procedures for
maintaining order at the meeting and the safety of those present, limitations on
participation in such meeting to shareholders of record of the Company and their
duly authorized and constituted proxies, and such other person as the chairman
shall permit, restrictions on entry to the meeting after the time fixed for the
commencement thereof, limitations on the time allotted to questions or comment
by participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot, unless, and to the
extent, determined by the Board of Directors or the chairman of the meeting,
meetings of shareholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE III
DIRECTORS
SECTION 1. BOARD OF DIRECTORS. The property and business of the Corporation
shall be managed by its Board of Directors, which may exercise all such powers
of the Corporation and do all such lawful acts and things on its behalf as are
not, by statute or by the Certificate of Incorporation or by these By-Laws,
directed or required to be exercised or done by the shareholders.
SECTION 2. NUMBER. The number of Directors which shall constitute the entire
Board of Directors shall consist of not less than nine (9), nor more than
fifteen (15) as fixed from time to time by resolution of the entire Board or by
the shareholders at any annual or special meeting, and no decrease in the number
of Directors shall shorten the term of any incumbent Director. At least two
directors shall be independent directors. "Independent Director" is defined as a
director who is not an officer or employee of the Corporation or its
subsidiaries, and does not have a relationship with the Corporation that, in the
opinion of the Board of Directors, would interfere with the exercise of
independent judgment in carrying out the responsibilities of a Director.
SECTION 3. TENURE. At each annual meeting of shareholders, directors shall be
elected to hold office until the expiration of the term for which each is
elected, and until a successor has been elected and qualified. The directors of
the corporation shall be divided into four classes, hereby designated Class A,
B, C, and D. There shall be at least three directors in each class. The term of
office of the initial Class A directors shall expire at the next annual meeting
of shareholders, the term of office of the initial Class B directors shall
expire at the second succeeding annual meeting, the term of office of the
initial Class C directors shall expire at the third succeeding annual meeting
and the term
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of office of the initial Class D directors shall expire at the fourth succeeding
annual meeting. At each annual meeting after the initial classification of
directors, directors to replace those whose terms expire at such annual meeting
shall be elected to hold office until the fourth succeeding annual meeting. If
the number of directors is hereafter changed, any newly created directorships or
decrease in directorships shall be so apportioned among the classes as to make
all classes as nearly equal in number as possible. When the number of directors
is increased by the Board and any newly created directorships are filled by the
Board, there shall be no classification of the additional directors until the
next annual meeting of shareholders.
SECTION 4. RESIGNATION; REMOVAL. Any Director may resign, by written notice to
the Corporation at any time. Any Director may be removed, for cause or without
cause, by the shareholders at a special meeting called for the purpose, and any
Director may be removed for cause by action of the Board of Directors at any
regular or special meeting.
SECTION 5. VACANCIES. If for any reason there should be vacancies on the Board
of Directors, the vacant positions may be filled by the Directors then in
office, regardless of whether the number of Directors in office constitutes a
quorum or not. Each Director elected to fill a vacancy shall hold office for a
term expiring at the next succeeding meeting of shareholders and until his
successor is elected and has qualified or until his earlier displacement from
office by resignation, removal or otherwise.
ARTICLE IV
MEETINGS OF THE BOARD
SECTION 1. PLACE. The Board of Directors of the Corporation may hold meetings,
both regular and special, either within or without the State of New York.
SECTION 2. FIRST MEETING. The first meeting of each newly elected Board of
Directors shall be held at such time and place as shall be fixed by the vote of
the shareholders at the annual meeting, and no notice of such meeting to the
newly elected Directors shall be necessary in order to constitute the meeting,
provided a quorum shall be present. In the event of the failure of the
shareholders to fix the time and place of such first meeting, or in the event
such meeting is not held at the time and place so fixed by the shareholders, the
meeting may be held at such time and place as shall be specified in a notice
given as hereinafter provided for special meetings of the Board of Directors, or
as shall be specified in a duly executed waiver of notice thereof.
SECTION 3. REGULAR MEETINGS. Regular meetings of the Board of Directors may be
called by the President or Secretary on two (2) days notice to each Director,
either personally, by telephone, or by mail, or by telegram. Special meetings
shall be called by the President or Secretary in like manner and on like notice
on the written request of two (2) Directors. The time and place of any meeting
of the Directors may also be fixed by a duly executed waiver of notice thereof.
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SECTION 4. QUORUM AND VOTING. At all meetings of the Board of Directors or of
any Committee of the Board, a majority of the entire Board of Directors or a
majority of the entire membership of such Committee shall be necessary and
sufficient to constitute a quorum for the transaction of business. The vote of a
majority of the Directors present at any meeting at which a quorum is present
shall be the act of the Board of Directors and the vote of a majority of the
appointed members of a Committee present at any Committee meeting at which a
quorum is present shall be the act of such Committee, except as may be otherwise
specifically provided by statute or by the Certificate of Incorporation or these
By-Laws. If a quorum shall not be present at any meeting of the Board of
Directors or any Committee of the Board, the members of the Board or such
Committee present thereat may adjourn the meeting from time to time, without
notice other than an announcement at the meeting, until a quorum shall be
present. Any one or more members of the Board of Directors or any of its
Committees may participate in a meeting by means of a conference telephone or
similar communications equipment allowing any participants to hear each other at
the same time. Participation by such means shall constitute presence in person
at the meeting.
SECTION 5. CONSENTS. Whenever any action is required or permitted to be taken at
a meeting of the Board of Directors or any Committee of the Board, such action
may be taken without a meeting if, prior or subsequent to the taking of such
action, or making such recommendation, all members of the Board of Directors or
of such Committee consent thereto in writing and such written consent or
consents are filed with the minutes of the proceedings of the Board or of such
Committee; and such written consent or consents shall have the same effect as a
unanimous vote at a meeting of the Board of Directors or such Committee at which
all members thereof were present and voted.
SECTION 6. NOTIFICATION OF NOMINATIONS. Nominations for the election of
directors may be made by the Board of Directors or by any shareholder entitled
to vote for the election of directors. Any shareholder entitled to vote for the
election of directors at a meeting may nominate persons for election as
directors only if written notice of such shareholder's intent to make such
nomination is given, either by personal delivery or by United States mail,
postage prepaid, to the Secretary of the Company not later than (i) with respect
to an election to be held at 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, and (ii) with respect to an election to be held
at a special meeting of shareholders for the election of directors, the close of
business on the tenth day following the date on which notice of such meeting is
first given to shareholders. Each such notice shall set forth: (a) the name and
address of the shareholder who intends to make the nomination and of the person
or persons to be nominated, (b) a representation that such shareholder is a
holder of record of stock of the Company entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice, (c) a description of all arrangements or
understandings between such shareholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such shareholder, (d) such other information
regarding each nominee proposed by such shareholder as would have been required
to be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had each nominee been nominated, or
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intended to be nominated by the Board of Directors, and (e) the consent of each
nominee to serve as a director of the Company if elected. The chairman of a
shareholder meeting may refuse to acknowledge the nomination of any person not
made in compliance with the foregoing procedure.
SECTION 7. COMPENSATION. Directors, as such, shall not receive any stated salary
for their services, but, by resolution of the Board of Directors, a fixed fee
and expenses of attendance, if any, may be allowed for attendance at each
regular or special meeting of the Board or of any Committee of the Board,
provided that nothing herein contained shall be construed to preclude any
Director from serving the Corporation in any other capacity and receiving
compensation therefor.
ARTICLE V
COMMITTEES OF THE BOARD
SECTION 1. EXECUTIVE COMMITTEE. The Board of Directors, by resolution adopted by
a majority of the entire Board, shall designate from among its members an
Executive Committee consisting of three (3) or more Directors, one of whom shall
be the President, which shall have all authority of the Board, except to the
extent that any resolution, the Certificate of Incorporation, or the By-Laws,
including Article V, Section 4, may limit such authority.
SECTION 2. AUDIT COMMITTEE. The Board of Directors, by resolution adopted by a
majority of the entire Board, shall designate from among its members an Audit
Committee consisting of three (3) or more Directors, a majority of whom shall be
"Independent Directors" as defined in these By-Laws. The Audit Committee shall
conduct appropriate reviews of all potential conflict of interest situations,
consult with and have access to the Corporation's auditors and its accounting
staff, review the Corporation's reports on financial performance, and have such
other duties and powers as may be assigned to it by the Board as provided in the
resolution appointing such Committee and detailing its responsibilities, except
to the extent that any resolution, the Certificate of Incorporation, or the
By-Laws, including Article V, Section 4, may limit such duties and powers.
SECTION 3. OTHER COMMITTEES. The Board of Directors, by resolution, adopted by a
majority of the entire Board, may designate from among its members such other
Committees as may be determined, each consisting of three (3) or more Directors,
which shall have such duties and powers as may be assigned to it by the Board in
the resolution creating such Committee, except to the extent that any
resolution, the Certificate of Incorporation, or these By-Laws, including
Article V, Section 4, may limit such duties and powers.
SECTION 4. LIMITATION ON AUTHORITY. No Committee shall have authority as to any
of the following matters:
(a) The submission to shareholders of any action as to which
shareholders' authorization is required by law;
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(b) The filling of vacancies in the Board of Directors or on any
Committee;
(c) The fixing of compensation of any Director serving on the
Board or on any Committee;
(d) The amendment or repeal of these By-Laws, or the adoption of
new By-Laws;
(e) The amendment or repeal of any resolution of the Board which
by its terms shall not be so amendable or repealable.
SECTION 5. ALTERNATIVES. The Board may designate one or more Directors as
alternate members of any Committee who may replace any absent member or members
at any meeting of such Committee.
SECTION 6. TENURE, MEETINGS, COMMITTEE CHAIRMEN RESPONSIBILITIES, REPORTS. Each
Committee shall serve at the pleasure of the Board. The Chairmen of the
respective Committees shall be responsible for setting the times and places of
their respective Committee meetings. The Chairman of any Committee may invite
other members of the Board to participate in any meeting of a Committee with
full privileges; however, a majority of the appointed members of the Committee
shall concur to the taking of any action or recommendations. The Secretary or
Assistant Secretary or any member of a Committee appointed by the Chairman of
the Committee shall keep minutes of its meetings and report the same to the
Board.
ARTICLE VI
NOTICES
SECTION 1. FORM: Delivery. Notice to Directors and shareholders shall be in
writing and may be delivered personally or by mail or telegram. Notice by mail
shall be deemed to be given at the time when deposited in the post office or a
letter box, in a post-paid sealed wrapper, and addressed to Directors or
shareholders at their addresses appearing on the records of the Corporation.
SECTION 2. WAIVER. Whenever a notice is required to be given by any statute, the
Certificate of Incorporation or these By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to such notice. In addition,
any shareholder attending a meeting of shareholders in person or by proxy
without protesting prior to the conclusion of the meeting the lack of notice
thereof to him, and any Director attending a meeting of the Board of Directors
without protesting prior to the meeting or at the time of its commencement such
lack of notice shall be conclusively deemed to have waived notice of such
meeting.
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ARTICLE VII
OFFICERS
SECTION 1. EXECUTIVE OFFICERS. The executive officers of the Corporation shall
be a President, an Executive Vice President, a Chief Fiscal Officer and a
Secretary. The President shall be selected from among the Directors, but no
other executive officer need be a member of the Board. The Chief Fiscal Officer
may be designated by such other title as the Board shall determine, provided the
resolution of appointment defines such title as including the duties of the
Chief Fiscal Officer. Two or more offices, except those of President and
Secretary, may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity. The executive
officers of the Corporation shall be elected annually by the Board of Directors
at its first meeting following the meeting of shareholders at which the Board
was elected.
SECTION 2. OTHER OFFICERS AND AGENTS. The Board of Directors may also elect a
Chairman of the Board from among the Directors and may, or may delegate to the
President authority to, appoint, remove and fix the duties, compensation and
terms of office of one or more Vice Presidents, one or more Assistant Vice
Presidents, Assistant Fiscal Officers and Assistant Secretaries, and such other
officers and agents as the Board may at any time or from time to time determine
to be advisable.
SECTION 3. TENURE, RESIGNATION, REMOVAL, VACANCIES. Each officer of the
Corporation shall hold office until his successor is elected or appointed or
until his earlier displacement from office by resignation, removal or otherwise;
provided, that if the term of office of any officer elected or appointed
pursuant to ARTICLE VII, Section 2 of these By-Laws shall have been fixed by the
Board of Directors or President acting under the authority delegated to him by
the Board of Directors, he shall cease to hold such office no later than the
date of expiration of such term, regardless of whether any other person shall
have been elected or appointed to succeed him. Any officer may resign by written
notice to the Corporation and may be removed for cause or without cause by the
Board of Directors or by the President acting pursuant to authority delegated to
him by the Board of Directors pursuant to ARTICLE VII, Section 2 of these
By-Laws; provided, that any such removal shall be without prejudice to the
rights, if any, of the officer so removed under any employment contract or other
agreement with the Corporation. If the office of any officer becomes vacant for
any reason, the vacancy may be filled by the Board of Directors or by the
President acting under authority delegated to him by the Board of Directors,
pursuant to ARTICLE VII, Section 2 of these By-Laws.
SECTION 4. COMPENSATION. The compensation of all officers of the Corporation
shall be fixed by the Board of Directors or by the President acting under
authority delegated to him by the Board of Directors pursuant to ARTICLE VII,
Section 2 of these By-Laws.
SECTION 5. AUTHORITY AND DUTIES. All officers, as between themselves and the
Corporation, shall have such authority and perform such duties in the management
of the Corporation as may be provided in these By-Laws, or, to the extent
provided, as may be prescribed by the Board of Directors or by the President
acting under authority delegated to him by the Board of Directors pursuant to
ARTICLE VII, Section 2 of these By-Laws.
SECTION 6. (a) THE CHAIRMAN OF THE BOARD. The Chairman of the Board, if there be
a Chairman,
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shall preside at all meetings of the shareholders and Directors.
SECTION 6. (b) THE PRESIDENT. The President shall be the Chief Executive Officer
of the Corporation. He shall, in the absence of the Chairman, if there be a
Chairman, preside at all meetings of the shareholders and Directors. He shall
have general and active management and control of the business and affairs of
the Corporation subject to the control of the Board of Directors, and shall see
that all orders and resolutions of the Board are carried into effect. In
connection therewith he shall be authorized to delegate to the Chairman of the
Board and the other executive officers of the Corporation such of his powers and
duties as President at such times and in such manner as he may deem to be
advisable.
SECTION 7. EXECUTIVE VICE PRESIDENT. The Executive Vice President shall assist
the President in the management of the business of the Corporation and the
implementation of resolutions and orders of the Board of Directors at such times
and in such manner as the President may deem to be advisable. The Executive Vice
President shall, in the absence or disability of the President, exercise the
powers and perform the duties of President, and he shall have such other powers
and duties as the Board of Directors or the President may from time to time
prescribe.
SECTION 8. THE VICE PRESIDENTS AND ASSISTANT VICE PRESIDENTS. The Vice President
and Assistant Vice President, if any, or if there be more than one, the Vice
Presidents and Assistant Vice Presidents, each or some of whom may be granted
such other titles as shall be descriptive of their respective function or
indicative of their relative position, shall perform such duties in connection
therewith as may from time to time be prescribed by the Board of Directors or by
the President.
SECTION 9. CHIEF FISCAL OFFICER. The Chief Fiscal Officer shall have the care
and custody of the corporate funds and other valuable effects, including
securities, and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation, and shall deposit all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of Directors.
The Chief Fiscal Officer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors taking proper vouchers for such disbursements,
and shall render to the President and the Board of Directors, at meetings or
whenever they may require, an account of all his transactions as Chief Fiscal
Officer and of the financial condition of the Corporation. If required by the
Board of Directors, the Chief Fiscal Officer shall give the Corporation a bond
for such term, in such sum and with such surety or sureties as shall be
satisfactory to the Board for the faithful performance of the duties of his
office and for the restoration to the Corporation, in case of his death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in his possession or under his control
belonging to the Corporation.
SECTION 10. THE ASSISTANT FISCAL OFFICER. The Assistant Fiscal Officer, if any,
or, if there be more than one, the Assistant Fiscal Officers, in the order
determined by the Board of Directors or by the President, shall, in the absence
or disability of the Chief Fiscal Officer, exercise the powers and perform the
duties of the Chief Fiscal Officer; and he or they shall perform such other
duties as the
9
<PAGE> 10
Board of Directors or the President may from time to time prescribe. The
Assistant Fiscal Officer may be designated by such other title as the Board
shall determine, provided the resolution of appointment defines such title as
including the duties of the Assistant Fiscal Officer.
SECTION 11. THE SECRETARY. The Secretary shall attend all meetings of the
shareholders and the Board of Directors and shall record the minutes of all
proceedings taken at such meetings, and maintain all documents evidencing
corporate actions taken by written consent of the shareholders in a book to be
kept for that purpose; and he shall perform like duties for any Committees of
the Board of Directors when required. He shall see to it that all notices of
meetings of the shareholders and meetings of the Board of Directors are duly
given in accordance with these By-Laws or as required by statute; he shall be
the custodian of the seal of the Corporation, and, when authorized by the Board
of Directors, he shall cause the corporate seal to be affixed to any document
requiring it, and when so affixed, attested by his signature as Secretary or by
the signature of an Assistant Secretary; and he shall perform such other duties
as may from time to time be prescribed by the Board of Directors or by the
President.
SECTION 12. THE ASSISTANT SECRETARIES. The Assistant Secretary, if any, or, if
there be more than one, the Assistant Secretaries, in the order determined by
the Board of Directors or by the President shall, in the absence or disability
of the Secretary, exercise the powers and perform the duties of the Secretary;
and he or they shall perform such other duties as the Board of Directors or the
President may from time to time prescribe.
ARTICLE VIII
SHARE CERTIFICATES
SECTION 1. FORM: SIGNATURE. The certificate for shares of the Corporation shall
be in such form as shall be determined by the Board of Directors and shall be
numbered consecutively and entered in the book of the Corporation as they are
issued. Each certificate shall exhibit the registered holder's name and the
number and class of shares, and shall be signed by the President or a Vice
President and the Chief Fiscal Officer or an Assistant Fiscal Officer or the
Secretary or an Assistant Secretary, and shall bear the seal of the Corporation
or a facsimile thereof. Where any such certificate is countersigned by a
transfer agent, or registered by a registrar, the signature of any such officer
may be a facsimile signature. In case any officer who signed, or whose facsimile
signature or signatures were placed on any such certificate shall have ceased to
be such officer before such certificate is issued, it may nevertheless be issued
by the Corporation with the same effect as if he were such officer at the date
of issue.
SECTION 2. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates therefore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of the fact by the person claiming
the certificate to be lost or destroyed. When authorizing such issue of a new
certificate or certificates,
10
<PAGE> 11
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost or destroyed certificate or
certificates, or his legal representative, to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the Certificate alleged to have been
lost or destroyed.
SECTION 3. REGISTRATION OF TRANSFERS. Upon surrender to the Corporation or any
transfer agent of the Corporation of a certificate for shares only endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation or such transfer agent to
issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
SECTION 4. REGISTERED SHAREHOLDERS. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person
registered on the books as the owner of shares to receive dividends or other
distributions, and to vote as such owner and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or legal claim to or interest in such
share or shares on the part of any other person.
SECTION 5. RECORD DATE. For the purpose of determining the shareholders entitled
to notice of or to vote at any meeting of shareholders or any adjournment
thereof, or to express consent to or dissent from any proposal without a
meeting, or for the purpose of determining shareholders entitled to receive
payment or any dividends or the allotment of any rights, or for the purpose of
any other action affecting the interests of shareholders, the Board of Directors
may fix, in advance, a record date. Such date shall not be more than fifty (50)
nor less than ten (10) days before the date of any such meeting, nor more than
fifty (50) days prior to any other action.
In each such case, except as otherwise provided by law, only such
persons as shall be shareholders of record on the date so fixed shall be
entitled to notice of, and to vote at, such meeting or any adjournment thereof,
or to express such consent or dissent, or to receive payment of such dividend,
or such allotment for the related purpose, notwithstanding any registration of
transfer of shares on the books of the Corporation after such record date so
fixed.
ARTICLE IX
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to the applicable provisions of the Certificate of
Incorporation, if any, dividends upon the outstanding shares of the Corporation
may be declared by the Board of Directors at any regular or special meeting,
pursuant to law and may be paid in cash, in property, or in shares of the
Corporation.
11
<PAGE> 12
SECTION 2. RESERVES. Before payment of any dividend, there may be set aside out
of the fund of the Corporation available for dividends, such sum or sums as the
Board of Directors from time to time, in their absolute discretion, think proper
as a reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for such other
purpose as the Board shall think conclusive to the interest of the Corporation
and the Board may modify or abolish any such reserve in the manner in which it
was created.
SECTION 3. ANNUAL STATEMENT. The Board of Directors shall present at each Annual
Meeting, and at any special meeting of the shareholders when called for by vote
of the shareholders, the number of outstanding shares, a full and clear
statement of the business and condition of the Corporation including a balance
sheet, profit and loss statement and statement of surplus prepared in accordance
with generally accepted principles of accounting and certified by independent
licensed public accountant.
SECTION 4. INSTRUMENTS UNDER SEAL. All deeds and bonds may be signed in the name
of the Corporation by the President or by any other officer authorized to sign
such instrument by the Board of Directors.
SECTION 5. CHECKS, ETC. All checks or demands for money and notes or other
instrument evidencing indebtedness or obligation of the Corporation shall be
signed by such officer or officers or such other person or persons as the Board
of Directors may from time to time designate.
SECTION 6. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors in each calendar year.
SECTION 7. SEAL. The Corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization, and the words "Corporate Seal New
York". The seal may be used by causing it or a facsimile thereof to be impressed
or affixed or otherwise reproduced.
ARTICLE X
AMENDMENTS
SECTION 1. POWER TO AMEND. These By-Laws may be amended or repealed, and new
By-Laws may be adopted, by vote of the shareholders entitled at the time to vote
for the election of Directors or by resolution adopted by a majority of the
entire Board of Directors at any regular or special meeting, with ten (10) days
notice of such amendment and the particulars thereof, given to the Directors
prior to the meeting; provided, however, that any By-Law or amendment to the
By-Laws so adopted by the Board of Directors may be amended or repealed, and any
By-Law so repealed by the Board may be reinstated, by vote of the shareholders
entitled at the time to vote for the election of Directors, in which case the
Board shall not thereafter take action with respect to the By-Laws which is
inconsistent with the action so taken by such shareholders.
SECTION 2. AMENDMENT AFFECTING ELECTION OF DIRECTORS: NOTICE. If any By-Law
regulating an impending election of Directors is adopted, amended or repealed by
the Board, there shall be set
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<PAGE> 13
forth in the notice of the next meeting of shareholders for the election of
Directors the By-Laws so adopted, amended or repealed, together with a concise
statement of the changes made.
ARTICLE XI
INDEMNITY
SECTION 1. To the extent permitted by law:
(a) The Corporation shall indemnify any person made a party to an
action or proceeding by or in the right of the Corporation to
procure a judgment in its favor, by reason of the fact that
he, his testator or intestate, is or was a Director, officer
or employee of the Corporation against the reasonable
expenses, including attorneys' fees, actually and necessarily
incurred by him in connection with the defense of such action,
and/or with any appeal therein; and
(b) The Corporation shall indemnify any person made or threatened
to be made a party to any action or proceeding, other than one
by or in the right of the Corporation, of any type or kind,
domestic or foreign, which any Director, officer or employee
of the Corporation served in any capacity at the request of
the Corporation, by reason of the fact that he, his testator
or intestate, is or was a Director, officer or employee of the
Corporation, or served such other corporation in any capacity
against judgment, fines, amounts paid in settlement and
reasonable expenses, including attorneys' fees, actually and
necessarily incurred as a result of such action or proceeding,
or any appeal therein, in each case to the fullest extent
permissible under Section 721 through 726 of the New York
Business Corporation Law or the indemnification provisions of
any successor statute.
6-7-97
13
<PAGE> 1
EXHIBIT (c)(6)
August 17, 1997
This agreement is entered into to set forth our understanding with
respect to the acquisition (the "Acquisition") of Delaware Otsego Corporation
(the "Company") pursuant to the Merger Agreement, dated as of the date hereof
(the "Merger Agreement"), by and among the Company, Walter Rich ("Rich"), CSX
Corporation ("CSX") and Norfolk Southern Corporation ("NSC"). We have agreed as
follows:
1. In the event of a termination of the Merger Agreement, Rich
shall not participate in any termination fee (as contemplated
by Section 8.5(b) of the Merger Agreement), other than with
respect to any arrangements which may exist respecting
Expenses (as defined in the Merger Agreement).
2. The terms of the Acquisition shall be as set forth in the
Merger Agreement, and CSX, NSC and Rich shall establish LLC
and Buyer (as contemplated by the Merger Agreement) as
promptly as practicable.
3. CSX, NSC and Rich shall hereafter negotiate in good faith
toward definitive documentation respecting final arrangements
on terms along the lines laid out in the term sheet attached
to their proposal letter to the Company, dated as of August 8,
1997, as modified by the Merger Agreement.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
CSX CORPORATION
By: /s/ Mark G. Aron
NORFOLK SOUTHERN CORPORATION
By: /s/ William J. Ronig
/s/ Walter Rich
WALTER RICH
<PAGE> 1
EXHIBIT (c)(7)
August 8, 1997
The Board of Directors of
Delaware Otsego Corporation
One Railroad Avenue
Cooperstown, New York
Gentlemen:
On behalf of a new company ("Newco") to be organized by CSX Corporation
("CSX"), Norfolk Southern Corporation ("NSC") and Walter Rich ("Mr. Rich"), we
are pleased to provide you with an offer (the "Offer") for the acquisition (the
"Transaction") of all of the outstanding capital stock of Delaware Otsego
Corporation (the "Company"). The principal features of the Transaction are
described in a draft term sheet (the "Term Sheet"), a copy of which is attached
to this letter.
The principal terms of the Offer are as follows:
1. Form of Transaction. (a) Newco, a corporation to be formed and
capitalized with cash to be provided by CSX and NSC, will acquire all
outstanding shares of the Company's capital stock from the Company's
shareholders in a merger transaction (the "Merger"). Mr. Rich will contribute to
Newco a portion of the shares and options to purchase shares of the Company's
common stock ("Common Stock") owned by him.
(b) The capitalization of Newco will be comprised of (i) a
class of Cumulative Preferred Stock having two series (differing only with
respect to redemption, as described in the Term Sheet) that will be
non-participating and owned in amounts of liquidation preference reflecting the
contributions to Newco of CSX, NSC and Mr. Rich, (ii) a class of Junior
Preferred Stock with an aggregate liquidation preference of $100 million that
will be non-participating and will be owned in equal proportions by CSX and NSC
and (iii) common stock, which will be owned 80% by Mr. Rich, 10% by CSX and 10%
by NSC. The terms of the capital structure of Newco are more fully described in
the Term Sheet.
<PAGE> 2
(c) The Board of Directors of Newco will consist of Mr. Rich
and his designees, who will represent a majority, and representatives of CSX and
NSC. Certain designated matters to be agreed upon will require the approval of a
supermajority of Newco's Board of Directors.
2. Consideration. Subject to the terms and conditions delineated
below, Newco will purchase, or exchange into new securities, all capital stock
of the Company and will enter into an employment agreement with Mr. Rich. Total
cash paid in the Transaction will be as described below.
(a) Cash Consideration for the Stock. The cash consideration
for the purchase of the capital stock of the Company will be $19 per share (the
"Per Share Price") of the Company's Common Stock.
(b) Stock Options. All outstanding Company employee stock
options ("Options"), other than those which may be contributed to Newco by Mr.
Rich, will be cashed out at the difference between the Per Share Price and the
respective exercise price therefor, multiplied by the number of shares of Common
Stock subject to the Option.
(c) Stock Contribution. Prior to the Merger, CSX will
contribute to Newco the 110,250 shares of Common Stock owned by it and Mr. Rich
will contribute to Newco a portion of the Common Stock and Options owned by him.
All such shares and Options to purchase shares so held by Newco will be canceled
in the Transaction. The shares and Options contributed by CSX and Mr. Rich will
not be converted in the Transaction into cash but instead will be converted into
shares and options to purchase shares of Cumulative Preferred Stock of Newco
with a liquidation preference equal to the value (at the Per Share Price) of
CSX's and Mr. Rich's respective contributions.
(d) Employment Agreement. Newco will enter into an agreement
(the "Employment Agreement") with Mr. Rich, the principal terms of which are
described in the Term Sheet.
(e) Financing. The Transaction will not be subject to
obtaining financing. Sources and uses in the Transaction (other than with
respect to working capital following the Transaction) are as follows:
<TABLE>
<CAPTION>
Source Value
<S> <C>
Mr. Rich Contribution $2,602,350
CSX Stock Contribution 2,094,750
CSX Cash Contribution 23,440,473
NSC Cash Contribution 25,535,223
Total $53,672,796
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
Use Amount
<S> <C>
Purchase of Common Stock $35,726,555
Option and Warrant Cash-Out 4,698,225
Repayment of Bank Debt 6,748,016
Transaction Costs 6,500,000
Total $53,672,796
</TABLE>
3. Conditions.
(a) Definitive Documents. The Offer is made subject to the
negotiation and execution of definitive documentation ("Definitive Documents")
satisfactory to us and containing representations and warranties, covenants and
other terms and conditions that are customary for an acquisition of this kind
(including that the Company will not take any action, regulatory or otherwise,
inconsistent with facilitating consummation of the Transaction), approval of the
Company's Board of Directors and, if required, shareholders under applicable law
and the satisfaction of any and all applicable regulatory requirements. As
stated above, the Offer is not subject to a financing condition.
(b) Participation of Mr. Rich. The Offer is conditioned upon
mutually satisfactory arrangements between Newco and Mr. Rich concerning the
Employment Agreement and his ongoing involvement in the affairs of the Company.
(c) Exclusivity. The Offer is conditioned upon the agreement
of the Company and Mr. Rich that, pending the execution and delivery of the
Definitive Documents, neither the Company nor its management, nor any of their
employees, affiliates, advisors or representatives, will solicit, encourage,
entertain, facilitate or enter into discussions or negotiations with respect to
any proposal (other than the Offer) to acquire the stock or assets of the
Company. Unless extended by mutual agreement, the foregoing exclusivity
provision will expire on the earlier of (i) the execution of Definitive
Documents (which documents shall contain provisions that supersede this
paragraph) and (ii) 5:00 p.m. (New York City time) on August 19, 1997.
4. Legal Fees. CSX and NSC have agreed to pay the reasonable fees
and expenses of one firm of legal counsel advising Mr. Rich, up to $50,000 plus
50% of any such fees in excess of $50,000, for the benefit of Mr. Rich in
connection with the Transaction ("Legal Fees"). If following execution of this
letter by the Company (a) the Company does not comply with Paragraph 3(c) of
this letter or, following execution of the Definitive Documents, the Company
breaches any agreements contained therein or (b) Definitive Documents are not
entered into or, following execution of Definitive Documents, the Merger is not
consummated and, in the case of this clause (b), within one year following the
date that the Company advises Newco that it has determined not to pursue the
Transaction, the Company enters into an al-
3
<PAGE> 4
ternative transaction providing for the sale of its capital stock or a material
portion of its assets, then the Company shall be responsible for the payment or
reimbursement of the Legal Fees. Mr. Rich shall be responsible for the payment
of his legal fees if he does not comply with Paragraph 3(c) of this letter.
5. Consummation of the Transaction. We are prepared to proceed in the
most expeditious manner so that, subject to the terms and conditions of the
Offer and the Definitive Documents, the Transaction can be completed as soon as
practicable. In recognition of this, unless this letter is executed by the
Company by 5:00 p.m. on Sunday, August 10, 1997, this proposal should not be
considered outstanding thereafter. Of course, except in respect of Paragraphs
3(c) and (4) of this letter, this letter does not create binding obligations on
any party in respect of the Transaction.
6. Counterparts. This letter may be executed in one or more
counterparts.
4
<PAGE> 5
We hope that the terms of this Offer address the objectives of the
Company. We look forward to proceeding with you to the completion of the
Transaction. We and our counsel are prepared to move forward immediately to
reach definitive terms. This letter shall not constitute a binding agreement
between the parties hereto, except that the provisions of Paragraphs 3(c) and 4
of this letter shall be binding on the parties hereto upon execution below by
the Company.
Very truly yours,
CSX CORPORATION
By: /s/ Mark G. Aron
Mark G. Aron
NORFOLK SOUTHERN CORPORATION
By: /s/ William J. Romig
William J. Romig
Accepted and Agreed to as /s/ Walter Rich
to Paragraphs 3(c) and 4 Walter Rich
as of August __, 1997:
DELAWARE OTSEGO CORPORATION
By: ______________________
5
<PAGE> 6
PROJECT BASEBALL
TERM SHEET
Transaction Structure: Baseball Acquisition Corp. ("Acquisition"),
a company to be formed on behalf of CSX (or
its designated affiliate), NSC (or its
designated affiliate) and WR, shall acquire
all outstanding capital stock of Delaware
Otsego Corporation ("Baseball") at a cash
price of $19 per share. In arriving at the
cash purchase price it has been assumed that
there exist transaction costs incurred by
Baseball of up to $6.5 million (consisting
of advisory fees, change-of-control
payments, repayment of existing bank debt
and the purchase price for certain real
property) that will be paid by Acquisition
in addition to the cash price and that all
convertible debt, warrants and options of
Baseball (other than those held by WR) will
be converted into Baseball Shares at or
prior to the merger that would occur between
Acquisition and Baseball.
Financing Structure: The acquisition shall be financed by CSX,
NSC and WR as follows:
WR shall contribute his Baseball Shares and
options to purchase Baseball Shares, having
an aggregate value of $2,602,350 at $19 per
Baseball Share, in exchange for Common
Shares and Cumulative Preferred Shares or
options to purchase Cumulative Preferred
Shares of Acquisition. WR shall receive
Cumulative Preferred Shares (or, to the
extent options are contributed, options to
purchase Cumulative Preferred Shares) with a
liquidation preference equal to the value
contributed.
CSX and NSC shall contribute cash as may be
required to purchase Baseball Shares in the
acquisition and to pay the transaction costs
described above. CSX shall also contribute
its 110,250 Baseball Shares. Each of CSX and
NSC shall receive Cumulative Preferred
Shares with a liquidation preference equal
to the value of its cash and stock
contributions as well as equal amounts of
Junior Preferred Shares (which shall carry
an aggregate liquidation preference of $100
million).
Common Shares shall be owned 80% by WR, 10%
by CSX and 10% by NSC; and WR shall have
voting control through such ownership of
Common Shares.
<PAGE> 7
Economics of Cumulative
Preferred Shares: There shall be established two series of a
single class of Cumulative Preferred Shares
which shall differ only as to redemption, as
follows:
Payment Preference. Cumulative Preferred
Shares shall have dividend and liquidation
preference over all Junior Preferred Shares
and all Common Shares. Dividends on
Cumulative Preferred Shares shall cumulate
at the rate of 10% compounded annually until
the Board determines that sufficient cash is
available to pay dividends in cash. No
dividend or liquidation payments shall be
made on Common Shares or Junior Preferred
Shares until all Cumulative Preferred
Shares, with cumulative dividends, are
redeemed by Acquisition. The series of
Cumulative Preferred Shares held by CSX and
NSC (but not the series held by WR) shall
have a redemption preference over all Junior
Preferred Shares.
Redemption. If redeemable, Cumulative
Preferred Shares shall be redeemed at
liquidation preference plus accrued and
unpaid dividends. The series of Cumulative
Preferred Shares held by CSX and NSC shall
be mandatorily redeemable upon achieving
certain cash levels from cash flow from
operations and from dispositions of assets.
The series of Cumulative Preferred Shares
held by WR shall be redeemable at WR's
option at
-2-
<PAGE> 8
any time at which there is to be a cash
redemption of the series of Cumulative
Preferred Shares held by CSX and NSC or of
Junior Preferred Shares. Cumulative
Preferred Shares shall be redeemed ratably
when redeemed for cash. Subject to the
supermajority approval of Acquisition's
Board, CSX or NSC may use Cumulative
Preferred Shares in connection with a
purchase of any Acquisition assets by such
party.
Economics of Junior
Preferred Shares: Payment Preference. Junior Preferred Shares
shall have a dividend, liquidation and
redemption preference over all Common
Shares, but shall be subordinate, with
respect to dividend and liquidation
payments, to all Cumulative Preferred Shares
(and, with respect to all redemption
payments, to the series of Cumulative
Preferred Shares held by CSX and NSC (but
not the series held by WR)). Dividends on
Junior Preferred Shares shall cumulate at
the rate of 4% compounded annually until the
Board determines that sufficient cash is
available to pay dividends in cash; and
dividends on Junior Preferred Shares shall
not be paid until all accrued and unpaid
dividends on Cumulative Preferred Shares
have been paid.
Redemption. Junior Preferred shall be
mandatorily redeemable, following redemption
of the series of Cumulative Preferred Shares
held by CSX and NSC, at liquidation
preference plus accrued and unpaid dividends
upon achieving certain cash levels from cash
flow from operations and from dispositions
of assets. Junior Preferred Shares (and, if
applicable, Cumulative Preferred Shares held
by WR) shall be redeemed ratably when
redeemed for cash.
Management: WR shall enter into a three-year employment
agreement to be Chairman and CEO. After the
three-year term, employment shall be renewed
automatically for one-year renewal terms
unless Acquisition delivers written notice
to
-3-
<PAGE> 9
WR in the period from 120 to 90 days prior
to expiration. WR's salary and benefits
(including, in lieu of receiving such
benefits in connection with the acquisition,
severance benefits) shall remain at current
levels. It shall be a condition of
employment that WR retain his shares
(subject to the other provisions hereof) and
that WR live on the Edgewater property for
the convenience and security of Acquisition
and to ensure WR's availability in the event
of an emergency. WR shall enter into a
customary non-compete and exclusive service
agreement, subject to standard permissible
activities. Employment and put and call
decisions of Acquisition respecting WR shall
be made by disinterested directors.
Acquisition shall create a Management
Incentive Bonus Program, to be approved by a
supermajority of Acquisition's Board, which
shall provide cash bonuses to operating
management upon achievement of certain
financial targets following the acquisition,
determined without giving effect to the
financing and transaction costs of the
acquisition.
Certain Dispositions: General. WR and the other on-going Baseball
management shall receive a commission on
asset dispositions as described below: Other
than with respect to the circumstances
covered by clause (y) under "West of Passaic
Junction -- Non-freight" set forth below,
commissions shall be payable only with
respect to any transaction (x) consummated
during WR's employment as CEO or (y) arising
from an opportunity identified to the
disinterested directors on Acquisition's
Board and significantly pursued by WR
(except in the event of a termination of
WR's employment by Acquisition prior to the
third anniversary of the acquisition without
cause, in which case a lesser standard shall
apply), the negotiation of which was
approved by the disinterested directors on
Acquisition's Board during such
-4-
<PAGE> 10
employment, and consummated within two years
of the termination of such employment, in
the case of non-passenger transactions, and
four years of the termination of such
employment, in the case of passenger
transactions. Commissions shall be paid in
cash at the rate of 7% of the gross
consideration received by Acquisition (or,
in the case of a non-cash transaction, the
fair market value of the asset disposed) in
such transaction and shall be allocated
among such Baseball management (and in such
amounts) as is determined by WR.
Passaic Junction and East. Freight. No
commission shall be payable with respect to
any freight transaction. Non-freight. A
commission shall be payable with respect to
any non-freight transaction that does not,
in the reasonable judgment of both CSX and
NSC, interfere with freight rights and
operations if such non-freight transaction
is approved by a supermajority of
Acquisition's Board and consummated.
West of Passaic Junction. Freight. A
commission shall be payable with respect to
a freight transaction. Non-freight. A
commission shall be payable with respect to
(x) a non-freight transaction or (y) a
reasonable, bona fide and firm offer with
respect to a non-freight transaction which
is rejected by Acquisition's Board.
Right of First Refusal. Either CSX or NSC
shall have a right of first refusal with
respect to any transaction with respect to
Baseball properties and assets west of
Passaic Junction.
Put and Call Rights: Subject to all necessary governmental
approvals, Acquisition may call in whole
but, except as provided below, not in part,
and WR may put to Acquisition in whole or,
except as provided below, in part, WR's
Cumulative Preferred Shares, options to
purchase Cumulative Preferred Shares and
Common Shares for a price equal to the sum
of (x) in respect of Cumulative Preferred
Shares or options to purchase
-5-
<PAGE> 11
Cumulative Preferred Shares, the liquidation
preference of the Cumulative Preferred
Shares put or called (or underlying the
options put or called) plus accrued and
unpaid dividends on such shares plus (y) in
respect of Common Shares, the par value of
the Common Shares put or called. Such put
and call rights may be exercised at any time
after the earlier of (i) the termination of
WR's employment as CEO by Acquisition or by
reason of WR's death or disability and (ii)
the third anniversary of the acquisition.
Acquisition may assign its call right or put
obligation to CSX and NSC (or to a voting
trust established by them) in equal
proportions, and, in the event that
Acquisition has insufficient cash, WR
exercising his put right may put to CSX and
NSC (or to a voting trust established by
them) in equal proportions. CSX and NSC may,
upon exercising the call rights or
responding to an exercise of WR's put
rights, provide that the subject securities
be conveyed to a third party. In the event
of any assignment of the put obligation by
CSX or NSC, the payment of the put price
shall be guaranteed by CSX and NSC in equal
proportions.
Notwithstanding the foregoing, in the event
of a termination of WR's employment as CEO
by Acquisition for cause, until the third
anniversary of the acquisition, WR's put
right shall be limited to his Common Shares
and shall not extend to his Cumulative
Preferred Shares and Acquisition shall have
the right to call WR's Common Shares without
WR's Cumulative Preferred Shares.
Corporate Governance: Acquisition's Board shall be comprised of
seven persons: the CEO of Acquisition, four
persons designated by the CEO of Acquisition
and one person designated by each of NSC and
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<PAGE> 12
CSX.
Major decisions outside the ordinary course
of business (including material asset
dispositions and the business plan and
budget described below) shall be subject to
supermajority approval of the Board
(including by both CSX and NSC), consistent
with STB/ICC precedent.
Except with respect to day-to-day railroad
operations, Acquisition shall follow a
mutually agreed business plan and budget
which shall be designed prior to Closing
(and updated by Acquisition's Board annually
thereafter) with the goals of (a) ensuring
repayment of contributions and (b) of
maximizing Acquisition's value, which may
include the disposition of assets. The
definitive documentation shall include
appropriate financial covenants customary
for such transactions.
The parties shall enter into a Shareholders
Agreement respecting corporate governance,
put and call rights and transferability
restrictions.
Expenses: Except as set forth under "Transaction
Structure" above, each party shall bear its
own expenses; except that the provisions
contained in paragraph 4 of the proposal
letter shall apply with respect to Legal
Fees (as defined therein).
Conditions: Conditions to closing shall be those
customary for transactions of this type,
including, without limitation, (a)
completion of satisfactory transaction and
employment documents; (b) the absence of any
governmental investigation or challenge or
third-party challenge with respect to the
transaction, (c) satisfaction of all
necessary regulatory approvals and (d)
obtaining standard opinions. Financing shall
not be a condition.
Definitive Documentation: The definitive documentation shall contain
provisions providing that the exercise of
rights shall be subject to all required
regulatory approvals.
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