SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No. 1)*
DELAWARE OTSEGO CORPORATION
(Name of Issuer)
Common Stock
(Title of Class of Securities)
246244 10 7
(CUSIP Number)
Ronald B. Risdon, Esq.
Kelley Drye & Warren LLP
101 Park Avenue
New York, New York 10178
(212) 808-7691
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
August 8, 1997
(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1 (b)(3) or (4), check the following box |_|.
Check the following box if a fee is being paid with this statement.|_|. (A fee
is not required only if the reporting person: (1) has a previous statement on
file reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7).
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
<PAGE>
* The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
(continued on following page(s))
The information on the remainder of this cover page shall be deemed to be
"filed" for the purpose of Section 18 of the Securities Exchange Act of 1934
("Act") or otherwise subject to the liabilities of that section of the Act but
shall be subject to all other provisions of the Act (however, see the Notes).
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<PAGE>
CUSIP No. 246244 10 7 13D Page 3 of 5 Pages
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1 Name of Reporting Persons
S.S. or I.R.S. Identification Nos. of Above Persons
Walter G. Rich ###-##-####
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2 Check the appropriate box if a member of a group (a) []
(b) []
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3 SEC USE ONLY
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4 Source of Funds
SC
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5 Check box if disclosure of legal proceedings is required
pursuant to Item 2(d) or 2(e) []
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6 Citizenship or Place of Organization: United States of America
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7 Number of shares beneficially owned by each reporting person
with sole voting power: 273,931.6
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8 Number of shares beneficially owned by each reporting person
with shared voting power: None
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9 Number of shares beneficially owned by each reporting person
with sole dispositive power: 273,931.6
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10 Number of shares beneficially owned by each reporting person
with shared dispositive power: None
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11 Aggregate amount beneficially owned by each reporting person
273,931.6
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12 Check box if the aggregate amount in Row (11) excludes
certain shares []
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13 Percent of class represented by amount in Row (11)
14.9%
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14 Type of Reporting Person
IN
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<PAGE>
This Amendment No. 1 to Schedule 13D, originally filed July 30, 1997, by
Walter G. Rich, whose address is 1 Railroad Avenue, Cooperstown, New York 13326,
relates to the common stock of Delaware Otsego Corporation whose principal
executive offices are at 1 Railroad Avenue, Cooperstown, New York 13326. If not
separately defined herein, capitalized terms used as defined terms have the same
meanings given in the Schedule 13D.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
Item 3 of the Schedule 13(D) is hereby amended as follows:
In the event of an acquisition of the Company as proposed by the Letter
(as defined below), Rich would contribute shares of Common Stock of the Company,
or options for such shares, to the entity organized to effectuate the
acquisition, but would not be providing funds for this acquisition.
ITEM 4. PURPOSE OF TRANSACTION.
Item 4 of the Schedule 13D is hereby amended to add the following:
On August 8, 1997, Rich, together with CSX and NS, delivered a proposal letter
(the "Letter") to the Board of Directors of the Company in the form attached
hereto as Exhibit 1. Reference is hereby made to the text of the Letter, filed
as Exhibit 1 hereto, for the terms of such proposal. Rich has engaged and
expects to continue to engage, through representatives, in discussions with
representatives of the Company with regard to such proposal.
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<PAGE>
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
This filing excludes all shares of Common Stock of the Company
beneficially owned by CSX and CSX Transportation, Inc. ("CSXT"), as to which CSX
and CSXT possess sole voting and dispositive power.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
Reference is made to the matters described under Item 4 above, including,
without limitation, the Letter.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
Exhibit 1 - Proposal Letter, dated as of August 8, 1997.
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
correct.
Dated: August 11, 1997
/S/ WALTER G. RICH
-------------------------------
Name: Walter G. Rich
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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>
(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:
SOURCE VALUE
------ -----
Mr. Rich Contribution $2,602,350
CSX Stock Contribution 2,094,750
CSX Cash Contribution 23,440,473
NSC CASH CONTRIBUTION 25,535,223
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TOTAL $53,672,796
----- -----------
<PAGE>
USE AMOUNT
--- -------
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
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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 alternative transaction providing for the sale of its
<PAGE>
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.
<PAGE>
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
--------------------------------------
NORFOLK SOUTHERN CORPORATION
By: /S/ WILLIAM J. ROMIG
--------------------------------------
/S/ WALTER RICH
-----------------------------------------
Walter Rich
Accepted and Agreed to as
to Paragraphs 3(c) and 4
as of August __, 1997:
DELAWARE OTSEGO CORPORTION
By: ______________________________
<PAGE>
PRIVILEGED & CONFIDENTIAL
-------------------------
PROJECT BASEBALL
TERM SHEET
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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.
<PAGE>
FINANCING STRUCTURE:
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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.
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<PAGE>
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 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.
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<PAGE>
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.
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<PAGE>
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 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.
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<PAGE>
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
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.
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<PAGE>
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 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.
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<PAGE>
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
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).
-8-
<PAGE>
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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