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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 9
to
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
Pursuant to Section 14(d)(4)
of the Securities Exchange Act of 1934
CONRAIL INC.
(Name of Subject Company)
CONRAIL INC.
(Name of Person(s) Filing Statement)
Common Stock, par value $1.00 per share
(including the associated Common Stock Purchase Rights)
(Title of Class of Securities)
208368 10 0
(CUSIP Number of Class of Securities)
Series A ESOP Convertible Junior Preferred Stock, without par value
(including the associated Common Stock Purchase Rights)
(Title of Class of Securities)
N/A
(CUSIP Number of Class of Securities)
James D. McGeehan
Corporate Secretary
Conrail Inc.
2001 Market Street
Two Commerce Square
Philadelphia, Pennsylvania 19101
(215) 209-4000
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Person(s) Filing Statement)
With a copy to:
Robert A. Kindler, Esq.
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
(212) 474-1000
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<PAGE>
INTRODUCTION
Conrail Inc. ("Conrail") hereby amends and supplements its
Solicitation/Recommendation Statement on Schedule 14D-9, originally
filed on November 6, 1996, and amended on November 7, 1996, November
8, 1996, November 13, 1996, November 18, 1996, November 20, 1996,
November 21, 1996, November 26, 1996 and December 3, 1996 (as amended,
the "Norfolk Schedule 14D-9"), with respect to an offer by Atlantic
Acquisition Corporation, a Pennsylvania corporation ("Atlantic") and a
wholly owned subsidiary of Norfolk Southern Corporation, a Virginia
corporation ("Norfolk"), to purchase all the issued and outstanding
Shares of Conrail. Capitalized terms not defined herein have the
meanings assigned thereto in the Norfolk Schedule 14D-9.
Item 8. Additional Information to be Furnished.
Item 8 of the Norfolk Schedule 14D-9 is hereby amended and
supplemented by adding the following text at the end thereof:
On December 5, 1996, CSX and Conrail issued a press release, a
copy of which is attached hereto as Exhibit (a)(14), announcing that
they have filed counterclaims against Norfolk in the United States
District Court for the Eastern District of Pennsylvania seeking
damages and alleging, among other things, that Norfolk has tortiously
interfered with the CSX Merger Agreement. A copy of the filing
containing the counterclaims is attached hereto as Exhibit (c)(8), is
incorporated herein by reference and qualifies the foregoing summary
in its entirety.
Item 9. Materials to be filed as Exhibits.
Item 9 of the Norfolk Schedule 14D-9 is hereby amended and
supplemented by adding the following text thereto:
(a)(14) Text of press release issued by CSX and Conrail dated
December 5, 1996.
(c)(8) Answer and Defenses of Conrail, CSX and the individual
defendants to Second Amended Complaint, and
Counterclaim of Conrail and CSX in Norfolk Southern et
al. v. Conrail Inc. et al., filed on December 5, 1996,
in the United States District Court for the Eastern
District of Pennsylvania.
<PAGE>
SIGNATURE
After due 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.
CONRAIL INC.
By /s/ Timothy T. O'Toole
----------------------
Name: Timothy T. O'Toole
Title: Senior Vice President--Finance
Dated as of December 6, 1996
<PAGE>
EXHIBIT INDEX
Exhibit Description Page No.
- ------- ----------- --------
*(a)(1) Text of press release issued by Conrail
dated October 23, 1996 (incorporated by
reference to Exhibit (a)(9) to the
Solicitation/Recommendation Statement on
Schedule 14D-9 of Conrail Inc. dated
October 16, 1996, as amended (the "CSX
14D-9")).......................................
*(a)(2) Text of press release issued by Norfolk,
dated October 23, 1996 (incorporated by
reference to Exhibit (a)(8) to the CSX
14D-9).........................................
*(a)(3) Text of press release issued by Conrail
and CSX dated November 6,
1996...........................................
*(a)(4) Letter to shareholders of Conrail dated
November 6, 1996...............................
(a)(5) Text of press release issued by Conrail,
dated November 7, 1996 (incorporated by
reference to Exhibit (a)(16) to the CSX
14D-9).........................................
*(a)(6) Text of press release issued by Conrail,
dated November 7, 1996 (incorporated by
reference to Exhibit (a)(17) to the CSX
14D-9).........................................
*(a)(7) Text of press release issued by Conrail,
dated November 8, 1996 (incorporated by
reference to Exhibit (a)(18) to the CSX
14D-9).........................................
*(a)(8) Text of press release issued by Conrail
and CSX, dated November 13, 1996
(incorporated by reference to Exhibit
(a)(19) to the CSX 14D-9)......................
*(a)(9) Text of press release issued by Conrail
and CSX dated November 19, 1996
(incorporated by reference to Exhibit
(a)(20) to the CSX
140-9).........................................
*(a)(10) Text of press release issued by Conrail
and CSX dated November 20, 1996
(incorporated by reference to Exhibit
(a)(21) to the CSX
14D-9).........................................
<PAGE>
Exhibit Description Page No.
- ------- ----------- --------
*(a)(11) Text of press release issued by CSX
dated November 21, 1996 (incorporated by
reference to Exhibit (a)(22) to the CSX
14D-9).........................................
*(a)(12) Text of press release issued by Conrail,
dated November 25,
1996...........................................
*(a)(13) Text of press release issued by CSX,
dated November 26, 1996 (incorporated by
reference to Exhibit (a)(23) to the CSX
14D-9).........................................
(a)(14) Text of press release issued by Conrail
and CSX dated December 5,
1996...........................................
(b) Not applicable.................................
*(c)(1) Pages 4-5 and 9-14 of Conrail's Proxy
Statement dated April 3, 1996
(incorporated by reference to Exhibit
(c)(7) to the CSX 14D-9).......................
*(c)(2) Employment Agreement of Mr. David M.
LeVan dated as of October 14, 1996
(incorporated by reference to Exhibit
(c)(5) to the CSX
14D-9).........................................
*(c)(3) Change of Control Agreement of Mr. David
M. LeVan dated as of October 14, 1996
(incorporated by reference to Exhibit
(c)(6) to the CSX 14D-9).......................
*(c)(4) First Amended Complaint in Norfolk
Southern et al. v. Conrail Inc., et al.,
No. 96-CV- 7167, filed on October 28,
1996 in the United States District Court
for the Eastern District of Pennsylvania
(incorporated by reference to Exhibit
(c)(9) to the CSX 14D-9).......................
*(c)(5) Second Amended Complaint in Norfolk
Southern et. al. v. Conrail Inc., et
al., No. 96-CV-7167, filed on November
15, 1996 in the United States District
Court for the Eastern District of
Pennsylvania (incorporated by reference
to Exhibit (c)(12) to the CSX 14D-9)...........
<PAGE>
Exhibit Description Page No.
- ------- ----------- --------
*(c)(6) Text of opinion of Judge Donald
VanArtsdalen of the United States
District Court for the Eastern District
of Pennsylvania as delivered from the
bench on November 20,
1996...........................................
*(c)(7) Conrail's Definitive Proxy Statement,
dated November 25,
1996...........................................
(c)(8) Answer and Defenses of Conrail, CSX and
the individual defendants to Second
Amended Complaint, and Counterclaim of
Conrail and CSX in Norfolk Southern et
al. v. Conrail Inc. et al., filed on
December 5, 1996, in the United States
District Court for the Eastern District
of Pennsylvania................................
- ---------------------
* Previously filed
<PAGE>
EXHIBIT (A)(14)
FOR IMMEDIATE RELEASE
CONTACTS:
CSX Corporation Conrail Inc.
Thomas E. Hoppin Craig R. MacQueen
(804) 782-1450 (215) 209-4594
Kekst and Company Abernathy MacGregor Group
Richard Wolff Dan Katcher/Matthew Sherman
(215) 593-2655 (212) 371-5999
CSX AND CONRAIL SUE NORFOLK SOUTHERN FOR
TORTIOUS INTERFERENCE
Richmond, VA and Philadelphia, PA, (December 5, 1996) -- CSX
Corporation [NYSE: CSX] and Conrail Inc. [NYSE: CRR] announced today
that they have filed counterclaims, in the United States District
Court for the Eastern District of Pennsylvania, seeking damages and
alleging, among other things, that Norfolk Southern has tortiously
interfered with the CSX/Conrail Merger Agreement. It is further
alleged that Norfolk Southern is acting not with the intention or
expectation of acquiring Conrail shares at $110 per share but in order
to disrupt and cripple a strategic alliance between CSX and Conrail.
Because Norfolk Southern's wrongdoing is and has been malicious and
intentional, CSX and Conrail are seeking punitive damages. A jury
trial has been demanded.
CSX and Conrail stated, "Despite Norfolk Southern's ongoing
campaign to destroy the CSX/Conrail strategic merger, we are confident
that the merger will be successfully completed. The purpose of these
counterclaims is to make Norfolk Southern pay for its improper and
unlawful conduct. We look forward to presenting these claims to a jury
in Pennsylvania.
"Norfolk Southern is frustrated by the sound business
judgment of the Conrail Board that a strategic merger of equals
between CSX and Conrail is in the best interests of Conrail and its
constituencies. Norfolk Southern has flooded the marketplace with
false and misleading information concerning both the CSX/Conrail
merger and its conditional hostile tender offer. Norfolk should be
held accountable for its actions."
CSX Corporation, headquartered in Richmond, VA, is an
international transportation company offering a variety of rail,
container-shipping, intermodal, trucking, barge and contract logistics
management services. CSX's home page can be reached at
http://www.CSX.com.
Conrail, with corporate headquarters in Philadelphia, PA,
operates an 11,000-mile rail freight network in 12 northeastern and
midwestern states, the District of Columbia, and the Province of
Quebec. Conrail's home page can be reached at http://www.CONRAIL.com.
<PAGE>
EXHIBIT (C)(8)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
- ------------------------------------------x
NORFOLK SOUTHERN CORPORATION, :
a Virginia corporation, :
ATLANTIC ACQUISITION CORPORATION, :
a Pennsylvania corporation, and :
KATHRYN B. McQUADE, an individual, :
:
Plaintiffs, :
:
v. : C.A. No. 96-CV-7167
:
CONRAIL INC., a Pennsylvania corporation, :
DAVID M. LEVAN, an individual, :
H. FURLONG BALDWIN, an individual, : JURY TRIAL DEMANDED
: -------------------
DANIEL B. BURKE, an individual, :
ROGER S. HILLAS, an individual, :
CLAUDE S. BRINEGAR, an individual, :
KATHLEEN FOLEY FELDSTEIN, an :
individual, DAVID B. LEWIS, an individual,:
JOHN C. MAROUS, an individual, :
DAVID H. SWANSON, an individual, :
E. BRADLEY JONES, an individual, :
RAYMOND T. SCHULER, an individual, :
and CSX CORPORATION, a Virginia :
corporation, :
:
Defendants. :
- ------------------------------------------x
ANSWER AND DEFENSES OF CONRAIL, CSX AND THE
INDIVIDUAL DEFENDANTS TO SECOND AMENDED
COMPLAINT, AND COUNTERCLAIM OF CONRAIL AND CSX
----------------------------------------------
ANSWER
------
Defendants Conrail Inc. ("Conrail"), CSX Corporation ("CSX") and
the individual
<PAGE>
Defendants (collectively "Defendants"), by their undersigned
attorneys, answer as follows:
1. Denied. Defendants' actions are lawful and this Court found no
evidence of any breach of fiduciary duty by the Board of Directors of
Conrail.
2. The averments in paragraph 2 are conclusions of law which
require no answer. To the extent an answer is deemed required, those
averments are denied. After two days of hearings, this Court found no
coercion, no violations of the Williams Act, no evidence of any breach
of fiduciary duty by the Conrail Board, and denied Plaintiffs' request
for injunctive relief.
3. It is admitted that the merger of Conrail and CSX is to be
accomplished through a multi-tier structure requiring regulatory
approvals, and that Conrail shareholders will have the opportunity to
receive cash and stock. The remaining averments in paragraph 3 are
denied.
4. The averments in paragraph 4 are denied, with the exception
that on October 23, 1996, Norfolk Southern Corporation ("Norfolk
Southern") announced its illusory tender offer and that the tender
offer commenced on October 24, 1996.
5. Denied. Conrail and CSX have entered into a valid and binding
merger agreement. After two days of hearings, this Court found that
each of the contested provisions of the Conrail Shareholder Rights
Plan and the Conrail/CSX strategic Merger Agreement, as amended, are
athorized by the Pennsylvania Business Corporation Law ("BCL")
including, without limitation, BCL ss.ss. 1502, 1712, 1715, 1721,
2513, Subchapter 25E and Subchapter 25F.
6. Denied. The averments in paragraph 6 also contain conclusions
of law which
<PAGE>
require no answer. To the extent an answer is deemed required, those
averments are denied.
7-8. Admitted.
9. Defendants admit the averments in the first sentence of
paragraph 9. Conrail is without knowledge or information sufficient to
form a belief as to the truth of the averments in the second through
fifth sentences of paragraph 9. The averments in the last sentence of
paragraph 9 are denied, except that it is admitted that Norfolk
Southern appears to have purchased 100 shares of Conrail common stock
in street name after the merger agreement between Conrail and CSX was
announced.
10. Defendants are without knowledge or information sufficient to
form a belief as to the truth of the averments in paragraph 10.
11. Denied as stated. It is denied that McQuade is or ever was a
record owner of any Conrail stock at any relevant time. It is admitted
that McQuade appears to be the beneficial owner of 50 shares of
Conrail common stock.
12. Admitted.
13. The averments in the first and second sentences of paragraph
13 are admitted. The averments in the third sentence are legal
conclusions which require no answer. To the extent an answer is deemed
required, those averments are denied as stated. The fiduciary duties
owed by Conrail's directors are as set forth in the BCL.
14. Admitted.
15. Denied. By way of further answer, Norfolk Southern's tender
offer is a writing which speaks for itself.
16. Denied as stated. The letter referred to in paragraph 16 is a
writing which
<PAGE>
speaks for itself.
17. Denied. By way of further answer, the merger agreement, as
amended, between Conrail and CSX is a writing which speaks for itself.
18. Denied. This Court specifically found that CSX's offer is not
coercive and that Conrail's shareholders have numerous options about
which they have been fully informed.
19. The averments in the first sentence of paragraph 19 are
admitted. The remaining averments in paragraph 19 are denied. Norfolk
Southern failed to reach agreement with Conrail in 1994, and failed to
reach agreement with CSX regarding a break- up of Conrail in 1995. In
1996, prior to the announcement of the Conrail/CSX Merger Agreement,
Norfolk Southern still had no concrete proposal to present to
Conrail's Board.
20. Admitted.
21. Denied as stated.
22-23. Denied.
24. The averments in the first three sentences in paragraph 24
are admitted. The remaining averments are denied.
25. Defendants are without knowledge or information sufficient to
form a belief as to the truth of the averments in the first sentence
of paragraph 25. The remaining averments are denied.
26. The averments in the first sentence of paragraph 26 are
denied as stated. The remaining averments are denied.
27. Denied as stated.
<PAGE>
28. Denied. By way of further answer, the Merger Agreement, as
amended, between Conrail and CSX is a writing which speaks for itself.
29. Denied as stated. The excerpts cited by Plaintiffs are
incomplete and out of context. The referenced newspaper reports are
writings which speak for themselves.
30. Denied. This Court found no evidence that the Conrail Board
had acted without good faith after reasonable investigation, and ruled
that the actions of the Conrail Board were authorized by the BCL.
31. The averments in the first sentence of paragraph 31 are
admitted. The remaining averments are denied.
32. Defendants are without knowledge or information sufficient to
form a belief as to the truth of the averments in the first two
sentences of paragraph 32. The remaining averments are admitted.
33. The averments in the first sentence of paragraph 33 are
denied. The remaining averments are denied as stated. The excerpts
cited by Plaintiffs are incomplete and out of context. The referenced
newspaper reports are writings which speak for themselves.
34. Denied. This Court has ruled that the CSX offer is not
coercive and that the Conrail shareholders have numerous options about
which they have been fully informed.
35. The averments in the first and third sentences of paragraph
35 are admitted. The remaining averments are denied. By way of further
answer, Norfolk Southern initiated the meeting to devise the break-up
of Conrail and to use the withdrawal of its offer as leverage to
extort Conrail's routes and assets for itself.
<PAGE>
36-37. Denied.
38. Denied, except that the movement of Conrail's stock price is
admitted.
39. It is admitted that Norfolk Southern issued its own press
release. The contents of that press release and the remaining
averments in paragraph 39 are denied.
40. Denied, except that the closing price of Conrail stock is
admitted.
41. Denied. In addition, the excerpts cited by Plaintiffs in
paragraph 41 are incomplete and out of context. The referenced
newspaper report is a writing which speaks for itself.
42. Denied as stated. The Conrail Shareholder Rights Plan is a
writing which speaks for itself.
43. Denied. This Court held that actions of the Conrail directors
in approving the provisions of the Conrail Shareholder Rights Plan
were not a breach of fiduciary duty and were authorized by the BCL.
44. Denied, with the exception that it is admitted that the Court
scheduled a hearing on the motion for noon on November 4, 1996.
45. The averments in the first sentence of paragraph 45 are
denied. The remaining averments are admitted.
46. Admitted that the Conrail Board met on November 5, 1996, and
that on November 6, 1996, Conrail announced that it had considered and
approved an amended tender offer by CSX. The remaining averments in
paragraph 46 are denied as stated.
47. Admitted.
48. The averments in the first sentence of paragraph 48 are
admitted. The
<PAGE>
remaining averments in paragraph 48 are denied as stated.
49. Denied. This Court has ruled that the CSX offer is not
coercive and that Conrail's shareholders have numerous options about
which they have been fully informed.
50. Denied. The excerpts cited by Plaintiffs in paragraph 50 are
incomplete and out of context. The referenced newspaper report is a
writing which speaks for itself.
51. Denied as stated. The excerpt cited in paragraph 51 is
incomplete and out of context. Schedule 14D-9 is a writing which
speaks for itself.
52. Denied, except that it is admitted that Conrail and CSX
issued a joint press release on November 6, 1996.
53. Denied. Further, the press release, the Lazard Freres and
Morgan Stanley fairness opinion letters, and CSX's Schedule 14D-9, are
writings which speak for themselves.
54. Denied. The excerpts cited in paragraph 54 are incomplete and
out of context. Further, the press release is a writing which speaks
for itself.
55. The first sentence in paragraph 55 is admitted. The remaining
averments in paragraph 55 are denied.
56. The first sentence in paragraph 56 is admitted. The remaining
averments in paragraph 56 are denied as stated.
57-58. Denied.
59. Denied as stated. The Merger Agreement, as amended, between
Conrail and CSX and the Conrail Shareholder Rights Plan are writings
which speaks for themselves.
60. Denied.
<PAGE>
61. Denied as stated. The Conrail Shareholder Rights Plan is a
writing which speaks for itself.
62. The averments in paragraph 62 are legal conclusions which
require no answer. To the extent an answer is deemed required, those
averments are denied.
63-69. The averments in paragraphs 63-69 are legal conclusions
which require no answer. To the extent an answer is deemed required,
those averments are denied. By way of further answer, the Conrail
Shareholder Rights Plan is a writing which speaks for itself.
70. Denied, except that it is admitted that the Conrail Board met
on November 4, 1996, extended the distribution date, and the Court
denied Plaintiffs' motion.
71-75. The averments in paragraphs 71-75 are legal conclusions
which require no answer. To the extent an answer is deemed required,
those averments are denied. By way of further answer, the Merger
Agreement, as amended, between Conrail and CSX is a writing which
speaks for itself.
76. Denied. This Court found no evidence that the Conrail Board
breached its fiduciary duties and held that each of the contested
provisions of the Merger Agreement, as amended, are authorized by the
BCL.
77. Admitted to the extent not inconsistent with the Merger
Agreement, as amended, between Conrail and CSX, which is a writing and
which speaks for itself.
78. The averments in paragraph 78 are legal conclusions which
require no answer. To the extent an answer is deemed required, those
averments are denied. By way of further answer, the Merger Agreement,
as amended, between Conrail and CSX and the preliminary
<PAGE>
proxy materials are writings which speak for themselves.
79. Denied.
80-81. Denied as stated. Conrail's preliminary proxy materials
are writings which speak for themselves. The excerpts cited in
paragraphs 80-81 are incomplete and out of context. By way of further
answer, those preliminary proxy materials were never disseminated by
Conrail to Conrail's shareholders.
82. The averments in paragraph 82 are legal conclusions which
require no answer. To the extent an answer is deemed required, those
averments are denied. By way of further answer, the Merger Agreement,
as amended, between Conrail and CSX is a writing which speaks for
itself.
83. Denied.
84-86. Denied as stated. The Stock Option Agreement and the
Merger Agreement, as amended, between Conrail and CSX are writings
which speak for themselves.
87. The averments in paragraph 87 are legal conclusions which
require no answer. To the extent an answer is deemed required, those
averments are denied. By way of further answer, the Stock Option
Agreement and the Merger Agreement, as amended, between Conrail and
CSX are writings which speak for themselves.
88. Denied. This Court has held that the contested provisions of
the Merger Agreement, as amended, between Conrail and CSX, including
without limitation, the break- up fee provisions and Stock Option
Agreement, and the actions of the Conrail Board in relation thereto,
are valid and authorized under Pennsylvania law, and that the Conrail
directors did not breach their fiduciary duties.
<PAGE>
89. Denied. This Court has held that the contested provisions of
the Merger Agreement, as amended, between Conrail and CSX, and the
actions of the Conrail Board in relation thereto, are valid and
authorized under Pennsylvania law, and that the Conrail directors did
not breach their fiduciary duties.
90. The averments in paragraph 90 are legal conclusions which
require no answer. To the extent an answer is deemed required, those
averments are denied, with the exception that it is admitted that
Pennsylvania law does not require directors to amend or redeem poison
pill rights or to take action rendering anti-takeover provisions
inapplicable.
91. Denied. This Court has ruled that the actions of the Conrail
Board in relation to the Merger Agreement, as amended, between Conrail
and CSX are valid and authorized under Pennsylvania law, and that the
Conrail directors did not breach their fiduciary duties.
92. It is denied that Mr. LeVan's Employment Agreement is an
integral part of the CSX transaction. The remaining averments in
paragraph 92 are legal conclusions which require no answer. To the
extent an answer is deemed required, those averments are denied. By
way of further answer, Mr. LeVan's Employment Agreement and the Merger
Agreement, as amended, between Conrail and CSX are writings which
speak for themselves.
93-94. Denied as stated. Mr. LeVan's Employment Agreement and the
Merger Agreement, as amended, between Conrail and CSX are writings
which speak for themselves.
95. The averments in the first and second sentences of paragraph
95 are admitted. The averments in the third sentence are denied.
96(a)-(b). Denied. Conrail's Preliminary Proxy Statement is a
writing which
<PAGE>
speaks for itself.
97(a)-(c). Denied. CSX's Schedule 14D-1 is a writing which speaks
for itself.
98. Denied. Conrail's Schedule 14D-9 is a writing which speaks
for itself.
99(a)-(u). Denied. Conrail's Preliminary Proxy Statement, CSX's
Schedule 14D- 1, and Conrail's Schedule 14D-9 are each writings which
speak for themselves.
100(a)-(d). Denied. The referenced press release, CSX's Schedule
14D-1 Amendment No. 4, Conrail's Schedule 14D-9 with respect to the
Norfolk Southern offer, and Conrail's Schedule 14D-9 Amendment No. 4
with respect to the CSX offer are each writings which speak for
themselves.
101. Denied.
102. Admitted.
103. Denied. Conrail's Shareholders Right Plan, including its
continuing director provisions, is a writing which speaks for itself.
104-105. Denied as stated. Conrail's Shareholder Rights Plan is a
writing which speaks for itself.
106. Denied.
107-108. The averments in paragraphs 107-108 are legal
conclusions which require no answer. To the extent an answer is deemed
required, those averments are denied.
109-110. Denied.
111. Defendants are without knowledge or information sufficient
to form a belief as to the truth of the averments in the first
sentence of paragraph 111. The averments in the second sentence of
paragraph 111 are denied as stated; Conrail's April 3, 1996 Proxy
<PAGE>
Statement is a writing which speaks for itself.
112. Denied.
113. Denied as stated. Conrail's By-Laws is a writing which
speaks for itself.
114. Admitted.
115. The averments in paragraph 115 are legal conclusions which
require no answer. To the extent an answer is deemed required, those
averments are denied. Conrail's Articles of Incorporation is a writing
which speaks for itself.
116. The averments in paragraph 116 are legal conclusions which
require no answer. To the extent an answer is deemed required, those
averments are denied.
117-118. Denied.
119. The averments in paragraph 119 are legal conclusions which
require no answer. To the extent an answer is deemed required, those
averments are denied.
120.(a)-(h). Denied, with the exception that it is admitted that
no demand has been made on Conrail's Board.
121. It is admitted that Norfolk Southern and McQuade appear to
be beneficial owners of Conrail common stock. The remaining averments
are denied.
122. Defendants are without knowledge or information sufficient
to form a belief as to the truth of the averments in paragraph 122.
COUNT ONE
---------
123. Defendants repeat and reallege each of the foregoing answers
as if fully set forth in this paragraph.
124. Denied as stated. The duties of the Defendant Directors are
as set forth in the
<PAGE>
BCL.
125. The averments in the first sentence of paragraph 125 are
admitted. The remaining averments are denied.
126. Denied as stated.
127-128. Denied.
COUNT TWO
---------
129. Defendants repeat and reallege each of the foregoing answers
as if fully set forth in this paragraph.
130. Denied as stated.
131. Admitted.
132. Denied as stated.
133-134. Denied.
COUNT THREE
-----------
135. Defendants repeat and reallege each of the foregoing answers
as if fully set forth in this paragraph.
136. The averments in paragraph 136 are legal conclusions which
require no answer. To the extent an answer is deemed required, those
averments are denied as stated.
137-138 Denied.
COUNT FOUR
----------
139. Defendants repeat and reallege each of the foregoing answers
as if fully set forth in this paragraph.
140. The averments in paragraph 140 are legal conclusions which
require no
<PAGE>
answer. To the extent an answer is deemed required, those averments
are denied. By way of further answer, the Merger Agreement, as
amended, between Conrail and CSX is a writing which speaks for itself.
141. The averments in paragraph 141 are legal conclusions which
require no answer. To the extent an answer is deemed required, those
averments are denied except that it is admitted that Conrail is not a
statutory close corporation.
142. Denied, with the exception that the averments in the second
sentence of paragraph 142 are denied as stated.
143. Denied.
COUNT FIVE
----------
144. Defendants repeat and reallege each of the foregoing answers
as if fully set forth in this paragraph.
145-148. Denied.
COUNT SIX
---------
149. Defendants repeat and reallege each of the foregoing answers
as if fully set forth in this paragraph.
150-151. Denied.
152. Denied, except that it is admitted that Conrail is not a
statutory close corporation.
153. Denied, with the exception that the averments in the second
sentence of paragraph 153 are denied as stated. The Merger Agreement,
as amended, between Conrail and CSX is a writing which speaks for
itself.
<PAGE>
154-155. Denied.
COUNT SEVEN
-----------
156. Defendants repeat and reallege each of the foregoing answers
as if fully set forth in this paragraph.
157-159. Denied.
COUNT EIGHT
-----------
160. Defendants repeat and reallege each of the foregoing answers
as if fully set forth in this paragraph.
161. Denied as stated. The Merger Agreement, as amended, between
Conrail and CSX is a writing which speaks for itself.
162-164. Denied.
COUNT NINE
----------
165. Defendants repeat and reallege each of the foregoing answers
as if fully set forth in this paragraph.
166-167. The averments in paragraphs 166-167 are legal
conclusions which require no answer.
168. Denied, with the exception that the averments in the second
sentence of paragraph 168 are denied as stated.
169. Denied. The Conrail Shareholder Rights Plan, including its
continuing director provisions, is a writing which speaks for itself.
170. It is admitted that Plaintiffs seek such a declaration, but
it is denied that they are entitled to it.
<PAGE>
171. Denied.
COUNT TEN
---------
172. Defendants repeat and reallege each of the foregoing answers
as if fully set forth in this paragraph.
173. Admitted.
174. The averments in paragraph 174 are legal conclusions which
require no answer. To the extent an answer is deemed required, those
averments are denied. By way of further answer, the Conrail
Shareholder Rights Plan and Conrail's By-Laws are both writings which
speak for themselves.
175. Denied. Conrail's Shareholder Rights Plan, including its
continuing director provisions, and Conrail's By-Laws are writings
which speak for themselves.
176. Denied. Conrail's Shareholder Rights Plan, including its
continuing director provisions, its Articles of Incorporation and its
By-Laws are writings which speak for themselves.
177. Denied.
COUNT ELEVEN
------------
178. Defendants repeat and reallege each of the foregoing as if
fully set forth in this paragraph.
179. Denied.
180. Denied. Conrail's Shareholder Rights Plan, including its
continuing director provisions, is a writing which speaks for itself.
181. It is admitted that Plaintiffs seek such a declaration, but
it is denied that they
<PAGE>
are entitled to it.
182. Denied.
COUNT TWELVE
------------
183. Defendants repeat and reallege each of the foregoing answers
as if fully set forth in this paragraph.
184. The averments in paragraph 184 are legal conclusions which
require no answer. To the extent an answer is deemed required, it is
admitted that the Director Defendants owe fiduciary duties to Conrail
and their actions are governed by the BCL.
185-186. Admitted.
187-191. Denied.
COUNT THIRTEEN
--------------
192. Defendants repeat and reallege each of the foregoing answers
as if fully set forth in this paragraph.
193-195. Denied.
COUNT FOURTEEN
--------------
196. Defendants repeat and reallege each of the foregoing answers
as if fully set forth in this paragraph.
197. The averments in paragraph 197 are legal conclusions which
require no answer. Section 14(a) of the Exchange Act speaks for
itself.
198. The averments in paragraph 198 are legal conclusions which
require no answer. Rule 14a-9 speaks for itself.
199-203. Denied.
<PAGE>
COUNT FIFTEEN
-------------
204. Defendants repeat and reallege each of the foregoing answers
as if fully set forth in this paragraph.
205. The averments in paragraph 205 are legal conclusions which
require no answer. Section 14(d) of The Exchange Act speaks for
itself.
206. Admitted.
207. Denied. CSX's Schedule 14D-1, including Amendment No. 4, is
a writing which speaks for itself.
208-209. Denied.
COUNT SIXTEEN
-------------
210. Defendants repeat and reallege each of the foregoing answers
as if fully set forth in this paragraph.
211. The averments in paragraph 211 are legal conclusions which
require no answer. Section 14(d)(4) and Rule 14d-9 of The Exchange Act
speak for themselves.
212. Admitted.
213-215. Denied.
COUNT SEVENTEEN
---------------
216. Defendants repeat and reallege each of the foregoing answers
as if fully set forth in this paragraph.
217. The averments in paragraph 217 are legal conclusions which
require no answer. Section 14(e) of The Exchange Act speaks for
itself.
218-219. The averments in paragraphs 218 and 219 are legal
conclusions which
<PAGE>
require no answer. To the extent an answer is deemed required, those
averments are denied. By way of further answer, CSX's Schedule 14D-1
and Conrail's Schedule 140-9 and Proxy Statement are writings which
speak for themselves.
220. Denied. Defendants also incorporate their answers to
paragraphs 97, 99 and 100 (a)-(b) above.
221. Denied. Defendants also incorporate by reference their
answers to paragraphs 98, 99 and 100 (a), (c) and (d) above.
222. Denied. Defendants also incorporate by reference their
answer to paragraphs 96, 99 above.
223-226. Denied.
COUNT EIGHTEEN
--------------
227. Defendants repeat and reallege each of the foregoing answers
as if fully set forth in this paragraph.
228. Denied. Defendants also incorporate by reference their
answers to paragraphs 95 through 101 above.
229. Denied.
COUNT NINETEEN
--------------
230. Defendants repeat and reallege each of the foregoing answers
as if fully set forth in this paragraph.
231-238. Denied.
<PAGE>
COUNT TWENTY
------------
239. Defendants repeat and reallege each of the foregoing answers
as if fully set forth in this paragraph.
240. Denied.
241. Admitted.
242. Denied as stated. The proxy materials are writings which
speak for themselves.
243. The averments to paragraph 243 are legal conclusions which
require no answer. To the extent that an answer is deemed necessary,
these averments are denied.
244-246. Denied.
COUNT TWENTY-ONE
----------------
247. Defendants repeat and reallege each of the foregoing answers
as if fully set forth in this paragraph.
248. Defendants are without knowledge or information sufficient
to form a belief as to the truth of the averments in paragraph 248.
249. The averments in paragraph 249 are legal conclusions which
require no answer. To the extent an answer is deemed required, those
averments are denied.
250. It is admitted that Plaintiffs seek such a declaration, but
it is denied that they are entitled to it.
251. Denied.
WHEREFORE, Defendants respectfully request that this Court enter
judgment in their favor and against all Plaintiffs on all claims and
award to Defendants all their costs and
<PAGE>
attorney's fees, and grant any further relief that is right and just.
DEFENSES
--------
First Defense
- -------------
Plaintiffs have failed, in whole or in part, to state a claim
upon which relief can be granted.
Second Defense
--------------
Plaintiffs are barred from proceeding with their claims by the
doctrine of law of the case.
Third Defense
-------------
Plaintiffs' claims are barred by the doctrine of unclean hands.
Fourth Defense
--------------
Plaintiffs' claims are barred by their fraudulent and deceitful
conduct.
Fifth Defense
-------------
Plaintiffs' state law claims are barred by the Pennsylvania
Business Corporation Law of 1990, as amended, which authorizes the
contested conduct of the Conrail Board.
Sixth Defense
-------------
Plaintiffs' state law claims are barred because the actions of
the Conrail Board were carried out in the exercise of their fiduciary
duties to the corporation, in good faith after reasonable
investigation, and in the best interests of Conrail.
Seventh Defense
---------------
Plaintiffs' claims for injunctive relief are barred because of
the absence of fraud or fundamental unfairness.
<PAGE>
Eighth Defense
--------------
Plaintiffs' claims are barred for failure to satisfy the
requirements of Federal Rule of Civil Procedure 23.1, including
without limitation, the requirement that Plaintiffs be adequate
representatives of the interests of Conrail's shareholders.
Ninth Defense
-------------
Plaintiffs' federal securities law claims should be dismissed as
moot.
Tenth Defense
-------------
Plaintiffs lack standing to pursue their state law claims because
they are not suing in their capacity as shareholders, as such, as
required by BCL ss. 1717.
Eleventh Defense
----------------
Plaintiffs' claims are barred for failure to comply with the
requirements precedent to maintenance of a shareholder derivative
action, including without limitation, their unjustified failure to
make a pre-suit demand upon the Conrail Board.
Twelfth Defense
---------------
Plaintiffs' claims are barred, in whole or in part, because
Conrail and CSX are entitled to recoupment and/or an offset for the
amounts claimed as damages in the Counterclaim which is incorporated
herein by reference.
Thirteenth Defense
------------------
Defendants hereby deny, to the extent not previously denied, any
and all allegations previously made by Plaintiffs, including, but not
limited to, those made in Plaintiffs' original Complaint and their
First Amended Complaint.
WHEREFORE, Defendants respectfully request that this Court enter
judgment in their
<PAGE>
favor and against all Plaintiffs on all claims and award to Defendants
all their costs and attorney's fees and grant any further relief that
is right and just.
COUNTERCLAIM
- ------------
Counterclaim-Plaintiffs, Conrail and CSX, by their undersigned
counsel, allege upon knowledge with respect to themselves and their
acts, and upon information and belief as to all other matters, as
follows:
INTRODUCTION
------------
1. Their plans frustrated by the sound business judgment of the
Conrail Board that a strategic merger of equals between Conrail and
CSX -- rather than a sale of Conrail to Norfolk Southern--is in the
best interests of Conrail and its constituencies, Norfolk Southern and
certain of its executive officers have engaged in a sustained and
systematic effort to cause the breach, frustration or termination of
Conrail/CSX merger agreement ("Merger Agreement") or to otherwise
prevent the contemplated Conrail/CSX merger. This attack on the merger
has been implemented through the broad dissemination of materially
false and misleading information and the announcement and promotion of
an illusory tender offer; the commencement and prosecution of a
lawsuit premised upon false allegations of fact, deceptive
characterizations, and a blatant misapplication of Pennsylvania law;
the false and misleading solicitation of proxies for the upcoming
Conrail shareholder votes; and other efforts to manipulate the market
through conduct that is unfair, tortious, and in violation of the
federal securities laws.
2. As set forth in detail in this Counterclaim, Norfolk Southern
has announced
<PAGE>
and promoted an illusory, hostile tender offer for Conrail's stock,
which includes as its linchpin the unlawful and unachievable condition
that the Conrail/CSX Merger Agreement end, either by breach of the
agreement by Conrail or by termination of the agreement by Conrail and
CSX. That tender offer is also conditioned upon the Conrail Board
adopting a strategic direction for Conrail that it had already
rejected.
3. Norfolk Southern has been continuously and intentionally
misleading the market, and Conrail's shareholders, by failing to tell
them that a tender by Conrail shareholders of their shares to Norfolk
Southern would be futile, because payment of the current $110 per
share price cannot occur on the scheduled expiration of the offer
unless a breach of the Merger Agreement occurs. That the tender offer
was merely a tactical ploy was made clear when, barely a week after it
was announced, David R. Goode ("Goode"), the Chief Executive Officer
of Norfolk Southern, arranged a meeting with the Chief Executive
Officer of CSX and offered to drop the Norfolk Southern tender offer
in return for obtaining the Conrail assets that Norfolk Southern
covets.
4. Norfolk Southern has extended its tender offer to December 16,
1996, but it is still expressly conditioned on the same unachievable
and unlawful conditions. Norfolk Southern continues its offer so as to
continue to confuse, mislead and manipulate shareholders of Conrail,
to tortiously interfere with the Conrail/CSX strategic merger, to
injure Conrail and CSX, and to induce a breach of the Conrail/CSX
merger agreement.
5. By these tactics, Norfolk Southern hopes it can: (a) induce or
coerce a breach or termination of the merger agreement; (b) blackmail
Conrail and CSX into allowing
<PAGE>
Norfolk Southern to "cherry pick" the routes and assets of Conrail
which Norfolk Southern has been overtly and covertly seeking to
acquire over the past several years; and/or (c) disrupt the merged
entity's relationships with prospective business partners, customers
and employees.
6. Norfolk Southern's lawsuit is meritless and a sham. On
November 19, 1996, after two days of hearings, the Court rejected
Norfolk Southern's demand to enjoin the CSX tender offer. The Court
found that "directors have every right to favor one competing bid over
another and particularly have the right to resist hostile takeovers .
. . " The Court further found "absolutely" no evidence of any lack of
good faith or reasonable investigation by the Conrail Board of
Directors.
7. In this action, Conrail and CSX seek to obtain money damages
for the economic injuries and damage inflicted upon, and to be
inflicted upon, them by Counterclaim-Defendants' continuing tortious
interference with the Merger Agreement, which damages include loss of
Conrail's bargain and potential bargain and the resultant
consequential and incidental damages; increased costs and burdens in
connection with the Merger Agreement; and attorneys' fees, consultant
fees, expert fees, court costs and other expenses incurred in
defending against the illegal and improper actions of Counterclaim-
Defendants. Further, because Counterclaim-Defendants' wrongdoing is
and has been malicious, intentional and outrageous, punitive damages
are hereby requested.
<PAGE>
THE PARTIES
-----------
8. Counterclaim-Plaintiff Conrail is a Pennsylvania corporation
with its principal office at Two Commerce Square, 2001 Market Street,
Philadelphia County, Philadelphia, PA 19101. Conrail's rail service
subsidiary provides rail freight transportation service over
approximately 17,700 route miles in the Midwest and Northeast. Conrail
is a publicly held company whose stock is traded on the New York and
Philadelphia Stock Exchanges.
9. Counterclaim-Plaintiff CSX is a Virginia corporation with its
principal office at One James Center, 901 East Carey Street, Richmond,
VA 23219. CSX is a transportation company providing rail, intermodal,
ocean container-shipping, barging, trucking and contract logistic
services. CSX's rail transportation operations serve the Southeastern
and Mid-Western United States. CSX is a publicly held company whose
stock is traded on the New York Stock Exchange.
10. Counterclaim-Defendant Norfolk Southern is a Virginia
corporation with its principal office located at Three Commercial
Place, Norfolk, VA 23510-2191. Norfolk Southern is a holding company
for Norfolk Southern Railway Company and its subsidiaries, which
operate rail and motor transportation services. Norfolk Southern is
the owner of and/or controls, directly or indirectly,
Counterclaim-Defendant Atlantic Acquisition Corporation. Norfolk
Southern is a publicly held company whose stock is traded on the New
York Stock Exchange.
11. Counterclaim-Defendant Kathryn B. McQuade ("McQuade") is an
individual residing at 5114 Hunting Hills Drive, Roanoke, VA 24014.
McQuade is Vice President-
<PAGE>
Iternal Audit of Norfolk Southern. At all times relevant herein,
McQuade is alleged to have acted individually in her own behalf, and
she has conspired with Norfolk Southern to engage in some of the acts
alleged herein.
JURISDICTION AND VENUE
----------------------
12. This Court has jurisdiction over this counterclaim pursuant
to 28 U.S.C. section 1367.
Venue is proper in this district pursuant to 28 U.S.C. _section 1391.
FACTUAL BACKGROUND
------------------
Norfolk Southern's Prior Attempts To Acquire Conrail
----------------------------------------------------
14. Conrail is one of the great corporate success stories of
recent years. Originally a government-created enterprise that emerged
from the collapse of Penn Central and other bankrupt Northeastern
railroads, Conrail is now a strong, cost-efficient, financially stable
Northeastern-Midwest railroad that provides competitive transportation
over lines stretching from Boston and New York West to St. Louis and
Chicago.
15. Norfolk Southern has coveted the lines and assets of Conrail
for many years. Norfolk Southern first sought vigorously to acquire
Conrail's assets from the Federal Government, but was rebuffed by
Congress, which ordered Conrail's privatization by way of a public
offering of its stock in 1987.
16. Commencing in the Spring of 1994, Norfolk Southern again
attempted to purchase Conrail. Conrail's Board considered the Norfolk
Southern proposal, but found it
<PAGE>
not to be in the best interests of the corporation for various
reasons. Conrail did offer to consider a transaction with Norfolk
Southern with an exchange ratio of 1.1 shares of Norfolk Southern
stock for 1 share of Conrail stock, which Norfolk Southern through
Goode refused. At then-current market prices, the premium offered by
Norfolk Southern for Conrail shares would have been less than 20% or a
value of about $65 per share. In addition, Norfolk Southern was
unwilling to consider placing the shares in a voting trust, pending
regulatory approval of the proposed purchase.
Undeterred by the failure of these direct talks with Conrail,
Norfolk Southern then had discussions with CSX during the Summer and
Fall of 1995 to develop a plan whereby Norfolk Southern would acquire
Conrail and then carve it up by selling substantial Conrail assets to
CSX. Norfolk Southern and CSX could not reach agreement between
themselves on the terms of the carve up and talks between them ceased.
18. During the winter of 1995-96, Norfolk Southern and Goode then
considered a hostile takeover of Conrail, a course of conduct that
Goode implied to David LeVan, Conrail's President, Chairman and CEO
("LeVan") in a meeting with LeVan in October 1995. No such offer was
forthcoming. While Norfolk Southern publicly stated it was dropping
the idea of a hostile takeover, it in fact continued to hold the
intention of somehow acquiring the Conrail lines most valuable to
Norfolk Southern.
<PAGE>
The Railroad Industry Consolidation
-----------------------------------
19. During this same general time period, the mergers of other
railroads were changing the structure of the railroad industry. In
June of 1994, Burlington Northern ("BN") and the Atchison, Topeka and
Sante Fe railroads ("SF") announced a far-reaching consolidation of
their Western and Midwestern rail lines.
20. In August 1995, Union Pacific ("UP")--which had just acquired
the Chicago and North Western Railroad--and Southern Pacific ("SP")
agreed to join their extensive rail holdings. Only days after the
UP/SP announcement, the Interstate Commerce Commission ("ICC")
(subsequently abolished and replaced by the Surface Transportation
Board ("STB")) rendered its final approval of the 1994 BN/SF merger.
In both the BN/SF and the UP/SP decisions, the ICC and STB reaffirmed
long-standing ICC views that rail mergers produce significant service,
cost savings and efficiency benefits.
21. After the mid-1995 announcement of the UP/SP merger
agreement, Conrail attempted to acquire the eastern lines of SP in
order to expand Conrail's network in the Southeast as far as the Gulf
of Mexico, ultimately offering a price of $1.9 billion. The STB's
subsequent approval of the UP/SP merger foreclosed Conrail's attempt
to purchase the SP lines.
<PAGE>
Conrail's Search for a Strategic Partner
----------------------------------------
22. The STB decision in the UP/SP case was perceived to clarify
and confirm the types of merger benefits and efficiencies which the
STB would find to be in the public interest and the types of remedies
for competitive concerns that the STB would consider appropriate. In
addition, changes in the time limits for STB merger reviews were made
in the governing statute and in STB procedures, significantly reducing
the time period for completion of the merger review process. These
developments were believed to provide opportunities to Conrail to
expand its rail operations through a strategic alliance with another
railroad. At the same time, they generated a risk of a hostile tender
offer and also raised fears that Conrail might be left behind if
further consolidation occurred without Conrail.
23. In light of these developments, Conrail continued to analyze
its strategic alternatives, including consolidations with other
railroads. Conrail devoted substantial time and energy in 1995 and
1996 to determining what strategic alternative would offer the
greatest opportunities to its constituencies, including its
shareholders, customers and the public.
At no time did the Conrail Board elect to put Conrail on the
auction block for sale to the highest bidder.
<PAGE>
The September 25-26, 1996 Conrail Board Retreat
-----------------------------------------------
25. The results of Conrail's analyses were put before the Conrail
Board on September 25 and 26, 1996, during the Board's retreat in
Ligonier, Pennsylvania. Presentations were made concerning possible
strategic partnerships, the state of the industry, and the economic
priorities of Conrail. Management recommended to the Board that a
combination with CSX was Conrail's most attractive opportunity. A
strategic combination with CSX was predicted to yield $150 million per
year in greater benefits than those obtainable in a combination with
Norfolk Southern. These benefits included enhanced revenue
opportunities by joining CSX's steam coal and phosphate fertilizer
producers with Conrail's generating plant and farm consumers;
expansion of Conrail's service area throughout Florida (where Norfolk
Southern had little reach); tremendous enlargement of Conrail's
single-line service; and greater opportunity for improved
profitability through reduced operating ratios and enhanced management
and operating efficiencies.
26. During the presentation, the Board also considered Norfolk
Southern's ongoing interest in acquiring Conrail, and LeVan apprised
the Board of his recent contacts with Goode, in which Goode had
expressed Norfolk Southern's interest in purchasing Conrail.
27. After duly considering all of these factors over the course
of the two-day retreat, Conrail's Board reaffirmed that Conrail was
not for sale, and authorized Conrail management to initiate
negotiations with CSX to explore the possibility of a strategic
combination with CSX.
Pursuant to the Board's directions, Conrail management and its
legal and financial
<PAGE>
advisors participated in early October in frequent and intensive
negotiations with CSX to hammer out the terms of a possible merger
agreement. LeVan established early on Conrail's requirements for any
such agreement, including a full and fair price for Conrail's
shareholders and a true merger-of-equals in which the management and
Boards of Directors of both CSX and Conrail would play an instrumental
role in the combined entity's operation and development.
29. In pursuing negotiations with CSX, Conrail and its Board also
rejected any notion of putting Conrail up for public auction, because
an auction approach carried a substantial risk that, given the small
number of potential bidders, one bidder might collude with another
competitor and purchase Conrail for a lower price. Such collusive
bidding would, thus, risk losing CSX as a partner and deny Conrail's
shareholders higher share value. In fact, as further set forth herein,
CSX and Norfolk Southern had considered a joint bid in the recent
past; therefore, an auction approach would have been detrimental to
achieving the best transaction for Conrail, its shareholders and its
other constituencies.
30. Conrail initially pursued a stock-for-stock exchange with
CSX, but ultimately considered other structures because of the
potential for dilution of CSX's stock. Conrail also continued to
reject an all-cash merger because Conrail's shareholders would not
have continuing participation in the combined company and because the
merger would become a taxable transaction. The companies finally
agreed upon a structure of 40% cash and 60% stock, which yielded an
efficient transaction in light of CSX's existing capital structure.
The "price" ultimately negotiated with CSX was at the high end of
prices paid in
<PAGE>
other railroad mergers. At the then-current prices, the merger
reflected over a 30% premium for Conrail shareholders, and a premium
of over 40% if the Conrail trading price was adjusted for price
distortion due to recent take-over speculation. The relative values
were dramatically superior to the premium that Goode had rejected in
1994.
32. The governance terms of the agreement negotiated were also
important and favorable to Conrail and ensured that Conrail's various
constituencies would be treated fairly and favorably by, and would be
full participants in, the combined entity:
(a) The new entity's headquarters would be located in
Philadelphia;
(b) LeVan would be President of the railroad operations
initially and succeed CSX's Chairman and Chief Executive Officer,
John W. Snow ("Snow"), as Chief Executive Officer of the holding
company in two years;
(c) Half of the board seats and committees of the combined
entity would be filled by Conrail directors; and
(d) Shareholders would maintain a significant continuing
equity interest in the combined entity.
33. These management discussions with CSX were reported to the
Conrail Board at a meeting on October 10, 1996.
<PAGE>
The October 14, 1996 Conrail Board Meeting
------------------------------------------
34. On October 14, 1996, the Conrail Board gave final
consideration to the proposed Conrail/CSX strategic merger. The Board
was presented with a detailed analysis of the relative benefits of a
Conrail/CSX strategic merger, which included, among other things, high
potential growth, high synergistic potential, a diversified customer
base, expanded service partnerships with utilities, coal producers,
and other customers, greater single-line service and other benefits
for customers, operating savings, the benefit of the similar operating
and commercial visions that pervaded the two companies and good
strategic placement for Conrail in ongoing industry-wide
consolidation. In addition, the Board was presented with a comparison
of the structure of the CSX and Norfolk Southern operations and
analyses of the fairness of CSX's purchase price.
35. After determining that the merger was in the best interests
of Conrail, the Board unanimously agreed, and in a separate vote the
outside directors unanimously agreed, to approve the Conrail/CSX
strategic merger and enter into a merger agreement.
The Merger Agreement
--------------------
36. That same day, October 14, 1996, Conrail and CSX executed the
Merger Agreement. The Merger Agreement includes the following terms:
(a) A tender offer (the "Initial Tender") for up to 19.9% of
Conrail's shares at a price of $92.50 per share.
(b) A Special Shareholders Meeting ("First Shareholders
Meeting") currently scheduled for December 23, 1996, to consider
an amendment to Conrail's Articles of Incorporation to opt-out of
Chapter 25, Subchapter E of the BCL (the "Articles Amendment").
<PAGE>
(c) If Conrail shareholders approve the Articles Amendment,
a second tender offer for up to an additional 20.1% of Conrail
shares at a price of $92.50 per share, representing a premium of
more than 30% over Conrail's October 15, 1996 stock price
("Second CSX Tender Offer").
(d) A Special Shareholders Meeting (the "Second Shareholders
Meeting") at which Conrail shareholders will have the opportunity
to approve or reject the strategic merger.
If approved at the Second Shareholders Meeting, a merger
with Conrail under which Conrail shareholders will receive
1.85619 shares of CSX stock for each share of Conrail common
stock.
(f) A provision that the board of directors of the surviving
corporation will be divided equally between directors selected by
Conrail and directors selected by CSX.
(g) Location of the corporate headquarters of the combined
entity in Philadelphia, PA, with LeVan as the immediate President
and Chief Operating Officer of the combined entity, his selection
as the Chief Executive Officer of the combined entity in two
years, and his selection as Chairman of the combined entity in
four years.
A copy of the Merger Agreement is not attached hereto because it is
extremely lengthy and because it is already in the possession of
Counterclaim-Defendants.
37. On October 15, 1996, Conrail publicly announced that it had
agreed to a strategic merger with CSX. In accordance with the Merger
Agreement, on October 16, 1996, CSX commenced the Initial Tender to
purchase up to 19.9% of the shares of stock of Conrail at a price of
$92.50 per share. Conrail concurrently filed a Schedule 14D-9 with the
Securities and Exchange Commission ("SEC") and recommended the Initial
Tender to Conrail shareholders.
38. The Conrail/CSX strategic merger met with immediate praise
from the financial community.
<PAGE>
Norfolk Southern's Scheme to
Sabotage the Conrail/CSX Strategic Merger
-----------------------------------------
39. In its Complaint, Norfolk Southern has alleged that at a
meeting of the Norfolk Southern Board on September 24, 1996, Goode was
directed by his Board to contact LeVan and present LeVan with a
concrete proposal for a combination of Norfolk Southern and Conrail.
40. Goode has misrepresented that he called LeVan after the
Norfolk Southern Board meeting on September 24 and before Conrail's
strategic meetings on September 25 and 26, 1996, in Ligonier. In fact,
Goode did not make this call to LeVan, and he never told LeVan that he
had a concrete proposal or that he wanted to make a presentation to
the Board. Moreover, at that time no concrete proposal had been
formulated by Norfolk Southern.
41. Upon learning of the Conrail/CSX strategic merger
announcement, and knowing that he had failed to carry out the recently
expressed wishes of his Board, Goode and others on behalf of Norfolk
Southern immediately began formulating a scheme to destroy the merger,
take over Conrail or certain of its key assets, damage financially the
merged Conrail/CSX company and reduce its ability to compete with
Norfolk Southern, and/or disrupt the merged entity's relationships
with current and prospective business partners, customers and
employees.
<PAGE>
(1) Norfolk Southern's Hostile Tender Offer and its False and
Misleading Public Statements About the Offer and the
Conrail/CSX Merger Agreement
42. Norfolk Southern announced an illusory and unlawfully
conditioned hostile tender offer (and initiated a media campaign
concerning the offer) specifically designed to: (1) deceive Conrail
shareholders into tendering their shares to Norfolk Southern and not
to CSX and/or vote against the steps necessary to consummate the
merger; (2) induce Conrail or CSX to breach and/or terminate the
Merger Agreement; and/or (3) deny Conrail and its shareholders the
future benefits of the strategic merger and future prospective
business relations arising from the merger.
43. On October 23, 1996, Norfolk Southern announced that it would
launch an unsolicited tender offer for 100% of Conrail's shares at
$100 per share, conditioned, among other things, upon: (a) sufficient
financing for the tender offer; (b) affirmative action by the Board or
shareholders of Conrail to render Chapter 25, Subchapter F of the BCL
inapplicable to the offer; (c) termination of the Merger Agreement
"according to its terms or otherwise"; and (d) the inapplicability or
invalidity of Conrail's Shareholder Rights Plan.
44. Norfolk Southern's offer contained material conditions that
it must have known could not and would not be satisfied by its
expiration date -- in particular, termination or breach of the
Conrail/CSX Merger Agreement. Given the conditions imposed by Norfolk
Southern its offer was aptly described by Norfolk Southern's own
expert witness as a "pie in the sky." Hearing, Nov. 18, 1996, Tr. 85.
45. The entire tender offer was an attempt to coerce and induce a
breach of the
<PAGE>
Merger Agreement and to mislead and manipulate the Conrail
shareholders and the investing public.
46. Even prior to the opening of trading on October 23, 1996,
senior executives of Norfolk Southern met with securities analysts to
announce that Norfolk Southern was making an offer to purchase Conrail
shares at $100 per share. At this meeting, Norfolk Southern
intentionally made material misstatements by failing to inform these
analysts that: (1) the Conrail Board had no duty whatsoever to auction
Conrail; (2) that Conrail had informed Norfolk Southern that Conrail
was not for sale; and (3) that the tender offer could not be
consummated pursuant to its terms.
47. Completion of the Norfolk Southern tender offer was never
possible because, as Norfolk Southern well knew or should have known
when it announced its tender offer, the Merger Agreement specifically
precluded Conrail until April 13, 1997 (or, if earlier, the date on
which the Merger Agreement is terminated for any other reason, such as
the failure by Conrail's shareholders to approve the merger at a
meeting duly called to vote thereon) from: (i) withdrawing or
modifying, or publicly proposing to withdraw or modify, its approval
or recommendation of the CSX tender offer and the merger in a manner
adverse to CSX; (ii) approving or recommending, or publicly proposing
to approve or recommend, any competing proposal (such as the Norfolk
Southern tender offer); or (iii) causing Conrail to enter into any
agreement related to any such competing proposal. Indeed, Norfolk
Southern knew that the Conrail Board was under no obligation ever to
recommend the Norfolk Southern offer.
<PAGE>
48. To bolster their scheme to disrupt the Merger Agreement and
strategic merger, Norfolk Southern and its subsidiaries omitted
material information from the Schedule 14D-1 filed with the SEC on
October 24, 1996, regarding the impossibility of Norfolk Southern
paying to Conrail shareholders the $100 per share in its tender offer,
including the fact that the Norfolk Southern offer could close only if
Conrail and CSX agreed to terminate the Merger Agreement or if the
Merger Agreement were breached by Conrail, with the resulting
potential damages and other legal consequences.
In addition, Norfolk Southern and its subsidiaries omitted
material information from the definitive proxy statement filed on
November 4, 1996, regarding Norfolk Southern's inability to pay
Conrail shareholders $100 per share in accordance with its offer and
falsely insinuated that Norfolk Southern could force the Conrail Board
to apply auction rules to a strategic merger of equals transaction
where they do not apply.
50. Norfolk Southern also launched an aggressive and misleading
media campaign, including full page ads in the Wall Street Journal,
New York Times, and Philadelphia Inquirer in an effort to dissuade
Conrail's shareholders from voting to opt out of Subchapter 25E of the
BCL and also to persuade them to make a futile tender of their shares
to Norfolk Southern. The advertisements again misleadingly omitted
material facts regarding the timing of Norfolk Southern's purchase of
shares (i.e., that the Conrail shareholders could not successfully
tender their shares to Norfolk Southern because Norfolk Southern's
tender offer was conditioned upon termination or breach of the
Conrail/CSX Merger Agreement), perpetuated the illusion of an offer
that could result in the payment to Conrail shareholders
<PAGE>
$100 per share, and falsely insinuated that Norfolk Southern could
force the Conrail Board to apply auction rules to a strategic merger
of equals transaction.
51. Norfolk Southern's campaign of deceit and misinformation
succeeded in illegally manipulating the market. Numerous investors
accepted Norfolk Southern's $100 offer on its face without discounting
the offer's value based upon Norfolk Southern's inability to actually
consummate the tender offer within 180 days (it could never take place
without the approval of the Conrail Board). Some analysts and
investors also incorrectly inferred that Conrail was being auctioned.
(2) Norfolk Southern's Vexatious and Deceptive Lawsuit
--------------------------------------------------
On October 23, 1996 -- the same day Norfolk Southern announced
its tender offer -- Counterclaim-Defendant Norfolk Southern and
Kathryn B. McQuade ("McQuade") (Vice President-Internal Audit of
Norfolk Southern) filed the Complaint in this action. The Complaint,
the proposed First Amended Complaint, and the Second Amended Complaint
were verified by Henry C. Wolf, Executive Vice President-Finance of
Norfolk Southern.
53. The lawsuit constitutes part of Norfolk Southern's scheme of
unfair and unlawful interference with the Merger Agreement and the
merger by, among other things, seeking to enjoin: (a) a meeting of
Conrail's shareholders, thus preventing Conrail's shareholder's from
having the opportunity to approve or reject the proposed amendments to
Conrail's Articles of Incorporation; and (b) any steps toward
consummation of the Merger Agreement.
54. Norfolk Southern knew or in the exercise of reasonable
judgment should have
<PAGE>
known that it lacked standing to sue Conrail, its Board or CSX.
Desperate to interfere with the Merger Agreement, however, Norfolk
Southern hurriedly acquired 100 shares of Conrail stock in someone
else's name and recruited Counterclaim-Defendant McQuade to join the
suit as a shareholder in an effort to disguise its deficient
"shareholder" derivative lawsuit.
55. Central to the lawsuit are allegations that Norfolk Southern
offered Conrail a 1.1 to 1 exchange ratio in 1994, that Norfolk
Southern had a concrete proposal for combining with Conrail in
September 1996, and that therefore Conrail somehow has an obligation
to negotiate with Norfolk Southern concerning a possible merger.
Norfolk Southern intentionally made these false and materially
misleading allegations even though Norfolk Southern and Goode knew, or
in the exercise of reasonable judgment should have known that: (a) it
was Norfolk Southern that walked away from a 1.1 to 1 exchange with
Conrail; (b) Goode had no concrete proposal to make to Conrail in
September 1996; and (c) Conrail had no obligation to negotiate with
Norfolk Southern at any time and had contractual obligations not to do
so beginning in October 1996.
56. This groundless and deceptive lawsuit was used by Norfolk
Southern as a basis for publicizing the false allegations and
misleading characterizations that are the heart of
Counterclaim-Defendants' improper, unlawful and unfair scheme to
undermine the Merger Agreement, prevent the merger, and impair
Conrail's and CSX's future business relations.
57. On November 19, 1996, following a two-day evidentiary
hearing, the Court denied Norfolk Southern's request for preliminary
injunctive relief on the grounds that Plaintiffs were not likely to
succeed on the merits of their claim, but this decision only came
<PAGE>
after Conrail and CSX were forced to spend substantial amounts in
legal fees, consultant fees, expert witness fees, and other costs and
expenses related to that groundless litigation.
(3) Norfolk Southern's Attempted Intimidation of the Officers
and Directors of Conrail and CSX and Solicitation of a
Breach of the Merger Agreement
58. Norfolk Southern and Goode have publicly and privately
attempted to intimidate the officers and directors of Conrail and CSX,
in an effort to induce a breach or termination of the Merger
Agreement. These efforts at intimidation include statements by Goode
that, among other things, Norfolk Southern will take a "scorched
earth" approach, will "stop at nothing" to halt the strategic merger,
and will "destroy" the deal, because Norfolk Southern's corporate
pride is at stake. A Norfolk Southern spokesman told The Boston Globe
on November 5, 1996, that "[w]e are pursuing this with a vengeance."
Norfolk Southern and Goode have also publicly and falsely alleged
that the Conrail/CSX strategic merger is being orchestrated by LeVan
for his personal aggrandizement and to increase his pay. Norfolk
Southern made these statements with the intent to deceive the market
and to cause a breach of the Merger Agreement. Norfolk Southern has
the temerity to make these charges despite the fact that it knows full
well, or in the exercise of reasonable judgment should have known,
that provisions for corporate successors are common in merger
agreements and that LeVan is currently under-compensated by industry
standards. In fact, the Court specifically found as follows:
There have been allegations suggesting that the whole
CSX-Conrail merger is being motivated by Mr. LeVan or because it
would assure him by contract of certain higher personal income. I
see nothing wrong with the merger agreement providing who will be
the main executive officers for the
<PAGE>
first few years after the completion of the merger, and I
think the witnesses who testified explained very clearly why
it was really important that they have this assurance in
order that the merger should succeed.
I can see why the directors of Conrail might very well want
to be sure that their existing top executive officer would
continue in top management in the merged corporation, and that
the first board of directors at least will consist equally of
former CSX and former Conrail board members.
60. Norfolk Southern and Goode have also actively solicited CSX
to breach its Merger Agreement with Conrail. Over the weekend of
November 2, 1996, Goode, who knew of Conrail's agreement with CSX, met
with Snow in Williamsburg, Virginia. At that meeting, Goode produced a
map and proposed, with the intention to cause CSX to breach or
circumvent the intent of the Merger Agreement with Conrail, that
Conrail's assets and rail lines be divided between CSX and Norfolk
Southern. In return, Norfolk Southern stated that it would drop its
tender offer.
This solicitation was an attempt by Norfolk Southern to
re-institute the talks which Norfolk Southern had held with CSX in
1995, wherein Norfolk Southern would have carved- up Conrail.
<PAGE>
(4) Norfolk Southern's Public Relations Effort to Falsely
Portray the Merger Agreement to the Investing Public in
Further Support of its Wrongful Scheme
62. Norfolk Southern has launched an extensive public relations
effort designed to mislead the investing public and sow doubt and
confusion among Conrail's shareholders and institutional investors
concerning the economic viability of the merger, to publicly disparage
the business methods and judgments of Conrail's and CSX's Boards of
Directors, and to falsely suggest that the Conrail/CSX strategic
merger was being undertaken by Conrail to benefit the senior
management of Conrail rather than the company and its constituencies.
Norfolk Southern has, among many other examples, made the following
false public statements knowing them to be false, with the intent to
deceive the market, and to pressure Conrail and CSX into breaching or
terminating the Merger Agreement:
(a) In proxy solicitation materials dated November 8, 1996,
Norfolk Southern stated that Conrail shareholders have "nothing
to gain from approving the amendment proposal." This statement is
false. Approval of the amendment proposal would create immediate
potential shareholder benefits, including a second tender offer
by CSX for Conrail shares, and would take a further step toward
realizing the benefits of the Conrail/CSX merger.
(b) In a November 9, 1996 statement in the Dow Jones
Commodities Service,
(b) Norfolk Southern said it would purchase the shares in a
manner that would provide an immediate cash payment to
Conrail Shareholders,
<PAGE>
adding that Conrail Shareholders may have to wait longer to
receive the total value of the CSX offer.
In addition, just yesterday, on December 4, 1996, Norfolk
Southern stated in a shareholder presentation that Norfolk
Southern's offer entails "[i]mmediate value" for Conrail
shareholders, and that a vote against the Subchapter 25E opt out
would help "NS win" and would lead to "higher" and "more
immediate value" for Conrail shareholders.
These statements are false. Norfolk Southern currently
cannot implement its offer to pay any Conrail shareholders cash
for their shares at the scheduled expiration date of its offer.
(c) In an advertisement in the Wall Street Journal dated
November 11, 1996, Norfolk Southern made the following false and
misleading statements:
"1. The value of the back-end stock will fluctuate with
price of CSX stock, and there is no downside
protection."
This statement is misleading because it only tells part of
the story -- shareholders will also share in any upside (a matter
which the Court has found).
"2. Exactly the kind of two-tiered, coercive offer that the
Pennsylvania Fair Value Statute was intended to
address."
This statement is false. First, the Pennsylvania Fair Value
Statute was intended to protect against hostile tender offers
that a board of directors has not approved or determined are in
the best interests of the corporation. The CSX merger is a
friendly transaction approved and recommended by the Conrail
Board because it is in the best interest of the corporation,
considering all of its constituencies. Second,
<PAGE>
the CSX offer is neither coercive nor unlawful, and the Court
agreed: Fluctuation of the CSX stock price, "as I see it, does
not make the matter inherently unfair, unlawful or coercive."
"3. Does not maximize shareholder value."
This is false and misleading. In denying Norfolk Southern a
preliminary injunction, the Court stated:
Until the merger actually goes through, if it does, the
actual amount or valuation of the backend cannot be
accurately determined. CSX stock has apparently -- may
advance or it may decline in the open market prior to the
time that the exchange actually takes place. And we really
have no way of knowing what that is.
Moreover, the testimony revealed that CSX's internal
projections indicate a per share value for the stock portion of
the CSX offer higher than the current market price, which would
significantly exceed Norfolk Southern's $110 per share offer.
(d) In a November 11, 1996 advertisement in the New York
Times, Norfolk Southern stated that up to 100% of Conrail's
shares can be purchased by Norfolk Southern through a voting
trust in the near term. This is misleading. Norfolk Southern
either knew or in the exercise of reasonable judgment should have
known, that without Conrail breaching or terminating its
agreement with CSX, Norfolk Southern could not purchase shares
pursuant to its offer prior to mid-April, 1997.
<PAGE>
(e) In Amendment No. 10 to Schedule 14D-1, Exhibit (a) (45),
filed on November 18, 1996 (and appearing in the New York Times)
Norfolk Southern stated:
Norfolk Southern and Conrail can both boast overfunded
pension funds, ensuring peace of mind for retirees. CSX's
claim to fame is its recent recognition as one of the "Top
50 Companies with the Largest Underfunded Pension Liability"
[footnote omitted]. CSX could merge its anemic fund with
Conrail's, thereby using money accumulated for Conrail
employees to fund CSX's promises to its own employees.
In addition, in Amendment No. 7 to Schedule 14D-1, Exhibit
(a) (38), filed on November 12, 1996, Norfolk Southern included
remarks by Goode at a transportation conference which state:
At the same time, I'd be concerned about my retirement. I'd
want my overfunded Conrail pension fund to be combined with
Norfolk Southern's overfunded pension fund. I would not want
it anywhere close to CSX's, which had been on the Pension
Benefit Guarantee Corporation's list of Ten Most Underfunded
Pension Plans.
This is an attempt to mislead Conrail's retiree-shareholders
into believing that the merger with CSX would jeopardize their
retirement pensions by creating a plan that was underfunded. In
fact, simple arithmetic based on Conrail's and CSX's most recent
annual reports demonstrates that the post-merger pension fund
would be overfunded.
(f) In a press release dated November 19, 1996, Norfolk
Southern stated that:
Throughout two days of testimony before the District Court,
there was no dispute that Norfolk Southern's offer was
financially superior to CSX's.
This statement is false. The future value of the Merger
back-end is unknown,
<PAGE>
but it may substantially increase to a value in excess of Norfolk
Southern's "offer". In fact, the Court found at the hearing,
based upon the testimony presented, that the relative value of
the offers was uncertain:
Until the merger actually goes through, if it does, the
actual amount of valuation of the back end cannot be
accurately determined. CSX stock has apparently -- may
advance or it may decline in the open market prior to the
time the exchange actually takes place. And we really have
no way of knowing what that is.
In Amendment No. 13 to Schedule 14D-1, Exhibit (a)(47),
filed on November 21, 1996, Counterclaim-Defendants stated that
"the only major conditions that remain to be satisfied are those
requiring actions by Conrail's board of directors". This
statement is materially misleading in that it suggests that the
Conrail Board could freely chose to satisfy the condition. The
statement does not disclose that Norfolk Southern's remaining
conditions would require Conrail to "act" by breaching its
Agreement with CSX or that, if the Merger Agreement is to be
terminated, the consent of CSX is necessary.
<PAGE>
(h) On December 4, 1996, Norfolk Southern ran a full page
advertisement in the Philadelphia Inquirer and the Pittsburgh
Post Gazette aimed at Conrail's shareholders, employees and
retirees that again makes false and materially misleading
statements regarding the effect of the Conrail/CSX merger on the
jobs and pensions of Conrail's employees. Norfolk Southern also
made the following statement:
Employees should also know that a number of senior
Conrail executives have been selling Conrail shares not only
pursuant to the CSX offer but also in the open market. Does
this manifest a lack of confidence in the value and the
chances of completion of CSX's proposed deal, which would
have 75% of the remaining Conrail shares converted into CSX
stock in the back-end merger?
This statement is false and misleading. As disclosed in Amendment
No. 7 to Conrail's Schedule 14D-9, Item 6, certain of Conrail's
executives exercised stock options for the purpose of tendering
to CSX, and they continue to hold their remaining Conrail shares,
thus demonstrating their confidence in the Conrail/CSX merger.
These executives were only selling their shares for the purpose
of covering the exercise price. Norfolk Southern's statements are
a deliberate attempt to scare and mislead Conrail's
employee-shareholders and retiree-shareholders. Finally, Norfolk
Southern's statement that "Conrail Board action [is] required" to
satisfy the Norfolk Southern offer conditions is materially
misleading for reasons already explained in this paragraph 62.
<PAGE>
(i) Finally, Counterclaim-Defendants intentionally and
falsely (for the reasons explained above) stated in
advertisements filed with the SEC that the merger was a
"sweetheart deal" (Amendment No. 5 to Scheduled 14D-1, Exhibit
(a)(28) and Amendment No. 8 to Schedule 14D-1, Exhibit (a)(41));
that the Board was "self- serving" (Amendment No. 8 to Schedule
14D-1, Exhibit (a)(42)); was "putting its own interests ahead of
everyone else's" (Amendment No. 10 to Schedule 14D-1, Exhibit
(a)(45)) and was "acting for the personal interests of
[Conrail's] officers and directors". (Amendment No. 2 to Schedule
14D-1, Exhibit (a)(12)).
63. The conduct of Norfolk Southern set forth in paragraphs 39
through 62 is outrageous, wanton, malicious and oppressive, by reason
of which Conrail and CSX are entitled to significant damages,
including punitive damages.
The Conrail Board's Judgment with Respect to Subsequent Events
--------------------------------------------------------------
On November 5, 1996, CSX increased its tender for 19.9% of
Conrail's shares from $92.5 to $110.
65. On November 5, 1996, the Conrail Board met to consider
Norfolk Southern's and CSX's proposals. The Board also addressed
meetings that occurred between CSX and Norfolk Southern on November 2
and 3, 1996, in which CSX and Norfolk Southern discussed the division
between them of material assets of Conrail. The Board expressed
concern that Norfolk Southern and CSX might decide to join together
and carve up Conrail.
66. In light of these and other events, Conrail demanded that a
provision be added to the Merger Agreement by which Conrail and CSX
would agree not to separately discuss,
<PAGE>
or enter into any agreement, with any railroad regarding the assets or
securities of Conrail. For its part, CSX agreed to increase its tender
offer to $110 per share, an increase of over $600 million from CSX's
previous offer, and demanded an extension of the 180-day no-
solicitation provision to 270 days.
67. After considering all relevant factors, the Conrail Board
decided to reject Norfolk Southern's unsolicited bid and affirm the
newly enhanced Merger Agreement with CSX. The Board found that the
Conrail/CSX strategic merger continued to provide the greatest overall
benefit to Conrail and its various constituencies.
68. On November 7, 1996, Norfolk Southern raised its hostile,
unlawfully conditioned takeover bid for Conrail to $110 per share. The
Conrail Board recommended on November 13, 1996 that shareholders not
tender their shares pursuant to the revised Norfolk Southern tender
offer, because, among other things, shares tendered into the Norfolk
Southern offer, which was to expire on November 22, could not be
accepted for payment under the terms of that offer. The Norfolk
Southern tender offer has now been extended to December 16, 1996.
Conrail's Board also recommended that shareholders who desire to
receive cash now for a portion of their shares tender to the offer of
CSX, which expired on November 20.
<PAGE>
The Conrail Board Exercised its Proper Business Judgment Under the BCL
----------------------------------------------------------------------
69. The Conrail Board's decision to pursue, approve, enter into,
and recommend the Merger Agreement with CSX was the result of a
careful and deliberate analyses of the strategic alternatives
available to Conrail. That analysis led to a reasoned decision that
brings to all of Conrail's constituents the unique benefits of this
strategic merger of equals.
70. This deliberative process was recognized in the Court's
decision:
Section 1716 reiterates that in considering the effects of
any action, directors may consider the effects on stockholders,
employees, suppliers, customers and the communities in which the
officers and/or facilities are located and all pertinent factors,
and that no factor need be predominant.
In this case there has not been shown any type of lack of
good faith after a reasonable investigation by any director so
far as I have been able to determine from the evidence that has
been presented, including any of the exhibits that have been
presented, and clearly if there is any evidence at all of such of
which I say I find absolutely none on the present record, it has
not been proven by clear and convincing evidence. . . .
For this reason alone, the grant of preliminary injunction
as I see it may not be granted. Basically it seems to me that the
plaintiffs are contending that the sole or at least the primary
consideration by a board of directors in considering a competing
offer by potential acquirers of the control of a corporation
should be which competitor offers the best short-range price or
profit for shareholders. Clearly Pennsylvania statutory law is
expressly against such a contention.
(Emphasis added).
<PAGE>
MONETARY DAMAGES CAUSED OR THREATENED BY
----------------------------------------
NORFOLK SOUTHERN'S CONDUCT
--------------------------
71. As a direct and proximate result of the acts and omissions of
the Counterclaim-Defendants, as set forth in this Counterclaim,
Conrail and CSX have suffered, will continue to suffer, and are
further threatened with, severe economic injuries and damages
including, among other things, loss of the bargain negotiated between
Conrail and CSX, the loss of present and prospective business
relations and other economic benefits as a result of the strategic
merger, and the resultant consequential and incidental damages from
Norfolk Southern's conduct, and attorneys' fees, consultant fees,
expert fees, court costs and other expenses incurred in defending
against the illegal and improper actions of Norfolk Southern.
REQUEST FOR PUNITIVE DAMAGES
----------------------------
72. The conduct of Counterclaim-Defendants Norfolk Southern,
Atlantic Acquisition and McQuade, and of co-conspirators/aiders and
abettors Goode and Wolf, is and has been intentional, malicious, and
of such a nature to warrant the imposition by this Court of
substantial punitive damages.
COUNT ONE
---------
Norfolk Southern's Tortious Interference With
Conrail's and CSX's Contractual Relationships
---------------------------------------------
Paragraphs 1 through 72 are incorporated by reference as if fully
set forth herein.
74. In its ongoing campaign to destroy the Merger Agreement and
the Conrail/CSX strategic merger and to induce Conrail and/or CSX to
breach the Merger
<PAGE>
Agreement, Norfolk Southern made false statements of material fact,
and omitted material facts that were and are necessary to make other
of their statements not false or misleading in Norfolk Southern's
proxy and tender materials pursuant to Schedule 14A and Schedule 14D-1
and/or the amendments thereto, in continuing violation of Sections 9,
10(b), 14(a), (d), and (e) of the Exchange Act of 1934, 15 U.S.C.
ss.ss. 78i, 78j(b), 78n(a), 78n(d)(1), 78n(e), and the rules and
regulations promulgated thereunder.
In connection with their stated intention to purchase shares of
Conrail stock and in order to give the false impression that it was
ready, willing, and able to make a truly competitive and deliverable
offer, Norfolk Southern has, with an intent to deceive, manipulate and
defraud, made false and misleading statements or omissions of material
facts upon which Conrail's shareholders or other past or prospective
purchasers or sellers would and did rely in tendering and in deciding
whether and at what price to tender their shares to Norfolk Southern
and/or CSX, and may rely in casting their votes at critical junctures
in the consummation of the merger, and have otherwise used and
employed manipulative and deceptive devices and contrivances as
alleged above, in continuing violation of Sections 9 and 10(b) of the
Exchange Act of 1934, 15 U.S.C. ss.ss. 78i, 78j(b), and the rules and
regulations promulgated thereunder.
76. Norfolk Southern, through the illegal, improper, unprivileged
and unfair conduct described above, and with the intent to harm
Conrail and CSX, has intentionally, wrongfully, and tortiously
interfered, and continues to do so, through illegal and improper means
with the Merger Agreement between Conrail and CSX and the contractual
relations
<PAGE>
between Conrail and CSX and between Conrail and its shareholders.
77. Counterclaim-Defendant McQuade, as well as Goode and Wolf,
conspired with, and aided and abetted Norfolk Southern's deliberate
course of tortious interference with contractual relations as set
forth above.
COUNT TWO
---------
Norfolk Southern's Tortious Interference With
Conrail's and CSX's Prospective Contractual Relationships
---------------------------------------------------------
Paragraphs 1 through 77 are incorporated by reference as if fully
set forth herein.
Norfolk Southern, through the illegal, improper, unprivileged and
unfair conduct described above, and with the intent to harm Conrail
and CSX, has intentionally, wrongfully, and tortiously interfered, and
continues to do so, through illegal and improper means with the
prospective business relations of Conrail and CSX by threatening and
disrupting: consummation of Conrail's strategic merger with CSX;
orderly consideration of the strategic merger by Conrail's
shareholders; the merged entity's relationships with prospective
business partners, customers and employees; and other prospective
business relationships of Conrail and the combined entity.
80. Counterclaim-Defendant McQuade, as well as Goode and Wolf,
conspired with, and aided and abetted Norfolk Southern's deliberate
course of tortious interference with prospective contractual relations
as set forth above.
<PAGE>
COUNT THREE
-----------
Norfolk Southern's Intentional Infliction of Harm on Conrail and CSX
--------------------------------------------------------------------
Paragraphs 1 through 80 are incorporated by reference as if fully
set forth herein.
82. Norfolk Southern, through the illegal, improper,
unprivileged, unfair, and unjustified conduct described above, and
with the intent to harm Conrail and CSX, has and continues to injure
the legally protected interests of Conrail and CSX. Those interests
include, but are not limited to: the right to consummate Conrail's
strategic merger with CSX; the right to have that merger considered in
an orderly fashion by Conrail's shareholders; the right of the merged
entity to enjoy unfettered relationships with its prospective business
partners, customers and employees; and the right to be free from the
tortious, defamatory campaign of deceit being waged by Norfolk
Southern.
This conduct, together with the conduct more fully set out above
and the other counts alleged herein, is tortious and is causing
significant and intentional damage to Conrail and CSX.
84. Counterclaim Defendant McQuade, as well as Goode and Wolf,
conspired with, and aided and abetted Norfolk Southern's deliberate
course of intentional, unjustified culpable conduct set forth above.
COUNT FOUR
----------
Norfolk Southern's Unfair Competition
-------------------------------------
Paragraph 1 through 84 are incorporated by reference or if fully
set forth herein.
<PAGE>
86. Norfolk Southern's campaign of deceit and misrepresentation
designed to confuse and mislead Conrail shareholders, and disparage
the conduct of the Conrail Board, together with the other tactics and
schemes set forth above, constitute unfair competition that is
contrary to honest commercial practices and falls below any minimum
standards of fair dealing and legitimate competitive conduct.
87. Counterclaim Defendant McQuade, as well as Goode and Wolf,
conspired with, and aided and abetted Norfolk Southern's deliberate
course of intentional deceit, misinformation and disparagement set
forth above.
COUNT FIVE
----------
Civil Conspiracy
----------------
88. Paragraphs 1 through 87 are incorporated by reference as if
fully set forth herein.
89. Norfolk Southern has conspired with, among others, Goode,
Wolf and McQuade to commit many of the actions described above,
including, without limitation, the institution of a groundless,
deceptive lawsuit and the dissemination of false and misleading
statements.
90. On information and belief, Counterclaim-Defendant Norfolk
Southern combined and conspired with Goode, Wolf and McQuade with a
common purpose to undertake to do an unlawful act and/or to do a
lawful act by unlawful means or for an unlawful purpose, and took acts
in furtherance of the conspiracy, as set forth above.
<PAGE>
PRAYER FOR RELIEF
-----------------
WHEREFORE, Conrail and CSX request that this Honorable Court:
1. Enter a judgment in favor of Conrail and against
Counterclaim-Defendants, individually, jointly and severally, in an
amount in excess of $50,000, exclusive of interest and costs, together
with an appropriate award of punitive damages. Conrail further
requests that this Court award Conrail the costs of this action and
its reasonable attorney's fees.
2. Enter a judgment in favor of CSX and against
Counterclaim-Defendants, individually, jointly and severally, in an
amount in excess of $50,000, exclusive of interest and costs, together
with an appropriate award of punitive damages. CSX further requests
that this Court award CSX the costs of this action and its reasonable
attorney's fees.
3. Grant such other and further relief as may be necessary or
appropriate.
JURY TRIAL DEMAND
-----------------
Conrail and CSX hereby demand a trial by jury on all issues
raised in the foregoing Counterclaim.
<PAGE>
Dated: December 5, 1996 Respectfully submitted,
BALLARD SPAHR ANDREWS & BUCHANAN INGERSOLL
INGERSOLL PROFESSIONAL CORPORATION
- -------------------------------- ----------------------------------
David H. Pittinsky, Esquire Thomas L. VanKirk, Esquire
PA ID #04552 PA ID #01583
Stanley Yorsz, Esquire
1735 Market Street PA ID #28979
51st Floor Anthony J. Guida Jr.
Philadelphia, PA 19103-7599 PA ID #47103
(215) 665-8500 Raymond McGarry, Esquire
PA ID #56520
and Sheila Smith DiNardo,. Esquire
PA ID #62994
Theodore N. Mirvis, Esquire
Paul K. Rowe, Esquire and
George T. Conway, Esquire
WACHTELL, LIPTON, ROSEN & KATZ John Beerbower, Esquire
51 West 52nd Street Gerald Ford, Esquire
New York, NY 10019-6150 Matthew C. Garrison, Esquire
(212) 403-1000 Jeffrey R. Knight, Esquire
Cravath, Swaine & Moore
Counsel for CSX Corporation 825 8th Avenue
Worldwide Plaza
New York, NY 10019
Counsel for Conrail Inc.
and the Individual Defendants
David M. LeVan, H. Furlong Baldwin,
Daniel B. Burke, Roger S. Hillas,
Claude S. Brinegar, Kathleen Foley
Feldstein, David B. Lewis,
John C. Marous, David H. Swanson, E.
Bradley Jones and Raymond T. Schuler.
<PAGE>
CERTIFICATE OF SERVICE
----------------------
The undersigned hereby certifies that on this 5th day of
December, 1996, true and correct copies of the foregoing Answer and
Defenses of Conrail, CSX and the Individual Defendants to Second
Amended Complaint and Counterclaim of Conrail and CSX were served via
fax and first class United States Mail, postage prepaid, as follows:
Mary A. McLaughlin, Esquire DECHERT, PRICE & RHODES 4000 Bell Atlantic
Tower 1717 Arch Street Philadelphia, PA 19103
Steven J. Rothschild, Esquire
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
One Rodney Square
P.O. Box 636
Wilmington, DE 19899
Stuart H. Savett, Esquire
SAVETT, FRUTKIN, PODELL & RYAN, P.C.
Walnut Place
In Society Hill, Suite 5080
320 Walnut Street
Philadelphia, PA 19106
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