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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 6
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 and November 20, 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 November 20, 1996, Conrail and CSX issued a joint press
release, a copy of which is attached hereto as Exhibit (a)(10), with
respect to the appeal heard on November 20, 1996 by the United States
Court of Appeals for the Third Circuit, in connection with the denial
by the United States District Court for the Eastern District of
Pennsylvania of Norfolk's motion for a preliminary injunction.
On November 21, 1996, CSX issued a press release, a copy of
which is attached hereto as Exhibit (a)(11), with respect to the
results of the CSX Offer, which expired at midnight Eastern time on
Wednesday, November 20, 1996.
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)(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).
(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).
<PAGE>
(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.
<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 November 21, 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)...
(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).
(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.............................................
- ---------------------
* Previously filed
<PAGE>
EXHIBIT (c)(6)
First I want to thank all counsel very much for the very
excellent briefs that have been submitted, the pleadings that have
been submitted in this matter, the very fine presentations that
have been made on behalf of their respective clients. I'm sorry
that we are pressed for time and have been throughout this whole
proceeding. That's the way preliminary injunction applications
always seem to have to operate.
This is an important matter. As I said, I think that even
though I won't be citing a lot of cases or anything of that sort, I
think that it's more important that I make the decision now so that
the parties will have whatever appellate rights they may have and
have them promptly.
I say it is an important matter. Wasn't it Everett
Dirksen who used to say "a billion dollars here and a billion
dollars there and pretty soon you're talking about real money"?
Well, that's what this case seems to be.
First, it's here in Federal Court because of claimed
Williams Act violations. The purpose of the Williams Act as to
tender offer, as I understand it at least, is to assure that there
is adequate and fair and full information provided to shareholders
so that they will be able to have an informed basis upon which to
decide whether
<PAGE>
to tender their shares, hold their shares or perhaps sell them on
the open market.
Plaintiffs have presented evidence and arguments that
certain of the information constituted either misstatements of fact
or omitted information that it was necessary to make in order that
the information that was provided was not misleading.
Most of those contentions, quite frankly, appear to me to
be what is generally called nitpicking or insignificant matters.
Even if there were questions about the original tender offer, I am
convinced that the amendments that were provided were clearly
adequate to correct any deficiencies. Certainly all of the
shareholders have been literally deluged in the last few weeks with
information about the proposed CSX Conrail merger agreement and the
CSX and competing Norfolk shareholders will have in aggregate less
than a controlling interest and it apparently would be
approximately one-third stake in the newly-merged corporation.
Some of the information that plaintiffs contend must be
included would indeed make the information so voluminous that
shareholders would be inundated, and that has also been held to be
improper. The tender offers that have been provided to the
shareholders with the accompanying
<PAGE>
documents already take several hours of careful study to read, and
that's without any of the attached exhibits.
The only relief that ordinarily would be granted or could
be granted would be to enjoin the tender offer going forward until
and unless proper amendments were provided to the shareholders, and
to extend the period of time that the tender offer should remain
open.
Of course that is one of the primary things and that is
what the plaintiffs seek by way of this preliminary injunction. To
do that, it seems to me, that such preliminary injunction would
have to spell out in detail exactly what deficiencies would need to
be corrected. And as I understand it, at least the primary
contentions now are that it did not sufficiently spell out how
Lazard & Freres and the other financial institution that provided
an opinion as to a fair valuation or fair pricing reached their
conclusions and that it did not contain sufficient Southern tender
offers.
In addition there has been significant coverage in the
financial and news sections of many of the newspapers. Obviously I
would concede of course that even though other information was
provided in the papers and news media that the Williams Act does
require that the tender offeror and the responding target
corporation provide full and adequate
<PAGE>
information. And therefore it there were incorrect statements made
in the tender offer or in the responding information by the target
corporation, it would not necessarily be corrected because there
was other public information to the contrary or that would have
corrected those statements.
However it is hard for me to conceive of any interested
shareholder being misled in any way by the information provided by
either CSX or Conrail in their respective public disclosures or
lack of information.
Although I agree that the persistent and repeated
reference by both CSX and Conrail that the proposed merger will be
a merger of equals is somewhat indefinite in its meaning, certainly
any reasonable shareholder would recognize this terminology as
being a statement of opinion and that the assertion could be made
in good faith notwithstanding the rather obvious fact that if this
merger proposal as contemplated in the merger agreement goes
through, Conrail information as to all of the factors that were
taken into consideration and how they arrived at what the
synergies, what savings will be brought about by the synergies.
I don't think that those details, since they do state in
the information given what those total savings will
<PAGE>
be or what they are projected to be, it seems to me that going into
further detail as to that would be certainly not required under the
Williams Act.
I am not convinced that the plaintiffs have established
that they are likely to succeed on any of their Williams Act
claims, particularly in light of all of the disclosures that have
been made to the shareholders.
Therefore, the motions for preliminary injunction for
violations of the Williams Act against the CSX tender offer going
forward will be denied.
I might add, of course, that most of the complaints about
the information that has been given is the information that was
provided by Conrail in its -- as a target in its responses, whereas
the tender offer is actually being made by CSX. I'm not suggesting
that that makes any particular difference, but I think that it may
have some significance as to whether or not the information
provided by CSX complies with the Williams Act.
There is also a question of irreparable harm. Now, it is
my understanding that in Williams Act cases where there is a
Williams Act violation that it is appropriate under certain
conditions to enjoin the tender offer going forward. So I don't
think there need be shown any further irreparable harm ordinarily
in an injunction based on
<PAGE>
Williams Act violations other than the violation itself. As I say,
however, it is my conclusion that on the basis of all of the
evidence that's been presented that there is no Williams Act
violation and certainly it's not so clear that a preliminary
injunction should be entered.
Plaintiffs also seek to jettison the merger agreement
proceeding because they claim that the board of directors of
Conrail have violated their fiduciary duties to Conrail
shareholders. Defendants counter by contending that all actions
they have taken and intend to take are strictly in accordance with
the law. These claims of course are all based on state law and
because Conrail's incorporated in and has its principal place of
business in Pennsylvania, it seems clear and I believe everyone
agrees that Pennsylvania corporate law applies as to the duties of
corporate directors and the rights of the shareholders in this
particular case.
In substance, as I understand it, plaintiff's primary
arguments are founded on the contention that the so-called
two-tiered back-ended merger is illegal under Pennsylvania law
because it unfairly coerces the shareholders to tender their shares
to CSX -- or rather I believe it's actually Green Acquisition
Corporation, but I'm using those two corporations interchangeably.
It coerces
<PAGE>
them to do so in fear that if they fail to tender their shares they
will receive less consideration in the later exchange of CSX stock
for Conrail stock. That is, that the back end portion or the 60
percent stock that would be exchanged -- of Conrail stock that
would be exchanged in the back end of the deal would not be worth
the amount that is presently offered for the front end which is
$110 a share.
Until the merger actually goes through, if it does, the
actual amount or 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 that the exchange
actually takes place. And we really have no way of knowing what
that is. There are ways of valuing it as of today's market value,
and it would seem clear that if you apply today's market value and
using the formulas that economists like to use of the value of
money and so on, reducing it and so on, it would appear that the
back end would not be worth the $110.
That, however, as I see it does not make the matter
inherently unfair, unlawful or coercive as that term is being used.
By statute under the so-called Pennsylvania business corporation
law that was enacted, most recently enacted or amended in 1990, the
general duties of directors is set forth in Section 1712 which
imposes a fiduciary
<PAGE>
obligation on directors to perform their duties in a good-faith
manner as directors believed to be in the best interests of the
corporation. I note that this duty is to the corporation; not
necessarily to the shareholder. These duties must be performed with
such care including reasonable inquiry, skill and diligence as a
person of ordinary prudence under similar circumstances would
exercise.
In doing this, directors by statute may rely on
information from officers and employees of the corporation which
the directors reasonably believe to be competent and reliable,
including also attorneys, CPAs and corporate committees.
The express fiduciary duties are further spelled out in
subchapter B. Section 1715 expressly and perhaps uniquely provides
that directors may consider all groups that may be affected by
their actions, including shareholders, employees, customers,
communities in which the corporate offices and facilities are
located and may consider both the short-term and the long-term
interests of the corporation. I note in this regard that under the
merger agreement and/or probably the Norfolk Southern which I'll
refer to as NS tender offer Conrail will probably no longer exist
as an independent stand-alone corporate enterprise.
<PAGE>
In addition, directors may consider the resources, intent
and conduct, both past and potential, of any party seeking to
acquire control. Section 1715(b) expressly provides that in
considering the best interests of the corporation or the effects of
any action, the directors are not required to consider the
interests of any group, obviously including shareholders, as a
dominant or controlling factor, nor does it specify how those
interests shall be quantified or weighed by the corporate
directors.
Section 1715(c) further qualifies directors' obligations
by expressly providing that the director's fiduciary duties shall
not be deemed to require directors to, one, redeem any rights under
or to modify or render inapplicable any shareholders' rights plans.
I understand that as meaning that the directors cannot be compelled
under the rubric of performing their fiduciary duties to redeem the
so-called poison pill plan that will become applicable in this case
if NS acquires more than 10 percent of Conrail stock.
This section to me says that the Court may not through a
mandatory injunction compel a redemption of the poison pill as to
Norfolk Southern. Notwithstanding that under the merger agreement
the poison pill will not become
<PAGE>
applicable to CSX acquisition when it acquires more than 10 percent
of the Conrail stock.
Section 1715(c)2 provides that the directors' fiduciary
duties shall not be deemed to require them to render inapplicable
or make determinations under subchapter E relating to control
transactions. In this case, the proposed opt-out of subchapter E
insofar as applicable to the CSX-Conrail merger. In other words,
the directors shall not be deemed to require them to render
inapplicable the proposed opt-out of subchapter E insofar as
applicable to this merger, and that would, I believe, include also
the proposed tender offer by -- or the tender offer rather by NS.
Subchapter F relating to business combinations between an
acquiring party and the corporation acquired; again, one of the
things that the plaintiffs want to have the Court enjoin. And also
it does not require that subchapter F not be applicable to NS
because the merger agreement will make inapplicable subchapter F as
to CSX. In other words, as I read the statute, they could make it
applicable to their merger partner -- or they could make it
inapplicable rather to their merger partner and not applicable to
any other potential acquirer.
<PAGE>
Section 1715(c)3 further provides that fiduciary duties
do not require directors to act solely because of the effect such
action might have on an acquisition or potential acquisition of
control, or the consideration that might be offered or paid to
shareholders in such an acquisition.
And finally, Section 1715(d) states that absent breach of
fiduciary duty, lack of good faith or self-dealing, any act by the
board of directors shall be presumed to be in the best interests of
the corporation. In determining whether the general standard of
care of Section 1712 has been satisfied, there shall be no greater
obligation to justify or a higher burden of proof by a board of
directors or individual directors relating to or affecting an
acquisition or attempted acquisition of control than is applied to
any other act by the board of directors.
The statute goes on and say notwithstanding anything
above, any act relating to an acquisition to which a majority of
the disinterested directors shall have assented shall be presumed
to satisfy the general standards of fiduciary care set forth in
Section 1712, unless it is proven by clear and convincing evidence
that the disinterested directors did not assent to such act in good
faith after reasonable investigation.
<PAGE>
I note that in this case the board of directors consists
of 12 persons and all except one, Mr. LeVan, are under and by
statutory definition disinterested directors, and obviously
therefore that section of the statute is applicable in this case.
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. Although there may be some
argument that the directors should have made some further inquiry,
they have the right to rely on recommendations of corporate
officers and those who negotiate on their behalf and by their
committee by statute.
<PAGE>
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.
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 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.
<PAGE>
It seems clear that the Pennsylvania statutes to which I
have referred were enacted with the decisions of the Delaware State
Courts and particularly Unicol Corporation v. Mesa Petroleum
Corporation, and Revlon, Incorporation v. MacAndrews and Forbes
Holdings, Incorporated, that they had that clearly in mind and in
order to exclude those in similar decisions that seem to mandate or
suggest that the primary or perhaps only consideration in a
situation where there is an attempted takeover or a rival
competition for a takeover or a merger between corporations is what
is the best financial deal for the stockholders in the short term.
And most of the evidence that has been presented in this case is
based on the contention that somehow the offer that has been made
by NS is a superior offer financially.
Although those decisions may be fine for the shareholders
whose only interest is that of a short-term financial investment to
maximize their profits, it completely ignores the economic utility
and value of corporations as a form of business enterprise that
produces goods and services for the public and the national
economy, in this case railroad services.
Directors have the right to consider these matters, and
by statute in Pennsylvania they have the right to consider all
matters including not only the rights of
<PAGE>
shareholders and the financial interests of a shareholders, but
these other so-called constituencies.
It also has not been established certainly by clear and
convincing evidence that the financial deal for the Conrail
shareholders under the merger agreement will inevitably or in the
long run prove less valuable than the offer by NS, assuming that
the NS offer could go through.
There are practical problems with the Unicol and Revlon
line of cases as I see it, aside from their myopic view that
because stockholders are at least in theory the owners of the
corporation that only their interests should be considered or at a
minimum must be given the highest priority and importance. The
primary practical problem is that it replaces the discretion of
corporate board of directors who hopefully are sophisticated
practical business managers, and eventually under Unicol and those
decisions places it in the hands of judges whose business judgment,
however altruistic, is certainly apt to be less reliable than that
of business managers.
Other provisions of the Pennsylvania business corporate
law further confirm that the board of directors have wide
discretion in how to react to so-called takeover bids, such as that
of NS. Section 1502(a)18 provides that directors may accept,
reject, respond to or take no action
<PAGE>
in respect of an actual or proposed acquisition, tender offer,
takeover or other fundamental change or otherwise.
The committee notes to this section says in part that
this section is intended to make clear in conjunction with Section
1721(a) that in the first instance the decision to accept or reject
the merger or other similar proposal rests with the directors. It
is not intended that there be a mandatory obligation to respond to
a takeover proposal. It is intended to include among other things
whether to adopt a poison pill plan and if a plan is or has been
adopted, whether to redeem rights subject only to the general
applicable business judgment rule.
Section 2513 provides that securities issued, such as
stock, may limit the rights of shareholders who own or offer to
acquire a specified number or percentage of shares. The comment to
Section 2513 states that the section intends to expressly validate
the adoption of poison pills including flip-in and flip-over plans
such as are apparent in the poison pill plan applicable to Conrail.
I also note in this case that the so-called poison pill plan was
adopted in 1989, long before the present situation came into being.
Also the CSX-Conrail merger was entered into before there
was any NS proposal outstanding except that
<PAGE>
there had been some informal discussions, and it was known that NS
might be interested.
There is also a contention that somehow the CSX-Conrail
merger unlawfully and unfairly coerces Conrail shareholders to
tender their shares to Green Acquisition and to not offer the
shares to Norfolk Southern's tender offer. So far as I can find,
there is no case law, at least involving Pennsylvania state law, to
support the so-called coercion theory of the type of merger
proposed here.
Stockholders of Conrail do have multiple options, and
that is clear from the evidence. They may of course tender their
shares and support the CSX-Conrail merger. If all tender their
shares and the deal goes through as contemplated, shareholders
would receive $110 in cash for 40 percent of their stock, and
1.85617 shares of CSX stock for each remaining share of Conrail
stock. They could also tender their shares and sell 19.9 per cent
of their stock, if all tendered, at $110 per share and then all or
a majority of the shareholders could vote against the proposed
opt-out of subchapter E. In that event I don't know what NS would
do with the shares of stock which everyone agrees would be at a
premium price based on the premium of acquiring control.
<PAGE>
The evidence is clear that no one can really predict what
will be the outcome of the proposed vote on opting out of
subchapter E. It has been suggested somehow that it is illegal or
unlawful or unfair. I'm not sure what, that the new acquirer, CSX,
be allowed to vote on that opting out of chapter E. It seems to me
that all shareholders, if they are shareholders of record on the
record date have the right under the law to vote on that matter and
therefore I can see nothing wrong with them being allowed to do so
if they at that time have acquired shares of stock in Conrail.
Shareholders have other options. They can do nothing, as
the board of directors and some of the witnesses who testified do
not intend to do, and could retain their shares. If all did so,
then the initial acquisition would fail utterly. Of course it is
generally believed, although there is no evidence to establish
this, but I would assume that it is probably a correct
prognostication that there will be enough shares tendered to make
the 19.9 percent.
Conrail shareholders may also tender their shares to NS
and hope that NS would be able to get their contingencies finally
met by reason perhaps of insufficient tenders to the CSX offer. And
if so, they might eventually receive $110 for all of their shares.
<PAGE>
Shareholders can also, of course, sell their shares on
the open market and let others decide what is to the best financial
advantage. With all of these options, some of which may be more
profitable to them than others in the short term while others may,
as some of the board of directors of both CSX and Conrail
apparently hope and predict and anticipate may be more profitable
in the long run.
I do not see any coercion, but only several options, any
of which will undoubtedly end up being a net return to most
shareholders far in excess of whatever their original investment
may have been.
Under our laws, ordinarily corporations are operated by a
board of directors. And the board of directors have rights to enter
into certain contracts subject to limitations in their charter and
in the charter of the corporation, to the extent that they are
within their corporate powers and pursuant to the corporate
business. There is nothing that has been called to my attention
that is alleged to be beyond the board of directors' rights in
entering into the CSX-Conrail merger agreement, despite arguments
to the contrary.
Under doctrines of ordinary contract law where a lawful
contract is entered into there is a duty of fair
<PAGE>
dealing between the parties to carry out the terms of the
agreement. Although a breach of contract is not in itself unlawful
in the sense of constituting a civil tort, a breach does make that
breaching party subject to damages. In this case a break-up fee has
been stipulated to, which may be analogous to an agreement for
liquidated damages; that may or may not be too high, but that is
certainly at this point purely a hypothetical situation as I see it
until someone attempts to assert the right to claim a break-up fee,
and then in conceivably could be litigated as to whether that was
excessive or so unreasonable as to not be a proper term in the
agreement.
Although a breach of contract is not a tort, there is a
tort of interference with contract. I am troubled that everyone
seems to assume that Conrail would have the right, in fact it is
contended that it has a duty to breach the essential terms of the
contract of merger, which as I see it was properly entered into and
contains no terms that are prohibited by Pennsylvania law, and that
somehow they have the further right to sabotage the contract, that
is that somehow the board of directors have not only a right, but a
duty to somehow sabotage the contract by supporting the NS
proposal. As I see it, they would have this right and perhaps duty
only if the terms of the agreement are illegal
<PAGE>
or contrary to public policy. And, as I pointed out, each of the
alleged illegalities appear to be authorized or at least not
prohibited under Pennsylvania statutory law.
I can find no principle difference between this and any
other contract. I won't go into any examples that might be given,
but it has been suggested that perhaps some different law should be
applied to a merger situation because shareholders are affected.
Obviously any contract that is entered into by a corporation that
extends into the future may affect the corporation's net profits or
losses and also, thereby, have effects; sometimes very disastrous
effects, sometimes very fine effects for the shareholders'
financial well being.
Basically the law of Pennsylvania leaves decisions such
as what is best for the corporation to be that of the duly elected
board of directors rather than by second guessing by the courts. In
this case I am sure that the board of directors of Conrail are in
fact in a far better position than the courts to decide what is the
best interest of the corporation, which is the test in
Pennsylvania. The shareholders themselves are in the best position
to decide which of the several options are best for them.
Finally, it has been suggested that the Pennsylvania
statutes that provide board of directors with
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broad discretion in deciding mergers and how to react to takeover
bids were enacted to prevent two-tier, back-end mergers and
takeovers of the type that are here contemplated. That argument of
course is a possible argument, but I think that I am bound to
follow what are the clear wording of the statutes. I think that it
is clear from the Pennsylvania statutes, which are not ambiguous
and have been argued to be ambiguous, that it is up to the board of
directors and they alone, so long as they act in good faith after
reasonable investigation, as to what is in the best interest of the
corporation. And that the directors have every right to favor one
competing bid over another and particularly have the right to
resist hostile takeovers by such methods as poison pills,
shareholders' rights, making recommendations to shareholders,
favoring one proposed corporate party over the other, and using
stock options in favor of one corporation over another, and include
extensive so-called break-up fees. And certainly it seems to me
that it can agree not to shop their proposal after signing a merger
agreement, which is essentially what as I see it is the arguments
made that somehow this merger should be enjoined at this stage of
the proceeding.
Again, let me repeat I am unable to find that the
plaintiffs are likely to succeed on any of the claims for
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which they seek preliminary injunctive relief. I do not find that
the grant of a preliminary injunction would be in the best interest
of the public. A preliminary injunction would not maintain the
status quo, which is one of the things it is supposed to do, but
would radically alter the position of the parties. I do not find
that there has been irreparable harm; as I pointed out before, that
probably would not be required if there was a Williams Act
violation, but I do not find that they have shown the probability
of success on any of the Williams Act claims.
One other feature, of course, this action, so far as the
state law claims are filed, it is said that they are filed as
representative actions on behalf of the corporation. I think it's
very questionable whether injunctive relief would be appropriate in
any event, because it seems to me that in the normal situation
where there is a claim that the directors have violated their
fiduciary duties it's a claim for monetary damages and not for
equitable relief. That has not been argued in this case and I don't
want to go into that at this time, but it is certainly a matter
that would make it seem to me that it would be questionable whether
equitable relief should be given.
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Therefore, for the reasons that I have stated, all
requests and all present motions for preliminary injunctive relief
will be and are denied.
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