<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INTRODUCTION
This Solicitation/Recommendation Statement on Schedule 14D-9 (this
"Schedule 14D-9") relates 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
outstanding Shares (as defined below) of Conrail Inc., a Pennsylvania
corporation ("Conrail").
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name and address of the principal executive offices of Conrail are
Conrail Inc., 2001 Market Street, Two Commerce Square, Philadelphia,
Pennsylvania 19101. This Schedule 14D-9 relates to Conrail's Common Stock, par
value $1.00 per share (including the associated Common Stock Purchase Rights)
(the "Common Stock"), and Conrail's Series A ESOP Convertible Junior Preferred
Stock, without par value (including the associated Common Stock Purchase Rights)
(the "Preferred Stock", and together with the Common Stock, the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Schedule 14D-9 relates to the tender offer made by Atlantic, disclosed
in a Tender Offer Statement on Schedule 14D-1 (the "Norfolk Schedule 14D-1")
dated October 24, 1996, to purchase all of the outstanding Shares at $100 per
Share (the "Norfolk Offer Price"), net to the seller in cash and without
interest (the "Norfolk Offer"), upon the terms and subject to the conditions set
forth in the Offer to Purchase dated October 24, 1996 (the "Norfolk Offer to
Purchase"), and the related Letter of Transmittal. The Norfolk Schedule 14D-1
states that the principal executive offices of Atlantic and Norfolk are located
at Three Commercial Plaza, Norfolk, Virginia 23510.
According to the Norfolk Offer to Purchase, the purpose of the Norfolk
Offer is to acquire the entire equity interest in Conrail, and Norfolk is
seeking to negotiate with Conrail a merger agreement pursuant to which each
outstanding Share (other than Shares held by Conrail or a subsidiary of Conrail
and Shares held by Norfolk, Atlantic or any other direct or indirect subsidiary
of Norfolk) would, as soon as practicable after the consummation of the Norfolk
Offer, be converted into the right to receive an amount in cash equal to the
Norfolk Offer Price (the "Proposed Norfolk Merger" and, together with the
Norfolk Offer, the "Proposed Norfolk Transactions").
According to the Norfolk Offer to Purchase, the Norfolk Offer is
conditioned upon, among other things:
(1) termination of the Agreement and Plan of Merger dated as of
October 14, 1996, as amended (the "CSX Merger Agreement"), among Conrail,
CSX Corporation ("CSX") and a wholly owned subsidiary of CSX;
(2) the redemption by the Board of Directors of Conrail (the "Conrail
Board"), or the invalidity or inapplicability to the Proposed Norfolk
Transactions, of the Common Stock Purchase Rights (the "Rights") issued
pursuant to the Rights Agreement dated as of July 19, 1989, as amended (the
"Rights Agreement"), between Conrail and First Chicago Trust Company of New
York;
(3) the approval by the Conrail Board of the Proposed Norfolk
Transactions or the invalidity or inapplicability to the Proposed Norfolk
Transactions of Subchapter F of Chapter 25 of the Pennsylvania Business
Corporation Law of 1988, as amended (the "PBCL");
(4) Atlantic and Norfolk obtaining, prior to the expiration of the
Norfolk Offer, sufficient financing (according to the Norfolk Offer to
Purchase, approximately $11.5 billion) to enable consummation of the
Proposed Norfolk Transactions (which condition Norfolk has publicly
announced has now been satisfied);
(5) there being validly tendered and not withdrawn prior to the
expiration of the Norfolk Offer a number of Shares equal to at least a
majority of the outstanding Shares on a fully diluted basis (such majority
estimated in the Norfolk Offer to Purchase to be 55,828,153 Shares); and
<PAGE> 3
(6) receipt by Atlantic of an informal written opinion by the Surface
Transportation Board ("STB"), reasonably satisfactory to Atlantic without
the imposition of any condition unacceptable to Atlantic, that the use of a
voting trust in connection with the Proposed Norfolk Transactions is
consistent with the policies of the STB against unauthorized acquisition of
control of a regulated carrier.
The conditions referred to above in clauses (2) and (3) can only be satisfied if
the Conrail Board takes action, which action the Conrail Board has agreed under
the CSX Merger Agreement not to take until after July 12, 1997. In addition, on
and after July 12, 1997, the CSX Merger Agreement provides that certain
conditions must be satisfied in order for the Conrail Board to take any such
action and, in any event, the Conrail Board has no obligation under the PBCL to
agree to or recommend any takeover proposal (such as the Proposed Norfolk
Transactions) or to take any such action to facilitate any such takeover
proposal. See Items 3(b)(1) and 4 below.
The Norfolk Offer also provides that Norfolk and Atlantic may terminate the
Norfolk Offer if any of the following events shall have occurred:
(a) there shall have been threatened, instituted or pending any
action, proceeding, application or counterclaim before any court or
governmental regulatory or administrative agency, authority, tribunal or
commission, domestic or foreign, by any government or governmental
authority or agency or commission, domestic or foreign, or by any other
person, domestic or foreign, which (i) challenges or seeks to challenge the
acquisition by Norfolk or Atlantic or any affiliate of either of them of
the Shares, restrains, delays or prohibits or seeks to restrain, delay or
prohibit the making of the Norfolk Offer, consummation of the transactions
contemplated by the Norfolk Offer or any other subsequent business
combination, restrains or prohibits or seeks to restrain or prohibit the
performance of any of the contracts or other arrangements entered into by
Atlantic or any of its affiliates in connection with the acquisition of
Conrail or obtains or seeks to obtain any material damages or otherwise
directly or indirectly relating to the transactions contemplated by the
Norfolk Offer, the Proposed Norfolk Merger or any other subsequent business
combination, (ii) prohibits or limits or seeks to prohibit or limit
Norfolk's or Atlantic's ownership or operation of all or any portion of
their or Conrail's business or assets (including without limitation the
business or assets of their respective affiliates and subsidiaries) or
compels, or seeks to compel Norfolk or Atlantic to dispose of or hold
separate all or any portion of their own or Conrail's business or assets
(including without limitation the business or assets of their respective
affiliates and subsidiaries) or imposes or seeks to impose any limitation
on the ability of Norfolk, Atlantic or any affiliate of either of them to
conduct its own business or own such assets as a result of the transactions
contemplated by the Norfolk Offer or any other subsequent business
combination, (iii) makes or seeks to make the acceptance for payment,
purchase of, or payment for, some or all of the Shares pursuant to the
Norfolk Offer or the Proposed Norfolk Merger illegal or results in a delay
in, or restricts, the ability of Norfolk or Atlantic, or renders Norfolk or
Atlantic unable, to accept for payment, purchase or pay for some or all of
the Shares or to consummate the Proposed Norfolk Merger, (iv) imposes or
seeks to impose limitations on the ability of Norfolk or Atlantic or any
affiliate of either of them effectively to acquire or hold or to exercise
full rights of ownership of the Shares, including, without limitation, the
right to vote the Shares purchased by them on an equal basis with all other
Shares on all matters properly presented to the shareholders of Conrail,
(v) in the sole judgment of Norfolk or Atlantic, might adversely affect
Conrail or any of its subsidiaries of affiliates or Norfolk, Atlantic, or
any of their respective affiliates or subsidiaries, (vi) in the sole
judgment of Norfolk or Atlantic, might result in a diminution in the value
of the Shares or the benefits expected to be derived by Norfolk or Atlantic
as a result of the transactions contemplated by the Norfolk Offer, (vii) in
the sole judgment of Norfolk or Atlantic, imposes or seeks to impose any
material condition to the Norfolk Offer unacceptable to Norfolk or Atlantic
or (viii) otherwise directly or indirectly relates to the Norfolk Offer,
the Proposed Norfolk Merger or any other business combination with Conrail;
(b) there shall be any action taken, or any statute, rule, regulation
or order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed or become applicable to the Norfolk Offer, the
Proposed Norfolk Merger or other subsequent business combination between
Atlantic or any affiliate of Atlantic and Conrail or any affiliate of
Conrail or any other action shall have been taken,
2
<PAGE> 4
proposed or threatened by any government, governmental authority or other
regulatory or administrative agency or commission or court, domestic,
foreign or supranational, that, in the sole judgment of Norfolk or
Atlantic, might, directly or indirectly, result in any of the consequences
referred to in clauses (i) through (vii) of paragraph (a) above;
(c) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, capitalization, shareholders' equity,
condition (financial or otherwise), operations, licenses, franchises,
permits, permit applications, results of operations or prospects of Conrail
or any of its subsidiaries or affiliates which, in the sole judgment of
Norfolk or Atlantic, is or may be materially adverse to Conrail or any of
its subsidiaries or affiliates, or Norfolk or Atlantic shall have become
aware of any fact which, in the sole judgment of Norfolk or Atlantic, has
or may have material adverse significance with respect to either the value
of Conrail or any of its subsidiaries or the value of the Shares to Norfolk
or Atlantic;
(d) there shall have occurred (i) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States (whether or not mandatory), (ii) any limitation (whether or not
mandatory) by any governmental authority or agency on, or other event
which, in the sole judgment of Norfolk or Atlantic, might affect the
extension of credit by banks or other lending institutions, (iii) a
commencement of a war, armed hostilities or other national or international
crisis directly or indirectly involving the United States, (iv) any
significant change in United States or any other currency exchange rates or
any suspension of, or limitation on, the markets therefor (whether or not
mandatory), (v) any significant adverse change in the market price of the
Shares or in the securities or financial markets of the United States, or
(vi) in the case of any of the foregoing existing at the time of the
commencement of the Norfolk Offer, in the sole judgment of Norfolk or
Atlantic, a material acceleration or worsening thereof;
(e) other than the redemption of the Rights at the Redemption Price
(as defined in the Rights Agreement), Conrail or any subsidiary of Conrail
shall have, at any time after October 24, 1996, (i) issued, distributed,
pledged, sold or authorized, proposed or announced the issuance of or sale,
distribution or pledge to any person of (A) any shares of its capital stock
(other than sales or issuances pursuant to options outstanding on October
24, 1996 in accordance with their terms as disclosed on such date or
conversions of the Preferred Stock in accordance with their terms) of any
class (including without limitation the Common Stock and the Preferred
Stock) or securities convertible into any such shares of capital stock, or
any rights, warrants or options to acquire any such shares or convertible
securities or any other securities of Conrail, or (B) any other securities
in respect of, in lieu of or in substitution for Common Stock and Preferred
Stock outstanding on October 24, 1996, (ii) purchased, acquired or
otherwise caused a reduction in the number of, or proposed or offered to
purchase, acquire or otherwise reduce the number of, any outstanding Common
Stock, Preferred Stock or other securities, (iii) declared, paid or
proposed to declare or pay any dividend or distribution on any Shares
(other than the regular quarterly dividend on the Common Stock not in
excess of the amount per share, and with record and payment dates, in
accordance with recent practice) or on any Preferred Stock (other than the
regular semi-annual dividend on the Preferred Stock not in excess of the
amount per share payable in accordance with recent practice) or on any
other security or issued, authorized, recommended or proposed the issuance
or payment of any other distribution in respect of the Common Stock or the
Preferred Stock, whether payable in cash, securities or other property,
(iv) altered or proposed to alter any material term of any outstanding
security, (v) incurred any debt other than in the ordinary course of
business and consistent with past practice or any debt containing
burdensome covenants, (vi) issued, sold or authorized or announced or
proposed the issuance of or sale to any person of debt securities or any
securities convertible into or exchangeable for debt securities or any
rights, warrants or options entitling the holder thereof to purchase or
otherwise acquire any debt securities or incurred or announced its
intention to incur any debt other than in the ordinary course of business
and consistent with past practice, (vii) split, combined or otherwise
changed, or authorized or proposed the split, combination or other changes
of the Common Stock, the Preferred Stock or its capitalization, (viii)
authorized, recommended, proposed or entered into or publicly announced its
intent to enter into any merger, consolidation,
3
<PAGE> 5
liquidation, dissolution, business combination, acquisition or disposition
of a material amount of assets or securities, any material change in its
capitalization, any waiver, release or relinquishment of any material
contract rights or comparable right of Conrail or any of its subsidiaries
or any agreement contemplating any of the foregoing or any comparable event
not in the ordinary course of business, or taken any action to implement
any such transaction previously authorized, recommended, proposed or
publicly announced, (ix) transferred into escrow any amounts required to
fund any existing benefit, employment or severance agreements with any of
its employees or entered into any employment, severance or similar
agreement, arrangement or plan with any of its employees other than in the
ordinary course of business and consistent with past practice or entered
into or amended any agreements, arrangements or plans so as to provide for
increased benefits to the employees as a result of or in connection with
the transactions contemplated by the Norfolk Offer or any other change in
control of Conrail, (x) except as may be required by law, taken any action
to terminate or amend any employee benefit plan (as defined in Section 3(2)
of the Employee Retirement Income Security Act of 1974, as amended) of
Conrail or any of its subsidiaries, or Norfolk or Atlantic shall have
become aware of any such action which was not previously disclosed in
publicly available filings, (xi) amended or proposed or authorized any
amendment to its articles of incorporation or bylaws or similar
organizational documents, (xii) authorized, recommended, proposed or
entered into any other transaction that in the sole judgment of Norfolk or
Atlantic, could, individually or in the aggregate, adversely affect the
value of the Shares to Norfolk or Atlantic or (xiii) agreed in writing or
otherwise to take any of the foregoing actions or Norfolk or Atlantic shall
have learned about any such action which has not previously been publicly
disclosed by Conrail and also set forth in filings with the Securities and
Exchange Commission ("the Commission");
(f) Conrail and Norfolk or Atlantic shall have reached an agreement or
understanding that the Norfolk Offer be terminated or amended or Norfolk or
Atlantic (or one of their respective affiliates) shall have entered into a
definitive agreement or an agreement in principle to acquire Conrail by
merger or similar business combination, or purchase of Shares or assets of
Conrail;
(g) Norfolk or Atlantic shall become aware (i) that any material
contractual right of Conrail or any of its subsidiaries or affiliates shall
be impaired or otherwise adversely affected or that any material amount of
indebtedness of Conrail or any of its subsidiaries shall become accelerated
or otherwise become due prior to its stated due date, in either case with
or without notice or the lapse of time or both, as a result of the
transactions contemplated by the Norfolk Offer or the Proposed Norfolk
Merger, or (ii) of any covenant, term or condition in any of Conrail's or
any of its subsidiaries' instruments or agreements that are or may be
materially adverse to the value of the Shares in the hands of Atlantic or
any other affiliate of Norfolk (including, but not limited to, any event of
default that may ensue as a result of the consummation of the Norfolk
Offer, consummation of the Proposed Norfolk Merger or any other business
combination or the acquisition of control of Conrail); or
(h) Norfolk or Atlantic shall not have obtained any waiver, consent,
extension, approval, action or non-action from any governmental authority
or agency (other than approval by the STB of the acquisition of control of
Conrail) which in its judgment is necessary to consummate the Norfolk
Offer;
which, in the sole judgment of Norfolk or Atlantic in any such case, and
regardless of the circumstances (including any action or inaction by Norfolk or
Atlantic or any of their affiliates), giving rise to any such condition, makes
it inadvisable to proceed with the Norfolk Offer and/or with such acceptance for
payment or payment. Norfolk and Atlantic have the right to rely on any condition
set forth in the immediately preceding sentence being satisfied in determining
whether to consummate the Norfolk Offer; however, if Norfolk or Atlantic asserts
the failure of any such condition without relying on the exercise of its
reasonable judgment or some other subjective criteria, Norfolk and Atlantic
shall promptly disclose such assertion and the expiration date of the Norfolk
Offer will be (and, if necessary, will be extended to be) at least five business
days after the date of such disclosure.
4
<PAGE> 6
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of Conrail, which is the person filing
this statement, are set forth in Item 1 above.
(b)(1) General. Reference is hereby made to the information contained
under the captions "OWNERSHIP BY MANAGEMENT OF EQUITY SECURITIES", and
"COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS", in Conrail's proxy statement
dated April 3, 1996 relating to Conrail's Annual Meeting of Shareholders. The
relevant pages thereof are filed as Exhibit (c)(1) hereto and are incorporated
herein by reference. Except as described herein or incorporated herein by
reference, there are no contracts, agreements, arrangements or understandings or
any actual or potential conflicts of interest between Conrail or its affiliates
and (i) Conrail, its executive officers, directors or affiliates or (ii) Norfolk
or Atlantic, or their respective executive officers, directors or affiliates.
THE AMENDED CSX TRANSACTIONS. On November 5, 1996, Conrail, CSX and Green
Acquisition Corp., a Pennsylvania corporation and a wholly owned subsidiary of
CSX ("Sub"), entered into an Amendment (the "Amendment") to the CSX Merger
Agreement. Pursuant to the CSX Merger Agreement (as so amended), (i) CSX and Sub
have increased the price per Share offered from $92.50 to $110, net to the
seller in cash, without interest, in their pending offer to purchase an
aggregate of 17,860,124 Shares (the "CSX Offer") and have extended the
expiration of the CSX Offer to 12:00 midnight, New York City time, on Wednesday,
November 20, 1996, (ii) CSX and Sub have increased to $110 the price paid per
Share in the CSX Merger, to the extent 40% of the fully diluted Shares are not
purchased in the CSX Offer and the Second CSX Offer and cash is paid in the CSX
Merger, (iii) at any time prior to 11 business days before the then scheduled
expiration date of the CSX Offer if the Articles Amendment (as defined below) is
then effective, CSX may (and at the request of Conrail shall) increase the
number of Shares to which the CSX Offer applies to 40% of the fully diluted
Shares, (iv) at any time following seven business days after the consummation of
the CSX Offer, if CSX does not yet own 40% of the fully diluted Shares
(excluding Shares that would be outstanding upon exercise of the CSX Option),
CSX may (and at the request of Conrail shall) make a second tender offer
(conditioned on the Articles Amendment becoming effective) for an additional
number of Shares (the "Second CSX Offer") at a price at least equal to $110 per
Share and otherwise on terms and conditions no less favorable to shareholders
than the terms and conditions of the CSX Offer, such that the Shares acquired in
such Second CSX Offer, together with the Shares acquired in the CSX Offer, will
equal 40% of the fully diluted Shares and (v) Conrail shall merge with and into
Sub (the "CSX Merger"), such that each Share would be exchanged for 1.85619 CSX
shares (the "Exchange Ratio") (all the foregoing transactions, the "CSX
Transactions"). Under the terms of the CSX Merger Agreement, upon the effective
time of the CSX Merger (the "Effective Time"), the headquarters of CSX will be
relocated to Philadelphia, Pennsylvania, CSX will be renamed with a new, neutral
name ("Parent") and one half of the Board of Directors of Parent and each
committee thereof will consist of persons appointed by Conrail. In addition, as
of the Effective Time, Mr. David M. LeVan, presently the Chairman of the Board,
President and Chief Executive Officer of Conrail, will become the Chief
Operating Officer and President of Parent and the Chief Executive Officer and
President of each of Parent's railroad businesses, and, no later than the second
anniversary of the Effective Time, the Chief Executive Officer of Parent and, no
later than the fourth anniversary of the Effective Time, the Chairman of the
Board of Parent. See Section (b)(3) of this Item 3 for a more complete
description of the LeVan agreements entered into in connection with the CSX
Transactions.
Pursuant to the Amendment, CSX agreed to increase the price it would offer
to pay for Shares tendered in the CSX Offer, the Second CSX Offer, if
applicable, and the CSX Merger, if applicable, to $110 per Share, and agreed to
a provision prohibiting CSX and Conrail or any of their subsidiaries or any of
their directors, officers, employees, investment bankers, financial advisors,
attorneys, accountants or other representatives, during the term of the CSX
Merger Agreement, from, directly or indirectly through another person,
participating in any conversations, discussions or negotiations, or entering
into any agreement, arrangement or understanding, with any other railroad
(including Norfolk) with respect to the acquisition of the assets or securities
of Conrail or CSX or their subsidiaries by, or the granting of trackage rights
or other concessions relating to the assets of Conrail or CSX or their
subsidiaries to, any other railroad (including Norfolk), other than with respect
to sales, leases, licenses, mortgages or other disposals by either party of its
assets or
5
<PAGE> 7
properties (but not those of the other party and its subsidiaries) made in the
ordinary course of business consistent with past practice. Notwithstanding the
foregoing, Conrail and CSX are permitted to engage in conversations, discussions
and negotiations with other railroads (including Norfolk) to the extent
reasonably necessary or reasonably advisable to obtain regulatory approval of
the CSX Transactions and so long as (i) representatives of CSX and Conrail are
both present at any such conversation, discussion or negotiation, (ii) the
general subject matter of any such conversation, discussion or negotiation shall
have been agreed to in advance by Conrail and CSX and (iii) Conrail, CSX and
such other company shall have previously agreed to appropriate confidentiality
arrangements. The foregoing "no third party discussion" provision will terminate
and be of no further force and effect immediately upon any exercise by either
Conrail or CSX of its rights to provide information or enter into discussions
with a third party to the extent the Board of Directors determines that such
action is required by its fiduciary duties, in accordance with the terms and
subject to the conditions of the CSX Merger Agreement.
Under the Amendment, Conrail agreed to extend from April 13, 1997 to July
12, 1997 the period of time during which the Conrail Board is prohibited from
(i) withdrawing or modifying, or publicly proposing to withdraw or modify, its
approval or recommendation of the CSX Transactions, in a manner adverse to CSX,
(ii) approving or recommending, or publicly proposing to approve or recommend,
any competing proposal (such as the Proposed Norfolk Transactions) or (iii)
causing Conrail to enter into any agreement related to any such competing
proposal. Because certain conditions to the Norfolk Offer, as described above,
can only be satisfied if the Conrail Board takes such actions to approve the
Norfolk Offer, the effect of the Amendment is that the Norfolk Offer now cannot
be consummated until at least July 12, 1997. In addition, the CSX Merger
Agreement provides that on or after July 12, 1997, certain conditions must be
satisfied in order for the Conrail Board to take any of the foregoing actions.
Moreover, the Conrail Board has no obligation under the PBCL to agree to or
recommend any takeover proposal (such as the Proposed Norfolk Transactions) or
to take any such action to facilitate any such takeover proposal.
Under the CSX Merger Agreement, in the event that the matters to be
considered at a CSX shareholder meeting called for the purpose of approving the
issuance of CSX shares in connection with the CSX Merger or at a Conrail
shareholder meeting called for the purpose of approving the CSX Merger, are not
approved at either such meeting, from time to time Conrail or CSX, as
applicable, may, and will at the request of CSX or Conrail, as applicable, duly
call one or more meetings of shareholders for such purposes. The Amendment also
provides that neither CSX nor Conrail may terminate the CSX Merger Agreement if
the Conrail shareholders fail to approve the CSX Merger at any meeting convened
therefor unless such meeting was held after the earlier of (i) July 12, 1997 and
(ii) the purchase of 40% of the fully diluted Shares.
Under the CSX Merger Agreement, CSX has the right to unilaterally increase
the price offered in the CSX Offer or the Second CSX Offer, if applicable, or
the percentage of Shares covered thereby (without in any case making any change
in the consideration per Share payable in the CSX Merger), subject to the
obligation to cause such offer to remain open for 10 business days following the
date any such change is publicly announced. Under the CSX Merger Agreement,
however, CSX cannot change the consideration payable in the CSX Merger without
the consent of Conrail.
Shareholders should be aware that if Conrail shareholders approve the
Articles Amendment at the Pennsylvania Special Meeting (as defined below), CSX
would be able to purchase more than 19.9% of the Shares in a tender offer or
other transaction (such as the Second CSX Offer). As a result, if the Articles
Amendment is approved, and if CSX is able to acquire 40% of the fully diluted
Shares through the CSX Offer and the Second CSX Offer, if applicable, the
approval of the CSX Merger by a majority of votes cast at a special meeting of
the holders of Shares will be virtually certain.
In addition, the CSX Merger Agreement provides that CSX may exercise its
option to purchase 15,955,477 shares of Common Stock (the "CSX Option") pursuant
to the Conrail Stock Option Agreement, dated as of October 14, 1996, between CSX
and Conrail, if CSX consummates the CSX Offer or if the CSX Merger Agreement is
terminated and CSX is entitled to receive the break-up fees provided for in the
CSX
6
<PAGE> 8
Merger Agreement. If CSX acquires 40% of the Shares through the CSX Offer and
the Second CSX Offer, if applicable, and exercises the CSX Option, CSX, through
a voting trust created for this purpose (the "Voting Trust"), will then hold
approximately 50% of the Shares and will cast its votes to approve the CSX
Merger, which number of votes will be sufficient to approve the CSX Merger
regardless of the votes of other shareholders. Therefore, approval of the
Articles Amendment would assure that the CSX Merger will be approved by
Conrail's shareholders if sufficient Shares are tendered in the CSX Offer and
the Second CSX Offer, if applicable, and the CSX Option is exercised. Moreover,
if CSX consummates only the CSX Offer by acquiring 19.9% of the Shares and then
exercises the CSX Option, CSX will then own approximately 30% of the fully
diluted Shares and will have a large portion of the voting power of the Shares
to vote in favor of the CSX Merger. Furthermore, because the record date for the
Pennsylvania Special Meeting has been designated for a date occurring after the
scheduled expiration of the CSX Offer, if CSX acquires 19.9% of the Shares
pursuant to the CSX Offer, the Shares so acquired by CSX will be voted by the
Voting Trust at the Pennsylvania Special Meeting in favor of the Articles
Amendment. In such case, a significant portion of the votes at the Pennsylvania
Special Meeting will be committed to vote in favor of the Articles Amendment.
Shareholders should also be aware that shareholders may decide to tender
their Shares to CSX in the CSX Offer and the Second CSX Offer, if applicable
(even if they believe that the Proposed Norfolk Transactions, if they could be
effected, would have a higher value to shareholders than the CSX Transactions),
because shareholders may conclude that sufficient Shares will be tendered by
other shareholders and that failure to tender will result in the non-tendering
shareholders receiving only CSX shares which, based on current market prices,
have a per Share value that is significantly less that the $110 per Share being
offered in the CSX Offer and the Second CSX Offer, if applicable. Therefore, the
CSX Offer and the Second CSX Offer, if applicable, may succeed regardless of the
perceived relative values of the CSX Transactions and the Proposed Norfolk
Transactions. As of the close of business on November 5, 1996, the closing
market price for CSX shares on the New York Stock Exchange Composite Tape was
$44 7/8.
As of the date of this Schedule 14D-9, Conrail is not aware of Norfolk's
specific intentions with respect to the possible retention of any or all of
Conrail's executive officers following any consummation of the Proposed Norfolk
Transactions. According to Norfolk's press release issued on October 23, 1996
announcing Norfolk's intention to commence the Norfolk Offer (a copy of which is
filed as Exhibit (a)(2) hereto and is incorporated herein by reference), Norfolk
stated that, subject to the Conrail Board's favorable response to the Proposed
Norfolk Transactions, Norfolk is prepared to consider offering significant
representation of Conrail directors on the Norfolk Board of Directors, to
consider locating the corporate headquarters of the combined company in
Philadelphia, to discuss an appropriate position for Mr. LeVan following a
transaction with Norfolk and to offer Conrail senior management opportunities
for continued career growth. According to Norfolk's Offer to Purchase, however,
Norfolk has also indicated that it may seek to remove the current members of the
Conrail Board at the next annual meeting of Conrail shareholders. Under
Conrail's By-laws and the PBCL the Conrail Board is not required to schedule
such annual meeting for any date prior to December 31, 1997.
On November 6, 1996, Conrail announced that the special meeting of the
Conrail shareholders (the "Pennsylvania Special Meeting") to seek approval of an
amendment to Subchapter E of Chapter 25 of the PBCL (the "Articles Amendment")
has been cancelled, and a new record date of December 5, 1996 has been set for
the new Pennsylvania Special Meeting. In connection with the Pennsylvania
Special Meeting, Conrail intends to solicit proxies in favor of the Articles
Amendment. We believe that Norfolk intends to solicit proxies opposing the
Articles Amendment. Pursuant to the Amendment, Conrail will file the Articles
Amendment with the Pennsylvania Department of State as promptly as practicable
following approval thereof. In addition, under the Amendment, Conrail shall not
convene, adjourn or postpone the Pennsylvania Special Meeting without the
consent of CSX (not to be unreasonably withheld).
7
<PAGE> 9
(2) Certain Executive Compensation and Other Employee-Related Matters in
Connection with a Change of Control of Conrail. The consummation of either the
CSX Transactions or the Norfolk Offer will affect the compensation and benefits
provided to certain executive officers of Conrail as follows:
VESTING OF EQUITY-BASED AWARDS. All of the outstanding equity-based awards
granted by Conrail (which include stock options, restricted stock, phantom stock
and restricted stock subject to financial performance-related conditions)
immediately vest and become exercisable or deliverable, as applicable, upon a
"change of control" of Conrail. A "change of control" for this purpose is
generally defined as (i) shareholder approval of Conrail's consolidation with
another entity, (ii) shareholder approval of a sale of all or substantially all
of Conrail's assets, (iii) the filing of a report on Schedule 13D or Schedule
14D-1 that any person has become beneficial owner of 20% or more of the voting
power of Conrail's voting stock, (iv) shareholder approval of Conrail's complete
liquidation or dissolution, (v) shareholder approval of a transaction with
another company at the conclusion of which Conrail's pre-transaction
shareholders own less than 80% of the voting power of the entity surviving the
transaction, (vi) the failure of the continuing directors of Conrail's board of
directors to constitute a majority thereof, or (vii) a determination by
Conrail's board of the threat or occurrence of an event that has effects similar
to the foregoing.
CHANGE OF CONTROL AGREEMENTS. Conrail has contracts with approximately 70
employees (including all executive employees) pursuant to which such employees
receive specified benefits upon their involuntary or constructive termination
within a specified period of a "change of control". The definition of a "change
of control" is the same as that summarized above with respect to equity-based
awards. Employees receive the specified benefits if they are terminated within
the later of (i) three years of a change of control, or (ii) two years of final
regulatory approval of a change of control (if the change of control is subject
to regulatory approval). The following benefits are provided to eligible
employees following their termination: (a) payment of all accrued salary and
deferred compensation, (b) a pro rata portion of any bonus payable in the year
of termination, (c) vesting of all outstanding equity-based awards, (d)
continuation of certain welfare coverage for 36 months, (e) 36 months additional
service credit under Conrail's retirement programs, (f) a lump sum payment equal
to three times the sum of the employee's base salary and highest bonus paid in
the three years preceding the change of control or termination date, and (g) a
gross up payment for any excise taxes imposed under Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code").
(3) Certain Executive Compensation and Other Employee-Related Matters in
Connection with the CSX Transactions. In replacement of his existing change of
control agreement with Conrail (which is summarized in Section (b)(2) of this
Item 3), on October 14, 1996, Mr. LeVan entered into a new employment agreement
and a new change of control agreement with CSX, both of which will become
effective as of the Effective Time. If the CSX Merger Agreement is terminated
prior to the Effective Time, Mr. LeVan's new employment agreement and new change
of control agreement will not take effect, and his existing change of control
agreement with Conrail will continue in effect.
MR. LEVAN'S NEW EMPLOYMENT AGREEMENT. Mr. LeVan's new employment agreement
with CSX (the "LeVan Agreement") provides that, as of the Effective Time, Mr.
LeVan will become the Chief Operating Officer and President of Parent and Chief
Executive Officer and President of Parent's railroad businesses. The LeVan
Agreement provides that no later than the second anniversary of the Effective
Time, Mr. LeVan will become Chief Executive Officer of Parent, and no later than
two years thereafter, Mr. LeVan will become Chairman of the Board of Parent. The
initial term of the LeVan Agreement is five years and it will automatically
renew, subject to any prior termination, for successive one-year periods on the
fifth anniversary of the Effective Time and each anniversary thereafter unless
either party gives at least three months' prior notice of non-renewal.
Under the LeVan Agreement, if Mr. LeVan is involuntarily terminated without
"cause," or he voluntarily terminates for "good reason," his termination
benefits will include (i) a lump sum payment equal to the greater of (x) and
(y), where (x) equals the sum of (a) his annual base salary and (b) highest
annual bonus paid in the three preceding years ("Recent Bonus") times (c) the
number of years (prorated for partial years) then remaining in the five-year
term of the LeVan Agreement, and where (y) equals three times the sum of (a) his
annual base salary and (b) his Recent Bonus, (ii) a lump sum payment equal to
the additional amount
8
<PAGE> 10
he would have accrued under CSX's qualified and nonqualified pension plans had
he been credited with three years of additional service, (iii) welfare benefit
continuation for three years, and (iv) outplacement services. The LeVan
Agreement also provides that Mr. LeVan will receive a "gross-up" payment to
reimburse him, on an after-tax basis, for excise taxes that may be imposed upon
him under Section 4999 of the Code on account of the payment of any "excess
parachute payments," as defined in Section 280G of the Code ("Excise Taxes").
The LeVan Agreement defines "cause" as a finding by 75% or more of the
Board of Directors of Parent of Mr. LeVan's (i) continued failure to
substantially perform his duties, (ii) his willful engagement in illegal conduct
or gross misconduct which is materially and demonstrably injurious to Parent,
(iii) his conviction of a felony or entering of a guilty or nolo contendere plea
or (iv) his breach of certain confidentiality covenants. The LeVan Agreement
defines "good reason" as (a) a material diminution in his position, authority,
duties or responsibilities, (b) a breach by Parent of a material provision of
the employment agreement, (c) the required relocation of Mr. LeVan, without his
consent, more than 35 miles from his employment location at the Effective Time,
(d) any purported termination by Parent of Mr. LeVan not in accordance with the
LeVan Agreement, (e) a successor to Parent failing to assume any liabilities
under the LeVan Agreement, (f) a failure to elect Mr. LeVan as Chief Executive
Officer of Parent by the second anniversary of the Effective Time, (g) a failure
to elect Mr. LeVan as Chairman of the Board of Parent by the fourth anniversary
of the Effective Time and (h) the removal of Mr. LeVan as a director or from any
of his specified employment positions.
The LeVan Agreement further provides (i) prior to Mr. LeVan becoming Chief
Executive Officer of Parent, for a minimum base salary equal to the greater of
90% of the annual base salary of CSX's current Chief Executive Officer and
$810,000, and a minimum bonus equal to 100% of base salary, but not less than
90% of the bonus paid or awarded to CSX's current Chief Executive Officer and
not less (as a percentage of base salary) than any bonus paid or awarded to any
other senior executive of Parent, and (ii) upon Mr. LeVan becoming Chief
Executive Officer of Parent, for a minimum annual base salary of not less than
the annual base salary then being paid to CSX's current Chief Executive Officer
and not less than $900,000, and long-term incentive (including stock award)
opportunities not less than those afforded any other senior executive of Parent
and not less than 90% of CSX's current Chief Executive Officer's long-term
incentive opportunities. A copy of the LeVan Agreement is filed as Exhibit
(c)(2) hereto, is incorporated herein by reference and the foregoing description
is qualified in its entirety by such reference.
MR. LEVAN'S NEW CHANGE OF CONTROL AGREEMENT. Mr. LeVan has also entered
into a new change of control agreement which will become effective at the
Effective Time. Under the new change of control agreement for Mr. LeVan (which
would replace his existing change of control agreement with Conrail), if Mr.
LeVan is involuntarily terminated or terminates for "good reason" within three
years following a change of control (for purposes of Mr. LeVan's new agreement,
the CSX Transactions will not constitute a change of control thereunder), he
will be paid an amount equal to three times the sum of (i) his annual base
salary and (ii) the highest bonus paid within the three years preceding such
termination, three years' deemed additional service under CSX's qualified and
nonqualified pension plans, three years' welfare benefit continuation and
outplacement services. The agreement also provides for a gross-up for any Excise
Taxes payable by Mr. LeVan. Compensation and benefits payable or provided under
the change of control agreement will be offset by any comparable compensation
and benefits paid under the LeVan Agreement.
BENEFIT ISSUES RELATED TO THE CSX TRANSACTIONS. The CSX Merger Agreement
provides that certain actions will be taken in respect of employee benefit and
stock plans in which executive officers of Conrail are eligible to participate.
CSX shall cause the company that survives the merger of Conrail and Sub (the
"Surviving Corporation") to honor all obligations under employment agreements
and employee benefit plans, programs, policies and arrangements of Conrail in
accordance with the terms of the CSX Merger Agreement. CSX will provide, or
cause its subsidiaries to provide, benefits to Conrail employees on a basis no
less favorable in the aggregate to those provided to similarly-situated
employees of CSX. For a two-year period following the Effective Time, CSX shall,
or shall cause the Surviving Corporation to establish and maintain a plan to
provide severance and termination benefits to all non-union employees of Conrail
terminated as a
9
<PAGE> 11
result of, or in connection with, the CSX Merger, which benefits shall be
determined consistent with industry standards and taking into account those
benefits provided in recent similar transactions in the industry.
In accordance with the CSX Merger Agreement and the terms of Conrail's
outstanding employee stock options, as of the Effective Time all such options
will be deemed to constitute an option to acquire (on the same terms and
conditions as were applicable under such options, including vesting) the same
number of CSX shares as the holder of such option would have been entitled to
receive pursuant to the CSX Merger Agreement had such holder exercised such
option in full immediately prior to the Effective Time, at a price per CSX share
equal to (i) the aggregate exercise price for the Conrail shares otherwise
purchasable pursuant to such Conrail option, divided by (ii) the aggregate
number of CSX shares deemed purchasable pursuant to such option.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendations of the Board of Directors.
THE CONRAIL BOARD CONTINUES TO BELIEVE THAT A MERGER OF EQUALS WITH CSX IS
IN THE BEST INTERESTS OF CONRAIL AND, THEREFORE, THE CONRAIL BOARD UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS OF CONRAIL NOT TENDER THEIR SHARES PURSUANT TO
THE NORFOLK OFFER.
At a meeting held on November 5, 1996, the Conrail Board, including the
disinterested members of the Conrail Board, unanimously (i) determined that the
terms of the Norfolk Offer and the Proposed Norfolk Merger are not in the best
interests of Conrail (taking into account the Conrail constituencies affected by
such proposed transactions, the short-term and long-term interests of Conrail,
the resources, intent and conduct (past, stated and potential) of any person
seeking to acquire control of Conrail, and all other pertinent factors); and
(ii) recommended that the shareholders of Conrail reject the Norfolk Offer and
not tender their Shares pursuant to the Norfolk Offer. ACCORDINGLY, THE CONRAIL
BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF CONRAIL NOT TENDER THEIR
SHARES PURSUANT TO THE NORFOLK OFFER.
The Conrail Board, including the disinterested members of the Conrail
Board, also unanimously reaffirmed its determination that the terms of the CSX
Merger Agreement (as amended) are in the best interests of Conrail (taking into
account all the Conrail constituencies affected by such proposed transactions,
the short-term and long-term interests of Conrail, the resources, intent and
conduct (past, stated and potential) of any person seeking to acquire control of
Conrail, and all other pertinent factors). ACCORDINGLY, THE CONRAIL BOARD
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF CONRAIL WHO DESIRE TO RECEIVE
CASH FOR THEIR SHARES TENDER THEIR SHARES PURSUANT TO THE CSX OFFER AND THE
SECOND CSX OFFER, IF APPLICABLE.
The Conrail Board continues to recommend that shareholders tender their
Shares pursuant to the CSX Offer and the Second CSX Offer, if applicable,
because it has determined that the CSX Transactions are in the best interests of
Conrail. The value to be received by Conrail's shareholders pursuant to the
original terms of the CSX Transactions was at the high-end of what has been paid
in other railroad business combinations, and under the amended terms of the CSX
Transactions, the aggregate amount of cash to be received by the Conrail
shareholders has been increased by approximately $650 million.
Copies of a press release announcing the Board's determinations, and a
letter to the shareholders of Conrail communicating the Board's recommendations
are filed as Exhibits (a)(1) and (a)(4) hereto, respectively, and are
incorporated herein by reference.
(b)(1) Background.
GENERAL. As part of its long-term planning process, Conrail has been
involved in an ongoing review of its commercial and strategic alternatives,
which has included analyses of potential acquisitions of and combinations with
other railroads. Recent industry consolidations confirm that railroads must
offer their customers broad market reach via efficient, single-line service.
Conrail continued to assess and reassess its position in the industry, resulting
in Conrail's consideration of a possible combination with CSX. Conrail's
analysis
10
<PAGE> 12
demonstrates that a potential merger with CSX is in the best interests of
Conrail and offers the needed combination of synergies and public benefits
(including network efficiencies).
From time to time prior to March 1994, certain members of senior management
of Conrail, including James A. Hagen, Mr. LeVan's predecessor, have spoken with
members of Norfolk's senior management, including David R. Goode, Chairman and
Chief Executive Officer of Norfolk, concerning a possible business combination
between Conrail and Norfolk. While the companies determined to proceed with
certain business cooperation opportunities, no decisions were reached concerning
a business combination. From March through September 1994, Conrail and Norfolk
management, including Mr. Hagen and Mr. Goode, met several times to discuss the
possibility of a combination of Conrail and Norfolk. The parties entered into a
confidentiality agreement on August 17, 1994. In September 1994, the parties
terminated such discussions, having failed to reach agreement on an appropriate
price or other material terms of a possible strategic combination.
During 1995, members of Conrail's and Norfolk's senior management,
including Mr. LeVan and Mr. Goode, met several times to discuss general business
opportunities between the companies. On these occasions, members of Conrail's
management, including Mr. LeVan, stated that Conrail thought its best strategy
was to remain independent and that Conrail was not interested in a possible
combination with Norfolk. On July 2, 1996, and again during the week of July 29
to August 2, 1996, Mr. LeVan stated to Mr. Goode that Conrail was not interested
in a possible combination with Norfolk, but that Conrail would be reviewing its
strategic alternatives in September 1996. Mr. Goode expressed the continuing
interest of Norfolk in pursuing such discussions. On September 19 or 20, 1996,
Mr. LeVan and Mr. Goode again had a brief conversation on this subject, in which
the most recent positions of the parties as just stated did not change.
On September 25 and 26, 1996, the Conrail Board met to consider, among
other things, various strategic alternatives that Conrail could pursue in
furtherance of its objective of continued growth, including potential franchise
extensions and other improvements in services and competitiveness. The Conrail
Board expressly considered the relative merits to Conrail and its constituencies
of a strategic business combination with CSX and with Norfolk, and concluded
that a strategic business combination with CSX would be in the best interests of
Conrail. The Conrail Board then authorized representatives of Conrail to proceed
with confidential discussions with CSX regarding a possible strategic
combination, and, following numerous discussions among Conrail and CSX and their
respective legal and financial advisors, on October 15, 1996, CSX and Conrail
announced they had entered into the CSX Merger Agreement.
On October 7, 1996, Mr. LeVan told Mr. Goode that Conrail was not in a
position to discuss with Norfolk the outcome of its September 1996 strategic
alternatives review.
On October 23, 1996, Norfolk issued a press release announcing its
intention to commence the Norfolk Offer, to be followed by the Proposed Norfolk
Merger. The press release included a letter to the Conrail Board indicating
Norfolk's intention to effect the Proposed Norfolk Transactions, setting forth
Norfolk's reasons for believing that its proposal was superior to that of CSX,
indicating Norfolk's desire to negotiate a merger agreement with Conrail and
stating that Norfolk was flexible as to all aspects of its proposal reflected in
the Proposed Norfolk Transactions. A copy of the Norfolk press release
(including the Norfolk letter to the Conrail Board) is filed herewith as Exhibit
(a)(2) and is incorporated herein by reference, and the foregoing description is
qualified in its entirety by such exhibits.
On October 23, 1996, Conrail issued a press release, filed herewith as
Exhibit (a)(1) and incorporated herein by reference, advising Conrail's
shareholders that they need not take any immediate action with respect to the
unsolicited offer and that they should await the response of the Conrail Board,
which is reflected in this Schedule 14D-9.
On October 24, 1996, Norfolk filed with the Commission the Norfolk Schedule
14D-1 and commenced the Norfolk Offer.
On November 5, the Conrail Board met to consider the Proposed Norfolk
Transactions and the proposed Amendment to the CSX Merger Agreement and took the
actions referred to above under Section (a) of this Item 4. Also on November 5,
Conrail and CSX executed the Amendment.
11
<PAGE> 13
NORFOLK LITIGATION. On October 23, 1996, Norfolk filed a Complaint for
Declaratory and Injunctive Relief in the United States District Court of the
Eastern District of Pennsylvania against Conrail, CSX and the directors of
Conrail. On October 30, 1996, Norfolk filed its First Amended Complaint for
Declaratory and Injunctive Relief, which amends its original complaint
principally by asserting additional state law claims. Norfolk's complaint
alleges, among other things, violations of fiduciary duty, of Conrail's Articles
of Incorporation and By-Laws, of the PBCL and of the federal securities laws and
requests preliminary and permanent injunctive and declaratory relief including,
without limitation, (i) an injunction from commencing or continuing a tender
offer for the Shares, seeking approval of Conrail's shareholders of the Articles
Amendment or taking steps to make effective the Articles Amendment; taking any
action to redeem the Rights or render the Rights inapplicable to any offer with
respect to Conrail by CSX without, at the same time, rendering them inapplicable
with respect to the Norfolk Offer; taking any action to enforce certain
provisions of the CSX Merger Agreement; failing to take action to exempt the
Proposed Norfolk Merger from certain provisions of the PBCL; and holding the
Pennsylvania Special Meeting to obtain shareholder approval of the Articles
Amendment, and (ii) a declaration that certain "continuing director" provisions
in the Rights Agreement are void. A copy of the amended Norfolk complaint is
attached hereto as Exhibit (c)(4) and is incorporated herein by reference, and
the foregoing summary description is qualified in its entirety by such exhibit.
Conrail believes that the claims set forth in Norfolk's complaint are
entirely without merit, and on October 28, 1996, Conrail filed a motion to
dismiss Norfolk's complaint in its entirety. On November 4, 1996, Norfolk's
motion in the United States District Court for the Eastern District of
Pennsylvania for a temporary restraining order seeking to prevent a Distribution
Date (as such term is defined in the Rights Agreement) from occurring under the
Rights Plan was denied because the Conrail Board had already acted to postpone
the occurrence of a Distribution Date in accordance with the terms of the Rights
Agreement. A hearing on the preliminary injunction being sought by Norfolk has
been scheduled for November 12, 1996.
(2) Reasons for Recommendation.
In making the determinations and recommendations set forth above in Section
(a) of this Item 4, the Conrail Board considered a number of factors, including,
without limitation, the following:
(i) The factors which led the Conrail Board to recommend the original
CSX tender offer (the "Original CSX Offer") and the terms of the CSX Merger
Agreement at the Conrail Board meeting held on October 14, 1996, including,
without limitation, the following:
(A) the historical and recent market prices of the Shares and the
fact that the Original CSX Offer and the CSX Merger will enable
shareholders to realize a significant premium over the prices at
which the Shares traded prior to execution of the CSX Merger
Agreement, and that the CSX Offer (as amended) will enable
shareholders to realize an even greater premium than in the
Original CSX Offer;
(B) the receipt by the Conrail Board of fairness opinions of Lazard
Freres & Co. LLC ("Lazard Freres") and Morgan Stanley & Co.
Incorporated ("Morgan Stanley"), dated October 14, 1996, to the
effect that the consideration to be received by Conrail's
shareholders in the Original CSX Offer and the Merger, taken
together, is fair to such shareholders from a financial point of
view, and dated November 5, 1996, to the effect that the
consideration to be received by Conrail's shareholders in the CSX
Offer (as amended) and the Merger, taken together, is also fair
to such shareholders from a financial point of view. In rendering
their respective fairness opinions, based on the factors
described therein and at the request of counsel for the Conrail
Board, neither Lazard Freres nor Morgan Stanley addressed the
relative merits of the CSX Transactions, the Proposed Norfolk
Transactions and any alternative potential transactions;
(C) the Conrail Board's duties under Pennsylvania law to act in the
best interests of Conrail, and that under such law the Conrail
Board may consider (a) the interests of all constituencies,
including shareholders, employees, suppliers, customers and
creditors, as
12
<PAGE> 14
well as communities in which Conrail has operations, (b) the short-term and
long-term interests of Conrail, (c) the resources, intent and conduct (past,
stated and potential) of any person seeking to acquire control of Conrail and
(d) all other pertinent factors;
(D) the Conrail Board's view that the transactions contemplated by
the CSX Merger Agreement would result in significant
efficiencies, operating benefits and commercial and other
synergies that would better benefit Conrail and its customers and
be more in the public interest than would combinations with other
railroads, such as Norfolk, and that Conrail's shareholders would
also benefit greatly from such efficiencies, benefits and
synergies through their significant continued interest in the
combined company following the CSX Merger;
(E) the Conrail Board's view that the benefits, efficiencies and
synergies in the CSX Merger would better meet the needs of
Conrail's constituencies than would other combinations with other
railroads, such as Norfolk;
(F) the benefits that the CSX Merger would provide to the customers
of Conrail and CSX, including by providing them with the benefits
of efficient high-quality service from a more comprehensive rail
system with more points of origin and more new single-line and
integrated transportation services, and with a railroad company
with the financial strength to support substantial capital
investment in the railroad system;
(G) the benefits that the CSX Merger would provide to the public
through increased safety and improved air quality due to, among
other things, the resulting improvements in the principal
alternative to truck movement over heavily-congested highways;
(H) the benefits provided generally to the communities served by
Conrail, and particularly to local communities in Pennsylvania,
including through maintaining the headquarters of the combined
company in Philadelphia;
(I) the fact that the CSX Merger, while providing a significant
premium to Conrail's shareholders, has been structured as a true
merger-of-equals transaction in which 50% of the Board, and each
Board committee, of Parent would be designated by Conrail; and
(J) Mr. LeVan being named as the President and Chief Operating
Officer of Parent and the President and Chief Executive Officer
of the railroads, and the fact that he is to become Chief
Executive Officer of Parent two years after the Effective Time
and Chairman of the Board of Parent four years after the
Effective Time.
(ii) The view of the Conrail Board that a strategic combination with
CSX remains in the best interests of Conrail, notwithstanding the
commencement of the Norfolk Offer, and that the terms of the CSX Offer (as
amended) are fair from a financial point of view and more favorable to
shareholders than the terms of the Original CSX Offer.
(iii) The Conrail Board's recognition that the near-term trading price
for the Shares, if the Norfolk Offer could be effected, would likely be
higher than the near-term trading price for the Shares that would result
from the CSX Transactions.
(iv) The fact that the CSX shares to be received by the shareholders
in the CSX Transactions would provide the shareholders with the opportunity
to participate in the long-term benefits which in the view of the Conrail
Board are likely to be realized from the CSX Transactions.
(v) The fact that several of the conditions to the Norfolk Offer can
only be satisfied if the Conrail Board takes certain actions, which as
described above the Conrail Board agreed not to take until April 13, 1997
under the original CSX Merger Agreement (and agreed not to take until July
12, 1997 under the Amendment), and thereafter only if certain conditions
are satisfied.
13
<PAGE> 15
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Lazard Freres and Morgan Stanley have been retained by the Conrail Board to
act as financial advisors to Conrail with respect to the transactions
contemplated by the CSX Merger Agreement. Pursuant to an engagement letter with
Lazard Freres, Conrail has agreed to pay Lazard Freres for its services a cash
fee equal to .17% of the aggregate consideration received by the holders of
Shares, $2,750,000 of which is payable upon the execution of the CSX Merger
Agreement, $3,750,000 of which is payable upon the receipt of the requisite
approvals of the shareholders of Conrail and CSX and the balance of which is
payable at the Effective Time. Pursuant to an engagement letter with Morgan
Stanley, Conrail has agreed to pay Morgan Stanley for its services a cash fee
equal to .13% of the aggregate consideration received by holders of Shares,
$2,000,000 of which was payable at the time the CSX Merger Agreement was
executed, $2,750,000 of which is payable on the date of a Conrail shareholder
vote in favor of the CSX Merger and the balance of which is payable at the
Effective Time.
Conrail has also agreed to pay Lazard Freres and Morgan Stanley for their
usual and customary expenses, including the fees of counsel, and to indemnify
Lazard Freres and Morgan Stanley against certain liabilities.
Conrail has retained D.F. King & Co., Inc. ("D.F. King") to assist Conrail
in connection with its communications with its shareholders with respect to, and
to provide other services to Conrail in connection with, the Pennsylvania
Special Meeting, the special meeting relating to the approval of the CSX Merger
and the CSX Merger Agreement and the Proposed Norfolk Transactions. D.F. King
will receive reasonable and customary compensation in connection with the
services provided by it, and reimbursement of out-of-pocket expenses in
connection therewith. Conrail has agreed to indemnify D.F. King against certain
liabilities arising out of or in connection with its engagement.
Conrail has retained Abernathy, MacGregor Scanlon ("Abernathy") as its
public relations advisor in connection with the CSX Transactions and the
Proposed Norfolk Transactions. Abernathy will receive reasonable and customary
compensation for its services and reimbursement of out-of-pocket expenses in
connection therewith. Conrail has agreed to indemnify Abernathy against certain
liabilities arising out of or in connection with its engagement.
Neither Conrail nor any person acting on its behalf currently intends to
employ, retain or compensate any other person to make solicitations or
recommendations to shareholders on its behalf concerning the CSX Transactions or
the Proposed Norfolk Transactions.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) During the past 60 days, neither Conrail nor any subsidiary of Conrail
nor, to the best of Conrail's knowledge, any executive officer, director or
affiliate of Conrail has effected a transaction in the Shares except that 2,779
shares of Preferred Stock were allocated to the ESOP accounts of certain
executive officers as of September 30, 1996. In addition, during the past 60
days but prior to October 14, 1996, Conrail has repurchased 352,700 shares of
Common Stock pursuant to its long-standing share repurchase program.
(b) Conrail's executive officers and directors intend not to tender their
Shares to Atlantic pursuant to the Norfolk Offer but instead to tender their
Shares to Sub and CSX pursuant to the CSX Offer and the Second CSX Offer, if
applicable, other than those executive officers and directors who desire to
receive CSX shares for their Shares in the CSX Merger rather than to receive
cash in the CSX Offer and the Second CSX Offer, if applicable.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Other than as set forth or referenced in Items 3(b) or 4, no
negotiation is being undertaken or is underway by Conrail in response to the
Norfolk Offer which relates to or would result in:
(1) an extraordinary transaction such as a merger or reorganization,
involving Conrail or any subsidiary of Conrail;
14
<PAGE> 16
(2) a purchase, sale or transfer of a material amount of assets by
Conrail or any subsidiary of Conrail;
(3) a tender offer for or other acquisition of securities by or of
Conrail; or
(4) any material change in the present capitalization or dividend
policy of Conrail.
(b) Except as described above, in Item 3(b), there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the Norfolk Offer which relate or would result in one or more of the matters
referred to in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
None.
ITEM 9. MATERIALS TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
+(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.
(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 October 14, 1996
(incorporated by reference to Exhibit (c)(6) to the CSX 14D-9).
+(c)(4) 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).
</TABLE>
- ---------------
* Included in materials delivered to shareholders of Conrail.
+ Incorporated by reference.
15
<PAGE> 17
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 6, 1996
16
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
- ----------- ------------------------------------------------------------------------ --------
<S> <C> <C>
+(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................
(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 October 14,
1996 (incorporated by reference to Exhibit (c)(6) to the CSX 14D-9).....
+(c)(4) 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)...........................
</TABLE>
- ---------------
* Included in materials delivered to shareholders of Conrail.
+ Incorporated by reference.
17
<PAGE> 1
(a)(3)
[LOGO OF CSX] [LOGO OF CONRAIL]
CONTACTS:
<TABLE>
<S> <C>
CSX CORPORATION CONRAIL INC.
THOMAS E. HOPPIN CRAIG R. MACQUEEN
(804) 782-1450 (215) 209-4594
KEKST AND COMPANY ABERNATHY MACGREGOR GROUP
RICHARD WOLFF JOELE FRANK/DAN KATCHER
(212) 593-2655 (212) 371-5999
</TABLE>
FOR IMMEDIATE RELEASE
CSX AND CONRAIL AMEND MERGER AGREEMENT
CSX RAISES CASH PORTION OF ITS AGREEMENT WITH CONRAIL TO $110 PER CONRAIL SHARE
CONRAIL BOARD UNANIMOUSLY APPROVES CSX AMENDED OFFER
CONRAIL BOARD UNANIMOUSLY REJECTS NORFOLK SOUTHERN'S OFFER
Richmond, Va., and Philadelphia, Pa., Nov. 6, 1996--CSX Corporation [NYSE: CSX]
and Conrail Inc. [NYSE: CRR] today announced that they have amended the terms of
their merger agreement. Under the revised terms, CSX has raised the cash portion
of its offer to $110 per Conrail share.
Conrail also announced that its board of directors carefully considered the
relative merits of a merger with Norfolk Southern rather than with CSX, and
unanimously reaffirmed that a merger with CSX is in Conrail's best interest and
is the superior strategic combination for Conrail. The Conrail board determined
that a transaction with Norfolk Southern is not in the best interest of Conrail
and its constituencies.
David M. LeVan, chairman, president and chief executive officer of Conrail,
said, "Our two companies have now agreed to significantly increase the value to
be received by the Conrail shareholders, and Conrail's other constituencies will
continue to get tremendous benefits resulting from the CSX merger.
"On Oct. 14, 1996, the Conrail board unanimously approved a merger of equals
with CSX to create one of the world's leading transportation and logistics
companies," Mr. LeVan continued. "That transaction provided value to our
shareholders at the high-end of what has been paid in other railroad mergers,
and it clearly was and is in the best interests of Conrail and its
constituencies. Before approving that merger, we carefully considered the
relative merits of a merger with Norfolk Southern rather than with CSX, and
we unanimously determined that a merger with CSX was in Conrail's best interest
and was the superior
<PAGE> 2
strategic combination for Conrail. In making that decision we were fully aware
that Norfolk Southern had expressed an interest in acquiring Conrail. We have
now reaffirmed that decision."
John W. Snow, CSX chairman, president and chief executive officer, said, "Our
decision to increase the cash portion of the offer not only reflects CSX's
commitment to completing the transaction, but also accounts for the increased
value we have determined will be realized through the merger. Further analysis
by our management team, working with its counterpart at Conrail, has identified
at least $730 million in synergies and cost savings, $180 million more than
originally anticipated.
"Following the combination of our two companies, we expect immediate net traffic
benefits of about $165 million and cost savings totaling approximately $565
million," continued Mr. Snow. "Importantly, we will realize these benefits
rapidly by working closely together. This is especially significant since
Conrail shareholders who receive CSX shares as consideration for their shares,
will benefit from what we expect will be a substantial increase in the value of
those shares.
"Furthermore, it is apparent that the merger between CSX and Conrail will
produce signification public policy benefits. The service and pricing advantages
we will offer shippers will reduce truck traffic along the now congested
interstate corridors throughout the region. We also will be able to provide a
safer, more reliable operating environment for passenger services. Only the
CSX/Conrail combination offers so many significant benefits to customers and the
greater public," Mr. Snow added.
"The hostile Norfolk Southern bid is burdened with a series of significant
conditions. Given all the obstacles in the path of Norfolk Southern's bid,
Conrail shareholders would have to wait a prolonged amount of time to receive
payment for their shares. Meanwhile, the CSX/Conrail combination offers an
immediate opportunity to move forward together creating real, substantive value
for both Conrail and CSX shareholders.
"The merger of CSX and Conrail is driven by a compelling logic. Together, CSX
and Conrail will create the leading global freight transportation and logistics
management company and provide dramatically improved rail service to our
customers east of the Mississippi. Shippers and receivers throughout the region
will benefit from significantly enhanced competition, much better service and
more competitive pricing. Our combined railroad will grow significantly and
operate with maximum efficiency," Mr. Snow said.
"Clearly, the combination of CSX and Conrail provides the best overall package
of benefits to our constituencies, including customers, the communities we
serve, and the public-at-large. We welcome the strong support of the Conrail
board of directors and look forward to a bright future as our new company moves
full speed into the 21st Century," concluded Mr. Snow.
The significant amendments to the CSX/Conrail merger agreement include:
- - The increase of the cash portion of the transaction to $110 per Conrail share.
The structure of the proposed merger will remain the same: 40 percent of the
fully diluted shares of Conrail's common stock and ESOP preferred stock will
be acquired at the new price and the remaining 60 percent will be exchanged
for CSX stock at the originally agreed-upon exchange ratio of 1.85619 CSX
shares for each Conrail share;
- - An extension by three months of the period of time during which the Conrail
board of directors cannot withdraw its support of the merger agreement or
agree to any competing transaction. As now extended, such provisions will run
until July 12, 1997; and
- - Neither party will engage in discussions or enter into any agreement with
other railroad companies (including Norfolk Southern) relating to trackage
rights or other concessions without the participation and agreement of the
other party.
Additionally, the Conrail Shareholders Meeting scheduled for Nov. 14 has been
canceled. The record date for a new shareholders meeting has been set at Dec. 5,
1996, and the shareholder meeting is
<PAGE> 3
expected to be held in mid-December.
CSX's tender offer of $110 per Conrail share is for an aggregate of about 17.9
million shares of Conrail common stock and ESOP preferred stock, or
approximately 19.9 percent of the Conrail outstanding voting stock. The offer is
subject to certain customary conditions.
Under the terms of the CSX offer, as amended, the tender offer's expiration date
and withdrawal and proration rights are extended until Midnight EST, Nov. 20,
1996. As of the close of business on Nov. 5, 1996, 56,634 Conrail shares had
been tendered pursuant to the CSX offer.
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.
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.
Attached is a fact sheet on the CSX/Conrail merger of equals, and additional
information regarding this announcement can be found on the companies' Web sites
on the Internet. CSX's home page can be reached at http://www.CSX.com. Conrail's
home page can be reached at http://www.CONRAIL.com.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FAST FACTS REGARDING THE CSX - CONRAIL MERGER
- The proposed CSX/CRR merger of equals will create a powerful strategic
alliance, the leading transportation company in the world with more than
$14 billion in revenue and operations serving more than 80 countries
around the globe.
- In addition to the railroad, the new company will include the nation's
largest container-shipping (Sea-Land Services) and barging (American
Commercial Barge Line) companies, its only full-service, coast-to-coast
intermodal company (CSX Intermodal) and one of the foremost contract
logistics management companies (Customized Transportation Services) in the
world.
- For employees and the communities within which they work and live, the
CSX/CRR merger of equals offers the combination of companies with
complementary business mixes, common corporation strategies and compatible
corporate cultures.
- CSX/CRR has agreed to locating the corporate headquarters of the new
company in Philadelphia; to leaving the operating headquarters of the CSXT
and Conrail rail companies in Jacksonville and Philadelphia for the
foreseeable future; to a board comprised of an equal number of directors
from each company; and to a defined succession plan that insures the
management and employees, shareholders, customers and communities served
by both companies will have powerful roles and strong voices in the future
of the company.
- For shareholders, the CSX/CRR merger of equals offers ownership of an
international transportation company with the scale and efficiency at home
and abroad to compete effectively and generate attractive returns well
into the 21st Century.
- For customers, the CSX/CRR combination provides a 29,000 route mile rail
system that would span 22 states and offer vastly improved service to
virtually all major markets east of the Mississippi. Such a system will
provide the highest quality service to customers as a result of faster,
more reliable service, shorter routes, an improved cost structure, better
equipment supply and utilization and more single-line service.
- The proposed CSX/CRR merger of equals allows realization of public policy
benefits that cannot be accomplished through any other combination.
<PAGE> 4
- More passenger trains will use the combined CSX/CRR rail system than
any other in the United States. These include not only Amtrak's, but
also those operated by commuter services in Boston, New York,
Philadelphia, Baltimore and Washington. Freight and passenger trains
currently share the same tracks in these areas. Improved coordination,
scheduling and operation of freight and passenger services will reduce
delays and improve safety and service for passengers. Similar options
may exist in other parts of the combined system in the future as
hard-pressed urban planners increasingly turn to rail transportation
to relieve highway congestion, save scarce public resources and
improve air quality.
- The proposed CSX/CRR merger of equals offers improved rail competition
to Northeast and Midwest markets and an opportunity to improve the
social and economic benefits of the entire transportation
infrastructure of the region through increased, more effective
competition with the trucking industry and through additional
intermodal cooperation.
CSX's internet address is http://www.csx.com
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 1
(a)(4)
CONRAIL LOGO
November 6, 1996
Dear Shareholders:
I am pleased to inform you that Conrail Inc. and CSX Corporation have
agreed to significantly increase the value to be received by the Conrail
shareholders in the CSX tender offer. In the transaction, 40% of the shares of
Conrail common stock and ESOP preferred stock would be acquired for cash at a
new price of $110 per share (instead of the original price of $92.50 per share),
and the remaining 60% would be acquired for CSX stock at the originally agreed
upon exchange ratio of 1.85619 CSX shares for each Conrail share.
On October 14, 1996, the Conrail Board of Directors unanimously approved a
merger of equals with CSX to create one of the world's leading transportation
and logistics companies. That transaction provided value to our shareholders at
the high-end of what has been paid in other railroad mergers, and it clearly was
and is in the best interests of Conrail and its constituencies. Before approving
that merger, we carefully considered the relative merits of a merger with
Norfolk Southern Corporation rather than with CSX, and we unanimously determined
that a merger with CSX was in Conrail's best interest and was the superior
strategic combination for Conrail.
THE CONRAIL BOARD OF DIRECTORS CONTINUES TO BELIEVE THAT A MERGER OF EQUALS
WITH CSX IS IN THE BEST INTERESTS OF CONRAIL AND, THEREFORE, UNANIMOUSLY
RECOMMENDS THAT THE CONRAIL SHAREHOLDERS REJECT AND NOT TENDER THEIR SHARES
PURSUANT TO THE UNSOLICITED NORFOLK TENDER OFFER. YOUR BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE CSX TENDER OFFER AND MERGER AND RECOMMENDS THAT CONRAIL
SHAREHOLDERS WHO DESIRE TO RECEIVE CASH FOR THEIR SHARES ACCEPT THE CSX TENDER
OFFER AND TENDER THEIR SHARES IN SUCH OFFER.
The enclosed Schedule 14D-9 contains Conrail's response to the Norfolk
tender offer. You will also be receiving a Supplement to the CSX Offer to
Purchase and an Amendment to Conrail's Schedule 14D-9 describing the terms of
the CSX tender offer. I urge you to consider all such information carefully.
Sincerely,
David M. LeVan
David M. LeVan
Chairman, President and
Chief Executive Officer
