SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended September 30, 1996 or
( ) Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from ____ to ____
Commission file number 1-12184
CONRAIL INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2728514
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 Market Street, Philadelphia, Pennsylvania 19101
(Address of principal executive offices)
(Zip Code)
(215) 209-4000
(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Number of shares of Conrail Inc. common stock outstanding (as of
October 31, 1996) 80,112,935
<PAGE>
CONRAIL INC.
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Statements
Quarters and nine months ended
September 30, 1996 and 1995 3
Condensed Consolidated Balance
Sheets - September 30, 1996 and
December 31, 1995 4
Condensed Consolidated Statements
of Cash Flows - Nine months ended
September 30, 1996 and 1995 5
Notes to Condensed Consolidated
Financial Statements 6
Report of Independent Accountants 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 19
<PAGE>
PART I. FINANCIAL INFORMATION
CONRAIL INC.
Item 1. Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
($ In Millions except per share data)
Quarters Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------ ------ ------ ----
Revenues $ 933 $ 923 $ 2,771 $ 2,735
Operating expenses
Way and structures 105 117 364 368
Equipment 196 187 614 575
Transportation 331 319 1,048 992
General and administrative 66 92 252 298
Voluntary separation programs ----- ----- ----- ------
Total operating expenses 698 715 2,413 2,233
----- ----- ----- -----
Income from operations 235 208 358 502
Interest expense (44) (49) (137) (147)
Other income, net 25 29 83 89
----- ----- ----- -----
Income before income taxes 216 188 304 444
Income taxes 78 72 109 150
----- ----- ----- -----
Net income $ 138 $ 116 $ 195 $ 294
===== ===== ===== =====
Net income per common share
Primary $1.74 $1.44 $2.39 $3.61
Fully diluted 1.58 1.31 2.21 3.28
Dividends per common share $.475 $.425 $1.325 $1.175
Weighted average number of
shares used in computing
earnings per share (thousands)
Primary 76,825 78,664 77,443 78,837
Fully diluted 86,489 88,525 87,194 88,853
Ratio of earnings to fixed
charges 4.77x 4.02x 2.64x 3.28x
See accompanying notes.
<PAGE>
CONRAIL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
($ in Millions)
September 30, December 31,
1996 1995
-------------- ------------
ASSETS
Current assets
Cash and cash equivalents $ 33 $ 73
Accounts receivable 655 614
Deferred tax assets 337 333
Material and supplies 144 158
Other current assets 30 28
----- ----
Total current assets 1,199 1,206
Property and equipment, net 6,495 6,408
Other assets 693 810
----- -----
Total assets $ 8,387 $ 8,424
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings 65 89
Current maturities of long-term debt 138 181
Accounts payable 158 113
Wages and employee benefits 188 183
Casualty reserves 127 110
Accrued and other current liabilities 574 494
----- ------
Total current liabilities 1,250 1,170
Long-term debt 1,891 1,911
Casualty reserves 204 217
Deferred income taxes 1,420 1,393
Special income tax obligation 369 440
Other liabilities 315 316
----- -----
Total liabilities 5,449 5,447
------ ------
Stockholders' equity
Series A ESOP convertible junior
preferred stock 281 282
Unearned ESOP compensation (224) (233)
Common stock 86 85
Additional paid-in capital 2,213 2,187
Employee benefits trust (331) (329)
Retained earnings 1,251 1,176
------ ------
3,276 3,168
Treasury stock (338) (191)
Total stockholders' equity 2,938 2,977
Total liabilities and ------ ------
stockholders' equity $8,387 $ 8,424
====== =======
See accompanying notes.
<PAGE>
CONRAIL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in millions)
Nine Months Ended
September 30,
-----------------
1996 1995
----- ------
Cash flows from operating activities $ 548 $ 515
Cash flows from investing activities
Property and equipment acquisitions (233) (327)
Payments for capital lease buyouts (20) (26)
Other (11) (37)
----- -----
Net cash used in investing activities (264) (390)
Cash flows from financing activities
Repurchase of common stock (147) (52)
Net proceeds from (reductions in) short-term
borrowings (24) 62
Loans from and redemptions of insurance policies 95
Proceeds from long-term debt 26 85
Payment of long-term debt (153) (75)
Dividends paid on common stock (108) (94)
Dividends paid on preferred stock (21) (21)
Other 8 8
----- -----
Net cash used in financing activities (324) (87)
Increase (decrease) in cash and cash equivalents (40) 38
Cash and cash equivalents
Beginning of period 73 43
----- -----
End of period $ 33 $ 81
===== =====
See accompanying notes.
<PAGE>
CONRAIL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The unaudited financial statements contained herein present the
consolidated financial position of Conrail Inc. (the "Company") as of
September 30, 1996 and December 31, 1995, the consolidated results of
operations for the three and nine-month periods ending September 30, 1996
and 1995 and the consolidated cash flows for the nine-month periods ended
September 30, 1996 and 1995. In the opinion of management, these financial
statements include all adjustments, consisting of normal recurring
adjustments and the voluntary separation programs charge mentioned in Note
2, necessary to present fairly the results for the interim periods
included.
The rules and regulations of the Securities and Exchange Commission permit
certain information and footnote disclosures, ordinarily required by
generally accepted accounting principles, to be condensed or omitted from
interim financial reports. Accordingly, the financial statements included
herein should be read in conjunction with the audited financial statements
and notes for the year ended December 31, 1995, presented in the Company's
Annual Report on Form 10-K.
2. During the second quarter of 1996, the Company recorded a charge of
$135 million (before tax benefits of $52 million) consisting of
termination benefits to be paid to non-union employees participating in
the voluntary retirement and separation programs ("voluntary separation
programs") of $102 million and losses on long-term non-cancelable leases
for office space no longer required as a result of the reductions in the
Company's workforce. A total of 879 applications were accepted from
eligible employees under both programs. Approximately $90 million of the
termination benefits to be paid under the voluntary separation programs
will be paid from the Company's overfunded pension plan.
3. As a result of a decrease in a state income tax rate enacted during the
second quarter of 1995, income tax expense for the nine months ended
September 30, 1995 was reduced by $21 million representing the effects of
adjusting deferred income taxes and the special income tax obligation for
the rate decrease as required under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes".
4. In July 1996, the Consolidated Rail Corporation issued $26 million of
1996 Equipment Trust Certificates, Series A, with interest rates ranging
from 6.0% to 7.48%, maturing annually from
<PAGE>
1997 to 2011. The certificates were used to finance approximately 85% of
the total purchase price of twenty locomotives.
5. In June 1996, the Company borrowed $69 million against the cash
surrender value of its company-owned life insurance policies which it
maintains on certain of its non-union employees. The Company also redeemed
the remaining excess cash surrender value of $26 million.
6. In April 1995, the Board of Directors approved a $250 million
multi-year stock repurchase program. During the nine months of 1996, the
Company acquired 2,086,904 shares for $147 million under this program. At
September 30, 1996, $102 million remained available from this
authorization. However, as a result of the proposed merger agreement with
CSX Corporation, (see Note 7 and "Proposed Merger" included in the
Management's Discussion and Analysis) the Company will not make any
additional stock repurchases under this program.
7. On October 15, 1996, Conrail and CSX Corporation announced their
agreement for a strategic merger. Under the terms of the proposed
merger agreement, as amended, 40 percent of Conrail's common stock and
ESOP convertible junior preferred stock would be acquired for cash at
$110.00 per share, and the remaining 60 percent would be acquired for
stock at an exchange ratio of 1.85619 CSX common shares for each
Conrail share. On October 24, 1996, Norfolk Southern Corporation
announced an unsolicated tender offer for all outstanding Conrail
shares at $110 per share. See "Proposed Merger" included in the
Management's Discussion and Analysis).
8. Information regarding contingent liabilities and litigation was
included in Note 12 to Consolidated Financial Statements and Part I,
Item 3 - Legal Proceedings in the Company's Annual Report on Form 10-K
for the year ended December 31, 1995. Material developments with
respect to these and other matters are discussed in "Other Matters" in
the Management's Discussion and Analysis of Results of Operations and
in Part II, Item I - Legal Proceedings in this Form 10-Q.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Stockholder and Board of Directors of
Conrail Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Conrail Inc. and its subsidiaries (the "Company") as of September 30, 1996
and the related condensed consolidated statements of income for the three
and nine-month periods ended September 30, 1996 and September 30, 1995 and
the condensed consolidated statements of cash flows for the nine-month
periods ended September 30, 1996 and September 30, 1995. This financial
information is the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying interim financial information for it to
be in conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1995, and the
related consolidated statements of income, of stockholder's equity and of
cash flows for the year then ended (not presented herein), and in our
report dated January 22, 1996, except as to paragraphs five and six of
Note 12 to the consolidated financial statements which are as of February
21, 1996, we expressed an unqualified opinion on those consolidated
financial statements and included an explanatory paragraph describing the
Company's change in methods of accounting for income taxes and
postretirement benefits other than pensions in 1993. In our opinion, the
information set forth in the accompanying condensed consolidated balance
sheet as of December 31, 1995, is fairly stated in all material respects
in relation to the consolidated balance sheet from which it has been
derived.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, PA 19103
October 16, 1996
<PAGE>
CONRAIL INC.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Overview
Net income for Conrail Inc. ("Conrail" or the "Company") was $138 million
for the third quarter of 1996 compared with $116 million for the third
quarter of 1995. Net income for the first nine months of 1996 was $195
million compared with $294 million for the first nine months of 1995.
Results for the first nine months of 1996 include a one-time charge of $83
million (net of $52 million of tax benefits) related to voluntary
separation programs and related costs (see Note 2 to the Condensed
Consolidated Financial Statements). Results for 1995 include recognition
of a $21 million reduction in income taxes related to a decrease in a
state tax rate enacted during the second quarter of 1995 (see Note 3 to
the Condensed Consolidated Financial Statements). Conrail's net income for
the first nine months excluding the one-time charge of $83 million in 1996
and the $21 million tax benefit in 1995, would have been $278 million and
$273 million for 1996 and 1995, respectively.
Net income per common share for the third quarter of 1996 was $1.74 on a
primary basis and $1.58 on a fully diluted basis compared with $1.44 and
$1.31 on the same bases for the third quarter of 1995. Net income per
common share for the nine months of 1996 was $2.39 on a primary basis and
$2.21 on a fully diluted basis compared with $3.61 and $3.28 on the
respective bases for the same nine-month period of 1995. Without the
effect of the one-time voluntary separation programs charge, net income
per share for the first nine months of 1996 would have been $3.46 on a
primary basis and $3.16 on a fully diluted basis. Excluding the one-time
tax benefit for the first nine months of 1995, net income per common share
would have been $3.34 on a primary basis and $3.05 on a fully diluted
basis.
Traffic volume increases of 4.2% and 1.3% occurred during the third
quarter and first nine months of 1996, respectively, compared with the
same periods of 1995. These volume improvements were primarily responsible
for the modest revenue increases experienced during these same periods of
1996 (1.1% and 1.3% for the third quarter and nine months, respectively).
The Company has lowered its 1996 annual projection of line haul revenue
growth to between 1.0% and 2.0% from between 2.0% and 3.0%. The revenue
increase along with the Company's continued cost reduction efforts
resulted in an operating ratio (operating
<PAGE>
expenses as a percent of revenues) of 74.9% for the third quarter of 1996
compared with 77.5% for the third quarter of 1995.
Third Quarter 1996 compared with Third Quarter 1995
Net income for the third quarter of 1996 was $138 million versus $116
million for third quarter of 1995.
Operating revenues (primarily freight line haul revenues, but also
including switching, demurrage and incidental revenues) increased $10
million, or 1.1%, from $923 million in the third quarter of 1995 to $933
million in the third quarter of 1996. A 4.2% increase in traffic volume in
units (freight cars and intermodal trailers and containers) resulted in a
$37 million increase in revenues. Average revenue per unit decreased
revenues by $25 million due to decreases in average rates, $12 million,
and an unfavorable traffic mix, $13 million. Other revenues decreased $2
million.
Operating expenses decreased $17 million, or 2.4%, from $715 million in
the third quarter of 1995, to $698 million in the third quarter of 1996.
The following table sets forth the operating expenses for the two periods:
Third Quarter
Increase
($ In Millions) 1996 1995 (Decrease)
---- ---- --------
Compensation and benefits $ 286 $ 304 $ (18)
Fuel 44 38 6
Material and supplies 38 35 3
Equipment rents 94 91 3
Depreciation and
amortization 71 74 (3)
Casualties and insurance 42 47 (5)
Other 123 126 (3)
----- ---- -----
$ 698 $ 715 $(17)
===== ===== =====
Compensation and benefits as a percent of revenues was 30.8% in the third
quarter of 1996 as compared with 33.0% in the third quarter of 1995. The
decrease in labor costs of $18 million, or 5.9%, was mainly attributable
to lower employment levels and decreases in other employee-related costs
in the third quarter of 1996.
Fuel costs increased $6 million, or 15.8%, primarily as a result of higher
fuel prices.
Casualties and insurance decreased $5 million, or 10.6%, as a result of
fewer personal injury and occupational health claims and several large
adverse jury verdicts in the third quarter of 1995, partially offset by
higher costs for damage to lading from derailments.
<PAGE>
Conrail's operating ratio was 74.9% for the third quarter of 1996,
compared with 77.5% for the third quarter of 1995.
First Nine Months of 1996 compared with First Nine Months of 1995
Net income for the first nine months of 1996 was $195 million and included
the second quarter one-time after-tax charge of $83 million (see Note 2 to
the Condensed Consolidated Financial Statements). Net income for the first
nine months of 1995 was $294 million which included the tax benefit of $21
million recorded during the second quarter (see Note 3 to the Condensed
Consolidated Financial Statements).
Operating revenues increased $36 million, or 1.3%, to $2,771 million for
the first nine months of 1996 from $2,735 million for the first nine
months of 1995. A 1.3% increase in traffic volume resulted in a $32
million increase in revenues. Average revenue per unit decreased revenues
by $4 million for the period, with an unfavorable traffic mix causing a
$20 million decrease, partially offset by higher average rates providing
$16 million. Other revenues increased $8 million.
Operating expenses increased $180 million, or 8.1%, to $2,413 million in
the first nine months of 1996, from $2,233 million in the first nine
months of 1995. The following table sets forth the operating expenses for
the two periods:
First Nine Months
-----------------
Increase
($ In Millions) 1996 1995 (Decrease)
---- ---- --------
Compensation and benefits $ 939 $ 958 $ (19)
Fuel 146 125 21
Material and supplies 144 134 10
Equipment rents 287 259 28
Depreciation and amortization 212 220 (8)
Casualties and insurance 135 123 12
Other 415 414 1
Voluntary separation programs 135 135
----- ----- ----
$2,413 $2,233 $180
====== ======= ====
Compensation and benefits as a percent of revenues was 33.9% in the first
nine months of 1996 as compared with 35.0% in the first nine months of
1995. Reductions in employment levels and other employee-related costs
were partially offset by increased wage costs, increased train crew costs
and overtime caused by adverse weather conditions experienced during the
first quarter of 1996.
Fuel costs increased $21 million, or 16.8%, due mostly to higher fuel
prices, which are expected to continue to increase into the fourth
quarter.
<PAGE>
Equipment rents increased $28 million, or 10.8%, primarily as a result of
declines in equipment utilization and increased car hire rates.
Conrail's operating ratio was 87.1% for the first nine months of 1996,
compared with 81.7% for the first nine months of 1995. Without the $135
million one-time charge for the voluntary separation programs, the
operating ratio for the first nine months of 1996 would have been 82.2%.
The Company's effective income tax rate for the first nine months of 1996
was 35.9% compared with 33.8% for the same period of 1995. The lower
effective rate in 1995 is primarily related to a $21 million reduction in
income taxes as a result of a decrease in a state income tax rate (see
Note 3 to the Condensed Consolidated Financial Statements).
Liquidity and Capital Resources
The Company's cash and cash equivalents decreased $40 million in the first
nine months of 1996, from $73 million at December 31, 1995 to $33 million
at September 30, 1996. Cash generated from operations, primarily from its
wholly-owned subsidiary, Consolidated Rail Corporation ("CRC"), and
borrowings by CRC have been the principal sources of liquidity and are
used primarily for capital expenditures, debt service and dividends. In
the first nine months of 1996, operating activities provided cash of $548
million and loans from and redemptions of insurance policies added $95
million.
The principal uses of cash were: property and equipment acquisitions, $233
million; payment of long-term debt, $153 million; repurchase of common
stock, $147 million; and cash dividends on common and preferred stock,
$129 million.
A working capital (current assets less current liabilities) deficit of $51
million existed at September 30, 1996 as compared with working capital of
$36 million at December 31, 1995. Management believes that the Company's
financial position allows it sufficient access to credit sources on
investment grade terms, and, if necessary, additional intermediate or
long-term debt could be obtained for working capital requirements.
During the first nine months of 1996, CRC issued $75 million of commercial
paper and repaid $99 million. At September 30, 1996, $165 million remained
outstanding, of which $100 million is classified as long-term debt since
it is expected to be refinanced through subsequent issuances of commercial
paper and is supported by a long-term credit facility.
<PAGE>
In July 1996, CRC issued $26 million of 1996 Equipment Trust Certificates,
Series A, with interest rates ranging from 6.0% to 7.48%, maturing
annually from 1997 to 2011. The certificates were used to finance
approximately 85% of the total purchase price of twenty locomotives.
In June 1996, CRC borrowed $69 million against the cash surrender value of
its company-owned life insurance policies which it maintains on certain of
its non-union employees. The Company also redeemed the remaining excess
cash surrender value of $26 million. Both transactions resulted in an
increase of $95 million in cash for 1996.
In April 1995, the Board of Directors approved a $250 million multi-year
stock repurchase program. During the first nine months of 1996, the
Company acquired 2,086,904 shares for $147 million under this program. At
September 30, 1996, $102 million remained available from this
authorization; however, as a result of the proposed merger agreement with
CSX Corporation (see "Proposed Merger"), the Company will not make any
additional stock repurchases under this program.
Proposed Merger
On October 14, 1996, Conrail, CSX Corporation ("CSX") and a
subsidiary of CSX entered into an Agreement and Plan of Merger (as
amended, the "Merger Agreement"). Pursuant to the Merger Agreement, CSX
commenced a cash tender offer for an aggregate of approximately 17.9
million shares of Conrail common stock and ESOP convertible junior
preferred stock, or approximately 19.9% of the Conrail outstanding voting
stock.
On October 24 1996, Norfolk Southern Corporation ("Norfolk")
commenced an unsolicited tender offer for all outstanding Conrail
voting stock at $100 per share in cash. Norfolk has since increased
its offer to $110 per share in cash. As set forth below, the Norfolk
offer cannot be consummated under the terms of the Merger Agreement
until at least July 12, 1997.
Under the terms of the Merger Agreement, as amended on November
5, 1996, 40 percent of Conrail's common stock and ESOP convertible junior
preferred stock will be acquired by CSX for cash at $110 per share, and
the remaining 60 percent will be acquired for CSX Stock at an exchange
ratio of 1.85619 CSX common shares for each Conrail share. Because the
Conrail-CSX merger is subject to approval of the Surface Transportation
Board, the consummation of the merger is expected to occur in the fourth
quarter of 1997.
The CSX tender offer is currently for 19.9 percent of the
outstanding Conrail shares. If Conrail shareholders approve a proposal to
opt out of Subchapter 25E of the Pennsylvania Business Corporation Law of
1988, as amended (the "PBCL"), CSX will either
<PAGE>
increase the number of shares to which the offer applies or make a second
tender offer, in either case such that the total number of shares to be
acquired will be 40 percent of the fully diluted Conrail shares. The terms
and conditions of any second tender offer will be no less favorable to
shareholders than the terms and conditions of the current CSX offer.
CSX and Conrail also have granted each other an option to
purchase 19.9 percent of the other's common shares under certain
conditions. The 19.9 percent option held by CSX also would be exercisable
if it purchases shares in the CSX tender offer.
Following the CSX merger, John W. Snow, chairman, president and
chief executive officer of CSX, will become chairman and chief executive
officer of the new holding company. David M. LeVan, Conrail's chairman,
president and chief executive officer, will become the new holding
company's president and chief operating officer. The board of directors of
the new holding company will be composed of an equal number of members
appointed by each of CSX and Conrail. Upon consummation of the merger,
Mr. LeVan will be president and chief executive officer of the two
railroads. Mr. LeVan will succeed Mr. Snow as the chief executive officer
of the new holding company two years after consummation of the merger, and
will succeed Mr. Snow as chairman of the new holding company four years
after consummation of the merger.
The Conrail Board of Directors has unanimously recommended
that shareholders do not tender their shares pursuant to the Norfolk
offer. The Merger Agreement provides that, until July 12, 1997, the
Conrail Board of Directors will not (i) withdraw or modify, or
publicly propose to withdraw or modify, its approval or recommendation
of the transactions with CSX, in a manner adverse to CSX, (ii) approve
or recommend, or publicly propose to approve or recommend, any
takeover proposal (such as the Norfolk offer) or (iii) cause Conrail
to enter into any agreement related to any such takeover proposal.
Because certain conditions to the Norfolk offer (such as redemption of
the Conrail common stock purchase rights and approval of the Norfolk
offer under Subchapter 25F of the PBCL) can only be satisfied if the
Conrail Board of Directors takes such actions to approve the Norfolk
offer, the Norfolk offer cannot be consummated under the terms of the
Merger Agreement until at least July 12, 1997. In addition, the Merger
Agreement provides that on or after July 12, 1997, certain conditions
must be satisfied in order for the Conrail Board of Directors to take
any of the foregoing actions. Moreover, the Conrail Board of Directors
has no obligation under Pennsylvania law to agree to or recommend any
takeover proposal (such as the Norfolk offer) or to take any such
action to facilitate any such takeover proposal.
The Conrail Board of Directors has unanimously recommended
that shareholders who desire to receive cash now for a portion
of their shares should tender pursuant to the CSX offer.
<PAGE>
The full terms and conditions of the CSX Offer and Conrail's
position with respect to the CSX and Norfolk offers are set forth in
documents filed by Conrail with the Securities and Exchange Commission
on October 16, 1996, October 25, 1996, November 1, 1996, November 4,
1996, November 6, 1996, November 7, 1996, November 8, 1996 and
November 13, 1996, all of which are filed as Exhibits 99.1-99.12, and
the foregoing summary is qualified in its entirety by reference
thereto. See also Part II, Item 1, "Legal Proceedings".
Other Matters
CRC has received three adverse jury verdicts related to railroad crossing
accidents in Ohio that include significant punitive damage awards that
collectively approximate $40 million. CRC believes the punitive damage
awards in the referenced cases are improper and that it has meritorious
defenses and plans to appeal. The Company is not presently able to
reasonably estimate the ultimate outcome of these cases, and accordingly,
no expense for such awards has been recorded as of September 30, 1996.
Except for the historical information contained herein, the matters
discussed in this report are forward-looking statements that involve risks
and uncertainties that may cause actual results to differ, including but
not limited to the effect of economic conditions, competition, regulation
and weather on Conrail's operations, customers, service and prices, and
other factors discussed elsewhere in this report and, from time to time,
in other reports filed with the Securities and Exchange Commission.
<PAGE>
PART II. OTHER INFORMATION
CONRAIL INC.
Item 1. Legal Proceedings.
Norfolk Litigation
On October 23, 1996, Norfolk filed a Complaint for
Declaratory and Injunctive Relief (as amended on October 30, 1996, the
"Complaint"), with respect to the transactions contemplated by the
Merger Agreement, in the United States District Court for the Eastern
District of Pennsylvania. Norfolk named CSX, Conrail and certain
directors of Conrail as defendants. The Complaint in its currently
amended form alleges, among other things, violations of: (1) fiduciary
duties by the Conrail Board; (2) Conrail's Articles of Incorporation
and By- Laws; and (3) Pennsylvania statutory law.
In addition, Norfolk alleges that the CSX tender offer is
coercive and unfair to Conrail shareholders; that certain provisions in
the Merger Agreement prohibiting Conrail from changing its recommendation
of the transaction or agreeing to a competing transaction until July 12,
1997, is ultra vires and a breach of the Conrail Board's fiduciary duties;
and that Conrail and CSX violated disclosure provisions of the federal
securities laws relating to tender offers and proxy solicitations through
the misrepresentation and omission of material facts.
Norfolk has requested preliminary and permanent injunctive
and declaratory relief including, without limitation, an injunction to
prevent defendants from: (1) continuing a tender offer for the Conrail
shares, (2) taking any action to enforce certain provisions of the
Merger Agreement, and (3) failing to take actions necessary to exempt
Norfolk's proposal to acquire Conrail from certain provisions of
Pennsylvania statutory law.
Conrail believes that the claims set forth by Norfolk are
entirely without merit, and on November 12, 1996, Conrail filed a motion
to dismiss Norfolk's complaint in its entirety. A hearing on the
preliminary injunction being sought by Norfolk has been scheduled for
November 18, 1996.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Agreement and Plan of Merger dated October
14, 1996 among Conrail Inc., CSX Corporation
and Green Acquisition Corp. (the "Merger
Agreement") (incorporated by reference to
Exhibit (c)(1) to the
Solicitation/Recommendation Statement on
Schedule 14D-9, originally filed with the
Securities and Exchange Commission ("SEC")
on October 16, 1996 (the "CSX 14D-9")).
2.2 First Amendment to the Merger Agreement,
dated as of November 5, 1996 (incorporated
by reference to Exhibit (c)(11) to the CSX
14D-9).
3 Amended and Restated By-laws of Conrail
(amended and restated as of October 14,
1996).
10.1 Conrail Stock Option Agreement, dated as of
October 14, 1996 (incorporated by reference
to Exhibit (c)(2) of the CSX 14D-9).
10.2 CSX Stock Option Agreement, dated as of
October 14, 1996 (incorporated by reference
to Exhibit (c)(3) of the CSX 14D-9).
11 Statement of earnings per share computations.
12 Computations of the ratio of earnings to
fixed charges.
15 Letter re unaudited interim financial
information from Price Waterhouse LLP.
27 Financial data schedule.
99.1 Solicitation/Recommendation Statement on
Schedule 14D-9 filed with the SEC on
October 16, 1996 (incorporated herein by
reference).
99.2 Amendment 1 to the CSX 14D-9 filed with the
SEC on October 25, 1996 (incorporated herein
by reference).
<PAGE>
99.3 Amendment 2 to the CSX 14D-9 filed with the
SEC on October 31, 1996 (incorporated herein
by reference).
99.4 Amendment 3 to the CSX 14D-9 filed with the
SEC on November 4, 1996 (incorporated herein
by reference).
99.5 Amendment 4 to the CSX 14D-9 filed with the
SEC on November 6, 1996 (incorporated herein
by reference).
99.6 Amendment 5 to the CSX 14D-9 filed with the
SEC on November 7, 1996 (incorporated herein
by reference).
99.7 Amendment 6 to the CSX 14D-9 filed with the
SEC on November 8, 1996 (incorporated herein
by reference).
99.8 Amendment 7 to the CSX 14D-9 filed with the
SEC on November 13, 1996 (incorporated
herein by reference).
99.9 Solicitation/Recommendation Statement on
Schedule 14D-9, filed with the SEC on
November 6, 1996 (the "Norfolk Southern
14D-9") (incorporated herein by reference).
99.10 Amendment 1 to the Norfolk Southern 14D-9
filed with the SEC on November 7, 1996
(incorporated herein by reference).
99.11 Amendment 2 to the Norfolk Southern 14D-9
filed with the SEC on November 8, 1996
(incorporated herein by reference).
99.12 Amendment 3 to the Norfolk Southern 14D-9
filed with the SEC on November 13, 1996
(incorporated herein by reference).
(b) Reports on Form 8-K
On October 22, 1996, the Company filed a report
on Form 8-K reporting under Item 5, Other Events,
that Conrail and CSX had entered into the Merger
Agreement and the CSX Corporation Stock Option
Agreement on October 14, 1996, and that Conrail
had amended its Rights Agreement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CONRAIL INC.
Registrant
/s/ Bruce B. Wilson
------------------------
Bruce B. Wilson
Senior Vice President - Law
/s/ Timothy T. O'Toole
------------------------
Timothy T. O'Toole
Senior Vice President -
Finance
(Principal Financial Officer)
Date: November 14, 1996
<PAGE>
EXHIBIT INDEX
Exhibit No.
2.1 Agreement and Plan of Merger dated October 14,
1996 among Conrail Inc., CSX Corporation and
Green Acquisition Corp. (the "Merger Agreement")
(incorporated by reference to Exhibit (c)(1) to
the Solicitation/Recommendation Statement on
Schedule 14D-9, originally filed with the
Securities and Exchange Commission ("SEC") on
October 16, 1996 (the "CSX 14D-9")).
2.2 First Amendment to the Merger Agreement, dated as
of November 5, 1996 (incorporated by reference to
Exhibit (c)(11) to the CSX 14D-9).
3 Amended and Restated By-laws of Conrail (amended
and restated as of October 14, 1996).
10.1 Conrail Stock Option Agreement, dated as of
October 14, 1996 (incorporated by reference to
Exhibit (c)(2) of the CSX 14D-9).
10.2 CSX Stock Option Agreement, dated as of
October 14, 1996 (incorporated by reference to
Exhibit (c)(3) of the CSX 14D-9).
11 Statement of earnings per share.
12 Computations of the ratio of earnings to fixed
charges.
15 Letter re unaudited interim financial information
from Price Waterhouse LLP.
27 Financial data schedule.
99.1 Solicitation/Recommendation Statement on
Schedule 14D-9 filed with the SEC on October 16,
1996 (incorporated herein by reference).
99.2 Amendment 1 to the CSX 14D-9 filed with the SEC
on October 25, 1996 (incorporated herein by
reference).
99.3 Amendment 2 to the CSX 14D-9 filed with the SEC
on November 1, 1996 (incorporated herein by
reference).
<PAGE>
99.4 Amendment 3 to the CSX 14D-9 filed with the SEC
on November 4, 1996 (incorporated herein by
reference).
99.5 Amendment 4 to the CSX 14D-9 filed with the SEC
on November 6, 1996 (incorporated herein by
reference).
99.6 Amendment 5 to the CSX 14D-9 filed with the SEC
on November 7, 1996 (incorporated herein by
reference).
99.7 Amendment 6 to the CSX 14D-9 filed with the SEC
on November 8, 1996 (incorporated herein by
reference).
99.8 Amendment 7 to the CSX 14D-9 filed with the SEC
on November 13, 1996 (incorporated herein by
reference).
99.9 Solicitation/Recommendation Statement on
Schedule 14D-9, filed with the SEC on November 6,
1996 (the "Norfolk Southern 14D-9") (incorporated
herein by reference).
99.10 Amendment 1 to the Norfolk Southern 14D-9 filed
with the SEC on November 7, 1996 (incorporated
herein by reference).
99.11 Amendment 2 to the Norfolk Southern 14D-9 filed
with the SEC on November 8, 1996 (incorporated
herein by reference).
99.12 Amendment 3 to the Norfolk Southern 14D-9 filed
with the SEC on November 13, 1996 (incorporated
herein by reference).
Exhibit 3
---------
CONRAIL INC.
A PENNSYLVANIA CORPORATION
AMENDED AND RESTATED BYLAWS
AMENDED AND RESTATED AS OF OCTOBER 14, 1996
ARTICLE I
Offices
-------
SECTION 1.01. Registered Office. The registered office of
Conrail Inc. (the "Corporation") in the Commonwealth of Pennsylvania
shall be at Two Commerce Square, 2001 Market Street, Philadelphia,
Pennsylvania 19101 or at such other place as the Board of Directors of
the Corporation (the "Board") may specify in a statement of change of
registered office filed with the Department of State of the
Commonwealth of Pennsylvania.
SECTION 1.02. Other Offices. The Corporation may also have
an office or offices at such other place or places either within or
without the Commonwealth of Pennsylvania as the Board may from time to
time determine or the business of the Corporation requires.
ARTICLE II
Meetings of the Shareholders
SECTION 2.01. Place. All meetings of the shareholders shall
be held at such places, either within or without the Commonwealth of
Pennsylvania, as the Board may from time to time determine.
Shareholders are not permitted to act without a meeting.
SECTION 2.02. Annual Meeting. A meeting of the shareholders
for the election of directors and the transaction of such other
business as may be properly brought before the meeting shall be held
on the third Wednesday in April in each calendar year or, if that be a
legal holiday, on the first day thereafter that is not a legal
holiday, or on such other date as the Board shall designate. If the
annual meeting is not called and held within six months after the
third Wednesday in
<PAGE>
April, or such other date as the Board has designated in any specific
year, any shareholder may call a meeting of shareholders for the
election of directors at any time after the expiration of the
six-month period commencing on the third Wednesday in April, or such
designated date, as the case may be. Elections of directors, whether
at annual meetings or special meetings, need not be by written ballot,
except upon demand by a shareholder entitled to vote at the election
and before the voting begins.
SECTION 2.03. Special Meetings. Special meetings of the
shareholders, for the purpose or purposes, may be called at any time
by the Chief Executive Officer of the Corporation or by the Board,
upon written request delivered to the Secretary of the Corporation. In
addition, an "interested shareholder" (as defined in Section 2553 of
the Pennsylvania Business Corporation Law of 1988 as it may from time
to time be amended (the "1988 BCL")) may, upon written request
delivered to the Secretary of the Corporation, call a special meeting
for the purposes of approving a business combination under either
subsection (3) or (4) of Section 2555 of the 1988 BCL. Any request for
a special meeting of shareholders shall state the general nature of
the business to be transacted at the meeting. Upon receipt of any such
request, it shall be the duty of the Secretary of the Corporation to
give notice, in a manner consistent with Section 2.05 of these
By-laws, of a special meeting of the shareholders to be held at such
time as the Secretary of the Corporation may fix, which time may not
be, in the case of a special meeting of shareholders called pursuant
to a statutory right, more than sixty (60) days after receipt by the
Secretary of the Corporation of such request. If the Secretary of the
Corporation shall neglect or refuse to fix the time of the meeting and
give notice thereof, the person or persons calling the meeting may do
so.
SECTION 2.04. Scope of Special Meetings. Business transacted
at any special meeting shall be confined to the business stated in the
notice.
SECTION 2.05. Notice. Written notice of any meeting of the
shareholders, stating the place, the date and hour thereof and the
matters to be voted on at such meeting, shall be given in a manner
consistent with the applicable provisions of Section 14 of the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder, or any successor act or regulation (the
"Exchange Act"), by, or at the direction of, the Secretary of the
Corporation or, in the absence of the Secretary of the Corporation,
any Assistant Secretary of the Corporation, at least ten (10) days
before the date named for such meeting, to each shareholder entitled
to vote thereat on the date fixed as a
<PAGE>
record date in accordance with Section 7.01 of these By-laws, or if
no record date be fixed, then of record thirty (30) days next
preceding the date of the meeting, at such address as appears on the
transfer book of the Corporation. Any notice of any meeting of
shareholders shall state that, for purposes of any meeting that has
been previously adjourned from one or more periods aggregating at
least fifteen (15) days because of an absence of a quorum, the
shareholders entitled to vote who attend such a meeting, although less
than a quorum pursuant to Section 2.06 of these By-laws, shall
nevertheless constitute a quorum for the purposes of acting upon any
matter set forth in the original notice of the meeting which was so
adjourned.
SECTION 2.06. Quorum. The shareholders present in person or
by proxy, entitled to cast a majority of the votes that all
shareholders are entitled to cast on a particular matter to be acted
upon at the meeting, shall constitute a quorum for the purposes of
consideration and action on the matter. Shares of the Corporation
owned by it, directly or indirectly, and controlled by the Board of
Directors, directly or indirectly, shall not be counted in determining
the total number of outstanding shares for quorum purposes. The
shareholders present in person or by proxy at a duly organized meeting
of shareholders can continue to conduct the business of the meeting
until the adjournment thereof, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum. If a meeting of
shareholders cannot be organized because a quorum has not attended,
the shareholders present in person or by proxy may, except as
otherwise provided by the 1988 BCL and subject to the provisions of
Section 2.07 of these By-laws, adjourn the meeting to such time and
place as they may determine.
SECTION 2.07. Adjournment. Any meeting of the shareholders,
including one at which directors are to be elected, may be adjourned
for such period as the shareholders present in person or by proxy and
entitled to vote shall direct. Unless otherwise provided in a by-law
adopted by the shareholders, the shareholders entitled to vote present
in person or by proxy, although less than a quorum pursuant to Section
2.06 of these By-laws, shall nevertheless constitute a quorum for the
purpose of (i) electing directors at a meeting called for the election
of directors that has been previously adjourned for lack of a quorum,
and (ii) acting, at a meeting that has been previously adjourned for
one or more periods aggregating at
<PAGE>
least fifteen (15) days because of an absence of a quorum, upon any
matter set forth in the original notice of the meeting that was
adjourned, provided that such original notice shall have complied with
the last sentence of Section 2.05 of these By-laws. Other than as
provided in the last sentence of Section 2.05 of these By-laws, no
notice of any adjourned meeting or the business to be conducted
thereat need to be given other than an announcement at the meeting at
which the adjournment is taken, unless the Board fixes a new record
date for the adjourned meeting. At any adjourned meeting at which a
quorum shall be present, any business may be transacted that might
have been transacted at the meeting as originally noticed.
SECTION 2.08. Majority Vote. Any matter brought before a
duly organized meeting of shareholders for a vote of the shareholders
shall be decided by a majority of the votes cast at such meeting by
the shareholders present in person or by proxy and entitled to vote
thereon, unless the matter is one for which a different vote is
required by express provision of (i) the 1988 BCL, (ii) the Amended
and Restated Articles of Incorporation of the Corporation as they may
from time to time be amended (the "Articles") or (iii) a by-law
adopted by the shareholders, in any of which cases such express
provision shall govern and control the decision on such matter.
SECTION 2.09. Voting Rights. Except as otherwise provided by
statute or the Articles, at every meeting of the shareholders every
shareholder entitled to vote shall have the right to one vote for each
share having voting power standing in his name on the books of the
Corporation.
SECTION 2.10. Proxies. Every shareholder entitled to vote at
a meeting of the shareholders may authorize another person or persons
to act for him by proxy. Every proxy shall be executed in writing by
the shareholder, or by the shareholder's duly authorized
attorney-in-fact, and filed with the Secretary of the Corporation. The
presence of, or vote or other action at a meeting of shareholders by a
proxy of, a shareholder shall constitute the presence of, or vote or
action by the shareholder. A proxy, unless coupled with an interest,
shall be revocable at will, notwithstanding any other agreement or any
provision in the proxy to the contrary, but the revocation of a proxy
shall not be effective until notice thereof has been given to the
Secretary of the Corporation. No
<PAGE>
unrevoked proxy shall be valid after three (3) years form the date of
its execution, unless a longer time is expressly provided therein. A
proxy shall not be revoked by the death or incapacity of the maker
unless, before the vote is counted, written notice of such death or
incapacity is given to the Secretary of the Corporation.
SECTION 2.11. Voting Lists. The officer or agent having
charge of the transfer books for securities of the Corporation shall
either (i) make a complete list of the shareholders entitled to vote
at each meeting of shareholders, arranged in alphabetical order, with
the address of, and the number of shares of stock held by, each
shareholder, which list shall be produced and kept open at the time
and place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting, or (ii) otherwise
make such information available at the meeting.
SECTION 2.12. Judges of Election. In advance of any meeting
of the shareholders, the Board may appoint judges of election, who
need not be shareholders, to act at such meeting or any adjournment
thereof. If judges of election are not so appointed, the presiding
officer of the meeting may, and on the request of any shareholder or
his proxy shall, make such appointment at the meeting. The number of
judges shall be one or three, as determined by the Board. No person
who is a candidate for office shall act as a judge. The judges of
election shall do all such acts as may be proper to conduct the
election or vote with fairness to all shareholders, and shall make a
written report of any matter determined by them and execute a
certificate of any fact found by them, if requested by the presiding
officer of the meeting or any shareholder of the proxy of any
shareholder. If there be three judges of election, the decision, act
or certificate of a majority shall be effective in all respects as the
decision, act or certificate of all.
SECTION 2.13. No Participation by Conference Call. No
shareholder may participate in any meeting of shareholders by means of
conference telephone or similar communications equipment.
SECTION 2.14. Presiding Officer. At each meeting of the
shareholders, the Chairman of the Board, or, in his absence, his
designee, or, in their absence, a presiding officer chosen by a
majority of the votes cast by the
<PAGE>
shareholders present in person or by proxy and entitled to vote at
such meeting, shall act as presiding officer of the meeting and shall
have plenary power in conducting the meeting with regard to setting an
agenda, keeping order, limiting debate and prescribing such rules of
the meeting as from time to time are useful and proper. The Secretary
or an Assistant Secretary of the Corporation, or, in the absence of
the Secretary and all Assistant Secretaries, a person whom the
presiding officer of such meeting shall appoint, shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 2.15. Notice of Shareholder Business. At an annual
meeting of the shareholders, only such business shall be conducted,
and only such proposals shall be acted upon, as shall have been
brought before the meeting (i) pursuant to the Corporation's notice of
meeting, (ii) by or at the direction of the Board or (iii) by any
shareholder of the Corporation who is a shareholder of record at the
time of giving of the notice provided for in this By-law, who shall be
entitled to vote at such meeting and who complies with the notice
procedures set forth in this Section. For business to be properly
brought before an annual meeting by a shareholder, the shareholder
must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed to, postage prepaid, and received at the
principal executive offices of the Corporation not less than 90 days
nor more than 120 days prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the
date of the meeting is changed by more than 30 days from such
anniversary date, notice by the shareholder to be timely must be
received no later than the close of business on the 10th day following
the earlier of the day on which notice of the date of the meeting was
mailed or public disclosure was made. A shareholder's notice to the
Secretary shall set forth as to each matter the shareholder proposes
to bring before the meeting (1) a brief description of the business
desired to be brought before the meeting and the reasons for
conducting such business at the meeting, (2) a representation that the
shareholder is a holder of record of shares of the Corporation's
capital stock entitled to vote at such meeting and intends to appear
in person or by proxy to bring such matter before the meeting, (3) the
name and address, as they appear on the Corporation's books, of the
shareholder proposing such business, and the name and address of the
beneficial owner, if any, on whose behalf the
<PAGE>
proposal is made, (4) the class and number of shares of the
Corporation which are owned beneficially and of record by such
shareholder of record and by the beneficial owner, if any, on whose
behalf the proposal is made, (5) any material interest of such
shareholder of record and the beneficial owner, if any, on whose
behalf the proposal is made in such business and (6) a description of
all arrangements and understandings between the shareholder of record
and the beneficial owner, if any, on whose behalf the proposal is made
and any other person or persons (naming such person or persons)
pursuant to which the proposal is to be made.
Notwithstanding anything in these By-laws to the contrary,
no business shall be conducted, and no proposal shall be acted upon,
at an annual meeting except in accordance with the procedures set
forth in this Section. The presiding officer of the meeting shall, if
the facts warrant, determine and declare to the meeting that business
or a proposal was not properly brought before the meeting in
accordance with the procedures prescribed by these By-laws, and if he
should so determine, he shall so declare to the meeting and any such
business or proposal not properly brought before the meeting shall not
be transacted. Notwithstanding the foregoing provisions of this
Section, a shareholder shall also comply with all applicable
requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder with respect to the matters set
forth in this Section.
ARTICLE III
Directors
---------
SECTION 3.01. Number of Directors and Classification of
Board. The Board shall consist of thirteen members. Except as provided
in Section 3.04 of these By-laws in the case of vacancies, directors
shall be elected by the shareholders. The directors shall be
classified with respect to the time for which they shall severally
hold office by dividing them into three classes, one of which shall
consist of five members and two of which shall consist of four members
each. Each class of directors shall serve for a term of three years,
which terms shall commence in three consecutive years. At each annual
meeting of the shareholders the successors to the class of directors
whose term expires that year shall be elected to hold office
<PAGE>
for the term of three years and until his successor is elected and
qualified or until his earlier death, resignation or removal, so that
the term of office of one class of directors shall expire in each
year. If at any meeting of shareholders, directors of more than one
class are to be elected, each class of directors shall be elected in a
separate election.
SECTION 3.02. Qualifications. Directors shall be natural
persons of full age and need not be residents of the Commonwealth of
Pennsylvania or security holders of the Corporation.
SECTION 3.03. Nominations of Directors. Subject to the
rights of holders of any series of preferred stock or any other class
of capital stock of the Corporation (other than Common Stock) then
outstanding, only persons who are nominated in accordance with the
procedures set forth in this Section shall be eligible to serve as
directors. Nominations of persons for election to the Board of the
Corporation may be made at a meeting of shareholders (i) by or at the
direction of the Board, (ii) by or at the direction of a committee of
the Board to which the Board has delegated the authority to make such
nominations or (iii) by any shareholder of the Corporation who is a
shareholder of record at the time of giving of notice provided for in
this Section, who shall be entitled to vote for the election of
directors at the meeting and who complies with the notice procedures
set forth in this Section. Such nominations, other than those made by
or at the direction of the Board or a committee of the Board, shall be
made pursuant to timely notice in writing to the Secretary of the
Corporation. To be timely, a shareholder's notice shall be delivered
to or mailed to, postage prepaid, and received at the principal
executive offices of the Corporation (a) in the case of an annual
meeting, not less than 90 days nor more than 120 days prior to the
first anniversary of the preceding year's annual meeting (provided,
however, that in the event that the date of the annual meeting is
changed by more than 30 days from such anniversary date, notice by the
shareholder to be timely must be so received not later than the close
of business on the 10th day following the earlier of the day on which
notice of the date of the meeting was mailed or public disclosure was
made), and (b) in the case of a special meeting at which directors are
to be elected, not later than the close of business on the 10th day
following the earlier of the day on which notice of the date of the
meeting was mailed or public disclosure was made. Such shareholder's
<PAGE>
notice shall set forth (1) as to each person whom the shareholder
proposes to nominate for election as a director, (A) the name, age,
business address and residence address of the proposed nominee, (B)
the principal occupation or employment of the proposed nominee, (C)
the class and number of shares of capital stock of the Corporation
which are beneficially owned by the proposed nominee, (D) a
description of all arrangements or understandings between the
shareholder and each proposed nominee and any other person (naming
such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder, (E) all other
information relating to such proposed nominee that is required to be
disclosed in solicitations of proxies for election of directors
pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended and (F) the written consent of the proposed nominee to
serve as a director of the Corporation if so elected; (2) as to the
shareholder giving the notice (A) the name and address, as they appear
on the Corporation's books, of such shareholder, (B) a representation
that the shareholder is a holder of record of shares of the
Corporation's capital stock entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the
proposed nominee or nominees specified in the notice and (C) the class
and number of shares of the Corporation which are beneficially owned
by such shareholder and also which are owned of record by such
shareholder; and (3) as to the beneficial owner, if any, on whose
behalf the nomination is made, (A) the name and address of such person
and (B) the class and number of shares of the Corporation which are
beneficially owned by such person. The Corporation may require any
proposed nominee to furnish such other information as may reasonably
be required by the Corporation to determine the eligibility of such
proposed nominee to serve as a director of the Corporation.
No person shall be eligible to serve as a director of the
Corporation unless nominated in accordance with the procedures set
forth in this Section. The presiding officer of the meeting shall, if
the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures prescribed
by this Section, and if he should so determine, he shall so declare to
the meeting and the defective nomination shall be disregarded.
Notwithstanding the foregoing provisions of this Section, a
shareholder shall also comply with all applicable requirements of the
Securities Exchange Act of 1934, as
<PAGE>
amended, and the rules and regulations thereunder with respect to the
matters set forth in this Section.
SECTION 3.04. Vacancies. Vacancies in the Board shall be
filled by a majority of the remaining members of the Board though less
than a quorum, and each director so elected shall serve until the next
selection of the class for which such director was chosen, and until a
successor has been selected and qualified or until such director's
earlier death, resignation or removal. If one or more directors resign
from the Board effective at a future date, the directors then in
office, including those who have so resigned, shall have the power to
fill the vacancies by a majority vote, such vote to take effect when
the resignations become effective.
SECTION 3.05. Powers. The business and affairs of the
Corporation shall be managed under the direction of the Board which
may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Articles or by these
By-laws directed or required to be exercised and done by the
shareholders.
SECTION 3.06. Place of meetings. Meetings of the Board may
be held at such places within or without the Commonwealth of
Pennsylvania as, in the case of a regular meeting, the Board may from
time to time designate, or, in the case of a special meeting, as may
be designated in the notice calling the meeting.
SECTION 3.07. First Meeting of Newly Elected Board. The
first meeting of each newly elected Board shall be held as soon as
practicable after the meeting of shareholders at which such directors
were elected, and if held on the day and at the place where the annual
meeting of the shareholders was held, no notice shall be required
other than announcement at the annual meeting of the shareholders. If
such first meeting of the newly-elected Board is not so held, notice
of such meeting shall be given in the same manner as set forth in
Section 3.08 of these By-laws with respect to notice of regular
meetings of the Board.
SECTION 3.08. Regular Meetings of the Board. Regular
meetings of the Board may be held at such times and places as shall be
determined from time to time by resolution of at least a majority of
the whole Board at a duly convened meeting, or by unanimous written
consent.
<PAGE>
Notice of each regular meeting of the Board shall specify the date,
place and hour of the meeting, as well as the general nature of the
business to be conducted at the meeting, and shall be given to each
director, to his or her address or telex, TWX, telecopier or telephone
number as supplied by such director to the Corporation for the purpose
of notice, at least twenty-four (24) hours before the meeting if given
personally or by telephone, telex, TWX (with answer back received) or
telecopier, at least forty- eight (48) hours before the meeting if
given by telegram (with messenger service specified), express mail
(postage prepaid) or courier service (charges prepaid), and at least
five (5) days before the meeting if given by first class mail (postage
prepaid). If the notice is sent by mail, telegraph or courier service,
it shall be deemed to have been given to the person entitled thereto
when deposited in the United States mail or with a telegraph office or
courier service for delivery to that person, or, in the case of telex,
or TWX, when dispatched.
SECTION 3.09. Special Meetings of the Board. Special
meetings of the Board may be called by the Chief Executive Officer,
and shall be called by the Chief Executive Officer or by the Secretary
on the written request of two directors. Notice of the date, place and
hour of each special meeting of the Board shall be given within the
same time and in the same manner provided for notice of regular
meetings in Section 3.08 of these By-laws, and shall also specify the
general nature of the business to be conducted at such meeting.
SECTION 3.10. Quorum of the Board. At all meetings of the
Board the presence of a majority of the directors in office shall
constitute a quorum for the transaction of business, and the acts of a
majority of the directors present at the meeting at which a quorum is
present shall be the acts of the Board. If a quorum shall not be
present at any meeting of directors, the directors present thereat may
adjourn the meeting. It shall not be necessary to give any notice of
the adjourned meeting or of the business to be transacted thereat
other than by announcement at the meeting at which such adjournment is
taken.
SECTION 3.11. Organization. The Secretary, or in his
absence, an Assistant Secretary of the Corporation, or in the absence
of the Secretary and all Assistant Secretaries, a person whom the
chairman of such meeting
<PAGE>
shall appoint, shall act as secretary, of such meeting and keep the
minutes thereof.
SECTION 3.12. Committees of Directors. The Board may, by
resolution adopted by a majority of the directors in office, establish
one or more committees, each committee to consist of three or more of
the directors, and may designate one or more directors as alternate
members of any committee who may replace any absent or disqualified
member at any meeting of the committee or for the purposes of any
written action by the committee. Any such committee, to the extent
provided in such resolution or in these By-laws, shall have and may
exercise all of the powers and authority of the Board; provided that
no such committee shall have any power or authority to (i) submit to
the shareholders any action requiring the approval of shareholders
under the 1988 BCL, (ii) create or fill vacancies on the Board, (iii)
adopt, amend or repeal By-laws, (iv) amend or repeal any resolution of
the Board that by its terms in amendable or repealable only by the
Board, (v) act on any matter committed by these By-laws or resolution
of the Board to another committee of the Board, (vi) adopt a plan or
an agreement of merger or consolidation, or (vii) amend the Articles
or adopt a resolution proposing an amendment to the Articles. In the
absence or disqualification of a member or alternate member or members
of a committee, the member or members thereof present at any meeting
of such committee and not disqualified from voting, whether or not a
quorum is present, may unanimously appoint another director to act at
the meeting in place of any absent or disqualified member. Minutes of
all meetings of any committee of the Board shall be kept by the person
designated by such committee to keep such minutes. Copies of such
minutes and any writing setting forth an action taken by written
consent without a meeting shall be distributed to each member of the
Board promptly after such meeting is held or such action is taken.
Each committee of the Board shall serve at the pleasure of the Board.
SECTION 3.13. Audit Committee. The Board shall designate an
Audit Committee, consisting of three or more directors, each of whom
shall be independent of management and free from any relationship that
would interfere with the exercise of independent judgment as a
committee member. It shall be the responsibility of the Audit
Committee to evaluate for, and recommend to, the Board, as
appropriate, the selection of the Corporation's independent auditors,
the scope of the audits to be conducted, and the purpose and
<PAGE>
adequacy of reserves; to monitor and make recommendations in respect
to the internal audit program; and to review significant accounting
policies, including any major changes to those policies.
SECTION 3.14. Ethics Committee. The Board shall designate an
Ethics Committee, consisting of three or more members, each of whom
shall be independent of management and free from any relationship that
would interfere with the independent judgment as a committee member.
It shall be the responsibility of the Ethics Committee to review, and
recommend to the Board, as appropriate, matters relating to the
business conduct of the corporation and its employees and other
matters of public interest, including environmental quality, safety
and equal employment.
SECTION 3.15. Nominating Committee. The Board shall
designate a Nominating Committee consisting of three or more members,
each of whom shall be independent of management and free from any
relationship that would interfere with the independent judgment as a
committee member. It shall be the responsibility of the Nominating
Committee to recommend to the Board of Directors, without regard to
sex, race, religion or national origin, individuals to be nominated
for election to the Board of Directors, including the position of
Chairman, President, and Chief Executive Officer; to periodically
review Board procedures, making such recommendations to the Board as
may be appropriate, and to provide for a process through which the
performance of the Board of Directors and its members is reviewed and
evaluated, reporting to the Board of Directors, as appropriate.
SECTION 3.16. Compensation Committee. The Board shall
designate a Compensation Committee, consisting of three or more
members, each of whom shall be independent of management and free from
any relationship that would interfere with the independent judgment as
a committee member. It shall be the responsibility of the Compensation
Committee to review matters relating to compensation policies and
proposed significant changes in the structure of the organization and
personnel and, as appropriate, make recommendations to the Board of
Directors.
SECTION 3.17. Finance Committee. The Board shall designate a
Finance Committee, consisting of five or more members. It shall be the
responsibility of the Finance Committee to review matters relating to
the financial
<PAGE>
condition and performance of the corporation, including the financial
aspects of pension matters and, as appropriate, make recommendations
to the Board of Directors, and to exercise, to the extent permitted by
the law of Pennsylvania and the by-laws of the Corporation, the
authority of the Board of Directors in the management of the business
and the affairs of the Corporation on days other than those on which
the Board of Directors meets and to report such actions to the Board
of Directors.
SECTION 3.18. Participation in Board Meetings by Telephone.
One or more directors may participate in a meeting of the Board or of
a committee of the Board by means of conference telephone or similar
communications equipment by means of which all persons participating
in the meeting can hear each other, and all directors so participating
shall be deemed present to the meeting.
SECTION 3.19. Action by Written Consent of Directors. Any
action which may be taken at a meeting of the Board or of the members
of the committee of the Board may be taken without a meeting if, prior
or subsequent to the action, a consent or consents in writing setting
forth the action so taken shall be signed by all of the directors or
the members of the committee, as the case may be, and filed with the
Secretary of the Corporation.
SECTION 3.20. Compensation of Directors. The Board of
Directors may, by resolution, fix the compensation of directors for
their services. A director may also serve the Corporation in any other
capacity and receive compensation therefor.
SECTION 3.21. Chairman of the Board. The Board shall appoint
a Chairman of the Board who shall, if present, preside at all meetings
of the Board and at all meetings of the shareholders.
ARTICLE IV
Officers
--------
SECTION 4.01. Principal Officers. The principal officers of
the Corporation shall be chosen by the Board, and shall include a
Chief Executive Officer, one or more Senior Vice Presidents, one or
more Vice Presidents, a Secretary, and a Treasurer. The Board shall
designate one
<PAGE>
officer (who need not be a principal officer but shall not be an
assistant officer) to be the chief financial officer of the
Corporation and another officer (who need not be a principal officer
but shall not be an assistant officer) to be the chief accounting
officer of the Corporation. All officers shall be natural persons of
full age. Any number of offices may be held by the same person.
SECTION 4.02. Election of Principal Officers. The Board,
immediately after each annual meeting of the shareholders, shall elect
the principal officers of the Corporation, each of whom shall hold
office for a term of one year or such other term as the Board may
provide, and until his successor has been elected and qualified or
until his earlier death, resignation of removal. Each principal
officer shall have such authority and perform such duties as the Board
of Directors may from time to time determine.
SECTION 4.03. Other Officers. The Corporation may have such
other officers, assistant officers, agents and employees as the Board
or the Chief Executive Officer may deem necessary, each of whom shall
hold office for such period, have such authority and perform such
duties as the Board or the Chief Executive Officer may from time to
time determine. The Board may delegate to any principal officer the
power to appoint or remove and set the compensation of any such other
officers and any such agents or employees.
SECTION 4.04. Compensation of Officers. Except as provided
in Section 4.03 of these By-laws, the salaries of all officers of the
Corporation shall be fixed by the Board.
SECTION 4.05. Removal of Officers. Any officer or agent of
the Corporation may be removed by the Board with or without cause, but
such removal shall be without prejudice to the contract rights, if
any, of the person so removed. Vacancies of any office shall be filled
by the Board. Election or appointment of an officer or agent shall not
of itself create contract rights.
SECTION 4.06. Bonds. If required by the Board, any officer
shall give the Corporation a bond, in such sum and with such surety of
sureties as may be satisfactory to the Board, for the faithful
discharge of the duties of his or her office and for the restoration
to the Corporation, in the case of his or her death, resignation,
retirement or removal from office, of all books, papers, vouchers,
money
<PAGE>
and other property of whatever kind in his or her possession or under
his or her control belonging to the Corporation.
ARTICLE V
Share Certificates
------------------
SECTION 5.01. Certificate for Shares. The certificates
representing shares of the Corporation shall be numbered and
registered in a share register as they are issued. The share register
shall exhibit the names and addresses of all registered holders and
the number and class of shares and the series, if any, held by each.
The certificates shall state that the Corporation is
incorporated under the laws of the Commonwealth of Pennsylvania, the
name of the registered holder and the number and class of shares and
the series, if any, represented thereby. If, under the Articles, the
Corporation is authorized to issue shares of more than one class or
series, each certificate shall set forth, or shall contain a statement
that the Corporation will furnish to any shareholder upon request and
without charge, a full or summary statement of the designations,
voting rights, preferences, limitations and special rights of the
shares of each class or series authorized to be issued so far as they
have been fixed and determined and the authority of the Board to fix
and determine such rights.
SECTION 5.02. Execution. Every share certificate shall be
executed, by facsimile or otherwise, by or on behalf of the
Corporation by the Chief Executive Officer or by any Senior Vice
President or by the Secretary. In case any officer who has executed,
or whose facsimile signature has been placed upon, any share
certificate shall have ceased to be such officer, because of death,
resignation or otherwise, before the Certificate is issued, it may be
issued by the Corporation with the same effect as if the officer had
not ceased to be such at the time of its issue.
ARTICLE VI
Share Transfer
--------------
SECTION 6.01. Transfer of Shares. Upon presentment to the
Corporation or its transfer agent of a
<PAGE>
share certificate duly endorsed by the appropriate person or
accompanied by proper evidence of succession, assignment or authority
to transfer, a new certificate shall be issued to the person entitled
thereto and the old certificate cancelled and the transfer registered
upon the books of the Corporation, unless the Corporation or its
transfer agent has a duty to inquire as to adverse claims with respect
to such transfer that has not been discharged or unless the
Corporation or its transfer agent requests reasonable evidence of the
rightfulness of the transfer and such evidence is not submitted. The
Corporation shall have no duty to inquire into adverse claims with
respect to transfers of its securities or the rightfulness thereof
unless (a) the Corporation has received a written notification of an
adverse claim at a time and in a manner that affords the Corporation a
reasonable opportunity to act on it before the issuance of a new,
reissued or re-registered share certificate and the notification
identifies the claimant, the registered owner and the issue of which
the share or shares are a part and provides an address for
communications directed to the claimant; or (b) the Corporation has
required and obtained, with respect to a fiduciary, a copy of a will,
trust, indenture, articles of co-partnership, By-laws or other
controlling instruments, for a purpose other than to obtain
appropriate evidence of the appointment or incumbency of the
fiduciary, and such documents indicate, upon reasonable inspection,
the existence of an adverse claim.
SECTION 6.02. Discharge of Duty of Inquiry. The Corporation
may discharge any duty of inquiry by any reasonable means, including
notifying an adverse claimant by registered or certified mail at the
address furnished by him or, if there is no such address, at the
claimant's residence or regular place of business, that the security
has been presented for registration of transfer by a named person, and
that the transfer will be registered unless within thirty (30) days
from the date of mailing the notification, either (a) an appropriate
restraining order, injunction or other process issues from a court of
competent jurisdiction or (b) an indemnity bond, sufficient in the
Corporation's judgment to protect the Corporation and any transfer
agent, registrar or other agent of the Corporation and any transfer
agent, registrar or other agent of the Corporation involved from any
loss that it or they may suffer by complying with the adverse claim,
is filed with the Corporation.
<PAGE>
ARTICLE VII
Record Date; Identity of Shareholders
-------------------------------------
SECTION 7.01. Fixing Record Date. The Board may fix a time,
not more than ninety (90) days before the date of any meeting of the
shareholders (other than an adjourned meeting) or the date set for any
other purpose, including without limitation, the payment of any
dividend or distribution, the allotment of rights, or any change or
conversion or exchange of securities, as a record date for the
determination of the shareholders entitled to notice of, and to vote
at, any such meeting, or entitled to receive payment of any such
dividend or distribution, or to receive any such allotment of rights,
or to exercise the rights in respect to any such change, conversion or
exchange of securities. Except as otherwise provided in Section 7.02
of these By-laws, only such shareholders as shall be shareholders of
record on the date so fixed shall be entitled to notice of, and to
vote at, such meeting or to receive payment of such dividend or
distribution or to receive such allotment of rights or to exercise
such rights, as the case may be, notwithstanding any transfer of any
securities on the books of the Corporation after any record date so
fixed. When a determination of shareholders of record has been made as
provided in this Section 7.01 for purposes of a meeting, the
determination shall apply to any adjournment of such meeting unless
the Board fixes a new record date for the adjourned meeting.
SECTION 7.02. Certification of Nominee. The Board may adopt
a procedure whereby a shareholder may certify in writing to the
Secretary of the Corporation that all or a portion of the shares
registered in the name of the shareholder are held for the account of
a specified person or persons. The Board, in adopting such procedure,
may specify (i) the classification of shareholder who may certify,
(ii) the purpose or purposes for which the certification may be made,
(iii) the form of certification and the information to be contained
therein, (iv) as to certifications with respect to a record date, the
date after the record date by which the certification must be received
by the Secretary of the Corporation, and (v) such other provisions
with respect to the procedure as the Board deems necessary or
desirable. Upon receipt by the Secretary of the Corporation of a
certification complying with the procedure, the persons specified in
the certification shall be deemed, for the purpose or purposes set
forth in the
<PAGE>
certification, to be the holders of record of the number of shares
specified instead of the person making the certification.
ARTICLE VIII
Registered Shareholders
-----------------------
SECTION 8.01. Registered Shareholders. Before due
presentment for transfer of any security, the Corporation shall treat
the registered owner thereof as the person exclusively entitled to
vote, to receive notifications and otherwise to exercise all the
rights and powers of an owner, and shall not be bound to recognize any
equitable or other claim or interest in such securities, whether or
not it shall have express or other notice thereof, except as otherwise
provided by the laws of the Commonwealth of Pennsylvania or Section
7.02 of these By-laws.
ARTICLE IX
Lost Certificates
-----------------
SECTION 9.01. Lost Certificates. If the owner of a share
certificate claims that it has been lost, destroyed, or wrongfully
taken, the Corporation shall issue a new certificate in place of the
original certificate if the owner so requests before the Corporation
has notice that the certificate has been acquired by a bona fide
purchaser, and if the owner has filed with the Corporation an
indemnity bond and an affidavit of the facts satisfactory to the Board
or its designated agent, and has complied with such other reasonable
requirements, if any, as the Board may deem appropriate.
ARTICLE X
Distributions
-------------
SECTION 10.01. Payment. Distributions upon the capital stock
of the Corporation, whether by dividend, purchase or redemption or
other acquisitions of its shares, together with stock dividends and
stock splits, may be declared by the Board at any regular or special
meeting of
<PAGE>
the Board, subject to the limitations set forth in Section 1551 of the
1988 BCl and may be paid in cash, in property, or in securities,
including debt securities, of the Corporation except that stock
dividends and stock splits may be paid only in the shares in the
Corporation.
SECTION 10.02. Reserves. Before the making of any
distributions with respect to the capital stock of the Corporation,
there may be set aside out of any funds of the Corporation available
for distributions such sum or sums as the Board from time to time, in
its absolute discretion, deems proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for such other purpose
as the Board shall deem conducive to the interests of the Corporation,
and the Board may abolish any such reserve in the manner in which it
was created.
ARTICLE XI
Miscellaneous; Liability and Indemnification
--------------------------------------------
SECTION 11.01. Checks and Notes. All checks or demands for
money and notes of the Corporation shall be signed by such officer or
officers as the Board may from time to time designate.
SECTION 11.02. Fiscal Year. The fiscal year of the
Corporation shall be as determined by the Board.
SECTION 11.03. Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Pennsylvania." Such seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any
manner reproduced. The affixation of the corporate seal shall not be
necessary to the valid execution, assignment or endorsement of any
instrument or other document by the Corporation.
SECTION 11.04. Waiver of Notice. Whenever any notice is
required to be given by statute or by the Articles or by these
By-laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated
therein, shall be deemed the equivalent of the giving of such notice.
The business to be transacted at the meeting shall be specified in the
waiver
<PAGE>
of notice of such meeting. Attendance of any person entitled to
notice, either in person or by proxy, at any meeting shall constitute
a waiver of notice of such meeting, except where any person attends a
meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting was
not lawfully called or convened.
SECTION 11.05. Continuing Applicability. The provisions of
Sections 11.06, 11.07 and 11.08 of these By- laws shall continue as to
any person who has ceased to be a director, officer, other employee or
agent of the Corporation and shall inure to the benefit of the heirs
and personal representatives of such person.
SECTION 11.06. Director's Liability. A director of the
Corporation shall not be personally liable for monetary damages as
such for any action taken, or any failure to take any action, unless
(a) such director has breached or failed to perform the duties of his
office under Section 8363 of Title 42 of Pennsylvania Consolidated
Statutes, known as the Directors' Liability Act, and (b) the breach or
failure to perform constitutes self-dealing, willful misconduct or
recklessness, or unless such liability is imposed pursuant to a
criminal statute or for the payment of taxes.
SECTION 11.07. Indemnification. The Corporation shall
indemnify any director or officer and shall have the power by action
of the Board of Directors to indemnify any employee or agent other
than an officer of the Corporation with respect to any threatened,
pending or completed action, suit or proceeding (including actions by
or in right of the Corporation to procure a judgment in its favor)
arising out of, or in connection with, any actual or alleged act or
omission or the status of such indemnified person in his capacity as a
director, officer, employee or agent of the Corporation or in his
capacity as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, if
requested to serve in such capacity by the Corporation, against
expenses (including attorneys' fees), judgments, fines, and amounts
paid in settlement actually and reasonably incurred, unless the
person's action or failure to act that gave rise to the claim for
indemnification is determined by a court to have constituted willful
misconduct or recklessness. Expenses incurred by any director or
officer in defending a civil or criminal action, suit or proceeding
shall be paid by the
<PAGE>
Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be
determined that such director or officer is not entitled to be
indemnified by the Corporation. Expenses incurred by any employee or
agent other than an officer in defending a civil or criminal action,
suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon approval of
the Board of Directors and receipt of an undertaking by or on behalf
of such employee or agent to repay such amount if it shall ultimately
be determined that such employee or agent is not entitled to be
indemnified by the Corporation. The Corporation may purchase and
maintain insurance or establish a separate fund for the purpose of
satisfying its indemnification obligations. This Section 11.07 and
Section 11.06 shall not apply to any actions filed prior to their
adoption nor to any breach or failure of performance of duty by any
director or officer occurring prior to their adoption.
SECTION 11.08. Mandatory Indemnification. Without limiting
the foregoing and applicable to any action filed at any time, with
respect to any act, omission or circumstance, the Corporation shall
indemnify any person who was or is a party or threatened to be made a
party to any threatened, pending or completed action, suit or
proceeding (including actions by or in right of the Corporation to
procure a judgment in its favor) by reason of the fact that he is or
was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred, if such person has been successful
on the merits or otherwise in any such action or upon a determination
in the specific case that such indemnification is proper in the
circumstances because he has met the applicable standard of conduct
set forth in the 1988 BCL. The Corporation may purchase and maintain
insurance for the purposes of indemnification on behalf of any or all
persons to the full extent permitted under the 1988 BCL.
<PAGE>
ARTICLE XII
By-Law Amendments
-----------------
SECTION 12.01. Amendments. These By-Laws may be altered,
amended or repealed by a majority vote of the shareholders entitled to
vote thereon at any regular or special meeting duly convened after
notice to the shareholders of that purpose, or except for a by-law on
a subject expressly committed to the shareholders by the 1988 BCL, by
a majority vote of the members of the Board at any regular or special
meeting duly convened, subject always to the power of the shareholders
to change such action by the directors. Any change in these By-Laws
shall take effect when adopted, except as otherwise provided in the
resolution effecting the change.
<PAGE>
Exhibit 11
CONRAIL INC.
EARNINGS PER SHARE COMPUTATIONS
($ Millions Except Per Share)
Quarters Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
Net income
Primary
Net income $ 138 $ 116 $ 195 $ 294
Dividends declared on
Series A ESOP convertible
junior preferred stock
(ESOP Stock), net of tax
benefit (4) (2) (10) (9)
---------- ---------- ----------- ----------
$ 134 $ 114 $ 185 $ 285
========== ========== =========== ==========
Fully diluted
Net income 138 116 195 294
Nondiscretionary (1) (1) (2) (3)
adjustment(1) ---------- ---------- ----------- ----------
$ 137 $ 115 $ 193 $ 291
========== ========== =========== ==========
Weighted average number of
shares (2)
Primary
Weighted average number
of common shares
outstanding 76,233,398 78,035,787 76,782,398 78,295,582
Effect of shares issuable
under employee stock
compensation plans 592,039 628,223 660,944 541,007
---------- ---------- ---------- ----------
76,825,437 78,664,010 77,443,342 78,836,589
========== ========== ========== ==========
Fully diluted
Weighted average number
of common shares
outstanding 76,233,398 78,035,787 76,782,398 78,295,582
Series A ESOP
convertible junior
preferred stock 9,588,858 9,793,741 9,696,527 9,807,260
Effect of shares
issuable under
employee stock
compensation plans 667,113 695,858 715,143 749,716
---------- ---------- ---------- ----------
86,489,369 88,525,386 87,194,068 88,852,558
========== ========== ========== ==========
Net income per common share
Primary $1.74 $1.44 $2.39 $3.61
Fully diluted 1.58 1.31 2.21 3.28
<PAGE>
Exhibit 11
CONRAIL, INC.
EARNINGS PER SHARE COMPUTATIONS
Notes: 1. Represents the increase, net of income tax
benefits, in ESOP-related expenses assuming
conversion of all ESOP Stock to common stock.
2. Shares held by the Employee Benefits Trust (the
"Trust") are not considered outstanding for
earnings per share computations until issued by
the Trust.
Exhibit 12
CONRAIL, INC.
COMPUTATIONS OF THE RATIO OF EARNINGS TO FIXED CHARGES
($ In Millions)
Quarters Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
Earnings
Pre-tax income
Add: $ 216 $ 188 $ 304 $ 444
Interest expense 44 49 137 147
Rental expense
interest factor 12 12 40 42
Less equity in
undistributed
earnings of
20%-50% owned
companies (5) (4) (13) (14)
------- ------- -------- -------
Earnings available
for fixed charges $ 267 $ 245 $ 468 $ 619
======= ======= ======== =======
Fixed charges
Interest expense 44 49 137 147
Rental expense
interest factor 12 12 40 42
------- ------- -------- ------
Fixed charges $ 56 $ 61 $ 177 $ 189
======= ======= ======== ======
Ratio of earnings to
fixed charges 4.77x 4.02x 2.64x 3.28x
For purposes of computing the ratio of earnings to fixed charges,
earnings represent income before taxes plus fixed charges, less equity
in undistributed earnings of 20% to 50% owned companies. Fixed charges
represent interest expense together with any interest capitalized and
a portion of rent under long-term operating leases representative of
an interest factor.
Exhibit 15
November 14, 1996
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Dear Sirs:
We are aware that Conrail Inc. has incorporated by reference our
report dated October 16, 1996 (issued pursuant to the provisions
of Statement on Auditing Standards No. 71) in the following
documents:
o Registration Statement on Form S-8 No. 33-19155
o Registration Statement on Form S-8 No. 33-44140
o Registration Statement on Form S-8 No. 33-57717
o Registration Statement on Form S-8 No. 33-60445
o Registration Statement on Form S-8 No. 333-6513
o Prospectus constituting part of Registration Statement
on Form S-3 No. 33-64670
o Prospectus constituting part of Registration Statement
on Form S-3 No. 33-62929.
We are also aware of our responsibilities under the Securities Act of 1933
and that pursuant to Rule 436(c) our report dated October 16, 1996 shall
not be considered part of a registration statement prepared or certified
by us or a report prepared or certified by us within the meaning of
Sections 7 and 11 of the Securities Act of 1933.
Yours very truly,
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, PA 19103
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 33
<SECURITIES> 0
<RECEIVABLES> 655
<ALLOWANCES> 0
<INVENTORY> 144
<CURRENT-ASSETS> 1,199
<PP&E> 6,495
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<TOTAL-ASSETS> 8,387
<CURRENT-LIABILITIES> 1,250
<BONDS> 1,891
0
281
<COMMON> 86
<OTHER-SE> 2,571
<TOTAL-LIABILITY-AND-EQUITY> 8,387
<SALES> 0
<TOTAL-REVENUES> 2,771
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<INTEREST-EXPENSE> 137
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