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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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CONRAIL INC.
(NAME OF SUBJECT COMPANY)
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CONRAIL INC.
(NAME OF PERSON(S) FILING STATEMENT)
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COMMON STOCK, PAR VALUE $1.00 PER SHARE
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
(TITLE OF CLASS OF SECURITIES)
208368 10 0
(CUSIP NUMBER OF CLASS OF SECURITIES)
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SERIES A ESOP CONVERTIBLE JUNIOR PREFERRED STOCK, WITHOUT PAR VALUE
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
(TITLE OF CLASS OF SECURITIES)
N/A
(CUSIP NUMBER OF CLASS OF SECURITIES)
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JAMES D. MCGEEHAN
CORPORATE SECRETARY
CONRAIL INC.
2001 MARKET STREET
TWO COMMERCE SQUARE
PHILADELPHIA, PENNSYLVANIA 19101
(215) 209-4000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
WITH A COPY TO:
ROBERT A. KINDLER, ESQ.
CRAVATH, SWAINE & MOORE
WORLDWIDE PLAZA
825 EIGHTH AVENUE
NEW YORK, NEW YORK 10019
(212) 474-1000
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INTRODUCTION
The Solicitation/Recommendation Statement on Schedule 14D-9 (this "Schedule
14D-9") relates to an offer by Green Acquisition Corp., a Pennsylvania
corporation ("Purchaser") and a wholly owned subsidiary of CSX Corporation, a
Virginia corporation ("CSX"), to purchase a portion of the Shares (as defined
below) of Conrail Inc., a Pennsylvania corporation ("Conrail").
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name and address of the principal executive offices of Conrail is
Conrail Inc., 2001 Market Street, Two Commerce Square, Philadelphia,
Pennsylvania 19101. This Schedule 14D-9 relates to Conrail's Common Stock, par
value $1.00 per share (including the associated Common Stock Purchase Rights)
(the "Common Stock"), and Conrail's Series A ESOP Convertible Junior Preferred
Stock, without par value (including the associated Common Stock Purchase Rights)
(the "Preferred Stock", and together with the Common Stock, the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Schedule 14D-9 relates to the tender offer made by Purchaser,
disclosed in a Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1")
dated December 6, 1996, to purchase up to an aggregate of 18,344,845 Shares at
$110 per Share (the "Offer Price"), net to the seller in cash and without
interest (the "Offer"), upon the terms and subject to the conditions set forth
in the Offer to Purchase dated December 6, 1996, a copy of which is filed as
Exhibit (a)(1) hereto (the "Offer to Purchase"), and the related Letter of
Transmittal, a copy of which is filed as Exhibit (a)(2) hereto.
The Offer is being made pursuant to an Agreement and Plan of Merger dated
as of October 14, 1996, as amended by the First Amendment thereto dated as of
November 5, 1996, in each case among Conrail, Purchaser and CSX (as so amended,
the "Merger Agreement"), which provides for the making of the Offer by
Purchaser, subject to the conditions and upon the terms of the Merger Agreement,
and for the subsequent merger of Conrail with and into Purchaser (the "Merger"),
with Purchaser continuing as the surviving corporation (the "Surviving
Corporation"). Pursuant to the Merger Agreement, Purchaser has acquired
17,860,124 Shares (or approximately 19.9% of the outstanding Shares) pursuant to
its tender offer (the "First Offer") which expired on November 20, 1996. If the
Offer is consummated, Purchaser shall have acquired Shares representing
approximately 40% of the outstanding Shares on a fully diluted basis (other than
upon exercise of the Option (as defined below)) pursuant to the Offer and the
First Offer.
In the Merger, each share of Common Stock outstanding at the Effective Time
(as defined in the Merger Agreement) (other than shares of Common Stock held in
the treasury of Conrail or held by CSX or any subsidiary of CSX or Conrail)
will, by virtue of the Merger and without any action by the holder thereof, be
converted into the right to receive shares of Common Stock, par value $1.00 per
share, of CSX ("CSX Stock") at a fixed exchange ratio (the "Exchange Ratio") of
1.85619 shares of CSX Stock for each Share (all the foregoing transactions
contemplated by the Merger Agreement, the "CSX Transactions"). Each share of
Preferred Stock will, immediately prior to the Effective Time, pursuant to the
terms of Conrail's Articles of Incorporation and the Merger Agreement and
without any action by the holder thereof, automatically convert into Common
Stock and in the Merger will be converted into the right to receive shares of
CSX Stock at the Exchange Ratio. In the event that the Offer is not consummated
prior to the Merger being consummated, the Common Stock will be converted into
the right to receive cash and CSX Stock in the Merger, as more fully described
in the Merger Agreement and the Offer to Purchase. Under the terms of the Merger
Agreement, upon the Effective Time, the headquarters of CSX will be relocated to
Philadelphia, Pennsylvania, CSX will be renamed with a new, neutral name
("Parent") and one half of the Board of Directors of Parent and each committee
thereof will consist of persons appointed by Conrail. In addition, as of the
Effective Time, Mr. David M. LeVan, presently the Chairman of the Board,
President and Chief Executive Officer of Conrail, will become the Chief
Operating Officer and President of Parent and the Chief Executive Officer and
President of each of Parent's railroad businesses, and, no later than the second
anniversary of the Effective Time, the Chief Executive Officer of Parent and, no
later than the fourth anniversary of the Effective Time,
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the Chairman of the Board of Parent. The Merger Agreement (including the First
Amendment thereto), copies of which are filed as Exhibits (c)(1) and (c)(2)
hereto, is summarized in Section 13 of the Offer to Purchase.
Conrail is also soliciting proxies pursuant to a proxy statement dated
November 25, 1996, in connection with a vote of Conrail's shareholders to amend
Conrail's Articles of Incorporation to make inapplicable to Conrail Subchapter E
of Chapter 25 ("Subchapter E") of the Pennsylvania Business Corporation Law of
1988, as amended ("PBCL"). Subchapter E provides generally that, unless a
corporation has elected to make the requirements of Subchapter E inapplicable to
it through the adoption of a provision in the corporation's charter and/or
bylaws, upon the acquisition by a person or a group (a "Control Person") of
voting power over voting shares of the corporation that would entitle the
holders thereof to cast at least 20% of the votes that all shareholders would be
entitled to cast in an election of directors of the corporation, any holder of
voting shares of the corporation may require the Control Person to pay to such
holder a certain sum in respect of such shares calculated in accordance with the
terms of Subchapter E (which in this instance would equal or exceed the Offer
Price). The Offer is conditioned on Subchapter E being inapplicable to Conrail,
which will require a majority of those shareholders voting at a special meeting
(the "Pennsylvania Special Meeting") to vote to approve the amendment to
Conrail's Articles of Incorporation described above (the "Pennsylvania
Shareholder Approval").
The approximately 19.9% of the outstanding Shares acquired by CSX pursuant
to the First Offer will be voted in favor of the Pennsylvania Shareholder
Approval pursuant to the terms of the Voting Trust Agreement (as defined below).
THIS SCHEDULE 14D-9 DOES NOT CONSTITUTE A SOLICITATION OF PROXIES FOR THE
PENNSYLVANIA SPECIAL MEETING. ANY SUCH SOLICITATION WILL BE MADE ONLY PURSUANT
TO PROXY MATERIALS COMPLYING WITH THE REQUIREMENTS OF SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND THE RULES AND REGULATIONS
THEREUNDER.
The Pennsylvania Special Meeting is currently scheduled for Monday,
December 23, 1996, at 5:00 p.m., Eastern Standard Time at The Academy of Music
Hall, 1420 Locust Street, Philadelphia, Pennsylvania. Under the Merger
Agreement, Conrail has agreed not to convene, adjourn or postpone the
Pennsylvania Special Meeting without the prior consent of CSX, which consent
will not be unreasonably withheld. As a result, it is expected that the
Pennsylvania Special Meeting will not be convened at the scheduled time if
Conrail has not received prior thereto sufficient proxies to assure that the
Pennsylvania Shareholder Approval will be obtained.
At a special meeting of holders of Shares to consider the approval of the
Merger, (i) approval of the Merger will require that a majority of votes cast at
a meeting therefor be cast in favor of the Merger, (ii) abstentions, broker
non-votes and other Shares not voted are not counted in the tabulation of votes
cast, and (iii) all Shares acquired by CSX or Purchaser are required pursuant to
the Merger Agreement and a voting trust agreement (the "Voting Trust Agreement")
to be immediately deposited into a voting trust (the "Voting Trust") and to be
voted in favor of the Merger (and against any other takeover proposal), and in
favor of any proposal or action necessary or desirable to effect, or consistent
with the effectuation of, the transactions contemplated in the Merger Agreement
(such as the Pennsylvania Shareholder Approval). Because it can be expected that
some percentage of the Shares entitled to vote at a meeting of shareholders will
not in fact vote, 40% of the fully diluted Shares, together with only a very
small number of additional Shares, would be likely to represent a majority of
votes cast at a special meeting to vote on the Merger and, thus, be sufficient
to approve the Merger. If the Pennsylvania Shareholder Approval is obtained at
the Pennsylvania Special Meeting and if Purchaser is able to acquire 40% of the
fully diluted Shares through the Offer and the First Offer, the approval of the
Merger by a majority of votes cast at a special meeting of the holders of Shares
held for such purpose will be virtually certain.
If the Pennsylvania Shareholder Approval is obtained, CSX may also exercise
its option to purchase 15,955,477 shares of Common Stock (the "Option") pursuant
to the Conrail Stock Option Agreement dated
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as of October 14, 1996, between CSX and Conrail (the "Conrail Stock Option
Agreement"). If CSX and Purchaser acquire 40% of the fully diluted Shares
through the Offer, the First Offer and the exercise of the Option, CSX and
Purchaser, through the Voting Trust, will then hold approximately 50% of the
Shares, which votes will be cast to approve the Merger. That number of votes
will be sufficient to approve the Merger regardless of the votes of other
shareholders. Therefore, the receipt of the Pennsylvania Shareholder Approval
would assure that the Merger will be approved by Conrail's shareholders if
sufficient Shares are tendered in the Offer and the Option is exercised.
In addition, if the Pennsylvania Shareholder Approval is not obtained, if
the Pennsylvania Special meeting is not convened, or if the Offer is not
consummated for the maximum number of Shares sought thereunder, CSX and Conrail
are each nevertheless permitted under the Merger Agreement to seek shareholder
approval of the Merger at a special meeting called for such purpose. If the
Merger is so approved (and the other conditions to closing of the Merger, such
as regulatory approval, have been satisfied), and CSX and Purchaser shall not
have then acquired 40% of the fully diluted Shares (other than upon exercise of
the Option), the Merger would then have a cash election component such that
shareholders, upon consummation of the Merger, would have received (including
pursuant to the Offer and the First Offer) $110 in cash per Share for an
aggregate of approximately 40% of the fully diluted Shares, and 1.85619 shares
of CSX Stock for each of the remaining approximately 60% of the fully diluted
Shares. Thus, receipt of the Pennsylvania Shareholder Approval is not a
condition to consummation of the Merger; however, such approval would permit
CSX's consummation of the Offer, giving shareholders the opportunity to receive
more cash in the near term for a portion of their Shares, rather than waiting
until the Merger is consummated (which, based on the STB's current proposed
schedule discussed in the Offer to Purchase, is expected to occur early in the
first quarter of 1998).
All outstanding shares of Preferred Stock are owned of record by Fidelity
Management Trust Company, as trustee (the "ESOP Trustee") under Conrail's
Matched Savings Plan (the "ESOP"), and, accordingly, only the ESOP Trustee can
effect a valid tender of such shares. The ESOP Trustee is required by the ESOP
trust agreement to request instructions from each participant in the ESOP as to
whether shares of Preferred Stock allocated to such participant's account should
be tendered pursuant to the Offer, and to tender such shares in accordance with
such instructions. Pursuant to the ESOP trust agreement, the ESOP Trustee may
not tender allocated shares of Preferred Stock as to which no instructions are
received. Unallocated shares are required by the ESOP trust agreement to be
tendered or not tendered in the same proportion as allocated shares for which
instructions from participants are received. Conrail has been advised that, with
respect to the First Offer, the ESOP Trustee determined that applicable law
required it to tender allocated shares for which no instruction was received by
the applicable deadline and with respect to all unallocated shares and,
accordingly, all such shares were so tendered.
Both the Conrail Inc. Employee Benefits Trust (the "Employee Benefits
Trust") and the ESOP tendered substantially all of their Shares pursuant to the
First Offer and received cash for the Shares accepted for payment. Pursuant to
the terms of the Employee Benefits Trust agreement, the cash proceeds from those
Shares purchased in the First Offer were used by the Employee Benefits Trust to
purchase additional Shares in the market. As a result, the Employee Benefits
Trust was the record owner of such additional Shares as of the record date for
the Pennsylvania Special Meeting. Pursuant to the terms of the ESOP, the ESOP
Trustee has the authority and fiduciary responsibility to determine what action
to take with the proceeds resulting from the tender of unallocated Shares
pursuant to the First Offer, which may or may not include purchasing additional
Shares.
Norfolk Southern Corporation ("Norfolk") has announced a tender offer for
all outstanding Shares for $110 per Share (the "Norfolk Offer") and proposed
that Conrail would thereafter be merged with a subsidiary of Norfolk (the
"Proposed Norfolk Transactions"). The Norfolk Offer is currently scheduled to
expire on December 16, 1996. Several of the conditions of the Norfolk Offer can
be satisfied only through action by the Conrail Board of Directors (the "Conrail
Board"), which actions, pursuant to the Merger Agreement, the Conrail Board has
agreed not to take until on or after July 12, 1997. In addition, on or after
July 12, 1997, the Merger Agreement provides that certain conditions must be
satisfied in order for the Conrail Board to take any such action and, in any
event, the Conrail Board has no obligation at any time under Pennsylvania law to
agree
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to or recommend any takeover proposal (such as the Proposed Norfolk
Transactions) or to take any such action to facilitate any such takeover
proposal.
Shareholders should be aware that if the Pennsylvania Shareholder Approval
is obtained and Purchaser is therefore in a position to consummate the Offer,
shareholders may decide to tender their Shares to Purchaser (even if they
believe that the Norfolk Offer, if it could be effected, has a higher value)
because shareholders may conclude that sufficient Shares will be tendered by
other shareholders and that failure to tender will result in the non-tendering
shareholders receiving only shares of CSX Stock pursuant to the Merger which,
based on current market prices, have a per Share value that is less than the
$110 per Share being offered in the Offer. Therefore, if the Pennsylvania
Shareholder Approval is obtained, the Offer may succeed regardless of the
perceived relative values of the Offer and the Norfolk Offer. As of the close of
business on December 5, 1996, the closing market price for shares of CSX Stock
on the New York Stock Exchange Composite Tape was $47.75.
Norfolk is soliciting proxies against the Pennsylvania Shareholder
Approval. Norfolk also commenced litigation relating to the CSX Transactions
alleging principally federal securities law claims and state law breach of
fiduciary duty claims. On November 19, 1996, following a two-day hearing, the
United States District Court for the Eastern District of Pennsylvania denied in
all respects Norfolk's motion for a preliminary injunction. On November 20,
1996, the United States Court of Appeals for the Third Circuit rejected
Norfolk's application for an injunction pending an appeal by Norfolk of the
November 19, 1996 decision.
On December 5, 1996, Conrail and CSX filed counterclaims against Norfolk
seeking damages and alleging, among other things, that Norfolk has tortiously
interfered with the Merger Agreement, that Norfolk has made misleading and
deceptive statements in connection with the CSX Transaction and the Proposed
Norfolk Transactions and that Norfolk is acting not with the intention or
expectation of acquiring Shares but in order to disrupt and cripple a strategic
alliance between CSX and Conrail. A copy of the filing containing the
counterclaims is filed as Exhibit (c)(8) hereto, incorporated herein by
reference and qualifies the foregoing summary in its entirety.
The Schedule 14D-1 states that the principal executive offices of Purchaser
and CSX are located at 901 East Cary Street, Richmond, Virginia 23219.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of Conrail, which is the person filing
this statement, are set forth in Item 1 above.
(b)(1) General. The information contained under the caption "MERGER
AGREEMENT; OTHER AGREEMENTS" of the Offer to Purchase is incorporated herein by
reference. Reference is hereby made to the information contained under the
captions "OWNERSHIP BY MANAGEMENT OF EQUITY SECURITIES", and "COMPENSATION OF
DIRECTORS AND EXECUTIVE OFFICERS", in Conrail's proxy statement dated April 3,
1996 relating to Conrail's Annual Meeting of Shareholders. The relevant pages
thereof are filed as Exhibit (c)(9) hereto and incorporated herein by reference.
(2) Certain Executive Compensation and Other Employee-Related Matters in
Connection with the Merger.
Employment Agreements. Prior to the execution of the Merger Agreement,
Conrail and CSX (the "Companies") and each of their respective executive offers
were parties to change of control/severance agreements which provide for, among
other things, the payment of severance amounts and benefits upon certain
terminations of employment in connection with a change of control of the
respective Companies. The Chief Executive Officers of each of the Companies have
entered into new employment agreements with CSX which will also become effective
at the Effective Time. In addition, the Chief Executive Officer of Conrail has
entered into a new change of control agreement with CSX, which will also become
effective as of the Effective Time, in replacement of his existing change of
control agreement with Conrail. If the Merger Agreement is terminated prior to
the Effective Time, neither of the new employment agreements or the new change
of
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control agreement will take effect, and the corresponding existing change of
control/severance agreements for each Chief Executive Officer will continue in
effect. Set forth below are descriptions of the new agreements.
Chief Executive Officer of Parent. The new employment agreement for John
W. Snow (the "Snow Agreement"), presently the Chairman of the Board and Chief
Executive Officer of CSX, provides that, as of the consummation of the Merger at
the Effective Time, Mr. Snow will become Chairman of the Board and Chief
Executive Officer of Parent. The Snow Agreement provides for a term as Chief
Executive Officer of Parent beginning at the Effective Time and terminating on
the second anniversary of the Effective Time (the "CEO Employment Term"). During
the CEO Employment Term, Mr. Snow will receive annual base salary at not less
than the level in effect immediately prior to the Effective Time. At the
conclusion of the CEO Employment Term, Mr. Snow will continue as Chairman of the
Board of Parent for two additional years and will serve as Chairman Emeritus of
Parent for one additional year thereafter at the same rate of base salary as in
effect immediately prior to the expiration of the CEO Employment Term.
If Mr. Snow is involuntarily terminated without "cause," or he voluntarily
terminates for "good reason," his termination benefits will include (i) a lump
sum payment equal to the greater of (x) and (y) where (x) equals the sum of (a)
his annual base salary and (b) highest annual bonus paid in the three preceding
years ("Recent Bonus") times (c) the number of years (prorated for partial
years) then remaining in the five-year term of the Snow Agreement, and where (y)
equals three times the sum of (a) his annual base salary and (b) his Recent
Bonus, (ii) a lump sum payment equal to the additional amount he would have
accrued under Parent's qualified and nonqualified pension plans had he been
credited with three years of additional service, (iii) welfare benefit
continuation for three years, and (iv) outplacement services. The Snow Agreement
also provides that Mr. Snow will receive a "gross-up" payment to reimburse him,
on an after-tax basis, for excise taxes that may be imposed upon him under
Section 4999 of the Code on account of the payment of any "excess parachute
payments," as defined in Section 280G of the Code ("Excise Taxes").
The Snow Agreement defines "cause" as a finding by 75% or more of the Board
of Directors of Parent of Mr. Snow's (i) continued failure to substantially
perform his duties, (ii) his willful engagement in illegal conduct or gross
misconduct which is materially and demonstrably injurous to parent, (ii) his
conviction of a felony or entering of a guilty or nolo contendere plea, or (iv)
his breach of certain confidentiality covenants. The Snow Agreement defines
"good reason" as (a) a material diminution in his position, authority, duties or
responsibilities, (b) a breach by Parent of a material provision of the
employment agreement, (c) the required relocation of Mr. Snow, without his
consent, more than 35 miles from his employment location at the Effective Time,
(d) any purported termination by Parent of Mr. Snow not in accordance with the
Snow Agreement, and (e) a successor to Parent failing to assume any liabilities
under the Snow Agreement.
Chief Operating Officer of Parent. The new employment agreement of David
M. LeVan (the "LeVan Agreement"), presently the Chairman of the Board, President
and Chief Executive Officer of Conrail, provides that, as of the Effective Time,
Mr. LeVan will become the Chief Operating Officer and President of Parent and
Chief Executive Officer and President of each of Parent's railroad businesses.
Upon expiration of Mr. Snow's CEO Employment Term no later than the second
anniversary of the Effective Time, the LeVan Agreement provides that Mr. LeVan
will become Chief Executive Officer of Parent, and will become Chairman of the
Board of Parent following Mr. Snow's departure from that position no later than
two years thereafter. The initial term of the LeVan Agreement is five years and
it will be automatically renewed, subject to any prior termination, for
successive one-year periods on the fifth anniversary of the Effective Time and
each anniversary thereafter unless either party gives at least three months'
prior notice of non-renewal. The other terms of the LeVan Agreement are
substantially the same as those in the Snow Agreement, except that the LeVan
Agreement (i) provides, prior to Mr. LeVan becoming Chief Executive Officer of
Parent, for a minimum base salary equal to the greater of 90% of Mr. Snow's
annual base salary and $810,000, and a minimum bonus equal to 100% of base
salary, but not less than 90% of the bonus paid or awarded to Mr. Snow and not
less (as a percentage of base salary) than any bonus paid or awarded to any
other senior executive of Parent, (ii) provides, upon Mr. LeVan becoming Chief
Executive Officer of Parent, for a minimum annual base salary of not less than
the annual base salary then being paid to Mr. Snow and not less than $900,000,
and long-term incentive (including stock award) opportunities not less than
those afforded any other senior executives of Parent and not less than 90% of
Mr. Snow's long-term incentive opportunities, (iii) does not
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provide for Mr. LeVan's continuing services as Chairman of the Board of Parent
following his termination of employment and (iv) provides that "good reason"
includes a failure to elect Mr. LeVan as Chief Executive Officer of Parent by
the second anniversary of the Effective Time, a failure to elect Mr. LeVan as
Chairman of the Board of Parent by the fourth anniversary of the Effective Time
and the removal of Mr. LeVan as a director or from any of his specified
employment positions. A copy of the LeVan Agreement is filed as Exhibit (c)(6)
hereto and incorporated herein by reference.
Change of Control Agreements. The new change of control agreement of Mr.
LeVan is substantially similar to Mr. Snow's change of control agreement. Under
such agreements, if either executive is involuntarily terminated or terminates
for "good reason" within three years following a change of control (for purposes
of Mr. Snow's and Mr. LeVan's respective agreements, the transactions
contemplated by the Merger Agreement will not constitute a change of control
thereunder), he will be paid an amount equal to three times the sum of (i) his
annual base salary and (ii) the highest bonus paid within the three years
preceding such termination, three years' deemed additional service under
Parent's qualified and nonqualified pension plans, three years' welfare benefit
continuation and outplacement services. The agreements also provide for a
gross-up for any Excise Taxes payable by the executive. Compensation and
benefits payable or provided under the change of control agreements will be
offset by any comparable compensation and benefits paid, respectively, under the
Snow Agreement and the LeVan Agreement. A copy of the LeVan change of control
agreement is filed as Exhibit (c)(7) hereto and incorporated herein by
reference.
Effect of the Merger on Employee Benefit and Stock Plans. In addition to
the provisions relating to employment agreements described above, the Merger
Agreement contemplates that certain additional actions will be taken in respect
of employee benefit and stock plans in which executive officers of the Companies
or Parent or the Surviving Corporation are eligible to participate. CSX shall
cause the Surviving Corporation to honor all obligations under employment
agreements and employee benefit plans, programs, policies and arrangements of
Conrail and CSX in accordance with the terms of the Merger Agreement. The
Surviving Corporation will provide, or cause its subsidiaries to provide,
benefits to Conrail employees on a basis no less favorable in the aggregate to
those provided to similarly-situated employees of CSX. For a two-year period
following the Effective Time, CSX shall, or shall cause the Surviving
Corporation, to establish and maintain a plan to provide severance and
termination benefits to all non-union employees of Conrail and CSX terminated as
a result of, or in connection with, the Merger, which benefits shall be
determined consistent with industry standards and taking into account those
benefits provided in recent similar transactions in the industry.
In accordance with the Merger Agreement and the terms of the outstanding
employee stock options granted under Conrail's and CSX's respective stock option
plans, as of the Effective Time, all such options will be deemed to constitute
an option to acquire (on the same terms and conditions as were applicable under
such option, including vesting) the same number of shares of CSX Stock as the
holder of such option would have been entitled to receive pursuant to the Merger
Agreement had such holder exercised such option in full immediately prior to the
Effective Time, at a price per share of CSX Stock equal to (i) the aggregate
exercise price for the shares of Conrail Common Stock otherwise purchasable
pursuant to such Conrail option, divided by (ii) the aggregate number of shares
of CSX Stock deemed purchasable pursuant to such option.
In addition, the transactions contemplated by the Merger Agreement will
constitute a "change of control" for purposes of certain Conrail and CSX
executive compensation arrangements which include change of control provisions.
As a result, (i) all outstanding options will immediately become vested and
exercisable or payable and the restrictions on all restricted and phantom stock
awards will vest and outstanding performance shares will be deemed accrued and
the shares will become immediately deliverable, and (ii) all change of control
severance agreements will be triggered, thereby entitling executives and other
key employees covered thereunder to be entitled to the severance benefits
provided under such agreements if their employment is subsequently terminated
involuntarily or the employee terminates for "good reason" within specified
periods. The consummation of the Offer will constitute a "change of control" for
purposes of Conrail's plans, agreements and arrangements.
Except as set forth above or incorporated herein by reference, there are no
contracts, agreements, arrangements or understandings or any actual or potential
conflicts of interest between Conrail or its affiliates
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and (i) Conrail, its executive officers, directors or affiliates or (ii) the
Purchaser, its executive officers, directors or affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendations of the Board of Directors
At a meeting held on November 5, 1996, the Conrail Board, including the
disinterested members of the Conrail Board, unanimously (i) determined that the
Merger Agreement and the transactions contemplated thereby (including the Offer
and the Merger) are in the best interests of Conrail (taking into account the
Conrail constituencies affected by such proposed transactions, the short-term
and long-term interests of Conrail, the resources, intent and conduct (past,
stated and potential) of any person seeking to acquire control of Conrail and
all other pertinent factors) and (ii) recommended that the shareholders of
Conrail who desire to receive cash for a portion of their Shares accept the
Offer and tender their Shares pursuant to the Offer. ACCORDINGLY, THE CONRAIL
BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF CONRAIL WHO DESIRE TO
RECEIVE CASH FOR A PORTION OF THEIR SHARES TENDER THEIR SHARES PURSUANT TO THE
OFFER.
At a meeting held on November 5, 1996, the Conrail Board, including the
disinterested members of the Conrail Board, unanimously (i) determined that the
terms of the Norfolk Offer are not in the best interests of Conrail (taking into
account the Conrail constituencies affected by such proposed transactions, the
short-term and long-term interests of Conrail, the resources, intent and conduct
(past, stated and potential) of any person seeking to acquire control of Conrail
and all other pertinent factors) and (ii) recommended that the shareholders of
Conrail reject the Norfolk Offer and not tender their Shares pursuant to the
Norfolk Offer. ACCORDINGLY, THE CONRAIL BOARD UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF CONRAIL NOT TENDER THEIR SHARES PURSUANT TO THE NORFOLK OFFER.
The Conrail Board recommends that shareholders who desire to receive cash
for a portion of their Shares tender their Shares pursuant to the Offer because
it has determined that the Offer and the other CSX Transactions are in the best
interests of Conrail. The value to be received by Conrail shareholders pursuant
to both the original and amended terms of the CSX Transactions was at the
high-end of what has been paid in other railroad business combinations.
The Proposed Norfolk Transactions cannot be consummated at the present time
because they are conditioned on certain actions by the Conrail Board, which
actions the Conrail Board has agreed under the Merger Agreement not to take
until on or after July 12, 1997. In addition, on or after July 12, 1997, the
Merger Agreement provides that certain conditions must be satisfied in order for
the Conrail Board to take any such action and, in any event, the Conrail Board
has no obligation at any time under Pennsylvania law to agree to or recommend
any takeover proposal (such as the Proposed Norfolk Transactions) or to take any
such action to facilitate any such takeover proposal.
Copies of a press release announcing the Offer, and a letter to the
shareholders of Conrail communicating the Board's recommendation are filed as
Exhibits (a)(3) and (a)(4) hereto, respectively, and are included herein by
reference.
(b)(1) Background.
As part of its long-term planning process, Conrail has been involved in an
ongoing review of its commercial and strategic alternatives, which has included
analyses of potential acquisitions of and combinations with other railroads.
Recent industry consolidations confirm that railroads must offer their customers
broad market reach via efficient, single-line service. Conrail continued to
assess and reassess its position in the industry, resulting in Conrail's
consideration of a possible combination with CSX. Conrail's analysis
demonstrates that a potential merger with CSX is in the best interests of
Conrail and offers the needed combination of synergies and public benefits
(including network efficiencies).
From time to time since August 1994, CSX has conveyed to senior managers of
Conrail CSX's continuing interest in discussing a business combination and CSX's
views as to the desirability of such a transaction. These contacts by CSX led to
a discussion in July 1996 between David M. LeVan, Chairman,
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<PAGE> 9
President and Chief Executive Officer of Conrail, and John W. Snow, Chairman,
President and Chief Executive Officer of CSX, generally regarding the
consolidation in the railroad industry and the regulatory environment with
respect to such consolidation. Following such discussion, each of the parties
independently analyzed its strategic opportunities, including potential business
combination transactions. Shortly following preliminary discussions between Mr.
Snow and Mr. LeVan, on October 6, 1996, Mr. Snow and Mr. LeVan met to discuss
the possibility for and the terms of a business combination between CSX and
Conrail. Following that meeting, senior management of both companies, together
with their financial and legal advisors, independently undertook to examine a
possible transaction and to conduct detailed business reviews. On October 8,
1996, CSX and Conrail entered into a confidentiality agreement in connection
with their discussions. Such discussions led to the negotiation of the Merger
Agreement, the Conrail Stock Option Agreement and a CSX stock option agreement,
which were executed on October 14, 1996.
Following the announcement by Norfolk of its intention to commence the
Norfolk Offer on October 23, 1996 until the execution of the First Amendment to
the Merger Agreement, Conrail and CSX held discussions and engaged in
negotiations relative to the Merger Agreement and the First Amendment,
culminating in the execution of the First Amendment and the revision of the
terms of the First Offer on November 5, 1996. Conrail and CSX have also
announced that they have been having, and continue to have, discussions relating
to an increase in the value of the consideration payable upon consummation of
the Merger, but that there can be no assurance as to when or if any such
modifications will be made. In addition, Conrail and CSX may initiate
discussions with other Class 1 railroads (including Norfolk) to address
regulatory requirements and other competition issues arising from the Merger.
Such discussions may lead to various concessions, such as the grant of trackage
rights or other dispositions of assets, by the post-merger combined company.
Under the Merger Agreement, as described in the Offer to Purchase, CSX and
Conrail have agreed that all such discussions will be conducted jointly. See
"Merger Agreement; Other Agreements -- Merger Agreement -- Third Party
Discussions" in the Offer to Purchase.
(2) Reasons for Recommendation.
In making the determinations and recommendations set forth in subparagraph
(a) of this Item 4 the Conrail Board considered a number of factors, including,
without limitation, the following:
(i) the historical and recent market prices of the Shares and the fact
that the First Offer, the Offer and the Merger will enable the holders of
Shares to realize a significant premium over the prices at which the Shares
traded prior to the execution of the Merger Agreement;
(ii) the structure of the Offer and the use of a voting trust which
allows holders of Shares to receive cash for their Shares accepted in the
Offer without waiting for approval of the Merger by the Surface
Transportation Board;
(iii) the opinions of Lazard Freres & Co. LLC ("Lazard Freres") and
Morgan Stanley & Co. Incorporated ("Morgan Stanley") to the effect that the
consideration to be received by Conrail's shareholders in the First Offer,
the Offer and the Merger, taken together, is fair to such shareholders
(other than CSX, Purchaser or any other subsidiary of CSX) from a financial
point of view. In rendering their respective fairness opinions, based on
the factors described therein and at the request of counsel for the Conrail
Board, neither Lazard Freres nor Morgan Stanley addressed the relative
merits of the CSX Transactions, the Proposed Norfolk Transactions or any
alternative potential transactions (copies of such opinions setting forth
assumptions made and matters considered by Lazard Freres and Morgan Stanley
are filed as Exhibits (a)(6) and (a)(7), respectively, and should be read
in their entirety);
(iv) the Conrail Board's duties under Pennsylvania law to act in the
best interest of Conrail, and that under such law the Conrail Board may
consider (a) the interests of all constituencies, including shareholders,
employees, suppliers, customers and creditors, as well as communities in
which Conrail has operations, (b) the short-term and long-term interests of
Conrail, (c) the resources, intent and conduct (past, stated and potential)
of any person seeking to acquire control of Conrail and (d) all other
pertinent factors;
8
<PAGE> 10
(v) the Conrail Board's view that the transactions contemplated by the
Merger Agreement would result in significant efficiencies, operating
benefits and commercial and other synergies that would benefit Conrail and
its customers and be more in the public interest than would combinations
with other railroads, such as Norfolk, and that Conrail's shareholders
would also benefit greatly from such efficiencies, benefits and synergies
through their significant continued interest in the combined company
following the Merger;
(vi) the Conrail Board's view that the benefits, efficiencies and
synergies in the Merger would better meet the needs of Conrail's
constituencies than would other combinations with other railroads, such as
Norfolk;
(vii) the benefits that the Merger would provide to the customers of
Conrail and CSX, including by providing them with the benefits of efficient
high-quality service from a more comprehensive rail system with more points
of origin and more new single-line and integrated transportation services,
and with a rail company with the financial strength to support substantial
capital investment in the railroad system;
(viii) the benefits that the Merger would provide to the public
through increased public safety and improved air quality due to, among
other things, the resulting improvements in the principal alternative to
truck movement over heavily-congested highways;
(ix) the benefits provided generally to the communities served by
Conrail, and particularly to local communities in Pennsylvania, including
through maintaining the headquarters of the combined company in
Philadelphia;
(x) the fact that the Merger, while providing a significant premium to
Conrail's shareholders, is being structured as a true merger-of-equals
transaction in which 50% of the Board, and each Board committee, of Parent
would be designated by Conrail;
(xi) Mr. LeVan being named as the President and Chief Operating
Officer of Parent and President and Chief Executive Officer of the
railroads, and the fact that he is to become Chief Executive Officer of
Parent two years after the consummation of the Merger and Chairman of the
Board of Parent four years after the consummation of the Merger;
(xii) the intended treatment of the Merger as a tax-free
reorganization for Federal income tax purposes;
(xiii) information with regard to the financial condition, results of
operations, business and prospects of Conrail, the regulatory approvals
required to consummate the Merger as well as current economic and market
conditions (including current conditions in the industry in which Conrail
is engaged);
(xiv) the view of the Conrail Board that a strategic combination with
CSX remains in the best interests of Conrail, notwithstanding the
commencement of the Norfolk Offer, and that the terms of the Offer are fair
from a financial point of view and more favorable to shareholders than the
original terms of the First Offer;
(xv) the Conrail Board's recognition that the near-term trading price
for the Shares, if the Norfolk Offer could be effected, would likely be
higher than the near-term trading price for the Shares that would result
from the CSX Transactions;
(xvi) the fact that the shares of CSX Stock to be received by Conrail
shareholders in the CSX Transactions would provide the shareholders with
the opportunity to participate in the long-term benefits which in the view
of the Conrail Board are likely to be realized from the CSX Transactions;
and
(xvii) the fact that several of the conditions to the Norfolk Offer
can only be satisfied if the Conrail Board takes certain actions, which as
described above the Conrail Board has agreed under the Merger Agreement not
to take until after July 12, 1997 and thereafter only if certain conditions
are satisfied.
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<PAGE> 11
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Lazard Freres and Morgan Stanley have been retained by the Conrail Board to
act as financial advisors to Conrail with respect to the transactions
contemplated by the Merger Agreement. Pursuant to an engagement letter with
Lazard Freres, Conrail has agreed to pay Lazard Freres for its services a cash
fee equal to .17% of the aggregate consideration received by the holders of
Shares, $2,750,000 of which was paid as of the time the Merger Agreement was
executed, $3,750,000 of which is payable upon the receipt of the requisite
approvals of the shareholders of Conrail and CSX and the balance of which is
payable at the Effective Time. Pursuant to an engagement letter with Morgan
Stanley, Conrail has agreed to pay Morgan Stanley for its services a cash fee
equal to .13% of the aggregate consideration received by holders of Shares,
$2,000,000 of which was paid as of the time the Merger Agreement was executed,
$2,750,000 of which is payable on the date of a Conrail shareholder vote in
favor of the Merger and the balance of which is payable at the Effective Time.
Conrail has also agreed to pay Lazard Freres and Morgan Stanley for their
usual and customary expenses, including the fees of counsel, and to indemnify
Lazard Freres and Morgan Stanley against certain liabilities.
Conrail has retained D.F. King & Co., Inc. ("D.F. King") to assist Conrail
in connection with its communications with its shareholders with respect to, and
to provide other services to Conrail in connection with, the Pennsylvania
Special Meeting, the special meeting relating to the approval of the Merger and
the Merger Agreement and the Proposed Norfolk Transactions. D.F. King will
receive reasonable and customary compensation in connection with the services
provided by it, and reimbursement of out-of-pocket expenses in connection
therewith. Conrail has agreed to indemnify D.F. King against certain liabilities
arising out of or in connection with its engagement.
Conrail has retained Abernathy MacGregor Scanlon ("Abernathy") as its
public relations advisor in connection with the CSX Transactions and the
Proposed Norfolk Transactions. Abernathy will receive reasonable and customary
compensation for its services and reimbursement of out-of-pocket expenses in
connection therewith. Conrail has agreed to indemnify Abernathy against certain
liabilities arising out of or in connection with its engagement.
Neither Conrail nor any person acting on its behalf currently intends to
employ, retain or compensate any other person to make solicitations or
recommendations to shareholders on its behalf concerning the CSX Transactions or
the Proposed Norfolk Transactions.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) During the past 60 days, neither Conrail nor any subsidiary of Conrail
nor, to the best of Conrail's knowledge, any executive officer, director or
affiliate of Conrail has effected a transaction in the Shares except that
Conrail repurchased 15,000 shares of Common Stock on October 7, 1996 pursuant to
its long-standing share repurchase program and except that Conrail's executive
officers and directors exercised an aggregate of 170,439 options and sold
113,847 of the resulting Shares in a cashless exercise in order to tender the
remaining 56,610 Shares into the First Offer, and had 45,849 Shares purchased by
CSX pursuant to the First Offer. In addition, G.T. Gates, Vice
President -- Customer Support, H.J. Kiley, Vice President -- Service Design and
John McKelvey, Vice President -- Service Delivery, exercised 9,375, 1,950 and
5,332 options, respectively, and sold all of the resulting Shares. Mr. Kiley
also sold an additional 63.52 Shares.
(b) To the best of Conrail's knowledge, its executive officers and
directors currently intend to tender their Shares to the Purchaser pursuant to
the Offer, other than those executive officers and directors who desire to
receive shares of CSX Stock rather than cash for their Shares.
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<PAGE> 12
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Other than as set forth or referenced in Items 3(b) or 4, no
negotiation is being undertaken or is underway by Conrail in response to the
Offer which relates to or would result in:
(1) an extraordinary transaction such as a merger or reorganization,
involving Conrail or any subsidiary of Conrail;
(2) a purchase, sale or transfer of a material amount of assets by
Conrail or any subsidiary of Conrail;
(3) a tender offer for or other acquisition of securities by or of
Conrail; or
(4) any material change in the present capitalization or dividend
policy of Conrail.
(b) Except as described above or in Item 3(b), there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the Offer which relate or would result in one or more of the matters referred to
in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Reference is hereby made to the Offer to Purchase and the related Letter of
Transmittal which are attached as Exhibits (a)(1) and (a)(2), respectively, and
are incorporated herein by reference in their entirety.
ITEM 9. MATERIALS TO BE FILED AS EXHIBITS.
<TABLE>
<C> <S>
*(a)(1) Offer to Purchase dated December 6, 1996 (incorporated by reference to Exhibit
(a)(1) to CSX's and Purchaser's Tender Offer Statement on Schedule 14D-1 dated
December 6, 1996, as amended (the "14D-1")).
*(a)(2) Letter of Transmittal (incorporated by reference to Exhibit (a)(2) to the 14D-1).
(a)(3) Text of press release issued by CSX, dated December 6, 1996 (incorporated by
reference to Exhibit (a)(7) to the 14D-1).
*(a)(4) Letter to shareholders of Conrail dated December 6, 1996.
(a)(5) Form of Summary Advertisement dated December 6, 1996 (incorporated by reference to
Exhibit (a)(8) to the 14D-1).
*(a)(6) Opinion of Lazard Freres & Co. LLC (incorporated by reference to Exhibit (a)(14)
to the Solicitation/Recommendation Statement on Schedule 14D-9 of Conrail dated
October 16, 1996, as amended, relating to the First Offer (the "First 14D-9")).
*(a)(7) Opinion of Morgan Stanley & Co. Incorporated (incorporated by reference to Exhibit
(a)(15) to the First 14D-9).
(b) Not applicable.
(c)(1) Agreement and Plan of Merger dated as of October 14, 1996 (incorporated by
reference to Exhibit (c)(1) to CSX's and Purchaser's Tender Offer Statement on
Schedule 14D-1 dated October 16, 1996, as amended, relating to the First Offer
(the "First 14D-1")).
(c)(2) First Amendment to Agreement and Plan of Merger dated as of November 5, 1996
(incorporated by reference to Exhibit (c)(7) to the First 14D-1).
(c)(3) Conrail Stock Option Agreement dated as of October 14, 1996 (incorporated by
reference to Exhibit (c)(2) to the First 14D-1).
(c)(4) CSX Stock Option Agreement dated as of October 14, 1996 (incorporated by reference
to Exhibit (c)(3) to the First 14D-1).
(c)(5) Voting Trust Agreement dated as of October 15, 1996 (incorporated by reference to
Exhibit (c)(4) to the First 14D-1).
</TABLE>
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<TABLE>
<C> <S>
(c)(6) Employment Agreement of Mr. LeVan dated as of October 14, 1996 (incorporated by
reference to Exhibit (c)(5) to the First 14D-9).
(c)(7) Change of Control Agreement of Mr. LeVan dated as of October 14, 1996
(incorporated by reference to Exhibit (c)(6) to the First 14D-9).
(c)(8) Answer and Defenses of Conrail, CSX and the individual defendants to Second
Amended Complaint, and Counterclaim of Conrail and CSX in Norfolk Southern et al.
v. Conrail Inc.
et al., filed on December 5, 1996, in the United States District Court for the
Eastern District of Pennsylvania (incorporated by reference to Exhibit (c)(8) to
the Solicitation/ Recommendation Statement on Schedule 14D-9 of Conrail dated
November 6, 1996, as amended, relating to the Norfolk Offer).
(c)(9) Pages 4-5 and 9-14 of Conrail's Proxy Statement dated April 3, 1996 (incorporated
by reference to Exhibit (c)(7) to the First 14D-9).
</TABLE>
- ---------------
* Included in materials delivered to shareholders of Conrail.
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
CONRAIL INC.
By /s/ TIMOTHY T. O'TOOLE
------------------------------------
Name: Timothy T. O'Toole
Title: Senior Vice President-Finance
Dated as of December 6, 1996
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
- -------- -------------------------------------------------------------------------- --------
<S> <C> <C>
*(a)(1) Offer to Purchase dated December 6, 1996 (incorporated by reference to
Exhibit (a)(1) to CSX's and Purchaser's Tender Offer Statement on Schedule
14D-1 dated December 6, 1996 (the "14D-1"))...............................
*(a)(2) Letter of Transmittal (incorporated by reference to Exhibit (a)(2) to the
14D-1)....................................................................
(a)(3) Text of press release issued by CSX, dated December 6, 1996 (incorporated
by reference to Exhibit (a)(7) to the 14D-1)..............................
*(a)(4) Letter to shareholders of Conrail dated December 6, 1996..................
(a)(5) Form of Summary Advertisement dated December 6, 1996 (incorporated by
reference to Exhibit (a)(8) to the 14D-1).................................
*(a)(6) Opinion of Lazard Freres & Co. LLC (incorporated by reference to Exhibit
(a)(14) to the Solicitation/Recommendation Statement on Schedule 14D-9 of
Conrail dated October 16, 1996, as amended, relating to the First Offer
(the "First 14D-9"))......................................................
*(a)(7) Opinion of Morgan Stanley & Co. Incorporated (incorporated by reference to
Exhibit (a)(15) to the First 14D-9).......................................
(b) Not applicable............................................................
(c)(1) Agreement and Plan of Merger dated as of October 14, 1996 (incorporated by
reference to Exhibit (c)(1) to the CSX's and Purchaser's Tender Offer
Statement on Schedule 14D-1 dated October 16, 1996, as amended (the "First
14D-1")).
(c)(2) First Amendment to Agreement and Plan of Merger dated as of November 5,
1996 (incorporated by reference to Exhibit (c)(7) to the First 14D-1).....
(c)(3) Conrail Stock Option Agreement, dated as of October 14, 1996 (incorporated
by reference to Exhibit (c)(2) to the First 14D-1)........................
(c)(4) CSX Stock Option Agreement dated as of October 14, 1996 (incorporated by
reference to Exhibit (c)(3) to the First 14D-1)...........................
(c)(5) Voting Trust Agreement dated as of October 15, 1996 (incorporated by
reference to Exhibit (c)(4) to the First 14D-1)...........................
(c)(6) Employment Agreement of Mr. LeVan dated as of October 14, 1996
(incorporated by reference to Exhibit (c)(5) to the First 14D-9)..........
(c)(7) Change of Control Agreement of Mr. LeVan dated as of October 14, 1996
(incorporated by reference to Exhibit (c)(6) to the First 14D-9)..........
(c)(8) Answer and Defenses of Conrail, CSX and the individual defendants to
Second Amended Complaint, and Counterclaim of Conrail and CSX in Norfolk
Southern et al. v. Conrail Inc. et al., filed on December 5, 1996, in the
United States District Court for the Eastern District of Pennsylvania
(incorporated by reference to Exhibit (c)(8) to the
Solicitation/Recommendation Statement on Schedule 14D-9 of Conrail dated
November 6, 1996, as amended, relating to the Norfolk Offer)..............
(c)(9) Pages 4-5 and 9-14 of Conrail's Proxy Statement dated April 3, 1996
(incorporated by reference to Exhibit (c)(7) to the First 14D-9)..........
</TABLE>
- ---------------
* Included in materials delivered to shareholders of Conrail.
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<PAGE> 1
EXHIBIT (A)(4)
CONRAIL LOGO
December 6, 1996
Dear Shareholders:
I am pleased to inform you that CSX Corporation has now taken the next step
in consummating the strategic business combination between CSX and Conrail Inc.
in accordance with our Merger Agreement with CSX. A subsidiary of CSX, having
successfully consummated its first tender offer for approximately 19.9% of the
outstanding Conrail shares, has now commenced a second tender offer to purchase
up to an additional 18,344,845 Conrail shares (which, together with the shares
purchased in the first tender offer, represents approximately 40% of the
outstanding Conrail shares on a fully diluted basis). The second tender offer is
conditioned on the Conrail shareholders voting to opt out of the Pennsylvania
statute at a special meeting of shareholders, which is scheduled for December
23, 1996. Conrail is soliciting proxies of Conrail shareholders in favor of
opting out of such Pennsylvania statute pursuant to its proxy statement dated
November 25, 1996.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY (WHICH INCLUDE THE SECOND CSX TENDER OFFER
AND THE CSX MERGER) AND RECOMMENDS THAT CONRAIL SHAREHOLDERS WHO DESIRE TO
RECEIVE CASH FOR A PORTION OF THEIR SHARES ACCEPT THE SECOND CSX TENDER OFFER
AND TENDER THEIR SHARES IN SUCH OFFER. THE BOARD OF DIRECTORS HAS ALSO
UNANIMOUSLY REJECTED THE UNSOLICITED NORFOLK SOUTHERN TENDER OFFER AND
RECOMMENDS THAT CONRAIL SHAREHOLDERS REJECT THE NORFOLK TENDER OFFER.
The enclosed Offer to Purchase and related Letter of Transmittal set forth
in detail the terms and conditions of the second CSX tender offer and provide
instructions on how to tender your shares. Attached is a copy of the Schedule
14D-9 filed by Conrail with the Securities and Exchange Commission. The Schedule
14D-9 describes in more detail the reasons for the Board's conclusions and
contains other important information relating to the second CSX tender offer. I
urge you to consider the enclosed information carefully.
Sincerely,
DAVID M. LEVAN
DAVID M. LEVAN
Chairman, President and
Chief Executive Officer
15
