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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2
to
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
Pursuant to Section 14(d)(4)
of the Securities Exchange Act of 1934
---------------------
CONRAIL INC.
(Name of Subject Company)
---------------------
CONRAIL INC.
(Name of Person(s) Filing Statement)
---------------------
Common Stock, par value $1.00 per share
(including the associated Common Stock Purchase Rights)
(Title of Class of Securities)
208368 10 0
(CUSIP Number of Class of Securities)
---------------------
Series A ESOP Convertible Junior Preferred Stock, without par value
(including the associated Common Stock Purchase Rights)
(Title of Class of Securities)
N/A
(CUSIP Number of Class of Securities)
---------------------
James D. McGeehan
Corporate Secretary
Conrail Inc.
2001 Market Street
Two Commerce Square
Philadelphia, Pennsylvania 19101
(215) 209-4000
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Person(s) Filing Statement)
With a copy to:
Robert A. Kindler, Esq.
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
(212) 474-1000
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<PAGE>
INTRODUCTION
Conrail Inc. ("Conrail") hereby amends and supplements its
Solicitation/Recommendation Statement on Schedule 14D-9, originally
filed on October 16, 1996, as amended October 25, 1996 (as amended,
the "Schedule 14D-9"), with respect to an offer by Green Acquisition
Corp., a wholly owned subsidiary of CSX Corporation ("CSX") to
purchase an aggregate of 17,860,124 of the outstanding Shares.
Capitalized terms not defined herein have the meanings assigned
thereto in the Schedule 14D-9.
Item 8. Additional Information to be Furnished.
Item 8 of the Schedule 14D-9 is hereby amended and supplemented
by adding the following text at the end thereof:
On October 29, 1996, three shareholders of Conrail filed a
complaint individually and derivatively on behalf of Conrail, against
Conrail, CSX and certain other defendants. The allegations made in the
shareholder complaint are substantially similar to those made in the
original and amended Norfolk Southern complaints.
On October 30, 1996, Norfolk Southern filed its First Amended
Complaint for Declaratory and Injunction Relief in the United States
District Court of the Eastern District of Pennsylvania against
Conrail, CSX and the directors of Conrail. Norfolk Southern's amended
complaint amends its original complaint, filed as Exhibit (c)(8)
hereto, principally by asserting additional state law claims.
A copy of the amended Norfolk Southern complaint is attached
hereto as Exhibit (c)(9) and is incorporated herein by reference, and
the foregoing summary description is qualified in its entirety by
reference to such exhibit.
Item 9. Materials to be filed as Exhibits.
Item 9 of the Schedule 14D-9 is hereby amended and supplemented
by adding the following text thereto:
(c)(9) First Amended Complaint in Norfolk Southern et al. v.
Conrail Inc., et al., No. 96-CV-7167, filed on October 30, 1996 in the
United States District Court for the Eastern District of Pennsylvania.
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true,
complete and correct.
CONRAIL INC.
By /s/ Timothy T. O'Toole
--------------------------
Name: Timothy T. O'Toole
Title: Senior Vice President--Finance
Dated as of November 1, 1996
<PAGE>
EXHIBIT INDEX
Exhibit Description Page No.
*(a)(1) Offer to Purchase dated October 16, 1996......
*(a)(2) Letter of Transmittal.........................
*(a)(3) Text of press release issued by Conrail,
dated October 15, 1996........................
*(a)(4) Letter to shareholders of Conrail dated
October 16, 1996..............................
*(a)(5) Form of Summary Advertisement dated
October 16, 1996..............................
*(a)(6) Opinion of Lazard Freres & Co. L.L.C..........
*(a)(7) Opinion of Morgan Stanley & Co. Incorporated..
*(a)(8) Text of press release issued by Norfolk
Southern, dated October 23, 1996..............
*(a)(9) Text of press release issued by Conrail,
dated October 23, 1996........................
*(a)(10) Text of press release issued by Conrail,
dated October 24, 1996........................
(b) Not applicable................................
*(c)(1) Agreement and Plan of Merger dated as of
October 14, 1996..............................
*(c)(2) Conrail Stock Option Agreement, dated as of
October 14, 1996..............................
*(c)(3) CSX Stock Option Agreement dated as of
October 14, 1996..............................
*(c)(4) Form of Voting Trust Agreement................
*(c)(5) Employment Agreement of Mr. LeVan dated as
of October 14, 1996...........................
*(c)(6) Change of Control Agreement of Mr. LeVan
dated as of October 14, 1996..................
*(c)(7) Pages 4-5, and 9-14 of Conrail's Proxy
Statement dated April 3, 1996.................
- -----------------------
* Previously filed
<PAGE>
Exhibit Description Page No.
*(c)(8) Complaint in Norfolk Southern et al. v.
Conrail Inc., et al., No. 96-CV-7167, filed
on October 23, 1996 in the United States
District Court for the Eastern District of
Pennsylvania..................................
(c)(9) First Amended Complaint in Norfolk Southern
et al. v. Conrail Inc., et al., No. 96-CV-
7167, filed on October 30, 1996 in the
United States District Court for the
Eastern District of Pennsylvania..............
- ----------------------
* Previously filed.
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
- -------------------------------------------
NORFOLK SOUTHERN CORPORATION, a :
Virginia corporation, :
Three Commercial Place :
Norfolk, VA 23510-2191, :
:
New Acquisition Corporation :
Three Commercial Place :
Norfolk, VA 23510-2191, :
:
and :
:
Kathryn B. McQuade :
5114 Hunting Hills Drive :
Roanoke, VA 24014, :
:
Plaintiffs, :
:
-against- : C.A. No.
:
Conrail Inc., a Pennsylvania : 96-CV-7167
corporation, :
Two Commerce Square :
2001 Market Street :
Philadelphia, PA 19191, :
:
David M. LeVan :
245 Pine Street :
Philadelphia, PA 19103-7044, :
:
H. Furlong Baldwin :
4000 N. Charles Street :
Baltimore, MD 21218-1756, :
:
Daniel B. Burke :
Capital Cities/ABC Inc. :
77 West 66th Street :
New York, NY 10023-6201, :
:
(Caption continued on next page)
<PAGE>
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
:
Roger S. Hillas :
Two Commerce Square :
2001 Market Street :
Philadelphia, PA 19101, :
:
Claude S. Brinegar :
1574 Michael Lane :
Pacific Palisades, CA 90272-2026, :
:
Kathleen Foley Feldstein :
147 Clifton Street :
Belmont, MA 02178-2603, :
:
David B. Lewis :
1755 Burns Street :
Detroit, MI 48214-2848, :
:
John C. Marous :
109 White Gate Road :
Pittsburgh, PA 15238, :
: C.A. No.
David H. Swanson :
Countrymark Inc. : 96-CV-7167
950 N. Meridian Street :
Indianapolis, IN 46204-3909, :
:
E. Bradley Jones :
2775 Lander Road :
Pepper Pike, OH 44124-4808, :
:
Raymond T. Schuler :
Two Commerce Square :
2001 Market Street :
Philadelphia, PA 19101, :
:
and :
:
CSX Corporation :
One James Center :
901 East Carey Street :
Richmond, VA 23219, :
:
Defendants.:
:
- -------------------------------------------
<PAGE>
FIRST AMENDED COMPLAINT FOR
DECLARATORY AND INJUNCTIVE RELIEF
Plaintiffs, by their undersigned attorneys, as and
for their First Amended Complaint, allege upon knowledge with
respect to themselves and their own acts, and upon information
and belief as to all other matters, as follows:
Nature of the Action
1. This action arises from the attempt by defendants
Contrail, Inc. ("Contrail"), its directors (the "Director
Defendants"), and CSX Corporation ("CSX") to coerce, mislead,
and fraudulently manipulate Conrail's shareholders to swiftly
deliver control of Conrail to CSX for eighty-some dollars in
cash and stock and to forestall any competing higher bid for
Conrail by plaintiff Norfolk Southern Corporation ("NS").
Although Defendants have attempted to create the impression
that NS's superior $100 per share all-cash offer for all of
Conrail's stock is a "non-bid" or a "phantom offer", in
reality the only obstacles to the availability of the $100 per
share offered by NS are illegal actions and ultra vires
agreements by defendants. The ultimate purpose of this action
is to establish the illegality of such actions and agreements
so that NS may proceed to provide superior value to Conrail's
<PAGE>
shareholders and a superior transaction to Conrail and all of
its constituencies.
2. Additionally, plaintiffs will seek interim
injunctive relief to maintain the status quo and ensure that
Conrail shareholders will not be coerced, misled and
fraudulently manipulated by defendants' illegal conduct to
deliver control over Conrail to CSX before the Court can
finally determine the issues raised in this action.
3. The event that set this controversy in motion was
the unexpected announcement that CSX would take over Conrail.
In a surprise move on October 15, 1996, defendants Conrail and
CSX announced a deal to rapidly transfer control of Conrail to
CSX and foreclose any other bids for Conrail (the "CSX
Transaction"). The CSX Transaction is to be accomplished
through a complicated multi-tier structure involving a
coercive front-end loaded cash tender offer, a lock-up stock
option and, following required regulatory approvals or
exemptions, a back-end merger in which Conrail shareholders
will receive stock and, under certain circumstances, cash. As
of the close of business on October 29, 1996, the blended
value of the CSX Transaction was slightly more than $85 per
Conrail share. Integral to this deal are executive succession
and compensation guarantees for Conrail management and board
composition
<PAGE>
covenants effectively ensuring Conrail directors of continued
board seats.
4. Because plaintiff NS believes that a business
combination between Conrail and NS would yield benefits to
both companies and their constituencies far superior to any
benefits offered by the proposed Conrail/CSX combination, NS
on October 23, 1996 announced its intention to commence,
through its wholly-owned subsidiary, plaintiff Atlantic
Acquisition Corporation ("AAC") a cash tender offer (the "NS
Offer") for all shares of Conrail stock at $100 per share, to
be followed by a cash merger at the same price (the "Proposed
Merger", and together with the NS Offer, the "NS Proposal").
The following day, on October 24, 1996, the NS Offer
commenced.
5. At the heart of this controversy is the assertion
by defendants, both expressly and through their conduct, that
the Director Defendants, as directors of a Pennsylvania
corporation, have virtually no fiduciary duties. While it is
true that Pennsylvania statutory law provides directors of
Pennsylvania corporations with wide discretion in responding
to acquisition proposals, defendants here have gone far beyond
what even Pennsylvania law permits. Indeed, it appears that
defendants are taking Pennsylvania's statutory regime as carte
blanche to insulate Conrail, through the first half of the
first decade of
<PAGE>
the next millennium, from any acquisition by any party
(including CSX) other than the CSX Transaction with its
current pricing and other terms, regardless of how favorable
any such other proposed acquisition might be to Conrail's
shareholders, customers, and other constituencies. As a
result, this battle for control of Conrail presents the most
audacious array of lock-up devices ever attempted:
o The Poison Pill Lock-In. The CSX Merger Agreement
exempts the CSX Transaction from Conrail's Poison
Pill Plan, and purports to prohibit the Conrail
Board from redeeming, amending or otherwise taking
any further action with respect to the Plan. Under
the terms of the Poison Pill Plan, the Conrail
directors will lose their power to make the poison
pill inapplicable to any acquisition transaction
other than the CSX Transaction on November 7, unless
CSX agrees to let them postpone that date. Thus, the
Poison Pill Lock-In threatens to lock-up Conrail,
even from friendly transactions, until the year
2005, when the poison pill rights expire. That is,
unless the November 7 date is postponed, Conrail
will be unable to be acquired other than through the
CSX Transaction, under its current terms, for a
period of almost nine years. Put simply, the CSX
Merger Agreement purports to require Conrail to
swallow its own poison pill. The Poison Pill Lock-In
is an unprecedented, draconian and utterly
preclusive lock-up device, is ultra vires under
Pennsylvania law, and constitutes a total abdication
and breach of the Conrail directors' fiduciary
duties of loyalty and care. To make matters worse,
in violation of the federal securities laws, the
defendants in their tender offer filings
affirmatively misrepresented key terms of the
Conrail Poison Pill Plan bearing directly upon the
Poison Pill Lock-In.
o The 180-Day Lock-Out. The CSX Merger Agreement
audaciously and unashamedly purports to prohibit
Conrail's directors from withdrawing their
recommendation that Conrail's shareholders accept
<PAGE>
and approve the CSX Transaction and from terminating
the CSX Merger Agreement, even if their fiduciary
duties require them to do so, for a period of 180
days from execution of the agreement. Put simply,
Conrail's directors have agreed to take a six-month
leave of absence during what may be the most
critical six months in Conrail's history. The
180-Day Lock-Out is ultra vires under Pennsylvania
law and constitutes a complete abdication and breach
of the Conrail directors' duties of loyalty and
care.
o The Stock Option Lock-Up and The $300 Million
Break-Up Fee. The CSX Merger Agreement provides, in
essence, that Conrail must pay CSX a $300 million
windfall if the CSX Merger Agreement is terminated
and Conrail is acquired by another company. Further,
a Stock Option Agreement granted by Conrail to CSX
threatens over $100 million in dilution costs to any
competing bidder for Conrail. This lock-up option is
particularly onerous because the higher the
competing bid, the greater the dilution it
threatens.
o The Continuing Director Amendments to Conrail's
Poison Pill Plan. Recognizing that Pennsylvania law
permits shareholders of Pennsylvania corporations to
elect a new board of directors if they disagree with
an incumbent board's decisions concerning
acquisition offers, the Conrail Board altered the
Conrail Poison Pill Plan in September 1995 to
deprive Conrail's shareholders of the ability to
elect new directors fully empowered to act to render
the poison pill ineffective or inapplicable to a
transaction they deem to be in the corporation's
best interests. This amendment to the Conrail Poison
Pill Plan is ultra vires under Pennsylvania law and
Conrail's Charter and By-Laws, and constitutes an
impermissible interference in the stockholder
franchise and a breach of the Conrail directors'
duty of loyalty.
At bottom, what defendants have attempted here is to litter
the playing field with illegal, ultra vires apparent
impediments to competing acquisition proposals, and then
coerce Conrail shareholders to swiftly deliver control of
<PAGE>
Conrail to CSX before the illegality of such impediments can
be determined and revealed.
6. Accordingly, by this action, plaintiffs NS, AAC,
and Kathryn B. McQuade, a Conrail shareholder, seek emergency
relief against defendants' illegal attempt to lock-up the
rapid sale of control of Conrail to CSX through their scheme
of coercion, deception and fraudulent manipulation, in
violation of the federal securities laws, Pennsylvania
statutory law, and the fiduciary duties of the Director
Defendants. In addition, to facilitate the NS Proposal,
plaintiffs seek certain declaratory relief with respect to
replacement of Conrail's Board of Directors at Conrail's next
annual meeting of shareholders.
Jurisdiction and Venue
7. This Court has jurisdiction over this complaint
pursuant to 28 U.S.C. Sections 1331 and 1367.
8. Venue is proper in this District pursuant to 28
U.S.C. Section 1391.
The Parties
9. Plaintiff NS is a Virginia corporation with its
principal place of business in Norfolk, Virginia. NS is a
holding company operating rail and motor transportation
services through its subsidiaries. As of December 31, 1995,
NS' railroads operated more than 14,500 miles of road in the
<PAGE>
states of Alabama, Florida, Georgia, Illinois, Indiana, Iowa,
Kentucky, Louisiana, Maryland, Michigan, Mississippi,
Missouri, New York, North Carolina, Ohio, Pennsylvania, South
Carolina, Tennessee, Virginia and West Virginia, and the
Province of Ontario, Canada. The lines of NS' railroads reach
most of the larger industrial and trading centers in the
Southeast and Midwest, with the exception of those in Central
and Southern Florida. In the fiscal year ended December 31,
1995, NS had net income of $712.7 million on total
transportation operating revenues of $4.668 billion.
According to the New York Times, NS "is considered by many
analysts to be the nation's best-run railroad". NS is the
beneficial owner of 100 shares of common stock of Conrail.
10. Plaintiff AAC is a Pennsylvania corporation. The
entire equity interest in AAC is owned by NS. AAC was
organized by NS for the purpose of acquiring the entire equity
interest in Conrail.
11. Plaintiff Kathryn B. McQuade is and has been, at
all times relevant to this action, the owner of Conrail common
stock.
12. Defendant Conrail is a Pennsylvania corporation
with its principal place of business in Philadelphia,
Pennsylvania. Conrail is the major freight railroad serving
America's Northeast-Midwest region, operating over a rail
network of approximately 11,000 route
<PAGE>
miles. Conrail's common stock is widely held and trades on the
New York Stock Exchange. During the year ended December 31,
1995, Conrail had net income of $264 million on revenues of
$3.68 billion. On the day prior to announcement of the CSX
Transaction, the closing per share price of Conrail common
stock was $71.
13. Defendant David M. LeVan is President, Chief
Executive Officer, and Chairman of Conrail's Board of
Directors. Defendants H. Furlong Baldwin, Daniel B. Burke,
Roger S. Hillas, Claude S. Brinegar, Kathleen Foley Feldstein,
David B. Lewis, John C. Marous, David H. Swanson, E. Bradley
Jones, and Raymond T. Schuler are the remaining directors of
Conrail. The foregoing individual directors of Conrail owe
fiduciary duties to Conrail and its stockholders, including
plaintiffs.
14. Defendant CSX is a Virginia corporation with its
principal place of business in Richmond, Virginia. CSX is a
transportation company providing rail, intermodal, ocean
container-shipping, barging, trucking and contract logistic
services. CSX's rail transportation operations serve the
southeastern and midwestern United States.
<PAGE>
Factual Background
The Offer
15. In response to the surprise October 15
announcement of the CSX Transaction, on October 23, 1996, NS
announced its intention to commence a public tender offer for
any and all shares of Conrail common stock at a price of $100
in cash per share. NS further announced that it intends, as
soon as practicable following the closing of the NS Offer, to
acquire the entire equity interest in Conrail by causing it to
merge with AAC in the Proposed Merger. In the Proposed Merger,
Conrail common stock not tendered and not accepted in the
Offer would be converted into the right to receive $100 in
cash per share. On October 24, 1996, NS, through AAC,
commenced the NS Offer. The NS Offer and the Proposed Merger
represent a 40.8% premium over the closing market price of
Conrail stock on October 14, 1996, the day prior to
announcement of the CSX Transaction.
16. In a letter to be delivered on October 23, 1996
to the Defendant Directors, NS states that it is flexible as
to all aspects of the NS proposal and expresses its eagerness
to negotiate a friendly merger with Conrail. The letter
indicates, in particular, that while the NS Proposal is a
proposal to acquire the entire equity
<PAGE>
interest in Conrail for cash, NS is willing to discuss, if the
Conrail board so desires, including a substantial equity
component to the consideration to be paid in a negotiated
transaction so that current Conrail shareholders could have a
continuing interest in the combined NS/Conrail enterprise.
The Current Crisis: In a Surprise Move
Intended to Foreclose Competing Bids,
Conrail and CSX Announce on October 15
That Conrail Has Essentially Granted CSX
a Lock-Up Over Control of the Company
17. After many months of maintaining that Conrail
was not for sale, on October 16, 1996 the Conrail Board
announced an abrupt about face: Conrail would be sold to CSX
in a multiple-step transaction designed to swiftly transfer
effective, if not absolute, voting control over Conrail to a
voting trustee who would be contractually required to vote to
approve CSX's acquisition of the entire equity interest in
Conrail through a follow-up stock merger.
18. Two circumstances relating to the CSX
Transaction create the current crisis. First, as noted above,
and as explained more fully below, on November 7, 1996, a
"Distribution Date" will occur under Conrail's Poison Pill
Plan, after which time Conrail's Board will lose the ability
to remove the poison pill rights as an obstacle to any
transaction other than the CSX Transaction. This event, if it
is allowed to occur, will irreparably harm Conrail, its
shareholders, and other constituencies by making Conrail
incapable of being acquired until the year
<PAGE>
2005, other than through the CSX Transaction as it is
currently proposed.
19. Even if the "Distribution Date" problem with
Conrail's Poison Pill Plan were remedied, the fate of Conrail
could be effectively determined on November 14, 1996, just 23
business days after announcement of the CSX Transaction. That
is when Conrail shareholders will be called upon to vote on a
proposed amendment to Conrail's certificate of incorporation
designed to facilitate the swift transfer of control in favor
of CSX, and only CSX. If they approve the Charter Amendment,
and then, in the misinformed belief that the NS Proposal does
not present a viable and superior alternative, tender 40% of
Conrail's stock to CSX, Conrail's shareholders will have been
coerced by defendants' fraudulent and manipulative tactics to
sell Conrail to the low bidder.
Defendants Were Well Aware That
a Superior Competing Acquisition
Proposal by NS Was Inevitable
20. For a number of years, certain members of senior
management of NS, including David R. Goode, Chairman and Chief
Executive Officer of Norfolk Southern, have spoken numerous
times with senior management of Conrail, including former
Conrail Chairman and CEO, James A. Hagen and current Conrail
Chairman and CEO, defendant David W. LeVan concerning a
possible business combination between NS and Conrail.
Ultimately, Conrail management encouraged such discussions
prior to Mr. Hagen's retirement as Chief Executive Officer of
Conrail. Conrail discontinued such discussions in September
1994, when the Conrail Board elected Mr. LeVan
<PAGE>
as Conrail's President and Chief Operating Officer as a step
toward ultimately installing him as Chief Executive Officer
and Chairman upon Mr. Hagen's departure.
21. Prior to 1994, senior management of NS and
Conrail discussed, from time to time, opportunities for
business cooperation between the companies, and, in some of
those discussions, the general concept of a business
combination. While the companies determined to proceed with
certain business cooperation opportunities, including the
Triple Crown Services joint venture, no decisions were reached
concerning a business combination at that time.
22. In March of 1994, Mr. Hagen approached Mr. Goode
to suggest that under the current regulatory environment,
Conrail management now believed that a business combination
between Conrail and NS could be accomplished, and that the
companies should commence discussion of such a transaction.
Mr. Goode agreed to schedule a meeting between legal counsel
for NS and Conrail for the purpose of discussing regulatory
issues. Following that meeting, Mr. Goode met with Mr. Hagen
to discuss in general terms an
<PAGE>
acquisition of Conrail by NS. Thereafter, during the period
from April through August 1994, management and senior
financial advisors of the respective companies met on numerous
occasions to negotiate the terms of a combination of Conrail
and NS. The parties entered into a confidentiality agreement
on August 17, 1994. During these discussions, Mr. Hagen and
other representatives of Conrail pressed for a premium price
to reflect the acquisition of control over Conrail by NS.
Initially, NS pressed instead for a stock-for-stock merger of
equals in which no control premium would be paid to Conrail
shareholders. Conrail management insisted on a control
premium, however, and ultimately the negotiations turned
toward a premium stock-for-stock acquisition of Conrail.
23. By early September 1994, the negotiations were
in an advanced stage. NS had proposed an exchange ratio of
1-to-1, but Conrail management was still pressing for a higher
premium. In a meeting in Philadelphia on September 23, 1994,
Mr. Goode increased the proposed exchange ratio to 1.1-to-1,
and left the door open to an even higher ratio. Mr. Hagen then
told Mr. Goode that they could not reach agreement because the
Conrail board had determined to remain independent and to
pursue a stand alone policy. The meeting then concluded.
<PAGE>
24. The 1.1 to 1 exchange ratio proposed by Mr.
Goode in September of 1994 reflected a substantial premium
over the market price of Conrail stock at that time. If one
applies that ratio to NS's stock price on October 14,
1996--the day the Conrail Board approved the CSX
Transaction--it implies a per share acquisition price for
Conrail of over $101. Thus, there can be no question that Mr.
LeVan, if not Conrail's Board, was well aware that NS would
likely be willing and able to offer more--to Conrail's
shareholders, rather than management, that is--than CSX could
offer for an acquisition of Conrail.
Defendant LeVan Actively Misleads NS
Management in Order to Permit Him
to Lock Up the Sale of Conrail to CSX
25. During the period following September of 1994,
Mr. Goode from time to time had conversations with Mr. LeVan.
During virtually all of these conversations, Mr. Goode
expressed NS's strong interest in negotiating an acquisition
of Conrail. Mr. LeVan responded that Conrail wished to remain
independent. Nonetheless, Mr. Goode was led to believe that if
and when the Conrail Board determined to pursue a sale of the
company, it would do so through a process in which NS would
have an opportunity to bid.
26. At its September 24, 1996 meeting, the NS Board
reviewed its strategic alternatives and determined
<PAGE>
that NS should press for an acquisition of Conrail.
Accordingly, Mr. Goode again contacted Mr. LeVan to (i)
reiterate NS's strong interest in acquiring Conrail and (ii)
request a meeting at which he could present a concrete
proposal. Mr. LeVan responded that the Conrail board would be
holding a strategic planning meeting that month and that he
and Mr. Goode would be back in contact after that meeting. Mr.
Goode emphasized that he wished to communicate NS's position
so that Conrail's Board would be aware of it during the
strategic planning meeting. Mr. LeVan stated that it was
unnecessary for Mr. Goode to do so. At that point, the
conversation concluded.
27. Following September 24, Mr. LeVan did not
contact Mr. Goode. Finally, on Friday, October 4, 1996, Mr.
Goode telephoned Mr. LeVan. Mr. Goode again reiterated NS's
strong interest in making a proposal to acquire Conrail. Mr.
LeVan responded that the Conrail Board would be meeting on
October 16, 1996, and assumed that he and Mr. Hagen would
contact Mr. Goode following that meeting. Mr. Goode again
stated that NS wanted to make a proposal so that the Conrail
Board would be aware of it. Mr. LeVan stated that it was
unnecessary to do so.
<PAGE>
CSX's Chairman Snow
Contributes to LeVan's Deception
28. Several days prior to October 15, CSX's
Chairman, John W. Snow, publicly stated that he did not expect
to see any major business combinations in the railroad
industry for several years. On October 16, 1996, the New York
Times reported that "less than a week ago, Mr. Snow told Wall
Street analysts that he did not expect another big merger in
the industry (in the next few years)".
On the Day Before the Purportedly
Scheduled Meeting of Conrail's Board,
Defendants Announce the CSX Transaction
29. To NS' surprise and dismay, on October 15, 1996,
Conrail and CSX announced that they had entered into a
definitive merger agreement (the "CSX Merger Agreement")
pursuant to which control of Conrail would be swiftly sold to
CSX and then a merger would be consummated following required
regulatory approvals. As of the close of business on October
29, 1996, the blended value of the CSX Transaction was
slightly more than $85 per Conrail share. The CSX Transaction
includes a break-up fee of $300 million and a lock-up stock
option agreement threatening substantial dilution to any rival
bidder for control of Conrail. Integral to the CSX Transaction
are covenants substantially increasing Mr. LeVan's
compensation and guaranteeing that he will succeed John W.
Snow, CSX's Chairman and Chief
<PAGE>
Executive Officer, as the combined company's CEO and Chairman.
CSX Admits That The Conrail Board
Approved The CSX Transaction Rapidly
30. On October 16, 1996, the New York Times reported
that CSX's Snow on October 15, 1996, had stated that the
multi-billion dollar sale of Conrail in the CSX Transaction
"came together rapidly in the last two weeks." The Wall Street
Journal reported on October 16 that Mr. Snow stated that
negotiations concerning the CSX Transaction had gone "very
quickly," and "much faster than he and Mr. LeVan had
anticipated." On October 24, 1996, the Wall Street Journal
observed that "[i]n reaching its agreement with CSX, Conrail
didn't solicit other bids . . . and appeared to complete the
accord at breakneck speed."
31. Thus, Conrail's board approved the CSX
Transaction rapidly without a good faith and reasonable
investigation. Given the nature of the CSX Transaction, with
its draconian and preclusive lock-up mechanisms, the Conrail
Board's rapid approval of the deal constitutes reckless and
grossly negligent conduct.
<PAGE>
CSX's Snow Implies That the CSX Transaction
is a Fait Accompli and States that Conrail's
Directors Have Almost No Fiduciary Duties
32. On October 16, 1996, Mr. Goode met in
Washington, D.C. with Mr. Snow to discuss the CSX Transaction
and certain regulatory issues that its consummation would
raise. Mr. Snow advised Mr. Goode during that meeting that
Conrail's counsel and investment bankers had ensured that the
CSX Transaction would be "bulletproof", implying that the sale
of control of Conrail to CSX is now a fait accompli. Mr. Snow
added that the "Pennsylvania statute", referring to
Pennsylvania's Business Corporation Law, was "great", and that
Conrail's directors have almost no fiduciary duties. Mr.
Snow's comments were intended to discourage NS from making a
competing offer for control of Conrail and to suggest that NS
had no choice but to negotiate with CSX for access to such
portions of Conrail's rail system as would be necessary to
address the regulatory concerns that would be raised by
consummation of the CSX Transaction. After Mr. Snow told Mr.
Goode what CSX was willing to offer to NS in this regard, the
meeting concluded.
<PAGE>
NS Responds With
a Superior Offer for Conrail
33. On October 22, the NS Board met to review its
strategic options in light of announcement of the CSX
Transaction. Because the NS Board believes that a combination
of NS and Conrail would offer compelling benefits to both
companies, their shareholders, and their other constituencies,
it determined that NS should make a competing bid for Conrail.
On October 23, 1996, the date of this Complaint, NS is
publicly announcing its intention to commence a cash tender
offer for any and all shares of Conrail stock for $100 per
share, to be followed, after required regulatory approvals, by
a cash merger at the same price. On October 24, 1996, NS,
through AAC, commenced the NS Offer.
CSX Tells the Market that NS's Superior
Proposal To Acquire Conrail Is Not Real
34. CSX responded to the NS Proposal by attempting
to lead the market to believe that the superior NS Proposal
does not represent a real, viable and actually available
alternative to the CSX Transaction. On October 24, 1996, the
Wall Street Journal reported:
CSX issued a harshly worded statement last night that
called Norfolk's move a "nonbid" that would face
inevitable delays and be subject to numerous conditions.
It said the Norfolk bid couldn't be approved without
Conrail's board, and notes that merger pact [with CSX]
prohibited Conrail from terminating its
<PAGE>
pact until mid-April. It said the present value of the
Norfolk bid was under $90 a share because of the minimum
six-month delay. . . .
On the same day, the New York Times reported that "a source
close to CSX" characterized the NS Proposal an "a phantom
offer."
35. These statements are an integral part of
defendants' scheme to coerce, mislead and manipulate Conrail's
shareholders to rapidly deliver control of Conrail to CSX by
creating the false impression that the NS Proposal is not a
viable and actually available alternative.
The CSX Transaction
36. Consistent with Mr. Snow's remarks, discussed
above, that Conrail's advisers had ensured that the CSX
Transaction is "bullet-proof" and that Conrail's directors
have almost no fiduciary duties, the CSX Merger Agreement
contains draconian "lock-up" provisions which are
unprecedented. These provisions are designed to foreclose
success by any competing bidder for Conrail and to protect the
lucrative compensation increase and executive succession deal
promised to defendant LeVan by CSX.
The Poison Pill Lock-In
37. Perhaps the most onerous of these provisions,
in terms of the drastic consequences it threatens to
Conrail, its stockholders and its other legitimate
<PAGE>
constituencies, is the poison pill "lock-in" provision (the
"Poison Pill Lock-In"). The CSX Merger Agreement purports
to bind the Conrail board not to take any action with
respect to the Conrail Poison Pill to facilitate any offer
to acquire Conrail other than the CSX Transaction. At the
same time, the Conrail board has amended the Conrail Poison
Pill to facilitate the CSX Transaction.
38. Because of certain unusual provisions to the
Conrail Poison Pill Plan--which provisions, as noted below,
not only were not disclosed in the Schedule 14D-1 filed with
the Securities and Exchange Commission or in the Offer to
Purchase circulated to Conrail's stockholders by CSX, or in
the Schedule 14D-9 circulated to Conrail's shareholders by
Conrail, but were in fact affirmatively misdescribed in CSX's
Schedule 14D-1 and Offer to Purchase--the provision in the CSX
Merger Agreement barring the Conrail Board from taking action
with respect to the Conrail Poison Pill threatens grave,
imminent and irreparable harm to Conrail and all of its
constituencies.
39. The problem is that on November 7, 1996, a
"Distribution Date", as that term is defined in the Conrail
Poison Pill Plan, will occur. Once that happens, the "Rights"
issued under the Plan will no longer be redeemable by the
Conrail Board, and the Plan will no longer be capable of
amendment to facilitate any takeover or merger proposal.
<PAGE>
Put simply, once the Distribution Date occurs, Conrail's
directors will have no control over the Conrail Poison Pill's
dilutive effect on an acquiror. Because of the draconian
effects of the poison pill dilution on a takeover bidder, no
bidder other than CSX will be able to acquire Conrail until
the poison pill rights expire in the year 2005, regardless of
whether such other bidder offers a transaction that is better
for Conrail and its legitimate constituencies than the CSX
Transaction. Further, not even CSX will be able to acquire
Conrail in a transaction other than the CSX Transaction. In
other words, if Conrail is not acquired by CSX in the CSX
Transaction for the level of cash and stock currently offered
by CSX, then it appears that Conrail will not be capable of
being acquired until at least 2005. In essence, Conrail is
about to swallow its own poison pill.
40. Poison Pills--typically referred to as
"shareholders rights plans" by the corporations which adopt
them--are normally designed to make an unsolicited acquisition
prohibitively expensive to an acquiror by diluting the value
and proportional voting power of the shares acquired.
41. Under such a plan, stockholders receive a
dividend of originally uncertificated, unexercisable rights.
The rights become exercisable and certificated on the
<PAGE>
so-called "Distribution Date," which under the Conrail Poison
Pill Plan is defined as the earlier of 10 days following
public announcement that a person or group has acquired
beneficial ownership of 10% or more of Conrail's stock or 10
days following the commencement of a tender offer that would
result in 10% or greater ownership of Conrail stock by the
bidder. On the Distribution Date, the corporation would issue
certificates evidencing the rights, each of which would allow
the holder to purchase a share of stock at a set price.
Initially, the exercise price of poison pill rights is set
very substantially above market to ensure that the rights will
not be exercised. Once rights certificates were issued, the
rights could trade separately from the associated shares of
stock.
42. The provisions of a poison pill plan that cause
the dilution to an acquiror's position in the corporation are
called the "flip-in" and "flip-over" provisions. Poison pill
rights typically "flip in" when, among other things, a person
or group obtains some specified percentage of the
corporation's stock; in the Conrail Poison Pill plan, 10% is
the "flip-in" level. Upon "flipping in", each right would
entitle the holder to receive common stock of Conrail having a
value of twice the exercise price of the right. That is, each
right would permit the holder to purchase newly issued common
stock of Conrail at half price
<PAGE>
(specifically, $410 worth of Conrail stock for $205). The
person or group acquiring the 10% or greater ownership,
however, would be ineligible to exercise such rights. In this
way, a poison pill plan dilutes the acquiror's equity and
voting position. Poison pill rights "flip over" if the
corporation engages in a merger in which it is not the
surviving entity. Holders of rights, other than the acquiror,
would then have the right to buy stock of the surviving entity
at half price, again diluting the acquiror's position. The
Conrail Poison Pill Plan contains both a "flip-in" provision
and a "flip-over" provision.
43. So long as corporate directors retain the power
ultimately to eliminate the anti-takeover effects of a poison
pill plan in the event that they conclude that a particular
acquisition would be in the best interests of the corporation,
a poison pill plan can be used to promote legitimate corporate
interests. Thus, typical poison pill plans reserve power in a
corporation's board of directors to redeem the rights in toto
for a nominal payment, or to amend the poison pill plan, for
instance, to exempt a particular transaction or acquiror from
the dilutive effects of the plan.
44. The Conrail Poison Pill Plan contains provisions
for redemption and amendment. However, an unusual aspect of
the Conrail Poison Pill Plan is that the
<PAGE>
power of Conrail's directors to redeem the rights or amend the
plan to exempt a particular transaction or bidder terminates
on the Distribution Date. While the Conrail Poison Pill Plan
gives Conrail directors the power to effectively postpone the
Distribution Date, the CSX Merger Agreement purports to bind
them contractually not to do so. Thus, the Distribution Date
under Conrail's Poison Pill Plan will occur on November 7,
1996--ten business days after the date when NS commenced the
Offer--and Conrail's directors have entered into an agreement
which purports to tie their hands so that they cannot do
anything to prevent it.
45. Ironically, the specific provisions of the CSX
Merger Agreement which purport to prevent the Conrail
directors from postponing the Distribution Date are the very
same sections which require Conrail to exempt the CSX
Transaction from the Conrail Poison Pill--Sections 3.1(n) and
5.13. Section 3.1(n) provides, in pertinent part:
Green Rights Agreement and By-laws. (A) The Green Rights
Agreement has been amended (the "Green Rights Plan
Amendment") to (i) render the Green Rights Agreement
inapplicable to the Offer, the Merger and the other
transactions contemplated by this Agreement and the
Option Agreements and (ii) ensure that (y) neither White
nor any of its wholly owned subsidiaries is an Acquiring
Person (as defined in the Green Rights Agreement)
pursuant to the Green Rights Agreement and (z) a Shares
Acquisition Date, Distribution Date or Trigger Event (in
each case as defined in the Green Rights Agreement) does
not occur by reason of the approval, execution or
delivery of this Agreement, and the Green Stock Option
Agreement, the consummation of the Offer, the Merger or
the consummation of the other
<PAGE>
transactions contemplated by this Agreement and the Green
Stock Option Agreement, and the Green Rights Agreement
may not be further amended by Green without the prior
consent of White in its sole discretion. (emphasis added)
Section 5.13 provides, in pertinent part:
The Board of Directors of Green shall take all further
action (in addition to that referred to in Section
3.1(n)) reasonably requested in writing by White
(including redeeming the Green Rights immediately prior
to the Effective Time or amending the Green Rights
Agreement) in order to render the Green Rights
inapplicable to the Offer, the Merger and the other
transactions contemplated by this Agreement and the Green
Stock Option Agreement. Except as provided above with
respect to the Offer, the Merger and the other
transactions contemplated by this Agreement and the Green
Stock Option Agreement, the Board of Directors of Green
shall not (a) amend the Green Rights Agreement or (b)
take any action with respect to, or make any
determination under, the Green Rights Agreement,
including a redemption of the Green Rights or any action
to facilitate a Takeover Proposal in respect of Green.
46. Thus, although under the Conrail Poison Pill
Plan the Conrail Board is empowered to "determine[] by action
. . . prior to such time as any person becomes an Acquiring
Person" that the Distribution Date will occur on a date later
than November 7, the Conrail board has contractually purported
to bind itself not to do so.
47. If the Distribution Date is permitted to occur,
Conrail, its shareholders, and its other constituents face
catastrophic irreparable injury. If the Distribution Date
occurs and then the CSX Transaction does not occur for any
number of reasons--for instance, because (i) the Conrail
<PAGE>
shareholders do not tender sufficient shares in the CSX offer,
(ii) the Conrail shareholders do not approve the CSX merger,
(iii) the merger does not receive required regulatory
approvals, or (iv) CSX exercises one of the conditions to its
obligation to complete its offer--Conrail will be essentially
incapable of being acquired or engaging in a business
combination until 2005. This would be so regardless of the
benefits and strategic advantages of any business combination
which might otherwise be available to Conrail. In the present
environment of consolidation in the railroad industry, such a
disability would plainly be a serious irremediable
disadvantage to Conrail, its shareholders and all of its
constituencies.
48. The irreparable harm that will befall Conrail
and all of its constituencies if the Distribution Date is
permitted to occur is manifest.
The 180-Day Lock-Out
49. Setting aside the Poison Pill Lock-In, the CSX
Merger Agreement also contains an unprecedented provision
purporting to bind Conrail's directors not to terminate the
CSX Merger Agreement for 180 days regardless of whether their
fiduciary duties require them to do so. The pertinent
provisions appear in Section 4.2 of the CSX Merger Agreement.
Under that section, Conrail covenants not to
<PAGE>
solicit, initiate or encourage other takeover proposals, or to
provide information to any party interested in making a
takeover proposal. The CSX Merger Agreement builds in an
exception to this prohibition--it provides that prior to the
earlier of the closing of the CSX Offer and Conrail
shareholder approval of the CSX Merger, or after 180 days from
the date of the CSX Merger Agreement, if the Conrail board
determines upon advice of counsel that its fiduciary duties
require it to do so, Conrail may provide information to and
engage in negotiations with another bidder. Thus, the drafters
of the CSX Merger Agreement--no doubt counsel for Conrail and
CSX--recognize that there are circumstances in which Conrail's
directors would be required by their fiduciary duties to
consider a competing acquisition bid.
50. However, despite the recognition in the CSX
Merger Agreement that the fiduciary duties of the Conrail
Board may require it to do so, Section 4.2(b) of the agreement
(the "180-Day Lock-Out") purports to prohibit the Conrail
Board from withdrawing its recommendations that Conrail
shareholders tender their shares in the CSX Offer and approve
the CSX Merger for a period of 180 days from the date of the
CSX Merger Agreement. Likewise, it prohibits the Conrail Board
from terminating the CSX Merger Agreement, even if the Conrail
Board's fiduciary duties require it to do so, for the same
180-day period.
<PAGE>
51. Thus, despite the plain contemplation of
circumstances under which the Conrail Board's fiduciary duties
would require it to entertain competing offers and act to
protect Conrail and its constituencies by (i) withdrawing its
recommendation that Conrail shareholders approve the CSX
Transaction and (ii) terminating the CSX Merger Agreement,
Conrail's Board has seen fit to disable itself contractually
from doing so.
52. As with the Poison Pill Lock-In, this "180-Day
Lock-Out" provision amounts to a complete abdication of the
duty of Conrail's directors to act in the best interests of
the corporation. With the 180-day Lock-Out, the Conrail
directors have determined to take a six-month leave of absence
despite their apparent recognition that their fiduciary duties
could require them to act during this critical time.
53. The effect of this provision is to lock out
competing superior proposals to acquire Conrail for at least
six months, thus giving the CSX Transaction an unfair time
value advantage over other offers and adding to the coercive
effects of the CSX Transaction.
54. Because it purports to restrict or limit the
exercise of the fiduciary duties of the Conrail directors,
the 180-Day Lock-Out provision of the CSX Merger Agreement
is ultra vires, void and unenforceable. Further, by
<PAGE>
agreeing to the 180-Day Lock-Out as part of the CSX Merger
Agreement, the Conrail directors breached their fiduciary
duties of loyalty and care.
Rapid Transfer of Control
55. The CSX transaction is structured to include (i)
a first step cash tender offer for up to 19.9% of Conrail's
stock, (ii) an amendment to Conrail's charter to opt out of
coverage under Subchapter 25E of Pennsylvania's Business
Corporation Law (the "Charter Amendment"), which requires any
person acquiring control over 20% or more of the corporation's
voting power to acquire all other shares of the corporation
for a "fair price", as defined in the statute, in cash, (iii)
following such amendment, an acquisition of additional shares
which, in combination with other shares already acquired,
would constitute at least 40% and up to approximately 50% of
Conrail's stock, and (iv) following required regulatory
approvals, consummation of a follow-up stock-for-stock merger.
56. Thus, once the Charter Amendment is approved,
CSX will be in a position to acquire either effective or
absolute control over Conrail. Conrail admits that the CSX
Transaction contemplates a sale of control of Conrail. In its
preliminary proxy materials filed with the SEC, Conrail stated
that if CSX acquires 40% of Conrail's stock, approval of
<PAGE>
the merger will be "virtually certain". CSX could do so either
by increasing the number of shares it will purchase by tender
offer, or, if tenders are insufficient, by accepting all
tendered shares and exercising the Stock Option. CSX could
obtain "approximately 50 percent" of Conrail's shares by
purchasing 40% pursuant to tender offer and by exercising the
Stock Option, in which event shareholder approval of the CSX
Merger will be, according to Conrail's preliminary proxy
statement, "certain".
57. The swiftness with which the CSX Transaction is
designed to transfer control over Conrail to CSX can only be
viewed as an attempt to lock up the CSX Transaction and
benefits it provides to Conrail management, despite the fact
that a better deal, financially and otherwise, is available
for Conrail, its shareholders, and its other legitimate
constituencies.
The Charter Amendment
58. Conrail's Preliminary Proxy Materials for the
November 14, 1996 Special Meeting set forth the resolution
to be voted upon by Conrail's shareholders as follows:
An amendment (the "Amendment") of the Articles of
Incorporation of Conrail is hereby approved and adopted,
by which, upon the effectiveness of such amendment
Article Ten thereof will be amended
<PAGE>
and restated in its entirety as follows: Subchapter E,
Subchapter G and Subchapter H of Chapter 25 of the
Pennsylvania Business Corporation Law of 1988, as
amended, shall not be applicable to the Corporation; and
further, that the Board of Directors of Conrail, in its
discretion, shall be authorized to direct certain
executive officers of Conrail to file or not to file the
Articles of Amendment to Conrail's Articles of
Incorporation reflecting such Amendment or to terminate
the Articles of Amendment prior to their effective date,
if the Board determines such action to be in the best
interests of Conrail.
59. Further, the preliminary proxy materials state
that
Pursuant to the Merger Agreement and in order to
facilitate the transactions contemplated thereby, if the
[Charter Amendment] is approved, Conrail should be
required to file the Amendment with the Pennsylvania
Department of State so as to permit the acquisition by
CSX of in excess of 20% of the shares, such filing to be
made and effective immediately prior to such acquisition.
If CSX is not in a position to make such acquisition
(because, for example, shares have not been tendered to
CSX) Conrail is not required to make such filing,
(although approval of the [Charter Amendment] will
authorize Conrail to do so) and Conrail does not
currently intend to make such filing unless it is
required under the Merger Agreement to permit CSX to
acquire in excess of 20% of the Shares.
60. Thus, if Conrail shareholders fail to tender
sufficient shares to CSX to permit CSX to acquire in excess of
20% of the shares, for example, because they wish to instead
accept the superior NS Proposal, the Defendant Directors are
actually asking Conrail shareholders to grant them the
authority to discriminatorily withhold the filing of the
Charter Amendment, and thereby attempt to prevent the
consummation of the NS Proposal.
<PAGE>
The $300 Million Break-Up Fee
61. The CSX Merger Agreement provides for a $300
million break-up fee. This fee would be triggered if the CSX
Merger Agreement were terminated following a competing
takeover proposal.
62. This breakup fee is disproportionally large,
constituting over 3.5% of the aggregate value of the CSX
Transaction. The breakup fee unreasonably tilts the playing
field in favor of the CSX Transaction--a transaction that the
defendant directors knew, or reasonably should have known, at
the time they approved the CSX Transaction, provided less
value and other benefits to Conrail and its constituencies
than would a transaction with NS.
The Lock-Up Stock Option
63. Concurrently with the Merger Agreement, Conrail
and CSX entered into an option agreement (the "Stock Option
Agreement") pursuant to which Conrail granted to CSX an
option, exercisable in certain events, to purchase 15,955,477
Shares of Conrail common stock at an exercise price of $92.50
per share, subject to adjustment.
64. If, during the time that the option under the
Stock Option Agreement is exercisable, Conrail enters into an
agreement pursuant to which all of its outstanding common
shares are to be purchased for or converted into, in whole
<PAGE>
or in part, cash, in exchange for cancellation of the Option,
CSX shall receive an amount in cash equal to the difference
(if positive) between the closing market price per Conrail
Common Share on the day immediately prior to the consummation
of such transaction and the purchase price. In the event (i)
Conrail enters into an agreement to consolidate with, merge
into, or sell substantially all of its assets to any person,
other than CSX or a direct or indirect subsidiary thereof, and
Conrail is not the surviving corporation, or (ii) Conrail
allows any person, other than CSX or a direct or indirect
subsidiary thereof, to merge into or consolidate with Conrail
in a series of transactions in which the Conrail Common Shares
or other securities of Conrail represent less than 50% of the
outstanding voting securities of the merged corporation, then
the option will be adjusted, exchanged, or converted into
options with identical terms as those described in the Stock
Option Agreement, appropriately adjusted for such transaction.
65. CSX and Conrail also entered into a similar
option agreement, pursuant to which CSX granted to Conrail an
option, exercisable only in certain events, to purchase
43,090,773 shares of CSX Common Stock at an exercise price of
$64.82 per share.
<PAGE>
66. The exercise price of the option under the Stock
Option Agreement is $92.50 per share. The Stock Option
Agreement contemplates that 15,955,477 authorized but unissued
Conrail shares would be issued upon its exercise. Thus, for
each dollar above $92.50 that is offered by a competing bidder
for Conrail, such as NS, the competing acquiror would suffer
$15,955,477 in dilution. Moreover, there is no cap to the
potential dilution. At NS's offer of $100 per share, the
dilution attributable to the Stock Option would be
$119,666,077.50. At a hypothetical offering price of $101 per
share, the dilution would total $135,621,554.50. This lock-up
structure serves no legitimate corporate purpose, as it
imposes increasingly severe dilution penalties the higher the
competing bid!
67. At the current $100 per share level of NS's bid,
the sum of the $300 million break-up fee and Stock Option
dilution of $119,666,077.50 constitutes nearly 5.2% of the CSX
Transaction's $8.1 billion value. This is an unreasonable
impediment to NS's offer. Moreover, because these provisions
were not necessary to induce an offer that is in Conrail's
best interests, but rather were adopted to lock up a deal
providing Conrail's management with personal benefits while
selling Conrail to the low bidder, their adoption constituted
a plain breach of the Defendant Directors' fiduciary duty of
loyalty.
<PAGE>
Selective Discriminatory
Treatment of Competing Bids
68. Finally, the Conrail board has breached its
fiduciary duties by selectively (i) rendering Conrail's poison
pill rights plan inapplicable to the CSX Transaction, (ii)
approving the CSX Transaction and thus exempting it from the
5-year merger moratorium under Pennsylvania's Business
Combination Statute, and (iii), as noted above, purporting to
approve the Charter Amendment in favor of CSX only.
69. While Pennsylvania law does not require
directors to amend or redeem poison pill rights or to take
action rendering anti-takeover provisions inapplicable, the
law is silent with respect to the duties of directors once
they have determined to do so. Once directors have determined
to render poison pill rights and anti-takeover statutes
inapplicable to a change of control transaction, their
fundamental fiduciary duties of care and loyalty require them
to take such actions fairly and equitable, in good faith,
after due investigation and deliberation, and only for the
purpose of fostering the best interests of the corporation,
and not to protect selfish personal interests of management.
70. Thus, Conrail's directors are required to act
evenhandedly, redeeming the poison pill rights and rendering
<PAGE>
anti-takeover statutes inapplicable only to permit the best
competing control transaction to prevail. Directors cannot
take such selective and discriminatory defensive action to
favor corporate executives' personal interests over those of
the corporation, its shareholders, and other legitimate
constituencies.
LeVan's Deal
71. As an integral part of the CSX Transaction, CSX,
Conrail, and defendant LeVan have entered into an employment
agreement dated as of October 14, 1996 (the "LeVan Employment
Agreement"), covering a period of five years from the
effective date of any merger between CSX and Conrail. The
LeVan Employment Agreement provides that Mr. LeVan will serve
as Chief Operating Officer and President of the combined
CSX/Conrail company, and as Chief Executive Office and
President of the railroad businesses of Conrail and CSX, for
two years from the effective date of a merger between CSX and
Conrail (the "First Employment Segment"). Additionally, Mr.
LeVan will serve as Chief Executive Officer of the combined
CSX/Conrail company for a period of two years beginning
immediately after the First Employment Segment (the "Second
Employment Segment"). During the period commencing immediately
after the Second Employment Segment, or, if earlier, upon the
termination of
<PAGE>
Mr. Snow's status as Chairman of the Board (the "Third
Employment Segment"), Mr. LeVan will additionally serve as
Chairman of the Board of the combined CSX/Conrail company.
72. Defendant LeVan received a base salary from
Conrail of $514,519 and a bonus of $24,759 during 1995. The
LeVan Employment Agreement ensures substantially enhanced
compensation for defendant LeVan. It provides that during the
First Employment Segment, Mr. LeVan shall receive annual base
compensation at least equal to 90% of the amount received by
the Chief Executive Officer of CSX. During 1995, Mr. Snow
received a base salary of $895,698 and a bonus having a cash
value of $1,687,500. Thus, if Mr. Snow's salary and bonus were
to equal Mr. Snow's 1995 salary and bonus, the LeVan
Employment Agreement would provide LeVan with a salary of
$810,000 and a bonus of $1,518,750 in the First Employment
Period. During the Second and Third Employment Segments, Mr.
LeVan will receive compensation in an amount no less than that
received by the Chief Executive Officer during the First
Employment Segment, but not less than $900,000.
73. If CSX terminates Mr. LeVan's employment for a
reason other than cause or disability or Mr. LeVan terminates
employment for good reason (as those terms are defined in the
LeVan Employment Agreement), Mr. LeVan will be entitled to
significant lump sum cash payments based on
<PAGE>
his compensation during the five year term of the employment
agreement, continued employee welfare benefits for the longer
of three years or the number of years remaining in the
employment agreement; and the immediate vesting of outstanding
stock-based awards.
Defendants' Campaign of Misinformation
74. On October 15, 1996, Conrail and CSX issued
press releases announcing the CSX transaction, and Conrail
published and filed preliminary proxy materials with the SEC.
On October 16, 1996, CSX filed and published its Schedule
14D-1 Tender Offer Statement and Conrail filed its Schedule
14D-9 Solicitation/Recommendation Statement. These
communications to Conrail's shareholders reflect a scheme by
defendants to coerce, mislead and fraudulently manipulate such
shareholders to swiftly deliver control of Conrail to CSX and
effectively frustrate any competing higher bid.
75. Conrail's Preliminary Proxy Statement contains
the following misrepresentations of fact:
(a) Conrail states that "certain provisions of
Pennsylvania law effectively preclude . . . CSX from
purchasing 20% or more" of Conrail's shares in the CSX
Offer "or in any other manner (except the [CSX] Merger".
This statement is false. The provisions of Pennsylvania
law to which Conrail is referring are
<PAGE>
those of Subchapter 25E of the Pennsylvania Business
Corporation law. This law does not "effectively preclude"
CSX from purchasing 20% or more of Conrail's stock other
than through the CSX Merger. Rather, it simply requires a
purchaser of 20% or more of Conrail's voting stock to pay
a fair price in cash, on demand, to the holders of the
remaining 80% of the shares. The real reason that CSX
will not purchase 20% or more of Conrail's voting stock
absent the Charter Amendment is that, unlike NS, CSX is
unable or unwilling to pay a fair price in cash for 100%
of Conrail's stock.
(b) Conrail states that its "Board of Directors
believes that Conrail shareholders should have the
opportunity to receive cash in the near term for 40% of
[Conrail's] shares", and that "[t]he Board of Directors
believes it is in the best interests of shareholders that
they have the opportunity to receive cash for 40% of
their shares in the near term". These statements are
false. First of all, the Conrail Board believes that
Conrail shareholders should have the opportunity to
receive cash in the near-term for 40% of Conrail's shares
only if such transaction will swiftly deliver effective
control of Conrail to CSX. Second, the Conrail Board of
Directors does not believe that such swift transfer of
control to CSX is in the best
<PAGE>
interests of Conrail shareholders; rather, the Conrail
Board of Directors believes that swift transfer of
effective control over Conrail to CSX through the CSX
Offer will lock-up the CSX Transaction and preclude
Conrail shareholders from any opportunity to receive the
highest reasonably available price in a sale of control
of Conrail.
76. CSX's Schedule 14D-1 contains the following
misrepresentations of fact:
(a) CSX states that:
At any time prior to the announcement by
[Conrail] or an Acquiring Person that an Acquiring
Person has become such, [Conrail] may redeem the
[Conrail Poison Pill Plan] rights. . . .
This statement is false. In fact, the Conrail Poison Pill
rights are redeemable any time prior to the Distribution
Date. After the Distribution Date, they cannot be
redeemed. CSX further states that:
The terms of the [Conrail Poison Pill] rights
may be amended by the [Conrail Board] without the
consent of the holders of the Rights . . . to make
any other provision with respect to the Rights which
[Conrail] may deem desirable; provided that from and
after such time as Acquiring Person becomes such,
the Rights may not be amended in any manner which
would adversely affect the interests of holders of
Rights.
This statement is also false. The Conrail Board's power
to freely amend the poison pill rights terminates on the
Distribution Date, not the date when someone
<PAGE>
becomes an Acquiring Person. These misrepresentations
operate to conceal the fact that the Conrail Board will
lose its power to control the drastic effects of the
poison pill ten days following commencement of a
competing tender offer.
(b) CSX states that the "purpose of the [CSX] Offer
is for [CSX] . . . to acquire a significant equity
interest in [Conrail] as the first step in a business
combination of [CSX] and [Conrail]". This statement is
false. The purpose of the CSX Offer is to swiftly
transfer effective control over Conrail to CSX in order
to lock up the CSX Transaction and foreclose the
acquisition of Conrail by any competing higher bidder.
(c) CSX states that "the Pennsylvania Control
Transaction Law effectively precludes [CSX, through its
acquisition subsidiary] from purchasing 20% or more of
Conrail's shares pursuant to the [CSX] Offer". This
statement is false. The provisions of Pennsylvania law to
which Conrail is referring are those of Subchapter 25E of
the Pennsylvania Business Corporation law. This law does
not "effectively preclude" CSX from purchasing 20% or
more of Conrail's stock other than through the CSX
Merger. Rather, it simply requires a purchaser of 20% or
more of Conrail's voting stock to
<PAGE>
pay a fair price in cash, on demand, to the holders of
the remaining 80% of the shares. The real reason that CSX
will not purchase 20% or more of Conrail's voting stock
absent the Charter Amendment is that, unlike NS, CSX is
unable or unwilling to pay a fair price in cash for 100%
of Conrail's stock.
77. Conrail's Schedule 14D-9 states that "the
[CSX Transaction] . . . is being structured as a true
merger-of-equals transaction". This statement is false.
The CSX Transaction is being structured as a rapid,
locked-up sale of control of Conrail to CSX involving a
significant, albeit inadequate, control premium.
78. Each of the Conrail Preliminary Proxy Statement,
the CSX Schedule 14D-1, and the Conrail Schedule 14D-9 omit to
disclose the following material
<PAGE>
facts, the disclosure of which are necessary to make the
statements made in such documents not misleading:
(a) That the Conrail Board will lose its power to
redeem or freely amend the Conrail Poison Pill Plan
rights on the "Distribution Date", which will occur 10
business days from the date when a competing tender offer
for Conrail is commenced.
(b) That both Conrail (and its senior management)
and CSX (and its senior management) knew (i) that NS was
keenly interested in acquiring Conrail, (ii) that NS has
the financial capacity and resources to pay a higher
price for Conrail than CSX could, and (iii) that a
financially superior competing bid for Conrail by NS was
inevitable.
(c) That Conrail management led NS to believe that
if and when the Conrail Board determined to sell Conrail,
it would do so through a process in which NS would be
given the opportunity to bid, and that in the several
weeks prior to the announcement of the CSX Transaction,
defendant LeVan on two occasions prevented Mr. Goode from
presenting an acquisition proposal to Conrail by stating
to him that making such a proposal would be unnecessary
and that Mr. LeVan would contact Mr. Goode concerning
NS's interest in acquiring Conrail following (i) the
Conrail Board's strategic planning
<PAGE>
meeting scheduled for September 1996 and (ii) a meeting
of the Conrail Board purportedly scheduled for October
16, 1996.
(d) That in September of 1994, NS had proposed a
stock-for-stock acquisition of Conrail at an exchange
ratio of 1.1 shares of NS stock for each share of Conrail
stock, which ratio, if applied to the price of NS stock
on the day before announcement of the CSX Transaction,
October 14, 1996, implied a bid by NS worth over $101 per
Conrail share.
(e) That the CSX Transaction was structured to
swiftly transfer effective, if not absolute voting
control over Conrail to CSX, and to prevent any other
bidders from acquiring Conrail for a higher price.
(f) That although Conrail obtained opinions from
Morgan Stanley and Lazard Freres that the consideration
to be received by Conrail stockholders in the CSX
Transaction was "fair" to such shareholders from a
financial point of view, Conrail's Board did not ask its
investment bankers whether the CSX Transaction
consideration was adequate, from a financial point of
view, in the context of a sale of control of Conrail such
as the CSX Transaction.
(g) That although in arriving at their "fairness"
opinions, both Morgan Stanley and Lazard Freres purport
<PAGE>
to have considered the level of consideration paid in
comparable transactions, both investment bankers failed
to consider the most closely comparable transaction--
NS's September 1994 merger proposal, which as noted
above, would imply a price per Conrail share in excess of
$101.
(h) That, if asked to do so, Conrail's investment
bankers would be unable to opine in good faith that the
consideration offered in the CSX Transaction is adequate
to Conrail's shareholders from a financial point of view.
(i) That Conrail's Board failed to seek a fairness
opinion from its investment bankers concerning the $300
million break-up fee included in the CSX Transaction.
(j) That Conrail's Board failed to seek a fairness
opinion from its investment bankers concerning the Stock
Option Agreement granted by Conrail to CSX in connection
with the CSX Transaction.
(k) That the Stock Option Agreement is structured so
as to impose increasingly severe dilution costs on a
competing bidder for control of Conrail for progressively
higher acquisition bids.
(l) That the Conrail Board intends to withhold the
filing of the Charter Amendment following its
<PAGE>
approval by Conrail's stockholders if the effectiveness
of such amendment would facilitate any bid for Conrail
other than the CSX Transaction.
(m) That the Charter Amendment and/or its submission
to a vote of the Conrail shareholders is illegal and
ultra vires under Pennsylvania law.
(n) That the Conrail Board's discriminatory (i) use
of the Charter Amendment, (ii) amendment of the Conrail
Poison Pill and (iii) action exempting the CSX
Transaction from Pennsylvania's Business Combination
Statute, all to facilitate the CSX Transaction and to
preclude competing financially superior offers for
control of Conrail, constitute a breach of the defendant
directors' fiduciary duty of loyalty.
(o) That Conrail's Board failed to conduct a
reasonable, good faith investigation of all reasonably
available material information prior to approving the CSX
transaction and related agreements, including the lock-up
Stock Option Agreement.
(p) That in recommending that Conrail's
shareholders tender their shares to CSX in the CSX
Offer, Conrail's Board did not conclude that doing so
would be in the best interests of Conrail's
shareholders.
<PAGE>
(q) That in recommending that Conrail's shareholders
approve the Charter Amendment, the Conrail Board did not
conclude that doing so would be in the best interests of
Conrail's shareholders.
(r) That in recommending that Conrail shareholders
tender their shares to CSX in the CSX Offer, primary
weight was given by the Conrail Board to interests of
persons and/or groups other than Conrail's shareholders.
(s) That in recommending that Conrail shareholders
tender their shares to CSX in the CSX Offer, primary
weight was given to the personal interests of defendant
LeVan in increasing his compensation and succeeding Mr.
Snow as Chairman and Chief Executive Officer of the
combined CSX/Conrail company.
(t) That the Continuing Director Requirement in
Conrail's Poison Pill (described below in paragraphs 80
through 88, adopted by Conrail's board in September 1995
and publicly disclosed at that time, is illegal and ultra
vires under Pennsylvania law and therefore is void and
unenforceable.
79. Each of the misrepresentations and omitted facts
detailed above are material to the decisions of Conrail's
shareholders concerning whether to vote in favor
<PAGE>
of the Charter Amendment and whether, in response to the CSX
Offer, to hold, sell to the market, or tender their shares,
because such misrepresentations and omitted facts bear upon
(i) the good faith of the Conrail directors in recommending
that Conrail shareholders approve the Charter Amendment and
tender their shares in the CSX Offer, (ii) whether taking such
actions are in the best interests of Conrail shareholders,
(iii) whether the CSX Offer represents financially adequate
consideration for the sale of control of Conrail and/or (iv)
whether the economically superior NS Proposal is a viable,
available alterative to the CSX Transaction. Absent adequate
corrective disclosure by the defendants, these material
misrepresentations and omissions threaten to coerce, mislead,
and fraudulently manipulate Conrail shareholders to approve
the Charter Amendment and deliver the control of Conrail to
CSX in the CSX Offer, in the belief that the NS Proposal is
not an available alternative.
Conrail's Directors Attempt to Override
Fundamental Principles of Corporate Democracy
by Imposing a Continuing Director's
Requirement in Conrail's Poison Pill
80. As noted above, Conrail's directors have long
known that it was an attractive business combination candidate
to other railroad companies, including NS.
<PAGE>
81. Neither Conrail management nor its Board,
however, had any intention to give up their control over
Conrail, unless the acquiror was willing to enter into board
compensation, executive succession, and compensation and
benefit arrangements satisfying the personal interests of
Conrail management and the Defendant Directors, such as the
assignments provided for in the CSX Transaction. They were
aware, however, that through a proxy content, they could be
replaced by directors who would be receptive to a change in
control of Conrail regardless of defendants' personal
interests. Accordingly, on September 20, 1995, the Conrail
directors attempted to eliminate the threat to their continued
incumbency posed by the free exercise of Conrail's
stockholders' franchise. They drastically altered Conrail's
existing Poison Pill Plan, by adopting a "Continuing Director"
limitation to the Board's power to redeem the rights issued
pursuant to the Rights Plan (the "Continuing Director
Requirement").
82. Prior to adoption of the Continuing Director
Requirement, Conrail's Rights Plan was a typical "flip-in,
flip-over" plan, designed to make an unsolicited acquisition
of Conrail prohibitively expensive to an acquiror, and
reserving power in Conrail's duly elected board of directors
to render the dilutive effects of the rights ineffective by
redeeming or amending them.
<PAGE>
83. The September 20, 1995 adoption of the
Continuing Director Requirement changed this reservation of
power. It added an additional requirement for amendment of the
plan or redemption of the rights. For such action to be
effective, at least two members of the Board must be
"Continuing Directors", and the action must be approved by a
majority of such "Continuing Directors". "Continuing
Directors" are defined as members of the Conrail Board as of
September 20, 1995, i.e., the incumbents, or their handpicked
successors.
84. By adopting the Continuing Director Requirement,
the Director Defendants intentionally and deliberately have
attempted to destroy the right of stockholders of Conrail to
replace them with new directors who would have the power to
redeem the rights or amend the Rights Agreement in the event
that such new directors deemed such action to be in the best
interests of the Company. That is, instead of vesting the
power to accept or reject an acquisition in the duly elected
Board of Directors of Conrail, the Rights Plan, as amended,
destroys the power of a duly elected Board to act in
connection with acquisition offers, unless such Board happens
to consist of the current incumbents or their handpicked
successors. Thus, the Continuing Director Requirement is the
ultimate entrenchment device.
<PAGE>
85. The Continuing Director Requirement is
invalid per se under Pennsylvania statutory law, in that it
purports to limit the discretion of future Boards of
Conrail. Pennsylvania law requires that any such
limitation on Board discretion be set forth in a By-law
adopted by the stockholders. See Pa. BCL Section 1721. Thus,
the Director Defendants were without power to adopt such a
provision unilaterally by amending the Rights Agreement.
86. Additionally, the Continuing Director
Requirement is invalid under Conrail's By-laws and Articles of
Incorporation. Under Section 3.5 of Conrail's By-laws, the
power to direct the management of the business and affairs of
Conrail is broadly vested in its duly elected Board of
Directors. Insofar as the Continuing Director Requirement
purports to restrict the power of Conrail's duly elected Board
of Directors to redeem the rights or amend the plan, it
conflicts with Section 3.5 of Conrail's By-laws and is
therefore of no force or effect. Article Eleven of Conrail's
Articles of Incorporation permits Conrail's entire board to be
removed without cause by stockholder vote. Read together with
Section 3.5 of Conrail's By-laws, Article Eleven enables
Conrail's stockholders to replace the entire incumbent board
with a new board fully empowered to direct the management of
Conrail's business and affairs, and, specifically, to redeem
the rights or amend the plan.
<PAGE>
Insofar as the Continuing Director Requirement purports to
render such action impossible, it conflicts with Conrail's
Articles of Incorporation and is therefore of no cause or
effect.
87. Furthermore, the adoption of the Continuing
Director Requirement constituted a breach of the Director
Defendants' fiduciary duty of loyalty. There existed no
justification for the directors to attempt to negate the right
of stockholders to elect a new Board in the event the
stockholders disagree with the incumbent Board's policies,
including their response to an acquisition proposal.
88. Moreover, while the Director Defendants
disclosed the adoption of the Continuing Director Requirement,
they have failed to disclose its illegality and the illegality
of their conduct in adopting it. If they are not required to
make corrective disclosures, defendants will permit the
disclosure of the Continuing Director Requirement's adoption
to distort stockholder choice in connection with the special
meeting, the CSX Offer, and (if they have not successfully
locked up voting control of Conrail by then) in the next
annual election of directors. The Director Defendants' conduct
is thus fraudulent, in that they have failed to act fairly and
honestly toward the Conrail stockholders, and intended to
preserve their incumbency and that of current management, to
the detriment
<PAGE>
of Conrail's stockholders and other constituencies.
Accordingly, such action should be declared void and of no
force or effect. Furthermore, adequate corrective disclosure
should be required.
Conrail's Charter Permits the Removal
and Replacement of Its Entire Board
of Directors at Its Next Annual Meeting
89. As noted above, plaintiff NS intends to
facilitate the NS Proposal by replacing the Conrail Board at
Conrail's next annual meeting. Conrail's next annual meeting
is scheduled to be held on May 21, 1997 (according to
Conrail's April 3, 1996 Proxy Statement, as filed with the
Securities and Exchange Commission).
90. The Director Defendants adopted the Continuing
Director Requirement in part because they recognized that
under Conrail's Articles, its entire Board, even though
staggered, may be removed without cause at Conrail's next
annual meeting.
91. Section 3.1 of Conrail's By-laws provides that
the Conrail Board shall consist of 13 directors, but presently
there are only 11. The Conrail Board is classified into three
classes. Each class of directors serves for a term of three
years, which terms are staggered.
<PAGE>
92. Article 11 of Conrail's Articles provides
that:
The entire Board of Directors, or a class of the Board
where the Board is classified with respect to the power
to elect directors, or any individual director may be
removed from office without assigning any cause by vote
of stockholders entitled to cast at least a majority of
the votes which all stockholders would be entitled to
cast at any annual election of directors or of such class
of directors.
93. Under the plain language of Article 11, the
entire Conrail Board, or any one or more of Conrail's
directors, may be removed without cause by a majority vote of
the Conrail stockholders entitled to vote at the Annual
Meeting. Plaintiffs anticipate, however, that defendants will
argue that under Article 11, only one class may be removed at
each annual meeting. Accordingly, plaintiffs seek a
declaratory judgment that pursuant to Article 11, the entire
Conrail Board, or any one or more of Conrail's directors, may
be removed without cause at Conrail's next annual meeting.
Declaratory Relief
94. The Court may grant the declaratory relief
sought herein pursuant to 28 U.S.C. Section 2201. The
Defendant Directors' adoption of the CSX Transaction (with its
discriminatory Charter Amendment poison pill, and state
antitakeover statute treatment and draconian lock-up
provisions) as well as their earlier adoption of the
<PAGE>
Continuing Director Requirement, clearly demonstrate their bad
faith entrenchment motivation and, in light of the NS
Proposal, that there is a substantial controversy between the
parties. Indeed, given the NS Proposal, the adverse legal
interests of the parties are real and immediate. Defendants
can be expected to vigorously oppose each judicial declaration
sought by plaintiffs, in order to maintain their incumbency
and defeat the NS Proposal-- despite the benefits it would
provide to Conrail's stockholders and other constituencies.
95. The granting of the requested declaratory relief
will serve the public interest by affording relief from
uncertainty and by avoiding delay and will conserve judicial
resources by avoiding piecemeal litigation.
Irreparable Injury
96. The Defendant Directors' adoption of the CSX
Transaction (with its discriminatory Charter Amendment, poison
pill and state antitakeover statute treatment and draconian
lock-up provisions) as well as their earlier adoption of the
Continuing Director Requirement threatens to deny Conrail's
stockholders their right to exercise their corporate franchise
without manipulation, coercion or false and misleading
disclosures and to deprive them of a unique opportunity to
receive maximum value for their stock. The
<PAGE>
resulting injury to plaintiffs and all of Conrail's
stockholders would not be adequately compensable in money
damages and would constitute irreparable harm.
Derivative Allegations
97. Plaintiffs bring each of the causes of action
reflected in Counts One through Seven and 14 and 15 below
individually and directly. Alternatively, to the extent
required by law, plaintiffs bring such causes of action
derivatively on behalf of Conrail.
98. No demand has been made on Conrail's Board of
Directors to prosecute the claims set forth herein since, for
the reasons set forth below, any such demand would have been a
vain and useless act since the Director Defendants constitute
the entire Board of Directors of Conrail and have engaged in
fraudulent conduct to further their personal interests in
entrenchment and have ratified defendant LeVan's self-dealing
conduct:
(a) The Director Defendants have acted fraudulently
by pursuing defendants' campaign of misinformation, described
above, in order to coerce, mislead, and manipulate Conrail
shareholders to swiftly deliver control of Conrail to the low
bidder.
(b) The form of resolution by which the
shareholders are being asked to approve the Charter
<PAGE>
Amendment is illegal and ultra vires in that it purports to
authorize the Conrail Board to discriminatorily withhold
filing the certificate of amendment even after shareholder
approval. Thus, its submission to the shareholder sis illegal
and ultra vires and therefore not subject to the protections
of the business judgment rule.
(c) The Conrail directors' selective amendment of
the Conrail poison pill and discriminatory preferential
treatment of the CSX Transaction under the Pennsylvania
Business Combination Statute were motivated by their personal
interest in entrenchment, constituting a breach of their
fiduciary duty of loyalty and rendering the business judgment
rule inapplicable.
(d) The Director Defendants' adoption of the
break-up fee and stock option lock-ups in favor of CSX was
motivated by their personal interest in entrenchment,
constituting a breach of their duty of loyalty and rendering
the business judgment rule inapplicable.
(e) The Continuing Director Requirement is illegal
and ultra vires under Pennsylvania statutory law and under
Conrail's charter and By-laws, rendering the business judgment
rule inapplicable to its adoption by the Director Defendants.
(f) In adopting the Continuing Director Requirement,
each of the Defendant Directors has failed to
<PAGE>
act fairly and honestly toward Conrail and its stockholders,
insofar as by doing so the Defendant Directors, to preserve
their own incumbency, have purported to eliminate the
stockholders' fundamental franchise right to elect directors
who would be receptive to a sale of control of Conrail to the
highest bidder. There is no reason to think that, having
adopted this ultimate in entrenchment devices, the Director
Defendants would take action that would eliminate it.
(g) Additionally, the Director Defendants have acted
fraudulently, in that they intentionally have failed to
disclose the plain illegality of their conduct.
(h) There exists no reasonable prospect that the
Director Defendants would take action to invalidate the
Continuing Director Requirement. First, pursuant to
Pennsylvania statute, their fiduciary duties purportedly do
not require them to amend the Rights Plan in any way. Second,
given their dishonest and fraudulent entrenchment motivation,
the Director Defendants would certainly not commence legal
proceedings to invalidate the Continuing Director Requirement.
99. Plaintiffs are currently beneficial owners of
Conrail common stock. Plaintiffs' challenge to the CSX
Transaction (including the illegal Charter Amendment,
discriminatory treatment, and lock-ups) and to the
<PAGE>
Continuing Director Requirement presents a strong prima facie
case, insofar as the Director Defendants have deliberately and
intentionally, without justification, acted to foreclose free
choice by Conrail's shareholders. If this action were not
maintained, serious injustice would result, in that defendants
would be permitted illegally and in pursuit of personal,
rather than proper corporate interests to deprive Conrail
stockholders of free choice and a unique opportunity to
maximize the value of their investments through the NS
Proposal, and depriving plaintiff NS of a unique acquisition
opportunity.
100. This action is not a collusive one to confer
jurisdiction on a court of the United States which it would
not otherwise have.
COUNT ONE
(Breach of Fiduciary Duty with
Respect to the Charter Amendment)
101. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
102. The Conrail directors were and are obligated by
their fiduciary duties of due care and loyalty, to act in the
best interests of the Corporation.
103. In conjunction with the proposed merger, the
Conrail Board of Directors has approved, and recommend that
<PAGE>
the shareholders approve, an amendment to Conrail's charter.
The amendment is required to allow a third party to acquire
more than 20% of Conrail's stock.
104. The Conrail directors have publicly stated
their intention to file the amendment only if the requisite
number of shares are tendered to CSX.
105. By adopting the illegal Charter Amendment and
then discriminately applying it to benefit themselves, the
Conrail directors have breached their fiduciary duties of care
and loyalty. 106. Plaintiffs have no adequate remedy at law.
COUNT TWO
(Breach of Fiduciary Duty
With Respect to the Poison Pill)
107. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this
paragraph.
108. The Conrail Board of Directors adopted its
Poison Pill Plan with the ostensible purpose of protecting
its shareholders against the consummation of unfair
acquisition proposals that may fail to maximize shareholder
value.
109. The Conrail Board has announced its intention
to merge with CSX and the Conrail Board has also sought to
exempt CSX from the provisions in the poison pill.
<PAGE>
110. Additionally, the Conrail Board has committed
itself to not pursue any competing offer for the Company.
111. By selectively and discriminately determining
to exempt CSX, and only CSX, from the poison pill provisions,
to the detriment to Conrail's shareholders, the Conrail
directors have breached their fiduciary duties of care and
loyalty.
112. Plaintiffs have no adequate remedy at law.
COUNT THREE
(Breach of Fiduciary Duty
with Respect to the Pennsylvania
Business Combinations Statute)
113. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this
paragraph.
114. By approving the CSX Offer prior to its
consummation, the Director Defendants have rendered the
Pennsylvania Business Combinations Statute, subchapter 25F
of the Pennsylvania Business Corporation Law, and,
particularly, its five-year ban on mergers with substantial
stockholders, inapplicable to the CSX Transaction, while it
remains as an impediment to competing higher acquisition
offers such as the NS Proposal.
115. By selectively and discriminately exempting
the CSX Transaction from the five-year merger ban, for the
purpose of facilitating a transaction that will provide
<PAGE>
substantial personal benefits to Conrail management while
delivering Conrail to the low bidder, the Director
Defendants have breached their fiduciary duties of care and
loyalty.
116. Plaintiffs have no adequate remedy at law.
COUNT FOUR
(Declaratory Judgment Against All
Defendants that the Poison Pill
Lock-In is Void Under Pennsylvania Law)
117. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
118. By purporting to bind Conrail and its directors
not to amend or take any action with respect to the Conrail
Poison Pill Plan without CSX's consent, the CSX Merger
Agreement purports to restrict the managerial discretion of
Conrail's directors.
119. Under Pennsylvania law, agreements restricting
the managerial discretion of the board of directors are
permissible only in statutory close corporations. Conrail is
not a statutory close corporation.
120. No statute countenances Conrail's and the
Director Defendants' adoption of the Poison Pill Lock-in terms
of the CSX Merger Agreement. No Conrail By-Law adopted by the
Conrail shareholders provides that Conrail's directors may
contractually abdicate their fiduciary duties
<PAGE>
and managerial powers and responsibilities with respect to the
Conrail Poison Pill Plan.
121. Plaintiffs, as well as all of Conrail's
shareholders and other legitimate constituencies, face
imminent irreparable harm unless the poison pill lock-in
provisions are declared ultra vires, void and unenforceable,
and Conrail's directors are enjoined to take such action as is
necessary to postpone the "Distribution Date" under the
Conrail Poison Pill Plan and retain their power to redeem
and/or amend the poison pill rights.
122. Plaintiffs have no adequate remedy at law.
COUNT FIVE
(Against the Defendant Directors
for Breach of Fiduciary Duty
with Respect to the Poison Pill Lock-In)
123. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
124. By entering into the Poison Pill Lock-In
provisions of the CSX Merger Agreement, the Director
Defendants purported to relinquish their power to act in the
best interests of Conrail in connection with proposed
acquisitions of Conrail, and, unless they are enjoined to take
such action as is necessary to postpone the occurrence of a
"Distribution Date" under the Conrail Poison Pill Plan, will
by their inaction lock Conrail into a situation in
<PAGE>
which it cannot be acquired, regardless of how beneficial the
proposed transaction is, until the year 2005, other than
through the CSX Transaction at its current price.
125. Thus, by entering into the CSX Transaction and
by failing to postpone the "Distribution Date", the Director
Defendants have intentionally, in violation of their duty of
loyalty, completely abdicated their fiduciary duties and
responsibilities. Alternatively, the Director Defendants, by
entering into the Poison Pill Lock-In provision of the CSX
Merger Agreement without adequate investigation and
comprehension of the consequences of their action, and by
failing to take action to rescind the Poison Pill Lock-In
provision and postpone the "Distribution Date", have acted and
are acting recklessly and with gross negligence.
126. Absent prompt injunctive relief, plaintiffs, as
well as Conrail and all of its legitimate constituencies, face
imminent irreparable harm.
127. Plaintiffs have no adequate remedy at law.
COUNT SIX
(Declaratory Judgment Against All
Defendants That the 180-Day Lock-Out
is Void Under Pennsylvania Law)
128. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
<PAGE>
129. By purporting to bind Conrail and its directors
from acting to protect the interests of Conrail, its
shareholders and its other legitimate constituencies by
withdrawing its recommendation that Conrail's shareholders
accept the CSX Offer and approve the CSX Merger even when the
fiduciary duties of Conrail's directors would require them to
do so, the 180-Day Lock-Out provision of the CSX Merger
Agreement purports to restrict the managerial discretion of
Conrail's directors.
130. By purporting to prohibit Conrail's directors
from terminating the CSX Merger Agreement when their fiduciary
duties would require them to do so, the 180-Day Lock-Out
provision of the CSX Merger Agreement purports to restrict the
managerial discretion of Conrail's directors.
131. Under Pennsylvania law, agreements restricting
the managerial discretion of the board of directors are
permissible only in statutory close corporations. Conrail is
not a statutory close corporation.
132. No statute countenances Conrail's and the
Director Defendants' adoption of the 180-Day Lock-Out terms of
the CSX Merger Agreement. No Conrail By-Law adopted by the
Conrail shareholders provides that Conrail's directors may
contractually abdicate their fiduciary duties and managerial
powers and responsibilities.
<PAGE>
133. Unless the 180-Day Lock-Out provision is
declared ultra vires and void and defendants are enjoined from
taking any action enforcing it, Conrail and its legitimate
constituencies face irreparable harm.
134. Plaintiffs have no adequate remedy at law.
COUNT SEVEN
(Against the Defendant Directors
for Breach of Fiduciary Duty with
Respect to the 180-Day Lock-Out)
135. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
136. By entering into the 180-Day Lock-Out provision
of the CSX Merger Agreement, the Director Defendants purported
to relinquish their power to act in the best interest of
Conrail in connection with proposed acquisitions of Conrail.
137. Thus, by entering into the 180-Day Lock-Out
provision, the Conrail directors have abdicated their
fiduciary duties, in violation of their duties of loyalty and
care.
138. Plaintiffs have no adequate remedy at law.
<PAGE>
COUNT EIGHT
(Breach of Fiduciary Duty with
Respect to the Lock-Up Provisions)
139. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
140. In conjunction with the CSX Merger Agreement,
the Conrail Board has agreed to termination fees of $300
million and to the lock-up Stock Option Agreement.
141. These provisions confer no benefit upon
Conrail's shareholders and in fact operate and are intended to
operate to impede or foreclose further bidding for Conrail.
142. The Conrail directors have adopted these
provisions without regard to what is in the best interest of
the Company and its shareholders, in violation of their
fiduciary duties.
143. Plaintiffs have no adequate remedy at law.
COUNT NINE
(Declaratory Relief Against
Conrail and Director Defendants That
The Continuing Director Requirement
Is Void Under Pennsylvania Law)
144. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
<PAGE>
145. Under Pennsylvania law, the business and affairs
of a Pennsylvania corporation are to be managed under the
direction of the Board of Directors unless otherwise provided
by statute or in a By-Law adopted by the stockholders. Pa. BCL
Section 1721.
146. Under Pennsylvania law, agreements restricting
the managerial discretion of directors are permissible only in
statutory close corporations.
147. No statute countenances Conrail's and the
current Board's adoption of the Continuing Director
Requirement. No Conrail By-Law adopted by the Conrail
stockholders provides that the current Board may limit a
future Board's management and direction of Conrail. Conrail is
not a statutory close corporation.
148. Adoption of the Continuing Director Requirement
constitutes an unlawful attempt by the Defendant Directors to
limit the discretion of a future Board of Directors with
respect to the management of Conrail. In particular, under the
Continuing Director Requirement, a duly elected Board of
Directors which includes less than two continuing directors
would be unable to redeem or modify Conrail's Poison Pill even
upon determining that to do so would be in Conrail's best
interests.
<PAGE>
149. Plaintiffs seek a declaration that the
Continuing Director Requirement is contrary to Pennsylvania
statute and therefore null and void.
150. Plaintiffs have no adequate remedy at law.
COUNT TEN
(Declaratory Relief Against Conrail
and The Director Defendants That
The Continuing Director Requirement
Is Void Under Conrail's Articles
of Incorporation and By-Laws)
151. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
152. Under Section 3.5 of Conrail's By-Laws,
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.
153. Pursuant to Section 1505 of the Pennsylvania
Business Corporation Law, the By-Laws of a Pennsylvania
corporation operate as regulations among the shareholders and
affect contracts and other dealings between the corporation
and the stockholders and among the stockholders as they relate
to the corporation. Accordingly, the Rights Plan and the
rights issued thereunder are subject to and affected by
Conrail's By-Laws.
<PAGE>
154. Insofar as it purports to remove from the duly
elected board of Conrail the power to redeem the rights or
amend the Rights Plan, the Continuing Director Requirement
directly conflicts with Section 3.5 of Conrail's By-Laws, and
is therefore void and unenforceable.
155. Article Eleven of Conrail's Articles of
Incorporation provides that Conrail's entire Board may be
removed without cause by vote of a majority of the
stockholders who would be entitled to vote in the election of
directors. Read together with Section 3.5 of Conrail's
By-Laws, Article Eleven enables the stockholders to replace
the entire incumbent Board with a new Board with all powers of
the incumbent Board, including the power to redeem the rights
or to amend the Rights Agreement. The Continuing Director
Requirement purports to prevent the stockholders from doing
so, and is therefore void and unenforceable.
156. Plaintiffs have no adequate remedy at law.
COUNT ELEVEN
(Declaratory Relief Against Conrail
and The Director Defendants That Adoption
of the Continuing Director Requirement
Constituted A Breach of the Duty of Loyalty)
157. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
<PAGE>
158. Adoption of the Continuing Director Requirement
constituted a breach of the duty of loyalty on the part of the
Director Defendants. Such adoption was the result of bad faith
entrenchment motivation rather than a belief that the action
was in the best interests of Conrail. In adopting the
Continuing Director Requirement, the Director Defendants have
purported to circumvent the Conrail stockholders' fundamental
franchise rights, and thus have failed to act honestly and
fairly toward Conrail and its stockholders. Moreover, the
Director Defendants adopted the Continuing Director
Requirement without first conducting a reasonable
investigation.
159. The Continuing Director Requirement not only
impedes acquisition of Conrail stock in the NS Offer, it also
impedes any proxy solicitation in support of the NS Proposal
because Conrail stockholders will, unless the provision is
invalidated, believe that the nominees of plaintiffs will be
powerless to redeem the poison pill rights in the event they
conclude that redemption is in the best interests of the
corporation. Thus, stockholders may believe that voting in
favor of plaintiffs' nominees would be futile. The Director
Defendants intended their actions to cause Conrail's
stockholders to hold such belief.
160. Plaintiffs seek a declaration that the Director
Defendants' adoption of the Continuing Director
<PAGE>
Requirement was in violation of their fiduciary duty and,
thus, null, void and unenforceable. 161. Plaintiffs have no
adequate remedy at law.
COUNT TWELVE
(Against Conrail And The Director Defendants
For Actionable Coercion)
162. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
163. The Director Defendants owe fiduciary duties of
care and loyalty to Conrail. Furthermore, Conrail and the
Director Defendants, insofar as they undertake to seek and
recommend action by Conrail's shareholders, for example with
respect to the Charter Amendment, the CSX Offer or the NS
Offer, stand in a relationship of trust and confidence vis a
vis Conrail's shareholders, and accordingly have a fiduciary
obligation of good faith and fairness to such shareholders in
seeking or recommending such action.
164. Conrail and its directors are seeking the
approval by Conrail's shareholders of the Charter Amendment
and are recommending such approval.
165. Conrail and its directors are seeking the tender
by Conrail's shareholders of their shares into the CSX Offer
and are recommending such tender.
<PAGE>
166. In seeking such action and making such
recommendations, Conrail and its directors have sought to
create the impression among the Conrail shareholders that the
NS Proposal is not a financially superior, viable, and
actually available alternative to the CSX Transaction. This
impression, however, is false. The only obstacles to the NS
Proposal are the ultra vires, illegal impediments constructed
by defendants, including the Poison Pill Lock-In, the 180-Day
Lock-Out, and the continuing director provisions of the
Conrail Poison Pill Plan.
167. The purpose for which defendants' seek to create
this impression is to coerce Conrail shareholders into
delivering control over Conrail swiftly to CSX. Furthermore,
the effect of this false impression is to coerce Conrail
shareholders into delivering control over Conrail to CSX.
168. This coercion of the Conrail shareholders
constitutes a breach of the fiduciary relation of trust and
confidence owed by the Corporation and its directors to
shareholders from whom they seek action and to whom they
recommend the action sought.
169. The conduct of defendants Conrail and its
directors is designed to, and will, if not enjoined,
wrongfully induce Conrail's shareholders to sell their shares
to CSX in the CSX Offer not for reasons related to
<PAGE>
the economic merits of the sale, but rather because the
illegal conduct of defendants has created the appearance that
the financially (and otherwise) superior NS Proposal is not
available to them, and that the CSX Transaction is the only
opportunity available to them to realize premium value on
their investment in Conrail.
170. Plaintiffs have no adequate remedy at law.
COUNT THIRTEEN
(Against CSX For Aiding And Abetting)
171. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
172. Defendant CSX, through its agents, was aware of
and knowingly and actively participated in the illegal conduct
and breaches of fiduciary duty committed by Conrail and the
Director Defendants and set forth in Counts One through Nine
and Count Twelve of this complaint.
173. CSX's knowing and active participation in such
conduct has harmed plaintiffs and threatens irreparable harm
to plaintiffs if not enjoined.
174. Plaintiffs have no adequate remedy at law.
COUNT FOURTEEN
(Declaratory and Injunctive Relief
Against Conrail and the Director Defendants
for Violation of Section 14(a)
of the Exchange Act and Rule 14a-9
Promulgated Thereunder)
<PAGE>
175. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
176. Section 14(a) of the Exchange Act provides that
it is unlawful to use the mails or any means or
instrumentality of interstate commerce to solicit proxies in
contravention of any rule promulgated by the SEC. 15 U.S.C.
Section 78n(a).
177. Rule 14a-9 provides in pertinent part: "No
solicitation subject to this regulation shall be made by means
of any . . . communication, written or oral, containing any
statement which, at the time, and in light of the
circumstances under which it is made, is false and misleading
with respect to any material fact, or which omits to state any
material fact necessary in order to make the statements
therein no false or misleading . . . ." 17 C.F.R. Section
240.14a-9.
178. Conrail's Preliminary Proxy Statement contains
the misrepresentations detailed in paragraph 75 above. It also
omits to disclose the material facts detailed in paragraph 51
above.
179. Unless defendants are required by this Court to
make corrective disclosures, Conrail's stockholders will be
deprived of their federal right to exercise meaningfully their
voting franchise.
<PAGE>
180. The defendants' false and misleading statements
and omissions described above are essential links in
defendants' effort to deprive Conrail's shareholders of their
ability to exercise choice concerning their investment in
Conrail and their voting franchise.
181. Plaintiffs have no adequate remedy at law.
COUNT FIFTEEN
(Against Defendant CSX For Violation
of Section 14(d) of the Exchange Act and
Rules Promulgated Thereunder)
182. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
183. Section 14(d) provides in pertinent part: "It
shall be unlawful for any person, directly or indirectly by
use of the mails or by any means or instrumentality of
interstate commerce . . . to make a tender offer for . . . any
class of any equity security which is registered pursuant to
section 781 of this title, . . . if, after consummation
thereof, such person would, directly or indirectly, be the
beneficial owner of more than 5 per centum of such class,
unless at the time copies of the offer, request or invitation
are first published, sent or given to security holders such
person has filed with the Commission a statement containing
such of the information specified in section 78m(d) of this
title, and such
<PAGE>
additional information as the Commission may by rules and
regulations prosecute . . . ." 15 U.S.C. Section 78n(d).
184. On October 16, 1996, defendant CSX filed with
the SEC its Schedule 14D-1 pursuant to Section 14(d).
185. CSX's Schedule 14D-1 contains each of the false
and misleading material misrepresentations of fact detailed in
paragraph 76 above. Furthermore, CSX's Schedule 14D-1 omits
disclosure of the material facts detailed in paragraph 78
above. As a consequence of the foregoing, CSX has violated,
and unless enjoined will continue to violate, Section 14(d) of
the Exchange Act and the rules and regulations promulgated
thereunder.
186. CSX made the material misrepresentations and
omissions described above intentionally and knowingly, for the
purpose of fraudulently coercing, misleading, and manipulating
Conrail's shareholders to tender their shares into the CSX
tender offer.
187. Plaintiffs have no adequate remedy at law.
COUNT SIXTEEN
(Against Defendant Conrail For Violation
of Section 14(d) of the Exchange Act and
Rules Promulgated Thereunder)
188. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
<PAGE>
189. Section 14(d)(4) provides in pertinent part:
"Any solicitation or recommendation to the holders of
[securities for which a tender offer has been made] to accept
or reject a tender offer or request or invitation for tender
shall be made in accordance with such rules and regulations as
the [S.E.C.] may prescribed as necessary or appropriate in the
public interest of investors". Rule 14d-9 provides in
pertinent part: "No solicitation or recommendation to security
holders shall be made by [the subject company] with respect to
a tender offer for such securities unless as soon as
practicable on the date such solicitation or recommendation is
first published or sent or given to security holders such
person . . . file[s] with the [S.E.C.] eight copies of a
Tender Offer Solicitation/ Recommendation Statement on
Schedule 14D-9".
190. On October 16, 1996, Conrail (i) published its
board of directors' recommendation that Conrail shareholders
tender their shares in the CSX Offer and (ii) filed with the
SEC its Schedule 14D-9.
191. Conrail's Schedule 14D-9 contains each of the
false and misleading material misrepresentations detailed in
paragraph 50 above. Further, Conrail's Schedule 14D-9 omits
disclosure of the material facts detailed in paragraph 51
above. As a consequence of the foregoing, Conrail has
violated, and unless enjoined will continue to violate,
<PAGE>
Section 14(d) of the Exchange Act and the rules and
regulations promulgated thereunder.
192. Conrail made the material misrepresentations and
omissions described above intentionally and knowingly, for the
purpose of fraudulently coercing, misleading and manipulating
Conrail's shareholders to tender their shares into the CSX
Offer.
193. Plaintiffs have no adequate remedy at law.
COUNT SEVENTEEN
(Against Conrail and CSX for Violation
of Section 14(e) of the Exchange Act
and Rules Promulgated Thereunder)
194. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
195. Section 14(e) provides in pertinent part: "It
shall be unlawful for any person to make any untrue statement
of a material fact or omit to state any material fact
necessary in order to make the statements made, in the light
of the circumstances under which they are made, not
misleading, or to engage in any fraudulent, deceptive, or
manipulative acts or practices in connection with any tender
offer . . . or any solicitation of security holders in
opposition to or in favor of any such offer. . . ." Defendants
have violated and threaten to violate Section 14(e).
<PAGE>
196. The CSX Schedule 14D-1 constitutes a
communication made under circumstances reasonably calculated
to result in the procurement of tenders from Conrail
shareholders in favor of the CSX Offer.
197. The Conrail Schedule 14D-9 and Proxy Statement
constitute communications made under circumstances reasonably
calculated to result in the procurement of tenders from
Conrail shareholders in favor of the CSX Offer.
198. The CSX Schedule 14D-1 contains the false and
misleading material representations detailed in paragraph 76
above. The CSX Schedule 14D-1 omits disclosure of the material
facts detailed in paragraph 78 above.
199. The Conrail Schedule 14D-9 contains the false
and misleading material misrepresentations detailed in
paragraph 77 above. The Conrail Schedule 14D-9 omits
disclosure of the material facts detailed in paragraph 78
above.
200. The Conrail Proxy Statement contains the false
and misleading material misrepresentations detailed in
paragraph 75 above. The Conrail Proxy Statement omits
disclosure of the material facts detailed in paragraph 78
above.
201. These omitted facts are material to the
decisions of Conrail shareholders to hold, sell to market, or
tender their shares in the CSX tender offer.
<PAGE>
202. The defendants intentionally and knowingly made
the material misrepresentations and omissions described above,
for the purpose of coercing, misleading, and manipulating
Conrail shareholders to swiftly transfer control over Conrail
to CSX by tendering their shares in the CSX Tender Offer.
203. Absent declaratory and injunctive relief
requiring adequate corrective disclosure, plaintiffs, as well
as all of Conrail's shareholders, will be irreparably harmed.
Conrail shareholders will be coerced by defendants' fraudulent
and manipulative conduct to sell Conrail to the low bidder.
Plaintiffs NS and NAC will be deprived of the unique
opportunity to acquire and combine businesses with Conrail.
204. Plaintiffs have no adequate remedy at law.
COUNT EIGHTEEN
(Against Defendants Conrail and CSX For
Civil Conspiracy To Violate Section 14
Of The Exchange Act And Rules
Promulgated Thereunder)
205. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
206. Defendants Conrail and CSX conspired and agreed
to conduct the campaign of misinformation described in
paragraph 48 through 51 above for the purpose of
<PAGE>
coercing, misleading and manipulating Conrail shareholders to
swiftly transfer control over Conrail to CSX. As set forth in
Counts Eight through Eleven above, which are incorporated by
reference herein, the defendants' campaign of misinformation
is violative of Section 14 of the Exchange Act and the rules
and regulations promulgated thereunder.
207. Plaintiffs have no adequate remedy at law.
COUNT NINETEEN
(Against Conrail for
Estoppel/Detrimental Reliance)
208. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
209. By his actions, silence and statements during
the period from September 1994 to October 15, 1996, and
particularly by his statements to Mr. Goode in September and
October of 1996 (as detailed above in paragraphs 17 through
24, defendant LeVan, purporting to act on behalf of Conrail
and its Board of Directors and with apparent authority to so
act, led Mr. Goode to believe that Conrail's Board was not
interested in a sale of the company and that if and when the
Conrail Board decided to pursue such a sale, it would let NS
know and give NS an opportunity to bid.
210. Prior to October 15, 1996, NS had justifiably
relied on Mr. LeVan's false statements and representations
<PAGE>
in refraining from making a proposal to Conrail's Board or
initiating a tender offer of its own for Conrail shares.
211. Mr. LeVan and Conrail knew or should have known
that their actions, silence, statements and representations to
NS would induce NS to believe that Conrail's board was not
interested in selling the company and that NS would be given
an opportunity to bid if Conrail's Board decided that Conrail
would be sold.
212. Mr. LeVan and Conrail knew or should have known
that NS would rely upon their actions, silence, statements and
representations to its detriment in refraining from making a
proposal to Conrail's Board or initiating a tender offer of
its own for Conrail shares.
213. NS did in fact rely upon LeVan's and Conrail's
actions, silence, statements and representations to its
detriment in refraining from making a proposal to Conrail's
Board or initiating a tender offer of its own for Conrail
shares.
214. Conrail and its Board are estopped from
effectuating a sale of the company without giving NS an
adequate opportunity to present its competing tender offer to
the board of directors and Conrail shareholders. Similarly,
any provision in the Merger Agreement between CSX and Conrail
that would impede directors' or shareholders'
<PAGE>
ability to approve a competing tender offer or takeover
proposal, such as that made by NS, is null and void.
215. By virtue of NS's justifiable reliance on
Conrail's and Mr. LeVan's actions, silence and statements, it
has suffered and will continue to suffer irreparable harm.
216. Plaintiffs have no adequate remedy at law.
COUNT TWENTY
(Unlawful And Ultra Vires Amendment
of Conrail's Articles of Incorporation)
217. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
218. The Conrail Board of Directors are attempting to
freeze out any competing tender offers and lock-up the CSX
deal, to the detriment of shareholders, by improperly
maneuvering to "opt-out" of the "antitakeover" provisions of
The Pennsylvania Business Corporation Law in a discriminatory
fashion. This procedure distorts and subverts the provisions
of the Pennsylvania statute.
219. At the Special Meeting of Conrail shareholders,
such shareholders will be asked to approve the following
amendment to Conrail's articles of incorporation, which has
already been approved by the Conrail Board of Directors:
"Subchapter E, Subchapter G and Subchapter H of
<PAGE>
Chapter 25 of the Pennsylvania Business Corporation Law of
1988, as amended, shall not be applicable to the Corporation."
220. The Director Defendants are also asking for
authorization to exercise discretion in deciding whether or
not to file the amendment. According to the proposed proxy
materials, the defendant directors only intend to file the
amendment if CSX is in a position to purchase more than 20% of
Conrail's shares. Consequently, in effect, this amendment
becomes a "deal specific" opt-out.
221. The PBCL does not allow for such a
discriminatory application of an opt-out provision. Section
2541(a) of the PBCL provides that Subchapter 25E will not
apply to corporations that have amended their articles of
incorporation to state that the Subchapter does not apply.
Section 1914 of the PBCL provides that an articles amendment
"shall be adopted" if it received the affirmative vote of a
majority of shareholders entitled to vote on the amendment.
While section 1914 also provides that the amendment need not
be deemed to be adopted unless it has been approved by the
directors, that approval has already been given.
222. Conrail's Board is trying to distort and subvert
the provisions of the Pennsylvania statute by keeping a
shareholder approved opt-out from taking effect
<PAGE>
unless the CSX deal is moving forward. The PBCL is quite
clear--it allows corporations to exercise general, not
selective, opt-outs. Therefore, any action taken at the
November 14, 1996 shareholder meeting would be a nullity.
223. If the November 14, 1996 shareholder meeting is
allowed to take place and the amendment is passed, NS will
suffer irreparable harm.
224. Plaintiffs have no adequate remedy at law.
COUNT TWENTY-ONE
(Declaratory Judgment Against Conrail
and the Director Defendants that the
Entire Conrail Board,
or Any One or More of Conrail's Directors,
Can Be Removed Without Cause)
225. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
226. Plaintiffs intend, if necessary to facilitate
the NS Proposal, to solicit proxies to be used at Conrail's
next Annual Meeting to remove Conrail's current Board of
Directors.
227. There is presently a controversy among Conrail,
the Defendant Directors and the plaintiffs as to whether the
entire Conrail Board, or any one or more of Conrail's
directors, may be removed without cause at the Annual Meeting
by a vote of the majority of Conrail stockholders entitled to
cast a vote at the Annual Meeting.
<PAGE>
228. Plaintiffs seek a declaration that Article 11 of
Conrail's Articles permits the removal of the entire Conrail
Board, or any one or more of Conrail's directors, without
cause by a majority vote of the Conrail stockholders entitled
to cast a vote at an annual election.
229. Plaintiffs have no adequate remedy at law.
WHEREFORE, Plaintiffs respectfully request that this
Court enter judgment against all defendants, and all persons
in active concert or participation with them, as follows:
A. Declaring that:
(a) defendants have violated Sections 14(a),
14(d) and 14(e) of the Exchange Act and the rules
and regulations promulgated thereunder;
(b) defendants' use of the Charter Amendment is
violative of Pennsylvania statutory law and their
fiduciary duties;
(c) defendants' discriminatory use of Conrail's
Poison Pill Plan violates the director defendants'
fiduciary duties;
(d) the termination fees and stock option
agreements granted by Conrail to CSX are violative
of the defendants' fiduciary duties;
<PAGE>
(e) the Continuing Director Requirement of
Conrail's poison pill rights plan is ultra vires and
illegal under Pennsylvania Law and Conrail's
Articles of Incorporation and Bylaws; and is illegal
because its adoption constitutes a breach of the
defendants' fiduciary duties;
(f) Conrail's entire staggered or any one or
more of its directors, can be removed without cause
at Conrail's next annual meeting of stockholders;
(g) the defendants have engaged in a civil
conspiracy to violate Section 14 of the Exchange Act
and the rules and regulations promulgated
thereunder;
(h) the Poison Pill Lock-In provisions in the
CSX Merger Agreement are ultra vires and, therefore,
void under Pennsylvania Law;
(i) the 180-Day Lock-Out provision in the CSX
Merger Agreement is ultra vires under Pennsylvania
law and, therefore, void; and
(j) the Director Defendants, by approving the
CSX Merger Agreement, breached their fiduciary
duties of care and loyalty.
B. Preliminarily and permanently enjoining the
defendants, their directors, officers, partners,
<PAGE>
employees, agents, subsidiaries and affiliates, and all
other persons acting in concert with or on behalf of the
defendants directly or indirectly, from:
(a) commencing or continuing a tender offer for
shares of Conrail stock or other Conrail securities;
(b) seeking the approval by Conrail's
stockholders of the Charter Amendment, or, in the
event it has been approved by Conrail's
stockholders, from taking any steps to make the
Charter Amendment effective;
(c) taking any action to redeem rights issued
pursuant to Conrail's poison pill rights plan or
render the rights plan inapplicable as to any offer
by CSX without, at the same time, taking such action
as to NS's outstanding offer;
(d) taking any action to enforce the Continuing
Director Requirement of Conrail's Poison Pill Plan;
(e) taking any action to enforce the
termination fee or stock option agreement granted to
CSX by Conrail;
(f) failing to take such action as is necessary
to exempt the NS Proposal from the
<PAGE>
provisions of the Pennsylvania Business Combination
Statute; and
(g) holding the Conrail special meeting until
all necessary corrective disclosures have been made
and adequately disseminated to Conrail's
stockholders;
(h) taking any action to enforce the Poison
Pill Lock-In and/or the 180-Day Lock-Out provisions
of the CSX Merger Agreement;
(i) failing to take such action as is necessary
to ensure that a Distribution Date does not occur
under the terms of the Conrail Poison Pill Plan; and
(j) failing to take any action required by the
fiduciary duties of the Director Defendants.
C. Granting compensatory damages for all incidental
injuries suffered as a result of defendants' unlawful
conduct.
D. Awarding plaintiffs the costs and disbursements
of this action, including attorneys' fees.
<PAGE>
E. Granting plaintiffs such other and further relief
as the court deems just and proper.
Respectfully submitted,
By: Mary A. McLaughlin, Esq.
Attorney I.D. No. 24923
George G. Gordon, Esq.
Attorney I.D. No. 63072
Dechert, Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
(215) 994-4000
Attorneys for Plaintiffs
Of Counsel:
Steven J. Rothschild
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
One Rodney Square
P.O. Box 636
Wilmington, DE 19899
(302) 651-3000
DATED: October 23, 1996
