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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
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)
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COMMON STOCK, PAR VALUE $1.00 PER SHARE
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
(TITLE OF CLASS OF SECURITIES)
208368 10 0
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------
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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INTRODUCTION
Conrail Inc. ("Conrail") hereby amends and supplements its
Solicitation/Recommendation Statement on Schedule 14D-9, originally filed on
October 16, 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 23, 1996, (i) Norfolk Southern Corporation ("Norfolk Southern")
issued a press release, the full text of which is attached as Exhibit (a)(8)
hereto and incorporated herein by reference, announcing its intention to
commence a tender offer for all of the outstanding Shares at a price of $100 per
Share, net to the seller in cash, and (ii) Conrail issued a press release, filed
herewith as Exhibit (a)(9) and incorporated herein by reference, advising
Conrail's shareholders that they need not take any immediate action with respect
to the unsolicited Norfolk Southern tender offer.
In addition, on October 23, 1996, Norfolk Southern filed a Complaint for
Declaratory and Injunctive Relief in the United States District Court for the
Eastern District of Pennsylvania against Conrail, CSX and the directors of
Conrail. Norfolk Southern's complaint alleges, among other things, violations of
fiduciary duty, of Conrail's Articles of Incorporation and By-Laws, of the PBCL
and of the federal securities laws and requests preliminary and permanent
injunctive and declaratory relief including, without limitation, (i) an
injunction from commencing or continuing a tender offer (such as the Offer) for
the Shares, seeking the Company Pennsylvania Shareholder Approval or taking
steps to make effective the amendment to Conrail's Articles of Incorporation
which is the subject of such approval (the "Articles Amendment"), taking any
action to redeem the Common Stock Purchase Rights or render the Common Stock
Purchase Rights inapplicable to any offer with respect to Conrail by CSX
without, at the same time, rendering them inapplicable with respect to Norfolk
Southern's proposed tender offer with respect to Conrail, taking any action to
enforce certain provisions of the Merger Agreement, failing to take action to
exempt Norfolk Southern's proposal to acquire Conrail from certain provisions of
the PBCL and holding the special meeting of Conrail shareholders to obtain the
Company Pennsylvania Shareholder Approval (the "Pennsylvania Special Meeting"),
and (ii) a declaration that certain "continuing director" provisions in the
September 20, 1995 amendment to the July 19, 1989 rights agreement are void. The
Norfolk Southern complaint specifically alleges the following misrepresentations
and omissions of material fact by Conrail and CSX (capitalized terms used in the
following quoted paragraphs not defined herein shall have the meanings set forth
in the Norfolk Southern complaint):
"48. 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 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
interests of Conrail shareholders; rather, the Conrail Board of Directors
believes that swift transfer of
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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.
49. CSX's Schedule 14D-1 contains the following misrepresentations of fact:
(a) 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.
(b) 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 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.
50. 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.
51. Each of the Conrail Preliminary Proxy Statement, the CSX Schedule
14D-1, and the Conrail Schedule 14D-9 omit to disclose the following material
facts, the disclosure of which are necessary to make the statements made in such
documents not misleading:
(a) 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.
(b) 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 meeting scheduled for September 1996 and (ii) a meeting of the
Conrail Board purportedly scheduled for October 16, 1996.
(c) 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.
(d) 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.
(e) 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.
(f) That although in arriving at their "fairness" opinions, both
Morgan Stanley and Lazard Freres purport 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.
2
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(g) 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.
(h) 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.
(i) 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.
(j) 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.
(k) That the Conrail Board intends to withhold the filing of the
Charter Amendment following its approval by Conrail's stockholders if the
effectiveness of such amendment would facilitate any bid for Conrail other
than the CSX Transaction.
(l) That the Charter Amendment and/or its submission to a vote of the
Conrail shareholders is illegal and ultra vires under Pennsylvania law.
(m) 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.
(n) 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.
(o) 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.
(p) 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.
(q) 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.
(r) 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.
(s) That the Continuing Director Requirement in Conrail's Poison Pill
(described below in paragraphs 54 through 60, 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."
A copy of the Norfolk Southern complaint is attached hereto as Exhibit
(c)(8), is incorporated herein by reference and the foregoing summary
description is qualified in its entirety by reference to such exhibit.
On October 24, 1996, Conrail issued a press release announcing that a
hearing on the preliminary injunction being sought by Norfolk Southern has been
scheduled to be heard on November 12, 1996. A copy of the press release is
attached hereto as Exhibit (a)(10) and is incorporated herein by reference.
On October 24, 1996, Norfolk Southern filed with the Securities and
Exchange Commission (the "Commission") a Tender Offer Statement on Schedule
14D-1 with respect to its offer to purchase all outstanding Shares referred to
above.
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:
(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.
(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.
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
CONRAIL INC.
By /s/ TIMOTHY T. O'TOOLE
--------------------------------------
Name: Timothy T. O'Toole
Title: Senior Vice
President -- Finance
Dated as of October 25, 1996
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
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<S> <C> <C> <C>
*(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. LLC........................................
*(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......
(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..................................
</TABLE>
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* Previously filed.
5
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Exhibit (a)(8)
NORFOLK SOUTHERN PLANS ALL CASH $100 PER SHARE OFFER FOR CONRAIL, INC.
NEW YORK, NY -- Norfolk Southern Corporation (NYSE:NSC) announced today
that it will be commencing an all cash tender offer for all of the outstanding
common shares and Series A ESOP convertible junior preferred shares of Conrail,
Inc. (NYSE:CRR), at a price of $100 per share. Following the completion of the
tender offer, Norfolk Southern intends to effect a merger in which all
remaining Conrail shareholders will also receive the same cash price paid in
the tender offer.
"This proposal is better on every point than the CSX/Conrail proposal
announced last week. A combined Norfolk Southern-Conrail will create a more
balanced eastern rail system and will do so by increasing, rather than
diminishing, competition in the industry," said David R. Goode, Chairman,
President and Chief Executive Officer of Norfolk Southern.
"For customers, it provides single-line access to some of the largest
markets in the world. It combines Conrail with the industry leader in safety,
efficiency, innovation and service. For Norfolk Southern shareholders and
employees of both companies, the merger provides the opportunities that come
with greater growth -- more than either company could have achieved on its own.
And, for Conrail shareholders, this offer is superior."
Based upon the per share closing price of the CSX (NYSE-CSX) shares
yesterday, Norfolk Southern's $100 per share offer represents a premium of
$11.49 (13%) over the blended value of CSX's 40% cash and 60% stock proposal.
Norfolk Southern's offer will provide for a voting trust to hold the Conrail
shares acquired in the tender offer and merger and thereby allow Conrail
shareholders to receive immediate payment for their shares in the tender offer
and merger.
The tender offer will be conditioned upon, among other things, the
receipt by Norfolk Southern of an informal written opinion from the staff of
the Surface Transportation Board that the use of the voting trust is consistent
with the policies of the STB, Norfolk Southern having obtained sufficient
financing for the tender offer and subsequent merger, the valid tender of a
majority of Conrail's shares on a fully diluted basis, Subchapter 25F of
Pennsylvania's Business Corporation Law not being applicable to the offer,
Conrail's poison pill having been redeemed or otherwise made inapplicable to
Norfolk Southern's tender offer, the merger agreement between CSX and Conrail
having been terminated in accordance with its terms and other customary
conditions. The complete terms and conditions of the tender offer will be set
forth
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in the offering documents to be filed shortly with the Securities and Exchange
Commission.
Norfolk Southern already has commitments for $4 billion of the
necessary financing from Merrill Lynch and JP Morgan and a letter indicating
they are highly confident that the balance is available.
Norfolk Southern is a transportation holding company which operates a
14,500 mile rail system in 20 states and one Canadian province, as well as a
trucking company.
Following is the complete text of a letter sent from David R. Goode to
the Board of Directors of Conrail.
October 23, 1996
Board of Directors
Conrail Inc.
2001 Market Street
Two Commerce Square
Philadelphia, Pennsylvania 19101
Attention: David M. LeVan, Chairman
Dear Members of the Board:
For a number of years, other members of our senior management and I
have spoken numerous times with Mr. LeVan, your current Chairman, and with Mr.
Hagan, your former Chairman, and with other senior officers of your company.
During many of these conversations, we at Norfolk Southern expressed a desire
to join our companies together.
On two recent occasions, in late September and again on October 4, I
contacted Mr. LeVan to reiterate our strong interest in acquiring Conrail and
request a meeting at which I could prevent a concrete proposal. In each case, I
emphasized that I wished to communicate our proposal so that the Conrail Board
would be aware of it during their next meeting. Also in each case, Mr. LeVan
stated that it was unnecessary for me to do so.
In view of this background, it came as a disappointment to me when it
was announced on October 15 that you had agreed to the proposed acquisition of
Conrail by CSX Corporation. We regret that, despite knowing our long-term
interest in joining Conrail with Norfolk Southern, your chairman ignored our
long-standing offer to submit a business combination proposal to you.
Since October 15, we have been analyzing the proposed CSX transaction
and have been considering the possibility of making a proposal that would be
demonstrably superior to your proposed transaction with CSX. We now have
completed that process and are using this letter to communicate our conclusions
to you.
On behalf of Norfolk Southern, I am hereby making the following
proposal. Our proposal is that Norfolk Southern would acquire all of the
outstanding shares of Conrail common stock for
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Page 3 of 4
cash at a price of $100.00 per share. This would be accomplished by a "first
step" cash tender offer for all outstanding shares of Conrail, followed by a
"second step" merger in which Conrail's remaining shareholders would receive
the same cash purchase price per share paid in the offer. This offer represents
a premium of $11.49 (13%) over the blended value of CSX's proposal based on
yesterday's closing price of CSX shares. Our offer will provide for a voting
trust to hold the Conrail shares acquired in the tender offer and merger and
thereby allow Conrail shareholders to receive immediate payment for all their
shares in the tender offer and merger.
To underscore the seriousness of our intentions, we are commencing
promptly a cash tender offer, which can serve as the "first step" tender offer
contemplated by our proposal. On the other hand, unless and until you terminate
your pending proposed transaction with CSX in a manner permitted under the
terms of your merger agreement with CSX and enter into an agreement with us,
our cash tender offer will stand on its own as an offer made directly to your
shareholders.
Subject to your Board's favorable response to our proposal, we are
prepared to negotiate a merger agreement on substantially the same terms and
conditions as your proposed transaction with CSX, except as it would be
modified to reflect the all-cash consideration that we are offering. In
addition, we are prepared to offer significant representation of Conrail
directors on the Norfolk Southern Board, to consider locating the corporate
headquarters of the combined company in Philadelphia and to discuss an
appropriate position for your Chairman following a transaction with us. We
believe that we offer your senior management opportunities for continued career
growth that appear to us not to exist with CSX. Although we determined that it
was appropriate, under the circumstances, to commence our cash tender offer,
our strong preference would be to negotiate a merger agreement with you.
The price we are offering in our proposal, $100 per share, clearly
provides significantly greater and more certain value to your shareholders than
the proposed transaction with CSX. In addition, we believe our proposed
transaction can be completed on a more timely basis than the proposed CSX
transaction. Accordingly, we strongly believe that, pursuant to Section 4.2 of
your agreement with CSX, you should promptly request and obtain from your
counsel their advice confirming that you are obligated by principles of
fiduciary duty to consider our proposal. Also, we expect that, upon your
receipt of such advice and consistent with your clear fiduciary duties, you
will give us access to at least all the same information you furnished to CSX
in the course of your discussions and negotiations with them and that you will
discuss and negotiate with us the details of our proposal. In addition, you
should take whatever other actions are reasonably necessary or appropriate so
that we may operate on a level playing field with CSX and any other
<PAGE> 4
Page 4 of 4
companies which may be interested in acquiring Conrail.
Besides the benefits for your shareholder constituency, we are
confident that Conrail's employees, suppliers, customers, creditors and the
communities in which Conrail is located will be better served by the
combination of Norfolk Southern and Conrail as compared with the CSX proposal.
Moreover, because a Norfolk Southern merger presents a substantially more
favorable competitive and regulatory picture, our proposal is more consistent
with both the long and short-term interests of Conrail. We look forward to the
opportunity to directly discuss these matters with you in the manner they would
have been communicated before the hasty attempt to lockup a deal with CSX. To
ensure that your Board fulfills its fiduciary obligations and to resolve
certain other issues, we have today commenced litigation in the Federal
District Court for the Eastern District of Pennsylvania.
Our Board of Directors is fully supportive of our Proposal and has
authorized and approved it. Consistent with our Board's action, we and our
advisors stand ready, willing and able to meet with you and your advisors at
your earliest convenience. I want to stress that we are flexible as to all
aspects of our proposal, including the possibility of substituting a
substantial equity component to our present offer so that your shareholders
could have a continuing interest in the combined enterprise, and are anxious to
proceed to discuss and negotiate it with you as soon as possible.
Personally and on behalf of my colleagues at Norfolk Southern, I look
forward to hearing from you soon and working with you on our proposal.
Sincerely,
David R. Goode
cc: All Directors
Contact:
Robert C. Fort
(604) 629-2714
(sf)
<PAGE> 1
EXHIBIT (a)(9)
FOR IMMEDIATE RELEASE
CONTACTS:
Conrail Inc. Abernathy MacGregor Group
Craig MacQueen Joele Frank/Dan Katcher
(215) 209-4594 (212) 371-5999
CONRAIL ADVISES SHAREHOLDERS TO AWAIT
BOARD RESPONSE TO NORFOLK SOUTHERN UNSOLICITED OFFER
BEFORE TAKING ANY ACTION
Philadelphia, PA, (October 23, 1996) -- Conrail Inc. [NYSE:CRR] today
advised shareholders that they need not take any action at this time with
respect to the unsolicited tender offer announced today by Norfolk Southern
Corp. [NYSE:NSC], and that shareholders should await the response of the
Conrail Board. Conrail said that, while the Board would review the tender offer
in due course, its Board had already carefully considered the relative merits
of a merger with Norfolk Southern rather than CSX and the Board had unanimously
determined that a merger with CSX was in the best interests of Conrail and its
constituencies. Nevertheless, Conrail said that the unsolicited tender offer
would be reviewed and the Board would advise shareholders of the Board's
response.
Conrail, with corporate headquarters in Philadelphia, PA, operates an
11,000 mile rail freight network in 12 northeastern and midwestern states, the
District of Columbia, and the Province of Quebec.
<PAGE> 1
EXHIBIT (a)(10)
FOR IMMEDIATE RELEASE
CONTACTS:
Conrail Inc. Abernathy MacGregor Group
Craig MacQueen Joele Frank/Dan Katcher
(215) 209-4594 (212) 371-5999
HEARING SCHEDULED ON PRELIMINARY INJUNCTION MOTION
Philadelphia, PA, (October 24, 1996)--Conrail Inc. [NYSE:CRR]
announced today that the United States District Court for the Eastern
District of Pennsylvania has scheduled a hearing for November 12, 1996
on Norfolk Southern Corp.'s [NYSE:NSC] request for a preliminary
injunction. Conrail again stated that Norfolk Southern's claims are entirely
without merit.
Conrail, with corporate headquarters in Philadelphia, PA, operates an
11,000-mile rail freight network in 12 northeastern and midwestern states, the
District of Columbia, and the Province of Quebec.
<PAGE> 1
EXHIBIT (C)(8)
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
corporation, 96-CV-7167
Two Commerce Square
2001 Market Street
Philadelphia, PA 19101,
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> 2
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,
David H. Swanson
Countrymark Inc.
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
(Caption continued on next page)
<PAGE> 3
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF
PENNSYLVANIA
CSX Corporation
One James Center
901 East Cary Street
Richmond, VA 23219,
Defendants.
- -------------------------------------------
COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
Plaintiffs, by their undersigned attorneys, as and
for their 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 Conrail,
Inc. ("Conrail"), its directors, and CSX Corporation ("CSX") to coerce,
mislead, and fraudulently manipulate Conrail's shareholders to swiftly deliver
control of Conrail to CSX and to forestall any competing higher bid for Conrail
by plaintiff Norfolk Southern Corporation ("NS"). Defendants' actions are in
violation of the federal securities laws governing proxy solicitations and
tender offers. Further, several of defendants' actions are illegal and ultra
vires under Pennsylvania statutory law. Finally,
<PAGE> 4
defendants' actions are in plain breach of the defendant Conrail directors'
fiduciary duties of care and loyalty.
2. 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. According to the October 16, 1996 Wall Street Journal, the blended value
of the CSX Transaction was $89 per Conrail share. Integral to this deal are
executive succession and compensation guarantees for Conrail management and
board compensation covenants effectively ensuring Conrail directors of continued
board seats.
3. 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 is today announcing its intention to commence, through its
wholly-owned subsidiary, plaintiff NEW ACQUISITION
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CORPORATION ("NAC") a cash tender offer (the "NS Offer") for any and 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").
4. By this action, plaintiffs NS, NAC, 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. Specifically, plaintiffs seek:
- Injunctive relief with respect to defendants'
violations of the federal securities laws, including
preliminary injunctive relief enjoining the special
meeting of Conrail's shareholders scheduled for
November 14, 1996 and enjoining the consummation of
CSX's tender offer until corrective disclosures are
made and adequately disseminated.
- Declaratory and injunctive relief with respect to
illegal and ultra vires acts by Conrail and its
directors, including a proposed amendment to
Conrail's charter and the September 1995 amendment of
Conrail's Poison Pill Plan to include a "Continuing
Director" limitation on amendment and redemption.
- Declaratory and injunctive relief concerning breach
of the Conrail directors' fiduciary duties of loyalty
and care in attempting to lock up the sale of control
of Conrail to CSX.
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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
5. This Court has jurisdiction over this complaint pursuant to
28 U.S.C. Sections 1331 and 1367.
6. Venue is proper in this District pursuant to 28 U.S.C.
Section 1391.
The Parties
7. 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 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
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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.
8. Plaintiff NAC is a Pennsylvania corporation. The entire
equity interest in NAC is owned by NS. NAC was organized by NS for the purpose
of acquiring the entire equity interest in Conrail.
9. Plaintiff Kathryn B. McQuade is and has been, at all times
relevant to this action, the owner of Conrail common stock.
10. 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 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.
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11. 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 defendant directors of Conrail (collectively, the "Defendant
Directors") owe fiduciary duties to Conrail and its stockholders, including
plaintiffs.
12. 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.
Factual Background
The Offer
13. 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
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Offer, to acquire the entire equity interest in Conrail by causing it to merge
with NAC 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. The 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.
14. 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 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.
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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, and Conrail Schedules a Special Meeting
of Its Shareholders on Short Notice to Approve a Discriminatory Charter
Amendment Designed to Facilitate Completion of the Lock-Up Deal
15. 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.
16. Indeed, if the relief requested herein is not granted, 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
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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.
17. 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 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.
18. 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
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Triple Crown Services joint venture, no decisions were reached concerning a
business combination at that time.
19. 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 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
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ultimately the negotiations turned toward a premium stock-for-stock acquisition
of Conrail.
20. 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.
21. 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.
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Defendant LeVan Actively Misleads NS Management In Order to Permit Him To Lock
Up The Sale of Conrail to CSX
22. 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.
23. At its September 24, 1996 meeting, the NS Board reviewed its
strategic alternatives and determined 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.
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24. 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.
On the Day Before the Purportedly Scheduled Meeting of Conrail's Board,
Defendants Announce the CSX Transaction
25. To NS's 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 (the "CSX Transaction"). The Wall Street Journal reported
on October 16, 1996 that the CSX Transaction, in which Conrail shareholders
would receive cash and stock consideration, was valued at $89 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
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covenants substantially increasing Mr. LeVan's compensation and guaranteeing
that he will succeed John W. Snow, CSX's Chairman and Chief Executive Officer,
as the combined company's CEO and Chairman.
CSX's Snow Implies That the CSX Transaction Is a Fait Accompli and States That
Conrail's Directors Have Almost No Fiduciary Duties
26. 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
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willing to offer to NS in this regard, the meeting concluded.
NS Responds With a Superior Offer for Conrail
27. 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.
The CSX Transaction
Rapid Transfer of Control
28. 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
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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.
29. 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 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."
30. The swiftness with which the CSX Transaction is designed to
transfer control over Conrail to CSX can only
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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
31. 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 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.
32. 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
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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.
33. 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.
LeVan's Deal
34. 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 Officer 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
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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 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.
35. 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, but not less than $810,000, together with bonus and
other incentive 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
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Chief Executive Officer during the First Employment Segment, but
not less than $900,000.
36. 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 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.
The $300 Million Break-Up Fee
37. 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.
38. 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,
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provided less value and other benefits to Conrail and its constituencies than
would a transaction with NS.
The Lock-Up Stock Option
39. 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.
40. 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 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,
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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.
41. 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.
42. 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
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$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!
43. 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.
Selective Discriminatory Treatment of Competing Bids
44. 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.
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45. 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 equitably, 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.
46. Thus, Conrail's directors are required to act evenhandedly,
redeeming the poison pill rights and rendering 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.
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Defendants' Campaign of Misinformation
47. 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.
48. 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 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
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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 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.
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49. CSX's Schedule 14D-1 contains the following
misrepresentations of fact:
(a) 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.
(b) 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 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,
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unlike NS, CSX is unable or unwilling to pay a fair price in cash for 100% of
Conrail's stock.
50. 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.
51. Each of the Conrail Preliminary Proxy Statement, the CSX
Schedule 14D-1, and the Conrail Schedule 14D-9 omit to disclose the following
material facts, the disclosure of which are necessary to make the statements
made in such documents not misleading:
(a) 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.
(b) 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,
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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 meeting scheduled for September 1996 and (ii) a meeting of the Conrail
Board purportedly scheduled for October 16, 1996.
(c) 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.
(d) 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.
(e) 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
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a financial point of view, in the context of a sale of control of Conrail such
as the CSX Transaction.
(f) That although in arriving at their "fairness" opinions,
both Morgan Stanley and Lazard Freres purport 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.
(g) 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.
(h) 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.
(i) 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.
(j) 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.
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(k) That the Conrail Board intends to withhold the filing of
the Charter Amendment following its approval by Conrail's stockholders if the
effectiveness of such amendment would facilitate any bid for Conrail other than
the CSX Transaction.
(l) That the Charter Amendment and/or its submission to a vote
of the Conrail shareholders is illegal and ultra vires under Pennsylvania law.
(m) 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.
(n) 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.
(o) That in recommending that Conrail's shareholders
tender their shares to CSX in the CSX Offer,
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Conrail's Board did not conclude that doing so would be in the best interests of
Conrail's shareholders.
(p) 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.
(q) 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.
(r) 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.
(s) That the Continuing Director Requirement in Conrail's
Poison Pill (described below in paragraphs 54 through 60, 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.
52. Each of the misrepresentations and omitted facts detailed
above are material to the decisions of
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Conrail's shareholders concerning whether to vote in favor 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 Pill
53. As noted above, Conrail's directors have long known that it
was an attractive business combination candidate to other railroad companies,
including NS.
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54. 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 contest, 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").
55. 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.
56. Under the plan, stockholders received a dividend of
originally uncertificated, unexercisable rights.
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The rights would become exercisable and certificated on the so-called
"Distribution Date," which under the Rights Agreement 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, Conrail would issue
certificates evidencing the rights, each of which would allow the holder to
purchase a share of Conrail stock at a price set above market. Once certificates
were issued, the rights could trade separately from the associated shares of
Conrail stock.
57. The rights would "flip in" when, among other things, a
person or group obtained 10% ownership of Conrail stock. 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. The
person or group acquiring the 10% or greater ownership, however, would be
ineligible to exercise such rights. Thus, the Rights Plan would dilute the
acquiror's equity and voting position. The rights would "flip over" if Conrail
were to engage in a
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merger in which it was 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.
58. At any time prior to the Distribution Date, the Board of
Directors of Conrail could either redeem the rights for a nominal payment or
amend the Rights Agreement to render the rights inapplicable to an acquiror
approved by the Board. By virtue of its redemption and amendment provisions, the
original Rights Plan placed the power to approve or prevent an acquisition in
Conrail's duly elected Board of Directors.
59. The September 20, 1995 adoption of the Continuing Director
Requirement changed this reservation of power. It added an additional
requirement for amendment of the Rights Agreement 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.
60. By adopting the Continuing Director Requirement, the
Defendant Directors intentionally and
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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.
61. 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 Defendant Directors were without power to adopt such
a provision unilaterally by amending the Rights Agreement.
62. 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,
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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 Rights Agreement, it
conflicts with Section 3.5 of Conrail's By-Laws and is therefore of no cause 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 Rights Agreement. 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.
63. Furthermore, the adoption of the Continuing Director
Requirement constituted a breach of the Defendant Directors' 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
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stockholders disagree with the incumbent Board's policies, including their
response to an acquisition proposal.
64. Moreover, while the Defendant Directors 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 Defendant Directors' 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 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
65. 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
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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).
66. The Defendant Directors 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.
67. 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, which terms are staggered.
68. 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.
69. 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
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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
70. 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
anti-takeover statute treatment and draconian lock-up provisions) as well as
their earlier adoption of the 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.
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71. 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
72. 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 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
73. Plaintiffs bring each of the causes of action reflected in
Counts One through Seven and Fourteen and Fifteen below individually and
directly. Alternatively, to the extent required by law, plaintiffs bring such
causes of action derivatively on behalf of Conrail.
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74. 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:
a. The Defendant Directors 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 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 is 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.
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d. The defendant directors' 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 bylaws,
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 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 Defendant Directors would
take action that would eliminate it.
g. Additionally, the Defendant Directors have acted
fraudulently, in that they intentionally have failed to disclose the plain
illegality of their conduct.
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h. There exists no reasonable prospect that the Defendant
Directors 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 Defendant Directors would
certainly not commence legal proceedings to invalidate the Continuing Director
Requirement.
75. 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 Continuing
Director Requirement presents a strong prima facie case, insofar as the
Defendant Directors 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.
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76. 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)
77. Plaintiffs repeat and reallege each of the foregoing
allegations as if fully set forth in this paragraph.
78. 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.
79. In conjunction with the proposed merger, the Conrail Board
of Directors has approved, and recommended that 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.
80. The Conrail directors have publicly stated their intention
to file the amendment only if the requisite number of shares are tendered to
CSX.
81. 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.
82. Plaintiffs have no adequate remedy at law.
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COUNT TWO
(Breach of Fiduciary Duty
With Respect to the Poison Pill)
83. Plaintiffs repeat and reallege each of the foregoing
allegations as if fully set forth in this paragraph.
84. 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.
85. 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.
86. Additionally, the Conrail Board has committed itself to not
pursue any competing offer for the Company.
87. 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.
88. Plaintiffs have no adequate remedy at law.
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COUNT THREE
(Breach of Fiduciary Duty
with Respect to the Pennsylvania
Business Combinations Statute)
89. Plaintiffs repeat and reallege each of the foregoing
allegations as if fully set forth in this paragraph.
90. By approving the CSX Offer prior to its consummation, the
Defendant Directors 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.
91. By selectively and discriminately exempting the CSX
Transaction from the five-year merger ban, for the purpose of facilitating a
transaction that will provide substantial personal benefits to Conrail
management while delivering Conrail to the low bidder, the Defendant Directors
have breached their fiduciary duties of care and loyalty.
92. Plaintiffs have no adequate remedy at law.
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COUNT FOUR
(Breach of Fiduciary Duty with
Respect to the Lockup Provisions)
93. Plaintiffs repeat and reallege each of the foregoing
allegations as if fully set forth in this paragraph.
94. In conjunction with the merger agreement, the Conrail Board
has agreed to termination fees of $300 million and to the lock-up Stock Option
Agreement.
95. 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.
96. 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.
97. Plaintiffs have no adequate remedy at law.
COUNT FIVE
Declaratory Relief Against
Conrail and Defendant Directors
(The Continuing Director Requirement
Is Void Under Pennsylvania Law)
98. Plaintiffs repeat and reallege each of the foregoing
allegations as if fully set forth in this paragraph.
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99. 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.
100. Under Pennsylvania law, agreements restricting the managerial
discretion of directors are permissible only in statutory close corporations.
101. 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.
102. 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.
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103. Plaintiffs seek a declaration that the Continuing Director
Requirement is contrary to Pennsylvania statute and therefore null and void.
104. Plaintiffs have no adequate remedy at law.
COUNT SIX
Declaratory Relief Against
Conrail and Defendant Directors
(The Continuing Director Requirement
Is Void Under Conrail's Articles
of Incorporation and By-Laws)
105. Plaintiffs repeat and reallege each of the foregoing
allegations as if fully set forth in this paragraph.
106. Under Section 3.5 of Conrail's By-Laws,
The business and affairs of the Corporation
shall be managed under 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.
107. 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.
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108. 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.
109. 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.
110. Plaintiffs have no adequate remedy at law.
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COUNT SEVEN
Declaratory Relief Against
Conrail and Defendant Directors
(Adoption of the Continuing Director Requirement
Constituted A Breach of the Duty of Loyalty)
111. Plaintiffs repeat and reallege each of the foregoing
allegations as if fully set forth in this paragraph.
112. Adoption of the Continuing Director Requirement constituted a
breach of the duty of loyalty on the part of the Defendant Directors. 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 Defendant Directors 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 Defendant Directors adopted the Continuing Director Requirement without
first conducting a reasonable investigation.
113. 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
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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 Defendant Directors intended their
actions to cause Conrail's stockholders to hold such belief.
114. Plaintiffs seek a declaration that the Defendant Directors'
adoption of the Continuing Director Requirement was in violation of their
fiduciary duty and, thus, null, void and unenforceable.
115. Plaintiffs have no adequate remedy at law.
COUNT EIGHT
(Declaratory and Injunctive Relief
Against Conrail and the Defendant
Directors for Violation of Section 14(a)
of the Exchange Act and Rule 14a-9
Promulgated Thereunder)
116. Plaintiffs repeat and reallege each of the foregoing
allegations as if fully set forth in this paragraph.
117. 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).
118. Rule 14a-9 provides in pertinent part: "No solicitation
subject to this regulation shall be made by
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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 not false or
misleading . . . ." 17 C.F.R. Section 240.14a-9.
119. Conrail's Preliminary Proxy Statement contains the
misrepresentations detailed in paragraph 48 above. It also omits to disclose the
material facts detailed in paragraph 51 above.
120. 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.
121. 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.
122. Plaintiffs have no adequate remedy at law.
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COUNT NINE
(Against Defendant CSX For Violation
of Section 14(d) of the Exchange Act and
Rules Promulgated Thereunder)
123. Plaintiffs repeat and reallege each of the foregoing
allegations as if fully set forth in this paragraph.
124. 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 additional information as the Commission
may by rules and regulations prosecute . . . ." 15 U.S.C.Section 78n(d).
125. On October 16, 1996, defendant CSX filed with the SEC its
Schedule 14D-1 pursuant to Section 14(d).
126. CSX's Schedule 14D-1 contains each of the false and
misleading material misrepresentations of fact
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detailed in paragraph 49 above. Furthermore, CSX's Schedule 14D-1 omits
disclosure of the material facts detailed in paragraph 51 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.
127. 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.
128. Plaintiffs have no adequate remedy at law.
COUNT TEN
(Against Defendant Conrail For Violation
of Section 14(d) of the Exchange Act and
Rules Promulgated Thereunder)
129. Plaintiffs repeat and reallege each of the foregoing
allegations as if fully set forth in this paragraph.
130. 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
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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."
131. 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.
132. 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, Section 14(d) of the Exchange Act and
the rules and regulations promulgated thereunder.
133. Conrail made the material misrepresentations and omissions
described above intentionally and knowingly, for the purpose of fraudulently
coercing, misleading and
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manipulating Conrail's shareholders to tender their shares into the CSX Offer.
134. Plaintiffs have no adequate remedy at law.
COUNT ELEVEN
(Against Conrail and CSX for Violation
of Section 14(e) of the Exchange Act
and Rules Promulgated Thereunder)
135. Plaintiffs repeat and reallege each of the foregoing
allegations as if fully set forth in this paragraph.
136. 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).
137. 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.
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138. 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.
139. The CSX Schedule 14D-1 contains the false and misleading
material representations detailed in paragraph 49 above. The CSX Schedule 14D-1
omits disclosure of the material facts detailed in paragraph 51 above.
140. The Conrail Schedule 14D-9 contains the false and misleading
material misrepresentations detailed in paragraph 50 above. The Conrail Schedule
14D-9 omits disclosure of the material facts detailed in paragraph 51 above.
141. The Conrail Proxy Statement contains the false and misleading
material misrepresentations detailed in paragraph 48 above. The Conrail Proxy
Statement omits disclosure of the material facts detailed in paragraph 51 above.
142. 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.
143. The defendants intentionally and knowingly
made the material misrepresentations and omissions described
above, for the purpose of coercing, misleading, and
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manipulating Conrail shareholders to swiftly transfer control over Conrail to
CSX by tendering their shares in the CSX Tender Offer.
144. 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.
145. Plaintiffs have no adequate remedy at law.
COUNT TWELVE
(Against Defendants Conrail and CSX For
Civil Conspiracy To Violate Section 14
of the Exchange Act and Rules
Promulgated Thereunder)
146. Plaintiffs repeat and reallege each of the foregoing
allegations as if fully set forth in this paragraph.
147. Defendants Conrail and CSX conspires and agreed to conduct
the campaign of misinformation described in paragraphs 48 through 51 above for
the purpose of 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
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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.
148. Plaintiffs have no adequate remedy at law.
COUNT THIRTEEN
(Against Conrail for
Estoppel/Detrimental Reliance)
149. Plaintiffs repeat and reallege each of the foregoing
allegations as if fully set forth in this paragraph.
150. 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.
151. Prior to October 15, 1996, NS had justifiably relied on Mr.
LeVan's false statements and representations in refraining from making a
proposal to Conrail's Board or initiating a tender offer of its own for Conrail
shares.
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152. 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.
153. 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.
154. 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.
155. 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' ability to approve a competing tender
offer or takeover proposal, such as that made by NS, is null and void.
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156. 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.
157. Plaintiffs have no adequate remedy at law.
COUNT FOURTEEN
(Unlawful and Ultra Vires Amendment
of Conrail's Articles of Incorporation)
158. Plaintiffs repeat and reallege each of the foregoing
allegations as if fully set forth in this paragraph.
159. 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.
160. 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 Chapter 25 of the
Pennsylvania Business Corporation Law of
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1988, as amended, shall not be applicable to the Corporation."
161. The defendant directors 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.
162. 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.
163. 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
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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.
164. If the November 14, 1996 shareholder meeting is allowed to
take place and the amendment is passed, NS will suffer irreparable harm.
165. Plaintiffs have no adequate remedy at law.
COUNT FIFTEEN
Declaratory Relief Against
Conrail and Defendant Directors
(Removal of the Entire Conrail Board, Or Any One
or More of Conrail's Directors, Without Cause)
166. Plaintiffs repeat and reallege each of the foregoing
allegations as if fully set forth in this paragraph.
167. 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.
168. 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.
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169. 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.
170. 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 rights 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;
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(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; and
(g) the defendants have engaged in a civil conspiracy to
violate Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder.
B. Preliminarily and permanently enjoining the defendants,
their directors, officers, partners, 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;
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(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 rights 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 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.
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.
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E. Granting plaintiffs such other and further relief as the
court deems just and proper.
Respectfully submitted,
By: _____________________________________
Mary A. McLaughlin, Esquire
Attorney I.D. No. 24923
George G. Gordon, Esquire
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
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