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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 4
TO
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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CONRAIL INC.
(NAME OF SUBJECT COMPANY)
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CONRAIL INC.
(NAME OF PERSON(S) FILING STATEMENT)
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COMMON STOCK, PAR VALUE $1.00 PER SHARE
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
(TITLE OF CLASS OF SECURITIES)
208368 10 0
(CUSIP NUMBER OF CLASS OF SECURITIES)
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SERIES A ESOP CONVERTIBLE JUNIOR PREFERRED STOCK, WITHOUT PAR VALUE
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
(TITLE OF CLASS OF SECURITIES)
N/A
(CUSIP NUMBER OF CLASS OF SECURITIES)
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JAMES D. MCGEEHAN
CORPORATE SECRETARY
CONRAIL INC.
2001 MARKET STREET
TWO COMMERCE SQUARE
PHILADELPHIA, PENNSYLVANIA 19101
(215) 209-4000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
With a copy to:
ROBERT A. KINDLER, ESQ.
CRAVATH, SWAINE & MOORE
WORLDWIDE PLAZA
825 EIGHTH AVENUE
NEW YORK, NEW YORK 10019
(212) 474-1000
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INTRODUCTION
Conrail Inc. ("Conrail") hereby amends and supplements its
Solicitation/Recommendation Statement on Schedule 14D-9, originally filed on
October 16, 1996 and amended as of October 25, 1996, November 1, 1996 and
November 4, 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 2. TENDER OFFER OF THE BIDDER.
Item 2 of the Schedule 14D-9 is hereby amended and supplemented as follows:
On November 5, 1996, Conrail, CSX and Purchaser entered into an Amendment
(the "Amendment") to the Merger Agreement. Pursuant to the Merger Agreement (as
so amended), (i) CSX and Purchaser have increased the price per Share offered in
the Offer from $92.50 to $110, net to the seller in cash, without interest, and
have extended the expiration of the Offer to 12:00 midnight, New York City time,
on Wednesday, November 20, 1996, (ii) CSX and Purchaser have increased to $110
the price paid per Share in the Merger, to the extent 40% of the fully diluted
Shares are not purchased in the Offer and the Second CSX Offer and cash is paid
in the Merger, (iii) at any time prior to 11 business days before the then
scheduled expiration date of the Offer if the Articles Amendment is then
effective, CSX may (and at the request of Conrail shall) increase the number of
Shares to which the Offer applies to 40% of the fully diluted Shares, (iv) at
any time following seven business days after the consummation of the Offer, if
CSX does not yet own 40% of the fully diluted Shares (excluding Shares that
would be outstanding upon exercise of the Conrail Stock Option), CSX may (and at
the request of Conrail shall) make a second tender offer (conditioned on the
Articles Amendment becoming effective) for an additional number of Shares (the
"Second CSX Offer") at a price at least equal to $110 per Share and otherwise on
terms and conditions no less favorable to shareholders than the terms and
conditions of the Offer, such that the Shares acquired in such Second CSX Offer,
together with the Shares acquired in the Offer, will equal 40% of the fully
diluted Shares and (v) Conrail shall merge with and into Purchaser in the
Merger, such that each Share would be exchanged for 1.85619 CSX shares (the
"Exchange Ratio") (all the foregoing transactions, the "CSX Transactions").
Under the terms of the Merger Agreement, upon the effective time of the Merger
(the "Effective Time"), the headquarters of CSX will be relocated to
Philadelphia, Pennsylvania, CSX will be renamed with a new, neutral name
("Parent") and one half of the Board of Directors of Parent and each committee
thereof will consist of persons appointed by Conrail. In addition, as of the
Effective Time, Mr. David M. LeVan, presently the Chairman of the Board,
President and Chief Executive Officer of Conrail, will become the Chief
Operating Officer and President of Parent and the Chief Executive Officer and
President of each of Parent's railroad businesses, and, no later than the second
anniversary of the Effective Time, the Chief Executive Officer of Parent and, no
later than the fourth anniversary of the Effective Time, the Chairman of the
Board of Parent.
Pursuant to the Amendment, CSX agreed to increase the price it would offer
to pay for Shares tendered in the Offer, the Second CSX Offer, if applicable,
and the Merger, if applicable, to $110 per Share, and agreed to a provision
prohibiting CSX and Conrail or any of their subsidiaries or any of their
directors, officers, employees, investment bankers, financial advisors,
attorneys, accountants or other representatives, during the term of the Merger
Agreement, from, directly or indirectly through another person, participating in
any conversations, discussions or negotiations, or entering into any agreement,
arrangement or understanding, with any other railroad with respect to the
acquisition of the assets or securities of Conrail or CSX or their subsidiaries
by, or the granting of trackage rights or other concessions relating to the
assets of Conrail or CSX or their subsidiaries to, any other railroad, other
than with respect to sales, leases, licenses, mortgages or other disposals by
either party of its assets or properties (but not those of the other party and
its subsidiaries) made in the ordinary course of business consistent with past
practice. Notwithstanding the foregoing, Conrail and CSX are permitted to engage
in conversations, discussions and negotiations with other railroads to the
extent reasonably necessary or reasonably advisable to obtain regulatory
approval of the CSX Transactions and so long as (i) representatives of CSX and
Conrail are both present at any such conversation, discussion or
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negotiation, (ii) the general subject matter of any such conversation,
discussion or negotiation shall have been agreed to in advance by Conrail and
CSX and (iii) Conrail, CSX and such other company shall have previously agreed
to appropriate confidentiality arrangements. The foregoing "no third party
discussion" provision will terminate and be of no further force and effect
immediately upon any exercise by either Conrail or CSX of its rights to provide
information or enter into discussions with a third party to the extent the Board
of Directors determines that such action is required by its fiduciary duties, in
accordance with the terms and subject to the conditions of the Merger Agreement.
Under the Amendment, Conrail agreed to extend from April 13, 1997 to July
12, 1997 the period of time during which the Board of Directors of Conrail (the
"Conrail Board") is prohibited from (i) withdrawing or modifying, or publicly
proposing to withdraw or modify, its approval or recommendation of the CSX
Transactions, in a manner adverse to CSX, (ii) approving or recommending, or
publicly proposing to approve or recommend, any competing proposal or (iii)
causing Conrail to enter into any agreement related to any such competing
proposal.
Under the Merger Agreement, CSX has the right to unilaterally increase the
price offered in the Offer or the Second CSX Offer, if applicable, or the
percentage of Shares covered thereby (without in any case making any change in
the consideration per Share payable in the Merger), subject to the obligation to
cause such offer to remain open for 10 business days following the date any such
change is publicly announced. Under the Merger Agreement, however, CSX cannot
change the consideration payable in the Merger without the consent of Conrail.
Shareholders should be aware that if Conrail shareholders approve the
Articles Amendment at the special meeting of shareholders (the "Pennsylvania
Special Meeting"), CSX would be able to purchase more than 19.9% of the Shares
in a tender offer or other transaction (such as the Second CSX Offer) without
all holders of Shares having the right to put their Shares to CSX for at least
$110 in cash. As a result, if the Articles Amendment is approved, and if CSX is
able to acquire 40% of the fully diluted Shares through the Offer and the Second
CSX Offer, if applicable, the approval of the Merger by a majority of votes cast
at a special meeting of the holders of Shares will be virtually certain.
In addition, the Merger Agreement provides that CSX may exercise its option
to purchase 15,955,477 shares of Common Stock (the "CSX Option") pursuant to the
Conrail Stock Option Agreement, dated as of October 14, 1996, between CSX and
Conrail, if CSX consummates the Offer or if the Merger Agreement is terminated
and CSX is entitled to receive the break-up fees provided for in the Merger
Agreement. If CSX acquires 40% of the Shares through the Offer and the Second
CSX Offer, if applicable, and exercises the CSX Option, CSX, through a voting
trust created for this purpose (the "Voting Trust"), will then hold
approximately 50% of the Shares and will cast its votes to approve the Merger,
which number of votes will be sufficient to approve the Merger regardless of the
votes of other shareholders. Therefore, approval of the Articles Amendment would
assure that the Merger will be approved by Conrail's shareholders if sufficient
Shares are tendered in the Offer and the Second CSX Offer, if applicable, and
the CSX Option is exercised. Moreover, if CSX consummates only the Offer by
acquiring 19.9% of the Shares and then exercises the CSX Option, CSX will then
own approximately 30% of the fully diluted Shares and will have a large portion
of the voting power of the Shares to vote in favor of the Merger. Furthermore,
because the record date for the Pennsylvania Special Meeting has been designated
for a date occurring after the scheduled expiration of the Offer, if CSX
acquires 19.9% of the Shares pursuant to the CSX Offer, the Shares so acquired
by CSX will be voted by the Voting Trust at the Pennsylvania Special Meeting in
favor of the Articles Amendment. In such case, a significant portion of the
votes at the Pennsylvania Special Meeting will be committed to vote in favor of
the Articles Amendment.
Shareholders should also be aware that shareholders may decide to tender
their Shares to CSX in the Offer and the Second CSX Offer, if applicable (even
if they believe that the tender offer of Norfolk Southern Corporation
("Norfolk") and proposed merger with a subsidiary of Norfolk (the "Proposed
Norfolk Transactions"), if they could be effected, would have a higher value to
shareholders than the CSX Transactions), because shareholders may conclude that
sufficient Shares will be tendered by other shareholders and that failure to
tender will result in the non-tendering shareholders receiving only CSX shares
which,
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based on current market prices, have a per Share value that is significantly
less that the $110 per Share being offered in the Offer and the Second CSX
Offer, if applicable. Therefore, the Offer and the Second CSX Offer, if
applicable, may succeed regardless of the perceived relative values of the CSX
Transactions and the Proposed Norfolk Transactions. As of the close of business
on November 5, 1996, the closing market price for CSX shares on the New York
Stock Exchange Composite Tape was $44 7/8.
The terms and conditions of the Offer and the Merger Agreement are
described under the captions "TERMS OF THE OFFER; PRORATION; EXPIRATION DATE"
and "MERGER AGREEMENT; OTHER AGREEMENTS" in the Offer to Purchase, as
supplemented by the Supplement to the Offer to Purchase dated November 6, 1996
(the "Supplement"), a copy which is filed as Exhibit (a)(11) hereto and is
incorporated herein by reference. The foregoing summary description is qualified
in its entirety by reference to Exhibits (a)(1) and (a)(11).
On October 23, 1996, Norfolk announced the Proposed Norfolk Transactions in
which Norfolk offered to purchase all of the outstanding Shares for $100 per
share in cash. Several of the conditions to the Proposed Norfolk Transactions
can be satisfied only through action by the Conrail Board, which, pursuant to
the Merger Agreement, the Conrail Board has agreed not to take until at least
July 12, 1997.
On November 6, 1996, Conrail announced that the special meeting of the
Conrail shareholders (the "Pennsylvania Special Meeting") to seek approval of an
amendment to subchapter E of Chapter 25 of the PBCL (the "Articles Amendment")
has been canceled, and a new record date of December 5, 1996 has been set for
the next Pennsylvania Special Meeting. In connection with the Pennsylvania
Special Meeting, Conrail intends to solicit proxies in favor of the Articles
Amendment. Conrail believes that Norfolk intends to solicit proxies opposing the
Articles Amendment. Pursuant to the Amendment, Conrail will file the Articles
Amendment with the Pennsylvania Department of State as promptly as practicable
following approval thereof. The Amendment also provides that Conrail will not
convene, adjourn or postpone the Pennsylvania Special Meeting without CSX's
prior consent (not to be unreasonably withheld).
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
Item 4 is hereby amended and supplemented as follows:
(a) Recommendations of the Board of Directors.
THE CONRAIL BOARD CONTINUES TO BELIEVE THAT A MERGER OF EQUALS WITH CSX IS
IN THE BEST INTERESTS OF CONRAIL; THE CONRAIL BOARD BELIEVES THAT THE AMENDED
TERMS OF THE MERGER AGREEMENT REPRESENT A SIGNIFICANT IMPROVEMENT OVER THE
ORIGINAL TERMS OF THE CSX TRANSACTIONS.
At a meeting held on November 5, 1996, the Conrail Board, including the
disinterested members of the Conrail Board, unanimously (i) determined that the
terms of the Proposed Norfolk Transactions are not in the best interests of
Conrail (taking into account the Conrail constituencies affected by such
proposed transactions, the short-term and long-term interests of Conrail, the
resources, intent and conduct (past, stated and potential) of any person seeking
to acquire control of Conrail, and all other pertinent factors); and (ii)
recommended that the shareholders of Conrail reject the Norfolk tender offer
(the "Norfolk Offer") and not tender their Shares pursuant to the Norfolk Offer.
ACCORDINGLY, THE CONRAIL BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF
CONRAIL NOT TENDER THEIR SHARES PURSUANT TO THE NORFOLK OFFER.
The Conrail Board, including the disinterested members of the Conrail
Board, also unanimously reaffirmed its determination that the terms of the
Merger Agreement (as amended) are in the best interests of Conrail (taking into
account all the Conrail constituencies affected by such proposed transactions,
the short-term and long-term interests of Conrail, the resources, intent and
conduct (past, stated and potential) of any person seeking to acquire control of
Conrail, and all other pertinent factors). ACCORDINGLY, THE CONRAIL BOARD
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF CONRAIL WHO DESIRE TO RECEIVE
CASH FOR THEIR SHARES TENDER THEIR SHARES PURSUANT TO THE OFFER AND THE SECOND
CSX OFFER, IF APPLICABLE.
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The Conrail Board continues to recommend that shareholders tender their
Shares pursuant to the Offer and the Second CSX Offer, if applicable, because it
has determined that the CSX Transactions are in the best interests of Conrail.
The value to be received by Conrail's shareholders pursuant to the original
terms of the CSX Transactions was at the high-end of what has been in other
railroad business combinations. Under the amended terms of the CSX Transactions,
the aggregate amount of cash to be received by the Conrail shareholders has been
increased by approximately $650 million.
The Proposed Norfolk Transactions cannot, however, be consummated at the
present time because they are conditioned on certain actions by the Conrail
Board, which actions the Conrail Board has agreed under the Merger Agreement not
to take until after July 12, 1997. In addition, on and after July 12, 1997, the
CSX Merger Agreement provides that certain conditions must be satisfied in order
for the Conrail Board to take any such action and, in any event, the Conrail
Board has no obligation under the PBCL to agree to or recommend any takeover
proposal (such as the Proposed Norfolk Transactions) or to take any such action
to facilitate any such takeover proposal.
Copies of a press release announcing the Conrail Board's determinations,
and a letter to the shareholders of Conrail communicating the Conrail Board's
recommendations are filed as Exhibits (a) (12) and (a) (13) hereto,
respectively, and are incorporated herein by reference.
(b)(1) Background.
The information contained under the caption "BACKGROUND OF THE OFFER SINCE
OCTOBER 16, 1996; CONTRACTS WITH THE COMPANY" in the Supplement is incorporated
herein by reference.
(2) Reasons for Recommendation.
In making the determinations and recommendations set forth above in Section
(a) of this Item 4, the Conrail Board considered a number of factors, including,
without limitation, the following:
(i) The factors which led the Conrail Board to recommend the original
CSX tender offer (the "Original CSX Offer") and the terms of the Merger
Agreement at the Conrail Board meeting held on October 14, 1996, including,
without limitation, the following:
(A) the historical and recent market prices of the Shares and the
fact that the Original CSX Offer and the Merger will enable
shareholders to realize a significant premium over the prices at
which the Shares traded prior to execution of the Merger
Agreement, and that the Offer (as amended) will enable
shareholders to realize an even greater premium than in the
Original CSX Offer;
(B) the receipt by the Conrail Board of fairness opinions of Lazard
Freres & Co. LLC ("Lazard Freres") and Morgan Stanley & Co.
Incorporated ("Morgan Stanley"), dated October 14, 1996, to the
effect that the consideration to be received by Conrail's
shareholders in the Original CSX Offer and the Merger, taken
together, is fair to such shareholders from a financial point of
view, and dated November 5, 1996, to the effect that the
consideration to be received by Conrail's shareholders in the
Offer (as amended) and the Merger, taken together, is also fair
to such shareholders from a financial point of view. In rendering
their respective fairness opinions, based on the factors
described therein and at the request of counsel for the Conrail
Board, neither Lazard Freres nor Morgan Stanley addressed the
relative merits of the CSX Transactions, the Proposed Norfolk
Transactions and any alternative potential transactions (copies
of such opinions setting forth assumptions made and matters
considered by Lazard Freres and Morgan Stanley are filed as
Exhibits (a)(14) and (a)(15), respectively, and should be read in
their entirety);
(C) the Conrail Board's duties under Pennsylvania law to act in the
best interests of Conrail, and that under such law the Conrail
Board may consider (a) the interests of all constituencies,
including shareholders, employees, suppliers, customers and
creditors, as well as communities in which Conrail has
operations, (b) the short-term and long-term
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interests of Conrail, (c) the resources, intent and conduct
(past, stated and potential) of any person seeking to acquire
control of Conrail and (d) all other pertinent factors;
(D) the Conrail Board's view that the transactions contemplated by
the Merger Agreement would result in significant efficiencies,
operating benefits and commercial and other synergies that would
better benefit Conrail and its customers and be more in the
public interest than would combinations with other railroads,
such as Norfolk, and that Conrail's shareholders would also
benefit greatly from such efficiencies, benefits and synergies
through their significant continued interest in the combined
company following the Merger;
(E) the Conrail Board's view that the benefits, efficiencies and
synergies in the Merger would better meet the needs of Conrail's
constituencies than would other combinations with other
railroads, such as Norfolk;
(F) the benefits that the Merger would provide to the customers of
Conrail and CSX, including by providing them with the benefits of
efficient high-quality service from a more comprehensive rail
system with more points of origin and more new single-line and
integrated transportation services, and with a railroad company
with the financial strength to support substantial capital
investment in the railroad system;
(G) the benefits that the Merger would provide to the public through
increased safety and improved air quality due to, among other
things, the resulting improvements in the principal alternative
to truck movement over heavily-congested highways;
(H) the benefits provided generally to the communities served by
Conrail, and particularly to local communities in Pennsylvania,
including through maintaining the headquarters of the combined
company in Philadelphia;
(I) the fact that the Merger, while providing a significant premium
to Conrail's shareholders, has been structured as a true
merger-of-equals transaction in which 50% of the Board, and each
Board committee, of Parent would be designated by Conrail; and
(J) Mr. LeVan being named as the President and Chief Operating
Officer of Parent and the President and Chief Executive Officer
of the railroads, and the fact that he is to become Chief
Executive Officer of Parent two years after the Effective Time
and Chairman of the Board of Parent four years after the
Effective Time.
(ii) The view of the Conrail Board that a strategic combination with
CSX remains in the best interests of Conrail, notwithstanding the
commencement of the Norfolk Offer, and that the terms of the Offer (as
amended) are fair from a financial point of view and more favorable to
shareholders than the terms of the Original CSX Offer.
(iii) The Conrail Board's recognition that the near-term trading price
for the Shares, if the Norfolk Offer could be effected, would likely be
higher than the near-term trading price for the Shares that would result
from the CSX Transactions.
(iv) The fact that the CSX shares to be received by the shareholders
in the CSX Transactions would provide the shareholders with the opportunity
to participate in the long-term benefits which in the view of the Conrail
Board are likely to be realized from the CSX Transactions.
(v) The fact that several of the conditions to the Norfolk Offer can
only be satisfied if the Conrail Board takes certain actions, which as
described above the Conrail Board agreed not to take until April 13, 1997
under the original Merger Agreement Amendment (and agreed not to take until
July 12, 1997 under the Amendment) and thereafter only if certain
conditions are satisfied.
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ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Item 5 of the Schedule 14D-9 is hereby amended and supplemented as follows:
Lazard Freres and Morgan Stanley have been retained by the Conrail Board to
act as financial advisors to Conrail with respect to the transactions
contemplated by the Merger Agreement. Pursuant to an engagement letter with
Lazard Freres, Conrail has agreed to pay Lazard Freres for its services a cash
fee equal to .17% of the aggregate consideration received by the holders of
Shares, $2,750,000 of which is payable upon the execution of the Merger
Agreement, $3,750,000 of which is payable upon the receipt of the requisite
approvals of the shareholders of Conrail and CSX and the balance of which is
payable at the Effective Time. Pursuant to an engagement letter with Morgan
Stanley, Conrail has agreed to pay Morgan Stanley for its services a cash fee
equal to .13% of the aggregate consideration received by holders of Shares,
$2,000,000 of which was payable at the time the Merger Agreement was executed,
$2,750,000 of which is payable on the date of a Conrail shareholder vote in
favor of the Merger and the balance of which is payable at the Effective Time.
Conrail has also agreed to pay Lazard Freres and Morgan Stanley for their
usual and customary expenses, including the fees of counsel, and to indemnify
Lazard Freres and Morgan Stanley against certain liabilities.
Conrail has retained D.F. King & Co., Inc. ("D.F. King") to assist Conrail
in connection with its communications with its shareholders with respect to, and
to provide other services to Conrail in connection with, the Pennsylvania
Special Meeting, the special meeting relating to the approval of the Merger and
the Merger Agreement and the Proposed Norfolk Transactions. D.F. King will
receive reasonable and customary compensation in connection with the services
provided by it, and reimbursement of out-of-pocket expenses in connection
therewith. Conrail has agreed to indemnify D.F. King against certain liabilities
arising out of or in connection with its engagement.
Conrail has retained Abernathy, MacGregor Scanlon ("Abernathy") as its
public relations advisor in connection with the CSX Transactions and the
Proposed Norfolk Transactions. Abernathy will receive reasonable and customary
compensation for its services and reimbursement of out-of-pocket expenses in
connection therewith. Conrail has agreed to indemnify Abernathy against certain
liabilities arising out of or in connection with its engagement.
Neither Conrail nor any person acting on its behalf currently intends to
employ, retain or compensate any other person to make solicitations or
recommendations to shareholders on its behalf concerning the CSX Transactions or
the Proposed Norfolk Transactions.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
Item 6 of the Schedule 14D-9 is hereby amended and supplemented by amended
and restating such item in its entirety as follows:
(a) During the past 60 days, neither Conrail nor any subsidiary of Conrail
nor, to the best of Conrail's knowledge, any executive officer, director or
affiliate of Conrail has effected a transaction in the Shares except that 2,779
shares of Preferred Stock were allocated to the ESOP accounts of certain
executive officers as of September 30, 1996. In addition, during the past 60
days, Conrail has repurchased 352,700 shares of Common Stock pursuant to its
long-standing share repurchase program.
(b) To the best of Conrail's knowledge, its executive officers and
directors currently intend to tender their Shares to Purchaser pursuant to the
Offer, other than those executive officers and directors who desire to receive
CSX shares rather than cash for their Shares.
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)(11) Supplement to the Offer to Purchase dated November 6, 1996.
(a)(12) Text of press release issued by Conrail and CSX dated November 6,
1996.
+(a)(13) Letter to shareholders dated November 6, 1996.
+(a)(14) Opinion of Lazard Freres & Co. LLC dated November 5, 1996.
+(a)(15) Opinion of Morgan Stanley & Co. Incorporated dated November 5,
1996.
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#(c)(11) First Amendment dated as of November 5, 1995 to Agreement and
Plan of Merger.
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+ Included in materials to Shareholders of Conrail.
# Filed as an exhibit to Purchaser's Amendment No. 4 to the Tender Offer
Statement on Schedule 14D-1 and incorporated herein by reference.
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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 November 6, 1996
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
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<C> <C> <S> <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........
# +(a)(11) Supplement to the Offer to Purchase dated November 6, 1996.............
(a)(12) Text of press release issued by Conrail and CSX dated November 6,
1996...................................................................
+(a)(13) Letter to shareholders dated November 6, 1996..........................
+(a)(14) Opinion of Lazard Freres & Co. LLC dated November 5, 1996..............
+(a)(15) Opinion of Morgan Stanley & Co. Incorporated dated November 5, 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.........................
*(c)(9) First Amended Complaint in Norfolk Southern et al. v. Conrail Inc., et
al., No. 96-CV-7167, filed on October 30, 1996 in the United States
District Court for the Eastern District of Pennsylvania................
*(c)(10) Resolution adopted by the Board of Directors of Conrail on November 4,
1996...................................................................
# (c)(11) First Amendment dated as of November 5, 1995 to Agreement and Plan of
Merger.................................................................
</TABLE>
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* Previously filed.
+ Included in materials to shareholders of Conrail.
# Filed as an exhibit to Purchaser's Amendment No. 4 to the Tender Offer
Statement on Schedule 14D-1 and incorporated herein by reference.
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(a)(12)
[LOGO OF CSX] [LOGO OF CONRAIL]
CONTACTS:
<TABLE>
<S> <C>
CSX CORPORATION CONRAIL INC.
THOMAS E. HOPPIN CRAIG R. MACQUEEN
(804) 782-1450 (215) 209-4594
KEKST AND COMPANY ABERNATHY MACGREGOR GROUP
RICHARD WOLFF JOELE FRANK/DAN KATCHER
(212) 593-2655 (212) 371-5999
</TABLE>
FOR IMMEDIATE RELEASE
CSX AND CONRAIL AMEND MERGER AGREEMENT
CSX RAISES CASH PORTION OF ITS AGREEMENT WITH CONRAIL TO $110 PER CONRAIL SHARE
CONRAIL BOARD UNANIMOUSLY APPROVES CSX AMENDED OFFER
CONRAIL BOARD UNANIMOUSLY REJECTS NORFOLK SOUTHERN'S OFFER
Richmond, Va., and Philadelphia, Pa., Nov. 6, 1996--CSX Corporation [NYSE: CSX]
and Conrail Inc. [NYSE: CRR] today announced that they have amended the terms of
their merger agreement. Under the revised terms, CSX has raised the cash portion
of its offer to $110 per Conrail share.
Conrail also announced that its board of directors carefully considered the
relative merits of a merger with Norfolk Southern rather than with CSX, and
unanimously reaffirmed that a merger with CSX is in Conrail's best interest and
is the superior strategic combination for Conrail. The Conrail board determined
that a transaction with Norfolk Southern is not in the best interest of Conrail
and its constituencies.
David M. LeVan, chairman, president and chief executive officer of Conrail,
said, "Our two companies have now agreed to significantly increase the value to
be received by the Conrail shareholders, and Conrail's other constituencies will
continue to get tremendous benefits resulting from the CSX merger.
"On Oct. 14, 1996, the Conrail board unanimously approved a merger of equals
with CSX to create one of the world's leading transportation and logistics
companies," Mr. LeVan continued. "That transaction provided value to our
shareholders at the high-end of what has been paid in other railroad mergers,
and it clearly was and is in the best interests of Conrail and its
constituencies. Before approving that merger, we carefully considered the
relative merits of a merger with Norfolk Southern rather than with CSX, and
we unanimously determined that a merger with CSX was in Conrail's best interest
and was the superior
<PAGE> 2
strategic combination for Conrail. In making that decision we were fully aware
that Norfolk Southern had expressed an interest in acquiring Conrail. We have
now reaffirmed that decision."
John W. Snow, CSX chairman, president and chief executive officer, said, "Our
decision to increase the cash portion of the offer not only reflects CSX's
commitment to completing the transaction, but also accounts for the increased
value we have determined will be realized through the merger. Further analysis
by our management team, working with its counterpart at Conrail, has identified
at least $730 million in synergies and cost savings, $180 million more than
originally anticipated.
"Following the combination of our two companies, we expect immediate net traffic
benefits of about $165 million and cost savings totaling approximately $565
million," continued Mr. Snow. "Importantly, we will realize these benefits
rapidly by working closely together. This is especially significant since
Conrail shareholders who receive CSX shares as consideration for their shares,
will benefit from what we expect will be a substantial increase in the value of
those shares.
"Furthermore, it is apparent that the merger between CSX and Conrail will
produce signification public policy benefits. The service and pricing advantages
we will offer shippers will reduce truck traffic along the now congested
interstate corridors throughout the region. We also will be able to provide a
safer, more reliable operating environment for passenger services. Only the
CSX/Conrail combination offers so many significant benefits to customers and the
greater public," Mr. Snow added.
"The hostile Norfolk Southern bid is burdened with a series of significant
conditions. Given all the obstacles in the path of Norfolk Southern's bid,
Conrail shareholders would have to wait a prolonged amount of time to receive
payment for their shares. Meanwhile, the CSX/Conrail combination offers an
immediate opportunity to move forward together creating real, substantive value
for both Conrail and CSX shareholders.
"The merger of CSX and Conrail is driven by a compelling logic. Together, CSX
and Conrail will create the leading global freight transportation and logistics
management company and provide dramatically improved rail service to our
customers east of the Mississippi. Shippers and receivers throughout the region
will benefit from significantly enhanced competition, much better service and
more competitive pricing. Our combined railroad will grow significantly and
operate with maximum efficiency," Mr. Snow said.
"Clearly, the combination of CSX and Conrail provides the best overall package
of benefits to our constituencies, including customers, the communities we
serve, and the public-at-large. We welcome the strong support of the Conrail
board of directors and look forward to a bright future as our new company moves
full speed into the 21st Century," concluded Mr. Snow.
The significant amendments to the CSX/Conrail merger agreement include:
- - The increase of the cash portion of the transaction to $110 per Conrail share.
The structure of the proposed merger will remain the same: 40 percent of the
fully diluted shares of Conrail's common stock and ESOP preferred stock will
be acquired at the new price and the remaining 60 percent will be exchanged
for CSX stock at the originally agreed-upon exchange ratio of 1.85619 CSX
shares for each Conrail share;
- - An extension by three months of the period of time during which the Conrail
board of directors cannot withdraw its support of the merger agreement or
agree to any competing transaction. As now extended, such provisions will run
until July 12, 1997; and
- - Neither party will engage in discussions or enter into any agreement with
other railroad companies (including Norfolk Southern) relating to trackage
rights or other concessions without the participation and agreement of the
other party.
Additionally, the Conrail Shareholders Meeting scheduled for Nov. 14 has been
canceled. The record date for a new shareholders meeting has been set at Dec. 5,
1996, and the shareholder meeting is
<PAGE> 3
expected to be held in mid-December.
CSX's tender offer of $110 per Conrail share is for an aggregate of about 17.9
million shares of Conrail common stock and ESOP preferred stock, or
approximately 19.9 percent of the Conrail outstanding voting stock. The offer is
subject to certain customary conditions.
Under the terms of the CSX offer, as amended, the tender offer's expiration date
and withdrawal and proration rights are extended until Midnight EST, Nov. 20,
1996. As of the close of business on Nov. 5, 1996, 56,634 Conrail shares had
been tendered pursuant to the CSX offer.
CSX Corporation, headquartered in Richmond, Va., is an international
transportation company offering a variety of rail, container-shipping,
intermodal, trucking, barge and contract logistics management services.
Conrail, with corporate headquarters in Philadelphia, Pa., operates an
11,000-mile rail freight network in 12 northeastern and midwestern states, the
District of Columbia, and the Province of Quebec.
Attached is a fact sheet on the CSX/Conrail merger of equals, and additional
information regarding this announcement can be found on the companies' Web sites
on the Internet. CSX's home page can be reached at http://www.CSX.com. Conrail's
home page can be reached at http://www.CONRAIL.com.
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FAST FACTS REGARDING THE CSX - CONRAIL MERGER
- The proposed CSX/CRR merger of equals will create a powerful strategic
alliance, the leading transportation company in the world with more than
$14 billion in revenue and operations serving more than 80 countries
around the globe.
- In addition to the railroad, the new company will include the nation's
largest container-shipping (Sea-Land Services) and barging (American
Commercial Barge Line) companies, its only full-service, coast-to-coast
intermodal company (CSX Intermodal) and one of the foremost contract
logistics management companies (Customized Transportation Services) in the
world.
- For employees and the communities within which they work and live, the
CSX/CRR merger of equals offers the combination of companies with
complementary business mixes, common corporation strategies and compatible
corporate cultures.
- CSX/CRR has agreed to locating the corporate headquarters of the new
company in Philadelphia; to leaving the operating headquarters of the CSXT
and Conrail rail companies in Jacksonville and Philadelphia for the
foreseeable future; to a board comprised of an equal number of directors
from each company; and to a defined succession plan that insures the
management and employees, shareholders, customers and communities served
by both companies will have powerful roles and strong voices in the future
of the company.
- For shareholders, the CSX/CRR merger of equals offers ownership of an
international transportation company with the scale and efficiency at home
and abroad to compete effectively and generate attractive returns well
into the 21st Century.
- For customers, the CSX/CRR combination provides a 29,000 route mile rail
system that would span 22 states and offer vastly improved service to
virtually all major markets east of the Mississippi. Such a system will
provide the highest quality service to customers as a result of faster,
more reliable service, shorter routes, an improved cost structure, better
equipment supply and utilization and more single-line service.
- The proposed CSX/CRR merger of equals allows realization of public policy
benefits that cannot be accomplished through any other combination.
<PAGE> 4
- More passenger trains will use the combined CSX/CRR rail system than
any other in the United States. These include not only Amtrak's, but
also those operated by commuter services in Boston, New York,
Philadelphia, Baltimore and Washington. Freight and passenger trains
currently share the same tracks in these areas. Improved coordination,
scheduling and operation of freight and passenger services will reduce
delays and improve safety and service for passengers. Similar options
may exist in other parts of the combined system in the future as
hard-pressed urban planners increasingly turn to rail transportation
to relieve highway congestion, save scarce public resources and
improve air quality.
- The proposed CSX/CRR merger of equals offers improved rail competition
to Northeast and Midwest markets and an opportunity to improve the
social and economic benefits of the entire transportation
infrastructure of the region through increased, more effective
competition with the trucking industry and through additional
intermodal cooperation.
CSX's internet address is http://www.csx.com
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<PAGE> 1
(a)(13)
CONRAIL LOGO
November 6, 1996
Dear Shareholders:
I am pleased to inform you that Conrail Inc. and CSX Corporation have
agreed to significantly increase the value to be received by the Conrail
shareholders in the CSX tender offer. In the transaction, 40% of the shares of
Conrail common stock and ESOP preferred stock would be acquired for cash at a
new price of $110 per share (instead of the original price of $92.50 per share),
and the remaining 60% would be acquired for CSX stock at the originally agreed
upon exchange ratio of 1.85619 CSX shares for each Conrail share.
On October 14, 1996, the Conrail Board of Directors unanimously approved a
merger of equals with CSX to create one of the world's leading transportation
and logistics companies. That transaction provided value to our shareholders at
the high-end of what has been paid in other railroad mergers, and it clearly was
and is in the best interests of Conrail and its constituencies. Before approving
that merger, we carefully considered the relative merits of a merger with
Norfolk Southern Corporation rather than with CSX, and we unanimously determined
that a merger with CSX was in Conrail's best interest and was the superior
strategic combination for Conrail. We have now reaffirmed that decision.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE CSX TENDER OFFER AND
MERGER AND RECOMMENDS THAT CONRAIL SHAREHOLDERS WHO DESIRE TO RECEIVE CASH FOR
THEIR SHARES ACCEPT THE CSX TENDER OFFER AND TENDER THEIR SHARES IN SUCH OFFER.
YOUR BOARD OF DIRECTORS HAS ALSO UNANIMOUSLY REJECTED THE UNSOLICITED NORFOLK
TENDER OFFER AND RECOMMENDS THAT CONRAIL SHAREHOLDERS REJECT THE NORFOLK TENDER
OFFER.
The enclosed Supplement to the Offer to Purchase prepared by CSX and the
Amendment to the Schedule 14D-9 prepared by Conrail describe the terms of the
revised CSX tender offer. You will also be receiving a Schedule 14D-9 containing
the Conrail Board of Directors' rejection of the Norfolk tender offer. I urge
you to consider all such information carefully.
Sincerely,
David M. LeVan
David M. LeVan
Chairman, President and
Chief Executive Officer
<PAGE> 1
(a)(14)
[LETTERHEAD OF LAZARD FRERES]
November 5, 1996
The Board of Directors
Conrail Inc.
2001 Market Street
Philadelphia, PA 19103
Dear Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of shares of Common Stock, par value $1 per share
("Common Stock"), and of Series A ESOP Convertible Preferred Stock (such
Preferred Stock together with the Common Stock is referred to as the "Shares")
of Conrail Inc. (the "Company") of the consideration to be received in a series
of transactions (collectively, the "Transactions") pursuant to the Agreement and
Plan of Merger among the Company, CSX Corporation ("CSX") and Green Acquisition
Corp. ("Tender Sub"), dated as of October 14, 1996, as amended as of November 5,
1996 (the "Merger Agreement"). The terms of the Merger Agreement provide, among
other things, that (i) Tender Sub promptly will offer to purchase (the "Offer")
up to 19.9% of the outstanding Shares at a price of $110.00 per share net in
cash (the "Offer Consideration"); provided that if certain conditions are
satisfied, the Offer would be increased to up to a number of Shares (the
"Designated Number") equal to 40% of the fully diluted Shares excluding the
Option Shares referred to below (the "Fully Diluted Shares") and (ii) following
the consummation of the Offer, subject to, among other things, the favorable
required vote of holders of Shares, Tender Sub will merge (the "Merger") with
the Company, and each remaining outstanding Share (other than Shares owned by
the Company as treasury stock or owned by CSX, Tender Sub or any other
subsidiary of CSX and other than Shares held by holders who properly exercise
and perfect dissenter's rights, if any) will be converted into the right to
receive (the "Merger Consideration") 1.85619 shares (the "Exchange Shares") of
Common Stock of CSX, par value $1.00 per share ("CSX Common Stock"); provided
that if less than the Designated Number of Shares is purchased pursuant to the
Offer, the Merger Consideration will be adjusted so that when taken together
with the Offer, 60 percent of the Fully Diluted Shares will each have been
converted into the right to receive the Exchange Shares and 40 percent of the
Fully Diluted Shares
<PAGE> 2
will have received or been converted into the right to receive an amount of cash
equal to the Offer Consideration. The Offer Consideration and the Merger
Consideration are collectively referred to herein as the "Consideration."
In connection with the rendering of this opinion, we have:
(i) Reviewed the terms and conditions of the Merger Agreement and
the financial terms of the Transactions, all as set forth in the Merger
Agreement, and the option agreement between Company and CSX pursuant to
which CSX shall be granted the right to purchase shares of Common Stock
(the "Option Shares") and the option agreement between CSX and the Company
pursuant to which the Company shall be granted the right to purchase
shares of CSX Common Stock, each dated October 14, 1996 (collectively, the
"Option Agreements");
(ii) Analyzed certain historical business and financial information
relating to the Company and CSX;
(iii) Reviewed certain financial forecasts and other data provided
to us by the Company and CSX relating to the businesses of the Company and
CSX, respectively, including the most recent business plan for the Company
prepared by the Company's senior management, in the form furnished to us;
(iv) Conducted discussions with members of the senior managements of
the Company and CSX with respect to the businesses and prospects of the
Company and CSX, respectively, the strategic objectives of each and
possible benefits which might be realized following the Merger;
(v) Reviewed public information with respect to certain other
companies in the lines of businesses we believe to be generally comparable
in whole or in part to the businesses of the Company and CSX and reviewed
the financial terms of certain other business combinations involving
companies in lines of businesses we believe to be generally comparable in
whole or in part to the businesses of the Company and CSX that have
recently been effected;
(vi) Reviewed the historical stock prices and trading volumes of
Common Stock and CSX Common Stock; and
(vii) Conducted such other financial studies, analyses and
investigations as we deemed appropriate.
We have relied upon the accuracy and completeness of the foregoing
financial and other information and have not assumed any responsibility for
independent verification of such information or any independent valuation or
appraisal of any of the assets of the Company or CSX nor have we been furnished
with any
<PAGE> 3
such appraisals. With respect to financial forecasts, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of managements of the Company and CSX as to the future
financial performance of the Company and CSX, respectively. We assume no
responsibility for and express no view as to such forecasts or the assumptions
on which they are based.
Our opinion is necessarily based on economic, monetary, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.
In rendering our opinion, we have assumed that (i) the Transactions
will be consummated substantially on the terms described in the Merger
Agreement, without any waiver of any material terms or conditions by any party
thereto, and that obtaining the necessary regulatory approvals for the
Transactions will not have an adverse effect on CSX or the Company or on the
trading value of CSX Common Stock and (ii) the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended. We were not requested to, and did not, solicit third party
offers to acquire all or any part of the Company.
We are acting as financial advisor to the Company's Board of
Directors in connection with the Transactions and will receive fees for such
services, a substantial portion of which fees are contingent upon the
consummation of the Transactions. Our Firm has in the past provided and is
currently providing investment banking and financial advisory services to the
Company and has received customary fees for rendering such services. Our Firm
has in the past also provided investment banking and financial advisory services
to CSX and has received customary fees for rendering such services.
Our engagement and the opinion expressed herein are for the benefit
of the Company's Board of Directors and our opinion is rendered in connection
with its consideration of the Transactions. This opinion is not intended to and
does not constitute a recommendation to any holder of Shares as to whether such
holder should tender Shares pursuant to the Offer or vote to approve the Merger
Agreement and the transactions contemplated thereby. It is understood that,
except for inclusion of this letter in its entirety in a proxy statement or
tender offer recommendation statement on Schedule 14D-9 from the Company to
holders of Shares relating to the Transactions, this letter may not be disclosed
or otherwise referred to without our prior written consent, except as may
otherwise be required by law or by a court of competent jurisdiction.
<PAGE> 4
As you know, on October 24, 1996, Norfolk Southern Corporation
commenced a tender offer (the "NSC Offer") for all of the outstanding Shares at
a price per Share of $100 net in cash. Counsel to the Company has advised the
Company's Board of Directors that the fact that the NSC Offer is subject to,
among other conditions, the termination of the Merger Agreement and that the
Company is currently contractually prohibited from terminating the Merger
Agreement creates significant legal uncertainty relating to the consummation of
the NSC Offer. Counsel to the Company has further advised the Company's Board of
Directors that, under Pennsylvania law, in considering a proposed business
combination, the Company's Board of Directors is empowered to take into account
the long-term interests of the Company and all of its constituencies, not solely
the highest price for the Company's Shares. Accordingly, at your request, in
rendering our opinion, we did not address the relative merits of the
Transactions, the NSC Offer and any alternative potential transactions.
Based on and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Consideration to be received by the holders of Shares
pursuant to the Offer and the Merger, when taken together, is fair to such
holders (other than CSX, Tender Sub or any other subsidiary of CSX), from a
financial point of view.
Very truly yours,
LAZARD FRERES & CO. LLC
By /s/ J. Robert Lovejoy
-------------------------------------
Managing Director
<PAGE> 1
(a)(15)
[MORGAN STANLEY LETTERHEAD]
November 5, 1996
Board of Directors
Conrail Inc.
2001 Market Street
Philadelphia, PA 19101-1422.
Gentlemen and Mesdames:
We understand that Conrail Inc. (the "Company"), CSX Corporation ("CSX") and
Green Acquisition Corp., a wholly owned subsidiary of CSX ("Acquisition Sub"),
have entered into an Agreement and Plan of Merger, dated as of October 14, 1996
as amended as of November 5, 1996 (the "Merger Agreement"), which provides,
among other things, for (i) the commencement by Acquisition Sub of a tender
offer (the "Offer") for 19.9% of the issued and outstanding shares of common
stock, par value $1 per share (the "Company Common Stock"), and Series A ESOP
Convertible Junior Preferred Stock (together with the Company Common Stock, the
"Shares") of the Company, for $110.00 per share net to the seller in cash (the
"Offer Consideration"), provided that if certain conditions are satisfied, the
Offer would be increased to up to a number of Shares (the "Designated Number")
equal to 40% of the fully diluted Shares, excluding the Option Shares referred
to below (the "Fully Diluted Shares") and (ii) upon the receipt of certain
shareholder and regulatory approvals, the subsequent merger (the "Merger" and
together with the Offer, the "Transactions") of the Company with and into
Acquisition Sub. Pursuant to the Merger, the Company will become a wholly owned
subsidiary of CSX and each outstanding share of the Company Common Stock, other
than shares held in treasury or held by CSX or its subsidiaries, will be
converted into the right to receive 1.85619 shares of common stock, par value
$1.00 per share (the "CSX Common Stock") of CSX (the "Stock Consideration" and
together with the Offer Consideration, the "Consideration"), provided that if
less than the Designated Number of Shares are purchased pursuant to the Offer,
the Merger Consideration will be adjusted so that when taken together with the
Offer, 60% of the Fully Diluted Shares will each have been converted into the
right to receive the Stock Consideration and 40% of the Fully Diluted Shares
will have received or been converted into the right to receive an amount of cash
equal to the Offer Consideration. The terms and conditions of the Offer and the
Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Consideration to be received by
the holders of Shares pursuant to the Offer and the Merger, taken together, is
fair from a financial point of view to such holders.
<PAGE> 2
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and
other information of the Company and CSX, respectively;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning the Company and CSX prepared by the
managements of the Company and CSX, respectively;
(iii) reviewed certain financial projections for CSX prepared by the
management of CSX;
(iv) reviewed certain financial projections, including estimates of
certain potential benefits of the proposed business combination,
prepared by the management of the Company;
(v) discussed, on a limited basis, the past and current operations and
financial condition and the prospects of the Company and CSX with
senior executives of the Company and CSX, respectively;
(vi) reviewed the reported prices and trading activity for the Company
Common Stock and the CSX Common Stock;
(vii) compared the financial performance of the Company and CSX and the
prices and trading activity of the Company Common Stock and the CSX
Common Stock with that of certain other comparable publicly-traded
companies and their securities;
(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(ix) participated in discussions among representatives of the Company,
CSX and their financial and legal advisors;
(x) reviewed the Merger Agreement and certain related documents; and
(xi) performed such other analyses and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, including estimates of
certain potential benefits of the proposed business combination, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company and CSX, respectively. We have not made any independent valuation or
appraisal of the assets or liabilities of the Company or CSX, nor have we been
furnished with any such appraisals. In arriving at our opinion, we have assumed
(i) that the
<PAGE> 3
Merger will qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended and (ii) that obtaining all the
necessary regulatory and governmental approvals for the Merger will not have an
adverse effect on the Company, CSX or on the trading value of the CSX Common
Stock. We have assumed that the Offer and the Merger will be consummated
substantially in accordance with the terms set forth in the Merger Agreement,
without any waiver of any material terms or conditions by any party thereto. Our
opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof. In
arriving at our opinion, we were not authorized to solicit, and did not solicit,
interest from any party with respect to the acquisition of the Company or any of
its assets.
We have been engaged to provide this opinion to the Board of Directors of the
Company in connection with this transaction and will receive a fee for our
services. In the past, Morgan Stanley & Co. Incorporated and its affiliates have
provided financial advisory and financing services for the Company and CSX and
have received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company with the Securities and Exchange Commission
with respect to the Offer and the Merger. In addition, we express no opinion and
make no recommendation as to whether the holders of the Company Common Stock
should tender such shares pursuant to the Offer or vote at the stockholders'
meeting held in connection with the Merger.
As you know, on October 24, 1996, Norfolk Southern Corporation commenced a
tender offer (the "NSC Offer") for all of the outstanding Shares at a price per
Share of $100 net in cash. Counsel to the Company has advised the Company's
Board of Directors that the fact that the NSC Offer is subject to, among other
conditions, the termination of the Merger Agreement and that the Company is
currently contractually prohibited from terminating the Merger Agreement creates
significant legal uncertainty relating to the consummation of the NSC Offer.
Counsel to the Company has further advised the Company's Board of Directors
that, under Pennsylvania law, in considering a proposed business combination,
the Company's Board of Directors is empowered to take into account the long-term
interests of the Company and all of its constituencies, not solely the highest
price for the Company's Shares. Accordingly, at your request, in rendering our
opinion, we did not address the relative merits of the Transactions, the NSC
Offer and any alternative potential transactions.
<PAGE> 4
Based on the foregoing, we are of the opinion on the date hereof that the
Consideration to be received by the holders of Shares pursuant to the Offer and
the Merger, taken together, is fair from a financial point of view to such
holders (other than CSX, Acquisition Sub or any other subsidiary of CSX).
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Mahmoud A. Mamdani
--------------------------------------
Mahmoud A. Mamdani
Managing Director
