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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 4
to
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
Pursuant to Section 14(d)(4)
of the Securities Exchange Act of 1934
CONRAIL INC.
(Name of Subject Company)
CONRAIL INC.
(Name of Person(s) Filing Statement)
Common Stock, par value $1.00 per share
(including the associated Common Stock Purchase Rights)
(Title of Class of Securities)
208368 10 0
(CUSIP Number of Class of Securities)
Series A ESOP Convertible Junior Preferred Stock, without par value
(including the associated Common Stock Purchase Rights)
(Title of Class of Securities)
N/A
(CUSIP Number of Class of Securities)
James D. McGeehan
Corporate Secretary
Conrail Inc.
2001 Market Street
Two Commerce Square
Philadelphia, Pennsylvania 19101
(215) 209-4000
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Person(s) Filing Statement)
With a copy to:
Robert A. Kindler, Esq.
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
(212) 474-1000
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<PAGE>
INTRODUCTION
Conrail Inc. ("Conrail") hereby amends and supplements its
Solicitation/Recommendation Statement on Schedule 14D-9, originally
filed on December 6, 1996, and amended on December 12, 1996, December
20, 1996 and January 3, 1997 (as amended, the "CSX Schedule 14D-9")
with respect to an offer by Green Acquisition Corp., a Pennsylvania
corporation ("Purchaser") and a wholly owned subsidiary of CSX
Corporation, a Virginia corporation ("CSX"), to purchase up to an
aggregate of 18,344,845 Shares of Conrail. Capitalized terms not
defined herein have the meanings assigned thereto in the CSX Schedule
14D-9.
Item 8. Additional Information to be Furnished.
Item 8 of the CSX Schedule 14D-9 is hereby amended and
supplemented by adding the following text at the end thereof:
On January 9, 1997, the United States District Court for the
Eastern District of Pennsylvania denied the motions of Norfolk and the
shareholder-plaintiffs for a preliminary injunction to invalidate the
Exclusivity Period and to enjoin the shareholder vote scheduled for
January 17, 1997, and the motion for summary judgment that CSX and
Conrail's directors and executive officers had together violated the
provisions of Subchapter 25E. On January 9, 1997, Conrail and CSX
issued a joint press release relating to the United States District
Court decision. A copy of the United States District Court's decision
and the joint press release relating thereto are attached hereto as
Exhibits (c)(12) and (a)(16), are incorporated herein by reference and
qualify the foregoing summary in its entirety.
On January 9, 1997, the STB issued a decision rejecting as
premature and unwarranted at this time Norfolk's petition challenging
the extension of the Exclusivity Period to December 31, 1998. The text
of the STB decision is attached hereto as Exhibit (c)(13), is
incorporated herein by reference and qualifies the foregoing summary
in its entirety.
CSX has filed with the Securities and Exchange Commission a
Registration Statement on Form S-4 (Registration No. 333-19523)
containing a Joint Proxy Statement/Prospectus relating to the special
meetings of shareholders with respect to the Merger, which includes,
among other things, pro forma financial statements and notes thereto
relating to the CSX Transactions.
<PAGE>
Item 9. Materials to be filed as Exhibits.
Item 9 of the CSX Schedule 14D-9 is hereby amended and
supplemented by adding the following text thereto:
(a)(16) Text of joint press release issued by Conrail and CSX
on January 9, 1997.
(c)(12) Text of opinion of Judge Donald VanArtsdalen of the
United States District Court for the Eastern District
of Pennsylvania as delivered from the bench on January
9, 1997.
(c)(13) Text of STB Decision No. 5 of STB Finance Docket No.
33220 dated January 8, 1997.
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true,
complete and correct.
CONRAIL INC.
By /s/ Timothy T. O'Toole
-----------------------
Name: Timothy T. O'Toole
Title: Senior Vice President--Finance
Dated as of January 10, 1997
<PAGE>
EXHIBIT INDEX
Exhibit Description Page No.
- ------- ----------- --------
*(a)(1) Offer to Purchase dated December 6, 1996
(incorporated by reference to Exhibit (a)(1) to
CSX's and Purchaser's Tender Offer Statement on
Schedule 14D-1 dated December 6, 1996, as
amended (the "CSX 14D-1")).........................
*(a)(2) Letter of Transmittal (incorporated by reference
to Exhibit (a)(2) to the CSX 14D-1)................
*(a)(3) Text of press release issued by CSX dated
December 6, 1996 (incorporated by reference to
Exhibit (a)(7) to the CSX 14D-1)...................
*(a)(4) Letter to shareholders of Conrail dated December 6,
1996...............................................
*(a)(5) Form of Summary Advertisement dated December 6,
1996 (incorporated by reference to Exhibit
(a)(5) to the CSX 14D-1)...........................
*(a)(6) Opinion of Lazard Freres & Co. LLC (incorporated
by reference to Exhibit (a)(14) to the
Solicitation/Recommendation Statement on Schedule
14D-9 of Conrail dated October 16, 1996, as
amended, relating to the First Offer (the "First
14D-9"))...........................................
*(a)(7) Opinion of Morgan Stanley & Co. Incorporated
(incorporated by reference to Exhibit (a)(15) to
the First 14D-9)...................................
*(a)(8) Text of press release issued by Conrail and CSX
dated December 10, 1996............................
*(a)(9) Opinion of Lazard Freres & Co. LLC dated
December 18, 1996..................................
*(a)(10) Opinion of Morgan Stanley & Co. Incorporated
dated December 18, 1996............................
*(a)(11) Supplement to the Offer to Purchase dated
December 19, 1996 (incorporated by reference to
Exhibit (a)(15) to the 14D-1)......................
*(a)(12) Text of press release issued by CSX and Conrail
dated December 19, 1996............................
<PAGE>
Exhibit Description Page No.
- ------- ----------- --------
*(a)(13) Text of press release issued by Conrail dated
December 20, 1996..................................
*(a)(14) Text of advertisement published by Conrail and
CSX on December 10, 1996...........................
*(a)(15) Text of advertisement published by Conrail and
CSX on December 12, 1996...........................
(a)(16) Text of joint press release issued by Conrail
and CSX on January 9, 1997.........................
*(c)(1) Agreement and Plan of Merger dated as of October
14, 1996 (incorporated by reference to Exhibit
(c)(1) to CSX's and Purchaser's Tender Offer
Statement on Schedule 14D-1 dated October 16,
1996, as amended, relating to the First Offer
(the "First CSX 14D-1"))...........................
*(c)(2) First Amendment to Agreement and Plan of Merger
dated as of November 5, 1996 (incorporated by
reference to Exhibit (c)(7) to the First CSX
14D-1).............................................
*(c)(3) Conrail Stock Option Agreement dated as of
October 14, 1996 (incorporated by reference to
Exhibit (c)(2) to the First CSX 14D-1).............
*(c)(4) CSX Stock Option Agreement dated as of October
14, 1996 (incorporated by reference to Exhibit
(c)(3) to the First CSX 14D-1).....................
*(c)(5) Voting Trust Agreement dated as of October 15,
1996 (incorporated by reference to Exhibit
(c)(4) to the First CSX 14D-1).....................
*(c)(6) Employment Agreement of Mr. LeVan dated as of
October 14, 1996 (incorporated by reference to
Exhibit (c)(5) to the First 14D-9).................
*(c)(7) Change of Control Agreement of Mr. LeVan dated
as of October 14, 1996 (incorporated by
reference to Exhibit (c)(6) to the First 14D-9)....
<PAGE>
Exhibit Description Page No.
- ------- ----------- --------
*(c)(8) Answer and Defenses of Conrail, CSX and the
individual defendants to Second Amended
Complaint, and Counterclaim of Conrail and CSX
in Norfolk Southern et al. v. Conrail Inc. et
al., filed on December 5, 1996, in the United
States District Court for the Eastern District
of Pennsylvania (incorporated by reference to
Exhibit (c)(8) to the Solicitation/Recommendation
Statement on Schedule 14D-9 of Conrail dated
November 6, 1996, as amended, relating to the
Norfolk Offer).....................................
*(c)(9) Pages 4-5 and 9-14 of Conrail's Proxy Statement
dated April 3, 1996 (incorporated by reference
to Exhibit (c)(7) to the First 14D-9)..............
*(c)(10) Second Amendment to Agreement and Plan of Merger
dated as of December 18, 1996 (incorporated by
reference to Exhibit (c)(6) to the 14D-1)..........
*(c)(11) Form of Amended and Restated Voting Trust
Agreement (incorporated by reference to Exhibit
(c)(7) to the 14D-1)...............................
(c)(12) Text of opinion of Judge Donald VanArtsdalen of
the United States District Court for the Eastern
District of Pennsylvania as delivered from the
bench on January 9, 1997...........................
(c)(13) Text of STB Decision No. 5 of STB Finance Docket
No. 33220 dated January 8, 1997....................
- ---------------------
* Previously filed
EXHIBIT (a)(16)
CONTACT:
CSX Conrail
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
FOR IMMEDIATE RELEASE
CSX AND CONRAIL PREVAIL
FEDERAL COURT DENIES NORFOLK SOUTHERN'S MOTION
-- CSX, Conrail Strategic Merger to Proceed as Planned --
RICHMOND, VA and PHILADELPHIA, PA, January 9, 1997 -- CSX
Corporation (CSX) (NYSE: CSX) and Conrail Inc. (Conrail) (NYSE: CRR)
said today that they are pleased with the decision by the United
States District Court for the Eastern District of Pennsylvania
rejecting Norfolk Southern's motion for a preliminary injunction to
invalidate the exclusivity period contained in the merger agreement
between CSX and Conrail and enjoin the shareholder vote scheduled for
January 17.
CSX and Conrail issued the following statement:
"We are gratified with the Court's decision, which allows us to
move forward to the successful completion of the next steps in our
merger -- the Conrail shareholder vote on January 17 and the
completion of CSX's second $2 billion tender offer shortly thereafter.
We believe that our merger is clearly the superior business
combination and that Conrail shareholders acknowledge that the merger
of CSX and Conrail will offer them the most immediate value combined
with the opportunity to participate in the long-term growth of the
world's largest transportation and logistics company."
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.
<PAGE>
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.
EXHIBIT (c)(12)
Text of opinion of Judge Donald
VanArtsdalen of the United States
District Court for the Eastern District
of Pennsylvania as delivered from the
bench on January 9, 1997.
As I've always said in these matters, I think it's important
that they be decided promptly. I never won any contest in
extemporaneous speaking. I try to explain the reasons for whatever
decision I make in this case as best I can on such limited time to
decide just exactly what's to be done here.
In these two cases, these is as we all know a shareholders
meeting of Conrail scheduled for January the 17th, 1997 which is next
week. And that meeting is to decide whether Conrail should, as I call
it, opt-out of subchapter 25E of the Pennsylvania business corporation
law whereby CSX may thereafter proceed by tender offer to acquire
approximately 20.1 percent more of Conrail voting stock in order to
proceed with the next step of the merger agreement between CSX and
Conrail.
Plaintiffs in Civil Action 96-7167, which I will call the
Norfolk Southern or the NS Corporation plaintiffs, alleging that they
are Conrail shareholders seek by a preliminary injunction to prohibit
the shareholders meeting from going ahead until a partial summary
judgment motion is decided that seeks declaration that a controlled
transaction has occurred by reason of CSX's purchase of 19.9 percent
of Conrail outstanding stock pursuant to the original tender offer and
along with aggregating with various directors and officers stock
control alleging that they have formed a group pursuant to 15
Pennsylvania CSA Section 2543, which is a part of the Pennsylvania
State Statue on controlling party transactions.
And thereby the plaintiffs contend that it triggers the
shareholders' rights to obtain fair value and a fair value appraisal
for their stock. Also they seek a preliminary injunction against
enforcement of a revision to the merger agreement that provided for
what I call a no-shop, what some of the witnesses have called
no-shop, some have called it a lockout, extension of the - until I
believe December 31st, 1998. It was an extension of about 18 months
beyond that which was in the original merger agreement.
Now, the so-called Ferrara plaintiffs, which is the other
civil action, Number 96-7350, likewise seek an injunction and a
declaration that the so-called 720-day lockout provision is invalid.
<PAGE>
I specially set this hearing because I was advised that
there would be an application for a preliminary injunction in light of
the revised merger agreement which had been apparently made public.
There are two, as everybody seems to recognize, two distinct
and discrete issues. One is the extension of the so-called no-shop or
lockout agreement until 12-31-98, which will coincide with the
termination date of the merger agreement itself, or what is often
referred to as the so-called drop dead date, whereby if the merger
doesn't go through by that date, then under certain conditions at
least the agreement can be in effect terminated.
And the second issue is whether any of the defendants, that
is, Conrail and its board of directors are liable to pay fair share
because of the triggering of the control transaction as provided in
the business corporation law.
As to the 720-day period no-shop or lockout period, the
arguments that have been made on the present motions are essentially
those or a rehash of the arguments which were made at the prior
hearing, in which I denied any relief by reason of the period of
lockout that was contained in the original merger agreement. There is
no essential difference, as I see it, even though the new agreement as
apparently opposed to the prior agreement has a so-called "fiduciary
duty opt-out" provision. Beyond that the only change is that the
agreement - as to the lockout provision, is that the agreement sets a
final date for completion of the merger and government approvals of
12-31-98, and provides that the so-called lockout period shall
continue until that time.
I see no principled reason, and apparently neither did
Professor Coffee who testified at the prior hearing, as I recall his
testimony, as to why the lockout could not extend for the full period
of the contract, nor is there any reason to think that any particular
line of demarcation need be drawn so far as the facts of this case
presently before me are concerned. After all, as it seems to me, and I
think I expressed this previously, that where a contract is entered
into, it is expected that the parties will act in good faith and will
not deliberately go out and attempt to shop the contract, if you will,
with some other party or to see if they can get a better deal after
having entered into a valid contract.
<PAGE>
If by reason something occurs in the future by which it
could be determined that there was a fiduciary duty upon the board of
directors to go ahead and take some action by reason of some offer
that had been made, if the fiduciary duty so required it, I see no
reason why that should make any difference that it is not specifically
set forth in the contract. After all, if a contract imposes upon
certain of the parties certain fiduciary duties, it seems to me that
then becomes practically an unwritten term of the contract or the
agreement. And therefore whether this one did not have such a
fiduciary duty opt-out and the earlier one did seems to me should make
no difference. In addition to which there has been absolutely no
showing or no claim that any situation has arisen as yet or will or is
likely to arise in the future that would impose any sort of a
fiduciary duty upon the board of directors to disregard the lockout or
the no-shop provisions of the merger agreement.
In addition, defendants have taken no action pursuant to
that clause that I am aware of, or about which there has been any
testimony that would give rise to any basis for presently prohibiting
the meeting of January 17th, 1997 going ahead so far as the no-shop
provision is concerned. In other words, even if it could conceivably
be that there was something invalid about that particular provision
that would have nothing to do as I see it with precluding the
shareholders meeting which is in no way to consider anything other
than whether or not they should opt-out of the 20 percent rule under
the Pennsylvania business corporation law.
Now, there is a so-called controlling person or controlling
transaction problem. Plaintiffs contend that the fair valuation
provisions of 15 Pennsylvania CSA, I think it's Section 2544 has been
triggered. In other words, it's the contention of plaintiffs that
there was a controlled transaction, and therefore the argument seems
to be that because there was a controlled transaction at the meeting
of January the 17th, 1997 which is presently scheduled should be
enjoined from proceeding.
As to the controlled transaction, the argument as I
understand it is that the shares acquired by CSX under its original
tender offer which was approximately 19.9 percent of the voting shares
should be aggregated with the shares held by certain - or perhaps all
of the directors and certain of the officers, who it is contended
formed a group, and by aggregating those shares, the total number of
shares
<PAGE>
presently held by CSX and the group exceed 20 percent; therefore,
controlled transaction has taken place.
Formation of a group acting in concert, and that is of
course the contention here, that this is a group acting in concert
under Section 2543 would normally to me appear to be a fact-specific
matter and would not ordinarily be subject to summary judgment and
certainly would not be a proper basis for a preliminary injunction.
However, on the basis of the evidence presented which as I
understand it is probably all of the evidence that would be intended
to be presented on this issue at any time, the likelihood of success
on the contention that there was a controlled transaction is to me
very doubtful. Although it may be expected, it may fully be expected
that the board of directors and the officers will continue to support
the merger, and to the extent that they are called upon to vote their
shares will vote in its favor. But there is certainly no evidence that
there was any agreement, express or implied, that the individual -
that the officers and directors as individuals would vote their own
shares of stock in locked step with that of CSX.
In that regard the evidence is pretty clear that the
amendment to the merger agreement was negotiated and worked out after
very extension negotiations and at a truly arm's length proceeding. It
is clear from this that at least during those negotiations CSX and the
board of directors of Conrail and the officers of Conrail were not
acting as a group or in locked step.
I do not find under the present facts that have been
established, at least as so far developed, that there has been and
established a controlled transaction. To do that I think everybody
agrees that they have to aggregate the shares of stock originally
purchased by CSX plus some stock held by some one or more of the other
directors and officers.
Even if there had been a controlled transaction; that is to
say, even if they had operated as a group within the meaning of the
statute, and I think everybody agrees that there is no case law on the
subject except for an opinion written by Judge Gawthrop some years
ago, and I'm not sure about the date of that.
<PAGE>
Although I don't think that it would really make any
difference, but I believe that that decision was before the last
amendments of the Pennsylvania business corporation law. I don't
believe that that would make any difference, because the wording is
substantially the same. But I think the facts were somewhat different
in that case, and I am not here to judge the validity of the
contentions made by the judge in that particular case.
It does seem to me, however, that there does have to be some
sort of an agreement, express or implied, and I do not find that the
evidence establishes that at this particular time under the facts that
have been established. But even if there had been, the statute has
what I would call an inadvertence escape valve under Section 2541B.
After the contention was first raised that there had been a
controlled transaction by reason of CSX purchasing 19.9 percent of the
stock, CSX sold on the open market 85,000 shares. Now, I have tried
somewhat roughly to calculate the various methods by which and the
different groups of plaintiffs make different contentions as to who
should be considered in the group. But it seems to me no matter how
liberally you compute the plaintiff's figures, with CSX having
divested itself of 85,000 shares, the present number of shares and
those shares of the persons claimed to be members of the group would
not at the present time equal 20 percent, even including voting
control over the ESOP and the EBT shares, as to which there is some
question as to the federal duties that are imposed by Federal Law on
the trustees of such shares. Clearly, if inadvertent means
unintentional in the subjective sense of the word, clearly there never
was an intention to obtain control or to have a control transaction.
The whole merger agreement with the so-called two tiered arrangement
was carefully structured not to be - not to offend the, if you will -
if I may use that expression - the provisions of the Pennsylvania
Business Corporation Law which imposes certain rights upon the
shareholders to receive fair value if a controlled transaction takes
place. If they overlook the possibility of aggregation, I think at
best, that would have been negligence, which is by some definitions of
the word inadvertent, included within the term of inadvertence.
It's clear, of course, that the number of shares they bought
were bought advertently. It's clear that they were aware certainly,
that officers and directors probably held some shares of stock,
although I don't know that
<PAGE>
there's any evidence that there may or may not be, that they knew the
exact numbers at the time of the purchase.
Also, it has been argued and I think the record may show
that the 19.9 percent that was originally calculated was in error
through misinformation as to the number of shares that were
outstanding of Conrail at the time. And it has been argued and I have
not been able to compute this accurately, but at least, it has been
argued that if that were considered, that part of it was considered
inadvertence and if they had bought only 19.9 percent of the stock
that was actually outstanding as of the time of the purchase, that no
matter how you would aggregate, it would still not reach the 20
percent limit.
In any event, the statute provides that if the - if there is
an inadvertent going over the 20 percent limit, that the fair value
rights will not - will not accrue if the controlled transaction - if
the party having those shares of stock divests itself of those shares
as soon - I think the word is as soon as practical. I'm trying to find
the terminology there.
Now, CSX did, after it was called to their attention, sell
85,000 shares and as I just read the briefs rather quickly on that
score, it would appear to me that to do so cost CSX approximately
$900,000. There is no one that has made any argument that they did not
divest themselves of the stock as soon as practical. Perhaps
plaintiffs would like to make that argument, but I think another thing
that must be borne in mind is, even if there was some technical
violation of the controlled transaction problem, the purpose of that
is to - or one of the purposes certainly, is that there be no votes
taken by the controlling parties under those circumstances, unless the
other shareholders have a right to obtain fair value.
And there has been no vote - there was no vote taken and at
the proposed vote to be taken on January the 17th, it is clear that no
matter how you compute the matter, the shares of stock, that CSX in
combination with any other group of shareholders that could be
aggregated under any of the theories submitted by the plaintiffs,
would not constitute 20 percent.
Consequently, I can see where there has been absolutely no
harm done by reason of the purchase of the CSX shares, whether or not
and as I say, it's my view from what
<PAGE>
has been presented here, that it is not a controlled transaction. But
even if it were a controlled transaction and even if the shareholders
are entitled to receive fair value, that still doesn't explain to me
why the meeting set for January the 17th should be enjoined or give
any basis for an injunction against it.
First of all, shareholders to have received fair value and
have no basis under the statute, as I see it, to object to somebody
acquiring more than 20 percent or any group acquiring more than 20
percent of the shares of stock. Their only right is to receive fair
value. And to do that, they must, as the statute says, object. And I
don't know how that's done, but that's what the statute seems to say.
And to make a demand to have the shares appraised for fair value.
And then there is a rather long - a lot of statutory
requirements as to how that procedure would be required to take place.
No one has made any demand to receive fair value. No one has objected,
as I see it, but aside from that, there is a, as is clear from the
statute, there is a complete legal remedy and I would see no reason
therefore to enjoin the meeting that is set for January the 17th.
In addition to - in addition to that, the meeting that is
set for January 17th, one of the arguments that's been made by the
plaintiffs is, well, the meeting would be a nullity and therefore, it
should be enjoined. Well, if it's a nullity, it's a nullity. But that
doesn't mean - therefore, I see no harm that could occur to anyone in
that event. I fail to see how, if the meeting is held and if there's a
vote and if it's later determined that that's a nullity, I fail to see
how the shareholders would in any meaningful way have been harmed.
Although, some might have been disappointed if they personally went to
attend the meeting.
It is clear that Norfolk Southern, as a shareholder, is
seeking in every conceivable way to block this merger from proceeding.
And of course, to the extent that they do so through legal and lawful
means, there is nothing too wrong about that nor are they to be - is
it to be criticized for attempting to do so. However, there is no
showing on this record that Norfolk Southern, as a shareholder, would
be harmed in any way if the shareholders
<PAGE>
vote on the proposition to opt-out of the provisions of the
Pennsylvania Corporation Law proceeds on January the 17th.
Now, before a preliminary injunction may be granted, as we
all know, there must be first a finding of likelihood of success. On
the so-called [720] day no-shop clause, it is my evaluation at this
point, that there is no likelihood at all of success on that claim.
On the controlled transaction claim, I think that it's
unlikely that there would be - they would be - or that the plaintiffs
would be successful on that contention. Because, first, I think it's
unlikely that there ever was a controlled transaction and if there
was, it was clearly inadvertent, at least, if inadvertence means
unintentional. And because there was a divesting of a sufficient
number of excess shares, so that there would no longer be a control
group having more than 20 percent of the stock. That there would be no
harm if the vote is taken on January the 17th and there is no showing
of any likelihood of harm occurring in the future.
Now, as to the harm to the parties, as I think I've said
several times, I can see no harm to the plaintiffs by this meeting
proceeding on January the 17th. It's conceivable that it could amount,
eventually amount to a nullity, but that would not cause any legal
harm as I see it.
As to the defendants, of course, anything that slows up this
progress and the progress of the merger is - does cause severe and
substantial harm and injury. And clearly, that is one of the things
that the plaintiffs seek in this, by these proceedings, is to impede
or slow up the progress of the merger. If I granted either preliminary
injunctive relief or granted the summary judgment as requested here,
one of the claims, as I understand it, is that I should preliminarily
enjoin the hearing set forth January 17th until the summary judgment
motion is decided.
Whatever order I make here or decide here, undoubtedly if
granted, would be appealed. And of course, during the appeal, I have
no doubt that the plaintiffs would intend to seek to have any
injunctive relief continued during the course of that appeal. And I
think that the practical effect of that might well be to so upset the
timing of these - of this merger as to perhaps completely throw it off
track.
<PAGE>
In addition, before a preliminary injunction may be given,
there must be shown that there is no adequate legal remedy. As I point
out clearly under the controlled transaction, there is a complete
statutory legal proceeding and remedy, so that there would be no
reason to make any injunction as to that.
As to the 720-day period during which its agreed that the
Conrail board and directors will take no action toward any other bid
that might come in, at least until such time as there is some showing
that there is some other bid, it is clear that it would not be
appropriate to enter an injunction really in affect, while all the -
as I see it - the plaintiffs are asking for is some type of
declaratory judgment and I don't think that that would be a proper
situation to grant a declaratory judgment. I think it would be more in
the nature of an advisory opinion.
Consequently, to the extent that this is an application for
a preliminary injunction, the application will be denied. To the
extent that there is an application that I grant summary judgment, the
application for a grant of summary judgment is also denied.
EXHIBIT (c)(13)
SERVICE DATE - JANUARY 9, 1997
SURFACE TRANSPORTATION BOARD
DECISION
STB Finance Docket No. 33220
CSX CORPORATION AND CSX TRANSPORTATION, INC.
--CONTROL AND MERGER--
CONRAIL INC. AND CONSOLIDATED RAIL CORPORATION
[Decision No. 5]
Decided: January 8, 1997
BACKGROUND
On October 18, 1996, CSX Corporation (CSXC), CSX Transportation,
Inc. (CSXT),<F1> Conrail Inc. (CRI), and Consolidated Rail Corporation
(CRC)<F2>(collectively, applicants) filed a notice of intent
(CSX/CR-1) to file an application (hereinafter referred to as the
primary application) seeking Board authorization under 49 U.S.C.
11323-25 for: (1) the acquisition of control of CRI by Green
Acquisition Corp. (Acquisition), a wholly owned subsidiary of CSXC;
(2) the merger of CRI into Acquisition; and (3) the resulting common
control of CSXT and CRC by CSXC. Applicants indicate that they expect
to file their primary application, and any related applications, on or
before March 1, 1997.<F3>
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<F1> CSXC and CSXT are referred to collectively as CSX.
<F2> CRI and CRC are referred to collectively as Conrail.
<F3> Decision No. 1, served October 25, 1996, granted
applicants' request for a protective order. Decision No. 2, served and
published in the Federal Register (61 FR 58613) on November 15, 1996,
gave notice to the public of applicants' CSX/CR-1 pre-filing
notification, and found that the transaction proposed by applicants is
a "major" transaction, as defined at 49 CFR 1180.2(a). Decision No. 3,
served and published in the Federal Register (61 FR 58611) on November
15, 1996, invited comments from interested persons on a proposed
procedural schedule. Decision No. 4, served December 19, 1996,
assigned this proceeding to Administrative Law Judge Jacob Leventhal
for the handling of all discovery matters and the initial resolution
of all discovery disputes.
We will address, in a separate decision, applicants' CSX/CR-6
petition for waiver or clarification of certain railroad consolidation
procedures, and for related relief, filed on December 27, 1996.
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CSXC, Acquisition, and CRI entered into an Agreement and Plan of
Merger (the Merger Agreement) dated October 14, 1996, which they
amended on November 5, 1996, and further amended on December 18,
1996.<F4> On December 27, 1996, Norfolk Southern Corporation and
Norfolk Southern Railway Company (collectively, NS) filed a petition
for declaratory order that CSXC, CSXT, and Acquisition are in
violation of 49 U.S.C. 11323 by reason of a "lock-out provision" in
Section 4.2 of the Merger Agreement, as amended on December 18, 1996,
and that the amendment to Section 4.2 is void and unenforceable.<F5>
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<F4> The Merger Agreement, as first entered into envisioned:
(1) the acquisition by Acquisition of approximately 19.9% of the common
stock of CRI; (2) the acquisition by Acquisition of an additional
approximately 20.1% of the common stock of CRI; and (3) after Board
approval of the primary application, the merger of CRI with and into
Acquisition. As amended, however, the Merger Agreement now envisions
that the merger of CRI with and into Acquisition will occur prior to
Board approval of the primary application. This change means that
applicants no longer seek Board authorization for the acquisition of
control of CRI by Acquisition, or for the merger of CRI into
Acquisition. Applicants, however, continue to seek Board authorization
for the common control, by CSXC, of CSXT and CRC. Applicants continue
to indicate that they expect to file their primary application, and
any related applications, on or before March 1, 1997.
<F5> NS requests expedited consideration of its petition for
declaratory order. NS alternatively requests that, if the Board is
unable to reach a decision on the question of unlawful control
substantially before January 17, 1997, it should issue a temporary
cease and desist order barring Conrail from holding the shareholder
meeting now scheduled for January 17, 1997, or barring CSX from
requiring the trustee under CSX's voting trust to vote any Conrail
shares held in the voting trust in favor of opting out of Subchapter
25E of the Pennsylvania Business Corporation Act or in favor of a
CSX/Conrail merger, until the Board is able to decide the question.
See Pa. Stat. Ann., tit. 15, sections 2541 through 2548 (West 1995).
Without such opt-out, CSX would be required to purchase all Conrail
shares for the same cash price as it paid for the first 19.9% (Merger
Agreement), Section 5.1(b)). Because we are issuing this decision in
advance of the January 17, 1997 shareholder meeting, this alternative
request for relief is moot.
<PAGE>
On December 30, 1996, CSX and Conrail respectively filed
letters notifying the Board of their objection to NS' request for
expedited consideration, and of their intent to file responses to NS'
petition for declaratory order within the time provided by the Board's
rules.
We are granting NS' request for expedited consideration, and
will deny its petition for declaratory order at this time, as we
discuss further below.
DISCUSSION AND CONCLUSIONS
Section 4.2 of the Merger Agreement. Section 4.2 of the Merger
Agreement (hereinafter, the "lock-out provision") prohibits Conrail's
management for a specified period from taking various actions with
respect to any proposal by any entity other than CSX to acquire more
than 50% of the assets or voting stock of Conrail (defined in the
agreement as a "Takover Proposal"). Section 4.2(a) provides that
Conrail may not "(i) solicit, initiate or encourage (including by way
of furnishing information) or take any other action designed to
facilitate, directly and indirectly, any inquiries or the making of
any proposal which constitutes any Takeover Proposal or (ii)
participate in any discussions or negotiations regarding any Takeover
Proposal . . . ." Section 4.2(b) prohibits Conrail's board or
directors for a specified period from (1) withdrawing or modifying its
approval or recommendation that shareholders approve the CSX/Conrail
merger agreement, (2) approving or recommending any merger agreement
with any party other than CSX, or (3) entering into any letter of
intent or merger agreement related to any Takeover Proposal.
Under the original Merger Agreement, Conrail was permitted to
negotiate with respect to other unsolicited takeover proposals after
April 12, 1997, if Conrail's board
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concluded, on advice of counsel, that their fiduciary duties required
them to do so. The original Merger Agreement also permitted Conrail to
enter into a letter of intent or agreement with another party after
April 12, 1997, if Conrail's board concluded that the other party's
proposal was superior to CSX's and that CSX was unlikely to acquire
40% of Conrail's stock. In the first amendment (November 5, 1996), the
lock-out period was extended 90 days to July 12, 1997. The second
amendment (December 18, 1996) extends the lock-out period to December
31, 1998. (Second Amendment at 18.)
NS' Arguments. NS states that it wishes to acquire Conrail and is
prepared to pay Conrail's shareholders substantially more than CSX is
willing to pay; however, provisions of the Merger Agreement have
prevented NS from reaching an agreement, or even discussing NS'
proposal, with Conrail's management.<F6> NS challenges the second
amendment to the extent that it prohibits Conrail, without CSX's
consent, from entering into a merger agreement with any other company,
or even discussing such an agreement with any other company, until
1999, even if Conrail shareholders vote in the next few months to
disapprove the proposed CSX merger and even if the Board issues a
decision in 1997 refusing to approve that merger.
NS makes three main arguments: (1) by the amended lock-out
provision, CSX has acquired unlawful control of Conrail in violation
of 49 U.S.C. 11323;<F7> (2) the lock-out
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<F6> On December 19, 1996, NS increased its all-cash offer for all of
Conrail's outstanding shares to $115 per share. According to NS, its
offer would provide Conrail shareholders other than CSX almost $16 per
share more than the blended value of cash and securities that CSX is
offering current Conrail shareholders for their shares, based on the
market price of CSX common stock at closing on December 26, 1996. On
that basis, NS estimates that the total amount it is offering to
Conrail shareholders other than CSX is approximately $1.16 billion
more than what CSX is offering.
<F7> Under 49 U.S.C 11323 (formerly 49 U.S.C. 11343), certain
transactions may be carried out only with the prior approval and
authorization of this Board. These include "[a]cquisition of control
of a rail carrier by any number of rail carriers," "[a]cquisition of
control of at least two carriers by a person that is not a rail
carrier," and "[a]cquisition of control of a rail carrier by a person
that is not a rail carrier but that controls any number of rail
carriers." 49 U.S.C. 11323(a)(3), (4) and (5).
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restraint cannot be justified as reasonably related to CSX's desire to
preserve the status quo pending corporate and regulatory approval; and
(3) CSX's unlawful control threatens NS and Conrail's stockholders
with immediate irreparable injury which the Board must act to prevent.
NS also asserts that, to the extent the lock-out provision precludes
Conrail from developing more competitive and innovative services
through a combination with NS, the provision shields CSX from
increased competition from its two main competitors.<F8>
Our Analysis. We note that NS has challenged the legality of the
amended lock-out provision, as well as other provisions of the
CSX/Conrail merger agreement, in an action pending in the United
States District Court for the Eastern District of Pennsylvania with
claims based on the Pennsylvania corporation laws and the fiduciary
duties of Conrail's board of directors. Contrary to NS' assertion that
the amended lock-out provision involves an issue of illegal control
under 49 U.S.C. 11323 that the Board must address and enforce
independently of any issue of state law, we do not find that NS'
request is ripe for our consideration, as discussed further below.
NS argues that CSX will unlawfully control Conrail because the
lock-out will remain in effect until December 31, 1998, even if the
Conrail stockholders vote not to approve the proposed CSX/Conrail
merger,<F9> and even if the Board disapproves the CSX/Conrail merger
before the lock-out period expires or imposes conditions unacceptable
to the applicants. Conrail has pointed out, however, in its December
30 letter, that NS' case is founded on the uncertainty of future
events, rather than on any actual controversy or complaint, and we
agree.
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<F8> CSX and Conrail compete throughout large areas of the Northeast
and Midwest, and NS and CSX compete throughout the Southeast and
Midwest.
<F9> CSX and Conrail expect that vote to take place before March 31,
1997.
<PAGE>
NS acknowledges that a rationale for permitting such an agreement
(prior to Board approval) would be to provide a reasonable period of
time for parties to an agreement to determine whether their
shareholders and their regulators will approve the transaction. NS
argues, however, that the lock-out period here is too long because it
goes beyond what may be reasonably expected for the Board to consider
and act upon the consolidation application of the two railroads
themselves, and because it may extend beyond other actions (such as a
shareholder vote rejecting the merger) that effectively foreclose the
possibility of the transaction taking place as proposed. NS' argument
that the amendment increases CSX's control over Conrail is based on
the extension of the termination date of the lock-out period by an
additional 18 months--from July 12, 1997, to December 31, 1998. While
the now 2-year lock-out period appears excessive on its face, we do
not find the extended termination date, in and of itself, to be
unreasonable at this time, given the complicated and controversial
matters facing the parties concerning the proposed control
transaction, and given that provision's lack of any meaningful
constraint on our jurisdiction as discussed below.
As for NS' concern that CSX will be able to use unlawful control
afforded by the lock-out provision to coerce a critical vote of
Conrail shareholders scheduled for January 17, 1997, by portraying CSX
as the only choice available to them, and effectively preclude the
possibility of NS' offer from being realized, we believe that the
Conrail shareholders are aware of their choices in this highly public
controversy, and can pursue legal remedies if they believe that their
board of directors breached its fiduciary duty. NS protests the
agreement between CSX and Conrail's board of directors to amend the
Merger Agreement to preclude Conrail and CSX from pursuing other
transactions without the consent of the other through December 31,
1998. We find that voiding or overriding the amendment at this time is
premature.
As discussed above, we find that NS' petition for relief is
premature and unwarranted at this time. We advise the parties,
however, that, if a CSX/Conrail merger application is filed, we may
exercise our 49 U.S.C. 11324(c) conditioning power to impose certain
conditions and/or grant any inconsistent or responsive applications
that are found to be in the public interest. We emphasize that, under
those circumstances, the preemptive, immunizing force of 49 U.S.C.
11321(a) can preempt contractual rights, including those
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resulting from the lock-out provision, if necessary to permit a
Board-approved transaction to go forward. See Norfolk & Western R. Co.
v. Train Dispatchers, 499 U.S. 117 (1991) (Dispatchers) (the immunity
provision, which provides that a carrier, corporation, or person
participating in a transaction that is approved under 49 U.S.C. 11324
(old 49 U.S.C. 11344) is "exempt from the antitrust laws and from all
other law, including State and municipal law, as necessary to let that
person carry out the transaction," extends not only to laws but also
to contracts). A person cannot effectively preclude our approval of a
transaction from going forward simply by entering into a contract that
purports to prevent all alternatives to its own preferred outcome.
Thus, the lock-out provision would in no way preclude Board approval,
as appropriate, of NS/Conrail merger proposal, or any other Conrail
merger proposal, or the consummation of such a merger, if approved.
This decision will not significantly affect either the quality of
the human environment or the conservation of energy resources.
It is ordered:
1. NS' petition for declaratory order is denied.
2. This decision is effective on the date of service.
By the Board, Chairman Morgan and Vice Chairman Owen.
Vernon A. Williams
Secretary
