OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES
OF
COMMON STOCK AND SERIES A ESOP CONVERTIBLE JUNIOR PREFERRED STOCK
(INCLUDING, IN EACH CASE, THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
CONRAIL INC.
AT
$100 NET PER SHARE
BY
ATLANTIC ACQUISITION CORPORATION,
A WHOLLY OWNED SUBSIDIARY OF
NORFOLK SOUTHERN CORPORATION
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THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON THURSDAY, NOVEMBER 21, 1996, UNLESS THE OFFER IS EXTENDED.
-------------------------------------------------------------------------------
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THE RECEIPT BY
ATLANTIC ACQUISITION CORPORATION ("PURCHASER"), A WHOLLY OWNED SUBSIDIARY OF
NORFOLK SOUTHERN CORPORATION ("PARENT"), PRIOR TO THE EXPIRATION OF THE
OFFER, OF AN INFORMAL WRITTEN OPINION IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO PURCHASER FROM THE STAFF OF THE SURFACE TRANSPORTATION BOARD
(THE "STB"), WITHOUT THE IMPOSITION OF ANY CONDITIONS UNACCEPTABLE TO
PURCHASER, THAT THE USE OF A VOTING TRUST IN CONNECTION WITH THE OFFER AND
THE PROPOSED MERGER IS CONSISTENT WITH THE POLICIES OF THE STB AGAINST
UNAUTHORIZED ACQUISITIONS OF CONTROL OF A REGULATED CARRIER, (2) THE RECEIPT
BY PURCHASER, PRIOR TO THE EXPIRATION OF THE OFFER, OF AN INFORMAL STATEMENT
FROM THE PREMERGER NOTIFICATION OFFICE OF THE FEDERAL TRADE COMMISSION THAT
THE TRANSACTIONS CONTEMPLATED BY THE OFFER AND THE PROPOSED MERGER ARE NOT
SUBJECT TO, OR ARE EXEMPT FROM, THE XXXX-XXXXX-XXXXXX ANTITRUST IMPROVEMENTS
ACT OF 1976, AS AMENDED (THE "HSR ACT"), OR, IN THE ABSENCE OF THE RECEIPT OF
SUCH INFORMAL STATEMENT, ANY APPLICABLE WAITING PERIOD UNDER THE HSR ACT
HAVING EXPIRED OR BEEN TERMINATED PRIOR TO THE EXPIRATION OF THE OFFER, (3)
PARENT AND PURCHASER HAVING OBTAINED, (continued)
The Dealer Managers for the Offer are:
X.X. XXXXXX & CO. XXXXXXX XXXXX & CO.
October 24, 1996
PRIOR TO THE EXPIRATION OF THE OFFER, ON TERMS REASONABLY ACCEPTABLE TO
PARENT, SUFFICIENT FINANCING TO ENABLE CONSUMMATION OF THE OFFER AND THE
PROPOSED MERGER, (4) THERE BEING VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN
PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF COMMON SHARES AND ESOP
PREFERRED SHARES WHICH TOGETHER CONSTITUTE AT LEAST A MAJORITY OF THE SHARES
OUTSTANDING ON A FULLY DILUTED BASIS, (5) PURCHASER BEING SATISFIED, IN ITS
SOLE DISCRETION, THAT SUBCHAPTER F OF CHAPTER 25 OF THE PENNSYLVANIA BUSINESS
CORPORATION LAW HAS BEEN COMPLIED WITH OR IS INVALID OR OTHERWISE
INAPPLICABLE TO THE OFFER AND THE PROPOSED MERGER, (6) THE COMMON STOCK
PURCHASE RIGHTS HAVING BEEN REDEEMED BY THE BOARD OF DIRECTORS OF CONRAIL
INC. OR PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT SUCH COMMON
STOCK PURCHASE RIGHTS ARE INVALID OR OTHERWISE INAPPLICABLE TO THE OFFER AND
THE PROPOSED MERGER, AND (7) PURCHASER BEING SATISFIED, IN ITS SOLE
DISCRETION, THAT THE PREVIOUSLY ANNOUNCED AGREEMENT AND PLAN OF MERGER
BETWEEN THE COMPANY AND CSX CORPORATION HAS BEEN TERMINATED IN ACCORDANCE
WITH ITS TERMS OR OTHERWISE. SEE SECTION 14.
IMPORTANT
Purchaser is currently reviewing its options with respect to the Offer and
may consider, among other things, changes to the material terms of the Offer.
In addition, Parent and Purchaser intend to continue to seek to negotiate
with the Company with respect to the acquisition of the Company by Parent or
Purchaser. Purchaser reserves the right to amend the Offer (including
amending the number of shares to be purchased, the purchase price and the
proposed merger consideration) upon entering into a merger agreement with the
Company or to negotiate a merger agreement with the Company not involving a
tender offer pursuant to which Purchaser would terminate the Offer and the
Common Shares (as defined herein) and ESOP Preferred Shares (as defined
herein, and together with the Common Shares, the "Shares") would, upon
consummation of such merger, be converted into cash, common stock of Parent
and/or other securities in such amounts as are negotiated by Parent and the
Company.
Any shareholder desiring to tender all or any portion of such
shareholder's Shares should either (i) complete and sign the Letter of
Transmittal (or a facsimile thereof) in accordance with the instructions in
the Letter of Transmittal, have such shareholder's signature thereon
guaranteed if required by Instruction 1 to the Letter of Transmittal, mail or
deliver the Letter of Transmittal (or such facsimile thereof) and any other
required documents to the Depositary and either deliver the certificates for
such Shares and, if separate, the certificates representing the associated
Rights (as defined herein) to the Depositary along with the Letter of
Transmittal (or a facsimile thereof) or deliver such Shares (and Rights, if
applicable) pursuant to the procedure for book-entry transfer set forth in
Section 3 prior to the expiration of the Offer or (ii) request such
shareholder's broker, dealer, commercial bank, trust company or other nominee
to effect the transaction for such shareholder. A shareholder having Shares
(and, if applicable, Rights) registered in the name of a broker, dealer,
commercial bank, trust company or other nominee must contact such broker,
dealer, commercial bank, trust company or other nominee if such shareholder
desires to tender such Shares (and, if applicable, Rights). Unless and until
Purchaser declares that the Rights Condition (as defined herein) is
satisfied, shareholders will be required to tender one Right for each Share
tendered in order to effect a valid tender of such Share. The tender of
Rights is also required for the valid tender of ESOP Preferred Shares.
Participants in the Company's Matched Savings Plan (the "ESOP") desiring
that Fidelity Management Trust Company, as trustee under the ESOP (the "ESOP
Trustee"), tender the ESOP Preferred Shares allocated to their accounts,
which will be converted into Common Shares upon consummation of the Offer,
should so instruct the ESOP Trustee by completing the form that will be
provided to participants for that purpose. ESOP participants cannot tender
shares allocated to their ESOP accounts by executing the Letter of
Transmittal.
Any shareholder who desires to tender Shares (and, if applicable, Rights)
and whose certificates for such Shares (and, if applicable, Rights) are not
immediately available, or who cannot comply with the procedures for
book-entry transfer described in this Offer to Purchase on a timely basis,
may tender such Shares (and, if applicable, Rights) by following the
procedures for guaranteed delivery set forth in Section 3.
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Managers at their respective addresses and telephone
numbers set forth on the back cover of this Offer to Purchase. Additional
copies of this Offer to Purchase, the Letter of Transmittal or other tender
offer materials may be obtained from the Information Agent.
TABLE OF CONTENTS
PAGE
--------
INTRODUCTION .................................................................................. 1
1. Terms of the Offer; Expiration Date ................................................... 8
2. Acceptance for Payment and Payment for Shares ......................................... 9
3. Procedures for Tendering Shares ....................................................... 10
4. Withdrawal Rights ..................................................................... 13
5. Certain Federal Income Tax Consequences ............................................... 14
6. Price Range of Shares; Dividends ...................................................... 14
7. Effect of the Offer on the Market for the Common Shares; Exchange Listing and Exchange
Act Registration; Margin Regulations ................................................ 15
8. Certain Information Concerning the Company ............................................ 16
9. Certain Information Concerning Purchaser and Parent ................................... 19
10. Source and Amount of Funds ............................................................ 22
11. Background of the Offer; Contacts with the Company .................................... 23
12. Purpose of the Offer and the Merger; Plans for the Company; Certain Considerations ... 28
13. Dividends and Distributions ........................................................... 33
14. Conditions of the Offer ............................................................... 33
15. Certain Legal Matters; Regulatory Approvals; Certain Litigation ....................... 36
16. Fees and Expenses ..................................................................... 43
17. Miscellaneous ......................................................................... 44
Schedule I --Information Concerning the Directors and Executive Officers of
Parent and Purchaser ..................................................................... I-1
i
TO THE HOLDERS OF COMMON STOCK AND
SERIES A ESOP CONVERTIBLE JUNIOR PREFERRED STOCK OF CONRAIL INC.:
INTRODUCTION
Atlantic Acquisition Corporation ("Purchaser"), a Pennsylvania corporation
and a wholly owned subsidiary of Norfolk Southern Corporation, a Virginia
corporation ("Parent"), hereby offers to purchase all outstanding shares of
(i) common stock, par value $1.00 per share (the "Common Shares"), and (ii)
Series A ESOP Convertible Junior Preferred Stock, without par value (the
"ESOP Preferred Shares" and, together with the Common Shares, the "Shares"),
of Conrail Inc., a Pennsylvania corporation (the "Company"), including, in
each case, the associated Common Stock Purchase Rights (the "Rights") issued
pursuant to the Rights Agreement, dated as of July 19, 1989, as amended,
between the Company and First Chicago Trust Company of New York, as Rights
Agent (the "Rights Agreement"), at a price of $100 per Share, net to the
seller in cash, without interest thereon (the "Offer Price"), upon the terms
and subject to the conditions set forth in this Offer to Purchase and in the
related Letter of Transmittal (which, as amended from time to time, together
constitute the "Offer"). Unless the context otherwise requires, all
references to Common Shares, ESOP Preferred Shares or Shares shall include
the associated Rights, and all references to the Rights shall include the
benefits that may enure to holders of the Rights pursuant to the Rights
Agreement, including the right to receive any payment due upon redemption of
the Rights.
Promptly upon the purchase by Parent, Purchaser or their affiliates of
Common Shares and ESOP Preferred Shares which constitute at least a majority
of the outstanding Shares on a fully diluted basis, such Common Shares and
ESOP Preferred Shares will be deposited in an independent voting trust (the
"Voting Trust") in accordance with the terms of a proposed Voting Trust
Agreement to be entered into with the trustee thereof (the "Voting Trust
Agreement") pending approval by the Surface Transportation Board (the "STB")
of the acquisition of control by Parent of the Company. The Offer is not
conditioned upon such STB approval. See Section 14. The Proposed Merger (as
defined below) would also not be conditioned on such STB approval.
Immediately prior to consummation of the Proposed Merger, Parent would place
all of the shares of common stock of Purchaser (which may become stock of
the surviving corporation upon consummation of the Proposed Merger) into the
Voting Trust. The Offer is conditioned upon the receipt by Purchaser, prior
to the expiration of the Offer, of an informal written opinion in form and
substance reasonably satisfactory to Purchaser from the staff of the STB,
without the imposition of any conditions unacceptable to Purchaser, that the
use of the Voting Trust in connection with the Offer and the Proposed Merger
is consistent with the policies of the STB against unauthorized acquisitions
of control of a regulated carrier.
Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares by Purchaser
pursuant to the Offer. Purchaser will pay all charges and expenses of X.X.
Xxxxxx Securities Inc. and Xxxxxxx Lynch, Xxxxxx, Xxxxxx & Xxxxx
Incorporated, as Dealer Managers (in such capacity, the "Dealer Managers"),
The Bank of New York, as Depositary (the "Depositary"), and Xxxxxxxxx &
Company Inc., as Information Agent (the "Information Agent"), incurred in
connection with the Offer. See Section 16.
Participants in the Company's Matched Savings Plan (the "ESOP") desiring
that Fidelity Management Trust Company, as trustee under the ESOP (the "ESOP
Trustee"), tender the ESOP Preferred Shares allocated to their accounts,
which will be converted into Common Shares upon consummation of the Offer,
should so instruct the ESOP Trustee by completing the form that will be
provided to participants for that purpose. ESOP participants cannot tender
shares allocated to their ESOP accounts by executing the Letter of
Transmittal.
The purpose of the Offer is to acquire control of, and the entire equity
interest in, the Company. Parent is seeking to negotiate with the Company a
definitive merger agreement pursuant to which the Company would, as soon as
practicable following consummation of the Offer, consummate a merger or
similar business combination with Purchaser or another direct or indirect
subsidiary of Parent (the "Proposed Merger"). In the Proposed Merger, each
Common Share and ESOP Preferred Share then outstanding (other than Shares
held by the Company or any subsidiary of the Company and Shares owned
by Parent, Purchaser or any direct or indirect subsidiary of Parent would be
converted into the right to receive an amount in cash equal to the price per
Common Share and ESOP Preferred Share paid pursuant to the Offer. If
Purchaser acquires 80% or more of the outstanding Shares in the Offer,
Purchaser intends to effect the Proposed Merger as a "short-form" merger
under the Pennsylvania Business Corporation Law (the "PBCL"), without a vote
of the Company's shareholders or the Board of Directors of the Company (the
"Company Board"). See Section 11 and Section 12.
For a number of years, certain members of senior management of Parent,
including Xxxxx X. Xxxxx, Chairman and Chief Executive Officer of Parent,
have spoken numerous times with senior management of the Company, including
the Company's former Chairman and Chief Executive Officer, Xxxxx X. Xxxxx,
and the Company's current Chairman, President and Chief Executive Officer,
Xxxxx X. XxXxx, concerning a possible business combination between Parent and
the Company. Ultimately, the Company's management encouraged such discussions
prior to Xx. Xxxxx'x retirement as Chief Executive Officer of the Company and
discontinued such discussions in September 1994, when the Company announced
that Xx. XxXxx would succeed Xx. Xxxxx.
On two recent occasions, in late September and again on October 4, 1996,
Xx. Xxxxx contacted Xx. XxXxx to reiterate Xxxxxx's strong interest in
acquiring the Company and request a meeting at which he could present a
concrete proposal. In each case, Xx. Xxxxx emphasized that he wished to
communicate Xxxxxx's proposal so that the Company Board would be aware of it
during their next meeting. Also in each case, Xx. XxXxx stated that it was
unnecessary for Xx. Xxxxx to do so.
On October 15, 1996, the Company and CSX Corporation, a Virginia
corporation ("CSX"), announced that they had entered into a definitive merger
agreement (the "CSX Merger Agreement") pursuant to which control of the
Company would be swiftly sold to CSX pursuant to the CSX Offer (as defined
below) and then the Proposed CSX Merger (as defined below) would be
consummated following required regulatory approvals. The CSX Offer and the
Proposed CSX Merger are sometimes referred to collectively as the "Proposed
CSX Transaction". Integral to the Proposed CSX Transaction are covenants
substantially increasing Xx. XxXxx'x compensation and severance benefits and
guaranteeing that he will succeed Xxxx Xxxx, the Chairman and Chief Executive
Officer of CSX, as the combined company's Chairman and Chief Executive
Officer.
On October 16, 1996, CSX commenced the CSX Offer. Also on that date, Xx.
Xxxxx met in Washington, D.C. with Xx. Xxxx at Xx. Xxxx'x invitation to
discuss the Proposed CSX Transaction and certain regulatory issues it raised.
Xx. Xxxx advised Xx. Xxxxx during that meeting that the Company's counsel and
investment bankers had ensured that the Proposed CSX Transaction is
"bulletproof," implying that the sale of control of the Company to CSX is now
a fait accompli. Xx. Xxxx added that the Pennsylvania statute, referring to
the PBCL, is "great", adding that the Company's directors have almost no
fiduciary duties. Xx. Xxxx'x comments were intended to discourage Parent from
making a competing offer for control of the Company and to suggest that
Parent had no choice but to negotiate with CSX for access to such portions of
the Company's rail system as would be necessary to address the regulatory
concerns that would be raised by consummation of the Proposed CSX
Transaction. After Xx. Xxxx told Xx. Xxxxx what CSX was willing to offer to
Parent in this regard, the meeting concluded.
On October 22, Parent's Board of Directors (the "Parent Board") met to
review its strategic options in light of announcement of the Proposed CSX
Transaction. Because the Parent Board believes that a combination of Parent
and the Company would offer compelling benefits to both companies, their
shareholders, and their other constituencies, it determined that Parent
should make a competing offer for the Company.
On October 23, 1996, Xxxxxx submitted to the Company Board a written
proposal for the acquisition of the Company by Purchaser pursuant to the
Offer and the Proposed Merger and announced its intention to commence the
Offer. In its proposal, Parent indicated that it was prepared to consider
locating the corporate offices of the combined company in Philadelphia
following consummation of the Proposed Merger and was prepared to consider
substituting a continued equity interest in the combined company for a
substantial portion of the consideration offered in the Offer.
2
Also on October 23, 1996, Parent, Purchaser and a shareholder of the
Company commenced litigation against the Company, the members of the Company
Board and CSX (the "Pennsylvania Litigation") in the United District Court
for the Eastern District of Pennsylvania seeking relief relating to various
matters, including the Company Board's approval of the CSX Merger Agreement
and actions taken by the Company Board in furtherance of the Proposed CSX
Transaction. See Section 15.
According to the Offer to Purchase included as Exhibit (a)(1) to the
Schedule 14D-1 filed by CSX with the Securities and Exchange Commission (the
"SEC") on October 16, 1996 (the "CSX Schedule 14D-1"), the Company entered
into the CSX Merger Agreement with CSX, pursuant to which (i) CSX has
commenced the CSX Offer to purchase for cash an aggregate of 17,860,124
Shares at a price of $92.50 per Share (the "CSX Offer") and (ii) following
the completion of the CSX Offer and the satisfaction or waiver of certain
conditions, the Company would be merged with and into a subsidiary of CSX and
would become a subsidiary of CSX (the "Proposed CSX Merger"). Pursuant to the
Proposed CSX Merger, each outstanding Share would be converted, at the
election of the holder of Shares and subject to certain limitations, into the
right to receive (i) $92.50 in cash, without interest, (ii) 1.85619 shares of
common stock, par value $1.00 per share, of CSX (the "CSX Common Stock") or
(iii) a combination of such cash and shares of CSX Common Stock.
In connection with the execution of the CSX Merger Agreement, the Company
and CSX entered into an option agreement (the "CSX Lockup Option Agreement")
pursuant to which the Company granted to CSX an option (the "CSX Lockup
Option"), exercisable in certain events, to purchase 15,955,477 Common Shares
at an exercise price of $92.50 per Common Share, subject to adjustment as set
forth therein.
The obligations of CSX and the Company to effect the Proposed CSX Merger
are subject to various conditions, including the approval of the shareholders
of the Company of the Proposed CSX Merger (the "Company Shareholder
Approval"), the approval of the shareholders of CSX with respect to, among
other things, the issuance of shares of CSX Common Stock in the Proposed CSX
Merger (the "CSX Shareholder Approval"), and the STB having issued a final
decision approving, exempting or otherwise authorizing consummation of the
Proposed CSX Merger and all other material transactions contemplated by the
CSX Merger Agreement as may require such authorizations and which, among
other things, does not impose on CSX, the Company or any of their respective
subsidiaries, terms or conditions that materially and adversely affect the
long-term benefits expected to be received by CSX from the transactions
contemplated by the CSX Merger Agreement. See Section 11.
In the CSX Merger Agreement, the Company has agreed to a provision (the
"No Negotiation Provision") providing that, subject to certain exceptions,
neither the Company nor any of its subsidiaries, officers, directors,
employees or representatives will, directly or indirectly through another
person, (i) solicit, initiate or encourage (including by way of furnishing
information), or take any other action designed to facilitate, directly or
indirectly, any inquiries or the making of any Takeover Proposal (as defined
in Section 11), or (ii) participate in any discussions or negotiations
regarding any Takeover Proposal.
Except as permitted by the CSX Merger Agreement, the Company has agreed
that neither the Company Board nor any committee thereof will (i) withdraw or
modify (or propose publicly to do so), in a manner adverse to the other
party, its approval or recommendation of the CSX Offer or its adoption and
approval of the matters to be considered at the shareholders meetings of the
Company, (ii) approve or recommend (or propose publicly to do so), any
Takeover Proposal, or (iii) cause the Company to enter into any agreement (an
"Acquisition Agreement") related to a Takeover Proposal. In addition, the CSX
Merger Agreement provides that under certain circumstances in which the CSX
Merger Agreement is terminated, the Company will have an obligation to pay a
cash fee of $300 million to CSX (the "CSX Termination Fee"). In the event
that the CSX Termination Fee is paid and the CSX Lockup Option Agreement is
exercised by CSX, the aggregate additional cost to an acquiror of the Company
by reason of the CSX Lockup Option Agreement and the CSX Termination Fee will
amount to approximately $420 million (assuming an acquisition of the Company
at $100 per Share). In the Pennsylvania Litigation, Parent and Purchaser are
contesting the validity of both the CSX Lockup Option Agreement and the CSX
Termination Fee. See Section 11 and Section 15.
3
The foregoing description of the CSX Merger Agreement and the CSX Lockup
Option Agreement is qualified in its entirety by reference to the full text
of the CSX Merger Agreement and the CSX Lockup Option Agreement, copies of
which have been included by the Company as exhibits to the Schedule 14D-9,
dated as of October 16, 1996, filed by the Company with respect to the CSX
Offer (the "Schedule 14D-9") and may be obtained in the manner described in
Section 8 (except that copies may not be available at regional offices of the
SEC).
Under Subchapter E of Chapter 25 of the PBCL (the "Pennsylvania Control
Transaction Law"), unless a corporation's articles of incorporation or
by-laws adopted by the shareholders otherwise provide, after the occurrence
of a "control transaction", any holder of voting shares of a "registered
corporation" (such as the Company) may make written demand on the
"controlling person" for payment of cash in an amount equal to the "fair
value" of each voting share as of the date on which the control transaction
occurs. A "control transaction" is the acquisition by a person or group of
the status of a "controlling person"--that is, a person or group of persons
acting in concert who have voting power over voting shares of the registered
corporation that would entitle the holders thereof to cast at least 20% of
the votes that all shareholders would be entitled to cast in an election of
directors. See Section 15.
The Company's Articles of Incorporation (the "Company Articles") currently
do not contain a provision by which the Company "opts out" of the
Pennsylvania Control Transaction Law. The Company has filed preliminary proxy
materials with the SEC for a special meeting of the Company's shareholders
(the "Pennsylvania Special Meeting") which it has publicly stated it expects
to be held on November 14, 1996 for the purpose of voting on an amendment to
the Company Articles (the "Articles Amendment") to opt out of the
Pennsylvania Control Transaction Law. Under the Company Articles and the
PBCL, the Articles Amendment must be approved by a majority of the votes cast
by the holders of outstanding Shares, voting as a single class. The Company's
shareholders need not approve the Articles Amendment to facilitate the Offer
because, unlike CSX, Purchaser is prepared to pay cash to acquire all Shares.
As indicated in Xxxxxx's proposal, Xxxxxx intends to continue to seek to
negotiate with the Company with respect to the acquisition of the Company by
Parent or Purchaser, whether pursuant to the Offer and the Proposed Merger,
or otherwise. If such negotiations result in a definitive merger agreement
between the Company and Parent or Purchaser, the consideration to be received
by holders of Shares could include or consist of consideration other than
cash. Accordingly, such negotiations could result in, among other things,
amendment or termination of the Offer and submission of a different
acquisition proposal to the Company's shareholders for their approval. See
Section 12 and Section 14.
In connection with the Offer and during its pendency, or in the event the
Offer is terminated or not consummated, or after the expiration of the Offer
and pending the consummation of the Proposed Merger, in accordance with
applicable law and subject to the terms of any merger agreement that it may
enter into with the Company, Parent (alone or through affiliates) may explore
any and all options which may be available to it. In this regard, Parent
intends to solicit proxies against the adoption of the Articles Amendment at
the Pennsylvania Special Meeting and has filed preliminary proxy materials
with the SEC concerning such solicitation. Parent may also determine, whether
or not the Offer is then pending, to conduct a proxy contest in connection
with the Company's 1997 annual meeting of shareholders seeking to remove the
current members of the Company Board and elect a new slate of directors
designated by Parent. See Section 15. After expiration or termination of the
Offer, Parent may seek to acquire additional Shares, through open market
purchases, privately negotiated transactions, a tender offer or exchange
offer or otherwise, upon such terms and at such prices as it may determine,
which may be more or less than the price to be paid per Share pursuant to the
Offer and could be for cash or other consideration.
THE OFFER DOES NOT CONSTITUTE A SOLICITATION OF PROXIES FOR ANY MEETING OF
THE COMPANY'S SHAREHOLDERS. ANY SUCH SOLICITATION WHICH PARENT OR PURCHASER
MIGHT MAKE WOULD BE MADE ONLY PURSUANT TO SEPARATE PROXY MATERIALS COMPLYING
WITH THE REQUIREMENTS OF SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED (THE "EXCHANGE ACT").
CERTAIN CONDITIONS TO THE OFFER
Consummation of the Offer is subject to the fulfillment of a number of
conditions, including the following:
4
THE VOTING TRUST APPROVAL CONDITION. CONSUMMATION OF THE OFFER IS
CONDITIONED UPON THE RECEIPT BY PURCHASER OF AN INFORMAL WRITTEN OPINION IN
FORM AND SUBSTANCE REASONABLY SATISFACTORY TO PURCHASER FROM THE STAFF OF THE
STB, WITHOUT THE IMPOSITION OF ANY CONDITIONS UNACCEPTABLE TO PURCHASER, THAT
THE USE OF THE VOTING TRUST IN CONNECTION WITH THE OFFER AND THE PROPOSED
MERGER IS CONSISTENT WITH THE POLICIES OF THE STB AGAINST UNAUTHORIZED
ACQUISITIONS OF CONTROL OF A REGULATED CARRIER (THE "VOTING TRUST APPROVAL
CONDITION").
The Voting Trust Agreement will provide that the Voting Trustee will have
sole power to vote Shares it holds, and will contain certain other terms and
conditions designed to ensure that neither Purchaser nor Parent would control
the Company during the pendency of any necessary STB proceedings. Parent and
Purchaser will promptly request the staff of the STB to issue such an opinion
and believe that they will obtain such an opinion. Parent understands that in
the past the STB staff generally has acted on such requests within two to
four weeks, although there can be no assurance that the STB staff will act
this quickly in this instance. See Section 15.
HSR CONDITION. CONSUMMATION OF THE OFFER IS CONDITIONED UPON THE RECEIPT
OF AN INFORMAL STATEMENT FROM THE PREMERGER NOTIFICATION OFFICE OF THE
FEDERAL TRADE COMMISSION (THE "FTC") THAT THE TRANSACTIONS CONTEMPLATED BY
THE OFFER AND THE PROPOSED MERGER ARE NOT SUBJECT TO, OR EXEMPT FROM, THE
XXXX-XXXXX-XXXXXX ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED (THE "HSR
ACT"), OR, IN THE ABSENCE OF RECEIPT OF SUCH INFORMAL STATEMENT, ANY
APPLICABLE WAITING PERIOD UNDER THE HSR ACT HAVING EXPIRED OR BEEN TERMINATED
PRIOR TO THE EXPIRATION OF THE OFFER (THE "HSR CONDITION").
Parent and Purchaser believe that the Offer and the Proposed Merger are
not subject to, or are exempt from, the HSR Act. Parent and Purchaser will
request the Premerger Notification Office of the FTC to confirm this
understanding.
FINANCING CONDITION. CONSUMMATION OF THE OFFER IS CONDITIONED UPON PARENT
AND PURCHASER OBTAINING, PRIOR TO THE EXPIRATION OF THE OFFER, ON TERMS
REASONABLY ACCEPTABLE TO PARENT, SUFFICIENT FINANCING TO ENABLE CONSUMMATION
OF THE OFFER AND THE PROPOSED MERGER (THE "FINANCING CONDITION").
See Section 10 for a description of the commitments of Xxxxxxx Xxxxx
Capital Corporation and Xxxxxx Guaranty Trust Company of New York ("Xxxxxx"),
as lenders (in such capacity, the "Lenders"), to provide Parent with an
aggregate of $4 billion of loans in connection with the Offer and the
Proposed Merger. Parent intends to obtain the balance of the approximately
$11.5 billion in funds necessary to consummate the Offer and the Proposed
Merger, to pay related fees and expenses, to refinance Parent's and the
Company's existing debt and for working capital purposes through borrowings
from a syndicate of financial institutions to be arranged by the Lenders.
Parent expects to contribute such funds to Purchaser in order to finance the
purchase of Shares pursuant to the Offer and the Proposed Merger. See Section
10.
THE MINIMUM CONDITION. CONSUMMATION OF THE OFFER IS CONDITIONED UPON THERE
BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER
A NUMBER OF COMMON SHARES AND ESOP PREFERRED SHARES WHICH TOGETHER CONSTITUTE
AT LEAST A MAJORITY OF THE SHARES OUTSTANDING ON A FULLY DILUTED BASIS (THE
"MINIMUM CONDITION").
According to the CSX Merger Agreement, as of the close of business on
October 10, 1996, (i) 80,178,281 Common Shares were issued and outstanding,
(ii) 5,951,461 Common Shares were reserved for issuance pursuant to the
Company's stock-based incentive plans ("Incentive Shares"), (iii) 9,571,086
Common Shares were reserved for issuance upon conversion of the ESOP
Preferred Shares, and (iv) 9,571,086 ESOP Preferred Shares were issued and
outstanding, which shares are convertible into Common Shares on a one-for-one
basis. Also according to the CSX Merger Agreement, 15,955,477 Common Shares
have been reserved for issuance pursuant to the CSX Lockup Option Agreement.
Upon the transfer of any ESOP Preferred Shares to Purchaser at the time of
acceptance for payment of the ESOP Preferred Shares tendered pursuant to the
Offer, such ESOP Preferred Shares will be automatically converted into Common
Shares.
Based on the foregoing and disregarding for such purposes the 15,955,477
Common Shares purportedly issuable pursuant to the CSX Lockup Option
Agreement, Purchaser believes there are
5
presently 95,700,828 Shares outstanding on a fully diluted basis.
Accordingly, Purchaser believes that the Minimum Condition would be satisfied
if at least an aggregate of 47,850,415 Common Shares and ESOP Preferred
Shares are validly tendered pursuant to the Offer if no Common Shares are
then issued or validly issuable under the CSX Lockup Option Agreement, or if
at least an aggregate of 55,828,153 Common Shares and ESOP Preferred Shares
are validly tendered pursuant to the Offer if all 15,955,477 Common Shares
issuable under the CSX Lockup Option Agreement have then been issued or are
then validly issuable. For purposes of the Offer, "fully diluted basis"
assumes (i) no dilution due to Rights, (ii) the issuance of all of the
Incentive Shares, (iii) the conversion of the ESOP Preferred Shares into
Common Shares, (iv) that no Shares were issued or acquired by the Company
after October 10, 1996 (other than Common Shares issued pursuant to clauses
(ii) and (iii) above) and no options, warrants, rights or other securities
convertible into or exercisable or exchangeable for Shares were issued or
granted after October 10, 1996 other than the CSX Lockup Option Agreement,
and (v) as of the date of purchase the Company has no other obligations to
issue Shares or other securities convertible into or exercisable for Shares.
THE SUBCHAPTER F CONDITION. CONSUMMATION OF THE OFFER IS CONDITIONED UPON
PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT SUBCHAPTER F OF
CHAPTER 25 OF THE PBCL HAS BEEN COMPLIED WITH OR IS INVALID OR OTHERWISE
INAPPLICABLE TO THE OFFER AND THE PROPOSED MERGER (THE "SUBCHAPTER F
CONDITION").
The Proposed Merger, including the timing and details thereof, is subject
to, among other things, the provisions of the PBCL, including Subchapter F of
Chapter 25 thereof ("Subchapter F"). In general, Subchapter F purports to
prohibit a Pennsylvania corporation from engaging in a "Business Combination"
(defined to include a variety of transactions including mergers) with an
"Interested Shareholder" (defined generally as a person owning shares
entitled to cast at least 20% of the voting power of a corporation) for a
period of five years following the date such person became an Interested
Shareholder, unless, among other exceptions described in Section 15, (i)
before such person became an Interested Shareholder, the board of directors
of the corporation approved either the Business Combination or the
transaction in which the Interested Shareholder became an Interested
Shareholder, or (ii) the Business Combination is approved by a majority of
the corporation's voting shares, other than shares held by the Interested
Shareholder, no earlier than three months after the Interested Shareholder
became, and provided that at the time of such vote the Interested Shareholder
is, the beneficial owner of shares entitled to cast at least 80% of votes of
the corporation, and the Business Combination satisfies certain fair price
criteria.
The Subchapter F Condition would be satisfied if, prior to the purchase of
Shares pursuant to the Offer, (i) the Company Board approves either the
Proposed Merger or the purchase of Shares pursuant to the Offer, or (ii)
Purchaser, in its sole discretion, were satisfied that Subchapter F was
invalid or otherwise inapplicable to the Proposed Merger for any reason,
including, without limitation, those specified in Subchapter F. See Section
15.
Purchaser believes that, under applicable law and under the circumstances
of the Offer including the Company Board's approval of the CSX Merger
Agreement, the Company Board is obligated by its fiduciary responsibilities
to approve the Offer and the Proposed Merger for purposes of Subchapter F and
that its failure to do so would be a violation of law. Purchaser is hereby
requesting that the Company Board adopt a resolution approving the Offer and
the Proposed Merger for purposes of Subchapter F as promptly as it may do so
without violating its obligations under the CSX Merger Agreement. In the
Pennsylvania Litigation, Purchaser is seeking, among other things, an order
requiring the Company Board to approve the Offer and the Proposed Merger and
thereby render Subchapter F inapplicable. See Section 15.
THE RIGHTS CONDITION. CONSUMMATION OF THE OFFER IS CONDITIONED UPON THE
RIGHTS HAVING BEEN REDEEMED BY THE COMPANY BOARD OR PURCHASER BEING
SATISFIED, IN ITS SOLE DISCRETION, THAT THE RIGHTS ARE INVALID OR OTHERWISE
INAPPLICABLE TO THE OFFER AND THE PROPOSED MERGER (THE "RIGHTS CONDITION").
The following is based upon the Form 8-K, dated July 31, 1989, filed by
Consolidated Rail Corporation ("CRC"), which is the Company's current
operating subsidiary and which prior to the
6
Company's adoption of a holding company structure on February 17, 1993
operated on a stand alone basis (the "July 1989 Form 8-K"), the Company's
Form 8-B, dated as of September 25, 1995, and other amendments to the Rights
Agreement filed with the SEC.
On July 19, 1989, the Board of Directors of CRC declared a dividend
distribution of one Right for each share of common stock of CRC and executed
the Rights Agreement. Upon adoption by the Company of a holding company
structure on February 17, 1993, CRC assigned all of CRC's title and interest
under the Rights Agreement to the Company. On October 2, 1995, one Right was
distributed with respect to each outstanding ESOP Preferred Share. Under the
Rights Agreement, each Right entitles the holder to purchase one Common Share
at an exercise price of $205.00, subject to adjustment.
Under the Rights Agreement, until the close of business on the
Distribution Date (which is defined as the earlier of (i) 10 days following a
public announcement that a person or group of affiliated or associated
persons (the "Acquiring Person") has acquired, or obtained the right to
acquire, beneficial ownership of 10% or more of the outstanding Shares and
(ii) 10 business days (or such later date as the Company Board shall
determine) following the commencement of a tender offer or exchange offer
which would result in a person or group beneficially owning 10% or more of
the outstanding Shares), the Rights will be evidenced by the certificates
evidencing Shares (the "Share Certificates") and will be transferred with and
only with Share Certificates. As soon as practicable after the Distribution
Date, certificates evidencing the Rights (the "Rights Certificates") will be
mailed to holders of record of the Shares as of the close of business on the
Distribution Date, and thereafter the separate Rights Certificates alone will
evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire at the close of business on September 20, 2005 unless earlier
redeemed by the Company as described below.
At any time prior to the Distribution Date, the Company may redeem the
Rights in whole, but not in part, at a price of $.005 per Right (the
"Redemption Price"). Immediately upon the action of the Company Board
ordering redemption of the Rights, the Rights will terminate, and the only
right to which the holders of Rights will be entitled will be the right to
receive the Redemption Price.
Pursuant to the CSX Merger Agreement, the Company has amended the Rights
Agreement to render the Rights Agreement inapplicable to the CSX Offer, the
CSX Proposed Merger and the other transactions contemplated by the CSX Merger
Agreement and the CSX Lockup Option Agreement and to ensure, among other
things, that CSX is not deemed to be an Acquiring Person and that a
Distribution Date does not occur by reason of such agreements or
transactions. The Company has also agreed in the CSX Merger Agreement that it
may not further amend the Rights Agreement or otherwise take action
thereunder without the prior consent of CSX in its sole discretion.
Based on publicly available information, Xxxxxxxxx believes that, as of
the date of this Offer to Purchase, the Rights were not exercisable, Rights
Certificates had not been issued and the Rights were evidenced by the Share
Certificates. Xxxxxxxxx believes that, as a result of Purchaser's public
announcement of the Offer, the Distribution Date will be no later than
November 7, 1996 unless prior to such date the Company Board redeems the
Rights or amends the Rights Agreement to delay the Distribution Date.
Purchaser believes that, under applicable law and under the circumstances
of the Offer, including the Company Board's approval of the CSX Merger
Agreement and the transactions contemplated thereby, the Company Board is
obligated by its fiduciary responsibilities not to redeem the Rights or
render the Rights Agreement inapplicable to any offer by CSX without, at the
same time, taking the same action as to Parent, the Offer and the Proposed
Merger, and that the Company Board's failure to do so would be a violation of
law. In the Pennsylvania Litigation, Purchaser is seeking, among other
things, to enjoin the Company Board from taking any such action or to
invalidate the provision of the Rights Agreement that was added in September
1995 and which limits the power of the Company Board to redeem the Rights
without the approval of a majority of the members of the Company Board who
were members as of September 1995 or their nominated successors. See Section
15.
CSX TERMINATION CONDITION. CONSUMMATION OF THE OFFER IS CONDITIONED UPON
PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT THE CSX MERGER
AGREEMENT HAS BEEN TERMINATED IN ACCORDANCE WITH ITS TERMS OR OTHERWISE (THE
"CSX TERMINATION CONDITION").
7
Purchaser does not intend to consummate the Offer if at the time of such
consummation the Company is obligated to consummate the Proposed CSX Merger.
If the Company's shareholders vote to approve the Proposed CSX Merger and the
CSX Merger Agreement remains in effect, Purchaser will determine what action
to take, which might include withdrawal of the Offer. In the event that the
CSX Merger Agreement has not been terminated and the Company is believed by
Purchaser to be taking steps to seek shareholder approval of the CSX Merger
Agreement, Parent and Purchaser intend to solicit proxies in opposition to
the Proposed CSX Merger.
Certain other conditions to consummation of the Offer are described in
Section 14. Purchaser expressly reserves the right in its sole discretion to
waive any one or more of the conditions to the Offer. See Section 14.
THIS OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
1. TERMS OF THE OFFER; EXPIRATION DATE. Upon the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of any extension or amendment), Purchaser will accept
for payment and pay for all Shares which are validly tendered prior to the
Expiration Date (as hereinafter defined) and not properly withdrawn in
accordance with Section 4. The term "Expiration Date" means 12:00 Midnight,
New York City time, on Thursday, November 21, 1996, unless and until
Purchaser, in its sole discretion, shall have extended the period of time
during which the Offer is open, in which event the term "Expiration Date"
shall refer to the latest time and date at which the Offer, as so extended by
Purchaser, shall expire.
The Offer is conditioned upon, among other things, satisfaction of the
Voting Trust Approval Condition, the HSR Condition, the Financing Condition,
the Minimum Condition, the Subchapter F Condition, the Rights Condition and
the CSX Termination Condition. If any or all of such conditions are not
satisfied or if any or all of the other events set forth in Section 14 shall
have occurred prior to the Expiration Date, Purchaser reserves the right (but
shall not be obligated) to (i) decline to purchase any of the Shares tendered
in the Offer and terminate the Offer, and return all tendered Shares to the
tendering shareholders, (ii) waive or reduce the Minimum Condition or waive
or amend any or all other conditions to the Offer to the extent permitted by
applicable law, and, subject to complying with applicable rules and
regulations of the SEC, purchase all Shares validly tendered, or (iii) extend
the Offer and, subject to the right of shareholders to withdraw Shares until
the Expiration Date, retain the Shares which have been tendered during the
period or periods for which the Offer is extended.
Purchaser expressly reserves the right, in its sole discretion, at any
time and from time to time, to extend for any reason the period of time
during which the Offer is open, including the occurrence of any of the events
specified in Section 14, by giving oral or written notice of such extension
to the Depositary. During any such extension, all Shares previously tendered
and not properly withdrawn will remain subject to the Offer, subject to the
rights of a tendering shareholder to withdraw its Shares in accordance with
the procedures set forth in Section 4.
Subject to the applicable regulations of the SEC, Purchaser also expressly
reserves the right, in its sole discretion, at any time and from time to
time, (i) to delay acceptance for payment of, or, regardless of whether such
Shares were theretofore accepted for payment, payment for, any Shares pending
receipt of any regulatory approval specified in Section 15 (other than
approval by the STB of the acquisition of control of the Company by Parent)
or in order to comply in whole or in part with any other applicable law, (ii)
to terminate the Offer and not accept for payment any Shares if any of the
conditions referred to in Section 14 has not been satisfied or upon the
occurrence of any of the events specified in Section 14 and (iii) to waive
any condition or otherwise amend the Offer in any respect by giving oral or
written notice of such delay, termination, waiver or amendment to the
Depositary and by making a public announcement thereof.
Purchaser acknowledges that (i) Rule 14e-1(c) under the Exchange Act
requires Purchaser to pay the consideration offered or return the Shares
tendered promptly after the termination or withdrawal of the
8
Offer, and (ii) Purchaser may not delay acceptance for payment of, or payment
for (except as provided in clause (i) of the first sentence of the preceding
paragraph), any Shares upon the occurrence of any of the conditions specified
in Section 15 without extending the period of time during which the Offer is
open.
Any such extension, delay, termination, waiver or amendment will be
followed as promptly as practicable by public announcement thereof, with such
announcement in the case of an extension to be made no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Subject to applicable law (including Rules 14d-4(c),
14d-6(d) and 14e-1 under the Exchange Act, which require that material
changes be promptly disseminated to shareholders in a manner reasonably
designed to inform them of such changes) and without limiting the manner in
which Purchaser may choose to make any public announcement, Purchaser shall
have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a press release to the Dow Xxxxx
News Service.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, Purchaser will disseminate additional tender offer materials and
extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1
under the Exchange Act. The minimum period during which the Offer must remain
open following material changes in the terms of the Offer or information
concerning the Offer, other than a change in price or a change in percentage
of securities sought, will depend upon the facts and circumstances, including
the relative materiality of the changed terms or information. In the SEC's
view, an offer generally should remain open for a minimum of five business
days from the date a material change is first published, sent or given to
shareholders. With respect to a change in price or a change in percentage of
securities sought, a minimum ten business day period is required to allow for
adequate dissemination to shareholders and investor response. As used in this
Offer to Purchase, "business day" has the meaning set forth in Rule 14d-1
under the Exchange Act. Accordingly, if, prior to the Expiration Date,
Purchaser decreases the number of Shares being sought, or increases or
decreases the consideration offered pursuant to the Offer, and if the Offer
is scheduled to expire at any time earlier than the period ending on the
tenth business day from the date that notice of such increase or decrease is
first published, sent or given to holders of Shares, the Offer will be
extended at least until the expiration of such 10 business day period.
As of the date of this Offer to Purchase, the Rights are evidenced by the
Share Certificates and do not trade separately. Accordingly, by tendering a
Share Certificate, a shareholder is automatically tendering a similar number
of associated Rights. If, however, pursuant to the Rights Agreement or for
any other reason, the Rights detach and separate Rights Certificates are
issued, shareholders will be required to tender one Right for each Share
tendered in order to effect a valid tender of such Share.
A request is being made to the Company for the use of the Company's
shareholder list and security position listing for the purpose of
disseminating the Offer to shareholders. Upon compliance by the Company with
such request, this Offer to Purchase and the Letter of Transmittal will be
mailed to record holders of Shares and Rights and will be furnished to
brokers, dealers, commercial banks, trust companies and similar persons whose
names, or the names of whose nominees, appear on the shareholder list, and
list of holders of Rights, if applicable, who are listed as participants in a
clearing agency's security position listing for subsequent transmittal to
beneficial owners of Shares or Rights. A request is also being made to the
ESOP Trustee to transmit this Offer to Purchase and any required election
materials to participants in the ESOP who are beneficial owners of any Shares
owned of record by the ESOP Trustee.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms and
subject to the conditions of the Offer (including, if the Offer is extended
or amended, the terms and conditions of any such extension or amendment),
Purchaser will purchase, by accepting for payment, and will pay for, all
Shares which are validly tendered prior to the Expiration Date (and not
properly withdrawn in accordance with Section 4) promptly after the later to
occur of (i) the Expiration Date and (ii) the satisfaction or waiver of the
conditions set forth in Section 14. Purchaser expressly reserves the right,
in its discretion, to delay acceptance for payment of, or, subject to
applicable rules of the SEC, payment for, Shares in order to comply in whole
or in part with any applicable law.
9
In all cases, payment for Shares purchased pursuant to the Offer will be
made only after timely receipt by the Depositary of (i) the Share
Certificates and Rights Certificates, if the Rights are at such time
separately traded, or timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Shares (and Rights, if applicable), if
such procedure is available, into the Depositary's account at The Depository
Trust Company or the Philadelphia Depository Trust Company (each a
"Book-Entry Transfer Facility" and, collectively, the "Book-Entry Transfer
Facilities") pursuant to the procedures set forth in Section 3, (ii) the
Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, or, in the case of a book-entry transfer, an Agent's Message (as
defined below) and (iii) any other documents required by the Letter of
Transmittal.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgment from the participant in such
Book-Entry Transfer Facility tendering the Shares (and Rights, if applicable)
that such participant has received and agrees to be bound by the terms of the
Letter of Transmittal and that Purchaser may enforce such agreement against
the participant.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares (including the associated Rights)
validly tendered and not properly withdrawn if, as and when Purchaser gives
oral or written notice to the Depositary of Purchaser's acceptance of such
Shares for payment. Payment for Shares (including the associated Rights)
accepted pursuant to the Offer will be made by deposit of the purchase price
therefor with the Depositary, which will act as agent for tendering
shareholders for the purpose of receiving payments from Purchaser and
transmitting payments to such tendering shareholders. Under no circumstances
will interest on the purchase price for Shares be paid by Purchaser,
regardless of any delay in making such payment. Upon the deposit of funds
with the Depositary for the purpose of making payments to tendering
shareholders, Purchaser's obligation to make such payment shall be satisfied
and tendering shareholders must thereafter look solely to the Depositary for
payment of amounts owed to them by reason of the acceptance for payment of
Shares pursuant to the Offer. Purchaser will pay any stock transfer taxes
incident to the transfer to it of validly tendered Shares, except as
otherwise provided in Instruction 6 of the Letter of Transmittal, as well as
any charges and expenses of the Depositary and the Information Agent.
If any tendered Shares are not accepted for payment for any reason
pursuant to the terms and conditions of the Offer or if Share Certificates
are submitted evidencing more Shares than are tendered, Share Certificates
evidencing unpurchased Shares will be returned, without expense to the
tendering shareholder (or, in the case of Shares tendered by book-entry
transfer into the Depositary's account at a Book-Entry Transfer Facility
pursuant to the procedure set forth in Section 3, such Shares will be
credited to an account maintained at such Book-Entry Transfer Facility), as
promptly as practicable following the expiration or termination of the Offer.
If, prior to the Expiration Date, Purchaser increases the consideration to
be paid per Share pursuant to the Offer, Purchaser will pay such increased
consideration for all such Shares purchased pursuant to the Offer, whether or
not such Shares were tendered prior to such increase in consideration.
Purchaser reserves the right to transfer or assign, in whole at any time,
or in part from time to time, to Parent or one or more direct or indirect
wholly owned subsidiaries of Parent, the right to purchase all or any portion
of the Shares tendered pursuant to the Offer, provided that any such transfer
or assignment will not relieve Purchaser of its obligations under the Offer
and will in no way prejudice the rights of tendering shareholders to receive
payment for Shares validly tendered and accepted for payment pursuant to the
Offer.
3. PROCEDURES FOR TENDERING SHARES.
Valid Tender of Shares. In order for Shares to be validly tendered
pursuant to the Offer, the Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees,
or an Agent's Message (in the case of any book-entry transfer) and any other
required documents, must be received by the Depositary at one of its
addresses set forth on the back cover of this
10
Offer to Purchase prior to the Expiration Date and either (i) the Share
Certificates evidencing tendered Shares must be received by the Depositary at
one of such addresses or Shares must be tendered pursuant to the procedure
for book-entry transfer described below and a Book-Entry Confirmation must be
received by the Depositary, in each case prior to the Expiration Date, or
(ii) the tendering shareholder must comply with the guaranteed delivery
procedures described below.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT
THE SOLE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND THE DELIVERY WILL
BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS
BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at each Book-Entry Transfer Facility for purposes of the Offer
within two business days after the date of this Offer to Purchase, and any
financial institution that is a participant in either of the Book-Entry
Transfer Facilities' systems may make book-entry delivery of Shares by
causing a Book-Entry Transfer Facility to transfer such Shares into the
Depositary's account at a Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However,
although delivery of Shares may be effected through book-entry transfer at a
Book-Entry Transfer Facility, the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, or an Agent's Message in connection with a book-entry delivery of
Shares, and any other required documents must, in any case, be transmitted to
and received by the Depositary at one of its addresses set forth on the back
cover of this Offer to Purchase prior to the Expiration Date or the tendering
shareholder must comply with the guaranteed delivery procedures described
below. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE
WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE
DELIVERY TO THE DEPOSITARY.
Signature Guarantee. Signatures on all Letters of Transmittal must be
guaranteed by a firm which is a bank, broker, dealer, credit union, savings
association or other entity that is a member in good standing of the
Securities Transfer Agents Medallion Program (each, an "Eligible
Institution"), unless the Shares tendered thereby are tendered (i) by a
registered holder of Shares who has not completed either the box entitled
"Special Delivery Instructions" or the box entitled "Special Payment
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution. See Instruction 1 of the Letter of Transmittal.
If a Share Certificate is registered in the name of a person other than
the signer of the Letter of Transmittal, or if payment is to be made, or a
Share Certificate not accepted for payment or not tendered is to be returned,
to a person other than the registered holder(s), then the Share Certificate
must be endorsed or accompanied by appropriate stock powers, in either case
signed exactly as the name(s) of the registered holder(s) appear on the Share
Certificate, with the signature(s) on such Share Certificate or stock powers
guaranteed as described above. See Instructions 1 and 5 of the Letter of
Transmittal.
Guaranteed Delivery. If a shareholder desires to tender Shares pursuant to
the Offer and such shareholder's Share Certificates are not immediately
available or time will not permit all required documents to reach the
Depositary prior to the Expiration Date or the procedure for book-entry
transfer cannot be completed on a timely basis, such Shares may nevertheless
be tendered if all the following conditions are satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Purchaser herewith, is
received by the Depositary as provided below prior to the Expiration Date;
and
(iii) in the case of a guarantee of Shares, the Share Certificates for
all tendered Shares, in proper form for transfer, or a Book-Entry
Confirmation, together with a properly completed and duly executed Letter
of Transmittal (or manually signed facsimile thereof) with any required
signature
11
guarantee (or, in the case of a book-entry transfer, an Agent's Message)
and any other documents required by such Letter of Transmittal, are
received by the Depositary within three New York Stock Exchange, Inc.
("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery.
Any Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, facsimile transmission or mail to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in the
Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares purchased
pursuant to the Offer will, in all cases, be made only after timely receipt
by the Depositary of (i) the Share Certificates evidencing such Shares, or a
Book-Entry Confirmation of the delivery of such Shares, if available, (ii) a
properly completed and duly executed Letter of Transmittal (or manually
signed facsimile thereof) (or in the case of a book-entry transfer, an
Agent's Message) and (iii) any other documents required by the Letter of
Transmittal.
Distribution of Rights. Holders of Shares will be required to tender one
Right for each Share tendered to effect a valid tender of such Share. Unless
and until the Distribution Date (as defined in Section 12 below) occurs, the
Rights are represented by and transferred with the Shares. Accordingly, if
the Distribution Date does not occur prior to the Expiration Date of the
Offer, a tender of Shares will constitute a tender of the associated Rights.
If a Distribution Date has occurred, certificates representing a number of
Rights equal to the number of Shares being tendered must be delivered to the
Depositary in order for such Shares to be validly tendered. If a Distribution
Date has occurred, a tender of Shares without Rights constitutes an agreement
by the tendering shareholder to deliver certificates representing a number of
Rights equal to the number of Shares tendered pursuant to the Offer to the
Depositary within three NYSE trading days after the date such certificates
are distributed. Purchaser reserves the right to require that it receive such
certificates prior to accepting Shares for payment. Payment for Shares
tendered and purchased pursuant to the Offer will be made only after timely
receipt by the Depositary of, among other things, such certificates, if such
certificates have been distributed to holders of Shares. Purchaser will not
pay any additional consideration for the Rights tendered pursuant to the
Offer.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tendered Shares pursuant to any of the procedures described above will be
determined by Purchaser in its sole discretion, whose determination will be
final and binding on all parties. Purchaser reserves the absolute right to
reject any or all tenders of any Shares determined by it not to be in proper
form or if the acceptance for payment of, or payment for, such Shares may, in
the opinion of Purchaser's counsel, be unlawful. Purchaser also reserves the
absolute right, in its sole discretion, to waive any of the conditions of the
Offer or any defect or irregularity in any tender with respect to Shares of
any particular shareholder, whether or not similar defects or irregularities
are waived in the case of other shareholders. No tender of Shares will be
deemed to have been validly made until all defects and irregularities have
been cured or waived.
Purchaser's interpretation of the terms and conditions of the Offer
(including the Letter of Transmittal and the instructions thereto) will be
final and binding. None of Parent, Purchaser, the Dealer Managers, the
Depositary, the Information Agent or any other person will be under any duty
to give notification of any defects or irregularities in tenders or will
incur any liability for failure to give any such notification.
Appointment as Proxy. By executing a Letter of Transmittal as set forth
above, a tendering shareholder irrevocably appoints designees of Purchaser as
such shareholder's proxies, each with full power of substitution, to the full
extent of such shareholder's rights with respect to the Shares (including the
associated Rights) tendered by such shareholder and accepted for payment by
Purchaser (and any and all noncash dividends, distributions, rights, other
Shares, or other securities issued or issuable in respect of such Shares on
or after the date of this Offer to Purchase). All such proxies shall be
considered coupled with an interest in the tendered Shares or Rights. This
appointment will be effective if, when, and only to the extent that,
Purchaser accepts such Shares for payment pursuant to the Offer. Upon such
acceptance for payment, all prior proxies given by such shareholder with
respect to such Shares and other
12
securities will, without further action, be revoked, and no subsequent
proxies may be given. The designees of Purchaser will, with respect to the
Shares and other securities for which the appointment is effective, be
empowered (subject to the terms of Voting Trust Agreement for so long as it
shall be in effect with respect to the Shares or Rights) to exercise all
voting and other rights of such shareholder as they in their sole discretion
may deem proper at any annual, special, adjourned or postponed meeting of the
Company's shareholders, by written consent or otherwise, and Purchaser
reserves the right to require that, in order for Shares or other securities
to be deemed validly tendered, immediately upon Purchaser's acceptance for
payment of such Shares, Purchaser (including through the Voting Trust) must
be able to exercise full voting rights with respect to such Shares.
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO PAYMENT
TO CERTAIN SHAREHOLDERS OF THE PURCHASE PRICE FOR SHARES PURCHASED PURSUANT
TO THE OFFER, EACH SUCH SHAREHOLDER MUST PROVIDE THE DEPOSITARY WITH SUCH
SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT SUCH
SHAREHOLDER IS NOT SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY
COMPLETING THE SUBSTITUTE FORM W-9 IN THE LETTER OF TRANSMITTAL. IF BACKUP
WITHHOLDING APPLIES WITH RESPECT TO A SHAREHOLDER, THE DEPOSITARY IS REQUIRED
TO WITHHOLD 31% OF ANY PAYMENTS MADE TO SUCH SHAREHOLDER. SEE INSTRUCTION 9
OF THE LETTER OF TRANSMITTAL.
ESOP Preferred Shares. According to documents filed by the Company with
the SEC, all outstanding ESOP Preferred Shares are owned of record by the
ESOP Trustee and, accordingly, only the ESOP Trustee can effect a valid
tender of such shares. The ESOP Trustee is required to request instructions
from each participant in the ESOP as to whether ESOP Preferred Shares
allocated to such participant's account should be tendered pursuant to the
Offer, and to tender such shares in accordance with such instructions.
Pursuant to the organizational documents of the ESOP, the ESOP Trustee may
not tender allocated ESOP Preferred Shares as to which no instructions are
received. Unallocated shares are required to be tendered or not tendered in
the same proportion as allocated shares for which instructions from
participants are received.
Purchaser's acceptance for payment of Shares tendered pursuant to the
Offer will constitute a binding agreement between the tendering shareholder
and Purchaser upon the terms and subject to the conditions of the Offer.
4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer are
irrevocable except that such Shares may be withdrawn at any time prior to the
Expiration Date and, unless theretofore accepted for payment by Purchaser
pursuant to the Offer, may also be withdrawn at any time after December 22,
1996.
If Purchaser extends the Offer, is delayed in its acceptance for payment
of Shares or is unable to accept Shares for payment pursuant to the Offer for
any reason, then, without prejudice to Purchaser's rights under the Offer,
the Depositary may, nevertheless, on behalf of Purchaser, retain tendered
Shares, and such Shares may not be withdrawn except to the extent that
tendering shareholders are entitled to withdrawal rights as described in this
Section 4. Any such delay will be by an extension of the Offer to the extent
required by law.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary
at one of its addresses set forth on the back cover of this Offer to
Purchase. Any such notice of withdrawal must specify the name of the person
who tendered the Shares to be withdrawn, the number of Shares to be withdrawn
and the name of the registered holder, if different from that of the person
who tendered such Shares. If Share Certificates evidencing Shares to be
withdrawn have been delivered or otherwise identified to the Depositary,
then, prior to the physical release of such Share Certificates, the serial
numbers shown on such Share Certificates must be submitted to the Depositary
and the signature(s) on the notice of withdrawal must be guaranteed by an
Eligible Institution, unless such Shares have been tendered for the account
of an Eligible Institution. If Shares have been tendered pursuant to the
procedure for book-entry transfer as set forth in Section 3, any notice of
withdrawal must also specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Shares and
otherwise comply with such Book-Entry Transfer Facility's procedures.
13
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by Purchaser, in its sole
discretion, whose determination will be final and binding. None of Parent,
Purchaser, the Dealer Managers, the Depositary, the Information Agent or any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure
to give any such notification.
Any Shares properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the Offer. However, withdrawn Shares may be
retendered at any time prior to the Expiration Date by following the
procedures described in Section 3.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The receipt of cash pursuant
to the Offer or the Proposed Merger will be a taxable transaction for federal
income tax purposes under the Internal Revenue Code of 1986, as amended (the
"Code"), and may also be a taxable transaction under applicable state, local,
foreign and other tax laws. Generally, for federal income tax purposes, a
tendering shareholder will recognize gain or loss equal to the difference, if
any, between the amount of cash received by the shareholder pursuant to the
Offer or Proposed Merger and the aggregate tax basis in the Shares tendered
by the shareholder and purchased pursuant to the Offer or converted in the
Proposed Merger, as the case may be. Gain or loss will be computed separately
for each block of Shares (i.e., Shares acquired at the same time and price)
tendered and purchased pursuant to the Offer or converted in the Proposed
Merger, as the case may be.
If Shares are held by a shareholder as capital assets, gain or loss
recognized by the shareholder will be capital gain or loss, which will be
long-term capital gain or loss if such shareholder's holding period for the
Shares exceeds one year. Under present law, long-term capital gains
recognized by an individual shareholder generally will be taxed at a maximum
federal marginal tax rate of 28%, and long-term capital gains recognized by a
corporate shareholder will be taxed at a maximum federal marginal tax rate of
35%.
THE FOREGOING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY
NOT BE APPLICABLE WITH RESPECT TO SHARES RECEIVED PURSUANT TO THE EXERCISE OF
EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION OR WITH RESPECT TO
HOLDERS OF SHARES WHO ARE SUBJECT TO SPECIAL TAX TREATMENT UNDER THE CODE,
SUCH AS NON-U.S. PERSONS, LIFE INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS
AND FINANCIAL INSTITUTIONS, AND MAY NOT APPLY TO A HOLDER OF SHARES IN LIGHT
OF INDIVIDUAL CIRCUMSTANCES. SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM (INCLUDING THE
APPLICATION AND EFFECT OF ANY STATE, LOCAL OR OTHER TAX CONSEQUENCES) OF THE
OFFER AND THE PROPOSED MERGER.
6. PRICE RANGE OF SHARES; DIVIDENDS. According to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 (the "Company Form
10-K"), the Common Shares are listed and principally traded on the NYSE and
are also listed and traded on the Philadelphia Stock Exchange, and quoted
under the symbol "Conrail". The following table sets forth, for the quarters
indicated, the high and low sales prices per Common Share on the NYSE and the
amount of cash dividends paid per Common Share, as reported in the Company
Form 10-K for periods in 1994 and 1995, and as reported by published
financial sources with respect to periods in 1996:
14
CASH
HIGH LOW DIVIDENDS
------ ----- -----------
YEAR ENDED DECEMBER 31, 1994:
First Quarter ............................ $69 1/4 $ 56 1/2 $.325
Second Quarter ........................... 59 1/8 50 3/8 .325
Third Quarter ............................ 58 1/8 48 3/8 .375
Fourth Quarter ........................... 55 1/4 48 1/8 .375
YEAR ENDED DECEMBER 31, 1995:
First Quarter ............................ 57 5/8 50 1/2 .375
Second Quarter ........................... 56 1/4 51 1/8 .375
Third Quarter ............................ 70 1/4 55 1/8 .425
Fourth Quarter ........................... 74 3/8 65 1/2 .425
YEAR ENDING DECEMBER 31, 1996:
First Quarter ............................ 77 1/4 67 5/8 .425
Second Quarter ........................... 73 1/4 66 1/4 .425
Third Quarter ............................ 74 5/8 63 3/4 .475
Fourth Quarter (through October 23, 1996) 98 1/4 68 1/2 N.A.
On October 22, 1996, the last full trading day prior to the announcement
date of the Offer, the reported closing sales price of the Common Shares on
the NYSE Composite Tape was $84 3/4 per Common Share. SHAREHOLDERS ARE URGED
TO OBTAIN A CURRENT MARKET QUOTATION FOR THE COMMON SHARES.
According to information publicly filed by the Company, all of the
outstanding ESOP Preferred Shares are held of record by the ESOP Trustee.
There is no trading market for the ESOP Preferred Shares. Since issuance of
the ESOP Preferred Shares, the Company has paid quarterly cash dividends on
the ESOP Preferred Shares of $.54125 per share. Each ESOP Preferred Share is
convertible under certain circumstances into one Common Share.
7. EFFECT OF THE OFFER ON THE MARKET FOR THE COMMON SHARES; EXCHANGE
LISTING AND EXCHANGE ACT REGISTRATION; MARGIN REGULATIONS. The purchase of
Common Shares pursuant to the Offer will reduce the number of Common Shares
that might otherwise trade publicly and could reduce the number of holders of
Common Shares, which could adversely affect the liquidity and market value of
the remaining Common Shares held by the public. Following consummation of the
Offer, a large percentage of the outstanding Common Shares will be owned by
Purchaser.
According to the NYSE's published guidelines, the NYSE would consider
delisting the Common Shares if, among other things, the number of record
holders of at least 100 Common Shares should fall below 1,200, the number of
publicly held Common Shares (exclusive of holdings of officers, directors and
their families and other concentrated holdings of 10% or more (the "NYSE
Excluded Holdings")) should fall below 600,000 or the aggregate market value
of publicly held Common Shares (exclusive of NYSE Excluded Holdings) should
fall below $5,000,000. If, as a result of the purchase of Common Shares
pursuant to the Offer or otherwise, the Common Shares no longer meet the
requirements of the NYSE for continued listing and the listing of the Common
Shares is discontinued, the market for the Common Shares could be adversely
affected.
If the NYSE were to delist the Common Shares, it is possible that the
Common Shares would continue to trade on another securities exchange or in
the over-the-counter market and that price or other quotations would be
reported by such exchange or through the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or other sources. The extent of
the public market therefor and the availability of such quotations would
depend, however, upon such factors as the number of shareholders and/or the
aggregate market value of such securities remaining at such time, the
interest in maintaining a market in the Common Shares on the part of
securities firms, the possible termination of registration under the Exchange
Act as described below and other factors. Purchaser cannot predict whether
the reduction in the number of Common Shares that might otherwise trade
publicly would have an adverse or beneficial effect on the market price for
or marketability of the Common Shares or whether it would cause future market
prices to be higher or lower than the Offer Price.
15
The Common Shares are currently registered under the Exchange Act. Such
registration may be terminated upon application by the Company to the SEC if
the Common Shares are not listed on a national securities exchange and there
are fewer than 300 record holders of the Common Shares. The termination of
registration of the Common Shares under the Exchange Act would substantially
reduce the information required to be furnished by the Company to holders of
Common Shares and to the SEC and would make certain provisions of the
Exchange Act, such as the short-swing profit recovery provisions of Section
16(b), the requirement of furnishing a proxy statement in connection with
shareholders' meetings pursuant to Section 14(a), and the requirements of
Rule 13e-3 under the Exchange Act with respect to "going private"
transactions, no longer applicable to the Common Shares. In addition,
"affiliates" of the Company and persons holding "restricted securities" of
the Company may be deprived of the ability to dispose of such securities
pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended
(the "Securities Act").
If registration of the Common Shares under the Exchange Act were
terminated, the Common Shares would no longer be eligible for NASDAQ
reporting.
8. CERTAIN INFORMATION CONCERNING THE COMPANY. The information concerning
the Company contained in this Offer to Purchase, including financial
information, has been taken from or based upon the Company Form 10-K and
other publicly available documents and records on file with the SEC and other
public sources. Neither Parent, Purchaser nor the Dealer Managers assumes any
responsibility for the accuracy or completeness of the information concerning
the Company contained in such documents and records or for any failure by the
Company to disclose events which may have occurred or may affect the
significance or accuracy of any such information but which are unknown to
Parent, Purchaser or the Dealer Managers.
According to information filed by the Company with the SEC, the Company is
a Pennsylvania corporation whose principal executive offices are located at
0000 Xxxxxx Xxxxxx, Xxx Xxxxxxxx Xxxxxx, Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000.
Through its wholly owned subsidiary, CRC, a Pennsylvania corporation, the
Company provides freight transportation services within the northeast and
midwest United States. The Company interchanges freight with other United
States and Canadian railroads for transport to destinations within and
outside the Company's service region. As of December 31, 1995, CRC (excluding
its subsidiaries) maintained 17,715 miles of track on its 10,701 mile route
system. Of total route miles, 8,860 are owned, 100 are leased or operated
under contract and 1,741 are operated under trackage rights, including
approximately 300 miles operated pursuant to an easement over Amtrak's
Northeast Corridor. Also as of December 31, 1995, the Company had (owned or
subject to capital lease) 2,023 locomotives and 51,404 freight cars
(including 21,948 subject to operating leases), excluding locomotives and
freight cars held by subsidiaries other than CRC, which have an immaterial
number of locomotives and freight cars. The Company operates no significant
line of business other than the freight railroad business and does not
provide common carrier passenger or commuter train service.
According to information filed by the Company, with the SEC, the Company
serves a heavily industrial region that is marked by dense population centers
which constitute a substantial market for consumer durable and non-durable
goods, and a market for raw materials used in manufacturing and by electric
utilities.
Financial Information. Set forth below is certain selected consolidated
financial information relating to the Company and its subsidiaries which has
been excerpted or derived from the financial statements contained in the
Company Form 10-K, the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1996 (the "Company Form 10-Q") and other documents
filed by the Company with the SEC. More comprehensive financial information
is included in the Company Form 10-K, the Company Form 10-Q and such other
documents filed by the Company with the SEC. The financial information that
follows is qualified in its entirety by reference to the Company Form 10-K,
the Company Form 10-Q and such other documents, including the financial
statements and related notes contained therein. The Company Form 10-K, the
Company Form 10-Q and such other documents may be examined at and copies may
be obtained from the offices of the SEC or the NYSE in the manner set forth
below.
16
CONRAIL INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ----------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
INCOME STATEMENT DATA:
Revenues .................................. $1,838 $1,812 $3,686 $3,733 $3,453
Operating expenses ........................ 1,715 1,518 3,230 3,127 2,862
Operating income .......................... 123 294 456 606 591
Net income to common shareholders ........ 57 178 264 324 160
INCOME PER COMMON SHARE INFORMATION:
Net earnings per Common Share before the
cumulative effect of changes in
accounting principles
Primary .................................. $ 0.66 $ 2.17 $ 3.19 $ 3.90 $ 2.74
Fully diluted ............................ 0.64 1.98 2.94 3.56 2.51
Net per Common Share cumulative effect of
changes in accounting principles(1)
Primary .................................. -- -- -- -- (.92)
Fully diluted ............................ -- -- -- -- (.81)
Net earnings per Common Share
Primary .................................. 0.66 2.17 3.19 3.90 1.82
Fully diluted ............................ 0.64 1.98 2.94 3.56 1.70
AT JUNE 30, AT DECEMBER 31,
------------------ ----------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
BALANCE SHEET DATA:
Current assets ............................ $1,223 $1,124 $1,206 $1,125 $1,062
Property and equipment (net) .............. 6,446 6,660 6,408 6,498 6,313
Total assets .............................. 8,341 8,609 8,424 8,322 7,948
Current liabilities ....................... 1,213 1,250 1,170 1,201 1,075
Long-term debt, excluding current portion 1,887 2,068 1,911 1,940 1,959
Total shareholders' equity ................ 2,899 3,007 2,977 2,925 2,784
------------
(1) Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions" and SFAS 109, "Accounting
for Income Taxes."
On October 15, 1996, the Company issued its earnings release in which it
reported the following results for the three fiscal quarters ended September
30, 1996 as compared to the comparable period for 1995: revenues, $2,771
million versus $2,735 million; income from operations, $358 million versus
$502 million; net income, $195 million versus $294 million; net income per
Common Share, $2.39 (primary) and $2.21 (fully diluted) versus $3.61
(primary) and $3.28 (fully diluted).
The Company is subject to the information and reporting requirements of
the Exchange Act and is required to file reports and other information with
the SEC relating to its business, financial condition and other matters.
Information, as of particular dates, concerning the Company's directors and
officers, their remuneration, stock options granted to them, the principal
holders of the Company's securities, any material interests of such persons
in transactions with the Company and other matters is required to be
17
disclosed in proxy statements distributed to the Company's shareholders and
filed with the SEC. These reports, proxy statements and other information
should be available for inspection at the public reference facilities of the
SEC located in Judiciary Plaza, 000 Xxxxx Xxxxxx, X.X., Xxxxxxxxxx, X.X.
00000, and also should be available for inspection and copying at prescribed
rates at the following regional offices of the SEC: Seven World Trade Center,
New York, New York 10048; and 000 Xxxx Xxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx,
Xxxxxxxx 00000. Copies of this material may also be obtained by mail, upon
payment of the SEC's customary fees, from the SEC's principal office at 000
Xxxxx Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000. The SEC also maintains an
Internet web site at xxxx://xxx.xxx.xxx that contains reports, proxy
statements and other information. Reports, proxy statements and other
information concerning the Company should also be available for inspection at
the offices of the NYSE, 00 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
Certain Operating Relationships. Various subsidiaries of each of Parent,
on the one hand, and the Company, on the other hand, have operating
relationships with each other. The principal interchange points between
railroads of Parent and the Company are located at Hagerstown, Maryland,
Buffalo, New York, and Cincinnati, Cleveland and Toledo, Ohio. In 1993, 1994
and 1995, the percentage of total loads handled by Parent and interchanged to
or from the Company was 6.6%, 6.2% and 6.3%, respectively. In connection with
interchanges, either or both railroads of Parent and the Company may be the
party billing the shipper of such interchange freight, and in cases where one
of the parties bills for the entire shipment, such party periodically will
remit to the other party the net amount of the proceeds due to such other
carrier in accordance with standard industry practice. In addition, Parent
and the Company, together with other railroads, cooperate in terminal
switching operations at certain major locations and also have proprietary
interests in various terminal companies in their service territories.
In addition to the foregoing, the railroads of Parent and the Company are
parties to various trackage rights and haulage agreements. Haulage involves
movement by the owning railroad, with its crews, of traffic in the account of
the using railroad to and from points on the owning railroad. Under trackage
rights agreements the using railroad operates its own trains with its
employees carrying traffic in its account over the lines of the owning
railroad. Among the various cooperative arrangements between Parent and the
Company are: (i) Parent trackage rights on the Company's line between
Cincinnati and Columbus, Ohio, (ii) haulage by Parent of the Company's
automotive traffic from Bloomington, Illinois, to Lafayette, Indiana, and
haulage by Parent of certain other Company traffic between Peoria, Illinois
and Lafayette, Indiana, and (iii) Parent trackage rights on the Company's
line at Cincinnati, Ohio. In addition to the foregoing, Parent and the
Company (together with Union Pacific Railroad) operate a fleet of intermodal
containers that are free to move over the lines of each participant.
Between 1993 and 1995, Xxxxxx purchased from the Company, for
approximately $11 million, approximately 120 miles of the Company's Fort
Xxxxx line extending from Xxxx to Fort Xxxxx, Indiana. At various times
during this period, Parent operated over the Company's lines under trackage
rights agreements. Currently, the Company continues to serve several
customers in the Fort Xxxxx area using trackage rights over former Company
lines now owned by Parent.
Triple Crown Services Company. On April 1, 1993, Parent and the Company
formed Triple Crown Services Company ("TCS"), a Delaware partnership, to
provide intermodal services previously operated by a wholly owned subsidiary
of Parent. The Company paid Parent $15 million for a one-half interest in
TCS. Since 1993 both Parent and the Company have made additional capital
contributions to TCS and guaranteed financing of TCS equipment purchases. TCS
provides intermodal services throughout the eastern United States. Intermodal
services involve the movement of traffic both over the highway and on rail
lines. Major TCS initiatives, policies, budgets, and other matters are
subject to approval by a Management Committee consisting of equal numbers of
Parent and Company senior officers. The TCS Management Committee establishes
overall strategy for TCS. Relationships among TCS, Parent and the Company are
governed by numerous bilateral and trilateral written agreements. TCS's
revenues after April 1, 1993 were $101.7 million; for 1994 and 1995, they
were $148.2 million and $143.0 million, respectively.
Doublestack Clearances. In connection with the creation of the TCS
partnership, Parent and the Company agreed to cooperate to eliminate
doublestack clearance impediments between New Jersey on
18
the Company's lines and Atlanta, Georgia, on lines of Parent's railroads.
Doublestacking of intermodal containers permits one container to be placed on
top of another container for movement in specialized railcars. However, because
the height of doublestacked containers often is greater than that of a standard
railcar, certain structures over rail lines, such as tunnels, overpasses and
bridges, must be modified to permit doublestack service to be operated.
Elimination of
such clearance restrictions is costly. Parent's cost for clearance work
between its connections with the Company at Hagerstown, Maryland, and
Atlanta, Georgia, was approximately $4 million.
9. CERTAIN INFORMATION CONCERNING PURCHASER AND PARENT.
Purchaser. Purchaser is a newly incorporated Pennsylvania corporation
organized in connection with the Offer and the Proposed Merger and has not
carried on any activities other than in connection with the Offer and the
Proposed Merger. The principal offices of Purchaser are located at Xxxxx
Xxxxxxxxxx Xxxxx, Xxxxxxx, Xxxxxxxx 00000. The Purchaser is a wholly owned
subsidiary of Parent. Until immediately prior to the time that Purchaser will
purchase Shares pursuant to the Offer, it is not expected that Purchaser will
have any significant assets or liabilities or engage in activities other than
those incident to its formation and capitalization and the transactions
contemplated by the Offer and the Proposed Merger. Because Purchaser is newly
formed and has minimal assets and capitalization, no meaningful financial
information regarding Purchaser is available.
Parent. Parent is a Virginia corporation with its principal executive
offices located at Three Commercial Place, Norfolk, Virginia 23510. Parent is
a Virginia-based holding company that owns all the common stock of and
controls a major freight railroad, Norfolk Southern Railway Company; a motor
carrier, North American Van Lines, Inc. ("North American"); and a natural
resources company, Pocahontas Land Corporation ("Pocahontas Land"). The
railroad system's lines extend over more than 14,400 miles of road in 20
states, primarily in the Southeast and Midwest, and the Province of Ontario,
Canada. North American provides household moving and specialized freight
handling services in the United States and Canada, and offers certain motor
carrier services worldwide. Pocahontas Land manages approximately 900,000
acres of coal, natural gas and timber resources in Alabama, Illinois,
Kentucky, Tennessee, Virginia and West Virginia.
Parent is subject to the information and reporting requirements of the
Exchange Act and is required to file reports and other information with the
SEC relating to its business, financial condition and other matters.
Information, as of particular dates, concerning Xxxxxx's directors and
officers, their remuneration, stock options granted to them, the principal
holders of Parent's securities, any material interests of such persons in
transactions with Parent and other matters is required to be disclosed in
proxy statements distributed to Parent's shareholders and filed with the SEC.
These reports, proxy statements and other information should be available for
inspection and copies may be obtained in the same manner as set forth for the
Company in Section 8. Parent's common stock is listed on the NYSE, and
reports, proxy statements and other information concerning Parent should also
be available for inspection at the offices of the NYSE, 00 Xxxxx Xxxxxx, Xxx
Xxxx, Xxx Xxxx 00000.
Set forth below is certain selected historical consolidated financial
information relating to Parent and its subsidiaries which has been excerpted
or derived from audited financial statements presented in Parent's 1995
Annual Report to Shareholders and from Parent's unaudited consolidated
financial statements contained in Parent's Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1996. More comprehensive financial
information is included in such reports and other documents filed by Parent
with the SEC. The financial information summary set forth below is qualified
in its entirety by reference to such reports and other documents which have
been filed with the SEC, including the financial information and related
notes contained therein, which are incorporated herein by reference. Such
reports and other documents may be inspected at and copies may be obtained
from the offices of the SEC or the NYSE in the manner set forth below.
19
NORFOLK SOUTHERN CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
INCOME STATEMENT DATA:
Operating revenues ................. $ 2,378.8 $ 2,328.9 $ 4,668.0 $ 4,581.3 $ 4,460.1
Operating expenses ................. 1,807.3 1,789.7 3,581.7 3,515.9 3,599.7
Operating income ................... 571.5 539.2 1,086.3 1,065.4 860.4
Net income to common shareholders . 367.6 351.9 712.7 667.8 772.0
PER SHARE INFORMATION:
Net earnings per common share
before the cumulative effect of
changes in accounting principles . 2.88 2.67 5.44 4.90 3.94
Net per common share cumulative
effect of changes in accounting
principles for:
Income taxes ...................... -- -- -- -- 3.34
Postretirement benefits other than
pensions; and postemployment
benefits .......................... -- -- -- -- (1.74)
NET EARNINGS PER COMMON SHARE ..... 2.88 2.67 5.44 4.90 5.54
AT JUNE 30, AT DECEMBER 31,
---------------------- ----------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
BALANCE SHEET DATA:
Current assets ..................... $ 1,280.6 $ 1,352.2 $ 1,342.8 $ 1,337.5 $ 1,563.5
Property, less accumulated
depreciation ...................... 9,441.1 9,192.9 9,258.8 8,987.1 8,730.7
Total assets ....................... 11,053.4 10,829.4 10,904.8 10,587.8 10,519.8
Current liabilities ................ 1,230.6 1,176.0 1,205.8 1,131.8 1,197.9
Long-term debt, excluding current
portion ........................... 1,637.8 1,612.6 1,553.3 1,547.8 1,481.5
Total shareholders' equity ......... 4,836.0 4,769.6 4,829.0 4,684.8 4,620.7
On October 23, 1996, Parent issued its earnings release in which it
reported the following results for its three fiscal quarters ended September
30, 1996 as compared to the comparable period for 1995: revenues, $3,590.1
million versus $3,512.8 million; income from operations, $887.2 million
versus $831.3 million; net income, $569.9 million versus $535.8 million; and
net income per common share, $4.49 versus $4.07.
Parent has identified a number of synergies related to the Proposed Merger
which its management believes can be achieved that will yield aggregate
annual contribution to operating income by the year 2000 (in year 2000
dollars) of approximately $660 million, consisting of approximately $515
million of operating savings and $145 million of operating income from
revenue enhancements. The operating savings are expected to result
from reduced general and administrative expenses ($170 million), improved
equipment utilization and improved equipment maintenance ($107 million) and
improved use of rail yards and routes coupled with maintenance of way
efficiencies ($77 million), and from more efficient transportation operations
($161 million). The net new business revenues totalling $525 million which will
yield the
20
$145 million of incremental operating income are expected to be
comprised of increased revenues generated by improved single line service
($215 million), revenues generated by new coal traffic ($134 million) and
revenues generated by diverting truck traffic from highways ($316 million, of
which $126 million is expected to come from highway to carload growth and the
balance from conventional intermodal growth), decreased by $140 million of lost
revenue due to enhanced competition. Partially based on such synergies, Parent
projects that the impact of the Offer and the Proposed Merger on its earnings
per share will be modestly accretive in the first year and significantly
accretive in the second and third years, and that on a pro forma basis for
fiscal year 1997 it will have revenues of $9 billion, EBITDA of $3.1 billion, an
EBITDA to interest coverage of 3.1 to 1 and a total debt to total capitalization
ratio of 72%.
The foregoing estimates of cost savings, synergies, projected earnings per
share and pro forma financial information are "forward-looking" and inherently
subject to significant uncertainties and contingencies, many of which are beyond
the control of Parent, including: (a) future economic conditions in the markets
in which Parent and the Company operate; (b) financial market conditions; (c)
inflation rates; (d) changing competition; (e) changes in the economic
regulatory climate in the United States railroad industry; (f) the ability to
eliminate duplicative administrative functions; and (g) adverse changes in
applicable laws, regulations or rules governing environmental, tax or
accounting matters. There can be no assurance that the estimated savings,
synergies, projected earnings per share and pro forma financial information
will be achieved and actual savings, synergies, projected earnings per share
and pro forma financial information may vary materially from those estimated.
The inclusion of such estimates herein should not be regarded as an
indication that Parent, Purchaser or any other party considers such estimates
an accurate prediction of future events.
The name, citizenship, business address, principal occupation or
employment and five-year employment history for each of the directors and
executive officers of Purchaser and Parent are set forth in Schedule I
hereto.
On October 18, 1996, Atlantic Investment Company, a wholly owned
subsidiary of Parent ("Atlantic"), purchased in a market transaction 100
Common Shares at a price of $86.00 per Share. On October 23, 1996 Atlantic
transferred such shares to Purchaser. In addition, X.X. Xxxxxxxxx, the
Executive Vice President-Marketing of Parent, owns 20 Common Shares, and
Xxxxxxx X. XxXxxxx, Vice President-Internal Audit of Parent, owns 50 Common
Shares. Further, the spouse of X.X. Xxxxxxxxxx, Xx., a director of Parent, is
(i) the sole beneficiary of three trusts, the trustee of which is Mellon
Bank, that hold 5,869 Common Shares and (ii) a one-fourth beneficiary of a
trust (the "CSB Trust"), the trustee of which is Core States Bank, that holds
1,500 Common Shares. On October 18, 1996, the CSB Trust sold 500 Common
Shares at $85.625 per Share. Except as set forth in this Offer to Purchase,
none of Parent or Purchaser or, to the best knowledge of Parent or Purchaser,
any of the persons listed in Schedule I hereto, or any associate or
majority-owned subsidiary of such persons, beneficially owns any equity
security of the Company, and none of Parent or Purchaser or, to the best
knowledge of Parent or Purchaser, any of the other persons referred to above,
or any of the respective directors, executive officers or subsidiaries of any
of the foregoing, has effected any transaction in any equity security of the
Company during the past 60 days.
Except as set forth in this Offer to Purchase, none of Parent or Purchaser
or, to the best knowledge of Parent or Purchaser, any of the persons listed
in Schedule I hereto has any contract, arrangement, understanding or
relationship with any other person with respect to any securities of the
Company, including, without limitation, any contract, arrangement,
understanding or relationship concerning the transfer or the voting of any
securities of the Company, joint ventures, loan or option arrangements, puts
or calls, guaranties of loans, guaranties against loss or the giving or
withholding of proxies. Except as set forth in this Offer to Purchase, none
of Parent or Purchaser or, to the best knowledge of Parent or Purchaser, any
of the persons listed in Schedule I hereto has had any transactions with the
Company, or any of its executive officers, directors or affiliates that would
require reporting under the rules of the SEC.
Except as set forth in this Offer to Purchase, there have been no
contacts, negotiations or transactions between Parent or Purchaser, or their
respective subsidiaries, or, to the best knowledge of Parent or
21
Purchaser, any of the persons listed in Schedule I hereto, on the one hand,
and the Company or its executive officers, directors or affiliates, on the
other hand, concerning a merger, consolidation or acquisition, tender offer
or other acquisition of securities, election of directors, or a sale or other
transfer of a material amount of assets.
10. SOURCE AND AMOUNT OF FUNDS. Purchaser estimates that the total amount
of funds required to purchase Shares pursuant to the Offer and the Proposed
Merger, to pay all related costs and expenses, to refinance Parent's and the
Company's existing debt and for working capital/purposes will be
approximately $11.5 billion. See also Section 16.
Parent and Purchaser intend to obtain the funds from loans to be arranged
by Xxxxxxx Xxxxx & Co. and X.X. Xxxxxx Securities Inc. (in such capacity, the
"Arrangers"). The Arrangers and the Lenders have entered into a commitment
letter with Parent and Purchaser, dated October 22, 1996 (the "Financing
Commitment"), pursuant to which the Lenders have each committed to provide $2
billion of a total of $11.5 billion in required borrowings pursuant to a
senior credit facility (the "Credit Facility") to finance the Offer and the
Proposed Merger, to pay related fees and expenses, to refinance Parent's and
the Company's existing debt and for working capital purposes. It is
anticipated that the Arrangers will arrange and/or syndicate the Credit
Facility with a group of commercial banks.
The Lenders' commitments under the Financing Commitment are subject to the
following conditions, among others: (i) the execution and delivery of
satisfactory definitive documentation with respect to the Credit Facility;
(ii) there having been validly tendered to Purchaser sufficient Shares to
enable Parent to effect the Proposed Merger without the requirement of any
action by any other shareholder of the Company; (iii) all conditions to the
Offer having have been satisfied without waiver or amendment; (iv) Purchaser
having accepted for purchase all such tendered Shares; and (v) the absence of
material adverse change with respect to Parent, with respect to financial,
bank syndication or capital market conditions and with respect to information
disclosed concerning the Company.
The Credit Facility will consist of four facilities. Three of these
facilities are term loan facilities. One term loan will have a principal
amount of $2.5 billion repayable on the earlier of six months from the date
on which the approval of the STB shall have been obtained and the third
anniversary of the execution and delivery of definitive documentation
providing for the Credit Facility (the "Closing Date"). The second term loan
will have a principal amount of $3 billion repayable 24 months after the
maturity of the first term loan. The third term loan will have a principal
amount of $3 billion repayable six and one-half years from the Closing Date.
Each of the term loans will bear interest at a rate per annum equal to, at the
option of Parent and Purchaser, either (i) the Eurodollar rate plus a margin
which will initially be .75% and may be adjusted depending upon Parent's senior
unsecured long-term debt ratings following the announcement of the Offer to
between .875% and .225%, (ii) an adjusted CD rate or (iii) the higher of
Xxxxxx'x prime rate or the federal funds rate plus .50% (the "base rate"), and,
depending upon Parent's senior unsecured long-term debt ratings following the
announcement of the Offer, a margin of .25% (the "Variable Rate"). The fourth
facility will be a revolving credit facility of $3 billion, which will bear
interest at the Variable Rate or a money market rate, and will mature five years
after the Closing Date. The Credit Facility also provides for a facility fee
accruing on the total amount available or outstanding thereunder at a rate which
will initially be .25% per annum and may be adjusted depending upon Parent's
senior unsecured long-term debt ratings following the announcement of the Offer
to between .125% and .375% per annum. The Credit Facility will contain certain
financial covenants as well as certain restrictions on, among other things, (i)
maturities or amortization of indebtedness prior to six months after the final
maturity of the loans under the Credit Facility, (ii) indebtedness of
subsidiaries, (iii) liens, (iv) mergers, consolidations, liquidations,
dissolutions and sales of assets, (v) transactions with affiliates, and (vi) the
ability of subsidiaries to pay dividends. The financial covenants require Parent
to maintain specified (i) minimum interest coverage ratios, (ii) minimum net
worth, and (iii) maximum leverage ratios. The financial covenants also restrict
payments, transfers or other distributions from Parent to the Company prior to
the later of the consummation of the Proposed Merger or the date on which the
approval of the STB shall have been obtained.
In connection with the Financing Commitment, Xxxxxx has agreed to pay the
Arrangers and the Lenders certain fees, to reimburse the Arrangers and the
Lenders for certain expenses and to provide certain indemnities, as is customary
for commitments of the type described herein.
22
It is anticipated that the indebtedness incurred by Parent and Purchaser
under the Credit Facility will be repaid from funds generated internally by
Parent and its subsidiaries (including, after the Proposed Merger, if
consummated, funds generated by the Company and its subsidiaries),
through additional borrowings, or through a combination of such sources. No
final decisions have been made concerning the method Parent will employ to
repay such indebtedness. Such decisions when made will be based on Parent's
review from time to time of the advisability of particular actions, as well
as on prevailing interest rates and financial and other economic conditions.
11. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY. For a number of
years, certain members of senior management of Parent, including Xxxxx X.
Xxxxx, Chairman and Chief Executive Officer of Parent, have spoken numerous
times with senior management of the Company, including the Company's former
Chairman and Chief Executive Officer, Xxxxx X. Xxxxx, and the Company's
current Chairman and Chief Executive Officer, Xxxxx X. XxXxx, concerning a
possible business combination between Parent and the Company. Ultimately, the
Company's management encouraged such discussions prior to Xx. Xxxxx'x
retirement as Chief Executive Officer of the Company. The Company
discontinued such discussions in September 1994, when the Company announced
that Xx. XxXxx would succeed Xx. Xxxxx.
Prior to 1994, senior management of Parent and the Company discussed, from
time to time, opportunities for business cooperation between the companies,
and, in some of those discussions, the general concept of a business
combination. While the companies determined to proceed with certain business
cooperation opportunities, including TCS, no decisions were reached
concerning a business combination at that time.
In March of 1994, Xx. Xxxxx approached Xx. Xxxxx to suggest that, under
the current regulatory environment, the Company's management now believed
that a business combination between the Company and Parent could be
accomplished, and that the companies should commence discussion of such a
transaction. Xx. Xxxxx agreed to schedule a meeting between legal counsel for
Parent and the Company for the purpose of discussing regulatory issues.
Following that meeting, Xx. Xxxxx met with Xx. Xxxxx to discuss in general
terms a combination of the Company and Parent. Thereafter, during the period
from April through August 1994, management and senior financial advisors of
the respective companies met on numerous occasions to negotiate the terms of
a combination of the Company and Parent. The parties entered into a
confidentiality agreement on August 17, 1994. During these discussions, Xx.
Xxxxx and other representatives of the Company pressed for a premium price to
reflect the acquisition of control over the Company by Parent. Initially,
Parent pressed instead for a stock-for-stock merger of equals in which no
control premium would be paid to the Company's shareholders. The Company's
management insisted on a control premium, however, and ultimately the
negotiations turned toward a premium stock-for-stock acquisition of the
Company.
By early September 1994, the negotiations were in an advanced stage.
Parent had proposed an exchange ratio of 1-to-1, but the Company's management
was still pressing for a higher premium. In a meeting in Philadelphia on
September 23, 1994, Xx. Xxxxx increased the proposed exchange ratio to
1.1-to-1, and left the door open to a higher ratio. Xx. Xxxxx then told Xx.
Xxxxx that they could not reach agreement because the Company Board had
determined to remain independent and pursue the Company's stand alone policy.
The meeting then concluded.
Following the termination of acquisition negotiations between Parent and
the Company in September of 1994, Xx. Xxxxx from time to time had
conversations with Xx. XxXxx. During virtually all of these conversations,
Xx. Xxxxx expressed Xxxxxx's strong interest in negotiating an acquisition of
the Company. Xx. XxXxx responded that the Company wished to remain
independent. Nonetheless, Xx. Xxxxx was led to believe that if and when the
Company Board determined to pursue a sale of the Company, it would pursue
such a transaction through a process in which Parent would have an
opportunity to bid.
At its September 24, 1996 meeting, the Parent Board reviewed its strategic
alternatives and determined that Parent should press for an acquisition of
the Company. Accordingly, Xx. Xxxxx contacted Xx. XxXxx to reiterate Xxxxxx's
strong interest in acquiring the Company and request a meeting at which he
could present a concrete proposal. Xx. XxXxx responded that the Company Board
would be
23
holding a strategic planning meeting and that he and Xx. Xxxxx would
be in contact after that meeting. Xx. Xxxxx emphasized that he wished to
communicate Xxxxxx's proposal so that the Company Board would be aware of it
during the strategic planning meeting. Xx. XxXxx stated that it was unnecessary
for Xx. Xxxxx to do so. At this point, the conversation concluded.
Following September 24, Xx. XxXxx did not contact Xx. Xxxxx. Finally, on
Friday, October 4, 1996, Xx. Xxxxx telephoned Xx. XxXxx. Xx. Xxxxx again
reiterated Xxxxxx's strong interest in making a proposal to acquire the
Company. Xx. XxXxx responded that the Company Board would be meeting on
October 16, 1996, and that he assumed that he and Xx. Xxxxx would contact Xx.
Xxxxx following that meeting. Xx. Xxxxx again stated that Xxxxxx wanted to
make a proposal so that the Company Board would be aware of it. Xx. XxXxx
stated that it was unnecessary to do so.
On October 15, 1996, the Company and CSX announced that they had entered
into the CSX Merger Agreement contemplating the Proposed CSX Transaction.
Integral to the Proposed CSX Transaction are covenants substantially
increasing Xx. XxXxx'x compensation and severance benefits and guaranteeing
that he will succeed Xxxx Xxxx, the Chairman and Chief Executive Officer of
CSX, as the combined company's Chairman and Chief Executive Officer.
On October 16, 1996, Xx. Xxxxx met in Washington, D.C. with Xx. Xxxx at
Xx. Xxxx'x invitation to discuss the Proposed CSX Transaction and certain
regulatory issues it raised. Xx. Xxxx advised Xx. Xxxxx during that meeting
that the Company's counsel and investment bankers had ensured that the
Proposed CSX Transaction is "bulletproof," implying that the sale of control
of the Company to CSX is now a fait accompli. Xx. Xxxx added that the
Pennsylvania statute, referring to the PBCL, was "great", adding that the
Company's directors have almost no fiduciary duties. Xxxxxx believes that Xx.
Xxxx'x comments were intended to discourage Parent from making a competing
offer for control of the Company and to suggest that Parent had no choice but
to negotiate with CSX for access to such portions of the Company's rail
system as would be necessary to address the regulatory concerns that would be
raised by consummation of the Proposed CSX Transaction. After Xx. Xxxx told
Xx. Xxxxx what CSX was willing to offer to Parent in this regard, the meeting
concluded.
On October 22, the Parent Board met to review its strategic options in
light of announcement of the Proposed CSX Transaction. Because the Parent
Board believes that a combination of Parent and the Company would offer
compelling benefits to both companies, their shareholders, and their other
constituencies, it determined that Parent should make a competing bid for the
Company. On October 23, 1996, Xxxxxx publicly announced its intention to
commence the Offer, to be followed by the Proposed Merger. On the same day,
Xx. Xxxxx sent the following letter to Xx. XxXxx:
October 23, 1996
Board of Directors
Conrail Inc.
0000 Xxxxxx Xxxxxx
Xxx Xxxxxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxx X. XxXxx, Chairman
Dear Members of the Board:
For a number of years, other members of our senior management and I have
spoken numerous times with Xx. XxXxx, your current Chairman, and with Xx.
Xxxxx, your former Chairman, and with other senior officers of your company.
During many of these conversations, we at Norfolk Southern expressed a desire
to join our companies together.
On two recent occasions, in late September and again on October 4, I
contacted Xx. XxXxx to reiterate our strong interest in acquiring Conrail and
request a meeting at which I could present a concrete proposal. In each case,
I emphasized that I wished to communicate our proposal so that the Conrail
Board would be aware of it during their next meeting. Also in each case, Xx.
XxXxx stated that it was unnecessary for me to do so.
24
In view of this background, it came as a disappointment to me when it was
announced on October 15 that you had agreed to the proposed acquisition of
Conrail by CSX Corporation. We regret that, despite knowing our long-term
interest in joining Conrail with Norfolk Southern, your Chairman ignored our
long-standing offer to submit a business combination proposal to you.
Since October 15, we have been analyzing the proposed CSX transaction and
have been considering the possibility of making a proposal that would be
demonstrably superior to your proposed transaction with CSX. We now have
completed that process and are using this letter to communicate our
conclusions to you.
On behalf of Norfolk Southern, I am hereby making the following proposal.
Our proposal is that Norfolk Southern would acquire all of the outstanding
shares of Conrail common stock for cash at a price of $100.00 per share. This
would be accomplished by a "first step" cash tender offer for all outstanding
shares of Conrail, followed by a "second step" merger in which Conrail's
remaining shareholders would receive the same cash purchase price per share
paid in the offer. This offer represents a premium of $11.49 (13%) over the
blended value of CSX's proposal based on yesterday's closing price of CSX
shares. Our offer will provide for a voting trust to hold the Conrail shares
acquired in the tender offer and merger and thereby allow Conrail
shareholders to receive immediate payment for all their shares in the tender
offer and merger.
To underscore the seriousness of our intentions, we are commencing
promptly a cash tender offer, which can serve as the "first step" tender
offer contemplated by our proposal. On the other hand, unless and until you
terminate your pending proposed transaction with CSX in a manner permitted
under the terms of your merger agreement with CSX and enter into an agreement
with us, our cash tender offer will stand on its own as an offer made
directly to your shareholders.
Subject to your Board's favorable response to our proposal, we are
prepared to negotiate a merger agreement on substantially the same terms and
conditions as your proposed transaction with CSX, except as it would be
modified to reflect the all-cash consideration that we are offering. In
addition, we are prepared to offer significant representation of Conrail
directors on the Norfolk Southern Board, to consider locating the corporate
headquarters of the combined company in Philadelphia and to discuss an
appropriate position for your Chairman following a transaction with us. We
believe that we offer your senior management opportunities for continued
career growth that appear to us not to exist with CSX. Although we determined
that it was appropriate, under the circumstances, to commence our cash tender
offer, our strong preference would be to negotiate a merger agreement with
you.
The price we are offering in our proposal, $100 per share, clearly
provides significantly greater and more certain value to your shareholders
than the proposed transaction with CSX. In addition, we believe our proposed
transaction can be completed on a more timely basis than the proposed CSX
transaction. Accordingly, we strongly believe that, pursuant to Section 4.2
of your agreement with CSX, you should promptly request and obtain from your
counsel their advice confirming that you are obligated by principles of
fiduciary duty to consider our proposal. Also, we expect that, upon your
receipt of such advice and consistent with your clear fiduciary duties, you
will give us access to at least all the same information you furnished to CSX
in the course of your discussions and negotiations with them and that you
will discuss and negotiate with us the details of our proposal. In addition,
you should take whatever other actions are reasonably necessary or
appropriate so that we may operate on a level playing field with CSX and any
other companies which may be interested in acquiring Conrail.
Besides the benefits for your shareholder constituency, we are confident
that Conrail's employees, suppliers, customers, creditors and the communities
in which Conrail is located will be better served by the combination of
Norfolk Southern and Conrail as compared with the CSX proposal. Moreover,
because a Norfolk Southern merger presents a substantially more favorable
competitive and regulatory picture, our proposal is more consistent with both
the long and short-term interests of Conrail. We look forward to the
opportunity to directly discuss these matters with you in the manner they
would have been communicated before the xxxxx attempt to lock-up a deal with
CSX. To ensure that your Board fulfills its fiduciary obligations and to
resolve certain other issues, we have today commenced litigation in the
Federal District Court for the Eastern District of Pennsylvania.
25
Our Board of Directors is fully supportive of our proposal and has
authorized and approved it. Consistent with our Board's action, we and our
advisors stand ready, willing and able to meet with you and your advisors at
your earliest convenience. I want to stress that we are flexible as to all
aspects of our proposal, including the possibility of substituting a
substantial equity component to our present offer so that your shareholders
could have a continuing interest in the combined enterprise, and are anxious
to proceed to discuss and negotiate it with you as soon as possible.
Personally and on behalf of my colleagues at Norfolk Southern, I look
forward to hearing from you soon and working with you on our proposal.
Sincerely,
/s/ Xxxxx X. Xxxxx
-------------------
Xxxxx X. Xxxxx
cc: All Directors
In the CSX Merger Agreement, the Company has agreed to the No Negotiation
Provision providing that neither the Company nor any of its subsidiaries,
officers, directors, employees or representatives will, directly or
indirectly through another person, solicit, initiate or encourage (including
by way of furnishing information), or take any other action designed to
facilitate, directly or indirectly, any inquiries or the making of any
proposal relating to the acquisition or purchase of more than 50% of the
assets of the Company and its subsidiaries or more than 50% of the equity
securities of the Company entitled to vote generally in the election of
directors, any tender offer or exchange offer that if consummated would
result in any person beneficially owning more than 50% of the equity
securities of the Company entitled to vote generally in the election of
directors, or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
the Company (a "Takeover Proposal"), other than the transactions contemplated
by the CSX Merger Agreement or the Lockup Agreements. The No Negotiation
Provision also provides that neither the Company nor any of its subsidiaries,
officers, directors, employees or representatives will participate in any
discussions or negotiations regarding any Takeover Proposal. Notwithstanding
the No Negotiation Provision, the CSX Merger Agreement provides that if, at
any time prior to the earlier of (x) the consummation of the CSX Offer and
(y) the obtaining of the Company Shareholder Approval, in the case of the
Company, or the CSX Shareholder Approval, in the case of CSX, or after 180
days from the date of the CSX Merger Agreement and prior to the Approval Date
(as defined in the next paragraph), the Board of Directors of the Company or
CSX, as applicable, determines in good faith, based on the advice of outside
counsel, that it is necessary to do so to avoid a breach of its fiduciary
duties to the Company under applicable law, the Company or CSX, as
applicable, may, in response to a Takeover Proposal which was not solicited
by it or which did not otherwise result from a breach of the terms of the CSX
Merger Agreement described in this paragraph, and subject to compliance with
certain notice provisions of the CSX Merger Agreement, (x) furnish
information with respect to it and its subsidiaries to any person pursuant to
a customary confidentiality agreement (as determined by the party receiving
such Takeover Proposal after consultation with its outside counsel) the
benefits of the terms of which, if more favorable to the other party to such
confidentiality agreement than those in place with the other party to the CSX
Merger Agreement, shall be extended to the other party to the CSX Merger
Agreement, and (y) participate in negotiations regarding such Takeover
Proposal.
Except as permitted by the CSX Merger Agreement, the Company and CSX have
agreed that neither the Board of Directors of the Company or CSX, as
applicable, nor any committee thereof will (i) withdraw or modify (or propose
publicly to do so), in a manner adverse to the other party, its approval or
recommendation of the CSX Offer or its adoption and approval of the matters
to be considered at the respective shareholders meetings of the Company or
CSX, (ii) approve or recommend (or propose publicly to do so), any Takeover
Proposal, or (iii) cause the Company or CSX, as applicable, to enter into any
Acquisition Agreement related to a Takeover Proposal. However, the CSX Merger
Agreement
26
provides that if at any time following 180 days after the date of the CSX
Merger Agreement and prior to the earlier of (a) the time that at least 40%
of the outstanding Shares on a fully diluted basis have been deposited in the
voting trust contemplated by the CSX Merger Agreement and (b) the obtaining
of Company Shareholder Approval (in the case of the Company) or CSX
Shareholder Approval (in the case of CSX) (such earlier date referred to in
clause (a) or (b) being the "Approval Date") there exists a Superior Proposal
(as defined below), and such Board of Directors determines that (x) in the
case of the Board of Directors of the Company, there is no substantial
probability that CSX will succeed in acquiring 40% of the Shares in the CSX
Offer and/or the second tender offer contemplated by the CSX Merger Agreement
or otherwise (or if the approval by the Company's shareholders of an
amendment to the Company's Articles to "opt out" of the Pennsylvania Control
Transaction Law has not been obtained, there is no substantial probability
that the Company Shareholder Approval will be obtained), in either case due
to the existence of such Superior Proposal with respect to the Company or (y)
in the case of the Board of Directors of CSX, there is no substantial
probability that the CSX Shareholder Approval will be obtained due to the
existence of such Superior Proposal with respect to CSX, the Board of
Directors of the Company or CSX, as applicable, may (subject to this and the
following sentences) withdraw or modify its approval or recommendation of the
CSX Offer, the Proposed CSX Merger or the adoption and approval of the
matters to be considered at their respective shareholder meetings and approve
or recommend such Superior Proposal or terminate the CSX Merger Agreement
(and concurrently, if it so chooses, cause the Company or CSX, as applicable,
to enter into an Acquisition Agreement with respect to such Superior
Proposal), but only after giving the notice required by the CSX Merger
Agreement. As used in the CSX Merger Agreement, a "Superior Proposal" means
any proposal made by a third party to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, more than 50% of the
voting equity securities of the Company or CSX, as the case may be, or all or
substantially all the assets of the Company or CSX, as the case may be, and
otherwise on terms which the Board of Directors of such party determines in
its good faith judgment (x) (based on the written opinion of a nationally
recognized financial advisor) to be more favorable from a financial point of
view to its shareholders than the CSX Offer and the Proposed CSX Merger and
for which any required financing is then committed and (y) to be more
favorable to such party than the CSX Offer and the Proposed CSX Merger after
taking into account all constituencies (including shareholders) and pertinent
factors permitted under applicable Pennsylvania or Virginia law, as the case
may be.
The CSX Merger Agreement provides that, in the event that (i) a Takeover
Proposal in respect of the Company shall have been made known to the Company
or any of its subsidiaries or has been made directly to its shareholders
generally or any person shall have publicly announced an intention (whether
or not conditional) to make such a Takeover Proposal and thereafter the CSX
Merger Agreement is terminated by either CSX or the Company as a result of
the CSX Merger not having been consummated by December 31, 1998, or if the
Company Shareholder Approval is not obtained in a meeting of the Company's
shareholders duly convened therefor or at any adjournment or postponement
thereof or (ii) the CSX Merger Agreement is terminated (x) by the Company
pursuant to the No Negotiation Provision of the Merger Agreement or (y) by
CSX if (I) the Company Board or, if applicable, any committee thereof,
withdraws or modifies in a manner adverse to CSX its approval or
recommendation of the CSX Offer or the Proposed CSX Merger or the matters to
be considered at the meetings of the Company's shareholders called to approve
the Proposed CSX Merger and the other transactions contemplated by the CSX
Merger Agreement or fails to reconfirm its recommendation within 15 business
days after a written request to do so, or approves or recommends any Takeover
Proposal in respect of the Company or (II) the Company Board or any committee
thereof has resolved to take any of the foregoing actions; then the Company
will (A) promptly, but in no event later than two days after the date of the
termination, pay CSX the Termination Fee (except that no Termination Fee will
be payable pursuant to clause (i) of this sentence unless and until within 24
months of such termination the Company or any of its subsidiaries enters into
an Acquisition Agreement or consummates a Takeover Proposal).
The foregoing description of the CSX Merger Agreement and the CSX Lockup
Option Agreement is qualified in its entirety by reference to the full text
of the CSX Merger Agreement and the CSX Lockup Option Agreement, copies of
which have been included by the Company as exhibits to the Schedule 14D-9 and
may be obtained in the manner described in Section 8 (except that copies may
not be available at regional offices of the SEC).
27
12. PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY; CERTAIN
CONSIDERATIONS.
General. The purpose of the Offer is for Parent to acquire control of, and
the entire equity interest in, the Company. The Offer, as the first step in
the acquisition of the Company, is intended to facilitate the acquisition of
all Shares. Purchaser is seeking to consummate the Proposed Merger with the
Company as promptly as practicable following consummation of the Offer. The
purpose of the Proposed Merger is to acquire all Shares not beneficially
owned by Purchaser following consummation of the Offer.
Pursuant to the Proposed Merger, each Share outstanding (other than Shares
held by the Company or any subsidiary of the Company and Shares owned by
Parent, Purchaser or any direct or indirect subsidiary of Parent) would be
converted into the right to receive an amount in cash equal to the price per
Share paid pursuant to the Offer. Although it is the current intention of
Parent and Purchaser to seek to enter into the Proposed Merger Agreement and
to consummate the Proposed Merger as promptly as practicable following
consummation of the Offer, such consummation depends upon a number of factors
and circumstances, and there can be no assurance that the Proposed Merger
will be consummated, or, if consummated, the timing thereof.
Consummation of the Proposed Merger will require approval by the Company
Board and the affirmative vote of the holders of a majority of the votes cast
by all outstanding Common Shares and ESOP Preferred Shares, voting as a
single class. It is contemplated that the Voting Trust Agreement will
provide, among other things, that, if Purchaser purchases Shares pursuant to
the Offer, the Voting Trustee will seek to obtain maximum representation on
the Company Board and otherwise to exercise control over the business and
affairs of the Company and to vote all Shares held in the Voting Trust in
favor of the Proposed Merger. If Purchaser purchases Shares pursuant to the
Offer and the Minimum Condition is satisfied, the Voting Trustee would have a
sufficient number of Shares to approve the Proposed Merger without the
affirmative vote of any other holder of Shares and to elect directors as
described above. Although the Voting Trustee would seek consummation of the
Proposed Merger as soon as practicable following the purchase of Shares
pursuant to the Offer, the exact timing and details of the Proposed Merger
would depend on a variety of factors and legal requirements, including, among
other things, whether the conditions to the Offer have been satisfied or
waived. As described below, certain provisions of the Company Articles and
the Company's By-Laws (the "Company By-Laws") may impair and delay the
ability of the Voting Trustee to obtain a majority of the Company Board and
to consummate the Proposed Merger.
Alternatively, the "short-form" merger provisions of the PBCL provide that
if, following completion of the Offer, Purchaser owns 80% or more of the
Shares, the Voting Trustee would have the power to consummate the Proposed
Merger without any action by the Company Board and without the vote of any of
the Company's other shareholders.
Although Xxxxxx has sought to enter into negotiations with the Company
with respect to the Proposed Xxxxxx and continues to pursue such
negotiations, there can be no assurance that such negotiations will occur or,
if such negotiations occur, as to the outcome thereof. Purchaser reserves the
right to amend the Offer (including amending the number of Shares to be
purchased, the purchase price and the proposed second-step merger
consideration) if it enters into the Proposed Merger Agreement or to
negotiate a merger agreement with the Company not involving a tender offer
pursuant to which Purchaser would terminate the Offer and the Shares would,
upon consummation of such merger, be converted into cash, common stock of
Parent and/or other securities in such amounts as are negotiated by Parent
and the Company.
In connection with the Offer and during its pendency, or in the event the
Offer is terminated or not consummated, or after the expiration of the Offer
and pending the consummation of the Proposed Merger, in accordance with
applicable law and subject to the terms of any merger agreement that it may
enter into with the Company, Parent may explore any and all options which may
be available to it. In this regard, Parent intends to solicit proxies against
the adoption of the Articles Amendment at the Pennsylvania Special Meeting
and has filed preliminary proxy materials with the SEC concerning such
solicitation. Parent may also determine, whether or not the Offer is then
pending, to conduct a proxy contest in connection with the Company's 1997
annual meeting of shareholders seeking to remove the
28
current members of the Company Board and elect a new slate of directors
designated by Parent. After expiration or termination of the Offer, Parent
may seek to acquire additional Shares, through open market purchases,
privately negotiated transactions, a tender offer or exchange offer or
otherwise, upon such terms and at such prices as it may determine, which may
be higher or lower than the price to be paid pursuant to the Offer and could
be for cash or other consideration.
THE OFFER DOES NOT CONSTITUTE A SOLICITATION OF PROXIES FOR ANY ANNUAL OR
OTHER MEETING OF THE COMPANY'S SHAREHOLDERS. ANY SUCH SOLICITATION WHICH
PARENT OR PURCHASER MIGHT MAKE WOULD BE MADE ONLY PURSUANT TO SEPARATE PROXY
MATERIALS IN COMPLIANCE WITH THE REQUIREMENTS OF SECTION 14(A) OF THE
EXCHANGE ACT.
Whether or not the Offer is consummated, Purchaser reserves the right,
subject to applicable legal restrictions, to sell or otherwise dispose of any
or all Shares acquired pursuant to the Offer or otherwise. Such transactions
may be effected on terms and at prices as it shall determine, which may be
higher or lower than the price to be paid pursuant to the Offer and could be
for cash or other consideration.
Plans for the Company. In connection with the Offer, Parent and Purchaser
have reviewed, and will continue to review, on the basis of publicly
available information, various possible business strategies that they might
consider in the event that the Parent acquires control of the Company,
whether pursuant to the Proposed Merger or otherwise. In addition, if and to
the extent that Parent acquires control of the Company or, subject to
applicable STB rules and regulations, otherwise obtains access to the books
and records of the Company, Parent and Purchaser intend to conduct a detailed
review of the Company and its assets, corporate structure, dividend policy,
capitalization, operations, properties, policies, management and personnel
and to consider and determine what, if any, changes would be desirable in
light of the circumstances which then exist. Such strategies could include,
among other things, changes in the Company's business, corporate structure,
capitalization, management or dividend policy and changes to the Company
Articles or Company By-Laws.
Except as indicated in this Offer to Purchase, neither Parent nor
Purchaser has any present plans or proposals which relate to or would result
in an extraordinary corporate transaction, such as a merger, reorganization
or liquidation, involving the Company or any of its subsidiaries, a sale or
transfer of a material amount of assets of the Company or any of its
subsidiaries or any material change in the Company's capitalization or
dividend policy or any other material changes in the Company's corporate
structure or business, or the composition of the Company Board or management.
Dissenters' Rights and Other Matters. No appraisal rights are available in
connection with the Offer. In accordance with the United States Supreme Court
decision, Xxxxxxxxxxx v. United States, 334 U.S. 192 (1948), if the Proposed
Merger were approved by the STB in connection with Parent's acquisition of
control of the Company, shareholders of the Company would not have any
dissenters' rights under state law, unless the STB (or any successor agency)
or a court of competent jurisdiction determines that state-law dissenters'
rights are available to holders of Shares. Xxxxxx considers it unlikely that
the STB or a court would determine that state-law dissenters' rights are
available to holders of Shares.
If the Proposed Merger is consummated without STB approval and if
dissenters' rights are otherwise available to holders of Shares, such rights
would be provided in accordance with Section 1571 et seq. of the PBCL. In
such event, any issued and outstanding Shares held by persons who object to
the Proposed Merger and comply with all the provisions of the PBCL concerning
the right of holders of Shares to dissent from the Proposed Merger and
require valuation of their Shares (a "Dissenting Shareholder") will not be
converted into the right to receive the consideration to be paid pursuant to
the Proposed Merger but will become the right to receive payment of the "fair
value" of their Shares (exclusive of any element of appreciation or
depreciation in anticipation of the Proposed Merger); provided, however, that
the Shares outstanding immediately prior to the effective time of the
Proposed Merger and held by a Dissenting Shareholder who will, after such
time, withdraw his demand for payment or lose his right to dissent, in either
case pursuant to the PBCL, will be deemed to be converted as of the effective
time of the Proposed Merger into the right to receive the consideration to be
paid pursuant to the Proposed Merger without interest.
29
Dissenters' rights cannot be exercised at this time. Shareholders who will
be entitled to dissenters' rights, if any, in connection with the Proposed
Merger (or similar business combination) will receive additional information
concerning any available dissenters' rights and the procedures to be followed
in connection therewith before such shareholders have to take any action
relating thereto.
Shareholders who sell shares in the Offer will not be entitled to exercise
any dissenters' rights with respect to Xxxxxx purchased but, rather, will
receive the Offer Price.
The Proposed Merger would have to comply with any applicable federal law
operative at the time of its consummation. The SEC has adopted Rule 13e-3
under the Exchange Act which is applicable to certain "going private"
transactions and which may under certain circumstances be applicable to the
Proposed Merger. However, Rule 13e-3 would be inapplicable if (i) the Shares
are deregistered under the Exchange Act prior to the Proposed Merger or other
business combination or (ii) the Proposed Merger or other business
combination is consummated within one year after the purchase of the Shares
pursuant to the Offer and the amount paid per Share in the Proposed Merger or
other business combination is at least equal to the amount paid per Share in
the Offer. If applicable, Rule 13e-3 requires, among other things, that
certain financial information concerning the fairness of the proposed
transaction and the consideration offered to minority shareholders in such
transaction be filed with the SEC and disclosed to shareholders prior to
consummation of the transaction.
The Company Articles and the Company By-Laws. The Company Articles and the
Company By-Laws contain several provisions that may delay a change in control
of the Company following the purchase of Shares by Purchaser pursuant to the
Offer, including, among others, (i) a provision that provides that the
Company Board shall be classified, with each class elected for a term of
three years and one class elected each year at the Company's annual meeting
of shareholders, (ii) a provision requiring advance notice to the Company of
any shareholder nominations for directors at, or shareholder proposals or
business to be brought before, an annual meeting of shareholders, and (iii) a
provision that special meetings of shareholders may be called only by the
Chairman of the Company Board, the Company Board or an Interested
Shareholder.
Pursuant to Article III of the Company By-Laws, the Company Board is
divided into three classes, one of which consists of five members, and two of
which consists of four members each, with each class elected for a term of
three years and one class elected at the Company's annual meeting of
shareholders each year. The number of members of the Company Board is
currently limited to 13 members pursuant to Article III of the Company
By-Laws. Amendment of the foregoing provisions of the Company Articles
requires a majority vote of all shareholders entitled to vote. Amendment of
the foregoing provisions of the Company By-Laws requires a majority vote of
directors present at a meeting at which at least a majority of the directors
is present or a majority vote of all shareholders entitled to vote at a
regular or special meeting.
If, following consummation of the Offer, the members of the Company Board
in office at such time were to refuse to approve the Proposed Merger (or any
other transaction or corporate action proposed by Purchaser that required
approval of the Company Board), the Voting Trustee, in order to consummate
the Proposed Merger (or any such other transaction or corporate action),
would first have to replace at least a majority of the Company Board with its
own designees. Parent believes that in such event the entire Company Board
could be removed with or without cause at the next annual meeting of the
Company's shareholders. Parent may also determine, whether or not the Offer
is then pending, to conduct a proxy contest in connection with the Company's
1997 annual meeting of shareholders seeking to remove the current members of
the Company Board and elect a new slate of directors designated by Parent. In
the Pennsylvania Litigation, Parent and Purchaser are seeking a declaratory
judgment that the members of the Company Board can be removed and replaced
with a new slate of directors proposed by Xxxxxx. See "--Certain Litigation"
below.
If the current members of the Company Board oppose the Offer or the
Proposed Merger, it is contemplated that the Voting Trust Agreement will
provide that the Voting Trustee will seek to take any action necessary to
place a majority of its designees on the Company Board, including without
limitation, seeking to amend the Company Articles and the Company By-Laws to
remove the provisions described
30
above or to increase the number of seats available on the Company Board for
its nominees and to solicit proxies from the shareholders of the Company for
use at the next annual meeting of the Company's shareholders for the purpose
of removing current members of the Company Board and electing new directors
designated by the Voting Trustee.
THE OFFER DOES NOT CONSTITUTE A SOLICITATION OF SUCH PROXIES AT ANY
MEETING OF THE COMPANY'S SHAREHOLDERS. ANY SUCH SOLICITATION WHICH PARENT OR
PURCHASER MAY MAKE WILL BE MADE ONLY PURSUANT TO SEPARATE PROXY MATERIALS IN
COMPLIANCE WITH THE REQUIREMENTS OF SECTION 14(A) OF THE EXCHANGE ACT.
The foregoing description of the Company Articles and the Company By-Laws
is qualified in its entirety by reference to the full text of the Company
Articles and the Company By-Laws, copies of which have been filed by the
Company as exhibits to documents filed with the SEC and may be obtained in
the manner described in Section 8 (except that copies may not be available at
regional offices of the SEC).
The Rights. The following is based upon the July 1989 Form 8-K, the
Company's Form 8-B, dated as of September 25, 1995, and other amendments to
the Rights Agreement filed with the SEC.
On July 19, 1989, the Board of Directors of CRC declared a dividend
distribution of one Right for each share of common stock of CRC and executed
the Rights Agreement. Upon adoption by the Company of a holding company
structure on February 17, 1993, CRC assigned all of CRC's title and interest
under the Rights Agreement to the Company. On October 2, 1995, one Right was
distributed with respect to each outstanding ESOP Preferred Share. Under the
Rights Agreement, each Right entitles the holder to purchase one Common Share
at an exercise price of $205.00, subject to adjustment. Based on publicly
available information, Xxxxxxxxx believes that, as of October 24, 1996, the
Rights were not exercisable, Rights Certificates have not been issued and the
Rights were evidenced solely by the Share Certificates. A general summary of
certain provisions of the Rights and the Rights Agreement appears below.
Under the Rights Agreement, as amended, until the close of business on the
Distribution Date (which is defined as the earlier of (i) 10 days following a
public announcement that an Acquiring Person has acquired, or obtained the
right to acquire, beneficial ownership of 10% or more of the outstanding
Shares and (ii) 10 business days (or such later date as the Company Board
shall determine) following the commencement of a tender offer or exchange
offer which would result in a person or group beneficially owning 10% or more
of the outstanding Shares), the Rights will be evidenced by the Share
Certificates and will be transferred with and only with such Share
Certificates. As soon as practicable after the Distribution Date, Rights
Certificates will be mailed to holders of record of the Shares as of the
close of business on the Distribution Date, and thereafter the separate
Rights Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire at the close of business on September 20, 2005 unless earlier
redeemed by the Company as described below.
In the event that the Company is acquired in a merger or consolidation in
which the Company is not the surviving corporation or 50% or more of the
Company's consolidated assets or earning power is sold or transferred, each
holder of a Right will thereafter have the right to receive, upon the
exercise thereof at then current exercise price of the Right, that number of
shares of common stock of the acquiring company which at the time of such
transaction will have a value equal to two times the exercise price of the
Right.
In the event that an Acquiring Person becomes the beneficial owner of 10%
or more of the outstanding Shares, each holder of a Right will thereafter
have the right to receive, upon exercise, Common Shares (or, in certain
circumstances, cash, property or other securities of the Company), having a
value equal to two times the exercise price of the Right.
At any time prior to the Distribution Date, the Company may redeem the
Rights in whole, but not in part, at the Redemption Price of $.005 per Right.
Immediately upon the action of the Company Board ordering redemption of the
Rights, the Rights will terminate, and the only right to which the holders of
Rights will be entitled will be the right to receive the Redemption Price.
31
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including without limitation, the
right to vote or to receive dividends.
The terms of the Rights may be amended by the Company Board without the
consent of the holders of the Rights; provided that from and after such time
that an Acquiring Person becomes such, the Rights may not be amended in any
manner which would adversely affect the interests of holders of Rights or to
shorten or lengthen any time period under the Rights Agreement.
Actions or determinations made by the Company Board in the administration
of the Rights Agreement require the concurrence of a majority of (and at
least two) Continuing Directors. A "Continuing Director" is a director who is
not an Acquiring Person (or a representative or nominee thereof), and who
either (i) was a member of the Company Board prior to September 20, 1995 or
(ii) subsequently became a director of the Company and whose election or
nomination for election is approved or recommended by a majority of the then
Continuing Directors.
Pursuant to the CSX Merger Agreement, the Company has amended the Rights
Agreement to render the Rights Agreement inapplicable to the CSX Offer, the
CSX Proposed Merger and the other transactions contemplated by the CSX Merger
Agreement and the CSX Lockup Option Agreement and to ensure, among other
things, that CSX is not deemed to be an Acquiring Person and that a
Distribution Date does not occur by reason of such agreements or
transactions. The Company has also agreed in the CSX Merger Agreement that it
may not further amend the Rights Agreement without the prior consent of CSX
in its sole discretion.
The foregoing summary of the Rights Agreement does not purport to be
complete and is qualified in its entirety by reference to the July 1989 Form
8-K, the full text of the Rights Agreement as an exhibit thereto filed with
the SEC, the Assignment, and subsequent amendments to the Rights Agreement as
filed with the SEC. Copies of these documents may be obtained in the manner
set forth above.
Based on the foregoing, as a result of Purchaser's public announcement of
the Offer, the Rights will become exercisable on a date no later than
November 7, 1996, unless prior to such date the Company Board redeems the
Rights or amends the Rights Agreement or otherwise takes action thereunder to
delay the Distribution Date.
Purchaser believes that, under applicable law and under the circumstances
of the Offer, including the Company Board's approval of the CSX Merger
Agreement and the transactions contemplated thereby, the Company Board is
obligated by its fiduciary responsibilities not to redeem the Rights or
render the Rights Agreement inapplicable to any offer by CSX without, at the
same time, taking such action as to Parent, the Offer and the Proposed
Merger, and that its failure to do so would be a violation of law. In the
Pennsylvania Litigation, Purchaser is seeking, among other things, to enjoin
the Company Board from taking any such action or to invalidate the provision
of the Rights Agreement that was added in September 1995 and which limits the
power of the Company Board to redeem the Rights without the approval of a
majority of the Continuing Directors. See Section 15.
If the Rights Condition is not satisfied and Purchaser elects, in its sole
discretion, to waive such condition and consummate the Offer, and if there
are outstanding Rights which have not been acquired by Purchaser, Purchaser
will evaluate its alternatives. Such alternatives could include purchasing
additional Rights in the open market, in privately negotiated transactions,
in another tender or exchange offer or otherwise. Any such additional
purchase of Rights could be for cash or other consideration. Under such
circumstances, the Proposed Xxxxxx might be delayed or abandoned as
impracticable. The form and amount of consideration to be received by the
holders of Shares in the Proposed Merger, if consummated, might be subject to
adjustment to compensate Purchaser for, among other things, the costs of
acquiring Rights and a portion of the potential dilution cost of Rights not
owned by Purchaser and its affiliates at the time of Proposed Merger. In such
event, the value of the consideration to be exchanged for Shares in Proposed
Merger could be substantially less than the consideration paid in the Offer.
In addition, Purchaser may elect under such circumstances not to consummate
the Proposed Merger.
UNLESS THE RIGHTS ARE REDEEMED, SHAREHOLDERS WILL BE REQUIRED TO TENDER
ONE RIGHT FOR EACH COMMON SHARE AND ESOP PREFERRED SHARE TENDERED IN ORDER TO
EFFECT A VALID TENDER OF SUCH COMMON SHARES AND
32
ESOP PREFERRED SHARES IN ACCORDANCE WITH THE PROCEDURES SET FORTH IN SECTION
3. IF SEPARATE CERTIFICATES FOR THE RIGHTS ARE NOT ISSUED, A TENDER OF COMMON
SHARES AND ESOP PREFERRED SHARES WILL ALSO CONSTITUTE A TENDER OF THE
ASSOCIATED RIGHTS. SEE SECTIONS 1 AND 3.
Consummation of the Offer is conditioned upon the Rights having been
redeemed by the Company Board or Purchaser otherwise being satisfied, in its
sole discretion, that the Rights are invalid or otherwise inapplicable to the
Offer and to the Proposed Merger.
13. DIVIDENDS AND DISTRIBUTIONS. If, on or after the date of this Offer to
Purchase, the Company should (i) split, combine or otherwise change the
Shares or its capitalization, (ii) issue or sell any additional securities of
the Company or otherwise cause an increase in the number of outstanding
securities of the Company or (iii) acquire currently outstanding Shares or
otherwise cause a reduction in the number of outstanding Shares, then,
without prejudice to Purchaser's rights under Sections 1 and 14, Purchaser,
in its sole discretion, may make such adjustments as it deems appropriate in
the purchase price and other terms of the Offer, including, without
limitation, the amount and type of securities offered to be purchased.
If, on or after the date of this Offer to Purchase, the Company should
declare or pay any dividend on the Shares, other than regular quarterly
dividends, or make any distribution (including, without limitation, the
issuance of additional Shares pursuant to a stock dividend or stock split,
the issuance of other securities or the issuance of rights for the purchase
of any securities) with respect to the Shares that is payable or
distributable to shareholders of record on a date prior to the transfer to
the name of Purchaser or its nominee or transferee on the Company's stock
transfer records of the Shares purchased pursuant to the Offer, then, without
prejudice to Purchaser's rights under Sections 1 and 14, (i) the purchase
price per Share payable by Purchaser pursuant to the Offer will be reduced by
the amount of any such cash dividend or cash distribution and (ii) any such
non-cash dividend, distribution or right to be received by the tendering
shareholders will be received and held by such tendering shareholders for the
account of Purchaser and will be required to be promptly remitted and
transferred by each such tendering shareholder to the Depositary for the
account of Purchaser, accompanied by appropriate documentation of transfer.
Pending such remittance and subject to applicable law, Purchaser will be
entitled to all rights and privileges as owner of any such non-cash dividend,
distribution or right and may withhold the entire purchase price or deduct
from the purchase price the amount of value thereof, as determined by
Purchaser in its sole discretion.
14. CONDITIONS OF THE OFFER. Notwithstanding any other provisions of the
Offer, and in addition to (and not in limitation of) Purchaser's rights to
extend and amend the Offer at any time in its sole discretion, Purchaser
shall not be required to accept for payment or, subject to any applicable
rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange
Act (relating to Purchaser's obligation to pay for or return tendered Shares
promptly after termination or withdrawal of the Offer), pay for, and may
delay the acceptance for payment of or, subject to the restriction referred
to above, the payment for, any tendered Shares, and may terminate the Offer
as to any Shares not then paid for, if, in the sole judgment of Purchaser (1)
at or prior to the expiration of the Offer any one or more of the Voting
Trust Approval Condition, the HSR Condition, the Financing Condition, the
Minimum Condition, the Subchapter F Condition, the Rights Condition or the
CSX Termination Condition has not been satisfied, or (2) at any time on or
after October 24, 1996 and prior to the acceptance for payment of Shares, any
of the following events shall occur:
(a) there shall have been threatened, instituted or pending any action,
proceeding, application or counterclaim before any court or governmental
regulatory or administrative agency, authority, tribunal or commission,
domestic or foreign, by any government or governmental authority or agency
or commission, domestic or foreign, or by any other person, domestic or
foreign (whether brought by the Company, an affiliate of the Company or
any other person), which (i) challenges or seeks to challenge the
acquisition by Parent or Purchaser or any affiliate of either of them of
the Shares, restrains, delays or prohibits or seeks to restrain, delay or
prohibit the making of the Offer, consummation of the transactions
contemplated by the Offer or any other subsequent business combination,
restrains or prohibits or seeks to restrain or prohibit the performance of
any of the
33
contracts or other arrangements entered into by Purchaser or any of its
affiliates in connection with the acquisition of the Company or obtains or
seeks to obtain any material damages or otherwise directly or indirectly
relating to the transactions contemplated by the Offer, the Proposed
Merger or any other subsequent business combination, (ii) prohibits or
limits or seeks to prohibit or limit Parent's or Purchaser's ownership or
operation of all or any portion of their or the Company's business or
assets (including without limitation the business or assets of their
respective affiliates and subsidiaries) or to compel or seeks to compel
Parent or Purchaser to dispose of or hold separate all or any portion of
their own or the Company's business or assets (including without
limitation the business or assets of their respective affiliates and
subsidiaries) or imposes or seeks to impose any limitation on the ability
of Parent, Purchaser or any affiliate of either of them to conduct its own
business or own such assets as a result of the transactions contemplated
by the Offer or any other subsequent business combination, (iii) makes or
seeks to make the acceptance for payment, purchase of, or payment for,
some or all of the Shares pursuant to the Offer or the Proposed Merger
illegal or results in a delay in, or restricts, the ability of Parent or
Purchaser, or renders Parent or Purchaser unable, to accept for payment,
purchase or pay for some or all of the Shares or to consummate the
Proposed Merger, (iv) imposes or seeks to impose limitations on the
ability of Parent or Purchaser or any affiliate of either of them
effectively to acquire or hold or to exercise full rights of ownership of
the Shares, including, without limitation, the right to vote the Shares
purchased by them on an equal basis with all other Shares on all matters
properly presented to the shareholders of the Company, (v) in the sole
judgment of Parent or Purchaser, might adversely affect the Company or any
of its subsidiaries or affiliates or Parent, Purchaser, or any of their
respective affiliates or subsidiaries, (vi) in the sole judgment of Parent
or Purchaser, might result in a diminution in the value of the Shares or
the benefits expected to be derived by Parent or Purchaser as a result of
the transactions contemplated by the Offer, (vii) in the sole judgment of
Parent or Purchaser, imposes or seeks to impose any material condition to
the Offer unacceptable to Parent or Purchaser or (viii) otherwise directly
or indirectly relates to the Offer, the Proposed Merger or any other
business combination with the Company;
(b) there shall be any action taken, or any statute, rule, regulation or
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed or become applicable to the Offer, the
Proposed Merger or other subsequent business combination between Purchaser
or any affiliate of Purchaser and the Company or any affiliate of the
Company or any other action shall have been taken, proposed or threatened,
by any government, governmental authority or other regulatory or
administrative agency or commission or court, domestic, foreign or
supranational, that, in the sole judgment of Parent or Purchaser, might,
directly or indirectly, result in any of the consequences referred to in
clauses (i) through (vii) of paragraph (a) above;
(c) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the
business, properties, assets, liabilities, capitalization, shareholders'
equity, condition (financial or otherwise), operations, licenses,
franchises, permits, permit applications, results of operations or
prospects of the Company or any of its subsidiaries or affiliates which,
in the sole judgment of Parent or Purchaser, is or may be materially
adverse to the Company or any of its subsidiaries or affiliates, or Parent
or Purchaser shall have become aware of any fact which, in the sole
judgment of Parent or Purchaser, has or may have material adverse
significance with respect to either the value of the Company or any of its
subsidiaries or the value of the Shares to Parent or Purchaser;
(d) there shall have occurred (i) a declaration of a banking moratorium
or any suspension of payments in respect of banks in the United States
(whether or not mandatory), (ii) any limitation (whether or not mandatory)
by any governmental authority or agency on, or other event which, in the
sole judgment of Parent or Purchaser, might affect the extension of credit
by banks or other lending institutions, (iii) a commencement of a war,
armed hostilities or other national or international crisis directly or
indirectly involving the United States, (iv) any significant change in
United States or any other currency exchange rates or any suspension of,
or limitation on, the markets therefor (whether or not mandatory), (v) any
significant adverse change in the market price
34
of the Shares or in the securities or financial markets of the United
States, or (vi) in the case of any of the foregoing existing at the time
of the commencement of the Offer, in the sole judgment of Parent or
Purchaser, a material acceleration or worsening thereof;
(e) other than the redemption of the Rights at the Redemption Price, the
Company or any subsidiary of the Company shall have, at any time after
October 24, 1996, (i) issued, distributed, pledged, sold or authorized,
proposed or announced the issuance of or sale, distribution or pledge to
any person of (A) any shares of its capital stock (other than sales or
issuances pursuant to Options outstanding on October 24, 1996 in
accordance with their terms as disclosed on such date or conversions of
the ESOP Preferred Shares in accordance with their terms) of any class
(including without limitation the Common Shares and the ESOP Preferred
Shares) or securities convertible into any such shares of capital stock,
or any rights, warrants or options to acquire any such shares or
convertible securities or any other securities of the Company, or (B) any
other securities in respect of, in lieu of or in substitution for Common
Shares and ESOP Preferred Shares outstanding on October 24, 1996, (ii)
purchased, acquired or otherwise caused a reduction in the number of, or
proposed or offered to purchase, acquire or otherwise reduce the number
of, any outstanding Common Shares, ESOP Preferred Shares or other
securities, (iii) declared, paid or proposed to declare or pay any
dividend or distribution on any Shares (other than the regular quarterly
dividend on the Common Shares not in excess of the amount per share, and
with record and payment dates, in accordance with recent practice) or on
any ESOP Preferred Shares (other than the regular semi-annual dividend on
the ESOP Preferred Shares not in excess of the amount per share payable in
accordance with recent practice) or on any other security or issued,
authorized, recommended or proposed the issuance or payment of any other
distribution in respect of the Common Shares or the ESOP Preferred Shares,
whether payable in cash, securities or other property, (iv) altered or
proposed to alter any material term of any outstanding security, (v)
incurred any debt other than in the ordinary course of business and
consistent with past practice or any debt containing burdensome covenants,
(vi) issued, sold or authorized or announced or proposed the issuance of
or sale to any person of any debt securities or any securities convertible
into or exchangeable for debt securities or any rights, warrants or
options entitling the holder thereof to purchase or otherwise acquire any
debt securities or incurred or announced its intention to incur any debt
other than in the ordinary course of business and consistent with past
practice, (vii) split, combined or otherwise changed, or authorized or
proposed the split, combination or other change of the Common Shares, the
ESOP Preferred Shares or its capitalization, (viii) authorized,
recommended, proposed or entered into or publicly announced its intent to
enter into any merger, consolidation, liquidation, dissolution, business
combination, acquisition or disposition of a material amount of assets or
securities, any material change in its capitalization, any waiver, release
or relinquishment of any material contract rights or comparable right of
the Company or any of its subsidiaries or any agreement contemplating any
of the foregoing or any comparable event not in the ordinary course of
business, or taken any action to implement any such transaction previously
authorized, recommended, proposed or publicly announced, (ix) transferred
into escrow any amounts required to fund any existing benefit, employment
or severance agreements with any of its employees or entered into any
employment, severance or similar agreement, arrangement or plan with any
of its employees other than in the ordinary course of business and
consistent with past practice or entered into or amended any agreements,
arrangements or plans so as to provide for increased benefits to the
employees as a result of or in connection with the transactions
contemplated by the Offer or any other change in control of the Company,
(x) except as may be required by law, taken any action to terminate or
amend any employee benefit plan (as defined in Section 3(2) of ERISA) of
the Company or any of its subsidiaries, or Parent or Purchaser shall have
become aware of any such action which was not previously disclosed in
publicly available filings, (xi) amended or proposed or authorized any
amendment to its articles of incorporation or bylaws or similar
organizational documents, (xii) authorized, recommended, proposed or
entered into any other transaction that in the sole judgment of Parent or
Purchaser could, individually or in the aggregate, adversely affect the
value of the Shares to Parent or Purchaser or (xiii) agreed in writing or
otherwise to take any of the foregoing actions or Parent or Purchaser
shall have learned about any such action which has not previously been
publicly disclosed by the Company and also set forth in filings with the
SEC;
35
(f) the Company and Parent or Purchaser shall have reached an agreement
or understanding that the Offer be terminated or amended or Parent or
Purchaser (or one of their respective affiliates) shall have entered into
a definitive agreement or an agreement in principle to acquire the Company
by merger or similar business combination, or purchase of Shares or assets
of the Company;
(g) Parent or Purchaser shall become aware (i) that any material
contractual right of the Company or any of its subsidiaries or affiliates
shall be impaired or otherwise adversely affected or that any material
amount of indebtedness of the Company or any of its subsidiaries shall
become accelerated or otherwise become due prior to its stated due date,
in either case with or without notice or the lapse of time or both, as a
result of the transactions contemplated by the Offer or the Proposed
Merger, or (ii) of any covenant, term or condition in any of the Company's
or any of its subsidiaries' instruments or agreements that are or may be
materially adverse to the value of the Shares in the hands of the
Purchaser or any other affiliate of Parent (including, but not limited to,
any event of default that may ensue as a result of the consummation of the
Offer, consummation of the Proposed Merger or any other business
combination or the acquisition of control of the Company); or
(h) Parent or Purchaser shall not have obtained any waiver, consent,
extension, approval, action or non-action from any governmental authority
or agency (other than approval by the STB of the acquisition of control of
the Company) which in its judgment is necessary to consummate the Offer;
which, in the sole judgment of Parent or Purchaser in any such case, and
regardless of the circumstances (including any action or inaction by Parent
or Purchaser or any of their affiliates), giving rise to any such condition,
makes it inadvisable to proceed with the Offer and/or with such acceptance
for payment or payment. Parent and Purchaser have the right to rely on any
condition set forth in the immediately preceding sentence being satisfied in
determining whether to consummate the Offer; however, if Parent or Purchaser
asserts the failure of any such condition without relying on the exercise of its
reasonable judgment or some other objective criteria, Parent and Purchaser shall
promptly disclose such assertion and the Expiration Date will be (and, if
necessary, will be extended to be) at least five business days after the date of
such disclosure.
The foregoing conditions are for the sole benefit of Parent and Purchaser
and may be asserted by Parent or Purchaser in their sole discretion
regardless of the circumstances (including any action or omission by Parent
or Purchaser) giving rise to any such conditions or may be waived by Parent
or Purchaser in their sole discretion in whole or in part at any time and
from time to time. The failure by Parent or Purchaser at any time to exercise
any of the foregoing rights shall not be deemed a waiver of any such right
and each such right shall be deemed an ongoing right which may be asserted at
any time and from time to time. Any determination by the Parent or Purchaser
concerning any condition or event described in this Section 14 shall be final
and binding upon all parties.
15. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS; CERTAIN LITIGATION.
General. Except as otherwise disclosed herein, based on a review of
publicly available information by the Company with the SEC, neither Purchaser
nor Parent is aware of (i) any license or regulatory permit that appears to
be material to the business of the Company and its subsidiaries, taken as a
whole, that might be adversely affected by the acquisition of Shares by
Parent or Purchaser pursuant to the Offer or the Proposed Merger,
respectively, or (ii) any approval or other action by any governmental,
administrative or regulatory agency or authority, domestic or foreign, that
would be required for the acquisition or ownership of Shares by Parent or
Purchaser as contemplated herein. Should any such approval or other action be
required, Parent and Purchaser currently contemplate that such approval or
action would be sought. While Purchaser does not currently intend to delay
the acceptance for payment of Shares tendered pursuant to the Offer pending
the outcome of any such matter, there can be no assurance that any such
approval or action, if needed, would be obtained or would be obtained without
substantial conditions or that adverse consequences might not result to the
business of the Company, Purchaser or Parent or that certain parts of the
businesses of the Company, Purchaser or Parent might not have to be disposed
of in the event that such approvals were not obtained or any other actions
were not taken. Purchaser's obligation under the Offer to accept for payment
and pay for Shares is subject to certain conditions. See Section 14.
36
Antitrust. Under the HSR Act and the rules that have been promulgated
thereunder by the FTC, certain acquisition transactions may not be
consummated unless certain information has been furnished to the Antitrust
Division of the Department of Justice (the "Antitrust Division") and to the
FTC and certain waiting period requirements have been satisfied. The notice
and waiting period requirements of the HSR Act do not apply to the Offer and the
Proposed Merger, provided that information and documentary material filed with
the STB in connection with the seeking of STB approval of the acquisition by
Parent of control of the Company and its subsidiaries are contemporaneously
filed with the Antitrust Division and the FTC. Parent intends to comply with
these contemporaneous filing requirements and therefore believes that the notice
and waiting period requirements of the HSR Act do not apply to the Offer and the
Proposed Merger. Parent and Purchaser believe that the Offer and the Proposed
Merger are not subject to, or are exempt from, the HSR Act. Parent and Purchaser
will request the Premerger Notification Office of the FTC to confirm this
understanding.
STB Matters; The Voting Trust. Certain activities of subsidiaries of the
Company are regulated by the STB. Provisions of subtitle IV, title 49 of the
United States Code require approval of, or the granting of an exemption from
approval by, the STB for the acquisition of control of two or more carriers
subject to the jurisdiction of the STB ("Carriers") by a person that is not a
Carrier and for the acquisition or control of a Carrier by a person that is
not a Carrier but that controls any number of Carriers. STB approval or
exemption is required for, among other things, Purchaser's acquisition of
control of the Company. Purchaser intends, simultaneous with the acquisition
of the Shares pursuant to the Offer, to deposit the Shares purchased pursuant
to the Offer in the Voting Trust in order to ensure that Parent and its
affiliates do not acquire and directly or indirectly exercise control over
the Company and its affiliates prior to obtaining necessary STB approvals or
exemptions. STB approval of the acquisition by Parent of control of the
Company and its subsidiaries is not a condition to the Offer. The Offer is
conditioned upon the issuance by the staff of the STB of an informal,
nonbinding opinion, without the imposition of any conditions unacceptable to
Purchaser, that the use of the Voting Trust is consistent with the policies
of the STB against unauthorized acquisitions of control of a regulated
carrier. Parent will request the staff of the STB to issue such an opinion.
Under STB regulations that have been in effect since 1979, the STB staff has
the power to issue such opinions. The proposed Voting Trust Agreement is
modeled closely upon voting trust agreements that have been approved by the
STB. However, there can be no assurance that the STB will not seek changes
in, or request public comment regarding, the Voting Trust Agreement.
It is possible that the Department of Justice or railroad competitors of
Parent and the Company, or others, may argue that Purchaser should not be
permitted to use the voting trust mechanism to acquire Shares prior to final
STB approval of the acquisition of control of the Company. Purchaser believes
it is unlikely that such arguments would prevail, but there can be no
assurance in this regard, nor can there be any assurance that if such
arguments are made, it will not cause delay in obtaining a favorable STB
staff opinion regarding the Voting Trust Agreement.
Pursuant to the terms of the proposed Voting Trust Agreement, it is
expected that the Voting Trustee would hold such Shares until (i) the receipt
of STB approval or (ii) the Shares are sold to a third party or otherwise
disposed of or (iii) the Voting Trust is otherwise terminated. It is expected
that the Voting Trust Agreement submitted to the staff of the STB for
approval will provide that the Voting Trustee will have sole power to vote
the Shares in the Trust, will vote those Shares in favor of the Proposed
Merger, and in favor of any proposal or action necessary or desirable to
effect, or consistent with the effectuation of, the Proposed Merger, and
against any other acquisition transaction, will vote the Shares in favor of
any permitted disposition of the Shares and, on all other matters, will vote
the Shares in proportion to the vote of all other shareholders of the
Company. It is expected that the Voting Trust Agreement will contain certain
other terms and conditions designed to ensure that neither Purchaser nor
Parent will control the Company during the pendency of the STB proceedings.
In addition, it is expected that the Voting Trust Agreement will provide that
Purchaser or its successor in interest will be entitled to receive any cash
dividends paid by the Company.
STB Matters; Acquisition of Control. Set forth below is information
relating to approval by the STB of the acquisition of control over the
Company by Parent and Purchaser. Parent plans to file an application (the
"STB Application") seeking approval of the STB for the acquisition of control
over the
37
Company and its affiliates by Parent and its affiliates. Under
applicable law and regulations, the STB will hold a public hearing on such
application, unless it determines that a public hearing is not necessary in
the public interest. In ruling on the STB Application, the STB is expected to
consider at least the following: (a) the effect of the proposed control
transaction on the adequacy of transportation to the public; (b) the
effect on the public interest of including, or failing to include, other rail
carriers in the area involved in the proposed transaction; (c) the total
fixed charges that result from the proposed transaction; (d) the interest of
rail carrier employees affected by the proposed transaction; and (e) whether
the proposed transaction would have an adverse effect on competition among
rail carriers in the affected region or in the national rail system. The STB
has the authority to impose conditions on its approval of a control
transaction to alleviate competitive or other concerns. If such conditions
are imposed, Parent can elect to consummate the control transaction subject
to the conditions or can elect not to consummate the transaction. Parent has
indicated a willingness to agree to conditions to preserve rail competition.
Three of the five factors listed above are, in Parent's view, unlikely to
affect whether the STB Application is approved by the STB. As to factor (b)
--inclusion of other carriers --in past rail merger proceedings, requests for
inclusion have rarely been made. As to factor (c) --effect on fixed charges
--the capital structure of the resulting company will be sufficiently strong
that this factor is unlikely, in Parent's view, to be given weight by the STB
in deciding whether to approve a combination of the Company and Parent. As to
factor (d) --the interest of affected carrier employees --the STB has adopted
a standard set of labor protective conditions which it imposes in rail merger
and control transactions, and Parent expects that those conditions would be
imposed upon the acquisition by Parent of control of the Company and that
this would not affect approval of the transaction.
As to factor (a) --effect on the adequacy of transportation --and factor
(e) --effect on rail competition --the STB applies a public interest
balancing test in reviewing railroad mergers like the proposed combination of
Parent and the Company. On the one hand, the STB considers the public
benefits of the transaction in terms of better service to shippers,
efficiencies, cost savings and the like. On the other hand, the STB considers
any public xxxxx from the transaction. The principal harm of concern to the
STB, and the principal issue that is likely to be raised by parties opposing
approval of a merger of Purchaser and the Company or seeking the imposition
of conditions thereto, is reduction in competition. In applying the public
interest balancing test, the STB is guided by Congress' intent to encourage
mergers, consolidations, and joint use of facilities that tend to rationalize
and improve the Nation's rail system.
Parent is willing to provide competitive access to another railroad in
appropriate situations. Such access may take the form of grant of trackage
rights over rail properties, or other forms, any of which could diminish the
value to Parent or the Company of its rail properties. The identity of the
railroad or railroads that will be provided such competitive access, the
forms it will take, and the terms and conditions that would apply thereto
have not been determined and will be subject to negotiations. The STB may
impose and enforce those arrangements, when reached, as conditions to its
approval of the Proposed Merger and may require the modification of such
arrangements or require other arrangements regarding rail competition or
other aspects of the public interest, which could be more burdensome, as
conditions to its approval of the acquisition by Parent of control of the
Company.
Parent intends to present to the STB its case that the acquisition of
control of the Company by Parent satisfies the public interest balancing
test. First, Parent will seek to show that a combination of the Company and
Parent has significant public benefits. Second, Parent will seek to show that
a combination of the Company and Parent, especially with
competition-preserving conditions that Parent is prepared to agree to, will
create a more balanced competitive rail structure in the East, will have no
significant adverse effect on rail competition, and indeed will strengthen
such competition. While Parent will seek to present a highly persuasive case,
there can be no assurance that the STB Application will not be denied, or
will not be granted subject to conditions that are so onerous that the
acquisition by Parent of control of the Company is not consummated.
Under existing law, the STB is required to enter a final order with
respect to the STB Application within approximately 15 months after such
application is accepted. However, the STB can process such cases more
quickly. Parent plans to ask the STB to adopt a more expedited schedule.
Under existing law,
38
other railroads and other interested parties may seek to
intervene to oppose the STB Application or to seek protective conditions in
the event approval by the STB is granted. In addition, any appeals from the
STB final order might not be resolved for a substantial period of time after
the entry of such order by the STB.
Pending receipt of the STB approval, it is expected that the business and
operations of the Company under the Trustee will be conducted in the usual
and ordinary course of business, and the Company's employees and management
will continue in their present positions.
RECEIPT OF STB APPROVAL (OTHER THAN APPROVAL OF THE VOTING TRUST DESCRIBED
ABOVE) IS NOT A CONDITION TO CONSUMMATION OF THE OFFER OR THE PROPOSED
MERGER. IF THE STB APPROVAL IS NOT OBTAINED OR THE STB IMPOSES UNACCEPTABLE
CONDITIONS, PURCHASER WILL BE REQUIRED TO USE ITS BEST EFFORTS TO SELL OR
OTHERWISE DISPOSE OF THE SHARES DEPOSITED IN THE VOTING TRUST AFTER THE STB
ORDER DENYING SUCH APPROVAL BECOMES FINAL OR PARENT DETERMINES NOT TO
CONSUMMATE THE PROPOSED CONTROL TRANSACTION BECAUSE OF UNACCEPTABLE
CONDITIONS. IN SUCH CASE, PURCHASER WOULD BE ENTITLED TO ANY PROCEEDS OF SUCH
SALE OR OTHER DISPOSITION.
State Takeover Statutes. Various states throughout the United States have
enacted takeover statutes that purport, in varying degrees, to be applicable
to attempts to acquire securities of corporations that are incorporated or
have assets, shareholders, executive offices or places of business in such
states. In Xxxxx x. Mite Corp., the Supreme Court of the United States held
that the Illinois Business Takeover Act, which involved state securities laws
that made the takeover of certain corporations more difficult, imposed a
substantial burden on interstate commerce and therefore was unconstitutional.
In CTS Corp. v. Dynamics Corp. of America, however, the Supreme Court of the
United States held that a state may, as a matter of corporate law and, in
particular, those laws concerning corporate governance, constitutionally
disqualify a potential acquiror from voting on the affairs of a target
corporation without prior approval of the remaining shareholders, provided
that such laws were applicable only under certain conditions.
The Pennsylvania Takeover Disclosure Law (the "PTDL") purports to regulate
certain attempts to acquire a corporation which (1) is organized under the
laws of Pennsylvania or (2) has its principal place of business and
substantial assets located in Pennsylvania. The PTDL requires, among other
things, that the offeror, 20 days prior to any takeover offer, file a
registration statement for the takeover offer with the Pennsylvania
Securities Commission (the "PSC") and publicly disclose the offering price of
the disclosed offer. However, in Crane Co. x. Xxx, 509 F. Supp. 782 (E.D. Pa.
1981), the United States District Court for the Eastern District of
Pennsylvania preliminarily enjoined, on grounds arising under the United
States Constitution, enforcement of at least the portion of the PTDL
involving the pre-offer waiting period thereunder.
Chapter 25 of the PBCL contains other provisions relating generally to
takeovers and acquisitions of certain publicly owned Pennsylvania
corporations such as the Company that have a class or series of shares
entitled to vote generally in the election of directors registered under the
Exchange Act (a "registered corporation"). The following discussion is a
general and highly abbreviated summary of certain features of such chapter,
is not intended to be complete or to completely address potentially
applicable exceptions or exemptions, and is qualified in its entirety by
reference to the full text of Chapter 25 of the PBCL.
In addition to other provisions not applicable to the Offer or the
Proposed Merger, Subchapter D of Chapter 25 of the PBCL includes provisions
requiring approval of a merger of a registered corporation with an
"interested shareholder" in which the "interested shareholder" is treated
differently from other shareholders, by the affirmative vote of the
shareholders entitled to cast at least a majority of the votes that all
shareholders other than the interested shareholder are entitled to cast with
respect to the transaction without counting the votes of the interested
shareholders. This disinterested shareholder approval requirement is not
applicable to a transaction (i) approved by a vote of the board of directors,
without counting the votes of directors who are directors or officers of, or
who have a material equity interest in, the interested shareholder, (ii) in
which the consideration to be received by shareholders is not less than the
highest amount paid by the interested shareholder in acquiring his shares, or
(iii) effected without submitting the Proposed Merger to a vote of
shareholders as permitted in Section 1924(b)(1)(ii) of the PBCL.
39
Purchaser believes that the approval requirements under Subchapter D would
not apply to the Proposed Merger because, among other things, Purchaser
expects that the value of the consideration offered to the Company's
shareholders pursuant to the Proposed Merger would not be less than the
highest amount paid by Purchaser in acquiring Shares pursuant to the Offer.
If the approval requirements under Subchapter D were applicable to the Proposed
Merger, the Proposed Merger would have to be approved by the affirmative vote of
the holders of a majority of the votes which all shareholders other than
Purchaser are entitled to cast. Purchaser reserves the right to challenge the
applicability and validity of Subchapter D.
Subchapter E of Chapter 25, among other things, governs "control
transactions" (defined generally as a transaction in which a person acquires
at least 20% of the voting power of a corporation) involving a "registered
corporation" and provides that the shareholders of such corporation are
entitled to demand that they be paid the fair value of their shares. Pursuant
to Subchapter E, the minimum value the shareholders can receive may not be
less than the highest price paid per share by the control person within the
90-day period ending on and including the date of the control transaction.
Purchaser expects that the value of the consideration offered to the
Company's shareholders pursuant to the Proposed Merger would not be less than
the highest amount paid by Purchaser in acquiring Shares pursuant to the
Offer.
Subchapter F of Chapter 25 purports to prohibit under certain
circumstances a "registered corporation" from engaging in a "Business
Combination" with an "Interested Shareholder" for a period of five years
following the date such person became an "Interested Shareholder" unless: (i)
before such person became an Interested Shareholder, the board of directors
of the corporation approved either the Business Combination or the
transaction in which the Interested Shareholder became an Interested
Shareholder; (ii) the Business Combination is approved by a majority vote of
the corporation's voting shares, other than shares held by the Interested
Shareholder, no earlier than three months after the Interested Shareholder
became, and provided that at the time of such vote the Interested Shareholder
is, the beneficial owner of shares entitled to cast at least 80% of votes of
the corporation, and the Business Combination satisfies the "fair price"
criteria (generally, the higher of (a) the highest price per share paid by
the Interested Shareholder at a time when the Interested Shareholder was the
beneficial owner of at least five percent of the voting power of the
corporation and (b) the market value per share on the announcement date with
respect to the Business Combination or on the Interested Shareholder's
acquisition date, whichever is higher, plus, in any case, interest and less
the value of any distributions on the shares); (iii) the Business Combination
is approved by all of the holders of the corporation's outstanding common
shares; (iv) the Business Combination is approved by a majority vote of the
corporation's voting shares, other than shares held by the Interested
Shareholder, no earlier than five years after the Interested Shareholder
became an Interested Shareholder; or (v) the Business Combination is approved
by a majority vote of the corporation's voting shares no earlier than five
years after the Interested Shareholder became an Interested Shareholder and
the Business Combination satisfies the "fair price" criteria described above.
Subchapter F provides that during such five-year period the corporation
may not engage in certain business transactions with the Interested
Shareholder or any affiliate or associate thereof, including, without
limitation, (i) any merger, consolidation, share exchange or division of the
corporation or any subsidiary of the corporation (a) with the Interested
Shareholder or (b) with, involving or resulting in any other corporation
which is, or after the merger, consolidation, share exchange or division
would be, an affiliate or associate of the Interested Shareholder, (ii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition to or
with an Interested Shareholder or any affiliate or associate thereof of
assets having an aggregate market value equal to at least 10% of the
aggregate market value of all assets on a consolidated basis or all
outstanding shares, or representing at least 10% of the net income on a
consolidated basis, in each case of such business corporation, and (iii)
other specified self-dealing transactions between the corporation and an
Interested Shareholder or any affiliate or associate thereof.
Under Subchapter F, the restrictions described above do not apply if,
among other things, (i) the corporation's original certificate of
incorporation contains a provision expressly electing not to be governed by
Subchapter F, (ii) the board of directors of a corporation adopted an
amendment to its by-laws by June 21, 1988 (and not subsequently rescinded by
an amendment to the certificate of
40
incorporation or by-laws) expressly electing not to be governed by Subchapter F,
or (iii) the corporation, by action of its shareholders, adopts an amendment to
its certificate of incorporation expressly electing not to be governed by
Subchapter F, provided that, in addition to any other vote required by law, such
amendment to the certificate of incorporation must be approved by a majority of
the corporation's voting shares, other than shares held by the Interested
Shareholders, which amendment would not be effective until 18 months after the
vote of such shareholders and would not apply to any Business Combination
between the corporation and any person who became an Interested Shareholder
prior to the effective date of the amendment. The Company is not exempt from
operation of Subchapter F by reason of any of the foregoing exceptions.
Xxxxxxxxx believes that, under applicable law and under circumstances of
the Offer including the Company Board's approval of the CSX Merger Agreement,
the Company Board is obligated by its fiduciary responsibilities to approve
the Offer and the Proposed Merger for purposes of Subchapter F and that its
failure to do so would be a violation of law. Purchaser is hereby requesting
that the Company Board adopt a resolution approving the Offer and the
Proposed Merger for purposes of Subchapter F as promptly as it may do so
without violating its obligations under the CSX Merger Agreement. In the
Pennsylvania Litigation, Purchaser is seeking, among other things, an order
requiring the Company Board to approve the Offer and the Proposed Merger and
thereby render Subchapter F inapplicable. See "Certain Litigation" below.
If Subchapter F applies to the Company, and if Subchapter F is not invalid
on its face or as applied to the Proposed Merger (by action of the Company
Board or otherwise), Subchapter F would prohibit, among other transactions,
consummation of the Proposed Merger for a period of five years after
consummation of the Offer.
CONSUMMATION OF THE OFFER IS CONDITIONED UPON PURCHASER BEING SATISFIED,
IN ITS SOLE DISCRETION, THAT SUBCHAPTER F HAS BEEN COMPLIED WITH OR IS
INVALID OR OTHERWISE INAPPLICABLE TO THE OFFER AND THE PROPOSED MERGER.
Subchapter 25G of Chapter 25 of the PBCL, relating to "control-share
acquisitions," prevents under certain circumstances the owner of a
control-share block of shares of a registered corporation from voting such
shares unless a majority of the "disinterested" shares approve such voting
rights. Failure to obtain such approval may result in a forced sale by the
control-share owner of the control-share block to the corporation at a
possible loss. The Company Articles specifically provide that Subchapter G
does not apply to the Company.
Subchapter H of Chapter 25 of the PBCL, relating to disgorgement by
certain controlling shareholders of a registered corporation, provides that
under certain circumstances any profit realized by a controlling person from
the disposition of shares of the corporation to any person (including to the
corporation under Subchapter G or otherwise) will be recoverable by the
corporation. The Company Articles specifically provide that Subchapter H does
not apply to the Company.
Subchapter I of Chapter 25 of the PBCL entitles "eligible employees" of a
registered corporation to a lump sum payment of severance compensation under
certain circumstances if the employee is terminated, other than for willful
misconduct, within two years after voting rights lost as a result of a
control-share acquisition are restored by a vote of disinterested
shareholders ("Control-share Approval") or, in the event the termination was
accomplished pursuant to an agreement, arrangement or understanding with the
acquiring person, within 90 days prior to Control-share Approval. Subchapter
J of Chapter 25 of the PBCL provides protection against termination or
impairment under certain circumstances of "covered labor contracts" of a
registered corporation as a result of a "business combination" transaction if
the business operation to which the covered labor contract relates was owned
by the registered corporation at the time voting rights are restored by
shareholder vote after a control-share acquisition. Subchapters I and J apply
only in the event of a "control-share acquisition" specified in Subchapter G.
The Company Articles specifically provide that Subchapter G does not apply to
the Company.
Section 2504 of the PBCL provides that the applicability of Chapter 25 of
the PBCL to a registered corporation having a class or series of shares
entitled to vote generally in the election of directors
41
registered under the Exchange Act or otherwise satisfying the definition of a
registered corporation under Section 2502(1) of the PBCL shall terminate
immediately upon the termination of the status of the corporation as a
registered corporation. Purchaser intends to seek to cause the Company to
terminate the registration of the Shares under the Exchange Act as soon after
consummation of the Proposed Merger as the requirements for termination of the
registration of the Shares are met.
Neither Purchaser nor Parent has currently complied with any state
takeover statute or regulation. Purchaser reserves the right to challenge the
applicability or validity of any state law purportedly applicable to the
Offer or the Proposed Merger and nothing in this Offer to Purchase or any
action taken in connection with the Offer or the Proposed Merger is intended
as a waiver of such right. If it is asserted that any state takeover statute
is applicable to the Offer or the Proposed Merger and an appropriate court
does not determine that it is inapplicable or invalid as applied to the Offer
or the Proposed Merger, Purchaser might be required to file certain
information with, or to receive approvals from, the relevant state
authorities, and Purchaser might be unable to accept for payment or pay for
Shares tendered pursuant to the Offer, or be delayed in consummating the
Offer or the Proposed Merger. In such case, Purchaser may not be obliged to
accept for payment or pay for any Shares tendered pursuant to the Offer.
A number of other states have adopted laws and regulations applicable to
attempts to acquire securities of corporations which are incorporated, or
have substantial assets, shareholders, principal executive offices or
principal places of business, or whose business operations otherwise have
substantial economic effects, in such states. Purchaser does not know whether
any of these laws will, by their terms, apply to the Offer and has not
complied with any such laws. Should any person seek to apply any state
takeover law, Purchaser will take such action as then appears desirable,
which may include challenging the validity or applicability of any such
statute in appropriate court proceedings. In the event it is asserted that
one or more state takeover laws are applicable, and an appropriate court does
not determine that such law is, or such laws are inapplicable or invalid as
applied to the Offer, Purchaser might be required to file certain information
with, or receive approvals from, the relevant state authorities. In addition,
if enjoined, Purchaser might be unable to accept for payment any Shares
tendered pursuant to the Offer, or be delayed in continuing or consummating
the Offer. In such case, Purchaser may not be obligated to accept for payment
any Shares tendered. See Section 14.
Certain Litigation. On October 23, 1996, Parent, Purchaser and Xxxxxxx X.
XxXxxxx, a shareholder of the Company, filed a Complaint for Declaratory and
Injunctive Relief (the "Complaint") against the Company, its directors and
CSX in the United States District Court for the Eastern District of
Pennsylvania. The Complaint alleges, among other things, that the defendants
have breached their fiduciary duties with respect to the Articles Amendment;
that the defendants have breached their fiduciary duties with respect to the
Rights Agreement; that the defendants have breached their fiduciary duties
with respect to Subchapter F of the PBCL; that the defendants have breached
their fiduciary duties with respect to certain lock-up provisions contained
in the CSX Merger Agreement; that the "Continuing Director" requirement of
the Rights Agreement is void under Pennsylvania law and under the Company's
Articles and By-laws and constitutes a breach of the director defendants'
duty of loyalty; that the defendants have violated Sections 14 (a), (d) and
(e) of the Exchange Act and the rules and regulations promulgated thereunder;
and that the Company and its directors are estopped from effectuating a sale
of the Company without giving Parent an adequate opportunity to present its
competing tender offer.
The plaintiffs seek declaratory relief and an order preliminarily and
permanently enjoining the defendants, their directors, officers, partners,
employees, agents, subsidiaries and affiliates, and all other persons acting
in concert with or on behalf of the defendants directly or indirectly, from:
(a) commencing or continuing a tender offer for Shares or other securities of
the Company; (b) seeking the approval by the Company's shareholders of the
Articles Amendment, or, in the event it has been approved by the Company's
shareholders, from taking any steps to make the Articles Amendment effective;
(c) taking any action to redeem the Rights or render the Rights Agreement
inapplicable as to any offer by CSX without, at the same time, taking the
same action as to the Offer; (d) taking any action to enforce the "Continuing
Director" requirement of the Rights Agreement; (e) taking any action to
enforce the CSX Termination Fee granted to CSX by the Company in the CSX
Merger Agreement or the CSX Lockup Option
42
Agreement; (f) failing to take such action as is necessary to exempt Xxxxxx's
proposed acquisition of the Company from the provisions of Subchapter F of the
PBCL; and (g) holding the Pennsylvania Special Meeting until all necessary
corrective disclosures have been made and adequately disseminated to the
Company's shareholders.
In addition, the plaintiffs seek compensatory damages, the costs and
disbursements of the action and such other and further relief as the court
deems just and proper. The plaintiffs also moved on October 23, 1996 for an
order granting expedited discovery and scheduling concerning their request
for preliminary injunctive relief.
On October 24, 1996, the District Court set a hearing date for November 12,
1996 to hear arguments concerning the plaintiffs' request for a preliminary
injunction.
16. FEES AND EXPENSES. Except as set forth below, neither Parent nor
Purchaser will pay any fees or commissions to any broker, dealer or other
Person for soliciting tenders of Shares pursuant to the Offer. The Dealer
Managers are acting in such capacity in connection with the Offer and are
acting as financial advisors to Parent in connection with its effort to
acquire the Company. Parent has agreed to pay each of the Dealer Managers an
advisory fee of $2,500,000 upon the making of the Offer. Upon the earliest to
occur of (i) the successful closing of any tender offer by Parent for
securities of the Company (defined as the acceptance for payment by Parent of
a majority of the Company's outstanding capital stock), (ii) the execution of
a definitive agreement providing for (a) any merger, consolidation,
reorganization or other business combination pursuant to which the business
of the Company is combined with that of Parent or one or more persons formed
by or affiliated with Parent, including, without limitation, any joint
venture (a "Business Combination"), (b) the acquisition by Parent by way of a
tender or exchange offer, negotiated purchase or other means of a majority of
the then outstanding capital stock of the Company, or (c) the acquisition by
Parent of all or a substantial portion of the assets, revenues or income of
the Company (an "Asset Acquisition"), and (iii) the acquisition by Parent of
control of the Company through a proxy contest (a "Successful Proxy
Contest"), Xxxxxx has agreed to pay each of the Dealer Managers an additional
advisory fee of $2,500,000. In addition, Xxxxxx has agreed to pay each of the
Dealer Managers a success fee of .125% of the aggregate transaction value
(less any amount of any previously paid advisory fees) upon the consummation
of a Business Combination or Asset Acquisition. Parent has also agreed to
reimburse the Dealer Managers (in their capacities as Dealer Managers and
financial advisors) for their reasonable out-of-pocket expenses, including
the reasonable fees and expenses of their legal counsel, incurred in
connection with their engagement, and to indemnify such firms and certain
related persons against certain liabilities and expenses in connection with
their engagement, including certain liabilities under the federal securities
laws. The Dealer Managers have rendered various investment banking and other
advisory services to Parent and its affiliates in the past and are expected
to continue to render such services, for which they have received and will
continue to receive customary compensation from Parent and its affiliates. The
Dealer Managers and/or their affiliates, in their capacity as Arrangers and/or
Lenders, will also be receiving fees from Parent as described in Section 10.
Purchaser has retained Xxxxxxxxx & Company Inc. to act as the Information
Agent in connection with the Offer. The Information Agent may contact holders
of Shares and participants in the ESOP by mail, telephone, facsimile,
telegraph and personal interviews and may request brokers, dealers and other
nominee shareholders to forward materials relating to the Offer to beneficial
owners of Xxxxxx. The Information Agent will receive reasonable and customary
compensation for its services, will be reimbursed for certain reasonable
out-of-pocket expenses and will be indemnified against certain liabilities
and expenses in connection therewith, including certain liabilities under the
federal securities laws.
In addition, The Bank of New York has been retained as the Depositary. The
Depositary has not been retained to make solicitations or recommendations in
its role as Depositary. The Depositary will receive reasonable and customary
compensation for its services, will be reimbursed for certain reasonable
out-of-pocket expenses and will be indemnified against certain liabilities
and expenses in connection therewith, including certain liabilities under the
federal securities laws. Brokers, dealers, commercial banks and trust
companies will be reimbursed by Purchaser for customary mailing and handling
expenses incurred by them in forwarding offering material to their customers.
43
17. MISCELLANEOUS. Purchaser is not aware of any jurisdiction where the
making of the Offer is prohibited by any administrative or judicial action
pursuant to any valid state statute. If Purchaser becomes aware of any valid
state statute prohibiting the making of the Offer or the acceptance of the
Shares pursuant thereto, Purchaser will make a good faith effort to comply
with such state statute. If, after such good faith effort, Purchaser cannot
comply with any such state statute, the Offer will not be made to (nor will
tenders be accepted from or on behalf of) the holders of Shares in such
state. In any jurisdiction where the securities, blue sky or other laws
require the Offer to be made by a licensed broker or dealer, the Offer shall
be deemed to be made on behalf of Purchaser by one or more registered brokers
or dealers which are licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF PARENT OR PURCHASER NOT CONTAINED IN THIS OFFER
TO PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
Parent and Purchaser have filed with the SEC the Schedule 14D-1, together
with exhibits, pursuant to Rule 14d-3 of the General Rules and Regulations
under the Exchange Act, furnishing certain additional information with
respect to the Offer. The Schedule 14D-1, and any amendments thereto, may be
inspected at, and copies may be obtained from, the same places and in the
same manner as set forth in Section 8 (except that they may not be available
at the regional offices of the SEC).
ATLANTIC ACQUISITION CORPORATION
October 24, 1996
44
SCHEDULE I
INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE
OFFICERS OF PARENT AND PURCHASER
1. Directors and Executive Officers of Parent. Set forth below is the
name, current business address, citizenship and the present principal
occupation or employment and material occupations, positions, offices or
employments for the past five years of each director and executive officer of
Parent. Unless otherwise indicated, each person identified below is employed
by Xxxxxx. The principal address of Parent and, unless otherwise indicated
below, the current business address for each individual listed below is Three
Commercial Place, Norfolk, Virginia 23510. Directors are identified by an
asterisk. Each such person is a citizen of the United States.
NAME AND PRINCIPAL PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR EMPLOYMENT
BUSINESS ADDRESS HISTORY
--------------------------------- -------------------------------------------------------------------------
Xxxxx X. Xxxxx* Chairman, President and Chief Executive Officer (since September 1992); President
(from October 1991 to September 1992); and prior thereto was Executive Vice
President-Administration; Director, Caterpillar, Inc. (since June 1993);
Director, Georgia-Pacific Corporation (since July 1992); Director, TRINOVA
Corporation (since January 1993); Director, Texas Instruments (since February
1996).
X. Xxxxx Xxxxx Vice Chairman (since October 1995); and prior thereto was Executive Vice
President-Marketing.
Xxxxx X. Xxxxxx, Xx. Executive Vice President-Law (since March 1996); and prior thereto was Vice
President-Law.
X. Xxxx Xxxxxx Executive Vice President-Transportation Logistics and President, North American
P.O. Box 988 Van Lines, Inc. (since December 1992); Vice President-Quality Management (from
Fort Xxxxx, IN 46801-0988 April 1991 to December 1992); and prior thereto was Vice President-Material
Management and Property Services.
X. X. Xxxxxxxxx Executive Vice President-Marketing (since October 1995); Vice
President-Properties (from December 1992 to October 1995); and prior thereto
was Vice President and Controller.
Xxxxxxx X. Xxxxxx Executive Vice President-Operations (since July 1994); Senior Vice
President-Operations (from October 1993 to July 1994); Vice President-Strategic
Planning (from December 1992 to October 1993); and prior thereto was Vice
President-Transportation; Director, TTX Company (since January 1993).
Xxxxx X. Xxxx Executive Vice President-Finance (since June 1993); and prior thereto was Vice
President-Taxation; Director, Greater Norfolk Corporation (since May 1994);
Director, Shenandoah Life (since November 1995).
Xxxxxxx X. Xxxxx Senior Vice President-International (since October 1995); Vice President-Coal
000 Xxxxxxxx Xx., X.X Marketing (from August 1993 to October 1995); and prior thereto was Vice
Roanoke, VA 24012 President-Coal and Ore Traffic.
Xxxx X. Xxxxxx Vice President-Personnel (since June 1994); Assistant Vice President-Personnel
(from February 1993 to June 1994); and prior thereto was Director-Compensation.
I-1
NAME AND PRINCIPAL PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR EMPLOYMENT
BUSINESS ADDRESS HISTORY
--------------------------------- -------------------------------------------------------------------------
Xxxx X. Xxxxxxxx Vice President-Public Affairs (since March 1992); and prior thereto was Assistant
0000 X Xxxxxx, X.X., Vice President-Public Affairs.
Suite 375
Washington, DC 20005
Xxxxx X. Xxx Vice President-Properties (since December 1995); and prior thereto was Assistant
Vice President-Industrial Development.
Xxxxxx X. Xxxxxxxxx Vice President-Intermodal (since August 1993); Senior Assistant Vice
President-International and Intermodal (from April to August 1993); and prior
thereto was Assistant Vice President-International and Intermodal.
Xxxx X. Xxx, Xx. Vice President-Coal Marketing (since October 1995); Assistant Vice President-Coal
000 Xxxxxxxx Xx., X.X. Marketing (from August 1993 to October 1995); and prior thereto was General
Roanoke, VA 24042 Manager Eastern Region.
Xxxxxx X. Xxxxxx Vice President (since October 1995); Executive Assistant to the Chairman,
President and Chief Executive Officer (from April 1993 to October 1995); and
prior thereto was Special Assistant to the President.
Xxxxx X. Xxxxxx Vice President-Public Affairs (since March 1992); and prior thereto was Assistant
0000 X Xxxxxx, X.X. Vice President-Public Affairs.
Suite 375
Washington, DC 20005
Xxxxx X. Xxxxx Vice President-Taxation (since June 1993); and prior thereto was Assistant
Vice President-Tax Counsel.
Xxx X. Xxxxxxx Vice President-Transportation & Mechanical (since December 1995); Vice
President-Transportation (from June 1994 to December 1995); Assistant Vice
President-Transportation (from October 1993 to June 1994); Assistant Vice
President-Strategic Planning (from January 1993 to October 1993); Director
Joint Facilities and Budget (from March 1992 to January 1993); and prior thereto
was Assistant Terminal Superintendent-Transportation; Director, Beaver Street
Tower Company (since July 1994); Director, Norfolk and Portsmouth Belt Line
Railroad Company (since July 1994); Director, Belt Railway Company of Chicago
(since September 1994).
Xxxxxx X. Xxxxxx, Xx. Vice President-Quality Management (since December 1992); Assistant Vice
President-Quality Management (from April 1991 to December 1992); and prior
thereto was General Manager-Intermodal Transportation Services.
Xxxxxx X. Xxxxxxxx Vice President-Research and Tests (since December 1995); and prior thereto
000 Xxxxxxxx Xx., X.X. was Vice President-Mechanical.
Roanoke, VA 24042
Xxxxx X. XxXxxxxxx Vice President-Strategic Planning (since October 1993); Assistant Vice
President-Corporate Planning (from March 1992 to October 1993); and prior thereto
was Director-Corporate Development.
Xxxxxxx X. XxXxxxx Vice President-Internal Audit (since December 1992); Director-Income Tax
000 Xxxxxxxx Xx., X.X. Administration (from May 1991 to December 1992); and prior thereto was
Roanoke, VA 24042 Director-Federal Income Tax Administration.
I-2
NAME AND PRINCIPAL PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR EMPLOYMENT
BUSINESS ADDRESS HISTORY
--------------------------------- -------------------------------------------------------------------------
Xxxxxxx X. Xxxxxxx Vice President-Information Technology (since October 1993); Vice
President-Employee Relations (from December 1992 to October 1993); Vice
President-Personnel and Labor Relations (from February to December 1992);
Assistant Vice President-Stations, Terminals and Transportation Planning (from
March 1991 to February 1992); and prior thereto was Senior Director Transportation
Planning.
Xxxxxxx X. Xxxxx Vice President-Engineering (since December 1992); and prior thereto was Assistant
00 Xxxxxx Xxxxxx, XX Vice President-Maintenance; Director, Norfolk and Portsmouth Belt Line Railroad
Atlanta, GA 30303 Company (since December 1993).
Xxxxx X. Xxxxxxxx Vice-President-Public Relations (since July 1984).
Xxxx X. Xxxxxxxx Vice President and Controller (since December 1992); and prior thereto was
Assistant Vice President-Internal Audit.
Xxxxxxx X. Xxxxx Vice President and Treasurer (since April 1992); and prior thereto was Assistant
Vice President-Finance.
Xxxxxx X. Xxxxx Vice President-Merchandise Marketing (since August 1993); Assistant Vice
President-Sales and Service (from May 1992 to August 1993); and prior thereto
was Director-Metals, Waste and Construction.
Xxxxxx X. Xxxxxxx Vice President-Labor Relations (since June 1994); and prior thereto was Senior
Assistant Vice President-Labor Relations.
Xxxxxxx X. Xxxxxxxxxx Vice President-Law (since March 1996); prior thereto was General
Counsel-Corporate.
Xxxxxx X. Xxxxxx Corporate Secretary (since April 1995); Assistant Corporate Secretary (from
October 1993 to April 1995); and prior thereto was Assistant Corporate
Secretary-Planning.
Xxxxxx X. Xxxxxxx* Director (since 1990); Partner, Hunton & Xxxxxxxx (since 1990); Director, Xxxxxxx
Xxxxxx & Xxxxxxxx Brothers, Inc. (from March 1992 to March 1995).
000 X. Xxxx Xx.
Xxxxxxxxxx Xxxxx, Xxxx Xxxxx
Xxxxxxxx, XX 00000-0000
Xxxxxxx X. Xxxxxxxx, Xx.* Director (since July 1996); President and Chief Executive Officer, American
American Council of Life Council of Life Insurance (since January 1995); Governor of South Carolina
Insurance (from January 1987 to January 1995); Director, AVX (since July 1995), Director,
0000 Xxxxxxxxxxxx Xxx., X.X. FLUOR (since January 1995).
Washington, D.C. 20004
Xxxx X. Xxxxxx* Director (since 1992); Executive Director, Association for Supervision and
Association for Supervision Curriculum Development (since July 1992); Superintendent of Schools, Norfolk,
and Curriculum Development Virginia (from July 1983 to June 1992).
0000 X. Xxxx Xxxxxx
Xxxxxxxxxx, XX 00000-1403
X. X. Xxxxxxx* Director (since 1982); Chairman, The Lubrizol Corporation (from January 1996
14849 Trappers Trail to March 1996); Chairman of the Board and CEO (from April 1982 to December
Novelty, OH 44072 1995); Director, Xxxxxx Corporation (since January 1985).
I-3
NAME AND PRINCIPAL PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR EMPLOYMENT
BUSINESS ADDRESS HISTORY
--------------------------------- -------------------------------------------------------------------------
X. Xxxxxxxx Xxxx, Xx.* Director (since 1985); Honorary Chairman of the Board, Georgia-Pacific Corporation
Georgia-Pacific Corporation (since December 1993), Chairman of the Board (from May 1993 to December 1993),
P. O. Box 105605 Chairman of the Board and Chief Executive Officer (from February 1985 to May 1993);
Atlanta, GA 30348-5605 Director, SunTrust Banks, Inc. (since July 1984); Director, Coca-Cola Enterprises
(since 1987).
Xxxxxx Xxxxxxxx* Director (since 1992); Partner, Brown Brothers Xxxxxxxx & Co. (since January
Brown Brothers Xxxxxxxx & Co. 1979); Director, Xxxxx-Xxxxxxx Fiberglass Corporation (since April 1989).
00 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
X. X. Xxxxxxxxxx, Xx.* Director (since 1982); Chairman of the Philadelphia Contributionship (since
Philadelphia Contributionship January 1996) Chairman and Chief Executive Officer, Penn Virginia
One Tower Bridge, Suite 501 Corporation (from December 1988 to April
Philadelphia, PA 19428 1992); Director, Penn Virginia Corporation (from September 1952 to October
1992); Director, Xxxxxxxxxxxx Coal Company (from September 1952 to June 1996);
Director, Fidelity Bank, N.A. (a wholly-owned subsidiary of First Fidelity
Bancorporation) (from 1960 to January 1994); Director, PICO Products, Inc.
(since November 1994); Director, SKF USA Inc. (a controlled subsidiary of
Aktiebolaget SKF, Swedish corporation) (from January 1966 to March 1996).
Xxxxxx X. XxXxxxxx* Director (since 1986); Chairman and Chief Executive Officer, Norfolk Southern
Corporation (from September 1991 to August 1992); Chairman, President and Chief
Executive Officer, Norfolk Southern Corporation (from March 1987 to September
1991).
Xxxx Xxxxxxxx X'Xxxxx* Director (since 1994); President, St. Mary's College of Maryland (since July
St. Mary's College of Maryland 1996); President, Xxxxxxx College (from July 1991 to June 1996); Xxxx of the
St. Mary's City, MD 20686 Faculty, Middlebury College (from 1989 to 1991); Director, Landmark
Communications, Inc. (since 1994).
Xxxxxx X. Xxxx* Director (since 1988); Partner, The Beacon Group (since April 1993); President,
The Beacon Group PBS Properties, Inc. (since November 1990), President and Chief Executive Officer,
000 Xxxx Xxx., 00xx Floor First Fidelity Bancorporation (from April 1984 to December 1988); Director,
New York, NY 10152 Turecamo Maritime, Inc. (from June 1990 to June 1996).
I-4
2. Directors and Executive Officers of Purchaser. Set forth below is the
name, current business address, citizenship and the present principal
occupation or employment and material occupations, positions, offices or
employments for the past five years of each director and officer of
Purchaser. Unless otherwise indicated, each person identified below is
employed by Purchaser and has held such position since the formation of
Purchaser on October 23, 1996. The principal address of Purchaser and, unless
otherwise indicated below, the current business address for each individual
listed below is Three Commercial Place, Norfolk, Virginia 23510. Directors
are identified by an asterisk. Each such person is a citizen of the United
States.
NAME AND PRINCIPAL PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR EMPLOYMENT
BUSINESS ADDRESS HISTORY
-------------------------- ---------------------------------------------------------------------
Xxxxx X. Xxxxx* ........... President; see part 1 above for five-year employment history.
Xxxxx X. Xxxxxx, Xx.* .... Vice President and General Counsel; see part 1 above for five-year employment
history.
X.X. Xxxxxxxxx ............ Vice President; see part 1 above for five-year employment history.
Xxxxx X. Xxxx* ............ Vice President and Treasurer; see part 1 above for five-year employment
history.
Xxxxxx X. Xxxxxx .......... Corporate Secretary; see part 1 above for five-year employment history.
I-5
Facsimile copies of the Letter of Transmittal, properly completed and duly
signed, will be accepted. The Letter of Transmittal, certificates for the
Shares and any other required documents should be sent by each shareholder of
the Company or his broker, dealer, commercial bank, trust company or other
nominee to the Depositary as follows:
The Depositary for the Offer is:
The Bank of New York
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
Tender & Exchange Department (for Eligible Institutions Only) Tender & Exchange Department
P.O. Box 11248 (000) 000-0000 000 Xxxxxxx Xxxxxx
Church Street Station Receive & Deliver Window
New York, New York 00000-0000 Xxx Xxxx, Xxx Xxxx 00000
For Information Telephone:
(000) 000-0000
Any questions or requests for assistance may be directed to the
Information Agent or the Dealer Managers at their respective telephone
numbers and locations listed below. Additional copies of the Offer to
Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may
be obtained from the Information Agent at its address and telephone numbers
set forth below. Holders of Shares may also contact their broker, dealer,
commercial bank or trust company or other nominee for assistance concerning
the Offer.
The Information Agent for the Offer is:
XXXXXXXXX & COMPANY
[LOGO]
Wall Street Plaza
New York, NY 10005
Banks and Brokers Call Collect: (000) 000-0000
All Others Call Toll-Free: (000) 000-0000
The Dealer Managers for the Offer are:
X.X. XXXXXX & CO. XXXXXXX XXXXX & CO.
00 Xxxx Xxxxxx World Financial Center
Mail Stop 0000 Xxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000 Xxx Xxxx, Xxx Xxxx 00000-1305
(000) 000-0000 (toll free) (000) 000-0000 (call collect)
