-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mi+hTxHp9yALORkOySqMakAbpkkekBBVeQirsGEIkMo9qjQHL8osvdL6tMRfJRyv nFNDAT1eOPAv7j2v8HHzRg== 0000950123-96-006233.txt : 19961107 0000950123-96-006233.hdr.sgml : 19961107 ACCESSION NUMBER: 0000950123-96-006233 CONFORMED SUBMISSION TYPE: SC 14D9/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19961106 SROS: NYSE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CONRAIL INC CENTRAL INDEX KEY: 0000897732 STANDARD INDUSTRIAL CLASSIFICATION: RAILROADS, LINE-HAUL OPERATING [4011] IRS NUMBER: 232728514 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-42777 FILM NUMBER: 96655452 BUSINESS ADDRESS: STREET 1: TWO COMMERCE SQ STREET 2: P O BOX 41417 CITY: PHILADELPHIA STATE: PA ZIP: 19101-1417 BUSINESS PHONE: 2152094434 MAIL ADDRESS: STREET 1: P.O. BOX 41429 STREET 2: 2001 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19101-1429 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CONRAIL INC CENTRAL INDEX KEY: 0000897732 STANDARD INDUSTRIAL CLASSIFICATION: RAILROADS, LINE-HAUL OPERATING [4011] IRS NUMBER: 232728514 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9/A BUSINESS ADDRESS: STREET 1: TWO COMMERCE SQ STREET 2: P O BOX 41417 CITY: PHILADELPHIA STATE: PA ZIP: 19101-1417 BUSINESS PHONE: 2152094434 MAIL ADDRESS: STREET 1: P.O. BOX 41429 STREET 2: 2001 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19101-1429 SC 14D9/A 1 AMENDMENT NO. 4 TO SCHEDULE 14D-9 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 4 TO SCHEDULE 14D-9 SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------ CONRAIL INC. (NAME OF SUBJECT COMPANY) ------------------------ CONRAIL INC. (NAME OF PERSON(S) FILING STATEMENT) ------------------------ COMMON STOCK, PAR VALUE $1.00 PER SHARE (INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS) (TITLE OF CLASS OF SECURITIES) 208368 10 0 (CUSIP NUMBER OF CLASS OF SECURITIES) ------------------------ SERIES A ESOP CONVERTIBLE JUNIOR PREFERRED STOCK, WITHOUT PAR VALUE (INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS) (TITLE OF CLASS OF SECURITIES) N/A (CUSIP NUMBER OF CLASS OF SECURITIES) ------------------------ JAMES D. MCGEEHAN CORPORATE SECRETARY CONRAIL INC. 2001 MARKET STREET TWO COMMERCE SQUARE PHILADELPHIA, PENNSYLVANIA 19101 (215) 209-4000 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT) With a copy to: ROBERT A. KINDLER, ESQ. CRAVATH, SWAINE & MOORE WORLDWIDE PLAZA 825 EIGHTH AVENUE NEW YORK, NEW YORK 10019 (212) 474-1000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INTRODUCTION Conrail Inc. ("Conrail") hereby amends and supplements its Solicitation/Recommendation Statement on Schedule 14D-9, originally filed on October 16, 1996 and amended as of October 25, 1996, November 1, 1996 and November 4, 1996 (as amended, the "Schedule 14D-9"), with respect to an offer by Green Acquisition Corp., a wholly owned subsidiary of CSX Corporation ("CSX") to purchase an aggregate of 17,860,124 of the outstanding Shares. Capitalized terms not defined herein have the meanings assigned thereto in the Schedule 14D-9. ITEM 2. TENDER OFFER OF THE BIDDER. Item 2 of the Schedule 14D-9 is hereby amended and supplemented as follows: On November 5, 1996, Conrail, CSX and Purchaser entered into an Amendment (the "Amendment") to the Merger Agreement. Pursuant to the Merger Agreement (as so amended), (i) CSX and Purchaser have increased the price per Share offered in the Offer from $92.50 to $110, net to the seller in cash, without interest, and have extended the expiration of the Offer to 12:00 midnight, New York City time, on Wednesday, November 20, 1996, (ii) CSX and Purchaser have increased to $110 the price paid per Share in the Merger, to the extent 40% of the fully diluted Shares are not purchased in the Offer and the Second CSX Offer and cash is paid in the Merger, (iii) at any time prior to 11 business days before the then scheduled expiration date of the Offer if the Articles Amendment is then effective, CSX may (and at the request of Conrail shall) increase the number of Shares to which the Offer applies to 40% of the fully diluted Shares, (iv) at any time following seven business days after the consummation of the Offer, if CSX does not yet own 40% of the fully diluted Shares (excluding Shares that would be outstanding upon exercise of the Conrail Stock Option), CSX may (and at the request of Conrail shall) make a second tender offer (conditioned on the Articles Amendment becoming effective) for an additional number of Shares (the "Second CSX Offer") at a price at least equal to $110 per Share and otherwise on terms and conditions no less favorable to shareholders than the terms and conditions of the Offer, such that the Shares acquired in such Second CSX Offer, together with the Shares acquired in the Offer, will equal 40% of the fully diluted Shares and (v) Conrail shall merge with and into Purchaser in the Merger, such that each Share would be exchanged for 1.85619 CSX shares (the "Exchange Ratio") (all the foregoing transactions, the "CSX Transactions"). Under the terms of the Merger Agreement, upon the effective time of the Merger (the "Effective Time"), the headquarters of CSX will be relocated to Philadelphia, Pennsylvania, CSX will be renamed with a new, neutral name ("Parent") and one half of the Board of Directors of Parent and each committee thereof will consist of persons appointed by Conrail. In addition, as of the Effective Time, Mr. David M. LeVan, presently the Chairman of the Board, President and Chief Executive Officer of Conrail, will become the Chief Operating Officer and President of Parent and the Chief Executive Officer and President of each of Parent's railroad businesses, and, no later than the second anniversary of the Effective Time, the Chief Executive Officer of Parent and, no later than the fourth anniversary of the Effective Time, the Chairman of the Board of Parent. Pursuant to the Amendment, CSX agreed to increase the price it would offer to pay for Shares tendered in the Offer, the Second CSX Offer, if applicable, and the Merger, if applicable, to $110 per Share, and agreed to a provision prohibiting CSX and Conrail or any of their subsidiaries or any of their directors, officers, employees, investment bankers, financial advisors, attorneys, accountants or other representatives, during the term of the Merger Agreement, from, directly or indirectly through another person, participating in any conversations, discussions or negotiations, or entering into any agreement, arrangement or understanding, with any other railroad with respect to the acquisition of the assets or securities of Conrail or CSX or their subsidiaries by, or the granting of trackage rights or other concessions relating to the assets of Conrail or CSX or their subsidiaries to, any other railroad, other than with respect to sales, leases, licenses, mortgages or other disposals by either party of its assets or properties (but not those of the other party and its subsidiaries) made in the ordinary course of business consistent with past practice. Notwithstanding the foregoing, Conrail and CSX are permitted to engage in conversations, discussions and negotiations with other railroads to the extent reasonably necessary or reasonably advisable to obtain regulatory approval of the CSX Transactions and so long as (i) representatives of CSX and Conrail are both present at any such conversation, discussion or 3 negotiation, (ii) the general subject matter of any such conversation, discussion or negotiation shall have been agreed to in advance by Conrail and CSX and (iii) Conrail, CSX and such other company shall have previously agreed to appropriate confidentiality arrangements. The foregoing "no third party discussion" provision will terminate and be of no further force and effect immediately upon any exercise by either Conrail or CSX of its rights to provide information or enter into discussions with a third party to the extent the Board of Directors determines that such action is required by its fiduciary duties, in accordance with the terms and subject to the conditions of the Merger Agreement. Under the Amendment, Conrail agreed to extend from April 13, 1997 to July 12, 1997 the period of time during which the Board of Directors of Conrail (the "Conrail Board") is prohibited from (i) withdrawing or modifying, or publicly proposing to withdraw or modify, its approval or recommendation of the CSX Transactions, in a manner adverse to CSX, (ii) approving or recommending, or publicly proposing to approve or recommend, any competing proposal or (iii) causing Conrail to enter into any agreement related to any such competing proposal. Under the Merger Agreement, CSX has the right to unilaterally increase the price offered in the Offer or the Second CSX Offer, if applicable, or the percentage of Shares covered thereby (without in any case making any change in the consideration per Share payable in the Merger), subject to the obligation to cause such offer to remain open for 10 business days following the date any such change is publicly announced. Under the Merger Agreement, however, CSX cannot change the consideration payable in the Merger without the consent of Conrail. Shareholders should be aware that if Conrail shareholders approve the Articles Amendment at the special meeting of shareholders (the "Pennsylvania Special Meeting"), CSX would be able to purchase more than 19.9% of the Shares in a tender offer or other transaction (such as the Second CSX Offer) without all holders of Shares having the right to put their Shares to CSX for at least $110 in cash. As a result, if the Articles Amendment is approved, and if CSX is able to acquire 40% of the fully diluted Shares through the Offer and the Second CSX Offer, if applicable, the approval of the Merger by a majority of votes cast at a special meeting of the holders of Shares will be virtually certain. In addition, the Merger Agreement provides that CSX may exercise its option to purchase 15,955,477 shares of Common Stock (the "CSX Option") pursuant to the Conrail Stock Option Agreement, dated as of October 14, 1996, between CSX and Conrail, if CSX consummates the Offer or if the Merger Agreement is terminated and CSX is entitled to receive the break-up fees provided for in the Merger Agreement. If CSX acquires 40% of the Shares through the Offer and the Second CSX Offer, if applicable, and exercises the CSX Option, CSX, through a voting trust created for this purpose (the "Voting Trust"), will then hold approximately 50% of the Shares and will cast its votes to approve the Merger, which number of votes will be sufficient to approve the Merger regardless of the votes of other shareholders. Therefore, approval of the Articles Amendment would assure that the Merger will be approved by Conrail's shareholders if sufficient Shares are tendered in the Offer and the Second CSX Offer, if applicable, and the CSX Option is exercised. Moreover, if CSX consummates only the Offer by acquiring 19.9% of the Shares and then exercises the CSX Option, CSX will then own approximately 30% of the fully diluted Shares and will have a large portion of the voting power of the Shares to vote in favor of the Merger. Furthermore, because the record date for the Pennsylvania Special Meeting has been designated for a date occurring after the scheduled expiration of the Offer, if CSX acquires 19.9% of the Shares pursuant to the CSX Offer, the Shares so acquired by CSX will be voted by the Voting Trust at the Pennsylvania Special Meeting in favor of the Articles Amendment. In such case, a significant portion of the votes at the Pennsylvania Special Meeting will be committed to vote in favor of the Articles Amendment. Shareholders should also be aware that shareholders may decide to tender their Shares to CSX in the Offer and the Second CSX Offer, if applicable (even if they believe that the tender offer of Norfolk Southern Corporation ("Norfolk") and proposed merger with a subsidiary of Norfolk (the "Proposed Norfolk Transactions"), if they could be effected, would have a higher value to shareholders than the CSX Transactions), because shareholders may conclude that sufficient Shares will be tendered by other shareholders and that failure to tender will result in the non-tendering shareholders receiving only CSX shares which, 2 4 based on current market prices, have a per Share value that is significantly less that the $110 per Share being offered in the Offer and the Second CSX Offer, if applicable. Therefore, the Offer and the Second CSX Offer, if applicable, may succeed regardless of the perceived relative values of the CSX Transactions and the Proposed Norfolk Transactions. As of the close of business on November 5, 1996, the closing market price for CSX shares on the New York Stock Exchange Composite Tape was $44 7/8. The terms and conditions of the Offer and the Merger Agreement are described under the captions "TERMS OF THE OFFER; PRORATION; EXPIRATION DATE" and "MERGER AGREEMENT; OTHER AGREEMENTS" in the Offer to Purchase, as supplemented by the Supplement to the Offer to Purchase dated November 6, 1996 (the "Supplement"), a copy which is filed as Exhibit (a)(11) hereto and is incorporated herein by reference. The foregoing summary description is qualified in its entirety by reference to Exhibits (a)(1) and (a)(11). On October 23, 1996, Norfolk announced the Proposed Norfolk Transactions in which Norfolk offered to purchase all of the outstanding Shares for $100 per share in cash. Several of the conditions to the Proposed Norfolk Transactions can be satisfied only through action by the Conrail Board, which, pursuant to the Merger Agreement, the Conrail Board has agreed not to take until at least July 12, 1997. On November 6, 1996, Conrail announced that the special meeting of the Conrail shareholders (the "Pennsylvania Special Meeting") to seek approval of an amendment to subchapter E of Chapter 25 of the PBCL (the "Articles Amendment") has been canceled, and a new record date of December 5, 1996 has been set for the next Pennsylvania Special Meeting. In connection with the Pennsylvania Special Meeting, Conrail intends to solicit proxies in favor of the Articles Amendment. Conrail believes that Norfolk intends to solicit proxies opposing the Articles Amendment. Pursuant to the Amendment, Conrail will file the Articles Amendment with the Pennsylvania Department of State as promptly as practicable following approval thereof. The Amendment also provides that Conrail will not convene, adjourn or postpone the Pennsylvania Special Meeting without CSX's prior consent (not to be unreasonably withheld). ITEM 4. THE SOLICITATION OR RECOMMENDATION. Item 4 is hereby amended and supplemented as follows: (a) Recommendations of the Board of Directors. THE CONRAIL BOARD CONTINUES TO BELIEVE THAT A MERGER OF EQUALS WITH CSX IS IN THE BEST INTERESTS OF CONRAIL; THE CONRAIL BOARD BELIEVES THAT THE AMENDED TERMS OF THE MERGER AGREEMENT REPRESENT A SIGNIFICANT IMPROVEMENT OVER THE ORIGINAL TERMS OF THE CSX TRANSACTIONS. At a meeting held on November 5, 1996, the Conrail Board, including the disinterested members of the Conrail Board, unanimously (i) determined that the terms of the Proposed Norfolk Transactions are not in the best interests of Conrail (taking into account the Conrail constituencies affected by such proposed transactions, the short-term and long-term interests of Conrail, the resources, intent and conduct (past, stated and potential) of any person seeking to acquire control of Conrail, and all other pertinent factors); and (ii) recommended that the shareholders of Conrail reject the Norfolk tender offer (the "Norfolk Offer") and not tender their Shares pursuant to the Norfolk Offer. ACCORDINGLY, THE CONRAIL BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF CONRAIL NOT TENDER THEIR SHARES PURSUANT TO THE NORFOLK OFFER. The Conrail Board, including the disinterested members of the Conrail Board, also unanimously reaffirmed its determination that the terms of the Merger Agreement (as amended) are in the best interests of Conrail (taking into account all the Conrail constituencies affected by such proposed transactions, the short-term and long-term interests of Conrail, the resources, intent and conduct (past, stated and potential) of any person seeking to acquire control of Conrail, and all other pertinent factors). ACCORDINGLY, THE CONRAIL BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF CONRAIL WHO DESIRE TO RECEIVE CASH FOR THEIR SHARES TENDER THEIR SHARES PURSUANT TO THE OFFER AND THE SECOND CSX OFFER, IF APPLICABLE. 3 5 The Conrail Board continues to recommend that shareholders tender their Shares pursuant to the Offer and the Second CSX Offer, if applicable, because it has determined that the CSX Transactions are in the best interests of Conrail. The value to be received by Conrail's shareholders pursuant to the original terms of the CSX Transactions was at the high-end of what has been in other railroad business combinations. Under the amended terms of the CSX Transactions, the aggregate amount of cash to be received by the Conrail shareholders has been increased by approximately $650 million. The Proposed Norfolk Transactions cannot, however, be consummated at the present time because they are conditioned on certain actions by the Conrail Board, which actions the Conrail Board has agreed under the Merger Agreement not to take until after July 12, 1997. In addition, on and after July 12, 1997, the CSX Merger Agreement provides that certain conditions must be satisfied in order for the Conrail Board to take any such action and, in any event, the Conrail Board has no obligation under the PBCL to agree to or recommend any takeover proposal (such as the Proposed Norfolk Transactions) or to take any such action to facilitate any such takeover proposal. Copies of a press release announcing the Conrail Board's determinations, and a letter to the shareholders of Conrail communicating the Conrail Board's recommendations are filed as Exhibits (a) (12) and (a) (13) hereto, respectively, and are incorporated herein by reference. (b)(1) Background. The information contained under the caption "BACKGROUND OF THE OFFER SINCE OCTOBER 16, 1996; CONTRACTS WITH THE COMPANY" in the Supplement is incorporated herein by reference. (2) Reasons for Recommendation. In making the determinations and recommendations set forth above in Section (a) of this Item 4, the Conrail Board considered a number of factors, including, without limitation, the following: (i) The factors which led the Conrail Board to recommend the original CSX tender offer (the "Original CSX Offer") and the terms of the Merger Agreement at the Conrail Board meeting held on October 14, 1996, including, without limitation, the following: (A) the historical and recent market prices of the Shares and the fact that the Original CSX Offer and the Merger will enable shareholders to realize a significant premium over the prices at which the Shares traded prior to execution of the Merger Agreement, and that the Offer (as amended) will enable shareholders to realize an even greater premium than in the Original CSX Offer; (B) the receipt by the Conrail Board of fairness opinions of Lazard Freres & Co. LLC ("Lazard Freres") and Morgan Stanley & Co. Incorporated ("Morgan Stanley"), dated October 14, 1996, to the effect that the consideration to be received by Conrail's shareholders in the Original CSX Offer and the Merger, taken together, is fair to such shareholders from a financial point of view, and dated November 5, 1996, to the effect that the consideration to be received by Conrail's shareholders in the Offer (as amended) and the Merger, taken together, is also fair to such shareholders from a financial point of view. In rendering their respective fairness opinions, based on the factors described therein and at the request of counsel for the Conrail Board, neither Lazard Freres nor Morgan Stanley addressed the relative merits of the CSX Transactions, the Proposed Norfolk Transactions and any alternative potential transactions (copies of such opinions setting forth assumptions made and matters considered by Lazard Freres and Morgan Stanley are filed as Exhibits (a)(14) and (a)(15), respectively, and should be read in their entirety); (C) the Conrail Board's duties under Pennsylvania law to act in the best interests of Conrail, and that under such law the Conrail Board may consider (a) the interests of all constituencies, including shareholders, employees, suppliers, customers and creditors, as well as communities in which Conrail has operations, (b) the short-term and long-term 4 6 interests of Conrail, (c) the resources, intent and conduct (past, stated and potential) of any person seeking to acquire control of Conrail and (d) all other pertinent factors; (D) the Conrail Board's view that the transactions contemplated by the Merger Agreement would result in significant efficiencies, operating benefits and commercial and other synergies that would better benefit Conrail and its customers and be more in the public interest than would combinations with other railroads, such as Norfolk, and that Conrail's shareholders would also benefit greatly from such efficiencies, benefits and synergies through their significant continued interest in the combined company following the Merger; (E) the Conrail Board's view that the benefits, efficiencies and synergies in the Merger would better meet the needs of Conrail's constituencies than would other combinations with other railroads, such as Norfolk; (F) the benefits that the Merger would provide to the customers of Conrail and CSX, including by providing them with the benefits of efficient high-quality service from a more comprehensive rail system with more points of origin and more new single-line and integrated transportation services, and with a railroad company with the financial strength to support substantial capital investment in the railroad system; (G) the benefits that the Merger would provide to the public through increased safety and improved air quality due to, among other things, the resulting improvements in the principal alternative to truck movement over heavily-congested highways; (H) the benefits provided generally to the communities served by Conrail, and particularly to local communities in Pennsylvania, including through maintaining the headquarters of the combined company in Philadelphia; (I) the fact that the Merger, while providing a significant premium to Conrail's shareholders, has been structured as a true merger-of-equals transaction in which 50% of the Board, and each Board committee, of Parent would be designated by Conrail; and (J) Mr. LeVan being named as the President and Chief Operating Officer of Parent and the President and Chief Executive Officer of the railroads, and the fact that he is to become Chief Executive Officer of Parent two years after the Effective Time and Chairman of the Board of Parent four years after the Effective Time. (ii) The view of the Conrail Board that a strategic combination with CSX remains in the best interests of Conrail, notwithstanding the commencement of the Norfolk Offer, and that the terms of the Offer (as amended) are fair from a financial point of view and more favorable to shareholders than the terms of the Original CSX Offer. (iii) The Conrail Board's recognition that the near-term trading price for the Shares, if the Norfolk Offer could be effected, would likely be higher than the near-term trading price for the Shares that would result from the CSX Transactions. (iv) The fact that the CSX shares to be received by the shareholders in the CSX Transactions would provide the shareholders with the opportunity to participate in the long-term benefits which in the view of the Conrail Board are likely to be realized from the CSX Transactions. (v) The fact that several of the conditions to the Norfolk Offer can only be satisfied if the Conrail Board takes certain actions, which as described above the Conrail Board agreed not to take until April 13, 1997 under the original Merger Agreement Amendment (and agreed not to take until July 12, 1997 under the Amendment) and thereafter only if certain conditions are satisfied. 5 7 ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. Item 5 of the Schedule 14D-9 is hereby amended and supplemented as follows: Lazard Freres and Morgan Stanley have been retained by the Conrail Board to act as financial advisors to Conrail with respect to the transactions contemplated by the Merger Agreement. Pursuant to an engagement letter with Lazard Freres, Conrail has agreed to pay Lazard Freres for its services a cash fee equal to .17% of the aggregate consideration received by the holders of Shares, $2,750,000 of which is payable upon the execution of the Merger Agreement, $3,750,000 of which is payable upon the receipt of the requisite approvals of the shareholders of Conrail and CSX and the balance of which is payable at the Effective Time. Pursuant to an engagement letter with Morgan Stanley, Conrail has agreed to pay Morgan Stanley for its services a cash fee equal to .13% of the aggregate consideration received by holders of Shares, $2,000,000 of which was payable at the time the Merger Agreement was executed, $2,750,000 of which is payable on the date of a Conrail shareholder vote in favor of the Merger and the balance of which is payable at the Effective Time. Conrail has also agreed to pay Lazard Freres and Morgan Stanley for their usual and customary expenses, including the fees of counsel, and to indemnify Lazard Freres and Morgan Stanley against certain liabilities. Conrail has retained D.F. King & Co., Inc. ("D.F. King") to assist Conrail in connection with its communications with its shareholders with respect to, and to provide other services to Conrail in connection with, the Pennsylvania Special Meeting, the special meeting relating to the approval of the Merger and the Merger Agreement and the Proposed Norfolk Transactions. D.F. King will receive reasonable and customary compensation in connection with the services provided by it, and reimbursement of out-of-pocket expenses in connection therewith. Conrail has agreed to indemnify D.F. King against certain liabilities arising out of or in connection with its engagement. Conrail has retained Abernathy, MacGregor Scanlon ("Abernathy") as its public relations advisor in connection with the CSX Transactions and the Proposed Norfolk Transactions. Abernathy will receive reasonable and customary compensation for its services and reimbursement of out-of-pocket expenses in connection therewith. Conrail has agreed to indemnify Abernathy against certain liabilities arising out of or in connection with its engagement. Neither Conrail nor any person acting on its behalf currently intends to employ, retain or compensate any other person to make solicitations or recommendations to shareholders on its behalf concerning the CSX Transactions or the Proposed Norfolk Transactions. ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES. Item 6 of the Schedule 14D-9 is hereby amended and supplemented by amended and restating such item in its entirety as follows: (a) During the past 60 days, neither Conrail nor any subsidiary of Conrail nor, to the best of Conrail's knowledge, any executive officer, director or affiliate of Conrail has effected a transaction in the Shares except that 2,779 shares of Preferred Stock were allocated to the ESOP accounts of certain executive officers as of September 30, 1996. In addition, during the past 60 days, Conrail has repurchased 352,700 shares of Common Stock pursuant to its long-standing share repurchase program. (b) To the best of Conrail's knowledge, its executive officers and directors currently intend to tender their Shares to Purchaser pursuant to the Offer, other than those executive officers and directors who desire to receive CSX shares rather than cash for their Shares. ITEM 9. MATERIALS TO BE FILED AS EXHIBITS. Item 9 of the Schedule 14D-9 is hereby amended and supplemented by adding the following text thereto: #+(a)(11) Supplement to the Offer to Purchase dated November 6, 1996. (a)(12) Text of press release issued by Conrail and CSX dated November 6, 1996. +(a)(13) Letter to shareholders dated November 6, 1996. +(a)(14) Opinion of Lazard Freres & Co. LLC dated November 5, 1996. +(a)(15) Opinion of Morgan Stanley & Co. Incorporated dated November 5, 1996. 6 8 #(c)(11) First Amendment dated as of November 5, 1995 to Agreement and Plan of Merger. - --------------- + Included in materials to Shareholders of Conrail. # Filed as an exhibit to Purchaser's Amendment No. 4 to the Tender Offer Statement on Schedule 14D-1 and incorporated herein by reference. 7 9 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. CONRAIL INC. By /s/ TIMOTHY T. O'TOOLE -------------------------------------- Name: Timothy T. O'Toole Title: Senior Vice President -- Finance Dated as of November 6, 1996 8 10 EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE NO. --------- ----------------------------------------------------------------------- -------- *(a)(1) Offer to Purchase dated October 16, 1996............................... *(a)(2) Letter of Transmittal.................................................. *(a)(3) Text of press release issued by Conrail, dated October 15, 1996........ *(a)(4) Letter to shareholders of Conrail dated October 16, 1996............... *(a)(5) Form of Summary Advertisement dated October 16, 1996................... *(a)(6) Opinion of Lazard Freres & Co. LLC..................................... *(a)(7) Opinion of Morgan Stanley & Co. Incorporated........................... *(a)(8) Text of press release issued by Norfolk Southern, dated October 23, 1996................................................................... *(a)(9) Text of press release issued by Conrail, dated October 23, 1996........ *(a)(10) Text of press release issued by Conrail, dated October 24, 1996........ # +(a)(11) Supplement to the Offer to Purchase dated November 6, 1996............. (a)(12) Text of press release issued by Conrail and CSX dated November 6, 1996................................................................... +(a)(13) Letter to shareholders dated November 6, 1996.......................... +(a)(14) Opinion of Lazard Freres & Co. LLC dated November 5, 1996.............. +(a)(15) Opinion of Morgan Stanley & Co. Incorporated dated November 5, 1996.... (b) Not applicable......................................................... *(c)(1) Agreement and Plan of Merger dated as of October 14, 1996.............. *(c)(2) Conrail Stock Option Agreement, dated as of October 14, 1996........... *(c)(3) CSX Stock Option Agreement dated as of October 14, 1996................ *(c)(4) Form of Voting Trust Agreement......................................... *(c)(5) Employment Agreement of Mr. LeVan dated as of October 14, 1996......... *(c)(6) Change of Control Agreement of Mr. LeVan dated as of October 14, 1996................................................................... *(c)(7) Pages 4-5, and 9-14 of Conrail's Proxy Statement dated April 3, 1996................................................................... *(c)(8) Complaint in Norfolk Southern et al. v. Conrail Inc., et al., No. 96-CV-7167, filed on October 23, 1996 in the United States District Court for the Eastern District of Pennsylvania......................... *(c)(9) First Amended Complaint in Norfolk Southern et al. v. Conrail Inc., et al., No. 96-CV-7167, filed on October 30, 1996 in the United States District Court for the Eastern District of Pennsylvania................ *(c)(10) Resolution adopted by the Board of Directors of Conrail on November 4, 1996................................................................... # (c)(11) First Amendment dated as of November 5, 1995 to Agreement and Plan of Merger.................................................................
- --------------- * Previously filed. + Included in materials to shareholders of Conrail. # Filed as an exhibit to Purchaser's Amendment No. 4 to the Tender Offer Statement on Schedule 14D-1 and incorporated herein by reference. 9 EX-99.A12 2 TEXT OF PRESS RELEASE ISSUED BY CONRAIL & CSX 11/6 1 (a)(12) [LOGO OF CSX] [LOGO OF CONRAIL] CONTACTS: CSX CORPORATION CONRAIL INC. THOMAS E. HOPPIN CRAIG R. MACQUEEN (804) 782-1450 (215) 209-4594 KEKST AND COMPANY ABERNATHY MACGREGOR GROUP RICHARD WOLFF JOELE FRANK/DAN KATCHER (212) 593-2655 (212) 371-5999
FOR IMMEDIATE RELEASE CSX AND CONRAIL AMEND MERGER AGREEMENT CSX RAISES CASH PORTION OF ITS AGREEMENT WITH CONRAIL TO $110 PER CONRAIL SHARE CONRAIL BOARD UNANIMOUSLY APPROVES CSX AMENDED OFFER CONRAIL BOARD UNANIMOUSLY REJECTS NORFOLK SOUTHERN'S OFFER Richmond, Va., and Philadelphia, Pa., Nov. 6, 1996--CSX Corporation [NYSE: CSX] and Conrail Inc. [NYSE: CRR] today announced that they have amended the terms of their merger agreement. Under the revised terms, CSX has raised the cash portion of its offer to $110 per Conrail share. Conrail also announced that its board of directors carefully considered the relative merits of a merger with Norfolk Southern rather than with CSX, and unanimously reaffirmed that a merger with CSX is in Conrail's best interest and is the superior strategic combination for Conrail. The Conrail board determined that a transaction with Norfolk Southern is not in the best interest of Conrail and its constituencies. David M. LeVan, chairman, president and chief executive officer of Conrail, said, "Our two companies have now agreed to significantly increase the value to be received by the Conrail shareholders, and Conrail's other constituencies will continue to get tremendous benefits resulting from the CSX merger. "On Oct. 14, 1996, the Conrail board unanimously approved a merger of equals with CSX to create one of the world's leading transportation and logistics companies," Mr. LeVan continued. "That transaction provided value to our shareholders at the high-end of what has been paid in other railroad mergers, and it clearly was and is in the best interests of Conrail and its constituencies. Before approving that merger, we carefully considered the relative merits of a merger with Norfolk Southern rather than with CSX, and we unanimously determined that a merger with CSX was in Conrail's best interest and was the superior 2 strategic combination for Conrail. In making that decision we were fully aware that Norfolk Southern had expressed an interest in acquiring Conrail. We have now reaffirmed that decision." John W. Snow, CSX chairman, president and chief executive officer, said, "Our decision to increase the cash portion of the offer not only reflects CSX's commitment to completing the transaction, but also accounts for the increased value we have determined will be realized through the merger. Further analysis by our management team, working with its counterpart at Conrail, has identified at least $730 million in synergies and cost savings, $180 million more than originally anticipated. "Following the combination of our two companies, we expect immediate net traffic benefits of about $165 million and cost savings totaling approximately $565 million," continued Mr. Snow. "Importantly, we will realize these benefits rapidly by working closely together. This is especially significant since Conrail shareholders who receive CSX shares as consideration for their shares, will benefit from what we expect will be a substantial increase in the value of those shares. "Furthermore, it is apparent that the merger between CSX and Conrail will produce signification public policy benefits. The service and pricing advantages we will offer shippers will reduce truck traffic along the now congested interstate corridors throughout the region. We also will be able to provide a safer, more reliable operating environment for passenger services. Only the CSX/Conrail combination offers so many significant benefits to customers and the greater public," Mr. Snow added. "The hostile Norfolk Southern bid is burdened with a series of significant conditions. Given all the obstacles in the path of Norfolk Southern's bid, Conrail shareholders would have to wait a prolonged amount of time to receive payment for their shares. Meanwhile, the CSX/Conrail combination offers an immediate opportunity to move forward together creating real, substantive value for both Conrail and CSX shareholders. "The merger of CSX and Conrail is driven by a compelling logic. Together, CSX and Conrail will create the leading global freight transportation and logistics management company and provide dramatically improved rail service to our customers east of the Mississippi. Shippers and receivers throughout the region will benefit from significantly enhanced competition, much better service and more competitive pricing. Our combined railroad will grow significantly and operate with maximum efficiency," Mr. Snow said. "Clearly, the combination of CSX and Conrail provides the best overall package of benefits to our constituencies, including customers, the communities we serve, and the public-at-large. We welcome the strong support of the Conrail board of directors and look forward to a bright future as our new company moves full speed into the 21st Century," concluded Mr. Snow. The significant amendments to the CSX/Conrail merger agreement include: - - The increase of the cash portion of the transaction to $110 per Conrail share. The structure of the proposed merger will remain the same: 40 percent of the fully diluted shares of Conrail's common stock and ESOP preferred stock will be acquired at the new price and the remaining 60 percent will be exchanged for CSX stock at the originally agreed-upon exchange ratio of 1.85619 CSX shares for each Conrail share; - - An extension by three months of the period of time during which the Conrail board of directors cannot withdraw its support of the merger agreement or agree to any competing transaction. As now extended, such provisions will run until July 12, 1997; and - - Neither party will engage in discussions or enter into any agreement with other railroad companies (including Norfolk Southern) relating to trackage rights or other concessions without the participation and agreement of the other party. Additionally, the Conrail Shareholders Meeting scheduled for Nov. 14 has been canceled. The record date for a new shareholders meeting has been set at Dec. 5, 1996, and the shareholder meeting is 3 expected to be held in mid-December. CSX's tender offer of $110 per Conrail share is for an aggregate of about 17.9 million shares of Conrail common stock and ESOP preferred stock, or approximately 19.9 percent of the Conrail outstanding voting stock. The offer is subject to certain customary conditions. Under the terms of the CSX offer, as amended, the tender offer's expiration date and withdrawal and proration rights are extended until Midnight EST, Nov. 20, 1996. As of the close of business on Nov. 5, 1996, 56,634 Conrail shares had been tendered pursuant to the CSX offer. CSX Corporation, headquartered in Richmond, Va., is an international transportation company offering a variety of rail, container-shipping, intermodal, trucking, barge and contract logistics management services. Conrail, with corporate headquarters in Philadelphia, Pa., operates an 11,000-mile rail freight network in 12 northeastern and midwestern states, the District of Columbia, and the Province of Quebec. Attached is a fact sheet on the CSX/Conrail merger of equals, and additional information regarding this announcement can be found on the companies' Web sites on the Internet. CSX's home page can be reached at http://www.CSX.com. Conrail's home page can be reached at http://www.CONRAIL.com. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FAST FACTS REGARDING THE CSX - CONRAIL MERGER - The proposed CSX/CRR merger of equals will create a powerful strategic alliance, the leading transportation company in the world with more than $14 billion in revenue and operations serving more than 80 countries around the globe. - In addition to the railroad, the new company will include the nation's largest container-shipping (Sea-Land Services) and barging (American Commercial Barge Line) companies, its only full-service, coast-to-coast intermodal company (CSX Intermodal) and one of the foremost contract logistics management companies (Customized Transportation Services) in the world. - For employees and the communities within which they work and live, the CSX/CRR merger of equals offers the combination of companies with complementary business mixes, common corporation strategies and compatible corporate cultures. - CSX/CRR has agreed to locating the corporate headquarters of the new company in Philadelphia; to leaving the operating headquarters of the CSXT and Conrail rail companies in Jacksonville and Philadelphia for the foreseeable future; to a board comprised of an equal number of directors from each company; and to a defined succession plan that insures the management and employees, shareholders, customers and communities served by both companies will have powerful roles and strong voices in the future of the company. - For shareholders, the CSX/CRR merger of equals offers ownership of an international transportation company with the scale and efficiency at home and abroad to compete effectively and generate attractive returns well into the 21st Century. - For customers, the CSX/CRR combination provides a 29,000 route mile rail system that would span 22 states and offer vastly improved service to virtually all major markets east of the Mississippi. Such a system will provide the highest quality service to customers as a result of faster, more reliable service, shorter routes, an improved cost structure, better equipment supply and utilization and more single-line service. - The proposed CSX/CRR merger of equals allows realization of public policy benefits that cannot be accomplished through any other combination. 4 - More passenger trains will use the combined CSX/CRR rail system than any other in the United States. These include not only Amtrak's, but also those operated by commuter services in Boston, New York, Philadelphia, Baltimore and Washington. Freight and passenger trains currently share the same tracks in these areas. Improved coordination, scheduling and operation of freight and passenger services will reduce delays and improve safety and service for passengers. Similar options may exist in other parts of the combined system in the future as hard-pressed urban planners increasingly turn to rail transportation to relieve highway congestion, save scarce public resources and improve air quality. - The proposed CSX/CRR merger of equals offers improved rail competition to Northeast and Midwest markets and an opportunity to improve the social and economic benefits of the entire transportation infrastructure of the region through increased, more effective competition with the trucking industry and through additional intermodal cooperation. CSX's internet address is http://www.csx.com - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EX-99.A13 3 LETTER TO SHAREHOLDERS DATED NOVEMBER 6, 1996 1 (a)(13) CONRAIL LOGO November 6, 1996 Dear Shareholders: I am pleased to inform you that Conrail Inc. and CSX Corporation have agreed to significantly increase the value to be received by the Conrail shareholders in the CSX tender offer. In the transaction, 40% of the shares of Conrail common stock and ESOP preferred stock would be acquired for cash at a new price of $110 per share (instead of the original price of $92.50 per share), and the remaining 60% would be acquired for CSX stock at the originally agreed upon exchange ratio of 1.85619 CSX shares for each Conrail share. On October 14, 1996, the Conrail Board of Directors unanimously approved a merger of equals with CSX to create one of the world's leading transportation and logistics companies. That transaction provided value to our shareholders at the high-end of what has been paid in other railroad mergers, and it clearly was and is in the best interests of Conrail and its constituencies. Before approving that merger, we carefully considered the relative merits of a merger with Norfolk Southern Corporation rather than with CSX, and we unanimously determined that a merger with CSX was in Conrail's best interest and was the superior strategic combination for Conrail. We have now reaffirmed that decision. YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE CSX TENDER OFFER AND MERGER AND RECOMMENDS THAT CONRAIL SHAREHOLDERS WHO DESIRE TO RECEIVE CASH FOR THEIR SHARES ACCEPT THE CSX TENDER OFFER AND TENDER THEIR SHARES IN SUCH OFFER. YOUR BOARD OF DIRECTORS HAS ALSO UNANIMOUSLY REJECTED THE UNSOLICITED NORFOLK TENDER OFFER AND RECOMMENDS THAT CONRAIL SHAREHOLDERS REJECT THE NORFOLK TENDER OFFER. The enclosed Supplement to the Offer to Purchase prepared by CSX and the Amendment to the Schedule 14D-9 prepared by Conrail describe the terms of the revised CSX tender offer. You will also be receiving a Schedule 14D-9 containing the Conrail Board of Directors' rejection of the Norfolk tender offer. I urge you to consider all such information carefully. Sincerely, David M. LeVan David M. LeVan Chairman, President and Chief Executive Officer EX-99.A14 4 OPINION OF LAZARD FRERES & CO. LLC DATED 11/5/96 1 (a)(14) [LETTERHEAD OF LAZARD FRERES] November 5, 1996 The Board of Directors Conrail Inc. 2001 Market Street Philadelphia, PA 19103 Dear Members of the Board: You have requested our opinion as to the fairness, from a financial point of view, to the holders of shares of Common Stock, par value $1 per share ("Common Stock"), and of Series A ESOP Convertible Preferred Stock (such Preferred Stock together with the Common Stock is referred to as the "Shares") of Conrail Inc. (the "Company") of the consideration to be received in a series of transactions (collectively, the "Transactions") pursuant to the Agreement and Plan of Merger among the Company, CSX Corporation ("CSX") and Green Acquisition Corp. ("Tender Sub"), dated as of October 14, 1996, as amended as of November 5, 1996 (the "Merger Agreement"). The terms of the Merger Agreement provide, among other things, that (i) Tender Sub promptly will offer to purchase (the "Offer") up to 19.9% of the outstanding Shares at a price of $110.00 per share net in cash (the "Offer Consideration"); provided that if certain conditions are satisfied, the Offer would be increased to up to a number of Shares (the "Designated Number") equal to 40% of the fully diluted Shares excluding the Option Shares referred to below (the "Fully Diluted Shares") and (ii) following the consummation of the Offer, subject to, among other things, the favorable required vote of holders of Shares, Tender Sub will merge (the "Merger") with the Company, and each remaining outstanding Share (other than Shares owned by the Company as treasury stock or owned by CSX, Tender Sub or any other subsidiary of CSX and other than Shares held by holders who properly exercise and perfect dissenter's rights, if any) will be converted into the right to receive (the "Merger Consideration") 1.85619 shares (the "Exchange Shares") of Common Stock of CSX, par value $1.00 per share ("CSX Common Stock"); provided that if less than the Designated Number of Shares is purchased pursuant to the Offer, the Merger Consideration will be adjusted so that when taken together with the Offer, 60 percent of the Fully Diluted Shares will each have been converted into the right to receive the Exchange Shares and 40 percent of the Fully Diluted Shares 2 will have received or been converted into the right to receive an amount of cash equal to the Offer Consideration. The Offer Consideration and the Merger Consideration are collectively referred to herein as the "Consideration." In connection with the rendering of this opinion, we have: (i) Reviewed the terms and conditions of the Merger Agreement and the financial terms of the Transactions, all as set forth in the Merger Agreement, and the option agreement between Company and CSX pursuant to which CSX shall be granted the right to purchase shares of Common Stock (the "Option Shares") and the option agreement between CSX and the Company pursuant to which the Company shall be granted the right to purchase shares of CSX Common Stock, each dated October 14, 1996 (collectively, the "Option Agreements"); (ii) Analyzed certain historical business and financial information relating to the Company and CSX; (iii) Reviewed certain financial forecasts and other data provided to us by the Company and CSX relating to the businesses of the Company and CSX, respectively, including the most recent business plan for the Company prepared by the Company's senior management, in the form furnished to us; (iv) Conducted discussions with members of the senior managements of the Company and CSX with respect to the businesses and prospects of the Company and CSX, respectively, the strategic objectives of each and possible benefits which might be realized following the Merger; (v) Reviewed public information with respect to certain other companies in the lines of businesses we believe to be generally comparable in whole or in part to the businesses of the Company and CSX and reviewed the financial terms of certain other business combinations involving companies in lines of businesses we believe to be generally comparable in whole or in part to the businesses of the Company and CSX that have recently been effected; (vi) Reviewed the historical stock prices and trading volumes of Common Stock and CSX Common Stock; and (vii) Conducted such other financial studies, analyses and investigations as we deemed appropriate. We have relied upon the accuracy and completeness of the foregoing financial and other information and have not assumed any responsibility for independent verification of such information or any independent valuation or appraisal of any of the assets of the Company or CSX nor have we been furnished with any 3 such appraisals. With respect to financial forecasts, we have assumed that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments of managements of the Company and CSX as to the future financial performance of the Company and CSX, respectively. We assume no responsibility for and express no view as to such forecasts or the assumptions on which they are based. Our opinion is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to us as of, the date hereof. In rendering our opinion, we have assumed that (i) the Transactions will be consummated substantially on the terms described in the Merger Agreement, without any waiver of any material terms or conditions by any party thereto, and that obtaining the necessary regulatory approvals for the Transactions will not have an adverse effect on CSX or the Company or on the trading value of CSX Common Stock and (ii) the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. We were not requested to, and did not, solicit third party offers to acquire all or any part of the Company. We are acting as financial advisor to the Company's Board of Directors in connection with the Transactions and will receive fees for such services, a substantial portion of which fees are contingent upon the consummation of the Transactions. Our Firm has in the past provided and is currently providing investment banking and financial advisory services to the Company and has received customary fees for rendering such services. Our Firm has in the past also provided investment banking and financial advisory services to CSX and has received customary fees for rendering such services. Our engagement and the opinion expressed herein are for the benefit of the Company's Board of Directors and our opinion is rendered in connection with its consideration of the Transactions. This opinion is not intended to and does not constitute a recommendation to any holder of Shares as to whether such holder should tender Shares pursuant to the Offer or vote to approve the Merger Agreement and the transactions contemplated thereby. It is understood that, except for inclusion of this letter in its entirety in a proxy statement or tender offer recommendation statement on Schedule 14D-9 from the Company to holders of Shares relating to the Transactions, this letter may not be disclosed or otherwise referred to without our prior written consent, except as may otherwise be required by law or by a court of competent jurisdiction. 4 As you know, on October 24, 1996, Norfolk Southern Corporation commenced a tender offer (the "NSC Offer") for all of the outstanding Shares at a price per Share of $100 net in cash. Counsel to the Company has advised the Company's Board of Directors that the fact that the NSC Offer is subject to, among other conditions, the termination of the Merger Agreement and that the Company is currently contractually prohibited from terminating the Merger Agreement creates significant legal uncertainty relating to the consummation of the NSC Offer. Counsel to the Company has further advised the Company's Board of Directors that, under Pennsylvania law, in considering a proposed business combination, the Company's Board of Directors is empowered to take into account the long-term interests of the Company and all of its constituencies, not solely the highest price for the Company's Shares. Accordingly, at your request, in rendering our opinion, we did not address the relative merits of the Transactions, the NSC Offer and any alternative potential transactions. Based on and subject to the foregoing, we are of the opinion that, as of the date hereof, the Consideration to be received by the holders of Shares pursuant to the Offer and the Merger, when taken together, is fair to such holders (other than CSX, Tender Sub or any other subsidiary of CSX), from a financial point of view. Very truly yours, LAZARD FRERES & CO. LLC By /s/ J. Robert Lovejoy ------------------------------------- Managing Director EX-99.A15 5 OPINION OF MORGAN STANLEY & CO. INC. DATED 11/5/96 1 (a)(15) [MORGAN STANLEY LETTERHEAD] November 5, 1996 Board of Directors Conrail Inc. 2001 Market Street Philadelphia, PA 19101-1422. Gentlemen and Mesdames: We understand that Conrail Inc. (the "Company"), CSX Corporation ("CSX") and Green Acquisition Corp., a wholly owned subsidiary of CSX ("Acquisition Sub"), have entered into an Agreement and Plan of Merger, dated as of October 14, 1996 as amended as of November 5, 1996 (the "Merger Agreement"), which provides, among other things, for (i) the commencement by Acquisition Sub of a tender offer (the "Offer") for 19.9% of the issued and outstanding shares of common stock, par value $1 per share (the "Company Common Stock"), and Series A ESOP Convertible Junior Preferred Stock (together with the Company Common Stock, the "Shares") of the Company, for $110.00 per share net to the seller in cash (the "Offer Consideration"), provided that if certain conditions are satisfied, the Offer would be increased to up to a number of Shares (the "Designated Number") equal to 40% of the fully diluted Shares, excluding the Option Shares referred to below (the "Fully Diluted Shares") and (ii) upon the receipt of certain shareholder and regulatory approvals, the subsequent merger (the "Merger" and together with the Offer, the "Transactions") of the Company with and into Acquisition Sub. Pursuant to the Merger, the Company will become a wholly owned subsidiary of CSX and each outstanding share of the Company Common Stock, other than shares held in treasury or held by CSX or its subsidiaries, will be converted into the right to receive 1.85619 shares of common stock, par value $1.00 per share (the "CSX Common Stock") of CSX (the "Stock Consideration" and together with the Offer Consideration, the "Consideration"), provided that if less than the Designated Number of Shares are purchased pursuant to the Offer, the Merger Consideration will be adjusted so that when taken together with the Offer, 60% of the Fully Diluted Shares will each have been converted into the right to receive the Stock Consideration and 40% of the Fully Diluted Shares will have received or been converted into the right to receive an amount of cash equal to the Offer Consideration. The terms and conditions of the Offer and the Merger are more fully set forth in the Merger Agreement. You have asked for our opinion as to whether the Consideration to be received by the holders of Shares pursuant to the Offer and the Merger, taken together, is fair from a financial point of view to such holders. 2 For purposes of the opinion set forth herein, we have: (i) reviewed certain publicly available financial statements and other information of the Company and CSX, respectively; (ii) reviewed certain internal financial statements and other financial and operating data concerning the Company and CSX prepared by the managements of the Company and CSX, respectively; (iii) reviewed certain financial projections for CSX prepared by the management of CSX; (iv) reviewed certain financial projections, including estimates of certain potential benefits of the proposed business combination, prepared by the management of the Company; (v) discussed, on a limited basis, the past and current operations and financial condition and the prospects of the Company and CSX with senior executives of the Company and CSX, respectively; (vi) reviewed the reported prices and trading activity for the Company Common Stock and the CSX Common Stock; (vii) compared the financial performance of the Company and CSX and the prices and trading activity of the Company Common Stock and the CSX Common Stock with that of certain other comparable publicly-traded companies and their securities; (viii) reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions; (ix) participated in discussions among representatives of the Company, CSX and their financial and legal advisors; (x) reviewed the Merger Agreement and certain related documents; and (xi) performed such other analyses and considered such other factors as we have deemed appropriate. We have assumed and relied upon without independent verification the accuracy and completeness of the information reviewed by us for the purposes of this opinion. With respect to the financial projections, including estimates of certain potential benefits of the proposed business combination, we have assumed that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the future financial performance of the Company and CSX, respectively. We have not made any independent valuation or appraisal of the assets or liabilities of the Company or CSX, nor have we been furnished with any such appraisals. In arriving at our opinion, we have assumed (i) that the 3 Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended and (ii) that obtaining all the necessary regulatory and governmental approvals for the Merger will not have an adverse effect on the Company, CSX or on the trading value of the CSX Common Stock. We have assumed that the Offer and the Merger will be consummated substantially in accordance with the terms set forth in the Merger Agreement, without any waiver of any material terms or conditions by any party thereto. Our opinion is necessarily based on economic, market and other conditions as in effect on, and the information made available to us as of, the date hereof. In arriving at our opinion, we were not authorized to solicit, and did not solicit, interest from any party with respect to the acquisition of the Company or any of its assets. We have been engaged to provide this opinion to the Board of Directors of the Company in connection with this transaction and will receive a fee for our services. In the past, Morgan Stanley & Co. Incorporated and its affiliates have provided financial advisory and financing services for the Company and CSX and have received fees for the rendering of these services. It is understood that this letter is for the information of the Board of Directors of the Company and may not be used for any other purpose without our prior written consent, except that this opinion may be included in its entirety in any filing made by the Company with the Securities and Exchange Commission with respect to the Offer and the Merger. In addition, we express no opinion and make no recommendation as to whether the holders of the Company Common Stock should tender such shares pursuant to the Offer or vote at the stockholders' meeting held in connection with the Merger. As you know, on October 24, 1996, Norfolk Southern Corporation commenced a tender offer (the "NSC Offer") for all of the outstanding Shares at a price per Share of $100 net in cash. Counsel to the Company has advised the Company's Board of Directors that the fact that the NSC Offer is subject to, among other conditions, the termination of the Merger Agreement and that the Company is currently contractually prohibited from terminating the Merger Agreement creates significant legal uncertainty relating to the consummation of the NSC Offer. Counsel to the Company has further advised the Company's Board of Directors that, under Pennsylvania law, in considering a proposed business combination, the Company's Board of Directors is empowered to take into account the long-term interests of the Company and all of its constituencies, not solely the highest price for the Company's Shares. Accordingly, at your request, in rendering our opinion, we did not address the relative merits of the Transactions, the NSC Offer and any alternative potential transactions. 4 Based on the foregoing, we are of the opinion on the date hereof that the Consideration to be received by the holders of Shares pursuant to the Offer and the Merger, taken together, is fair from a financial point of view to such holders (other than CSX, Acquisition Sub or any other subsidiary of CSX). Very truly yours, MORGAN STANLEY & CO. INCORPORATED By: /s/ Mahmoud A. Mamdani -------------------------------------- Mahmoud A. Mamdani Managing Director -----END PRIVACY-ENHANCED MESSAGE-----