-----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, POk8xo7D9TFVqlc2g3rkW5wo4EdNQllDZQ5btiovfAm+XcIIKHvsi+5dz8j+OOx4 nFdg7j9jCz8UdoYdWDeJog== 0000757189-96-000002.txt : 19960329 0000757189-96-000002.hdr.sgml : 19960329 ACCESSION NUMBER: 0000757189-96-000002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELAWARE OTSEGO CORP CENTRAL INDEX KEY: 0000757189 STANDARD INDUSTRIAL CLASSIFICATION: RAILROADS, LINE-HAUL OPERATING [4011] IRS NUMBER: 160913491 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-12985 FILM NUMBER: 96539450 BUSINESS ADDRESS: STREET 1: 1 RAILROAD AVE CITY: COOPERSTOWN STATE: NY ZIP: 13326 BUSINESS PHONE: 6075472555 MAIL ADDRESS: STREET 2: 1 RAILROAD AVE CITY: NEW YORK STATE: NY ZIP: 13326 10-K405 1 Aggregate No. Pages: 167 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 Commission File # 0-12985 DELAWARE OTSEGO CORPORATION ------------------------------------------------------ (Exact name of Registrant as specified in its charter) New York 16-0913491 ------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 1 Railroad Ave., Cooperstown, New York 13326 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (607) 547-2555 -------------- Securities registered pursuant to section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.125 per share --------------------------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ___X___ No_______ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of voting stock held by non-affiliates of the Registrant was $13,718,240 as of March 21, 1996. 1,744,177 ------------------------------------------------------------------- (Number of shares of Common Stock outstanding as of March 21, 1996) DOCUMENTS INCORPORATED BY REFERENCE Information with respect to Directors in Item 10 and the information required by Items 11-13 is incorporated herein by reference from the proxy material of the Registrant in connection with its annual meeting of shareholders scheduled for June 1, 1996. PART I Item 1. BUSINESS - ----------------- General - ------- Delaware Otsego Corporation, a New York corporation, is a railroad holding company. The Company's principal executive offices are located at 1 Railroad Avenue, Cooperstown, New York 13326, and its telephone number is (607) 547-2555. As used in this Form 10-K, unless the context requires otherwise, the term "Company" or "DOC" refers to Delaware Otsego Corporation and its wholly-owned subsidiaries: Susquehanna Properties, Inc. (SPI); Fonfulco, Inc. (Fonfulco); Lackawaxen and Stourbridge Railroad Corporation (LASB); Syracuse, Binghamton and New York Railroad Corporation (SBNY); The New York, Susquehanna and Western Railway Corporation (NYS&W); Cooperstown and Charlotte Valley Railway Corporation (CACV); Delta Warehousing Corporation (DWC); Central New York Railroad Corporation (CNY); Delaware Otsego Equipment Corporation (DOE); Susquehanna Bulk Systems, Inc. (SBS); Staten Island Railway Corporation (SIRY); Rahway Valley Company, Lessee (RVC); and Rahway Valley Railroad Company (RVRR). The Company operates in one business segment - railroad transportation. DOC's rail system provides rail service for customers along its routes and access to the national rail system through interchange facilities with two of the major northeastern railroads, Conrail, Inc. ("Conrail") and the CP Rail System ("CP"). Additionally, pursuant to a Haulage Agreement with CP, the Company has direct access with the Norfolk Southern rail system and other carriers in Buffalo, NY. DOC's railroad system is devoted principally to carrying freight, but also generates revenue through the operation of passenger excursion trains. DOC seeks to encourage development on and near, and utilization of, its real estate and rights-of-way by potential shippers and as a possible source of additional revenue. The Company also generates revenues by granting to various entities, such as utilities, pipeline and communication companies and non-industrial tenants, the right to occupy its railroad right-of-way and other real property. The Company also hires rail equipment to, and repairs rail equipment owned by, others, provides services related to the transfer of bulk commodities from railcar to truck, and provides administrative services related to railroad operations. In January, 1996, the Company acquired a 40% interest in The Toledo, Peoria and Western Railroad Corporation ("TP&W"). The investment will be accounted for under the provisions of APB 18, The Equity Method of Accounting for Investments in Common Stock. TP&W owns a 284 mile Class III regional railroad which provides rail service on a generally East-West route from Fort Madison, Iowa through Central Illinois (approximately 70 miles south of Chicago) to Logansport, Indiana. TP&W hauls agricultural products, chemicals, coal, fertilizer, food products, steel and manufactured goods and consumer products, and operates two intermodal facilities. The TP&W's geographic location and connections with over 20 rail carriers, including seven Class I railroads, present opportunities for growth, and the acquisition provides the Company with an opportunity to diversify its rail holdings and to provide improved service to its intermodal customers. - 2 - Railroad Operations - ------------------- The Company operates a 500 mile regional railroad in New York, New Jersey and Pennsylvania, of which 200 miles consist of trackage rights over the lines of other railroads. The Company's rail lines have been integrated into a coordinated rail system which connects upstate New York with the Northern New Jersey - New York City metropolitan area and provides rail service via two Class I carriers (through its connections with Conrail and CP). The Company presently serves over 110 customers in its railroad operations, two of which accounted for approximately 72% of its traffic volume. In 1995, the Company earned approximately $17.2 million from CSX Intermodal, Inc., representing 50% of operating revenues, on traffic moving to CSXI's owned facility located adjacent to the NYS&W at Little Ferry, NJ. 1995 revenues for container traffic moved on behalf of Hanjin Shipping Lines to the Resources Warehousing and Consolidation Services, Incorporated facility ("RWCS"), were approximately $7.5 million, representing 22% of operating revenues. No assurance can be given that such revenue levels will be attained in the future. The principal freight carried by the Company consists of manufactured goods, industrial raw materials, paper products, and agricultural commodities. The operation of a railroad requires significant expenditures for maintenance-of-way and equipment, the availability of railcars in diverse locations for the carriage of customer freight, and reliance upon other carriers who participate in the transportation of almost all freight transported by the Company. The Company, as a substantial property owner, is subject to potential liability for personal injury and property damages to trespassers and others present on its property. Additionally, attendant to the Company's railroad operations is potential liability for personal injury and property damage arising from derailments, collisions at highway-rail grade crossings, and from job-related employee injuries pursuant to Federal Employer Liability Act. Real Estate Activities & Other Operations - ----------------------------------------- Through its subsidiaries, the Company seeks to maximize utilization of and revenues from its real estate holdings. Leasing and right-of-way agreements, sales where favorable prices can be obtained for property that is deemed unnecessary for the Company's rail operations, and the encouragement of industrial development are the focus of the Company's activities in this regard. Marketing - --------- The Company markets its services primarily through its sales and customer service personnel, under the supervision of its Executive Vice President and Vice President-Marketing and Sales of its NYS&W subsidiary. In addition, the Company's executive officers are occasionally involved in formulating and making presentations to customers and potential customers. - 3 - Suppliers - --------- The Company is able to acquire the equipment, parts and other materials it needs in the operation of its business from several suppliers. The Company does not believe that the loss of any supplier would have a material adverse effect on its business, as there are alternative suppliers available. Competition - ----------- The Company's regional rail system is relatively small in an industry dominated by carriers with far greater resources and facilities. In the Company's area of operation, it competes with Conrail, particularly with respect to bulk and intermodal traffic, and with both long-haul and short-haul trucking companies which may be able to offer more extensive facilities and resources than the Company. Deregulation of the railroad industry has intensified competition and will likely continue to do so, placing pressure on pricing and routing schedules of the Company. The Company believes that it is able to compete for railroad business on the basis of its quality of customer service, pricing, scheduling and concentration on its principal rail corridors. There can be no assurance, however, that the Company will be able to maintain its present competitive position. The Company relies on, and its ability to compete is dependent upon, its rail connections with CP and Conrail for a substantial portion of its rail traffic. Changes in the operations of either of these carriers could have a material adverse impact on the Company. With respect to its real estate activities, the Company competes with other railroads, developers and real estate businesses for purchasers, tenants and users of its real property. For example, other railroads seek some of the same customers for fiber optics cable installation, and real estate developers and other railroads seek the same type of industrial user as is sought by the Company. Such competitors may have greater financial resources, more experience in real estate development or a greater ability to offer incentives than does the Company. No assurance can be given that the Company's efforts to develop, lease or sell its real estate resources will be successful. Regulation - ---------- The Company is subject to regulation by the Surface Transportation Board, the Federal Railroad Administration, and certain state and local authorities, including state Departments of Transportation, in connection with some aspects of its railroad operations. Such regulation affects rates, safety rules, maintenance of track, other facilities, and rights-of-way, and may affect the Company's revenues and expenses. - 4 - Environmental Matters - --------------------- The Company transports hazardous materials on behalf of certain of its customers, and uses certain hazardous materials in the normal course of the repair and maintenance of its locomotives, rail cars and other equipment. The operation of a railroad includes the risk of derailments which could result in the release or spillage of diesel fuel and hazardous materials from locomotives and rail cars to property of the Company and adjoining properties. The Company is not aware of any such spills or releases which have not been remediated in compliance with applicable statutes and regulations. The Company, as the owner of real estate, may be responsible under certain circumstances for remediation of environmental conditions on its property, whether or not such conditions arose from the Company's operations. The Company has, with one exception, no knowledge of the existence of any such conditions, but cannot assure that such will not arise or occur in the future. During 1993, The New York, Susquehanna and Western Railway Corporation, a Company railroad operating subsidiary, received notice from the Environmental Protection Agency (EPA) that it is a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act (Superfund) and may be required to share in the cost to clean up a certain site identified by the EPA. The information presently available to the Company indicates that the estimated liability is less than ten thousand dollars and, therefore, will not have a material effect on the consolidated financial condition or results of operation. Employees - --------- At December 31, 1995, the Company employed 191 people, of whom 115 were operating personnel, 12 were supervisors, 46 were office and sales personnel, and 18 were executive officers and managerial personnel. 33 of the Company's operating personnel are subject to a collective bargaining agreement with the Brotherhood of Locomotive Engineers (BLE) which sets their general level of compensation and working conditions through December 31, 1996. In 1995, the Company reached a collective bargaining agreement with the Brotherhood of Maintenance of Way Employes ("BMWE") covering 49 employees of the Company's Track Department which sets the general level of compensation and working conditions through December 31, 2000. The Company considers its employee relations to be good. At January 31, 1996, TP&W employed 117 people of whom 81 were operating personnel, 21 were supervisors and officers, and 15 were sales and office personnel. 44 of TP&W operating personnel are subject to collective bargaining agreement with the United Transportation Union which sets their general level of compensation and working conditions through December 31, 1999. 19 of TP&W operating personnel are subject to a collective bargaining agreement with the BMWE, which is currently in the process proscribed by the Railway Labor Act for renegotiation. - 5 - Item 2. PROPERTIES - ------------------- The Company's executive offices are located in approximately 4,500 square feet of space at 1 Railroad Avenue, Cooperstown, New York, a property owned by the Company. The Company also owns the Edgewater Executive Offices in Cooperstown. This structure, containing 10,000 square feet of space, presently is used for offices, conferences, and facilities for overnight accommodations for Company guests. The Company owns 140 route miles of track and right-of-way and owns jointly with the County of Sussex, New Jersey an additional 8.8 miles of line. The Company leases 186.2 miles of line. Included in this total are 164.35 miles of line leased from several Industrial Development Agencies at nominal cost, which leases expire in April, 1997, at which time ownership of the lines revert to the Company for nominal consideration. As these Industrial Development Agency lease agreements result in real estate tax savings, the Company intends to request that they be extended past their current expiration date. Additionally, the Company has agreements enabling it to use track owned by other railroads including trackage rights from Warwick, New York to Binghamton, New York of 175 miles. Although unlikely, such trackage rights may be terminated if their use is abandoned by its owners upon compliance with certain statutory procedures which may require approval of the Surface Transportation Board. The properties of the Company are subject to various easements, occupations, licenses, leases and rights-of-way. The trackage and other operating rights pursuant to which the Company is authorized to carry freight over track belonging to others are subject to contractual agreements which may be subject to termination or restriction, either of which may have a significant adverse effect on the railroad operations of the Company. Substantially all the Company's properties are subject to lien, or mortgage, in connection with obligations of the Company to Manufacturers and Traders Trust Company, New Jersey Economic Development Authority, and Federal Railroad Administration. A description of the Company's railroad properties, by subsidiary, is as follows: a) NYS&W. The NYS&W is the main operating subsidiary of the Company, and consists of two divisions. The Southern Division consists of 82.6 miles of Company-owned track which, together with 8.8 miles of track owned jointly with the County of Sussex, NJ, run from Jersey City, NJ to Warwick, NY. NYS&W has trackage and other operating rights to run over track owned by Conrail from Warwick, NY to Binghamton, NY and, alternatively, from Passaic Junction, NJ to Binghamton, NY. The Northern Division consists of track from Binghamton, NY to Chenango Forks, NY, and then to Jamesville, NY (the Syracuse Branch) and Utica, NY (the Utica Branch), a total of 164.35 miles. The Northern Division properties were acquired pursuant to a lease purchase agreement with the industrial development agencies of the counties of location. NYS&W also has trackage rights to run over approximately 11 miles of trackage from Jamesville, NY to interchange with Conrail at Syracuse, NY on tracks leased by SBNY. The Southern Division and the Syracuse - 6 - Branch of the Northern Division of NYS&W consist mainly of Class II track in accordance with Federal Railroad Administration ("FRA") standards, allowing operation at speeds of up to 40 mph. Generally, all other trackage owned or leased by the Company, with the exception of industrial spurs and sidings, are designated Class III tracks, thereby allowing speeds of up to 25 mph. While existing track conditions and speeds allow the Company to adequately serve all its existing customers, maintenance and rehabilitation of rail facilities is an ongoing project. b) CNY. The CNY consists of 21.7 miles of Company-owned track from its connection with NYS&W in Richfield Junction, NY to Richfield Springs, NY. Rail operations on all but 2.3 miles of this track were abandoned in 1995, and the Company intends to begin to dispose of this property in 1996. The remaining 2.3 miles are operated by NYS&W. c) SBNY. SBNY operates passenger excursion and shuttle trains on 11 miles of track located in Syracuse, NY and owned by Onondaga County Industrial Development Agency. d) CACV. CACV consists of 15.9 miles of Company-owned track from an interchange with D&H at Cooperstown Junction, NY to Cooperstown, NY. The Company abandoned all rail operations on CACV in 1995, and intends to dispose of substantially all of CACV's assets in 1996. e) RVC, RVRR. The RVC and RVRR are related companies which owned 11.6 miles of track running from Cranford Junction, NJ to Summit, NJ. The Company sold these assets to the New Jersey Department of Transportation in 1995 and intends to dissolve RVC and RVRR in 1996. The Company owns 14 locomotives of various manufacture, age and size, three of which were acquired new in 1995, and leases an additional 9 locomotives. The Company believes it has an adequate supply of locomotives for its current needs. The Company owns fewer than 50 railcars of various types and manufacture, and depends on connecting rail lines and customers to provide cars for outbound loadings. TP&W owns approximately 195 miles of railroad and has operating rights over approximately 90 miles of track owned by other railroads as part of its integrated railroad system between Fort Madison, Iowa and Logansport, Illinois. TP&W owns 22 locomotives of various age, manufacture and size, and believes it has an adequate supply of locomotives for its current needs. Substantially all the assets of TP&W are subject to lien or mortgage in connection with obligations of TP&W to Creditanstalt Corporate Finance, Inc. Item 3. LEGAL PROCEEDINGS - -------------------------- There are no material pending legal proceedings other than ordinary routine litigation, incidental to the Company's business, to which the Company or any of its subsidiaries is a party or of which any of its or their property is the subject. - 7 - Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ None. Executive Officers and Key Employees of the Registrant - ------------------------------------------------------ Each of the following officers of the Company has been elected by the Board of Directors and serves at the discretion of the Board. Position with Officer Name Age the Registrant Since - -------------------------- --- ---------------------------- ------------ Walter G. Rich 50 President, Chief Executive 1968 Officer & Director C. David Soule 45 Executive Vice President 1981 & Director William B. Blatter 61 Senior Vice President & 1988 Chief Financial Officer Nathan R. Fenno 37 Vice President-Law, General 1988 Counsel & Secretary Robert E. Pierce 49 Vice President/Controller 1982 Frank Quattrocchi 46 Vice President & Treasurer 1993 Mr. Rich has been a member of the Board of Directors of the Company since 1968, and has been President and Chief Executive Officer since 1971. Mr. Rich is also a director of Norwich Aero Products, Inc., New York State Business Development Corporation, and Security Mutual Life Insurance Company of New York. Mr. Rich was appointed in 1993 to the New York State Public Transportation Safety Board. Mr. Soule has been Executive Vice President of the Company since June, 1983. He was elected to the Board of Directors in June, 1984. Mr. Blatter joined the Company as Vice President-Finance and Chief Financial Officer in April, 1988, and was named Senior Vice President and Chief Financial Officer in June, 1990. Mr. Fenno joined the Company as Attorney in July, 1987. Mr. Fenno was appointed General Counsel and Corporate Secretary in July, 1988, and Vice President-Law in September, 1991. Mr. Pierce joined the Company in September, 1981 and has served as Vice President/Controller since February 1, 1986. Mr. Quattrocchi joined the NYS&W in June, 1983. Mr. Quattrocchi was promoted to Vice President & Treasurer of the Company in April, 1993. - 8 - The following are other key employees of the Registrant's operating subsidiaries: Mr. Joseph G. Senchyshyn became Vice President-Operations of NYS&W on September 3, 1985. Mr. Robert A. Kurdock was appointed Vice President of NYS&W in June of 1985. He has been employed by the Company since September, 1980, serving in increasingly responsible positions. Mr. Richard J. Hensel became Vice President-Engineering of NYS&W in April, 1987. Mr. Paul Garber joined the NYS&W in 1989, and was appointed Vice President-Marketing & Sales in October, 1990. Mr. Phillip England joined the NYS&W as Vice President-Mechanical in August, 1994. He was previously employed by Consolidated Rail Corporation for over five years in various positions in its Mechanical Department. Mr. Gordon Fuller joined NYS&W as an Executive Vice President in January, 1996 and will be active in the areas of railroad sales and marketing, governmental relations, industrial development and similar executive level functions. He previously was President of Toledo, Peoria & Western Railway Corporation for over five years. PART II ------- Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS - ------------------------------------------------------------- Market Information - ------------------ The Company's common stock trades in the over-the-counter market and is quoted on the Nasdaq National Market ("Nasdaq"). The symbol for the common stock is "DOCP". The following table sets forth the quarterly high and low sale prices of the Company's common stock as reported by NASDAQ for the two years ending December 31, 1995. 1995 High Low ------------------- --------- --------- First Quarter $11 $9 3/4 Second Quarter $10 1/4 $9 1/4 Third Quarter $10 1/2 $9 1/2 Fourth Quarter $10 $9 - 9 - 1994 High Low ------------------- --------- --------- First Quarter $ 10 3/4 $ 9 1/2 Second Quarter $ 10 3/4 $ 9 1/2 Third Quarter $ 10 3/4 $ 9 1/2 Fourth Quarter $ 11 $ 10 1/4 Holders of Record - ----------------- As of December 31, 1995, the approximate number of record holders of the Company's common stock was 1,519. Dividends - --------- During 1995, the Company paid a 5% stock dividend payable to stockholders of record February 17, 1995. The dividend was paid on March 20, 1995, resulting in the issuance of an additional 72,518 shares. Subsequent to year-end, the Company declared a 5% stock dividend payable to stockholders of record February 17, 1996. The dividend was paid on March 20, 1996 and 82,297 shares were issued accordingly. The Company's loan with Manufacturers and Traders Trust Company provides that the Company may not declare any cash dividends in any fiscal year in excess of 40% of Consolidated Net Income in such fiscal year, and that cumulative dividends paid during the term of the loan may not exceed 10% of cumulative retained earnings. In addition, the Financing Agreement between the Company and its subsidiary NYS&W, and the Federal government through the FRA 505 Redeemable Preference Share Program provides that yearly dividends may not exceed 50% of the total additions to retained earnings of the Company for the previous year, nor 50% of the total additions to retained earnings for 1985 and each year thereafter. - 10 - Item 6. SELECTED FINANCIAL DATA - -------------------------------- (Thousands except per share amounts)
Year Ended December 31, ------------------------------------------------ RESULTS OF OPERATIONS: 1995 1994 1993 1992 1991 - ----------------------------- -------- -------- -------- -------- -------- Operating Revenues $ 34,524 $ 27,463 $ 22,610 $ 22,922 $ 26,886 Directed Service Revenues (1) - - - 149 743 Loss from Operations (1,562) (2,459) (2,979) (2,093) (1,372) Other Income (Expense), Net 4,055 (889) 1,098 166 3,959 -------- -------- -------- -------- -------- Income (Loss) Before Income Taxes & Extraordinary Item 2,493 (3,348) (1,881) (1,927) 2,587 Provision for Income Tax (Expense) Benefit (878) 1,128 603 605 (551) Extraordinary Item (Net of Tax) (2) - (228) - 765 - -------- -------- -------- -------- -------- Net Income (Loss) $ 1,615 $ (2,448) $ (1,278) $ (557) $ 2,036 ======== ======== ======== ======== ======== Primary Earnings (Loss) per Share: - ----------------------------- Income (Loss) before Extraordinary Item $ 1.00 $ (1.37) $ (0.79) $ (0.82) $ 1.26 Extraordinary Item - (0.14) - 0.47 - -------- -------- -------- -------- -------- Net Income (Loss) per Share $ 1.00 $ (1.51) $ (0.79) $ (0.35) $ 1.26 ======== ======== ======== ======== ======== Fully Diluted Earnings (Loss) per Share: - ----------------------------- Income (Loss) before Extraordinary Item $ 0.91 $ (1.37) $ (0.79) $ (0.82) $ 1.26 Extraordinary Item - (0.14) - 0.47 - -------- -------- -------- -------- -------- Net Income (Loss) per Share $ 0.91 $ (1.51) $ (0.79) $ (0.35) $ 1.26 ======== ======== ======== ======== ======== Cash Dividends Per Share (3) - - - $ 0.08 $ 0.06 FINANCIAL POSITION: - ----------------------------- Total Assets $ 74,778 $ 68,877 $ 65,619 $ 63,530 $ 60,536 Long-Term Debt 12,802 10,066 11,167 13,092 13,825 Property, Plant & Equipment 92,401 84,185 79,680 73,101 64,266 Stockholders' Equity (3) $ 32,446 $ 29,511 $ 29,493 $ 28,844 $ 28,031
[FN] (1) Revenue from the Company's temporary operations over lines of the Delaware & Hudson Railway. (2) See Management's Discussion and Analysis for discussion of the 1994 extraordinary item. The 1992 extraordinary item relates to a debt forgiveness transaction in connection with the termination of a land lease. (3) All data in the accompanying financial statements and related notes have been restated to give effect to a 5% stock dividend declared on January 26, 1996. - 11 - Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - --------------------------------------------------------- RESULTS OF OPERATIONS (In thousands) - --------------------- Recent Acquisition - ------------------ Subsequent to the balance sheet date, the Company completed the purchase of a 40% interest in The Toledo, Peoria and Western Railroad Corporation ("TP&W") for consideration totalling $2.25 million, including 25,000 shares of the Company's common stock. The non-stock portion of the consideration for the acquisition was funded through a $1 million loan and the private placement of 100,000 shares of the Company's common stock. Additionally, the Company issued warrants to purchase 60,000 common shares to another party involved in the transaction. The Company will perform administrative services which will have a positive impact on general and administrative expenses for 1996 and beyond. At December 31, 1995, the Company had incurred $592 of advances related to the purchase which were recorded in other current assets. The $592 was reimbursed at closing on January 31, 1996. The investment will be accounted for under the provisions of APB 18, The Equity Method of Accounting for Investments in Common Stock. The TP&W owns a 284 mile Class III regional railroad which provides rail service on a generally East-West route across one of the top grain producing regions in the world from Fort Madison, Iowa through Central Illinois (approximately 70 miles south of Chicago) to Logansport, Indiana. The TP&W hauls agricultural products, chemicals, coal, fertilizer, food products, steel and manufactured goods and consumer products for such customers as ADM, Cilco, Witco, Lonza and Caterpillar and to two company-operated intermodal facilities. The TP&W's geographic location and connections with over 20 rail carriers, including seven Class I railroads, present opportunities for growth, and the acquisition provides the Company with an opportunity to diversify its rail holdings and to provide improved service to its intermodal customers. The following Management's Discussion and Analysis of Financial Condition and Results of Operations relates to the continuing operations of the Company. 1995 COMPARED TO 1994 - --------------------- Operating Revenues - ------------------ 1995 railway operating revenues, which include intermodal, carload and all other rail operating revenues, were $32,484 compared with railway operating revenues of $24,981 for 1994. Two major customers account for approximately 72% and 64% of the Company's 1995 and 1994 operating revenues, respectively. During 1995 and 1994, the Company earned approximately $17.2 million and - 12 - $9.8 million , respectively from CSX Intermodal, Inc. During the same periods, the Company earned approximately $7.5 million and $7.7 million, respectively from Hanjin Shipping Lines. The loss of either customer or a material reduction in their operations would have a material adverse effect on the Company's results of operations. The Company relies on, and its ability to compete is dependent upon, its rail connections with CP and with Conrail for a substantial portion of its rail traffic. Changes in the operations of either of these carriers could have a material adverse impact on the Company. Intermodal revenues for 1995 increased $7,230 compared to 1994. Intermodal revenues from CSX Intermodal, Inc. ("CSXI") increased $7,438 due to two new intermodal services that began in the second and third quarters of 1994. Both services transport containerized traffic to CSXI's Little Ferry Terminal in New Jersey. Intermodal revenues derived from shipments on behalf of Hanjin Shipping Lines to the Resources facility declined $208, due mainly to market re-distribution factors and a general softness in international business in the fourth quarter. 1995 carload revenues improved by $162 compared to 1994, due principally to volume improvements in newsprint and printing paper, contaminated soil, liquid food-grade commodities and automobiles. Other railway operating revenues in the aggregate for 1995 improved $112 compared to 1994, due mostly to improved auto terminal and passenger revenues of $210, offset by declines in demurrage and other incidental revenues of $98. Real property revenues for 1995 were $165 greater than 1994, due mostly to unearned rent revenues recognized as earned when certain property was sold by a Company subsidiary in the second quarter. Other operating revenues in 1995 declined $607 compared to 1994, due mostly to declines in construction activity. Operating Expenses - ------------------ Maintenance of way and structures expenses in the aggregate for 1995 were $663 greater than 1994 due to a $126 bonus paid to employees in the second quarter, and an increase of $780 in trackage rights expenses due to increased intermodal traffic. Partially offsetting the increased expenses was a $243 decrease in expenses relating to litigation settlements, snow removal, environmental clean-up, insurance, professional services and utilities. Maintenance of equipment expenses in the aggregate were $520 higher during 1995 as compared to 1994 due to increased locomotive maintenance expenses necessary to meet power requirements of the Company's increased intermodal business. The principal components of the increase were: $170 for compensation and benefits; $312 for - 13 - materials and supplies; and $28 for independent contractors. Railcar and other equipment expenses in the aggregate for 1995 declined insignificantly. Transportation expenses in the aggregate for 1995 exceeded 1994 by $3,733, due principally to the increase in the Company's intermodal business. The most significant increases were: $603 for compensation and benefits; $590 for fuel; $2,237 for haulage and terminal expenses; $123 for security; and $50 for operations administration. Derailment and other transportation expenses for 1995 declined approximately $270 compared to 1994. Increased activity during 1995 for the Company's passenger shuttle and scenic excursion business resulted in approximately $400 of additional expenses compared to 1994. Car hire expenses for 1995 were $261 greater than 1994, due mostly to the increase in intermodal traffic. Depreciation and amortization expense for 1995 exceeded 1994 by $301, due principally to additional property, plant and equipment. General, administrative and other expenses for 1995 were $673 greater than 1994, due principally to the following: $624 for compensation and benefits of which $337 represents a company wide bonus paid during the second quarter; $161 for professional fees; $36 for telephones and other communications expense; offset by declines of approximately $148 in other overhead expenses. As a result of the foregoing, operating expenses increased $6,164 in 1995 compared to 1994. For the twelve month period ended December 31, 1995, the operating loss declined by $897 compared to the 1994 period. The operating ratio for 1995 was 104.5% compared to 108.9% for 1994. Other Income (Expense) - ---------------------- Interest expense net, comprised of interest expense (net of capitalized interest) and interest income, for 1995 increased $50 compared to 1994. Total interest expense for 1995 increased insignificantly compared to 1994. Gain on sale of property, equipment and other for 1995 increased $4,994 compared to 1994, due principally to the sale of an 8.8 mile railroad line located in Union County, New Jersey to the State of New Jersey for $6.2 million resulting in gain of $5.2 million. Taxes - ----- The Company provides for income taxes in accordance with the liability method as set forth in Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. The Company's provision for income taxes on income (loss) before extraordinary item resulted in a $878 tax expense in 1995 compared to a tax benefit of $1,128 for 1994. See Note 7 to financial statements for further information concerning income taxes. - 14 - 1994 COMPARED TO 1993 - --------------------- Operating Revenues - ------------------ Railway operating revenues, which include intermodal, carload and all other rail operating revenues, were $4,117 greater in 1994 than 1993. Two major customers account for approximately 64% and 60% of the Company's 1994 and 1993 operating revenues, respectively. During 1994 and 1993, the Company earned approximately $9.8 million and $6.3 million, respectively from CSX Intermodal, Inc. During the same periods, the Company earned approximately $7.7 million and $7.2 million, respectively from Hanjin Shipping Lines. The loss of either customer or a material reduction in their operations would have a material adverse effect on the Company's results of operations. Intermodal revenues in the aggregate for 1994 increased $4,011 compared to 1993. Intermodal revenues from CSX Intermodal, Inc. ("CSXI") increased $3,475 due to two new intermodal services that began in June and August, respectively in 1994. Both services transport containerized traffic to CSXI's Little Ferry Terminal in New Jersey. Revenue from intermodal shipments on behalf on Hanjin shipping lines to the Resources facility in New Jersey improved $536 compared to 1993. Carload revenues were $116 higher in 1994 compared with 1993, due mainly to greater commodity shipments for paper, lumber and stone ballast, combined with favorable shipper rebate arrangements. Other railway operating revenues in the aggregate declined insignificantly in 1994 compared to 1993. Components include passenger revenues, which were $78 greater in 1994 than 1993 due to the initiation of the passenger shuttle service in Syracuse, New York. Demurrage, switching and other incidental railway operating revenue for 1994 declined approximately $87 compared to 1993. Real property revenues for 1994 improved $120 compared to 1993. Other operating revenues in 1994 were $616 greater than 1993. Operating Expenses - ------------------ Maintenance of way and structures expenses for 1994 were $459 greater than 1993, due mainly to $360 of increased trackage rights costs attributable to additional business over Conrail track and approximately $99 of increased expenses for compensation and benefits, utilities and independent contractors. Maintenance of equipment expenses for 1994 were $233 higher than 1993, due mainly to greater expenses for labor costs, increased maintenance of locomotives and railcars resulting from increased traffic and increased maintenance of track equipment due to higher levels of construction activity. - 15 - Transportation expenses in the aggregate for 1994 rose by $3,407 over 1993 levels, due principally to increases in traffic levels from two new intermodal services. The principal components of the increase were: $384 in compensation and benefits, which reflects a 5% scheduled wage increase for contract employees; $210 in diesel fuel; $155 for increased costs of road locomotive utilization; haulage costs of $1,665; $263 in terminal operating expenses; $147 in drayage charges and $68 for additional security at terminal facilities. Derailment expenses in 1994 exceeded 1993 by $280; the 1993 period included a favorable adjustment of $130 necessary to reduce a previously established reserve for a major derailment in which all claims had been settled. Passenger expenses for 1994 exceeded 1993 amounts by $134, due to start-up and other operating expenses from initiating the shuttle service in Syracuse, New York. Car hire expenses for 1994 increased by $195 compared to 1993. Depreciation and amortization expenses for 1994 increased $175 compared with 1993. As a result of the foregoing, operating expenses increased $4,333 in 1994 compared to 1993. For the twelve month period ended December 31, 1994, the operating loss declined $520 from the 1993 period. The operating ratio for 1994 improved to 108.9% compared to 113.2% in 1993. Other Income (Expense) - ---------------------- Interest expense net, comprised of interest expense (net of capitalized interest) and interest income, for 1994 increased $128 compared to 1993. Total interest expense for 1994 was $1,444 compared to $1,246 for 1993, due principally to higher interest rates, additional interest from the issuance of $3,580 of 6.5% convertible subordinated notes in September, 1993 and increased borrowings from the construction line of credit. The Company's gain on sale of property, equipment and other declined $1,859 in 1994 compared to 1993, due principally to gain of $1,911 recognized in the 1993 period from the sale of a permanent easement to Public Service Electric and Gas Company. Taxes - ----- The Company provides for income taxes in accordance with the liability method as set forth in Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. The Company's provision for income taxes on income (loss) before extraordinary item resulted in a $1,128 tax benefit in 1994 compared to a benefit of $603 for 1993. See Note 7 to the financial statements for further information concerning income taxes. Extraordinary Item - ------------------ During 1994, the Company completed the refinancing of its major bank debt with Manufacturers and Traders Trust Company. In - 16 - conjunction with this refinancing, the Company wrote-off $334, representing the unamortized balance of deferred financing costs incurred in 1990 in conjunction with its prior loans. The write-off was recorded as an extraordinary item in the statement of earnings, net of applicable income taxes of $106. LIQUIDITY AND CAPITAL RESOURCES (In thousands, except share amounts) - ------------------------------- At December 31, 1995, the Company had a working capital deficit of $5,284 compared to a deficit of $7,149 at December 31, 1994. The improved working capital was due principally to a real estate sale for $6,203 that occurred in the second quarter of 1995. Liquidity refers to the ability of an organization to generate adequate amounts of cash, principally from operating results or through borrowing power to meet its short-term and long-term cash requirements. At December 31, 1995, the Company had cash and cash equivalents of $1,213 compared to $1,308 at December 31, 1994. Total long-term liabilities at December 31, 1995 were $26,780, an increase of $4,433 compared to December 31, 1994. Long-term debt exclusive of current maturities, as a percentage of equity at December 31, 1995, was 39.5% compared to 34.1% at December 31, 1994, and total capitalization (long-term debt, 6.5% convertible subordinated notes and equity) was $48,828 at December 31, 1995, compared to $43,157 at December 31, 1994. Subsequent to year-end, the Company entered into an equipment line of credit with Key Bank of New York, whereby it may borrow up to $500. The interest rate is the lender's base rate plus three quarters percent (3/4%.) The line expires on April 30, 1997. Property, plant and equipment additions for 1995 were $9,879 of which $2,021 was funded by grants from the New York and New Jersey Departments of Transportation. The $7,858 balance was provided by additional debt and sales of real property. During the fourth quarter of 1995, the Company entered into a contract to sell certain parcels of railroad property of a non-operating Company subsidiary for $500, which is anticipated to close during 1996. The carrying amount is estimated at $110. A portion of the purchase price is subject to the buyers obtaining government funding. The proceeds will be used for working capital purposes. The Company's capital spending program for 1996, including commit- ments, is projected at approximately $14 million, of which $9 million will be for railway projects and $5 million for acquisition of land for terminals and improvements to locomotives and other rolling stock. (Refer to Note 11 - Commitments to the consolidated financial statements.) The expenditures are expected to be funded from grants from participating state governments which are expected to continue beyond 1996, cash from operations, debt financing and - 17 - proceeds from sales of non-operating property. During 1995, the Company paid a 5% stock dividend payable to stockholders of record February 17, 1995. The dividend was paid on March 20, 1995, resulting in the issuance of an additional 72,518 shares. Subsequent to year end, the Company declared a 5% stock dividend payable to stockholders of record February 17, 1996. The dividend will be paid on March 20, 1996 and 82,297 shares will be issued accordingly. SEASONALITY AND EFFECTS OF INFLATION - ------------------------------------ The Company's container revenues are affected by seasonal demands for consumer goods, generally resulting in higher intermodal revenues in the third quarter. The effects of inflation have not had a material effect on the Company's operating expenses in the aggregate. The Company enters into a diesel fuel supply agreement to hedge its exposure to price fluctuations on approximately 27% of its anticipated fuel requirements during a seven month period, generally late fall - early spring, for its freight transportation business. The nature of the hedging transaction does not result in any significant risk to the Company. Generally accepted accounting principles require the use of historical costs in preparing financial statements. This approach disregards the effects of inflation on the replacement cost of property and equipment. The Company is a capital-intensive company and has approximately $92.4 million invested in such assets. The replacement costs of these assets, as well as the related depreciation expense, would be substantially greater than the amounts reported on the basis of historical costs. ENVIRONMENTAL MATTERS - --------------------- During 1993, The New York, Susquehanna and Western Railway Corporation, a Company railroad operating subsidiary, received notice from the Environmental Protection Agency (EPA) that it is a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act (Superfund) and may be required to share in the cost to clean up a certain site identified by the EPA. The information presently available to the Company indicates that the estimated liability is less than ten thousand dollars and therefore, will not have a material affect on the consolidated financial condition or results of operations. - 18 - Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements and Supplementary Data begin on the next page. - 19 - REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Delaware Otsego Corporation We have audited the accompanying consolidated balance sheets of Delaware Otsego Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Delaware Otsego Corporation and subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Ernst & Young LLP Syracuse, New York February 26, 1996 - 20 - CONSOLIDATED STATEMENTS OF OPERATIONS DELAWARE OTSEGO CORPORATION AND SUBSIDIARIES (THOUSANDS, EXCEPT PER SHARE AMOUNTS) - --------------------------------------------------------------------------
Year ended December 31, -------------------------------- 1995 1994 1993 ---------- ---------- ---------- OPERATING REVENUES Railway operating revenues $ 32,484 $ 24,981 $ 20,864 Real property revenues 1,448 1,283 1,163 Other operating revenue 592 1,199 583 ---------- ---------- ---------- TOTAL OPERATING REVENUES 34,524 27,463 22,610 ---------- ---------- ---------- OPERATING EXPENSES Maintenance of way and structures 4,267 3,604 3,145 Maintenance of equipment 2,969 2,449 2,216 Transportation 18,021 14,288 10,881 Car hire expense 1,455 1,194 999 Depreciation and amortization 4,186 3,885 3,710 Taxes other than income taxes 256 243 365 General, administrative and other 4,932 4,259 4,273 ---------- ---------- ---------- TOTAL OPERATING EXPENSES 36,086 29,922 25,589 ---------- ---------- ---------- LOSS FROM OPERATIONS (1,562) (2,459) (2,979) OTHER INCOME (EXPENSE) Interest expense, net (1,276) (1,226) (1,098) Gain on sale of property, equipment and other 5,331 337 2,196 ---------- ---------- ---------- OTHER INCOME (EXPENSE), NET 4,055 (889) 1,098 Income (Loss) before income taxes and extraordinary item 2,493 (3,348) (1,881) Provision for income tax (expense) benefit (878) 1,128 603 ---------- ---------- ---------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 1,615 (2,220) (1,278) Extraordinary item net of tax - (228) - ---------- ---------- ---------- NET INCOME (LOSS) $ 1,615 $ (2,448) $ (1,278) ========== ========== ========== Primary Earnings (Loss) per Share: Income (Loss) before Extraordinary Item $ 1.00 $ (1.37) $ (0.79) Extraordinary Item - (0.14) - ---------- ---------- ---------- Net Income (Loss) per Share $ 1.00 $ (1.51) $ (0.79) ========== ========== ========== Fully Diluted Earnings (Loss) per Share: Income (Loss) before Extraordinary Item $ 0.91 $ (1.37) $ (0.79) Extraordinary Item - (0.14) - ---------- ---------- ---------- Net Income (Loss) per Share $ 0.91 $ (1.51) $ (0.79) ========== ========== ==========
[FN] See notes to consolidated financial statements - 21 - CONSOLIDATED BALANCE SHEETS DELAWARE OTSEGO CORPORATION AND SUBSIDIARIES (THOUSANDS, EXCEPT SHARE AMOUNTS) - -----------------------------------------------------------------------
ASSETS ------ December 31, --------------------- 1995 1994 ---------- ---------- CURRENT ASSETS Cash and cash equivalents $ 1,213 $ 1,308 Accounts receivable 5,406 6,085 Reimbursable construction costs 1,212 1,106 Materials and supplies 742 587 Deferred income taxes 332 317 Prepaid expenses 698 179 Other current assets - Note 12 665 288 ---------- ---------- TOTAL CURRENT ASSETS 10,268 9,870 PROPERTY, PLANT AND EQUIPMENT Land 1,658 2,373 Buildings, machinery, equipment and leasehold improvements 90,743 81,812 ---------- ---------- 92,401 84,185 Less accumulated depreciation and amortization (29,414) (25,961) ---------- ---------- TOTAL PROPERTY, PLANT AND EQUIPMENT 62,987 58,224 OTHER ASSETS Other assets 1,134 376 Intangible assets, net 389 407 ---------- ---------- TOTAL OTHER ASSETS 1,523 783 ---------- ---------- TOTAL ASSETS $ 74,778 $ 68,877 ========== ==========
[FN] See notes to consolidated financial statements - 22 - CONSOLIDATED BALANCE SHEETS DELAWARE OTSEGO CORPORATION AND SUBSIDIARIES (THOUSANDS, EXCEPT SHARE AMOUNTS) - -----------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ December 31, --------------------- 1995 1994 ---------- ---------- CURRENT LIABILITIES Notes payable to bank $ 2,100 $ 3,400 Accounts payable 10,400 10,018 Accrued and other current liabilities 1,977 2,481 Current maturities of long-term debt - Note 4 1,075 1,120 ---------- ---------- TOTAL CURRENT LIABILITIES 15,552 17,019 LONG-TERM LIABILITIES Long-term debt - Note 4 12,802 10,066 Deferred income tax 10,398 8,582 Deferred revenue and other liabilities - 119 SUBORDINATED NOTES 6.5% Convertible subordinated notes 3,580 3,580 ---------- ---------- TOTAL LONG-TERM LIABILITIES 26,780 22,347 ---------- ---------- TOTAL LIABILITIES 42,332 39,366 STOCKHOLDERS' EQUITY Common stock, par value, $.125 per share - authorized 10,000,000 shares; issued and outstanding - 1,612,927 in 1995 and 1,536,880 in 1994 202 192 Additional paid-in capital 4,029 3,278 Contributed capital 18,021 16,687 Retained earnings 10,194 9,354 ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 32,446 29,511 COMMITMENTS - Notes 8 and 11 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 74,778 $ 68,877 ========== ==========
[FN] See notes to consolidated financial statements - 23 - CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY DELAWARE OTSEGO CORPORATION AND SUBSIDIARIES YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (THOUSANDS) - ----------------------------------------------------------------------------
Additional Paid - in Contributed Retained Common Stock Capital Capital Earnings --------------- ----------- ------------ --------- BALANCE AT DECEMBER 31, 1992 $ 174 $ 1,856 $ 12,288 $ 14,526 Net Loss (1,278) 5% Stock Dividend declared January 10, 1994 9 682 (696) Rehabilitation Subsidies 1,926 Exercise of Employee Stock Options 6 --------------- ----------- ----------- ---------- BALANCE AT DECEMBER 31, 1993 183 2,544 14,214 12,552 Net Loss (2,448) 5% Stock Dividend declared January 12, 1995 9 734 (750) Rehabilitation Subsidies 2,473 --------------- ----------- ----------- ---------- BALANCE AT DECEMBER 31, 1994 192 3,278 16,687 9,354 Net Income 1,615 5% Stock Dividend declared January 29, 1996 10 751 (775) Rehabilitation Subsidies 1,334 --------------- ----------- ----------- ---------- BALANCE AT DECEMBER 31, 1995 $ 202 $ 4,029 $ 18,021 $ 10,194 =============== =========== =========== ==========
[FN] See notes to consolidated financial statements - 24 - CONSOLIDATED STATEMENTS OF CASH FLOWS DELAWARE OTSEGO CORPORATION AND SUBSIDIARIES (THOUSANDS) - ----------------------------------------------------------------------------
Year ended December 31, -------------------------- 1995 1994 1993 -------- -------- -------- OPERATING ACTIVITIES Net income (loss) $ 1,615 $(2,448) $(1,278) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization 4,186 3,885 3,710 Provision for losses on accounts receivable 110 31 10 Provision for deferred income taxes 829 (1,346) (359) Gain on sale of fixed assets (5,336) (328) (2,288) Amortization of deferred income (158) (8) (35) Proceeds of deferred rent - - 4 Write-off of loan origination fees - 334 - Changes in operating assets and liabilities: Decrease (increase) in accounts receivable 569 (1,914) 625 (Increase) decrease in materials, supplies, prepaids and other current assets (1,173) 954 (1,199) Increase in accounts payable and accrued expenses 135 1,932 394 (Increase) decrease in other assets (338) (71) 94 -------- -------- -------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 439 1,021 (322) -------- -------- -------- INVESTING ACTIVITIES Additions to property, plant and equipment (9,879) (7,182) (6,573) Acquisition of intangible assets - (282) (126) Proceeds and deposits from sale of assets and easement 6,346 1,357 2,124 Contributed capital 2,021 4,491 3,567 -------- -------- -------- NET CASH USED IN INVESTING ACTIVITIES (1,512) (1,616) (1,008) -------- -------- -------- FINANCING ACTIVITIES Release of escrowed cash for property improvements - - 194 (Decrease) increase in notes payable (1,300) 2,185 (1,095) Proceeds from long-term borrowings 4,680 5,565 222 Principal payments on long-term debt (1,990) (7,057) (2,486) (Payments on) proceeds from other borrowings (406) 406 - Dividends paid (6) (6) (5) Proceeds from convertible subordinated notes - - 3,580 Proceeds of employee stock options - - 6 -------- -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 978 1,093 416 -------- -------- -------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (95) 498 (914) Cash and cash equivalents at beginning of year 1,308 810 1,724 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,213 $ 1,308 $ 810 ======== ======== ========
[FN] See notes to consolidated financial statements - 25 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DELAWARE OTSEGO CORPORATION AND SUBSIDIARIES December 31, 1995, 1994 and 1993 - -------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- Business: The Company operates a 500 mile regional railroad system extending into the states of New York, Pennsylvania and New Jersey. The principal freight carried by the Company consists of manufactured goods, industrial raw materials, paper products and agricultural commodities. The principal markets for this freight are the New York City metropolitan area, Northern New Jersey and Central New York. The Company relies on, and its ability to compete is dependent upon, its rail connections with the CP Rail System and Consolidated Rail Corporation. Changes in the operations of either of these carriers could have a material adverse impact on the Company. Two major customers account for approximately 72%, 64% and 60% of the Company's operating revenues for 1995, 1994 and 1993, respectively. During 1995, 1994 and 1993, the Company earned approximately $17.2 million, $9.8 million and $6.3 million from CSX Intermodal, Inc. During the same periods, the Company earned $7.5 million, $7.7 million and $7.2 million from Hanjin Shipping Lines. The loss of either customer or a material reduction in their operations would have a material adverse effect on the Company's results of operations. Principles of Consolidation: The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany transactions and balances have been eliminated in consolidation. Accounts Receivable and Revenue Recognition: Accounts receivable and accounts payable in the consolidated balance sheet reflect interline transactions with other railroads which the Company is required to enter into as part of settling freight payments received from customers. The system follows Railway Accounting Rules as adopted by member railroads of The Association of American Railroads, of which the Company is a member. At year end, in accordance with industry practice, accrued revenue on a completed service basis is reflected in the consolidated statements of operations for unsettled freight not yet part of the interline accounting system. At December 31, 1995 and 1994, the Company's trade receivables include approximately $4.1 million and $3.4 million, respectively of total receivables, representing balances due from two major customers. The December 31, 1995 and 1994 receivables from the two customers constitute 75.8% and 55.3%, respectively of total receivables. The Company does not require collateral. The credit risk associated with this concentration is not deemed significant. Allowances for doubtful accounts of $171 thousand and $190 thousand have been applied as a reduction of accounts receivable at December - 26 - NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued - --------------------------------------------------- 31, 1995 and 1994, respectively. Materials and Supplies: Materials and supplies are stated at the lower of cost or market determined by the average cost method. Materials and supplies are charged to expense, construction- in-progress or property, plant and equipment at the time of use. Property, Plant and Equipment: Property, plant and equipment is recorded at cost including capitalized interest during periods of construction. Depreciation is provided over the estimated useful lives of the related assets and is computed principally by the straight-line method for financial statement purposes. Costs of reimbursable rehabilitation projects not yet complete are recorded in reimbursable construction costs. Charges incurred during the project phase are billed to the respective state or federal government agency. The proceeds from these subsidies are recorded in the consolidated statement of stockholders' equity as contributed capital at the time of receipt, net of applicable income taxes. The cost of property retired or sold and related accumulated depreciation are removed from the asset and allowance accounts. Gain or loss on disposition of property is reflected in earnings. Maintenance and repairs are charged to earnings as incurred. Renewals and betterments are capitalized. Leasehold improvements are amortized on the straight-line method over the remaining life of the lease or the estimated life of the improvement, whichever is shorter. Impact of Recently Issued Accounting Standards: In March, 1995 the Financial Accounting Standards Board issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. The statement requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company adopted Statement No. 121 in the fourth quarter of 1995 without any material effect. Intangible Assets: Intangibles are amortized by the straight-line method over a period of 5 to 40 years. Accumulated amortization was $1.1 million and $1.4 million at December 31, 1995 and 1994, respectively. Estimated Self-Insurance Liability: The Company is self-insured to various limits for public liability and property loss. The liability for self-insurance is generally accrued based on occurrence, with liability for possible escalation on unsettled claims being estimated based on individual situations. The Company does not accrue an estimated liability for unasserted claims unless - 27 - NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued - --------------------------------------------------- (i) it is aware of the possibility of such claim; (ii) it is considered probable such claim will be asserted at a future date; and (iii) it has a basis to estimate its potential exposure and there is a reasonable possibility of an unfavorable outcome. In the opinion of management, after review with attorneys for the Company, such claims are of a nature that they will not have a material adverse effect on the financial position of the Company. Income Taxes: The Company provides for income taxes in accordance with the liability method as set forth in Statement of Financial Accounting Standards No. 109, Accounting For Income Taxes. Under the liability method, deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. (See Note 7.) Per Share Amounts: Primary net income per share is computed by dividing net income by the weighted average number of shares outstanding of 1,612,817 in 1995, 1994 and 1993, respectively, including the effects of a 5% stock dividend declared January 26, 1996. Fully diluted net income per share is computed by dividing net income plus after tax interest incurred on the convertible debentures by the weighted average number of common shares outstanding after giving effect to dilutive stock options and shares assumed to be issued on conversion of the convertible debentures of approximately 1,951,000 shares in 1995. Reported fully diluted and primary net income per share are the same for 1994 and 1993 as dilution from the assumed conversion of the convertible debentures issued in 1993 is antidilutive. Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Stock Based Compensation: The Company accounts for its stock compensation arrangements under the provisions of APB 25, Accounting for Stock Issued to Employees and intends to continue with this accounting treatment. Prior-Year Data: Certain amounts in the 1994 and 1993 financial statements have been reclassified to conform to the 1995 presentation. - 28 - NOTE 2 - PROPERTY, PLANT AND EQUIPMENT - -------------------------------------- A summary of property, plant and equipment balances by major classes at December 31, 1995 and 1994, is as follows: (in thousands) 1995 1994 --------- --------- Land $ 1,658 $ 2,373 Buildings and bridges 6,527 6,337 Machinery, equipment and roadway 83,604 74,989 Leasehold improvements 612 486 --------- --------- 92,401 84,185 Less allowance for depreciation and amortization (29,414) (25,961) --------- --------- PROPERTY, PLANT AND EQUIPMENT, NET $62,987 $58,224 ========= ========= NOTE 3 - NOTES PAYABLE TO BANK - ------------------------------ Notes payable at December 31, 1995 and 1994 consist of a secured advance under a $5 million line of credit with Manufacturers and Traders Trust Company. Interest on these borrowings is at Prime plus 1%. (Prime at December 31, 1995 was 8.5%.) Available borrowings are based on and secured by eligible accounts receivable. At December 31, 1995 and 1994, eligible accounts receivable were $3.6 million and $3.8 million, respectively. At December 31, 1995 and 1994, borrowings on the line were $2.1 million and $3.4 million, respectively. The weighted average interest rate on the borrowings is 9.7% and 7.9% for 1995 and 1994, respectively. NOTE 4 - LONG-TERM DEBT - ----------------------- Long-term debt obligations at December 31 are summarized as follows: (in thousands) 1995 1994 ---------- ---------- Term loan payable to Manufacturers and Traders Trust Company with $50 thousand of principal due in the last quarter of 1996 and thirty quarterly principal installments of approximately $91.7 thousand plus interest due thereafter through 2004, with a balloon payment of $1.33 million due in the same year. During 1995, two quarterly payments of $91.7 and a $1 million prepayment of principal was made. Interest on portions of the term loan are based on the prime rate plus 1.5% or LIBOR, and the greater of a 3.5% fixed rate above the yield on United States Treasury Obligations, or 8%. (Prime at 8.5% on December 31, 1995.) $ 4,133 $ 5,317 - 29 - NOTE 4 - LONG-TERM DEBT - Continued - ----------------------- Loan payable to the New Jersey Economic Development Authority due in monthly installments of $18 - $20 thousand plus interest, through 1999, with interest at a rate between 2% and 9% (6% at December 31, 1995) secured by a mortgage on real property. 927 1,125 Loan payable to the federal government through the Federal Railroad Administration (FRA) due in quarterly installments of $88 thousand, including interest at 6.276% with a balloon payment of $1.5 million on March 31, 2000, secured by a mortgage on real property. 2,356 2,552 Loan payable to the federal government through the Federal Railroad Administration (FRA) due in quarterly installments of $93 thousand, including interest at 6.4% through 2015, secured by railway equipment. 4,143 - Various promissory notes, mortgage notes and capital leases payable, due in monthly installments, with interest varying from 4.9% - 9.4% at December 31, 1995. The notes are secured by land, buildings or equipment. 2,318 2,192 ---------- ---------- 13,877 11,186 Less current portion (1,075) (1,120) ---------- ---------- Long-term debt $12,802 $10,066 ========== ========== During 1994, the Company completed the refinancing of its major bank debt with Manufacturers and Traders Trust Company. In conjunction with this refinancing, the Company wrote-off $334 thousand, representing the unamortized balance of deferred financing costs incurred in 1990 in conjunction with its prior loans. The write-off was recorded as an extraordinary item net of applicable income taxes of $106. Substantially all assets of the Company are pledged as collateral under debt agreements. In addition to other requirements, the Company is required to meet certain minimum tangible net worth, working capital, and current ratio requirements under certain debt agreements. At December 31, 1995, the Company met all the minimum requirements. The Company's loan with Manufacturers and Traders Trust Company provides that the Company may not declare any cash dividends in any fiscal year in excess of 40% of Consolidated Net Income in such fiscal year, and that cumulative dividends paid during the term of the loan may not exceed 10% of cumulative retained earnings. - 30 - NOTE 4 - LONG-TERM DEBT - Continued - ----------------------- In addition, the financing agreements between the Company and its subsidiary, NYS&W, and the federal government provide that yearly dividends may not exceed 50% of the total additions to retained earnings of the Company for the previous year, nor 50% of the total additions to retained earnings for 1985 and each year thereafter. Interest expense, net (in thousands) is comprised of interest expense of $1,465, $1,444 and $1,246 for 1995, 1994 and 1993 respectively, net of respective amounts for capitalized interest of $104, $147 and $91, and interest income of $85, $71 and $57. Interest paid (in thousands) was $1,455, $1,332 and $1,131 for the 1995, 1994 and 1993 periods. A summary of maturities of long-term debt at December 31, 1995 is as follows (in thousands): 1996 $ 1,075 1997 1,415 1998 1,301 1999 1,269 2000 2,201 Thereafter 6,616 ------- $13,877 ======= NOTE 5 - 6.5% CONVERTIBLE SUBORDINATED NOTES - -------------------------------------------- During 1993, the Company completed a private placement of $3.6 million of 6.5% convertible subordinated notes due September 1, 2003. The notes are convertible into shares of the Company's presently authorized common stock at a conversion price of $10.58 per share, after giving effect to stock dividends. Interest on the notes is payable semi-annually on the first day of March and September of each year. The notes may be converted into shares anytime prior to maturity. The Company has reserved 338 thousand shares of authorized common stock for the conversion of the notes. Directors of the Company purchased $850 thousand of the notes. NOTE 6 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - -------------------------------------------------------------- The estimated fair values of the Company's financial instruments at December 31, 1995 and the methods and assumptions used to estimate the fair value of each class of financial instruments held by the Company were as follows: Cash and Cash Equivalents: The carrying amount approximated fair value because of the short maturity of these instruments. Long-Term Debt: The fair value of the Company's long-term debt is estimated using discounted cash flow analyses, based on the - 31 - NOTE 6 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued - ---------------------------------------------------------------- Company's current incremental borrowing rates for similar types of borrowing arrangements. The carrying amount reported in the balance sheet approximates its fair value. NOTE 7 - INCOME TAXES - --------------------- The components of the provision for federal and state income taxes are as follows (in thousands): 1995 1994 1993 -------- -------- -------- Current tax (expense) benefit ($ 49) ($ 218) $ 244 Deferred tax (expense) benefit (829) 1,346 359 -------- -------- -------- TOTAL INCOME TAX (EXPENSE) BENEFIT ($878) $1,128 $ 603 ======== ======== ======== A reconciliation of the statutory U.S. federal income tax rate to the effective income tax rate follows: 1995 1994 1993 -------- -------- -------- Statutory income tax rate 34.00% 34.00% 34.00% State taxes, net of federal tax benefit 1.28 (2.72) (1.53) Other (.06) 2.41 ( .40) -------- -------- -------- EFFECTIVE TAX RATE 35.22% 33.69% 32.07% ======== ======== ======== State taxes are based on a combination of pre-tax earnings, allocated capital and gross transportation receipts. Amounts included in current tax expense were $49 thousand, $218 thousand and $44 thousand for 1995, 1994 and 1993 respectively. The Company has general business credit carryovers of approximately $1.5 million which expire at various dates through the year 2003, net operating loss carryforwards of $11.6 million which expire at various dates through 2010 and alternative minimum tax credits of $983 thousand available to reduce income taxes otherwise currently payable. Net income tax payments (refunds) amounted to $237 thousand, $28 thousand, and ($211 thousand) in 1995, 1994 and 1993, respectively. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax - 32 - NOTE 7 - INCOME TAXES - Continued - --------------------- liabilities and assets as of December 31 are as follows: (in thousands) 1995 1994 ------- ------- Deferred tax liabilities: Book basis in excess of tax basis of property, plant & equipment $16,811 $14,127 ------- ------- Deferred tax assets: Vacation reserve $ 142 $ 115 Bad debt reserve 58 65 Litigation reserve 55 82 Other-net 59 35 Net operating loss carryforwards 3,929 3,065 General business credit carryforwards 1,519 1,519 AMT credit carryforwards 983 981 ------- ------- Total deferred tax assets 6,745 5,862 ------- ------- Net deferred tax liabilities $10,066 $ 8,265 ======= ======= Classification of deferred taxes: Non-current liabilities $10,398 $ 8,582 Current assets (332) (317) ------- ------- $10,066 $ 8,265 ======= ======= NOTE 8 - LEASES - --------------- The Company leases certain equipment and real estate under operating lease agreements for periods ranging from one to eight years. The annual rental expenses were $2.9 million, $2.9 million and $2.8 million for 1995, 1994 and 1993, respectively. Future minimum lease payments for noncancelable operating leases as of December 31, 1995, are as follows (in thousands): Year ending December 31, 1996 $ 711 1997 628 1998 626 1999 652 2000 652 Thereafter 1,534 ------ TOTAL MINIMUM OPERATING LEASE PAYMENTS $4,803 ====== - 33 - NOTE 9 - STOCK OPTIONS - ---------------------- The Stockholders of the Company have approved stock option plans for officers, directors and key employees. At December 31, 1995, there are 175,208 exercisable shares under option, which includes 6,300 options granted to certain directors during the fourth quarter of 1995. 62,104 options are available for future grants. The exercise price of options granted is equal to the fair market value of the common stock on the date of grant adjusted for stock dividends. The options expire ten years from the date of grant. The status of these plans at December 31, is as follows (the stock option data has been restated to reflect the effects of the 1996 5% stock dividend): Shares Option Under Price Option Range --------- ------------- 1995 175,208 $8.43 - $9.50 Options Exercise Exercised Price --------- ------------- 1995 - - 1994 - - 1993 525 $10.50 NOTE 10 - EMPLOYEE BENEFIT PLAN - ------------------------------- On August 1, 1990, the Company established a defined contribution plan covering substantially all employees. Employees can contribute a portion of their salary or wages as prescribed under section 401(k) of the Internal Revenue Code and, subject to certain limitations, the Company will match a portion of the employees' contribution. The amounts of employer contributions were $91 thousand in 1995, $78 thousand in 1994 and $75 thousand in 1993. NOTE 11 - COMMITMENTS - --------------------- The Company has outstanding commitments of approximately $4.8 million in connection with the completion of various rehabilitation projects and construction in progress. Completion dates range from six months to three years. The commitments are expected to be partially offset by government agency funding of approximately $4.4 million. The Company entered into an agreement in August, 1992 to purchase certain property currently under lease for a total inflation adjusted purchase price of approximately $3.5 million. During the second quarter, the Company deposited $500 thousand towards the purchase. The Company will be required to pay an additional $500 thousand at closing, which is anticipated to occur during the first half of 1996. Subsequent to year-end, the Company received a - 34 - NOTE 11 - COMMITMENTS - Continued - --------------------- commitment for a credit facility from Manufacturers and Traders Trust Company for $2.5 million to finance the purchase. The commitment expires on May 31, 1996. The property is presently being used for relocation and expansion of its bulk distribution operations. During the fourth quarter of 1995, the Company entered into a contract to sell certain parcels of railroad property of a non- operating Company subsidiary for $500 thousand, which is anticipated to close during 1996. The carrying amount is estimated at $110 thousand. A portion of the purchase price is subject to the buyers obtaining government funding. The proceeds will be used for working capital purposes. Certain claims have been filed against the Company or its subsidiaries and have not been finally adjudicated. These claims when finally concluded and determined, will not, in the opinion of management based upon information that it presently possesses, have a material adverse effect on the consolidated financial position and results of operations. NOTE 12 - SUBSEQUENT EVENTS - Unaudited - --------------------------- Subsequent to the balance sheet date, the Company completed the purchase of a 40% interest in The Toledo, Peoria and Western Railroad Corporation ("TP&W") for consideration totalling $2.25 million, including 25,000 shares of the Company's common stock. The non-stock portion of the consideration for the acquisition was funded through a $1 million loan and the private placement of 100,000 shares of the Company's common stock. Additionally, the Company issued warrants to purchase 60,000 common shares to another party involved in the transaction. The Company will perform administrative services which will have a positive impact on general and administrative expenses for 1996 and beyond. At December 31, 1995, the Company had incurred $592 of advances related to the purchase which were recorded in other current assets. The $592 was reimbursed at closing on January 31, 1996. The investment will be accounted for under the provisions of APB 18, The Equity Method of Accounting for Investments in Common Stock. The TP&W owns a 284 mile Class III regional railroad which provides rail service on a generally East-West route across one of the top grain producing regions in the world from Fort Madison, Iowa through Central Illinois (approximately 70 miles south of Chicago) to Logansport, Indiana. The TP&W hauls agricultural products, chemicals, coal, fertilizer, food products, steel and manufactured goods and consumer products for such customers as ADM, Cilco, Witco, Lonza and Caterpillar and to two company-operated intermodal facilities. The TP&W's geographic location and connections with over 20 rail carriers, including seven Class I railroads, present opportunities for growth, and the acquisition provides the Company with an opportunity to diversify its rail holdings and to provide improved service to its intermodal customers. - 35 - Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - -------------------------------------------------------------------- None. PART III -------- The information required in Item 10 (Directors and Executive Officers of the Registrant), Item 11 (Executive Compensation), Item 12 (Security Ownership of Certain Beneficial Owners and Management), and Item 13 (Certain Relationships and Related Transactions) except for the information set forth at the end of Part I with respect to Executive Officers of the Company, is incorporated herein by reference to the Company's Proxy Statement to be filed within 120 days of December 31, 1995. PART IV ------- Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) Financial Statements The following financial statements of Delaware Otsego Corporation are included in Part II, Item 8: Page ---- Report of Independent Auditors 20 Consolidated Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993 21 Consolidated Balance Sheets at December 31, 1995 and 1994 22 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1994, and 1993 24 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994, and 1993 25 Notes to Consolidated Financial Statements 26 Schedules called for under Regulation S-X are not submitted because they are not applicable or not required or because the required information is not material or is included in the financial statements or notes thereto. (b) Reports on Form 8-K - 36 - No reports on Form 8-K were filed by the Company in the fourth quarter. (c) Exhibits Filed herewith (-) or Incorporated by Reference to ------------------------------- 3.1 Restated Certificate of Incorporation Exhibit 3.1 to Registrant's of the Delaware Otsego Corporation Annual Report on Form 10-K dated dated June 1, 1991 December 31, 1991 3.2 By-Laws of DOC dated April 5, 1988 Exhibit 3.8 to Registrant's Annual Report on Form 10-K dated December 31, 1988 10.1 Employment Agreement between DOC Exhibit 10.1 to Registrant's and Walter Rich dated June 3, 1995 Quarterly Report on Form 10-Q dated June 30, 1995 10.2 Direct Loan Agreement between New Exhibit 10(g) to Registration Jersey Economic Development Authority Statement on Form S-1, and NYS&W dated August 6, 1982 No. 2-94319 10.3 Agreement between Conrail and NYS&W Exhibit 10(p) to Registration dated March 30, 1982 relating to Statement on Form S-1, trackage rights over line of Conrail No. 2-94319 from Binghamton, New York to Warwick, New York via Campbell Hall and Maybrook, New York 10.4 Financing Agreement between NYS&W Exhibit 19.11 to Form 10-Q dated and FRA dated September 30, 1985 November 13, 1986 10.5 Agreement Amending Financing Exhibit 19.12 to Form 10-Q dated Agreement between FRA and NYS&W November 13, 1986 dated July 30, 1986 10.6 Amendment to Direct Loan Agreement Exhibit 19.18 to Form 10-Q between New Jersey Economic dated November 13, 1986 Development Authority and NYS&W dated July 15, 1986 10.7 Amendment to Direct Loan Agreement Exhibit 19.19 to Form 10-Q dated between New Jersey Economic November 13, 1986 Development Authority and NYS&W dated September 2, 1986 - 37 - 10.8 Amended and Restated Credit Agreement Exhibit 10.8 to Form 10-Q dated between Manufacturers and Traders November 11, 1994 Trust Company and DOC dated May 27, 1994 10.9 Agreement between NYS&W and Exhibit 10.9 to Registrant's Brotherhood of Locomotive Engineers Annual Report on Form 10-K dated March 30, 1994 dated March 27, 1995 10.10 Agreement between NYS&W and - Brotherhood of Maintenance of Way Employes dated October 13, 1995 10.11 Modification to Direct Loan Agreement Exhibit 10(hh) to Registration and Direct Loan Promissory Note dated Statement on Form S-1, as of August 6, 1982 between the New No. 2-94319 Jersey Economic Development Authority and NYS&W dated July 17, 1984 10.12 Amendment to Operating Agreement Exhibit 10(qq) to Registration Under Branchline Assistance Program Statement on Form S-1, between NYS&W and New York State No. 2-94319 Department of Transportation dated January 10, 1984 10.22 Delaware Otsego Corporation Exhibit B to Definitive Proxy 1987 Stock Option Plan Statement Dated October 7, 1987 10.23 Delaware Otsego Corporation Exhibit B to Definitive Proxy 1993 Stock Option Plan Statement Dated May 5, 1993 10.27 Form of Delaware Otsego Corporation Exhibit 1 to Registrant's 6.5% Convertible Subordinated Note Form 8-K dated October 19, 1993 Due on September 1, 2003 10.28 Guarantee Commitment between the Exhibit 10.28 to Registrant's Federal Railroad Administration and Annual Report on Form 10-K DOC dated September 29, 1994 dated March 27, 1995 10.29 Warrant Agreement between DOC and - Creditanstalt Corporate Finance, Inc. dated January 31, 1996 10.30 Deficiency Guarantee among DOC and - others and Creditanstalt Corporate Finance, Inc. dated January 31, 1996 - 38 - 10.31 Cash Collateral Agreement among DOC - and others and Creditanstalt Corporate Finance, Inc. dated January 31, 1996 21 Subsidiaries of Registrant - 23 Consent of Ernst & Young LLP - - 39 - SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Delaware Otsego Corporation has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. DELAWARE OTSEGO CORPORATION - --------------------------- Registrant By: s/ Walter G. Rich ------------------------------------- Walter G. Rich, Director President and Chief Executive Officer Date: March 24, 1996 By: s/ William B. Blatter ------------------------------------- William B. Blatter, Senior Vice President and Chief Financial Officer Date: March 24, 1996 By: s/ Robert E. Pierce ------------------------------------- Robert E. Pierce, Vice President, Controller & Chief Accounting Officer Date: March 24, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: s/ Albert B. Aftoora s/ Richard A. White - ------------------------------ ------------------------------ Albert B. Aftoora, Director Richard A. White, Director March 24, 1996 March 24, 1996 s/ Robert L. Marcalus s/ David B. Common - ------------------------------ ------------------------------ Robert L. Marcalus, Director David B. Common, Director March 24, 1996 March 24, 1996 s/ Charles S. Brenner s/ Malcolm C. Hughes - ------------------------------ ------------------------------ Charles S. Brenner, Director Malcolm C. Hughes, Director March 24, 1996 March 24, 1996 s/ Niles F. Curtis s/ Gerald D. Groff - ------------------------------ ------------------------------ Niles F. Curtis, Director Gerald D. Groff, Director March 24, 1996 March 24, 1996 - 40 - EXHIBIT INDEX ------------- Page ---- 10.10 Agreement between NYS&W and Brotherhood of Maintenance of Way Employes dated October 13, 1995 42 10.29 Warrant Agreement between DOC and Creditanstalt Corporate Finance, Inc. dated January 31, 1996 121 10.30 Deficiency Guarantee among DOC and others and Creditanstalt Corporate Finance, Inc. dated January 31, 1996 151 10.31 Cash Collateral Agreement among DOC and others and Creditanstalt Corporate Finance, Inc. dated January 31, 1996 162 21 Subsidiaries of Registrant 166 23 Consent of Ernst & Young LLP 167 - 41 - EX-10.10 2 TABLE OF CONTENTS ----------------- Rule 1 - Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44 Rule 2 - Seniority. . . . . . . . . . . . . . . . . . . . . . . . . . . .46 Rule 3 - Seniority Classes. . . . . . . . . . . . . . . . . . . . . . . .47 Rule 4 - Seniority Rosters & Working Zones. . . . . . . . . . . . . . . .48 Rule 5 - Guarantee Work Week. . . . . . . . . . . . . . . . . . . . . . .50 Rule 6 - Pay Basis, Shifts, Starting Times and Meal Periods . . . . . . .51 Rule 7 - Rates of Pay . . . . . . . . . . . . . . . . . . . . . . . . . .55 Rule 8 - Compensatory Time. . . . . . . . . . . . . . . . . . . . . . . .56 Rule 9 - Beginning and Ending Day/Hours of Service. . . . . . . . . . . .58 Rule 10 - Qualifications for Positions . . . . . . . . . . . . . . . . . .60 Rule 11 - Filling Vacant Positions . . . . . . . . . . . . . . . . . . . .62 Rule 12 - Cancellations/Abolishments . . . . . . . . . . . . . . . . . . .65 Rule 13 - Return to Service. . . . . . . . . . . . . . . . . . . . . . . .66 Rule 14 - Displacements. . . . . . . . . . . . . . . . . . . . . . . . . .67 Rule 15 - Time Limit on Claims Not Involving Discipline. . . . . . . . . .69 Rule 16 - Examination, Training, Qualifying. . . . . . . . . . . . . . . .71 Rule 17 - System Production Gangs. . . . . . . . . . . . . . . . . . . . .72 Rule 18 - Away From Home Expenses. . . . . . . . . . . . . . . . . . . . .77 Rule 19 - Discipline . . . . . . . . . . . . . . . . . . . . . . . . . . .79 Rule 20 - Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . .82 Rule 21 - Sick Leave Days. . . . . . . . . . . . . . . . . . . . . . . . .84 Rule 22 - Health and Welfare . . . . . . . . . . . . . . . . . . . . . . .85 Rule 23 - Vacation . . . . . . . . . . . . . . . . . . . . . . . . . . . .86 Rule 24 - Retention of Seniority . . . . . . . . . . . . . . . . . . . . .90 Rule 25 - Leaves of Absence. . . . . . . . . . . . . . . . . . . . . . . .92 Rule 26 - Bereavement Days . . . . . . . . . . . . . . . . . . . . . . . .94 Rule 27 - Attending Court, Inquests, Investigations. . . . . . . . . . . .95 Rule 28 - Jury Duty. . . . . . . . . . . . . . . . . . . . . . . . . . . .96 - 42 - Rule 29 - Physical Condition - Board of Doctors. . . . . . . . . . . . . .97 Rule 30 - Use of Personal Auto While on Duty . . . . . . . . . . . . . . .99 Rule 31 - Application for Employment . . . . . . . . . . . . . . . . . . 100 Rule 32 - Duly Accredited Representative . . . . . . . . . . . . . . . . 101 Rule 33 - Union Shop Agreement. . . . . . . . . .. . . . . . . . . . . . 102 Rule 34 - Dues Deduction . . . . . . . . . . . . . . . . . . . . . . . . 109 Rule 35 - BMWE Political League Deductions . . . . . . . . . . . . . . . 115 Rule 36 - Employee Information . . . . . . . . . . . . . . . . . . . . . 119 Rule 37 - Moratorium . . . . . . . . . . . . . . . . . . . . . . . . . . 120 Rule 38 - Printing of Agreement. . . . . . . . . . . . . . . . . . . . . 120 - 43 - RULE 1 SCOPE ------ 1.1 The Rules contained shall govern the hours of service, working conditions and rates of pay of the Engineering Department Employees represented by the Brotherhood of Maintenance of Way Employes (BMWE) who are working on Track, Bridges and Buildings on The New York, Susquehanna and Western Railway Corporation (Carrier). These employees will perform the work generally recognized as Maintenance of Way work, such as inspection, construction, demolition, dismantling of bridges, culverts, buildings and other structures, tracks, fences and roadbed in accordance with the Carrier s rules, procedures and policies. It is also understood that work not covered by this Agreement which was being performed on the NYS&W Railway prior to this Agreement by past practice or agreement will not be removed from the regular work assignments and work that was previously done by others by past practice or agreement, such as Track Inspection and maintenance of insulated joints, may continue to be done by others. 1.2 In the event the Carrier plans to contract out work within the scope of this Agreement, except in emergencies, the Carrier shall notify the General Chairman involved, in writing, as far in advance of the date of the contracting transaction as is practicable and in any event not less than fifteen (15) days prior thereto. Emergencies" apply to fires, floods, earthquakes, derailments and like circumstances resulting in removal of track from service. 1.3 If the General Chairman, or his representative, requests a meeting - 44 - to discuss matters relating to the said contracting transaction, the designated representative of the Carrier shall promptly meet with him for that purpose. Said Carrier and Organization representatives shall make a good faith effort to reach an understanding concerning said contracting but, if no understanding is reached, the Carrier may nevertheless proceed with said contracting and the Organization may file and progress claims in connection therewith. 1.4 No such claims will be filed if the General Chairman or his representative fails to request a meeting as provided in Rule 1.3 or where the contract work is for any of the following: - Emergencies; - Installation, repair or maintenance of fencing; - Installation of continuous welded rail, over half track mile in length; - Construction, repair, maintenance, alteration or demolition of buildings; - Salvage of rail materials not to be reused by the NYS&W; - Operation of equipment that reasonably requires specialized qualifications where no qualified employee is available; - Operation of equipment of a type not owned by the Carrier that is not available to rent without an operator; - Site preparation below the base of the ballast; - Installation, repair, maintenance or removal of non-rail facilities, including but not limited to utilities, pipelines, data transmission facilities, tenants facilities and terminal facilities, but not including any track work. - 45 - RULE 2 SENIORITY --------- 2.1 Seniority Date Seniority begins at the time the employee s pay starts. If two (2) or more employees start to work on the same date, their seniority rank on the roster will be in alphabetical order. An employee assigned to a position of higher class than trackman will begin to earn seniority as a trackman on the same date. - 46 - RULE 3 SENIORITY CLASSES ----------------- The seniority classes and primary duties of each class are as follows: 3.1 Track Department Foreman: Direct and work with employees assigned under his jurisdiction. Trackman: Construct, dismantle, maintain, repair and inspect track and appurtenances thereto. 3.2 Equipment Operators Operate the following: Class One - Mark III Tampers, Crane (20 ton), Grapple Truck, Fuel Truck (HazMat CDL), Stork, Tractor Trailer, Grad-All with Hyrail, Geometry Car, Combination Dump Truck, Trailer and Backhoe, TR-10 Tie Extractor-Inserter. Class Two - Spiker, Loram Tie Inserter, Tie Crane, Scarifier, Mark I Tamper, Front-end Loaders, Dozers, Backhoes, Ballast Regulators, Forklift, Mack Tilt Bed, Boom Truck, 3-way Dump, Jordan Spreader, Snow Plow, Brushcutter. Additional equipment may be added by agreement of the parties. - 47 - RULE 4 SENIORITY ROSTERS & WORKING ZONES --------------------------------- 4.1 Track Rosters Single rosters of employees will be created for each of the following classes within the Track category. For each roster, employees will be listed in order of their seniority in that particular class. A) Foremen, Trackmen B) Equipment Operators 4.2 All employees will designate a home Seniority Zone: either Northern or Southern. Employees may change their zone each year between January 1st and March 1st by notifying the Chief Engineer and General Chairman. In the selection of a work zone, each individual must be prepared to cover assignments outside of normal work hours, which include nights and weekends. 4.3 Rosters of Employees will be issued each year by January 31 and sent to all active employees with their paychecks and to all furloughed employees and the General Chairman by certified mail and will also be posted at all Headquarters. Protests to the Annual Rosters must be addressed to the Chief Engineer and the General Chairman by March 1st of each year. Decisions will be rendered within thirty (30) days of date of such protest. Protests not submitted as specified will not be considered. Typographical errors may be corrected at any time. - 48 - 4.4 No changes shall be made to the roster, other than pursuant to Rule 2, without a conference and agreement between the Chief Engineer and the General Chairman. - 49 - RULE 5 GUARANTEE WORK WEEK ------------------- 5.1 Subject to the provisions of Rules 12.1 and 12.5, the Carrier will make available to all employees holding advertised positions an opportunity to earn a minimum of forty (40) hours pay per work week, including all pay pursuant to Rules 8, 20, 21, 23, 26, 27 and 28. For twenty-three (23) employees (the Basic Force), this provision will apply year round. It is agreed that, in the event the Basic Force needs to be adjusted, the provisions of Rules 5.5 and 5.6 will apply. 5.2 The Carrier will establish a work week of forty (40) hours, consisting of five (5) days of eight (8) hours each with two (2) consecutive days off in each seven (7) or 4 days of 10 hours each with three consecutive days off in each seven (7). 5.3 Except as otherwise provided in this Agreement, all reference to days shall mean calendar days. 5.4 For positions, the duties of which can reasonably be met in five (5) days, the rest days will be Saturday and Sunday. In the event the Carrier is operationally prohibited from assigning Saturday and Sunday rest days, assigned rest days will be Friday and Saturday or Sunday and Monday. 5.5 In the event there is a need to adjust the Basic Force, the Chief - 50 - Engineer will notify, in writing, the General Chairman within thirty (30) days of such change. Such notification will fully describe the reason/s for such change, such as decline in traffic or a sale of portion of Carrier s railroad. The Organization may, within ten (10) days of such notification, request a conference to evaluate and clarify the reason/s for such change. If the parties fail to agree on any modification of the Basic Force, the matter shall be referred to a Special Board of Adjustment in which the burden shall be upon the Carrier to prove it would incur a substantially adverse effect if the proposed modifications were not put into effect. 5.6 In the event a request of the Carrier for modification of the Agreement is progressed to a Special Board of Adjustment, and a final decision has not been reached by the Neutral Arbitrator within thirty (30) days of the date of the initial conference referenced in Rule 5.5, the Carrier may nevertheless put the proposed modification into effect. In the event the Arbitrator decides that the Carrier would not be substantially affected by the change in conditions, any modifications made shall be discontinued within fifteen (15) days of the date of the decision and the Force shall be readjusted. 5.7 Any dispute or controversy with respect to the interpretation, application, or enforcement of the provisions of this Agreement, -51 - which has not been resolved within sixty (60) days other than modification, may be submitted by either party to a Special Board of Adjustment. 5.8 The Parties agree to meet and establish a Special Board of Adjustment within 30 days of notice by either party. - 52 - RULE 6 PAY BASIS, SHIFTS, STARTING TIMES AND MEAL PERIODS -------------------------------------------------- 6.1 Payment for all service performed for the Carrier will be based on the hourly rate of pay as specified in this Agreement. 6.2 Eight (8) hours shall constitute a day's work for all regularly assigned employees, exclusive of lunch period. 6.3 One, two or three shifts may be established where necessary to meet service requirements. The starting time of any shift or position may be changed on thirty-six (36) hours notice to the employees effected and not more often than every seven (7) days. When a single shift is assigned, it will start work between 6:00AM and 8:00AM. The starting time for employees assigned to a second shift will be immediately after the end of the first shift. When three (3) shifts are regularly established no shift will have a starting time between 12:00 o'clock midnight and 6:00AM. These starting and notice times may be adjusted by mutual agreement between the local chairman and the Vice President Engineering. 6.4 Meal period will be between the end of the fourth hour and beginning of the sixth hour after starting time. The meal period shall be thirty (30) minutes. 6.5 Employees shall not be required to work more than six (6) hours after their first meal period without being furnished meals by the - 53 - Carrier. Subsequent meal periods will be allowed at five (5) hour intervals. The second and subsequent meals shall be furnished by the Carrier. If the meal period is not afforded within the allowed or agreed time limit and is worked, it will be paid for at the straight time hourly rate and twenty (20) minutes allowed for lunch at the first opportunity without loss of pay. 6.6 Except as provided in Rule 17 (System Production Gangs), employees' time will begin and end at fixed assembling points such as toolhouses or shops. 6.7 Each of these assembly points will be supplied with lockers, washing and toilet facilities, proper heating, electrical fixtures, table and benches and will be maintained in a clean and sanitary condition. - 54 - RULE 7 RATES OF PAY ------------ Hourly Rates ------------ Operators Operators Foreman Class A Class B Trackman ------------ ------------ ------------ ------------ 1-1-95 15.25 13.75 12.75 11.75 1-1-96 15.70 14.16 13.13 12.10 1-1-97 16.18 14.59 13.53 12.47 1-1-98 16.66 15.02 13.93 12.84 1-1-99 17.16 15.48 14.35 13.22 Trackman Entry Level Rate Schedule -------------------------------------- First Year 90% of hourly rate Second Year 95% of hourly rate Third Year 100% of hourly rate Employees covered by rate progression will be credited with two (2) months of employment for each month he performs compensated service provided: A) Not more than twelve (12) months of service will be credited in any twelve (12) consecutive month period). B) An employee cannot advance into the next rate progression category until at least twelve (12) months after establishing seniority, and on that anniversary date forward. - 55 - RULE 8 COMPENSATORY TIME ----------------- 8.1 Time worked (i) in excess of 40 hours in a work week (ii) or on a holiday shall be paid at the hourly rate of pay as specified in this Agreement. In addition, half hour of compensatory time off with pay ( Compensatory Time ) shall be accrued for each such hour with proportionate accruals for partial hours. 8.2 Compensatory Time will be paid for at the hourly rate of pay in effect at the time it is taken. 8.3 Compensatory Time shall be added to the employee s vacation allowance, and shall be subject to and governed by Rule 23.2, 23.4, 23.5, 23.6, 23.8, 23.9, and 23.10 of the Vacation provisions of this Agreement. Notwithstanding the foregoing, the Carrier, in its sole discretion, may allow an employee to use Compensatory Time without regard to Section 23.4 of the Vacation provisions of this Agreement. 8.4 Employees called to perform work not continuous with the regular work period will be allowed a minimum of three (3) hours work. 8.5 When necessary to work employees under this Rule, the senior available qualified employees will be called according to the following: A) Preference to overtime work on a regular work day which precedes or follows and is continuous with a regular assignment shall be to the senior available -56 - qualified employee of the gang or the employee assigned to that work. B) Preference to overtime work other than in A) above, shall be to the senior available qualified employee at the headquarters who ordinarily and customarily performs such work. In the case of a specific project, the employees assigned to that project will be given preference. 8.6 Notwithstanding other provisions of this Agreement, in the event that an employee working on a four-ten hour day schedule works more that ten hours on any of the first three days of a week, the Carrier may proportionately reduce his fourth day, but not to less than eight hours. 8.7 Employees will be compensated as if on continuous duty in all cases where the release from duty does not exceed one (1) hour. 8.8 This Rule shall not apply prior to October 16, 1995. - 57 - RULE 9 BEGINNING AND ENDING DAY/HOURS OF SERVICE ----------------------------------------- 9.1 Employees' time will commence at the time they report for duty at their headquarters, except System Production Gangs, and shall continue until they are relieved from duty by the Carrier. 9.2 Employees assigned to positions scheduled to work eight (8) hours per day exclusive of meal periods, five (5) days per week will have two consecutive days off. On positions the duties of which can reasonably be met in five (5) days, the rest days will be Saturday and Sunday. 9.3 Employees assigned to positions scheduled to work ten (10) hours per day exclusive of meal periods, four (4) days per week will have three (3) consecutive days off. The rest days will be either Friday, Saturday and Sunday or Saturday, Sunday and Monday, unless operationally prohibited. 9.4 Track Inspection and FRA patrols may be established with rest days being either Friday and Saturday or Sunday and Monday, in the case of five (5) day work weeks and either Thursday, Friday and Saturday or Sunday, Monday and Tuesday in the case of four (4) day work weeks. 9.5 For vacation purposes or any other situation where work days are counted as accumulative days, employees working a four (4) ten (10) hour day work week, will be credited with working five (5) work days in that work week. - 58 - 9.6 Where employees are working a four (4) day, ten (10) hour per day work week and a holiday falls on a work day in that week, they shall be paid ten (10) hours holiday pay for that holiday providing the bridging requirements of the Holiday Rule are met. - 59 - RULE 10 QUALIFICATIONS FOR POSITIONS ---------------------------- 10.1 Effective with this Agreement, employees may utilize their seniority in any direction, subject to their being qualified. 10.2 In making application for an advertised position or vacancy, or in the exercise of seniority, employees may be required to give a reasonable practical demonstration of their qualifications to perform the duties of the position. 10.3 In the event employees are required to give a reasonable practical demonstration of their qualifications for a position, the Carrier must give uniform job related tests based on job related criteria in order to ascertain initial qualifications for positions. 10.4 Disqualification of employees for failure to maintain required licenses, rules qualifications, and/or FRA certifications, or for medical reasons will not be considered discipline. 10.5 When on-the-job training opportunities to operate Maintenance of Way machinery occur in a gang, employees with that gang who request such training in writing to the Foreman or higher level supervisor of that gang shall be given the opportunity in seniority order. Such employees shall first be given the opportunity to qualify on rules, as appropriate, and then, if so qualified, the opportunity to train with a qualified machine operator as requirements of service permit. - 60 - Should an employee so covered fail to make sufficient progress and/or qualify within a thirty (30) day period, he will be removed from such training and will be ineligible for consideration for future on-the-job training on the involved and similar machinery for a period of one (1) year unless otherwise agreed to by the General Chairman and Chief Engineer. If the employee so removed disputes his removal, the employee, or his representative may file a claim. After removal, the employee must return to his former position unless it has been abolished or filled by a senior employee, in which case he may exercise seniority. - 61 - RULE 11 FILLING VACANT POSITIONS ------------------------ 11.1 In the assignment of employees to positions under this Agreement, qualification being sufficient seniority shall govern. 11.2 Positions subject to advertisement will be newly created permanent positions and temporary positions expected to be available for more than thirty (30) work days and will be advertised for at least seven (7) calendar days. Advertisements shall be posted on Monday and shall close at 5:00PM on the following Monday. Bids which are postmarked or received anytime during the application period shall be accepted. 11.3 Advertisements of positions will be distributed to all locations. Employees will submit bids for positions to the Chief Engineer on a form provided by the Carrier and must assure that such bids are postmarked by the closing date specified on the job advertisement. Bid for a position advertised under this Rule must be filed with the official whose name appears on the advertisement. Each furloughed employee shall be an automatic bidder for advertised positions for which he has seniority and is qualified, in his seniority territory within fifty (50) miles from home. 11.4 Advertisements will specify location of position, hours of service, rest days, type of machine, closing date of bid, general description of the work and headquarters. - 62 - 11.5 Positions will be awarded to the senior qualified employee bidding for same. Notices of positions awarded will be posted within seven (7) calendar days of the closing date specified on the advertisement. Employees awarded positions will occupy those positions the first Monday following such award. All awards will be made on the same day after the closing day specified. This Rule shall not be construed so as to require the placing of employees on their awarded positions when properly qualified employees are not available at the time to fill their places, but physical transfers must be made within ten (10) days, or such longer periods as may be mutually agreed upon by the Chief Engineer and the General Chairman or his authorized representative. 11.6 A position or vacancy may be filled temporarily pending assignment. When vacancies occur, the senior qualified available employee will be given preference. In the event no requests are received, the Carrier may assign the junior employee who must accept the assignment. 11.7 An advertisement may be canceled within seven (7) days from the date advertisement is posted. 11.8 An employee who desires to withdraw his bid or application for an advertised position must file his request, in writing, with the official whose name appears on the advertisement within seven (7) days from the date the advertisement is posted. - 63 - 11.9 Copy of advertisements, awards, and abolishments will be furnished to the General Chairman or his designated representative. - 64 - RULE 12 CANCELLATIONS/ ABOLISHMENTS --------------------------- 12.1 Notice of force reduction or abolishment of positions shall be given not less than five (5) working days (four (4) working days for four (4) day gangs) in advance and such notice shall be promptly posted identifying the positions to be abolished. Employees whose positions are abolished must fulfill the requirements of Rule 14 (Displacements) of this Agreement. 12.2 The Carrier has the right to cancel any assignment provided the employee(s) affected are notified at least twelve (12) hours prior to scheduled starting time. 12.3 A copy of the notice shall be furnished to the designated union representative. 12.4 Employees affected by cancellation of their assignments will be paid for the number of hours necessary to meet the forty (40) hour guarantee of Rule 5 (Guarantee Work Week) of this Agreement. 12.5 The Carrier has the right at any time to abolish or cancel any assignment due to emergencies such as flood, snow storm, hurricane, tornado, earthquake, fire, or labor dispute, provided the Carrier's operations are suspended in whole or in part. Such assignments will be restored as soon as possible once the emergency has ended. The provisions of Rule 5 (Guarantee Work Week) of this Agreement will not apply to employees whose assignments are canceled under this paragraph. - 65 - RULE 13 RETURN TO SERVICE ----------------- 13.1 An employee not in service will be subject to return to work from furlough in seniority order in any class in which he holds seniority in his working zone. If he fails to return within ten (10) days from the date notified by certified mail to his last recorded address for a position or vacancy of thirty (30) days or more duration, he will forfeit all seniority under this Agreement. Forfeiture of seniority under this paragraph will not apply when an employee has furnished satisfactory evidence to the officer signatory to the notification that failure to respond within ten (10) days was due to conditions beyond his control. Copy of recall letter shall be furnished the designated union representative. All employees will be required to designate a home Seniority Zone which will be used for recall purposes. - 66 - RULE 14 DISPLACEMENTS ------------- 14.1 An employee whose position is abolished may exercise his seniority to any position for which he is qualified held by a junior employee within seven (7) calendar days after the effective time and date of abolishment. An employee who is displaced may exercise his seniority to any position for which he is qualified held by a junior employee within seven (7) calendar days after the time and date of displacement. Displacements must occur prior to the start of the shift and an employee reporting to the supervisor in charge of the gang in which the displacement is to be made prior to shift start will be allowed a displacement on that date. 14.2 An employee who elects to exercise seniority may exercise seniority to any position for which he is qualified by bid or displacement without loss of seniority. 14.3 An employee whose regular position is abolished or who is displaced from his regular position while on leave of absence, sick leave, vacation or suspension may, within seven (7) calendar days after his return, exercise his seniority to any position for which he is qualified held by a junior employee. 14.4 An employee returning from a leave of absence, sick leave, vacation or suspension may return to his former position or, within seven (7) calendar days after his return, may exercise his seniority to any position for which he is qualified and holds seniority which was bulletined and assigned in his absence to a junior employee. - 67 - 14.5 Employees who fail or are unable to exercise their seniority will be considered furloughed. - 68 - RULE 15 TIME LIMIT ON CLAIMS NOT INVOLVING DISCIPLINE --------------------------------------------- 15.1 All claims for compensation alleged to be due must be made in writing no later than fourteen (14) days from the date of the occurrence on which the claim is based. The claimant, or his duly accredited representative, must submit two (2) copies of the claim containing the information specified below to a representative of the Carrier. The representative of the Carrier who receives the copies must acknowledge receipt by signing and dating them and returning the duplicate copy to the claimant or his duly accredited representative. If not presented in the manner outlined in this paragraph, a claim will not be subject to payment or denial. 15.2 To file a claim, a claimant or his duly accredited representative will be required to furnish sufficient information to identify the basis of claim, such as: 1) Name, Occupation 2) On and off duty times. 3) Date and time that work was performed. 4) Location and details of work performed on which claim is based. 5) Claim being made, rule, if known, and reason supporting claim. 15.3 When a claim for compensation alleged to be due is not allowed, or should payment be made for less than the full amount claimed, the claimant will be so informed in writing within fourteen (14) days from the date the claim is received. If claimant is not so notified, the claim will be allowed, but such payment will not validate any other such claim nor will such payment establish any precedent. - 69 - 15.4 All time claims which are denied in whole or in part within the proper time limit may be appealed by the BMWE General Chairman to the Carrier's highest designated appeals officer within sixty (60) days from the date of denial. Within sixty (60) days from receipt of such appeal, a date, time and place for conference will be set. Decision on appeal will be made at conference or no later than thirty (30) days thereafter. 15.5 The decision of the Carrier's highest designated appeals officer will be final and binding unless within six (6) months of such final denial the claim is disposed of on the property or proceedings for disposition of the claim are instituted by the BMWE to a tribunal having jurisdiction by law or agreement. 15.6 Carrier officers designated to receive claims and appeals will be specified by the Chief Engineer. BMWE General Chairman will be given a list of the officers so designated. - 70 - RULE 16 EXAMINATION, TRAINING, QUALIFYING --------------------------------- 16.1 All employees who are required by law or the Carrier to attend classes for operating rules, safety rules, medication and/or eye tests (including drug and/or alcohol tests), including time spent qualifying on physical characteristics or other specific training shall be paid for as time worked for the actual time involved at the training rate. Employees will be paid the mileage rate if required to travel more than thirty (30) miles for such examinations, training, or qualifying. When required to remain overnight, actual expenses will be paid. 16.2 An employee who is required to travel outside of regular hours of work to school will be paid four (4) hours at the straight time rate for each day of travel. 16.3 The Carrier will pay up to twenty-five dollars ($25.00) twice per year, or fifty dollars ($50.00) once per year per employee for safety shoes, will provide one (1) pair of safety glasses per employee, and will provide hardhats at no charge to the employee. - 71 - RULE 17 SYSTEM PRODUCTION GANGS ----------------------- 17.1 A) The Carrier may establish System Production Gangs with no assigned basic headquarters to work throughout the System, wherever their use may be required. Tie Gangs, Surface Gangs, Rail Gangs, Bridge Gangs and other gangs agreed upon by the parties will be considered as Production Gangs. B) Such System Production Gangs shall be assigned to start their assignment at a safe, accessible reporting point. If said point creates a major problem, the General Chairman may handle such matter immediately with the Chief Engineer, who will respond thereon in writing within ten (10) days providing the basis for final resolution. 17.2 When such System Production Gangs are to be established, the Carrier will give written notice thereof to the General Chairman indicating at least the following: A) Type of productional unit. B) Estimated territory over which programmed to work. C) Estimated length of time Production Gang will operate. D) Number of positions by class to be assigned. E) Number of days per week unit will work. 17.3 A) Positions to be established will include the information set forth in Section 17.2 above and will be bulletined in accordance with Rule 11. - 72 - B) Assignments to these System Production Gang positions will be made on the basis of the earliest seniority date of an employee in the class required. C) Employees assigned to these System Production Gangs may perform the duties of their positions recognized as work of their particular classification through the System without regard to seniority districts. However, in performing such duties, they will be restricted from performing normal, day to day maintenance work if such work could be performed more efficiently by employees on the separate seniority district or section gangs. 17.4 Four (4) Day/Ten (10) Hour Day Assignments A) The Carrier may establish System Production Gangs with assignments of four (4) days/ten (10) hour days or five (5) days/eight (8) hour days. In the event the work week is changed to a five (5) day basis or vice versa for any gang the General Chairman shall be given at least five (5) days written notice thereof by the Chief Engineer Maintenance of Way except that such changes may be made in less than five (5) days upon concurrence of the General Chairman. B) Employees working in System Production Gangs having a four (4) day work week will have the actual time worked for each of the four (4) work days posted on the time cards. Employees assigned to a four (4) day work week will receive a credit of 1.25 days for each day of compensated service towards vacation accrual. - 73 - C) On agreed upon holidays System Production Gangs shall receive one (1) day's pay at the appropriate rate of the assignment for the holiday. By agreement between the General Chairman and the Chief Engineer the day designated as the holiday may be changed from the assigned agreed upon day to the last day or the first day of the work week. D) The days designated as relief days may be Friday, Saturday and Sunday or Saturday, Sunday and Monday, or, if service dictates, there will be two (2) consecutive rest days given within a seven (7) day period from the initial assignment, and may not be changed without an agreement once the entered assignment is advertised on a specific Production Gang. However, such agreement will not be unreasonably withheld. 17.5 Changes made in accordance with Rule 17.4 (D), hereof will not require rebulletining of the positions. Neither will they be the basis to permit employees assigned to positions in these System Gangs to exercise displacement rights. They may, however, bid off the assignment or gang in accordance with the provisions of Rules 11 and 14. Also, when a position is abolished or they are displaced by a senior employee, they may then exercise seniority in accordance with the provisions of Rules 11 and 14. 17.6 A) The Carrier will furnish camp cars or other lodging for each System unit. Such lodging shall be facilities maintained in a clean, healthful, and sanitary condition and will be furnished with individual lockers, washing, shower and toilet facilities located within the place of - 74 - lodging, and shall have sufficient ventilation and air space (which will include adequate fans or air conditioners). Dining and sleeping cars will be screened at the beginning of each season or as necessary. Kitchen and dining cars will be equipped with the necessary cooking facilities, dishes, tableware, and utensils. Sleeping quarters shall be equipped with a sufficient number of bunks to accommodate all those in the cars. Bunks shall be equipped with adequate mattresses, blankets, clean sheets, pillows, and pillow slips, and an adequate supply of water and fuel for domestic purposes shall be furnished. Safeguards will be established for the safety and health of the employees. The above-listed facilities and camp cars will be inspected every year by the proper Carrier officer and a union representative and a joint report will be made to the Chief Engineer, Maintenance of Way, as to their findings, and any improper conditions will be corrected. However, should a complaint be filed in the interim of the one (1) year period, a joint inspection will be made immediately or as soon as is possible, and any improper conditions will be corrected immediately. B) The Carrier and the General Chairman may enter into a per diem agreement in lieu of meals and/or lodging allowances as provided in this Agreement. 17.7 The estimated length of time for a System Production Gang as referred to in Rule 17.2 C hereof is not a guarantee. These gangs may be terminated earlier than the estimated length of - 75 - time by abolishment of all positions therein by proper notice to the individual employee, or in an emergency. If it is intended to continue the gang in operation beyond the estimated length of time as specified in Rule 17.2 C, written notice shall be given to the General Chairman as promptly as possible setting forth an estimate of the additional length of time the gang will operate. 17.8 The estimated territory over which a System Production Gang is programmed to work as referred to in Rule 17.2 (B), hereof does not limit the operation of such production gang to that territory exclusively. They may be used to perform service throughout the entire System. 17.9 It is agreed that the provisions of Rule 13, which requires an employee to protect his seniority rights in his home seniority district will not apply to any employee while he is working is a System Production Gang. - 76 - RULE 18 AWAY FROM HOME EXPENSES ----------------------- 18.1 An employee taken off his assigned territory to work elsewhere will be furnished lodging and per diem, or meals at the Carrier s option, by the Carrier. If lodging is not furnished by the Carrier, the employee will be compensated for actual lodging expenses he may incur. This Section applies only to employees held away from assigned territory an unreasonable time beyond the evening meal hour. 18.2 Employees assigned to positions on System Production Gangs will be allowed expenses as follows: A) If the assembly point is more than 50 miles from the employee s home, then the Carrier will provide lodging and per diem and actual mileage for travel to the assembly point on the first day and from the assembly point on the last day unless the Carrier provides such transportation. B) If the assembly point is 50 miles or less from the employee s home, then a reporting payment of $10 per day through 12/31/96, $11.50 as of 1/1/97 and $13.00 as of 1/1/99. 18.3 When lodging is provided, other than at the Butler facility or in camp cars, it shall mean not more than two (2) employees per room. 18.4 Personal expenses will be paid within fifteen (15) days of the date submitted. - 77 - 18.5 Per Diem shall be paid at the following rates: $14.50 starting 10-16-95 through 12-31-95; $15.00 as of 1-1-96; $15.75 as of 1-1-97; $16.50 as of 1-1-98; $17.50 as of 1-1-99. 18.6 Carrier shall only until such time as the terms of this Agreement are modified pursuant to Rules 37.1 and 37.2, continue to provide those employees now receiving it, lodging at the Butler facility, per diem and mileage as has been past practice. Such employees are indicated by an asterisk on the roster. - 78 - RULE 19 DISCIPLINE ---------- 19.1 No employee will be disciplined without a fair hearing. The notice of hearing will be mailed to the employee within ten (10) days if held out of service or within twenty (20) days of the Carrier's first knowledge of the act or occurrence. The notice of hearing will contain information sufficient to apprise the employee of the act or occurrence to be investigated, including the rule(s) alleged to have been violated. Such information will include date, time, location, assignment, and occupation of employee at the time of the incident. The notice of hearing will also include a list of witnesses to be called. The hearing will be scheduled to take place within twenty (20) days if held out of service or within thirty (30) days of the Carrier's first knowledge of the act or occurrence. The hearing may be postponed by either party due to sickness, injury, or vacation of principals or witnesses. The hearing may be postponed for other reasons by mutual agreement of the parties. The hearing may be adjourned to secure necessary witnesses or if it cannot be completed in a day. 19.2 An employee may not be suspended pending a hearing except when the act or occurrence to be investigated is of a serious nature such as Rule G, Insubordination, Gross Negligence, Dishonesty, or when continuing an employee in service may constitute a threat to Carrier personnel, carrier property, or property entrusted to the custody of the Carrier. Suspension pending a hearing will not be considered as prejudicial to the employee. 19.3 The employee will have the opportunity to request that the Carrier provide necessary witnesses not listed on the notice of hearing and will have the opportunity to secure the - 79 - presence of witnesses in his own behalf. The employee will have the right to representation and he and his representative will have the right to question all witnesses. The employee and his representative will be provided with a copy of the hearing transcript. 19.4 The employee must be notified within fifteen (15) days of the completion of the hearing if discipline will be assessed. The types of discipline which may be assessed are reprimand, disqualification, deferred suspension, relevant training, actual suspension, and dismissal. The types of discipline may be assessed individually or in combination. 19.5 If the finding of the hearing is that the employee is not at fault, he will be compensated for the actual wages lost, if any. If no wages are lost, employee will be paid in accordance with the Agreement. 19.6 If the finding of the hearing is that the employee is at fault, appeal of discipline assessed must be made within thirty (30) days of the date of the discipline notice. Such appeal must be made in writing by the BMWE General Chairman to the Carrier's highest designated appeals officer. Conference must be scheduled within ten (10) days of receipt of appeal. Written response to the appeal will be issued within fifteen (15) days from the date of the conference. If the decision of the Carrier on appeal is in favor of the employee, he will be paid in accordance with Rule 19.5. If the appeal is denied, that decision will be final and binding unless within six (6) months of such denial the case is disposed of on the property or proceedings for disposition of - 80 - the case are instituted by the BMWE to a tribunal having jurisdiction by law or agreement. 19.7 If the Carrier's discipline decision is modified or overturned at any stage of handling resulting in a payment to the employee, such payment may be offset by any compensation received by the employee during the relevant time period. 19.8 A hearing can be disposed of informally by agreement between the parties. - 81 - RULE 20 HOLIDAYS -------- 20.1 Subject to the qualifying requirements specified below, eligible employees will receive eight (8) hours pay at the straight time hourly rate for each of the following holidays: New Year's Day Good Friday Memorial Day Fourth of July Labor Day Thanksgiving Day Day after Thanksgiving Christmas Eve (the day before Christmas is observed) Christmas Day New Year's Eve (the day before New Year's is observed) Such other days as may be allowed to other Carrier employees. 20.2 To be eligible for holiday pay provided in Rule 20.1, regularly assigned employees must either work or be available for work on the last work day before and the first work day after the holiday. If required to work the holiday, employees must protect their assignment in order to be eligible for holiday pay. 20.3 Subject to the applicable qualifying requirements above, other than regularly assigned employees will be eligible for the paid holidays or pay in lieu thereof, provided (1) compensation for service paid them by the Company is credited to eleven (11) or more of the thirty (30) days immediately preceding the holiday and (2) they have had a seniority date for at least sixty (60) days or have sixty (60) days of continuous active service preceding the holiday beginning with - 82 - the first day of compensated service, provided employment was not terminated prior to the holiday by resignation, for cause, retirement, death, non-compliance with the union shop agreement, or disapproval of application for employment. 20.4 A holiday which falls during an employee's vacation period will be allowed to be used to extend that vacation period, or to be used at a later date. Subject to the eligibility requirements of this Rule, the holiday pay specified in Rule 20.1 will be paid in addition to the vacation allowance. 20.5 When employees are working a four (4) day, ten (10) hours per day work week and a holiday falls on a work day in that work week, the holiday pay provided in Rule 20.1 will be modified to ten (10) hours at the straight time hourly rate and be paid to all eligible employees. - 83 - RULE 21 SICK LEAVE DAYS --------------- 21.1 Employees off sick will be granted sick leave each calendar year as follows: Length of Service as of January 1 Sick leave Days Five (5) Years. . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Ten (10) Years. . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Fifteen (15) Years. . . . . . . . . . . . . . . . . . . . . . . . . .3 21.2 Sick leave days provided above which remain unused at the end of each calendar year will not be accumulated. 21.3 Payment for sick leave days will be eight (8) hours (ten (10) hours if the employee is assigned to a position working four (4) ten (10) hour days) at seventy-five percent (75%) of the straight time hourly rate. Sick leave payments will not be offset by any RRUI sickness benefits the employee may receive. No sick leave benefits will be paid on any day the employee qualifies for compensation under any other Rule of this Agreement or the Supplemental Sickness Benefit Plan. 21.4 The Carrier may require satisfactory evidence in the form of a letter or certificate from a physician confirming the employee's sickness. - 84 - RULE 22 HEALTH AND WELFARE ------------------ 22.1 The Carrier and the BMWE have agreed that the employees will be provided the same Group Insurance Plan, including dental coverage, provided by the Delaware Otsego Corporation for its employees and extended to the employees of The New York, Susquehanna and Western Railway Corporation, and will be covered by any changes to such plan. 22.2 Notwithstanding the above, it is agreed that employees will not request, or be provided, dependent coverage if that employee has coverage for his dependents available elsewhere at no charge. 22.3 Carrier shall provide, at its expense, the Supplemental Sickness Benefits Agreement currently available from Trustmark Insurance Company. 22.4 Subrogation: The Carrier shall be subrogated to any right of recovery an employee may have against any party for loss to the extent that the Carrier or its group health insurance has made payments pursuant to this Rule, and all such payments shall operate as an offset against any right of recovery the employee may have against the Carrier for hospital, surgical, medical, related expenses or damages of any kind. - 85 - RULE 23 VACATION -------- 23.1 Each employee who has been employed by the Carrier for one (1) year or more and who worked for a minimum of 100 working days during the previous calendar year, shall be entitled to one (1) week's vacation allowance; each employee who has been so employed for two (2) years shall be entitled to two (2) weeks vacation allowance; each employee who has been so employed for nine (9) years shall receive three (3) weeks vacation allowance; each employee who has been so employed for fifteen (15) years shall receive four (4) weeks vacation allowance; each employee who has been so employed for twenty (20) years or more shall receive five (5) weeks vacation allowance. All such vacations shall be taken as hereinafter provided. It is understood and agreed that employees will establish vacation qualifications based on the date of hire on the seniority roster or date of hire by the Carrier, whichever is earlier. 23.2 Vacations should normally be taken in units of one (1) or more weeks but where service requirements permit, an individual employee may be permitted by the supervising officer to take a vacation period of less than one (1) week. A full work day is the minimum vacation period to be taken. 23.3 Employee's weekly vacation allowance will be forty (40) times the straight time hourly rate of pay of the last service performed prior to taking vacation. - 86 - 23.4 Seniority in employee selection will be the basis for the establishment of vacation schedules. Vacation schedules will be established each year as follows: A) On or before February 1, the Northern Division and Southern Division written blank vacation schedules will be provided by the Carrier to the employees. B) On or before February 7, the three (3) most senior MOW employees on each roster will chose their vacation time for the ensuing year. C) On or before February 14, the next three (3) most senior MOW employees on each roster will chose their vacation time for the ensuing year. D) The procedure described in subsections (B) and (C) shall continue in periods of seven (7) days and three (3) MOW employees until the bottom of the roster is reached. E) Any MOW employee who fails to designate his vacation during the seven (7) days provided in the procedure described above will be allowed to designate his vacation after the bottom of the roster is reached, in seniority order with any other MOW employee who failed to designate his vacation in the procedure described above. 23.5 Vacations will be taken between January 1st and December 31st. However, it is recognized that the requirements of the service may create practical difficulties in providing vacations in all instances. Due regard, consistent with requirements of the service, shall be given to the preference of the employee in his seniority order when granting vacations. - 87 - Representatives of the Carrier and of the employees will cooperate in arranging vacation periods, administering vacations and releasing employees when requirements of the service will permit. 23.6 Vacations shall not be accumulated or carried over from one year to another. In cases where vacations have not been taken due to sickness, suspension or carrier request, vacation time will be rescheduled or paid for within that calendar year. 23.7 In the event that an employee takes all or part of the earned vacation, prior to reaching the anniversary date in the anniversary year, the amount of vacation allowance will be the same as if the anniversary date has been reached. 23.8 The vacation provided for in this Rule shall be considered to have been earned when the employee has qualified under Section 23.1 hereof. If an employee's employment status is terminated for any reason except voluntary resignation without two (2) weeks notice, the full vacation pay earned, up to the time of leaving the service, shall be granted upon request. If an employee entitled to vacation or vacation pay shall die, the vacation pay earned and not received shall be paid according to law. 23.9 Employees who take vacation in a weekly block shall be considered to be on vacation (Monday-Friday) but will be permitted to mark up for work on Saturday and Sunday if they so desire by giving their supervisor at least seven (7) days advance notice. - 88 - 23.10 The parties hereto having in mind conditions which may exist or may arise in making provisions for vacation with pay, agree that additional understandings may be entered into to implement the purpose of this Agreement, provided that such understandings shall not be inconsistent with this Rule. - 89 - RULE 24 RETENTION OF SENIORITY ---------------------- 24.1 Employees who are presently or subsequently appointed to positions not subject to the application or exercise of seniority under this Agreement shall retain all their seniority rights and shall continue to accumulate seniority provided they pay a fee no greater than the current dues and assessments being paid by the Carrier's employees covered by this Agreement from the effective date of this Agreement and shall have all rights and privileges granted by the Constitution and By-Laws of the BMWE. 24.2 In the event an employee fails to comply with Rule 24.1 above, the duly accredited representative shall so notify the Chief Engineer and the employee. Within thirty (30) days after receipt of a subsequent notification from the Chief Engineer the employee will forfeit his seniority unless the employee involved remits all monies due the union. 24.3 Employees appointed to positions covered by Rule 24.1 who are subsequently removed from such positions by the Carrier (other than through dismissal for cause) may displace any employee with less seniority or may bid on a bulletined vacancy. However, employees suspended from service for sixty (60) days or less while in their appointed positions may not displace any employee under this Agreement nor bid a bulletined vacancy. Employees suspended for more than sixty (60) days (other than dismissal for cause) may bid on any bulletined vacancy to be effective after sixty (60) days but may not displace any regular assigned employee. - 90 - 24.4 Employees appointed to positions covered by Rule 24.1 who voluntarily demote themselves may bid on any advertised position thereafter, but may not displace any regular assigned employee. 24.5 The Carrier shall provide the Organization with the names and addresses of all employees who appear on any roster covered by the scope of this Agreement and who are covered by Rule 24.1 within thirty (30) days of the execution of this Agreement or, in the case of employees not presently holding such positions with the Carrier, within thirty (30) days of appointment to such a position. - 91 - RULE 25 LEAVES OF ABSENCE ----------------- 25.1 Employees with one (1) year or more of continuous service may request leaves of absence. Requests for leaves of absence must contain specific reasons for the request including need for leave and length of time required, subject to the limitations of Rule 25.3 below. 25.2 Requests for leaves of absence or extensions thereof must be in writing to the Chief Engineer with a copy to the General Chairman. 25.3 Except as specified below, leaves of absence or extensions thereof will be limited to a minimum of fourteen (14) days and a maximum of six (6) months. Employees who engage in other work while on leaves of absence will forfeit seniority, unless specials arrangements have been made therefor with the Chief Engineer and the General Chairman. 25.4 Requests for leaves of absence or extensions thereof will only be considered when the needs of the service allow. If a request for a leave of absence or extension thereof is denied, such denial will be in writing with a copy to the General Chairman. 25.5 Employees appointed to official positions with the Carrier or who accept a full-time Union position will be granted leaves of absence for the duration of the assignment. This individual will be credited for time on leave of absence as continuous service for the length of his vacation entitlement. - 92 - 25.6 Employees returning from leaves of absence as specified in Rule 25.3 must report for duty upon the expiration of leave or extension thereof. Failure to return to duty or to provide satisfactory reasons for not doing so will result in forfeiture of seniority. Employees may return to service prior to the expiration of leave or extension thereof provided they furnish seven (7) calendar days advance notice. 25.7 Employees returning from leaves of absence as specified in Rule 25.5 must report for duty within thirty (30) days from the conclusion of their assignments and the expiration of leave or be subject to the provisions of Rule 25.6. 25.8 Employees returning to service under Rules 25.6 and 25.7 above will do so pursuant to the provisions of Rule 14 (Displacements) of this Agreement. 25.9 Employees who absent themselves for more than fourteen (14) days without written authorized leaves of absence as provided in this Rule will forfeit their seniority. 25.10 Leaves of Absence are not required when employees are unable to perform service due to a bona fide sickness or injury. - 93 - RULE 26 BEREAVEMENT DAYS ---------------- 26.1 Employees will be allowed bereavement leave not to exceed three (3) working days in relation to the death of a spouse, child, stepchild, parent, stepparent, parent-in-law, stepparent-in-law, sibling, grandparent or grandchild. 26.2 Employees will be paid eight (8) hours (ten (10) hours in the case of employees assigned to work four (4) ten (10) hour days) at the straight time rate for each working day lost during bereavement leave with a maximum of three (3) days. 26.3 Bereavement pay will not be allowed to employees who are otherwise absent from work and will not duplicate payments made for holidays or vacation. - 94 - RULE 27 ATTENDING COURT, INQUESTS, INVESTIGATIONS ----------------------------------------- 27.1 Employees required to attend court, inquests, investigations, etc., by or on behalf of the Carrier will be paid for actual time consumed at the straight time hourly rate and shall be allowed actual expenses incurred, with the understanding that employees will furnish written receipt for such expenses before being reimbursed. If prevented from working their assignments, employees will be paid for time lost. It is understood that the provisions of this Rule do not apply in the case of employees attending hearings where they are subject to discipline. - 95 - RULE 28 JURY DUTY --------- 28.1 When employees are summoned for jury duty and are required to lose time from their assignments as a result thereof, they shall be paid for actual time lost with a maximum of eight (8) hours at the straight time hourly rate for each calendar day lost (or ten (10) hours in the case of employees assigned to work four (4) ten (10) hour days, but not to exceed forty (40) hours in any work week) less the amount allowed by the Court (not to include allowances paid for meals, lodging, or transportation). No jury duty pay will be allowed for any day on which employees are otherwise entitled to vacation or holiday pay. - 96 - RULE 29 PHYSICAL CONDITION - BOARD OF DOCTORS ------------------------------------- When an employee covered by this Agreement has been removed from or is withheld from service on account of his physical condition and the Organization desires the question of his physical fitness to be finally decided before he is permanently removed from his position or restricted from resuming service, the case shall be handled in the following manner: A) The General Chairman will bring the matter to the attention of the Chief Engineer. He and the General Chairman shall then each select a doctor to represent them, each notifying the other of the name and address of the doctors selected. The two (2) doctors thus selected shall confer and if they disagree on the nature of illness, they shall appoint a third doctor. B) Such board of doctors shall then fix a time and place for the employee to meet them. After completion of the examination they shall make a report in triplicate: one (1) copy to be sent to the Medical Director, one (1) copy to the Chief Engineer of the New York, Susquehanna and Western Railway, and one (1) copy to the General Chairman. C) The decision of the board of doctors on the physical fitness of the employee to continue in his regular occupation or to resume service shall be final, but this does not mean that a change in physical condition shall preclude a re-examination at a later time. - 97 - D) The doctors selected for such board shall be qualified in the disease from which the employee is alleged to be suffering, and they shall be located at a convenient point so that it will be only necessary for the employee to travel a minimum distance, and if possible, not be away from home for a longer period than one (1) day. E) The Carrier and the Organization shall each defray the expenses of its respective appointee. At the time their report is made, a bill for the fee, and traveling expenses if there are any, of the third appointee should be made in duplicate and one (1) copy sent to the Medical Director and one (1) copy sent to the General Chairman. The Carrier and the Organization shall each pay one-half of the fee and traveling expenses of the third appointee. - 98 - RULE 30 USE OF PERSONAL AUTO WHILE ON DUTY ---------------------------------- 30.1 Employees who use their personal autos while on duty and under pay will be allowed twenty-two cents ($.22) per mile for such use or such higher rate as may be paid to other carrier employees. - 99 - RULE 31 APPLICATION FOR EMPLOYMENT -------------------------- 31.1 Applications for employment will be rejected within sixty (60) calendar days after seniority date is established, or applicant shall be considered accepted. Applications rejected by the Carrier must be declined in writing to the applicant. - 100 - RULE 32 DULY ACCREDITED REPRESENTATIVE ------------------------------ 32.1 The term "duly accredited representative", as used in this Agreement, shall be understood to mean the representative or System Officer of the Organization signatory hereto. 32.2 The Organization will notify the Chief Engineer in January of each year of who the duly accredited representatives are. - 101 - RULE 33 UNION SHOP AGREEMENT -------------------- Union Shop 33.1 In accordance with and subject to the terms and conditions hereinafter set forth, all employees of the Carrier now or hereafter subject to the Rules and Working Conditions Agreement between the parties hereto shall, as a condition of their continued employment subject to such Agreement, become members of the union party to this Agreement representing their crafts or classes within sixty (60) calendar days of the date they first perform compensated service as such employees after the effective date of this Agreement, and thereafter shall maintain membership in good standing in such union; except that such membership shall not be required of any individual until he has performed thirty (30) days of such compensated service within a period of twelve (12) consecutive calendar months. Nothing in this agreement shall alter, enlarge or otherwise change the coverage of the present or future Rules and Working Conditions Agreement. Any employee whose employment is terminated prior to the time such employee is required to become a member of BMWE shall have no time or money claim by reason thereof. 33.2 A) Employees who have secured seniority under the Rules and Working Conditions Agreement and who are subsequently regularly assigned or transferred to full-time employment not covered by such Agreement or are furloughed on account of force reduction will not be required to maintain membership as provided in Rule 33.1 of this agreement so long as they remain in such other employment or furloughed as herein provided, but - 102 - they may do so at their option. Should such employees return to any service covered by the said Rules and Working Conditions Agreement they shall, as a condition of their continued employment subject to such Agreement, be required to become and remain members in good standing in the union within thirty (30) days from date of their return to such service. B) The seniority status and rights of employees granted leave of absence to serve in the Armed Forces shall not be terminated by reason of any of the provisions of this agreement but such employees shall, upon resumption of employment, be governed by Rule 33.1 of this Agreement. 33.3 Nothing is this agreement shall require an employee to become or to remain a member of the union if such membership is not available to such employee upon the same terms and conditions as are generally applicable to any other members, or if the membership of such employee is denied or terminated for any reason other than the failure of the employee to tender the periodic dues, initiation fees, and assessments (not including fines and penalties) uniformly required as a condition of acquiring or retaining membership. For purposes of this Rule, dues, fees, and assessments shall be deemed to be "uniformly required" if they are required of all employees in the same status at the same time in the union. 33.4 A) The Carrier will furnish to the union information with respect to the employment status of employees represented by it, and which information is pertinent - 103 - to the administration of this agreement. The union will notify the Carrier in writing of any employee who by reason of failure to comply with the terms of this agreement is not entitled to continue in employment. Upon receipt of such notice, the Carrier will, as promptly as possible but within ten (10) calendar days of such receipt, so notify the employee concerned in writing by certified mail, return receipt requested, or by personal delivery evidenced by receipt. Copy of such notice shall be given the union. Any employee so notified who disputes the fact that he has failed to comply with the terms of this agreement, shall, within a period of ten (10) calendar days from the date of such notice, request the Carrier in writing to accord him a hearing which shall be held as soon as possible and within ten (10) calendar days of receipt of request therefor. Notice of the date set for hearing shall be promptly given the employee in writing by certified mail, return receipt requested, or by personal delivery evidenced by receipt. Copy of notice of such hearing shall be given to the union and the union shall attend and participate in the hearing. The receipt by the Carrier of a request for a hearing shall operate to stay action on the termination of employment until the hearing is held and the decision of the Carrier is rendered. In the event the employee concerned fails to request a hearing as provided herein, the Carrier shall proceed to terminate his employment and seniority not later than thirty (30) calendar days from receipt of the above described notice from the union, unless the Carrier and the union agree otherwise in writing. B) The Carrier shall determine on the basis of the - 104 - evidence produced at the hearing whether or not the employee has complied with the terms of this agreement, and shall render a decision accordingly. Such decision shall be rendered within ten (10) calendar days of the hearing date and the employee and the union shall be promptly advised thereof. If the decision is that the employee has not complied with the terms of this agreement, his employment and seniority shall be terminated within ten (10) calendar days of the date of said decision, unless the Carrier and the union agree otherwise in writing. If the decision of the Carrier is not satisfactory to the employee or to the union, it may be appealed directly to the highest officer of the Carrier designated to handle such appeals. Such appeals shall be taken within ten (10) calendar days of the date of the decision appealed from, and if taken, shall operate to stay action on the termination of employment, until the decision on appeal is rendered. The Carrier shall promptly notify the other party in writing of any such appeal. The decision on such appeal shall be rendered within ten (10) calendar days of the date the appeal is taken, and the employee and the union shall be promptly advised thereof. If the decision on such appeal is that the employee has not complied with the terms of this agreement, his employment and seniority shall be terminated within ten (10) calendar days of the date of said decision unless the Carrier and the union otherwise agree in writing. Such decision on appeal shall be final and binding unless within ten (10) calendar days thereof the union or the employee involved requests the selection of a neutral person to decide the dispute as provided in Rule 33.4(C) below. Any request for selection of a neutral person as provided in Rule 33.4(C) below, shall operate to stay - 105 - action on the termination of seniority and employment until not more than ten (10) calendar days from the date decision is rendered by the neutral person. C) If within ten (10) calendar days after the date of a decision on appeal by the highest officer of the Carrier designated to handle appeals under this agreement, the union or the employee involved requests such highest officer in writing that a neutral person be appointed to decide the dispute, a neutral person to act as sole arbitrator to decide the dispute shall be selected by the highest officer of the Carrier designated to handle appeals under this agreement or his designated representative, the Chief Executive of the union or his designated representative, and the employee involved or his representative. If they are unable to agree upon the selection of a neutral person, any one of them may request the Chairman of the National Mediation Board in writing to appoint such neutral person. The Carrier, the union and the employee involved shall have the right to appear and present evidence at a hearing before such neutral person. Any decision by such neutral person shall be made within thirty (30) calendar days from the date of receipt of the request for his appointment and shall be final and binding upon the parties. The Carrier, the employee and the union shall be promptly advised thereof in writing. If the position of the employee is sustained, such fees, salary and expenses shall be borne in equal shares by the Carrier and the union. If the position of the employee is not sustained, such fees, salary and expenses shall be borne in equal shares by the Carrier and the union and the employee. - 106 - D) Time limits specified in this Rule may be extended in individual cases by written agreement of the Carrier and the union. E) The union shall notify the Carrier in writing of the title(s) and address(es) of its officers or representatives who are authorized to serve and receive notices described in this Rule. The Carrier shall notify the union of the title(s) and address(es) of its officers or representatives who are authorized to receive the notices described in this Rule. 33.5 The Carrier shall not be required to terminate the employment of any employee until such time as the services of a qualified replacement are available. The determination of whether a qualified replacement is available shall be made jointly by the designated representative of the Carrier and the designated representative of the union. The Carrier may not, however, retain any employee in service under the provisions of this paragraph for a period in excess of ninety (90) calendar days from the date of the union's original notice or sixty (60) calendar days from the date of the last decision rendered in accordance with Rule 33.4(C) above. Employees whose service is extended under the provisions of this Rule shall not, during such extension, retain or acquire any seniority rights. 33.6 An employee whose employment and seniority is terminated pursuant to the provisions of this agreement shall have no time or money claim by reason thereof. - 107 - 33.7 In the event that seniority and employment under the Rules and Working Conditions Agreement is terminated by the Carrier under the provisions of this agreement, and such termination of seniority and employment is subsequently determined to be improper, unlawful, or unenforceable, the union shall indemnify and save harmless the Carrier against any and all liability arising as the result of such improper, unlawful, or unenforceable termination of seniority and employment; provided, however, that this sentence shall not apply to any case in which the Carrier is the plaintiff or the moving party in the action in which the aforesaid determination is made or in which case the Carrier acts in collusion with any employee; provided further, that the aforementioned liability shall not extend to the expense to the Carrier in defending suits by employees whose seniority and employment are terminated by the Carrier under the provisions of this agreement. - 108 - RULE 34 DUES DEDUCTION -------------- 34.1 A) Subject to the terms and conditions hereinafter set forth, the Carrier will deduct from the wages of employees, membership dues, fees and assessments (excluding fines and penalties) whenever applicable each calendar month which are uniformly required as a condition of acquiring or retaining membership in the union upon written and unrevoked authorization of the employee on the form, WAGE DEDUCTION AUTHORIZATION agreed upon by the parties hereto, a copy of which is attached and made a part of this Agreement. B) The designated representative of the union shall promptly notify in writing the officer or officers designated by the Carrier of any special assessments or changes in amounts of fees or dues, and shall also furnish to such designated officer or officers of the Carrier, the individual authorization forms as provided for herein. 34.2 A) Individual authorizations to be effective for a particular calendar month must be in the possession of the Carrier not later than the twentieth (20th) day of the month preceding the month in which such deductions are to be made. B) The designated representative of the union shall furnish to the Carrier an initial statement in alphabetical order, showing the employee's name, lodge number, Social Security number, and amount to be - 109 - deducted, such statement to be furnished together with individual authorization forms to cover, not later than the twentieth (20th) day of the month preceding the month in which the deductions become effective. Subsequent monthly deductions will be based on the initial statement, plus a monthly statement showing additions or deletions, furnished in the same manner as the initial statement required hereby. 34.3 Said deductions will be made monthly and shall be remitted to the Officer designated by the union not later than the end of the month in which deductions are made, accompanied by a list in alphabetical order showing the name of each employee for whom a deduction was made, his lodge number, Social Security number, and the amount of the deduction and the total amount of money deducted. If the earnings of the employees are insufficient in the pay period in which deductions are made to permit the full amount of the deduction, no deduction will be made for that month. In the event of any excess or shortage in said deductions for an individual employee, said excess or shortage will be subject to adjustment by the union and individual employee. 34.4 The following payroll deductions will have priority over the deductions covered by this agreement: Federal, state and local taxes. Other deductions required by law and court orders. Amounts due Carrier. - 110 - 34.5 The deductions provided for herein shall not be effective with respect to any individual employee until the Carrier has been furnished with written authorization of assignment of wages of such monthly membership dues, initiation fees, reinstatement fees, and assessments. Such assignment shall be revocable in writing after the expiration of one (1) year, or upon termination of this Agreement. 34.6 Responsibility of the Carrier under this arrangement shall be limited to remitting to the union the amount actually deducted from wages of employees pursuant hereto and the Carrier shall not be responsible financially or otherwise for failure to make deductions or for improper or inaccurate deductions. Any question arising as to the correctness of the amount deducted shall be handled between the employee involved and the union, and any complaints against the Carrier in connection therewith shall be handled by the union on behalf of the employees concerned. 34.7 The union shall indemnify and save harmless the Carrier from and against any and all claims, demands, liability, losses or damage resulting from the entering into of this agreement or arising or growing out of any dispute or litigation from any deductions made by the Carrier pursuant to this agreement; except for remitting to the union the monies deducted pursuant to this agreement; provided, however, that this sentence shall not apply to any case in which the Carrier is the plaintiff or the moving party in the action or in which case the Carrier acts in collusion with any employee; provided further, that the aforementioned liability shall not extend to the expense to the Carrier in defending suits by employees as a result of the Carrier's action under this agreement. - 111 - 34.8 In the event of a change in representation of employees now represented by the union this agreement shall be automatically terminated as of the date official notification is received from the National Mediation Board of such change in representation. - 112 - WAGE DEDUCTION AUTHORIZATION ---------------------------- Between The THE NEW YORK, SUSQUEHANNA AND WESTERN RAILWAY CORPORATION And The BROTHERHOOD OF MAINTENANCE OF WAY EMPLOYES ------------------------------ Employee Identification Number - ----------------------------------------------------------------- PRINT LAST NAME FIRST NAME MIDDLE INITIAL - ----------------------------------------------------------------- HOME STREET ADDRESS CITY STATE ZIP PAYROLL DIRECTOR: I hereby assign to the Brotherhood of Maintenance of Way Employes that part of my wages necessary to pay initiation fees, periodic dues and assessments (not including fines and penalties) as certified to the Carrier by the Secretary-Treasurer of the Brotherhood of Maintenance of Way Employes as provided in the dues deduction rule and authorize the Carrier to deduct such sum from my wages and pay it to the Organization in accordance with the Dues Deduction Agreement. Dues, contributions or gifts to the Brotherhood of Maintenance of Way Employes are not deductible as charitable contributions for Federal income tax purposes. Dues paid to the Brotherhood of Maintenance of Way Employes, however, may qualify as business expenses and may be deductible in limited circumstances subject to various restrictions imposed by the Internal Revenue Code. - -------------------------- -------------------------------------- DATE SIGNATURE - -------------------------- -------------------------------------- LODGE NUMBER SOCIAL SECURITY NUMBER - 113 - WAGE DEDUCTION REVOCATION Between The THE NEW YORK, SUSQUEHANNA AND WESTERN RAILWAY CORPORATION And The BROTHERHOOD OF MAINTENANCE OF WAY EMPLOYES ----------------------- Employee Name ----------------------- Social Security # The New York, Susquehanna and Western Railway Corporation 1 Railroad Avenue Cooperstown, NY 13326 Attn: Payroll Department Dear Sir/Madam: Effective in the next calendar month, I hereby revoke the wage assignment now in effect assigning to the Brotherhood of Maintenance of Way Employes that part of my wages necessary to pay initiation fees, periodic dues and assessments (not including fines and penalties), and I hereby cancel the authorization. Sincerely yours, ------------------------------ Employee's Signature ------------------------------ Employee Identification Number Date - --------------------------------- Signature of Union Representative ------------------------------- Lodge # - --------------------------------- - 114 - RULE 35 BMWE POLITICAL LEAGUE DEDUCTIONS -------------------------------- 35.1 A) Subject to the terms and conditions hereinafter set forth, the Carrier will deduct from the wages of employees voluntary political contributions upon their written authorization on the form, CONTRIBUTION DEDUCTION AUTHORIZATION, agreed upon by the parties hereto, copy of which is attached, designated and made a part hereof. B) Voluntary political contributions will be made monthly from the compensation of employees who have executed a written authorization providing for such deductions. The first such deduction will be made in the month following the month in which the authorization is received. Such authorization will remain in effect for a minimum of twelve (12) months and thereafter until canceled by thirty (30) days' advance written notice from the employee to the BMWE and the Carrier. Changes in the amount to be deducted will be limited to one (1) change in each twelve (12) month period, and any change will coincide with a date on which dues deduction amounts may be changed under the Dues Deduction Rule. 35.2 The General Chairman or his designated representative shall furnish the Carrier with a copy to appropriate units of the BMWE, an initial statement by lodges, in alphabetical order and certified by him, showing the amounts of deductions to be made from each employee, such statement to be furnished together with individual authorization forms to cover, and - 115 - payroll deductions of such amounts will commence in the month immediately following. Subsequent monthly deductions will be based on the initial statement plus a monthly statement showing additions and/or deletions furnished in the same manner as the initial statement required hereinabove. 35.3 Monthly voluntary political contribution deductions will be made from wages at the same time that membership dues are deducted from the employee's paycheck. 35.4 Concurrent with making remittance to the Organization of monthly membership dues, the Carrier will make separate remittance of voluntary political contributions to the Treasurer, Maintenance of Way Political League, together with a list prepared in accordance with the requirements of the Dues Deduction Rule pertaining to the remittance of monthly membership dues, with a copy to the General Chairman. 35.5 The requirements of this Rule shall not be effective with respect to any individual employee until the employer has been furnished with a written authorization of assignment of wages of such monthly voluntary political contribution. - 116 - MAINTENANCE OF WAY POLITICAL LEAGUE ----------------------------------- CONTRIBUTION DEDUCTION AUTHORIZATION Between The THE NEW YORK, SUSQUEHANNA AND WESTERN RAILWAY CORPORATION And The BROTHERHOOD OF MAINTENANCE OF WAY EMPLOYES PAYROLL MANAGER: I hereby authorize you to deduct from my wages the sum of $ _______________for each month in which compensation is due. This authorization is voluntarily made, with the understanding that the monies deducted will be deposited in the account of the Maintenance of Way Political League and will be used solely for the purpose of making political contributions in connection with Federal, State and Local Elections. I understand that contributions or gifts to the Maintenance of Way Political League are not deductible as charitable contributions for Federal income tax purposes. It is understood that this authorization will remain in effect for a minimum of twelve (12) months and may thereafter be revoked by giving the Carrier and the Organization thirty (30) days advance notice in writing of my desire to do so. - ----------------------------------------------------------------- PRINT LAST NAME FIRST NAME MIDDLE INITIAL - ----------------------------------------------------------------- HOME STREET ADDRESS CITY STATE ZIP - ---------------------------------- ------------------------------ DATE SIGNATURE - ---------------------------------- ------------------------------ LODGE NUMBER SOCIAL SECURITY NUMBER - 117 - MAINTENANCE OF WAY POLITICAL LEAGUE ----------------------------------- CONTRIBUTION DEDUCTION REVOCATION Between The THE NEW YORK, SUSQUEHANNA AND WESTERN RAILWAY CORPORATION And The BROTHERHOOD OF MAINTENANCE OF WAY EMPLOYES Employee Name ------------------------------------ Social Security # ------------------------------------ The New York, Susquehanna and Western Railway Corporation 1 Railroad Avenue Cooperstown, NY 13326 Attn: Payroll Department Dear Sir/Madam: Effective in the next calendar month, I hereby revoke the contribution deduction authorization now in effect assigning to the Brotherhood of Maintenance of Way Employes' Political League that part of my wages contributed to the Maintenance of Way Political League, and I hereby cancel the authorization. Sincerely yours, ------------------------------- Employee s Signature ------------------------------- Employee Identification Number Date - ---------------------------------- Signature of Union Representative -------------------------------- Lodge # - ---------------------------------- - 118 - RULE 36 EMPLOYEE INFORMATION -------------------- 36.1 The Carrier will provide the General Chairman with a list of employees who are hired or terminated, their home addresses, and if available, the employee's identification numbers. This information will be limited to the employees covered by this Agreement and will be furnished to the General Chairman within whose jurisdiction the employees are hired or terminated. The data will be supplied within thirty (30) days after the end of the month in which the employee is hired or terminated. Where Carrier cannot meet the thirty (30) day requirement, the matter will be worked out with the General Chairman. - 119 - RULE 37 MORATORIUM ---------- 37.1 This Agreement shall remain in effect until changed or modified in accordance with the provisions of the Railway Labor Act. 37.2 No party to this Agreement shall serve notice prior to July 1, 1999, (not to become effective before January 1, 2000. 37.3 This Rule will not bar the Carrier and BMWE from agreeing upon any subject of mutual interest. RULE 38 PRINTING OF AGREEMENT --------------------- The Carrier will print and distribute this entire Agreement to the employees covered by this Agreement, within sixty (60) days from final ratification. Signed in Cooperstown, New York this__________day__________ of,19_____. FOR: BROTHERHOOD OF MAINTENANCE OF WAY EMPLOYES - ---------------------------------- ----------------------------------- General Chairman Local Chairman FOR: THE NEW YORK, SUSQUEHANNA AND WESTERN RAILWAY CORPORATION - ---------------------------------- ----------------------------------- President Vice President-Engineering - 120 - EX-10.29 3 WARRANT AGREEMENT WARRANT AGREEMENT dated as of January 31, 1996 between Delaware Otsego Corporation, a New York corporation (the "Issuer"), and Creditanstalt Corporate Finance, Inc., a Connecticut corporation (the "Initial Holder," and together with any other registered holders of Warrants or Warrant Shares (each as hereinafter defined) from time to time, the "Holders"). W I T N E S S E T H : WHEREAS, the Issuer has executed a Deficiency Guarantee dated as of the date hereof (the "Guarantee") in favor of the Initial Holder, as agent (the "Agent") for certain lenders (the "Lenders") party to a certain Credit Agreement dated as of the date hereof (as amended, modified and supplemented from time to time, the "Credit Agreement") among The Toledo, Peoria and Western Railroad Corporation and Toledo, Peoria and Western Railway Corporation (together, the "Borrowers"), the Agent and the Lenders, pursuant to which Guarantee the Issuer has guaranteed, among other things, the collection of the amounts due and becoming due under the Credit Agreement. WHEREAS, it is a condition precedent to the effectiveness of the Credit Agreement that the Issuer shall (i) issue and deliver to the Initial Holder Warrants evidencing rights to purchase in the aggregate, 60,000 shares of the Common Stock of the Issuer on a fully diluted basis. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereto agree as follows: Section 1. Definitions. As used in this Warrant Agreement, terms defined in the Credit Agreement shall, unless the context otherwise requires, have such defined meanings when used herein and the following terms shall have the following meanings: "Affiliated Transferee" shall mean, with respect to a Holder, an Affiliate of such Holder or a partnership or corporation or other entity whose partners, stockholders or members, as the case may be, are Affiliates, officers, directors or employees of such Holder. "Capital Stock" shall mean any and all shares, interests, participations or other equivalents (however designated) of capital stock of the Issuer and any and all warrants or options to purchase any of the foregoing. "Commission" shall mean the Securities and Exchange Commission or any entity succeeding to any or all of its functions under the Securities Act. - 121 - "Common Stock" shall mean the shares of common stock, par value $0.0125 per share, of the Issuer. "Effective Date" shall mean the Effective Date under the Credit Agreement. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any successor federal statute. "Exercise Price" shall mean the exercise price of a Warrant, which shall be $10.00 per share, subject to adjustment as provided in Section 12. "Majority Holders" shall mean the Holders which own, individually or in the aggregate, more than 50% of the outstanding Warrants and Non-Public Warrant Shares. "Non-Public Warrant Shares" shall mean Warrant Shares that have not been sold to the public and bear the legend set forth in Section 14(b). "Public Offering" shall mean a public offering of securi- ties by the Issuer for cash under a registration statement filed and declared effective under the Securities Act. "Securities Act" shall mean the Securities Act of 1933, as amended, or any successor federal statute. "Subordinated Notes" shall mean the Issuer's 6.5% Convertible Subordinated Notes due September 1, 2003, which notes are in the aggregate principal amount outstanding as of the date hereof of $3,580,000. "Warrant" shall mean a warrant issued pursuant to this Agreement entitling the Holder thereof to purchase from the Issuer at the Warrant Office one share of Common Stock (subject to adjustment as provided in Section 12) at the Exercise Price at any time. "Warrant Agreement" shall mean this Warrant Agreement, between the Issuer and the Initial Holder, and as amended, modified or supplemented from time to time. "Warrant Certificate" shall mean a certificate evidencing one or more Warrants, substantially in the form of Exhibit A hereto, with such changes therein as may be required to reflect any adjustments made pursuant to Section 12. "Warrant Office" shall mean the office or agency of the Issuer at which the Warrant Register shall be maintained and where the Warrants may be presented for exercise, exchange, substitution and transfer, which office or agency will be the - 122 - office of the Issuer at 1 Railroad Avenue, Cooperstown, New York 13326, which office or agency may be changed by the Issuer pursuant to notice in writing to the Persons named in the Warrant Register as the Holders. "Warrant Register" shall mean the register, substantially in the form of Exhibit B hereto, maintained by the Issuer at the Warrant Office. "Warrant Shares" shall mean the shares of Common Stock issuable upon exercise of the Warrants, as the number of such shares may be adjusted from time to time pursuant to Section 12. Section 2. Representations and Warranties. The Issuer hereby represents and warrants as follows: (a) The Issuer is a corporation duly incorporated, validly existing and in good standing under the laws of the State of New York, has the corporate power and authority to execute and deliver this Agreement and the Warrant Certificates, to issue the Warrants and the Warrant Shares and to perform its obligations under this Agreement and the Warrant Certificates. (b) The execution, delivery and performance by the Issuer of this Agreement and the Warrant Certificates, the issuance of the Warrants and the issuance of the Warrant Shares upon exercise of the Warrants have been duly authorized by all necessary corporate action and do not violate, or result in a breach of, or constitute a default under, or require any consent under, or result in the creation of a Lien upon the assets of the Issuer pursuant to, (A) any provision of law or the certificate or articles of incorporation or the by-laws of the Issuer, (B) any order of any court, or any rule, regulation or order of any other agency of government or (C) any provision of any indenture, agreement or other instrument to which the Issuer is a party, or by which the Issuer or any of its properties or assets are bound. (c) This Agreement has been duly executed and delivered by the Issuer and constitutes a legal, valid and binding obligation of the Issuer enforceable against the Issuer in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors generally. When the Warrants and Warrant Certificates have been issued as contemplated hereby, (i) the Warrants and the Warrant Certificates will each constitute legal, valid and binding obligations of the Issuer enforceable against the Issuer in accordance with its terms and (ii) each of the Warrant Shares, - 123 - when issued upon exercise of the Warrants in accordance with the terms hereof, will be duly authorized, validly issued, fully paid and nonassessable shares of the Common Stock with no personal liability attaching to the ownership thereof. (d) On the Effective Date, the Issuer will have 1,740,000 shares of Common Stock outstanding, which shall constitute all of the outstanding Capital Stock of the Issuer, exclusive of the Warrants, and shares reserved for issuance under the Subordinated Notes and the Issuer's stock option plans. Section 3. Issuance of Warrants. On the Effective Date, the Issuer shall issue and deliver to the Initial Holder Warrants evidencing rights to purchase 60,000 shares of the outstanding Common Stock, subject to adjustment as provided in Section 12, at any time after the Effective Date, at a price per share equal to the Exercise Price. On the Effective Date, the Issuer shall deliver to the Initial Holder one or more Warrant Certificates evidencing such 60,000 Warrants. Section 4. Registration, Transfer and Exchange of Certificates. (a) The Issuer shall maintain at the Warrant Office the Warrant Register for registration of the Warrants and Warrant Certificates and transfer thereof. On the Effective Date, the Issuer shall register the outstanding Warrants and Warrant Certificates in the name of the Initial Holder. The Issuer may deem and treat the registered holder(s) of the Warrant Certificates as the absolute owner(s) thereof and the Warrants represented thereby (notwithstanding any notation of ownership or other writing on the Warrant Certificates made by any person) for the purpose of any exercise thereof or any distribution to the Holder(s) thereof, and for all other purposes, and the Issuer shall not be affected by any notice to the contrary. (b) Subject to Section 14, the Issuer shall register the transfer of any outstanding Warrants in the Warrant Register upon surrender of the Warrant Certificate(s) evidencing such Warrants to the Issuer at the Warrant Office, accompanied by a written instrument or instruments of transfer in form reasonably satisfactory to it, duly executed by the Holder thereof or by the duly appointed legal representative thereof. Upon any such registration of transfer, (i) new Warrant Certificate(s) evidencing such transferred Warrants shall be issued to the transferee(s) and the surrendered Warrant Certificate(s) shall be canceled and (ii) each such transferee shall be party hereto and shall have the rights and obligations of a Holder hereunder. If less than all the Warrants evidenced by a Warrant Certificate surrendered for transfer are to be transferred, a new Warrant Certificate or Certificates shall be issued to the Holder surrendering such Warrant Certificate evidencing such remaining number of Warrants. - 124 - (c) Warrant Certificates may be exchanged at the option of the Holder(s) thereof, when surrendered to the Issuer at the Warrant Office, for another Warrant Certificate or other Warrant Certificates of like tenor and representing in the aggregate a like number of Warrants. Warrant Certificates surrendered for exchange shall be canceled. (d) No charge shall be made for any such transfer or exchange except for any tax or other governmental charge imposed in connection therewith. Except as provided in Section 14(b), each Warrant Certificate issued upon transfer or exchange shall bear the legend set forth in Section 14(b) if the Warrant Certificate presented for transfer or exchange bore such legend. Section 5. Mutilated or Missing Warrant Certificates. If any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the Issuer shall issue, in exchange and substitution for and upon cancellation of the mutilated Warrant Certificate, or in lieu of and substitution for the Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor and representing an equivalent number of Warrants, but only upon receipt of evidence satisfactory to the Issuer of such loss, theft or destruction of such Warrant Certificate and, if requested, indemnity reasonably satisfactory to it. No service charge shall be made for any such substitution, but all expenses and reasonable charges associated with procuring such indemnity and all stamp tax and other governmental duties that may be imposed in relation thereto shall be borne by the Holder(s) of such Warrant Certificate. Each Warrant Certificate issued in any such substitution shall bear the legend set forth in Section 14(b) if the Warrant Certificate for which such substitution was made bore such legend. Section 6. Duration and Exercise of Warrants. (a) The Warrants evidenced by a Warrant Certificate shall be exercisable from time to time in whole or in part by the Holder thereof on any Business Day after the Effective Date. (b) Subject to the provisions of this Agreement, upon presentation of the one or more Warrant Certificates evidencing the Warrants to be exercised by a Holder, with the form of election to purchase on the reverse thereof duly completed and signed, to the Issuer at the Warrant Office, and upon payment of the aggregate Exercise Price for the number of Warrant Shares in respect of which such Warrants are being exercised in lawful money of the United States of America, the Issuer shall issue and cause to be delivered to or upon the written order of such Holder of such Warrants and in such name or names as such Holder may designate, a certificate for the fully paid and nonassessable Warrant Shares issuable upon such exercise of such Warrants. Any Person(s) so designated to be named therein shall be deemed to have become holder(s) of record of such Warrant Shares as of the date of exercise of such Warrants. Notwith- standing anything to the contrary contained herein, in lieu of payment - 125 - of the applicable Exercise Price, the Holder may elect to return to the Company Warrants having an aggregate fair market value equal to the applicable Exercise Price for the number of Warrant Shares in respect of which Warrants are being exercised. (c) If less than all of the Warrants evidenced by a Warrant Certificate are exercised at any time, a new Warrant Certificate or Certificates shall be issued for the remaining number of Warrants evidenced by such Warrant Certificate. Each new Warrant Certificate so issued shall bear the legend set forth in Section 14(b) if the Warrant Certificate presented in connection with partial exercise thereof bore such legend. All Warrant Certificates surrendered upon exercise of Warrants shall be canceled. (d) Notwithstanding any other provision of this Agreement, the Initial Holder or any Affiliated Transferee of the Initial Holder of Warrants may exercise Warrants solely to the extent such exercise would not result in the Initial Holder or such Affiliated Transferee of the Initial Holder holding, directly or indirectly, in excess of 4.99% of any class of the outstanding Common Stock (or voting stock) of the Issuer, except for an exercise in connection with (i) a widely dispersed public offering of the Warrant Shares or (ii) a private placement or sale, including pursuant to Rule 144A under the Securities Act, so long as the transferee and its affiliates do not collectively acquire from such Initial Holder or such Affiliated Transferee of the Initial Holder more than 2% of the Common Stock or voting stock of the Issuer pursuant to such transfer. Section 7. Fractional Shares. The Issuer shall not be required to issue fractional shares of Common Stock upon exercise of the Warrants but shall pay for any such fraction of a share an amount in cash equal to the current market price per share of Common Stock of such share (determined in accordance with the provisions of Section 12(d)) multiplied by such fraction. Section 8. Payment of Taxes. The Issuer will pay all taxes attributable to the initial issuance of Warrant Shares upon the exercise of the Warrants; provided, that the Issuer shall not be required to pay (i) any income taxes which may be payable by the Holder with respect to any gain realized upon such Holder's exercise of the Warrants and (ii) any transfer taxes which may be payable as a result of any transfer involved in the issuance of any Warrant Certificate or any certificate for Warrant Shares in a name other than that of the Holder thereof. Section 9. No Stockholder Rights. Except as expressly provided herein, nothing contained in this Agreement or in any of the Warrant Certificates shall be construed as conferring upon the Holders, with respect to the Warrants (prior to their exercise into Warrant Shares), the right to vote or to consent or to receive notice as a stockholder - 126 - in respect of the meetings of stockholders or the election of directors of the Issuer or any other matter, or any rights whatsoever as a stockholder of the Issuer. Section 10. Reservation and Issuance of Warrant Shares. (a) The Issuer will at all times have authorized, and reserve and keep available, free from preemptive rights, for the purpose of enabling it to satisfy any obligation to issue Warrant Shares upon the exercise of the Warrants, the maximum number of shares of Common Stock deliverable upon exercise of all outstanding Warrants. (b) Before taking any action which would cause an adjustment pursuant to Section 12 reducing the Exercise Price below the then par value (if any) of the Warrant Shares issuable upon exercise of the Warrants, the Issuer will take any corporate action which may be necessary in order that the Issuer may validly and legally issue fully paid and nonassessable Warrant Shares at the Exercise Price as so adjusted. (c) The Issuer covenants that all Warrant Shares will, upon issuance in accordance with the terms of this Agreement, be fully paid and nonassessable, free of preemptive rights and free from all taxes, liens, charges and security interests with respect to the issuance thereof. The Issuer further covenants that at or prior to the time of its issuance of Warrant Shares to a Holder as provided in this Agreement, it will provide to such Holder a written opinion of the Issuer's counsel to the effect that, upon such issuance, such Warrant Shares, will be validly issued and outstanding, fully paid and nonassessable and free of preemptive rights. Section 11. Obtaining of Governmental Approvals and Stock Exchange Listings. The Issuer will, at its own expense, from time to time take all action which may be necessary to obtain and keep effective any and all permits, consents and approvals of Governmental Authorities which may be or become required in connection with the issuance, sale, transfer and delivery of the Warrant Certificates and the exercise of the Warrants and the issuance, sale, transfer and delivery of the Warrant Shares and all action which may be necessary so that such Warrant Shares, immediately upon their issuance upon the exercise of the Warrants, will be listed on each securities exchange, if any, on which the Common Stock is then listed. Section 12. Adjustment of Exercise Price and Number of Warrant Shares Purchasable. The Exercise Price and the number of Warrant Shares purchasable upon the exercise of each Warrant are subject to adjustment from time to time upon the occurrence of any of the events enumerated in this Section 12. For purposes of this Section 12, "Common Stock" means shares now or hereafter authorized of any class of common stock of the Issuer and any other Capital Stock of the Issuer, however designated, that has the right (subject to any prior - 127 - rights of any class or series of preferred stock) to participate in any distribution of the assets or earnings of the Issuer without limit as to per share amount. (a) In the event that the Issuer shall at any time after the date of this Agreement (i) declare a dividend on the Common Stock in shares of its capital stock (whether shares of Common Stock or of capital stock of any other class); (ii) split or subdivide the outstanding Common Stock; (iii) combine the outstanding Common Stock into a smaller number of shares; (iv) make a distribution on its Common Stock in shares of its capital stock other than Common Stock; or (v) issue by reclassification of its Common Stock any shares of its capital stock, the Exercise Price in effect at the time of the record date for such dividend or of the effective date of such split, subdivision or combination shall be multiplied by a fraction the numerator of which shall be the number of shares of Common Stock outstanding at the time of the record date for such dividend or of the effective date of such split, subdivision or combination, but without giving effect thereto, and the denominator of which shall be the number of shares of Common Stock outstanding at the time of the record date for such dividend or the effective date of such split, subdivision or combination, after giving effect thereto. The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification. If after an adjustment a Holder upon exercise of its Warrants may receive shares of two or more classes of capital stock of the Issuer, the Issuer shall determine the allocation of the adjusted Exercise Price between the classes of capital stock. After such allocation, the exercise privilege and the Exercise Price of each class of capital stock shall thereafter be subject to adjustment on terms comparable to those applicable to Common Stock in this Section. Such adjustment shall be made successively whenever any event listed above shall occur. (b) In the event that the Issuer shall at any time after the date of this Agreement (i) issue any shares of Common Stock (other than (w) Warrant Shares, (x) shares issuable upon exercise of options by management or employees of the Issuer pursuant to its currently existing stock option plans, (y) shares issuable upon conversion of the outstanding Subordinated Notes, and (z) shares of the Issuer issued at a price per share equal to or greater than the Exercise Price) or (ii) issue options, rights or warrants to subscribe for or purchase Common Stock (or securities convertible into Common Stock), the Exercise Price in effect at the time of such issuance shall be adjusted so that each Holder of a Warrant exercised shall be entitled to receive the aggregate number of shares of Common Stock which would result in the ratio of (x) the number of shares of Common Stock such Warrant is exercisable into at the time of such issuance (after giving effect thereto) to (y) the number of shares of Common Stock outstanding, after giving effect to such issuance or the exercise of - 128 - such options, rights or warrants, being equal to such ratio immediately prior to such issuance; and, in the event that, prior to the exercise of the Warrants, such shares or options, rights or warrants are not so issued, or any such option, right or warrant is canceled, including any such option, right or warrant outstanding on the Effective Date, the Exercise Price shall again be adjusted to be the Exercise Price which would then be in effect if the date of such issuance had not been fixed or such option, right or warrant had not been outstanding on the Effective Date. (c) In case the Issuer shall make a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Issuer is the surviving corporation) of evidences of its indebtedness or assets, each Warrant outstanding on the date of such distribution shall thereafter entitle the holder of such Warrant to receive a number of shares of Common Stock equal to the product of (i) the number of shares of Common Stock to which such Warrant was entitled immediately prior to such date of distribution and (ii) a fraction of which the numerator shall be the current market price per share of Common Stock (as defined in Section 12(d) hereof) on such date, prior to giving effect to such distribution, and of which the denominator shall be such current market price per share of Common Stock (as determined in accordance with subsection 12(d)) on such date, but after giving effect to such distribution. Such adjustment shall be made successively whenever a date for such distribution is fixed (which date of distribution shall be the record date for such distribution if a record date therefor is fixed); and, if such distribution is not so made, the Exercise Price shall again be adjusted to be the Exercise Price which would then be in effect if such date of distribution had not been fixed. (d) For the purpose of any computation under this Agreement, the "current market price per share" of Common Stock on any date shall be deemed to be (i) the average of the daily closing prices for the 20 consecutive trading days, commencing before such date as reported on the Composite Transactions Tape, or (ii) if the Common Stock is not reported on the Composite Transactions Tape, the last sale price regular way of the Common Stock on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, in case no such sale takes place on such day, the average of the closing bid and asked prices regular way, in either case on such securities exchange or, (iii) if the Common Stock is not listed or admitted to trading on such an exchange, the closing sales price, or, if there is no closing sales price, the average of the closing bid and asked prices, in the over-the-counter market as reported by the National Association of Securities Dealers' Automated Quotation System ("NASDAQ"), or, if not so reported, as reported by the National Quotation Bureau, Incorporated, or any successor thereof, or, if not so reported, the average of the closing bid and asked prices as furnished by any member of the National Association of Securities Dealers, Inc. selected from time to time by the Board of - 129 - Directors of the Issuer for that purpose, or (iv) if no such prices are furnished, the higher of (x) the Exercise Price or (y) the fair market value of a share of Common Stock as determined by an independent investment banking firm or independent appraisal firm (in either case the cost of which engagement shall be borne by the Issuer) reasonably acceptable to the Majority Holders. In making its determination, such independent investment banking firm or such independent appraisal firm shall not consider items such as discounts for minority interests, lack of marketability of the Common Stock or restrictions on exercise of any options, rights or warrants to purchase Common Stock. (e) No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, that, any adjustments which by reason of this Section 12(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 12 shall be made to the nearest hundredth of a share. (f) If at any time, as a result of an adjustment made pursuant to Section 12(a) hereof, any Holder of a Warrant thereafter exercised shall become entitled to receive any shares of the Issuer other than shares of Common Stock, thereafter the number of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Shares contained in this Section 12, and the provisions of this Agreement with respect to the Warrant Shares shall apply on like terms to such other shares. (g) Each Warrant outstanding immediately prior to any adjustment of the Exercise Price shall thereafter evidence the right to purchase, at the adjusted Exercise Price, that number of Warrant Shares (calculated to the nearest hundredth) obtained by (A) multiplying the number of Warrant Shares purchasable upon exercise of a Warrant immediately prior to such adjustment of the number of Warrant Shares by the Exercise Price in effect immediately prior to such adjustment of the Exercise Price and (B) dividing the product so obtained by the Exercise Price in effect immediately after such adjustment of the Exercise Price. (h) In the event of any capital reorganization of the Issuer, or of any reclassification of the Common Stock (other than a subdivision or combination of outstanding shares of Common Stock), or in case of the consolidation of the Issuer with or the merger of the Issuer with or into any other corporation or of the sale of the properties and assets of the Issuer as, or substantially as, an entirety to any other corporation, each Warrant shall after such capital reorganization, reclassification of Common Stock, consolidation, merger or sale be exercisable, upon the terms and - 130 - conditions specified in this Agreement, for the number of shares of stock or other securities or assets to which a Holder of the number of Warrant Shares purchasable (at the time of such capital reorganization, reclassification of Common Stock, consolidation, merger or sale) upon exercise of such Warrant would have been entitled upon such capital reorganization, reclassification of Common Stock, consolidation, merger or sale; and in any such case, if necessary, the provisions set forth in this Section 12 with respect to the rights thereafter of the Holders shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any shares of stock or other securities or assets thereafter deliverable on the exercise of the Warrants. The Issuer shall not effect any such consolidation, merger or sale, unless prior to or simultaneously with the consummation thereof, the successor corporation (if other than the Issuer) resulting from such consolidation or merger or the corporation purchasing such assets or the appropriate corporation or entity shall assume, by written instrument, the obligation to deliver to each Holder the shares of stock, securities or assets to which, in accordance with the foregoing provisions, such Holder may be entitled and all other obligations of the Issuer under this Agreement. (i) Irrespective of any adjustments in the Exercise Price or the number or kind of shares purchasable upon the exercise of the Warrant, Warrant Certificates theretofore or thereafter issued may continue to express the same Exercise Price per share and number and kind of shares are as stated on the Warrant Certificates initially issuable pursuant to this Agreement. (j) If any questions shall at any time arise with respect to the adjusted Exercise Price, the resolution of such question shall be determined by an independent certified public accountant of recognized national standing (the cost of which engagement shall be borne by the Issuer) reasonably acceptable to the Majority Holders and such determination shall be binding upon the Issuer and each Holder. (k) Anything in this Section 12 to the contrary notwithstanding, the Issuer shall be entitled to make such reductions in the Exercise Price or increase in the number of Warrant Shares purchasable upon the exercise of each Warrant, in addition to those adjustments required by this Section 12, as it in its sole discretion shall determine to be advisable in order that any consolidation or subdivision of the Common Stock, or any issuance wholly for cash of shares of Common Stock or securities which by their terms are convertible into or exchangeable for shares of Common Stock, or any stock dividend, or any issuance of rights, options or warrants referred to hereinabove in this Section 12, hereinafter made by the Issuer to the holders of its Common Stock shall not be taxable to them. - 131 - (l) In the event that, as a result of an adjustment of the Exercise Price in respect of the occurrence of any event set forth in this Section 12, the Exercise Price to be in effect after such event pursuant to Section 12(a), (b) or (c) would be less than the par value of the Common Stock, the Exercise Price to be in effect following such event shall be the par value of the Common Stock and each Warrant shall thereafter evidence the right to purchase, at an Exercise Price equal to such par value, that number of Warrant Shares (calculated to the nearest hundredth) obtained by (A) multiplying the number of Warrant Shares purchasable upon exercise of a Warrant immediately prior to such adjustment of the number of Warrant Shares by the Exercise Price in effect immediately prior to such adjustment of the Exercise Price (giving effect to any limitations on such adjustment theretofore made pursuant to this Section 12(l)) and (B) dividing the product so obtained by the Exercise Price which would have been in effect pursuant to Section 12(a), (b) or (c) but for the limitation on such adjustment required by this Section 12(l). Section 13. Notices to Holders. (a) Upon any adjustment of the Exercise Price pursuant to Section 12, the Issuer shall promptly, but in any event within 20 calendar days thereafter, cause to be given to each Holder, at its address appearing on the Warrant Register, by first-class mail, postage prepaid, a certificate signed by its chief financial officer setting forth the Exercise Price as so adjusted and the number of shares of Common Stock issuable upon the exercise of each Warrant as so adjusted and describing in reasonable detail the facts accounting for such adjustment and the method of calculation used. Where appropriate, such certificate may be given in advance and included as a part of the notice required to be mailed under the other provisions of this Section 13. (b) In the event: (i) the Issuer shall authorize the distribution to all holders of Common Stock of evidences of its indebtedness or assets (including, without limitation, cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends payable in Common Stock); or (ii) of any consolidation or merger to which the Issuer is a party and for which approval of any stockholders of the Issuer is required, or of the conveyance or transfer of the properties and assets of the Issuer substantially as an entirety, or of any capital reorganization or reclassification or change of the Common Stock (other than a change in par value, or from par value to no par value, or from no par value to - 132 - par value, or as a result of a subdivision or combination); or (iii) of the voluntary or involuntary dissolution, liquidation or winding up of the Issuer; or (iv) the Issuer proposes to take any other action which would require an adjustment of the Exercise Price pursuant to Section 12(c); then the Issuer shall cause to be given to each Holder at its address appearing on the Warrant Register, at least 20 calendar days prior to the applicable record date hereinafter specified by first-class mail, postage prepaid, a written notice stating (A) the date as of which the holders of record of Common Stock to be entitled to receive any such capital stock, rights, options, warrants or distribution are to be determined, or (B) the date on which any such consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of record of Common Stock shall be entitled to exchange their shares of securities or other property, if any, deliverable upon such reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up. The failure to given the notice required by this Section 13(b) or any defect therein shall not affect the legality or validity of any capital stock, right, option, warrant, distribution, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up, or the vote upon any action. (c) The Issuer shall furnish to each Holder: (i) as soon as available, but in any event within 90 calendar days after the end of each fiscal year of the Issuer, a copy of the report on Form 10-K (or its equivalent) for such fiscal year, which the Issuer shall have filed with the Securities and Exchange Commission; (ii) as soon as available, but in any event not later than 45 calendar days after the end of each of the first three calendar quarters, copies of the reports on Form 10-Q (or its equivalent) for such quarter, which the Issuer shall have filed with the Securities and Exchange Commission; and (iii) promptly upon the distribution thereof, a copy of the annual report of the Issuer for each year. Section 14. Restrictions on Transfer. (a) The Holders represent that they are acquiring the Warrants for their own account, for investment and not with a view to any distribution or public - 133 - offering within the meaning of the Securities Act. The Holders acknowledge that the Warrants and the Warrant Shares issuable upon exercise thereof have not been registered under the Securities Act and agree that they will not sell or otherwise transfer any of their Warrants or Warrant Shares except to an Affiliated Transferee or another transferee upon the terms and conditions specified herein and that they will cause any transferee thereof (including an Affiliated Transferee) to agree to take and hold the same subject to the terms and conditions specified herein. (b) Except as provided in Section 14(d) hereof, each Warrant Certificate and each certificate for the Warrant Shares issued to the Initial Holder or to a subsequent transferee pursuant to Section 14(c) shall include a legend in substantially the following form; provided, that such legend shall not be required if such transfer is being made in connection with a sale which is exempt from registration pursuant to Rule 144 under the Securities Act or if the opinion of counsel referred to in Section 14(c) is to the further effect that neither such legend nor the restrictions on transfer in this Section 14 are required in order to ensure compliance with the Securities Act: "THE WARRANTS AND WARRANT SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAW. SUCH WARRANTS AND WARRANT SHARES MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THE WARRANT AGREEMENT, DATED AS OF JANUARY 31, 1996, BETWEEN THE ISSUER AND THE INITIAL HOLDER OF THE WARRANTS NAMED THEREIN, A COMPLETE AND CORRECT COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE ISSUER AND WILL BE FURNISHED TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE. THE WARRANTS AND WARRANT SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN OTHER TERMS AND CONDITIONS SET FORTH IN THE WARRANT AGREEMENT." (c) Prior to any proposed assignment, transfer or sale of any Warrant or any Warrant Shares, other than to an Affiliated Transferee, for which no notice or other action specified in this Section 14(c) shall be required, the Holder thereof shall give written notice to the Issuer of such Holder's intention to effect such assignment, transfer or sale, which notice shall set forth the date of such proposed assignment, transfer or sale and the price to be paid to such Holder of such Warrants or Warrant Shares. Each Holder - 134 - wishing to effect such a transfer of any Warrant or Warrant Shares shall also furnish to the Issuer (i) an agreement by the transferee thereof that it is taking and holding the same subject to the terms and conditions specified herein and (ii) a written opinion of such Holder's counsel to the effect that the proposed transfer may be effected without registration under the Securities Act or the securities laws of any state or other jurisdiction; provided, that no such opinion shall be required in connection with any transfer pursuant to Rule 144A under the Securities Act, and each request to register a transfer of Warrants or Warrant Shares pursuant to the exemption from registration provided by Rule 144A shall be deemed to be a representation by the purchaser and the seller that the transfer was effected in compliance with Rule 144A and that the transferee is a "qualified institutional buyer" as defined in Rule 144A. (d) The restrictions set forth in this Section 14 shall terminate and cease to be effective with respect to any Warrants or Warrant Shares registered under the Securities Act or as to which the proviso to Section 14(b) is applicable. Whenever such restrictions shall so terminate, each Holder of such Warrants or Warrant Shares shall be entitled to receive from the Issuer, without expense (other than transfer taxes, if any), Warrant Certificates or certificates for such Warrant Shares not bearing the legend set forth in Section 14(b) at which time the Issuer will rescind any transfer restrictions relating thereto. (e) With a view to making available to the Holders the benefits of certain rules and regulations of the Commission (including, without limitation, Rule 144 under the Securities Act) which may permit the sale of Warrant Shares to the public without registration, the Issuer agrees, after such time as a public market exists for the Common Stock, to take any and all such actions as may be required of it to make available to the Holders such benefits, including, without limitation, to: (i) make and keep public information available as those terms are understood and defined in Rule 144 under the Securities Act or any successor provisions thereto; (ii) file with the Commission in a timely manner all reports and other documents required of the Issuer under the Securities Act and the Exchange Act; and (iii) furnish the Holders forthwith upon request a written statement by the Issuer as to its com- pliance with the reporting requirements of Rule 144 or any successor provision thereto, and of the Securities Act and the Exchange Act, a copy of the most recent annual and quarterly report of the Issuer with the Commission, and such other reports - 135 - and documents of the Issuer and other information in the possession of or reasonably obtainable by the Issuer as the Holders may reasonably request in availing themselves of any rule or regulation of the Commission allowing the Holders to sell any such securities without registration. Section 15. Registration. (a) (i) If, at any time, the Issuer shall be requested in writing (which request shall state the intended method of disposition) by one or more Holders to effect the registration under the Securities Act of Non-Public Warrant Shares aggregating at least 50% of the outstanding Non-Public Warrant Shares (assuming exercise of all outstanding Warrants) issued pursuant to this Agreement (as adjusted to the date of such request), the Issuer shall promptly give written notice of such proposed registration to all of the Holders. Upon receipt of a request to effect registration as aforesaid, the Issuer shall, as expeditiously as possible, use its best efforts to effect registration on an appropriate form under the Securities Act of the Warrant Shares which the Issuer has been requested to register (i) in such request and (ii) in any response to such notice given by or on behalf of a Holder to the Issuer within 20 calendar days after the Issuer's giving of such notice, in order to permit the sale or other disposition of such Warrant Shares in accordance with the intended method of sale or other disposition described in such request and in any such response. (ii) The Issuer shall not be required to effect any registration requested pursuant to this Section 15(a) if the registration rights granted pursuant to this Section 15(a) have been exercised by the Holders on a previous occasion. The right of the Holders under this Section 15(a) shall not be deemed to have been exercised (x) if the requisite notice given by Holders pursuant to this Section 15(a) is withdrawn prior to the date of filing of a registration statement or if a registration statement filed by the Issuer under the Securities Act pursuant to this Section 15(a) is withdrawn prior to its effective date, in either case, by written notice to the Issuer from the Holders of not less than a majority of the Warrant Shares to be included or which are included in such registration statement, stating that such Holders have elected not to proceed with the offering contemplated by such registration statement because (A) general market conditions are unfavorable, (B) a development in the Issuer's affairs has occurred or has become known to such Holders subsequent to the date of the notice by the Holders to the Issuer requesting registration of Warrant Shares or the filing of such registration statement which, in the judgment of such Holders or the managing underwriter of the proposed public offering, adversely affects the market price or marketability of such Warrant Shares or (C) a registration statement filed by the Issuer pursuant to this - 136 - Section 15(a), in the judgment of such Holders or the managing underwriter of the proposed public offering, contains an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading and the Issuer has not, promptly after written notice thereof, corrected such statement or omission in an amendment filed to such registration statement pursuant to Section 15(f), (y) if a registration statement pursuant to this Section 15(a) shall have become effective under the Securities Act and (A) the underwriters shall not purchase any Warrant Shares, because of a failure of condition contained in the underwriting agreement (other than a condition to be performed by the Holders) relating to the offering covered by such registration statement or (B) the offering of the Warrant Shares pursuant to such registration statement is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court. (b) If the Issuer proposes to register any shares of its equity securities under the Securities Act (except pursuant to an exercise of the registration rights granted by Section 15(a) hereof and except pursuant to a registration statement filed on Form S-8 or Form S-4 or such other form as shall be prescribed under the Securities Act for the same purposes), it will at each such time given written notice to all of the Holders of its intention to do so and, upon the written request of any Holder given within 30 calendar days after the Issuer's giving of such notice (which request shall state the intended method of disposition thereof by the prospective sellers), the Issuer will use its best efforts to effect the registration of the Warrant Share which it shall have been so requested to register by including the same in such registration statement, all to the extent required to permit the sale or other disposition thereof in accordance with the intended method of sale or other disposition given in each such request. If the registration of which the Issuer gives notice pursuant to this Section 15(b) is for an underwritten public offering, only Warrant Shares which are to be included in the underwriting may be included in such registration, and the Issuer shall have the right to designate the underwriters (which shall be reasonably acceptable to the Majority Holders seeking to effect registration of Warrant Shares), including the managing underwriter(s), in any such underwritten public offering. It shall be a condition to the inclusion of any Holder's Warrant Shares in such underwriting that the Holder enter into an underwriting agreement in the customary form with the underwriter or underwriters selected by the Issuer; provided that any indemnity contained therein shall be only with respect to information relating to such Holder furnished to the Issuer in writing by such Holder expressly for use in the regis- tration statement, any prospectus, or preliminary prospectus contained therein or any amendment or any supplement thereto. (c) If the Issuer's managing underwriters shall advise the Issuer and the Holders in writing that the inclusion in any - 137 - registration pursuant to this Agreement of some or all of the Warrant Shares sought to be registered by the Holders requesting such registration creates a substantial risk that the proceeds or price per unit the Issuer will derive from such registration will be reduced or that the number of securities to be registered (including those sought to be registered at the instance of the Issuer and any other party entitled to participate in such registration as well as those sought to be registered by the Holders) is too large a number to be reasonably sold, the Issuer will include in such registration to the extent of the number which the Issuer is so advised can be sold in such offering: (i) if such registration is pursuant to Section 15(a) hereof, (A) first, Warrant Shares requested to be included in such registration, pro rata, among the Holders in proportion to the number of Warrant Shares sought to be registered by all such Holders and (B) second, shares of Common Stock sought to be registered at the instance of the Issuer and any other party entitled to participate in such registration, pro rata among the sellers in pro- portion to the number of shares of Common Stock sought to be registered by all such sellers; or (ii) if such registration is pursuant to Section 15(b), first, the number of shares of Common Stock sought to be registered by each of the Issuer and the Holders, pro rata among the Issuer and each Holder in proportion to the number of shares of Common Stock sought to be registered by the Issuer and all such Holders, and then, the number of shares of Common Stock sought to be registered by each other seller (which term shall include each holder of shares of Common Stock other than the Issuer and the Holders), pro rata among each other seller in proportion to the number of shares of Common Stock sought to be registered by all such other sellers. (d) If a registration under Section 15(a) or 15(b) shall be in connection with an underwritten public offering, each Holder of Warrant Shares shall be deemed to have agreed by acquisition of such Warrant Shares not to effect any public sale or distribution, including any sale pursuant to Rule 144, of any Warrant Shares, and to use such Holder's best efforts not to effect any such public sale or distribution of any other equity security of the Issuer or of any security convertible into or exchangeable or exercisable for any equity security of the Issuer (other than as part of such underwritten public offering) within seven calendar days before or 90 calendar days after the effective date of such registration statement (and the - 138 - Issuer hereby also so agrees and agrees to cause each holder of any equity security, or of any security convertible into or exchangeable or exercisable for any equity security, of the Issuer purchased from the Issuer at any time other than in a public offering so to agree). (e) As a condition to the inclusion of a Holder's Warrant Shares in any registration statement, each Holder requesting registration thereof will furnish to the Issuer such information with respect to such Holder as is required to be disclosed in the registration statement (and the prospectus included therein) by the applicable rules, regulations and guidelines of the Commission. Failure of a Holder to furnish such information shall not affect the obligations of the Issuer under this Section 15 to the remaining Holders who furnish such information. (f) If and whenever the Issuer is required to use its best efforts to effect the registration of Warrant Shares under the Securities Act, the Issuer shall: (i) as expeditiously as possible, prepare and file with the Commission (in the case of a registration pursuant to Section 15(a), not later than 60 calendar days after the requisite request therefor) a registration statement on the appropriate form with respect to such Warrant Shares and use its best efforts to cause such registration statement to become effective as soon as practicable after such filing; (ii) as expeditiously as possible, prepare and file with the Commission such amendments and supplements (including post-effective amendments and supplements) to the registration statement covering such Warrant Shares and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Warrant Shares covered by such registration statement until such time as all of the Warrant Shares registered thereunder have been disposed of in accordance with the intended method of disposition of the sellers set forth therein; (iii) as expeditiously as possible, furnish to each seller of such Warrant Shares registered, or to be registered, under the Securities Act, and to each underwriter, if any, of such Warrant Shares such number of copies of a prospectus and preliminary prospectus in conformity with the requirements of the Securities Act, and such other documents as such - 139 - seller or underwriter may reasonably request, in order to facilitate the public sale or other disposition of such Warrant Shares; (iv) as expeditiously as possible notify each seller of such Warrant Shares if, at any time when a prospectus relating to such Warrant Shares is required to be delivered under the Securities Act, any event shall have occurred as a result of which the prospectus then in use with respect to such Warrant Shares would include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or for any other reason it shall be necessary to amend or supplement such prospectus in order to comply with the Securities Act and prepare and furnish to all sellers a reasonable number of copies of a supplement to or an amendment of such prospectus which will correct such statement or omission or effect such compliance; (v) as expeditiously as possible, use its best efforts to register or qualify such Warrant Shares under such other securities or blue sky laws of such jurisdictions as such seller shall reasonably request (insofar as the registration thereof shall be permitted under applicable law) and do any and all other acts and things which may be necessary or desirable to enable such seller to consummate the public sale or other disposition in each such jurisdiction of the Warrant Shares included in the registration statement; provided, that, the Issuer shall not be required to consent to the general service of process or to qualify to do business in any jurisdiction where it is not then qualified; (vi) use its best efforts to keep the Holders of such Warrant Shares informed of the Issuer's best estimate of the earliest date on which such registration statement or any post-effective amendment or supplement thereto will become effective and will promptly notify such Holders and the managing underwriters, if any, participating in the distri- bution pursuant to such registration statement of the following: (A) when such registration statement or any post-effective amendment or supplement thereto becomes effective or is approved; (B) of the issuance by any competent authority of any stop order suspending the effectiveness or qualification of such registration statement or the prospectus then in use or the initiation or threat of any proceeding for that purpose; and (C) of the suspension of the - 140 - qualification of any Warrant Shares included in such registration statement for sale in any jurisdiction; (vii) furnish to the sellers of such Warrant Shares, on the date that such Warrant Shares are delivered to the underwriters for sale in connection with a registration, if such Warrant Shares are being sold through underwriters or, if such Warrant Shares are not being sold through underwriters, on the date that the registration statement with respect to such Warrant Shares becomes effective, (A) an opinion of the independent counsel representing the Issuer for the purposes of such registration, dated such date, in form and substance as is customarily given by counsel to underwriters in an underwritten public offering, and (B) a "comfort" letter dated such date from the independent public accountants who have certified the Issuer's financial statements included in the registration statement, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering; (viii) make available to its security holders, as soon as practicable, an earnings statement covering a period of at least twelve months which satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; (ix) cooperate with the sellers of such Warrant Shares and the underwriters, if any, of such Warrant Shares, give each seller of such Warrant Shares, and the underwriters, if any, of such Warrant Shares or, if there is no underwriter, the sellers, and their respective counsel and accountants, such access to its books and records and such opportunities to discuss the business of the Issuer with its officers and independent public accountants as shall be necessary to enable them to conduct a reasonable investigation within the meaning of the Securities Act, and in the event that Warrant Shares are to be sold in an underwritten offering, enter into an underwriting agreement containing customary representations and warranties, covenants, conditions and indemnification provisions; and (x) in the case of the registration effected pursuant to Section 15(a) and each registration of Warrant Shares pursuant to Section 15(b), pay all costs and expenses incident to the performance and compliance by the - 141 - Issuer of this Section 15, including, without limitation, (A) all registration and filing fees; (B) all printing expenses; (C) all fees and disbursements of counsel and independent public accountants for the Issuer; (D) all blue sky fees and expenses (including fees and expenses of counsel in connection with blue sky surveys); (E) the entire expense of any special audits required by the rules and regulations of the Commission; (F) the cost of distributing prospectuses in preliminary and final form as well as any supplements thereto; (G) the fees and expenses of one counsel for the Holders of the Warrant Shares being registered and (H) underwriting discounts and commis- sion relating to the Warrant Shares sold. (g) (i) the issuer will indemnify and hold harmless each seller thereof and each other person, if any, who controls such seller within the meaning of the Securities Act or the Exchange Act from and against any and all losses, claims, damages, liabilities and legal and other expenses (including costs of investigation) caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement under which such Warrant Shares were registered under the Securities Act, any prospectus or preliminary prospectus contained therein or any amendment or supplement thereto, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to such seller and furnished to the Issuer in writing by such seller expressly for use therein. (ii) it shall be a condition to the obligation of the Issuer to effect a registration of Warrant Shares under the Securities Act pursuant hereto that each seller, severally and not jointly, indemnify and held harmless the issuer and each person, if any, who controls the issuer within the meaning of the Securities Act or the Exchange Act to the same extent as the indemnity from the Issuer in the foregoing paragraph (i), but only with reference to information relating to such seller furnished to the Issuer in writing by such seller expressly for use in the registration statement, any prospectus or preliminary prospectus contained therein or any amendment or supplement thereto. (iii) In case any claim shall be made or any proceeding (including any governmental investigation) shall be instituted involving any indemnified party in respect of which indemnity may be sought pursuant to this Section 15(g), such indemnified party shall - 142 - promptly notify the indemnifying party in writing of the same; provided, that failure to notify the indemnifying party shall not relieve it from any liability it may have to an indemnified party otherwise that under this Section 15(g). The indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party in such proceeding and shall pay the fees and disbursements of such counsel. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and disbursements of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party shall have failed to retain counsel for the indemnified party as aforesaid, (ii) the indemnifying party and such indemnified party shall have mutually agreed to the retention of such counsel or (iii) representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding; provided, that the Issuer shall not be liable for the fees and disbursements of more than one additional counsel for all indemnified parties. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Section 16. Amendments and Waivers. Any provisions of this Agreement may be amended, supplemented, waived, discharged or terminated by a written instrument signed by the Issuer and the Majority Holders; provided, that the Exercise Price may not be increased or the number of Warrant Shares issuable upon exercise of the Warrants may not be reduced (except pursuant to Section 12 hereof) and this Section may not be amended except with the consent of all the Holders. Section 17. Specific Performance. The Holders shall have the right to specific performance by the Issuer of the provisions of this Agreement. The Issuer hereby irrevocably waives, to the extent that it may do so under applicable law, any defense based on the adequacy of a remedy at law which may be asserted as a bar to the remedy of specific performance in any action brought against the Issuer for specific performance of this Agreement by the Holders. Section 18. Notices. (a) Any notice or demand to be given or made by the Holders to or on the Issuer pursuant to this Agreement shall be sufficiently given or made if sent by mail, first-class or registered, postage prepaid, addressed to the Issuer at the Warrant Office. (b) Any notice to be given by the Issuer to the Holders shall be sufficiently given if sent by first-class mail, postage prepaid, addressed to such Holder as such Holder's name and address - 143 - shall appear on the Warrant Register or the Common Stock registry of the Issuer, as the case may be. Section 19. Binding Effect. This Agreement shall be binding upon and insure to the sole and exclusive benefit of the Issuer, its successors and assigns, and each Holder from time to time party hereto. Section 20. Continued Validity. This Agreement shall remain in full force and effect notwithstanding the exercise of the Warrants by one or more Holders. Section 21. Counterparts. This Agreement may be executed in one or more separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Section 22. GOVERNING LAW. THIS AGREEMENT AND EACH WARRANT CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Section 23. Severability. Any provisions of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or rendered unenforceable such provision in any other jurisdiction. Section 24. Benefits of This Agreement. Nothing in this Agreement shall be construed to give to any Person other than the Issuer and each Holder any legal or equitable right, remedy or claim under this Agreement. - 144 - IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be duly executed and delivered by their proper and duly authorized officers, as of the date and year first above written. Date: January 31, 1996 DELAWARE OTSEGO CORPORATION WALTER G. RICH -------------------------------------- Walter G. Rich President and Chief Executive Officer CREDITANSTALT CORPORATE FINANCE, INC., as a Holder CHRISTINA T. SCHOEN -------------------------------------- Christina T. Schoen Vice President DIETER BOEHME -------------------------------------- Dieter Boehme Senior Vice President - 145 - WARRANT CERTIFICATE ------------------- THE WARRANTS AND WARRANT SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAW. SUCH WARRANTS AND WARRANT SHARES MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THE WARRANT AGREEMENT, DATED AS OF JANUARY 31, 1996, BETWEEN THE ISSUER AND THE INITIAL HOLDER OF THE WARRANTS NAMED THEREIN, A COMPLETE AND CORRECT COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE ISSUER AND WILL BE FURNISHED TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE. THE WARRANTS AND WARRANT SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN OTHER TERMS AND CONDITIONS SET FORTH IN THE AMENDED AND RESTATED WARRANT AGREEMENT. No. ___ 60,000 Warrants WARRANT CERTIFICATE This Warrant Certificate certifies that CREDITANSTALT CORPORATE FINANCE, INC., or registered assigns, is the registered holder of 60,000 Warrants (the "Warrants") to purchase Common Stock of DELAWARE OTSEGO CORPORATION, a Delaware corporation (the "Issuer"). Each Warrant entitles the holder, but only subject to the conditions set forth herein and in the Warrant Agreement referred to below, to purchase from the Issuer after the Effective Date referred to in the Warrant Agreement (the "Exercise Date") one fully paid and nonassess able share of the Common Stock of the Issuer (the "Warrant Shares") at an exercise price (the "Exercise Price") of $10.00 per Warrant Share payable in lawful money of the United States of America, upon surrender of this Warrant Certificate, execution of the annexed Form of Election to Purchase and payment of the Exercise Price at the office of the Issuer at 1 Railroad Avenue, Cooperstown, New York 13326, or such other address as the Issuer may specify in writing to the registered holder of the Warrants evidenced hereby (the "Warrant Office"). The Exercise Price and number of Warrant Shares purchasable upon exercise of the Warrants are subject to adjustment upon the occurrence of certain events as set forth in the Warrant Agreement. As more particularly described in the Warrant Agreement, the Issuer is entitled to purchase all or any part of the outstanding Warrants on the terms and subject to the conditions specified in the Warrant Agreement. The Issuer may deem and treat the registered holder(s) of the Warrants evidenced hereby as the absolute owner(s) thereof (notwith- standing any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise and of any distribution to the holder(s) hereof, and for all other purposes, and the Issuer shall not be affected by any notice to the contrary. - 146 - Warrant Certificates, when surrendered at the Warrant Office by the registered holder hereof in person or by a legal representative duly authorized in writing, may be exchanged, in the manner and subject to the limitations provided in the Warrant Agreement, but without payment of any service charge, for another Warrant Certificate or Warrant Certificates of like tenor evidencing in the aggregate a like number of Warrants. Upon due presentment for registration of transfer of this Warrant Certificate at the office of the Issuer at the above-mentioned address, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued in exchange for this Warrant Certificate to the trans feree(s) and, if less than all the Warrants evidenced hereby are to be transferred, to the registered holder hereof, subject to the limitations provided in the Warrant Agreement, without charge except for any transfer tax or other governmental charge imposed as a result of the transfer thereof. This Warrant Certificate is one of the Warrant Certificates referred to in the Warrant Agreement, dated as of January 31, 1996 (the "Warrant Agreement"), between the Issuer and the Initial Holder of Warrants named therein. Said Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Issuer and the holders. IN WITNESS WHEREOF, the Issuer has caused this Warrant Certifi cate to be signed by its duly authorized officers and has caused its corporate seal to be affixed hereunto. Date: January 31, 1996 DELAWARE OTSEGO CORPORATION WALTER G. RICH --------------------------- Walter G. Rich President and Chief Executive Officer (CORPORATE SEAL) ATTEST: NATHAN R. FENNO - --------------------------- Nathan R. Fenno Secretary - 147 - STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) The foregoing instrument was acknowledged before me this 31st day of January, 1996 by Walter Rich, the President of Delaware Otsego Corporation, a Delaware corporation, on behalf of the Corporation. Ann B. Silva ---------------------- Notary Public My commission expires: May 31, 1996 ------------ - 148 - ANNEX to Form of Warrant Certificate [FORM OF ELECTION TO PURCHASE] (To be executed upon exercise of Warrant) The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase ___ Warrant Shares and herewith tenders payment for such Warrant Shares to the order of the Issuer in the amount of $___________ in accordance with the terms hereof. The undersigned requests that a certificate for such Warrant Shares be registered in the name of _______________ whose address is _______________________________ and that such certificate be delivered to _______________________ whose address is _____________________________. If said number of Warrant Shares is less than all of the Warrant Shares purchasable hereunder, the undersigned requests that a new Warrant Certificate representing the remaining balance of the Warrant Shares be registered in the name of ________________________ whose address is ____________________________________ and that such Warrant Certificate be delivered to __________________________ whose address is __________________________________________. Signature: (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) Date: ---------------- - 149 - EXHIBIT B TO WARRANT AGREEMENT WARRANT REGISTER Original Number Warrant of Warrants and Certificate Names and Addresses Certificate No. Warrant Shares Legended (Y/N) of Warrant Holders - ------------------- ----------------- ------------------ ------------------- - 150 - EX-10.30 4 DEFICIENCY GUARANTEE DEFICIENCY GUARANTEE, dated as of January 31, 1996 (the "Guarantee") made by Delaware Otsego Corporation, a New York corporation ("DOC"), CSX Transportation, Inc., a Virginia corporation ("CSX"), Charles Brenner ("Brenner"; and together with DOC and CSX, the "Guarantors"), in favor of Creditanstalt Corporate Finance, Inc. ("CCF"), as agent (the "Agent") for certain Lenders (as hereinafter defined). Capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement (as hereinafter defined). WHEREAS, The Toledo, Peoria and Western Railroad Corporation ("Newco") and Toledo, Peoria & Western Railway Corporation ("TPW", and together with Newco, the "Borrowers"), the Agent and certain lenders (including CCF, the "Lenders") have entered into a Credit Agreement dated as of the date hereof (as amended, modified and supplemented from time to time, the "Credit Agreement"); WHEREAS, the Guarantors have substantial economic and voting interests in Newco; WHEREAS, it is a condition to the effectiveness of the Credit Agreement and to all extensions of credit thereunder that the Guarantors shall have executed and delivered to the Agent this Guarantee; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the Guarantors, and, in order to induce the Lenders to extend credit under the Credit Agreement, each of the Guarantors agrees with the Agent as follows: SECTION 1. Guarantee. (a) Each of the Guarantors hereby unconditionally severally guarantees the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all obligations of every kind or character now or hereafter existing whether matured or unmatured, contingent or liquidated, of the Borrowers under the Credit Agreement and the other Loan Documents, whether for principal, interest, indemnities, fees, expenses or otherwise (all such obligations being collectively referred to as the "Obligations"), and any and all reasonable expenses (including reasonable counsel fees and expenses) incurred by the Agent or the Lenders in enforcing any rights under this Guarantee; provided, that the maximum aggregate amount payable by each Guarantor under this Section 1 shall not exceed such Guarantor's Percentage (as hereinafter defined) of the Maximum Amount (as hereinafter defined); and provided further that no - 151 - demand for payment or performance hereunder may be made prior to the Determination Date (as hereinafter defined). (b) As used herein, the following terms shall have the following meanings: "Collateral" shall have the meaning given such term in the Security Agreement. "Determination Date" shall mean the date as of which (i) the Loans shall be due and payable, whether at stated maturity, by acceleration or otherwise, (ii) the Obligations shall not have been paid in full and (iii) Total Collateral Security in an amount equal to 75% of the stated value set forth on Schedule I for such Total Collateral Security shall have been sold. "Guarantor's Percentage" shall mean, as to any Guarantor, the percentage provided on Schedule II annexed hereto. "Maximum Amount" shall mean up to $2,000,000 of any shortfall between Realized Liquidation Receipts and the remaining unpaid Obligations. "Mortgaged Property" shall have the meaning given such term in the Mortgages. "Pledged Stock" shall have the meaning given such term in the Pledge Agreements, dated as of the date hereof, between the Agent and each of Newco and Marksman, and the Pledge and Hypothecation Agreement, dated as of the date hereof, among DOC, CSX, Brenner and the Agent, as the same may be amended, modified and supplemented from time to time. "Realized Liquidation Receipts" shall mean the proceeds of any Total Collateral Security net of collection costs which is Sold. "Sold" shall mean, with respect to the Total Collateral Security, any of such assets or stock which is sold by public or private sale, through foreclosure (including without limitation if the Agent bids in an amount at such foreclosure) or barter or as otherwise provided under the Uniform Commercial Code or other applicable law; provided, that any item of Collateral or Mortgaged Property shall be deemed to have been Sold if such item is abandoned by the Borrowers, if it cannot be sold and is of negligible value (for purposes of this Guarantee, assets valued at less than $1,000 shall be presumed to be of negligible value), or if it is not available for sale because it has previously been disposed of by the Borrowers and provided further that accounts receivable which are outstanding for 90 days or more after payment - 152 - is due shall be deemed to have been Sold, and provided further that if there are no bids at any public sale or foreclosure sale, the items of Total Collateral Security to have been sold at such sales shall be deemed to be Sold for purposes of calculating, under clause (iii) of the definition of Determination Date, whether the Determination Date has occurred, but shall not be deemed to be Sold for purposes of calculating the shortfall of the Maximum Amount. "Total Collateral Security" shall mean the Collateral, the Mortgaged Property, the Pledged Stock, and such other collateral security as shall have been granted pursuant to the Security Documents. SECTION 2. Type of Guarantee. The Guarantors and the Agent hereby agree that the Guarantee herein provided is a guarantee of collection. SECTION 3. Guarantee Absolute. Subject to the provisions of Section 1 hereof, the Guarantors severally guarantee that the Obligations will be paid strictly in accordance with the terms of the Credit Agreement, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Agent and the Lenders with respect thereto and is not subject to any setoff, counterclaim or defense. The obligations of each of the Guarantors hereunder are independent of the obligations of other persons under any other related document, and a separate action or actions may be brought and prosecuted hereunder whether the action is brought against any such person or whether any such person is joined in any such action or actions, except that the obligations of each of the Guarantors is subject to the Agent's prior resort to the Borrowers and the Total Collateral Security as set forth in Section 1 hereof. Subject to the provisions of Section 1 hereof, the liability of the Guarantors under this Guarantee shall be absolute and unconditional, and shall not be affected or released in any way, irrespective of: (i) any lack of validity or enforceability of the Credit Agreement, the Security Documents or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to departure from the Credit Agreement or the Security Documents, includ- ing, but not limited to, an increase or decrease in the Obligations; (iii) any taking and holding of Collateral or any other collateral or additional guaranties for all or any of the Obligations, or any amendment, alteration, exchange, substitu- tion, transfer, enforcement, waiver, subordination, termina- - 153 - tion, or release of any Collateral or any other collateral or such guaranties, or any non-perfection of any Collateral or any other collateral or any consent to departure from any such guaranty; (iv) any manner of application of Collateral or any other collateral, or proceeds thereof, to all or any of the Obliga- tions, or the manner of sale of any Collateral or any other collateral; (v) any consent by the Agent and the Lenders to the change, restructuring or termination of the corporate structure or existence of the Borrowers or any affiliate thereof and any corresponding restructuring of the Obligations, or any other restructuring or refinancing of the Obligations or any portion thereof; (vi) any modification, compromise, settlement or release by the Agent and the Lenders, by operation of law or otherwise, collection or other liquidation of the Obligations or the liability of the Borrowers and any other guarantor, or of the Total Collateral Security, in whole or in part, and any refusal of payment by the Agent and the Lenders, in whole or in part, from any obligor or guarantor in connection with any of the Obligations, whether or not with notice to, or further assent by, or any reservation of rights against, the Guarantors; (vii) the waiver of the performance or observance by the Borrowers of any agreement, covenant, term or condition to be performed by it; (viii) the voluntary or involuntary liquidation, dissolution, sale of all or substantially all of the property, marshalling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of credi- tors, reorganization, arrangement, composition or readjustment of, or other similar application or proceeding affecting either or both of the Borrowers or any of their assets; (ix) the release of the Borrowers from the performance or observance of any agreements, covenants, terms or conditions contained in the Credit Agreement or the Security Documents by operation of law or otherwise; or (x) any other circumstance (including, but not limited to, any statute of limitations) which might otherwise consti- tute a defense available to, or a discharge of, the Obligations. - 154 - Without limiting the generality of the foregoing, subject to the provisions of Section 1 hereof, each of the Guarantors hereby consents, and hereby agrees, that the rights of the Agent for the benefit of the Lenders hereunder, and the liability of such Guarantor hereunder, shall not be affected by any and all releases of any of the Total Collateral Security from the liens and security interests created by the Credit Agreement, the Security Documents or any other document. This Guarantee shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by the Lenders upon the insolvency, bankruptcy or reorganization of the Borrowers or otherwise, all as though such payment had not been made. SECTION 4. Waivers. Each of the Guarantors waives presentment to, demand for payment from and protest to the Borrowers, or any other guarantor of any of the Obligations, and also waives notice of acceptance of its guarantee and notice of protest for non-payment. The Guarantors hereby further waive promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations and this Guarantee and any requirement that the Agent or the Lenders protect, secure, perfect or insure any security interest or lien or any property subject thereto or exhaust any right or take any action against the Borrowers, or any other person or any of the Total Collateral Security. SECTION 5. Covenants. (a) Each of DOC and CSX, respectively, hereby agrees that it shall furnish to the Agent: (a) within 90 days after the end of each fiscal year, a copy of the report on Form 10-K (or its equivalent) for such fiscal year which DOC and CSX Corporation shall have filed with the Securities and Exchange Commission; (b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year, a copy of the report on Form 10-Q (or its equivalent) for such fiscal year which DOC and CSX Corporation shall have filed with the Securities and Exchange Commission; and (c) promptly upon the distribution thereof, a copy of the annual report for such year for DOC and CSX Corporation. (b) Brenner hereby agrees that, so long as he is a party to this Agreement, he will deliver to the Agent annually one of the following: (i) a statement of net worth, (ii) his tax return for such year or (iii) another form of information reasonably satisfactory to the Agent as to Brenner's financial position. - 155 - SECTION 6. Representations. Each of DOC and CSX hereby represent and warrant that (a) it is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of its organization, (b) has all requisite power and authority to own its property and assets and to carry on its business as now conducted and as proposed to be conducted, (c) is qualified to do business in every jurisdiction where such qualification is required, except where the failure so to qualify would not result in a material adverse effect, and (d) has the corporate power and authority to execute, deliver and perform its obligations under this Guarantee. SECTION 7. Subrogation. Upon payment by each Guarantor of any sums to the Agent for the benefit of the Lenders hereunder, all rights of such Guarantor against the Borrowers arising as a result thereof by way of right of subrogation or otherwise, shall in all respects be subordinate and junior in right of payment to the prior final and indefeasible payment in full of all the Obligations. If any amount shall be paid to or property transferred to any Guarantor for the account of the Borrowers, which payment arises as a result of such Guarantor's payment of its obligations hereunder, such amount or property shall be held in trust for the benefit of the Agent and shall forthwith be paid or transferred to the Agent for the benefit of the Lenders to be credited and applied to the Obligations, whether matured or unmatured. SECTION 8. Execution of Loan Documentation. The Guarantors consent to and authorize the due execution and delivery by the necessary parties of each of the Credit Agreement, the Security Documents and any and all other related documentation executed in connection with the foregoing. SECTION 9. Amendments, Etc. No amendment or waiver of any provision of this Guarantee nor consent to any departure by the Guarantors herefrom shall in any event be effective unless the same shall be in writing and signed by the Agent and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given, provided, however, that no amendment, waiver or consent shall, unless in writing and signed by the Agent and each of the Guarantors, (a) further limit the liability of the Guarantors hereunder, (b) postpone any date fixed for payment hereunder, or (c) amend this Section 8, and provided, further, that no amendment, waiver or consent shall, unless in writing and signed by the Agent, affect the rights or duties of the Agent, under or in connection with this Guarantee. SECTION 10. Notices, Etc. All notices and other communications provided for hereunder shall be in writing and shall be given in the manner set forth in Section 9.01 of the Credit Agreement and with copies specified therein, if to a Guarantor, addressed to it at the address set forth on its signature page hereof, and if to the Agent, to it at its address specified in the Credit Agreement. - 156 - SECTION 11. No Waiver, Remedies. No failure on the part of the Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law, the Credit Agreement or the Security Documents. SECTION 12. Continuing Guarantee; Transfer of Note; Release of Guarantee. This Guarantee is a continuing guaranty and shall (i) remain in full force and effect until the payment in full of all of the Obligations and all other amounts payable under this Guarantee, (ii) be binding upon the Guarantors, their successors and assigns, and (iii) inure to the benefit of and be enforceable by the Agent and its respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii), the Agent may assign or otherwise transfer any instrument of indebtedness of the Borrowers held by it, or any interest therein, or grant any participation in its rights or obligations under the Credit Agreement and the Security Documents subject to the provisions of the Credit Agreement and the Security Documents to any other person, and such other person shall thereupon become vested with all the rights in respect thereof granted to the Agent. SECTION 13. Jurisdiction; Waiver of Jury Trial. (a) EACH OF THE GUARANTORS HEREBY IRREVOCABLY SUBMITS ITSELF TO THE JURISDICTION OF BOTH THE SUPREME COURT OF THE STATE OF NEW YORK, NEW YORK COUNTY, AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, FOR THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR RELATING TO THIS Guarantee, AND HEREBY WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF THE ABOVE- NAMED COURTS FOR ANY REASON WHATSOEVER, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THIS GUARANTEE MAY NOT BE ENFORCED IN OR BY SUCH COURTS. NONE OF THE GUARANTORS OR THE AGENT SHALL SEEK A JURY TRIAL IN ANY PROCEEDING ARISING OUT OF THIS GUARANTEE. NONE OF THE GUARANTORS OR THE AGENT WILL SEEK TO CONSOLIDATE SUCH PROCEEDING INTO ANY ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. EACH OF THE GUARANTORS AGREES THAT ANY ACTION BROUGHT BY IT AGAINST THE AGENT ARISING OUT OF OR RELATED TO THIS GUARANTEE SHALL ONLY BE BROUGHT IN ONE OF THE AFOREMENTIONED COURTS. SECTION 14. Applicable Law. THIS GUARANTEE SHALL IN ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE. - 157 - SECTION 15. Expenses of the Agent. Subject to the limitation set forth in Section 1 hereof, the Guarantors agree to pay all reasonable and necessary out-of-pocket expenses incurred by the Agent in connection with the enforcement or protection of its rights or the rights of the Agent generally in connection with the Guarantee including, but not limited to, the reasonable fees and disbursements of counsel for the Agent. SECTION 16. Cause of Action. Each of the under-signed hereby agrees and acknowledges that this Guarantee is an instrument for the payment of money, and hereby consents that the Agent, at its sole option, in the event of a default by the Guarantor in the payment of any of the moneys due hereunder, shall have the right to bring a motion for summary judgment in lieu of complaint under New York CPLR Section 3213. - 158 - IN WITNESS WHEREOF, each of the Guarantors has caused this Guarantee to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. Date: January 31, 1996 DELAWARE OTSEGO CORPORATION WALTER G. RICH --------------------------- Walter G. Rich President 1 Railroad Ave. Cooperstown, NY 13326 CSX TRANSPORTATION, INC. A. B. AFTOORA --------------------------- A. B. Aftoora Vice President 500 Water Street Jacksonville, Fl 32202 CHARLES BRENNER --------------------------- Charles Brenner P.O. Box 10 Maplewood, NJ 07040 - 159 - Schedule I ---------- Assets Stated Value Locomotives, other $1,200,000 rolling stock, vehicles and equipment Real property and $16,600,000 all improvements - 160 - Schedule II ----------- Guarantors Percentages DOC 40% CSX 20% Charles Brenner 33% - 161 - EX-10.31 5 CASH COLLATERAL AGREEMENT CASH COLLATERAL AGREEMENT, dated as of January 31, 1996, among Delaware Otsego Corporation ("DOC"), CSX Transportation, Inc. ("CSX"), and Charles Brenner ("Brenner", and collectively, with DOC and CSX, the "Pledgors") and CREDITANSTALT CORPORATE FINANCE, INC. ("CCF"), as agent for the lenders (the "Lenders") parties to that certain Credit Agreement, dated as of January 31, 1996 (as amended, modified and supplemented from time to time, the "Credit Agreement") among The Toledo, Peoria and Western Railroad Corporation ("Newco"), Toledo, Peoria & Western Railway Corporation ("TPW Railway" and together with Newco, the "Borrowers") named therein and CCF, as agent for the Lenders (in such capacity, the "Agent"). WHEREAS, pursuant to the Credit Agreement, the Borrowers have executed as part of the Loan Documents a Revolving Credit Note in the principal sum of $1,000,000.00 and a Term Note in the principal sum of $7,000,000.00, in favor of the Lenders; and WHEREAS, in order to secure the Borrowers' due and punctual payment of principal of and interest on the Term Loans and the Term Notes and all other present and future, fixed or contingent, monetary obligations of the Borrowers to the Lenders and the Agent under the Loan Documents relative to the Term Loans and the Term Notes (including those payable under Section 9.05 of the Credit Agreement) (collectively, the "Obligations"), and in order to induce the Lenders to make the Loans under the Credit Agreement, the Pledgors have determined to pledge and hypothecate one million dollars ($1,000,000.00) as set forth herein; and NOW, THEREFORE, the parties hereto agree as follows: Section 1. Definitions. All capitalized terms herein not otherwise defined herein shall have the respective meanings assigned to such terms in the Credit Agreement. Section 2. Cash Collateral. (a) The Agent will cause Creditanstalt-Bankverein, as its agent, to establish and maintain on its books at an office in New York City a cash collateral account entitled "TPW Cash Collateral Account" (the "Cash Collateral Account") which shall be subject to debit and withdrawal solely by the Agent as provided herein. (b) Pledgors are, on the date hereof, depositing One Million Dollars ($1,000,000.00) with the Agent for credit to the Cash Collateral Account. (c) The funds in the Cash Collateral Account shall be deposited, in the first instance, in an interest-bearing account at the full branch of Creditanstalt-Bankverein. - 162 - After the Closing Date, the Pledgors may, once per year, direct the Agent to invest the funds in (i) short-term United States government obligations with a maturity not to exceed six months or (ii) a deposit account at the full branch of Creditanstalt-Bankverein provided, that DOC shall give written notice on or before the date which is two Business Days prior to the maturity of any investment as to the investment for the next two six-month periods. Whenever any investment hereunder shall become due, or otherwise would become due, on a day that is not a Business Day, such investment shall be deemed to mature on the next Business Day. Failure by DOC to specify a different investment at the end of the second six-month period shall constitute authority for the Agent to continue the investment so maturing. All income earned on the balance in the Cash Collateral Account shall be paid to DOC semi- annually for distribution to the Pledgors so long as no Default under Article VII(b) and (c) of the Credit Agreement has occurred. (d) As collateral security for the prompt payment and performance of the Obligations, the Pledgors hereby pledge and grant a security interest in the Cash Collateral Account, all balances therein, all earnings thereon, and all proceeds thereof, to the Agent for the benefit of the Lenders. (e) The Agent shall apply amounts in the Cash Collateral Account in accordance with Section 3 of this Agreement. Section 3. Default. If any Event of Default under Article VII(b) or (c) of the Credit Agreement shall have occurred and be continuing, the Agent shall have all the rights and remedies of a secured party under the New York Uniform Commercial Code, or other applicable law, and all rights and remedies provided herein and in the Credit Agreement and the other Loan Documents, all of which rights and remedies shall, to the full extent permitted by law, be cumulative. Without limiting the generality of the foregoing, upon the occurrence of an Event of Default under Article VII(b) or (c) of the Credit Agreement and the acceleration of or demand for payment of the Obligations, the Agent may apply any cash then held by the Agent hereunder to: (a) First, the payment of the costs and expenses, liabilities and advances made or incurred by the Agent in connection with its duties hereunder; (b) Second, the payment of the Obligations, pro rata among the Lenders, in accordance with the provisions of the Loan Documents; and - 163 - (c) Third, to the Pledgors, or their successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. Section 4. No Waiver. No failure on the part of the Agent to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Agent of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein provided are cumulative and are exclusive of any remedies provided by law. Section 5. Duration. The Cash Collateral Account and this Agreement shall remain in full force and effect until the earlier to occur of: (i) the indefeasible payment in full of the Term Loans and all other monetary obligations in respect thereof and (ii) the first fiscal year on or after December 31, 1998 in which the Borrower's EBITDA as reported on their audited consolidated statements of income is $4,000,000 or greater. Upon the occurrence of either of the foregoing events, any balance remaining in the Cash Collateral Account shall be paid to the Pledgors and this Agreement shall thereupon terminate. Section 6. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which taken together shall constitute but one instrument. Section 7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. Section 8. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Pledgors and the Agent and their respective successors and assigns; provided, that the Pledgors may not assign their rights or obligations hereunder without the prior written consent of the Agent, except that Brenner may assign his rights hereunder to DOC. Section 9. Appointment. The Pledgors hereby appoint the Agent the attorney-in-fact of the Pledgors, with full power of substitution, for the purposes of carrying out the provisions and intentions of this Agreement and taking any action and executing any instrument which the Agent may deem necessary or desirable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with an interest; and the Pledgors also agree that, from time to time upon the written request of the Agent, it will take such action and execute any such instruments as the Agent may request in order fully to carry out the provisions and intentions of this Agreement. - 164 - IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. Date: January 31, 1996 DELAWARE OTSEGO CORPORATION WALTER G. RICH ------------------------------------- Walter G. Rich President and Chief Executive Officer CSX TRANSPORTATION, INC. A. B. AFTOORA ------------------------------------- A. B. Aftoora Vice President CHARLES BRENNER ------------------------------------- Charles Brenner CREDITANSTALT CORPORATE FINANCE, INC., as Agent DIETER BOEHME ------------------------------------- Dieter Boehme Senior Vice President CHRISTINA T. SCHOEN ------------------------------------- Christina T. Schoen Vice President - 165 - EX-21 6 EXHIBIT 21 ---------- SUBSIDIARIES OF REGISTRANT -------------------------- STATE OF NAME OF SUBSIDIARY INCORPORATION - ------------------ ------------- Cooperstown and Charlotte Valley Railway Corporation New York Central New York Railroad Corporation New York Syracuse, Binghamton and New York Railroad Corporation New York Lackawaxen and Stourbridge Railroad Corporation Pennsylvania Delaware Otsego Equipment Corporation New York Fonfulco, Inc. New York The New York, Susquehanna and Western Railway Corporation New Jersey Susquehanna Properties, Inc. New York Staten Island Railway Corporation New York Delta Warehousing Corporation New Jersey Rahway Valley Company, Lessee New Jersey Rahway Valley Railroad Company New Jersey Susquehanna Bulk Systems, Inc. New Jersey - 166 - EX-23 7 Exhibit 23 - Consent of Independent Auditors - -------------------------------------------- We consent to the incorporation by reference in the Registration Statement (Form S-8 and Form S-3 No. 33-34587) pertaining to the 1987 Stock Option Plan of Delaware Otsego Corporation of our report dated February 26, 1996, with respect to the consolidated financial statements of Delaware Otsego Corporation included in this Annual Report (Form 10-K) for the year ended December 31, 1995. Ernst & Young LLP Syracuse, New York March 27, 1996 - 167 - EX-27 8 ARTICLE 5 FINANCIAL DATA SCHEDULE FOR 12/31/95 10-K405.
5 1,000 Dec-31-1995 Jan-01-1995 Dec-31-1995 12-MOS 1213 0 5406 0 742 10268 92401 29414 74778 15552 16382 0 0 202 32244 74778 34524 34524 0 36086 0 0 1465 2493 878 1615 0 0 0 1615 1.00 .91
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