Common use of The Problem Clause in Contracts

The Problem. This operation changed in late 1994, when a pier on the south approach span to the bridge shifted as a train passed over, throwing the track out of alignment (see Figure 3). Conrail, which had seen freight traffic slowly decline on the NEC, chose not to repair the bridge, instead re-routing trains into an alternate yard in Newark, Delaware (”Chrysler Yard”). Edgemoor Yard was essentially abandoned, and local freight to shippers north of Wilmington was handled via Philadelphia or moved through Wilmington’s passenger station. Freight for and from southern Delaware, the Delmarva Peninsula (a peninsula divided between Delaware, Maryland, and Virginia – hence the name Delmarva – and separated from land to the west by Chesapeake Bay), and the Port of Wilmington moved from Harrisburg and points west via Perryville, Maryland, thence north on Amtrak’s NEC to the Chrysler Yard and then via ▇▇▇▇▇▇ to the Delmarva Secondary. Most traffic from the south moved north from Washington, DC on Amtrak’s NEC to the Chrysler Yard, thence via ▇▇▇▇▇▇. The line between ▇▇▇▇▇ and the Shellpot Bridge saw only train movements to and from the Port of Wilmington. The State of Delaware grew concerned that the awkward routing used by Conrail to serve the Port of Wilmington and the southern part of the state represented an economic cost in terms of foregone rail traffic, increased truck traffic, longer transit times and poorer service. The state has a program to subsidize rail service on two “short line” (small) railroads and a general interest in moving more freight traffic by rail rather than on the highway. However, before the state could initiate discussions with Conrail executives, other events intervened. In 1996, CSX Transportation announced an agreement with Conrail’s Board of Directors for CSX to purchase and merge with Conrail. Norfolk Southern Corporation immediately announced its opposition and mounted a hostile tender offer for Conrail stock. The bidding war to capture Conrail shareholders’ favor eventually drove the price of Conrail stock to a total value of $10.4 billion. The Conrail Board of Directors in March of 1997 finally agreed to allow CSX to reach a separate agreement with NS that would permit the two railroads to acquire Conrail as a stock purchase7 and then split Conrail between them on the basis of long term leases of the assets. NSC received rights to 58% of the track mileage and CSXT to 42%.8 The two railroads decided what parts of Conrail would go to each. NS received all trackage within the State of Delaware, along with Conrail’s “trackage rights”9 on Amtrak’s Northeast Corridor and the right to serve the Port of Wilmington. Railroad mergers and acquisitions require the approval of the Surface Transportation Board (STB), an independent economic regulatory agency organizationally housed within the United States Department of Transportation (safety regulation of the rail industry is handled by the Federal Railroad Administration, one of the modal administrations within USDOT). In implementing the broad public interest standard that governs its review of rail mergers, the STB is directed to consider a variety of factors, including the effect of the transaction on the adequacy of transportation to the public, the public interest of including other carriers in the area, the total fixed charges that would result, the interests of affected rail employees and the competitive impacts of the transaction. During the hearing process that follows a major rail merger application, presentations addressing the relevant criteria are made by the applicant railroads and also by other interested parties, such as labor unions, shippers, states, localities and other railroads. In addition to presenting their views on whether the transaction is in the public interest, these other parties may also seek 7 This stock acquisition approach to a three-party rail merger saved billions of dollars in possible tax consequences by avoiding an outright property acquisition of Conrail. 8News release, Surface Transportation Board, May 3, 1998. ▇▇▇▇://▇▇▇.▇▇▇.▇▇▇.▇▇▇/▇▇▇▇▇▇▇▇.▇▇▇/29d1486804c22b1785256e59005e7e87/ab8be6dd79209f8f85256e8300 529cac?OpenDocument 9 Trackage rights is a term for an agreement under which one railroad runs on track owned by another. Normally, a fee is paid for access – Conrail, and later NS, paid Amtrak a per-car-mile charge. specific conditions that they want the STB to impose in the event it approves the transaction. The STB reviews the merits of the transaction as a whole and of each particular request for conditions, and issues a decision that addresses the railroads’ filings, the interests of the various other participants in the process and, ultimately, the public interest.

The Problem. This operation changed in late 1994, when a pier on the south approach span to the bridge shifted as a train passed over, throwing the track out of alignment (see Figure 3). Conrail, which had seen freight traffic slowly decline on the NEC, chose not to repair the bridge, instead re-routing trains into an alternate yard in Newark, Delaware (”Chrysler Yard”). Edgemoor Yard was essentially abandoned, and local freight to shippers north of Wilmington was handled via Philadelphia or moved through Wilmington’s passenger station. Freight for and from southern Delaware, the Delmarva Peninsula (a peninsula divided between Delaware, Maryland, and Virginia – hence the name Delmarva – and separated from land to the west by Chesapeake Bay), and the Port of Wilmington moved from Harrisburg and points west via Perryville, Maryland, thence north on Amtrak’s NEC to the Chrysler Yard and then via ▇▇▇▇▇▇ to the Delmarva Secondary. Most traffic from the south moved north from Washington, DC on Amtrak’s NEC to the Chrysler Yard, thence via ▇▇▇▇▇▇Porter. The line between ▇▇▇▇▇ Ragan and the Shellpot Bridge saw only train movements to and from the Port of Wilmington. The State of Delaware grew concerned that the awkward routing used by Conrail to serve the Port of Wilmington and the southern part of the state represented an economic cost in terms of foregone rail traffic, increased truck traffic, longer transit times and poorer service. The state has a program to subsidize rail service on two “short line” (small) railroads and a general interest in moving more freight traffic by rail rather than on the highway. However, before the state could initiate discussions with Conrail executives, other events intervened. In 1996, CSX Transportation announced an agreement with Conrail’s Board of Directors for CSX to purchase and merge with Conrail. Norfolk Southern Corporation immediately announced its opposition and mounted a hostile tender offer for Conrail stock. The bidding war to capture Conrail shareholders’ favor eventually drove the price of Conrail stock to a total value of $10.4 billion. The Conrail Board of Directors in March of 1997 finally agreed to allow CSX to reach a separate agreement with NS that would permit the two railroads to acquire Conrail as a stock purchase7 and then split Conrail between them on the basis of long term leases of the assets. NSC received rights to 58% of the track mileage and CSXT to 42%.8 The two railroads decided what parts of Conrail would go to each. NS received all trackage within the State of Delaware, along with Conrail’s “trackage rights”9 on Amtrak’s Northeast Corridor and the right to serve the Port of Wilmington. Railroad mergers and acquisitions require the approval of the Surface Transportation Board (STB), an independent economic regulatory agency organizationally housed within the United States Department of Transportation (safety regulation of the rail industry is handled by the Federal Railroad Administration, one of the modal administrations within USDOT). In implementing the broad public interest standard that governs its review of rail mergers, the STB is directed to consider a variety of factors, including the effect of the transaction on the adequacy of transportation to the public, the public interest of including other carriers in the area, the total fixed charges that would result, the interests of affected rail employees and the competitive impacts of the transaction. During the hearing process that follows a major rail merger application, presentations addressing the relevant criteria are made by the applicant railroads and also by other interested parties, such as labor unions, shippers, states, localities and other railroads. In addition to presenting their views on whether the transaction is in the public interest, these other parties may also seek 7 This stock acquisition approach to a three-party rail merger saved billions of dollars in possible tax consequences by avoiding an outright property acquisition of Conrail. 8News release, Surface Transportation Board, May 3, 1998. ▇▇▇▇://▇▇▇.▇▇▇.▇▇▇.▇▇▇/▇▇▇▇▇▇▇▇.▇▇▇/29d1486804c22b1785256e59005e7e87/ab8be6dd79209f8f85256e8300 529cac?OpenDocument 9 Trackage rights is a term for an agreement under which one railroad runs on track owned by another. Normally, a fee is paid for access – Conrail, and later NS, paid Amtrak a per-car-mile charge. specific conditions that they want the STB to impose in the event it approves the transaction. The STB reviews the merits of the transaction as a whole and of each particular request for conditions, and issues a decision that addresses the railroads’ filings, the interests of the various other participants in the process and, ultimately, the public interest.