AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 2004
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REGISTRATION NO. 333-114796
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
CSX TRANSPORTATION, INC.
(Exact name of Registrant as specified in its charter)
<Table>
COMMONWEALTH OF VIRGINIA 4011 54-6000720
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
</Table>
NYC NEWCO, INC.
(Exact name of Registrant as specified in its charter)
<Table>
COMMONWEALTH OF VIRGINIA 4011 51-0500921
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
</Table>
500 WATER STREET, 15TH FLOOR
JACKSONVILLE, FLORIDA 32202
(904) 359-3100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------------
ELLEN M. FITZSIMMONS, ESQ.
SENIOR VICE PRESIDENT -- LAW AND PUBLIC AFFAIRS
CSX TRANSPORTATION, INC.
500 WATER STREET, 15TH FLOOR
JACKSONVILLE, FLORIDA 32202
(904) 359-3100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
WITH COPIES OF ALL COMMUNICATIONS TO:
STEVEN A. COHEN, ESQ.
JAMES COLE, JR., ESQ.
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019
(212) 403-1000
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this registration statement and the date
upon which all other conditions to the exchange offer and consent solicitation
described in the enclosed prospectus and consent solicitation statement have
been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<Table>
<Caption>
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TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) OFFERING PRICE(1), (2) REGISTRATION FEE
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9 3/4% Notes Due June 15, 2020............ $231,000,000 $310,233,000 $39,307(1)(3)
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7 7/8% Notes Due May 15, 2043............. $105,000,000 $122,482,500 $15,519(1)(3)
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Guarantee of the 9 3/4% Notes Due June 15,
2020.................................... $231,000,000 N/A (4)
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Guarantee of the 7 7/8% Notes Due May 15,
2043.................................... $105,000,000 N/A (4)
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- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(f) under the Securities Act based on 42% of the
outstanding principal amount of 9 3/4% Debentures of Consolidated Rail
Corporation, or "Conrail," due June 15, 2020 ($231,000,000) and of 7 7/8%
Debentures of Conrail due May 15, 2043 ($105,000,000), multiplied by the
average of the bid and ask market price on April 20, 2004 for each of the
9 3/4% Debentures of Conrail (135%) and each of the 7 7/8% Debentures of
Conrail (117%), respectively, represented in each case as a percentage of
par, less an amount equal to 42% of the aggregate cash payment to be paid
for each of the 9 3/4% Debentures of Conrail ($7.00 per $1,000 principal
amount of such 9 3/4% Debentures) and for each of the 7 7/8% Debentures of
Conrail ($7.50 per $1,000 principal amount of such 7 7/8% Debentures)
validly tendered in the exchange offer and consent solicitation assuming
100% of the Debentures of Conrail are validly tendered and accepted for
exchange in such exchange offer and consent solicitation.
(2) Exclusive of accrued interest, if any.
(3) Fee previously paid.
(4) The 9 3/4% Notes and the 7 7/8% Notes to be issued by NYC Newco, Inc. will
be guaranteed by CSX Transportation, Inc. Pursuant to Rule 457(n), no
separate fee is required to be paid in respect of the guarantees of the
9 3/4% Notes or the 7 7/8% Notes which are being registered concurrently.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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The information in this prospectus and consent solicitation statement is not
complete and may be changed. We may not sell these securities until the
Registration Statement filed with the Securities and Exchange Commission is
effective. This prospectus and consent solicitation statement is not an offer to
sell these securities and we are not soliciting offers to buy these securities
in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS AND CONSENT SOLICITATION STATEMENT dated May 21, 2004
[CSX TRANSPORTATION, INC. LOGO]
[CONSOLIDATED RAIL CORPORATION LOGO]
[NORFOLK SOUTHERN RAILWAY LOGO]
OFFER TO EXCHANGE AND SOLICITATION OF CONSENTS
CSX Transportation, Inc., or "CSXT," and Norfolk Southern Railway Company, or
"NSR," are offering to exchange any and all outstanding debentures of
Consolidated Rail Corporation, or "Conrail," listed in the table below under
"Conrail Debentures" for (1) a combination of new debt securities, or "New
Exchange Notes," consisting of "New CSXT Notes" and "New NSR Notes" and (2) a
"Cash Payment," all as set forth in the table below, to be paid to all holders
who validly tender their Conrail Debentures, subject to our acceptance.
Conrail is also seeking the consent of the holders of the Conrail Debentures to
a series of proposed amendments to the indenture that governs the terms of the
Conrail Debentures. The proposed amendments will eliminate substantially all of
the restrictive covenants contained in that indenture and will therefore permit
our consummation of the "Conrail Spin Off Transactions." By validly tendering
their Conrail Debentures, holders will be concurrently consenting to these
proposed amendments.
<Table>
<Caption>
CONSIDERATION PER PRINCIPAL AMOUNT
OF CONRAIL DEBENTURES VALIDLY TENDERED FOR EXCHANGE
AGGREGATE -----------------------------------------------------
PRINCIPAL
CONRAIL DEBENTURES AMOUNT
(ELIGIBLE FOR EXCHANGE) OUTSTANDING NEW EXCHANGE NOTES*
- ----------------------------------------- ------------ -----------------------------------------------------
9 3/4% Debentures 42% of New CSXT 9 3/4% Notes Due June 15, 2020
Due June 15, 2020 (CUSIP No. 209864AT4) $550,000,000 58% of New NSR 9 3/4% Notes Due June 15, 2020
7 7/8% Debentures 42% of New CSXT 7 7/8% Notes Due May 15, 2043
Due May 15, 2043 (CUSIP No. 209864AU1) $250,000,000 58% of New NSR 7 7/8% Notes Due May 15, 2043
<Caption>
CONSIDERATION PER PRINCIPAL AMOUNT
OF CONRAIL DEBENTURES VALIDLY TENDERED FOR EXCHANGE
---------------------------------------------------
AGGREGATE
PRINCIPAL
CONRAIL DEBENTURES AMOUNT CASH
(ELIGIBLE FOR EXCHANGE) OUTSTANDING PAYMENT+
- ----------------------- ------------ -------------------------------------
9 3/4% Debentures $231,000,000
Due June 15, 2020 $319,000,000 $7.00
7 7/8% Debentures $105,000,000
Due May 15, 2043 $145,000,000 $7.50
</Table>
- ---------------------
* Subject to the treatment of fractional interests to the extent applicable to
holders of Conrail Debentures who validly tender. The New CSXT Notes and the
New NSR Notes will initially be issued by NYC Newco, Inc., or "NYC Newco," and
PRR Newco, Inc., or "PRR Newco," respectively, and fully and unconditionally
guaranteed, respectively, by CSXT and NSR.
+ Per $1,000 of Conrail Debentures validly tendered. The New Exchange Notes and
Cash Payment will only be paid to holders who validly tender and do not
withdraw their Conrail Debentures on or prior to the expiration date and to
the extent such Conrail Debentures are accepted for exchange.
This exchange offer and consent solicitation is part of a series of related
transactions in connection with the ultimate non-taxable transfer by Conrail of
its ownership interests in two wholly owned subsidiaries, New York Central Lines
LLC, or "NYC," and Pennsylvania Lines LLC, or "PRR," to CSXT and to NSR,
respectively. We refer, collectively, to these transfers and the other related
transactions described herein as the "Conrail Spin Off Transactions."
Except for the interest payable by Conrail on the closing date and the resulting
adjustment in the amount of interest to be paid on the first interest payment
date, the interest rates, terms, payment dates and redemption provisions of the
New Exchange Notes will be identical to those provisions of Conrail Debentures
for which they are exchanged. The New Exchange Notes will have the same
aggregate principal amounts as the Conrail Debentures for which they are
exchanged. The New Exchange Notes will be issued under indentures containing
covenants and events of default substantially similar to those contained in the
existing indentures of CSX Corporation, or "CSX," and Norfolk Southern
Corporation, or "NSC," that govern their respective senior unsecured debt
securities.
THIS EXCHANGE OFFER AND CONSENT SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 2004, UNLESS WE EXTEND IT. WE REFER TO THIS DATE AND
TIME IN THIS PROSPECTUS AND CONSENT SOLICITATION STATEMENT, IF AND AS IT IS
EXTENDED, AS THE "EXPIRATION DATE."
You may withdraw your tendered Conrail Debentures at any time on or prior to the
expiration date. This exchange offer and consent solicitation is described in
detail in this prospectus and consent solicitation statement and we urge you to
read it carefully, including the "Risk Factors" starting on page 22. Neither the
boards of directors of Conrail, CSXT or NSR nor any other person is making any
recommendation as to whether or not you should tender your Conrail Debentures in
this exchange offer and consent solicitation.
None of CSXT, NSR, Conrail or any other person will receive any proceeds from
the issuance of the New Exchange Notes in connection with this exchange offer
and consent solicitation.
CSXT and NSR do not intend to apply for listing or quotation of the New Exchange
Notes on any national securities exchange or market quotation system.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED IN
CONNECTION WITH THIS EXCHANGE OFFER AND CONSENT SOLICITATION OR DETERMINED IF
THIS PROSPECTUS AND CONSENT SOLICITATION STATEMENT IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Dealer Manager for this exchange offer and consent solicitation is:
MORGAN STANLEY
This prospectus and consent solicitation statement is dated , 2004
[CONRAIL FLOWCHART]
TABLE OF CONTENTS
<Table>
WHERE YOU CAN FIND MORE INFORMATION..... ii
IMPORTANT INFORMATION REGARDING THE CSXT
AND NSR APPENDICES.................... ii
QUESTIONS AND ANSWERS ABOUT THIS
EXCHANGE OFFER AND CONSENT
SOLICITATION.......................... 1
SUMMARY................................. 5
The Conrail Spin Off Transactions..... 5
This Exchange Offer and Consent
Solicitation....................... 5
The Companies......................... 10
Description of the New CSXT Notes..... 10
Description of the New NSR Notes...... 12
Material United States Federal Income
Tax Consequences................... 14
The Dealer Manager.................... 14
The Information Agent................. 14
The Exchange Agent.................... 14
SELECTED HISTORICAL FINANCIAL DATA...... 15
UNAUDITED PRO FORMA FINANCIAL
INFORMATION........................... 17
RATIOS OF EARNINGS TO FIXED CHARGES..... 21
RISK FACTORS............................ 22
Risks Relating to This Exchange Offer
and Consent Solicitation........... 22
Risks Relating to Holders of Conrail
Debentures Who Do Not Validly
Tender in This Exchange Offer and
Consent Solicitation............... 25
Risks Relating to the Conrail Spin Off
Transactions....................... 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF CONRAIL................. 27
DESCRIPTION OF THIS EXCHANGE OFFER AND
CONSENT SOLICITATION.................. 34
Purpose of This Exchange Offer and
Consent Solicitation............... 34
Terms of This Exchange Offer and
Consent Solicitation............... 34
Expiration Date, Extensions,
Termination and Amendments......... 37
Important Reservation of Rights
Regarding This Exchange Offer and
Consent Solicitation............... 38
Terms of the New CSXT Notes and the
New NSR Notes...................... 38
Required Consent...................... 39
Conditions to This Exchange Offer and
Consent Solicitation............... 39
Fractional Notes...................... 41
No Proration.......................... 41
Proposed Amendments................... 41
Procedures for Tendering.............. 43
Book-Entry Transfer................... 46
Guaranteed Delivery Procedures........ 46
Acceptance of Conrail Debentures and
Delivery of New CSXT Notes, New NSR
Notes and Cash Payments............ 47
Withdrawal Rights..................... 48
The Dealer Manager.................... 49
Information Agent..................... 50
Exchange Agent........................ 50
Fees and Expenses..................... 50
Transfer Taxes........................ 51
Accounting Treatment.................. 51
Material United States Federal Income
Tax Consequences of This Exchange
Offer and Consent Solicitation..... 52
Use of Proceeds....................... 56
DESCRIPTION OF THE CONRAIL SPIN OFF
TRANSACTIONS.......................... 57
Background to the Conrail Spin Off
Transactions....................... 57
Regulatory Approvals.................. 58
Benefits of the Conrail Spin Off
Transactions....................... 59
Transaction Steps..................... 60
Timing of Closing..................... 61
The Distribution Agreement............ 61
The Transaction Agreement Amendment... 64
The Tax Allocation Agreement.......... 65
The Equipment Obligation Agreements... 66
Material United States Federal Income
Tax Consequences of the Conrail
Spin Off Transactions.............. 69
LEGAL MATTERS........................... 69
EXPERTS................................. 69
INFORMATION REGARDING FORWARD-LOOKING
STATEMENTS ........................... 69
</Table>
<Table>
ANNEX A: FORM OF CONRAIL
SUPPLEMENTAL INDENTURE ......... A-1
CSXT APPENDIX..................... CSXT-1
NSR APPENDIX...................... NSR-1
INDEX TO CONRAIL FINANCIAL
STATEMENTS...................... F-1
</Table>
i
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You should rely only on information contained in this prospectus and
consent solicitation statement, including with respect to the registration
statement filed by CSXT and NYC Newco, only the CSXT Appendix attached hereto,
and with respect to the registration statement filed by NSR and PRR Newco, only
the NSR Appendix attached hereto. No one is authorized to provide you with
information that is different from that contained in this prospectus and consent
solicitation statement and the CSXT and NSR Appendices attached hereto. We do
not intend for the contents of any websites referred to in this prospectus and
consent solicitation statement to be part of this prospectus and consent
solicitation statement.
CSXT and NSR are offering the New Exchange Notes only in jurisdictions
where offers and sales are permitted. In addition, Conrail is soliciting
consents from holders of Conrail Debentures only in jurisdictions where consent
solicitations are permitted. The information contained in this prospectus and
consent solicitation statement is accurate only as of its date regardless of the
time of delivery of this prospectus and consent solicitation statement or of any
sale of the New Exchange Notes.
WHERE YOU CAN FIND MORE INFORMATION
The Appendices to this prospectus and consent solicitation statement
incorporate important business and financial information about CSXT, NYC Newco,
NSR and PRR Newco, respectively, that is not contained in or delivered with this
prospectus and consent solicitation statement.
-- For information with respect to where you can find or obtain more
information about CSXT and NYC Newco, please refer to the CSXT
Appendix attached hereto.
-- For information with respect to where you can find or obtain more
information about NSR and PRR Newco, please refer to the NSR Appendix
attached hereto.
This prospectus and consent solicitation statement is included in two
registration statements, each of which has been separately filed on Form S-4
with the Securities and Exchange Commission, or "SEC," under the Securities Act
of 1933, as amended, including the rules and regulations thereto, or the
"Securities Act," by (i) CSXT and NYC Newco and (ii) NSR and PRR Newco. As
permitted by the SEC, this prospectus and consent solicitation statement does
not contain all of the information included in the registration statements filed
with the SEC. You may refer to the registration statements for more information.
IMPORTANT INFORMATION REGARDING THE CSXT AND NSR APPENDICES
Information contained in this prospectus and consent solicitation statement
was prepared by CSXT, NSR, Conrail and their respective affiliates.
Information contained in the CSXT Appendix attached hereto was prepared
solely by CSXT and its affiliates. NSR did not participate in preparing the CSXT
Appendix attached hereto and did not make any due diligence inquiry or any other
independent investigation with respect to the information contained in the CSXT
Appendix attached hereto. Accordingly, NSR disclaims any responsibility for the
CSXT-specific information contained in the CSXT Appendix attached hereto or
elsewhere in this prospectus and consent solicitation statement.
Similarly, information contained in the NSR Appendix attached hereto was
prepared solely by NSR and its affiliates. CSXT did not participate in preparing
the NSR Appendix attached hereto and did not make any due diligence inquiry or
any other independent investigation with respect to the information contained in
the NSR Appendix attached hereto. Accordingly, CSXT disclaims any responsibility
for the NSR-specific information contained in the NSR Appendix attached hereto
or elsewhere in this prospectus and consent solicitation statement.
------------------------
In this prospectus and consent solicitation statement, unless the context
requires otherwise: (1) "CSXT" refers to CSX Transportation, Inc.; (2) "NSR"
refers to Norfolk Southern Railway Company; (3) "Conrail"
ii
refers to Consolidated Rail Corporation; (4) "we," "us," "our" or comparable
terms refer collectively to Conrail, CSXT and NSR; (5) "CSX" refers to CSX
Corporation; (6) "NSC" refers to Norfolk Southern Corporation; (7) "NYC" refers
to New York Central Lines LLC; (8) "PRR" refers to Pennsylvania Lines LLC; (9)
"NYC Newco" refers to NYC Newco, Inc.; (10) "PRR Newco" refers to PRR Newco,
Inc.; and (11) "Distribution Agreement" refers to that certain agreement which
CRR, Conrail, CSX, CSXT, NSC, NSR, CRR Holdings, NYC, PRR, NYC Newco, PRR Newco
and certain other parties thereto will enter into prior to, and in connection
with, the Conrail Spin Off Transactions.
------------------------
iii
QUESTIONS AND ANSWERS ABOUT THIS EXCHANGE OFFER
AND CONSENT SOLICITATION
The following questions and answers respond to some of the questions that
holders of the Conrail Debentures may have but will not contain all of the
information that is important to you. To better understand this exchange offer
and consent solicitation, you should read the summary following these questions
and answers, as well as the rest of this prospectus and consent solicitation
statement.
WHAT ARE THE CONRAIL SPIN OFF TRANSACTIONS?
We are seeking to merge NYC with CSXT and to merge PRR with NSR in order for
CSXT to acquire full legal ownership and control of the assets and properties of
NYC and for NSR to acquire full legal ownership and control of the assets and
properties of PRR. CSXT and NSR, respectively, already manage and operate the
assets of NYC and PRR through operating agreements approved by the United States
Surface Transportation Board, or the "STB."
The Conrail Spin Off Transactions will permit CSX and NSC to acquire
exclusive control, through CSXT and NSR, their respective wholly owned operating
railroad subsidiaries, of Conrail properties that they already own indirectly
(through their joint 42%/58% equity ownership of Conrail), and that they are
already authorized by the STB to operate and manage in a substantially
independent manner as part of their respective rail systems.
For purposes of this prospectus and consent solicitation statement, the
Conrail Spin Off Transactions are defined as the transactions contemplated by
the Distribution Agreement, in each case as amended, supplemented or otherwise
modified from time to time, including after the date of this prospectus and
consent solicitation statement.
IF I PARTICIPATE IN THIS EXCHANGE OFFER AND CONSENT SOLICITATION, WHAT WILL I
RECEIVE?
For each aggregate principal amount of Conrail Debentures validly tendered
by you, CSXT and NSR are offering to exchange such Conrail Debentures for (1)
42% of such aggregate principal amount in New CSXT Notes that will initially be
obligations of NYC Newco, a wholly owned subsidiary of CSXT, and 58% of such
aggregate principal amount in New NSR Notes that will initially be obligations
of PRR Newco, a wholly owned subsidiary of NSR, subject in each case to the
treatment of fractional interests and (2) the relevant Cash Payment. The New
CSXT Notes will be fully and unconditionally guaranteed by CSXT and the New NSR
Notes will be fully and unconditionally guaranteed by NSR.
Holders of Conrail Debentures who validly tender in this exchange offer and
consent solicitation will also be concurrently consenting to the proposed
amendments, to be set forth in a supplemental indenture in the form attached
hereto as Annex A, or the "Conrail Supplemental Indenture," to that certain
indenture, or the "Conrail Indenture," dated as of May 1, 1990, between Conrail
and the related trustee.
Upon consummation of the Conrail Spin Off Transactions, the obligations of
NYC Newco and PRR Newco, respectively, with respect to the New CSXT Notes and
New NSR Notes, will be assumed by and become the primary obligations of CSXT and
NSR, respectively, through the respective mergers of NYC Newco with and into
CSXT and PRR Newco with and into NSR, and the CSXT and NSR guarantees will
automatically terminate.
None of CSXT, NSR or any other party will receive any cash proceeds from the
issuance or delivery of the New Exchange Notes in this exchange offer and
consent solicitation.
WHEN WILL I RECEIVE ACCRUED INTEREST ON MY CONRAIL DEBENTURES AND THE NEW
EXCHANGE NOTES?
If you validly tender your Conrail Debentures and we consummate this
exchange offer and consent solicitation, except as set forth in the following
paragraph, you will receive the same amount of interest payments on the same
interest payment dates that you would have received had you not participated in
this exchange offer and consent solicitation. You should refer to the specific
terms of the securities described in this prospectus and consent solicitation
statement to determine who will be eligible to receive accrued and unpaid
interest and when accrued and unpaid interest will be paid.
Interest on the New Exchange Notes will accrue from the date of original
issuance of these Notes, which will be on the date this exchange offer and
consent solicitation is consummated, or the "Closing Date." Interest accrued and
unpaid on any Conrail Debentures accepted in this exchange offer and consent
solicitation will be paid by Conrail on each scheduled interest payment date
that occurs prior to the Closing Date. Conrail will also pay all accrued and
unpaid interest on the Conrail Debentures from the interest payment date
immediately preceding the Closing Date through and including the calendar day
immediately prior to the Closing Date. Conrail will make this interest payment
on the Closing Date. In the event the Closing Date occurs on or before an
interest payment date for any series of Conrail Debentures but after the record
date for that interest payment date, holders of Conrail Debentures accepted in
this exchange offer and consent solicitation will be deemed to have waived their
right to receive from Conrail any other amount of interest that would otherwise
be payable after the Closing Date.
Conrail Debentures that are not tendered, or are tendered but not accepted,
in this exchange offer and consent solicitation will remain outstanding debt
obligations of Conrail. Holders of these unexchanged Conrail Debentures will be
entitled to receive the same amount of interest payments on the same interest
payment dates as currently scheduled for such Conrail Debentures.
WILL YOU ACCEPT ALL CONRAIL DEBENTURES TENDERED?
We will accept for exchange any Conrail Debentures that have been validly
tendered and not withdrawn on or prior to the expiration date provided that the
conditions to this exchange offer and consent solicitation have been satisfied.
WILL THERE BE PRORATION?
This exchange offer and consent solicitation is for all the Conrail
Debentures and is not subject to proration among holders of Conrail Debentures
who validly tender.
WHAT IS THE CONRAIL SUPPLEMENTAL INDENTURE?
As part of this exchange offer and consent solicitation, Conrail is
soliciting consents from the holders of Conrail Debentures to certain proposed
amendments to the Conrail Indenture. The merger covenant under the Conrail
Indenture does not permit the proposed transfer of Conrail's equity interests in
NYC and PRR to CSXT and NSR, respectively. A majority in aggregate principal
amount of Conrail Debentures, voting as a single class, must consent to the
elimination of this merger covenant and other restrictions in order to permit
the Conrail Spin Off Transactions.
The proposed amendments will also remove restrictions on Conrail's ability
to:
-- incur indebtedness at the LLC level;
-- terminate its corporate existence;
-- incur liens; and
-- waive compliance with the covenants set forth above.
The proposed amendments will also eliminate certain events of default and
will make certain definitional changes to the Conrail Indenture. For more
information about the proposed amendments, please read the section of this
prospectus and consent solicitation statement entitled "Proposed Amendments."
The amendments to the Conrail Indenture will be effective upon the execution
of the Conrail Supplemental Indenture by Conrail and the trustee under the
Conrail Indenture.
WILL I BE PAID FOR TENDERING MY CONRAIL DEBENTURES AND CONSENTING TO THE CONRAIL
SUPPLEMENTAL INDENTURE?
Yes. In exchange for your valid tender of Conrail Debentures and your
concurrent consent to the proposed amendments to the Conrail Indenture, you will
receive (1) New Exchange Notes and (2) a Cash Payment.
WHAT IS REQUIRED FOR THE CONRAIL SUPPLEMENTAL INDENTURE TO BE EFFECTIVE?
So long as all other conditions to this exchange offer and consent
solicitation have been satisfied or waived by us, the Conrail Supplemental
Indenture will be effective as to all of the Conrail Debentures if more than 50%
in aggregate principal amount of Conrail Debentures, voting as a single class,
have been validly tendered and not withdrawn on or prior to the expiration date,
and Conrail and the trustee under the Conrail Indenture execute the Conrail
Supplemental Indenture.
2
WILL I HAVE ANY DISSENTERS' RIGHTS IN CONNECTION WITH THE CONRAIL SUPPLEMENTAL
INDENTURE?
You will not be entitled to any dissenters' rights if we consummate the
Conrail Spin Off Transactions and the Conrail Supplemental Indenture becomes
effective.
DO I NEED TO SEPARATELY CONSENT TO THE CONRAIL SUPPLEMENTAL INDENTURE IN ORDER
TO BE ELIGIBLE TO PARTICIPATE IN THE EXCHANGE OFFER?
No. Validly completing the letter of consent/transmittal for this exchange
offer and consent solicitation, or following the procedures of the Automated
Tender Offer Program, or "ATOP," if your Conrail Debentures are held through The
Depository Trust Company, or "DTC," will constitute your consent to the Conrail
Supplemental Indenture to the extent we accept your Conrail Debentures for
exchange. If the requisite consents are received, the Conrail Supplemental
Indenture, upon its execution, will be binding on holders of any Conrail
Debentures that remain outstanding following the consummation of this exchange
offer and consent solicitation.
WHAT HAPPENS IF I DO NOT VALIDLY TENDER MY CONRAIL DEBENTURES IN THIS EXCHANGE
OFFER AND CONSENT SOLICITATION?
If you do not validly tender your Conrail Debentures, they will remain
obligations of Conrail. If this exchange offer and consent solicitation is
consummated, the Conrail Indenture will be amended by the proposed amendments
which will materially reduce the covenants and events of default to which
Conrail is subject under the Conrail Indenture. Therefore, consummation of this
exchange offer and consent solicitation and the adoption of the proposed
amendments may have adverse consequences for holders of Conrail Debentures who
elect not to participate in this exchange offer and consent solicitation.
If you do not tender your Conrail Debentures in this exchange offer and
consent solicitation, you will not be entitled to receive a combination of New
Exchange Notes, the full and unconditional guarantees related thereto and either
the 9 3/4% Cash Payment or the 7 7/8% Cash Payment (each as defined hereafter).
In addition, if you tender your Conrail Debentures and they are not accepted,
they will be returned to you.
ARE THERE ANY CONDITIONS THAT MUST BE SATISFIED IN ORDER TO CONSUMMATE THIS
EXCHANGE OFFER AND CONSENT SOLICITATION?
Yes. The consummation of this exchange offer and consent solicitation is
conditioned upon the satisfaction of certain conditions, including:
-- that holders of more than 50% of the aggregate principal amount of the
Conrail Debentures, voting as a single class, have consented to the
Conrail Supplemental Indenture by validly tendering and not
withdrawing their Conrail Debentures on or prior to the expiration
date;
-- that we have received required consents to the Conrail Spin Off
Transactions from holders of a majority of each series of Conrail's
equipment trust certificates and pass through trust certificates set
forth in the Distribution Agreement, as well as from the related
equity investors, lessors, owner trustees and owner participants, in
the consent solicitation that is occurring concurrently with this
exchange offer and consent solicitation; and
-- satisfaction or waiver of all conditions in the Distribution Agreement
and that the Distribution Agreement has not been terminated.
For a detailed description of these and other conditions, please see
"Description of This Exchange Offer and Consent Solicitation--Conditions to This
Exchange Offer and Consent Solicitation" starting on page 39.
We reserve the right, subject to applicable laws, to (a) waive any and all
conditions to this exchange offer and consent solicitation and (b) terminate or
extend this exchange offer and consent solicitation at any time and thereby
delay acceptance for exchange of all Conrail Debentures validly tendered on or
prior to the expiration date.
WHAT HAPPENS IF THE DISTRIBUTION AGREEMENT IS TERMINATED?
If the Distribution Agreement is terminated, the Conrail Debentures will not
be exchanged for the New Exchange Notes and the Cash Payments, and the Conrail
Debentures will remain the obligations of Conrail subject to their current
terms.
3
ARE THERE ANY RISKS THAT I SHOULD CONSIDER IN CONNECTION WITH THIS EXCHANGE
OFFER AND CONSENT SOLICITATION?
Yes. You should carefully consider the "RISK FACTORS" starting on page 22,
as well as the risks discussed in CSXT's and NSR's filings with the SEC that are
incorporated by reference into their respective Appendices to this prospectus
and consent solicitation statement.
WHEN DOES THIS EXCHANGE OFFER AND CONSENT SOLICITATION EXPIRE?
THIS EXCHANGE OFFER AND CONSENT SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON , 2004, UNLESS WE EXTEND IT.
WE WILL ANNOUNCE ANY EXTENSIONS BY PRESS RELEASE OR OTHER PERMITTED MEANS NO
LATER THAN 9:00 A.M., NEW YORK CITY TIME, THE NEXT BUSINESS DAY FOLLOWING THE
EXPIRATION DATE OF THIS EXCHANGE OFFER AND CONSENT SOLICITATION.
HOW DO I TENDER OR WITHDRAW MY CONRAIL DEBENTURES IN THIS EXCHANGE OFFER AND
CONSENT SOLICITATION?
In order to tender Conrail Debentures in this exchange offer and consent
solicitation, you must validly submit your Conrail Debentures and a completed
letter of consent/transmittal and the other required agreements and documents,
or follow the ATOP procedures if your Conrail Debentures are held through DTC,
described in this prospectus and consent solicitation statement. Completing the
letter of consent/transmittal, or following the ATOP procedures if your Conrail
Debentures are held through DTC, will constitute your consent to the Conrail
Supplemental Indenture to the extent we accept your Conrail Debentures for
exchange, unless you subsequently withdraw your Conrail Debentures on or prior
to the expiration date. If you own Conrail Debentures held through a broker or
other third party, or in "street name," you will need to carefully follow the
instructions they provide to you about how to instruct them to tender the
Conrail Debentures on your behalf. If the requisite consents are received, the
Conrail Supplemental Indenture will be binding on all Conrail Debentures that
remain outstanding after the consummation of this exchange offer and consent
solicitation.
You may withdraw tendered Conrail Debentures at any time on or prior to the
expiration date. After the expiration date, you may not withdraw your Conrail
Debentures.
If you validly withdraw your tendered Conrail Debentures, you will revoke
your consent to the Conrail Supplemental Indenture.
Instructions on how to tender or withdraw Conrail Debentures in this
exchange offer and consent solicitation are set forth starting on page 43 of
this prospectus and consent solicitation statement and in the letter of
consent/transmittal.
HOW CAN I GET HELP IN TENDERING MY CONRAIL DEBENTURES, OR ADDITIONAL COPIES OF
THIS MATERIAL?
Please call the information agent for this exchange offer and consent
solicitation, Innisfree M&A Incorporated. Holders of Conrail Debentures may call
toll free at (877) 456-3507. (Banks and brokers may call collect at (212)
750-5833.)
4
SUMMARY
This summary highlights selected information from this prospectus and
consent solicitation statement and may not contain all of the information that
is important to you. To better understand this exchange offer and consent
solicitation, you should read this entire document carefully, as well as those
additional documents to which we refer you. See "Where You Can Find More
Information." In this prospectus and consent solicitation statement, references
to: "Conrail Debentures" mean both the Conrail 9 3/4% Debentures and the Conrail
7 7/8% Debentures; "New CSXT Notes" mean both the New CSXT 9 3/4% Notes and the
New CSXT 7 7/8% Notes; "New NSR Notes" mean both the New NSR 9 3/4% Notes and
the New NSR 7 7/8% Notes; and "New Exchange Notes" mean both the New CSXT Notes
and the New NSR Notes.
THE CONRAIL SPIN OFF TRANSACTIONS
Conrail, a Pennsylvania corporation, is an indirect subsidiary of CRR
Holdings LLC, or "CRR Holdings." CSX and NSC directly or indirectly hold 42% and
58%, respectively, of the economic interests of CRR Holdings. In 1999, CSX and
NSC reorganized Conrail to realize certain operational benefits of their
ownership of Conrail, which they acquired jointly in 1997. As part of this
reorganization, Conrail allocated certain assets to NYC and PRR, and in turn
Conrail made these assets available to CSXT and NSR, respectively, through
operating agreements. CSXT is a wholly owned subsidiary of CSX and NSR is a
wholly owned subsidiary of NSC. As a result of this reorganization, Conrail
conveyed or leased substantially all of its property, other than the Shared
Assets Areas (as defined hereafter), to NYC and PRR. We now propose to transfer
Conrail's entire ownership interest in NYC and PRR to CSXT and NSR,
respectively.
Conrail currently owns 100% of NYC and PRR. As part of the Conrail Spin Off
Transactions, Conrail will transfer its membership interest in NYC to NYC Newco,
a newly formed Virginia corporation and wholly owned subsidiary of CSXT, and
transfer its membership interest in PRR to PRR Newco, a newly formed Virginia
corporation and wholly owned subsidiary of NSR. After a series of consecutive
steps occurring on the Closing Date, NYC and PRR will be merged with and into
NYC Newco and PRR Newco, respectively. Immediately after such mergers, NYC Newco
will be merged with and into CSXT, and PRR Newco will be merged with and into
NSR. As a result of both of these mergers, the assets and properties of NYC and
PRR will be owned directly by CSXT and NSR, respectively. Although a regulatory
approval for the Conrail Spin Off Transactions has been obtained from the STB
and favorable rulings have been received from the Internal Revenue Service, or
"IRS," these transactions remain subject to a number of conditions, including
that these approvals remain in full force and effect.
See "Description of the Conrail Spin Off Transactions" for a description of
the principal agreements governing the Conrail Spin Off Transactions, the
conditions to consummation of the Conrail Spin Off Transactions and other
related information.
THIS EXCHANGE OFFER AND CONSENT SOLICITATION
We are offering to exchange Conrail Debentures for the same aggregate
principal amount of New Exchange Notes and the Cash Payments. Except for the
interest payable by Conrail on the Closing Date and the resulting adjustment in
the amount of interest to be paid on the first interest payment date, the New
Exchange Notes will have maturity dates, interest rates, and principal and
interest payment dates identical to those of the respective series of Conrail
Debentures for which they will be offered in exchange and together will
aggregate to the same principal amounts outstanding as the existing Conrail
Debentures for which they are exchanged. The New CSXT Notes and New NSR Notes
will initially be issued by NYC Newco and PRR Newco, respectively, and will be
fully and unconditionally guaranteed by CSXT and NSR, respectively. See
"Description of the New CSXT Notes" in the CSXT Appendix for a summary of the
terms of the New CSXT Notes and "Description of the New NSR Notes" in the NSR
Appendix for a summary of the terms of the New NSR Notes.
At substantially the same time as the consummation of this exchange offer
and consent solicitation, we expect to consummate the Conrail Spin Off
Transactions pursuant to which NYC and NYC Newco will ultimately merge with and
into CSXT and PRR and PRR Newco will ultimately merge with and into NSR.
5
Upon consummation of the Conrail Spin Off Transactions, the obligations of NYC
Newco and PRR Newco, respectively, with respect to the New CSXT Notes and the
New NSR Notes, will be assumed by and become the primary obligations of CSXT and
NSR, respectively, and the CSXT and NSR guarantees will automatically terminate.
Holders of Conrail Debentures must consent to the Conrail Supplemental
Indenture described below in order to validly tender their Conrail Debentures
and have them accepted for exchange. Conrail Debentures not validly tendered and
accepted for exchange will remain obligations of Conrail but will be bound by
the Conrail Supplemental Indenture if more than 50% in aggregate principal
amount of Conrail Debentures, voting as a single class, have been validly
tendered and accepted. THE TERMS OF YOUR CONRAIL DEBENTURES MAY BE AMENDED AS A
RESULT OF THIS EXCHANGE OFFER AND CONSENT SOLICITATION WHETHER OR NOT YOU
PARTICIPATE.
This exchange offer and consent solicitation is subject to a number of
conditions summarized below under "Conditions to This Exchange Offer and Consent
Solicitation" and described in detail under "Description of This Exchange Offer
and Consent Solicitation--Conditions to This Exchange Offer and Consent
Solicitation."
PAYMENT OF INTEREST ACCRUED ON THE CONRAIL DEBENTURES, THE NEW CSXT NOTES AND
THE NEW NSR NOTES
Except as set forth in the following paragraph, holders of outstanding
Conrail Debentures who participate in this exchange offer and consent
solicitation will receive the same amount of interest payments on the same
payment dates that they would have received had they not participated in this
exchange offer and consent solicitation. You should refer to the specific terms
of each series of the securities described in this prospectus and consent
solicitation statement to determine who will be eligible to receive accrued and
unpaid interest and when accrued and unpaid interest will be paid.
Interest on each of the New CSXT Notes and New NSR Notes will accrue from
the date of original issuance of that series of new notes, which will be the
Closing Date. Interest accrued and unpaid on any Conrail Debentures accepted in
this exchange offer and consent solicitation will be paid by Conrail on each
scheduled interest payment date that occurs prior to the Closing Date. Conrail
will also pay all accrued and unpaid interest on the Conrail Debentures from the
interest payment date immediately preceding the Closing Date through and
including the calendar day immediately prior to the Closing Date. Conrail will
make this interest payment on the Closing Date. In the event the Closing Date
occurs on or before an interest payment date for any series of Conrail
Debentures but after the record date for that interest payment date, holders of
Conrail Debentures accepted in this exchange offer and consent solicitation will
be deemed to have waived their right to receive from Conrail any other amount of
interest that would otherwise be payable after the Closing Date.
Conrail Debentures that are not tendered, or are tendered but not accepted,
in this exchange offer and consent solicitation will remain outstanding debt
obligations of Conrail. Holders of these unexchanged Conrail Debentures will be
entitled to receive the same amount of interest payments on the same interest
payment dates as currently scheduled for each respective series of Conrail
Debentures.
FRACTIONAL NOTES
The New CSXT Notes and the New NSR Notes will be issued only in
denominations of $1,000 and integral multiples of $1,000, although you may be
entitled to receive interests in such New Exchange Notes that are less than
$1,000 as a result of the 42%/58% ratio applied to your validly tendered Conrail
Debentures. We refer to such amounts as "fractional interests." Accordingly, if
you would otherwise be entitled to receive a fractional interest in a New CSXT
Note and a fractional interest in a New NSR Note, you will instead receive
either a $1,000 New CSXT Note or a $1,000 New NSR Note in lieu of fractional
interests in the New Exchange Notes. Whether you will receive a New CSXT Note or
a New NSR Note in lieu of fractional interests will be determined as follows:
-- if your fractional interest in a New CSXT Note is equal to or less
than $500 and your fractional interest in a New NSR Note is equal to
or greater than $500, you will receive a $1,000 New NSR Note in lieu
of any fractional interests; or
6
-- if your fractional interest in a New NSR Note is less than $500 and
your fractional interest in a New CSXT Note is greater than $500, you
will receive a $1,000 New CSXT Note in lieu of any fractional
interests.
Under no circumstances will you receive a combination of New CSXT Notes and
New NSR Notes with a combined aggregate principal amount different from the
aggregate principal amount of Conrail Debentures that you validly tender in this
exchange offer and consent solicitation. Participants in DTC are responsible for
allocating the New CSXT Notes and the New NSR Notes, as well as fractional
interests related thereto, to beneficial owners and none of DTC, CSXT, NSR, the
exchange agent, the information agent or the dealer manager is responsible for
such allocations.
CONDITIONS TO THIS EXCHANGE OFFER AND CONSENT SOLICITATION
The consummation of this exchange offer and consent solicitation is
conditioned upon the satisfaction of certain conditions, including:
-- that holders of more than 50% of the aggregate principal amount of
the Conrail Debentures, voting as a single class, have consented to
the Conrail Supplemental Indenture by validly tendering and not
withdrawing their Conrail Debentures on or prior to the expiration
date;
-- that we have received required consents to the Conrail Spin Off
Transactions from holders of a majority of each series of Conrail's
equipment trust certificates and pass through trust certificates set
forth in the Distribution Agreement, as well as from each of the
related equity investors, lessors, owner trustees and owner
participants, in the solicitation that is occurring concurrently with
this exchange offer and consent solicitation; and
-- that all conditions in the Distribution Agreement have been satisfied
or waived and that the Distribution Agreement has not been
terminated.
For a detailed description of these and other conditions, see "Description
of This Exchange Offer and Consent Solicitation--Conditions to This Exchange
Offer and Consent Solicitation."
We reserve the right, subject to applicable laws, to (a) waive any and all
conditions to this exchange offer and consent solicitation and (b) terminate or
extend this exchange offer and consent solicitation at any time and thereby
delay acceptance for exchange of all Conrail Debentures validly tendered on or
prior to the expiration date.
NO PRORATION
This exchange offer and consent solicitation for Conrail Debentures is for
all such Conrail Debentures and is not subject to proration among holders of
Conrail Debentures who validly tender and do not withdraw their Conrail
Debentures on or prior to the expiration date.
PURPOSE OF THIS EXCHANGE OFFER AND CONSENT SOLICITATION AND DESCRIPTION OF THE
PROPOSED AMENDMENTS
We are making this exchange offer and consent solicitation in connection
with the proposed non-taxable transfer, through a series of consecutive and
related transactions, of Conrail's ownership interest in NYC and PRR to CSXT and
NSR, respectively. The Conrail Spin Off Transactions are described under
"Description of the Conrail Spin Off Transactions."
In connection with the exchange offer, Conrail is soliciting consents from
the holders of Conrail Debentures to certain proposed amendments to the Conrail
Indenture that, when effective, will, among other things, eliminate
substantially all the restrictive covenants contained in the Conrail Indenture.
One of the restrictive covenants that we intend to remove is the merger covenant
which would otherwise prohibit the transfer of Conrail's ownership interest in
NYC to CSXT and PRR to NSR, respectively. As a result, a majority in aggregate
principal amount of the Conrail Debentures, voting as a single class, must
consent to the proposed amendments, including the elimination of this merger
covenant, in order to permit the Conrail Spin Off Transactions.
7
The proposed amendments will also eliminate certain events of default and
will make certain other conforming and definitional changes to the Conrail
Indenture. You will not be entitled to any dissenters' rights if the Conrail
Supplemental Indenture becomes effective without your consent. For more
information about the proposed amendments, see "Description of This Exchange
Offer and Consent Solicitation--Proposed Amendments."
THE TEMPORARY GUARANTEES AND THE NEWCO MERGERS
As part of the Conrail Spin Off Transactions, the New CSXT Notes and the
New NSR Notes will be issued initially to Conrail by NYC Newco and PRR Newco,
along with substantially all of the stock of NYC Newco and PRR Newco,
respectively, in exchange for Conrail's membership interests in NYC and PRR.
This initial step and certain other consecutive steps must occur prior to the
merger of NYC Newco into CSXT and the merger of PRR Newco into NSR. CSXT and NSR
will fully and unconditionally guarantee the New CSXT Notes and the New NSR
Notes, respectively. The guarantees will rank equally with all other general
unsecured and unsubordinated obligations of CSXT and NSR. Upon consummation of
the Conrail Spin Off Transactions, which are expected to be consummated within a
single business day, the obligations of NYC Newco and PRR Newco, respectively,
with respect to the New CSXT Notes and the New NSR Notes will be assumed by and
will become the primary obligations of CSXT and NSR, respectively, through the
respective mergers of NYC Newco with and into CSXT and PRR Newco with and into
NSR. Upon consummation of these mergers, the CSXT and NSR guarantees will
automatically terminate.
For more information regarding the temporary guarantees, see "Description
of the New CSXT Notes--Guarantees" in the CSXT Appendix and "Description of the
New NSR Notes--Guarantees" in the NSR Appendix.
EXPIRATION, EXTENSION, TERMINATION OR AMENDMENT OF THIS EXCHANGE OFFER AND
CONSENT SOLICITATION
This exchange offer and consent solicitation will expire at 5:00 p.m., New
York City time, on , 2004, unless we extend it or terminate it.
We will comply with applicable laws that require us to extend the period
during which the Conrail Debentures may be tendered or withdrawn as a result of
changes in the terms of, or information relating to, this exchange offer and
consent solicitation. We will announce any extensions or terminations by press
release or other permitted public announcement no later than 9:00 a.m., New York
City time, on the first business day following the previously scheduled
expiration date of this exchange offer and consent solicitation, unless
terminated earlier.
Without limiting the manner in which we may choose to make public
announcements of any extension, termination or amendment of this exchange offer
and consent solicitation, we shall have no obligation to publish, advertise or
otherwise communicate any public announcement, other than by making a timely
release to the Dow Jones News Service.
PROCEDURES FOR TENDERING OR WITHDRAWING CONRAIL DEBENTURES
If you wish to tender Conrail Debentures held in your name in this exchange
offer and consent solicitation and become eligible to receive the New Exchange
Notes and the 9 3/4% Cash Payment or the 7 7/8% Cash Payment, you must submit
your Conrail Debentures and a validly completed and duly executed letter of
consent/transmittal to the exchange agent, at the address set forth below under
"The Exchange Agent," on or prior to the expiration date.
If you hold the Conrail Debentures through DTC and wish to participate in
this exchange offer and consent solicitation, you must transfer your Conrail
Debentures in accordance with DTC's ATOP procedures. In lieu of delivering a
letter of consent/transmittal to the exchange agent, an electronic message, in
which a holder acknowledges and agrees to be bound by the terms of the letter of
consent/transmittal, must be transmitted by DTC on behalf of a holder of Conrail
Debentures and must be received by the exchange agent on or prior to the
expiration date. In all other cases, a letter of consent/transmittal must be
manually executed
8
and received by the exchange agent on or before the expiration date. By signing,
or agreeing to be bound by, the letter of consent/transmittal, you will be
consenting to the Conrail Supplemental Indenture.
All Conrail Debentures held by a single beneficial holder and not by a
nominee, trustee or other representative must be tendered on a single letter of
consent/transmittal.
You may withdraw tendered Conrail Debentures at any time on or prior to the
expiration date. After the expiration date, you may not withdraw your Conrail
Debentures. If you validly withdraw your tendered Conrail Debentures, you will
be deemed to have revoked your related consent to the Conrail Supplemental
Indenture.
If we decide for any reason not to accept any tendered Conrail Debentures,
those tendered Conrail Debentures will be returned without expense to the
tendering holders promptly following the expiration or termination of this
exchange offer and consent solicitation.
SEE PAGES 43 THROUGH 49 AND THE LETTER OF CONSENT/TRANSMITTAL FOR
PROCEDURES ON HOW TO TENDER OR WITHDRAW YOUR CONRAIL DEBENTURES.
SPECIAL PROCEDURES FOR BENEFICIAL OWNERS
If you are the beneficial owner of Conrail Debentures and your name does
not appear on a security position listing of DTC as the holder of such Conrail
Debentures, or if you are a beneficial owner of Conrail Debentures that are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee, and you wish to tender your Conrail Debentures in this exchange
offer and consent solicitation, you should promptly contact the person in whose
name your Conrail Debentures are registered and instruct such person to tender
on your behalf. If you wish to tender on your own behalf, you must, prior to
executing the letter of consent/transmittal and delivering your Conrail
Debentures, either make appropriate arrangements to register ownership of the
Conrail Debentures in your name or obtain a properly completed bond power from
the registered holder. Such a transfer of record ownership may take considerable
time.
GUARANTEED DELIVERY PROCEDURE
If you wish to tender your Conrail Debentures and your Conrail Debentures
are not immediately available or you cannot deliver your Conrail Debentures, the
letter of consent/transmittal or any other documents required by the letter of
consent/transmittal, or you cannot comply with the applicable procedures under
ATOP, on or prior to the expiration date, you must tender your Conrail
Debentures according to the guaranteed delivery procedures set forth in this
prospectus and consent solicitation statement under the "Description of This
Exchange Offer and Consent Solicitation--Guaranteed Delivery Procedures."
USE OF PROCEEDS
None of CSXT, NSR, Conrail or any other person will receive any cash
proceeds from the issuance of the New Exchange Notes in this exchange offer and
consent solicitation.
CERTAIN STRUCTURAL CONSIDERATIONS
Pursuant to the Transaction Agreement (as defined hereafter), CSX and NSC
committed to one another that they shall ensure that Conrail Inc., or "CRR,"
Conrail and their affiliates have sufficient cash to satisfy Conrail's retained
liabilities, including the Conrail Debentures, as they become due and any
operating and other expenses. Following receipt by CRR Holdings of written
notice from Conrail's board of directors (which is composed solely of
representatives of CSX and NSC) that Conrail requires additional cash to satisfy
its retained liabilities, CRR Holdings agreed to provide such cash to Conrail.
CSX and NSC intend that the economic burden of Conrail's retained liabilities
will continue to be borne without change, directly or indirectly, 42% by CSX and
58% by NSC.
For more information regarding the Transaction Agreement, see "Description
of the Conrail Spin Off Transactions--Background to the Conrail Spin Off
Transactions."
9
THE COMPANIES
CSXT AND NYC NEWCO
For a description of CSXT and NYC Newco, please refer to the CSXT Appendix
to this prospectus and consent solicitation statement.
NSR AND PRR NEWCO
For a description of NSR and PRR Newco, please refer to the NSR Appendix to
this prospectus and consent solicitation statement.
CONRAIL
Conrail, a principal freight railroad in the Northeastern United States, is
a wholly owned subsidiary of CRR. CSX and NSC, the major rail holding companies
in the Eastern United States, jointly control CRR through their ownership
interests in CRR Holdings, whose primary subsidiary is Green Acquisition Corp.,
or "Green Corp.," which owns CRR. CSX and NSC have equity interests in CRR
Holdings of 42% and 58%, respectively, and voting interests of 50% each. Under
operating and lease agreements, CSX and NSC operate a substantial portion of
Conrail's properties through their respective railroad subsidiaries, CSXT and
NSR. The major source of CRR's revenues is from CSXT and NSR, primarily in the
form of rental revenues and operating fees. Conrail is a wholly owned subsidiary
and as a consequence there is no market for its stock. Conrail's principal
executive offices are located at 2001 Market Street, 29th Floor, Philadelphia,
PA 19103, and its telephone number is (215) 209-5099.
DESCRIPTION OF THE NEW CSXT NOTES
The New CSXT Notes will be entitled to the benefits and will be subject to
the terms and conditions of the indenture, or the "New CSXT Indenture," to be
entered into among NYC Newco, as initial issuer, CSXT, as guarantor, and The
Bank of New York, as trustee. The New CSXT Notes will consist of the New 9 3/4%
CSXT Notes and the New 7 7/8% CSXT Notes and, except for the interest payable by
Conrail on the Closing Date and the resulting adjustment in the amount of
interest to be paid on the first interest payment date, will have maturity
dates, interest rates, and principal and interest payment dates identical to the
Conrail 9 3/4% Debentures and the Conrail 7 7/8% Debentures, respectively. The
New CSXT Notes will also be issued under an indenture containing covenants and
events of default substantially similar to those contained in the existing
indentures of CSX governing CSX's senior unsecured debt securities. The New CSXT
Notes will initially be issued by NYC Newco and will be fully and
unconditionally guaranteed by CSXT. In connection with the consummation of the
Conrail Spin Off Transactions, NYC Newco will be merged with and into CSXT, who
will thereby assume the obligations of NYC Newco with respect to the New CSXT
Notes and will become the primary obligor of the New CSXT Notes, and the
guarantee will thereafter automatically terminate. If the Distribution Agreement
is terminated, the Conrail Debentures will not be exchanged for the New Exchange
Notes and the Cash Payments, and the Conrail Debentures will remain the
obligations of Conrail, subject to their current terms.
BASIC TERMS OF THE NEW CSXT NOTES
The New CSXT Notes will consist of the New 9 3/4% CSXT Notes and the New
7 7/8% CSXT Notes.
The economic terms of the New 9 3/4% CSXT Notes will be substantially
identical to the terms of the current Conrail 9 3/4% Debentures. Specifically,
the New 9 3/4% CSXT Notes:
-- will have a maximum aggregate principal amount of $231 million, which
is equal to 42% of the aggregate principal amount of the Conrail
9 3/4% Debentures, subject to the treatment of fractional interests;
-- will mature on June 15, 2020;
-- will be dated as of the Closing Date; and
10
-- will accrue interest at 9 3/4% per year, payable in cash
semi-annually in arrears on each of June 15 and December 15 of each
year, beginning December 15, 2004.
The initial interest payment on December 15, 2004 will include interest
accrued from the date of original issuance of the New 9 3/4% CSXT Notes, which
will be the date this exchange offer and consent solicitation is consummated.
The economic terms of the New 7 7/8% CSXT Notes will be substantially
identical to the terms of the Conrail 7 7/8% Debentures. Specifically, the New
7 7/8% CSXT Notes:
-- will have a maximum aggregate principal amount of $105 million, which
is equal to 42% of the aggregate principal amount of the Conrail
7 7/8% Debentures, subject to the treatment of fractional interests;
-- will mature on May 15, 2043;
-- will be dated as of the Closing Date; and
-- will accrue interest at 7 7/8% per year, payable in cash
semi-annually in arrears on each of May 15 and November 15 of each
year, beginning November 15, 2004.
The initial interest payment on November 15, 2004 will include interest
accrued from the date of original issuance of the New 7 7/8% CSXT Notes, which
will be the date this exchange offer and consent solicitation is consummated.
RANKING
The New CSXT Notes will be senior unsecured obligations of NYC Newco and
CSXT and will rank equally with all existing and future senior unsecured
indebtedness of NYC Newco and CSXT, if any.
As of March 26, 2004, CSXT would have had approximately $1,409 million of
total indebtedness outstanding if holders of 100% of the Conrail Debentures had
validly tendered and not withdrawn their Conrail Debentures in connection with
this exchange offer and consent solicitation and the Conrail Spin Off
Transactions were consummated as of that date. Following the assumption by CSXT
of NYC Newco's obligations under the New CSXT Notes, the New CSXT Notes will be
subordinated to any secured indebtedness of CSXT, to the extent of the assets
securing that indebtedness, and structurally subordinated to all existing and
future obligations of subsidiaries of CSXT, including claims with respect to
trade payables. As of March 26, 2004, CSXT had approximately $815 million of
secured indebtedness and its subsidiaries had approximately $1 million of
unsecured indebtedness, each of which would rank senior to the New CSXT Notes.
Of the $815 million of secured indebtedness outstanding of CSXT, subsidiaries of
CSXT had approximately $30 million of secured indebtedness outstanding as of
March 26, 2004. In addition, as of March 26, 2004, CSXT had approximately $2,914
million of intercompany liabilities due to CSX and $294 million of intercompany
liabilities due to other affiliates of CSXT, each of which would rank equally
with or junior to the New CSXT Notes.
The New CSXT Notes rank senior to all subordinated indebtedness of NYC
Newco, and following the assumption of the obligations of NYC Newco with respect
thereto by CSXT, the New CSXT Notes will rank senior to all subordinated
indebtedness of CSXT then outstanding.
THE TEMPORARY GUARANTEE
The New CSXT Notes to be offered in the exchange offer by NYC Newco will be
fully and unconditionally guaranteed by CSXT, a wholly owned subsidiary of CSX.
The CSXT Guarantee will rank equally with all other existing and future senior
unsecured obligations of CSXT, if any. In connection with the consummation of
the Conrail Spin Off Transactions, NYC Newco will be merged with and into CSXT,
after which CSXT will become the primary obligor of the New CSXT Notes, and the
guarantee will automatically terminate. For more information regarding the CSXT
Guarantee, see "Description of the New CSXT Notes--Guarantees" in the CSXT
Appendix.
11
MARKET FOR THE NEW CSXT NOTES; LISTING
CSXT does not intend to apply for listing or quotation of the New CSXT
Notes on any national securities exchange or market quotation system.
NO REDEMPTION
The New CSXT Notes will not be subject to redemption of any kind at any
time prior to maturity.
COVENANTS
The New CSXT Indenture under which the New CSXT Notes will be issued will
contain covenants that, among other things, limit the ability of NYC Newco, CSXT
and their subsidiaries to incur liens on the stock or indebtedness of The
Baltimore and Ohio Chicago Terminal Railroad Company, a wholly owned subsidiary
of CSXT, or "BOCT," and limit the ability of CSXT to enter into some types of
mergers and consolidations, in each case, other than in connection with the
Conrail Spin Off Transactions. These covenants are substantially similar to
those contained in the existing indentures of CSX governing CSX's unsecured debt
securities. See "Description of the New CSXT Notes--Certain Covenants" in the
CSXT Appendix. The New CSXT Notes will not contain financial covenants.
DESCRIPTION OF THE NEW NSR NOTES
The New NSR Notes will be entitled to the benefits and subject to the terms
and conditions of the base indenture and a first supplemental indenture, or
together the "New NSR Indenture," to be entered into among PRR Newco, as initial
issuer, NSR, as guarantor, and The Bank of New York, as trustee. The New NSR
Notes will consist of the New 9 3/4% NSR Notes and the New 7 7/8% NSR Notes and,
except for the interest payable by Conrail on the Closing Date and the resulting
adjustment in the amount of interest to be paid on the first interest payment
date, will have maturity dates, interest rates, and principal and interest
payment dates identical to the Conrail 9 3/4% Debentures and the Conrail 7 7/8%
Debentures, respectively. The New NSR Notes will be issued under a base
indenture and a first supplemental indenture containing covenants and events of
default substantially similar to those contained in the existing indentures of
NSC governing their senior unsecured debt securities. The New NSR Notes will
initially be issued by PRR Newco and will be fully and unconditionally
guaranteed by NSR. In connection with the consummation of the Conrail Spin Off
Transactions, PRR Newco will be merged with and into NSR, after which NSR will
become the primary obligor of the New NSR Notes, and the guarantee will
thereafter automatically terminate. If the Conrail Spin Off Transactions are not
consummated, the Conrail Debentures will remain the obligations of Conrail
subject to their current terms.
BASIC TERMS OF THE NEW NSR NOTES
The New NSR Notes will consist of the New 9 3/4% NSR Notes and the New
7 7/8% NSR Notes.
The economic terms of the New 9 3/4% NSR Notes will be substantially
identical to the terms of the current Conrail 9 3/4% Debentures. Specifically,
the New 9 3/4% NSR Notes:
-- will have a maximum aggregate principal amount of $319 million, which
is equal to 58% of the aggregate principal amount of the Conrail
9 3/4% Debentures, subject to the treatment of fractional interests;
-- will mature on June 15, 2020;
-- will be dated as of the Closing Date; and
-- will accrue interest at 9 3/4% per year, payable in cash
semi-annually in arrears on each of June 15 and December 15 of each
year, beginning December 15, 2004.
The initial interest payment on December 15, 2004 will include interest
accrued from the date of original issuance of the New 9 3/4% NSR Notes, which
will be the date this exchange offer and consent solicitation is consummated.
12
The economic terms of the New 7 7/8% NSR Notes will be substantially
identical to the terms of the Conrail 7 7/8% Debentures. Specifically, the New
7 7/8% NSR Notes:
-- will have a maximum aggregate principal amount of $145 million, which
is equal to 58% of the aggregate principal amount of the Conrail
7 7/8% Debentures, subject to the treatment of fractional interests;
-- will mature on May 15, 2043;
-- will be dated as of the Closing Date; and
-- will accrue interest at 7 7/8% per year, payable in cash
semi-annually in arrears on each of May 15 and November 15 of each
year, beginning November 15, 2004.
The initial interest payment on November 15, 2004 will include interest
accrued from the date of original issuance of the New 7 7/8% NSR Notes, which
will be the date this exchange offer and consent solicitation is consummated.
RANKING
The New NSR Notes will be senior unsecured obligations of PRR Newco and NSR
and will rank equally with all existing and future senior unsecured indebtedness
of PRR Newco and NSR, if any.
As of March 31, 2004, NSR would have had approximately $1,696 million of
total indebtedness outstanding if holders of 100% of the Conrail Debentures had
validly tendered and not withdrawn their Conrail Debentures in connection with
this exchange offer and consent solicitation and the Conrail Spin Off
Transactions were consummated as of that date. Following the assumption by NSR
of PRR Newco's obligations under the New NSR Notes, the New NSR Notes will be
subordinated to any secured indebtedness of NSR, to the extent of the assets
securing that indebtedness, and structurally subordinated to all existing and
future obligations of subsidiaries of NSR, including claims with respect to
trade payables. As of March 31, 2004, NSR had approximately $850 million of
secured indebtedness on a consolidated basis which would rank senior to the New
NSR Notes. As of March 31, 2004, subsidiaries of NSR had no outstanding
indebtedness. In addition, as of March 31, 2004, NSR had $765 million of
intercompany liabilities due to NSC which would rank equally with or junior to
the New NSR Notes.
The New NSR Notes will be senior in right of payment to all existing and
future subordinated indebtedness, including $8 million aggregate principal
amount of guarantees of NSR outstanding as of March 31, 2004.
THE TEMPORARY GUARANTEE
The New NSR Notes to be offered in the exchange offer by PRR Newco will be
fully and unconditionally guaranteed by NSR, a wholly owned subsidiary of NSC.
The NSR Guarantee will rank equally with all other existing and future senior
unsecured obligations of NSR, if any. In connection with the consummation of the
Conrail Spin Off Transactions, PRR Newco will be merged with and into NSR, after
which NSR will become the primary obligor of the New NSR Notes, and the
guarantee will automatically terminate. For more information regarding the NSR
Guarantee, see "Description of the New NSR Notes--Guarantees" in the NSR
Appendix.
MARKET FOR THE NEW NSR NOTES; LISTING
NSR does not intend to apply for listing or quotation of the New NSR Notes
on any national securities exchange or market quotation system.
NO REDEMPTION
The New NSR Notes will not be subject to redemption of any kind at any time
prior to maturity.
13
COVENANTS
The New NSR Indenture under which the New NSR Notes will be issued will
contain covenants that, among other things, limit the ability of PRR Newco, NSR
and their subsidiaries to incur liens on the stock or indebtedness of The
Alabama Great Southern Railroad Company, a wholly owned subsidiary of NSR, or
"AGS," or engage in certain transactions involving funded debt, and limit the
ability of PRR Newco and NSR to enter into some types of mergers and
consolidations in each case, other than in connection with the Conrail Spin Off
Transactions. These covenants are substantially similar to those contained in
the existing indentures of NSC governing NSC's unsecured debt securities. See
"Description of the New NSR Notes--Certain Covenants" in the NSR Appendix. The
New NSR Notes will not contain financial covenants.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The U.S. federal income tax consequences to a holder of Conrail Debentures
vary depending on whether or not the holder participates in this exchange offer
and consent solicitation. Depending on those facts, a holder of Conrail
Debentures may recognize gain or loss for U.S. federal income tax purposes in
connection with this exchange offer and consent solicitation and the
modification of certain terms of such notes upon consummation of the Conrail
Spin Off Transactions. See "Description of This Exchange Offer and Consent
Solicitation--Material United States Federal Income Tax Consequences of This
Exchange Offer and Consent Solicitation" starting on page 52 of this prospectus
and consent solicitation statement.
THE DEALER MANAGER
Morgan Stanley & Co. Incorporated will act as dealer manager for this
exchange offer and consent solicitation, and can be reached at the address and
telephone number set forth on the back cover of this prospectus and consent
solicitation statement.
THE INFORMATION AGENT
We have engaged Innisfree M&A Incorporated as the information agent for
this exchange offer and consent solicitation. Requests for additional copies of
this prospectus and consent solicitation statement or the letter of
consent/transmittal and for assistance in tendering your Conrail Debentures
should be directed to the information agent below.
Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, New York 10022
Banks and Brokers Call Collect:
(212) 750-5833
All Others Call Toll Free:
(877) 456-3507
THE EXCHANGE AGENT
We have engaged The Bank of New York as the exchange agent for purposes of
processing tenders and withdrawals of your Conrail Debentures in this exchange
offer and consent solicitation. The address and telephone number of the exchange
agent are as follows:
The Bank of New York
Reorganization Unit
101 Barclay Street, 7E
New York, New York 10286
Attn: William Buckley/Carolle Montreuil
Facsimile Transmissions:
(212) 298-1915
To Confirm by Telephone or for Information:
(212) 815-5788/5920
14
SELECTED HISTORICAL FINANCIAL DATA
CSXT
For a description of the selected historical financial data of CSXT, please
refer to the CSXT Appendix attached hereto.
NSR
For a description of the selected historical financial data of NSR, please
refer to the NSR Appendix attached hereto.
CONRAIL
The following table sets forth selected historical financial data of
Conrail. The consolidated statements of operations data for the three months
ended March 31, 2004 and 2003 and the consolidated balance sheet data as of
March 31, 2004 have been derived from our unaudited consolidated financial
statements which are included in this prospectus and consent solicitation
statement. The consolidated statements of operations data for the years ended
December 31, 2003, 2002 and 2001, and the consolidated balance sheet data as of
December 31, 2003 and 2002, have been derived from Conrail's audited
consolidated financial statements, which are included in this prospectus and
consent solicitation statement. The consolidated balance sheet data as of March
31, 2003 has been derived from our unaudited consolidated financial statements
which are not included in this prospectus and consent solicitation statement.
The consolidated statements of operations data for the years ended December 31,
2000 and 1999, and the consolidated balance sheet data as of December 31, 2001,
2000 and 1999, are derived from Conrail's audited consolidated financial
statements not included or incorporated by reference in this prospectus and
consent solicitation statement. This data should be read in conjunction with the
unaudited pro forma financial information, related notes and other financial
information included in this prospectus and consent solicitation statement.
<Table>
<Caption>
THREE MONTHS
ENDED
MARCH 31, FOR THE YEARS ENDED DECEMBER 31,
--------------- -------------------------------------------
2004 2003 2003 2002 2001 2000 1999(a)
------ ------ ------ ------ ------ ------ -------
($ IN MILLIONS)
RESULTS OF OPERATIONS
Railway Operating Revenues...... $ 230 $ 226 $ 918 $ 893 $ 903 $ 985 $2,168
Railway Operating Expenses...... 162 163 659 623 639 749 2,033
------ ------ ------ ------ ------ ------ ------
INCOME FROM RAILWAY
OPERATIONS............... 68 63 259 270 264 236 135
Interest Expense................ (24) (25) (99) (104) (109) (124) (151)
Other Income, Net............... 27 20 95 92 96 149 76
------ ------ ------ ------ ------ ------ ------
Income from Continuing
Operations before Income Taxes
and Accounting Change(s)...... 71 58 255 258 251 261 60
Provision for Income Taxes...... 26 22 93 71 81 94 19
------ ------ ------ ------ ------ ------ ------
Income from Continuing
Operations before Accounting
Change(s)..................... 45 36 162 187 170 167 41
Cumulative Effect of Change(s)
in Accounting
Principle(s)(b)............... (1) 40 40 -- -- -- --
------ ------ ------ ------ ------ ------ ------
NET INCOME...................... $ 44 $ 76 $ 202 $ 187 $ 170 $ 167 $ 41
====== ====== ====== ====== ====== ====== ======
</Table>
(footnotes on next page)
15
<Table>
<Caption>
THREE MONTHS
ENDED
MARCH 31, FOR THE YEARS ENDED DECEMBER 31,
--------------- -------------------------------------------
2004 2003 2003 2002 2001 2000 1999(a)
------ ------ ------ ------ ------ ------ -------
($ IN MILLIONS)
FINANCIAL POSITION (AS OF PERIOD
END)
Total Assets.................... $8,199 $8,121 $8,101 $8,040 $7,958 $7,939 $8,284
Total Long-Term Debt, including
Current Maturities............ 1,150 1,170 1,125 1,180 1,216 1,290 1,621
Stockholder's Equity............ 4,394 4,197 4,350 4,120 3,990 3,887 3,278
OTHER
Capital Expenditures............ $ 3 $ 7 $ 35 $ 23 $ 47 $ 220 $ 176
Employees--End of Period........ 1,306 1,397 1,346 1,415 1,544 1,750 2,315
</Table>
- ------------
(a) The operations of Conrail substantially changed beginning June 1, 1999, when
CSXT and NSR began operating a portion of Conrail's properties under
operating agreements. Effective on that date, Conrail's major source of
operating revenues became operating fees and lease rentals from CSXT and
NSR. The composition of Conrail's operating expenses was also impacted by
the change in operations. As a result, Conrail's 1999 results reflect both
freight railroad operations through May 31, 1999 and Conrail's newly
restructured operations thereafter.
(b) Net income in 2003 reflects a cumulative effect accounting change related to
the cost to remove railroad crossties that increased net income by $40
million.
16
UNAUDITED PRO FORMA FINANCIAL INFORMATION
CSXT
For information relating to the unaudited pro forma financial information
of CSXT, please refer to the CSXT Appendix attached hereto.
NSR
For information relating to the unaudited pro forma financial information
of NSR, please refer to the NSR Appendix attached hereto.
CONRAIL
The unaudited pro forma financial information set forth below gives effect
to the Conrail Spin Off Transactions and the assumptions described in the
accompanying notes. This unaudited pro forma consolidated financial information
is presented for informational purposes only. The pro forma information is not
necessarily indicative of what the financial position or results of operations
actually would have been had the Conrail Spin Off Transactions occurred on the
dates indicated. In addition, the unaudited pro forma consolidated financial
information does not purport to project the future financial position or
operating results of Conrail. The unaudited condensed pro forma consolidated
balance sheet has been prepared giving effect to the Conrail Spin Off
Transactions as if such transactions had occurred on March 31, 2004. The
unaudited pro forma consolidated statements of operations have been prepared as
if the Conrail Spin Off Transactions had occurred on January 1, 2003. The
unaudited pro forma financial information is based on historical financial
information.
CONRAIL UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
QUARTER ENDED MARCH 31, 2004 YEAR ENDED DECEMBER 31, 2003
----------------------------------------------- -----------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- -------------------- --------- ---------- -------------------- ---------
($ IN MILLIONS)
Operating Revenues............ $230 $(142)(a),(b) $88 $918 $(562)(a),(b) $356
Operating Expenses:
Compensation and Benefits... 45 -- 45 168 -- 168
Material, Services and
Rents..................... 28 -- 28 119 (1)(d) 118
Depreciation and
Amortization.............. 79 (73)(c) 6 329 (302)(c) 27
Fuel........................ 2 -- 2 7 (1)(d) 6
Casualties and Insurance.... 3 -- 3 17 -- 17
Other....................... 5 (1)(d) 4 19 (6)(d) 13
---- ----- --- ---- ----- ----
Total Operating
Expenses................ 162 (74) 88 659 (310) 349
---- ----- --- ---- ----- ----
Income from Operations.... 68 (68) -- 259 (252) 7
Interest Expense.............. (24) 18 (e) (6) (99) 73 (e) (26)
Other Income, Net............. 27 (5)(f),(g),(h) 22 95 (13)(f),(g),(h) 82
---- ----- --- ---- ----- ----
Income before Income Taxes
and Accounting
Change(s)............... 71 (55) 16 255 (192) 63
Provision for Income Taxes.... 26 (20)(i) 6 93 (70)(i) 23
---- ----- --- ---- ----- ----
Income before Accounting
Change(s)............... $ 45 $ (35) $10 $162 $(122) $ 40
==== ===== === ==== ===== ====
</Table>
(footnotes on next page)
17
- --------------------
The following adjustments record the various income and expense effects of the
Conrail Spin Off Transactions. All amounts recorded are based on historical
information.
(a) To record decreases of $152 million for the quarter ended March 31, 2004
and $602 million for the year ended December 31, 2003, related to the
cancellation of operating and lease agreements of NYC and PRR with CSXT and
NSR, respectively, as a result of the Conrail Spin Off Transactions.
(b) To record additional revenue of $10 million for the quarter ended March 31,
2004 and $40 million for the year ended December 31, 2003, related to
sublease transactions with CSXT and NSR.
(c) To record the decreases in depreciation expense related to the transfer of
net property and equipment of NYC and PRR to CSXT and NSR, respectively.
(d) To record the transfer of various expenses of NYC and PRR to CSXT and NSR,
respectively.
(e) To record the decreases in interest expense related to the cancellation of
Conrail Debentures, assuming all holders validly tender.
(f) To record the decrease in interest income of $5 million for the quarter
ended March 31, 2004 and $17 million for the year ended December 31, 2003,
related to the transfer of Notes Receivable of NYC and PRR to CSXT and NSR,
respectively.
(g) To record additional interest income of $6 million for the quarter ended
March 31, 2004 and $25 million for the year ended December 31, 2003,
related to sublease transactions with CSXT and NSR.
(h) To record the decrease of $6 million for the quarter ended March 31, 2004
and $21 million for the year ended December 31, 2003 related to the
transfer of other income, principally equity in earnings of affiliated
companies of NYC and PRR to CSXT and NSR, respectively.
(i) To record $20 million for the quarter ended March 31, 2004 and $70 million
for the year ended December 31, 2003 for the tax effects of the above
adjustments at Conrail's statutory tax rate of 39.2%.
Certain of the above adjustments would be different if less than all holders
of Conrail Debentures validly tender, and do not withdraw, their Conrail
Debentures in this exchange offer and consent solicitation. If 51% of holders
validly tender, and do not withdraw, their Conrail Debentures in this exchange
offer and consent solicitation, the amount for adjustment (e) would be reduced
to $9 million for the quarter ended March 31, 2004 and $37 million for the year
ended December 31, 2003, and the amount for adjustment (i) would be increased to
$23 million for the quarter ended March 31, 2004 and $83 million for the year
ended December 31, 2003.
If 75% of holders validly tender, and do not withdraw, their Conrail
Debentures in this exchange offer and consent solicitation, the amount for
adjustment (e) would be reduced to $14 million for the quarter ended March 31,
2004 and $55 million for the year ended December 31, 2003, and the amount for
adjustment (i) would be increased to $22 million for the quarter ended March 31,
2004 and $76 million for the year ended December 31, 2003.
18
CONRAIL UNAUDITED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
<Table>
<Caption>
AS OF MARCH 31, 2004
---------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- -------------------- ---------
($ IN MILLIONS)
ASSETS
Current Assets:
Cash and Cash Equivalents............................ $ 10 $ (1)(a) $ 9
Accounts Receivable, net............................. 33 (5)(a) 28
Due from NSR/CSXT.................................... 154 -- (b),(c) 154
Material and Supplies................................ 8 -- 8
Deferred Tax Assets.................................. 45 -- 45
Other Current Assets................................. 14 (9)(a) 5
------ ------- ------
Total Current Assets.............................. 264 (15) 249
Investments.......................................... 290 (290)(d) --
Property and Equipment, net.......................... 6,077 (5,522)(e) 555
Notes Receivable from NSC/CSX........................ 1,348 (1,348)(f) --
Other Assets......................................... 220 306 (g) 526
------ ------- ------
Total Assets...................................... $8,199 $(6,869) $1,330
====== ======= ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts Payable..................................... $ 70 $ (3)(h) $ 67
Current Maturities of Long-Term Debt................. 56 -- 56
Due to NSC/CSX....................................... 6 55 (i) 61
Wages and Employee Benefits.......................... 25 -- 25
Casualty Reserves.................................... 38 -- 38
Accrued and Other Current Liabilities................ 120 (11)(j) 109
------ ------- ------
Total Current Liabilities......................... 315 41 356
Long-Term Debt......................................... 1,094 (800)(k) 294
Casualty Reserves...................................... 121 -- 121
Deferred Income Taxes.................................. 1,820 (1,524)(l) 296
Other Liabilities...................................... 455 (19)(m) 436
------ ------- ------
Total Liabilities................................. 3,805 (2,302) 1,503
Stockholder's Equity................................... 4,394 (4,567)(n) (173)
------ ------- ------
Total Liabilities and Stockholder's Equity........ $8,199 $(6,869) $1,330
====== ======= ======
</Table>
The following adjustments reflect the transfer of ownership of NYC and PRR
assets and liabilities to CSXT and NSR, respectively, and other transactions, as
a result of the Conrail Spin Off Transactions. All amounts are based on
historical information.
(footnotes on next page)
19
- --------------
(a) To record the transfer of cash and other current assets of NYC and PRR to
CSXT and NSR, respectively.
(b) To record current receivables, principally sublease receivables of $51
million, from CSXT and NSR.
(c) To record cancellation of operating and lease agreement receivables of $51
million of NYC and PRR with CSXT and NSR, respectively.
(d) To record the transfer of investments of NYC and PRR to CSXT and NSR,
respectively.
(e) To record the transfer of net property and equipment of NYC and PRR to CSXT
and NSR, respectively.
(f) To record the transfer of Notes Receivable of NYC and PRR to CSXT and NSR,
respectively.
(g) To record noncurrent receivables, principally sublease receivables from
CSXT and NSR.
(h) To record the transfer of miscellaneous payables of NYC and PRR to CSXT and
NSR, respectively.
(i) To recognize capital project advances from NYC and PRR to Conrail which
were formerly intercompany transactions with NYC and PRR.
(j) To record the transfer of accrued payables of NYC and PRR to CSXT and NSR,
respectively.
(k) To record the decrease in debt principal related to the cancellation of the
Conrail Debentures, assuming all holders validly tender.
(l) To record the transfer of deferred tax liabilities of NYC and PRR to CSXT
and NSR, respectively.
(m) To record the transfer of other liabilities of NYC and PRR to CSXT and NSR,
respectively.
(n) To recognize net impact resulting from the above transactions.
Certain of the above adjustments would be different if less than all holders
of Conrail Debentures validly tender, and do not withdraw, their Conrail
Debentures in this exchange offer and consent solicitation. If 51% of holders
validly tender, and do not withdraw, their Conrail Debentures in this exchange
offer and consent solicitation, the amount for adjustment (k) would be reduced
to $408 million and the amount for adjustment (n) would be increased to $4,959
million. If 75% of holders validly tender, and do not withdraw, their Conrail
Debentures in this exchange offer and consent solicitation, the amount for
adjustment (k) would be reduced to $600 million and the amount for adjustment
(n) would be increased to $4,767 million.
20
RATIOS OF EARNINGS TO FIXED CHARGES
CSXT
For information relating to the ratios of earnings to fixed charges of
CSXT, please refer to the CSXT Appendix attached hereto.
NSR
For information relating to the ratios of earnings to fixed charges of NSR,
please refer to the NSR Appendix attached hereto.
21
RISK FACTORS
An investment in the New Exchange Notes involves a number of risks. You
should consider the following information about these risks, as well as the
other information included in and incorporated by reference into this prospectus
and consent solicitation statement. In particular, you should consider the risks
discussed in CSX's, CSXT's, NSC's and NSR's filings with the SEC.
RISKS RELATING TO THIS EXCHANGE OFFER AND CONSENT SOLICITATION
CSXT AND NSR WILL CONTINUE TO HAVE A SUBSTANTIAL LEVEL OF INDEBTEDNESS AFTER
THE CONSUMMATION OF THE EXCHANGE OFFER AND CONSENT SOLICITATION AND MAY BE
UNABLE TO MEET THEIR RESPECTIVE OBLIGATIONS ON THE NEW CSXT NOTES AND THE NEW
NSR NOTES.
If this exchange offer and consent solicitation is consummated, each of
CSXT and NSR will continue to have significant liabilities and future cash
requirements.
As of March 26, 2004, CSXT had approximately $820 million aggregate
principal amount of total indebtedness outstanding. As of March 26, 2004, CSXT
would have had approximately $1,409 million of total indebtedness outstanding
(which includes secured indebtedness of $815 million as of March 26, 2004) if
holders of all Conrail Debentures had validly tendered and not withdrawn their
Conrail Debentures in this exchange offer and consent solicitation and the
Conrail Spin Off Transactions were consummated as of that date. In addition, as
of March 26, 2004, CSXT had approximately $2,914 million in intercompany
liabilities due to CSX and $294 million of intercompany liabilities due to other
affiliates of CSXT, each of which rank equally with or junior to the New CSXT
Notes.
As of March 31, 2004, NSR had approximately $885 million aggregate
principal amount of total debt outstanding. As of March 31, 2004, NSR would have
had approximately $1,696 million of total indebtedness outstanding (which
includes secured indebtedness of $850 million as of March 31, 2004) if holders
of all Conrail Debentures had validly tendered and not withdrawn their Conrail
Debentures in this exchange offer and consent solicitation and the Conrail Spin
Off Transactions were consummated as of that date. In addition, as of March 31,
2004, NSR had $765 million of intercompany liabilities due to NSC that rank
equally with or junior to the New NSR Notes.
The indenture for the New CSXT Notes does not prohibit or limit the
incurrence of additional indebtedness and other liabilities by CSXT, or any of
its subsidiaries, although the indenture does restrict the ability of CSXT and
its other subsidiaries to grant liens with respect to the stock or indebtedness
of BOCT. The indenture for the New NSR Notes does not prohibit or limit the
incurrence of additional indebtedness and other liabilities by NSR, or any of
its subsidiaries, although the NSR Indenture does contain covenants that
restrict the ability of NSR and its subsidiaries to grant liens with respect to
stock or indebtedness of AGS and limit the ability of PRR Newco, NSR and their
subsidiaries to engage in certain transactions involving funded debt. The
incurrence of additional indebtedness and other liabilities by CSXT or NSR or by
any of their subsidiaries could adversely affect each of CSXT's or NSR's ability
to pay their respective obligations on the New CSXT Notes or New NSR Notes. See
"Description of the New CSXT Notes" and "Description of the New NSR Notes" in
the Appendices attached hereto.
CSXT AND NSR AND THEIR SUBSIDIARIES WILL HAVE SIGNIFICANT DEBT AND DEBT-LIKE
OBLIGATIONS AND MAY NOT BE ABLE TO MAINTAIN INVESTMENT-GRADE CREDIT RATINGS.
After consummation of the Conrail Spin Off Transactions, CSXT and NSR and
their subsidiaries will have a significant amount of debt and debt-like
obligations, such as intercompany advances and operating leases. We expect that
the credit ratings of CSXT and NSR and their parent holding companies after
consummation of the Conrail Spin Off Transactions will be the same as their
existing credit ratings; however, we cannot predict how such credit ratings may
change over time. In addition, it is possible that CSXT, NSR or their parent
holding companies that issue debt may not continue to maintain an
investment-grade credit rating. Differences in credit ratings would affect the
interest rates charged on financings, as well as the amounts of indebtedness,
types of financing structures and debt markets that may be available to CSXT,
NSR
22
or their parent holding companies. A downgrade, suspension or withdrawal of the
rating assigned to CSXT or NSR by a rating agency could cause the liquidity or
market value of the applicable New Exchange Notes to decline significantly.
THE CREDIT RATINGS OF THE NEW CSXT NOTES AND THE NEW NSR NOTES ISSUED IN
EXCHANGE FOR THE CONRAIL DEBENTURES ARE BASED UPON THE CREDIT RATINGS OF CSXT
AND NSR, RESPECTIVELY, AND THEREFORE, AS A CONSEQUENCE OF BEING INDEPENDENT
FROM ONE ANOTHER, THEIR RATINGS MAY DIVERGE OVER TIME.
The Conrail Debentures are currently rated Baa2 by Moody's Investors
Service, or "Moody's," and BBB by Standard & Poor's. In general terms, these
current ratings are based, in part, on the obligations of CSXT and NSR to make
lease payments to NYC and PRR, respectively, and the separate obligations of CSX
and NSC, under certain circumstances, to provide sufficient cash to Conrail to
satisfy certain obligations up to their respective economic interest in Conrail.
Following the Conrail Spin Off Transactions, Conrail Debentures validly
tendered and accepted for exchange will no longer be Conrail obligations, but
will be exchanged for the New CSXT Notes and the New NSR Notes that are separate
obligations of CSXT and NSR, respectively. The credit ratings of the New CSXT
Notes and the New NSR Notes will be determined with regard to the credit rating
of other unsecured debt of CSXT and NSR, respectively. Therefore, the credit
ratings of the New CSXT Notes and the New NSR Notes may diverge in the future.
We currently expect that (i) the New CSXT Notes will be rated Baa2 by Moody's
and BBB by Standard & Poor's and (ii) the New NSR Notes will be rated Baa1 by
Moody's and BBB by Standard & Poor's. A rating reflects only the view of a
rating agency, and it is not a recommendation to buy, sell or hold securities.
Any rating can be revised upward or downward at any time by a rating agency if
such rating agency decides that circumstances warrant such a change.
On March 30, 2004, Standard & Poor's revised the outlook for CSX to
negative from stable after CSX's short-term corporate credit and commercial
paper ratings were lowered to A-3 from A-2. As a consequence, Conrail's outlook
was also revised from stable to negative since its outlook is based on its lower
rated owner, which presently is CSX. NSC's outlook continues to remain stable.
THE NEW CSXT NOTES AND THE NEW NSR NOTES WILL BE UNSECURED AND THEREFORE
SUBORDINATED TO THE SECURED DEBT OF CSXT AND NSR, RESPECTIVELY, AND
STRUCTURALLY SUBORDINATED TO THE INDEBTEDNESS OF THE SUBSIDIARIES OF CSXT AND
NSR, RESPECTIVELY.
The New CSXT Notes and the New NSR Notes will be unsecured and, following
consummation of the Conrail Spin Off Transactions, will be subordinated to any
secured indebtedness of CSXT and NSR, respectively, and will be structurally
subordinated to other obligations, including trade payables, of any subsidiary
of CSXT or NSR, respectively. "Structurally subordinated" means that in the
event of bankruptcy, liquidation or reorganization of an obligor, the assets of
each subsidiary of that obligor will be available to pay obligations of the
obligor only after all of the indebtedness and other obligations of that
subsidiary have been paid in full.
As of March 26, 2004, CSXT had approximately $815 million of secured
indebtedness and its subsidiaries had approximately $1 million of unsecured
indebtedness, each of which would rank senior to the New CSXT Notes.
As of March 31, 2004, NSR had approximately $850 million of secured
indebtedness which would rank senior to the New NSR Notes. As of March 31, 2004,
subsidiaries of NSR had no outstanding indebtedness.
In the event that CSXT, NSR or any of their respective subsidiaries is
declared bankrupt, becomes insolvent or is liquidated or reorganized, any
secured debt will be entitled to be paid in full from the pledged assets before
any payment may be made with respect to the New CSXT Notes or the New NSR Notes,
as the case may be. Holders of the New CSXT Notes will participate ratably with
all other holders of CSXT's unsecured debt, and potentially with all of CSXT's
other general creditors, based on the respective amounts owed to each holder or
creditor, in CSXT's remaining assets. Holders of the New NSR Notes will
participate ratably with all other holders of NSR's unsecured debt, and
potentially with all of NSR's other general
23
creditors, based on the respective amounts owed to each holder or creditor, in
NSR's remaining assets. In any of the foregoing events, no assurance can be
given that there will be sufficient assets to pay amounts due on the New CSXT
Notes or the New NSR Notes. As a result, holders of the New CSXT Notes and the
New NSR Notes are likely to receive less, ratably, than holders of secured debt
or holders of debt issued by subsidiaries of CSXT and NSR, respectively, if they
receive any payment in respect of the New CSXT Notes and the New NSR Notes.
NO PUBLIC TRADING MARKET EXISTS FOR THE NEW CSXT NOTES OR THE NEW NSR NOTES.
No established public trading market exists for the New CSXT Notes or New
NSR Notes and there can be no assurance that a liquid trading market for these
notes will develop, that holders of these notes will be able to sell their
notes, that holders can determine now the price at which the holders of these
notes will be able to sell their notes or whether a public trading market, if it
develops, will continue. If a public trading market were to develop, the New
CSXT Notes or the New NSR Notes could trade at prices higher or lower than their
principal amount, depending on many factors, including prevailing interest
rates, the market for similar securities and CSXT's or NSR's respective
operating results.
YOU MAY BE SUBJECT TO U.S. FEDERAL INCOME TAXATION AS A RESULT OF TENDERING
YOUR CONRAIL DEBENTURES.
All or a portion of any gain you realize in exchanging your Conrail
Debentures for New Exchange Notes and in receiving the 9 3/4% Cash Payment
and/or 7 7/8% Cash Payment may be subject to U.S. federal income tax.
THE VALUE OF THE COMBINATION OF THE NEW CSXT NOTES AND THE NEW NSR NOTES AND
THE AMOUNT OF THE 9 3/4% CASH PAYMENT AND/OR THE 7 7/8% CASH PAYMENT HAS NOT
BEEN ESTABLISHED.
None of the boards of directors of CSXT, NSR or Conrail has made any
determination that the combination of the New CSXT Notes and the New NSR Notes
along with the amount of the 9 3/4% Cash Payment and/or the 7 7/8% Cash Payment
represents an appropriate valuation of the Conrail Debentures. If you tender
your Conrail Debentures, you may not receive more value than if you choose to
keep them.
THE NEW CSXT NOTES AND THE NEW NSR NOTES MAY NOT BE INCLUDED IN CERTAIN
PREVALENT BOND INDICES.
Each series of the New Exchange Notes will have a smaller aggregate
principal amount than the series of Conrail 9 3/4% Debentures and the series of
Conrail 7 7/8% Debentures that may be tendered in the exchange offer. Because of
these smaller aggregate principal amounts, the New CSXT Notes and the New NSR
Notes may not be eligible for inclusion on certain prevalent bond indices. The
exclusion of the New CSXT Notes and the New NSR Notes from these bond indices
could adversely affect the trading market for and market price of the New CSXT
Notes and the New NSR Notes. As a result, the New CSXT Notes and the New NSR
Notes may command a lower trading price than the parallel series of Conrail
Debentures with a larger outstanding aggregate principal amount.
THE PRO FORMA FINANCIAL DATA INCLUDED IN THE APPENDICES ATTACHED HERETO ARE
PRELIMINARY AND THE AMOUNTS ULTIMATELY REFLECTED IN OUR FINANCIAL STATEMENTS
COULD DIFFER MATERIALLY FROM THE AMOUNTS SHOWN IN SUCH PRO FORMA FINANCIAL
DATA.
The pro forma financial data included in the CSXT Appendix attached hereto
have been prepared assuming that the fair value of the ownership interests in
NYC being obtained by CSXT less the fair value of the New CSXT Notes being
offered in this exchange offer and consent solicitation equals the carrying
amount of the indirect ownership interest in PRR being foregone by CSXT.
The pro forma financial data included in the NSR Appendix attached hereto
have been prepared assuming that the fair value of the ownership interests in
PRR being obtained by NSR less the fair value of the New NSR Notes being offered
in this exchange offer and consent solicitation equals the carrying amount of
the indirect ownership interest in NYC being foregone by NSR.
24
CSX and NSC are progressing toward ascertaining the fair value effects of
the Conrail Spin Off Transactions, which will be reflected in the accounting for
the Conrail Spin Off Transactions once consummated and that analysis has been
completed. Accordingly, the amounts ultimately reflected in CSXT's and NSR's
financial statements could differ materially from the amounts shown in the
unaudited pro forma financial data included in the Appendices attached hereto.
RISKS RELATING TO HOLDERS OF CONRAIL DEBENTURES WHO DO NOT VALIDLY TENDER IN
THIS EXCHANGE OFFER AND CONSENT SOLICITATION
IF YOU DO NOT VALIDLY TENDER YOUR CONRAIL DEBENTURES AND THIS EXCHANGE OFFER
AND CONSENT SOLICITATION IS CONSUMMATED, THE TERMS OF YOUR CONRAIL DEBENTURES
WILL BE AMENDED AND YOU WILL RECEIVE NO COMPENSATION FOR THE CONRAIL
SUPPLEMENTAL INDENTURE OR ANY RESULTING RISKS.
The terms of your Conrail Debentures will be amended whether or not you
tender for exchange if the holders of more than 50% in aggregate principal
amount of Conrail Debentures outstanding, voting as a single class, consent to
the Conrail Supplemental Indenture. This means that, if you do not validly
tender your Conrail Debentures for exchange and this exchange offer and consent
solicitation is consummated, you will hold Conrail Debentures that will remain
obligations of Conrail, but Conrail will no longer include NYC and PRR and will
consist of a smaller pool of less diversified assets. This smaller pool of less
diversified assets will be limited to routes and assets in the Shared Assets
Areas located in and around Newark, New Jersey, Philadelphia, Pennsylvania and
Detroit, Michigan. These Shared Assets Areas currently are, and are intended to
remain, owned by Conrail but used and operated by NSR and CSXT and their
respective affiliates on a shared basis. Assuming the Conrail Spin Off
Transactions had occurred on March 31, 2004, Conrail would have had total assets
of $1,330 million at that date. Assuming the Conrail Spin Off Transactions had
occurred on January 1, 2003, Conrail would have had total revenues of $88
million and income before accounting change of $10 million for the three months
ended March 31, 2004. These reduced levels of total assets and revenues would be
applicable even if only 51% of the Conrail Debentures were validly tendered and
accepted in this exchange offer and consent solicitation; however, income before
accounting change would decrease to $4 million in such an event.
In addition, the terms of your Conrail Debentures will be amended in a
manner that will materially reduce the covenants and events of default to which
Conrail is subject under the Conrail Indenture. Accordingly, if the Conrail
Supplemental Indenture becomes operative, the Conrail Debentures will impose no
significant restrictions on Conrail's conduct of business and therefore will
afford less protection to holders of Conrail Debentures than the current Conrail
Indenture. As a result, consummation of this exchange offer and consent
solicitation and the adoption of the proposed amendments may have adverse
consequences for the holders of the Conrail Debentures who elect not to
participate in this exchange offer and consent solicitation.
You will not receive New Exchange Notes and Cash Payments or otherwise be
compensated for this change in the terms of your Conrail Debentures and any
risks that result if you do not validly tender your Conrail Debentures for
exchange and this exchange offer and consent solicitation is consummated. We do
not currently intend, nor are we required, to purchase any Conrail Debentures
not exchanged in this exchange offer and consent solicitation.
In addition, any Conrail Debentures not tendered in this exchange offer and
consent solicitation will remain outstanding debt obligations of Conrail.
Conrail will have approximately $392 million in aggregate principal amount of
unsecured debt outstanding if only 51% of the aggregate principal amount of the
Conrail Debentures are validly tendered and accepted in this exchange offer and
consent solicitation.
IF YOU DO NOT VALIDLY TENDER YOUR CONRAIL DEBENTURES AND THIS EXCHANGE OFFER
AND CONSENT SOLICITATION IS CONSUMMATED, THE CONRAIL DEBENTURES YOU RETAIN ARE
EXPECTED TO BECOME LESS LIQUID AS A RESULT OF THIS EXCHANGE OFFER AND CONSENT
SOLICITATION.
Because we anticipate that most holders of the Conrail Debentures will
elect to exchange Conrail Debentures for New Exchange Notes and Cash Payments,
we expect that the liquidity of the markets, if any, for the Conrail Debentures
remaining after the consummation of this exchange offer and consent solicitation
25
may be substantially reduced. Any Conrail Debentures tendered and exchanged in
this exchange offer and consent solicitation will reduce the aggregate principal
amount of the Conrail Debentures outstanding.
Therefore, if your Conrail Debentures are not validly tendered in this
exchange offer and consent solicitation, it may become more difficult for you to
sell or transfer your unexchanged Conrail Debentures. This reduction in
liquidity may in turn increase the volatility of the market price for the
Conrail Debentures. We cannot guarantee that the Conrail Debentures will
continue to be rated or maintain their existing debt ratings after the closing
of this exchange offer and consent solicitation. If the Conrail Debentures cease
to be rated or are rated lower than their current rating, their liquidity may be
further reduced.
RISKS RELATING TO THE CONRAIL SPIN OFF TRANSACTIONS
CSXT AND NSR WILL HAVE TO ABIDE BY RESTRICTIONS TO PRESERVE THE TAX TREATMENT
OF THE CONRAIL SPIN OFF TRANSACTIONS.
Conrail, CSXT and NSR obtained favorable rulings from the IRS to the effect
that the Conrail Spin Off Transactions will be tax-free to Conrail, CSXT, NYC
Newco, NSR and PRR Newco. Under the Tax Allocation Agreement described under
"Description of the Conrail Spin Off Transactions--The Tax Allocation
Agreement," to which Conrail, CSXT and NSR will be parties, if a party or any of
its subsidiaries breaches any representations in the Tax Allocation Agreement
relating to the ruling, or takes any action or fails to take any action that
causes its representations in the Tax Allocation Agreement relating to the
ruling to be untrue or engages in any action that causes the Conrail Spin Off
Transactions to be taxable, such party will be required to make an indemnity
payment for the resulting taxes. The amount of any such indemnity payment could
be material.
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF CONRAIL
OVERVIEW
The following analysis relates to the results of operations of Conrail and
its majority owned subsidiaries and should be read in conjunction with Conrail's
consolidated financial statements and notes thereto for the year ended December
31, 2003. Except for the historical information contained herein, the matters
discussed below are forward-looking statements that involve risks and
uncertainties that may cause actual results to differ materially from those
expressed in the statements.
GENERAL
DESCRIPTION OF BUSINESS
Conrail, a principal freight railroad in the Northeastern United States, is
a wholly owned subsidiary of CRR. CSX and NSC, the major rail holding companies
in the Eastern United States, jointly control CRR through their ownership
interests in CRR Holdings, whose primary subsidiary is Green Corp., which owns
CRR. CSX and NSC have equity interests in CRR Holdings of 42% and 58%,
respectively, and voting interests of 50% each. Under operating and lease
agreements, CSX and NSC operate a substantial portion of Conrail's properties
through their respective railroad subsidiaries, CSXT and NSR. The major source
of Conrail's revenues is from CSXT and NSR, primarily in the form of rental
revenues and operating fees.
RECENT DEVELOPMENTS
PROPOSED SPIN OFF OF CONRAIL'S SUBSIDIARIES
In June 2003, Conrail, together with CSX and NSC, filed a joint petition
with the STB to establish direct ownership and control by CSXT and NSR of
certain portions of the Conrail system already operated by them in a
substantially independent manner, under various agreements. These portions of
the Conrail system are currently owned by Conrail's primary subsidiaries, NYC
and PRR. The Conrail Spin Off Transactions involve the termination of the
existing operating agreements and the transfer of the direct equity ownership of
NYC and PRR to CSXT and NSR, respectively. The Conrail Spin Off Transactions do
not involve the Shared Assets Areas that will continue to be owned and operated
by Conrail. The consummation of the Conrail Spin Off Transactions is subject to
a number of conditions, including, among other things, that the STB
authorization, obtained by the parties in November 2003, remains in full force
and effect, that the IRS ruling received by the parties in November 2003,
favorably qualifying the Conrail Spin Off Transactions as non-taxable, remains
in full force and effect and that the parties obtain required consents from
Conrail's debt holders and other lessors and counterparties to certain of
Conrail's equipment leases and related financing arrangements. For a description
of these and other conditions, see "Description of the Conrail Spin Off
Transactions--The Distribution Agreement--Conditions to the Consummation of the
Conrail Spin Off Transactions."
As a part of the Conrail Spin Off Transactions, Conrail is undertaking a
restructuring of its existing unsecured and secured public indebtedness. New
guaranteed debt securities of two newly formed corporate subsidiaries of CSXT
and NSR would be offered in a 42%/58% ratio as well as substantially all of the
equity of such new subsidiaries in exchange for the equity of NYC and PRR. Upon
completion of the Conrail Spin Off Transactions, the new debt securities would
become direct unsecured obligations of CSXT and NSR, respectively. Conrail's
secured debt and lease obligations will remain obligations of Conrail and are
expected to be supported by new leases and subleases that, upon consummation of
the Conrail Spin Off Transactions, would be the direct lease and sublease
obligations of CSXT and NSR, respectively.
Conrail, NSC and CSX are working to complete all steps necessary to
consummate the Conrail Spin Off Transactions in 2004. CSX and NSC are
progressing toward ascertaining the fair value effects of the Conrail Spin Off
Transactions, which will be reflected in the accounting for the Conrail Spin Off
Transactions once consummated and that analysis has been completed. Upon
consummation of the Conrail Spin Off Transactions, Conrail's primary source of
revenue will be related to the operation of the Shared Assets Areas
27
instead of the operating and equipment rental activities of NYC and PRR.
Conrail's future operating expenses will reflect this change in operations.
Accordingly, Conrail's prospective operating results will be significantly
different from those currently reported.
RESULTS OF OPERATIONS
OVERVIEW
Three Months Ending March 31, 2004 Compared with Three Months Ending March 31,
2003
Conrail reported net income of $44 million for the first quarter of 2004
compared with $76 million net income in the first quarter 2003. The decrease
reflects the absence of a favorable net cumulative effect of a change in
accounting principle of $40 million included in net income for 2003.
OPERATING REVENUES
Operating revenues (primarily rental revenues and operating fees) for the
first quarter of 2004 were $230 million, an increase of $4 million, or 1.8%,
compared with the same 2003 period.
OPERATING EXPENSES
Operating expenses for the first quarter of 2004 were $162 million, a
decrease of $1 million, or 0.6%, compared with the same 2003 period.
Compensation and benefits increased $3 million, or 7.1%, primarily due to
increased pension expense.
Material, services and rents decreased $3 million, or 9.7%, due to reduced
legal fees and other purchased services.
Depreciation and amortization decreased $2 million, or 2.5%, as a result of
asset retirements.
Casualties and insurance increased $1 million, primarily due to the absence
in 2004 of a favorable insurance adjustment which benefited 2003.
OTHER INCOME, NET
Other Income, net, increased $7 million, or 35.0%, primarily due to
increased equity in earnings of affiliates and interest income.
Year Ending December 31, 2003 Compared with Year Ending December 31, 2002
2003 VS. 2002
Conrail reported net income of $202 million in 2003 that included a
cumulative effect of accounting change benefit of $40 million related to
Conrail's adoption of Financial Accounting Standard Board, or "FASB," Statement
143, "Accounting for Asset Retirement Obligations."
Operating revenues, primarily rental revenues and operating fees, increased
$25 million, or 2.8%, from $893 million in 2002 to $918 million in 2003. The
increase in 2003 is primarily attributable to higher operating fees.
28
Operating expenses increased $36 million, or 5.8%, from $623 million in
2002 to $659 million in 2003. The following table sets forth the operating
expenses for the two years shown:
<Table>
<Caption>
INCREASE
2003 2002 (DECREASE)
---- ---- ----------
($ IN MILLIONS)
Compensation and benefits................................... $168 $151 $17
Fuel........................................................ 7 6 1
Material, services and rents................................ 119 125 (6)
Depreciation and amortization............................... 329 322 7
Casualties and insurance.................................... 17 2 15
Other....................................................... 19 17 2
---- ---- ---
$659 $623 $36
==== ==== ===
</Table>
Compensation and benefits increased $17 million, or 11.3%, primarily due to
reduced pension credits due to the decline in value of the assets in Conrail's
pension plan. Material, services and rents decreased $6 million, or 4.8%, due to
cost containment initiatives. Depreciation and amortization increased $7
million, or 2.2%, as a result of a depreciation study, partially offset by asset
retirements. The large increase in casualties and insurance of $15 million
reflects the absence in 2003 of actuarially determined favorable casualty
expense adjustments that reduced casualty expense $16 million in 2002.
Other income, net, increased $3 million, or 3.3%, primarily due to
increased gains from property sales, partially offset by reduced interest
income.
Income tax expense in 2003 was $93 million, resulting in an effective tax
rate of 36.5%, compared with tax expense and an effective tax rate for 2002 of
$71 million and 27.5%, respectively. In 2002, the effective rate benefited from
a favorable tax settlement that decreased tax expense by $23 million.
2002 VS. 2001
Net income was $187 million in 2002, compared with net income of $170
million in 2001.
Operating revenues decreased $10 million, or 1.1%, from $903 million in
2001 to $893 million in 2002. The decrease in 2002 is attributable to lower
rental revenues due to equipment lease expirations and lower operating expense
reimbursements for the Shared Assets Areas operation.
Operating expenses decreased $16 million, or 2.5%, from $639 million in
2001 to $623 million in 2002. The following table sets forth the operating
expenses for the two years:
<Table>
<Caption>
INCREASE
2002 2001 (DECREASE)
---- ---- ----------
($ IN MILLIONS)
Compensation and benefits................................... $151 $158 $ (7)
Fuel........................................................ 6 7 (1)
Material, services and rents................................ 125 143 (18)
Depreciation and amortization............................... 322 325 (3)
Casualties and insurance.................................... 2 (13) 15
Other....................................................... 17 19 (2)
---- ---- ----
$623 $639 $(16)
==== ==== ====
</Table>
Compensation and benefits decreased $7 million, or 4.4%, primarily due to
reductions in employment levels. Material, services and rents decreased $18
million, or 12.6%, due to operating department efficiencies. Depreciation and
amortization decreased $3 million, or 0.9%, due to asset retirements. Casualties
and insurance increased $15 million, primarily due to a reduction in favorable
insurance settlements, from $14 million recognized in 2001 to $4 million
recognized in 2002.
29
Other income, net, decreased $4 million, or 4.2%, primarily due to a
reduction in equity in earnings of affiliates.
Income tax expense in 2002 was $71 million, resulting in an effective tax
rate of 27.5%, compared with tax expense and an effective tax rate for 2001 of
$81 million and 32.3%, respectively. In 2002, the effective rate benefited from
a favorable tax settlement that decreased tax expense by $23 million.
FINANCIAL CONDITION AND LIQUIDITY
Three Months Ending March 31, 2004 Compared with Three Months Ending March 31,
2003
OPERATING ACTIVITIES
Conrail's operating activities provided cash of $133 million in the first
quarter of 2004, compared with $150 million in the first quarter of 2003. The
decrease is principally attributable to timing differences related to working
capital.
Cash generated from operations is the principal source of liquidity and is
primarily used for debt repayments and capital expenditures.
INVESTING ACTIVITIES
Net cash used in investing activities was $122 million in the first quarter
of 2004 compared to $144 million in the first quarter of 2003 and primarily
relate to additional investments in interest-bearing notes receivable due from
NSC and CSX.
Capital expenditures were $3 million in the first quarter of 2004 compared
to $7 million for the same period in 2003.
FINANCING ACTIVITIES
Debt repayments totaled $10 million for both the first quarter of 2004 and
the first quarter of 2003.
WORKING CAPITAL
Conrail had working capital deficits of $51 million and $29 million at
March 31, 2004 and December 31, 2003, respectively. A working capital deficit is
not unusual for Conrail and does not indicate a lack of liquidity. Conrail
continues to maintain adequate current assets to satisfy current liabilities and
maturing obligations when they come due and has sufficient financial capacity to
manage its day-to-day cash requirements and any obligations arising from legal,
tax and other regulatory rulings.
Year Ending December 31, 2003 Compared with Year Ending December 31, 2002
OPERATING ACTIVITIES
Conrail's operating activities provided cash of $412 million in 2003,
compared with $423 million in 2002 and $502 million in 2001. The decrease in
cash provided by operations in 2003 reflects the IRS tax settlement refund
totaling $24 million received in 2002, partially offset by a reduction in cash
used for casualty claim payments. The decline in 2002 was primarily the result
of the absence of certain events that benefited 2001, most notably, $50 million
received for the granting of licensing and other rights to a third party
relating to signboard advertising on Conrail's property and $42 million received
from several insurance carriers pertaining to favorable settlements.
Cash generated from operations is the principal source of liquidity and is
primarily used for debt repayments and capital expenditures.
30
INVESTING ACTIVITIES
Net cash used in investing activities was $360 million in 2003, compared to
$375 million in 2002 and $457 million in 2001, and was primarily related to
interest-bearing notes receivable due from CSX and NSR.
Capital expenditures were $35 million, $23 million and $47 million in 2003,
2002 and 2001, respectively.
FINANCING ACTIVITIES
Debt repayments totaled $57 million, $59 million and $61 million in 2003,
2002 and 2001, respectively.
WORKING CAPITAL
Conrail had working capital deficits of $29 million and $35 million at
December 31, 2003 and December 31, 2002, respectively. A working capital deficit
is not unusual for Conrail and does not indicate a lack of liquidity. Conrail
continues to maintain adequate current assets to satisfy current liabilities and
maturing obligations when they come due and has sufficient financial capacity to
manage its day-to-day cash requirements and any obligations arising from legal,
tax and other regulatory rulings.
CONTRACTUAL OBLIGATIONS
The following table sets forth maturities of Conrail's contractual
obligations as of December 31, 2003:
<Table>
<Caption>
TYPE OF OBLIGATION 2004 2005 2006 2007 2008 THEREAFTER TOTAL
- ------------------ ---- ---- ---- ---- ---- ---------- ------
($ IN MILLIONS)
Long-term Debt and Capital Leases.... $ 58 $ 48 $40 $ 66 $31 $ 882 $1,125
Operating Leases..................... 58 58 56 55 51 271 549
---- ---- --- ---- --- ------ ------
Total Contractual Obligations........ $116 $106 $96 $121 $82 $1,153 $1,674
==== ==== === ==== === ====== ======
</Table>
OTHER
Conrail has a 50% non-controlling interest in Locomotive Management
Services, or "LMS," an unconsolidated partnership established in 1994, that will
be consolidated in the first quarter of 2004 pursuant to FASB Interpretation No.
46R, "Consolidation of Variable Interest Entities," or "FIN 46R." Conrail
currently guarantees $27 million of principal and interest payments relating to
equipment trust certificates held by LMS.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Management reviews its estimates,
including those related to the recoverability and useful lives of assets, as
well as liabilities for litigation, environmental remediation, casualty claims,
income taxes and pension and postretirement benefits. Changes in facts and
circumstances may result in revised estimates.
DEPRECIATION
Property and equipment are recorded at cost. Depreciation is provided using
the composite straight-line method over estimated service lives. Expenditures,
including those on leased assets that extend an asset's useful life or increase
its utility, are capitalized. Maintenance expense is recognized when repairs are
performed. The cost (net of salvage) of depreciable property retired or replaced
in the ordinary course of business is charged to accumulated depreciation and no
gain or loss is recognized. Conrail recorded depreciation and amortization
expense of $329 million, $322 million and $325 million for the years ended
31
December 31, 2003, 2002 and 2001, respectively. In 2003, the overall
depreciation rate averaged 3.4% for all roadway and equipment.
During 2003, Conrail completed a study to update the estimated useful lives
of its roadway and track property and the associated accumulated depreciation
reserves. This review did not have a material impact on Conrail's consolidated
financial statements.
CASUALTY CLAIMS
Conrail is involved in various legal actions, principally relating to
occupational health claims, personal injuries, casualties and property damage.
The casualty claims liability is determined using the aid of an independent
actuarial firm based upon claims filed and an estimate of claims incurred but
not yet reported. Conrail is generally self-insured for casualty claims. Claims
in excess of self-insurance levels are insured up to excess coverage limits.
While the ultimate amounts of claims incurred are dependent upon future
developments, in management's opinion, the recorded liability is adequate to
cover expected probable payments.
For the year ended December 31, 2003, the provision for casualty expense
totaled $17 million, or 2.6%, of consolidated operating expenses. As of December
31, 2003, Conrail had a total liability recorded for casualty claims of $164
million.
ENVIRONMENTAL
Conrail is subject to various federal, state and local laws and regulations
regarding environmental matters. Conrail is a party to various proceedings
brought by both regulatory agencies and private parties under federal, state and
local laws, including the Comprehensive Environmental Response, Compensation and
Liability Act, or "CERCLA," and has also received inquiries from governmental
agencies with respect to other potential environmental issues. As of December
31, 2003, Conrail had accrued $61 million, an amount it currently believes is
sufficient to cover the probable liability and remediation costs that will be
incurred at CERCLA sites and other sites based on known information and using
various estimating techniques. Conrail anticipates that much of this liability
will be paid out over five years, however, some costs will be paid out over a
longer period. Conrail believes the ultimate liability for these matters will
not materially affect its consolidated financial condition.
PENSION AND OTHER POSTRETIREMENT BENEFITS
Conrail and its subsidiaries sponsor several qualified and nonqualified
pension plans and other postretirement employee benefits, or "OPEB," for its
employees. Accounting for pensions and OPEB expenses requires management to make
certain estimates and assumptions that include, among other things, expected
return on plan assets, discount rate, rate of salary increases and health care
cost trend rates. Conrail engages a third party actuarial firm to assist in
making these estimates.
Conrail recorded net pension income of $4 million in 2003, compared to
pension income of $17 million and $20 million recorded in 2002 and 2001,
respectively. The decrease in pension income for 2003 reflects the recent
decline in the investment markets. Conrail had a net pension benefit obligation
of $655 million and $646 million at December 31, 2003 and December 31, 2002,
respectively.
Conrail also recorded OPEB expenses of $2 million, $2 million and $1
million for the years ended December 31, 2003, 2002 and 2001, respectively. At
both December 31, 2003 and December 31, 2002, Conrail reported OPEB obligations
of $37 million.
INCOME TAXES
As required by FASB Statement No. 109, "Accounting for Income Taxes,"
Conrail's tax provision reflects income taxes both currently payable and
deferred.
32
Conrail is included in the consolidated federal income tax return of Green
Corp. The provision for current income taxes in the consolidated statements of
income reflects Conrail's portion of the consolidated tax portion of CRR. Tax
expense or tax benefit is recorded on a separate company basis.
Conrail's net deferred tax liability totaled $1,827 million and $1,814
million at December 31, 2003 and December 31, 2002, respectively. The liability
is primarily related to temporary differences associated with property and
equipment.
As of December 31, 2003 and December 31, 2002, Conrail has not recorded a
valuation allowance, as management believes that it is more likely than not that
the results of future operations will generate sufficient taxable income to
realize its deferred tax assets.
ACCOUNTING PRONOUNCEMENTS
Conrail adopted FASB Statement of Financial Accounting Standards, or
"SFAS," No. 143, "Accounting for Asset Retirement Obligations," effective
January 1, 2003. Pursuant to SFAS 143, companies are precluded from accruing
removal cost expenses that are not legal obligations. Previously, Conrail and
most other railroads had accrued removal costs as a component of depreciation
expense. In the first quarter of 2003, Conrail recorded income of $40 million
for the cumulative effect of this change on $65 million before taxes. Effective
with this pronouncement, removal costs are expensed as incurred. This change did
not have a material impact on Conrail's consolidated financial statements.
Also in 2003, the FASB issued FIN 46R, which requires consolidation by
Conrail of any variable interest entity owned by Conrail if a majority of such
entity's economic risks and/or rewards would belong to Conrail. The FASB delayed
the implementation of FIN 46R until 2004 for certain variable interest entities
that existed prior to February 1, 2003. Conrail has a 50% non-controlling
interest in LMS, an unconsolidated partnership established in 1994, that will be
consolidated pursuant to FIN 46R in the first quarter of 2004. The consolidation
will not have a material impact on Conrail's consolidated financial statements.
OTHER MATTERS
LABOR
Conrail had 1,346 employees at December 31, 2003, approximately 89% of whom
are represented by 11 different labor organizations and are covered by 16
separate collective bargaining agreements. These agreements remain in effect
until changed pursuant to the Railway Labor Act. Conrail was engaged in
collective bargaining at December 31, 2003, with labor organizations
representing approximately 6% of its labor force.
INFLATION
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires the use
of historical costs and disregards the impact of inflation on the costs of
replacing assets. The replacement cost of Conrail's property and equipment, as
well as the related depreciation expense, would be substantially greater than
historically reported amounts.
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DESCRIPTION OF THIS EXCHANGE OFFER AND CONSENT SOLICITATION
PURPOSE OF THIS EXCHANGE OFFER AND CONSENT SOLICITATION
We are making this exchange offer and consent solicitation in connection
with the proposed non-taxable transfer, through a series of consecutive and
related transactions, of Conrail's ownership interest in NYC and PRR to CSXT and
NSR, respectively. The Conrail Spin Off Transactions are described in this
prospectus and consent solicitation statement under "Description of the Conrail
Spin Off Transactions."
In this exchange offer and consent solicitation, we are offering to
exchange the New CSXT Notes, the New NSR Notes and Cash Payments for any and all
Conrail Debentures that are validly tendered and not withdrawn on or prior to
the expiration date. Simultaneously, and in connection with the exchange offer,
Conrail is soliciting consents from the holders of the Conrail Debentures to the
proposed amendments to the Conrail Indenture. See "--Proposed Amendments."
The terms and conditions of this exchange offer and consent solicitation
are described in this prospectus and consent solicitation statement and in the
accompanying letter of consent/transmittal.
If you hold Conrail Debentures, you may participate in this exchange offer
and consent solicitation by following the procedures described in this
prospectus and consent solicitation statement. In order to validly tender your
Conrail Debentures and receive the New Exchange Notes and Cash Payments, you
will be required to give your consent to the proposed amendments to the Conrail
Indenture with respect to the Conrail Debentures you tendered by completing,
signing, mailing or otherwise delivering a letter of consent/transmittal
relating to the tender of your Conrail Debentures pursuant to the terms and
conditions set forth in this prospectus and consent solicitation statement. By
validly tendering your Conrail Debentures, you will also be consenting to the
proposed amendments to the Conrail Indenture. If you validly withdraw your
tender of Conrail Debentures, your consent to the amendments will also be
withdrawn. If the proposed Conrail Supplemental Indenture becomes effective,
each non-exchanging holder of Conrail Debentures will be bound by the proposed
amendments to the Conrail Indenture even though the holder did not consent. See
"--Proposed Amendments."
This exchange offer and consent solicitation is not being made to, nor will
we accept tenders for exchange or consents from, holders of Conrail Debentures
in any jurisdiction in which this exchange offer and consent solicitation or the
acceptance of it and consent to it would not be in compliance with the
securities or blue sky laws of such jurisdiction.
The board of directors of Conrail is not making any recommendation as to
whether or not you should tender your Conrail Debentures in this exchange offer
and consent solicitation because the board has not made any determination that
the combination of the New CSXT Notes and the New NSR Notes, along with the
9 3/4% Cash Payment and/or the 7 7/8% Cash Payment, represents an appropriate
valuation of the Conrail Debentures.
TERMS OF THIS EXCHANGE OFFER AND CONSENT SOLICITATION
This prospectus and consent solicitation statement and the accompanying
letter of consent/transmittal contain the terms and conditions of this exchange
offer and consent solicitation. Upon the terms and subject to the conditions
included in this prospectus and consent solicitation statement and in the
accompanying letter of consent/transmittal, which together comprise this
exchange offer and consent solicitation, Conrail will accept for exchange
Conrail Debentures that are validly tendered and not withdrawn on or prior to
the expiration date of this exchange offer and consent solicitation.
-- When you tender to us Conrail Debentures as provided below, Conrail's
acceptance of validly tendered Conrail Debentures will constitute a
binding agreement among you and Conrail upon the terms and subject to
the conditions in this prospectus and consent solicitation statement
and in the accompanying letter of consent/transmittal.
34
-- For each aggregate principal amount of Conrail 9 3/4% Debentures
accepted by Conrail in the exchange offer, you will receive in
return, if you validly tender your Conrail 9 3/4% Debentures on or
prior to the expiration date of the exchange offer, (1) 42% of such
aggregate principal amount in New CSXT 9 3/4% Notes and 58% of such
aggregate principal amount in New NSR 9 3/4% Notes, subject to the
treatment of fractional interests, plus (2) a cash payment of $7.00
per each $1,000 of Conrail 9 3/4% Debentures tendered, or the "9 3/4%
Cash Payment."
-- For each aggregate principal amount of Conrail 7 7/8% Debentures
accepted by Conrail in the exchange offer, you will receive in
return, if you validly tender your Conrail 7 7/8% Debentures on or
prior to the expiration date of the exchange offer, (1) 42% of such
aggregate principal amount in New CSXT 7 7/8% Notes and 58% of such
aggregate principal amount in New NSR 7 7/8% Notes, subject to the
treatment of fractional interests, plus (2) a cash payment of $7.50
per each $1,000 of Conrail 7 7/8% Debentures tendered, or the "7 7/8%
Cash Payment."
-- Except for the interest payable by Conrail on the Closing Date and
the resulting adjustment in the amount of interest to be paid on the
first interest payment date, the New Exchange Notes will have
maturity dates, interest rates, and principal and interest payment
dates identical to those of the related series of Conrail Debentures
and together will aggregate to the same principal amounts of the
Conrail Debentures accepted for exchange. The New Exchange Notes will
be issued under indentures containing covenants and events of default
substantially similar to those contained in the existing indentures
of CSX and NSC governing their senior unsecured debt securities.
Descriptions of the terms of the New CSXT Notes and the New NSR Notes
are included under "Description of the New CSXT Notes" and
"Description of the New NSR Notes" in the CSXT Appendix and the NSR
Appendix, respectively.
-- This exchange offer and consent solicitation for Conrail Debentures
is for all outstanding Conrail Debentures and is not subject to
proration.
-- The New Exchange Notes will be issued only in denominations of $1,000
and integral multiples of $1,000. Accordingly, if you would otherwise
be entitled to receive a fractional interest in a New CSXT Note and a
fractional interest in a New NSR Note, you will instead receive
either a $1,000 New CSXT Note or a $1,000 New NSR Note in lieu of
fractional interests in the New Exchange Notes. Whether you will
receive a New CSXT Note or a New NSR Note in lieu of fractional
interests will be determined as follows:
-- if your fractional interest in a New CSXT Note is equal to or less
than $500 and your fractional interest in a New NSR Note is equal
to or greater than $500, you will receive a $1,000 New NSR Note in
lieu of any fractional interests; or
-- if your fractional interest in a New NSR Note is less than $500
and your fractional interest in a New CSXT Note is greater than
$500, you will receive a $1,000 New CSXT Note in lieu of any
fractional interests.
Under no circumstances will you receive a combination of the New CSXT Notes
and the New NSR Notes with a combined aggregate principal amount different from
the aggregate principal amount of Conrail Debentures that you validly tender in
this exchange offer and consent solicitation. Participants in DTC are
responsible for allocating the New CSXT Notes and the New NSR Notes, as well as
fractional interests related thereto, to beneficial owners and none of DTC,
CSXT, NSR, the exchange agent, the information agent or the dealer manager is
responsible for such allocations.
-- Our obligation to accept Conrail Debentures for exchange in this
exchange offer and consent solicitation is also subject to the
conditions described in this prospectus and consent solicitation
statement under "--Conditions to This Exchange Offer and Consent
Solicitation."
-- We will keep the exchange offer open for not less than 20 business
days, or longer if required by applicable law, after the date that we
first mail notice of the exchange offer to the holders of Conrail
Debentures. We are sending this prospectus and consent solicitation
statement, together with the
35
letter of consent/transmittal, on or about the date of this
prospectus and consent solicitation statement.
-- Holders of Conrail Debentures do not have any appraisal or
dissenters' rights in connection with this exchange offer and consent
solicitation.
-- Except as set forth in the following two bullet points, holders of
outstanding Conrail Debentures who participate in this exchange offer
and consent solicitation will receive the same amount of interest
payments that they would have received had they not participated in
this exchange offer and consent solicitation and accepted the New
Exchange Notes.
-- Conrail will pay accrued but unpaid interest on the Conrail
Debentures exchanged in this exchange offer and consent
solicitation through the business day immediately prior to the
Closing Date. In general, this payment will be made to the holder
who tendered the Conrail Debentures. If, however, we accept for
exchange any Conrail Debentures on or before an interest payment
date for that security but after the record date for that interest
payment date, Conrail will pay the accrued but unpaid interest to
the holder of those Conrail Debentures as of that record date, if
different from the holder who tenders.
-- Interest will cease to accrue on the Conrail Debentures exchanged
in this exchange offer and consent solicitation from and after the
Closing Date. Conrail will make interest payments on the Conrail
Debentures on each scheduled interest payment date that occurs
prior to the Closing Date. Conrail will also pay all accrued and
unpaid interest on the Conrail Debentures from the interest
payment date immediately preceding the Closing Date through and
including the calendar day immediately prior to the Closing Date.
Conrail will make this interest payment on the Closing Date. In
the event the Closing Date occurs on or before an interest payment
date for any series of Conrail Debentures but after the record
date for that interest payment date, holders of Conrail Debentures
accepted in the exchange offer will be deemed to have waived their
right to receive from Conrail any other amount of interest that
would otherwise be payable pursuant to the Conrail Indenture after
the Closing Date. Interest on the New CSXT Notes and the New NSR
Notes will accrue at the applicable rate from and including their
original issuance date, which will be on the Closing Date.
-- Holders of Conrail Debentures that validly tender and do not withdraw
their Conrail Debentures will have consented to the Conrail
Supplemental Indenture, as described in this prospectus and consent
solicitation statement under "--Proposed Amendments," to the extent
their Conrail Debentures are actually exchanged. See "--Required
Consent." Furthermore, in order to give your consent to the Conrail
Supplemental Indenture, you must validly tender and not validly
withdraw your Conrail Debentures. If you validly withdraw the tender
of your Conrail Debentures, your consent to the Conrail Supplemental
Indenture will be deemed withdrawn.
-- If the proposed amendments to the Conrail Indenture become effective,
each non-exchanging holder of Conrail Debentures will be bound by the
proposed amendments to the Conrail Indenture even though the holder
did not consent. See "--Proposed Amendments." Holders of these
unexchanged Conrail Debentures will be entitled to receive the same
amount of interest payments on the same interest payment dates as
currently scheduled for the respective series of Conrail Debentures.
-- We will be deemed to have accepted for exchange validly tendered
Conrail Debentures when we have given written notice of the
acceptance to the exchange agent. The exchange agent will act as
agent for the tendering holders for the purposes of receiving the New
Exchange Notes and delivering the New Exchange Notes and the
applicable cash payment to such holders. We expressly reserve the
right to terminate or amend this exchange offer and consent
solicitation, and not to accept for exchange any Conrail Debentures
not previously accepted for exchange, upon the occurrence of any of
the conditions specified under "--Conditions to This Exchange Offer
and Consent Solicitation."
-- Holders of Conrail Debentures who tender their Conrail Debentures in
this exchange offer and consent solicitation will not be required to
pay brokerage commissions or fees or, subject to the
36
instructions in the letter of consent/transmittal, transfer taxes
with respect to the exchange of Conrail Debentures. We will pay all
charges, expenses and only applicable taxes described below, in
connection with this exchange offer and consent solicitation. You
should read the sections entitled "--Fees and Expenses" and
"--Transfer Taxes" for more details regarding transfer taxes, fees
and expenses incurred in this exchange offer and consent
solicitation.
-- We intend to conduct this exchange offer and consent solicitation in
accordance with the applicable requirements of the Securities Act,
the Securities Exchange Act of 1934, as amended, or the "Exchange
Act," and the applicable rules and regulations of the SEC.
EXPIRATION DATE, EXTENSIONS, TERMINATION AND AMENDMENTS
This exchange offer and consent solicitation will expire at 5:00 p.m., New
York City time, on , 2004, unless we extend it or terminate it
earlier. References in this prospectus and consent solicitation statement to the
"expiration date" with respect to any series of Conrail Debentures mean 5:00
p.m., New York City time, on , 2004 or, if extended by us, the latest
time and date to which this exchange offer and consent solicitation is extended
by us. In accordance with Rule 14e-1 under the Exchange Act, if we elect to
increase or decrease the percentage of the Conrail Debentures sought, the
consideration offered or the dealer manager's soliciting fees, this exchange
offer and consent solicitation will remain open for at least ten business days
from the date that notice of such change is first published or sent or given to
holders of the Conrail Debentures.
In order to extend the expiration date, we will:
-- notify the exchange agent of any extension by written communication;
and
-- issue a press release or other public announcement that will report
the approximate number of Conrail Debentures deposited, no later than
9:00 a.m., New York City time, on the first business day after the
previously scheduled expiration date of this exchange offer and
consent solicitation.
During any extensions, all Conrail Debentures previously tendered will
remain tendered, subject, however, to withdrawal rights as described under
"--Withdrawal Rights." Any Conrail Debentures not accepted for exchange for any
reason will be returned without expense to the tendering holder promptly after
the expiration or termination of this exchange offer and consent solicitation.
We expressly reserve the right, in our sole discretion:
-- to amend the terms of this exchange offer and consent solicitation in
any manner;
-- to waive, in whole or in part, any of the conditions to this exchange
offer and consent solicitation;
-- to extend the period of time during which this exchange offer and
consent solicitation is open and thereby delay acceptance of any of
the Conrail Debentures to which the extension applies, by giving
written notice of any extension to the exchange agent and notice of
such extension to the holders by press release or other public
announcement;
-- to extend or terminate this exchange offer and consent solicitation
and to refuse to accept Conrail Debentures not previously accepted if
any of the conditions set forth below under "--Conditions to This
Exchange Offer and Consent Solicitation" have not been satisfied or
waived by us, by giving written notice of such delay, extension or
termination to the exchange agent and written notice of such
extension or termination to holders by press release or other public
announcement; or
-- if, in the opinion of our counsel, the consummation of this exchange
offer and consent solicitation would violate any law or
interpretation of the Staff of the SEC, to terminate or amend this
exchange offer and consent solicitation by giving written notice to
the exchange agent.
We cannot assure you, in case any conditions to this exchange offer and
consent solicitation set forth under "--Conditions to This Exchange Offer and
Consent Solicitation" are not satisfied or waived by us, that we will exercise
our right to extend the expiration date for this exchange offer and consent
solicitation.
37
Any extension, termination or amendment will be followed as promptly as
practicable by press release or other public announcement. If we make a material
change in the terms of this exchange offer and consent solicitation or the
information concerning this exchange offer and consent solicitation or waive any
condition of this exchange offer and consent solicitation that results in a
material change to the circumstances of this exchange offer and consent
solicitation, we will circulate additional exchange offer and consent
solicitation materials if and to the extent required by applicable law. In those
circumstances, we will also extend this exchange offer and consent solicitation
if and to the extent required by applicable law in order to permit holders of
the Conrail Debentures subject to this exchange offer and consent solicitation
adequate time to consider the additional materials.
If we elect to provide one or more subsequent offering periods totaling
between three and 20 business days after the initial offering period has
expired, you will not be entitled to any withdrawal rights during the subsequent
offering period. For more information regarding a subsequent offering period,
see "--Withdrawal Rights."
IMPORTANT RESERVATION OF RIGHTS REGARDING THIS EXCHANGE OFFER AND CONSENT
SOLICITATION
You should note that:
-- All questions as to the validity, form, eligibility, time of receipt,
acceptance and any withdrawal of Conrail Debentures tendered for
exchange will be determined by us in our sole discretion, and such
determination shall be final and binding.
-- We reserve the absolute right to reject any and all tenders of any
particular Conrail Debentures not validly tendered or not to accept
any particular Conrail Debentures of which acceptance might, in our
sole judgment or the judgment of our counsels, be unlawful.
-- We also reserve the absolute right to waive any conditions of this
exchange offer and consent solicitation with respect to all holders
before the expiration date.
-- We further reserve the absolute right to jointly waive any defects or
irregularities in connection with the tender of any particular
Conrail Debentures either before or after the expiration date,
whether or not similar defects or irregularities are waived in
connection with other tendered Conrail Debentures. Unless we agree to
waive any defect or irregularity in connection with the tender of
Conrail Debentures for exchange, you must cure any defect or
irregularity within any reasonable period of time as we shall
determine.
-- Our interpretation of the terms and conditions of this exchange offer
and consent solicitation (including the instructions in the letter of
consent/transmittal) as to any particular Conrail Debentures either
before or after the expiration date shall be final and binding on all
other parties.
-- None of us, the exchange agent, or any other person shall be under
any duty to give notification of any defect or irregularity with
respect to any tender of Conrail Debentures for exchange, nor shall
any of them incur any liability for failure to give any notification.
-- Tenders of Conrail Debentures will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any
Conrail Debentures received by the exchange agent that are not
validly tendered and as to which the defects or irregularities have
not been cured or waived will be returned without cost by the
exchange agent to the tendering holder unless otherwise provided in
the letter of consent/transmittal, promptly following the expiration
date.
TERMS OF THE NEW CSXT NOTES AND THE NEW NSR NOTES
The New CSXT Notes and the New NSR Notes will be issued under and entitled
to the benefits of the New CSXT Indenture and New NSR Indenture. As a result,
each of the New CSXT Notes and the New NSR Notes will be treated as separate
debt obligations of each distinct obligor under their respective indentures.
38
Descriptions of the terms of the New CSXT Notes are included in this
prospectus and consent solicitation statement under "Description of the New CSXT
Notes" in the CSXT Appendix attached hereto. Descriptions of the terms of the
New NSR Notes are included in this prospectus and consent solicitation statement
under "Description of the New NSR Notes" in the NSR Appendix attached hereto. A
comparison of the terms of the New CSXT Notes to those of the Conrail Debentures
is included in this prospectus and consent solicitation statement under
"Comparison of the New CSXT Notes and the Conrail Debentures" in the CSXT
Appendix attached hereto. A comparison of the terms of the New NSR Notes to
those of the Conrail Debentures is included in this prospectus and consent
solicitation statement under "Comparison of the New NSR Notes and the Conrail
Debentures" in the NSR Appendix attached hereto.
REQUIRED CONSENT
If you tender your Conrail Debentures, you must also consent to the
proposed amendments to the Conrail Indenture to the extent your Conrail
Debentures are accepted for exchange. By submitting a letter of
consent/transmittal, you will have consented to the proposed amendments. See
"--Proposed Amendments."
CONDITIONS TO THIS EXCHANGE OFFER AND CONSENT SOLICITATION
No Conrail Debentures will be accepted for exchange unless holders of more
than 50% of the aggregate principal amount of the Conrail Debentures, voting as
a single class, have consented to the Conrail Supplemental Indenture and validly
tendered and not withdrawn their Conrail Debentures on or prior to the
expiration date.
The aggregate principal amount outstanding of each series of Conrail
Debentures as of the date of this prospectus and consent solicitation statement
are set forth below:
<Table>
9 3/4% Debentures Due June 15, 2020.................... $550,000,000
7 7/8% Debentures Due May 15, 2043..................... 250,000,000
------------
TOTAL................................................ $800,000,000
============
</Table>
Even if the above condition is met, notwithstanding any other term of this
exchange offer and consent solicitation or any extension of this exchange offer
and consent solicitation, we will not be required to accept for exchange any
Conrail Debentures and, prior to the expiration date, may terminate, amend, or
extend this exchange offer and consent solicitation if:
-- Conrail has not obtained the consent, by the lessors and
counterparties to Conrail's various private equipment leases and
private secured loans, to the Conrail Spin Off Transactions; or
-- Conrail does not obtain the consent by a majority of the holders of
each series of Conrail's equipment trust certificates and pass
through trust certificates, each voting as a separate class, as well
as the consent by the related equity investors, lessors, owner
trustees and owner participants, to the Conrail Spin Off
Transactions, as evidenced by the execution and delivery by such
holders of a letter of consent/transmittal pursuant to the consent
solicitation that is occurring concurrently with this exchange offer
and consent solicitation or by such other related party of another
agreement or document evidencing such consent; or
-- any action, proceeding or litigation seeking to enjoin, make illegal,
delay the consummation of or challenge in any respect this exchange
offer and consent solicitation or the Conrail Spin Off Transactions
or otherwise relating in any manner to this exchange offer and
consent solicitation or the Conrail Spin Off Transactions is pending,
instituted or threatened; or
-- any order, stay, judgment or decree is issued by any court,
government, governmental authority or other regulatory or
administrative authority and is in effect or any statute, rule,
regulation, governmental order or injunction shall have been
proposed, enacted, enforced or deemed applicable to this exchange
offer and consent solicitation, or the Conrail Spin Off Transactions,
any of which could restrain, prohibit or delay consummation of this
exchange offer and consent solicitation or the Conrail
39
Spin Off Transactions or impair the contemplated benefits of this
exchange offer and consent solicitation or the Conrail Spin Off
Transactions to CSXT, NSR or Conrail, as described under "Description
of the Conrail Spin Off Transactions--Benefits of the Conrail Spin
Off Transactions," including a change which occurs in the current
interpretations of the SEC that could materially impair our ability
to proceed with the exchange offer or consent solicitation; or
-- the trustee under the Conrail Indenture shall have objected in any
respect to, or taken any action that could adversely affect the
consummation of this exchange offer and consent solicitation or
Conrail's ability to cause the execution of the Conrail Supplemental
Indenture, or shall have taken any action that challenges the
validity or effectiveness of the procedures used by Conrail in
soliciting the consents (including the form thereof) or in the making
of this exchange offer and consent solicitation or the acceptance of
any of the Conrail Debentures or any of the consents; or
-- all conditions in the Distribution Agreement shall not have been
satisfied or waived. For a description of those conditions, see
"Description of the Conrail Spin Off Transactions--The Distribution
Agreement"; or
-- there has occurred:
-- any general suspension of trading in, or limitation on prices
for, securities on any national securities exchange or in the
over-the-counter market in the United States;
-- the declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States;
-- the commencement of a war, armed hostilities or other
international or national calamity (or, with regard to any
existing wars or conflicts, any material escalation or expansion
of such conflicts) directly or indirectly involving the United
States or any of its territories;
-- any limitation (whether or not mandatory) by any governmental,
regulatory or administrative agency or authority on, or any
event, or any disruption or adverse change in the financial or
capital markets generally or the market for loan syndications in
particular, that could affect adversely the extension of credit
by banks or other lending institutions in the United States;
-- any event or events including, without limitation, general
political, market, economic or financial conditions in the
United States or abroad that have resulted or could result in an
actual or threatened material adverse change in the business,
condition (financial or other), income, operations, assets,
liabilities, properties, or prospects of NYC or PRR, CSXT and
its subsidiaries, taken as a whole, NSR and its subsidiaries,
taken as a whole, or that otherwise materially affects, or could
impair in any way, the contemplated future conduct of the
business of any of the foregoing, or that otherwise could
materially affect the expected benefits of this exchange offer
and consent solicitation or the Conrail Spin Off Transactions,
as described under "Description of the Conrail Spin Off
Transactions--Benefits of the Conrail Spin Off Transactions"; or
-- any termination of the Distribution Agreement. See "Description
of the Conrail Spin Off Transactions--The Distribution
Agreement."
The conditions listed above are for our sole benefit and may be asserted by
any of us regardless of the circumstances giving rise to any of these
conditions. Prior to the expiration date, we may waive these conditions in whole
or in part at any time and from time to time. The conditions may only be waived
by us jointly. The failure by us at any time to exercise any of the above rights
will not be considered a waiver of that right, and these rights will be
considered to be ongoing rights which may be asserted, before the expiration
date, at any time and from time to time. Any determination by us concerning the
events described above will be final and binding upon all parties.
In addition, we will not consummate this exchange offer and consent
solicitation if at any time any stop order has been threatened or is in effect
with respect to either of the registration statements of which this
40
prospectus and consent solicitation statement constitutes a part or the
qualification of the New CSXT Indenture or the New NSR Indenture under the Trust
Indenture Act of 1939, or the "TIA."
FRACTIONAL NOTES
The New Exchange Notes will be issued only in denominations of $1,000 and
integral multiples of $1,000. Accordingly, if you would otherwise be entitled to
receive a fractional interest in a New CSXT Note and a fractional interest in a
New NSR Note, you will instead receive either a $1,000 New CSXT Note or a $1,000
New NSR Note in lieu of fractional interests in the New Exchange Notes. Whether
you will receive a $1,000 New CSXT Note or a $1,000 New NSR Note in lieu of
fractional interests will be determined as follows:
-- if your fractional interest in a New CSXT Note is equal to or less
than $500 and your fractional interest in a New NSR Note is equal to
or greater than $500, you will receive a $1,000 New NSR Note in lieu
of any fractional interests; or
-- if your fractional interest in a New NSR Note is less than $500 and
your fractional interest in a New CSXT Note is greater than $500, you
will receive a $1,000 New CSXT Note in lieu of any fractional
interests.
Under no circumstances will you receive a combination of New CSXT Notes and
New NSR Notes with a combined aggregate principal amount different from the
aggregate principal amount of Conrail Debentures that you validly tender in this
exchange offer and consent solicitation. Participants in DTC are responsible for
allocating the New CSXT Notes and the New NSR Notes, as well as fractional
interests related thereto, to beneficial owners and none of DTC, CSXT, NSR, the
exchange agent, the information agent or the dealer manager is responsible for
such allocations.
NO PRORATION
This exchange offer and consent solicitation for Conrail Debentures is for
all Conrail Debentures and is not subject to proration among holders of Conrail
Debentures who validly tender.
PROPOSED AMENDMENTS
This section sets forth a brief description of the Proposed Amendments to
the Conrail Indenture for which consents are being sought pursuant to this
exchange offer and consent solicitation. THE PROPOSED AMENDMENTS CONSTITUTE A
SINGLE PROPOSAL. IF YOU ELECT TO TENDER YOUR CONRAIL DEBENTURES, YOU MUST
CONSENT TO THE PROPOSED AMENDMENTS AS AN ENTIRETY AND MAY NOT CONSENT
SELECTIVELY TO SPECIFIC PROPOSED AMENDMENTS. IF YOU VALIDLY TENDER YOUR CONRAIL
DEBENTURES, YOU WILL HAVE CONSENTED TO THE PROPOSED AMENDMENTS.
The proposed amendments will not become effective unless and until we
accept for exchange all validly tendered Conrail Debentures pursuant to this
exchange offer and consent solicitation and such Conrail Debentures represent
more than 50% in aggregate principal amount of Conrail Debentures outstanding.
The Conrail Supplemental Indenture setting forth the proposed amendments will be
executed promptly following the expiration date, assuming that the requisite
consents have been received. Thereafter, the proposed amendments will be
effective and will be binding on all non-tendering holders of Conrail
Debentures. If this exchange offer and consent solicitation is withdrawn or is
otherwise not consummated, the Conrail Supplemental Indenture will become null
and void, the proposed amendments will not become effective and the Conrail
Indenture will remain in effect in its present form, subject to any
modifications, waivers or amendments in accordance with the provisions of the
Conrail Indenture, without giving effect to the proposed amendments.
The primary purpose of the Conrail Supplemental Indenture is to eliminate
substantially all of the restrictive covenants in the Conrail Indenture in order
to allow the Conrail Spin Off Transactions to go forward, other than the
covenants to pay interest on and principal of Conrail's Debentures when due and
covenants required by the TIA, and to eliminate certain related events of
default.
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The following summary of provisions of the Conrail Indenture after giving
effect to proposed amendments set forth below are qualified in their entirety by
reference to the full and complete terms contained in the Conrail Indenture,
dated May 1, 1990, between Conrail and J.P. Morgan Trust Company, National
Association, as successor to Bank One Trust Company, N.A., a national banking
corporation, which was successor in interest to The First National Bank of
Chicago, a national banking association, or "FNBC," and as amended by the
Conrail Supplemental Indenture, dated August 25, 1998, between Conrail and FNBC.
Holders may obtain copies of the Conrail Indenture and the Conrail Supplemental
Indenture without charge from the information agent.
The "proposed amendments" to the Conrail Indenture are as follows:
DELETION OF COVENANTS
The proposed amendments would, unless otherwise indicated, delete in their
entirety from the Conrail Indenture the provisions described and listed below by
their corresponding section number in the Conrail Indenture and any references
thereto.
SECTION 3.6 Corporate Existence. This provision currently requires
Conrail to keep in full force and effect its corporate existence and its rights
and franchises unless abandoning any right or franchise would not have a
material adverse effect on Conrail or its subsidiaries taken as a whole.
SECTION 3.7 Limitation on Liens. This provision currently restricts
Conrail's ability and its subsidiaries' ability to create or permit to exist
certain liens on their assets and properties and the debt or shares of stock of
certain of their subsidiaries.
SECTION 3.8 Waiver of Certain Covenants. This provision currently allows
holders of the Conrail Debentures to waive Conrail's compliance with Section 3.6
(Corporate Existence) and Section 3.7 (Limitation on Liens) of the Conrail
Indenture.
SECTION 3.10 Limitation upon LLC Indebtedness. This provision currently
restricts Conrail's ability to permit NYC or PRR or any successor of either to
incur, create or otherwise become liable for the payment of any indebtedness.
SECTION 5.1 Events of Default. Section 5.1 of the Conrail Indenture sets
forth events that would constitute a default by Conrail under the Conrail
Indenture.
Paragraph (c) describes events of default relating to Conrail's failure to
comply with its covenants or agreements under the Conrail Indenture; and
Paragraph (f) describes events of default relating to any other event of
default provided for in any supplemental indenture under which securities are
issued under the indenture.
SECTION 9.1 Issuer May Merge, Consolidate, etc., Only on Certain
Terms. This provision currently restricts Conrail's ability to merge,
consolidate or sell all or substantially all of its assets.
SECTION 9.2 Successor Corporation Substituted. This provision currently
provides that, following compliance with the terms of Section 9.1, the successor
corporation will succeed to the rights and powers of Conrail under the Conrail
Indenture, after which Conrail will be discharged from its obligations.
SECTION 9.3 Notes to be Secured in Certain Events. This provision
currently requires Conrail to secure the payment of any securities outstanding
under the Conrail Indenture prior to a merger or consolidation if a certain
amount of Conrail's assets or any shares of stock or debt of any of Conrail's
Subsidiaries will be subject to a lien following the merger or consolidation and
the securities outstanding under the Conrail Indenture will not be similarly
secured.
The Conrail Supplemental Indenture would also delete definitions from the
Conrail Indenture when references to these definitions are eliminated as a
result of the foregoing.
None of the maturity dates, payment provisions, interest rates, redemption
provisions or any other similar terms of the Conrail Indentures will be amended
as a result of the Conrail Supplemental Indenture.
42
This description is also qualified in its entirety by reference to the full
provisions of the Conrail Indenture, which is filed as an exhibit to the
registration statements of which this prospectus and consent solicitation
statement is a part, and copies of which the information agent will provide to
you upon request. Holders of Conrail Debentures should carefully review the
Conrail Supplemental Indenture before consenting to the proposed amendments by
validly tendering and not withdrawing their Conrail Debentures in this exchange
offer and consent solicitation.
REQUISITE CONSENTS; OUTSTANDING CONRAIL DEBENTURES
In order for the Conrail Supplemental Indenture to be effective as to the
Conrail Debentures, holders of more than 50% in aggregate principal amount of
the Conrail Debentures, voting as a single class, must have validly tendered and
had their Conrail Debentures accepted in this exchange offer and consent
solicitation.
In contrast, in the consent solicitation that occurred in 1998, the
amendment to the Conrail Indenture required the consent of a majority in
aggregate principal amount of the holders of each of the 9 3/4% Conrail
Debentures and the 7 7/8% Conrail Debentures, each voting separately as a single
class.
As a consequence of the amendments approved in the 1998 consent
solicitation, all amendments or waivers subsequent to the 1998 amendments that
affect all series of securities outstanding under the Conrail Indenture (such as
those set forth in the Conrail Supplemental Indenture) may be made with the
consent of a majority in aggregate principal amount of all such series voting
together as a single class rather than on a series-by-series basis.
The principal amount outstanding of each series of Conrail Debentures as of
the date of this prospectus and consent solicitation statement is set forth
below:
<Table>
<Caption>
9 3/4% Debentures Due June 15, 2020................. $550,000,000
7 7/8% Debentures Due May 15, 2043.................. 250,000,000
------------
TOTAL.......................................... $800,000,000
============
</Table>
The failure of a holder of Conrail Debentures to have his Conrail
Debentures accepted in this exchange offer and consent solicitation, including
any failures resulting from failures by brokers to validly tender or to receive
instructions from their clients as to whether to tender Conrail Debentures in
this exchange offer and consent solicitation, will have the same effect as if
that holder had not granted a consent to the Conrail Supplemental Indenture.
To our knowledge, no director or executive officer of CSXT, NSR, Conrail or
any of their affiliates held any Conrail Debentures as of the close of business
on the date hereof.
PROCEDURES FOR TENDERING
WHAT TO SUBMIT AND HOW
We have forwarded to you, along with this prospectus and consent
solicitation statement, a letter of consent/transmittal relating to this
exchange offer and consent solicitation in order for you to receive the New
Exchange Notes and the respective Cash Payments. A holder need not submit a
letter of consent/transmittal if the holder tenders Conrail Debentures in
accordance with the ATOP procedures mandated by DTC. To tender Conrail
Debentures without submitting a letter of consent/transmittal, the electronic
instructions sent to DTC and transmitted to the exchange agent must contain your
acknowledgements of, receipt of, and your agreement to be bound by, and to make
all the representations contained in, the letter of consent/transmittal. In all
other cases, you must transmit a validly completed and duly executed letter of
consent/transmittal to The Bank of New York, at the address set forth below
under "--Exchange Agent," on or prior to the expiration date. Your valid tender
of Conrail Debentures through either method will constitute your consent to the
Conrail Supplemental Indenture.
Any beneficial holder whose Conrail Debentures are registered in the name
of its broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered
43
holder promptly and instruct such registered holder to tender on the beneficial
holder's behalf. In accordance with state securities laws, some beneficial
holders will be required to make representations and warranties about themselves
contained in the form of instructions to be sent to brokers, dealers, commercial
banks, trust companies and other nominees. If such beneficial holder wishes to
tender on its own behalf, such beneficial holder must, prior to completing and
executing the letter of consent/transmittal and delivering its Conrail
Debentures, either make appropriate arrangements to register ownership of the
Conrail Debentures in such holder's name or obtain a properly completed bond
power from the registered holder. The transfer of record ownership may take
considerable time and may not be capable of being completed prior to the
expiration date.
In addition,
(1) certificates for the Conrail Debentures must be received by the
exchange agent along with the letter of consent/transmittal; or
(2) a timely confirmation of a book-entry transfer of the Conrail
Debentures, if such procedure is available, into the exchange agent's
account at DTC using the procedure for book-entry transfer described below,
must be received by the exchange agent on or prior to the expiration date;
or
(3) you must deliver a letter of consent/transmittal and, if
applicable, a notice of guaranteed delivery on or prior to the expiration
date. See "--Guaranteed Delivery Procedures."
All Conrail Debentures held by a single holder and not by a nominee,
trustee or other representative must all be tendered on a single letter of
consent/transmittal.
The tender by a holder that is not withdrawn on or prior to the expiration
date will constitute an agreement between the holder and us in accordance with
the terms and subject to the conditions set forth in this prospectus and consent
solicitation statement and in the letter of consent/transmittal, including, but
not limited to, the agreement by such holder to deliver good and marketable
title to the tendered Conrail Debentures free and clear of all liens, charges,
claims, encumbrances, interests and restrictions of any kind.
The method of delivery of Conrail Debentures, letters of
consent/transmittal and notices of guaranteed delivery is at your election and
risk. If delivery is by mail, we recommend that registered mail, properly
insured, with return receipt requested, be used. In all cases, sufficient time
should be allowed to assure timely delivery. No letters of consent/transmittal
or Conrail Debentures should be sent to CSXT, NSR, Conrail, NYC, PRR, the dealer
manager, the information agent or any other person other than the exchange
agent.
HOW TO SIGN YOUR LETTER OF CONSENT/TRANSMITTAL AND OTHER DOCUMENTS
Signatures on a letter of consent/transmittal or a notice of withdrawal, as
the case may be, must be guaranteed unless the Conrail Debentures being
surrendered for exchange are tendered:
-- by a registered holder of the Conrail Debentures who has not
completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the letter of consent/transmittal;
or
-- for the account of an eligible institution.
If signatures on a letter of consent/transmittal or a notice of withdrawal,
as the case may be, are required to be guaranteed, the signatures must be
guaranteed by an "eligible guarantor institution" meeting the requirements of
the exchange agent, which requirements include membership or participation in
the Security Transfer Agent Medallion Program, or "STAMP," or such other
"signature guarantee program" as may be determined by the exchange agent in
addition to, or in substitution for, STAMP, all in accordance with the Exchange
Act.
If the letter of consent/transmittal or any powers of attorney or bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, the person should so indicate when signing and, unless
waived by us, proper evidence satisfactory to us of its authority to so act must
be submitted with the letter of consent/transmittal.
44
By signing the letter of consent/transmittal or tendering using ATOP
procedures established by DTC, each holder of Conrail Debentures will represent
to us that, among other things:
-- the holder has full power and authority to tender, assign, exchange
and transfer the Conrail Debentures tendered;
-- Conrail will acquire good title to the Conrail Debentures being
tendered, free and clear of all security interests, liens,
restrictions, charges, encumbrances, conditional sale agreements or
other obligations relating to their sale or transfer, and not subject
to any adverse claim when Conrail accepts the Conrail Debentures;
-- neither the holder nor any other person has an arrangement or
understanding with any person to participate in the distribution of
the New CSXT Notes, the New NSR Notes or the Cash Payments;
-- if the holder is a broker-dealer registered under the Exchange Act or
the holder is participating in this exchange offer and consent
solicitation for the purpose of distributing New CSXT Notes or New
NSR Notes, such broker-dealer must comply with the registration and
prospectus delivery requirements of the Securities Act in connection
with a secondary resale of New CSXT Notes or New NSR Notes, and such
broker-dealer may not rely on the position of the SEC's staff set
forth in their no-action letters;
-- any resales of New CSXT Notes or New NSR Notes obtained by the holder
in exchange for Conrail Debentures acquired by the holder directly
from Conrail should be covered by an effective registration statement
containing the selling security holder information required by Items
507 and 508, as applicable, of Regulation S-K of the SEC; and
-- neither the holder nor any such other person is our "affiliate"
within the meaning of Rule 405 under the Securities Act, or, if the
holder is our affiliate, it will comply with any applicable
registration and prospectus delivery requirements of the Securities
Act.
If you are a broker-dealer and you will receive New CSXT Notes or New NSR
Notes for your own account in exchange for Conrail Debentures that were acquired
as a result of market-making activities or other trading activities, you will be
required to acknowledge in the letter of consent/transmittal that you will
deliver a prospectus in connection with any resale of such New CSXT Notes or New
NSR Notes.
Participation in this exchange offer and consent solicitation is voluntary.
You are urged to consult your financial and tax advisors in making your decision
as to whether to participate in this exchange offer and consent solicitation.
CONSEQUENCES OF FAILURE TO VALIDLY TENDER CONRAIL DEBENTURES IN THIS EXCHANGE
OFFER AND CONSENT SOLICITATION
Delivery of the New Exchange Notes and the Cash Payments in exchange for
the Conrail Debentures under this exchange offer and consent solicitation will
be made only after timely receipt by the exchange agent of (1) such Conrail
Debentures, a validly completed and duly executed letter of consent/transmittal
and all other required documents, or (2) an agent's message, transmitted by DTC
and received by the exchange agent and forming a part of a book-entry
confirmation. Therefore, holders desiring to tender Conrail Debentures in
exchange for New CSXT Notes, New NSR Notes and Cash Payments should allow
sufficient time to ensure timely delivery. We are under no duty to give
notification of defects or irregularities of tenders of Conrail Debentures for
exchange.
To the extent that any Conrail Debentures remain outstanding following
consummation of the exchange offer, they will remain obligations of Conrail. If
we obtain the requisite consents and execute the Conrail Supplemental Indenture,
it will be binding on each holder of Conrail Debentures, regardless of whether
or not that holder consented by validly tendering such holder's Conrail
Debentures. You will not be entitled to any appraisal or dissenters' rights if
the Conrail Supplemental Indenture becomes effective without your consent.
45
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the Conrail Debentures at DTC for purposes of this exchange offer and consent
solicitation promptly after the date of this prospectus and consent solicitation
statement. Any financial institution that is a participant in DTC's systems or
any organization which is an indirect participant in DTC's systems, including
Euroclear and Clearstream, may make book-entry delivery of Conrail Debentures by
causing DTC to transfer Conrail Debentures into the exchange agent's account in
accordance with DTC's ATOP procedures for transfer. However, the Conrail
Debentures will be deemed tendered only after timely confirmation of book-entry
transfer of the Conrail Debentures into the exchange agent's account, and timely
receipt by the exchange agent of an agent's message, transmitted by DTC and
received by the exchange agent and forming a part of a book-entry confirmation.
The agent's message must state that DTC has received an express acknowledgment
from the participant tendering Conrail Debentures that are the subject of that
book-entry confirmation, that the participant has received and agrees to be
bound by the terms of the letter of consent/transmittal, and that we may enforce
the agreement against that participant.
If your Conrail Debentures are held through DTC, you must instruct the
participant(s) in DTC through whom you hold your Conrail Debentures of your
intention to tender your Conrail Debentures and instruct such participants to
deliver your Conrail Debentures utilizing DTC's ATOP procedures. Please note
that delivery of documents to DTC in accordance with its procedures does not
constitute delivery to the exchange agent, and we will not be able to accept
your tender of Conrail Debentures until a valid book-entry confirmation from
DTC, with respect to your Conrail Debentures, has been received by the exchange
agent.
Except as described under "Description of the New CSXT Notes--Certificated
Notes" and "Description of the New NSR Notes--Certificated Notes" in the CSXT
Appendix and NSR Appendix, respectively, we have arranged for the New Exchange
Notes to be issued in the form of global notes registered in the name of DTC or
its nominee and each holder's interest in these securities will be transferable
only in book-entry form through DTC.
GUARANTEED DELIVERY PROCEDURES
If you are a registered holder of Conrail Debentures and you want to tender
your Conrail Debentures but your Conrail Debentures are not immediately
available, or time will not permit your Conrail Debentures to reach the exchange
agent on or prior to the expiration date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if:
(1) the tender is made through an eligible institution;
(2) on or prior to the expiration date, the exchange agent receives,
by facsimile transmission, mail or hand delivery, from that eligible
institution a validly completed and duly executed letter of
consent/transmittal and notice of guaranteed delivery, in the form provided
by us, stating:
-- the name and address of the holder of Conrail Debentures;
-- the certificate number or numbers of the Conrail Debentures and
the principal amount of Conrail Debentures tendered; and
-- that the tender is being made by delivering the notice of
guaranteed delivery and guaranteeing that within three New York
Stock Exchange trading days after the date of execution of the
notice of guaranteed delivery, the certificates of all physically
tendered Conrail Debentures, in proper form for transfer, or a
book-entry confirmation, as the case may be, and any other
documents required by the letter of consent/transmittal, will be
deposited by that eligible institution with the exchange agent;
and
(3) the certificates for all physically tendered Conrail Debentures,
in proper form for transfer, or a book-entry confirmation, as the case may
be, and any other documents required by the letter of consent/transmittal,
are received by the exchange agent within three New York Stock Exchange
trading days after the date of execution of the notice of guaranteed
delivery.
46
Unless Conrail Debentures are tendered by the above-described method and
deposited with the exchange agent within the time period set forth above, we
may, at our option, reject the tender. The exchange agent will send you a notice
of guaranteed delivery upon your request if you want to tender your Conrail
Debentures according to the guaranteed delivery procedures described above.
UNDER NO CIRCUMSTANCES WILL INTEREST BE PAYABLE BY REASON OF ANY DELAY IN
MAKING PAYMENT TO ANY PERSON USING THE GUARANTEED DELIVERY PROCEDURES, AND THE
CASH PAYMENTS MADE IN CONNECTION WITH THE EXCHANGE OF CONRAIL'S DEBENTURES
PURSUANT TO THE GUARANTEED DELIVERY PROCEDURES WILL BE THE SAME AS THAT FOR
CONRAIL DEBENTURES DELIVERED TO THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION
DATE.
ACCEPTANCE OF CONRAIL DEBENTURES AND DELIVERY OF NEW CSXT NOTES, NEW NSR NOTES
AND CASH PAYMENTS
Once all of the conditions to this exchange offer and consent solicitation
are satisfied or waived, (a) we will accept, promptly after the expiration date,
all Conrail Debentures validly tendered, (b) CSXT will cause the New CSXT Notes
to be issued to Conrail for the exchange of New CSXT Notes for Conrail
Debentures, (c) NSR will cause the New NSR Notes to be issued to Conrail for the
exchange of the New NSR Notes for Conrail Debentures, and (d) with respect to
all Conrail Debentures validly tendered and not withdrawn on or prior to the
expiration date, Conrail will cause to be paid to the holders of such Conrail
Debentures the 9 3/4% Cash Payment and/or the 7 7/8% Cash Payment, as the case
may be. See "--Conditions to This Exchange Offer and Consent Solicitation"
above.
Conrail will make the 9 3/4% Cash Payment and/or the 7 7/8% Cash Payment by
depositing the aggregate cash payments, to the extent payable, in immediately
available funds with the exchange agent, which will act as agent for the holders
who tender their Conrail Debentures on or prior to the expiration date for the
purpose of, among other things, receiving the New Exchange Notes and Cash
Payments from Conrail and transmitting such New Exchange Notes and Cash Payments
to those holders. For purposes of this exchange offer and consent solicitation,
the giving of written notice of our acceptance to the exchange agent will be
considered our acceptance of this exchange offer and consent solicitation.
In all cases, the New Exchange Notes and Cash Payments will be delivered in
exchange for Conrail Debentures that are accepted for exchange only after timely
receipt by the exchange agent of:
-- a timely book-entry confirmation with respect to the Conrail
Debentures which must contain your acknowledgements of, receipt of,
and your agreement to be bound by, and to make all the
representations contained in, the letter of consent/transmittal; or
-- certificates for the Conrail Debentures and a validly completed and
duly executed letter of consent/transmittal as well as any other
documents required by the letter of consent/transmittal and the
instructions to the letter of consent/transmittal.
The exchange agent will make the exchange and cash payment on, or promptly
after, the date it receives notice of acceptance from CSXT and NSR, and as a
result of this exchange the holders in whose names the New Exchange Notes and
Cash Payments will be deliverable upon exchange will be deemed to be the holders
of record of the New Exchange Notes. Holders tendering pursuant to the
procedures for guaranteed delivery discussed under "--Guaranteed Delivery
Procedures" whose certificates for Conrail Debentures or book-entry confirmation
with respect to Conrail Debentures are actually received by the exchange agent
after expiration of this exchange offer and consent solicitation, may receive
the New Exchange Notes and the Cash Payments later than other holders. All
tendering holders, by execution of the letter of consent/transmittal, or by
following the ATOP procedures for Conrail Debentures held by DTC, waive any
right to receive notice of acceptance of the Conrail Debentures for exchange.
The reasons we may not accept tendered Conrail Debentures are:
-- the Conrail Debentures were not validly tendered pursuant to the
procedures for tendering; see "--Procedures for Tendering";
47
-- we determine that one or more of the conditions to this exchange
offer and consent solicitation has not been satisfied; see
"--Conditions to This Exchange Offer and Consent Solicitation";
-- a holder has validly withdrawn a tender of Conrail Debentures as
described under "--Withdrawal Rights"; or
-- we have terminated or extended this exchange offer and consent
solicitation. See "--Terms of This Exchange Offer and Consent
Solicitation" and "--Procedures for Tendering."
If we do not accept any tendered Conrail Debentures for any reason included
in the terms and conditions of this exchange offer and consent solicitation or
if you submit certificates representing Conrail Debentures in a greater
principal amount than you wish to exchange, we will promptly return any
unaccepted or non-exchanged Conrail Debentures without expense to the tendering
holder or, in the case of Conrail Debentures tendered by book-entry transfer
into the exchange agent's account at DTC using the book-entry transfer
procedures described above, non-exchanged Conrail Debentures will be credited to
an account maintained with DTC promptly after the expiration or termination of
this exchange offer and consent solicitation.
Conrail Debentures that are not tendered for exchange or are tendered but
not accepted in connection with this exchange offer and consent solicitation
will not be retired or cancelled and will remain outstanding and remain subject
to the Conrail Indenture, as modified by the Conrail Supplemental Indenture in
the event this exchange offer and consent solicitation is consummated.
WITHDRAWAL RIGHTS
Subject to applicable law, you may withdraw tenders of Conrail Debentures
and thereby revoke your related consents at any time on or prior to the
expiration date, but not after. A valid withdrawal of tendered Conrail
Debentures made on or prior to the expiration date is an automatic revocation of
your related consent.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at one of the addresses listed below under
"--Exchange Agent" on or prior to the expiration date or any extension of the
withdrawal period as described above. Any notice of withdrawal must specify:
-- the name of the person having tendered the Conrail Debentures to be
withdrawn;
-- the Conrail Debentures to be withdrawn;
-- the principal amount of the Conrail Debentures to be withdrawn
(including the principal amount of such Conrail Debentures and the
CUSIP numbers, if held by DTC);
-- if certificates for Conrail Debentures have been delivered to the
exchange agent, the name in which the Conrail Debentures are
registered, if different from that of the withdrawing holder;
-- if certificates for Conrail Debentures have been delivered or
otherwise identified to the exchange agent, in which case, prior to
the release of those certificates, you must also submit the serial
numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an eligible
institution unless you are an eligible institution; and
-- if Conrail Debentures have been tendered using the procedure for
book-entry transfer described above, in which case, any notice of
withdrawal must specify the name and number of the account at DTC to
be credited with the withdrawn Conrail Debentures and otherwise
comply with the procedures of that facility.
If a revocation is signed by a trustee, partner, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, that person must so indicate when signing
and must submit with the revocation appropriate evidence of authority to execute
the revocation.
Please note that all questions as to the validity, form, eligibility and
time of receipt of notices of withdrawal will be determined by us, and our
determination shall be final and binding on all parties. Any Conrail Debentures
so withdrawn will be considered not to have been validly tendered for exchange
for purposes of this exchange offer and consent solicitation and you will not be
eligible to receive the New
48
Exchange Notes or the Cash Payments. In addition, the holders of any Conrail
Debentures so withdrawn will be considered not to have consented to the Conrail
Supplemental Indenture described under "--Proposed Amendments." You may not
revoke your consent without withdrawing your tender of the Conrail Debentures
relating to such consent.
If you have validly withdrawn Conrail Debentures and wish to re-tender
them, you may do so by following one of the procedures described under
"--Procedures for Tendering" above at any time on or prior to the expiration
date.
SUBSEQUENT OFFERING PERIOD
We may elect, in our sole discretion, to provide a subsequent offering
period of not less than three business days nor more than 20 business days. A
subsequent offering period is not an extension of the initial (or extended)
offering period. A subsequent offering period would be an additional period of
time, following the expiration of the initial (or extended) offering period, in
which holders of Conrail Debentures may tender their Conrail Debentures not
tendered during the initial (or extended) offering period. You will not have the
right to withdraw any Conrail Debentures that you tender during a subsequent
offering period and you will not have the right to withdraw any Conrail
Debentures tendered prior to the expiration of the initial (or extended)
offering period during a subsequent offering period.
If we elect to have a subsequent offering period, we will issue a press
release or other public announcement. In addition, if we elect to have a
subsequent offering period, we intend to comply with the provisions of Rule
14d-11 under the Exchange Act.
THE DEALER MANAGER
Conrail, CSX and NSC have engaged Morgan Stanley & Co. Incorporated to act
as sole dealer manager and sole solicitation agent in connection with this
exchange offer and consent solicitation and to provide financial advisory
services to Conrail, CSX and NSC in connection with this exchange offer and
consent solicitation.
The principal solicitation in connection with this exchange offer and
consent solicitation is being made by mail. However, additional solicitation may
be made by telephone, facsimile, electronic media or in person by the dealer
manager and its officers, regular employees and affiliates. In addition,
additional solicitation may be made by telephone, facsimile, electronic media or
in person by our officers, regular employees and affiliates. We will not pay any
additional compensation to any of our officers and employees who engage in
soliciting tenders or consents. In any jurisdiction in which the securities laws
or blue sky laws require solicitations to be made by a licensed broker or
dealer, any solicitations in connection with this exchange offer and consent
solicitation will be deemed to be made on behalf of us and the other registrants
by the dealer manager or its affiliates that are licensed under the laws of the
applicable jurisdictions.
The dealer manager has provided, and we expect will provide, investment
banking and financial advisory services to CSX, CSXT, NSC, NSR and Conrail, as
the case may be, for which it received, and we expect will receive, customary
fees. In particular, Conrail, CSX and NSC have engaged Morgan Stanley & Co.
Incorporated to act as sole solicitation agent in connection with the
solicitation of consents from holders of Conrail's equipment trust and pass
through trust certificates. Conrail is seeking, among other things, the consent
of these secured debt holders to effectuate the Conrail Spin Off Transactions.
CSXT, NSR and Conrail will enter into a dealer manager agreement with the
dealer manager. In that agreement, Conrail, CSX and NSC will agree to pay the
dealer manager customary fees for its services, including reasonable
out-of-pocket expenses and fees and expenses of legal counsel. Conrail, CSX and
NSC have also agreed to indemnify the dealer manager against specified
liabilities, including specified liabilities under the federal securities laws.
At any given time, the dealer manager may trade the Conrail Debentures and,
upon their issuance, the New Exchange Notes, for its own account or for the
accounts of its customers, and, accordingly, may hold a long or a short position
in these securities or such other securities.
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The dealer manager does not assume any responsibility for the accuracy or
completeness of the information concerning this exchange offer and consent
solicitation, the Conrail Spin Off Transactions, CSX, CSXT, NSC, NSR or Conrail
contained in this prospectus and consent solicitation statement or any documents
incorporated herein by reference or for any failure by us to disclose events
that may have occurred and may affect the significance or accuracy of such
information.
Questions regarding the terms of this exchange offer and consent
solicitation should be directed to the dealer manager at the address and
telephone numbers set forth on the back cover of this prospectus and consent
solicitation statement.
INFORMATION AGENT
We have engaged Innisfree M&A Incorporated as the information agent for the
exchange offer. Questions and requests for assistance, requests for additional
copies of this prospectus and consent solicitation statement or of the letter of
consent/transmittal and requests for notices of guaranteed delivery should be
directed to the information agent. The information agent may be contacted as
follows:
Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, New York 10022
Banks and Brokers Call Collect:
(212) 750-5833
All Others Call Toll Free:
(877) 456-3507
EXCHANGE AGENT
We have engaged The Bank of New York as the exchange agent for this
exchange offer and consent solicitation. All executed letters of
consent/transmittal should be directed to the exchange agent at the address set
forth below:
Deliver to:
The Bank of New York
Reorganization Unit
101 Barclay Street, 7E
New York, New York 10286
Attn: William Buckley/Carolle Montreuil
Facsimile Transmissions:
(212) 298-1915
To Confirm by Telephone or for Information:
(212) 815-5788/5920
Delivery to an address other than as listed above or transmission of
instructions via facsimile other than as listed above does not constitute a
valid delivery.
You and your broker, dealer, commercial bank, trust company or other
nominee should send letters of consent/transmittal and all correspondence in
connection with this exchange offer and consent solicitation to the exchange
agent at the address and telephone number listed above.
FEES AND EXPENSES
The information agent and exchange agent will receive reasonable and
customary compensation for their services, and will be reimbursed by Conrail for
various reasonable out-of-pocket expenses.
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The dealer manager, information agent and exchange agent will be
indemnified against various liabilities in connection with this exchange offer
and consent solicitation, including liabilities under the federal securities
laws.
No fees or commissions (other than fees to the dealer manager, information
agent and exchange agent) will be payable by us to brokers, dealers or other
persons for soliciting tenders of Conrail Debentures pursuant to this exchange
offer and consent solicitation. We, however, upon request, will reimburse
brokers, dealers and commercial banks for customary mailing and handling
expenses incurred by them in forwarding this prospectus and consent solicitation
statement and related materials to the beneficial owners of Conrail Debentures
held by them as a nominee or in a fiduciary capacity. Other than the dealer
manager, no broker, dealer, commercial bank or trust company has been authorized
to act as our agent for purposes of this exchange offer and consent
solicitation.
TRANSFER TAXES
Conrail will pay all transfer taxes, if any, applicable to the exchange of
Conrail Debentures under this exchange offer and consent solicitation. If,
however, certificates representing New CSXT Notes or New NSR Notes or Conrail
Debentures for principal amounts not tendered or accepted for exchange are to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered holder of the Conrail Debentures tendered, or if tendered
Conrail Debentures are registered in the name of any person other than the
person signing the letter of consent/transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Conrail Debentures pursuant to
this exchange offer and consent solicitation, then the amount of any such
transfer taxes (whether imposed on the registered holder or any other person)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the letter of
consent/transmittal, the amount of such transfer taxes will be billed directly
to such tendering holder.
We are not aware of any state or local jurisdiction where the consummation
of this exchange offer and consent solicitation is prohibited by administrative
or judicial action pursuant to a state or local statute. If we become aware of
any state or local jurisdiction where the consummation of this exchange offer
and consent solicitation is so prohibited, we will make a good faith effort to
comply with any such statute. If, after that effort, we cannot comply with that
statute, this exchange offer and consent solicitation will not be consummated
(nor will consents or letters of consent/transmittal be accepted from or on
behalf of the holders of Conrail's Debentures) in that state or local
jurisdiction.
ACCOUNTING TREATMENT
CSX and NSC through their indirect ownership of Conrail each have ownership
interests in both NYC and PRR. Presently, their indirect ownership interests in
these entities mirror their ownership interest in Conrail (42% for CSX and 58%
for NSC). As a result of the Conrail Spin Off Transactions, CSX (and ultimately
CSXT) will obtain direct ownership of all of NYC and NSC (and ultimately NSR)
will obtain direct ownership of all of PRR. Thus, CSX will in effect receive
NSC's 58% indirect ownership interest in NYC and NSC will in effect receive
CSX's 42% indirect ownership interest in PRR. Accordingly, after the Conrail
Spin Off Transactions, CSX will no longer have an indirect ownership interest in
PRR and NSC will no longer have an indirect ownership interest in NYC. The
receipt of the interests not already indirectly owned by CSX and NSC will be
accounted for at fair value using the principles of purchase accounting. The
receipt of the interests already indirectly owned by CSX and NSC will be
accounted for using CSX's and NSC's bases in amounts already included within
their respective investments in Conrail. The pro forma financial information
included in the Appendices attached hereto has been prepared assuming that the
fair value of the direct ownership interests being obtained equals the carrying
amount of the indirect ownership interests being foregone. CSX and NSC are
progressing toward ascertaining the fair value effects of the Conrail Spin Off
Transactions, which will be reflected in the accounting for the Conrail Spin Off
Transactions once consummated and that analysis has been completed. Accordingly,
the amounts ultimately reflected in CSXT's and NSR's financial statements could
differ materially from the amounts shown in the unaudited pro forma financial
information included in the Appendices attached hereto. CSXT and NSR will
recognize capital
51
contributions from CSX and NSC, respectively, and accordingly will not recognize
any gain or loss related to the Conrail Spin Off Transactions, notwithstanding
any gain or loss that may be recognized by CSX and NSC.
Conrail will recognize a gain or loss on any difference between the fair
value and carrying value of NYC and PRR, including the effect of the
extinguishment of the Conrail Debentures upon consummation of this exchange
offer and consent solicitation, and then concurrently will record the
distribution of NYC and PRR to its parent, CRR, as a dividend.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THIS EXCHANGE OFFER
AND CONSENT SOLICITATION
The following is a summary of the material United States federal income tax
consequences (i) to holders of Conrail Debentures who exchange their Conrail
Debentures for New Exchange Notes and the receipt by such holders of the Cash
Payment paid in the exchange and (ii) to holders who do not participate in the
exchange. Except where otherwise noted, this summary is based on the Internal
Revenue Code of 1986, as amended, or the "Code," administrative pronouncements,
judicial decisions and existing and proposed U.S. Treasury Regulations, all as
in effect on the date of this prospectus and consent solicitation statement and
all of which are subject to change, possibly with retroactive effect. This
summary assumes that the Conrail Debentures and the New Exchange Notes are held
as capital assets (as defined in the Code) and does not address the tax
consequences that may be relevant to a holder subject to special U.S. tax rules,
including, but not limited to, non-U.S. holders, certain expatriates, dealers in
securities or foreign currency, banks, trusts, insurance companies, tax-exempt
organizations and persons that hold the New Exchange Notes as part of a
straddle, hedge against currency risk or constructive sale or conversion
transaction. Moreover, this discussion does not address any aspect of state,
local or foreign tax considerations and does not address U.S. federal income tax
consequences that may be relevant to a particular holder in light of his or her
personal circumstances.
As used herein, a "holder" means a beneficial owner of a Conrail Debenture,
New CSXT Note or New NSR Note that is, for U.S. federal income tax purposes:
-- an individual who is a citizen or resident of the United States,
including an alien individual who is a lawful permanent resident of
the United States or meets the "substantial presence" test under
Section 7701 of the Code;
-- a corporation (or any other entity taxable as a corporation for U.S.
federal income tax purposes) created or organized under the laws of
the United States or of any political subdivision thereof;
-- an estate the income of which is includible in gross income for U.S.
federal income tax purposes regardless of its source; or
-- a trust if (x) a court within the United States is able to exercise
primary supervision over the administration of the trust and one or
more U.S. persons have the authority to control all substantial
decisions of the trust, or (y) the trust has a valid election in
effect under the applicable U.S. Treasury Regulations to be treated
as a United States person.
THE FOLLOWING SUMMARY IS NOT TAX ADVICE. ACCORDINGLY, HOLDERS ARE URGED TO
CONSULT WITH THEIR TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THIS
EXCHANGE OFFER AND CONSENT SOLICITATION AND THE PAYMENT OF CASH, INCLUDING THE
APPLICABILITY OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
THE EXCHANGE OF CONRAIL DEBENTURES FOR NEW CSXT NOTES AND NEW NSR NOTES
We have received a ruling from the IRS concerning certain aspects of the
exchange of Conrail Debentures for New CSXT Notes, New NSR Notes and Cash
Payments. Consistent with the ruling, the following discussion (except as
otherwise specifically noted) assumes that the Conrail Debentures, the New CSXT
Notes and the New NSR Notes are "securities" for U.S. federal income tax
purposes under the
52
relevant provisions of the Code. Based on the foregoing, and subject to the
discussion below under "-- Cash Payment Received in Connection with the Exchange
by Holders of Conrail Debentures," the material U.S. federal income tax
consequences of the exchange should be as follows:
-- holders of Conrail Debentures who exchange Conrail Debentures for New
Exchange Notes and Cash Payments should recognize any gain (but not
loss) realized on each Conrail Debenture in an amount equal to the
lesser of:
-- the amount of the Cash Payment received; or
-- the amount equal to the excess, if any, of (a) the sum of (i) the
Cash Payment received and (ii) the aggregate issue price
(described hereafter) of the New CSXT Note and the New NSR Note
received in the exchange over (b) the holder's adjusted tax basis
in the Conrail Debenture exchanged therefor.
The issue price of the New CSXT Note and the New NSR Note depends on
whether a substantial amount of such New Exchange Notes is considered to be
"traded on an established market" within the meaning of the applicable U.S.
Treasury Regulations. If, as Conrail expects, a substantial amount of the New
CSXT Notes and the New NSR Notes is considered to be traded on an established
market, the issue price of such Notes will be their trading price on the issue
date. If it is not the case that a substantial amount of the New CSXT Notes and
the New NSR Notes is considered to be traded on an established market, but a
substantial amount of the Conrail Debentures is considered to be so traded, the
fair market value of the Conrail Debenture on the date of the exchange will be
allocated between the New CSXT Note and the New NSR Note based on such New
Exchange Notes' relative fair market values, and the issue price of the New CSXT
Note and the New NSR Note will equal the portion of the Conrail Debenture fair
market value allocated to such New Exchange Notes. If the New CSXT Notes, the
New NSR Notes and the Conrail Debentures are considered not to be traded on an
established market, the issue price of the New CSXT Notes and New NSR Notes will
be equal to their stated principal amounts. HOLDERS OF NEW CSXT NOTES AND NEW
NSR NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE DETERMINATION OF
THE ISSUE PRICE OF SUCH NEW EXCHANGE NOTES.
Except as discussed below, gain recognized by an exchanging holder will be
treated as capital gain and will be long-term capital gain if, at the time of
the exchange, the Conrail Debenture has been held for more than one year. Gain
recognized by an exchanging holder will be treated as ordinary income to the
extent of any market discount on the Conrail Debenture exchanged therefor that
has accrued during the period that the exchanging holder held the Conrail
Debenture and that has not previously been included in income by the holder. A
Conrail Debenture generally will be considered to have been acquired with market
discount if the adjusted issue price of the Conrail Debenture at the time of
acquisition exceeded the initial tax basis of the Conrail Debenture in the hands
of the holder by more than a specified de minimis amount. Market discount
accrues on a ratable basis, unless the holder elects to accrue the market
discount using a constant-yield method.
The gain calculation must be made separately for each Conrail Debenture
exchanged, and a loss realized on one Conrail Debenture will not be recognized
and therefore may not be used to offset a gain recognized on another Conrail
Debenture.
-- the holding period of the New CSXT Note and the New NSR Note will
include the holding period of the Conrail Debenture exchanged for the
New CSXT Note and the New NSR Note;
-- the aggregate adjusted tax basis of the New CSXT Note and the New NSR
Note received will be equal to the tax basis in the Conrail Debenture
exchanged (a) reduced by the amount of the Cash Payment received that
is attributable to such Conrail Debenture and (b) increased by the
amount of gain, if any, recognized by such holder on the exchange
with respect to such Conrail Debenture and such basis will be
allocated between the New CSXT Note and the New NSR Note based on
their relative fair market values; and
53
-- any accrued market discount on the Conrail Debenture not previously
treated as ordinary income will carry over to and be allocated
between the New CSXT Note and the New NSR Note.
CASH PAYMENT RECEIVED IN CONNECTION WITH THE EXCHANGE BY HOLDERS OF CONRAIL
DEBENTURES
We intend to treat the Conrail Debentures, the New CSXT Notes and the New
NSR Notes as securities for federal income tax purposes and, consistent with a
ruling we have received from the IRS, we intend to treat the Cash Payment to
holders as additional consideration received by holders as part of the exchange.
In the event that the Cash Payment is not treated as additional consideration
received by holders as part of the exchange, such payments will likely be
treated as a separate payment in the nature of a fee paid for holders' consent,
and holders would likely recognize ordinary income in the amount of the cash
received as opposed to capital gain as described above.
NONPARTICIPATION IN THE EXCHANGE
Some holders of Conrail Debentures may not participate in the exchange.
Whether such holders are treated as constructively exchanging their "old"
Conrail Debentures for "new" Conrail Debentures for U.S. federal income tax
purposes as a result of the adoption of the Conrail Supplemental Indenture
depends on whether the adoption of the Conrail Supplemental Indenture
constitutes a "significant modification" of the existing Conrail Debentures
(within the meaning of the applicable U.S. Treasury Regulations). The adoption
of the Conrail Supplemental Indenture should not constitute a significant
modification of the terms of the Conrail Debentures. Accordingly, holders of
Conrail Debentures who do not participate in this exchange offer and consent
solicitation should not be deemed to have exchanged their Conrail Debentures and
otherwise should not recognize income, gain or loss solely as a result of the
adoption of the Conrail Supplemental Indenture. Similarly, there should be no
U.S. federal income tax consequences of this exchange offer and consent
solicitation to a participating holder with respect to any portion of the
holder's Conrail Debentures that are not tendered or are withdrawn on or prior
to the expiration of this exchange offer and consent solicitation.
CONSEQUENCES OF HOLDING NEW EXCHANGE NOTES
The following is a summary of the principal U.S. federal income tax
consequences resulting from the ownership and disposition of the New CSXT Notes
and the New NSR Notes:
Payments of Interest and Original Issue Discount. Interest paid on a New
CSXT Note and a New NSR Note will be taxable to a holder as ordinary interest
income at the time it accrues or is received in accordance with the holder's
method of accounting for U.S. federal income tax purposes. In the event that the
"stated redemption price at maturity" of the New CSXT Note or the New NSR Note
exceeds its "issue price" (as described above), provided such excess is greater
than a specified de minimis amount, each New CSXT Note or New NSR Note will be
considered to have been issued with original issue discount, or "OID." Each
holder of a New Exchange Note issued with OID will be required to include in
income each year, without regard to whether any cash payments of interest are
made with respect to such New Exchange Note and without regard to the holder's
method of accounting for U.S. federal income tax purposes, a portion of the OID
on the New CSXT Notes or the New NSR Notes or both, as the case may be, so as to
provide a constant yield to maturity, subject to reductions in respect of
acquisition premium (as defined hereafter). The amount required to be so
included will be treated as ordinary income. In compliance with U.S. Treasury
Regulations, if the New Exchange Notes are issued with OID, the issuers will
provide certain information to the IRS and holders that is relevant to
determining the amount of OID in each accrual period. The New Exchange Notes are
not expected to be issued with OID.
Acquisition Premium and Amortizable Bond Premium. If a holder's adjusted
tax basis in a New CSXT Note or a New NSR Note immediately after the exchange of
a Conrail Debenture for such New Exchange Note (i) is less than or equal to the
sum of all amounts payable on the New CSXT Note or the New NSR Note (other than
payments of qualified stated interest), but (ii) exceeds the adjusted issue
price of such New Exchange Note, such excess will be considered "acquisition
premium." In such case, a holder may reduce its
54
OID inclusions with respect to the New CSXT Note or the New NSR Note by an
amount equal to the amount of OID such holder would otherwise include in its
gross income multiplied by a fraction, the numerator of which is the amount of
acquisition premium and the denominator of which is the excess of the sum of all
amounts (other than qualified stated interest) payable on the New CSXT Note or
the New NSR Note after the date of the exchange over the adjusted issue price of
the New CSXT Note or the New NSR Note. Alternatively, a holder may elect to
amortize acquisition premium on a constant-yield basis.
If a holder's adjusted tax basis in a New CSXT Note or a New NSR Note
immediately after the exchange exceeds the amount that is payable at maturity,
the holder will be considered to have amortizable bond premium equal to such
excess and will not be required to accrue any OID into income. In addition, the
holder may elect to amortize this premium using a constant yield method, over
the remaining term of the New Exchange Note. A holder who elects to amortize
bond premium may offset each interest payment on such New Exchange Note by the
portion of the bond premium allocable to such payment and must reduce its tax
basis in the New Exchange Note by the amount of the premium amortized in any
year.
Market Discount. Accrued market discount on a Conrail Debenture not
previously treated as ordinary income by a holder will carry over to and be
allocated between the New CSXT Note and the New NSR Note. A holder will be
required to treat any principal payment on, or any gain on the sale, exchange,
retirement or other disposition of, a New CSXT Note or a New NSR Note as
ordinary income to the extent of the market discount on the New Exchange Note at
the time of the payment or disposition unless the market discount has been
previously included in income by the holder pursuant to an election by the
holder to include the market discount in income as it accrues, or pursuant to a
constant yield election by the holder.
Sale, Exchange, Redemption or Other Taxable Disposition of the New CSXT
Notes and the New NSR Notes. Upon the sale, exchange, redemption or other
taxable disposition of a New CSXT Note or a New NSR Note, a holder will
recognize gain or loss, if any, for U.S. federal income tax purposes equal to
the difference between (i) the amount realized upon the sale, exchange,
redemption or other taxable disposition (except to the extent such amount is
attributable to accrued but unpaid interest that has not previously been
included in income and that is taxable as ordinary interest income upon the
sale, exchange, redemption or other taxable disposition) and (ii) such holder's
adjusted tax basis in such New CSXT Note or New NSR Note.
Except as provided below, any gain or loss recognized on the sale, exchange
or redemption of a New CSXT Note or a New NSR Note will generally be capital
gain or loss and will be long-term capital gain or loss if at the time of sale,
exchange or redemption the holder's holding period of the New CSXT Note or the
New NSR Note for U.S. federal income tax purposes is more than one year. A
holder who has market discount with respect to a New CSXT Note or a New NSR Note
will generally be required to treat gain realized on the sale, exchange,
redemption or other disposition of the New CSXT Notes or the New NSR Notes
(including certain dispositions that are non-recognition transactions under the
Code) as ordinary income to the extent of the market discount accrued to the
date of the disposition, less any accrued market discount previously reported as
ordinary income.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Information reporting requirements will generally apply to certain payments
made and any OID with respect to the New CSXT Notes and the New NSR Notes. To
prevent backup withholding at the then applicable rate with respect to such
payments and with respect to the exchange, U.S. federal income tax law requires
that each exchanging holder must provide the exchange agent with such holder's
correct taxpayer identification number that, in the case of an individual, is
his or her social security number, and certain other information, or otherwise
establish a basis for exemption from backup withholding. Exempt holders
(including, among others, all corporations, and certain foreign individuals) are
not subject to these backup withholding and information reporting requirements.
Backup withholding tax is not an additional U.S. federal income tax.
Rather, the U.S. federal income tax liability of persons subject to backup
withholding tax will be offset by the amount of tax withheld. If backup
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withholding tax results in an overpayment of U.S. federal income tax, a refund
or credit may be obtained from the IRS, provided the required information is
timely furnished to the IRS.
THE FOREGOING DISCUSSION IS NOT INTENDED TO BE A COMPLETE ANALYSIS OR
DESCRIPTION OF ALL POTENTIAL FEDERAL INCOME TAX CONSIDERATIONS OR ANY OTHER
CONSIDERATIONS RELATING TO THIS EXCHANGE OFFER AND CONSENT SOLICITATION. THUS,
HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES OF THIS EXCHANGE OFFER AND CONSENT SOLICITATION TO THEM, INCLUDING
TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER APPLICABLE TAX LAWS AND THE EFFECT OF ANY
PROPOSED CHANGES IN THE TAX LAWS.
USE OF PROCEEDS
None of CSXT, NSR, Conrail or any other party will receive any cash
proceeds from the delivery or issuance of the New CSXT Notes, the New NSR Notes
or the Cash Payments in this exchange offer and consent solicitation.
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DESCRIPTION OF THE CONRAIL SPIN OFF TRANSACTIONS
We are proposing, through a series of consecutive and concurrent
transactions, to merge NYC with CSXT and to merge PRR with NSR in order to
further effectuate the joint acquisition of Conrail accomplished by CSX and NSR
during the second quarter of 1997. The Conrail Spin Off Transactions are not
expected to affect our rail operations, service or competition generally, and
are not expected to have any adverse impact on shippers, other rail carriers or
our employees. We do not believe that any of our employees will be dismissed or
displaced as a result of the Conrail Spin Off Transactions, or that any changes
are required to be made to existing labor agreements or to the compensation,
benefits or working conditions of our employees. The employees now working on
the railroad assets owned by NYC and PRR are expected to continue to work for
the same employers, and the labor agreements that now apply to these employees,
and that are expected to continue to apply, are the CSXT and NSR labor
agreements.
The Conrail Spin Off Transactions have been structured to permit CSX and
NSC to acquire full ownership and exclusive control of Conrail properties that
they already own indirectly, through their joint ownership of Conrail, and that
they are already authorized by the STB to operate and manage separately and
independently as part of their respective rail systems. In practical effect, we
are seeking to extend and make more effective the already existing division of
Conrail's assets between NYC for use and operation by CSXT and PRR for use and
operation by NSR that has been previously approved by the STB. The result of
such permanent division will allow CSXT and NSR to become the direct owners of
NYC and PRR, thereby allowing CSX and NSC to enjoy the full management control
and independence over the assets of NYC and PRR, respectively, without any
control or responsibility with respect to those assets by one another.
The Conrail Spin Off Transactions have been structured to preserve the
existing rail operating structure in the Conrail Shared Assets Areas separately
designated as North Jersey, South Jersey/Philadelphia and Detroit, and is
intended to preserve the balanced competitive rail service in the eastern United
States that resulted from the creation of the Shared Assets Areas and otherwise
from the original joint acquisition of Conrail. The present situation, however,
in which CSX and NSC pay operating fees on the former Conrail properties they
each operate to an entity partially owned by the other, will be eliminated, and
with this elimination, numerous other entangling arrangements will be removed,
thereby enhancing the ability of CSX and NSC to manage their respective rail
properties independently and minimizing the potential conflicts associated with
their indirect joint ownership of Conrail.
BACKGROUND TO THE CONRAIL SPIN OFF TRANSACTIONS
CSX and NSC originally acquired all the outstanding shares of CRR, a
Pennsylvania corporation of which Conrail is the principal subsidiary, not
already owned by them for $115 per share in cash through CRR Holdings, an entity
jointly owned by CSX and NSC. The total cost of acquiring the outstanding shares
of CRR was approximately $9.8 billion, of which CSX paid 42%, or approximately
$4.1 billion, and NSC paid 58%, or approximately $5.7 billion. To reflect this
apportionment of CRR's acquisition cost, CSX and NSC each held, and continue to
hold 42% and 58%, respectively, of the economic interests in CRR Holdings, with
CRR Holdings' voting interests apportioned 50% to CSX and 50% to NSC. CSX and
NSC recognized that upon consummation of the joint acquisition of CRR's stock, a
workable arrangement was needed whereby their respective railroad systems would
benefit from and bear the costs of Conrail's routes, businesses and assets under
a structure acceptable to the STB and Conrail's various other constituencies.
With these goals in mind, on June 10, 1997, CSX, CSXT, NSC, NSR, CRR, Conrail,
and CRR Holdings, entered into the Transaction Agreement, by which CSX and NSC
provided for the joint governance and operation of CRR and its affiliates,
including Conrail.
Pursuant to the Transaction Agreement, and by a process of mutual
designation, CSX and NSC divided Conrail's railroad operating properties and
related assets, generally, into three groups: (1) the "NYC Allocated Assets,"
consisting of properties reserved for exclusive operation by CSXT (consisting
principally of former New York Central rail lines, including lines running from
New York/New Jersey through Albany and Buffalo to St. Louis, and from Albany to
Boston, and certain owned and unencumbered rolling stock of Conrail); (2) the
"PRR Allocated Assets," consisting of properties reserved for exclusive
operation by NSR
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(consisting principally of former Pennsylvania Railroad lines, including lines
running from New York/New Jersey and Philadelphia through Pittsburgh and
Cleveland to Chicago, and certain owned and unencumbered rolling stock of
Conrail); and (3) the "Retained Assets," consisting primarily of the Shared
Assets Areas, operated by Conrail for the benefit of both CSXT and NSR,
providing rail service in North Jersey, South Jersey/Philadelphia and Detroit.
To effectuate this allocation of assets, Conrail formed two separate,
wholly owned Delaware limited liability companies, NYC and PRR (collectively,
the "LLCs"). Conrail transferred to NYC ownership of the NYC Allocated Assets
and transferred to PRR ownership of the PRR Allocated Assets. NYC entered into
an allocated assets operating agreement with CSXT, granting CSXT the exclusive
right to operate and use the NYC Allocated Assets, and PRR entered into a
similar agreement with NSR, granting NSR the exclusive right to operate and use
the PRR Allocated Assets. The Retained Assets continued to be directly operated
by Conrail for the benefit of both CSX and NSC. With respect to liabilities, NYC
was allocated liabilities arising on or after June 1, 1999 that related
predominantly to the NYC Allocated Assets and PRR was allocated liabilities
arising on or after June 1, 1999 that related predominantly to the PRR Allocated
Assets. Conrail remained responsible for all retained liabilities that did not
relate predominantly to the NYC Allocated Assets or PRR Allocated Assets; and
Conrail would continue to be responsible for certain liabilities that arose
prior to June 1, 1999. Conrail has generally satisfied such retained
liabilities, including its debt obligations, out of payments received, either
directly or through NYC and PRR, from CSXT and NSR in connection with the
Allocated Assets and the Shared Assets Areas. Following receipt by CRR Holdings
of written notice from Conrail's board of directors (that is composed solely of
representatives of CSX and NSC) that Conrail requires additional cash to satisfy
its retained liabilities that include, but are not limited to, the Conrail
Debentures, CRR Holdings agreed to provide such cash to Conrail. In addition,
pursuant to the Transaction Agreement, CSX and NSC committed to one another that
they shall ensure that CRR, Conrail and their affiliates have sufficient cash to
satisfy the retained liabilities as they become due and any operating and other
expenses. CSX and NSC intend that the economic burden of Conrail's retained
liabilities will continue to be borne without change, directly or indirectly,
42% by CSX and 58% by NSC.
Under the terms of the Transaction Agreement and the LLC agreements that
established NYC and PRR, CSX has the right to manage NYC and to designate its
officers and directors, and NSC has the right to manage PRR and to designate its
officers and directors. Certain major decisions of NYC and PRR, however, were
reserved to Conrail, which can act in that respect only with the indirect
approval of both CSX and NSC pursuant to their respective 50% voting interests
in Conrail's ultimate parent, CRR Holdings.
The current terms of the NYC and PRR allocated assets operating agreements
have fixed terms of 25 years (with options for two subsequent renewal periods),
and require return of the subject rail assets by CSXT to NYC and by NSR to PRR
upon termination or expiration of the agreements. The agreements also provide
that an operating fee (analogous to rent) is to be paid by each operating
railroad (CSXT and NSR) to its respective counterparty (NYC and PRR) quarterly.
Every six years after June 1, 1999, the date upon which the asset allocations
and operating agreements set forth in the Transaction Agreement became
effective, the respective operating fees are to be revalued and reset to then
current "fair market rental value," defined as the rent that would be negotiated
at arm's-length between parties under no compulsion to lease.
As a result of the original transactions consummated pursuant to the
Transaction Agreement, ownership of the NYC Allocated Assets and PRR Allocated
Assets remained within the corporate structure of Conrail, while their operation
and general day-to-day management was conducted, as of June 1, 1999, separately
by CSXT and NSR.
REGULATORY APPROVALS
SURFACE TRANSPORTATION BOARD
Railroad mergers and acquisitions are subject to the authority of the STB,
successor to the Interstate Commerce Commission.
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On July 23, 1998, the STB issued a written order, effective August 22,
1998, authorizing the acquisition of control of CRR by CSX and NSC and
specifically authorizing the actions contemplated by the Transaction Agreement.
In its 1998 order, the STB found that CSXT and NSR "shall have the right to
use, operate, perform, and enjoy" the assets of Conrail "notwithstanding any
provision in any law, agreement, order, document or otherwise purporting to
limit or prohibit Conrail's assignment of its right to use, operate, perform and
enjoy such assets to another person or persons, or purporting to affect those
rights in the case of a change in control." However, as CSX and NSC did not seek
the STB's approval during the original Conrail acquisition for the proposed
transfer of direct ownership and exclusive control of NYC to CSX and of PRR to
NSC, it was also necessary for us to petition the STB for its authorization,
which it granted on November 7, 2003 on the basis of the June 4, 2003 petition
described below.
In June 2003, in connection with the Conrail Spin Off Transactions,
Conrail, CSX and NSC filed a Petition for Supplemental Order seeking the STB's
authorization of the consolidation of NYC within CSXT and the consolidation of
PRR within NSR and specific authorization of the Conrail Spin Off Transactions,
subject to a condition requiring Conrail, CSX and NSC to either: (i) resolve
through negotiations any issues pertaining to the required consents of holders
of the Conrail Debentures; or (ii) to propose further proceedings to determine
whether the treatment of holders of the Conrail Debentures under the terms of
the Conrail Spin Off Transactions is fair, just, and reasonable. With the
Petition for Supplemental Order, Conrail, CSX and NSC provided the STB with
letters from the credit rating agencies, Moody's Investors Service and Standard
& Poor's, in which the rating agencies determined, subject to certain
assumptions and qualifications, that as of the consummation of this exchange
offer and consent solicitation: (y) the ratings assigned to the debt securities
to be issued in this exchange offer and consent solicitation will be at least
equal to the ratings assigned to Conrail's unsecured debentures; and (z) the
ratings of Conrail's secured debt obligations will not be reduced as a
consequence of the Conrail Spin Off Transactions. On November 7, 2003, the STB
issued a supplemental order, effective that date, specifically authorizing the
Conrail Spin Off Transactions. The STB also determined that it has the authority
to make a "fairness" determination (i.e., a determination that the treatment of
the holders of Conrail Debentures under the terms of this exchange offer and
consent solicitation are fair, just, and reasonable) in the event the parties
are unable to reach a negotiated agreement regarding the terms of this exchange
offer and consent solicitation, and imposed the condition proposed by Conrail,
CSX and NSC as set forth above. In the event that the STB makes such a fairness
determination, the STB could issue a ruling that would permit the Conrail Spin
Off Transactions without the consent of the holders of Conrail Debentures.
INTERNAL REVENUE SERVICE
In November 2003, we received a private letter ruling from the IRS
confirming that no gain (except to the extent of cash received) or loss will be
recognized by Conrail, its shareholders or its securityholders with respect to
the Conrail Spin Off Transactions. Although the rulings contained in the private
letter ruling relating to the Conrail Spin Off Transactions are generally
binding on the IRS, the continuing validity of such rulings are subject to
factual representations and assumptions. We are not aware of any facts or
circumstances that would cause such factual representations and assumptions to
be untrue.
BENEFITS OF THE CONRAIL SPIN OFF TRANSACTIONS
The proposed transfer of NYC to CSXT and PRR to NSR would simplify the
existing management structure of Conrail assets. Under the current corporate
structure, CSXT and NSR directly operate and manage on a day-to-day basis the
Conrail assets allocated to them pursuant to operating agreements, but their
ownership of these properties is joint and indirect, through their joint
ownership of Conrail. After the consummation of the Conrail Spin Off
Transactions, the Conrail assets allocated to and currently operated by CSXT
will be brought under CSX's direct ownership and control, and the Conrail assets
allocated to and
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currently operated by NSR will be brought under NSC's direct ownership and
control. As a result, both CSX and NSC will benefit from:
-- increased independence over the management of the assets of NYC and
PRR;
-- improved transparency of the financial reporting of CSX and NSC by
consolidation of the financial results of NYC and PRR into those of
CSX and NSC, respectively, thereby enhancing access to the capital
markets;
-- elimination of the dependence of CSXT on NSR's consent and NSR on
CSXT's consent for many decisions relating to CSXT's and NSR's
respective management of the underlying assets of NYC and PRR;
-- improved incentives for new business innovations, long-term capital
improvements and strategic dispositions and acquisitions of NYC and
PRR properties and assets; and
-- reductions in potential conflicts associated with the indirect joint
ownership of NYC's and PRR's assets, which arise because CSX and NSC,
though joint owners of NYC and PRR, do not share a joint economic
agenda regarding NYC and PRR due to their status as competitors.
TRANSACTION STEPS
The Conrail Spin Off Transactions will occur in several immediately
consecutive steps, each on the Closing Date, as follows:
(1) Conrail will transfer (a) its membership interest in NYC to NYC
Newco in exchange for (i) NYC Newco's issuance to Conrail of common stock
sufficient to provide Conrail 99.9% of the then-outstanding common stock of
NYC Newco and (ii) New CSXT Notes, and (b) its membership interest in PRR
to PRR Newco in exchange for (i) PRR Newco's issuance to Conrail of common
stock sufficient to provide Conrail 99.9% of the then-outstanding common
stock of PRR Newco and (ii) New NSR Notes, these transactions to be
collectively referred to as the "Contributions." As a result of the
Contributions, Conrail will own 99.9% of the common stock of, and therefore
will control, NYC Newco (which will wholly own and control NYC), and
Conrail will own 99.9% of the common stock of, and therefore will control,
PRR Newco (which will wholly own and control PRR).
(2) The stock of NYC Newco will then be transferred successively from
Conrail to CRR, from CRR to Green Corp. and from Green Corp. to CRR
Holdings. (These transactions comprise the "Spin Offs.") CRR Holdings will
then transfer the NYC Newco stock to CSX Rail Holding Corporation, or "CSX
Rail," and CSX Northeast Holding Corporation, or "CSX Northeast," both of
which are wholly owned subsidiaries of CSX. CSX Rail and CSX Northeast will
transfer the NYC Newco stock to CSX, which will then transfer it to CSXT.
Similarly, the stock of PRR Newco will also be transferred successively
from Conrail to CRR to Green Corp. to CRR Holdings and then, successively,
to NSC and NSR. As a result of these transfers, CSXT will wholly own and
control NYC Newco (which will wholly own and control NYC) and NSR will
wholly own and control PRR Newco (which will wholly own and control PRR).
(3) NYC will then be merged with and into NYC Newco, with NYC Newco as
the surviving company, and PRR will then be merged with and into PRR Newco,
with PRR Newco as the surviving company.
(4) As a final step, NYC Newco will be merged with and into CSXT, with
CSXT as the surviving company, and PRR Newco will be merged with and into
NSR, with NSR as the surviving company, thereby consummating the
consolidation of NYC's business, assets and operations within CSXT and of
PRR's business, assets and operations within NSR.
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TIMING OF CLOSING
The Closing Date for the Conrail Spin Off Transactions will occur as soon
as practicable after the expiration date and satisfaction or waiver of all
conditions to the Conrail Spin Off Transactions as set forth in the Distribution
Agreement. The Conrail Spin Off Transactions will become effective upon
consummation of the various interrelated transaction steps.
THE DISTRIBUTION AGREEMENT
The following summary of the Distribution Agreement is qualified in its
entirety by reference to the complete text of the Distribution Agreement which
is an exhibit to the registration statement of which this prospectus and consent
solicitation statement is a part. Capitalized terms used in this subsection
without definition shall have the meaning ascribed to them in the Distribution
Agreement.
THE DISTRIBUTION
In connection with the Conrail Spin Off Transactions, CRR, Conrail, CSX,
CSXT, NSC, NSR, CRR Holdings and certain other parties thereto will enter into a
distribution agreement, or the "Distribution Agreement." The Distribution
Agreement may be amended by the parties without the consent of the holders of
the Conrail Debentures.
After a series of consecutive steps, occurring on the Closing Date, as set
forth above, NYC and PRR will be transferred to CSXT and NSR, respectively.
TIMING OF THE CONRAIL SPIN OFF TRANSACTIONS
The consummations of all the consecutive transactions to the Conrail Spin
Off Transactions, including the consummation of this exchange offer and consent
solicitation, are scheduled to occur on the Closing Date. See "--Timing of
Closing."
CONDITIONS TO THE CONSUMMATION OF THE CONRAIL SPIN OFF TRANSACTIONS
The conditions that must be met, or waived, to consummate the Conrail Spin
Off Transactions include, among other things, that
(a) no preliminary or permanent injunction or other order or decree
issued by a court of competent jurisdiction or any other legal restraint or
prohibition that prevents the consummation of the Conrail Spin Off
Transactions shall be in effect and no statute, rule or regulation shall
have been enacted by any governmental entity prohibiting the consummation
of the transactions to occur on the Closing Date;
(b) since the date of execution of the Distribution Agreement, there
shall not have been any condition, circumstance, event or occurrence
occurring or existing that, individually or in the aggregate, has resulted
or could result in a change in the percentage allocation to NYC of 42% and
to PRR of 58%, respectively, of the fair values of NYC and PRR taken
together;
(c) Conrail shall have obtained the consent of holders of a majority
in principal amount of each series of equipment trust certificates and pass
through trust certificates set forth in the Distribution Agreement on the
terms set forth in the solicitation thereof, collectively referred to as
the "Secured Debt Consent Solicitation," and the consent of the lessor and
other counterparties to Conrail's equipment leases identified in the
Distribution Agreement on terms no less favorable than those currently
applicable to such equipment leases, or shall have received a decision of
the STB, on terms no less favorable than those set forth in the Secured
Debt Consent Solicitation or those currently applicable to such equipment
leases, respectively, establishing that such consents are not necessary to
effectuate the Conrail Spin Off Transactions;
(d) CSXT, NYC Newco, NSR, PRR Newco and Conrail shall have obtained
the consent of the holders of more than 50% of the aggregate principal
amount of Conrail Debentures, voting as a single class, to the adoption of
the Conrail Supplemental Indenture on the terms set forth in this
prospectus and
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consent solicitation statement, or shall have received a decision of the
STB, on terms no less favorable than those set forth in this prospectus and
consent solicitation statement, establishing that such consents are not
necessary to effectuate the Conrail Spin Off Transactions;
(e) the parties shall have entered into the instruments of transfer
and distribution and the other agreements contemplated herein;
(f) since the date of the filing made to the IRS, there shall not have
been any condition, circumstance, event or occurrence occurring or existing
that, individually or in the aggregate, has resulted or could reasonably be
expected to result in a material adverse effect on any of the parties to
the Distribution Agreement, involving or relating to the transactions set
forth in the Transaction Agreement;
(g) each of the parties to the Distribution Agreement shall have
delivered an officer's certificate to the other parties thereto to the
effect that (1) the representations and warranties of such party contained
in the Distribution Agreement are true and correct in all material respects
on and as of the Closing Date as if made on and as of the date of the
Distribution Agreement and on and as of the Closing Date, (2) the
conditions set forth in subparts (e) and (f) above are satisfied with
respect to such party and (3) such party has satisfied in all material
respects all covenants to be performed by such party under the Distribution
Agreement at or prior to the Closing Date;
(h) the approvals obtained from the STB and the favorable rulings
received from the IRS relating to the Conrail Spin Off Transactions shall
remain in full force and effect and there shall not have occurred any
change in, or interpretation of, any law, IRS policy, IRS procedure, or
facts that formed the basis of such rulings that affects adversely or could
affect adversely any significant aspect of the rulings or the ability of
NSC or CSX to rely on such rulings; and
(i) the conditions to this exchange offer and consent solicitation set
forth under "Description of This Exchange Offer and Consent
Solicitation--Conditions to This Exchange Offer and Consent Solicitation"
have been satisfied or jointly waived by Conrail, CSX and NSC.
The conditions listed above (other than the conditions described in (i))
may be asserted by either CSX or NSC regardless of the circumstances giving rise
to any of these conditions and such conditions may only be waived by CSX and NSC
acting jointly.
INDEMNIFICATION
Conrail, CSX and NSC have each agreed in the Distribution Agreement to
indemnify each other and their respective affiliates and subsidiaries against
certain liabilities in connection with the Conrail Spin Off Transactions,
including liabilities under the Securities Act, and to contribute to payments
that any indemnified party may be required to make in respect thereof.
Indemnification by CSX/CSXT. CSX and CSXT will jointly and severally
indemnify CRR Holdings, NSC and their respective affiliates and subsidiaries and
any director, officer, employee or agent of any of them from any and all
liabilities relating to, arising out of or resulting from any of the following:
-- the untruth or inaccuracy of any representation or warranty of CSX,
CSXT or any of their respective affiliates or subsidiaries contained
in or made pursuant to the Distribution Agreement or any related
agreements;
-- the breach or non-performance of any agreement of CSX, CSXT or any of
their respective affiliates or subsidiaries contained in or made
pursuant to the Distribution Agreement or any related agreements;
-- the NYC Allocated Liabilities (as defined in the Distribution
Agreement); and
-- any untrue statement or alleged untrue statement of a material fact
contained in or incorporated by reference into the registration
statement filed by CSXT and NYC Newco (of which this prospectus and
consent solicitation statement forms a part) or any amendment
thereof, the Secured Debt Consent Solicitation or in connection with
this exchange offer and consent solicitation (in each case
62
as amended or supplemented), or caused by any omission or alleged
omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that CSX and CSXT
shall not be liable in respect of the foregoing indemnity to the
extent that any indemnifiable losses are caused by any untrue
statement or omission or alleged untrue statement or omission made in
any such document in reliance upon and in conformity with information
furnished in writing on behalf of CRR Holdings or any of its
subsidiaries or NSC or any of its affiliates (other than CRR Holdings
and its subsidiaries) or subsidiaries expressly for use therein.
Indemnification by NSC and NSR. NSC and NSR will jointly and severally
indemnify CRR Holdings, CSX and their respective affiliates and subsidiaries and
any director, officer, employee or agent of any of them from any and all
liabilities relating to, arising out of or resulting from any of the following:
-- the untruth or inaccuracy of any representation or warranty of NSC,
NSR or any of their respective affiliates or subsidiaries contained
in or made pursuant to the Distribution Agreement or any related
agreements;
-- the breach or non-performance of any agreement of NSC, NSR or any of
their respective affiliates or subsidiaries contained in or made
pursuant to the Distribution Agreement or any of the Related
Agreements;
-- the PRR Allocated Liabilities (as defined in the Distribution
Agreement); and
-- any untrue statement or alleged untrue statement of a material fact
contained in or incorporated by reference into the registration
statement filed by NSR and PRR Newco (of which this prospectus and
consent solicitation statement forms a part) or any amendment
thereof, the Secured Debt Consent Solicitation or in connection with
this exchange offer and consent solicitation (in each case as amended
or supplemented), or caused by any omission or alleged omission to
state therein a material fact necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that NSC and NSR shall not
be liable in respect of the foregoing indemnity to the extent that
any indemnifiable losses are caused by any untrue statement or
omission or alleged untrue statement or omission made in any such
document in reliance upon and in conformity with information
furnished in writing on behalf of CRR Holdings or any of its
subsidiaries or CSX or any of its affiliates (other than CRR Holdings
and its subsidiaries) or subsidiaries expressly for use therein.
Indemnification by CRR Holdings, Green Corp., CRR and Conrail. CRR
Holdings, Green Corp., CRR and Conrail will jointly and severally indemnify CSX
and NSC and any of their respective affiliates and subsidiaries (other than CRR
Holdings, Green Corp., CRR and Conrail) and any director, officer, employee or
agent of any of them from any and all liabilities relating to, arising out of or
resulting from any of the following:
-- the untruth or inaccuracy of any representation or warranty of CRR
Holdings, Green Corp., CRR, Conrail or any of their respective
affiliates or subsidiaries contained in or made pursuant to the
Distribution Agreement or any of the agreements related thereto;
-- the breach or non-performance of any agreement of CRR Holdings, Green
Corp., CRR, Conrail or any of their respective affiliates or
subsidiaries contained in or made pursuant to the Distribution
Agreement or any of the agreements related thereto; and
-- any untrue statement or alleged untrue statement of a material fact
contained in or incorporated by reference into the registration
statements (of which this prospectus and consent solicitation
statement forms a part) or any amendment thereof, the Secured Debt
Consent Solicitation or in connection with this exchange offer and
consent solicitation (in each case as amended or supplemented), or
caused by any omission or alleged omission to state therein a
material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading;
provided, however, that CRR Holdings, Green Corp., CRR and Conrail
and any of their respective subsidiaries
63
shall not be liable in respect of the foregoing indemnity to the extent
that any indemnifiable losses are caused by any untrue statement or
omission or alleged untrue statement or omission made in any such
document in reliance upon and in conformity with information furnished in
writing on behalf of CSX or NSC or any of their affiliates (other than
CRR Holdings and its subsidiaries) and subsidiaries expressly for use
therein.
TERMINATION RIGHTS
The Distribution Agreement may be terminated, upon written notice by the
terminating party, at any time on or prior to the expiration date:
-- by Conrail, CSX or NSC at any time after September 30, 2004 if the
consummation of the Conrail Spin Off Transactions shall not have
occurred by such date;
-- by any of the parties thereto if another party shall have breached or
failed to perform in any material respect any of its respective
representations, warranties, covenants or other agreements contained
in the Distribution Agreement, which breach or failure to perform (1)
would give rise to the failure of a closing condition and (2) cannot
be or has not been cured within 30 days after such defaulting party
has received written notice from the other parties;
-- by any of the parties if any "Governmental Entity" (as defined in the
Distribution Agreement) shall have issued an order, decree or ruling
or taken any other action (which order, decree, ruling or other
action the parties hereto shall use their reasonable efforts to
lift), which permanently restrains, enjoins or otherwise prohibits
the transactions contemplated by the Distribution Agreement and such
order, decree, ruling or other action shall have become final and
non-appealable; or
-- prior to the expiration date of this exchange offer and consent
solicitation, by any of the parties upon any condition for such
party's benefit becoming incapable of satisfaction on or before that
expiration date.
AMENDMENTS AND WAIVERS
Any provision of the Distribution Agreement may be amended or waived prior
to the consummation of the Conrail Spin Off Transactions if, but only if, such
amendment or waiver is in writing and is signed, in the case of an amendment, by
each party to the Distribution Agreement or, in the case of a waiver, by the
party to the Distribution Agreement against whom the waiver is to be effective.
COVENANTS
The parties to the Distribution Agreement have agreed to use their
reasonable best efforts to take all actions necessary or advisable to consummate
the Conrail Spin Off Transactions including cooperating in good faith.
THE TRANSACTION AGREEMENT AMENDMENT
In connection with the Conrail Spin Off Transactions, CRR, Conrail, CSX,
CSXT, NSC, NSR and CRR Holdings will enter into an amendment to the Transaction
Agreement, or the "Transaction Agreement Amendment." The Transaction Agreement
may be amended by the parties without the consent of the holders of the Conrail
Debentures.
The following is a summary of, and is qualified in its entirety by
reference to, the full text of the Transaction Agreement Amendment, including
attachments and exhibits, which is an exhibit to the registration statements of
which this prospectus and consent solicitation statement is a part.
The Transaction Agreement Amendment clarifies certain of the parties'
understandings and agreements with respect to the impact of the Conrail Spin Off
Transactions on the "Retained Assets" that consist primarily of the Shared
Assets Areas, operated by Conrail for the benefit of both CSXT and NSR,
providing rail service in North Jersey, South Jersey/Philadelphia and Detroit.
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In general, the Transaction Agreement Amendment provides:
-- that notwithstanding the Transaction Agreement Amendment or any
action taken in connection with the Conrail Spin Off Transactions or
the Transaction Agreement, no changes, modifications or amendments to
the North Jersey, South Jersey/Philadelphia or Detroit Shared Assets
Operating Agreements by and among Conrail, NYC, CSXT, PRR or NSR, or
to those Shared Assets Areas are being made by the Transaction
Agreement Amendment or the Conrail Spin Off Transactions, and none
will be implied;
-- that except as specifically set forth in the Transaction Agreement
Amendment, all other terms and provisions of the Transaction
Agreement and certain related ancillary agreements will continue in
full force and effect and unchanged and are confirmed in all
respects;
-- that in order to consummate the transactions contemplated in the
Distribution Agreement, the parties will cooperate to modify the
Transaction Agreement and the related schedules and the other
agreements contemplated thereby so as to permit the transfer of
properties and other actions contemplated by the Distribution
Agreement in order to reflect changes to rentals and funds flows
resulting from the restructuring of debt obligations in accordance
with the terms and subject to the conditions of the Distribution
Agreement, all in accordance with the economic allocation of the
parties' interests in the Transaction Agreement;
-- for the amendment or termination of certain agreements that are
ancillary to the Transaction Agreement;
-- for the reallocation of certain operating fees, interest rentals and
base rent; and
-- for agreements among CSX, CSXT, NSC and NSR relating to certain lines
of railroad within the State of New Jersey or New York or the area
within 25 miles of the City of Philadelphia, Pennsylvania.
THE TAX ALLOCATION AGREEMENT
As contemplated by the Distribution Agreement, Green Corp., CRR, CSX, NSC,
Conrail, NYC and PRR will enter into a tax sharing agreement, or the "Tax
Allocation Agreement," at the Closing Date. The Tax Allocation Agreement governs
the respective rights, responsibilities, and obligations of NYC and its
subsidiaries, or collectively, the "NYC Group," PRR and its subsidiaries, or
collectively, the "PRR Group," Green Corp., CSX and NSC after the Conrail Spin
Off Transactions with respect to tax liabilities, refunds, tax proceedings and
other tax matters regarding income taxes, other taxes and related returns.
In general, under the Tax Allocation Agreement, the NYC Group and the PRR
Group will each prepare pro forma consolidated federal income tax returns for
each tax period ending after the date of the Transaction Agreement and beginning
on or before the Closing Date of the Conrail Spin Off Transactions during which
either Group or any of its members was included in the Green Corp. consolidated
group, or collectively, the "Green Group," for federal income tax purposes. Each
applicable Group and Green Corp. will then make payments between each other so
that, generally, with respect to any such tax period, the amount of taxes in
excess of an amount determined pursuant to a formula will be paid by either
applicable group and will be determined as if each applicable group filed its
own respective consolidated, combined or unitary tax returns and as if NYC and
PRR were the common parent filing such returns. The NYC Group and PRR Group are
each generally responsible for any taxes in excess of an amount determined
pursuant to a formula with respect to any tax returns that include only its
respective group or members.
In the case of a refund with respect to U.S. federal income tax paid to the
Green Group with respect to certain tax periods in which either applicable group
or any of its respective members were members of the Green Group, Green Corp.
shall pay to each applicable group its allocable share, if any, of the refund
that it receives. In the case of an increase in U.S. federal income tax paid by
the Green Group with respect to certain tax periods in which either applicable
group or any of its respective members were members of the Green Group, each
applicable group shall pay to Green Corp. its allocable share, if any, of the
tax increase.
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The Tax Allocation Agreement also provides restrictions on CSX and NSC and
any of their respective subsidiaries (including restrictions on share issuance,
business combinations, and sales of assets and similar transactions) that are
designed to preserve the tax-free nature of the Conrail Spin Off Transactions.
CSX or NSC may also request that Green Corp. seek an additional ruling from the
IRS that certain actions the requesting party wishes to take will not result in
any aspect of the Conrail Spin Off Transactions becoming taxable.
The Tax Allocation Agreement contains provisions regarding tax audits and
other proceedings, each such tax audit or proceeding, a "Tax Contest." Green
Corp. has the right under the agreement, with certain exceptions, to represent
the interests of the Green Group in any Tax Contest relating to a tax period
beginning on or before the Conrail Spin Off Transactions. Regarding Tax Contests
related to tax periods beginning after Conrail Spin Off Transactions, Green
Corp. has the right to represent the interests of the Green Group and its
members (other than the NYC Group, PRR Group or any of their respective members)
and the NYC Group and PRR Group have the right to represent the interests of
their respective members with respect to such Tax Contests.
All applicable parties under the Tax Allocation Agreement agree to
cooperate, and take all actions reasonably requested by any other member of
another Group in connection with the preparation and filing of tax returns and
in any Tax Contest.
The Tax Allocation Agreement also assigns responsibilities for
administrative matters related to taxes (i.e., retention of records).
THE EQUIPMENT OBLIGATION AGREEMENTS
Concurrently with this exchange offer and consent solicitation, Conrail is
also soliciting consents to certain proposed amendments pursuant to which
certain outstanding equipment trust certificates and pass through certificates
of Conrail were issued. Conrail is seeking, among other things, the consent of
the holders of these certificates, as well as the consent of the related equity
investors, lessors, owner trustees and owner participants, to these proposed
amendments which, if adopted, will permit the consummation of the Conrail Spin
Off Transactions. In addition, Conrail is separately seeking consent to the
Conrail Spin Off Transactions from the various lessors and counter parties to
Conrail's various private equipment leases and private secured loans.
Pursuant to a separate consent solicitation statement, Conrail intends to
offer holders of pass through trust certificates and equipment trust
certificates a consent fee according to the following table:
<Table>
<Caption>
CONSENT FEE
PER $1,000
PRINCIPAL AMOUNT
SECURED DEBT SERIES OUTSTANDING
------------------- ----------------
9.80% 1988 ETC, Series A due October 15, 2004............... $5.50
7.07% 1992 ETC, Series A due April 1, 2005.................. $5.50
7.22% 1992 ETC, Series A due April 1, 2007.................. $6.00
7.28% 1992 ETC, Series A due April 1, 2008.................. $6.00
7.35% 1992 ETC, Series A due April 1, 2009.................. $6.00
7.42% 1992 ETC, Series A due April 1, 2010.................. $6.50
6.86% PTC, Series 1993-A2 due December 31, 2007............. $6.00
9.82% 1990 ETC, Series A due April 1, 2005.................. $5.00
8.59% PTC, Series 1991-1 due May 29, 2005................... $5.00
8.65% 1991 ETC, Series A due October 1, 2008................ $5.50
6.96% PTC, Series 1996-A due March 25, 2010................. $5.50
5.98% 1993 ETC, Series A due July 1, 2013................... $5.50
8.45% PTC, Series 1994-A due July 2, 2014................... $6.00
6.76% PTC, Series 1995-A due May 25, 2015................... $6.00
</Table>
66
This prospectus and consent solicitation statement does not constitute an
offer for or a solicitation of consents with respect to holders of Conrail's
pass through trust certificates and equipment trust certificates. The
solicitation of these consents will be made only by means of that certain
consent solicitation statement distributed to the holders of Conrail's equipment
trust certificates and pass through trust certificates by Conrail. Conrail
expects to solicit the consent of these holders on or after the date of
effectiveness of the registration statements to which this prospectus and
consent solicitation statement forms a part.
The consent of the holders of Conrail Debentures is not required for the
proposed amendments. In addition to these proposed amendments, CSXT, NSR and
Conrail will enter into various other commercial agreements in connection with
the Conrail Spin Off Transactions. A brief summary of these agreements follows:
The pass through trust agreements, equipment trust agreements, trust
indentures and related lease agreements, security agreements, participation
agreements and other agreements, or collectively, the "Existing Agreements," for
equipment trust certificates, pass through certificates and other equipment
obligations that are part of the Secured Debt Consent Solicitation or,
collectively, the "Certificates," will remain in effect (subject to certain
amendments), and the equipment covered thereby will be subleased, directly or
indirectly, to CSXT and NSR, in the approximate 42%/58% proportion by which the
equipment was originally allocated to each of them, in one of two structures
designed to support the obligations of Conrail for the benefit of the holders of
Certificates. We refer to all of the transactions described in this paragraph,
collectively, as the "Secured Debt Restructuring."
In the case of all of Conrail's equipment obligations that support
Certificates (which include obligations to the related lessors, owner trustees
and owner participants), except the 1991 and 1993 issues of pass through trust
certificates, Conrail will lease or sublease approximately 42% of the covered
equipment to NYC Newco and the remainder to PRR Newco, in leases or subleases
reflecting the pro rata portion of the payment and other terms of the Existing
Agreement constituting the senior equipment obligations. Upon consummation of
the Conrail Spin Off Transactions and as a result of the mergers of NYC Newco
into CSXT and PRR Newco into NSR, the NYC Newco sublease obligations will be
assumed by CSXT and the PRR Newco sublease obligations will be assumed by NSR.
Conrail will then assign its rights to receive rents under each such lease or
sublease to the applicable lessor under each Existing Agreement, as security for
the due and punctual payments of Conrail's obligations under such Existing
Agreement. Each lessor will further assign such rights to the applicable pass
through trustee, equipment trust trustee or indenture trustee for the holders of
the Certificates issued in connection with such Existing Agreement. This leasing
and subleasing structure also applies to each of the private equipment leases
and private secured loans for which Conrail is soliciting consents, other than
consents to be sought from lessors and lenders in certain private Japanese
leveraged lease transactions entered into by Conrail in 1990.
In the case of the equipment obligations supporting the pass through trust
certificates issued in 1991 and 1993, in which certain modifications require the
consents of the related equity investors, lessors, owner trustees and owner
participants, as well as the 1990 Japanese leveraged lease transactions and the
Philadelphia Plan equipment trust certificates issued in 1993 and 1994,
respectively, Conrail would also sublease the covered equipment to NYC Newco and
PRR Newco in the manner described in the immediately preceding paragraph.
However, NYC Newco and PRR Newco would also then create bankruptcy remote
Delaware trusts and assign all of their rights and obligations under the Conrail
subleases to these trusts, which trusts would assume the respective obligations
of NYC Newco and PRR Newco under these subleases. The bankruptcy remote Delaware
trusts would then sublease the equipment to CSXT and NSR, as the case may be,
and assign payments under these subleases to Conrail.
Conrail will assign its rights to receive rents under each such lease or
sublease to the applicable lessor under each Existing Agreement, as security for
the due and punctual payments of Conrail's obligations under such Existing
Agreement. Each lessor will further assign such rights to the applicable pass
through trustee, equipment trust trustee or indenture trustee for the holders of
Certificates issued in connection with such Existing Agreement. After NYC Newco
and PRR Newco are distributed to CSXT and NSR, but before being merged into CSXT
and NSR, NYC Newco and PRR Newco each will transfer, if applicable, the
67
beneficial interest in its bankruptcy remote Delaware trust to a newly formed
limited liability company wholly owned by NYC Newco and PRR Newco, respectively.
In the case of both subleasing structures used in the Secured Debt
Restructuring, the scheduled rent obligations of CSXT and NSR under the
subleases related to an Existing Agreement, as assigned to the senior lessors
and reassigned to the various trustees for the benefit of the holders of
Certificates, will be at least equal to Conrail's obligations under that
Existing Agreement when due, for the full term of the Existing Agreement. The
expiration dates of the various subleases of equipment subject to leases in
Existing Agreements will not extend beyond the term applicable thereto set forth
in the Existing Agreement, except in certain cases of Conrail's Existing
Agreements that are secured debt transactions. In each such case, CSXT and NSR
will be obligated to prepay the rents for such extended term so that CSXT's and
NSR's payments under their subleases will be sufficient to permit Conrail to
discharge its obligations under the applicable Existing Agreement.
In conjunction with the sublease obligations, Conrail, CSXT and NSR will
enter into a cross-assignment of subleasehold interests agreement, or the "Cross
Assignment Agreement," whereby CSXT will be permitted to cure defaults by NSR
and NSR will be permitted to cure defaults by CSXT under the respective sublease
with Conrail for a limited period of time and, should such default persist,
assume the rights and obligations of the defaulting party's subleasehold
agreement with Conrail. In the event that CSXT assumes the sublease obligation
of NSR and takes delivery of the equipment subject to such sublease obligation
pursuant to the Cross Assignment Agreement, NSR will be relieved of any further
liability covered in the subleases assumed by CSXT. Conversely, in the event
that NSR assumes the sublease obligation of CSXT and takes delivery of the
equipment subject to such sublease obligation pursuant to the Cross Assignment
Agreement, CSXT will be relieved of any further liability covered in the
subleases assumed by NSR. Under either of these circumstances, CSXT and NSR
would no longer be supporting Conrail's lease obligations in the existing ratio,
but in a ratio adjusted for the amount of obligations covered in the assumed
subleases.
In all of Conrail's equipment financings securing the Certificates, holders
of Conrail's secured debt instruments are entitled to the benefit of section
1168 of the Bankruptcy Code (11 U.S.C. sec. 1168), or "section 1168," which
provides certain protection to creditors of railroad companies under equipment
leasing and financing arrangements. In order to preserve the existing protection
that holders of each series of Conrail's Certificates enjoy under section 1168,
the agreements pursuant to which equipment subject to the Existing Agreements is
subleased will provide, among other things, that: (1) any such sublease, and the
rights and interests of the sublessee in the leased or subleased equipment, will
be junior and subordinate in all respects to the applicable Existing Agreement
and the rights and interests of the holders of Certificates issued in connection
therewith; (2) the sublessee, upon default by Conrail under an Existing
Agreement, will surrender possession of the related equipment in accordance with
the terms of the applicable Existing Agreement; and (3) each sublessee in
possession will be a railroad against which section 1168 protection would be
available.
Subject to limited exceptions, the sublease agreements (by incorporating
the terms, conditions and provisions of the Existing Agreement) will prohibit
CSXT and NSR, or any bankruptcy remote Delaware trust formed by NYC Newco or PRR
Newco, from creating, incurring, assuming or suffering to exist any claim, lien,
pledge, mortgage, charge, security interest or other encumbrance on the leased
equipment. None of CSXT and NSR, or any bankruptcy remote Delaware trust formed
by NYC Newco or PRR Newco, will be permitted, pursuant to the terms of the
relevant Existing Agreement, to sublease the leased equipment, except to each
other, and except to other railroad companies and users for brief terms in the
ordinary course of business, without the prior written consent of Conrail and,
in some instances, the applicable lessor.
All of the subleases to be entered into or assumed by CSXT and NSR will
provide generally that CSXT and NSR, as the case may be, may not consolidate
with or merge into any other corporation or convey, lease or transfer its
properties and assets substantially as an entirety to any person unless, among
other things, the corporation formed by such consolidation or into which CSXT or
NSR, as the case may be, is merged or the person that acquires by conveyance,
lease or transfer the properties and assets of CSXT and NSR substantially as an
entirety assumes the obligations of CSXT or NSR, as the case may be, under its
subleases with Conrail or the bankruptcy remote Delaware trusts.
68
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE CONRAIL SPIN OFF
TRANSACTIONS
We have received a private letter ruling from the IRS confirming that no
gain (except to the extent of cash received) or loss will be recognized by
Conrail, its shareholders or its security holders with respect to the Conrail
Spin Off Transactions. Although the rulings contained in the private letter
ruling relating to the Conrail Spin Off Transactions are generally binding on
the IRS, the continuing validity of such rulings are subject to factual
representations and assumptions. We are not aware of any facts or circumstances
that would cause such factual representations and assumptions to be untrue.
LEGAL MATTERS
For legal matters pertaining to CSXT and NYC Newco, please refer to the
CSXT Appendix attached hereto. For legal matters pertaining to NSR and PRR
Newco, please refer to the NSR Appendix attached hereto. Certain legal matters
will be passed upon for the dealer manager by Shearman & Sterling LLP.
EXPERTS
CSXT
Please refer to the CSXT Appendix attached hereto for information relating
to certain experts retained by CSXT.
NSR
Please refer to the NSR Appendix attached hereto for information relating
to certain experts retained by NSR.
CONRAIL
The consolidated financial statements of Conrail as of December 31, 2003
and 2002 and for each of the three years in the period ended December 31, 2003
included in this prospectus and consent solicitation statement have been audited
by Ernst & Young LLP and KPMG LLP, independent auditors, as set forth in their
report, which is also included in this prospectus and consent solicitation
statement in reliance upon such report given on the authority of said firms as
experts in accounting and auditing. The audit report covering the December 31,
2003 consolidated financial statements refers to the adoption of FASB Statement
No. 143, "Accounting for Asset Retirement Obligations," effective January 1,
2003.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and consent solicitation statement contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, or the "PSLRA." The safe harbor protections of
the PSLRA do not apply to the forward-looking statements made in connection with
this exchange offer and consent solicitation. These statements may be made
directly in this prospectus and consent solicitation statement referring to
CSXT, NSR and Conrail, and they may also be made a part of this prospectus and
consent solicitation statement by reference to other documents filed with the
SEC, which is known as "incorporation by reference." These statements may
include statements regarding the period leading up to and following consummation
of the Conrail Spin Off Transactions.
Words such as "anticipate," "estimate," "expect," "project," "intend,"
"plan," "believe" and words and terms of similar substance used in connection
with any discussion of future operating or financial performance, or the Conrail
Spin Off Transactions, identify forward-looking statements. All forward-looking
statements are management's present estimates of future events and are subject
to a number of factors and uncertainties, including without limitation the risks
associated with the lack of complete data and the potential inaccuracy of data
relied upon in making such forward-looking statements, that could cause actual
results to differ materially from those described in the forward-looking
statements. In addition, the risks related to the
69
businesses of CSXT, NSR and Conrail and the factors relating to the Conrail Spin
Off Transaction discussed under "RISK FACTORS," among others, could cause actual
results to differ materially from those described in the forward-looking
statements. Holders of Conrail Debentures are cautioned not to place undue
reliance on the forward-looking statements, which speak only as of the date of
this prospectus and consent solicitation statement or as of the date of any
document incorporated by reference in this prospectus and consent solicitation
statement, as applicable. None of CSXT, NSR and Conrail is under any obligation,
and each expressly disclaims any obligation, to update or alter any
forward-looking statements, whether as a result of new information, future
events or otherwise.
For additional information about factors that could cause actual results to
differ materially from those described in the forward-looking statements, please
see the CSXT Appendix attached hereto and the NSR Appendix attached hereto for
more information regarding the annual reports on Form 10-K and the quarterly
reports on Form 10-Q that CSXT and NSR have filed with the SEC.
All subsequent forward-looking statements attributable to CSXT, NSR and
Conrail or any person acting on their behalf are expressly qualified in their
entirety by the cautionary statements contained or referred to in this section
of this prospectus and consent solicitation statement.
70
ANNEX A
[FORM OF CONRAIL SUPPLEMENTAL INDENTURE]
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture") dated as of
, 2004 between CONSOLIDATED RAIL CORPORATION, a Pennsylvania
corporation (the "Issuer"), having its principal executive office at 2001 Market
Street, Philadelphia, PA 19101, and J.P. MORGAN TRUST COMPANY, National
Association, as successor to Bank One Trust Company, N.A., a national banking
corporation, which was the successor in interest to The First National Bank of
Chicago, a national banking association, as trustee (the "Trustee"), having its
principal corporate trust office in the City of New York.
RECITALS OF THE COMPANY
WHEREAS, the Issuer and the Trustee have entered into an Indenture, dated
as of May 1, 1990, as amended and supplemented by indentures supplemental
thereto and that certain Supplemental Indenture, dated August 25, 1998 (such
Indenture, as so supplemented and amended, hereinafter referred to as the
"Indenture"), providing for the issuance from time to time of unsecured
debentures, notes or other evidences of indebtedness of the Issuer (the
"Securities"), to be issued in one or more series as provided for in the
Indenture;
WHEREAS, $250,000,000 in aggregate principal amount of 7 7/8% Debentures
due May 15, 2043 and $550,000,000 in aggregate principal amount of 9 3/4%
Debentures due June 15, 2020 have each been issued as a series of Securities
pursuant to the Indenture and are Outstanding (collectively, the "Securities
Outstanding");
WHEREAS, pursuant to Section 8.2 of the Indenture, the Issuer has requested
the Trustee to enter into this Supplemental Indenture; and
WHEREAS, the Holders of not less than a majority of the aggregate principal
amount of the Securities Outstanding voting as a single class have consented to
the execution and delivery of this Supplemental Indenture by the Trustee.
NOW, THEREFORE, for consideration, the adequacy and sufficiency of which
are hereby acknowledged by the parties hereto, each party agrees, for the
benefit of the other parties and for the equal and proportionate benefit of all
Holders of the Securities, as follows:
ARTICLE 1
AMENDMENTS
SECTION 1.1. Article One of the Indenture is hereby amended by deleting
the following definitions from Section 1.1:
"Debt," "Excluded Conveyance," "Indebtedness" and "LLC."
SECTION 1.2. Article Three of the Indenture is hereby amended by deleting
Section 3.6, Section 3.7, Section 3.8 and Section 3.10 in their entirety and
replacing each with the following, respectively:
"Section 3.6 [Intentionally Omitted]."
"Section 3.7 [Intentionally Omitted]."
"Section 3.8 [Intentionally Omitted]."
"Section 3.10 [Intentionally Omitted]."
A-1
SECTION 1.3. Article Five of the Indenture is hereby amended by deleting
Section 5.1 thereof in its entirety and replacing it with the following:
"Section 5.1 Event of Default Defined; Acceleration of Maturity;
Waiver of Default. "Event of Default," with respect to Securities of any
series wherever used herein, means each one of the following events which
shall have occurred and be continuing (whatever the reason for such Event
of Default):
(a) default in the payment of any installment of interest upon any
of the Securities of such series, as and when the same shall become due
and payable, and continuance of such default for a period of 30 days; or
(b) default in the payment of all or any part of the principal on
any of the Securities of such series, as and when the same shall become
due and payable, either at maturity, upon any redemption, by declaration
or otherwise; or
(c) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Issuer in an involuntary
case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of the
Issuer or for any substantial part of its property or ordering the
winding up or liquidation of its affairs, and such decree or order shall
remain unstayed and in effect for a period of 60 consecutive days; or
(d) the Issuer shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, or consent to the entry of an order for relief in an
involuntary case under any such law, or consent to the appointment or
taking possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of the Issuer or for any
substantial part of its property, or make any general assignment for the
benefit of creditors.
If an Event of Default described in clause (a) or (b) occurs and is
continuing, then, and in each and every such case, except for any series of
Securities the principal of which shall have already become due and
payable, either the Trustee or the Holders of not less than 25% in
aggregate principal amount of the Securities of each such affected series
then Outstanding hereunder (voting as a single class) by notice in writing
to the Issuer (and to the Trustee if given by Securityholders), may declare
the entire principal (or, if the Securities of any such affected series are
Original Issue Discount Securities, such portion of the principal amount as
may be specified in the terms of such series) of all Securities of all such
affected series, and the interest accrued thereon, if any, to be due and
payable immediately, and upon any such declaration, the same shall become
immediately due and payable. If an Event of Default described in clause (c)
or (d) occurs and is continuing, then and in each and every such case,
unless the principal of all the Securities shall have already become due
and payable, either the Trustee or the Holders of not less than 25% in
aggregate principal amount of all the Securities then Outstanding hereunder
(treated as one class), by notice in writing to the Issuer (and to the
Trustee if given by Securityholders), may declare the entire principal (or,
if any Securities are Original Issue Discount Securities, such portion of
the principal as may be specified in the terms thereof) of all the
Securities then Outstanding, and interest accrued thereon, if any, to be
due and payable immediately, and upon any such declaration the same shall
become immediately due and payable.
The foregoing provisions, however, are subject to the condition that
if, at any time after the principal (or, if the Securities are Original
Issue Discount Securities, such portion of the principal as may be
specified in the terms thereof) of the Securities of any series (or of all
the Securities, as the case may be) shall have been so declared due and
payable, and before any judgment or decree for the payment of the moneys
due shall have been obtained or entered as hereinafter provided, the Issuer
shall pay or shall deposit with the Trustee a sum sufficient to pay all
matured installments of interest upon all the Securities of such series (or
of all the Securities, as the case may be) and the principal of any and all
Securities of each such series (or of all the Securities, as the case may
be) which shall have become due otherwise than by acceleration (with
interest upon such principal and, to the extent that payment of such
interest is enforceable under applicable law, on overdue installments of
interest, at the same rate as the rate of
A-2
interest or Yield to Maturity (in the case of Original Issue Discount
Securities) specified in the Securities of each such series (or at the
respective rates of interest or Yields to Maturity of all the Securities,
as the case may be) to the date of such payment or deposit) and such amount
as shall be sufficient to cover reasonable compensation to the Trustee and
each predecessor Trustee, its agents, attorneys and counsel, and all other
expenses and liabilities incurred, and all advances made, by the Trustee
and each predecessor Trustee except as a result of negligence or bad faith,
and if any and all Events of Default under the Indenture, other than the
non-payment of the principal of Securities which shall have become due by
acceleration, shall have been cured, waived or otherwise remedied as
provided herein--then and in every such case the Holders of a majority in
aggregate principal amount of all Securities of each such series, or of all
the Securities, in each case voting as a single class, then Outstanding, by
written notice to the Issuer and to the Trustee, may waive all defaults
with respect to each such series (or with respect to all the Securities, as
the case may be) and rescind and annul such declaration and its
consequences, but no waiver or rescission and annulment shall extend to or
shall affect any subsequent default or shall impair any right consequent
thereon.
For all purposes under this Indenture, if a portion of the principal
of any Original Issue Discount Securities shall have been accelerated and
declared due and payable pursuant to the provisions hereof, then, from and
after such declaration, unless such declaration has been rescinded and
annulled, the principal amount of such Original Issue Discount Securities
shall be deemed, for all purposes hereunder, to be such portion of the
principal thereof as shall be due and payable as a result of such
acceleration, and payment of such portion of the principal thereof as shall
be due and payable as a result of such acceleration, together with
interest, if any, thereon and all other amounts owing thereunder, shall
constitute payment in full of such Original Issue Discount Securities."
SECTION 1.4. Article Nine of the Indenture is hereby amended by deleting
such article in its entirety and replacing it with the following:
"ARTICLE NINE
[Intentionally Omitted]."
ARTICLE 2
MISCELLANEOUS
SECTION 2.1. This Supplemental Indenture is executed and shall be
construed as an indenture supplemental to the Indenture with respect to the
Securities and, as provided in the Indenture, this Supplemental Indenture forms
a part thereof with respect to the Securities. Except as herein modified, the
Indenture is in all respects ratified and confirmed with respect to the
Securities and all the terms, provisions and conditions thereof shall be and
remain in full force and effect with respect to the Securities and every Holder
of Securities shall be bound hereby. Except as expressly otherwise defined, the
use of the terms and expressions herein is in accordance with the definitions,
uses and constructions contained in the Indenture.
SECTION 2.2. If any provision of this Supplemental Indenture limits,
qualifies or conflicts with any other provision hereof or of the Indenture that
is required to be included in the Indenture by any of the provisions of the TIA,
such required provision shall control.
SECTION 2.3. Unless otherwise indicated, capitalized terms used herein
without definition shall have the meanings specified therefor in Section 1.1 of
the Indenture as amended hereby.
SECTION 2.4. If any provision of this Supplemental Indenture shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 2.5. This Supplemental Indenture shall be construed in accordance
with and governed by the laws of the State of New York.
A-3
SECTION 2.6. This Supplemental Indenture may be executed in any number of
counterparts, each of which shall be an original but such counterparts shall
together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be executed as of the day and year first above written.
CONSOLIDATED RAIL CORPORATION
By:
------------------------------------
Name:
Title:
J.P. MORGAN TRUST COMPANY, N.A.
as Trustee
By:
------------------------------------
Name:
Title:
A-4
CSXT APPENDIX
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
-------
Forward-Looking Statements.................................. CSXT-iii
CSXT and NYC Newco Information.............................. CSXT-1
Selected Financial Data of CSXT............................. CSXT-4
Unaudited Pro Forma Financial Information................... CSXT-5
Capitalization.............................................. CSXT-10
Ratio of Earnings to Fixed Charges.......................... CSXT-11
Market for the Registrant's Common Equity and Related
Stockholder Matters....................................... CSXT-11
Directors and Executive Officers............................ CSXT-12
Board of Directors and Committees........................... CSXT-15
Compensation of Directors................................... CSXT-15
Material Contracts with Conrail............................. CSXT-15
Executive Officer Compensation.............................. CSXT-16
Report of the Compensation Committee on Executive
Compensation.............................................. CSXT-23
Description of the New CSXT Notes........................... CSXT-28
Basic Terms of the New CSXT Notes......................... CSXT-28
Guarantees................................................ CSXT-29
Ranking................................................... CSXT-29
Further Issues............................................ CSXT-30
Certain Covenants......................................... CSXT-30
Limitation upon Liens..................................... CSXT-30
Consolidation, Merger, Conveyance or Transfer............. CSXT-31
No Redemption or Sinking Fund............................. CSXT-31
No Conversion or Exchange................................. CSXT-32
No Repayment at Option of the Holders..................... CSXT-32
Events of Default......................................... CSXT-32
Discharge and Defeasance of Indenture..................... CSXT-33
Modification and Waiver................................... CSXT-35
Concerning the Trustee.................................... CSXT-37
Book-Entry Procedures..................................... CSXT-37
The Depositary............................................ CSXT-38
Certificated Notes........................................ CSXT-39
Governing Law............................................. CSXT-39
Notices................................................... CSXT-39
Same-Day Settlement and Payment........................... CSXT-40
Comparison of the New CSXT Notes and the Conrail
Debentures................................................ CSXT-41
Comparison of Basic Terms................................. CSXT-41
No Redemption or Sinking Fund............................. CSXT-42
No Conversion or Exchange................................. CSXT-42
No Repayment at Option of the Holders..................... CSXT-42
Covenants................................................. CSXT-42
Limitation upon Liens..................................... CSXT-42
Limitation upon LLC Indebtedness.......................... CSXT-44
Consolidation, Merger, Conveyance, Lease or Transfer...... CSXT-44
Conrail Supplemental Indenture; Elimination of Restrictive
Covenants.............................................. CSXT-44
Discharge and Defeasance of Indenture..................... CSXT-45
</Table>
CSXT-i
<Table>
<Caption>
PAGE
-------
Modification and Waiver................................... CSXT-47
Events of Default......................................... CSXT-48
Control by Holders of Securities.......................... CSXT-50
Compliance Statements..................................... CSXT-50
Expenses.................................................. CSXT-50
Defaulted Interest........................................ CSXT-51
Legal Matters............................................... CSXT-51
Experts..................................................... CSXT-51
Where You Can Find More Information......................... CSXT-52
</Table>
CSXT-ii
FORWARD-LOOKING STATEMENTS
This prospectus and consent solicitation statement, of which this CSXT
Appendix forms a part, contains certain forward-looking statements with respect
to, among other items:
-- projections and estimates of earnings, revenues, cost-savings,
expenses or other financial items;
-- statements of management's plans, strategies and objectives for
future operations, and management's expectations as to future
performance and operations and the time by which objectives will be
achieved;
-- statements concerning proposed new products and services; and
-- statements regarding future economic, industry or market conditions
or performance.
When used in this prospectus and consent solicitation statement,
forward-looking statements are typically identified by words or phrases such as
"believe," "expect," "anticipate," "project" and similar expressions. CSXT and
NYC Newco caution against placing undue reliance on such forward-looking
statements, which reflect their current beliefs and are based on information
currently available to them as of the date the forward-looking statements are
made. CSXT and NYC Newco undertake no obligation to update or revise any
forward-looking statement. If CSXT and NYC Newco do update any forward-looking
statement, no inference should be drawn that CSXT and NYC Newco will make
additional updates with respect to that statement or any other forward-looking
statements.
Forward-looking statements are subject to a number of risks and
uncertainties, and actual performance or results could differ materially from
those anticipated by the forward-looking statements. Factors that may cause
actual results to differ materially from those contemplated by these
forward-looking statements include, among others:
-- Operating factors--CSXT's success in implementing its financial and
operational initiatives, the extent to which CSXT is successful in
gaining long-term relationships with new customers or retaining
existing relationships with current customers, changes in operating
conditions and costs, competition, commodity concentrations, computer
viruses, changes in labor costs and labor difficulties including
stoppages affecting either CSXT's operations or CSXT's customers'
ability to deliver goods to CSXT for shipment, loss of essential
services such as electricity, and natural occurrences such as extreme
weather conditions, floods and earthquakes or other disruptions of
CSXT's operations, systems, property or equipment;
-- General economic and industry factors--material changes in domestic
or international economic or business conditions, including those
affecting the rail industry such as customer demand, effects of
adverse economic conditions affecting shippers, adverse economic
conditions in the industries and geographic areas that consume and
produce freight, competition from other modes of freight
transportation such as trucking, competition and consolidation within
the transportation industry generally, changes in fuel prices and
changes in securities and capital markets; and
-- Legal and regulatory factors--developments and changes in laws and
regulations, the ultimate outcome of shipper and rate claims subject
to adjudication, environmental investigations or proceedings and the
outcome of other types of claims and litigation involving or
affecting CSXT or NYC Newco.
Other important assumptions and factors that could cause actual results to
differ materially from those in the forward-looking statements are specified
elsewhere in CSXT's or NYC Newco's documents filed with the SEC and incorporated
by reference into this prospectus and consent solicitation statement, accessible
on the SEC's website at www.sec.gov and CSXT's website at www.csxt.com. There
are no guarantees regarding the performance of CSXT or NYC Newco. See "Where You
Can Find More Information."
CSXT-iii
CSXT AND NYC NEWCO INFORMATION
You should read the information regarding CSXT and NYC Newco contained in
this CSXT Appendix together with the rest of this prospectus and consent
solicitation statement, of which it is a part, including the financial
information and reports included therein and incorporated by reference, as well
as the registration statement on Form S-4 filed by CSXT and NYC Newco of which
this prospectus and consent solicitation is a part, and the exhibits thereto
before making an investment decision. Terms used but not defined in this CSXT
Appendix shall have the meanings ascribed to such terms in the main part of this
prospectus and consent solicitation statement.
CSX TRANSPORTATION, INC.
CSX Transportation, Inc.
500 Water Street, 15th Floor
Jacksonville, Florida 32202
(904) 359-3100
CSXT is the largest rail network in the Eastern United States, providing
rail freight transportation over a network of more than 23,000 route miles in 23
states, the District of Columbia, and two Canadian provinces. Headquartered in
Jacksonville, Florida, CSXT conducts railroad operations in its own name and
through railroad subsidiaries. CSXT is a corporation organized under the laws of
the Commonwealth of Virginia.
CSXT is a wholly owned subsidiary of CSX, a corporation organized under the
laws of the Commonwealth of Virginia, which is headquartered at 500 Water
Street, 15th Floor, Jacksonville, Florida 32202. CSX common stock is publicly
held and listed on the New York Stock Exchange under the symbol (CSX).
In May 1997, CSX and NSC acquired CRR. CRR owns a principal freight
railroad system serving the Northeastern United States, and its rail network
extends throughout several Midwestern states and into Canada. CSX and NSC,
through CRR Holdings, a jointly owned acquisition entity, hold economic
interests in Conrail of 42% and 58%, respectively, and voting interests of 50%
each.
Since June 1, 1999, CSXT and NSR, a wholly owned subsidiary of NSC, have
each operated separate portions of CRR's rail routes and assets. Substantially
all such assets are currently owned by two wholly owned subsidiaries of Conrail,
a wholly owned subsidiary of CRR. One of Conrail's subsidiaries, NYC, is
operated and managed by CSXT, and the other subsidiary, PRR, is operated and
managed by NSR, in each case, pursuant to various operating agreements. Under
these agreements, the railroads pay operating fees to CRR for the use of
right-of-way and rent for the use of equipment. CRR continues to provide rail
services in the Shared Assets Areas for the joint benefit of CSXT and NSR, for
which it is compensated on the basis of usage by the respective railroads.
Consummation of the Conrail Spin Off Transactions would replace the operating
agreements under which NYC and PRR are operated and allow CSXT and NSR,
respectively, to directly own and operate the respective assets of NYC and PRR
completely independently of one another. The Conrail Spin Off Transactions would
not involve the Shared Assets Areas and are not expected to have any effect on
the competitive rail service provided in the Shared Assets Areas. Conrail would
continue to own, manage and operate the Shared Assets Areas as previously
approved by the STB.
CSXT-1
RAIL LINES
On December 26, 2003, CSXT's consolidated railroad system consisted of
39,826 miles of track consisting of the following:
<Table>
<Caption>
TRACK MILES
-----------
First Main.................................................. 22,841
Second Main................................................. 5,492
Passing, Crossovers and Turnouts............................ 1,172
Way and Yard Switching...................................... 10,321
------
Total....................................................... 39,826
</Table>
Included in the above are the following arrangements for use of track not
owned by CSXT:
<Table>
<Caption>
TRACK MILES
-----------
Leased Track................................................ 6,547
Track under Trackage Right Agreements
(including 5,626 miles of Conrail track).................. 6,507
Track under Operating Contracts............................. 265
</Table>
EQUIPMENT
On December 26, 2003, CSXT and its subsidiaries owned or leased the
following:
<Table>
<Caption>
OWNED LEASED TOTAL
-------- -------- -------
Locomotives
Freight................................................... 2,365 842 3,207
Switching................................................. 206 13 219
Auxiliary Units........................................... 180 10 190
------ ------ -------
Total....................................................... 2,751 865 3,616
====== ====== =======
Freight Cars
Gondolas.................................................. 16,342 14,835 31,177
Open Top Hoppers.......................................... 13,860 6,692 20,552
Box Cars.................................................. 11,440 6,040 17,480
Covered Hoppers........................................... 12,665 5,107 17,772
Flat Cars................................................. 896 18,342 19,238
Other..................................................... 645 5 650
------ ------ -------
Total....................................................... 55,848 51,021 106,869
====== ====== =======
</Table>
Included in leased equipment are 502 locomotives and 15,676 freight cars
leased from Conrail.
CSXT-2
NYC NEWCO, INC.
NYC Newco, Inc.
500 Water Street, 15th Floor
Jacksonville, Florida 32202
(904) 359-3100
NYC Newco is a newly formed corporation organized under the laws of the
Commonwealth of Virginia for the purposes of effectuating the Conrail Spin Off
Transactions. To date, NYC Newco has not conducted any operations or activities
other than those incident to its formation and other matters contemplated by or
incident to the Conrail Spin Off Transactions (including the exchange offer and
consent solicitation) and the preparation of this prospectus and consent
solicitation statement. NYC Newco has no meaningful financial information or
results. In connection with the Conrail Spin Off Transactions, NYC Newco will be
the initial primary obligor under the New CSXT Indenture with respect to the New
CSXT Notes. Thereafter, NYC will be merged with and into NYC Newco, with NYC
Newco as the surviving corporation, and upon the consummation of such merger,
NYC Newco will be merged with and into CSXT, with CSXT as the surviving
corporation, in order to consummate the Conrail Spin Off Transactions.
CSXT-3
SELECTED FINANCIAL DATA OF CSXT
The following table sets forth selected historical financial data of CSXT.
The consolidated statements of operations data for the three months ended March
26, 2004 and March 28, 2003 and the consolidated balance sheet data as of March
26, 2004 have been derived from our unaudited consolidated financial statements
which are incorporated by reference in this prospectus and consent solicitation
statement of which this CSXT Appendix forms a part. The consolidated income
statement data for the years ended December 26, 2003, December 27, 2002 and
December 28, 2001, and the consolidated balance sheet data as of December 26,
2003 and December 27, 2002, have been derived from CSXT's audited consolidated
financial statements, which are incorporated by reference in this prospectus and
consent solicitation statement, and which have been audited by Ernst & Young
LLP, independent certified public accountants. The consolidated income statement
data for the years ended December 29, 2000 and December 30, 1999, and the
consolidated balance sheet data as of December 28, 2001, December 29, 2000 and
December 30, 1999, are derived from CSXT's audited consolidated financial
statements that are not included or incorporated by reference in this prospectus
and consent solicitation statement. The consolidated balance sheet data as of
March 28, 2003 is derived from our unaudited consolidated financial statements
not included or incorporated by reference in this prospectus and consent
solicitation statement. This data should be read in conjunction with the
unaudited pro forma financial information, related notes, and other financial
information incorporated by reference into this prospectus and consent
solicitation statement.
<Table>
<Caption>
(UNAUDITED)
QUARTER ENDED MARCH FISCAL YEAR ENDED DECEMBER
-------------------------- ---------------------------------------------------------------
30,
26, 2004(D) 28, 2003(E) 26, 2003(A) 27, 2002 28, 2001(B) 29, 2000 1999(C)
------------ ----------- ------------ -------- ----------- -------- ------------
($ IN MILLIONS)
RESULTS OF OPERATIONS
Operating Revenue............ $ 1,605 $ 1,531 $ 6,182 $ 6,003 $ 6,082 $ 6,075 $ 5,623
Operating Expense............ $ 1,520 $ 1,454 $ 5,893 $ 5,426 $ 5,623 $ 5,750 $ 5,123
Operating Income............. $ 85 $ 77 $ 289 $ 577 $ 459 $ 325 $ 500
Income before Accounting
Changes.................... $ 38 $ 16 $ 139 $ 296 $ 203 $ 97 $ 213
Net Earnings................. $ 38 $ 73 $ 196 $ 296 $ 203 $ 97 $ 213
FINANCIAL POSITION (AS OF
PERIOD END)
Cash, Cash Equivalents and
Short-term Investments..... $ 16 $ 29 $ 14 $ -- $ 27 $ 28 $ 36
Working Capital Deficit...... $(2,870) $(2,571) $(2,791) $(2,516) $(2,077) $(1,659) $(1,285)
Total Assets................. $15,531 $14,221 $15,274 $14,002 $14,013 $13,297 $12,980
Long-term Debt............... $ 717 $ 830 $ 710 $ 873 $ 1,033 $ 1,156 $ 1,087
Shareholder's Equity......... $ 5,585 $ 5,625 $ 5,581 $ 5,609 $ 5,513 $ 5,522 $ 5,625
</Table>
- ---------------
CSXT is a wholly owned subsidiary of CSX, and accordingly, there is no
market for its common stock. During the years 2003, 2002, 2001, 2000 and 1999,
CSXT paid dividends to CSX on its common stock of $230 million, $200 million,
$212 million, $220 million and $219 million, respectively. During the quarter
ended March 26, 2004, CSXT paid dividends to CSX on its common stock of $47
million.
(a) Pretax income of $93 million, $57 million after tax, as a cumulative effect
of accounting change, representing the reversal of the accrued liability for
crosstie removal costs in conjunction with the adoption of SFAS 143,
"Accounting for Asset Retirement Obligations."
A charge of $229 million pretax, $143 million after tax, in conjunction with
the change in estimate of casualty reserves to include an estimate of
incurred but not reported claims for asbestos and other occupational
injuries to be received over the next seven years.
A charge of $25 million pretax, $16 million after tax, as the initial charge
for separation expenses related to the management restructuring announced in
November 2003. In addition, CSXT recorded a restructuring charge of $10
million pretax, $6 million after tax, related to another workforce reduction
program. CSXT also recorded a credit of $22 million pretax, $13 million
after tax, related to revised estimates for railroad retirement taxes and
the amount of benefits that will be paid to individuals under the
approximately $1,300 million of charges for separation plans initially
recorded in 1991 and 1992. For the year, CSXT has recorded a net
restructuring charge of $13 million pretax, $9 million after tax.
(b) A charge of $60 million pretax, $37 million after tax, to account for the
settlement of the 1987 New Orleans tank car fire litigation.
(c) A charge of $53 million pretax, $32 million after tax, to recognize the cost
of a workforce reduction program.
(d) Includes a charge of $35 million pretax, $22 million after tax, in
connection with separation expenses related to the management restructuring
announced in November 2003.
(e) Pretax income of $93 million, $57 million after tax, as a cumulative effect
of accounting change, representing the reversal of the accrued liability for
crosstie removal costs in conjunction with the adoption of SFAS 143,
"Accounting for Asset Retirement Obligations."
CSXT-4
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information set forth below gives effect
to the Conrail Spin Off Transactions and the assumptions described in the
accompanying notes. This pro forma combined condensed financial information is
not necessarily indicative of the results of future operations and should be
read in conjunction with the discussion under the heading "Management's
Narrative Analysis of the Results of Operations" in CSXT's Annual Report on Form
10-K for the year ended December 26, 2003, and in CSXT's Quarterly Report on
Form 10-Q for the three months ended March 26, 2004 which are incorporated by
reference into this prospectus and consent solicitation statement, of which this
CSXT Appendix forms a part, the section entitled "Capitalization" herein and the
selected financial data and related notes included elsewhere in this CSXT
Appendix.
The unaudited pro forma consolidated balance sheet presented below adjusts
the historical consolidated balance sheet of CSXT, giving effect to the merger
of NYC with and into CSXT, as contemplated by the Conrail Spin Off Transactions,
as if such merger had occurred on March 26, 2004. The unaudited pro forma
consolidated income statements presented below adjusts the historical income
statement of CSXT as if the merger of NYC with and into CSXT, as contemplated by
the Conrail Spin Off Transactions, had occurred on December 28, 2002 (beginning
of fiscal year). CSXT has adjusted the historical consolidated financial
information to give effect to pro forma events that are (1) directly
attributable to the merger, (2) factually supportable, and (3) with respect to
the income statement, expected to have a continuing impact on the combined
results. You should read this information in conjunction with:
-- the accompanying notes to the unaudited pro forma financial
information; and
-- the separate historical financial statements of CSXT as of and for
the three months ended March 26, 2004 and for the year ended December
26, 2003 incorporated by reference into this prospectus and consent
solicitation statement, of which this CSXT Appendix forms a part. See
"Where You Can Find More Information."
The unaudited pro forma combined condensed financial information is
presented for informational purposes only. The pro forma information is not
necessarily indicative of what the financial position or results of operations
actually would have been had the merger of NYC with and into CSXT, as
contemplated by the Conrail Spin Off Transactions, been consummated on the dates
indicated. In addition, the unaudited pro forma financial information does not
purport to project the future financial position or operating results of the
combined company.
The following unaudited pro forma financial information has been prepared
assuming that the fair value of the direct ownership interest in NYC being
obtained by CSX (and ultimately CSXT) equals the carrying amount of the indirect
ownership interests in PRR being forgone by CSX as a result of the Conrail Spin
Off Transactions. CSX and NSC are progressing toward ascertaining the fair value
effects of the Conrail Spin Off Transactions, which will be reflected in the
accounting for the Conrail Spin Off Transactions, once consummated and that
analysis has been completed. Accordingly, the amounts ultimately reflected in
CSXT's financial statements could differ materially from the amounts shown in
the following unaudited pro forma information.
We have excluded pro forma per share information from the tables below
because all of the outstanding shares of CSXT are held by CSX and, therefore,
such per share information would not be meaningful.
CSXT-5
CSXT UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<Table>
<Caption>
AS OF MARCH 26, 2004
--------------------
PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- ---------
($ IN MILLIONS)
ASSETS
Current Assets:
Cash, Cash Equivalents and Short-term Investments......... $ 16 $ 1(a) $ 17
Accounts Receivable--Net.................................. 1,036 (3)(b) 1,033
Materials and Supplies.................................... 167 -- 167
Income Taxes Receivable................................... 31 -- 31
Deferred Income Taxes..................................... 116 -- 116
Other Current Assets...................................... 70 -- 70
------- ------ -------
Total Current Assets................................... 1,436 (2) 1,434
Properties--Net............................................. 13,180 5,484(c) 18,664
Affiliates and Other Companies.............................. 211 163(d) 374
Other Long-term Assets...................................... 704 -- 704
------- ------ -------
Total Assets........................................... $15,531 $5,645 $21,176
======= ====== =======
LIABILITIES
Current Liabilities:
Accounts Payable.......................................... $ 630 $-- $ 630
Labor and Fringe Benefits Payable......................... 300 -- 300
Casualty, Environmental and Other Reserves................ 243 -- 243
Current Maturities of Long-term Debt...................... 103 27(e) 130
Income and Other Taxes Payable............................ 62 18(f) 80
Due to Parent Company..................................... 2,619 (563)(g) 2,056
Due to Affiliates......................................... 294 (29)(h) 265
Other Current Liabilities................................. 55 -- 55
------- ------ -------
Total Current Liabilities.............................. 4,306 (547) 3,759
Casualty, Environmental and Other Reserves.................. 653 5(i) 658
Long-term Debt.............................................. 717 562 (e),(j) 1,279
Deferred Income Taxes....................................... 3,652 1,836(k) 5,488
Other Long-term Liabilities................................. 618 10(l) 628
------- ------ -------
Total Liabilities...................................... $ 9,946 $1,866 $11,812
======= ====== =======
SHAREHOLDER'S EQUITY
Common Stock.............................................. $ 181 $-- $ 181
Other Capital............................................. 1,380 3,779(m) 5,159
Accumulated Other Comprehensive Income.................... 19 -- 19
Retained Earnings......................................... 4,005 -- 4,005
------- ------ -------
Total Shareholder's Equity............................. 5,585 3,779 9,364
------- ------ -------
Total Liabilities and Shareholder's Equity.................. $15,531 $5,645 $21,176
======= ====== =======
</Table>
(footnotes continued on next page)
CSXT-6
- ------------
The following adjustments record various assets and liabilities of NYC that will
be received by CSXT as a result of the Conrail Spin Off Transactions, including
the effects of this exchange offer and consent solicitation. The amounts related
to the assets and liabilities of NYC are estimated based on the current carrying
amounts of CSX's investment in Conrail. The amounts recorded upon consummation
of the Conrail Spin Off Transactions will reflect the fair value of the assets
and liabilities received and, as a result, could differ from these estimates.
(a)$1 million increase in cash will record cash that will be received by CSXT.
(b)$3 million decrease in Accounts Receivable--Net eliminates amounts due to
CSXT from NYC.
(c)$5,484 million to record properties of NYC received by CSXT. This amount is
estimated based on CSX's basis of its investment in Conrail, but will
ultimately be recorded based on: (1) CSX's basis for the 42% indirect
interest currently held by CSX and (2) the fair value for the 58% interest
being received by CSXT through the Conrail Spin Off Transactions.
Accordingly, the amount recorded upon consummation of the Conrail Spin Off
Transactions could be different.
(d)$163 million increase in Affiliates and Other Companies will record NYC
investments in subsidiaries and affiliates, primarily a leasing company.
(e)To record $27 million of current maturities and $114 million of long-term
debt for liabilities incurred through the Conrail Spin Off Transactions
related to the restructuring of Contrail's secured debt.
(f)$18 million increase in Income and Other Taxes Payable will record federal
income taxes, state income taxes, property taxes and franchise taxes assumed
by CSXT.
(g)$563 million decrease in Due to Parent Company will record the
extinguishment of long-term advances to CSX from NYC.
(h)$29 million decrease in Due to Affiliates will eliminate amounts due from
CSXT to NYC.
(i)$5 million increase in Casualty, Environmental and Other Reserves is to
record environmental liabilities that will be assumed by CSXT.
(j)To record the issuance of the New CSXT Notes in exchange for existing
Conrail Debentures as contemplated by the Conrail Spin Off Transactions
assuming all holders of Conrail Debentures validly tender, and do not
withdraw, their Conrail Debentures. The amount of this adjustment, $448
million, reflects the estimated fair value of the $336 million aggregate
principal amount of the New CSXT Notes. The consolidated debt at CSX would
be offset by the $563 million reduction in intercompany loans extinguished
in the Conrail Spin Off Transactions as discussed in note (g) above.
(k)$1,836 million increase in Deferred Income Tax will record the deferred tax
liabilities that will be assumed by CSXT.
(l)$10 million increase in Other Long-term Liabilities to be assumed by CSXT.
(m) $3,779 million increase in Other Capital will record the net impact of the
above adjustments.
Certain of the above adjustments would be different if less than all
holders of Conrail Debentures validly tender, and do not withdraw, their Conrail
Debentures in the exchange offer and consent solicitation. If 51% of holders
validly tender, and do not withdraw, their Conrail Debentures in this exchange
offer and consent solicitation, the amount for adjustment (j) would be reduced
to $397 million, the amount for adjustment (k) would be increased to $1,900
million, and the amount for adjustment (m) would be increased to $3,880 million.
If 75% of holders validly tender, and do not withdraw, their Conrail Debentures
in this exchange offer and consent solicitation, the amount for adjustment (j)
would be reduced to $478 million, the amount for adjustment (k) would be
increased to $1,869 million, and the amount for adjustment (m) would be
increased to $3,830 million.
CSXT-7
CSXT UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENTS
<Table>
<Caption>
QUARTER ENDED MARCH 26, 2004 FISCAL YEAR ENDED DECEMBER 26, 2003
------------------------------------ ------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- --------- ---------- ----------- ---------
($ IN MILLIONS) ($ IN MILLIONS)
Operating Revenues......... $1,605 $ -- $1,605 $6,182 $ -- $6,182
Operating Expenses:
Labor and Fringe......... 640 -- 640 2,458 -- 2,458
Materials, Supplies and
Other.................. 312 -- 312 1,141 -- 1,141
Conrail Operating Fees,
Rents and Services..... 92 (63)(a) 29 357 (250)(a) 107
Related Party Service
Fees................... 46 -- 46 177 -- 177
Building and Equipment
Rents.................. 99 2(b) 101 404 8(b) 412
Depreciation............. 142 50(c) 192 548 207(c) 755
Fuel..................... 154 -- 154 566 -- 566
Provision for Casualty
Claims................. -- -- -- 229 -- 229
Restructuring
Charge--Net............ 35 -- 35 13 -- 13
------ ---- ------ ------ ----- ------
Total.................. $1,520 $(11) $1,509 $5,893 $ (35) $5,858
------ ---- ------ ------ ----- ------
Operating Income....... 85 11 96 289 35 324
Other Income and Expense
Other Income............. 4 -- 4 28 -- 28
Interest Expense......... 26 6(d) 32 101 27(d) 128
------ ---- ------ ------ ----- ------
Income before Income
Taxes............... 63 5 68 216 8 224
Provision for Income
Taxes.................... 25 2(e) 27 77 3(e) 80
------ ---- ------ ------ ----- ------
Net Income............. $ 38 $ 3 $ 41 $ 139 $ 5 $ 144
====== ==== ====== ====== ===== ======
</Table>
- ------------
The following adjustments record the various income and expense effects of the
Conrail Spin Off Transactions, including the effects of this exchange offer and
consent solicitation. These amounts are estimated based on the current carrying
amounts of CSX's investment in Conrail except for the interest expense on debt
which is at estimated fair value. The amounts recorded upon consummation of the
Conrail Spin Off Transactions will reflect the fair value of the assets and
liabilities received and, as a result, could differ from these estimates.
(a) Decrease in Conrail Operating Fees, Rents and Services will eliminate lease
payments from CSXT to NYC for road and equipment leases, as the underlying
assets will be received by CSXT.
(b) Increase in Building and Equipment Rents will record:
(i) NYC's equity in the earnings of its investment in a leasing company,
which will be received by CSXT, and
(ii) various operating leases that will be assumed by CSXT.
(c) Increase in depreciation to record depreciation expense related to the NYC
assets received by CSXT as a result of the Conrail Spin Off Transactions.
This amount is estimated based on the current carrying amount and related
depreciation of CSX's investment in Conrail. The actual amount will reflect
the fair market value of the related assets upon consummation of the
Conrail Spin Off Transactions.
(d) Increase in Interest Expense will record interest expense on the debt
assumed by CSXT in the debt exchange.
(e) Increase in Provision for Income Taxes will record the tax impact of the
other adjustments, at a 38.8% tax rate.
CSXT-8
Certain of the above adjustments would be different if less than all
holders of Conrail Debentures validly tender, and do not withdraw, their Conrail
Debentures in this exchange offer and consent solicitation. If 51% of holders
validly tender, and do not withdraw, their Conrail Debentures in this exchange
offer and consent solicitation, the amount for adjustment (d) would be reduced
to $4 million and $17 million for the quarter ended March 26, 2004 and the year
ended December 26, 2003, respectively, and the amount for adjustment (e) would
be increased to $3 million and $7 million for the quarter ended March 26, 2004
and the year ended December 26, 2003, respectively. If 75% of holders validly
tender, and do not withdraw, their Conrail Debentures in this exchange offer and
consent solicitation, the amount for adjustment (d) would be reduced to $5
million and $22 million for the quarter ended March 26, 2004 and the year ended
December 26, 2003, respectively, and the amount for adjustment (e) would be
increased to $2 million and $5 million for the quarter ended March 26, 2004 and
the year ended December 26, 2003, respectively.
CSXT-9
CAPITALIZATION
The following table sets forth debt and total capitalization of CSXT at
March 26, 2004, and as adjusted to give effect to the Conrail Spin Off
Transactions assuming that holders of all Conrail Debentures validly tender and
do not withdraw in the exchange offer and consent solicitation. You should read
this and the historical financial statements and accompanying notes that were
included in CSXT's 2003 Annual Report on Form 10-K for the year ended December
26, 2003 and on CSXT's Quarterly Report on Form 10-Q for the three months ended
March 26, 2004, which are incorporated by reference into this prospectus and
consent solicitation statement of which this CSXT Appendix is a part.
<Table>
<Caption>
AS OF
MARCH 26, 2004
--------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
($ IN MILLIONS)
LIABILITIES:
Current Maturities of Long-term Debt................. $ 103 $ 27(a) $ 130
Current Liabilities Due to Parent Company............ 2,619 (563)(b) 2,056
Current Liabilities Due to Affiliates................ 294 (29)(c) 265
Long-term Debt....................................... 717 562 (a),(d) 1,279
------ ------ -------
Total Debt (including current portion and related
party balances)................................. 3,733 (3) 3,730
------ ------ -------
SHAREHOLDER'S EQUITY:
Common stock......................................... 181 -- 181
Other Capital........................................ 1,380 3,779(e) 5,159
Accumulated Other Comprehensive Income............... 19 -- 19
Retained Earnings.................................... 4,005 -- 4,005
------ ------ -------
Total Shareholder's Equity...................... 5,585 3,779 9,364
------ ------ -------
Total Capitalization (including current portion of
Long-term Debt and related party balances)........... $9,318 $3,776 $13,094
====== ====== =======
</Table>
- ------------
(a) To record $27 million of current maturities and $114 million of long-term
debt for liabilities incurred through the Conrail Spin Off Transactions
related to the restructuring of Conrail's secured debt.
(b) $563 million decrease in amount Due to Parent Company to record
extinguishment of long-term advances to CSX from NYC.
(c) $29 million decrease in amount Due to Affiliates will eliminate amounts due
from CSXT to NYC; these will now be intra-company balances.
(d) To record the issuance of the New CSXT Notes in exchange for existing
Conrail Debentures as contemplated by the Conrail Spin Off Transactions
assuming all holders of Conrail Debentures validly tender, and do not
withdraw, their Conrail Debentures. The amount of this adjustment, $448
million, reflects the estimated fair value of the $336 million aggregate
principal amount of the New CSXT Notes.
(e) $3,779 million increase in Other Capital will record the net impact of the
above adjustments.
Certain of the above adjustments would be different if less than all
holders of Conrail Debentures validly tender, and do not withdraw, their Conrail
Debentures. If 51% of holders validly tender, and do not withdraw, their Conrail
Debentures, the amount for adjustment (d) would be reduced to $397 million and
the amount for adjustment (e) would be increased to $3,880 million. If 75% of
holders validly tender, and do not withdraw, their Conrail Debentures in this
exchange offer and consent solicitation, the amount for adjustment (d) would be
reduced to $478 million and the amount for adjustment (e) would be increased to
$3,830 million.
CSXT-10
RATIO OF EARNINGS TO FIXED CHARGES
For purposes of computing the ratio of earnings to fixed charges,
"earnings" represent earnings from operations before income taxes plus interest
expense related to indebtedness, amortization of debt discount and the interest
portion of fixed rent expense, less undistributed earnings of affiliates
accounted for using the equity method. "Fixed charges" include interest on
indebtedness (whether expensed or capitalized), amortization of debt discount
and the interest portion of fixed rent expense.
The following table sets forth the ratios of earnings to fixed charges of
CSXT for the periods indicated:
<Table>
<Caption>
FISCAL YEAR ENDED DECEMBER
QUARTER ENDED ----------------------------------------------------
MARCH 26, 2004 26, 2003 27, 2002 28, 2001 29, 2000 30, 1999
-------------- -------- -------- -------- -------- --------
Ratio of Earnings to
Fixed Charges.......... 2.4x 2.2x 3.7x 2.6x 1.8x 3.3x
</Table>
MARKET FOR THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
CSXT COMMON STOCK
As of the date of this prospectus, CSX owns all the common stock of CSXT.
The common stock is not publicly traded. There have been no changes in common
stock during the last three years.
NYC NEWCO COMMON STOCK
As of the date of this prospectus, CSXT owns all the common stock of NYC
Newco. The common stock of NYC Newco is not publicly traded.
CSXT-11
DIRECTORS AND EXECUTIVE OFFICERS
CSXT
As of April 12, 2004, CSXT's directors and executive officers were as
follows:
NAME AND AGE BUSINESS EXPERIENCE DURING PAST 5 YEARS
Michael J. Ward, 53........... Mr. Ward has served CSXT as President since
November 2000, as Director since March 1997,
as President and Chief Executive Officer
since October 2002, and as Chairman,
President, and Chief Executive Officer since
January 2003. He has also served CSX as
Chairman, President and Chief Executive
Officer, having been elected as Chairman and
Chief Executive Officer in January 2003 and
as President in July 2002. Previously, Mr.
Ward served CSXT as Executive Vice
President--Operations from April through
November 2000, as Executive Vice
President--Coal Service Group from August
1999 to April 2000, and prior to that as
Executive Vice President--Coal and Merger
Planning from October 1998 to August 1999.
Ellen M. Fitzsimmons, 44...... Ms. Fitzsimmons has served CSXT as Senior
Vice President--Law and Public Affairs since
December 2003, and as Senior Vice
President--Law since July 2002. She has also
served CSX as Senior Vice President--Law and
Public Affairs since December 2003, as
Senior Vice President--Law and Corporate
Secretary since May 2003, and as Senior Vice
President--Law from February 2001 to May
2003. Prior to 2001, she served CSX as
General Counsel--Corporate.
Clarence W. Gooden, 52........ Mr. Gooden has served as Executive Vice
President and Chief Commercial Officer since
February 2004 and Director of CSXT since
February 2004. Prior to March 2004, Mr.
Gooden was Senior Vice
President--Merchandise Service Group, from
July 2002 until March 2004. Prior to 2002,
Mr. Gooden served as President of CSX
Intermodal Inc. from November 2001 to July
2002, as Senior Vice President--Coal Service
Group from May 2000 to November 2001, as
Vice President--System Transportation from
August 1999 to May 2000, and as Vice
President--Transportation Field Operations
from June 1998 to May 1999.
Robert J. Haulter, 50......... Mr. Haulter has served CSXT as Senior Vice
President--Human Resources and Labor
Relations since December 2003, as Senior
Vice President--Human Resources since May
2002, as Vice President--Human Resources
from December 2000 to May 2002, as Assistant
Vice President of Operations Support from
September 2000 to December 2000, as
Assistant Vice President--Strategic
Development from November 1999 to September
2000, and as Assistant Vice
President--Integration Planning before
November 1999. He also served CSX as Senior
Vice President--Human Resources and Labor
Relations since December 2003, and as Senior
Vice President--Human Resources since July
2002.
CSXT-12
Oscar Munoz, 44............... Mr. Munoz has been a director of CSXT since
June 2003 and Executive Vice President and
Chief Financial Officer of CSX and CSXT
since May 2003. Before May 2003, Mr. Munoz
served as Chief Financial Officer and Vice
President--Consumer Services, AT&T
Corporation, from January 2001 to May 2003,
as Senior Vice President--Finance &
Administration, Qwest Communications
International, Inc. from June to December
2000, as Chief Financial Officer & Vice
President, U.S. West Retail Markets from
April 1999 to May 2000, and before April
1999 as Controller and Vice President,
USWEST Communications, Inc.
Tony L. Ingram, 58............ Mr. Ingram has served as Executive Vice
President and Chief Operating Officer since
March 2004. Before March 2004, Mr. Ingram
served in the following capacities at NSC:
Senior Vice President--Transportation
Network and Mechanical at NSC from November
2003 to March 2004; Vice
President--Transportation-Operations from
March 2000 to November 2003; General
Manager--Northern Region from June 1999 to
March 2000; General Manager--Staff from July
1997 to June 1999; and General
Manager--Eastern Region from July 1993 until
June 1997.
W. Michael Cantrell, 57....... Mr. Cantrell has served as Senior Vice
President--Advanced Operations Technologies
since February 2004. He served as Senior
Vice President--Engineering, Mechanical and
Operating Technologies beginning in February
2003. Prior to February, Mr. Cantrell served
as Senior Vice President--Mechanical and
Engineering since April 2000 and as Vice
President--Mechanical from April 1996 to
April 2000.
Alan P. Blumenfeld, 45........ Mr. Blumenfeld has served as Senior Vice
President--Service Design since December
2003. Prior to December 2003, Mr. Blumenfeld
served as President of CSX Intermodal
beginning in July 2002 and as Senior Vice
President--E-Business from July 2001 to July
2002. Mr. Blumenfeld also served as Vice
President and as Chief Information Officer
for Ecolab, Inc. from 1998 to 2000. Mr.
Blumenfeld was elected to the Conrail Board
of Directors in 2004.
NYC NEWCO
As of April 12, 2004, NYC Newco's directors and executive officers were as
follows:
NAME AND AGE BUSINESS EXPERIENCE DURING PAST 5 YEARS
Ellen M. Fitzsimmons, 44...... Ms. Fitzsimmons has served as President of
NYC Newco since March 2004 as well as CSX's
Senior Vice President--Law and Public
Affairs since December 2003. Before December
2003, Ms. Fitzsimmons served as Senior Vice
President--Law and Corporate Secretary since
May 2003 and as Senior Vice President--Law
from February 2001 to May 2003. Prior to
2001, she served as General
Counsel--Corporate.
CSXT-13
David A. Boor, 49............. Mr. Boor has served as Director and Vice
President of NYC Newco since March 2004 as
well as the Vice President and Treasurer for
CSX since 2001. Prior to that, Mr. Boor
served as Treasurer of CSXT from 1998 to
2001 and as Assistant Vice President Finance
CSX from 1997 to 1998.
Peter J. Shudtz, 55........... Mr. Shudtz has served as Director and Vice
President of NYC Newco since March 2004, as
well as Vice President--Federal Regulation
for CSX since December 2003. Prior to that
Mr. Shudtz served as Senior Vice
President--Regulatory Affairs and Washington
Counsel for CSX from 2001 to 2003 and as
Vice President--Law and General Counsel from
1997 to 2001.
Nathan D. Goldman, 46......... Mr. Goldman has served as Director and Vice
President of NYC Newco since March 2004 and
General Counsel--Business for CSX since June
2003. Prior to June, Mr. Goldman was
President, Alfa Smartparks, Inc. from 2002
to 2003, Executive Vice President from 2001
to 2002, Founding Partner, Stoneburner,
Berry & Goldman, P.A. from 2000-2001,
Managing Partner, McGuire
Woods--Jacksonville Office during 1999 and
as Partner from 1994 through 1998.
Carolyn T. Sizemore, 41....... Ms. Sizemore has served as Vice President
and Controller of NYC Newco since March 2004
and CSX since April 2002. Prior to April
2002, Ms. Sizemore served as Assistant Vice
President and Assistant Controller of CSX
from July 2001 to April 2002, Assistant Vice
President Financial Planning from June 1999
to July 2001, and prior to June 1999, as
Senior Director--Financial and Strategic
Measurement.
Lester M. Passa, 50........... Mr. Passa has served as Vice President of
NYC Newco since March 2004 and Vice
President-Strategic Planning and Process,
CSX since December 2003. Before that, Mr.
Passa served as Senior Vice
President--Strategic Planning, CSX from 2000
to 2003, and as President and Chief
Executive Officer CSX Intermodal Inc. from
1997 to 2000. Mr. Passa was elected to the
Conrail Board of Directors in 2004.
David J. Bowling, 54.......... Mr. Bowling has served as Vice President of
NYC Newco since March 2004. Mr. Bowling has
also served as General Tax Counsel, CSX
since 1997.
Louis G. Recher, 56........... Mr. Recher has served as Vice President of
NYC Newco since March 2004. Mr. Recher has
also served as Assistant General Counsel,
CSX since 1997.
Gordon F. Bailey, 34.......... Mr. Bailey has served as Corporate Secretary
of NYC Newco since March 2004 and Assistant
Corporate Secretary and Senior Counsel of
CSX since September 2003. Mr. Bailey was
Assistant Corporate Secretary and Counsel
from 2002 to 2003, Associate, LeClair Ryan
from 2000 to 2002, Federal Judicial Law
Clerk, 1999 to 2000, and prior to that,
Assistant to General Counsel, U.S. Army.
CSXT-14
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of CSXT consists of three members: Michael J. Ward,
Oscar Munoz and Clarence W. Gooden. Mr. Ward serves as Chairman of the Board.
The executive officers of CSXT are elected by the CSXT Board of Directors and
generally hold office until the next annual election of officers. The CSXT Board
of Directors has no audit, nominating, or compensation committees. In 2003, the
CSXT Board of Directors acted by unanimous written consent on fourteen separate
occasions. There are no family relationships among any of the directors of CSXT
or officers or among any of the directors of CSXT and any officer of CSXT, nor
is there any arrangement or understanding between any director or officer of
CSXT and any other person pursuant to which the director or officer was
selected.
The Board of Directors of NYC Newco consists of three members: David A.
Boor, Peter J. Shudtz, and Nathan D. Goldman. The executive officers of NYC
Newco are elected by the NYC Newco Board of Directors and will generally hold
office until the next annual election of officers. The NYC Newco Board of
Directors has no audit, nominating, or compensation committees. Since its
inception, the NYC Newco Board of Directors acted by unanimous written consent
on one occasion. There are no family relationships among any of the directors of
NYC Newco or officers or among any of the directors of NYC Newco and any officer
of NYC Newco, nor is there any arrangement or understanding between any director
or officer of NYC Newco and any other person pursuant to which the director or
officer was selected.
COMPENSATION OF DIRECTORS
Neither CSXT nor NYC Newco provides compensation to its directors for their
services.
MATERIAL CONTACTS WITH CONRAIL
CSXT operates as a part of its rail system the routes and assets of NYC
pursuant to operating and lease agreements. The June 1999 Operating Agreement
between CSXT and NYC governs substantially all the track assets of NYC operated
by CSXT and has an initial 25-year term, renewable at the option of CSXT for two
five-year terms. Payments under the Operating Agreement are subject to
adjustment every six years to reflect changes in values. CSXT also has leased or
subleased equipment for varying terms from NYC. Costs necessary to operate and
maintain the NYC assets, including leasehold improvements, are borne by CSXT.
NSR operates the routes and assets of PRR, under comparable terms. Upon
consummation of the Conrail Spin Off Transactions, these agreements will be
extinguished and CSXT will have direct ownership of the NYC routes and assets
and NSR will have direct ownership of the PRR routes and assets.
CSXT and NSR also have entered into agreements with Conrail governing the
Shared Assets Areas that continue to be owned and operated by Conrail. CSXT and
NSR pay Conrail a fee for joint and exclusive access to the Shared Assets Areas.
In addition, CSXT and NSR pay, based on usage, the costs incurred by Conrail to
operate the Shared Assets Areas. The Conrail Spin Off Transactions will not
affect these agreements.
Operating lease expense related to NYC and the Shared Assets Areas
agreements, which is included in the line item "Conrail Operating Fees, Rents
and Services" on CSXT's consolidated income statement, amounted to $357 million
in 2003, $346 million in 2002 and $353 million in 2001. CSXT's balance sheet
includes a current liability of $82 million for amounts related to expenses
included in "Conrail Operating Fees, Rents and Services," as discussed above.
In addition, Conrail is paid an aggregate of approximately $90 million per
year by CSXT and NSR under the Shared Assets Operating Agreements. Conrail also
pays approximately $7 million per year to either NSR or CSXT (depending upon who
the successful bidder is) to perform track maintenance work. A joint contract
exists among Conrail, CSXT and NSR for approximately $5.9 million of
reimbursements relating to the construction of new intermodal facilities at the
Livernois Yard in Detroit, Michigan. Conrail also has a locomotive lease and
repair contract with each of CSXT and NSR, whereby Conrail pays $5.9 million per
year to NSR and $4.1 million per year to CSXT.
CSXT also provides certain general and administrative support functions to
Conrail, the fees for which are billed in accordance with several
service-provider arrangements and totaled $3 million in each of 2003 and 2002.
The Conrail Spin Off Transactions will not affect amounts billed to Conrail
under such agreements.
CSXT-15
EXECUTIVE OFFICER COMPENSATION
CSXT
CSXT is a wholly owned subsidiary of CSX. In 2003, several of the CSXT
executive officers were also officers of CSX. Their compensation was paid solely
by CSX when they were officers of CSX and was determined in accordance with the
Report of the Compensation Committee on Executive Compensation which is included
in this CSXT Appendix starting on page CSXT-23. The individuals named below
include CSXT's Chief Executive Officer and the four most highly compensated
executive officers of CSXT who were serving as executive officers of CSXT as of
the last day of the fiscal year ending December 26, 2003. The table also
includes one executive officer who retired from CSXT in September 2003.
Information is provided for the fiscal years ended December 26, 2003, December
27, 2002 and December 28, 2001.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM COMPENSATION
-----------------------------------------------
AWARDS PAYOUTS($)
ANNUAL COMPENSATION ---------------------------------- ----------
-------------------------------------- SECURITIES
OTHER ANNUAL RESTRICTED STOCK UNDERLYING LTIP
NAME AND COMPENSATION($) AWARD(S)($) OPTIONS/SARS(#) PAYOUTS
PRINCIPAL POSITION YEAR SALARY($) BONUS($) (NOTE 1) (NOTE 2) (NOTE 3) ($)
- ------------------ ---- --------- -------- --------------- ---------------- --------------- ----------
Michael J. Ward......... 2003 808,333 0 142,039 0 400,000 0
Chairman, President & 2002 579,167 312,750 123,229 0 200,000 0
CEO 2001 475,000 285,000 221,683 5,322,900 175,000 0
P. Michael Giftos....... 2003 369,167 0 55,098 0 100,000 0
Executive VP & Chief 2002 337,450 160,000 58,351 0 50,000 0
Commercial Officer 2001 350,000 185,000 63,516 0 74,500 0
(Note 5)
Oscar Munoz............. 2003 329,545 0 33,988 796,500 125,000 0
Executive Vice 2002 N/A N/A N/A N/A N/A N/A
President 2001 N/A N/A N/A N/A N/A N/A
& CFO (Note 6)
Clarence W. Gooden...... 2003 302,032 0 29,765 0 30,000 0
Executive VP & 2002 274,010 118,500 24,326 0 30,000 0
Chief Commercial 2001 269,400 122,400 23,296 0 41,500 0
Officer
Ellen M. Fitzsimmons.... 2003 301,200 0 37,362 0 50,000 0
Senior VP-Law 2002 262,800 120,000 17,794 0 30,000 0
and Public Affairs 2001 248,400 120,400 19,812 0 41,500 0
Alan F. Crown........... 2003 338,089 0 23,777 0 100,000 0
Executive VP & COO 2002 351,567 0 36,596 0 55,000 0
(Note 7) 2001 307,400 190,000 16,100 0 74,500 0
<Caption>
ALL OTHER
NAME AND COMPENSATION($)
PRINCIPAL POSITION (NOTE 4)
- ------------------ ---------------
Michael J. Ward......... 40,693
Chairman, President & 32,182
CEO 27,191
P. Michael Giftos....... 11,375
Executive VP & Chief 11,125
Commercial Officer 10,750
(Note 5)
Oscar Munoz............. 159,538
Executive Vice N/A
President N/A
& CFO (Note 6)
Clarence W. Gooden...... 1,249
Executive VP & 8,755
Chief Commercial 7,200
Officer
Ellen M. Fitzsimmons.... 1,338
Senior VP-Law 4,088
and Public Affairs 96,036
Alan F. Crown........... 900,200
Executive VP & COO 4,450
(Note 7) 3,450
</Table>
- ------------
Note 1 Amounts in this column include personal use of CSX's aircraft valued at
(a) Mr. Ward--$5,766 for 2003, and $2,304 for 2002; (b) Mr. Giftos--$810
for 2003, $2,449 for 2002, and $605 for 2001; (c) Ms. Fitzsimmons--$467
for 2001; (d) Mr. Gooden--$249 for 2003, $2,304 for 2002, and $937 in
2001; and (e) Mr. Crown--$659 for 2002 and $1,483 for 2001. It is CSX's
policy to require the CEO to use CSX aircraft for personal as well as
business travel.
Note 2 For 2003, the value shown reflects the award of CSX restricted stock to
Mr. Munoz pursuant to an employment agreement. The value of Mr. Munoz's
award of 25,000 shares of restricted stock that will vest in 4 years
from May 7, 2003, the date of grant, is based on $32.145 per share, the
closing price of CSX stock on the New York Stock Exchange on that date.
As of December 26, 2003, the value of Mr. Munoz's stock award, based on
$35.79 per share, the closing price of CSX stock on the New York Stock
Exchange on that date, was $894,750. For 2001, the values shown reflect
the award of CSX restricted stock to Mr. Ward pursuant to certain
employment agreements. The value of Mr. Ward's award of 165,000 shares
of restricted stock that will vest in five years from February 13, 2001,
the date of grant, is based on $32.26 per share, the closing price of
CSX stock on the New York Stock Exchange on that date. As of December
26, 2003, the value of Mr. Ward's restricted stock award, based on
$35.79 per share, the closing price of CSX stock on the New York Stock
Exchange on that date, was $5,905,350. Messrs. Munoz and Ward are
entitled to receive dividends during the restriction period of their
respective awards.
(notes continued on next page)
CSXT-16
(notes continued)
Note 3 This column represents the number of employee stock options granted by
CSX. Stock appreciation rights, or "SARs," were not granted in 2003,
2002 or 2001.
Note 4 Amounts shown include: (a) the above-market portion of earnings on a CSX
deferred compensation program available to executives only during 1985,
1986, 1988, and 1989 (for 2003, these amounts are for Mr. Giftos,
$33,140 and for Mr. Ward, $16,068); (b) CSX's matching contributions
made in conjunction with deferrals of salary or bonuses to the CSX Tax
Savings Thrift Plan and the CSX Supplementary Savings and Incentive
Award Deferral Plan (the amounts contributed for 2003 are for Mr. Ward,
$23,625; for Mr. Giftos, $10,375; for Mr. Munoz, $9,886; for Ms.
Fitzsimmons, $338; for Mr. Gooden, $1,166; and for Mr. Crown, $200); (c)
for 2003, a signing bonus of $125,000 for Mr. Munoz; and (d) for 2003, a
separation bonus of $900,000 for Mr. Crown.
Note 5 Mr. Giftos retired from CSXT in March 2004.
Note 6 Mr. Munoz started his employment in May 2003.
Note 7 Mr. Crown retired from CSXT in September 2003.
STOCK OPTION GRANTS
The following table reflects stock options granted by CSX to the named
executives in 2003.
OPTION/SAR GRANTS IN LAST FISCAL YEAR (NOTE 1)
<Table>
<Caption>
INDIVIDUAL GRANTS
NUMBER OF -------------------
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SARS GRANT DATE VALUE
OPTIONS/SARS GRANTED TO EXERCISE OR ------------------
GRANTED (#) EMPLOYEES IN FISCAL BASE PRICE EXPIRATION GRANT DATE
NAME (NOTE 1) YEAR (NOTE 3) ($/SHARE) DATE PRESENT VALUE($)
- ---- --------------- ------------------- ----------- ----------- ------------------
Michael J. Ward...... 400,000 (Note 2) 11.51% $32.145 May 6, 2013 $3,572,000 (Note 2)
P. Michael Giftos.... 100,000 (Note 2) 2.88% 32.145 May 6, 2013 893,000 (Note 2)
Oscar Munoz.......... 125,000 (Note 2) 3.60% 32.145 May 6, 2013 1,116,250 (Note 2)
Clarence W. Gooden... 30,000 (Note 2) .86% 32.145 May 6, 2013 267,900 (Note 2)
Ellen M.
Fitzsimmons........ 50,000 (Note 2) 1.44% 32.145 May 6, 2013 446,500 (Note 2)
Alan F. Crown........ 100,000 (Note 2) 2.88% 32.145 May 6, 2013 893,000 (Note 2)
</Table>
- ------------
Note 1 SARs were not granted during 2003.
Note 2 Stock options granted by CSX to the named executive officers and certain
other executives on May 7, 2003, pursuant to the CSX Omnibus Incentive
Plan, at an exercise price of $32.145, which was the fair market value
as of the date of the grant. The options vest and become exercisable in
three equal tranches on the third, fourth and fifth anniversaries of the
grant date. The present value of stock options granted on May 7, 2003,
has been reported using the Black-Scholes option pricing model and
should not be used as a prediction of future stock performance. The
values presented are based on the following assumptions:
- Exercise price--$32.145 (mean price on grant date);
- Market price on grant date--$32.145;
- Assumed exercise date--May 8, 2009;
- Risk-free rate of return--2.53 percent;
- Dividend yield--1.10 percent (five-year quarterly average); and
- Volatility assumption--27.73 percent.
Note 3 A total of 3,476,530 employee stock options were granted during 2003.
CSXT-17
STOCK OPTIONS
The following table reflects the number of CSX stock options exercised by
the named executives in 2003, the total gain realized upon exercise, the number
of stock options held at the end of the year, and the realizable gain of the
stock options that have exercise prices lower than the fair market value of CSX
stock.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<Table>
<Caption>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/SARS AT
SHARES OPTIONS/SARS AT FY-END(#) FY-END ($) (NOTE 1)
ACQUIRED ON VALUE ---------------------------- ---------------------------
NAME EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ----------- ----------- ------------- ----------- -------------
Michael J. Ward........... 0 $ 0 122,288 939,372 $205,799 $1,869,569
P. Michael Giftos......... 11,977 122,644 98,536 365,117 0 712,777
Oscar Munoz............... 0 0 0 125,000 0 455,625
Clarence W. Gooden........ 0 0 39,883 136,260 269,376 80,024
Ellen M. Fitzsimmons...... 0 0 10,152 132,464 227,437 22,749
Alan F. Crown............. 0 0 37,931 260,759 553,583 94,547
</Table>
- ------------
Note 1 Value of unexercised options at fiscal year-end represents the difference
between the exercise price of any outstanding in-the-money option grants
and $35.79, the mean value of CSX stock on December 26, 2003.
LONG-TERM INCENTIVE AWARDS
None of the named executive officers were granted long-term incentive
awards during 2003.
PENSION PLANS
The following table sets forth the estimated annual single life annuity
benefits payable, before offsets for Social Security and Railroad Retirement
annuities, by CSX and certain of its subsidiaries (including CSXT) to any
officer or salaried employee upon retirement from active employment at age 60
after selected periods of service and in specified compensation groups.
PENSION PLAN TABLE
<Table>
<Caption>
AVERAGE COMPENSATION
DURING FIVE CONSECUTIVE
YEARS OF HIGHEST PAY 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS 44 YEARS
- ----------------------- -------- -------- ---------- ---------- ---------- ---------- ----------
$ 200,000 $45,000 $60,000 $ 75,000 $ 90,000 $ 105,000 $ 120,000 $ 132,000
400,000 90,000 120,000 150,000 180,000 210,000 240,000 264,000
600,000 135,000 180,000 225,000 270,000 315,000 360,000 396,000
800,000 180,000 240,000 300,000 360,000 420,000 480,000 528,000
1,000,000 225,000 300,000 375,000 450,000 525,000 600,000 660,000
1,200,000 270,000 360,000 450,000 540,000 630,000 720,000 792,000
1,400,000 315,000 420,000 525,000 630,000 735,000 840,000 924,000
1,600,000 360,000 480,000 600,000 720,000 840,000 960,000 1,056,000
1,800,000 405,000 540,000 675,000 810,000 945,000 1,080,000 1,188,000
2,000,000 450,000 600,000 750,000 900,000 1,050,000 1,200,000 1,320,000
2,200,000 495,000 660,000 825,000 990,000 1,155,000 1,320,000 1,452,000
2,400,000 540,000 720,000 900,000 1,080,000 1,260,000 1,440,000 1,584,000
2,600,000 585,000 780,000 975,000 1,170,000 1,365,000 1,560,000 1,716,000
2,800,000 630,000 840,000 1,050,000 1,260,000 1,470,000 1,680,000 1,848,000
3,000,000 675,000 900,000 1,125,000 1,350,000 1,575,000 1,800,000 1,980,000
3,200,000 720,000 960,000 1,200,000 1,440,000 1,680,000 1,920,000 2,112,000
</Table>
CSXT-18
Retirement benefits from qualified and non-qualified non-contributory
pension plans ("Pension Plans") of CSX and certain of its subsidiaries
(including CSXT) are based on both length of service and compensation. The
compensation covered by the Pension Plans is compensation paid by CSX or its
subsidiaries to a participant on a regular monthly or annual salary basis, and
bonuses or similar awards for personal services rendered in a position that is
not under the scope of a labor agreement. Compensation items listed in the
Summary Compensation Table covered by the Pension Plans are base salary and
bonus. The average compensation during the five consecutive years of highest pay
covered by the Pension Plans for Mr. Ward was $630,385.
The benefits are computed at the time of retirement under a defined benefit
formula based on years of service and average salary and bonus for the highest
60 consecutive covered months of service. The formula also takes into account
retirement benefits under the Social Security Act and Railroad Retirement Act
attributable to service by the participant for the employer. The Pension Plans
provide for retirement from active employment commencing at age 60 without
diminution of benefits. Retirement from active employment beginning at age 55 is
permitted with reduced pension payments. Certain participants in the Pension
Plans may be eligible to receive an additional year of unfunded credit for each
year of actual service beginning at age 45 and, in certain instances, such
credit for periods prior to employment by CSX or its subsidiaries, with a
44-year maximum of total service.
The Pension Plans permit the Chief Executive Officer and a limited number
of other key executives named by him to take the unfunded portion of their
pensions in a lump sum payment. The amount of the payment is calculated on an
actuarial present value, using an interest rate set periodically by the Finance
Committee, which currently is five percent.
As of December 2003, the individuals named in the Summary Compensation
Table had the following credited years of service: Mr. Ward, 26 years; Mr.
Giftos, 41 years; Mr. Gooden, 32 years; Ms. Fitzsimmons, 12 years; and Mr.
Crown, 30 years.
The amounts in the table have not been restricted to those within the
maximum annual retirement benefit that is currently permissible under the Code,
which is $160,000 for 2004. Also, in calculating a participant's benefit, annual
compensation in excess of a limit set annually by the Secretary of the Treasury
may not be considered. That limit is $200,000 for 2004. Pension amounts in
excess of such limitations are payable from the non-qualified Special and
Supplemental Plans, which are not funded.
Employees who become eligible to participate in the Pension Plans on or
after January 1, 2003 will accrue benefits using a cash balance formula. Cash
balance benefits are based on a formula using age and years of service. Interest
is credited on a monthly basis using the 10-year treasury bond rate. Vested
balances are payable in a lump sum or annuity upon termination of employment or
retirement.
CSXT-19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE
OFFICERS
The following table shows the number of shares of CSX common stock
beneficially owned as of March 5, 2004, except as otherwise noted, by each
director and executive officer named in the Summary Compensation Table in this
CSXT Appendix and the directors and executive officers of CSXT as a group.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
<Table>
<Caption>
SHARES FOR WHICH
SHARES BENEFICIAL OWNERSHIP TOTAL PERCENT
NAME OF BENEFICIALLY CAN BE ACQUIRED BENEFICIAL OF
BENEFICIAL OWNER(NOTE 1) OWNED WITHIN 60 DAYS(NOTE 2) OWNERSHIP CLASS(NOTE 3)
- -------------------------------- ------------ ----------------------- ---------- --------------
Directors:
Michael J. Ward................. 249,051(Note 4) 149,774 398,825 *
Oscar Munoz..................... 32,000(Note 4) 0 32,000 *
Clarence W. Gooden.............. 17,951(Note 4) 51,497 69,448 *
Non-Director Executive Officers:
P. Michael Giftos............... 0 122,179 122,179 *
Ellen M. Fitzsimmons............ 22,383(Note 4) 14,302 36,685 *
Alan F. Crown(Note 5)........... 14,804 37,931 52,735 *
All directors and executive
officers as a group (10
including those named
above)(Note 6)................ 368,444 423,569 792,013 *
</Table>
- ------------
Note 1 Except as otherwise noted, the persons listed have sole voting power as
to all shares listed, including shares held in trust under certain
deferred compensation plans, and have investment power except with
respect to all shares held in trust under deferred compensation plans,
investment of which is governed by the terms of the trust.
Note 2 Represents shares under options exercisable within 60 days.
Note 3 Based on 215,069,189 shares outstanding on March 5, 2004, plus shares
deemed outstanding for which beneficial ownership can be acquired within
60 days by that individual or group. An asterisk (*) indicates that
ownership is less than one percent of class.
Note 4 The ownership of Mr. Ward includes 165,000 restricted shares of stock
granted under the CSX Omnibus Incentive Plan and 15,804 shares owned by
his wife. The ownership of Mr. Munoz includes 25,000 restricted shares of
stock granted under the CSX Omnibus Incentive Plan. The ownership of Mr.
Gooden and Ms. Fitzsimmons includes 17,000 restricted shares of stock
granted to each under the CSX Omnibus Incentive Plan.
Note 5 Mr. Crown retired from CSXT on September 10, 2003. His ownership is based
on the best available information as of December 26, 2003.
Note 6 In addition to the named beneficial owners, this row includes ownership
information, as of December 26, 2003, for four executive officers not
named above.
EMPLOYMENT, CHANGE OF CONTROL AND SIMILAR AGREEMENTS
CSX has entered into change of control employment agreements, or the
"Employment Agreements," with certain executives, including Messrs. Ward, Munoz,
Giftos, Gooden, and Ms. Fitzsimmons. The Employment Agreements generally provide
that if the executive is terminated other than for cause within three years
after a change of control of CSX or if the executive terminates employment for
good reason within such three-year period or voluntarily terminates employment
during the 30-day period following the six-month anniversary of the change of
control (or, in the case of a change of control transaction subject to STB
review, following the twelve-month anniversary of the approval of the
transaction by the STB), the executive is entitled to receive severance
benefits. Severance benefits include a lump sum severance payment equal to three
times the sum of the executive's base salary and highest annual bonus for the
three years preceding the change of control (or, if higher, the most recently
established target bonus), together with certain other payments and benefits,
including a prorated bonus for the year of termination; the present value of
additional pension benefits the executive would have earned if employment had
continued for three more years and all benefits had vested; continuation of
employee welfare benefits for three years; an additional payment to make the
executive whole for certain excise taxes imposed on certain change of control
payments, if any; the right to
CSXT-20
receive the Black-Scholes value of options that terminate unexercised; and the
right to up to $20,000 of outplacement services.
In 2001, CSX and Mr. Ward entered into a five-year employment agreement,
which included the award of 165,000 shares of restricted stock to Mr. Ward as an
incentive to remain with CSX. The stock award vests on the fifth anniversary of
the grant. If Mr. Ward voluntarily terminates his employment with CSX prior to
the end of the five years, the shares will be forfeited. Generally, if CSX
elects to terminate Mr. Ward's employment for reasons other than for cause, Mr.
Ward dies or becomes disabled, or Mr. Ward terminates his employment for good
reason within five years of the grant, CSX will remove the restrictions on a
prorated portion of the restricted shares and pay Mr. Ward the salary and
one-half of the target annual incentive otherwise payable for the balance of the
agreement.
In 2002, CSX and Mr. Ward entered into an agreement that addresses the
disparity in retirement and spousal benefits between Social Security and
Railroad Retirement benefits resulting from CSX's transfer of Mr. Ward's
employment with CSXT to CSX in 2002. The CSX Pension Plan, a defined benefit
plan under Section 401(a) of the Code, generally provides for a make-up benefit
for employees faced with the prospect of lower government-sponsored retirement
and spousal benefits on account of a transfer from CSXT to an affiliated entity
covered by Social Security, offset by the amount of employment tax the
participant would have saved as a result of the lower tax rate under Social
Security. However, the make-up benefit under the CSX Pension Plan does not cover
the entire difference. In order to put Mr. Ward in the same position as he would
have been had he not been transferred to CSX, the agreement provides for CSX to
perform a calculation of pension benefits at the time of Mr. Ward's retirement,
comparing it to what he would have received absent the transfer. This amount
will be discounted to account for the fact that Mr. Ward would have paid less
employment tax under Social Security than under Railroad Retirement.
In April 2003, CSX and Mr. Munoz entered into a two-year employment
agreement that provides an annual base salary of $500,000 with an annual bonus
opportunity of $450,000. In addition, Mr. Munoz was provided with an initial
stock option grant of 125,000 shares, which vest ratably over five years, as
well as 25,000 shares of restricted stock that vest over four years. Mr. Munoz
was also provided with a signing bonus in the amount of $250,000, with one half
payable in May 2003 and the balance in May 2004, provided Mr. Munoz remains
employed by CSX. Mr. Munoz was also provided with relocation assistance with
respect to the relocation to Jacksonville of himself and his family. The
agreement further provides that if Mr. Munoz's employment is terminated by CSX
other than for cause or disability on or before May 5, 2006, Mr. Munoz will be
paid a severance benefit equal to two times the sum of his annual base salary
plus bonus for the year of termination, and any unvested options will then vest
immediately. If Mr. Munoz's employment is terminated other than for cause or
disability from May 6, 2006, through May 6, 2008, Mr. Munoz will be paid a
severance benefit equal to two times his then annual base salary and any
unvested options will then vest immediately. If Mr. Munoz's employment is
terminated after May 6, 2008, Mr. Munoz will receive a lump sum severance
benefit in the amount equal to his then annual base salary. In the event that
the termination of employment is on account of a change in control, his
Employment Agreement will supersede this agreement.
In October 2002, CSX awarded Ms. Fitzsimmons 17,000 shares of restricted
stock as an incentive to remain with CSX. The stock award vests on the fifth
anniversary of the grant. If Ms. Fitzsimmons voluntarily terminates her
employment prior to the end of the vesting term, the shares will be forfeited.
If CSX terminates Ms. Fitzsimmons' employment for reasons other than cause, Ms.
Fitzsimmons dies or becomes disabled, or Ms. Fitzsimmons terminates her
employment for good reason within five years of the grant, CSX will remove the
restrictions on a prorated portion of the restricted shares.
In October 2002, CSX awarded Mr. Gooden 17,000 shares of restricted stock
as an incentive to remain with CSX. The stock award vests on the fifth
anniversary of the grant. If Mr. Gooden voluntarily terminates his employment
prior to the end of the vesting term, the shares will be forfeited. If CSX
terminates Mr. Gooden's employment for reasons other than cause, Mr. Gooden dies
or becomes disabled, or Mr. Gooden terminates his employment for good reason
within five years of the grant, CSX will remove the restrictions on a prorated
portion of the restricted shares.
CSXT-21
In February 2004, CSXT entered into a retirement and separation agreement
with Mr. Giftos. The agreement provides that Mr. Giftos will receive separation
payments in the amount of $375,000 over twelve months, or in a single sum, as
elected by Mr. Giftos. The agreement further provides that Mr. Giftos will
receive a special retirement allowance under the Special Retirement Plan of CSX
and Affiliated Corporations to include constructive service of 44 years and
apply an early reduction factor for age 58 at the time of commencement in
calculating his pension benefits. The agreement further provides that Mr. Giftos
will receive reimbursement (or CSX will pay) for certain catastrophic medical
expenses incurred by his spouse and which are not otherwise covered by the CSX
Comprehensive Medical Plan.
In September 2003, CSXT entered into a retirement and separation agreement
with Mr. Crown. Under the agreement, Mr. Crown will receive separation payments
equal to two years base salary for a total of $900,000. In addition, for the
purpose of determining his monthly nonqualified pension benefit, CSXT agreed to
include two years of compensation at $450,000 in computing Mr. Crown's five-year
average compensation and applied an early reduction factor for age 58 at the
time of commencement in calculating his pension benefits.
CSXT-22
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION(1)
This report describes the philosophy, objectives and components of the
Company's executive officer compensation program and the manner in which
compensation determinations for 2003 were made for the Company's Chief Executive
Officer during that period, Mr. Michael J. Ward, and the other executive
officers.
The Compensation Committee (the "Committee") of the Company's Board is
composed of the directors named below, none of whom is an officer or employee of
the Company, and all of whom are outside directors within the meaning of Section
162(m) of the Internal Revenue Code and independent pursuant to the independence
standards promulgated by the New York Stock Exchange. The Committee is
responsible for setting and administering the Company's compensation philosophy,
objectives and policies, and for establishing and administering compensation
plans and programs for executive officers of the Company. During 2003, based on
recommendations of the Committee, the Board was responsible for approving the
compensation for the Chief Executive Officer.
OVERALL COMPENSATION PHILOSOPHY AND OBJECTIVES
The Company's executive compensation programs are designed to provide
competitive annual and long-term compensation and to encourage executive
officers to focus on maximizing shareholder value through superior performance.
The programs are based on the philosophy that the financial interests of the
Company's executive officers should be aligned closely with those of its
shareholders and that overall compensation should be linked to the short-term
and long-term performance of the Company, of individual business units of the
Company, and of the individual executive officer. Accordingly, the Company's
executive compensation programs are structured and administered applying the
following principles:
-- Competitiveness. Consistent with the Company's performance, total
compensation for executive officers is targeted to produce pay
competitive with the total compensation paid by a comparison group of
companies that compete for executives of similar talent, including
several direct competitors. The Committee believes that providing
competitive total compensation opportunities for executive officers
is an important element in the Company's ability to attract and
retain motivated and effective executives.
In determining executive officer compensation for 2003, the Committee
used market data regarding the compensation paid for similar
positions by other large companies with annual revenues ranging from
$6 billion to $10 billion, as provided through a survey conducted by
a nationally recognized independent compensation consulting firm.
These comparison companies included a broad cross-section of
companies that can be expected to compete directly with the Company
for employees, investors and business, and do not focus specifically
on companies that form the Dow Jones U.S. Transportation Average
(depicted in the "Five-Year Cumulative Comparison Graph" included in
this Proxy Statement). Because the job market for the Company's
executives is not limited to the Company's industry, and because the
Company's most direct competitors for executive talent are not
necessarily all of the companies that would be included in a peer
group established to compare shareholder returns, the comparison
group is not the same as the peer group index in the "Five-Year
Cumulative Comparison Graph" included in this Proxy Statement.
-- Performance-Based. A substantial portion of the total compensation
package for executive officers is at risk and consists of
performance-based cash and equity incentives that link executive
compensation to Company financial and non-financial results, and
individual performance. Performance incentives provide rewards for
achieving strategic, operating and financial results, motivating
executive officers and encouraging a dedicated focus on building
value for shareholders over time.
- ---------------
(1) This report, dated February 10, 2004, was prepared by the CSX Compensation
Committee and provides policies applicable to CSXT's and NYC Newco's
executive officers. Use of the word "Company" in this Report refers to CSX.
Other capitalized terms used in the report are defined therein. Use of the
phrase "Proxy Statement" in this report refers to CSX's proxy statement,
dated March 31, 2004.
CSXT-23
-- Aligned with Interests of Shareholders. A significant portion of
each executive officer's total compensation is linked directly to the
achievement of specific, measurable performance results that are
intended to create both short-term and long-term value for CSX
shareholders. In addition, executive officers are expected to acquire
and hold significant amounts of the Company's stock.
COMPONENTS OF COMPENSATION
The total compensation package for executive officers during 2003 was
composed of three key elements: (a) base salary; (b) short-term incentives; and
(c) long-term incentives.
In establishing and administering each of these components, the Committee
considers: (1) current market data regarding the compensation paid for similar
positions by the comparison companies, and (2) achievement against Company
financial and non-financial objectives, and individual performance objectives
that are established for each performance period by the Committee. The
Committee's intent is to provide total compensation packages for executive
officers approximating the 65th percentile of the total compensation paid for
similar positions by the comparison companies, when competitive performance
results are achieved. The Company's total compensation components are described
below.
BASE SALARY
The Committee determines a salary for each executive officer and certain
other executive officers based upon the Committee's assessment of the
individual's performance and contribution to the Company's objective performance
goals. Base salaries for 2003 generally were targeted to be at the 50th
percentile of salaries paid for similar positions by the comparison companies.
Base salaries of executive officers are reviewed in February of each year with
adjustments, if any, based upon the then-current market data for the comparison
companies, individual executive performance and the executive's contributions to
the Company.
SHORT-TERM INCENTIVES
The short-term compensation incentives available for executive officers of
the Company are composed of annual cash incentive bonuses and, in certain
circumstances, additional discretionary cash bonuses in recognition of
exceptional strategic contributions and performance. These short-term incentives
are established and awarded with the objective of bringing total annual cash
compensation (base salary plus bonus) to approximately the 75th percentile of
the comparison companies, assuming achievement of competitive performance
levels.
Executive officers, including the Chief Executive Officer, are awarded
annual cash incentive bonuses under the Company's shareholder-approved Senior
Executive Incentive Plan ("SEIP") based on Company operating income results. The
Committee has the authority, in its sole discretion, to make adjustments to
bonus awards under the SEIP to reflect (1) the impact of unplanned events; (2)
performance below other financial or strategic objectives (including earnings
per share, the Company's operating ratio, operating income and cash available to
the Company, and the performance of the Company's subsidiaries); and (3) an
executive's individual performance based on such factors as the Committee deems
appropriate.
For 2003, the formula for annual cash incentive payout was based upon
operating income and strategic initiatives, with a minimal threshold of
operating income performance required for a payout. Based on 2003 operating
income, CSX Corporation and CSX Transportation did not meet this minimum
threshold. CSX World Terminals LLC [a wholly owned subsidiary of CSX], achieved
most of its financial performance targets, but did not achieve all of its
strategic business objectives. Accordingly, the Committee approved incentive
payments including $270,000 for Mr. [Robert J.] Grassi [formerly President and
CEO of CSX World Terminals]. In each instance, the Committee exercised its
discretion under the SEIP to make downward adjustments, reducing the annual cash
incentive bonuses otherwise payable under the SEIP.
Other executive officers and key employees of the Company are awarded
annual cash incentive bonuses under the Company's Management Incentive
Compensation Plan ("MICP"). Awards are based on the Committee's evaluation of
the achievement of operating income targets and strategic initiatives, along
with an
CSXT-24
evaluation of the executive's performance and such other objective measures as
the Committee deems appropriate. For 2003, executive officers for CSX
Corporation and CSX Transportation did not receive awards, as the companies did
not meet the minimum threshold for financial performance. Executives for CSX
World Terminals LLC each received a cash incentive bonus under the MICP.
LONG-TERM INCENTIVES
For 2003, the long-term compensation incentives available for executive
officers of the Company were composed primarily of equity-based incentive
awards. These long-term incentives are established and awarded with the
objective of having Total Direct Compensation (base salary plus short-term
incentives plus long-term incentives) to approximately the 65th percentile of
the comparison companies, assuming achievement of competitive performance
levels. In 2003, awards granted under the CSX Omnibus Incentive Plan (the
"COIP") included stock options and restricted stock. The primary form of
long-term incentive compensation provided to the executive officers is
non-qualified stock options, where the executive only gains from the award when
all shareholders gain from increased stock price.
In 2003, the long-term incentive compensation opportunity granted to each
executive officer, including the Chief Executive Officer, was based upon
individual executive performance and impact on the Company and competitive
market grant levels for similar positions made by the comparison companies. The
stock option awards help link the long-term interests of executive officers with
those of shareholders. In aligning the interests of executives with those of
shareholders, the Committee is also aware of the potential impact of options
awards on future equity appreciation.
In 2003, the Committee approved the grant of stock options, based on the
criteria described above, to Mr. Ward, as set forth in "Option/SAR Grants in
Last Fiscal Year." The Compensation Committee concluded that the stock option
grants were appropriate for the purpose of ensuring executive officer retention,
and in line with the compensation philosophy of the Company.
In December 2003, the Compensation Committee recommended, and in February
2004 the Board approved, a new long-term incentive program, administered under
the COIP, to be effective in 2004. This program is intended to enhance the
linkage of executive compensation with increased stock price. It will put
emphasis toward factors more directly within management control. The new program
is consistent with the compensation philosophy and objectives outlined above,
including maintaining Total Direct Compensation at the 65th percentile of
targeted comparison companies.
The new long-term incentive program provides executives with rewards based
upon performance against a two-year cumulative Modified Cash Flow performance
target. This performance measure has a high correlation to stock price. For
executive officers, including the Chief Executive Officer, the Compensation
Committee may also modify the award based on achievement of operating ratio
targets and decrease the award based upon the [level of the] completion of key
strategic objectives. For all participants, the grants will be in the form of
Performance Units. These Performance Units will be paid one-half in cash and
one-half in performance shares, and grants will vest in accordance with the
achievement of the above-mentioned performance criteria.
CSXT-25
STOCK OWNERSHIP GUIDELINES
In addition to long-term awards, the Committee believes that to link the
interests of executive officers to those of the Company's shareholders, it is
also necessary that executive officers own a significant amount of the Company's
stock. The Committee has established the following formal stock ownership
guidelines. These guidelines are generally at or above the stock ownership
guidelines of the comparison companies.
<Table>
<Caption>
MINIMUM
AGGREGATE VALUE
POSITION EQUIVALENT
- -------- ---------------------
Chief Executive Officer................................. 6 times base salary
Executive Vice Presidents............................... 4 times base salary
Senior Vice Presidents.................................. 3 times base salary
Vice Presidents and Equivalent.......................... 1 times base salary
Assistant Vice Presidents and Equivalent................ 0.5 times base salary
</Table>
2003 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
Mr. Ward is the Company's Chairman, President and Chief Executive Officer.
Mr. Ward's performance was reviewed by the Committee in 2003 and discussed with
the non-employee directors of the Company.
It has been past practice to pay the Chief Executive Officer and other
executives in line with the payment guideline of the annual incentive
compensation program of the Company. Under this program, Mr. Ward was entitled
to a target annual bonus opportunity of 120 percent of salary if earnings were
met, or $950,000. Using the same performance and other factors on which awards
were made to other executive officers and pursuant to the executive compensation
strategy described earlier in this report and Proxy Statement, the Committee
awarded Mr. Ward no annual cash incentive bonus. Mr. Ward was generally eligible
to participate in the same compensation plans available to other executive
officers of the Company.
POLICY ON DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code imposes a $1 million limit on
the amount that the Company may deduct for compensation paid to the Chief
Executive Officer or any other executive officer who is employed on the last day
of the year. However, performance-based compensation, paid pursuant to a plan
that has been approved by shareholders, is excluded from the $1 million limit
if, among other requirements, the compensation is payable only upon attainment
of pre-established objective performance goals and the Board committee that
establishes such goals consists only of outside directors (as defined for
purposes of Section 162(m)). The SEIP and the COIP have been approved by the
shareholders of the Company.
The Committee and the Board have considered these requirements. While the
tax impact of any compensation arrangement is one factor to be considered, such
impact is evaluated by the Committee and the Board in light of the Company's
overall compensation philosophy and objectives. The Company's compensation
program for executive officers has both objective and discretionary elements.
Generally, the Committee wishes to maximize the Company's federal income tax
deductions for compensation expense and has, therefore, structured the
short-term and long-term incentive elements of executive compensation to meet
the requirements for deductibility under Section 162(m). However, the Committee
and the Board believe that there are circumstances where the provision of
compensation that is not fully deductible may be more consistent with the
compensation philosophy and objectives of the Company and/or may be in the best
interests of the Company and its shareholders. The Committee's ability to
exercise discretion and to retain flexibility in this regard may, in certain
circumstances, outweigh the advantages of qualifying all compensation as
deductible under Section 162(m).
CSXT-26
The Committee believes that the compensation of executive officers has been
appropriately structured and administered so that a substantial component of
total compensation is dependent upon, and directly related to, the Company's
performance and total returns to its shareholders.
COMPENSATION COMMITTEE
Frank S. Royal, M.D., Chairman
Robert D. Kunisch
William C. Richardson
Donald J. Shepard
Jacksonville, Florida
February 10, 2004
CSXT-27
DESCRIPTION OF THE NEW CSXT NOTES
The following is a summary of the terms of the New CSXT Notes. For a
description of the New NSR Notes, see "Description of the New NSR Notes" in the
NSR Appendix. The New CSXT Notes will be issued under the New CSXT Indenture, to
be entered into among NYC Newco, a newly formed corporation organized under the
laws of the Commonwealth of Virginia and wholly owned subsidiary of CSXT, as
initial issuer, CSXT, as guarantor, and The Bank of New York, as trustee. The
terms of the New CSXT Notes include those terms stated in the New CSXT Indenture
and those terms made part of the New CSXT Indenture by reference to the TIA. The
New CSXT Notes issued by NYC Newco will be fully and unconditionally guaranteed
by CSXT. In connection with the consummation of the Conrail Spin Off
Transactions, NYC Newco will be merged with and into CSXT, which will thereby
assume the obligations of NYC Newco with respect to the New CSXT Notes and will
become the primary obligor of the New CSXT Notes, and the guarantee will
thereafter automatically terminate. As hereafter used, the term "CSXT Obligor"
means NYC Newco, until such time as NYC Newco is merged with and into CSXT, and
thereafter shall mean CSXT or any successor of CSXT permitted pursuant to the
terms of the New CSXT Notes and the New CSXT Indenture.
This section of this CSXT Appendix is only a summary of the material
provisions of the New CSXT Indenture and the form of the New CSXT Notes. This
section does not purport to be complete and does not restate the New CSXT
Indenture and the form of the New CSXT Notes in their entirety. A copy of the
New CSXT Indenture and the form of the New CSXT Notes has been filed with the
SEC as an exhibit to the CSXT registration statement of which this CSXT Appendix
is a part. We urge you to read the New CSXT Indenture and the form of the New
CSXT Notes because the New CSXT Indenture and the form of the New CSXT Notes and
not this description define your rights as holders of the New CSXT Notes. You
may obtain copies of the New CSXT Indenture from CSXT. See "Where You Can Find
More Information."
BASIC TERMS OF THE NEW CSXT NOTES
THE NEW CSXT 9 3/4% NOTES
The economic terms of the New CSXT 9 3/4% Notes are substantially identical
to the economic terms of the current Conrail 9 3/4% Debentures. Therefore,
holders of outstanding Conrail Debentures who participate in this exchange offer
and consent solicitation, to the extent they receive New CSXT 9 3/4% Notes in
exchange for their current Conrail 9 3/4% Debentures, will receive the same
amount in the aggregate of interest payments that they would have received had
they not participated in this exchange offer and consent solicitation with
respect to the New CSXT Notes. Specifically, the New CSXT 9 3/4% Notes:
-- will have a maximum aggregate principal amount of $231 million,
subject to the treatment of fractional interests (42% of the $550
million aggregate principal amount of the Conrail 9 3/4% Debentures);
-- will mature on June 15, 2020;
-- will be dated as of the Closing Date;
-- will accrue interest at 9 3/4% per year, payable semi-annually in
arrears on each of June 15 and December 15 of each year, beginning
December 15, 2004. Except as set forth below, the CSXT Obligor will
make interest payments to the holders of record on the immediately
preceding June 1 and December 1, respectively. The initial interest
payment on December 15, 2004 will include interest accrued from the
Closing Date; and
-- will be senior unsecured obligations of the CSXT Obligor.
THE NEW CSXT 7 7/8% NOTES:
The economic terms of the New CSXT 7 7/8% Notes are substantially identical
to the economic terms of the Conrail 7 7/8% Debentures. Therefore, holders of
outstanding Conrail Debentures who participate in this exchange offer and
consent solicitation, to the extent they receive New CSXT 7 7/8% Notes in
exchange for
CSXT-28
their current Conrail 7 7/8% Debentures, will receive the same amount in the
aggregate of interest payments that they would have received had they not
participated in this exchange offer and consent solicitation with respect to the
New CSXT Notes. Specifically, the New CSXT 7 7/8% Notes:
-- will have a maximum aggregate principal amount of $105 million,
subject to the treatment of fractional interests (42% of the $250
million aggregate principal amount of the Conrail 7 7/8% Debentures);
-- will mature on May 15, 2043;
-- will be dated as of the Closing Date;
-- will accrue interest at 7 7/8% per year, payable semi-annually in
arrears on each of May 15 and November 15 of each year, beginning
November 15, 2004. Except as set forth below, the CSXT Obligor will
make interest payments to the holders of record on the immediately
preceding May 1 and November 1, respectively. The initial interest
payment on November 15, 2004 will include interest accrued from the
Closing Date; and
-- will be senior unsecured obligations of the CSXT Obligor.
The CSXT Obligor will pay interest on the New CSXT Notes semi-annually in
arrears on the interest payment dates. Interest on the New CSXT Notes will be
computed on the basis of a 360-day year of twelve 30-day months. If any interest
payment date or a maturity date falls on a day that is not a business day, the
required payment shall be made on the next business day as if it were made the
date such payment was due, and no interest shall accrue on the amount so payable
for the period from and after such interest payment date or such maturity date,
as the case may be to such business day. Interest payable on the New CSXT Notes
on maturity will be payable to the person to whom principal is payable
notwithstanding ownership on the regular record date immediately preceding the
maturity date. The principal of and interest on the New CSXT Notes will be
payable at the office or agency of the trustee, acting as paying agent,
maintained for those purposes. However, at the CSXT Obligor's option, it may pay
interest by check mailed to the address of the registered holders as such
address appears in the security register maintained by the trustee, who will
initially act as the paying agent and registrar for the New CSXT Notes or by
transfer to an account maintained by the payee with a bank located in the United
States.
The New CSXT Notes will initially be issued in global form. See
"Description of This Exchange Offer and Consent Solicitation--Book-Entry
Transfer." The CSXT Obligor will not charge a service fee for any registration
of transfer or exchange of New CSXT Notes, but payment of a sum sufficient to
cover any tax or other governmental charge and any other expenses (including
fees and expenses of the trustee) that may be payable in connection therewith
(other than in certain circumstances) may be required.
For more information on payment and transfer procedures for the New CSXT
Notes, see "--Book-Entry Procedures" and "--Same-Day Settlement and Payment."
GUARANTEES
The obligations of NYC Newco under the New CSXT Notes will be fully and
unconditionally guaranteed on a senior, unsecured basis by CSXT. Immediately
following the consummation of this exchange offer and consent solicitation and
in connection with the consummation of the Conrail Spin Off Transactions, NYC
Newco will be merged with and into CSXT and the obligations of NYC Newco with
respect to the New CSXT Notes will be assumed by, and become the primary
obligations of, CSXT through the merger of NYC Newco with and into CSXT, with
CSXT as the surviving company, and the guarantee will thereafter automatically
terminate.
RANKING
The indebtedness evidenced by the New CSXT Notes ranks equally with all
existing and future senior unsecured indebtedness, if any, of NYC Newco, and,
while in effect, the CSXT guarantee ranks equally with all then existing and
future senior unsecured indebtedness, if any, of CSXT. In addition, following
the
CSXT-29
assumption by CSXT of obligations of NYC Newco with respect to the New CSXT
Notes, the New CSXT Notes will rank equally with all then existing and future
senior unsecured indebtedness, if any, of CSXT.
As of March 26, 2004, CSXT would have had approximately $1,409 million of
total indebtedness outstanding if holders of 100% of the Conrail Debentures had
validly tendered and not withdrawn their Conrail Debentures in connection with
this exchange offer and consent solicitation and the Conrail Spin Off
Transactions were consummated as of that date. Following the assumption by CSXT
of NYC Newco's obligations under the New CSXT Notes, the New CSXT Notes will be
subordinated to any secured indebtedness of CSXT, to the extent of the assets
securing that indebtedness, and structurally to all existing and future
obligations of subsidiaries of CSXT, including claims with respect to trade
payables. As of March 26, 2004, CSXT had approximately $815 million of secured
indebtedness and its subsidiaries had approximately $1 million of unsecured
indebtedness, each of which would rank senior to the New CSXT Notes. Of the $815
million of secured indebtedness of CSXT, subsidiaries of CSXT had approximately
$30 million of secured indebtedness outstanding as of March 26, 2004. In
addition, as of March 26, 2004, CSXT had approximately $2,914 million in
intercompany liabilities due to CSX and $294 million of intercompany liabilities
due to other affiliates of CSXT, each of which would rank equally with or junior
to the New CSXT Notes.
FURTHER ISSUES
The CSXT Obligor may, without the consent of the holders of the New CSXT
Notes, create and issue additional notes having the same ranking and the same
interest rate, maturity and other terms as the New CSXT Notes. Any such
additional notes would be consolidated with and form a single series with the
New CSXT Notes under the New CSXT Indenture.
CERTAIN COVENANTS
NYC Newco has agreed, and, upon assumption of the obligations of NYC Newco
with respect to the New CSXT Notes by CSXT, CSXT will agree, to some
restrictions on its activities for the benefit of holders of its debt securities
issued under the New CSXT Indenture, including, among other things, the
covenants set forth below. The restrictive covenants summarized below will
apply, unless the covenants are waived or amended, so long as any of the New
CSXT Notes are outstanding. Certain capitalized terms used in describing the
covenants will be defined within the section describing the applicable covenant.
The New CSXT Indenture will not contain any limit on the amount of
indebtedness or lease obligations that may be incurred by any of NYC Newco,
CSXT, CSX or their respective subsidiaries. The New CSXT Indenture will also not
contain provisions that would give holders of the New CSXT Notes the right to
require the CSXT Obligor to repurchase its debt securities in the event of a
decline in the credit rating of its debt securities resulting from a takeover,
recapitalization or similar restructuring.
LIMITATION UPON LIENS
Other than in connection with the Conrail Spin Off Transactions, neither
NYC Newco nor CSXT may, nor may it permit any Subsidiary to, create, assume,
incur or suffer to exist any Lien upon any stock or indebtedness, whether owned
on the date of the New CSXT Indenture or acquired later, of any Principal
Subsidiary, to secure any Obligation (other than the debt securities issued
pursuant to the New CSXT Indenture, including the New CSXT Notes) of NYC Newco
or CSXT, any of their respective Subsidiaries or any other person, unless all of
the outstanding debt securities issued pursuant to the New CSXT Indenture will
be directly secured equally and ratably with that Obligation.
This restriction does not apply to any other property of NYC Newco, CSXT,
CSX or their respective Subsidiaries. This provision does not restrict the sale
by CSXT or NYC Newco or any of their respective Subsidiaries of any stock or
indebtedness of any Subsidiary, including any Principal Subsidiary.
CSXT-30
The following definitions apply only to the foregoing limitation upon liens
covenant:
"Lien" means any mortgage, pledge, lien, encumbrance, charge, or security
interest of any kind securing an Obligation.
"Obligation" means indebtedness for borrowed money or indebtedness
evidenced by a bond, note, debenture or other evidence of indebtedness.
"Principal Subsidiary" means BOCT, an Illinois corporation, wholly owned by
CSXT.
"Subsidiary" means with respect to any entity, an entity a majority of the
outstanding voting stock of which is owned, directly or indirectly, by such
entity or one or more of such entity's Subsidiaries, or by such entity and one
or more of such entity's Subsidiaries.
CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER
Other than in connection with the Conrail Spin Off Transactions, for
purposes of this subsection, as such term is defined in the New CSXT Indenture,
the New CSXT Indenture will restrict the CSXT Obligor's ability to consolidate
with or merge into any other person or convey or transfer its properties and
assets substantially as an entirety to any person or permit any person to
consolidate with or merge into the CSXT Obligor or convey or transfer its
properties and assets substantially as an entirety to the CSXT Obligor unless:
(1) in case the CSXT Obligor shall consolidate with or merge into
another person or convey or transfer its properties and assets
substantially as an entirety to any person, the person formed by such
consolidation or into which the CSXT Obligor is merged or the person that
acquired such properties and assets shall be a legal entity organized and
existing under the laws of any domestic or foreign jurisdiction, and shall
expressly assume, by a supplemental New CSXT Indenture executed and
delivered to the trustee, all of the CSXT Obligor's obligations with
respect to the debt securities of each outstanding series and under the New
CSXT Indenture;
(2) immediately after giving effect to the transaction, no Event of
Default, and no event which, after notice or lapse of time, or both, would
become an Event of Default will have occurred and be continuing; and
(3) the CSXT Obligor delivers to the trustee an officer's certificate
and an opinion of counsel each stating that the transaction and
supplemental New CSXT Indenture, if any, comply with the applicable article
of the New CSXT Indenture and that all conditions precedent in the New CSXT
Indenture relating to the transaction have been complied with.
Upon the merger of NYC Newco into CSXT in connection with the Conrail Spin
Off Transactions, CSXT shall be deemed to have directly assumed the obligation
to make due and punctual payment of the principal of and interest on the New
CSXT Notes and perform every covenant of the New CSXT Indenture on the part of
NYC Newco to be performed or observed. Upon such assumption, CSXT shall succeed
to, and be substituted for and may exercise every right and power of NYC Newco
under the New CSXT Indenture with the same effect as if CSXT had been NYC Newco,
and NYC Newco shall be released from all obligations and covenants with respect
to the New CSXT Notes.
Upon any subsequent express assumption of the CSXT Obligor's obligations as
described in (1) above, the CSXT Obligor shall be released and discharged from
all obligations and covenants under the New CSXT Indenture and all New CSXT
Notes.
The New CSXT Indenture and the guarantee do not limit the ability of CSXT,
as guarantor, to consolidate with, merge into, convey or transfer its properties
and assets, but such activities of CSXT will be so limited by provisions of the
New CSXT Indenture set forth above upon NYC Newco's merger into CSXT and CSXT's
assumption of NYC Newco's obligations with respect to the New CSXT Notes.
NO REDEMPTION OR SINKING FUND
There will be no redemption prior to maturity or any sinking fund.
CSXT-31
NO CONVERSION OR EXCHANGE
The New CSXT Notes will not be convertible into or exchangeable for any
other debt or equity securities of the CSXT Obligor.
NO REPAYMENT AT OPTION OF THE HOLDERS
The New CSXT Notes will not be repayable at the option of the holders of
the New CSXT Notes before their stated maturity.
EVENTS OF DEFAULT
The New CSXT Indenture defines an "Event of Default" as any of the
following events with respect to debt securities of any series, including the
New CSXT Notes:
(a) failure to pay principal of or premium, if any, on, or additional
amounts, if any, payable in respect of the principal of or premium, if any,
on, any of the debt securities of that series when due;
(b) failure to pay any interest on, or additional amounts, if any,
payable in respect of any interest on, any debt security of that series
when due, continued for 30 days;
(c) failure to deposit any sinking fund payment, when due, in respect
of any debt security of that series;
(d) failure to perform, or breach of, any other covenant or warranty
of the CSXT Obligor in the New CSXT Indenture or any debt security of that
series (other than a covenant or warranty included in the New CSXT
Indenture solely for the benefit of series of debt securities other than
that series) continued for 90 days after written notice as provided in the
New CSXT Indenture;
(e) certain events of bankruptcy, insolvency or reorganization of the
CSXT Obligor or CSXT, as guarantor;
(f) subject to the termination of the guarantee as described in the
New CSXT Indenture, failure of the guarantee to be (or a claim by CSXT, as
guarantor, that the guarantee is not) in full force and effect; or
(g) any other Event of Default provided with respect to debt
securities of that series.
If an Event of Default with respect to debt securities of any series,
including, as to the New CSXT 9 3/4% Notes or the New CSXT 7 7/8% Notes, at the
time outstanding occurs and is continuing, either the trustee or the holders of
at least 25% in principal amount of the outstanding debt securities of that
series may declare the principal of all of the outstanding debt securities of
such series (or a lesser amount as may be provided in the debt securities of
that series) to be due and payable immediately. At any time after a declaration
of acceleration with respect to debt securities of any series, including, as to
the New CSXT 9 3/4% Notes or the New CSXT 7 7/8% Notes, has been made but before
a judgment or decree for payment of money due has been obtained by the trustee,
the holders of at least a majority in principal amount of the outstanding debt
securities of that series may by written notice rescind and annul any
declaration of acceleration and its consequences, if all payments due (other
than those due as a result of acceleration) have been made and all Events of
Default have been cured or waived.
No Event of Default with respect to any particular series of debt
securities, including, as to the New CSXT 9 3/4% Notes or the New CSXT 7 7/8%
Notes, necessarily constitutes an Event of Default with respect to any other
series of debt securities. The New CSXT Indenture also provides that the trustee
may withhold notice to the holders of the debt securities of any series of the
occurrence of a default with respect to the debt securities of that series
(except a default in payment of principal, or premium, if any, or interest, if
any, or additional amounts, if any, or sinking fund payments, if any) if the
trustee in good faith considers it in the best interests of the holders to do
so.
CSXT-32
The New CSXT Indenture provides that, subject to the provisions of the New
CSXT Indenture requiring the trustee, during an Event of Default under the New
CSXT Indenture, to act with the requisite standard of care, and relating to the
duties of the trustee in case an Event of Default occurs and is continuing, the
trustee will not be under any obligation to exercise any of its rights or powers
under the New CSXT Indenture at the request or direction of any of the debt
security holders, unless such holders shall have offered to the trustee security
or indemnity reasonably satisfactory to the trustee. Subject to providing for
indemnification of the trustee and compliance with all laws and the terms of the
New CSXT Indenture or the debt securities of such series, the holders of a
majority in principal amount of the outstanding debt securities of any series
(voting on a series-by-series basis) will have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
trustee, or exercising any trust or power conferred on the trustee, in each
case, with respect to such series of debt securities, including as to the New
CSXT Notes; provided that the trustee may take any other action it deems proper
which is not inconsistent with such direction, and provided further that such
direction shall not subject the trustee to any personal liability.
The New CSXT Indenture provides that no holder of any debt securities of
any series, including, as to the New CSXT 9 3/4% Notes or the New CSXT 7 7/8%
Notes, will have any right to institute any proceeding with respect to the New
CSXT Indenture, or for the appointment of a receiver or trustee, or for any
remedy under the New CSXT Indenture, unless that holder has previously given to
the trustee written notice of a continuing Event of Default with respect to debt
securities of that series, the holders of at least 25% in principal amount of
the outstanding debt securities of that series have made written request to the
trustee, and offered indemnity or security reasonably satisfactory to the
trustee, to institute the proceeding as trustee, and the trustee has not
received from the holders of a majority in principal amount of the outstanding
debt securities of that series a direction inconsistent with that request and
has failed to institute the proceeding within 60 days. However, these
limitations do not apply to a suit instituted by a holder of an outstanding debt
security of that series for enforcement of payment of the principal of, or any
premium or interest on, or additional amounts, if any, with respect to that debt
security on or after the respective due dates expressed in that debt security.
The New CSXT Indenture requires the CSXT Obligor to furnish to the trustee
annually a statement as to the performance by the CSXT Obligor of its
obligations under the New CSXT Indenture and as to any material default in such
performance.
DISCHARGE AND DEFEASANCE OF INDENTURE
The New CSXT Indenture provides generally that the CSXT Obligor may
terminate its obligations and the guarantee with respect to an issue of New CSXT
Notes and the New CSXT Indenture with respect to that series of the New CSXT
Notes (subject to the survival of certain provisions of the New CSXT Indenture
as described below) if:
-- the CSXT Obligor has delivered to the trustee for cancellation all of
the New CSXT Notes of the affected series issued under the New CSXT
Indenture (other than lost, destroyed or stolen New CSXT Notes that
have been replaced or paid and New CSXT Notes of the affected series
for whose payment money has been deposited and held in trust and
thereafter repaid to the Company or otherwise discharged from such
trust as provided in the New CSXT Indenture); or
-- the New CSXT Notes of the affected series issued under the New CSXT
Indenture not previously delivered to the trustee for cancellation
have become due and payable, or are by their terms to become due and
payable within one year, and the CSXT Obligor has deposited with the
trustee as trust funds the entire amount sufficient to pay and
discharge the entire indebtedness on the New CSXT Notes of the
affected series issued under the New CSXT Indenture not previously
delivered to the trustee for cancellation; and
-- in the case of each bullet above, the CSXT Obligor has paid or caused
to be paid all other sums payable under the New CSXT Indenture with
respect to the New CSXT Notes of the affected series by the CSXT
Obligor, and the CSXT Obligor has delivered an officer's certificate
and an opinion of counsel each stating that the requisite conditions
have been complied with.
CSXT-33
With respect to all New CSXT Notes of the discharged series, only the CSXT
Obligor's obligations to compensate and indemnify the trustee and, if money
shall have been deposited with the trustee in connection with such discharge,
the obligations of the trustee under the New CSXT Indenture to among other
things: (1) pay in accordance with the terms of such New CSXT Notes the moneys
held for payment in trust, (2) register the transfer or exchange of such New
CSXT Notes, (3) subject to the satisfaction of certain conditions, substitute
for any mutilated, destroyed, lost or stolen New CSXT Notes of the discharged
series, and (4) subject to the satisfaction of certain conditions, repay to the
CSXT Obligor any unclaimed money held by the trustee under the New CSXT
Indenture, shall survive the discharge.
The New CSXT Indenture also provides that, except in certain circumstances,
the CSXT Obligor may elect with respect to a series of New CSXT Notes either
(1) "defeasance" to defease and be discharged, and discharge CSXT, as
guarantor, from any and all obligations with respect to that series (except
as otherwise provided in the New CSXT Indenture); or
(2) "covenant defeasance" to be released from the CSXT Obligor's, and
CSXT's, as guarantor, obligations with respect to that series described
above under "--Certain Covenants," "--Limitation upon Liens" and
"--Consolidation, Merger, Conveyance or Transfer."
Subsequent to defeasance of any series of debt securities, the obligations
of the CSXT Obligor and/or the trustee with respect to the issue of defeased
debt securities to, among other things: (1) have moneys held for payment in
trust, (2) pay in accordance with the terms of such New CSXT Notes the moneys
held for payment in trust, (3) maintain an office or agency in respect of such
debt securities, (4) register the transfer or exchange of such debt securities,
(5) subject to the satisfaction of certain conditions, substitute for any
mutilated, destroyed, lost or stolen debt securities of the discharged series,
and (6) subject to the satisfaction of certain conditions, repay to the CSXT
Obligor any unclaimed money or money in excess of the amounts required to be
deposited, in each case, held by the trustee under the New CSXT Indenture, shall
survive until such debt securities are no longer outstanding. In addition, the
New CSXT Indenture provides that the rights, obligations, duties and immunities
of the trustee under the New CSXT Indenture shall survive.
If the CSXT Obligor exercises its defeasance option with respect to any
series of New CSXT Notes, payment of those notes may not be accelerated because
of an Event of Default. In addition, if the CSXT Obligor exercises its covenant
defeasance option with respect to any series of New CSXT Notes, payment of those
New CSXT Notes may not be accelerated because of an Event of Default related to
the covenants noted under clause (2) of the paragraph preceding the immediately
preceding paragraph. The CSXT Obligor may also exercise its defeasance option
with respect to any series of New CSXT Notes even though the CSXT Obligor may
have previously exercised its covenant defeasance option with respect to such
debt securities.
The CSXT Obligor may exercise its defeasance option or its covenant
defeasance option with respect to any series of New CSXT Notes only if:
(1) the CSXT Obligor irrevocably deposits in trust with the trustee
cash and/or U.S. government obligations for the payment of principal and
interest with respect to such series of New CSXT Notes to maturity, and the
CSXT Obligor delivers to the trustee a certificate from a nationally
recognized firm of independent public accountants expressing their opinion
that the payments of principal and interest, when due and without
reinvestment on the deposited U.S. government obligations plus any
deposited money without investment, will provide cash at the times and in
the amounts as will be sufficient to pay the principal and interest when
due with respect to all New CSXT Notes of that series to maturity;
(2) no Event of Default or event which with notice or lapse of time or
both would become an Event of Default with respect to the New CSXT Notes of
that series has occurred and is continuing
-- on the date of the deposit; or
-- with respect to certain bankruptcy defaults, at any time during
the period ending on the 123rd day after the date of the deposit
(it being understood that this condition will not be deemed
satisfied until the expiration of such period);
CSXT-34
(3) the defeasance or covenant defeasance does not result in the
trustee having a conflicting interest for purposes of the TIA;
(4) the defeasance or covenant defeasance does not result in the trust
arising from that deposit constituting, unless it is qualified as, a
regulated investment company under the Investment Company Act of 1940, as
amended;
(5) the defeasance or covenant defeasance does not result in a breach
or violation of, or constitute a default under, the New CSXT Indenture or
any other material agreement or instrument to which the CSXT Obligor is a
party or by which the CSXT Obligor is bound;
(6) the CSXT Obligor delivers to the trustee an opinion of counsel to
the effect that the holders of the New CSXT Notes of that series will not
recognize income, gain or loss for United States federal income tax
purposes as a result of the defeasance or covenant defeasance, as the case
may be, and will be subject to United States federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if the defeasance or covenant defeasance, as the case may be, had not
occurred; and
(7) the CSXT Obligor delivers to the trustee an officer's certificate
and an opinion of counsel, each stating that all conditions precedent to
the defeasance or covenant defeasance of such series of New CSXT Notes as
contemplated by the New CSXT Indenture have been complied with.
The opinion of counsel referred to in clause (6) above for purposes of
defeasance must refer to and be based upon a ruling of the IRS or a change in
applicable United States federal income tax law occurring after the date of the
New CSXT Indenture.
The trustee must hold in trust cash or U.S. government obligations
deposited with it as described above and must apply, in accordance with the
respective terms of the applicable series of the New CSXT Notes, the deposited
cash and the proceeds from deposited U.S. government obligations to the payment
of principal and interest with respect to the New CSXT Notes of that series.
MODIFICATION AND WAIVER
The New CSXT Indenture contains provisions permitting the CSXT Obligor,
CSXT, as guarantor, and the trustee, with the consent of the holders of not less
than a majority in aggregate principal amount of the outstanding debt securities
of all series issued under the New CSXT Indenture, including the New CSXT 9 3/4%
Notes and the New CSXT 7 7/8% Notes, affected by such modification or amendment,
voting as a single class, to modify or amend any of the provisions of the New
CSXT Indenture or of those debt securities or the rights of the holders of those
debt securities under the New CSXT Indenture, provided that no modification or
amendment will, without the consent of each holder of each outstanding debt
security affected by that modification or amendment, among other things:
-- change the stated maturity of the principal of, or any premium or
installment of interest on, or additional amounts, if any, with
respect to, any debt security, or reduce the principal amount of or
the rate of interest on or additional amounts, if any, with respect
to, any debt security, or change the place of payment or currency in
which any debt security or interest on any debt security or
additional amount, if any, with respect to any debt security is
payable, or impair the right to institute suit for the enforcement of
any payment on or after the stated maturity of any debt security;
-- reduce the percentage in principal amount of any one or more series
of debt securities, the consent of whose holders is required for any
modification or amendment or the consent of whose holders is required
for any waiver (of compliance with certain provisions of the New CSXT
Indenture or certain defaults under the New CSXT Indenture and their
consequences) provided for in the New CSXT Indenture, or reduce the
requirements for a quorum or voting at a meeting of holders of one or
more of the series of debt securities;
-- change any obligation of the CSXT Obligor to maintain an office or
agency in the places and for the purposes required by the New CSXT
Indenture;
CSXT-35
-- release CSXT, as guarantor from the guarantee, except in the manner
provided for in the New CSXT Indenture; or
-- modify the provisions of the New CSXT Indenture relating to waivers
or amendments (except to increase such limitations or to provide that
certain other provisions of the New CSXT Indenture cannot be modified
or waived without the consent of the holder of each outstanding debt
security affected thereby).
The New CSXT Indenture also contains provisions permitting the CSXT
Obligor, CSXT, as guarantor, and the trustee, without the consent of the holders
of the debt securities issued under the New CSXT Indenture, to modify or amend
the New CSXT Indenture in order, among other things:
-- to add any additional Events of Default or add to the covenants of
the CSXT Obligor for the benefit of the holders of all or any series
of debt securities issued under the New CSXT Indenture;
-- to establish the form or terms of debt securities of any series;
-- to cure any ambiguity or correct any inconsistency in the New CSXT
Indenture, or to make any other provisions with respect to the New
CSXT Indenture which will not adversely affect the interests of the
holders of any debt securities of any series then outstanding issued
under the New CSXT Indenture in any material respect;
-- to secure any debt securities;
-- to make provisions regarding conversion or exchange rights of holders
of any debt securities; or
-- to amend or supplement any provision of the New CSXT Indenture or any
supplemental indenture, provided that such amendment or supplement
does not apply to any outstanding debt security issued prior to the
date of such supplemental indenture and entitled to the benefit of
such provision.
The holders of not less than a majority in principal amount of the affected
series of the New CSXT Notes outstanding may, on behalf of the holders of all
the New CSXT Notes of that series, waive, insofar as that series is concerned,
compliance by the CSXT Obligor with certain restrictive provisions of the New
CSXT Indenture. The holders of not less than a majority in principal amount of
the affected series of New CSXT Notes outstanding may, on behalf of all holders
of New CSXT Notes of that series, waive any past default under the New CSXT
Indenture with respect to New CSXT Notes of that series, except a default (a) in
the payment of principal of or interest on any New CSXT Notes of that series or
(b) in respect of a covenant or provision of the New CSXT Indenture which cannot
be modified or amended without the consent of the holder of each outstanding
debt security of the series affected.
The New CSXT Indenture provides that in determining whether the holders of
the requisite principal amount of the outstanding debt securities have given any
request, demand, authorization, direction, notice, consent or waiver under the
New CSXT Indenture or are present at a meeting of holders of debt securities for
quorum purposes, any debt security owned by the CSXT Obligor or any affiliate of
the CSXT Obligor will be deemed not to be outstanding.
The New CSXT Indenture contains provisions for convening meetings of the
holders of debt securities of any one or more series and the procedures for any
adjournment of a meeting. A meeting may be called at any time by the trustee,
and also, upon request, by the CSXT Obligor or the holders of at least 10% in
principal amount of the outstanding debt securities of the applicable series, in
each case upon notice given in accordance with the provisions of the New CSXT
Indenture. Except for any consent that must be given by the holder of each
outstanding debt security that would be affected (as described above), any
resolution presented at a meeting, or adjourned meeting duly reconvened, at
which a quorum (as described below) is present may be adopted by the affirmative
vote of the holders of a majority in principal amount of the outstanding debt
securities of that series; provided, however, with respect to a consent or
waiver that may be given in connection with a modification or amendment of any
of the provisions of the New CSXT Indenture or of the debt securities or the
rights of the holders of the debt securities under the New CSXT Indenture
pursuant to a supplemental indenture, any resolution presented at a meeting, or
adjourned meeting duly reconvened, at
CSXT-36
which a quorum is present may be adopted by the affirmative vote of the holders
of a majority in aggregate principal amount of the outstanding debt securities
of all series affected by any such modification or amendment pursuant to any
such supplemental indenture, voting as a single class; provided, further,
however, that, except for any consent that must be given by the holder of each
outstanding debt security that would be affected (as described above), any
resolution with respect to any consent, waiver, request, demand, notice,
authorization, direction or other action that may be given by the holders of not
less than a specified percentage, or of less than a majority, in principal
amount of the outstanding debt securities of one or more series may be adopted
at a meeting, or an adjourned meeting duly reconvened, at which a quorum is
present only by the affirmative vote of the holders of not less than the
specified percentage in principal amount of the outstanding debt securities of
the applicable series.
Any resolution passed or decision taken at any meeting of holders of debt
securities of any one or more series duly held in accordance with the New CSXT
Indenture will be binding on all holders of debt securities of such applicable
series. The quorum required for any meeting called to adopt a resolution, and at
any reconvened meeting, will be persons holding or representing a majority in
principal amount of the outstanding debt securities of a series; provided,
however, with respect to a consent or waiver that may be given in connection
with a modification or amendment of any of the provisions of the New CSXT
Indenture or of the debt securities or the rights of the holders of the debt
securities under the New CSXT Indenture pursuant to a supplemental indenture,
the persons entitled to vote a majority in aggregate principal amount of the
outstanding securities of all series affected by any such modification or
amendment pursuant to any such supplemental indenture, voting as a single class,
will constitute a quorum; provided, further, however, that if any action is to
be taken at that meeting with respect to a consent, waiver, request, demand,
notice, authorization, direction or other action that may be given by the
holders of not less than a specified percentage in principal amount of the
outstanding debt securities of one or more series, the persons holding or
representing that specified percentage in principal amount of the outstanding
debt securities of the applicable series will constitute a quorum.
CONCERNING THE TRUSTEE
The TIA contains limitations on the rights of a trustee, should it become a
creditor of the CSXT Obligor, to obtain payment of claims in certain cases or to
realize on certain property received by it in respect of those claims, as
security or otherwise. The trustee is, however, permitted to engage in other
transactions with NYC Newco, CSXT and/or their respective subsidiaries or
affiliates from time to time, provided that if the trustee acquires any
conflicting interest it must eliminate the conflict upon the occurrence of an
Event of Default under the New CSXT Indenture, or else resign.
Each of NYC Newco and CSXT and certain of their respective subsidiaries or
affiliates may from time to time maintain lines of credit, and have other
customary banking and commercial relationships, with The Bank of New York and
its affiliates. For example, The Bank of New York acts as trustee under various
CSXT equipment trust certificate issues, provides foreign exchange services for
a CSX subsidiary, underwriting services, including acting as co-manager, for
CSX's bond offerings, and pension management transition services. CSX is also
currently evaluating whether to use The Bank of New York as its stock transfer
agent.
BOOK-ENTRY PROCEDURES
The CSXT Obligor will initially issue the New CSXT Notes in the form of one
or more global notes, or the "CSXT Global Notes," in definitive, fully
registered form without interest coupons. Each beneficial interest in a CSXT
Global Note is referred to herein as a "CSXT Book-Entry Note." Each CSXT Global
Note representing CSXT Book-Entry Notes will be deposited with the trustee, as
custodian for, and registered in the name of, a nominee of DTC, as depositary,
located in the Borough of Manhattan, The City of New York.
The CSXT Global Notes representing CSXT Book-Entry Notes may not be
transferred except as a whole by a nominee of the depositary to the depositary
or to another nominee of the depositary, or by the depositary or the nominee to
a successor of the depositary or a nominee of the successor.
CSXT-37
THE DEPOSITARY
The following operations and procedures are solely within the control of
the depositary and are subject to change by the depositary from time to time.
None of the trustee, the CSXT Obligor, CSXT, as guarantor, or any of their
respective agents takes any responsibility for these operations or procedures,
and investors are urged to contact the depositary or the persons that have
accounts with the depositary (referred to herein as "Participants") directly to
discuss these matters.
The depositary has advised the CSXT Obligor as follows: the depositary is a
limited purpose trust company organized under the laws of the State of New York,
a "banking organization" within the meaning of New York Banking Law, a member of
the Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. The depositary was created to
hold securities of its Participants and to facilitate the clearance and
settlement of securities transactions among its Participants in such securities
through electronic book-entry changes in accounts of its Participants and
certain other organizations, thereby eliminating the need for physical movement
of securities certificates. The depositary's Participants include securities
brokers and dealers, banks, trust companies, clearing corporations, and certain
other organizations, some of which (and/or their representatives) own interests
in the depositary. Indirect access to the depositary's book-entry system is also
available to others, such as banks, brokers, dealers and trust companies
(collectively referred to herein as the "Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly.
The CSXT Obligor has been advised by the depositary that upon the issuance
of CSXT Global Notes representing CSXT Book-Entry Notes, and the deposit of
those CSXT Global Notes with the depositary, the depositary will immediately
credit, on its book-entry registration and transfer system, the respective
principal amounts of the CSXT Book-Entry Notes represented by those CSXT Global
Notes to the accounts of Participants. Ownership of beneficial interests in CSXT
Book-Entry Notes will be limited to Participants or Indirect Participants.
Ownership of beneficial interests in CSXT Book-Entry Notes will be shown on, and
the transfer of that ownership will be effected only through, records maintained
by the depositary or its nominee (with respect to interests of Participants) and
the records of Participants (with respect to Indirect Participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Those
laws may impair the ability to transfer or pledge CSXT Book-Entry Notes.
So long as the depositary, or its nominee, is the registered owner or
holder of a CSXT Global Note, the depositary or the nominee, as the case may be,
will be considered the sole legal owner or holder of the New CSXT Notes
represented by that CSXT Global Note for all purposes under the New CSXT
Indenture and the New CSXT Notes. Except as set forth below under
"--Certificated Notes," owners of CSXT Book-Entry Notes will not be entitled to
receive physical delivery of notes in definitive form and will not be considered
the holders of those notes for any purpose under the New CSXT Indenture, and no
CSXT Global Note representing CSXT Book-Entry Notes will be exchangeable, except
for another CSXT Global Note of like denomination and tenor to be registered in
the name of the depositary or its nominee. Accordingly, each person owning a
CSXT Book-Entry Note must rely on the procedures of the depositary, and if that
person is not a Participant, on the procedures of the Participant through which
that person owns its interest, to exercise any rights of a holder under that
CSXT Global Note or the New CSXT Indenture. The New CSXT Indenture provides that
the depositary, as a holder, may appoint agents and otherwise authorize
Participants to give or take any request, demand, authorization, direction,
notice, consent, waiver or other action that a holder is entitled to give or
take under the New CSXT Indenture. The CSXT Obligor understands that under
existing industry practices, if the CSXT Obligor requests any action of holders
or an owner of a CSXT Book-Entry Note desires to give or take any action a
holder is entitled to give or take under the New CSXT Indenture, the depositary
would authorize the Participants owning the relevant CSXT Book-Entry Notes to
give or take that action, and those Participants would authorize beneficial
owners owning through those Participants to give or take that action or would
otherwise act upon the instructions of beneficial owners owning through them.
CSXT-38
The CSXT Obligor expects that the depositary or its nominee, upon receipt
of any payment of principal of or interest in respect of a CSXT Global Note,
will immediately credit, on its book-entry registration and transfer system,
accounts of Participants with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the applicable CSXT
Global Note as shown on the records of the depositary or its nominee. The CSXT
Obligor also expects that payments by Participants or Indirect Participants or
account holders, as applicable, to owners of beneficial interests in CSXT
Book-Entry Notes held through those Participants or Indirect Participants or
account holders will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of customers
registered in "street name," and will be the responsibility of such Participants
or Indirect Participants or account holders, as applicable. None of the CSXT
Obligor, CSXT, as guarantor, the trustee or any agent of the CSXT Obligor, CSXT,
as guarantor, or the trustee will have any responsibility or liability for any
acts or omissions of the depositary, for any aspect of the depositary's records
or any Participant's records relating to or payments made on account of CSXT
Book-Entry Notes or for maintaining, supervising or reviewing any of the
depositary's records or any Participant's records relating to CSXT Book-Entry
Notes, or for any other aspect of the relationship, including transfers of
beneficial interests in a CSXT Book-Entry Note, between the depositary and its
Participants or Indirect Participants, or the relationship between such
Participants or Indirect Participants and the owners of beneficial interests in
the CSXT Global Notes owning through such Participants or Indirect Participants.
CERTIFICATED NOTES
Subject to certain conditions, the CSXT Global Notes representing CSXT
Book-Entry Notes are exchangeable for certificated notes in definitive
registered form, of like tenor and of an equal aggregate principal amount, only
if:
(1) the depositary notifies the CSXT Obligor that it is unwilling,
unable or ineligible to continue as depositary for the CSXT Global Note and
a successor depositary is not appointed by the CSXT Obligor within 90 days;
(2) the CSXT Obligor in its sole discretion determines that the CSXT
Book-Entry Notes will be exchangeable for certificated notes in definitive
registered form; or
(3) an event of default entitling the holders of the applicable New
CSXT Notes to accelerate the maturity thereof has occurred and is
continuing.
Any CSXT Global Note representing CSXT Book-Entry Notes that is
exchangeable pursuant to the preceding sentence will be exchangeable in whole
for certificated notes in definitive registered form, of like tenor and of an
equal aggregate principal amount, in denominations of $1,000 and integral
multiples of $1,000. Upon the exchange of a CSXT Global Note for certificated
notes, the CSXT Global Note will be canceled by the trustee and the certificated
notes will be registered in the names and in the authorized denominations as the
depositary, pursuant to instructions from its Participants, any Indirect
Participants or otherwise, instructs the trustee. The trustee will deliver those
certificated notes to the persons in whose names those notes are registered and
will recognize those persons as the holders of those notes.
GOVERNING LAW
The New CSXT Indenture (including the guarantee) and the New CSXT Notes
issued under the New CSXT Indenture will be governed by, and construed in
accordance with, the internal laws of the State of New York.
NOTICES
The New CSXT Indenture provides that, in all cases where the New CSXT
Indenture provides for notice to holders of debt securities of any event,
notices to holders of registered securities will be given by mail to each such
holder affected by the event, at the holder's address as it appears in the
security register.
CSXT-39
SAME-DAY SETTLEMENT AND PAYMENT
The New CSXT Indenture requires payments of principal and interest on CSXT
Book-Entry Notes to be made to the depositary or its nominee, as the case may
be, as the registered owner of the CSXT Global Notes. Those payments to the
depositary or its nominee, as the case may be, will be made in immediately
available funds at the offices of The Bank of New York, as paying agent, in the
Borough of Manhattan, The City of New York, provided that, in the case of
payments of principal, the CSXT Global Notes are presented to the paying agent
in time for the paying agent to make those payments in immediately available
funds in accordance with its normal procedures. In addition, transfers between
Participants in the depositary will be effected in the ordinary way in
accordance with the depositary's rules and will be settled in same-day funds.
Payments (including principal and interest) and transfers with respect to
New CSXT Notes in certificated form may be executed at the office or agency
maintained for such purpose within the City and State of New York (initially the
office of the paying agent maintained for such purpose) or, at the CSXT
Obligor's option, by check mailed to the holders thereof at the respective
addresses set forth in the register of holders of the applicable New CSXT Notes,
or by wire transfer of immediately available funds to the accounts specified by
the holders thereof as set forth in the register of holders of the applicable
New CSXT Notes. No service charge will be made for any registration of transfer,
but payment of a sum sufficient to cover any tax or other governmental charge
and any other expenses (including fees and expenses of the trustee) that may be
payable in connection therewith (other than in certain circumstances) may be
required.
Secondary trading in long-term notes and notes of corporate issuers is
generally settled in clearinghouse or next-day funds. In contrast, the CSXT
Global Notes are expected to trade in the depositary's same-day funds settlement
system until maturity, and secondary market trading activity in the CSXT Global
Notes will therefore be required by the depositary to settle in immediately
available funds. Secondary trading in certificated New CSXT Notes will also be
required to be settled in immediately available funds. No assurance can be given
as to the effect, if any, of settlement in immediately available funds on
trading activity in the New CSXT Notes.
CSXT-40
COMPARISON OF THE NEW CSXT NOTES AND THE CONRAIL DEBENTURES
The following comparison of the New CSXT Notes and the Conrail Debentures
summarizes the material differences between the New CSXT Notes and the Conrail
Debentures. See "Description of the New CSXT Notes" for a more complete
discussion of the material terms of the New CSXT Indenture and the New CSXT
Notes. Because this is a summary, it may not contain all the information that is
important to you. You should therefore read the New CSXT Indenture and the form
of the New CSXT Notes, both of which have been filed as exhibits to the
registration statement of which this CSXT Appendix forms a part, in their
entirety. The Conrail Debentures compared below reflect the Conrail Debentures
as they exist today without taking into account any changes discussed and
described elsewhere in this prospectus and consent solicitation statement, of
which this CSXT Appendix forms a part, under "Description of This Exchange Offer
and Consent Solicitation--Proposed Amendments."
COMPARISON OF BASIC TERMS
CHANGES IN OBLIGORS
The Conrail Debentures are and will continue to be the obligation of
Conrail and, upon consummation of the Conrail Spin Off Transactions, will be
governed by the Conrail Indenture as amended by the Conrail Supplemental
Indenture. See "Description of This Exchange Offer and Consent
Solicitation--Proposed Amendments" elsewhere in the prospectus and consent
solicitation statement of which this CSXT Appendix forms a part. The New CSXT
Notes will initially be the primary obligation of NYC Newco and will be fully
and unconditionally guaranteed by CSXT. In connection with the consummation of
the Conrail Spin Off Transactions, NYC Newco will be merged with and into CSXT,
which will thereby assume the obligations of NYC Newco with respect to the New
CSXT Notes and will become the primary obligor of the New CSXT Notes, and the
guarantee will thereafter automatically terminate.
NO CHANGES TO INTEREST RATE, MATURITY DATE, INTEREST PAYMENT DATES
The economic terms of each series of the New CSXT Notes are substantially
identical to the current economic terms of the parallel series of Conrail
Debentures, other than as to the aggregate principal amount since each series of
New CSXT Notes will only represent approximately 42% of each parallel series of
Conrail Debentures. Except as set forth in the next paragraph, none of the
maturity dates, interest payment dates, interest rates, or any other similar
terms of the New CSXT Notes will be different from the respective terms of the
Conrail Debentures for which they will be exchanged. Therefore, holders of
outstanding Conrail Debentures who participate in this exchange offer and
consent solicitation, to the extent they receive New CSXT Notes in exchange for
their current Conrail Debentures, will receive the same amount in the aggregate
of interest payments that they would have received had they not participated in
this exchange offer and consent solicitation with respect to the New CSXT Notes.
The New CSXT Notes, however, will provide that interest payable on the New CSXT
Notes on maturity will be payable to the person to whom principal is payable
notwithstanding ownership on the regular record date immediately preceding the
maturity date. For a detailed description of the economic terms of the New CSXT
Notes, see "Description of the New CSXT Notes--Basic Terms of the New CSXT
Notes."
Interest on the New Exchange Notes will accrue from the Closing Date.
Interest accrued and unpaid on any Conrail Debentures accepted in this exchange
offer and consent solicitation will be paid by Conrail on each scheduled
interest payment date that occurs prior to the Closing Date. Conrail will also
pay all accrued and unpaid interest on the Conrail Debentures from the interest
payment date immediately preceding the Closing Date through and including the
calendar day immediately prior to the Closing Date. Conrail will make this
interest payment on the Closing Date. In the event the Closing Date occurs on or
before an interest payment date for any series of Conrail Debentures but after
the record date for that interest payment date, holders of Conrail Debentures
accepted in this exchange offer and consent solicitation will be deemed to have
waived their right to receive from Conrail any other amount of interest that
would otherwise be payable after the Closing Date.
CSXT-41
Conrail Debentures that are not tendered or are tendered but not accepted
in this exchange offer and consent solicitation will remain outstanding debt
obligations of Conrail. Holders of these unexchanged Conrail Debentures will be
entitled to receive the same amount of interest payments on the same interest
payment dates as currently scheduled for such Conrail Debentures.
NO REDEMPTION OR SINKING FUND
Neither the New CSXT Notes nor the Conrail Debentures are subject to
redemption prior to maturity or to any sinking fund.
NO CONVERSION OR EXCHANGE
Neither the New CSXT Notes nor the Conrail Debentures are convertible into
or exchangeable for the common stock, preferred stock, depositary shares or
other debt securities of their respective primary obligors.
NO REPAYMENT AT OPTION OF THE HOLDERS
Neither the New CSXT Notes nor the Conrail Debentures are repayable at the
option of the holders of such notes before their stated maturity.
COVENANTS
For a description of some of the restrictive covenants contained in the New
CSXT Indenture, see "Description of the New CSXT Notes--Certain Covenants."
LIMITATION UPON LIENS
The Conrail Indenture provides that (i) Conrail will not itself, and will
not permit any Subsidiary to, create, incur, issue or assume any notes, bonds,
debentures or other evidences of indebtedness for money borrowed (notes, bonds,
debentures or other similar evidences of indebtedness for money borrowed will be
referred to herein as "Debt"), secured by any pledge of, or mortgage, lien,
encumbrance and security interest (such pledges, mortgages, liens, encumbrances
and security interests will be referred to herein as "Liens") on any Principal
Property owned by Conrail or any Subsidiary and (ii) Conrail will not itself and
will not permit any Subsidiary to create, incur, issue or assume any Debt
secured by any Lien on any shares of stock or Debt of any Subsidiary, without,
in any event described in the foregoing clause (i) or (ii), equally and ratably
securing the Conrail Debentures, unless after giving effect thereto the
aggregate principal amount of such secured Debt then outstanding would not
exceed an amount equal to 20% of Consolidated Net Tangible Assets. This
restriction does not apply to, and there will be excluded in computing secured
Debt for purposes of this restriction, Debt secured by certain permitted Liens,
including:
-- Liens existing on May 1, 1990;
-- Liens existing on any property or assets of, or shares of stock or
Debt of, any corporation at the time it becomes a Subsidiary, or
arising thereafter (1) otherwise than in connection with the
borrowing of money arranged thereafter and (2) pursuant to
contractual commitments entered into prior to, and not in
contemplation of, such corporation becoming a Subsidiary;
-- Liens on property or assets (including shares of stock or Debt of a
Subsidiary existing at the time of acquisition thereof) and certain
purchase money or similar liens incurred at the time of acquisition
or within twelve months thereafter;
-- Liens securing Debt owing by a Subsidiary to Conrail or to another
Subsidiary;
-- Liens in connection with government contracts, including the
assignment of moneys due or to become due thereon;
CSXT-42
-- materialmen's, carriers', mechanics', workmen's, repairmen's or other
like liens arising in the ordinary course of business that are not
overdue or that are being contested in good faith in appropriate
proceedings;
-- certain deposits or pledges as security for performance of certain
contracts or undertakings not directly or indirectly in connection
with the securing of Debt;
-- certain Liens in connection with legal proceedings; and
-- extensions, substitutions, replacements or renewals of the foregoing.
The "Limitation upon Liens" covenant in the Conrail Indenture described
above differs from the covenant in the New CSXT Indenture that is described in
this prospectus and consent solicitation statement under "Description of the New
CSXT Notes--Certain Covenants" and "Description of the New CSXT
Notes--Limitation upon Liens." The provisions are similar in part, as they each
restrict the creation of any liens on the shares of stock or debt of certain of
each corporation's subsidiaries ("any Subsidiary" under the Conrail Indenture
and "any Principal Subsidiary" under the New CSXT Indenture for purposes of this
subsection) without effectively providing for the equal and ratable (or if
applicable, prior) treatment of the Conrail Debentures or the New CSXT Notes, as
the case may be, with the new obligation, except for certain specified
categories of liens. However, the "Limitation upon Liens" provision of the New
CSXT Indenture does not restrict any other property of NYC Newco, CSXT, CSX, or
their respective subsidiaries, while the Conrail Indenture restricts the
creation of any liens on certain Principal Property of Conrail and its
Subsidiaries. Moreover, the restriction on the creation of liens in the Conrail
Indenture and the requirement to provide for equal and ratable (or if
applicable, prior) treatment does not apply unless the aggregate principal
amount of the new debt obligations incurred and secured exceeds an amount equal
to 20% of Consolidated Net Tangible Assets. By contrast, the restriction on the
creation of liens in the New CSXT Indenture does not contain any minimum
requirement before the restriction takes effect. In addition, the "Limitation
upon Liens" provision of the New CSXT Indenture does not apply to any liens
arising in connection with the Conrail Spin Off Transactions.
The following definitions apply only to the foregoing description of the
limitation upon liens contained in the Conrail Indenture:
"Consolidated Net Tangible Assets" means the total amount of assets (less
applicable reserves and other properly deductible items) after deducting
therefrom (i) all current liabilities (excluding any thereof which are by their
terms extendable or renewable at the option of the obligor thereon to a time
more than twelve months after the time as of which the amount thereof is being
computed), (ii) all good will, trade names, trademarks, patents, unamortized
debt discount and expense and other like intangibles, and (iii) appropriate
adjustments on account of minority interests of other persons holding stock in
Conrail's Subsidiaries, all as set forth on the most recent balance sheet of
Conrail and its consolidated Subsidiaries and computed in accordance with
generally accepted accounting principles.
"Principal Property" means any line or segment of track, together with
signaling or communication systems appurtenant thereto, owned by Conrail or any
Subsidiary over which at least ten million gross tons of revenue freight moved
in the calendar year next preceding the date on which the relevant determination
is made; all locomotives and freight cars then owned by Conrail or any
Subsidiary and all freight yards and repair facilities then owned by Conrail or
any Subsidiary.
"Subsidiary" means any corporation of which at the time of determination
Conrail, directly and/or indirectly through one or more Subsidiaries, owns more
than 50% of the shares of voting stock.
Each of the New CSXT Indenture and the Conrail Indenture explicitly permit
the waiver of the "Limitation upon Liens" covenant, in similar circumstances.
The primary difference between the two is that the waiver under the Conrail
Indenture requires the waiver by the holders of at least a majority in aggregate
principal amount of the securities of all outstanding series, whereas the New
CSXT Indenture waiver provision applies on a series-by-series basis.
CSXT-43
LIMITATION UPON LLC INDEBTEDNESS
The Conrail Indenture contains a provision prohibiting Conrail from
permitting either NYC or PRR, or any successor of either of them from incurring,
creating, issuing, assuming, guaranteeing or otherwise becoming liable for or
with respect to, or becoming responsible for, the payment of, contingently or
otherwise, any indebtedness. In connection with the Conrail Spin Off
Transactions, NYC and PRR will be merged with and into NYC Newco and PRR Newco,
respectively, and NYC Newco and PRR Newco will be merged with and into CSXT and
NSR, respectively. Since Conrail would no longer own or control NYC and PRR upon
consummation of the Conrail Spin Off Transactions, the prohibition on NYC and
PRR indebtedness contained in the Conrail Indenture would cease to be in effect
at the time of such consummation. The New CSXT Indenture does not contain a
"Limitation upon LLC Indebtedness" covenant, or any covenant similar to the
covenant described above.
CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER
Under the Conrail Indenture, upon any consolidation of Conrail with, or
merger of Conrail into, any other corporation, or upon any conveyance, lease or
transfer of Conrail's property as an entirety or substantially as an entirety to
any other corporation, if any Principal Property of Conrail or of any
Subsidiary, or any shares of stock or Debt of any Subsidiary would thereupon
become subject to any Lien, then unless such Lien could be created without
triggering the requirements described in "--Limitation upon Liens" above to
equally and ratably secure the Conrail Debentures, Conrail, prior to the
consolidation, merger, conveyance, lease or transfer, must secure the
outstanding Conrail Debentures equally and ratably with the Debt secured by such
Lien, or must cause the Conrail Debentures to be so secured. The New CSXT
Indenture does not contain such a provision, or any provision similar to the
provision, described in this paragraph.
In addition, the Conrail Indenture provides that the restrictions relating
to consolidation, merger, conveyance, lease or transfer do not apply to mergers
or consolidations in which Conrail is the surviving corporation or is the
transferee or lessee and do not apply to any conveyance, lease, transfer, or
sublease described or contemplated in that certain Transaction Agreement, dated
as of June 10, 1997, by and among CSX, CSXT, NSC, NSR, CRR, Conrail, and CRR
Holdings (as it may have been or may be amended, modified or supplemented from
time to time, the "Transaction Agreement"). By contrast, the provision in the
New CSXT Indenture relating to consolidation, merger, conveyance or transfer
applies (1) in the event of mergers or consolidations, conveyances or transfers
in which the CSXT Obligor is not the surviving person or the transferee and (2)
in the event of mergers or consolidations, conveyances or transfers in which the
CSXT Obligor is the surviving corporation or the transferee, in each case, other
than in the event of mergers or consolidations, conveyances or transfers in
connection with the Conrail Spin Off Transactions. The provision in the New CSXT
Indenture relating to consolidation, merger, conveyance or transfer also differs
from the one in the Conrail Indenture in other less material ways, including
that the New CSXT Indenture (1) does not specifically mention "leases" as a
category and (2) requires that the person formed by the consolidation or the
surviving person in the merger or the acquiror of the property be a legal entity
organized under the laws of any foreign or domestic jurisdiction, rather than a
corporation organized under the laws of the United States, one of the states or
the District of Columbia as required in the Conrail Indenture. The provision in
the New CSXT Indenture relating to consolidation, merger, conveyance or transfer
is otherwise substantially similar to the applicable provision in the Conrail
Indenture. For a detailed description of the relevant provision in the New CSXT
Indenture, see "Description of the New CSXT Notes--Consolidation, Merger,
Conveyance or Transfer."
CONRAIL SUPPLEMENTAL INDENTURE; ELIMINATION OF RESTRICTIVE COVENANTS
It is important to note that a condition of acceptance of the exchange of
Conrail Debentures tendered in the exchange offer is the grant by the exchanging
holder of Conrail Debentures of a consent that allows the Conrail Spin Off
Transactions to go forward and that eliminates substantially all of the
restrictive covenants contained in the Conrail Indenture. The termination of
these covenants will be effectuated, prior to the closing of the Conrail Spin
Off Transactions, by Conrail entering into a supplemental indenture with respect
to the Conrail Indenture that will bind the holders of Conrail Debentures who do
not exchange their Conrail
CSXT-44
Debentures for New CSXT Notes and New NSR Notes. The Conrail Supplemental
Indenture would eliminate certain protective covenants and other provisions set
forth in the original Conrail Indenture. Holders of Conrail Debentures who do
not participate in this exchange offer and consent solicitation will continue to
hold Conrail Debentures without the benefit of such covenants and other
provisions currently contained in the Conrail Indenture. For more information on
the proposed changes, please see "Description of This Exchange Offer and Consent
Solicitation--Proposed Amendments" found elsewhere in the prospectus and consent
solicitation statement of which this CSXT Appendix forms a part.
DISCHARGE AND DEFEASANCE OF INDENTURE
Under the Conrail Indenture, Conrail may discharge certain obligations to
holders of any series of Conrail Debentures that have not already been delivered
to the trustee for cancellation and that have either become due and payable or
are by their terms due and payable within one year and where the exact amount
(including the currency of payment) of principal and interest due is
determinable at the time of making the deposit described in (i), (i) by
irrevocably depositing with the trustee cash or, in the case of any series of
Conrail Debentures payable only in United States dollars, direct obligations of
the United States backed by its full faith and credit, or a combination thereof,
as trust funds in an amount certified by a nationally recognized firm of
independent public accountants to be sufficient to pay when due the principal of
and interest on such debt securities, (ii) by paying all other amounts payable
by Conrail under the Conrail Indenture to debt security holders of the
applicable series or the trustee, and (iii) by delivering to the trustee an
officer's certificate and an opinion of counsel acknowledging that all
conditions precedent to the discharge have been complied with.
The New CSXT Indenture provides a similar mechanism for discharge of the
obligations of the CSXT Obligor and the guarantor, if any, but does not (1)
require that the exact amount (including the currency of payment) of principal
and interest due be determinable at the time of making the deposit described in
(i), (2) explicitly use the term "irrevocably" with respect to the deposit, (3)
provide for the deposit of United States government obligations in lieu of all
or a portion of the money to be deposited, and (4) require that the sufficiency
of amount be certified by an independent public accountant.
With respect to all Conrail Debentures of the discharged series, the
obligations of Conrail and/or the trustee to, among other things: (i) register
the transfer or exchange of debt securities of such series, (ii) subject to the
satisfaction of certain conditions, substitute for mutilated, defaced,
destroyed, lost or stolen debt securities, (iii) pay in accordance with the
terms of such series of Conrail Debentures the moneys held for payment in trust,
and (iv) maintain an office or agency, shall survive such discharge. In
addition, the Conrail Indenture provides that the rights, obligations, duties
and immunities of the trustee under the Conrail Indenture, and the rights of the
holders of debt securities of such series as beneficiaries with respect to the
property deposited with the trustee payable to all or any of them, shall
survive. The New CSXT Indenture, similarly, provides that with respect to all
New CSXT Notes of the discharged series, only the CSXT Obligor's obligations to
compensate and indemnify the trustee and, if money shall have been deposited
with the trustee in connection with such discharge, the obligations of the
trustee under the New CSXT Indenture to, among other things: (1) pay in
accordance with the terms of such New CSXT Notes the moneys held for payment in
trust, (2) subject to the satisfaction of certain conditions, substitute for any
mutilated, destroyed, lost or stolen New CSXT Notes of the discharged series,
(3) register the transfer or exchange of such New CSXT Notes, and (4) subject to
the satisfaction of certain conditions, repay to the CSXT Obligor any unclaimed
money held by the trustee under the New CSXT Indenture, shall survive the
discharge.
Both the New CSXT Indenture and the Conrail Indenture provide for (1) the
defeasance of any and all of the CSXT Obligor's (and, if any, the guarantor's)
or Conrail's, as the case may be, obligations to holders of any one or more
series of debt securities issued under the relevant indenture at any time, and
(2) the covenant defeasance with respect to any outstanding series of debt
securities issued under the relevant indenture from certain obligations imposed
by the relevant indenture (that for purposes of the Conrail Indenture are
limited to the covenants described above in "--Limitation upon Liens" and
"--Consolidation, Merger, Conveyance, Lease or Transfer" relating to liens and
consolidations, mergers, conveyances, leases or transfers, and for purposes of
the New CSXT Indenture include the covenants described above in "Description of
the New
CSXT-45
CSXT Notes--Certain Covenants" relating to liens and consolidations, mergers,
conveyances or transfers and any other covenants applicable to the debt
securities of or within a series as specified therein).
Under the Conrail Indenture the conditions for application of the
defeasance or covenant defeasance provisions, include, among other things: (i)
Conrail irrevocably depositing with the trustee cash or, in the case of any
series of Conrail Debentures payable only in United States dollars, direct
obligations of the United States backed by its full faith and credit, or a
combination thereof, as trust funds in an amount certified by a nationally
recognized firm of independent public accountants to be sufficient to pay when
due the principal of and interest on such debt securities; (ii) the defeasance
or covenant defeasance does not result in a breach or violation of, or
constitute a default under, any agreement or instrument to which Conrail is a
party or by which it is bound; (iii) Conrail delivers to the trustee an opinion
of counsel to the effect that the holders of such series of debt securities will
not recognize income, gain or loss for United States federal income tax purposes
as a result of such defeasance or covenant defeasance, as the case may be, and
such series of debt securities will be subject to United States federal income
tax on the same amount and in the same manner and at the same times, as would
have been the case if the defeasance or covenant defeasance had not occurred (in
the case of a defeasance, such opinion must be based on a ruling of the IRS or a
change in United States federal income tax law occurring after May 1, 1990);
(iv) Conrail delivers to the trustee an officer's certificate and an opinion of
counsel, each stating that all conditions precedent to the defeasance or
covenant defeasance, as applicable, of such series of Conrail Debentures as
contemplated by the Conrail Indenture have been complied with; (v) with respect
to defeasance only, the exact amount of principal of and interest due on the
debt securities to be defeased can be determined at the time of the deposit;
(vi) with respect to defeasance, the defeasance will only be effective on the
91st day after the date of the deposit of the money in trust; (vii) with respect
to covenant defeasance only, the covenant defeasance does not result in the
trustee having a conflicting interest for purposes of the Conrail Indenture
and/or the TIA; and (viii) with respect to covenant defeasance only, no Event of
Default with respect to the Conrail Debentures of that series has occurred and
is continuing on the date of the deposit, or with respect to certain bankruptcy
defaults, at any time during the period ending on the 91st day after the date of
the deposit (it being understood that this condition will not be deemed
satisfied until the expiration of such period).
In addition to the conditions to defeasance and covenant defeasance
substantially similar to those described above with respect to the Conrail
Indenture, the New CSXT Indenture includes the following conditions to the
application of the defeasance or covenant defeasance provisions and some
differences from the conditions in the Conrail Indenture: (i) the defeasance or
covenant defeasance does not result in the trust arising from that deposit
constituting, unless it is qualified as, a regulated investment company under
the Investment Company Act of 1940, as amended; (ii) the defeasance or covenant
defeasance (by contrast to its applicability in the Conrail Indenture only to
covenant defeasance) does not result in the trustee having a conflicting
interest for purposes of the TIA; (iii) the defeasance or covenant defeasance
does not result in a breach or violation of, or constitute a default under, the
New CSXT Indenture or any other material agreement or instrument to which the
CSXT Obligor is a party or by which it is bound; and (iv) with respect to
defeasance and covenant defeasance (by contrast to its applicability in the
Conrail Indenture only to covenant defeasance and the requirement that such
covenant defeasance will only be effective on the 91st day after the date of
deposit of the money in trust), no Event of Default or event which with notice
of lapse of time or both would become an Event of Default with respect to the
New CSXT Notes of that series has occurred and is continuing on the date of the
deposit, or, with respect to certain bankruptcy defaults, at any time during the
period ending on the 123rd day after the date of the deposit (it being
understood that this condition will not be deemed satisfied until the expiration
of such period). In addition, the ability to defease a series of debt securities
under the New CSXT Indenture is not dependent on the ability of the CSXT Obligor
to determine the exact amount of principal of and interest due on such debt
securities, as is required by the similar provision of the Conrail Indenture,
but instead relies on the opinions and certificates required to be delivered
upon defeasance to ensure that the deposited amounts are sufficient for purposes
of the requirements of the New CSXT Indenture.
The New CSXT Indenture provides that, following the defeasance of any
series of debt securities, the obligations of the CSXT Obligor and/or the
trustee with respect to the issue of defeased debt securities to,
CSXT-46
among other things: (1) have moneys held for payment in trust, (2) pay in
accordance with the terms of such New CSXT Notes the moneys held for payment in
trust, (3) maintain an office or agency in respect of such debt securities, (4)
register the transfer or exchange of such debt securities, (5) subject to the
satisfaction of certain conditions, substitute for any mutilated, destroyed,
lost or stolen debt securities of the discharged series, and (6) subject to the
satisfaction of certain conditions, repay to the CSXT Obligor any unclaimed
money or money in excess of the amounts required to be deposited, in each case,
held by the trustee under the New CSXT Indenture, shall survive until such debt
securities are no longer outstanding. In addition, the New CSXT Indenture
provides that the rights, obligations, duties and immunities of the trustee
under the New CSXT Indenture shall survive. The Conrail Indenture, similarly,
provides that following defeasance of any series of debt securities, the same
obligations of Conrail and/or the trustee and the same rights of the holders of
debt securities described above in the third paragraph of this section in
connection with the discharge of debt securities will survive the defeasance.
MODIFICATION AND WAIVER
In addition to the kinds of amendments, modifications or waivers that may
be made under the Conrail Indenture without notice to or the consent of any
holder, the New CSXT Indenture further provides that the CSXT Obligor, CSXT, as
guarantor, and the trustee may amend or supplement the New CSXT Indenture or the
New CSXT Notes without notice to or the consent of any holder, among other
things: (i) to supplement any of the provisions of the New CSXT Indenture to the
extent necessary to permit the defeasance or discharge of any series of debt
securities pursuant to the terms of the New CSXT Indenture, provided that such
action shall not adversely effect the interests of the holders of any debt
securities issued under the New CSXT Indenture in any material respect; (ii) to
add to or to change any provisions of the New CSXT Indenture to the extent
necessary to permit or facilitate the issuance of New CSXT Notes in bearer form,
registrable or not registrable as to principal; (iii) to add provisions
regarding conversion or exchange rights of holders of any debt securities; or
(iv) to amend or supplement any provision of the New CSXT Indenture or any
supplemental indenture, provided that such amendment or supplement does not
apply to any outstanding debt security issued prior to the date of such
supplemental indenture and entitled to the benefit of such provision. With the
exception of the additional rights to amend, modify or waive any provision of
the New CSXT Indenture detailed above or the difference detailed in the next
succeeding paragraph, the ability of the CSXT Obligor and the trustee to amend,
modify or waive any provision of the New CSXT Indenture, without the consent of
the holders of the debt securities, is substantially similar to the ability of
Conrail and the trustee under the Conrail Indenture to amend, modify or waive
any provision of the Conrail Indenture, without the consent of the holders of
the debt securities. For a detailed description of the rights of the CSXT
Obligor and the trustee to amend, modify or waive any provision of the New CSXT
Indenture, without the consent of the holders of the debt securities, see
"Description of the New CSXT Notes--Modification and Waiver."
It should also be noted that, whereas the Conrail Indenture permits Conrail
and the trustee under the Conrail Indenture to amend or supplement the Conrail
Indenture or the Conrail Debentures without notice to or the consent of any
holder to cure any ambiguity, defect, or inconsistency in the Conrail Indenture
provided that such amendments or supplements shall not adversely affect the
interests of the holders, the New CSXT Indenture permits these amendments or
supplements provided that the amendment or supplement shall not adversely affect
the interests of the holders in any material respect.
In addition to the kinds of amendments, modifications or waivers that may
be made under the Conrail Indenture with the consent of certain holders, the New
CSXT Indenture further provides that the CSXT Obligor, CSXT, as guarantor, and
the trustee may not amend or supplement the New CSXT Indenture or the New CSXT
Notes without the consent of each of the holders of outstanding debt securities
who would be affected thereby if the supplemental indenture would, among other
things: (i) reduce the percentage in principal amount of any one or more series
of debt securities, the consent of whose holders is required for any waiver (of
compliance with certain provisions of the New CSXT Indenture or certain defaults
under the New CSXT Indenture and their consequences) provided for in the New
CSXT Indenture, or reduce the requirements for a quorum or voting at a meeting
of holders of one or more of the series of debt securities; (ii) change any
obligation of the CSXT Obligor to maintain an office or agency in the places and
for the
CSXT-47
purposes required by the New CSXT Indenture; (iii) release CSXT, as guarantor,
from the guarantee, except in the manner provided for in the New CSXT Indenture;
or (iv) modify the provisions of the CSXT Indenture relating to waivers or
amendments (except to add or increase such limitations or to provide that
certain other provisions of the New CSXT Indenture cannot be modified or waived
without the consent of the holder of each outstanding debt security affected
thereby). With the exception of the additional actions that may only be taken
with the consent of each of the holders of outstanding debt securities who would
be affected by such action detailed above, the ability of the CSXT Obligor and
the trustee to amend, modify or waive any provision of the New CSXT Indenture,
with the consent of the holders of the debt securities, is substantially similar
to the ability of Conrail and the trustee under the Conrail Indenture to amend,
modify or waive any provision of the Conrail Indenture, with the consent of the
holders of the applicable series of debt securities. For a detailed description
of the rights of the CSXT Obligor and the trustee to amend, modify or waive any
provision of the New CSXT Indenture, with the consent of the holders of the debt
securities, see "Description of the New CSXT Notes--Modification and Waiver."
EVENTS OF DEFAULT
The New CSXT Indenture defines an "Event of Default" as any of the
following events with respect to a series of debt securities: (a) failure to pay
principal of or premium, if any, on, or additional amounts, if any, payable in
respect of the principal of or premium, if any, on, any of the debt securities
of that series when due; (b) failure to pay any interest on, or additional
amounts, if any, payable in respect of any interest on, any debt security of
that series when due, continued for 30 days; (c) failure to deposit any sinking
fund payment, when due, in respect of any debt security of that series; (d)
failure to perform, or breach of, any other covenant or warranty of the CSXT
Obligor in the New CSXT Indenture or any debt security of that series (other
than a covenant or warranty included in the New CSXT Indenture solely for the
benefit of series of debt securities other than that series) continued for 90
days after written notice as provided in the New CSXT Indenture; (e) certain
events of bankruptcy, insolvency or reorganization of the CSXT Obligor or CSXT,
as guarantor; (f) subject to the termination of the guarantee as described in
the New CSXT Indenture, failure of the guarantee to be (or a claim by CSXT, as
guarantor, that the guarantee is not) in full force and effect; or (g) any other
Event of Default provided with respect to debt securities of that series.
The events constituting an Event of Default are substantially similar under
the Conrail Indenture as the events described above as constituting an Event of
Default under the New CSXT Indenture, except that the events described in (c)
and (f) above are not included in the Conrail Indenture, and the Conrail
Indenture does not specifically include events of bankruptcy, insolvency or
reorganization of a guarantor as an Event of Default. There are, however, some
additional differences that should be noted. For example, each of the Conrail
Indenture and the New CSXT Indenture provide for an Event of Default upon the
failure of Conrail or the CSXT Obligor, as the case may be, to observe or
perform any covenants or agreements contained in their respective indentures
continued for a period of 90 days after receipt of written notice (in each case,
the "Notice of Default"). However, the Conrail Indenture provides that the
Notice of Default may be delivered either by the trustee to Conrail, or by the
holders of at least 25% in aggregate principal amount of all series of the
outstanding Conrail Debentures affected thereby, voting as a single class, to
Conrail and the trustee. By contrast, the New CSXT Indenture provides that the
Notice of Default may be delivered either by the trustee to the CSXT Obligor, or
by the holders of at least 25% in principal amount of the outstanding debt
securities of the applicable series of New CSXT Notes to the CSXT Obligor and
the trustee. In addition, the Events of Default relating to bankruptcy,
insolvency or reorganization, while largely similar, are generally more
stringent in the case of the New CSXT Indenture, affording increased protection
to debt security holders, than the equivalent provisions of the Conrail
Indenture, except for the number of days that an order or decree in connection
with a bankruptcy proceeding may remain unstayed and in effect (60 consecutive
days, in the case of the Conrail Indenture, and 90 days, in the case of the New
CSXT Indenture).
CSXT-48
Under the Conrail Indenture, an Event of Default relating to bankruptcy,
insolvency or reorganization would occur if:
(a) a court having jurisdiction enters a decree or order for:
-- relief in respect of Conrail in an involuntary case under any
applicable bankruptcy, insolvency or other similar law in effect;
-- appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of Conrail or for any substantial
part of Conrail's property; or
-- the winding-up or liquidation of Conrail's affairs
and, in each case, such decree or order shall remain unstayed and in effect
for a period of 60 consecutive days; or
(b) Conrail:
-- commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law in effect, or consents to the entry
of an order for relief in an involuntary case under any such law;
-- consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of Conrail or for any substantial part of its property; or
-- makes any general assignment for the benefit of creditors.
The New CSXT Indenture's provisions relating to bankruptcy related Events
of Defaults are substantially similar to the provisions in the Conrail Indenture
described above.
With respect to the Conrail Indenture, if an Event of Default relating to
bankruptcy, insolvency or reorganization, or relating to a failure to perform or
breach of covenants (other than with respect to payments to be made on any debt
securities) or other events of default by Conrail specifically provided for in a
supplemental indenture for such series, that affects all of the series of
Conrail Debentures occurs and is continuing, either the trustee or the holders
of at least 25% in aggregate principal amount of all outstanding Conrail
Debentures, voting as a single class, may declare, by notice as provided in the
Conrail Indenture, the entire principal amount of all Conrail Debentures and
interest accrued thereon, if any, to be due and payable immediately. The Conrail
Indenture also provides that, if any other Event of Default occurs and is
continuing, either the trustee or the holders of at least 25% in aggregate
principal amount of the outstanding Conrail Debentures of each particular series
affected by such Event of Default, voting as a single class, may declare, by
notice as provided in the Conrail Indenture, the principal amount of all Conrail
Debentures of the affected series and interest accrued thereon, if any, to be
due and payable immediately. By contrast, the New CSXT Indenture does not
distinguish between the type of Events of Default in determining the requisite
number of holders necessary to accelerate, but specifies in all instances that
holders of at least 25% in principal amount of the outstanding securities of an
affected series, voting as a single class, may declare the principal of such
series to be due and payable immediately.
A similar difference exists with respect to the ability of the holders of
debt securities to rescind and annul a declaration of acceleration. Under the
Conrail Indenture, if at any time after a declaration of acceleration with
respect to any one or more series of the Conrail Debentures has been made, but
before a judgment or decree for payment of money has been obtained by the
trustee, Conrail shall pay or deposit with the trustee a sum sufficient to pay
all matured installments of interest upon all the debt securities of the
applicable series and the principal that has become due and payable (other than
due to the acceleration), an amount to cover interest on overdue principal, and,
if allowed by law, overdue interest, and an amount sufficient to cover
reasonable administrative expenses of the trustee, its agents, attorneys and
counsel related to the Event of Default, and if any and all Events of Default
other than the non-payment of the principal of securities that have become due
by acceleration, have been cured, waived or otherwise remedied as provided under
the Conrail Indenture, then the holders of a majority in aggregate principal
amount of the outstanding debt securities of each affected series, or of all
series of debt securities of the Conrail Debentures in certain instances similar
to those described in the immediately preceding paragraph, in each case, voting
as a single
CSXT-49
class, by written notice may waive all defaults with respect to each such
affected series (or with respect to all series of debt securities) and rescind
and annul such acceleration and its consequences, but no such rescission or
annulment shall extend to or affect any subsequent default or shall impair any
right with respect to such subsequent default. By contrast, the New CSXT
Indenture provides that holders of at least a majority in principal amount of
the outstanding debt securities of an affected series (without regard to voting
of any other series of debt securities in all cases) may by written notice waive
all defaults with respect only to such affected series of debt securities and
rescind and annul such acceleration and its consequences, but no such rescission
or annulment shall extend to or affect any subsequent default or shall impair
any right with respect to such subsequent default.
CONTROL BY HOLDERS OF SECURITIES
Each of the New CSXT Indenture and the Conrail Indenture contain
substantially similar provisions entitling the trustee to be indemnified by the
holders of the applicable debt securities before proceeding to exercise any
right or power under the applicable indenture at the request of such holders.
Subject to this indemnification protection of the trustee and compliance with
all laws and the terms of the Conrail Indenture, the Conrail Indenture provides
that the holders of a majority in aggregate principal amount of the outstanding
Conrail Debentures of each series affected, with all such series voting as a
single class, have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the trustee, or of exercising any
trust or power conferred on the trustee, with respect to the debt securities of
such series by the Conrail Indenture. The New CSXT Indenture, by contrast,
provides that, subject to the indemnification protection described in the first
sentence of this paragraph and compliance with all laws and the terms of the New
CSXT Indenture or the debt securities of the applicable series, the holders of a
majority in principal amount of the outstanding debt securities of each series
affected (voting on a series-by-series basis) have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
trustee or exercising any trust or power conferred on the trustee, with respect
to the debt securities of such series by the New CSXT Indenture, provided that
such direction shall not subject the trustee to any personal liability.
COMPLIANCE STATEMENTS
Both the New CSXT Indenture and the Conrail Indenture require that the CSXT
Obligor or Conrail, as the case may be, deliver to the relevant trustee, within
120 days after the end of each fiscal year, an officer's certificate. The New
CSXT Indenture, however, requires the officer's certificate to state as to each
signer that: (i) such officer has supervised a review of the activities of the
CSXT Obligor and of the CSXT Obligor's performance under the New CSXT Indenture,
and (ii) to the best of such officer's knowledge, based on such review, (A) the
CSXT Obligor has fulfilled all its obligations under the New CSXT Indenture
throughout the year, or, if there has been a material default in the fulfillment
of any such obligation, specifying each such default known to such officer and
the nature and status thereof, and (B) no event has occurred and is continuing
which is, or after notice or lapse of time or both would become, an Event of
Default, or, if such an event has occurred and is continuing, specifying each
such event known to him or her and the nature and status thereof. By contrast,
the statement of compliance required by the Conrail Indenture makes no
distinction between material and immaterial defaults, and simply requires the
officer's certificate to state (i) that in the course of their duties as
officers of Conrail the signers of the certificate would normally have knowledge
of any default by Conrail under the Conrail Indenture, (ii) whether or not they
have knowledge of any such default and (iii) if so, specifying each such
default.
EXPENSES
Each of the Conrail Indenture and the New CSXT Indenture provide that
although no service charge shall be made for registration of transfer or
exchange of the Conrail Debentures or the New CSXT Notes as the case may be,
Conrail and the CSXT Obligor can require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection with any
exchange or registration. In addition, the New CSXT Indenture permits the CSXT
Obligor to also require the payment of any other expenses
CSXT-50
(including fees and expenses of the trustee that may be incurred in connection
with any registration of transfer or exchange, other than in certain
circumstances).
DEFAULTED INTEREST
Under each of the Conrail Indenture and the New CSXT Indenture the person
in whose name any registered security of any series at the close of business on
the record date is generally entitled to payment of such interest,
notwithstanding any transfer or exchange following the record date, except, in
the case of the New CSXT Indenture and the New CSXT Notes, for record holders on
the record date immediately preceding the maturity date unless such holders are
also the holders of record on the maturity date. This, however, is not the case
if there is a default in the payment of such interest. In such case, the Conrail
Indenture provides that the defaulted interest will be paid to the persons in
whose names debt securities for such series are registered at the close of
business on a special record date (that shall not be less than five business
days before the date of payment of such defaulted interest) established by
notice given to the holders of the debt securities not less than 15 days prior
to the special record date. The New CSXT Indenture also provides that the
defaulted interest will be paid to the persons in whose names debt securities
for such series are registered at the close of business on a special record date
(which shall not be more than 15 days and not less than ten days prior to the
date of the proposed payment and not less than ten days after receipt by the
trustee of the notice of proposed payment from the CSXT Obligor) established by
notice given to the holders of the debt securities not less than ten days prior
to such special record date. The New CSXT Indenture also specifically provides
that the trustee should have received a deposit of the defaulted interest or
obtained satisfactory assurance of such deposit before it is required to fix a
special record date. The CSXT Obligor may also make payment of any defaulted
interest in any other lawful manner.
LEGAL MATTERS
Ellen M. Fitzsimmons, Esq., Senior Vice President--Law and Public Affairs
of CSXT and President of NYC Newco, Jacksonville, Florida (or such other senior
counsel as may be designated by CSXT and NYC Newco) will issue an opinion
concerning the New CSXT Notes to be issued in connection with the Conrail Spin
Off Transactions. As of April 15, 2004, Ms. Fitzsimmons owned directly or
indirectly 5,376 shares of common stock of CSX and options to purchase 142,616
additional shares of common stock. Wachtell, Lipton, Rosen & Katz, New York, New
York, will also issue an opinion concerning the validity of the New CSXT Notes
for CSXT and NYC Newco. In addition, McGuireWoods LLP, Richmond, Virginia will
issue an opinion for CSXT and NYC Newco on certain matters relating to CSXT's
and NYC Newco's filings with the SEC. Robert L. Burrus, Jr., a partner of
McGuireWoods LLP, is a director of CSX and, as of March 31, 2004 owned directly
or indirectly 24,081 shares of common stock of CSX and options to purchase
10,000 additional shares of common stock. Customary legal matters will be passed
upon for the dealer manager by Shearman & Sterling LLP, New York, New York. Each
of Wachtell, Lipton, Rosen & Katz, McGuireWoods LLP and Shearman & Sterling LLP
has from time to time provided legal services to us for which it has received,
and may receive, customary fees and expenses.
EXPERTS
The consolidated financial statements of CSXT appearing in CSXT's Annual
Report on Form 10-K for the year ended December 26, 2003, have been audited by
Ernst & Young LLP, independent auditors, as set forth in its reports thereon
included therein and are incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.
CSXT-51
WHERE YOU CAN FIND MORE INFORMATION
CSXT files annual, quarterly and special reports, prospectuses and other
information with the SEC. CSXT makes available free of charge, through the
website www.csxt.com, annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and all amendments to those reports as soon
as reasonably practicable after such material is electronically filed with or
furnished to the SEC. In addition, you may read and copy any reports, statements
or other information CSXT files at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You may call the SEC at 1-800-SEC-0330 for
further information on the public reference room. The SEC filings of CSXT are
also available to the public from commercial document retrieval services and at
the website maintained by the SEC at www.sec.gov.
The SEC allows CSXT to "incorporate by reference" information into this
prospectus and consent solicitation statement, which means that CSXT and NYC
Newco can disclose important information to you by referring you to another
document CSXT has filed separately with the SEC. The information incorporated by
reference is deemed to be part of this prospectus and consent solicitation
statement, except for any information superseded by information contained
directly in this prospectus and consent solicitation statement.
The documents filed by CSXT and its affiliates with the SEC listed below
are incorporated in this prospectus and consent solicitation statement by
reference and constitute an important part of this prospectus and consent
solicitation statement:
-- Annual Report on Form 10-K for the year ended December 26, 2003, filed
on March 10, 2004.
-- Quarterly Report on Form 10-Q for the quarter ended March 26, 2004,
filed on May 4, 2004.
CSXT also incorporates by reference into this prospectus and consent
solicitation statement additional documents that may be filed by CSXT with the
SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act from the
date of this prospectus and consent solicitation statement until the termination
of this offering. These include periodic reports, such as annual reports on Form
10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as
prospectuses. Any statements contained in a previously filed document
incorporated by reference into this prospectus and consent solicitation
statement are deemed to be modified or superseded for purposes of this
prospectus and consent solicitation statement to the extent that a statement
contained in this prospectus and consent solicitation statement, or in a
subsequently filed document also incorporated by reference herein, modifies or
supersedes that statement.
You may obtain copies of any documents incorporated by reference into this
prospectus and consent solicitation statement through CSXT, NYC Newco, the SEC
or the SEC's website as described above. Documents incorporated by reference are
available from either CSXT or NYC Newco without charge, excluding exhibits
thereto unless CSXT or NYC Newco, as the case may be, has specifically
incorporated by reference such exhibits in this prospectus and consent
solicitation statement. Any person to whom this prospectus and consent
solicitation statement is delivered may obtain documents incorporated by
reference in, but not delivered with, this prospectus and consent solicitation
statement by requesting them from the information agent by telephone or in
writing at the address set forth on the back cover of this prospectus and
consent solicitation statement. Any request should be made not later than five
business days prior to the expiration of the exchange offer.
This prospectus and consent solicitation statement is part of a
registration statement on Form S-4 filed by CSXT and NYC Newco under the
Securities Act with the SEC with respect to the exchange offer and consent
solicitation. This prospectus and consent solicitation statement does not
contain all of the information included in the registration statement and the
exhibits thereto. You will find additional information about the New CSXT Notes
and the companies involved in the exchange offer and consent solicitation in the
registration statement and the exhibits thereto. You should be aware that
statements contained in this prospectus and consent solicitation statement
concerning the provisions of any document filed as an exhibit to the
registration statement or otherwise filed with the SEC are not necessarily
complete, and in each instance reference is made to the copy of such document so
filed. Each such statement is qualified in its entirety by such reference.
Certain items are omitted in accordance with the rules and regulations of the
SEC.
CSXT-52
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
----
UNAUDITED FINANCIAL STATEMENTS
Consolidated Statements of Income for the Three Months Ended
March 31, 2004 and 2003................................... F-2
Consolidated Balance Sheets as of March 31, 2004 and
December 31, 2003......................................... F-3
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2004 and 2003............................. F-4
Notes to Consolidated Financial Statements.................. F-5
AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-8
Consolidated Statements of Income for the Years Ended
December 31, 2003, 2002 and 2001.......................... F-9
Consolidated Balance Sheets for the Years Ended December 31,
2003 and 2002............................................. F-10
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 2003, 2002 and 2001.............. F-11
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2003, 2002 and 2001.......................... F-12
Notes to Consolidated Financial Statements.................. F-13
</Table>
F-1
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
CONSOLIDATED STATEMENTS OF INCOME
<Table>
<Caption>
THREE MONTHS
ENDED
MARCH 31,
---------------
2004 2003
----- -----
(UNAUDITED)
($ IN MILLIONS)
OPERATING REVENUES
NSC/CSX (Note 2)............................................ $207 $205
Third parties............................................... 23 21
---- ----
Total operating revenues............................... 230 226
OPERATING EXPENSES
Compensation and benefits................................. 45 42
Fuel...................................................... 2 2
Material, services and rents.............................. 28 31
Depreciation and amortization............................. 79 81
Casualties and insurance.................................. 3 2
Other..................................................... 5 5
---- ----
Total operating expenses............................... 162 163
---- ----
Income from operations...................................... 68 63
Interest expense............................................ (24) (25)
Other income, net........................................... 27 20
---- ----
Income from continuing operations before income taxes and
accounting changes........................................ 71 58
Provision for income taxes.................................. 26 22
---- ----
Income from continuing operations before accounting
changes................................................... 45 36
Cumulative effect of changes in accounting principles, net
of taxes (Note 4)......................................... (1) 40
---- ----
NET INCOME.................................................. $ 44 $ 76
==== ====
</Table>
See accompanying notes to the consolidated financial statements.
F-2
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2004 2003
--------- ------------
(UNAUDITED)
($ IN MILLIONS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 10 $ 9
Accounts receivable, net.................................. 33 34
Due from NSR/CSXT......................................... 154 136
Deferred tax assets....................................... 45 45
Material and supplies..................................... 8 8
Other current assets...................................... 14 16
------ ------
Total current assets................................... 264 248
PROPERTY AND EQUIPMENT, NET................................. 6,077 6,119
NOTES RECEIVABLE FROM NSC/CSX............................... 1,348 1,231
OTHER ASSETS................................................ 510 503
------ ------
Total assets........................................... $8,199 $8,101
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... 70 37
Current maturities of long-term debt...................... 56 58
Due to NSC/CSX............................................ 6 5
Wages and employee benefits............................... 25 31
Casualty reserves......................................... 38 39
Accrued and other current liabilities..................... 120 107
------ ------
Total current liabilities.............................. 315 277
LONG-TERM DEBT.............................................. 1,094 1,067
CASUALTY RESERVES........................................... 121 125
DEFERRED INCOME TAXES....................................... 1,820 1,827
OTHER LIABILITIES........................................... 455 455
------ ------
Total liabilities...................................... 3,805 3,751
------ ------
STOCKHOLDER'S EQUITY
Common stock ($1 par value; 100 shares authorized, issued
and outstanding)....................................... -- --
Additional paid-in capital................................ 2,268 2,268
Retained earnings......................................... 2,230 2,186
Accumulated other comprehensive loss...................... (104) (104)
------ ------
Total stockholder's equity............................. 4,394 4,350
------ ------
Total liabilities and stockholder's equity............. $8,199 $8,101
====== ======
</Table>
See accompanying notes to the consolidated financial statements.
F-3
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
------------------
2004 2003
----- -----
($ IN MILLIONS)
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 44 $ 76
Adjustments to reconcile net income to net cash provided
by operating activities:
Net cumulative effect of changes in accounting
principles............................................. 1 (40)
Depreciation and amortization............................. 79 81
Deferred income taxes..................................... (10) (6)
Equity in earnings of affiliates.......................... (7) (3)
Gains from sales of property.............................. (1) --
Pension expense (credit).................................. 3 (1)
Changes in:
Accounts receivable.................................... 1 (1)
Accounts and wages payable............................. 27 32
Due from NSR/CSXT...................................... (18) 18
Due to NSC/CSX......................................... 1 (2)
Other..................................................... 13 (4)
----- -----
Net cash provided by operating activities.............. 133 150
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment acquisitions....................... (3) (7)
Notes receivable from NSC/CSX............................. (117) (139)
Proceeds from disposal of property and equipment.......... 2 2
Other..................................................... (4) --
----- -----
Net cash used in investing activities.................. (122) (144)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt................................. (10) (10)
----- -----
Net cash used in financing activities.................. (10) (10)
----- -----
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 1 (4)
CASH AND CASH EQUIVALENTS
At beginning of year...................................... 9 14
----- -----
At end of period.......................................... $ 10 $ 10
===== =====
</Table>
See accompanying notes to consolidated financial statements.
F-4
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited financial statements contained herein present the
consolidated financial position of Consolidated Rail Corporation ("Conrail" or
the "Company") as of March 31, 2004 and December 31, 2003, and the consolidated
results of operations and cash flows for the three-month periods ended March 31,
2004 and 2003. In the opinion of management, these financial statements include
all adjustments, consisting of normal recurring adjustments necessary to present
fairly the results for the interim periods included.
2. DESCRIPTION OF BUSINESS
Conrail, a principal freight railroad in the Northeastern United States, is
a wholly-owned subsidiary of Conrail Inc. CSX Corporation ("CSX") and Norfolk
Southern Corporation ("NSC"), the major rail holding companies in the Eastern
United States, jointly control Conrail Inc. through their ownership interests in
CRR Holdings LLC ("CRR"), whose primary subsidiary is Green Acquisition
Corporation, which owns Conrail Inc. CSX and NSC have equity interests in CRR of
42% and 58%, respectively, and voting interests of 50% each. Under operating and
lease agreements, CSX and NSC operate a substantial portion of Conrail's
properties through their respective railroad subsidiaries, CSX Transportation,
Inc ("CSXT") and Norfolk Southern Railway Company ("NSR").
The major source of Conrail's revenues is from CSXT and NSR, primarily in
the form of rental revenues and operating fees.
3. RECENT DEVELOPMENTS
PROPOSED SPIN OFF OF CONRAIL'S SUBSIDIARIES
In June 2003, Conrail, together with CSX and NSC, filed a joint petition
with the Surface Transportation Board ("STB") to establish direct ownership and
control by CSXT and NSR of certain portions of the Conrail system already
operated by them in a substantially independent manner, under various
agreements. These portions of the Conrail system are currently owned by
Conrail's primary subsidiaries, New York Central Lines LLC ("NYC") and
Pennsylvania Lines LLC ("PRR"). The proposed transactions involve the
termination of the existing operating agreements and the transfer of the direct
equity ownership of NYC and PRR to CSXT and NSR, respectively. The proposed
transactions do not involve the Company's other properties ("Shared Assets
Areas") that will continue to be owned and operated by Conrail. The consummation
of the proposed transactions is subject to a number of conditions, including,
among other things, that the STB authorization, obtained by the parties in
November 2003, remains in full force and effect, that the Internal Revenue
Service ruling received by the parties in November 2003, favorably qualifying
the proposed transactions as non-taxable, remains in full force and effect and
that the parties obtain required consents from Conrail's debt holders and other
lessors and counterparties to certain of Conrail's equipment leases and related
financing arrangements.
As a part of the proposed transactions, Conrail is undertaking a
restructuring of its existing unsecured and secured public indebtedness. New
guaranteed debt securities of two newly formed corporate subsidiaries of CSXT
and NSR would be offered in an approximately 42%/58% ratio as well as
substantially all of the equity of such new subsidiaries in exchange for the
equity of NYC and PRR. Upon completion of the proposed transactions, the new
debt securities would become direct unsecured obligations of CSXT and NSR,
respectively. Conrail's secured debt and lease obligations will remain
obligations of Conrail and are expected to be supported by new leases and
subleases that, upon consummation of the proposed transactions, would be the
direct lease and sublease obligations of CSXT and NSR, respectively.
F-5
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Conrail, NSC and CSX are working to complete all steps necessary to
consummate the proposed transactions in 2004. CSX and NSC are progressing toward
ascertaining the fair value effects of the proposed transactions, which will be
reflected in the accounting for the proposed transactions once consummated and
that analysis has been completed. Upon consummation of the proposed
transactions, Conrail's primary source of revenue will be related to the
operation of the Shared Assets Areas instead of the operating and equipment
rental activities of NYC and PRR. Conrail's future operating expenses will also
reflect this change in operations. Accordingly, Conrail's prospective operating
results will be significantly different from those currently reported.
4. NEW ACCOUNTING PRONOUNCEMENTS
In 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46R, "Consolidation of Variable Interest Entities"("FIN 46R")
which requires that a variable interest entity be consolidated by the company
that is subject to a majority of the economic risks and/or rewards of that
entity. As of March 31, 2004, pursuant to FIN 46R, Conrail consolidated a
locomotive leasing entity, Locomotive Management Services ("LMS") and recorded a
$1 million net adjustment for the cumulative effect of this accounting change.
LMS had total assets, primarily depreciable equipment, of $37 million as of
March 31, 2004. Total liabilities as of March 31, 2004, totaled $40 million,
including $4 million and $30 million of current and long-term debt,
respectively. The consolidation of LMS will not have an impact on net income in
future periods as Conrail previously accounted for its investment in LMS under
the equity method of accounting.
The Company adopted FASB Statement of Financial Accounting Standards
("SFAS") No. 143, "Accounting for Asset Retirement Obligations", effective
January 1, 2003. Pursuant to SFAS 143, companies are precluded from accruing
removal cost expenses that are not legal obligations. Previously, the Company
and most other railroads had accrued removal costs as a component of
depreciation expense. In the first quarter of 2003, the Company recorded income
of $40 million for the cumulative effect of this change ($65 million before
taxes). Effective with this pronouncement, removal costs are expensed as
incurred. This change did not have a material impact on the Company's
consolidated financial statements.
5. PENSION AND POSTRETIREMENT BENEFITS
The Company and its subsidiaries sponsor several qualified and nonqualified
pension plans and other postretirement benefit plans for its employees.
Components of the net periodic cost (benefit) for the three months ended March
31 were as follows (in millions):
<Table>
<Caption>
PENSION
BENEFITS
-----------
2004 2003
---- ----
Service cost................................................ $ -- $ --
Interest cost............................................... 10 11
Expected return on assets................................... (11) (13)
Amortization of unrecognized net actuarial (gain) loss...... 4 1
---- ----
Net cost (benefit).......................................... $ 3 $ (1)
==== ====
</Table>
The net periodic cost for other postretirement benefits was less than $1
million for the three-month period ending March 31, 2004 and 2003, respectively.
F-6
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONTRIBUTIONS FOR PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Conrail previously disclosed in its consolidated financial statements for
the year ended December 31, 2003, that it expected to contribute $2 million to
the pension plans and $3 million to the other postretirement benefit plans in
2004. For the three months ended March 31, 2004, contributions of less than $1
million have been made for each of the plans. Conrail presently anticipates
contributing in 2004 a total of $2 million and $3 million for its pension and
other postretirement benefits plans, respectively.
MEDICARE CHANGES
The Medicare Prescription Drug, Improvement and Modernization Act of 2003
(the Act) was signed into law in December 2003. The Act introduces a
prescription drug benefit under Medicare Part D as well as a federal subsidy to
sponsors of retiree health care benefit plans that provide a benefit that is at
least actuarially equivalent to Medicare Part D. Because significant
uncertainties exist regarding the measurement and disclosure requirements of the
Act, the FASB has issued staff position No. FAS 106-1, which allows a plan
sponsor to recognize or defer accounting for the effects of the Act in their
2003 financial statements. The Company has elected the deferral option and is
currently evaluating how the Act may impact its postretirement benefit
obligations. Specific authoritative guidance on the accounting for the Act's
subsidy is pending, and that guidance, when issued, could require the Company to
change previously reported information.
6. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL
The Company is subject to various federal, state and local laws and
regulations regarding environmental matters. The Company is a party to various
proceedings brought by both regulatory agencies and private parties under
federal, state and local laws, including Superfund laws, and has also received
inquiries from governmental agencies with respect to other potential
environmental issues. The Company has received, together with other companies,
notices of its involvement as a potentially responsible party or requests for
information under the Superfund laws with respect to cleanup and/or removal
costs due to its status as an alleged transporter, generator or property owner
at 37 locations. Conrail regularly participates in monitoring the status of the
known sites and assessing the adequacy of the liability estimates.
At both March 31, 2004 and December 31, 2003, the Company had accrued $61
million for estimated environmental exposures. The Company anticipates that much
of this liability will be paid out over five years; however, some costs will be
paid out over a longer period. The Company believes the ultimate liability for
these matters will not materially affect its consolidated financial condition.
CASUALTY
The casualty claim liability is determined using the aid of an independent
actuarial firm based upon claims filed and an estimate of claims incurred but
not yet reported. The Company is generally self-insured for casualty claims.
Claims in excess of self-insurance levels are insured up to excess coverage
limits. While the ultimate amounts of claims incurred are dependent upon future
developments, in management's opinion, the recorded liability is adequate to
cover expected probable payments.
OTHER
The Company is involved in other various legal actions and claims arising
from the ordinary course of railroad operations. The Company believes it has
recorded liabilities sufficient to cover the future payments for such claims.
F-7
INDEPENDENT AUDITORS' REPORT
THE STOCKHOLDERS AND BOARD OF DIRECTORS
CONSOLIDATED RAIL CORPORATION:
We have audited the accompanying consolidated balance sheets of
Consolidated Rail Corporation and subsidiaries (a wholly-owned subsidiary of
Conrail Inc.) as of December 31, 2003 and 2002, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the years
in the three-year period ended December 31, 2003. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Consolidated
Rail Corporation and subsidiaries (a wholly-owned subsidiary of Conrail Inc.) as
of December 31, 2003 and 2002, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
2003, in conformity with accounting principles generally accepted in the United
States of America.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2003 the Company adopted Financial Accounting Standards Board
Statement No. 143, "Accounting for Asset Retirement Obligations."
<Table>
/s/ KPMG LLP /s/ ERNST & YOUNG LLP
KPMG LLP Ernst & Young LLP
Norfolk, Virginia Jacksonville, Florida
</Table>
January 27, 2004
F-8
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
CONSOLIDATED STATEMENTS OF INCOME
<Table>
<Caption>
YEARS ENDED
DECEMBER 31,
---------------------
2003 2002 2001
----- ----- -----
($ in millions)
REVENUES -- NSC/CSX (NOTE 2)................................ $ 836 $ 813 $ 823
REVENUES -- THIRD PARTIES................................... 82 80 80
----- ----- -----
Total operating revenues............................... 918 893 903
----- ----- -----
OPERATING EXPENSES (NOTE 3)
Compensation and benefits................................. 168 151 158
Fuel...................................................... 7 6 7
Material, services and rents.............................. 119 125 143
Depreciation and amortization............................. 329 322 325
Casualties and insurance.................................. 17 2 (13)
Other..................................................... 19 17 19
----- ----- -----
Total operating expenses............................... 659 623 639
----- ----- -----
Income from operations...................................... 259 270 264
Interest expense............................................ (99) (104) (109)
Other income, net (Note 10)................................. 95 92 96
----- ----- -----
Income from continuing operations before income taxes and
accounting change......................................... 255 258 251
Provision for income taxes (Note 7)......................... 93 71 81
----- ----- -----
Income from continuing operations before accounting
change.................................................... 162 187 170
Cumulative effect of change in accounting principle, net of
taxes (Note 1)............................................ 40 -- --
----- ----- -----
NET INCOME.................................................. $ 202 $ 187 $ 170
===== ===== =====
</Table>
See accompanying notes to the consolidated financial statements.
F-9
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31,
---------------
2003 2002
------ ------
($ in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 9 $ 14
Accounts receivable, net.................................. 34 35
Due from NSR/CSXT (Note 2)................................ 136 158
Material and supplies..................................... 8 8
Deferred tax assets (Note 7).............................. 45 65
Other current assets...................................... 16 11
------ ------
Total current assets................................... 248 291
PROPERTY AND EQUIPMENT, NET (NOTE 4)........................ 6,119 6,382
NOTES RECEIVABLE FROM NSC/CSX (NOTE 2)...................... 1,231 892
OTHER ASSETS................................................ 503 475
------ ------
Total assets........................................... $8,101 $8,040
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... 37 33
Current maturities of long-term debt (Note 6)............. 58 57
Due to NSC/CSX (Note 2)................................... 5 9
Wages and employee benefits............................... 31 31
Casualty reserves......................................... 39 69
Accrued and other current liabilities (Note 5)............ 107 127
------ ------
Total current liabilities.............................. 277 326
LONG-TERM DEBT (NOTE 6)..................................... 1,067 1,123
Casualty reserves........................................... 125 119
DEFERRED INCOME TAXES (NOTE 7).............................. 1,827 1,814
OTHER LIABILITIES........................................... 455 538
------ ------
Total liabilities...................................... 3,751 3,920
------ ------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
STOCKHOLDERS' EQUITY (NOTES 2 AND 9)
Common stock ($1 par value; 100 shares authorized, issued
and outstanding)....................................... -- --
Additional paid-in capital................................ 2,268 2,265
Retained earnings......................................... 2,186 1,984
Accumulated other comprehensive loss........................ (104) (129)
------ ------
Total stockholders' equity............................. 4,350 4,120
------ ------
Total liabilities and stockholders' equity............. $8,101 $8,040
====== ======
</Table>
See accompanying notes to the consolidated financial statements.
F-10
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<Table>
<Caption>
ACCUMULATED
ADDITIONAL OTHER
PAID-IN RETAINED COMPREHENSIVE
CAPITAL EARNINGS LOSS TOTAL
-------- -------- ------------- ------
($ in millions)
BALANCE, JANUARY 1, 2001.......... $2,260 $1,627 $ -- $3,887
Comprehensive income -- 2001
Net Income...................... -- 170 -- 170
Minimum pension liability, net
of $45 million income taxes
(Note 8)....................... -- -- (70) (70)
------
Total comprehensive income...... 100
------
Capital contributions from
Conrail (Note 2)............... 3 -- -- 3
------ ------ ----- ------
BALANCE, DECEMBER 31, 2001........ 2,263 1,797 (70) 3,990
Comprehensive income -- 2002
Net Income...................... -- 187 -- 187
Minimum pension liability, net
of $39 million income
taxes (Note 8)................ -- -- (59) (59)
------
Total comprehensive income...... 128
------
Capital contributions from
Conrail (Note 2)............... 2 -- - 2
------ ------ ----- ------
BALANCE, DECEMBER 31, 2002........ 2,265 1,984 (129) 4,120
Comprehensive income -- 2003
Net Income...................... -- 202 -- 202
Minimum pension liability, net
of $16 million income
taxes (Note 8)................. -- -- 25 25
------
Total comprehensive income...... 227
------
Capital contributions from
Conrail (Note 2)............... 3 -- -- 3
------ ------ ----- ------
BALANCE, DECEMBER 31, 2003........ $2,268 $2,186 ($104) $4,350
====== ====== ===== ======
</Table>
See accompanying notes to the consolidated financial statements.
F-11
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEARS ENDED
DECEMBER 31,
---------------------
2003 2002 2001
----- ----- -----
($ in millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 202 $ 187 $ 170
Adjustments to reconcile net income to net cash provided
by operating activities:
Net cumulative effect of change in accounting
principle............................................. (40) -- --
Depreciation and amortization.......................... 329 322 325
Deferred income taxes.................................. (12) (18) (18)
Equity in earnings of affiliates....................... (19) (19) (24)
Gains from sales of property........................... (7) (3) (2)
Pension credit......................................... (4) (17) (19)
Changes in:
Accounts receivable.................................. 1 (3) 1
Accounts and wages payable........................... 4 (14) (32)
Due from NSR/CSXT.................................... 22 14 60
Due to NSC/CSX....................................... (4) (3) (19)
Other.................................................. (60) (23) 60
----- ----- -----
Net cash provided by operating activities............ 412 423 502
----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment acquisitions....................... (35) (23) (47)
Notes receivable from NSC/CSX............................. (339) (377) (424)
Proceeds from disposal of property and equipment.......... 12 14 14
Other..................................................... 2 11 --
----- ----- -----
Net cash used in investing activities................ (360) (375) (457)
----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt................................. (57) (59) (61)
----- ----- -----
Net cash used in financing activities................ (57) (59) (61)
----- ----- -----
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (5) (11) (16)
CASH AND CASH EQUIVALENTS
At beginning of year...................................... 14 25 41
----- ----- -----
At end of year............................................ $ 9 $ 14 $ 25
===== ===== =====
</Table>
See accompanying notes to the consolidated financial statements.
F-12
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Consolidated Rail Corporation ("CRC" or the "Company"), the major freight
railroad in the Northeast, is a wholly owned subsidiary of Conrail
Inc.("Conrail"). Norfolk Southern Corporation ("NSC") and CSX Corporation
("CSX"), the major railroads in the Southeast, jointly control Conrail through
their ownership interests in CRR Holdings LLC ("CRR"), whose primary subsidiary
is Green Acquisition Corporation ("Green Acquisition"), which owns Conrail. NSC
and CSX have equity interests in CRR of 58% and 42%, respectively, and voting
interests of 50% each. Under operating and lease agreements, NSC and CSX operate
a substantial portion of the Conrail properties through their railroad
subsidiaries, Norfolk Southern Railway Company ("NSR") and CSX Transportation,
Inc. ("CSXT")(Note 2).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the Company and
majority-owned subsidiaries. Investments in 20% to 50% owned companies are
accounted for by the equity method. All significant intercompany accounts and
transactions have been eliminated.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid securities purchased with a
maturity of three months or less, and are stated at cost which approximates
market value.
MATERIAL AND SUPPLIES
Material and supplies consist of maintenance material valued at the lower
of cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
the composite straight-line method over estimated service lives. Expenditures,
including those on leased assets that extend an asset's useful life or increase
its utility, are capitalized. Maintenance expense is recognized when repairs are
performed. The cost (net of salvage) of depreciable property retired or replaced
in the ordinary course of business is charged to accumulated depreciation and no
gain or loss is recognized. In 2003, the overall depreciation rate averaged 3.4%
for all roadway and equipment.
During 2003, the Company completed a study to update the estimated useful
lives of its roadway and track property and the associated accumulated
depreciation reserves. This review did not have a material impact on the
Company's consolidated financial statements.
ASSET IMPAIRMENT
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Expected future cash flows from the use and disposition of
long-lived assets are compared to the current carrying amounts to determine the
potential impairment loss.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Financial Accounting Standards Board (FASB) Statement
of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset
Retirement Obligations", effective January 1, 2003. Pursuant to SFAS 143,
companies are precluded from accruing removal cost expenses that are not legal
F-13
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
obligations. Previously, the Company and most other railroads had accrued
removal costs as a component of depreciation expense. In the first quarter of
2003, the Company recorded income of $40 million for the cumulative effect of
this change ($65 million before taxes). Effective with this pronouncement,
removal costs are expensed as incurred. This change did not have a material
impact on the Company's consolidated financial statements.
Also in 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46) which requires that a variable interest
entity be consolidated by the company that is subject to a majority of the
economic risks and/or rewards of that entity. The FASB delayed until 2004, the
implementation of FIN 46 for certain variable entities that existed prior to
February 1, 2003. The Company has a fifty percent non-controlling interest in
Locomotive Management Services (LMS), an unconsolidated partnership established
in 1994, which will likely be consolidated pursuant to FIN 46. LMS, a locomotive
leasing venture, had assets totaling $37 million as of December 31, 2003,
consisting primarily of depreciable equipment property. Total liabilities as of
December 31, 2003 totaled $40 million, including $30 million in long-term debt
installments maturing in 2012. If consolidation is required, the impact on the
consolidated financial statements will be immaterial (Note 11).
REVENUE RECOGNITION
CRC's major sources of revenues are from NSC and CSX, primarily in the form
of rental revenues and operating fees, which are recognized when earned (Note
2). The Company also has third party revenues, which are recognized when earned,
related to the operations of Indiana Harbor Belt Railroad Company, a 51% owned
terminal railroad subsidiary.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Management reviews its estimates,
including those related to the recoverability and useful lives of assets as well
as liabilities for litigation, environmental remediation, casualty claims,
income taxes and pension and postretirement benefits. Changes in facts and
circumstances may result in revised estimates.
RECLASSIFICATIONS
Certain amounts in the consolidated financial statements and notes thereto
have been reclassified to conform to the 2003 presentation.
2. RELATED PARTIES TRANSACTIONS
BACKGROUND
On May 23, 1997, NSC and CSX completed their joint acquisition of Conrail
stock. On June 17, 1997, NSC and CSX executed an agreement that generally
outlines the methods of governing and operating Conrail and its subsidiaries
("Transaction Agreement"). On July 23, 1998, the Surface Transportation Board
("STB") issued a written opinion that permitted NSC and CSX to exercise
operating control of Conrail beginning August 22, 1998. On June 1, 1999, NSC and
CSX began to operate over certain CRC lines.
F-14
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OPERATIONS BY NSR AND CSXT
The majority of CRC's routes and assets are segregated into separate
subsidiaries of CRC, Pennsylvania Lines LLC ("PRR") and New York Central Lines
LLC ("NYC"). PRR and NYC have separate but identical operating and lease
agreements with NSR and CSXT, respectively, (the "Operating Agreements") which
govern substantially all nonequipment assets to be used by NSR and CSXT and have
initial 25-year terms, renewable at the options of NSR and CSXT for two 5-year
terms. Payments made under the Operating Agreements are based on appraised
values that are subject to adjustment every six years. NSR and CSXT have also
leased or subleased certain equipment assets at rentals based on appraised
values for varying term lengths from PRR and NYC, respectively, as well as from
CRC.
NSC and CSX also have agreements with the Company governing other
properties that continue to be owned and operated by Conrail ("the Shared Assets
Areas"). NSR and CSXT pay CRC a fee for joint and exclusive access to the Shared
Assets Areas. In addition, NSR and CSXT pay, based on usage, the costs incurred
by CRC to operate the Shared Assets Areas plus a profit factor.
Payments made by NSR to CRC under the Shared Assets agreements were $135
million and $115 million during 2003 and 2002, respectively, of which $31
million and $23 million, were minimum rents. Payments made by CSXT to CRC under
the Shared Assets agreements were $124 million and $92 million during 2003 and
2002, respectively, of which $24 million and $17 million, were minimum rents.
Payments from NSR under the Operating Agreements to PRR amounted to $348
million and $339 million during 2003 and 2002, respectively. Payments from CSXT
under the Operating Agreements to NYC amounted to $253 million and $248 million
during 2003 and 2002, respectively. In addition, costs necessary to operate and
maintain the related assets under these agreements, including leasehold
improvements, are borne by NSR and CSXT.
Future minimum lease payments to be received from NSR/CSXT are as follows:
<Table>
<Caption>
NSR NSR CSXT CSXT
TO PRR TO CRC TO NYC TO CRC TOTAL
------ ------ ------ ------ -------
($ in millions)
2004............................ $ 342 $ 32 $ 237 $ 23 $ 634
2005............................ 321 33 223 24 601
2006............................ 307 34 212 24 577
2007............................ 295 34 205 24 558
2008............................ 290 34 200 24 548
2009 and Beyond................. 4,128 551 2,740 378 7,797
------ ---- ------ ---- -------
TOTAL......................... $5,683 $718 $3,817 $497 $10,715
------ ---- ------ ---- -------
</Table>
RELATED PARTY BALANCES AND TRANSACTIONS
"Due from NSR/CSXT" at December 31, 2003 and 2002, is primarily comprised
of amounts due for the above-described operating and rental activities.
PRR and NYC have interest-bearing notes receivable due from NSC and CSX. As
of December 31, 2003, the notes receivable due from NSC and CSX included in
noncurrent assets were $716 million and $515 million, respectively. At December
31, 2002, the notes receivable balances from NSC and CSX included in noncurrent
assets were $513 million and $379 million, respectively. The interest rates on
the notes receivable from NSC and CSX are variable and were both 1.66% at
December 31, 2003. Interest income related to the PRR and NYC notes receivable
was $16 million in 2003, $18 million in 2002 and $13 million in 2001.
F-15
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
"Due to NSC/CSX" includes amounts payable for property and equipment
rentals, as well as amounts related to service provider agreements with both NSC
and CSX to provide certain general and administrative support to CRC.
A summary of the "Due to NSC and CSX" activity for the services described
above follows:
<Table>
<Caption>
PAYMENTS TO PAYMENTS TO
NSC CSX
----------- -------------
2003 2002 2003 2002
---- ---- ----- -----
($ in millions)
Service Provider Agreements.............................. $ 7 $ 5 $ 3 $ --
Material purchases....................................... 18 20 -- --
Rental of locomotives, equipment and facilities.......... 5 5 4 4
Capital Project activities............................... 6 5 -- --
--- --- ----- -----
TOTAL PAYMENTS......................................... $36 $35 $ 7 $ 4
--- --- ----- -----
</Table>
<Table>
<Caption>
2003 2002 2003 2002
---- ---- ---- ----
Due to "NSC and CSX" at December 31...................... $ 3 $ 7 $ 2 $ 2
</Table>
From time to time, NSC and CSX, as the indirect owners of CRC, may need to
provide some of the Company's cash requirements through capital contributions,
loans or advances. Through December 31, 2003 there have been no transactions
under these arrangements.
The Company also engages in various transactions with Conrail. The Company
received capital contributions from Conrail of $3 million in 2003, $2 million in
2002 and $3 million in 2001. There are no intercompany receivables or payables
with Conrail at December 31, 2003 or December 31, 2002.
PROPOSED SPIN-OFF OF PRR AND NYC
In June 2003, Conrail together with NSC and CSX, filed a joint petition
with the STB to establish direct ownership and control by NSR and CSXT of PRR
and NYC, respectively. The proposed transaction would replace the existing
operating agreements and allow NSR and CSXT to operate PRR and NYC,
respectively, via direct ownership. The proposed transaction does not involve
the Shared Assets Areas. The proposed transaction is subject to a number of
conditions, including STB approval, an Internal Revenue Service (IRS) ruling
qualifying it as a nontaxable distribution and obtaining consents from the
Company's debt holders. (In 2003, the IRS issued a ruling that the
reorganization would qualify as a tax-free distribution. Also in 2003, the STB
granted its authorization to carry out the proposed transaction, subject to
certain conditions.)
As a part of the proposed transaction, CRC would undertake a restructuring
of its existing unsecured and secured public indebtedness. Currently the Company
has two series of unsecured public debentures with an outstanding principal
amount of $800 million at December 31, 2003 and 13 series of secured debt with
an outstanding principal amount of approximately $321 million at December 31,
2003. It is currently contemplated that guaranteed debt securities of two newly
formed corporate subsidiaries of NSR and CSXT would be offered in a 58%/42%
ratio in exchange for the Company's unsecured debentures. Upon completion of the
proposed transaction, the new debt securities would become direct unsecured
obligations of NSR and CSXT, respectively.
CRC's secured debt and lease obligations will remain obligations of the
Company and are expected to be supported by new leases and subleases which, upon
completion of the proposed transaction, would be the direct lease and sublease
obligations of NSR or CSXT.
F-16
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Conrail, NS and CSX are working to complete all steps necessary to
consummate the spin-off in 2004. A valuation of NYC and PRR will be performed
prior to effecting the spin-off transaction. The results of the valuation could
impact the carrying value of the assets of NYC and PRR. Upon consummation of the
proposed transaction, the Company's primary source of revenue will be related to
the operation of the Shared Assets Areas instead of the operating and equipment
rental activities of PRR and NYC. The Company's future operating expenses will
also reflect this change in operations. Accordingly, the Company's prospective
operating results will be significantly different than those currently reported.
3. TRANSITION, ACQUISITION-RELATED AND OTHER ITEMS
During the first quarter of 2002 and the fourth quarter of 2001, the
Company received cash proceeds totaling $4 million and $42 million respectively,
from several London-based insurance carriers as settlement for current and
future exposures related to personal injury, occupational, environmental and
other claims. The Company recognized pretax gains of $4 million and $14 million,
respectively, which is included in the "Casualties and insurance" line item of
the income statement for 2002 and 2001.
During 2002, accrued termination payments totaling $1 million were made to
6 non-union employees whose non-executive positions were eliminated as a result
of the joint acquisition of Conrail. During 2001 accrued termination payments of
$15 million were made. Most of these termination payments have been made in the
form of supplemental retirement benefits from the Company's pension plan. As of
December 31, 2003, the remaining amount of this liability is less than $1
million.
During the second quarter of 2001, the Company received a $50 million cash
payment for transferring to a third party certain of its rights to license,
manage and market signboard advertising on the Company's property for 25 years.
The payment is being recognized into other income on a straight-line basis over
the 25 year contract period.
The Company has a long-term liability in connection with employment "change
in control" agreements with certain current and former executives, which became
operative as a result of the joint acquisition of Conrail. Payments were $4
million in 2003, $1 million in 2002 and $9 million in 2001 and were made
primarily from the Company's pension plan. The remaining amount, approximately
$24 million at December 31, 2003, will be paid out at the discretion of the
participants in the program.
4. PROPERTY AND EQUIPMENT
<Table>
<Caption>
DECEMBER 31,
-----------------
2003 2002
------- -------
(in millions)
Roadway..................................................... $ 7,400 $ 7,476
Equipment................................................... 1,544 1,511
Less: Accumulated depreciation............................ (3,029) (2,828)
------- -------
5,915 6,159
------- -------
Capital leases (primarily equipment)........................ 416 496
Accumulated amortization.................................... (212) (273)
------- -------
204 223
------- -------
$ 6,119 $ 6,382
======= =======
</Table>
Substantially all assets are leased to NSR or CSXT (Note 2).
F-17
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. ACCRUED AND OTHER CURRENT LIABILITIES
<Table>
<Caption>
DECEMBER 31,
--------------
2003 2002
----- -----
(in millions)
Operating leases............................................ $ 47 $ 47
Income and other taxes...................................... 34 44
Other....................................................... 26 36
---- ----
$107 $127
==== ====
</Table>
6. LONG-TERM DEBT AND LEASES
LONG-TERM DEBT
Long-term debt outstanding, including the weighted average interest rates
at December 31, 2003, is composed of the following:
<Table>
<Caption>
DECEMBER 31,
---------------
2003 2002
------ ------
(in millions)
Capital leases.............................................. $ 157 $ 192
Debentures payable, 7.88%, due 2043......................... 250 250
Debentures payable, 9.75%, due 2020......................... 550 550
Equipment and other obligations, 6.97%...................... 168 188
------ ------
1,125 1,180
Less current portion........................................ (58) (57)
------ ------
$1,067 $1,123
====== ======
</Table>
Interest payments were $100 million in 2003, $105 million in 2002 and $113
million in 2001.
Equipment and other obligations mature in 2004 through 2043 and are
collateralized by assets with a net book value of $208 million at December 31,
2003. Maturities of long-term debt other than capital leases are $21 million in
2004, $20 million in 2005, $21 million in 2006, $43 million in 2007, $18 million
in 2008 and $845 million in total from 2009 through 2043.
LEASES
The Company's noncancelable long-term leases generally include options to
purchase at fair value and to extend the terms. Certain lease obligations are
payable in Japanese yen, which require the maintenance of yen-denominated
deposits sufficient to satisfy the yen-denominated obligation. These deposits
are included in the "Other assets" line item of the balance sheet and totaled
$43 million and $45 million at December 31, 2003 and December 31, 2002,
respectively. Capital leases have been discounted at rates ranging from 3.09% to
14.26% and are collateralized by assets with a net book value of $204 million at
December 31, 2003.
F-18
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Minimum commitments, exclusive of executory costs borne by the Company,
are:
<Table>
<Caption>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(in millions)
2004........................................................ $ 54 $ 58
2005........................................................ 38 58
2006........................................................ 25 56
2007........................................................ 27 55
2008........................................................ 15 51
2009 - 2025................................................. 39 271
---- ----
Total....................................................... 198 $549
====
Less interest portion....................................... (41)
----
Present value............................................... $157
====
</Table>
Operating lease rent expense was $60 million in 2003, $62 million in 2002
and $70 million in 2001.
7. INCOME TAXES
The provisions for income taxes are composed of the following:
<Table>
<Caption>
2003 2002 2001
---- ---- ----
(in millions)
Current
Federal................................................... $ 94 $ 81 $ 75
State..................................................... 11 8 24
---- ---- ----
105 89 99
---- ---- ----
Deferred
Federal................................................... (21) (29) (22)
State..................................................... 9 11 4
---- ---- ----
(12) (18) (18)
---- ---- ----
$ 93 $ 71 $ 81
==== ==== ====
</Table>
Reconciliation of the U.S. statutory tax rates with the effective tax rates
is as follows:
<Table>
<Caption>
2003 2002 2001
---- ---- ----
Statutory tax rate.......................................... 35.0% 35.0% 35.0%
State income taxes, net of federal benefit.................. 4.2 4.2 4.2
Settlement of IRS audit..................................... -- (8.8) --
Settlement of state tax issues.............................. -- -- (3.7)
Other....................................................... (2.7) (2.9) (3.2)
---- ---- ----
Effective tax rate.......................................... 36.5% 27.5% 32.3%
==== ==== ====
</Table>
CRC is included in the consolidated federal income tax return of Green
Acquisition. The provision for current income taxes in the Consolidated
Statements of Income reflects CRC's portion of Conrail Inc.'s consolidated tax
provision. Tax expense or tax benefit is recorded on a separate company basis.
F-19
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has reached final settlements with the Internal Revenue Service
("IRS") related to all of the audits of the Company's consolidated federal
income tax returns through the fiscal year May 23, 1997. As a result of the
settlement Conrail received tax refunds of $24 million and reduced tax expense
by $23 million during 2002. The Company's consolidated income tax returns for
the short tax year period May 24, 1997-December 31, 1997 and calender year
periods 1998 through 2001 are currently being examined by the IRS. Federal and
state income tax payments were $129 million in 2003, $113 million in 2002 and
$86 million in 2001.
Significant components of the Company's deferred income tax assets
(liabilities) are as follows:
<Table>
<Caption>
DECEMBER 31,
-----------------
2003 2002
------- -------
(in millions)
Current assets.............................................. $ 1 $ 5
Current liabilities......................................... 44 60
------- -------
CURRENT DEFERRED TAX ASSET, NET............................. $ 45 $ 65
======= =======
Noncurrent liabilities:
Property and equipment.................................... (1,970) (2,000)
Other..................................................... (108) (104)
------- -------
(2,078) (2,104)
------- -------
Noncurrent assets:
Nondeductible reserves and other liabilities.............. 251 290
------- -------
DEFERRED INCOME TAX LIABILITIES, NET........................ $(1,827) $(1,814)
======= =======
</Table>
The Company has not recorded a valuation allowance, as management believes
that it is more likely than not that the results of future operations will
generate sufficient taxable income to realize the deferred tax assets.
8. PENSION AND POSTRETIREMENT BENEFITS
The Company and its subsidiaries sponsor several qualified and nonqualified
pension plans and other postretirement benefit plans for its employees.
PENSION PLAN ASSET MANAGEMENT
Six investment firms manage the Company's defined benefit pension plan's
assets under investment guidelines approved by a pension fund investment
committee. Investments are allocated among domestic fixed income investments,
and domestic and international equity investments. Limitations restrict
investment concentration and use of certain derivative instruments. Fixed income
investments must have an average rating of 'AA' or better. Equity investments
must be in liquid securities listed on national exchanges. However no direct
investment is permitted in the securities of either NSC or CSX. Equity
investment managers have specific equity strategies and their returns are
expected to exceed selected market indices by prescribed margins.
The target asset allocation range is for equity allocations to be between
44% and 56% of the fund's assets with approximately 10% of the assets allocated
to international equity investments. The asset allocation on December 31, 2003,
was 45% in fixed income investments and 55% in equity investments including 13%
in
F-20
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
international equities. This compared to 54% fixed income and 46% equity
including 9% international equity as of December 31, 2002.
The plan's assumed future returns are based principally on the asset
allocation and the historic returns for the plan's asset classes determined from
both the actual plan returns and, over longer time periods, the market returns
for those asset classes.
MEDICARE CHANGES
The Medicare Prescription Drug, Improvement and Modernization Act of 2003
(the Act) was signed into law in December 2003. The Act introduces a
prescription drug benefit under Medicare Part D as well as a federal subsidy to
sponsors of retiree health care benefit plans that provide a benefit that is at
least actuarially equivalent to Medicare Part D. Because significant
uncertainties exist regarding the measurement and disclosure requirements of the
Act, the FASB has issued staff position No. FAS 106-1, which allows a plan
sponsor to recognize or defer accounting for the effects of the Act in their
2003 financial statements. The Company has elected the deferral option and is
currently evaluating how the Act may impact its postretirement benefit
obligations. Specific authoritative guidance on the accounting for the Act's
subsidy is pending, and that guidance, when issued, could require the Company to
change previously reported information.
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets over the two-year period ended
December 31, 2003, and a statement of the funded status as of December 31 of
both years:
<Table>
<Caption>
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
----------------- --------------
2003 2002 2003 2002
----- ------ ---- ----
(in millions)
CHANGE IN BENEFIT OBLIGATION
Net benefit obligation at beginning of year.... $646 $ 662 $ 37 $ 36
Service cost................................... 1 1 -- --
Interest cost.................................. 41 44 2 3
Plan participants' contributions............... -- -- 4 6
Actuarial losses............................... 32 5 4 2
Benefits paid.................................. (65) (66) (10) (10)
---- ----- ---- ----
Net benefit obligation at end of year.......... $655 $ 646 $ 37 $ 37
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of
year......................................... $522 $ 613 $ 7 $ 8
Actual return on plan assets................... 117 (28) -- 1
Employer contributions......................... 2 3 5 2
Plan participants' contributions............... -- -- 4 6
Benefits paid.................................. (65) (66) (10) (10)
---- ----- ---- ----
Fair value of plan assets at end of year....... $576 $ 522 $ 6 $ 7
Funded status at end of year................... $(79) $(124) $(31) $(30)
Unrecognized prior service cost................ 7 8 (1) (1)
Unrecognized actuarial (gains) losses.......... 168 206 (5) (9)
---- ----- ---- ----
Net amount recognized at year end.............. $ 96 $ 90 $(37) $(40)
==== ===== ==== ====
</Table>
F-21
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following amounts have been recognized in the balance sheets as of
December 31:
<Table>
<Caption>
OTHER
PENSION POSTRETIREMENT
BENEFITS BENEFITS
------------- ---------------
2003 2002 2003 2002
----- ----- ----- -----
(in millions)
Prepaid pension cost................................. $ 131 $ 126 -- --
Accrued benefit cost................................. (214) (257) $(37) $(40)
Intangible asset..................................... 7 8 -- --
Accumulated other comprehensive loss................. 172 213 -- --
----- ----- ---- ----
$ 96 $ 90 $(37) $(40)
===== ===== ==== ====
</Table>
All of the Company's plans for postretirement benefits other than pensions
have no plan assets except for the retiree life insurance plan, which has $6
million and $7 million of assets in 2003 and 2002, respectively. The aggregate
benefit obligation for the postretirement plans other than pensions was $37
million at, both December 31, 2003 and 2002, respectively.
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $648 million, $641 million and $566 million,
respectively, as of December 31, 2003 and $639 million, $635 million and $514
million, respectively as of December 31, 2002. As required by Statement of
Financial Accounting Standard No. 87 "Employers' Accounting for Pensions", the
Company has recorded a minimum liability of $179 million and $220 million at
December 31, 2003 and December 31, 2002, respectively. The minimum liability was
partially offset by an intangible asset to the extent of previously unrecognized
prior service costs of $7 million at both December 31, 2003 and December 31,
2002. The remaining amounts, $104 million as of December 31, 2003 and $129
million as of December 31, 2002, are recorded as a component of stockholders'
equity, net of related tax benefits as "Accumulated Other Comprehensive Loss."
The assumptions used in the measurement of the Company's benefit obligation
are as follows:
<Table>
<Caption>
OTHER
PENSION POSTRETIREMENT
BENEFITS BENEFITS
------------ --------------
2003 2002 2003 2002
---- ---- ----- -----
FUNDED STATUS:
Discount rate......................................... 6.25% 6.75% 6.25% 6.75%
Rate of compensation increase......................... 5.00% 5.00% 5.00% 5.00%
PENSION COST:
Discount rate......................................... 6.75% 7.25% 6.75% 7.25%
Expected return on plan assets........................ 9.00% 9.00% 8.00% 8.00%
Rate of compensation increase......................... 5.00% 5.00% 5.00% 5.00%
</Table>
A 10% annual rate of increase in the per capita cost of covered health care
benefits was assumed for 2003, gradually decreasing to 5% by the year 2006.
Assumed health care cost trend rates affect amounts reported for the health
care plans. The effect of a one percentage point increase and (decrease) in the
assumed health care cost trend rate on the accumulated postretirement benefit
obligation is $1 million and $(1) million, respectively.
F-22
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the Company's net periodic benefit cost (income) for the
plans are as follows:
<Table>
<Caption>
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------ --------------------
2003 2002 2001 2003 2002 2001
---- ---- ---- ---- ----- -----
(in millions)
Service cost............................... $ 1 $ 1 $ 2 $-- $ -- $ --
Interest cost.............................. 41 44 45 2 3 3
Expected return on assets.................. (52) (62) (66) -- (1) (1)
Amortization of:
Transition asset......................... -- -- (1) -- -- --
Prior service cost....................... 1 1 1 -- -- --
Actuarial (gain) loss.................... 5 (1) (1) -- -- (1)
---- ---- ---- --- ----- -----
$ (4) $(17) $(20) $ 2 $ 2 $ 1
==== ==== ==== === ===== =====
</Table>
CONTRIBUTIONS FOR PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company expects to contribute approximately $2 million to the pension
plans and $3 million to the other postretirement benefit plans in 2004.
SAVINGS PLANS
The Company and certain subsidiaries provide 401(k) savings plans for union
and non-union employees. For the non-union savings plan, the Company matches a
portion of employee contributions, subject to the applicable limitations.
Savings plan expense related to the non-union savings plan was $1 million in
each of the years 2003, 2002 and 2001. There is no Company match provision under
the union employee plan except for certain unions, which negotiated a Company
match as part of their contract provisions.
INCENTIVE COMPENSATION PLANS
The Company has an incentive compensation plan for all non-union employees
in which employees receive targeted cash awards upon attainment of certain
performance criteria established by the Company's Board of Directors.
Compensation expense under this plan was $3 million in 2003 and 2002 and $2
million in 2001.
The Company also has a long-term incentive plan under which phantom stock
options are granted to officers and other key non-union employees. The option
price for the phantom shares is equal to the blended fair market value of NSC
and CSX common stock at the date of grant. Options will vest one year after
grant date and the option term may not exceed ten years. Upon exercise, eligible
participants will receive cash payments equal to the appreciation on the
composite NSC and CSX common stock fair values. Compensation expense for this
plan was $2 million in 2003, less than $1 million in 2002 and $2 million in
2001.
9. STOCKHOLDERS' EQUITY
COMMON STOCK
The Company has 100 shares of common stock outstanding, all held by
Conrail.
F-23
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
UNDISTRIBUTED EARNINGS OF EQUITY INVESTEES
"Retained earnings" includes undistributed earnings of equity investees of
$218 million, $199 million and $180 million at December 31, 2003, 2002 and 2001,
respectively.
10. OTHER INCOME, NET
<Table>
<Caption>
2003 2002 2001
---- ---- ----
(in millions)
Interest income............................................. $19 $21 $16
Rental income............................................... 46 45 47
Property sales.............................................. 7 3 2
Equity in earnings of affiliates............................ 19 19 24
Other, net.................................................. 4 4 7
--- --- ---
$95 $92 $96
=== === ===
</Table>
11. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL
The Company is subject to various federal, state and local laws and
regulations regarding environmental matters. The Company is a party to various
proceedings brought by both regulatory agencies and private parties under
federal, state and local laws, including Superfund laws, and has also received
inquiries from governmental agencies with respect to other potential
environmental issues. At December 31, 2003, the Company has received, together
with other companies, notices of its involvement as a potentially responsible
party or requests for information under the Superfund laws with respect to
cleanup and/or removal costs due to its status as an alleged transporter,
generator or property owner at 37 locations. Due to the number of parties
involved at many of these sites, the wide range of costs of possible remediation
alternatives, the changing technology and the length of time over which these
matters develop, it is often not possible to estimate the Company's liability
for the costs associated with the assessment and remediation of contaminated
sites.
Although the Company's operating results and liquidity could be
significantly affected in any quarterly or annual reporting period if CRC were
held principally liable in certain of these actions, at December 31, 2003, the
Company had accrued $61 million, an amount it believes is sufficient to cover
the probable liability and remediation costs that will be incurred at Superfund
sites and other sites based on known information and using various estimating
techniques. The Company anticipates that much of this liability will be paid out
over five years; however some costs will be paid out over a longer period. The
Company believes the ultimate liability for these matters will not materially
affect its consolidated financial condition.
The Company spent $5 million in 2003, $6 million in 2002 and $10 million in
2001 for environmental remediation and related costs. In addition, the Company's
capital expenditures for environmental control and abatement projects were less
than $1 million in each of the years 2001 thru 2003.
CASUALTY
The Company is involved in various legal actions, principally relating to
occupational health claims, personal injuries, casualties and property damage.
The casualty claim liability is determined using the aid of an independent
actuarial firm based upon claims filed and an estimate of claims incurred but
not yet reported. The Company is generally self-insured for casualty claims.
Claims in excess of self-insurance levels are insured up to excess coverage
limits. While the ultimate amounts of claims incurred are dependent upon
F-24
CONSOLIDATED RAIL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CONRAIL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
future developments, in management's opinion, the recorded liability is adequate
to cover expected probable payments.
Expense recognized for casualty claims is included in the "Casualties and
insurance" line item of the income statement. For 2003, the expense recognized
was consistent with actuarial estimates. During both 2002 and 2001, the Company,
based on favorable claims development, recognized actuarial determined gains of
$16 million and $12 million respectively.
LABOR
The Company had 1,346 employees at December 31, 2003; approximately 89% of
whom are represented by 11 different labor organizations and are covered by 16
separate collective bargaining agreements. These agreements remain in effect
until changed pursuant to the Railway Labor Act. The Company was engaged in
collective bargaining at December 31, 2003 with labor organizations representing
approximately 6% of its labor force.
GUARANTEES
The Company currently guarantees the principal and interest payments in the
amount of $27 million on Equipment Trust Certificates for LMS. In addition, the
Company is also contingently liable as guarantor with respect to $3 million of
indebtedness for an affiliate company, Triple Crown Services. No liability has
been recorded related to these guarantees.
Also the Company is contingently liable under indemnification provisions
related to the sale of tax benefits. This liability is recorded in the "Other
liability" line item of the balance sheet and totaled $13 million at both
December 31, 2003 and December 31, 2002.
12. FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of "Cash and cash equivalents," "Accounts receivable,"
"Notes receivable from NSC/ CSX" and "Accounts payable" approximate the carrying
values of these financial instruments at December 31, 2003 and 2002.
Using current market prices when available, or a valuation based on the
yield to maturity of comparable debt instruments having similar characteristics,
credit rating and maturity, the total fair value of the Company's long-term
debt, including the current portion, but excluding capital leases, is $1,260
million and $1,254 million at December 31, 2003 and 2002, respectively, compared
with carrying values of $968 million and $988 million at December 31, 2003 and
2002.
F-25
EXCHANGE AGENT
THE BANK OF NEW YORK
<Table>
BY REGISTERED OR CERTIFIED MAIL: BY HAND AND OVERNIGHT COURIER:
The Bank of New York The Bank of New York
Reorganization Unit Reorganization Unit
101 Barclay Street, 7E 101 Barclay Street,
New York, New York 10286 Corporate Trust Services Window
Attention: William Buckley/Carolle Montreuil New York, New York 10286
Attention: William Buckley/Carolle Montreuil
BY FACSIMILE: CONFIRM BY TELEPHONE OR FOR INFORMATION:
(212) 298-1915 (212) 815-5788/5920
</Table>
Questions and requests for assistance or for additional copies of this
prospectus and consent solicitation statement and the letter of
consent/transmittal may be directed to the information agent at the telephone
number and address listed below. You may also contact your broker, dealer,
commercial bank, trust company or other nominee for assistance concerning this
exchange offer and consent solicitation.
INFORMATION AGENT
THE INFORMATION AGENT FOR THIS EXCHANGE OFFER AND CONSENT SOLICITATION IS:
INNISFREE M&A INCORPORATED
501 Madison Avenue, 20th Floor
New York, New York 10022
Banks and Brokers Call Collect:
(212) 750-5833
All Others Call Toll Free:
(877) 456-3507
DEALER MANAGER
THE DEALER MANAGER FOR THIS EXCHANGE OFFER AND CONSENT SOLICITATION IS AS
FOLLOWS:
MORGAN STANLEY
1585 Broadway
New York, New York 10036
Attn: Liability Management Group
Telephone: (800) 624-1808 (Toll Free)
Collect: (212) 761-1864
Contact: Patrick Sieb
, 2004
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Both CSX Transportation, Inc., or "CSXT," and NYC Newco, Inc., or "NYC
Newco," are corporations organized under the laws of the Commonwealth of
Virginia. Article 10 of the Virginia Stock Corporation Act, or the "Virginia
Act," generally permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses incurred by them in connection with any
proceeding to which they may be made a party by reason of their service in those
or, at the request of the corporation, in other capacities, when conducting
themselves in good faith and (a) in their official capacities, they believed
their conduct was in the best interests of the corporation, (b) in their
non-official capacities, they believed their conduct was at least not opposed to
the best interests of the corporation or (c) in the case of any criminal
proceeding, the director or officer had no reasonable cause to believe that the
conduct was unlawful. However, under the Virginia Act a Virginia corporation may
not indemnify (a) for a judgment of liability in a suit by or in the right of
the corporation or (b) in any other proceeding charging improper personal
benefit to the director or officer, for a judgment of liability on the basis
that the director or officer improperly received a personal benefit. In
addition, the Virginia Act permits a corporation to reimburse a director or
officer for, or advance to a director or officer, reasonable expenses if (a) the
director or officer furnishes the corporation a written affirmation of his good
faith belief that he has met the standard of conduct necessary for
indemnification by the corporation, (b) the director furnishes a written
undertaking by or on his behalf to repay the amount paid or reimbursed by the
corporation if it is ultimately determined that the standard of conduct was not
met and (c) a determination is made that the facts then known to those making
the determination would not preclude indemnification under Article 10 of the
Virginia Act. In addition, Article 9 of the Virginia Act provides limitations on
damages payable by officers and directors in any proceeding brought by or in the
right of the corporation or by or on behalf of shareholders, except in cases of
willful misconduct or knowing violation of criminal law or any federal or state
securities law.
Article V of CSXT's Amended and Restated Articles of Incorporation provides
for mandatory indemnification of any director or officer of CSXT who is, was or
is threatened to be made a party to any proceeding (including any proceeding by
or on behalf of CSXT) by reason of the fact that he or she is or was a director
or officer of CSXT, or is or was serving CSXT or any other legal entity in any
capacity at the request of CSXT, against all liabilities and reasonable expenses
incurred in the proceeding, except such liabilities and expenses as are incurred
because of such director's or officer's willful misconduct or knowing violation
of the criminal law. Under CSXT's Amended and Restated Articles of
Incorporation, service as a director or officer of a legal entity controlled by
CSXT, including NYC Newco, is deemed service at the request of CSXT. As a
result, the mandatory indemnification provisions of CSXT's Amended and Restated
Articles of Incorporation would apply to a director or officer of CSXT in
connection with service as a director or officer of NYC Newco. Article V of
CSXT's Amended and Restated Articles of Incorporation also permits
indemnification, to the same or a lesser extent as the foregoing mandatory
provisions, of any other person who serves as an officer or director of a CSXT
subsidiary, including the directors and officers of NYC Newco. In addition,
Article VII of CSX's Amended and Restated Articles of Incorporation provides for
mandatory indemnification of officers of CSX in connection with service as an
officer or director of any legal entity controlled by CSX Corporation, or "CSX,"
including NYC Newco.
CSXT's Amended and Restated Articles of Incorporation also provide that, in
every instance permitted under the Virginia Act in effect from time to time, the
liability of a director or officer of CSXT to CSXT or CSXT's shareholders
arising out of a single transaction, occurrence or course of conduct will be
limited to one dollar.
The indemnification provisions of Article V of CSXT's Amended and Restated
Articles of Incorporation are not exclusive of any other right of
indemnification to which any person may be entitled, including indemnification
pursuant to a valid contract, indemnification by legal entities other than CSXT
or NYC Newco, as applicable, and indemnification under policies of insurance
purchased and maintained by CSXT or
II-1
NYC Newco, as applicable, or others. The officers and directors of each of CSXT
and NYC Newco are covered by the standard policy of officers' and directors'
liability insurance maintained by CSX.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<Table>
<Caption>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NO. DESCRIPTION REFERENCE TO
- ------- --------------------------------------------------------- ---------------------------
2.1 Form of Distribution Agreement by and among CSX Filed herewith.
Corporation, CSX Transportation, Inc., CSX Rail Holding
Corporation, CSX Northeast Holding Corporation, New York
Central Lines LLC, Norfolk Southern Corporation, Norfolk
Southern Railway Company, Pennsylvania Lines LLC, Conrail
Inc., Green Acquisition Corp., Consolidated Rail
Corporation, CRR Holdings LLC, NYC Newco, Inc. and PRR
Newco, Inc.
2.2 Form of Transaction Agreement Amendment by and among CSX Filed herewith.
Corporation, CSX Transportation, Inc., Norfolk Southern
Corporation, Norfolk Southern Railway Company, Conrail
Inc., Consolidated Rail Corporation and CRR Holdings LLC.
2.3 Form of Tax Allocation Agreement by and among Green Filed herewith.
Acquisition Corp., Conrail, Inc., Consolidated Rail
Corporation, Pennsylvania Lines LLC and New York Central
Lines LLC.
3.1 Amended and Restated Articles of Incorporation of CSX Incorporated by reference
Transportation, Inc. to Exhibit 3.1 to CSX
Transportation, Inc.'s
Annual Report on Form 10-K
for the fiscal year ended
December 29, 1995, filed
with the SEC on March 8,
1996.
3.2 Bylaws, as amended, of CSX Transportation, Inc. Incorporated herein by
reference to Exhibit 3.2 to
CSX Transportation, Inc.'s
Annual Report on Form 10-K
for the fiscal year ended
December 26, 2003, filed
with the SEC on March 10,
2004.
3.3 Articles of Incorporation of NYC Newco, Inc. Previously filed.
3.4 Bylaws of NYC Newco, Inc. Previously filed.
4.1 Form of Indenture for Senior Securities, by and among NYC Previously filed.
Newco, Inc., as Issuer, CSX Transportation, Inc., as
Guarantor, and The Bank of New York, as Trustee.
4.2 Form of 9 3/4% Global Note due 2020. Previously filed.
4.3 Form of 7 7/8% Global Note due 2043. Previously filed.
4.4 In accordance with Item 601(b)(4)(iii) of Regulation S-K, N/A
copies of instruments of CSXT and its subsidiaries with
respect to the rights of holders of long-term debt not
being registered herein are not filed herewith, or
incorporated by reference, but will be furnished to the
Commission upon request.
5.1 Opinion of Wachtell, Lipton, Rosen & Katz, special Filed herewith.
counsel to CSX Transportation, Inc. and NYC Newco, Inc.
12.1 Computation of Ratio of Earnings to Fixed Charges for CSX Filed herewith.
Transportation, Inc. and Subsidiaries.
23.1 Consent of Ernst & Young LLP. Filed herewith.
23.2 Consent of Ernst & Young LLP and KPMG LLP, Independent Filed herewith.
Auditors.
23.3 Consent of Ellen M. Fitzsimmons, Esq. Included in Exhibit 5.1.
</Table>
II-2
<Table>
<Caption>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NO. DESCRIPTION REFERENCE TO
- ------- --------------------------------------------------------- ---------------------------
23.4 Consent of Wachtell, Lipton, Rosen & Katz. Included in Exhibit 5.2.
24.1 Powers of Attorney. Previously filed.
25.1 Statement of Eligibility and Qualification on Form T-1 of Previously filed.
The Bank of New York, as trustee under the Indenture for
the 9 3/4% Notes due 2020 and the 7 7/8% Notes due 2043.
99.1 Form of Consent and Letter of Transmittal. Filed herewith.
99.2 Form of Notice of Guaranteed Delivery. Filed herewith.
99.3 Form of Client Letter. Filed herewith.
99.4 Form of Letter to Brokers, Dealers, Commercial Banks, Filed herewith.
Trust Companies and Other Nominees.
99.5 Guidelines for Certification of Taxpayer Identification Filed herewith.
Number on Substitute Form W-9.
99.6 Indenture, dated as of May 1, 1990, between Consolidated Filed herewith.
Rail Corporation and J.P. Morgan Trust Company, National
Association, as successor to Bank One Trust Company,
N.A., a national banking corporation, which was successor
in interest to The First National Bank of Chicago, a
national banking association.
99.7 Conrail Supplemental Indenture, dated as of August 25, Previously filed.
1998, between Consolidated Rail Corporation and J.P.
Morgan Trust Company, National Association, as successor
to Bank One Trust Company, N.A., a national banking
corporation, which was successor in interest to The First
National Bank of Chicago, a national banking association.
</Table>
ITEM 22. UNDERTAKINGS
Each of the undersigned Registrants hereby undertakes:
(a)(1) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in this registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(a)(2) To deliver or cause to be delivered with the prospectus and consent
solicitation statement, to each person to whom the prospectus and consent
solicitation statement is sent or given, the latest annual report to security
holders that is incorporated by reference in the prospectus and consent
solicitation statement and furnished pursuant to and meeting the requirements of
Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the prospectus and consent solicitation
statement, to deliver, or cause to be delivered to each person to whom the
prospectus and consent solicitation statement is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus and consent solicitation statement to provide such interim financial
information.
(a)(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been
II-3
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(b) To respond to requests for information that are incorporated by
reference into the prospectus and consent solicitation statement pursuant to
Items 4, 10(b), 11 or 13 of Form S-4, within one business day of receipt of such
request, and to send the incorporated documents by first-class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of this registration statement through the date
of responding to the request.
(c) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in this registration statement when it
became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Jacksonville, State of
Florida, on this 21st day of May, 2004.
CSX TRANSPORTATION, INC.
By: /s/ CAROLYN T. SIZEMORE
------------------------------------
Name: Carolyn T. Sizemore
Title: Vice-President and Controller
NYC NEWCO, INC.
By: /s/ CAROLYN T. SIZEMORE
------------------------------------
Name: Carolyn T. Sizemore
Title: Vice-President and Controller
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* Chairman of the Board, President May 21, 2004
- ------------------------------------------------ and Chief Executive Officer of CSX
Michael J. Ward Transportation, Inc. (Principal
Executive Officer)
* Executive Vice President, Chief May 21, 2004
- ------------------------------------------------ Financial Officer and Director of
Oscar Munoz CSX Transportation, Inc. (Principal
Financial Officer)
/s/ CAROLYN T. SIZEMORE Vice President and Controller of May 21, 2004
- ------------------------------------------------ CSX Transportation, Inc. (Principal
Carolyn T. Sizemore Accounting Officer)
* Director of CSX Transportation, May 21, 2004
- ------------------------------------------------ Inc.
Clarence W. Gooden
* President of NYC Newco, Inc. May 21, 2004
- ------------------------------------------------ (Principal Executive Officer)
Ellen M. Fitzsimmons
/s/ CAROLYN T. SIZEMORE Vice President and Controller of May 21, 2004
- ------------------------------------------------ NYC Newco, Inc. (Principal
Carolyn T. Sizemore Accounting Officer)
</Table>
II-5
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* Vice President and Director of NYC May 21, 2004
- ------------------------------------------------ Newco, Inc. (Principal Financial
David A. Boor Officer)
* Vice President and Director of NYC May 21, 2004
- ------------------------------------------------ Newco, Inc.
Peter J. Shudtz
* Vice President and Director of NYC May 21, 2004
- ------------------------------------------------ Newco, Inc.
Nathan D. Goldman
*By: /s/ CAROLYN T. SIZEMORE
------------------------------------------
Carolyn T. Sizemore
Attorney-in-fact
Dated: May 21, 2004
</Table>
II-6
EXHIBIT INDEX
<Table>
<Caption>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NO. DESCRIPTION REFERENCE TO
- ------- --------------------------------------------------------- ---------------------------
2.1 Form of Distribution Agreement by and among CSX Filed herewith.
Corporation, CSX Transportation, Inc., CSX Rail Holding
Corporation, CSX Northeast Holding Corporation, New York
Central Lines LLC, Norfolk Southern Corporation, Norfolk
Southern Railway Company, Pennsylvania Lines LLC, Conrail
Inc., Green Acquisition Corp., Consolidated Rail
Corporation, CRR Holdings LLC, NYC Newco, Inc. and PRR
Newco, Inc.
2.2 Form of Transaction Agreement Amendment by and among CSX Filed herewith.
Corporation, CSX Transportation, Inc., Norfolk Southern
Corporation, Norfolk Southern Railway Company, Conrail
Inc., Consolidated Rail Corporation and CRR Holdings LLC.
2.3 Form of Tax Allocation Agreement by and among Green Filed herewith.
Acquisition Corp., Conrail, Inc., Consolidated Rail
Corporation, Pennsylvania Lines LLC and New York Central
Lines LLC.
3.1 Amended and Restated Articles of Incorporation of CSX Incorporated by reference
Transportation, Inc. to Exhibit 3.1 to CSX
Transportation, Inc.'s
Annual Report on Form 10-K
for the fiscal year ended
December 29, 1995, filed
with the SEC on March 8,
1996.
3.2 Bylaws, as amended, of CSX Transportation, Inc. Incorporated herein by
reference to Exhibit 3.2 to
CSX Transportation, Inc.'s
Annual Report on Form 10-K
for the fiscal year ended
December 26, 2003, filed
with the SEC on March 10,
2004.
3.3 Articles of Incorporation of NYC Newco, Inc. Previously filed.
3.4 Bylaws of NYC Newco, Inc. Previously filed.
4.1 Form of Indenture for Senior Securities, by and among NYC Previously filed.
Newco, Inc., as Issuer, CSX Transportation, Inc., as
Guarantor, and The Bank of New York, as Trustee.
4.2 Form of 9 3/4% Global Note due 2020. Previously filed.
4.3 Form of 7 7/8% Global Note due 2043. Previously filed.
4.4 In accordance with Item 601(b)(4)(iii) of Regulation S-K, N/A
copies of instruments of CSXT and its subsidiaries with
respect to the rights of holders of long-term debt not
being registered herein are not filed herewith, or
incorporated by reference, but will be furnished to the
Commission upon request.
5.1 Opinion of Wachtell, Lipton, Rosen & Katz, special Filed herewith.
counsel to CSX Transportation, Inc. and NYC Newco, Inc.
12.1 Computation of Ratio of Earnings to Fixed Charges for CSX Filed herewith.
Transportation, Inc. and Subsidiaries.
23.1 Consent of Ernst & Young LLP. Filed herewith.
23.2 Consent of Ernst & Young LLP and KPMG LLP, Independent Filed herewith.
Auditors.
23.3 Consent of Ellen M. Fitzsimmons, Esq. Included in Exhibit 5.1.
23.4 Consent of Wachtell, Lipton, Rosen & Katz. Included in Exhibit 5.2.
24.1 Powers of Attorney. Previously filed.
</Table>
<Table>
<Caption>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NO. DESCRIPTION REFERENCE TO
- ------- --------------------------------------------------------- ---------------------------
25.1 Statement of Eligibility and Qualification on Form T-1 of Previously filed.
The Bank of New York, as trustee under the Indenture for
the 9 3/4% Notes due 2020 and the 7 7/8% Notes due 2043.
99.1 Form of Letter of Consent/Transmittal. Filed herewith.
99.2 Form of Notice of Guaranteed Delivery. Filed herewith.
99.3 Form of Client Letter. Filed herewith.
99.4 Form of Letter to Brokers, Dealers, Commercial Banks, Filed herewith.
Trust Companies and Other Nominees.
99.5 Guidelines for Certification of Taxpayer Identification Filed herewith.
Number on Substitute Form W-9.
99.6 Indenture, dated as of May 1, 1990, between Consolidated Filed herewith.
Rail Corporation and J.P. Morgan Trust Company, National
Association, as successor to Bank One Trust Company,
N.A., a national banking corporation, which was successor
in interest to The First National Bank of Chicago, a
national banking association.
99.7 Conrail Supplemental Indenture, dated as of August 25, Previously filed.
1998, between Consolidated Rail Corporation and J.P.
Morgan Trust Company, National Association, as successor
to Bank One Trust Company, N.A., a national banking
corporation, which was successor in interest to The First
National Bank of Chicago, a national banking association.
</Table>