Filed by: CSX Transportation, Inc., Norfolk Southern Railway Company
and Consolidated Rail Corporation
Pursuant to Rule 425
under the Securities Act of 1933, as amended.
Subject Company: Consolidated Rail Corporation
Commission File Nos.: 1-3359, 1-743, 1-3744, 1-4793, 1-5462
WRITTEN MATERIALS USED TO SOLICIT TENDERS IN CONNECTION WITH THE EXCHANGE OFFER
AND UNSECURED AND SECURED DEBT CONSENT SOLICITATIONS
CONTACT INFORMATION
LIABILITY MANAGEMENT BANKING DEPARTMENT: TRANSPORTATION FIXED INCOME RESEARCH
- -------------------- ---------------------------------- ---------------------
SMorgan x1-2219 NWalsh x1-7656 DRunte x1-1472
PSieb x1-1864 EGross x1-8193 CORPORATE TRADING
FCipollone x1-1941 ---------------------
KLynyak x1-1258
RCastellanos x1-1261
$ 800,000,000 $ 273,458,905
Conrail Conrail
DEBENTURES SECURED DEBT (ETCs and PTCs)
| |
| |
/ \ |
58% 42%
NSR CSXT Consent
Debenture Debenture Solicitation
CONRAIL DEBENTURES SUBJECT TO THE EXCHANGE OFFER AND CONSENT SOLICITATION
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AGGREGATE
PRINCIPAL CONSIDERATION
CONRAIL DEBENTURES AMOUNT PER PRINCIPAL AMOUNT
(ELIGIBLE FOR EXCHANGE) CUSIP NO. OUTSTANDING OF CONRAIL DEBENTURES TENDERED FOR EXCHANGE
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Cash Payment
New Exchange Notes(1) per $1,000
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9 3/4% Debentures 209864AT4 $550,000,000 42% of New CSXT 9 3/4% Notes $7.00
Due June 15, 2020 Due June 15, 2020
58% of New NSR 9 3/4% Notes
Due June 15, 2020
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7 7/8% Debentures 209864AU1 $250,000,000 42% of New CSXT 7 7/8% Notes $7.50
Due May 15, 2043 Due May 15, 2043
58% of New NSR 7 7/8% Notes
Due May 15, 2043
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(1) Subject to treatment of fractional interests.
CONRAIL SECURED DEBT (ETCS AND PTCS) CONSENT SOLICITATION ONLY
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CONSENT FEE
AGGREGATE PER $1,000
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
TITLE OF SERIES CUSIP NO. OUTSTANDING OUTSTANDING
- ----------------------------------------------- --------- ---------------- ----------------
9.80% 1988 ETC, Series A due October 15, 2004 209864AP2 $3,654,000 $5.50
9.82% 1990 ETC, Series A due April 1, 2005 209864AR8 $3,056,403 $5.00
8.65% 1991 ETC, Series A due October 1, 2008 209864AV9 $35,814,739 $5.50
7.07% 1992 ETC, Series A due April 1, 2005 (2) 209864BH9 $10,796,715 $5.50
7.22% 1992 ETC, Series A due April 1, 2007 (2) 209864BJ5 $2,380,480 $6.00
7.28% 1992 ETC, Series A due April 1, 2008 (2) 209864BK2 $9,429,120 $6.00
7.35% 1992 ETC, Series A due April 1, 2009 (2) 209864BL0 $9,772,136 $6.00
7.42% 1992 ETC, Series A due April 1, 2010 (2) 209864BM8 $2,523,918 $6.50
5.98% 1993 ETC, Series A due July 1, 2013 209864BN6 $34,247,375 $5.50
8.59% PTC, Series 1991-1 due May 29, 2005 209866AA0 $8,376,700 $5.00
6.86% PTC, Series 1993-A2 due December 31, 2007 209937AB7 $42,395,442 $6.00
8.45% PTC, Series 1994-A due July 2, 2014 20986TAA0 $22,404,712 $6.00
6.76% PTC, Series 1995-A due May 25, 2015 20986NAA3 $64,180,217 $6.00
6.96% PTC, Series 1996-A due March 25, 2010 20986NAB1 $24,426,948 $5.50
IMPORTANT DATES & INFORMATION
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DEBENTURE EXCHANGE OFFER ETC & PTC CONSENT SOLICITATION
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LAUNCH DATE: July 26th, 2004 July 26th, 2004
INITIAL EXPIRATION DATE: August 23rd, 2004 August 23rd, 2004
WITHDRAWAL/CONSENT REVOCATION: Up to the Expiration Date as the Up to August 23rd, 2004
same may be extended
REQUISITE CONSENT More than 50% of the Debentures More than 50% of each series (3)
voting as single class
SUMMARY RATINGS
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MOODY'S STANDARD & POOR'S
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CONRAIL Baa2 (Stable) BBB (negative)
CSX Baa2 (negative) BBB (negative)
NORFOLK SOUTHERN Baa1 (Stable) BBB (stable)
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(2) These 1992 ETCs will vote together as a single class on the proposed
amendments.
(3) For purposes of determining the Requisite Consents, the 7.07% 1992 ETCs
due April 1, 2005, the 7.22% 1992 ETCs due April 1, 2007, the 7.28% 1992
ETCs due April 1, 2008, the 7.35% 1992 ETCs due April 1, 2009 and the
7.42% 1992 ETCs due April 1, 2010 (together, the "1992 ETCs") shall be
collectively treated as a single series of Certificates and, accordingly,
will vote together as a single class.
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INSTRUCTIONS TO SALES REPRESENTATIVES
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STEP 1: Contact all of your accounts. Do not limit your calling
effort to the names provided from internal holding lists.
These lists are imperfect and are often dated.
STEP 2: Ascertain whether your accounts hold any of the existing
Conrail Debentures, ETCs or PTCs and ascertain the amount.
STEP 3: Confirm receipt of documents. All customers should carefully
review the Prospectuses (for the Exchange Offer and Consent
Solicitation of the Debentures) and/or the Consent
Solicitation Statement (for the Consent Solicitation of the
Secured debt). If customers have not received the document,
they should call Innisfree, the Information Agent, at (212)
750-5833 or toll-free at (877) 456-3507.
STEP 4: Determine the custodian or nominee for each holding. Custodian
names are necessary to track exchanges, as custodians (or
registered holders) will actually submit the Letter of
Transmittal. Beneficial owners should instruct their
custodians to submit the appropriate documentation to Bank of
New York, the Exchange Agent/Tabulation Agent for the
transaction. Identification of custodian names is the only
method of tracking sales credits.
STEP 5: Ascertain whether a holder intends to participate or not, and
when he intends to do this. Holders of Conrail's unsecured
Debentures do not benefit by waiting to the end to submit
their order because they have withdrawal rights. By waiting
until the expiration date, holders of Conrail's unsecured
Debentures expose themselves to the risk of administrative
error. Similarly holders of ETCs and PTCs have withdrawal
rights up to August 23rd, 2004 and do not benefit from waiting
until then. However, holders of Conrail's ETCs and PTCs do not
have withdrawal rights after 5:00 p.m. on August 23rd, 2004,
even if the consent solicitation expiration is extended.
Nevertheless, if holders decide to wait, obtain an indication.
An indication suggests that a holder intends to participate
but will fill out the forms at a later date.
STEP 6: If a holder rejects the offer, determine the reasons and
ascertain what remedies, if any, may cure the rejection.
PLEASE COMPLETE STEPS 1-6 BY August 2nd, 2004
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FEEDBACK AND INFORMATION SHOULD BE SENT TO:
NAME TELEPHONE EMAIL ADDRESS
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SIMON MORGAN 212-761-2219 simon.j.morgan@morganstanley.com
PATRICK SIEB 212-761-1864 patrick.sieb@morganstanley.com
FRANCESCO CIPOLLONE 212-761-1941 francesco.cipollone@morganstanley.com
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BACKGROUND AND PROPOSED TRANSACTION
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BACKGROUND
o In 1997, CSX and Norfolk Southern jointly acquired Conrail, Inc.
o The total acquisition cost was approximately $9.8 billion, of which
CSX paid 42%, or approximately $4.1 billion, and Norfolk Southern paid
58%, or approximately $5.7 billion.
o To reflect this apportionment, CSX and Norfolk Southern each held and
still hold, 42% and 58%, respectively, of the economic interests in
CRR Holdings, with CRR Holdings' voting interests apportioned 50% to
CSX and 50% to Norfolk Southern.
o CSX and Norfolk Southern divided Conrail's railroad operating properties
and related assets, generally, into three groups:
o 1) the "NYC Allocated Assets" consisting of properties and other
assets reserved for exclusive operation by CSXT;
o 2) the "PRR Allocated Assets" consisting of properties and other
assets reserved for exclusive operation by NSR; and
o 3) the "Retained Assets" consisting of properties and other assets
retained by Conrail and operated for the benefit of both CSX and
Norfolk Southern, providing competitive rail service in certain areas
of northern New Jersey, certain areas of southern New Jersey,
Philadelphia and Detroit.
o In 1998, Conrail solicited the consent of the holders of its secured and
unsecured debt obligations in order to, among other things, facilitate the
reorganization of Conrail by the transfer of the NYC Allocated Assets to
NYC, a wholly-owned subsidiary of Conrail, and the PRR Allocated Assets to
PRR, a wholly-owned subsidiary of Conrail, as well as obtain the permission
for NYC and PRR to lease or sublease such assets to CSXT and NSR,
respectively.
o This reorganization allowed CSX and NSC to realize certain operational
benefits of their joint ownership of Conrail.
THE CONRAIL SPIN-OFF TRANSACTIONS
o Conrail now proposes to transfer Conrail's entire ownership interest in NYC
and in PRR to CSXT and NSR, respectively.
o As part of the Conrail Spin-Off Transactions,
1) CSXT, NSR and Conrail are offering to exchange Conrail's Unsecured
Debentures for the same aggregate principal amount of a combination of
new debt securities of CSXT and NSR, in the ratio of approximately
42%/58%, and cash payments.
- Except for the interest payable by Conrail on the closing date of
the Exchange Offer and the resulting adjustment in the amount of
interest to be paid on the first interest payment date following
the issuance of these new debt securities, the new CSXT and NSR
debt securities will have maturity dates, interest rates, and
principal and interest payment dates identical to those of the
respective series of Conrail's Unsecured Debentures for which
they will be
4
offered in exchange and together will aggregate to the same
principal amounts outstanding as Conrail's existing Unsecured
Debentures for which they are exchanged.
- The new CSXT debt securities and the new NSR debt securities will
initially be issued by NYC Newco, a wholly-owned subsidiary of
CSXT, and PRR Newco, a wholly-owned subsidiary of NSR,
respectively, and will be fully and unconditionally guaranteed by
CSXT and NSR, respectively. As noted below, NYC Newco and PRR
Newco will be merged into CSXT and NSR, respectively, as part of
the Conrail Spin-Off Transactions, so these obligations will
almost immediately become direct obligations of CSXT and NSR.
2) Conrail is also soliciting consents to certain proposed amendments to
the pass through trust agreements, equipment trust agreements, trust
indentures and related lease agreements, security agreements,
participation agreements and other agreements pursuant to which
certain outstanding equipment trust certificates and pass through
certificates of Conrail were issued.
- Holders are being asked to consent to Proposed Amendments to the
Existing Agreements to expressly permit, among other things,
CSXT's and NSR's acquisition of direct ownership of the
properties and other assets of NYC and PRR, respectively, and to
effectuate the Conrail Spin-Off Transactions in a structure
designed to support Conrail's obligations under the ETCs and PTCs
with subleases to CSXT and NSR of railroad equipment which
secures the payment of the ETCs and PTCs.
PURPOSE OF THE SPIN-OFF TRANSACTIONS
o 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.
o After the consummation of the Conrail Spin-Off Transactions, Conrail's
unencumbered assets allocated to and currently operated by CSXT will be
brought under CSX's direct ownership and control, and Conrail's
unencumbered assets allocated to and currently operated by NSR will be
brought under Norfolk Southern's direct ownership and control. As a result,
both CSX and Norfolk Southern will benefit from:
o increased independence over the management of the assets of NYC and
PRR;
o improved transparency of the financial reporting of CSX and Norfolk
Southern by consolidation of the financial results of NYC and PRR into
those of CSX and Norfolk Southern, respectively, thereby enhancing
access to the capital markets;
o 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;
o improved incentives for new business innovations, long-term capital
improvements and strategic dispositions and acquisitions of PRR and
NYC properties and assets; and
o reductions in potential conflicts associated with the indirect joint
ownership of NYC's and PRR's assets, which arise because CSX and
Norfolk Southern, as the joint owners of NYC and PRR, do not share a
joint economic agenda regarding NYC and PRR due to their status as
competitors.
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BASIC TERMS OF THE NEW NOTES FOR THE EXCHANGE OFFER
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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
- 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.
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.
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.
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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. The New CSXT Notes will not contain financial
covenants. These covenants are substantially similar to those contained in the
existing indentures of CSX governing CSX's unsecured debt securities.
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.
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.
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
7
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.
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.
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. The New
NSR Notes will not contain financial covenants. These covenants are
substantially similar to those contained in the existing indentures of NSC
governing NSC's unsecured debt securities.
CSX Corporation (CSX), based in Jacksonville, Fla., owns the largest rail
network in the eastern United States. CSXT and its 34,000 employees provide rail
transportation services over a 23,000 route-mile network in 23 states, the
District of Columbia and two Canadian provinces. CSX also provides intermodal
and global container terminal operations through other subsidiaries.
Norfolk Southern Corp. (NSC) through its NSR subsidiary operates 21,500 route
miles in 22 states, the District of Columbia and Ontario, serving every major
container port in the eastern United States and providing connections to western
rail carriers. NSC operates an extensive intermodal network and is the nation's
largest rail carrier of automotive parts and finished vehicles.
Conrail is a principal freight railroad in the Northeastern United States, and
is indirectly owned 58% by NSC and 42% by CSX.
These written materials contain forward-looking statements which speak only as
of the date they are made, and none of CSX, NSC, Conrail, or any of their
respective subsidiaries undertakes any obligation to update or revise any
forward-looking statement. If CSX, NSC or Conrail do update any forward-looking
statement, no inference should be drawn that CSX, NSC or Conrail 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 other factors which are, in some cases, beyond the control
of CSX, NSC and Conrail and could materially affect actual results, performance
or achievements. Factors that may cause actual results to differ materially
from those contemplated by these forward-looking statements include, among
others: (i) success in implementing its financial and operational initiatives;
(ii) changes in domestic or international economic or business conditions,
including those affecting the rail industry (such as the impact of industry
competition, conditions, performance and consolidation); (iii) legislative or
regulatory changes; and (iv) the outcome of claims and litigation involving or
affecting a company. Other important assumptions and factors that could cause
actual results to differ materially from those in the forward-looking
statements made by each of NSC and CSX are specified elsewhere in NSC's and
CSX's respective documents filed with the SEC. Documents filed with the SEC by
CSX and NSC are accessible on the SEC's website at www.sec.gov, CSX's website
at www.csx.com and NSC's website at www.nscorp.com.
8
Registration statements relating to the new CSXT and NSR unsecured debt
securities have been filed with the SEC and were declared effective on July 26,
2004. This document shall not constitute an offer to sell or the solicitation
of an offer to buy nor shall there be any sale of these securities in any State
in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such State.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
Prospectus and unsecured consent solicitation statements and related exchange
offer and secured debt consent solicitation materials will be mailed to holders
of Conrail's unsecured debentures, equipment trust certificates and pass through
trust certificates, as the case may be, in connection with the proposed exchange
offer and unsecured and secured debt consent solicitations. These documents will
contain important information about the proposed transaction and the proposed
exchange offer and consent solicitations. INVESTORS AND HOLDERS OF CONRAIL'S
UNSECURED DEBENTURES, EQUIPMENT TRUST CERTIFICATES AND PASS THROUGH TRUST
CERTIFICATES, AS THE CASE MAY BE, ARE URGED TO READ THESE DOCUMENTS CAREFULLY
WHEN THEY BECOME AVAILABLE. Investors and holders of Conrail's unsecured
debentures will be able to obtain free copies of documents related to the
exchange offer through the website maintained by the SEC at http://www.sec.gov.
In addition, free copies of any of these documents may be obtained from Conrail
by directing a request to: Consolidated Rail Corporation, 2001 Market Street,
Philadelphia, PA 19103, Attention: Corporate Secretary, (215) 209-5025. In
addition to the registration statements and prospectuses, CSX and NSC file
annual, quarterly and special reports, proxy statements and other information
with the SEC. These SEC filings are available to the public through the website
maintained by the SEC at http://www.sec.gov. A written prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, in connection with the
exchange offer, may also be obtained from: Innisfree M&A Incorporated, 501
Madison Avenue, 20th Floor, New York, New York 10022, phone number: (212)
750-5833.
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