1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 9, 1997
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CSX CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
VIRGINIA 4011 62-1051971
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ONE JAMES CENTER
901 EAST CARY STREET
RICHMOND, VIRGINIA 23219
(804) 782-1400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MARK G. ARON
CSX CORPORATION
ONE JAMES CENTER
901 EAST CARY STREET
RICHMOND, VIRGINIA 23219
(804) 782-1400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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WITH A COPY TO:
PAMELA S. SEYMON
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019
TELEPHONE: (212) 403-1000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: Upon consummation of the transactions described herein. 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: [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED(1) REGISTERED PER SHARE(1) PRICE(2) FEE(2)(3)(4)
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Common Stock, par value $1.00 per share.... 135,000,000 shares(3)
Preferred Share Purchase Rights............ 135,000,000 shares(3) $98.9375 $5,315,810,662 $1,610,852
Series A Convertible Preferred Stock,
without par value........................ 20,000,000
Guarantee of Trust Convertible Preferred
Securities............................... $860,000,000 in
aggregate principal
amount
Convertible Debentures underlying Trust
Convertible Preferred Securities......... $860,000,000 in
aggregate principal
amount
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(1) Estimated pursuant to Rules 457(f)(1) and 457(c) under the Securities Act of
1933, as amended (the "Securities Act"), solely for the purpose of
calculating the registration fee, based on $98.9375 per share, the average
of the high and low sale prices for a share of Conrail Common Stock on the
New York Stock Exchange Composite Tape on January 7, 1997.
(2) The registration fee for the shares of CSX Common Stock and CSX Convertible
Preferred Stock registered hereby has been calculated pursuant to Rule
457(f)(1) and 457(c) under the Securities Act as follows: 1/33rd of one
percent of $98.9375, the average of the reported high and low sales prices
of a share of Conrail Common Stock on the New York Stock Exchange Composite
Tape on January 7, 1997, multiplied by 53,728,977 (or 60% of 89,548,295),
the number of shares of Conrail Common Stock expected to be converted in the
Merger.
(3) Including up to 110,000,000 shares of CSX Common Stock and associated
Preferred Share Purchase Rights issuable in connection with the Merger and
up to 25,000,000 shares of CSX Common Stock which may be issuable upon
conversion of the CSX Series A Convertible Preferred Stock or the Trust
Convertible Preferred Securities (or Convertible Debentures).
(4) Payment for the registration fee due in connection herewith has been
partially offset by a previous overpayment by the registrant in the amount
of $46,998.
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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LOGO
[DATE]
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
Conrail Inc., which will be held at [PLACE] on [DATE] commencing at [TIME] local
time. At this important meeting you will be asked to vote on certain matters
relating to the proposed merger with CSX Corporation as described in the
accompanying Joint Proxy Statement/Prospectus.
The primary business to be conducted at the meeting will be the adoption
and approval of the merger agreement with CSX. In the merger, Conrail
shareholders will exchange each share for 1.85619 shares of CSX Common Stock and
$16 in value of a new class of CSX Convertible Preferred Stock (or Trust
Convertible Preferred Securities). The merger will thus allow Conrail
shareholders to participate in the benefits anticipated to follow from the
merger. By joining together with CSX, shareholders will be positioned to
participate in the continuing growth of the United States railroad industry and
the attendant opportunities for revenue growth and improved operating
efficiencies. I am very excited about the opportunities the merger provides for
you as shareholders, and for Conrail, its customers, the communities it serves
and other Conrail constituencies.
YOUR BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED THE TERMS OF THE PROPOSED
MERGER AND BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF CONRAIL. THE
BOARD HAS APPROVED THE MERGER AND RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
PROPOSAL DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS.
Your vote is important no matter how many shares you own. We hope you will
be able to attend the meeting in person, but, in any event, please sign and date
the enclosed proxy and return it in the accompanying envelope.
Sincerely,
LOGO David M. LeVan
Chairman, President and
Chief Executive Officer
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LOGO One James Center
Richmond, Virginia 23219
(904)782-1400
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[DATE]
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
CSX Corporation to be held at [PLACE] on [DATE] commencing at [TIME] local time.
At this important meeting you will be asked to vote on certain matters relating
to the proposed merger with Conrail Inc., as described in the accompanying Joint
Proxy Statement/Prospectus. I hope that you will attend this important meeting
in person or by proxy.
The merger of CSX and Conrail will be one of the most significant railroad
mergers in United States history and a momentous event for CSX. The merger will
continue to effectuate CSX's vision to be a worldwide leader in transportation
and related services. In addition, the merger will enable us to enhance
shareholder value by better serving our customers and other constituents while
increasing profits through revenue growth, operating efficiencies and strategic
synergies.
In the merger, CSX will exchange 1.85619 shares of its Common Stock and $16
in value of a new class of CSX Convertible Preferred Stock (or Trust Convertible
Preferred Securities) for each share of Conrail Common Stock. YOUR BOARD OF
DIRECTORS HAS CAREFULLY CONSIDERED THE TERMS OF THE PROPOSED MERGER AND BELIEVES
THAT THE MERGER IS ADVISABLE AND IN THE BEST INTEREST OF CSX AND ITS
SHAREHOLDERS. THE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AND RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE PROPOSALS DESCRIBED IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS.
Your vote is important no matter how many shares you own. We hope you will
be able to attend the meeting in person, but, in any event, please sign and date
the enclosed proxy and return it in the accompanying envelope. If you wish to
communicate directly with us, you may mail us at the executive offices of CSX at
One James Center, 901 East Cary Street, Richmond, Virginia 23219.
Sincerely,
John W. Snow
Chairman, President and
Chief Executive Officer
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CONRAIL INC.
2001 MARKET STREET
TWO COMMERCE SQUARE
PHILADELPHIA, PENNSYLVANIA 19101
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [DATE]
NOTICE HEREBY IS GIVEN that a Special Meeting of Shareholders of Conrail
Inc., a Pennsylvania corporation ("Conrail"), will be held at [ADDRESS] at
[TIME] local time on [DATE] to consider and vote upon the following matters, as
more fully described in the accompanying Joint Proxy Statement/Prospectus:
1. TO CONSIDER AND VOTE UPON A PROPOSAL TO ADOPT AND APPROVE THE AGREEMENT
AND PLAN OF MERGER, DATED AS OF OCTOBER 14, 1996, BY AND AMONG CONRAIL,
CSX CORPORATION, A VIRGINIA CORPORATION ("CSX"), AND GREEN ACQUISITION
CORP., A PENNSYLVANIA CORPORATION AND A WHOLLY OWNED SUBSIDIARY OF CSX,
AS AMENDED, SUPPLEMENTED OR MODIFIED FROM TIME TO TIME, AND THE
TRANSACTIONS CONTEMPLATED THEREBY (INCLUDING THE FIRST MERGER AND THE
SECOND MERGER (COLLECTIVELY, THE "MERGER")).
2. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING
OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF.
Only holders of record of outstanding shares of Common Stock, par value
$1.00 per share ("Conrail Common Stock"), and of Series A ESOP Convertible
Junior Preferred Stock, without par value ("Conrail ESOP Preferred Stock"), of
Conrail at the close of business on [RECORD DATE] are entitled to notice of and
to vote at such meeting or any adjournments or postponements thereof. Approval
of Proposal 1 above requires the affirmative vote of a majority of the votes
cast by all outstanding shares of Conrail Common Stock and Conrail ESOP
Preferred Stock voting together as a single class. Approval of Proposal 1 above
is a condition to the Merger.
[DATE] BY ORDER OF THE BOARD OF DIRECTORS,
James D. McGeehan
Secretary
IMPORTANT NOTICES
PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY, WHETHER OR NOT
YOU PLAN TO ATTEND THE CONRAIL SPECIAL MEETING. YOUR PROXY WILL BE REVOCABLE,
EITHER IN WRITING OR BY VOTING IN PERSON AT THE SPECIAL MEETING, AT ANY TIME
PRIOR TO ITS USE.
THE BOARD OF DIRECTORS OF CONRAIL RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL
OF PROPOSAL 1 ABOVE.
PLEASE DO NOT SEND IN ANY SHARE CERTIFICATES AT THIS TIME.
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CSX CORPORATION
ONE JAMES CENTER
901 EAST CARY STREET
RICHMOND, VIRGINIA 23219
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [DATE]
RICHMOND, VIRGINIA
[DATE]
TO OUR SHAREHOLDERS:
A Special Meeting of Shareholders of CSX Corporation, a Virginia
corporation ("CSX"), will be held at [ADDRESS] at [TIME] local time on [DATE] to
consider and vote upon the following matters, as more fully described in the
accompanying Joint Proxy Statement/Prospectus:
1. A PROPOSAL TO ADOPT AND APPROVE THE AMENDED AND RESTATED CSX ARTICLES OF
INCORPORATION SUBSTANTIALLY AS SET FORTH IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS AS APPENDIX D.
2. A PROPOSAL TO APPROVE THE ISSUANCE OF SHARES OF COMMON STOCK, PAR VALUE
$1.00 PER SHARE ("CSX COMMON STOCK"), AND OF SERIES A CONVERTIBLE
PREFERRED STOCK, WITHOUT PAR VALUE, OF CSX (OR TRUST CONVERTIBLE
PREFERRED SECURITIES AND THE UNDERLYING CONVERTIBLE DEBENTURES, AS
DESCRIBED HEREIN), UPON THE TERMS AND SUBJECT TO THE CONDITIONS SET
FORTH IN THE AGREEMENT AND PLAN OF MERGER, DATED AS OF OCTOBER 14, 1996,
BY AND AMONG CSX, CONRAIL INC., A PENNSYLVANIA CORPORATION ("CONRAIL"),
AND GREEN ACQUISITION CORP., A PENNSYLVANIA CORPORATION AND A WHOLLY
OWNED SUBSIDIARY OF CSX, AS AMENDED, SUPPLEMENTED OR MODIFIED FROM TIME
TO TIME.
3. SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENTS OR POSTPONEMENTS THEREOF.
Only holders of record of outstanding shares of CSX Common Stock at the
close of business on [RECORD DATE] are entitled to notice of and to vote at such
meeting or any adjournments or postponements thereof. Approval of Proposal 1
above requires the affirmative vote of a majority of all outstanding shares of
CSX Common Stock, and approval of Proposal 2 above requires the affirmative vote
of a majority of the votes cast by holders of CSX Common Stock. Approval of both
Proposals 1 and 2 above is a condition to the merger with Conrail.
BY ORDER OF THE BOARD OF DIRECTORS,
Alan A. Rudnick
Vice President - General Counsel and
Corporate
Secretary
IMPORTANT NOTICES
PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY, WHETHER OR NOT
YOU PLAN TO ATTEND THE CSX SPECIAL MEETING. YOUR PROXY WILL BE REVOCABLE, EITHER
IN WRITING OR BY VOTING IN PERSON AT THE SPECIAL MEETING, AT ANY TIME PRIOR TO
ITS USE.
THE BOARD OF DIRECTORS OF CSX RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF
PROPOSALS 1 AND 2 ABOVE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS 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.
SUBJECT TO CHANGE AND COMPLETION
PRELIMINARY JOINT PROXY STATEMENT/PROSPECTUS DATED JANUARY 9, 1997
CSX CORPORATION CONRAIL INC.
JOINT PROXY STATEMENT
FOR SPECIAL MEETINGS OF
SHAREHOLDERS OF CONRAIL INC.
AND
SHAREHOLDERS OF CSX CORPORATION
TO BE HELD ON [DATE], 1997
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CSX CORPORATION
PROSPECTUS
This Joint Proxy Statement/Prospectus is being furnished to all holders of
Common Stock, par value $1.00 per share (together with the associated Conrail
Rights, "Conrail Common Stock"), and Series A ESOP Convertible Junior Preferred
Stock, without par value (together with the associated Conrail Rights, "Conrail
ESOP Preferred Stock"), of Conrail Inc., a Pennsylvania corporation ("Conrail"),
in connection with the solicitation of proxies by the Board of Directors of
Conrail (the "Conrail Board") for use at the special meeting of shareholders of
Conrail to be held on [DATE], or any adjournments or postponements thereof (the
"Conrail Meeting"); and to all holders of Common Stock, par value $1.00 per
share (together with the associated CSX Rights, "CSX Common Stock"), of CSX
Corporation, a Virginia corporation ("CSX"), in connection with the solicitation
of proxies by the Board of Directors of CSX (the "CSX Board") for use at the
special meeting of shareholders of CSX to be held on [DATE], or any adjournments
or postponements thereof (the "CSX Meeting" and, together with the Conrail
Meeting, the "Meetings").
The Conrail Meeting has been called: to consider and vote upon a proposal
to adopt and approve the Agreement and Plan of Merger, dated as of October 14,
1996 (the "Original Merger Agreement"), by and among Conrail, CSX and Green
Acquisition Corp., a Pennsylvania corporation and a wholly owned subsidiary of
CSX, as amended, supplemented or modified from time to time, including by the
first amendment thereto, dated as of November 5, 1996 (the "First Amendment"),
and by the second amendment thereto, dated as of December 18, 1996 (the "Second
Amendment") (as so amended, the "Merger Agreement"), and the transactions
contemplated thereby (the "Conrail Proposal"); and to transact such other
business as may properly come before the Conrail Meeting.
The CSX Meeting has been called: to consider and vote upon a proposal to
adopt and approve the Amended and Restated CSX Articles of Incorporation (the
"Amended CSX Articles") substantially in the form attached as Appendix D hereto
(the "CSX Articles Proposal"); to consider and vote upon a proposal to approve
the issuance of shares of CSX Common Stock and CSX Series A Convertible
Preferred Stock, without par value ("CSX Convertible Preferred Stock"), or Trust
Convertible Preferred Securities, as defined herein, and the underlying
Convertible Debentures (the "Convertible Debentures") upon the terms and subject
to the conditions set forth in the Merger Agreement (the "CSX Issuance Proposal"
and, together with the CSX Articles Proposal, the "CSX Proposals"); and to
transact such other business as may properly come before the CSX Meeting.
This Joint Proxy Statement/Prospectus also serves as a prospectus of CSX
with respect to the shares of CSX Common Stock and CSX Convertible Preferred
Stock (or Trust Convertible Preferred Securities) issuable upon consummation of
the Merger (as defined herein) to holders of outstanding shares of Conrail
Common Stock and outstanding shares of Conrail ESOP Preferred Stock (which will
be converted into shares of Conrail Common Stock prior to consummation of the
Merger), as well as the shares of CSX Common Stock issuable upon conversion of
the CSX Convertible Preferred Stock (or Trust Convertible Preferred Securities
or Convertible Debentures), the guarantee by CSX of certain obligations on the
Trust Convertible Preferred Securities (the "Guarantee") and the Convertible
Debentures underlying the Trust Convertible Preferred Securities. See "THE
MERGER -- The Merger Agreement -- Conversion of Shares." (Shares of Conrail
Common Stock and shares of Conrail ESOP Preferred Stock are sometimes
collectively referred to herein as "Shares.") Each share of CSX Common Stock
issued in connection with the Merger will be accompanied by one preferred share
purchase right (a "CSX Right") representing the right to purchase one
one-hundredth of a share of Series B Junior Participating Preferred Stock of
CSX, without par value ("CSX Series B Preferred Stock"), issued pursuant to the
Rights Agreement, dated as of June 8, 1988, between CSX and Harris Trust Company
of New York, as rights agent (as amended, the "CSX Rights Agreement"). See
"COMPARISON OF SHAREHOLDERS' RIGHTS -- Shareholder Rights Plans."
This Joint Proxy Statement/Prospectus and accompanying forms of proxy are
first being mailed to the shareholders of Conrail and the shareholders of CSX on
or about [DATE].
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THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
(THE "SEC") OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Joint Proxy Statement/Prospectus is [DATE].
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TABLE OF CONTENTS
PAGE
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AVAILABLE INFORMATION................................................................. 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 1
CAUTIONARY STATEMENTS WITH RESPECT TO FORWARD-LOOKING STATEMENTS...................... 2
SUMMARY............................................................................... 3
The Parties......................................................................... 3
The Meetings........................................................................ 4
The Merger.......................................................................... 6
SELECTED HISTORICAL FINANCIAL DATA.................................................... 14
SELECTED HISTORICAL FINANCIAL DATA FOR CONRAIL........................................ 15
SELECTED HISTORICAL FINANCIAL DATA FOR CSX............................................ 16
UNAUDITED SELECTED PRO FORMA FINANCIAL DATA........................................... 18
UNAUDITED COMPARATIVE PER SHARE DATA.................................................. 19
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION........................... 20
BUSINESS OF CONRAIL................................................................... 21
BUSINESS OF CSX....................................................................... 22
THE COMBINED COMPANY.................................................................. 23
THE MEETINGS.......................................................................... 25
Conrail............................................................................. 25
CSX................................................................................. 25
Proxies............................................................................. 26
Costs of Solicitation............................................................... 27
BACKGROUND AND REASONS................................................................ 28
Background of the Merger............................................................ 28
Recommendation of the Conrail Board................................................. 36
Opinions of Financial Advisors to Conrail........................................... 38
Recommendation of the CSX Board..................................................... 45
Opinion of Financial Advisor to CSX................................................. 46
THE MERGER............................................................................ 51
The Merger Agreement................................................................ 51
Option Agreements................................................................... 67
Accounting Treatment................................................................ 68
Certain Federal Income Tax Consequences............................................. 68
Withholding......................................................................... 75
Election Procedures................................................................. 76
Federal Securities Laws Consequences................................................ 77
Dissenters' Rights.................................................................. 77
Conrail ESOP Preferred Cash Option.................................................. 80
FINANCING............................................................................. 81
UNAUDITED PRO FORMA FINANCIAL STATEMENTS.............................................. 83
DESCRIPTION OF THE CSX CONVERTIBLE PREFERRED STOCK.................................... 91
Fixing of Terms..................................................................... 91
General............................................................................. 92
Rank................................................................................ 92
Dividends........................................................................... 92
Redemption.......................................................................... 93
Liquidation......................................................................... 94
Voting.............................................................................. 95
Conversion.......................................................................... 95
Preemptive Rights................................................................... 99
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PAGE
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COMPARISON OF SHAREHOLDERS' RIGHTS.................................................... 100
Authorized Capital.................................................................. 100
Voting Rights....................................................................... 101
Directors........................................................................... 101
Special Meetings.................................................................... 102
Action by Shareholders Without A Meeting............................................ 102
Amendments to Articles of Incorporation............................................. 103
Amendments to By-laws............................................................... 103
Approval of Mergers and Similar Transactions........................................ 103
Dissenters' Rights.................................................................. 104
Indemnification of Directors and Officers........................................... 105
Anti-Takeover Statutes.............................................................. 106
Rights of Inspection................................................................ 108
Shareholder Rights Plans............................................................ 108
DESCRIPTION OF AMENDED CSX ARTICLES................................................... 110
Name................................................................................ 110
Authorized Capital Stock............................................................ 110
Preferred Stock..................................................................... 110
Certain Voting Matters.............................................................. 110
Other............................................................................... 111
SECURITY OWNERSHIP.................................................................... 112
Security Ownership of Certain Beneficial Owners and Management of Conrail........... 112
Security Ownership of Certain Beneficial Owners and Management of CSX............... 114
INTERESTS OF CERTAIN PERSONS.......................................................... 117
Employment Agreements............................................................... 117
Business Relationships Between CSX and Conrail...................................... 118
Other............................................................................... 118
CERTAIN REGULATORY MATTERS............................................................ 119
Antitrust........................................................................... 119
STB Approval........................................................................ 119
Voting Trust Agreement.............................................................. 121
Other Regulatory Approvals.......................................................... 123
STB Petition........................................................................ 123
CERTAIN LITIGATION.................................................................... 124
LEGAL MATTERS......................................................................... 125
EXPERTS............................................................................... 126
SHAREHOLDER PROPOSALS................................................................. 126
INDEX OF DEFINED TERMS................................................................ 127
Appendix A Merger Agreement and Amendments thereto
Appendix B Opinions of Morgan Stanley & Co. Incorporated and Lazard Freres & Co.
LLC
Appendix C Opinion of Wasserstein Perella & Co., Inc.
Appendix D Form of Amended and Restated CSX Articles of Incorporation
Appendix E Certain Sections of the Pennsylvania Law
Appendix F Terms of the Trust Convertible Preferred Securities
ii
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE INTO THIS JOINT PROXY
STATEMENT/PROSPECTUS, AND, IF SO GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS JOINT
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR THE SALE OF ANY SECURITIES HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF CSX OR CONRAIL SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
Conrail and CSX are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information with
the SEC. These reports, proxy statements and other information should be
available for inspection at the public reference facilities of the SEC located
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should
also be available for inspection and copying at prescribed rates at the
following regional offices of the SEC: Seven World Trade Center, New York, New
York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of this material may also be obtained by mail, upon payment of the SEC's
customary fees, from the Public Reference Section of the SEC's principal office
at 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also maintains an
Internet website at http://www.sec.gov that contains reports, proxy statements
and other information. Reports, proxy statements and other information
concerning Conrail or CSX should also be available for inspection at the offices
of the New York Stock Exchange, Inc. (the "NYSE"), 20 Broad Street, New York,
New York 10005.
CSX has filed with the SEC a registration statement on Form S-4 (together
with all amendments, exhibits and schedules thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
relating to the shares of CSX Common Stock and of CSX Convertible Preferred
Stock (or Trust Convertible Preferred Securities (or Convertible Debentures)),
the Guarantee and the Convertible Debentures issuable upon consummation of the
Merger as well as the shares of CSX Common Stock issuable upon conversion of the
CSX Convertible Preferred Stock (or Trust Convertible Preferred Securities).
This Joint Proxy Statement/Prospectus does not contain all of the information
set forth in the Registration Statement, certain portions of which are omitted
in accordance with the rules and regulations of the SEC. Such additional
information is available for inspection and copying at the offices of the SEC.
Statements contained in this Joint Proxy Statement/Prospectus or in any document
incorporated by reference into this Joint Proxy Statement/Prospectus by
reference as to the contents of any contract or other document referred to
herein or therein are not necessarily complete, and, in each instance, reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement or such other document, each such statement being
qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Conrail with the SEC under the
Exchange Act are incorporated herein by reference:
(i) Conrail's Annual Report on Form 10-K for the year ended December
31, 1995 (the "Conrail Form 10-K");
10
(ii) Conrail's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996 (the "Conrail Form
10-Qs"); and
(iii) Conrail's Current Reports on Form 8-K dated February 21, 1996
and October 22, 1996 (collectively with the Conrail Form 10-K and the
Conrail Form 10-Qs, the "Conrail Reports").
The following documents previously filed by CSX with the SEC under the
Exchange Act are incorporated herein by reference:
(i) CSX's Annual Report on Form 10-K for the fiscal year ended
December 29, 1995 (the "CSX Form 10-K");
(ii) CSX's Quarterly Reports on Form 10-Q for the quarters ended March
29, 1996, June 28, 1996 and September 27, 1996 (the "CSX Form 10-Qs");
(iii) CSX's Current Report on Form 8-K dated October 17, 1996
(collectively with the CSX Form 10-K and the CSX Form 10-Qs, the "CSX
Reports"); and
(iv) the descriptions of CSX Common Stock contained in CSX's
Registration Statement on Form 8-B dated September 25, 1980 and CSX's
Amendment No. 1 to Form 8-B dated June 17, 1988.
All documents filed by Conrail or CSX pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act on or after the date of this Joint Proxy
Statement/Prospectus and prior to the date of the Meetings shall be deemed to be
incorporated by reference into this Joint Proxy Statement/Prospectus and to be a
part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that is or is deemed to be incorporated by
reference herein) modifies or supersedes such previous statement. Any statement
so modified or superseded shall not be deemed to constitute a part hereof except
as so modified or superseded.
All information contained or incorporated by reference in this Joint Proxy
Statement/Prospectus relating to Conrail has been supplied by Conrail and all
such information relating to CSX has been supplied by CSX.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, UPON ORAL OR WRITTEN REQUEST BY
ANY PERSON TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS HAS BEEN DELIVERED, IN
THE CASE OF DOCUMENTS RELATING TO CONRAIL, FROM CONRAIL INC., 2001 MARKET
STREET, TWO COMMERCE SQUARE, PHILADELPHIA, PENNSYLVANIA 19101, ATTN.:
SHAREHOLDER RELATIONS, TELEPHONE NUMBER (215) 209-4000, AND, IN THE CASE OF
DOCUMENTS RELATING TO CSX, FROM THE OFFICE OF THE CORPORATE SECRETARY, CSX
CORPORATION, P.O. BOX 85629, RICHMOND, VIRGINIA 23285-5629, TELEPHONE NUMBER
(804) 782-1400. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE
MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY [DATE].
CAUTIONARY STATEMENTS WITH RESPECT TO FORWARD-LOOKING STATEMENTS
Various factors discussed in this Joint Proxy Statement/Prospectus could
cause actual results to differ materially from those contained in
forward-looking statements made in this Joint Proxy Statement/Prospectus,
including, without limitation, those contained under "BACKGROUND AND REASONS,"
"BUSINESS OF CONRAIL," "BUSINESS OF CSX" and "THE COMBINED COMPANY," in filings
by Conrail and/or CSX with the SEC, in press releases by Conrail and/or CSX and
in oral statements made by authorized officers of Conrail and/or CSX. When used
in this Joint Proxy Statement/Prospectus, the words "estimate," "project,"
"forecast," "anticipate," "expect," "intend," "believe" and similar expressions
are intended to identify forward-looking statements.
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SUMMARY
The following summary is intended only to highlight certain information
contained elsewhere in this Joint Proxy Statement/Prospectus. This summary is
not intended to be complete and is qualified in its entirety by the more
detailed information contained elsewhere in this Joint Proxy
Statement/Prospectus, the Appendices hereto and the documents incorporated by
reference or otherwise referred to herein. Shareholders of Conrail and
shareholders of CSX are urged to review this entire Joint Proxy
Statement/Prospectus carefully, including the Appendices hereto and such other
documents. An Index Of Defined Terms used herein has been provided at page 127.
THE PARTIES
CONRAIL INC................ Conrail Inc. is a holding company of which the
principal subsidiary is Consolidated Rail
Corporation ("CRC"), a freight railroad which
operates within the northeast and midwest United
States and the Province of Quebec. At December 31,
1995, CRC maintained 17,715 miles of track on its
10,701 mile route system. Of total route miles,
8,860 were owned, 100 were leased or operated under
contract and 1,741 were operated under trackage
rights, including approximately 300 miles operated
pursuant to an easement over Amtrak's Northeast
Corridor. Also at December 31, 1995, Conrail had
(owned or subject to capital lease) 2,023
locomotives and 51,404 freight cars (including
21,948 subject to operating leases), excluding
locomotives and freight cars held by subsidiaries
other than CRC, which have an immaterial number of
locomotives and freight cars. Conrail is a
Pennsylvania corporation whose principal executive
offices are located at 2001 Market Street, Two
Commerce Square, Philadelphia, Pennsylvania 19101,
telephone number (215) 209-4000. See "BUSINESS OF
CONRAIL."
CSX CORPORATION............ CSX Corporation is an international transportation
company with operations in the following business
units: CSX Transportation Inc. ("CSXT"), Sea-Land
Service Inc. ("Sea-Land"), American Commercial
Lines Inc. ("ACL"), CSX Intermodal Inc. ("CSXI"),
Customized Transportation Inc. ("CTI") and
non-transportation businesses. CSX provides rail,
intermodal, ocean container-shipping, barging,
trucking, and contract logistics services
worldwide. Through CSXT, CSX provides rail freight
transportation and distribution services over
18,645 route miles in 20 states in the United
States east, midwest and south, and in Ontario,
Canada. CSXT's service territory includes 26 port
cities for international transport. CSX also
transports freight through subsidiaries conducting
container-shipping, intermodal and barge
operations. Sea-Land is the largest
container-shipping line in the United States and
one of the three largest container-shipping
companies in the world. Sea-Land operates more than
100 container ships and nearly 200,000 containers
throughout the world. ACL is the largest and most
diversified barge transportation firm in both North
and South America. CSXI provides shippers with
nationwide intermodal service for moving domestic
and international freight in trailers, domestic
containers and international steamship containers.
CTI is a provider of contract logistics services,
including distribution, warehousing, processing and
assembly and just-in-time delivery. CSX is a
Virginia corporation with its principal executive
offices located at One James Center, 901 East Cary
Street, Richmond, Virginia 23219, telephone number
(804) 782-1400. See "BUSINESS OF CSX."
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THE COMBINED COMPANY....... Following the Control Date (which will be a date
following STB approval), the combined CSX/Conrail
(the "Combined Company") will be headquartered in
Philadelphia, Pennsylvania and known as [NEW NAME].
See "THE COMBINED COMPANY."
THE MEETINGS
THE CONRAIL MEETING........ The Conrail Meeting will be held on [DATE] at
[TIME] local time at [PLACE]. Only holders of
record of outstanding shares of Conrail Common
Stock and Conrail ESOP Preferred Stock at the close
of business on [DATE] (the "Conrail Record Date")
will be entitled to notice of and to vote at the
Conrail Meeting. As of the Conrail Record Date, the
following shares of the following classes of
Conrail capital stock were outstanding and entitled
to the following votes:
SHARES VOTES PER
CLASS OUTSTANDING SHARE
---------------------------------------- ------------ ---------
Conrail Common Stock.................... 1
Conrail ESOP Preferred Stock............ 1
Holders of Conrail Common Stock and Conrail ESOP
Preferred Stock will vote together as a single
class.
CONRAIL VOTES REQUIRED..... Conrail's By-laws as in effect as of the date of
this Joint Proxy Statement/Prospectus (the "Conrail
By-laws") provide that a majority of all
outstanding shares of Conrail Common Stock and
Conrail ESOP Preferred Stock constitute a quorum at
any meeting of shareholders. Adoption and approval
of the Conrail Proposal requires the affirmative
vote of a majority of the votes cast by all
outstanding shares of Conrail Common Stock and
Conrail ESOP Preferred Stock voting together as a
single class. See "THE MEETINGS -- Conrail" and
"-- Proxies."
BENEFICIAL OWNERSHIP OF
CONRAIL MANAGEMENT AND
CSX...................... At the Conrail Record Date, Conrail's directors and
executive officers and their affiliates
beneficially owned in the aggregate shares, or
% of the outstanding shares, of Conrail Common
Stock. At the Conrail Record Date, CSX, through the
Voting Trust, beneficially owned shares, or %
of the outstanding shares, of Conrail Common Stock.
Such shares will be voted by the Voting Trustee in
favor of the Conrail Proposal in accordance with
the Voting Trust Agreement. At the Conrail Record
Date, CSX's directors and executive officers and
their affiliates beneficially owned in the
aggregate shares, or % of the outstanding
shares, of Conrail Common Stock. In addition, at
the Conrail Record Date, Fidelity Management Trust
Company, as the trustee (the "Conrail ESOP
Trustee") of the Conrail Matched Savings Plan (the
"Conrail ESOP"), was the beneficial owner of
shares of Conrail ESOP Preferred Stock;
and shares, or % of the outstanding shares,
of Conrail Common Stock were held in the Conrail
Employee Benefits Trust (the "Conrail EBT"). See
"THE MEETINGS -- Conrail -- Beneficial Ownership of
Management and CSX."
RECOMMENDATION OF THE
CONRAIL BOARD............ The Conrail Board has approved the Merger Agreement
and the transactions contemplated thereby. Based in
part on the opinions of Lazard Freres & Co. LLC
("Lazard Freres") and Morgan Stanley & Co.
Incorporated ("Morgan Stanley"), summarized under
"BACK-
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GROUND AND REASONS -- Opinions of Financial
Advisors to Conrail," the Conrail Board believes
that the Merger Agreement and the transactions
contemplated thereby are in the best interests of
Conrail and recommends a vote FOR approval of the
Conrail Proposal. See "BACKGROUND AND
REASONS -- Recommendation of the Conrail Board."
OPINION OF CONRAIL
FINANCIAL ADVISORS....... In connection with approval of the Merger by the
Conrail Board, the Conrail Board received the
opinions of Lazard Freres and Morgan Stanley to the
effect that the consideration to be received by
Conrail's shareholders in the Offers and the
Merger, taken together, is fair to such
shareholders (other than CSX, Green Acquisition
Corp. or any other subsidiary of CSX) from a
financial point of view. In connection with these
opinions, these firms performed a variety of
financial and comparative analyses and made
presentations to the Conrail Board. Such opinions
and presentations are based on certain assumptions
and are subject to certain limitations. Such
opinions and presentations are described under
"BACKGROUND AND REASONS," and the opinions of
Lazard Freres and Morgan Stanley, which set forth
the assumptions made, matters considered and
limitations on the review undertaken in connection
with such opinions, are set forth in full in
Appendix B hereto.
THE CSX MEETING............ The CSX Meeting will be held on [DATE] at [TIME]
local time at [PLACE]. Only holders of record of
CSX Common Stock at the close of business on [DATE]
(the "CSX Record Date") will be entitled to notice
of and to vote at the CSX Meeting. At the CSX
Record Date, shares of CSX Common Stock
were outstanding and entitled to vote.
CSX VOTES REQUIRED......... CSX's By-laws as in effect as of the date of this
Joint Proxy Statement/ Prospectus (the "CSX
By-laws") provide that a majority of the
outstanding shares of stock entitled to vote
constitute a quorum at any meeting of shareholders.
Adoption and approval of the CSX Articles Proposal
requires the affirmative vote of a majority of all
outstanding shares of CSX Common Stock, and
approval of the CSX Issuance Proposal requires a
majority of the votes cast by holders of CSX Common
Stock at a meeting at which a quorum is present.
See "THE MEETINGS -- CSX" and "-- Proxies."
BENEFICIAL OWNERSHIP
OF CSX MANAGEMENT
AND CONRAIL.............. At the CSX Record Date, CSX's directors and
executive officers and their affiliates
beneficially owned in the aggregate
shares, or % of the outstanding shares, of CSX
Common Stock. At the CSX Record Date, Conrail and
its directors and executive officers and their
affiliates beneficially owned in the aggregate
shares, or % of the outstanding
shares, of CSX Common Stock . See "THE
MEETINGS -- CSX -- Beneficial Ownership of
Management."
RECOMMENDATION OF
THE CSX BOARD............ The CSX Board has unanimously approved the Merger
Agreement and the transactions contemplated
thereby. Based in part on the opinion of
Wasserstein Perella & Co., Inc. ("Wasserstein
Perella"), summarized under "BACKGROUND AND
REASONS -- Opinion of Financial Advisor to CSX,"
the members of the CSX Board believe that the
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Merger Agreement and the transactions contemplated
thereby are in the best interests of CSX and its
shareholders and recommend a vote FOR approval of
each of the CSX Proposals. See "BACKGROUND AND
REASONS -- Recommendation of the CSX Board."
OPINION OF CSX
FINANCIAL ADVISOR........ In connection with approval of the Merger by the
CSX Board, on October 13, 1996 the CSX Board
received the opinion of Wasserstein Perella to the
effect that the consideration to be paid by CSX in
the First Offer and the Merger as then contemplated
by the Merger Agreement, taken together, was fair
to CSX from a financial point of view. See
"BACKGROUND AND REASONS -- Background of the
Merger." Wasserstein Perella subsequently opined
orally on November 5, 1996 and again on December
17, 1996 (which opinion was subsequently confirmed
in writing) that, as of the relevant dates, the
consideration to be paid by CSX in the Offers and
the Merger, taken together, were fair to CSX from a
financial point of view (the written opinion of
Wasserstein Perella dated December 18, 1996
confirming its oral opinion of December 17, 1996 is
referred to herein as the "Wasserstein Perella
Opinion"). In connection with rendering its
opinion, Wasserstein Perella performed a variety of
financial and comparative analyses and made
presentations to the CSX Board. The Wasserstein
Perella Opinion and such presentations are based on
certain assumptions and are subject to certain
limitations. The Wasserstein Perella Opinion and
such presentations are described under "BACKGROUND
AND REASONS," and the Wasserstein Perella Opinion,
which sets forth the assumptions made, matters
considered and limitations on the review undertaken
in connection with such opinion, is set forth in
full in Appendix C hereto.
INTERESTS OF
CERTAIN PERSONS.......... In considering the recommendations of the Conrail
Board and the CSX Board with respect to the matters
to be considered at the Meetings, shareholders of
Conrail and CSX should be aware that certain
persons have certain interests in the Merger in
addition to the interests of shareholders
generally. See "INTERESTS OF CERTAIN PERSONS."
THE MERGER
THE MERGER................. The Merger will be effected through two
transactions. First, subject to the terms and
conditions of the Merger Agreement and in
accordance with the Pennsylvania Law, Green Merger
Corp., a wholly owned subsidiary of Green
Acquisition Corp., will merge with and into Conrail
in a transaction (the "First Merger") in which
Conrail shareholders (excluding CSX, Green
Acquisition Corp. and their subsidiaries) will
retain a percentage of their respective
shareholdings of Conrail such that the amount not
retained, when aggregated with all shares of
Conrail Common Stock then owned by CSX, Green
Acquisition Corp. and their subsidiaries,
collectively represents 80% of the outstanding
shares of Conrail's capital stock, and all
shareholdings of such shareholders not so retained
will be converted into the right to receive the
Merger Consideration. Second, subject to the terms
and conditions of the Merger Agreement and in
accordance with the Pennsylvania Law, following the
First Merger, Conrail will merge with and into
Green Acquisition Corp. (the "Surviving
Corporation") in a transaction (the "Second Merger"
and,
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together with the First Merger, the "Merger") in
which all outstanding shares of capital stock of
Conrail remaining (other than those to be canceled)
will be converted into the right to receive the
Merger Consideration.
MERGER CONSIDERATION....... Pursuant to the Merger Agreement, each issued and
outstanding Share (other than Shares owned by
Conrail as treasury stock and Shares owned by CSX,
Conrail or any of their respective subsidiaries,
which Shares will be canceled and retired) will, in
the Merger, be converted, at the election of the
holder, subject to the proration and limitations
discussed herein, into the right to receive (i)
$110 in cash without interest (the "Per Share Cash
Consideration"), (ii) 1.85619 shares of CSX Common
Stock and such amount of CSX Convertible Preferred
Stock (or Trust Convertible Preferred Securities;
such CSX Common Stock and CSX Convertible Preferred
Stock or Trust Convertible Preferred Securities
sometimes collectively referred to herein as "CSX
Merger Securities") as, in the opinion of certain
financial advisors (as described herein), is valued
prior to the Meetings at $16 on a fully distributed
basis (collectively, the "Per Share Stock
Consideration") or (iii) a combination of the
foregoing.
The aggregate number of Shares to be converted into
the right to receive the Per Share Merger
Consideration will be equal as nearly as
practicable to 60% of all outstanding Shares on a
fully diluted basis; and the number of Shares to be
converted into the right to receive the Per Share
Cash Consideration, together with the Shares
acquired by Green Acquisition Corp. pursuant to the
Offers or otherwise (other than upon exercise of
the Conrail Stock Option) (the "Acquired Shares"),
will be equal as nearly as practicable to 40% of
all outstanding Shares on a fully diluted basis.
If, prior to the Merger, at least 40% of the
outstanding Shares on a fully diluted basis have
been purchased by Green Acquisition Corp. (other
than upon exercise of the Conrail Stock Option),
then each Share will be converted into the right to
receive the Per Share Stock Consideration and
Conrail shareholders will not be offered the
opportunity to elect to receive the Per Share Cash
Consideration. If, prior to the Merger, less than
40% of the outstanding Shares on a fully diluted
basis have been purchased by Green Acquisition
Corp. (other than upon exercise of the Conrail
Stock Option), then the combination of
consideration will be adjusted in the manner
discussed under "THE MERGER -- The Merger
Agreement -- Conversion of Shares."
ELECTION PROCEDURES........ Each holder of Shares (other than Shares owned by
Conrail as treasury stock and Shares owned by CSX,
Conrail or any of their respective subsidiaries)
has the right, subject to proration and the
limitations described herein, to elect to receive
(an "Election"): either (i) the Per Share Stock
Consideration (a "Stock Election"); or (ii) the Per
Share Cash Consideration (a "Cash Election"). The
purpose of the election procedure is to permit
holders of Shares to express their preferences for
the type of consideration they wish to receive in
the Merger, provided that a number of Shares
(together with the Acquired Shares) as nearly as
practicable equal to 40% of the outstanding Shares
on a fully diluted basis shall be converted into
the right to receive the Per Share Cash
Consideration, and a number of Shares as nearly as
practicable equal to 60% of the outstanding Shares
on a fully diluted basis shall be converted into
the right to receive the Per Share Stock
Consideration. CONRAIL
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SHAREHOLDERS ARE NOT BEING ASKED TO MAKE AN
ELECTION AT THIS TIME. IF AN ELECTION IS AVAILABLE
TO THE HOLDERS OF SHARES, CONRAIL SHAREHOLDERS WILL
BE FURNISHED WITH AN ELECTION FORM PROMPTLY
FOLLOWING CONSUMMATION OF THE MERGER. BECAUSE THE
TAX CONSEQUENCES OF RECEIVING CASH, ON THE ONE
HAND, OR CSX COMMON STOCK AND CSX CONVERTIBLE
PREFERRED STOCK (OR TRUST CONVERTIBLE SECURITIES),
ON THE OTHER HAND, MAY DIFFER, CONRAIL SHAREHOLDERS
ARE URGED TO READ CAREFULLY THE INFORMATION SET
FORTH UNDER "THE MERGER -- CERTAIN FEDERAL INCOME
TAX CONSEQUENCES."
ALTHOUGH THERE CAN BE NO ASSURANCE THAT A HOLDER OF
SHARES WILL RECEIVE THE CONSIDERATION THAT SUCH
SHAREHOLDER ELECTS AS TO ALL OF SUCH SHAREHOLDER'S
SHARES (IF AN ELECTION IS IN FACT AVAILABLE), A
HOLDER OF SHARES HAVING A PREFERENCE SHOULD MAKE AN
ELECTION BECAUSE SHARES AS TO WHICH AN ELECTION HAS
BEEN MADE WILL BE GIVEN PRIORITY IN ALLOCATING
CONSIDERATION OVER SHARES AS TO WHICH NO ELECTION
HAS BEEN MADE.
For further information concerning the election and
allocation procedures, see "THE MERGER -- The
Merger Agreement -- Conversion of Shares" and
"-- Election Procedures."
CONVERSION OF CONRAIL
ESOP PREFERRED STOCK..... Shares of Conrail ESOP Preferred Stock will convert
automatically into shares of Conrail Common Stock
pursuant to the terms of Conrail's Articles of
Incorporation (the "Conrail Articles") prior to the
Merger so that, prior to the First Effective Time,
no shares of Conrail ESOP Preferred Stock will be
outstanding. See "THE MERGER -- The Merger
Agreement -- Conversion of Shares" and
"-- Dissenters' Rights."
TIME OF THE MERGER......... The First Merger will become effective upon the
date (the "First Effective Time") on which the
articles of merger or other appropriate documents
(the "First Articles of Merger") with respect to
the First Merger are duly filed with the
Pennsylvania Department of State or at such time as
is agreed upon by the parties and specified in the
First Articles of Merger. The Second Merger will
become effective at such time (the "Second
Effective Time") as articles of merger or other
appropriate documents (the "Second Articles of
Merger") with respect to the Second Merger are duly
filed with the Pennsylvania Department of State or
at such time as is agreed upon by the parties and
specified in the Second Articles of Merger. It is
currently expected that the First Effective Time
will occur at the close of business on a date as
promptly as practicable following the date of the
Meetings and that the Second Effective Time will
occur no later than the opening of business on the
business day immediately following the First
Effective Time.
CONDITIONS TO THE MERGER... The respective obligations of Conrail, on the one
hand, and CSX and Green Acquisition Corp., on the
other hand, to effect the Merger are subject to the
satisfaction or waiver prior thereto of various
conditions, including, among others, (i) Conrail
Merger Approval and CSX Share-
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holder Approval having been obtained and (ii) the
absence of any order or other Restraint preventing
consummation of the Merger. Each of Conrail's and
CSX's obligation to effect the Merger is further
subject to satisfaction or waiver of various
conditions, including, among other things, there
having occurred no material adverse change relating
to the other party. See "THE MERGER -- The Merger
Agreement -- Conditions to the Merger."
TERMINATION................ The Merger Agreement is subject to termination at
any time prior to consummation thereof, whether
before or after shareholder approval, under certain
circumstances, including, subject to certain
exceptions in each case: (i) by either CSX or
Conrail if the Merger has not been consummated by
December 31, 1998; (ii) after December 31, 1998 (a)
by either CSX or Conrail if shareholder approval is
not obtained or (b) by either CSX or Conrail in
accordance with the terms of the Merger Agreement
if the other party takes certain actions as
described under "THE MERGER -- The Merger
Agreement -- No Solicitation;" (iii) by either CSX
or Conrail if the Conrail Board or the CSX Board,
as applicable, has withdrawn or modified in a
manner adverse to the other party its approval or
recommendation of either Offer or the Merger or
with respect to the matters to be considered at a
Conrail Shareholders Meeting or a CSX Merger
Meeting or failed to reconfirm its recommendation
within 15 business days after a written request to
do so, or approved or recommended any Takeover
Proposal, or resolved to take any of the foregoing
actions; and (iv) by CSX or Conrail if the other
party takes any of the actions that would be
proscribed by the terms of the Merger Agreement
described under "THE MERGER -- The Merger
Agreement -- No Solicitation" but for the
exceptions set forth therein. See "THE
MERGER -- The Merger Agreement -- Termination."
CERTAIN FEES AND
EXPENSES................. The Merger Agreement provides that, under certain
circumstances and subject to certain exceptions, in
the event that a Takeover Proposal in respect of
Conrail (such as the Hostile Offer) or in respect
of CSX shall have been made known to the other
party and, thereafter, the Merger Agreement is
terminated by CSX or Conrail pursuant to the
termination provisions thereof, then the
terminating party will pay the other party a fee
equal to $300 million (the "Termination Fee"). See
"THE MERGER -- The Merger Agreement -- Certain Fees
and Expenses."
NO SOLICITATION............ Under the terms of the Merger Agreement, neither
Conrail nor CSX may (i) solicit, initiate or
encourage (including by way of furnishing
information), or take any other action designed to
facilitate any inquiries or the making of any
proposal which constitutes any Takeover Proposal or
(ii) participate in any discussions or negotiations
regarding any Takeover Proposal, except under
certain circumstances. In addition, under the terms
of the Merger Agreement, Conrail and CSX have
agreed that neither the Conrail Board nor the CSX
Board, as applicable, will (i) withdraw or modify
(or propose publicly to do so) in a manner adverse
to the other party, its approval or recommendation
of either Offer or with respect to the matters to
be considered at the Meetings, (ii) approve or
recommend any Takeover Proposal (or propose
publicly to do so) or (iii) cause Conrail or CSX,
as applicable, to enter into any agreement related
to a Takeover Proposal (an "Acquisition
Agreement"). See "THE MERGER -- The Merger
Agreement -- No Solicitation."
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THIRD PARTY DISCUSSIONS.... The Merger Agreement provides that, subject to
certain exceptions, during the term of the Merger
Agreement, neither Conrail nor CSX, without the
consent of the other, will participate in any
conversations, discussions or negotiations, or
enter into any agreement, arrangement or
understanding, with any other company engaged in
the operation of railroads with respect to the
acquisition by any such other company of any
securities or assets of Conrail or CSX, or any
trackage rights or other concessions relating to
the assets or operations of Conrail or CSX, except
to the extent reasonably necessary or reasonably
advisable in connection with obtaining regulatory
approval in accordance with the terms set forth in
the Merger Agreement, and only so long as (i) a
representative of each of Conrail and CSX is
present at any such conversation, discussion or
negotiation, (ii) the general subject matter of any
such conversation, discussion or negotiation has
been agreed to in advance by Conrail and CSX and
(iii) Conrail, CSX and such other company have
previously agreed to appropriate confidentiality
arrangements, on terms reasonably acceptable to
Conrail and CSX (which terms shall, in any event,
permit disclosure to the extent required by law),
relating to the existence and subject matter of any
such conversation, discussion or negotiation. See
"THE MERGER -- The Merger Agreement -- Third-Party
Discussions."
AMENDMENT.................. The Merger Agreement may be amended by the parties
under certain circumstances at any time before or
after shareholder approval. However, after
shareholder approval, the Merger Agreement does not
permit the parties to make any amendment that by
law requires further approval by the shareholders
of Conrail or CSX without the further approval of
such shareholders. See "THE MERGER -- The Merger
Agreement -- Amendment."
REGULATORY APPROVALS;
INTERIM OPERATIONS....... While Surface Transportation Board ("STB") approval
of the Merger is not a condition to the Merger, STB
approval or exemption is required under applicable
law prior to CSX's actual acquisition of control
over Conrail that is intended to occur at some
point following the Merger. Conrail and CSX have
agreed, and each has agreed to cause each of its
subsidiaries, to take all such actions as are
necessary to cooperate with one another to (i)
prepare and present to the STB as soon as
practicable all filings and other presentations in
connection with seeking any STB approval, exemption
or other authorization necessary to consummate the
transactions contemplated by the Merger Agreement
and the Option Agreements, (ii) prosecute such
filings and other presentations with diligence,
(iii) diligently oppose any objections to, appeals
from, or petitions to reconsider or reopen any such
STB approval by persons not party to the Merger
Agreement and (iv) take all such further action as
reasonably may be necessary to obtain a final order
or orders of the STB approving such transactions
consistent with the Merger Agreement and the Option
Agreements. See "CERTAIN REGULATORY MATTERS."
Between the time of the Merger and the Control
Date, each of Conrail and CSX will continue to be
bound by certain provisions of the Merger
Agreement, including provisions relating to the
conduct of business operations. See "THE
MERGER -- The Merger Agreement -- Interim
Operations of Conrail and CSX."
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The STB has issued a tentative order proposing a
schedule that would result in a final STB decision
with respect to the proposed acquisition of control
within 300 days from the filing of the STB
Application, and, after a public comment and reply
period, the STB will issue a final scheduling order
which may or may not vary from the tentative
proposed order. Regardless of the provisions of the
final scheduling order, there can be no assurance
that the STB will issue a decision any sooner than
the approximately 16-month period permitted by law
after the filing of the STB Application, or that
the decision, when issued, will be favorable to the
proposed acquisition of control or satisfy the
precise terms of the conditions set forth in the
Merger Agreement. In the event that a favorable
decision is not received, the shares of Conrail
Common Stock owned by CSX would be disposed of,
which could result in a significant loss to CSX. In
addition, the actual consummation of the proposed
control transaction may not occur for some period
of time after the entry of a final favorable
decision of the STB, which period of time may be
substantial if review of the STB approval decision
is sought in the courts.
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES............. It is unclear whether the Offers and the Merger
should be treated as a single integrated
transaction for federal income tax purposes. If the
Offers and the Merger are so treated, the Offers
and the Merger should, in the aggregate, qualify as
a reorganization pursuant to Section 368 of the
Internal Revenue Code of 1986, as amended (the
"Code"). In such event, generally, (i) no gain or
loss will be recognized by CSX, Green Acquisition
Corp. or Conrail, (ii) gain or loss will be
recognized by a shareholder of Conrail who receives
solely cash in exchange for Shares, (iii) no gain
or loss will be recognized by a shareholder of
Conrail who does not exchange any Shares pursuant
to the Offers and who receives solely CSX Merger
Securities that qualify as stock for federal income
tax purposes ("CSX Merger Stock"), such as the CSX
Convertible Preferred Stock, in exchange for Shares
pursuant to the Merger, and (iv) a shareholder of
Conrail who receives a combination of cash and CSX
Merger Securities or a combination of CSX Merger
Stock and CSX Merger Securities that do not qualify
as stock for federal income tax purposes ("CSX
Merger Non Stock Securities"), such as Trust
Convertible Preferred Stock, in exchange for such
shareholder's Shares will not recognize loss but
will recognize gain, if any, to the extent of the
lesser of (a) the sum of the cash and fair market
value of the CSX Merger Non Stock Securities
received and (b) the excess of the sum of the fair
market value of the CSX Merger Securities and the
amount of cash received over the shareholder's tax
basis in the Shares exchanged. If so integrated,
the federal income tax consequences to a
shareholder may be, depending on such shareholder's
particular circumstances, less favorable than the
federal income tax consequences to such shareholder
if the Offers and the Merger are not treated as
integrated.
If the Offers and the Merger were not treated as a
single integrated transaction for federal income
tax purposes, the receipt of cash pursuant to
either Offer would be a sale or exchange (in which
gain or loss would be recognized by participating
Conrail shareholders), while the Second Merger
should still qualify as a reorganization pursuant
to Section 368 of the Code (and Conrail
shareholders would not recognize gain or loss as a
result of the receipt of CSX Merger Stock) and the
First Merger may be treated as a sale or exchange
or as a reorganization pursuant to Section
11
20
368 of the Code. Whether or not the Offers and the
Merger are integrated for tax purposes, it is
possible that neither the First Merger nor the
Second Merger will constitute a reorganization
within the meaning of Section 368 of the Code. See
"THE MERGER -- Certain Federal Income Tax
Consequences."
THE TAX CONSEQUENCES DISCUSSED ABOVE MAY NOT APPLY
TO CERTAIN CATEGORIES OF SHAREHOLDERS SUBJECT TO
SPECIAL TREATMENT UNDER THE CODE, SUCH AS FOREIGN
SHAREHOLDERS OF CONRAIL AND SHAREHOLDERS OF CONRAIL
WHOSE SHARES WERE ACQUIRED AS COMPENSATION.
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS TO DETERMINE THE SPECIFIC TAX CONSEQUENCES
TO THEM OF THE OFFERS AND THE MERGER, INCLUDING ANY
FEDERAL, STATE, LOCAL OR OTHER TAX CONSEQUENCES
(INCLUDING ANY TAX RETURN FILING OR OTHER TAX
REPORTING REQUIREMENTS) OF THE MERGER.
For a more complete summary of the material federal
income tax consequences of the Merger, see "THE
MERGER -- Certain Federal Income Tax Consequences."
ACCOUNTING TREATMENT....... The Merger will be accounted for under the
"purchase" method of accounting in accordance with
generally accepted accounting principles. See "THE
MERGER -- Accounting Treatment."
DISSENTERS' RIGHTS......... In Schwabacher v. United States, 334 U.S. 182
(1948), the United States Supreme Court held that
dissenters' rights under state law are preempted in
the event that the STB approves a rail combination
and determines that its financial terms are "just
and reasonable." Although the Merger is to be
effected prior to an STB decision, CSX and Conrail
believe that this doctrine is a bar to the
assertion of dissenters' rights under state law and
intend to assert such position in respect of any
claims of dissenters' rights. In the event that
there is an STB denial, or that the STB does not
determine that the terms of a proposed combination
are "just and reasonable," dissenters' rights may
be available if the STB or a court of competent
jurisdiction provides for such rights. In such
event, CSX and Conrail intend to take the position
that the perfection of any such rights requires
that any shareholder asserting such rights strictly
comply with the dissenters' rights procedures set
forth in the Pennsylvania Law, certain sections of
which are attached as Appendix E hereto. See "THE
MERGER -- Dissenters' Rights."
VOTING TRUST AGREEMENT..... Pending receipt of a final decision by the STB with
respect to CSX's proposed acquisition of control of
Conrail, the shares of Conrail Common Stock
acquired by CSX and its affiliates will be held in
the Voting Trust in order to ensure that CSX and
its affiliates do not acquire or, directly or
indirectly, exercise control over Conrail and its
affiliates prior to obtaining necessary STB
approval or exemption. CSX, Green Acquisition Corp.
and Deposit Guaranty National Bank (of Jackson,
Mississippi) (the "Voting Trustee") entered into a
Voting Trust Agreement dated as of October 15, 1996
to provide for such a voting trust (the "Original
Voting Trust Agreement"). The parties to the
Original Voting Trust Agreement propose, with
Conrail's consent, to amend the Original Voting
Trust Agreement (the "Amended Voting Trust
Agreement"; the Original Voting Trust Agreement or
the Amended Voting Trust Agree-
12
21
ment sometimes referred to herein as the "Voting
Trust Agreement") to reflect the Second Amendment
to the Merger Agreement and the proposed
consummation of the Merger prior to STB approval or
exemption of the acquisition of control of Conrail
by CSX. Under the terms of both the Original and
Amended Voting Trust Agreements, the Voting Trustee
is required to vote the Shares in the voting trust
created thereby (the "Voting Trust") to approve and
effect the Merger Agreement, in favor of any
proposal necessary or desirable to effectuate CSX's
acquisition of Conrail pursuant to the Merger
Agreement, and, so long as the Merger Agreement is
in effect, subject to certain exceptions, against
any other proposed merger, business combination or
similar transactions involving Conrail. See
"CERTAIN REGULATORY MATTERS -- Voting Trust
Agreement."
Green Acquisition Corp. has placed all shares of
Conrail Common Stock acquired by it under the First
Offer (less the shares of Conrail Common Stock
disposed of on January 2, 1997), and will deposit
all shares of Conrail Common Stock acquired through
the Second Offer or otherwise, into the Voting
Trust in order to ensure that CSX and its
affiliates do not acquire or, directly or
indirectly, exercise control over Conrail and its
affiliates prior to obtaining necessary STB
approvals or exemptions. CSX has received an
informal written opinion from the staff of the STB
that the use of the Voting Trust pursuant to the
Original Voting Trust Agreement would effectively
insulate CSX and its affiliates from a violation of
the governing statute and STB policy. On January 8,
1997, CSX received informal assurance from the STB
staff that use of the Voting Trust pursuant to the
Amended Voting Trust Agreement would similarly
insulate CSX and its affiliates from a violation of
the governing statute and STB policy. See "CERTAIN
REGULATORY MATTERS."
OPTION AGREEMENTS.......... Concurrently with the execution of the Merger
Agreement, Conrail and CSX entered into the Option
Agreements, granting each other the right to
purchase certain shares of their common stock under
certain circumstances, including in the event of a
termination of the Merger Agreement. The Conrail
Stock Option is currently exercisable by CSX.
Pursuant to the Conrail Stock Option Agreement,
Conrail granted CSX an option (the "Conrail Stock
Option") to purchase 15,955,477 shares of Conrail
Common Stock at a price of $92.50 per share,
subject to adjustment. Pursuant to the CSX Stock
Option Agreement, CSX granted Conrail an option
(the "CSX Stock Option") to purchase 43,090,773
shares of CSX Common Stock at a price of $64.82 per
share, subject to adjustment and certain conditions
set forth therein. See "THE MERGER -- Option
Agreements."
FINANCING.................. Funds for the cash consideration in the Offers and
the Merger, and all related costs and expenses,
have been and will be provided through borrowings
under the Credit Agreement or through the issuance
of commercial paper by CSX and from available cash
and working capital of CSX. See "FINANCING."
13
22
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth selected historical financial data of CSX
and Conrail for each of the last five years and selected unaudited historical
financial data for the nine months ended September 27, 1996 and September 29,
1995 for CSX and the nine months ended September 30, 1996 and 1995 for Conrail.
The selected historical financial data of CSX and Conrail have been derived from
and should be read in conjunction with each company's respective annual audited
financial statements, including the notes thereto, and the unaudited nine months
of consolidated financial statements of each company, including the notes
thereto, which are incorporated by reference in this Joint Proxy
Statement/Prospectus. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE." The Conrail income statement data and per share data
for the nine months ended September 30, 1996 and 1995 and the balance sheet data
at September 30, 1996 and 1995 include, in the opinion of Conrail's management,
all adjustments necessary to present fairly the information for such periods.
Such adjustments consist of normal recurring adjustments and one-time
adjustments, as explained in the notes herein, necessary to present fairly the
information for such periods. The CSX income statement data and per share data
for the nine months ended September 27, 1996 and September 29, 1995 and the
balance sheet data at September 27, 1996 and September 29, 1995 include, in the
opinion of CSX's management, all adjustments necessary to present fairly the
information for such periods. Such adjustments consist of normal recurring
adjustments and one-time adjustments, as explained in the notes herein,
necessary to present fairly the information for such periods. The data presented
is not necessarily indicative of results to be expected in the future.
14
23
SELECTED HISTORICAL FINANCIAL DATA FOR CONRAIL
AT OR FOR
NINE MONTHS
ENDED
SEPTEMBER 30, AT OR FOR YEAR ENDED DECEMBER 31,
--------------- ------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA
Revenues............................. $2,771 $2,735 $3,686 $3,733 $3,453 $3,345 $3,252
Operating income/(loss).............. 358 502 456 606 591 534 (261)
Income/(loss) before cumulative
effect of
changes in accounting
principles........................ 195 294 264 324 234 282 (207)
Net income/(loss).................... 195 294 264 324 160 282 (207)
PER SHARE DATA
Income/(loss) before cumulative
effect of
changes in accounting principles
Primary........................... $ 2.39 $ 3.61 $ 3.19 $ 3.90 $ 2.74 $ 3.28 $(2.70)
Fully diluted..................... 2.21 3.28 2.94 3.56 2.51 2.99 (2.70)
Net income/(loss)
Primary........................... $ 2.39 $ 3.61 $ 3.19 $ 3.90 $ 1.82 $ 3.28 $(2.70)
Fully diluted..................... 2.21 3.28 2.94 3.56 1.70 2.99 (2.70)
Book value........................... 35.91 36.69 35.66 36.69 34.57 34.16 32.23
Cash dividends per common share...... 1.33 1.18 1.60 1.40 1.20 1.00 0.85
BALANCE SHEET DATA
Total assets......................... $8,387 $8,683 $8,424 $8,322 $7,948 $7,315 $7,096
Total debt, including current
portion........................... 2,094 2,325 2,181 2,182 2,184 1,911 1,762
Shareholders' equity................. 2,938 3,080 2,977 2,925 2,784 2,748 2,661
RATIO OF EARNINGS TO FIXED CHARGES..... 2.6x 3.3x 2.5x 3.2x 3.0x 3.3x --
- -----------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
1996 -- Operating income includes a charge of $135 million for voluntary
separation programs. The after tax effect decreased net income $83 million, and
earnings per share ("EPS") $1.07 on a primary basis and $.95 on a fully diluted
basis.
1995 -- Net income includes a $21 million income tax benefit as a result of
a decrease in a state tax rate. The effect of this benefit increased EPS $.27 on
a primary basis and $.23 on a fully diluted basis.
YEAR ENDED DECEMBER 31,
1995 -- Operating income includes an asset disposition charge, for rail
lines and other assets written down to estimated net realizable value, of $285
million which reduced net income by $176 million and EPS $2.24 on a primary
basis and $1.98 on a fully diluted basis. Net income also includes the $21
million tax benefit discussed above which increased EPS $.27 on a primary basis
and $.23 on a fully diluted basis.
1994 -- Included in operating income is a charge of $84 million ($51
million after tax benefits) for a voluntary early retirement program and related
costs. This reduced EPS $.64 on a primary basis and $.57 on a fully diluted
basis.
1993 -- Net income includes charges of $74 million as a result of the
adoption of required changes in accounting for income taxes and postretirement
benefits other than pensions which reduced EPS $.92 on a primary basis and $.81
on a fully diluted basis; $50 million ($80 million before tax benefit of $30
million) for the disposition of a subsidiary which decreased EPS $.62 on a
primary basis and $.55 on a fully diluted basis; and $34 million for the
increase in the federal corporate income tax rate which decreased EPS $.42 on a
primary basis and $.37 on a fully diluted basis.
1992 -- All per share data presented has been adjusted for the two-for-one
Conrail Common Stock split on September 15, 1992.
1991 -- Operating income includes special charges totaling $719 million
which reduced net income by $447 million and EPS $5.43 on a primary basis and
$5.18 on a fully diluted basis. After the special charges, earnings were
insufficient to cover fixed charges.
15
24
SELECTED HISTORICAL FINANCIAL DATA FOR CSX
AT OR FOR
NINE MONTHS
ENDED AT OR FOR YEAR ENDED
--------------------- -------------------------------------------------------
SEPT 27, SEPT 29, DEC 29, DEC 30, DEC 31, DEC 31, DEC 31,
1996 1995 1995 1994 1993 1992 1991
-------- -------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA
Revenues.................... $ 7,833 $ 7,594 $10,304 $ 9,409 $ 8,766 $ 8,549 $ 8,418
Operating income............ 1,096 729 1,126 1,182 881 214 23
Income/(loss) before
cumulative effect of
changes in accounting
principles................ 602 342 618 652 359 20 (76)
Net income/(loss)........... 602 342 618 652 359 20 (272)
PER SHARE DATA
Income/(loss) before
cumulative effect of
changes in accounting
principles................ $ 2.83 $ 1.62 $ 2.94 $ 3.12 $ 1.73 $ 0.10 $ (0.38)
Net income/(loss)........... 2.83 1.62 2.94 3.12 1.73 0.10 (1.35)
Book value.................. 22.20 18.95 20.15 17.81 15.27 14.37 15.54
Cash dividends per common
share..................... 0.78 0.66 0.92 0.88 0.79 0.76 0.72
BALANCE SHEET DATA
Total assets................ $ 14,641 $ 14,028 $14,282 $13,724 $13,420 $13,049 $12,798
Total debt, including
current portion........... 2,765 3,106 2,856 3,131 3,443 3,459 3,202
Stockholders' equity........ 4,815 3,989 4,242 3,731 3,180 2,975 3,182
RATIO OF EARNINGS TO FIXED
CHARGES..................... 3.9x 2.6x 3.2x 3.1x 2.3x 1.0x 0.8x
- -----------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 29,
1995 -- Operating income includes a charge of $257 million to recognize the
estimated costs of initiatives to revise, restructure and consolidate specific
operations and administrative functions at its rail and container-shipping
units. The restructuring charge reduced net income by $160 million, or $.76 per
share.
YEAR ENDED
December 29, 1995 -- Operating income includes a charge of $257 million to
recognize the estimated costs of initiatives to revise, restructure and
consolidate specific operations and administrative functions at its rail and
container-shipping units. The restructuring charge reduced net income by $160
million, $.76 per share. Net income also includes a net investment gain of $77
million, $51 million after tax, $.24 per share, on the issuance of an equity
interest in a Sea-Land terminal and related operations in Asia and the writedown
of various investments.
December 30, 1994 -- Net income includes an accelerated pretax gain of $69
million, $42 million after tax, $.20 per share, on the satisfaction by the State
of Florida of its remaining unfunded obligation issued in 1988 to consummate the
purchase of 80 miles of track and right of way.
December 31, 1993 -- Operating income includes a charge of $93 million to
recognize the estimated costs of restructuring certain operations and functions
at its container-shipping unit. The restructuring charge reduced net income by
$61 million, or $.30 per share. Net income also includes charges of $56 million,
or $.26 per share, relating to the revision of CSX's estimated annual effective
tax rate to reflect the change in the federal statutory income tax rate from 34%
to 35%.
16
25
December 31, 1992 -- Operating income includes a charge of $699 million to
recognize the estimated costs of buying out certain trip-based compensation
elements paid to train crews. The charge reduced net income by $450 million, or
$2.19 per share.
December 31, 1991 -- Operating income includes a charge of $755 million to
provide for the estimated costs of implementing workforce reductions,
improvements in productivity and other cost reductions at its major
transportation units. The charge reduced net income by $490 million, or $2.44
per share. Net income also includes a charge of $196 million, or $.98 per share,
as a result of the adoption of required changes in accounting for postretirement
benefits other than pensions. Also included in net income are pretax gains of
$80 million relating to the sale of a one-third interest in a Sea-Land terminal
in Asia, the sale of the stock of RF&P Corporation and other investment
transactions. These gains increased net income by $32 million, or $.16 per
share.
RESTATEMENT
Beginning with the quarter ended June 28, 1996, CSX changed its earnings
presentation to exclude non-transportation activities from operating revenue and
expense. These activities, principally real estate and resort operations, are
now included in other income. Prior-year amounts have been restated to conform
to the 1996 presentation.
All per share data presented has been adjusted for the two-for-one CSX
Common Stock split in December 1995.
17
26
UNAUDITED SELECTED PRO FORMA FINANCIAL DATA
The unaudited pro forma financial statements included herein have been
prepared to reflect the following events: (i) the consummation of the First
Offer for 17,860,124 shares of Conrail Common Stock and Conrail ESOP Preferred
Stock at $110 per share, and the related borrowings; (ii) the consummation of
the Second Offer for an additional 18,344,845 shares of Conrail Common Stock and
Conrail ESOP Preferred Stock at $110 per share, and the related borrowings;
(iii) the exchange of each share of Conrail Common Stock and Conrail ESOP
Preferred Stock remaining outstanding after consummation of the Offers (other
than Shares owned by CSX and its subsidiaries) for the Per Share Stock
Consideration for each Share exchanged (collectively, the "Share Exchange"); and
(iv) consolidation of Conrail following STB approval of the Merger. The
applicable transactions are reflected in the Pro Forma Combined Statement of
Financial Position as if they occurred on September 27, 1996 and in the Pro
Forma Combined Statements of Earnings as if they occurred at the beginning of
the periods presented. The unaudited pro forma financial statements reflect the
issuance of CSX Convertible Preferred Stock as part of the Per Share Stock
Consideration. In the event CSX issues Trust Convertible Preferred Securities in
lieu of CSX Convertible Preferred Stock, Income from continuing operations (Net
Earnings), and Shareholders' equity, as summarized below, would be adjusted as
described in Note C-11, Trust Convertible Preferred Securities of the Notes to
Pro Forma Combined Financial Statements. The unaudited pro forma financial
statements do not include the sale of 85,000 shares for cash at an average price
of $98.983 per share (the effect of which is deemed to be immaterial). See
"CERTAIN LITIGATION."
The Meetings for approval of matters related to the Merger are expected to
occur in the first quarter of 1997. Upon such shareholder approvals, assuming
(by virtue of consummation of the Offers) there is no cash component to the
Merger, in the Merger, Conrail shareholders will receive CSX Common Stock and
CSX Convertible Preferred Stock (or Trust Convertible Preferred Securities, see
Note C-11 below). The Shares acquired by CSX, both in the Offers and upon
consummation of the Share Exchange, will be placed in the Voting Trust pending
the outcome of the STB Application.
The financial information for CSX included in the Combined Statement of
Financial Position is as of September 27, 1996. The financial information for
CSX included in the Combined Statements of Earnings is for the nine months and
twelve months ended September 27, 1996 and December 29, 1995, respectively.
CSX's fiscal year is composed of 52/53 weeks ending the last Friday in December.
Conrail's corresponding financial information is presented as of September 30,
1996 and December 31, 1995.
The Merger will be accounted for under the purchase method. The pro forma
combined adjustments do not reflect any potential increases in operating income,
or one-time costs to achieve such increases, which may result from the Merger,
or adjustments to conform accounting policies.
The unaudited selected pro forma financial data is based on the historical
consolidated financial statements of CSX and Conrail and should be read in
conjunction with (i) such historical financial statements and the notes thereto,
which are incorporated by reference in this Joint Proxy Statement/Prospectus,
(ii) the Unaudited Pro Forma Financial Statements and Unaudited Comparative Per
Share Data including the notes thereto, appearing elsewhere in this Joint Proxy
Statement/Prospectus and (iii) the Selected Historical Financial Data appearing
elsewhere in this Joint Proxy Statement/Prospectus. The unaudited selected pro
forma financial data is prepared for illustrative purposes only and is based on
the assumptions set forth in the Notes to the Unaudited Pro Forma Financial
Statements. This data is not necessarily indicative of the financial position or
the results of operations that might have occurred had the applicable
transactions actually taken place on the dates indicated, or of the future
results of operations or financial position of the individual or combined
companies.
AT OR FOR THE
NINE MONTHS ENDED AT OR FOR THE
SEPTEMBER 27, YEAR ENDED
1996 DECEMBER 29, 1995
----------------- -----------------
($ IN MILLIONS)
INCOME STATEMENT DATA:
Operating revenues....................................... $10,604 $13,990
Income from continuing operations........................ 582 600
BALANCE SHEET DATA:
Total assets............................................. $31,991 (A)
Total debt............................................... 9,062 (A)
Shareholders' equity..................................... 8,827 (A)
- ---------------
(A) Not required.
18
27
UNAUDITED COMPARATIVE PER SHARE DATA
The following table sets forth for Conrail Common Stock and CSX Common
Stock certain historical, pro forma and pro forma equivalent per share data for
the nine months ended September 27, 1996, and for the year ended December 29,
1995. CSX's fiscal year is composed of 52/53 weeks ending the last Friday in
December. Conrail's corresponding financial information is presented for the
nine months ended September 30, 1996 and for the year ended December 31, 1995.
The information presented herein should be read in conjunction with the Selected
Historical Financial Data, the Unaudited Selected Pro Forma Financial Data and
the Unaudited Pro Forma Financial Statements appearing elsewhere in this Joint
Proxy Statement/Prospectus.
AT OR FOR AT OR FOR
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 27, 1996 DECEMBER 29, 1995
------------------ -----------------
CSX COMMON STOCK
Income from continuing operations per share:
Historical..................................... $ 2.83 $ 2.94
Combined pro forma(a)(d)....................... 1.80 1.84
Book value per share:
Historical..................................... $22.20 $ 20.15
Combined pro forma(a).......................... 25.59 24.27
Cash dividends declared per share:
Historical..................................... $ 0.78 $ 0.92
Combined pro forma(b).......................... 0.78 0.92
CONRAIL COMMON STOCK
Income from continuing operations per share:
Historical (primary)........................... $ 2.39 $ 3.19
Historical (fully diluted)..................... 2.21 2.94
Pro forma equivalent(c)(d)..................... 3.34 3.42
Book value per share:
Historical..................................... $35.91 $ 35.66
Pro forma equivalent(c)........................ 47.50 45.05
Cash dividends declared per share:
Historical..................................... $ 1.33 $ 1.60
Pro forma equivalent(b)(c)..................... 1.45 1.71
- --------------------------------------------------------------------------------
(a) Combined pro forma detail has been prepared using a value for CSX Common
Stock to be issued in the Merger of $4.357 billion ($44 per share of CSX
Common Stock, based on the daily closing price of CSX Common Stock within
several days before and after December 19, 1996, the date of the
announcement of the Second Amendment). The CSX Convertible Preferred Stock
of $854 million to be issued in the Merger is based on a value, in the
opinion of certain financial advisers (as described herein), of $16 per
Share on a fully distributed basis.
(b) Cash dividends declared per share of CSX Common Stock and Conrail Common
Stock, as the case may be, are assumed to be the same as those paid by CSX
and Conrail, respectively, on an historical basis.
(c) Pro forma equivalent detail has been calculated by multiplying the combined
pro forma amounts by the exchange ratio of 1.85619 shares of CSX Common
Stock for each Share.
(d) Combined pro forma Income from continuing operations reflects the issuance
of CSX Convertible Preferred Stock as part of the Per Share Stock
Consideration. In the event CSX issues Trust Convertible Preferred
Securities in lieu of CSX Convertible Preferred Stock, CSX Combined pro
forma Income from continuing operations per share would be $1.84 for the
nine months ended September 27, 1996 and $1.89 for the year ended December
29, 1995. Conrail Pro forma equivalent Income from continuing operations
would be $3.42 and $3.51 for the same periods, respectively. See Note C-11
of the Notes to Pro Forma Combined Financial Statements.
19
28
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Conrail Common Stock is listed on the NYSE and the Philadelphia Stock
Exchange, Inc. under the symbol "CRR." CSX Common Stock is listed on the NYSE,
the London Stock Exchange and the Swiss Exchange and trades with unlisted
privileges on the Midwest Stock Exchange, Inc., the Boston Stock Exchange, Inc.,
the Cincinnati Stock Exchange, the Pacific Stock Exchange, Inc. and the
Philadelphia Stock Exchange, Inc. under the symbol "CSX."
The table below sets forth, for the calendar quarters indicated, the
reported high and low sales prices of Conrail Common Stock and CSX Common Stock
as reported on the NYSE Composite Tape, in each case, and the dividends declared
on such stock, based on published financial sources.
CONRAIL COMMON STOCK CSX COMMON STOCK
---------------------------- -------------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
----- ---- --------- ---------- ---------- ---------
1994
First Quarter................... $69 1/4 $56 1/2 $.325 $46 3/16 $39 15/16 $ .22
Second Quarter.................. 59 1/8 50 3/8 .325 41 5/8 35 1/2 .22
Third Quarter................... 58 1/8 48 3/8 .375 39 9/16 33 .22
Fourth Quarter.................. 55 1/4 48 1/8 .375 37 1/4 31 9/16 .22
1995
First Quarter................... $57 5/8 $50 1/2 $.375 $39 7/8 $34 11/16 $ .22
Second Quarter.................. 56 1/4 51 1/8 .375 41 36 .22
Third Quarter................... 70 1/4 55 1/8 .425 44 5/8 37 7/16 .22
Fourth Quarter.................. 74 3/8 65 1/2 .425 46 1/8 39 1/16 .26
1996
First Quarter................... $77 1/4 $67 5/8 $.425 $48 1/2 $42 1/4 $ .26
Second Quarter.................. 73 1/4 66 1/4 .425 53 1/8 44 1/8 .26
Third Quarter................... 74 5/8 63 3/4 .475 53 42 1/4 .26
Fourth Quarter.................. 100 7/8 68 1/2 .475 52 3/8 42 1/2 .26
On October 14, 1996, the last full trading day prior to the public
announcement of the proposed Merger, the closing price on the NYSE Composite
Tape was $71 per share of Conrail Common Stock and $49 1/2 per share of CSX
Common Stock. On [DATE], 1997, the most recent practicable date prior to the
mailing of this Joint Proxy Statement/Prospectus, the closing price on the NYSE
Composite Tape was per share of Conrail Common Stock and per
share of CSX Common Stock. Holders of Conrail Common Stock and CSX Common Stock
are urged to obtain current market quotations prior to making any decision with
respect to the Merger.
All of the outstanding shares of Conrail ESOP Preferred Stock are held of
record by the Conrail ESOP Trustee. There is no trading market for such shares.
Since issuance of the shares of Conrail ESOP Preferred Stock, Conrail has paid
quarterly cash dividends on such shares of $.54125 per share.
The payment of future dividends on CSX Common Stock will be a business
decision to be made by the CSX Board from time to time based upon results of
operations and financial condition and such other factors as the CSX Board
considers relevant.
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BUSINESS OF CONRAIL
Conrail Inc. is the holding company of CRC. CRC is Conrail's only
significant subsidiary and primary asset.
CRC acquired, pursuant to the Regional Rail Reorganization Act of 1973, the
rail properties of many of the railroads in the northeast and midwest regions of
the United States which had gone bankrupt during the early 1970's, the largest
of which was the Penn Central Transportation Company.
Conrail, through CRC, provides freight transportation services within the
northeast and midwest United States. Conrail interchanges freight with other
United States and Canadian railroads for transport to destinations within and
outside Conrail's service region. Conrail operates no significant line of
business other than the freight railroad business and does not provide common
carrier passenger or commuter train service.
Conrail's Marketing and Sales Department and related segments of its
Operating Department are organized into four service groups: CORE Service,
Intermodal Service, Unit Train Service and Automotive Service. Petrochemicals
and waste products, food and agriculture products, forest and manufactured
products, and metals are handled by the CORE Service Group. The Intermodal
Service Group handles intermodal trailers and containers. The Unit Train Service
Group handles coal and ore traffic. The Automotive Service Group handles
automotive parts and finished vehicles.
Certain Projected Financial Information. In the course of its discussions
with CSX described under "BACKGROUND AND REASONS -- Background of the Merger,"
Conrail provided CSX and its financial advisors with certain business and
financial information which CSX believes was not publicly available. Such
information included, among other things, certain financial projections for 1996
through 1999 (the "Conrail Projections") prepared by management of Conrail as a
long-range plan. The Conrail Projections do not take into account any of the
potential effects of the transactions contemplated by the Offers and/or the
Merger. Conrail does not as a matter of course publicly disclose internal
projections as to future revenues, earnings or financial condition.
The Conrail Projections indicated the following income statement and cash
flow data: (i) projected net revenues for each of the years ended December 31,
1996 through December 31, 1999 were $3,762 million, $3,874 million, $3,988
million and $4,149 million, respectively; (ii) projected operating expenses for
each of such years were $2,987 million, $3,026 million, $3,043 million and
$3,112 million, respectively; (iii) projected operating income for each of such
years was $775 million, $848 million, $945 million and $1,037 million,
respectively; (iv) projected net income for each of such years was $438 million,
$485 million, $542 million and $599 million, respectively; (v) projected net
cash provided by operating activities for each of such years was $855 million,
$822 million, $890 million and $975 million, respectively; (vi) projected
capital expenditures for each of such years was $492 million, $510 million, $550
million and $550 million, respectively; (vii) projected net internally generated
funds (defined as net cash provided by operating activities less capital
expenditures) for each of such years were $363 million, $312 million, $340
million and $425 million, respectively; (viii) projected debt issuance net of
debt retirement for each of such years was $(49) million, $7 million, $(11)
million and $(85) million, respectively; and (ix) projected net change in cash
for each of such years was $43 million, $0, $0, and $0, respectively.
In connection with the Conrail Projections, Conrail also furnished CSX with
projected balance sheets of Conrail for the years 1996 through 1999. Such
balance sheets projected total assets of Conrail increasing from $8,660 million
in 1996 to $9,656 million in 1999, total long-term debt (excluding current
portion) decreasing from $1,862 million in 1996 to $1,773 million in 1999 and
total shareholders' equity increasing from $3,057 million in 1996 to $3,725
million in 1999.
THE CONRAIL PROJECTIONS WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE
OR COMPLIANCE WITH PUBLISHED GUIDELINES OF THE SEC OR THE GUIDELINES ESTABLISHED
BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. THE PROJECTIONS ARE
INCLUDED HEREIN ONLY BECAUSE SUCH INFORMATION WAS PROVIDED BY CONRAIL TO CSX.
NONE OF CSX, CONRAIL OR ANY PARTY TO WHOM THE PROJECTIONS WERE PROVIDED ASSUMES
ANY RESPONSIBILITY
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FOR THE ACCURACY OF SUCH INFORMATION. WHILE PRESENTED WITH NUMERICAL
SPECIFICITY, THESE PROJECTIONS ARE BASED UPON A VARIETY OF ASSUMPTIONS RELATING
TO THE BUSINESSES OF CONRAIL WHICH, THOUGH CSX HAS BEEN ADVISED WERE CONSIDERED
REASONABLE BY CONRAIL AT THE TIME THEY WERE FURNISHED TO CSX, MAY NOT BE
REALIZED AND ARE SUBJECT TO SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES, MANY OF
WHICH ARE BEYOND THE CONTROL OF CONRAIL. THERE CAN BE NO ASSURANCE THAT THE
PROJECTIONS WILL BE REALIZED, AND ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE
SHOWN. CONRAIL'S INDEPENDENT ACCOUNTANTS HAVE NEITHER EXAMINED NOR COMPILED THE
ACCOMPANYING PROJECTIONS AND ACCORDINGLY DO NOT EXPRESS AN OPINION OR ANY OTHER
FORM OF ASSURANCE WITH RESPECT THERETO. FOR THESE REASONS, AS WELL AS THE BASES
ON WHICH SUCH PROJECTIONS WERE COMPILED, THERE CAN BE NO ASSURANCE THAT SUCH
PROJECTIONS WILL BE REALIZED, OR THAT ACTUAL RESULTS WILL NOT BE HIGHER OR LOWER
THAN THOSE ESTIMATED. THE INCLUSION OF SUCH PROJECTIONS HEREIN SHOULD NOT BE
REGARDED AS AN INDICATION THAT CSX, CONRAIL OR ANY OTHER PARTY WHO RECEIVED SUCH
INFORMATION CONSIDERS IT AN ACCURATE PREDICTION OF FUTURE EVENTS.
Additional information concerning Conrail is included in the Conrail
Reports incorporated by reference in this Joint Proxy Statement/Prospectus. See
"AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
BUSINESS OF CSX
CSX Corporation is an international transportation company with operations
in the following business units: CSX Transportation Inc., Sea-Land Service Inc.,
American Commercial Lines Inc., CSX Intermodal Inc., Customized Transportation
Inc., and non-transportation businesses.
CSXT provides rail freight transportation and distribution services over
18,645 route miles in 20 states in the east, midwest and south regions of the
United States, and in Ontario, Canada. In 1995, CSXT accounted for 46% of total
operating revenue and 74% of operating income of CSX. These percentages and
those of CSX's other units discussed below exclude the effect on income of a
second-quarter restructuring charge recorded at CSXT and Sea-Land.
Sea-Land is a worldwide leader in container-shipping transportation and
logistics services. Sea-Land operates 28 preferential and exclusive marine
terminal facilities across its global network. In addition, Sea-Land operates a
fleet of 105 container ships and approximately 200,000 containers in United
States and foreign trade and serves 120 ports throughout the world. In 1995,
Sea-Land accounted for 38% of total operating revenue and 17% of operating
income of CSX.
ACL is the nation's leader in barge transportation, operating 116 towboats
and more than 3,200 barges on United States and South American waterways. In
1995, ACL contributed 5% of total operating revenue and 7% of operating income
of CSX.
CSXI provides transcontinental intermodal transportation services and
operates a network of dedicated intermodal facilities across North America. In
1995, CSXI contributed 9% of total operating revenue and 2% of operating income
of CSX.
CTI is a provider of contract logistics services, including distribution,
warehousing, processing and assembly and just-in-time delivery. In 1995, CTI
provided 2% of total operating revenue and 1% of total operating income.
CSX operations include certain non-transportation businesses. Resort
holdings include the Mobil Five-Star and AAA Five-Diamond rated hotels, The
Greenbrier, in White Sulphur Springs, West Virginia, and the Grand Teton Lodge
Company, in Moran, Wyoming. CSX Real Property Inc. is responsible for sales,
leasing and development of CSX-owned properties. CSX holds a majority interest
in Yukon Pacific Corporation,
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which is promoting construction of the Trans-Alaska Gas System to transport
Alaska's North Slope natural gas to Valdez for export to Asian markets.
Additional information concerning CSX is included in the CSX Reports
incorporated by reference in this Joint Proxy Statement/Prospectus. See
"AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
THE COMBINED COMPANY
BROADEST GEOGRAPHIC NETWORK IN EASTERN UNITED STATES
While the actual integration of operations will not occur until after the
Control Date, the Merger will create a leading global transportation company
with consolidated annual revenues exceeding $14 billion. It will also create the
leading railroad in the eastern United States and the third largest railroad in
the nation, measured in terms of miles of track and ton-miles.
The Combined Company will have 29,346 miles of railroad track in 22 states.
CSX routes located predominantly in the southeast and midwest will complement
Conrail routes in the midwest and northeast. The Combined Company's rail network
will connect cities such as Miami, New Orleans, Nashville and Atlanta in the
south and midwestern cities such as Chicago with key markets in the northeast
such as New York and Boston. The Combined Company will provide direct access to
virtually every major metropolitan market east of the Mississippi River and to
seven of the nine largest east coast ports.
ENHANCED REVENUES FROM IMPROVED SERVICE AND OPERATIONAL EFFICIENCY
A significant advantage of the Combined Company's broad geographic scope
will be its ability to expand single-line service, which is preferred by
shippers over joint-line service because of lower transaction costs, reduced
delays, less damage from interchange operations and single carrier
accountability. Single-line service will enable the Combined Company to compete
more effectively on certain routes along which large quantities of goods are
transported by truck, including chemicals from the Gulf Coast region to the
northeast, grain from the midwest to the south and recycled pulp and paper from
the northeast and midwest to the south.
The operating efficiencies from the combination of Conrail and CSX networks
will also improve asset utilization by permitting optimization of train sizes,
increased length of haul and reduced empty movements. With reduced costs of
operation, together with faster, more frequent schedules, more reliable service,
and shorter routes to many destinations, the Combined Company will be able to
provide better service to existing customers as well as create more effective
competition with truck traffic. Management believes that higher quality service
and more competitive pricing permitted by single-line rail routing will provide
shippers with an attractive alternative to overcrowded north-south interstate
highways such as Route I-95, which currently carries substantial quantities of
goods such as Florida citrus and forest products to markets in the northeast.
Management also believes that the Combined Company will be better positioned to
successfully serve other truck-dominated markets, such as Atlanta, Savannah and
Charleston.
On a pro forma basis, management estimates that the revenue of the Combined
Company's railroad business will come from the following traffic categories in
the indicated percentages: 23% coal, 21% chemi-cals, 18% intermodal, 12%
automotive, 10% food and agriculture, 9% forest and paper products and 7%
metals.
ENHANCED SHAREHOLDER VALUE FROM REVENUE GROWTH, OPERATING EFFICIENCIES AND
FINANCIAL FLEXIBILITY
As provided in the Merger Agreement, following the Control Date, John W.
Snow will be Chairman and Chief Executive Officer of the Combined Company. David
M. LeVan will be President and Chief Operating Officer of the Combined Company
as well as Chief Executive Officer and President of each of the Combined
Company's railroad businesses and will succeed Mr. Snow as Chief Executive
Officer and Chairman following the time periods specified herein. The Combined
Company will seek to create a streamlined organization incorporating the best of
the existing CSX and Conrail organizations. Based on joint efforts to identify
potential cost savings, management currently estimates that the Combined Company
can achieve quantifiable
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pre-tax benefits in the near term from increased traffic and cost efficiencies
of approximately $240 million, $521 million and $730 million annually in the
first, second and third years following the Control Date, compared to the
separate operation of the two existing rail networks. These benefits include
estimated incremental operating income of $70 million, $125 million and $165
million expected through increased traffic in the first, second and third years
following the Control Date, respectively. Approximately 80% of the increased
revenue growth is expected from coal, automotive and carload business, with 20%
expected to be from intermodal traffic consisting of containers designed to be
carried by both rail and truck.
The remaining pre-tax benefits will be in the form of cost savings, with
$170 million, $396 million and $565 million expected to be realized in the
first, second and third years following the Control Date. Some of these savings
will result directly from the operation of the larger, consolidated system, such
as the ability to optimize train sizing, increase the length of hauls, improve
backhauls, reduce the movement of empty cars and improve cycle time. Additional
savings will come from the consolidated system reducing the level of freight
traffic moving on track owned by Amtrak. This will not only reduce potential
conflicts with passenger service, but also reduce trackage right payments by the
Combined Company to Amtrak. Other additional savings will come through the
realization of economies of scale, rationalization of administrative and other
overhead expenses, and consolidation of duplicative facilities. Specific plans
for achieving these cost savings following the Control Date are currently under
development, and various alternatives and new opportunities based on
circumstances will continue to be evaluated as they exist from time to time.
Some of these plans will be more specifically identified prior to the filing of
the STB Application, and such plans and the resulting benefits to the Combined
Company may differ significantly from those identified herein depending upon STB
requirements in connection with STB approval.
Certain actions which the Combined Company is expected to take to reduce
operating costs would result in job losses as redundant positions and business
operations are eliminated. These job losses, however, are expected to be
substantially offset over time by new employment opportunities resulting from
business growth.
Management anticipates that the Combined Company will maintain an
investment grade credit rating from the independent credit rating agencies
following the Control Date on the basis of, among other things, the strength of
its balance sheet and cash flow. Management estimates that the Combined Company
will incur one-time expenditures in connection with the integration of
operations of $280 million (comprised of $75 million of capital expenditures and
$205 million of transition costs), $230 million (comprised of $100 million of
capital expenditures and $130 million of transition costs) and $100 million
(comprised of $25 million of capital expenditures and $75 million of transition
costs) in the first, second and third years following the Control Date,
respectively. Taking into account the benefits discussed above, management
anticipates that the transaction will be accretive to cash flow beginning in the
second year following the Control Date, and that the increased cash flow of the
Combined Company in the second and third years following the Control Date and
the years thereafter will lead to rapid improvement in the Combined Company's
already strong balance sheet.
THE ABOVE ESTIMATES AND FORECASTS ARE BASED UPON NUMEROUS ESTIMATES AND
ASSUMPTIONS ABOUT COMPLEX ECONOMIC AND OPERATING FACTORS WITH RESPECT TO
INDUSTRY PERFORMANCE, GENERAL BUSINESS AND ECONOMIC CONDITIONS AND OTHER MATTERS
THAT CANNOT BE PREDICTED ACCURATELY AND THAT ARE SUBJECT TO CONTINGENCIES OVER
WHICH NEITHER CONRAIL NOR CSX HAS CONTROL. ACCORDINGLY, THERE CAN BE NO
ASSURANCE THAT ESTIMATED OR FORECASTED RESULTS ARE INDICATIVE OF FUTURE
PERFORMANCE OR THAT ACTUAL RESULTS WILL NOT BE MATERIALLY HIGHER OR LOWER THAN
THOSE ESTIMATED OR FORECAST. IN ADDITION, THE ABOVE ESTIMATES AND FORECASTS WERE
NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR IN COMPLIANCE WITH THE
PUBLISHED GUIDELINES OF THE SEC OR THE GUIDELINES ESTABLISHED BY THE AMERICAN
INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING ESTIMATES OR FORECASTS.
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THE MEETINGS
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies from the holders of Conrail Common Stock and Conrail
ESOP Preferred Stock by the Conrail Board for use at the Conrail Meeting and
from the holders of CSX Common Stock by the CSX Board for use at the CSX
Meeting.
CONRAIL
The Conrail Meeting will be held on [DATE] at [TIME] local time at [PLACE].
Only holders of record of Conrail Common Stock and Conrail ESOP Preferred Stock
at the close of business on the Conrail Record Date will be entitled to notice
of and to vote at the Conrail Meeting. At the Conrail Record Date, the following
shares of the following classes of Conrail capital stock were outstanding and
entitled to the following votes:
SHARES VOTES PER
CLASS OUTSTANDING SHARE
--------------------------------------------------------------- ----------- ---------
Conrail Common Stock........................................... 1
Conrail ESOP Preferred Stock................................... 1
Holders of Conrail Common Stock and Conrail ESOP Preferred Stock will vote
together as a single class.
Votes Required. The Conrail By-laws provide that a majority of all
outstanding shares of Conrail Common Stock and Conrail ESOP Preferred Stock,
considered as a single class, constitute a quorum at any meeting of
shareholders. Adoption and approval of the Conrail Proposal require the
affirmative vote of a majority of the votes cast by all outstanding shares of
Conrail Common Stock and Conrail ESOP Preferred Stock voting together as a
single class.
Beneficial Ownership of Management and CSX. At the Conrail Record Date,
Conrail's directors and executive officers and their affiliates beneficially
owned in the aggregate shares, or % of the outstanding shares,
of Conrail Common Stock and shares, or % of the outstanding
shares of Conrail Common Stock and Conrail ESOP Preferred Stock collectively. In
addition, at the Conrail Record Date, the Conrail ESOP was the record owner of
shares of Conrail ESOP Preferred Stock (representing approximately
% of the outstanding Shares); and the Conrail EBT held shares,
or % of the outstanding shares, of Conrail Common Stock (representing
approximately % of the outstanding Shares). At the Conrail Record Date,
CSX, through the Voting Trust, beneficially owned shares, or %
of the outstanding shares, of Conrail Common Stock (representing approximately
% of the outstanding Shares). Such shares will be voted in favor of the
Conrail Proposal in accordance with the Voting Trust Agreement. At the Conrail
Record Date, CSX's directors and executive officers and their affiliates
beneficially owned in the aggregate shares (representing less than
1% of the outstanding Shares).
CSX
The CSX Meeting will be held on [DATE] at [TIME] local time at [PLACE].
Only holders of record of CSX Common Stock at the close of business on the CSX
Record Date will be entitled to notice of and to vote at the CSX Meeting. At the
CSX Record Date, shares of CSX Common Stock were outstanding and
entitled to vote.
Votes Required. The CSX By-laws provide that a majority of the outstanding
shares of stock entitled to vote constitutes a quorum at any meeting of
shareholders. Adoption and approval of the CSX Articles Proposal require the
affirmative vote of a majority of all outstanding shares of CSX Common Stock and
approval of the CSX Issuance Proposal requires a majority of the votes cast by
holders of CSX Common Stock at a meeting at which a quorum is present. As a
result, failing to vote in person or by proxy or abstaining has the same effect
as voting against the CSX Articles Proposal.
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Beneficial Ownership of Management. At the CSX Record Date, CSX's
directors and executive officers and their affiliates beneficially owned in the
aggregate shares, or % of the outstanding shares, of CSX Common
Stock. At the CSX Record Date, Conrail and its directors and executive officers
and their affiliates beneficially owned in the aggregate shares, or
% of the outstanding shares, of CSX Common Stock.
PROXIES
Conrail. All Shares represented by properly executed proxies received
prior to or at the Conrail Meeting and not revoked will be voted in accordance
with the instructions indicated in such proxies. If no instructions are
indicated on a properly executed returned proxy, such proxy will be voted FOR
the Conrail Proposal. A properly executed proxy marked "ABSTAIN," although
counted for purposes of determining whether there is a quorum, will not be voted
and, therefore, effectively constitutes a vote against the Conrail Proposal. In
accordance with NYSE rules, brokers and nominees are precluded from exercising
their voting discretion on the Conrail Proposal and, thus, absent specific
instructions from the beneficial owner of Shares, are not empowered to vote such
Shares on the Conrail Proposal. Shares represented by broker non-votes will not
be counted as present for purposes of determining whether there is a quorum at
the Conrail Meeting or as entitled to vote on the Conrail Proposal. As a result,
broker non-votes will have an impact on the presence of a quorum, but will have
no effect on the approval of the Conrail Proposal if a quorum is present. Shares
held by brokers or nominees which are not represented at the Conrail Meeting
will be treated like any other Shares not represented at the Conrail Meeting;
such shares will not be counted toward the presence of a quorum and will have no
effect on the Conrail Proposal.
Proxies for shares that have been allocated to individual
shareholder-participants pursuant to the Conrail ESOP will be voted in
accordance with each shareholder-participant's direction as set forth on the
trustee instruction card that is enclosed herewith for shareholder-participants.
Shareholder-participants cannot vote their shares of Conrail ESOP Preferred
Stock or instruct the Conrail ESOP Trustee as to how to vote their shares of
Conrail ESOP Preferred Stock by completing the enclosed proxy. All shares of
Conrail ESOP Preferred Stock that have not been allocated to individual
shareholder-participants and all shares of Conrail ESOP Preferred Stock that
have been so allocated but as to which no voting instructions have been received
by the Conrail ESOP Trustee (subject to applicable law) shall, in accordance
with the trust agreement between CRC and the Conrail ESOP Trustee, be voted in
the same manner and proportion as are the shares of Conrail ESOP Preferred Stock
for which valid instructions are received. In addition, Shares held under the
Conrail EBT will be voted by the trustee thereof in the same manner and
proportion as the shares of Conrail ESOP Preferred Stock for which valid
instructions are received.
CSX. All shares of CSX Common Stock represented by properly executed
proxies received prior to or at the CSX Meeting and not revoked will be voted in
accordance with the instructions indicated in such proxies. If no instructions
are indicated on a properly executed returned proxy, such proxy will be voted
FOR the CSX Articles Proposal and FOR the CSX Issuance Proposal. A properly
executed proxy marked "ABSTAIN," although counted toward the presence of a
quorum, will not be voted. Accordingly, a proxy marked "ABSTAIN" will have the
effect of a vote against the CSX Proposals. In accordance with NYSE rules,
brokers and nominees are precluded from exercising their voting discretion on
either CSX Proposal, and thus, absent specific instructions from the beneficial
owner of shares, are not empowered to vote such shares with respect to either
CSX Proposal. Shares represented by broker non-votes (i.e., shares held by
brokers or nominees which are represented at a meeting but with respect to which
the broker or nominee is not empowered to vote on a particular proposal) will
not be counted toward the presence of a quorum, will have the effect of votes
against the CSX Articles Proposal and will have no effect on the CSX Issuance
Proposal if a quorum is present. Shares held by brokers or nominees which are
not represented at the CSX Meeting will be treated like any other shares not
represented at the CSX Meeting; such shares will not be counted toward the
presence of a quorum, will have the effect of votes against the CSX Articles
Proposal and will have no effect on the CSX Issuance Proposal.
Other Matters. It is not expected that any matter not referred to herein
will be presented for action at the Conrail Meeting or the CSX Meeting. If any
other matters are properly brought before the Conrail
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Meeting or the CSX Meeting, the persons named in the proxies will have
discretion to vote on such matters in accordance with their best judgment. The
grant of a proxy will also confer discretionary authority on the persons named
in the proxy as proxy appointees to vote in accordance with their best judgment
on matters incident to the conduct of the Meetings, including adjournment for
the purpose of soliciting additional votes.
Revocation. A shareholder of Conrail or a shareholder of CSX may revoke
his, her or its proxy at any time prior to its use by delivering to the
Secretary of Conrail or CSX, as the case may be, a signed notice of revocation
or a later dated signed proxy or by attending the Conrail Meeting or the CSX
Meeting, as the case may be, and voting in person. Attendance at the Conrail
Meeting or the CSX Meeting will not in itself constitute the revocation of a
proxy.
COSTS OF SOLICITATION
The cost of solicitation of proxies will be paid by Conrail for the Conrail
proxies and by CSX for the CSX proxies. In addition to solicitation by mail,
proxies may be solicited in person, by telephone, telegram, teletype, facsimile
or similar method by directors, officers and employees of Conrail or CSX, as the
case may be, without additional compensation. Arrangements will be made with
brokerage houses and other custodians, nominees and fiduciaries to send proxy
materials to beneficial owners; and Conrail or CSX, as the case may be, will,
upon request, reimburse them for their reasonable expenses in so doing. Conrail
has retained D.F. King & Co., Inc. to aid in the solicitation of proxies at a
fee of $ plus expenses. CSX has retained MacKenzie Partners, Inc. to
aid in the solicitation of proxies at a fee of $ plus expenses. To the
extent necessary in order to ensure sufficient representation at the Conrail
Meeting or the CSX Meeting, Conrail or CSX, as the case may be, may request the
return of proxies by telephone or telegram. The extent to which this will be
necessary depends entirely upon how promptly proxies are returned.
HOLDERS OF SHARES OF CONRAIL COMMON STOCK SHOULD NOT SEND ANY CERTIFICATES
REPRESENTING SHARES OF CONRAIL COMMON STOCK WITH THE ENCLOSED PROXY CARD. IF THE
MERGER IS APPROVED, A LETTER OF TRANSMITTAL AND, IF APPLICABLE, AN ELECTION FORM
WILL BE MAILED AFTER THE MERGER TO EACH PERSON WHO WAS A HOLDER OF OUTSTANDING
SHARES IMMEDIATELY PRIOR TO THE MERGER. CONRAIL SHAREHOLDERS SHOULD SEND
CERTIFICATES REPRESENTING SHARES OF CONRAIL COMMON STOCK TO THE EXCHANGE AGENT
ONLY AFTER THEY RECEIVE, AND IN ACCORDANCE WITH, THE INSTRUCTIONS CONTAINED IN
THE LETTER OF TRANSMITTAL AND, IF APPLICABLE, THE ELECTION FORM.
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BACKGROUND AND REASONS
BACKGROUND OF THE MERGER
In the ordinary course of CSX's long-term strategic review process, CSX and
its subsidiaries routinely analyze potential combinations with various railroad
companies. In recent years, CSX has placed particular emphasis on studies of
Conrail, considering it to be an ideal candidate for such a combination.
From time to time since August 1994, CSX has conveyed to Conrail senior
managers CSX's continuing interest in discussing a business combination and
CSX's views as to the desirability of such a transaction. These contacts by CSX
led to a discussion in July 1996 between David M. LeVan, Chairman, President and
Chief Executive Officer of Conrail, and John W. Snow, Chairman, President and
Chief Executive Officer of CSX, generally regarding the consolidation in the
railroad industry and the regulatory environment with respect to such
consolidation. Following such discussion, each of the parties independently
analyzed its strategic opportunities, including potential business combination
transactions. Shortly following preliminary discussions between Mr. Snow and Mr.
LeVan, on October 6, 1996, Mr. Snow and Mr. LeVan met to discuss the possibility
for and the terms of a business combination between CSX and Conrail. Following
that meeting, senior management of both companies, together with their financial
and legal advisors, independently undertook to examine a possible transaction
and to conduct detailed business reviews. On October 8, 1996, CSX and Conrail
entered into a confidentiality agreement in connection with their discussions.
Such discussions led to the negotiation of the Merger Agreement and the Option
Agreements, which were executed on October 14, 1996.
On October 16, 1996, CSX, through Green Acquisition Corp., commenced the
First Offer.
On October 23, 1996, Norfolk Southern Corporation ("NSC") announced its
intention to commence, and on October 24, 1996, NSC commenced, a tender offer
for Conrail (the "Hostile Offer"). The Hostile Offer was subject to numerous
conditions, including the termination of the Merger Agreement and the
redemption, invalidity or other inapplicability of the Conrail Rights. NSC also
commenced litigation relating to the transactions contemplated by the Merger
Agreement and the Hostile Offer.
On October 23, 1996, CSX issued the following press release in response to
the announcement of the Hostile Offer:
NEWS
CSX Dismisses Norfolk Southern's Announcement as a
'Confusing Non-Bid'
RICHMOND, VA., Oct. 23 / PRNewswire/ -- In response to the
Norfolk Southern (NYSE: NSC) (NSC) announcement of its hostile
tender offer for Conrail, CSX (NYSE: CSX) issued the following
statement:
"Norfolk Southern's hostile offer comes as no surprise. It
simply does not provide the same long-term value as the
strategic CSX-Conrail partnership, which offers Conrail
shareholders tax-free equity and the substantial upside
potential that only comes from the benefits derived from the
merger of CSX and Conrail.
"Furthermore, Norfolk Southern's highly conditional non-bid
would inevitably face serious delay and could not, in any event,
be consummated without the approval of the Conrail board.
Specifically, the provisions of the CSX-Conrail merger agreement
effectively preclude the Conrail board of directors' approval of
any competing offers prior to mid-April 1997. In contrast, the
CSX cash tender offer would close in November 1996. The certain
delays involved in the Norfolk Southern non-bid severely and
negatively impact the present value of its proposal. Using a
customary discount rate of 2 percent per month, the Norfolk
Southern non-bid is worth less than $90 per Conrail share, far
less than Norfolk Southern would have Conrail shareholders
believe.
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"The fact is that the merger of CSX and Conrail will result
in service, efficiency and competitive benefits that cannot be
achieved by any combination of the Norfolk Southern and Conrail
systems.
"By every measure, the CSX-Merger is superior in economic,
operational and public policy terms to the Norfolk Southern
non-bid."
Thereafter, during the weekend of November 2 through November 3, 1996,
representatives of CSX and NSC met to discuss matters related to the possible
sale of certain of Conrail's assets.
On November 3, 1996, CSX issued the following press release:
FOR IMMEDIATE RELEASE:
CSX Confirms Talks with Norfolk Southern
Richmond, VA., -- Nov. 3, 1996 -- CSX Corporation (CSX)
(NYSE: CSX) today released the following statement:
"CSX Corporation today announced that, at the initiation of
Norfolk Southern Corp. (Norfolk Southern), it is having
conversations with Norfolk Southern about a possible sale by the
post-merger CSX/Conrail of certain material assets. CSX has
advised Conrail Inc. of such conversations. No agreements have
been reached and there can be no assurance that any agreements
will be reached. Under the terms of the CSX/Conrail merger
agreement, mutual agreement between CSX and Conrail would be
required for an agreement of the type discussed."
No agreements were reached as a result of the conversations held during the
November 2, 1996 weekend.
Following the announcement by NSC of the Hostile Offer and from time to
time thereafter until the execution of the First Amendment, CSX and Conrail held
discussions and engaged in negotiations relative to the Original Merger
Agreement and the First Amendment.
On November 5, 1996, CSX and Conrail entered into the First Amendment
pursuant to which the First Offer Price was increased to $110 per share of
Conrail Common Stock and Conrail ESOP Preferred Stock.
On November 6, 1996, CSX and Conrail issued the following joint press
release announcing execution of the First Amendment:
FOR IMMEDIATE RELEASE
CSX AND CONRAIL AMEND MERGER AGREEMENT
CSX Raises Cash Portion of its Agreement with Conrail to $110
per Conrail Share
Conrail Board Unanimously Approves CSX Amended Offer
Conrail Board Unanimously Rejects Norfolk Southern's Offer
-------------------------------------------------------------
Richmond, VA. and Philadelphia, Pa., Nov. 6, 1996 -- CSX
Corporation [NYSE: CSX] and Conrail Inc. [NYSE: CRR] today
announced that they have amended the terms of their merger
agreement. Under the revised terms, CSX has raised the cash
portion of its offer to $110 per Conrail share.
Conrail also announced that its board of directors
carefully considered the relative merits of a merger with
Norfolk Southern rather than with CSX, and unanimously
reaffirmed that a merger with CSX is in Conrail's best interest
and is the superior strategic combination for Conrail. The
Conrail board determined that a transaction with Norfolk
Southern is not in the best interest of Conrail and its
constituencies.
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David M. LeVan, chairman, president and chief executive
officer of Conrail, said, "Our two companies have now agreed to
significantly increase the value to be received by the Conrail
shareholders, and Conrail's other constituencies will continue
to get tremendous benefits resulting from the CSX merger.
"On Oct. 14, 1996, the Conrail board unanimously approved a
merger of equals with CSX to create one of the world's leading
transportation and logistics companies," Mr. LeVan continued.
"That transaction provided value to our shareholders at the
high-end of what has been paid in other railroad mergers, and it
clearly was and is in the best interests of Conrail and its
constituencies. Before approving that merger, we carefully
considered the relative merits of a merger with Norfolk Southern
rather than with CSX, and we unanimously determined that a
merger with CSX was in Conrail's best interest and was the
superior strategic combination for Conrail. In making that
decision we were fully aware that Norfolk Southern had expressed
an interest in acquiring Conrail. We have now reaffirmed that
decision."
John W. Snow, CSX chairman, president and chief executive
officer, said, "Our decision to increase the cash portion of the
offer not only reflects CSX's commitment to completing the
transaction, but also accounts for the increased value we have
determined will be realized through the merger. Further analysis
by our management team, working with its counterpart at Conrail,
has identified at least $730 million in synergies and cost
savings, $180 million more than originally anticipated.
"Following the combination of our two companies, we expect
immediate net traffic benefits of about $165 million and cost
savings totaling approximately $565 million," continued Mr.
Snow. "Importantly, we will realize these benefits rapidly by
working closely together. This is especially significant since
Conrail shareholders who receive CSX shares as consideration for
their shares, will benefit from what we expect will be a
substantial increase in the value of those shares.
"Furthermore, it is apparent that the merger between CSX
and Conrail will produce significant public policy benefits. The
service and pricing advantages we will offer shippers will
reduce truck traffic along the now congested interstate
corridors throughout the region. We also will be able to provide
a safer, more reliable operating environment for passenger
services. Only the CSX/Conrail combination offers so many
significant benefits to customers and the greater public," Mr.
Snow added.
"The hostile Norfolk Southern bid is burdened with a series
of significant conditions. Given all the obstacles in the path
of Norfolk Southern's bid, Conrail shareholders would have to
wait a prolonged amount of time to receive payment for their
shares. Meanwhile, the CSX/Conrail combination offers an
immediate opportunity to move forward together creating real,
substantive value for both Conrail and CSX shareholders.
"The merger of CSX and Conrail is driven by a compelling
logic. Together, CSX and Conrail will create the leading global
freight transportation and logistics management company and
provide dramatically improved rail service to our customers east
of the Mississippi. Shippers and receivers throughout the region
will benefit from significantly enhanced competition, much
better service and more competitive pricing. Our combined
railroad will grow significantly and operate with maximum
efficiency," Mr. Snow said.
"Clearly, the combination of CSX and Conrail provides the
best overall package of benefits to our constituencies,
including customers, the communities we serve, and the
public-at-large. We welcome the strong support of the Conrail
board of directors and look forward to a bright future as our
new company moves full speed into the 21st Century," concluded
Mr. Snow.
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The significant amendments to the CSX/Conrail merger
agreement include:
-- The increase of the cash portion of the transaction to
$110 per Conrail share. The structure of the proposed merger
will remain the same: 40 percent of the fully diluted shares of
Conrail's common stock and ESOP preferred stock will be acquired
at the new price and the remaining 60 percent will be exchanged
for CSX stock at the originally agreed-upon exchange ratio of
1.85619 CSX shares for each Conrail share;
-- An extension by three months of the period of time
during which the Conrail board of directors cannot withdraw its
support of the merger agreement or agree to any competing
transaction. As now extended, such provisions will run until
July 12, 1997; and
-- Neither party will engage in discussions or enter into
any agreement with other railroad companies (including Norfolk
Southern) relating to trackage rights or other concessions
without the participation and agreement of the other party.
Additionally, the Conrail Shareholders Meeting scheduled
for Nov. 14 has been canceled. The record date for a new
shareholders meeting has been set at Dec. 5, 1996, and the
shareholder meeting is expected to be held in mid-December.
CSX's tender offer of $110 per Conrail share is for an
aggregate of about 17.9 million shares of Conrail common stock
and ESOP preferred stock, or approximately 19.9 percent of the
Conrail outstanding voting stock. The offer is subject to
certain customary conditions.
Under the terms of the CSX offer, as amended, the tender
offer's expiration date and withdrawal and proration rights are
extended until Midnight EST, Nov. 20, 1996. As of the close of
business on Nov. 5, 1996, 56,634 Conrail shares had been
tendered pursuant to the CSX offer.
CSX Corporation, headquartered in Richmond, Va., is an
international transportation company offering a variety of rail,
container-shipping, intermodal, trucking, barge and contract
logistics management services.
Conrail, with corporate headquarters in Philadelphia, Pa.,
operates an 11,000-mile rail freight network in 12 northeastern
and midwestern states, the District of Columbia, and the
Province of Quebec.
Attached is a fact sheet on the CSX/CRR merger of equals,
and additional information regarding this announcement can be
found on the companies' Web sites on the Internet. CSX's home
page can be reached at http://www.CSX.com. Conrail's home page
can be reached at http://www.CONRAIL.com.
FAST FACTS REGARDING THE CSX/CONRAIL MERGER
-- The proposed CSX/CRR merger of equals will create a
powerful strategic alliance, the leading transportation company
in the world with more than $14 billion in revenue and
operations serving more than 80 countries around the globe.
-- In addition to the railroad, the new company will
include the nation's largest container-shipping (Sea-Land
Services) and barging (American Commercial Barge Line)
companies, its only full-service, coast-to-coast intermodal
company (CSX Intermodal) and one of the foremost contract
logistics management companies (Customized Transportation
Services) in the world.
-- For employees and the communities within which they work
and live, the CSX/CRR merger of equals offers the combination of
companies with complementary business mixes, common corporation
strategies and compatible corporate cultures.
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-- CSX/CRR has agreed to locating the corporate
headquarters of the new company in Philadelphia; to leaving the
operating headquarters of the CSXT and Conrail rail companies in
Jacksonville and Philadelphia for the foreseeable future; to a
board comprised of an equal number of directors from each
company; and to a defined succession plan that insures the
management and employees, shareholders, customers and
communities served by both companies will have powerful roles
and strong voices in the future of the Company.
-- For shareholders, the CSX/CRR merger of equals offers
ownership of an international transportation company with the
scale and efficiency at home and abroad to compete effectively
and generate attractive returns well into the 21st Century.
-- For customers, the CSX/CRR combination provides a 29,000
route mile rail system that would span 22 states and offer
vastly improved service to virtually all major markets east of
the Mississippi. Such a system will provide the highest quality
service to customers as a result of faster, more reliable
service, shorter routes, an improved cost structure, better
equipment supply and utilization and more single-line service.
-- The proposed CSX/CRR merger of equals allows realization
of public policy benefits that cannot be accomplished through
any other combination.
-- More passenger trains will use the combined CSX/CRR rail
system than any other in the United States. These include not
only Amtrak's, but also those operated by commuter services in
Boston, New York, Philadelphia, Baltimore and Washington.
Freight and passenger trains currently share the same tracks in
these areas. Improved coordination, scheduling and operation of
freight and passenger services will reduce delays and improve
safety and service for passengers. Similar options may exist in
other parts of the combined system in the future as hardpressed
urban planners increasingly turn to rail transportation to
relieve highway congestion, save scarce public resources and
improve air quality.
-- The proposed CSX/CRR merger of equals offers improved
rail competition to Northeast and Midwest markets and an
opportunity to improve the social and economic benefits of the
entire transportation infrastructure of the region through
increased, more effective competition with the trucking industry
and through additional intermodal cooperation.
On November 8, 1996, NSC publicly announced an increase in the price
offered in the Hostile Offer to $110.
On November 13, 1996, CSX and Conrail issued the following joint press
release stating that CSX has had, and was continuing to have, discussions with
Conrail relating to an increase in the value of the consideration payable upon
consummation of the Merger:
FOR IMMEDIATE RELEASE
CONRAIL BOARD ADVISES SHAREHOLDERS NOT TO TENDER
TO REVISED NORFOLK SOUTHERN TENDER OFFER;
CSX AND CONRAIL REAFFIRM COMMITMENT TO THEIR MERGER
Richmond, Va. and Philadelphia, Pa., Nov. 13,
1996 -- Conrail Inc. (NYSE: CRR) announced today that its board
of directors recommends that shareholders not tender their
shares pursuant to the revised Norfolk Southern tender offer.
Shares tendered to the Norfolk Southern offer, which expires on
Nov. 22, cannot be accepted for payment under the terms of that
offer. Conrail's board said that shareholders who desire to
receive cash now for a portion of their shares should tender to
the offer of CSX Corporation (CSX) (NYSE: CSX), which expires on
Nov. 20.
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Conrail again reaffirmed that a merger with CSX is in
Conrail's best interest and is the superior strategic
combination for Conrail. Both CSX and Conrail stated that they
continue to be fully committed to their merger.
CSX and Conrail stated that they have been having, and
continue to have, discussions relating to an increase in the
value of the consideration payable upon consummation of the
CSX-Conrail merger. There can be no assurance as to when or if
any such modifications will be made.
CSX, headquartered in Richmond, Va., is an international
transportation company offering a variety of rail,
container-shipping, intermodal, trucking, barge and contract
logistics management services.
Conrail, with corporate headquarters in Philadelphia, Pa.,
operates an 11,000-mile rail freight network in 12 northeastern
and midwestern states, the District of Columbia, and the
Province of Quebec.
CSX's home page can be reached at http://www.CSX.com.
Conrail's home page can be reached at http://www.CONRAIL.com.
On November 19, 1996, following a two-day hearing, the United States
District Court for the Eastern District of Pennsylvania denied NSC's motion for
a preliminary injunction relating to the First Offer. On November 20, 1996, the
United States Court of Appeals for the Third Circuit rejected NSC's application
for an injunction relating to the First Offer pending an appeal by NSC of the
November 19, 1996 decision.
The First Offer expired in accordance with its terms at 12:00 midnight on
November 20, 1996 (the "First Offer Expiration Date"). In connection therewith,
Green Acquisition Corp. accepted for payment 17,860,124 Shares at a price of
$110 per Share, representing approximately 19.9% of the Shares outstanding as of
October 10, 1996 and a proration factor of approximately 23.45% for all Shares
tendered pursuant to the First Offer.
On December 6, 1996, CSX and Green Acquisition Corp. commenced the Second
Offer.
On December 10, 1996, CSX and Conrail issued the following press release:
FOR IMMEDIATE RELEASE
CSX AND CONRAIL
ANNOUNCE JOINT EFFORT
TO BRING COMPETITIVE BENEFITS TO CUSTOMERS
Richmond, VA and Philadelphia, PA (December 10,
1996) -- CSX Corporation (CSX) [NYSE: CSX] and Conrail Inc.
(Conrail) [NYSE: CRR] announced today that they have jointly
begun an effort that will bring even more competitive benefits
to customers who will be served by their merged railroad.
The companies said that a joint CSX-Conrail team would work
to assure that so-called two-to-one customers -- customers who
are today served by only CSX and Conrail -- will fully
participate in the benefits of this pro-competitive merger. The
joint team will meet with representatives of other major
carriers who have expressed interest in the opportunities
afforded by this process.
The negotiations are confidential business discussions, and
the companies will not comment on them until agreements have
been reached. At that time, the agreements will be made
available to the public and submitted to the Surface
Transportation Board as part of the merger review process.
CSX Corporation, headquartered in Richmond, VA, is an
international transportation company offering a variety of rail,
container-shipping, intermodal, trucking, barge and
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contract logistics management services. CSX's home page can be
reached at http://www.CSX.com.
Conrail, with corporate headquarters in Philadelphia, PA,
operates an 11,000-mile rail freight network in 12 northeastern
and midwestern states, the District of Columbia, and the
Province of Quebec. Conrail's home page can be reached at
http://www.CONRAIL.com.
On December 11, 1996, CSX issued the following press release in response to
a "pledge" letter by NSC to shareholders of Conrail:
FOR IMMEDIATE RELEASE
CSX DISMISSES NORFOLK SOUTHERN'S
"PLEDGE" LETTER AS ANOTHER "NON-EVENT"
Richmond, VA, December 11, 1996 -- CSX Corp. (CSX) (NYSE: CSX)
today dismissed Norfolk Southern's "pledge letter" to Conrail
shareholders as another "non-event" in which Norfolk Southern again
misrepresents its ability to close its hostile tender offer. In a
statement, CSX said:
"This is more of the same Norfolk Southern smokescreen intended to
cloud reality. The facts, however, are clear. Norfolk Southern could
not close its hostile tender offer on its previous expiration date of
Dec. 16, 1996, nor can it close on its revised expiration date of Jan.
10, 1997, or at any time thereafter until well into the summer of 1997
at the earliest, in accordance with the terms of the Conrail-CSX merger
agreement. This has been resoundingly upheld in federal court."
CSX Corporation, headquartered in Richmond, VA, is an
international transportation company offering a variety of rail,
container-shipping, intermodal, trucking, barge and contract logistics
management services. CSX's home page can be reached at
http://www.CSX.com. Conrail's home page can be reached at
http://www.CONRAIL.com.
On December 18, 1996, CSX and Conrail entered into the Second Amendment.
On December 19, 1996, Conrail and CSX issued the following press release
announcing execution of the Second Amendment:
FOR IMMEDIATE RELEASE
CSX AND CONRAIL INCREASE MERGER CONSIDERATION
BY $16 PER SHARE
VOTING TRUST TO PERMIT EARLY 1997 PAYMENT
OF MERGER CONSIDERATION TO CONRAIL SHAREHOLDERS
CASH PORTION TO REMAIN AT $110 PER CONRAIL SHARE
TENDER OFFER EXTENDED UNTIL JANUARY 22, 1997
SPECIAL CONRAIL SHAREHOLDER MEETING
NOW SCHEDULED FOR JANUARY 17, 1997
PHILADELPHIA, PA AND RICHMOND, VA (DECEMBER 19, 1996) -- Conrail
Inc. (NYSE: CRR) and CSX Corporation (NYSE: CSX) announced today that
they have amended their merger agreement to increase the merger
consideration by $16 per Conrail share, or approximately $870 million
in the aggregate. Conrail shareholders will also benefit from the
significant value of receiving the merger consideration earlier than
previously contemplated. Conrail shareholders will now receive in the
merger, for 60% of their shares, an additional $16 per share in CSX
convertible preferred stock, the terms of which will be set prior to
the merger so that such
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securities would trade at par on a fully distributed basis. This is in
addition to the tax-free 1.85619 shares of CSX common stock to be received
in the merger.
The amended agreement also provides that the merger will occur at
the time of the CSX and Conrail shareholders meeting for approval of
matters related to the merger. These meetings are expected to be held
in the first quarter of 1997. Upon shareholder approval and
consummation of the merger, the Conrail shareholders would receive the
merger consideration of CSX common stock and CSX Convertible Preferred
Stock. All the Conrail Stock acquired by CSX, both in the tender and in
the merger, would be placed in a voting trust pending the outcome of
the Surface Transportation Board's (STB) proceeding.
CSX has already purchased 19.9% of Conrail's common and ESOP
preferred stock, through a tender offer for $110 in cash per Conrail
share. CSX is currently offering to purchase up to an additional
18,344,845 shares of Conrail through a second cash tender offer at $110
per share.
David M. LeVan, chairman, president and chief executive officer of
Conrail, said "Because of the actions taken by the Conrail board, our
shareholders are receiving extraordinary value in our strategic
merger-of-equals with CSX. The original terms of the merger provided
our shareholders with a price at the high end of what has been paid in
railroad mergers. That price has since been increased by more than $1.5
billion before taking into account the significant value associated
with receiving the merger consideration in early 1997. In every
respect, this merger holds great potential and clearly offers the best
possible result for Conrail. This amendment to the merger agreement
reaffirms the decision of the Conrail board that is not willing to
agree to the sale of Conrail to Norfolk Southern."
John W. Snow, chairman, president and chief executive officer of
CSX said "The actions taken by the CSX and Conrail boards allow us to
move on to the next stage of the process, the filing of our merger
application with the STB. We are confident that we will present a
strong case and look forward to building the world's leading
transportation and logistics company."
The amended merger agreement provides that the period of time
during which each of Conrail and CSX has agreed that it will not
discuss or agree to any takeover proposal with a third party has been
extended to the termination date under the merger agreement, December
31, 1998. CSX and Conrail also announced that the CSX tender offer has
been extended to 5:00 p.m., Eastern Standard Time, on January 22, 1997
and the special shareholders meeting seeking approval of the opt-out of
the Pennsylvania statute has been postponed to 2:00 p.m., Eastern
Standard Time, on January 17, 1997. CSX has been advised by the
depositary, on a preliminary basis, that fewer than 100,000 shares have
been tendered into the CSX offer as of the close of business on
December 18, 1996.
Conrail, with corporate headquarters in Philadelphia, PA, operates
an 11,000-mile rail freight network in 12 northeastern and midwestern
states, the District of Columbia, and the Province of Quebec. Conrail's
home page on the Internet can be reached at http://www.CONRAIL.com.
CSX, headquarters in Richmond, VA, is an international
transportation company offering a variety of rail, container-shipping,
intermodel, trucking, barge and contract logistics management services.
CSX's home page on the Internet can be reached at http://www.CSX.com.
On December 19, 1996, NSC announced an increase in the price offered in the
Hostile Offer to $115, which Hostile Offer was again rejected by the Conrail
Board on December 20, 1996.
On January 2, 1997, CSX sold 85,000 shares of Conrail Common Stock
(including the proxy to vote such shares at the Pennsylvania Special Meeting),
at an average per share price of $98.983, in order to moot certain claims by NSC
in litigation relative to the Pennsylvania Control Transaction Law. See "CERTAIN
LITIGATION."
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RECOMMENDATION OF THE CONRAIL BOARD
At meetings held on October 14, 1996, November 5, 1996 and December 18,
1996, the Conrail Board unanimously (i) determined that the terms of the Offers
and the Merger (as the terms of the Offers and the Merger were in effect on such
dates) are in the best interests of Conrail (taking into account the Conrail
constituencies affected by such transactions, the short-term and long-term
interests of Conrail, the resources, intent and conduct (past, stated and
potential) of any person seeking to acquire control of Conrail and all other
pertinent factors) and (ii) recommended approval of the Merger Agreement and the
transactions contemplated thereby by the shareholders of Conrail. At the October
14 and November 5 meetings, the Conrail Board also unanimously approved the
terms of the Merger Agreement and the transactions contemplated thereby. At the
December 18 meeting, the Conrail Board approved the terms of the Merger
Agreement with one abstention. Mr. David B. Lewis advised the Conrail Board
that, while he continues to support fully the Offers and the Merger and to
recommend approval of the Merger Agreement and the transactions contemplated
thereby by the shareholders of Conrail, he wished to abstain from the vote on
December 18 approving the Merger Agreement as amended by the Second Amendment in
light of the provision of the Second Amendment extending to December 31, 1998
the period during which each party agreed that it will not discuss, approve,
recommend or agree to any Takeover Proposal with a third party, or withdraw,
modify, or publicly propose to withdraw or modify, its approval or
recommendation of the transactions contemplated by the Merger Agreement. In
reaching these determinations, the Conrail Board consulted with management of
Conrail, as well as with its financial and legal advisors. On December 20, 1996,
at a meeting of the Conrail Board, the Conrail Board also reaffirmed its
determination that a sale to NSC would not be in the best interests of Conrail.
In making the determinations and recommendations set forth above, the
Conrail Board considered a number of factors, including, without limitation, the
following:
(i) the fact that the CSX Common Stock to be received in the Merger
would provide Conrail shareholders with the opportunity to participate in
the long-term benefits which, in the view of the Conrail Board, are likely
to be realized from the Merger;
(ii) the historical and recent market prices of Conrail Common Stock
and the fact that the Merger together with the consideration received in
the Offers and other transactions contemplated by the Merger Agreement will
enable the holders of Conrail Common Stock to realize a significant premium
over the prices at which Conrail Common Stock traded prior to the execution
of the Merger Agreement;
(iii) the opinions of Lazard Freres and Morgan Stanley to the effect
that the consideration to be received by Conrail's shareholders in the
Offers and the Merger, taken together, is fair to such shareholders (other
than CSX, Green Acquisition Corp. or any other subsidiary of CSX) from a
financial point of view (in rendering their respective fairness opinions,
based on the factors described therein and at the request of the Conrail
Board, neither Lazard Freres nor Morgan Stanley addressed the relative
merits of the CSX transaction, including Section 4.2(b) of the Merger
Agreement, the proposed NSC transaction or any alternative potential
transactions (copies of such opinions setting forth assumptions made and
matters considered by Lazard Freres and Morgan Stanley are attached hereto
as Appendix B and should be read in their entirety));
(iv) the Conrail Board's view that the transactions contemplated by
the Merger Agreement would result in significant efficiencies, operating
benefits and commercial and other synergies that would benefit Conrail and
its customers and be more in the public interest than would combinations
with other railroads, such as NSC, and that Conrail's shareholders would
also benefit greatly from such efficiencies, benefits and synergies through
their significant continued interest in the Combined Company following the
Merger;
(v) the Conrail Board's duties under the Pennsylvania Business
Corporation Law of 1988, as amended (the "Pennsylvania Law"), to act in the
best interests of Conrail, and that, under such law, the Conrail Board may
consider (a) the interests of all constituencies, including shareholders,
employees, suppliers, customers and creditors, as well as communities in
which Conrail has operations, (b) the short-
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term and long-term interests of Conrail, (c) the resources, intent and
conduct (past, stated and potential) of any person seeking to acquire
control of Conrail and (d) all other pertinent factors;
(vi) the Conrail Board's view that the benefits, efficiencies and
synergies in the Merger would better meet the needs of Conrail's
constituencies than would a combination with another railroad such as NSC;
(vii) the benefits that the Merger would provide to the customers of
Conrail and CSX, including providing them with the benefits of efficient
high-quality service from a more comprehensive rail system with more points
of origin and more new single-line and integrated transportation services,
and with a rail company with the financial strength to support substantial
capital investment in the railroad system;
(viii) the benefits that the Merger would provide to the public
through increased public safety and improved air quality due to, among
other things, the resulting improvements in the principal alternative to
truck movement over heavily-congested highways;
(ix) the benefits provided generally to the communities served by
Conrail, and particularly to local communities in Pennsylvania, including
through maintaining the headquarters of the combined company in
Philadelphia, Pennsylvania;
(x) the fact that the Merger, while providing a significant premium to
Conrail's shareholders, is being structured as a true merger-of-equals
transaction in which, following the Control Date, 50% of the Combined
Company's Board of Directors and each committee thereof would be designated
by Conrail;
(xi) Mr. LeVan being named as the President and Chief Operating
Officer of the Combined Company and President and Chief Executive Officer
of its railroad subsidiaries, and the fact that Mr. LeVan is to become
Chief Executive Officer of the Combined Company two years after the Control
Date and Chairman of the Combined Company's Board of Directors four years
after the Control Date;
(xii) the intended treatment of the Merger as a tax-free
reorganization for United States federal income tax purposes;
(xiii) information with regard to the financial condition, results of
operations, business and prospects of Conrail, the regulatory approvals
required to consummate the Merger, as well as current economic and market
conditions (including current conditions in the industry in which Conrail
is engaged);
(xiv) the structure of the Offers and the Merger and the use of a
voting trust which allows holders of Shares to receive cash and securities
for their Shares accepted in the Offers and exchanged in the Merger without
waiting for approval of the Merger by the STB;
(xv) the view of the Conrail Board that a strategic combination with
CSX remains in the best interests of Conrail, notwithstanding the
commencement of the Hostile Offer, and that the consideration to be paid in
the Offers and the Merger, taken together, is fair from a financial point
of view;
(xvi) the Conrail Board's recognition that the near-term trading price
for the Shares, if the Hostile Offer could be effected, would likely be
higher than the near-term trading price for the Shares that would result
from the Offers and Merger; and
(xvii) the fact that several of the conditions to the Hostile Offer
can only be satisfied if the Conrail Board takes certain actions, which the
Conrail Board has agreed under the Merger Agreement not to take until after
December 31, 1998.
The foregoing discussion of the information and factors considered and
given weight by the Conrail Board is not intended to be exhaustive but includes
all material factors considered by the Conrail Board. In addition, in reaching
the determination to approve and recommend the Merger, the Conrail Board did not
assign any relative or specific weights to the foregoing factors.
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OPINIONS OF FINANCIAL ADVISORS TO CONRAIL
Opinion of Lazard Freres -- General
At the December 18, 1996 Conrail Board meeting, Lazard Freres delivered its
opinion to the Conrail Board that, as of such date, the consideration to be
received by the shareholders of Conrail in the Offers and the Merger, when taken
together, is fair to such shareholders (other than CSX, Green Acquisition Corp.
or any other subsidiary of CSX), from a financial point of view.
THE FULL TEXT OF THE WRITTEN OPINION OF LAZARD FRERES, DATED DECEMBER 18,
1996, WHICH SETS FORTH THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN WITH REGARD TO SUCH OPINION, IS
ATTACHED AS APPENDIX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS. LAZARD FRERES'
OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY
THE SHAREHOLDERS OF CONRAIL (OTHER THAN CSX, GREEN ACQUISITION CORP. OR ANY
OTHER SUBSIDIARY OF CSX). LAZARD FRERES' OPINION WAS DELIVERED FOR THE BENEFIT
OF THE CONRAIL BOARD AND IS NOT INTENDED AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY SHAREHOLDER OF CONRAIL WHETHER SUCH SHAREHOLDER SHOULD
TENDER SHARES PURSUANT TO THE SECOND OFFER OR AS TO HOW SUCH SHAREHOLDER SHOULD
VOTE AT ANY MEETING OF CONRAIL SHAREHOLDERS CALLED TO CONSIDER THE MERGER OR THE
PENNSYLVANIA CONTROL TRANSACTION LAW. THE SUMMARY OF THE OPINION OF LAZARD
FRERES SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE OPINION. CONRAIL SHAREHOLDERS ARE URGED TO READ THIS OPINION IN ITS
ENTIRETY. SUCH OPINION WAS PROVIDED SOLELY IN CONNECTION WITH THE DECISIONS OF
THE CONRAIL BOARD TAKEN ON DECEMBER 18, 1996 AND NO UPDATE TO SUCH OPINION HAS
BEEN REQUESTED.
In rendering its opinion, Lazard Freres, among other things, (i) reviewed
the terms and conditions of the Merger Agreement and the financial terms of the
transactions set forth therein and the Option Agreements; (ii) analyzed certain
historical business and financial information relating to Conrail and CSX; (iii)
reviewed certain financial forecasts and other data provided to Lazard Freres by
Conrail and CSX relating to the businesses of Conrail and CSX, respectively,
including the most recent business plan for Conrail prepared by Conrail's senior
management, in the form furnished to Lazard Freres; (iv) conducted discussions
with members of the senior managements of Conrail and CSX with respect to the
businesses and prospects of Conrail and CSX, respectively, and the strategic
objectives of each and possible strategic benefits which might be realized
following the Merger; (v) reviewed public information with respect to certain
other companies in lines of businesses believed by Lazard Freres to be generally
comparable, in whole or in part, to the businesses of Conrail and CSX, and
reviewed the financial terms of certain other business combinations involving
companies in lines of businesses Lazard Freres believes to be generally
comparable in whole or in part to the businesses of Conrail and CSX that have
recently been effected; (vi) reviewed the historical stock prices and trading
volumes of Conrail Common Stock and CSX Common Stock; and (vii) conducted such
other financial studies, analyses and investigations as Lazard Freres deemed
appropriate, certain of which are described below. See "-- Summary of Analyses."
In connection with its review, Lazard Freres relied upon the accuracy and
completeness of the financial and other information concerning Conrail and CSX
that Lazard Freres received, and did not assume any responsibility for
independent verification of such information or any independent valuation or
appraisal of any of the assets of Conrail or CSX, nor did Lazard Freres receive
any such appraisals. With respect to the financial forecasts, Lazard Freres
assumed that they had been reasonably prepared on bases reflecting the best
currently available estimates and judgments of managements of Conrail and CSX as
to the future financial performance of Conrail and CSX, respectively. Lazard
Freres assumed no responsibility for and expressed no view as to such forecasts
or the assumptions upon which they were based. Lazard Freres' opinion stated
that it was based on economic, monetary, market and other conditions as in
effect on, and information made available to it as of, the date of the opinion.
In giving the opinion, Lazard Freres noted that, as the Conrail Board knew,
on October 24, 1996, NSC commenced the Hostile Offer for all of the outstanding
shares of Conrail Common Stock at a price per share of $100 net in cash which
price per Share was increased to $110 on November 8, 1996. Counsel to Conrail
advised the Conrail Board that the fact that the Hostile Offer was subject to,
among other conditions, the termination of the Merger Agreement and that Conrail
was then contractually prohibited from terminating the Merger Agreement pursuant
to Section 4.2(b) thereof, created significant legal uncertainty relating to the
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consummation of the Hostile Offer. Counsel to Conrail further advised the
Conrail Board that under the Pennsylvania Law, in considering a proposed
business combination, the Conrail Board is empowered to take into account the
long-term interests of Conrail and all of its constituencies, not solely the
highest price for the Shares. Accordingly, at the request of the Conrail Board,
in rendering the opinion, Lazard Freres did not address the relative merits of
the transactions contemplated by the Merger Agreement, including said Section
4.2(b), the Hostile Offer or any alternative potential transactions.
Lazard Freres assumed that (i) the transactions described in the Merger
Agreement would be consummated substantially on terms described in the Merger
Agreement, without any waiver of any terms or conditions by Conrail, and that
obtaining the necessary regulatory approvals for such transactions would not
have an adverse affect on CSX or Conrail or on the trading value of the CSX
Common Stock or the CSX Convertible Preferred Stock and (ii) the Merger would
qualify as a reorganization within the meaning of Section 368(a) of the Code.
Lazard Freres was not requested to, and did not, solicit third party offers to
acquire all or part of Conrail.
Opinion of Morgan Stanley -- General
At the December 18, 1996 Conrail Board meeting, Morgan Stanley delivered
its opinion that, as of such date, the consideration to be received by the
shareholders of Conrail in the Offers and the Merger, when taken together, is
fair from a financial point of view to such shareholders (other than CSX, Green
Acquisition Corp. or any other subsidiary of CSX).
A COPY OF THE WRITTEN OPINION OF MORGAN STANLEY IS ATTACHED HERETO AS
APPENDIX B. SHAREHOLDERS ARE URGED TO READ THE FAIRNESS OPINION IN ITS ENTIRETY
FOR INFORMATION WITH RESPECT TO THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY MORGAN STANLEY IN RENDERING THE
FAIRNESS OPINION. REFERENCES TO THE MORGAN STANLEY OPINION HEREIN AND THE
SUMMARY OF SUCH OPINION SET FORTH BELOW ARE QUALIFIED BY APPENDIX B, WHICH IS
INCORPORATED HEREIN BY REFERENCE. MORGAN STANLEY'S FAIRNESS OPINION DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER WITH RESPECT TO WHETHER TO TENDER
SHARES PURSUANT TO THE SECOND OFFER OR TO VOTE IN FAVOR OF THE MERGER OR MAKING
THE PENNSYLVANIA CONTROL TRANSACTION LAW INAPPLICABLE TO CONRAIL AND SHOULD NOT
BE RELIED UPON BY ANY SHAREHOLDER AS SUCH. SUCH OPINION WAS PROVIDED SOLELY IN
CONNECTION WITH THE DECISIONS OF THE CONRAIL BOARD TAKEN ON DECEMBER 18, 1996
AND NO UPDATE TO SUCH OPINION HAS BEEN REQUESTED.
In arriving at its opinion, Morgan Stanley: (i) reviewed certain publicly
available financial statements and other information of Conrail and CSX,
respectively; (ii) reviewed certain internal financial statements and other
financial and operating data concerning Conrail and CSX prepared by the
managements of Conrail and CSX, respectively; (iii) reviewed certain financial
projections for CSX prepared by the management of CSX; (iv) reviewed certain
financial projections, including estimates of certain potential benefits of the
proposed business combination prepared by the management of Conrail; (v)
discussed, on a limited basis, the past and current operations and financial
condition and the prospects of Conrail and CSX with senior executives of Conrail
and CSX, respectively; (vi) reviewed the reported prices and trading activity
for the Conrail Common Stock and the CSX Common Stock; (vii) compared the
financial performance of Conrail and CSX and the prices and trading activity of
Conrail Common Stock and the CSX Common Stock with that of certain other
comparable publicly-traded companies and their securities; (viii) reviewed the
financial terms, to the extent publicly available, of certain comparable
acquisition transactions; (ix) participated in discussions among representatives
of Conrail, CSX and their financial and legal advisors; (x) reviewed the Merger
Agreement and certain related documents; and (xi) performed such other analyses
and considered such other factors as Morgan Stanley deemed appropriate, certain
of which are described below. See "-- Summary of Analyses."
In connection with its review, Morgan Stanley relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Morgan Stanley for the purposes of the opinion. With respect to the
financial projections, including estimates of certain potential benefits of the
Merger, Morgan Stanley assumed that they had been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the future
performance of Conrail and CSX, respectively. Morgan Stanley did not
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make any independent valuation or appraisal of the assets or liabilities of
Conrail or CSX, nor was Morgan Stanley furnished with any such appraisals.
In giving the opinion, Morgan Stanley noted that, as the Conrail Board
knew, on October 24, 1996, NSC commenced the Hostile Offer for all of the
outstanding shares of Conrail Common Stock at a price per share of $100 net in
cash, which price per Share was increased to $110 on November 8, 1996. Counsel
to Conrail advised the Conrail Board that the fact that the Hostile Offer was
subject to, among other conditions, the termination of the Merger Agreement and
that Conrail was then contractually prohibited from terminating the Merger
Agreement pursuant to Section 4.2(b) thereof, created significant legal
uncertainty relating to the consummation of the Hostile Offer. Counsel to
Conrail further advised the Conrail Board that under the Pennsylvania Law, in
considering a proposed business combination, the Conrail Board is empowered to
take into account the long-term interests of Conrail and all of its
constituencies, not solely the highest price for the Shares. Accordingly, at the
request of the Conrail Board, in rendering the opinion, Morgan Stanley did not
address the relative merits of the transactions contemplated by the Merger
Agreement, including said Section 4.2(b), the Hostile Offer or any alternative
potential transactions.
In arriving at its opinion, Morgan Stanley assumed (i) that the Merger
would qualify as a reorganization within the meaning of Section 368(a) of the
Code and (ii) that obtaining all the necessary regulatory and governmental
approvals for the Merger will not have an adverse effect on Conrail, CSX or on
the trading value of the CSX Common Stock or the CSX Convertible Preferred
Stock. Morgan Stanley assumed that the Merger would be consummated substantially
in accordance with the terms set forth in the Merger Agreement, without any
waiver of any material terms or conditions by any party thereto. Morgan
Stanley's opinion stated that it was necessarily based on economic, market and
other conditions as in effect on, and the information made available to it as
of, the date thereof. In arriving at its opinion, Morgan Stanley was not
authorized to solicit, and did not solicit, interest from any party with respect
to the acquisition of Conrail or any of its assets.
Summary of Analyses
The following is a brief summary of the analyses performed by Lazard Freres
and Morgan Stanley (collectively, the "Conrail Financial Advisors") in
connection with rendering their respective opinions as to the fairness of the
consideration to be received by the shareholders of Conrail (other than CSX,
Green Acquisition Corp., or any other subsidiary of CSX) from a financial point
of view and discussed with the Conrail Board at its meeting on December 18,
1996.
The financial analyses used by the Conrail Financial Advisors in arriving
at their respective opinions included: (i) comparable company trading analyses,
which consisted of comparing financial, market and operating performances of
selected publicly traded comparable companies to Conrail; (ii) comparable
transaction analyses, which consisted of reviewing financial aspects of selected
acquisitions of assets or businesses comparable in whole or in part to those of
Conrail; (iii) discounting to the present value projected cash flow forecasted
by Conrail's management; and (iv) a pro forma merger analysis, which compared
the various characteristics, including EPS, dividends per share and book value
per share, of a share of Conrail Common Stock with the characteristics of (a)
shares of CSX Common Stock to be received in exchange for each share of Conrail
Common Stock in the Merger at the Common Stock Conversion Ratio and (b) shares
of CSX Convertible Preferred Stock to be received in exchange for each share of
Conrail Common Stock in the Merger at the Convertible Preferred Stock Conversion
Ratio (assuming the conversion thereof into shares of CSX Common Stock).
The material portions of the foregoing analyses are summarized in more
detail below.
Comparable Company Trading Analysis
Each of the Conrail Financial Advisors performed a separate comparable
company trading analysis.
Lazard Freres. Lazard Freres reviewed and compared certain actual and
estimated financial, operating and stock market information for Conrail, CSX and
companies in lines of business believed by Lazard Freres to be generally
comparable to those of Conrail. Using forecasts prepared by management of
Conrail, Lazard
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Freres noted that Conrail's market capitalization of $8.1 billion (based on a
closing price of $71.00 per share of Conrail Common Stock on October 11, 1996,
the trading day immediately prior to the approval by the Conrail Board of the
Original Merger Agreement and taking into account Conrail's outstanding debt net
of cash) represented 2.1x estimated 1996 revenues, 2.1x estimated 1997 revenues,
7.4x estimated 1996 earnings before interest, taxes, depreciation and
amortization ("EBITDA"), 6.9x estimated 1997 EBITDA, 9.9x estimated 1996
earnings before interest and taxes ("EBIT") and 9.0x estimated 1997 EBIT, while,
at a closing price of $71.00 per share, the Conrail Common Stock was trading at
14.1x estimated 1996 EPS and 12.4x estimated 1997 EPS.
Based on the October 11, 1996 closing price of $49.75 per share of CSX
Common Stock and using publicly available information (and taking into account
CSX's outstanding debt net of cash), Lazard Freres calculated CSX's market
capitalization at $12.8 billion, which represented 1.2x estimated 1996 revenues,
1.1x estimated 1997 revenues, 5.9x estimated 1996 EBITDA, 5.6x estimated 1997
EBITDA, 8.4x estimated 1996 EBIT and 7.9x estimated 1997 EBIT. Lazard Freres
also indicated that, at the $49.75 share price, CSX Common Stock was trading at
12.4x estimated 1996 EPS and 11.2x estimated 1997 EPS.
Lazard Freres believed that, although there were no public companies with
precisely the same mix of businesses and financial condition as Conrail, the
most relevant comparable companies to Conrail were: Burlington Northern Santa Fe
Corporation, Illinois Central Corporation, Kansas City Southern, NSC and Union
Pacific Corporation (collectively, the "Lazard Freres Comparable Companies").
Using publicly available information, Lazard Freres' analysis indicated that (i)
the market capitalization of the Lazard Freres Comparable Companies as a
multiple of estimated 1996 revenues ranged from 2.0x to 3.6x, as a multiple of
estimated 1997 revenues ranged from 1.4x to 3.1x, as a multiple of estimated
1996 EBITDA ranged from 6.4x to 9.2x, as a multiple of estimated 1997 EBITDA
ranged from 5.8x to 8.3x, as a multiple of estimated 1996 EBIT ranged from 9.0x
to 12.8x and as a multiple of estimated 1997 EBIT ranged from 8.1x to 11.5x, and
(ii) the public trading market price per share of the Lazard Freres Comparable
Companies, as a multiple of estimated 1996 earnings per share ranged from 12.0x
to 16.6x and as a multiple of estimated 1997 EPS ranged from 11.8x to 13.9x.
Lazard Freres indicated that, assuming that Conrail shareholders received
$110.00 per share for 40% of the Shares and received shares of CSX Common Stock
and CSX Convertible Preferred Stock for 60% of the Shares (which cash, CSX
Common Stock and CSX Convertible Preferred Stock components collectively
translated into $103.72 per share of Conrail Common Stock (the "Assumed
Consideration Per Share") based on an exchange ratio of 1.85619 and the closing
price of $45.00 per share of CSX Common Stock on December 17, 1996, the day
immediately preceding Conrail's Board meeting held to approve the Merger), the
Assumed Consideration Per Share implied an aggregate transaction value of $11.6
billion (including Conrail's outstanding debt net of cash), which represented
multiples of: 3.1x estimated 1996 revenues, 3.0x estimated 1997 revenues, 10.2x
estimated 1996 EBITDA, 9.6x estimated 1997 EBITDA, 13.5x estimated 1996 EBIT and
12.4x estimated 1997 EBIT, and noted that the Assumed Consideration Per Share
was also 20.5x Conrail's estimated 1996 EPS and 18.1x Conrail's estimated 1997
EPS.
Morgan Stanley. Morgan Stanley reviewed and compared certain actual and
estimated financial, operating and stock market information for Conrail, CSX and
companies in lines of business believed by Morgan Stanley to be generally
comparable to those of Conrail. Using forecasts prepared by management of
Conrail, Morgan Stanley noted that Conrail's market capitalization of $8.2
billion (based on a closing price of $71.00 per share of Conrail Common Stock on
October 11, 1996, the trading day immediately prior to the approval by the
Conrail Board of the Original Merger Agreement and taking into account Conrail's
outstanding debt net of cash) represented 8.3x historical EBITDA and 11.7x
historical EBIT, while, at a closing price of $71.00 per share, the Conrail
Common Stock was trading at 12.3x estimated 1997 EPS.
Based on the October 11, 1996 closing price of $49.75 per share of CSX
Common Stock and using publicly available information (and taking into account
CSX's outstanding debt net of cash), Morgan Stanley calculated CSX's market
capitalization at $12.8 billion, which represented 6.0x historical EBITDA and
8.5x historical EBIT. Morgan Stanley also indicated that, at the $49.75 share
price, CSX Common Stock was trading at 11.3x estimated 1997 EPS.
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Morgan Stanley believed that, although there were no public companies with
precisely the same mix of businesses and financial condition as Conrail, the
most relevant comparable companies to Conrail were: Burlington Northern Santa Fe
Corporation, Norfolk Southern Corp., Union Pacific Corporation, Illinois Central
Corporation, Kansas City Southern Industries, Railtex, Inc. and Wisconsin
Central Transportation Corporation (collectively the "Morgan Stanley Comparable
Companies"). Using publicly available information, Morgan Stanley's analysis
indicated that (i) the market capitalization of the Morgan Stanley Comparable
Companies as a multiple of historical EBITDA ranged from 7.7x to 22.0x and as a
multiple of historical EBIT ranged from 10.4x to 25.5x and (ii) the public
trading market price per share of the Morgan Stanley Comparable Companies as a
multiple of estimated 1997 EPS ranged from 11.7x to 21.6x.
Morgan Stanley indicated that the Assumed Consideration Per Share being
paid to Conrail shareholders pursuant to the Merger implied an aggregate
transaction value of $11.6 billion (including Conrail's outstanding debt net of
cash), which represented multiples of: 10.2x estimated 1996 EBITDA, 9.6x
estimated 1997 EBITDA, 13.5x estimated 1996 EBIT and 12.4x estimated 1997 EBIT,
and noted that the Assumed Consideration Per Share was also 18.1x Conrail's
estimated 1997 EPS.
Comparable Transaction Analysis
Each of the Conrail Financial Advisors performed a separate comparable
transaction analysis.
Lazard Freres. Using publicly available information, Lazard Freres
reviewed certain financial aspects of selected mergers and acquisitions
transactions in the U.S. railroad industry involving acquisitions of assets or
businesses comparable in whole or in part to those of Conrail, including
Illinois Central Corporation's letter of intent to acquire Kansas City Southern
Railway and certain related assets (which was ultimately terminated), Kansas
City Southern Industries' acquisition of MidSouth Corporation, Union Pacific
Corporation's acquisition of Chicago and North Western Transportation Company,
and Burlington Northern Inc.'s acquisition of Santa Fe Pacific Corporation
(collectively, the "Lazard Freres Comparable Transactions"). Lazard Freres noted
that these transactions were announced within the past four years and further
noted that the acquisition of Southern Pacific Rail Corporation by Union Pacific
Corporation was not relevant because of the poor performance of Southern Pacific
Rail Corporation. Among the ratios reviewed by Lazard Freres in connection with
this analysis were the total transaction values as a multiple of historical
EBITDA, of historical EBIT and of historical revenues. The historical EBITDA
multiples of the Lazard Freres Comparable Transactions ranged from 8.2x to 9.0x,
the historical EBIT multiples ranged from 11.4x to 12.3x and the historical
revenues multiples ranged from 1.9x to 3.4x. These multiples were compared with
the Conrail multiples of 10.2x estimated 1996 EBITDA, 13.5x estimated 1996 EBIT
and 3.1x estimated 1996 revenues at an assumed aggregate transaction value for
the Offers and Merger of $11.6 billion (based on the Assumed Consideration Per
Share and including Conrail's debt net of cash). Lazard Freres also noted that
the multiples of price per share to historical EPS for the Lazard Freres
Comparable Transactions ranged from 18.8x to 32.6x as compared with multiples of
20.5x Conrail's estimated 1996 EPS based on the Assumed Consideration Per Share.
In addition, Lazard Freres analyzed the implied premiums over the one-month
pre-announcement share price for each of the Lazard Freres Comparable
Transactions. The premiums ranged from 59.1% to 90.7% in the Lazard Freres
Comparable Transactions compared to an implied premium to the holders of Conrail
Common Stock of 46.1% over $71.00 per share, the closing price of shares of
Conrail Common Stock on October 11, 1996 (the trading day immediately prior to
the approval by the Conrail Board of the Original Merger Agreement) and 34.2%
over the all time high for shares of Conrail Common Stock prior to the
announcement of the Merger of $77.25 per share.
Morgan Stanley. Using publicly available information, Morgan Stanley
reviewed certain financial aspects of selected mergers and acquisitions
transactions in the U.S. railroad industry which had been announced since 1987
involving acquisitions of assets or businesses comparable in whole or in part to
those of Conrail, including Illinois Central Corporation's letter of intent to
acquire Kansas City Southern Railway and certain related assets (which was
ultimately terminated), Union Pacific Corporation's acquisition of Chicago and
North Western Transportation Company, Union Pacific Corporation's acquisition of
Southern Pacific
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Rail Corporation, Burlington Northern's acquisition of Santa Fe Pacific
Corporation, Kansas City Southern Industries' acquisition of MidSouth
Corporation, Canadian Pacific Ltd.'s acquisition of Soo Line Corporation, a
group led by Blackstone Capital Partners L.P.'s acquisition of Chicago and North
Western Transportation Company, Prospect Group, Inc.'s acquisition of Illinois
Central Transportation Company and Rio Grande Industries, Inc.'s acquisition of
SP Transportation Company from Santa Fe Pacific Corporation (collectively, the
"Morgan Stanley Comparable Transactions"). Among the ratios reviewed by Morgan
Stanley in connection with this analysis (where such ratios were available) were
the total transaction values as a multiple of historical EBITDA, of historical
EBIT and of historical revenues. The historical EBITDA multiples of the Morgan
Stanley Comparable Transactions ranged from 5.7x to 15.7x, the historical EBIT
multiples ranged from 7.4x to 26.9x and the historical revenues multiple ranged
from .8x to 3.6x. These multiples were compared with the Conrail multiples of
10.2x estimated 1996 EBITDA, 13.5x estimated 1996 EBIT and 3.1x estimated 1996
revenues at an assumed aggregate transaction value for the Offers and Merger of
$11.6 billion (based on the Assumed Consideration Per Share and including
Conrail's debt net of cash).
In addition, Morgan Stanley analyzed the implied premiums over the
unaffected, pre-announcement share price for each of the Morgan Stanley
Comparable Transactions. The median premium paid was 34% in the Morgan Stanley
Comparable Transactions compared to an implied premium to the holders of Conrail
Common Stock of 46.1% over $71.00, the closing price of shares of Conrail Common
Stock on October 11, 1996 (the trading day immediately prior to the approval by
the Conrail Board of the Original Merger Agreement) and 34.2% over the all time
high for shares of Conrail Common Stock prior to the announcement of the Merger
of $77.25 per share.
Discounted Cash Flow Analysis
Each of the Conrail Financial Advisors performed a separate discounted cash
flow analysis.
Lazard Freres. Based upon forecasts prepared by management of Conrail and
certain extrapolations thereof, Lazard Freres performed an analysis of the net
present value of the future cash flows of Conrail's business. In conducting this
analysis, Lazard Freres assumed discount rates ranging from 11.0% to 12.0% and
terminal value multiples ranging from 8x to 9x EBITDA. This analysis indicated,
based upon management estimates and certain extrapolations thereof and using the
discount rates and terminal values noted above, a discounted cash flow valuation
for Conrail as a stand-alone company of between $75.00 and $90.00 per share of
Conrail Common Stock.
In addition, Lazard Freres performed an analysis of the net present value
of the potential cost savings and revenue enhancements anticipated by the
managements of Conrail and CSX to be realized following the Merger net of
implementation costs and expected incremental capital expenditures. In
conducting this analysis, Lazard Freres assumed discount rates ranging from
11.0% to 12.0% and perpetual growth rates ranging from 3.0% to 5.0%. This
analysis indicated, based upon management estimates and using the discount rates
and perpetual growth rates described above, a net present value of the potential
cost savings and revenue enhancements for the Combined Company, assuming
consummation of the Merger, of between $2.6 billion and $3.6 billion.
Morgan Stanley. Based upon forecasts prepared by management of Conrail and
certain extrapolations thereof, Morgan Stanley performed a 10-year discounted
cash flow analysis. In conducting this analysis, Morgan Stanley assumed discount
rates ranging from 11.0% to 12.0% and perpetual growth rates ranging from 3.0%
to 5.0%. This analysis indicated, based upon management estimates and certain
extrapolations thereof and using the discount rates and perpetual growth rates
noted above, a discounted cash flow valuation of between $67.00 and $83.00 per
share of Conrail Common Stock. In performing its discounted cash flow analysis,
Morgan Stanley did not give effect to the potential cost savings and revenue
enhancements anticipated by managements of Conrail and CSX to be realized
following the Merger.
Pro Forma Merger Analysis
The Conrail Financial Advisors compared the various characteristics,
including EPS, dividends per share and book value per share, of a share of
Conrail Common Stock with the characteristics of (a) shares of CSX Common Stock
to be received in the Merger at the Common Stock Conversion Ratio and (b) the
CSX Convertible Preferred Stock to be received in the Merger at the Convertible
Preferred Stock Conversion Ratio
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(assuming the conversion thereof into CSX Common Stock). In addition, pursuant
to the terms of the Merger Agreement, Conrail shareholders would receive $110.00
in cash for 40% of the Shares, or $44.00 in cash per Share. After taking into
account (i) the potential cost savings and revenue enhancements anticipated by
the managements of Conrail and CSX to be realized following the Merger (which
the Conrail Financial Advisors assumed for purpose of their analyses would not
be phased in until January 1, 1998), (ii) certain operating and capital
expenditure assumptions included in the Conrail and CSX business plans, (iii)
the use of the purchase method of accounting for the Merger, (iv) the Offers and
(v) certain post Merger expenses (provided that the EPS calculations are made
before one-time Merger related restructuring charges), the Conrail Financial
Advisors observed that the Merger would provide, from Conrail's shareholders
point of view: pro forma EPS accretions of approximately 24.7% in 1997, 49.6% in
1998, 64.1% in 1999 and 70.0% in 2000; a pro forma dividend per share accretion
of 17.5% (at the current indicated dividend levels); and a book value per share
accretion of 95.3% (as of an assumed closing date for the Merger, for purposes
of this analysis, of December 31, 1996).
Other Factors and Analyses
In rendering their respective opinions, the Conrail Financial Advisors
considered various other factors and conducted certain additional analyses,
including, among other things, a review of the history of trading prices and
volumes for Conrail Common Stock and CSX Common Stock, the relationship between
movements of such securities and movements in the S&P Railroad Index and the S&P
Industrials Index, and the impact of the Offers on CSX.
Special Considerations
In arriving at their respective opinions, the Conrail Financial Advisors
performed a variety of financial analyses, the material portions of which are
summarized above. The summary set forth above does not purport to be a complete
description of the analyses performed by the Conrail Financial Advisors. In
addition, the Conrail Financial Advisors believe that their analyses must be
considered as a whole and that selecting portions of their analyses and of the
factors considered by them, without considering all such factors and analyses,
could create a misleading view of the process underlying such analyses set forth
in their respective opinions. The matters considered by the Conrail Financial
Advisors in arriving at their respective opinions are based on numerous
macroeconomic, operating and financial assumptions with respect to industry
performance, general business, regulatory and economic conditions and other
matters, many of which are beyond the control of Conrail and CSX. Any estimates
incorporated in the analyses performed by the Conrail Financial Advisors are not
necessarily indicative of actual past or future results or values, which may be
significantly more or less favorable than such estimates. Estimated values do
not purport to be appraisals and do not necessarily reflect the prices at which
businesses or companies may be sold in the future. Because such estimates are
inherently subject to uncertainty, neither the Conrail Financial Advisors,
Conrail nor any other person assumes responsibility for their accuracy. Arriving
at a fairness opinion is a complex process, not necessarily susceptible to
partial summary or description. No company utilized as a comparison is identical
to Conrail or CSX or the business segment for which a comparison is being made.
Accordingly, an analysis of comparable companies and comparable business
combinations resulting from the transactions is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the comparable companies and other
factors that could affect the value of the comparable companies or company to
which they are being compared.
Certain Additional Information
The Conrail Board selected Lazard Freres as its financial advisor on the
basis of Lazard Freres' expertise and its reputation in investment banking and
mergers and acquisitions and because the members of senior management of Lazard
Freres have substantial experience in transactions similar to the Merger and are
familiar with Conrail and its business. Lazard Freres is an internationally
recognized investment banking firm and is continually engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private
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placements, leveraged buyouts, and valuations for estate, corporate and other
purposes. Lazard Freres has in the past provided and is currently providing
investment banking and financial advisory services to Conrail and has received
customary fees for rendering such services. Lazard Freres has in the past also
provided investment banking and financial advisory services to CSX and has
received customary fees for rendering such services. In the ordinary course of
business, Lazard Freres and its affiliates may actively trade the debt and
equity securities of CSX and Conrail and their respective affiliates for their
own account and for the accounts of customers, and, accordingly, may at any time
hold a long or short position in such securities.
The Conrail Board selected Morgan Stanley as its financial advisor because
it is an internationally recognized investment banking firm, and the members of
senior management of Morgan Stanley have substantial experience in transactions
similar to the Merger and are familiar with Conrail and its business. Morgan
Stanley is an investment banking firm engaged in, among other things, the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placement and
valuations for corporate and other purposes. Morgan Stanley and its affiliates
have rendered from time to time various investment banking, financial advisory
and financing services to Conrail and CSX, and have received customary fees and
reimbursement of expenses for such services. In the ordinary course of business,
Morgan Stanley and its affiliates may actively trade the debt and equity
securities of CSX and Conrail and their respective affiliates for their own
account and for the accounts of customers, and, accordingly, may at any time
hold a long or short position in such securities.
In connection with Lazard Freres' services as financial advisor to Conrail,
Conrail has agreed to pay Lazard Freres a cash fee equal to .17% of the
aggregate consideration received by the holders of shares of Conrail Common
Stock, $2,750,000 of which was paid upon the execution of the Merger Agreement,
$3,750,000 of which is payable upon the receipt of the requisite approvals of
the shareholders of Conrail and CSX, and the balance of which is payable upon
consummation of the Merger. In connection with Morgan Stanley's services as
financial advisor to Conrail, Conrail has agreed to pay Morgan Stanley a cash
fee equal to .13% of the aggregate consideration received by holders of shares
of Conrail Common Stock, $2,000,000 of which was paid at the time the Merger
Agreement was executed, $3,750,000 of which is payable on the date of a Conrail
shareholder vote in favor of the Merger, and the balance of which is payable
upon consummation of the Merger. Conrail has also agreed to reimburse Lazard
Freres and Morgan Stanley for their usual and customary expenses, including, but
not limited to, the fees of counsel, and to indemnify Lazard Freres and Morgan
Stanley and certain related parties against certain liabilities, including
liabilities arising under the federal securities laws.
RECOMMENDATION OF THE CSX BOARD
At meetings held on October 13, 1996, November 5, 1996, and December 17,
1996, the CSX Board unanimously (i) determined that the Merger is advisable and
in the best interests of CSX and its shareholders and (ii) approved the terms of
the Merger Agreement and related transactions (each as contemplated on the date
of such approval) and recommended approval of each of the CSX Proposals by CSX
shareholders.
In making the determinations and recommendations set forth above, the CSX
Board considered a number of factors, including, without limitation, the
following:
(i) the Wasserstein Perella opinions to the effect that the
consideration to be paid by CSX in the Offers and the Merger as
contemplated by the Merger Agreement (as contemplated on the date of such
opinions), taken together, is fair to CSX from a financial point of view;
(ii) the CSX Board's view that the Merger would result in significant
efficiencies, operating benefits and commercial and other synergies that
would benefit CSX and its customers and be in the public interest, and,
accordingly, that CSX's shareholders would also benefit greatly from such
efficiencies, benefits and synergies;
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(iii) the impact of the Merger on CSX's competitive posture, including
the enhanced ability to compete for transportation business which might
otherwise be served by trucking concerns;
(iv) the benefits that the Merger would provide to the customers of
CSX and Conrail, including providing them with the benefits of efficient
high-quality service from a more comprehensive rail system with more points
of origin and more new single-line and integrated transportation services,
and with a rail company with the financial strength to support substantial
capital investment in the railroad system;
(v) the benefits that the Merger would provide to the public through
increased public safety and improved air quality due to, among other
things, the resulting improvements in the principal alternative to truck
movement over heavily-congested highways; and
(vi) information with regard to the financial condition, results of
operations, business and prospects of CSX, the regulatory approvals
required to consummate the Merger, as well as current economic and market
conditions (including current conditions in the industry in which CSX is
engaged).
The foregoing discussion of the information and factors considered and
given weight by the CSX Board is not intended to be exhaustive but includes all
material factors considered by the CSX Board. In addition, in reaching the
determination to approve and recommend the Merger and related transactions, the
CSX Board did not assign any relative or specific weights to the foregoing
factors.
OPINION OF FINANCIAL ADVISOR TO CSX
Wasserstein Perella was retained to act as CSX's financial advisor in
connection with the Offers and the Merger and related matters based on
Wasserstein Perella's qualifications, expertise, reputation and experience with
respect to transactions similar to those contemplated by the Merger Agreement,
as well as on Wasserstein Perella's prior relationship and familiarity with CSX.
Wasserstein Perella delivered its opinion to the CSX Board on October 13, 1996
that, as of the date of such opinion, the then applicable offer price of $92.50
per share of Conrail Common Stock and Conrail ESOP Preferred Stock and the
Merger Consideration, taken together, were fair to CSX from a financial point of
view. See "-- Background of the Merger." Wasserstein Perella subsequently
rendered an oral opinion to the CSX Board on November 5, 1996 and again on
December 17, 1996 (which opinion was subsequently confirmed in writing) that, as
contemplated on the relevant dates, the Offer Price and the Merger
Consideration, taken together, were fair to CSX from a financial point of view.
A COPY OF THE WRITTEN WASSERSTEIN PERELLA OPINION DATED DECEMBER 18, 1996
IS ATTACHED AS APPENDIX C TO THIS JOINT PROXY STATEMENT/PROSPECTUS. SHAREHOLDERS
ARE URGED TO READ THE WASSERSTEIN PERELLA OPINION IN ITS ENTIRETY FOR
INFORMATION WITH RESPECT TO THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITS OF THE REVIEW UNDERTAKEN BY WASSERSTEIN PERELLA IN
RENDERING THE WASSERSTEIN PERELLA OPINION. REFERENCES TO THE WASSERSTEIN PERELLA
OPINION AND THE SUMMARY OF THE WASSERSTEIN PERELLA OPINION HEREIN ARE QUALIFIED
BY REFERENCE TO THE FULL TEXT OF THE WASSERSTEIN PERELLA OPINION, WHICH IS
INCORPORATED HEREIN BY REFERENCE. THE WASSERSTEIN PERELLA OPINION IS DIRECTED
ONLY TO THE FAIRNESS FROM A FINANCIAL POINT OF VIEW TO CSX OF THE OFFER PRICE
AND THE MERGER CONSIDERATION, TAKEN TOGETHER, AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW TO VOTE AT THE CSX MEETING AND
SHOULD NOT BE RELIED UPON BY ANY SHAREHOLDER AS SUCH. THE WASSERSTEIN PERELLA
OPINION WAS PROVIDED SOLELY IN CONNECTION WITH THE DECISIONS OF THE CSX BOARD
TAKEN ON DECEMBER 17, 1996 AND NO UPDATE TO SUCH OPINION HAS BEEN REQUESTED.
In connection with rendering the Wasserstein Perella Opinion, Wasserstein
Perella reviewed, among other things, (i) the Merger Agreement, (ii) the Offer
to Purchase, dated October 16, 1996, of CSX (including amendments and the
supplement thereto), (iii) the Second Offer to Purchase, dated December 6, 1996,
of CSX (including amendments and supplement thereto), (iv) certain public
filings made by CSX and Conrail, including filings made in connection with the
Offers, (v) certain publicly available business and financial information
relating to CSX and Conrail for recent years and interim periods to the date of
such opinion, (vi) certain internal financial and operation information,
including financial forecasts, prepared by or on behalf of CSX and Conrail and
provided to Wasserstein Perella for purposes of its analysis, (vii) certain
financial and stock market data relating to CSX and Conrail, and (viii) the
financial terms of certain recent
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acquisitions and business combinations which Wasserstein Perella believed to be
reasonably comparable to the transactions contemplated by the Merger Agreement
(the "Transactions") or otherwise relevant to its inquiry. Wasserstein Perella
also noted the existence of, and the price per share offered for the Conrail
Common Stock and Conrail ESOP Preferred Stock in, the Hostile Offer.
Prior to rendering the Wasserstein Perella Opinion, Wasserstein Perella
also held discussions with members of the senior management of CSX and Conrail
to review and discuss the information reviewed by Wasserstein Perella, and,
among other matters, CSX's and Conrail's respective businesses, operations,
assets, financial condition and future prospects. Wasserstein Perella considered
the views of the senior management of CSX regarding the strategic importance of,
and potential cost savings and other operating efficiencies expected to result
from, consummation of the Merger. Wasserstein Perella compared the expected
synergies with those realized and reported in other recent acquisitions and
business combinations which Wasserstein Perella believed to be reasonably
comparable to the Transactions.
Wasserstein Perella assumed and relied upon the accuracy and completeness
of all the financial and other information provided to or discussed with it or
publicly available, and it did not assume any responsibility for independent
verification of any such information. Wasserstein Perella also relied upon the
reasonableness and accuracy of the financial forecasts (including estimates of
the cost savings and other operating efficiencies expected to result from the
consummation of the Merger) provided to it, and Wasserstein Perella has assumed,
with CSX's consent, that the financial forecasts and estimates provided to it
were reasonably prepared in good faith and on bases reflecting the best
currently available judgments and estimates of the managements of CSX and
Conrail. Wasserstein Perella expresses no opinion with respect to such forecasts
or estimates or the assumptions upon which they are based.
In addition, Wasserstein Perella has not reviewed any of the books and
records of CSX or Conrail or assumed any responsibility for conducting a
physical inspection of the properties or facilities of CSX or Conrail, or for
making or obtaining an independent valuation or appraisal of the assets or
liabilities of CSX or Conrail and Wasserstein Perella has not been furnished any
such valuation or appraisal. The Wasserstein Perella Opinion also assumes that
the Offers and the Merger will be consummated on the terms set forth in the
Merger Agreement, without any waiver of the terms and conditions thereof by CSX.
The Wasserstein Perella Opinion is necessarily based on economic and market
conditions and other circumstances as they exist and can be evaluated by
Wasserstein Perella as of the date thereof. The Wasserstein Perella Opinion also
assumes, with CSX's consent and without independent inquiry, that all regulatory
and other approvals required to consummate the Offers and the Merger will be
received in the manner contemplated in the Merger Agreement, and that, in the
course of obtaining such approvals, no restrictions will be imposed that will
have a material adverse effect on the contemplated benefits of the Merger to
CSX.
The Wasserstein Perella Opinion addresses only the fairness from a
financial point of view to CSX of the Offer Price and the Merger Consideration,
taken together, to be paid by CSX pursuant to the Merger Agreement. Wasserstein
Perella does not express any views on any other terms of the Transactions.
Specifically, the Wasserstein Perella Opinion does not address CSX's underlying
business decision to effect the Transactions.
Set forth below is a summary of certain of the financial analyses used by
Wasserstein Perella in connection with providing its opinion to the CSX Board on
October 13, 1996, November 5, 1996 and December 17, 1996.
(i) Pro Forma Merger Analysis. Wasserstein Perella prepared pro forma
analyses of the financial impact of the Merger on CSX (assuming
consummation of the Offers and payment of the Merger Consideration),
relying on financial projections prepared by the management of both CSX and
Conrail and on estimates made (as of the relevant dates) by management of
both CSX and Conrail of the relative cost savings, revenue enhancements and
other operating efficiencies (net of incremental costs) expected to result
from consummation of the Merger. The synergies expected to result from the
Merger are estimated to total $730 million. Based on the number of shares
of CSX Common Stock outstanding as of December 17, 1996 and the CSX
securities to be issued in the Merger, Wasserstein Perella determined that
CSX shareholders would own approximately 67% of the pro forma combined
entity after the Merger.
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In addition, Wasserstein Perella compared the EPS of CSX Common Stock on a
stand-alone basis to the EPS of the common stock of the combined company on
a pro forma basis. Such analyses were prepared for the years 1997, 1998,
1999 and 2000. These analyses showed that the Merger would provide EPS
dilution to holders of CSX Common Stock for the years 1997 and 1998, and
accretion in the years 1999 and 2000, after taking into account the
synergies expected to be realized in each year.
(ii) Selected Companies Analysis. Wasserstein Perella reviewed
certain financial information relating to CSX and Conrail and compared it
to corresponding financial information, ratios and public market multiples
for three publicly-traded corporations: Burlington Northern Santa Fe,
Norfolk Southern Corporation and Union Pacific Corporation (the "Selected
Companies"). The Selected Companies were chosen because they are
publicly-traded companies with operations that, for purposes of analysis,
may be considered to be similar to the operations of Conrail. Wasserstein
Perella's analysis incorporated, among other things, the price to earnings
ratio for the Selected Companies, using estimated 1996 and 1997 earnings
(based on mean estimates from First Call as of October 11, 1996). First
Call is a data service which monitors and publishes a compilation of
earnings estimates produced by selected research analysts on companies of
interest to investors.
Wasserstein Perella's analysis also incorporated Enterprise Value as a
multiple of forecasted 1996 and 1997 EBITDA and EBIT. Wasserstein Perella
noted that the Offer Price and the Merger Consideration, taken together, to
be paid by CSX would be within the implied valuation ranges.
No company considered in Wasserstein Perella's analysis is identical
to CSX or Conrail. Accordingly, an analysis of the results of Wasserstein
Perella's analysis necessarily involves certain considerations and
judgments concerning differences in the financial and operating
characteristics of Conrail and other factors which could affect the implied
public trading value of the Selected Companies to which it is being
compared.
(iii) Selected Acquisitions Analysis. Wasserstein Perella reviewed
and analyzed certain financial information based on selected mergers and
acquisitions in the railroad industry. Wasserstein Perella considered (a)
the multiples of Enterprise Value to EBITDA and to EBIT, (b) the multiples
of Equity Value to net income and (c) the effective premium offered to
shareholders of the target companies over the stock price prevailing four
weeks prior to the announcement of each transaction, in each case in
certain recent mergers and acquisitions, and principally those between
Burlington Northern and Santa Fe and between Union Pacific and Southern
Pacific. Wasserstein Perella also considered the offer of Union Pacific for
Santa Fe which was not consummated. Based on an analysis of those
transactions, multiples of latest twelve-month ("LTM") EBITDA, LTM EBIT,
LTM net income and the effective premium (as compared with unaffected
market prices of target company stocks) were applied to Conrail's
corresponding year-end information to suggest per share equity value
ranges. Wasserstein Perella also compared the estimated synergies expected
to be realized in the Merger with those synergies reported and realized in
certain recent transactions considered to be reasonably comparable to the
Merger. Wasserstein Perella noted that the Offer Price and the Merger
Consideration, taken together, to be paid by CSX would be within the
implied valuation ranges, after adjustments made to give effect to
estimated synergies.
As used in the Wasserstein Perella analysis: (i) "Enterprise Value"
means the fully-diluted equity value of the transaction plus net debt and
(ii) "Equity Value" means the fully-diluted equity value of the
transaction.
No transaction utilized in this analysis is identical to the Merger.
Accordingly, an analysis of the results of the foregoing necessarily
involves certain considerations and judgments concerning differences in the
financial and operating characteristics of Conrail and certain other
factors which could affect the derived values of the transactions to which
the Merger is being compared.
(iv) Discounted Cash Flow Analysis. Wasserstein Perella performed a
discounted cash flow analysis to calculate a present value of the Unlevered
Free Cash Flows that Conrail is expected to generate in accordance with
certain financial forecasts prepared by Conrail management, as well as
certain other forecasts for Conrail developed by unaffiliated third parties
including First Call and selected
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equity research analysts. This analysis was performed with respect to
Conrail's Unlevered Free Cash Flows on two bases -- one which did not take
into account any of the cost savings and other operating efficiencies
expected to result from the Merger, and one which allocated a portion of
such synergies to Conrail on a stand-alone basis. Assumptions with regard
to synergies expected to be realized, for the purposes of this analysis,
were identical to the assumptions made in developing the Pro Forma Merger
Analysis described above. To arrive at valuations of Conrail's Unlevered
Free Cash Flows over a 10-year projection period commencing in 1997,
Wasserstein Perella discounted such estimated cash flows using an
appropriate range of discount rates. To such present values, Wasserstein
Perella added the discounted terminal values using an appropriate exit
multiple range of EBITDA, assuming the relevant discount rate ranges.
Wasserstein Perella noted that the Offer Price and the Merger
Consideration, taken together, to be paid by CSX would be within the
implied valuation ranges.
As used in the Wasserstein Perella analysis "Unlevered Free Cash
Flows" means EBIT less taxes plus depreciation and amortization and other
non-cash items minus capital expenditures and net changes in working
capital.
(v) Historical Stock Trading Analysis. Wasserstein Perella reviewed
the historical price trading performance of CSX Common Stock and Conrail
Common Stock, on both a monthly and weekly basis, in the three years prior
to the execution of the Merger Agreement, and the relationship between
movements of such common stock and movements in a composite index (the
"Index") composed of the following companies selected by Wasserstein
Perella: Burlington Northern Santa Fe, Norfolk Southern and Union Pacific.
This analysis showed that both CSX and Conrail slightly underperformed the
Index from the period of October 1993 through September 1996, on a monthly
basis, that CSX outperformed the Index from the period of October 16, 1995
through October 11, 1996, on a weekly basis, and that Conrail
underperformed the Index from the period of October 16, 1995 through
October 11, 1996, on a weekly basis. No comparison was made for the period
after October 11, 1996 due to the distorting effects of subsequent events,
including the execution of the Merger Agreement.
In addition to the above outlined analyses, Wasserstein Perella performed
such other valuation analyses as it deemed appropriate in determining the
fairness to CSX of the Offer Price and the Merger Consideration, taken together,
from a financial point of view. Wasserstein Perella concluded that, in its
judgment, as of the relevant dates, the Offer Price and the Merger
Consideration, taken together, are fair to CSX from a financial point of view.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Wasserstein Perella's opinion. In arriving at its determination of
fairness, Wasserstein Perella considered the results of all such analyses, as
well as other analyses, factors and considerations. No company or transaction
used in the above analyses as a comparison is identical to CSX or Conrail or the
contemplated Transactions. The analyses were prepared solely for purposes of
Wasserstein Perella's providing its opinion to the CSX Board as to the fairness
to CSX from a financial point of view of the Offer Price and the Merger
Consideration, taken together, and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may be
sold or traded, as the case may be. Analyses based upon forecasts of future
results, including those made by the respective managements of CSX and Conrail,
are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. As
described above, Wasserstein Perella's opinions and presentations to the CSX
Board were two of many factors taken into consideration by the CSX Board in
making its determination to approve the Merger Agreement.
Wasserstein Perella, as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements, and valuations for estate, corporate and other purposes. Wasserstein
Perella is familiar with CSX, having provided financial advisory services to CSX
with respect to various strategic alternatives that have been considered by CSX
since the commencement of Wasserstein Perella's engagement by CSX in 1994. In
continuation of such
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engagement, Wasserstein Perella acted as financial advisor with respect to, and
participated in certain of the negotiations leading to, the Merger Agreement.
Wasserstein Perella, through an affiliate, has also acted as dealer manager in
connection with the Offers.
Pursuant to a letter agreement, dated October 14, 1996 (the "Engagement
Letter"), CSX engaged Wasserstein Perella to act as its financial advisor in
connection with the Offers, the Merger and with respect to certain other
potential transactions. Pursuant to the terms of the Engagement Letter, CSX has
agreed to pay Wasserstein Perella for its services in connection with the Offers
and the Merger an aggregate fee of $19 million (the "Transaction Fee"). The
first $2.85 million of the Transaction Fee was payable upon the public
announcement of the execution of the Merger Agreement. An additional $2.85
million of the Transaction Fee was payable upon the consummation of the First
Offer. An additional $5.7 million of the Transaction Fee will be payable upon
the approval of the CSX Proposals and of the Merger Agreement by the
shareholders of CSX and Conrail, respectively. The remaining unpaid balance of
the Transaction Fee will be payable upon the closing of the Merger. If the
Merger Agreement is terminated or abandoned prior to the consummation of an
acquisition transaction, and CSX or Green Acquisition Corp. receives a
termination fee in connection with such termination or abandonment, then,
immediately following CSX's receipt of such termination fee, Wasserstein Perella
will receive an additional fee of $5 million; provided that such additional fee
shall have credited against it certain prior payments. CSX has agreed to
reimburse Wasserstein Perella for its out-of-pocket expenses, including the fees
and expenses of its legal counsel, incurred in connection with its engagement,
and to indemnify Wasserstein Perella against certain liabilities and expenses,
including certain liabilities under the federal securities laws. Wasserstein
Perella has also been retained to act as dealer manager in the Offers. The fees
described above include Wasserstein Perella's fees for serving as dealer
manager.
Wasserstein Perella has rendered various investment banking and other
advisory services to CSX and its affiliates in the past and may render such
services in the future, for which it has received, and may continue to receive,
customary compensation from CSX and its affiliates. In the ordinary course of
business, Wasserstein Perella and its affiliates may actively trade the debt and
equity securities of CSX and Conrail and their respective affiliates for their
own account and for the accounts of customers, and, accordingly, may at any time
hold a long or short position in such securities. As of January 6, 1997,
Wasserstein Perella held no short or long positions in any securities of either
CSX or Conrail for its own account.
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THE MERGER
The following describes the material aspects of the proposed Merger. The
following summary of certain aspects of the Merger Agreement does not purport to
be complete and is qualified in its entirety by reference to the Merger
Agreement, a copy of which has been provided in Appendix A hereto, and to the
Option Agreements and the Voting Trust Agreement, which have been filed as
exhibits to the Registration Statement and are incorporated herein by reference.
All shareholders are urged to read the Merger Agreement and such other
agreements in their entirety.
THE MERGER AGREEMENT
The Offers. The Merger Agreement provides for the commencement and
consummation of a tender offer (the "First Offer") by Green Acquisition Corp.,
on the terms and subject to the conditions applicable thereto, at a price of
$110 per Share net to the seller in cash (the "First Offer Price"). As stated
under "BACKGROUND AND REASONS -- Background of the Merger," the First Offer was
consummated upon the First Offer Expiration Date, and the 17,860,124 Shares
purchased thereunder were deposited into the Voting Trust.
The Merger Agreement further provides for the commencement and, subject to
Subchapter E of Chapter 25 (the "Pennsylvania Control Transaction Law") of the
Pennsylvania Law being inapplicable to Conrail, consummation of a tender offer
(the "Second Offer," and, together with the First Offer, the "Offers") by Green
Acquisition Corp., on the terms and subject to the conditions applicable
thereto, at a price (the "Second Offer Price" or the "Offer Price") of not less
than $110 per Share net to the seller in cash. As stated under "BACKGROUND AND
REASONS -- Background of the Merger," the Second Offer was commenced on December
6, 1996.
The Merger. The Merger will be effected through two transactions. First,
subject to the terms and conditions of the Merger Agreement and in accordance
with the Pennsylvania Law, Green Merger Corp., a wholly owned subsidiary of
Green Acquisition Corp., will merge with and into Conrail in a transaction in
which each Conrail shareholder (excluding CSX, Green Acquisition Corp. and their
subsidiaries) will retain a percentage of their respective shareholdings of
Conrail such that the amount not retained, when aggregated with all shares of
Conrail Common Stock then owned by CSX, Green Acquisition Corp. and their
subsidiaries, collectively represents 80% of the outstanding shares of Conrail's
capital stock, and all shareholdings not so retained by each such shareholder
will be converted into the right to receive the Merger Consideration. Second,
subject to the terms and conditions of the Merger Agreement and in accordance
with the Pennsylvania Law, following the First Merger, Conrail will merge with
and into Green Acquisition Corp. in a transaction in which all outstanding
shares of capital stock of Conrail remaining (other than those to be canceled)
will be converted into the right to receive the Merger Consideration. It is
currently expected that the First Effective Time will occur at the close of
business on a date as promptly as practicable following the date of the Meetings
and that the Second Effective Time will occur no later than the opening of
business on the business day immediately following the First Effective Time.
Pursuant to the Merger Agreement, the Conrail Articles and the Conrail By-laws
will be the Articles of Incorporation and By-laws of the surviving corporation
of the Merger until thereafter amended; and the officers and directors of
Conrail will be the officers and directors of the surviving corporation of the
Merger.
Conversion of Shares. Shares of Conrail ESOP Preferred Stock shall convert
automatically into shares of Conrail Common Stock pursuant to the terms of the
Conrail Articles prior to the First Merger so that, immediately prior to the
Merger, no shares of Conrail ESOP Preferred Stock shall be issued and
outstanding.
The Merger Agreement provides that, as of the time of the Merger, each
issued and outstanding Share (other than Shares owned by Conrail as treasury
stock and Shares owned by CSX, Conrail or any of their respective subsidiaries,
which Shares will be canceled and retired in the Second Merger) will be
converted into the right to receive either (i) the Per Share Cash Consideration,
(ii) the Per Share Stock Consideration or (iii) a combination of the foregoing.
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For purposes of this section, "outstanding Shares" means all shares of
Conrail Common Stock outstanding immediately prior to the consummation of the
Merger on a fully diluted basis (including Conrail Common Stock issuable upon
conversion of Conrail ESOP Preferred Stock), except for Conrail Common Stock
outstanding or issuable upon exercise of the Conrail Stock Option.
The Merger Agreement provides that all shares of common stock, par value
$1.00 per share, of Green Merger Corp. issued and outstanding immediately prior
to the First Effective Time shall, at the First Effective Time, by virtue of the
First Merger and without any action on the part of any person, become such
number of shares of Conrail Common Stock as, when aggregated with all shares of
Conrail Common Stock then owned by CSX, Green Acquisition Corp. or its
subsidiaries, represents 80% of the then outstanding capital stock of Conrail.
Each share of common stock, par value $1.00 per share, of Green Acquisition
Corp. issued and outstanding immediately prior to the Second Effective Time
shall, at the Second Effective Time, by virtue of the Second Merger and without
any action on the part of any person, become one duly authorized, validly
issued, fully paid and nonassessable share of common stock of the Surviving
Corporation. In the First Merger, all shares of Conrail Common Stock owned by
CSX, Green Acquisition Corp. or its subsidiaries shall be retained by such
parties. In the Second Merger, all shares of Conrail Common Stock that are owned
by Conrail as treasury stock and any shares of Conrail Common Stock owned by
CSX, Conrail or any of their respective subsidiaries will, at the Second
Effective Time, be canceled and retired and will cease to exist, and, except as
otherwise provided in the Merger Agreement, no shares of CSX Common Stock or
other consideration shall be delivered or owing in exchange therefor. On and
after the Second Effective Time, as applicable, holders of Shares will no longer
have any rights as shareholders of Conrail, except, as applicable, the right to
receive the Per Share Stock Consideration with respect to each Share held by
them.
Unless prior to the Merger at least 40% of the outstanding Shares have been
purchased by Green Acquisition Corp. (other than upon exercise of the Conrail
Stock Option), in which case each Share will be converted into 1.85619 shares of
CSX Common Stock and such amount of CSX Convertible Preferred Stock (or Trust
Convertible Preferred Securities) as, in the opinion of certain financial
advisors (as described herein), is valued on a fully distributed basis prior to
the Meetings at $16, as described herein, each holder of Shares, as more fully
set forth in the Merger Agreement (other than holders of Shares to be
cancelled), will have the right to submit a request specifying the number of
Shares that the holder desires to have converted into the right to receive the
Per Share Stock Consideration in the Merger and the number of Shares that the
holder desires to have converted into the right to receive the Per Share Cash
Consideration in the Merger.
The aggregate number of Shares to be converted into the right to receive
the Per Share Stock Consideration will be equal as nearly as practicable to 60%
of all outstanding Shares; and the number of Shares to be converted into the
right to receive the Per Share Cash Consideration, together with the Acquired
Shares, will be equal as nearly as practicable to 40% of all outstanding Shares.
If Elections are applicable and Stock Elections are received for a number
of Shares that is 60% or less of the outstanding Shares, each Share covered by a
Stock Election will be converted in the Merger into 1.85619 shares of CSX Common
Stock (the "Common Stock Conversion Ratio") and such amount of CSX Convertible
Preferred Stock (or Trust Convertible Preferred Securities) as, in the opinion
of certain financial advisors (as described herein), is valued on a fully
distributed basis prior to the Meetings at $16 (the "Convertible Preferred Stock
Conversion Ratio" and, together with the Common Stock Conversion Ratio, the
"Conversion Ratios"). If, between the date of the Merger Agreement and the First
Effective Time, the issued and outstanding shares of CSX Common Stock have been
changed into a different number of shares or a different class of shares due to
a stock split, reverse stock split, stock dividend, spin-off, extraordinary
dividend, recapitalization, reclassification or other similar transaction with a
record date within such period, the Conversion Ratios will be appropriately
adjusted.
If Elections are applicable and Stock Elections are received for more than
60% of the outstanding Shares, each Share as to which an Election is not in
effect (or deemed not to be in effect pursuant to the Merger Agreement) on the
last day on which an Election may be made under the Merger Agreement (other than
Acquired Shares) (a "Non-Electing Share"), and each Share for which a Cash
Election has been received, will be converted into the right to receive the Per
Share Cash Consideration in the Merger, and Shares for
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which Stock Elections have been received will be converted into the right to
receive the Per Share Stock Consideration and the right to receive the Per Share
Cash Consideration in the following manner:
(i) There will be distributed with respect to such Shares a number of
shares of CSX Common Stock equal to the Common Stock Conversion Ratio and a
number of shares of CSX Convertible Preferred Stock (or Trust Convertible
Preferred Securities) equal to the Convertible Preferred Stock Conversion
Ratio in each case with respect to a fraction of such Shares, the numerator
of which fraction will be 60% of the number of outstanding Shares and the
denominator of which will be the aggregate number of Shares covered by
Stock Elections; and
(ii) Such Shares not fully converted into the right to receive the Per
Share Stock Consideration as set forth in paragraph (i) above will be
converted in the Merger into the right to receive the Per Share Cash
Consideration for each Share so converted.
If Elections are applicable and the number of Acquired Shares and Shares
for which Cash Elections are received in the aggregate is 40% or less of the
outstanding Shares, each Share covered by a Cash Election will be converted in
the Merger into the right to receive the Per Share Cash Consideration.
If Elections are applicable and the number of Acquired Shares and Shares
for which Cash Elections are received in the aggregate is more than 40% of the
outstanding Shares, each Non-Electing Share and each Share for which a Stock
Election has been received will be converted in the Merger into a number of
shares of CSX Common Stock equal to the Common Stock Conversion Ratio and a
number of shares of CSX Convertible Preferred Stock (or Trust Convertible
Preferred Securities) equal to the Convertible Preferred Stock Conversion Ratio,
and the Shares for which Cash Elections have been received will be converted
into the right to receive the Per Share Cash Consideration and the Per Share
Stock Consideration in the following manner:
(i) There will be distributed with respect to such Shares the Per
Share Cash Consideration with respect to a fraction of such Shares, the
numerator of which fraction will be 40% of the number of outstanding Shares
minus the number of Acquired Shares and the denominator of which will be
the aggregate number of Shares covered by Cash Elections; and
(ii) Such Shares not fully converted into the right to receive the
Cash Consideration as set forth in paragraph (i) above will be converted in
the Merger into the right to receive a number of shares of CSX Common Stock
equal to the Common Stock Conversion Ratio and a number of shares of CSX
Convertible Preferred Stock (or Trust Convertible Preferred Securities)
equal to the Convertible Preferred Conversion Ratio for each Share so
converted.
The Merger Agreement provides that, if Stock Elections are not received for
more than 60% of the outstanding Shares, or, if the number of Acquired Shares
and Shares for which Cash Elections are received together is not more than 40%
of the outstanding Shares, there will be distributed with respect to each Non-
Electing Share the Per Share Cash Consideration with respect to a fraction of
such Non-Electing Share, where such fraction is calculated in a manner that will
result in the sum of (i) the number of Shares converted into cash pursuant to
this paragraph, (ii) the number of Shares for which Cash Elections have been
received and (iii) the number of Shares purchased pursuant to the Offers being
as close as practicable to 40% of the outstanding Shares. Each Non-Electing
Share not converted into the right to receive the Per Share Cash Consideration
as set forth in the preceding sentence will be converted in the Merger into the
right to receive a number of shares of CSX Common Stock equal to the Common
Stock Conversion Ratio and a number of shares of CSX Convertible Preferred Stock
(or Trust Convertible Preferred Securities) equal to the Convertible Preferred
Stock Conversion Ratio for each Non-Electing Share so converted.
No fractional shares of CSX Common Stock or CSX Convertible Preferred Stock
(or Trust Convertible Preferred Securities) will be issued in the Merger. In
lieu of any fractional share of CSX Common Stock, CSX will pay to each former
shareholder of Conrail who otherwise would be entitled to receive such a
fractional share (when the consideration due in the First Merger and the Second
Merger are aggregated) an amount in cash equal to (i) the average closing sales
price of a share of CSX Common Stock as reported on the NYSE Composite Tape,
calculated in the manner set forth in the Merger Agreement times (ii) the
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fractional interest in a share of CSX Common Stock to which such holder would
otherwise be entitled. In lieu of any fractional share of CSX Convertible
Preferred Stock (or Trust Convertible Preferred Securities), each person who
would otherwise have been entitled to a fraction of a share (when the
consideration due in the First Merger and the Second Merger are aggregated) will
be paid an amount in cash (without interest) equal to such holder's
proportionate interest in the net proceeds from the sale or sales in the open
market by the Exchange Agent, on behalf of all such holders, of the aggregate
fractional shares of such class issued. As soon as practicable following the
Effective Time, the Exchange Agent will determine the excess of (a) the number
of full shares of such class delivered to the Exchange Agent over (b) the
aggregate number of shares of such class to be distributed in the Merger (such
excess being herein called the "Excess Shares"), and the Exchange Agent, as
agent for the former holders of such shares, will sell the Excess Shares at the
prevailing prices on the open market. The sale of the Excess Shares by the
Exchange Agent will be executed on a public exchange through one or more firms
and shall be executed in round lots to the extent practicable. Until the net
proceeds of such sale or sales have been distributed, the Exchange Agent will
hold such proceeds in trust for such former shareholders. As soon as practicable
after the determination of the amount of cash to be paid in lieu of any
fractional interests, the Exchange Agent will make available such amounts to
such former shareholders.
Board of Directors; Officers. The Merger Agreement provides that, until
their respective resignation or removal or until their respective successors are
duly elected and qualified and subject to the terms of the Merger Agreement,
from and after the Control Date, the current Chairmen of the Boards of Conrail
and CSX will serve as members of the Combined Company's Board of Directors. The
Combined Company's Board of Directors will additionally consist of an even
number of outside directors to be agreed upon. Each of Conrail and CSX is
permitted under the Merger Agreement to designate half of such outside
directors. Pursuant to the Merger Agreement, Conrail and CSX have also agreed to
establish six committees of the Combined Company's Board of Directors comprised
of four directors each from and after the Control Date, and each of Conrail and
CSX will have the right to appoint two members of each such committee. The
Chairmen of such committees will be appointed as set forth in the Merger
Agreement.
The Merger Agreement provides that, unless altered by a vote of 75% of the
directors of the Combined Company after the Control Date (which requirement will
be embodied in the Combined Company's by-laws), during the two-year period after
the Control Date, the current Chairman and Chief Executive Officer of CSX will
be Chairman and Chief Executive Officer of the Combined Company and the current
Chairman and Chief Executive Officer of Conrail will be President and Chief
Operating Officer of the Combined Company and President and Chief Executive
Officer of each of the Combined Company's railroad subsidiaries. Following the
two-year period, the current Chairman and Chief Executive Officer of CSX will
continue as Chairman of the Combined Company for an additional two-year period
and as Chairman Emeritus for a one-year period thereafter, and the current
Chairman and Chief Executive Officer of Conrail will be elected to the
additional office of Chief Executive Officer of the Combined Company on the
second anniversary of the Control Date and will succeed as Chairman of the
Combined Company at the end of such additional two-year period.
Shareholders' Meetings. Pursuant to the Merger Agreement, Conrail and CSX
will prepare and file with the SEC a registration statement on Form S-4 relating
to the shares of CSX Common Stock and CSX Convertible Preferred Stock to be
issued in the Merger in which this Joint Proxy Statement/Prospectus will be
included as a prospectus, and will use all reasonable efforts to have such
Registration Statement declared effective under the Securities Act as promptly
as possible and to have the Joint Proxy Statement/Prospectus included therein
mailed as promptly as possible to their respective shareholders. Further, in
accordance with the Merger Agreement, Conrail mailed a definitive proxy
statement to its shareholders for a special meeting (the "Pennsylvania Special
Meeting"), called for the purpose of obtaining shareholder approval to amend the
Conrail Articles to make inapplicable to Conrail the Pennsylvania Control
Transaction Law (the "Pennsylvania Shareholder Approval"), and, after any such
approval, will take all necessary or advisable action to cause such amendment to
become effective. As soon as practicable following the date of the Merger
Agreement, Conrail will call and hold a meeting of its shareholders (any such
meeting, such as the Conrail Meeting, a "Conrail Merger Meeting," and, together
with the Pennsylvania Special Meeting, the "Conrail
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Shareholders Meetings") for the purpose of obtaining the approval of the
shareholders of Conrail ("Conrail Merger Approval") with respect to the Merger.
Subject to the terms of the Merger Agreement described under "-- No
Solicitation," the Merger Agreement provides that Conrail's obligations pursuant
to the foregoing sentence are not affected by the commencement, public proposal,
public disclosure or communication to Conrail of any Takeover Proposal in
respect of Conrail. Conrail has agreed, through the Conrail Board, to recommend
to its shareholders the approval and adoption of the Offers and the matters to
be considered at any Conrail Shareholders Meeting, except to the extent that the
Conrail Board shall have withdrawn or modified its approval or recommendation of
the Offers or such matters and terminated the Merger Agreement in accordance
with the provisions of the Merger Agreement described under "-- No
Solicitation." Pursuant to the Merger Agreement and subject to the Voting Trust
Agreement, CSX will cause all Shares acquired by it or its wholly owned
subsidiaries pursuant to the Offers or otherwise to be voted in favor of the
matters to be considered at the Conrail Shareholders Meetings.
The Merger Agreement requires CSX, as soon as practicable following the
date of the Merger Agreement, to duly call and hold a meeting of its
shareholders (any such meeting, such as the CSX Meeting, a "CSX Merger Meeting")
to obtain the approval of the shareholders of CSX (the "CSX Shareholder
Approval") with respect to the CSX Proposals. Subject to the provisions of the
Merger Agreement described under "-- No Solicitation," CSX has agreed that its
obligations pursuant to the foregoing sentence are not affected by the
commencement, public proposal, public disclosure or communication to CSX of any
Takeover Proposal in respect of CSX. CSX has agreed, through the CSX Board, to
recommend to its shareholders the approval and adoption of the matters to be
considered at any CSX Merger Meeting, except to the extent that the CSX Board
shall have withdrawn or modified its recommendation of such matters and
terminated the Merger Agreement in accordance with the provisions described
under "-- No Solicitation."
In the event that the matters to be considered at any Conrail Merger
Meeting or any CSX Merger Meeting are not approved at a meeting called for such
purpose, from time to time Conrail or CSX, as applicable, may, and will at the
request of CSX or Conrail, as applicable, duly call one or more meetings of
shareholders for such purposes. Subject to the foregoing, the Merger Agreement
further provides that Conrail shall convene any such shareholder meetings as
soon as practicable after receipt of any request to do so by CSX.
CSX and Conrail have agreed to use reasonable efforts to hold the Conrail
Merger Meeting and the CSX Merger Meeting on the same date as soon as
practicable after the date of the Merger Agreement.
Voting Trust. The Merger Agreement provides that (i) simultaneously with
the purchase by CSX, Green Acquisition Corp. or their affiliates of Shares
pursuant to the First Offer, the Second Offer, the Conrail Stock Option
Agreement or otherwise, such Shares will be deposited in the Voting Trust in
accordance with the terms and conditions of the Voting Trust Agreement and (ii)
upon consummation of each of the First Merger and the Second Merger, all
outstanding shares of common stock of the surviving corporation of such Merger
owned directly or indirectly by CSX, Green Acquisition Corp. or their affiliates
will be deposited in the Voting Trust. Prior to the Control Date, the Voting
Trust may not be modified or amended without the prior written approval of
Conrail unless such modification or amendment is not inconsistent with the
Merger Agreement or the Option Agreements and is not adverse to Conrail or its
shareholders; provided that the Voting Trust may be modified or amended in any
manner without the prior written approval of Conrail at any time after the
earlier of (i) December 31, 1998 and (ii) the date of any STB denial. See
"CERTAIN REGULATORY MATTERS -- Voting Trust Agreement."
Interim Operations of Conrail and CSX. The Merger Agreement provides that,
during the period from the Second Effective Time until the Control Date, CSX
will not, nor will it permit any of its subsidiaries to (without the consent of
Conrail): (i) operate its railroad business other than in the ordinary course of
business consistent with past practice, provided that (a) the direct or indirect
acquisition or disposition of a significant portion of the assets of its
railroad business, and (b) a merger, consolidation or other business combination
with any other company involved in the railroad business that would have the
effect set forth in clause (a) will not be considered in the ordinary course of
business consistent with past practice; or (ii) enter into any new line of
business (including by merger, acquisition of assets or securities or
otherwise), in a material way, other
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than those engaged in by CSX as of the date of the Merger Agreement; or (iii)
authorize, or commit or agree to take, any of the foregoing actions.
Except as otherwise set forth in the Merger Agreement, CSX and Conrail have
agreed that, from the date of the Merger Agreement to the time of the Merger or
to the Control Date, as applicable (as described below), each of them will, and
will cause their respective subsidiaries to, carry on their respective
businesses in the ordinary course consistent with past practice and in
compliance in all material respects with all applicable laws and regulations,
and, to the extent consistent therewith, will use all reasonable efforts to
preserve intact their current business organizations, use reasonable efforts to
keep available the services of their current officers and other key employees as
a group and preserve their relationships with those persons having business
dealings with them to the end that their goodwill and ongoing businesses will be
unimpaired at the time of the Merger. Except as contemplated by or as otherwise
set forth in the Merger Agreement, without limiting the generality of the
foregoing, from the date of the Merger Agreement to the time of the Merger or to
the Control Date, as applicable (as described below), and without the consent of
the other except in certain circumstances specified in the Merger Agreement,
neither Conrail nor CSX will, nor will Conrail or CSX permit any of their
respective subsidiaries to:
(i) other than dividends and distributions (including liquidating
distributions) by a direct or indirect wholly owned subsidiary of Conrail
or CSX, as applicable, to its parent, or by a subsidiary that is partially
owned by Conrail or CSX, as applicable, or any of their respective
subsidiaries, provided that Conrail or CSX, as applicable, or any such
subsidiary receives or is to receive its proportionate share thereof, and
other than the regular quarterly dividends of $.475 per share with respect
to Common Shares, regular quarterly dividends of $.54125 per share with
respect to Conrail ESOP Preferred Stock in accordance with their terms and
regular quarterly dividends of $.26 per share with respect to CSX Common
Stock (plus increases of no more than 20% per year), (a) declare, set aside
or pay any dividends on, or make any other distributions in respect of, any
of its capital stock, (b) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock, or (c)
except in connection with the funding of employee benefit plans, purchase,
redeem, retire or otherwise acquire any shares of its capital stock or of
any of its subsidiaries that would constitute a "significant subsidiary"
within the meaning of Rule 1-02 of Regulation S-X of the SEC or any other
securities thereof or any rights, warrants or options to acquire any such
shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities (other than (a) in
accordance with the Conrail Rights Agreement, or the CSX Rights Agreement,
(b) the issuance of Shares or CSX Common Stock (1) upon the exercise of
Conrail Employee Stock Options or stock options of CSX employees ("CSX
Employee Stock Options"), respectively, listed in the disclosure schedules
to the Merger Agreement and outstanding on the date of the Merger
Agreement, in accordance with their present terms or (2) pursuant to a
grant existing as of the date of the Merger Agreement or otherwise
permitted by the provisions of the Merger Agreement described in this
section under any Employee Benefit Plan, (c) the grant or award of Conrail
Employee Stock Options or CSX Employee Stock Options (or the issuance of
Shares or CSX Common Stock upon exercise thereof) consistent with past
practice in amounts not to exceed, in any 12-month period, 110% of the
amount issued in the prior 12-month period, and, in the case of CSX, target
bonus awards under CSX's long-term incentive plans consistent with past
practice in amounts not to exceed, in any 12-month period, 110% of the
amounts of the aggregate target bonus awards issued in the prior 12-month
period, (d) the issuance of Shares upon conversion of Conrail ESOP
Preferred Stock in accordance with their terms and (e) the issuance of
Shares or CSX Common Stock pursuant to the Option Agreements);
(iii) in the case of Conrail or CSX, adopt, propose or agree to any
amendment to its articles of incorporation, by-laws or other comparable
organizational documents, except for such amendments as are contemplated by
the Merger Agreement, and, in the case of any subsidiary, adopt, propose or
agree to any amendment to its certificate of incorporation, by-laws or
other comparable organizational documents
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other than in the ordinary course in a manner which does not have a
material adverse effect on Conrail or CSX, as applicable;
(iv) sell, lease, license, mortgage or otherwise encumber or subject
to any lien or otherwise dispose of any of its properties or assets, other
than (a) transactions in the ordinary course of business consistent with
past practice and (b) transactions involving assets which do not,
individually or in the aggregate, exceed $50,000,000 in any 12-month
period;
(v) make or agree to make any acquisition (other than of inventory) or
capital expenditure;
(vi) except in the ordinary course consistent with past practice, make
any tax election that could reasonably be expected to have a material
adverse effect on Conrail or CSX, as applicable, or settle or compromise
any material income tax liability;
(vii) pay, discharge, settle or satisfy any material claims,
liabilities or obligations (whether absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge,
settlement or satisfaction, in the ordinary course of business consistent
with past practice or in accordance with their terms, of liabilities (a)
reflected or reserved against in, or contemplated by, the most recent
consolidated financial statements (or the notes thereto) of Conrail or of
CSX included in any report, schedule, form, statement or other document
(including any exhibits, schedules and documents incorporated by reference)
required to be filed with the SEC since January 1, 1995 by Conrail or CSX,
as applicable, (b) incurred since the date of such financial statements in
the ordinary course of business consistent with past practice or (c) which
do not in the aggregate have a material adverse effect on Conrail or CSX,
as applicable;
(viii) except in the ordinary course of business or except as would
not reasonably be expected to have a material adverse effect on Conrail or
CSX, as applicable, modify, amend or terminate any material contract or
agreement to which Conrail or CSX, as applicable, or any of their
respective subsidiaries, is a party or waive, release or assign any
material rights or claims thereunder;
(ix) make any material change to its accounting methods, principles or
practices, except as may be required by generally accepted accounting
principles;
(x) except as required by law or contemplated by the Merger Agreement
and except for rail labor agreements negotiated in the ordinary course,
enter into, adopt or amend in any material respect or terminate any bonus,
pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical or
other plan, arrangement or understanding providing benefits to any current
or former employee, officer or director of Conrail or CSX, as the case may
be, or of any of their respective wholly owned subsidiaries ("Employee
Benefit Plans"), or any other agreement, plan or policy involving Conrail
or CSX, as applicable, or any of their respective subsidiaries, and one or
more of their directors, officers or employees, or materially change any
actuarial or other assumption used to calculate funding obligations with
respect to any pension plan, or change the manner in which contributions to
any pension plan are made or the basis on which such contributions are
determined;
(xi) except for normal increases in the ordinary course of business
consistent with past practice that, in the aggregate, do not materially
increase benefits or compensation expenses of Conrail or CSX, as
applicable, or their respective subsidiaries, or as contemplated hereby or
by the terms of any contract the existence of which does not constitute a
violation of the Merger Agreement, increase the compensation of any
director, executive officer or other key employee or pay any benefit or
amount not required by a plan or arrangement as in effect on the date of
the Original Merger Agreement to any such person;
(xii) enter into any agreement containing any provision or covenant
(a) limiting in any material respect its ability to compete with any person
which would bind the other party to the Merger Agreement or its operations
after the Merger or (b) granting concessions to any railroad (whether
through divestiture of lines or the grant of trackage rights) other than in
the ordinary course of business; or
(xiii) authorize, or commit or agree to take, any of the foregoing
actions.
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The Merger Agreement provides that, other than the provision described in
(xii) above, the provisions of the Merger Agreement described under
"-- Third-Party Discussions," certain provisions of the Merger Agreement
regarding obtaining STB approval and certain other provisions (all of which will
terminate upon the earlier of December 31, 1998 and the date of STB denial), the
provisions of the Merger Agreement will cease to be binding against CSX as of
the time of the Merger and will cease to be binding against Conrail as of the
Control Date. In addition, following the Merger, subject to applicable legal
restrictions and financial covenants contained in instruments relating to
outstanding indebtedness, Conrail has agreed not to decrease the aggregate
amount of dividends and other distributions paid in respect of Conrail's
outstanding capital stock from the level paid immediately prior to the Merger.
The Merger Agreement provides that CSX and Conrail will coordinate with one
another regarding the declaration and payment of dividends in respect of CSX
Common Stock and Shares and the record dates and payment dates relating thereto
such that any holder of Shares will not receive two dividends, or fail to
receive one dividend, for any single calendar quarter with respect to its Shares
and/or any shares of CSX Common Stock any such holder receives in exchange
therefor pursuant to the Merger.
Pursuant to the Merger Agreement, except as required by law, Conrail and
CSX have agreed that they will not, and will not permit any of their respective
subsidiaries to, voluntarily take any action that would, or that could
reasonably be expected to, result in (i) any of the representations and
warranties of such party set forth in the Merger Agreement or the Option
Agreements that are qualified as to materiality becoming untrue, (ii) any of
such representations and warranties that are not so qualified becoming untrue in
any material respect, (iii) any of the conditions to the consummation of the
transactions contemplated by the Merger Agreement not being satisfied or (iv)
any material impairment or delay of STB approval.
For purposes of the Merger Agreement, "STB approval" means the issuance by
the STB of a decision, which decision shall become effective and which decision
shall not have been stayed or enjoined, that (A) constitutes a final agency
action approving, exempting or otherwise authorizing the acquisition of control
over Conrail's railroad operations by CSX and (B) does not (1) change or
disapprove of the consideration to be given in the Merger or other material
provisions of Article II of the Merger Agreement or (2) unless CSX chooses to
assume control despite such conditions, impose on CSX, Conrail or any of their
respective subsidiaries any other terms or conditions (including, without
limitation, labor protective provisions but excluding conditions heretofore
imposed by the ICC in New York Dock Railway -- Control -- Brooklyn Eastern
District, 360 I.C.C. 60 (1979)), other than those proposed by the applicants,
that materially and adversely affect the long-term benefits expected to be
received by CSX from the transactions contemplated by the Merger Agreement; the
"Control Date" means the date on which CSX lawfully is permitted to assume
control over Conrail's railroad operations pursuant to STB approval or
exemption; "STB denial" means (i) STB approval shall not have been obtained by
December 31, 1998 or (ii) the STB shall have, by an order which shall have
become final and no longer subject to reconsideration by the STB or review by
the courts, either (a) refused to approve the acquisition of control of Conrail
by CSX or (b) approved such acquisition of control subject to conditions that
cause such approval not to constitute STB approval; and following the Second
Effective Time, all rights and obligations of Conrail under the Merger shall be
exercisable or performed by the Surviving Corporation (as successor to Conrail),
and any consent or approval of Conrail hereunder following the First Effective
Time or the Second Effective Time shall mean the consent or approval of the
Surviving Corporation's Board of Directors (or its duly authorized
representatives).
No Solicitation. Under the terms of the Merger Agreement, neither Conrail
nor CSX may, nor may it permit any of its subsidiaries, officers, directors,
employees or representatives to, directly or indirectly through another person,
(i) solicit, initiate or encourage (including by way of furnishing information),
or take any other action designed to facilitate, directly or indirectly, any
inquiries or the making of any proposal which constitutes any Takeover Proposal
or (ii) participate in any discussions or negotiations regarding any Takeover
Proposal; provided, however, that, if, at any time prior to the earlier of (a)
the consummation of the First Offer (which occurred upon the First Offer
Expiration Date) and (b) the obtaining of the Conrail Merger Approval, in the
case of Conrail, or the CSX Shareholder Approval, in the case of CSX, or after
December 31, 1998 and prior to the Approval Date, the Conrail Board or the CSX
Board, as applicable, determines in good faith, based on the advice of outside
counsel, that it is necessary to do so to avoid a breach
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of its fiduciary duties under applicable law, Conrail or CSX, as applicable,
may, in response to a Takeover Proposal which was not solicited by it or which
did not otherwise result from a breach of the terms of the Merger Agreement
described in this paragraph, and subject to compliance with certain notice
provisions of the Merger Agreement, (1) furnish information with respect to it
and its subsidiaries to any person pursuant to a customary confidentiality
agreement (as determined by the party receiving such Takeover Proposal after
consultation with its outside counsel) the benefits of the terms of which, if
more favorable to the other party to such confidentiality agreement than those
in place with the other party to the Merger Agreement, shall be extended to the
other party to the Merger Agreement, and (2) participate in negotiations
regarding such Takeover Proposal. For purposes of the Merger Agreement,
"Takeover Proposal" in respect of Conrail or CSX, as applicable, means any
proposal or offer from any person for the acquisition or purchase of more than
50% of the assets of such party and its subsidiaries or more than 50% of the
equity securities of such party entitled to vote generally in the election of
directors, any tender offer or exchange offer that if consummated would result
in any person beneficially owning more than 50% of the equity securities of such
party entitled to vote generally in the election of directors, or any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving such party, other than the transactions
contemplated by the Merger Agreement or the Option Agreements.
Except as permitted by the Merger Agreement, Conrail and CSX have agreed
that neither the Conrail Board nor the CSX Board, as applicable, nor any
committee thereof will (i) withdraw or modify (or propose publicly to do so), in
a manner adverse to the other party, its approval or recommendation of the
Offers or its adoption and approval of the matters to be considered at the
respective Conrail Shareholders Meetings or a CSX Merger Meeting, (ii) approve
or recommend (or propose publicly to do so) any Takeover Proposal, or (iii)
cause Conrail or CSX, as applicable, to enter into an Acquisition Agreement.
However, the Merger Agreement provides that, if at any time following December
31, 1998 and prior to the earlier of (i) the time that at least 40% of the
outstanding Shares on a fully diluted basis have been deposited in the Voting
Trust and (ii) the obtaining of the Conrail Merger Approval (in the case of
Conrail) or CSX Shareholder Approval (in the case of CSX) (such earlier date
referred to in clause (i) or (ii) being the "Approval Date") there exists a
Superior Proposal, and such Board of Directors determines that (i) in the case
of the Conrail Board, there is no substantial probability that CSX will succeed
in acquiring 40% of the Shares in the Offers or otherwise (or, if the
Pennsylvania Shareholder Approval has not been obtained, there is no substantial
probability that Conrail Merger Approval will be obtained), in either case, due
to the existence of such Superior Proposal with respect to Conrail or (ii) in
the case of the CSX Board, there is no substantial probability that the CSX
Shareholder Approval will be obtained due to the existence of such Superior
Proposal with respect to CSX, the Conrail Board or the CSX Board, as applicable,
may (subject to this and the following sentence) withdraw or modify its approval
or recommendation of the Offers, the Merger or the adoption and approval of the
matters to be considered at the respective Conrail Shareholders Meetings or a
CSX Merger Meeting and approve or recommend such Superior Proposal or terminate
the Merger Agreement (and concurrently, if it so chooses, cause Conrail or CSX,
as applicable, to enter into an Acquisition Agreement with respect to such
Superior Proposal), but only after giving the notice required by the Merger
Agreement. As used in the Merger Agreement, a "Superior Proposal" means any
proposal made by a third party to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, more than 50% of the voting
equity securities of Conrail or CSX, as the case may be, or all or substantially
all the assets of Conrail or CSX, as the case may be, and otherwise on terms
which the Board of Directors of such party determines in its good faith judgment
(i) (based on the written opinion of a nationally recognized financial advisor)
to be more favorable from a financial point of view to its shareholders than the
Transactions and for which any required financing is then committed and (ii) to
be more favorable to such party than the Transactions after taking into account
all constituencies (including shareholders) and pertinent factors permitted
under the Pennsylvania Law or the Virginia Stock Corporation Act (the "Virginia
Law").
In addition to the obligations of the parties set forth in the two
immediately preceding paragraphs, the Merger Agreement provides that any party
that has received a Takeover Proposal must immediately advise the other orally
and in writing of any request for information or of any Takeover Proposal, the
material terms and conditions of such request or Takeover Proposal and the
identity of the person making such request or Takeover Proposal. Any party that
has received a Takeover Proposal is required to keep the other reasonably
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informed of the status and details (including amendments or proposed amendments)
of any such request or Takeover Proposal.
The Merger Agreement provides that nothing contained in the provisions
described in this section prohibits CSX or Conrail from taking and disclosing to
its shareholders a position contemplated by Rule 14e-2(a) promulgated under the
Exchange Act or from making any disclosure to its shareholders if, in the good
faith judgment of its Board of Directors, based on the advice of outside
counsel, failure so to disclose would result in a violation of applicable law;
however, neither CSX nor Conrail nor their respective Board of Directors nor any
committee thereof may, except as permitted by the provisions of the Merger
Agreement described in the second preceding paragraph, withdraw or modify, or
propose publicly to withdraw or modify, its position with respect to the Offers
or the matters to be considered at the Conrail Shareholders Meetings or a CSX
Merger Meeting, as applicable, or approve or recommend, or propose publicly to
approve or recommend, a Takeover Proposal.
Third-Party Discussions. The Merger Agreement provides that, during the
term of the Merger Agreement, neither Conrail nor CSX will, nor will it permit
any of its subsidiaries to, nor shall it authorize or permit any of its
officers, directors or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it or any of its
subsidiaries to, directly or indirectly through another person, participate in
any conversations, discussions or negotiations, or enter into any agreement,
arrangement or understanding, with any other company engaged in the operation of
railroads (including NSC) with respect to the acquisition by any such other
company (including NSC) of any securities or assets of Conrail and its
subsidiaries or CSX and its subsidiaries, or any trackage rights or other
concessions relating to the assets or operations of Conrail and its subsidiaries
or CSX and its subsidiaries, other than with respect to sales, leases, licenses,
mortgages or other disposals of assets or properties that are permitted as
described in paragraph (iv) under "-- Interim Operations of Conrail and CSX."
Notwithstanding the foregoing, however, CSX and Conrail will be permitted to
engage in conversations, discussions and negotiations with other companies
engaged in the operation of railroads (including NSC) to the extent reasonably
necessary or reasonably advisable in connection with obtaining regulatory
approval of the transactions contemplated by the Merger Agreement in accordance
with the terms set forth in the Merger Agreement, and, in each case, so long as
(i) a representative of each party is present at any such conversation,
discussion or negotiation, (ii) the general subject matter of any such
conversation, discussion or negotiation has been agreed to in advance by Conrail
and CSX and (iii) Conrail, CSX and such other company have previously agreed to
appropriate confidentiality arrangements, on terms reasonably acceptable to
Conrail and CSX (which terms shall, in any event, permit disclosure to the
extent required by law), relating to the existence and subject matter of any
such conversation, discussion or negotiation. The provisions described in this
paragraph will terminate and be of no further force and effect immediately upon
any exercise by CSX or Conrail of its rights under the proviso to the first
sentence described under "-- No Solicitation," provided that such party
exercising such rights has given the other party prior notice with respect
thereto.
Reasonable Efforts; Regulatory Approval. Each of the parties to the Merger
Agreement has agreed to use all reasonable efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable, the
Merger and the other transactions contemplated by the Merger Agreement and the
Option Agreements, including (i) the obtaining of all necessary actions or
nonactions, waivers, consents and approvals from third parties and governmental
entities and the making of all necessary registrations and filings and the
taking of all reasonable steps as may be necessary to obtain an approval or
waiver from, or to avoid an action or proceeding by, any governmental entity,
(ii) the defending of any lawsuits or any other legal proceedings challenging
the Merger Agreement or the Option Agreements or the consummation of the
transactions contemplated thereby, and (iii) the execution and delivery of any
additional instruments necessary to consummate the transactions contemplated by,
and to fully carry out the purposes of, the Merger Agreement and the Option
Agreements.
Pursuant to the Merger Agreement, each of the parties will make and cause
its respective subsidiaries to make all necessary filings, as soon as
practicable, including those required with the STB and applicable transportation
regulations and laws in order to facilitate prompt consummation of the Offers,
the Merger and
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the other transactions contemplated by the Merger Agreement and by the Option
Agreements; will use reasonable efforts to provide such information and
communications to governmental entities as may be reasonably requested; and will
provide to the other party copies of all applications made pursuant to the
foregoing, subject to the terms set forth in the Merger Agreement.
Conrail and CSX have agreed, and each has agreed to cause each of its
subsidiaries, to take all such actions as are necessary to (i) cooperate with
one another to prepare and present to the STB as soon as practicable all filings
and other presentations in connection with seeking any STB approval, exemption
or other authorization necessary to consummate the transactions contemplated by
the Merger Agreement and the Option Agreements, (ii) prosecute such filings and
other presentations with diligence, (iii) diligently oppose any objections to,
appeals from or petitions to reconsider or reopen any such STB approval by
persons not party to the Merger Agreement, and (iv) take all such further action
as reasonably may be necessary to obtain a final order or orders of the STB
approving such transactions consistent with the Merger Agreement and the Option
Agreements.
Anti-Takeover Laws. The Merger Agreement provides that Conrail and CSX
will take all action necessary to ensure that no state anti-takeover statute or
similar statute or regulation is or becomes operative with respect to the
Offers, the Merger, the Merger Agreement, the Option Agreements or any of the
other transactions contemplated by the Merger Agreement or the Option
Agreements; and, if any state anti-takeover statute or similar statute or
regulation becomes so operative, take all action necessary to ensure that the
Offers, the Merger and the other transactions contemplated by the Merger
Agreement and the Option Agreements may be consummated as promptly as
practicable.
Directors' and Officers' Insurance and Indemnification. Under the Merger
Agreement, CSX has agreed that all rights to indemnification and exculpation
from liabilities for acts or omissions occurring at or prior to the First
Effective Time existing as of the date of the Merger Agreement in favor of the
current or former directors or officers of Conrail and its subsidiaries, the
existence of which does not constitute a breach of the Merger Agreement, will be
assumed by the Surviving Corporation as of the First Effective Time and will
survive the Merger and continue in full force and effect in accordance with
their terms. The Merger Agreement also provides that, from and after the First
Effective Time, directors and officers of Conrail who become directors or
officers of the Combined Company will be entitled to the same indemnity rights
and protections as are afforded to other directors and officers of the Combined
Company.
Pursuant to the Merger Agreement, in the event that CSX or any of its
successors or assigns consolidates with or merges into any other person and is
not the continuing or surviving corporation or entity of such consolidation or
merger or transfers or conveys all or substantially all of its properties and
assets to any person, then proper provision will be made so that the successors
and assigns of CSX assume the obligations under the Merger Agreement described
in this section.
Conrail and CSX have agreed that, from the Control Date through the third
anniversary of the Merger, the Combined Company is to provide, if available on
commercially reasonable terms, officers' and directors' liability insurance in
respect of acts or omissions occurring prior to the Control Date, including the
transactions contemplated by the Merger Agreement, covering each person covered
by Conrail's officers' and directors' liability insurance policy as of the date
of the Merger Agreement, or who becomes so covered before the Control Date, on
terms with respect to coverage and amount no less favorable than those of such
policy in effect on the date of the Merger Agreement, provided that, in
satisfying the foregoing obligation, the Combined Company is not required to pay
premiums in excess of 150% of the amount per annum Conrail paid in its last full
fiscal year ending prior to the date of the Merger Agreement, and provided,
further, that the Combined Company is nevertheless obligated to provide such
coverage as may be obtained for such amount.
Compensation and Benefits; Stock Options. The Merger Agreement provides
that, following the Control Date, the Combined Company will cause the Surviving
Corporation to honor all obligations under employment agreements, employee
benefit plans, programs, policies and arrangements of Conrail or CSX the
existence of which does not constitute a violation of the Merger Agreement in
accordance with the terms thereof, and the Combined Company will provide
employees of Conrail with benefits no less favorable in the aggregate than those
provided to similarly situated CSX employees. For two years after the Control
Date, the
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Combined Company or the Surviving Corporation will provide severance and
termination benefits to all non-union employees of Conrail and CSX terminated as
a result of or in connection with the Merger, which benefits shall be determined
consistent with industry standards and taking into account those benefits
provided in recent similar transactions in the industry.
The Merger Agreement also provides that, with respect to all outstanding
Conrail Employee Stock Options granted under Conrail Stock Plans, which,
immediately prior to the First Effective Time, are vested ("Vested Conrail
Employee Stock Options"), the Conrail Board will take such action as may be
required to adjust the terms of such Conrail Employee Stock Options as is
necessary to provide that, at the First Effective Time, each Vested Conrail
Employee Stock Option outstanding immediately prior to the First Effective Time
shall be deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such Vested Conrail Employee Stock Option,
the same number of shares of CSX Common Stock as the holder of such Vested
Conrail Employee Stock Option would have been entitled to receive pursuant to
the Merger had such holder exercised such Vested Conrail Employee Stock Option
in full immediately prior to the First Effective Time and had the holder
received additional shares of CSX Common Stock, in lieu of shares of CSX
Convertible Preferred Stock, of equivalent value to such CSX Convertible
Preferred Stock (based, for this purpose, upon an assumed $16 value for the CSX
Convertible Preferred Stock deliverable in respect of each share of Conrail
Common Stock and a per share price of CSX Common Stock based upon the average
per share closing price of CSX Common Stock reported on the NYSE Composite Tape
for the five consecutive trading days preceding the First Effective Time), at a
price per share of CSX Common Stock equal to (A) the aggregate exercise price
for the Conrail Common Stock otherwise purchasable pursuant to such Vested
Conrail Employee Stock Option divided by (B) the aggregate number of shares of
CSX Common Stock deemed purchasable pursuant to such Vested Conrail Employee
Stock Option (each, as so adjusted, an "Adjusted Option"); provided, however,
that in the case of any option to which Section 421 of the Code applies by
reason of its qualification under any of Sections 422 through 424 of the Code
("qualified stock options"), the option price, the number of shares purchasable
pursuant to such option and the terms and conditions of exercise of such option
shall be determined in order to comply with Section 424 of the Code.
With respect to all outstanding Conrail Employee Stock Options granted
under Conrail Stock Plans which, immediately prior to the First Effective Time,
are unvested ("Other Conrail Options"), the Conrail Board will take such action
as may be required to adjust the terms of such Other Conrail Options to provide
that in no event shall Other Conrail Options become exercisable prior to (x) the
date that the STB approval is obtained, in which case such Other Conrail Options
will then be adjusted as provided in the preceding paragraph, or (y) the date
following STB denial on which a disposition of Shares held in the Voting Trust
shall be made in accordance with the Amended Voting Trust Agreement, in which
case, such Other Conrail Options will then be exercisable for shares of Conrail
Common Stock and such options will be equitably adjusted as necessary to
preserve the value of such options in connection with any such disposition.
In lieu of any further option grants by Conrail on or after the First
Effective Time, Conrail may grant incentive awards to its employees provided
that (i) such awards are granted under arrangements which are in accordance with
applicable law and (ii) such awards are of no greater aggregate value on the
grant date than the aggregate value of the options which could otherwise have
been awarded by Conrail pursuant to the Merger Agreement.
Conrail has agreed not to issue shares of Conrail Common Stock or rights to
acquire shares of Conrail Common Stock for any reason following the Merger
without the prior consent of CSX.
Pursuant to the Merger Agreement, CSX will deliver to the holders of
Conrail Employee Stock Options, as soon as practicable after the Merger,
appropriate notices setting forth the holders' rights under the respective
Conrail Stock Plans and the agreements evidencing the grants of Conrail Employee
Stock Options. The notices will also state that Conrail Employee Stock Options
and agreements will be assumed by CSX and will continue in effect on the same
terms and conditions (subject to the adjustments described in the immediately
preceding paragraph). CSX will comply with the terms of the Conrail Stock Plans
and will ensure, to the extent required by, and subject to the provisions of,
such Conrail Stock Plans, that Conrail
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Employee Stock Options which qualified as qualified stock options prior to the
Merger continue to qualify as qualified stock options after the Merger.
Under the Merger Agreement, CSX has agreed to take such actions as are
reasonably necessary for the assumption of the Conrail Stock Plans described in
the preceding paragraph of this section, including the reservation, issuance and
listing of CSX Common Stock as is necessary to effectuate the transactions
contemplated in the Merger Agreement. As soon as reasonably practicable after
the Merger, CSX will prepare and file with the SEC one or more registration
statements on Form S-8 or other appropriate form with respect to shares of CSX
Common Stock subject to Conrail Employee Stock Options issued under Conrail
Stock Plans and will use all reasonable efforts to maintain the effectiveness of
a registration statement or registration statements covering Conrail Employee
Stock Options (and maintain the current status of the prospectus or prospectuses
contained in such registration statements) for so long as Conrail Employee Stock
Options remain outstanding. With respect to those individuals, if any, who
subsequent to the Merger will be subject to the reporting requirements under
Section 16(a) of the Exchange Act, where applicable, CSX has agreed to use all
reasonable efforts to administer Conrail Stock Plans assumed pursuant to the
Merger Agreement in a manner that complies with Rule 16b-3 promulgated under the
Exchange Act to the extent the applicable Conrail Stock Plan complied with such
rule prior to the Merger.
Pursuant to the Merger Agreement, a holder of an Adjusted Option may
exercise that Adjusted Option in whole or in part, in accordance with its terms,
by delivering a properly executed notice of exercise to CSX, together with the
consideration therefor and the federal withholding tax information, if any,
required in accordance with the related Conrail Stock Plan.
Except as otherwise contemplated by the provisions of the Merger Agreement
described in this section or required by the terms of Conrail Employee Stock
Options, all restrictions or limitations on transfer and vesting with respect to
Conrail Employee Stock Options awarded under Conrail Stock Plans or any other
plan, program or arrangement of Conrail or any of its subsidiaries, to the
extent that such restrictions or limitations shall not have already lapsed, will
remain in full force and effect with respect to those options after giving
effect to the Merger and the assumption by CSX as described above.
Tax-Free Reorganization. The Merger Agreement provides that neither
Conrail nor CSX nor any of their subsidiaries or affiliates has taken any action
or is aware of any fact that would jeopardize the qualification of the First
Offer, the Second Offer, the First Merger and the Second Merger, if integrated
and treated as a single transaction, as a reorganization under Section 368 of
the Code.
Representations and Warranties. In the Merger Agreement, Conrail has made
customary representations and warranties to CSX and Green Acquisition Corp. with
respect to, among other things, its organization, subsidiaries, qualification,
authorization, capital structure, public filings, employee benefit plans,
defaults, information in this Joint Proxy Statement/Prospectus and other
documents filed with the SEC in connection with the Transactions, compliance
with laws, consents and approvals, brokers' fees, undisclosed liabilities,
shareholder voting requirements, and the absence of certain events. In the
Merger Agreement, CSX and Green Acquisition Corp. have made customary
representations and warranties to Conrail with respect to, among other things,
organization, subsidiaries, authorization, capital structure, public filings,
employee benefit plans, information in this Joint Proxy Statement/Prospectus,
compliance with laws, consents and approvals, brokers' fees, undisclosed
liabilities, shareholder voting requirements, and the absence of certain events.
Conditions to the Merger. The respective obligations of Conrail, on the
one hand, and CSX and Green Acquisition Corp., on the other hand, to effect the
Merger are subject to the satisfaction or waiver on or prior to the Closing Date
(as defined in the Merger Agreement) of the following conditions: (i) each of
the Conrail Merger Approval and the CSX Shareholder Approval shall have been
obtained; (ii) any applicable waiting period (and any extension thereof) under
the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the "HSR
Act"), shall have been terminated or shall have expired; (iii) no judgment,
order, decree, statute, law, ordinance, rule, regulation, temporary restraining
order, preliminary or permanent injunction or other order enacted, entered,
promulgated, enforced or issued by any court of competent jurisdiction or other
governmental entity or other legal restraint or prohibition (collectively,
"Restraints") preventing the consummation of the Merger may be in effect,
provided that the party asserting this condition
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shall have used reasonable efforts to prevent the entry of any such Restraints
and to appeal as promptly as possible any such Restraints that may be entered,
and there shall not be any Restraint enacted, entered, enforced or promulgated
that is reasonably likely to result in a material adverse effect on Conrail and
CSX on a combined basis; and (iv) the shares of CSX Common Stock and CSX
Convertible Preferred Stock issuable to Conrail shareholders pursuant to the
Merger Agreement and under Conrail Stock Plans shall have been approved for
listing on the NYSE, subject to official notice of issuance.
The obligation of CSX to effect the Merger is further subject to
satisfaction or waiver of the following conditions: (i) Conrail shall not have
breached or failed to observe or perform in any material respect any of its
covenants or agreements under the Merger Agreement to be performed by it at or
prior to the Closing Date, and the representations and warranties of Conrail in
the Merger Agreement shall be true and accurate both when made and at and as of
the Closing Date, as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case as of such date), except
where the failure of such representations and warranties to be so true and
correct (without giving effect to any limitation as to "materiality" or
"material adverse effect" set forth therein), does not have, and is not likely
to have, individually or in the aggregate, a material adverse effect on Conrail;
(ii) at any time after the date of the Merger Agreement there shall not have
occurred any material adverse change relating to Conrail; (iii) Green
Acquisition Corp. shall have purchased the Shares in the First Offer, or, if
not, CSX and Green Acquisition Corp. shall have obtained sufficient financing,
on terms reasonably acceptable to CSX, to enable consummation of the Merger; and
(iv) all actions by or in respect of or filings with any governmental entity
required to permit the consummation of the Merger (other than approval of the
STB) will have been obtained, excluding any consent, approval, clearance or
confirmation the failure to obtain which would not have a material adverse
effect on CSX, Conrail or, after the Merger, the Surviving Corporation.
The obligation of Conrail to effect the Merger is further subject to
satisfaction or waiver of the following conditions: (i) CSX shall not have
breached or failed to observe or perform in any material respect any of its
covenants or agreements under the Merger Agreement to be performed by it at or
prior to the Closing Date, and the representations and warranties of CSX in the
Merger Agreement shall be true and accurate both when made and at and as of the
Closing Date, as if made at and as of such time (except to the extent expressly
made as of an earlier date, in which case as of such date), except where the
failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or "material
adverse effect" set forth therein) does not have, and is not likely to have,
individually or in the aggregate, a material adverse effect on CSX; and (ii) at
any time after the date of the Merger Agreement there shall not have occurred
any material adverse change relating to CSX.
Neither CSX nor Conrail is permitted under the Merger Agreement to rely on
the failure of any condition described in any of the three immediately preceding
paragraphs, as applicable, to be satisfied if such failure was caused by such
party's failure to use reasonable efforts to consummate the Merger and the other
transactions contemplated by the Merger Agreement, as required by and subject to
the provisions of the Merger Agreement described under "-- Reasonable Efforts;
Regulatory Approval."
Termination. The Merger Agreement may be terminated at any time prior to
the consummation of the Merger, whether before or after the Pennsylvania
Shareholder Approval, the Conrail Merger Approval or the CSX Shareholder
Approval, only as provided below:
(i) by mutual written consent of CSX and Conrail;
(ii) by either CSX or Conrail, if (a) the Merger has not been
consummated by December 31, 1998, except that the right to terminate the
Merger Agreement pursuant to this provision will not be available to any
party whose failure to perform any of its obligations under the Merger
Agreement results in the failure of the Merger to be consummated by such
time; (b) at any Conrail Merger Meeting duly convened therefor or at any
adjournment or postponement thereof, the Conrail Merger Approval is not
obtained, provided that such meeting was held after the earlier of (1)
December 31, 1998 and (2) the purchase of an aggregate of 40% of the fully
diluted Shares under the Offers; (c) at any CSX Merger Meeting duly
convened therefor or at any adjournment or postponement thereof, the CSX
Shareholder Approval is not obtained, provided that such meeting was held
after the earlier of (1) December 31, 1998
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and (2) the purchase of an aggregate of 40% of the fully diluted Shares
under the Offers; or (d) any governmental entity has issued a Restraint or
taken any other action permanently enjoining, restraining or otherwise
prohibiting the consummation of the Merger or any of the other transactions
contemplated by the Merger Agreement and such Restraint or other action has
become final and nonappealable, except that the party seeking to terminate
the Merger Agreement as described in this subsection (d) must have used all
reasonable efforts to prevent the entry of and to remove such Restraint or
other action;
(iii) by CSX, if Conrail has breached or failed to perform in any
material respect any of its representations, warranties, covenants or other
agreements contained in the Merger Agreement, which breach or failure to
perform (a) would constitute the failure of the condition to the Merger
described in clause (i) of the second paragraph under "-- Conditions to the
Merger," and (b) cannot be or has not been cured within 30 days after the
giving of written notice to Conrail of such breach (as long as CSX is not
then in material breach of any representation, warranty, covenant or other
agreement contained in the Merger Agreement and provided that, if such
breach is curable through the exercise of Conrail's best efforts, the
Merger Agreement may not be terminated for so long as Conrail is using its
best efforts to cure such breach);
(iv) by CSX in accordance with the terms of the Merger Agreement
described in the second paragraph under "-- No Solicitation," as long as
CSX has complied with all such terms, including the notice provisions
therein, and as long as CSX complies with applicable requirements of the
terms of the Merger Agreement described under "-- Certain Fees and
Expenses;"
(v) by CSX if (a) the Conrail Board, or, if applicable, any committee
thereof, has withdrawn or modified in a manner adverse to CSX its approval
or recommendation of the Offers or the Merger or the matters to be
considered at the Conrail Shareholders Meetings or failed to reconfirm its
recommendation within 15 business days after a written request to do so, or
approved or recommended any Takeover Proposal in respect of Conrail or (b)
the Conrail Board, or any committee thereof, has resolved to take any of
the foregoing actions;
(vi) by CSX, if Conrail or any of its officers, directors, employees,
representatives or agents take any of the actions that would be proscribed
by the terms of the Merger Agreement described under "-- No Solicitation"
but for the exceptions therein allowing certain actions to be taken
pursuant to the proviso in the first sentence of such section or the second
sentence of the second paragraph of such section;
(vii) by Conrail, if CSX has breached or failed to perform in any
material respect any of its representations, warranties, covenants or other
agreements contained in the Merger Agreement, which breach or failure to
perform (a) would constitute the failure of a condition to the Merger, as
described in clause (i) of the third paragraph under "-- Conditions to the
Merger," and (b) cannot be or has not been cured within 30 days after the
giving of written notice to CSX of such breach (as long as Conrail is not
then in material breach of any representation, warranty, covenant or other
agreement contained in the Merger Agreement and provided that, if such
breach is curable through the exercise of CSX's best efforts, the Merger
Agreement may not be terminated pursuant to this provision of the Merger
Agreement for so long as CSX is so using its best efforts to cure such
breach);
(viii) by Conrail in accordance with the provisions of the Merger
Agreement described in the second paragraph under "-- No Solicitation," as
long as Conrail has complied with all such provisions, including the notice
provisions therein, and complies with applicable requirements of the
provisions of the Merger Agreement described under "-- Certain Fees and
Expenses;"
(ix) by Conrail if (a) the CSX Board, or, if applicable, any committee
thereof, has withdrawn or modified in a manner adverse to Conrail its
approval or recommendation of the matters to be considered at a CSX Merger
Meeting, or failed to reconfirm its recommendation within 15 business days
after a written request to do so, or approved or recommended any Takeover
Proposal in respect of CSX or (b) the CSX Board, or any committee thereof,
has resolved to take any of the foregoing actions; or
(x) by Conrail, if CSX or any of its officers, directors, employees,
representatives or agents takes any of the actions that would be proscribed
by the terms of the Merger Agreement described under
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"-- No Solicitation" but for the exceptions therein allowing certain
actions to be taken pursuant to the proviso in the first sentence of such
section or the second sentence of the second paragraph of such section.
Certain Fees and Expenses. The Merger Agreement provides that, in the
event that (i) a Takeover Proposal in respect of Conrail shall have been made
known to Conrail or any of its subsidiaries or has been made directly to its
shareholders generally or any person shall have publicly announced an intention
(whether or not conditional) to make such a Takeover Proposal and thereafter the
Merger Agreement is terminated by either CSX or Conrail pursuant to subclauses
(a) or (b) of paragraph (ii) under "-- Termination," or (ii) the Merger
Agreement is terminated (a) by Conrail pursuant to paragraph (viii) under
"-- Termination," or (b) by CSX pursuant to paragraph (v) under
"-- Termination," then Conrail is required to promptly, but in no event later
than two days after the date of the termination, pay CSX the Termination Fee
(except that no Termination Fee will be payable pursuant to clause (i) of this
sentence unless and until, within 24 months of such termination, Conrail or any
of its subsidiaries enters into an Acquisition Agreement or consummates a
Takeover Proposal). Conrail has agreed that, if it fails promptly to pay the
amount due pursuant to the foregoing provision, and, in order to obtain such
payment, CSX commences a suit which results in a judgment against Conrail for
such fee, Conrail will pay to CSX its costs and expenses (including attorneys'
fees and expenses) in connection with such suit, together with interest on the
amount of the fee.
The Merger Agreement also provides that, in the event that (i) a Takeover
Proposal in respect of CSX shall have been made known to CSX or any of its
subsidiaries or has been made directly to its shareholders generally or any
person shall have publicly announced an intention (whether or not conditional)
to make such a Takeover Proposal and thereafter the Merger Agreement is
terminated by either CSX or Conrail pursuant to clause (a) or (c) of paragraph
(ii) under "--Termination," or (ii) the Merger Agreement is terminated (a) by
CSX pursuant to paragraph (iv) under "--Termination" or (b) by Conrail pursuant
to paragraph (ix) under "--Termination," CSX is required to promptly, but in no
event later than two days after the date of the termination, pay Conrail the
Termination Fee (except that no Termination Fee shall be payable pursuant to
clause (i) of this sentence unless and until, within 24 months of such
termination, CSX or any of its subsidiaries enters into an Acquisition Agreement
or consummates a Takeover Proposal). If CSX fails promptly to pay the amount due
pursuant to the foregoing provision, and, in order to obtain such payment,
Conrail commences a suit which results in a judgment against CSX for the fee set
forth in the foregoing provision, CSX is required to pay to Conrail its costs
and expenses (including attorneys' fees and expenses) in connection with such
suit, together with interest on the amount of the fee.
Amendment. The Merger Agreement may be amended by the parties by an
instrument in writing signed on behalf of each party at any time before or after
the Pennsylvania Shareholder Approval, Conrail Merger Approval or the CSX
Shareholder Approval. However, after any such approval, the Merger Agreement
does not permit the parties to make any amendment that by law requires further
approval by the shareholders of Conrail or CSX without the further approval of
such shareholders.
Registration Rights. Under the terms of the Merger Agreement, Conrail or
CSX, as applicable (the "issuing party") will, if requested by the other party
to the Merger Agreement (the "requesting party"), within three years after the
termination of the Merger Agreement, as expeditiously as possible, prepare and
file up to three registration statements under the Securities Act if necessary
to permit the sale or other disposition of any or all securities deposited in
the Voting Trust, in the case of CSX, or acquired through exercise of the CSX
Stock Option Agreement, in the case of Conrail, in accordance with the intended
method of sale or other disposition stated by the requesting party. The issuing
party will also use its best efforts to qualify such securities under applicable
state securities laws and will take certain steps to cause any sale or other
disposition pursuant to such registration statement to be effected on a widely
distributed basis. The issuing party will use reasonable efforts to cause each
such registration statement to become effective, to obtain any or all required
consents or waivers, and to keep such registration statement effective for such
period not in excess of 180 calendar days as is reasonably necessary to effect
such sale or other disposition. The foregoing obligations of the issuing party
may be suspended for certain limited periods if the Board of Directors of the
issuing party determines that carrying out such obligations during such periods
would require disclosure of nonpublic information that would materially and
adversely affect the issuing party. The Merger Agreement provides that,
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if the issuing party effects a registration under the Securities Act of the
issuing party's securities for its own account or for any of its shareholders,
then, with certain exceptions, the other party to the Merger Agreement will have
the right to participate in such registration without affecting the obligation
of the issuing party to effect demand registrations for the requesting party as
described above, subject to certain reductions if the managing underwriters of
such registration advise the issuing party that the number of securities
requested to be included in such offering exceed the number that can be sold.
Listing. CSX has agreed to use reasonable efforts to cause the shares of
CSX Common Stock and CSX Convertible Preferred Stock (or Trust Convertible
Preferred Securities, as applicable) issuable in the Merger, under Conrail Stock
Plans and pursuant to the CSX Stock Option Agreement, and Conrail has agreed to
use reasonable efforts to cause Shares issuable pursuant to the Conrail Stock
Option Agreement, to be approved for listing on the NYSE prior to the Closing
Date.
Rights Agreements. The Merger Agreement provides that the Conrail Board
will take all further action, if any, reasonably requested in writing by CSX
(including redeeming the Conrail Rights immediately prior to the Merger or
amending the Conrail Rights Agreement) in order to render the Conrail Rights
inapplicable to the transactions contemplated by the Merger Agreement and
Conrail Stock Option Agreement. Except for the foregoing, the Conrail Board will
not amend or take any action with respect to the Conrail Rights Agreement,
including a redemption of the Conrail Rights or any action to facilitate a
Takeover Proposal in respect of Conrail.
The Merger Agreement provides that the CSX Board will take all further
action, if any, reasonably requested in writing by Conrail in order to render
the CSX Rights inapplicable to the CSX Stock Option Agreement. The CSX Board
will not otherwise amend or take any action with respect to the CSX Rights
Agreement to facilitate a Takeover Proposal in respect of CSX.
OPTION AGREEMENTS
Concurrently with the Merger Agreement, the parties have entered into
option agreements granting each other the right to purchase shares of their
common stock under certain circumstances.
Pursuant to the Conrail Stock Option Agreement (the "Conrail Stock Option
Agreement"), Conrail granted CSX the Conrail Stock Option to purchase 15,955,477
shares of Conrail Common Stock at a price of $92.50 per share, subject to
adjustment for changes in Conrail's capitalization as described therein (the
"Purchase Price"), payable in cash. Such option became exercisable, in whole but
not in part, upon consummation of the First Offer ("Conrail Purchase Event").
The option terminates upon the first to occur of (i) the Merger, (ii) 18 months
after the first occurrence of a Conrail Purchase Event, and (iii) the
termination of the Merger Agreement (unless CSX is entitled to the Termination
Fee, in which case the option shall not terminate until the later of (a) six
months following the time the Termination Fee becomes payable and (b) the
expiration of the period in which CSX has the right to receive the Termination
Fee). Any purchase of shares of Conrail Common Stock under the Conrail Stock
Option Agreement will be delivered immediately to the Voting Trustee.
If, during the time that the option under the Conrail Stock Option
Agreement is exercisable, Conrail enters into an agreement pursuant to which all
outstanding shares of Conrail Common Stock are to be purchased for or converted
into, in whole or in part, cash (other than in respect of fractional shares),
then such agreement will make proper provision so that, upon consummation of the
transaction (which will be the date of acceptance for payment in the case of a
transaction involving a tender offer), in exchange for cancellation of the
option, CSX shall receive an amount in cash equal to the difference (if
positive) between the closing market price per share of Conrail Common Stock on
the day immediately prior to the consummation of such transaction and the
Purchase Price. In the event (i) Conrail enters into an agreement to consolidate
with, merge into, or sell substantially all of Conrail's assets to any person,
other than CSX, Green Acquisition Corp. or a direct or indirect subsidiary
thereof, and Conrail is not the surviving corporation, or (ii) Conrail allows
any person, other than CSX, Green Acquisition Corp. or a direct or indirect
subsidiary thereof, to merge into or consolidate with Conrail in a series of
transactions in which the shares of Conrail Common Stock or other securities of
Conrail represent less than 50% of the outstanding voting securities of the
merged corporation,
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then such agreement will make proper provision so that the option will be
adjusted, exchanged, or converted into an option with identical terms as those
described in the Conrail Stock Option Agreement, appropriately adjusted for such
transaction. CSX may require Conrail to register shares of Conrail Common Stock
purchased under the option pursuant to the Securities Act on the terms set forth
in the Merger Agreement. The Conrail Common Stock purchased under the option may
not be transferred or otherwise disposed of except as provided in the Voting
Trust Agreement.
Pursuant to the CSX Stock Option Agreement (the "CSX Stock Option
Agreement" and, together with the Conrail Stock Option Agreement, the "Option
Agreements"), CSX granted Conrail the CSX Stock Option to purchase 43,090,773
shares of CSX Common Stock, at a price of $64.82 per share, subject to
adjustments substantially the same as those contained in the Conrail Stock
Option Agreement. Such option becomes exercisable, in whole but not in part,
after any event which entitles Conrail to receive the Termination Fee (a "CSX
Purchase Event"). The option terminates upon the earliest of (i) the Merger,
(ii) 18 months after the first occurrence of a CSX Purchase Event, and (iii) the
termination of the Merger Agreement (unless Conrail is entitled to a Termination
Fee, in which case the option shall not terminate until the later of (a) six
months following the time such Termination Fee becomes payable and (b) the
expiration of the period in which Conrail has the right to receive a Termination
Fee). Any purchase of shares of CSX Common Stock under the CSX Stock Option
Agreement is subject to the conditions set forth therein, and any CSX Common
Stock so purchased will be delivered immediately to the trustee of the
applicable voting trust. The CSX Stock Option Agreement also provides for
adjustments for certain business combinations on substantially the same terms as
those of the Conrail Stock Option Agreement.
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting in
accordance with generally accepted accounting principles. Under the purchase
method of accounting, the purchase price of Conrail, including direct costs of
the Merger by CSX, will be allocated to the assets acquired and liabilities
assumed based upon their estimated relative fair values, with the excess
purchase consideration allocated to goodwill, if applicable. The results of
CSX's operations will include the results of operations of Conrail commencing at
the Merger.
The Unaudited Pro Forma Financial Statements appearing elsewhere in this
Joint Proxy Statement/Prospectus are based upon certain assumptions and allocate
the purchase price to assets and liabilities based upon preliminary estimates of
their respective fair values. The unaudited pro forma adjustments and combined
amounts are included for informational purposes only. If the Merger is
consummated, then CSX's financial statements will reflect effects of acquisition
adjustments only from the Merger. The actual allocation of the purchase price
may differ significantly from the allocation reflected in the Unaudited Pro
Forma Financial Statements.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material federal income tax
consequences of the Merger to holders of Shares who hold the Shares as capital
assets. The discussion set forth below is for general information only and may
not apply to certain categories of holders of Shares subject to special
treatment under the Code, such as foreign holders and holders who acquired such
Shares pursuant to the exercise of Conrail Employee Stock Options or otherwise
as compensation. This summary is based upon laws, regulations, rulings and
decisions currently in effect, all of which are subject to change, retroactively
or prospectively, and to possibly differing interpretations.
TAX CONSEQUENCES OF THE OFFERS AND THE MERGER GENERALLY
It is unclear whether the Offers and the Merger should be treated as a
single integrated transaction for federal income tax purposes. If the Offers and
the Merger are so treated, the Offers and the Merger should, in the aggregate,
qualify as a reorganization pursuant to Sections 368(a)(1)(A) and 368(a)(2)(D)
of the Code. In such event, generally (i) no gain or loss will be recognized by
CSX, Green Acquisition Corp. or Conrail
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pursuant to the Offers and the Merger, (ii) gain or loss will be recognized by a
shareholder of Conrail who receives solely cash in exchange for Shares pursuant
to either Offer and/or the Merger, (iii) no gain or loss will be recognized by a
shareholder of Conrail who does not exchange any Shares pursuant to the Offers
and who receives in the Merger solely CSX Merger Stock in exchange for Shares,
and (iv) a shareholder of Conrail who receives a combination of cash and CSX
Merger Securities or a combination of CSX Merger Stock and CSX Merger Non Stock
Securities in exchange for such shareholder's Shares, pursuant to either Offer
and/or the Merger, will not recognize loss but will recognize gain, if any, to
the extent of the lesser of (a) the sum of the cash and fair market value of CSX
Merger Non Stock Securities received and (b) the excess of the sum of the fair
market value of the CSX Merger Securities and the amount of cash received over a
shareholder's tax basis in the Shares exchanged. If so integrated, the federal
income tax consequences to a shareholder may be, depending on such shareholder's
particular circumstances, less favorable than the federal income tax
consequences to such shareholder if the Offers and the Merger are not treated as
integrated.
If the Offers and the Merger were not treated as a single integrated
transaction for federal income tax purposes, the receipt of cash pursuant to
either Offer would be a sale or exchange, while the Second Merger should still
qualify as a reorganization pursuant to Section 368(a)1)(A)of the Code and, as
discussed more fully below, the First Merger may be treated either as a sale or
exchange or as a reorganization pursuant to Section 368 of the Code.
Whether or not the Offers and the Merger are integrated, it is possible
that neither the First Merger nor the Second Merger will constitute a
reorganization within the meaning of Section 368 of the Code. See "-- Tax
Consequences if the Merger is Not Treated as a Reorganization."
TAX CONSEQUENCES IF THE OFFERS AND THE MERGER ARE TREATED AS A SINGLE INTEGRATED
TRANSACTION AND AS A REORGANIZATION
Exchange of Shares Solely for Cash. In general, a shareholder of Conrail
who, pursuant to either Offer and/or the Merger, exchanges all of the Shares
actually and constructively owned by such shareholder solely for cash will
recognize capital gain or loss equal to the difference between the amount of
cash received and such shareholder's adjusted tax basis in the Shares
surrendered. The gain or loss will be long-term capital gain or loss if, as of
the date of the exchange, the holder thereof has held such Shares for more than
one year. Gain or loss will be calculated separately for each identifiable block
of Shares surrendered pursuant to either Offer and/or the Merger.
Exchange of Shares Solely for CSX Merger Stock. A shareholder of Conrail
who, pursuant to the Merger, exchanges all of the Shares actually owned by such
shareholder solely for CSX Merger Stock (and who did not exchange any Shares for
cash in either Offer) will not recognize any gain or loss upon such exchange.
Such shareholder may recognize gain or loss, however, to the extent cash is
received in lieu of a fractional share of CSX Merger Stock, as discussed below.
The aggregate adjusted tax basis of the CSX Merger Stock received in such
exchange will be equal to the aggregate adjusted tax basis of the Shares
surrendered therefor allocated between the CSX Common Stock and any other type
of CSX Merger Stock in proportion to their relative fair market values, and the
holding period of CSX Common Stock and CSX Convertible Preferred Stock will
include the period during which the Shares surrendered in exchange therefor were
held.
Exchange of Shares for CSX Merger Stock and Cash and/or CSX Non Stock
Securities. A shareholder of Conrail who, pursuant to either Offer and/or the
Merger, exchanges all Shares actually owned by such shareholder for a
combination of shares of CSX Merger Stock and cash and/or CSX Merger Non Stock
Securities will not recognize any loss on such exchange. Such shareholder will
realize gain equal to the excess, if any, of the cash and the aggregate fair
market value of CSX Merger Securities received pursuant to either Offer and/or
the Merger over such shareholder's adjusted tax basis in the Shares exchanged
therefor, but will recognize any realized gain only to the extent of the cash
and the fair market value of CSX Merger Non Stock Securities received.
Any gain recognized by a shareholder of Conrail who receives a combination
of CSX Merger Stock and cash and/or CSX Merger Non Stock Securities pursuant to
either Offer and/or the Merger will be treated as
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capital gain unless the receipt of the cash has the effect of the distribution
of a dividend for federal income tax purposes, in which case such recognized
gain will be treated as ordinary dividend income to the extent of such
shareholder's ratable share of Conrail's accumulated earnings and profits.
For purposes of determining whether the cash and/or CSX Merger Non Stock
Securities received pursuant to either Offer and/or the Merger will be treated
as a dividend for federal income tax purposes, a shareholder of Conrail will be
treated as if such shareholder first exchanged all of such shareholder's Shares
solely for CSX Merger Stock and then CSX immediately redeemed a portion of such
CSX Merger Stock in exchange for the cash and/or CSX Merger Non Stock Securities
(together, "Nonqualifying Consideration") such shareholder actually received.
In general, the determination as to whether the Nonqualifying Consideration
received will be treated as received pursuant to a sale or exchange (generating
capital gain) or a dividend distribution (generating ordinary income) depends
upon whether and to what extent there is a reduction in the shareholder's deemed
percentage stock ownership of CSX. A shareholder of Conrail who exchanges such
shareholder's Shares for a combination of CSX Common Stock and Nonqualifying
Consideration will recognize capital gain rather than dividend income if the
deemed redemption by CSX (described in the preceding paragraph) is "not
essentially equivalent to a dividend" or is "substantially disproportionate"
with respect to such shareholder.
Whether the deemed exchange and subsequent redemption transaction are "not
essentially equivalent to a dividend" with respect to a Conrail shareholder will
depend upon such shareholder's particular circumstances. In order to reach such
conclusion, it must be determined that the transaction results in a "meaningful
reduction" in such shareholder's deemed percentage stock ownership of CSX. In
determining whether a reduction in a Conrail shareholder's deemed percentage
stock ownership has occurred, (i) the percentage of the outstanding stock of CSX
that such Conrail shareholder is deemed actually and constructively to have
owned immediately before the deemed redemption by CSX should be compared to (ii)
the percentage of the outstanding stock of CSX actually and constructively owned
by such shareholder immediately after the deemed redemption by CSX. The relevant
constructive ownership rules treat shareholders as owning stock held indirectly
(through partnerships, estates, trusts and corporations) and, under certain
circumstances, treat persons as owning stock owned by their partners,
beneficiaries and shareholders. Shareholders will also be treated as owning
stock that could be acquired by virtue of the exercise of any option to acquire
stock, and individual shareholders are treated as owning any stock owned by
their family.
A Conrail shareholder will comply with the "substantially disproportionate"
rule if the percentage described in clause (ii) of the preceding paragraph is
less than 80% of the percentage described in clause (i) above. Even if a Conrail
shareholder does not qualify under such test, the Internal Revenue Service has
ruled that a minority shareholder in a publicly held corporation whose relative
stock interest is minimal and who exercises no control with respect to corporate
affairs is considered to have a "meaningful reduction" if such shareholder has a
reduction in such shareholder's percentage stock ownership. In most
circumstances, therefore, gain recognized by a shareholder of Conrail who
exchanges such shareholder's Shares for a combination of CSX Merger Stock and
Nonqualifying Consideration will be capital gain, which will constitute
long-term capital gain if the holding period for such Shares was greater than
one year as of the date of the exchange.
The aggregate tax basis of CSX Merger Stock received by a Conrail
shareholder who, pursuant to either Offer and/or the Merger, exchanges such
shareholder's Shares for a combination of CSX Merger Stock and Nonqualifying
Consideration will be the same as the aggregate tax basis of the Shares
surrendered therefor, decreased by the value of the Nonqualifying Consideration
received and increased by the amount of gain recognized, if any (including any
portion of such gain that is treated as a dividend), allocated between the
different classes of CSX Merger Securities as described above. The holding
period of CSX Merger Stock will include the holding period of the Shares
surrendered therefor.
Cash Received in Lieu of a Fractional Interest in CSX Merger
Securities. Cash received in lieu of a fractional share of any CSX Merger
Security will generally (subject to the discussion above) be treated as received
in redemption of such fractional interest and gain or loss will be recognized,
measured by the difference between the amount of cash received and the portion
of the basis of the Shares allocable to such
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fractional interest. Such gain or loss will constitute capital gain or loss, and
will generally be long-term capital gain or loss if the holding period for such
Shares was greater than one year as of the date of the exchange.
TAX CONSEQUENCES IF THE OFFERS AND THE MERGER ARE TREATED AS SEPARATE
TRANSACTIONS
If the Offers and the Merger were treated as separate transactions for
federal income tax purposes, the receipt of cash pursuant to either Offer and
the receipt of CSX Merger Securities pursuant to the First Merger would be a
taxable transaction, while the Second Merger should still qualify as a
reorganization pursuant to Section 368(a)(1)(A) of the Code. Accordingly, a
shareholder of Conrail who receives Nonqualifying Consideration and/or CSX
Merger Stock pursuant to either Offer or the First Merger would recognize gain
or loss equal to the difference between the fair market value of the amount of
Nonqualifying Consideration and CSX Merger Stock received and the shareholder's
adjusted tax basis in the Shares surrendered, calculated separately with respect
to each block of Shares exchanged. The gain or loss would be long-term capital
gain or loss if, as of the date of the exchange, such shareholder had held such
stock for more than one year.
A shareholder of Conrail who receives cash and/or CSX Merger Securities
pursuant to the Second Merger would be subject to the federal income tax rules
concerning reorganizations discussed above under "-- Tax Consequences if the
Offers and the Merger are Treated as a Single Integrated Transaction and as a
Reorganization" (but without regard to the cash received, and Shares exchanged,
in either Offer). Additionally, it is possible that the First Merger would be
integrated with the Second Merger and treated as a single transaction, in which
case a shareholder of Conrail who receives CSX Common Stock and/or cash and/or
CSX Merger Securities pursuant to the First Merger and the Second Merger would
be subject to the federal income tax rules concerning reorganizations (as
described in the preceding sentence) without regard to the cash received in
either Offer.
TAX CONSEQUENCES IF THE MERGER IS NOT TREATED AS A REORGANIZATION
Whether or not the Offers and the Merger are integrated, it is possible
that neither the First Merger nor the Second Merger will constitute a
reorganization within the meaning of Section 368 of the Code. For example, in
the event that CSX is required to dispose of Conrail or its assets by the STB,
certain "continuity of business enterprise" requirements that are a condition to
reorganization treatment may not be met. In this event, a shareholder would
recognize gain or loss equal to the fair market value of the CSX Merger
Securities and cash received over the shareholder's tax basis in the Shares
exchanged, calculated separately as to each block of Shares exchanged. The
character of such gain or loss would be determined as described above.
CSX CONVERTIBLE PREFERRED STOCK
The tax consequences to a holder of CSX Convertible Preferred Stock of
ownership, sale, conversion or redemption of such stock will in large part
depend on whether such stock is CSX Convertible Preferred Stock or Trust
Convertible Preferred Stock. Accordingly, the discussion below treats separately
the two possible types of CSX Merger Securities.
TAX CONSEQUENCES OF OWNERSHIP, SALE, CONVERSION AND REDEMPTION OF
CSX CONVERTIBLE PREFERRED STOCK
Ownership. Holders of CSX Convertible Preferred Stock will receive
dividends which will be taxable to holders as ordinary dividend income to the
extent paid out of current or accumulated earnings and profits of CSX, as
determined for federal income tax purposes. CSX believes that it will have
sufficient current and accumulated earnings and profits such that distributions
will be taxable as dividend income, but no assurance can be given in this
regard. To the extent that a distribution on the CSX Convertible Preferred Stock
to a holder exceeds the holder's allocable share of CSX's current or accumulated
earnings and profits, such distribution will first be treated as a return of
capital that will reduce the holder's adjusted tax basis in such CSX Convertible
Preferred Stock, and then, to the extent that the distribution exceeds the
holder's adjusted tax basis in such stock, the excess will be taxed as a capital
gain. Such capital gain will be long-term capital gain if the holder's holding
period for such stock is more than one year.
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In general, under current U.S. tax law, if the redemption price of
preferred stock that is subject to mandatory redemption by the issuer exceeds
its issue price by more than a de minimis amount ( 1/4 of one percent of the
redemption price multiplied by the number of complete years to maturity), such
excess is treated as being distributed to the holder of such stock, taxable as
described above, on an economic accrual basis over the period from the issuance
of the stock until the date the stock is first redeemable. In the event that the
CSX Convertible Preferred Stock has a fixed, as opposed to a perpetual, term,
and the issue price of the CSX Convertible Preferred Stock (i.e., its trading
value on the date of issuance) is less than its redemption price by more than a
de minimis amount, such redemption premium would be treated in this manner.
Corporations holding CSX Convertible Preferred Stock that receive dividends
paid out of CSX's current or accumulated earnings and profits will generally be
eligible for a dividends-received deduction.
Sale or Exchange. Upon a sale or exchange of CSX Convertible Preferred
Stock, a holder generally will recognize gain or loss for federal income tax
purposes in an amount equal to the difference between (i) the amount of cash
plus the fair market value of any property received upon such sale or exchange
and (ii) the holder's adjusted tax basis in the stock being sold. Such gain or
loss will be long-term capital gain or loss if the stock has been held by the
holder for more than one year.
Redemption. A redemption of CSX Convertible Preferred Stock will be a
taxable event and will be treated as a sale of such stock by the holder if the
redemption (i) results in a "complete termination" of the holder's stock
interest in CSX under Section 302(b)(3) of the Code, (ii) is "substantially
disproportionate" with respect to the holder under section 302(b)(2) of the Code
or (iii) is "not essentially equivalent to a dividend" with respect to the
holder under Section 302(b)(1) of the Code (see discussion above under "--
Exchange of Shares for CSX Merger Stock and Cash and/or CSX Non Stock
Securities"). In determining whether any of these tests has been met, shares of
stock considered to be owned by the holder by reason of certain constructive
ownership rules set forth in Section 318 of the Code, as well as shares actually
owned, generally must be taken into account. If a redemption is not treated as a
sale, the cash and the fair market value of property (other than stock of CSX or
a successor thereto) received by the holder will be taxed as a dividend to the
extent paid out of CSX's current or accumulated earnings and profits. If a
redemption of the CSX Convertible Preferred Stock is treated as a distribution
that is taxable as a dividend, the holder's basis in the redeemed CSX
Convertible Preferred Stock will be transferred to the holder's remaining shares
of CSX stock (if any).
Conversion. No gain or loss will generally be recognized for federal
income tax purposes on conversion of the CSX Convertible Preferred Stock solely
into CSX Common Stock. The tax basis for the CSX Common Stock received upon
conversion will be the tax basis of the CSX Convertible Preferred Stock
converted, and the holding period of the CSX Common Stock received upon
conversion will include the holding period of the CSX Convertible Preferred
Stock converted. The receipt of cash in lieu of a fractional share upon
conversion of CSX Convertible Preferred Stock to CSX Common Stock will, upon
receipt of cash, generally be treated as a sale of such fractional share of CSX
Common Stock in which the holder will recognize taxable gain or loss equal to
the difference between the amount of cash received and the holder's tax basis in
the fractional share redeemed.
Adjustments to Conversion Provisions. Treasury regulations issued under
Section 305 of the Code would treat holders of CSX Convertible Preferred Stock
as having received a constructive distribution from CSX of stock in the event of
any adjustment increasing the number of shares of CSX Common Stock into which
the CSX Convertible Preferred Stock can be converted and any adjustment to
reflect taxable distributions of cash or property on any of the outstanding CSX
Common Stock. Such constructive distributions of stock would be taxable to
holders of CSX Convertible Preferred Stock as dividends. Adjustments in
conversion price to reflect nontaxable stock splits or distributions of stock,
stock warrants or stock rights would, however, generally not be so treated.
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TAX CONSEQUENCES OF OWNERSHIP, SALE, CONVERSION AND REDEMPTION OF
TRUST CONVERTIBLE PREFERRED STOCK
Ownership. The CSX Merger Securities may include Trust Convertible
Preferred Securities issued by a trust established by CSX (the "CSX Trust")
which would represent an interest in subordinated debt securities (the "CSX
Trust Securities") held by the CSX Trust. In such event, it is expected that
counsel to CSX will render an opinion (and, accordingly, that CSX will take the
position) that such CSX Trust Securities will be classified for federal income
tax purposes as indebtedness of CSX and that, by acceptance of the Trust
Convertible Preferred Securities, each holder will covenant to treat the CSX
Trust Securities as indebtedness and the Trust Convertible Preferred Securities
as evidence of an indirect beneficial interest in the CSX Trust Securities.
Additionally, it is expected that counsel to CSX will render an opinion (and,
accordingly, that CSX will take the position) that the CSX Trust will be
classified for federal income tax purposes as a grantor trust. Accordingly, each
holder of Trust Convertible Preferred Securities generally will be considered
the owner of an undivided interest in the CSX Trust Securities, and, pursuant to
the agreement to treat the CSX Trust Securities as indebtedness, each holder
will be required to include in its gross income any Original Issue Discount
("OID") accrued with respect to its allocable share of those CSX Trust
Securities.
Under the terms of the CSX Trust Securities, CSX will have the option to
defer payments of interest from time to time by extending the interest payment
period for a certain, limited number of consecutive semiannual periods, but not
beyond the maturity of the CSX Trust Securities. Recently issued Treasury
regulations under Section 1273 of the Code provide that debt instruments like
the CSX Trust Securities will not be considered issued with OID by reason of
CSX's option to defer payments of interest if the likelihood of deferral is
"remote."
It is the current expectation of CSX, and this discussion assumes, that, as
of the date of the issuance of the Trust Convertible Preferred Securities, the
likelihood of exercise of that option will be "remote" within the meaning of the
applicable regulations, in part because exercising that option would prevent CSX
from declaring dividends on its CSX Common Stock and would prevent CSX from
making any payments with respect to debt securities that rank pari passu or
junior to the CSX Trust Securities. Therefore, the CSX Trust Securities should
not be treated as issued with OID by reason of CSX's deferral option. Rather,
stated interest on the CSX Trust Securities will generally be taxable to a
holder as ordinary income when paid or accrued in accordance with that holder's
method of accounting for income tax purposes. It should be noted, however, that
these regulations have not yet been addressed in any rulings or other
interpretations by the Internal Revenue Service. Accordingly, it is possible
that the Internal Revenue Service could take a position contrary to the
interpretation described herein.
In the event that CSX subsequently exercised its option to defer payments
of interest, the CSX Trust Securities would be treated as reissued for OID
purposes and the sum of the remaining interest payments on the CSX Trust
Securities would thereafter be treated as OID, which would accrue, and be
includible in a holder's taxable income, on an economic accrual basis
(regardless of the holder's method of accounting for income tax purposes) over
the remaining term of the CSX Trust Securities (including any period of interest
deferral), without regard to the timing of payments under the CSX Trust
Securities (subsequent distributions of interest on the CSX Trust Securities
generally would not be taxable). The amount of OID that would accrue in any such
period would generally equal the amount of interest that accrued on the CSX
Trust Securities in that period at the stated interest rate. Consequently,
during any period of interest deferral, holders will include OID in gross income
in advance of the receipt of cash.
If CSX's option to defer payments of interest were not treated as remote,
the CSX Trust Securities would be treated as initially issued with OID in an
amount equal to the aggregate stated interest over the term of the CSX Trust
Securities, plus Standard OID (as defined below), if any, on the CSX Trust
Securities. That OID would generally be includible in a holder's taxable income
over the term of the CSX Trust Securities on an economic accrual basis.
Regardless of CSX's option to defer payments of interest, the CSX Trust
Securities may be considered to be issued with OID if the stated redemption
price at maturity (as defined for federal income tax purposes) of
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the CSX Trust Securities exceeds the issue price of the CSX Trust Securities by
more than a de minimis amount (such OID is hereinafter referred to as "Standard
OID").
The issue price of the CSX Trust Securities represented by the Trust
Convertible Preferred Securities should be the trading value, on the date of
issuance, of the Trust Convertible Preferred Securities, or, alternatively, if
such Trust Convertible Preferred Securities are not traded on an established
securities market, the trading value of the Shares allocable to such Trust
Convertible Preferred Securities. The stated redemption price at maturity of a
debt security is the total of all payments (other than stated interest that is
unconditionally payable in cash or in property at least annually at a single
agreed rate) provided for by the debt security.
In the event that the CSX Trust Securities are considered issued with
Standard OID, a holder will have to include such Standard OID in income
calculated on a constant-yield method before the receipt of cash attributable to
such income, and generally will have to include in income increasingly greater
amounts of Standard OID over the life of the CSX Trust Security. The amount of
Standard OID includable in income by a holder of a CSX Trust Security would be
the sum of the daily portions of Standard OID with respect to the CSX Trust
Security for each day during the taxable year or portion of the taxable year on
which the holder holds the CSX Trust Security ("accrued Standard OID"). The
daily portion would be determined by allocating to each day in any "accrual
period" a pro rata portion of the Standard OID allocable to that accrual period.
Accrual periods with respect to a CSX Trust Security could be of any length
selected by the holder and could vary in length over the term of the CSX Trust
Security as long as (i) no accrual period were longer than one year and (ii)
each scheduled payment of interest or principal on the security occurred on
either the final or first day of an accrual period. The amount of Standard OID
allocable to an accrual period generally equals the excess of (a) the product of
a debt security's adjusted issue price at the beginning of the accrual period
and such debt security's yield to maturity (determined on the basis of
compounding at the close of each accrual period and properly adjusted for the
length of the accrual period) over (b) the sum of the interest payments on the
debt security allocable to the accrual period. The "adjusted issue price" of a
debt security at the beginning of any accrual period is the issue price of the
debt security increased by (x) the amount of accrued Standard OID for each prior
accrual period and decreased by (y) the amount of any payments previously made
on the debt security that were not interest payments. A holder's tax basis in
such debt security will be increased by the amount of Standard OID attributable
to such debt security included in such holder's income.
Because the income underlying the Trust Convertible Preferred Securities
will not be characterized as dividend income for federal income tax purposes,
corporate holders of such stock will not be entitled to a dividend received
deduction for any income recognized with respect to the Trust Convertible
Preferred Securities.
It should be noted that legislation proposed in 1996 by President Clinton
would treat as equity for federal income tax purposes instruments with a maximum
term of more than 20 years that are not shown as indebtedness on the
consolidated balance sheet of the issuer and would disallow interest deductions
on certain convertible debt instruments. Such proposed legislation, which
appeared by its terms to be applicable to the CSX Trust Securities, was not
adopted in 1996. However, future legislation to such effect would most likely
not apply to the CSX Trust Securities if the securities were issued prior to the
date of Congressional action with respect to any such legislation.
If legislation is enacted that in this manner adversely affects the tax
treatment of the CSX Trust Securities, such legislation could result, as
discussed in Appendix F, in the distribution of the CSX Trust Securities to
holders of Trust Convertible Preferred Securities or, in certain limited
circumstances, the redemption of such securities by CSX and the distribution of
the resulting cash by the CSX Trust in redemption of the Trust Convertible
Securities.
Sale or Exchange. A holder that sells Trust Convertible Preferred
Securities will recognize gain or loss equal to the difference between the
holder's adjusted tax basis in the stock and the amount realized on the sale of
such stock, as described above under the caption "-- Tax Consequences of
Ownership, Sale, Conversion and Redemption of CSX Convertible Preferred Stock if
such stock is Convertible Preferred Stock -- Sale or
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Exchange." It should be noted, however, that since holders will include OID in
gross income in advance of the receipt of cash, a holder which disposes of
shares of Trust Convertible Preferred Securities prior to the record date for
payment of distributions on the CSX Trust Securities following that period will
be subject to income tax on OID accrued through the date of disposition (and not
previously included in income), but will not receive cash from the CSX Trust
with respect to that OID.
Receipt of CSX Trust Securities upon Liquidation of Trust. Under certain
circumstances, the CSX Trust Securities may be distributed to holders in
exchange for the Trust Convertible Preferred Securities and in liquidation of
the CSX Trust. Except where the relevant circumstance is an event which results
in the CSX Trust being treated as an association taxable as a corporation (in
which case the distribution would likely constitute a taxable event to holders
of the Trust Convertible Preferred Securities), such a distribution would
generally not be a taxable event for income tax purposes, and each holder would
have an aggregate adjusted basis in such CSX Trust Securities for income tax
purposes equal to such holder's aggregate adjusted basis in its Trust
Convertible Preferred Securities. For income tax purposes, a holder's holding
period in the CSX Trust Securities received in such a liquidation of the CSX
Trust would include the period during which the Trust Convertible Preferred
Securities was held by the holder.
Redemption. Under certain circumstances, the CSX Trust Securities may be
redeemed for cash and the proceeds of such redemption distributed to holders in
redemption of their Trust Convertible Preferred Securities. Such a redemption
would constitute a taxable disposition of the redeemed stock, and a holder would
recognize gain or loss as if the holder sold such redeemed stock for cash.
Conversion and Adjustments to Conversion Provisions. The tax consequences
to a holder of a conversion of Trust Convertible Preferred Securities would be
identical to those described above under the captions "-- Tax Consequences of
Ownership, Sale, Conversion and Redemption of CSX Convertible Preferred Stock if
such stock is Convertible Preferred Stock -- Conversion" and "-- Adjustments to
Conversion Provisions."
WITHHOLDING
Unless a shareholder complies with certain reporting and/or certification
procedures or is an exempt recipient under applicable provisions of the Code and
Treasury Regulations promulgated thereunder, such shareholder may be subject to
withholding tax of 31% with respect to any cash payments received pursuant to
the Merger. Shareholders should consult their brokers to ensure compliance with
such procedures. Foreign shareholders should consult with their own tax advisors
regarding withholding taxes in general.
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO CASH
PAYMENTS TO CERTAIN SHAREHOLDERS IN THE MERGER FOR SHARES CONVERTED INTO THE PER
SHARE CASH CONSIDERATION PURSUANT TO A CASH ELECTION OR IN LIEU OF FRACTIONAL
SHARES OF CSX MERGER SECURITIES, EACH SUCH SHAREHOLDER MUST PROVIDE THE
DEPOSITARY WITH SUCH SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND
CERTIFY THAT SUCH SHAREHOLDER IS NOT SUBJECT TO BACKUP FEDERAL INCOME TAX
WITHHOLDING BY COMPLETING THE SUBSTITUTE FORM W-9 IN THE ELECTION FORM. IF
BACKUP WITHHOLDING APPLIES WITH RESPECT TO A SHAREHOLDER, THE DEPOSITARY IS
REQUIRED TO WITHHOLD 31% OF ANY PAYMENTS MADE TO SUCH SHAREHOLDER.
THE ABOVE DISCUSSION MAY NOT APPLY TO CERTAIN CATEGORIES OF SHAREHOLDERS
SUBJECT TO SPECIAL TREATMENT UNDER THE CODE, SUCH AS FOREIGN SHAREHOLDERS AND
SHAREHOLDERS WHOSE SHARES WERE ACQUIRED PURSUANT TO THE EXERCISE OF A CONRAIL
EMPLOYEE STOCK OPTION OR OTHERWISE AS COMPENSATION. SHAREHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER, INCLUDING ANY FEDERAL, STATE, LOCAL OR OTHER TAX CONSEQUENCES (INCLUDING
ANY TAX RETURN FILING OR OTHER TAX REPORTING REQUIREMENTS) OF THE MERGER.
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ELECTION PROCEDURES
Promptly after the Merger, if Elections are applicable, an agent to be
appointed to act in the capacity of exchange agent (the "Exchange Agent") will
mail an election form, a letter of transmittal and other appropriate transmittal
materials (collectively, the "Election Form") to each person who, as of the
First Effective Time, holds shares of Conrail Common Stock of record.
If applicable, each holder of shares of Conrail Common Stock may specify in
an Election Form (i) the number of shares owned by such holder that such holder
desires to have converted into the right to receive shares of CSX Common Stock
and CSX Convertible Preferred Stock (or Trust Convertible Preferred Securities,
as applicable) in the Merger and (ii) the number of shares owned by such holder
that such holder desires to have converted into the right to receive the Per
Share Cash Consideration in the Merger.
Because the cash and stock components of the Merger Consideration are
fixed, the extent to which elections by holders of Conrail Common Stock will be
accommodated will depend upon the respective numbers of Conrail shareholders who
elect cash or stock or make no Election. Accordingly, a Conrail shareholder who
elects to receive cash may instead receive shares of CSX Common Stock and CSX
Convertible Preferred Stock (or Trust Convertible Preferred Securities, as
applicable) and a Conrail shareholder who elects to receive such stock may
instead receive cash.
Any Election shall have been made properly only if the Exchange Agent shall
have received, by 5:00 p.m. local time in the city in which the principal office
of such Exchange Agent is located, on the date of the Election Deadline, an
Election Form completed and signed and accompanied by Certificates to which such
Election Form relates (or by an appropriate guarantee of delivery of such
Certificates, as set forth in such Election Form, from a member of any
registered national securities exchange or of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company in the United
States provided such Certificates are in fact delivered to the Exchange Agent by
the time required in such guarantee of delivery). Failure to deliver shares
covered by such a guarantee of delivery within the time set forth on such
guarantee shall be deemed to invalidate any otherwise properly made Election.
The Election Deadline will be a date to be announced by CSX following the
Merger, in a news release delivered to the Dow Jones News Service, as the last
day on which Election Form will be accepted.
Any Conrail shareholder may at any time prior to the Election Deadline
change his or her Election by written notice received by the Exchange Agent
prior to the Election Deadline accompanied by a properly completed and signed,
revised Election Form. Any Conrail shareholder may, at any time prior to the
Election Deadline, revoke his or her Election by written notice received by the
Exchange Agent prior to the Election Deadline or by withdrawal prior to the
Election Deadline of his or her Certificates, or of the guarantee of delivery of
such Certificates, previously deposited with the Exchange Agent. CSX shall have
the right to make rules, not inconsistent with the terms of the Merger
Agreement, governing the validity of the Forms of Election, the manner and
extent to which Elections are to be taken into account in making the
determinations prescribed by the Merger Agreement, the issuance and delivery of
certificates for shares of CSX Common Stock and CSX Convertible Preferred Stock
(or Trust Convertible Preferred Securities, as applicable) into which shares of
Conrail Common Stock are converted in the Merger and the payment of cash for
shares of Conrail Common Stock converted into the right to receive Per Share
Cash Consideration in the Merger.
The Exchange Agent will select holders in allocating the Merger
Consideration as described above, which selection will be made by such method as
the Exchange Agent deems equitable and as directed by CSX, and CSX and/or the
Exchange Agent will have reasonable discretion to determine when any Election,
modification or revocation is received and whether any such Election,
modification or revocation has been properly made.
The election procedures set forth herein are applicable only if, prior to
the First Effective Time, CSX and its subsidiaries have not purchased for cash
40% of the Shares outstanding on a fully diluted basis pursuant to the Offers or
otherwise (other than pursuant to the Conrail Stock Option). It is anticipated
that if the Second Offer is fully subscribed and consummated in accordance with
its terms, the Election will not be applicable and Conrail shareholders will
receive the Per Share Stock Consideration for each Share and will not be offered
the opportunity to elect to receive the Per Share Cash Consideration.
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FEDERAL SECURITIES LAWS CONSEQUENCES
All shares of CSX Common Stock and CSX Convertible Preferred Stock (or
Trust Convertible Preferred Securities, as applicable) received by Conrail
shareholders in the Merger will be freely transferable, except that shares of
CSX Common Stock received by persons who are deemed to be "affiliates" (as such
term is defined under the Securities Act) of Conrail prior to the Merger may be
resold by them only in transactions permitted by the resale provisions of Rule
145 promulgated under the Securities Act (or Rule 144 promulgated under the
Securities Act, in the case of such persons who become affiliates of CSX) or as
otherwise permitted under the Securities Act. Persons who may be deemed to be
affiliates of CSX or Conrail generally include individuals or entities that
control, are controlled by, or are under common control with, such party, and
may include certain officers and directors of such party as well as principal
shareholders of such party. The Merger Agreement requires Conrail to use
reasonable efforts to deliver or cause to be delivered to CSX, prior to the
Closing Date, from each affiliate of Conrail, a letter agreement to the effect
that such person will not offer or sell or otherwise dispose of any of the
shares of CSX Common Stock and CSX Convertible Preferred Stock (or Trust
Convertible Preferred Securities, as applicable) issued to such persons in or
pursuant to the Merger in violation of the Securities Act or the rules and
regulations promulgated by the SEC thereunder.
DISSENTERS' RIGHTS
In Schwabacher v. United States, 334 U.S. 182 (1948), the United States
Supreme Court held that dissenters' rights under state law are preempted in the
event that the STB approves a rail combination and determines that its financial
terms are "just and reasonable." CSX and Conrail intend to request that the STB
make such a determination with respect to CSX's proposed acquisition of control
of Conrail. Although the Merger is to be effected prior to an STB decision, CSX
and Conrail believe that this doctrine is a bar to the assertion of dissenters'
rights under state law and intend to assert such position in respect of any
claims of dissenters' rights. In the event that there is an STB denial, or that
the STB does not determine that the terms of a proposed merger are "just and
reasonable," dissenters' rights may be available if the STB or a court of
competent jurisdiction provides for such rights. In such event, CSX and Conrail
intend to take the position that the perfection of any such rights requires that
any shareholder asserting such rights strictly comply with the dissenters'
rights procedures set forth in the Pennsylvania Law, certain sections of which
are attached as Appendix E hereto. CSX and Conrail are not aware that the STB or
any court has addressed the issue of the availability of dissenters' rights
under state law in a case where the combination occurs prior to STB approval of
the acquisition of control, as would be the case here. Conrail shareholders who
are interested in pursuing dissenters' rights should accordingly consult with
their counsel regarding the availability of such rights.
Availability. Under the Pennsylvania Law, dissenters' rights would not be
available to holders of Conrail Common Stock except with respect to Shares for
which cash consideration is to be received in the Merger (i.e., in the event
that the number of Acquired Shares is less than 40% of the outstanding Conrail
Common Stock at the time of the Merger). Under the Pennsylvania Law, dissenters'
rights would be available to holders of Conrail ESOP Preferred Stock. If
dissenters' rights are available to holders of Conrail Common Stock or to
holders of Conrail ESOP Preferred Stock, such rights will be provided in
accordance with Section 1571 et seq. of the Pennsylvania Law (unless determined
otherwise by the STB). In such event, any issued and outstanding shares of
Conrail Common Stock or Conrail ESOP Preferred Stock held by persons who (i) are
entitled to dissenters' rights under the Pennsylvania Law, (ii) object to the
Merger and (iii) comply with all the provisions of the Pennsylvania Law
concerning the right of shareholders to dissent and require valuation of their
shares (each, a "Dissenting Shareholder") will not be converted into the right
to receive the applicable consideration provided pursuant to the Merger
Agreement (the "Merger Consideration"), but will become the right to receive
payment of the "fair value" of their shares at the time of the Merger (exclusive
of any element of appreciation or depreciation in anticipation of the Merger or
a court of competent jurisdiction); provided, however, that the Shares
outstanding immediately prior to the Merger and held by a Dissenting Shareholder
who, after the Merger, withdraws such shareholder's demand for payment or loses
his right to dissent, in either case, pursuant to the Pennsylvania Law, will be
deemed to be converted as of the time of the Merger into the right to receive
the applicable Merger Consideration payable to the holder thereof under the
Merger Agreement, without interest. Section 1572 of the Pennsylvania Law defines
the "fair
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value" of shares with respect to which dissenters' rights are asserted as "the
fair value of shares immediately before the effectuation of the corporate action
to which the dissenter objects taking into account all relevant factors, but
excluding any appreciation or depreciation in anticipation of the corporate
action."
Procedures. The following is a summary of the provisions of Subchapter D
of Chapter 15 of the Pennsylvania Law which is qualified in its entirety by
reference thereto, the full text of which is attached hereto as Appendix E. All
references to a shareholder or a Conrail shareholder in Subchapter D of Chapter
15 of the Pennsylvania Law and this summary are to the record holder of Conrail
stock as to which dissenters' rights are asserted.
A person having a beneficial interest in Shares that is held of record in
the name of another person, such as a broker or nominee, must act promptly to
cause the record holder to follow the steps summarized below properly and in a
timely manner to perfect whatever appraisal rights the beneficial owner may
have. THIS DISCUSSION AND APPENDIX E SHOULD BE REVIEWED CAREFULLY BY ANY
SHAREHOLDER WHO WISHES TO EXERCISE STATUTORY DISSENTERS' RIGHTS OR WHO WISHES TO
PRESERVE THE RIGHT TO DO SO BECAUSE FAILURE STRICTLY TO COMPLY WITH ANY OF THE
PROCEDURAL REQUIREMENTS OF THE PENNSYLVANIA LAW MAY RESULT IN A TERMINATION OR
WAIVER OF RIGHTS.
General. Under the Pennsylvania Law, shareholders who are entitled to
dissenters' rights pursuant to Subchapter D and Chapter 15 of the Pennsylvania
Law, if they object to the Merger, are entitled to receive payment of the "fair
value" of their shares, as defined in Subchapter D of Chapter 15 of the
Pennsylvania Law. Pursuant to the Pennsylvania Law, the "fair value" is the
value thereof immediately before the effectuation of the Merger taking into
account all relevant factors but excluding any appreciation or depreciation in
anticipation of the Merger.
Filing Notice of Intention to Demand Fair Value. Prior to the shareholder
vote on the Merger, any Conrail shareholder who wishes to dissent and obtain the
payment of the fair value of his shares must file with Conrail a written notice
of his intention that he be paid the fair value of his shares if the Merger is
effectuated. Such written notice should be sent to the Secretary of Conrail at
the address of Conrail set forth under "AVAILABLE INFORMATION." In addition, any
Conrail shareholder who wishes to dissent must effect no change in the
beneficial ownership of his shares from the date of the filing of his written
notice continuously through the time of the Merger, and he must refrain from
voting his shares in approval of the Merger. A dissenter who fails to comply
with any of the foregoing requirements shall not acquire any right to the
payment of the fair value of his shares.
A written notice of an intention to dissent must be filed in addition to
and separate from any proxy or vote against, or abstention from voting for, the
Merger. Stated another way, neither a vote against the Merger (or a proxy
directing such) nor an abstention from the vote concerning the Merger (or a
proxy directing such) will satisfy the requirement that a written notice of
intention to dissent be delivered to Conrail before the vote upon the Merger.
Because a proxy left blank will, unless revoked, be voted "FOR" adoption of the
Merger, a Conrail shareholder electing to exercise dissenter's rights who votes
by proxy must not leave the proxy blank but must (i) vote "AGAINST" the adoption
of the Merger or (ii) "ABSTAIN" from voting for or against adoption of the
Merger.
Record and Beneficial Owners. A record holder of Conrail stock may assert
dissenters' rights as to fewer than all of the shares registered in his name
only if he dissents with respect to all the shares of the same Class or Series
beneficially owned by any one person and discloses the name and address of the
person or persons on whose behalf he dissents. In that event, his rights shall
be determined as if the shares as to which he has dissented and his other shares
were registered in the names of different shareholders. A beneficial owner of
Conrail stock who is not the record holder may assert dissenter's rights with
respect to shares held on his behalf and shall be treated as a dissenting
shareholder if he submits to Conrail the written consent of the record holder
not later than the time of assertion of dissenters' rights. A beneficial owner
may not dissent with respect to some but less than all shares of Conrail stock
owned by the owner, whether or not the shares so owned by him are registered in
his name.
Notice to Demand Payment. If the Merger is approved by the requisite vote
at the Conrail Meeting, Conrail shall mail a further notice to all dissenters
who gave due notice of their intention to demand payment
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of the fair value of their shares and who refrained from voting in favor of the
Merger. The notice will state where and when a demand for payment must be sent
and certificates for shares must be deposited in order to obtain payment.
Accompanying this notice will be a form for demanding payment that will include
a request for certification of the date on which the shareholder, or the person
on whose behalf the shareholder dissents, acquired beneficial ownership of the
shares and a copy of Subchapter D of Chapter 15 of the Pennsylvania Law. The
time set for receipt of the demand and deposit of certificates shall not be less
than thirty days from the mailing of the notice. A Conrail shareholder who fails
to demand payment, or fails to deposit certificates, as required by the notice
to demand payment sent by Conrail to such shareholders, shall not have any
rights to receive payment of the fair value of his shares.
Restrictions. Within sixty days after the date set for demanding payment
and depositing certificates, if the Merger has not been effectuated, Conrail
shall return any certificates that have been deposited. However, Conrail may at
any later time send a new notice regarding demand for payment and deposit of
certificates with like effect.
Payment of Fair Value. Promptly after the Merger or upon timely receipt of
demand for payment if the Merger has been effectuated, Conrail shall either
remit to dissenters who have made demand and have deposited their certificates
the amount that Conrail estimates to be the fair value of the shares or give
written notice that no remittance will be made.
Failure to Make Payment. If Conrail does not remit the amount of its
estimate of the fair value of the shares, it shall return any certificates that
have been deposited. Conrail may make a notation on any such certificate that
such demand has been made.
Estimate by Dissenter of Fair Value. If Conrail gives notice of its
estimate of the fair value of the shares, without remitting such amount, or
remits payment of its estimate of the fair value of a dissenter's share and the
dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to Conrail his own estimate of the fair value
of the shares, which shall be deemed a demand for payment of the amount of the
deficiency. In the event that Conrail has remitted payment of its estimated
value of a dissenter's shares, and the dissenter does not file his own estimate
within thirty days after the mailing by Conrail of its remittance, the dissenter
shall he entitled to no more than the amount remitted to him by Conrail.
Valuation Proceedings. Within sixty days after the latest of (i) time of
the Merger, (ii) timely receipt of any demands for payment, or (iii) timely
receipt of any shareholder estimates of fair value, if any demands for payment
remain unsettled, Conrail may file in court an application for relief requesting
that the fair value of the shares be determined by such court. All dissenters,
wherever residing, whose demands have not been settled shall be made parties to
the proceedings as in an action against their shares. A copy of the application
shall be served on each such dissenter. If a dissenter is a non-resident, the
copy must be served on him in the manner provided or prescribed pursuant to the
Pennsylvania Law. Each dissenter who is made a party shall be entitled to
recover the amount, if any, previously remitted, plus interest. Interest shall
be payable from the time of the Merger until the date of payment at such rate as
is fair and equitable under all the circumstances, taking into account all
relevant factors including the average rate currently paid by Conrail on its
principal bank loans. If Conrail fails to file an application within the
applicable sixty-day period, any dissenter who made a demand and who has not
already settled his claim against Conrail may do so in the name of Conrail at
any time within thirty days after the expiration of the sixty-day period. If a
dissenter does not file an application within the thirty-day period, each
dissenter entitled to file an application shall be paid the estimate by Conrail
of the fair value of the shares and not more and may bring an action to recover
any amount not previously remitted.
Costs and Expenses of Valuation Proceedings. The costs and expenses of any
valuation proceeding, including the reasonable compensation and expenses of the
appraiser (if appointed by the court), shall be determined by the court and
assessed against Conrail except that any part of the costs and expenses may be
apportioned and assessed as the court deems appropriate against all or some of
the dissenters who are parties and whose action in demanding supplemental
payment the court finds to be dilatory, obdurate, arbitrary, vexatious or in bad
faith. Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court deems appropriate against Conrail and in favor of
any or all dissenters if Conrail failed to
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comply substantially with the requirements of Subchapter D of Chapter 15 of the
Pennsylvania Law and may be assessed against either Conrail or a dissenter, in
favor of any other party, if the court finds that the party against whom the
fees and expenses are assessed acted in bad faith or in a dilatory, obdurate,
arbitrary or vexatious manner in respect to the rights provided by Subchapter D
of Chapter 15 of the Pennsylvania Law. If the court finds that the services of
counsel for any dissenter were of substantial benefit to other dissenters
similarly situated and should not be assessed against Conrail, it may award to
those counsel reasonable fees to be paid out of the amounts awarded to the
dissenters who were benefited.
Withdrawal or Loss of Dissenters' Rights. If any shareholder who demands
payment for Conrail stock under Subchapter D of Chapter 15 of the Pennsylvania
Law effectively withdraws or loses his or her right to dissent at any time, such
holder's shares of Conrail stock will be deemed to be converted as of the time
of the Merger into the right to receive the applicable Merger Consideration
payable to the holder thereof under the Merger Agreement, without interest.
Failure to follow the steps required by Subchapter D of Chapter 15 of the
Pennsylvania Law for perfecting dissenters' rights may result in the loss of
such rights.
CONRAIL ESOP PREFERRED CASH OPTION
Pursuant to the Conrail Articles, immediately prior to the First Effective
Time, each share of Conrail ESOP Preferred Stock will be automatically converted
by operation of law into one share of Conrail Common Stock, having the effect
that a holder of one share of Conrail ESOP Preferred Stock will be entitled to
the same consideration in the First Merger and the Second Merger as a holder of
one share of Conrail Common Stock.
Under the Conrail Articles, Conrail is required to give notice of the
existence of the Merger Agreement and the material terms thereof to each holder
of Conrail ESOP Preferred Stock at least 10 business days prior to consummation
of the First Merger. Delivery of this Joint Proxy Statement/Prospectus shall
constitute such required notice. Notwithstanding the foregoing, each holder of
Conrail ESOP Preferred Stock has the right under the Conrail Articles to elect
to receive upon consummation of the First Merger a cash payment from Conrail (or
its successor) in redemption and retirement of such holder's shares of Conrail
ESOP Preferred Stock, out of funds legally available therefor, in an amount
equal to $28.84375 per share plus all accrued and unpaid dividends. In order to
make such election, a holder must provide written notice thereof to Conrail
prior to the close of business on the business day prior to consummation of the
First Merger at Conrail Inc., 2001 Market Street, Two Commerce Square,
Philadelphia, Pennsylvania 19101, Attention: Shareholder Relations. Any request
for such redemption may be withdrawn by a notice of withdrawal given to Conrail
prior to the close of business on the business day immediately prior to the
First Effective Time.
Based on the closing market price for a share of CSX Common Stock on
, 1997 (the most recently available prior to the date of the
mailing of this Joint Proxy Statement/Prospectus is being mailed) of $
and the Conversion Ratios, the value of the Per Share Stock Consideration would
be $ , or more than % more than a holder of a share of Conrail ESOP
Preferred Stock would be entitled to receive as a result of exercising the
foregoing right to demand a cash payment.
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FINANCING
It is expected that funds for the cash consideration (if any) in the Merger
and all related costs and expenses will be provided through borrowings under the
Credit Agreement or through the issuance of commercial paper by CSX and from
available cash and working capital of CSX.
The following describes certain aspects of the Credit Agreement. The
following summary of the Credit Agreement does not purport to be complete and is
qualified in its entirety by reference to such agreement, which has been filed
as an exhibit to the Registration Statement and is incorporated herein by
reference.
Credit Agreement. In connection with the Offers and the Merger, CSX
entered into a Revolving Credit and Competitive Advance Facility, dated as of
November 15, 1996 (the "Credit Agreement"), with Bank of America National Trust
and Savings Association and NationsBank, N.A., as Co-Syndication Agents, The
Bank of Nova Scotia, as Documentation Agent, The Chase Manhattan Bank, as
Administrative Agent (the "Administrative Agent"), and the other lenders party
thereto (collectively, the "Lenders"). Under the terms of the Credit Agreement,
the Lenders have agreed to provide a revolving credit and competitive advance
facility in an aggregate principal amount of $4,800,000,000 (the "Facility").
$800,000,000 of the Facility became available to CSX on November 15, 1996 (the
"Effectiveness Date") and the remainder became available upon the satisfaction
of the Initial Tender Offer Condition (as defined in the Credit Agreement). The
Facility includes a $50,000,000 letter of credit subfacility. Proceeds of the
Facility may be used to finance the purchase of Shares pursuant to one or more
all cash tender offers, exercise of the Conrail Stock Option or otherwise and
the Merger, to replace existing credit facilities used for commercial paper
backup and, following the Merger, to provide working capital and for other
general corporate purposes. As of [DATE], $ million is outstanding, and
$ million of credit remains available, under the Facility.
Under the Facility, two borrowing options are available: (i) a competitive
advance option (the "CAF"), which is provided on an uncommitted competitive
advance basis through a competitive bid auction mechanism, and (ii) a revolving
credit option (the "Revolving Credit"), which is provided on a committed basis.
Under each borrowing option, amounts borrowed and repaid may be reborrowed
subject to availability under the Facility. Up to the full amount of the
remaining commitments may be borrowed under either of the two borrowing options,
so long as the Aggregate Outstanding Extensions of Credit (as defined in the
Credit Agreement) do not exceed the amount of the Facility at any time. Each
borrowing will be conditioned upon the delivery of a borrowing notice, the
accuracy of representations and warranties and the absence of defaults and, from
and after the satisfaction of the Initial Tender Offer Condition, the absence of
pending litigation or administrative proceedings or other legal or regulatory
developments related to the Acquisition (as defined in the Credit Agreement)
that, in the reasonable judgment of at least three of the Agents (as defined in
the Credit Agreement), would be reasonably likely to prohibit the Acquisition or
to result in a material adverse effect, excluding litigation, administrative
proceedings or regulatory developments related to STB approval of the
Acquisition.
In addition to the borrowing options described above, CSX may request the
issuance of letters of credit under the Facility up to an aggregate face amount
of $50,000,000, provided that Aggregate Outstanding Extensions of Credit do not
exceed the amount of the Facility at any time. If a drawing is made under a
letter of credit, CSX shall reimburse the Administrative Agent, provided that,
subject to the satisfaction of the borrowing conditions described above, CSX may
finance such reimbursement with a borrowing under the Facility.
Under the Facility, interest rates for outstanding loans are determined as
follows: (i) interest rates for the CAF are obtained from bids solicited by CSX
and (ii) interest rates for the Revolving Credit will be based upon either LIBOR
or an alternate base rate ("ABR") that will be the higher of The Chase Manhattan
Bank's prime rate and the federal funds effective rate plus 1/2 of 1%, as
selected by CSX. No spread will be charged on ABR loans. The interest rate
applicable to each LIBOR loan will be equal to LIBOR for the interest period
applicable to such loan plus a margin, ranging from 14.0 to 35.0 basis points
per annum, determined based upon CSX's credit rating at the time.
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Under the Facility, interest periods for outstanding loans are determined
as follows: (i) interest periods for the CAF will be determined per market
availability, with fixed-rate auction advances being for periods ranging from
seven to 360 days and the interest period on LIBOR loans will be either one,
two, three or six months, at CSX's option; and (ii) under the Revolving Credit,
the interest period on LIBOR loans will be either one, two, three or six months,
at CSX's option. Interest will be payable at the end of the relevant interest
period, but not less often than quarterly. Interest will be calculated on the
basis of the actual number of days elapsed over a 365/366-day year for ABR loans
and over a 360-day year for all other loans.
Under the Facility, prepayments of ABR loans will be permitted at any time
without penalty. LIBOR Revolving Credit loans may be prepaid in whole or in part
at any time, subject to compensation in respect of any redeployment costs if
prepayment occurs other than at the end of an interest period. CAF loans may not
be prepaid without the applicable Lender's consent.
In the event CSX abandons the Acquisition or any governmental approval
necessary for the Acquisition is denied after exhaustion of all appeals, the
Lenders' commitments will be reduced from $4,800,000,000 to the sum at such time
of the Aggregate Outstanding Extensions of Credit plus the aggregate face amount
of outstanding commercial paper of CSX supported by the Facility plus
$1,500,000,000. Additionally, upon any sale or disposition of Shares (other than
Shares constituting Unrestricted Margin Stock (as defined in the Credit
Agreement)), the commitments will automatically reduce in an amount equal to
100% of the net cash proceeds of such sale or disposition. CSX may opt to reduce
the commitments under the Facility by giving notice thereof, provided that the
aggregate Facility commitments at any time may in no event be less than the
aggregate amount of the Aggregate Outstanding Extensions of Credit at such time.
The Credit Agreement contains certain representations and warranties
regarding, among other things, organization and powers, authority and
enforceability, no conflicts, financial information, absence of material adverse
change, absence of material litigation, compliance with laws and regulations and
agreements, inapplicability of certain laws, taxes, ERISA and absence of
material misstatements. In addition, the Credit Agreement contains certain
covenants regarding, among other things, maintenance of corporate existence,
maintenance of ownership of railroad subsidiaries, maintenance of insurance,
payment of taxes, delivery of financial statements and reports, compliance with
laws, use of proceeds, and certain limitations on debt, including limitations on
indebtedness in excess of $4,000,000,000 for the purchase of Shares, limitations
on additional indebtedness of subsidiaries and a limitation on total debt (other
than indebtedness incurred to finance the exercise of the Conrail Stock Option)
as a percentage of total capitalization to a maximum of 65% prior to the Merger
and 55% at or after the Merger. The Credit Agreement also includes certain
covenants regarding limitations on mergers or sales of all or substantially all
assets and limitations on liens and sale/leaseback transactions. In addition,
sales of Shares constituting Unrestricted Margin Stock must be in exchange for
cash or cash equivalents, and CSX must maintain such proceeds as cash, cash
equivalents or short-term investments except to the extent CSX reduces the
commitments under the Facility by an amount equal to such proceeds.
Events of Default (as defined in the Credit Agreement) include material
breaches of representations or warranties, failure to pay principal or interest,
breaches of covenants, cross acceleration, material judgments and bankruptcy,
subject to customary notice and cure periods. Upon the occurrence of an Event of
Default, the Majority Lenders (as defined in the Credit Agreement) can cause the
Administrative Agent to terminate the commitments and declare all outstanding
loans immediately due and payable. If a bankruptcy Event of Default occurs, the
commitments will terminate automatically, and the loans will become due and
payable immediately without any action by the Administrative Agent or the
Lenders.
In connection with the Facility, CSX has agreed to pay the Agents certain
fees, to reimburse the Agents for certain expenses and to provide certain
indemnities as is customary for a credit facility of this type. A facility fee
will be payable to each Lender based upon the aggregate amount of such Lender's
commitment, at a rate ranging from 6.0 to 15.0 basis points per annum, depending
upon CSX's credit ratings.
To finance payment for Shares purchased under the First Offer, CSX issued
and sold commercial paper supported by the Credit Agreement described above.
Funds obtained through such issuance and sale were then contributed by CSX to
Green Acquisition Corp.
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UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma financial statements included herein have been
prepared to reflect the following events: (i) the consummation of the First
Offer for 17,860,124 shares of Conrail Common Stock and Conrail ESOP Preferred
Stock at $110 per Share, and the related borrowings; (ii) the consummation of
the Second Offer for an additional 18,344,845 shares of Conrail Common Stock and
Conrail ESOP Preferred Stock at $110 per Share, and the related borrowings;
(iii) the Share Exchange; and (iv) consolidation of Conrail following STB
approval of the Merger. The applicable transactions are reflected in the Pro
Forma Combined Statement of Financial Position as if they occurred on September
27, 1996 and in the Pro Forma Combined Statements of Earnings as if they
occurred at the beginning of the periods presented. The unaudited pro forma
financial statements reflect the issuance of CSX Convertible Preferred Stock as
part of the Per Share Stock Consideration. In the event CSX issues Trust
Convertible Preferred Securities in lieu of CSX Convertible Preferred Stock, the
unaudited pro forma financial statements would be adjusted as described in Note
C-11, Trust Convertible Preferred Securities. The unaudited pro forma financial
statements do not include the sale by CSX of 85,000 shares for cash at an
average price of $98.983 per share (the effect of which is deemed to be
immaterial). See "CERTAIN LITIGATION."
The Meetings are expected to occur in the first quarter of 1997. Upon CSX
and Conrail shareholder approval of the matters related to the Merger, Conrail
shareholders will receive CSX Common Stock and CSX Convertible Preferred Stock
(or Trust Convertible Preferred Securities, as applicable). The Shares acquired
by CSX, both in the Offers and upon completion of the Share Exchange, will be
placed in the Voting Trust pending STB approval.
The financial information for CSX included in the Combined Statement of
Financial Position is as of September 27, 1996. The financial information for
CSX included in the Combined Statements of Earnings is for the nine months and
twelve months ended September 27, 1996 and December 29, 1995, respectively.
CSX's fiscal year is composed of 52/53 weeks ending the last Friday in December.
Conrail's corresponding financial information is presented as of September 30,
1996 and December 31, 1995.
The Merger will be accounted for under the purchase method. The pro forma
combined adjustments do not reflect any potential increases in operating income,
or one-time costs to achieve such increases, which may result from the Merger,
or adjustments to conform accounting policies. See "Notes to Pro Forma Combined
Financial Statements."
The unaudited selected pro forma financial statements are prepared for
illustrative purposes only and are based on the assumptions set forth in the
notes to such statements. These statements are not necessarily indicative of the
financial position or results of operations that might have occurred had the
applicable transactions actually taken place on the dates indicated, or of
future results of operations or financial position of the individual or combined
companies. Consummation of the Second Offer is contingent upon a vote by Conrail
shareholders to opt-out of a Pennsylvania statute which otherwise effectively
precludes CSX from purchasing Shares pursuant to the Second Offer and
consummating the Merger in accordance with its terms. Consummation of the Merger
is conditioned upon, among other things, approval of both the CSX Proposals and
the Conrail Proposal by CSX and Conrail shareholders, respectively.
The unaudited pro forma financial statements are based on the historical
consolidated financial statements of CSX and Conrail and should be read in
conjunction with (i) such historical financial statements and the notes thereto,
which are incorporated by reference in this Joint Proxy Statement/Prospectus,
(ii) the Unaudited Selected Pro Forma Financial Data and Unaudited Comparative
Per Share Data including the notes thereto, appearing elsewhere in this Joint
Proxy Statement/Prospectus and (iii) the Selected Historical Financial Data
appearing elsewhere in this Joint Proxy Statement/Prospectus.
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PRO FORMA COMBINED STATEMENT OF FINANCIAL POSITION
AS OF SEPTEMBER 27, 1996
UNAUDITED
(Dollars in Millions)
CSX
PRO FORMA CONRAIL
CSX CONRAIL ADJUSTMENTS PRO FORMA
------- ------- ------------ -----------
ASSETS
Current Assets
Cash, Cash Equivalents and Short-Term
Investments............................... $ 515 $ 33 $ 548
Accounts Receivable.......................... 928 655 1,583
Other Current Assets......................... 476 511 987
------- ------ ----------
Total Current Assets...................... 1,919 1,199 3,118
Properties -- Net............................ 11,720 6,495 $8,706 C-1 26,921
Other Long-Term Assets....................... 1,002 693 257 C-2 1,952
------- ------ ------ ----------
Total Assets.............................. $14,641 $ 8,387 $8,963 $31,991
------- ------ ------ ----------
------- ------ ------ ----------
LIABILITIES
Current Liabilities
Current Maturities of Long-Term Debt and
Short-Term Debt........................... $ 477 $ 203 $ 680
Other Current Liabilities.................... 2,222 1,047 $ 93 C-6 3,362
------- ------ ------ ----------
Total Current Liabilities................. 2,699 1,250 93 4,042
Long-Term Debt............................... 2,288 1,891 4,203 C-3 8,382
Deferred Income Taxes........................ 2,657 1,789 3,593 C-4 8,039
Other Long-Term Liabilities.................. 2,182 519 2,701
------- ------ ------ ----------
Total Liabilities......................... 9,826 5,449 7,889 23,164
------- ------ ------ ----------
SHAREHOLDERS' EQUITY
Common Stock, $1 Par Value -- CSX............ 217 99 C-5 316
Common Stock-Conrail......................... 86 (86) C-5
Other Capital................................ 1,452 2,213 (2,213) C-5 5,750
4,298 C-5
Retained Earnings............................ 3,255 1,251 (1,251) C-5 3,212
(43) C-6
Minimum Pension Liability.................... (109) (109)
Series A Convertible Preferred Stock-CSX..... 854 C-5 854
Series A ESOP Convertible Junior Preferred
Stock..................................... 281 (281) C-5
Unearned ESOP Compensation................... (224) (533) C-5 (757)
Employee Benefits Trust...................... (331) (108) C-5 (439)
Treasury Stock............................... (338) 338 C-5
------- ------ ------ ----------
Total Shareholders' Equity................ 4,815 2,938 1,074 C-11 8,827
------- ------ ------ ----------
Total Liabilities and Shareholders'
Equity.................................. $14,641 $ 8,387 $8,963 $31,991
------- ------ ------ ----------
------- ------ ------ ----------
See accompanying Notes to Pro Forma Combined Financial Statements.
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PRO FORMA COMBINED STATEMENT OF EARNINGS
NINE MONTHS ENDED SEPTEMBER 27, 1996
UNAUDITED
(Dollars in Millions, Except Per Share Data)
CSX
CONRAIL
PRO FORMA PRO
CSX CONRAIL ADJUSTMENTS FORMA
-------- ------- ------------ --------
Operating Revenue................................. $7,833 $2,771 $ 10,604
Operating Expense
Labor and Fringe Benefits....................... 2,379 939 $ 24C-7 3,354
12C-2
Materials, Supplies and Other................... 1,896 667 2,563
Building and Equipment Rent..................... 858 314 1,172
Inland Transportation........................... 743 743
Depreciation.................................... 456 212 145C-1 813
Fuel............................................ 405 146 551
Voluntary Separation Programs................... 135 135
------- ------- ------- -------
Total Operating Expense...................... 6,737 2,413 181 9,331
------- ------- ------- -------
Operating Income.................................. 1,096 358 (181) 1,273
Other Income...................................... 19 83 102
Interest Expense.................................. (188) (137) (159) C-3 (484)
------- ------- ------- -------
Earnings before Income Taxes...................... 927 304 (340) 891
Income Tax Expense/(Benefit)...................... 325 109 (125) C-8 309
------- ------- ------- -------
Net Earnings...................................... $602 $195 $ (215) C-11 $ 582
======= ======= ======= =======
Earnings Per Share................................ $2.83 $2.39 C-9 $1.80
Average Common Shares Outstanding (Thousands)..... 212,567 77,443 C-9 305,020
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends....................... 3.9x 2.6x C-10 2.2x
See accompanying Notes to Pro Forma Combined Financial Statements.
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PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 29, 1995
UNAUDITED
(Dollars in Millions, Except Per Share Data)
CSX
CONRAIL
PRO FORMA PRO
CSX CONRAIL ADJUSTMENTS FORMA
------- ------ ------------ -------
Operating Revenue................................... $10,304 $3,686 $13,990
Operating Expense
Labor and Fringe Benefits......................... 3,133 1,249 $33C-7 4,431
16C-2
Materials, Supplies and Other..................... 2,622 842 3,464
Building and Equipment Rent....................... 1,134 393 1,527
Inland Transportation............................. 970 970
Depreciation...................................... 588 293 183C-1 1,064
Fuel.............................................. 474 168 642
Asset Disposition Charge.......................... 285 285
Restructuring Charge.............................. 257 257
------- ------- ------- -------
Total Operating Expense........................ 9,178 3,230 232 12,640
------- ------- ------- -------
Operating Income.................................... 1,126 456 (232) 1,350
Other Income........................................ 118 130 248
Interest Expense.................................... (270) (194) (213)C-3 (677)
------- ------- ------- -------
Earnings before Income Taxes........................ 974 392 (445) 921
Income Tax Expense/(Benefit)........................ 356 128 (163)C-8 321
------- ------- ------- -------
Net Earnings........................................ $618 $264 $(282)C-11 $600
======= ======= ======= =======
Earnings Per Share.................................. $2.94 $3.19 C-9 $1.84
Average Common Shares Outstanding (Thousands)....... 210,270 78,734 C-9 302,723
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends......................... 3.2x 2.5x C-10 1.9x
See accompanying Notes to Pro Forma Combined Financial Statements.
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NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
Pursuant to the Merger Agreement, CSX has commenced (and, in the case of
the First Offer, consummated) the Offers at $110 per share to acquire a total of
40% of the outstanding Conrail Common Stock and Conrail ESOP Preferred Stock on
a fully diluted basis (other than upon exercise of the Conrail Stock Option) for
an aggregate consideration of $3.982 billion. In addition, each remaining share
of Conrail Common Stock and Conrail ESOP Preferred Stock outstanding after the
Offers will be exchanged for 1.85619 shares of CSX Common Stock and CSX
Convertible Preferred Stock (or Trust Convertible Preferred Securities, as
applicable) as, in the opinion of certain financial advisors (as described
herein), is valued prior to the Meetings at $16 on a fully distributed basis.
The pro forma financial statements have been prepared using the value for CSX
Common Stock to be issued in connection with the Merger of $4.357 billion (see
table below) based on the daily closing prices of CSX Common Stock within
several days before and after December 19, 1996, the date of the announcement of
the most recent terms of the Merger as reflected in the Second Amendment. The
total value of CSX Convertible Preferred Stock is approximately $854 million and
assumes the issuance of CSX Convertible Preferred Stock as part of the Per Share
Stock Consideration. In the event CSX issues Trust Convertible Preferred
Securities in lieu of CSX Convertible Preferred Stock, income from continuing
operations and shareholders' equity would be adjusted as described in Note C-11.
The following summarizes the pro forma purchase price:
(In Millions)
-------------
Offers (36.2 million shares at $110.00 per share).................. $ 3,982
Merger Exchange of Shares (53.3 million shares of Conrail Common
Stock at a conversion ratio of 1.85619 shares of CSX Common Stock
at an assumed market price of $44.00 per share).................. 4,357
CSX Convertible Preferred Stock to be issued....................... 854
Transaction Costs.................................................. 50
Unexercised Conrail Stock Options.................................. 40
------
Pro Forma Purchase Price........................................... $ 9,283
======
The pro forma purchase price has been preliminarily allocated as shown in
the table below:
(In Millions)
-------------
Net assets of Conrail at September 30, 1996........................ $ 2,938
Increase (decrease) to Conrail's net asset value at September 30,
1996 as a result of estimated fair value adjustments:
Property and Equipment, net................................... 8,706
Other Assets.................................................. 257
Long-term Debt................................................ (221)
Deferred Income Taxes......................................... (3,593)
Unearned ESOP Compensation.................................... 757
Employee Benefits Trust....................................... 439
------
Pro Forma Purchase Price........................................... $ 9,283
======
Based on the pro forma purchase price, goodwill is not expected to result
from this transaction.
The financial information for CSX included in the Combined Statement of
Financial Position is as of September 27, 1996. The financial information for
CSX included in the Combined Statements of Earnings is for the nine months and
twelve months ended September 27, 1996 and December 29, 1995, respectively.
CSX's fiscal year is composed of 52/53 weeks ending the last Friday in December.
Conrail's corresponding financial information is presented as of September 30,
1996 and December 31, 1995.
No adjustments to conform the accounting practices of CSX and Conrail have
been made in these unaudited pro forma combined financial statements. The
effects of these changes are not considered to be material.
Beginning with the quarter ended June 28, 1996, CSX changed its statement
of earnings presentation to exclude non-transportation activities from operating
revenue and expense. These activities are now included in
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"Other Income." CSX's historical financial data for the twelve months ended
December 29, 1995, have been reclassified to conform to the 1996 presentation.
Certain amounts in the historical financial statements of Conrail have been
reclassified in the unaudited pro forma financial statements to conform to CSX's
historical financial statement presentation.
C-1 PROPERTY AND EQUIPMENT, NET
Conrail's property and equipment, net, has been adjusted to its
estimated fair value at September 27, 1996. Assets held for sale have
already been reflected in the Conrail historical financial statements at
the estimated proceeds expected upon consummation of the asset sales.
Depreciation expense of $145 million for the nine months ended September
27, 1996 and $183 million for the year ended December 29, 1995 related to
the increase in fair value has been included in the unaudited Pro Forma
Combined Statements of Earnings.
C-2 OTHER ASSETS
Conrail's pension asset has been adjusted to estimate its fair value as
of September 27, 1996 based upon current actuarial and other estimates.
Conrail's previously unamortized debt issuance costs and goodwill amounts
have also been eliminated. The additional pension expense related to the
fair value adjustment was $12 million and $16 million for the nine months
ended September 27, 1996 and year ended December 29, 1995, respectively.
C-3 LONG-TERM DEBT
Long-term debt has been increased by $3.982 billion to reflect the
financing of the Offers for approximately 36 million shares of Conrail
Common Stock and Conrail ESOP Preferred Stock. Interest expense of $170
million and $227 million for the nine months ended September 27, 1996, and
twelve months ended December 29, 1995, respectively, has been recorded as
a result of the additional debt. CSX funded the First Offer through
issuance of commercial paper supported by the Facility and intends to fund
the Second Offer similarly or through borrowings under, or the Facility.
These borrowings have been classified as long-term based on CSX's ability
and intent to maintain the debt outstanding for at least one year.
Subsequent to STB approval of the Merger, CSX plans to arrange for
long-term debt financing with an expected repayment term of ten years.
Interest on the commercial paper has been calculated at an average
interest rate of 5.7%, which reflects current interest rates for CSX and
which does not differ materially from weighted average interest rates
during the period presented. An increase of 0.125% in the interest rate
assumption would increase annual interest expense by approximately $5
million.
Conrail's long-term debt (including current portion) has been adjusted
to its estimated fair value as of September 27, 1996 based on interest
rates as of that date. The estimated fair value adjustment of $221 million
has been amortized to offset interest expense over the estimated lives of
the instruments. Amortization of $11 million for the nine months ended
September 27, 1996 and $14 million for the year ended December 29, 1995
has been included in the unaudited Pro Forma Combined Statements of
Earnings.
C-4 DEFERRED INCOME TAXES
Deferred income taxes of $3.593 billion have been provided for
temporary differences caused by the allocation of the pro forma purchase
price. It is expected that CSX will assume Conrail's tax basis in
Conrail's assets and liabilities.
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The pro forma adjustments to the deferred income tax liability are
attributable to estimated temporary differences as follows (in millions):
PRO FORMA
ADJUSTMENTS
INCREASE (DECREASE)
TO DEFERRED INCOME
CATEGORY OF TEMPORARY DIFFERENCES TAX LIABILITY
-------------------------------------------------------- -------------------
Property and equipment, net............................. $ 3,369
Other assets............................................ 104
Unearned ESOP Compensation.............................. 206
Long-term debt.......................................... (86)
------
Total......................................... $ 3,593
======
C-5 SHAREHOLDERS' EQUITY
Shareholders' equity of the combined company has been increased for the
CSX Common Stock issued in the Merger ($4.357 billion, of which $99
million represents the par value of CSX Common Stock; also includes an
increase for unexercised Conrail stock options of $40 million).
Shareholders' equity has also been increased for the CSX Convertible
Preferred Stock of $854 million to be issued as part of the Share
Exchange.
The CSX Convertible Preferred Stock will have a coupon rate and a
conversion premium determined prior to the Meetings such that the security
will have, in the opinion of certain financial advisors (as described
herein), a value on a fully distributed basis of $16 for each Share
exchanged. Under the terms of the Merger Agreement, the conversion premium
will be from 20% to 25%. Based upon a conversion premium of 25%, and a CSX
Common Stock price of $44 per share, 15.8 million shares of CSX Common
Stock would be issued upon full conversion of the CSX Convertible
Preferred Stock. Actual conversion ratios and coupon rates may differ from
these assumptions based upon market conditions at the time the terms of
the security are fixed.
Conrail's shareholders' equity balances have been eliminated. The
deferred compensation amounts related to Conrail's Employee Benefits Trust
and Unearned ESOP Compensation have been adjusted to fair value as the
related plans are expected to be carried over to the combined entity.
C-6 COSTS OF THE MERGER
CSX will incur estimated legal, investment banking and stock issuance
costs of $50 million which have been included in the pro forma purchase
price.
Conrail will incur Merger transaction costs, including the accelerated
vesting of certain awards under Conrail's stock compensation plans, upon
CSX's purchase of 20% of Conrail's Common Stock and Conrail ESOP Preferred
Stock. Costs for the accelerated vesting of restricted stock and
performance shares of $11 million ($7 million after taxes) will be
expensed in the period that vesting occurs. Estimated Merger transaction
costs of $59 million will be expensed in the periods incurred ($36 million
after taxes).
C-7 ADDITIONAL COMPENSATION RELATED TO UNEARNED ESOP COMPENSATION
Represents the additional compensation expense related to the
adjustments to write the Unearned ESOP Compensation to market value for
the nine months ended September 27, 1996 ($24 million) and twelve months
ended December 29, 1995 ($33 million).
C-8 INCOME TAX EXPENSE
Income tax expense reflects the income tax effects of pro forma
adjustments at an estimated rate of 38.7% (Conrail statutory tax rate),
except for the interest expense related to the CSX debt to finance the
Offers, for which an income tax rate of 35% (CSX statutory tax rate) has
been used to estimate the net tax benefit recognized.
C-9 EARNINGS PER SHARE
Earnings per share are based upon the weighted average of common shares
outstanding. Shares in the Conrail EBT are not considered outstanding for
computing EPS. Pro forma combined EPS was
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calculated with an assumed dividend rate on the CSX Convertible Preferred
Stock of 5%. The impact on pro forma combined EPS calculated assuming the
issuance of 15.8 million additional shares of CSX Common Stock upon the
conversion of the CSX Convertible Preferred Stock, was antidilutive.
Dilution, which could occur if other outstanding common stock equivalents
were exercised, was not significant to the pro forma combined EPS amounts
presented.
Conrail historical primary and fully diluted EPS for the nine months
ended September 30, 1996 were $2.39 and $2.21, respectively, and were
based upon average common shares outstanding of 77.4 million and 87.2
million, respectively. Conrail's comparable historical EPS for the twelve
months ended December 31, 1995 were $3.19 and $2.94, respectively, and
were based upon average common shares outstanding of 78.7 million and 88.7
million, respectively.
C-10 RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Earnings used in computing the ratio of earnings to combined fixed
charges and preferred stock dividends represent income before income taxes
plus fixed charges, less equity in undistributed earnings of 20% to 50%
owned companies. Fixed charges represent interest expense together with
interest capitalized and a portion of rent under long-term operating
leases representative of an interest factor. Pro forma amounts have been
adjusted for the additional interest expense related to the debt incurred
to fund the Offers and for the impact of the dividends related to the CSX
Convertible Preferred Stock.
C-11 TRUST CONVERTIBLE PREFERRED SECURITIES
Trust Convertible Preferred Securities, as described in Appendix F
herein, may be issued in lieu of CSX Convertible Preferred Stock as part
of the Per Share Stock Consideration. In the event Trust Convertible
Preferred Securities are issued, they will be reflected in the Pro Forma
Combined Statement of Financial Position as of September 27, 1996 in a
caption below Total Liabilities and separate from Shareholders' Equity as
presented below:
CSX
CONRAIL
PRO FORMA
---------------------
UNAUDITED
(DOLLARS IN MILLIONS)
Total Assets................................... $31,991
=======
Total Liabilities.............................. $23,164
Trust Convertible Preferred Securities......... 854
Shareholders' Equity
Common Stock, $1 Par Value -- CSX............ 316
Other Capital................................ 5,750
Retained Earnings............................ 3,212
Minimum Pension Liability.................... (109)
Unearned ESOP Compensation................... (757)
Employee Benefits Trust...................... (439)
-------
Total Shareholders' Equity..................... 7,973
-------
Total Liabilities, Trust Convertible Preferred
Securities and Shareholders' Equity.......... $31,991
=======
In addition, upon issuance of Trust Convertible Preferred Securities in
lieu of CSX Convertible Preferred Stock, the Pro Forma Combined Statements
of Earnings would be adjusted to reflect a charge for distributions
accrued on the securities based upon an assumed rate of 5%. For the nine
months ended September 27, 1996 and the year ended December 29, 1995, this
charge would be $32 million and $43 million, respectively, or $21 million
and $28 million after taxes, respectively. Pro forma combined net earnings
(and income from continuing operations) and EPS would be $561 million and
$1.84 per share, respectively, for the nine months ended September 27,
1996, and $572 million and $1.89 per share, respectively, for the year
ended December 29, 1995.
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DESCRIPTION OF THE CSX CONVERTIBLE PREFERRED STOCK
As is stated elsewhere herein, the CSX Merger Securities will be CSX
Convertible Preferred Stock or Trust Convertible Preferred Securities. The
following summary of certain terms of the CSX Convertible Preferred Stock does
not purport to be complete and is qualified in its entirety by reference to the
Amended CSX Articles, the form of which is attached as Appendix D to this Joint
Proxy Statement/Prospectus. CSX is permitted under the terms of the Merger
Agreement to substitute trust convertible preferred securities, as described in
Appendix F to the Joint Proxy Statement/Prospectus (the "Trust Convertible
Preferred Securities"), as part of the CSX Merger Securities in lieu of CSX
Convertible Preferred Stock. While the following summary of certain terms of the
CSX Convertible Preferred Stock also describes certain terms of the Trust
Convertible Preferred Securities, such description does not purport to be
complete and is qualified in its entirety by reference to Appendix F.
FIXING OF TERMS
CSX Convertible Preferred Stock will be convertible preferred stock of CSX
with a liquidation preference of $50 per share; a quarterly yield to be
determined such that the securities are expected to trade at par on a fully
distributed basis; a maturity, which currently is not fixed, of seven to ten
years or perpetual; a conversion premium, which currently is not fixed, of 20%
to 25%; and call protection, which currently is not fixed, for three to four
years. The Other Terms of the CSX Convertible Preferred Stock (or Trust
Convertible Preferred Securities, as the case may be) that are not fixed as
described above will not be inconsistent with the terms so fixed and will be
determined in accordance with the following procedure such that the CSX
Convertible Preferred Stock (or Trust Convertible Preferred Securities, as the
case may be) to be distributed with respect to each share of Conrail Common
Stock will have a value on a fully distributed basis, as of the date of the
opinions referred to below, as close as possible to $16:
(a) the Other Terms shall be determined by mutual agreement of two
investment banking firms of national reputation, one selected by Conrail
and one selected by CSX, such that in their respective opinions the CSX
Convertible Preferred Stock (or Trust Convertible Preferred Securities, as
the case may be) to be issued in respect of each Share will have a value on
a fully distributed basis, as of the date of their opinions, equal to $16
per Share; or
(b) if such two investment banking firms are unable to agree on the
Other Terms or if either such firm is unable to provide the opinion
referred to in clause (a) above within four business days following the
fifteenth business day prior to the Conrail Meeting, each such investment
banking firm within two business days following such four-business day
period will propose its version of the Other Terms and will mutually select
a third investment banking firm of national reputation, and within four
business days thereafter the third firm will select the proposal of one or
the other of the two firms that, in the opinion of the third firm, is the
closer of the two proposals to giving, as of the date of its opinion, a
value on a fully distributed basis for the CSX Convertible Preferred Stock
(or Trust Convertible Preferred Securities, as the case may be) to be
issued in respect of each Share equal to $16 per Share.
The Other Terms of the CSX Convertible Preferred Stock (or Trust Convertible
Preferred Securities, as the case may be) will be determined in accordance with
the foregoing and publicly announced no later than five business days prior to
the date of the Meetings. No assurance can be given as to the actual market
prices at which the CSX Convertible Preferred Stock given in respect of a Share
will trade or that such amount will equal or exceed $16.
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GENERAL
The authorized capital stock of CSX includes 25,000,000 shares of CSX
Serial Preferred Stock, without par value, of which no shares are currently
outstanding. Under the Amended CSX Articles, an additional 70,000,000 shares of
CSX Preferred Stock will be authorized, of which a total of 20,000,000 shares
will be designated as CSX Convertible Preferred Stock (if CSX Convertible
Preferred Stock rather than Trust Convertible Preferred Securities is to be
issued as part of the CSX Merger Securities). The CSX Board will be authorized
by the Amended CSX Articles to issue Preferred Stock and to establish as to each
class or series the designation and number of shares to be issued, the
preferences, limitations and relative rights thereof.
All shares of CSX Convertible Preferred Stock (to the extent issued)
redeemed, purchased, exchanged, converted or otherwise acquired by CSX will be
retired and canceled and, upon the taking of any action required by applicable
law, will be restored to the status of authorized but unissued shares of
Preferred Stock, without designation as to series, and may thereafter be
reissued.
RANK
CSX Convertible Preferred Stock will, with respect to dividend rights and
rights upon liquidation, winding up or dissolution, rank junior to each other
class or series of capital stock of CSX (other than (a) the CSX Common Stock and
any other class or series of CSX capital stock which by its terms ranks junior
to CSX Convertible Preferred Stock, as to which CSX Convertible Preferred Stock
shall rank prior, and (b) any other class or series of CSX capital stock which
by its terms ranks on a parity with the CSX Convertible Preferred Stock, as to
which the CSX Convertible Preferred Stock shall rank on a parity) or (except as
described in the last sentence of this paragraph) other equity interests
(including, without limitation, warrants, rights, calls or options exercisable
for or convertible into such capital stock or equity interests) in CSX. All
equity securities of CSX to which the CSX Convertible Preferred Stock ranks
prior (whether with respect to dividends or upon liquidation, winding up,
dissolution or otherwise), including the CSX Common Stock, are collectively
referred to as the "Junior Securities." All equity securities of CSX to which
the CSX Convertible Preferred Stock ranks on a parity (whether with respect to
dividends or upon liquidation, winding up, dissolution or otherwise) are
collectively referred to as the "Parity Securities." The respective definitions
of Junior Securities and Parity Securities shall also include any warrants,
rights, calls or options exercisable for or convertible into any of the Junior
Securities or Parity Securities, as the case may be.
DIVIDENDS
The holders of shares of CSX Convertible Preferred Stock will be entitled
to receive, when and as declared by the CSX Board, dividends on the shares of
CSX Convertible Preferred Stock, cumulative from the first date of issuance of
any such shares (the "Convertible Preferred Initial Issuance Date"), at a rate
per annum to be determined as described above. Dividends on the shares of CSX
Convertible Preferred Stock will be payable in equal quarterly amounts (subject
to the limitation described below with respect to shorter periods, including the
first such period with respect to newly issued shares) on the fifteenth of each
January, April, July and October of each year, or if any such date is not a
Business Day, on the next succeeding Business Day (each of such dates being a
"Convertible Preferred Dividend Payment Date"), in preference to and in priority
over dividends on any Junior Securities. Such dividends will be paid to the
holders of record of CSX Convertible Preferred Stock at the close of business on
the record date specified by the CSX Board at the time such dividend is
declared; provided, however, that such record date will not be more than 60 days
nor less than ten days prior to the Convertible Preferred Dividend Payment Date
to which it relates. Dividends on the shares of CSX Convertible Preferred Stock
will be fully cumulative and will accrue (whether or not declared and whether or
not there are funds of CSX legally available for the payment of dividends) from
the Convertible Preferred Initial Issuance Date (or the last Convertible
Preferred Dividend Payment Date for which dividends were paid, as the case may
be) based on a 360-day year composed of twelve 30-day months.
No dividend will be declared or paid or set apart for payment or other
distribution declared or made, whether in cash, obligations or shares of capital
stock of CSX or other property, directly or indirectly, upon any Junior
Securities (other than in other Junior Securities), nor will any distribution be
made in respect thereof, either directly or indirectly, and whether in cash,
obligations or shares of capital stock of CSX (other
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than Junior Securities) or other property for any period unless all accrued and
unpaid dividends (whether or not declared and whether or not there are funds of
CSX legally available for the payment of dividends) on CSX Convertible Preferred
Stock have been or contemporaneously are declared and paid in full. When
dividends are not paid in full, as stated above, upon the shares of CSX
Convertible Preferred Stock, all dividends declared on CSX Convertible Preferred
Stock and any other Parity Securities will be declared and paid either (x) pro
rata so that the amount of dividends so declared on CSX Convertible Preferred
Stock and each such other class or series of Parity Securities will in all cases
bear to each other the same ratio that accrued dividends on the shares of CSX
Convertible Preferred Stock and such series of Parity Securities bear to each
other or (y) on another basis that is at least as favorable to the holders of
CSX Convertible Preferred Stock entitled to receive such dividends. If any
dividends accumulated through the most recent Convertible Preferred Dividend
Payment Date on any outstanding shares of CSX Convertible Preferred Stock have
not been paid in full or declared and set apart for payment or are not
contemporaneously paid in full or declared and set apart for payment, CSX will
not and will not permit any subsidiary to repurchase, redeem or otherwise
acquire for any consideration (or make any payment on account of or set apart
for payment money for a sinking or other similar fund for the purchase,
redemption or other retirement of) any Parity Securities or Junior Securities
(other than for consideration consisting of Junior Securities).
Any dividend payment made on shares of CSX Convertible Preferred Stock will
first be credited against the dividends accrued with respect to the earliest
quarterly period for which dividends have not been paid.
All dividends paid with respect to shares of CSX Convertible Preferred
Stock will be paid pro rata to the holders entitled thereto.
Dividends which are not paid in full on the applicable Convertible
Preferred Dividend Payment Date will cumulate, whether or not there are funds
legally available for the payment of such dividends and whether or not such
dividends are declared, from the applicable Convertible Preferred Dividend
Payment Date until such accumulated dividends will have been paid by CSX. Any
such declaration may be for a portion, or all, of the then accumulated
dividends. Dividends (or cash amounts equal to accrued and unpaid dividends)
payable on CSX Convertible Preferred Stock for any period shorter than a full
fiscal quarter will be computed on the basis of the actual number of days
elapsed (in a 30-day month) since the applicable Convertible Preferred Dividend
Payment Date or from the Convertible Preferred Initial Issuance Date with
respect to newly issued shares (as the case may be) and based on a 360-day year
composed of twelve 30-day months. No interest will accrue or be payable in
respect of unpaid dividends.
REDEMPTION
The following terms will apply with respect to redemption of CSX
Convertible Preferred Stock to the extent that the Other Terms include
redemption, as described above:
The shares of CSX Convertible Preferred Stock will not be redeemable prior
to the Convertible Preferred Initial Redemption Date (to be determined as
described above). The shares of CSX Convertible Preferred Stock will not be
redeemable at any time at which CSX has failed to pay all accrued dividends on
any Convertible Preferred Dividend Payment Date and such dividends remain unpaid
and outstanding.
At the option of CSX, shares of CSX Convertible Preferred Stock may be
redeemed at any time or from time to time (subject to the provisions described
in this section) on or after the Convertible Preferred Initial Redemption Date,
in whole or in part, at the price (the "Redemption Price"), payable in cash,
equal to a percentage of the liquidation preference per share (to be determined
as described above) for redemptions during the 12-month periods beginning on the
Convertible Preferred Initial Redemption Date or the annual anniversaries
thereof, plus, in each case, an amount equal to accrued and unpaid dividends
thereon (whether or not declared and whether or not there are funds of CSX
legally available for the payment of dividends) to the date fixed for
redemption.
Whenever shares of CSX Convertible Preferred Stock are to be redeemed as
described in this section, a notice of such redemption will be mailed, addressed
to each holder, by overnight mail, postage prepaid, or delivered to each holder
of the shares to be redeemed at such holder's address as the same appears on the
stock transfer books of CSX. Such notice will be mailed or delivered not less
than 30 days and not more than 60 days prior to the date fixed for redemption.
Each such notice will state: (A) the date fixed for redemption;
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(B) the number of shares of CSX Convertible Preferred Stock to be redeemed; (C)
the Redemption Price and the amount of dividends accrued and unpaid through the
date fixed for redemption; (D) the place or places where such shares of CSX
Convertible Preferred Stock are to be surrendered for payment of the Redemption
Price; and (E) that dividends on the shares to be redeemed will cease to accrue
on such date fixed for redemption unless CSX defaults in the payment of the
Redemption Price. If fewer than all shares of CSX Convertible Preferred Stock
held by a holder are to be redeemed, the notice mailed to such holder will
specify the number of shares to be redeemed from such holder.
Notice having been given in the manner prescribed above, and if on or
before the redemption date specified in such notice an amount in cash sufficient
to redeem in full on the redemption date and at the applicable Redemption Price
(together with an amount equal to accrued and unpaid dividends thereon (whether
or not declared and whether or not there are funds of CSX legally available for
the payment of dividends) to such redemption date) all shares of CSX Convertible
Preferred Stock called for redemption will have been set apart and deposited in
trust so as to be available for such purpose and only for such purpose, or will
have been paid to the holders thereof, then effective as of the close of
business on such redemption date, and unless there is a subsequent default in
the payment of the Redemption Price plus accrued and unpaid dividends, the
shares of CSX Convertible Preferred Stock so called for redemption will cease to
accrue dividends, and said shares will no longer be deemed to be outstanding and
will have the status of authorized but unissued shares of Preferred Stock,
undesignated as to series, and all rights of the holders thereof, as such, as
shareholders of CSX (except the right to receive from CSX the Redemption Price
and an amount equal to any accrued and unpaid dividends (whether or not declared
and whether or not there are funds of CSX legally available for the payment of
dividends) to the redemption date) will cease. Upon surrender, in accordance
with said notice, of the certificates for any shares so redeemed (properly
endorsed or assigned for transfer, if the notice so states), such shares will be
redeemed by CSX at the Redemption Price as stated above. In case fewer than all
of the shares represented by any such certificate are redeemed, a new
certificate of like terms and having the same date of original issuance will be
issued representing the unredeemed shares without cost to the holder thereof.
In the event that fewer than all of the shares of CSX Convertible Preferred
Stock are to be redeemed as described in this section, CSX will call for
redemption shares of CSX Convertible Preferred Stock pro rata among the holders,
based on the number of shares of CSX Convertible Preferred Stock held by each
holder (with adjustments to avoid fractional shares), except that CSX may redeem
all of the shares of CSX Convertible Preferred Stock held by any holders of
fewer than 100 shares of CSX Convertible Preferred Stock (or all the shares of
CSX Convertible Preferred Stock held by holders who would hold less than 100
shares of CSX Convertible Preferred Stock as a result of such redemption). Any
redemption for which shares are called for redemption on a pro rata basis will
be in compliance with the description in this paragraph.
LIQUIDATION
Upon a liquidation, dissolution or winding up of the affairs of CSX,
whether voluntary or involuntary, the holders will be entitled, before any
assets of CSX will be distributed among or paid over to the holders of any
Junior Securities, to receive from the assets of CSX available for distribution
to shareholders an amount in cash or property (valued at its Fair Market Value),
or a combination thereof, equal to $50 per share plus, in each such case, an
amount in cash or property (valued at its Fair Market Value), equal to all
accrued and unpaid dividends thereon (whether or not declared and whether or not
there are funds of CSX legally available for the payment of dividends), to and
including the date of final distribution (collectively, a "liquidation
preference" and "liquidation value"). After any such payment in full, the
holders will not, as such, be entitled to any further participation in any
distribution of assets of CSX.
Neither the merger or consolidation of CSX into or with any other
corporation or the merger or consolidation of any other corporation into or with
CSX, nor the sale of all or substantially all of the assets of CSX, will be
deemed to be a liquidation, dissolution or winding up, voluntary or involuntary,
for the purposes of this section.
If, upon any such liquidation, dissolution or winding up of CSX, whether
voluntary or involuntary, the assets of CSX are insufficient to make the full
payments required as described above and all full distributions
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with respect to any Parity Securities, then no such distribution will be made on
account of any shares of CSX Convertible Preferred Stock or Parity Securities
unless proportionate distributive amounts are paid on account of the shares of
CSX Convertible Preferred Stock and Parity Securities ratably, in proportion to
the full distributable amounts to which holders of CSX Convertible Preferred
Stock and holders of all such Parity Securities are respectively entitled upon
such dissolution, liquidation or winding up.
VOTING
Except as required by law and as may otherwise be provided in the Amended
CSX Articles or in any amendment thereto, the holders of shares of CSX
Convertible Preferred Stock will not be entitled to any voting rights as
shareholders of CSX except as follows:
The affirmative vote of the holders of at least a majority of the
outstanding shares of CSX Convertible Preferred Stock, voting with holders of
shares of all other series of Preferred Stock affected in the same way as a
single class, in person or by proxy, at a special or annual meeting called for
the purpose, or by written consent in lieu of a meeting, will be required to
amend, repeal or change any provisions of the Amended CSX Articles in any manner
which would adversely affect, alter or change the powers, preferences or special
rights of the CSX Convertible Preferred Stock and any such securities affected
in the same way. With respect to any matter on which the holders are entitled to
vote as a separate class, each share of CSX Convertible Preferred Stock will be
entitled to one vote. No change may be made to the Amended CSX Articles which
alters the right of holders of CSX Convertible Preferred Stock to vote together
as a single class (to the extent such right is granted therein) without the
unanimous consent of the holders of all shares of CSX Convertible Preferred
Stock.
If so determined in Other Terms, so long as any share of CSX Convertible
Preferred Stock is outstanding, each share of CSX Convertible Preferred Stock
will entitle the holder thereof to vote on all matters voted on by holders of
CSX Common Stock, voting together as a single class with the holders of CSX
Common Stock and such other shares as may be entitled to similar rights, and
will be entitled to notice of any shareholders' meeting in accordance with the
Amended CSX Articles and the CSX By-laws. With respect to any such vote, each
share of CSX Convertible Preferred Stock will entitle the holder thereof to cast
one vote.
The creation, authorization or issuance of any other class or series of
stock or the increase or decrease in the amount of authorized capital stock of
any such class or series, or any increase, decrease or change in the par value
of any class of capital stock (including CSX Convertible Preferred Stock), will
not require the consent of the holders of CSX Convertible Preferred Stock and
will not be deemed to affect adversely, alter or change the powers, preferences
and special rights of shares of CSX Convertible Preferred Stock.
If at any time the equivalent of six quarterly dividends payable on the CSX
Convertible Preferred Stock are accrued and unpaid (whether or not consecutive
and whether or not declared), the holders of all outstanding shares of CSX
Convertible Preferred Stock and any Parity Securities having similar voting
rights then exercisable, voting separately as a single class without regard to
series, will be entitled to elect at the next CSX annual meeting of shareholders
two directors to serve until all dividends accumulated and unpaid on any such
voting securities have been paid or declared and funds set aside to provide for
payment in full. In exercising any such vote, each outstanding share of CSX
Convertible Preferred Stock will be entitled to one vote, excluding shares held
by CSX or any entity controlled by CSX, which shares shall have no vote.
CONVERSION
Each share of CSX Convertible Preferred Stock will be convertible at any
time and from time to time at the option of the holder thereof into fully paid
and nonassessable shares of CSX Common Stock. The number of shares of CSX Common
Stock deliverable upon conversion of a share of CSX Convertible Preferred Stock,
adjusted as hereinafter provided, is referred to herein as the "New Security
Conversion Ratio." The New Security Conversion Ratio as of the Convertible
Preferred Initial Issuance Date will be determined as described above, and will
be subject to adjustment from time to time as described below.
Conversion of CSX Convertible Preferred Stock may be effected by any holder
upon the surrender to CSX at the principal office of CSX or at the office of any
agent or agents of CSX (the "Transfer Agent"), as may be designated by the CSX
Board, of the certificate or certificates for such CSX Convertible Preferred
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Stock to be converted accompanied by a written notice stating that such holder
elects to convert all or a specified whole number of such shares as described in
this section and specifying the name or names in which such holder wishes the
certificate or certificates for shares of CSX Common Stock to be issued. In case
such notice specifies a name or names other than that of such holder, such
notice will be accompanied by payment of all transfer taxes payable upon the
issuance of shares of CSX Common Stock in such name or names. Other than such
taxes, CSX will pay any documentary, stamp or similar issue or transfer taxes
that may be payable in respect of any issuance or delivery of shares of CSX
Common Stock upon conversion of shares of CSX Convertible Preferred Stock as
described in this section. As promptly as practicable after the surrender of
such certificate or certificates, the receipt of such notice relating thereto,
and, if applicable, payment of all required transfer taxes (or the demonstration
to the satisfaction of CSX that such taxes have been paid), CSX will deliver or
cause to be delivered (x) certificates representing the number of validly
issued, fully paid and nonassessable full shares of CSX Common Stock to which
the holder (or the holder's transferee) of shares of CSX Convertible Preferred
Stock being converted will be entitled and (y) if less than the full number of
shares of CSX Convertible Preferred Stock evidenced by the surrendered
certificate or certificates is being converted, a new certificate or
certificates, of like tenor, for the number of shares evidenced by such
surrendered certificate or certificates less the number of shares being
converted. Such conversion will be deemed to have been made at the close of
business on the date of giving of such notice and of such surrender of the
certificate or certificates representing the shares of CSX Convertible Preferred
Stock to be converted so that the rights of the holder thereof as to the shares
being converted will cease except for the right to receive shares of CSX Common
Stock and accrued and unpaid dividends, if any, with respect to the shares of
CSX Convertible Preferred Stock being converted and the person entitled to
receive the shares of CSX Common Stock will be treated for all purposes as
having become the record holder of such shares of CSX Common Stock at such time.
If a holder of shares of CSX Convertible Preferred Stock exercises
conversion rights, upon delivery of the shares for conversion, such shares will
cease to accrue dividends as described above as of the end of the day
immediately preceding the date of such delivery, but such shares will continue
to be entitled to receive all accrued dividends which such holder is entitled to
receive through the last preceding Convertible Preferred Dividend Payment Date
unless such conversion follows a call for redemption by CSX in which case pro
rata dividends will also be payable through the date immediately preceding such
delivery, in each case, as if such holder continued to hold such shares of CSX
Convertible Preferred Stock. Any such accrued and unpaid dividends will be
payable by CSX as and when such dividends are paid to any remaining holders or,
if none, on the date which would have been the next succeeding Convertible
Preferred Dividend Payment Date had there been remaining holders or such later
time at which CSX believes it has adequate available capital under applicable
law to make such a payment. Notwithstanding the foregoing, shares of CSX
Convertible Preferred Stock surrendered for conversion (other than after notice
of redemption has been given with respect to such shares) after the close of
business on any record date for the payment of dividends declared and prior to
the opening of business on the Convertible Preferred Dividend Payment Date
relating thereto must be accompanied by a payment in cash of an amount equal to
the dividend declared in respect of such shares.
In case any shares of CSX Convertible Preferred Stock are to be redeemed,
such right of conversion will cease and terminate, as to the shares of CSX
Convertible Preferred Stock to be redeemed, at the close of business on the
Business Day immediately preceding the date fixed for redemption unless CSX
defaults in the payment of the Redemption Price.
Notwithstanding anything in the Amended CSX Articles to the contrary, upon
conversion, no payment or adjustment will be made by CSX to any holder of shares
of CSX Convertible Preferred Stock surrendered for conversion in respect of any
accrued and unpaid dividends on the shares of CSX Convertible Preferred Stock
surrendered for conversion.
In connection with the conversion of any shares of CSX Convertible
Preferred Stock, no fractions of shares of CSX Common Stock will be issued, but,
in lieu thereof, CSX will pay a cash adjustment in respect of such fractional
interest in an amount equal to such fractional interest multiplied by the
closing price per share of CSX Common Stock on the trading day on which such
shares of CSX Convertible Preferred Stock are deemed to have been converted. If
more than one share of CSX Convertible Preferred Stock is surrendered for
conversion by the same holder at the same time, the number of full shares of CSX
Common
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Stock issuable on conversion thereof will be computed on the basis of the total
number of shares of CSX Convertible Preferred Stock so surrendered.
CSX will at all times reserve and keep available, free from preemptive
rights, for issuance upon the conversion of CSX Convertible Preferred Stock such
number of its authorized but unissued shares of CSX Common Stock as will from
time to time be sufficient to permit the conversion of all outstanding shares of
CSX Convertible Preferred Stock, and will take all action required to increase
the authorized number of shares of CSX Common Stock, if necessary, to permit the
conversion of all outstanding shares of CSX Convertible Preferred Stock. Prior
to the delivery of any securities which CSX will be obligated to deliver upon
conversion of CSX Convertible Preferred Stock, CSX will comply with all
applicable federal and state laws and regulations which require action to be
taken by CSX. All shares of CSX Common Stock delivered upon conversion of the
CSX Convertible Preferred Stock will upon delivery be duly and validly issued
and fully paid and nonassessable, free of all liens and charges and not subject
to any preemptive rights.
The New Security Conversion Ratio will be subject to usual and customary
anti-dilution adjustments.
In case of any consolidation or merger of CSX with any other corporation
(other than a wholly owned subsidiary of CSX), in case of any sale or transfer
of all or substantially all of the assets of CSX, in the case of any
reclassification or recapitalization of CSX (other than solely a change in par
value of equity securities) not described above, or in the case of any share
exchange pursuant to which all of the outstanding shares of CSX Common Stock are
converted into other securities or property, CSX will cause appropriate
provision to be made so that the holder of each share of CSX Convertible
Preferred Stock then outstanding will have the right thereafter to convert such
share of CSX Convertible Preferred Stock into the kind and amount of shares of
stock and other securities and property receivable upon such consolidation,
merger, sale, reclassification, recapitalization, transfer or share exchange by
a holder of the number of shares of CSX Common Stock into which such share of
CSX Convertible Preferred Stock could have been converted immediately prior to
the effective date of such consolidation, merger, reclassification,
recapitalization, sale, transfer or share exchange (the "Preferred Per Share
Merger Consideration"). If, in connection with any such consolidation, merger,
reclassification, recapitalization, sale, transfer or share exchange, each
holder of shares of CSX Common Stock is entitled to elect to receive either
securities, cash or other assets upon completion of such transaction, CSX will
provide or cause to be provided to each holder of CSX Convertible Preferred
Stock the right to elect the securities, cash or other assets into which the
shares of CSX Convertible Preferred Stock held by such holder will be
convertible after completion of any such transaction on substantially the same
terms and subject to substantially the same conditions applicable to holders of
CSX Common Stock (including, without limitation, to the extent practicable,
notice of the right to elect, limitations on the period in which such election
will be made and the effect of failing to exercise the election). To the extent
that any portion of the Preferred Per Share Merger Consideration consists of
equity or other securities convertible into equity securities, such securities
constituting such portion will be subject to appropriate adjustment in order to
provide the holders of shares of CSX Convertible Preferred Stock with
protections substantially equivalent to those described above. The above
provisions will similarly apply to successive consolidations, mergers,
reclassifications, recapitalizations, sales, transfers or share exchanges.
Notwithstanding any other provision in the preceding paragraphs to the
contrary, if any Fundamental Change occurs, then the conversion price, which
shall equal the liquidation value divided by the then applicable New Security
Conversion Ratio (the "Conversion Price"), in effect will be adjusted
immediately after such Fundamental Change as follows:
(i) in the case of a Non-Stock Fundamental Change, the Conversion
Price immediately following such Non-Stock Fundamental Change shall be the
lower of (A) the Conversion Price in effect immediately prior to such
Non-Stock Fundamental Change, but after giving effect to any other prior
adjustments effected pursuant to the preceding paragraphs, and (B) the
product of (1) the greater of the Applicable Price (as defined in the
Amended CSX Articles) and the then applicable Reference Market Price (as
defined in the Amended CSX Articles) and (2) a fraction, the numerator of
which is $50 and the denominator of which is (x) the Redemption Price (if
the redemption date were the date of such Non-Stock Fundamental Change or,
for the period commencing on the Convertible Preferred Initial Issuance
Date and ending on the first anniversary thereof and the 12-month periods
commencing on the first, second[, and third] anniversaries of the
Convertible Preferred Initial Issuance Date, the product of
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%, %, %[, and %], respectively, times the liquidation
value), plus (y) any then-accrued and then-accumulated and unpaid dividends
on a share of CSX Convertible Preferred Stock up to but excluding the date
of such Non-Stock Fundamental Change; and
(ii) in the case of a Common Stock Fundamental Change, the Conversion
Price immediately following such Common Stock Fundamental Change shall be
the Conversion Price in effect immediately prior to such Common Stock
Fundamental Change, but after giving effect to any other prior adjustments
effected pursuant to the preceding paragraphs, multiplied by a fraction,
the numerator of which is the Purchaser Stock Price (as defined in the
Amended CSX Articles) and the denominator of which is the Applicable Price;
provided, however, that in the event of a Common Stock Fundamental Change
in which (A) 100% of the value of the consideration received by a holder of
CSX Common Stock is common stock of the successor, acquiror or other third
party (and cash, if any, paid with respect to any fractional interests in
such common stock resulting from such Common Stock Fundamental Change) and
(B) all of the CSX Common Stock shall have been exchanged for, converted
into, or acquired for, common stock of the successor, acquiror or other
third party (and any cash with respect to fractional interests), the
Conversion Price of the shares of CSX Convertible Preferred Stock
immediately following such Common Stock Fundamental Change shall be the
Conversion Price in effect immediately prior to such Common Stock
Fundamental Change multiplied by a fraction, the numerator of which is one
and the denominator of which is the number of shares of common stock of the
successor, acquiror, or other third party received by a holder of one share
of CSX Common Stock as a result of such Common Stock Fundamental Change.
"Common Stock Fundamental Change" shall mean any Fundamental Change in
which more than 50% of the Fair Market Value (as defined in the Amended CSX
Articles) of the consideration received by holders of CSX Common Stock consists
of common stock that, for the 10 trading days immediately prior to such
Fundamental Change, has been admitted for listing or admitted for listing
subject to notice of issuance on a national securities exchange or quoted on the
Nasdaq National Market; provided, however, that a Fundamental Change shall not
be a Common Stock Fundamental Change unless either (i) CSX continues to exist
after the occurrence of such Fundamental Change and the outstanding shares of
CSX Convertible Preferred Stock continue to exist as outstanding shares of CSX
Convertible Preferred Stock, or (ii) not later than the occurrence of such
Fundamental Change, the outstanding shares of CSX Convertible Preferred Stock
are converted into or exchanged for shares of convertible preferred stock of a
corporation succeeding to the business of CSX; which convertible preferred stock
has powers, preferences and relative, participating, optional or other rights,
and qualifications, limitations and restrictions substantially similar to those
of the CSX Convertible Preferred Stock.
"Fundamental Change" shall mean the occurrence of any transaction or event
or series of transactions or events pursuant to which all or substantially all
of the CSX Common Stock shall be exchanged for, converted into, acquired for or
shall constitute solely the right to receive cash, securities, property or other
assets (whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization or
otherwise); provided, however, in the case of any such series of transactions or
events, for purposes of adjustment of the Conversion Price, such Fundamental
Change shall be deemed to have occurred when substantially all of the CSX Common
Stock shall have been exchanged for, converted into, or acquired for, or shall
constitute solely the right to receive, such cash, securities, property or other
assets, but the adjustment shall be based upon the consideration that the
holders of CSX Common Stock received in the transaction or event as a result of
which more than 50% of the CSX Common Stock shall have been exchanged for,
converted into, or acquired for, or shall constitute solely the right to
receive, such cash, securities, property or other assets; and provided, further,
that such term does not include (i) any such transaction or event in which CSX
and/or any of its subsidiaries are the issuers of all the cash, securities,
property or other assets exchanged, acquired or otherwise issued in such
transaction or event, or (ii) any such transaction or event in which the holders
of CSX Common Stock receive securities of an issuer other than CSX if,
immediately following such transaction or event, such holders hold a majority of
the securities having the power to vote generally in the election of directors
of such other issuer outstanding immediately following such transaction or other
event.
"Non-Stock Fundamental Change" shall mean any Fundamental Change other than
a Common Stock Fundamental Change.
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Upon any adjustment of the New Security Conversion Ratio or Conversion
Price, as applicable, then in effect and any increase or decrease in the number
of shares of CSX Common Stock issuable upon the operation of the conversion set
forth above, then, and in each such case, CSX will promptly deliver to the
Transfer Agent of CSX Convertible Preferred Stock and CSX Common Stock, a
certificate signed by an officer of CSX setting forth in reasonable detail the
event requiring the adjustment and the method by which such adjustment was
calculated and specifying the New Security Conversion Ratio or Conversion Price,
as applicable, then in effect following such adjustment.
PREEMPTIVE RIGHTS
No holder of shares of CSX Convertible Preferred Stock will have any
preemptive right to subscribe to or purchase (i) any shares of capital stock of
CSX, (ii) any securities convertible into such shares or (iii) any options,
warrants or rights to purchase such shares or securities convertible into any
such shares.
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COMPARISON OF SHAREHOLDERS' RIGHTS
Upon the conversion of their Shares into the right to receive shares of CSX
Common Stock and CSX Convertible Preferred Stock (or Trust Convertible Preferred
Securities, as described herein) pursuant to the Merger, the shareholders of
Conrail, a Pennsylvania corporation, will become shareholders of CSX, a Virginia
corporation, and Virginia law will govern shareholder rights after the Merger.
Differences between the Pennsylvania Law and the Virginia Law and between the
Conrail Articles and the Conrail By-laws and the CSX Articles of Incorporation
as in effect as of the date of this Joint Proxy Statement/Prospectus (the "CSX
Articles") and the CSX By-laws will result in various changes in the rights of
shareholders of Conrail.
The following is a summary of certain differences between the rights of
Conrail shareholders under Pennsylvania Law, the Conrail Articles and the
Conrail By-laws as compared with those of CSX shareholders under the Virginia
Law, the CSX Articles and the CSX By-laws. This summary does not purport to be a
complete description of the provisions discussed and is qualified in its
entirety by the Pennsylvania Law, the Conrail Articles, the Conrail By-laws, the
Virginia Law, the CSX Articles, and the CSX By-laws, to which Conrail
shareholders are referred. For a description of the rights of holders of CSX
Convertible Preferred Securities (or Trust Convertible Securities) as provided
for in the Amended CSX Articles, see "DESCRIPTION OF THE CSX CONVERTIBLE
PREFERRED STOCK" and Appendix F to this Joint Proxy Statement/Prospectus.
AUTHORIZED CAPITAL
The total number of authorized shares of capital stock of Conrail is
275,000,000, consisting of 250,000,000 shares of Conrail Common Stock and
25,000,000 shares of Preferred Stock, without par value ("Conrail Preferred
Stock"). The Conrail Board has the authority to divide Conrail Preferred Stock
into series and to determine the rights and preferences of each. Conrail has
authorized 10,000,000 shares of Conrail ESOP Preferred Stock. The record owner
of all outstanding shares of Conrail ESOP Preferred Stock is the Conrail ESOP
Trustee. As of , 1997, shares of Conrail ESOP Preferred
Stock were issued and outstanding.
Conrail cannot pay dividends on Conrail Common Stock unless full cumulative
dividends have been paid on Conrail ESOP Preferred Stock, and no distributions
can be made to the holders of Conrail Common Stock upon liquidation or
dissolution of Conrail unless the holders of Conrail ESOP Preferred Stock have
received a cash liquidation payment of $28.84375 per share, plus unpaid
dividends up to the date of such payment. Holders of Conrail ESOP Preferred
Stock are entitled to receive cumulative cash dividends of $2.165 per share per
year, payable quarterly. Each share of Conrail ESOP Preferred Stock is
convertible into one share of Conrail Common Stock, except that if the
conversion occurs upon a foreclosure of or other realization upon the Conrail
ESOP Preferred Stock, such shares of Conrail ESOP Preferred Stock are
convertible into an equivalent number of shares of Conrail Common Stock, based
on their respective market values at the date of conversion. The holders of
Conrail ESOP Preferred Stock are entitled to one vote per share, voting together
as a single class with the holders of Conrail Common Stock on all matters,
except for amendments to the Conrail Articles that would alter or change the
powers, preferences, or special rights of the shares of the Conrail ESOP
Preferred Stock so as to effect them adversely. See "-- Voting Rights."
The total number of authorized shares of capital stock of CSX is
325,000,000, consisting of 300,000,000 shares of CSX Common Stock and 25,000,000
shares of CSX Serial Preferred Stock, without par value ("CSX Serial Preferred
Stock"). CSX has reserved 250,000 shares of Series A Preferred Stock for
issuance and 3,000,000 shares of Series B Preferred Stock for issuance. All
shares of CSX Preferred Stock rank senior to shares of CSX Common Stock, both as
to dividends and liquidation preference. No shares of CSX Preferred Stock are
currently outstanding.
The CSX Articles Proposal, if adopted, will increase the number of
authorized shares of CSX Common Stock and will authorize shares of preferred
stock over and above the CSX Serial Preferred Stock authorized by the CSX
Articles. See "DESCRIPTION OF AMENDED CSX ARTICLES."
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VOTING RIGHTS
Holders of Conrail Common Stock vote together with the holders of Conrail
ESOP Preferred Stock as a single class on all matters requiring a vote, except
as provided below. Each share of Conrail ESOP Preferred Stock entitles the
holder thereof to one vote on all matters submitted to a vote of the
shareholders of Conrail. Except as otherwise provided by law, the Conrail
Articles or the Conrail By-laws, matters submitted to a vote of the shares of
Conrail Common Stock must be approved by a majority of the votes cast by holders
of Conrail Common Stock and Conrail ESOP Preferred Stock, voting together as a
single class. Any amendment to the Conrail Articles that would alter or change
the powers, preferences, or special rights of the shares of the Conrail ESOP
Preferred Stock so as to effect them adversely must be approved by the vote of
at least 66 2/3% of the outstanding shares of Conrail ESOP Preferred Stock. The
Conrail Articles provide that the affirmative vote of the holders of any class
or series of Conrail Preferred Stock (including Conrail ESOP Preferred Stock),
as a class or series, shall not be required for any merger or other transaction
involving a change in control of Conrail, nor shall any share of Conrail
Preferred Stock entitle the holder thereof to more than one vote with respect to
any merger. See "-- Approval of Mergers and Similar Transactions." Holders of
Conrail Common Stock are not entitled to cumulative voting or preemptive rights.
Holders of CSX Common Stock vote as a single class on all matters requiring
a vote. Except as otherwise provided by law, the CSX Articles or the CSX By-laws
with respect to certain types of actions, matters submitted to a vote of the
holders of CSX Common Stock must be approved by a majority of the votes cast by
the holders of CSX Common Stock. Holders of CSX Common Stock are not entitled to
cumulative voting or preemptive rights.
DIRECTORS
Under both the Pennsylvania Law and the Virginia Law, the articles of
incorporation or by-laws of a corporation may specify the number of directors.
The Conrail By-laws specify that there be 13 directors, and CSX By-laws specify
that there be 12 directors. The Conrail By-laws provide for three classes of
directors, one of which consists of five members and two of which consist of
four members each. Each class of Conrail directors serve for a term of three
years. The CSX Board is not classified, and all directors are elected annually.
The Pennsylvania Law provides that shareholders may remove the entire board
of directors, or a class of the board where the board is classified with respect
to the power to select directors (such as the Conrail Board), or any individual
director with or without cause, unless the by-laws provide otherwise. The
Conrail By-laws contain no such provision. The Virginia Law provides that
shareholders may remove one or more directors with or without cause, unless the
articles of incorporation provide that directors may be removed only with cause.
The CSX Articles contain no such provision.
Fiduciary Duties of Directors. Under the Pennsylvania Law, directors stand
in a fiduciary relation to their corporation and, as such, are required to
perform their duties in good faith, in a manner they reasonably believe to be in
the best interests of such corporation and with such care, including reasonable
inquiry, skill and diligence, as a person of ordinary prudence would use under
similar circumstances. In discharging their duties, directors may, in
considering the best interests of their corporation, consider, among other
things, to the extent they deem appropriate: (a) the effects of any action upon
any or all groups affected by such action, including shareholders, employees,
suppliers, customers and creditors of such corporation, and upon communities in
which offices or other establishments of such corporation are located, (b) the
short-term and long-term interests of the corporation, (c) the resources, intent
and conduct (past, stated and potential) of any person seeking to acquire
control of the corporation and (d) all other pertinent factors. In considering
the best interests of the corporation or the effects of any action, directors
are not required to regard any corporate interest or the interests of any
particular group affected by such action as a dominant or controlling interest
or factor. Absent a breach of fiduciary duty, a lack of good faith or
self-dealing, any act of the board of directors, a committee thereof or an
individual director is presumed to be in the best interests of such corporation.
Under the Virginia Law, directors are required to perform their duties in
accordance with their good faith business judgment of the best interests of the
corporation.
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Liability of Directors. The Pennsylvania Law permits a corporation to
limit the personal liability of its directors, with specified exceptions. The
Pennsylvania Law permits a corporation to include in its by-laws a provision,
adopted by vote of its shareholders, which eliminates the personal liability of
its directors, as such, for monetary damages for any action taken unless (i)
such directors have breached or failed to perform their duties as directors and
(ii) the breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness. However, a Pennsylvania corporation is not empowered
to eliminate personal liability where the responsibility or liability of a
director is pursuant to any criminal statute or is for the payment of taxes
pursuant to any federal, state or local law. The Conrail By-laws eliminate
director liability to the maximum extent permitted by the Pennsylvania Law.
The Virginia Law provides that, in any proceeding brought by or in the
right of a corporation or brought by or on behalf of shareholders of the
corporation, the damages assessed against an officer or director arising out of
a single transaction, occurrence or course of conduct may not exceed the lesser
of (i) the monetary amount, including the elimination of liability, specified in
the articles of incorporation or, if approved by the shareholders, in the
by-laws as a limitation on or elimination of the liability of the officer or
director, or (ii) the greater of (a) $100,000 or (b) the amount of cash
compensation received by the officer or director from the corporation during the
12 months immediately preceding the act or omission for which liability was
imposed. The liability of an officer or director is not limited under the
Virginia Law if the officer or director engaged in willful misconduct or a
knowing violation of the criminal law or of any federal or state securities law.
The CSX Articles provide that in every instance permitted by the Virginia Law
the liability of a director of CSX to CSX or its shareholders arising out of a
single transaction, occurrence or course of conduct is virtually eliminated.
SPECIAL MEETINGS
The Pennsylvania Law permits a special meeting of shareholders to be called
by the board of directors or by such officers or other persons as may be
provided in the by-laws. The Pennsylvania Law also permits such meetings to be
called by shareholders entitled to cast at least 20% of the votes entitled to be
cast at the meeting. However, shareholders of a "registered corporation" (a
corporation with a class of stock entitled to vote generally in the election of
directors registered under the Exchange Act), such as Conrail, are not permitted
to call special meetings of shareholders, except that an "interested
shareholder" (generally a shareholder entitled to cast at least 20% of the votes
entitled to be cast at the meeting) may call a special meeting for the purpose
of approving certain business combinations under Section 2555 of the
Pennsylvania Law. Because Conrail is a registered corporation, shareholders
generally do not have the right to call special meetings of shareholders except
as described above.
The Conrail By-laws provide that special meetings of Conrail shareholders
may be called by the Chief Executive Officer or the Conrail Board. In addition,
the Conrail By-laws provide that an interested shareholder may call a special
meeting for the purposes of approving a business combination. Notice of a
shareholder meeting shall be given not less than 20 days before such meeting.
The Virginia Law permits a special meeting of shareholders to be called by
the chairman of the board of directors, the president, the board of directors or
the person or persons authorized to do so by the articles of incorporation or
by-laws. The CSX By-laws provide that special meetings of CSX shareholders may
be called by the Chief Executive Officer or the CSX Board. Notice of a
shareholder meeting for most purposes shall be given not less than ten nor more
than 60 days before such meeting.
ACTION BY SHAREHOLDERS WITHOUT A MEETING
Under the Pennsylvania Law, although shareholders of a registered
corporation, such as Conrail, may authorize an action without a meeting by less
than unanimous consent if such action is permitted by the corporation's by-laws,
the Conrail By-laws do not provide for such action. Therefore, unanimous consent
of Conrail shareholders is required for shareholder action without a meeting.
The Virginia Law provides that any action required or permitted to be taken
at a shareholders' meeting may be taken without a meeting and without action by
the board of directors only if the action is taken by all the shareholders
entitled to vote on the action.
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AMENDMENTS TO ARTICLES OF INCORPORATION
Under the Pennsylvania Law, shareholders of a registered corporation, such
as Conrail, are not entitled to propose amendments to the articles of
incorporation of such corporation; any such amendment must be initiated by the
corporation's board of directors. Amendments to the articles of incorporation
proposed by the board of directors must be submitted to a vote of the
shareholders entitled to vote thereon at the corporation's next annual meeting
(if held no earlier than 120 days after the amendment is proposed) or at a
special meeting of shareholders called for that purpose. A proposed amendment
approved by the board of directors will be adopted upon receiving (i) the
affirmative vote of a majority of the votes cast by all shareholders entitled to
vote thereon, and (ii) if any class or series of shares is entitled to vote on
the amendment as a class, the affirmative vote of a majority of the votes cast
in each such class vote. The holders of outstanding shares of a class or series
of shares are entitled to vote as a class in respect to an amendment if the
amendment would: (a) authorize the board of directors to fix and determine the
relative rights and preferences, as between series, of any preferred or special
class; (b) make any change in the preferences, limitations or special rights
(other than preemptive rights or the right to vote cumulatively) of the shares
of a class or series adverse to the class or series; (c) authorize a new class
or series of shares having a preference as to dividends or assets which is
senior to the shares of a class or series; or (d) increase the number of
authorized shares of any class or series having a preference as to dividends or
assets which is senior in any respect to the shares of a class or series. Any
amendment of the articles of incorporation of a registered corporation that
involves a reclassification of the corporation's stock in which the percentage
of voting or economic share interest in the corporation of one or more
shareholders is materially increased relative to substantially all other
shareholders constitutes a transaction with an interested shareholder under
Section 2538 of Subchapter D of Chapter 25 of the Pennsylvania Law and must be
approved in the manner set forth therein. See "-- Anti-Takeover Statutes --
Pennsylvania Anti-takeover Provisions -- Transactions with Interested
Shareholders."
Under the Virginia Law, certain minor administrative amendments to the
articles of incorporation may be made by a corporation's board of directors
without shareholder action. Other amendments must be proposed by the board of
directors and then approved by the shareholders. The CSX Articles provide that
the vote to amend or restate the CSX Articles shall be a majority of the votes
entitled to be cast thereon.
AMENDMENTS TO BY-LAWS
The Conrail Articles provide that the Conrail By-laws may be amended or
repealed by a majority vote of the shareholders entitled to vote thereon or by a
majority of the members of the Conrail Board, subject always to the power of the
shareholders to change such action by the Conrail Board.
The CSX By-laws provide that the CSX By-laws may be amended or repealed by
the CSX Board. The CSX shareholders may also amend or repeal the CSX By-laws and
may prescribe that any by-law made by them shall not be altered, amended or
repealed by the CSX Board.
APPROVAL OF MERGERS AND SIMILAR TRANSACTIONS
Under the Pennsylvania Law, unless required by the by-laws of a constituent
corporation (and the Conrail By-laws contain no such requirement), shareholder
approval is not required for a plan of merger or consolidation if (i)(a) the
surviving or new corporation is a domestic corporation whose articles of
incorporation are identical to the articles of incorporation of such constituent
corporation (except changes which may be made without shareholder approval under
the Pennsylvania Law); (b) each share of such constituent corporation's stock
outstanding immediately prior to the merger or consolidation will continue as or
be converted into (except as otherwise agreed to by the holder thereof) an
identical share of stock of the surviving or new corporation; and (c) such plan
provides that the shareholders of such constituent corporation will hold in the
aggregate shares of the surviving or new corporation having a majority of the
votes entitled to be cast generally in an election of directors; (ii)
immediately prior to the adoption of such plan, another corporation that is a
party to such merger or consolidation owns, directly or indirectly, 80% or more
of the outstanding shares of each class of stock of such constituent
corporation; or (iii) no shares of the constituent corporation have been issued
prior to the adoption of the plan of merger or consolidation by the board of
directors pursuant to Section 1922 of the Pennsylvania Law. Under the
Pennsylvania Law, shareholder approval is required for the sale, lease, exchange
or other disposition (other than by means of a distribution to
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shareholders or by a division) of all, or substantially all, of the property and
assets of a corporation when not made in the usual and regular course of the
business of such corporation or for the purpose of relocating the business of
such corporation or in certain transactions with subsidiaries. Under the
Pennsylvania Law, shareholder approval is required for the division of a
domestic corporation into two or more domestic or foreign business corporations
unless (i) the dividing corporation has only one class of shares outstanding and
the shares and other securities, if any, of each resulting corporation are
distributed pro rata to the shareholders of the dividing corporation; (ii) the
dividing corporation survives the division and all the shares and other
securities and obligations, if any, of the new corporations resulting from the
division are owned solely by the surviving corporation; or (iii) the transfer
effected by the division, if effected by means of a sale, lease, exchange or
other disposition, would not require shareholder approval. In cases where
shareholder approval is required, a merger, consolidation, division, sale,
lease, exchange or other disposition must be approved by a majority of the votes
cast by the holders of the securities entitled to vote thereon, unless the
corporation's articles of incorporation require a higher vote (the Conrail
Articles contain no such requirement).
The Conrail Articles provide that the affirmative vote of the holders of
any class or series of Conrail Preferred Stock, as a class or series, shall not
be required for any merger or other transaction involving a change in control of
Conrail, nor shall any share of Conrail Preferred Stock entitle the holder
thereof to more than one vote with respect to any merger.
The Virginia Law provides that, with certain exceptions, a merger, share
exchange, and sale or other disposition of all or substantially all of a
corporation's assets other than in the ordinary course of business require the
approval of each voting group entitled to vote thereon by more than two-thirds
of all votes entitled to be cast by that voting group unless a greater or lesser
vote (but not less than a majority of votes cast by such voting group) is
required by the articles of incorporation or unless a greater vote is required
by the board of directors. The CSX Articles currently do not alter the
provisions of the Virginia Law regarding shareholder approval required in the
event of a merger, share exchange, or sale or other disposition of all or
substantially all of the assets of CSX. However, if the CSX Articles Proposal is
adopted at the CSX Meeting, the Amended CSX Articles will reduce the vote so
required to a majority of all the votes cast by each voting group entitled to
vote at a meeting at which a quorum is present. See "DESCRIPTION OF AMENDED CSX
ARTICLES."
Under the Virginia Law, action by the shareholders of the surviving
corporation is not required if (i) the articles of incorporation of the
surviving corporation will not differ significantly from its articles before the
merger; (ii) each shareholder of the surviving corporation whose shares were
outstanding before the merger will hold the same number of shares with identical
rights and preferences after the merger; and (iii) the number of voting or
participating shares outstanding immediately after the merger, plus the number
of voting or participating shares issuable as a result of the merger, either by
the conversion of shares issued pursuant to the merger or the exercise of
warrants issued pursuant to the merger, will not exceed by more than 20% the
total number of voting or participating shares, respectively, of the surviving
corporation outstanding immediately before the merger.
DISSENTERS' RIGHTS
The Pennsylvania Law provides that shareholders of a corporation have a
right to dissent (i.e., the right to dissent from a proposed corporate action
and to obtain payment of the judicially-determined "fair value" of their shares)
with respect to specified corporate actions, including (i) certain plans of
merger and consolidation, division, share exchange or conversion; (ii) certain
other plans or amendments to its articles of incorporation in which disparate
treatment is accorded to the holders of shares of the same class or series; and
(iii) certain sales or transfers of all or substantially all of such
corporation's assets. However, dissenters' rights are not provided to the
holders of shares of any class or series that is either listed on a national
securities exchange or held of record by more than 2,000 shareholders (such as
Conrail Common Stock) unless (i) such shares are not converted solely into
shares of the acquiring, surviving, new or other corporation and cash in lieu of
fractional shares; (ii) if such shares constitute a preferred or special class
of stock, the articles of incorporation of such corporation, the corporate
action under consideration or the express terms of the transaction encompassed
in such corporate action do not entitle all holders of the shares of such class
to vote thereon and require for the adoption thereof the affirmative vote of a
majority of the votes cast by all
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shareholders of such class; or (iii) if such shares constitute a group of a
class or series which are to receive the same special treatment in the corporate
action under consideration, the holders of such group are not entitled to vote
as a special class in respect of such corporate action. Pursuant to Pennsylvania
Law, the "fair value" of a dissenter's shares is the value thereof immediately
before the effectuation of the corporate action to which the dissenter objects
taking into account all relevant factors but excluding any appreciation or
depreciation in anticipation of the corporate action. A shareholder who has the
right to dissent from a transaction and receive payment of the "fair value" of
his shares must follow specific procedural requirements as set forth in the
Pennsylvania Law in order to maintain such right and obtain such payment. See
"THE MERGER -- Dissenters' Rights."
Under the Virginia Law, a shareholder of a Virginia corporation is entitled
to dissent from, and to receive payment of the "fair value" of such
shareholder's shares in the event of, any of the following corporate
transactions: (a) consummation of a merger to which the corporation is a party,
provided that either (i) shareholder approval is required for the merger and the
shareholder is entitled to vote, or (ii) the corporation is a subsidiary being
merged with its parent pursuant to a certain Virginia Law provision for such
transactions; (b) consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired,
provided that the shareholder is entitled to vote on the plan; (c) consummation
of the sale or exchange of all, or substantially all, the property of the
corporation, if the shareholder is entitled to vote on the transaction or the
transaction is in furtherance of a dissolution on which the shareholder is
entitled to vote, and provided that the transaction is neither (i) a transaction
pursuant to court order, nor (ii) a transaction for cash pursuant a plan by
which all or substantially all of the net proceeds will be distributed to
shareholders within one year, or (d) any corporate action taken pursuant to a
shareholder vote, to the extent that the articles of incorporation, the by-laws
or a resolution of the board of directors provides that voting and nonvoting
shareholders are entitled to dissent and obtain payment for their shares.
With respect to shares of any class or series that are either listed on a
national securities exchange or on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or held by at least 2,000 record
shareholders (such as CSX Common Stock), dissenters' rights are not available
under the Virginia Law to the holders of such shares by reason of a merger,
share exchange or sale or exchange of property unless: (a) the articles of
incorporation of the corporation issuing such shares provide otherwise; (b) in
the case of a merger or share exchange, the holders of such shares are required
to accept anything other than (i) cash, (ii) shares or other equity interests of
the surviving or acquiring company or of any other corporation or limited
liability company that are either listed subject to notice of issuance on a
national securities exchange or held of record by at least 2,000 holders or
(iii) a combination of cash and such shares or other equity interests; or (c)
the transaction is an "affiliated transaction" and has not been approved by a
majority of the "disinterested directors" (as such terms are defined in the
Virginia Law).
Pursuant to the Virginia Law, "fair value," with respect to a dissenter's
shares, means the value of the shares immediately before the effectuation of the
corporate action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would be
inequitable. A shareholder who has the right to dissent from a transaction and
receive payment of the fair value of such shareholder's shares must follow
specific procedural requirements as set forth in the Virginia Law in order to
perfect and maintain such right and obtain such payment.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Pennsylvania Law provides in general that a corporation may indemnify
any person, including its directors, officers and employees, who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or proceeding, whether civil, criminal, administrative or
investigative (other than actions by or in the right of the corporation) by
reason of the fact that he or she is or was a representative of or serving at
the request of the corporation, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her in connection with the action or proceeding if he or she acted in
good faith and in a manner he or she reasonably believed to be in, or not
opposed to, the best interests of the corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The Pennsylvania Law permits similar indemnification in the case of
actions by or in the right of the corporation, provided that indemnification is
not
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permitted in respect of any claim, issue or matter as which the person has been
adjudged to be liable to the corporation unless there is a judicial
determination that, in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for the expenses that the court
deems proper. In any case, to the extent that a representative of the
corporation has been successful on the merits or otherwise in defense of any
claim, issue or matter, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith. The Pennsylvania Law also provides that the
indemnification permitted or required by the Pennsylvania Law is not exclusive
of any other rights to which a person seeking indemnification may be entitled,
provided that indemnification may not be made in any case where the act or
failure to act giving rise to the claim for indemnification is determined by a
court to have constituted willful misconduct or recklessness. To the fullest
extent permitted by the Pennsylvania Law, the Conrail By-laws require
indemnification of directors and officers and permit, by action of the Conrail
Board, indemnification of employees and agents of Conrail.
Under the Virginia Law, a Virginia corporation may indemnify a director
against liability if the director (i) conducted himself or herself in good
faith, (ii) believed that his or her official conduct was in the best interests
of the corporation and in all other non-official conduct was not opposed to the
corporation's best interests and (iii) in the case of a criminal proceeding, had
no reasonable cause to believe his or her conduct was unlawful. A corporation
may not indemnify a director in connection with a proceeding in which the
director is adjudged liable on the basis that he or she received an improper
personal benefit. A director also cannot be indemnified in connection with a
proceeding by or in the right of the corporation in which the director is
adjudged liable to the corporation. In addition, under the Virginia Law, any
corporation may indemnify and advance expenses to an officer, employee or agent
of the corporation to the same extent as to a director, unless the articles of
incorporation provide otherwise. To the extent that a director or an officer
prevails in the defense of any proceeding to which he or she was a party because
he or she was a director or an officer, the corporation shall indemnify such
director or officer. To the fullest extent permitted by the Virginia Law, the
CSX Articles require indemnification of all directors and officers of CSX, and
permit indemnification of employees and agents of CSX and directors, officers,
employees and agents of CSX subsidiaries and predecessor entities, and any other
person serving any other legal entity in any capacity at the request of CSX.
Subject to the statutory exceptions, the CSX Articles virtually eliminate
liability of any director or officer of CSX in connection with a proceeding by
or in the right of the corporation or by or on behalf of it shareholders unless
the director or officer engaged in willful misconduct or knowing violation of
the criminal law.
ANTI-TAKEOVER STATUTES
State Anti-Takeover Statutes. Pennsylvania has enacted Chapter 25 of the
Pennsylvania Law, which contains several anti-takeover provisions which apply to
registered corporations, including Conrail. Article 14 of the Virginia Law has
two anti-takeover statutes in force, Sections 725 through 727 of the Virginia
Law (the "Affiliated Transaction Statute") and Section 728 of the Virginia Law
(the "Control Share Acquisitions Statute").
Pennsylvania Anti-takeover Provisions
Transactions with Interested Shareholders. Section 2538 of Subchapter D of
Chapter 25 of the Pennsylvania Law provides that if (i) an "interested
shareholder" (as defined in Section 2538(d) of the Pennsylvania Law) of a
registered corporation (together with others acting jointly or in concert
therewith and affiliates thereof) is to be a party to a merger or consolidation,
a share exchange or certain sales of assets involving such corporation or a
subsidiary thereof, (ii) such interested shareholder is to receive a
disproportionate amount of any of the securities of any corporation surviving or
resulting from a division of such corporation, (iii) such interested shareholder
is to be treated differently from others holding shares of the same class in a
voluntary dissolution of such corporation, or (iv) such interested shareholder's
percentage of voting or economic share interest in such corporation is
materially increased relative to substantially all other shareholders in a
reclassification; then the transactions being proposed must be approved by the
affirmative vote of the holders of shares representing at least a majority of
the votes that all shareholders (other than the interested shareholder) are
entitled to cast with respect to such transaction, excluding all such voting
shares beneficially owned by such interested shareholder. Such special voting
requirement does not apply if the
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transaction being proposed has been approved in a prescribed manner by such
corporation's board of directors or certain other conditions (including the
amount of consideration to be paid to certain shareholders) are satisfied or the
transaction involves certain subsidiaries.
Section 2555 of Subchapter F of Chapter 25 of the Pennsylvania Law may
apply to a transaction between a registered corporation and an interested
shareholder thereof, notwithstanding that Section 2538 of Subchapter D of
Chapter 25 of the Pennsylvania Law is also applicable. Section 2555 of
Subchapter F of Chapter 25 of the Pennsylvania Law prohibits such a corporation
from engaging in a "business combination" (as defined in the Pennsylvania Law)
with an interested shareholder unless (i) the board of directors of such
corporation gives prior approval to the proposed transaction or gives prior
approval to the interested shareholder's acquisition of 20% of the shares
entitled to vote in an election of directors of such corporation, (ii) the
interested shareholder owns at least 80% of the stock of such corporation
entitled to vote in an election of directors, and, no earlier than three months
after such interested shareholder reaches such 80% level, the majority of the
remaining shareholders approve the proposed transaction and shareholders receive
a minimum "fair price" for their shares (as set forth in Section 2556 of
Subchapter F of Chapter 25 of the Pennsylvania Law) in the transaction and the
other conditions of Section 2556 of Subchapter F of Chapter 25 of the
Pennsylvania Law are met, (iii) holders of all outstanding common stock approve
the transaction, (iv) no earlier than five years after the interested
shareholder acquired the 20% a majority of the remaining shares entitled to vote
in an election of directors approve the transaction, or (v) no earlier than five
years after the interested shareholder acquired the 20%, a majority of all the
shares approve the transaction, all shareholders receive a minimum "fair price"
for their shares (as set forth in Section 2556 of Subchapter F of Chapter 25 of
the Pennsylvania Law), and the other conditions of Section 2556 of Subchapter F
of Chapter 25 of the Pennsylvania Law are met.
Shareholder "Put" in Control Transactions. Under Sections 2542 through
2548 of Subchapter E of Chapter 25 of the Pennsylvania Law, subject to certain
exceptions including if the articles of incorporation of a corporation
explicitly provide that this subchapter shall not be applicable to the
corporation (see "BACKGROUND AND REASONS -- Background of the Merger"), when a
person or group of persons acting in concert has voting power over at least 20%
of the shares of a registered corporation entitled to vote in the election of
directors (a "control group"), on the occurrence of the transaction that makes
the group a control group, any other shareholder of the registered corporation
can, under procedures set forth in the statute, require the control group to
purchase such shareholder's shares at "fair value" as defined in Section 2542 of
Subchapter E of Chapter 25 of the Pennsylvania Law.
Certain Share Acquisitions. Subchapter G of Chapter 25 of the Pennsylvania
Law also contains certain provisions applicable to a registered corporation
which, under certain circumstances, permit such a corporation to redeem "control
shares" (as defined in the Pennsylvania Law) and remove the voting rights of
control shares. Additionally, Subchapter H of Chapter 25 of the Pennsylvania Law
requires the disgorgement of profits by a "controlling person" (as defined in
the Pennsylvania Law). The Conrail Articles provide that Subchapters G and H of
Chapter 25 of the Pennsylvania Law are not applicable to Conrail.
Virginia Anti-Takeover Statutes
Affiliated Transactions. Article 14 of the Virginia Law contains
provisions governing "affiliated transactions" (including, among other various
transactions, mergers, share exchanges, sales, leases and other dispositions of
material assets, issuances of securities, dissolutions and similar transactions)
with an "interested shareholder" (generally, the beneficial owner of more than
10% of any class of the corporation's outstanding voting shares). During the
three years following the date a shareholder becomes an interested shareholder,
any affiliated transaction with the interested shareholder must be approved by
both a majority of the "disinterested directors" (those directors who were
directors before the interested shareholder became an interested shareholder or
who were recommended for election by a majority of disinterested directors) and
by the affirmative vote of the holders of two-thirds of the corporation's voting
shares other than shares beneficially owned by the interested shareholder. The
foregoing requirements do not apply to affiliated transactions if, among other
things, a majority of the disinterested directors approve the interested
shareholder's acquisition of voting shares making such a person an interested
shareholder prior to such acquisition. Beginning three years after the
shareholder becomes an interested shareholder, the corporation may engage in an
affiliated
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transaction with the interested shareholder if (i) the transaction is approved
by the holders of two-thirds of the corporation's voting shares, other than
shares beneficially owned by the interested shareholder, (ii) the affiliated
transaction has been approved by a majority of the disinterested directors or
(iii) subject to certain additional requirements, in the affiliated transaction,
the holders of each class or series of voting shares will receive consideration
meeting specified fair price and other requirements designed to ensure that all
shareholders receive fair and equivalent consideration, regardless of when they
tendered or otherwise sold their shares.
Control Share Acquisitions. Article 14 of the Virginia Law provides that
shares acquired in a transaction that would cause the acquiring person's voting
power to meet or exceed any of three thresholds (20%, 33 1/3% or 50%) have no
voting rights unless granted by a majority vote of shares not owned by the
acquiring person or any officer or employee-director of the Virginia corporation
or, among other exceptions, (i) such acquisition of shares is made pursuant to a
merger agreement or tender or exchange offer agreement to which the corporation
is a party, or (ii) the corporation's articles of incorporation or by-laws opt
out of the coverage of the Control Share Acquisition Statute prior to the
acquiring person's acquisition. If authorized in the corporation's articles of
incorporation or by-laws prior to the occurrence of the control share
acquisition, the statute also permits the corporation to redeem the acquired
shares during a specified time period at the average per share price paid for
them (1) if no control share acquisition statement is filed with respect to a
control share acquisition, or (2) shareholders fail to grant voting rights at a
meeting of shareholders. If voting rights are approved for control shares
comprising more than 50% of the corporation's outstanding stock, shareholders
who do not vote in favor of the granting of voting rights may have the right to
have their shares repurchased by the corporation for "fair value."
The provisions of the Affiliated Transactions Statute and the Control Share
Acquisition Statute are only applicable to public corporations that have more
than 300 shareholders, such as CSX. Corporations may provide in their articles
of incorporation or by-laws to opt out of the Control Share Acquisition Statute;
however, shareholder action is required to opt out of the Affiliated
Transactions Statute and such action is not effective for eighteen months or
with respect to a person who became an interested shareholder at the time of, or
prior to, such action. CSX has not opted out of the Control Share Acquisition
Statute or the Affiliated Transactions Statute.
RIGHTS OF INSPECTION
Under the Pennsylvania Law, every shareholder, upon proper written demand
stating the purpose thereof, may inspect and make copies of the share register,
books and records of account, and records of proceedings of the incorporators,
shareholders and directors as long as such inspection is for a proper purpose
and during usual business hours.
Under the Virginia Law, CSX shareholders may inspect a list of CSX
shareholders at CSX's office or at the office of its transfer agent during the
ten-day period prior to any shareholder meeting. CSX shareholders of record for
at least six months or who hold at least 5% of all the outstanding shares may
inspect CSX's shareholder list and other corporate books and records during
regular business hours, provided that a written request is made, at least five
business days in advance, in good faith and for a proper purpose. Shareholders
of record for less than six months and holding less than 5% of the outstanding
shares have more limited inspection rights.
SHAREHOLDER RIGHTS PLANS
In 1989, Conrail declared a dividend of one common share purchase right (a
"Conrail Right") on each outstanding share of Conrail Common Stock. The Conrail
Rights were issued pursuant to the Rights Agreement, dated as of July 19, 1989,
between Conrail and First Chicago Trust Company of New York, as Rights Agent (as
amended, the "Conrail Rights Agreement"). The Conrail Rights expire on September
20, 2005. The Conrail Rights are not exercisable or transferable apart from
Conrail Common Stock until the occurrence of certain events arising out of an
actual or potential acquisition of 10% or more of Conrail Common Stock, and
would, at such time, provide the holder with certain additional entitlements. If
the Conrail Rights become exercisable, each Conrail Right would entitle
shareholders to purchase one share of Conrail Common Stock at an exercise price
of $205.00, subject to adjustment. In the event that another
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company were to merge or otherwise combine with Conrail or Conrail were to sell
50% or more of its assets or earning power, each Conrail Right then outstanding
would become a right to buy that number of shares of common stock of such other
company which at the time of such transaction would have a market value of two
times the exercise price of the Conrail Rights. In such event, all Conrail
Rights owned by such other company would become null and void. Further, in the
event that (a) a person or group were to acquire a 10% or greater position in
Conrail (an "Acquiring Person"), (b) Conrail is the surviving corporation in a
merger with any Acquiring Person, (c) an Acquiring Person engages in certain
"self-dealing" transactions or (d) an event occurs that increases an Acquiring
Person's position in Conrail by at least one percent, each Conrail Right then
outstanding would become the right to buy that number of shares of Conrail
Common Stock which at the time of the triggering event had a market value of two
times the exercise price of the Conrail Rights. In such event, all Conrail
Rights owned by the Acquiring Person would become null and void. Notwithstanding
the foregoing, none of CSX, any wholly owned subsidiary of CSX or the Voting
Trust will be deemed to be an Acquiring Person, and none of the approval,
execution or consummation of the transactions contemplated by the Merger
Agreement will trigger the exercise of the Conrail Rights. In 1995, a dividend
of one Conrail Right for each share of Conrail ESOP Preferred Stock was declared
and paid. Prior to becoming exercisable, the Conrail Rights are redeemable at
Conrail's option at $.005 per Conrail Right and do not have any voting
privileges or rights to receive dividends.
Pursuant to the CSX Rights Agreement, each outstanding share of CSX Common
Stock also evidences one CSX Right. Each CSX Right entitles shareholders of
record to purchase from CSX, until the earlier of June 8, 1998, or the
redemption of the CSX Rights, one one-hundredth of a share of CSX Series B
Preferred Stock at an exercise price of $100, subject to certain adjustments or,
under certain circumstances, to obtain additional shares of CSX Common Stock in
exchange for the CSX Rights. In the event that another company merged or
otherwise combined with CSX, or CSX sold 50% or more of its assets or earning
power, each CSX Right then outstanding would become a right to buy that number
of shares of common stock of such other company which at the time of such
transaction would have a market value of two times the exercise price of the CSX
Rights. In such event, all CSX Rights owned by such other company would become
null and void. Further, under certain circumstances, in the event a person or
group were to acquire a 20% or greater position in CSX, each CSX Right then
outstanding would become the right to buy that number of shares of CSX Common
Stock which at the time of the 20% acquisition had a market value of two times
the exercise price of the CSX Rights. In such event, the acquiror who triggered
the CSX Rights would be excluded and such acquiror's CSX Rights would become
null and void. The CSX Rights are not exercisable or transferable apart from the
related shares of CSX Common Stock until the earlier of ten days following the
public announcement that a person or affiliated group has acquired or obtained
the right to acquire 20% or more of CSX Common Stock outstanding, or ten days
following the commencement or announcement of an intention to make a tender
offer or exchange offer, the consummation of which would result in the ownership
by a person or group of 20% or more of the CSX Common Stock outstanding. The CSX
Board may redeem the CSX Rights at a price of $0.01 per CSX Right at any time
prior to the acquisition by a person or group of 20% or more of the outstanding
CSX Common Stock.
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DESCRIPTION OF AMENDED CSX ARTICLES
At the CSX Meeting, CSX shareholders will consider the CSX Articles
Proposal. The following summarizes certain differences between the CSX Articles
and the Amended CSX Articles. Other provisions of the Amended CSX Articles are
identical to existing provisions in the CSX Articles. The following is not a
complete summary of the CSX Articles or the Amended CSX Articles. It is expected
that the Amended CSX Articles will not become effective until at or about the
Merger (other than the provisions with respect to the corporate name, which will
become effective at the Control Date) and will be in substantially the form of
Appendix D hereto.
NAME
Under the Amended CSX Articles, following the Control Date, the Combined
Company will be known as [NEW NAME].
AUTHORIZED CAPITAL STOCK
The Amended CSX Articles authorize 600,000,000 shares of CSX Common Stock
while the CSX Articles authorize 300,000,000 shares of CSX Common Stock. Both
the CSX Articles and the Amended CSX Articles authorize 25,000,000 shares of CSX
Serial Preferred Stock. In addition, the Amended CSX Articles authorize an
additional 70,000,000 shares of Preferred Stock, without par value ("CSX
Preferred Stock"), of which 20,000,000 shares are to be designated as CSX
Convertible Preferred Stock, while the CSX Articles make no such provision.
PREFERRED STOCK
Under the Amended CSX Articles, the CSX Board may, prior to issuance,
determine the preferences, limitations and relative rights, to the extent
permitted by the Virginia Law, of (i) any class of shares of CSX Preferred Stock
or (ii) one or more series within a class. Each class or series will be
appropriately designated by a distinguishing designation prior to the issuance
of any such shares. Except to the extent otherwise permitted by the Virginia
Law, the preferred stock of a series will have preferences, limitations and
relative rights identical with those of other shares of the same series and,
unless otherwise provided in the description of the series, with those of shares
of other series within the same class. Prior to the issuance of any shares of a
class or series of CSX Preferred Stock, (i) the CSX Board will have established
such class or series by adopting a resolution and by filing with the State
Corporation Commission of Virginia articles of amendment setting forth the
designation and number of shares of the class or series and the preferences,
limitations and relative rights thereof and (ii) the State Corporation
Commission of Virginia will have issued a certificate of amendment with respect
to such filing. The CSX Articles effectively provide similar terms as to the
creation of separate series through the CSX Serial Preferred Stock, but do not
provide for the creation of separate classes of CSX Preferred Stock which would
not have those terms prescribed for in the CSX Serial Preferred Stock. The
Amended CSX Articles also delete the designations found in the CSX Articles for
various series of CSX Serial Preferred Stock as to which shares are no longer
outstanding.
Although the CSX Board has no intention at the present time of doing so, it
could issue a series of CSX Preferred Stock pursuant to this provision of the
Amended CSX Articles that could, depending on the terms of such series, impede
the completion of a merger, tender offer or other takeover attempt. The CSX
Board will make any determination to issue such shares based on its judgment as
to the best interests of CSX and its shareholders. The CSX Board, in so acting,
could issue CSX Preferred Stock having terms that could discourage an
acquisition attempt or other transaction that some, or a majority, of CSX's
shareholders might believe to be in their best interests or in which
shareholders might receive a premium for their stock over the then-current
market price of such stock.
CERTAIN VOTING MATTERS
Under the Amended CSX Articles, the affirmative vote of the holders of a
majority of all the votes cast by each voting group entitled to vote at a
meeting at which a quorum of the voting group exists shall be
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required as to any plan of merger or share exchange to which CSX is a party, or
any sale, lease, exchange or other disposition of all or substantially all of
the assets or property of CSX other than in the usual and regular course of
business. As permitted under the Virginia Law, the Amended CSX Articles thus
adopt a voting requirement below that of the CSX Articles and the Virginia Law,
which would otherwise require an affirmative vote of more than two-thirds of the
shares entitled to vote thereon.
OTHER
As set forth in the Merger Agreement, following the Control Date, the
By-laws of the Combined Company will provide that no change may be made to the
corporate management provisions described under the second paragraph of "THE
MERGER -- The Merger Agreement -- Board of Directors; Officers" or to the terms
of the Snow Employment Agreement or the LeVan Employment Agreement described
under "INTERESTS OF CERTAIN PERSONS -- Employment Agreements" except by a 75%
vote of the members of the Board of Directors of the Combined Company.
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SECURITY OWNERSHIP
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF CONRAIL
The following table sets forth, as of , 1997, certain
information with respect to each person who is known by Conrail to own
beneficially more than 5% of each class of the voting securities of Conrail,
each director of Conrail, certain executive officers, and all directors and
officers of Conrail as a group.
PERCENT
NAME AND ADDRESS OF
CLASS OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED CLASS
----------- ------------------------------------- ------------------------------------- -------
Conrail CSX Corporation (1)(2)
Commmon Green Acquisition Corp.
Stock One James Center
801 Easy Cary Street
Richmond, VA 23219
Conrail FMR Corp. (3)
Common 82 Devonshire St.
Stock Boston, MA 02109
Conrail Wellington Management Company (4)
Common 75 State Street
Stock Boston, MA 02109
Conrail Mellon Bank, N.A. (5)
Common One Mellon Bank Center
Stock Suite 3346
Pittsburgh, PA 15258-0001
Conrail Fidelity Management Trust Co. (6)
ESOP 82 Devonshire Street
Preferred Boston, MA 02109
Stock
Conrail H. Furlong Baldwin *
Common Director
Stock
Claude S. Brinegar *
Director
Daniel B. Burke *
Director
Kathleen Foley Feldstein *
Director
Roger S. Hillas *
Director
E. Bradley Jones *
Director and Nominee
David B. Lewis *
Director
John C. Marous *
Director
Gail J. McGovern *
Director
Raymond T. Schuler *
Director
David H. Swanson *
Director
David M. LeVan (7) *
Director, President and Chief
Executive Officer
Bruce B. Wilson (7) *
Senior Vice President -- Law
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PERCENT
NAME AND ADDRESS OF
CLASS OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED CLASS
----------- ------------------------------------- ------------------------------------- -------
Ronald J. Conway (7) *
Senior Vice President -- Operations
Timothy P. Dwyer (7) *
Senior Vice President -- Unit Trains
Service Group
John P. Sammon (7) *
Senior Vice President -- CORE Service
Group
George P. Turner (7) *
Senior Vice President -- Automotive
Service Group
All directors and executive officers (8)
as a group
- ---------------
* Less than one percent.
(1) These Shares represent shares of Conrail Common Stock purchased by
CSX pursuant to the Offers and held in the Voting Trust, representing
approximately % of Conrail's total voting securities as of
, 1997 less 85,000 shares of Conrail Common Stock sold by CSX on
January 2, 1997 in open market transactions on the NYSE in order to moot
certain contentions made by NSC and certain shareholder plaintiffs in
pending litigation. CSX also beneficially owns an additional 15,955,477
shares of Conrail Common Stock pursuant to the Conrail Stock Option, which
Conrail Stock Option currently is exercisable. See "THE MERGER -- Option
Agreements." The Shares subject to the Conrail Stock Option, together with
the Shares referred to above, represent approximately % of
Conrail's total voting securities as of , 1997.
(2) All of the Shares beneficially owned by CSX (other than pursuant to the
Conrail Stock Option, unless and until exercised) are required to be
deposited into the Voting Trust pursuant to the Voting Trust Agreement. The
Voting Trustee has offices at One Deposit Guaranty Plaza, 8th Floor,
Jackson, Mississippi 39201. Under the Voting Trust Agreement, which
terminates on December 31, 2016, unless earlier terminated in accordance
with its terms, the Voting Trustee is required to vote all such Shares in
favor of the Merger or any proposal necessary or desirable to effect the
Merger. See "CERTAIN REGULATORY MATTERS -- Voting Trust Agreement."
(3) Based on the Schedule 13G filed by FMR Corp. with the SEC on ,
1997.
(4) Based on the Schedule 13F filed by Wellington Management Company with the
SEC on , 1997.
(5) These shares represent % of Conrail's total voting securities as of
, 1997.
(6) Shares of Conrail ESOP Preferred Stock are convertible into shares of
Conrail Common Stock at any time on a share-for-share basis, subject to
certain antidilution adjustments. As a result, ownership of shares of
Conrail ESOP Preferred Stock is deemed to be ownership of an equal number of
shares of Conrail Common Stock. These shares of Conrail ESOP
Preferred Stock, together with the shares of Conrail ESOP
Preferred Stock allocated to participants, constitutes an aggregate of
shares, which represent approximately % of Conrail's total
voting securities as of , 1997.
(7) For Messrs. LeVan, Wilson, Conway, Dwyer, Sammon and Turner, respectively,
includes options exercisable within 60 days to acquire ,
, , , and shares of
Conrail Common Stock and , , , ,
and shares of Conrail ESOP Preferred Stock allocated to
the accounts of each of the named officers under the ESOP. Shares of Conrail
ESOP Preferred Stock are convertible into shares of Conrail Common Stock at
any time on a share-for-share basis, subject to certain antidilution
adjustments. As a result, ownership of shares of Conrail ESOP Preferred
Stock is deemed to be ownership of an equal number of shares of Conrail
Common Stock.
(8) Includes (x) options exercisable within 60 days to acquire shares
of Conrail Common Stock and (y) shares of Conrail ESOP Preferred
Stock allocated to the accounts of individual officers under the ESOP. This
number also includes shares held by all officers of Consolidated Rail
Corporation.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF CSX
The following table sets forth, as of [DATE], certain information with
respect to each person who is known by CSX to own beneficially more than 5% of
each class of the voting securities of CSX, each director of CSX, certain
executive officers, and all directors and officers of CSX as a group.
SHARES FOR WHICH
STOCK OTHER BENEFICIAL
PURCHASE SHARES OWNERSHIP CAN TOTAL
TITLE AND NAME OF AND BENEFICIALLY BE ACQUIRED BENEFICIAL PERCENT
CLASS BENEFICIAL OWNER(1) LOAN PLAN(2) OWNED WITHIN 60 DAYS(3) OWNERSHIP OF CLASS(4)
- ------------- ------------------------- ------------ ------------ ----------------- ---------- -----------
CSX Corp. Elizabeth E. Bailey N/A *
Common Stock Robert L. Burrus, Jr. N/A *
$1 Par Value Bruce C. Gottwald N/A *
John R. Hall N/A *
Robert D. Kunisch N/A *
Hugh L. McColl, Jr. N/A *
James W. McGlothlin(5) N/A *
Southwood J. Morcott N/A *
Charles E. Rice N/A *
William C. Richardson N/A *
Frank S. Royal N/A *
John W. Snow 679,775 *
Exec 2 *
Exec 3 *
Exec 4 *
Exec 5 *
Executive officers as a 2,768,795
group (21 persons,
including those named
above) and all directors
FMR Corp.(6)
82 Devonshire Street
Boston, MA 02109 N/A
- ---------------
Notes to Security Ownership of Certain Beneficial Owners, Directors, and
Executive Officers
(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. A two-for-one split of CSX Common
Stock occurred for shareholders of record on December 4, 1995, effective
December 21, 1995. Shareholdings reflect the results of the stock split.
(2) This column reflects grants made and stock purchased under the CSX Stock
Purchase and Loan Plan ("SPLP") as of August 1, 1996. Twenty-one executive
officers (including those named) were participants in this offering.
Pursuant to the SPLP, the CSX Board's Compensation Committee as
administrator granted Purchase Awards or Exchange Awards (as such terms are
defined in the SPLP) to each participant. Each participant could subscribe
to all, a portion, or none of the Purchase Award or Exchange Award offered.
The purchase price for shares offered on August 1, 1996 was $47.50 per
share.
Under the terms of the SPLP, each participant must provide a down payment
for the shares purchased, with the balance of the purchase price paid with
loans provided by CSX ("Purchase Loans"). The down payment remains at risk
until the Purchase Loans have been paid. For Purchase Awards, down payment
obligations may be satisfied with full recourse loans provided by CSX
("Down Payment Loans"). For Exchange Awards, the down payment obligation
must be satisfied by using equity from earlier offerings, as described
below. Dividend equivalents are paid by CSX on the number of shares
represented by the equity used as a down payment for an Exchange Award.
Exchange Awards offered on August 1, 1996 permitted officers who
participated in offerings under the SPLP in 1991 and/or 1992 to use the
equity which they had earned under those offerings as the down payment for
shares offered pursuant to the Exchange Awards. The equity used for down
payments represented the value, as of August 1, 1996, of shares acquired
pursuant to 1991 and/or 1992 offerings
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under the SPLP, less outstanding balances on the Purchase Loans made
pursuant to the same offerings. Participants could then elect to make a
down payment representing 25%, 20%, 15%, or 10% of the value of shares
purchased as of August 1, 1996. Any down payment of less than 25% would
have resulted in a participant's purchase of proportionately fewer shares
than the maximum number offered in the Exchange Award. Nineteen of the
current executive officers were participants in the 1991 and/or 1992 SPLP
offerings. Eighteen of the current executive officers were offered an
Exchange Award, and each elected to use equity earned through the 1991
and/or 1992 offerings as a 25% down payment.
Upon exercise of Exchange Awards, each participant executed new Down
Payment Loans and new Purchase Loans covering purchase of the shares
acquired in the 1991 and/or 1992 offerings, as well as additional shares
offered on August 1, 1996. The new Down Payment Loans extend the term of
the original Down Payment Loans to be coextensive with that of the new
Purchase Loans. The principal balance of the new Down Payment Loans remains
unchanged from that of the original Down Payment Loans and reflects amounts
which are 5% of the purchase price of shares purchased in 1991 and/or 1992.
The new Purchase Loans are for the balance of the purchase price of shares
purchased upon exercise of the Exchange Award. In the case of all executive
officers, the new Purchase Loans for Exchange Awards are for 75% of the
purchase price. As a result of the exchange feature, the number of shares
purchased as indicated in the table below includes shares purchased in 1991
and/or 1992. The Purchase Loan is collateralized by all such shares
purchased. Interest accrues on the Purchase Loans at the Applicable Federal
Rate (as defined in the SPLP).
Purchase Awards were offered to executive officers who did not participate
in the 1991 and/or 1992 offering. In addition, Purchase Awards were offered
to seven executive officers for shares in addition to those which these
participants could purchase using Exchange Awards. For this group of seven
executive officers, the Purchase Awards reflected enhanced responsibilities
over those which the same participants had at the time of the 1991 and/or
1992 offerings. With two exceptions, executive officers receiving Purchase
Awards were required to make down payments of 5% of the value of the award.
In the case of the two executive officers, the down payment was agreed to
be 10% of the value of the Purchase Award.
Each new Purchase Loan has a term of five years, but can be extended at the
participant's request to six years. Alternatively, the Compensation
Committee may require extension of Purchase Loans for two years. In no
event can Purchase Loans be for a period greater than seven years.
Dividends paid on shares purchased upon exercise of Purchase Awards and
Exchange Awards are applied against interest accrued on the Purchase Loans.
Interest accrued on a Purchase Loan in excess of dividends applied is
defined in the SPLP as the "Interest Spread."
The principal balance and interest under the Purchase Loans are subject to
various adjustments after the first anniversary of the Purchase Loans.
These adjustments occur only when the price of CSX Common Stock has reached
levels specified in the following table in excess of the purchase price and
have remained at such levels for at least ten consecutive business days.
The Purchase Loans cannot be prepaid except pursuant to conditions
specified by the SPLP involving termination of employment from CSX or
change in control of CSX. Two executive officers have agreed that if they
retire from employment before maturity of the Purchase Loan, they will
prepay the Purchase Loan within 18 months of retirement.
Interest on the Down Payment Loans of executive officers participating in
the 1991 and/or 1992 offerings under the SPLP was forgiven as a result of
CSX Common Stock having equalled or exceeded certain price threshold levels
for a period of 10 consecutive business days following August 1, 1993.
The Interest Spread on the new Purchase Loans will be forgiven, and the
Purchase Price reduced according to the following schedule, if and when, at
any time after the first anniversary of the Purchase Loans, the price of
CSX Common Stock achieves the levels indicated in the schedule and holds
them for ten consecutive business days.
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STOCK PRICE INTEREST & PURCHASE PRICE REDUCTIONS
-----------------------------------------------------------------------------------
Purchase Price + 10% Interest Spread + Interest on down payment loan
Purchase Price + 20% Interest Spread + 5% + Interest on down payment loan
Purchase Price + 30% Interest Spread + 10% + Interest on down payment loan
Purchase Price + 40% Interest Spread + 15% + Interest on down payment loan
Purchase Price + 50% Interest Spread + 20% + Interest on down payment loan
Purchase Price + 60% Interest Spread + 25% + Interest on down payment loan
Purchase Price + 70% Interest Spread + 30% + Interest on down payment loan
Purchase Price + 80% Interest Spread + 35% + Interest on down payment loan
Purchase Price + 90% Interest Spread + 40% + Interest on down payment loan
Purchase Price + 100% Interest Spread + 50% + Interest on down payment loan
For Messrs. Snow, Exec. 2, Exec. 3, Exec. 4 and Exec. 5, the number of
shares purchased pursuant to the SPLP and the aggregate loan balances as of
December 27, 1996, are indicated in the following table:
1996
Unadjusted 1996 1991 & 1992
1996 1996 1996 Purchase Unadjusted Down Payment
Exchange Purchase Total Loan Down Payment Loan
Award Award Purchase Balances Loan Balances Balances
Name (#Shares)(i) (#Shares) Price 12/27/96(ii) 12/27/96(iii) 12/27/96(iv)
- --------------------------- --------- ----------- ------------- ------------ ------------- ------------
John W. Snow............... 679,775 -- $ 32,289,313 $ 24,522,730 -- $ 318,848
Exec. 2....................
Exec. 3....................
Exec. 4....................
Exec. 5....................
All executive officers as a
group (21 persons,
including those named
above)................... 2,508,795 260,000(vi) $131,517,763 $102,421,407(v) $ 817,449 $1,307,120
-------------------
(i) All shares purchased with Exchange Awards, using a 25% down payment.
(ii) 1996 Unadjusted Purchase Loan Balances include principal and accrued interest
net of dividends.
(iii) 1996 Unadjusted Down Payment Loan Balances include principal and accrued
interest and are for shares purchased August 1, 1996.
(iv) 1991 and 1992 Down Payment Loan Balances represent loans extended from the
initial offerings in 1991 and 1992 pursuant to the Note.
(v) One executive extended his 1991 Purchase Loan and Down Payment Loan for one
year. He did not purchase any shares in 1996. His Unadjusted Purchase Loan
Balance is $1,086,418. His adjusted Purchase Loan Balance is $807,248. His Down
Payment Loan is $56,649, and is included in the figure above for executive
officers as a group.
(vi) Shares purchased in addition to those available using Exchange Awards. All of
these sales were purchased with a 5% down payment except for 75,000 Shares
purchased by two executive officers, which were purchased with 10% down
payments.
(3) Represents shares under options or stock appreciation rights exercisable
within 60 days, based on the market price of CSX Common Stock on [Date],
1997, which was .
(4) Based on number of shares outstanding of on [Date], 1997,
including shares deemed outstanding for which beneficial
ownership can be acquired within 60 days. An asterisk (*) indicates that
ownership is less than 1% of class.
(5) Mr. McGlothlin's ownership includes shares of CSX Common Stock as
a result of stock holdings by affiliates of Mr. McGlothlin in which he
shares voting and investment power.
(6) Information reported is derived from a Schedule 13G of FMR Corporation filed
with the SEC, dated __________, 1997. As reported in the Schedule 13G, the
person filing the statement has the sole power to vote or to direct the vote
of ________ shares, and has the sole power to dispose or to direct the
disposition of ________ shares.
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INTERESTS OF CERTAIN PERSONS
EMPLOYMENT AGREEMENTS
Snow Employment Agreement. CSX and Mr. Snow have entered into an
employment agreement, dated as of October 14, 1996, as amended (the "Snow
Employment Agreement"), which will be effective for a five-year period beginning
at the Control Date (the "Snow Employment Period"). The Snow Employment
Agreement provides that Mr. Snow will serve as Chairman of the Board and Chief
Executive Officer of the Combined Company for two years following the Control
Date (the "Snow First Employment Segment"); as Chairman of the Board during the
subsequent two years (the "Snow Second Employment Segment"); and as Chairman
Emeritus during the following year (the "Snow Third Employment Segment"). The
Snow Employment Agreement further provides that, during the Snow First
Employment Segment, Mr. Snow will receive base compensation at least equal to
the base compensation he received in the year prior to the Control Date, and
that, during the Snow Second Employment Segment and Snow Third Employment
Segment, Mr. Snow will receive base compensation in an amount no less than that
received by the Chief Executive Officer of the Combined Company during the Snow
Second Employment Segment.
If, during the Snow Employment Period, the Combined Company terminates Mr.
Snow's employment for a reason other than Cause or Disability (as defined in the
Snow Employment Agreement), or Mr. Snow terminates employment for Good Reason
(as defined in the Snow Employment Agreement), Mr. Snow will be entitled to the
following:
(i) a lump-sum payment aggregating (a) accrued obligations to Mr.
Snow, such as unpaid or deferred compensation, (b) the greater of (1) the
amount Mr. Snow would receive in compensation (including bonus) during the
remainder of the Snow Employment Period and (2) the amount equal to three
times Mr. Snow's most recent annual compensation (including bonus), and (c)
an amount equal to the excess of (1) the actuarial equivalent of the
benefit under the Combined Company's retirement plans which Mr. Snow would
receive assuming he continued employment with the Combined Company for the
longer of three years and the time remaining in the Snow Employment Period
over (2) the actuarial equivalent of Mr. Snow's actual benefit under the
Combined Company's retirement plans;
(ii) a payment in an amount such that, after the payment of all income
and excise taxes, Mr. Snow will be in the same after-tax position as if no
excise tax under Section 4999 of the Code had been imposed;
(iii) continued employee welfare benefits for the longer of three
years and the number of years remaining in the Employment Period; and
(iv) the immediate vesting of outstanding stock-based awards.
The Snow Employment Agreement provides that the Merger will not constitute
a Change of Control for the purpose of the Severance Agreement between Mr. Snow
and CSX, dated as of February 1, 1995.
LeVan Employment Agreement. CSX, Conrail and Mr. LeVan have entered into
an employment agreement dated as of October 14, 1996, as amended (the "LeVan
Employment Agreement"), which will be effective for a five-year period at the
Control Date (the "LeVan Employment Period"). The LeVan Employment Agreement
provides that Mr. LeVan will serve as Chief Operating Officer and President of
the Combined Company, and as Chief Executive Officer and President of the
railroad businesses of the Combined Company, from the Control Date until the
second anniversary of such date, or, if earlier, the termination of Mr. Snow's
employment or of his status as Chief Executive Officer of the Combined Company
(the "LeVan First Employment Segment"). Additionally, Mr. LeVan will serve as
Chief Executive Officer of the Combined Company during the period beginning
immediately after the Levan First Employment Segment and ending on the fourth
anniversary of the Effective Time, or, if earlier, upon the termination of Mr.
Snow's employment or of his status as Chairman of the Board (the "LeVan Second
Employment Segment"). During the period commencing immediately after the LeVan
Second Employment Segment, or, if earlier, upon the termination of Mr. Snow's
status as Chairman of the Board (the "LeVan Third Employment Segment"), Mr.
LeVan will additionally serve as Chairman of the Board of the Combined Company.
The LeVan Employment Agreement further provides that, during the LeVan First
Employment Segment, Mr. LeVan shall receive annual base compensation at least
equal to 90% of the amount received by the Chief Executive Officer of the
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Combined Company, but not less than $810,000, and bonus and other incentive
compensation at least equal to 90% of the amount received by the Chief Executive
Officer of the Combined Company, and that, during the Levan Second Employment
Segment and LeVan Third Employment Segment, Mr. LeVan will receive compensation
in an amount no less than that received by the Chief Executive Officer of the
Combined Company during the LeVan First Employment Segment, but not less than
$900,000.
If, during the LeVan Employment Period, the Combined Company terminates Mr.
LeVan's employment for a reason other than Cause or Disability (as such terms
are defined in the LeVan Employment Agreement), or Mr. LeVan terminates
employment for Good Reason (as defined in the LeVan Employment Agreement), Mr.
LeVan will be entitled to the following:
(i) a lump-sum payment aggregating (a) accrued obligations to Mr.
LeVan, such as unpaid or deferred compensation, (b) the greater of (1) the
amount Mr. LeVan would have received in compensation (including bonus)
during the remainder of the LeVan Employment Period, assuming an annual
base salary and bonus during the LeVan Second Employment Segment and LeVan
Third Employment Segment equal to the greater of Mr. LeVan's base salary
and bonus and that of Mr. Snow during the LeVan First Employment Segment
and (2) the amount equal to three times Mr. LeVan's most recent annual
compensation (including bonus), and (c) an amount equal to the excess of
(1) the actuarial equivalent of the benefit under CSX's retirement plans
which Mr. LeVan would receive assuming he continued employment with the
Combined Company for the longer of three years and the time remaining in
the LeVan Employment Period over (2) the actuarial equivalent of Mr.
LeVan's actual benefit under the Combined Company's retirement plans;
(ii) a payment in an amount such that, after the payment of all income
and excise taxes, Mr. LeVan will be in the same after-tax position as if no
excise tax under Section 4999 of the Code had been imposed;
(iii) continued employee welfare benefits for the longer of three
years and the number of years remaining in the Employment Period; and
(iv) the immediate vesting of outstanding stock-based awards.
The LeVan Employment Agreement provides that it supersedes, at the Control
Date, the Severance Agreement between Mr. LeVan and Conrail, dated as of August
1, 1995.
BUSINESS RELATIONSHIPS BETWEEN CSX AND CONRAIL
Various subsidiaries of each of CSX, on the one hand, and Conrail, on the
other hand, have operating relationships with each other. Approximately 6%, 6%,
and 7% of Conrail's total loads in 1993, 1994 and 1995, respectively, were
interchanged with CSX. Major interchange locations between CSX and Conrail
include Cincinnati, Ohio; Alexandria, Virginia; Philadelphia, Pennsylvania; and
Toledo, Ohio.
In connection with interchanges, either or both railroads of CSX and
Conrail may be the party billing the shipper of such interchange freight, and,
in cases where one of the parties bills for the entire shipment, such party will
periodically remit to the other party the net amount of the proceeds due to such
other carrier in accordance with standard industry practice. In addition, CSX
and Conrail often, together with other railroads, cooperate in terminal
switching operations at certain major locations including Chicago, Illinois and
East St. Louis, Illinois. CSX and Conrail also have proprietary interests in
various terminal companies in their service territories, including The Belt
Railway Company of Chicago and The Lakefront Dock and Railroad Terminal Company.
In addition to the foregoing, CSX and Conrail are parties to various
trackage rights agreements pursuant to which each carrier operates over the
other carrier's track.
OTHER
For a discussion of certain provisions of the Merger Agreement concerning
employee benefits and compensation, indemnification rights and corporate
governance matters, see "THE MERGER -- The Merger Agreement."
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CERTAIN REGULATORY MATTERS
ANTITRUST
Under the HSR Act and the rules promulgated thereunder by the United States
Federal Trade Commission (the "FTC"), certain acquisition transactions may not
be consummated unless certain information has been furnished to the Antitrust
Division of the United States Department of Justice (the "Antitrust Division")
and the FTC and certain waiting period requirements have been satisfied. Prior
to amending the Merger Agreement, CSX sought confirmation from the FTC that the
acquisition of control by CSX of Conrail is exempt from the notice and waiting
period requirements of the HSR Act provided that information and documentary
material filed with the STB in connection with the seeking of STB approval of
the proposed acquisition are contemporaneously filed with the Antitrust Division
and the FTC, where, prior to the purchase by CSX or Green Acquisition Corp. of
Shares and the placement of the Shares in the Voting Trust, the STB staff has
reviewed the Voting Trust and provided an informal favorable written opinion
with respect to it, and the parties have filed with the STB a Notice of Intent
to File Railroad Control Application. On November 8, 1996, counsel for CSX
received oral confirmation from the FTC staff that, subject to the conditions
just mentioned, the acquisition of control of Conrail by CSX is exempt from the
notice and waiting period requirement of the HSR Act; and, on January 2, 1996,
counsel for CSX received oral confirmation that such exemption applied to the
Merger Agreement as amended by the Second Amendment. CSX and Conrail have
complied and intend to continue to comply with the requirements set forth above
and therefore believe that the proposed control transaction is exempt from the
notice and waiting period requirements of the HSR Act. If the STB approves the
proposed control transaction and related transactions, its approval will exempt
the control transaction from federal and state antitrust laws. See "-- STB
Approval" below.
STB APPROVAL
General. The railroad operations of the subsidiaries of CSX and Conrail
are regulated by the STB under Subtitle IV of Title 49, U.S. Code ("Subtitle
IV"), as revised by the ICC Termination Act of 1995. That legislation abolished
the Interstate Commerce Commission ("ICC") but continued extensive parts of the
regulatory framework with respect to railroads previously administered by the
ICC and created the STB to administer them. Among the statutory provisions
previously administered by the ICC and continued under the authority of the STB
is a comprehensive system of control over corporate combinations involving rail
carriers or entities controlling rail carriers.
STB approval or exemption of the Merger is not a condition to the Merger.
However, STB approval or exemption is required for the acquisition of control by
CSX of Conrail that is intended to occur following the Merger. In the event that
(i) STB approval or exemption of the proposed acquisition of control is not
obtained by December 31, 1998, or (ii) the STB shall have, by an order which
shall have become final and no longer subject to review by the courts, either
(x) refused to approve the proposed acquisition of control or (y) approved such
acquisition of control, but subject to certain conditions discussed in
"-- Conditions" below, the Shares owned by CSX will be disposed of within two
years, or such extension of that period as the STB shall approve. Any such
disposition of Shares owned by CSX could result in a significant loss to CSX.
On October 18, 1996, CSX, CSXT, Conrail and CRC filed with the STB a Notice
of Intent to File Railroad Control Application. This Notice indicated that the
parties intend to file with the STB on or before March 1, 1997, an application
seeking STB approval of the acquisition of control by CSX of Conrail incident to
the Merger and related transactions (the "STB Application"). The STB is required
by statute to enter a final order with respect to the STB Application within
approximately 16 months after it is filed. The parties requested that the STB
decide the case on an expedited basis. On November 15, 1996, the STB issued a
tentative order proposing a schedule that requires its final decision to be
served within 300 days from the filing of the STB Application. The proposed
scheduling order was subject to public comment and reply by the applicants in a
process that closed on December 16, 1996. The STB is expected to issue a final
scheduling order which may or may not vary from the proposed order. Regardless
of the provisions of the final scheduling order, there can be no assurance that
the STB will issue a final decision any sooner than the approximately
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16-month period permitted by law, or that the decision, when issued, will be
favorable to the proposed acquisition of control.
Under Subtitle IV, the STB is required to approve the proposed acquisition
of control if it finds that it is consistent with the public interest. In making
that determination, the STB must consider at least the following factors: (1)
the effect of the proposed transaction on the adequacy of transportation to the
public; (2) the effect on the public interest of including, or failing to
include, other rail carriers in the area involved in the proposed transaction;
(3) the total fixed charges that result from the proposed transaction; (4) the
interest of carrier employees affected by the proposed transaction; and (5)
whether the proposed transaction would have an adverse effect on competition
among rail carriers in the affected region or in the national rail system.
Because STB approval of the proposed control transaction would be a "major
Federal action" within the meaning of the National Environmental Policy Act, the
STB must also consider the environmental effects of the proposed control
transaction. An STB approval order exempts the parties from federal, state and
local law, including the antitrust laws and laws enforcing contract rights, as
necessary to permit them to carry out the transaction.
In analyzing the factors described in the preceding paragraph, the STB
weighs the potential benefits to the public against any potential harm to the
public resulting from the proposed transaction. CSX and Conrail believe they
will present a strong case to the STB that the proposed control transaction
satisfies the public interest balancing test. CSX and Conrail believe that they
will demonstrate that a combination of CSX and Conrail, conditioned as they
propose (see "-- Conditions"), will have significant public benefits and
otherwise will satisfy the standards for STB approval. While the parties will
seek to present a highly persuasive case, there can be no assurance that the STB
Application will not be denied, or will not be granted subject to conditions
that are so onerous that the proposed control transaction would not be
consummated.
Interested parties, including other railroads, shippers, state and federal
agencies and legislators, and CSX or Conrail stockholders, may seek to
participate in the STB proceeding on the proposed control transaction,
consistent with applicable laws, regulations, decisions and orders, and may
support, oppose, or seek to have conditions imposed on the transaction or, in
the case of other railroads, to be included in the proposed control transaction,
such as through the divestiture to such railroads of certain rail lines of CSX
and/or Conrail.
Norfolk Southern; Possible Inconsistent Application. In a letter dated
October 25, 1996, NSC notified the STB of its intent to participate as an active
party in the STB proceedings regarding the STB Application for control. In
addition, on November 6, 1996, NSC filed a Notice of Intent to File Railroad
Control Application indicating that NSC will file with the STB a control
application with respect to Conrail on or before May 1, 1997. STB approval of a
control application is only permissive and does not require the parties to
consummate the transaction authorized by the STB. The STB may approve both the
CSX/Conrail application and the NSC application, only one or neither. There is
no present agreement of merger between NSC or any of its subsidiaries and
Conrail, and under Pennsylvania law approval of the Conrail Board would be
necessary for the adoption of any such agreement of merger. On November 27,
1996, the STB issued a tentative order proposing a schedule that requires its
final decision to be issued within 300 days from the filing of the NSC
application. The proposed scheduling order was subject to public comment and
reply by NSC in a process that closed on December 23, 1996. The final schedule
may differ from the proposed schedule.
Conditions. The STB has the authority to impose conditions on STB approval
of a control transaction to alleviate competitive or other concerns. If such
conditions are imposed, the applicants can elect to consummate the control
transaction subject to the conditions or not to consummate the transaction. In
light of the policies of the STB expressed in its recent decision relating to
the combination of the Union Pacific and Southern Pacific railroads, CSX and
Conrail are willing, in connection with the proposed control transaction and
upon its consummation, to provide competitive access to another railroad in
those situations where CSX and Conrail are now the only rail competitors and to
make other reasonable accommodations. Such access may take the form of a grant
of trackage rights over rail properties or other forms, any of which could
diminish the value to CSX or Conrail of its rail properties. The identity of the
railroad or railroads that will be provided such competitive access, the forms
it will take and the terms and conditions that would apply thereto have not been
determined and remain subject to negotiations. The STB may impose and enforce,
including through
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ongoing STB oversight following consummation of the proposed control
transaction, any such arrangements as conditions to STB approval of the control
transaction and may require the modification of such arrangements or require
other arrangements regarding rail competition or other aspects of the public
interest, which could be more burdensome, as conditions to its approval of the
control transaction.
There is no assurance that STB approval will be obtained or obtained on
terms that would be acceptable to CSX. A failure to obtain STB approval
following the Merger, or obtaining STB approval on non-advantageous terms, could
have a material adverse effect on CSX. Under the terms of the Amended Voting
Trust Agreement, in the event that there shall have been an STB denial, the
Shares owned by CSX will be disposed of by CSX. See "-- Voting Trust Agreement"
below. Should CSX elect under the terms of the Merger Agreement and the Amended
Voting Trust Agreement not to consummate the proposed acquisition of control, a
subsequent disposition of the Shares owned by CSX could result in a significant
loss to CSX.
Judicial Review -- Stay. Judicial review of an STB approval order may be
sought by certain interests aggrieved by it and the effectiveness of the order
could be stayed by the STB or by an appellate court while such judicial
proceedings are pending. STB approval is not automatically stayed if a party
seeks judicial review of the decision; however, it is possible that the approval
could be stayed by the STB or a reviewing court. The applicants would expect to
oppose any stay of the effectiveness of the STB's order if the order is
favorable. If STB approval is stayed, consummation of the proposed control
transaction, which would occur after receipt of required regulatory approvals
and satisfaction or waiver of all of the other conditions set forth in the
Merger Agreement, may not occur for a substantial period of time after the entry
of the final written decision of the STB. There can be no assurance that an STB
order approving the proposed control transaction will not be overturned on
appeal.
Pending receipt of STB approval, it is expected that the businesses and
operations of CSX and Conrail will be conducted in the usual and ordinary course
of business, the Shares acquired by CSX will be held in a voting trust and CSX
will not exercise control over Conrail and its subsidiaries.
VOTING TRUST AGREEMENT
Pending receipt of the final decision of the STB, Shares acquired by CSX
will be held in the Voting Trust in order to ensure that CSX and its affiliates
do not acquire or, directly or indirectly, exercise control over Conrail and its
affiliates prior to obtaining necessary STB approvals or exemptions. On November
1, 1996, counsel for CSX received an informal written opinion from the staff of
the STB that the use of the Voting Trust pursuant to the Original Voting Trust
Agreement would effectively insulate CSX and its affiliates from a violation of
the governing statute and STB policy that would result from an unauthorized
acquisition by CSX of a sufficient interest in Conrail to result in control of
Conrail. The parties to the Original Voting Trust Agreement propose, with
Conrail's consent, to amend the Original Voting Trust Agreement to reflect the
Second Amendment to the Merger Agreement and the proposed consummation of the
Merger prior to STB approval or exemption of the acquisition of control of
Conrail by CSX. On January 8, 1997, CSX received informal assurance from the STB
staff that use of the Voting Trust pursuant to the Amended Voting Trust
Agreement would similarly insulate CSX and its affiliates from a violation of
the governing statute and STB policy.
It is possible that the U.S. Department of Justice or railroad competitors
of CSX and Conrail, or others, may argue that CSX and its affiliates should not
be permitted to use the voting trust mechanism to acquire Shares and effectuate
the Merger prior to final STB approval of the acquisition of control of Conrail.
CSX believes it is unlikely that such arguments would prevail, but there can be
no assurance in this regard.
Green Acquisition Corp. has placed the shares of Conrail Common Stock
acquired by it under the First Offer (less the shares of Conrail Common Stock
disposed of on January 2, 1997), and will deposit all shares of Conrail Common
Stock acquired through the Second Offer or otherwise, into the Voting Trust in
order to ensure that CSX and its affiliates do not acquire or directly or
indirectly exercise control over Conrail and its affiliates prior to obtaining
necessary STB approvals or exemptions.
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Under the terms of the proposed Amended Voting Trust Agreement, as under
the Original Voting Trust Agreement, the Voting Trustee is required to vote all
Shares deposited in the Voting Trust (the "Trust Stock") to approve and effect
the Merger, in favor of any proposal necessary or desirable to effectuate CSX's
acquisition of Conrail pursuant to the Merger Agreement, and, if there shall be
with respect to the Board of Directors an "Election Contest" as defined in the
proxy rules of the SEC, in which one slate of nominees shall support the
effectuation of the Merger and another slate oppose it, to vote in favor of the
slate supporting the effectuation of the Merger. In addition, under the proposed
Amended Voting Trust Agreement, as under the Original Voting Trust Agreement,
for so long as the Merger Agreement is in effect, subject to certain exceptions,
the Voting Trustee shall vote against any proposed merger, business combination
or similar transaction involving Conrail, other than such a transaction
involving CSX or one of its affiliates. On certain other matters, the Voting
Trustee is to vote the Trust Stock in the same proportion as all other shares of
Conrail Common Stock are voted with respect to such matters, except that, under
the proposed Amended Voting Trust Agreement, subject to certain exceptions, from
and after the effectiveness of the First Merger, the Voting Trustee is to vote
the Trust Stock in accordance with the instructions of a majority of the persons
who are then directors of Conrail and who were on December 18, 1996 the
directors of Conrail and/or nominees of the persons who were directors of
Conrail on that date. If there are no directors of Conrail qualified to give
such instructions or such instructions are not given, the Voting Trustee is to
vote the Trust Stock in its sole discretion, having due regard for CSX solely as
an investor in the stock of Conrail.
Under the Amended Voting Trust Agreement, as under the Original Voting
Trust Agreement, pending the termination of the Voting Trust, the Voting Trustee
will pay over to Green Acquisition Corp. all cash dividends and cash
distributions paid on the Trust Stock.
The Voting Trustee has agreed to take all actions reasonably requested by
CSX with respect to any proposed sale or disposition of the Trust Stock by CSX
or Green Acquisition Corp., including, without limitation, in connection with
the exercise of registration rights under the Merger Agreement. Under the terms
of the proposed Amended Voting Trust Agreement, upon (i) approval or exemption
by the STB of the acquisition of control of Conrail by CSX or its affiliates or
(ii) if the law is amended to permit such acquisition of control without
approval, delivery to the Voting Trustee of an opinion of independent legal
counsel that no STB or other governmental approval is required (and, in the
event that shareholder approval of the Merger shall not have previously been
obtained, with the prior written consent of Conrail) the Voting Trustee shall
either (a) transfer the Trust Stock to CSX or Green Acquisition Corp. or (b) if
shareholder approval of the Merger has not previously been obtained, vote the
Trust Stock in favor of the Merger, and, upon any such transfer or consummation
of the Merger, the Voting Trust will cease.
Under the terms of the proposed Amended Voting Trust Agreement, in the
event that (i) STB approval is not obtained by December 31, 1998 or (ii) there
shall have been an STB denial, CSX will use its best efforts to sell the Trust
Stock two years or such extension of that period as the STB shall approve. The
proposed Amended Voting Trust Agreement provides that Conrail's prior written
approval is required for dispositions of Trust Stock only in the event any
disposition of the Trust Stock is made prior to the earlier of December 31, 1998
or the date of an STB denial. Disposition of the Trust Stock pursuant to the
Amended Voting Trust Agreement shall be subject to any jurisdiction of the STB
to oversee CSX's divestiture of the Trust Stock. The Voting Trustee shall
continue to perform its duties under the Amended Voting Trust Agreement and,
should CSX be unsuccessful in its effort to sell the Trust Stock within the time
period described above, shall undertake to sell the Trust Stock for cash to
eligible purchasers, in such manner and for such prices as the Voting Trustee,
in its discretion, shall deem reasonable after consultation with CSX. (An
"eligible purchaser" thereunder shall be a person or entity that is not
affiliated with CSX and which has all necessary regulatory authority, if any, to
purchase the Trust Stock.) The proposed Amended Voting Trust Agreement further
provides that CSX will cooperate with the Voting Trustee in effecting such
disposition and that the Voting Trustee will act in accordance with any
direction made by CSX as to any specific terms or method of disposition, to the
extent not inconsistent with the terms of the Voting Trust Agreement and the
requirements of the terms of any STB or court order. The proceeds of any such
sale will be distributed to CSX.
Pursuant to the Merger Agreement, prior to the Control Date, the Amended
Voting Trust Agreement may not be modified or amended without the prior written
approval of Conrail, unless such modification or
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amendment is not inconsistent with the Merger Agreement and is not adverse to
Conrail or its shareholders, except that the proposed Amended Voting Trust
Agreement may be amended or modified in any manner without the prior written
approval of Conrail at any time after the earlier of December 31, 1998 or the
date of an STB denial.
The proposed Amended Voting Trust Agreement provides that the Voting
Trustee shall receive reasonable and customary compensation and indemnification
from CSX and Green Acquisition Corp., as does the Original Voting Trust
Agreement.
The Amended Voting Trust Agreement provides that Conrail is an express
third-party beneficiary of the Amended Voting Trust Agreement, but that this
status shall exist only through the earlier of December 31, 1998, if STB
approval has not by then been obtained, or the date of an STB denial.
OTHER REGULATORY APPROVALS
Certain aspects of the Merger will require notification to, and filings
with, various securities and other agencies in certain states, including
jurisdictions where CSX and Conrail currently operate.
STB PETITION
On December 27, 1996, NSC filed a Petition for Declaratory Order with the
STB, claiming that certain provisions of the Second Amendment constitute an
unauthorized acquisition of control by CSX over Conrail. In such petition, NSC
requests that the STB take expedited action to issue a declaratory order that
certain provisions of the Merger Agreement are void and unenforceable. In the
event that a decision cannot be reached substantially before January 17, 1996,
NSC requests that the STB issue a temporary cease and desist order barring
Conrail from holding the Pennsylvania Special Meeting on January 17, 1997 or
barring CSX from requiring the Voting Trustee to vote any shares of Conrail held
in the Voting Trust in favor of opting out of the Pennsylvania Control
Transaction Law or in favor of the Merger until the STB is able to decide.
On December 30, 1996, CSX and Conrail filed an interim reply with the STB
denying NSC's claims of unauthorized control and opposing NSC's request for
interim relief.
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CERTAIN LITIGATION
On October 23, 1996, NSC filed a Complaint for Declaratory and Injunctive
Relief in the United States District Court for the Eastern District of
Pennsylvania, naming Conrail, CSX and directors of Conrail as defendants,
alleging, among other things, violations of fiduciary duty, of the Conrail
Articles and the Conrail By-laws, of the Pennsylvania Law and of disclosure
provisions of the federal securities laws relating to tender offers and proxy
solicitations, and requesting preliminary and permanent injunctive and
declaratory relief including, without limitation, an injunction from commencing
or continuing a tender offer for Conrail securities, seeking approval of the
Articles Amendment or taking steps to make the Articles Amendment effective,
taking any action to redeem the Conrail Rights or render the Conrail Rights
inapplicable to any offer with respect to Conrail by CSX without, at the same
time, rendering the Conrail Rights inapplicable with respect to NSC's proposed
tender offer with respect to Conrail, taking any action to enforce certain
provisions of the Merger Agreement, failing to take action to exempt NSC's
proposal to acquire Conrail from certain provisions of the Pennsylvania Law and
holding the Pennsylvania Special Meeting. On October 30, 1996, NSC amended its
complaint to, among other things, challenge certain additional features in the
Merger Agreement and the Conrail Rights Agreement. As amended, the NSC complaint
alleges, among other things, that entering into the Conrail Stock Option
Agreement and the Termination Fee provisions of the Merger Agreement are
violations of the fiduciary duties of the defendants, that the provisions of the
Conrail Rights Agreement (which are alleged to result in Conrail being
prohibited from engaging in any merger or sale transaction with any entity other
than CSX until 2005 in the event that a Distribution Date occurs) violate
defendants' fiduciary duties; that the structure of the Offers is coercive and
unfair to stockholders of Conrail; that a provision in the Merger Agreement
barring Conrail from changing its recommendation of the transaction or agreeing
to a competing transaction for a 180-day period from the execution of the Merger
Agreement is ultra vires and a breach of the defendants' duties; and that
certain features of the Conrail Rights Agreement which vest exclusive authority
to redeem or amend the Conrail Rights in Continuing Directors (as defined in the
Conrail Rights Agreement) are unlawful. On October 24, 1996, a hearing was
scheduled on the preliminary injunction being sought by NSC to enjoin, among
other things, the Pennsylvania Special Meeting (and the effectiveness of the
Articles Amendment) and to enjoin consummation of the First Offer. Substantially
similar allegations were made in a complaint filed against Conrail, CSX and
directors of Conrail in the same court by certain shareholders of Conrail
purportedly on behalf of a class of shareholders.
On November 19, 1996, following a two-day hearing, the Court denied NSC's
and the shareholder plaintiffs' motions for a preliminary injunction in all
respects. The Court ruled, among other things, that the plaintiffs had failed to
make the requisite showing in connection with their motion for a preliminary
injunction: that the federal securities law claims were meritorious; that the
challenged provisions of the Merger Agreement and the Offers were unlawful; that
the directors of Conrail had breached their fiduciary duties in connection with
the Merger Agreement; that there had been a lack of good faith after reasonable
investigation by the directors of Conrail; that it was inappropriate for the
Merger Agreement to deal with the subject of management succession; that under
the Pennsylvania Law directors do not have wide discretion in how to react to
takeover bids such as the Hostile Offer; that the Merger Agreement was not
properly entered into and contains terms that are prohibited by the Pennsylvania
Law; that the First Offer was "coercive"; and that the directors do not have the
right to favor one competitive bid over another and, in particular, do not have
the right to resist hostile takeovers by the use of a rights plan and other
provisions that favor one corporation over another. NSC and the shareholder
plaintiffs appealed that ruling to the United States Court of Appeals for the
Third Circuit and sought an injunction pending appeal against consummation of
the First Offer. On November 20, 1996, the Court of Appeals denied that motion,
whereupon NSC withdrew its motion to expedite its appeal. On December 3, 1996,
the Court of Appeals denied the shareholder plaintiffs' motions to expedite
their appeal, and scheduled briefing upon the appeals of NSC and the shareholder
plaintiffs to be completed by early February 1997.
On December 5, 1996, CSX and Conrail filed answers to NSC's second amended
complaint in the action, denying the material allegations of the complaint. In
addition, CSX and Conrail filed counterclaims against NSC in the action (the
"Counterclaims"). The Counterclaims allege, among other things, that NSC has
tortiously interfered, and is tortiously interfering, with the legitimate
contractual rights and expectations of
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CSX and Conrail arising out of the Merger Agreement. In particular, the
Counterclaims allege that by making the Hostile Offer, and by making false and
misleading statements concerning the viability of the Hostile Offer, as well as
by filing meritless litigation, in federal court, NSC is attempting to frustrate
the Merger and/or to obtain leverage to pressure CSX and Conrail to agree to
sell certain Conrail assets to NSC. As relief, the Counterclaims seek
compensatory damages from NSC in an amount to be proved at trial, and, in
addition, punitive damages. On December 13, 1996, NSC amended its complaint to
assert the claims (a) that any postponement by Conrail of the Pennsylvania
Special Meeting scheduled for December 23, 1996 (assuming such postponement was
caused by Conrail having failed to receive the requisite number of votes for
approval) would be a breach of the fiduciary duties of the directors of Conrail,
and (b) that CSX has, in effect, acquired more than 20% of the shares of Conrail
(within the meaning of the Pennsylvania Control Transaction Law) by virtue of
the allegation that shares owned by CSX should be aggregated with shares owned
by directors of Conrail, and employee benefit plan shares as to which directors
of Conrail allegedly have the power to direct the vote, and, accordingly, that
CSX is obligated to pay "fair value" in cash, to be determined pursuant to the
Pennsylvania Control Transaction Law, to all shareholders of Conrail other than
CSX.
On December 9, 1996, plaintiffs in the purported shareholder derivative and
class actions amended their complaint against CSX, Conrail and directors of
Conrail. The amendment adds the following additional claims to the shareholder
plaintiffs' complaint:
(i) that the existing share ownership of CSX and the directors of
Conrail as individuals should be aggregated for purposes of determinations
under the Pennsylvania Control Transaction Law because CSX and the
individual directors of Conrail are allegedly "acting in concert" for
purposes of the statute, and accordingly the requirement in the
Pennsylvania Control Transaction Law requiring persons who have 20% or more
of the voting power of a Pennsylvania corporation to offer to purchase for
cash the remaining shares (for "fair value") has allegedly been triggered;
and
(ii) that it is a breach of the fiduciary duties of the directors of
Conrail to have agreed to postpone the Pennsylvania Special Meeting in the
event that insufficient votes are received to assure approval of the
Articles Amendment providing for Conrail to opt out of the Pennsylvania
Control Transaction Law.
As relief, the shareholder plaintiffs seek a declaration that CSX and the
directors of Conrail are obligated to make the "fair value" payments required by
the Pennsylvania Control Transaction Law and that the Pennsylvania Special
Meeting may not be postponed and that no second vote upon the Articles Amendment
may be held.
On December 17, 1996, the Court preliminarily enjoined Conrail from failing
to convene, and/or from postponing, and/or from adjourning the Pennsylvania
Special Meeting scheduled for December 23, 1996 if the basis for Conrail's
decision was Conrail's failure to receive sufficient proxies to assure approval
of the Articles Amendment.
On January 2, 1997, CSX sold 85,000 shares of Conrail Common Stock
(including the proxy to vote such Shares at the Pennsylvania Special Meeting) at
an average per Share price of $98.983, in order to moot certain claims listed in
clause (i) of the third preceding paragraph.
The Court scheduled a hearing for January 9, 1997 on certain of the claims
made in the December 9, 1996 amended complaint.
See also "CERTAIN REGULATORY MATTERS -- STB Petition" for a discussion of
certain proceedings before the STB.
LEGAL MATTERS
The validity of the CSX Common Stock to be issued in connection with the
Merger will be passed upon by .
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EXPERTS
The financial statements of Conrail as of December 31, 1995 and 1994 and
for each of the years then ended incorporated by reference in this Joint Proxy
Statement/Prospectus, which are referred to herein and made part of the
Registration Statement, have been so incorporated in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in accounting and auditing. With respect to the unaudited
consolidated financial information of Conrail for the three-month periods ended
March 31, 1995 and 1996, for the three- and six-month periods ended June 30,
1995 and 1996 and for the three- and nine-month periods ended September 30, 1995
and 1996 incorporated by reference in this Joint Proxy Statement/Prospectus,
Price Waterhouse LLP reported that they have applied limited procedures in
accordance with professional standards for a review of such information.
However, their separate reports dated April 17, 1996, July 17, 1996 and October
16, 1996 incorporated by reference herein, state that they did not audit and
they do not express an opinion on that unaudited consolidated financial
information. Price Waterhouse LLP has not carried out any significant or
additional audit tests beyond those which would have been necessary if their
report had not been included. Accordingly, the degree of reliance on their
report on such information should be restricted in light of the limited nature
of the review procedures applied. Price Waterhouse LLP is not subject to the
liability provisions of Section 11 of the Securities Act for their report on the
unaudited consolidated financial information because that report is not a
"report" or a "part" of the registration statement prepared or certified by
Price Waterhouse LLP within the meaning of Sections 7 and 11 of the Securities
Act. The consolidated financial statements of Conrail for the year ended
December 31, 1993 incorporated by reference in this Joint Proxy
Statement/Prospectus and made a part of the Registration Statement, have been
audited by Coopers & Lybrand L.L.P., independent accountants, as set forth in
their report thereon also incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of CSX and subsidiaries appearing in
CSX Form 10-K, incorporated by reference in this Joint Proxy
Statement/Prospectus have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
SHAREHOLDER PROPOSALS
The Board of Directors of Conrail has not yet scheduled the next Conrail
Annual Meeting of Shareholders and, under Conrail's By-laws and Pennsylvania
Law, the date of the next Conrail Annual Meeting of Shareholders may be set by
the Conrail Board for any date during the calendar year 1997. There can be no
assurance that the next Conrail Annual Meeting will be scheduled before the end
of 1997. Conrail will not have any shareholder meetings following the Merger.
Shareholder proposals may, under the rules of the SEC, be submitted for
inclusion in Conrail's proxy statement and form of proxy for the next Annual
Meeting of Shareholders. If the Conrail Annual Meeting were to be held on May
21, 1997, shareholder proposals would have had to have been received by Conrail
not later than December 3, 1996. If the next Conrail Annual Meeting of
Shareholders is scheduled for a later date, the deadline for submitting
shareholder proposals will be similarly extended. Proposals must be in writing
and should be sent via registered, certified or express mail to: Secretary of
the Corporation, Conrail Inc., 2001 Market Street, Two Commerce Square,
Philadelphia, Pennsylvania 19101-1417. Shareholder proposals must also meet the
applicable criteria set forth in the Conrail By-laws in order to be considered
at Conrail's 1997 Annual Meeting. A Conrail shareholder may request a copy of
the Conrail By-laws by writing to the Secretary of Conrail at the address
provided above.
Shareholder proposals for inclusion in CSX's Proxy Statement for the 1997
Annual Meeting of Shareholders must have been received at the principal
executive offices of CSX on or before November 13, 1996.
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INDEX OF DEFINED TERMS
PAGE NO.
--------
ABR................................ 81
accrued Standard OID............... 74
ACL................................ 3
Acquired Shares.................... 7
Acquisition Agreement.............. 9
Acquiring Person................... 109
Adjusted Option.................... 62
Administrative Agent............... 81
Affiliated Transaction Statute..... 106
Amended CSX Articles............... C
Amended Voting Trust Agreement..... 12
Antitrust Division................. 119
Approval Date...................... 59
Assumed Consideration Per Share.... 41
CAF................................ 81
Cash Election...................... 7
Code............................... 11
Combined Company................... 4
Common Stock Fundamental Change.... 98
Common Stock Conversion Ratio...... 52
Conrail Articles................... 8
Conrail............................ C
Conrail Board...................... C
Conrail By-laws.................... 4
Conrail Common Stock............... C
Conrail EBT........................ 4
Conrail ESOP....................... 4
Conrail ESOP Preferred Stock....... C
Conrail ESOP Trustee............... 4
Conrail Financial Advisors......... 40
Conrail Form 10-K.................. 1
Conrail Form 10-Qs................. 2
Conrail Meeting.................... C
Conrail Merger Approval............ 55
Conrail Merger Meeting............. 54
Conrail Preferred Stock............ 100
Conrail Projections................ 21
Conrail Proposal................... C
Conrail Purchase Event............. 67
Conrail Record Date................ 4
Conrail Reports.................... 2
Conrail Right...................... 108
Conrail Rights Agreement........... 108
Conrail Shareholders Meetings...... 54
Conrail Stock Option............... 13
Conrail Stock Option Agreement..... 67
PAGE NO.
--------
Control Date....................... 58
control group...................... 107
Control Share Acquisitions
Statute.......................... 106
Conversion Price................... 97
Conversion Ratios.................. 52
Convertible Debentures............. C
Convertible Preferred Dividend
Payment Date..................... 92
Convertible Preferred Initial
Issuance Date.................... 92
Convertible Preferred Stock
Conversion Ratio................. 52
Counterclaims...................... 124
CRC................................ 3
Credit Agreement................... 81
CSX................................ C
CSX Articles....................... 100
CSX Articles Proposal.............. C
CSX Board.......................... C
CSX By-laws........................ 5
CSX Common Stock................... C
CSX Convertible Preferred Stock.... C
CSX Employee Stock Options......... 56
CSX Form 10-K...................... 2
CSX Form 10-Qs..................... 2
CSX Issuance Proposal.............. C
CSX Merger Meeting................. 55
CSX Meeting........................ C
CSX Merger Non Stock Securities.... 11
CSX Merger Securities.............. 7
CSX Merger Stock................... 11
CSX Preferred Stock................ 110
CSX Proposals...................... C
CSX Purchase Event................. 68
CSX Record Date.................... 5
CSX Reports........................ 2
CSX Right.......................... C
CSX Rights Agreement............... C
CSX Serial Preferred Stock......... 100
CSX Series B Preferred Stock....... C
CSX Shareholder Approval........... 55
CSX Stock Option................... 13
CSX Stock Option Agreement......... 68
CSX Trust.......................... 73
CSX Trust Securities............... 73
CSXI............................... 3
CSXT............................... 3
CTI................................ 3
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PAGE NO.
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Dissenting Shareholder............. 77
Down Payment Loans................. 114
EBIT............................... 41
EBITDA............................. 41
Effectiveness Date................. 81
Election........................... 7
Election Form...................... 76
eligible purchaser................. 122
Employee Benefit Plans............. 57
Engagement Letter.................. 50
Enterprise Value................... 48
EPS................................ 15
Equity Value....................... 48
Excess Shares...................... 54
Exchange Act....................... 1
Exchange Agent..................... 76
Facility........................... 81
fair value......................... 78,105
First Amendment.................... C
First Articles of Merger........... 8
First Effective Time............... 8
First Merger....................... 6
First Offer........................ 51
First Offer Expiration Date........ 33
First Offer Price.................. 51
FTC................................ 119
Fundamental Change................. 98
Guarantee.......................... C
Hostile Offer...................... 28
HSR Act............................ 63
ICC................................ 119
Index.............................. 49
interested shareholder............. 102
issuing party...................... 66
Junior Securities.................. 92
Lazard Freres...................... 4
Lazard Freres Comparable
Companies........................ 41
Lazard Freres Comparable
Transactions..................... 42
Lenders............................ 81
LeVan Employment Agreement......... 117
LeVan Employment Period............ 117
LeVan First Employment Segment..... 117
LeVan Second Employment Segment.... 117
LeVan Third Employment Segment..... 117
PAGE NO.
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liquidation preference............. 94
liquidation value.................. 94
LTM................................ 48
Meetings........................... C
Merger............................. 7
Merger Agreement................... C
Merger Consideration............... 77
Morgan Stanley..................... 4
Morgan Stanley Comparable
Companies........................ 42
Morgan Stanley Comparable
Transactions..................... 43
NASDAQ............................. 105
New Security Conversion Ratio...... 95
Non-Electing Share................. 52
Non-Stock Fundamental Change....... 98
Nonqualifying Consideration........ 70
NSC................................ 28
NYSE............................... 1
OID................................ 73
Offer Price........................ 51
Offers............................. 51
Option Agreements.................. 68
Original Merger Agreement.......... C
Original Voting Trust Agreement.... 12
Other Conrail Options.............. 62
outstanding Shares................. 52
Parity Securities.................. 92
Pennsylvania Control Transaction Law... 51
Pennsylvania Law................... 36
Pennsylvania Shareholder
Approval......................... 54
Pennsylvania Special Meeting....... 54
Per Share Cash Consideration....... 7
Per Share Stock Consideration...... 7
Preferred Per Share Merger
Consideration.................... 97
Purchase Loans..................... 114
Purchase Price..................... 67
qualified stock options............ 62
Redemption Price................... 93
registered corporation............. 102
Registration Statement............. 1
requesting party................... 66
Restraints......................... 63
Revolving Credit................... 81
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PAGE NO.
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Sea-Land........................... 3
SEC................................ C
Second Amendment................... C
Second Articles of Merger.......... 8
Second Effective Time.............. 8
Second Merger...................... 6
Second Offer....................... 51
Second Offer Price................. 51
Securities Act..................... 1
Selected Companies................. 48
Share Exchange..................... 18
Shares............................. C
Snow Employment Agreement.......... 117
Snow Employment Period............. 117
Snow First Employment Segment...... 117
Snow Second Employment Segment..... 117
Snow Third Employment Segment...... 117
SPLP............................... 114
Standard OID....................... 74
STB................................ 10
STB Application.................... 119
PAGE NO.
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STB approval....................... 58
STB denial......................... 58
Stock Election..................... 7
Subtitle IV........................ 119
Superior Proposal.................. 59
Surviving Corporation.............. 6
Takeover Proposal.................. 59
Termination Fee.................... 9
Transaction Fee.................... 50
Transactions....................... 47
Transfer Agent..................... 95
Trust Convertible Preferred
Securities....................... 91
Trust Stock........................ 122
Unlevered Free Cash Flows.......... 49
Vested Conrail Employee Stock
Options.......................... 62
Virginia Law....................... 59
Voting Trust....................... 13
Voting Trust Agreement............. 13
Voting Trustee..................... 12
Wasserstein Perella................ 5
Wasserstein Perella Opinion........ 6
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 697 of the Virginia Law empowers a Virginia corporation to
indemnify its directors under certain circumstances, and Section 702 of the
Virginia Law allows a Virginia corporation to indemnify its officers, employees,
or agents to the same extent that a director may be indemnified under the
Virginia Law. The CSX Articles and the Amended CSX Articles contain identical
provisions regarding the indemnification (the "Indemnification Provision") of
the officers and directors of CSX, including also officers and directors of
Chessie System, Inc. and Seaboard Coast Line Industries, Inc. (for purposes of
this Item 20 only, this set of entities shall be collectively referred to as
"CSX" unless otherwise specified). Under the Indemnification Provision, CSX
indemnifies such parties against all liabilities and reasonable expenses
(including amounts expended in seeking indemnification) incurred by any director
or officer who is made, or threatened to be made, a party to a civil, criminal,
administrative or investigative proceeding (including a proceeding by or in the
right of CSX) as a result of such director's or officer's position with or
service to CSX (including a legal entity controlled by CSX).
Under the Indemnification Provision, CSX will not indemnify a director or
officer for liabilities and expenses incurred due to willful misconduct or
knowing violation of the criminal law. The determination that indemnification
under the Indemnification Provision is permissible and the evaluation as to the
reasonableness of expenses in a specific case shall be made (i) in the case of a
director, as provided by law, and (ii) in the case of an officer, as provided by
the CSX Board or as otherwise provided by law. However, if a majority of the
directors of CSX change after the date of the alleged conduct giving rise to a
claim for indemnification, such determination and evaluation, at the option of
the person claiming indemnification, will be made by special legal counsel
agreed upon by the CSX Board and such person.
In addition, the Indemnification Provision provides that, unless a
determination has been made that indemnification is not permissible, CSX will
advance and reimburse such person for expenses incurred in such a proceeding so
long as such director or officer undertakes to repay the same if he is
ultimately determined ineligible for such indemnification. The termination of a
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent will not of itself create a presumption that a
director or officer acted in the manner alleged in the proceeding for purposes
of determining eligibility for indemnification. CSX may also contract in advance
to indemnify and to make such advances or reimbursements to the same extent.
In every instance permitted by the Virginia Law, the liability of a CSX
director or officer to CSX or its shareholders arising out of a single
transaction, occurrence or course of conduct shall be limited to one dollar.
Furthermore, the rights of each person entitled to indemnification under the
Indemnification Provision shall inure to the benefit of such person's heirs,
executors and administrators. The Indemnification Provision applies from and
after its adoption even though some or all of the underlying conduct or events
relating to a proceeding may have occurred before its adoption.
As authorized by the Indemnification Provision, CSX maintains an officers'
and directors' insurance policy insuring its officers and directors against
certain liabilities and expenses incurred by them in their capacities as such,
and insuring CSX under certain circumstances, in the event that indemnification
payments are made by CSX to such officers and directors.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT
NO. DESCRIPTION
------- ---------------------------------------------------------------------------
2.1 Agreement and Plan of Merger, by and among Conrail, CSX and Green
Acquisition Corp., dated as of October 14, 1996 (incorporated by reference
to Appendix A to the Joint Proxy Statement/Prospectus included herein).
2.2 First Amendment to the Agreement and Plan of Merger, by and among Conrail,
CSX and Green Acquisition Corp., dated as of November 5, 1996 (incorporated
by reference to Appendix A to the Joint Proxy Statement/Prospectus included
herein).
2.3 Second Amendment to the Agreement and Plan of Merger, by and among Conrail,
CSX and Green Acquisition Corp., dated as of December 18, 1996
(incorporated by reference to Appendix A to the Joint Proxy
Statement/Prospectus included herein).
4.1 Rights Agreement, dated as of June 8, 1988, between CSX and Harris Trust
Company of New York, as Rights Agent, as amended (incorporated by reference
to Form 8-K, dated as of June 16, 1988, and amendments in Form 8-K, dated
as of September 13, 1990, and Form 8-K, dated as of October 14, 1996).
*5.1 Opinion regarding legality of shares issued.
*8.1 Opinion regarding tax matters.
9.1 Voting Trust Agreement (incorporated by reference to Exhibit (c)(9) to the
Tender Offer Statement on Schedule 14D-1 of CSX Corporation and Green
Acquisition Corp., dated as of October 16, 1996).
*12.1 Statement re computation of ratios.
15.0 Letter re unaudited interim financial information from Price Waterhouse
LLP.
21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 to
the CSX Form 10-K).
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of Coopers & Lybrand L.L.P.
*23.4 Consent of [lawyers].
23.5 Consent of Lazard Freres.
23.6 Consent of Morgan Stanley.
23.7 Consent of Wasserstein Perella.
24.1 Powers of Attorney.
99.1 Form of Conrail Proxy and Instruction Card.
99.2 Form of CSX Proxy Card.
- ---------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
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(2) That, for the purpose of determining any liability under the Securities
Act of 1933, as amended, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, as amended, each filing of the Registrant's annual report pursuant
to Section 13(a) or Section 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 the 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.
(5) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(6) That, every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of section
10(a)(3) of the Securities Act of 1933, as amended, and is used in connection
with an offering of securities subject to Rule 415 thereunder, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment 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.
(7) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form,
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 the
registration statement through the date of responding to the request.
(8) 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 the registration statement when it became
effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, 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 SEC such
indemnification is against public policy as expressed in the Securities Act of
1933, as amended, 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 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 Securities
Act of 1933, as amended, and will be governed by the final adjudication of such
issue.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF RICHMOND, STATE OF
VIRGINIA, ON JANUARY 9, 1997.
CSX CORPORATION
By: /s/ JOHN W. SNOW*
---------------------------------
John W. Snow
Chairman, President and Chief
Executive Officer
Date: January 9, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON JANUARY 9, 1997.
SIGNATURE TITLE
- ------------------------------------- ------------------------------
/s/ ELIZABETH E. BAILEY* Director
- -------------------------------------
Elizabeth E. Bailey
/s/ ROBERT L. BURRUS, JR.* Director
- -------------------------------------
Robert L. Burrus, Jr.
/s/ BRUCE C. GOTTWALD* Director
- -------------------------------------
Bruce C. Gottwald
/s/ JOHN R. HALL* Director
- -------------------------------------
John R. Hall
/s/ ROBERT D. KUNISCH* Director
- -------------------------------------
Robert D. Kunisch
/s/ HUGH L. MCCOLL, JR.* Director
- -------------------------------------
Hugh L. McColl, Jr.
/s/ JAMES W. MCGLOTHLIN* Director
- -------------------------------------
James W. McGlothlin
/s/ SOUTHWOOD J. MORCOTT* Director
- -------------------------------------
Southwood J. Morcott
/s/ CHARLES E. RICE* Director
- -------------------------------------
Charles E. Rice
/s/ WILLIAM G. RICHARDSON* Director
- -------------------------------------
William G. Richardson
/s/ FRANK S. ROYAL* Director
- -------------------------------------
Frank S. Royal
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SIGNATURE TITLE
- ------------------------------------- ------------------------------
/s/ JOHN W. SNOW* Chairman, President, Chief
- ------------------------------------- Executive Officer and Director
John W. Snow (Principal Executive Officer)
/s/ PAUL R. GOODWIN* Executive Vice President and
- ------------------------------------- Chief Financial Officer
Paul R. Goodwin (Principal Financial Officer)
/s/ JAMES L. ROSS* Vice President and Controller
- ------------------------------------- (Principal Accounting Officer)
James L. Ross
- ---------------
* By signing his name hereto, Alan A. Rudnick is signing this document on behalf
of each of the persons indicated above pursuant to powers of attorney duly
executed by such persons.
By: /s/ ALAN A. RUDNICK
------------------------------------
ALAN A. RUDNICK, ATTORNEY-IN-FACT
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CONRAIL INC.,
A PENNSYLVANIA CORPORATION,
GREEN ACQUISITION CORP.,
A PENNSYLVANIA CORPORATION,
AND
CSX CORPORATION,
A VIRGINIA CORPORATION,
DATED AS OF OCTOBER 14, 1996.
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AGREEMENT AND PLAN OF MERGER, dated as of October 14, 1996 (this
"Agreement"), by and among CONRAIL INC., a Pennsylvania corporation ("Green"),
GREEN ACQUISITION CORP., a Pennsylvania corporation and a wholly owned
subsidiary of White ("Tender Sub"), and CSX CORPORATION, a Virginia corporation
("White").
WITNESSETH:
WHEREAS, the Board of Directors of Green has approved, and deems it
advisable and in the best interests of Green to consummate, the business
combination contemplated hereby upon the terms and subject to the conditions set
forth herein;
WHEREAS, the respective Boards of Directors of Tender Sub and White have
approved, and deem it advisable and in the best interests of their respective
shareholders to consummate, the business combination contemplated hereby upon
the terms and subject to the conditions set forth herein;
WHEREAS, it is intended that the business combination contemplated hereby
be accomplished by Tender Sub commencing a cash tender offer for shares of
common stock, par value $1.00 per share, of Green (including the associated
Green Rights, "Green Common Stock"), and for shares of Series A ESOP Convertible
Junior Preferred Stock, without par value, of Green (including the associated
Green Rights, "Green ESOP Preferred Stock"), to be followed by a merger of Green
with and into Tender Sub, with Tender Sub being the surviving corporation, upon
the terms and subject to the conditions set forth herein;
WHEREAS, Green, Tender Sub and White desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated hereby and also to prescribe various conditions to the
transactions contemplated hereby;
WHEREAS, for United States federal income tax purposes, it is intended that
the Merger provided for herein shall qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and the rules and regulations promulgated thereunder, and this
Agreement is intended to be and is adopted as a plan of reorganization within
the meaning of Section 368 of the Code;
WHEREAS, concurrently with the execution and delivery of this Agreement,
Green and White are entering into a stock option agreement (the "Green Stock
Option Agreement"), pursuant to which White shall be granted the option (the
"Green Option") to purchase shares of Green Common Stock, upon the terms and
subject to the conditions set forth therein; and
WHEREAS, concurrently with the execution and delivery of this Agreement,
White and Green are entering into a stock option agreement (the "White Stock
Option Agreement", and, together with the Green Stock Option Agreement, the
"Option Agreements"), pursuant to which Green shall be granted the option (the
"White Option") to purchase shares of common stock, par value $1.00 per share,
of White ("White Common Stock"), upon the terms and subject to the conditions
set forth therein.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties, intending to
be legally bound, agree as follows:
ARTICLE I
THE OFFER AND THE MERGER
SECTION 1.1. The Offer. (a) As promptly as practicable (but in no event
later than five business days after the public announcement of the execution
hereof), Tender Sub shall commence (within the meaning of Rule 14d-2 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") an offer (the
"Offer") to purchase for cash an aggregate of 17,860,124 shares of Green Common
Stock and Green ESOP Preferred Stock at a price of $92.50 per share, net to the
seller in cash (such price, or such higher price per share as may be paid in the
Offer, being referred to herein as the "Offer Price"), subject to the conditions
set forth in Exhibit D hereto. Tender Sub shall, on the terms and subject to the
prior satisfaction or waiver of the conditions of the Offer, accept for payment
and pay for shares of Green Common Stock and Green ESOP
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Preferred Stock tendered as soon as practicable after the later of the
satisfaction of the conditions to the Offer and the expiration of the Offer;
provided, however, that no such payment shall be made until after calculation of
proration; provided further that immediately upon the acceptance for payment of
and payment for shares of Green ESOP Preferred Stock pursuant to the Offer, such
shares shall be automatically converted on a one-for-one basis into shares of
Green Common Stock in accordance with the terms of the Green Articles. The
obligations of Tender Sub to commence the Offer and to accept for payment and to
pay for any shares of Green Common Stock or Green ESOP Preferred Stock validly
tendered shall be subject only to the conditions set forth in Exhibit D hereto.
The Offer shall be made by means of an offer to purchase (the "Offer to
Purchase") containing the terms set forth in this Agreement and the conditions
set forth in Exhibit D hereto. Without the written consent of Green, Tender Sub
shall not decrease the Offer Price, decrease the aggregate number of shares of
Green Common Stock and Green ESOP Preferred Stock sought, change the form of
consideration to be paid pursuant to the Offer, modify any of the conditions to
the Offer set forth in Exhibit D hereto, impose conditions to the Offer in
addition to those set forth in Exhibit D hereto, except as provided in the
proviso below, extend the Offer, or amend any other term or condition of the
Offer in any manner which is adverse to the holders of shares of Green Common
Stock, it being agreed that a waiver by Tender Sub of any condition in its
discretion shall not be deemed to be adverse to the holders of Green Common
Stock; provided, however, that Tender Sub shall not waive the condition set
forth in paragraph (c) of Exhibit D without the consent of Green; and provided
further that, if on any scheduled expiration date of the Offer (as it may be
extended in accordance with the terms hereof), all conditions to the Offer shall
not have been satisfied or waived, the Offer may be extended from time to time
without the consent of Green for such period of time as is reasonably expected
to be necessary to satisfy the unsatisfied conditions. White and Tender Sub
agree that, in the event all conditions to their obligation to purchase shares
under the Offer at any scheduled expiration date thereof are satisfied other
than the condition set forth in paragraph (c) of Exhibit D, Tender Sub shall,
from time to time, extend the Offer until the earlier of (i) 180 days following
the date hereof or (ii) such time as such condition is satisfied or waived in
accordance herewith. In addition, the Offer Price and the number of shares of
Green Common Stock or Green ESOP Preferred Stock sought may be increased and the
Offer may be extended to the extent required by law in connection with such
increase, in each case without the consent of Green. It is agreed that the
conditions to the Offer are for the benefit of White and Tender Sub and may be
asserted by White or Tender Sub regardless of the circumstances giving rise to
any such condition (including any action or inaction by White or Tender Sub not
inconsistent with the terms hereof) or may be waived by White or Tender Sub, in
whole or in part at any time and from time to time, in its sole discretion.
(b) White and Tender Sub shall file with the United States Securities and
Exchange Commission (the "SEC") as soon as practicable on the date the Offer is
commenced, a Tender Offer Statement on Schedule 14D-1 with respect to the Offer
(together with all amendments and supplements thereto and including the exhibits
thereto, the "Schedule 14D-1") which shall include, as exhibits, the Offer to
Purchase and a form of letter of transmittal and summary advertisement (the
Schedule 14D-1 and such documents, collectively, together with any amendments
and supplements thereto, the "Offer Documents"). Each of White and Tender Sub
agrees to take all steps necessary to cause the Offer Documents to be filed with
the SEC and to be disseminated to Green's shareholders, in each case as and to
the extent required by applicable federal securities laws. Each of White and
Tender Sub, on the one hand, and Green, on the other hand, agrees promptly to
correct any information provided by it for use in the Offer Documents if and to
the extent that it shall have become false and misleading in any material
respect, and White and Tender Sub further agree to take all steps necessary to
cause the Offer Documents as so corrected to be filed with the SEC and to be
disseminated to Green's shareholders, in each case as and to the extent required
by applicable federal securities laws. Green and its counsel shall be given the
opportunity to review the Offer Documents before they are filed with the SEC. In
addition, White and Tender Sub agree to provide Green and its counsel in writing
with any comments White, Tender Sub or their counsel may receive from time to
time from the SEC or its staff with respect to the Offer Documents promptly
after the receipt of such comments. White and Tender Sub shall cooperate with
Green in responding to any comments received from the SEC with respect to the
Offer and amending the Offer in response to any such comments.
(c) Subject to the terms and conditions of the Offer, White shall provide
or cause to be provided to Tender Sub on a timely basis the funds necessary to
accept for payment, and pay for, shares of Green
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Common Stock and Green ESOP Preferred Stock that Tender Sub becomes obligated to
accept for payment, and pay for, pursuant to the Offer.
(d) At any time following the obtaining of the Green Pennsylvania
Shareholder Approval, if White and its subsidiaries do not already own 40% or
more of the outstanding shares of Green Common Stock on a fully diluted basis as
of the date hereof (excluding for purposes of this Section 1.1(d) shares that
would be outstanding upon exercise of the Green Stock Option Agreement), White
may, and at the written request of Green shall, commence an offer (the "Second
Offer") to purchase up to that number of shares of Green Common Stock and Green
ESOP Preferred Stock which, when added to the aggregate number of shares of
Green Common Stock and Green ESOP Preferred Stock then beneficially owned by
White (other than pursuant to the Green Stock Option Agreement) equals 40% of
such outstanding shares of Green Common Stock, at a price not less than $92.50.
Green agrees that it shall not make such written request at any time that the
Offer is outstanding and has a scheduled expiration date within 10 business days
of such time. White and Green agree that if the Second Offer is commenced they
will file such documents and make such recommendations and take such other
action as is required by this Agreement in respect of the Offer, and the Second
Offer shall be on terms no less favorable to the shareholders of Green than the
Offer.
SECTION 1.2. Green Actions. (a) Green hereby approves of and consents to
the Offer and represents that its Board of Directors, at a meeting duly called
and held, has unanimously by the vote of all directors present (i) determined
that this Agreement and the transactions contemplated hereby (including the
Offer and the Merger), the Option Agreements and the transactions contemplated
thereby, are in the best interests of Green, (ii) approved this Agreement and
the transactions contemplated hereby (including the Offer and the Merger), and
approved the Option Agreements and the transactions contemplated thereby, such
determination and approval constituting approval thereof by the Board of
Directors for all purposes of the Pennsylvania Law, and (iii) resolved to
recommend that the shareholders of Green who desire to receive cash for their
shares of Green Common Stock or Green ESOP Preferred Stock accept the Offer and
tender their shares of Green Common Stock or Green ESOP Preferred Stock
thereunder to Tender Sub and that all shareholders of Green approve and adopt
this Agreement and the transactions contemplated hereby; provided, however, that
prior to the purchase by Tender Sub of shares of Green Common Stock and Green
ESOP Preferred Stock pursuant to the Offer, Green may modify, withdraw or change
such recommendation, but only to the extent that Green complies with Section 4.2
hereof. Green hereby consents to the inclusion in the Offer Documents of the
recommendations of Green's Board of Directors described in this Section.
(b) Concurrently with the commencement of the Offer, Green shall file with
the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 (together with
all amendments and supplements thereto and including the exhibits thereto, the
"Schedule 14D-9") which shall contain the recommendation referred to in clauses
(i), (ii) and (iii) of Section 1.2(a) hereof; provided, however, that Green may
modify, withdraw or change such recommendation, but only to the extent that
Green complies with Section 4.2 hereof. Green agrees to take all steps necessary
to cause the Schedule 14D-9 to be filed with the SEC and to be disseminated to
Green's shareholders, in each case as and to the extent required by applicable
federal securities laws. Each of Green, on the one hand, and White and Tender
Sub, on the other hand, agrees promptly to correct any information provided by
it for use in the Schedule 14D-9 if and to the extent that it shall have become
false and misleading in any material respect, and Green further agrees to take
all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with
the SEC and to be disseminated to Green's shareholders, in each case as and to
the extent required by applicable federal securities laws. White and its counsel
shall be given the opportunity to review the Schedule 14D-9 before it is filed
with the SEC. In addition, Green agrees to provide White, Tender Sub and their
counsel in writing with any comments Green or its counsel may receive from time
to time from the SEC or its staff with respect to the Schedule 14D-9 promptly
after the receipt of such comments. Green shall cooperate with White and Tender
Sub in responding to any comments received from the SEC with respect to the
Schedule 14D-9 and amending the Schedule 14D-9 in response to any such comments.
(c) In connection with the Offer, if requested by Tender Sub, Green shall
promptly furnish or cause to be furnished to Tender Sub mailing labels, security
position listings and any available listing or computer file containing the
names and addresses of the record holders of the shares of Green Common Stock as
of a recent
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date, and shall furnish Tender Sub with such information and assistance
(including updated information) as Tender Sub or its agents may reasonably
request in communicating the Offer to the shareholders of Green.
(d) Green has received the written opinions of Lazard Freres & Co. and
Morgan Stanley & Co. Incorporated (the "Green Advisors"), each dated as of the
date of this Agreement, to the effect that, as of such date, the consideration
to be received by Green shareholders (other than Tender Sub and its affiliates)
pursuant to the Offer and Merger, taken together, is fair from a financial point
of view to such holders (the "Green Fairness Opinions"). Green has delivered to
Tender Sub a copy of the Green Fairness Opinions.
SECTION 1.3. The Merger. (a) Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the Pennsylvania Business
Corporation Law of 1988, as amended (the "Pennsylvania Law"), Green shall be
merged with and into Tender Sub at the Effective Time (the "Merger"). Tender Sub
shall be the surviving corporation (the "Surviving Corporation") of the Merger
and shall succeed to and assume all rights and obligations of Green in
accordance with the Pennsylvania Law.
(b) If for any reason the parties hereto are unable to obtain either of the
Tax Opinions referred to in Section 5.3(a) on or as of the Closing Date, then
the Merger shall be effected such that Tender Sub shall be merged with and into
Green, with Green being the "Surviving Corporation" for all purposes hereunder,
and such transaction shall be the "Merger" for all purposes hereunder. In such
event, the parties agree to execute an appropriate amendment to this Agreement
in order to reflect the foregoing.
SECTION 1.4. Closing. The closing of the Merger (the "Closing") shall take
place at 10:00 a.m. on a date to be specified by the parties (the "Closing
Date"), which (subject to satisfaction or waiver of the conditions set forth in
Article VI) shall be no later than the second business day after satisfaction or
waiver of the conditions set forth in Section 6.1, unless another time or date
is agreed to by the parties hereto. The Closing shall be held at such location
in the City of New York as is agreed to by the parties hereto.
SECTION 1.5. Effective Time. Subject to the provisions of this Agreement,
as soon as practicable on or after the Closing Date, the parties shall file
articles of merger or other appropriate documents (such documents, collectively,
the "Articles of Merger") executed in accordance with the relevant provisions of
the Pennsylvania Law and shall make all other filings or recordings as may be
required under the Pennsylvania Law. The Merger shall become effective at such
time as the Articles of Merger are duly filed with the Pennsylvania Department
of State, or at such subsequent date or time as White, Tender Sub and Green
shall agree and shall be specified in the Articles of Merger (the time the
Merger becomes effective being hereinafter referred to as the "Effective Time").
SECTION 1.6. Effects of the Merger. The Merger shall have the effects set
forth in Chapter 19 of the Pennsylvania Law.
SECTION 1.7. Articles of Incorporation and By-laws; Directors and
Officers. (a) The articles of incorporation and by-laws of Tender Sub, as in
effect immediately prior to the Effective Time, shall be the articles of
incorporation and by-laws, respectively, of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law, provided
that the articles of incorporation of the Surviving Corporation shall provide
that the Surviving Corporation shall be named "Conrail Inc."
(b) Subject to Section 1.8, the directors of Tender Sub and the officers of
Green at the Effective Time shall, from and after the Effective Time, be the
initial directors and officers, respectively, of the Surviving Corporation,
until their successors shall have been duly elected or appointed or qualified or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation's articles of incorporation and by-laws.
SECTION 1.8. Boards, Committees and Officers. The Board of Directors,
committees of the Board of Directors, composition of such committees (including
chairmen thereof) and officers of White and/or the Surviving Corporation (as
indicated on Exhibit A hereto) shall be as set forth on Exhibit A hereto until
the earlier of the resignation or removal of any individual listed on or
designated in accordance with Exhibit A or until their respective successors are
duly elected and qualified, as the case may be, it being agreed that if any
director shall be unable to serve as a director (including as a member or
chairman of any committee) at the
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Effective Time the party which designated such individual as indicated in
Exhibit A shall designate another individual to serve in such individual's
place. If any officer listed on or appointed in accordance with Exhibit A ceases
to be a full-time employee of Green, Tender Sub or White prior to the Effective
Time, the parties shall agree upon another person to serve in such person's
stead. The committees of the Board of Directors of White shall have such
authority as may, subject to applicable law, be delegated to them by the Board
of Directors of White.
SECTION 1.9. Voting Trust. The parties agree that, simultaneously with the
purchase by White, Tender Sub or their affiliates of shares of Green Common
Stock and Green ESOP Preferred Stock pursuant to the Offer, the Green Stock
Option Agreement or otherwise, such shares of Green Common Stock (including
pursuant to the automatic conversion of Green ESOP Preferred Stock) shall be
deposited in a voting trust (the "Voting Trust") in accordance with the terms
and conditions of a voting trust agreement substantially in the form attached
hereto as Exhibit E. The Voting Trust may not be modified or amended without the
prior written approval of Green unless such modification or amendment is not
inconsistent with this Agreement or the Option Agreements and is not adverse to
Green or its shareholders (it being understood that any change to the terms of
the Voting Trust relating to voting rights or rights and restrictions relating
to the transfer of such shares of Green Common Stock shall in any event require
the prior approval of Green). No power of White or Tender Sub provided for in
the Voting Trust Agreement may be exercised in a manner which violates this
Agreement.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.1. Conversion of Shares. (a) Each share of Common Stock, par
value $1.00 per share, of Tender Sub issued and outstanding immediately prior to
the Effective Time shall, at the Effective Time, by virtue of the Merger and
without any action on the part of any person, become one duly authorized,
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
(b) Each share of Green Common Stock issued and outstanding immediately
prior to the Effective Time (other than shares of Green Common Stock to be
canceled pursuant to Section 2.1(c) hereof) shall, at the Effective Time, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into the right to receive such number of duly authorized, validly
issued, fully paid and nonassessable shares of White Common Stock or cash,
without any interest thereon, as specified in Section 2.3 hereof.
(c) All shares of Green Common Stock that are owned by Green as treasury
stock and any shares of Green Common Stock owned by White, Green or any of their
respective subsidiaries shall, at the Effective Time, be canceled and retired
and shall cease to exist, and no shares of White Common Stock or other
consideration shall be delivered or owing in exchange therefor.
(d) On and after the Effective Time, holders of certificates which
immediately prior to the Effective Time represented issued and outstanding
shares of Green Common Stock, including those issuable upon conversion of the
shares of Green ESOP Preferred Stock (which conversion shall occur automatically
pursuant to the terms of the Green Articles prior to the Effective Time so that,
immediately prior to the Effective Time, no shares of Green ESOP Preferred Stock
shall be issued and outstanding), ("Certificates") shall cease to have any
rights as shareholders of Green, except the right to receive the consideration
set forth in this Article II (the "Per Share Merger Consideration") with respect
to each share held by them.
SECTION 2.2. Election Procedures. Unless, prior to the Effective Time,
Tendered Shares constitute at least 40% of all outstanding shares of Green
Common Stock and Green ESOP Preferred Stock (in which case each share of Green
Common Stock (including shares of Green Common Stock into which the shares of
Green ESOP Preferred Stock shall have been converted) shall be converted in the
Merger into White Common Stock as provided in Section 2.3(b) hereof), each
holder of shares of Green Common Stock (other than holders of shares of Green
Common Stock to be canceled as set forth in Section 2.1(c)) and Green ESOP
Preferred Stock shall have the right to submit a request specifying the number
of shares that such
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holder desires to have converted into shares of White Common Stock in the
Merger, and the number of shares that such holder desires to have converted into
the right to receive $92.50, per share, without interest (the "Per Share Cash
Consideration"), in the Merger in accordance with the following procedures:
(a) Each holder of shares of Green Common Stock and Green ESOP
Preferred Stock may specify in a request made in accordance with the
provisions of this Section 2.2 (herein called an "Election") (i) the number
of shares owned by such holder that such holder desires to have converted
into shares of White Common Stock in the Merger (a "Stock Election") and
(ii) the number of shares owned by such holder that such holder desires to
have converted into the right to receive the Per Share Cash Consideration
in the Merger (a "Cash Election").
(b) White shall prepare a form reasonably acceptable to Green (the
"Form of Election") which shall be mailed to Green's shareholders in
accordance with this Section 2.2 so as to permit Green's shareholders to
exercise their right to make an Election prior to the Election Deadline.
(c) White shall use reasonable efforts to make the Form of Election
available to all shareholders of Green at least ten business days prior to
the Election Deadline.
(d) Any Election shall have been made properly only if the person
authorized to receive Elections and to act as exchange agent under this
Agreement (the "Exchange Agent") shall have received, by 5:00 p.m. local
time in the city in which the principal office of such Exchange Agent is
located, on the date of the Election Deadline, a Form of Election properly
completed and signed and accompanied by Certificates to which such Form of
Election relates (or by an appropriate guarantee of delivery of such
Certificates, as set forth in such Form of Election, from a member of any
registered national securities exchange or of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company in the
United States provided such Certificates are in fact delivered to the
Exchange Agent by the time required in such guarantee of delivery). Failure
to deliver shares covered by such a guarantee of delivery within the time
set forth on such guarantee shall be deemed to invalidate any otherwise
properly made Election. As used herein, "Election Deadline" means the date
announced by White, in a news release delivered to the Dow Jones News
Service, as the last day on which Forms of Election will be accepted;
provided that such date shall be a business day no earlier than twenty
business days prior to the Effective Time and no later than the date on
which the Effective Time occurs and shall be at least five business days
following the date of such news release; provided further that White shall
have the right to set a later date as the Election Deadline so long as such
later date is no later than the date on which the Effective Time occurs.
(e) Any Green shareholder may at any time prior to the Election
Deadline change his or her Election by written notice received by the
Exchange Agent prior to the Election Deadline accompanied by a properly
completed and signed, revised Form of Election.
(f) Any Green shareholder may, at any time prior to the Election
Deadline, revoke his or her Election by written notice received by the
Exchange Agent prior to the Election Deadline or by withdrawal prior to the
Election Deadline of his or her Certificates, or of the guarantee of
delivery of such Certificates, previously deposited with the Exchange
Agent. All Elections shall be revoked automatically if the Exchange Agent
is notified in writing by White or Green that this Agreement has been
terminated. Any Green shareholder who shall have deposited Certificates
with the Exchange Agent shall have the right to withdraw such Certificates
by written notice received by the Exchange Agent and thereby revoke his
Election as of the Election Deadline if the Merger shall not have been
consummated prior thereto.
(g) White shall have the right to make rules, not inconsistent with
the terms of this Agreement, governing the validity of the Forms of
Election, the manner and extent to which Elections are to be taken into
account in making the determinations prescribed by Section 2.3, the
issuance and delivery of certificates for shares of White Common Stock into
which shares of Green Common Stock are converted in the Merger and the
payment of cash for shares of Green Common Stock converted into the right
to receive Per Share Cash Consideration in the Merger.
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SECTION 2.3. Issuance of White Common Stock and Payment of Cash;
Proration. The manner in which each share of Green Common Stock (other than
shares of Green Common Stock to be canceled as set forth in Section 2.1(c))
shall be converted into shares of White Common Stock or the right to receive
cash on the Effective Date shall be as set forth in this Section 2.3. All
references to "outstanding" shares of Green Common Stock in Section 2.2 and this
Section 2.3 shall mean all shares of Green Common Stock issued and outstanding
immediately prior to the Effective Time on a fully diluted basis, including all
shares of Green Common Stock issuable upon conversion of the shares of Green
ESOP Preferred Stock, held by the Green Employee Benefits Trust and issuable
upon exercise of outstanding Green Employee Stock Options and all shares of
Green Common Stock acquired by Tender Sub pursuant to the Offer or otherwise,
except for shares of Green Common Stock acquired by White pursuant to the Green
Stock Option Agreement (the "Tendered Shares").
(a) As is more fully set forth below, the aggregate number of shares of
Green Common Stock to be converted into shares of White Common Stock pursuant to
the Merger shall be equal as nearly as practicable to 60% of all outstanding
shares of Green Common Stock; and the number of shares of Green Common Stock to
be converted into the right to receive the cash in the Merger pursuant to this
Agreement, together with the Tendered Shares, shall be equal as nearly as
practicable to 40% of all outstanding shares of Green Common Stock.
(b) If Stock Elections are received for a number of shares of Green Common
Stock that is 60% or less of the outstanding shares of Green Common Stock, each
share of Green Common Stock covered by a Stock Election shall be converted in
the Merger into 1.85619 shares of White Common Stock (the "Conversion Ratio").
In the event that between the date of this Agreement and the Effective Time, the
issued and outstanding shares of White Common Stock shall have been affected or
changed into a different number of shares or a different class of shares as a
result of a stock split, reverse stock split, stock dividend, spin-off,
extraordinary dividend, recapitalization, reclassification or other similar
transaction with a record date within such period, in each case which is
prohibited pursuant to Section 4.1 without the consent of Green, the Conversion
Ratio shall be appropriately adjusted.
(c) If Stock Elections are received for more than 60% of the outstanding
shares of Green Common Stock, each Non-Electing Share (as defined in Section
2.3(g)) and each share of Green Common Stock for which a Cash Election has been
received shall be converted into the right to receive cash in the Merger, and
the shares of Green Common Stock for which Stock Elections have been received
shall be converted into shares of White Common Stock and the right to receive
cash in the following manner:
(1) The Exchange Agent shall distribute with respect to shares of
Green Common Stock as to which a Stock Election has been made a number of
shares of White Common Stock equal to the Conversion Ratio per share of
Green Common Stock with respect to a fraction of such shares of Green
Common Stock, the numerator of which fraction shall be 60% of the number of
outstanding shares of Green Common Stock and the denominator of which shall
be the aggregate number of shares of Green Common Stock covered by Stock
Elections.
(2) Shares of Green Common Stock covered by a Stock Election and not
fully converted into the right to receive shares of White Common Stock as
set forth in clause (1) above shall be converted in the Merger into the
right to receive the Per Share Cash Consideration for each share of Green
Common Stock so converted.
(d) If the number of Tendered Shares and shares of Green Common Stock for
which Cash Elections are received in the aggregate is 40% or less of the
outstanding shares of Green Common Stock, each share of Green Common Stock
covered by a Cash Election shall be converted in the Merger into the right to
receive the Per Share Cash Consideration.
(e) If the number of Tendered Shares and shares of Green Common Stock for
which Cash Elections are received in the aggregate is more than 40% of the
outstanding shares of Green Common Stock, each Non-Electing Share and each share
of Green Common Stock for which a Stock Election has been received shall be
converted in the Merger into a number of shares of White Common Stock equal to
the Conversion Ratio, and,
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the shares of Green Common Stock for which Cash Elections have been received
shall be converted into the right to receive the Per Share Cash Consideration
and shares of White Common Stock in the following manner:
(1) The Exchange Agent shall distribute with respect to shares of
Green Common Stock as to which a Cash Election has been made the Per Share
Cash Consideration per share of Green Common Stock with respect to a
fraction of such shares of Green Common Stock, the numerator of which
fraction shall be 40% of the difference of the number of outstanding shares
of Green Common Stock minus the number of Tendered Shares and the
denominator of which shall be the aggregate number of shares of Green
Common Stock covered by Cash Elections.
(2) Shares of Green Common Stock covered by a Cash Election and not
fully converted into the right to receive the Per Share Cash Consideration
as set forth in clause (1) above shall be converted in the Merger into the
right to receive a number of shares of White Common Stock equal to the
Conversion Ratio for each Share of Green Common Stock so converted.
(f) If Non-Electing Shares are not converted under either Section 2.3(c) or
Section 2.3(e), the Exchange Agent shall distribute with respect to each such
Non-Electing Share, the Per Share Cash Consideration with respect to a fraction
of such Non-Electing Share, where such fraction is calculated in a manner that
will result in the sum of (i) the number of shares of Green Common Stock
converted into cash pursuant to this Section 2.3(f),(ii) the number of shares of
Green Common Stock for which Cash Elections have been received and (iii) the
number of Tendered Shares purchased pursuant to the Offer being as close as
practicable to 40% of the outstanding shares of Green Common Stock. Each
Non-Electing Share not converted into the right to receive cash as set forth in
the preceding sentence shall be converted in the Merger into the right to
receive a number of shares of White Common Stock equal to the Conversion Ratio
for each Non-Electing Share so converted.
(g) For the purposes of this Section 2.3, outstanding shares of Green
Common Stock as to which an Election is not in effect at the Election Deadline
(other than Tendered Shares) shall be called "Non-Electing Shares". If White and
Green shall determine that any Election is not properly made with respect to any
shares of Green Common Stock, such Election shall be deemed to be not in effect,
and the shares of Green Common Stock covered by such Election shall, for
purposes hereof, be deemed to be Non-Electing Shares.
(h) No certificates or scrip representing fractional shares of White Common
Stock shall be issued upon the surrender for exchange of Certificates, no
dividend or distribution with respect to shares shall be payable on or with
respect to any fractional share and such fractional share interests shall not
entitle the owner thereof to vote or to any other rights of a shareholder of
White. In lieu of any such fractional share of White Common Stock, White shall
pay to each former shareholder of Green who otherwise would be entitled to
receive a fractional share of White Common Stock an amount in cash determined by
multiplying (i) the Average White Share Price on the date on which the Effective
Time occurs by (ii) the fractional interest in a share of White Common Stock to
which such holder would otherwise be entitled. For purposes hereof, the "Average
White Share Price" shall mean the average closing sales price, rounded to four
decimal points, of the White Common Stock as reported on the New York Stock
Exchange Composite Tape, for the twenty (20) consecutive trading days ending on
the trading day which is five (5) trading days prior to the Effective Time.
SECTION 2.4. Issuance of White Common Stock. Immediately following the
Effective Time, White shall deliver, in trust (the "Exchange Trust"), to the
Exchange Agent, for the benefit of Green shareholders, certificates representing
an aggregate number of shares of White Common Stock as nearly as practicable
equal to the product of the Conversion Ratio and the number of shares of Green
Common Stock to be converted into shares of White Common Stock as determined in
Section 2.3. As soon as practicable after the Effective Time, each holder of
shares of Green Common Stock converted into shares of White Common Stock
pursuant to Section 2.1(a), upon surrender to the Exchange Agent (to the extent
not previously surrendered with a Form of Election) of one or more Certificates
for cancellation, shall be entitled to receive certificates representing the
number of whole shares of White Common Stock into which such shares of Green
Common Stock shall have been converted in the Merger. No dividends or
distributions that have been declared and having a record date after the
Effective Time shall be paid to persons entitled to receive certificates for
shares
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of White Common Stock until such persons surrender their Certificates, at which
time all such dividends shall be paid. In no event shall the persons entitled to
receive such dividends be entitled to receive interest on such dividends. If any
certificate for such White Common Stock is to be issued in a name other than
that in which the Certificate surrendered in exchange therefor is registered, it
shall be a condition of such exchange that the person requesting such exchange
shall pay to the Exchange Agent any transfer or other taxes required by reason
of issuance of certificates for such White Common Stock in a name other than the
registered holder of the Certificate surrendered, or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
SECTION 2.5. Payment of Cash Consideration. At the Closing, White shall
deposit into the Exchange Trust, for the benefit of Green shareholders, an
amount in cash equal to the Per Share Cash Consideration multiplied by the
number of shares of Green Common Stock, if any, to be converted into the right
to receive the Per Share Cash Consideration as determined in Section 2.3. As
soon as practicable after the Effective Time, the Exchange Agent shall
distribute to holders of shares of Green Common Stock converted into the right
to receive the Per Share Cash Consideration pursuant to Section 2.1(a), upon
surrender to the Exchange Agent (to the extent not previously surrendered with a
Form of Election) of one or more Certificates for cancellation, a bank check for
an amount equal to $92.50 times the number of shares of Green Common Stock so
converted. In no event shall the holder of any such surrendered Certificates be
entitled to receive interest on any cash to be received in the Merger. If such
check is to be issued in the name of a person other than the person in whose
name the Certificates surrendered for exchange therefor are registered, it shall
be a condition of the exchange that the person requesting such exchange shall
pay to the Exchange Agent any transfer or other taxes required by reason of
issuance of such check to a person other than the registered holder of the
Certificates surrendered, or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable.
SECTION 2.6. Stock Transfer Books. At the Effective Time, the stock
transfer books of Green shall be closed and there shall be no further
registration of transfers of stock on the records of Green. If, after the
Effective Time, certificates representing shares of Green capital stock are
presented to the Surviving Corporation, they shall be canceled and exchanged for
cash and/or certificates representing White Common Stock pursuant to this
Article II.
SECTION 2.7. No Dissenter's Rights. In accordance with Schwabacher v.
United States, 334 U.S. 182 (1948), shareholders of Green shall not have any
dissenter's or like rights; provided, however, that if the Surface
Transportation Board (the "STB") or a court of competent jurisdiction determines
that dissenter's rights are available to holders of shares of Green capital
stock, then such holders shall be provided with dissenter's rights in accordance
with the Pennsylvania Law.
SECTION 2.8. No Further Ownership Rights. All shares of White Common Stock
issued upon the surrender for exchange of Certificates in accordance with the
terms of this Article II (including any cash paid pursuant to this Article II)
shall be deemed to have been issued (and paid) in full satisfaction of all
rights pertaining to the shares theretofore represented by such Certificates,
subject, however, to the Surviving Corporation's obligation to pay any dividends
or make any other distributions with a record date prior to the Effective Time
which may have been declared or made by Green on such shares of Green Common
Stock or Green ESOP Preferred Stock which remain unpaid at the Effective Time.
SECTION 2.9. Termination of Exchange Trust. Any portion of the Exchange
Trust which remains undistributed to the holders of Certificates for six months
after the Effective Time shall be delivered to White, upon demand, and any
holders of Certificates who have not theretofore complied with this Article II
shall thereafter look only to White for payment of their claim for the Per Share
Cash Consideration or shares of White Common Stock, any cash, dividends or
distributions with respect to White Common Stock.
SECTION 2.10. No Liability. None of White, Green or the Exchange Agent
shall be liable to any person in respect of any shares of White Common Stock (or
dividends or distributions with respect thereto) or cash delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
If any Certificate shall not have been surrendered prior to seven years after
the Effective Time (or immediately prior to such earlier date on which any cash,
shares of White Common Stock or any cash dividends or distributions
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payable to the holder of such Certificate would otherwise escheat to or become
the property of any Governmental Entity), any such Per Share Cash Consideration
or shares of White Common Stock or cash, dividends or distributions in respect
of such Certificate shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or interest
of any person previously entitled thereto.
SECTION 2.11. Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
White or the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as White or the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent shall issue in exchange for such lost, stolen or destroyed
Certificate the cash or shares of White Common Stock and, if applicable, any
cash, dividends and distributions on shares of White Common Stock deliverable in
respect thereof pursuant to this Agreement.
SECTION 2.12 Withholding Rights. White, Tender Sub or the Exchange Agent
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Green Common Stock
such amounts as White, Tender Sub or the Exchange Agent is required to deduct
and withhold with respect to the making of such payment under the Code, or any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld and paid over to the appropriate taxing authority by White, Tender Sub
or the Exchange Agent, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holder of the shares of Green
Common Stock in respect of which such deduction and withholding was made by
White, Tender Sub or the Exchange Agent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of Green. Except as disclosed
in the Green Filed SEC Documents or as set forth on the Disclosure Schedule
delivered by Green to White prior to the execution of this Agreement (the "Green
Disclosure Schedule"), Green represents and warrants to White and Tender Sub as
follows:
(a) Organization, Standing and Corporate Power. Each of Green and its
Significant Subsidiaries is a corporation or other legal entity duly
organized, validly existing and in good standing or validly subsisting
(with respect to jurisdictions which recognize such concept) under the laws
of the jurisdiction in which it is organized and has the requisite
corporate or other power, as the case may be, and authority to carry on its
business as now being conducted, except where the failure to be so
organized, existing and in good standing or validly subsisting or to have
such power and authority would not have a material adverse effect with
respect to Green. Each of Green and its Significant Subsidiaries is duly
qualified or licensed to do business and is in good standing or validly
subsisting (with respect to jurisdictions which recognize such concept) in
each jurisdiction in which the nature of its business or the ownership,
leasing or operation of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to
be so qualified or licensed or to be in good standing or validly subsisting
individually or in the aggregate would not have a material adverse effect
on Green. Green has delivered to White prior to the execution of this
Agreement complete and correct copies of its certificate of incorporation
and by-laws and the certificates of incorporation and by-laws (or
comparable organizational documents) of its Significant Subsidiaries, in
each case as amended to date. As used in this Agreement, a "Significant
Subsidiary" means any subsidiary of Green or White, as the case may be,
that would constitute a "significant subsidiary" of such party within the
meaning of Rule 1-02 of Regulation S-X of the SEC.
(b) Subsidiaries. Exhibit 21 to the Annual Report of Green on Form
10-K for the fiscal year ended December 31, 1995 includes all subsidiaries
of Green which as of the date of this Agreement are Significant
Subsidiaries. All the outstanding shares of capital stock of, or other
equity interests in, each such Significant Subsidiary have been validly
issued and are fully paid and nonassessable and are owned
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directly or indirectly by Green, free and clear of all pledges, claims,
liens, charges, encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens").
(c) Capital Structure. The authorized capital stock of Green consists
of 250,000,000 shares of Green Common Stock and 25,000,000 shares of
preferred stock, without par value, of Green ("Green Preferred Stock"), of
which 10,000,000 shares have been designated as Green ESOP Preferred Stock.
At the close of business on October 10, 1996, (i) 80,178,281 shares of
Green Common Stock were issued and outstanding, (ii) 5,433,970 shares of
Green Common Stock were held by Green (or its subsidiary) in its treasury,
(iii) 5,951,461 shares of Green Common Stock were reserved for issuance
pursuant to the Green 1987 Long-Term Incentive Plan and the Green 1991
Long-Term Incentive Plan, as amended (such plans, collectively, the "Green
Stock Plans"), (iv) 9,571,086 shares of Green Common Stock were reserved
for issuance upon conversion of the Green ESOP Preferred Stock, (v)
9,571,086 shares of Green ESOP Preferred Stock were issued and outstanding,
which shares will be automatically converted into 9,571,086 shares of Green
Common Stock prior to the Effective Time pursuant to the Green Articles,
(vi) no shares of Green ESOP Preferred Stock were held by Green (or its
subsidiary) in its treasury, and (vii) other than the Green ESOP Preferred
Stock, no other shares of Green Preferred Stock have been designated or
issued. Except as set forth above and except for 15,955,477 shares of Green
Common Stock reserved for issuance upon the exercise of the Green Option,
at the close of business on October 10, 1996, no shares of capital stock or
other securities of Green were issued, reserved for issuance or
outstanding. At the close of business on October 10, 1996, there were no
outstanding stock appreciation rights or rights (other than employee stock
options or other rights ("Green Employee Stock Options") to purchase or
receive Green Common Stock granted under the Green Stock Plans) to receive
shares of Green Common Stock on a deferred basis granted under the Green
Stock Plans or otherwise. The Green Disclosure Schedule sets forth a
complete and correct list, as of October 10, 1996, of the number of shares
of Green Common Stock subject to Green Employee Stock Options and the
exercise prices thereof. All outstanding shares of capital stock of Green
are, and all shares which may be issued will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. As of the close of business on October 10, 1996, there
were no bonds, debentures, notes or other indebtedness of Green having the
right to vote (or convertible into, or exchangeable for, securities having
the right to vote) on any matters on which shareholders of Green may vote.
Except as set forth above or as contemplated by the Option Agreements, as
of the close of business on October 10, 1996, there were no outstanding
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which Green or any of its
subsidiaries is a party or by which any of them is bound obligating Green
or any of its subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other
securities of Green or of any of its Significant Subsidiaries or obligating
Green or any of its Significant Subsidiaries to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. Except for agreements entered into
with respect to the Green Stock Plans, as of the close of business on
October 10, 1996, there were no outstanding contractual obligations of
Green or any of its Significant Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of Green or any of its
Significant Subsidiaries. As of the close of business on October 10, 1996,
there were no outstanding contractual obligations of Green to vote or to
dispose of any shares of the capital stock of any of its Significant
Subsidiaries. Green has delivered to White a complete and correct copy of
the Rights Agreement, dated as of July 19, 1989, as amended and
supplemented to the date hereof (the "Green Rights Agreement"), relating to
rights ("Green Rights") to purchase Green Common Stock.
(d) Authority; Noncontravention. Green has all requisite corporate
power and authority to enter into this Agreement and, subject to the Green
Merger Shareholder Approval, in the case of the Merger, to consummate the
transactions contemplated by this Agreement. Green has all requisite
corporate power and authority to enter into the Option Agreements and to
consummate the transactions contemplated thereby. The execution and
delivery of this Agreement and the Option Agreements by Green and the
consummation by Green of the transactions contemplated by this Agreement
and the Option Agreements have been duly authorized by all necessary
corporate action on the part of Green, subject, in the case of the Merger,
to the Green Merger Shareholder Approval and subject to the Green
Pennsylvania
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Shareholder Approval, in the case of the Second Offer. This Agreement and
the Option Agreements have been duly executed and delivered by Green and
constitute legal, valid and binding obligations of Green, enforceable
against Green in accordance with their terms. The execution and delivery of
this Agreement and the Option Agreements do not, and the consummation of
the transactions contemplated by this Agreement and the Option Agreements
and compliance with the provisions of this Agreement and the Option
Agreements will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancelation or acceleration of any
obligation or loss of a material benefit under, or result in the creation
of any Lien upon any of the properties or assets of Green or any of its
Significant Subsidiaries under, (i) the certificate of incorporation or
by-laws of Green or the comparable organizational documents of any of its
Significant Subsidiaries, (ii) subject to giving such notices and obtaining
such consents as may be listed in Section 3.1(d) of the Green Disclosure
Schedule, any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession, franchise or
license applicable to Green or any of its Significant Subsidiaries or their
respective properties or assets, or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Green or any of its Significant Subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii)
and (iii), any such conflicts, violations, defaults, rights, losses or
Liens that individually or in the aggregate would not (x) have a material
adverse effect on Green, (y) impair the ability of Green to perform its
obligations under this Agreement (including obligations respecting the
Offer and the Merger) or the Option Agreements, or (z) prevent or
materially delay the consummation of any of the transactions contemplated
by this Agreement (including the Offer and the Merger) or the Option
Agreements. No consent, approval, order or authorization of, or
registration, declaration or filing with, any federal, state, local or
foreign government or any court, administrative or regulatory agency or
commission or other governmental authority or agency (a "Governmental
Entity") is required by or with respect to Green or any of its Significant
Subsidiaries in connection with the execution and delivery of this
Agreement or the Option Agreements by Green or the consummation by Green of
the transactions contemplated by this Agreement or the Option Agreements,
except for: (1) compliance with any applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"); (2) compliance with any applicable requirements relating to approval
of the Merger by the STB; (3) the filing with the SEC of (A) a proxy
statement relating to the Green Pennsylvania Shareholders Meeting, as
contemplated by Section 5.1(b) hereof (such proxy statement, as amended or
supplemented from time to time, the "Green Pennsylvania Proxy Statement"),
(B) a proxy statement relating to the Green Merger Shareholders Meeting
(such proxy statement, together with the proxy statement relating to the
White Shareholders Meeting, in each case as amended or supplemented from
time to time, the "Joint Proxy Statement" which, together with the Green
Pennsylvania Proxy Statement, are referred to herein as the "Proxy
Statements"), (C) the Schedule 14D-9 and (D) such reports under Section
13(a), 13(d), 15(d) or 16(a) of the Exchange Act, as may be required in
connection with this Agreement, the Option Agreements and the transactions
contemplated by this Agreement and the Option Agreements; (4) the filing of
the Articles of Merger as provided in Section 1.3, the Amended Green
Articles as provided in Section 5.1(f) and appropriate documents with the
relevant authorities of other states in which Green is qualified to do
business and such filings with Governmental Entities to satisfy the
applicable requirements of state securities or "blue sky" laws; (5) such
filings with and approvals of the New York Stock Exchange, Inc. (the
"NYSE") to permit the shares of Green Common Stock that are to be issued
pursuant to the Green Stock Option Agreement to be listed on the NYSE; (6)
such other filings and consents as may be required under any environmental,
health or safety law or regulation pertaining to any notification,
disclosure or required approval necessitated by the Offer, the Merger or
the transactions contemplated by this Agreement and the Option Agreements,
the failure of which to be made or obtained would not reasonably be
expected to have a material adverse effect on Green; and (7) such consents,
approvals, orders or authorizations the failure of which to be made or
obtained would not reasonably be expected to have a material adverse effect
on Green.
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(e) SEC Documents; Undisclosed Liabilities. Green has filed all
required reports, schedules, forms, statements and other documents with the
SEC since January 1, 1995 (including exhibits, schedules and documents
incorporated by reference, the "Green SEC Documents"). As of their
respective dates, the Green SEC Documents complied in all material respects
with the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act, as the case may be, and the rules
and regulations of the SEC promulgated thereunder applicable to such Green
SEC Documents, and none of the Green SEC Documents when filed contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except to the extent that information contained in any Green
SEC Document has been revised or superseded by a later Green Filed SEC
Document, none of the Green SEC Documents contains any untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of Green included in the Green SEC Documents comply as to form,
as of their respective dates of filing with the SEC, in all material
respects with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the
case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present in all material respects
the consolidated financial position of Green and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal recurring year-end audit adjustments).
Except (i) as reflected in such financial statements or in the notes
thereto, (ii) as contemplated hereunder or under the Option Agreements,
(iii) for liabilities incurred in connection with this Agreement or the
transactions contemplated hereby and (iv) for liabilities and obligations
incurred since July 1, 1996 in the ordinary course of business consistent
with past practice, neither Green nor any of its subsidiaries has any
material liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise), including liabilities arising under any
laws relating to the protection of health, safety or the environment
("Environmental Laws"), required by generally accepted accounting
principles to be reflected in a consolidated balance sheet of Green and its
consolidated subsidiaries (including the notes thereto) and which,
individually or in the aggregate, could reasonably be expected to have a
material adverse effect on Green.
(f) Information Supplied. None of the information supplied or to be
supplied by Green for inclusion or incorporation by reference in the
registration statement on Form S-4 to be filed with the SEC by White in
connection with the issuance of White Common Stock in the Merger (the "Form
S-4") will, at the time the Form S-4 is filed with the SEC or at the time
it becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading. None of
the Schedule 14D-9 or the Green Pennsylvania Proxy Statement nor any of the
information supplied or to be supplied by Green for inclusion or
incorporation by reference in the Offer Documents or the Joint Proxy
Statement will, at the date such documents are first published, sent or
delivered to shareholders and, in the case of the Green Pennsylvania Proxy
Statement, at the time of the Green Pennsylvania Shareholders Meeting, and,
in the case of the Joint Proxy Statement, at the time of the Green Merger
Shareholders Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The Schedule 14D-9, the Green
Pennsylvania Proxy Statement and the Joint Proxy Statement will comply as
to form in all material respects with the requirements of the Exchange Act
and the rules and regulations thereunder. Notwithstanding the foregoing, no
representation or warranty is made by Green with respect to statements made
or incorporated by reference therein based on information supplied by White
for inclusion or incorporation by reference in any of the foregoing
documents.
(g) Absence of Certain Changes or Events. Except (i) as disclosed in
the Green SEC Documents filed and publicly available prior to the date of
this Agreement (as amended to the date of this
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Agreement, the "Green Filed SEC Documents"), (ii) for the transactions
provided for or permitted by this Agreement or in the Option Agreements,
and (iii) for liabilities incurred in connection with or as a result of
this Agreement or the Option Agreements, since the date of the most recent
audited financial statements included in the Green Filed SEC Documents,
Green has conducted its business only in the ordinary course, and there has
not been (1) any material adverse change in Green, (2) any declaration,
setting aside or payment of any dividend or other distribution (whether in
cash, stock or property) with respect to any of Green's capital stock,
other than regular quarterly cash dividends of $.475 per share on the Green
Common Stock and $.54125 per share on the Green ESOP Preferred Stock in
accordance with the terms thereof, (3) any split, combination or
reclassification of any of Green's capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in
lieu of or in substitution for shares of Green's capital stock, except for
issuances of Green Common Stock upon conversion of Green ESOP Preferred
Stock or upon the exercise of Green Employee Stock Options in accordance
with the terms thereof, (4) except as would have been permitted under
Section 4.1, (A) any granting by Green or any of its Significant
Subsidiaries to any current or former employee, officer or director of
Green of any increase in compensation, except for normal increases in the
ordinary course of business consistent with past practice or as required
under employment agreements in effect as of the date of the most recent
financial statements included in the Green Filed SEC Documents, (B) any
granting by Green or any of its Significant Subsidiaries to any current or
former employee, officer or director of any increase in severance or
termination pay, except as required under any employment, severance or
termination agreements in effect as of the date of the most recent
financial statements included in the Green Filed SEC Documents, or (C) any
entry by Green or any of its subsidiaries into any employment, consulting,
severance, termination or indemnification agreements, arrangements, or
understandings with any such current or former employee, officer or
director, or (5) except insofar as may have been disclosed in the Green
Filed SEC Documents or required by a change in generally accepted
accounting principles, any change in accounting methods, principles or
practices by Green materially affecting its assets, liabilities or
business. For purposes of this Agreement, "key employee" means any employee
whose current salary and targeted bonus exceeds $100,000 per annum.
(h) Compliance with Applicable Laws. Green and its subsidiaries hold
all permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities which are material to the operation of the businesses
of Green and its subsidiaries, taken as a whole (the "Green Permits").
Green and its subsidiaries are in compliance with the terms of the Green
Permits and all applicable statutes, laws, ordinances, rules and
regulations, including Environmental Laws, except where the failure so to
comply, individually or in the aggregate, could not reasonably be expected
to have a material adverse effect on Green. The businesses of Green and its
subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity, including Environmental Laws, except
for possible violations which could not reasonably be expected to have a
material adverse effect on Green. As of the date of this Agreement, no
action, demand, requirement or investigation by any Governmental Entity
with respect to Green or any of its subsidiaries is pending or, to the
knowledge of Green, threatened, other than, in each case, those the outcome
of which, individually or in the aggregate, could not reasonably be
expected to have a material adverse effect on Green.
(i) Absence of Changes in Benefit Plans. Section 3.1(i) of the Green
Disclosure Schedule sets forth a true and complete list of all material
Green Benefit Plans as of the date hereof. Except for rail labor agreements
negotiated in the ordinary course, since the date of the most recent
financial statements included in the Green Filed SEC Documents, there has
not been any adoption or amendment in any material respect by Green or any
of its subsidiaries of any collective bargaining agreement or any bonus,
pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical or
other plan, arrangement or understanding providing benefits to any current
or former employee, officer or director of Green or any of its wholly owned
subsidiaries (collectively, the "Green Benefit Plans").
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(j) ERISA Compliance. (i) With respect to the Green Benefit Plans,
individually and in the aggregate, no event has occurred and, to the
knowledge of Green, there exists no condition or set of circumstances, in
connection with which Green or any of its subsidiaries could be subject to
any liability that is reasonably likely to have a material adverse effect
on Green (except liability for benefits claims and funding obligations
payable in the ordinary course) under ERISA, the Code or any other
applicable law.
(ii) Each Green Benefit Plan has been administered in accordance with
its terms except for any failures so to administer any Green Benefit Plan
as would not individually or in the aggregate have a material adverse
effect on Green. Green, its subsidiaries and all the Green Benefit Plans
are in compliance with the applicable provisions of ERISA, the Code and all
other applicable laws and the terms of all applicable collective bargaining
agreements, except for any failures to be in such compliance as would not
individually or in the aggregate have a material adverse effect on Green.
(iii) Except for all equity-based and other awards, the vesting and
exercisability of which will, by their terms, be accelerated as a result of
the transactions contemplated hereunder, no employee of Green will be
entitled to any additional benefits or any acceleration of the time of
payment or vesting of any benefits under any Green Benefit Plan as a result
of the transactions contemplated by this Agreement or the Option
Agreements.
(k) Voting Requirements. The affirmative vote of the holders of a
majority of the votes cast by all outstanding shares of Green Common Stock
and Green ESOP Preferred Stock, voting as a single class, (A) at the Green
Pennsylvania Shareholders Meeting (the "Green Pennsylvania Shareholder
Approval") to adopt and approve an amendment to the Green Articles,
providing that Subchapter E (Control Transactions) of Chapter 25 of the
Pennsylvania Law shall not be applicable to Green and (B) at the Green
Merger Shareholders Meeting (the "Green Merger Shareholder Approval" and,
together with the Green Pennsylvania Shareholder Approval, the "Green
Shareholder Approvals") to adopt and approve this Agreement and the
transactions contemplated hereby, are the only votes of the holders of any
class or series of Green capital stock or indebtedness necessary to approve
and adopt this Agreement, the Option Agreements and the transactions
contemplated by this Agreement (including the Offer and the Merger) and the
Option Agreements.
(l) State Takeover Statutes. Subject to receipt of the Green
Pennsylvania Shareholder Approval, in the case of Subchapter E (Control
Transactions) of Chapter 25 of the Pennsylvania Law, and assuming that
White, together with its affiliates, does not have voting power with
respect to 20% or more of the votes that all Green shareholders would be
entitled to cast in an election of directors prior to the date of filing of
the Amended Green Articles, the Board of Directors of Green has taken all
action necessary or advisable so as to render inoperative with respect to
the transactions contemplated hereby (including the Offer and the Merger)
or by the Option Agreements all applicable state anti-takeover statutes.
(m) Brokers. No broker, investment banker, financial advisor or other
person, other than the Green Advisors, the fees and expenses of which shall
be paid by Green, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement and the Option Agreements based
upon arrangements made by or on behalf of Green. Green has furnished to
White true and complete copies of all agreements under which any such fees
or expenses are payable and all indemnification and other agreements
related to the engagement of the persons to whom such fees are payable.
(n) Green Rights Agreement and By-laws. (A) The Green Rights
Agreement has been amended (the "Green Rights Plan Amendment") to (i)
render the Green Rights Agreement inapplicable to the Offer, the Merger and
the other transactions contemplated by this Agreement and the Option
Agreements and (ii) ensure that (y) neither White nor any of its wholly
owned subsidiaries is an Acquiring Person (as defined in the Green Rights
Agreement) pursuant to the Green Rights Agreement and (z) a Shares
Acquisition Date, Distribution Date or Trigger Event (in each case as
defined in the Green Rights Agreement) does not occur by reason of the
approval, execution or delivery of this
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Agreement, and the Green Stock Option Agreement, the consummation of the
Offer, the Merger or the consummation of the other transactions
contemplated by this Agreement and the Green Stock Option Agreement, and
the Green Rights Agreement may not be further amended by Green without the
prior consent of White in its sole discretion.
(B) The Green by-laws have been amended to reduce the notice period
required in connection with a meeting of shareholders to the minimum period
permitted by the Pennsylvania Law with respect to the transactions
contemplated hereby.
(o) Tax Status. Neither Green nor any of its subsidiaries has taken
any action or, as of the date hereof, is aware of any fact that would
jeopardize the qualification of the Merger as a reorganization under
Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code.
SECTION 3.2. Representations and Warranties of White and Tender
Sub. Except as disclosed in the White Filed SEC Documents or as set forth on
the Disclosure Schedule delivered by White to Green prior to the execution of
this Agreement (the "White Disclosure Schedule"), White and Tender Sub represent
and warrant to Green as follows:
(a) Organization, Standing and Corporate Power. Each of Tender Sub
and White and its Significant Subsidiaries is a corporation or other legal
entity duly organized, validly existing and in good standing or validly
subsisting (with respect to jurisdictions which recognize such concept)
under the laws of the jurisdiction in which it is organized and has the
requisite corporate or other power, as the case may be, and authority to
carry on its business as now being conducted, except where the failure to
be so organized, existing and in good standing or validly subsisting or to
have such power and authority would not have a material adverse effect with
respect to White. Each of Tender Sub and White and its Significant
Subsidiaries is duly qualified or licensed to do business and is in good
standing or validly subsisting (with respect to jurisdictions which
recognize such concept) in each jurisdiction in which the nature of its
business or the ownership, leasing or operation of its properties makes
such qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed or to be in good standing
or validly subsisting individually or in the aggregate would not have a
material adverse effect on White. White has delivered to Green prior to the
execution of this Agreement complete and correct copies of its certificate
of incorporation and by-laws and the certificates of incorporation and by-
laws (or comparable organizational documents) of its Significant
Subsidiaries and of Tender Sub, in each case as amended to date.
(b) Subsidiaries. Exhibit 21 to the Annual Report of White on Form
10-K for the fiscal year ended December 31, 1995 includes all the
subsidiaries of White which as of the date of this Agreement are
Significant Subsidiaries. All the outstanding shares of capital stock of,
or other equity interests in, each such Significant Subsidiary have been
validly issued and are fully paid and nonassessable and are owned directly
or indirectly by White, free and clear of all Liens.
(c) Capital Structure. The authorized capital stock of White consists
of 300,000,000 shares of White Common Stock and 25,000,000 shares of
preferred stock, without par value, of White ("White Preferred Stock"). At
the close of business on October 11, 1996, (i) 216,536,551 shares of White
Common Stock were issued and outstanding, (ii) 28,020,494 shares of White
Common Stock were reserved for issuance pursuant to the White 1987
Long-Term Performance Plan, White 1990 Stock Award Plan, White Shareholders
Dividend Reinvestment Plan, White Employees Stock Purchase and Dividend
Reinvestment Plan, White Stock Plan for Directors and the White Stock
Purchase and Loan Plan (such plans, collectively, the "White Stock Plans"),
and (iii) no shares of White Preferred Stock have been designated (other
than 250,000 shares designated as the $7.00 Cumulative Convertible
Preferred Stock, Series A and 3,000,000 shares designated as the Junior
Participating Preferred Stock, Series B) or issued. Except as set forth
above and except for 43,090,773 shares of White Common Stock reserved for
issuance upon the exercise of the White Option, at the close of business on
October 11, 1996, no shares of capital stock or other voting securities of
White were issued, reserved for issuance or outstanding. At the close of
business on October 11, 1996, there were no outstanding stock appreciation
rights or rights (other than employee stock options or other rights ("White
Employee Stock Options") to
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purchase or receive White Common Stock granted under the White Stock Plans)
to receive shares of White Common Stock on a deferred basis granted under
the White Stock Plans or otherwise. The White Disclosure Schedule sets
forth a complete and correct list, as of October 11, 1996, of the number of
shares of White Common Stock subject to White Employee Stock Options and
the exercise prices thereof. All outstanding shares of capital stock of
White are, and all shares which may be issued will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. As of the close of business on October 11, 1996, there
were no bonds, debentures, notes or other indebtedness of White having the
right to vote (or convertible into, or exchangeable for, securities having
the right to vote) on any matters on which shareholders of White may vote.
Except as set forth above or as contemplated by the Option Agreements, as
of the close of business on October 11, 1996, there were no outstanding
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which White or any of its
subsidiaries is a party or by which any of them is bound obligating White
or any of its subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other
securities of White or of any of its Significant Subsidiaries or obligating
White or any of its Significant Subsidiaries to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. Except for agreements entered into
with respect to the White Stock Plans, as of the close of business on
October 11, 1996, there were no outstanding contractual obligations of
White or any of its subsidiaries to repurchase, redeem or otherwise acquire
any shares of capital stock of White or any of its Significant
Subsidiaries. As of the close of business on October 11, 1996, there were
no outstanding contractual obligations of White to vote or to dispose of
any shares of the capital stock of any of its Significant Subsidiaries.
White has delivered to Green a complete and correct copy of the Rights
Agreement dated as of June 8, 1988, as amended and supplemented to the date
hereof (the "White Rights Agreement"), relating to rights ("White Rights")
to purchase shares of Junior Participating Preferred Stock, Series B,
without par value. As of the date of this Agreement, the authorized capital
stock of Tender Sub consists of 100 shares of common stock, par value $1.00
per share, all of which have been validly issued, are fully paid and
nonassessable and are owned by White free and clear of any Lien.
(d) Authority; Noncontravention. White and Tender Sub have all
requisite corporate power and authority to enter into this Agreement and,
subject to the White Shareholder Approval, in the case of the Merger, to
consummate the transactions contemplated by this Agreement. White has all
requisite corporate power and authority to enter into the Option Agreements
and to consummate the transactions contemplated thereby. The execution and
delivery of this Agreement by White and Tender Sub and the Option
Agreements by White and the consummation of the transactions contemplated
by this Agreement by White and Tender Sub, and the consummation of the
transactions contemplated by the Option Agreements by White, have been duly
authorized by all necessary corporate action on the part of White and
Tender Sub, subject, in the case of the issuance of White Common Stock in
connection with the Merger, to the White Shareholder Approval. This
Agreement has been duly executed and delivered by White and Tender Sub and
constitutes a legal, valid and binding obligation of White and Tender Sub,
enforceable against White and Tender Sub in accordance with its terms. The
Option Agreements have been duly executed and delivered by White and
constitute legal, valid and binding obligations of White, enforceable
against White in accordance with their terms. The execution and delivery of
this Agreement and the Option Agreements do not, and the consummation of
the transactions contemplated by this Agreement and the Option Agreements
and compliance with the provisions of this Agreement and the Option
Agreements will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancelation or acceleration of any
obligation or loss of a material benefit under, or result in the creation
of any Lien upon any of the properties or assets of Tender Sub or White or
any of its Significant Subsidiaries under, (i) the certificate of
incorporation or by-laws of Tender Sub or White or the comparable
organizational documents of any of its Significant Subsidiaries, (ii)
subject to giving such notices and obtaining such consents as may be listed
in Section 3.2(d) of the White Disclosure Schedule, any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to Tender
Sub or White or any of its Significant Subsidiaries or their respective
properties or
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assets, or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Tender Sub or
White or any of its Significant Subsidiaries or their respective properties
or assets, other than, in the case of clauses (ii) and (iii), any such
conflicts, violations, defaults, rights, losses or Liens that individually
or in the aggregate would not (x) have a material adverse effect on White,
(y) impair the ability of White or Tender Sub to perform their obligations
under this Agreement or the Option Agreements (including obligations
respecting the Offer and the Merger), or (z) prevent or materially delay
the consummation of any of the transactions contemplated by this Agreement
(including the Offer and the Merger) or the Option Agreements. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required by or with respect to Tender Sub
or White or any of its Significant Subsidiaries in connection with the
execution and delivery of this Agreement or the Option Agreements or the
consummation of the transactions contemplated by this Agreement or the
Option Agreements, except for (1) compliance with any applicable
requirements of the HSR Act; (2) compliance with any applicable
requirements relating to approval of the Merger by the STB; (3) the filing
with the SEC of (A) the Schedule 14D-1, (B) the Joint Proxy Statement
relating to the White Shareholders Meeting, (C) the Form S-4 and (D) such
reports under Section 13(a), 13(d), 15(d) or 16(a) of the Exchange Act as
may be required in connection with this Agreement, the Option Agreements
and the transactions contemplated by this Agreement and the Option
Agreements; (4) the filing of the Articles of Merger as provided in Section
1.3, the Amended White Articles as provided in Section 5.1(e) and
appropriate documents with the relevant authorities of other states in
which White is qualified to do business and such filings with Governmental
Entities to satisfy the applicable requirements of state securities or
"blue sky" laws; (5) such filings with and approvals of the NYSE to permit
the shares of White Common Stock that are to be issued in the Merger, under
the Green Stock Plans and pursuant to the White Stock Option Agreement to
be listed on the NYSE; (6) such other filings and consents as may be
required under any environmental, health or safety law or regulation
pertaining to any notification, disclosure or required approval
necessitated by the Offer, the Merger or the transactions contemplated by
this Agreement and the Option Agreements, the failure of which to be made
or obtained would not reasonably be expected to have a material adverse
effect on White; and (7) such consents, approvals, orders or authorizations
the failure of which to be made or obtained would not reasonably be
expected to have a material adverse effect on White.
(e) SEC Documents; Undisclosed Liabilities. White has filed all
required reports, schedules, forms, statements and other documents with the
SEC since January 1, 1995 (including exhibits, schedules and documents
incorporated by reference, the "White SEC Documents"). As of their
respective dates, the White SEC Documents complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such White SEC Documents, and none of the White
SEC Documents when filed contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except to the
extent that information contained in any White SEC Document has been
revised or superseded by a later White Filed SEC Document, none of the
White SEC Documents contains any untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial statements of
White included in the White SEC Documents comply as to form, as of their
respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with
generally accepted accounting principles (except, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto) and fairly present in all material respects the consolidated
financial position of White and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited
statements, to normal recurring year-end audit adjustments). Except (i) as
reflected in such financial statements or
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in the notes thereto, (ii) as contemplated hereunder or under the Option
Agreements, (iii) for liabilities incurred in connection with this
Agreement or the transactions contemplated hereby and (iv) for liabilities
and obligations incurred since June 29, 1996 in the ordinary course of
business consistent with past practice, neither White nor any of its
subsidiaries has any material liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise), including liabilities
arising under any Environmental Laws, required by generally accepted
accounting principles to be reflected in a consolidated balance sheet of
White and its consolidated subsidiaries (including the notes thereto) and
which, individually or in the aggregate, could reasonably be expected to
have a material adverse effect on White.
(f) Information Supplied. None of the information supplied or to be
supplied by White for inclusion or incorporation by reference in the Form
S-4 will, at the time the Form S-4 is filed with the SEC or at the time it
becomes effective under the Securities Act, contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading. None of
the Offer Documents nor any of the information supplied or to be supplied
by White for inclusion or incorporation by reference in Green Pennsylvania
Proxy Statement or the Joint Proxy Statement will, at the date such
documents are first published, sent or delivered to shareholders and, in
the case of the Green Pennsylvania Proxy Statement, at the time of the
Green Pennsylvania Shareholders Meeting, and, in the case of the Joint
Proxy Statement, at the time of the White Shareholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Schedule 14D-1 and the Joint Proxy Statement will comply as
to form in all material respects with the requirements of the Exchange Act
and the rules and regulations thereunder. Notwithstanding the foregoing, no
representation or warranty is made by White with respect to statements made
or incorporated by reference therein based on information supplied by Green
for inclusion or incorporation by reference in any of the foregoing
documents.
(g) Absence of Certain Changes or Events. Except (i) as disclosed in
the White SEC Documents filed and publicly available prior to the date of
this Agreement (as amended to the date of this Agreement, the "White Filed
SEC Documents"), (ii) for the transactions provided for or permitted by
this Agreement or in the Option Agreements, and (iii) for liabilities
incurred in connection with or as a result of this Agreement or the Option
Agreements, since the date of the most recent audited financial statements
included in the White Filed SEC Documents, White has conducted its business
only in the ordinary course, and there has not been (1) any material
adverse change in White, (2) any declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock or property)
with respect to any of White's capital stock, other than regularly
quarterly cash dividends of $.26 per share on the White Common Stock, (3)
any split, combination or reclassification of any of White's capital stock
or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of
White's capital stock, except for issuances of White Common Stock upon the
exercise of White Employee Stock Options in accordance with the terms
thereof, (4) except as would have been permitted under Section 4.1 (A) any
granting by White or any of its Significant Subsidiaries to any current or
former employee, officer or director of White of any increase in
compensation, except for normal increases in the ordinary course of
business consistent with past practice or as required under employment
agreements in effect as of the date of the most recent financial statements
included in the White Filed SEC Documents, (B) any granting by White or any
of its Significant Subsidiaries to any such officer or director of any
increase in severance or termination pay, except as required under any
employment, severance or termination agreements in effect as of the date of
the most recent financial statements included in the White Filed SEC
Documents, or (C) any entry by White or any of its subsidiaries into any
employment, consulting, severance, termination or indemnification
agreements, arrangements or understandings with any current or former
employee, officer or director or (5) except insofar as may have been
disclosed in the White Filed SEC Documents or required by a change in
generally accepted accounting principles, any change in accounting methods,
principles or practices by White materially affecting its assets,
liabilities or business.
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(h) Compliance with Applicable Laws. White and its subsidiaries hold
all permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities which are material to the operation of the businesses
of White and its subsidiaries, taken as a whole (the "White Permits").
White and its subsidiaries are in compliance with the terms of the White
Permits and all applicable statutes, laws, ordinances, rules and
regulations, including Environmental Laws, except where the failure so to
comply, individually or in the aggregate, could not reasonably be expected
to have a material adverse effect on White. The businesses of White and its
subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity, including Environmental Laws, except
for possible violations which could not reasonably be expected to have a
material adverse effect on White. As of the date of this Agreement, no
action, demand, requirement or investigation by any Governmental Entity
with respect to White or any of its subsidiaries is pending or, to the
knowledge of White, threatened, other than, in each case, those the outcome
of which, individually or in the aggregate could not reasonably be expected
to have a material adverse effect on White.
(i) Absence of Changes in Benefit Plans. Section 3.2(i) of the White
Disclosure Schedule sets forth a true and complete list of all material
White Benefit Plans as of the date hereof. Except for rail labor agreements
negotiated in the ordinary course, since the date of the most recent
financial statements included in the White Filed SEC Documents, there has
not been any adoption or amendment in any material respect by White or any
of its subsidiaries of any collective bargaining agreement or any bonus,
pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical or
other plan, arrangement or understanding providing benefits to any current
or former employee, officer or director of White or any of its wholly owned
subsidiaries (collectively, the "White Benefit Plans" and, together with
the Green Benefit Plans, the "Employee Benefit Plans").
(j) ERISA Compliance. (i) With respect to the White Benefit Plans,
individually and in the aggregate, no event has occurred and, to the
knowledge of White, there exists no condition or set of circumstances, in
connection with which White or any of its subsidiaries could be subject to
any liability that is reasonably likely to have a material adverse effect
on White (except liability for benefits claims and funding obligations
payable in the ordinary course) under ERISA, the Code or any other
applicable law.
(ii) Each White Benefit Plan has been administered in accordance with
its terms, except for any failures so to administer any White Benefit Plans
as would not individually or in the aggregate have a material adverse
effect on White. White, its subsidiaries and all the White Benefit Plans
are in compliance with the applicable provisions of ERISA, the Code and all
other applicable laws and the terms of all applicable collective bargaining
agreements, except for any failures to be in such compliance as would not
individually or in the aggregate have a material adverse effect on White.
(iii) Except for all equity-based and other awards, the vesting and
exercisability of which will, by their terms, be accelerated as a result of
the transactions contemplated hereunder, no employee of White will be
entitled to any additional benefits or any acceleration of the time of
payment or vesting of any benefits under any White Benefit Plan as a result
of the transactions contemplated by this Agreement or the Option
Agreements.
(k) Voting Requirements. The affirmative vote of the holders of a
majority of all outstanding shares of White Common Stock, voting as a
single class, at the White Shareholders Meeting (the "White Shareholder
Approval") to adopt and approve the Amended White Articles (as contemplated
by Section 5.1(e) hereof), which approval shall also constitute approval of
the issuance of the White Common Stock in the Merger in accordance with the
rules of the NYSE, is the only vote of the holders of any class or series
of White capital stock or indebtedness necessary to approve and adopt this
Agreement, the Option Agreements and the transactions contemplated by this
Agreement and the Option Agreements.
(l) State Takeover Statutes. The Board of Directors of White has
taken all action necessary or advisable so as to render inoperative with
respect to the transactions contemplated hereby or by the Option Agreements
all applicable state anti-takeover statutes.
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(m) Brokers. No broker, investment banker, financial advisor or other
person, other than Wasserstein Perella & Co., Inc. and Salomon Brothers
Inc, the fees and expenses of which shall be paid by White, is entitled to
any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated by this
Agreement and the Option Agreements based upon arrangements made by or on
behalf of White. White has furnished to Green true and complete copies of
all agreements under which any such fees or expenses are payable and all
indemnification and other agreements related to the engagement of the
persons to whom such fees are payable.
(n) White Rights Agreement. The White Rights Agreement has been
amended (the "White Rights Plan Amendment") to (i) render the White Rights
Agreement inapplicable to the transactions contemplated by the White Stock
Option Agreement and (ii) ensure that (y) neither Green nor any of its
wholly owned subsidiaries is an Acquiring Person (as defined in the White
Rights Agreement) pursuant to the White Rights Agreement by virtue of the
approval, execution or delivery of the White Stock Option Agreement or the
consummation of the transactions contemplated thereby and (z) a Shares
Acquisition Date or Distribution Date (in each case as defined in the White
Rights Agreement) does not occur by reason of the approval, execution or
delivery of the White Stock Option Agreement, the consummation of the
Merger, or the consummation of the other transactions contemplated by this
Agreement and the White Stock Option Agreement and such amendment may not
be further amended by White without the prior consent of Green in its sole
discretion.
(o) Tax Status. None of White, Tender Sub, or any subsidiary of White
or Tender Sub has taken any action or, as of the date hereof, is aware of
any fact that would jeopardize the qualification of the Merger as a
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1. Conduct of Business. (a) Conduct of Business. Except as
contemplated by this Agreement or as set forth in Section 4.1 of the Green
Disclosure Schedule or the White Disclosure Schedule, as applicable, during the
period from the date of this Agreement to the Effective Time, Green and White
shall, and shall cause their respective subsidiaries to, carry on their
respective businesses in the ordinary course consistent with past practice and
in compliance in all material respects with all applicable laws and regulations
and, to the extent consistent therewith, shall use all reasonable efforts to
preserve intact their current business organizations, use reasonable efforts to
keep available the services of their current officers and other key employees as
a group and preserve their relationships with those persons having business
dealings with them to the end that their goodwill and ongoing businesses shall
be unimpaired at the Effective Time. Except as contemplated by this Agreement or
as set forth in Section 4.1 of the Green Disclosure Schedule or the White
Disclosure Schedule, as applicable, without limiting the generality of the
foregoing, during the period from the date of this Agreement to the Effective
Time, neither Green nor White shall, nor shall such parties permit any of their
respective subsidiaries to (without the consent of the other party hereto,
provided that such consent shall not be required in respect of subsections (iv)
or (v) below if, based on the advice of outside counsel to either party, the
discussion of such matters or related disclosures of information by the parties
hereto would be inappropriate):
(i) other than dividends and distributions (including liquidating
distributions) by a direct or indirect wholly owned subsidiary of Green or
White, as applicable, to its parent, or by a subsidiary that is partially
owned by Green or White, as applicable, or any of their respective
subsidiaries, provided that Green or White, as applicable, or any such
subsidiary receives or is to receive its proportionate share thereof, and
other than the regular quarterly dividends of $.475 per share with respect
to Green Common Stock, regular quarterly dividends of $.54125 per share
with respect to Green ESOP Preferred Stock in accordance with its terms and
regular quarterly dividends of $.26 per share with respect to White Common
Stock (plus such increases as may be properly authorized not to exceed 20%
per annum), (x) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, (y) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of
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any other securities in respect of, in lieu of or in substitution for
shares of its capital stock, or (z) except in connection with the funding
of employee benefit plans, purchase, redeem, retire or otherwise acquire
any shares of its capital stock or the capital stock of any of its
Significant Subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities (other than (u) in
accordance with the terms of the Green Rights Agreement or the White Rights
Agreement, (w) the issuance of Green Common Stock or White Common Stock (A)
upon the exercise of Green Employee Stock Options or White Employee Stock
Options, respectively, and listed in the Green Disclosure Schedule and the
White Disclosure Schedule outstanding on the date of this Agreement and in
accordance with their present terms or (B) pursuant to a grant existing as
of the date hereof or otherwise permitted under this Section under any
Employee Benefit Plan, (x) the grant or award of (A) Green Employee Stock
Options or White Employee Stock Options (or the issuance of Green Common
Stock or White Common Stock upon exercise thereof) consistent with past
practice in amounts not to exceed, in any 12-month period, 110% of the
amount issued in the prior 12-month period, and (B) in the case of White,
target bonus awards under White's long-term incentive plans consistent with
past practice in amounts not to exceed, in any 12-month period, 110% of the
amounts of the aggregate target bonus awards issued in the prior 12-month
period, (y) the issuance of Green Common Stock upon conversion of Green
ESOP Preferred Stock in accordance with its terms and (z) the issuance of
Green Common Stock or White Common Stock pursuant to the Option
Agreements);
(iii) in the case of Green or White, adopt, propose or agree to any
amendment to its articles of incorporation, by-laws or other comparable
organizational documents, except for such amendments as are contemplated
hereby, and, in the case of any subsidiary, adopt, propose or agree to any
amendment to its certificate of incorporation, by-laws or other comparable
organizational documents other than in the ordinary course in a manner
which does not have a material adverse effect on Green or White, as
applicable;
(iv) sell, lease, license, mortgage or otherwise encumber or subject
to any Lien or otherwise dispose of any of its properties or assets, other
than (x) transactions in the ordinary course of business consistent with
past practice and (y) transactions involving assets which do not
individually or in the aggregate exceed $50,000,000 in any 12-month period;
(v) make or agree to make any acquisition (other than of inventory) or
capital expenditure;
(vi) except in the ordinary course consistent with past practice, make
any tax election that could reasonably be expected to have a material
adverse effect on Green or White, as applicable, or settle or compromise
any material income tax liability;
(vii) pay, discharge, settle or satisfy any material claims,
liabilities or obligations (whether absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge,
settlement or satisfaction (A) in the ordinary course of business
consistent with past practice or in accordance with their terms, (B) of
liabilities reflected or reserved against in, or contemplated by, the most
recent consolidated financial statements (or the notes thereto) of Green
included in the Green Filed SEC Documents or of White included in the White
Filed SEC Documents, as applicable, (C) incurred since the date of such
financial statements in the ordinary course of business consistent with
past practice or (D) which do not in the aggregate have a material adverse
effect on Green or White, as applicable;
(viii) except in the ordinary course of business or except as would
not reasonably be expected to have a material adverse effect on Green or
White, as applicable, modify, amend or terminate any material contract or
agreement to which Green or White, as applicable, or any of their
respective subsidiaries, is a party or waive, release or assign any
material rights or claims thereunder;
(ix) make any material change to its accounting methods, principles or
practices, except as may be required by generally accepted accounting
principles;
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(x) except as required by law or contemplated hereby and except for
rail labor agreements negotiated in the ordinary course, enter into, adopt
or amend in any material respect or terminate any Green Benefit Plan or
White Benefit Plan, as applicable, or any other agreement, plan or policy
involving Green or White, as applicable, or any of their respective
subsidiaries, and one or more of their directors, officers or employees, or
materially change any actuarial or other assumption used to calculate
funding obligations with respect to any pension plan, or change the manner
in which contributions to any pension plan are made or the basis on which
such contributions are determined;
(xi) except for normal increases in the ordinary course of business
consistent with past practice that, in the aggregate, do not materially
increase benefits or compensation expenses of Green or White, as
applicable, or their respective subsidiaries, or as contemplated hereby or
by the terms of any contract the existence of which does not constitute a
violation of this Agreement, increase the compensation of any director,
executive officer or other key employee or pay any benefit or amount not
required by a plan or arrangement as in effect on the date of this
Agreement to any such person;
(xii) enter into any agreement containing any provision or covenant
(x) limiting in any material respect the ability to compete with any person
which would bind the other party hereto (or its operations) after the
Effective Time or (y) other than in the ordinary course of business,
granting concessions to any railroad (whether through divestiture of lines
or the grant of trackage rights); or
(xiii) authorize, or commit or agree to take, any of the foregoing
actions.
(b) Coordination of Dividends. White and Green shall coordinate with one
another regarding the declaration and payment of dividends in respect of White
Common Stock and Green Common Stock and the record dates and payment dates
relating thereto, it being the intention of White and Green that any holder of
Green Common Stock shall not receive two dividends, or fail to receive one
dividend, for any single calendar quarter with respect to its shares of Green
Common Stock and/or any shares of White Common Stock any such holder receives in
exchange therefor pursuant to the Merger.
(c) Other Actions. Except as required by law, Green and White shall not,
and shall not permit any of their respective subsidiaries to, voluntarily take
any action that would, or that could reasonably be expected to, result in (i)
any of the representations and warranties of such party set forth in this
Agreement or the Option Agreements that are qualified as to materiality becoming
untrue, (ii) any of such representations and warranties that are not so
qualified becoming untrue in any material respect or (iii) any of the conditions
to the consummation of the transactions contemplated hereby not being satisfied.
Without limiting the foregoing, Green and White shall not, and shall not permit
any of their respective subsidiaries to, take any action that could reasonably
be expected to impair, or delay in any material respect, obtaining the STB
approval contemplated by Sections 6.2(d) and 6.3(c) or complying with or
satisfying the terms thereof.
(d) Advice of Changes. Green and White shall promptly advise the other
party orally and in writing of (i) any representation or warranty made by it
contained in this Agreement or the Option Agreements that is qualified as to
materiality becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect, (ii) the failure by it to comply in any
material respect with or satisfy in any material respect any covenant, condition
or agreement to be complied with or satisfied by it under this Agreement or the
Option Agreements and (iii) any change or event having, or which, insofar as can
reasonably be foreseen, could reasonably be expected to have, a material adverse
effect on such party or on the truth of their respective representations and
warranties or the ability of the conditions to the consummation of the
transactions contemplated hereby to be satisfied; provided, however, that no
such notification shall affect the representations, warranties, covenants or
agreements of the parties (or remedies with respect thereto) or the conditions
to the obligations of the parties under this Agreement or the Option Agreements.
SECTION 4.2. No Solicitation. (a) Neither Green nor White shall, nor shall
it permit any of its subsidiaries to, nor shall it authorize or permit any of
its officers, directors or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by it or any of
its subsidiaries to, directly or indirectly through another person, (i) solicit,
initiate or encourage (including by way of
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furnishing information), or take any other action designed to facilitate,
directly or indirectly, any inquiries or the making of any proposal which
constitutes any Takeover Proposal or (ii) participate in any discussions or
negotiations regarding any Takeover Proposal; provided, however, that if, at any
time prior to the earlier of (x) the consummation of the Offer and (y) the
obtaining of the Green Merger Shareholder Approval, in the case of Green, or the
White Shareholder Approval, in the case of White, or after 180 days from the
date hereof and prior to the Approval Date, the Board of Directors of Green or
White, as applicable, determines in good faith, based on the advice of outside
counsel, that it is necessary to do so to avoid a breach of its fiduciary duties
to Green under applicable law, Green or White, as applicable, may, in response
to a Takeover Proposal which was not solicited by it or which did not otherwise
result from a breach of this Section 4.2(a), and subject to such party's
compliance with Section 4.2(c), (A) furnish information with respect to it and
its subsidiaries to any person pursuant to a customary confidentiality agreement
(as determined by the party receiving such Takeover Proposal after consultation
with its outside counsel), the benefits of the terms of which, if more favorable
to the other party to such confidentiality agreement than those in place with
the other party hereto, shall be extended to the other party hereto, and (B)
participate in negotiations regarding such Takeover Proposal. For purposes of
this Agreement, "Takeover Proposal" in respect of Green or White, as applicable,
means any proposal or offer from any person for the acquisition or purchase of
more than 50% of the assets of such party and its subsidiaries or more than 50%
of the equity securities of such party entitled to vote generally in the
election of directors, any tender offer or exchange offer that if consummated
would result in any person beneficially owning more than 50% of the equity
securities of such party entitled to vote generally in the election of
directors, or any merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving such party, other than
the transactions contemplated by this Agreement or the Option Agreements.
(b) Except as expressly permitted by this Section 4.2, neither the Board of
Directors of Green or White, as applicable, nor any committee thereof shall (i)
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to the other party hereto, the approval or recommendation by such Board
of Directors or such committee of the Offer or the adoption and approval of the
matters to be considered at the Green Shareholders Meetings, in the case of
Green, and the White Shareholders Meeting, in the case of White, (ii) approve or
recommend, or propose publicly to approve or recommend, any Takeover Proposal,
or (iii) cause Green or White, as applicable, to enter into any letter of
intent, agreement in principle, acquisition agreement or other similar agreement
(each, an "Acquisition Agreement") related to any Takeover Proposal.
Notwithstanding the foregoing, in the event that, at any time following 180 days
after the date hereof and prior to the earlier of (x) the time that Tendered
Shares constituting at least 40% of the outstanding shares of Green Common Stock
and Green ESOP Preferred Stock on a fully diluted basis have been deposited in
the Voting Trust and (y) the obtaining of the Green Merger Shareholder Approval,
in the case of Green, or the White Shareholder Approval, in the case of White
(such earlier date referred to in (x) or (y), the "Approval Date"), there exists
a Superior Proposal and such Board of Directors determines that (x) in the case
of the Board of Directors of Green, there is not a substantial probability that
White will be successful in acquiring 40% of the shares of Green Common Stock
and Green ESOP Preferred Stock in the Offer and/or the Second Offer or otherwise
(or, if the Green Pennsylvania Stockholder Approval has not then been obtained,
there is not a substantial probability that the Green Merger Shareholder
Approval will be obtained), in either case due to the existence of such Superior
Proposal with respect to Green or (y) in the case of the Board of Directors of
White, there is not a substantial probability that the White Shareholder
Approval will be obtained due to the existence of such Superior Proposal with
respect to White, the Board of Directors of Green or White, as applicable, may
(subject to this and the following sentences) withdraw or modify its approval or
recommendation of the Offer, the Merger or the adoption and approval of the
matters to be considered at the Green Shareholders Meetings, in the case of
Green, and the White Shareholders Meeting, in the case of White, the Board of
Directors of Green or White, as applicable, may (subject to this and the
following sentences) approve or recommend such Superior Proposal or terminate
this Agreement (and concurrently with such termination, if it so chooses, cause
Green or White, as applicable, to enter into any Acquisition Agreement with
respect to such Superior Proposal), but only at a time that is after the fifth
business day following the other party's receipt of written notice advising such
other party that the Board of Directors of Green or White, as applicable, has
received a Superior Proposal, specifying the material terms and conditions of
such Superior
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Proposal and identifying the person making such Superior Proposal. For purposes
of this Agreement, a "Superior Proposal" means in respect of Green or White, as
applicable, any proposal made by a third party to acquire, directly or
indirectly, for consideration consisting of cash and/or securities, more than
50% of the equity securities of Green or White, as the case may be, entitled to
vote generally in the election of directors or all or substantially all the
assets of Green or White, as the case may be, and otherwise on terms which the
Board of Directors of such party determines in its good faith judgment (x)
(based on the written opinion of a financial advisor of nationally recognized
reputation (which opinion shall be provided to the other party hereto)) to be
more favorable from a financial point of view to its shareholders than the
Offer, the Merger and the transactions contemplated hereby and for which
financing, to the extent required, is then committed and (y) also to be more
favorable to such party than the Offer, the Merger and the transactions
contemplated hereby after taking into account all constituencies (including
shareholders) and pertinent factors permitted under the Pennsylvania Law or
applicable Virginia law.
(c) In addition to the obligations of the parties set forth in paragraphs
(a) and (b) of this Section 4.2, any party that has received a Takeover Proposal
shall immediately advise the other party hereto orally and in writing of any
request for information or of any Takeover Proposal, the material terms and
conditions of such request or Takeover Proposal and the identity of the person
making such request or Takeover Proposal. Any party that has received a Takeover
Proposal will keep the other party hereto reasonably informed of the status and
details (including amendments or proposed amendments) of any such request or
Takeover Proposal.
(d) Nothing contained in this Section 4.2 shall prohibit either party
hereto from taking and disclosing to its shareholders a position contemplated by
Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure
to its shareholders if, in the good faith judgment of its Board of Directors,
based on the advice of outside counsel, failure so to disclose would result in a
violation of applicable law; provided, however, that neither party nor its Board
of Directors nor any committee thereof shall, except as permitted by Section
4.2(b), withdraw or modify, or propose publicly to withdraw or modify, its
position with respect to the Offer or the matters to be considered at the Green
Shareholders Meetings or the White Shareholders Meeting, as applicable, or
approve or recommend, or propose publicly to approve or recommend, a Takeover
Proposal.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1. Preparation of the Form S-4 and the Joint Proxy Statement;
Shareholders Meetings. (a) As soon as practicable following the date of this
Agreement, Green and White shall prepare and file with the SEC the Joint Proxy
Statement and White shall prepare and file with the SEC the Form S-4, in which
the Joint Proxy Statement will be included as a prospectus. Each of Green and
White shall use all reasonable efforts to have the Form S-4 declared effective
under the Securities Act as promptly as practicable after such filing. Green
will use all reasonable efforts to cause the Joint Proxy Statement to be mailed
to Green's shareholders, and White will use all reasonable efforts to cause the
Joint Proxy Statement to be mailed to White's shareholders, in each case as
promptly as practicable after the Form S-4 is declared effective under the
Securities Act. White shall also take any action (other than qualifying to do
business in any jurisdiction in which it is not now so qualified or to file a
general consent to service of process) required to be taken under any applicable
state securities laws in connection with the issuance of White Common Stock in
the Merger and under the Green Stock Plans and White Stock Plans, and Green
shall furnish all information concerning Green and the holders of Green Common
Stock as may be reasonably requested in connection with any such action.
(b) Green shall, as soon as practicable following the date of this
Agreement, file with the SEC preliminary proxy materials and use reasonable
efforts to clear such materials and thereafter duly call, give notice of,
convene and hold on a date mutually agreed to by White and Green a meeting of
its shareholders (the "Green Pennsylvania Shareholders Meeting") for the purpose
of amending the Green Articles to explicitly provide that Subchapter E (Control
Transactions) of Chapter 25 of the Pennsylvania Law shall not apply to Green;
and shall, as soon as practicable following the date of this Agreement, duly
call, give notice of,
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convene and hold a meeting of its shareholders (the "Green Merger Shareholders
Meeting" and, together with the Green Pennsylvania Shareholders Meeting, the
"Green Shareholders Meetings") for the purpose of obtaining the Green Merger
Shareholder Approval. The parties agree that the solicitation of the proxies for
the Green Pennsylvania Shareholder Approval shall be solicited solely by Green
and its agents. Without limiting the generality of the foregoing, but subject to
Section 4.2(b), Green agrees that its obligations pursuant to the first sentence
of this Section 5.1(b) shall not be affected by the commencement, public
proposal, public disclosure or communication to Green of any Takeover Proposal
in respect of Green. Green shall, through its Board of Directors, recommend to
its shareholders the approval and adoption of the Offer and the matters to be
considered at the Green Shareholders Meetings, except to the extent that the
Board of Directors of Green shall have withdrawn or modified its approval or
recommendation of the Offer or the matters to be considered at the Green
Shareholders Meetings or terminated this Agreement in accordance with Section
4.2(b). Subject to the terms of the Voting Trust Agreement, White shall cause
all shares of Green Common Stock and Green ESOP Preferred Stock acquired by it
or its wholly owned subsidiaries pursuant to the Offer (which shall be deposited
in the Voting Trust) or otherwise to be voted in favor of approval and adoption
of the matters to be considered at the Green Shareholders Meetings. In the event
that the matters to be considered at the Green Pennsylvania Shareholders Meeting
are not approved at a meeting called for such purpose, from time to time Green
may, and shall at the request of White, duly call, give notice of, convene and
hold one or more meeting(s) of shareholders thereafter for the purpose of
obtaining the Green Pennsylvania Shareholder Approval, in which case all
obligations hereunder respecting the Green Pennsylvania Shareholders Meeting
shall apply in respect of such other meeting(s).
(c) White shall, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
shareholders (the "White Shareholders Meeting") for the purpose of obtaining the
White Shareholder Approval. Without limiting the generality of the foregoing but
subject to Section 4.2(b), White agrees that its obligations pursuant to the
first sentence of this Section 5.1(c) shall not be affected by the commencement,
public proposal, public disclosure or commencement of any Takeover Proposal in
respect of White. White shall, through its Board of Directors, recommend to its
shareholders the approval and adoption of the matters to be considered at the
White Shareholders Meeting, except to the extent that the Board of Directors of
White shall have withdrawn or modified its recommendation of the matters to be
considered at the White Shareholders Meeting and terminated this Agreement in
accordance with Section 4.2(b).
(d) White and Green shall use reasonable efforts to hold the Green Merger
Shareholders Meeting and the White Shareholders Meeting on the same date.
(e) As promptly as practicable following the date of the White Shareholder
Approval, White shall take such action as may be necessary or advisable so that,
subject to the terms and conditions hereof, the articles of incorporation of
White shall, at the Effective Time, be amended to be substantially in the form
of Exhibit C hereto (such articles, as in effect on the date hereof, the "White
Articles" and, as so amended, the "Amended White Articles"), including the
filing of the Amended White Articles with the State Corporation Commission of
Virginia.
(f) As promptly as practicable following the date of the Green Pennsylvania
Shareholder Approval, if obtained, Green shall take such action as may be
necessary or advisable so that, subject to the terms and conditions hereof, the
articles of incorporation of Green shall be amended to reflect the
inapplicability of Subchapter E (Control Transactions) of Chapter 25 of the
Pennsylvania Law as contemplated by Section 3.1(k) hereof (such articles, as in
effect on the date hereof, the "Green Articles" and, as so amended, the "Amended
Green Articles"), including the filing of the Amended Green Articles with the
Pennsylvania Department of State, provided that the Amended Green Articles shall
not be filed until immediately prior to the consummation of any purchase of
Green Common Stock that would cause White to own 20% or more of the outstanding
voting power of Green (including, as applicable, consummation of the Offer or
the Second Offer, exercise of the Green Stock Option Agreement or otherwise) and
White shall give Green prior notice thereof.
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SECTION 5.2. Letters of Accountants. (a) Green shall use reasonable
efforts to cause to be delivered to White two letters from Green's independent
accountants, one dated a date within two business days before the date on which
the Form S-4 shall become effective and one dated a date within two business
days before the date of the applicable shareholders meeting, each addressed to
White, in form and substance reasonably satisfactory to White and customary in
scope and substance for comfort letters delivered by independent public
accountants in connection with registration statements similar to the Form S-4.
(b) White shall use reasonable efforts to cause to be delivered to Green
two letters from White's independent accountants, one dated a date within two
business days before the date on which the Form S-4 shall become effective and
one dated a date within two business days before the date of the applicable
shareholders meeting, each addressed to Green, in form and substance reasonably
satisfactory to Green and customary in scope and substance for comfort letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4.
SECTION 5.3. Tax-Free Reorganization. (a) The parties intend the
transaction to qualify as a reorganization under Sections 368(a)(1)(A) and
368(a)(2)(D) of the Code. Each party and its affiliates shall use reasonable
efforts to cause the Merger to so qualify and to obtain, as of the Closing Date,
the opinions (the "Tax Opinions") of Wachtell, Lipton, Rosen & Katz, counsel to
White, and Cravath, Swaine & Moore, counsel to Green, in each case to the effect
that the Merger (whether or not the Offer and/or the Second Offer is integrated
with the Merger for federal income tax purposes) shall qualify as a
reorganization within the meaning of Section 368 of the Code; it being
understood that in rendering such Tax Opinions, such tax counsel shall be
entitled to rely upon representations of officers of Green and White
substantially in the form of Exhibits F and G. Neither party nor its affiliate
shall take any action that would cause the Merger not to qualify as a
reorganization under those Sections except to the extent that such action is
specifically contemplated by this Agreement. The parties shall take the position
for all purposes that the Merger qualifies as a reorganization under those
Sections unless and until the parties fail to obtain either of such Tax Opinions
as of the Closing Date.
(b) White and Green agree that while the Merger will constitute a "Change
of Control" for purposes of the White Benefit Plans and the Green Benefit Plans,
they will not treat the Merger as a change in the ownership or effective control
of White or a change in the ownership of a substantial portion of the assets of
White, each within the meaning of Section 280G of the Code, unless otherwise
required to do so by a determination (as defined in Section 1313 of the Code).
SECTION 5.4. Access to Information; Confidentiality. Subject to the
Confidentiality Agreement, each of Green and White shall, and shall cause each
of its respective subsidiaries to, afford to the other party and to the
officers, employees, accountants, counsel, financial advisors and other
representatives of such other party, reasonable access during normal business
hours during the period prior to the Effective Time to all their respective
properties, books, contracts, commitments, personnel and records and, during
such period, each of Green and White shall, and shall cause each of its
respective subsidiaries to, furnish promptly to the other party (a) a copy of
each report, schedule, registration statement and other document filed by it
during such period pursuant to the requirements of federal or state securities
laws and (b) all other information concerning its business, properties and
personnel as such other party may reasonably request; provided, however, that
access to certain Green or White information may require the entry of a
protective order by the STB, after which date full access shall be granted to
such information consistent with this paragraph and subject to the terms of such
order. Each of Green and White shall hold, and shall cause its respective
officers, employees, accountants, counsel, financial advisors and other
representatives and affiliates to hold, any nonpublic information in accordance
with the terms of the Confidentiality Agreement, dated October 8, 1996, between
White and Green, as amended and supplemented (the "Confidentiality Agreement").
SECTION 5.5. Reasonable Efforts. (a) Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to act in
good faith toward and to use all reasonable efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable, the
Offer, the Merger and the other transactions contemplated by this Agreement and
the
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Option Agreements, including (i) the obtaining of all necessary actions or
nonactions, waivers, consents and approvals from Governmental Entities and the
making of all necessary registrations and filings (including filings with
Governmental Entities, such as those referred to in Sections 3.1(d) and 3.2(d))
and the taking of all reasonable steps as may be necessary to obtain an approval
or waiver from, or to avoid an action or proceeding by, any Governmental Entity,
(ii) the obtaining of all necessary consents, approvals or waivers from third
parties, (iii) the defending of any lawsuits or other legal proceedings, whether
judicial or administrative, challenging this Agreement or the Option Agreements
or the consummation of the transactions contemplated by this Agreement or the
Option Agreements, including seeking to have any stay or temporary restraining
order entered by any court or other Governmental Entity vacated or reversed, and
(iv) the execution and delivery of any additional instruments necessary to
consummate the transactions contemplated by, and to fully carry out the purposes
of, this Agreement and the Option Agreements. Nothing set forth in this Section
5.5(a) shall limit or affect actions permitted to be taken pursuant to Section
4.2. Without limiting the generality of the foregoing, the parties (x) shall
make and cause their respective subsidiaries to make all necessary filings, as
soon as practicable, including those required with the STB and applicable
transportation regulations and laws in order to facilitate prompt consummation
of the Offer, the Merger and the transactions contemplated hereby and by the
Option Agreements, (y) shall use reasonable efforts to provide such information
and communications to Governmental Entities as such Governmental Entities may
reasonably request and (z) shall provide to the other party copies of all
applications in advance of filing or submission of such applications to
Governmental Entities in connection with this Agreement or the Option Agreements
and shall keep the other party apprised of the status of matters relating to
completion of the transactions contemplated hereby; provided that either party
may redact confidential portions as may be necessary or appropriate.
(b) In furtherance of the foregoing, Green and White shall, and each shall
cause each of its subsidiaries to, take all such actions as are necessary to (i)
cooperate with one another to prepare and present to the STB as soon as
practicable all filings and other presentations in connection with seeking any
STB approval, exemption or other authorization necessary to consummate the
transactions contemplated by this Agreement and the Option Agreements, (ii)
prosecute such filings and other presentations with diligence, (iii) diligently
oppose any objections to, appeals from or petitions to reconsider or reopen any
such STB approval by persons not party to this Agreement and (iv) take all such
further action as reasonably may be necessary to obtain a final order or orders
of the STB approving such transactions consistent with this Agreement and the
Option Agreements.
(c) In connection with and without limiting the foregoing, Green and White
shall (i) take all action necessary to ensure that no state anti-takeover
statute or similar statute or regulation is or becomes operative with respect to
the Offer, the Merger, this Agreement, the Option Agreements or any of the other
transactions contemplated by this Agreement or the Option Agreements and (ii) if
any state anti-takeover statute or similar statute or regulation is or becomes
operative with respect to the Offer, the Merger, this Agreement, the Option
Agreements or any other transaction contemplated by this Agreement or the Option
Agreements, take all action necessary to ensure that the Offer, the Merger and
the other transactions contemplated by this Agreement and the Option Agreements
may be consummated as promptly as practicable on the terms contemplated by this
Agreement and the Option Agreements and otherwise to minimize the effect of such
statute or regulation on the Merger and the other transactions contemplated by
this Agreement and the Option Agreements.
SECTION 5.6. Stock Options. (a) As soon as practicable following the date
of this Agreement, the Board of Directors of Green (or, if appropriate, any
committee administering the Green Stock Plans) shall adopt such resolutions or
take such other actions as may be required to effect the following:
(i) adjust the terms of all outstanding Green Employee Stock Options
granted under Green Stock Plans, whether vested or unvested, as necessary
to provide that, at the Effective Time, each Green Employee Stock Option
outstanding immediately prior to the Effective Time shall be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such Green Employee Stock Option, the same number of
shares of White Common Stock as the holder of such Green Employee Stock
Option would have been entitled to receive pursuant to the Merger had such
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holder exercised such Green Employee Stock Option in full immediately prior
to the Effective Time, at a price per share of White Common Stock equal to
(A) the aggregate exercise price for the shares of Green Common Stock
otherwise purchasable pursuant to such Green Employee Stock Option divided
by (B) the aggregate number of shares of White Common Stock deemed
purchasable pursuant to such Green Employee Stock Option (each, as so
adjusted, an "Adjusted Option"); provided, however, that in the case of any
option to which Section 421 of the Code applies by reason of its
qualification under any of Sections 422 through 424 of the Code ("qualified
stock options"), the option price, the number of shares purchasable
pursuant to such option and the terms and conditions of exercise of such
option shall be determined in order to comply with Section 424 of the Code;
and
(ii) make such other changes to the Green Stock Plans as Green and
White may agree are appropriate to give effect to the Merger.
(b) As soon as practicable after the Effective Time, White shall deliver to
the holders of Green Employee Stock Options appropriate notices setting forth
such holders' rights pursuant to the respective Green Stock Plans and the
agreements evidencing the grants of such Green Employee Stock Options and that
such Green Employee Stock Options and agreements shall be assumed by White and
shall continue in effect on the same terms and conditions (subject to the
adjustments required by this Section 5.6 after giving effect to the Merger).
White shall comply with the terms of the Green Stock Plans and ensure, to the
extent required by, and subject to the provisions of, such Green Stock Plans,
that the Green Employee Stock Options which qualified as qualified stock options
prior to the Effective Time continue to qualify as qualified stock options after
the Effective Time.
(c) White shall take such actions as are reasonably necessary for the
assumption of the Green Stock Plans pursuant to Section 5.6(a), including the
reservation, issuance and listing of White Common Stock as is necessary to
effectuate the transactions contemplated by Section 5.6(a). As soon as
reasonably practicable after the Effective Time, White shall prepare and file
with the SEC one or more registration statement(s) on Form S-8 or other
appropriate form with respect to shares of White Common Stock subject to Green
Employee Stock Options issued under such Green Stock Plans and shall use all
reasonable efforts to maintain the effectiveness of such registration statement
or registration statements covering such Green Employee Stock Options (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such Green Employee Stock Options remain outstanding. With
respect to those individuals, if any, who subsequent to the Effective Time will
be subject to the reporting requirements under Section 16(a) of the Exchange
Act, where applicable, White shall use all reasonable efforts to administer the
Green Stock Plans assumed pursuant to Section 5.6(b) in a manner that complies
with Rule 16b-3 promulgated under the Exchange Act to the extent the applicable
Green Stock Plan complied with such rule prior to the Merger.
(d) A holder of an Adjusted Option may exercise such Adjusted Option in
whole or in part in accordance with its terms by delivering a properly executed
notice of exercise to White, together with the consideration therefor and the
federal withholding tax information, if any, required in accordance with the
related Green Stock Plan.
(e) Except as otherwise contemplated by this Section 5.6 and except to the
extent required under the respective terms of the Green Employee Stock Options,
all restrictions or limitations on transfer and vesting with respect to Green
Employee Stock Options awarded under the Green Stock Plans or any other plan,
program or arrangement of Green or any of its subsidiaries, to the extent that
such restrictions or limitations shall not have already lapsed, shall remain in
full force and effect with respect to such options after giving effect to the
Merger and the assumption by White as set forth above.
SECTION 5.7. Certain Employee Matters. Following the Effective Time, White
shall cause the Surviving Corporation to honor all obligations under employment
agreements and employee benefit plans, programs, policies and arrangements of
Green or White the existence of which does not constitute a violation of this
Agreement in accordance with the terms thereof and agrees to provide employees
of Green with benefits no less favorable in the aggregate than those provided to
similarly situated White employees. Notwithstanding the foregoing, for a period
of two years following the Effective Time, White shall, or shall cause the
Surviving Corporation to, establish and maintain a plan to provide severance and
termination benefits to all non-union
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employees of Green and White terminated as a result of, or in connection with,
the Merger, which benefits shall be determined consistent with industry
standards and taking into account those benefits provided in recent similar
transactions in the industry.
SECTION 5.8. Indemnification, Exculpation and Insurance. (a) White agrees
that all rights to indemnification and exculpation from liabilities for acts or
omissions occurring at or prior to the Effective Time now existing in favor of
the current or former directors or officers of Green and its subsidiaries as
provided in their respective certificates of incorporation or by-laws (or
comparable organizational documents) and any indemnification agreements of
Green, the existence of which does not constitute a breach of this Agreement,
shall be assumed by the Surviving Corporation in the Merger, without further
action, as of the Effective Time and shall survive the Merger and shall continue
in full force and effect in accordance with their terms. In addition, from and
after the Effective Time, directors and officers of Green who become directors
or officers of White shall be entitled to the same indemnity rights and
protections as are afforded to other directors and officers of White.
(b) In the event that White or any of its successors or assigns (i)
consolidates with or merges into any other person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, proper provision will be made so that
the successors and assigns of White assume the obligations set forth in this
Section.
(c) For three years after the Effective Time, White shall provide, if
available on commercially reasonable terms, officers' and directors' liability
insurance in respect of acts or omissions occurring prior to the Effective Time,
including but not limited to the transactions contemplated by this Agreement,
covering each person currently covered by Green's officers' and directors'
liability insurance policy, or who becomes covered by such policy prior to the
Effective Time, on terms with respect to coverage and amount no less favorable
than those of such policy in effect on the date hereof, provided that in
satisfying its obligation under this Section White shall not be obligated to pay
premiums in excess of 150% of the amount per annum Green paid in its last full
fiscal year, and provided further that White shall nevertheless be obligated to
provide such coverage as may be obtained for such amount.
(d) The provisions of this Section 5.8 (i) are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her heirs
and his or her representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
SECTION 5.9. Fees and Expenses. (a) Except as set forth in this Section
5.9, all fees and expenses incurred in connection with the Offer, the Merger,
this Agreement, the Option Agreements and the transactions contemplated by this
Agreement and the Option Agreements shall be paid by the party incurring such
fees or expenses, whether or not the Merger is consummated, except that each of
White and Green shall bear and pay one-half of the costs and expenses incurred
in connection with (i) the filing, printing and mailing of the Offer Documents,
the Schedule 14D-9, the Green Pennsylvania Proxy Statement, the Form S-4 and the
Joint Proxy Statement (including SEC filing fees) and (ii) the application to be
filed with the STB (including filing fees).
(b) In the event that (i) a Takeover Proposal in respect of Green shall
have been made known to Green or any of its subsidiaries or has been made
directly to its shareholders generally or any person shall have publicly
announced an intention (whether or not conditional) to make such a Takeover
Proposal and thereafter this Agreement is terminated by either White or Green
pursuant to Section 7.1(b)(i) or (ii), or (ii) this Agreement is terminated (x)
by Green pursuant to Section 7.1(h) or (y) by White pursuant to Section 7.1(e),
then Green shall promptly, but in no event later than two days after the date of
such termination, pay White a fee equal to $300 million by wire transfer of same
day funds (the "Termination Fee"); provided, however, that no Termination Fee
shall be payable to White pursuant to clause (i) of this paragraph (b) unless
and until within 24 months of such termination Green or any of its subsidiaries
enters into any Acquisition Agreement or consummates any Takeover Proposal, and
such Termination Fee shall be payable upon entering into such Acquisition
Agreement or consummating such Takeover Proposal. Green
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acknowledges that the agreements contained in this Section 5.9(b) are an
integral part of the transactions contemplated by this Agreement, and that,
without these agreements, White would not enter into this Agreement;
accordingly, if Green fails promptly to pay the amount due pursuant to this
Section 5.9(b), and, in order to obtain such payment, White commences a suit
which results in a judgment against Green for the fee set forth in this Section
5.9(b), Green shall pay to White its costs and expenses (including attorneys'
fees and expenses) in connection with such suit, together with interest on the
amount of the fee at the prime rate of Citibank N.A. in effect on the date such
payment was required to be made.
(c) In the event that (i) a Takeover Proposal in respect of White shall
have been made known to White or any of its subsidiaries or has been made
directly to its shareholders generally or any person shall have publicly
announced an intention (whether or not conditional) to make such a Takeover
Proposal and thereafter this Agreement is terminated by either White or Green
pursuant to Section 7.1(b)(i) or (iii), or (ii) this Agreement is terminated (x)
by White pursuant to Section 7.1(d) or (y) by Green pursuant to Section 7.1(i),
then White shall promptly, but in no event later than two days after the date of
such termination, pay Green the Termination Fee by wire transfer of same day
funds; provided, however, that no Termination Fee shall be payable to Green
pursuant to clause (i) of this paragraph (c) unless and until within 24 months
of such termination White or any of its subsidiaries enters into any Acquisition
Agreement or consummates any Takeover Proposal, and such Termination Fee shall
be payable upon entering into such Acquisition Agreement or consummating such
Takeover Proposal. White acknowledges that the agreements contained in this
Section 5.9(c) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Green would not enter into this
Agreement; accordingly, if White fails promptly to pay the amount due pursuant
to this Section 5.9(c), and, in order to obtain such payment, Green commences a
suit which results in a judgment against White for the fee set forth in this
Section 5.9(c), White shall pay to Green its costs and expenses (including
attorneys' fees and expenses) in connection with such suit, together with
interest on the amount of the fee at the prime rate of Citibank N.A. in effect
on the date such payment was required to be made.
(d) Green and White agree that either White or Tender Sub shall pay any
state or local sales, use, transfer tax or similar tax (including any real
property transfer or gains tax) imposed on the shareholders of Green and which
is attributable to the transfer (or deemed transfer) of the assets held by Green
or any subsidiary of Green, including any penalties and interest relating to
such tax, and in any case arising as a result of the consummation of the Offer,
the Second Offer (if any) and/or the Merger (collectively, "Transfer Taxes").
Green and White agree to cooperate with each other in the filing of any returns
with respect to Transfer Taxes, and in the filing of any returns relating to
similar taxes imposed on Green, including supplying in a timely manner a
complete list of all real property interests held by Green and its subsidiaries
and any information with respect to such property that is reasonably necessary
to complete such returns. The portion of the consideration allocable to the
assets giving rise to such Transfer Tax shall be agreed to by Green and White.
SECTION 5.10. Public Announcements. White and Green shall consult with
each other before issuing, and provide each other the opportunity to review,
comment upon and concur with, any press release or other public statements with
respect to the transactions contemplated by this Agreement, including the Offer
and the Merger, and the Option Agreements, and shall not issue any such press
release or make any such public statement prior to such consultation, except as
either party may determine is required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange. The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement and the Option
Agreements shall be in the form heretofore agreed to by the parties.
SECTION 5.11. Affiliates. Prior to the Closing Date, Green shall deliver
to White a letter identifying all persons who are, at the time this Agreement is
submitted for adoption by it to the shareholders of Green, "affiliates" of Green
for purposes of Rule 145 under the Securities Act. Green shall use all
reasonable efforts to cause each such person to deliver to White on or prior to
the Closing Date a written agreement substantially in the form attached as
Exhibit B hereto.
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SECTION 5.12. NYSE Listing. White shall use reasonable efforts to cause
the shares of White Common Stock to be issued in the Merger, under the Green
Stock Plans and pursuant to the White Stock Option Agreement to be approved for
listing on the NYSE, subject to official notice of issuance, prior to the
Closing Date. Green shall use reasonable efforts to cause the shares of Green
Common Stock to be issued pursuant to the Green Stock Option Agreement to be
approved for listing on the NYSE, subject to official notice of issuance, prior
to the Closing Date.
SECTION 5.13. Shareholder Litigation. Each of Green and White shall give
the other the reasonable opportunity to participate in the defense of any
shareholder litigation against Green or White, as applicable, and its directors
relating to the transactions contemplated by this Agreement and the Option
Agreements.
SECTION 5.14. Green Rights Agreement. The Board of Directors of Green
shall take all further action (in addition to that referred to in Section
3.1(n)) reasonably requested in writing by White (including redeeming the Green
Rights immediately prior to the Effective Time or amending the Green Rights
Agreement) in order to render the Green Rights inapplicable to the Offer, the
Merger and the other transactions contemplated by this Agreement and the Green
Stock Option Agreement. Except as provided above with respect to the Offer, the
Merger and the other transactions contemplated by this Agreement and the Green
Stock Option Agreement, the Board of Directors of Green shall not (a) amend the
Green Rights Agreement or (b) take any action with respect to, or make any
determination under, the Green Rights Agreement, including a redemption of the
Green Rights or any action to facilitate a Takeover Proposal in respect of
Green.
SECTION 5.15. White Rights Agreement. The Board of Directors of White
shall take all further action (in addition to that referred to in Section
3.2(n)) reasonably requested in writing by Green in order to render the White
Rights inapplicable to the White Stock Option Agreement. The Board of Directors
of White shall not (a) amend the White Rights Agreement or (b) take any action
with respect to, or make any determination under, the White Rights Agreement, to
facilitate a Takeover Proposal in respect of White.
SECTION 5.16. (a) Corporate Headquarters. White and Green agree that,
following the consummation of the Merger, the corporate headquarters of White
shall be located in Philadelphia, Pennsylvania, and each agrees to take all
necessary action to effect the relocation of White's corporate headquarters.
(b) Governance. The Board of Directors of each party shall take action to
cause the governance of White at the Effective Time to be as provided in Exhibit
A.
SECTION 5.17. Registration Rights. Green or White, as applicable (such
party, the "issuing party"), shall, if requested by the other party hereto (such
party, the "requesting party") at any time and from time to time within three
years after the termination of this Agreement, as expeditiously as possible
prepare and file up to three registration statements under the Securities Act if
such registration is necessary in order to permit the sale or other disposition
of any or all securities that have been deposited in the Voting Trust in the
case of White, or acquired by exercise of the White Stock Option Agreement, in
the case of Green, in accordance with the intended method of sale or other
disposition stated by the requesting party, including a "shelf" registration
statement under Rule 415 under the Securities Act or any successor provision;
and the issuing party shall use its best efforts to qualify such securities
under any applicable state securities laws. The requesting party agrees to use
reasonable efforts to cause, and to cause any underwriters of any sale or other
disposition to cause, any sale or other disposition pursuant to such
registration statement to be effected on a widely distributed basis. The issuing
party shall use reasonable efforts to cause each such registration statement to
become effective, to obtain all consents or waivers of other parties which are
required therefor, and to keep such registration statement effective for such
period not in excess of 180 calendar days from the day such registration
statement first becomes effective as may be reasonably necessary to effect such
sale or other disposition. The obligations of the issuing party hereunder to
file a registration statement and to maintain its effectiveness may be suspended
for one or more periods of time not exceeding 60 calendar days in the aggregate
with respect to any registration statement if the Board of Directors of the
issuing party shall have determined that the filing of such registration
statement or the maintenance of its effectiveness would require disclosure of
nonpublic information that would materially and adversely affect the issuing
party. Any registration statement prepared and filed under this Section, and any
sale covered thereby, shall be at the
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issuing party's expense except for underwriting discounts or commission,
brokers' fees and the fees and disbursements of the requesting party's counsel
related thereto. The requesting party shall provide all information reasonably
requested by the issuing party for inclusion in any registration statement to be
filed hereunder. If, during the time periods referred to in the first sentence
of this Section, the issuing party effects a registration under the Securities
Act of the issuing party's securities for its own account or for any other of
its shareholders (other than on Form S-4 or Form S-8, or any successor form), it
shall allow the other party hereto (in such case, the "requesting party") the
right to participate in such registration, and such participation shall not
affect the obligation of the issuing party to effect demand registration
statements for the requesting party under this Section; provided that, if the
managing underwriters of such offering advise the issuing party in writing that
in their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering, the issuing
party shall include the securities requested to be included therein by White pro
rata with the securities intended to be included therein by the issuing party.
In connection with any registration pursuant to this Section, Green and White
shall provide each other and any underwriter of the offering with customary
representations, warranties, covenants, indemnification, and contribution in
connection with such registration.
SECTION 5.18. Financing. White shall use its best efforts to obtain as
soon as practicable sufficient financing, on terms reasonably acceptable to
White, to enable consummation of the Offer and the Merger.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Shareholder Approvals. Each of the Green Merger Shareholder
Approval and the White Shareholder Approval shall have been obtained.
(b) HSR Act. Any applicable waiting period (and any extension
thereof) under the HSR Act shall have been terminated or shall have
expired.
(c) No Injunctions or Restraints. No judgment, order, decree,
statute, law, ordinance, rule, regulation, temporary restraining order,
preliminary or permanent injunction or other order enacted, entered,
promulgated, enforced or issued by any court of competent jurisdiction or
other Governmental Entity or other legal restraint or prohibition
(collectively, "Restraints") preventing the consummation of the Merger
shall be in effect; provided, however, that the party seeking to assert
this condition shall have used reasonable efforts to prevent the entry of
any such Restraints and to appeal as promptly as possible any such
Restraints that may be entered. In addition, there shall not be any
Restraint enacted, entered, enforced or promulgated that is reasonably
likely to result, directly or indirectly, in a material adverse effect with
respect to Green and White on a combined basis; provided, however, that the
party seeking to assert this condition shall have used reasonable efforts
to prevent the entry of any such Restraints and to appeal as promptly as
possible any such Restraints that may be entered.
(d) NYSE Listing. The shares of White Common Stock issuable to
Green's shareholders pursuant to this Agreement and under the Green Stock
Plans shall have been approved for listing on the NYSE, subject to official
notice of issuance.
SECTION 6.2. Conditions to Obligation of White. The obligation of White to
effect the Merger is further subject to satisfaction or waiver of the following
conditions:
(a) Compliance. Green shall not have breached or failed to observe or
perform in any material respect any of its covenants or agreements
hereunder to be performed by it at or prior to the Closing Date, and the
representations and warranties of Green set forth herein shall be true and
accurate both when made and at and as of the Closing Date, as if made at
and as of such time (except to the extent expressly made as of an earlier
date, in which case as of such date), except where the breach or failure to
observe or
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perform such covenants or agreements, or the failure of such
representations and warranties to be so true and correct (without giving
effect to any limitation as to "materiality" or "material adverse effect"
set forth therein), does not have, and is not likely to have, individually
or in the aggregate, a material adverse effect on Green.
(b) No Material Adverse Change. At any time after the date of this
Agreement there shall not have occurred any material adverse change
relating to Green.
(c) Offer. Tender Sub shall have purchased shares of Green Common
Stock in the Offer or, if not, White and Tender Sub shall have obtained
sufficient financing, on terms reasonably acceptable to White, to enable
consummation of the Merger.
(d) Regulatory Approval. The STB shall have issued a decision (which
decision shall not have been stayed or enjoined) that (A) constitutes a
final order approving, exempting or otherwise authorizing consummation of
the Merger and all other material transactions contemplated by this
Agreement (or subsequently presented to the STB by agreement of Green and
White) as may require such authorization and (B) does not (1) change or
disapprove of the consideration to be given in the Merger or other material
provisions of Article II of this Agreement or (2) impose on White, Green,
or any of their respective subsidiaries any other terms or conditions
(including, without limitation, labor protective provisions but excluding
conditions heretofore imposed by the ICC in New York Dock Railway --
Control -- Brooklyn Eastern District, 360 I.C.C. 60 (1979)) that materially
and adversely affect the long-term benefits expected to be received by
White from the transactions contemplated by this Agreement.
(e) Other Governmental Entity Actions. All actions by or in respect of
or filings with any Governmental Entity required to permit the consummation
of the Merger (other than approval of the STB, which is addressed above)
shall have been obtained but excluding any consent, approval, clearance or
confirmation the failure to obtain which would not have a material adverse
effect on White, Green or, after the Effective Time, the Surviving
Corporation.
SECTION 6.3. Conditions to Obligation of Green. The obligation of Green to
effect the Merger is further subject to satisfaction or waiver of the following
conditions:
(a) Compliance. White shall not have breached or failed to observe or
perform in any material respect any of its covenants or agreements
hereunder to be performed by it at or prior to the Closing Date, and the
representations and warranties of White set forth herein shall be true and
accurate both when made and at and as of the Closing Date, as if made at
and as of such time (except to the extent expressly made as of an earlier
date, in which case as of such date), except where the breach or failure to
observe or perform such covenants and agreements, or the failure of such
representations and warranties to be so true and correct (without giving
effect to any limitation as to "materiality" or "material adverse effect"
set forth therein), does not have, and is not likely to have, individually
or in the aggregate, a material adverse effect on White.
(b) No Material Adverse Change. At any time after the date of this
Agreement there shall not have occurred any material adverse change
relating to White.
(c) Regulatory Approval. The STB shall have issued a decision (which
decision shall not have been stayed or enjoined) that (i) constitutes a
final order approving, exempting or otherwise authorizing consummation of
the Merger and all other material transactions contemplated hereby and
thereby or subsequently presented to the STB by agreement of the White and
Green, as may require such authorization and (ii) does not change or
disapprove of the consideration to be given in the Merger or other material
provisions of Article II of this Agreement.
SECTION 6.4. Frustration of Closing Conditions. Neither White nor Green
may rely on the failure of any condition set forth in Section 6.1, 6.2 or 6.3,
as the case may be, to be satisfied if such failure was caused by such party's
failure to use reasonable efforts to consummate the Merger and the other
transactions contemplated by this Agreement and the Option Agreements, as
required by and subject to Section 5.5.
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after either of the Green
Shareholder Approvals or the White Shareholder Approval only as provided below:
(a) by mutual written consent of White and Green;
(b) by either White or Green:
(i) if the Merger shall not have been consummated by December 31,
1998; provided, however, that the right to terminate this Agreement
pursuant to this Section 7.1(b)(i) shall not be available to any party
whose failure to perform any of its obligations under this Agreement
results in the failure of the Merger to be consummated by such time;
(ii) if, at a Green Merger Shareholders Meeting duly convened
therefor or at any adjournment or postponement thereof, the Green Merger
Shareholder Approval shall not have been obtained;
(iii) if, at a White Shareholders Meeting duly convened therefor or
at any adjournment or postponement thereof, the White Shareholder
Approval shall not have been obtained; or
(iv) if any Governmental Entity shall have issued a Restraint or
taken any other action permanently enjoining, restraining or otherwise
prohibiting the consummation of the Merger or any of the other
transactions contemplated by this Agreement and such Restraint or other
action shall have become final and nonappealable; provided, however,
that the party seeking to terminate this Agreement pursuant to this
clause (iv) shall have used all reasonable efforts to prevent the entry
of and to remove such Restraint or other action;
(c) by White, if Green shall have breached or failed to perform in any
material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform
(A) would give rise to the failure of the condition set forth in Section
6.2(a), and (B) cannot be or has not been cured within 30 days after the
giving of written notice to Green of such breach (a "Green Material
Breach") (provided that White is not then in White Material Breach of any
representation, warranty, covenant or other agreement contained in this
Agreement and provided that, if such breach is curable through the exercise
of Green's best efforts, this Agreement may not be terminated hereunder for
so long as Green is so using its best efforts to cure such breach);
(d) by White in accordance with Section 4.2(b); provided that it has
complied with all provisions contained in Section 4.2, including the notice
provisions therein, and that it complies with applicable requirements of
Section 5.9;
(e) by White if (i) the Board of Directors of Green (or, if
applicable, any committee thereof) shall have withdrawn or modified in a
manner adverse to White its approval or recommendation of the Offer or the
Merger or the matters to be considered at the Green Shareholders Meetings
or failed to reconfirm its recommendation within 15 business days after a
written request to do so, or approved or recommended any Takeover Proposal
in respect of Green or (ii) the Board of Directors of Green or any
committee thereof shall have resolved to take any of the foregoing actions;
(f) by White, if Green or any of its officers, directors, employees,
representatives or agents shall take any of the actions that would be
proscribed by Section 4.2 but for the exceptions therein allowing certain
actions to be taken pursuant to the proviso in the first sentence of
Section 4.2(a) or the second sentence of Section 4.2(b);
(g) by Green, if White shall have breached or failed to perform in any
material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform
(A) would give rise to the failure of the condition set forth in Section
6.3(a), and (B) cannot be or has not been cured within 30 days after the
giving of written notice to White of such
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breach (a "White Material Breach") (provided that Green is not then in
Green Material Breach of any representation, warranty, covenant or other
agreement contained in this Agreement and provided that, if such breach is
curable through the exercise of White's best efforts, this Agreement may
not be terminated hereunder for so long as White is so using its best
efforts to cure such breach);
(h) by Green in accordance with Section 4.2(b); provided that it has
complied with all provisions contained in Section 4.2, including the notice
provisions therein, and that it complies with applicable requirements of
Section 5.9;
(i) by Green if (i) the Board of Directors of White (or, if
applicable, any committee thereof) shall have withdrawn or modified in a
manner adverse to Green its approval or recommendation of the matters to be
considered at the White Shareholders Meeting, or failed to reconfirm its
recommendation within 15 business days after a written request to do so, or
approved or recommended any White Takeover Proposal or (ii) the Board of
Directors of White or any committee thereof shall have resolved to take any
of the foregoing actions; or
(j) by Green, if White or any of its officers, directors, employees,
representatives or agents shall take any of the actions that would be
proscribed by Section 4.2 but for the exceptions therein allowing certain
actions to be taken pursuant to the proviso in the first sentence of
Section 4.2(a) or the second sentence of Section 4.2(b).
SECTION 7.2. Effect of Termination. In the event of termination of this
Agreement by either Green or White as provided in Section 7.1, this Agreement
shall forthwith become void and have no effect, without any liability or
obligation on the part of White or Green, other than the provisions of Section
1.9, Section 3.1(m), Section 3.2(m), the last sentence of Section 5.4, Section
5.9, Section 5.17, this Section 7.2 and Article VIII, which provisions survive
such termination, and except to the extent that such termination results from
the willful and material breach by a party of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
SECTION 7.3. Amendment. This Agreement may be amended by the parties at
any time before or after any of the Green Shareholder Approvals or the White
Shareholder Approval; provided, however, that after any such approval, there
shall not be made any amendment that by law requires further approval by the
shareholders of Green or White without the further approval of such
shareholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
SECTION 7.4. Extension; Waiver. At any time prior to the Effective Time, a
party may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) subject to the
proviso of Section 7.3, waive compliance by the other party with any of the
agreements or conditions contained in this Agreement. Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
SECTION 7.5. Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement pursuant to Section 7.3 or an extension or waiver pursuant to Section
7.4 shall, in order to be effective, require, in the case of White or Green,
action by its Board of Directors or, with respect to any amendment to this
Agreement, the duly authorized committee of its Board of Directors.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective
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Time. This Section 8.1 shall not limit any covenant or agreement of the parties
which by its terms contemplates performance after the Effective Time.
SECTION 8.2. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to White or Tender Sub, to
CSX Corporation
One James Center
901 East Cary Street
Richmond, VA 23219
Telecopy No.: (804) 783-1380
Attention: Mark Aron
with copies to:
CSX Corporation
One James Center
901 East Cary Street
Richmond, VA 23219
Telecopy No.: (804) 783-1355
Attention: Peter Shudtz
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Telecopy No.: (212) 403-2000
Attention: Pamela S. Seymon, Esq.; and
(b) if to Green, to
Conrail Inc.
2001 Market Street
Philadelphia, PA 19103
Telecopy No.: (215) 209-4068
Attention: Bruce B. Wilson
Senior Vice President -- Law
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Telecopy No.: (212) 474-3700
Attention: Robert A. Kindler, Esq.
SECTION 8.3. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person;
(b) "material adverse change" or "material adverse effect" means, when
used in connection with Green or White, any change, effect, event or
occurrence that is materially adverse to the business, financial condition
or results of operations of such party and its subsidiaries taken as a
whole or materially impairs the ability of such person to consummate the
transactions contemplated hereby (including the
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Offer and the Merger) and by the Option Agreements other than any change,
effect, event or occurrence relating to the United States economy in
general or to the transportation industry in general, and not specifically
relating to Green or White or their respective subsidiaries;
(c) "material" means, when used in connection with Green or White,
material to the business, financial condition or results of operations of
such party and its subsidiaries taken as a whole or materially impairing
the ability of such person to consummate the transactions contemplated
hereby (including the Offer and the Merger) and by the Option Agreements
other than any change, effect, event or occurrence relating to the United
States economy in general or to the transportation industry in general, and
not specifically relating to Green or White or their respective
subsidiaries, and the term "materially" has a correlative meaning;
(d) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity;
(e) a "subsidiary" of any person means another person, an amount of
the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board
of Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first person; and
(f) "knowledge" of any person which is not an individual means the
knowledge of such person's executive officers after reasonable inquiry.
SECTION 8.4. Interpretation. When a reference is made in this Agreement to
an Article, Section or Exhibit, such reference shall be to an Article or Section
of, or an Exhibit to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. All terms defined in this
Agreement shall have the defined meanings when used in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein. The
definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. Any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument that is referred
to herein means such agreement, instrument or statute as from time to time
amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes) by succession of
comparable successor statutes and references to all attachments thereto and
instruments incorporated therein. References to a person are also to its
permitted successors and assigns.
SECTION 8.5. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 8.6. Entire Agreement; No Third-Party Beneficiaries. This
Agreement (including the documents and instruments referred to herein), the
Option Agreements and the Confidentiality Agreement (a) constitute the entire
agreement, and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter of this Agreement
and (b) except for the provisions of Article II, Section 5.6 and Section 5.8,
are not intended to confer upon any person other than the parties any rights or
remedies.
SECTION 8.7. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF
LAWS THEREOF; PROVIDED, HOWEVER, THAT THE LAWS OF THE RESPECTIVE STATES OF
INCORPORATION OF EACH OF THE PARTIES HERETO SHALL GOVERN THE RELATIVE RIGHTS,
OBLIGATIONS, POWERS, DUTIES AND OTHER INTERNAL AFFAIRS OF SUCH PARTY AND ITS
BOARD OF DIRECTORS.
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SECTION 8.8. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by either of the parties hereto without
the prior written consent of the other party. Any assignment in violation of the
preceding sentence shall be void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 8.9. Enforcement. THE PARTIES AGREE THAT IRREPARABLE DAMAGE WOULD
OCCUR AND THAT THE PARTIES WOULD NOT HAVE ANY ADEQUATE REMEDY AT LAW IN THE
EVENT THAT ANY OF THE PROVISIONS OF THIS AGREEMENT WERE NOT PERFORMED IN
ACCORDANCE WITH THEIR SPECIFIC TERMS OR WERE OTHERWISE BREACHED. IT IS
ACCORDINGLY AGREED THAT THE PARTIES SHALL BE ENTITLED TO AN INJUNCTION OR
INJUNCTIONS TO PREVENT BREACHES OF THIS AGREEMENT AND TO ENFORCE SPECIFICALLY
THE TERMS AND PROVISIONS OF THIS AGREEMENT IN ANY FEDERAL COURT LOCATED IN THE
STATE OF NEW YORK OR IN NEW YORK STATE COURT, THIS BEING IN ADDITION TO ANY
OTHER REMEDY TO WHICH THEY ARE ENTITLED AT LAW OR IN EQUITY. IN ADDITION, EACH
OF THE PARTIES HERETO (A) CONSENTS TO SUBMIT ITSELF TO THE PERSONAL JURISDICTION
OF ANY FEDERAL COURT LOCATED IN THE STATE OF NEW YORK OR ANY NEW YORK STATE
COURT IN THE EVENT ANY DISPUTE ARISES OUT OF THIS AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, (B) AGREES THAT IT WILL NOT ATTEMPT
TO DENY OR DEFEAT SUCH PERSONAL JURISDICTION BY MOTION OR OTHER REQUEST FOR
LEAVE FROM ANY SUCH COURT, AND (C) AGREES THAT IT WILL NOT BRING ANY ACTION
RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT IN ANY COURT OTHER THAN A FEDERAL COURT SITTING IN THE STATE OF NEW
YORK OR A NEW YORK STATE COURT.
SECTION 8.10. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.11. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
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IN WITNESS WHEREOF, CSX Corporation, Green Acquisition Corp. and Conrail
Inc. have caused this Agreement to be signed by their respective officers
thereunto duly authorized, all as of the date first written above.
CSX CORPORATION
by
/s/ JOHN W. SNOW
--------------------------------------
Name: John W. Snow
Title: President and Chief Executive
Officer
GREEN ACQUISITION CORP.
by
/s/ JOHN W. SNOW
--------------------------------------
Name: John W. Snow
Title: President and Chief Executive
Officer
CONRAIL INC.
by
/s/ DAVID M. LEVAN
--------------------------------------
Name: David M. LeVan
Title: President and Chief Executive
Officer
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FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CONRAIL INC.,
A PENNSYLVANIA CORPORATION,
GREEN ACQUISITION CORP.,
A PENNSYLVANIA CORPORATION,
AND
CSX CORPORATION,
A VIRGINIA CORPORATION,
DATED AS OF NOVEMBER 5, 1996.
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FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER, dated as of November 5,
1996 (this "First Amendment"), by and among CONRAIL INC., a Pennsylvania
corporation ("Green"), GREEN ACQUISITION CORP., a Pennsylvania corporation and a
wholly owned subsidiary of White ("Tender Sub"), and CSX CORPORATION, a Virginia
corporation ("White").
WITNESSETH:
WHEREAS, Green, Tender Sub and White have entered into an Agreement and
Plan of Merger, dated as of October 14, 1996 (the "Merger Agreement"), pursuant
to which Tender Sub has commenced a cash tender offer (the "October 16 Offer")
for shares of Green Common Stock and for shares of Green ESOP Preferred Stock,
such offer to be followed by a merger of Green with and into Tender Sub, with
Tender Sub being the surviving corporation;
WHEREAS, in consideration of Green's willingness to enter into this First
Amendment, White and Tender Sub are willing to make the amendments to the Merger
Agreement set forth herein;
WHEREAS, in consideration of White's and Tender Sub's willingness to enter
into this First Amendment, Green is willing to make the amendments to the Merger
Agreement set forth herein;
WHEREAS, the Board of Directors of Green has approved, and deems it
advisable and in the best interests of Green to enter into, this First
Amendment;
WHEREAS, the respective Boards of Directors of Tender Sub and White have
approved, and deem it advisable and in the best interests of their respective
shareholders to enter into, this First Amendment; and
WHEREAS, except as amended by this First Amendment, it is intended that the
Merger Agreement shall remain in full force and effect;
WHEREAS, capitalized terms used herein and not defined herein shall have
the respective meanings given in the Merger Agreement;
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this First Amendment, the parties,
intending to be legally bound, agree as follows:
ARTICLE I
SECTION 1. The following is hereby added to the end of Section 1.1 of the
Merger Agreement:
(e) As promptly as practicable after the public announcement of the
execution of the First Amendment, dated as of November 5, 1996, to this
Agreement (the "First Amendment"), Tender Sub shall amend the October 16
Offer to change the price offered thereunder to $110.00 per share of Green
Common Stock and Green ESOP Preferred Stock, net to the seller in cash
(such price, or such higher price per share as may be paid in the Amended
Offer, being referred to herein as the "Amended Offer Price"), subject to
the conditions (the "Exhibit D Conditions") set forth in Exhibit D to this
Agreement (the October 16 Offer, as so revised, the "Amended Offer").
Tender Sub shall, on the terms and subject to the prior satisfaction or
waiver of the conditions of the Amended Offer, accept for payment and pay
for shares of Green Common Stock and Green ESOP Preferred Stock tendered as
soon as practicable after the later of the satisfaction of the conditions
to the Amended Offer and the expiration of the Amended Offer; provided,
however, that no such payment shall be made until after calculation of
proration; provided further that immediately upon the acceptance for
payment of and payment for shares of Green ESOP Preferred Stock pursuant to
the Amended Offer, such shares shall be automatically converted on a
one-for-one basis into shares of Green Common Stock in accordance with the
terms of the Green Articles. The obligations of Tender Sub to make the
Amended Offer and to accept for payment and to pay for any shares of Green
Common Stock or Green ESOP Preferred Stock validly tendered shall be
subject only to the Exhibit D Conditions. The Amended Offer shall be made
by means of a supplement (the "Supplement") to the offer to purchase
relating to the October 16 Offer containing the terms set forth in the
First Amendment and the Exhibit D Conditions. Without the written consent
of Green,
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Tender Sub shall not decrease the Amended Offer Price, decrease the
aggregate number of shares of Green Common Stock and Green ESOP Preferred
Stock sought, change the form of consideration to be paid pursuant to the
Amended Offer, modify any of the conditions to the Amended Offer, impose
conditions to the Amended Offer in addition to the Exhibit D Conditions,
except as provided in the proviso below, extend the Amended Offer, or amend
any other term or condition of the Amended Offer in any manner which is
adverse to the holders of shares of Green Common Stock, it being agreed
that a waiver by Tender Sub of any condition in its discretion shall not be
deemed to be adverse to the holders of Green Common Stock; provided,
however, that Tender Sub shall not waive the condition (the "Minimum
Condition") set forth in paragraph (c) of the Exhibit D Conditions without
the consent of Green; and provided further that, if on any scheduled
expiration date of the Amended Offer (as it may be extended in accordance
with the terms hereof), all conditions to the Amended Offer shall not have
been satisfied or waived, the Amended Offer may be extended from time to
time without the consent of Green for such period of time as is reasonably
expected to be necessary to satisfy the unsatisfied conditions. White and
Tender Sub agree that, in the event that all conditions to their obligation
to purchase shares under the Amended Offer at any scheduled expiration date
thereof are satisfied other than the Minimum Condition, White and Tender
Sub shall, from time to time, extend the Offer until the earlier of (i) 270
days following the date hereof or (ii) such time as such condition is
satisfied or waived in accordance herewith. In addition, the Amended Offer
Price and the number of shares of Green Common Stock or Green ESOP
Preferred Stock sought may be increased and the Amended Offer may be
extended to the extent required by law in connection with such increase, in
each case without the consent of Green. It is agreed that the conditions to
the Amended Offer are for the benefit of White and Tender Sub and may be
asserted by White or Tender Sub regardless of the circumstances giving rise
to any such condition (including any action or inaction by White or Tender
Sub not inconsistent with the terms hereof) or may be waived by White or
Tender Sub, in whole or in part at any time and from time to time, in its
sole discretion.
(f) White and Tender Sub shall file with the SEC as soon as
practicable on or after the date the Amended Offer is made, an amendment to
the Tender Offer Statement on Schedule 14D-1 relating to the October 16
Offer with respect to the Amended Offer (together with all amendments and
supplements thereto and including the exhibits thereto, the "Amended
Schedule 14D-1"), which shall include, as exhibits, the Supplement and a
form of letter of transmittal and any summary advertisement (such Tender
Offer Statement on Schedule 14D-1 as so amended and such documents,
collectively, together with any amendments and supplements thereto, the
"Amended Offer Documents"). Each of White and Tender Sub agrees to take all
steps necessary to cause the Amended Offer Documents to be filed with the
SEC and to be disseminated to Green's shareholders, in each case as and to
the extent required by applicable federal securities laws. Each of White
and Tender Sub, on the one hand, and Green, on the other hand, agrees
promptly to correct any information provided by it for use in the Amended
Offer Documents if and to the extent that it shall have become false and
misleading in any material respect, and White and Tender Sub further agree
to take all steps necessary to cause the Amended Offer Documents as so
corrected to be filed with the SEC and to be disseminated to Green's
shareholders, in each case as and to the extent required by applicable
federal securities laws. Green and its counsel shall be given the
opportunity to review the Amended Offer Documents before they are filed
with the SEC. In addition, White and Tender Sub agree to provide Green and
its counsel in writing with any comments White, Tender Sub or their counsel
may receive from time to time from the SEC or its staff with respect to the
Amended Offer Documents promptly after the receipt of such comments. White
and Tender Sub shall cooperate with Green in responding to any comments
received from the SEC with respect to the Amended Offer and amending the
Amended Offer in response to any such comments.
SECTION 2. Section 1.1(d) of the Merger Agreement is hereby deleted and
replaced with the following:
(d) At any time prior to eleven business days before the then
scheduled expiration date of the Amended Offer if Subchapter E (Control
Transactions) of Chapter 25 of the Pennsylvania Law shall be inapplicable
to Green by such time, White shall at the written request of Green amend
the Amended Offer to increase the number of shares of Green Common Stock
and Green ESOP Preferred Stock
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sought thereunder to 40% of the outstanding shares of Green Common Stock on
a fully diluted basis as of the date hereof (excluding for purposes of this
Section 1.1(d) shares that would be outstanding upon exercise of the Green
Stock Option Agreement). In addition, at any time following seven business
days after consummation of the Amended Offer, if White and it subsidiaries
do not already own at such time 40% or more of the outstanding shares of
Green Common Stock on a fully diluted basis as o the date hereof (excluding
for purposes of this Section 1.1(d) shares that would be outstanding upon
exercise of the Green Stock Option Agreement), White may, and at the
written request of Green shall, commence an offer (the "Second Offer") to
purchase up to that number of shares of Green Common Stock and Green ESOP
Preferred Stock which, when added to the aggregate number of shares of
Green Common Stock and Green ESOP Preferred Stock then beneficially owned
by White (other than pursuant to the Green Stock Option Agreement), equals
40% of such outstanding shares of Green Common Stock, at a price not less
than $110.00 provided that White shall not be required to consummate any
such Second Offer until after Subchapter E (Control Transactions) of
Chapter 25 of the Pennsylvania Law shall be inapplicable to Green. Green
agrees that it shall not make such written request at any time that the
Offer is outstanding and has a scheduled expiration date within 10 business
days of such time. White and Green agree that if the Second Offer is
commenced they will file such documents and make such recommendations and
take such other action as is required by this Agreement in respect of the
Amended Offer, and the Second Offer shall be on terms (other than price) no
less favorable to the shareholders of Green than the Amended Offer.
SECTION 3. The number "$92.50" in Section 2.2 and Section 2.5 of the Merger
Agreement is hereby deleted and replaced with the number "$110.00".
SECTION 4. The following is hereby added to the end of Section 1.2 of the
Merger Agreement:
(e) Green hereby approves of and consents to the Amended Offer and
represents that its Board of Directors, at a meeting duly called and held,
has unanimously by the vote of all directors present (i) determined that
this Agreement, as amended by the First Amendment, and the transactions
contemplated hereby (including the Amended Offer and the Merger) are in the
best interests of Green, (ii) approved this Agreement, as amended by the
First Amendment, and the transactions contemplated hereby (including the
Amended Offer and the Merger), such determination and approval constituting
approval thereof by the Board of Directors for all purposes of the
Pennsylvania Law, and (iii) resolved to recommend that the shareholders of
Green who desire to receive cash for their shares of Green Common Stock or
Green ESOP Preferred Stock accept the Amended Offer and tender their shares
of Green Common Stock or Green ESOP Preferred Stock thereunder to Tender
Sub and that all shareholders of Green approve and adopt this Agreement, as
amended by the First Amendment, and the transactions contemplated hereby;
provided, however, that prior to the purchase by Tender Sub of shares of
Green Common Stock and Green ESOP Preferred Stock pursuant to the Offer,
Green may modify, withdraw or change such recommendation, but only to the
extent that Green complies with Section 4.2 hereof. Green hereby consents
to the inclusion in the Amended Offer Documents of the recommendations of
Green's Board of Directors described in this Section.
(f) Concurrently with the making of the Amended Offer, Green shall
file with the SEC an amendment to the Solicitation/Recommendation Statement
on Schedule 14D-9 relating to the October 16 Offer with respect to the
Amended Offer (such Solicitation/Recommendation Statement on Schedule 14D-9
as so amended, together with all amendments and supplements thereto and
including the exhibits thereto, the "Amended Schedule 14D-9"), which
amendment shall contain the recommendation referred to in clauses (i), (ii)
and (iii) of Section 1.2(e) hereof; provided, however, that Green may
modify, withdraw or change such recommendation, but only to the extent that
Green complies with Section 4.2 hereof. Green agrees to take all steps
necessary to cause the Amended Schedule 14D-9 to be filed with the SEC and
to be disseminated to Green's shareholders, in each case as and to the
extent required by applicable federal securities laws. Each of Green, on
the one hand, and White and Tender Sub, on the other hand, agrees promptly
to correct any information provided by it for use in the Amended Schedule
14D-9 if and to the extent that it shall have become false and misleading
in any material respect, and Green further agrees to take all steps
necessary to cause the Amended Schedule 14D-9 as so corrected to be filed
with the SEC and to be disseminated to Green's shareholders, in each case
as and to
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the extent required by applicable federal securities laws. White and its
counsel shall be given the opportunity to review the Amended Schedule 14D-9
before it is filed with the SEC. In addition, Green agrees to provide
White, Tender Sub and their counsel in writing with any comments Green or
its counsel may receive from time to time from the SEC or its staff with
respect to the Amended Schedule 14D-9 promptly after the receipt of such
comments. Green shall cooperate with White and Tender Sub in responding to
any comments received from the SEC with respect to the Amended Schedule
14D-9 and amending the Amended Schedule 14D-9 in response to any such
comments.
(g) Green has received the written opinions of each of the Green
Advisors, each dated as of the date of the First Amendment, to the effect
that, as of such date, the consideration to be received by Green
shareholders (other than Tender Sub and its affiliates) pursuant to the
Amended Offer and Merger, taken together, is fair from a financial point of
view to such holders (the "Second Green Fairness Opinions"). Green has
delivered to Tender Sub a copy of the Second Green Fairness Opinions.
SECTION 5. The term "Offer" as used in the Merger Agreement shall be deemed
to include the Amended Offer; the term "Offer Price" as used in the Merger
Agreement shall be deemed to include the Amended Offer Price; the term "Merger
Agreement" or "this Agreement" as used in the Merger Agreement shall be deemed
to refer to the Merger Agreement as amended by the First Amendment (provided
that the terms "date hereof" or "date of this Agreement" as used in the Merger
Agreement shall mean October 14, 1996); the term "Schedule 14D-1" as used in the
Merger Agreement shall be deemed to include the Amended Schedule 14D-1; the term
"Offer Documents" as used in the Merger Agreement shall be deemed to include the
Amended Offer Documents; the term "Schedule 14D-9" as used in the Merger
Agreement shall be deemed to include the Amended Schedule 14D-9; and the term
"Green Fairness Opinions" as used in the Merger Agreement shall be deemed to
include the Second Green Fairness Opinions.
SECTION 6. The following is hereby added to the end of Article IV of the
Merger Agreement:
SECTION 4.3. No Third Party Discussions, etc. Without limiting the
provisions of Section 4.1, during the term of this Agreement, neither Green
nor White shall, nor shall it permit any of its subsidiaries to, nor shall
it authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to, directly or
indirectly through another person, participate in any conversations,
discussions or negotiations, or enter into any agreement, arrangement or
understanding, with any other company engaged in the operation of railroads
(including Norfolk Southern Corporation) with respect to the acquisition by
any such other company (including Norfolk Southern Corporation) of any
securities or assets of Green and its subsidiaries or White and its
subsidiaries, or any trackage rights or other concessions relating to the
assets or operations of Green and its subsidiaries or White and its
subsidiaries, other than with respect to sales, leases, licenses, mortgages
or other disposals (a) by White of any of the assets or properties of White
or its subsidiaries (but not Green and its subsidiaries) or (b) by Green of
any of the assets or properties of Green or its subsidiaries (but not White
and its subsidiaries), in either case to the extent permitted by Section
4.1(a)(iv). Notwithstanding the foregoing, however, Green and White shall
be permitted to engage in conversations, discussions and negotiations with
other companies engaged in the operation of railroads (including Norfolk
Southern Corporation) to the extent reasonably necessary or reasonably
advisable in connection with obtaining regulatory approval of the
transactions contemplated by this Agreement in accordance with the terms
set forth in this Agreement, and in each case so long as (i)
representatives of Green and White are both present at any such
conversation, discussion or negotiation, (ii) the general subject matter of
any such conversation, discussion or negotiation shall have been agreed to
in advance by Green and White and (iii) Green, White and such other company
shall have previously agreed to appropriate confidentiality arrangements,
on terms reasonably acceptable to Green and White (which terms shall in any
event permit disclosure to the extent required by law), relating to the
existence and subject matter of any such conversation, discussion or
negotiation. This Section 4.3 shall terminate and be of no further force
and effect immediately upon any exercise by Green or White of its rights
under the proviso to Section 4.2(a); provided that such party exercising
such rights has given the other party prior notice thereof.
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SECTION 7. The number "180" in Section 4.2(a) and Section 4.2(b) of the
Merger Agreement is hereby deleted and replaced with the number "270".
SECTION 8. The provision at the end of Section 5.1(f) of the Merger
Agreement is hereby deleted.
SECTION 9. The following is hereby added to the end of Section 5.1(b):
Green shall not convene, adjourn or postpone the Green Pennsylvania
Shareholders Meeting without the prior consent of White, which consent
shall not be unreasonably withheld. In the event that the matters to be
considered at the Green Merger Shareholders Meeting are not approved at a
meeting called for such purpose, from time to time Green may, and shall at
the request of White, duly call, give notice of, convene and hold one or
more meeting(s) of shareholders thereafter for the purpose of obtaining the
Green Merger Shareholder Approval, in which case all obligations hereunder
respecting the Green Merger Shareholders Meeting shall apply in respect of
such other meeting(s), subject in any event to either party's right to
terminate this Agreement pursuant to Section 7.1(b)(ii) or (iii). Subject
to the foregoing, Green shall convene each such meeting(s) as soon as
practicable after receipt of any request to do so by White (and in the case
of the initial Green Pennsylvania Shareholders Meeting, as soon as
practicable after December 5, 1996). The foregoing shall not effect White's
obligations to make the Amended Offer and, if the conditions therefor in
Section 1.1(d) are satisfied, the Second Offer, whether or not the Green
Merger Shareholder Approval has been received or any such Green Merger
Shareholders Meeting(s) have been called or held.
SECTION 10. The following is hereby added to the end of Section 5.1(c):
In the event that the matters to be considered at the White
Shareholders Meeting are not approved at a meeting called for such purpose,
from time to time White may, and shall at the request of Green, duly call,
give notice of, convene and hold one or more meeting(s) of shareholders
thereafter for the purpose of obtaining the White Shareholder Approval, in
which case all obligations hereunder respecting the White Shareholders
Meeting shall apply in respect of such other meeting(s), subject in any
event to either party's right to terminate this Agreement pursuant to
Section 7.1(b)(ii) or (iii). White shall convene each such meeting(s) as
soon as practicable after any request to do so by Green.
SECTION 11. The following is hereby added to the end of each of Sections
7.1(b)(ii) and 7.1(b)(iii):
, to the extent such meeting was held after the earlier of (i) 270
days after October 14, 1996 or (ii) the purchase of an aggregate of 40% of
the fully diluted shares of Green Common Stock and Green ESOP Preferred
Stock under the Amended Offer and, if applicable, the Second Offer.
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ARTICLE II
GENERAL
SECTION 1. Merger Agreement. Except as amended hereby, the provisions of
the Merger Agreement shall remain in full force and effect.
SECTION 2. Counterparts. This First Amendment may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 3. Entire Agreement; No Third-Party Beneficiaries. Other than the
Merger Agreement (and subject to Section 8.6 thereof), this First Amendment (a)
constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this First Amendment and (b) is not intended to confer upon
any person other than the parties hereto any rights or remedies.
SECTION 4. Governing Law. THIS FIRST AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF
LAWS THEREOF; PROVIDED, HOWEVER, THAT THE LAWS OF THE RESPECTIVE STATES OF
INCORPORATION OF EACH OF THE PARTIES HERETO SHALL GOVERN THE RELATIVE RIGHTS,
OBLIGATIONS, POWERS, DUTIES AND OTHER INTERNAL AFFAIRS OF SUCH PARTY AND ITS
BOARD OF DIRECTORS.
SECTION 5. Assignment. Neither this First Amendment nor any of the rights,
interests or obligations under this First Amendment shall be assigned, in whole
or in part, by operation of law or otherwise by either of the parties hereto
without the prior written consent of the other party. Any assignment in
violation of the preceding sentence shall be void. Subject to the preceding
sentence, this First Amendment will be binding upon, inure to the benefit of,
and be enforceable by, the parties and their respective successors and assigns.
SECTION 6. Enforcement. THE PARTIES AGREE THAT IRREPARABLE DAMAGE WOULD
OCCUR AND THAT THE PARTIES WOULD NOT HAVE ANY ADEQUATE REMEDY AT LAW IN THE
EVENT THAT ANY OF THE PROVISIONS OF THIS FIRST AMENDMENT WERE NOT PERFORMED IN
ACCORDANCE WITH THEIR SPECIFIC TERMS OR WERE OTHERWISE BREACHED. IT IS
ACCORDINGLY AGREED THAT THE PARTIES SHALL BE ENTITLED TO AN INJUNCTION OR
INJUNCTIONS TO PREVENT BREACHES OF THIS FIRST AMENDMENT AND TO ENFORCE
SPECIFICALLY THE TERMS AND PROVISIONS OF THIS FIRST AMENDMENT IN ANY FEDERAL
COURT LOCATED IN THE STATE OF NEW YORK OR IN NEW YORK STATE COURT, THIS BEING IN
ADDITION TO ANY OTHER REMEDY TO WHICH THEY ARE ENTITLED AT LAW OR IN EQUITY. IN
ADDITION, EACH OF THE PARTIES HERETO (A) CONSENTS TO SUBMIT ITSELF TO THE
PERSONAL JURISDICTION OF ANY FEDERAL COURT LOCATED IN THE STATE OF NEW YORK OR
ANY NEW YORK STATE COURT IN THE EVENT ANY DISPUTE ARISES OUT OF THIS FIRST
AMENDMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS FIRST AMENDMENT, (B)
AGREES THAT IT WILL NOT ATTEMPT TO DENY OR DEFEAT SUCH PERSONAL JURISDICTION BY
MOTION OR OTHER REQUEST FOR LEAVE FROM ANY SUCH COURT AND (C) AGREES THAT IT
WILL NOT BRING ANY ACTION RELATING TO THIS FIRST AMENDMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED BY THIS FIRST AMENDMENT IN ANY COURT OTHER THAN A
FEDERAL COURT SITTING IN THE STATE OF NEW YORK OR A NEW YORK STATE COURT.
SECTION 7. Headings. The headings contained in this First Amendment are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this First Amendment.
SECTION 8. Severability. If any term or other provision of this First
Amendment is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this First Amendment
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party. Upon such
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determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this First Amendment so as to effect the original intent of the parties as
closely as possible to the fullest extent permitted by applicable law in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible.
IN WITNESS WHEREOF, Conrail Inc., Green Acquisition Corp. and CSX
Corporation have caused this First Amendment to be signed by their respective
officers thereunto duly authorized, all as of the date first written above.
CONRAIL INC.
by
/s/ DAVID M. LEVAN
--------------------------------------
Name: David M. LeVan
Title: Chairman, President and Chief
Executive Officer
GREEN ACQUISITION CORP.
by
/s/ MARK G. ARON
--------------------------------------
Name: Mark G. Aron
Title: General Counsel and Secretary
CSX CORPORATION
by
/s/ MARK G. ARON
--------------------------------------
Name: Mark G. Aron
Title: Executive Vice
President -- Law and
Public Affairs
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SECOND AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CONRAIL INC.,
A PENNSYLVANIA CORPORATION,
GREEN ACQUISITION CORP.,
A PENNSYLVANIA CORPORATION,
AND
CSX CORPORATION,
A VIRGINIA CORPORATION,
DATED AS OF DECEMBER 18, 1996.
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SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER, dated as of December 18,
1996 (this "Second Amendment"), by and among CONRAIL INC., a Pennsylvania
corporation ("Green"), GREEN ACQUISITION CORP., a Pennsylvania corporation and a
wholly owned subsidiary of White ("Tender Sub"), and CSX CORPORATION, a Virginia
corporation ("White").
WITNESSETH:
WHEREAS, Green, Tender Sub and White have entered into an Agreement and
Plan of Merger, dated as of October 14, 1996 (the "October 14 Merger
Agreement");
WHEREAS, Green, Tender Sub and White have entered into a First Amendment to
the Merger Agreement, dated as of November 5, 1996 (the "First Amendment", and
the Merger Agreement, as amended thereby, the "Merger Agreement"), pursuant to
which Tender Sub has made certain amendments to the October 14 Merger Agreement;
WHEREAS, pursuant to the Merger Agreement, Tender Sub has consummated a
cash tender offer for an aggregate of 17,860,124 shares of Green Common Stock
and Green ESOP Preferred Stock and has commenced a cash tender offer for up to
an aggregate of 18,344,845 shares of Green Common Stock and Green ESOP Preferred
Stock;
WHEREAS, pursuant to this Second Amendment, subject to the terms and
conditions set forth herein, following such offers, a wholly owned Pennsylvania
subsidiary of Tender Sub ("Merger Sub") will merge with and into Green in a
transaction (the "First Merger") in which each shareholder of Green (excluding
White, Tender Sub and its affiliates) shall retain a percentage of their
respective shareholdings of Green such that the amount not retained, when
aggregated with all shares of Green Common Stock then owned by White, Tender Sub
or its affiliates, collectively represents 80% of the shares of Green's
outstanding capital stock, and all shareholdings of such shareholder not so
retained shall be converted into the right to receive the White securities as
provided herein;
WHEREAS, pursuant to this Second Amendment, subject to the terms and
conditions set forth herein, following the First Merger, Green will merge with
and into Tender Sub pursuant to Section 1924(b)(1)(ii) of the Pennsylvania Law
in a transaction (the "Second Merger" and, together with the First Merger, the
"Merger") in which all outstanding shares of capital stock of Green (other than
those to be canceled, as provided herein) shall be converted into the right to
receive the White securities as provided herein;
WHEREAS, in consideration of Green's willingness to enter into this Second
Amendment, White and Tender Sub are willing to make the amendments to the Merger
Agreement set forth herein;
WHEREAS, in consideration of White's and Tender Sub's willingness to enter
into this Second Amendment, Green is willing to make the amendments to the
Merger Agreement set forth herein;
WHEREAS, the Board of Directors of Green has approved, and deems it
advisable and in the best interests of Green to enter into, this Second
Amendment;
WHEREAS, the respective Boards of Directors of Tender Sub and White have
approved, and deem it advisable and in the best interests of their respective
shareholders to enter into, this Second Amendment; and
WHEREAS, except as amended by this Second Amendment, the Merger Agreement
shall remain in full force and effect;
WHEREAS, capitalized terms used herein and not defined herein shall have
the respective meanings given in the Merger Agreement;
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NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Second Amendment, the parties,
intending to be legally bound, agree as follows:
ARTICLE I
Section 1. The following is hereby added to the end of Section 1.2 of the
Merger Agreement:
(h) Green hereby approves of and consents to the Second Offer and
represents that its Board of Directors, at a meeting duly called and held,
has unanimously by the vote of all directors present (i) determined that
this Agreement, as amended by the First Amendment and the Second Amendment,
and the transactions contemplated hereby (including the Second Offer and
the Merger) are in the best interests of Green, (ii) approved this
Agreement, as amended by the First Amendment and the Second Amendment, and
the transactions contemplated hereby (including the Second Offer and the
Merger), such determination and approval constituting approval thereof by
the Board of Directors for all purposes of the Pennsylvania Law, and (iii)
resolved to recommend that shareholders of Green who desire to receive cash
for a portion of their shares of Green Common Stock or Green ESOP Preferred
Stock accept the Second Offer and tender their shares of Green Common Stock
or Green ESOP Preferred Stock thereunder to Tender Sub and that all
shareholders of Green approve and adopt this Agreement, as amended by the
First Amendment and the Second Amendment, and the transactions contemplated
hereby; provided, however, that prior to the purchase by Tender Sub of
shares of Green Common Stock and Green ESOP Preferred Stock pursuant to the
Second Offer, Green may modify, withdraw or change such recommendation, but
only to the extent that Green complies with Section 4.2 hereof. Green
hereby consents to the inclusion in the tender offer documents relating to
the Second Offer of the recommendations of Green's Board of Directors
described in this Section.
(i) Green has received the written opinions of each of the Green
Advisors, each dated as of the date of the Second Amendment, to the effect
that, as of such date, the consideration to be received by Green
shareholders (other than Tender Sub and its affiliates) pursuant to the
Amended Offer, the Second Offer and Merger, taken together, is fair from a
financial point of view to such holders (the "Third Green Fairness
Opinions"). Green has delivered to Tender Sub a copy of the Third Green
Fairness Opinions.
SECTION 2. Section 1.3, Section 1.4, Section 1.5, Section 1.6, Section
1.7, Section 1.8 and Section 1.9 of the Merger Agreement are hereby deleted and
replaced in their entirety with the following:
SECTION 1.3 The Merger. (a) Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the
Pennsylvania Business Corporation Law of 1988, as amended (the
"Pennsylvania Law"), Merger Sub shall be merged with and into Green in the
First Merger. Green shall be the surviving corporation of the First Merger
and shall succeed to and assume all rights and obligations of Merger Sub in
accordance with the Pennsylvania Law.
(b) Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the Pennsylvania Law (including, without
limitation, Section 1924(b)(1) (ii) thereof), on the first business day
immediately following the First Effective Time, Green shall be merged with
and into Tender Sub in the Second Merger. Tender Sub shall be the surviving
corporation (the "Surviving Corporation") of the Second Merger and shall
succeed to and assume all rights and obligations of Green in accordance
with the Pennsylvania Law.
SECTION 1.4 Closing. (a) The closing of the First Merger (the
"Closing") shall take place at 5:00 p.m. on a date to be specified by the
parties (the "Closing Date"), which (subject to satisfaction or waiver of
the conditions set forth in Article VI) shall be no later than the second
business day after satisfaction or waiver of the conditions set forth in
Section 6.1, unless another time or date is agreed to by the parties
hereto. The Closing shall be held at such location in the City of New York
as is agreed to by the parties hereto.
(b) The closing of the Second Merger shall take place at 9:00 a.m. on
the first business day immediately following the Closing Date, subject to
the satisfaction of the condition therefor set forth in
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Article VI, unless another time or date is agreed to by the parties hereto.
The closing of the Second Merger shall be held at such location in the City
of New York as is agreed to by the parties hereto.
SECTION 1.5 Effective Time. (a) Subject to the provisions of this
Agreement, as soon as practicable on or after the Closing Date, the parties
shall file articles of merger or other appropriate documents (such
documents, collectively, the "First Articles of Merger") executed in
accordance with the relevant provisions of the Pennsylvania Law and shall
make all other filings or recordings as may be required under the
Pennsylvania Law. The First Merger shall become effective at such time as
the First Articles of Merger are duly filed with the Pennsylvania
Department of State, or at such subsequent date or time as White and Green
shall agree and shall be specified in the First Articles of Merger (the
time the First Merger becomes effective being hereinafter referred to as
the "First Effective Time").
(b) Subject to the provisions of this Agreement, as soon as
practicable on or after the closing of the Second Merger, the parties shall
file articles of merger or other appropriate documents (such documents,
collectively, the "Second Articles of Merger" and, together with the First
Articles of Merger, the "Articles of Merger") executed in accordance with
the relevant provisions of the Pennsylvania Law and shall make all other
filings or recordings as may be required under the Pennsylvania Law. The
Second Merger shall become effective at such time as the Second Articles of
Merger are duly filed with the Pennsylvania Department of State, or at such
subsequent date or time as White and Green shall agree and shall be
specified in the Second Articles of Merger (the time the Second Merger
becomes effective being hereinafter referred to as the "Second Effective
Time").
SECTION 1.6 Effects of the Merger. The Merger shall have the effects
set forth in Chapter 19 of the Pennsylvania Law.
SECTION 1.7 Articles of Incorporation and By-laws; Directors and
Officers.
(a) The articles of incorporation and by-laws of Green, as in effect
immediately prior to the First Effective Time and the Second Effective
Time, shall be the articles of incorporation and by-laws, respectively, of
the surviving corporation of each of the First Merger and the Second
Merger, respectively, until thereafter changed or amended as provided
therein or by applicable law.
(b) Subject to Section 1.8, the directors and the officers of Green at
the First Effective Time and the Second Effective Time shall, from and
after such time, be the initial directors and officers, respectively, of
the surviving corporation of each of the First Merger and the Second
Merger, respectively, until their successors shall have been duly elected
or appointed or qualified or until their earlier death, resignation or
removal in accordance with the articles of incorporation and by-laws of the
applicable surviving corporation.
SECTION 1.8 Boards, Committees and Officers. At the Control Date, the
Board of Directors, committees of the Board of Directors, composition of
such committees (including chairmen thereof) and officers of White and/or
the Surviving Corporation (as indicated on Exhibit A hereto) shall be as
set forth on Exhibit A hereto until the earlier of the resignation or
removal of any individual listed on or designated in accordance with
Exhibit A or until their respective successors are duly elected and
qualified, as the case may be, it being agreed that, if any director shall
be unable to serve as a director (including as a member or chairman of any
committee), the party which designated such individual as indicated in
Exhibit A shall designate another individual to serve in such individual's
place. If any officer listed on or appointed in accordance with Exhibit A
ceases to be a full-time employee of Green or White, as applicable, prior
to the Control Date, the parties shall agree upon another person to serve
in such person's stead. The committees of the Board of Directors of White
shall have such authority as may, subject to applicable law, be delegated
to them by the Board of Directors of White.
SECTION 1.9 Voting Trust. The parties agree that, (i) simultaneously
with the purchase by White, Tender Sub or their affiliates of shares of
Green Common Stock and Green ESOP Preferred Stock pursuant to the Amended
Offer or the Second Offer, the Green Stock Option Agreement or otherwise,
such shares of Green Common Stock (including pursuant to the automatic
conversion of Green ESOP Preferred Stock) shall be deposited in a voting
trust (the "Voting Trust") in accordance with the terms
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and conditions of a voting trust agreement substantially in the form
attached hereto as Exhibit E and (ii) upon consummation of each of the
First Merger and the Second Merger, all outstanding shares of common stock
of the surviving corporation of such merger owned directly or indirectly by
White, Tender Sub or their affiliates shall be deposited in the Voting
Trust. Prior to the Control Date, the Voting Trust may not be modified or
amended without the prior written approval of Green unless such
modification or amendment is not inconsistent with this Agreement or the
Option Agreements and is not adverse to Green or its shareholders (it being
understood that any change to the terms of the Voting Trust relating to
voting rights or rights and restrictions relating to the transfer of such
shares of Green Common Stock shall in any event require the prior approval
of Green); provided that, notwithstanding the foregoing, the Voting Trust
may be modified or amended in any manner without the prior written approval
of Green at any time after the earlier of (i) December 31, 1998 and (ii)
the date of STB denial. No power of White or Tender Sub provided for in the
Voting Trust Agreement may be exercised in a manner which violates this
Agreement.
SECTION 3. Section 2.1 of the Merger Agreement is hereby deleted and
replaced in its entirety with the following:
SECTION 2.1 Conversion of Shares.
(a) All shares of Common Stock, par value $1.00 per share, of
Merger Sub issued and outstanding immediately prior to the First
Effective Time shall, at the First Effective Time, by virtue of the
First Merger and without any action on the part of any person, become
such number of duly authorized, validly issued, fully paid and
nonassessable shares of common stock of Green as, when aggregated with
all shares of Green Common Stock then owned by White, Tender Sub or its
affiliates, represents 80% of the then outstanding capital stock of
Green. Each share of Common Stock, par value $1.00 per share, of Tender
Sub issued and outstanding immediately prior to the Second Effective
Time shall, at the Second Effective Time, by virtue of the Second Merger
and without any action on the part of any person, become one duly
authorized, validly issued, fully paid and nonassessable share of common
stock of the Surviving Corporation.
(b) (i) In the First Merger, such percentage of the respective
shareholdings of each holder (other than White, Tender Sub or their
affiliates) of shares of Green Common Stock and Green ESOP Preferred
Stock which, when added to the shares of Green Common Stock then held by
White, Tender Sub and its affiliates, represents 80% of the Shares
issued and outstanding immediately prior to the Effective Time shall, at
the First Effective Time, by virtue of the First Merger and without any
action on the part of the holder thereof, be converted into the right to
receive (x) such number of duly authorized, validly issued, fully paid
and nonassessable shares of White Common Stock and such number of shares
of Convertible Preferred Stock of White that is duly authorized and
validly issued and fully paid and nonassessable, having the terms
determined as provided in clause (ii) below (each, a "White Merger
Security" and, collectively, "White Merger Securities") or (y) cash,
without interest thereon, as specified in Section 2.3 hereof (the "Per
Share Merger Consideration"). Each share (fractional or otherwise) of
Green Common Stock issued and outstanding immediately prior to the
Second Effective Time (other than shares of Green Common Stock to be
canceled pursuant to Section 2.1(c) hereof) shall, at the Second
Effective Time, by virtue of the Second Merger and without any action on
the part of the holder thereof, be converted into the right to receive
the Per Share Merger Consideration.
(ii) The White Merger Securities shall be convertible preferred
stock of White having the terms set forth in Exhibit H hereto. The
terms of the White Merger Securities that are not fixed pursuant to
Exhibit H (such terms, determined as provided in clause (1) or (2)
below, the "Other Terms"), shall not be inconsistent with the terms
so fixed and shall be determined in accordance with the following
procedure such that the number of shares of White Merger Securities
to be distributed with respect to each share of Green Common Stock
(including pursuant to the automatic conversion of the Green ESOP
Preferred Stock) pursuant to clause
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(i) above shall have a value on a fully distributed basis, as of the
date of the opinions referred to below, as close as possible equal to
$16:
(1) the Other Terms shall be determined by mutual agreement
of two investment banking firms of national reputation, one
selected by Green and one selected by White, such that in their
respective opinions the White Merger Securities have a value on a
fully distributed basis, as of the date of their opinions, equal
to $16 per share of Green Common Stock; or
(2) if such two investment banking firms are unable to agree
on the Other Terms or if either such firm is unable to provide
the opinion referred to in clause (1) above within four business
days following the fifteenth business day prior to the date of
the Green Merger Shareholders Meeting, each such investment
banking firm within two business days following such
four-business-day period shall propose its version of the Other
Terms and shall mutually select a third investment banking firm
of national reputation, and within four business days thereafter
the third firm shall select the proposal of one or the other of
the two firms that, in the opinion of the third firm, is the
closer of the two proposals to giving the White Merger Securities
a value on a fully distributed basis, as of the date of its
opinion, equal to $16 per share of Green Common Stock.
The parties agree that the Other Terms shall be determined in accordance
with the foregoing no later than five business days prior to the date of
the Green Merger Shareholders Meeting.
(c) In the First Merger, all shares of Green Common Stock owned by
White, Tender Sub or its affiliates shall be retained. In the Second
Merger, all shares of Green Common Stock that are owned by Green as
treasury stock and any shares of Green Common Stock owned by White,
Green or any of their respective subsidiaries shall, at the Second
Effective Time, be canceled and retired and shall cease to exist, and,
except as otherwise provided herein, no shares of White Common Stock,
White Merger Securities or other consideration shall be delivered or
owing in exchange therefor.
(d) On and after the First Effective Time and the Second Effective
Time, as applicable, holders of certificates ("Certificates") which
immediately prior to such time represented issued and outstanding shares
of Green Common Stock, including those issuable upon conversion of the
shares of Green ESOP Preferred Stock (which conversion shall occur
automatically pursuant to the terms of the Green Articles so that, no
later than immediately prior to the First Effective Time, no shares of
Green ESOP Preferred Stock shall be issued and outstanding), shall cease
to have any rights as shareholders of Green, except the right to receive
the Per Share Merger Consideration with respect to each share held.
SECTION 4. Section 2.3(h) of the Merger Agreement is hereby deleted and
replaced in its entirety with the following:
(h) No certificates or scrip representing shares of White Common Stock
issuable to a Green shareholder which would be fractional shares (when the
consideration due such shareholder hereunder in the First Merger and the
Second Merger are aggregated) shall be issued upon the surrender for
exchange of Certificates, no dividend or distribution with respect to
fractional shares shall be payable on or with respect to any such
fractional share and any such fractional share interests shall not entitle
the owner thereof to vote or to any other rights of a shareholder of White.
In lieu of any such fractional share of White Common Stock, White shall pay
to each former shareholder of Green who otherwise would be entitled to
receive a fractional share of White Common Stock (when the consideration
due such shareholder hereunder in the First Merger and the Second Merger
are aggregated) an amount in cash determined by multiplying (i) the Average
White Share Price on the date on which the First Effective Time occurs by
(ii) the fractional interest in a share of White Common Stock to which such
holder would otherwise be entitled. For purposes hereof, the "Average White
Share Price" shall mean the average closing sales price, rounded to four
decimal points, of the White Common Stock as reported on
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the New York Stock Exchange Composite Tape, for the twenty (20) consecutive
trading days ending on the trading day which is five (5) trading days prior
to the First Effective Time.
SECTION 5. (a) The words "Effective Time" in Section 4.1, Section 5.4,
Section 5.7, Section 5.16(b) and Section 7.4 of the Merger Agreement and
"consummation of the Merger" in Section 5.16(a) of the Merger Agreement are
hereby deleted and replaced with the words "Control Date".
(b) The words "Effective Time" in the Merger Agreement (except as part of
"First Effective Time" or "Second Effective Time") shall be deemed to refer to
the words "First Effective Time", other than in the first and second sentences
of Section 2.4 and in Section 2.6, which shall be deemed to refer to the words
"Second Effective Time".
(c) The words "Effective Date" in the first sentence of Section 2.3 of the
Merger Agreement are hereby deleted and replaced in their entirety with the
words "in the Merger".
(d) The words "Section 2.1(a)" in the second sentence of Section 2.4 of the
Merger Agreement are hereby deleted and replaced in their entirety with the
words "Section 2.1(b)".
(e) Notwithstanding the provisions of Section 5.1(e) of the Merger
Agreement, White shall not be obligated to effect the change of name to be
contained in the Amended White Articles, as contemplated by Exhibit A, until the
Control Date.
SECTION 6. (a) The words "or White Merger Securities" are hereby added
immediately following the words "White Common Stock" in Section 2.10 of the
Merger Agreement.
(b) The words "and White Merger Securities" are hereby added immediately
following the words "White Common Stock" in Section 2.2, Section 2.3 (other than
Section 2.3(b) and Section 2.3(h)), Section 2.4, Section 2.6, Section 2.8,
Section 2.9, Section 2.11, Section 3.1(f), Section 3.2(d), Section 5.1(a) and
Section 5.6(c) of the Merger Agreement.
SECTION 7. The first sentence of Section 2.3(b) is hereby deleted and
replaced in its entirety with the following: "If Stock Elections are received
for a number of shares of Green Common Stock that is 60% or less of the
outstanding shares of Green Common Stock, each share of Green Common Stock
covered by a Stock Election shall be converted in the Merger into (i) 1.85619
shares of White Common Stock (the "Common Stock Conversion Ratio") and (ii) such
number or amount of White Merger Securities determined pursuant to Section
2.1(b)(ii) (the "White Merger Security Conversion Ratio" and, together with the
Common Stock Conversion Ratio, the "Conversion Ratios")".
SECTION 8. Section 5.6(a)(i) of the Merger Agreement is hereby deleted and
replaced in its entirety with the following:
(i)(A) With respect to all outstanding Green Employee Stock Options
granted under Green Stock Plans, which, immediately prior to the First
Effective Time, are vested (the "Vested Green Employee Stock Options"),
adjust the terms of such Vested Green Employee Stock Options as necessary
to provide that, at the First Effective Time, each Vested Green Employee
Stock Option outstanding immediately prior to the First Effective Time
shall be deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such Vested Green Employee Stock
Option, the same number of shares of White Common Stock as the holder of
such Vested Green Employee Stock Option would have been entitled to receive
pursuant to the Merger had such holder exercised such Vested Green Employee
Stock Option in full immediately prior to the First Effective Time and had
the holder received additional White Common Stock, in lieu of White Merger
Securities, of equivalent value to such White Merger Securities (based, for
this purpose, upon an assumed $16 value for the White Merger Securities
deliverable in respect of each share of Green Common Stock and a per share
price of White Common Stock based upon the average per share closing price
of White Common Stock reported on the New York Stock Exchange Composite
Tape for the five consecutive trading days preceding the First Effective
Time), at a price per share of (x) White Common Stock equal to (A) the
aggregate exercise price for the shares of Green Common Stock otherwise
purchasable pursuant to such Vested Green Employee Stock Option divided by
(B) the aggregate number of shares of White Common Stock deemed
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purchasable pursuant to such Vested Green Employee Stock Option (each, as
so adjusted, an "Adjusted Option"); provided, however, that in the case of
any option to which Section 421 of the Code applies by reason of its
qualification under any of Sections 422 through 424 of the Code ("qualified
stock options"), the option price, the number of shares purchasable
pursuant to such option and the terms and conditions of exercise of such
option shall be determined in order to comply with Section 424 of the Code.
(B) With respect to all outstanding Green Employee Stock Options
granted under Green Stock Plans which, immediately prior to the First
Effective Time, are unvested ("Other Green Options"), adjust the terms of
such Other Green Options to provide that in no event shall any Other Green
Option become exercisable prior to (x) the date that the STB approval is
obtained, in which case, such Other Green Options will then be adjusted as
provided in clause (a) above, or (y) the date following STB denial on which
a disposition of shares held in the Voting Trust occurs pursuant to
Paragraph 8 of the Voting Trust Agreement, in which case such Other Green
Options will be exercisable solely for Green Common Stock (on such date or
dates as provided in the option agreements evidencing such Other Green
Options), and such options will be equitably adjusted as necessary to
preserve the value of such options in connection with any such disposition.
(C) In lieu of any further option grants by Green on or after the
First Effective Time, Green may grant incentive awards to its employees
provided that (i) such awards are granted under arrangements which are in
accordance with applicable law and (ii) such awards are of no greater
aggregate value on the grant date than the aggregate value of the options
which could otherwise have been awarded by Green by the Company pursuant to
Section 4.1(a)(ii)(x)(A) hereof.
(D) Notwithstanding any provision to the contrary herein, Green agrees
that it shall not issue Green Common Stock or rights to acquire Green
Common Stock for any reason following the First Merger without the prior
consent of White.
SECTION 9. Section 3.01(o) of the Merger Agreement is hereby deleted and
replaced in its entirety with the following:
(o) Tax Status. Neither Green nor any of its subsidiaries has taken
any action or, as of the date hereof, is aware of any fact that would
jeopardize the qualification of the Amended Offer, the Second Offer, the
First Merger and the Second Merger, if integrated and treated as a single
transaction, as a reorganization under Section 368 of the Code.
SECTION 10. Section 3.02(o) of the Merger Agreement is hereby deleted and
replaced in its entirety with the following:
(o) Tax Status. Neither White, merger Sub, Tender Sub, or any
subsidiary of White or Tender Sub has taken any action or, as of the date
hereof, is aware of any fact that would jeopardize the qualification of the
Amended Offer, the Second Offer, the First Merger and the Second Merger, if
integrated and treated as a single transaction, as a reorganization under
Section 368 of the Code.
SECTION 11. The following is hereby added to the end of Section 4.1(a)(i)
of the Merger Agreement:
and provided further that, following the First Effective Time, subject to
applicable legal restrictions and financial covenants contained in
instruments relating to outstanding indebtedness, the surviving corporation
of each of the First Merger and the Second Merger shall not decrease the
aggregate amount of dividends and other distributions paid in respect of
Green's outstanding capital stock from the level paid immediately prior to
the First Effective Time or the Second Effective Time, as applicable.
SECTION 12. The last sentence of Section 4.1(c) of the Merger Agreement is
hereby deleted and replaced in its entirety with the following:
Without limiting the foregoing, Green and White shall use reasonable
efforts to not, and to not permit any of their respective subsidiaries to,
take any action that could reasonably be expected to impair, or delay in
any material respect, obtaining the STB approval or complying with or
satisfying the terms thereof.
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SECTION 13. The following is hereby added to the end of Section 4.1 of the
Merger Agreement:
(e) Additional Pre-Control Date Covenants of White. During the period
from the Second Effective Time until the Control Date, White shall not, nor
shall it permit any of its subsidiaries to (without the consent of Green):
(i) operate its railroad business other than in the ordinary course
of business consistent with past practice provided that, without
limiting the generality of the foregoing or of Section 4.1(a)(xii) or
Section 4.3, (x) the direct or indirect acquisition or disposition of a
significant portion of the assets of its railroad business, and (y) a
merger, consolidation or other business combination with any other
company involved in the railroad business that would have the effect set
forth in clause (x) shall not be considered in the ordinary course of
business consistent with past practice; or
(ii) enter into (including by merger, acquisition of assets or
securities or otherwise) any new line of business, in a material way,
other than those engaged in by White as of the date of this Agreement;
or
(iii) authorize, or commit or agree to take, any of the foregoing
actions.
SECTION 14. (a) Section 5.3(a) of the Merger Agreement is hereby deleted
and replaced in its entirety with the following:
The Parties intend that the Amended Offer, the Second Offer, the First
Merger and the Second Merger, if integrated and treated as a single
transaction (the "Reorganization"), shall qualify as a reorganization
within the meaning of Section 368 of the Code. Each party and its
affiliates shall use reasonable efforts to cause the Reorganization to so
qualify and to obtain, as of the Closing Date, the opinions (the "Tax
Opinions") of Wachtell, Lipton, Rosen & Katz, counsel to White, and
Cravath, Swaine & Moore, counsel to Green, in each case to the effect that
the Reorganization shall qualify as a reorganization within the meaning of
Section 368 of the Code, it being understood that in rendering such Tax
Opinions, such tax counsel shall be entitled to rely upon representations
of officers of Green and White substantially in the form of Exhibits F and
G (with appropriate conforming modification thereto to reflect the changes
made by the Second Amendment). Each party agrees that from and after the
time hereof it will not (and will not permit its affiliates to) take any
action that would result in the Reorganization failing to qualify as a
reorganization within the meaning of Section 368 of the Code except to the
extent that such action is specifically contemplated by this Agreement or
is required by the STB. The parties shall take the position for all
purposes that the Reorganization qualifies as a reorganization within the
meaning of Section 368 of the Code unless and until the parties fail to
obtain either of the Tax Opinions as of the Closing Date. The provisions of
this Section 5.3 shall not terminate on the Control Date and shall survive
indefinitely.
(b) The first use of the word "will" in Section 5.3(b) of the Merger
Agreement is hereby deleted and replaced with the word "may".
SECTION 15. (a) The words "For three years after the Effective Time" in
the first sentence of Section 5.8(c) of the Merger Agreement are hereby deleted
and replaced in their entirety with the words "From the Control Date through the
third anniversary of the Effective Time".
(b) The second and third uses of the words "Effective Time" in Section
5.8(c) is hereby deleted and replaced with the words "Control Date".
SECTION 16. The following is hereby added to the end of Section 5.12 of
the Merger Agreement:
White shall use reasonable efforts to cause the White Merger Securities to
be issued in the Merger or under the Green Stock Plans to be listed on the NYSE
prior to the Closing Date, subject to official notice of issuance.
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SECTION 17. (a) The following is added at the end of Section 6.1 of the
Merger Agreement:
(a) Additional Condition to Second Merger. The First Effective Time
shall have occurred and White shall own at least 80% of Green's outstanding
capital stock, on a fully diluted basis; and at a meeting duly called and
held after the First Effective Time, Green's Board of Directors shall have
approved the Second Merger (as a plan of merger and liquidation under
Section 332, Section 337 and Section 368 of the Code). Except as provided
in this Section 6.1, there shall be no other conditions to the consummation
of the Second Merger, and as of the First Effective Time, all consents of
shareholders of White, Tender Sub or Green necessary to consummate the
Second Merger shall have been given.
(b) The term "Merger" in Sections 6.2 and 6.3 of the Merger Agreement is
hereby deleted and replaced with the term "First Merger".
SECTION 18. Section 6.1(d) of the Merger Agreement is hereby deleted and
replaced in its entirety with the following:
(d) Listing. The White Common Stock and the White Merger Securities
issuable to Green's shareholders pursuant to this Agreement and under the
Green Stock Plans shall have been approved for listing on the NYSE prior to
the Closing Date, subject to official notice of issuance.
SECTION 19. Section 6.2(d) and Section 6.3(c) of the Merger Agreement are
hereby deleted in their respective entireties, and all references to such
Sections are hereby deleted in their respective entireties.
SECTION 20. The words "which is addressed above" in Section 6.2(e) of the
Merger Agreement are hereby deleted in their entirety.
SECTION 21. The following is hereby added to the end of Section 8.1 of the
Merger Agreement:
The parties agree that the provisions of Articles IV and V shall be binding
through the Control Date, provided that the provisions of Article IV (other
than Sections 4.1(a)(xii), Section 4.1(d), the last sentence of Section
4.1(c), Section 4.1(e) and Section 4.3) and Section 5.15 shall not be
binding as against White and its subsidiaries following the Effective Time;
provided, however, that all obligations of White or its affiliates under
this Agreement shall terminate upon the earlier of (i) December 31, 1998
and (ii) the date of STB denial.
SECTION 22. The following is hereby added to the end of Section 8.3(f) of
the Merger Agreement:
(g) "STB approval," for all purposes under this Agreement, means the
issuance by the STB of a decision, which decision shall become effective
and which decision shall not have been stayed or enjoined, that (A)
constitutes a final agency action approving, exempting or otherwise
authorizing the acquisition of control over Green's railroad operations by
White and (B) does not (1) change or disapprove of the consideration to be
given in the Merger or other material provisions of Article II of this
Agreement or (2) unless White chooses to assume control despite such
conditions, impose on White, Green or any of their respective subsidiaries
any other terms or conditions (including, without limitation, labor
protective provisions but excluding conditions heretofore imposed by the
ICC in New York Dock Railway -- Control -- Brooklyn Eastern District, 360
I.C.C. 60 (1979)), other than those proposed by the applicants, that
materially and adversely affect the long-term benefits expected to be
received by White from the transactions contemplated by this Agreement;
(h) the "Control Date" means the date on which White lawfully is
permitted to assume control over Green's railroad operations pursuant to
STB approval or exemption;
(i) "STB denial," for all purposes under this Agreement, means (i) STB
approval shall not have been obtained by December 31, 1998 or (ii) the STB
shall have, by an order which shall have become final and no longer subject
to review by the courts, either (x) refused to approve the acquisition of
control of Green by White or (y) approved such acquisition of control
subject to conditions that cause such approval not to constitute STB
approval; and
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(j) following the Second Effective Time, all rights and obligations of
Green under this Agreement shall be exercisable or performed by the
Surviving Corporation (as successor to Green), and any consent or approval
of Green hereunder following the First Effective Time or the Second
Effective Time shall mean the consent or approval of the Surviving
Corporation's board of directors (or its duly authorized representatives).
SECTION 23. The term "Merger Agreement" or "this Agreement" as used in the
Merger Agreement shall be deemed to refer to the Merger Agreement as amended by
the First Amendment and the Second Amendment (provided that the terms "date
hereof" or "date of this Agreement" as used in the Merger Agreement shall mean
October 14, 1996); the "Merger" as used in the Merger Agreement shall be deemed
to refer to the First Merger and the Second Merger; and the term "Green Fairness
Opinions" as used in the Merger Agreement shall be deemed to include the Second
Green Fairness Opinions and the Third Green Fairness Opinions.
SECTION 24. The words "270 days from the date hereof," "270 days after the
date hereof", "270 days after October 14, 1996" and "270 days after October 14,
1996" in Section 4.2(a), Section 4.2(b), Section 7.1(b)(ii) and Section
7.1(b)(iii), respectively, of the Merger Agreement are hereby deleted and
replaced with the words "December 31, 1998".
SECTION 25. Exhibit H hereto is hereby added as such an exhibit to the
Merger Agreement.
SECTION 26. Exhibits A and E to the Merger Agreement are hereby deleted
and replaced in their entireties with Exhibits A and E hereto respectively.
SECTION 27. Exhibit C will be amended as may be necessary to permit the
issuance of the White Merger Securities.
ARTICLE II
GENERAL
SECTION 1. Merger Agreement. Except as amended hereby, the provisions of
the Merger Agreement shall remain in full force and effect.
SECTION 2. Counterparts. This Second Amendment may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 3. Entire Agreement; No Third-Party Beneficiaries. Other than the
Merger Agreement (and subject to Section 8.6 thereof), this Second Amendment (a)
constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Second Amendment and (b) is not intended to confer upon
any person other than the parties hereto any rights or remedies.
SECTION 4. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF
LAWS THEREOF; PROVIDED, HOWEVER, THAT THE LAWS OF THE RESPECTIVE STATES OF
INCORPORATION OF EACH OF THE PARTIES HERETO SHALL GOVERN THE RELATIVE RIGHTS,
OBLIGATIONS, POWERS, DUTIES AND OTHER INTERNAL AFFAIRS OF SUCH PARTY AND ITS
BOARD OF DIRECTORS.
SECTION 5. Assignment. Neither this Second Amendment nor any of the
rights, interests or obligations under this Second Amendment shall be assigned,
in whole or in part, by operation of law or otherwise by either of the parties
hereto without the prior written consent of the other party. Any assignment in
violation of the preceding sentence shall be void. Subject to the preceding
sentence, this Second Amendment will be binding upon, inure to the benefit of,
and be enforceable by, the parties and their respective successors and assigns.
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SECTION 6. ENFORCEMENT. THE PARTIES AGREE THAT IRREPARABLE DAMAGE WOULD
OCCUR AND THAT THE PARTIES WOULD NOT HAVE ANY ADEQUATE REMEDY AT LAW IN THE
EVENT THAT ANY OF THE PROVISIONS OF THIS SECOND AMENDMENT WERE NOT PERFORMED IN
ACCORDANCE WITH THEIR SPECIFIC TERMS OR WERE OTHERWISE BREACHED. IT IS
ACCORDINGLY AGREED THAT THE PARTIES SHALL BE ENTITLED TO AN INJUNCTION OR
INJUNCTIONS TO PREVENT BREACHES OF THIS SECOND AMENDMENT AND TO ENFORCE
SPECIFICALLY THE TERMS AND PROVISIONS OF THIS SECOND AMENDMENT IN ANY FEDERAL
COURT LOCATED IN THE STATE OF NEW YORK OR IN NEW YORK STATE COURT, THIS BEING IN
ADDITION TO ANY OTHER REMEDY TO WHICH THEY ARE ENTITLED AT LAW OR IN EQUITY. IN
ADDITION, EACH OF THE PARTIES HERETO (A) CONSENTS TO SUBMIT ITSELF TO THE
PERSONAL JURISDICTION OF ANY FEDERAL COURT LOCATED IN THE STATE OF NEW YORK OR
ANY NEW YORK STATE COURT IN THE EVENT ANY DISPUTE ARISES OUT OF THIS SECOND
AMENDMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS SECOND AMENDMENT, (B)
AGREES THAT IT WILL NOT ATTEMPT TO DENY OR DEFEAT SUCH PERSONAL JURISDICTION BY
MOTION OR OTHER REQUEST FOR LEAVE FROM ANY SUCH COURT AND (C) AGREES THAT IT
WILL NOT BRING ANY ACTION RELATING TO THIS SECOND AMENDMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED BY THIS SECOND AMENDMENT IN ANY COURT OTHER THAN A
FEDERAL COURT SITTING IN THE STATE OF NEW YORK OR A NEW YORK STATE COURT.
SECTION 7. Headings. The headings contained in this Second Amendment are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Second Amendment.
SECTION 8. Severability. If any term or other provision of this Second
Amendment is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Second Amendment
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Second Amendment so as to
effect the original intent of the parties as closely as possible to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
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IN WITNESS WHEREOF, Conrail Inc., Green Acquisition Corp. and CSX
Corporation have caused this Second Amendment to be signed by their respective
officers thereunto duly authorized, all as of the date first written above.
CONRAIL INC.
by /s/ DAVID M. LEVAN
------------------------------------
Name: David M. LeVan
Title: President and Chief
Executive Officer
GREEN ACQUISITION CORP.
by /s/ PAUL R. GOOD
------------------------------------
Name: Paul R. Good
Title: Chief Financial Officer and
Treasurer
CSX CORPORATION
by /s/ MARK G. ARON
------------------------------------
Name: Mark G. Aron
Title: Executive Vice
President -- Law and
Public Affairs
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EXHIBIT A
TO MERGER AGREEMENT
CORPORATE GOVERNANCE
BOARD OF DIRECTORS OF WHITE
Immediately following the Control Date, the Board of Directors of White
shall consist of the current Chairmen of the Boards of each of White and Green
and an even number of other directors (all of whom shall be outside directors)
to be agreed upon, of whom 50% shall be designated by each of White and Green.
COMMITTEES OF THE BOARD OF DIRECTORS AND CHAIRPERSONS OF COMMITTEES
Immediately Following the Control Date:
The Board of Directors of White shall initially have six committees: the
finance and planning committee, the executive committee, the audit committee,
the ethics committee, the compensation committee and the nominating committee.
Each committee shall be comprised of four directors, of which two shall be
designated by each of White and Green. The only committees on which the current
Chairman of the Board of each of White and Green shall serve shall be the
executive committee and the finance and planning committee, and the current
Chairman and Chief Executive Officer of White shall chair the executive
committee and designate the chair of the finance and planning committee. White
shall designate the chairperson of the compensation committee and the audit
committee and Green shall designate the chairperson of the nominating committee
and the ethics committee.
EXECUTIVE MANAGEMENT
At the Control Date and for two years thereafter, the current Chairman and
Chief Executive Officer of White shall continue as the Chairman and Chief
Executive Officer of White and the current Chairman of the Board and Chief
Executive Officer of Green shall be President and Chief Operating Officer of
White and President and Chief Executive Officer of each of its railroad
subsidiaries (the "Railroad CEO"). Immediately following such period, the
current Chairman and Chief Executive Officer of White shall continue as Chairman
of White for an additional two-year period (and Chairman Emeritus for a one-year
period thereafter) and the current Chairman of the Board and Chief Executive
Officer of Green shall be elected to the additional office of Chief Executive
Officer of White on the second anniversary of the Control Date and shall succeed
as Chairman of White at the end of such additional two-year period. The
foregoing arrangements under this heading "Executive Management" may be altered
only by a vote following the Control Date of 75% of the members of the Board of
Directors of White.
WHITE ARTICLES OF INCORPORATION
At or prior to the Control Date, the Articles of Incorporation of White
shall be amended to change the corporate name of White to a new neutral name not
including, except with the prior written consent of each of Green and White, any
aspect of the names of either Green or White or their subsidiaries or
predecessors.
WHITE BY-LAWS
At or prior to the Control Date, the White By-laws shall be amended to
provide that any amendment to or modification of the arrangements set forth
under the heading "Executive Management" or of the employment agreements with
the current Chairmen of White and Green entered into as of the date of this
Agreement shall require a vote of 75% following the Control Date of the members
of the Board of Directors of White.
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EXHIBIT E
TO MERGER AGREEMENT
AMENDED AND RESTATED VOTING TRUST AGREEMENT
THIS AMENDED AND RESTATED VOTING TRUST AGREEMENT, dated as of December 18,
1996, by and among CSX Corporation, a Virginia corporation ("Parent"), Green
Acquisition Corp., a Pennsylvania corporation and a wholly-owned subsidiary of
Parent ("Acquiror"), and Deposit Guaranty National Bank, a national banking
association (the "Trustee"),
W I T N E S S E T H:
WHEREAS, Parent, Acquiror and Conrail Inc., a Pennsylvania corporation (the
"Company"; which term shall instead refer, from and after the effectiveness of
the Second Merger, to the corporation resulting from the Second Merger), have
entered into an Agreement and Plan of Merger, dated as of October 14, 1996 (as
it has been and may be amended from time to time, the "Merger Agreement";
capitalized terms used but not defined herein shall have the meanings set forth
therein), pursuant to which (i) Acquiror was to commence and did commence the
Offer and Second Offer (collectively, the "Tender Offer") for shares of Common
Stock of the Company (all such shares accepted for payment pursuant to the
Tender Offer or otherwise received, acquired or purchased by or on behalf of
Parent or Acquiror, including pursuant to the Option Agreement, the "Acquired
Shares"), and (ii) a subsidiary of Acquiror will merge into the Company pursuant
to the First Merger and thereafter the Company will merge into Acquiror pursuant
to the Second Merger. As it is in the Merger Agreement, the word "Merger" shall
herein be a collective reference to the First Merger and the Second Merger taken
together.
WHEREAS, Parent, Acquiror and the Trustee have entered into a Voting Trust
Agreement, dated as of October 15, 1996 (the "Original Voting Trust Agreement");
WHEREAS, Parent, Acquiror and the Company entered into a First Amendment to
the Merger Agreement dated November 5, 1996, and a Second Amendment thereto
dated December 18, 1996;
WHEREAS, Parent, Acquiror and the Company have entered into a Stock Option
Agreement, dated as of October 14, 1996 (as it may be amended from time to time,
the "Option Agreement") providing Parent and Acquiror the option to purchase
15,955,477 shares of common stock of the Company;
WHEREAS, the parties intend that, prior to the authorization and approval
of the Surface Transportation Board (the "STB"), neither Parent nor Acquiror nor
any of their affiliates shall control the Company and the Company shall not have
as a director any officer, director, nominee or representative of the Parent,
the Acquiror or any of their affiliates;
WHEREAS, Parent and Acquiror wish (and are obligated pursuant to the Merger
Agreement and the Option Agreement), simultaneously with the acceptance for
payment of Acquired Shares pursuant to the Tender Offer, the Option Agreement,
the First Merger, or otherwise to deposit such Shares of Common Stock, and upon
the consummation of the Second Merger shall deposit all of the common stock and
any other voting stock of the Company (being then the corporation resulting from
the Second Merger), in an independent, irrevocable voting trust, pursuant to the
rules of the STB, in order to avoid any allegation or assertion that the Parent
or the Acquiror is controlling or has the power to control the Company prior to
the receipt of any required STB approval or exemption;
WHEREAS, Parent, Acquiror and the Trustee wish to amend the Original Voting
Trust Agreement to reflect certain changes made in the Merger Agreement by the
Second Amendment thereto, and the Company has consented to such amendment, and
Parent, Acquiror and the Trustee wish to restate the Voting Trust Agreement as
so amended;
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WHEREAS, the holder of all outstanding Trust Certificates has assented to
such amendment of the Original Voting Trust Agreement, and all requirements for
the amendment of the Original Voting Trust Agreement contained therein have been
satisfied;
WHEREAS, neither the Trustee nor any of its affiliates has any officers or
board members in common or any direct or indirect business arrangements or
dealings (as described in Paragraph 9 hereof) with the Parent or the Acquiror or
any of their affiliates; and
WHEREAS, the Trustee is willing to continue to act as voting trustee
pursuant to the terms of this Trust Agreement and the rules of the STB,
NOW THEREFORE, the parties hereto agree as follows:
1. Creation of Trust -- The Parent and the Acquiror hereby appoint Deposit
Guaranty National Bank as Trustee hereunder, and Deposit Guaranty National Bank
hereby accepts said appointment and agrees to act as Trustee under this Trust
Agreement as provided herein.
2. Trust is Irrevocable -- This Trust Agreement and the nomination of the
Trustee during the term of the trust shall be irrevocable by the Parent and the
Acquiror and their affiliates and shall terminate only in accordance with, and
to the extent of, the provisions of Paragraphs 8 and 14 hereof.
3. Deposit of Trust Stock -- The Parent and the Acquiror agree that, prior
to acceptance of Acquired Shares purchased pursuant to the Tender Offer, the
Acquiror will direct the depositary for the Tender Offer to transfer to the
Trustee any such Acquired Shares purchased pursuant to the Tender Offer. The
Parent and the Acquiror also agree that simultaneously with receipt, acquisition
or purchase of any additional shares of Common Stock by either of them, directly
or indirectly, or by any of their affiliates, including, without limitation,
upon any exercise of the option provided for in the Option Agreement, they will
transfer to the Trustee the certificate or certificates for such shares. The
Parent and the Acquiror also agree that simultaneously with the receipt by them
or by any of their affiliates of any shares of common stock or other voting
stock of the Company upon the effectiveness of the First Merger or the Second
Merger, they will transfer to the Trustee the certificate or certificates for
such shares, including without limitation, shares of common stock or other
voting securities of the corporation resulting from the Second Merger. All such
certificates shall be duly endorsed or accompanied by proper instruments duly
executed for transfer thereof to the Trustee or otherwise validly and properly
transferred, and shall be exchanged for one or more Voting Trust Certificates
substantially in the form attached hereto as Exhibit A (the "Trust
Certificates"), with the blanks therein appropriately filled in. Voting Trust
Certificates executed in the form attached to the Original Voting Trust
Agreement as Exhibit A shall continue to be valid and obligatory and shall, from
and after the execution and delivery of this instrument, be deemed in every
respect to be Trust Certificates executed and delivered under this instrument.
All shares of Common Stock all other shares of common stock or other voting
securities at any time delivered to the Trustee hereunder are called the "Trust
Stock." The Trustee shall present to the Company all certificates representing
Trust Stock for surrender and cancellation and for the issuance and delivery to
the Trustee of new certificates registered in the name of the Trustee or its
nominee.
4. Powers of Trustee -- The Trustee shall be present, in person or
represented by proxy, at all annual and special meetings of shareholders of the
Company so that all Trust Stock may be counted for the purposes of determining
the presence of a quorum at such meetings. Parent and Acquiror agree, and the
Trustee acknowledges, that the Trustee shall not participate in or interfere
with the management of the Company and shall take no other actions with respect
to the Company except in accordance with the terms hereof. The Trustee shall
exercise all voting rights in respect of the Trust Stock to approve and effect
the Merger, and in favor of any proposal or action necessary or desirable to
effect, or consistent with the effectuation of, the Parent and Acquiror's
acquisition of the Company, pursuant to the Merger Agreement, and without
limiting the generality of the foregoing, if there shall be with respect to the
Board of Directors of the Company an "Election Contest" as defined in the Proxy
Rules of the Securities and Exchange Commission ("SEC"), in which one slate of
nominees shall support the effectuation of the Merger and another slate oppose
it, then the Trustee shall vote in favor of the slate supporting the
effectuation of the Merger. In addition, for so long as the Merger Agreement is
in effect, the Trustee shall exercise all voting rights in respect of the Trust
Stock, to
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cause any other proposed merger, business combination or similar transaction
(including, without limitation, any consolidation, sale or purchase of assets,
reorganization, recapitalization, liquidation or winding up of or by the
Company) involving the Company, but not involving the Parent or one of its
subsidiaries or affiliates (otherwise than in connection with a disposition
pursuant to Paragraph 8), not to be effected. In addition, the Trustee shall
exercise all voting rights in respect of the Trust Stock in favor of any
proposal or action necessary or desirable to dispose of Trust Stock in
accordance with Paragraph 8 hereof. Except as provided in the three immediately
preceding sentences, the Trustee shall vote all shares of Trust Stock with
respect to all matters, including without limitation the election or removal of
directors, voted on by the shareholders of the Company (whether at a regular or
special meeting or pursuant to a unanimous written consent) in the same
proportion as all shares of Common Stock (other than Trust Stock) are voted with
respect to such matters; provided that, except as provided in the three
immediately preceding sentences, from and after the effectiveness of the First
Merger, the Trustee shall vote all shares of Trust Stock in accordance with the
instructions of a majority of the persons who are currently the directors of the
Company and their nominees as successors and who shall then be directors of the
Company, except that the Trustee shall not vote the Trust Stock in favor of
taking or doing any act which violates the Merger Agreement or which if taken or
done prior to the consummation of the Merger would have been a violation of the
Merger Agreement; and except further that if there shall be no such persons
qualified to give such instructions hereunder, or if a majority of such persons
refuse or fail to give such instructions, then the Trustee shall vote the Trust
Stock in its sole discretion, having due regard for the interests of the holders
of Trust Certificates as investors in the stock of the Company, determined
without reference to such holders' interests in other railroads than the
subsidiaries of the Company. In exercising its voting rights in accordance with
this Paragraph 4, the Trustee shall take such actions at all annual, special or
other meetings of stockholders of the Company or in connection with any and all
consents of shareholders in lieu of a meeting.
5. FURTHER PROVISIONS CONCERNING VOTING OF TRUST STOCK -- The Trustee shall
be entitled and it shall be its duty to exercise any and all voting rights in
respect of the Trust Stock either in person or by proxy, as herein provided
(including without limitation Paragraphs 4 and 8(b) hereof), unless otherwise
directed by the STB or a court of competent jurisdiction. Subject to Paragraph
4, the Trustee shall not exercise the voting powers of the Trust Stock in any
way so as to create any dependence or intercorporate relationship between (i)
any or all of the Parent, the Acquiror and their affiliates, on the one hand,
and (ii) the Company or its affiliates, on the other hand. The term "affiliate"
or "affiliates" wherever used in this Trust Agreement shall have the meaning
specified in Section 11323(c) of Title 49 of the United States Code, as amended.
The Trustee shall not, without the prior approval of the STB, vote the
Trust Stock to elect any officer, director, nominee or representative of the
Parent, the Acquiror or their affiliates as an officer or director of the
Company or of any affiliate of the Company. The Trustee shall be kept informed
respecting the business operations of the Company by means of the financial
statements and other public disclosure documents periodically filed by the
Company and affiliates of the Company with the SEC and the STB, and by means of
information respecting the Company contained in such statements and other
documents filed by the Parent with the SEC and the STB, copies of which shall be
promptly furnished to the Trustee by the Company or the Parent, as the case may
be, and the Trustee shall be fully protected in relying upon such information.
Notwithstanding the foregoing provisions of this Paragraph 5 or any other
provision of this Agreement, however, the registered holder of any Trust
Certificate may at any time with the prior written approval of the
Company -- but only with the prior written approval of the STB -- instruct the
Trustee in writing to vote the Trust Stock represented by such Trust Certificate
in any manner, in which case the Trustee shall vote such shares in accordance
with such instructions.
6. TRANSFER OF TRUST CERTIFICATES -- Until the earlier of STB Denial or
December 31, 1998, the Trust Certificates shall be transferable only with the
prior written consent of the Company. They may be transferred on the books of
the Trustee by the registered holder upon the surrender thereof properly
assigned, in accordance with rules from time to time established for that
purpose by the Trustee. Until so transferred, the Trustee may treat the
registered holder as owner for all purposes. Each transferee of a Trust
Certificate issued hereunder shall, by his acceptance thereof, assent to and
become a party to this Trust Agreement, and shall
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assume all attendant rights and obligations. Any such transfer in violation of
this Paragraph 6 shall be null and void.
7. DIVIDENDS AND DISTRIBUTIONS -- Pending the termination of this Trust as
hereinafter provided, the Trustee shall, immediately following the receipt of
each cash dividend or cash distribution as may be declared and paid upon the
Trust Stock, pay the same over to or as directed by the Acquiror or to or as
directed by the holder of the Trust Certificates hereunder as then appearing on
the books of the Trustee. The Trustee shall receive and hold dividends and
distributions other than cash upon the same terms and conditions as the Trust
Stock and shall issue Trust Certificates representing any new or additional
securities that may be paid as dividends or otherwise distributed upon the Trust
Stock to the registered holders of Trust Certificates in proportion to their
respective interests.
8. DISPOSITION OF TRUST STOCK; TERMINATION OF TRUST -- (a) This Trust is
accepted by the Trustee subject to the right hereby reserved in the Parent at
any time to direct the sale or other disposition of the whole or any part of the
Trust Stock, but only as permitted by subparagraph (e) below, whether or not an
event described in subparagraph (b) below has occurred. The Trustee shall take
all actions reasonably requested by the Parent (including, without limitation,
exercising all voting rights in respect of Trust Stock) in favor of any proposal
or action necessary or desirable to effect, or consistent with the effectuation
of or with respect to any proposed sale or other disposition of the whole or any
part of the Trust Stock by the Acquiror or Parent that is otherwise permitted
pursuant to this Paragraph 8, including, without limitation, in connection with
the exercise by Parent of its registration rights under the Merger Agreement.
The Trustee shall be entitled to rely on a certification from the Parent, signed
by its President or one of its Vice Presidents and under its corporate seal,
that a disposition of the whole or any part of the Trust Stock is being made in
accordance with the requirements of subparagraph (e) below. In the event of a
permitted sale of Trust Stock by the Acquiror, the Trustee shall, to the extent
the consideration therefor is payable to or controllable by the Trustee,
promptly pay, or cause to be paid, upon the order of the Acquiror the net
proceeds of such sale to the registered holders of the Trust Certificates in
proportion to their respective interests. It is the intention of this Paragraph
that no violation of 49 U.S.C. Section 11323 will result from a termination of
this Trust.
(b) In the event the STB Approval shall have been granted, then immediately
upon the direction of the Parent and the delivery of a certified copy of such
order of the STB or other governmental authority with respect thereof, or, in
the event that Subtitle IV of Title 49 of the United States Code, or other
controlling law, is amended to allow the Acquiror, the Parent or their
affiliates to acquire control of the Company without obtaining STB or other
governmental approval, upon delivery of an opinion of independent counsel
selected by the Trustee that no order of the STB or other governmental authority
is required, and, in the event that shareholder approval of the First Merger
shall not have previously been obtained, with the prior written consent of the
Company, the Trustee shall either (x) transfer to or upon the order of the
Acquiror, the Parent or the holder or holders of Trust Certificates hereunder as
then appearing on the records of the Trustee, its right, title and interest in
and to all of the Trust Stock then held by it (or such portion as is represented
by the Trust Certificates in the case of such an order by such holders) in
accordance with the terms, conditions and agreements of this Trust Agreement and
not theretofore transferred by it as provided in subparagraph (a) hereof, or (y)
if shareholder approval has not previously been obtained for the First Merger or
the Second Merger, vote the Trust Stock in favor of the First Merger or the
Second Merger, and upon any such transfer of all of the Trust Stock, or any such
merger following such STB approval or law amendment permitting control without
governmental approval, this Trust shall cease and come to an end.
(c) In the event that (i) the STB Approval shall not have been obtained by
December 31, 1998, or (ii) there shall have been an STB Denial, Parent shall use
its best efforts to sell the Trust Stock during a period of two years after such
date or STB Denial, or such extension of that period as the STB shall approve.
Any such disposition shall be subject to the requirements of subparagraph (e)
below, and to any jurisdiction of the STB to oversee Parent's divestiture of
Trust Stock. At all times, the Trustee shall continue to perform its duties
under this Trust Agreement and, should Parent be unsuccessful in its efforts to
sell or distribute the Trust Stock during the period referred to, the Trustee
shall then as soon as practicable, and subject to the requirements of
subparagraph (e) below, sell the Trust Stock for cash to eligible purchasers in
such manner and for such price as the Trustee in its discretion shall deem
reasonable after consultation with Parent. (An
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"eligible purchaser" hereunder shall be a person or entity that is not
affiliated with Parent and which has all necessary regulatory authority, if any,
to purchase the Trust Stock.) Parent agrees to cooperate with the Trustee in
effecting such disposition and the Trustee agrees to act in accordance with any
direction made by Parent as to any specific terms or method of disposition, to
the extent not inconsistent with any of the terms of this Trust Agreement,
including subparagraph (e) below, and with the requirements of the terms of any
STB or court order. The proceeds of the sale shall be distributed to or upon the
order of Parent or, on a pro rata basis, to the holder or holders of the Trust
Certificates hereunder as then known to the Trustee. The Trustee may, in its
reasonable discretion, require the surrender to it of the Trust Certificates
hereunder before paying to the holder his share of the proceeds. Upon
disposition of all the Trust Stock pursuant to this paragraph 8(c), this Trust
shall cease and come to an end.
(d) Unless sooner terminated pursuant to any other provision herein
contained, this Trust Agreement shall terminate on December 31, 2016, and may be
extended by the parties hereto, so long as no violation of 49 U.S.C. Section
11323 will result from such termination or extension. All Trust Stock and any
other property held by the Trustee hereunder upon such termination shall be
distributed to or upon the order of the Acquiror. The Trustee may, in its
reasonable discretion, require the surrender to it of the Trust Certificates
hereunder before the release or transfer of the stock interests evidenced
thereby.
(e) No disposition of Trust Stock under this paragraph 8 or otherwise
hereunder shall be made except pursuant to one or more broadly distributed
public offerings and subject to all necessary regulatory approvals, if any.
Notwithstanding the foregoing, Trust Stock may be distributed as otherwise
directed by Parent (but, if prior to the earlier of (i) December 31, 1998, if
STB Approval shall not have by then been granted or (ii) the occurrence of an
STB Denial, only with the prior written consent of the Company), subject to any
order of the STB pursuant to any of its jurisdiction, in which case the Trustee
shall be entitled to rely on a certificate of Parent (acknowledged by the
Company) that such person or entity to whom the Trust Stock is disposed is not
an affiliate of the Parent and has all necessary regulatory authority, if any is
necessary, to purchase such Trust Stock. The Trustee shall promptly inform the
STB of any transfer or disposition of Trust Stock pursuant to this Paragraph 8.
Upon the transfer of all of the Trust Stock pursuant to this paragraph 8(e),
this Trust shall cease and come to an end.
(f) Except as expressly provided in this Paragraph 8, the Trustee shall not
dispose of, or in any way encumber, the Trust Stock, and any transfer, sale or
encumbrance in violation of the foregoing shall be null and void.
9. INDEPENDENCE OF THE TRUSTEE -- Neither the Trustee nor any affiliate of
the Trustee may have (i) any officers, or members of their respective boards of
directors, in common with the Acquiror, the Parent, or any affiliate of either,
or (ii) any direct or indirect business arrangements or dealings, financial or
otherwise, with the Acquiror, the Parent or any affiliate of either, other than
dealings pertaining to the establishment and carrying out of this voting trust.
Mere investment in the stock or securities of the Acquiror or the Parent or any
affiliate of either by the Trustee, short of obtaining a controlling interest,
will not be considered a proscribed business arrangement or dealing, but in no
event shall any such investment by the Trustee in voting securities of the
Acquiror, the Parent or their affiliates exceed five percent of their
outstanding voting securities and in no event shall the Trustee hold a
proportion of such voting securities so substantial as to permit the Trustee in
any way to control or direct the affairs of the Acquiror, the Parent or their
affiliates. Neither the Acquiror, the Parent nor their affiliates shall purchase
the stock or securities of the Trustee or any affiliate of the Trustee.
10. COMPENSATION OF THE TRUSTEE -- The Trustee shall be entitled to receive
reasonable and customary compensation for all services rendered by it as Trustee
under the terms hereof and said compensation to the Trustee, together with all
counsel fees, taxes, or other expenses reasonably incurred hereunder, shall be
promptly paid by the Acquiror or the Parent.
11. TRUSTEE MAY ACT THROUGH AGENTS -- The Trustee may at any time or from
time to time appoint an agent or agents and may delegate to such agent or agents
the performance of any administrative duty of the Trustee.
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12. CONCERNING THE RESPONSIBILITIES AND INDEMNIFICATION OF THE
TRUSTEE -- The Trustee shall not be liable for any mistakes of fact or law or
any error of judgment, or for any act or omission, except as a result of the
Trustee's willful misconduct or gross negligence. The Trustee shall not be
answerable for the default or misconduct of any agent or attorney appointed by
it in pursuance hereof if such agent or attorney has been selected with
reasonable care. The duties and responsibilities of the Trustee shall be limited
to those expressly set forth in this Trust Agreement. The Trustee shall not be
responsible for the sufficiency or the accuracy of the form, execution, validity
or genuineness of the Trust Stock, or of any documents relating thereto, or for
any lack of endorsement thereon, or for any description therein, nor shall the
Trustee be responsible or liable in any respect on account of the identity,
authority or rights of the persons executing or delivering or purporting to
execute or deliver any such Trust Stock or document or endorsement or this Trust
Agreement, except for the execution and delivery of this Trust Agreement by this
Trustee. The Acquiror and the Parent agree that they will at all times protect,
indemnify and save harmless the Trustee, its directors, officers, employees and
agents from any loss, cost or expense of any kind or character whatsoever in
connection with this Trust except those, if any, growing out of the gross
negligence or willful misconduct of the Trustee, and will at all times
themselves undertake, assume full responsibility for, and pay all costs and
expense of any suit or litigation of any character, including any proceedings
before the STB, with respect to the Trust Stock of this Trust Agreement, and if
the Trustee shall be made a party thereto, the Acquiror or the Parent will pay
all costs and expenses, including reasonable counsel fees, to which the Trustee
may be subject by reason thereof; provided, however, that the Acquiror and the
Parent shall not be responsible for the cost and expense of any suit that the
Trustee shall settle without first obtaining the Parent's written consent. The
Trustee may consult with counsel and the opinion of such counsel shall be full
and complete authorization and protection in respect of any action taken or
omitted or suffered by the Trustee hereunder in good faith and in accordance
with such opinion.
13. TRUSTEE TO GIVE ACCOUNT TO HOLDERS -- To the extent requested to do so
by the Acquiror or any registered holder of a Trust Certificate, the Trustee
shall furnish to the party making such request full information with respect to
(i) all property theretofore delivered to it as Trustee, (ii) all property then
held by it as Trustee, and (iii) all actions theretofore taken by it as Trustee.
14. RESIGNATION, SUCCESSION, DISQUALIFICATION OF TRUSTEE -- The Trustee, or
any trustee hereafter appointed, may at any time resign by giving forty-five
days' written notice of resignation to the Parent and the STB. The Parent shall
at least fifteen days prior to the effective date of such notice appoint a
successor trustee which shall (i) satisfy the requirements of Paragraph 9 hereof
and (ii) be a corporation organized and doing business under the laws of the
United States or of any State thereof and authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$50,000,000 and subject to supervision or examination by federal or state
authority. If no successor trustee shall have been appointed and shall have
accepted appointment at least fifteen days prior to the effective date of such
notice of resignation, the resigning Trustee may petition any competent
authority or court of competent jurisdiction for the appointment of a successor
trustee. Upon written assumption by the successor trustee of the Trustee's
powers and duties hereunder, a copy of the instrument of assumption shall be
delivered by the Trustee to the Parent and the STB and all registered holders of
Trust Certificates shall be notified of its assumption, whereupon the Trustee
shall be discharged of the powers and duties of the Trustee hereunder and the
successor trustee shall become vested with such powers and duties. In the event
of any material violation by the Trustee of the terms and conditions of this
Trust Agreement, the Trustee shall become disqualified from acting as trustee
hereunder as soon as a successor trustee shall have been selected in the manner
provided by this paragraph.
15. AMENDMENT -- Subject to the requirements of Section 1.9 of the Merger
Agreement, this Trust Agreement may from time to time be modified or amended by
agreement executed by the Trustee, the Acquiror (if executed prior to the
Merger), the Parent and all registered holders of the Trust Certificates (i)
pursuant to an order of the STB, (ii) with the prior approval of the STB, (iii)
in order to comply with any order of the STB or (iv) upon receipt of an opinion
of counsel satisfactory to the Trustee and the holders of Trust Certificates
that an order of the STB approving such modification or amendment is not
required and that the amendment is consistent with the STB's regulations
regarding voting trusts.
16. GOVERNING LAW; POWERS OF THE STB -- The provisions of this Trust
Agreement and of the rights and obligations of the parties hereunder shall be
governed by the laws of the State of Pennsylvania, except that to
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the extent any provision hereof may be found inconsistent with subtitle IV,
title 49, United States Code or regulations promulgated thereunder, such statute
and regulations shall control and such provision hereof shall be given effect
only to the extent permitted by such statute and regulations. In the event that
the STB shall, at any time hereafter by final order, find that compliance with
law requires any other or different action by the Trustee than is provided
herein, the Trustee shall act in accordance with such final order instead of the
provisions of this Trust Agreement.
17. COUNTERPARTS -- This Trust Agreement is executed in four counterparts,
each of which shall constitute an original, and one of which shall be held by
each of the Parent and the Acquiror and the other two shall be held by the
Trustee, one of which shall be subject to inspection by holders of Trust
Certificates on reasonable notice during business hours.
18. FILING WITH THE STB -- A copy of this Agreement and any amendments or
modifications thereto shall be filed with the STB by the Acquiror.
19. SUCCESSORS AND ASSIGNS -- This Trust Agreement shall be binding upon
the successors and assigns to the parties hereto, including without limitation
successors to the Acquiror and the Parent by merger, consolidation or otherwise.
The parties agree that the Company shall be an express third party beneficiary
of this Trust Agreement through and including the earlier of (i) December 31,
1998, if STB Approval shall not have been granted or (ii) the occurrence of an
STB Denial, but that thereafter the Company shall not be any such third-party
beneficiary. Except as otherwise expressly set forth herein, any consent or
approval required from the Company hereunder shall mean the prior written
consent or approval by a duly adopted resolution of the Company's board of
directors, or by its duly authorized officer or other representative, and shall
be granted or withheld in the sole discretion of such board, officer or
representative.
20. SUCCESSION OF FUNCTIONS -- The term "STB" includes any successor agency
or governmental department that is authorized to carry out the responsibilities
now carried out by the STB with respect to the consideration of the consistency
with the public interest of rail mergers and combinations, the regulation of
voting trusts in respect of the acquisition of securities of rail carriers or
companies controlling them, and the exemption of approved rail mergers and
combinations from the antitrust laws.
21. NOTICES -- Any notice which any party hereto may give to the other
hereunder shall be in writing and shall be given by hand delivery, or by first
class registered mail, or by overnight courier service, or by facsimile
transmission confirmed by one of the aforesaid methods, sent,
If to Purchaser or Acquiror, to:
CSX Corporation
One James Center
901 East Cary Street
Richmond, Virginia 23219
Attention: General Counsel
If to the Trustee, to:
Deposit Guaranty National Bank
One Deposit Guaranty Plaza,
8th Floor
Jackson, Mississippi 39201
Attention: Corporate Trust Department
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With a required copy to:
Deposit Guaranty National Bank
c/o Commercial National Bank In Shreveport
333 Texas Street
Shreveport, LA 71101
Attention: Corporate Trust Department
And if to the holders of Trust Certificates, to them at their addresses as shown
on the records maintained by the Trustee.
22. REMEDIES -- Each of the parties hereto acknowledges and agrees that in
the event of any breach of this Agreement, each non-breaching party would be
irreparably and immediately harmed and could not be made whole by monetary
damages. It is accordingly agreed that the parties hereto (a) will waive, in any
action for specific performance, the defense of adequacy of a remedy at law and
(b) shall be entitled, in addition to any other remedy to which they may be
entitled at law or in equity, to an order compelling specific performance of
this Agreement in any action instituted in any state or federal court sitting in
Philadelphia, Pennsylvania. Each party hereto consents to personal jurisdiction
in any such action brought in any state or federal court sitting in
Philadelphia, Pennsylvania.
IN WITNESS WHEREOF, CSX Corporation and Green Acquisition Corp. have caused
this Amended and Restated Trust Agreement to be executed by their authorized
officers and their corporate seals to be affixed, attested by their Secretaries
or Assistant Secretaries, and Deposit Guaranty National Bank has caused this
Amended and Restated Trust Agreement to be executed by its authorized officer or
agent and its corporate seal to be affixed, attested to by its Secretary or one
of its Assistant Secretaries or other authorized agent, all as of the day and
year first above written.
Attest: CSX CORPORATION
- --------------------------------------------- By
---------------------------------------------
Secretary
Attest: GREEN ACQUISITION CORP.
- --------------------------------------------- By
---------------------------------------------
Secretary
Attest: DEPOSIT GUARANTY NATIONAL BANK
- --------------------------------------------- By
---------------------------------------------
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EXHIBIT A TO
EXHIBIT E TO
MERGER AGREEMENT
No.
- ------------------------------------
------------------ Shares
VOTING TRUST CERTIFICATE
FOR
COMMON STOCK
OF
CONRAIL INC.
INCORPORATED UNDER THE LAWS OF
THE STATE OF PENNSYLVANIA
THIS IS TO CERTIFY that will be entitled, on the surrender of
this Certificate, to receive on the termination of the Voting Trust Agreement
hereinafter referred to, or otherwise as provided in Paragraph 8 of said Voting
Trust Agreement, a certificate or certificates for shares of the
Common Stock, $1.00 par value, of Conrail Inc., a Pennsylvania corporation (the
"Company," which term shall instead refer, from and after the effectiveness of
the Second Merger, to the corporation resulting from the Second Merger, as
defined under the Voting Trust Agreement). This Certificate is issued pursuant
to, and the rights of the holder hereof are subject to and limited by, the terms
of an Amended and Restated Voting Trust Agreement, dated as of December 18,
1996, executed by CSX Corporation, a Virginia corporation, Green Acquisition
Corp., a Pennsylvania corporation, and Deposit Guaranty National Bank, as
Trustee (as it may be amended from time to time, the "Voting Trust Agreement"),
a copy of which Voting Trust Agreement is on file in the office of said Trustee
at One Deposit Guaranty Plaza, 8th Floor, Jackson, Mississippi 39201 and open to
inspection of any stockholder of the Company and the holder hereof. The Voting
Trust Agreement, unless earlier terminated (or extended) pursuant to the terms
thereof, will terminate on December 31, 2016, so long as no violation of 49
U.S.C. Section 11323 will result from such termination.
The holder of this Certificate shall be entitled to the benefits of said
Voting Trust Agreement, including the right to receive payment equal to the cash
dividends, if any, paid by the Company with respect to the number of shares
represented by this Certificate.
This Certificate shall be transferable only on the books of the undersigned
Trustee or any successor, to be kept by it, on surrender hereof by the
registered holder in person or by attorney duly authorized in accordance with
the provisions of said Voting Trust Agreement, and until so transferred, the
Trustee may treat the registered holder as the owner of this Voting Trust
Certificate for all purposes whatsoever, unaffected by any notice to the
contrary.
By accepting this Certificate, the holder hereof assents to all the
provisions of, and becomes a party to, said Voting Trust Agreement.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be signed by
its officer duly authorized.
Dated: DEPOSIT GUARANTY
NATIONAL BANK
By
--------------------------------------
Authorized Officer
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[FORM OF BACK OF VOTING TRUST CERTIFICATE]
FOR VALUE RECEIVED hereby sells, assigns, and transfers unto
the within Voting Trust Certificate and all rights and interests represented
thereby, and does hereby irrevocably constitute and appoint Attorney
to transfer said Voting Trust Certificate on the books of the within mentioned
Trustee, with full power of substitution in the premises.
--------------------------------------
Dated:
In the Presence of:
- ------------------------------------------
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EXHIBIT H
CONVERTIBLE PREFERRED STOCK
Type: Convertible preferred stock(1)
Amount: $ million ($16 per share)- million shares
Liquidation
Preference: $50 per share
Maturity: [7-10 years, perpetual]
Yield: Quarterly, market yield such that securities are expected to trade at par
on a fully distributed basis.
Conversion
Premium: [20%-25%] Established relative to [10-20] day average closing price ending
2 days before distribution of the security.
Call Protection: [3-4] years. Standard redemption schedule thereafter.
Fundamental
Change: Upon the occurrence of a fundamental change (i.e. a merger or acquisition
of the issuer for consideration which is not all or substantially all
common stock) the conversion price will be adjusted downward if necessary
to insure that the preferred share is convertible into consideration worth
at least the prevailing redemption price. (Standard for convertible
preferred stock underwritten by Conrail's and CSX's financial advisors).
Antidilution
Language: Standard for convertible preferred stock underwritten by Conrail's and
CSX's financial advisors.
- ---------------
(1) May be trust convertible preferred stock.
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APPENDIX B
MORGAN STANLEY & CO. INCORPORATED
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 761-4000
December 18, 1996
Board of Directors
Conrail Inc.
2000 Market Street
Philadelphia, PA 19101-1422
Gentlemen and Mesdames:
We understand that Conrail Inc. (the "Company"), CSX Corporation ("CSX")
and Green Acquisition Corp., a wholly-owned subsidiary of CSX ("Acquisition
Sub"), have entered into an Agreement and Plan of Merger, dated as of October
14, 1996 as amended as of November 5, 1996, and as further amended as of
December 18, 1996 (collectively, the "Merger Agreement"). Pursuant to the Merger
Agreement, on November 21, 1996, Acquisition Sub accepted for payment pursuant
to an offer to purchase (the "First Offer") 19.9% of the issued and outstanding
shares of common stock, par value $1 per share (the "Company Common Stock"), and
Series A ESOP Convertible Junior Preferred Stock (together with the Company
Common Stock, the "Shares") of the Company, for $110.00 per share net to the
seller in cash (the "Offer Consideration"). The terms of the Merger Agreement
provided, among other things, that: (i) if certain conditions are satisfied,
Acquisition Sub will accept for payment pursuant to an offer to purchase (the
"Second Offer" and, together with the First Offer, the "Offer") additional
Shares such that the Shares purchased in the First Offer and the Second Offer
will total a number of Shares (the "Designated Number") equal to 40% of the
fully-diluted Shares, excluding the Option Shares referred to below (the
"Diluted Shares"); and (ii) upon the receipt of certain shareholder approvals
and satisfaction of other conditions thereto, pursuant to the First Merger and
Second Merger (each as defined in the Merger Agreement and collectively referred
to herein as the "Merger", and the "Merger" together with the Offer, the
"Transaction"), the surviving corporation will become a wholly-owned subsidiary
of CSX and each outstanding share of the Company Common Stock, other than shares
held in treasury or held by CSX or its subsidiaries, will be converted into the
right to receive (x) 1.85619 shares of common stock, par value $1.00 per share
(the "CSX Common Stock"), of CSX (the "Stock Consideration" and, together with
the Offer Consideration, the "Merger Consideration," and the Merger
Consideration, together with the Offer Consideration, the "Consideration"); and
(y) convertible preferred stock of CSX ("Additional Securities") having a
fully-distributed trading value equal to $16 per Share to be determined in
accordance with the terms of the Merger Agreement; provided that if less than
the Designated Number of Shares are purchased pursuant to the Offer, the
Consideration will be adjusted so that when taken together with the Offer, 60%
of the Fully Diluted Shares will each have been converted into the right to
receive the Merger Consideration, and 40% of the Fully Diluted Shares will have
received or been converted into the right to receive an amount of cash equal to
the Offer Consideration. The terms and conditions of the Offer and the Merger
are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Consideration to be
received by the holders of Shares pursuant to the Offer and the Merger, taken
together, is fair from a financial point of view to such holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly-available financial statements and other
information of the Company and CSX, respectively;
218
(ii) reviewed certain internal financial statements and other financial
and operating data concerning the Company and CSX prepared by the
managements of the Company and CSX, respectively;
(iii) reviewed certain financial projections for CSX prepared by the
management of CSX;
(iv) reviewed certain financial projections, including estimates of
certain potential benefits of the proposed business combination,
prepared by the management of the Company;
(v) discussed, on a limited basis, the past and current operations and
financial condition and the prospects of the Company and CSX with
senior executives of the Company and CSX, respectively;
(vi) reviewed the reported prices and trading activity for the Company
Common Stock and the CSX Common Stock;
(vii) compared the financial performance of the Company and CSX and the
prices and trading activity of the Company Common Stock and the
CSX Common Stock with that of certain other comparable,
publicly-traded companies and their securities;
(viii) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
(ix) participated in discussions among representatives of the Company,
CSX and their financial and legal advisors;
(x) reviewed the Merger Agreement and certain related documents; and
(xi) performed such other analyses and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, including estimates of
certain potential benefits of the proposed business combination, we have assumed
that they have been reasonably prepared on bases reflecting the best
currently-available estimates and judgment of the future financial performance
of the Company and CSX, respectively. We have not made any independent valuation
or appraisal of the assets or liabilities of the Company or CSX, nor have we
been furnished with any such appraisals. In arriving at our opinion, we have
assumed (i) that the Merger will qualify as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended, and (ii)
that obtaining all the necessary regulatory and governmental approvals for the
Merger will not have an adverse effect on the Company, CSX or on the trading
value of the CSX Common Stock or the Additional Securities. We have assumed that
the Offer and the Merger will be consummated substantially in accordance with
the terms set forth in the Merger Agreement, without any waiver of any material
terms or conditions by any party thereto. Our opinion is necessarily based on
economic, market and other conditions in effect on, and the information made
available to us as of, the date thereof. In arriving at our opinion, we were not
authorized to solicit, and did not solicit, interest from any party with respect
to the acquisition of the Company or any of its assets.
We have been engaged to provide this opinion to the Board of Directors of
the Company in connection with this transaction and will receive a fee for our
services. In the past, Morgan Stanley & Co. Incorporated and its affiliates have
provided financial advisory and financing services for the Company and CSX and
have received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company with the Securities and Exchange Commission
with respect to the Offer and the Merger. In addition, we express no opinion and
make no recommendation as to whether the holders of the Company Common Stock
should tender such shares pursuant to the Offer or vote at the stockholders'
meeting held in connection with the Merger.
219
As you know, on October 24, 1996, Norfolk Southern Corporation commenced a
tender offer (the "NSC Offer") for all of the outstanding Shares at a price per
Share of $100 net in cash, which per Share price was increased to $110 on
November 8, 1996. Counsel to the Company has advised the Company's Board of
Directors that the fact that the NSC Offer is subject to, among other
conditions, the termination of the Merger Agreement, and that the Company is
currently contractually prohibited from terminating the Merger Agreement
pursuant to Section 4.2(b) thereof creates significant legal uncertainty
relating to the consummation of the NSC Offer. Counsel to the Company has
advised the Company's Board of Directors that, under Pennsylvania law, in
considering a proposed business combination, the Company's Board of Directors is
empowered to take into account the long-term interests of the Company and all of
its constituencies, not solely the highest price for the Company's Shares.
Accordingly, at your request, in rendering our opinion, we did not address the
relative merits of the Transaction, including said Section 4.2(b), the NSC Offer
and any alternative potential transaction.
Based on the foregoing, we are of the opinion on the date thereof that the
Consideration to be received by the holders of Shares pursuant to the Offer and
the Merger, taken together, is fair from a financial point of view to such
holders (other than CSX, Acquisition Sub or any other subsidiary of CSX).
Very truly yours,
MORGAN STANLEY & CO., INCORPORATED
By: /s/ Mahmoud A. Mamdani
------------------------------------
Mahmoud A. Mamdani
Managing Director
220
New York
LAZARD FRERES & CO. LLC
30 ROCKEFELLER PLAZA
NEW YORK, N.Y. 10020
------------------------
TELEPHONE (212) 632-6000
FACSIMILE (212) 632-6060
December 18, 1996
The Board of Directors
Conrail Inc.
2001 Market Street
Philadelphia, PA 19103
Dear Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of shares of Common Stock, par value $1 per share
("Common Stock"), and of Series A ESOP Convertible Preferred Stock (such
Preferred Stock together with the Common Stock is referred to as the "Shares")
of Conrail Inc. (the "Company") of the consideration to be received in a series
of transactions (collectively, the "Transactions") pursuant to the Agreement and
Plan of Merger among the Company, CSX Corporation ("CSX") and Green Acquisition
Corp. ("Tender Sub"), dated as of October 14, 1996 (collectively the "Merger
Agreement"). Pursuant to the Merger Agreement, on November 21, 1996, Tender Sub
accepted for payment pursuant to an offer to purchase (the "First Offer") 19.9%
of the outstanding Shares at a price of $110.00 per share net in cash (the
"Offer Consideration"). The terms of the Merger Agreement provide, among other
things, that (i) if certain conditions are satisfied, Tender Sub will accept for
payment pursuant to an offer to purchase (the "Second Offer" and together with
the First Offer, the "Offer") additional Shares such that the Shares purchased
in the First Offer and the Second Offer will total a number of Shares (the
"Designated Number") equal to 40% of the fully diluted Shares excluding the
Option Shares referred to below (the "Fully Diluted Shares") and (ii) subject
to, among other things, the favorable required vote of holders of Shares,
pursuant to the First Merger and the Second Merger (each as defined in the
Merger Agreement and collectively referred to herein as the "Merger"), each
remaining outstanding Share (other than Shares owned by the Company as treasury
stock or owned by CSX, Tender Sub or any other subsidiary of CSX and other than
Shares held by holders who properly exercise and perfect dissenter's rights, if
any) will be converted into the right to receive (the "Merger Consideration")
(x) 1.85619 shares of Common Stock of CSX, par value $1.00 per share ("CSX
Common Stock"), and (y) convertible preferred stock of CSX (the "Additional
Securities") having a value to be determined in accordance with the terms of the
Merger Agreement on a fully distributed basis equal to $16 per Share; provided
that if less than the Designated Number of Shares is purchased pursuant to the
Offer, the Merger Consideration will be adjusted so that when taken together
with the Offer, 60 percent of the Fully Diluted Shares will each have been
converted into the right to receive the Merger Consideration and 40 percent of
the Fully Diluted Shares will have received or been converted into the right to
receive an amount of cash equal to the Offer Consideration. The Offer
Consideration and the Merger Consideration are collectively referred to herein
as the "Consideration."
In connection with the rendering of this opinion, we have:
(i) Reviewed the terms and conditions of the Merger Agreement and the
financial terms of the Transactions, all as set forth in the Merger
Agreement, and the option agreement between Company and CSX pursuant to
which CSX was granted the right to purchase shares of Common Stock (the
"Option Shares") and the option agreement between CSX and the Company
pursuant to which the Company was granted the right to purchase shares of
CSX Common Stock, each dated October 14, 1996 (collectively, the "Option
Agreements");
221
(ii) Analyzed certain historical business and financial information
relating to the Company and CSX;
(iii) Reviewed certain financial forecasts and other data provided to
us by the Company and CSX relating to the businesses of the Company and
CSX, respectively, including the most recent business plan for the Company
prepared by the Company's senior management, in the form furnished to us;
(iv) Conducted discussions with members of the senior managements of
the Company and CSX with respect to the businesses and prospects of the
Company and CSX, respectively, the strategic objectives of each and
possible benefits which might be realized following the Merger;
(v) Reviewed public information with respect to certain other
companies in the lines of businesses we believe to be generally comparable
in whole or in part to the businesses of the Company and CSX and reviewed
the financial terms of certain other business combinations involving
companies in lines of businesses we believe to be generally comparable in
whole or in part to the businesses of the Company and CSX that have
recently been effected;
(vi) Reviewed the historical stock prices and trading volumes of
Common Stock and CSX Common Stock; and
(vii) Conducted such other financial studies, analyses and
investigations as we deemed appropriate.
We have relied upon the accuracy and completeness of the foregoing
financial and other information and have not assumed any responsibility for
independent verification of such information or any independent valuation or
appraisal of any of the assets of the Company or CSX nor have we been furnished
with any such appraisals. With respect to financial forecasts, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of managements of the Company and CSX as to
the future financial performance of the Company and CSX, respectively. We assume
no responsibility for and express no view as to such forecasts or the
assumptions on which they are based.
Our opinion is necessarily based on economic, monetary, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
In rendering our opinion, we have assumed that (i) the Transactions will be
consummated substantially on the terms described in the Merger Agreement,
without any waiver of any material terms or conditions by any party thereto, and
that obtaining the necessary regulatory approvals for the Transactions will not
have an adverse effect on CSX or the Company or on the trading value of CSX
Common Stock or the Additional Securities and (ii) the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended. We were not requested to, and did not, solicit third party
offers to acquire all or any part of the Company.
We are acting as financial advisor to the Company's Board of Directors in
connection with the Transactions and will receive fees for such services, a
substantial portion of which fees are contingent upon the consummation of the
Transactions. Our Firm has in the past provided and is currently providing
investment banking and financial advisory services to the Company and has
revived customary fees for rendering such services. Our Firm has in the past
also provided investment banking and financial advisory services to CSX and has
received customary fees for rendering such services.
Our engagement and the opinion expressed herein are for the benefit of the
Company's Board of Directors and our opinion is rendered in connection with its
consideration of the Transactions. This opinion is not intended to and does not
constitute a recommendation to any holder of Shares as to whether such holder
should tender Shares pursuant to the Offer or vote to approve the Merger
Agreement and the transactions contemplated thereby. It is understood that,
except for inclusion of this letter in its entirety in a proxy statement or
tender offer recommendation statement on Schedule 14D-9 from the Company to
holders of Shares relating to the Transactions,this letter may not be disclosed
or otherwise referred to without our prior written consent, except as may
otherwise be required by law or by a court of competent jurisdiction.
222
As you know, on October 24, 1996, Norfolk Southern Corporation commenced a
tender offer (the "NSC Offer") for all of the outstanding Shares at a price per
Share of $100 net in cash, which per Share price was increased to $110 on
November 8, 1996. Counsel to the Company has advised the Company's Board of
Directors that the fact that the NSC Offer is subject to, among other
conditions, the termination of the Merger Agreement and that the Company is
currently contractually prohibited from terminating the Merger Agreement
pursuant to Section 4.2(b) thereof creates significant legal uncertainty
relating to the consummation of the NSC Offer. Counsel to the Company has
advised the Company's Board of Directors that, under Pennsylvania law, in
considering a proposed business combination, the Company's Board of Directors is
empowered to take into account the long-term interests of the Company and all of
its constituencies, not solely the highest price for the Company's Shares.
Accordingly, at your request, in rendering our opinion, we did not address the
relative merits of the Transactions, including said Section 4.2(b), the NSC
Offer and any alternative potential transactions.
Based on and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Consideration to be received by the holders of Shares
pursuant to the Offer and the Merger, when taken together, is fair to such
holders (other than CSX, Tender Sub or any other subsidiary of CSX), from a
financial point of view.
Very truly yours,
LAZARD FRERES & CO. LLC
By: /s/ J. Robert Lovejoy
------------------------------------
Managing Director
223
APPENDIX C
wasserstein logo Wasserstein Perella & Co., Inc.
31 West 52nd Street
New York, New York 10019
Telephone 212-969-2700
Fax 212-969-7836
December 18, 1996
Board of Directors
CSX Corporation
One James Center
Richmond, Virginia 23219
Members of the Board:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to CSX Corporation ("CSX") of the consideration to be
paid by CSX pursuant to the terms of the Agreement and Plan of Merger, dated as
of October 14, 1996, as amended by the First Amendment to Agreement and Plan of
Merger, dated as of November 5, 1996, and the Second Amendment to Agreement and
Plan of Merger, dated as of December 18, 1996 (as so amended and together with
the exhibits and annexes thereto, the "Merger Agreement"), by and among CSX,
Green Acquisition Corp., a wholly owned subsidiary of CSX ("CSX Sub"), and
Conrail Inc. ("Conrail").
The Merger Agreement provides for, among other things, cash tender offers
(the "Tender Offers") by CSX Sub to acquire up to an aggregate of 40% of the
outstanding Conrail Shares and ESOP Preferred Stock (each as defined below and,
in each case, including the associated common share purchase rights) for $110.00
per share (the "Tender Offer Consideration"), and for the subsequent Merger (as
defined in the Merger Agreement and, together with the Tender Offers, the
"Transaction") pursuant to which each remaining outstanding Conrail Share will
be converted into the right to receive either (i) $110.00 per share (the "Merger
Cash Consideration") (if, and to the extent that, CSX Sub has previously
acquired less than an aggregate of 40% of the outstanding Conrail Shares, as
determined below, for cash); (ii) 1.85619 shares (the "Common Stock Exchange
Ratio") of common stock, par value $1.00 per share, of CSX (the "CSX Common
Shares") and such number of shares of convertible preferred stock of CSX or
trust convertible preferred securities (the "CSX Merger Securities" and,
together with the CSX Common Shares, the "CSX Shares") as, in the opinion of
certain financial advisors, is valued prior to the Meetings (as hereinafter
defined) at $16.00 on a fully distributed basis (the "Preferred Stock Exchange
Ratio" and, together with the Common Stock Exchange Ratio and the Merger Cash
Consideration, the "Merger Consideration"); or (iii) a combination of cash and
CSX Shares. For purposes of this opinion, "Conrail Shares" shall mean the
outstanding shares, on a fully diluted basis, of common stock, par value $1.00
per share, of Conrail (the "Conrail Common Stock") (including Conrail Common
Stock issuable upon conversion of the Series A ESOP Convertible Junior Preferred
Stock, without par value, of Conrail (the "ESOP Preferred Stock") but excluding
Conrail Common Stock outstanding or issuable upon conversion of the Green Stock
Option (as defined in the Merger Agreement)). We understand that the
consummation of the Merger is conditioned on, among other things, Conrail's
stockholders' approval of the Merger and CSX's stockholders' approval of certain
matters related to the Merger (including the amendment to CSX's Articles of
Incorporation to increase the authorized CSX Shares and to authorize the
issuance of the CSX Shares) at special meetings of stockholders (the "Meetings")
to be convened for that purpose. We also understand that, following consummation
of the Tender Offers and prior to the Merger, CSX may purchase (in addition to
the Conrail Shares, if any, purchased in the Tender Offers) additional Conrail
Shares, upon the terms and conditions set forth in the Merger Agreement. The
terms and conditions of the Transaction are set forth in the Offers to Purchase
224
Board of Directors of CSX Corporation
December 18, 1996
Page 2
relating to the Tender Offers, as they have been amended and supplemented to the
date of this opinion (the "Offers to Purchase"), and in the Merger Agreement.
In connection with rendering our opinion, we have reviewed the Offers to
Purchase and the Merger Agreement. We have also reviewed and analyzed certain
publicly available business and financial information relating to CSX and
Conrail for recent years and interim periods to date, as well as certain
internal financial and operating information, including financial forecasts,
prepared by or on behalf of CSX and Conrail and provided to us for purposes of
our analysis, and we have met with management of CSX and Conrail to review and
discuss such information and, among other matters, CSX's and Conrail's
respective businesses, operations, assets, financial condition and future
prospects.
We have also reviewed and considered certain financial and stock market
data relating to CSX and Conrail, and we have compared that data with similar
data for certain other companies, the securities of which are publicly traded,
that we believe may be relevant or comparable in certain respects to CSX and
Conrail or one or more of their respective businesses or assets, and we have
reviewed and considered the financial terms of certain recent acquisitions and
business combinations which we believe to be reasonably comparable to the
Transaction or otherwise relevant to our inquiry. We have considered the
relative cost savings and other operating efficiencies expected to result from
consummation of the Transaction and have compared such expected synergies with
those realized and reported in other recent acquisitions and business
combinations which we believe to be reasonably comparable to the Transaction. We
also performed such other studies, analyses and investigations and reviewed such
other information as we considered appropriate.
In addition, in our review and analysis and in formulating our opinion, we
have assumed and relied upon the accuracy and completeness of all the financial
and other information provided to or discussed with us or publicly available,
and we have not assumed any responsibility for independent verification of any
of such information. We have also relied upon the reasonableness and accuracy of
the financial forecasts (including estimates of the cost savings and other
operating efficiencies expected to result from consummation of the Transaction)
provided to us and we have assumed, with your consent, that the financial
forecasts and estimates provided to us were reasonably prepared in good faith
and on bases reflecting the best currently available judgments and estimates of
the managements of CSX and Conrail, and we express no opinion with respect to
such forecasts or estimates or the assumptions upon which they are based. In
addition, we have not reviewed any of the books and records of CSX or Conrail or
assumed any responsibility for conducting a physical inspection of the
properties or facilities of CSX or Conrail, or for making or obtaining an
independent valuation or appraisal of the assets or liabilities of CSX or
Conrail and we have not been furnished any such valuation or appraisal. We have
assumed that the Transaction will be consummated on the terms set forth in the
Merger Agreement, without any waiver of any of the terms and conditions thereof
by CSX. Our opinion is necessarily based on economic and market conditions and
other circumstances as they exist and can be evaluated by us as of the date
hereof.
In rendering our opinion, we have also assumed, with your consent and
without independent inquiry, that all regulatory and other approvals required to
consummate the Transaction will be received in the manner contemplated by the
Merger Agreement, and that, in the course of obtaining such approvals, no
restrictions will be imposed that will have a material adverse effect on the
contemplated benefits of the Transaction to CSX.
We are acting as financial advisor to CSX in connection with the proposed
Transaction and will receive a fee for our services, a major portion of which is
contingent upon the consummation of the Transaction. We also have committed to
participate as dealer manager in connection with the Tender Offers. We have
performed financial advisory services for CSX from time to time in the past and
have received customary fees for rendering such services, and we may provide
investment banking services to CSX in the future.
225
Board of Directors of CSX Corporation
December 18, 1996
Page 3
Our opinion addresses only the fairness from a financial point of view to
CSX of the per share Tender Offer Consideration and the Merger Consideration,
taken together, to be paid by CSX pursuant to the Merger Agreement. We do not
express any views on any other terms of the Transaction. Specifically, our
opinion does not address CSX's underlying business decision to effect the
Transaction.
It is understood that this letter is solely for the benefit and use of the
Board of Directors of CSX in its consideration of the Transaction. Except for
inclusion in a proxy statement relating to the Merger or as may otherwise be
required by law or by a court of competent jurisdiction, this letter may not be
disclosed or otherwise referred to without our prior written consent. This
opinion does not constitute a recommendation to any shareholder with respect to
how such holder should vote with respect to the Merger and should not be relied
upon as such, and we are expressing no opinion herein as to the prices at which
any security of CSX or Conrail may trade following the announcement or
completion of the Transaction.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of the date hereof,
the per share Tender Offer Consideration and the Merger Consideration to be paid
by CSX pursuant to the Merger Agreement, taken together, are fair to CSX from a
financial point of view.
Very truly yours,
/s/ WASSERSTEIN PERELLA & CO. INC.
WASSERSTEIN PERELLA & CO., INC.
226
APPENDIX D
FORM OF
AMENDED AND RESTATED
ARTICLES OF INCORPORATION*
ARTICLE I
NAME
The name of the Corporation is [Text Deleted].
ARTICLE II
PURPOSE
The purpose for which the Corporation is organized is to transact any
lawful business not required to be specifically stated in the Articles of
Incorporation.
ARTICLE III
AUTHORIZED STOCK
3.1 Number and Designation. (a) The Corporation shall have authority to
issue six hundred million (600,000,000) shares of Common Stock, par value $1.00
per share, twenty-five million (25,000,000) shares of Serial Preferred Stock,
without par value, and seventy million (70,000,000) shares of Preferred Stock,
without par value.
(b) The Board of Directors may determine the preferences, limitations and
relative rights, to the extent permitted by the Virginia Stock Corporation Act,
of any class of shares of Preferred Stock before the issuance of any shares of
that class, or of one or more series within a class before the issuance of any
shares of that series. Each class or series shall be appropriately designated by
a distinguishing designation prior to the issuance of any shares thereof. Except
to the extent otherwise permitted by the Virginia Stock Corporation Act, the
Preferred Stock of a series shall have preferences, limitations and relative
rights identical with those of other shares of the same series and, except to
the extent otherwise provided in the description of the series, with those of
shares of other series of the same class.
(c) Prior to the issuance of any shares of a class or series of Preferred
Stock, (1) the Board of Directors shall establish such class or series by
adopting a resolution and by filing with the State Corporation Commission of
Virginia articles of amendment setting forth the designation and number of
shares of the class or series and the preferences, limitations and relative
rights thereof and (2) the State Corporation Commission of Virginia shall have
issued a certificate of amendment with respect thereto.
3.2 Preemptive Rights. No holder of capital stock of the Corporation of
any class shall have any preemptive right to subscribe to or purchase (i) any
shares of capital stock of this Corporation, (ii) any securities convertible
into such shares or (iii) any options, warrants or rights to purchase such
shares or securities convertible into any such shares.
- ---------------
* Amendments are underlined herein.
D-1
227
ARTICLE IV
SERIAL PREFERRED STOCK
4.1 Issuance in Series. The Board of Directors is hereby empowered to
cause the Serial Preferred Stock of the Corporation to be issued in series with
such of the variations permitted by clauses (a)-(h), both inclusive, of this
Section 4.1 as shall have been fixed and determined by the Board of Directors
with respect to any series prior to the issue of any shares of such series.
The shares of the Serial Preferred Stock of different series may vary as
to:
(a) the number of shares constituting such series and the designation
of such series, which shall be such as to distinguish the shares thereof
from the shares of all other series and classes;
(b) the rate of dividend, the time of payment and, if cumulative, the
dates from which dividends shall be cumulative, and the extent of
participation rights, if any;
(c) any right to vote with holders of shares of any other series or
class and any right to vote as a class, either generally or as a condition
to specified corporate action;
(d) the price at and the terms and conditions on which shares may be
redeemed;
(e) the amount payable upon shares in event of involuntary
liquidation;
(f) the amount payable upon shares in event of voluntary liquidation;
(g) any sinking fund provisions for the redemption or purchase of
shares; and
(h) the terms and conditions on which shares may be converted, if the
shares of any series are issued with the privilege of conversion.
The shares of all series of Serial Preferred Stock shall be identical
except as, within the limits set forth above in this Section 4.1, shall have
been fixed and determined by the Board of Directors prior to the issuance
thereof.
[Text Deleted] On the date of these Amended and Restated Articles of
Incorporation, there were authorized, but unissued, 3,000,000 shares of the
Series B Junior Participating Preferred Stock. The date on which such series was
authorized by the Board of Directors and the preferences, limitations and
relative rights of the shares of such series was set forth in Article X prior to
the date of these Amended and Restated Articles of Incorporation. Prior to the
date of these Amended and Restated Articles of Incorporation, the Corporation
had issued the Series A $7.00 Cumulative Convertible Preferred Stock, the Market
Auction Preferred Stock, Series C-1 and the Market Auction Preferred Stock,
Series C-2. On that date all of the shares of each of the aforesaid series which
had been issued had been redeemed by the Corporation and no share of any such
series remained issued and outstanding. Each such series provided that shares of
the series, when purchased, redeemed or otherwise acquired by the Corporation,
would become authorized but unissued shares of Preferred Stock, undesignated as
to series.
4.2 Dividends. The holders of the Serial Preferred Stock of each series
shall be entitled to receive, if and when declared payable by the Board of
Directors, dividends in lawful money of the United States of America, at the
dividend rate for such series, and not exceeding such rate except to the extent
of any participation right. Such dividends shall be payable on such dates as
shall be fixed for such series. Dividends, if cumulative and in arrears, shall
not bear interest.
No dividends shall be declared or paid upon or set apart for the Common
Stock or for stock of any other class hereafter created ranking junior to the
Serial Preferred Stock in respect of dividends or assets (hereinafter called
Junior Stock), and no shares of Serial Preferred Stock, Common Stock or Junior
Stock shall be purchased, redeemed or otherwise reacquired for a consideration,
nor shall any funds be set aside for or paid to any sinking fund therefor,
unless and until (i) full dividends on the outstanding Serial Preferred Stock at
the dividend rate or rates therefor, together with the full additional amount
required by any participation right, shall have been paid or declared and set
apart for payment with respect to all past dividend
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periods, to the extent that the holders of the Serial Preferred Stock are
entitled to dividends with respect to any past dividend period, and the current
dividend period, and (ii) all mandatory sinking fund payments that shall have
become due in respect of any series of the Serial Preferred Stock shall have
been made. Unless full dividends with respect to all past dividend periods on
the outstanding Serial Preferred Stock at the dividend rate or rates therefor,
to the extent the holders of the Serial Preferred Stock are entitled to
dividends with respect to any particular past dividend period, together with the
full additional amount required by any participation right, shall have been paid
or declared and set apart for payment and all mandatory sinking fund payments
that shall have become due in respect of any series of the Serial Preferred
Stock shall have been made, no distributions shall be made to the holders of the
Serial Preferred Stock of any series unless distributions are made to the
holders of the Serial Preferred Stock of all series then outstanding in
proportion to the aggregate amounts of the deficiencies in payments due to the
respective series, and all payments shall be applied, first, to dividends
accrued and in arrears, next, to any amount required by any participation right,
and, finally, to mandatory sinking fund payments. The terms "current dividend
period" and "past dividend period" mean, if two or more series of Serial
Preferred Stock having different dividend periods are at the same time
outstanding, the current dividend period or any past dividend period, as the
case may be, with respect to each such series.
4.3 Preference on Liquidation. In the event of any liquidation,
dissolution or winding up of the Corporation, the holders of the Serial
Preferred Stock of each series shall be entitled to receive, for each share
thereof, the fixed liquidation price for such series, plus, in case such
liquidation, dissolution or winding up shall have been voluntary, the fixed
liquidation premium for such series, if any, together in all cases with a sum
equal to all dividends accrued or in arrears thereon and the full additional
amount required by any participation right, before any distribution of the
assets shall be made to holders of the Common Stock or Junior Stock; but the
holders of the Serial Preferred Stock shall be entitled to no further
participation in such distribution. If, upon any such liquidation, dissolution
or winding up, the assets distribution among the holders of the Serial Preferred
Stock shall be insufficient to permit the payment of the full preferential
amounts aforesaid, then such assets shall be distributed among the holders of
the Serial Preferred Stock then outstanding ratably in proportion to the full
preferential amounts to which they are respectively entitled. For the purposes
of this Section 4.3, the expression "dividends accrued or in arrears" means, in
respect of each share of the Serial Preferred Stock of any series at a
particular time, an amount equal to the product of the rate of dividend per
annum applicable to the shares of such series multiplied by the number of years
and any fractional part of a year that shall have elapsed from the date when
dividends on such shares became cumulative to the particular time in question
less the total amount of dividends actually paid on the shares of such series or
declared and set apart for payment thereon; provided, however, that, if the
dividends on such shares shall not be fully cumulative, such expression shall
mean the dividends, if any, cumulative in respect of such shares for the period
stated in the articles of serial designation creating such shares less all
dividends paid in or with respect to such period.
ARTICLE V
COMMON STOCK
5.1 Dividends. Subject to the provisions of law and the rights of holders
of shares at the time outstanding of all classes of stock having prior rights as
to dividends, the holders of Common Stock at the time outstanding shall be
entitled to receive such dividends at such times and in such amounts as the
Board of Directors may deem advisable.
5.2 Liquidation. In the event of any liquidation, dissolution or winding
up (whether voluntary or involuntary) of the Corporation, after the payment or
provision for payment in full for all debts and other liabilities of the
Corporation and all preferential amounts to which the holders of shares at the
time outstanding of all classes of stock having prior rights thereto shall be
entitled, the remaining net assets of the Corporation shall be distributed
ratably among the holders of the shares at the time outstanding of Common Stock.
5.3 Voting Rights. The holders of Common Stock shall be entitled to one
vote per share on all matters.
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ARTICLE VI
NUMBER OF DIRECTORS
The number of directors shall be fixed by the By-Laws or, in the absence of
a By-law fixing the number, shall be four.
ARTICLE VII
LIMIT ON LIABILITY AND INDEMNIFICATION
7.1 Definitions. For purposes of this Article the following definitions
shall apply:
(a) "Corporation" means this Corporation, including Chessie System,
Inc. and Seaboard Coast Line Industries, Inc. and no other predecessor
entity or other legal entity;
(b) "expenses" include counsel fees, expert witness fees, and costs of
investigation, litigation and appeal, as well as any amounts expended in
asserting a claim for indemnification;
(c) "liability" means the obligation to pay a judgment, settlement,
penalty, fine, or other such obligation, including, without limitation, any
excise tax assessed with respect to an employee benefit plan;
(d) "legal entity" means a corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise;
(e) "predecessor entity" means a legal entity the existence of which
ceased upon its acquisition by the Corporation in a merger or otherwise;
and
(f) "proceeding" means any threatened, pending, or completed action,
suit, proceeding or appeal whether civil, criminal, administrative or
investigative and whether formal or informal.
7.2 Limit on Liability. In every instance permitted by the Virginia Stock
Corporation Act, as it exists on the date hereof or may hereafter be amended,
the liability of a director or officer of the Corporation to the Corporation or
its shareholders arising out of a single transaction, occurrence or course of
conduct shall be limited to one dollar.
7.3 Indemnification of Directors and Officers. The Corporation shall
indemnify any individual who is, was or is threatened to be made a party to a
proceeding (including a proceeding by or in the right of the Corporation)
because such individual is or was a director or officer of the Corporation, or
because such individual is or was serving the Corporation or any other legal
entity in any capacity at the request of the Corporation, against all
liabilities and reasonable expenses incurred in the proceeding except such
liabilities and expenses as are incurred because of such individual's willful
misconduct or knowing violation of the criminal law. Service as a director or
officer of a legal entity controlled by the Corporation shall be deemed service
at the request of the Corporation. The determination that indemnification under
this Section 7.3 is permissible and the evaluation as to the reasonableness of
expenses in a specific case shall be made, in the case of a director, as
provided by law, and in the case of an officer, as provided in Section 7.4 of
this Article; provided, however, that if a majority of the directors of the
Corporation has changed after the date of the alleged conduct giving rise to a
claim for indemnification, such determination and evaluation shall, at the
option of the person claiming indemnification, be made by special legal counsel
agreed upon by the Board of Directors and such person. Unless a determination
has been made that indemnification is not permissible, the Corporation shall
make advances and reimbursements for expenses incurred by a director or officer
in a proceeding upon receipt of an undertaking from such director or officer to
repay the same if it is ultimately determined that such director or officer is
not entitled to indemnification. Such undertaking shall be an unlimited,
unsecured general obligation of the director or officer and shall be accepted
without reference to such director's or officer's ability to make repayment. The
termination of a proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent shall not of itself create a
presumption that a director or officer acted in such a manner as to make such
director or officer ineligible for indemnification. The Corporation is
authorized to contract in advance to indemnify and make advances and
reimbursements for expenses to any of its directors or officers to the same
extent provided in this Section 7.3.
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7.4 Indemnification of Others. The Corporation may, to a lesser extent or
to the same extent that it is required to provide indemnification and make
advances and reimbursements for expenses to its directors and officers pursuant
to Section 7.3 of this Article, provide indemnification and make advances and
reimbursements for expenses to its employees and agents, the directors,
officers, employees and agents of its subsidiaries and predecessor entities, and
any person serving any other legal entity in any capacity at the request of the
Corporation, and may contract in advance to do so. The determination that
indemnification under this Section 7.4 is permissible, the authorization of such
indemnification and the evaluation as to the reasonableness of expenses in a
specific case shall be made as authorized from time to time by general or
specific action of the Board of Directors, which action may be taken before or
after a claim for indemnification is made, or is otherwise provided by law. No
person's rights under Section 7.3 of this Article shall be limited by the
provisions of this Section 7.4.
7.5 Miscellaneous. The rights of each person entitled to indemnification
under this Article shall inure to the benefit of such person's heirs, executors
and administrators. Special legal counsel selected to make determinations under
this Article may be counsel for the Corporation. Indemnification pursuant to
this Article shall not be 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 the Corporation and
indemnification under policies of insurance purchased and maintained by the
Corporation or others. However, no person shall be entitled to indemnification
by the Corporation to the extent such person is indemnified by another,
including an insurer. The Corporation is authorized to purchase and maintain
insurance against any liability it may have under this Article or to project any
of the persons named above against any liability arising from their service to
the Corporation or any other legal entity at the request of the Corporation
regardless of the Corporation's power to indemnify against such liability. The
provisions of this Article shall not be deemed to preclude the Corporation from
entering into contracts otherwise permitted by law with any individuals or legal
entities, including those named above. If any provision of this Article or its
application to any person or circumstances is held invalid by a court of
competent jurisdiction, the invalidity shall not affect other provisions or
applications of this Article, and to this end the provisions of this Article are
severable.
7.6 Application; Amendments. The provisions of this Article shall be
applicable from and after its adoption even though some or all of the underlying
conduct or events relating to a proceeding may have occurred before its
adoption. No amendment, modification or repeal of this Article shall diminish
the rights provided hereunder to any person arising from conduct or events
occurring before the adoption of such amendment, modification or repeal.
ARTICLE VIII
UNSURRENDERED SHARES OF CHESSIE SYSTEM, INC. AND
SEABOARD COAST LINE INDUSTRIES, INC.
8.1 Conversion of Shares. On October 31, 1980 (the "Merger Date"), the
outstanding shares of Chessie Systems, Inc. ("Chessie") and Seaboard Coast Line
Industries, Inc. ("Industries") were converted by operation of law into shares
of the Corporation.
8.2 Failure to Surrender Shares. No holder of a Chessie or Industries
common stock certificate shall be entitled to vote at any meeting of
stockholders of the Corporation or to receive any dividends from the Corporation
until surrender of his certificate in exchange for a certificate for shares of
the Corporation, Common Stock. Upon such surrender, there shall be paid to the
holder the amount of dividends (without interest thereon) that have theretofore
become payable, but that have not been paid by reason of the foregoing, with
respect to the number of whole shares of the Corporation's Common Stock
represented by the certificates issued in exchange. The Corporation shall,
however, be entitled after the Merger Date to treat the certificates of
outstanding common stock of Chessie and Industries as evidencing the ownership
of the number of full shares of the Corporation's Common Stock into which the
Chessie and Industries shares, represented by such certificates, shall have been
converted, notwithstanding the failure to surrender such certificates.
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ARTICLE IX
[Text Deleted]
ARTICLE X
SERIAL PREFERRED STOCK, SERIES B
Pursuant to a resolution adopted by the Board of Directors of the
Corporation on April 29, 1986, 3,000,000 shares of Serial Preferred Stock
constitute a series of Serial Preferred Stock designated as the Junior
Participating Preferred Stock, Series B (the "Series B Stock"), the shares of
which have the following rights and preferences:
10.1 Designation and Amount. The shares of such series shall be
designated as "Junior Participating Preferred Stock, Series B" and the number of
shares constituting such series shall be 3,000,000. Such number of shares may be
increased or decreased by resolution of the Board of Directors; provided; that
no decrease shall reduce the number of shares of the Series B Stock to a number
less than that of the shares then outstanding.
10.2 Dividends and Distributions.
(a) Subject to the prior and superior rights of the holders of any shares
of any series of Preferred Stock ranking prior and superior to the shares of the
Series B Stock with respect to dividends, the holders of shares of the Series B
Stock, in preference to the holders of Common Stock of the Corporation and of
any other junior stock, shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the fifteenth day (or, if not a business
day, the preceding business day) of March, June, September and December in each
year (each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of the Series B Stock, in an amount
per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b)
subject to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-class dividends or other
distributions, other than a dividend payable in shares of Common Stock, or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
the Series B Stock. In the event the Corporation shall at any time declare or
pay any dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the amount to which holders of shares of the Series B Stock
were entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution on the Series
B Stock as provided in paragraph (a) of this Section immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock); provided that, in the event no dividend or
distribution shall have been declared on the Common Stock during the period
between any Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $1.00 per
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share on the Series B Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding shares
of the Series B Stock from the Quarterly Dividend Payment Date next preceding
the date of issue of such shares of the Series B Stock, unless the date of issue
of such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue from
the date of issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the determination
of holders of shares of the Series B Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of the Series B Stock in an amount less
than the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of the Series B Stock entitled to receive
payment of a dividend or distribution declared thereon, which record date shall
be not more than 60 days prior to the date fixed for the payment thereof.
10.3 Voting Rights. The holders of shares of the Series B Stock shall
have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth,
each share of the Series B Stock shall entitle the holder thereof to 100
votes on all matters submitted to a vote of the shareholders of the
Corporation. In the event the Corporation shall at any time declare or pay
any dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the number of votes per
share to which holders of shares of the Series B Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(b) Except as otherwise provided herein or by law, the holders of
shares of the Series B Stock and the holders of shares of Common Stock
shall vote together as one class on all matters submitted to a vote of
shareholders of the Corporation.
(c) Except as set forth herein, holders of the Series B Stock shall
have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.
10.4 Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series B Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of the Series B Stock outstanding shall have been
paid in full, the Corporation shall not:
(i) declare, set apart or pay dividends on or make any other
distributions on the Common Stock or any shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to
the Series B Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series B Stock, except
dividends paid ratably on the Series B Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled; or
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(iii) redeem or purchase or otherwise acquire for consideration shares
of the Series B Stock, any such parity stock or any stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up)
with the Series B Stock, or set aside for or pay to any sinking fund
therefor.
(b) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (a) of this Section 4
purchase or otherwise acquire such shares at such time and in such manner.
10.5 Reacquired Shares. Any shares of the Series B Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and cancelled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors, subject to the conditions
and restrictions on issuance set forth herein.
10.6 Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (1)
to the holders of shares of Common Stock or of stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding up) to the Series B
Stock unless, prior thereto, the holders of shares of the Series B Stock shall
have received $100 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, provided that the holders of shares of the Series B Stock shall be
entitled to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount to be
distributed per share to holders of Common Stock, or (2) to the holders of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series B Stock, except distributions made ratably on the
Series B Stock and all other such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Corporation shall at
any time declare or pay any dividend on Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of the Series B Stock were entitled immediately prior to such
event under the provision of clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
10.7 Consolidation, Merger, etc. In case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case the shares of the Series B
Stock shall at the same time be similarly exchanged or changed in an amount per
share (subject to the provision for adjustment hereinafter set forth) equal to
100 times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged. In the event the Corporation
shall at any time declare or pay any dividend on Common Stock payable in shares
of Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise) into a
greater or lesser number of shares of Common Stock, then in each such case the
amount set forth in the preceding sentence with respect to the exchange or
change of shares of the Series B Stock shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
10.8 No Redemption. The shares of the Series B Stock shall not be
redeemable.
10.9 Rank. The Series B Stock shall rank junior to all other series of
the Corporation's preferred stock outstanding as of April 29, 1986, as to the
payment of dividends and the distribution of assets.
10.10 Amendment. The Articles of Incorporation shall not be amended in
any manner which would materially alter or change the power, preferences or
special rights of the Series B Stock so as to affect them
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adversely without the affirmative vote of the holders of at least two-thirds of
the outstanding shares of the Series B Stock, voting together as a single voting
group.
ARTICLE XI
CERTAIN VOTING MATTERS
(a) As to each voting group entitled to vote on an amendment or restatement
of these Articles of Incorporation the vote required for approval shall be (i)
the vote required by the terms of these Articles of Incorporation, as amended or
as restated from time to time, if such terms specifically require the approval
of more than a majority of the votes entitled to be cast thereon by such voting
group; or (ii) if clause (i) of this Article is not applicable, a majority of
the votes entitled to be cast thereon.
(b) As to any plan of merger or share exchange to which the Corporation is
a party, or any sale, lease, exchange or other disposition of all or
substantially all of the assets or property of the Corporation other than in the
usual and regular course of business, for which the Virginia Stock Corporation
Act requires an affirmative vote of more than two-thirds of the votes entitled
to be cast by shareholders entitled to vote thereon, but which requirement may
be reduced to a lesser percentage under the Virginia Stock Corporation Act if
the lesser percentage is specified in the articles of incorporation of the
Corporation, the affirmative vote of the holders of a majority of all the votes
cast on the plan by each voting group entitled to vote on the transaction at a
meeting at which a quorum of the voting group exists shall be required in lieu
of the affirmative vote otherwise required under the Virginia Stock Corporation
Act.
ARTICLE XII
SERIES A CONVERTIBLE PREFERRED STOCK
12.1. Number of Shares. (a) There shall be a series of Preferred Stock of
the Corporation designated as the "Series A Convertible Preferred Stock"
(hereinafter referred to as the "Series A Preferred Stock"), and the number of
authorized shares constituting such Series A Preferred Stock is 20,000,000.
(b) All shares of Series A Preferred Stock redeemed, purchased, exchanged,
converted or otherwise acquired by the Corporation shall be retired and
cancelled and, upon the taking of any action required by applicable law, shall
be restored to the status of authorized but unissued shares of Preferred Stock,
without designation as to series, and may thereafter be reissued.
12.2. Rank. The Series A Preferred Stock shall, with respect to dividend
rights and, rights upon liquidation, winding up or dissolution, rank junior to
each other class or series of capital stock of the Corporation (other than (a)
the common stock of the Corporation and any other class or series of capital
stock of the Corporation which by its terms ranks junior to the Series A
Preferred Stock, as to which the Series A Preferred Stock shall rank prior, and
(b) any other class or series of capital stock of the Corporation which by its
terms ranks on a parity with the Series A Preferred Stock, as to which the
Series A Preferred Stock shall rank on a parity) or (except as provided in the
last sentence of this Section 12.2) other equity interests (including, without
limitation, warrants, rights, calls or options exercisable for or convertible
into such capital stock or equity interests) in the Corporation. All equity
securities of the Corporation to which the Series A Preferred Stock ranks prior
(whether with respect to dividends or upon liquidation, winding up, dissolution
or otherwise), including the common stock of the Corporation, are collectively
referred to as the "Junior Securities." All equity securities of the Corporation
to which the Series A Preferred Stock ranks on a parity (whether with respect to
dividends or upon liquidation, winding up, dissolution or otherwise) are
collectively referred to as the "Parity Securities." The respective definitions
of Junior Securities and Parity Securities shall also include any warrants,
rights, calls or options exercisable for or convertible into any of the Junior
Securities or Parity Securities, as the case may be.
12.3. Dividends. (a) The holders of shares of Series A Preferred Stock
shall be entitled to receive, when and as declared by the Board of Directors of
the Corporation, dividends on the shares of Series A Preferred Stock, cumulative
from the first date of issuance of any such shares (the "Series A Initial
Issuance
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Date"), at a rate per annum of $ per share. Dividends on the shares of
Series A Preferred Stock shall be payable in equal quarterly amounts (subject to
Section 12.3(e) hereof with respect to shorter periods, including the first such
period with respect to newly issued shares) on the fifteenth of each of January,
April, July and October of each year, or if any such date is not a Business Day,
on the next succeeding Business Day (each of such dates being a "Series A
Dividend Payment Date"), in preference to and in priority over dividends on any
Junior Securities. Such dividends shall be paid to the holders of record of the
Series A Preferred Stock at the close of business on the record date specified
by the Board of Directors of the Corporation at the time such dividend is
declared; provided, however, that such record date shall not be more than 60
days nor less than 10 days prior to the Series A Dividend Payment Date to which
it relates. Dividends on the shares of Series A Preferred Stock shall be fully
cumulative and shall accrue (whether or not declared and whether or not there
are funds of the Corporation legally available for the payment of dividends)
from the Series A Initial Issuance Date (or the last Series A Preferred Dividend
Payment Date for which dividends were paid, as the case may be) based on a
360-day year comprised of twelve 30-day months.
(b) No dividend shall be declared or paid or set apart for payment or other
distribution declared or made, whether in cash, obligations or shares of capital
stock of the Corporation or other property, directly or indirectly, upon any
Junior Securities (other than a dividend or other distribution payable in Junior
Securities), nor shall any distribution be made in respect thereof, either
directly or indirectly, and whether in cash, obligations or shares of the
Corporation (other than distributions in Junior Securities) or other property
for any period unless all accrued and unpaid dividends (whether or not declared
and whether or not there are funds of the Corporation legally available for the
payment of dividends) on the Series A Preferred Stock have been or
contemporaneously are declared and paid in full. When dividends are not paid in
full, as aforesaid, upon the shares of Series A Preferred Stock, all dividends
declared on the Series A Preferred Stock and any other Parity Securities shall
be declared and paid either (x) pro rata so that the amount of dividends so
declared on Series A Preferred Stock and each such other class or series of
Parity Securities shall in all cases bear to each other the same ratio that
accrued dividends on the shares of Series A Preferred Stock and such series of
Parity Securities bear to each other or (y) on another basis that is at least as
favorable to the holders of the Series A Preferred Stock entitled to receive
such dividends. If any dividends accumulated through the most recent Series A
Dividend Payment Date on any outstanding shares of the Series A Preferred Stock
have not been paid in full or declared and set apart for payment or are not
contemporaneously paid in full or declared and set apart for payment, the
Corporation will not and will not permit any subsidiary to repurchase, redeem or
otherwise acquire for any consideration (or make any payment on account of or
set apart for payment money for a sinking or other similar fund for the
purchase, redemption or other retirement of) any Parity Securities or Junior
Securities (other than for consideration consisting of Junior Securities).
(c) Any dividend payment made on shares of Series A Preferred Stock shall
first be credited against the dividends accrued with respect to the earliest
quarterly period for which dividends have not been paid.
(d) All dividends paid with respect to shares of Series A Preferred Stock
pursuant to this Section 12.3 shall be paid pro rata to the holders entitled
thereto.
(e) Dividends which are not paid in full on the applicable Series A
Dividend Payment Date will cumulate, whether or not there are funds legally
available for the payment of such dividends and whether or not such dividends
are declared from the applicable Series A Dividend Payment Date until such
accumulated dividends shall have been paid by the Corporation. Any such
declaration may be for a portion, or all, of the then accumulated dividends.
Dividends (or cash amounts equal to accrued and unpaid dividends) payable on the
Series A Preferred Stock for any period shorter than a full fiscal quarter shall
be computed on the basis of the actual number of days elapsed (in a 30-day
month) since the applicable Series A Dividend Payment Date or from the Series A
Initial Issuance Date with respect to newly issued shares (as the case may be)
and based on a 360-day year of twelve 30-day months. No interest shall accrue or
be payable in respect of unpaid dividends.
12.4. Redemption. Shares of Series A Preferred Stock shall be redeemable
by the Corporation as provided below.
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(a) The shares of Series A Preferred Stock shall not be redeemable prior to
the Initial Redemption Date. The Initial Redemption Date shall be .
The shares of Series A Preferred Stock shall not be redeemable at any time at
which the Corporation shall have failed to pay all accrued dividends on any
Series A Dividend Payment Date and such dividends remain unpaid and outstanding.
(b) At the option of the Corporation, shares of Series A Preferred Stock
may be redeemed at any time or from time to time (subject to the provisions set
forth below) on or after the Initial Redemption Date, in whole or in part, at
the price (the "Redemption Price"), payable in cash, equal to the percentage set
forth below of the liquidation preference per share for redemptions during the
12-month periods beginning on the Initial Redemption Date or the annual
anniversaries thereof indicated below, plus, in each case, an amount equal to
accrued and unpaid dividends thereon (whether or not declared and whether or not
there are funds of the Corporation legally available for the payment of
dividends), to the date fixed for redemption:
12-month period beginning on Percentage
-------------------------------------------------------------------------- ----------
Initial Redemption Date................................................... --%
First Anniversary thereof................................................. --%
Second Anniversary thereof................................................ --%
Third Anniversary thereof................................................. --%
Fourth Anniversary thereof................................................ --%
Fifth Anniversary thereof................................................. --%
Sixth Anniversary thereof................................................. --%
Seventh Anniversary thereof............................................... --%
Eighth Anniversary thereof................................................ --%
etc.
(c) Whenever shares of Series A Preferred Stock are to be redeemed pursuant
to this Section 12.4, a notice of such redemption shall be mailed, addressed to
each holder, by overnight mail, postage prepaid, or delivered to each holder of
the shares to be redeemed at such holder's address as the same appears on the
stock transfer books of the Corporation. Such notice shall be mailed or
delivered not less than 30 days and not more than 60 days prior to the date
fixed for redemption. Each such notice shall state: (A) the date fixed for
redemption; (B) the number of shares of Series A Preferred Stock to be redeemed;
(C) the Redemption Price and the amount of dividends accrued and unpaid through
the date fixed for redemption; (D) the place or places where such shares of
Series A Preferred Stock are to be surrendered for payment of the Redemption
Price; and (E) that dividends on the shares to be redeemed will cease to accrue
on such date fixed for redemption unless the Corporation shall default in the
payment of the Redemption Price. If fewer than all shares of Series A Preferred
Stock held by a holder are to be redeemed, the notice mailed to such holder
shall specify the number of shares to be redeemed from such holder.
(d) Notice having been given as aforesaid, and if on or before the
redemption date specified in such notice an amount in cash sufficient to redeem
in full on the redemption date and at the applicable Redemption Price (together
with an amount equal to accrued and unpaid dividends thereon (whether or not
declared and whether or not there are funds of the Corporation legally available
for the payment of dividends) to such redemption date) all shares of Series A
Preferred Stock called for redemption shall have been set apart and deposited in
trust so as to be available for such purpose and only for such purpose, or shall
have been paid to the holders thereof, then effective as of the close of
business on such redemption date, and unless there shall be a subsequent default
in the payment of the Redemption Price plus accrued and unpaid dividends, the
shares of Series A Preferred Stock so called for redemption shall cease to
accrue dividends, and said shares shall no longer be deemed to be outstanding
and shall have the status of authorized but unissued shares of Preferred Stock,
undesignated as to series, and all rights of the holders thereof, as such, as
shareholders of the Corporation (except the right to receive from the
Corporation the Redemption Price and an amount equal to any accrued and unpaid
dividends (whether or not declared and whether or not there are funds of the
Corporation legally available for the payment of dividends) to the redemption
date shall cease. Upon surrender in accordance with said notice of the
certificates for any shares so redeemed (properly endorsed or assigned for
transfer, if the notice shall so state), such shares shall be redeemed by the
Corporation at the
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Redemption Price as aforesaid. In case fewer than all of the shares represented
by any such certificate are redeemed, a new certificate of like terms and having
the same date of original issuance shall be issued representing the unredeemed
shares without cost to the holder thereof.
(e) In the event that fewer than all of the shares of Series A Preferred
Stock are to be redeemed pursuant to this Section 12.4, the Corporation shall
call for redemption shares of Series A Preferred Stock pro rata among the
holders, based on the number of shares of Series A Preferred Stock held by each
holder (with adjustments to avoid fractional shares), except that the
Corporation may redeem all of the shares of Series A Preferred Stock held by any
holders of fewer than 100 shares of Series A Preferred Stock (or all the shares
of Series A Preferred Stock held by holders who would hold less than 100 shares
of Series A Preferred Stock as a result of such redemption). Any redemption for
which shares are called for redemption on a pro rata basis shall comply with
this Section 12.4(e).
12.5. Liquidation. (a) Upon a liquidation, dissolution or winding up of
the affairs of the Corporation, whether voluntary or involuntary, the holders
shall be entitled, before any assets of the Corporation shall be distributed
among or paid over to the holders of any Junior Securities to receive from the
assets of the Corporation available for distribution to shareholders, an amount
in cash or property (valued at its Fair Market Value, as defined in Section
12.8), or a combination thereof, equal to $50 per share, plus, in each such
case, an amount in cash or property (valued at its Fair Market Value), equal to
all accrued and unpaid dividends thereon (whether or not declared and whether or
not there are funds of the Corporation legally available for the payment of
dividends) to and including the date of final distribution (collectively, a
"liquidation preference" and "liquidation value"). After any such payment in
full, the holders shall not, as such, be entitled to any further participation
in any distribution of assets of the Corporation.
(b) Neither the merger or consolidation of the Corporation into or with any
other corporation or the merger or consolidation of any other corporation into
or with the Corporation, nor the sale of all or substantially all of the assets
of the Corporation, shall be deemed to be a liquidation, dissolution or winding
up, voluntary or involuntary, for the purposes of this Section 12.5.
(c) If, upon any such liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets of the Corporation
shall be insufficient to make the full payments required by subsection (a) of
this Section 12.5 and all full distributions with respect to any Parity
Securities, then no such distribution shall be made on account of any shares of
Series A Preferred Stock or Parity Securities unless proportionate distributive
amounts shall be paid on account of the shares of Series A Preferred Stock and
Parity Securities, ratably, in proportion to the full distributable amounts to
which holders of Series A Preferred Stock and holders of all such Parity
Securities are respectively entitled upon such dissolution, liquidation or
winding up.
12.6. Voting. Except as required by law and as may otherwise be provided
herein or in any amendment hereto, the holders of shares of Series A Preferred
Stock shall not be entitled to any voting rights as shareholders of the
Corporation except as follows:
(a) The affirmative vote of the holders of at least a majority of the
outstanding shares of Series A Preferred Stock, voting with holders of shares of
all other series of Preferred Stock affected in the same way as a single class,
in person or by proxy, at a special or annual meeting called for the purpose, or
by written consent in lieu of a meeting, shall be required to amend, repeal or
change any provisions of these Amended and Restated Articles of Incorporation in
any manner which would adversely affect, alter or change the powers, preferences
or special rights of the Series A Preferred Stock and any such securities
affected in the same way. With respect to any matter on which the holders are
entitled to vote as a separate class, each share of Series A Preferred Stock
shall be entitled to one vote. No change may be made to these Amended and
Restated Articles of Incorporation which alters the right of holders of Series A
Preferred Stock to vote together as a single class (to the extent such right is
granted herein or therein) without the unanimous consent of the holders of all
shares of Series A Preferred Stock.
(b) (i) So long as any share of Series A Preferred Stock is
outstanding, each share of Series A Preferred Stock shall entitle the
holder thereof to vote on all matters voted on by holders of Common
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Stock, voting together as a single class with the Common Stock and such
other shares as may be entitled to similar rights, and shall be entitled to
notice of any shareholders' meeting in accordance with these Amended and
Restated Articles of Incorporation and the By-laws of the Corporation. With
respect to any such vote, each share of Series A Preferred Stock shall
entitle the holder thereof to cast one vote.
(ii) The creation, authorization or issuance of any other class or
series of stock or the increase or decrease in the amount of authorized
capital stock of any such class or series, or any increase, decrease or
change in the par value of any class of capital stock (including the Series
A Preferred Stock), shall not require the consent of the holders of the
Series A Preferred Stock and shall not be deemed to affect adversely, alter
or change the powers, preferences and special rights of shares of the
Series A Preferred Stock.
(c) If at any time the equivalent of six quarterly dividends payable on the
Series A Preferred Stock are accrued and unpaid (whether or not consecutive and
whether or not declared), the holders of all outstanding shares of Series A
Preferred Stock and any Parity Securities having similar voting rights then
exercisable, voting separately as a single class without regard to series, shall
be entitled to elect at the next annual meeting of the shareholders of the
Corporation two directors to serve until all dividends accumulated and unpaid on
any such voting shares have been paid or declared and funds set aside to provide
for payment in full. In exercising any such vote, each outstanding share of
Series A Preferred Stock shall be entitled to one vote, excluding shares held by
the Corporation or any entity controlled by the Corporation, which shares shall
have no vote.
12.7. Conversion. (a) Each share of Series A Preferred Stock shall be
convertible at any time and from time to time at the option of the holder
thereof into fully paid and nonassessable shares of Common Stock. The number of
shares of Common Stock deliverable upon conversion of a share of Series A
Preferred Stock, adjusted as hereinafter provided, is referred to herein as the
"Conversion Ratio." The Conversion Ratio as of the Series A Initial Issuance
Date shall be , subject to adjustment from time to time pursuant to
paragraph (g) of this Section 12.7.
(b) (i) Conversion of the Series A Preferred Stock may be effected by
any holder upon the surrender to the Corporation at the principal office of
the Corporation or at the office of any agent or agents of the Corporation
(the "Transfer Agent"), as may be designated by the Board of Directors of
the Corporation, of the certificate or certificates for such Series A
Preferred Stock to be converted accompanied by a written notice stating
that such holder elects to convert all or a specified whole number of such
shares in accordance with the provisions of this Section 12.7 and
specifying the name or names in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. In case such notice
shall specify a name or names other than that of such holder, such notice
shall be accompanied by payment of all transfer taxes payable upon the
issuance of shares of Common Stock in such name or names. Other than such
taxes, the Corporation shall pay any documentary, stamp or similar issue or
transfer taxes that may be payable in respect of any issuance or delivery
of shares of Common Stock upon conversion of shares of Series A Preferred
Stock pursuant hereto. As promptly as practicable after the surrender of
such certificate or certificates and the receipt of such notice relating
thereto and, if applicable, payment of all required transfer taxes (or the
demonstration to the satisfaction of the Corporation that such taxes have
been paid), the Corporation shall deliver or cause to be delivered (x)
certificates representing the number of validly issued, fully paid and
nonassessable full shares of Common Stock to which the holder (or the
holder's transferee) of shares of Series A Preferred Stock being converted
shall be entitled and (y) if less than the full number of shares of Series
A Preferred Stock evidenced by the surrendered certificate or certificates
is being converted, a new certificate or certificates, of like tenor, for
the number of shares evidenced by such surrendered certificate or
certificates less the number of shares being converted. Such conversion
shall be deemed to have been made at the close of business on the date of
giving of such notice and of such surrender of the certificate or
certificates representing the shares of Series A Preferred Stock to be
converted so that the rights of the holder thereof as to the shares being
converted shall cease except for the right to receive shares of Common
Stock and accrued and unpaid dividends with respect to the shares of Series
A Preferred Stock being converted, in each case in accordance herewith, and
the person entitled to receive the shares of
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Common Stock shall be treated for all purposes as having become the record
holder of such shares of Common Stock at such time.
(ii) If a holder of shares of Series A Preferred Stock exercises
conversion rights under Section 12.7(a), upon delivery of the shares for
conversion, such shares shall cease to accrue dividends pursuant to Section
12.3 as of the end of the day immediately preceding the date of such
delivery, but such shares shall continue to be entitled to receive all
accrued dividends which such holder is entitled to receive through the last
preceding Series A Dividend Payment Date unless such conversion follows a
call for redemption by the Corporation in which case pro rata dividends
shall also be payable through the date immediately preceding such delivery,
in each case as if such holder continued to hold such shares of Series A
Preferred Stock. Any such accrued and unpaid dividends shall be payable by
the Corporation as and when such dividends are paid to any remaining
holders or, if none, on the date which would have been the next succeeding
Series A Dividend Payment Date had there been remaining holders or such
later time at which the Corporation believes it has adequate available
capital under applicable law to make such a payment. Notwithstanding the
foregoing, shares of Series A Preferred Stock surrendered for conversion
(other than after notice of redemption has been given with respect to such
shares) after the close of business on any record date for the payment of
dividends declared and prior to the opening of business on the Series A
Dividend Payment Date relating thereto must be accompanied by a payment in
cash of an amount equal to the dividend declared in respect of such shares.
(c) In case any shares of Series A Preferred Stock are to be redeemed
pursuant to Section 12.4, such right of conversion shall cease and terminate, as
to the shares of Series A Preferred Stock to be redeemed, at the close of
business on the Business Day (as defined in Section 12.8) immediately preceding
the date fixed for redemption unless the Corporation shall default in the
payment of the Redemption Price therefor, as provided herein.
(d) Notwithstanding anything herein to the contrary, but subject to the
provisions of Section 12.7(b)(ii) and to Section 12.7(g), upon conversion, no
payment or adjustment shall be made by the Corporation to any holder of shares
of Series A Preferred Stock surrendered for conversion in respect of any accrued
and unpaid dividends on the shares of Series A Preferred Stock surrendered for
conversion.
(e) In connection with the conversion of any shares of Series A Preferred
Stock, no fractions of shares of Common Stock shall be issued, but in lieu
thereof the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to such fractional interest multiplied by
the Closing Price (as defined in Section 12.8) per share of Common Stock on the
Trading Day (as defined in Section 12.8) on which such shares of Series A
Preferred Stock are deemed to have been converted. If more than one share of
Series A Preferred Stock shall be surrendered for conversion by the same holder
at the same time, the number of full shares of Common Stock issuable on
conversion thereof shall be computed on the basis of the total number of shares
of Series A Preferred Stock so surrendered.
(f) The Corporation shall at all times reserve and keep available, free
from preemptive rights, for issuance upon the conversion of the Series A
Preferred Stock such number of its authorized but unissued shares of Common
Stock as will from time to time be sufficient to permit the conversion of all
outstanding shares of Series A Preferred Stock, and shall take all action
required to increase the authorized number of shares of Common Stock if
necessary to permit the conversion of all outstanding shares of Series A
Preferred Stock. Prior to the delivery of any securities which the Corporation
shall be obligated to deliver upon conversion of the Series A Preferred Stock,
the Corporation shall comply with all applicable federal and state laws and
regulations which require action to be taken by the Corporation. All shares of
Common Stock delivered upon conversion of the Series A Preferred Stock will upon
delivery be duly and validly issued and fully paid and nonassessable, free of
all liens and charges and not subject to any preemptive rights.
(g) The Conversion Ratio shall be subject to adjustment from time to time
as follows:
(i) In case the Corporation shall at any time or from time to time
after the Series A Initial Issuance Date (A) declare, order, make or pay a
dividend or other distribution on the outstanding shares of Common Stock in
shares of Common Stock, (B) subdivide or split the outstanding shares of
Common
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Stock, (C) combine or reclassify the outstanding shares of Common Stock
into a smaller number of shares or (D) issue by reclassification of the
shares of Common Stock any shares of capital stock of the Corporation,
then, and in each such case, the Conversion Ratio in effect immediately
prior to such event or the record date therefor, whichever is earlier,
shall be adjusted so that the holder of any shares of Series A Preferred
Stock thereafter surrendered for conversion shall be entitled to receive
the number of shares of Common Stock or other securities of the Corporation
which such holder would have owned or have been entitled to receive after
the happening of any of the events described above, had such shares of
Series A Preferred Stock been surrendered for conversion immediately prior
to the happening of such event or the record date therefor, whichever is
earlier. An adjustment made pursuant to this clause (i) shall become
effective (x) in the case of any such dividend or distribution, immediately
after the close of business on the record date for the determination of
holders of shares of Common Stock entitled to receive such dividend or
distribution, or (y) in the case of any such subdivision, split,
combination or reclassification, at the close of business on the day upon
which such corporate action becomes effective. Such adjustment shall be
made successively whenever any event listed above shall occur.
(ii) In case the Corporation shall at any time or from time to time
after the Series A Initial Issuance Date declare, order, pay or make a
dividend or other distribution (including, without limitation, any
distribution of stock or other securities or property or rights or warrants
to subscribe for securities of the Corporation or any of its subsidiaries
by way of dividend or spin-off), on its Common Stock, other than (A)
regular quarterly dividends payable in cash (except as provided herein) or
(B) dividends or distributions of shares of Common Stock or other
securities with respect to which adjustments are provided in clause (i) of
this paragraph (g), then, and in each such case, the Conversion Ratio shall
be adjusted so that the holder of each share of Series A Preferred Stock
shall be entitled to receive, upon the conversion thereof, the number of
shares of Common Stock determined by multiplying (1) the applicable
Conversion Ratio on the day immediately prior to the record date fixed for
the determination of shareholders entitled to receive such dividend or
distribution by (2) a fraction, the numerator of which shall be the average
of the Closing Prices per share of Common Stock for the period of five
Trading Days preceding the ex-dividend (or similar) date for such
distribution, and the denominator of which shall be such average price less
the Fair Market Value per share of Common Stock of such dividend or
distribution, and a copy of a certified resolution of the Board of
Directors of the Corporation with respect thereto shall be mailed to each
holder of shares of Series A Preferred Stock. In case the Corporation shall
at any time after the Series A Initial Issuance Date declare, order, make
or pay a dividend in cash in respect of its Common Stock which, when
aggregated with all other cash dividends and distributions in respect of
its Common Stock during the preceding 90 days which did not give rise to
any adjustment under this section (g), exceeds 3.75% of the Closing Price
per share of Common Stock on the Trading Day immediately preceding the date
of declaration of such dividend, the Conversion Ratio shall be adjusted in
the manner described in the immediately preceding sentence.
(iii) In case the Corporation shall consummate a tender or exchange
offer (other than an odd-lot offer) for Common Stock in which the Fair
Market Value of the consideration given by the Corporation per share of its
Common Stock exceeds the Closing Price per share of Common Stock on the
Trading Day immediately preceding the date of consummation, then the
Conversion Ratio shall be adjusted so that the holder of each share of
Series A Preferred Stock shall be entitled to receive, upon the conversion
thereof, the number of shares of Common Stock determined by multiplying (A)
the applicable Conversion Ratio on the day immediately prior to
consummation of such tender or exchange offer by (B) a fraction, the
numerator of which shall be the sum of (1) the Fair Market Value of the
aggregate consideration payable for shares accepted for payment in the
tender or exchange offer (such shares referred to herein as the "Purchased
Shares") and (2) the product of (x) the number of shares of Common Stock
outstanding (less the number of Purchased Shares) at the time of expiration
of such offer (the "Expiration Time") and (y) the average of the Closing
Prices per share of Common Stock for the period of five Trading Days
preceding the Expiration Time and the denominator of which shall be the
aggregate number of shares of Common Stock outstanding (including any
tendered or exchanged shares) at the Expiration Time of the tender or
exchange offer multiplied by the average of the Closing Prices per share of
Common Stock for the period of five Trading Days preceding the Expiration
Time.
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(iv) For purposes of this section (g), the number of shares of Common
Stock at any time outstanding shall not include any shares of Common Stock
then owned or held by or for the account of the Corporation.
(v) The term "dividend," as used in this section (g) shall mean a
dividend or other distribution upon stock of the Corporation.
Notwithstanding anything in this Section 12.7 to the contrary, the
Conversion Ratio shall not be adjusted as a result of any dividend,
distribution or issuance of securities of the Corporation pursuant to a
shareholder rights plan or similar agreement.
(vi) Anything in this section (g) to the contrary notwithstanding, the
Corporation shall not be required to give effect to any adjustment in the
Conversion Ratio unless and until the net effect of one or more adjustments
(each of which shall be carried forward until counted toward adjustment),
determined as above provided, shall have resulted in a change of the
Conversion Ratio by at least one-hundredth of one share of Common Stock,
and when the cumulative net effect of more than one adjustment so
determined shall be to change the Conversion Ratio by at least
one-hundredth of one share of Common Stock, such change in Conversion Ratio
shall thereupon be given effect. In the event that, at any time as a result
of the provisions of this paragraph (g), the holder of this Series A
Preferred Stock upon subsequent conversion shall become entitled to receive
any shares of capital stock of the Corporation other than Common Stock, the
number of such other shares so receivable upon conversion of this Series A
Preferred Stock shall thereafter be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the
provisions contained herein.
(vii) The certificate of any firm of independent public accountants of
recognized standing selected by the Board of Directors of the Corporation
(which may be the firm of independent public accountants regularly employed
by the Corporation) shall be presumptively correct for any computation made
under this section (g).
(viii) If the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or
other distribution, and shall thereafter and before the distribution to
shareholders thereof legally abandon its plan to pay or deliver such
dividend or distribution, then thereafter no adjustment in the number of
shares of Common Stock issuable upon exercise of the right of conversion
granted by this section (g) or in the Conversion Ratio then in effect shall
be required by reason of the taking of such record.
(iv) There shall be no adjustment of the Conversion Ratio in case of
the issuance of any stock of the Corporation in a merger, reorganization,
acquisition, reclassification, recapitalization or other similar
transaction except as set forth in sections (g) and (h) of this Section
12.7.
(h) In case of any consolidation or merger of the Corporation with any
other corporation (other than a wholly owned subsidiary of the Corporation), or
in case of any sale or transfer of all or substantially all of the assets of the
Corporation, or in the case of any reclassification or recapitalization of the
Corporation (other than solely a change in par value of equity securities) not
described in Section 12.7(g) above or in the case of any share exchange pursuant
to which all of the outstanding shares of Common Stock are converted into other
securities or property, the Corporation shall make appropriate provision or
cause appropriate provision to be made so that the holder of each share of
Series A Preferred Stock then outstanding shall have the right thereafter to
convert such share of Series A Preferred Stock into the kind and amount of
shares of stock and other securities and property receivable upon such
consolidation, merger, sale, reclassification, recapitalization, transfer or
share exchange by a holder of the number of shares of Common Stock into which
such share of Series A Preferred Stock could have been converted pursuant to
this Section 12.7 immediately prior to the effective date of such consolidation,
merger, reclassification, recapitalization, sale, transfer or share exchange
(the "Per Share Merger Consideration"). If in connection with any such
consolidation, merger, reclassification, recapitalization, sale, transfer or
share exchange, each holder of shares of Common Stock is entitled to elect to
receive either securities, cash or other assets upon completion of such
transaction, the Corporation shall provide or cause to be provided to each
holder of Series A Preferred Stock the right to elect the securities, cash or
other assets into which the Series A Preferred Stock held by such holder shall
be convertible after completion of any such transaction on substantially the
same terms and subject to
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substantially the same conditions applicable to holders of the Common Stock
(including, without limitation, to the extent practicable, notice of the right
to elect, limitations on the period in which such election shall be made and the
effect of failing to exercise the election). To the extent that any portion of
the Per Share Merger Consideration consists of equity or other securities
convertible into equity securities, such securities constituting such portion
shall be subject to appropriate adjustment in order to provide the holders of
the Series A Preferred Stock with protections substantially equivalent to those
provided in Section 12.7(g). The above provisions shall similarly apply to
successive consolidations, mergers, reclassifications, recapitalizations, sales,
transfers or share exchanges.
(i) Notwithstanding any other provision in the preceding paragraphs to the
contrary, if any Fundamental Change occurs, then the conversion price, which
shall equal, at any time, the liquidation value at such time divided by the
Conversion Ratio at such time (the "Conversion Price"), in effect will be
adjusted immediately after such Fundamental Change as follows:
(i) in the case of a Non-Stock Fundamental Change, the Conversion
Price of the shares of Series A Preferred Stock immediately following such
Non-Stock Fundamental Change shall be the lower of (A) the Conversion Price
in effect immediately prior to such Non-Stock Fundamental Change, but after
giving effect to any other prior adjustments effected pursuant to the
preceding paragraphs, and (B) the product of (1) the greater of the
Applicable Price and the then applicable Reference Market Price and (2) a
fraction, the numerator of which is $50 and the denominator of which is (x)
the amount of the redemption price for one share of Series A Preferred
Stock if the redemption date were the date of such Non-Stock Fundamental
Change (or, for the period commencing on the Series A Initial Issuance Date
and ending on the first anniversary thereof and the 12-month periods
commencing on the first, second [, and third] anniversaries of the Series A
Initial Issuance Date, the product of % , %, % [and %],
respectively times the liquidation value), plus (y) any then-accrued and
then-accumulated and unpaid dividends on Series A Preferred Stock up to but
excluding the date of such Non-Stock Fundamental Change; and
(ii) in the case of a Common Stock Fundamental Change, the Conversion
Price of the shares of Series A Preferred Stock immediately following such
Common Stock Fundamental Change shall be the Conversion Price in effect
immediately prior to such Common Stock Fundamental Change, but after giving
effect to any other prior adjustments effected pursuant to the preceding
paragraphs, multiplied by a fraction, the numerator of which is the
Purchaser Stock Price and the denominator of which is the Applicable Price;
provided, however, that in the event of a Common Stock Fundamental Change
in which (A) 100% of the value of the consideration received by a holder of
Common Stock is common stock of the successor, acquiror, or other third
party (and cash, if any, paid with respect to any fractional interests in
such common stock resulting from such Common Stock Fundamental Change) and
(B) all of the Common Stock of the Corporation shall have been exchanged
for, converted into, or acquired for, common stock of the successor,
acquiror or other third party (and any cash with respect to fractional
interests), the conversion price of the shares of Series A Preferred Stock
immediately following such Common Stock Fundamental Change shall be the
conversion price in effect immediately prior to such Common Stock
Fundamental Change multiplied by a fraction, the numerator of which is one
and the denominator of which is the number of shares of common stock of the
successor, acquiror, or other third party received by a holder of one share
of Common Stock as a result of such Common Stock Fundamental Change.
(j) Upon any adjustment of the Conversion Ratio then in effect and any
increase or decrease in the number of shares of Common Stock issuable upon the
operation of the conversion set forth in Section 12.7, then, and in each such
case, the Corporation shall promptly deliver to the Transfer Agent of the Series
A Preferred Stock and Common Stock, a certificate signed by an officer of the
Corporation setting forth in reasonable detail the event requiring the
adjustment and the method by which such adjustment was calculated and specifying
the Conversion Ratio then in effect following such adjustment.
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12.8. Additional Definitions. As used in this Article, the following terms
have the meanings specified below:
"Applicable Price" shall mean (i) in the event of a Non-Stock Fundamental
Change in which the holders of the Common Stock receive only cash, the amount of
cash received by a holder of one share of Common Stock and (ii) in the event of
any other Non-Stock Fundamental Change or any Common Stock Fundamental Change,
the average of the Closing Prices for one share of the Common Stock during the
10 Trading Days immediately prior to the record date for the determination of
the holders of Common Stock entitled to receive cash, securities, property or
other assets in connection with such Non-Stock Fundamental Change or Common
Stock Fundamental Change, or if there is no such record date, prior to the date
upon which the holders of the Common Stock shall have the right to receive such
cash, securities, property or other assets.
"Business Day" shall mean any day (other than a day which is a Saturday,
Sunday or legal holiday in the State of New York) on which banks are authorized
to be open for business in New York City.
"Closing Price," with respect to a share of Common Stock on any date, shall
be the last sale price, regular way, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, regular way, on such
date, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading on the
New York Stock Exchange or, if the shares of Common Stock are not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the shares of Common Stock
are listed or admitted to trading or, if the shares of Common Stock are not
listed or admitted to trading on any national securities exchange, the last
quoted price on such date or, if not so quoted, the average of the high bid and
low asked prices in the over-the-counter market on such date, as reported by the
Nasdaq National Market of the Nasdaq Stock Market or such other similar system
as may be then in use, or, if on any such date the shares of Common Stock are
not quoted by any such system, the average of the closing bid and asked prices
on such date as furnished by a professional market maker making a market in the
shares of Common Stock selected by the Board of Directors of the Corporation, or
if the shares of Common Stock are not publicly held or so listed or traded, the
"Closing Price" on such date shall be the Fair Market Value per share on such
date. Notwithstanding the foregoing, in the event that an ex-dividend or similar
date occurs in respect of (A) a dividend or distribution on the shares of Common
Stock payable in shares of Common Stock or securities convertible into such
shares or (B) any subdivision, combination or reclassification of the shares of
Common Stock, between the declaration date and the ex-dividend date of a
dividend declared in respect of the Series A Preferred Stock, the Closing Price
shall be appropriately adjusted to reflect such event referred to in (A) or (B)
above.
"Common Stock Fundamental Change" shall mean any Fundamental Change in
which more than 50% of the Fair Market Value of the consideration received by
holders of Common Stock consists of common stock that, for the 10 Trading Days
immediately prior to such Fundamental Change, has been admitted for listing or
admitted for listing subject to notice of issuance on a national securities
exchange or quoted on the Nasdaq National Market of The Nasdaq Stock Market;
provided, however, that a Fundamental Change shall not be a Common Stock
Fundamental Change unless either (i) the Corporation continues to exist after
the occurrence of such Fundamental Change and the outstanding shares of Series A
Preferred Stock continue to exist as outstanding shares of Convertible Preferred
Stock, or (ii) not later than the occurrence of such Fundamental Change, the
outstanding shares of Series A Preferred Stock are converted into or exchanged
for shares of convertible preferred stock of a corporation succeeding to the
business of the Corporation; which convertible preferred stock has powers,
preferences and relative, participating, optional or other rights, and
qualifications, limitations and restrictions substantially similar to those of
the Series A Preferred Stock.
"Fair Market Value" shall mean the amount which a willing buyer would pay a
willing seller in an arm's-length transaction as determined in good faith by the
Board of Directors of the Corporation.
"Fundamental Change" shall mean the occurrence of any transaction or event
or series of transactions or events pursuant to which all or substantially all
of the Common Stock of the Corporation shall be exchanged for, converted into,
acquired for or shall constitute solely the right to receive cash, securities,
property or other
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assets (whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization or
otherwise); provided, however, in the case of any such series of transactions or
events, for purposes of adjustment of the conversion price, such Fundamental
Change shall be deemed to have occurred when substantially all of the Common
Stock of the Corporation shall have been exchanged for, converted into, or
acquired for, or shall constitute solely the right to receive, such cash,
securities, property or other assets, but the adjustment shall be based upon the
consideration that the holders of Common Stock received in the transaction or
event as a result of which more than 50% of the Common Stock of the Corporation
shall have been exchanged for, converted into, or acquired for, or shall
constitute solely the right to receive, such cash, securities, property or other
assets; and provided, further, that such term does not include (i) any such
transaction or event in which the Corporation and/or any of its subsidiaries are
the issuers of all the cash, securities, property or other assets exchanged,
acquired or otherwise issued in such transaction or event, or (ii) any such
transaction or event in which the holders of Common Stock receive securities of
an issuer other than the Corporation if, immediately following such transaction
or event, such holders hold a majority of the securities having the power to
vote generally in the election of directors of such other issuer outstanding
immediately following such transaction or other event.
"Non-Stock Fundamental Change" shall mean any Fundamental Change other than
a Common Stock Fundamental Change.
"Purchaser Stock Price" shall mean with respect to any Common Stock
Fundamental Change, the average of the Closing Prices for one share of the
common stock received by holders of Common Stock in such Common Stock
Fundamental Change during the 10 Trading Days immediately prior to the date
fixed for the determination of the holders of Common Stock entitled to receive
such common stock or, if there is no such date, prior to the date upon which the
holders of the Common Stock shall have the right to receive such common stock.
"Reference Market Price" shall initially mean 66 2/3% of the Closing Price
for the Common Stock on the New York Stock Exchange on the date of the Merger
and, in the event of any adjustment to the Conversion Price other than as a
result of a Fundamental Change, the Reference Market Price shall also be
adjusted so that the ratio of the Reference Market Price to the Conversion Price
after giving effect to any such adjustment shall always be the same as the ratio
of the initial Reference Market Price to the Initial Conversion Price.
"Trading Day" shall mean a day on which the principal national securities
exchange on which the shares of Common Stock are listed or admitted to trading
is open for the transaction of business or, if the shares of Common Stock are
not listed or admitted to trading on any national securities exchange, a day on
which the Nasdaq National Market of the Nasdaq Stock Market or other similar
system as may be then in use is open for the reporting of bid and asked prices
in the over-the-counter market, or, if bid and asked prices for the shares of
Common Stock are not so reported by any such system, a Business Day.
12.9. Availability of Documents. Copies of all documents, agreements and
instruments referred to herein are available from the Corporation upon request.
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APPENDIX E
PENNSYLVANIA CONSOLIDATED STATUTES
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
SECTION 1571. APPLICATION AND EFFECT OF SUBCHAPTER
(a) General rule. Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any corporate
action, or to otherwise obtain fair value for his shares, where this part
expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of election).
Section 2907(a) (relating to proceedings to terminate breach of qualifying
conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.
(1) Except as otherwise provided in paragraph (2), the holders of the
shares of any class or series of shares that, at the record date fixed to
determine the shareholders entitled to notice of and to vote at the meeting
at which a plan specified in any of section 1930, 1931(d), 1932(c) or
1952(d) is to be voted on, are either: (i) listed on a national securities
exchange; or (ii) held of record by more than 2,000 shareholders; shall not
have the right to obtain payment of the fair value of any such shares under
this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph in the
case of: (i) Shares converted by a plan if the shares are not converted
solely into shares of the acquiring, surviving, new or other corporation or
solely into such shares and money in lieu of fractional shares. (ii) Shares
of any preferred or special class unless the articles, the plan or the
terms of the transaction entitle all shareholders of the class to vote
thereon and require for the adoption of the plan or the effectuation of the
transaction the affirmative vote of a majority of the votes cast by all
shareholders of the class. (iii) Shares entitled to dissenters rights under
section 1906(c) (relating to dissenters rights upon special treatment).
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(3) The shareholders of a corporation that acquires by purchase,
lease, exchange or other disposition all or substantially all of the
shares, property or assets of another corporation by the issuance of
shares, obligations or otherwise, with or without assuming the liabilities
of the other corporation and with or without the intervention of another
corporation or other person, shall not be entitled to the rights and
remedies of dissenting shareholders provided in this subchapter regardless
of the fact, if it be the case, that the acquisition was accomplished by
the issuance of voting shares of the corporation to be outstanding
immediately after the acquisition sufficient to elect a majority or more of
the directors of the corporation.
(c) Grant of optional dissenters rights. The bylaws or a resolution of the
board of directors may direct that all or a part of the shareholders shall have
dissenters rights in connection with any corporate action or other transaction
that would otherwise not entitle such shareholders to dissenters rights.
(d) Notice of dissenters rights. Unless otherwise provided by statute, if
a proposed corporate action that would give rise to dissenters rights under this
subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting: (1) a statement of the
proposed action and a statement that the shareholders have a right to dissent
and obtain payment of the fair value of their shares by complying with the terms
of this subchapter; and (2) a copy of this subchapter.
(e) Other statutes. The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part that
makes reference to this subchapter for the purpose of granting dissenters
rights.
(f) Certain provisions of articles ineffective. This subchapter may not be
relaxed by any provision of the articles.
(g) Cross references. See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
SECTION 1572. DEFINITIONS
The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
"Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation, division,
conversion or otherwise of that issuer. A plan of division may designate which
of the resulting corporations is the successor corporation for the purposes of
this subchapter. The successor corporation in a division shall have sole
responsibility for payments to dissenters and other liabilities under this
subchapter except as otherwise provided in the plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled to and does
assert dissenters rights under this subchapter and who has performed every act
required up to the time involved for the assertion of those rights.
"Fair value." The fair value of shares immediately before the effectuation
of the corporate action to which the dissenter objects, taking into account all
relevant factors, but excluding any appreciation or depreciation in anticipation
of the corporate action.
"Interest." Interest from the effective date of the corporate action until
the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors, including the average
rate currently paid by the corporation on its principal bank loans.
SECTION 1573. RECORD AND BENEFICIAL HOLDERS AND OWNERS
(a) Record holders of shares. A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of the
same class or series beneficially owned by any one person and discloses the name
and address of the
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person or persons on whose behalf he dissents. In that event, his rights shall
be determined as if the shares as to which he has dissented and his other shares
were registered in the names of different shareholders.
(b) Beneficial owners of shares. A beneficial owner of shares of a
business corporation who is not the record holder may assert dissenters rights
with respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner, whether
or not the shares so owned by him are registered in his name.
SECTION 1574. NOTICE OF INTENTION TO DISSENT
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing
continuously through the effective date of the proposed action and must refrain
from voting his shares in approval of such action. A dissenter who fails in any
respect shall not acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the proposed corporate
action shall constitute the written notice required by this section.
SECTION 1575. NOTICE TO DEMAND PAYMENT
(a) General rule. If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice of
intention to demand payment of the fair value of their shares and who refrained
from voting in favor of the proposed action. If the proposed corporate action is
to be taken without a vote of shareholders, the corporation shall send to all
shareholders who are entitled to dissent and demand payment of the fair value of
their shares a notice of the adoption of the plan or other corporate action. In
either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment.
(2) Inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is
received.
(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the
shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment. The time set for receipt of
the demand and deposit of certificated shares shall be not less than 30 days
from the mailing of the notice.
SECTION 1576. FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC.
(a) Effect of failure of shareholder to act. A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to section 1575 (relating
to notice to demand payment) shall not have any right under this subchapter to
receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares. If the shares are not
represented by certificates, the business corporation may restrict their
transfer from the time of receipt of demand for payment until effectuation of
the proposed corporate action or the release of restrictions under the terms of
section 1577(a) (relating to failure to effectuate corporate action).
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(c) Rights retained by shareholder. The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
SECTION 1577. RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES
(a) Failure to effectuate corporate action. Within 60 days after the date
set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares from
any transfer restrictions imposed by reason of the demand for payment.
(b) Renewal of notice to demand payment. When uncertificated shares have
been released from transfer restrictions and deposited certificates have been
returned, the corporation may at any later time send a new notice conforming to
the requirements of section 1575 (relating to notice to demand payment), with
like effect.
(c) Payment of fair value of shares. Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this section will be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the issuer of
the shares held or owned by the dissenter for a fiscal year ending not more
than 16 months before the date of remittance or notice together with the
latest available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of the
shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(d) Failure to make payment. If the corporation does not remit the amount
of its estimate of the fair value of the shares as provided by subsection (c),
it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been so made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such shares. A transferee of such shares shall not acquire by such transfer any
rights in the corporation other than those that the original dissenter had after
making demand for payment of their fair value.
SECTION 1578. ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES
(a) General rule. If the business corporation gives notice of its estimate
of the fair value of the shares, without remitting such amount, or remits
payment of its estimate of the fair value of a dissenter's shares as permitted
by section 1577(c) (relating to payment of fair value of shares) and the
dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the fair
value of the shares, which shall be deemed a demand for payment of the amount or
the deficiency.
(b) Effect of failure to file estimate. Where the dissenter does not file
his own estimate under subsection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall be entitled to no
more than the amount stated in the notice or remitted to him by the corporation.
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SECTION 1579. VALUATION PROCEEDINGS GENERALLY
(a) General rule. Within 60 days after the latest of: (1) effectuation of
the proposed corporate action; (2) timely receipt of any demands for payment
under section 1575 (relating to notice to demand payment); or (3) timely receipt
of any estimates pursuant to section 1578 (relating to estimate by dissenter of
fair value of shares); if any demands for payment remain unsettled, the business
corporation may file in court an application for relief requesting that the fair
value of the shares be determined by the court.
(b) Mandatory joinder of dissenters. All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served on
each such dissenter. If a dissenter is a nonresident, the copy may be served on
him in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch. 53
(relating to bases of jurisdiction and interstate and international procedure).
(c) Jurisdiction of the court. The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery. Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found to
exceed the amount, if any, previously remitted, plus interest.
(e) Effect of corporation's failure to file application. If the
corporation fails to file an application as provided in subsection (a), any
dissenter who made a demand and who has not already settled his claim against
the corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to file an
application shall be paid the corporation's estimate of the fair value of the
shares and no more, and may bring an action to recover any amount not previously
remitted.
SECTION 1580. COSTS AND EXPENSES OF VALUATION PROCEEDINGS
(a) General rule. The costs and expenses of any proceeding under section
1579 (relating to valuation proceedings generally), including the reasonable
compensation and expenses of the appraiser appointed by the court, shall be
determined by the court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and assessed as the
court deems appropriate against all or some of the dissenters who are parties
and whose action in demanding supplemental payment under section 1578 (relating
to estimate by dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good faith
appears. Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed against either the
corporation or a dissenter, in favor of any other party, if the court finds that
the party against whom the fees and expenses are assessed acted in bad faith or
in a dilatory, obdurate, arbitrary or vexatious manner in respect to the rights
provided by this subchapter.
(c) Award of fees for benefits to other dissenters. If the court finds
that the services of counsel for any dissenter were of substantial benefit to
other dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefited.
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APPENDIX F
TERMS OF THE
TRUST CONVERTIBLE PREFERRED SECURITIES
FIXING OF TERMS
As is stated elsewhere in the Joint Proxy Statement/Prospectus, CSX
Convertible Preferred Stock (or Trust Convertible Preferred Securities) will be
convertible preferred stock (or trust convertible preferred stock) of CSX with a
liquidation preference of $50 per share; a quarterly yield to be determined such
that the securities are expected to trade at par on a fully distributed basis; a
maturity, which currently is not fixed, of seven to ten years or perpetual; a
conversion premium, which currently is not fixed, of 20% to 25%; and call
protection, which currently is not fixed, for three to four years. The Other
Terms of the CSX Convertible Preferred Stock (or Trust Convertible Preferred
Securities, as the case may be) that are not fixed as described above will not
be inconsistent with the terms so fixed and will be determined in accordance
with the following procedure such that the CSX Convertible Preferred Stock (or
Trust Convertible Preferred Securities, as the case may be) to be distributed
with respect to each share of Conrail Common Stock will have a value on a fully
distributed basis, as of the date of the opinions referred to below, as close as
possible to $16:
(a) the Other Terms shall be determined by mutual agreement of two
investment banking firms of national reputation, one selected by Conrail
and one selected by CSX, such that in their respective opinions the CSX
Convertible Preferred Stock (or Trust Convertible Preferred Securities, as
the case may be) to be issued in respect of each Share will have a value on
a fully distributed basis, as of the date of their opinions, equal to $16
per Share; or
(b) if such two investment banking firms are unable to agree on the
Other Terms or if either such firm is unable to provide the opinion
referred to in clause (a) above within four business days following the
fifteenth business day prior to the Conrail Meeting, each such investment
banking firm within two business days following such four-business day
period will propose its version of the Other Terms and will mutually select
a third investment banking firm of national reputation, and within four
business days thereafter the third firm will select the proposal of one or
the other of the two firms that, in the opinion of the third firm, is the
closer of the two proposals to giving, as of the date of its opinion, a
value on a fully distributed basis for the CSX Convertible Preferred Stock
(or Trust Convertible Preferred Securities, as the case may be) to be
issued in respect of each Share equal to $16 per Share.
The Other Terms of the CSX Convertible Preferred Stock (or Trust Convertible
Preferred Securities, as the case may be) will be determined in accordance with
the foregoing and publicly announced no later than five business days prior to
the date of the Meetings. No assurance can be given as to the actual market
prices at which the CSX Convertible Preferred Stock (or Trust Convertible
Preferred Securities, as the case may be) given in respect of a Share may trade
or that such price will equal or exceed $16.
If Trust Convertible Preferred Securities are issued in lieu of CSX
Convertible Preferred Stock, as permitted by the Merger Agreement, the terms
will be as set forth below (other than the Other Terms, which will be determined
as set forth above).
THE TRUST
The following are the terms expected to be contained in the Declaration,
which will not be finalized until the Other Terms are fixed.
The issuer (the "Trust") of the Trust Convertible Preferred Securities
(referred to herein as "Convertible Preferred Securities") will be a statutory
business trust created under Delaware law pursuant to (i) a trust agreement (the
"Declaration") executed by CSX, as sponsor for the Trust (the "Sponsor"), and
the CSX Trustees (as defined herein) and (ii) the filing of a certificate of
trust for the Trust with the Delaware Secretary of State. The Trust will exist
for the exclusive purposes of (i) issuing securities (the "Trust
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Securities") representing undivided beneficial interests in the assets of the
Trust, (ii) holding the Convertible Debentures and (iii) engaging in only those
other activities necessary or incidental thereto. All of the Common Securities
of the Trust (the "Common Securities") will be, directly or indirectly, owned by
CSX. The Common Securities will rank pari passu, and payments will be made
thereon pro rata, with the Convertible Preferred Securities, except that, upon
an event of default under the Declaration, the rights of the holders of the
Common Securities to payment in respect of distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the rights of the
holders of the Convertible Preferred Securities. CSX will acquire Common
Securities in an aggregate liquidation amount equal to 3% of the total capital
of the Trust. The Trust will have a term of approximately 55 years, but may
earlier terminate as provided in the Declaration. CSX, as the holder of all of
the outstanding Common Securities, has the right at any time to terminate the
Trust (including, without limitation, upon the occurrence of a Tax Event) and,
after satisfaction of liabilities to creditors of the Trust, cause the
Convertible Debentures to be distributed to the holders of the Convertible
Preferred Securities and the Common Securities on a pro rata basis in accordance
with the aggregate stated liquidation amount thereof, in liquidation of the
Trust.
The Trust's business and affairs will be conducted by the trustees (the
"CSX Trustees") appointed by CSX, as the holder of all of the Common Securities.
The holder of the Common Securities will be entitled to appoint, remove or
replace any of, or increase or reduce the number of, the CSX Trustees. The
duties and obligations of the CSX Trustees will be governed by the Declaration.
A majority of the CSX Trustees (the "Regular Trustees") will be persons who are
employees or officers of or affiliated with CSX. One CSX Trustee will be a
financial institution that will be unaffiliated with CSX and will be eligible
and act as property trustee and as indenture trustee pursuant to the terms set
forth herein (the "Institutional Trustee").
Pursuant to the Declaration, the number of CSX Trustees will initially be
five. Three of the trustees will act as the Trust's regular trustees (the
"Regular Trustees"). The fourth trustee will act as the Trust's institutional
trustee (the "Institutional Trustee"). The fifth trustee will be an entity that
maintains its principal place of business in the State of Delaware (the
"Delaware Trustee"). See "Description of the Convertible Preferred
Securities -- Voting Rights." The Institutional Trustee will hold title to the
Convertible Debentures for the benefit of the holders of the Trust Securities,
and the Institutional Trustee will have the power to exercise all rights, powers
and privileges under the Indenture as the holder of the Convertible Debentures
held by the Trust. In addition, the Institutional Trustee will maintain
exclusive control of a separate segregated non-interest bearing bank account
(the "Property Account") to hold all payments made in respect of the Convertible
Debentures held by the Trust for the benefit of the holders of the Trust
Securities. The Institutional Trustee will make payments of distributions and
payments on liquidation, redemption and otherwise to the holders of record of
the Trust Securities out of funds from the Property Account. CSX, as holder of
all the Common Securities, will have the right, subject to the Trust Indenture
Act, with respect to the Institutional Trustee, and Delaware law with respect to
the Delaware Trustee, to appoint, remove or replace any CSX Trustee and to
increase or decrease the number of CSX Trustees. CSX will pay all fees and
expenses related to the Trust. The rights of the holders of the Convertible
Preferred Securities, including economic rights, rights to information and
voting rights, will be set forth in the Declaration, the Delaware Business Trust
Act, as amended (the "Trust Act"), and the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). See "Description of the Convertible
Preferred Securities." The principal place of business of the Trust will be c/o
CSX Corporation, One James Center, 901 East Cary Street, Richmond, Virginia
23219 and the telephone number at such address is (804) 782-1400.
DESCRIPTION OF THE CONVERTIBLE PREFERRED SECURITIES
The Convertible Preferred Securities will be issued pursuant to the terms
of the Declaration. The Institutional Trustee will act as trustee for the
Convertible Preferred Securities under the Declaration. The terms of the
Convertible Preferred Securities will include those stated in the Declaration
and those made part of such Declaration by the Trust Indenture Act. The
following is a summary of certain terms and provisions of the Convertible
Preferred Securities expected to be contained in the Declaration (which will not
be finalized until the Other Terms are fixed), as well as certain applicable
terms contained in the Trust Act and the Trust Indenture Act.
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GENERAL
The Declaration will authorize the Regular Trustees to issue on behalf of
the Trust the Trust Securities in respect of the Trust representing undivided
beneficial interests in the assets of the Trust. All of the Common Securities of
the Trust will be owned by CSX. The Common Securities will rank pari passu, and
payments will be made thereon on a pro rata basis, with the Convertible
Preferred Securities, except that, upon the occurrence and during the
continuance of a Declaration Event of Default, the rights of the holders of the
Common Securities to receive payment of periodic distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the rights of the
holders of the Convertible Preferred Securities. The Declaration will not permit
the issuance by the Trust of any securities other than the Trust Securities or
the incurrence of any indebtedness by the Trust. Pursuant to the Declaration,
the Institutional Trustee will hold legal title to the Convertible Debentures
held by the Trust for the benefit of the holders of the Trust Securities. The
payment of distributions out of money held by the Trust, and payments upon
redemption of the Convertible Preferred Securities or upon liquidation of the
Trust, will be guaranteed by CSX as described under "Description of the
Guarantee." The Guarantee will be held by the Guarantee Trustee for the benefit
of the holders of the Convertible Preferred Securities. The Guarantee will not
cover payment of distributions in respect of Convertible Preferred Securities of
the Trust to the extent the Trust does not have available funds to pay such
distributions. In such event, the remedy of holders of each series of
Convertible Preferred Securities would be, through the vote of holders of a
majority in liquidation amount of the Convertible Preferred Securities, to
direct the Institutional Trustee to enforce the Institutional Trustee's rights
under the Convertible Debentures held by the Trust, except in the circumstances
in which a holder of Convertible Preferred Securities may take Direct Action.
See "-- Declaration Events of Default" and "-- Voting Rights."
The Declaration does not contain covenants or provisions (such as
limitations on the incurrence of indebtedness or liens, asset sales or the
issuance and sale of subsidiary stock) that afford holders of the Convertible
Preferred Securities protection in the event of a highly leveraged transaction
or other similar transactions involving CSX that could adversely affect such
holders.
DISTRIBUTIONS
Distributions on the Convertible Preferred Securities will be fixed at a
rate per annum to be fixed as an Other Term (determined as set forth above under
"Terms of the Trust Convertible Preferred Securities -- Fixing of Terms"). Such
rate will be a percentage of the stated liquidation amount of $50 per
Convertible Preferred Security. Distributions in arrears for more than one
quarterly period will accrue on the Convertible Preferred Securities at the
distribution rate per annum set as an Other Term. Such distribution rate will be
compounded quarterly to the extent permitted by law. The term "distribution" as
used herein in respect of Convertible Preferred Securities includes any such
compounded distributions payable unless otherwise stated. The amount of
distributions payable for any period will be computed on the basis of a 360-day
year of twelve 30-day months and the actual number of days elapsed per 30-day
month.
Distributions on the Convertible Preferred Securities will be cumulative,
will accrue from the date of issuance of the Convertible Preferred Securities,
and will be payable, subject to extension of distribution payment periods as
described herein, quarterly in arrears on the fifteenth of each of January,
April, July and October of each year (each, a "Distribution Payment Date"),
commencing on the first Distribution Payment Date following the Merger, when, as
and if available for payment. Distributions will be made by the Institutional
Trustee, except as otherwise described below.
CSX will have the right under the Indenture to defer payments of interest
on the Convertible Debentures by extending at any time and from time to time the
interest payment period on the Convertible Debentures, subject to the conditions
described below, although such interest would continue to accrue on the
Convertible Debentures at the applicable rate per annum compounded quarterly to
the extent permitted by law during any Extension Period. If such right is
exercised, quarterly distributions on the Convertible Preferred Securities will
also be deferred (though such distributions would continue to accrue at the
distribution rate, and all such distributions would accrue interest from the
otherwise-applicable Distribution Payment Date at the rate of accrual of
distributions compounded quarterly to the extent permitted by law) during any
Extension Period.
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Such right to extend any interest payment period for the Convertible Debentures
is limited to Extension Periods, each not exceeding 20 consecutive quarterly
periods, and no Extension Period may be initiated while accrued interest from a
prior, completed Extension Period is unpaid or while CSX is in default in the
payment of interest that has become due and payable on the Convertible
Debentures, and no Extension Period may extend beyond the maturity of the
Convertible Debentures. In the event that CSX exercises this right, then, during
any Extension Period (a) CSX shall not declare or pay dividends on, make a
distribution with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock or rights to
acquire such capital stock (other than (1) purchases or acquisitions of shares
of any such capital stock or rights to acquire such capital stock in connection
with the satisfaction by CSX of its obligations under any employee benefit
plans, (2) as a result of a reclassification of CSX's capital stock or rights to
acquire such capital stock or the exchange or conversion of one class or series
of CSX's capital stock or rights to acquire such capital stock for another class
or series of CSX's capital stock or rights to acquire such capital stock, (3)
the purchase of fractional interests in shares of CSX's capital stock pursuant
to the conversion or exchange provisions of such capital stock or the security
being converted or exchanged or (4) dividends and distributions made on CSX's
capital stock or rights to acquire such capital stock with CSX's capital stock
or rights to acquire such capital stock), or make guarantee payments with
respect to the foregoing, and (b) CSX shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities issued by CSX that rank pari passu with or junior to the Convertible
Debentures. Prior to the termination of any such Extension Period in respect of
the Convertible Debentures, CSX may further extend the interest payment period;
provided, that each such Extension Period in respect of the Convertible
Debentures, together with all such previous and further extensions thereof, may
not exceed 20 consecutive quarterly periods or extend beyond the maturity of the
Convertible Debentures. Upon the termination of any Extension Period in respect
of the Convertible Debentures and the payment of all amounts then due, CSX may
commence a new Extension Period in respect of the Convertible Debentures,
subject to the above requirements. See "Description of the Convertible
Debentures -- Interest," "-- Option to Extend Interest Payment Period" and
"-- Certain Covenants." If distributions are deferred, the distributions due
shall be paid on the date that the related Extension Period terminates, or, if
such date is not a Distribution Payment Date, on the immediately following
Distribution Payment Date, to holders of applicable Convertible Preferred
Securities as they appear on the books and records of the Trust on the record
date immediately preceding such date. See "Description of the Convertible
Debentures -- Option To Extend Interest Payment Period."
Distributions on the Convertible Preferred Securities must be paid on the
dates payable (after giving effect to any Extension Period) to the extent that
the Trust has funds available for the payment of such distributions in the
Property Account. The Trust's funds available for distribution to the holders of
the Convertible Preferred Securities will be limited to payments received from
CSX on the Convertible Debentures. See "Description of the Convertible
Debentures." The payment of distributions out of moneys held by the Trust is
guaranteed by CSX to the extent set forth under "Description of the Guarantee."
Distributions on the Convertible Preferred Securities will be payable to
the holders thereof as they appear on the books and records of the Trust on the
relevant record dates. Such distributions will be paid through the Institutional
Trustee who will hold amounts received in respect of the Convertible Debentures
held by the Trust in the Property Account for the benefit of the holders of the
Trust Securities. The Regular Trustees shall select record dates, which shall be
15 days prior to the relevant payment date. In the event that any date on which
distributions are to be made on the Convertible Preferred Securities is not a
Business Day, then payment of the distributions payable on such date will be
made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay) with the same force and
effect as if made on such payment date. A "Business Day" shall mean any day
other than Saturday, Sunday or any other day on which banking institutions in
New York City (in the State of New York) are permitted or required by any
applicable law to close.
CONVERSION RIGHTS
General. The Convertible Preferred Securities will have conversion
provisions for conversion into shares of CSX Common Stock substantially parallel
to those applicable to the CSX Convertible Preferred Stock. See
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"DESCRIPTION OF CSX CONVERTIBLE PREFERRED STOCK" in the Joint Proxy
Statement/Prospectus and the Amended CSX Articles set forth in Appendix D.
The terms of the Convertible Preferred Securities will provide that a
holder of a Convertible Preferred Security wishing to exercise its conversion
right shall surrender such Convertible Preferred Security, together with an
irrevocable conversion notice, to the Institutional Trustee, as conversion agent
(the "Conversion Agent"), which shall, on behalf of such holder, exchange such
Convertible Preferred Security for a portion of the Convertible Debentures and
immediately convert an equivalent amount of Convertible Debentures into CSX
Common Stock. Holders may obtain copies of the required form of the conversion
notice from the Conversion Agent.
Accrued distributions will not be paid on the Convertible Preferred
Securities that are converted, provided, however, that if any Convertible
Preferred Security is converted on or after the close of business on a record
date for payment of distributions thereon, the distributions payable on the
related payment date with respect to such Convertible Preferred Security shall
be distributed to the holder, despite such conversion. Except as provided in the
immediately preceding sentence, neither the Trust nor CSX will make any payment,
allowance or adjustment for accumulated and unpaid distributions, whether or not
in arrears, on converted Convertible Preferred Securities. CSX will make no
payment or allowance for distributions on the shares of CSX Common Stock issued
upon such conversion, except to the extent that such shares of CSX Common Stock
are held of record on the record date for any such distributions.
In addition to such rights, CSX from time to time may to the extent
permitted by law reduce the conversion price of the Convertible Debentures (and
thus the conversion price of the Convertible Preferred Securities) by any amount
for any period of at least 20 days, in which case CSX shall give at least 15
days' notice of such reduction, if the CSX Board of Directors has made a
determination that such reduction would be in the best interests of CSX, which
determination shall be conclusive. CSX may, at its option, make such reductions
in the conversion price, in addition to those set forth above, as the CSX Board
deems advisable to avoid or diminish any income tax to holders of CSX Common
Stock resulting from any dividend or distribution of stock (or rights to acquire
stock) or from any event treated as such for income tax purposes. See "THE
MERGER -- Certain Federal Income Tax Consequences" in the Joint Proxy
Statement/Prospectus.
REDEMPTION
The Convertible Debentures will mature on December 1 in a year which will
be either twenty or thirty years following the year of the Merger, to be fixed
as an Other Term as described above, and may be redeemed by CSX at par, together
with accrued and unpaid interest thereon to the date of redemption, in whole or
in part, at any time in certain circumstances upon the occurrence of a Tax Event
or an Investment Company Event.
The following terms will apply to redemption of Convertible Debentures to
the extent so included in the Other Terms.
The Convertible Debentures may be redeemed by CSX in whole or in part at
any time and from time to time on or after a date to be fixed as an Other Term
as described above, other than upon the occurrence of a Tax Event or an
Investment Company Event, at a price (expressed as a percentage of the principal
amount) to be fixed as an Other Term. CSX may not redeem any Convertible
Debentures unless and until all accrued and unpaid interest for all quarterly
periods ending on or prior to the date of redemption have been paid.
Upon the repayment of the Convertible Debentures, whether at maturity or
upon redemption, the proceeds from such repayment or payment shall
simultaneously be applied to redeem on a pro rata basis (i) at $50 per Trust
Security, plus accrued and unpaid distributions to the date of repayment (in the
case of repayment at maturity), or (ii) at the Redemption Price (in the case of
payment on redemption), Trust Securities having an aggregate liquidation amount
equal to the aggregate principal amount of the Convertible Debentures of such
series so repaid or redeemed; provided, however, that holders of such Trust
Securities shall be given not less than 30 nor more than 60 days' notice of such
redemption (other than at the scheduled
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maturity of the Convertible Debentures). See "Description of the Convertible
Debentures -- Redemption." In the event that fewer than all outstanding
Convertible Preferred Securities are to be redeemed, such Convertible Preferred
Securities will be redeemed on a pro rata basis.
TAX EVENT REDEMPTION; INVESTMENT COMPANY EVENT REDEMPTION
"Tax Event" means that the Regular Trustees shall have received an opinion
of a nationally recognized independent tax counsel to CSX experienced in such
matters (a "Dissolution Tax Opinion") to the effect that, as a result of (i) any
amendment to, clarification of or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, (ii) any judicial
decision or official administrative pronouncement, ruling, regulatory procedure,
notice or announcement, including any notice or announcement of intent to adopt
such procedures or regulations (an "Administrative Action") or (iii) any
amendment to, clarification of or change in the administrative position or
interpretation of any Administrative Action or judicial decision that differs
from the theretofore generally accepted position, in each case, by any
legislative body, court, governmental agency or regulatory body, irrespective of
the manner in which such amendment, clarification or change is made known, which
amendment, clarification or change is effective or such Administrative Action or
decision is announced, in each case, on or after the date of this Joint Proxy
Statement/Prospectus, there is more than an insubstantial risk that (a) the
Trust is, or will be within 90 days of the date thereof, subject to United
States federal income tax with respect to interest accrued or received on the
Convertible Debentures or subject to more than a de minimis amount of other
taxes, duties or other governmental charges, (b) any portion of interest payable
by CSX to the Trust on the Convertible Debentures is not, or within 90 days of
the date thereof will not be, deductible by CSX for United States federal income
tax purposes, or (c) CSX could become liable to pay, on the next date on which
any amount would be payable with respect to the Convertible Debentures, any
Additional Interest (as defined herein).
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of nationally recognized independent counsel to CSX
experienced in such matters to the effect that, as a result of the occurrence of
a change in law or regulation or a change in interpretation or application of
law or regulation by any legislative body, court, governmental agency or
regulatory authority (a "Change in Investment Company Law"), there is more than
an insubstantial risk that the Trust is or will be considered an "investment
company" which is required to be registered under the Investment Company Act,
which Change in Investment Company Law becomes effective on or after the date of
this Joint Proxy Statement/Prospectus.
An "Event" means either a Tax Event or an Investment Company Event.
If, at any time, (i) a Tax Event shall occur and be continuing, and CSX
receives an opinion (a "Redemption Tax Opinion") of nationally recognized
independent tax counsel experienced in such matters that, as a result of such
Tax Event in respect of the Trust, there is more than an insubstantial risk that
CSX would be precluded from deducting the interest on the Convertible Debentures
held by the Institutional Trustee for United States federal income tax purposes,
even if the Convertible Debentures were distributed to the holders of Trust
Securities in liquidation of such holders' interests in the Trust as described
in "-- Liquidation Distribution Upon Distribution," or (ii) an Investment
Company Event shall occur and be continuing, then CSX shall have the right
within 90 days following the occurrence of such Event, upon not less than 30 nor
more than 60 days' notice, to redeem the Convertible Debentures held by the
Institutional Trustee, in whole but not in part, for cash so long as such Event
is continuing at par plus any accrued and unpaid interest thereon to the dates
of redemption, and, following such redemption, Trust Securities with an
aggregate liquidation amount equal to the aggregate principal amount of the
Convertible Debentures so redeemed shall be redeemed by the Trust on a pro rata
basis at the applicable Redemption Price; provided, however, that if (i) at the
time there is available to CSX or the Trust the opportunity to eliminate, within
such 90-day period the adverse effects of the Event by taking some ministerial
action, such as filing a form or making an election or pursuing some other
similar reasonable measure that will have no adverse effect on the Trust, CSX or
the holders of such Trust Securities and (ii) if such notice has not been given,
CSX or the Trust will pursue such measure in lieu of redemption.
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REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Convertible
Preferred Securities unless all accrued and unpaid distributions have been paid
on all such Convertible Preferred Securities for all distribution periods
terminating on or prior to the date of redemption.
If the Trust gives a notice of redemption in respect of Convertible
Preferred Securities (which notice will be irrevocable), then, by 12:00 noon,
New York City time, on the redemption date, provided that CSX has paid to the
Institutional Trustee a sufficient amount of cash in connection with the related
redemption or maturity of the Convertible Debentures held by the Trust, the
Trust will irrevocably deposit with the Payment Agent funds sufficient to pay
the applicable Redemption Price and will give the Payment Agent irrevocable
instructions and authority to pay such Redemption Price to the holders of such
Convertible Preferred Securities. If notice of redemption shall have been given
and funds deposited as required, then, immediately prior to the close of
business on the date of such deposit, distributions will cease to accrue and all
rights of holders of such Convertible Preferred Securities so called for
redemption will cease, except the right of the holders of such Convertible
Preferred Securities to receive the applicable Redemption Price but without
interest on such Redemption Price. In the event that any date fixed for
redemption of Convertible Preferred Securities is not a Business Day, then
payment of the Redemption Price payable on such date will be made on the next
succeeding day that is a Business Day (without any interest or other payment in
respect of any such delay), except that, if such Business Day falls in the next
calendar year, such payment will be made on the immediately preceding Business
Day. In the event that payment of the Redemption Price in respect of Convertible
Preferred Securities is improperly withheld or refused and not paid by the
Trust, or by CSX pursuant to the Guarantee, distributions on such Convertible
Preferred Securities will continue to accrue at the then applicable rate from
the original redemption date to the date of payment, in which case the actual
payment date will be considered the date fixed for redemption for purposes of
calculating the Redemption Price.
In the event that fewer than all of the outstanding Convertible Preferred
Securities issued by the Trust are to be redeemed, those Convertible Preferred
Securities to be redeemed will be redeemed on a pro rata basis.
In the event of any redemption of Convertible Preferred Securities in part,
the Trust shall not be required to (i) issue, register the transfer of or
exchange any Certificated Security (as defined herein) during a period beginning
at the opening of business 15 days before any selection for redemption of
Convertible Preferred Securities and ending at the close of business on the
earliest date on which the relevant notice of redemption is deemed to have been
given to all holders of Convertible Preferred Securities to be so redeemed or
(ii) register the transfer of or exchange any Certificated Securities so
selected for redemption, in whole or in part, except for the unredeemed portion
of any Certificated Securities being redeemed in part.
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), CSX or its subsidiaries may at any time,
and from time to time, purchase outstanding Convertible Preferred Securities by
tender, in the open market or by private agreement, provided the purchaser is
not the holder of the Common Securities or the obligor under the Convertible
Debentures.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each, a "Liquidation"), the holders of
the Convertible Preferred Securities will be entitled to receive out of the
assets of the Trust, after satisfaction of liabilities to creditors of the Trust
(to the extent not satisfied by CSX), distributions in an amount equal to the
aggregate of the stated liquidation amount of $50 per Convertible Preferred
Security plus accrued and unpaid distributions thereon to the date of payment
(the "Liquidation Distribution"), unless, in connection with such Liquidation,
Convertible Debentures in an aggregate stated principal amount equal to the
aggregate stated liquidation amount of, with identical premium to, if any, with
an interest rate identical to the distribution rate of, bearing accrued and
unpaid interest equal to accrued and unpaid distributions on, and having the
same record date as, such Convertible Preferred Securities have been distributed
on a pro rata basis to the holders of such Convertible Preferred Securities.
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CSX, as the holder of all of the outstanding Common Securities, will have
the right at any time to terminate the Trust (including without limitation upon
the occurrence of an Event) and, after satisfaction of liabilities to creditors
of the Trust, cause the Convertible Debentures to be distributed to the holders
of the Convertible Preferred Securities and the Common Securities on a pro rata
basis in accordance with the aggregate stated liquidation amount thereof, in
liquidation of the Trust.
Pursuant to the Declaration, the Trust will dissolve (i) on December 1 in
the year which is 55 years following the year of the Merger, which will be the
expiration of the term of the Trust, (ii) upon the bankruptcy of CSX, (iii)
(other than in connection with a merger, consolidation or similar transaction
not prohibited by the Indenture, the Declaration or the Guarantee, as the case
may be) upon the filing of a certificate of dissolution or its equivalent with
respect to CSX, upon the consent of the holders of at least a majority in
liquidation amount of the Trust Securities voting together as a single class to
file a certificate of cancellation with respect to the Trust, or upon the
revocation of the charter of CSX and the expiration of 90 days after the date of
revocation without a reinstatement thereof, (iv) upon the distribution to the
holders of its Trust Securities of the Convertible Debentures and exercise of
the right of the holder of all of the outstanding Common Securities to terminate
the Trust as described above, (v) upon the entry of a decree of a judicial
dissolution of CSX or the Trust, (vi) upon the redemption of all of the Trust
Securities or (vii) upon the distribution of CSX Common Stock to all holders of
Convertible Preferred Securities upon conversion of all outstanding Convertible
Preferred Securities, and upon exercise of the right of the holder of all
outstanding Common Securities to terminate the Trust as described above.
Pursuant to the Declaration, as soon as practicable after the dissolution of the
Trust and upon completion of the winding up of the Trust, the Trust will
terminate upon the filing of a certificate of cancellation.
If an early Liquidation of the Trust occurs as described in clause (i),
(ii), (iii) or (v), the Trust will be liquidated by the CSX Trustees as
expeditiously as the CSX Trustees determine to be possible by distributing,
after satisfaction of liabilities to creditors of the Trust, to the holders of
the Trust Securities the Convertible Debentures, unless such distribution is
determined by the Institutional Trustee not to be practical, in which event such
holders will be entitled to receive out of the assets of the Trust available for
distribution to holders, after satisfaction of liabilities to creditors of the
Trust, an amount equal to the Liquidation Distribution. An early Liquidation of
a Trust pursuant to clause (iv) above shall occur only if the CSX Trustees
determine that such Liquidation is possible by distributing, after satisfaction
of liabilities to creditors of the Trust, to the holders of the Trust Securities
the Convertible Debentures, and such distribution occurs.
If, upon any such Liquidation, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Convertible Preferred Securities shall be paid on a pro rata basis.
The holders of the Common Securities will be entitled to receive distributions
upon any such Liquidation pro rata with the holders of Convertible Preferred
Securities, except that if a Declaration Event of Default has occurred and is
continuing in respect of the Trust, the Convertible Preferred Securities shall
have a preference over the Common Securities with regard to such distributions.
Upon any such Liquidation of the Trust involving a distribution of
Convertible Debentures, if at the time of such Liquidation, the Convertible
Preferred Securities of the Trust were rated by at least one nationally-
recognized statistical rating organization, CSX will use its reasonable best
efforts to obtain from at least one such or other rating organization a rating
for the Convertible Debentures.
After the date for any distribution of the Convertible Debentures upon
dissolution of the Trust, the Convertible Preferred Securities of the Trust will
be deemed to be no longer outstanding and certificates representing the
Convertible Debentures to be delivered upon such distribution will be
distributed to the holders of Convertible Preferred Securities.
There can be no assurance as to the market prices for the Convertible
Preferred Securities, the Convertible Debentures or the CSX Common Stock that
may be distributed in exchange for the Convertible Preferred Securities if a
dissolution and liquidation of the Trust were to occur.
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SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the amount payable upon redemption of, the
Trust Securities, as applicable, shall be made pro rata based on the liquidation
amount of the Trust Securities; provided, however, that, if on any distribution
date or redemption date a Declaration Event of Default shall have occurred and
be continuing, no payment of any distribution on, or amount payable upon
redemption of, any Common Security, and no other payment on account of the
redemption, liquidation or other acquisition of Common Securities, shall be made
unless payment in full in cash of all accumulated and unpaid distributions on
all outstanding Convertible Preferred Securities for all distribution periods
terminating on or prior thereto, or in the case of payment of the amount payable
upon redemption of the Convertible Preferred Securities, the full amount of such
amount in respect of all outstanding Convertible Preferred Securities shall have
been made or provided for, and all funds available to the Property Trustee shall
first be applied to the payment in full in cash of all distributions on, or the
amount payable upon redemption of, Convertible Preferred Securities then due and
payable.
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture in respect of the Convertible
Debentures (an "Indenture Event of Default") constitutes an event of default
under the Declaration with respect to the Trust Securities (each a "Declaration
Event of Default"); provided, that pursuant to the Declaration, the holder of
the Common Securities will be deemed to have waived any Declaration Event of
Default with respect to such Common Securities until all Declaration Events of
Default with respect to the Convertible Preferred Securities have been cured,
waived or otherwise eliminated. Until such Declaration Events of Default with
respect to such Convertible Preferred Securities have been so cured, waived, or
otherwise eliminated, the Institutional Trustee will be deemed to be acting
solely on behalf of the holders of the Convertible Preferred Securities and only
the holders of Convertible Preferred Securities will have the right to direct
the Institutional Trustee with respect to certain matters under the Declaration,
and, therefore, the Indenture. The holders of a majority in liquidation amount
of the Convertible Preferred Securities will have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Institutional Trustee or to direct the exercise of any trust or power conferred
upon the Institutional Trustee under the Declaration, including the right to
direct the Institutional Trustee to exercise the remedies available to it as
holder of the Convertible Debentures. If the Institutional Trustee fails to
enforce its rights under such Convertible Debentures after the holders of a
majority in liquidation amount of Convertible Preferred Securities have so
directed the Institutional Trustee, to the fullest extent permitted by law, a
holder of record of Capital Securities may institute a legal proceeding against
CSX to enforce the Institutional Trustee's rights under such Convertible
Debentures without first instituting any legal proceeding against the
Institutional Trustee or any other person or entity. Notwithstanding the
foregoing, if a Declaration Event of Default relating to Convertible Preferred
Securities has occurred and is continuing and such event is attributable to the
failure of CSX to pay interest or principal (or premium, if any) on the
Convertible Debentures on the respective dates such interest or principal (or
premium, if any) is payable (or in the case of redemption, the redemption date),
then a holder of record of Convertible Preferred Securities may institute a
Direct Action against CSX for payment, on or after the respective due dates
specified in the Convertible Debentures, to such holder directly of the
principal (or premium, if any) or interest on the Convertible Debentures in an
aggregate principal amount equal to the aggregate liquidation amount of the
Convertible Preferred Securities of such holder. In connection with such Direct
Action, CSX will be subrogated to the rights of such holder of Convertible
Preferred Securities under the Declaration to the extent of any payment made by
CSX to such holder of Convertible Preferred Securities in such Direct Action;
provided, however, that no such subrogation right may be exercised so long as a
Declaration Event of Default has occurred and is continuing. The holders of
Convertible Preferred Securities will not be able to exercise directly any other
remedy available to the holders of the Convertible Debentures.
Upon the occurrence of a Declaration Event of Default relating to
Convertible Preferred Securities, the Institutional Trustee, so long as it is
the sole holder of the Convertible Debentures, will have the right under the
Indenture to declare the principal of (or premium, if any) and interest on the
Convertible Debentures to
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be immediately due and payable. CSX and the Trust are each required to file
annually with each Institutional Trustee an officer's certificate as to its
compliance with all conditions and covenants under the Declaration.
VOTING RIGHTS
Except as described herein, under the Trust Act and under "Description of
the Guarantees -- Modification of the Guarantees; Assignment," and as otherwise
required by law and the Declaration, the holders of the Convertible Preferred
Securities will have no voting rights.
Subject to the requirement of obtaining a tax opinion by the Institutional
Trustee in certain circumstances set forth in the last sentence of this
paragraph, the holders of a majority in aggregate liquidation amount of the
Convertible Preferred Securities will have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the
Institutional Trustee, or exercising any trust or power conferred upon such
Institutional Trustee under the Declaration, including the right to direct such
Institutional Trustee, as holder of the Convertible Debentures, to (i) exercise
the remedies available to it under the Indenture as a holder of the Convertible
Debentures, (ii) waive any past default that is waivable under the Indenture,
(iii) exercise any right to rescind or annul a declaration that the principal of
the Convertible Debentures shall be due and payable or (iv) consent on behalf of
all the holders of the Convertible Preferred Securities to any amendment,
modification or termination of the Indenture or the Convertible Debentures where
such consent shall be required; provided, however, that where a consent or
action under the Indenture would require the consent or act of holders of more
than a majority in principal amount of such Convertible Debentures (a
"Super-Majority") affected thereby, such Institutional Trustee may only give
such consent or take such action at the written direction of the holders of at
least the proportion in aggregate liquidation amount of Convertible Preferred
Securities outstanding which the relevant Super-Majority represents of the
aggregate principal amount of the Convertible Debentures outstanding. If the
Institutional Trustee fails to enforce its rights under the Convertible
Debentures after the holders of a majority in liquidation amount of the
Convertible Preferred Securities have so directed such Institutional Trustee, to
the fullest extent permitted by law, a holder of record of such Convertible
Preferred Securities may institute a legal proceeding directly against CSX to
enforce the Institutional Trustee's rights under the Convertible Debentures
without first instituting any legal proceeding against the Institutional Trustee
or any other person or entity. Notwithstanding the foregoing, if a Declaration
Event of Default relating to the Convertible Preferred Securities has occurred
and is continuing and such event is attributable to the failure of CSX to pay
principal of (or premium, if any) or interest on the Convertible Debentures on
the respective dates such principal (or premium, if any) or interest is payable
(or in the case of redemption, the redemption date), then a holder of record of
Convertible Preferred Securities may directly institute a proceeding for
enforcement of payment, on or after the respective due dates specified in such
Convertible Debentures, to such holder directly of the principal of (or premium,
if any) or interest on such Convertible Debentures having an aggregate principal
amount equal to the aggregate liquidation amount of the Convertible Preferred
Securities of such holder. The Institutional Trustee shall notify all holders of
the Convertible Preferred Securities of any default actually known to the
Institutional Trustee with respect to the Convertible Debentures unless (a) such
defaults have been cured prior to the giving of such notice or (b) the
Institutional Trustee determines in good faith that the withholding of such
notice is in the interest of the holders of such Convertible Preferred
Securities, except where the default relates to the payment of principal of (or
premium, if any) or interest on any of the Convertible Debentures. Such notice
shall state that such Indenture Event of Default also constitutes a Declaration
Event of Default. Except with respect to directing the time, method and place of
conducting a proceeding for a remedy, the Institutional Trustee shall not take
any of the actions described in clauses (i), (ii) or (iii) above unless the
Institutional Trustee has obtained an opinion of tax counsel to the effect that,
as a result of such action, the Trust will not be classified as other than a
grantor trust for United States federal income tax purposes.
In the event the consent of the Institutional Trustee, as the holder of the
Convertible Debentures, is required under the Indenture with respect to any
amendment, modification or termination of the Indenture, such Institutional
Trustee shall request the direction of the holders of the Trust Securities with
respect to such amendment, modification or termination and shall vote with
respect to such amendment, modification or
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termination as directed by a majority in liquidation amount of such Trust
Securities voting together as a single class; provided, however, that where a
consent under the Indenture would require the consent of a Super-Majority, the
Institutional Trustee may only give such consent at the direction of the holders
of at least the proportion in liquidation amount of such Trust Securities
outstanding which the relevant Super-Majority represents of the aggregate
principal amount of applicable series of Convertible Debentures outstanding. The
Institutional Trustee shall not take any such action in accordance with the
directions of the holders of such Trust Securities unless the Institutional
Trustee has obtained an opinion of tax counsel to the effect that, as a result
of such action, the Trust will not be classified as other than a grantor trust
for United States federal income tax purposes.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Convertible Preferred
Securities may be given at a separate meeting of such holders convened for such
purpose, at a meeting of all of the holders of Trust Securities or pursuant to
written consent. The Regular Trustees will cause a notice of any meeting at
which holders of Convertible Preferred Securities are entitled to vote, or of
any matter upon which action by written consent of such holders is to be taken,
to be mailed to each holder of record of such Convertible Preferred Securities.
Each such notice will include a statement setting forth the following
information: (i) the date of such meeting or the date by which such action is to
be taken; (ii) a description of any resolution proposed for adoption at such
meeting on which such holders are entitled to vote or of such matter upon which
written consent is sought; and (iii) instructions for the delivery of proxies or
consents. No vote or consent of the holders of Convertible Preferred Securities
will be required for the Trust to redeem and cancel Convertible Preferred
Securities or distribute the Convertible Debentures in accordance with the
Declaration.
Notwithstanding that holders of Convertible Preferred Securities will be
entitled to vote or consent under any of the circumstances described above, any
Convertible Preferred Securities that are owned at such time by CSX or any
entity directly or indirectly controlling or controlled by, or under direct or
indirect common control with, CSX, shall not entitle the holders thereof to vote
or consent and shall, for purposes of such vote or consent, be treated as if
such Convertible Preferred Securities were not outstanding.
Holders of the Convertible Preferred Securities will have no rights to
appoint or remove the CSX Trustees, who may be appointed, removed or replaced
solely by CSX as the holder of all of the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be amended without the consent of the holders of the
Trust Securities to: (i) cure any ambiguity, (ii) correct or supplement any
provision in the Declaration that may be defective or inconsistent with any
other provision of the Declaration, (iii) add to the covenants, restrictions or
obligations of CSX, (iv) conform to any change in Rule 3a-5 under the Investment
Company Act of 1940, as amended (the "1940 Act"), or a written change in
interpretation or application of Rule 3a-5 under the 1940 Act by any legislative
body, court, government agency or regulatory authority, which amendment does not
have a material adverse effect on the rights, preferences or privileges of the
holders of the Trust Securities, and (v) modify, eliminate and add to any
provision of the Declaration, provided that no such modification, elimination or
addition shall adversely affect the powers, preferences or special rights of the
holders of the Trust Securities.
In addition, the Declaration may be modified and amended if approved by the
Regular Trustees (and in certain circumstances the Institutional Trustee and the
Delaware Trustee), provided that, if any proposed amendment provides for, or the
Regular Trustees otherwise propose to effect, (i) any action that would
adversely affect the powers, preferences or special rights of the Trust
Securities, whether by way of amendment to the Declaration or otherwise or (ii)
the dissolution, winding-up or termination of the Trust other than pursuant to
the terms of the Declaration, then the holders of the Trust Securities voting
together as a single class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of at least a majority in liquidation amount of the Trust Securities;
provided that if any amendment or proposal referred to in clause (i) above would
adversely affect only the
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Convertible Preferred Securities or the Common Securities, then only the
affected class will be entitled to vote on such amendment or proposal and such
amendment or proposal shall not be effective except with the approval of a
majority in liquidation amount of such class of Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified for purposes of United States federal income taxation as other
than a grantor trust, (ii) reduce or otherwise adversely affect the powers of
the Institutional Trustee or (iii) cause the Trust to be deemed an "investment
company" which is required to be registered under the 1940 Act.
Notwithstanding any provision of the Declaration, the provisions of Section
316(b) of the Trust Indenture Act incorporated by reference into the Declaration
provides that the right of any holder of Convertible Preferred Securities to
receive payment of distributions and other payments upon redemption or
otherwise, on or after their respective due dates, or to institute a suit for
the enforcement of any such payment on or after such respective dates, shall not
be impaired or affected without the consent of such holder.
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other body, except as
described below. The Trust may, with the consent of the Regular Trustees and
without the consent of the holders of the Trust Securities, the Institutional
Trustee or the Delaware Trustee, consolidate, amalgamate, merge with or into, or
be replaced by, a trust organized as such under the laws of any State of the
United States; provided that (i) if the Trust is not the survivor, such
successor entity either (a) expressly assumes all of the obligations of the
Trust under the Trust Securities or (b) substitutes for such Trust Securities
other securities having substantially the same terms as such Trust Securities
(the "Successor Securities"), so that the Successor Securities rank the same as
such Trust Securities rank with respect to distributions and payments upon
liquidation, redemption and otherwise, (ii) CSX expressly acknowledges a trustee
of such successor entity possessing the same powers and duties as the
Institutional Trustee as the holder of the Convertible Debentures, (iii) the
Convertible Preferred Securities or any Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on any
national securities exchange or with another organization on which such
Convertible Preferred Securities are then listed or quoted, if any, (iv) such
merger, consolidation, amalgamation or replacement does not cause such
Convertible Preferred Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization, (v)
such merger, consolidation, amalgamation or replacement does not adversely
affect the rights, preferences and privileges of the holders of such Trust
Securities (including any Successor Securities) in any material respect (other
than with respect to any dilution of the holders' interest in such successor
entity), (vi) such successor entity has a purpose substantially identical to
that of the Trust, (vii) prior to such merger, consolidation, amalgamation or
replacement, the Regular Trustees have received an opinion of a nationally
recognized independent counsel to the Trust experienced in such matters to the
effect that (a) such merger, consolidation, amalgamation or replacement does not
adversely affect the rights, preferences and privileges of the holders of the
Trust Securities (including any Successor Securities) in any material respect
(other than with respect to any dilution of the holders interest in such
successor entity), (b) following such merger, consolidation, amalgamation or
replacement, neither the Trust nor such successor entity will be required to
register as an investment company under the 1940 Act and (c) following such
merger, consolidation, amalgamation or replacement, neither the Trust nor such
successor entity will be classified as other than a grantor trust for United
States federal income tax purposes, and (viii) CSX guarantees the obligations of
such successor entity under the Successor Securities at least to the extent
provided by the Guarantee. Notwithstanding the foregoing, the Trust shall not,
except with the consent of holders of 100% in liquidation amount of the Trust
Securities, consolidate, amalgamate, merge with or into, or be replaced by, any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it, if such consolidation, amalgamation, merger or
replacement would cause the Trust or the successor entity to be classified as
other than a grantor trust for United States federal income tax purposes.
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PAYMENT AND PAYING AGENCY
Payments in respect of the Convertible Preferred Securities shall be made
by check mailed to the address of the holder entitled thereto as such address
shall appear on books and records of the applicable Trust. The paying agent for
the Trust Securities (the "Paying Agent") shall be permitted to resign as Paying
Agent upon 30 days' written notice to the Institutional Trustee, which shall
appoint a successor to act as Paying Agent (which shall be a bank or trust
company).
CONVERSION AGENT, REGISTRAR, TRANSFER AGENT AND PAYING AGENT
The Institutional Trustee initially will act as Conversion Agent, registrar
and transfer agent (the "Transfer Agent") and Paying Agent for the Convertible
Preferred Securities. Registration of transfers or exchanges of Convertible
Preferred Securities will be effected without charge by or on behalf of the
Trust, but upon payment (with the giving of such indemnity as the Trust or CSX
may require) in respect of any tax or other government charges which may be
imposed in relation to it. The Trust will not be required to register or cause
to be registered the transfer or exchange of Convertible Preferred Securities
after such Convertible Preferred Securities have been called for redemption.
INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE
The Institutional Trustee, prior to the occurrence of a default with
respect to the Trust Securities and after the curing of any defaults that may
have occurred, undertakes to perform only such duties as are specifically set
forth in the Declaration and, after default, shall exercise such of the rights
and powers vested in it by the Declaration, and use the same degree of care and
skill in their exercise, as a prudent individual would exercise or use in the
conduct of his or her own affairs. Subject to such provisions, the Institutional
Trustee is under no obligation to exercise any of the powers vested in it by the
Declaration at the request of any holder of Convertible Preferred Securities,
unless offered reasonable indemnity by such holder against the costs, expenses
and liabilities which might be incurred thereby. The holders of Convertible
Preferred Securities will not be required to offer such indemnity in the event
such holders, by exercising their voting rights, direct the Institutional
Trustee to take any action it is empowered to take under the Declaration
following a Declaration Event of Default. The Institutional Trustee also serves
as trustee under the Guarantee and the Indenture. CSX and certain of its
subsidiaries conduct certain banking transactions with the Institutional Trustee
in the ordinary course of their business.
Whenever in the exercise of its rights or powers or the performance of its
duties under the Declaration the Institutional Trustee shall deem it desirable
to receive instructions with respect to enforcing any remedy or right or taking
any other action thereunder, the Institutional Trustee (i) may request
instructions from the holders of the Convertible Preferred Securities which
instructions may only be given by the holders of a majority, or such other
proportion, in liquidation amount of the Convertible Preferred Securities as
would be entitled to direct the Institutional Trustee under the terms of the
Convertible Preferred Securities in respect of such remedy, right or action,
(ii) may refrain from enforcing such remedy or right or taking such other action
until such instructions are received, and (iii) shall be protected in
conclusively relying on or acting in accordance with such instructions.
GOVERNING LAW
The Declaration and the Convertible Preferred Securities will be governed
by, and construed in accordance with, the laws of the State of Delaware, without
regard to principles of conflict of laws.
MISCELLANEOUS
The Regular Trustees will be authorized and directed to operate the Trust
in such a way so that the Trust will not be required to register as an
"investment company" under the 1940 Act nor be characterized as other than a
grantor trust for United States federal income tax purposes. CSX is authorized
and directed to conduct its affairs so that the Convertible Debentures will be
treated as indebtedness of CSX for United States federal income tax purposes. In
this connection, CSX and the Regular Trustees are authorized to take any action,
not inconsistent with applicable law, the Declaration or the articles of
incorporation of CSX, that each of CSX and the Regular Trustees determine in
their discretion to be necessary or desirable to achieve such end, as long
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as such action does not adversely affect the interests of the holders of the
Convertible Preferred Securities or vary the terms thereof.
Holders of the Convertible Preferred Securities have no preemptive rights.
It is intended that the Convertible Preferred Securities will be
DTC-eligible.
DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of the expected terms of the Guarantee (which
will not be finalized until the Other Terms are fixed). The Guarantee will be
executed and delivered by CSX for the benefit of the holders from time to time
of Convertible Preferred Securities. A banking institution to be appointed will
act as trustee (the "Guarantee Trustee") under the Guarantee. The terms of the
Guarantee will be those set forth in the Guarantee and those made part of the
Guarantee by the Trust Indenture Act. The Guarantee will be held by the
Guarantee Trustee for the benefit of the holders of the Convertible Preferred
Securities of the Trust.
GENERAL
Pursuant to the Guarantee, CSX will irrevocably and unconditionally agree,
to the extent set forth therein, to pay in full, to the holders of the
Convertible Preferred Securities, the Guarantee Payments (as defined herein)
(except to the extent paid by the Trust), as and when due, regardless of any
defense, right of set-off or counterclaim which the Trust may have or assert.
The following payments with respect to Convertible Preferred Securities issued
by the Trust, to the extent not paid by the Trust (the "Guarantee Payments"),
will be subject to the Guarantee thereon (without duplication): (i) any accrued
and unpaid distributions which are required to be paid on such Convertible
Preferred Securities, to the extent the Trust shall have funds available
therefor; (ii) the Redemption Price, to the extent the Trust has funds available
therefor, with respect to any such Convertible Preferred Securities called for
redemption by the Trust and (iii) upon a voluntary or involuntary dissolution,
winding-up or termination of the Trust (other than in connection with the
distribution of Convertible Debentures to the holders of Convertible Preferred
Securities or a redemption or conversion of all Convertible Preferred
Securities), the lesser of (a) the aggregate of the liquidation amount and all
accrued and unpaid distributions on Convertible Preferred Securities to the date
of payment, to the extent the Trust has funds available therefor, and (b) the
amount of assets of the Trust remaining available for distribution to holders of
Convertible Preferred Securities in liquidation of the Trust. CSX's obligation
to make a Guarantee Payment may be satisfied by direct payment of the required
amounts by CSX to the holders of Convertible Preferred Securities or by causing
the Trust to pay such amounts to such holders.
The Guarantee will not apply to any payment of distributions except to the
extent the Trust shall have funds available therefor, which funds will not be
available except to the extent CSX has made payments of interest (or premium, if
any) or principal or other payments on the Convertible Debentures held by the
Trust. See "Description of the Convertible Debentures -- Certain Covenants." The
Guarantee, when taken together with CSX's obligations under the Convertible
Debentures, the Declaration and the Indenture, including its obligations to pay
costs, expenses, debts and liabilities of the Trust (other than with respect to
the Trust Securities), will provide a full and unconditional guarantee on a
subordinated basis by CSX of payments due on the Convertible Preferred
Securities to the extent set forth above.
Because the Guarantee will be a guarantee of payment and not of collection,
holders of the Convertible Preferred Securities may proceed directly against CSX
as guarantor, rather than having to proceed against the Trust before attempting
to collect from CSX, and CSX waives any right or remedy to require that any
action be brought against the Trust or any other person or entity before
proceeding against CSX. Such obligations will not be discharged except by
payment of the Guarantee Payments in full. The Guarantee will be deposited with
the Guarantee Trustee to be held for the benefit of the holders of Convertible
Preferred Securities. Except as otherwise noted herein, the Guarantee Trustee
will have the right to enforce the Guarantee on behalf of the holders of the
Convertible Preferred Securities.
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CSX will also agree separately to irrevocably and unconditionally guarantee
the obligations of the Trust with respect to Common Securities issued by the
Trust (the "Common Securities Guarantees") to the same extent as the respective
Guarantee, except that upon an event of default under the Declaration, holders
of the Convertible Preferred Securities will have priority over holders of
Common Securities with respect to distributions and payments on liquidation,
redemption or otherwise.
CERTAIN COVENANTS OF CSX UNDER THE GUARANTEE
In the Guarantee, CSX will covenant that, so long as any Convertible
Preferred Securities issued by the Trust remain outstanding, if CSX shall be in
default under the Guarantee, if CSX shall have exercised its option to defer
payments on the Convertible Debentures and such deferral shall be continuing or
if there shall have occurred and be continuing any event that would constitute
an event of default under the Declaration, then (i) CSX shall not declare or pay
any dividend on, make a distribution with respect to, or redeem, purchase or
make a liquidation payment with respect to, any of CSX's capital stock or rights
to acquire such capital stock (other than (a) purchases or acquisitions of
shares of any such capital stock or rights to acquire such capital stock in
connection with the satisfaction by CSX of its obligations under any employee
benefit plans, (b) as a result of a reclassification of CSX's capital stock or
rights to acquire such capital stock or the exchange or conversion of one class
or series of CSX's capital stock or rights to acquire such capital stock for
another class or series of CSX's capital stock or rights to acquire such capital
stock, (c) the purchase of fractional interests in shares of CSX's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, or (d) dividends and distributions made
on CSX's capital stock or rights to acquire such capital stock with CSX's
capital stock or rights to acquire such capital stock), or make any guarantee
payments with respect to the foregoing and (ii) CSX shall not make any payment
of interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by CSX that rank pari passu with or junior to the
Convertible Debentures.
MODIFICATION OF THE GUARANTEE; ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of Convertible Preferred Securities in any material respect (in which
case no vote of such holders will be required), the Guaranteemay be amended only
with the prior approval of the holders of not less than a majority in
liquidation amount of the outstanding Convertible Preferred Securities. All
guarantees and agreements contained in the Guarantee shall bind the successors,
assigns, receivers, trustees and representatives of CSX and shall inure to the
benefit of the holders of the Convertible Preferred Securities then outstanding
of the Trust.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate as to any Convertible Preferred Securities (i)
upon full payment of the Redemption Price with respect to such Convertible
Preferred Securities, (ii) upon distribution of the Convertible Debentures held
by the Trust to the holders of such Convertible Preferred Securities, (iii) upon
full payment of the amounts payable with respect to such Convertible Preferred
Securities in accordance with the Declaration upon liquidation of the Trust,
(iv) upon distribution of the CSX Common Stock to the holders of such
Convertible Preferred Securities in respect of the conversion of such
Convertible Preferred Securities or (v) upon full payment of amounts payable to
the holder of such Convertible Preferred Securities under the Declaration. The
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of Convertible Preferred Securities issued by the
Trust must restore payment of any sums paid under such Convertible Preferred
Securities or the Guarantee.
EVENTS OF DEFAULT
An event of default under the Guarantee in respect of the Trust will occur
upon the failure of CSX to perform any of its payment or other obligations
thereunder.
The holders of a majority in liquidation amount of the Convertible
Preferred Securities will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee
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Trustee in respect of the Guarantee or to direct the exercise of any trust or
power conferred upon the Guarantee Trustee under the Guarantee. If the Guarantee
Trustee fails to enforce the Guarantee, a holder of record of such Convertible
Preferred Securities may institute a legal proceeding directly against CSX to
enforce the Guarantee Trustee's rights under the Guarantee, without first
instituting a legal proceeding against the relevant Trust, the Guarantee Trustee
or any other person or entity. Pursuant to the Guarantee, CSX will waive any
right or remedy to require that any action be brought first against the Trust or
any other person or entity before proceeding directly against CSX.
STATUS OF THE GUARANTEE
CSX's obligations under the Guarantee will be subordinate and junior in
right of payment to all present and future Senior Indebtedness (as defined in
the Indenture) of CSX and also will be effectively subordinated to claims of
creditors of CSX's subsidiaries. The terms of the Convertible Preferred
Securities will provide that each holder of Convertible Preferred Securities by
acceptance thereof agrees to the subordination provisions and other terms of the
Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default with respect to
the Guarantee, will undertake to perform only such duties as are specifically
set forth in the Guarantee and, after default, will exercise such of the rights
and powers vested in it by the Guarantee, and use the same degree of care and
skill in their exercise, as a prudent individual would exercise or use in the
conduct of his or her own affairs. Subject to such provisions, the Trustee will
be under no obligation to exercise any of the powers vested in it by the
Guarantee at the request of any holder of Convertible Preferred Securities,
unless offered reasonable indemnity against the costs, expenses and liabilities
which might be incurred thereby.
CSX and certain of its affiliates may maintain a banking relationship with
the Guarantee Trustee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York, without regard to conflict of laws principles.
DESCRIPTION OF THE SUBORDINATED DEBT SECURITIES
Set forth below is a summary of the anticipated principal terms of the
Convertible Debentures (which will not be finalized until the Other Terms are
fixed). Such terms will be contained in an Indenture (the "Indenture"), among
CSX and a banking institution to be named to act as trustee thereunder (the
"Debt Trustee"). The terms of the Indenture will be those set forth in the
Indenture and those made part thereof by the Trust Indenture Act. The Indenture
will, by its terms, require CSX and the Debt Trustee to comply with the Trust
Indenture Act.
Under certain circumstances involving the dissolution of a Trust following
the occurrence of an Event, the Convertible Debentures may be distributed to the
holders of the Trust Securities in liquidation of such Trust. See "Description
of the Convertible Preferred Securities -- Tax Event Redemption."
GENERAL
The Convertible Debentures will be issued as unsecured debt under the
Indenture. The Subordinated Debt Securities will be limited to an amount equal
to the sum of the aggregate stated liquidation amount of the Trust Securities.
The Convertible Debentures will not be not subject to a sinking fund
provision. The entire principal amount of the Convertible Debentures will mature
and become due and payable, together with any accrued and unpaid interest
thereon including Compounded Interest (as defined herein) and Additional
Interest (as
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defined herein), if any, on December 1 in the year, which is either 20 or 30
years from the year of the Merger, such number to be fixed as an Other Term.
The Indenture will not contain provisions that afford holders of the
Convertible Debentures protection in the event of a highly leveraged transaction
or other similar transaction involving CSX that may adversely affect such
holders.
SUBORDINATION
The Indenture will provide that the Convertible Debentures will be
subordinated and junior in right of payment to all present and future Senior
Indebtedness of CSX. No payment of principal (including redemption payments) of
or premium, if any, or interest on the Convertible Debentures may be made if (i)
any Senior Indebtedness of CSX is not paid when due and any applicable grace
period with respect to a payment default under such Senior Indebtedness has
ended and such default has not been cured or waived or ceased to exist or (ii)
the maturity of any Senior Indebtedness of CSX has been accelerated because of a
default. Upon any distribution of assets of CSX to creditors upon any
dissolution, winding-up, liquidation or reorganization, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or other proceedings,
all principal, premium, if any, and interest due or to become due on all Senior
Indebtedness of CSX must be paid in full before the holders of Convertible
Debentures are entitled to receive or retain any payment. Upon satisfaction of
all claims of all Senior Indebtedness then outstanding, the rights of the
holders of the Convertible Debentures will be subrogated to the rights of the
holders of Senior Indebtedness of CSX to receive payments or distributions
applicable to Senior Indebtedness until all amounts owing on the Convertible
Debentures are paid in full.
The term "Senior Indebtedness" means, with respect to CSX, .
The Indenture will not limit the aggregate amount of Senior Indebtedness
that may be issued by CSX. As of , 1997, Senior Indebtedness of
CSX aggregated and the indebtedness of CSX's subsidiaries aggregated
.
REDEMPTION
CSX may redeem the Convertible Debentures, in whole or in part, at any time
and from time to time, on or after December 1 upon not less than 30 nor more
than 60 days' notice, at prices and times which will match those set for the
Convertible Preferred Securities as described above under "Description of the
Convertible Preferred Securities -- Redemption."
In addition, the Convertible Debentures may be redeemed by CSX at any time
in certain circumstances upon the occurrence of an Event as described under
"Description of the Convertible Preferred Securities -- Tax Event Redemption;
Investment Company Event Redemption," upon not less than 30 nor more than 60
days' notice, at a redemption price equal to 100% of the principal amount to be
redeemed plus any accrued and unpaid interest to the redemption date.
INTEREST
The Convertible Debentures shall bear interest at a percentage rate which
will match that to be fixed as an Other Term as the rate for distributions on
the Convertible Preferred Securities. See "Description of the Convertible
Preferred Securities -- Distributions." Such interest will accrue from the
original date of issuance, payable quarterly in arrears on the fifteenth of each
of January, April, July and October of each year (each an "Interest Payment
Date"), commencing on the first Interest Payment Date following the Merger, to
the person in whose name such Subordinated Debt Security is registered, subject
to certain exceptions, at the close of business on the Business Day next
preceding such Interest Payment Date. The term "interest" as used herein, as
such term relates to the Convertible Debentures, includes any Compounded
Interest or Additional Interest payable unless otherwise stated.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. The amount of interest payable for
any period shorter than a full quarterly period for which
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interest is computed will be computed on the basis of the actual number of days
elapsed per 30-day month. In the event that any date on which interest is
payable on the Convertible Debentures is not a Business Day, then payment of the
interest payable on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay) with the same force and effect as if made on such date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as CSX is not in default in the payment of interest that has become
due and payable on the Convertible Debentures and no accrued interest from a
prior completed Extension Period is unpaid, CSX shall have the right to defer
payments of interest on the Convertible Debentures by extending the interest
payment period, at any time and from time to time, for Extension Periods, each
not exceeding 20 consecutive quarterly periods, and on the date on which each
such Extension Period ends, or, if such date is not an Interest Payment Date on
the immediately following Interest Payment Date, CSX shall pay all Compounded
Interest, provided that during any Extension Period (i) CSX shall not declare or
pay dividends on, make any distribution with respect to, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of its capital stock
or rights to acquire such capital stock (other than (a) purchases or
acquisitions of shares of any such capital stock or rights to acquire such
capital stock in connection with the satisfaction by CSX of its obligations
under any employee benefit plans, (b) as a result of a reclassification of CSX's
capital stock or rights to acquire such capital stock or the exchange or
conversion of one class or series of CSX's capital stock or rights to acquire
such capital stock for another class or series of CSX's capital stock or rights
to acquire such capital stock, (c) the purchase of fractional interests in
shares of CSX's capital stock pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged or (d)
dividends and distributions made on CSX's capital stock or rights to acquire
such capital stock with CSX's capital stock or rights to acquire such capital
stock), or make any guarantee payments with respect to the foregoing, and (ii)
CSX shall not make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities issued by CSX that rank pari
passu with or junior to the Convertible Debentures. Prior to the termination of
any such Extension Period, CSX may further defer payments of interest by
extending the interest payment period; provided, however, that each such
Extension Period, including all such previous and further extensions thereof,
may not exceed 20 consecutive quarterly periods or extend beyond the maturity of
the Convertible Debentures. Upon the termination of any Extension Period and the
payment of all amounts then due, CSX may commence a new Extension Period,
subject to the terms set forth in this section. No interest during an Extension
Period, except on the date on which such Extension Period terminates (or if such
date is not an Interest Payment Date, on the immediately following Interest
Payment Date), shall be due and payable. CSX has no present intention of
exercising its right to defer payments of interest on the Convertible
Debentures.
If the Institutional Trustee is the sole holder of the Convertible
Debentures, CSX will give the Regular Trustees, the Institutional Trustee and
the Debt Trustee notice of its initiation of any Extension Period at least one
Business Day prior to the earlier of (i) the next succeeding date distributions
on the Convertible Preferred Securities are payable or (ii) the date the Regular
Trustees are required to give notice to holders of the Convertible Preferred
Securities (or any national securities exchange or other organization on which
the Convertible Preferred Securities are listed, if any) of the record date or
the distribution payment date, in each case with respect to distributions on the
Trust Securities the payment of which is being deferred. The Regular Trustees
will give notice of CSX's initiation of any Extension Period to the holders of
such Convertible Preferred Securities. If the Institutional Trustee is not the
sole holder of the Convertible Debentures, CSX will give the holders of the
Convertible Debentures notice of its initiation of such Extension Period at
least 10 Business Days prior to the earlier of (i) the next succeeding Interest
Payment Date or (ii) the date upon which CSX is required to give notice to
holders of the Convertible Debentures (or any national securities exchange or
other organization on which the corresponding Convertible Preferred Securities
are listed, if any) of the record date or interest payment date, in each case,
with respect to interest payments the payment of which is being deferred.
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ADDITIONAL INTEREST
If at any time the Trust shall be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States, or any other taxing authority, then, in any
such case, CSX will pay as additional interest ("Additional Interest") on the
Convertible Debentures held by the Institutional Trustee such additional amounts
as shall be required so that the net amounts received and retained by the Trust
after paying any such taxes, duties, assessments or other governmental charges
will equal the amounts the Trust and the Institutional Trustee would have
received had no such taxes, duties, assessments or other governmental charges
been imposed.
CONVERSION OF THE CONVERTIBLE DEBENTURES
The Convertible Debentures will have conversion provisions for conversion
into shares of CSX Common Stock parallel to these applicable to the Convertible
Preferred Securities. See "Description of the Convertible Preferred
Securities -- Conversion Rights." The Trust will agree not to convert
Convertible Debentures held by it except pursuant to a notice of conversion
delivered to the Conversion Agent by a holder of Convertible Preferred
Securities. Upon surrender of a Capital Security to the Conversion Agent for
conversion, the Trust will distribute Convertible Debentures to the Conversion
Agent on behalf of the holder of the Convertible Preferred Securities so
converted, whereupon the Conversion Agent will convert such Convertible
Debentures into CSX Common Stock on behalf of such holder. CSX's delivery to the
holders of the Convertible Debentures (through the Conversion Agent) of the
fixed number of shares of CSX Common Stock into which the Convertible Debentures
are convertible (together with the cash payment, if any, in lieu of fractional
shares) will be deemed to satisfy CSX's obligation to pay the principal amount
of the Convertible Debentures so converted, and the accrued and unpaid interest
thereon attributable to the period from the last date to which interest has been
paid or duly provided for; provided, however, that if any Convertible Debentures
are converted on or after a record date for payment of interest, the interest
payable on the related interest payment date with respect to such Convertible
Debentures shall be paid to the Trust (which will distribute such interest to
the converting holder) or other holder of Convertible Debentures, as the case
may be, despite such conversion.
CERTAIN COVENANTS
If (i) there shall have occurred and be continuing any event that would
constitute an Event of Default (as defined herein), (ii) CSX shall be in default
with respect to its payment of any obligations under the Guarantee or the Common
Securities Guarantee, or (iii) CSX shall have given notice of its election to
defer payments of interest on the Convertible Debentures by extending the
interest payment period as provided in the Indenture and such period, or any
extension thereof, shall be continuing, then (a) CSX shall not declare or pay
any dividend on, make a distribution with respect to, or redeem, purchase or
make a liquidation payment with respect to, any of its capital stock or rights
to acquire such capital stock (other than (1) purchases or acquisitions of
shares of any such capital stock or rights to acquire such capital stock in
connection with the satisfaction by CSX of its obligations under any employee
benefit plans, (2) as a result of a reclassification of CSX's capital stock or
rights to acquire such capital stock or the exchange or conversion of one class
or series of CSX's capital stock or rights to acquire such capital stock for
another class or series of CSX's capital stock or rights to acquire such capital
stock, (3) the purchase of fractional interests in shares of CSX's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, or (4) dividends and distributions made
on CSX's capital stock or rights to acquire such capital stock with CSX's
capital stock or rights to acquire such capital stock), or make any guarantee
payments with respect to the foregoing, and (b) CSX shall not make any payment
of interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by CSX that rank pari passu with or junior to the
Convertible Debentures.
For so long as Trust Securities remain outstanding, CSX will covenant (i)
to maintain 100% ownership of the Common Securities; provided, however, that any
permitted successor of CSX under the Indenture may succeed to CSX's ownership of
the Common Securities, (ii) to use its reasonable efforts to cause the Trust (a)
to remain a statutory business trust, except in connection with the distribution
of Subordinated Debt
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Securities to the holders of Trust Securities in liquidation of the Trust, the
redemption of all of the Trust Securities of the Trust or certain mergers,
consolidations or amalgamations, each as permitted by the Declaration, and (b)
to otherwise continue to be classified as a grantor trust for United States
federal income tax purposes and (iii) to use its reasonable efforts to cause
each holder of Trust Securities to be treated as owning an undivided beneficial
interest in the Convertible Debentures issued to the Trust.
LIMITATION ON MERGERS AND SALES OF ASSETS
Nothing contained in the Indenture or in the Convertible Debentures will
prevent any consolidation or merger of CSX with or into any other corporation
(whether or not affiliated with CSX) or successive consolidations or mergers in
which CSX or its successor or successors shall be a party, or shall prevent any
sale, conveyance, transfer or other disposition of the property of CSX or its
successor or successors as an entirety, or substantially as an entirety, to any
other corporation (whether or not affiliated with CSX or its successor or
successors) authorized to acquire and operate the same; provided, however, that
CSX shall, upon any such consolidation, merger, sale, conveyance, transfer or
other disposition, cause the obligations of CSX under the Convertible Debentures
and under the Indenture to be expressly assumed, by supplemental indenture
satisfactory in form to the Debt Trustee and executed and delivered to the Debt
Trustee by the successor entity formed by such consolidation or into which CSX
shall have been merged or which shall have acquired such property. Upon
execution and delivery of such supplemental indenture to the Debt Trustee, such
successor entity will be substituted under the Indenture and the Convertible
Debentures and thereupon CSX will be relieved of any further liability or
obligation thereunder.
EVENTS OF DEFAULT, WAIVER AND NOTICE
The Indenture will provide that any one or more of the following described
events which has occurred and is continuing with respect to the Convertible
Debentures constitutes an "Event of Default" with respect to the Convertible
Debentures:
(i) default for 30 days in payment of any interest on the Convertible
Debentures, including any Compounded Interest or Additional Interest in
respect thereof, when due; provided, however, that a permitted extension of
the interest payment period by CSX shall not constitute a default in the
payment of interest for this purpose; or
(ii) default in payment of principal of and premium, if any, on the
Convertible Debentures when due either at maturity, upon redemption, by
declaration or otherwise; provided, however, that a valid extension of the
maturity of the Convertible Debentures shall not constitute a default for
this purpose; or
(iii) default by CSX in the performance of any other of the covenants
or agreements in the Indenture which shall not have been remedied for a
period of 90 days after notice; or
(iv) certain events of bankruptcy, insolvency or reorganization of
CSX; or
(v) as to Convertible Debentures issued to the Trust, the voluntary or
involuntary dissolution, winding-up or termination of the Trust, except in
connection with the distribution of Convertible Debentures to the holders
of Trust Securities in liquidation of the Trust, the redemption of all of
the Trust Securities of the Trust, or certain mergers, consolidations or
amalgamations, each as permitted by the Declaration.
The Indenture will provide that the Debt Trustee may, under certain
circumstances, withhold from the holders notice of default with respect to the
Convertible Debentures (except for any default in payment of principal of or
interest or premium, if any, on the Convertible Debentures) if the Trustee
considers it in the interest of such holders to do so.
The Indenture will provide that if an Event of Default in respect of the
Convertible Debentures shall have occurred and be continuing, either the Debt
Trustee or the holders of not less than 25% in aggregate principal amount of the
Convertible Debentures then outstanding may declare the principal of and accrued
interest on all Convertible Debentures to be due and payable immediately, but
upon certain conditions such declarations
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may be annulled and past defaults may be waived (except defaults in payment of
principal of or interest or premium, if any, on the Convertible Debentures,
which must be cured or paid in full) by the holders of a majority in aggregate
principal amount of the Convertible Debentures then outstanding.
No holder of any Convertible Debt will have any right to institute any
suit, action or proceeding for any remedy under the Indenture, unless such
holder previously shall have given to the Debt Trustee written notice of a
continuing Event of Default with respect to the Convertible Debentures and
unless the holders of not less than 25% in aggregate principal amount of the
Convertible Debentures then outstanding shall have given the Debt Trustee a
written request to institute such action, suit or proceeding and shall have
offered to the Debt Trustee such reasonable indemnity as it may require against
the costs, expenses and liabilities to be incurred thereby, and the Debt Trustee
for 60 days after its receipt of such notice, request and offer of indemnity
shall have failed to institute any such action, suit or proceeding; provided
that no holder of Convertible Debentures shall have any right to prejudice the
rights of any other holder of Convertible Debentures, obtain priority or
preference over any other such holder or enforce any right under the Indenture
except as provided in the Indenture and for the equal, ratable and common
benefit of all holders of Convertible Debentures. Notwithstanding the foregoing,
the right of any holder of any Subordinated Debt Security to receive payment of
the principal of, premium, if any, and interest on such Subordinated Debt
Security when due, or to institute suit for the enforcement of any such payment,
shall not be impaired or affected without the consent of such holder.
The holders of a majority in aggregate principal amount of the Convertible
Debentures will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to, or exercising any trust
or power conferred on, the Debt Trustee under the Indenture; provided, however,
that, except under certain circumstances, the Debt Trustee may decline to follow
any such direction if the Debt Trustee determines that the action so directed
would be unjustly prejudicial to holders not taking part in such direction or
would be unlawful or would involve the Debt Trustee in personal liability. The
Indenture requires the annual filing by CSX with the Debt Trustee of a
certificate as to the absence of certain defaults under the Indenture.
An Event of Default under the Indenture will also constitute a Declaration
Event of Default. The holders of Convertible Preferred Securities in certain
circumstances have the right to direct the Institutional Trustee to exercise its
rights as the holder of the Convertible Debentures. See "Description of the
Convertible Preferred Securities -- Declaration Events of Default" and
"-- Voting Rights." Notwithstanding the foregoing, if an Indenture Event of
Default has occurred and is continuing and such event is attributable to the
failure of CSX to pay principal of (or premium, if any) or interest on the
Convertible Debentures on the respective dates such principal (or premium, if
any) or interest is payable (or in the case of redemption, on the redemption
date), CSX acknowledges that a holder of record of Convertible Preferred
Securities of the Trust which holds the Convertible Debentures may institute a
Direct Action for payment, on or after the respective due dates specified in the
Convertible Debentures, to such holder directly of the principal of (or premium,
if any) or interest on the Convertible Debentures having an aggregate principal
amount equal to the aggregate liquidation amount of the Convertible Preferred
Securities of such holder. Notwithstanding any payments made to such holder of
Convertible Preferred Securities by CSX in connection with a Direct Action, CSX
shall remain obligated to pay the principal of (or premium, if any) or interest
on the Convertible Debentures held by the Trust or the Institutional Trustee,
and CSX shall be subrogated to the rights of such holder of such Convertible
Preferred Securities under the Declaration to the extent of any payments made by
CSX to such holder in any Direct Action; provided, however, that no such
subrogation right may be exercised so long as a Declaration Event of Default has
occurred and is continuing. Except to the extent described above under
"Description of the Convertible Preferred Securities -- Declaration Events of
Default" and "-- Voting Rights," the holders of Convertible Preferred Securities
will not be able to exercise directly any other remedy available to the holders
of the Convertible Debentures.
MODIFICATION OF THE INDENTURE
The Indenture will contain provisions permitting CSX and the Debt Trustee,
with the consent of the holders of not less than a majority in principal amount
of the Convertible Debentures by such modification at
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the time outstanding, to modify the Indenture or any supplemental indenture or
the rights of the holders of the Convertible Debentures; provided, however, that
no such modification shall, without the consent of the holder of each
Subordinated Debt Security so affected, (i) extend the fixed maturity of any
Subordinated Debt Security, or reduce the principal amount thereof or any
redemption premium thereon, or reduce the rate or extend the time of payment of
interest thereon, or make the principal of, or interest or premium on, the
Convertible Debentures payable in any coin or currency other than that provided
in the Convertible Debentures, or impair or affect the right of any holder of
Convertible Debentures to institute suit for the payment thereof, or (ii) reduce
the aforesaid percentage of Convertible Debentures the consent of the holders of
which is required for any such modification.
CSX and the Debt Trustee may enter into supplemental indentures, without
the consent of any holder of the Convertible Debentures: (i) to evidence the
succession of another corporation to CSX and the assumption by the successor
corporation of the covenants, agreements and obligations of CSX pursuant to the
Indenture; (ii) to add to the covenants of CSX such further covenants,
restrictions or conditions for the protection of the holders of all or any
series of Convertible Debentures and to make the occurrence, or the occurrence
and continuance (including any or no grace periods), of a default in any of such
additional covenants, restrictions or conditions a default or an Event of
Default permitting the enforcement of remedies provided in the Indenture; (iii)
to cure any ambiguity or to correct or supplement any provision contained in the
Indenture or in any supplemental indenture which may be defective or
inconsistent with any other provision contained therein or in any supplemental
indenture, or to make such other provisions in regard to matters or questions
arising under the Indenture; provided that any such action shall not adversely
affect the interests of the holders of the Convertible Debentures; (iv) to add
to, delete from, or revise the terms of Convertible Debentures to provide for
transfer procedures and restrictions substantially similar to those applicable
to the Convertible Preferred Securities (for purposes of assuring that no
registration of Convertible Debentures is required under the Securities Act);
(v) to evidence and provide for the acceptance of appointment under the
Indenture by a successor Debt Trustee with respect to the Convertible Debentures
and to add to or change any of the provisions of the Indenture as shall be
necessary to provide for or facilitate the administration of the Trust under the
Indenture by more than one Debt Trustee, pursuant to the Indenture; (vi) to make
any change that does not adversely affect the rights of any holder of any
Subordinated Debt Security in any material respect; or (vii) to provide for the
issuance, and establish the form and terms and conditions, of the Convertible
Debentures of any series, to establish the form of any certifications required
to be furnished pursuant to the terms of the Indenture or any Convertible
Debentures or to add to the rights of the holders of any Convertible Debentures.
THE DEBT TRUSTEE
CSX may have normal banking relationships with the Debt Trustee in the
ordinary course of business.
GOVERNING LAW
The Indenture and the Convertible Debentures will be governed by, and
construed in accordance with, the laws of the State of New York, without regard
to conflict of laws principles.
EFFECT OF OBLIGATIONS UNDER THE SUBORDINATED
DEBT SECURITIES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to issue
the Trust Securities evidencing undivided beneficial interests in the assets of
the Trust and to hold the Convertible Debentures.
As long as payments of interest and other payments are made when due on the
Convertible Debentures, such payments will be sufficient to cover distributions
and payments due on the Trust Securities issued by the Trust because of the
following factors: (i) the aggregate principal amount of Convertible Debentures
will be equal to the aggregate stated liquidation amount of the Trust
Securities; (ii) the interest rate and the interest and other payment dates on
the Convertible Debentures will match the distribution rate and distribution and
other payment dates for the Convertible Preferred Securities; (iii) CSX shall
pay all, and the Trust shall not
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be obligated to pay directly or indirectly any, costs, expenses, debts, and
obligations of the Trust (other than with respect to the Trust Securities); and
(iv) the Declaration further provides that the CSX Trustees shall not take any
action or cause or permit the Trust to, among other things, engage in any
activity that is not consistent with the purposes of the Trust.
Payments of distributions (to the extent funds therefor are available to
the Trust) and other payments due on the Convertible Preferred Securities (to
the extent funds therefor are available to the Trust) are guaranteed by CSX as
described under "Description of the Guarantee." If CSX does not make interest
payments on the Convertible Debentures held by the Trust, it is expected that
the Trust will not have sufficient funds to pay distributions on the Convertible
Preferred Securities. The Guarantee will not apply to any payment of
distributions except to the extent that the Trust has funds available for the
payment of such distributions. The Guarantee will cover the payment of
distributions and other payments on the Convertible Preferred Securities only if
and to the extent that CSX has made payments of principal of (or premium, if
any) or interest on the Convertible Debentures held by the Trust as its sole
assets. The Guarantee, when taken together with CSX's obligations under the
Convertible Debentures, the Declaration and the Indenture, including its
obligations to pay costs, expenses, debts and liabilities of the Trust (other
than with respect to the Trust Securities), provide a full and unconditional
guarantee on a subordinated basis by CSX of amounts due on the Convertible
Preferred Securities to the extent set forth herein.
If CSX fails to make interest or other payments on the Convertible
Debentures when due (after giving effect to any Extension Period), the
Declaration provides a mechanism whereby the holders of the Convertible
Preferred Securities may direct the Institutional Trustee to enforce its rights
under the Convertible Debentures. If the Institutional Trustee fails to enforce
its rights under theConvertible Debentures after a majority in liquidation
amount of the Convertible Preferred Securities have so directed the
Institutional Trustee, to the fullest extent permitted by law, a holder of
record of the Convertible Preferred Securities may institute a legal proceeding
against CSX to enforce the Institutional Trustee's rights under the Convertible
Debentures without first instituting any legal proceeding against the
Institutional Trustee or any other person or entity. Notwithstanding the
foregoing, if a Declaration Event of Default has occurred and is continuing in
respect of the Trust and such event is attributable to the failure of CSX to pay
interest (or premium, if any) or principal on the Convertible Debentures on the
respective dates such interest (or premium, if any) or principal is payable (or
in the case of redemption, on the redemption date), then a holder of record of
the Convertible Preferred Securities may institute a Direct Action for payment
on or after the respective due dates specified in the Convertible Debentures. In
connection with such Direct Action, CSX will be subrogated to the rights of such
holder of Convertible Preferred Securities under the Declaration to the extent
of any payment made by CSX to such holder of such Convertible Preferred
Securities in such Direct Action; provided, however, that no such subrogation
right may be exercised so long as a Declaration Event of Default in respect of
the Trust has occurred and is continuing.
Because CSX is a holding company, the Convertible Debentures and the
Guarantee will be effectively subordinated to all existing and future
liabilities, including trade payables, of CSX's subsidiaries, except to the
extent that CSX is a creditor of the subsidiaries recognized as such.
See "THE MERGER -- Certain Federal Income Tax Consequences" in the Joint
Proxy Statement/ Prospectus for a discussion of certain tax aspects of the
Convertible Preferred Securities.
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