RULE NO. 424(b)(5)
REGISTRATION NOS. 333-48195
333-48195-01
PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED JUNE 1, 1998)
$300,000,000
CSXT TRADE RECEIVABLES MASTER TRUST
6.00% Trade Receivables Participation Certificates, Series 1998-1
CSX TRADE RECEIVABLES CORPORATION
Seller
CSX TRANSPORTATION, INC.
Servicer
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The 6.00% Trade Receivables Participation Certificates, Series 1998-1 (the
"Series 1998-1 Certificates") offered hereby represent undivided interests
in certain assets of the CSXT Trade Receivables Master Trust created
pursuant to a Pooling and Servicing Agreement among CSX Trade Receivables
Corporation, as Seller (the "Seller"), CSX Transportation, Inc., as
Servicer (the "Servicer"), and The Chase Manhattan Bank, as Trustee.
The Trust assets include rail freight receivables generated from time
to time by CSX Transportation, Inc., all collateral security with
respect thereto, all collections thereon and certain other assets
described herein. Certain assets of the Trust will be allocated
to Series 1998-1 Certificateholders, including the right to
receive a varying percentage of each month's collections with
respect to the Receivables at the times and in the manner
described herein. The Seller will own the remaining interest
(the "Seller's Interest") in the Trust not represented by
the Series 1998-1 Certificates and the other investor
certificates issued and purchased interests sold by the
Trust from time to time. Subject to certain
conditions, the Seller may offer other series of
investor certificates and purchased interests
representing undivided interests in the Trust and
the Trust Assets, which may have terms
significantly different from the terms of the
Series 1998-1 Certificates offered hereby.
Interest will accrue on the Series 1998-1 Certificates at the rate of
6.00% per annum (the "Certificate Rate"). Interest with respect to
the Series 1998-1 Certificates will be distributed on July 27,
1998, and on the 25th day of each calendar month
thereafter (or, if any such 25th day is not a
business day, the next succeeding business day).
Principal with respect to the Series 1998-1
Certificates is scheduled to be paid
on the June 2003 Distribution
Date, but may be paid
earlier or later under
certain
circumstances
described
herein.
The Seller's Interest will be subordinated to the rights of the Series 1998-1
Certificateholders
to the limited extent of the Available Subordinated Amount as described
herein.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" COMMENCING ON PAGE S-7 HEREIN AND ON PAGE 14 IN THE PROSPECTUS.
THE SERIES 1998-1 CERTIFICATES WILL REPRESENT INTERESTS IN THE TRUST ONLY
AND WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE SELLER, THE
SERVICER OR ANY AFFILIATE OF EITHER. NEITHER THE SERIES 1998-1
CERTIFICATES NOR THE UNDERLYING RECEIVABLES OR ANY COLLECTIONS
THEREON ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO THE
PUBLIC (1) COMMISSIONS SELLER (1) (2)
------------ ------------- ---------------
Per Certificate............................ 99.913116% 0.300000% 99.613116%
Total...................................... $299,739,348 $900,000 $298,839,348
(1) Plus accrued interest, if any, at the Certificate Rate from the Closing
Date.
(2) Before deduction of expenses, estimated to be $595,000.
The Series 1998-1 Certificates are offered subject to prior sale and subject
to the Underwriters' right to reject any order in whole or in part. It is
expected that the Series 1998-1 Certificates will be delivered in book-entry
form on or about June 17, 1998, through the Same Day Funds Settlement System
of The Depository Trust Company.
The Series 1998-1 Certificates initially will be represented by certificates
which will be registered in the name of Cede & Co., the nominee of The
Depository Trust Company. The interest of beneficial holders of the
Series 1998-1 Certificates (the "Series 1998-1 Certificateholders")
will be represented by book entries on the records of The Depository
Trust Company and participating members thereof. Definitive
certificates will be available to Series 1998-1
Certificateholders only under the limited circumstances
described under "The Pooling Agreement Generally--Definitive
Certificates" in the Prospectus.
There currently is no secondary market for the Series 1998-1 Certificates,
and there is no assurance that one will develop or, if one does develop,
that it will continue until the Series 1998-1 Certificates are paid
in full.
CREDIT SUISSE FIRST BOSTON CITICORP SECURITIES, INC.
The date of this Prospectus Supplement is June 3, 1998.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT TRANSACTIONS, STABILIZING
TRANSACTIONS, SYNDICATE COVERING TRANSACTIONS AND PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
------------
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE SERIES 1998-1 CERTIFICATES. ADDITIONAL INFORMATION IS
CONTAINED IN THE PROSPECTUS, AND PURCHASERS ARE URGED TO READ BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE SERIES 1998-1
CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
S-2
SUMMARY OF SERIES TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Reference is made to the Glossary in each of this
Prospectus Supplement and the Prospectus for the location herein and therein of
the definitions of certain capitalized terms used herein. Certain capitalized
terms used but not defined herein have the meanings assigned to them in the
Prospectus.
Trust....................... CSXT Trade Receivables Master Trust.
Title of Securities......... $300,000,000 6.00% Trade Receivables
Participation Certificates, Series 1998-1 (the
"Series 1998-1 Certificates").
Series 1998-1 Initial $300,000,000.
Invested Amount............
Certificate Rate............ 6.00% per annum.
Interest Payment Dates...... The 25th day of each calendar month (or, if any
such day is not a business day, the next
succeeding business day), commencing July 27,
1998.
Controlled Accumulation For each Distribution Date with respect to the
Amount..................... Accumulation Period, $150,000,000.
Series 1998-1 Expected
Final Payment Date.........
The June 2003 Distribution Date.
Series Cut-Off Date......... June 17, 1998.
Closing Date................ June 17, 1998.
The Receivables............. The aggregate amount of Receivables included in
the Trust as of March 27, 1998 was approximately
$703,942,000.
The Series 1998-1 Each of the Series 1998-1 Certificates offered
Certificates............... hereby represents an undivided interest in the
Trust. The Trust's assets will be allocated in
part to the Series 1998-1 Certificateholders
(the "Certificateholders' Interest"), in part to
the certificateholders of any other outstanding
Series (such other certificateholders, together
with the Certificateholders, are referred to as
"certificateholders"), and in part to the
Purchased Interests, with the remainder
allocated to the Seller (the "Seller's
Interest"). A portion of the Seller's Interest
will be subordinated to the Certificateholders'
Interest, as described below. The Series 1998-1
Certificates will evidence an undivided
beneficial interest in the assets of the Trust
allocated to the Certificateholders' Interest
and will represent the right to receive from
such assets funds up to (but not in excess of)
the amounts required to make monthly payments of
interest on the Series 1998-1 Certificates at
the Certificate Rate and to make the payment of
the Series 1998-1 Invested Amount on the Series
1998-1 Expected Final Payment Date or earlier or
later under certain limited circumstances.
The Series 1998-1 Invested Amount represents the
principal amount of Series 1998-1 Certificates
invested in Receivables as of the Closing Date.
The Series 1998-1 Invested Amount is subject to
S-3
reduction during the Accumulation Period (as
funds are deposited in the Principal Funding
Account), the Early Amortization Period (as
principal is paid to Series 1998-1
Certificateholders), and on any Distribution
Date to the extent that Investor Allocable
Charged-Off Amounts for Series 1998-1 exceed the
Loss Reserve for Series 1998-1 as described
under "Series Provisions--Investor Charge-Offs;
Rebates and Adjustments" herein and in the
Prospectus.
Allocations................. Collections of Receivables and Miscellaneous Pay-
ments with respect to each Due Period will be
allocated among all Series and Purchased Inter-
ests pro rata based on their Adjusted Invested
Amounts. See "Master Trust Provisions--Master
Trust Allocations" in the Prospectus. Series
1998-1 Allocable Collections and Series 1998-1
Allocable Miscellaneous Payments will then be
further allocated between the
Certificateholders' Interest and the Seller's
Interest, based on the Investor Allocation Per-
centage for Series 1998-1 for the related Due
Period. The Investor Allocation Percentage for
Series 1998-1 is the percentage equivalent of a
fraction, the numerator of which includes the
Series 1998-1 Invested Amount, the Available
Subordinated Amount, a Fee Reserve and a Yield
Reserve and the denominator of which is the Net
Series Pool Balance, each of such amounts to be
determined for the periods and in the manner de-
scribed under "Series Provisions--Allocation be-
tween Investor Certificateholders and the Sell-
er" herein and in the Prospectus.
Available Subordinated Collections with respect to a portion of the
Amount..................... Seller's Interest in the Receivables will be
subordinated to the payment of interest to
Series 1998-1 Certificateholders, the payment of
the Monthly Servicing Fee and, to the extent
described herein, the payment, or deposit in the
Principal Funding Account, of principal with
respect to the Series 1998-1 Invested Amount. As
more fully described under "Series Provisions--
Allocation between Investor Certificateholders
and the Seller" herein and in the Prospectus,
the Available Subordinated Amount will be
determined from time to time based on the levels
of delinquencies, charge-offs and dilutions
during prior periods; provided, however, that
the Available Subordinated Amount for the first
Due Period shall be not less than $49,676,362.
An Amortization Event will occur if the Net
Series Pool Balance is less than the Required
Net Series Pool Balance, which would be the case
if (a) the Net Series Pool Balance is less than
(b) the sum of the Available Subordinated
Amount, the Series 1998-1 Invested Amount, the
Yield Reserve and the Fee Reserve. For purposes
of determining the Required Net Series Pool
Balance, the amount, if any, by which the
Series 1998-1 Initial Invested Amount exceeds
the Series 1998-1 Invested Amount shall be
deducted from the Required Net Series Pool
Balance. See "Series Provisions--Amortization
Events" and "Master Trust Provisions--Deposits
in the Collection Account" herein and in the
Prospectus.
S-4
Revolving Period
andAccumulation Period.....
Unless an Amortization Event has occurred, the
revolving period with respect to the Series
1998-1 Certificates (the "Revolving Period")
will end, and the accumulation period with
respect to the Series 1998-1 Certificates (the
"Accumulation Period") will commence, at the
close of business on the last business day of
the March 2003 Due Period. The Accumulation
Period will end on the earlier of (a) the
commencement of the Early Amortization Period or
(b) the Expected Final Payment Date. No
principal will be payable to Series 1998-1
Certificateholders until the Expected Final
Payment Date or, upon the occurrence of an
Amortization Event as described herein and in
the Prospectus, the first Distribution Date with
respect to an Early Amortization Period. See
"Series Provisions--Amortization Events" herein
and in the Prospectus for a discussion of the
events that might lead to payments of principal
prior to the Expected Final Payment Date.
Optional Repurchase......... The Certificateholders' Interest will be subject
to optional repurchase by the Seller on any
Distribution Date after the Series 1998-1
Invested Amount is reduced to an amount less
than or equal to $30,000,000 (10% of the Series
1998-1 Initial Invested Amount). The purchase
price will be equal to the sum of the Series
1998-1 Invested Amount and accrued and unpaid
interest on the Series 1998-1 Certificates (and
accrued and unpaid interest with respect to
interest amounts that were due but not paid on
prior Interest Payment Dates) through the day
preceding such Distribution Date. See "Series
Provisions--Optional Termination; Final Payment
of Principal" in the Prospectus.
Series 1998-1 Sale Date..... The July 2004 Distribution Date. As more fully
described under "Series Provisions--Optional
Termination; Final Payment of Principal" in the
Prospectus and "Series Provisions--Series
Termination" herein, the Certificateholders'
Interest in the Receivables will be sold and a
final distribution made to Series 1998-1
Certificateholders on the Series 1998-1 Sale
Date, to the extent that the Series 1998-1
Invested Amount exceeds zero at such time.
Registration of Series
1998-1 Certificates........
The Series 1998-1 Certificates initially will be
represented by Series 1998-1 Certificates
registered in the name of Cede, as the nominee
of DTC. No purchaser of a Series 1998-1
Certificate will be entitled to receive a
definitive certificate except under certain
limited circumstances. See "The Pooling
Agreement Generally--Definitive Certificates" in
the Prospectus.
ERISA Considerations........ Series 1998-1 Certificates may be eligible for
purchase by Benefit Plans. See "ERISA
Considerations" in the Prospectus.
Series 1998-1 Certificate It is a condition to the issuance of the Series
Rating..................... 1998-1 Certificates that they be rated in the
highest rating category by at least one
nationally recognized rating agency. The rating
of the Series 1998-1 Certificates is based
primarily on the value of the
S-5
Receivables and the extent of the Available
Subordinated Amount. See "Risk Factors--Ratings
of the Investor Certificates" in the Prospectus.
Other Series and Purchased The Series 1998-1 Certificates will be the second
Interests.................. Series of Investor Certificates issued by the
Trust. The Trust has previously sold a class of
investor certificates entitled Series 1993-1
Certificates (the "Series 1993-1 Certificates").
See "Annex I--Other Series" for a summary of the
principal terms of the Series 1993-1
Certificates. In addition, the Trust has sold
Purchased Interests. The outstanding amount of
Purchased Interests is expected to be zero as of
the Closing Date. Such amount of Purchased
Interests is likely to change from time to time.
Additional Series of Investor Certificates and
additional Purchased Interests are expected to
be issued and sold from time to time by the
Trust. See "Master Trust Provisions--New
Issuances" in the Prospectus.
A portion of the net proceeds from the sale of
the Series 1998-1 Certificates will be used to
(i) fund a principal funding account maintained
for the benefit of the Series 1993-1
Certificates in an amount sufficient to pay the
unpaid principal balance of the Series 1993-1
Certificates and all amounts payable with
respect to the Series 1993-1 Certificates on
each remaining Distribution Date through and
including the expected final payment date for
the Series 1993-1 Certificates and (ii) repay
the outstanding principal amount of Purchased
Interests.
S-6
RISK FACTORS
LIMITED AMOUNTS OF AVAILABLE SUBORDINATION
Although Enhancement with respect to the Series 1998-1 Certificates will be
provided by the subordination of the Seller's Interest to the Series 1998-1
Certificates to the extent described herein, the amount available thereunder
is limited and may decline during the Accumulation Period or the Early
Amortization Period. If Collections with respect to the Available Subordinated
Amount with respect to any Due Period are insufficient to cover shortfalls
with respect to payments due to the Series 1998-1 Certificateholders or if the
Investor Allocable Charged-Off Amounts for Series 1998-1 with respect to any
Due Period exceed the Loss Reserve for Series 1998-1 for such Due Period,
Series 1998-1 Certificateholders will bear directly the credit and other risks
associated with their undivided interests in the Trust.
MATURITY CONSIDERATIONS
The Pooling Agreement and the Supplement for the Series offered hereby (the
"Series 1998-1 Supplement") provide that the Series 1998-1 Certificateholders
will not receive payments of principal until the Series 1998-1 Expected Final
Payment Date, or earlier in the event of an Amortization Event which results
in the commencement of the Early Amortization Period. Series 1998-1
Certificateholders will receive payments of principal on each Distribution
Date following the monthly period in which an Amortization Event occurs (each
such Distribution Date, a "Special Payment Date") until the Series 1998-1
Invested Amount has been paid in full or the Series 1998-1 Sale Date has
occurred.
On each Distribution Date during the Accumulation Period for Series 1998-1,
amounts equal to the least of (a) Available Principal Collections, which are
generally equal to the amount of Collections for the related Due Period on
deposit in the Collection Account and available for deposit in the Principal
Funding Account as described in "Series Provisions--Principal" in the
Prospectus and herein, (b) the Controlled Deposit Amount, which is equal to
the sum of the Controlled Accumulation Amount for such Due Period and any
Deficit Controlled Accumulation Amount and (c) the Series 1998-1 Invested
Amount will be deposited in the principal funding account (the "Principal
Funding Account") until the Series 1998-1 Invested Amount equals zero.
Alternatively, the Seller may cause a defeasance in full of the Series 1998-1
Certificates at any time during the period beginning on the first day of the
Due Period immediately preceding the Accumulation Period and ending on the
Expected Final Payment Date by depositing in the Principal Funding Account an
amount equal to the unpaid principal balance of the Series 1998-1 Certificates
plus an amount sufficient to pay all amounts which will be accrued and unpaid
as of each remaining Distribution Date through and including the Expected
Final Payment Date (a "Series 1998-1 Defeasance"). Any such defeasance shall
be funded from the proceeds of the sale of additional Series of Investor
Certificates or Purchased Interests. In the event of a Series 1998-1
Defeasance, (i) the Investor Allocation Percentage will be reduced to zero
and, accordingly, no collections will thereafter be allocable to the Series
1998-1 Certificates and (ii) the Required Net Series Pool Balance will be
reduced to zero.
Should an Amortization Event occur with respect to the Series 1998-1
Certificates and the Early Amortization Period commence, any amount on deposit
in the Principal Funding Account will be paid to the Series 1998-1
Certificateholders on the first Special Payment Date and the Series 1998-1
Certificateholders will be entitled to receive Available Principal Collections
on each Distribution Date with respect to such Early Amortization Period or
following the Expected Final Payment Date, as the case may be, as described
herein until the Series 1998-1 Invested Amount is paid in full or until the
Series 1998-1 Sale Date occurs. See "Series Provisions--Amortization Events"
in the Prospectus.
The ability of Series 1998-1 Certificateholders to receive payments of
principal on the Expected Final Payment Date depends on the amount of
outstanding Receivables, delinquencies, charge-offs and the generation of new
Receivables by CSX Transportation, the potential issuance by the Trust of
additional Series and the sale
S-7
by the Trust of Purchased Interests. The Seller cannot predict, and no
assurance can be given, as to the actual rate of payment of principal of the
Series 1998-1 Certificates or whether the terms of any subsequently issued
Series or Purchased Interest might have an impact on the amount or timing of
any such payment of principal. See "Risk Factors--Payments" and "Series
Provisions--Principal" in the Prospectus.
In addition, the amount of outstanding Receivables and the delinquencies,
charge-offs and the generation of new Receivables may vary from month to month
due to seasonal variations, legal factors, general economic conditions and
conditions in the industries traditionally served by CSX Transportation. There
can be no assurance that collections of Receivables with respect to the Trust,
and thus the rate at which Series 1998-1 Certificateholders could expect to
receive payments of principal on their Series 1998-1 Certificates during an
Early Amortization Period or the rate at which the Principal Funding Account
could be funded during the Accumulation Period, will be similar to the
historical experience set forth in the "Portfolio Turnover History" table
under the heading "Receivables" in the Prospectus. In addition, the Trust, as
a master trust, may issue additional Series or sell Purchased Interests from
time to time, and there can be no assurance that the terms of any such Series
or Purchased Interest might not have an impact on the timing or amount of
payments received by Series 1998-1 Certificateholders. Further, if an
Amortization Event occurs, the average life and maturity of the Series 1998-1
Certificates could be significantly reduced.
For the reasons set forth above, there can be no assurance that the actual
number of months elapsed from the date of issuance of the Series 1998-1
Certificates to its final Distribution Date will equal the expected number of
months. See "Risk Factors--Payments" in the Prospectus.
SERIES PROVISIONS
The Series 1998-1 Certificates will be issued pursuant to the Pooling
Agreement and the Series 1998-1 Supplement, the forms of which have been filed
as exhibits to the Registration Statement of which the Prospectus and this
Prospectus Supplement are a part. The following summary describes certain
terms applicable to the Series 1998-1 Certificates. Reference should be made
to the Prospectus for additional information concerning the Series 1998-1
Certificates and the Pooling Agreement.
INTEREST
Interest on the Series 1998-1 Certificates will accrue from the Closing Date
on the unpaid principal amount thereof at the Certificate Rate. Interest will
be distributed on July 27, 1998 and on each Interest Payment Date thereafter,
to Series 1998-1 Certificateholders in whose names the Series 1998-1
Certificates were registered at the close of business on the last day of the
calendar month preceding the date of such payment (a "Record Date"). Interest
for any Interest Payment Date will accrue from and including the preceding
Interest Payment Date (or in the case of the first Interest Payment Date, from
and including the Closing Date) but excluding the next Interest Payment Date
(an "Interest Period") and will be calculated on the basis of a 360-day year
of twelve 30-day months.
Interest payments in respect of the Series 1998-1 Certificates on any
Interest Payment Date will be funded from Available Investor Collections or,
in the event of a Series 1998-1 Defeasance, from the Principal Funding
Account.
PRINCIPAL
During the Revolving Period (which begins on the Series Cut-Off Date and
ends on the day before the commencement of the Accumulation Period for Series
1998-1 or, if earlier, the Early Amortization Period), no principal payments
will be made to Series 1998-1 Certificateholders. During the Accumulation
Period (on or prior to the Expected Final Payment Date), principal will be
deposited in the Principal Funding Account as
S-8
described below, and on the Expected Final Payment Date, the aggregate amounts
so deposited will be distributed to the Series 1998-1 Certificateholders.
On each Distribution Date of the Accumulation Period or the Early
Amortization Period, the Trustee will deposit in the Principal Funding Account
an amount equal to the least of (a) Monthly Principal for Series 1998-1 for
such Distribution Date less the amount, if any, by which Collections allocable
to the Available Subordinated Amount exceed the sum of (i) Investor Allocable
Charged-Off Amounts for Series 1998-1 ("Available Principal Collections"), (b)
during the Accumulation Period, the Controlled Deposit Amount for such
Distribution Date and (c) the Series 1998-1 Invested Amount, until the Series
1998-1 Invested Amount equals zero. Alternatively, the Seller may cause a
defeasance in full of the Series 1998-1 Certificates at any time during the
period beginning on the first day of the Due Period immediately preceding the
Accumulation Period and ending on the Expected Final Payment by depositing in
the Principal Funding Account an amount equal to the unpaid principal balance
of the Series 1998-1 Certificates plus an amount sufficient to pay all amounts
which will be accrued and unpaid as of each remaining Distribution Date
through and including the Expected Final Payment (a "Series 1998-1
Defeasance"). Any such defeasance shall be funded from the proceeds of the
sale of additional Series of Investor Certificates or Purchased Interests.
Amounts on deposit in the Principal Funding Account, after giving effect to
distributions of interest therefrom in the event of a Series 1998-1
Defeasance, will be paid to the Series 1998-1 Certificateholders on the
Expected Final Payment Date. If an Amortization Event occurs with respect to
the Series 1998-1 Certificates at any time, including during the Accumulation
Period, the Early Amortization Period will commence and any amount on deposit
in the Principal Funding Account will be paid to the Series 1998-1
Certificateholders on the first Special Payment Date. If, on the Expected
Final Payment Date, the Series 1998-1 Invested Amount is greater than zero, an
Amortization Event will occur and an Early Amortization Period will commence.
"Controlled Accumulation Amount" means for any Distribution Date with
respect to the Accumulation Period, $150,000,000 .
"Deficit Controlled Accumulation Amount" means (a) on the first Distribution
Date with respect to the Accumulation Period, the excess, if any, of the
Controlled Accumulation Amount for such Distribution Date over the amount
distributed from the Collection Account as Available Principal Collections for
such Distribution Date and (b) on each subsequent Distribution Date with
respect to the Accumulation Period, the excess, if any, of the Controlled
Deposit Amount for such subsequent Distribution Date over the amount
distributed from the Collection Account as Available Principal Collections for
such subsequent Distribution Date.
"Controlled Deposit Amount" shall mean, for any Distribution Date with
respect to the Accumulation Period, an amount equal to the sum of the
Controlled Accumulation Amount for such Distribution Date and any Deficit
Controlled Accumulation Amount for the immediately preceding Distribution
Date.
ALLOCATIONS BETWEEN INVESTOR CERTIFICATEHOLDERS AND THE SELLER
The Servicer will allocate for each Due Period a portion of the amounts
initially allocated to Series 1998-1 as described under "Master Trust
Provisions--Master Trust Allocations" in the Prospectus between the
Certificateholders' Interest of such Series and the Seller's Interest in the
following manner.
Series 1998-1 Allocable Collections and Series 1998-1 Allocable
Miscellaneous Payments for any Due Period will be allocated to the Series
1998-1 Certificateholders to the extent of the Investor Allocation Percentage
as determined in accordance with this Prospectus Supplement. Amounts of such
Series 1998-1 Allocable Collections and Series 1998-1 Allocable Miscellaneous
Payments not allocated to the Series 1998-1 Certificateholders will be
allocated to the Seller.
"Investor Allocation Percentage" means, with respect to any Due Period, the
percentage equivalent (not more than 100%) of a fraction, the numerator of
which is (a) the sum of the Series 1998-1 Invested Amount for such Due Period
and the Available Subordinated Amount, the Yield Reserve and the Fee Reserve,
in each case
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for such Due Period and the denominator of which is (b) the product of the Net
Receivables Pool Balance for such Due Period multiplied by the Series
Allocation Percentage for Series 1998-1 and such Due Period; provided,
however, that (i) the Investor Allocation Percentage for the first Due Period
shall be not less than 71.9% and (ii) with respect to any Due Period in the
Accumulation Period or an Early Amortization Period, the Investor Allocation
Percentage shall be the percentage equivalent (not more than 100%) of a
fraction, the numerator of which is (a) the sum of the Series 1998-1 Invested
Amount as of the day immediately preceding the day on which such Accumulation
Period or Early Amortization Period commences, the Available Subordinated
Amount, the Yield Reserve and the Fee Reserve, in each case as of the Due
Period immediately preceding the Due Period in which the Accumulation Period
or Early Amortization Period commences and the denominator of which is (b) the
product of the Net Receivables Pool Balance for the Due Period in respect of
which the Investor Allocation Percentage for Series 1998-1 is being calculated
and the Series Allocation Percentage for Series 1998-1 for the Due Period in
respect of which the Investor Allocation Percentage is being calculated.
"Series 1998-1 Invested Amount" means, with respect to Series 1998-1 and any
date, an amount equal to the Series 1998-1 Initial Invested Amount, minus (a)
the amount of principal payments made to Series 1998-1 Certificateholders
prior to such date, minus (b) the Principal Funding Account Balance, if any,
and minus (c) the aggregate amount of any Investor Charge-Offs.
"Available Subordinated Amount" means, with respect to any Due Period, the
sum of (a) the amount obtained by dividing the Subordination Percentage by one
minus the Subordination Percentage and multiplying the result by the sum of
(i) the Series 1998-1 Invested Amount as of the last day of the immediately
preceding Due Period, (ii) the Yield Reserve with respect to such Due Period,
and (iii) the Fee Reserve with respect to such Due Period and (b) the
Outstanding Balance of Over Concentrated Receivables as of the last day of the
immediately preceding Due Period; provided, however, that the Available
Subordinated Amount for the first Due Period shall be not less than
$49,676,362.
"Subordination Percentage" shall mean, with respect to any Due Period, the
greatest of (i) 13%, (ii) the sum of 12.5% and the product of (A) the average
Dilution Ratio over the twelve prior Due Periods and (B) the Dilution Horizon
Ratio or (iii) the sum of the Dilution Percentage and the Loss Percentage.
"Yield Reserve" means, with respect to any Due Period, an amount equal to
the greater of (a) the product of (i) 1.5% and (ii) the outstanding principal
balance of the Investor Certificates as of the last day of the immediately
preceding Due Period and (b) the product of (i) a fraction, the numerator of
which is two times the average days sales outstanding for the Receivables for
the preceding Due Period and the denominator of which is 365, (ii) the
outstanding principal balance of the Investor Certificates as of the last day
of the immediately preceding Due Period and (iii) the Certificate Rate.
"Fee Reserve" means, with respect to any Due Period, an amount equal to the
product of (i) a fraction, the numerator of which is two times the average
days sales outstanding for the Receivables for the preceding Due Period and
the denominator of which is 365, and (ii) the Monthly Servicing Fee for Series
1998-1 times twelve.
"Loss Percentage" shall mean 5.17% for the first Due Period, and with
respect to any other Due Period, the product of (a) 2.5, (b) the greatest
three Due Period rolling average Delinquency Percentage for the twelve prior
Due Periods and (c) the Default Horizon Ratio for such Due Period.
"Default Horizon Ratio" shall mean, with respect to any Due Period, the
ratio (expressed as a percentage) computed by dividing (i) the aggregate
amounts payable pursuant to invoices giving rise to Receivables that were
generated during the four Due Periods immediately preceding such Due Period by
(ii) the Net Receivables Pool Balance as of the last day of such Due Period.
"Delinquency Percentage" shall mean 0.73% for the first Due Period and, with
respect to any other Due Period, the ratio (expressed as a percentage)
computed by dividing (i) the sum of the amount of Receivables which, as of the
last day of such Due Period, are unpaid and are more than 210 but less than
240 days past their
S-10
billing date and the amount of Receivables which became Charged-Off
Receivables during such Due Period and which were less than 240 days past
their billing date at the time such Receivables became Charged-Off Receivables
by (ii) the aggregate amounts payable pursuant to invoices giving rise to
Receivables that were generated during the eighth Due Period preceding such
Due Period.
"Dilution Horizon Ratio" shall mean, at any time, the ratio (expressed as a
percentage) computed by dividing (i) the aggregate amounts payable pursuant to
invoices giving rise to Receivables that were generated during the prior Due
Period by (ii) the Net Receivables Pool Balance as of the last day of the
prior Due Period.
"Dilution Percentage" shall mean 4.96% for the first Due Period and, with
respect to any other Due Period, the result (expressed as a percentage)
calculated in accordance with the following formula:
{(2.5 X ADR) + [(HDR-ADR) X (HDR/ADR)]} X Dilution Horizon Ratio
where:
HDR = the highest Dilution Ratio for any of the prior 12 consecutive Due
Periods
ADR = the average of the Dilution Ratios for the prior 12 consecutive Due
Periods
"Dilution Ratio" shall mean, with respect to any Due Period, the ratio
(expressed as a percentage) computed as of the last day of a Due Period by
dividing (i) the aggregate amount by which the Pool Balance was reduced during
such Due Period on account of certain adjustments described under "Series
Provisions--Investor Charge-Offs; Rebates and Adjustments" in the Prospectus,
excluding any such adjustments attributable to Receivables which are unpaid
and more than 210 days past their billing date by (ii) the aggregate amounts
payable pursuant to invoices giving rise to Receivables that were generated
during the Due Period prior to the Due Period for which the Dilution Ratio is
calculated.
"Over Concentrated Receivables" means, as of any date, the product of the
Series Allocation Percentage for Series 1998-1 and the sum determined by
adding, without duplication, for each Obligor and its affiliated Obligors, if
any, for which the Special Concentration Limit established pursuant to a
Receivables Purchase Agreement exceeds what would otherwise be the
Concentration Limit, the Outstanding Balance of Receivables for such Obligor
and its affiliated Obligors, if any, minus the sum of (a) the amount, if any,
by which the Outstanding Balance of Receivables for such Obligor and its
affiliated Obligors, if any, exceeds such Special Concentration Limit and (b)
2.5% (or any other higher percentage provided that the Rating Agency Condition
has been satisfied) of the Outstanding Balance of the Receivables in the
Trust.
INVESTOR CHARGE-OFFS; REBATES AND ADJUSTMENTS
As described in the Prospectus, if on any Distribution Date, the Investor
Allocable Charged-Off Amount for Series 1998-1 for the preceding Due Period
exceeds the Loss Reserve with respect to Series 1998-1 for such preceding Due
Period, the Series 1998-1 Invested Amount will be reduced by the amount of
such excess (an "Investor Charge-Off"). For this purpose the Loss Reserve
means, with respect to any Due Period, the Available Subordinated Amount;
provided, however, that with respect to any Due Period in the Accumulation
Period or an Early Amortization Period, the Loss Reserve shall be the Loss
Reserve for the Due Period immediately preceding the Due Period in which the
Accumulation Period or Early Amortization Period commenced, less the aggregate
Investor Allocable Charged-Off Amounts with respect to Series 1998-1 for each
of the Due Periods commencing with the Due Period in which the Accumulation
Period or Early Amortization Period began and ending with the Due Period
preceding the Due Period for which the determination is being made; provided,
further, that the Invested Amount shall be reinstated or, if any Investor
Charge-Offs have occurred, such Investor Charge-Offs shall be reimbursed, to
the extent of any recoveries of Investor Charge-Offs for Series 1998-1. Any
reduction in the Series 1998-1 Invested Amount resulting from unreimbursed
Investor Charge-Offs for Series 1998-1 will result in a loss to Series 1998-1
Certificateholders.
S-11
ADDITIONAL AMORTIZATION EVENTS
An "Amortization Event" refers to the following events which are in addition
to the other events specified in the Prospectus:
(k) on any Determination Date, the average of the Monthly Payment Rates
for the three preceding Due Periods is less than 25%.
In the case of an event described in clause (k) above, an Amortization Event
with respect to the Series offered hereby will be deemed to have occurred
without any notice or other action on the part of the Trustee or the Investor
Certificateholders.
For purposes of the Amortization Event described in clause (k) above, the
term "Monthly Payment Rate" means, with respect to any Due Period, the
percentage equivalent of a fraction, the numerator of which is the sum of the
aggregate amount of Collections for such Due Period and the denominator of
which is the Net Receivables Pool Balance as of the last day of such Due
Period.
SERVICING COMPENSATION
The Monthly Servicing Fee, which is the share of the Servicing Fee allocable
to the Series 1998-1 Certificateholders with respect to any Distribution Date,
generally represents the portion of 0.25% per annum servicing fee allocable to
the Series 1998-1 Invested Amount and will be determined as set forth in the
Prospectus under "Series Provisions--Servicing Compensation and Payment of
Expenses". The Monthly Servicing Fee for the first Due Period will be the
Monthly Servicing Fee accrued from the Series Cut-Off Date to the end of such
Due Period.
SERIES TERMINATION
If, on or before the Determination Date prior to the Series 1998-1 Sale
Date, the Servicer determines that the Series 1998-1 Invested Amount on the
Series 1998-1 Sale Date (after giving effect to all changes therein on such
date) will exceed zero, the Servicer will solicit bids for the sale of
interests in the Receivables in an amount equal to the sum of 110% of the
Series 1998-1 Invested Amount on the Series 1998-1 Sale Date and the Available
Subordinated Amount, if any, on the preceding Distribution Date (after giving
effect to all distributions required to be made on the Series 1998-1 Sale
Date). The Seller will be entitled to participate in and to receive notice of
each bid submitted in connection with such bidding process. Upon the
expiration of such period, the Trustee will determine (a) which bid is the
highest cash purchase offer (the "Highest Bid") and (b) the amount (the
"Available Final Distribution Amount") which otherwise would be available in
the Collection Account on the Series 1998-1 Sale Date for distribution to the
Series 1998-1 Certificateholders. The Servicer will sell such interests in the
Receivables on the Series 1998-1 Sale Date to the bidder who provided the
Highest Bid and will deposit the proceeds of such sale in the Collection
Account for allocation (together with the Available Final Distribution Amount)
to the Certificateholders' Interest.
If the proceeds of such sale, together with the Available Final Distribution
Amount, are less than the Series 1998-1 Invested Amount plus accrued and
unpaid interest on the Series 1998-1 Certificates, the Series 1998-1
Certificateholders will incur a loss.
S-12
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement") between the Seller and the Underwriters named
below (the "Underwriters"), the Seller has agreed to sell to the Underwriters,
and the Underwriters have agreed to purchase, the principal amount of the
Series 1998-1 Certificates set forth opposite each Underwriter's name:
SERIES 1998-
1
UNDERWRITERS CERTIFICATES
------------ ------------
Credit Suisse First Boston Corporation......................... $150,000,000
Citicorp Securities, Inc....................................... 150,000,000
------------
Total........................................................ $300,000,000
============
The Underwriting Agreement provides that the obligations of the Underwriters
to pay for and accept delivery of the Series 1998-1 Certificates are subject
to the approval of certain legal matters by their counsel and to certain other
conditions. All of the Series 1998-1 Certificates offered hereby will be
issued if any are issued.
The Underwriters propose initially to offer the 1998-1 Certificates to the
public at the price set forth on the cover page hereof and to certain dealers
at such price less concessions not in excess of 0.180% of the principal amount
of the 1998-1 Certificates. The Underwriters may allow, and such dealers may
reallow, concessions not in excess of 0.150% of the principal amount of the
1998-1 Certificates to certain brokers and dealers. After the initial public
offering, price and other selling terms may be changed by the Underwriters.
The Seller will indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act, or contribute to payments the
Underwriters may be required to make in respect thereof.
The Seller has also agreed to pay Credit Suisse First Boston Corporation a
structuring fee equal to $300,000.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Exchange Act. Over-allotment involves syndicate sales in excess of
the offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Certificates offered hereby in the open
market after the distribution has been completed in order to cover syndicate
short positions. Penalty bids permit the Representative to reclaim a selling
concession from a syndicate member when the Certificates offered hereby
originally sold by such syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate covering transactions and penalty bids may cause the price of the
Certificates offered hereby to be higher than it would otherwise be in the
absence of such transactions.
S-13
GLOSSARY SUPPLEMENT
Accumulation Period.................................................... S-5
Available Final Distribution Amount.................................... S-12
Available Principal Collections........................................ S-9
Available Subordinated Amount.......................................... S-10
Certificateholders..................................................... S-3
Certificateholders' Interest........................................... S-3
Certificate Rate....................................................... S-1, S-3
Closing Date........................................................... S-3
Controlled Accumulation Amount......................................... S-9
Controlled Deposit Amount.............................................. S-9
Default Horizon Ratio.................................................. S-10
Deficit Controlled Accumulation Amount................................. S-3, S-9
Delinquency Percentage................................................. S-10
Dilution Horizon Ratio................................................. S-11
Dilution Percentage.................................................... S-11
Dilution Ratio......................................................... S-11
Fee Reserve............................................................ S-10
Highest Bid............................................................ S-12
Interest Payment Dates................................................. S-3
Interest Period........................................................ S-8
Investor Allocation Percentage......................................... S-9
Investor Charge-Off.................................................... S-11
Loss Percentage........................................................ S-10
Loss Reserve........................................................... S-11
Monthly Payment Rate................................................... S-12
Over Concentrated Receivables.......................................... S-11
Principal Funding Account.............................................. S-7
Record Date............................................................ S-8
Revolving Period....................................................... S-5
Seller................................................................. S-1
Seller's Interest...................................................... S-1, S-3
Series Cut-Off Date.................................................... S-3
Series 1993-1 Certificates............................................. S-6
Series 1998-1 Certificates............................................. S-1, S-3
Series 1998-1 Certificateholders....................................... S-1
Series 1998-1 Defeasance............................................... S-7, S-9
Series 1998-1 Expected Final Payment Date.............................. S-3
Series 1998-1 Initial Invested Amount.................................. S-3
Series 1998-1 Invested Amount.......................................... S-10
Series 1998-1 Sale Date................................................ S-5
Series 1998-1 Supplement............................................... S-7
Servicer............................................................... S-1
Special Payment Date................................................... S-7
Subordination Percentage............................................... S-10
Underwriters........................................................... S-13
Underwriting Agreement................................................. S-13
Yield Reserve.......................................................... S-10
S-14
ANNEX I
OTHER SERIES
The table below sets forth the principal characteristics of the Series 1993-
1 Certificates, which are currently outstanding. For more specific information
with respect to any Series, any prospective investor should contact the
Corporate Secretary of CSX Transportation at (904) 366-4242. CSX
Transportation will provide, without charge, to any prospective purchaser of
the Series 1998-1 Certificates a copy of the Prospectus Supplement for any
publicly-issued Series.
SERIES 1993-1
Initial Invested Amount....... $200,000,000
Certificate Rate.............. 5.05%
Controlled Accumulation
Amount....................... $66,666,666
Commencement of Controlled
Accumulation Period.......... Following close of last Business Day of May 1998
Expected Final Payment Date... September 1998 Distribution Date
Series Issuance Date.......... October 28, 1993
S-15
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PROSPECTUS
CSXT TRADE RECEIVABLES MASTER TRUST
TRADE RECEIVABLES PARTICIPATION CERTIFICATES
CSX TRADE RECEIVABLES CORPORATION
SELLER
CSX TRANSPORTATION, INC.
SERVICER
CSX Trade Receivables Corporation, as seller (the "Seller"), may sell from
time to time one or more series (each a "Series") of Trade Receivables
Participation Certificates (the "Investor Certificates") evidencing undivided
interests in the CSXT Trade Receivables Master Trust (the "Trust") created by
the Seller, with an aggregate initial public offering price or purchase price
of up to $350,000,000. The Investor Certificates of each Series will be
offered on terms determined at the time of sale. In addition, from time to
time the Trust is expected to issue other Series of investor certificates
evidencing undivided interests in the Trust, which Series may have terms
significantly different from the Investor Certificates. While the specific
terms of any Series in respect of which this Prospectus is being delivered
will be described in an accompanying Prospectus Supplement, the terms of any
additional Series will not be subject to prior review by or consent of holders
of the investor certificates of any previously issued Series.
Interest will accrue on the unpaid principal amount of the Investor
Certificates of each Series at the per annum rate either specified in or
determined in the manner specified in the related Prospectus Supplement and
will be payable on each Interest Payment Date specified therein, or, in
certain circumstances, more frequently. Principal payments on each Series of
Investor Certificates will be made on the applicable Expected Final Payment
Date specified in the related Prospectus Supplement, on such other date or
dates as may be specified in such Prospectus Supplement or earlier or later in
certain circumstances.
The Trust assets include an ownership interest in freight receivables (the
"Receivables"), generated from time to time by CSX Transportation, Inc. ("CSX
Transportation") and collections thereon, all collateral security with respect
thereto, all monies on deposit in certain accounts of the Trust and all funds
collected or to be collected from any enhancement issued with respect to a
particular Series.
THE INVESTOR CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY
AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE SELLER OR CSX
TRANSPORTATION OR ANY AFFILIATE THEREOF. NEITHER THE INVESTOR CERTIFICATES NOR
THE RECEIVABLES ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Investor Certificates may be sold by the Seller directly to purchasers,
through agents designated from time to time, through underwriting syndicates
led by one or more managing underwriters or through one or more underwriters
acting alone. If underwriters or agents are involved in the offering of
Investor Certificates, the name of the managing underwriter or underwriters or
agents will be set forth in the Prospectus Supplement. If an underwriter,
agent or dealer is involved in the offering of any Investor Certificates, the
underwriter's discount, agent's commission or dealer's purchase price will be
set forth in, or may be calculated from, the Prospectus Supplement, and the
net proceeds to the Seller from such offering will be the public offering
price of the Investor Certificates less such discount, in the case of an
underwriter, the purchase price of the Investor Certificates less such
commission, in the case of an agent, or the purchase price of the Investor
Certificates, in the case of a dealer, and less, in each case, the other
expenses of the Seller associated with the issuance and distribution of the
Investor Certificates. See "Plan of Distribution".
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS," COMMENCING ON PAGE 14.
The date of this Prospectus is June 1, 1998.
AVAILABLE INFORMATION
CSX Trade Receivables Corporation, as originator of the Trust, has filed a
Registration Statement under the Securities Act of 1933 (the "Securities Act")
with the Securities and Exchange Commission (the "Commission") with respect to
the Investor Certificates offered pursuant to this Prospectus. For further
information, reference is made to the Registration Statement and amendments
thereof and exhibits thereto, which are available for inspection without
charge at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; and at the
following regional offices of the Commission: Citicorp Center, 500 West
Madison Street, Suite 400, Chicago, Illinois, 60661; and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a World Wide Web site located at http://www.sec.gov which contains
reports, information statements and other information, including all
electronic filings, regarding registrants that file electronically with the
Commission, including CSX Trade Receivables Corporation.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, Monthly Reports, which
contain unaudited information concerning the Trust and are prepared by the
Servicer or the Paying Agent, will be sent on behalf of the Trust to Cede &
Co. ("Cede"), as nominee of The Depository Trust Company ("DTC") and
registered holder of each Series of Investor Certificates, pursuant to a
certain pooling and servicing agreement and the related Series supplement. See
"Series Provisions--Reports" and "The Pooling Agreement Generally--Book-Entry
Registration" and "Evidence as to Compliance". Such reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles. Copies of the Monthly Reports may be obtained free of
charge upon request from the Trustee. The pooling and servicing agreement and
the Series supplements do not require the sending of, and the Seller does not
intend to send, any of its financial reports to holders of interests in the
Investor Certificates (the "Investor Certificateholders"). The Seller will
file with the Commission such periodic reports with respect to the Seller and
the Trust as are required under the Securities Exchange Act of 1934 (the
"Exchange Act") and the rules and regulations of the Commission thereunder.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Seller or the Servicer, on
behalf of the Seller and the Trust, pursuant to Section 13(a), Section 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Investor Certificates offered
hereby shall be deemed to be incorporated by reference in this Prospectus and
to be a part hereof. The following documents filed with the Commission by the
Seller, on behalf of the Seller and the Trust, are incorporated in this
Prospectus by reference: the Annual Report of the Seller on Form 10-K for 1997
and any Current Reports of the Seller on Form 8-K filed since December 1997.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Servicer will provide without charge to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of any such
person, a copy of any of or all the documents incorporated herein by reference
(other than exhibits to such documents). Requests for such copies should be
directed to the Corporate Secretary of CSX Transportation, Inc., 500 Water
Street, J-160, Jacksonville, Florida 32202, (904) 366-4242.
2
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and in any
accompanying Prospectus Supplement. Reference is made to the Glossary for the
location herein of the definitions of certain capitalized terms used herein.
Issuer...................... CSXT Trade Receivables Master Trust (the
"Trust"). The Trust, as a master trust, from
time to time is expected to issue series of
investor certificates (each, a "Series")
pursuant to the Pooling Agreement. The assets of
the Trust are expected to change over the life
of the Trust as new Receivables are generated
and as existing Receivables are collected,
charged-off as uncollectible or otherwise
adjusted. See "The Trust", "Master Trust
Provisions--New Issuances; Other Modifications".
Seller...................... CSX Trade Receivables Corporation (the "Seller"),
a Delaware corporation, is the seller of the
Receivables and originator of the Trust. The
Seller is a wholly-owned subsidiary of CSX
Corporation, a Virginia corporation.
Trustee..................... The Chase Manhattan Bank, a New York banking
corporation (the "Trustee").
Originator and Servicer..... CSX Transportation, Inc. ("CSX Transportation"),
a Virginia corporation.
Trust Assets................ The assets of the Trust (the "Trust Assets")
include an ownership interest in (a) a portfolio
of freight receivables (the "Receivables"),
generated from time to time by CSX
Transportation and sold by it to the Seller
pursuant to the Receivables Sale Agreement
described herein, all collateral security with
respect thereto, all collections and amounts
received with respect thereto, including
recoveries ("Collections"), and all proceeds
thereof, (b) all the Seller's rights under the
Receivables Sale Agreement, (c) all monies on
deposit in certain accounts of the Trust and (d)
all funds collected or to be collected from any
Enhancement issued with respect to a particular
Series. The drawing on or payment of any
Enhancement for the benefit of a Series or class
of investor certificates will not be available
to the investor certificateholders of any other
Series or class. The term "Enhancement" means,
with respect to any Series or class of investor
certificates, any letter of credit, surety bond,
cash collateral account, spread account,
guaranteed rate agreement, maturity liquidity
facility, tax protection agreement, interest
rate swap agreement or other similar
arrangement. Enhancement shall also include the
subordination of any Series or class or of the
Seller's Interest to any Series or class.
The Purchased Interests..... The Trust, as a master trust, has previously
sold, and is expected from time to time in the
future to sell, purchased interests in certain
assets of the Trust ("Purchased Interests").
Each
3
Purchased Interest represents a fluctuating
undivided ownership interest in certain Trust
Assets (including the Receivables and certain
accounts of the Trust), held by the purchaser
thereof or its permitted assigns (each, a
"Purchaser") pursuant to the Pooling Agreement
and the Receivables Purchase Agreement related
thereto. Each Receivables Purchase Agreement may
provide that no investor certificateholder or
provider of Enhancement shall be a third-party
beneficiary thereof or have any benefit or any
legal or equitable right, remedy or claim under
such Receivables Purchase Agreement. Conversely,
no Purchased Interest shall represent any
interest in any Enhancement for the benefit of
any Series of investor certificates or in any
Series account or, except as provided in the
Series Supplement for a Series of investor
certificates, in any Collections allocated to
that Series. Further, no Series will be
subordinated to or senior to any Purchased
Interest. No Purchased Interests are being
offered pursuant to this Prospectus.
The Receivables............. The Receivables consist of all indebtedness of
any obligor under an agreement between such
obligor and CSX Transportation for the sale of
freight transportation services (each, a
"Contract"). Obligors of CSX Transportation
include (i) customers billed by CSX
Transportation for freight that is shipped
either locally on CSX Transportation's lines or
as part of an interline movement and (ii) other
railroads in the case of interline freight
receivables which settle through the AAR
Clearinghouse, as described under "The
Receivables--General" herein (each, an
"Obligor"). The Receivables include the right to
payment of any interest or finance charge and
other obligation of any Obligor under a Contract
and any amount shown on the Servicer's records
as an amount payable by an Obligor pursuant to a
Contract from time to time, but exclude certain
receivables reassigned by the Trust and certain
charged-off receivables and receivables of an
Obligor which have been removed from the Trust
in accordance with the Pooling Agreement. The
amount of Receivables fluctuates from day to day
as new Receivables are generated and as existing
Receivables are collected, charged-off as
uncollectible or otherwise adjusted.
Pursuant to the Amended and Restated Pooling and
Servicing Agreement (as amended from time to
time, the "Pooling Agreement"), among the
Seller, the Servicer and the Trustee, the Seller
conveyed to the Trust all its right, title and
interest in and to Receivables existing on
December 18, 1992, and all Receivables created
from time to time thereafter and purchased by
the Seller from CSX Transportation pursuant to
the Receivables Sale Agreement until the
termination of the Trust.
The Investor Certificates... The Investor Certificates of each Series will be
available for purchase in minimum denominations
of $1,000 and integral multiples thereof or such
other minimum denominations as are set
4
forth in the related Prospectus Supplement. The
Investor Certificates will only be available in
book-entry form except in certain limited
circumstances as described herein under "The
Pooling Agreement Generally--Definitive
Certificates". A portion of the Trust Assets
will be allocated among the interest of the
Investor Certificateholders (the
"Certificateholders' Interest") of each Series,
the investor certificates of other Series, the
Purchased Interests and the interest of the
Seller (the "Seller's Interest"), as described
below. The aggregate principal amount of the
Certificateholders' Interest of each Series
will, except as otherwise provided herein,
remain fixed at the aggregate initial principal
amount of the Investor Certificates of that
Series. If the Investor Certificates of a Series
include more than one class of Investor
Certificates, the Trust Assets allocable to the
Certificateholders' Interest of such Series will
be further allocated among the Investor
Certificateholders of each class of such Series.
See "Master Trust Provisions--Master Trust
Allocations" and "Series Provisions--Allocations
Between Investor Certificateholders and the
Seller".
The Investor Certificates of each Series will
evidence fractional undivided beneficial
interests in the Trust Assets allocated to the
Certificateholders' Interest of that Series.
With respect to each Series, the Trust Assets
allocable to such Series shall be substantially
identical to the Trust Assets allocable to the
other Series, with the exception of any
Enhancement issued with respect to such Series.
The Investor Certificates of any Series
represent beneficial interests in the Trust
Assets allocable to such Series only and do not
represent interests in or obligations of the
Seller, the Servicer or any affiliate thereof.
Neither the Investor Certificates nor the
Receivables are insured or guaranteed by any
governmental agency or instrumentality.
Receivables Sale Agreement.. The Seller, as purchaser, has entered into a
Receivables Sale Agreement (as amended from time
to time, the "Receivables Sale Agreement") dated
as of December 18, 1992, with CSX
Transportation, as seller. Pursuant to the
Receivables Sale Agreement, CSX Transportation
sold to the Seller all of CSX Transportation's
right, title and interest in and to all
Receivables existing on December 18, 1992, and
all Receivables created from time to time
thereafter. The Seller in turn sold those
Receivables to the Trust pursuant to the Pooling
Agreement. The Seller also assigned to the Trust
its rights under the Receivables Sale Agreement.
See "Description of the Receivables Sale
Agreement".
The Seller's Interest; The Seller's Interest represents a fractional
Subordination............... undivided beneficial interest in the Trust
Assets other than Enhancements allocated or
assigned to the certificateholders' interest of
any Series or any Purchased Interest. The
principal amount of the Seller's Interest
5
will fluctuate as the amount of the Receivables
held by the Trust changes from time to time.
Subject to certain restrictions with respect to
sufficiency of receivable levels, the Seller may
cause the issuance of additional Series or
Purchased Interests from time to time and any
such issuance will have the effect of decreasing
the Seller's Interest. See "Master Trust
Provisions--New Issuances; Other Modifications".
To the extent specified in the Prospectus
Supplement for a Series of Investor
Certificates, a portion of the Seller's Interest
(the "Available Subordinated Amount") will be
subordinated to the Certificateholders' Interest
of such Series. The Available Subordinated
Amount with respect to any Series of Investor
Certificates and any Due Period will be
determined from time to time based on the levels
of delinquencies, charge-offs and dilutions
during prior periods as more specifically
described under the captions "Master Trust
Provisions--Master Trust Allocations" and
"Series Provisions--Allocations Between Investor
Certificateholders and the Seller".
Issuance of Additional
Series and Purchased
Interests; Other
Modifications..............
The Pooling Agreement authorizes the Trustee to
issue two types of certificates: (i) one or more
Series of investor certificates and (ii) a
certificate evidencing the Seller's Interest in
the Trust (the "Seller's Certificate"), which is
to be held by the Seller or its permitted
assigns. In addition, the Pooling Agreement
authorizes the Trustee to sell Purchased
Interests. The Pooling Agreement provides that
(i) pursuant to any one or more supplements to
the Pooling Agreement (each, a "Series
Supplement"), the Seller may cause the Trustee
to issue one or more new Series and (ii) the
Seller may cause the Trustee to sell additional
Purchased Interests pursuant to any one or more
receivables purchase agreements (each, together
with certain related documents, a "Receivables
Purchase Agreement"), which in each case will
cause a reduction in the Seller's Interest
represented by the Seller's Certificate. Under
the Pooling Agreement, the Seller may define,
with respect to any Series or Purchased
Interest, the Principal Terms of such Series or
Purchased Interest, as the case may be. See
"Master Trust Provisions--New Issuances; Other
Modifications".
The Seller may offer any Series or Purchased
Interest to the public or other investors under
a prospectus or other disclosure document (a
"Disclosure Document") in transactions either
registered under the Securities Act or exempt
from registration thereunder, directly or
through one or more underwriters or placement
agents, in fixed-price offerings or in
negotiated transactions or otherwise. The Seller
expects to offer, from time to time, additional
Series and Purchased Interests issued by the
Trust.
6
It is anticipated that the investor certificates
of each Series and each Purchased Interest will
have different Expected Final Payment Dates or
termination dates and different revolving
periods and periods during which the principal
amount of such investor certificates or
Purchased Interests is accumulated in a
principal funding account or paid to holders of
such investor certificates or Purchased
Interests. Accordingly, it is anticipated that
some Series or Purchased Interests will be in
their revolving periods while others are in
accumulation periods or in amortization periods.
See "Master Trust Provisions--New Issuances;
Other Modifications".
A new Series may be issued or a new Purchased
Interest sold only upon satisfaction of the
conditions described herein under "Master Trust
Provisions--New Issuances; Other Modifications",
including, among others, that (a) the Rating
Agency Condition shall have been satisfied with
respect to such issuance or, if any rated
investor certificates are then outstanding, such
sale and (b) the Seller shall have delivered to
the Trustee, the agent for a Purchaser (each, a
"Purchaser Agent") and any provider of
Enhancement a certificate of an authorized
officer to the effect that the Seller reasonably
believes that such issuance or sale will not
have an Adverse Effect and is not reasonably
expected to have an Adverse Effect at any future
date.
The Seller may from time to time direct the
Trustee, on behalf of the Trust, to extend any
Receivables Purchase Agreement or to increase
the aggregate amount of Purchased Interests
pursuant to any Receivables Purchase Agreement
pursuant to which the initial sale of a
Purchased Interest has previously occurred. The
obligation of the Trustee to execute and deliver
all documents in connection with any such
extension or increase is subject to the
satisfaction of certain other conditions. See
"Master Trust Provisions--New Issuances; Other
Modifications".
Master Trust Allocations.... Pursuant to the Pooling Agreement, during each
Due Period, the Servicer is required to allocate
to each Series and Purchased Interest
Collections of Receivables and the amount of
Miscellaneous Payments with respect to such Due
Period, based on (a) with respect to each
Series, such Series' Series Allocation
Percentage to determine such Series' Series
Allocable Collections and Series Allocable
Miscellaneous Payments and (b) with respect to
each Purchased Interest, such Purchased
Interest's purchaser allocation percentage as
specified in the related Receivables Purchase
Agreement to determine such Purchased Interest's
purchaser allocable collections and purchaser
allocable miscellaneous payments.
In general, the Series Allocation Percentage with
respect to a Series and a Due Period is the
percentage equivalent of a fraction, the
numerator of which is an amount (with respect to
any Series, the "Series Adjusted Invested
Amount") equal to the sum of the
7
initial principal amount of such Series and the
Available Subordinated Amount, if any, for such
Series and such Due Period (or, upon and after
the occurrence of an amortization event or the
commencement of the accumulation period with
respect thereto, as of the day preceding such
event) and the denominator of which is the Trust
Adjusted Invested Amount for such Due Period.
For a description of the purchaser allocation
percentage with respect to a Purchased Interest,
see "Master Trust Provisions--Master Trust
Allocations" and "--Collections and
Miscellaneous Payments".
Amounts allocated to each Series and Purchased
Interest are then further allocated between the
investor certificateholders of such Series or
the Purchasers of such Purchased Interest, as
the case may be, and the Seller pursuant to the
terms of the related Series Supplement or
Receivables Purchase Agreement, as applicable.
See "--Allocations Between the
Certificateholders and the Seller" below and
"Series Provisions--Allocations Between Investor
Certificateholders and the Seller".
For a description of allocations of Charged-Off
Amounts, see "Master Trust Provisions--Master
Trust Allocations" and "--Charged-Off Amounts".
Reallocations and
Subordination............... To the extent that Collections of Receivables and
other amounts that are allocated to the
certificateholders' interest of any Series or
the Purchasers of any Purchased Interest are
available to be reinvested in the Trust, they
may be applied to cover principal payments due
to or for the benefit of investor
certificateholders, including investor
certificateholders of another Series and
Purchasers of other Purchased Interests. Any
such reallocation will not result in a reduction
in the certificateholders' interest of any
Series. See "Master Trust Provisions--Master
Trust Allocations" and "--Unallocated
Collections".
No Series offered hereby will be subordinated to
any other Series. Further, no Series will be
subordinated to or senior to any Purchased
Interest. If a Series has more than one class of
Investor Certificates, the related Prospectus
Supplement may specify that one class will be
subordinated to another class within such
Series. The extent and manner of any such
subordination will be specified in the related
Series Supplement and described in the related
Prospectus Supplement.
Allocations Between the
Certificateholders and the Series Allocable Collections and Series Allocable
Seller..................... Miscellaneous Payments allocated to any Series
with respect to any Due Period will be further
allocated between the Certificateholders'
Interest of that Series and the Seller's
Interest based on the Investor Allocation
Percentage and the Seller's Percentage,
respectively, for such Series and Due Period.
8
In general, the Investor Allocation Percentage
for a Series of Investor Certificates and a Due
Period is the percentage equivalent of a
fraction, the numerator of which is the sum of
the Invested Amount of such Series for such Due
Period (or, upon and after the occurrence of an
Amortization Event or the commencement of the
Accumulation Period with respect thereto, as of
the day preceding such event) and the Available
Subordinated Amount, if any, the Yield Reserve
and the Fee Reserve, in each case for such
Series and such Due Period (or, upon and after
the occurrence of an Amortization Event or the
commencement of the Accumulation Period with
respect thereto, as of the Due Period preceding
the Due Period in which such event occurs) and
the denominator of which is the Net Receivables
Pool Balance for such Due Period multiplied by
the Series Allocation Percentage for such Series
and such Due Period, and the Seller's Percentage
for a Series of Investor Certificates and a Due
Period is 100% minus the Investor Allocation
Percentage for such Series and such Due Period.
See "Series Provisions--Allocations Between the
Investor Certificateholders and the Seller".
Interest.................... Interest will accrue on the unpaid principal
amount of the Investor Certificates of each
Series at the per annum rate (the "Certificate
Rate") either specified in or determined in the
manner specified in the related Prospectus
Supplement. Except as otherwise provided herein
or in the related Prospectus Supplement,
Collections of Receivables and certain other
amounts allocable to the Certificateholders'
Interest of each Series will be used to make
interest payments to Investor Certificateholders
of such Series on each interest payment date
(each, an "Interest Payment Date") specified in
the related Prospectus Supplement; provided that
if an Early Amortization Period commences,
thereafter interest will be distributed to
Investor Certificateholders of such Series on
each Special Payment Date. Interest for any
Interest Payment Date will accrue from and
including the preceding Interest Payment Date
(or, in the case of the first Interest Payment
Date, from and including the Closing Date for
that Series) to but excluding the Interest
Payment Date and will be calculated on the basis
of a 360-day year of twelve 30-day months (for
fixed-rate Investor Certificates) or the actual
number of days elapsed divided by 360 (for
floating-rate Investor Certificates), or such
other method as is specified in the Prospectus
Supplement for any Series of Investor
Certificates. Interest with respect to such
Series for any Interest Payment Date or Special
Payment Date (each, a "Payment Date") due but
not paid on such Payment Date will be due on the
next succeeding Payment Date together with
additional interest on such amount at the
applicable Certificate Rate. See "Series
Provisions--Interest" and "--Distributions".
Principal................... It is expected that the final principal payment
with respect to each Series of Investor
Certificates will be made on the applicable
9
Payment Date (each, an "Expected Final Payment
Date") specified in the related Prospectus
Supplement, provided that principal payments on
a Series of Investor Certificates may be made on
such other date or dates as shall be specified
in such Prospectus Supplement. If a Series has
more than one class of Investor Certificates, a
different Expected Final Payment Date or date or
dates for the payment of principal may be
assigned to each class. The final principal
payment with respect to the Investor
Certificates of any Series may be paid earlier
than the applicable Expected Final Payment Date
if an Amortization Event occurs, or later under
certain circumstances described herein. See
"Series Provisions--Principal" and, for a
description of factors that may affect the
timing of principal payments on the Investor
Certificates of each Series, "Risk Factors--
Payments".
Revolving Period............ Unless an Amortization Event occurs with respect
to a Series of Investor Certificates,
Collections of Receivables and certain other
amounts otherwise allocable to the
Certificateholders' Interest of that Series will
generally be reinvested in the Trust or
otherwise used to maintain the
Certificateholders' Interest of such Series
until the date specified in the related
Prospectus Supplement as the end of the
revolving period for that Series (a "Revolving
Period"). See "Series Provisions--Principal" and
see also "Series Provisions--Amortization
Events" for a discussion of the events which
might lead to the termination of the Revolving
Period for a Series prior to its scheduled
ending date.
Accumulation Period......... Unless an Early Amortization Period commences
with respect thereto, the Investor Certificates
of each Series will have an accumulation period
(each an "Accumulation Period"), which will
commence at the close of business on the date
specified in the related Prospectus Supplement
and continue until the earliest of (a) the
commencement of the Early Amortization Period
with respect to such Series, (b) payment of the
Invested Amount of the Investor Certificates of
such Series in full and (c) the Sale Date for
such Series specified in the related Prospectus
Supplement. During the Accumulation Period for a
Series of Investor Certificates, Collections of
Receivables and certain other amounts allocable
to the Certificateholders' Interest of that
Series will be deposited on each Distribution
Date in one or more trust accounts (each a
"Principal Funding Account") and used to make
principal distributions to Investor
Certificateholders of such Series when due. If a
Series has more than one class of Investor
Certificates, each class may have a separate
Principal Funding Account. See "Series
Provisions--Principal", "--Principal Funding
Accounts" and "--Distributions" for a more
complete description of the conditions under
which amounts will be accumulated in a Principal
Funding Account for a Series.
Early Amortization Period... During the period from the close of business on
the business day immediately preceding the day
in which an Amortization Event is
10
deemed to have occurred with respect to any
Series to the date on which the Invested Amount
of the Investor Certificates of such Series has
been paid in full or the Sale Date for such
Series specified in the related Prospectus
Supplement has occurred (an "Early Amortization
Period"), amounts allocable to the
Certificateholders' Interest of such Series and,
if the Amortization Event applies to other
Series, to the investor certificateholders of
such other Series that would otherwise be
reinvested in the Trust or otherwise used to
maintain the certificateholders' interest of
such Series or accumulated in a principal
funding account will instead be distributed as
principal payments to the applicable investor
certificateholders monthly on each Distribution
Date (each, a "Special Payment Date") beginning
with the first Special Payment Date. See "Series
Provisions--Early Amortization Events" for a
discussion of the events which might lead to the
commencement of the Early Amortization Period
with respect to a Series of Investor
Certificates.
Servicing................... The Servicer (currently CSX Transportation) is
responsible for servicing, administering and
making Collections on the Receivables. In
certain limited circumstances CSX Transportation
may resign or be removed as Servicer, in which
event either the Trustee or a third-party
servicer that meets certain eligibility
standards set forth in the Pooling Agreement may
be appointed as successor servicer. CSX
Transportation or any such successor servicer is
referred to herein as the "Servicer". CSX
Transportation in the ordinary course of
business may subcontract with any person for
servicing, administering or collection of the
Receivables; provided that such person shall not
become Servicer, and CSX Transportation shall
remain liable for the performance of the duties
and obligations of the Servicer pursuant to the
terms of the Pooling Agreement. The Servicer
will receive the Servicing Fee in respect of
each Series and Purchased Interest, as servicing
compensation from the Trust. See "Series
Provisions--Servicing Compensation and Payment
of Expenses".
Collection Procedures and
Lock Box Accounts.......... The Obligors have been instructed to make
payments with respect to the Receivables only to
lock-box accounts maintained by the Seller
(each, a "Lock-Box Account"). In the event of
the occurrence of a Servicer Default, the
Trustee may or, at the instruction of (a)
holders of investor certificates evidencing more
than 50% of the aggregate unpaid principal
amount of any Series of investor certificates or
(b) any Purchaser Agent, shall deliver to each
Lock-Box bank a notice transferring exclusive
dominion and control over the Lock-Box Accounts
to the Trustee. See "Master Trust Provisions--
Lock-Box Accounts".
The Seller and the Servicer may at any time
establish alternative collection procedures that
do not require the use of Lock-Box
11
Accounts with the consent of each Purchaser
Agent and any provider of Enhancement and upon
satisfaction of the Rating Agency Condition. The
Pooling Agreement may be amended to reflect the
establishment of such alternative arrangements
without the consent of investor
certificateholders of any Series.
Currently, CSX Transportation, as Servicer, is
required to deposit all Collections received by
it and all Collections deposited to Lock-Box
Accounts, net of any amounts permitted to be
deducted by the Servicer as described under
"Master Trust Provisions--Deposits in Collection
Account", into the Collection Account within two
business days following receipt thereof. If,
however, CSX Transportation is the Servicer and
certain rating requirements are satisfied (which
requirements are not currently satisfied), CSX
Transportation will be able to use for its own
benefit and not segregate Collections of
Receivables received by it or deposited in the
Lock-Box Accounts until each Transfer Date. See
"Master Trust Provisions--Deposits in Collection
Account".
Mandatory Reassignment and
Transfer of Certain As of the closing date for each Series of
Receivables................ Investor Certificates specified in the related
Prospectus Supplement and each Purchased
Interest specified in the related Receivables
Purchase Agreement (each, a "Closing Date"), the
Seller will make certain representations and
warranties in the Pooling Agreement with respect
to the Receivables in its capacity as Seller,
CSX Transportation will make certain
representations and warranties in the
Receivables Sale Agreement in its capacity as
seller of the Receivables and CSX Transportation
will make certain representations and warranties
in the Pooling Agreement in its capacity as
Servicer. See "The Pooling Agreement Generally--
Representations and Warranties" and "Description
of the Receivables Sale Agreement--
Representations and Warranties".
If the Seller breaches certain of its
representations and warranties with respect to
any Receivable and such breach has a materially
adverse effect on the certificateholders'
interests of all Series or on the Purchased
Interests in such Receivable, such Receivable
will be reassigned to the Seller. Whenever the
Seller is required to accept reassignment of a
Receivable pursuant to the Pooling Agreement,
then if the breach giving rise to such
reassignment also constitutes a breach of CSX
Transportation's representation in the
Receivables Sale Agreement, CSX Transportation
shall pay to the Trustee on behalf of the Seller
any amount required to be paid by the Seller to
the Trustee under the Pooling Agreement. See
"The Pooling Agreement Generally--
Representations and Warranties" and "Description
of the Receivables Sale Agreement--
Representations and Warranties".
If the Servicer fails to comply in all material
respects with certain covenants with respect to
any Receivable and such non-
12
compliance has a materially adverse effect on
the certificateholders' interests of all Series
or on the Purchased Interests in such
Receivable, such Receivable will be assigned to
the Servicer. In the event of a transfer of
servicing obligations to a successor servicer,
such successor servicer, rather than CSX
Transportation, would be responsible for any
failure to comply with the Servicer's covenants
and warranties arising thereafter. See "The
Pooling Agreement Generally--Servicer
Covenants".
Tax Status..................
In the opinions of special tax counsels for the
Seller, the Servicer and the Trust, the Investor
Certificates are properly characterized as debt
for Federal income tax purposes and for Florida
and Virginia tax purposes. Each Investor
Certificateholder, by the acceptance of an
Investor Certificate, will agree to treat the
Investor Certificates as indebtedness of the
Seller for Federal, state and local income and
franchise tax purposes. See "Certain Federal
Income Tax Consequences" and "State Tax
Consequences" for additional information
concerning the application of federal, Florida
and Virginia tax laws.
Rating Requirement.......... It is expected that the Investor Certificates of
each Series will be rated in one of the top
three generic rating categories by at least one
nationally recognized rating agency. See "Risk
Factors--Ratings of the Investor Certificates."
13
RISK FACTORS
SECONDARY MARKET TRADING
There is currently no market in the Investor Certificates, and there can be
no assurance that a secondary market will develop or, if a secondary market
does develop, that it will provide Investor Certificateholders with liquidity
of investment or that it will continue for the life of the Investor
Certificates. The Underwriters intend, but are not obligated, to make a market
in the Investor Certificates.
PAYMENTS
The Receivables may be paid at any time, and there is no assurance that
there will be new Receivables created or that any particular pattern of
Obligor repayments will occur. The full payment of the Invested Amount of a
Series or class of Investor Certificates on its Expected Final Payment Date is
primarily dependent on the rate of Obligor repayments and will not be made if
such repayment amounts are insufficient to pay such Invested Amount in full.
No assurance can be given as to the Obligor payment rates that will actually
occur in any future period. The actual rate of accumulation of principal in a
Principal Funding Account and the amount of Available Investor Collections
with respect to any Series of Investor Certificates on any Distribution Date
will depend on, among other factors, the rate of repayment, the timing of the
receipt of repayments and the rate of default by Obligors. As a result, no
assurance can be given that the Invested Amount of a Series or class of
Investor Certificates will be paid on its respective Expected Final Payment
Date or other date for payment of principal thereof specified in the related
Prospectus Supplement.
If the rate at which new Receivables are generated declines significantly
or, if for any other reason the Trust Assets decline significantly, an
Amortization Event could occur. The Pooling Agreement provides that, in the
event that the Net Receivables Pool Balance is not maintained at a certain
level, the Seller will suspend reinvestment by the Purchasers under each
Receivables Purchase Agreement and distribute Collections allocated to the
Purchasers pursuant to such agreements. Payments of such amounts to the
Purchasers should have the effect, so long as new Eligible Receivables are
being generated, of increasing the portion of the Net Receivables Pool Balance
available to maintain each Series. There can be no assurance, however, that
the aggregate principal amount of the Purchased Interests, if any, then
outstanding will be sufficiently large that such suspension of reinvestment
and distribution of amounts to Purchasers will restore the Net Receivables
Pool Balance to such specified level. In the event that the Net Receivables
Pool Balance is not maintained at the specified level with respect to any
Series of Investor Certificates, an Amortization Event will occur with respect
to that Series. See "Series Provisions--Amortization Events" and "Master Trust
Provisions--Suspension of Reinvestment".
If an Insolvency Event relating to the Seller occurs, the Seller shall
immediately cease to transfer Receivables to the Trust. However, in a
bankruptcy proceeding, the Trustee may not be permitted to suspend transfers
of Receivables to the Trust. See "Certain Legal Aspects." In addition,
pursuant to the Receivables Sale Agreement, the Seller, as purchaser
thereunder, shall not continue to purchase Purchased Assets from CSX
Transportation upon the filing against either the Seller or CSX Transportation
of certain federal tax or ERISA liens, as described under "Description of the
Receivables Sale--Agreement Sale of Receivables." Such event could lead to an
Amortization Event under the Pooling Agreement.
COMPETITION IN THE TRANSPORTATION INDUSTRY
CSX Transportation, as a provider of railroad transportation, faces
significant competition from trucking companies and other railroads and, to
some extent, from barge lines. The development of the interstate highway
system beginning in the late 1950s permitted the trucking industry, and
shippers with their own trucks, to divert a substantial amount of freight from
railroads. The trucking industry is especially competitive in the eastern
United States, CSX Transportation's primary market, because, on average,
freight in such area is moved shorter distances than in the western United
States, and the cost characteristics of the railroad and trucking industries
generally make trucks more competitive over short distances. Price and service
competition from trucks is
14
especially evident in the movement of nonbulk commodities. Competition from
trucks has been increased by legislation removing certain barriers to entry
into the trucking business and allowing the use of wider, longer and heavier
trailers and multiple trailer combinations.
As a result of such competition, the rate at which new Contracts are entered
into and new Receivables are generated may be reduced and certain purchase and
payment patterns with respect to the Receivables may be affected. The Trust
will be dependent upon CSX Transportation's continued ability to enter into
new Contracts and to generate new Receivables. If the rate at which new
Receivables are generated declines significantly, an Amortization Event could
occur.
JOINT ACQUISITION OF CONRAIL
In 1997, CSX Corporation, the parent company of CSX Transportation, entered
into an agreement with Norfolk Southern Corporation ("NSC") for the joint
acquisition of and allocation of the assets of Conrail Inc. ("Conrail").
Conrail is a holding company of which the principal subsidiary is Consolidated
Rail Corporation, a freight railroad that operates approximately 10,500 route
miles in the Northeast and Midwest of the United States and in the Province of
Quebec, Canada. The consolidation of the Conrail lines allocated to CSX will
add 3,500 route miles, or 19%, to CSX Transportation's rail network, in
addition to approximately 1,200 additional route miles to be shared with NSC.
The exercise of control over Conrail by CSX Corporation and NSC remains
subject to a number of conditions and approvals, including approval by the
Surface Transportation Board (the "STB"). When the parties are permitted to
assume control of Conrail, the assets and liabilities of Conrail will be
segregated into three groups. One group of assets, primarily the assets of the
former Penn Central Railroad, will be operated by NSC, one group of assets,
primarily the assets of the former New York Central Railroad, will be operated
by CSX Transportation, and the third group of assets, primarily terminal
assets in northern New Jersey, southern New Jersey, Philadelphia and Detroit,
will be jointly owned by the parties (CSX Transportation's allocated portion
of the Conrail properties, the "Allocated Conrail Assets"). CSX Transportation
is actively planning to operate the Allocated Conrail Assets and expects to
begin those operations without disruptions in service. However, in the
transition, there is a possibility of service disruptions and resulting
billing corrections as systems and rail traffic are integrated. CSX
Transportation management believes any such disruptions will be minor and
remedied in the short-term.
Initially, after STB approval, the receivables generated by Conrail will be
billed and serviced on Conrail's existing system and will not be Trust Assets.
After the integration of the operations of the Allocated Conrail Assets with
the other operations of CSX Transportation, the rail freight receivables
arising from the operation of the Allocated Conrail Assets will, for all
purposes, be generated, billed and serviced in the same manner as all other
Receivables and will be considered to be part of the Receivables.
ECONOMIC FACTORS
Economic factors, including the occurrence of a recession or other economic
downturn, may have an adverse impact upon the performance of the Receivables
and CSX Transportation's ability to enter into new Contracts and to generate
new Receivables. Specifically, negative economic developments could have an
adverse impact on the timing and amounts of payments made by Obligors in
respect of Receivables and could cause such Obligors to become bankrupt or
insolvent.
INDUSTRY FACTORS
Industry factors also may have an adverse impact upon the performance of the
Receivables and CSX Transportation's ability to enter into new Contracts and
to generate new Receivables. Such factors include weather and labor relations
between coal producers and mine workers in the case of coal shipments; and
environmental regulations in the case of certain chemical shipments.
15
LABOR RELATIONS
CSX Transportation is unionized and is in negotiations with rail labor with
respect to integration of operations on the Allocated Conrail Assets. There is
the possibility of work stoppage due to strikes. In the recent past, actual
and threatened strikes involving CSX Transportation employees were averted or,
in the case of an actual strike, resolved in a matter of days, through
arbitration proceedings. Any work stoppage by CSX Transportation's employees,
could, depending on its length, have an adverse effect on CSX Transportation's
performance under the Contracts and its ability to generate new Receivables.
There can be no assurance that CSX Transportation will not experience
significant work stoppages in the future.
SET-OFF RISK
Currently, CSX Transportation and certain Obligors, principally other
railroads that settle their interline freight receivables through the AAR
Clearinghouse, as described under "The Receivables--General" herein, have a
number of mutual debts. Each Obligor may be able to set-off its mutual debts,
including if CSX were to become a debtor in a bankruptcy case.
ISSUANCE OF ADDITIONAL SERIES AND PURCHASED INTERESTS
The Trust, as a master trust, may issue from time to time Series and sell
from time to time additional Purchased Interests. While the terms of any
Series will be specified in a Series Supplement and the terms of any Purchased
Interest will be specified in a Receivables Purchase Agreement, the provisions
of a Series Supplement or Receivables Purchase Agreement, and therefore, the
terms of any additional Series or Purchased Interest, as the case may be, will
not be subject to the prior review or consent of holders of the investor
certificates of any previously issued Series. Such terms may include methods
of determining applicable investor percentages and allocating Collections,
provisions creating different or additional security or other Enhancements (if
the Supplement relating to such Series so permits) to such Series, and any
other amendment or supplement to the Pooling Agreement which is made
applicable only to such Series.
The obligation of the Trustee to issue any new Series or to sell any new
Purchased Interest is subject to the following conditions, among others: (a)
each Rating Agency shall have notified the Seller, the Servicer and the
Trustee in writing that such issuance or, if any rated investor certificates
are then outstanding, such sale will not result in a reduction or withdrawal
of the rating of any outstanding Series or class (the "Rating Agency
Condition") and (b) the Seller shall have delivered to the Trustee, each
Purchaser Agent and any provider of Enhancement a certificate of an authorized
officer to the effect that the Seller reasonably believes that such issuance
or sale will not (i) at the time of its occurrence or at a future date, cause
the occurrence of an amortization event with respect to any Series or the
occurrence of an event of termination (defined generally as the suspension of
investment in Receivables and the liquidation, via collection, of a Purchased
Interest) with respect to any Purchased Interest or (ii) adversely affect in
any manner the timing or amount of payments to investor certificateholders of
any Series (any of the conditions referred to in the preceding clauses (i) and
(ii) are referred to herein as an "Adverse Effect"). The Seller may also from
time to time direct the Trustee, on behalf of the Trust, to extend any
Receivables Purchase Agreement or to increase the aggregate amount of
Purchased Interests pursuant to any existing Receivables Purchase Agreement.
The obligation of the Trustee to execute and deliver all documents in
connection with such extension or increase is subject to the satisfaction of
certain other conditions. The Rating Agency Condition, however, need not be
satisfied in connection with any such extension or increase. There can be no
assurance that the terms of any other Series or Purchased Interest, including
any Series or Purchased Interest issued from time to time hereafter, or the
extension of any Receivables Purchase Agreement or increase in the amount of
any Purchased Interest might not have an impact on the timing or amount of
payments received by an Investor Certificateholder. See "Master Trust
Provisions--New Issuances; Other Modifications".
16
ABILITY OF SERVICER TO CHANGE PAYMENT TERMS
Provided that no amortization event, Servicer Default or event of
termination under a Receivables Purchase Agreement shall have occurred and be
continuing, the Servicer (if CSX Transportation) will have the right to, in
accordance with the credit and collection policies and procedures of CSX
Transportation with respect to Contracts and Receivables (as amended or
supplemented from time to time, the "Credit and Collection Policy"), extend
the maturity or adjust the outstanding balance of any Defaulted Receivable, or
otherwise modify the terms of any Receivable or amend, modify or waive any
term or condition of any Contract related thereto, all as it may determine to
be appropriate to maximize collections thereof. In servicing the Receivables,
the Servicer will be required to exercise reasonable care and diligence and to
comply with the Credit and Collection Policy. The Servicer also may be
obligated to rescind or cancel any Receivable to the extent ordered by a court
of competent jurisdiction or other governmental authority. The Servicer has
agreed not to make any change to the Credit and Collection Policy which would
both impair the collectibility of any Receivable and also have a material
adverse effect on the Investor Certificateholders or the Purchasers unless
such change is made with the prior approval of each Purchaser Agent and the
Rating Agency Condition is satisfied with respect thereto. Except as specified
above, there are no restrictions on the ability of the Servicer to change the
terms of the Contracts or the Receivables. While the Servicer has no current
intention of taking actions that would change the payment or other terms of
the Contracts or the Receivables, there can be no assurances that changes in
the marketplace or prudent business practice might not result in a
determination to do so.
CERTAIN LEGAL MATTERS
Competing Liens. There are certain limited circumstances under the Uniform
Commercial Code (the "UCC") as in effect in Florida and Virginia, applicable
United States federal law and the applicable laws in effect in Canada in which
prior or subsequent transferees of Receivables could have an interest in such
Receivables with priority over the Trust's interest. See "Certain Legal
Aspects of the Receivables--Transfer of the Receivables". Under the
Receivables Sale Agreement, CSX Transportation has warranted to the Seller
and, under the Pooling Agreement, the Seller has warranted to the Trust that
the Receivables have been and will be transferred free and clear of the lien
of any third party. Each of CSX Transportation and the Seller has also
covenanted that, except for the conveyances under the Pooling Agreement, the
Receivables Sale Agreement and the Receivables Purchase Agreements, it will
not sell, pledge, assign, transfer or grant any lien on any Receivable or any
other Trust Asset.
CSX Transportation has warranted to the Seller in the Receivables Sale
Agreement that the sale of the Receivables by it to the Seller is a valid sale
of the Receivables to the Seller. In addition, CSX Transportation and the
Seller have and will treat the transactions described in the Receivables Sale
Agreement as a sale of the Receivables to the Seller, and CSX Transportation
has and will take all actions that are required under Florida and Virginia law
to perfect the Seller's ownership interest in the Receivables. See "Certain
Legal Aspects of the Receivables--Transfer of the Receivables".
Notwithstanding the foregoing, if CSX Transportation were to become a debtor
in a bankruptcy case and a creditor or trustee-in-bankruptcy of such debtor or
such debtor itself were to take the position that the sale of Receivables to
the Seller should be recharacterized as a pledge of such Receivables to secure
a borrowing of such debtor, then delays in payments of collections of
Receivables to the Seller (and therefore to the Trust and to the Investor
Certificateholders) could occur or (should the court rule in favor of any such
trustee, debtor or creditor) reductions in the amount of such payments could
result. If the transfer of Receivables to the Seller is recharacterized as a
pledge, then a tax lien, government lien or other nonconsensual lien on the
property of CSX Transportation arising before any Receivables come into
existence may have priority over the Seller's interests in such Receivables.
See "Certain Legal Aspects of the Receivables--Certain Matters Relating to
Bankruptcy".
Bankruptcy. If the transactions contemplated in the Receivables Sale
Agreement are treated as a sale, the assets of the Seller would not generally
be part of CSX Transportation's bankruptcy estate and would not be available
to CSX Transportation's creditors. The U.S. Court of Appeals for the Tenth
Circuit in Octagon Gas System, Inc. v. Rimmer concluded on May 27, 1993 that
"accounts", as defined in the UCC, and which could
17
include the Receivables, may properly be included in the bankruptcy estate of
a transferor regardless of whether the transfer of such Receivables is treated
as a sale or a secured loan. The circumstances under which the Octagon ruling
would apply are not fully known and the extent to which the Octagon decision
will be followed in other courts or outside the Tenth Circuit is not certain.
If the conclusions in that case were applied in a CSX Transportation
bankruptcy, the Receivables would be subject to claims of certain creditors
and would be subject to the potential delays and reductions in payments to the
Seller and Investor Certificateholders described in the preceding paragraph
even if the transfer is treated as a sale.
In addition, if CSX Transportation were to become a debtor in a bankruptcy
case and a creditor or trustee-in-bankruptcy of such debtor or such debtor
itself were to request a bankruptcy court to order that the Seller be
substantively consolidated with CSX Transportation, delays in and reductions
in the amount of distributions on the Investor Certificates could occur.
The Seller has warranted in the Pooling Agreement that its transfer of the
Receivables to the Trust is either a sale of the Receivables to the Trust or a
grant of a first priority perfected "security interest" (as defined in the
UCC) in the Seller's rights in such property to the Trust. The Seller has and
will take all actions that are required under applicable state law to perfect
the Trust's interest in the Receivables and the Seller has warranted that, if
the transfer by the Seller to the Trust is a grant to the Trust of a security
interest in the Receivables, the Trust will at all times have a first priority
perfected security interest therein and, with certain exceptions, in the
proceeds thereof. Nevertheless, if the transfer of the Receivables to the
Trust were deemed to create a security interest therein under the UCC as in
effect in Virginia, a tax or statutory lien or other nonconsensual lien on
property of CSX Transportation or the Seller arising before a Receivable is
transferred to the Trust may have priority over the Trust's interest in such
Receivables. If the Seller were to become a debtor in a bankruptcy case and a
bankruptcy trustee or a creditor of the Seller or the Seller itself as debtor
in possession were to take the position that the transfer of the Receivables
from the Seller to the Trust should be recharacterized as a pledge of such
Receivables, then delays in distributions on the Investor Certificates or
(should the bankruptcy court rule in favor of any such trustee or creditor)
reductions in such distributions could result.
If certain events relating to the bankruptcy of CSX Transportation or the
Seller were to occur, then an Amortization Event would occur. In addition, if
such events relating to the Seller occur, the Seller shall immediately cease
to transfer Receivables to the Trust. However, in a bankruptcy proceeding, the
Trustee may not be permitted to suspend transfers of Receivables to the Trust.
See "Certain Legal Aspects".
Payments made in respect of repurchases of Receivables or of the
certificateholders' interest therein by CSX Transportation or the Seller
pursuant to the Pooling Agreement or the Receivables Sale Agreement may be
recoverable by CSX Transportation or the Seller as debtor in possession or by
a creditor or a trustee-in-bankruptcy of CSX Transportation or the Seller as a
preferential transfer from CSX Transportation or the Seller, as the case may
be, if such payments are made within one year prior to the filing of a
bankruptcy case in respect of CSX Transportation or the Seller, as the case
may be.
Application of federal and state bankruptcy and debtor relief laws could
affect the interests of the Investor Certificateholders in the Receivables if
such laws result in any Receivables being charged off as uncollectible or
result in delays in payments due on such Receivables. See "Certain Legal
Aspects of the Receivables--Certain Matters Relating to Bankruptcy".
Commingling of Collections. Currently, CSX Transportation, as Servicer, is
required to deposit all Collections received by it, including Collections
deposited to Lock-Box Accounts, to the extent required as described under
"Master Trust Provisions--Deposits in Collection Account", into the Collection
Account within two business days following receipt thereof. Subject to the
express terms of any Series Supplement or Receivables Purchase Agreement, if
CSX Transportation obtains and for so long as it maintains a short-term rating
of at least A-1 by Standard & Poor's and P-1 by Moody's (which it does not
currently maintain), CSX Transportation, as Servicer, will be allowed to,
subject to certain conditions, commingle and use for its own
18
benefit all Collections received by it until each Transfer Date and, in the
event of the insolvency of CSX Transportation or, in certain circumstances,
the lapse of certain time periods, the Trust may not have a perfected
ownership or security interest in such Collections. See "Certain Legal Aspects
of the Receivables--Transfer of Receivables" and "--Certain Matters Relating
to Bankruptcy".
Breaches of Representations and Warranties. Pursuant to the Pooling
Agreement, if the interest of the investor certificateholders of all Series or
any Purchased Interest in a Receivable is materially adversely affected by the
failure of the Receivable or the Contract related thereto to comply in all
material respects with applicable requirements of law, such Receivable will be
reassigned to the Seller or, in some circumstances, assigned to the Servicer.
On each Closing Date, the Seller will make certain representations and
warranties relating to the validity and enforceability of the Receivables. The
sole remedy if any such representation or warranty is breached and such breach
has a material adverse effect on the interest of investor certificateholders
of all Series or the Purchased Interest in any Receivable and continues beyond
the applicable cure period, if any, is that the Receivable affected thereby
will be reassigned to the Seller or assigned to the Servicer, as the case may
be. In addition, in the event of the breach of certain representations and
warranties, the Seller may be obligated to accept the reassignment of the
certificateholders' interest of all Series or the Purchased Interests. See
"The Pooling Agreement Generally--Representations and Warranties" and "--
Servicer Covenants" and "Certain Legal Aspects of the Receivables--Laws
Applicable to the Contracts and the Receivables".
CONTROL
Subject to certain exceptions, a certain percentage of the investor
certificateholders of each Series or any Purchaser Agent, on behalf of the
Purchasers, may take certain actions, or direct certain actions to be taken,
under the Pooling Agreement, the related Series Supplement or the related
Receivables Purchase Agreement with respect to that Series or Purchased
Interest. However, under certain circumstances, the consent or approval of a
specified percentage of the aggregate unpaid principal amount of the investor
certificates of all outstanding Series and Purchased Interests will be
required to direct certain actions, including requiring the appointment of a
successor Servicer following a Servicer Default and amending the Pooling
Agreement under certain circumstances.
In addition, under certain circumstances, a Purchaser or a Purchaser Agent,
on behalf of a Purchaser, may have approval rights for certain actions which
may be taken by the Servicer or the Seller under the Pooling Agreement,
without the consent or approval of the investor certificateholders. These
rights include (i) the right to approve the establishment of alternative
collection procedures that do not require the use of Lock-Box Accounts, (ii)
the amendment of the terms and provisions of the Credit and Collection Policy
and (iii) the appointment of a successor Trustee.
RATINGS OF THE INVESTOR CERTIFICATES
It is expected that the Investor Certificates of each Series will have a
credit rating in one of the top three generic rating categories by at least
one nationally recognized rating agency (the rating agency or rating agencies
designated by the Seller in the Series Supplement in respect of the investor
certificates of any Series are referred to hereinafter as the "Rating
Agency"). The rating of the Investor Certificates of any Series is based
primarily on the value of the Receivables, the Available Subordinated Amount
of Receivables required with respect to such Investor Certificates, the
circumstances in which funds may be drawn under the Enhancement, if any, for
the benefit of the Investor Certificateholders of such Series, the terms of
any applicable Enhancement described in the related Prospectus Supplement and
the credit rating of the Servicer.
The ratings of the Investor Certificates of any Series are not a
recommendation to purchase, hold or sell such Investor Certificates, inasmuch
as such ratings do not comment as to market price or suitability for a
particular investor. There is no assurance that the ratings of the Investor
Certificates of any Series will remain for any given period of time or that
such ratings will not be lowered or withdrawn entirely by a Rating Agency
19
if in its judgment circumstances in the future so warrant. Although the
ratings of the Investor Certificates of any Series address the respective
likelihood of the ultimate payment of principal and interest on such Investor
Certificates, such ratings do not address the likelihood that the outstanding
principal amount of a class of Investor Certificates of such Series will be
paid by its respective Expected Final Payment Date or on any other date
specified in the related Prospectus Supplement for the payment of such
principal. The ratings also do not address the possibility of the occurrence
of any Amortization Event which could result in the payment of the outstanding
principal amount of a Series of Investor Certificates prior to its respective
Expected Final Payment Date or other date specified in the related Prospectus
Supplement for the payment of principal thereof.
BOOK-ENTRY REGISTRATION
Unless the Prospectus Supplement for a Series of Investor Certificates
specifies that Investor Certificates will be in definitive form, the Investor
Certificates of each Series will be initially represented by one or more
Investor Certificates registered in the name of Cede & Co. ("Cede"), the
nominee for DTC, and will not be registered in the names of the Investor
Certificateholders or their nominees. Consequently, unless and until
Definitive Certificates are issued, Investor Certificateholders will not be
recognized by the Trustee as "Investor Certificateholders" (as such term is
used in the Pooling Agreement and the applicable Series Supplement). Hence,
until such time, Investor Certificateholders will only be able to exercise the
rights of Investor Certificateholders indirectly through DTC and its
participating organizations. See "The Pooling Agreement Generally--Book-Entry
Registration" and "--Definitive Certificates".
20
THE RECEIVABLES
GENERAL
The Receivables have been and will be generated pursuant to Contracts
entered into from time to time by CSX Transportation and are and will be
serviced by CSX Transportation as the Servicer. CSX Transportation is engaged
primarily in the business of railroad transportation and currently operates a
system comprising approximately 18,300 route miles of track in 20 states in
the East, Midwest and South of the United States and in the Province of
Ontario, Canada. It is expected that the number of route miles of track
operated by CSX Transportation, and the number of states and regions in which
CSX Transportation operates, will increase if and when the joint acquisition
by CSX Corporation and Norfolk Southern Corporation of Conrail is completed
and CSX Transportation integrates the operations of the Allocated Conrail
Assets into its own operations. See "Risk Factors--Joint Acquisition of
Conrail." CSX Transportation conducts railroad operations in its own name and
through railroad subsidiaries. At December 26, 1997, CSX Transportation owned
or leased approximately 2,800 locomotives and 97,500 railcars of various
types.
The Receivables include freight transportation receivables (consisting of
customer freight receivables and interline freight receivables as described
below) due from shippers and consignees.
The Receivables arise from freight traffic that either (i) originates on CSX
Transportation's line as a prepaid movement (i.e., the shipper is billed) or
(ii) terminates on CSX Transportation's line as a collect shipment (i.e., the
consignee pays). In both cases, CSX Transportation is responsible for direct
billing to the Obligor and, if the shipment is an interline movement (as
opposed to local traffic, which originates and terminates on CSX
Transportation's line), remitting a portion of the freight bill to the other
carriers, primarily via the Association of American Railroads Clearinghouse
("AAR Clearinghouse"). The AAR Clearinghouse is a trust established and run by
the Association of American Railroads, the responsibility of which is to
handle funds on behalf of participating railroads in settlement of interline
balances.
Standard payment terms for customer freight receivables are 15 days from
freight bill date. Interline freight receivables due from other railroads are
mainly settled monthly via the AAR Clearinghouse, as described below.
Interline freight receivables arise when more than one railroad is involved
in a freight haul, with the revenues apportioned among the respective
carriers. The railroad responsible for collecting the freight bill is also
obligated to remit to each participating railroad that carrier's share of the
revenue. Such funds, pursuant to the AAR Clearinghouse procedures, may be
required to be held in trust on behalf of the other railroads, pending
settlement between the carriers.
Most railroads, particularly the large Class I carriers, settle their
interline freight receivables (and payables) on a monthly basis through a wire
transfer process as members of the AAR Clearinghouse, under the auspices of
which the settlement rules and procedures have been established. Settlements
can be made between the participating carriers on the second working day of
the month for the prior month's shipments.
The net amount to be settled between two or more railroads is generated from
the information contained in the waybill, which is the contract between the
railroads moving the shipment. CSX Transportation obtains this interline
freight settlement information from its computerized waybill database and
compiles it into an overall summary report indicating either a net receivable
or net payable position. Concurrently, the other railroads prepare their
summaries of the interline accounts which are then exchanged prior to
settlement. The exchange of these statements between railroads determines an
overall net balance and this balance is settled by wire transfer.
For the purposes of determining the Outstanding Balance with respect to
interline freight receivables, the amount of Eligible Receivables will be the
net amount of interline freight receivables settled through the AAR
Clearinghouse. In that calculation, such net amount of interline freight
receivables will equal the aggregate amount of interline freight receivables
owed to CSX Transportation less the aggregate amount of interline freight
payables owed by CSX Transportation. The tables below generally reflect the
gross amount of Receivables
21
before making any adjustments required in the determination of the Outstanding
Balance. Therefore, the amount of Receivables included in the Outstanding
Balance will be less than the amount of gross Receivables shown in the tables
below.
The following tables set forth certain information on the Receivables. Due
to the variability and uncertainty with respect to the rates at which
receivables are created, paid or otherwise reduced, the characteristics set
forth herein may vary significantly as of any other date of determination. In
addition, CSX Transportation's joint acquisition of Conrail and addition of
Conrail receivables to the pool of Receivables held by the Trust may also vary
the characteristics set forth herein. See "Risk Factors--Joint Acquisition of
Conrail."
Receivable Types. Below is a summary of the composition of the Receivables
pool by receivable type as of March 27, 1998, March 28, 1997 and end of fiscal
year 1997, 1996, and 1995. There can be no assurance that the composition of
the Receivables pool by receivable type in the future will be similar to the
figures set forth below.
RECEIVABLE TYPES
(IN THOUSANDS OF DOLLARS)(1)
AS OF
-----------------------------------------------------------------------------------------
MARCH 27, 1998 MARCH 28, 1997 DECEMBER 26, 1997 DECEMBER 27, 1996 DECEMBER 29, 1995
--------------- --------------- ----------------- ----------------- -----------------
UNPAID % OF UNPAID % OF UNPAID % OF UNPAID % OF UNPAID % OF
RECEIVABLE TYPE BALANCE POOL BALANCE POOL BALANCE POOL BALANCE POOL BALANCE POOL
- --------------- -------- ------ -------- ------ ----------------- ----------------- -----------------
Customer Freight Billed. $336,203 51.57% $320,107 50.63% $ 340,355 51.22% $ 305,274 51.62% $ 290,250 52.76%
Interline Freight
Billed................. 9,643 1.48% 11,027 1.75% 13,871 2.09% 704 0.12% 13,482 2.45%
Unbilled (Customer and
Interline Freight)(2).. 306,125 46.95% 301,063 47.62% 310,191 46.69% 285,383 48.26% 246,453 44.79%
-------- ------ -------- ------ --------- ------- --------- ------- --------- -------
Total Freight
Receivables............ $651,971 100.00% $632,197 100.00% $ 664,417 100.00% $ 591,361 100.00% $ 550,185 100.00%
======== ====== ======== ====== ========= ======= ========= ======= ========= =======
- --------
(1) Receivables that appear on CSX Transportation's general ledger as
"Doubtful Accounts Receivable--Customers", "Accounts in Litigation and
Disputes" and "Accounts Receivable--In Hands of Treasury" are excluded
from the calculations in this table.
(2) Unbilled receivables represent amounts earned but not yet billed by CSX
Transportation. A substantial portion of unbilled balances are represented
by interline shipments.
Obligor Concentrations. Obligor concentrations with respect to the
Receivables are small relative to the total Receivables pool. The three
largest Obligors, accounted for approximately 2.9%, 2.4% and 1.4%,
respectively, of the total pool as of March 27, 1998. The ten largest Obligors
comprised approximately 12.5% of the Receivables pool as of March 27, 1998.
Subject to the satisfaction of certain conditions specified in the Receivables
Sale Agreement and Pooling Agreement, CSX Transportation and the Seller may
remove, on a prospective basis, the Receivables of any Obligor from the
Receivables pool. There can be no assurance that current Obligors will
continue as Obligors or that the levels of Obligor concentration in the future
will be similar to that set forth above, including after the Conrail
integration. See "The Pooling Agreement Generally--Removal of Obligors".
22
Freight by Market Groups. Coal and chemical carloads have traditionally been
CSX Transportation's largest revenue producers, together accounting in the
fiscal year ended December 26, 1997 for approximately 50% of the company's
total freight revenue; automobile, minerals (other than coal), agricultural
products, forest products, food and consumer products, metals and phosphates
and fertilizer carloads account for the rest of CSX Transportation's freight
revenue. The table below sets forth the aggregate amount of freight revenue by
market group for each of the periods shown. There can be no assurance,
however, that market group diversity with respect to the freight receivables
of the type to be included in the Trust (the "Portfolio") will be similar in
the future to the market group diversity set forth below.
FREIGHT REVENUE BY MARKET GROUPS
(IN MILLIONS OF DOLLARS)
QUARTERS ENDED FISCAL YEARS ENDED
---------------------------- -------------------------------------------
MARCH 27, MARCH 28, DECEMBER 26, DECEMBER 27, DECEMBER 29,
1998 1997 1997 1996 1995
------------- ------------- ------------- ------------- -------------
Coal.................... $ 366 30.58% $ 389 32.02% $1,560 32.11% $1,584 33.24% $1,530 32.69%
Chemicals............... 188 15.71% 189 15.56% 747 15.37% 721 15.13% 700 14.95%
Automotive.............. 130 10.86% 136 11.19% 543 11.18% 520 10.91% 503 10.75%
Forest Products......... 126 10.53% 128 10.54% 499 10.27% 499 10.47% 488 10.42%
Minerals................ 94 7.85% 93 7.65% 394 8.11% 381 7.99% 375 8.01%
Agricultural Products... 91 7.60% 92 7.57% 347 7.14% 343 7.20% 344 7.35%
Metals.................. 78 6.52% 75 6.17% 314 6.46% 290 6.09% 291 6.22%
Phosphates and
Fertilizer............. 83 6.93% 75 6.17% 292 6.01% 279 5.86% 282 6.02%
Food and Consumer....... 41 3.42% 38 3.13% 163 3.35% 148 3.11% 168 3.59%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Freight Revenue.. $1,197 100.00% $1,215 100.00% $4,859 100.00% $4,765 100.00% $4,681 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
PORTFOLIO TURNOVER AND CREDIT EXPERIENCE
Days Sales Outstanding. The tables below set forth turnover, days sales
outstanding, and monthly payment rates for the Portfolio for each of the
periods shown. There can be no assurance, however, that turnover, days sales
outstanding, and monthly payment rates with respect to the Receivables in the
future will be similar to the historical figures set forth below with respect
to the Portfolio.
PORTFOLIO TURNOVER HISTORY
(IN THOUSANDS OF DOLLARS)
COLLECTIONS BEGINNING
OF FREIGHT NET RECEIVABLES DAYS SALES
RECEIVABLES POOL BALANCE(1) TURNOVER(2) OUTSTANDING(3)
----------- --------------- ----------- --------------
Quarters Ended
March 27, 1998..... $1,206,676 $464,954 10.38 34.68
March 28, 1997..... 1,249,656 429,518 11.64 30.93
Fiscal Years Ended
December 26, 1997.. 4,896,519 458,277 10.68 33.71
December 27, 1996.. 4,701,599 432,227 10.88 33.09
December 29, 1995.. 4,675,250 447,764 10.44 34.48
- --------
(1) Receivables that appear on CSX Transportation's general ledger as
"Doubtful Accounts Receivable--Customers", "Accounts in Litigation and
Disputes" and "Accounts Receivable--In Hands of Treasury" are excluded
from the calculations of beginning Net Receivables Pool Balance in this
table.
(2) Defined as Collections of Freight Receivables (Customer and Interline)
divided by Beginning Net Receivables Pool Balance. Figures for the
quarters ended March 27, 1998 and March 28, 1997 are based on annualized
collections for the period.
(3) Defined as 360 days divided by Turnover.
23
MONTHLY PAYMENT RATE HISTORY(1)
MAXIMUM MONTHLY MINIMUM MONTHLY AVERAGE MONTHLY
PAYMENT RATE PAYMENT RATE PAYMENT RATE
--------------- --------------- ---------------
Quarters Ended
March 27, 1998................ 94.72% 76.68% 83.84%
March 28, 1997................ 109.02% 85.26% 94.93%
Fiscal Years Ended
December 26, 1997............. 114.70% 84.03% 93.05%
December 27, 1996............. 117.34% 72.60% 92.26%
December 29, 1995............. 101.33% 81.15% 92.84%
- --------
(1) Defined as the sum of the aggregate amount of Collections for a Due Period
divided by the Net Receivables Pool Balance as of the last day of such Due
Period. Receivables that appear on CSX Transportation's general ledger as
"Doubtful Accounts Receivable--Customers", "Accounts in Litigation and
Disputes" and "Accounts Receivable--In Hands of Treasury" are excluded
from the calculations of Net Receivables Pool Balance in this table.
Portfolio Dilution Experience. The table below displays dilution experience
for the Portfolio for each of the periods shown. Dilution refers to reductions
in Receivables balances due to non-cash adjustments, primarily billing errors.
Actual dilution experience for the Receivables may be different in the future
from that shown with respect to the Portfolio in the following table.
PORTFOLIO DILUTION EXPERIENCE (IN THOUSANDS OF DOLLARS)
QUARTERS ENDED FISCAL YEARS ENDED
------------------ --------------------------------------
MARCH MARCH DECEMBER 26, DECEMBER 27, DECEMBER 29,
27, 1998 28, 1997 1997 1996 1995
-------- -------- ------------ ------------ ------------
Average Receivables
Outstanding(l)......... $686,957 $652,407 $653,519 $618,325 $577,890
Average Monthly
Dilutions(2)........... $ 6,812 $ 6,408 $ 6,138 $ 6,685 $ 7,741
Average Monthly
Dilutions as a
Percentage of Average
Receivables
Outstanding............ 0.9916% 0.9822% 0.9392% 1.0811% 1.3395%
- --------
(1) Defined as the sum of aggregate freight accounts receivable at the end of
each month of the period divided by the number of months in the period.
(2) Defined as dilutions by month for each of the above periods divided by the
respective number of months in each period.
CONTRACTS
CSX Transportation's customers normally make shipping arrangements that
generate Contracts through CSX Transportation's sales and marketing
departments, which work closely with the credit department. For large
customers, the principal contact in the sales and marketing departments is a
designated national account manager. For smaller customers, an account
executive is identified.
In most cases, shipping arrangements are governed by transportation
contracts. Those agreements vary considerably, with arrangements with CSX
Transportation's largest customers being more extensively negotiated. Such
agreements may cover a single freight move; they may contain multi-year
commitments; they may contain precise specifications for equipment or they may
contain volume requirements or discounts. Shipping that is not covered by
transportation contracts moves either under tariffs filed with the Interstate
Commerce Commission or under unregulated price quotations.
24
CREDIT POLICY AND PROCEDURES
CSX Transportation's Credit Administration department, located in
Jacksonville, Florida, is responsible for credit approval, monitoring and
collection of receivables. The department has eleven full time employees
including a director, two managers, an administrative aide and seven credit
associates.
Credit Approval Process. The credit approval process is directed primarily
to new freight customers that wish to ship goods on CSX Transportation's rail
system on credit terms. Because the bulk of CSX Transportation's business with
interline carriers is conducted with eight large railroads with established
payment histories and longstanding relationships, no formal credit approval
process is required on an on-going basis for interline carriers.
CSX Transportation receives approximately ninety requests for credit per
month, most of which are for small amounts (less than $5,000) from small
companies. Processing new credit requests is presently handled by one full
time employee.
CSX Transportation's credit granting process relies on an analysis of a
customer's ability to repay debt as evidenced by audited financial statements
or credit and payment analysis reports published by credit agencies.
CSX Transportation requests two years of audited financial statements from
the new customer and sends out a credit application form. CSX Transportation
also utilizes Dun & Bradstreet payment analysis reports in order to determine
the company's financial status and payment history.
Once CSX Transportation has received the requisite financial data on the new
customer, the credit analysis focuses on the adequacy of the customer's
liquidity (working capital), profitability and shareholders' equity. If the
analysis warrants extension of credit, approval may be granted by the credit
analyst up to $5,000. Requests over $5,000 up to $25,000 must be approved by
one of the two credit managers, and requests over $25,000 must be approved by
the Director of Credit Administration.
Customers that are considered to be marginal credit risks may be required to
provide additional security, such as a surety agreement, cash deposit, bond,
financial guarantee, letter of credit or cash in advance.
Credit Limits and Credit Monitoring. Each customer that has been approved
for credit receives a credit limit. Credit limits are monitored by a weekly
report that flags any account which has exceeded its credit limit by 10%.
Accounts that are over their credit limit are handled on a case-by-case basis,
depending on the size of the overage, past payment history and the nature of
CSX Transportation's relationship with the customer.
Credit Terms. For customer freight billings, CSX Transportation generally
follows the railroad industry's customary terms. Standard payment terms for
customer freight receivables are typically 15 days from freight bill date. On
average, CSX Transportation receives payment within 22 to 23 days for customer
freight billings.
Most interline freight billings are settled on the second business day of
the month for the prior month's completed shipments through the AAR
Clearinghouse. Smaller railroads that do not participate in the
AAR Clearinghouse ("voucher roads") are billed directly by CSX Transportation
for the net amount owed.
BILLING AND COLLECTION
CSX Transportation's customer freight billing and collection employees are
organized into groups by commodity type. Each group has a manager who oversees
customer associates managing customer accounts. Each customer associate is
responsible for billing, collection, "suspense" resolution and disputes.
Employees in CSX Transportation's interline shipment group are organized
according to territory or by specific interline carriers. Functions performed
by this group include the division process of intercarrier traffic (the
process that apportions revenues in an interline move to the participating
carriers), adjustments to the division process (mostly changes in the tariff
rates that have been charged) and the current settlement through the AAR
Clearinghouse.
25
Billing Process. Both customer freight and interline freight departments use
a computer tracking system which relies on the creation and frequent updating
of a customer waybill. The billing process for customer freight traffic begins
with a waybill record that is triggered by the remittance of a bill of lading
from the customer to CSX Transportation. A bill of lading is a request by a
customer for transportation of a railcar and contains key information
regarding the move such as location, destination and weight of freight. Bills
of lading are received via electronic data interchange, telecopy or letter. It
takes an average of two days from the time a bill of lading is received to the
time that a freight bill is mailed to a customer.
Waybills are created and updated by CSX Transportation's proprietary
Customer Order Processing System. These waybills are records of freight
shipments that contain information about a move such as weights, customer
information, destination and route. If part of this information is incomplete,
the waybill is considered to be "in suspense" and is completed, with the aid
of revenue management or sales and marketing employees.
Collection and Cash Application Process. CSX Transportation receives
collections (including wire transfers and collections made through automated
clearing house transactions) in lock-boxes. At the end of each day, CSX
Transportation receives a collection report and initiates a debit against each
lock-box account and credits a concentration account. CSX Transportation
credits the appropriate customer account for payment received. See "Master
Trust Provisions--Deposits in Collection Account."
Overdue and Monitored Accounts. A detailed aged trial balance is produced on
a monthly basis for customer freight receivables. CSX Transportation's
customer associates generally handle overdue and disputed accounts. Generally,
when an account is overdue, that department first determines whether the bill
has been disputed by the customer or whether it is simply a delinquent
payment. Disputed accounts or accounts which are subject to collection
problems are transferred from the freight billing general ledgers and handled
by the credit department. The Receivables in these accounts appear in special
general ledger accounts, e.g., "Doubtful Accounts Receivable--Customers",
"Accounts in Litigation and Disputes" and "Accounts Receivable--In Hands of
Treasury". Monitored accounts are handled on a case-by-case basis, and there
is no set policy for the amount of time an account is delinquent before being
transferred to a monitored account. A monitored account is subject to
additional collection practices and supervision as part of CSX
Transportation's effort to reduce the ultimate losses realized.
An invoice is considered overdue after it remains unpaid for one day beyond
the due date. Generally, the first delinquency notice is mailed approximately
one week after the due date. A customer associate will call a customer whose
unpaid account is greater than $5,000 approximately two weeks after the due
date. Second and third delinquency notices are mailed approximately four and
eight weeks, respectively, after the bill date, and additional telephone calls
to the Obligor will be made at such times.
If the customer associate determines that routine collection processes are
ineffective, the file is passed to the Credit Administration department for
collection action. Credit Administration department personnel will handle to a
conclusion all overdue accounts received from the freight collections area.
Disputes that cannot be resolved by the Credit Administration department may
be referred to counsel or to outside collection agencies.
Charge-off Policy. As a general rule, amounts are written off at the time
they are considered uncollectible. Charge-offs are handled on a case-by-case
basis, and there is no set policy for the amount of time an account is
delinquent before being charged off by CSX Transportation's credit department.
Notwithstanding the foregoing, for the purposes of the Pooling Agreement a
Receivable will be included as a Defaulted Receivable for certain purposes
when it is 91 days or more from the billing date. See "Master Trust
Provisions--Deposits in Collection Account".
26
LOSS AND AGING EXPERIENCE
Loss Experience. The following table sets forth the loss experience with
respect to payments by Obligors for each of the periods shown for the
Portfolio. Although substantially all of CSX Transportation's freight
receivables have been or, upon creation, will be transferred to the Trust,
there can be no assurance that the loss experience for the Receivables in the
future will be similar to the historical experience set forth below with
respect to the Portfolio.
LOSS EXPERIENCE FOR THE PORTFOLIO
(IN THOUSANDS OF DOLLARS)
QUARTERS ENDED FISCAL YEARS ENDED
------------------ --------------------------------------
MARCH MARCH DECEMBER 26, DECEMBER 27, DECEMBER 29,
27, 1998 28, 1997 1997 1996 1995
-------- -------- ------------ ------------ ------------
Average Receivables
Outstanding(l)......... $686,957 $652,407 $653,519 $618,325 $577,890
Average Monthly Net
Charge-Offs(2)......... $ 51 $ 342 $ 181 $ 221 $ 365
Average Monthly Net
Charge-Offs as a
Percentage of Average
Receivables
Outstanding............ 0.0074% 0.0524% 0.0277% 0.0357% 0.0632%
- --------
(1) Defined as the sum of aggregate freight accounts receivable at the end of
each month of the period divided by the number of months in the period.
(2) Defined as the net charge-offs by month for each of the above periods
divided by the respective number of months in each period.
Aging Experience. The following table sets forth aging experience for the
Portfolio for each of the periods shown. Although substantially all of CSX
Transportation's freight receivables have been transferred to the Trust, there
can be no assurance that the aging experience for the Receivables in the
future will be similar to the historical experience set forth below with
respect to the Portfolio. CSX Transportation measures portfolio aging
experience as the number of days a Receivable is outstanding from the
preparation of the invoice rather than on the basis of past due amounts.
AGING EXPERIENCE FOR THE PORTFOLIO
(IN THOUSANDS OF DOLLARS)
AS OF
-----------------------------------------------------------------------------------
MARCH 27, MARCH 28, DECEMBER 26, DECEMBER 27, DECEMBER 29,
CATEGORY 1998 1997 1997 1996 1995
- -------- --------------- --------------- --------------- --------------- ---------------
0-30 days from invoice
date(1)................ $601,685 85.47% $600,106 87.85% $614,578 85.92% $558,314 86.58% $525,818 89.29%
31-60 days from invoice
date................... 26,306 3.74% 26,012 3.81% 34,159 4.78% 26,885 4.17% 19,120 3.25%
61-90 days from invoice
date................... 10,731 1.53% 3,713 0.54% 8,636 1.21% 3,630 0.56% 2,807 0.48%
91+ days from invoice
date................... 13,249 1.88% 2,366 0.35% 7,044 0.98% 2,532 0.39% 2,440 0.41%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total Aged Receivables.. 651,971 92.62% 632,197 92.55% 664,417 92.89% 591,361 91.70% 550,185 93.43%
Receivables Not Aged(2). 51,971 7.38% 50,857 7.45% 50,835 7.11% 53,538 8.30% 38,697 6.57%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total Freight
Receivables............ $703,942 100.00% $683,054 100.00% $715,252 100.00% $644,899 100.00% $588,882 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
- --------
(1) Includes unbilled receivables which represent amounts earned but not yet
billed by CSX Transportation for customer and interline shipments.
(2) For purposes of servicer reporting to the Series 1993-1
Certificateholders, receivables that appeared on CSX Transportation's
general ledger as "Doubtful Accounts Receivable--Customers", "Accounts in
Litigation and Disputes" and "Accounts Receivable--In Hands of Treasury"
were not aged. For the Series 1998-1 Certificates, these Receivables will
be aged and distributed across the corresponding categories.
27
USE OF PROCEEDS
The net proceeds from the sale of the Investor Certificates will be used to
pay outstanding principal of and other amounts due on prior Series of investor
certificates or to repurchase Purchased Interests that had been previously
sold or will be paid to the Seller as consideration for the Receivables.
THE SELLER
The Seller, a wholly-owned subsidiary of CSX Corporation, was incorporated
in the State of Delaware on December 16, 1992. The Seller was organized for
the limited purpose of purchasing, holding, owning and selling receivables of
CSX Transportation and any activities incidental to and necessary, convenient
or advisable for the accomplishment of such purposes, and has no material
assets other than such receivables. The Seller's executive offices are located
at Route 688, P.O. Box 87, Doswell, Virginia 23047 (telephone number (804)
876-3220).
The Seller has taken steps in structuring the transactions contemplated
hereby that are intended to ensure that the voluntary or involuntary petition
for relief by CSX Transportation, under the United States Bankruptcy Code or
similar applicable state laws, will not result in consolidation of the assets
and liabilities of the Seller with those of CSX Transportation. Such steps
included the creation of the Seller as a separate, limited-purpose corporation
pursuant to a certificate of incorporation that contains certain limitations
(including limitations on the Seller's corporate purposes and on the Seller's
ability to commence a voluntary case or proceeding under the United States
Bankruptcy Code or similar applicable state laws without the unanimous
affirmative vote of all of its directors, including its independent
directors). No assurance can be given, however, that a consolidation will not
occur. See "Certain Legal Aspects of the Receivables--Certain Matters Relating
to Bankruptcy."
THE SERVICER
The Servicer was incorporated in the Commonwealth of Virginia in 1944; its
earliest predecessor was incorporated in the State of Maryland in 1827. The
Servicer is engaged principally in the business of railroad transportation.
The Servicer's executive offices are located at 500 Water Street,
Jacksonville, Florida 32202 (telephone number (904) 359-3100).
THE TRUST
The Trust, as a master trust, is expected to issue Series and sell Purchased
Interests from time to time. The Trust has not and will not engage in any
business activity other than acquiring and holding Trust Assets and proceeds
therefrom, issuing investor certificates and the Seller's Certificate, selling
Purchased Interests and making payments on such certificates and Purchased
Interests and related activities. See "Master Trust Provisions--New Issuances;
Other Modifications". As a consequence, the Trust does not and is not expected
to have any source of capital resources other than the Trust Assets. The Trust
will be administered in accordance with the laws of the State of New York.
The Trust Assets with respect to any Series consist of an ownership interest
in (a) a portfolio of trade receivables, specifically, rail freight
receivables (the "Receivables"), generated from time to time by CSX
Transportation and purchased by the Seller pursuant to the Receivables Sale
Agreement, all collateral security with respect thereto, all collections and
amounts received with respect thereto and all proceeds thereof, (b) all the
Seller's rights under the Receivables Sale Agreement, (c) all monies on
deposit in certain accounts of the Trust and (d) all funds collected or to be
collected from any Enhancement issued with respect to such Series (the drawing
on or payment of any Enhancement for the benefit of such Series or class of
investor certificates as set forth in the related Series supplement will not
be available to the investor certificateholders of any other Series or class).
The Seller has purchased from CSX Transportation substantially all Receivables
existing on December 18, 1992, and substantially all Receivables thereafter
generated by CSX Transportation and has sold
28
its interest in all such Receivables to the Trust. The Receivables will not
include certain categories of trade obligations of CSX Transportation
customers, which categories commonly are referred to as miscellaneous
billings. Miscellaneous billings generally arise from services performed for
third parties such as car repair and track maintenance, rather than from
freight transportation. The Trust Assets are expected to change over the life
of the Trust as new Receivables become subject to the Trust and as existing
Receivables are collected, charged off as uncollectible or otherwise adjusted
or as Receivables of particular Obligors are removed. See "The Pooling
Agreement Generally--Removal of Obligors".
MASTER TRUST PROVISIONS
NEW ISSUANCES; OTHER MODIFICATIONS
The Pooling Agreement provides that, pursuant to any one or more Series
Supplements or Receivables Purchase Agreements, the Seller may direct the
Trustee to issue from time to time new Series or sell from time to time
Purchased Interests, subject to the conditions described below (each such
issuance or sale, a "New Issuance"). Each New Issuance will have the effect of
decreasing the Seller's Interest to the extent of the invested amount of such
new Series or Purchased Interest. Under the Pooling Agreement, the Seller may
designate, with respect to any newly issued Series or Purchased Interest, the
principal terms of such new Series or Purchased Interest (the "Principal
Terms" of such Series or Purchased Interest). The terms of each Series
Supplement or Receivables Purchase Agreement may, subject to certain
conditions described below, modify or amend the terms of the Pooling Agreement
solely as applied to such new Series or Purchased Interest, as the case may
be. The Seller also may, from time to time and subject to certain conditions,
direct the Trustee, on behalf of the Trust, to extend any Receivables Purchase
Agreement or to increase the aggregate amount of Purchased Interest pursuant
to any Receivables Purchase Agreement pursuant to which the initial sale of a
Purchased Interest has previously occurred. None of the Seller, the Servicer,
the Trustee or the Trust is required or intends to obtain the consent of any
investor certificateholder of any outstanding Series to issue any additional
Series or sell, extend or increase any Purchased Interest. The Seller may
offer any Series or Purchased Interest to the public under a Disclosure
Document in transactions either registered under the Securities Act or exempt
from registration thereunder directly, through one or more other underwriters
or placement agents, in fixed-price offerings or in negotiated transactions or
otherwise. See "Plan of Distribution". Any such Series may be issued in fully
registered or book-entry form in minimum denominations determined by the
Seller. The Seller intends to offer, from time to time, additional Series and
Purchased Interests.
The Pooling Agreement provides that the Seller may designate Principal Terms
such that each Series or Purchased Interest has a period during which
accumulation of the principal amount thereof in a principal funding account or
amortization of the principal amount thereof is intended to occur which may
have a different length and begin on a different date than such periods for
any other Series. Further, one or more Series or Purchased Interests may be in
their accumulation or amortization periods while other Series or Purchased
Interests are not. Moreover, each Series may have the benefits of Enhancements
issued by providers of Enhancement different from the providers of Enhancement
with respect to any other Series. Under the Pooling Agreement, the Trustee
shall hold any such Enhancement only on behalf of the Series to which such
Enhancement relates. With respect to each such Enhancement, the Seller may
deliver a different form of Enhancement agreement. In addition, each
Receivables Purchase Agreement may provide that no investor certificateholder
or provider of Enhancement shall be a third-party beneficiary thereof or have
any benefit or any legal or equitable right, remedy or claim under such
Receivables Purchase Agreement. Conversely, no Purchased Interest shall
represent any interest in any Enhancement for the benefit of any Series or
class of investor certificates or in any Series account or, except as provided
in the Series Supplement for a Series of investor certificates, in any
Collections or Miscellaneous Payments allocated to that Series. There is no
limit to the number of New Issuances or extensions or increases in Purchased
Interests that the Seller may cause under the Pooling Agreement. The Trust
will terminate only as provided in the Pooling Agreement. There can be no
assurance that the terms of any Series or Purchased Interest might not have an
impact on the timing and amount of payments received by an investor
certificateholder of any Series or any other Series.
29
Under the Pooling Agreement and pursuant to a Series Supplement or
Receivables Purchase Agreement, a New Issuance may only occur upon the
satisfaction of certain conditions provided in the Pooling Agreement. The
obligation of the Trustee to issue the investor certificates of such new
Series or sell such new Purchased Interest, as the case may be, and to execute
and deliver the related Series Supplement or Receivables Purchase Agreement,
as the case may be, is subject to the satisfaction of the following
conditions: (a) the Seller shall have given the Trustee, each Purchaser Agent,
the Servicer, each Rating Agency (if any rated investor certificates are
outstanding) and each provider of Enhancement written notice of such New
Issuance and the date upon which the New Issuance is to occur; (b) the Seller
shall have delivered to the Trustee the related Series Supplement or
Receivables Purchase Agreement (and the related certificate of assignment), as
the case may be, in form satisfactory to the Trustee; (c) with respect to a
new Series only, the Seller shall have delivered to the Trustee any related
Enhancement agreement; (d) the Rating Agency Condition shall have been
satisfied with respect to such issuance (if, in the case of a Purchased
Interest, any rated investor certificates are outstanding); (e) the Seller
shall have delivered to the Trustee, each Purchaser Agent and each provider of
Enhancement a certificate to the effect that the Seller reasonably believes
that such issuance will not cause an Adverse Effect; (f) the Seller shall have
delivered to the Trustee, each Purchaser Agent, each Rating Agency (if any
rated investor certificates are outstanding) and each provider of Enhancement
an opinion of counsel (a "Tax Opinion") acceptable to the Trustee that for
federal, Florida and Virginia income and franchise tax purposes (x) following
the New Issuance the Trust will not be an association (or publicly traded
partnership) taxable as a corporation, (y) in the case of a New Issuance of
investor certificates, the new investor certificates will be properly
characterized as debt and (z) the New Issuance will not adversely affect the
characterization of the investor certificates of any outstanding Series or
class as debt and will not cause a taxable event to any current investor
certificateholders or Purchaser; (g) the Net Series Pool Balance with respect
to each Series shall not be less than 100% of the Required Net Series Pool
Balance for such Series and the Net Purchaser Pool Balance with respect to
each Purchased Interest shall not be less than 100% of the Required Net
Purchaser Pool Balance for such Purchased Interest, after giving effect to
such issuance; (h) the New Issuance will not (x) contravene any provision of
the Pooling Agreement, any Series Supplement, any Enhancement agreement or any
Receivables Purchase Agreement (or any agreement related thereto) or (y)
constitute, or result in the occurrence of an amortization event, event of
termination or an event that would constitute an amortization event or an
event of termination but for the requirement that notice be given or time
elapse or both; (i) the Seller shall have delivered to the Trustee a
certificate to the effect that each of the conditions set forth in the Pooling
Agreement for the New Issuance of investor certificates or Purchased
Interests, as the case may be, and the execution and delivery of the related
Series Supplement or Receivables Purchase Agreement, as the case may be, has
been satisfied; and (j) any other conditions specified in any Series
Supplement or Receivables Purchase Agreement, as the case may be. Upon
satisfaction of the above conditions, the Trustee shall execute the Series
Supplement or the Receivables Purchase Agreement (and the related certificate
of assignment), as the case may be, and, with respect to a New Issuance of a
Series, issue to the Seller the investor certificates of such new Series for
execution and redelivery to the Trustee for authentication.
Under the Pooling Agreement, the obligation of the Trustee to execute and
deliver all documents in connection with the extension of any Receivables
Purchase Agreement or increase in a Purchased Interest is subject to the
satisfaction of certain conditions, which are substantially similar to the
conditions described in the immediately preceding paragraph, except that the
Rating Agency Condition is not required to be satisfied with respect to any
such extension or increase.
LOCK-BOX ACCOUNTS
The Servicer has established and maintains, in the name of the Seller, one
or more bank accounts for the purpose of receiving Collections (each, a "Lock-
Box Account"). The Obligors have been instructed to make payments with respect
to the Receivables only to a Lock-Box Account. On or prior to the second
business day following receipt of payments in any Lock-Box Account, the
Servicer will process such payments by recording the amount of the payment
received from the Obligor and the identity of the Obligor. The Seller and
Servicer have agreed that with respect to Collections on deposit in the Lock-
Box Accounts on any given day, such
30
amounts will not be transferred from the Lock-Box Accounts (except to the
Collection Account) until such Collections have been processed. If a Servicer
Default occurs and is continuing, the Trustee may or, at the direction of (a)
the holders of investor certificates evidencing more than 50% of the aggregate
unpaid principal amount of any Series of investor certificates or (b) any
Purchaser Agent, shall deliver to each Lock-Box bank a notice transferring the
exclusive dominion and control over the Lock-Box Accounts to the Trustee. The
Seller and Servicer may at any time establish alternative collection
procedures which do not require the use of the Lock-Box Accounts with the
consent of each Purchaser Agent and any provider of Enhancement and upon
satisfaction of the Rating Agency Condition; no consent of any investor
certificateholder of any Series will be required in connection with
establishment of such alternative collection procedures.
COLLECTION ACCOUNT
The Servicer has established and maintains with the Trustee for the benefit
of the investor certificateholders of each Series and the Purchasers, in the
name of the Trustee, on behalf of the Trust and each Purchaser, an Eligible
Deposit Account bearing a designation clearly indicating that the funds
deposited therein are held for the benefit of the investor certificateholders
and the Purchasers (the "Collection Account"). "Eligible Deposit Account"
means either (a) a segregated account with an Eligible Institution or (b) a
segregated trust account with the corporate trust department of a depository
institution organized under the laws of the United States or any one of the
states thereof, including the District of Columbia (or any domestic branch of
a foreign bank), and acting as a trustee for funds deposited in such account,
so long as any of the securities of such depository institution shall have a
credit rating from each Rating Agency in one of its generic credit rating
categories which signifies investment grade. "Eligible Institution" means a
depository institution organized under the laws of the United States or any
one of the states thereof which at all times (a) has (i) a long-term unsecured
debt rating of A2 or better by Moody's Investors Service, Inc. ("Moody's"),
(ii) a certificate of deposit rating or short-term unsecured debt rating of P-
1 by Moody's or (iii) any other credit rating acceptable to Moody's, (b) has
(i) a certificate of deposit rating or short-term unsecured debt rating of A-
1+ by Standard & Poor's Corporation ("Standard & Poor's"), (ii) a long-term
unsecured debt rating of AAA by Standard & Poor's or (iii) any other credit
rating acceptable to Standard & Poor's and (c) is a member of the Federal
Deposit Insurance Corporation or any successor ("FDIC"). The Collection
Account will initially be maintained with The Chase Manhattan Bank. If, at any
time, the Collection Account ceases to be an Eligible Deposit Account, the
Collection Account shall be moved so that it will again be qualified as an
Eligible Deposit Account.
Funds in the Collection Account generally will be invested in securities,
instruments, security entitlements and other investment property with respect
to (i) obligations fully guaranteed by the United States, (ii) demand
deposits, time deposits or certificates of deposit of depository institutions
or trust companies incorporated under the laws of the United States or any
state thereof (or domestic branches of foreign banks) and subject to
supervision and examination by federal or state banking or depository
institution authorities; provided that at the time of the Trust's investment
or contractual commitment to invest therein, the short-term debt of such
depository institution or trust company shall be in the highest rating
category from each Rating Agency, (iii) commercial paper having, at the time
of the Trust's investment therein, a rating in the highest rating category
from each Rating Agency, (iv) demand deposits, time deposits and certificates
of deposits which are fully insured by the FDIC, (v) notes or bankers'
acceptances issued by any depository institution or trust company described in
(ii) above, (vi) investments in money market funds rated in the highest rating
category from, or otherwise approved in writing by, each Rating Agency, (vii)
time deposits with an entity the commercial paper of which has a credit rating
from each Rating Agency in its highest rating category and (viii) any other
investments approved in writing by each Rating Agency (collectively, "Eligible
Investments"). Such Eligible Investments will be held by the Trustee through a
securities intermediary (as defined in Article 8 of the UCC) and shall be
credited to a securities account (as defined in Article 8 of the UCC) of the
Trustee. Any earnings (net of losses and investment expenses) on such
investments will be paid to the Seller except as otherwise specified in any
Series Supplement or Receivables Purchase Agreement. Subject to the Pooling
Agreement, the Servicer will have the power to withdraw funds from the
Collection Account and to instruct the Trustee to make withdrawals and
payments from the Collection Account for the purpose of carrying out its
duties under the Pooling Agreement, the Series Supplements and the Receivables
Purchase Agreements.
31
DEPOSITS IN COLLECTION ACCOUNT
Except as otherwise provided below, the Servicer is required to cause all
Collections received by it, including Collections deposited to Lock-Box
Accounts, to be deposited into the Collection Account within two business days
following receipt thereof. CSX Transportation, as Servicer, currently makes
deposits to the Collection Account in accordance with this paragraph.
Subject to the express terms of any Series Supplement or Receivables
Purchase Agreement, however, at any time that CSX Transportation (i) is the
Servicer under the Pooling Agreement and (ii) maintains a short-term unsecured
debt rating of at least A-1 by Standard & Poor's and P-1 by Moody's and for
five business days following any reduction or withdrawal of either such
rating, or as otherwise permitted by the Rating Agencies and each Purchaser
Agent or, with respect to purchaser allocable collections related to any
Purchased Interest, as otherwise permitted by the related Receivables Purchase
Agreement, CSX Transportation may use for its own benefit all Collections
received with respect to the Receivables during the preceding fiscal month
(each, a "Due Period") until not later than 12:00 noon, New York City time, on
the business day immediately preceding each Distribution Date (each, a
"Transfer Date"), at which time CSX Transportation will deposit all such
Collections, to the extent described below, into the Collection Account, and
the Servicer will make the deposits and payments to the accounts and parties
described herein on the Distribution Date following the date of such deposit.
A Distribution Date (a "Distribution Date") is the 25th day of a calendar
month or, if such day is not a business day, the next succeeding business day.
See "Series Provisions--Distributions". The Servicer currently does not meet
the conditions under clause (ii) above.
Whether the Servicer is required to make deposits of Collections pursuant to
the first or the second preceding paragraph, but subject to the limitations
with respect to withdrawals from the Collection Account described below, (i)
the Servicer will only be required to deposit Collections into the Collection
Account up to the aggregate amount of Collections required to be deposited
into an account established for any Series or any Purchased Interest or,
without duplication, distributed on or prior to the related Distribution Date
to investor certificateholders of any Series, to Purchasers (or any Purchaser
Agent) or to the issuer of any Enhancement pursuant to the terms of any Series
Supplement, Receivables Purchase Agreement or Enhancement agreement and (ii)
if at any time prior to such Distribution Date the amount of Collections
deposited in the Collection Account exceeds the amount required to be
deposited pursuant to clause (i) above, the Servicer will be permitted to
withdraw such excess from the Collection Account.
On the day any such deposit is made into the Collection Account, the
Servicer will withdraw from the Collection Account and pay to the Seller the
Seller's allocable portion of Series Allocable Collections with respect to
each Series and purchaser allocable collections with respect to each Purchased
Interest as specified in the related Receivables Purchase Agreement, provided
that such amount shall be paid to the Seller only if (after giving effect to
any new Receivables transferred to the Trust on such day) (a) the Net Series
Pool Balance with respect to each Series shall be at least 100% of the
Required Net Series Pool Balance for such Series and (b) the Net Purchaser
Pool Balance with respect to each Purchased Interest shall be at least 100% of
the Required Net Purchaser Pool Balance for such Purchased Interest.
"Net Series Pool Balance" means, as of the time of determination thereof,
with respect to any Series, the Net Receivables Pool Balance multiplied by the
Series Allocation Percentage for such Series.
"Required Net Series Pool Balance" means, at any time, for any Series, 100%
of the sum of the Series Adjusted Invested Amount, Yield Reserve and Fee
Reserve for such Series at such time; provided, that if the Series Supplement
with respect to any Series so designates, the amount, if any, by which the
Initial Invested Amount exceeds the Invested Amount of such Series shall be
deducted from the Required Net Series Pool Balance.
"Net Purchaser Pool Balance" means, as of the time of determination thereof,
with respect to any Purchased Interest, the Net Receivables Pool Balance
multiplied by the Purchaser Allocation Percentage for such Purchased Interest.
32
"Required Net Purchaser Pool Balance" means, at any time, for any Purchased
Interest, 103% of the sum of the Purchaser Adjusted Invested Amount, Yield
Reserve and Fee Reserve for such Purchased Interest at such time.
"Net Receivables Pool Balance" means, as of the time of determination
thereof, the Outstanding Balance of the Receivables in the Trust reduced by
the sum of, without duplication (i) the aggregate Outstanding Balance of
Defaulted Receivables and Receivables that are not Eligible Receivables in the
Trust as of the last day of the preceding Due Period and (ii) the aggregate
amount by which the Outstanding Balance of all Receivables of any Obligor and
its affiliated Obligors, if any, in the Trust as of the last day of the
preceding Due Period exceeds the Concentration Limit for such Obligor and its
affiliated Obligors, if any; provided that for the purpose of calculating
whether the Net Series Pool Balance exceeds the Required Net Series Pool
Balance and whether the Net Purchaser Pool Balance exceeds the Required Net
Purchaser Pool Balance (except with respect to the determination of amounts to
be held in the Collection Account as Unallocated Collections as described
under "Series Provisions--Unallocated Collections"), Net Receivables Pool
Balance shall be increased by the aggregate amount of Unallocated Collections.
"Outstanding Balance" of any Receivable at any time means the then
outstanding balance thereof after deduction for any netting, set-offs or other
similar arrangements with the Obligor.
"Defaulted Receivable" means any Receivable (a) as to which payment thereof
remains unpaid for 91 days or more from the bill date for such Receivable; (b)
as to which the Obligor thereof has taken any action, or suffered any event to
occur, of the type constituting an Insolvency Event; or (c) which has not been
written off as uncollectible but which, consistent with the Credit and
Collection Policy, should be written off as uncollectible.
"Concentration Limit" means, with respect to any Obligor and its affiliated
Obligors, if any, 2.5% of the aggregate Outstanding Balance of the Receivables
in the Trust or, such other percentage, not to equal or exceed 10%, as the
Servicer may designate for such Obligor subject to the Rating Agency
Condition; provided, however, that with respect to any Obligor and its
affiliated Obligors, if any, for which a higher "Special Concentration Limit"
is specified pursuant to any Receivables Purchase Agreement, "Concentration
Limit" means such Special Concentration Limit for such Obligor only.
INTRA-MONTH DISTRIBUTIONS
If all Collections and Miscellaneous Payments, including those allocable to
the Purchasers for any Due Period, are being retained in the Collection
Account and not otherwise released, distributions may be made from the
Collection Account to Purchasers at the direction of the Servicer to the
extent the Purchased Interests are entitled to receive distributions pursuant
to the Receivables Purchase Agreement during any Due Period prior to the
determination of the Series Allocation Percentages and purchaser allocation
percentages for such Due Period as follows:
(i) an amount equal to the accrued and unpaid yield (as defined in the
related Receivables Purchase Agreement) for such Due Period may be
distributed to Purchasers at any time during such Due Period; and
(ii) unless an Amortization Event has occurred and is continuing,
additional amounts may also be distributed to Purchasers as payments of
their Invested Amount to the extent that the aggregate amount distributed
with respect to any Due Period under this clause (ii), together with any
amounts distributed under clause (i) with respect to any Purchased
Interest, do not exceed 90% of the product of the estimated purchaser
allocation percentage for such Due Period and the Collections and
Miscellaneous Payments received with respect to such Due Period. The
estimated purchaser allocation percentage for any Due Period is the
purchaser allocation percentage from the prior Due Period adjusted for any
increases or decreases in the Purchaser Adjusted Invested Amount or the
Trust Adjusted Invested Amount due to the issuance of any new Series of
investor certificates or the purchase or sale of any Purchased Interest.
33
Any amounts distributed to the Purchasers as described above will be
subtracted from amounts otherwise distributable to Purchasers, and any
overpayment will be credited against future amounts due to the Purchasers.
MASTER TRUST ALLOCATIONS
Collections and Miscellaneous Payments. Pursuant to the Pooling Agreement,
during each Due Period the Servicer will allocate to each outstanding Series
its Series Allocable Collections and Series Allocable Miscellaneous Payments,
and to each Purchased Interest, its purchaser allocable collections and
purchaser allocable miscellaneous payments.
"Series Allocable Collections" and "Series Allocable Miscellaneous Payments"
mean, with respect to any Series and any Due Period, the product of (a) the
Series Allocation Percentage for such Series and such Due Period and (b)(i)
the sum for such Due Period of (x) the amount of Collections of Receivables
received by the Servicer and (y) the amount of Collections of Receivables
deposited in the Collection Account by the banks holding the Lock-Box Accounts
and (ii) the amount of Miscellaneous Payments for such Due Period,
respectively.
"Series Allocation Percentage" means, with respect to any Series and any Due
Period, the percentage equivalent (not more than 100%) of a fraction, the
numerator of which is the Series Adjusted Invested Amount for such Series and
such Due Period and the denominator of which is the Trust Adjusted Invested
Amount for such Due Period.
"Miscellaneous Payments" means, with respect to any Due Period, the sum of
(a) Adjustment Payments and Transfer Deposit Amounts deposited in the
Collection Account with respect to such Due Period and (b) Unallocated
Collections with respect to such Due Period available to be treated as
Miscellaneous Payments pursuant to the Pooling Agreement.
"Series Adjusted Invested Amount" means, with respect to any Series and any
Due Period, the sum of (a) the Initial Invested Amount specified in the Series
Supplement for such Series (the "Initial Invested Amount") and (b) the
Available Subordinated Amount, if any, of such Series for such Due Period
specified in the related Series Supplement; provided, however, that (i) upon
and after the occurrence of an amortization event or the commencement of the
accumulation period with respect to such Series and until (A) the Invested
Amount of such Series has been paid in full or (B) the Sale Date for such
Series has occurred, the Series Adjusted Invested Amount for such Series and
any Due Period will be the sum of the Initial Invested Amount for such Series
and the Available Subordinated Amount, if any, for such Series, in each case
as in effect as of the close of business on the business day preceding the
occurrence of such event; and (ii) if during any Due Period the Invested
Amount of any Series is reduced to zero or funds are deposited in the Series
account for any Series sufficient to pay all amounts which will be accrued and
unpaid with respect to the investor certificates of such Series on the
Distribution Date following such Due Period, plus the unpaid principal balance
of the investor certificates of such Series and any amounts payable to any
Enhancement provider (other than the Seller) with respect to such Series, then
the Series Adjusted Investment Amount for such Series and such Due Period will
be zero.
"Trust Adjusted Invested Amount" means, with respect to any Due Period, the
sum of (a) the aggregate Series Adjusted Invested Amounts for all outstanding
Series and (b) the aggregate Purchased Adjusted Invested Amounts for all
Purchased Interests.
"Invested Amount" means with respect to any Series and date, an amount equal
to (a) the Initial Invested Amount of such Series minus (b) the amount of
principal payments made to investor certificateholders of that Series prior to
such date, minus (c) the Principal Funding Account Balance for such Series and
such date and minus (d) the aggregate amount of any Investor Charge-Offs, or
such other amount as is specified in the Series Supplement for such Series.
34
"Purchaser Adjusted Invested Amount" means, with respect to any Purchased
Interest and any Due Period, the sum of (a) the daily weighted average of the
invested amount specified in the related Receivables Purchase Agreement of
such Purchased Interest in effect at the end of each day during such Due
Period and (b) the loss reserve of such Purchased Interest for such Due Period
specified in such Receivables Purchase Agreement; provided, however, that (i)
upon and after the occurrence of any Event of Termination with respect to such
Purchased Interest, and until the Invested Amount of such Purchased Interest
has been paid in full or the Sale Date for such Purchased Interest has
occurred, the Purchaser Adjusted Invested amount for such Purchased Interest
and any Due Period shall be calculated based on the sum of the invested amount
of such Purchased Interest and the loss reserve for such Purchased Interest,
in each case as in effect as of the close of business on the business day
preceding the occurrence of such event of termination and (ii) if during any
Due Period the invested amount of any Purchased Interest is reduced to zero or
funds are deposited in the purchaser account for such Purchased Interest
sufficient to pay all amounts which will be accrued and unpaid with respect to
such Purchased Interest at the maturity of such Purchased Interest, plus the
unpaid principal balance of such Purchased Interest, then the Purchaser
Adjusted Invested Amount for such Purchased Interest and such Due Period shall
be zero.
Series Allocable Collections and Series Allocable Miscellaneous Payments
allocated to any Series of Investor Certificates as described above will be
further allocated between the Certificateholders' Interest of that Series and
the Seller's Interest as described below under "Series Provisions--Allocations
Among Investor Certificateholders and the Seller"; and Collections and
Miscellaneous Payments allocated to any other Series of investor certificates
or any Purchased Interest will be further allocated between the
certificateholders' interest of that Series or the Purchasers of that
Purchased Interest, as the case may be, and the Seller as provided in the
related Series Supplement or Receivables Purchase Agreement.
Charged-Off Amounts. Receivables will be charged off as uncollectible in
accordance with CSX Transportation's customary and usual policies and
procedures. Charged-Off Amounts with respect to each Due Period will be
allocated to each Series on the basis of such Series' Investor Ownership
Percentage (as of the end of the Due Period preceding the date of computation)
to determine such Series' Investor Allocable Charged-Off Amounts, and to each
Purchased Interest on the basis of such Purchased Interest's purchaser
ownership percentage (as of the end of the Due Period preceding the date of
computation), to determine such Purchased Interest's purchaser allocable
charged-off amounts; provided, however, that after an amortization event with
respect to any Series or an event of termination with respect to any Purchased
Interest, Charged-Off Amounts arising from Receivables that were Defaulted
Receivables on the date on which such amortization event or event of
termination occurred will not be allocated to such Series or Purchased
Interest.
"Charged-Off Amount" means, with respect to any Due Period, an amount (not
less than zero) equal to (a) the amount of Receivables which became Charged-
Off Receivables in such Due Period, minus (b) the sum of (i) the amount of
Recoveries received in such Due Period and (ii) the amount of any Charged-Off
Receivables of which the Seller or the Servicer became obligated to accept
reassignment or assignment in accordance with the terms of the Pooling
Agreement for such Due Period; provided, however, that, if an Insolvency Event
occurs with respect to the Seller or the Servicer, the amount of such Charged-
Off Receivables which are subject to assignment or reassignment, as the case
may be, to such Person in accordance with the terms of the Pooling Agreement
shall not be added to the amount in clause (b) above unless such assignment or
reassignment has occurred and required payments to the Trust, if any, have
been made to the extent provided in the Pooling Agreement.
"Charged-Off Receivable" means any Receivable which, consistent with the
Credit and Collection Policy, has been or should have been charged off as
uncollectible.
"Investor Allocable Charged-Off Amount" means, with respect to any Series
and any Due Period, the product of the Investor Ownership Percentage for such
Series and such Due Period and the Charged-Off Amount for such Due Period.
35
"Investor Ownership Percentage" means, with respect to any Series and any
Due Period, the percentage equivalent (not more than 100%) of a fraction, the
numerator of which is the Invested Amount for such Series as of the last day
of such Due Period and the denominator of which is the Pool Balance as of the
last day of such Due Period.
"Pool Balance" means, as of the time of determination thereof, the aggregate
outstanding balance of Receivables in the Trust at such time.
SUSPENSION OF REINVESTMENT
The Pooling Agreement provides that in the event that the Net Series Pool
Balance with respect to any Series is no longer equal to or greater than 100%
of the Required Net Series Pool Balance for such Series, the Seller will, and
will direct the Servicer to, suspend reinvestment by each Purchaser, if any,
under each Receivables Purchase Agreement and distribute purchaser allocable
collections allocated to the Purchasers pursuant to such agreements to the
extent available, unless and until the Net Series Pool Balance with respect to
each Series is equal to or greater than 100% of the Required Net Series Pool
Balance for such Series.
SERIES PROVISIONS
GENERAL
The Investor Certificates of each Series will be issued pursuant to the
Amended and Restated Pooling and Servicing Agreement (the "Pooling
Agreement"), and a Series Supplement thereto relating to such Investor
Certificates, among the Seller, as seller of the Receivables, CSX
Transportation, as servicer, and the Trustee and each substantially in the
form filed as exhibits to the Registration Statement of which this Prospectus
is a part. Pursuant to the Pooling Agreement, the Seller may enter into Series
Supplements with the Trustee from time to time in order to issue additional
Series or direct the Trustee to enter into Receivables Purchase Agreements in
order to cause the Trust to sell Purchased Interests. See "Master Trust
Provisions--New Issuances; Other Modifications". The Trustee will provide a
copy of the Pooling Agreement (without exhibits or schedules), including any
Series Supplements or Receivables Purchase Agreements, to Investor
Certificateholders upon written request. The following summary describes
certain terms of the Investor Certificates and is qualified in its entirety by
reference to the Pooling Agreement and the Series Supplement therefor.
Unless the Prospectus Supplement with respect to a Series specifies that
Investor Certificates will be in definitive form, the Investor Certificates of
each Series will initially be represented by one or more Investor Certificates
registered in the name, of the nominee of DTC (together with any successor
depository selected by the Seller, the "Depository"), except as set forth
below. The Investor Certificates of each Series will be available for purchase
in minimum denominations of $1,000 and in integral multiples thereof in book-
entry form or in such other denomination and form as is specified in the
related Prospectus Supplement. The Seller has been informed by DTC that DTC's
nominee will be Cede. See "The Pooling Agreement Generally--Book-Entry
Registration" and "--Definitive Certificates".
The Investor Certificates of each Series will evidence undivided beneficial
interests in the Trust Assets allocated to the Investor Certificateholders of
that Series, representing the right to receive from such Trust Assets funds up
to (but not in excess of) the amounts required to make payments of interest on
such Investor Certificates and the payment of the Invested Amount thereof on
the Expected Final Payment Date therefor or such other date or dates as may be
specified in the related Prospectus Supplement for the payment of principal
thereof, or earlier or later under certain circumstances.
INTEREST
Interest will accrue on the unpaid principal amount of each Series of
Investor Certificates from the date and at the rate per annum specified in, or
determined as specified in, the related Prospectus Supplement (with respect
36
to any Series of Investor Certificates, the "Certificate Rate") and, except as
otherwise provided herein, will be distributed to the Certificateholders of
such Series on each Interest Payment Date therefor specified in such
Prospectus Supplement; provided that, if an Amortization Event shall have
occurred with respect to such Series, interest shall thereafter be distributed
to Investor Certificateholders of such Series on each Special Payment Date.
Interest due with respect to the Investor Certificates of any Series on any
Interest Payment Date will accrue from and including the preceding applicable
Interest Payment Date or, in the case of the first Interest Payment Date, from
and including the Series issuance date, to but excluding such Interest Payment
Date, and will be calculated on the basis of a 360-day year of twelve 30-day
months (for fixed rate Investor Certificates) or the actual number of days
elapsed divided by 360 (for floating rate Investor Certificates), unless
otherwise provided in the related Prospectus Supplement. Interest with respect
to such Investor Certificates due but not paid on any Payment Date will be due
on the next succeeding Payment Date with additional interest on such amount at
the applicable Certificate Rate to the extent permitted by law.
PRINCIPAL
Except to the extent that the related Prospectus Supplement specifies
earlier principal payment dates, no principal payments will be made to the
Certificateholders of any Series of Investor Certificates until the Expected
Final Payment Date for such Series or, upon the occurrence of an Amortization
Event as described herein, until the first Special Payment Date.
On each Distribution Date with respect to the Revolving Period for any
Series of Investor Certificates, Collections of Receivables allocable to the
Certificateholders' Interest of such Series that are not required to pay
interest or pay the Monthly Servicing Fee, in each case for such Series,
subject to certain limitations, will either be (a) allocated to one or more
Series which are in amortization, early amortization or accumulation periods
to cover principal payments due to the investor certificateholders of any such
Series or (b) if no such Series is then amortizing or accumulating principal,
paid to the Seller to maintain the Certificateholders' Interest or held as
Unallocated Collections. See "--Unallocated Collections".
Unless and until an Amortization Event with respect to a Series of Investor
Certificates shall have occurred and until the Invested Amount of such Series
is paid in full, on each Distribution Date with respect to the Accumulation
Period for such Series or, if the related Prospectus Supplement specifies such
Series will have an amortization period, on each Distribution Date with
respect to the amortization period for such Series, Collections of Receivables
allocable to the Certificateholders' Interest of such Series not needed to
make required payments of interest or to pay the Monthly Servicing Fee, in
each case for such Series, will no longer be paid for the benefit of another
Series or to any Purchaser or to the Seller as described above but instead an
amount thereof, not in excess of the Invested Amount of such Series or such
other amount as shall be specified in such Prospectus Supplement, will be
deposited in the Principal Funding Account therefor. See "--Principal Funding
Account". The funds deposited in such Principal Funding Account will be used
to pay the Invested Amount of such Series of Investor Certificates on the
Expected Final Payment Date or such other date or dates as shall be specified
in such Prospectus Supplement. If on such Expected Final Payment Date the
Principal Funding Account Balance for such Series is less than the Invested
Amount thereof, the Early Amortization Period will commence and on each
Special Payment Date the Certificateholders of such Series will receive
distributions of Monthly Principal and Monthly Interest until the Invested
Amount of such Series has been paid in full or the Series Sale Date has
occurred. Even if the Principal Funding Account Balance with respect to such
Series is insufficient to pay the Invested Amount of such Series in full on
the Expected Final Payment Date therefor, such balance will be distributed to
the Certificateholders of such Series at such time.
It is expected that the final principal payment with respect to the Investor
Certificates of each Series will be made on the Expected Final Payment Date
therefor, but the principal of the Investor Certificates of any Series may be
paid earlier or, depending on the actual payment rate on the Receivables and
the amount of available Excess Collections during the Accumulation Period or
amortization period therefor, later, as described under "Risk Factors--
Payments".
37
In the event of an optional repurchase of the Certificateholders' Interest
of any Series by the Seller, a sale of a portion of the Receivables in
connection with the Sale Date with respect to any Series of Investor
Certificates or a reassignment of the Certificateholders' Interest of any
Series in connection with a breach by the Seller of certain representations
and warranties (each as described under "--Amortization Events", "--Optional
Termination; Final Payment of Principal" or "The Pooling Agreement Generally--
Termination of the Trust" and "--Representations and Warranties"),
distributions of principal will be made to the Investor Certificateholders of
the applicable Series upon surrender of their Investor Certificates.
ALLOCATIONS BETWEEN INVESTOR CERTIFICATEHOLDERS AND THE SELLER
The Servicer will allocate for each Due Period a portion of the amounts
initially allocated to each Series offered hereby as described above under
"Master Trust Provisions--Master Trust Allocations" between the
Certificateholders' Interest of such Series and the Seller's Interest.
Series Allocable Collections and Series Allocable Miscellaneous Payments for
any Series of Investor Certificates and any Due Period will be allocated to
the Investor Certificates of that Series based on the Investor Allocation
Percentage for that Series. The Investor Allocation Percentage will be
determined as set forth below except to the extent that the Series Supplement
with respect to any Series specifies a modification in the manner of
determining such Investor Allocation Percentage. Amounts of such Series
Allocable Collections and Series Allocable Miscellaneous Payments not
allocated to the Investor Certificateholders of that Series will be allocated
to the Seller.
"Investor Allocation Percentage" means, with respect to any Series of
Investor Certificates and any Due Period, the percentage equivalent (not more
than 100%) of a fraction, the numerator of which is (a) the sum of the
Invested Amount of such Series for such Due Period and the Available
Subordinated Amount, if any, the Yield Reserve and the Fee Reserve, in each
case for such Due Period and such Series and the denominator of which is (b)
the product of the Net Receivables Pool Balance for such Due Period multiplied
by the Series Allocation Percentage for such Series and Due Period; provided,
however, that (i) the Investor Allocation Percentage for the first Due Period
for any Series shall be the percentage specified in the related Prospectus
Supplement and (ii) with respect to any Due Period in the Accumulation Period
or an Early Amortization Period with respect to such Series, the Investor
Allocation Percentage for such Series shall be the percentage equivalent (not
more than 100%) of a fraction, the numerator of which is (a) the sum of the
Invested Amount of such Series as of the day immediately preceding the day on
which such Accumulation Period or Early Amortization Period commences, the
Available Subordinated Amount, if any, the Yield Reserve and the Fee Reserve,
in each case for such Series as of the Due Period immediately preceding the
Due Period in which the Accumulation Period or Early Amortization Period
commences and the denominator of which is (b) the product of the Net
Receivables Pool Balance for the Due Period in respect of which the Investor
Allocation Percentage for such Series is being calculated and the Series
Allocation Percentage for the Due Period in respect of which the Investor
Allocation Percentage is being calculated.
"Seller's Percentage" means, with respect to any Due Period, 100% minus the
Investor Allocation Percentage for such Due Period.
"Available Subordinated Amount" means, with respect to any Series and any
Due Period, the sum of (a) the amount obtained by dividing the Subordination
Percentage by one minus the Subordination Percentage and multiplying the
result by the sum of (i) the Invested Amount of such Series as of the last day
of the immediately preceding Due Period, (ii) the Yield Reserve with respect
to such Due Period, and (iii) the Fee Reserve with respect to such Due Period
and (b) the Outstanding Balance of Over Concentrated Receivables for such
Series as of the last day of the immediately preceding Due Period; provided,
however, that the Available Subordinated Amount for the first Due Period for
any Series shall be the amount specified in the related Prospectus Supplement.
38
"Subordination Percentage" means, with respect to any Due Period, the
greater of (i) a percentage as determined in the related Prospectus Supplement
and (ii) the sum of the Dilution Percentage and the Loss Percentage.
"Yield Reserve" means, with respect to any Series and Due Period, an amount
equal to the product of (i) the greater of (a) a percentage as specified in
the related Prospectus Supplement and (b) a fraction, the numerator of which
is the average days sales outstanding for the Receivables for the preceding
Due Period and the denominator of which is 365, (ii) the outstanding principal
balance of the Investor Certificates of such Series as of the last day of the
immediately preceding Due Period and (iii) the Certificate Rate of such
Series.
"Fee Reserve" means, with respect to any Series and Due Period, an amount
equal to the product of (i) a fraction, the numerator of which is two times
the average days sales outstanding for the Receivables for the preceding Due
Period and the denominator of which is 365, and (ii) the Monthly Servicing Fee
for such Series times twelve.
"Loss Percentage" means, with respect to any Series and Due Period, the
product of (a) 2.5, (b) the greatest three Due Period rolling average
Delinquency Percentage for the twelve prior Due Periods, and (c) the Default
Horizon Ratio for such Due Period, provided that the Loss Percentage for the
first Due Period for any Series shall be the percentage specified in the
related Prospectus Supplement.
"Default Horizon Ratio" means, with respect to any Series and Due Period,
the ratio (expressed as a percentage) computed by dividing (i) the aggregate
amounts payable pursuant to invoices giving rise to Receivables that were
generated during the four Due Periods immediately preceding such Due Period by
(ii) the Net Receivables Pool Balance as of the last day of such Due Period.
"Delinquency Percentage" means with respect to any Series and Due Period the
ratio (expressed as a percentage) computed by dividing (i) the sum of the
amount of Receivables which, as of the last day of such Due Period, are unpaid
and are more than 210 but less than 240 days past their billing date and the
amount of Receivables which became Charged-Off Receivables during such Due
Period and which were less than 240 days past their billing date at the time
such Receivables became Charged-Off Receivables by (ii) the aggregate amounts
payable pursuant to invoices giving rise to Receivables that were generated
during the eighth Due Period preceding such Due Period.
"Dilution Horizon Ratio" means, at any time, the ratio (expressed as a
percentage) computed by dividing (i) the aggregate amounts payable pursuant to
invoices giving rise to Receivables that were generated during the prior Due
Period by (ii) the Net Receivables Pool Balance as of the last day of the
prior Due Period.
"Dilution Percentage" means, with respect to any Series and Due Period, the
result (expressed as a percentage) calculated in accordance with the following
formula:
{(2.5 x ADR) + [(HDR-ADR) X (HDR/ADR)]} X Dilution Horizon Ratio
where:
HDR = the highest Dilution Ratio for any of the prior 12 consecutive Due
Periods
ADR = the average of the Dilution Ratios for the prior 12 consecutive Due
Periods
"Dilution Ratio" means, with respect to any Due Period, the ratio (expressed
as a percentage) computed as of the last day of a Due Period by dividing (i)
the aggregate amount by which the Pool Balance was reduced during such Due
Period on account of certain adjustments described under "Series Provisions--
Investor Charge-Offs; Rebates and Adjustments", excluding any such adjustments
attributable to Receivables which are unpaid and more than 210 days past their
billing date by (ii) the aggregate amounts payable pursuant to invoices giving
rise to Receivables that were generated during the Due Period prior to the Due
Period for which the Dilution Ratio is calculated.
39
"Over Concentrated Receivables" means, as of any date, with respect to any
Series, the Series Allocation Percentage of the sum determined by adding,
without duplication, for each Obligor and its affiliated Obligors, if any, for
which the Special Concentration Limit established pursuant to a Receivables
Purchase Agreement exceeds what would otherwise be the Concentration Limit,
the Outstanding Balance of Receivables for such Obligor and its affiliated
Obligors, if any, minus the sum of (a) the amount, if any, by which the
Outstanding Balance of Receivables for such Obligor and its affiliated
Obligors, if any, exceeds such Special Concentration Limit and (b) 2.5% (or
any other higher percentage provided that the Rating Agency Condition has been
satisfied) of the Outstanding Balance of the Receivables in the Trust.
UNALLOCATED COLLECTIONS
Collections allocated to the Certificateholders' Interest of any Series for
any Due Period will first be allocated to make required payments of interest
for such Series, to pay the Monthly Servicing Fee for such Series and then,
during the Accumulation Period or Early Amortization Period or, if the related
Prospectus Supplement so specifies, the amortization period with respect to
that Series, be allocated to make required payments to the Principal Funding
Account for such Series. See "--Application of Available Investor
Collections". The Servicer will determine the amount of Available Investor
Collections with respect to each Series of Investor Certificates for any Due
Period remaining after such required payments and the amount of any similar
excess for any other Series or Purchased Interest ("Excess Collections"). The
Servicer will, on any Distribution Date, allocate Excess Collections to a
particular Series to the extent the Invested Amount for such Series exceeds
the Monthly Principal to be distributed for such Distribution Date
("Shortfalls") and apply such Excess Collections as Available Investor
Collections. If Shortfalls exceed Excess Collections for any Due Period,
Excess Collections will be allocated pro rata among the applicable Series
based on the relative amounts of Shortfalls. To the extent that Excess
Collections exceed Shortfalls, the balance will be paid to the Seller if
(after giving effect to such payment and any Receivables transferred to the
Trust on such date) (a) the Net Series Pool Balance with respect to each
Series shall be at least 100% of the Required Net Series Pool Balance for such
Series and (b) the Net Purchaser Pool Balance with respect to each Purchased
Interest shall be at least 100% of the Required Net Purchaser Pool Balance for
such Purchased Interest, in each case as of the last day of the immediately
preceding Due Period (after giving effect to the allocations, distributions,
withdrawals and deposits to be made on the Distribution Date immediately
following such Due Period). Any amount not paid to the Seller as a result of
the limitation in the preceding sentence shall be held in the Collection
Account unallocated ("Unallocated Collections") until such time as (1) the Net
Series Pool Balance with respect to each Series is at least 100% of the
Required Net Series Pool Balance for such Series and (2) the Net Purchaser
Pool Balance with respect to each Purchased Interest is at least 100% of the
Required Net Pool Balance for such Purchased Interest (at which time such
amount will be paid to the Seller to the extent permitted by such proviso) or
until any Series enters its accumulation period, amortization period or early
amortization period or any Purchased Interest commences liquidation (after
which such amount will be treated as a Series Allocable Miscellaneous Payment
or purchaser allocable miscellaneous payment, as applicable).
DETERMINATION OF MONTHLY INTEREST
The amount of monthly interest for each Series ("Monthly Interest")
distributable from the Collection Account with respect to the Investor
Certificates of that Series on any Distribution Date will be an amount equal
to one-twelfth (or such other fraction as may be specified in the related
Prospectus Supplement) of the product of (i) the Certificate Rate of that
Series and (ii) the outstanding principal balance of the Investor Certificates
of that Series as of the close of business on the preceding Distribution Date
(after giving effect to all distributions of Monthly Principal on such
preceding Distribution Date).
On or about the earlier of the fifth business day and the eighth calendar
day preceding each Distribution Date preceding each Payment Date for a Series
of Investor Certificates, the Servicer will determine the excess, if any (the
"Interest Shortfall"), of (x) the aggregate Monthly Interest for the Interest
Period applicable to such Payment Date over (y) the aggregate amount of funds
allocated and available to pay such Monthly Interest on such Payment Date. If
the Interest Shortfall for that Series with respect to any Payment Date is
greater than zero,
40
an additional amount ("Additional Interest") equal to one-twelfth (or such
other fraction as may be specified in the related Prospectus Supplement) of
the product of (i) the Certificate Rate for that Series and (ii) such Interest
Shortfall (or the portion thereof which has not been paid to Investor
Certificateholders of that Series) will be payable, to the extent permitted by
applicable law, with respect to the Investor Certificates of that Series on
each Payment Date following such Payment Date until such Interest Shortfall is
paid to Certificateholders.
PAYMENTS TO SELLER
The Servicer shall withdraw from the Collection Account and pay to the
Seller on each day on which a deposit of Collections is made to the Collection
Account an amount equal to the Seller's Percentage for the related Due Period
of Series Allocable Collections for each Series of Investor Certificates
deposited in the Collection Account on such day unless either (i) such amount
has been netted against deposits to the Collection Account or (ii) the Net
Series Pool Balance for such Series is less than 100% of the Required Net
Series Pool Balance for such Series.
APPLICATION OF AVAILABLE INVESTOR COLLECTIONS
By written request specifying all the distributions to be made, the Servicer
shall cause the Trustee to apply, on each Distribution Date, Allocable
Collections and Allocable Miscellaneous Payments with respect to any Series of
Investor Certificates and the preceding Due Period that were allocated to the
Certificateholders' Interest of that Series, as well as Excess Collections
with respect to that Series on deposit in the Collection Account
(collectively, with respect to any Series, "Available Investor Collections")
to make the following distributions unless the Prospectus Supplement for such
Series specifies otherwise:
(i) an amount equal to Monthly Interest for such Series and such
Distribution Date, plus the amount of any Monthly Interest with respect to
such Series previously due but not paid for such Series on a prior
Distribution Date, plus the amount of any Additional Interest for such
Series and such Distribution Date and any Additional Interest for such
Series previously due but not paid for such Series on a prior Distribution
Date, shall be distributed to the Paying Agent for such Series for payment
to the Certificateholders of such Series;
(ii) an amount equal to the Monthly Servicing Fee for such Series and the
preceding Due Period shall be distributed to the Servicer (unless such
amount has been netted against deposits to the Collection Account)
provided, however, that during the Early Amortization Period, if CSX
Transportation Inc. is Servicer, then such Monthly Servicing Fee shall be
distributed only after the required distributions set forth in clause (iii)
immediately below have been made;
(iii) on any Distribution Date with respect to the Accumulation Period or
an Early Amortization Period for such Series, the remaining balance of such
Available Investor Collections ("Monthly Principal") shall be deposited by
the Servicer or the Trustee into the Principal Funding Account for such
Series; provided that, except for Excess Collections applied as Available
Investor Collections, the amount so deposited shall not exceed Monthly
Investor Principal with respect to such Distribution Date; and
(iv) the balance, if any, shall constitute Excess Collections and shall
be allocated and distributed as described under "--Unallocated
Collections".
PRINCIPAL FUNDING ACCOUNTS
The Servicer will establish and maintain with the Trustee in the name of the
Trustee, on behalf of the Trust, an Eligible Deposit Account for the benefit
of the Investor Certificateholders of each Series (each, a "Principal Funding
Account"). On each Distribution Date with respect to the Accumulation Period
or Early Amortization Period, or, if the related Prospectus Supplement so
specifies, the amortization period with respect to a Series of Investor
Certificates, Monthly Principal will be deposited in the Principal Funding
Account for such Series as described above under "Principal".
41
All amounts on deposit in the Principal Funding Account for any Series will
be invested from the date of deposit by the Trustee at the direction of the
Servicer in Eligible Investments that will mature so that such funds will be
available at the close of business on the Transfer Date preceding the
following Distribution Date. Any such Eligible Investments will be held by the
Trustee through a securities intermediary (as defined in Article 8 of the UCC)
and shall be credited to a securities account (as defined in Article 8 of the
UCC) of the Trustee. On each Distribution Date all interest and other
investment earnings (net of losses and investment expenses) earned on such
investments shall be paid to the Seller. As used herein "Principal Funding
Account Balance" means, with respect to the Principal Funding Account for any
Series of Investor Certificates, the principal amount, if any, on deposit
therein, excluding, however, reinvested interest and funds other than
Collections and Miscellaneous Payments deposited in such account.
DISTRIBUTIONS
Payments to Investor Certificateholders of each Series with respect to
interest will be made from the Collection Account or, if so specified in the
related Prospectus Supplement, from the Principal Funding Account in the event
of a defeasance of such Series. Payments to Investor Certificateholders of
each Series with respect to principal will be made from the Principal Funding
Account for such Series. Unless otherwise specified in the related Prospectus
Supplement, the Servicer shall instruct the Trustee to apply the funds on
deposit in either the Collection Account or the Principal Funding Account for
any Series of Investor Certificates and shall instruct the Trustee or the
Paying Agent to make the following distributions from such Accounts:
(a) On each Payment Date with respect to such Series, the Paying Agent
will distribute to the Investor Certificateholders of record of such Series
on the related Record Date (other than as provided in the Pooling Agreement
with respect to a final distribution) such Investor Certificateholder's pro
rata share of the amounts that are allocated and available on such Payment
Date to pay interest based on the principal amount of the Investor
Certificates of such Series held by them; and
(b) On each Special Payment Date and the Expected Final Payment Date with
respect to such Series, all amounts on deposit in the Principal Funding
Account for such Series will be distributed to the Certificateholders of
record of such Series on the related Record Date (other than as provided in
the Pooling Agreement with respect to a final distribution) pro rata based
on the principal amount of the Certificates of such Series held by them.
The paying agent (the "Paying Agent") shall initially be The Chase Manhattan
Bank. The Paying Agent shall have the revocable power to withdraw funds from
the Funding Accounts for the purpose of making distributions to Investor
Certificateholders.
INVESTOR CHARGE-OFFS; REBATES AND ADJUSTMENTS
If on any Distribution Date, the Investor Allocable Charged-Off Amount with
respect to any Series of Investor Certificates for the preceding Due Period
determined as described above under "Master Trust Provisions--Master Trust
Allocations--Charged-Off Amounts" exceeds the Loss Reserve for such Series, as
specified in the Prospectus Supplement related to such Series, and the
preceding Due Period, the Invested Amount of that Series will be reduced by
the amount of such excess (an "Investor Charge-Off"). Any reduction in the
Invested Amount of a Series resulting from Investor Charge-Offs will have the
effect of reducing the return of principal to Investor Certificateholders of
that Series.
If on any day the Outstanding Balance of a Receivable is reduced as a result
of any defective, rejected or returned merchandise, insurance or services or
any cash discount, is reduced or canceled as a result of a setoff or netting
in respect of any claim by the Obligor thereof (whether such claim arises out
of the same or a related transaction or an unrelated transaction) or the
Servicer makes any adjustment thereto as a result of a rebate, refund or
billing error, then the Pool Balance will be reduced by the amount of such
reduction, cancellation or adjustment.
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In the event that, after giving effect to the reduction of the Pool Balance
on any day in accordance with the immediately preceding paragraph, either (i)
the Net Series Pool Balance with respect to any Series is less than 100% of
the Required Net Series Pool Balance for such Series or (ii) the Net Purchaser
Pool Balance with respect to any Purchased Interest is less than 100% of the
Required Net Purchaser Pool Balance for such Purchased Interest, then not
later than 12:00 noon, New York City time, on the business day following such
day, or, if the Servicer is permitted to make deposits of Collections on the
Transfer Date rather than daily, then on the Transfer Date following the Due
Period in which such adjustment obligation arises, the Seller is required to
deposit in the Collection Account in immediately available funds an amount (an
"Adjustment Payment") equal to the lesser of (x) the amount of the reduction
of the Pool Balance effected pursuant to the immediately preceding paragraph
and (y) the amount that, if added to the Net Receivables Pool Balance, would
result in the Net Series Pool Balance for each Series being not less than 100%
of the Required Net Series Pool Balance for such Series and the Net Purchaser
Pool Balance for each Purchased Interest being not less than 100% of the
Required Net Purchaser Pool Balance for such Purchased Interest, in each case
on the day on which such adjustment obligation arises.
AMORTIZATION EVENTS
As described above, to the extent specified in the Prospectus Supplement for
a Series of Investor Certificates, the Revolving Period with respect thereto
will continue until the commencement of the Accumulation Period therefor,
which will continue until the Invested Amount of such Series has been paid in
full, unless an Amortization Event occurs prior to any such dates. An
"Amortization Event" refers to any of the following events:
(a) failure on the part of the Seller or CSX Transportation (i) to make
any payment or deposit required under the Pooling Agreement, the
Receivables Sale Agreement, any Series Supplement or any Receivables
Purchase Agreement within two business days after the date such payment or
deposit is required to be made; or (ii) to observe or perform any other
covenants or agreements of the Seller or CSX Transportation set forth in
the Pooling Agreement, the Receivables Sales Agreement, any Series
Supplement or any Receivables Purchase Agreement, which failure has a
material adverse effect on the investor certificateholders of any Series or
any Purchased Interest and which continues unremedied for a period of 30
days after written notice;
(b) any representation or warranty made by the Seller in the Pooling
Agreement, any Series Supplement or any Receivables Purchase Agreement or
by CSX Transportation in the Receivables Sale Agreement proves to have been
incorrect in any material respect when made and continues to be incorrect
in any material respect for a period of 30 days (or, with respect to
certain representations and warranties made under the Pooling Agreement,
such longer period as may be agreed to by the Trustee and each Purchaser
Agent) after written notice and as a result of which the interests of the
investor certificateholders of any Series or any Purchaser are materially
and adversely affected; provided, however, that such an Amortization Event
shall not be deemed to occur if the Seller has repurchased the related
Receivables or the Certificateholders' Interests of the certificateholders
or the Purchased Interests, as applicable, in all the Receivables, if
applicable, during such period in accordance with the provisions of the
Pooling Agreement;
(c) the occurrence of certain events of bankruptcy, insolvency or
receivership (an "Insolvency Event") with respect to the Seller, any holder
of the Seller Certificate or CSX Transportation;
(d) the Trust becomes an "investment company" within the meaning of the
Investment Company Act of 1940;
(e) CSX Transportation fails to convey Receivables to the Seller pursuant
to the Receivables Sale Agreement as required thereby or the Seller fails
to convey Receivables to the Trust pursuant to the Pooling Agreement;
(f) the Required Net Series Pool Balance with respect to any Series shall
exceed the Net Series Pool Balance for such Series;
43
(g) a Servicer Default shall occur and be continuing;
(h) a termination notice terminating the Servicer is delivered to the
Servicer pursuant to the Pooling Agreement following the occurrence of a
Servicer Default;
(i) the Invested Amount of such Series shall not be paid in full on the
Expected Final Payment Date therefor; or
(j) with respect to any Series, any other Amortization Event specified in
the Prospectus Supplement related thereto.
In the case of any such event other than those described in clauses (c),
(d), (e), (f), (h) and (i) an Amortization Event with respect to any Series or
Purchased Interest will be deemed to have occurred only if, after the
applicable grace period described in such clauses, if any, the Trustee or
investor certificateholders holding investor certificates evidencing more than
50% of the aggregate unpaid principal amount of the investor certificates of
any Series or the Purchaser Agent on behalf of the Purchaser of any Purchased
Interest, in each case to which such event relates, by notice to the Seller
and the Servicer (and to the Trustee, if given by the investor
certificateholders or a Purchaser Agent) declare that an Amortization Event
has occurred with respect to such Series or Purchased Interest as of the date
of such notice. In the case of any event described in clause (c), (d) and (h),
an Amortization Event will be deemed to have occurred with respect to all
outstanding Series and Purchased Interests without any notice or other action
on the part of the Trustee, the investor certificateholders of any Series or
any Purchaser Agent immediately upon the occurrence of such event. In the case
of any event described in clause (e) or (f), an Amortization Event with
respect to all Series and Purchased Interests will be deemed to have occurred
10 days after the Seller becomes aware of or receives notice of such event
without any notice or other action on the part of the Trustee or the investor
certificateholders or any Purchaser Agent. The early amortization period with
respect to any Series of Investor Certificates will commence at the close of
business on the business day immediately preceding the date on which an
Amortization Event occurs with respect to such Series. Monthly distributions
of principal to the Investor Certificateholders of any Series as to which an
Amortization Event has occurred will begin on the first Special Payment Date
(which will be the first Distribution Date following the Due Period in which
the Early Amortization Period commenced). Any amounts on deposit in a
Principal Funding Account for any such Series at such time will be distributed
on such first Special Payment Date to the Investor Certificateholders of such
Series.
In addition to the consequences of an Amortization Event discussed above, if
an Insolvency Event occurs with respect to the Seller or the holder of the
Seller's Certificate, pursuant to the Pooling Agreement, on the day such
Insolvency Event occurs, the Seller will immediately cease to transfer
Receivables to the Trust and promptly give written notice to the Trustee and
each Purchaser Agent of such event. In a bankruptcy proceeding, however, the
trustee-in-bankruptcy may have the power to continue to require the Seller to
transfer new Receivables to the Trust. In addition, pursuant to the
Receivables Sale Agreement, the Seller, as purchaser thereunder, shall not
continue to purchase Purchased Assets from CSX Transportation upon the filing
against either the Seller or CSX Transportation of certain federal tax or
ERISA liens, as described under "Description of the Receivables--Sale
Agreement Sale of Receivables." Such event could lead to an Amortization Event
under the Pooling Agreement.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer's compensation for its servicing activities and reimbursement
for its expenses is a monthly servicing fee (the "Servicing Fee") with respect
to each Series of Investor Certificates, payable in arrears on each
Distribution Date in respect of any Due Period (or portion thereof) occurring
prior to the earlier of the first Distribution Date following the Sale Date
with respect to such Series and the first Distribution Date on which the
Invested Amount of such Series is zero, in an amount equal to one-twelfth of
the product of (a) .25%, (b) the Pool Balance as of the last day of the Due
Period immediately preceding such Distribution Date and (c) the Series
Allocation Percentage for such Due Period and such Series or, in the case of
the first Distribution Date for such Series, the Servicing Fee specified in
the related Prospectus Supplement. The Servicer will receive a similar
Servicing Fee in respect of each Purchased Interest and any other Series of
investor certificates.
44
The share of the Servicing Fee for any Series allocable to the Investor
Certificateholders of such Series with respect to any Due Period (the "Monthly
Servicing Fee") will be equal to the product of (a) the Servicing Fee for such
Series and (b) a fraction, the numerator of which is (i) the Invested Amount
of such Series as of the last day of such Due Period and the denominator of
which is (ii) the product of the Net Receivables Pool Balance as of the last
day of such Due Period multiplied by the Series Allocation Percentage for such
Series and such Due Period. The Monthly Servicing Fee will be paid on each
Distribution Date with respect to each Due Period from the Collection Account
(unless such amount has been netted against deposits to the Collection
Account) as described under "--Application of Available Investor Collections".
The Servicer will pay from its own funds, without reimbursement, all
expenses incurred in connection with servicing the Receivables, including
expenses related to enforcement of the Receivables, payment of fees and
disbursements of the Trustee and independent accountants and all other fees
and expenses that are not expressly stated in the Pooling Agreement, any
Supplement or any Receivables Purchase Agreement to be payable by the Trust or
the Seller, other than federal, state, local and foreign income and franchise
taxes, if any, or any interest or penalties with respect thereto, of the
Trust.
RECORD DATE
Payments on the Investor Certificates of each Series will be made as
described herein and the related Prospectus Supplement to the Investor
Certificateholders in whose names the Investor Certificates of that Series
were registered (expected to be Cede, as nominee of DTC) at the close of
business on the last day of the calendar month preceding the date of such
payment (each a "Record Date"). However, the final payment on the Investor
Certificates will be made only upon presentation and surrender of the Investor
Certificates. Unless otherwise specified in the related Prospectus Supplement,
distributions will be made to DTC in immediately available funds. See "The
Pooling Agreement Generally--Book-Entry Registration".
OPTIONAL TERMINATION; FINAL PAYMENT OF PRINCIPAL
On any Distribution Date occurring on or after the date that the Invested
Amount of any Series of Investor Certificates is reduced to 10% (or such lower
percentage as may be specified in the related Prospectus Supplement) or less
of the initial aggregate principal amount of the Investor Certificates of that
Series, the Seller will have the option to repurchase the Certificateholders'
Interest of that Series. Unless a different price is specified in the
Prospectus Supplement for any Series of Investor Certificates, the purchase
price will be equal to the sum of the Invested Amount of such Series plus
accrued and unpaid interest on the unpaid principal amount of the Investor
Certificates of such Series (and accrued and unpaid interest with respect to
interest amounts that were due but not paid on a prior Interest Payment Date
or Special Payment Date) through the day preceding such Distribution Date at
the Certificate Rate for such Series. Following any such repurchase, the
Certificateholders of such Series will have no further rights with respect to
the Receivables. In the event that the Seller fails for any reason to deposit
the aggregate purchase price for the Certificateholders' Interest of any
Series, payments would continue to be made to the Certificateholders of such
Series.
In any event, the last payment of principal and interest on the Investor
Certificates of any Series will be due and payable not later than the sale
date therefor (a "Sale Date") specified in the related Prospectus Supplement.
In the event that the Invested Amount of a Series is greater than zero on its
Sale Date, the Trustee will sell or cause to be sold interests in the
Receivables in an amount, subject to certain limitations, equal to the sum of
(i) 110% of the Invested Amount of such Series at the close of business on the
Sale Date therefor and (ii) the Available Subordinated Amount, if any, with
respect to such Series on the preceding Distribution Date. The net proceeds of
such sale will be deposited in the Collection Account and allocated to the
Investor Certificateholders of such Series, as provided in the Pooling
Agreement and the related Series Supplement.
REPORTS
No later than the fourth business day prior to each Distribution Date, the
Servicer will, with respect to each Series of Investor Certificates, deliver
to the Trustee, the Paying Agent and each Rating Agency a statement (a
45
"Monthly Report") prepared by the Servicer setting forth certain information
with respect to the Trust and the Investor Certificates of such Series (unless
otherwise indicated), including (a) with respect to the Receivables: as
specified in the Series Supplement and (b) with respect to the Investor
Certificates of such Series: (i) the Invested Amount for such Series and such
Distribution Date, (ii) the amount of the Monthly Interest for such Series and
such Distribution Date and, during the Accumulation Period or any Early
Amortization Period or amortization period, the amount of Monthly Principal
for such Series and such Distribution Date, (iii) the amount on deposit in
each of the Funding Accounts for such Series on such Distribution Date, (iv)
the Available Subordinated Amount, if any, for such Series and the related Due
Period and (v) the amount, if any, of Investor Charge-Offs for such Series and
such Distribution Date.
On each Interest Payment Date or Special Payment Date for each Series of
Investor Certificates (including the Expected Final Payment Date therefor), as
the case may be, the Monthly Report will include the following additional
information with respect to the Investor Certificates of such Series: (a) the
total amount distributed; (b) the amount of such distribution allocable to
principal of the Investor Certificates of such Series; (c) the amount of such
distribution allocable to interest on the Investor Certificates of such
Series; and (d) the amount, if any, by which the unpaid principal balance of
the Investor Certificates of such Series exceeds the Invested Amount thereof
as of the Record Date with respect to such Interest Payment Date or Special
Payment Date, as the case may be. On each Distribution Date, the Paying Agent,
on behalf of the Trustee, will forward to each Investor Certificateholder of
any Series of record a copy of the Monthly Report with respect to such Series.
On or before January 31 of each year, the Paying Agent, on behalf of the
Trustee, will furnish (or cause to be furnished) to each person who at any
time during the preceding year was an Investor Certificateholder of record a
statement containing the information required to be provided by an issuer of
indebtedness under the Code for such preceding year or the applicable portion
thereof during which such person was an Investor Certificateholder, together
with such other customary information as is necessary to enable the Investor
Certificateholders to prepare their tax returns. See "Certain Federal Income
Tax Consequences" and "State Tax Consequences".
LIST OF INVESTOR CERTIFICATEHOLDERS
At such time, if any, as Definitive Certificates have been issued, upon
written request of any investor certificateholder or group of investor
certificateholders of record of any Series or all outstanding Series, as the
case may be, holding investor certificates evidencing not less than 10% of the
aggregate unpaid principal amount of the investor certificates of such Series
or all outstanding Series, as the case may be, the Trustee will afford such
investor certificateholders access during normal business hours to the current
list of investor certificateholders of such Series or all outstanding Series,
as the case may be, for purposes of communicating with other investor
certificateholders with respect to their rights under the Pooling Agreement,
any Series Supplement or the investor certificates. See "The Pooling Agreement
Generally--Book-Entry Registration" and "--Definitive Certificates".
The Pooling Agreement does not provide for any annual or other meetings of
Investor Certificateholders of any Series.
46
THE POOLING AGREEMENT GENERALLY
BOOK-ENTRY REGISTRATION
Unless the Prospectus Supplement for any Series specifies that Certificates
of such Series shall be in definitive rather than book-entry form, Investor
Certificateholders of such Series may hold their Investor Certificates through
DTC if they are participants of such system, or indirectly through
organizations which are participants in such system.
Cede, as nominee for DTC, will be the registered holder of the global
Investor Certificates. No Investor Certificateholder will be entitled to
receive a certificate representing such person's interest in the Investor
Certificates. Unless and until Definitive Certificates are issued under the
limited circumstances described below, all references herein to actions by
Investor Certificateholders shall refer to actions taken by DTC upon
instructions from its Participants, and all references herein to
distributions, notices, reports and statements to Investor Certificateholders
shall refer to distributions, notices, reports and statements to Cede, as the
registered holder of the Investor Certificates, for distribution to Investor
Certificateholders in accordance with DTC procedures.
Transfers between DTC participants will occur in the ordinary way in
accordance with DTC rules.
DTC is a limited-purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the UCC and a "clearing agency" registered pursuant to
the provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participating organizations ("Participants") and facilitate
the clearance and settlement of securities transactions between Participants
through electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants
include underwriters, securities brokers and dealers, banks, trust companies
and clearing corporations and may include certain other organizations.
Indirect access to the DTC system also is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants").
Investor Certificateholders that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of,
or other interests in, Investor Certificates may do so only through
Participants and Indirect Participants. In addition, Investor
Certificateholders will receive all distributions of principal of and interest
on the Investor Certificates from the Paying Agent, initially The Chase
Manhattan Bank, or the Trustee through DTC and its Participants. Under a book-
entry format, Investor Certificateholders will receive payments after the
related Interest Payment Date, Expected Final Payment Date or Special Payment
Date, as the case may be, because, while payments are required to be forwarded
to Cede, as nominee for DTC, on each such date, DTC will forward such payments
to its Participants which thereafter will be required to forward them to
Indirect Participants or Investor Certificateholders. It is anticipated that
the only "Investor Certificateholder" (as such term is used in the Pooling
Agreement and any Series Supplement) will be Cede, as nominee of DTC, and that
Investor Certificateholders will not be recognized by the Trustee as "Investor
Certificateholders" under the Pooling Agreement or any Series Supplement.
Investor Certificateholders will only be permitted to exercise the rights of
Investor Certificateholders under the Pooling Agreement and any Series
Supplement indirectly through DTC and its Participants which in turn will
exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Investor Certificates
and is required to receive and transmit distributions of principal of and
interest on the Investor Certificates. Participants and Indirect Participants
with which Investor Certificateholders have accounts with respect to the
Investor Certificates similarly are required to make book entry transfers and
receive and transmit such payments on behalf of their respective Investor
Certificateholders.
Because DTC can only act on behalf of Participants, which in turn and on
behalf of Indirect Participants and certain banks, the ability of an Investor
Certificateholder to pledge Investor Certificates to persons or entities
47
that do not participate in the DTC system, or otherwise take actions in
respect of such Investor Certificates, may be limited due to the lack of a
physical certificate for such Investor Certificates.
DTC has advised the Seller and the Trustee that it will take any action
permitted to be taken by an Investor Certificateholder under the Pooling
Agreement or any Series Supplement only at the direction of one or more
Participants, to whose account with DTC the Investor Certificates are
credited. Additionally, DTC has advised the Seller and the Trustee that it
will take such actions with respect to specified percentages of
Certificateholders' Interest only at the direction of and on behalf of
Participants whose holdings include undivided interests that satisfy such
specified percentages. DTC may take conflicting actions with respect to other
undivided interests to the extent that such actions are taken on behalf of
Participants whose holdings include such undivided interests.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of Investor Certificates among participants of DTC, they are under
no obligation to perform or continue to perform such procedures and such
procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
Unless otherwise specified in the Prospectus Supplement for any Series, the
Investor Certificates of such Series will be issued in fully registered,
certificated form to Investor Certificateholders of such Series or their
respective nominees ("Definitive Certificates"), rather than to DTC or its
nominee, only if (i) the Seller advises the Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as
Depository with respect to such Series, and the Trustee or the Seller is
unable to locate a qualified successor, (ii) the Seller, at its option, elects
to terminate the book-entry system with respect to such Series through DTC or
(iii) after the occurrence of a Servicer Default, Investor Certificateholders
of such Series evidencing not less than 50% of the aggregate unpaid principal
amount of the Investor Certificates of such Series advise the Trustee and DTC
through Participants in writing that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in the best interests of the
Investor Certificateholders of such Series.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates of such Series. Upon
surrender by DTC of the Definitive Certificates representing the Investor
Certificates of such Series, and instructions for re-registration, the Trustee
will issue such Investor Certificates in the form of Definitive Certificates,
and thereafter the Trustee will recognize the holders of such Definitive
Certificates as "Investor Certificateholders" of such Series, under the
Pooling Agreement and the related Series Supplement ("Holders").
If Definitive Certificates are issued, distribution of principal and
interest on the Definitive Certificates will be made by the Paying Agent or
the Trustee directly to the Holders in whose names the Definitive Certificates
were registered on the related Record Date in accordance with the procedures
set forth herein and in the Pooling Agreement and the related Series
Supplement. Distributions will be made by check mailed to the address of each
Holder as it appears on the register maintained by the Trustee, except that
the final payment on any Definitive Certificate will be made only upon
presentation and surrender of such Definitive Certificate on the date for such
final payment at such office or agency as is specified in the notice of final
distribution to Holders. The Trustee will provide such notice to Holders not
later than the fifth day of the month of the final distribution.
Definitive Certificates will be transferable and exchangeable at the offices
of the Transfer Agent and Registrar, which shall initially be The Chase
Manhattan Bank. No service charge will be imposed for any registration of
transfer or exchange, but the Transfer Agent and Registrar may require payment
of a sum sufficient to cover any tax or other governmental charge imposed in
connection therewith.
SELLER'S INTEREST
The Pooling Agreement provides that, except for the conveyances under the
Pooling Agreement and under the Receivables Purchase Agreements or in
connection with any merger transaction permitted by the Pooling
48
Agreement (as described below), the Seller will not transfer, assign, exchange
or otherwise convey or pledge, hypothecate or otherwise grant a security
interest in the Seller's Interest represented by the Seller's Certificate
unless (i) the instruments or agreements effectuating such transfer explicitly
state that the interest being transferred is subject to all rights and
interests of the investor certificateholders, each Purchaser, each Purchaser
Agent, any provider of Enhancement and the Trustee under the Pooling
Agreement, each Series Supplement, each Receivables Purchase Agreement and any
Enhancement agreement, and that the interest being transferred is subject to
the rights of such parties to the extent provided in each of such agreements;
(ii) the Seller shall have obtained and delivered to the Trustee a Tax Opinion
with respect to such transfer; and (iii) the Rating Agency Condition shall
have been satisfied with respect to such transfer.
The Pooling Agreement provides that the Seller will not consolidate with or
merge into any other corporation or convey or transfer its properties and
assets substantially as an entirety to any person unless: (i) the corporation
formed by such consolidation or into which the Seller is merged or the person
which acquires by conveyance or transfer the properties and assets of the
Seller substantially as an entirety shall be organized and existing under the
laws of the United States and shall expressly assume, in form satisfactory to
the Trustee and each Purchaser Agent, the performance of every covenant and
obligation of the Seller under the Pooling Agreement, each Series Supplement
and each Receivables Purchase Agreement; (ii) the Rating Agency Condition
shall have been satisfied with respect to such consolidation, merger,
conveyance or transfer; and (iii) the Seller shall have delivered to the
Trustee, each Rating Agency and each provider of Enhancement, a Tax Opinion,
dated the date of such consolidation, merger, conveyance or transfer, with
respect thereto.
TERMINATION OF TRUST
The Trust will terminate on December 31, 2013. Upon termination of the
Trust, all right, title and interest in the Receivables and other funds of the
Trust (other than amounts in the accounts maintained by the Trust for the
final payment of principal and interest to holders of investor certificates)
will be conveyed and transferred to the Seller.
CONVEYANCE OF RECEIVABLES
Pursuant to the Pooling Agreement, the Seller has sold and assigned to the
Trust all of the Seller's interest in all Receivables existing on December 18,
1992, and all Receivables thereafter created from time to time and purchased
by the Seller pursuant to the Receivables Sale Agreement, all collateral
security with respect thereto and the proceeds of all of the foregoing. The
Receivables sold to the Trust by the Seller were previously sold to the Seller
by CSX Transportation.
CSX Transportation, in the Receivables Sale Agreement, and the Seller, in
the Pooling Agreement, have agreed to, at the expense of CSX Transportation or
the Seller, as applicable, undertake such reasonable actions as may be
necessary to indicate to any creditor of CSX Transportation or the Seller, as
the case may be, that the Receivables have been conveyed, and the collateral
security assigned, in the case of CSX Transportation, to the Seller in
accordance with the Receivables Sale Agreement and, in the case of the Seller,
to the Trust in accordance with the Pooling Agreement for the benefit of the
investor certificateholders and the Purchasers; provided that neither CSX
Transportation nor the Seller is required to mark its master data processing
records to reflect such sales. CSX Transportation, as initial Servicer, will
retain and not deliver to the Trustee any records or agreements relating to
the Contracts or the Receivables. Except as set forth above, the records and
the agreements related to the Receivables will not be segregated from any
other records of CSX Transportation. CSX Transportation and the Seller each
has filed and is required to file UCC financing statements with respect to the
transfer of an ownership or security interest in the Receivables to the Trust
meeting the requirements of applicable state law. See "Risk Factors--Certain
Legal Aspects" and "Certain Legal Aspects of the Receivables".
49
REMOVAL OF OBLIGORS
The Pooling Agreement and the Receivables Sale Agreement may be amended to
provide for the removal by CSX Transportation and the Seller of Obligors (but
only with respect to future arising Receivables) upon satisfaction of the
following conditions: (a) on or before the tenth business day preceding the
date of such amendment, the Seller shall have given the Trustee, each
Purchaser Agent, the Servicer, each Rating Agency (if any rated investor
certificates are outstanding) and each provider of Enhancement written notice
of such amendments; (b) the Seller shall have delivered to the Trustee and
each Purchaser Agent the related amendments, in form satisfactory to the
Trustee and each Purchaser Agent, executed by each party to the Pooling
Agreement and the Receivables Sale Agreement other than the Trustee; (c) the
Seller shall have delivered to the Trustee any related Enhancement agreement
executed by each of the parties thereto other than the Trustee; (d) the Rating
Agency Condition shall have been satisfied with respect to such amendments;
(e) such amendments will not result in the occurrence of an Amortization
Event, event of termination under a Receivables Purchase Agreement or an event
that would constitute an Amortization Event or such an event of termination
but for the requirement that notice be given or time elapse or both, and the
Seller shall have delivered to the Trustee, each Purchaser Agent and each
provider of Enhancement a certificate of an authorized officer, dated the date
of such amendments, to the effect that the Seller reasonably believes that
such amendments will not have an Adverse Effect and are not reasonably
expected to have an Adverse Effect at any time in the future; (f) the Seller
shall have delivered to the Trustee, each Rating Agency (if any rated investor
certificates are outstanding) and each provider of Enhancement a Tax Opinion,
dated the date of such amendments, with respect to such amendments; and (g)
such other conditions as are set forth in such amendments.
REPRESENTATIONS AND WARRANTIES
As of the Closing Date for each Series and Purchased Interest, the Seller
will make representations and warranties to the Trust relating to the
Receivables to the effect, among other things, that as of such Closing Date,
(a) each Receivable and all other Trust Assets have been conveyed to the Trust
free and clear of any lien; (b) all authorizations, consents, orders or
approvals of or registrations or declarations with any governmental authority
required to be obtained, effected or given by the Seller in connection with
the conveyance of each Receivable and all other Trust Assets to the Trust have
been duly obtained, effected or given and are in full force and effect; and
(c) as of the date of the conveyance of any Receivable by the Seller to the
Trust, such Receivable is an Eligible Receivable, subject to certain
exceptions in the case of the initial conveyance of Receivables for "Defaulted
Receivables" and "Overconcentrations". If (i) the Seller breaches any
representation and warranty described in this paragraph with respect to any
Receivable, and such breach has a material adverse effect on the
certificateholders' interest of all Series or the Purchased Interests in any
Receivable (which determination shall be made without regard to whether funds
are then available pursuant to any Enhancement), or (ii) the Seller causes any
Receivable to be evidenced by an instrument (as defined in the UCC), then such
Receivable (an "Ineligible Receivable") will be reassigned to the Seller on
the terms and conditions set forth in the following paragraph.
Ineligible Receivables shall be reassigned to the Seller on or before the
Transfer Date following the Due Period in which such reassignment obligation
arises by the Seller directing the Servicer to deduct, except as described
below, an amount equal to the Outstanding Balance of such Ineligible
Receivables from the Pool Balance. If, following such deduction, either (i)
the Net Series Pool Balance with respect to any Series would be less than 100%
of the Required Net Series Pool Balance for such Series or (ii) the Net
Purchaser Pool Balance with respect to any Purchased Interest would be less
than 100% of the Required Net Purchaser Pool Balance for such Purchased
Interest, in each case on the last day of such Due Period, then, not later
than 12:00 noon New York City time on the day on which such reassignment
occurs, the Seller shall deposit in the Collection Account in immediately
available funds an amount equal to the lesser of (i) the Outstanding Balance
of such Ineligible Receivables and (ii) the amount that, if added to the Net
Receivables Pool Balance, would result in the Net Series Pool Balance with
respect to each Series being at least 100% of the Required Net Series Pool
Balance for such Series and the Net Purchaser Pool Balance with respect to
each Purchased Interest being at least 100% of the Required Net Purchaser Pool
Balance for such Purchased Interest, in each case on the last day of the Due
Period in which such reassignment obligation arises. Any deposit in the
Collection Account in connection with
50
the reassignment of an Ineligible Receivable (the amount of any such deposit
being referred to herein as a "Transfer Deposit Amount") shall be considered a
payment in full of the Ineligible Receivable. If such amount is not deposited
as required, then Ineligible Receivables the Outstanding Balances of which
equal such amount not so deposited shall not be reassigned to the Seller and
shall remain part of the Trust and the Outstanding Balances thereof shall not
be deducted from the Pool Balance. The reassignment of any Ineligible
Receivable to the Seller is the sole remedy respecting any breach of the
representations and warranties or action taken by the Seller described in the
preceding paragraph with respect to such Receivable available to investor
certificateholders of any Series or the Purchasers (or the Trustee on behalf
of such investor certificateholders or the Purchasers) or any provider of
Enhancement.
The Seller will also make representations and warranties to the Trust to the
effect, among other things, that as of each Closing Date for a Series or
Purchased Interest (a) it is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization or
incorporation and has, in all material respects, full corporate power and
authority and legal right to own its properties and conduct its business as
presently owned or conducted, and to execute, deliver and perform its
obligations under the Pooling Agreement, the Receivables Sale Agreement, each
Series Supplement and each Receivables Purchase Agreement; (b) the execution,
delivery and performance of the Pooling Agreement, the Receivables Sale
Agreement, each Series Supplement and each Receivables Purchase Agreement by
the Seller and the execution and delivery to the Trustee of the investor
certificates and the consummation by the Seller of the transactions provided
for in such agreements and certificates have been duly authorized by the
Seller by all necessary corporate action on the part of the Seller; (c) each
of the Pooling Agreement, the Receivables Sale Agreement, each Series
Supplement and each Receivables Purchase Agreement constitutes a valid,
binding and enforceable agreement of the Seller, subject to certain bankruptcy
and equity exceptions; (d) the Pooling Agreement constitutes a valid sale,
transfer and assignment to the Trust of all right, title and interest of the
Seller in the Receivables and all other Trust Assets and the proceeds thereof
or, if the Pooling Agreement does not constitute a sale of such property, the
Seller has taken all reasonable steps necessary for the Pooling Agreement to
constitute a grant of a first priority perfected security interest under the
UCC as in effect in Virginia in such property to the Trust, which is effective
as to each Receivable then existing on such Closing Date or, as to each
Receivable arising thereafter, upon the creation thereof and until termination
of the Trust; and (e) except as otherwise expressly provided in the Pooling
Agreement, any Series Supplement or any Receivables Purchase Agreement,
neither the Seller nor any person claiming through or under the Seller has any
claim to or interest in the Collection Account, any Series Account, any
Purchaser account or any Enhancement. Pursuant to the Receivables Sale
Agreement, CSX Transportation will make representations and warranties to the
Seller as of each Closing Date for a Series or Purchased Interest (i) to the
same effect as the Seller's representations and warranties described in
clauses (a), (b), (c) and (d) of this paragraph, except that such
representations and warranties relate solely to CSX Transportation and the
Receivables Sale Agreement and (ii) to the effect that the Receivables Sale
Agreement constitutes a valid sale, transfer and assignment to the Seller of
all right, title and interest of CSX Transportation in the Receivables and all
other Purchased Assets and the proceeds thereof, which sale, transfer and
assignment was perfected under Florida law. See "Description of the
Receivables Sale Agreement--Representations and Warranties".
In the event that the breach by the Seller or CSX Transportation of any of
their respective representations and warranties described in the preceding
paragraph has a material adverse effect on the certificateholders' interest of
all Series or on the Purchased Interests in the Receivables or the
availability of the proceeds thereof to the Trust (which determination shall
be made without regard to whether funds are available pursuant to any
Enhancement), the Trustee (or the holders of investor certificates evidencing
not less than 50% of the aggregate unpaid principal amount of the investor
certificates of all Series) or any Purchaser Agent, by notice to the Seller
and the Servicer (and to the Trustee if given by the holders of the requisite
percentage of investor certificates of all Series or any Purchaser Agent), may
direct the Seller to accept reassignment of the certificateholders' interest
(in the case of notice from the Trustee or the required amount of
certificateholders) or the Purchased Interests (in the case of a notice from
any Purchaser Agent) in the Receivables if such breach and any material
adverse effect caused by such breach is not cured within 30 days of such
notice, or within such longer period specified in such notice, and upon those
conditions, the Seller will be obligated to accept such reassignment on the
Transfer Date
51
following the Due Period in which such reassignment obligation arises. Such
reassignment will not be required to be made, however, if, at the end of such
applicable period, the representations and warranties shall then be true and
correct in all material respects and any material adverse effect caused by
such breach shall have been cured.
The price for such reassignment will be an amount equal to the amounts
specified therefor with respect to each outstanding Series or Purchased
Interest in the related Series Supplement or Receivables Purchase Agreement.
Unless the related Prospectus Supplement specifies otherwise, the price for
such reassignment with respect to any Series of Investor Certificates will be
equal to the sum of (i) the Invested Amount of such Series on the relevant
Distribution Date, (ii) accrued and unpaid interest on the unpaid balance of
the Investor Certificates of such Series (calculated on the basis of the
outstanding principal balance of the Investor Certificates of such Series and
the related Certificate Rate) through the day preceding said Distribution
Date, (iii) the amount of additional interest, if any, for such Series and
Distribution Date and any additional interest previously due with respect to
such Series but not paid on a prior Distribution Date. The payment of the
reassignment price for all Series, in immediately available funds, will be
considered a payment in full of the certificateholders' interest in all
Receivables and such funds will be treated as Collections and distributed to
investor certificateholders of all Series upon presentation and surrender of
their certificates. If the Trustee, any Purchaser Agent or the investor
certificateholders give a notice as provided above, the obligation of the
Seller to accept such reassignment and to make the deposit described above
will constitute the sole remedy respecting an event of the type specified
above available to the investor certificateholders or the Purchasers (or the
Trustee on behalf of the investor certificateholders and the Purchasers) or
any provider of Enhancement.
"Eligible Receivable" means either (1) each Receivable that satisfies the
Rating Agency Condition or (2) each Receivable: (a) the Obligor of which (or
if there is more than one Obligor with respect thereto, at least one of such
Obligors) has a business office located in the United States or Canada or is
otherwise subject to jurisdiction in United States or Canadian courts and is
not an affiliate of any of the parties to the Pooling Agreement; provided,
that (i) in the event the Standard and Poor's short term currency rating of
Canada falls to A-1 or the Moody's long term rating of Canada's United States
dollar obligations falls to A1, to the extent that the aggregate amount of
Receivables with respect to Obligors domiciled in Canada exceeds 20% of the
Pool Balance, such Receivables shall not be Eligible Receivables and (ii) in
the event the Standard and Poor's short term currency rating of Canada falls
below A-1, the Moody's long term rating of Canada's United States dollar
obligations falls below A1 or the Moody's short term rating of Canada's United
States dollar obligations falls below P1 no Receivable with respect to an
Obligor domiciled in Canada shall be an Eligible Receivable; (b) the Obligor
of such Receivable at the time of its transfer to the Trust is not also the
Obligor of Defaulted Receivables the aggregate amount of which is 10% or more
of the aggregate Outstanding Balance of all Receivables of such Obligor; (c)
which at the time of the transfer to the Trust is not a Defaulted Receivable
or if such Obligor is under the protection of the Bankruptcy Court, such court
shall have approved the payment of such Receivable; (d) which, according to
the Contract related thereto, is required to be paid in full within 60 days of
the billing date therefor; (e) which arose in the ordinary course of business
of CSX Transportation under a Contract; (f) which is an "account" within the
meaning of Section 9-106 of the UCC of the states of the jurisdictions the law
of which governs the perfection of the interest created by a purchase of
Receivables under the Pooling Agreement; (g) which is denominated and payable
either in United States dollars in the United States or in Canadian dollars in
Canada; provided, that (i) so long as the Standard and Poor's short term
currency rating of Canada is A-1 or above, the aggregate Outstanding Balance
of Receivables payable in Canadian dollars shall not exceed 1% of the Pool
Balance without satisfaction of the Rating Agency Condition and (ii) if the
Standard and Poor's short term currency rating of Canada falls below A-1, then
the aggregate Outstanding Balance of Receivables payable in Canadian dollars
shall not exceed 0% of the Pool Balance without satisfaction of the Rating
Agency Condition; (h) which was created in compliance with, and which,
together with the related Contract, does not contravene in any material
respect any applicable requirement of law and with respect to which no party
to the Contract related thereto is in violation of any applicable requirement
of law in any material respect in connection therewith; (i) which satisfies
all applicable requirements of the Credit and Collection Policy; (j) with
respect to which all material consents, licenses, approvals or authorizations
of, or registrations or declarations with, any governmental authority required
to be obtained, effected or given in connection with the
52
creation of such Receivable or the execution, delivery and performance (other
than by the Obligor) of the Contract pursuant to which such Receivable was
created, have been duly obtained, effected or given and are in full force and
effect; (k) as to which, at the time of the transfer of such Receivable to the
Trust, the Seller will have good and marketable title thereto free and clear
of all liens; (l) which has been the subject of either a valid transfer and
assignment from the Seller to the Trust of all the Seller's right, title and
interest therein and in the related collateral security (including any
proceeds thereof) free and clear of all liens, or the grant of a first
priority perfected security interest therein and in the related collateral
security (and in the proceeds thereof), effective until the termination of the
Trust; (m) which will at all times be the legal, valid and binding payment
obligation of the Obligor thereon enforceable against such Obligor in
accordance with its terms, subject to certain bankruptcy and equity
exceptions; (n) which, at the time of transfer to the Trust, has not been
waived or modified except as permitted in the Pooling Agreement or in
accordance with the Credit and Collection Policy and which waiver or
modification is reflected in the Servicer's records and computer files
relating thereto; (o) which, at the time of transfer to the Trust, is not
subject to any right of rescission, set-off, netting (other than netting as
permitted by the Railway Accounting Rules of the Association of American
Railroads), counterclaim or any other defense of the Obligor, other than
certain bankruptcy defenses; (p) as to which, at the time of transfer to the
Trust, the Servicer and CSX Transportation have satisfied all their
obligations under the related Contract required to be satisfied by such time;
(q) as to which, at the time of transfer to the Trust, neither CSX
Transportation nor the Servicer nor any of their respective affiliates have
taken any action which would impair, nor omitted to take any action, the
omission of which would impair, the rights of the Trust, the investor
certificateholders or the Purchasers therein; and (r) which, with respect to
Receivables generated on or after September 30, 1999, is generated, recorded
and processed under the Servicer's Customer Order Processing System, or a
system of similar functionality, which is year 2000 enabled, unless the
failure to so generate, record and process such Receivable would not have an
Adverse Effect.
It is not required or anticipated that the Trustee will make any initial or
periodic general examination of any documents or records related to the
Receivables or the Contracts for the purpose of establishing the presence or
absence of defects, compliance with the Seller's representations and
warranties or for any other purpose. In addition, it is not anticipated or
required that the Trustee will make any initial or periodic general
examination of the Servicer for the purpose of establishing the compliance by
the Servicer with its representations or warranties or the performance by the
Servicer of its obligations under the Pooling Agreement or for any other
purpose.
INDEMNIFICATION
The Pooling Agreement provides that the Servicer will indemnify the Trust,
the Trustee and each Purchaser from and against any loss, liability, expense,
damage or injury suffered or sustained arising out of the Servicer's actions
or omissions with respect to the Trust which violate or fail to comply with
the requirements of the Pooling Agreement, a Series Supplement or a
Receivables Purchase Agreement.
Under the Pooling Agreement, the Seller has agreed to be liable directly to
an injured party for the entire amount of any losses, claims, damages or
liabilities (other than those incurred by an investor certificateholder or by
a Purchaser in the capacity of an investor in the investor certificates or
purchaser of Purchased Interests) arising out of or based on the arrangement
created by the Pooling Agreement and the actions of the Servicer taken
pursuant thereto as though such agreement created a partnership under the New
York Revised Limited Partnership Act in which the Seller was a general
partner. The Seller has agreed to pay, indemnify and hold harmless each holder
of investor certificates of any Series and each Purchaser against and from any
such losses, claims, damages or liabilities except to the extent that they
arise from any action by such holder or Purchaser. The Servicer will indemnify
and hold harmless the Seller for any losses, claims, damages and liabilities
of the Seller as described in this paragraph arising from the actions or
omissions of the Servicer.
Except as provided in the preceding paragraphs and except for certain
indemnification provided to the Trustee, the Pooling Agreement provides that
none of the Seller, the Servicer or any of their directors, officers,
employees or agents, in their capacities as such, will be under any other
liability to the Trust, the Trustee, the holders of investor certificates of
any Series, any Purchaser, any provider of Enhancement or any other person
53
for any action taken, or for refraining from taking any action in good faith
pursuant to the Pooling Agreement. However, none of the Seller, the Servicer
or any of their directors, officers, employees or agents will be protected
against any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence of any such person in the
performance of their duties or by reason of reckless disregard of their
obligations and duties under the Pooling Agreement.
In addition, the Pooling Agreement provides that the Servicer is not under
any obligation to appear in, prosecute or defend any legal action which is not
incidental to its duties as Servicer in accordance with the Pooling Agreement,
a Series Supplement or a Receivables Purchase Agreement. The Servicer may, in
its sole discretion, undertake any such legal action which it may deem
necessary or desirable for the benefit of holders of investor certificates of
any Series and the Purchasers with respect to the Pooling Agreement, a Series
Supplement or a Receivables Purchase Agreement and the rights and duties of
the parties thereto and the interest of investor certificateholders and
Purchasers thereunder.
COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Pooling Agreement, the Servicer will be responsible for
servicing, administering and collecting the Receivables in accordance with
applicable laws, rules and regulations, with reasonable care and diligence,
and in accordance with the Credit and Collection Policy.
The Servicer shall comply with and perform its servicing obligations with
respect to the Receivables in accordance with the Contracts relating to the
Receivables and the Credit and Collection Policy, except insofar as any
failure to comply or perform would not materially and adversely affect the
investor certificateholders of any Series or the Purchasers. Subject to
compliance with all requirements of law, CSX Transportation or the Servicer,
as applicable, may change the terms and provisions of the Credit and
Collection Policy only if (i) with respect to a material change of collection
policies, such change is made with the prior written approval of each
Purchaser Agent and the Rating Agency Condition is satisfied with respect
thereto, (ii) with respect to a material change of collection procedures, such
change is made with prior written notice to each Purchaser Agent and no
Adverse Effect on any Series or Purchased Interest would result and (iii) with
respect to a material change in accounting policies relating to Receivables
that become Charged-Off Receivables, such change is made in accordance with
generally accepted accounting principles or Railway Accounting Rules of the
Association of American Railroads. In addition, provided no amortization
event, Servicer Default or event of termination under a Receivables Purchase
Agreement shall have occurred and be continuing, the Servicer (if CSX
Transportation) may, in accordance with the Credit and Collection Policy,
extend the maturity or adjust the Outstanding Balance of any Defaulted
Receivable, or otherwise modify the terms of any Receivable or amend, modify
or waive any terms or conditions of any Contract related thereto, all as it
may determine to be appropriate to maximize collection thereof.
Servicing activities to be performed by the Servicer include collecting and
recording payments, communicating with Obligors, investigating payment
delinquencies, providing billing and tax records to Obligors and maintaining
internal records with respect to each Obligor. Managerial and custodial
services performed by the Servicer on behalf of the Trust include providing
assistance in any inspections of the documents and records relating to the
Receivables by the Trustee pursuant to the Pooling Agreement, maintaining the
agreements, documents and files relating to the Receivables as custodian for
the Trust and providing related data processing and reporting services for
investor certificateholders of any Series and on behalf of the Trustee.
CSX Transportation in the ordinary course of business may subcontract with
any person for servicing administering or collecting on the Receivables.
Notwithstanding any such delegation to any entity, the Servicer will continue
to be liable for all of its obligations under the Pooling Agreement.
SERVICER COVENANTS
In the Pooling Agreement, the Servicer has covenanted as to each Receivable
that: (a) it will duly satisfy all obligations on its part to be fulfilled
under or in connection with the Receivable and the related Contract, and
54
will maintain in effect all qualifications required under applicable law in
order to service properly the Receivable and will comply in all material
respects with all other requirements of law in connection with servicing the
Receivables, in each case to the extent the failure to do so would have a
material adverse effect on the investor certificateholders, the Purchasers or
any provider of Enhancement; (b) it will not permit any rescission or
cancellation of the Receivable except as ordered by a court of competent
jurisdiction or other governmental authority or in connection with a rebate or
refund or billing error; (c) it will not take any action which, or omit to
take any action the omission of which, would materially impair the rights of
the investor certificateholders of all Series or the Purchasers in any
Receivable or the rights of any provider of Enhancement; (d) it will not
reschedule, revise or defer payments on the Receivable except in accordance
with the Credit and Collection Policy or the provisions of the Pooling
Agreement; and (e) except in connection with its enforcement or collection of
a Receivable, it will take no action to cause any Receivable to be evidenced
by any instrument (as defined in the UCC) and, if any Receivable is so
evidenced, it shall be assigned to the Servicer as provided below.
Under the terms of the Pooling Agreement in the event that any of the
covenants of the Servicer contained in clauses (a) through (e) above with
respect to any Receivable is breached, and such breach has a material adverse
effect on the certificateholders' interest of all Series or the Purchased
Interests in such Receivable (which determination shall be made without regard
to whether funds are then available pursuant to any Enhancement), all
Receivables to which such event relates shall be assigned to the Servicer on
the terms and conditions set forth below. Such assignment will be made on the
Transfer Date following the Due Period in which such assignment obligation
arises by the Servicer making a deposit into the Collection Account in an
amount equal to the Outstanding Balance of such Receivable. The amount of such
deposit shall be deemed a "Transfer Deposit Amount". This assignment to the
Servicer constitutes the sole remedy available to the investor
certificateholders of any Series (or the Trustee on their behalf), the
Purchasers (or the Trustee on their behalf) or any provider of Enhancement if
such covenant or warranty of the Servicer is not satisfied and the Trust's
interest in any such assigned Receivables shall be automatically assigned to
the Servicer.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicer may not resign from its obligations and duties under the
Pooling Agreement, except (a) upon determination (as evidenced by an opinion
of counsel) that (i) such duties are no longer permissible under applicable
law and (ii) there is no reasonable action which the Servicer could take to
make the performance of its duties thereunder permissible under applicable law
or (b) upon the assumption, by an agreement supplemental to the Pooling
Agreement, executed and delivered to the Trustee, in form satisfactory to the
Trustee and each Purchaser Agent, of the obligations and duties of the
Servicer under the Pooling Agreement by any of its affiliates that is a direct
or indirect wholly owned subsidiary of CSX Corporation and that qualifies as
an eligible Servicer. No such resignation will become effective until the
Trustee or a successor to the Servicer has assumed the Servicer's
responsibilities and obligations under the Pooling Agreement.
Any person into which, in accordance with the Pooling Agreement, the
Servicer may be merged or consolidated or any person resulting from any merger
or consolidation to which the Servicer is a party, or any person succeeding to
the business of or the Servicer, will be the successor to the Servicer under
the Pooling Agreement.
SERVICER DEFAULT
In the event any Servicer Default (as defined below) is continuing, either
(i) the Trustee or (ii) investor certificateholders or Purchasers of Purchased
Interests evidencing more than 50% of the aggregate unpaid principal amount of
all outstanding investor certificates and Purchased Interests, by written
notice to the Servicer (and to the Trustee which shall in turn forward copies
to any provider of Enhancement and each Purchaser Agent) (a "Termination
Notice"), may terminate all of the rights and obligations of the Servicer, as
servicer, under the Pooling Agreement. In a bankruptcy proceeding, however,
the trustee-in-bankruptcy may have the power to prevent any such termination
of the rights and obligations of the Servicer.
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The Trustee shall, after giving a Termination Notice, appoint a successor
Servicer (a "Service Transfer"); provided, however, that in so appointing any
successor Servicer the Trustee shall give due consideration to any successor
Servicer proposed by any Purchaser Agent. If no successor Servicer has been
appointed by the Trustee and has accepted such appointment by the time the
Servicer ceases to act as Servicer, all rights, authority, power and
obligations of the Servicer under the Pooling Agreement shall pass to and be
vested in the Trustee. In connection with any Termination Notice, the
servicing compensation paid to any successor Servicer shall not be in excess
of the aggregate Servicing Fees for all Series and Purchased Interests plus
any amounts payable to the Seller or the Servicer pursuant to the terms of any
Enhancement agreement; provided, however, that the Seller shall be responsible
for payment of the Seller's portion of such aggregate Servicing Fees and that
no such monthly compensation paid out of Collections shall be in excess of
such aggregate Servicing Fees. The rights and interest of the Seller under the
Pooling Agreement, any Series Supplement and any Receivables Purchase
Agreement in the Seller's Interest will not be affected by any Termination
Notice or Servicer Transfer.
A "Servicer Default" refers to any of the following events:
(a) failure by the Servicer to make any payment, transfer or deposit, or
to give instructions or to give notice to the Trustee to make such payment,
transfer or deposit, on the date the Servicer is required to do so under
the Pooling Agreement, any Series Supplement or any Receivables Purchase
Agreement, which is not cured within a two-business-day grace period;
(b) failure on the part of the Servicer duly to observe or perform in any
material respect any other covenants or agreements of the Servicer set
forth in the Pooling Agreement, any Series Supplement or any Receivables
Purchase Agreement which has a material adverse effect on the investor
certificateholders of any Series (which determination shall be made without
regard to whether funds are then available pursuant to any Enhancement) or
on any Purchased Interest and which continues unremedied for a period of 30
days after notice, or the Servicer assigns or delegates its duties under
the Pooling Agreement, except as specifically permitted thereunder;
(c) any representation, warranty or certification made by the Servicer in
the Pooling Agreement, any Series Supplement or any Receivables Purchase
Agreement or in any certificate delivered pursuant to the Pooling
Agreement, any Series Supplement or any Receivables Purchase Agreement
proves to have been incorrect when made, which has a material adverse
effect on the rights of the investor certificateholders of any Series
(which determination shall be made without regard to whether funds are then
available pursuant to any Enhancement) or on any Purchased Interest and
which material adverse effect continues for a period of 30 days after
written notice; or
(d) the occurrence of certain events of bankruptcy, insolvency or
receivership with respect to the Servicer.
Notwithstanding the foregoing, a delay in or failure of performance referred
to under clause (a) above for a period of 10 business days or referred to
under clause (b) or (c) for a period of 30 business days, in each case after
the applicable grace period, shall not constitute a Servicer Default if such
delay or failure could not be prevented by the exercise of reasonable
diligence by the Servicer and such delay or failure was caused by an act of
God or other similar occurrence. Upon the occurrence of any such event the
Servicer shall not be relieved from using its best efforts to perform its
obligations in a timely manner in accordance with the terms of the Pooling
Agreement, each Series Supplement and each Receivables Purchase Agreement and
the Servicer shall provide the Trustee, the Seller, each Purchaser Agent, any
provider of Enhancement and the investor certificateholders prompt notice of
such failure or delay by it, together with a description of its efforts to so
perform its obligations.
EVIDENCE AS TO COMPLIANCE
The Pooling Agreement provides that on or before March 31 of each year, the
Servicer will cause a firm of nationally recognized independent public
accountants (who may also render other services to the Servicer or the
56
Seller) to furnish a report to the effect that such firm has examined certain
documents and records relating to the servicing of the Receivables, compared
the information contained in the Servicer's certificates delivered for the
preceding fiscal year with such documents and records and that, on the basis
of such examination and comparison, such firm is of the opinion that such
servicing was conducted in compliance with the applicable provision of the
Pooling Agreement, each Supplement and each Receivables Purchase Agreement
except for such exceptions as such firm shall believe to be immaterial and
such other exceptions as shall be set forth in such statement.
The Pooling Agreement provides that on or before March 31 of each year, the
Servicer will cause a firm of nationally recognized independent public
accountants (who may also render other services to the Servicer or the Seller)
to furnish a report to the effect that such firm has compared the mathematical
calculations of each amount set forth in the Servicer's certificates delivered
for the preceding fiscal year with the Servicer's computer reports which were
the source of such amounts, and that, on the basis of such examination and
comparison, such firm is of the opinion that such amounts are in agreement,
except for such exceptions as such firm shall believe to be immaterial and
such other exceptions as shall be set forth in such statement.
The Pooling Agreement provides for delivery to the Trustee, each Purchaser
Agent, each Rating Agency and each provider of Enhancement on or before March
31 of each year, of a statement signed by an officer of the Servicer to the
effect that the Servicer has, or has caused to be, fully performed its
obligations in all material respects under the Pooling Agreement throughout
the preceding year or, if there has been a default in the performance of any
such obligation, specifying the nature and status of the default.
Copies of all such statements, certificates and reports furnished to the
Trustee may be obtained by a request in writing delivered to the Trustee.
AMENDMENTS
The Pooling Agreement and any Series Supplement may be amended from time to
time by agreement of the Trustee, the Servicer and the Seller without the
consent of the investor certificateholders of any Series or any Purchaser or
Purchaser Agent, provided that such action does not adversely affect the
interests of any investor certificateholder or Purchaser or otherwise have an
Adverse Effect. Neither the Pooling Agreement nor any Series Supplement may be
amended, however, unless the Seller shall have delivered the proposed
amendment to each Purchaser Agent and the Rating Agencies at least 10 business
days prior to execution and delivery thereof.
Any Receivables Purchase Agreement may be amended from time to time by the
parties thereto but without the consent of the investor certificateholders of
any Series, provided that such amendment shall not adversely affect the
interests of certificateholders, as evidenced by an officer's certificate of
the Servicer.
The Pooling Agreement, any Series Supplement or any Receivables Purchase
Agreement may also be amended from time to time by the Seller, the Servicer
and the Trustee with the consent of (a) in the case of the Pooling Agreement
or any Series Supplement, (i) the holders of investor certificates evidencing
not less than 66 2/3% of the aggregate unpaid principal amount of the investor
certificates of all adversely affected Series and (ii) if any Purchased
Interest shall or would be adversely affected, each Purchaser Agent, for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the Pooling Agreement or any Series Supplement or of
modifying in any manner the rights of such certificateholders or the
Purchasers, provided that no such amendment may (w) reduce in any manner the
amount of or delay the timing of any distributions to be made to investor
certificateholders or deposits of amounts to be so distributed or the amount
available under any Enhancement without the consent of each investor
certificateholder affected; (x) change the definition or the manner of
calculating the interest of any investor certificateholder without the consent
of each affected investor certificateholder; (y) reduce the aforesaid
percentage required to consent to any such amendment without the consent of
each investor certificateholder; or (z) adversely affect the rating of any
Series or class by any Rating Agency without the consent of the holders of
investor certificates of such Series or class evidencing not less than 66 2/3%
of the aggregate unpaid principal amount of the investor certificates of
57
such Series or class or (b) in the case of any Receivables Purchase Agreement,
(i) each Purchaser Agent and the other parties thereto and (ii) the holders of
investor certificates evidencing not less than 66 2/3% of the aggregate unpaid
principal amount of the investor certificates of all adversely affected
Series.
Promptly following the execution of any such amendment (other than any
amendment described in the first paragraph of this section), the Trustee will
furnish written notice of the substance of such amendment to each investor
certificateholder.
Notwithstanding the foregoing, no amendment may be made to the Pooling
Agreement, any Series Supplement or any Receivables Purchase Agreement which
would adversely affect in any material respect the interests of the provider
of any Enhancement without the consent of the provider of such Enhancement.
Notwithstanding the foregoing (including the immediately preceding
paragraph), the Pooling Agreement and the Supplement relating to Series 1998-1
may be amended without the consent of any holders of the Series 1998-1
Certificates or any future Series, any holder of a Purchased Interest not
outstanding prior to June 17, 1998 or any provider of Enhancement to enable
all or a portion of the Trust to qualify as a FASIT, as described under
"Certain Federal Income Tax Consequences--FASIT Election," or to avoid the
imposition of state and local income or franchise taxation of the Trust,
provided that (i) the Rating Agency Condition is satisfied and (ii) such
amendment does not affect the rights, duties or obligations of the Trustee
under the Pooling Agreement or any Supplement.
THE TRUSTEE
The Chase Manhattan Bank, as successor in interest to the Chemical Bank, is
the initial Trustee under the Pooling Agreement. The Corporate Trust
Department of The Chase Manhattan Bank is located at 450 West 33rd Street, New
York, New York 10001. The Seller, the Servicer and their respective affiliates
may from time to time enter into normal banking and trustee relationships with
the Trustee and its affiliates. The Trustee, the Seller, the Servicer and any
of their respective affiliates may hold investor certificates of any Series in
their own names; however, any investor certificates held by the Seller, the
Servicer or any of their respective affiliates shall not be entitled to
participate in any decisions made or instructions given to the Trustee by
investor certificateholders as a group. In addition, for purposes of meeting
the legal requirements of certain local jurisdictions, the Trustee shall have
the power to appoint a co-trustee or separate trustee of all or any part of
the Trust. In the event of such appointment, all rights, powers, duties and
obligations shall be conferred or imposed upon the Trustee and such separate
trustee or co-trustee jointly or, in any jurisdiction in which the Trustee
shall be incompetent or unqualified to perform certain acts, singly upon such
separate trustee or co-trustee, who shall exercise and perform such rights,
powers, duties and obligations solely at the direction of the Trustee.
The Trustee may resign at any time, in which event the Seller will be
obligated to appoint a successor Trustee, which appointment will be subject to
the prior approval of each Purchaser Agent. The Servicer may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling Agreement or if the Trustee becomes insolvent. In such circumstances,
the Servicer will be obligated to appoint a successor Trustee. Any resignation
or removal of the Trustee and appointment of a successor Trustee will not
become effective until acceptance of the appointment by the successor Trustee.
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DESCRIPTION OF THE RECEIVABLES SALE AGREEMENT
The Receivables sold to the Trust by the Seller were purchased by the Seller
from CSX Transportation pursuant to the Receivables Sale Agreement entered
into between the Seller, as purchaser, and CSX Transportation, as seller. A
copy of the Receivables Sale Agreement, and amendments thereto, is filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
following summary describes certain terms of the Receivables Sale Agreement
and is qualified in its entirety by reference to the Receivables Sale
Agreement.
SALE OF RECEIVABLES
Pursuant to the Receivables Sale Agreement, CSX Transportation sold to the
Seller all its right, title and interest in and to the Receivables existing on
December 18, 1992, and thereafter created, all collateral security with
respect thereto, all Collections and amounts received with respect thereto and
all proceeds of the foregoing (collectively, the "Purchased Assets").
CSX Transportation, in the Receivables Sale Agreement, has agreed to, at its
expense, undertake such reasonable actions as may be necessary to indicate to
any creditor of CSX Transportation that the Receivables have been conveyed,
and the collateral security therefor assigned to the Seller in accordance with
the Receivables Sale Agreement and to the Trust in accordance with the Pooling
Agreement for the benefit of the investor certificateholders and the
Purchasers; provided that CSX Transportation is not required to mark its
master data processing records to reflect such sales. CSX Transportation, as
initial Servicer, will retain and not deliver to the Trustee any records or
agreements relating to the Contracts or the Receivables. The records and
agreements related to the Receivables will not be segregated from any other
records of CSX Transportation. CSX Transportation has filed and is required to
file UCC financing statements with respect to the sale of the Receivables
meeting the requirements of applicable state law. See "Certain Legal Aspects
of the Receivables."
Pursuant to the Receivables Sale Agreement, as amended, the Seller, as
purchaser, shall not continue to purchase Purchased Assets from CSX
Transportation if there shall have been filed against CSX Transportation or
the Seller either (A) a notice of federal tax lien from the Internal Revenue
Service or (B) a notice of lien from the Pension Benefit Guaranty Corporation
under Section 412(n) of the Code or Section 302(f) of ERISA for a failure to
make a required installment or other payment to a plan to which either of such
sections applies, in each case, for so long as the Seller or CSX
Transportation, as the case may be, has not provided to the Trustee and each
Rating Agency written evidence reasonably satisfactory to each Rating Agency
of the release or expiration of such lien. The discontinuance of sales of
Purchased Assets by CSX Transportation to the Seller may, but will not in and
of itself, result in an Amortization Event. In addition, CSX Transportation
may cease selling Purchased Assets to the Seller if the Seller fails to pay
the purchase price for such Purchased Assets.
REPRESENTATIONS AND WARRANTIES
CSX Transportation made representations and warranties to the Seller to the
effect, among other things, that as of the Closing Date for each Series and
Purchased Interest (a) it is a corporation duly organized, validly existing
and in good standing under the law of the State of Virginia and has, in all
material respects, full corporate power and authority and legal right to own
its properties and conduct its business as presently owned and conducted, and
to execute, deliver and perform its obligations under the Receivables Sale
Agreement; (b) the execution and delivery of the Receivables Sale Agreement
and the consummation of the transactions provided for or contemplated by the
Receivables Sale Agreement have been duly authorized by CSX Transportation by
all necessary corporate action on the part of CSX Transportation; (c) it is
duly qualified to do business and is in good standing as a foreign corporation
(or is exempt from such requirement) and has obtained all necessary licenses
and approvals in each jurisdiction in which the failure to so qualify or
obtain such licenses or approvals would render any Contract relating to any
Receivable unenforceable by CSX Transportation or the Seller or would have a
material adverse effect on CSX Transportation's ability to perform its
obligations under the Receivables Sale Agreement, except no representation is
made with respect to any qualifications, licenses or
59
approvals the Seller would have to obtain to do business in any jurisdiction
in which the Seller seeks to enforce directly any Receivable; (d) the
execution and delivery of the Receivables Sale Agreement, the sale of the
Purchased Assets, the performance of the transactions contemplated by the
Receivables Sale Agreement and the fulfillment of the terms thereof, will not
conflict with or violate any requirements of applicable law or conflict with,
result in any breach of trust or of any of the material terms and provisions
of, or constitute (with or without notice or lapse of time or both) a material
default under, any indenture, contract (including the Contracts), agreement,
mortgage, deed of trust, or other instrument to which CSX Transportation is a
party or by which it or its properties are bound; (e) there are no proceedings
or investigations pending or, to the best knowledge of CSX Transportation,
threatened against or affecting CSX Transportation before any governmental
authority seeking to prevent the consummation of any of the transactions
contemplated by the Receivables Sale Agreement, or seeking any determination
or ruling that, in the reasonable judgment of CSX Transportation, would
materially and adversely affect the performance by CSX Transportation of its
obligations under the Receivables Sale Agreement; (f) all authorizations,
consents, orders or approvals of or registrations or declarations with any
governmental authority required to be obtained, effected or given by CSX
Transportation in connection with the execution and delivery by CSX
Transportation of the Receivables Sale Agreement and each Receivables Purchase
Agreement, and the performance of the transactions contemplated by the
Receivables Sale Agreement, each Series Supplement and each Receivables
Purchase Agreement by CSX Transportation have been duly obtained, effected or
given and are in full force and effect; (g) no transaction contemplated by the
Receivables Sale Agreement requires compliance with any bulk sales act or
similar law; and (h) no proceeds from the sale of the Receivables will be used
by CSX Transportation to acquire any security in any transaction which is
subject to Sections 13 and 14 of the Exchange Act.
In the event of any breach of any of the representations and warranties set
forth in the immediately preceding paragraph and if, in connection therewith,
the Seller shall be obligated to accept reassignment of the
certificateholders' interests of all Series or the Purchased Interests
pursuant to the Pooling Agreement, CSX Transportation shall repurchase the
Purchased Assets and shall pay to the Seller on the business day immediately
preceding the Distribution Date on which such purchase of the
certificateholders' interest or Purchased Interests is to be made an amount
equal to the purchase price for the certificateholders' interests or the
Purchased Interests, as the case may be, as determined in accordance with the
Pooling Agreement. Such repurchase is the sole remedy respecting any breach of
the representations and warranties described in the immediately preceding
paragraph with respect to such Purchased Assets.
In addition, CSX Transportation will represent and warrant to the Seller as
of the Closing Date for each Series or Purchased Interest that: (a) the
Receivables Sale Agreement constitutes a legal, valid and binding obligation
of CSX Transportation enforceable against CSX Transportation in accordance
with its terms, subject to certain bankruptcy and equity exceptions; (b) each
Receivable and all other Purchased Assets have been conveyed to the Seller
free and clear of any lien; (c) all authorizations, consents, orders or
approvals of or registrations or declarations with any governmental authority
required to be obtained, effected or given by CSX Transportation in connection
with the conveyance of each Receivable and all other Purchased Assets to the
Seller have been duly obtained, effected or given and are in full force and
effect; (d) the Receivables Sale Agreement constitutes a valid sale, transfer
and assignment to the Seller of all right, title and interest of CSX
Transportation in the Receivables and all other Purchased Assets and the
proceeds thereof; (e) except as otherwise expressly provided in the Pooling
Agreement, any Series Supplement or any Receivables Purchase Agreement,
neither CSX Transportation nor any person claiming through or under CSX
Transportation has any claim to or interest in the Collection Account, any
Series Account, any Purchaser account or any Enhancement; (f) as of the date
of the conveyance by CSX Transportation to the Seller of any new Receivable,
such Receivable is an Eligible Receivable, subject to certain exceptions in
the case of the initial conveyance of Receivables for "Defaulted Receivables"
or "Overconcentrations"; and (g) the purchase price payable on any Closing
Date for Purchased Assets (i) constitutes fair consideration and reasonably
equivalent value for such Purchased Assets and (ii) is comparable to the sale
price for such Purchased Assets that could generally be obtained by CSX
Transportation in the marketplace from unaffiliated entities in comparable
transactions.
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In the event any representation or warranty set forth in the immediately
preceding paragraph is not true and correct as of the date specified therein
or CSX Transportation's covenant not to cause any Receivable to be evidenced
by any instrument (as defined in the UCC) is breached, such that in either
event such Receivable is an Ineligible Receivable and the Seller is, in
connection therewith, required to accept reassignment of such Ineligible
Receivable pursuant to the Pooling Agreement, then CSX Transportation shall
pay to the Trustee on behalf of the Seller any Transfer Deposit Amount
required to be paid by the Seller to the Trustee, within the time period
required under the Pooling Agreement for such payment. Such payment shall
constitute the sole remedy respecting the event giving rise to such obligation
available to the Seller and to the investor certificateholders of any Series
or the Purchasers (or the Trustee or Purchaser Agent on behalf of investor
certificateholders or Purchasers).
In the event of any breach of any of the representations and warranties set
forth in the second immediately preceding paragraph and if, in connection
therewith, the Seller shall be obligated to accept reassignment of the
certificateholders' interest of all Series or the Purchased Interests pursuant
to the Pooling Agreement, CSX Transportation shall repurchase the Purchased
Assets and shall pay to the Seller on the business day immediately preceding
the Distribution Date on which such purchase of the certificateholders'
interest or Purchased Interests is to be made an amount equal to the purchase
price for the certificateholders' interests or the Purchased Interests, as the
case may be, as determined in accordance with the Pooling Agreement and such
repurchase shall constitute the sole remedy against CSX Transportation.
CERTAIN COVENANTS
CSX Transportation has covenanted, among other things, that (a) it will not
take any action to cause any Receivable to be evidenced by any instrument (as
defined in the UCC) except in connection with its enforcement or collection;
(b) it will not sell, pledge, assign or transfer to any other person, or
grant, create, incur, assume or suffer to exist any lien on, any Receivable or
any other Purchased Assets or any interest therein except for the conveyance
under the Receivables Sale Agreement, and it will defend the right, title and
interest of the Seller, the Trust, and the Purchasers in, to and under the
Purchased Assets against all claims of third parties claiming through or under
CSX Transportation; (c) in the event that it receives Collections or
Recoveries in respect of any Receivable (outside of the LockBox arrangements
described in the Pooling Agreement), it will hold all such Collections and
Recoveries in trust and pay such Collections and Recoveries to the Servicer;
(d) it will not modify, amend or alter any Contract in a manner that would
cause the Receivables arising under such Contract not to be Eligible
Receivables and would have a material adverse effect on the investor
certificateholders or the Purchasers; (e) it will not make any change in the
Credit and Collection Policy which would impair the collectability of any
Receivable and would have a material adverse effect on the investor
certificateholders or the Purchasers; and (f) if on any day the Outstanding
Balance of a Receivable is reduced as a result of any defective, rejected or
returned merchandise, insurance or services or any cash discount, or is
reduced or canceled as a result of a set-off in respect of any claim by the
Obligor thereof (whether such claim arises out of the same or a related
transaction or any unrelated transaction) or the Servicer makes any adjustment
thereto as a result of a rebate, refund or billing error, it will pay to the
Trustee on behalf of the Seller any Adjustment Payment required pursuant to,
and at the time specified in, the Pooling Agreement.
AMENDMENTS
The Receivables Sale Agreement may be amended from time to time by agreement
of CSX Transportation and the Seller without the consent of the investor
certificateholders of any Series or any Purchaser or Purchaser Agent, provided
that such action does not adversely affect the interests of any investor
certificateholder or Purchaser or otherwise have an Adverse Effect. In
addition, the Pooling Agreement or any Supplement may be amended from time to
time without notice to or consent of the Certificateholders and without regard
to any Adverse Effect determination to enable all or a portion of the Trust to
qualify as a "financial asset securitization investment trust" under the Code.
The Receivables Sale Agreement may not be amended, however, unless the Seller
shall have delivered the proposed amendment to each Purchaser Agent and the
Rating Agencies at least 10 business days prior to the execution and delivery
thereof.
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The Receivables Sale Agreement may also be amended from time to time by CSX
Transportation and the Seller with the consent of (a) the holders of investor
certificates evidencing not less than 66 2/3% of the aggregate unpaid
principal amount of the investor certificates of all adversely affected Series
and (b) if any Purchased Interest shall or would be adversely affected, each
Purchaser Agent, for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the Receivables Sale
Agreement or of modifying in any manner the rights of CSX Transportation,
provided that no such amendment may (i) reduce in any manner the amount of or
delay the timing of any distributions to be made to investor
certificateholders or deposits or amounts to be so distributed or the amount
available under any Enhancement without the consent of each investor
certificateholder affected; (ii) reduce the aforesaid percentage required to
consent to any such amendment without the consent of each investor
certificateholder; or (iii) adversely affect the rating of any Series or class
by any Rating Agency without the consent of the holders of investor
certificates of such Series or class evidencing not less than 66 2/3% of the
aggregate unpaid principal amount of the investor certificates of such Series
or class.
Promptly following the execution of any such amendment (other than any
amendment described in the first paragraph of this section), CSX
Transportation will furnish written notice of the substance of such amendment
to each investor certificateholder.
Notwithstanding the foregoing, no amendment may be made to the Receivables
Sale Agreement which would adversely affect in any material respect the
interest of the provider of any Enhancement without the consent of the
provider of such Enhancement.
TERMINATION
The Receivables Sale Agreement will terminate immediately after the Trust
terminates pursuant to the Pooling Agreement.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
CSX Transportation has sold the Receivables to the Seller and the Seller in
turn has sold the Receivables to the Trust. The Seller has represented and
warranted that the transactions described in the Pooling Agreement are either
a sale to the Trust of all right, title and interest of the Seller in the
Receivables and the proceeds thereof or, if the Pooling Agreement does not
constitute a sale of such property, it has taken all reasonable steps
necessary for the Pooling Agreement to constitute a grant of a security
interest to the Trust in and to the Receivables. For a discussion of the
Trust's rights arising from these representations and warranties not being
satisfied, see "The Pooling Agreement Generally--Representations and
Warranties."
Each of CSX Transportation and the Seller has represented that the
Receivables are "accounts" for purposes of the UCC as in effect in Florida and
Virginia. Both the sale of accounts and the transfer of accounts as security
for an obligation are treated under the UCC as creating a security interest
therein and are subject to its provisions, and the filing of an appropriate
financing statement or statements is required to perfect the interest of the
Trust in the Receivables. Financing statements covering the Receivables have
been filed under the UCC as in effect in Florida and Virginia by both the
Seller and the Trustee to perfect their respective interests in the
Receivables and confirmation statements will be filed as required to continue
the perfection of such interests. The Receivables have not and will not be
stamped to indicate the interest of the Seller or the Trust.
There are certain limited circumstances under the UCC and applicable
federal, state and Canadian law in which prior or subsequent transferees of
Receivables coming into existence after the date of the Pooling Agreement
could have an interest in such Receivables with priority over the Trust's
interest. A tax, government or other nonconsensual lien on property of CSX
Transportation arising prior to the time a Receivable comes into existence may
also have priority over the interest of the Trust in such Receivable. Under
the Receivables Sale
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Agreement, CSX Transportation has warranted to the Seller, and under the
Pooling Agreement, the Seller has warranted to the Trust, that it has
transferred the Receivables free and clear of the lien on any third party. In
addition, while CSX Transportation is the Servicer, cash Collections on the
Receivables may, under certain circumstances, be commingled with the funds of
CSX Transportation prior to each Transfer Date and, in the event of bankruptcy
of CSX Transportation, or, in certain circumstances, the lapse of certain time
periods, the Trust may not have a perfected interest in such cash Collections.
In such event, the Trust may suffer a loss of all or part of such collections
which may result in a loss to Certificateholders.
CERTAIN MATTERS RELATING TO BANKRUPTCY
CSX Transportation has warranted to the Seller in the Receivables Sale
Agreement that the sale of the Receivables by it to the Seller is a valid sale
of the Receivables to the Seller. In addition, CSX Transportation and the
Seller have agreed to treat the transactions described in the Receivables Sale
Agreement as a sale of the Receivables to the Seller, and CSX Transportation
has or will take all actions that are required under Florida and Virginia law
to perfect the Seller's ownership interest in the Receivables. Notwithstanding
the foregoing, if CSX Transportation were to become a debtor in a bankruptcy
case and a creditor or trustee-in-bankruptcy of such debtor or such debtor
itself were to take the position that the sale of Receivables from such debtor
to the Seller should be recharacterized as a pledge of such Receivables to
secure a borrowing from such debtor, then delays in payments of Collections of
Receivables to the Seller (and therefore to the Trust and to Investor
Certificateholders) could occur or (should the court rule in favor of any such
trustee, debtor in possession or creditor) reductions in the amount of such
payments could result.
In a case decided by the U.S. Court of Appeals for the Tenth Circuit on May
27, 1993, Octagon Gas System, Inc. v. Rimmer, the court determined that
"accounts", as defined under the Uniform Commercial Code, and which would
likely include the Receivables, may properly be included in the bankruptcy
estate of a transferor regardless of whether the transfer of such Receivables
is treated as a sale or a secured loan. The circumstances under which the
Octagon ruling would apply are not fully known and the extent to which the
Octagon decision will be followed in other courts or outside of the Tenth
Circuit is not certain. Substantially all of CSX's business is conducted
outside the geographic area subject to the jurisdiction of the Tenth Circuit.
If the findings in the Octagon case were applied in a CSX Transportation
bankruptcy, however, the Receivables would be part of its bankruptcy estate,
would be subject to claims of certain creditors and would be subject to the
potential delays and reductions in payments to the Seller and Investor
Certificateholders described in the preceding paragraph even if the transfer
is treated as a sale.
In addition, if CSX Transportation were to become a debtor in a bankruptcy
case and a creditor or trustee-in-bankruptcy of such debtor or such debtor
itself were to request a court to order that CSX Transportation should be
substantively consolidated with the Seller, delays in payments on the investor
certificates could result. Should the bankruptcy court rule in favor of any
such creditor, trustee-in bankruptcy or such debtor, reductions in such
payments could result.
The Seller has warranted to the Trust that the transfer of the Receivables
to the Trust is either a sale of the Receivables or a grant of a first-
priority security interest in the Receivable to the Trust. The Seller has
taken or will take all actions that are required under Florida and Virginia
law to perfect the Trust's first-priority security interest in the Receivables
and the Seller has warranted to the Trust that the Trust will at all times
have a first priority perfected security interest therein and, with certain
exceptions, in proceeds thereof. Nevertheless, a tax or government lien or
other nonconsensual lien on property of CSX Transportation or the Seller
arising prior to the time a Receivable is conveyed to the Trust may have
priority over the interest of the Trust in such Receivable. The Seller's
certificate of incorporation provides that it shall not file a voluntary
petition for relief under Title 11 of the United States Code (the "Bankruptcy
Code") without the unanimous affirmative vote of all of its directors,
including the independent directors. Pursuant to the Pooling Agreement, the
Trustee, the Paying Agent, the Transfer Agent and Registrar, each Purchaser
and each Purchaser Agent, and each provider of Enhancement will covenant that
they will not at any time institute against the Seller any bankruptcy,
reorganization or other proceedings under any federal or state bankruptcy or
similar law. In addition, certain other steps have been or
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will be taken to avoid the Seller's becoming a debtor in a bankruptcy case.
Notwithstanding such steps, if the Seller were to become a debtor in a
bankruptcy case, and a bankruptcy trustee for the Seller or a creditor of the
Seller were to take the position that the transfer of the Receivables from the
Seller to the Trust should be recharacterized as a pledge of such Receivables,
then delays in payments on the Certificates or (should the court rule in favor
of any such trustee or creditor) reductions in the amount of such payments
could result.
The Seller does not intend to file, and CSX Transportation has agreed that
it will not file, a voluntary petition for relief under the Bankruptcy Code or
any similar applicable state law with respect to the Seller.
If the Seller were to become a debtor in a bankruptcy case causing an
Amortization Event to occur, then, pursuant to the Pooling Agreement,
additional Receivables would not be transferred to the Trust. Upon the
occurrence of certain events of bankruptcy, insolvency or receivership, if no
Amortization Event other than the commencement of such bankruptcy or similar
event exists, the trustee-in-bankruptcy may have the power to continue to
require the Seller to transfer new Receivables to the Trust and to prevent the
commencement of any Early Amortization Period. See "Series Provisions--
Amortization Events".
The occurrence of certain events of bankruptcy, insolvency or receivership
with respect to the Servicer will result in a Servicer Default, which Servicer
Default, in turn, will result in an Amortization Event. If no other Servicer
Default other than the commencement of such bankruptcy or similar event
exists, a trustee-in-bankruptcy of the Servicer may have the power to prevent
the Trustee, the certificateholders or the Purchasers from terminating the
Servicer or appointing a successor Servicer.
Payments made in respect of repurchases of Receivables by CSX Transportation
or the Seller pursuant to the Pooling Agreement may be recoverable by CSX
Transportation or the Seller, or by a creditor or a trustee-in-bankruptcy of
CSX Transportation or the Seller, as a preferential transfer from CSX
Transportation or the Seller if such payments are made within one year prior
to the filing of a bankruptcy case in respect of CSX Transportation.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of material federal income tax
consequences relating to the purchase, ownership and disposition of an
Investor Certificate offered hereunder. This discussion is based on current
law, which is subject to changes that could prospectively or retroactively
modify or adversely affect the tax consequences summarized below. The
discussion does not address all of the tax consequences relevant to a
particular Investor Certificateholder in light of that Investor
Certificateholder's circumstances, and some Investor Certificateholders may be
subject to special tax rules and limitations not discussed below. Each
prospective Investor Certificateholder is urged to consult its own tax adviser
in determining the federal, state, local and foreign income and any other tax
consequences of the purchase, ownership and disposition of an Investor
Certificate.
For purposes of this discussion, "U.S. Person" means a citizen or resident
of the United States, a corporation or partnership organized in or under the
laws of the United States, any state thereof, or any political subdivision of
either (including the District of Columbia), or an estate or trust the income
of which is includible in gross income for U.S. federal income tax purposes
regardless of its source. The term "U.S. Investor Certificateholder" means any
U.S. Person and any other person providing appropriate documentation, to the
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extent that the income attributable to its interest in an Investor Certificate
is effectively connected with that person's conduct of a U.S. trade or
business.
TREATMENT OF THE INVESTOR CERTIFICATES AS DEBT
The Seller expresses in the Pooling Agreement the intent that for federal,
state and local income and franchise tax purposes, the Investor Certificates
will be treated as debt of the Seller secured by the Receivables. The Seller,
by entering into the Pooling Agreement, and each Investor Certificateholder,
by the acceptance of an interest in an Investor Certificate, agree to treat
the Investor Certificates as debt of the Seller for such tax purposes.
However, the Pooling Agreement generally refers to the transfer of Receivables
as a "sale," and because different criteria are used in determining the non-
tax accounting treatment of the transaction, the Seller will treat the Pooling
Agreement for certain non-tax accounting purposes as causing a transfer of an
ownership interest in the Receivables and not as creating a debt obligation.
A basic premise of federal income tax law is that the economic substance of
a transaction generally determines its tax consequences. The form of a
transaction, while a relevant factor, is not conclusive evidence of its
economic substance. In appropriate circumstances, the courts have allowed
taxpayers as well as the Internal Revenue Service (the "IRS") to treat a
transaction in accordance with its economic substance as determined under
federal income tax law, even though the participants in the transaction have
characterized it differently for non-tax purposes.
The determination of whether the economic substance of a purchase of an
interest in property is instead a loan secured by the transferred property has
been made by the IRS and the courts on the basis of numerous factors designed
to determine whether the seller has relinquished (and the purchaser has
obtained) substantial incidents of ownership in the property. Among those
factors, the primary ones examined are whether the purchaser has the
opportunity to gain if the property increases in value, and has the risk of
loss if the property decreases in value. Orrick, Herrington & Sutcliffe LLP,
counsel to the Seller ("Special Counsel"), will deliver its opinion generally
to the effect that, under current law as in effect on the Closing Date,
although no transaction closely comparable to that contemplated herein has
been the subject of any Treasury regulation, revenue ruling or judicial
decision, for federal income tax purposes the Investor Certificates offered
hereunder will not constitute an ownership interest in the Receivables but
will properly be characterized as debt. Except where indicated to the
contrary, the following discussion assumes that the Investor Certificates
offered hereunder are debt for federal income tax purposes.
TREATMENT OF THE TRUST
General. The Pooling Agreement permits the issuance certain interests
(including Purchased Interests) in the Trust which may be treated for federal
income tax purposes either as debt or as equity interests in the Trust or the
Receivables. If all of the Investor Certificates and other interests (other
than the Seller's Certificate) in the Trust were characterized as debt or as
direct interests in the Receivables, the Trust might be characterized as a
security arrangement for debt collateralized by the Receivables and issued
directly by the Seller (or other holder of the Seller's Certificate). Under
such a view, the Trust would be disregarded for federal income tax purposes.
Alternatively, if some of the Investor Certificates or other interests in the
Trust (other than the Seller's Certificate) were characterized as equity in
the Trust, the Trust might be characterized as a separate entity owning the
Receivables, issuing its own debt, and jointly owned by the Seller (or other
holder of the Seller Certificate) and the other holders of equity interests in
the Trust. However, Special Counsel will deliver its opinion generally to the
effect that, under current law as in effect on the Closing Date, any such
entity constituted by the Trust will not be an association or publicly traded
partnership taxable as a corporation.
Possible Treatment of the Trust as a Publicly Traded Partnership or a non-
Publicly Traded Partnership. Although, as described above, Special Counsel
will deliver its opinion that the Investor Certificates will properly be
treated as debt for federal income tax purposes and that the Trust will not be
treated as an association or publicly traded partnership taxable as a
corporation, such opinion will not bind the IRS and
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thus no assurance can be given that such treatment will prevail. If the IRS
were to contend successfully that some or all of the Investor Certificates or
other interests in the Trust (other than the Seller's interest in the Seller's
Certificate), including any Purchased Interest, were not debt obligations or
direct interests in the Receivables for federal income tax purposes, all or a
portion of the Trust could be classified for federal income tax purposes as
either a publicly traded partnership taxable as a corporation or a partnership
not taxable as a corporation. Because Special Counsel will deliver its opinion
that the Investor Certificates will be characterized as debt for federal
income tax, no attempt will be made to comply with any tax reporting
requirements that would apply as a result of such alternative
characterizations.
If the Trust were treated in whole or in part as a partnership in which some
or all holders of interests in the publicly offered Investor Certificates were
partners, that partnership could be classified as a publicly traded
partnership, and so could be taxable as a corporation. Further, regulations
published by the Treasury Department on December 4, 1995 (the "Regulations")
could cause the Trust to constitute a publicly traded partnership even if all
holders of interests in publicly offered Investor Certificates are treated as
holding debt. The Regulations generally apply to taxable years beginning after
December 31, 1995, and thus could affect the classification of presently
existing entities and the ongoing tax treatment of already completed
transactions. Although the Regulations provide for a 10-year grandfather
period for a partnership actively engaged in an activity before December 4,
1995, it is not clear whether the Trust would qualify for this grandfather
period. If the Trust were classified as a publicly traded partnership, whether
by reason of the treatment of publicly offered Investor Certificates as equity
or by reason of the Regulations, it would avoid taxation as a corporation if
its income was not derived in the conduct of a "financial business;" however,
whether the income of the Trust would be so classified is unclear.
Under the Code and the Regulations, a partnership will be classified as a
publicly traded partnership if equity interests therein are traded on an
"established securities market," or are "readily tradable" on a "secondary
market" or its "substantial equivalent." The Seller intends to take measures
designed to reduce the risk that the Trust could be classified as a publicly
traded partnership by reason of interests in the Trust other than the publicly
traded Investor Certificates. However, certain of the actions that may be
necessary for avoiding the treatment of such interests as "readily tradable"
on a "secondary market" or its "substantial equivalent" are not fully within
the control of the Seller, and certain interests in the Trust predating the
Regulations may not conform to the requirements of the Regulations. As a
result, there can be no assurance that the measures the Seller intends to take
will in all circumstances be sufficient to prevent the Trust from being
classified as a publicly traded partnership under the Regulations.
If the arrangement created by the Pooling Agreement were treated in whole or
in part as a publicly traded partnership taxable as a corporation, that entity
would be subject to federal income tax at corporate tax rates on its taxable
income generated by ownership of the related Receivables. That tax could
result in reduced distributions to Investor Certificateholders. No
distributions from the Trust would be deductible in computing the taxable
income of the corporation, except to the extent that any Investor Certificates
were treated as debt of the corporation and distributions to the related
Investor Certificateholders were treated as payments of interest thereon. In
addition, distributions to Investor Certificateholders not treated as holding
debt would be dividend income to the extent of the current and accumulated
earnings and profits of the corporation (and Investor Certificateholders may
not be entitled to any dividends received deduction in respect of such
income).
If the Trust were, however, treated in whole or in part as a partnership
other than a publicly traded partnership taxable as a corporation, that
partnership would not be subject to federal income tax. Rather, each item of
income, gain, loss and deduction of the partnership generated through the
ownership of the related Receivables would be taken into account directly in
computing taxable income of the Seller (or the holder of the Seller's
Certificate) and any Investor Certificateholders and others treated as
partners in accordance with their respective partnership interests therein.
The amounts and timing of income reportable by any Investor Certificateholders
treated as partners would likely differ from that reportable by such Investor
Certificateholders had they been treated as owning debt. In addition, if the
Trust were treated in whole or in part as a partnership other than a publicly
traded partnership, income derived from the partnership by any Investor
Certificateholder
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that is a pension fund or other tax-exempt entity may be treated as unrelated
business taxable income. Partnership characterization also may have adverse
state and local income or franchise tax consequences for an Investor
Certificateholder. Further, if the Trust were treated in whole or in part as a
partnership and the number of holders of interests in the publicly offered
Certificates and other interests in the Trust treated as partners equaled or
exceeded 100, the Seller may cause that Trust to elect to be an "electing
large partnership." The consequence of such election to investors could
include the determination of certain tax items at the partnership level and
the disallowance of otherwise allowable deductions. No representation is made
as to whether any such election will be made.
FASIT ELECTION
Upon satisfying certain conditions set forth in the Pooling Agreement, the
Seller will be permitted to amend the Pooling Agreement and any Supplement in
order to enable all or a portion of a Trust to qualify under the Code as a
"financial asset securitization investment trust" or "FASIT" and to permit a
FASIT election to be made with respect thereto. See "The Pooling Agreement--
Amendments." Under the FASIT provisions of the Code, a FASIT generally would
avoid federal income taxation and could issue securities substantially similar
to the Certificates, and those securities would be treated as debt for federal
income tax purposes. However, there can be no assurance that the Seller will
or will not cause any permissible FASIT election to be made with respect to
the Trust, or amend the Pooling Agreement or any Supplement in connection with
any election. Regulations needed to implement the FASIT legislation have not
yet been issued and, until such regulations are issued and become effective,
the Seller is unable to provide specific information concerning any such
election or amendment or the probability that any such election or amendment
would be made. However, if such an election is made, it may cause a holder to
recognize gain with respect to its Certificate, even though Special Counsel is
of the opinion that a Certificate will be treated as debt for federal income
tax purposes without regard to the election and the Certificate would be
treated as debt following the election, because the holder could be treated as
surrendering one debt instrument in exchange for another. Any such gain would
be equal to the excess of the value of the Certificate over the holder's basis
therein at the time of the election; any loss similarly determined would
likely be disallowed under the "wash sale" rules of Section 1091 of the Code.
Additionally, any such election and any related amendments to the Pooling
Agreement and any Supplement may have other tax and non-tax consequences to
Certificateholders. Accordingly, prospective Certificateholders should consult
their tax advisors with regard to the effects of any such election and any
permitted related amendments on them in their particular circumstances.
TAXATION OF INTEREST INCOME OF U.S. INVESTOR CERTIFICATEHOLDERS
General. Stated interest on a beneficial interest in an Investor Certificate
will be includible in gross income in accordance with a U.S. Investor
Certificateholder's method of accounting.
Original Issue Discount. It is anticipated that neither the Class A
Certificates nor the Class B Certificates will have any original issue
discount ("OID"), other than possibly OID within a "de minimis" exception. If
the Investor Certificates were issued with OID, the provisions of sections
1271 through 1273 and 1275 of the Internal Revenue Code of 1986 (the "Code")
would apply to the Investor Certificates. Under those provisions, a U.S.
Investor Certificateholder (including a cash basis holder) generally would be
required to accrue the OID on its interest in an Investor Certificate in
income for federal income tax purposes on a constant yield basis, resulting in
the inclusion of OID in income somewhat in advance of the receipt of cash
attributable to that income. In general, an Investor Certificate would be
treated as having OID to the extent that its "stated redemption price" exceeds
its "issue price," if such excess is more than a "de minimis" amount equal to
0.25 percent multiplied by the weighted average life of the Investor
Certificate (determined by taking into account only the number of complete
years following issuance until payment is made for any partial principal
payments). Under section 1272(a)(6) of the Code, special provisions apply to
debt instruments on which payments may be accelerated due to prepayments of
other obligations securing those debt instruments. However, no regulations
have been issued interpreting those provisions, and the manner in which those
provisions would apply to the
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Investor Certificates is unclear. Additionally, the IRS could take the
position based on Treasury regulations that none of the interest payable on an
Investor Certificate is "unconditionally payable" and hence that all of such
interest should be included in the Investor Certificate's stated redemption
price at maturity. If sustained, such treatment should not significantly
affect the tax liability of most Investor Certificateholders, but prospective
U.S. Investor Certificateholders should consult their own tax advisers
concerning the impact to them in their particular circumstances.
Market Discount. A U.S. Investor Certificateholder who subsequently
purchases an interest in an Investor Certificate after the initial
distribution thereof at a discount that exceeds any unamortized OID may be
subject to the "market discount" rules of sections 1276 through 1278 of the
Code. These rules provide, in part, that gain on the sale or other disposition
of an Investor Certificate and partial principal payments on an Investor
Certificate are treated as ordinary income to the extent of accrued market
discount. The market discount rules also provide for deferral of interest
deductions with respect to debt incurred to purchase or carry an Investor
Certificate that has market discount.
Market Premium. A U.S. Investor Certificateholder who purchases an interest
in an Investor Certificate at a premium may elect to offset the premium
against interest income over the remaining term of the Investor Certificate in
accordance with the provisions of section 171 of the Code.
SALE OR EXCHANGE OF INVESTOR CERTIFICATES
Upon a disposition of an interest in an Investor Certificate, a U.S.
Investor Certificateholder generally will recognize gain or loss equal to the
difference between the amount realized on the disposition and the U.S.
Investor Certificateholder's adjusted basis in its interest in the Investor
Certificate. The adjusted basis in the interest in the Investor Certificate
will equal its cost, increased by any OID or market discount includible in
income with respect to the interest in the Investor Certificate prior to its
sale and reduced by any principal payments previously received with respect to
the interest in the Investor Certificate and any amortized premium. Subject to
the market discount rules, gain or loss will be capital gain or loss if the
interest in the Investor Certificate was held as a capital asset. Capital
losses generally may be used only to offset capital gains.
NON-U.S. INVESTOR CERTIFICATEHOLDERS
In general, a non-U.S. Investor Certificateholder (i.e., an Investor
Certificateholder who is not a U.S. Person, and whose income attributable to
its interest in an Investor Certificate is not effectively connected with that
person's conduct of a U.S. trade or business) will not be subject to U.S.
federal income tax on interest (including OID) on a beneficial interest in an
Investor Certificate unless (i) the non-U.S. Investor Certificateholder
actually or constructively owns 10 percent or more of the total combined
voting power of all classes of stock of the Seller entitled to vote (or of a
profits or capital interest of the Trust if characterized as a partnership, or
of stock in the Trust if treated as a corporation), (ii) the non-U.S. Investor
Certificateholder is a controlled foreign corporation that is related to the
Seller (or the Trust treated as a partnership) through stock ownership, (iii)
the non-U.S. Investor Certificateholder is a bank described in Code Section
881(c)(3)(A), (iv) such interest is contingent interest described in Code
Section 871(h)(4), or (v) the non-U.S. Investor Certificateholder bears
certain relationships to any holder of either the Seller's Certificate other
than the Seller or any other interest in the Trust not properly characterized
as debt. To qualify for the exemption from taxation, the last U.S. Person in
the chain of payment prior to payment to a non-U.S. Investor Certificateholder
(the "Withholding Agent") must have received (in the year in which a payment
of interest or principal occurs or in either of the two preceding years) a
statement that (i) is signed by the non-U.S. Investor Certificateholder under
penalties of perjury, (ii) certifies that the non-U.S. Investor
Certificateholder is not a U.S. Person and (iii) provides the name and address
of the non-U.S. Investor Certificateholder. Under currently applicable law,
the statement may be made on a Form W-8 or substantially similar substitute
form, and the non-U.S. Investor Certificateholder must inform the Withholding
Agent of any change in the information on the statement within 30 days of the
change. If an Investor Certificate is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide a signed statement to the Withholding Agent. However,
in that case, the signed statement
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must be accompanied by a Form W-8 or substitute form provided by the non-U.S.
Investor Certificateholder to the organization or institution holding the
Investor Certificate on behalf of the non-U.S. Investor Certificateholder. The
U.S. Treasury Department is considering implementation of further
certification requirements aimed at determining whether the issuer of a debt
obligation is related to holders thereof. The U.S. Treasury Department
recently issued final Treasury regulations which will revise some of the
foregoing procedures whereby a non-U.S. Investor Certificateholder may
establish an exemption from withholding beginning January 1, 1999; non-U.S.
Investor Certificateholders should consult their tax advisers concerning the
impact to them, if any, of such revised procedures.
Generally, any gain or income realized by a non-U.S. Investor
Certificateholder upon retirement or disposition of an interest in an Investor
Certificate will not be subject to U.S. federal income tax, provided that (i)
in the case of an Investor Certificateholder that is an individual, such
Investor Certificateholder is not present in the United States for 183 days or
more during the taxable year in which such retirement or disposition occurs
and (ii) in the case of gain representing accrued interest (or OID), the
conditions described in the preceding paragraph for exemption from withholding
are satisfied. Certain exceptions may be applicable, and an individual non-
U.S. Investor Certificateholder should consult a tax adviser.
If an Investor Certificate were treated as an interest in a partnership, the
recharacterization could cause a non-U.S. Investor Certificateholder to be
treated as engaged in a trade or business in the United States. In that event,
the non-U.S. Investor Certificateholder would be required to file a federal
income tax return and, in general, would be subject to U.S. federal income tax
(including the branch profits tax) on its net income from the partnership.
Further, certain withholding obligations apply with respect to income
allocable or distributions made to a foreign partner. That withholding may be
at a rate as high as 39.6 percent under current U.S. federal income tax law.
If some or all of the Investor Certificates were treated as stock in a
corporation, any related dividend distributions to a non-U.S. Investor
Certificateholder generally would be subject to withholding tax at the
prevailing rate (currently 30 percent), unless that rate were reduced by an
applicable tax treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Backup withholding of U.S. federal income tax at the prevailing rate
(currently 31 percent) may apply to payments made in respect of an Investor
Certificate to a registered owner who is not an "exempt recipient" and who
fails to provide certain identifying information (such as the registered
owner's taxpayer identification number) in the manner required. Generally,
individuals are not exempt recipients whereas corporations and certain other
entities are exempt recipients. Payments made in respect of a U.S. Investor
Certificateholder must be reported to the IRS, unless the U.S. Investor
Certificateholder is an exempt recipient or otherwise establishes an
exemption. Compliance with the identification procedures (described in the
preceding section) would establish an exemption from backup withholding for a
non-U.S. Investor Certificateholder who is not an exempt recipient.
In addition, upon the sale of an Investor Certificate to (or through) a
"broker," the broker must withhold 31 percent of the entire purchase price,
unless either (i) the broker determines that the seller is a corporation or
other exempt recipient or (ii) the seller provides certain identifying
information in the required manner, and in the case of a non-U.S. Investor
Certificateholder certifies that the seller is a non-U.S. Investor
Certificateholder (and certain other conditions are met). Such a sale must
also be reported by the broker to the IRS, unless either (i) the broker
determines that the seller is an exempt recipient or (ii) the seller certifies
its non-U.S. status (and certain other conditions are met). Certification of
the registered owner's non-U.S. status normally would be made on Form W-8
under penalties of perjury, although in certain cases it may be possible to
submit other documentary evidence. As defined by Treasury regulations, the
term "broker" includes all persons who stand ready to effect sales made by
others in the ordinary course of a trade or business, as well as brokers and
dealers registered as such under the laws of the United States or a state.
These requirements generally will apply to a U.S. office of a broker, and the
information reporting requirements generally will apply to a foreign office of
a U.S. broker as well as to a foreign office of a foreign broker (i) that is a
controlled foreign corporation within the meaning of section 957(a) of the
Code or (ii) 50 percent or more of whose gross income from all sources for the
three year period ending with the close of its taxable year preceding the
payment (or for such part of the period
69
that the foreign broker has been in existence) was effectively connected with
the conduct of a trade or business within the United States.
Any amounts withheld under the backup withholding rules from a payment to an
Investor Certificateholder would be allowed as a refund or a credit against
such Investor Certificateholder's U.S. federal income tax, provided that the
required information is furnished to the IRS.
Recently issued final Treasury regulations will revise some of the foregoing
information reporting and backup withholding procedures beginning January 1,
1999; Investor Certificateholders should consult their tax advisers concerning
the impact to them, if any, of such revised procedures.
STATE TAX CONSEQUENCES
GENERAL
The following is a general discussion of the material Florida and Virginia
state tax consequences relating to the purchase, ownership and disposition of
an Investor Certificate offered hereunder. It is based on the opinion of
McGuire, Woods, Battle & Boothe LLP, in its capacity as special Florida and
Virginia counsel to the Seller and the Trust ("Florida Tax Counsel" and
"Virginia Tax Counsel", respectively). For purposes of such opinions, McGuire,
Woods, Battle & Boothe LLP has been authorized to rely on the opinion of
Orrick, Herrington & Sutcliffe LLP, that the Investor Certificates will be
treated as debt for federal income tax purposes.
This discussion is based upon present statutory provisions of state law,
administrative rules and regulations promulgated thereunder, and judicial
decisions and administrative interpretations thereof, all of which are subject
to change at any time, possibly with retroactive effect. No ruling on any of
the issues discussed below will be sought from the Florida Department of
Revenue, the Virginia Department of Taxation, or any other state or local
taxing authority. Each prospective Investor Certificateholder is urged to
consult its own tax advisor in determining the state and local tax
consequences of the purchase, ownership and disposition of an Investor
Certificate.
FLORIDA
Application of Florida Income Tax. For purposes of the Florida income tax,
the Investor Certificates could be characterized as debt or interests in a
partnership. Based on the assumption that the Investor Certificates will be
treated as debt for federal income tax purposes, in the opinion of Florida Tax
Counsel the Investor Certificates will be treated as debt for Florida income
tax purposes.
Assuming that the Investor Certificates are treated as debt for purposes of
federal and Florida income taxation, ownership of Investor Certificates will
not cause an Investor Certificateholder that would not otherwise be subject to
Florida income tax to become subject to such tax. Because the State of Florida
currently imposes no state income tax on individuals, Investor
Certificateholders who are individuals will not be subject to any Florida
state income tax. Moreover, partnerships and S corporations, which are not
subject to entity-level taxation for federal income tax purposes, generally
are not subject to Florida state income tax. However, C corporations are
subject to state income tax in Florida. In addition, limited liability
companies are subject to state income tax in Florida even if they are treated
as partnerships for federal income tax purposes. Accordingly, a C corporation
or limited liability company that is otherwise subject to Florida income tax
will be required to include income derived from its ownership of Investor
Certificates in determining its Florida income tax liability.
If, in the alternative, the Investor Certificates were to be treated for
federal income tax purposes as interests in a partnership the Trust would
likely be treated as a corporation for Florida income tax purposes. The Trust
would not be subject to Florida corporate income tax, however, if the
following assumptions (the "Trust Assumptions") are satisfied: (i) the Trust's
only activities consist of acquiring and holding the Receivables, issuing the
Investor Certificates and Purchased Interests, and making payments thereon to
the Investor
70
Certificateholders and Purchasers, all of which will occur outside the State
of Florida except for the ministerial functions and the processing activities
of the Servicer and the making of payments to Investor Certificateholders in
Florida; (ii) the Trust has no office in the State of Florida, is not
qualified to do business in Florida and is not domesticated under the laws of
the State of Florida; and (iii) the Trust does not own or possess any other
property, real or personal, tangible or intangible, corporeal or incorporeal,
other than the Receivables and accounts or securities (the sole contact of
which with the State of Florida being the Servicing of the Receivables by the
Servicer, consisting of ministerial functions and processing activities) in
which the proceeds of the Receivables or reserves required to make payments to
Investor Certificateholders are invested, all of which are contemplated by the
Pooling Agreement. If any of the Trust Assumptions are inaccurate, however,
the Trust could be subject to Florida corporate income tax on the share of its
income properly apportioned to Florida. Imposition of the Florida corporate
income tax could result in reduced distributions to Investor
Certificateholders.
Intangibles and Documentary Stamp Taxes. No Florida intangibles tax or
documentary stamp tax (collectively, "Florida Documentary Tax") will be
payable with respect to the original issuance and delivery of the Investor
Certificates by the Trust, provided that (i) the making, signing, execution,
issuance, sale, shipping, delivery, transfer and assignment thereof occur
outside the State of Florida, and (ii) the Investor Certificates (a) do not
have a taxable situs in Florida for purposes of the intangibles tax and (b) do
not otherwise constitute obligations secured by mortgages or other liens on
Florida property. In addition, the Receivables will not be subject to Florida
intangibles tax in the hands of the Trust, provided that the Trust Assumptions
are met. An Investor Certificateholder that would not otherwise be subject to
Florida Documentary Tax by the State of Florida or any political subdivision
or taxing authority therein will not become subject to any Florida Documentary
Tax solely by reason of its acquisition, ownership or disposition of an
Investor Certificate (in each case outside the State of Florida).
VIRGINIA
Based on the assumption that the Investor Certificates will be treated as
debt for federal income tax purposes, in the opinion of Virginia Tax Counsel
the Investor Certificates will be treated as debt for Virginia income tax
purposes. As a result, the Trust, as an entity, will not be subject to
Virginia income tax. Moreover, pursuant to this treatment, Investor
Certificateholders not otherwise subject to Virginia income tax will not
become subject to such tax solely because of their ownership of Investor
Certificates. Investor Certificateholders who are resident individuals of
Virginia and corporations that are subject to taxation in Virginia will be
required to include income derived from their ownership of Investor
Certificates in determining their Virginia tax liability.
Investor Certificateholders that are "banks", as defined in the Virginia
Bank Franchise Tax Act, will be subject to the Virginia bank franchise tax,
which is imposed at the rate of $1 on each $100 of the bank's net capital. For
these purposes, a "bank" generally is any incorporated bank, banking
association or trust company organized by or under the laws of Virginia or the
United States that either conducts or maintains a Virginia office for the
conduct of a banking business in Virginia or has a charter designating any
place in Virginia as the place of its principal office, except that
corporations organized under the laws of other states, Virginia corporations
not organized as banks, partnerships, and natural persons are not "banks"
subject to the Virginia bank franchise tax.
In the alternative, if the Trust were treated for federal income tax
purposes as a partnership (not taxable as a corporation), and the Investor
Certificateholders as partners therein, the same treatment should also apply
for Virginia income tax purposes. In such case, because of certain activities
to be undertaken by the Servicer pursuant to the Pooling Agreement, the
partnership could be treated as doing business in Virginia. In this
circumstance, the partnership would not be an entity subject to income
taxation in Virginia. However, the partnership's items of income and deduction
would be passed through to the individual partners, who would be responsible
for any income tax imposed at the partner level. Nonresident partners
receiving allocations of the partnership's Virginia taxable income would be
required to calculate their Virginia taxable income by taking into account any
allocations of Virginia taxable income of the partnership. Corporate partners
generally would be required to take into account their partnership interests
in determining their apportionment factors for purposes of calculating the
amount of their income that must be apportioned to Virginia.
71
Alternatively, if the Trust were treated for federal income tax purposes as
a "publicly traded partnership" and taxed as a corporation, then the entity
would be subject to the Virginia corporate income tax. If the Trust conducted
business both within and without Virginia, it would be required to apportion
its income to Virginia by the use of either a traditional three factor formula
(property, payroll and sales) or, if the Trust were treated as a "financial
corporation", by a single factor formula (cost of performance). Imposition of
the Virginia corporate income tax could result in reduced distributions to
Investor Certificateholders. An Investor Certificateholder not otherwise
subject to tax in Virginia would not become subject to Virginia income tax
solely because of its ownership of such an interest.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit a pension, profit
sharing or other employee benefit plan from engaging in certain transactions
involving "plan assets" with persons that are "parties in interest" under
ERISA or "disqualified persons" under the Code (collectively, "Parties in
Interest") with respect to the plan. A violation of these "prohibited
transaction" rules may generate excise tax and other liabilities under ERISA
and Section 4975 of the Code for such persons. For example, a prohibited
transaction would arise, unless an exemption were available, if the Investor
Certificates were viewed as debt of the Seller and the Seller were a Party in
Interest with respect to a plan that acquired Investor Certificates.
Moreover, additional prohibited transactions could arise if the Trust Assets
were deemed to constitute assets of any plan that owned Investor Certificates.
The Department of Labor ("DOL") has issued a final regulation (the "DOL
Regulation") concerning the definition of what constitutes "plan assets" of an
employee benefit plan subject to ERISA or Section 4975 of the Code or an
individual retirement account ("IRA") (collectively referred to as "Benefit
Plans"). Under the DOL Regulation, the assets and properties of corporations,
partnerships and certain other entities in which a Benefit Plan makes an
investment in an "equity interest" could be deemed to be assets of the Benefit
Plan in certain circumstances. Moreover, the DOL Regulation specified that a
beneficial interest in a trust is an "equity interest." Accordingly, if
Benefit Plans purchase Investor Certificates, the Trust would likely be deemed
to hold plan assets unless one of the exceptions under the DOL Regulation is
applicable to the Trust.
The DOL Regulation only applies to the purchase by a Benefit Plan of an
"equity interest" in an entity. Assuming that the Investor Certificates are
equity interests, the DOL Regulation contains an exception that provides that
if a Benefit Plan acquires a "publicly-offered security," the issuer of the
security is not deemed to hold plan assets. A publicly-offered security is a
security that is (i) freely transferable, (ii) part of a class of securities
that is owned by 100 or more investors who are independent of the issuer and
of one another at the conclusion of the initial offering, and (iii) either is
(A) part of a class of securities registered under Section 12(b) or 12(g) of
the Exchange Act, or (B) sold to the Benefit Plan as part of an offering of
securities to the public pursuant to an effective registration statement under
the Securities Act and the class of securities of which such security is a
part is registered under the Exchange Act within 120 days (or such later time
as may be allowed by the Commission) after the end of the fiscal year of the
issuer during which the offering of such securities to the public occurred.
Each class of Investor Certificates must be separately tested under, and may
each meet, the criteria of publicly-offered securities as described above.
There are no restrictions imposed on the transfer of the Investor
Certificates, and the Investor Certificates will be sold as part of an
offering pursuant to an effective registration statement under the Securities
Act and then will be timely registered under the Exchange Act. Based on
information provided by the underwriters, the Seller will notify the Trustee
as to whether or not each class of Investor Certificates will be held by at
least 100 separately named persons at the conclusion of the initial offering.
The Seller will not, however, determine whether the 100 independent investor
requirement of the exception for publicly-offered securities is satisfied as
to any class of Investor Certificates. Prospective purchasers may obtain
72
a copy of the notification described in the second preceding sentence from the
Trustee at its Corporate Trust Department.
If a class of Investor Certificates fails to meet the criteria of publicly-
offered securities and the Trust Assets are deemed to include assets of
Benefit Plans that are Certificateholders of such class, transactions
involving the Trust and Parties in Interest with respect to such Benefit Plans
might be prohibited under Section 406 of ERISA and Section 4975 of the Code
unless an exemption is applicable. Thus, for example, if a sponsor of any
Benefit Plan is an Obligor with respect to the Receivables, under a DOL
interpretation the purchase of Investor Certificates by such Benefit Plan
could constitute a prohibited transaction. There are five class exemptions
issued by the DOL that could apply in such event: DOL Prohibited Transaction
Exemption 84-14 (Class Exemption for Plan Asset Transactions Determined by
Independent Qualified Professional Asset Managers); 90-1 (Class Exemption for
Certain Transactions Involving Insurance Company Pooled Separate Accounts);
91-38 (Class Exemption for Certain Transactions Involving Bank Collective
Investment Funds); 95-60 (Class Exemption for Certain Transactions Involving
Insurance Company General Accounts); and 96-23 (Class Exemption for Plan Asset
Transactions Determined by In-House Asset Managers). There is no assurance
that any of these exemptions, even if all of the conditions specified therein
are satisfied, will apply to all transactions involving the Trust Assets.
Moreover, as discussed above, although Tax Counsel has given its opinion
that the Investor Certificates will properly be treated as debt for federal
income tax purposes, if the Investor Certificates were instead treated as
equity interests in a "publicly traded partnership" not taxable as a
corporation, a tax-exempt investor holding such a Certificate would have its
share of income from the partnership treated as "unrelated business taxable
income" under the Code taxable to the investor.
In light of the foregoing, fiduciaries of a Benefit Plan considering the
purchase of Investor Certificates should consult their own counsel as to
whether the acquisition of such Certificates would constitute or result in a
non-exempt prohibited transaction, whether the Trust Assets represented by
such Certificates would be considered plan assets, the consequences that would
apply if the Trust Assets were considered plan assets, the applicability of
exemptive relief from the prohibited transaction rules, and the applicability
of the tax on unrelated business income and unrelated debt-financed income.
If the Seller does not notify the Trustee, as described above, that a class
of Investor Certificates will be held by at least 100 separately named
persons, such class of Investor Certificates may not be acquired by, on behalf
of or with assets of any Benefit Plan. Furthermore, in that case, the Pooling
Agreement, the Series Supplement and each such Certificate will provide that
each holder of such Certificate shall be deemed to have represented and
warranted that it is not a Benefit Plan, and is not purchasing such
Certificate on behalf of any Benefit Plan, and is not using the assets of any
Benefit Plan to effect the purchase.
PLAN OF DISTRIBUTION
The Seller may sell Investor Certificates of any Series in any of three
ways: (i) through underwriters or dealers; (ii) directly to one or more
purchasers; or (iii) through agents. The applicable Prospectus Supplement will
set forth the terms of the offering of any Investor Certificates of any
Series, including, without limitation, the names of any underwriters, the
purchase price of such Investor Certificates and the proceeds to the Seller
from such sale, any underwriting discounts and other items constituting
underwriters' compensation, any initial public offering price and any
discounts or concessions allowed or reallowed or paid to dealers.
If underwriters are used in a sale of any Investor Certificates of any
Series, such Investor Certificates will be acquired by the underwriters for
their own account and may be resold from time to time in one or more
transactions, including negotiated transactions, at a fixed public offering
price or at varying prices to be determined at the time of sale or at the time
of commitment therefor. Such Investor Certificates may be offered to the
public either through underwriting syndicates represented by managing
underwriters or by underwriters
73
without a syndicate. Unless otherwise set forth in the applicable Prospectus
Supplement, the obligations of the underwriters to purchase such Investor
Certificates will be subject to certain conditions precedent and the
underwriters will be obligated to purchase all of such Investor Certificates
if any of such Investor Certificates are purchased. Any initial public
offering price and any discounts or concessions allowed or reallowed or paid
to dealers may be changed from time to time.
Investor Certificates of any Series may also be offered and sold, if so
indicated in the Prospectus Supplement, in connection with a remarketing upon
their purchase, in accordance with a redemption or repayment pursuant to their
terms, by one or more firms ("remarketing firms") acting as principals for
their own accounts or as agents or the Seller. Any remarketing firm will be
identified and the terms of its agreement, if any, with the Seller and its
compensation will be described in the Prospectus Supplement. Remarketing firms
may be deemed to be underwriters in connection with the Investor Certificates
remarketed thereby.
Investor Certificates of any Series may also be sold directly by the Seller
or through agents designated by the Seller from time to time. Any agent
involved in the offer or sale of Investor Certificates of any Series will be
named, and any commissions payable by the Seller to such agent will be set
forth, in the applicable Prospectus Supplement. Unless otherwise indicated in
the applicable Prospectus Supplement, any such agent will act on a best
efforts basis for the period of its appointment.
Any underwriters, dealers or agents participating in the distribution of
Investor Certificates of any Series may be deemed to be underwriters and any
discounts or commissions received by them on the sale or resale of Investor
Certificates of any Series may be deemed to be underwriting discounts and
commissions under the Securities Act. Agents and underwriters may be entitled
under agreements entered into with the Seller to indemnification by the Seller
against certain civil liabilities, including liabilities under the Securities
Act, or to contribution with respect to payments that the agents or
underwriters may be required to make in respect thereof. Agents and
underwriters may be customers of, engage in transactions with, or perform
services for, the Seller or their affiliates in the ordinary course of
business.
LEGAL MATTERS
Certain legal matters relating to the Investor Certificates will be passed
upon for the Seller and the Trust by Orrick, Herrington & Sutcliffe LLP, and
for agents or underwriters by Mayer, Brown & Platt. Certain federal income tax
and ERISA matters will be passed upon for the Seller and the Trust by Orrick,
Herrington & Sutcliffe LLP and certain Virginia and Florida tax matters will
be passed upon for the Seller and the Trust by McGuire Woods Battle & Boothe
LLP.
74
GLOSSARY
TERM PAGE
- ---- -----
AAR Clearinghouse......................................................... 21
Accumulation Period....................................................... 10
Additional Interest....................................................... 41
Adjustment Payment........................................................ 43
Adverse Effect............................................................ 16
Amortization Event........................................................ 43
Available Investor Collections............................................ 41
Available Subordinated Amount............................................. 6, 38
Bankruptcy Code........................................................... 63
Benefit Plans............................................................. 72
Cede...................................................................... 2, 20
Certificateholders' Interest.............................................. 5
Certificate Rate.......................................................... 9, 37
Charged-Off Amount........................................................ 35
Charged-Off Receivable.................................................... 35
Closing Date.............................................................. 12
Code...................................................................... 67
Collection Account........................................................ 31
Collections............................................................... 3
Commission................................................................ 2
Concentration Limit....................................................... 33
Conrail................................................................... 15
Contract.................................................................. 4
Credit and Collection Policy.............................................. 17
CSX Transportation........................................................ 1, 3
Default Horizon Ratio..................................................... 39
Defaulted Receivable...................................................... 33
Definitive Certificates................................................... 48
Delinquency Percentage.................................................... 39
Depository................................................................ 36
Dilution Horizon Ratio.................................................... 39
Dilution Percentage....................................................... 39
Dilution Ratio............................................................ 39
Disclosure Document....................................................... 6
Distribution Date......................................................... 32
DOL....................................................................... 72
DOL Regulation............................................................ 72
DTC....................................................................... 2
Due Period................................................................ 32
Early Amortization Period................................................. 11
Eligible Deposit Account.................................................. 31
Eligible Institution...................................................... 31
Eligible Investments...................................................... 31
Eligible Receivable....................................................... 52
Enhancement............................................................... 3
ERISA..................................................................... 72
Excess Collections........................................................ 40
Exchange Act.............................................................. 2
Expected Final Payment Date............................................... 10
75
GLOSSARY--(CONTINUED)
TERM PAGE
- ---- ------
FASIT.................................................................... 67
FDIC..................................................................... 31
Fee Reserve.............................................................. 39
Florida Documentary Tax.................................................. 71
Florida Tax Counsel...................................................... 70
Holders.................................................................. 48
Indirect Participants.................................................... 47
Ineligible Receivable.................................................... 50
Initial Invested Amount.................................................. 34
Insolvency Event......................................................... 43
Interest Payment Date.................................................... 9
Interest Shortfall....................................................... 40
Invested Amount.......................................................... 34
Investor Allocable Charged-Off Amount.................................... 35
Investor Allocation Percentage........................................... 38
Investor Certificates.................................................... 1
Investor Certificateholders.............................................. 2
Investor Charge-Off...................................................... 42
Investor Ownership Percentage............................................ 36
IRA...................................................................... 72
IRS...................................................................... 65
Lock-Box Account......................................................... 11, 30
Loss Percentage.......................................................... 39
Miscellaneous Payments................................................... 34
Monthly Interest......................................................... 40
Monthly Principal........................................................ 41
Monthly Report........................................................... 46
Monthly Servicing Fee.................................................... 45
Moody's.................................................................. 31
Net Purchaser Pool Balance............................................... 32
Net Receivables Pool Balance............................................. 33
Net Series Pool Balance.................................................. 32
New Issuance............................................................. 29
NSC...................................................................... 15
Obligor.................................................................. 4
OID...................................................................... 67
Outstanding Balance...................................................... 33
Over Concentrated Receivables............................................ 40
Participants............................................................. 47
Parties in Interest...................................................... 72
Paying Agent............................................................. 42
Payment Date............................................................. 9
Pooling Agreement........................................................ 4, 36
Pool Balance............................................................. 36
Portfolio................................................................ 23
Principal Funding Account Balance........................................ 42
Principal Funding Account................................................ 10, 41
Purchased Assets......................................................... 59
Principal Terms.......................................................... 29
76
GLOSSARY--(CONTINUED)
TERM PAGE
- ---- --------
Purchased Interest..................................................... 3
Purchaser.............................................................. 4
Purchaser Adjusted Invested Amount..................................... 35
Purchaser Agent........................................................ 7
Rating Agency.......................................................... 19
Rating Agency Condition................................................ 16
Receivables............................................................ 1, 3, 28
Receivables Purchase Agreement......................................... 6
Receivables Sale Agreement............................................. 5
Record Date............................................................ 45
Regulations............................................................ 66
remarketing firms...................................................... 74
Required Net Purchaser Pool Balance.................................... 33
Required Net Series Pool Balance....................................... 32
Revolving Period....................................................... 10
Sale Date.............................................................. 45
Securities Act......................................................... 2
Seller................................................................. 1, 3
Seller's Certificate................................................... 6
Seller's Interest...................................................... 5
Seller's Percentage.................................................... 38
Series................................................................. 1, 3
Series Adjusted Invested Amount........................................ 34
Series Allocable Miscellaneous Payments................................ 34
Series Allocable Collections........................................... 34
Series Allocation Percentage........................................... 34
Series Supplement...................................................... 6
Service Transfer....................................................... 56
Servicer............................................................... 11
Servicer Default....................................................... 56
Servicing Fee.......................................................... 44
Shortfalls............................................................. 40
Special Concentration Limit............................................ 33
Special Counsel........................................................ 65
Special Payment Date................................................... 11
Standard & Poor's...................................................... 31
STB.................................................................... 15
Subordination Percentage............................................... 39
Tax Opinion............................................................ 30
Termination Notice..................................................... 55
Transfer Date.......................................................... 32
Transfer Deposit Amount................................................ 51, 55
Trust.................................................................. 1, 3
Trust Adjusted Invested Amount......................................... 34
Trust Assets........................................................... 3
Trust Assumptions...................................................... 70
Trustee................................................................ 3
UCC.................................................................... 17
Unallocated Collections................................................ 40
77
GLOSSARY--(CONTINUED)
TERM PAGE
- ---- ----
U.S. Investor Certificateholder............................................ 64
U.S. Person................................................................ 64
Virginia Tax Counsel....................................................... 70
Withholding Agent.......................................................... 68
Yield Reserve.............................................................. 39
78
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SECURITIES OFFERED HEREBY AND THE PROSPECTUS NOR AN OFFER OF
SUCH SECURITIES TO ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH
OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION HEREIN OR THEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THEIR RESPECTIVE DATES; HOWEVER, IF ANY
MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS ARE
REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS SUPPLEMENT WILL BE AMENDED OR
SUPPLEMENTED ACCORDINGLY.
------------
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
Summary Of Series Terms.................................................... S-3
Risk Factors............................................................... S-7
Maturity Considerations.................................................... S-7
Series Provisions.......................................................... S-8
Underwriting............................................................... S-13
Glossary Supplement........................................................ S-14
PROSPECTUS
Available Information...................................................... 2
Reports To Certificateholders.............................................. 2
Incorporation Of Certain Documents By Reference............................ 2
Prospectus Summary......................................................... 3
Risk Factors............................................................... 14
The Receivables............................................................ 21
Use Of Proceeds............................................................ 28
The Seller................................................................. 28
The Servicer............................................................... 28
The Trust.................................................................. 28
Master Trust Provisions.................................................... 29
Series Provisions.......................................................... 36
The Pooling Agreement Generally............................................ 47
Description Of The Receivables Sale Agreement.............................. 59
Certain Legal Aspects Of The Receivables................................... 62
Certain Federal Income Tax Consequences.................................... 64
State Tax Consequences..................................................... 70
ERISA Considerations....................................................... 72
Plan Of Distribution....................................................... 73
Legal Matters.............................................................. 74
Glossary................................................................... 75
------------
UNTIL SEPTEMBER 1, 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT),
ALL DEALERS EFFECTING TRANSACTIONS IN THE INVESTOR CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CSXT TRADE RECEIVABLES
MASTER TRUST
$300,000,000
6.00% Trade Receivables
Participation Certificates,
Series 1998-1
CSX TRADE RECEIVABLES CORPORATION
Seller
CSX TRANSPORTATION, INC.
Servicer
PROSPECTUS SUPPLEMENT
CREDIT SUISSE FIRST BOSTON
CITICORP SECURITIES, INC.
- --------------------------------------------------------------------------------