FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 28, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-8022
CSX CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 62-1051971
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
901 East Cary Street, Richmond, Virginia 23219-4031
(Address of principal executive offices) (Zip Code)
(804) 782-1400
(Registrant's telephone number, including area code)
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No Change
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No()
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of September 28, 2001: 213,162,313 shares.
CSX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 28, 2001
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1:
Financial Statements
1. Consolidated Statement of Earnings-
Quarters and Nine Months Ended September 28, 2001 and
September 29, 2000 3
2. Consolidated Statement of Cash Flows-
Nine Months Ended September 28, 2001 and September 29, 2000 4
3. Consolidated Statement of Financial Position-
At September 28, 2001 and December 29, 2000 5
Notes to Consolidated Financial Statements 6
Item 2:
Management's Discussion and Analysis of Results of
Operations and Financial Condition 26
Item 3:
Quantitative and Qualitative Disclosures About Market Risk 36
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 37
Signature 37
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CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Earnings
(Millions of Dollars, Except Per Share Amounts)
(Unaudited)
Quarters Ended Nine Months Ended
------------------------------- -----------------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2001 2000 2001 2000
------------ ------------- ----------- -----------
Operating Revenue $ 2,019 $ 2,039 $ 6,101 $ 6,144
Operating Expense 1,737 1,815 5,365 5,557
------------ ------------- ----------- -----------
Operating Income 282 224 736 587
Other Income 1 3 4 22
Interest Expense 126 140 389 413
------------ ------------- ----------- -----------
Earnings before Income Taxes 157 87 351 196
Income Tax Expense 57 28 123 64
------------ ------------- ----------- -----------
Earnings before Discontinued Operations 100 59 228 132
Earnings from Discontinued Operations, Net of Tax - 3 - 14
Gain on Sale of Discontinued Operations, Net of Tax - 365 - 365
------------ ------------- ----------- -----------
Net Earnings $ 100 $ 427 $ 228 $ 511
============ ============= =========== ===========
Earnings Per Share:
Before Discontinued Operations $ 47 $ .28 $ 1.08 $ .62
Earnings from Discontinued Operations - .01 - .07
Gain on Sale of Discontinued Operations - 1.73 - 1.73
------------ ------------- ----------- -----------
Including Discontinued Operations $ .47 $ 2.02 $ 1.08 $ 2.42
============ ============= =========== ===========
Earnings Per Share, Assuming Dilution:
Before Discontinued Operations $ .47 $ .28 $ 1.07 $ .62
Earnings from Discontinued Operations - .01 - .07
Gain on Sale of Discontinued Operations - 1.73 - 1.73
------------ ------------- ----------- -----------
Including Discontinued Operations $ .47 $ 2.02 $ 1.07 $ 2.42
============ ============= =========== ===========
Average Common Shares Outstanding (Thousands) 211,871 210,934 211,618 211,047
============ ============= =========== ===========
Average Common Shares Outstanding,
Assuming Dilution (Thousands) 212,579 211,254 212,312 211,476
============ ============= =========== ===========
Cash Dividends Paid Per Common Share $ .10 $ .30 $ .70 $ .90
============ ============= =========== ===========
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See accompanying Notes to Consolidated Financial Statements.
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Millions of Dollars)
(Unaudited)
Nine Months Ended
-------------------------------
Sept. 28, Sept. 29,
2001 2000
----------- -----------
OPERATING ACTIVITIES
Net Earnings $ 228 $ 511
Adjustments to Reconcile Net Earnings to Net Cash Provided:
Depreciation 469 445
Deferred Income Taxes 76 70
Gain on Sale of Contract Logistics Segment - (365)
Equity in Conrail Earnings - Net (10) (4)
Other Operating Activities (61) 35
Changes in Operating Assets and Liabilities
Accounts Receivable 15 299
Other Current Assets (11) (95)
Accounts Payable (74) (58)
Other Current Liabilities (193) (289)
------------ -----------
Net Cash Provided by Operating Activities 439 549
------------ -----------
INVESTING ACTIVITIES
Property Additions (628) (643)
Net Investment Proceeds - 650
Short-Term Investments - Net (35) (44)
Other Investing Activities 52 3
------------ -----------
Net Cash Used by Investing Activities (611) (34)
------------ -----------
FINANCING ACTIVITIES
Short-Term Debt - Net (127) (247)
Long-Term Debt Issued 500 588
Long-Term Debt Repaid (195) (737)
Cash Dividends Paid (149) (197)
Other Financing Activities 15 (56)
------------ -----------
Net Cash Provided (Used) by Financing Activities 44 (649)
------------ -----------
Net Decrease in Cash and Cash Equivalents (128) (134)
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and Cash Equivalents at Beginning of Period 261 626
------------ -----------
Cash and Cash Equivalents at End of Period 133 492
Short-Term Investments at End of Period 459 377
------------ -----------
Cash, Cash Equivalents and Short-Term
Investments at End of Period $ 592 $ 869
============ ===========
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See accompanying Notes to Consolidated Financial Statements.
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Financial Position
(Millions of Dollars)
(Unaudited)
Sept. 28, Dec. 29,
2001 2000
------------ -----------
ASSETS
Current Assets
Cash, Cash Equivalents and Short-Term Investments $ 592 $ 684
Accounts Receivable 876 850
Materials and Supplies 266 245
Deferred Income Taxes 141 121
Other Current Assets 144 146
------------ -----------
Total Current Assets 2,019 2,046
Properties 18,279 17,839
Accumulated Depreciation (5,400) (5,197)
------------ -----------
Properties-Net 12,879 12,642
Investment in Conrail 4,677 4,668
Affiliates and Other Companies 360 362
Other Long-Term Assets 671 773
------------ -----------
Total Assets $ 20,606 $ 20,491
============ ===========
LIABILITIES
Current Liabilities
Accounts Payable $ 1,097 $ 1,079
Labor and Fringe Benefits Payable 408 405
Current Portion of Casualty, Environmental and
Other Reserves 254 246
Current Maturities of Long-Term Debt 976 172
Short-Term Debt 272 749
Income Taxes and Other Payables 190 372
Other Current Liabilities 250 257
------------ -----------
Total Current Liabilities 3,447 3,280
Casualty, Environmental and Other Reserves 713 755
Long-Term Debt 5,659 5,810
Deferred Income Taxes 3,482 3,384
Other Long-Term Liabilities 1,192 1,245
------------ -----------
Total Liabilities 14,493 14,474
------------ -----------
SHAREHOLDERS' EQUITY
Common Stock, $1 Par Value 213 213
Other Capital 1,485 1,467
Retained Earnings 4,415 4,337
------------ -----------
Total Shareholders' Equity 6,113 6,017
------------ -----------
Total Liabilities and Shareholders' Equity $ 20,606 $ 20,491
============ ===========
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See accompanying Notes to Consolidated Financial Statements.
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated financial statements contain all adjustments necessary to present fairly the financial position of CSX Corporation and subsidiaries (CSX or the "Company") at September 28, 2001 and December 29, 2000, the results of its operations for the quarters and nine months ended September 28, 2001 and September 29, 2000, and its cash flows for the nine months ended September 28, 2001 and September 29, 2000, such adjustments being of a normal recurring nature. Certain prior year data have been reclassified to conform to the 2001 presentation.
While the Company believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these financial statements be read in conjunction with the financial statements and the notes included in the Company's latest Annual Report and Form 10-K.
CSX follows a 52/53 week fiscal reporting calendar. Fiscal years 2001 and 2000 consist of 52 weeks ending on December 28, 2001 and December 29, 2000, respectively. The financial statements presented are for the 13-week quarters ended September 28, 2001 and September 29, 2000, the 39-week periods ended September 28, 2001 and September 29, 2000, and as of December 29, 2000.
Comprehensive income approximates net earnings for all periods presented in the accompanying consolidated statement of earnings.
NOTE 2. EARNINGS PER SHARE
Earnings per share are based on the weighted average of common shares outstanding, as defined by Financial Accounting Standards Board (FASB) Statement No. 128, "Earnings per Share," for the fiscal quarters and nine months ended September 28, 2001 and September 29, 2000. Earnings per share, assuming dilution, are based on the weighted average of common shares outstanding adjusted for the effect of dilutive potential common shares outstanding during the period, principally arising from employee stock plans. For the fiscal quarters ended September 28, 2001 and September 29, 2000, dilutive potential common shares totaled 0.7 million and 0.3 million, respectively. For the nine months ended September 28, 2001 and September 29, 2000, potentially dilutive shares totaled 0.7 million and 0.4 million.
Certain potential common shares outstanding at September 28, 2001 and September 29, 2000 were not included in the computation of earnings per share, assuming dilution, since their exercise prices were greater than the average market price of the common shares during the period and, accordingly, their effect is antidilutive. These shares totaled 18.8 million at a weighted-average exercise price of $43.38 per share at September 28, 2001 and 26.1 million with a weighted-average exercise price of $40.07 per share at September 29, 2000.
NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS
In 2001, Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets, was issued. Under the provisions of Statement 142, goodwill and other indefinite lived intangible assets are no longer amortized but are reviewed for impairment on a periodic basis. The Company will adopt this standard in the first quarter of 2002 and has yet to determine if it will have a material affect on its financial statements.
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 4. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL
CSX and Norfolk Southern Corporation (Norfolk Southern) completed the acquisition of Conrail Inc. (Conrail) in May 1997. Conrail owns the primary freight railroad system serving the northeastern United States, and its rail network extends into several midwestern states and into Canada. CSX and Norfolk Southern, through a jointly owned acquisition entity, hold economic interests in Conrail of 42% and 58%, respectively, and voting interests of 50% each. CSX and Norfolk Southern received regulatory approval from the Surface Transportation Board (STB) to exercise joint control over Conrail in August 1998 and subsequently began integrated operations over allocated portions of the Conrail lines in June 1999.
The rail subsidiaries of CSX and Norfolk Southern operate their respective portions of the Conrail system pursuant to various operating agreements that took effect on June 1, 1999. Under these agreements, the railroads pay operating fees to Conrail for the use of right-of-way and rent for the use of equipment. Conrail continues to provide rail service in certain shared geographic areas for the joint benefit of CSX and Norfolk Southern for which it is compensated on the basis of usage by the respective railroads.
Summary financial information for Conrail for its fiscal periods ended September 30, 2001 and 2000, and at December 31, 2000, is as follows:
Quarters Ended Nine Months Ended
September 30, September 30,
----------------------- ------------------------
2001 2000 2001 2000
-------- ------- ----------- --------
Income Statement Information:
Revenues $223 $243 $685 $748
Income From Operations 58 65 198 177
Net Income 35 35 127 131
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As Of
------------------------------
September 30, December 31,
2001 2000
--------------- -----------
Balance Sheet Information:
Current Assets $ 820 $ 520
Property and Equipment and Other Assets 7,323 7,540
Total Assets 8,143 8,060
Current Liabilities 403 435
Long-Term Debt 1,188 1,229
Total Liabilities 4,014 4,078
Stockholders' Equity 4,129 3,982
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CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 4. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued
CSX and Norfolk Southern assumed substantially all of Conrail's customer freight contracts upon the June 1999 integration date. CSX's rail and intermodal operating revenue since that date includes revenue from traffic previously recognized by Conrail. Operating expenses reflect costs incurred to operate the former Conrail lines. Rail operating expenses also include an expense category, "Conrail Operating Fee, Rent and Services," which reflects payment to Conrail for the use of right-of-way and equipment, as well as charges for transportation, switching, and terminal services in the shared areas Conrail operates for the joint benefit of CSX and Norfolk Southern. This expense category also includes amortization of the fair value write-up arising from the acquisition of Conrail, as well as CSX's proportionate share of Conrail's net income or loss recognized under the equity method of accounting.
The agreement under which CSX operates its allocated portion of the Conrail route system has an initial term of 25 years and may be renewed at CSX's option for two additional five-year terms. Operating fees paid to Conrail under the agreement are subject to adjustment every six years based on the fair value of the underlying system. Lease agreements for the Conrail equipment operated by CSX cover varying terms. CSX is responsible for all costs of operating, maintaining, and improving the routes and equipment under these agreements.
At December 29, 2000, CSX had $2 million in amounts receivable from Conrail, principally for reimbursement of certain capital improvement costs. Conrail advances its available cash balances to CSX and Norfolk Southern under variable-rate demand loan agreements. At September 28, 2001 and December 29, 2000, Conrail had advanced $192 million and $40 million, respectively, to CSX under this arrangement at interest rates of 3.8% and 5.9%, respectively. CSX also had amounts payable to Conrail of $78 million and $127 million at September 28, 2001 and December 29, 2000, respectively, representing billings from Conrail under the operating, equipment, and shared area agreements.
NOTE 5. DISCONTINUED OPERATIONS
On September 22, 2000, CSX completed the sale of CTI Logistx, Inc., its wholly-owned logistics subsidiary, for $650 million. The contract logistics segment is reported as a discontinued operation. Revenues from the contract logistics segment for the quarter and nine-months ended September 29, 2000 were $78 million and $335 million, respectively.
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 6. SALE OF INTERNATIONAL CONTAINER-SHIPPING ASSETS
In December 1999, CSX sold certain assets comprising Sea-Land's international liner business to A. P. Moller-Maersk Line (Maersk). In addition to vessels and containers, Maersk acquired certain terminal facilities and various other assets and related liabilities of the international liner business. The agreement with Maersk provides for a post-closing working capital adjustment to the sales price based on the change in working capital, as defined in the agreement, between June 25, 1999, and December 10, 1999. The Company has recorded a receivable of approximately $70 million in connection with the post- closing working capital adjustment and this amount is currently in dispute. This matter, together with other disputed issues, has been submitted to arbitration. Management is not yet in a position to assess fully the likely outcome of this process but believes it will prevail in the arbitrations. During 1999, the Company recorded a net loss of $360 million, $271 million after-tax, related to this transaction. Included in this amount were estimated costs to terminate various contractual obligations of the Company. These matters could affect the determination of the final loss on sale.
NOTE 7. ACCOUNTS RECEIVABLE
The Company sells revolving interests in its rail accounts receivable to public investors through a securitization program and to financial institutions through commercial paper conduit programs. The accounts receivable are sold, without recourse, to a wholly-owned, special-purpose subsidiary, which then transfers the receivables, with recourse, to a master trust. The securitization and conduit programs are accounted for as sales in accordance with FASB Statement No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Receivables sold under these arrangements are excluded from accounts receivable in the consolidated statement of financial position. At September 28, 2001, the agreements provide for the sale of up to $350 million in receivables through the securitization program and $250 million through the conduit programs.
At September 28, 2001 and December 29, 2000, the Company had sold $547 million of accounts receivable; $300 million through the securitization program and $247 million through the conduit programs. The certificates issued under the securitization program bear interest at 6% annually and mature in June 2003. Receivables sold under the conduit programs require yield payments based on prevailing commercial paper rates plus incremental fees. Losses recognized on the sale of accounts receivable totaled $9 million and $31 million for the quarter and nine months ended September 28, 2001, respectively, and $8 million and $24 million for the quarter and nine months ended September 29, 2000, respectively.
The Company has retained the responsibility for servicing accounts receivable transferred to the master trust. The average servicing period is approximately one month. No servicing asset or liability has been recorded since the fees the Company receives for servicing the receivables approximate the related costs.
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 8. OPERATING EXPENSE
Quarters Ended Nine Months Ended
------------------------------- -----------------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2001 2000 2001 2000
------------- ------------- ------------- ------------
Labor and Fringe Benefits $ 711 $ 728 $ 2,210 $ 2,208
Materials, Supplies and Other 413 425 1,259 1,346
Conrail Operating Fee, Rent and Services 83 89 251 285
Building and Equipment Rent 155 176 477 560
Inland Transportation 83 93 252 266
Depreciation 154 148 462 430
Fuel 138 156 454 462
------------- ------------- ------------- ------------
Total $ 1,737 $ 1,815 $ 5,365 $ 5,557
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NOTE 9. OTHER INCOME (EXPENSE)
Quarters Ended Nine Months Ended
-------------------------- ---------------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2001 2000 2001 2000
------------- ----------- ------------- ------------
Interest Income $ 8 $ 12 $ 29 $ 40
Income from Real Estate and Resort Operations/(1)/ 24 15 74 49
Net Investment Loss - (1) - (1)
Net Losses from Accounts Receivable Sold (9) (8) (31) (24)
Minority Interest (9) (11) (27) (31)
Equity Losses from Other Affiliates (1) - (20) (5)
Miscellaneous (12) (4) (21) (6)
----------- ---------- ------------ ----------
Total $ 1 $ 3 $ 4 $ 22
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/(1)/ Gross revenue from real estate and resort operations was $66 million and $187 million for the quarter and nine months ended September 28, 2001, respectively, and $52 million and $148 million for the quarter and nine months ended September 29, 2000, respectively.
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 10. DEBT AND CREDIT AGREEMENTS
During the nine months ended September 28, 2001, the Company issued $500 million of 6.75% notes due 2011 and reclassified $350 million of outstanding commercial paper to long-term liabilities as it is now supported by a five-year $1 billion line of credit agreement signed in June of 2001. This reclassification was based on the Company's ability and intent to maintain this debt outstanding for more than a year. The Company also entered into a $500 million one-year revolving credit agreement in June of 2001. Borrowings under both of these credit agreements accrue interest at a variable rate based on LIBOR. The Company pays annual fees to the participating banks that may range from 0.01% to 0.23% of total commitment, depending on its credit rating.
NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS
On August 10, 2001, CSX entered into interest rate swap agreements on its $300 million 7.25% notes due May 1, 2004, its $150 million 5.85% notes due December 1, 2003, and its $50 million 6.46% notes due June 22, 2005 for interest rate risk exposure management purposes. These instruments mature at the time the related notes expire. Under these agreements, the Company will pay variable interest based on LIBOR in exchange for fixed rate payments (on September 28, 2001 the variable and fixed rate weighted averages were 5.8% and 6.8%, respectively), effectively transforming the debentures to floating rate obligations. Accordingly, the instruments qualify, and are designated, as fair value hedges. In addition, one of the Company's subsidiaries has an interest rate swap with a national amount of $45 million.
The Company accounts for derivative instruments under Statement of Financial Accounting Standard ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 138, an amendment to SFAS No. 133, which established new accounting and reporting guidelines for derivative instruments and hedging activities. SFAS No. 133 and SFAS No. 138 are collectively referred to herein as "SFAS 133." SFAS 133 requires that all derivative instruments be recognized as assets and liabilities in the financial statements at fair value. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in current earnings during the period of change in fair values. The accounting for hedge effectiveness is measured at least quarterly based on the relative change in fair value between the derivative contract and the hedged item over time. Any change in fair value resulting from ineffectiveness, as defined by SFAS 133, is recognized immediately in earnings. The Company's interest rate swaps qualify as perfectly effective fair value hedges, as defined by SFAS No. 133. As such, there was no ineffective portion to the hedge recognized in earnings during the period. The fair value of the interest rate swap agreements are immaterial to the statement of financial position.
The differential to be paid or received under these agreements is accrued consistently with the terms of the agreements and is recognized in interest expense over the term of the related debt. The related amounts payable to or receivable from counterparties are included in other liabilities or assets. Cash flows related to interest rate swap agreements are classified as "Operating activities" in the Consolidated Statements of Cash Flows. For the three months ended September 28, 2001, the Company reduced interest expense by approximately $0.6 million as a result of the interest rate swap agreements that were in place during that period.
The Company is exposed to credit loss in the event of nonperformance by the other parties to the interest rate swap agreements. However, the Company does not anticipate nonperformance by the counterparties.
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 12. COMMITMENTS AND CONTINGENCIES
The Company has entered into fixed-price forward fuel purchase agreements for approximately 50% of its fuel requirements over the next fifteen months. These agreements amount to approximately 360 million gallons in commitments at a weighted average of 78 cents per gallon.
Although the Company obtains substantial amounts of commercial insurance for potential losses for third-party liability and property damage, reasonable levels of risk are retained on a self-insurance basis.
CSX Transportation, Inc. (CSXT), the wholly-owned rail subsidiary of CSX, is a party to various proceedings involving private parties and regulatory agencies related to environmental issues. CSXT has been identified as a potentially responsible party (PRP) at 106 environmentally impaired sites that are or may be subject to remedial action under the Federal Superfund statute (Superfund) or similar state statutes. A number of these proceedings are based on allegations that CSXT, or its railroad predecessors, sent hazardous substances to the facilities in question for disposal. Such proceedings arising under Superfund or similar state statutes can involve numerous other waste generators and disposal companies and seek to allocate or recover costs associated with site investigation and cleanup, which could be substantial.
CSXT is involved in a number of administrative and judicial proceedings and other clean-up efforts at 231 sites, including the sites addressed under the Federal Superfund statute or similar state statutes, where it is participating in the study and/or clean-up of alleged environmental contamination. The assessment of the required response and remedial costs associated with most sites is extremely complex. Cost estimates are based on information available for each site, financial viability of other PRPs, where available, and existing technology, laws and regulations. CSXT's best estimates of the allocation method and percentage of liability when other PRPs are involved are based on assessments by consultants, agreements among PRPs, or determinations by the U.S. Environmental Protection Agency or other regulatory agencies.
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 12. COMMITMENTS AND CONTINGENCIES, Continued
At least once each quarter, CSXT reviews its role, if any, with respect to each such location, giving consideration to the nature of CSXT's alleged connection to the location (e.g., generator, owner or operator), the extent of CSXT's alleged connection (e.g., volume of waste sent to the location and other relevant factors), the accuracy and strength of evidence connecting CSXT to the location, and the number, connection and financial position of other named and unnamed PRPs at the location. The ultimate liability for remediation can be difficult to determine with certainty because of the number and creditworthiness of PRPs involved. Through the assessment process, CSXT monitors the creditworthiness of such PRPs in determining ultimate liability.
Based upon such reviews and updates of the sites with which it is involved, CSXT has recorded, and reviews at least quarterly for adequacy, reserves to cover estimated contingent future environmental costs with respect to such sites. The recorded liabilities for estimated future environmental costs at September 28, 2001, and December 29, 2000, were $36 million and $41 million, respectively. These recorded liabilities, which are undiscounted, include amounts representing CSXT's estimate of unasserted claims, which CSXT believes to be immaterial. The liability has been accrued for future costs for all sites where the Company's obligation is probable and where such costs can be reasonably estimated.
The liability includes future costs for remediation and restoration of sites as well as any significant ongoing monitoring costs, but excludes any anticipated insurance recoveries. The majority of the September 28, 2001 environmental liability is expected to be paid out over the next five to seven years, funded by cash generated from operations.
The Company does not currently possess sufficient information to reasonably estimate the amounts of additional liabilities, if any, on some sites until completion of future environmental studies. In addition, latent conditions at any given location could result in exposure, the amount and materiality of which cannot presently be reliably estimated. Based upon information currently available, however, the Company believes that its environmental reserves are adequate to accomplish remedial actions to comply with present laws and regulations, and that the ultimate liability for these matters will not materially affect its overall results of operations or financial condition.
In September 1997, a state court jury in New Orleans, Louisiana returned a $2.5 billion punitive damages award against CSXT. The award was made in a class- action lawsuit against a group of nine companies based on personal injuries alleged to have arisen from a 1987 fire. The fire was caused by a leaking chemical tank car parked on CSXT tracks and resulted in the 36-hour evacuation of a New Orleans neighborhood. In the same case, the court awarded a group of 20 plaintiffs compensatory damages of approximately $2 million against the defendants, including CSXT, to which the jury assigned 15 percent of the responsibility for the incident. CSXT's liability under that compensatory damages award is not material, and adequate provision has been made for the award.
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 12. COMMITMENTS AND CONTINGENCIES, Continued
In October 1997, the Louisiana Supreme Court set aside the punitive damages judgment, ruling the judgment should not have been entered until all liability issues were resolved. In February 1999, the Louisiana Supreme Court issued a further decision, authorizing and instructing the trial court to enter individual punitive damages judgments in favor of the 20 plaintiffs who had received awards of compensatory damages, in amounts representing an appropriate share of the jury's award. The trial court on April 8, 1999 entered judgment awarding approximately $2 million in compensatory damages and approximately $8.5 million in punitive damages to those 20 plaintiffs. Approximately $6.2 million of the punitive damages awarded were assessed against CSXT. CSXT then filed post-trial motions for a new trial and for judgment notwithstanding the verdict as to the April 8 judgment.
The new trial motion was denied by the trial court in August 1999. On November 5, 1999, the trial court issued an opinion that granted CSXT's motion for judgment notwithstanding the verdict and effectively reduced the amount of the punitive damages verdict from $2.5 billion to $850 million. CSXT believes that this amount (or any amount of punitive damages) is unwarranted and intends to pursue its full appellate remedies with respect to the 1997 trial as well as the trial judge's decision on the motion for judgment notwithstanding the verdict. The compensatory damages awarded by the jury in the 1997 trial were also substantially reduced by the trial judge. A judgment reflecting the $850 million punitive award has been entered against CSXT. CSXT has obtained and posted an appeal bond, which has allowed it to appeal the 1997 compensatory and punitive awards, as reduced by the trial judge.
A trial for the claims of 20 additional plaintiffs for compensatory damages began on May 24, 1999. In early July, the jury in that trial rendered verdicts totaling approximately $330 thousand in favor of eighteen of those twenty plaintiffs. Two plaintiffs received nothing; that is, the jury found that they had not proved any damages. Management believes that this result, while still excessive, supports CSXT's contention that the punitive damages award was unwarranted.
In 1999, six of the nine defendants in the case reached a tentative settlement with the plaintiffs group. The basis of the settlement is an agreement that all claims for compensatory and punitive damages against the six defendants would be compromised for the sum of $215 million. The settlement was approved by the trial court in early 2000.
In 2000, the City of New Orleans was granted permission by the trial court to assert an amended claim against CSXT, including a newly asserted claim for punitive damages. The City's case was originally filed in 1988, and while based on the 1987 tank car fire, is not considered to be part of the class action.
In April of 2001, a group of approximately 100 New Orleans firefighters and their spouses brought an action against CSXT and other defendants in the original tank car fire case, styled Hilda Austin, wife of and Edward F. Austin, Sr. et al. versus Norfolk Southern Corporation et al., Civil District Court for the Parish of Orleans (Louisiana), No. 2001-5104. This action purports to be a claim by the firefighters for injuries allegedly incurred during the September, 1987 tank car fire. The Austin matter has been transferred to the presiding trial judge in the tank car fire case and consolidated with the main case. A motion on behalf of the Austin plaintiffs to intervene in the main case is now pending before the trial judge. CSXT intends to oppose the motion to intervene, and believes that this claim is not timely brought.
On June 27, 2001, the Louisiana Court of Appeal for the Fourth Circuit affirmed the judgment of the trial court, which judgment reduced the punitive damages verdict from $2.5 billion to $850 million. CSXT moved the Louisiana Fourth Circuit Court for rehearing of certain issues raised in its appeal; that motion was denied on August 2, 2001.
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 12. COMMITMENTS AND CONTINGENCIES, Continued
On August 30, 2001, CSXT filed with the Louisiana Supreme Court an application that the court take jurisdiction over and reverse the 1997 punitive damages award. The Louisiana Supreme Court's jurisdiction in this case is discretionary. Opposing papers were filed by counsel on October 15, 2001. If the Louisiana Supreme Court takes jurisdiction of the case, an additional round of briefing and oral argument may precede any decision by the court. If the Louisiana Supreme Court does not take jurisdiction, or if its resolution of the issues is unsatisfactory, CSXT intends to seek further review before the United States Supreme Court.
CSXT continues to pursue an aggressive legal strategy. At the present time, management is not in a position to determine whether the resolution of this case will have a material adverse effect on the Company's financial position or results of operations in any future reporting period.
CSX has received a claim amounting to approximately $180 million plus interest from Europe Container Terminals bv (ECT), owner of the Rotterdam Container Terminal previously operated by Sea-Land prior to its sale to Maersk in December 1999. ECT has claimed that the sale of the international liner business to Maersk resulted in a breach of the Sea-Land terminal agreements. ECT has refused to accept containers at the former Sea-Land facility tendered by Maersk Sea-Land and is seeking compensation from CSX related to the alleged breach. CSX has also advised Maersk that CSX holds them responsible for any damages that may result from this case. The claim by ECT has advanced to formal arbitration in Rotterdam. A final ruling is not expected before late summer of 2002. Management's evaluation of the claim indicates that valid defenses exist, but at this point management cannot estimate what, if any, losses may result from this case.
A number of legal actions are pending against CSX and certain subsidiaries in which claims are made in substantial amounts. While the ultimate results of these actions against the Company cannot be predicted with certainty, management does not currently expect that resolution of these matters will have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. The Company is also party to a number of actions, the resolution of which could result in gain realization in amounts that could be material to results of operations in the quarter received.
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 13. BUSINESS SEGMENTS
The Company operates in four business segments: Rail, Intermodal, Domestic Container Shipping, and International Terminals. The Rail segment provides rail freight transportation over a network of more than 23,400 route miles in 23 states, the District of Columbia and two Canadian provinces. The Intermodal segment provides transcontinental intermodal transportation services and operates a network of dedicated intermodal facilities across North America. The Domestic Container Shipping segment consists of a fleet of 16 ocean vessels and 27,000 containers serving the trade between ports on the United States mainland and Alaska, Guam, Hawaii and Puerto Rico. The International Terminals segment operates container freight terminal facilities at 12 locations in Hong Kong, China, Australia, Europe, and the Dominican Republic. The Company's segments are strategic business units that offer different services and are managed separately based on the differences in these services. Because of their close interrelationship, the Rail and Intermodal segments are viewed on a combined basis as Surface Transportation operations and the Domestic Container Shipping and International Terminals segments are viewed on a combined basis as Marine Services operations.
The Company evaluates performance and allocates resources based on
several factors, of which the primary financial measure is business segment
operating income, defined as income from operations, excluding the effects of
non-recurring charges and gains. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies (Note
1), except that for segment reporting purposes, CSX includes minority interest
expense on the international terminals segment's joint venture businesses in
operating expense. These amounts are reclassified in CSX's consolidated
financial statements to other expense. Intersegment sales and transfers are
generally accounted for as if the sales or transfers were to third parties, that
is, at current market prices.
Business segment information for the quarters and nine months ended September 28, 2001 and September 29, 2000 is as follows:
Marine Services
----------------------------------
Surface Transportation Domestic
-------------------------------
Container International
Rail Intermodal Total Shipping Terminals Total Total
---------------------------------------------------------------------------------
Revenues from external customers $ 1,495 $ 281 $ 1,776 $ 181 $ 62 $ 243 $ 2,019
Intersegment revenues - 5 5 - - - 5
Segment operating income 200 37 237 17 20 37 274
Assets 12,826 437 13,263 404 868 1,272 14,535
|
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 13. BUSINESS SEGMENTS, Continued
Marine Services
----------------------------------
Surface Transportation Domestic
----------------------------------
Container International
Rail Intermodal Total Shipping Terminals Total Total
-----------------------------------------------------------------------------------
Revenues from external customers $ 1,500 $ 283 $ 1,783 $ 176 $ 80 $ 256 $ 2,039
Intersegment revenues - 5 5 - 1 1 6
Segment operating income 163 27 190 7 19 26 216
Assets 13,153 416 13,569 355 773 1,128 14,697
Nine Months ended September 28, 2001:
-------------------------------------
Marine Services
----------------------------------
Surface Transportation Domestic
----------------------------------
Container International
Rail Intermodal Total Shipping Terminals Total Total
-----------------------------------------------------------------------------------
Revenues from external customers $ 4,583 $ 812 $ 5,395 $ 510 $ 196 $ 706 $ 6,101
Intersegment revenues - 15 15 - 2 2 17
Segment operating income 585 76 661 21 50 71 732
Assets 12,826 437 13,263 404 868 1,272 14,535
Nine Months ended September 29, 2000:
-------------------------------------
Marine Services
----------------------------------
Surface Transportation Domestic
----------------------------------
Container International
Rail Intermodal Total Shipping Terminals Total Total
-----------------------------------------------------------------------------------
Revenues from external customers $ 4,563 $ 852 $ 5,415 $ 500 $ 229 $ 729 $ 6,144
Intersegment revenues - 15 15 - 2 2 17
Segment operating income 448 60 508 10 51 61 569
Assets 13,153 416 13,569 355 773 1,128 14,697
|
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 13. BUSINESS SEGMENTS, Continued
A reconciliation of the totals reported for the business segments to the applicable line items in the consolidated financial statements is as follows:
Quarters Ended Nine Months Ended
--------------------------- --------------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2001 2000 2001 2000
------------ ------------- ----------- -------------
Revenues:
--------
Total external revenues for business segments $ 2,019 $ 2,039 $ 6,101 $ 6,144
Intersegment revenues for business segments 5 6 17 17
Elimination of intersegment revenues (5) (6) (17) (17)
---------- --------- --------- ---------
Total consolidated revenues $ 2,019 $ 2,039 $ 6,101 $ 6,144
========== ========= ========= =========
Operating Income:
----------------
Total operating income for business segments $ 274 $ 216 $ 732 $ 569
Reclassification of minority interest expense for
International terminals segment 8 11 25 31
Unallocated corporate expenses - (3) (21) (13)
---------- --------- --------- ---------
Total consolidated operating income $ 282 $ 224 $ 736 $ 587
========== ========= ========= =========
------------ -------------
Sept. 28, Sept. 29,
2001 2000
------------ -------------
Assets:
------
Assets for business segments $ 14,535 $ 14,697
Investment in Conrail 4,677 4,667
Elimination of intercompany receivables (91) (198)
Non-segment assets 1,485 1,541
---------- -----------
Total consolidated assets $ 20,606 $ 20,707
========== ===========
|
NOTE 14. SUBSEQUENT EVENT
On October 24, 2001, CSX executed an agreement whereby the Company issued $563.5 million aggregate principal amount at maturity in unsubordinated zero coupon convertible debentures due October 30, 2021 for an initial offering price of approximately $462 million. These debentures will accrete in value at a yield to maturity of 1% per year, which will be reset on October 30, 2007, October 30, 2011, and October 30, 2016 to a rate per annum equal to the interest rate payable 120 days before that reset date on 5-year United States Treasury Notes minus 2.80%. In no event, however, will the yield to maturity be reset below 1% or above 3% per annum. Accretion in value on the debentures will be recorded for each period, but will not be paid prior to maturity.
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 14. SUBSEQUENT EVENT, Continued
CSX may redeem the debentures for cash at any time on or after October 30, 2008, at a redemption price equal to the accreted value of the debentures. Similarly, holders may require the Company to purchase their debentures on October 30, 2003, October 30, 2006, October 30, 2008, October 30, 2011 and October 30, 2016, at a purchase price equal to the accreted value of the debentures. On the first three purchase dates CSX may elect to pay the purchase price in cash and/or shares of common stock, while CSX may pay the purchase price only in cash on the last two purchase dates.
Holders may convert debentures into common stock if certain requirements defined in the debentures and the related indenture are met. Holders may convert if the closing sale price of CSX common stock for at least 20 of the 30 preceding trading days is more than the applicable percentage (which will initially be 120% and will decline over the life of the debentures to 110%) of the accreted conversion price per share of the Company's common stock. [The "accreted conversion price" per share of common stock is the quotient of the accreted value of a debenture divided by the number of shares of common stock issuable upon conversion of that debenture.] Holders may also convert if the Company's senior long-term unsecured credit ratings are downgraded by Moody's Investors Service, Inc. to below Ba1 and by Standard & Poor's Rating Services to below BB+, if the debentures have been called for redemption, if the Company makes specified distributions to holders of CSX common stock, or if the Company is a party to specified consolidations, mergers, or transfers or leases of all or substantially all of the Company's assets. For each debenture surrendered for conversion, a holder will initially receive 17.7461 shares of CSX common stock, which is equivalent to an initial conversion price of $46.16 per share. The initial conversion rate will be adjusted for reasons specified in the indenture, but will not be adjusted for accretion. Instead, accretion on the debentures will be deemed paid by the common stock received by the holder on conversion.
It is expected that substantially all of the net proceeds from the sale of the debentures will be used to redeem $400 million aggregate principal amount of the Company's floating rate medium-term notes, and/or to refinance a portion of outstanding commercial paper. The balance, if any, will be used for general corporate purposes.
NOTE 15. SUMMARIZED CONSOLIDATING FINANCIAL DATA - CSX LINES
During 1987, CSX Lines entered into agreements to sell and lease back by charter three new U.S.-built, U.S.-flag, D-7 class container ships. CSX has guaranteed the obligations of CSX Lines pursuant to the related charters which, along with the container ships, serve as collateral for debt securities registered with the Securities and Exchange Commission (SEC). The September 28, 2001 and September 29, 2000 consolidating schedules reflect CSX Lines as the obligor. In accordance with SEC disclosure requirements, consolidating financial information for the parent and guarantors are as follows: (amounts in millions)
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 15. SUMMARIZED CONSOLIDATING FINANCIAL DATA-CSX LINES, Continued
Consolidating Statement of Financial Position
September 28, 2001
CSX Corporate CSX Lines Other Eliminations Consolidated
------------- --------- ------- ------------- ------------
ASSETS
Current Assets
Cash, Cash Equivalents and Short-term Investments $ 144 $ 14 $ 434 $ - $ 592
Accounts Receivable 35 37 920 (116) 876
Materials and Supplies - 15 251 - 266
Deferred Income Taxes - - 141 - 141
Other Current Assets 4 12 273 (145) 144
----------- --------- -------- --------- ----------
Total Current Assets 183 78 2,019 (261) 2,019
Properties 29 458 17,792 - 18,279
Accumulated Depreciation (26) (292) (5,082) - (5,400)
----------- --------- -------- --------- ----------
Properties, net 3 166 12,710 - 12,879
Investment in Conrail 356 - 4,321 - 4,677
Affiliates and Other Companies 2 94 295 (31) 360
Investment in Consolidated Subsidiaries 13,298 - 396 (13,694) -
Other long-term assets 156 67 1,035 (587) 671
----------- --------- -------- --------- ----------
Total Assets $ 13,998 $ 405 $ 20,776 $ (14,573) $ 20,606
=========== ========= ======== ========= ==========
LIABILITIES
Current liabilities
Accounts Payable $ 139 $ 82 $ 940 $ (64) $ 1,097
Labor and Fringe Benefits Payable 12 10 386 - 408
Payable to Affiliates - - 145 (145) -
Casualty, Environmental and Other Reserves 1 2 251 - 254
Current Maturities of Long-term Debt 850 - 126 - 976
Short-term Debt 272 - - - 272
Income and Other Taxes Payable 1,199 25 (1,034) - 190
Other Current Liabilities 37 23 241 (51) 250
----------- --------- -------- --------- ----------
Total Current Liabilities 2,510 142 1,055 (260) 3,447
Casualty, Environmental and Other reserves 1 3 709 - 713
Long-term Debt 4,594 69 996 - 5,659
Deferred Income Taxes 90 (23) 3,415 - 3,482
Long Term Payable to Affiliates 396 - 192 (588) -
Other Long-term Liabilities 325 37 860 (30) 1,192
----------- --------- -------- --------- ----------
Total Liabilities 7,916 228 7,227 (878) 14,493
----------- --------- -------- --------- ----------
SHAREHOLDER'S EQUITY
Preferred Stock - - 396 (396) -
Common Stock 224 - 198 (209) 213
Other Capital 2,181 171 8,127 (8,994) 1,485
Retained Earnings 3,677 6 4,828 (4,096) 4,415
----------- --------- -------- --------- ----------
Total Shareholders' Equity 6,082 177 13,549 (13,695) 6,113
----------- --------- -------- --------- ----------
Total Liabilities and Shareholders' Equity $ 13,998 $ 405 $ 20,776 $ (14,573) $ 20,606
=========== ========= ======== ========= ==========
|
CSX CORPORATIONS AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued (All Tables in Millions of Dollars, Except Per Share Amounts
NOTE 15. SUMMARIZED CONSOLIDATING FINANCIAL DATA - CSX LINES, Continued
Consolidating Statement of Financial Position
December 29, 2000
CSX Corporate CSX Lines Other Eliminations Consolidated
------------- ---------- ---------- ------------ -------------
ASSETS
Current Assets
Cash, Cash Equivalents and Short-term
Investments $ 285 $ (94) $ 493 $ - $ 684
Accounts Receivable 33 65 926 (174) 850
Materials and Supplies - 15 230 - 245
Deferred Income Taxes - - 121 - 121
Other Current Assets 12 12 248 (126) 146
---------- ---------- --------- ---------- -----------
Total Current Assets 330 (2) 2,018 (300) 2,046
Properties 29 455 17,355 - 17,839
Accumulated Depreciation (25) (276) (4,896) - (5,197)
---------- ---------- --------- ---------- -----------
Properties, net 4 179 12,459 - 12,642
Investment in Conrail 364 - 4,304 - 4,668
Affiliates and Other Companies - 164 227 (29) 362
Investment in Consolidated Subsidiaries 13,184 - 386 (13,570) -
Other Long-term assets (205) - 2,097 (1,119) 773
---------- ---------- -------- ---------- -----------
Total Assets $ 13,677 $ 341 $ 21,491 $ (15,018) $ 20,491
========== ========== ======== ========== ===========
LIABILITIES
Current Liabilities
Accounts Payable $ 102 $ 88 $ 1,036 $ (147) $ 1,079
Labor and Fringe Benefits Payable 5 21 379 - 405
Payable to Affilitates - - 127 (127) -
Casuality, Environmental and Other Reserves 1 3 242 - 246
Current Maturities of Long-term Debt 60 - 112 - 172
Short-term Debt 749 - - - 749
Income and Other Taxes Payable 1,346 12 (986) - 372
Other Current Liabilities 39 25 219 (26) 257
---------- ---------- -------- ---------- -----------
Total Current Liabilities 2,302 149 1,129 (300) 3,280
Casuality, Environmental and Other Reserves - 4 751 - 755
Long-term Debt 4,594 54 1,162 - 5,810
Deferred Income Taxes 118 (16) 3,282 - 3,384
Long Term Payable to Affiliates 396 14 707 (1,117) -
Other Long-term Liabilities 250 43 982 (30) 1,245
---------- ---------- -------- ---------- -----------
Total Liabilities 7,660 248 8,013 (1,447) 14,474
---------- ---------- -------- ---------- -----------
SHAREHOLDER'S EQUITY
Preferred Stock - - 396 (396) -
Common Stock 213 - 209 (209) 213
Other Capital 1,467 98 8,958 (9,056) 1,467
Retained Earnings 4,337 (5) 3,915 (3,910) 4,337
---------- ---------- -------- ---------- -----------
Total Shareholder's Equity 6,017 93 13,478 (13,571) 6,017
---------- ---------- -------- ---------- -----------
Total Liabilities and Shareholder's Equity $ 13,677 $ 341 $ 21,491 $ (15,018) $ 20,491
---------- ---------- -------- ---------- -----------
|
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 15 SUMMARIZED CONSOLIDATING FINANCIAL DATA - CSX LINES, Continued
Consolidating Statement of Earnings
Quarter ended September 28, 2001
CSX Corporate CSX Lines Other Eliminations Consolidated
----------------- ----------------- ----------------- ----------------- -----------------
Operating Revenue $ - $ 182 $ 1,948 $ (111) $ 2,019
Operating Expense (59) 165 1,740 (109) 1,737
----------------- ----------------- ----------------- ----------------- -----------------
Operating Income (Loss) 59 17 208 (2) 282
Other Income (Expense) 152 - 22 (173) 1
Interest Expense 116 1 29 (20) 126
----------------- ----------------- ----------------- ----------------- -----------------
Earnings before Income Taxes 95 16 201 (155) 157
Income Tax Expense (Benefit) (20) 6 71 - 57
----------------- ----------------- ----------------- ----------------- -----------------
Net Earnings (Loss) $ 115 $ 10 $ 130 $ (155) $ 100
================= ================= ================= ================= =================
|
Consolidating Statement of Earnings
Quarter ended September 28, 2001
CSX Corporate CSX Lines Other Eliminations Consolidated
----------------- ----------------- ----------------- ----------------- -----------------
Operating Revenue $ - $ 176 $ 1,972 $ (109) $ 2,039
Operating Expense (61) 169 1,814 (107) 1,815
----------------- ----------------- ----------------- ----------------- -----------------
Operating Income (Loss) 61 7 158 (2) 224
Other Income (Expense) 487 - 49 (533) 3
Interest Expense 145 2 41 (48) 140
----------------- ----------------- ----------------- ----------------- -----------------
Earnings from Continuing Operations
before Income Taxes 403 5 166 (487) 87
Income Tax Expense (Benefit) (27) 2 53 - 28
----------------- ----------------- ----------------- ----------------- -----------------
Net Earnings (Loss) from Continuing
Operations $ 430 $ 3 $ 113 $ (487) $ 59
================= ================= ================= ================= =================
Discontinued Operations, net of taxes - - 368 - 368
----------------- ----------------- ----------------- ----------------- -----------------
Net Earnings (Loss) $ 430 $ 3 $ 481 $ (487) $ 427
================= ================= ================= ================= =================
|
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited ), Continued (All Tables in Millions of Dollars, Except Per Share Amounts
NOTES 15. SUMMARIZED CONSOLIDATING FINANCIAL DATA - CSX LINES,
Continued
Consolidating Statement of Earnings
Nine Months Ended September 28, 2001
CSX Corporate CSX Lines Other Eliminations Consolidated
--------------- ----------- ------- -------------- --------------
Operating Revenue $ - $ 510 $ 5,920 $ (329) $ 6,101
Operating Expense (150) 489 5,349 (323) 5,365
--------- --------- --------- -------- ---------
Operating Income (Loss) 150 21 571 (6) 736
Other Income (Expense) 389 (2) 75 (458) 4
Interest Expense 360 2 94 (67) 389
--------- --------- --------- -------- ---------
Earnings before Income Taxes 179 17 552 (397) 351
Income Tax Expense (Benefit) (70) 6 187 - 123
--------- --------- --------- -------- ---------
Net Earnings (Loss) $ 249 $ 11 $ 365 $ (397) $ 228
========= ========= ========= ======== =========
Consolidating Statement of Earnings
Nine months ended September 29, 2000
CSX Corporate CSX Lines Other Eliminations Consolidated
--------------- ----------- ------- -------------- --------------
Operating Revenue $ - $ 499 $ 5,987 $ (342) $ 6,144
Operating Expense (171) 490 5,573 (335) 5,557
--------- --------- --------- -------- ---------
Operating Income (Loss) 171 9 414 (7) 587
Other Income (Expense) 663 (1) 140 (780) 22
Interest Expense 422 5 114 (128) 413
--------- --------- --------- -------- ---------
Earnings from Continuing Operations
before Income Taxes 411 3 440 (659) 196
Income Tax Expense (Benefit) (78) 1 141 - 64
--------- --------- --------- -------- ---------
Net Earnings (Loss) from Continuing
Operations 489 2 299 (659) 132
--------- --------- --------- -------- ---------
Discontinued Operations, Net of Taxes - - 379 - 379
--------- --------- --------- -------- ---------
Net Earnings (Loss) $ 489 $ 2 $ 678 $ (659) $ 511
========= ========= ========= ======== =========
|
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 15. SUMMARIZED CONSOLIDATING FINANCIAL DATA - CSX LINES, Continued
Consolidating Statement of Cash Flows
Nine Months Ended September 28, 2001
CSX CSX
Corporate Lines Other Eliminations Consolidated
-------------- ------------- ----------- --------------- --------------
Operating Activities
Net Cash Provided by Operating Activities $ (128) $ 36 $ 557 $ (26) $ 439
-------------- ------------- ----------- --------------- --------------
Investing Activities
Property Additions - (5) (623) - (628)
Short-term Investments-net (35) - - - (35)
Other Investing Activities (885) 1 937 (1) 52
-------------- ------------- ----------- --------------- --------------
Net Cash Used by Investing Activities (920) (4) 314 (1) (611)
-------------- ------------- ----------- --------------- --------------
Financing Activities
Short-term Debt-Net (127) - - - (127)
Long-term Debt Issued 500 - - - 500
Long-term Debt Repaid (60) - (135) - (195)
Cash Dividends Paid (152) - (24) 27 (149)
Other Financing Activities 711 76 (773) 1 15
-------------- ------------- ----------- --------------- --------------
Net Cash Provided (Used) by Financing
Activities 872 76 (932) 28 44
Net Increase (Decrease) in Cash and Cash
Equivalents (176) 108 (61) 1 (128)
Cash and Cash Equivalents at Beginning of
Period (134) (94) 489 - 261
-------------- ------------- ----------- --------------- --------------
Cash and Cash Equivalents at End of Period $ (310) $ 14 $ 428 $ 1 $ 133
============== ============= =========== =============== ==============
|
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued (All Tables in Millions of Dollars, except Per Share Amounts
NOTE 15. SUMMARIZED CONSOLIDATING FINANCIAL DATA - CSX LINES, Continued
Consolidating Statement of Cash Flows
Nine Months Ended September 29, 2000
CSX CSX
Corporate Lines Other Eliminations Consolidated
--------- ----- ---- ------------ ------------
Operating Activities
Net Cash Provided by Operating Activities $ 151 $ (8) $ 600 $ (194) $ 549
------- ------ --------- ------ ------
Investing Activities
Property Additions - (7) (636) - (643)
Short-term Investments-net (44) - - - (44)
Other Investing Activities 555 - (851) 949 653
------- ------ --------- ------ ------
Net Cash Used by Investing Activities 511 (7) (1,487) 949 (34)
------- ------ --------- ------ ------
Financing Activities
Short-term Debt-Net (247) - - - (247)
Long-term Debt Issued - - 588 - 588
Long-term Debt Repaid (250) - (487) (737)
Cash Dividends Paid (200) - (179) 182 (197)
Other Financing Activities 377 (68) 566 (931) (56)
------- ------ --------- ------ ------
Net Cash Provided (Used) by Financing Activities (320) (68) 488 (749) (649)
Net Increase (Decrease) in Cash and Cash Equivalents 342 (83) (399) 6 (134)
Cash and Cash Equivalents at Beginning of Period (475) 16 1,090 (5) 626
------- ------ --------- ------ ------
Cash and Cash Equivalents at End of Period $ (133) $ (67) $ 691 $ 1 $ 492
======= ====== ========= ====== ======
|
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
CSX follows a 52/53-week fiscal calendar. Fiscal years 2001 and 2000 consist of 52 weeks. The quarters ended September 28, 2001 and September 29, 2000 consisted of 13 weeks. The nine-month periods ended September 28, 2001 and September 29, 2000 consisted of 39 weeks.
CSX reported net earnings of $100 million, 47 cents per share for the quarter ended September 28, 2001, as compared to $427 million, $2.02 per share in the quarter ended September 29, 2000.
On September 22, 2000, CSX completed the sale of its wholly-owned logistics subsidiary, CTI Logistx, Inc. to TNT Post Group for $650 million, realizing a pre-tax gain of $570 million, $365 million after-tax, or $1.73 per share. The contract logistics segment is reported as a discontinued operation. CSX had net earnings from continuing operations of $100 million, 47 cents per share on a diluted basis, for the quarter ended September 28, 2001, versus net earnings from continuing operations of $59 million, 28 cents per share on a diluted basis for the period ended September 29, 2000, an increase of 69%.
Operating income was $282 million in the quarter ended September 28, 2001, an increase of 26% over the $224 million reported in the same quarter in 2000. Revenues were consistent between the years at $2.0 billion, but operating expenses were down 4% at $1.7 billion.
Rail
Rail operating income was $200 million in the quarter ended September 28, 2001, an increase of 23% over the $163 million reported in the same quarter in 2000. Volumes were down due to general economic weakness, while revenues were flat due to offsetting pricing initiatives.
Operating expenses were down 3% compared to the same quarter in the prior year at $1.3 billion, as management successfully removed costs from the network and operated a more efficient railroad.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED
RESULTS OF OPERATIONS, Continued
Rail, Continued
The following tables provide rail carload and revenue data by service group and commodity for the quarters and nine months ended September 28, 2001 and September 29, 2000:
Carloads Revenue
Quarter Ended Quarter Ended
(Thousands) (Millions of Dollars)
--------------------------- ----------------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2001 2000 2001 2000
------------- ------------ ------------- -------------
Merchandise
Phosphates and Fertilizer 101 115 $ 63 $ 75
Metals 83 85 105 102
Food and Consumer Products 41 40 59 57
Paper and Forest Products 120 128 161 160
Agricultural Products 88 86 118 116
Chemicals 143 150 236 249
Minerals 115 116 101 104
Government 3 2 9 7
------------- ------------ ------------- -------------
Total Merchandise 694 722 852 870
Automotive 119 132 184 196
Coal, Coke and Iron Ore
Coal 422 433 417 397
Coke 10 12 12 11
Iron Ore 12 14 6 8
------------- ------------ ------------- -------------
Total Coal, Coke and Iron Ore 444 459 435 416
Other - - 24 18
------------- ------------ ------------- -------------
Total Rail 1,257 1,313 $ 1,495 $ 1,500
============= ============ ============= =============
|
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED
RESULTS OF OPERATIONS, Continued
Rail, Continued
Carloads Revenue
Nine Months Ended Nine Months Ended
(Thousands) (Millions of Dollars)
--------------------------- --------------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2001 2000 2001 2000
------------- ------------ ------------ ------------
Merchandise
Phosphates and Fertilizer 325 369 $ 227 $ 242
Metals 250 266 312 316
Food and Consumer Products 124 120 180 165
Paper and Forest Products 363 400 482 497
Agricultural Products 280 265 377 355
Chemicals 440 453 730 751
Minerals 322 334 291 303
Government 8 8 24 22
------------- ------------ ------------ ------------
Total Merchandise 2,112 2,215 2,623 2,651
Automotive 385 448 591 661
Coal, Coke and Iron Ore
Coal 1,291 1,238 1,248 1,151
Coke 31 36 36 36
Iron Ore 30 35 17 22
------------- ------------ ------------ ------------
Total Coal, Coke and Iron Ore 1,352 1,309 1,301 1,209
Other - - 68 42
------------- ------------ ------------ ------------
Total Rail 3,849 3,972 $ 4,583 $ 4,563
============= ============ ============ ============
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General merchandise volumes were down 4% for the quarter and 5% for the first nine months compared to 2000. In the third quarter, selective pricing initiatives, continued success with truck conversions and mix improvements in the various merchandise commodity groups continued to successfully offset some of the volume shortfalls, particularly in metals, and paper and forest. For the first nine months, only volumes for food and consumer, and agricultural products were up on a year over year basis. Coal volumes in the third quarter were 3% lower year over year due to unusually low stockpiles at the mines during miners' vacation in July. Coal revenues increased 5%, reflecting various pricing initiatives and mix improvements.
Operating expenses decreased by $42 million in the quarter versus the prior year. Reductions in labor and fringe benefits, building and equipment rent, and fuel were the primary components. A portion of the reduction is related to volumes, but it is primarily due to the network operating more efficiently. The decrease in fuel costs can also be attributed to a 7.8 cent decline in the average fuel price for the third quarter versus the prior year quarter. These benefits were partially offset by increases in materials, supplies and other and depreciation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED
RESULTS OF OPERATIONS, Continued
Intermodal
Intermodal operating income was $37 million for the third quarter of 2001, compared to $27 million in the prior year quarter. Intermodal volumes in the third quarter increased 2% versus 2000 reflecting growth in transcontinental containerized shipments, while revenues fell due to general economic weakness and mix deterioration. Operating income was up $10 million or 37% as a result of decreased operating expenses. These numbers reflect a loss of some of the low margin international transcontinental freight revenues that intermodal had in 2000 on which the Company incurs a significant amount of other railroad transportation costs. Inland transportation costs were down $6 million or 4% in the third quarter of 2001 as compared to the prior year.
Domestic Container Shipping
Domestic container shipping operating income was $17 million in the quarter ended September 28, 2001, up from $7 million in the prior year quarter. Operating revenue is up by $5 million despite a soft economy, as a result of increased market share in each trade, cargo mix improvements, and general rate increases in the Hawaii and Alaska trades. Operating expense is down by $5 million due to continued focus on expense reductions and productivity improvements.
International Terminals
International terminals operating income was $20 million in the quarter ended September 28, 2001, an increase of $1 million year over year. Although the slower than expected market demand continued to impact the operations negatively, as revenues were down $19 million, aggressive cost reduction initiatives mitigated some of the revenue short falls while improving the third quarter net operating income by $1 million over that of the third quarter 2000.
For the first nine months of the year, CSX reported net earnings from continuing operations of $228 million, $1.07 per share, as compared to $132 million, 62 cents per share in the period ended September 29, 2000.
Operating income was $736 million in the nine months ended September 28, 2001, an increase of 25% over the $587 million reported in the same period in 2000. Operating revenues were consistent between the years at $6.1 billion, but operating expenses were down 3% at $5.4 billion.
Other income was $4 million in the nine month period ended September 28, 2001, a decrease of 82% from the $22 million reported in the same period of 2000. This decrease is comprised of a decline in interest income and increases in net losses from accounts receivable sold and equity losses of other affiliates, offset by an increase in income from real estate and resort operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED
FINANCIAL CONDITION
Cash, cash equivalents and short-term investments totaled $592 million at September 28, 2001, a decrease of $92 million since December 29, 2000.
Primary sources of cash and cash equivalents during the nine months ended September 28, 2001 were normal transportation operations and the issuance of $500 million of long-term debt. On a net basis, operations provided $439 million of cash for the nine-month period, reflecting an increase in operating income. Primary uses of cash and cash equivalents were property additions, repayments of short-term and long-term debt, and the payment of dividends. On July 11, 2001 the Board of Directors announced that the regular quarterly dividend payable September 14, 2001, would be reduced to 10 cents per share. CSX had paid a regularly quarterly dividend of 30 cents per share since the fourth quarter of 1997.
CSX's working capital deficit at September 28, 2001 was $1.4 billion, up from $1.2 billion at December 29, 2000. The working capital deficit increased due to $765 million of long-term debt being reclassified to current during the second quarter as it is due within 12 months. This increase was partially offset by the reclassification of $350 million in outstanding commercial paper from short-term debt to long term due to the fact that it is now supported by a new five-year line of credit agreement signed in June 2001. The commercial paper balances had been classified as current due to the fact that the Company's old line of credit agreement was to expire in November of 2001. A working capital deficit is not unusual for the Company and does not indicate a lack of liquidity. The Company continues to maintain adequate current assets to satisfy current liabilities when they are due and has sufficient liquidity and financial resources to manage its day-to-day cash needs. CSX also has $838 million of remaining capacity under two shelf registrations that may be used to issue debt or other securities at the Company's discretion.
On October 24, 2001, CSX executed an agreement whereby the Company issued $563.5 million aggregate principal amount at maturity in unsubordinated zero coupon convertible debentures due October 30, 2021 for an initial offering price of approximately $462 million. It is expected that substantially all of the net proceeds from the sale of the debentures will be used to redeem $400 million aggregate principal amount of the Company's floating rate medium-term notes, and/or to refinance a portion of outstanding commercial paper. The balance, if any, will be used for general corporate purposes.
(Millions of Dollars)
-----------------------------------
September 28, December 29,
2001 2000
----------------- -----------------
Cash, Cash Equivalents and
Short-Term Investments $ 592 $ 684
Commercial Paper Outstanding
Short-Term $ 272 $ 749
Working Capital (Deficit) $ (1,428) $ (1,234)
Current Ratio .6 .6
Debt Ratio 52 % 52 %
Ratio of Earnings to Fixed Charges 1.7 x 1.4 x
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED
On August 10, 2001, the Company entered into $500 million of interest rate swap agreements to manage its exposure to interest rate risk. The interest rate swap agreements hedge the Company's exposure on the fair value of long-term obligations in the aggregate principal amount of $500 million. The differential paid or received by the Company on the interest rate swap agreement is recognized as an adjustment to interest expense in the period incurred. For the three months ended September 28, 2001, the Company reduced interest expense by approximately $.6 million as a result of the interest rate swap agreements that were in place during that period. The Company is exposed to credit loss in the event of non-performance by any counter-party to the interest rate swap agreement. The Company does not anticipate non-performance by such counter-parties, and no material loss would be expected from non-performance.
In the remainder of 2001, the challenge will be to continue to improve the financial performance of the railroad. This is expected to be accomplished through continued service improvements, which will serve as the catalyst for sustained yield improvements, aggressive cost cutting initiatives and continued success in attracting traffic to move from trucks to CSX. Despite a weak economy, CSX continues to expect to produce full year earnings that will show an increase from previous years.
The Company has entered into fixed-price forward fuel purchase agreements for approximately 50% of its fuel requirements over the next fifteen months. These agreements amount to approximately 360 million gallons in commitments at a weighted average of 78 cents per gallon.
INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL
CSX and Norfolk Southern Corporation (Norfolk Southern) completed the acquisition of Conrail Inc. (Conrail) in May 1997. Conrail owns the primary freight railroad system serving the northeastern United States, and its rail network extends into several midwestern states and into Canada. CSX and Norfolk Southern, through a jointly owned acquisition entity, hold economic interests in Conrail of 42% and 58%, respectively, and voting interests of 50% each. CSX and Norfolk Southern received regulatory approval from the Surface Transportation Board (STB) to exercise joint control over Conrail in August 1998 and subsequently began integrated operations over allocated portions of the Conrail lines in June 1999.
The rail subsidiaries of CSX and Norfolk Southern operate their respective portions of the Conrail system pursuant to various operating agreements that took effect on June 1, 1999. Under these agreements, the railroads pay operating fees to Conrail for the use of right-of-way and rent for the use of equipment. Conrail continues to provide rail service in certain shared geographic areas for the joint benefit of CSX and Norfolk Southern for which it is compensated on the basis of usage by the respective railroads.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED
CSX and Norfolk Southern have assumed substantially all of Conrail's former customer freight contracts. CSX's rail and intermodal operating revenue include revenue from traffic previously recognized by Conrail. Operating expenses reflect corresponding increases for costs incurred to operate the former Conrail lines. Rail operating expenses after the integration also include an expense category, "Conrail Operating Fee, Rent and Services," which reflects payment to Conrail for the use of right-of-way and equipment, as well as charges for transportation, switching, and terminal services in the shared areas Conrail operates for the joint benefit of CSX and Norfolk Southern. This expense category also includes amortization of the fair value write-up arising from the acquisition of Conrail, as well as CSX's proportionate share of Conrail's net income or loss recognized under the equity method of accounting.
Conrail reported net income of $35 million on revenues of $223 million for the third quarter of 2001, compared to net income of $35 million on revenues of $243 million for the prior year quarter. For the related nine-month periods, Conrail reported net income of $127 million on revenues of $685 million in 2001 and net income of $131 million on revenues of $748 million in 2000.
Conrail's operating activities provided cash of $372 million for the first nine months of 2001, compared with $85 million for the first nine months of 2000. The increase in cash provided by operations is primarily due to significant one-time payments made to CSX and Norfolk Southern in 2000.
Conrail's working capital was $417 million at September 30, 2001, compared with $85 million at December 31, 2000.
On September 11, 2001, in cooperation with government authorities and President Bush's declaration of a national emergency related to the terrorist attacks and tragic events on that date, all CSXT traffic in and out of greater New York, Boston and Washington, D.C. was suspended and certain terminals were closed. CSXT resumed normal operations, and all CSXT facilities were open and fully operational, on September 12 with the exception of the New York/New Jersey Port Authority terminal.
In connection with the terrorist attacks of September 11, 2001, CSX is participating actively in industry task forces to identify and implement additional security measures. At the same time, the industry is working with governmental agencies, including the Federal Railroad Administration, and the Congress to coordinate our security efforts and to identify specific areas that may justify government participation.
It is not possible to predict the effects of the terrorist attacks and subsequent developments related to those attacks, particularly their impact on the United States and international economies, or the impact, if any, on our future results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED
OTHER MATTERS, Continued
On July 18, 2001 a CSXT train was involved in a fire inside the Howard Street Tunnel near downtown Baltimore, Maryland. The fire was not contained completely until July 23, 2001. The fire's proximity to downtown Baltimore caused disruptions to a number of businesses. The incident also caused CSXT to reroute traffic and incur higher operating costs. By the end of July, CSXT and government officials had inspected the tunnel and determined that it was safe for normal rail operations. All service through the tunnel was resumed. The Company incurred approximately $13 million in charges to third quarter operating income relating to this incident.
In September 1997, a state court jury in New Orleans, Louisiana returned a $2.5 billion punitive damages award against CSXT. The award was made in a class-action lawsuit against a group of nine companies based on personal injuries alleged to have arisen from a 1987 fire. The fire was caused by a leaking chemical tank car parked on CSXT tracks and resulted in the 36-hour evacuation of a New Orleans neighborhood. In the same case, the court awarded a group of 20 plaintiffs compensatory damages of approximately $2 million against the defendants, including CSXT, to which the jury assigned 15 percent of the responsibility for the incident. CSXT's liability under that compensatory damages award is not material, and adequate provision has been made for the award.
In October 1997, the Louisiana Supreme Court set aside the punitive damages judgment, ruling the judgment should not have been entered until all liability issues were resolved. In February 1999, the Louisiana Supreme Court issued a further decision, authorizing and instructing the trial court to enter individual punitive damages judgments in favor of the 20 plaintiffs who had received awards of compensatory damages, in amounts representing an appropriate share of the jury's award. The trial court on April 8, 1999 entered judgment awarding approximately $2 million in compensatory damages and approximately $8.5 million in punitive damages to those 20 plaintiffs. Approximately $6.2 million of the punitive damages awarded were assessed against CSXT. CSXT then filed post-trial motions for a new trial and for judgment notwithstanding the verdict as to the April 8 judgment.
The new trial motion was denied by the trial court in August 1999. On November 5, 1999, the trial court issued an opinion that granted CSXT's motion for judgment notwithstanding the verdict and effectively reduced the amount of the punitive damages verdict from $2.5 billion to $850 million. CSXT believes that this amount (or any amount of punitive damages) is unwarranted and intends to pursue its full appellate remedies with respect to the 1997 trial as well as the trial judge's decision on the motion for judgment notwithstanding the verdict. The compensatory damages awarded by the jury in the 1997 trial were also substantially reduced by the trial judge. A judgment reflecting the $850 million punitive award has been entered against CSXT. CSXT has obtained and posted an appeal bond, which has allowed it to appeal the 1997 compensatory and punitive awards, as reduced by the trial judge.
A trial for the claims of 20 additional plaintiffs for compensatory damages began on May 24, 1999. In early July, the jury in that trial rendered verdicts totaling approximately $330 thousand in favor of eighteen of those twenty plaintiffs. Two plaintiffs received nothing; that is, the jury found that they had not proved any damages. Management believes that this result, while still excessive, supports CSXT's contention that the punitive damages award was unwarranted.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED
OTHER MATTERS, Continued
In 1999, six of the nine defendants in the case reached a tentative settlement with the plaintiffs group. The basis of the settlement is an agreement that all claims for compensatory and punitive damages against the six defendants would be compromised for the sum of $215 million. The settlement was approved by the trial court in early 2000.
In 2000, the City of New Orleans was granted permission by the trial court to assert an amended claim against CSXT, including a newly asserted claim for punitive damages. The City's case was originally filed in 1988, and while based on the 1987 tank car fire, is not considered to be part of the class action.
In April of 2001, a group of approximately 100 New Orleans firefighters and their spouses brought an action against CSXT and other defendants in the original tank car fire case, styled Hilda Austin, wife of and Edward F. Austin, Sr. et al. versus Norfolk Southern Corporation et al., Civil District Court for the Parish of Orleans (Louisiana), No. 2001-5104. This action purports to be a claim by the firefighters for injuries allegedly incurred during the September, 1987 tank car fire. The Austin matter has been transferred to the presiding trial judge in the tank car fire case and consolidated with the main case. A motion on behalf of the Austin plaintiffs to intervene in the main case is now pending before the trial judge. CSXT intends to oppose the motion to intervene, and believes that this claim is not timely brought.
On June 27, 2001, the Louisiana Court of Appeal for the Fourth Circuit affirmed the judgment of the trial court, which judgment reduced the punitive damages verdict from $2.5 billion to $850 million. CSXT moved the Louisiana Fourth Circuit Court for rehearing of certain issues raised in its appeal; that motion was denied on August 2, 2001.
On August 30, 2001, CSXT filed with the Louisiana Supreme Court an application that the court take jurisdiction over and reverse the 1997 punitive damages award. The Louisiana Supreme Court's jurisdiction in this case is discretionary. Opposing papers were filed by counsel on October 15, 2001. If the Louisiana Supreme Court takes jurisdiction of the case, an additional round of briefing and oral argument may precede any decision by the court. If the Louisiana Supreme Court does not take jurisdiction, or if its resolution of the issues is unsatisfactory, CSXT intends to seek further review before the United States Supreme Court.
CSXT continues to pursue an aggressive legal strategy. At the present time, management is not in a position to determine whether the resolution of this case will have a material adverse effect on the Company's financial position or results of operations in any future reporting period.
CSX has received a claim amounting to approximately $180 million plus interest from Europe Container Terminals bv (ECT), owner of the Rotterdam Container Terminal previously operated by Sea-Land prior to its sale to Maersk in December 1999. ECT has claimed that the sale of the international liner business to Maersk resulted in a
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED
breach of the Sea-Land terminal agreements. ECT has refused to accept containers at the former Sea-Land facility tendered by Maersk Sea-Land and is seeking compensation from CSX related to the alleged breach. CSX has also advised Maersk that CSX holds them responsible for any damages that may result from this case. The claim by ECT has advanced to formal arbitration in Rotterdam. A final ruling is not expected before late summer of 2002. Management's evaluation of the claim indicates that valid defense exist, but at this point management cannot estimate what, if any, losses may result from this case.
Estimates and forecasts in Management's Discussion and Analysis and in other sections of this Quarterly Report are based on many assumptions about complex economic and operating factors with respect to industry performance, general business and economic conditions and other matters that cannot be predicted accurately and that are subject to contingencies over which the Company has no control. Such forward-looking statements are subject to uncertainties and other factors that may cause actual results to differ materially from the views, beliefs, and projections expressed in such statements. The words "believe", "expect", "anticipate", "project", and similar expressions signify forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements made by or on behalf of the Company. Any such statement speaks only as of the date the statement was made. The Company undertakes no obligation to update or revise any forward-looking statement.
Factors that may cause actual results to differ materially from those contemplated by these forward-looking statements include, among others, the following possibilities: (i) costs and operating difficulties related to the integration of Conrail may not be eliminated or resolved within the time frame currently anticipated; (ii) revenue and cost synergies expected from the integration of Conrail may not be fully realized or realized within the timeframe anticipated; (iii) general economic or business conditions, either nationally or internationally, an increase in fuel prices, a tightening of the labor market or changes in demands of organized labor resulting in higher wages, or increased benefits or other costs or disruption of operations may adversely affect the businesses of the Company; (iv) legislative or regulatory changes, including possible enactment of initiatives to reregulate the rail industry, may adversely affect the businesses of the Company; (v) possible additional consolidation of the rail industry in the near future may adversely affect the operations and businesses of the Company; and (vi) changes may occur in the securities and capital markets.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We address our exposure to market risks, principally the market risk of changes in interest rates, through a controlled program of risk management that includes the use of interest rate swap agreements. We do not hold or issue derivative financial instruments for trading purposes.
In the event of a 1% increase or decrease in the LIBOR interest rate, the interest expense related to these agreements would increase or decrease $5 million on an annual basis.
The Company is exposed to credit loss in the event of non-performance by any counter-party to the interest rate swap agreements. The Company does not anticipate non-performance by such counter-parties, and no material loss would be expected from non-performance.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.2 Amended Bylaws of CSX Corporation*
4.1 Fourth Supplemental Indenture, dated as of October 30, 2001, between the Company and The Chase Manhattan Bank, as trustee*
10.1 364-Day Revolving Credit Agreement dated as of June 8, 2001 (incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on October 29, 2001 (File No. 002-63273))
10.2 Five-Year Revolving Credit Agreement dated as of June 8, 2001 (incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on October 29, 2001 (File No. 002-63273))
10.3 Employment and Consulting Agreement with J. W. Snow*
10.4 Restricted Stock Award Agreement with J. W. Snow*
10.5 Stock Option Agreement with J. W. Snow, effective July 16, 2001*
10.6 Special Employment Agreement with M. J. Ward*
10.7 Restricted Stock Award Agreement with M. J. Ward*
10.8 Special Employment Agreement with M. G. Aron*
*Filed herewith.
(b) Reports on Form 8-K
None
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CSX CORPORATION
(Registrant)
By: /s/ JAMES L. ROSS
----------------
James L. Ross
Vice President and Controller
(Principal Accounting Officer)
Dated: November 7, 2001
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EXHIBIT 3.2
BYLAWS
OF
CSX CORPORATION
(Amended as of September 12, 2001)
ARTICLE I
Shareholders' Meeting
the qualification of voters, the validity of proxies, and the results of ballots. The chairman of the meeting or a majority of the shares so represented may adjourn the meeting from time to time, whether or not there is a quorum, and may determine the date, time and place that a meeting so adjourned is to reconvene. The chairman of the meeting shall prescribe rules of procedure for the meeting and shall determine the time reasonably allotted to each speaker at the meeting.
ARTICLE II
Board of Directors
participating in the meeting can hear each other, and participation by such means shall constitute presence in person at such meeting.
ARTICLE III
Executive Committee
ARTICLE IV
Committees of the Board
(other than the Executive Committee)
The Board of Directors may establish such other committees as it deems appropriate, each committee consisting of at least two directors whose designation and terms of office shall be by resolution of the Board. Meetings of a committee may be called at any time by the Chairman of the Board or the Chairman of such committee. Notice of any meeting shall be given by delivering or mailing such notice to each committee member at the member's residence or business address or by telephone, telegraph, or facsimile to the member not less than 24 hours before the meeting. Any such notice shall state the time and place of the meeting. Meetings may be held without notice if all of the members of the committee are present or those not present waive notice before or after the meeting. Action may be taken by a committee without a meeting or at a meeting established by means of conference telephone or similar communications equipment in the manner provided by Section 5 of Article II.
ARTICLE V
Officers
ARTICLE VI
Depositaries
The money and negotiable instruments of the Corporation shall be kept in such bank or banks as the Chief Financial Officer or Treasurer shall from time to time direct or approve. All checks and other instruments for the disbursement of funds shall be executed manually or by facsimile by such officers or agents of the Corporation as may be authorized by the Board of Directors.
ARTICLE VII
Seal
The seal of the Corporation, of which there may be any number of counterparts, shall be circular in form and shall have inscribed thereon the name of the Corporation, the year of its organization and the words, "Corporate Seal Virginia." The Board may also authorize to be used, as the seal of the Corporation, any facsimile thereof.
ARTICLE VIII
Fiscal Year
The fiscal year of the Corporation shall begin immediately after midnight of the last Friday of December, and shall end at midnight on the last Friday of December of each calendar year.
ARTICLE IX
Amendments to Bylaws
These Bylaws may be amended or repealed at any regular or special meeting of the Board of Directors by the vote of a majority of the Directors present. They may also be repealed or changed, and new Bylaws made, by the Shareholders, provided notice of the proposal to take such action shall have been given in the notice of the meeting.
* * * * * * * * * *
I, STEPHEN R. LARSON, Corporate Secretary of CSX CORPORATION, do hereby certify that the foregoing is a true and correct copy of the CSX Bylaws, as amended at a meeting of the Board of Directors of CSX Corporation held in the City of Richmond, Virginia, on the 11th day of July, 2001, at which a quorum was present and voted, and that such Bylaws have not been rescinded, amended, or modified, and are in full force and effect on the date hereof.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the corporate seal.
/s/ Stephen R. Larson ------------------------------- Corporate Secretary of CSX CORPORATION |
(SEAL)
Richmond, VA
September 27, 2001
EXHIBIT 4.1
FOURTH SUPPLEMENTAL INDENTURE dated as of October 30, 2001 between CSX Corporation, a Virginia corporation (the "Company"), and The Chase Manhattan Bank, a New York banking corporation, Trustee (the "Trustee").
RECITALS OF THE COMPANY
WHEREAS, the Company has heretofore executed and delivered to the Trustee a certain indenture, dated as of August 1, 1990 and supplemented by the First Supplemental Indenture (the "First Supplemental Indenture") dated as of June 15, 1991, the Second Supplemental Indenture dated as of May 6, 1997 (the "Second Supplemental Indenture") and the Third Supplemental Indenture dated as of April 22, 1998 (the "Third Supplemental Indenture") (the indenture, as so supplemented and as further supplemented herein, is herein called the "Indenture"), pursuant to which one or more series of unsecured debentures, securities or other evidences of indebtedness of the Company (herein called the "Securities") may be issued from time to time;
WHEREAS, Section 901 of the Indenture provides that the Company, when authorized by a Board Resolution, and the Trustee may at any time and from time to time enter into one or more indentures supplemental to the Indenture for the purpose, among other things, of establishing the form or terms of Securities of any series and any related coupons as permitted by Sections 201 and 301 of the Indenture;
WHEREAS, the Company desires to issue and has duly authorized the execution and delivery of this fourth supplemental indenture (the "Fourth Supplemental Indenture") to provide for the issuance of the Zero Coupon Convertible Debentures due October 30, 2021 (the "2001 Convertible Securities").
WHEREAS, the Company, pursuant to the foregoing authority, proposes in and by this Fourth Supplemental Indenture to amend and supplement the Indenture; and
WHEREAS, all things necessary to make this Fourth Supplemental Indenture a valid agreement of the Company and the Trustee and a valid amendment of and supplement to the Indenture have been done.
NOW, THEREFORE, THIS FOURTH SUPPLEMENTAL INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the 2001 Convertible Securities by the Holders thereof and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is mutually covenanted and agreed as follows:
ARTICLE ONE
THE 2001 CONVERTIBLE SECURITIES
of the 2001 Convertible Securities, the 2001 Convertible Securities shall not bear cash interest. Each 2001 Convertible Security shall initially represent the Issue Price and shall accrete in value such that the initial yield to maturity shall be 1.00% per annum through the Stated Maturity. The accretion rate in effect with respect to each 2001 Convertible Security shall at any time equal the yield to maturity then in effect for such 2001 Convertible Security. The yield to maturity (or, if the Company has elected to restate the principal amount of the 2001 Convertible Securities and pay cash interest on the 2001 Convertible Securities following the occurrence of a Tax Event, the cash interest rate) on each 2001 Convertible Security shall be reset on October 30, 2007, October 30, 2011 and October 30, 2016 (each, a "Reset Date") to a rate per annum equal to the Five-Year Treasury Rate minus 2.80% (a "Rate Reset"). On each Reset Date, the yield to maturity (or the cash interest rate, if the principal amount of the 2001 Convertible Securities shall have been restated following the occurrence of a Tax Event) shall be adjusted upwards or downwards in accordance with this formula and shall be in effect until the next succeeding Reset Date. In no event, however, shall the yield to maturity (or the cash interest rate, if the principal amount of the 2001 Convertible Securities shall have been restated following the occurrence of a Tax Event) be reset below the initial rate per annum or above 3.00% per annum. The principal amount of each 2001 Convertible Security at any time shall equal the Accreted Value (or, if the Company has elected to restate the principal amount of each 2001 Convertible Security and pay cash interest on such 2001 Convertible Security following the occurrence of a Tax Event, the Restated Principal Amount) of such 2001 Convertible Security.
(1) Notwithstanding any other provisions of the Indenture or the 2001 Convertible Securities, a Global Security shall not be exchanged in whole or in part for a 2001 Convertible Security registered in the name of any Person other than the Depositary or one or more nominees thereof, provided that a Global Security may be exchanged for 2001 Convertible Securities registered in the names of any person designated by the Depositary in the event that (i) the Depositary has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or such Depositary has ceased to be a "clearing agency" registered
under the Exchange Act, and a successor Depositary is not appointed by the
Company within 90 days, (ii) the Company decides to discontinue use of the
system of book-entry transfer through DTC (or any successor depositary); or
(iii) an Event of Default has occurred and is continuing with respect to the
2001 Convertible Securities. Any Global Security exchanged pursuant to clause
(i) above shall be so exchanged in whole and not in part, and any Global
Security exchanged pursuant to clause (ii) above may be exchanged in whole or
from time to time in part as directed by the Depositary.
(2) 2001 Convertible Securities issued in exchange for a Global Security or any portion thereof shall be issued in definitive, fully registered form, without interest coupons, shall have an aggregate principal amount at maturity equal to that of such Global Security or portion thereof to be so exchanged, shall be registered in such names and be in such authorized denominations as the Depositary shall designate and shall bear the applicable legends provided for herein. Any Global Security to be exchanged in whole shall be surrendered by the Depositary to the Trustee, as Security Registrar. With regard to any Global Security to be exchanged in part, either such Global Security shall be so surrendered for exchange or, if the Trustee is acting as custodian for the Depositary or its nominee with respect to such Global Security, the principal amount at maturity thereof shall be reduced, by an amount equal to the portion thereof to be so exchanged, by means of an appropriate adjustment made on the records of the Trustee. Upon any such surrender or adjustment, the Trustee shall authenticate and deliver the 2001 Convertible Security issuable on such exchange to or upon the order of the Depositary or an authorized representative thereof.
(3) Subject to the provisions of clause (5) below, the registered Holder may grant proxies and otherwise authorize any Person, including Agent Members (as defined below) and persons that may hold interests through Agent Members, to take any action which a holder is entitled to take under this Indenture or the 2001 Convertible Securities.
(4) In the event of the occurrence of any of the events specified in clause (1) above, the Company will promptly make available to the Trustee a reasonable supply of Certificated Securities in definitive, fully registered form, without interest coupons.
(5) Neither any members of, or participants in, the Depositary (collectively, the "Agent Members") nor any other Persons on whose behalf Agent Members may act shall have any rights under this Indenture with respect to any Global Security registered in the name of the Depositary or any nominee thereof, or under any such Global Security, and the Depositary or such nominee, as the case may be, may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner and holder of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or such nominee, as the case may be, or impair, as between the Depositary, its Agent Members and any other person on whose behalf an Agent Member may act, the operation of customary practices of such Persons governing the exercise of the rights of a holder of any 2001 Convertible Security.
Securities may be presented for exchange, purchase, redemption or payment ("Paying Agent") and an office or agency where 2001 Convertible Securities may be presented for conversion ("Conversion Agent"). The Company may have one or more additional paying agents and one or more additional conversion agents. The term Paying Agent includes any additional paying agent and the term Conversion Agent includes any additional conversion agent.
The Company shall enter into an appropriate agency agreement with any Paying Agent or Conversion Agent (other than the Trustee). The agreement shall implement the provisions of the Indenture that relate to such agent. The Company shall notify the Trustee of the name and address of any such agent. If the Company fails to maintain a Paying Agent or Conversion Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 607 of the Indenture and any such presentation for exchange, purchase, redemption, payment or conversion may be made at the offices of the Trustee at Institutional Trust Services, 450 West 33rd Street, 15th Floor, New York, NY 10001-2967. The Company or any Subsidiary or an Affiliate of either of them may act as Paying Agent or Conversion Agent.
The Company initially appoints the Trustee as Conversion Agent and Paying Agent in connection with the 2001 Convertible Securities.
The Company's stock transfer agent (the "Stock Transfer Agent") is Computer Share Investor Services, LLC.
ARTICLE TWO
SCOPES OF APPLICABILITY
ARTICLE THREE
DEFINITIONS
"Accreted Value" for a 2001 Convertible Security means, as of any date, the sum of (i) the Issue Price of such 2001 Convertible Security and (ii) the accretion in value of such 2001 Convertible Security as of such date, computed for each semi-annual accretion period by applying the accretion rate then in effect for such 2001 Convertible Security, based on the yield to maturity then in effect for such 2001 Convertible Securities, to the sum of (x) the Issue Price of such 2001 Convertible Security and (y) the accretion in value of such 2001 Convertible Security from the Issue Date up to but not including the beginning of such semi-annual accretion period, using a 360-day year comprised of 30-day months. Semi-annual accretion periods shall end on (but exclude) an Interest Payment Date, with the first semi-annual accretion period beginning on the Issue Date and ending on (but excluding) the Interest Payment Date on April 30, 2002. The accretion in value shall be computed for any period shorter than a full semi-annual period, using a 30-day month and for any period shorter than one month, using the actual number of days elapsed. Any accretion in value so computed shall be rounded to the nearest whole dollar.
"Associate" has the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the date hereof.
"Capital Stock" for any person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) capital stock or other equity interests issued by that person.
"Common Stock" means the common stock, $1.00 par value, of the Company as existing on the date of this Fourth Supplemental Indenture or any other shares of Capital Stock of the Company into which the Common Stock shall be reclassified or changed. All Common Stock delivered hereunder shall be in book- entry form and delivered through the facilities of DTC.
"Five-Year Treasury Rate" means, with respect to any Reset Date, the U.S. Treasury yield displayed on the Bloomberg Service screen accessed by the command which is currently "GT5 [GOVT] HP [GO]" (currently page 066) (or any successor or substitute page and command of such service providing rate quotations comparable to those currently provided on such page of such service) specified as the last reported yield applicable to U.S. Treasury Notes at the close of business on the date that is 120 days prior to such Reset Date (or, if such date is not a Business Day, on the next succeeding date that is a Business Day) or, if such yield is not available at such time for any reason, the "Five Year Treasury Rate" with respect to such Reset Date shall mean the rate (expressed as a bond equivalent on the basis of a year of 365 or 366 days, as the case may be, and applied on a daily basis) for direct obligations of the United States of America having a maturity that is equal to five years, as published weekly by the Federal Reserve Board in "Federal Reserve Statistical Release H.15(519) -- Selected Interest Rates" or any successor publication, specified as the closing rate applicable to five-year U.S. Treasury Notes for the date that is 120 days prior to such Reset Date (or, if such date is not a Business Day, on the next succeeding date that is a Business Day).
"Issue Date" of any 2001 Convertible Security means the date on which the 2001 Convertible Security was originally issued or deemed issued as set forth on the face of the 2001 Convertible Security.
"Issue Price" of any 2001 Convertible Security means, in connection with the original issuance of such 2001 Convertible Security, the initial issue price at which such 2001 Convertible Security is sold as set forth on the face of such 2001 Convertible Security.
"Principal Subsidiary" means, notwithstanding the definition set forth in the Second Supplemental Indenture and with respect to any Securities issued under the Indenture after the date of this Fourth Supplemental Indenture, CSX Transportation, Inc.
"Redemption Date" of any 2001 Convertible Security shall mean the date specified in a notice of redemption on which the 2001 Convertible Securities may be redeemed in accordance with the terms of the 2001 Convertible Securities and this Fourth Supplemental Indenture.
"Redemption Price", when used with respect to any 2001 Convertible Securities, has the meaning specified in Section 4.1 of this Fourth Supplemental Indenture.
"Stated Maturity", when used with respect to any 2001 Convertible Securities, means October 30, 2021.
"2001 Convertible Securities" has the meaning specified in the recitals of this Fourth Supplemental Indenture.
"2001 Convertible Securityholder" or "Holder" means a person in whose name a 2001 Convertible Security is registered in the Security Registrar.
Term: Defined in:
---- ----------
"Accreted Conversion Price"............................... Exhibit A-1
"Agent Members"........................................... 1.2(c)(5)
"Applicable Percentage"................................... Exhibit A-1
"Average Sale Price"...................................... 7.7
"beneficial owner"........................................ 4.8(a)
"cash".................................................... 4.7(b)
"Change of Control"....................................... 4.8(a)
"Change of Control Company Notice"........................ 4.8(b)
"Change of Control Purchase Date"......................... 4.8(a)
"Change of Control Purchase Notice"....................... 4.8(c)
"Change of Control Purchase Price"........................ 4.8(a)
"Closing Sale Price"...................................... 4.7(d)
"Company Notice".......................................... 4.7(e)
"Company Notice Date"..................................... 4.7(c)
"comparable yield"........................................ 5.3
"Conversion Agent"........................................ 1.3
"Conversion Date"......................................... 7.2
"Conversion Rate"......................................... 7.1
"Depositary".............................................. 1.2(a)
"DTC"..................................................... 1.2(a)
"Exchange Act"............................................ 4.7(d)
"Ex-Dividend Time"........................................ 7.7
"Extraordinary Cash Dividend"............................. 7.8
"Final Surrender Date".................................... 4.8(a)
"Interest Payment Date"................................... Exhibit A-1
7
|
"Market Price"............................................ 4.7(d) "Measurement Period....................................... 7.8 "Notice of Default"....................................... 6.1 "Option Exercise Date".................................... Exhibit A-1 "Paying Agent"............................................ 1.3 "Purchase Date"........................................... 4.7(a) "Purchase Notice"......................................... 4.7(a) "Purchase Price".......................................... 4.7(a) "Rate Reset".............................................. 1.1 "Relevant Cash Dividends"................................. 7.8 "Reset Date".............................................. 1.1 "Restated Principal Amount"............................... Exhibit A-1 "Securities Act".......................................... 4.7(d) "Spin-off"................................................ 7.8 "Stock Transfer Agent".................................... 1.3 "Tax Event"............................................... Exhibit A-1 "Time of Determination"................................... 7.7 "trading day"............................................. 4.7(d) |
ARTICLE FOUR
REDEMPTION AND PURCHASES
The Company shall give the notice to the Trustee provided for in this
Section 4.1 by a Company Order, at least 15 days before the Redemption Date
(unless a shorter notice shall be satisfactory to the Trustee), provided,
however, that if less than all the 2001 Convertible Securities are to be
redeemed, the Company shall give such notice to the Trustee at least 30 days but
not more than 60 days before the Redemption Date.
method is not prohibited by the rules of any stock exchange or quotation system on which the 2001 Convertible Securities are then listed or quoted). The Trustee shall make the selection at least 15 days but not more than 60 days before the Redemption Date from outstanding 2001 Convertible Securities not previously called for redemption. The Trustee may select for redemption portions of the principal amount at maturity of 2001 Convertible Securities that have denominations larger than $1,000.
2001 Convertible Securities and portions of 2001 Convertible Securities that the Trustee selects shall be in principal amounts at maturity of $1,000 (subject to upward adjustment in the event of a Rate Reset) or an integral multiple of $1,000 (or such increased amount). Provisions of this Fourth Supplemental Indenture that apply to 2001 Convertible Securities called for redemption also apply to portions of 2001 Convertible Securities called for redemption. The Trustee shall notify the Company promptly of the 2001 Convertible Securities or portions of the 2001 Convertible Securities to be redeemed.
If any 2001 Convertible Security selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the 2001 Convertible Security so selected, the converted portion of such 2001 Convertible Security shall be deemed (so far as may be) to be the portion selected for redemption. 2001 Convertible Securities that have been converted during a selection of 2001 Convertible Securities to be redeemed may be treated by the Trustee as outstanding for the purpose of such selection.
Failure to give notice by mailing in the manner herein provided to the Holder of any 2001 Convertible Securities designated for redemption as a whole or in part, or any defect in the notice to any such Holder, shall not affect the validity of the proceedings for the redemption of any other 2001 Convertible Securities or portion thereof. Any notice that is mailed to the Holder of any 2001 Convertible Securities in the manner herein provided shall be conclusively presumed to have been duly given, whether or not such Holder receives the notice.
The notice shall identify the 2001 Convertible Securities to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price per 2001 Convertible Security;
(3) the Conversion Rate per 2001 Convertible Security;
(4) the name and address of the Paying Agent and Conversion Agent;
(5) that 2001 Convertible Securities called for redemption may be converted into shares of Common Stock at any time before the close of business on the Business Day immediately prior to the Redemption Date;
(6) that Holders who want to convert their 2001 Convertible Securities into shares of Common Stock must satisfy the requirements set forth in Section 7 of the 2001 Convertible Securities;
(7) that 2001 Convertible Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price;
(8) if fewer than all of the outstanding 2001 Convertible Securities are to be redeemed, the certificate numbers, if any, and principal amounts at maturity (or, if the principal amount at maturity of the 2001 Convertible Securities has been restated following a Tax Event, the Restated Principal Amounts) of the particular 2001 Convertible Securities to be redeemed;
(9) that, unless the Company defaults in making payment of such Redemption Price, cash interest, if any, on such 2001 Convertible Securities shall cease to accrue and such 2001 Convertible Securities shall cease to accrete in value on and after the Redemption Date; and
(10) the CUSIP number(s) of the 2001 Convertible Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense, provided that the
Company makes such request at least three Business Days prior to the date by
which such notice of redemption must be given to Holders in accordance with this
Section 4.3.
2001 Convertible Securities has been restated following a Tax Event, the Restated Principal Amount) to the unredeemed portion of the 2001 Convertible Security surrendered.
(i) delivery to the Paying Agent by the Holder of a written notice of purchase (a "Purchase Notice"), which shall be given so as to be received by the Paying Agent no later than the close of business on the fifth Business Day prior to such Purchase Date and shall state:
(A) the certificate number of the 2001 Convertible Securities that the Holder will deliver to be purchased or the appropriate Depositary procedures if Certificated 2001 Convertible Securities have not been issued,
(B) the portion of the aggregate principal amount at maturity (or, if the principal amount at maturity of the 2001 Convertible Securities has been restated following a Tax Event, the Restated Principal Amount) of the 2001 Convertible Securities that the Holder will deliver to be purchased, which portion must be in principal amounts at maturity of $1,000 (subject to upward adjustment in the event of a Rate Reset) or an integral multiple of $1,000 (or such increased amount),
(C) that such 2001 Convertible Securities shall be purchased by the Company as of the Purchase Date pursuant to the terms and conditions specified in Section 6 of the 2001 Convertible Securities and this Section 4.7 of the Fourth Supplemental Indenture, and
(D) for the first three Purchase Dates, in the event the Company elects, pursuant to Section 4.7(b), to pay the Purchase Price, in whole or in part, in shares of Common Stock but such portion of the Purchase Price shall ultimately be paid to such Holder entirely in cash because any of the conditions to payment of the Purchase Price (or a portion thereof) in shares of Common Stock is not satisfied prior to the close of business on the relevant Purchase Date, as set forth in Section 4.7(d), whether such Holder elects (i) to withdraw such Purchase Notice as to some or all of the 2001 Convertible Securities to which such Purchase Notice
relates (stating the expected principal amount at maturity (or, if the principal amount at maturity of the 2001 Convertible Securities has been restated following a Tax Event, the Restated Principal Amount) and certificate numbers, if the 2001 Convertible Securities are then Certificated Securities, of the 2001 Convertible Securities as to which such withdrawal shall relate), or (ii) to receive cash in respect of the entire Purchase Price for all 2001 Convertible Securities (or portions thereof) to which such Purchase Notice relates; and
(ii) book-entry transfer or delivery of such 2001 Convertible Securities to the Paying Agent prior to, on or after the Purchase Date (together with all necessary endorsements) at the offices of the Paying Agent, such delivery being a condition to receipt by the Holder of the Purchase Price therefor; provided, however, that such Purchase Price shall be so paid pursuant to this Section 4.7 only if the 2001 Convertible Securities so delivered to the Paying Agent shall conform in all respects to the description thereof in the related Purchase Notice, as determined by the Company.
If a Holder, in such Holder's Purchase Notice and in any written notice of withdrawal delivered by such Holder pursuant to the terms of Section 4.9, fails to indicate such Holder's choice with respect to the election set forth in clause (D) of Section 4.7(a)(i), such Holder shall be deemed to have elected to receive cash in respect of the entire Purchase Price for all 2001 Convertible Securities subject to such Purchase Notice in the circumstances set forth in such clause (D).
The Company shall purchase from the Holder thereof, pursuant to this
Section 4.7, a portion of a 2001 Convertible Security, if the principal amount
at maturity of such portion is $1,000 (subject to upward adjustment in the event
of a Rate Reset) or an integral multiple of $1,000 (or such increased amount).
Provisions of this Fourth Supplemental Indenture that apply to the purchase of
all of a 2001 Convertible Security also apply to the purchase of such portion of
such 2001 Convertible Security.
Any purchase by the Company contemplated pursuant to the provisions of this Section 4.7 shall be consummated by the delivery of the consideration to be received by the Holder promptly following the later of the Purchase Date and the time of delivery of the 2001 Convertible Security. Unless the Company defaults in payment of the Purchase Price, cash interest, if any, on the 2001 Convertible Securities subject to a Purchase Notice shall cease to accrue and the 2001 Convertible Securities shall cease to accrete in value on the Purchase Date.
Notwithstanding anything herein to the contrary, any Holder delivering to the Paying Agent the Purchase Notice contemplated by this Section 4.7(a) shall have the right to withdraw such Purchase Notice at any time prior to the close of business on the Business Day prior to the Purchase Date by delivery of a written notice of withdrawal to the Paying Agent in accordance with Section 4.9.
The Paying Agent shall promptly notify the Company of the receipt by it of any Purchase Notice or written notice of withdrawal thereof.
The 2001 Convertible Securities to be purchased on any of the last two Purchase Dates may be paid for in cash only.
At least three Business Days before each Company Notice Date, the Company shall deliver an Officers' Certificate to the Trustee specifying:
i. the manner of payment selected by the Company,
ii. the information required by Section 4.7(e) in the Company Notice,
iii. that the conditions to payment of the Purchase Price, or a
specified percentage thereof, in shares of Common Stock, set forth in
Section 4.7(d) have been or will be complied with; and
iv. whether the Company desires the Trustee to give the Company Notice required by Section 4.7(e).
The Company shall not issue fractional shares of Common Stock in
payment of the Purchase Price. Instead, the Company shall pay cash based on the
Closing Sale Price for all fractional shares, in the manner set forth in Section
7.3. It is understood that if a Holder elects to have more than one 2001
Convertible Security purchased, the number of shares of Common Stock shall be
based on the aggregate amount of 2001 Convertible Securities to be purchased.
If the Company elects to purchase the 2001 Convertible Securities by
the issuance of shares of Common Stock, the Company Notice, as provided in
Section 4.7(e), shall be sent to the Holders (and to beneficial owners as
required by applicable law) not later than 20 Business Days prior to such
Purchase Date (the "Company Notice Date").
Upon a payment by shares of Common Stock pursuant to the terms hereof, that portion of accrued and unpaid cash interest, if any, or amounts reflecting any interest accrued for United States federal income tax purposes on the 2001 Convertible Security, in each case attributable to the period from the Issue Date to the Purchase Date with respect to the purchased 2001 Convertible Securities shall not be cancelled, extinguished or forfeited but rather shall be deemed paid in full to the Holder through the delivery of the shares of Common Stock in exchange for the 2001 Convertible Security being purchased pursuant to the terms hereof, and the fair market value of such Common Stock (together with any cash payments in lieu of fractional shares of Common Stock) shall be treated as issued, to the extent thereof, first in exchange for accrued and unpaid cash interest, if any, and any interest accrued for United States federal income tax purposes through the Purchase Date, and the balance, if any, of such fair
market value of such shares of Common Stock (and any such cash payment) shall be treated as issued for the Issue Price of the 2001 Convertible Security being purchased pursuant to the provisions hereof.
The Company's right to exercise its election to purchase 2001 Convertible Securities through the issuance of shares of Common Stock shall be conditioned upon:
i. the Company's giving of timely Company Notice of an election to purchase all or a specified percentage of the 2001 Convertible Securities with shares of Common Stock as provided herein;
ii. the registration of such shares of Common Stock under the Securities Act of 1933, as amended (the "Securities Act"), or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in each case, if required;
iii. the listing of such shares of Common Stock on the principal national or regional securities exchange on which the shares of Common Stock are listed or, if the shares of Common Stock are not then listed on a national or regional securities exchange, as reported by the Nasdaq Stock Market or other automated quotation system on which the Common Stock is then quoted;
iv. any necessary qualification or registration under applicable state securities laws or the availability of an exemption from such qualification and registration; and
v. the receipt by the Trustee of an Officers' Certificate and an Opinion of Counsel each stating that (A) the terms of the issuance of the shares of Common Stock are in conformity with the Indenture and (B) the shares of Common Stock to be issued by the Company in payment of the Purchase Price in respect of 2001 Convertible Securities have been duly authorized and, when issued and delivered pursuant to the terms of the Indenture in payment of the Purchase Price in respect of the 2001 Convertible Securities, will be validly issued, fully paid and non- assessable and, to the best of such officers' or counsel's knowledge, free from preemptive rights, and, in the case of such Officers' Certificate, stating that the conditions in clauses (i) through (iv) above and the condition set forth in the second succeeding sentence have been satisfied and, in the case of such Opinion of Counsel, stating that the conditions in clauses (i) through (iv) above have been satisfied.
Such Officers' Certificate shall also set forth the number of shares of Common Stock to be issued for each $1,000 principal amount at maturity (subject to upward adjustment in the event of a Rate Reset) and the Closing Sale Price of a share of Common Stock on each trading day during the five trading day period during which the Market Price is calculated. The Company may pay the Purchase Price (or any portion thereof) in shares of Common Stock only if the information necessary to calculate the Market Price is published in a daily newspaper of national circulation or by other appropriate means. If the foregoing conditions are not satisfied with respect to a Holder or Holders prior to the close of business on the Purchase Date, and the Company has elected to purchase the 2001 Convertible Securities pursuant to this Section 4.7
through the issuance of shares of Common Stock, the Company shall pay the entire Purchase Price of the 2001 Convertible Securities of such Holder or Holders in cash.
The "Market Price" of Common Stock on a Purchase Date means the average of the Closing Sale Prices of the shares of Common Stock for the five trading day period ending on the third Business Day prior to such Purchase Date (if the third Business Day prior to such Purchase Date is a trading day, or if not, then on the last trading day immediately prior to that third Business Day), appropriately adjusted to take into account the occurrence, during the period commencing on the first of the trading days during the five trading day period and ending on such Purchase Date, of any event described in Sections 7.6, 7.7 or 7.8 that would result in an adjustment of the Conversion Rate; subject, however, to the conditions set forth in Sections 7.9 and 7.10.
The "Closing Sale Price" of the shares of Common Stock on any date means the closing per share sale price (or, if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on such date as reported in composite transactions for the principal United States securities exchange on which the Common Stock is traded or, if the Common Stock is not listed on a United States national or regional securities exchange, as reported by the Nasdaq Stock Market or other automated quotation system on which the Common Stock is then quoted. In the absence of such quotations, the Company shall be entitled to determine the sales price on the basis of such quotations as it considers appropriate.
"trading day" means each day on which the securities exchange or quotation system that is used to determine the Closing Sale Price is open for trading or quotation.
Simultaneously with the delivery of a Company Notice, the Company shall disseminate a press release containing information concerning the determination of the actual number of shares of Common Stock to be issued upon redemption of Securities through any two national news services then used by the Company and may publish such information on its Web site or through any other public medium that it may use at that time.
The Company Notice shall include a form of Purchase Notice to be completed by a Holder and shall state:
(1) that the Company will pay the Purchase Price for the 2001 Convertible Securities in shares of Common Stock or a combination of cash and shares of Common Stock specifying the applicable percentages for each;
(2) that each Holder will receive shares of Common Stock with a Market Price determined as of a specified date prior to the Purchase Date equal to such specified percentage of the Purchase Price of the 2001 Convertible Securities held by such Holder (except any cash amount to be paid in lieu of fractional shares);
(3) the method of calculating the Market Price of the shares of Common Stock;
(4) that because the Market Price of shares of Common Stock will be determined prior to the Purchase Date, Holders of the 2001 Convertible Securities will bear the market risk with respect to the value of the shares of Common Stock to be received from the date such Market Price is determined to the Purchase Date;
(5) the Purchase Price per 2001 Convertible Security and the Conversion Rate per 2001 Convertible Security and any adjustments thereto;
(6) the name and address of the Paying Agent, the Conversion Agent and the Stock Transfer Agent;
(7) that 2001 Convertible Securities as to which a Purchase Notice
has been given may be converted if they are otherwise convertible only in
accordance with Article Seven of this Fourth Supplemental Indenture and
Section 7 of the 2001 Convertible Securities if the applicable Purchase
Notice has been withdrawn in accordance with the terms of this Fourth
Supplemental Indenture;
(8) that 2001 Convertible Securities must be surrendered to the Paying Agent to collect payment of the Purchase Price;
(9) that the Purchase Price for any 2001 Convertible Security as to which a Purchase Notice has been given and not withdrawn shall be paid promptly following the later of the Purchase Date and the time of surrender of such 2001 Convertible Security to the Paying Agent;
(10) the procedures the Holder must follow to exercise its put rights under this Section 4.7 and a brief description of those rights;
(11) briefly, the conversion rights of the 2001 Convertible Securities;
(12) the procedures for withdrawing a Purchase Notice (including,
without limitation, for a conditional withdrawal pursuant to the terms of
Section 4.7(a)(1)(D) or Section 4.9);
(13) that, unless the Company defaults in making payment on 2001 Convertible Securities for which a Purchase Notice has been submitted, cash interest, if any, on such 2001 Convertible Securities shall cease to accrue and such 2001 Convertible Securities shall cease to accrete in value on the Purchase Date; and
(14) the CUSIP number(s) of the 2001 Convertible Securities.
If any of the 2001 Convertible Securities to be purchased are in the form of a Global Security, the Company shall modify such notice to the extent necessary to accord with the applicable procedures of the Depositary.
At the Company's request, the Trustee shall give such Company Notice in the Company's name and at the Company's expense; provided, however, that, in all cases, the text of such Company Notice shall be prepared by the Company.
Purchase Price"), subject to satisfaction by or on behalf of the Holder of the requirements set forth in Section 4.8(c).
"Change of Control Purchase Date" shall mean the date selected by the Company for the purchase of the 2001 Convertible Securities that is not less than 10 and not more than 30 days after the Final Surrender Date.
"Final Surrender Date" shall mean the date that is, subject to any contrary requirements of applicable law, 60 days after the date of mailing of the Change of Control Company Notice.
A "Change of Control" shall be deemed to have occurred at such time after the 2001 Convertible Securities are originally issued as either of the following events shall occur:
(1) there is a report filed on Schedule 13D or TO (or any successor schedule, form or report) pursuant to the Exchange Act, disclosing that any person (for the purposes of this Section 4.8 only, as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of 50% or more of the aggregate voting power of the Common Stock and other Capital Stock of the Company into which the Common Stock has been reclassified or changed then outstanding; provided that a person shall not be deemed beneficial owner of, or to own beneficially, (A) any securities tendered pursuant to a tender or exchange offer made by or on behalf of such person or any of such person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange thereunder or (B) any securities if such beneficial ownership (1) arises solely as a result of a revocable proxy delivered in response to a proxy or consent solicitation made pursuant to the applicable rules and regulations under the Exchange Act and (2) is not also then reportable on Schedule 13D (or any successor schedule) under the Exchange Act; or
(2) there shall be consummated any share exchange, consolidation or merger of the Company pursuant to which the Common Stock would be converted into, or into the right to receive, cash, securities or other property, in each case other than a share exchange, consolidation or merger of the Company in which the holders of the Common Stock and other Capital Stock of the Company with equivalent voting rights immediately prior to the share exchange, consolidation or merger have, directly or indirectly, at least a majority of the total voting power in the aggregate of all classes of Capital Stock of the continuing or surviving corporation immediately after the share exchange, consolidation or merger;
unless, in each case, at least 80% of the consideration, other than cash payments for fractional shares, in the transaction or transactions constituting the change of control, consists of shares of voting common stock of the person that are, or upon issuance will be, traded on a national securities exchange or approved for trading on an established automated over-the-counter trading market in the United States. Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred by virtue of the Company, any Subsidiary, any employee stock ownership plan or any other employee benefit plan of the Company or any Subsidiary, or any person holding Common Stock for or pursuant to the terms of any such employee stock ownership plan or employee benefit plan, filing or becoming obligated to file a report under or in
response to Schedule 13D or Schedule TO (or any successor schedule, form or report) under the Exchange Act disclosing beneficial ownership by it of shares of Common Stock, whether in excess of 50% or otherwise.
(b) No later than 30 days after the occurrence of a Change of Control, the Company shall mail a written notice of the Change of Control (the "Change of Control Company Notice") by first-class mail to the Trustee and to each Holder (and to beneficial owners as required by applicable law). The Company shall cause a copy of such Change of Control Company Notice to be published in a newspaper of general circulation in the Borough of Manhattan, The City of New York. The Change of Control Company Notice shall include a form of Change of Control Purchase Notice to be completed by the Holder and shall state:
(1) briefly, the events causing a Change of Control and the date of such Change of Control;
(2) the Final Surrender Date;
(3) the Change of Control Purchase Date;
(4) the Change of Control Purchase Price per 2001 Convertible Security;
(5) the name and address of the Paying Agent and the Conversion Agent;
(6) the Conversion Rate per 2001 Convertible Security and any adjustments thereto;
(7) that the 2001 Convertible Securities as to which a Change of Control Purchase Notice has been given may not be converted, even if they are otherwise convertible pursuant to Article Seven of this Fourth Supplemental Indenture, if the Change of Control Purchase Notice has been delivered and that the delivery of a Change of Control Purchase Notice is irrevocable (unless the Company defaults in payment of the Change of Control Purchase Price on the Change of Control Purchase Date and the Holder revokes its Change of Control Purchase Notice);
(8) that the 2001 Convertible Securities must be surrendered to the Paying Agent to collect payment of the Change of Control Price;
(9) that the Change of Control Purchase Price for any 2001 Convertible Security as to which a Change of Control Purchase Notice has been duly given shall be paid only if the Holder of such Security, on or before the Final Surrender Date, surrenders such 2001 Convertible Security to the Paying Agent;
(10) briefly, the procedures the Holder must follow to exercise rights under this Section 4.8;
(11) briefly, the conversion rights, if any, of the 2001 Convertible Securities;
(12) that, unless the Company defaults in making payment of such Change of Control Purchase Price, cash interest, if any, on such 2001 Convertible Securities shall cease to accrue and the 2001 Convertible Securities shall cease to accrete in value on and after the Change of Control Purchase Date; and
(13) the CUSIP number(s) of the 2001 Convertible Securities.
(c) A Holder may exercise its rights specified in Section 4.8(a) upon delivery of a written notice of purchase (a "Change of Control Purchase Notice") to the Paying Agent at any time on or prior to the close of business on the Final Surrender Date, stating:
(1) the certificate number of the 2001 Convertible Security that the Holder will deliver to be purchased or the appropriate Depositary procedures if Certificated Securities have not been issued,
(2) the portion of the principal amount at maturity of the 2001 Convertible Security which the Holder will deliver to be purchased, which portion must be $1,000 principal amount at maturity (subject to upward adjustment in the event of a Rate Reset) or an integral multiple of $1,000 (or such increased amount); and
(3) that such 2001 Convertible Security shall be purchased pursuant to the terms and conditions specified in Section 6 of the 2001 Convertible Securities.
The delivery of such 2001 Convertible Security to the Paying Agent with such Change of Control Purchase Notice (together with all necessary endorsements) at the offices of the Paying Agent on or prior to the Final Surrender Date shall be a condition to the receipt by the Holder of the Change of Control Purchase Price therefor; provided, however, that such Change of Control Purchase Price shall be so paid pursuant to this Section 4.8 only if the 2001 Convertible Security so delivered to the Paying Agent shall conform in all respects to the description thereof set forth in the related Change of Control Purchase Notice.
The delivery of such 2001 Convertible Security with such Change of Control Purchase Notice shall be irrevocable (unless the Company defaults in payment of the Change of Control Purchase Price for the 2001 Convertible Securities on the Change of Control Purchase Date) and the right to convert such 2001 Convertible Security shall expire when such 2001 Convertible Security and such Change of Control Purchase Notice are delivered (unless the Company defaults in payment of the Change of Control Purchase Price for the Securities on the Change of Control Purchase Date and such delivery is revoked).
The Company shall purchase from the Holder thereof, pursuant to this
Section 4.8, a portion of a 2001 Convertible Security only if the principal
amount at maturity of such portion is $1,000 (subject to upward adjustment in
the event of a Rate Reset) or an integral multiple of $1,000 (or such increased
amount). Provisions of this Fourth Supplemental Indenture that apply to the
purchase of all of a 2001 Convertible Security also apply to the purchase of
such portion of such 2001 Convertible Security.
Any purchase by the Company contemplated pursuant to the provisions of this Section 4.8 shall be consummated by the delivery of the consideration to be received by the Holder as promptly as practicable following the Change of Control Purchase Date. Unless the Company defaults in paying the Change of Control Purchase Price, cash interest, if any, on the 2001 Convertible Securities subject to a Change of Control Purchase Notice shall cease to accrue and the 2001 Convertible Securities shall cease to accrete in value on the Change of Control Purchase Date.
The Paying Agent shall promptly notify the Company of the receipt by it of any Change of Control Purchase Notice.
A Purchase Notice may be withdrawn by means of a written notice of withdrawal delivered to the office of the Paying Agent in accordance with the Purchase Notice at any time prior to the close of business on the second Business Day prior to the Purchase Date specifying:
(1) the certificate numbers of the 2001 Convertible Securities in respect of which the notice of withdrawal is being submitted or the appropriate Depositary procedures if Certificated Securities have not been issued,
(2) the aggregate principal amount at maturity (or, if the principal amount of maturity of the 2001 Convertible Securities has been restated following a Tax Event, the Restated Principal Amount) of the 2001 Convertible Securities with respect to which such notice of withdrawal is being submitted, and
(3) the aggregate principal amount at maturity (or, if the principal amount at maturity of the 2001 Convertible Securities has been restated following a Tax Event, the Restated Principal Amount), if any, of such 2001 Convertible Securities which remains subject to the original Purchase Notice and which has been or will be delivered for purchase by the Company.
A written notice of withdrawal of a Purchase Notice may be in the form set forth in the preceding paragraph or may be in the form of (i) a conditional withdrawal contained in a Purchase Notice pursuant to the terms of Section 4.7(a)(1)(D) or (ii) a conditional withdrawal containing the information set forth in Section 4.7(a)(1)(D) and the preceding paragraph and contained in a written notice of withdrawal delivered to the Paying Agent as set forth in the preceding paragraph.
There shall be no purchase of any 2001 Convertible Securities pursuant to Section 4.7 or 4.8 if there has occurred (prior to, on or after, as the case may be, the giving, by the Holders of such 2001 Convertible Securities, of the required Purchase Notice or Change of Control Purchase Notice, as the case may be) and is continuing an Event of Default (other than a default in the payment of the Purchase Price or Change of Control Purchase Price, as the case may be, with respect to such 2001 Convertible Securities). The Paying Agent shall promptly return to the respective Holders thereof any 2001 Convertible Securities (x) with respect to which a Purchase Notice has been withdrawn in compliance with this Fourth Supplemental Indenture, or (y) held by it during the continuance of an Event of Default (other than a default in the payment of the Purchase Price or Change of Control Purchase Price, as the case may be, with respect to such 2001 Convertible Securities) in which case, upon such return, the Purchase Notice or Change of Control Purchase Notice with respect thereto shall be deemed to have been withdrawn.
Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such 2001 Convertible Security, without service charge, a new 2001 Convertible Security or 2001 Convertible Securities, of any authorized denomination as requested by such Holder in aggregate principal amount at maturity (or, if the principal amount at maturity of the 2001 Convertible Securities has been restated following a Tax Event, the Restated Principal Amount) equal to, and in exchange for, the portion of the principal amount at maturity (or, if the principal amount at maturity of the 2001 Convertible Securities has been restated following a Tax Event, the Restated Principal Amount) of the 2001 Convertible Security so surrendered which is not purchased. With respect to Global Securities, the Trustee shall notify DTC to adjust the aggregate principal amount at maturity outstanding downwards to reflect the partial surrender through the facilities of DTC and the Trustee shall reflect such adjustment on the Trustee's records for such Global Securities.
(b) The Company may not waive its obligation to purchase the 2001 Convertible Securities at the option of Holders in the event of a Change of Control.
ARTICLE FIVE
COVENANTS
(b) The Company acknowledges and agrees, and each Holder and any beneficial holder of a 2001 Convertible Security, by its purchase of a 2001 Convertible Security shall be deemed to acknowledge and agree, that (i) the comparable yield and the projected payment schedule are not determined for any purpose other than for the purpose of applying Treasury
Regulation (S) 1.1275-4(b)(4) to the Securities and (ii) the comparable yield and the projected payment schedule do not constitute a projection or representation regarding the actual amounts payable on the 2001 Convertible Securities.
(c) The Company shall file with the Trustee as promptly as practicable after the end of each fiscal year of the Company (i) a written notice specifying the amount of original issue discount (including daily rates and accrual periods) accrued on outstanding 2001 Convertible Securities as of the end of such year and (ii) such other specific information relating to such original issue discount as may then be relevant under the Internal Revenue Code of 1986, as amended from time to time.
ARTICLE SIX
DISCHARGE OF INDENTURE; NO DEFEASANCE
After a termination of the Company's obligations in accordance with this Section 6.1(a), the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under the with respect to the 2001 Convertible Securities and the Indenture except any obligations of the Company to compensate or indemnify the Trustee in respect to the 2001 Convertible Securities which shall survive.
ARTICLE SEVEN
CONVERSION
A Holder may convert a portion of the principal amount at maturity of a 2001 Convertible Security if the portion converted is $1,000 principal amount at maturity (subject to upward adjustment in the event of a Rate Reset) or an integral multiple of $1,000 (or such increased amount). Provisions of this Fourth Supplemental Indenture that apply to conversion of
all of a 2001 Convertible Security also apply to conversion of a portion of a 2001 Convertible Security.
As soon as practicable after the Conversion Date, the Company shall deliver to the Holder, through the Conversion Agent, a certificate for the number of full shares of Common Stock issuable upon the conversion or exchange and cash in lieu of any fractional share determined pursuant to Section 7.3. The Company shall also direct the Stock Transfer Agent to prepare and issue Common Stock ready for delivery in book-entry form through the facilities of DTC. The Stock Transfer Agent shall confirm to the Trustee in writing that it has received such instructions from the Company. The person in whose name the certificate is registered shall be treated as a shareholder of record as of the close of business on the Conversion Date. Upon conversion of a 2001 Convertible Security, such person shall no longer be a Holder of such 2001 Convertible Security.
No payment or adjustment shall be made for dividends on, or other distributions with respect to, any Common Stock except as provided in this Article Seven. On conversion of a 2001 Convertible Security, no accrued and unpaid cash interest, if any, or amounts reflecting any interest accrued for United States federal income tax purposes on the 2001 Convertible Securities, in each case through the Conversion Date, shall be payable with respect to the converted 2001 Convertible Security and no such cash interest or amounts reflecting interest accrued on the 2001 Convertible Securities shall be cancelled, extinguished or forfeited, but rather shall be deemed to be paid in full to the Holder thereof through delivery of the shares of Common Stock (together with the cash payment, if any, in lieu of fractional shares) in exchange for the 2001 Convertible Security being converted pursuant to the provisions hereof; and the fair market value of such shares of Common Stock (together with any such cash payment in lieu of fractional shares) shall be treated as issued, to the extent thereof, first in exchange for accrued and unpaid cash interest, if any, and any interest accrued for United States federal income tax purposes through the Conversion Date, and the balance, if any, of such fair market value of such shares of Common Stock (and any such cash payment) shall be treated as issued for the Issue Price of the 2001 Convertible Security being converted pursuant to the provisions hereof. The Company shall not adjust the conversion ratio to account for accrued and unpaid cash interest, if any, or for amounts reflecting interest accrued on the 2001 Convertible Securities for United States federal income tax purposes. If the Holder converts more than one 2001 Convertible Security at the same time, the number of shares of Common Stock issuable upon the conversion shall be based on the aggregate principal amount at maturity of the 2001 Convertible Securities converted.
If the last day on which a 2001 Convertible Security may be converted is not a Business Day, the 2001 Convertible Security may be surrendered on the next succeeding Business Day.
Upon surrender of a 2001 Convertible Security that is converted in part, the Company shall execute, and the Trustee shall authenticate and deliver to the Holder, a new 2001 Convertible Security in an authorized denomination equal in principal amount at maturity to the unconverted portion of the 2001 Convertible Security surrendered. With respect to Global Securities, the Trustee shall notify DTC to adjust the aggregate principal amount at maturity outstanding downwards to reflect the partial surrender through facilities of DTC and the Trustee shall reflect such adjustment on the Trustee's records on such Global Securities.
If the Company exercises its option to pay cash interest on, and restate the principal amount at maturity of, the 2001 Convertible Securities following the occurrence of a Tax Event pursuant to Section 1 of the Securities, then, if a Holder surrenders a 2001 Convertible Security for conversion after the Option Exercise Date and during the period after any record date and prior to the corresponding Interest Payment Date, such Holder shall pay to the Company an amount equal to the cash interest payable on such Interest Payment Date on such 2001 Convertible Security; provided that if such 2001 Convertible Security (or any portion thereof) shall have been called for redemption on a Redemption Date occurring during such period or on such Interest Payment Date, such Holder shall not be required to make such payment to the Company.
All shares of Common Stock delivered upon conversion of the 2001 Convertible Securities shall be newly issued shares or treasury shares, shall be duly and validly issued and fully paid and nonassessable, and shall be free from preemptive rights and free of any lien or adverse claim created by the Company. The Company shall endeavor promptly to comply with all federal and state securities laws regulating the offer and delivery of shares of Common Stock upon conversion of 2001 Convertible Securities, if any, and shall list such shares of Common
Stock on the principal national or regional securities exchange on which the shares of Common Stock are listed or, if the shares of Common Stock are not then listed on a national or regional securities exchange, on the Nasdaq Stock Market or other automated quotation system on which the Common Stock is then quoted.
(i) pays a dividend or makes another distribution on the Common Stock payable exclusively in shares of Common Stock;
(ii) subdivides the outstanding shares of Common Stock into a greater number of shares;
(iii) combines the outstanding shares of Common Stock into a smaller number of shares;
(iv) pays a dividend or makes a distribution on the Common Stock in shares of its Capital Stock (other than Common Stock or rights, warrants or options for its Capital Stock); or
(v) issues by reclassification of the Common Stock any shares of its Capital Stock (other than Common Stock or rights, warrants or options for its Capital Stock);
then the conversion privilege and the Conversion Rate in effect immediately prior to such action shall be adjusted so that the Holder of a 2001 Convertible Security thereafter converted may receive the number of shares of Common Stock or Capital Stock, as the case may be, of the Company that such Holder would have owned immediately following such action if such Holder had converted the 2001 Convertible Security immediately prior to such action.
The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification.
If after an adjustment a Holder of a 2001 Convertible Security upon conversion of such 2001 Convertible Security may receive shares of two or more classes of Capital Stock of the Company, the Conversion Rate shall thereafter be subject to adjustment upon the occurrence of an action taken with respect to any such class of Capital Stock as is contemplated by this Article Seven with respect to the shares of Common Stock, on terms comparable to those applicable to shares of Common Stock in this Article Seven.
where:
R' = the adjusted Conversion Rate.
R = the current Conversion Rate.
O = the number of shares of Common Stock outstanding on the record date for the distribution to which this Section 7.7 is being applied.
N = the number of additional shares of Common Stock offered pursuant to the distribution.
P = the offering price per share of the additional shares.
M = the Average Sale Price, minus, in the case of (i) a distribution to which Section 7.6(iv) applies or (ii) a distribution to which Section 7.8 applies, for which, in each case, (x) the record date shall occur on or before the record date for the distribution to which this Section 7.7 applies and (y) the Ex-Dividend Time shall occur on or after the date of the Time of Determination for the distribution to which this Section 7.7 applies, the fair market value (on the record date for the distribution to which this Section 7.7 applies) of the:
1. Capital Stock of the Company distributed in respect of each share of Common Stock in such Section 7.6(iv) distribution, and
2. assets of the Company or debt securities or any rights, warrants or options to purchase securities of the Company distributed in respect of each share of Common Stock in such Section 7.8 distribution.
The Board of Directors of the Company shall determine fair market values for the purposes of this Section 7.7, except as Section 7.8 otherwise provides in the case of a Spin-off.
"Average Sale Price" means the average of the Closing Sale Prices of the shares of Common Stock for the shorter of
(A) 30 consecutive trading days ending on the last full trading day prior to the Time of Determination with respect to the rights, warrants or options or distribution in respect of which the Average Sale Price is being calculated, or
(B) the period (x) commencing on the date next succeeding the first public announcement of (a) the issuance of rights, warrants or options or (b) the distribution, in each case, in respect of which the Average Sale Price is being calculated and (y) proceeding through the last full trading day prior to the Time of Determination with respect to the rights, warrants or options or distribution in
respect of which the Average Sale Price is being calculated (excluding days within such period, if any, which are not trading days), or
(C) the period, if any, (x) commencing on the date next succeeding the Ex-Dividend Time with respect to the next preceding (a) issuance of rights, warrants or options or (b) distribution, in each case, for which an adjustment is required by the provisions of Section 7.6(iv), 7.7 or 7.8 and (y) proceeding through the last full trading day prior to the Time of Determination with respect to the rights, warrants or options or distribution in respect of which the Average Sale Price is being calculated (excluding days within such period, if any, that are not trading days).
In the event that the Ex-Dividend Time (or in the case of a subdivision, combination or reclassification, the effective date with respect thereto) with respect to a dividend, subdivision, combination or reclassification to which Section 7.6(i), (ii), (iii) or (v) applies occurs during the period applicable for calculating "Average Sale Price" pursuant to the definition in the preceding paragraph, "Average Sale Price" shall be calculated for such period in a manner determined by the Board of Directors of the Company to reflect the impact of such dividend, subdivision, combination or reclassification on the Closing Sale Price of the shares of Common Stock during such period.
"Time of Determination" means the time and date of the earlier of (i) the determination of shareholders entitled to receive rights, warrants or options or a distribution, in each case, to which this Section 7.7 or Section 7.8 applies and (ii) the time ("Ex-Dividend Time") immediately prior to the commencement of "ex-dividend" trading for such rights, warrants or options or distribution on the principal national or regional securities exchange on which the shares of Common Stock are listed or, if the shares of Common Stock is not then listed on a national or regional securities exchange, on the Nasdaq Stock Market or other automated quotation system on which the Common Stock is then quoted.
The adjustment shall become effective immediately after the record date for the determination of shareholders entitled to receive the rights, warrants or options to which this Section 7.7 applies. If all of the shares of Common Stock subject to such rights, warrants or options have not been issued when such rights, warrants or options expire, then the Conversion Rate shall promptly be readjusted to the Conversion Rate that would then be in effect had the adjustment upon the issuance of such rights, warrants or options been made on the basis of the actual number of shares of Common Stock issued upon the exercise of such rights, warrants or options.
No adjustment shall be made under this Section 7.7 if the application of the formula stated above in this Section 7.7 would result in a value of R' that is equal to or less than the value of R.
Stock referred to in Section 7.6 and distributions of rights, warrants or options referred to in Section 7.7 and (y) cash dividends or other cash distributions that are paid out of current consolidated net earnings or consolidated earnings retained in the business as shown on the books of the Company unless such cash dividends or other cash distributions are Extraordinary Cash Dividends), the Conversion Rate shall be adjusted, subject to the provisions of the last paragraph of this Section 7.8, in accordance with the formula:
where:
R' = the adjusted Conversion Rate.
R = the current Conversion Rate.
M = the Average Sale Price, minus, in the case of a distribution to which
Section 7.6(iv) applies, for which (i) the record date shall occur on or before
the record date for the distribution to which this Section 7.8 applies and (ii)
the Ex-Dividend Time shall occur on or after the date of the Time of
Determination for the distribution to which this Section 7.8 applies, the fair
market value (on the record date for the distribution to which this Section 7.8
applies) of any Capital Stock of the Company distributed in respect of each
share of Common Stock in such Section 7.6(iv) distribution.
F = the fair market value (on the record date for the distribution to which this Section 7.8 applies) of the assets, securities, rights, warrants or options to be distributed in respect of each share of Common Stock in the distribution to which this Section 7.8 is being applied (including, in the case of cash dividends or other cash distributions giving rise to an adjustment, all such cash distributed concurrently).
In the event the Company pays a dividend or makes a distribution to all holders of its Common Stock consisting of shares of Capital Stock of a Subsidiary, the Conversion Rate shall be adjusted, if at all, based on the fair market value of the Subsidiary stock so distributed relative to the fair market value of the Common Stock, as discussed below. The Board of Directors shall determine fair market values for the purposes of this Section 7.8, except that in respect of a dividend or other distribution of shares of Capital Stock of any class or series, or similar equity interests, of or relating to a Subsidiary or other business unit of the Company (a "Spin-off"), the fair market value of the securities to be distributed shall equal the product of the number of those securities distributed in respect of each share of Common Stock multiplied by the average of the daily Closing Sale Prices of those securities for the five consecutive trading days commencing on and including the sixth day of trading of those securities after the effectiveness of the Spin-off and the fair market value of the Common Stock shall mean the average of the daily Closing Sale Prices for the Common Stock for the same five trading days. In the event, however, that an underwritten initial public offering of the securities in the Spin-off occurs simultaneously with the Spin-off, fair market value of the securities distributed in the Spin-off shall mean the initial public offering price of such securities and the average of the daily
Closing Sale Prices shall mean the Closing Sale Price for the Common Stock on the same trading day.
The adjustment shall become effective immediately after the record date for the determination of shareholders entitled to receive the distribution to which this Section 7.8 applies, except that an adjustment related to a Spin- off shall become effective at the earlier to occur of (i) 10 trading days after the effective date of the Spin-off and (ii) the initial public offering of the securities distributed in the Spin-off.
For purposes of this Section 7.8, the term "Extraordinary Cash Dividend" shall mean any cash dividend with respect to the shares of Common Stock the amount of which, together with the aggregate amount of cash dividends on the shares of Common Stock to be aggregated with such cash dividend in accordance with the provisions of this paragraph, equals or exceeds the threshold percentage set forth in the following paragraph. For purposes of the following paragraph, the "Measurement Period" with respect to a cash dividend on the shares of Common Stock shall mean the 365 consecutive-day period ending on the date prior to the Ex-Dividend Time with respect to such cash dividend, and the "Relevant Cash Dividends" with respect to a cash dividend on the shares of Common Stock shall mean the cash dividends on the shares of Common Stock with Ex-Dividend Times occurring in the Measurement Period.
If, upon the date prior to the Ex-Dividend Time with respect a cash dividend on the shares of Common Stock, the aggregate amount of such cash dividend together with the amounts of all Relevant Cash Dividends equals or exceeds on a per share basis 5% of the Closing Sale Price of the shares of Common Stock on the last trading day preceding the date of declaration by the Board of Directors of the cash dividend with respect to which this provision is being applied, then such cash dividend together with all Relevant Cash Dividends, shall be deemed to be an Extraordinary Cash Dividend and for purposes of applying the formula set forth above in this Section 7.8, the value of "F" shall be equal to (y) the aggregate amount of such cash dividend together with the amount of all Relevant Cash Dividends, minus (z) the aggregate amount of all Relevant Cash Dividends for which a prior adjustment in the Conversion Rate was previously made under this Section 7.8.
In making the determinations required by the preceding paragraph, the amount of cash dividends paid on a per share basis and the amount of any Relevant Cash Dividends specified in the preceding paragraph, shall be appropriately adjusted to reflect the occurrence during such period of any event described in Section 7.6.
In the event that, with respect to any distribution to which this
Section 7.8 would otherwise apply, the difference "M-F" as defined in the above
formula is less than $1.00 or "F" is equal to or greater than "M", then the
adjustment provided by this Section 7.8 shall not be made and in lieu thereof
the provisions of Section 7.14 shall apply to such distribution.
All calculations under this Article Seven shall be made to the nearest cent or to the nearest 1/1,000th of a share, as the case may be.
No adjustment need be made for a transaction referred to in 7.6, 7.7, 7.8 or 7.14 if Holders of the 2001 Convertible Securities may participate in the transaction without conversion on a basis and with notice that the Board of Directors of the Company determines to be fair and appropriate in light of the basis and notice on which holders of shares of Common Stock participate in the transaction. No adjustment need be made for rights to purchase shares of Common Stock pursuant to a Company plan for reinvestment of dividends.
No adjustment need be made for a change in the par value or no par value of the shares of Common Stock.
To the extent the 2001 Convertible Securities become convertible pursuant to this Article Seven in whole or in part into cash, no adjustment need be made thereafter as to the cash. Interest shall not accrue on the cash.
No adjustment will be made pursuant to this Article 7 that would result, through the application of two or more provisions hereof, in the duplication of any adjustment.
increased Conversion Rate takes effect. The notice shall state the increased Conversion Rate and the period it will be in effect. A voluntary increase of the Conversion Rate does not change or adjust the Conversion Rate otherwise in effect for purposes of Section 7.6, 7.7 or 7.8.
1. the Company takes any action that would require an adjustment in the Conversion Rate pursuant to Section 7.6, 7.7 or 7.8 (unless no adjustment is to occur pursuant to Section 7.10); or
2. the Company takes any action that would require a supplemental indenture pursuant to Section 7.14; or
3. there is a liquidation or dissolution of the Company;
then the Company shall mail to 2001 Convertible Securityholders and file with the Trustee and the Conversion Agent a notice stating the proposed record date for a dividend or distribution or the proposed effective date of a subdivision, combination, reclassification, consolidation, merger, binding share exchange, transfer, liquidation or dissolution. The Company shall file and mail the notice at least 15 days before such date. Failure to file or mail the notice or any defect in it shall not affect the validity of the transaction.
The supplemental indenture shall provide that the Holder of a 2001 Convertible Security may convert it into the kind and amount of securities, cash or other assets that such Holder would have received immediately after the consolidation, merger, binding share exchange or transfer if such Holder had converted the 2001 Convertible Security immediately before the effective date of the transaction, assuming (to the extent applicable) that such Holder (i) was not a constituent Person or an Affiliate of a constituent Person to such transaction; (ii) made no election with respect thereto; and (iii) was treated alike with the plurality of non-electing Holders. The supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practical to the adjustments provided for in this Article Seven. The successor Company shall mail to Holders of 2001 Convertible Securities a notice briefly describing the supplemental indenture.
If this Section applies, neither Section 7.6 nor 7.7 applies.
If the Company makes a distribution to all holders of its shares of Common Stock of any of its assets, or debt securities or any rights, warrants or options to purchase securities of the Company that, but for the provisions of the last paragraph of Section 7.8, would otherwise result in an adjustment in the Conversion Rate pursuant to the provisions of Section 7.8, then, from and after the record date for determining the holders of shares of Common Stock entitled to receive the distribution, a Holder of a 2001 Convertible Security that converts such 2001 Convertible Security in accordance with the provisions of this Fourth Supplemental Indenture shall upon such conversion be entitled to receive, in addition to the shares of shares of Common Stock into which the 2001 Convertible Security is convertible, the kind and amount of securities, cash or other assets comprising the distribution that such Holder would have received if such Holder had converted the 2001 Convertible Security immediately prior to the record date for determining the holders of shares of Common Stock entitled to receive the distribution.
ARTICLE EIGHT
MISCELLANEOUS PROVISIONS
EXHIBIT 4.1
IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed this Fourth Supplemental Indenture on behalf of the respective parties hereto as of the date first above written.
CSX CORPORATION
By: /s/ David A. Boor
-----------------
Name: David A. Boor
Title: Vice President and Treasurer
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THE CHASE MANHATTAN BANK,
as Trustee, Paying Agent, Conversion Agent
and Security Registrar
By: /s/ Ronald J. Halleran
----------------------
Name: Ronald J. Halleran
Title: Assistant Vice President
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EXHIBIT 4.1
EXHIBIT A-1
[FORM OF FACE OF GLOBAL SECURITY]
THIS SECURITY IS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR UNITED STATES FEDERAL INCOME TAX PURPOSES AND IS SUBJECT TO THE RULES FOR DEBT INSTRUMENTS WITH CONTINGENT PAYMENTS UNDER TREASURY REGULATIONS (S) 1.1275-4(b). AS REQUIRED UNDER APPLICABLE TREASURY REGULATIONS, CSX CORPORATION (THE "COMPANY") HAS SET FORTH THE "COMPARABLE YIELD" IN SECTION 5.3 OF THE FOURTH SUPPLEMENTAL INDENTURE PURSUANT TO WHICH THIS SECURITY IS BEING ISSUED.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS, IN WHOLE BUT NOT IN PART, TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 305 OF THE INDENTURE.
THIS SECURITY, ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS CONVERSION AND ANY RELATED DOCUMENTATION MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME TO MODIFY THE RESTRICTIONS ON TRANSFERS OF THIS SECURITY AND ANY SUCH SHARES TO REFLECT ANY CHANGE IN APPLICABLE LAW OR REGULATION (OR INTERPRETATION THEREOF). THE HOLDER OF THIS SECURITY AND ANY SUCH SHARES SHALL BE DEEMED BY THE ACCEPTANCE OF THIS SECURITY AND ANY SUCH SHARES TO HAVE AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT.
CSX CORPORATION
ZERO COUPON CONVERTIBLE DEBENTURES DUE OCTOBER 30, 2021
No. CUSIP: 126408 GA 5
Issue Date:
Issue Price:
(for each $1,000 principal amount at
maturity, subject to adjustment)
CSX CORPORATION, a Virginia corporation, promises to pay to Cede & Co. or registered assigns, the principal amount at maturity of _________________________DOLLARS ($___________) on October 30, 2021, subject to adjustment as provided herein.
This Security shall accrete in value as specified on the other side of this Security. This Security shall not bear cash interest except in the manner specified on the other side of this Security. This Security is convertible as specified on the other side of this Security.
Additional provisions of this Security are set forth on the other side of this Security.
Dated: CSX CORPORATION
[SEAL]
By: _________ ________________________
Name:
Title:
Attest:
___________________________________
[Assistant Corporate Secretary]
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TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of a series issued under the Indenture described herein.
THE CHASE MANHATTAN BANK
By: ________________________________
Authorized Officer
Dated:
A-1-1
[FORM OF REVERSE OF GLOBAL SECURITY]
Zero Coupon Convertible Debentures due October 30, 2021
Accretion and Reset; Cash Interest. Except as provided in this
Section 1, this Security shall not bear cash interest. This Security shall
initially represent the Issue Price and shall accrete in value such that the
initial yield to maturity shall be 1.00% per annum through the Stated Maturity.
The accretion rate in effect with respect to this Security shall at any time
equal the yield to maturity then in effect for this Security paid. The yield to
maturity (or, if the Company has elected to restate the principal amount of the
Securities and pay cash interest on the Securities following the occurrence of a
Tax Event, the cash interest rate) on this Security shall be reset on October
30, 2007, October 30, 2011 and October 30, 2016 (each, a "Reset Date") to a rate
per annum equal to the Five-Year Treasury Rate minus 2.80%. In no event,
however, shall the yield to maturity (or the cash interest rate, if the
principal amount of the Securities shall have been restated following the
occurrence of a Tax Event) be reset below the initial rate per annum or above
3.00% per annum. The principal amount of this Security at any time shall equal
the Accreted Value (or, if the Company has elected to restate the principal
amount of this Security and pay cash interest on this Security following the
occurrence of a Tax Event, the Restated Principal Amount) of this Security.
Cash Interest and Accretion Computation and Method of Payment. Any cash interest payable hereunder following the occurrence of a Tax Event and any accretion in value of the Securities shall be computed based on a 360-day year of twelve 30-day months and semi-annual periods ending on October 30 and April 30 of each year. Cash interest (if the principal amount of the Securities shall have been restated following the occurrence of a Tax Event) shall be payable semi-annually in arrears on (but excluding) each October 30 and April 30 (each an "Interest Payment Date") through the Stated Maturity unless the Securities are earlier converted, redeemed or purchased by the Company or otherwise repaid. The Securities shall accrete in value from October 30, 2001. If the Company elects to pay cash interest upon the occurrence of a Tax Event, cash interest on the Securities shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the Option Exercise Date (as defined below); provided that, if the Company elects to pay cash interest upon the occurrence of a Tax Event as of a date less than 60 days prior to any Interest Payment Date, the first payment of cash interest shall be made on the Interest Payment Date next succeeding such Interest Payment Date. The record date for the payment of cash interest to Holders shall be the close of business on October 15 and April 15 of each year (whether or not a Business Day); provided that cash interest payable at Stated Maturity or upon redemption or purchase shall be payable to the person to whom principal is payable. Cash interest on the Securities shall be paid to registered holders of the Securities as of the record date. Any cash interest or accretion in value for any period shorter than a full semi-annual period shall be computed, using a 30-day month and any period shorter than a month, using actual days elapsed. Any cash interest or accretion in value so computed shall be rounded to the nearest whole dollar.
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Tax Event. From and after the date of the occurrence of a Tax Event, the Company will have the option to elect to pay cash interest on the Securities at a rate per annum equal to the yield to maturity in effect on the Option Exercise Date (as defined below). On the date of the Company's election to pay cash interest following a Tax Event (the "Option Exercise Date"), the principal amount of each Security shall be restated and shall equal the Accreted Value of such Security as of the Option Exercise Date up to but not including the Option Exercise Date (the "Restated Principal Amount"). Cash interest shall accrue on the Restated Principal Amount from the Option Exercise Date and shall be subject to a Rate Reset as described in the first paragraph of Section 1 above.
A "Tax Event" means that the Company shall have received an opinion from an independent tax counsel experienced in such matters to the effect that, on or after October 30, 2001, as a result of (a) any amendment to, or change (including any announced prospective change) in, the laws (or rules or regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein or (b) any amendment to, or change in, an interpretation or application of such laws, rules or regulations by any legislative body, court, governmental agency or regulatory authority, in each case which amendment or change is enacted, promulgated, issued or announced or which interpretation is issued or announced or which action is taken, on or after October 30, 2001, there is more than an insubstantial risk that interest (including amounts reflecting accretion in value of the Securities included in the Accreted Value of the Securities) payable on the Securities either (i) would not be deductible on a current accrual basis or (ii) would not be deductible under any other method, in either case in whole or in part, by the Company (by reason of deferral, disallowance, or otherwise) for United States federal income tax purposes.
Pursuant to the terms and conditions of the Fourth Supplemental Indenture, the Company shall make payments in cash, shares of Common Stock or a combination thereof, as the case may be, in respect of the Redemption Price, Purchase Price, Change of Control Purchase Price and principal of the Securities at Stated Maturity to Holders who surrender Securities to a Paying Agent to collect such payments in respect of the Securities. The Company shall pay cash amounts in money of the United States that at the time of payment is legal tender for payment of public and private debts, or by check payable in such money.
If the principal hereof, including any principal or Accreted Value reflected in the Redemption Price, Purchase Price or Change of Control Purchase Price, as applicable, or any portion thereof is not paid when due (whether upon acceleration pursuant to Section 502 of the Indenture, upon the date set for payment of the Redemption Price, Purchase Price, Change of Control Purchase Price or principal upon the Stated Maturity of this Security), then in each such case the overdue amount shall, to the extent permitted by law, bear cash interest at the rate of 1.0% per annum, compounded semi-annually, which interest shall accrue from the date of such overdue amount was originally due to the date of payment of such amount, including interest thereon, has been made or duly provided for. All such interest shall be payable on demand.
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Initially, The Chase Manhattan Bank (the "Trustee") shall act as Paying Agent, Conversion Agent and Security Registrar. The Company may appoint and change any Paying Agent, Conversion Agent or Security Registrar without notice, other than notice to the Trustee; provided that the Company shall maintain at least one Paying Agent in the State of New York, City of New York, Borough of Manhattan, which shall initially be an office or agency of the Trustee. The Company or any of its Subsidiaries or any of their Affiliates may act as Paying Agent, Conversion Agent or Security Registrar.
The Company issued the Securities under an indenture (the "Indenture"), dated as of August 1, 1990, between the Company and the Trustee, as supplemented and amended by the first supplemental indenture dated as of June 15, 1991, the second supplemental indenture dated as of May 6, 1997, the third supplemental indenture dated as of April 22, 1998 and the fourth supplemental indenture, dated as of October 30, 2001 (the "Fourth Supplemental Indenture"), between the Company and the Trustee. Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as in effect from time to time. The Securities are subject to all such terms, and Holders are referred to the Indenture and the TIA for a statement of those terms.
The Securities are general unsecured obligations of the Company initially limited to $563,500,000 aggregate principal amount at maturity, subject to upward adjustment as provided herein, and will rank equally in right of payment to all the Company's present and future unsecured and unsubordinated indebtedness. The Indenture does not limit other indebtedness of the Company, secured or unsecured.
The Securities are redeemable at the option of the Company in whole or in part, at any time or from time to time, on or after October 30, 2008 at a redemption price per Security equal to the Redemption Price. No sinking fund is provided for the Securities.
The table below shows Redemption Prices of a Security per $1,000 principal amount at maturity on October 30, 2008, at each following October 30 before maturity and at maturity on October 30, 2021, assuming that neither a reset of the yield to maturity nor a Tax Event occurs. These prices reflect the Issue Price of a Security plus the accretion in value on that Security, based on the yield to maturity from time to time in effect. The Redemption Price of a Security redeemed between those dates will include any additional increase in the Accreted Value since the immediately preceding redemption date set forth below up to but not including the redemption date.
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(2) (3)
Accretion in Value Redemption
(1) from the Date of Price
Redemption Date Issue Price Issuance (1) + (2)
------------------- --------------- ---------------------- --------------
October 30,
2008 819.14 $ 59.24 $ 878.38
2009 819.14 68.05 887.19
2010 819.14 76.94 896.08
2011 819.14 85.92 905.06
2012 819.14 95.00 914.14
2013 819.14 104.16 923.30
2014 819.14 113.42 932.56
2015 819.14 122.77 941.91
2016 819.14 132.21 951.35
2017 819.14 141.75 960.89
2018 819.14 151.38 970.52
2019 819.14 161.11 980.25
2020 819.14 170.94 990.08
2021 (maturity) 819.14 180.86 1,000.00
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Notice of redemption must be mailed at least 15 days, but not more than 60 days, before the Redemption Date to the Trustee and each Holder of Securities to be redeemed at the Holder's address as shown on the register kept by the Security Registrar.
If the Redemption Date is on or after an interest record date but on or prior to the related Interest Payment Date, cash interest shall be payable to the Holders in whose names the Securities are registered at the close of business on the relevant record date.
On and after the Redemption Date, cash interest shall cease to accrue on Securities or any portion of them called for redemption and such Securities or any portion thereof called for redemption shall cease to accrete in value; provided that funds in the requisite amount are paid or made available for payment on that date.
Subject to the terms and conditions of the Fourth Supplemental Indenture, the Company shall become obligated to purchase, at the option of the Holder, all or any portion of the Securities held by such Holder on October 30, 2003, October 30, 2006, October 30, 2008, October 30, 2011 and October 30, 2016 (each a "Purchase Date") at a purchase price per Security equal to the Purchase Price (provided that, if the Company has elected to pay cash interest upon the occurrence of a Tax Event and if the Purchase Date is on or after an interest record date but on or prior to the related Interest Payment Date, interest shall be payable to the Holders in whose names the Securities are registered at the close of business on the relevant record date) upon delivery of a Purchase Notice containing the information set forth in the Fourth Supplemental Indenture, at any time from the opening of business on the date that is 20 Business Days prior to such Purchase Date until the close of business on the fifth Business Day prior to such Purchase Date, and upon delivery of the Securities to the Paying Agent by the Holder as set forth in the Fourth Supplemental Indenture.
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The Purchase Price of a Security as of each of the Purchase Dates
(assuming that neither a reset of the yield to maturity nor a Tax Event occurs)
will be:
Purchase Date Purchase Price ------------- -------------- October 30, 2003 $835.65 October 30, 2006 $861.03 October 30, 2008 $878.38 October 30, 2011 $905.06 October 30, 2016 $951.35 |
On the first three Purchase Dates, the Purchase Price may be paid, at the option of the Company, in cash or by the delivery of Common Stock, or any combination thereof, in the manner described in Section 4.7 of the Fourth Supplemental Indenture. On the last two Purchase Dates, the Purchase Price the Securities may be paid for in cash only.
Holders have the right to withdraw any Purchase Notice by delivering to the Paying Agent a written notice of withdrawal in accordance with the provisions of the Fourth Supplemental Indenture.
If cash or securities sufficient to pay the Purchase Price or the Change of Control Purchase Price, as the case may be, of a Security or portion thereof to be purchased as of the Purchase Date or the Change of Control Purchase Date, as the case may be, are deposited with the Paying Agent or the Stock Transfer Agent, as the case may be, on the Business Day following the Purchase Date or the Change of Control Purchase Date, as the case may be, then, immediately after the Purchase Date or the Change of Control Purchase Date, as the case may be, such Security shall cease to be outstanding, the Security shall cease to accrete in value and cash interest, if any, on such Security shall cease to accrue, whether or not book-entry transfer is made or such Security is delivered to the Paying Agent or the Stock Transfer Agent, as the case may be. Thereafter, the Holder of such Security shall have no other rights other than the right to receive the Purchase Price or the Change of Control Purchase Price, as the case may be, upon surrender of such Security.
If a Change of Control occurs, each Holder of Securities shall have the right, at the Holder's option, to require the Company to purchase all of such Holder's Securities, or any portion thereof that is an integral multiple of $1,000 principal amount at maturity (subject to upward adjustment in the event of a Rate Reset) on the Change of Control Purchase Date selected by the Company that is not less than 10 nor more than 30 days after the Final Surrender Date (as defined below), at a purchase price per Security equal to the Change of Control Purchase Price, which Change of Control Purchase Price shall be paid in cash.
Unless the Company shall have theretofore called for redemption all the outstanding Securities, on or before the thirtieth day after the occurrence of a Change of Control, the Company is obligated to mail or cause the Trustee to mail to all Holders of record of the Securities a Change of Control Company Notice describing, among other things, the occurrence of such Change of Control and of the purchase right arising as a result thereof. The Company must deliver a copy of the Change of Control Company Notice to the Trustee and cause a copy
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of such notice to be published in a newspaper of general circulation in the Borough of Manhattan, The City of New York. To exercise the purchase option, a Holder of Securities must surrender, on or before the date which, subject to any contrary requirements of applicable law, is 60 days after the date of mailing of the Company Notice the Securities with respect to which the right is being exercised, which, in the case of Certificated Securities, must be duly endorsed for transfer to the Company.
A Holder may surrender Securities for conversion into shares of Common Stock on a Conversion Date if, as of such Conversion Date, the Closing Sale Price of the Common Stock for at least 20 trading days in the 30-day period ending on the trading day prior to the Conversion Date is more than the Applicable Percentage then in effect of the Accreted Conversion Price per share of Common Stock on such Conversion Date. The "Accreted Conversion Price" per share of Common Stock as of any day means the quotient of the Accreted Value of a Security divided by the Conversion Rate on that day. The "Applicable Percentage" means (a) for any date before October 30, 2021, the percentage set forth below opposite such date or opposite the pair of dates between which such date falls, as the case may be, and (b) for October 30, 2021 or any date thereafter, 110.0%.
From (and To (but Applicable including) excluding) Percentage ---------- ---------- ---------- October 30, 2001 October 30, 2002 120.0% October 30, 2002 October 30, 2003 119.5 October 30, 2003 October 30, 2004 119.0 October 30, 2004 October 30, 2005 118.5 October 30, 2005 October 30, 2006 118.0 October 30, 2006 October 30, 2007 117.5 October 30, 2007 October 30, 2008 117.0 October 30, 2008 October 30, 2009 116.5 October 30, 2009 October 30, 2010 116.0 October 30, 2010 October 30, 2011 115.5 October 30, 2011 October 30, 2012 115.0 October 30, 2012 October 30, 2013 114.5 October 30, 2013 October 30, 2014 114.0 October 30, 2014 October 30, 2015 113.5 October 30, 2015 October 30, 2016 113.0 October 30, 2016 October 30, 2017 112.5 October 30, 2017 October 30, 2018 112.0 October 30, 2018 October 30, 2019 111.5 October 30, 2019 October 30, 2020 111.0 October 30, 2020 October 30, 2021 110.5 |
A Holder may also surrender Securities for conversion into shares of Common Stock if at any time Moody's Investors Service, Inc. has downgraded the Company's senior long-term unsecured corporate credit rating to below Ba1 and Standard & Poor's Rating Services
A-1-7
has downgraded the Company's senior long-term unsecured corporate credit rating to below BB+, respectively, for so long as both such downgrades remain in effect.
In addition, a Holder may surrender for conversion a Security which has been called for redemption pursuant to Section 5 of this Security, even if the foregoing provisions have not been satisfied, and such Securities may be surrendered for conversion until the close of business on the Business Day immediately prior to the Redemption Date; provided that if the Company shall default in payment of the Redemption Price, a Holder may surrender Securities for conversion on or after the related Redemption Date.
In the event that the Company declares a dividend or distribution described in Section 7.7 of the Fourth Supplemental Indenture, or a dividend or distribution described in Section 7.8 of the Fourth Supplemental Indenture where the fair market value of such dividend or distribution per share of Common Stock, as determined in the Fourth Supplemental Indenture, exceeds 15% of the current Market Price of the Common Stock as of the trading day immediately prior to the date of declaration, a Holder may surrender Securities for conversion beginning on the date the Company gives notice to such Holder of such right, which shall be not less than 20 days prior to the Ex-Dividend Time for such dividend or distribution, and such Holder may surrender such Securities for conversion at any time thereafter until the earlier of (i) the close of business on the Business Day prior to the Ex-Dividend Time and (ii) the Company announces that such distribution shall not take place.
In the event that the Company is a party to a consolidation, merger, transfer or lease of all or substantially all of its assets or a merger pursuant to which the Common Stock would be converted into, or into the right to receive, cash, securities or other assets as set forth in Section 7.14 of the Fourth Supplemental Indenture, a Holder may surrender Securities for conversion at any time beginning 15 days before the anticipated effective date of the transaction until 15 days after the actual effective date of the transaction.
Upon conversion, no payment or adjustment for accrued and unpaid cash interest on or accretion in value of a converted Security or for dividends or distributions on the Common Stock shall be made. If a Holder surrenders Securities for conversion after the Company has exercised its option to pay cash interest following a Tax Event, and during the period after any interest record date and before the corresponding Interest Payment Date, the Holder must pay the Company the cash interest, if any, payable on such Securities, unless such Securities have been called for redemption on a Redemption Date within such period or on the Interest Payment Date.
A Security in respect of which a Holder has delivered a Purchase Notice exercising the option of such Holder to require the Company to purchase such Security may be converted only if such notice of exercise is withdrawn in accordance with the terms of the Fourth Supplemental Indenture. A Security in respect of which a Holder has delivered a Change of Control Purchase Notice exercising the option of such Holder to require the Company to purchase such Security may be not converted.
The Conversion Rate is initially 17.7461 shares of Common Stock per $1,000 principal amount at maturity (which principal amount at maturity is subject to upward adjustment in the event of a Rate Reset) of 2001 Convertible Securities, subject to adjustment in
A-1-8
certain events described in this Fourth Supplemental Indenture. A Holder that surrenders Securities for conversion shall receive cash in lieu of any fractional shares of Common Stock.
If the Company exercises its option to pay cash interest on, and restate the principal amount at maturity of, the 2001 Convertible Securities following the occurrence of a Tax Event pursuant to Section 1 of this Security, a Holder shall be entitled to receive a number of shares of Common Stock upon conversion of any 2001 Convertible Security that is equal to the number of shares of Common Stock that such Holder would have received upon conversion of such 2001 Convertible Security if the Company had not exercised such option.
To convert a Security, a Holder must (1) complete and sign the conversion notice on the reverse of the Security and deliver such notice to the Conversion Agent, (2) surrender the Security to the Conversion Agent, (3) furnish the appropriate endorsements and transfer documents if required by the Security Registrar, the Company or Conversion Agent, and (4) pay any tax or duty which may be payable in respect of any transfer involving the issue or delivery of Common Stock in the name of a person other than the Holder thereof. A Holder may convert a portion of a Security if the portion is $1,000 principal amount at maturity (subject to upward adjustment in the event of a Rate Reset) or an integral multiple of $1,000 (or such increased amount).
The Conversion Rate shall be adjusted for dividends or distributions on shares of Common Stock payable in shares of Common Stock or other Capital Stock; subdivisions, combinations or reclassifications of Common Stock specified in the Fourth Supplemental Indenture; distributions to all holders of Common Stock of rights or warrants (excluding rights governed by the Company's shareholders rights plan) specified in the Fourth Supplemental Indenture to purchase shares of Common Stock for a period expiring within 60 days at less than the current Market Price at the Time of Determination; and distributions to such holders of assets or debt securities of the Company or certain rights to purchase securities of the Company (excluding certain cash dividends or other distributions). However, no adjustment need be made if Holders may participate in the transaction without conversion or in certain other cases specified in the Fourth Supplemental Indenture. The Company from time to time may voluntarily increase the Conversion Rate.
If the Company is a party to a consolidation, merger or transfer or lease of all or substantially all of its assets pursuant to which the outstanding shares of Common Stock are converted into, or into the right to receive, cash, securities or other assets, then at the effective time of the transaction, the right to convert a Security into shares of Common Stock will be changed into a right to convert it into, or into the right to receive, as applicable, the kind and amount of cash, securities or other property which the Holder would have received if the Holder had converted that Holder's Security immediately before the transaction (assuming, in a case in which the Company's stockholders may exercise rights of election, that a Holder of Securities would not have exercised any rights of election as to the stock, other securities or other property or assets receivable in connection therewith and received per share the kind and amount received per share by plurality of nonelecting shares).
A-1-9
The Company has the option to designate a financial institution to which Securities surrendered for conversion by a Holder of Securities shall be initially offered by the Conversion Agent for exchange in lieu of the Company's converting the Securities. When a Holder surrenders Securities for conversion, the Conversion Agent shall cause the Securities first to be offered to a financial institution chosen by the Company for exchange lieu of conversion. The Company expects that when the Securities are convertible, the designated institution shall submit to the Conversion Agent a non-binding offer to accept Securities surrendered for conversion. In order to accept Securities surrendered for conversion, the designated institution must agree to exchange for such Securities a number of shares of Common Stock equal to the number of such shares the Holder of such Securities would receive upon conversion, plus cash for any fractional shares. If the institution accepts any such Securities, it shall deliver, or shall cause to be delivered on its behalf, the appropriate number of shares of Common Stock and cash to the Stock Transfer Agent or the Conversion Agent, as the case may be, and the Stock Transfer Agent or the Conversion Agent, as the case may be, shall deliver those shares or cash, as the case may be, to the Holder who surrendered the Securities. The designation of an institution to which Securities may be submitted for exchange does not require the institution to accept any Securities from the Conversion Agent. If the designated institution declines to accept any Securities in whole or in part, those Securities or parts of Securities shall be converted into shares of Common Stock as the close of business on the Business Day following the Business Day on which the Securities are surrendered for conversion. If the designated institution agrees to accept any Securities for exchange but does not timely deliver the related shares of Common Stock and cash, the Securities shall be converted and the shares of Common Stock and cash shall be delivered. Any Securities accepted for exchange by the designated institution shall remain outstanding.
The Securities are in registered form without coupons in denominations of $1,000 principal amount at maturity (subject to upward adjustment in the event of a Rate Reset) and integral multiples of $1,000 (or such increased amount). A Holder may register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes or other governmental charges that may be imposed in relation thereto by law or permitted by the Indenture.
A-1-10
An Event of Default is default in the payment by the Company of accrued and unpaid cash interest (including any cash interest payable after any election by the Company to restate the principal amount of the Securities and pay cash interest on the Securities following the occurrence of a Tax Event) on the Securities continued for 30 days, default by the Company in payment of principal (or, if the Company has elected to restate the principal amount of the Securities and pay cash interest on the Securities following the occurrence of a Tax Event, the Restated Principal Amount) of the Securities at Maturity, failure by the Company for 90 days after written notice (as specified in the Indenture) to it to comply with any of its other covenants or agreements in the Indenture and specified events of bankruptcy, insolvency or reorganization with respect to the Company. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount at maturity of the Securities may declare an amount equal to the Accreted Value of the Securities (or, if the Company has elected to restate the principal amount of the Securities and pay additional cash interest on the Securities following the occurrence of a Tax Event, the Restated Principal Amount) in respect of the Securities to be immediately due and payable.
Holders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require security or indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in aggregate principal amount at maturity of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing Event of Default (except an Event of Default in payment of principal (or, if the Company has elected to restate the principal amount of the Securities and pay additional cash interest following the occurrence of a Tax Event, the Restated Principal Amount) or accrued and unpaid interest) if it determines that withholding notice is in their interests. The Company must furnish an annual compliance certificate to the Trustee.
The Chase Manhattan Bank, the Trustee and any agent under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee or agent.
A director, officer, employee or shareholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture (as applicable) or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities.
This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent on the face hereof.
A-1-11
Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption.
The laws of the State of New York shall govern the Indenture and the Securities.
A-1-12
CONVERSION NOTICE
To CSX Corporation (the "Company"):
The undersigned owner of this Security hereby irrevocably exercises the option to convert this Security, or the portion hereof (which is $1,000 principal amount at maturity (subject to upward adjustment in the event of a Rate Reset) or an integral multiple of $1,000 (or such corresponding increased amount) below designated, into shares of CSX Corporation Common Stock in accordance with the terms of the Indenture referred to in this Security, and directs that the shares issuable and deliverable upon conversion, together with any cash in payment for fractional shares and any Securities representing any unconverted principal amount hereof, be issued and delivered to the registered Holder hereof unless a different name has been indicated below. If shares are to be issued in the name of a Person other than the undersigned, the undersigned shall pay all transfer taxes payable with respect thereto.
To convert this Security into shares of Common Stock of the Company, check the box: [_]
To convert only part of this Security, state the amount (must be $1,000 principal amount at maturity (subject to upward adjustment in the event of a Rate Reset) or any whole multiple of $1,000 (or such increased amount in the event of a Rate Reset): $________
Please designate your DTC Participant's name and Participant Number in the form below:
Date:_______________ Your signature:___________________________________________
(Sign exactly as your name appears on
the face of this Security)
Signature Guaranteed*:__________________________________________________________
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* Your signature must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Trustee, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Trustee in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.
A-1-13
ASSIGNMENT FORM
To assign this Security or, in the event of conversion, shares of CSX Corporation Common Stock, fill in the form below:
I or we assign and transfer this Security, or ____ shares of CSX Corporation Common Stock, to
and irrevocably appoint
________________________________________ agent to transfer this Security, or shares of CSX Corporation Common Stock, on the books of the Company. The agent may substitute another to act for him.
Date:_______________ Your signature:___________________________________________
(Sign exactly as your name appears on
the face of this Security)
|
Signature Guaranteed:___________________________________________________________
A-1-14
ANNEX 1
Projected Payment Schedule*
Semi-Annual Period Ending Projected Payment per
-------------------------- ---------------------
$1,000 Principal Amount at
--------------------------
Maturity of Notes
-----------------
April 30, 2002 -
October 30, 2002 -
April 30, 2003 -
October 30, 2003 -
April 30, 2004 -
October 30, 2004 -
April 30, 2005 -
October 30, 2005 -
April 30, 2006 -
October 30, 2006 -
April 30, 2007 -
October 30, 2007 -
April 30, 2008 -
October 30, 2008 -
April 30, 2009 -
October 30, 2009 -
April 30, 2010 -
October 30, 2010 -
April 30, 2011 -
October 30, 2011 -
April 30, 2012 -
October 30, 2012 -
April 30, 2013 -
October 30, 2013 -
April 30, 2014 -
October 30, 2014 -
April 30, 2015 -
October 30, 2015 -
April 30, 2016 -
October 30, 2016 -
April 30, 2017 -
October 30, 2017 -
April 30, 2018 -
|
A-1-15
October 30, 2018 - April 30, 2019 - October 30, 2019 - April 30, 2020 - October 30, 2020 - April 30, 2021 - October 30, 2021 $2,635.99 |
A-1-16
EXHIBIT A-2
[FORM OF FACE OF CERTIFICATED SECURITY]
THIS SECURITY IS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR UNITED STATES FEDERAL INCOME TAX PURPOSES AND IS SUBJECT TO THE RULES FOR DEBT INSTRUMENTS WITH CONTINGENT PAYMENTS UNDER TREASURY REGULATIONS (S) 1.1275-4(b). AS REQUIRED UNDER APPLICABLE TREASURY REGULATIONS, CSX CORPORATION (THE "COMPANY") HAS SET FORTH THE "COMPARABLE YIELD" IN SECTION 5.3 OF THE FOURTH SUPPLEMENTAL INDENTURE PURSUANT TO WHICH THIS SECURITY IS BEING ISSUED.
THIS SECURITY, ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS CONVERSION AND ANY RELATED DOCUMENTATION MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME TO MODIFY THE RESTRICTIONS ON TRANSFERS OF THIS SECURITY AND ANY SUCH SHARES TO REFLECT ANY CHANGE IN APPLICABLE LAW OR REGULATION (OR INTERPRETATION THEREOF). THE HOLDER OF THIS SECURITY AND ANY SUCH SHARES SHALL BE DEEMED BY THE ACCEPTANCE OF THIS SECURITY AND ANY SUCH SHARES TO HAVE AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT.
A-2-1
CSX CORPORATION
ZERO COUPON CONVERTIBLE DEBENTURES DUE OCTOBER 30, 2021
No. CUSIP: 126408 GA 5
Issue Date:
Issue Price:
(for each $1,000 principal amount at
maturity, subject to adjustment)
CSX CORPORATION, a Virginia corporation, promises to pay to _______________ or registered assigns, the principal amount at maturity of _________________________DOLLARS ($___________) on October 30, 2021, subject to adjustment as provided herein.
This Security shall accrete in value as specified on the other side of this Security. This Security shall not bear cash interest except in the manner specified on the other side of this Security. This Security is convertible as specified on the other side of this Security.
Additional provisions of this Security are set forth on the other side of this Security.
Dated: CSX CORPORATION
[SEAL]
By: _________ ______________________
Name:
Title:
Attest:
_____________________________________
[Assistant Corporate Secretary]
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TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of a series issued under the Indenture described herein.
THE CHASE MANHATTAN BANK
By: _________________________________
Authorized Officer
Dated:
A-2-2
[FORM OF REVERSE OF CERTIFICATED SECURITY]
Zero Coupon Convertible Debentures due October 30, 2021
Accretion and Reset; Cash Interest. Except as provided in this Section 1, this Security shall not bear cash interest. This Security shall initially represent the Issue Price and shall accrete in value such that the initial yield to maturity shall be 1.00% per annum through the Stated Maturity. The accretion rate in effect with respect to this Security shall at any time equal the yield to maturity then in effect for this Security paid. The yield to maturity (or, if the Company has elected to restate the principal amount of the Securities and pay cash interest on the Securities following the occurrence of a Tax Event, the cash interest rate) on this Security shall be reset on October 30, 2007, October 30, 2011 and October 30, 2016 (each, a "Reset Date") to a rate per annum equal to the Five-Year Treasury Rate minus 2.80%. In no event, however, shall the yield to maturity (or the cash interest rate, if the principal amount of the Securities shall have been restated following the occurrence of a Tax Event) be reset below the initial rate per annum or above 3.00% per annum. The principal amount of this Security at any time shall equal the Accreted Value (or, if the Company has elected to restate the principal amount of this Security and pay cash interest on this Security following the occurrence of a Tax Event, the Restated Principal Amount) of this Security.
Cash Interest and Accretion Computation and Method of Payment. Any cash interest payable hereunder following the occurrence of a Tax Event and any accretion in value of the Securities shall be computed based on a 360-day year of twelve 30-day months and semi-annual periods ending on October 30 and April 30 of each year. Cash interest (if the principal amount of the Securities shall have been restated following the occurrence of a Tax Event) shall be payable semi-annually in arrears on (but excluding) each October 30 and April 30 (each an "Interest Payment Date") through the Stated Maturity unless the Securities are earlier converted, redeemed or purchased by the Company or otherwise repaid. The Securities shall accrete in value from October 30, 2001. If the Company elects to pay cash interest upon the occurrence of a Tax Event, cash interest on the Securities shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the Option Exercise Date (as defined below); provided that, if the Company elects to pay cash interest upon the occurrence of a Tax Event as of a date less than 60 days prior to any Interest Payment Date, the first payment of cash interest shall be made on the Interest Payment Date next succeeding such Interest Payment Date. The record date for the payment of cash interest to Holders shall be the close of business on October 15 and April 15 of each year (whether or not a Business Day); provided that cash interest payable at Stated Maturity or upon redemption or purchase shall be payable to the person to whom principal is payable. Cash interest on the Securities shall be paid to registered holders of the Securities as of the record date. Any cash interest or accretion in value for any period shorter than a full semi-annual period shall be computed, using a 30-day month and any period shorter than a month, using actual days elapsed. Any cash interest or accretion in value so computed shall be rounded to the nearest whole dollar.
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Tax Event. From and after the date of the occurrence of a Tax Event, the Company will have the option to elect to pay cash interest on the Securities at a rate per annum equal to the yield to maturity in effect on the Option Exercise Date (as defined below). On the date of the Company's election to pay cash interest following a Tax Event (the "Option Exercise Date"), the principal amount of each Security shall be restated and shall equal the Accreted Value of such Security as of the Option Exercise Date up to but not including the Option Exercise Date (the "Restated Principal Amount"). Cash interest shall accrue on the Restated Principal Amount from the Option Exercise Date and shall be subject to a Rate Reset as described in the first paragraph of Section 1 above.
A "Tax Event" means that the Company shall have received an opinion from an independent tax counsel experienced in such matters to the effect that, on or after October 30, 2001, as a result of (a) any amendment to, or change (including any announced prospective change) in, the laws (or rules or regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein or (b) any amendment to, or change in, an interpretation or application of such laws, rules or regulations by any legislative body, court, governmental agency or regulatory authority, in each case which amendment or change is enacted, promulgated, issued or announced or which interpretation is issued or announced or which action is taken, on or after October 30, 2001, there is more than an insubstantial risk that interest (including amounts reflecting accretion in value of the Securities included in the Accreted Value of the Securities) payable on the Securities either (i) would not be deductible on a current accrual basis or (ii) would not be deductible under any other method, in either case in whole or in part, by the Company (by reason of deferral, disallowance, or otherwise) for United States federal income tax purposes.
Pursuant to the terms and conditions of the Fourth Supplemental Indenture, the Company shall make payments in cash, shares of Common Stock or a combination thereof, as the case may be, in respect of the Redemption Price, Purchase Price, Change of Control Purchase Price and principal of the Securities at Stated Maturity to Holders who surrender Securities to a Paying Agent to collect such payments in respect of the Securities. The Company shall pay cash amounts in money of the United States that at the time of payment is legal tender for payment of public and private debts, or by check payable in such money.
If the principal hereof, including any principal or Accreted Value reflected in the Redemption Price, Purchase Price or Change of Control Purchase Price, as applicable, or any portion thereof is not paid when due (whether upon acceleration pursuant to Section 502 of the Indenture, upon the date set for payment of the Redemption Price, Purchase Price, Change of Control Purchase Price or principal upon the Stated Maturity of this Security), then in each such case the overdue amount shall, to the extent permitted by law, bear cash interest at the rate of 1.00% per annum, compounded semi-annually, which interest shall accrue from the date of such overdue amount was originally due to the date of payment of such amount, including interest thereon, has been made or duly provided for. All such interest shall be payable on demand.
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Initially, The Chase Manhattan Bank (the "Trustee") shall act as Paying Agent, Conversion Agent and Security Registrar. The Company may appoint and change any Paying Agent, Conversion Agent or Security Registrar without notice, other than notice to the Trustee; provided that the Company shall maintain at least one Paying Agent in the State of New York, City of New York, Borough of Manhattan, which shall initially be an office or agency of the Trustee. The Company or any of its Subsidiaries or any of their Affiliates may act as Paying Agent, Conversion Agent or Security Registrar.
The Company issued the Securities under an indenture (the "Indenture"), dated as of August 1, 1990, between the Company and the Trustee, as supplemented and amended by the first supplemental indenture dated as of June 15, 1991, the second supplemental indenture dated as of May 6, 1997, the third supplemental indenture dated as of April 22, 1998 and the fourth supplemental indenture, dated as of October 30, 2001 (the "Fourth Supplemental Indenture"), between the Company and the Trustee. Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as in effect from time to time. The Securities are subject to all such terms, and Holders are referred to the Indenture and the TIA for a statement of those terms.
The Securities are general unsecured obligations of the Company initially limited to $563,500,000 aggregate principal amount at maturity, subject to upward adjustment as provided herein, and will rank equally in right of payment to all the Company's present and future unsecured and unsubordinated indebtedness. The Indenture does not limit other indebtedness of the Company, secured or unsecured.
The Securities are redeemable at the option of the Company in whole or in part, at any time or from time to time, on or after October 30, 2008 at a redemption price per Security equal to the Redemption Price. No sinking fund is provided for the Securities.
The table below shows Redemption Prices of a Security per $1,000 principal amount at maturity on October 30, 2008, at each following October 30 before maturity and at maturity on October 30, 2021, assuming that neither a reset of the yield to maturity nor a Tax Event occurs. These prices reflect the Issue Price of a Security plus the accretion in value on that Security, based on the yield to maturity from time to time in effect. The Redemption Price of a Security redeemed between those dates will include any additional increase in the Accreted Value since the immediately preceding redemption date set forth below up to but not including the redemption date.
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(2) (3)
Accretion in Value Redemption
(1) from the Date of Price
Redemption Date Issue Price Issuance (1) + (2)
------------------- --------------- ---------------------- --------------
October 30,
2008 $819.14 $ 59.24 $ 878.38
2009 819.14 68.05 887.19
2010 819.14 76.94 896.08
2011 819.14 85.92 905.06
2012 819.14 95.00 914.14
2013 819.14 104.16 923.30
2014 819.14 113.42 932.56
2015 819.14 122.77 941.91
2016 819.14 132.21 951.35
2017 819.14 141.75 960.89
2018 819.14 151.38 970.52
2019 819.14 161.11 980.25
2020 819.14 170.94 990.08
2021 (maturity) 819.14 180.86 1,000.00
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Notice of redemption must be mailed at least 15 days, but not more than 60 days, before the Redemption Date to the Trustee and each Holder of Securities to be redeemed at the Holder's address as shown on the register kept by the Security Registrar.
If the Redemption Date is on or after an interest record date but on or prior to the related Interest Payment Date, cash interest shall be payable to the Holders in whose names the Securities are registered at the close of business on the relevant record date.
On and after the Redemption Date, cash interest shall cease to accrue on Securities or any portion of them called for redemption and such Securities or any portion thereof called for redemption shall cease to accrete in value; provided that funds in the requisite amount are paid or made available for payment on that date.
Subject to the terms and conditions of the Fourth Supplemental Indenture, the Company shall become obligated to purchase, at the option of the Holder, all or any portion of the Securities held by such Holder on October 30, 2003, October 30, 2006, October 30, 2008, October 30, 2011 and October 30, 2016 (each a "Purchase Date") at a purchase price per Security equal to the Purchase Price (provided that, if the Company has elected to pay cash interest upon the occurrence of a Tax Event and if the Purchase Date is on or after an interest record date but on or prior to the related Interest Payment Date, interest shall be payable to the Holders in whose names the Securities are registered at the close of business on the relevant record date) upon delivery of a Purchase Notice containing the information set forth in the Fourth Supplemental Indenture, at any time from the opening of business on the date that is 20 Business Days prior to such Purchase Date until the close of business on the fifth Business Day prior to such Purchase Date, and upon delivery of the Securities to the Paying Agent by the Holder as set forth in the Fourth Supplemental Indenture.
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The Purchase Price of a Security as of each of the Purchase Dates
(assuming that neither a reset of the yield to maturity nor a Tax Event occurs)
will be:
Purchase Date Purchase Price ------------- -------------- October 30, 2003 $835.65 October 30, 2006 $861.03 October 30, 2008 $878.38 October 30, 2011 $905.06 October 30, 2016 $951.35 |
On the first three Purchase Dates, the Purchase Price may be paid, at the option of the Company, in cash or by the delivery of Common Stock, or any combination thereof, in the manner described in Section 4.7 of the Fourth Supplemental Indenture. On the last two Purchase Dates, the Purchase Price the Securities may be paid for in cash only.
Holders have the right to withdraw any Purchase Notice by delivering to the Paying Agent a written notice of withdrawal in accordance with the provisions of the Fourth Supplemental Indenture.
If cash or securities sufficient to pay the Purchase Price or the Change of Control Purchase Price, as the case may be, of a Security or portion thereof to be purchased as of the Purchase Date or the Change of Control Purchase Date, as the case may be, are deposited with the Paying Agent or the Stock Transfer Agent, as the case may be, on the Business Day following the Purchase Date or the Change of Control Purchase Date, as the case may be, then, immediately after the Purchase Date or the Change of Control Purchase Date, as the case may be, such Security shall cease to be outstanding, the Security shall cease to accrete in value and cash interest, if any, on such Security shall cease to accrue, whether or not book-entry transfer is made or such Security is delivered to the Paying Agent or the Stock Transfer Agent, as the case may be. Thereafter, the Holder of such Security shall have no other rights other than the right to receive the Purchase Price or the Change of Control Purchase Price, as the case may be, upon surrender of such Security.
If a Change of Control occurs, each Holder of Securities shall have the right, at the Holder's option, to require the Company to purchase all of such Holder's Securities, or any portion thereof that is an integral multiple of $1,000 principal amount at maturity (subject to upward adjustment in the event of a Rate Reset) on the Change of Control Purchase Date selected by the Company that is not less than 10 nor more than 30 days after the Final Surrender Date (as defined below), at a purchase price per Security equal to the Change of Control Purchase Price, which Change of Control Purchase Price shall be paid in cash.
Unless the Company shall have theretofore called for redemption all the outstanding Securities, on or before the thirtieth day after the occurrence of a Change of Control, the Company is obligated to mail or cause the Trustee to mail to all Holders of record of the Securities a Change of Control Company Notice describing, among other things, the occurrence of such Change of Control and of the purchase right arising as a result thereof. The Company must deliver a copy of the Change of Control Company Notice to the Trustee and cause a copy
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of such notice to be published in a newspaper of general circulation in the Borough of Manhattan, The City of New York. To exercise the purchase option, a Holder of Securities must surrender, on or before the date which, subject to any contrary requirements of applicable law, is 60 days after the date of mailing of the Company Notice the Securities with respect to which the right is being exercised, which, in the case of Certificated Securities, must be duly endorsed for transfer to the Company.
A Holder may surrender Securities for conversion into shares of Common Stock on a Conversion Date if, as of such Conversion Date, the Closing Sale Price of the Common Stock for at least 20 trading days in the 30-day period ending on the trading day prior to the Conversion Date is more than the Applicable Percentage then in effect of the Accreted Conversion Price per share of Common Stock on such Conversion Date. The "Accreted Conversion Price" per share of Common Stock as of any day means the quotient of the Accreted Value of a Security divided by the Conversion Rate on that day. The "Applicable Percentage" means (a) for any date before October 30, 2021, the percentage set forth below opposite such date or opposite the pair of dates between which such date falls, as the case may be, and (b) for October 30, 2021 or any date thereafter, 110.0%.
From (and To (but Applicable including) excluding) Percentage ---------- ---------- ---------- October 30, 2001 October 30, 2002 120.0% October 30, 2002 October 30, 2003 119.5 October 30, 2003 October 30, 2004 119.0 October 30, 2004 October 30, 2005 118.5 October 30, 2005 October 30, 2006 118.0 October 30, 2006 October 30, 2007 117.5 October 30, 2007 October 30, 2008 117.0 October 30, 2008 October 30, 2009 116.5 October 30, 2009 October 30, 2010 116.0 October 30, 2010 October 30, 2011 115.5 October 30, 2011 October 30, 2012 115.0 October 30, 2012 October 30, 2013 114.5 October 30, 2013 October 30, 2014 114.0 October 30, 2014 October 30, 2015 113.5 October 30, 2015 October 30, 2016 113.0 October 30, 2016 October 30, 2017 112.5 October 30, 2017 October 30, 2018 112.0 October 30, 2018 October 30, 2019 111.5 October 30, 2019 October 30, 2020 111.0 October 30, 2020 October 30, 2021 110.5 |
A Holder may also surrender Securities for conversion into shares of Common Stock if at any time Moody's Investors Service, Inc. has downgraded the Company's senior long-term unsecured corporate credit rating to below Ba1 and Standard & Poor's Rating Services
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has downgraded the Company's senior long-term unsecured corporate credit rating to below BB+, respectively, for so long as both such downgrades remain in effect.
In addition, a Holder may surrender for conversion a Security which has been called for redemption pursuant to Section 5 of this Security, even if the foregoing provisions have not been satisfied, and such Securities may be surrendered for conversion until the close of business on the Business Day immediately prior to the Redemption Date; provided that if the Company shall default in payment of the Redemption Price, a Holder may surrender Securities for conversion on or after the related Redemption Date.
In the event that the Company declares a dividend or distribution described in Section 7.7 of the Fourth Supplemental Indenture, or a dividend or distribution described in Section 7.8 of the Fourth Supplemental Indenture where the fair market value of such dividend or distribution per share of Common Stock, as determined in the Fourth Supplemental Indenture, exceeds 15% of the current Market Price of the Common Stock as of the trading day immediately prior to the date of declaration, a Holder may surrender Securities for conversion beginning on the date the Company gives notice to such Holder of such right, which shall be not less than 20 days prior to the Ex-Dividend Time for such dividend or distribution, and such Holder may surrender such Securities for conversion at any time thereafter until the earlier of (i) the close of business on the Business Day prior to the Ex-Dividend Time and (ii) the Company announces that such distribution shall not take place.
In the event that the Company is a party to a consolidation, merger, transfer or lease of all or substantially all of its assets or a merger pursuant to which the Common Stock would be converted into, or into the right to receive, cash, securities or other assets as set forth in Section 7.14 of the Fourth Supplemental Indenture, a Holder may surrender Securities for conversion at any time beginning 15 days before the anticipated effective date of the transaction until 15 days after the actual effective date of the transaction.
Upon conversion, no payment or adjustment for accrued and unpaid cash interest on or accretion in value of a converted Security or for dividends or distributions on the Common Stock shall be made. If a Holder surrenders Securities for conversion after the Company has exercised its option to pay cash interest following a Tax Event, and during the period after any interest record date and before the corresponding Interest Payment Date, the Holder must pay the Company the cash interest, if any, payable on such Securities, unless such Securities have been called for redemption on a Redemption Date within such period or on the Interest Payment Date.
A Security in respect of which a Holder has delivered a Purchase Notice exercising the option of such Holder to require the Company to purchase such Security may be converted only if such notice of exercise is withdrawn in accordance with the terms of the Fourth Supplemental Indenture. A Security in respect of which a Holder has delivered a Change of Control Purchase Notice exercising the option of such Holder to require the Company to purchase such Security may be not converted.
The Conversion Rate is initially 17.7461 shares of Common Stock per $1,000 principal amount at maturity (which principal amount at maturity is subject to upward
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adjustment in the event of a Rate Reset) of 2001 Convertible Securities, subject to adjustment in certain events described in this Fourth Supplemental Indenture. A Holder that surrenders Securities for conversion shall receive cash in lieu of any fractional shares of Common Stock.
If the Company exercises its option to pay cash interest on, and restate the principal amount at maturity of, the 2001 Convertible Securities following the occurrence of a Tax Event pursuant to Section 1 of this Security, a Holder shall be entitled to receive a number of shares of Common Stock upon conversion of any 2001 Convertible Security that is equal to the number of shares of Common Stock that such Holder would have received upon conversion of such 2001 Convertible Security if the Company had not exercised such option.
To convert a Security, a Holder must (1) complete and sign the conversion notice on the reverse of the Security and deliver such notice to the Conversion Agent, (2) surrender the Security to the Conversion Agent, (3) furnish the appropriate endorsements and transfer documents if required by the Security Registrar, the Company or Conversion Agent, and (4) pay any tax or duty which may be payable in respect of any transfer involving the issue or delivery of Common Stock in the name of a person other than the Holder thereof. A Holder may convert a portion of a Security if the portion is $1,000 principal amount at maturity (subject to upward adjustment in the event of a Rate Reset) or an integral multiple of $1,000 (or such increased amount).
The Conversion Rate shall be adjusted for dividends or distributions on shares of Common Stock payable in shares of Common Stock or other Capital Stock; subdivisions, combinations or reclassifications of Common Stock specified in the Fourth Supplemental Indenture; distributions to all holders of Common Stock of rights or warrants (excluding rights governed by the Company's shareholders rights plan) specified in the Fourth Supplemental Indenture to purchase shares of Common Stock for a period expiring within 60 days at less than the current Market Price at the Time of Determination; and distributions to such holders of assets or debt securities of the Company or certain rights to purchase securities of the Company (excluding certain cash dividends or other distributions). However, no adjustment need be made if Holders may participate in the transaction without conversion or in certain other cases specified in the Fourth Supplemental Indenture. The Company from time to time may voluntarily increase the Conversion Rate.
If the Company is a party to a consolidation, merger or transfer or lease of all or substantially all of its assets pursuant to which the outstanding shares of Common Stock are converted into, or into the right to receive, cash, securities or other assets, then at the effective time of the transaction, the right to convert a Security into shares of Common Stock will be changed into a right to convert it into, or into the right to receive, as applicable, the kind and amount of cash, securities or other property which the Holder would have received if the Holder had converted that Holder's Security immediately before the transaction (assuming, in a case in which the Company's stockholders may exercise rights of election, that a Holder of Securities would not have exercised any rights of election as to the stock, other securities or other property or assets receivable in connection therewith and received per share the kind and amount received per share by plurality of nonelecting shares).
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The Company has the option to designate a financial institution to which Securities surrendered for conversion by a Holder of Securities shall be initially offered by the Conversion Agent for exchange in lieu of the Company's converting the Securities. When a Holder surrenders Securities for conversion, the Conversion Agent shall cause the Securities first to be offered to a financial institution chosen by the Company for exchange lieu of conversion. The Company expects that when the Securities are convertible, the designated institution shall submit to the Conversion Agent a non-binding offer to accept Securities surrendered for conversion. In order to accept Securities surrendered for conversion, the designated institution must agree to exchange for such Securities a number of shares of Common Stock equal to the number of such shares the Holder of such Securities would receive upon conversion, plus cash for any fractional shares. If the institution accepts any such Securities, it shall deliver, or shall cause to be delivered on its behalf, the appropriate number of shares of Common Stock and cash to the Stock Transfer Agent or the Conversion Agent, as the case may be, and the Stock Transfer Agent or the Conversion Agent, as the case may be, shall deliver those shares or cash, as the case may be, to the Holder who surrendered the Securities. The designation of an institution to which Securities may be submitted for exchange does not require the institution to accept any Securities from the Conversion Agent. If the designated institution declines to accept any Securities in whole or in part, those Securities or parts of Securities shall be converted into shares of Common Stock as the close of business on the Business Day following the Business Day on which the Securities are surrendered for conversion. If the designated institution agrees to accept any Securities for exchange but does not timely deliver the related shares of Common Stock and cash, the Securities shall be converted and the shares of Common Stock and cash shall be delivered. Any Securities accepted for exchange by the designated institution shall remain outstanding.
The Securities are in registered form without coupons in denominations of $1,000 principal amount at maturity (subject to upward adjustment in the event of a Rate Reset) and integral multiples of $1,000 (or such increased amount). A Holder may register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes or other governmental charges that may be imposed in relation thereto by law or permitted by the Indenture.
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An Event of Default is default in the payment by the Company of accrued and unpaid cash interest (including any cash interest payable after any election by the Company to restate the principal amount of the Securities and pay cash interest on the Securities following the occurrence of a Tax Event) on the Securities continued for 30 days, default by the Company in payment of principal (or, if the Company has elected to restate the principal amount of the Securities and pay cash interest on the Securities following the occurrence of a Tax Event, the Restated Principal Amount) of the Securities at Maturity, failure by the Company for 90 days after written notice (as specified in the Indenture) to it to comply with any of its other covenants or agreements in the Indenture and specified events of bankruptcy, insolvency or reorganization with respect to the Company. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount at maturity of the Securities may declare an amount equal to the Accreted Value of the Securities (or, if the Company has elected to restate the principal amount of the Securities and pay additional cash interest on the Securities following the occurrence of a Tax Event, the Restated Principal Amount) in respect of the Securities to be immediately due and payable.
Holders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require security or indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in aggregate principal amount at maturity of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing Event of Default (except an Event of Default in payment of principal (or, if the Company has elected to restate the principal amount of the Securities and pay additional cash interest following the occurrence of a Tax Event, the Restated Principal Amount) or accrued and unpaid interest) if it determines that withholding notice is in their interests. The Company must furnish an annual compliance certificate to the Trustee.
The Chase Manhattan Bank, the Trustee and any agent under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee or agent.
A director, officer, employee or shareholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture (as applicable) or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities.
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Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption.
The laws of the State of New York shall govern the Indenture and the Securities.
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CONVERSION NOTICE
To CSX Corporation (the "Company"):
The undersigned owner of this Security hereby irrevocably exercises the option to convert this Security, or the portion hereof (which is $1,000 principal amount at maturity (subject to upward adjustment in the event of a Rate Reset) or an integral multiple of $1,000 (or such corresponding increased amount) below designated, into shares of CSX Corporation Common Stock in accordance with the terms of the Indenture referred to in this Security, and directs that the shares issuable and deliverable upon conversion, together with any cash in payment for fractional shares and any Securities representing any unconverted principal amount hereof, be issued and delivered to the registered Holder hereof unless a different name has been indicated below. If shares are to be issued in the name of a Person other than the undersigned, the undersigned shall pay all transfer taxes payable with respect thereto.
To convert this Security into shares of Common Stock of the Company, check the box:[_]
To convert only part of this Security, state the amount (must be $1,000 principal amount at maturity (subject to upward adjustment in the event of a Rate Reset) or any whole multiple of $1,000 (or such increased amount in the event of a Rate Reset): $________
Please designate your DTC Participant's name and Participant Number in the form below:
Date:_______________ Your signature:___________________________________________
(Sign exactly as your name appears on the
face of this Security)
Signature Guaranteed*:__________________________________________________________
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* Your signature must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Trustee, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Trustee in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.
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ASSIGNMENT FORM
To assign this Security or, in the event of conversion, shares of CSX Corporation Common Stock, fill in the form below:
I or we assign and transfer this Security, or ____ shares of CSX Corporation Common Stock, to
and irrevocably appoint
________________________________________ agent to transfer this Security, or shares of CSX Corporation Common Stock, on the books of the Company. The agent may substitute another to act for him.
Date:_______________ Your signature:___________________________________________
(Sign exactly as your name appears on the
face of this Security)
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Signature Guaranteed:___________________________________________________________
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ANNEX 1
Projected Payment Schedule*
Semi-Annual Period Ending Projected Payment per
-------------------------- ---------------------
$1,000 Principal Amount at
--------------------------
Maturity of Notes
-----------------
April 30, 2002 -
October 30, 2002 -
April 30, 2003 -
October 30, 2003 -
April 30, 2004 -
October 30, 2004 -
April 30, 2005 -
October 30, 2005 -
April 30, 2006 -
October 30, 2006 -
April 30, 2007 -
October 30, 2007 -
April 30, 2008 -
October 30, 2008 -
April 30, 2009 -
October 30, 2009 -
April 30, 2010 -
October 30, 2010 -
April 30, 2011 -
October 30, 2011 -
April 30, 2012 -
October 30, 2012 -
April 30, 2013 -
October 30, 2013 -
April 30, 2014 -
October 30, 2014 -
April 30, 2015 -
October 30, 2015 -
April 30, 2016 -
October 30, 2016 -
April 30, 2017
_______________________
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* The comparable yield and the schedule of projected payments are not determined for any purpose other than for the determination of interest accruals and adjustments thereof in respect of the Securities for United States federal income tax purposes. The comparable yield and the schedule of projected payments do not constitute a projection or representation regarding the amounts payable on Securities.
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October 30, 2017 -
April 30, 2018 -
October 30, 2018 -
April 30, 2019 -
October 30, 2019 -
April 30, 2020 -
October 30, 2020 -
April 30, 2021 -
October 30, 2021 $2,635.99
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CSX CORPORATION
AND
THE CHASE MANHATTAN BANK,
Trustee
FOURTH SUPPLEMENTAL
INDENTURE
Dated as of October 30, 2001
Zero Coupon Convertible Debentures due 2021
Page
ARTICLE ONE THE 2001 CONVERTIBLE SECURITIES.................................................................... 1
Section 1.1 Title and Terms........................................................................... 1
Section 1.2 Form...................................................................................... 2
Section 1.3 Paying Agent and Conversion Agent......................................................... 3
Section 1.4 Paying Agent to Hold Money and Securities in Trust........................................ 4
ARTICLE TWO SCOPES OF APPLICABILITY............................................................................ 5
Section 2.1 Applicability of this Fourth Supplemental Indenture....................................... 5
Section 2.2 Applicability of Indenture................................................................ 5
Section 2.3 Fourth Supplemental Indenture Shall Govern................................................ 5
ARTICLE THREE DEFINITIONS...................................................................................... 5
Section 3.1 Definitions............................................................................... 5
Section 3.2 Other Definitions......................................................................... 7
ARTICLE FOUR REDEMPTION AND PURCHASES.......................................................................... 8
Section 4.1 Company's Right to Redeem; Notices to Trustee............................................. 8
Section 4.2 Selection of Securities to Be Redeemed.................................................... 8
Section 4.3 Notice of Redemption...................................................................... 9
Section 4.4 Effect of Notice of Redemption............................................................ 10
Section 4.5 Deposit of Redemption Price............................................................... 10
Section 4.6 2001 Convertible Securities Redeemed in Part.............................................. 10
Section 4.7 Purchase of 2001 Convertible Securities by the Company at Option of the Holder............ 11
Section 4.8 Purchase of Securities at Option of the Holder upon Change of Control..................... 18
Section 4.9 Effect of Purchase Notice or Change of Control Purchase Notice............................ 22
Section 4.10 Deposit of Purchase Price or Change of Control Purchase Price............................ 23
Section 4.11 Securities Purchased in Part............................................................. 23
Section 4.12 Covenant to Comply With Securities Laws Upon Purchase of Securities...................... 24
Section 4.13 Repayment to the Company................................................................. 24
ARTICLE FIVE COVENANTS......................................................................................... 25
Section 5.1 Payment of 2001 Convertible Securities.................................................... 25
Section 5.2 Further Instruments and Acts.............................................................. 25
Section 5.3 Calculation of Original Issue Discount.................................................... 25
ARTICLE SIX DISCHARGE OF INDENTURE; NO DEFEASANCE.............................................................. 26
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Section 6.1 Termination of Company's Obligations........................................................ 26
ARTICLE SEVEN CONVERSION......................................................................................... 26
Section 7.1 Conversion Privilege........................................................................ 26
Section 7.2 Conversion Procedure........................................................................ 27
Section 7.3 Fractional Shares........................................................................... 28
Section 7.4 Taxes on Conversion......................................................................... 28
Section 7.5 Company to Provide Stock.................................................................... 28
Section 7.6 Adjustment for Change in Capital Stock...................................................... 29
Section 7.7 Adjustment for Rights Issue................................................................. 29
Section 7.8 Adjustment for Other Distributions.......................................................... 31
Section 7.9 When Adjustment May Be Deferred............................................................. 33
Section 7.10 When No Adjustment Required................................................................ 34
Section 7.11 Notice of Adjustment....................................................................... 34
Section 7.12 Voluntary Increase......................................................................... 34
Section 7.13 Notice of Certain Transactions............................................................. 35
Section 7.14 Reorganization of Company; Special Distributions........................................... 35
Section 7.15 Conversion Rate Upon Tax Event............................................................. 36
Section 7.16 Company Determination Final................................................................ 36
Section 7.17 Trustee's Adjustment Disclaimer............................................................ 36
Section 7.18 Simultaneous Adjustments................................................................... 36
Section 7.19 Successive Adjustments..................................................................... 36
ARTICLE EIGHT MISCELLANEOUS PROVISIONS........................................................................... 37
Section 8.1 Incorporation of Indenture.................................................................. 37
Section 8.2 Counterparts................................................................................ 37
Section 8.3 Successors and Assigns...................................................................... 37
Section 8.4 Separability Clause......................................................................... 37
Section 8.5 Benefits of Fourth Supplemental Indenture................................................... 37
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EXHIBIT 10.3
AGREEMENT by and between CSX CORPORATION, a Virginia corporation (the "Company"), and John W. Snow (the "Executive"), dated as of the eleventh day of July, 2001 (this "Agreement").
The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, both before and after his retirement from active employment, and the Executive is willing to commit to render services to the Company, all on the terms and conditions set forth below in this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
(ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently
such responsibilities. During the Employment Period, it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic, or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements, or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement.
their bonuses under such plan, notwithstanding his retirement at the end of the Employment Period.
(i) the willful and continued failure of the Executive to perform substantially the Executive's duties hereunder (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Successor CEO (if applicable) which specifically identifies the manner in which the Board or Successor CEO (if applicable) believes that the Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Successor CEO (if
applicable) or based upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The cessation of the
Executive's services shall not be deemed to be for Cause unless and until there
shall have been delivered to the Executive a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the entire membership
of the Board (other than the Executive) at a meeting of the Board called and
held for such purpose (after reasonable notice is provided to the Executive and
the Executive is given an opportunity, together with counsel, to be heard before
the Board), finding that, in the good faith opinion of the Board, the Executive
is guilty of the conduct described in subparagraph (i) or (ii) of this Section
4(c), and specifying the particulars thereof in detail.
(i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 2(a) of this Agreement, or any other diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of Section 3 of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;
(iii) resignation of the Executive upon a determination by the Board of Directors, in its sole discretion, that the best interests of the shareholders are served by the executive's resignation at such time, to allow appropriate Company succession or so that the executive may fulfill an appointment to public office or a similar quasi- governmental role benefiting the Company and its mission;
(iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 12(c) of this Agreement.
(i) The Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) any Base Salary through the Date of Termination, to the extent not theretofore paid, (2) the amount of any Annual Bonus for any fiscal year ended before the Date of Termination that has been earned but not yet paid, and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses
(1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations); and
B. the sum of (1) the aggregate amount of the Base Salary payable to the Executive for the portion of the Employment Period (as in effect immediately before the Date of Termination) that follows the Date of Termination, to the extent not theretofore paid, (2) the amount of the Annual Bonuses, if any, that the Executive would have been entitled to receive for periods ending after the Date of Termination under Section 3(b), assuming that any such Annual Bonuses were all earned at the target level of 120% of Base Salary and assuming that the Employment Period would have ended at the conclusion of the 2003 Annual Meeting or such later date, if any, as the Board had established pursuant to the penultimate sentence of Section 1, (3) the cash retainer that would have been payable to the Executive for the actual scheduled period of the Chairmanship Period, if any, and (4) the cash retainer that would have been payable to the Executive during the Consulting Period; and
C. an amount equal to the excess of (1) the actuarial
equivalent of the benefit under the Company's qualified defined
benefit retirement plan (the "Retirement Plan") (utilizing
actuarial assumptions no less favorable to the Executive than
those in effect under the Company's Retirement Plan immediately
prior to the Date of Termination), and any excess or supplemental
retirement plan in which the Executive participates (together,
the "SERP") which the Executive would receive if the Executive's
employment continued through the end of the Employment Period (as
in effect immediately before the Date of Termination), assuming
for this purpose that the Executive's compensation had equaled
the Base Salary and Annual Bonuses payable during that period
under Sections 3(a) and (b) (assuming that such Annual Bonuses
were all earned at the target level of 120% of Base Salary), over
(2) the actuarial equivalent of the Executive's actual benefit
(paid or payable), if any, under the Retirement Plan and the SERP
as of the Date of Termination;
(ii) Until the end of the Employment Period, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(e)(ii) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other senior executives of the Company and the Affiliated Companies and their
(iii) The Company shall provide the Executive with the office and secretarial support provided for in Section 3(g) and the perquisites provided for in Section 3(i), in each case as if the Consulting Period had begun on the Date of Termination and ended at the conclusion of the 2006 Annual Meeting.
(iv) To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and the Affiliated Companies, including without limitation under the agreements governing the Options, the Restricted Stock and the Split-dollar Arrangement (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits").
(ii) An Early Termination by action of the Executive for any reason during any Change of Control Period shall be deemed to be for Good Reason for all purposes of this Agreement if such Early Termination occurs (A) in the case of a Change of Control that is a Business Combination but not a Regulated Business Combination, during the 30-day period beginning on the 180th day following the day on which the Business Combination is consummated, (B) in the case of any other Change of Control that is not a Regulated Business Combination, during the 30-day period beginning on the 180th day following the date of the Change of Control, and (C) in the case of a Change of Control that is a Regulated Business Combination consummated pursuant to Final Regulatory Action, during the 30-day period immediately following the first anniversary of the Final Regulatory Action (it being understood that the Executive will have no rights under this paragraph in the case of a Change of Control that is a Regulated Business Combination denied by the Agency).
(iii) If, during any Change of Control Period, an Early Termination occurs by action of the Company other than for Cause or Disability or by action of the Executive for Good Reason or Constructive Termination, then the
Executive may choose to receive, in lieu of the amounts described in
Section 5(a)(i), the Change of Control Accrued Obligations and the
Change of Control Cash Severance and the Change of Control Retirement
Benefit.
(iv) If, during any Change of Control Period, an Early Termination occurs by reason of the Executive's death or Disability, then the Accrued Obligations and Other Benefits required to be provided under Section 5(b) or 5(c), as applicable, shall be the Change of Control Accrued Obligations and the Change of Control Other Benefits, respectively.
methods of promotion and sale) that the Executive obtains during the Executive's employment by the Company or any Affiliated Company and/or his service as a consultant hereunder, and that is not public knowledge (other than as a result of the Executive's violation of this Section 8(a)) ("Confidential Information"). For the purposes of this Section 8(a), information shall not be deemed to be publicly available merely because it is embraced by general disclosures or because individual features or combinations thereof are publicly available. The Executive shall not communicate, divulge or disseminate Confidential Information at any time during or after the Executive's employment with the Company or any Affiliated Company, except with the prior written consent of the Company, or such Affiliated Company, as applicable, or as otherwise required by law or legal process. All records, files, memoranda, reports, customer lists, drawings, plans, documents and the like that the Executive uses, prepares or comes into contact with during the course of the Executive's employment shall remain the sole property of the Company and/or one or more Affiliated Company, as applicable, and shall be turned over to the Company or such Affiliated Company, as applicable, upon termination of the Executive's employment. The Executive also agrees that until the 2007 Annual Meeting, he will advise any prospective employer or client that meets any of the following criteria of the confidentiality restrictions set forth in this Agreement and state in writing to such prospective employer or client that his employment or provision of services will not violate these provisions, and will deliver a copy of such statement to the Company. Such a statement shall be required for any prospective employer or client that is (i) engaged in the railroad or intermodal transportation business; (ii) a customer representing more than 1% of the revenues of either CSX Transportation, Inc. or CSX Intermodal, Inc.; or (iii) affiliated with the Norfolk Southern Corporation.
(c) The Executive shall not at any time hereafter, without the prior written consent of the Successor CEO, engage in or become associated with a Competitive Activity. Notwithstanding the foregoing, the Executive may make and retain investments in less than 0.5% of the equity of any entity engaged in a Competitive Activity, if such equity is listed on a national securities exchange or regularly traded in an over-the-counter market.
(d) All plans, discoveries and improvements, whether patentable or unpatentable, made or devised by the Executive, whether alone or jointly with others, from the date of the Executive's initial employment by the Company and continuing until the end of the Consulting Period (or, if there is no Consulting Period, until the termination of the Executive's employment with the Company and the Affiliated Companies), relating or pertaining in any way to the Executive's employment with or the business of the Company or any Affiliated Company, shall be promptly disclosed in writing to the Chief Executive Officer and are hereby
transferred to and shall redound to the benefit of the Company, and shall become and remain its sole and exclusive property. The Executive agrees to execute any assignments to the Company or its nominee, of the Executive's entire right, title and interest in and to any such discoveries and improvements and to execute any other instruments and documents requisite or desirable in applying for and obtaining patents or copyrights, at the expense of the Company, with respect thereto in the United States and in all foreign countries, that may be required by the Company. The Executive further agrees, during and after the Employment Period, to cooperate to the extent and in the manner required by the Company, in the prosecution or defense of any patent or copyright claims or any litigation, or other proceeding involving any trade secrets, processes, discoveries or improvements covered by this Agreement, but all necessary expenses thereof shall be paid by the Company.
(e) The Executive acknowledges and agrees that: (i) the purpose of
the foregoing covenants, including without limitation the noncompetition
covenant of Section 8(c), is to protect the goodwill, trade secrets and other
Confidential Information of the Company; (ii) because of the nature of the
business in which the Company and the Affiliated Companies are engaged and
because of the nature of the Confidential Information to which the Executive has
access, it would be impractical and excessively difficult to determine the
actual damages of the Company and any Affiliated Company in the event the
Executive breached any of the covenants of this Section 8; and (iii) remedies at
law (such as monetary damages) for any breach of the Executive's obligations
under this Section 8 would be inadequate. The Executive therefore agrees and
consents that if he commits any breach of a covenant under this Section 8 or
threatens to commit any such breach, the Company shall have the right (in
addition to, and not in lieu of, any other right or remedy that may be available
to it) to temporary and permanent injunctive relief from a court of competent
jurisdiction, without posting any bond or other security and without the
necessity of proof of actual damage. With respect to any provision of this
Section 8 finally determined by a court of competent jurisdiction to be
unenforceable, the Executive and the Company hereby agree that such court shall
have jurisdiction to reform this Agreement or any provision hereof so that it is
enforceable to the maximum extent permitted by law, and the parties agree to
abide by such court's determination. If any of the covenants of this Section 8
are determined to be wholly or partially unenforceable in any jurisdiction, such
determination shall not be a bar to or in any way diminish the Company's right
to enforce any such covenant in any other jurisdiction.
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 9(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Executive, after taking into account the Payments and the Gross-Up Payment, would not receive a net after-tax benefit of at least $50,000 (taking into account both income taxes and any Excise Tax) as compared to the net after- tax proceeds to the Executive resulting from an elimination of the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount (the "Reduced Amount") such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Ernst & Young or such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company relating to such claim,
(ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings relating to such claim;
(d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.
A. all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or its principal subsidiary or all or substantially all of the assets of the Company or its principal subsidiary either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be;
B. no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and
C. at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board, providing for such Business Combination; or
If any Change of Control is a Regulated Business Combination, but its implementation involves another Change of Control that is not a Regulated Business Combination, such Change of Control shall not be deemed to be a Regulated Business Combination, the provisions governing a Regulated Business Combination shall not apply, and the provisions governing such other Change in Control shall apply.
of Control Period shall begin on the date immediately prior to the date of such termination of employment or cessation of status as an officer.
(i) substantial diminution of the Executive's duties or responsibilities as contemplated by Section 2(a) of this Agreement, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;
(ii) a reduction in the Executive's Base Salary;
(iii) a failure by the Company to comply with Section 3(b) regarding the Annual Bonus;
(iv) a reduction in the Executive's other benefits or perquisites described in Section 3 unless the Executive's peer executives suffer a comparable reduction;
(v) the Company's requiring the Executive to be based at any office or location other than as provided in Section 3(g) hereof; or
(vi) any purported termination by the Company of the Executive's employment otherwise than for Cause.
advisor, lender, or in any other individual or representative capacity with any individual, partnership, corporation or other organization that is engaged in a Competitive Activity.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.
(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
John W. Snow
CSX Corporation
One James Center
Richmond, Virginia 23219
Attention: General Counsel
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason or Constructive Termination pursuant to Section 5 of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.
/s/ John W. Snow
------------------------------------
John W. Snow
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CSX CORPORATION
/s/ Mark G. Aron ------------------------------------ Vice Chairman October 26, 2001 |
EXHIBIT 10.4
THIS AGREEMENT is made and entered into as of July 11, 2001, by and between CSX CORPORATION ("CSX"), a Virginia corporation, and JOHN W. SNOW (the "Recipient").
WHEREAS, CSX and Recipient have agreed that Recipient shall continue to render services to CSX pursuant to an Employment and Consulting Agreement dated as of July 11, 2001 (the "Service Agreement"), and CSX wishes to create a further incentive for Recipient to render such services. (Capitalized terms used in this Agreement and not defined herein shall have the meanings given in the Service Agreement.)
NOW, THEREFORE, in consideration of their mutual promises and undertakings, CSX and Recipient mutually agree as follows:
1. In consideration for Recipient's agreement to remain an active employee of CSX, continuously during the Employment Period, and thereafter to render services during the Chairmanship Period, if any, the Recipient shall, as of July 11, 2001 (the "Grant Date"), receive a grant of 200,000 shares of restricted CSX Corporation common stock, $1 par value (the "Restricted Stock") under CSX's Omnibus Stock Incentive Plan (the "Plan"), the provisions of which are hereby incorporated by reference. In the event of any conflict between this Agreement and the Plan, the Agreement shall control. All or a portion of the Restricted Stock shall vest, and the restrictions applicable to such shares of Restricted Stock hereunder shall be lifted, on the date that is the "Vesting Date," as provided below in this Agreement. Except as provided otherwise below, the Vesting Date for all of the Restricted Stock shall be the earlier of the date on which the 2004 Annual Meeting occurs or June 1, 2004. CSX shall pay to Recipient an amount equal to dividends declared and payable on each of the shares of Restricted Stock from July 11, 2001, through the Vesting Date for such shares or the date on which it is forfeited, as applicable, net of applicable withholding taxes, as and when such dividends are paid to CSX shareholders generally.
2. (a) If there occurs an Early Termination before the earlier of
the date on which the 2004 Annual Meeting occurs or June 1, 2004, by reason of
(i) Recipient's termination of his employment with CSX during the Employment
Period other than for Good Reason, (ii) Recipient's voluntary termination of his
service during the Chairmanship Period (if any), or (iii) a termination by CSX
for Cause, Recipient shall forfeit the Restricted Stock, this Agreement shall
become null and void and CSX shall have no obligation as to vesting of any of
the Restricted Stock and payment of any further monies pursuant to Section 1 of
this Agreement.
(b) If there occurs an Early Termination before the earlier of the date on which the 2004 Annual Meeting occurs or June 1, 2004, by reason of Recipient's death or Disability, the Date of Termination shall be the Vesting Date with respect to a number of shares of Restricted Stock determined by the following formula:
(number of completed months from the Grant Date through the Date of Termination / 34) x 200,000
The remainder of the Restricted Stock shall be forfeited as of the Date of Termination and CSX shall have no obligation as to vesting of such forfeited Restricted Stock, nor any obligation to
pay further monies pursuant to Section 1 of this Agreement with respect to any of the Restricted Stock.
(c) If there occurs an Early Termination before the earlier of the date on which the 2004 Annual Meeting occurs or June 1, 2004, for any reason other than those provided for in Sections 2(a) and (b), the Date of Termination shall be the Vesting Date with respect to all shares of Restricted Stock.
(d) Recipient shall be solely responsible for any and all federal,
state, and local taxes which may be imposed on him as a result of his receipt of
the Restricted Stock, the vesting thereof and his receipt of cash pursuant to
Section 1.
3. In the event of any change (such as recapitalization, merger, consolidation, stock dividend, or otherwise) in the character or amount of CSX Corporation common stock, $1 par value, prior to vesting of the Restricted Stock pursuant to Section 1 of this Agreement, (a) the number of shares of Restricted Stock to which Recipient shall be entitled shall be the same as if he had actually owned the Restricted Stock without restriction at the time of such change, and (b) the amount of the cash to be paid to Recipient shall be the amount of dividends paid on the Restricted Stock following such change in the number of shares of Restricted Stock.
4. In the event of any Change of Control the Vesting Date shall be deemed to have occurred as of the date of such Change of Control.
5. Nothing in this Agreement shall be interpreted or construed to create a contract of employment between the Company and the Recipient. This Agreement is intended solely to provide Recipient an incentive to continue to render services to CSX, and Recipient acknowledges and agrees that the terms and conditions of his services CSX are governed exclusively by the Service Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of July 11, 2001.
RECIPIENT: CSX CORPORATION
/s/ John W. Snow By: /s/ Mark G. Aron
----------------------------- -----------------------------
John W. Snow
Title: Vice Chairman
--------------------------
Date: October 26, 2001
---------------------------
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EXHIBIT 10.5
CSX OMNIBUS INCENTIVE PLAN
Notice of Non-Qualified Stock Option Grant
John W. Snow Grant Date: July 16, 2001 Options Granted: 800,000 Option Price: $38.775 Expiration Date: July 16, 2011
Vesting and Exercisability:
The Options may be exercised only when vested. Subject to the terms of the Plan
and the provisions below, all of the Options will become vested on the date of
2004 Annual Meeting (as defined in the Service Agreement) and will expire on
July 16, 2011.
In addition, the Options will become fully vested immediately upon a Change in Control.
Any termination of your employment, other than a termination by CSX for Cause,
will be treated as a Retirement (including without limitation a termination
because of your death or Disability), with the results that (i) the Options will
continue to vest as set forth above (if they have not previously vested) and
(ii) you (or your estate) will have until the expiration date to exercise any
vested Options.
If there occurs an Early Termination by CSX for Cause, all your rights under the Options that have not yet been exercised (whether or not they have previously vested) shall be null and void immediately with no further action by CSX.
Exercise:
You may exercise these Options, in whole or in part, to purchase a whole number
of vested shares at any time by following the exercise procedures established by
CSX. All exercises must take place before the expiration date, or such earlier
dates as established by this Notice or the Plan. An exercise of Options
generates federal and applicable state income and employment tax withholding
obligations. The full purchase price of the shares being purchased through
exercise of Options and the related withholding taxes for federal, state or
local jurisdictions must be paid to CSX at the time of an exercise of Options.
For further information regarding procedures for exercising Options, you should
contact the CSX Corporate Secretary's Office at 804-782-1436 (RNX 422).
Restrictions on Exercise:
Your ability to exercise the Options is subject to any restrictions or
requirements imposed by law or by CSX upon its senior executives generally.
EXHIBIT 10.6
AGREEMENT by and between CSX Corporation, a Virginia corporation (the "Company"), and Michael J. Ward (the "Executive"), dated as of the thirteenth day of February, 2001.
WHEREAS, CSX owns, directly or indirectly, more than fifty percent of the voting stock of various other corporations (hereinafter, individually or collectively, "Affiliate"); and
WHEREAS, the Company and the Executive wish to set forth the terms and conditions of the Executive's continued employment with the Company or an Affiliate.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
(b) During the Term of this Agreement, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the
Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Term of this Agreement, it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic, or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements, or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement.
Omnibus Incentive Plan, pursuant to a Restricted Stock Award Agreement dated February 13, 2001 (the "Restricted Stock Agreement").
(ii) any failure by the Company to comply with any provision of
Section 3 of this Agreement, other than an isolated, insubstantial and
inadvertent failure that is not taken in bad faith and is remedied by the
Company promptly after receipt of notice thereof from the Executive.
(i) The amounts to be paid in a lump sum as described above are:
A. the Executive's accrued but unpaid cash compensation (the "Accrued Obligations"), which shall equal the sum of (1) any portion of the Executive's Base Salary through the Date of Termination that has not yet been paid and (2) any accrued but unpaid Annual Bonuses and vacation pay;
B. the aggregate amount of the Base Salary that would have been payable to the Executive from the Date of Termination through February 12,
2006, had he remained employed hereunder, at the rate in effect immediately before the Date of Termination (but disregarding any decrease in the rate of Base Salary that was a basis for a termination by the Executive for Good Reason, if applicable);
C. one-half of the aggregate target amount of the Annual Bonuses that the Executive would have received following the Date of Termination, up to and including a pro rated Annual Bonus for 2006. The pro rated Annual Bonus for 2006 shall be equal to one-half of the product of (A) the Target annual bonus established for the position times (B) a fraction, the numerator of which is the number of days in the year 2006 through February 12, 2006, and the denominator of which is 365; and
D. an amount equal to the excess of (a) the actuarial
equivalent of the benefit under the Company's qualified defined
benefit retirement plan (the "Retirement Plan") and any excess or
supplemental retirement plan in which the Executive participates
(together, the "SERP") which the Executive would have received if the
Executive's employment had continued until February 12, 2006, assuming
for this purpose that the Executive's compensation during such period
would have been that required by Section 3(a) and Section 3(b), over
(b) the actuarial equivalent of the Executive's actual benefit (paid
or payable), if any, under the Retirement Plan and the SERP as of the
Date of Termination (utilizing for purposes of the foregoing actuarial
assumptions no less favorable to the Executive than those in effect
under the Company's Retirement Plan and SERP as of the Date of
Termination).
interest or earnings thereon), in each case to the extent not yet paid, and the Company shall have no further obligations under this Agreement. If the Executive voluntarily terminates employment during the Term of this Agreement, other than for Good Reason, the Company shall pay the Accrued Obligations to the Executive in a lump sum in cash within 30 days of the Date of Termination, and the Company shall have no further obligations under this Agreement.
election affirmatively, he shall be deemed for all purposes to have elected to have the provisions of Sections 6 through 8 of the Change of Control Agreement, rather than Section 5 of this Agreement, apply to such termination.
obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced (except as specifically provided in Section 5(a)(ii)) whether or not the Executive obtains other employment.
be turned over to the Company or such Affiliated Company, as applicable, upon termination of the Executive's employment. The Executive also agrees that until the first anniversary of the Date of Termination, he will advise any prospective employer or client that meets any of the following criteria of the confidentiality restrictions set forth in this Agreement and state in writing to such prospective employer or client that his employment or provision of services will not violate these provisions, and will deliver a copy of such statement to the Company. Such a statement shall be required for any prospective employer or client that is (i) engaged in the railroad or intermodal transportation business; (ii) a customer representing more than 1% of the revenues of either CSX Transportation, Inc. or CSX Intermodal, Inc.; or (iii) affiliated with the Norfolk Southern Corporation.
(c) During the Noncompetition Period (as defined below), the
Executive shall not, without the prior written consent of the CEO, engage in or
become associated with a Competitive Activity. For purposes of this Section 9:
(i) the "Noncompetition Period" means the period beginning on the date of this
Agreement and ending on February 12,
2007, except that if the Executive voluntarily terminates his employment without Good Reason as described in the last sentence of Section 5(c), the Noncompetition Period shall end on the first anniversary of the Date of Termination; (ii) a "Competitive Activity" means any business or other endeavor, in any county of any state of the United States or a comparable jurisdiction in Canada or any other country, directly or indirectly for a Class I railroad operating in North America; and (iii) the Executive shall be considered to have become "associated with a Competitive Activity" if the Executive becomes directly or indirectly involved as an owner, principal, employee, officer, director, independent contractor, representative, stockholder, financial backer, agent, partner, advisor, lender, or in any other individual or representative capacity with any individual, partnership, corporation or other organization that is engaged in a Competitive Activity. Notwithstanding the foregoing, the Executive may make and retain investments during the Term of this Agreement in less than 0.5% of the equity of any entity engaged in a Competitive Activity, if such equity is listed on a national securities exchange or regularly traded in an over-the-counter market.
(d) All plans, discoveries and improvements, whether patentable or unpatentable, made or devised by the Executive, whether alone or jointly with others, from the date of the Executive's initial employment by the Company and continuing until the end of the Term of this Agreement and any subsequent period when the Executive is employed by the Company or any Affiliated Company, relating or pertaining in any way to the Executive's employment with or the business of the Company or any Affiliated Company, are hereby transferred to and shall redound to the benefit of the Company, and shall become and remain its sole and exclusive property. The Executive agrees to execute any assignments to the Company or its nominee, of the Executive's entire right, title and interest in and to any such discoveries
and improvements and to execute any other instruments and documents requisite or desirable in applying for and obtaining patents or copyrights, at the expense of the Company, with respect thereto in the United States and in all foreign countries, that may be required by the Company. The Executive further agrees, during and after the Term of this Agreement, to cooperate to the extent and in the manner required by the Company, in the prosecution or defense of any patent or copyright claims or any litigation, or other proceeding involving any trade secrets, processes, discoveries or improvements covered by this Agreement, but all necessary expenses thereof shall be paid by the Company.
(e) The Executive acknowledges and agrees that: (i) the purpose of
the foregoing covenants, including without limitation the noncompetition
covenant of Section 9(c), is to protect the goodwill, trade secrets and other
Confidential Information of the Company; (ii) because of the nature of the
business in which the Company and the Affiliated Companies are engaged and
because of the nature of the Confidential Information to which the Executive has
access, it would be impractical and excessively difficult to determine the
actual damages of the Company and any Affiliated Company in the event the
Executive breached any of the covenants of this Section 9; and (iii) remedies at
law (such as monetary damages) for any breach of the Executive's obligations
under this Section 9 would be inadequate. The Executive therefore agrees and
consents that if he commits any breach of a covenant under this Section 9 or
threatens to commit any such breach, the Company shall have the right (in
addition to, and not in lieu of, any other right or remedy that may be available
to it) to temporary and permanent injunctive relief from a court of competent
jurisdiction, without posting any bond or other security and without the
necessity of proof of actual damage. With respect to any provision of this
Section 9 finally determined by a court of competent jurisdiction to be
unenforceable, the Executive and
the Company hereby agree that such court shall have jurisdiction to reform this Agreement or any provision hereof so that it is enforceable to the maximum extent permitted by law, and the parties agree to abide by such court's determination. If any of the covenants of this Section 9 are determined to be wholly or partially unenforceable in any jurisdiction, such determination shall not be a bar to or in any way diminish the Company's right to enforce any such covenant in any other jurisdiction.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.
have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
Michael J. Ward
If to the Company:
CSX Corporation
One James Center
Richmond, Virginia 23219
Attention: Corporate Secretary
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addresses.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law.
(d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that this Agreement supersedes any other agreement between them concerning the subject matter hereof, other than the Change of Control Agreement. This Agreement shall have no effect on any agreements between the Executive and the Company or any of its affiliates not concerning the subject matter hereof, and any such agreement (including without limitation the Restricted Stock Agreement) is ratified and confirmed in all respects and shall remain in full force and effect in accordance with its terms.
(g) This Agreement may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to due authorization, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written.
/s/ Michael J. Ward_____________________
----------------------------------------
Michael J. Ward
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CSX CORPORATION
By /s/ John W. Snow_____________________ ------------------------------------- September 5, 2001 |
EXHIBIT 10.7
THIS AGREEMENT is made and entered into as of February 13, 2001, by and between CSX CORPORATION ("CSX"), a Virginia corporation, and MICHAEL J. WARD (the "Recipient").
WHEREAS, CSX and Recipient have agreed that Recipient shall continue to be employed by CSX pursuant to a Special Employment Agreement dated as of February 13, 2001 (the "Employment Agreement"), and CSX wishes to create a further incentive for Recipient to remain as an employee of CSX. Capitalized terms used in this agreement and not defined herein shall have the meaning ascribed to them in the Employment Agreement.
NOW, THEREFORE, in consideration of their mutual promises and undertakings, CSX and Recipient mutually agree as follows:
1. In consideration for Recipient's agreement to remain an active employee of CSX or an Affiliate, continuously, during the Term of the Employment Agreement (as defined therein) (the "Employment Period"), the Recipient shall, as of February 13, 2001 (the "Grant Date"), receive a grant of 165,000 shares of restricted CSX Corporation common stock, $1 par value (the "Restricted Stock") under CSX's Omnibus Incentive Plan (the "Plan"), the provisions of which are hereby incorporated by reference. (In the event of any conflict between this Agreement and the Plan, this Agreement shall control.) All or a portion of the Restricted Stock shall vest, and the restrictions applicable to such shares of Restricted Stock hereunder shall be lifted, on the date that is the "Vesting Date," as provided below in this Agreement. Except as provided otherwise below, the Vesting Date for all of the Restricted Stock shall be February 12, 2006. CSX shall pay to Recipient an amount equal to dividends declared and payable on each of the shares of Restricted Stock from February 13, 2001, through the Vesting Date for such shares or the date on which it is forfeited, as applicable, net of applicable withholding taxes, as and when such dividends are paid to CSX shareholders generally.
2. (a) Except as set forth below in this Section 2, if Recipient's employment with CSX terminates for any reason before the end of the Employment Period, Recipient shall forfeit the Restricted Stock, this Agreement shall become null and void, and CSX shall have no obligation as to vesting of any of the Restricted Stock and payment of any further monies pursuant to Paragraph 1 of this Agreement.
(b) In the event of a termination of Recipient's employment before the end of the Employment Period by reason of Recipient's death or Disability (as defined in the Employment Agreement), by CSX without Cause or by Recipient for Good Reason pursuant to the Employment Agreement, the Date of Termination shall be the Vesting Date with respect to a number of shares of Restricted Stock determined by the following formula:
(number of completed months from the Grant Date through the Date of Termination / 60) x 165,000
The remainder of the Restricted Stock shall be forfeited as of the Date of Termination and CSX shall have no obligation as to vesting of such forfeited Restricted Stock, nor any obligation to pay further monies pursuant to Paragraph 1 of this Agreement with respect to any of the Restricted Stock.
(c) Recipient shall be solely responsible for any and all federal, state, and local taxes which may be imposed on him as a result of his receipt of the Restricted Stock, the vesting thereof and his receipt of dividends pursuant to Section 1.
3. In the event of any change (such as recapitalization, merger, consolidation, stock dividend, or otherwise) in the character or amount of CSX Corporation common stock, $1 par value, prior to vesting of the Restricted Stock pursuant to Paragraph 1 of this Agreement, (a) the number of shares of Restricted Stock to which Recipient shall be entitled shall be the same as if he had actually owned the Restricted Stock without restriction at the time of such change, and (b) the amount of the cash to be paid to Recipient shall be the amount of dividends paid on the Restricted Stock following such change in the number of shares of Restricted Stock.
4. Upon the occurrence of the date of a Vesting Event as defined in the CSX Omnibus Incentive Plan, the Vesting Date will be deemed to have occurred.
5. Nothing in this Agreement shall be interpreted or construed to create a contract of employment between the Company and the Recipient. This Agreement is intended solely to provide Recipient an incentive to continue his existing employment, and Recipient acknowledges and agrees that the terms and conditions of his employment with CSX are governed exclusively by the Employment Agreement and the Employment Agreement between Recipient and CSX dated November 1, 2000.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of February 13, 2001.
RECIPIENT: CSX CORPORATION
/s/ Michael J. Ward By: /s/ John W. Snow
---------------------------- ---------------------------
Michael J. Ward
Title: Chairman and CEO
------------------------
Date: September 5, 2001
-------------------------
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EXHIBIT 10.8
AGREEMENT by and between CSX Corporation, a Virginia corporation (the "Company"), and Mark G. Aron (the "Executive"), dated as of the 25th day of September, 2001.
WHEREAS, the Company and the Executive wish to set forth the terms and conditions of the Executive's continued employment with the Company until his retirement, and to provide for his consulting with the Company for a period of time following his retirement;
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
offices, titles, reporting requirements, authority, duties and responsibilities appropriate to that position.
(b) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period, it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic, or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements, or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement.
90% of Executive's Base Salary, on the same terms and conditions established thereunder for the Executive and his peer executives. Any annual bonuses so earned (each, an "Annual Bonus") shall be paid to the Executive at the same times as his peer executives receive their bonuses under such plan, notwithstanding his retirement at the end of the Employment Period; provided, that the Annual Bonus for the fiscal year 2002 shall equal one-third of the amount that would have been payable to the Executive, had he remained employed through the end of the fiscal year 2002.
it may give to the Executive written notice in accordance with Section 11(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the Executive's becoming disabled within the meaning of the long-term disability plan of the Company covering the Executive.
comply with any provision of Section 3 of this Agreement, other than an isolated, insubstantial and inadvertent failure that is not taken in bad faith and is remedied by the Company promptly after receipt of notice thereof from the Executive.
terminated by reason of the Executive's death or Disability, the Date of Termination shall be the date of death or the Disability Effective Date, as the case may be.
(i) The amounts to be paid in a lump sum as described above are:
A. the Executive's accrued but unpaid cash compensation (the "Accrued Obligations"), which shall equal the sum of (1) any portion of the Executive's Base Salary through the Date of Termination that has not yet been paid, and (2) any accrued but unpaid vacation pay;
B. the Base Salary that would have been paid to him for the period from the Date of Termination through and including the last day of the Employment Period, as if he had remained employed through that day; and
C. an amount equal to the excess of (a) the actuarial equivalent of the benefit under the Company's qualified defined benefit retirement plan (the "Retirement Plan") and any excess or supplemental retirement plan in which the Executive participates (together, the "SERP") which the Executive would have received if the Executive's employment had continued under this Agreement through the end of the Employment Period, over (b) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP as of the Date of Termination (utilizing for purposes of the foregoing actuarial assumptions no less favorable to the Executive than those in effect under the Company's Retirement Plan as of the Date of Termination).
(ii) The Executive shall also be paid the Annual Bonuses provided for under Section 3(b) above, to the extent not theretofore paid, as if his employment had continued through the end of the Employment Period; provided, any such Annual Bonus for a fiscal year that ends after the Date of Termination shall be computed solely with reference to financial measures applied to the Company's performance and without any adjustment for personal performance, other than the assumption that any personal targets or goals were achieved at target levels. The Annual Bonuses under this Section 5(a)(ii), including any pro rata bonus, will be paid at the time and in the form bonuses are paid to other peer executives.
(iii) The Executive shall retire at the end of the Employment Period and shall, therefore, be eligible to receive benefits as a retiree of the Company.
anniversary thereof. Notwithstanding the foregoing: (i) there shall be no Consulting Period if the Executive's employment terminates during the Employment Period as a result of the Executive's death or Disability, a termination by the Company for Cause or termination by the Executive without Good Reason; and (ii) the Consulting Period shall end if, during the Consulting Period, the Executive dies or becomes unable, by reason of physical or mental incapacitation, to render the consulting services required by Section 6(c) below or the Executive terminates the Consulting Period.
rendered at mutually convenient times. It is expressly acknowledged and agreed that the Executive may perform services as an employee of another employer or in a consulting or self-employed capacity during the Consulting Period, subject to the covenants set forth in Section 9 of this Agreement.
with the Company in accordance with their terms, including without limitation:
(i) retiree health care plans; (ii) the Tax Savings Thrift Plan for Employees of
CSX Corporation and Affiliated Companies; (iii) the CSX Corporation
Supplementary Savings and Incentive Award Deferral Plan; (iv) the CSX life
insurance programs; (v) the CSX Market Value Cash Plan; (vi) the CSX option
plans; (vii) the Supplemental Retirement Plan and the Special Retirement Plan
(including without limitation the Executive's right to receive lump sum benefits
thereunder); and (viii) the Deferred Compensation Program for Executives of CSX
Corporation and Affiliated Companies (including, without limitation, the
Executive's right to receive benefits thereunder over a 15-year period).
Company and/or his service as a consultant hereunder, and that is not public
knowledge (other than as a result of the Executive's violation of this Section
9(a)) ("Confidential Information"). For the purposes of this Section 9(a),
information shall not be deemed to be publicly available merely because it is
embraced by general disclosures or because individual features or combinations
thereof are publicly available. The Executive shall not communicate, divulge or
disseminate Confidential Information at any time during or after the Executive's
employment with the Company or any Affiliated Company, except with the prior
written consent of the Company, or such Affiliated Company, as applicable, or as
otherwise required by law or legal process. All records, files, memoranda,
reports, customer lists, drawings, plans, documents and the like that the
Executive uses, prepares or comes into contact with during the course of the
Executive's employment shall remain the sole property of the Company and/or one
or more Affiliated Company, as applicable, and shall be turned over to the
Company or such Affiliated Company, as applicable, upon termination of the
Executive's employment. The Executive also agrees that through the end of the
Noncompetition Period (as defined below), he will advise any prospective
employer or client that meets any of the following criteria of the
confidentiality restrictions set forth in this Agreement and state in writing to
such prospective employer or client that his employment or provision of services
will not violate these provisions, and will deliver a copy of such statement to
the Company. Such a statement shall be required for any prospective employer or
client that is (i) engaged in the railroad or intermodal transportation
business; (ii) a customer representing more than 1% of the revenues of either
CSX Transportation, Inc. or CSX Intermodal, Inc.; or (iii) affiliated with the
Norfolk Southern Corporation.
(b) The Executive agrees that he will not, at any time during the Noncompetition Period (as defined in Section 9(c) below), without the prior written consent of the Company or the applicable Affiliated Company, as applicable, directly or indirectly employ,
or solicit the employment of (whether as an employee, officer, director, agent consultant or independent contractor), any person who was or is at any time during the previous twelve (12) months an employee, representative, officer or director of the Company or any Affiliated Company (except for such employment by the Company or any Affiliated Company); provided, however, that a public advertisement not specifically targeted at the employees of the Company shall not be deemed to be a solicitation for purposes of this provision.
(c) During the Noncompetition Period (as defined below), the Executive shall not, without the prior written consent of the Chief Executive Officer of the Company, engage in or become associated with a Competitive Activity. For purposes of this Section 9: (i) the "Noncompetition Period" means the period from the date of this Agreement through April 30, 2004; (ii) a "Competitive Activity" means any business or other endeavor, in any county of any state of the United States or a comparable jurisdiction in Canada or any other country, directly or indirectly for a Class I railroad operating in North America; and (iii) the Executive shall be considered to have become "associated with a Competitive Activity" if the Executive becomes directly or indirectly involved as an owner, principal, employee, officer, director, independent contractor, representative, stockholder, financial backer, agent, partner, advisor, lender, or in any other individual or representative capacity with any individual, partnership, corporation or other organization that is engaged in a Competitive Activity. Notwithstanding the foregoing, the Executive may make and retain investments in less than 0.5% of the equity of any entity engaged in a Competitive Activity, if such equity is listed on a national securities exchange or regularly traded in an over-the-counter market.
(d) All plans, discoveries and improvements, whether patentable or unpatentable, made or devised by the Executive, whether alone or jointly with others, from the date of the Executive's initial employment by the Company and continuing until the end of the
Consulting Period (or, if there is no Consulting Period, until the termination of the Executive's employment with the Company and the Affiliated Companies), relating or pertaining in any way to the Executive's employment with or the business of the Company or any Affiliated Company, shall be promptly disclosed in writing to the Chief Executive Officer and are hereby transferred to and shall redound to the benefit of the Company, and shall become and remain its sole and exclusive property. The Executive agrees to execute any assignments to the Company or its nominee, of the Executive's entire right, title and interest in and to any such discoveries and improvements and to execute any other instruments and documents requisite or desirable in applying for and obtaining patents or copyrights, at the expense of the Company, with respect thereto in the United States and in all foreign countries, that may be required by the Company. The Executive further agrees, during and after the Employment Period, to cooperate to the extent and in the manner required by the Company, in the prosecution or defense of any patent or copyright claims or any litigation, or other proceeding involving any trade secrets, processes, discoveries or improvements covered by this Agreement, but all necessary expenses thereof shall be paid by the Company.
(e) The Executive acknowledges and agrees that: (i) the purpose of the foregoing covenants, including without limitation the noncompetition covenant of Section 9(c), is to protect the goodwill, trade secrets and other Confidential Information of the Company; (ii) because of the nature of the business in which the Company and the Affiliated Companies are engaged and because of the nature of the Confidential Information to which the Executive has access, it would be impractical and excessively difficult to determine the actual damages of the Company and any Affiliated Company in the event the Executive breached any of the covenants of this Section 9; and (iii) remedies at law (such as monetary damages) for any breach of the Executive's obligations under this Section 9 would be inadequate. The Executive therefore
agrees and consents that if he commits any breach of a covenant under this
Section 9 or threatens to commit any such breach, the Company shall have the
right (in addition to, and not in lieu of, any other right or remedy that may be
available to it) to temporary and permanent injunctive relief from a court of
competent jurisdiction, without posting any bond or other security and without
the necessity of proof of actual damage. With respect to any provision of this
Section 9 finally determined by a court of competent jurisdiction to be
unenforceable, the Executive and the Company hereby agree that such court shall
have jurisdiction to reform this Agreement or any provision hereof so that it is
enforceable to the maximum extent permitted by law, and the parties agree to
abide by such court's determination. If any of the covenants of this Section 9
are determined to be wholly or partially unenforceable in any jurisdiction, such
determination shall not be a bar to or in any way diminish the Company's right
to enforce any such covenant in any other jurisdiction.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.
(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
Mark G. Aron
CSX Corporation
One James Center
Richmond, Virginia 23219
Attention: Vice President - Corporate Human Resources
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressees.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law.
(d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation; provided, that it is acknowledged and agreed that the Executive's services during the Consulting Period will be rendered by the Executive as an independent contractor rather than an employee, and that the Executive will therefore be solely responsible for paying all taxes with respect to his compensation for such services.
(e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that this Agreement supersedes any other agreement between them concerning the subject matter hereof, other than the Change of Control Agreement. This Agreement shall have no effect on any agreements between the Executive and the Company or any of its affiliates not concerning the subject matter hereof.
(g) This Agreement may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to due authorization, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written.
/s/ Mark G. Aron --------------------------------- Mark G. Aron |
CSX CORPORATION
By: /s/ John W. Snow
------------------------------
Its: Chairman and CEO
----------------------------
Date: October 2, 2001
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