<PAGE>
Prospectus Supplement
(To Prospectus dated May 14, 1997)
Pursuant to Rule 424(b)(5)
Registration No. 333-24051
[LOGO]
Norfolk Southern Corporation
$4,300,000,000
$400,000,000 6.70% NOTES DUE MAY 1, 2000
$200,000,000 6.875% NOTES DUE MAY 1, 2001
$500,000,000 6.95% NOTES DUE MAY 1, 2002
$750,000,000 7.35% NOTES DUE MAY 15, 2007
$550,000,000 7.70% NOTES DUE MAY 15, 2017
$800,000,000 7.80% NOTES DUE MAY 15, 2027
$750,000,000 7.05% NOTES DUE MAY 1, 2037
$350,000,000 7.90% NOTES DUE MAY 15, 2097
Interest on the 6.70% Notes due 2000 (the "2000 Notes"), the 6.875% Notes due
2001 (the "2001 Notes"), the 6.95% Notes due 2002 (the "2002 Notes") and the
7.05% Notes due 2037 (the "2037 Notes") is payable semi-annually in arrears on
May 1 and November 1 of each year commencing November 1, 1997 by Norfolk
Southern Corporation (the "Corporation"). Interest on the 7.35% Notes due 2007
(the "2007 Notes"), the 7.70% Notes due 2017 (the "2017 Notes"), the 7.80% Notes
due 2027 (the "2027 Notes") and the 7.90% Notes due 2097 (the "2097 Notes" and
together with the 2000 Notes, 2001 Notes, 2002 Notes, 2007 Notes, 2017 Notes,
2027 Notes and 2037 Notes, the "Notes") is payable semi-annually in arrears on
May 15 and November 15 of each year commencing November 15, 1997 by the
Corporation. The 2000 Notes, the 2001 Notes, the 2002 Notes and the 2007 Notes
are not redeemable prior to maturity. The 2017 Notes, the 2027 Notes and the
2097 Notes may be redeemed at any time at the option of the Corporation, in
whole or in part, at a redemption price equal to the greater of (i) 100% of
their principal amount or (ii) the sum of the present values of the remaining
scheduled payments of principal and interest thereon discounted, on a
semi-annual basis, at the Treasury Yield (as defined herein) plus 20 basis
points, together with accrued interest, if any, to the date of redemption. Each
holder of the 2037 Notes has the right to require the Corporation to redeem such
holder's 2037 Notes, in whole or in part, on May 1, 2004, at a redemption price
equal to 100% of the aggregate principal amount thereof plus accrued and unpaid
interest. Thereafter, the 2037 Notes shall be redeemable at any time at the
option of the Corporation in the same manner as the 2017 Notes, the 2027 Notes
and the 2097 Notes. Upon the occurence of a Tax Event (as defined herein) the
Corporation will have the right to shorten the maturity of the 2097 Notes. The
Notes will not be subject to any sinking fund. See "Description of Notes".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to the
Public(1) Discounts(2) Corporation(1)(
<S> <C> <C> <C>
Per 2000 Note 99.873% .350% 99.523%
Per 2001 Note 99.913% .400% 99.513%
Per 2002 Note 99.848% .600% 99.248%
Per 2007 Note 99.931% .650% 99.281%
Per 2017 Note 99.890% .875% 99.015%
Per 2027 Note 99.874% .875% 98.999%
Per 2037 Note 99.886% .625% 99.261%
Per 2097 Note 99.863% 1.125% 98.738%
Total $4,295,093,000 $30,512,500 $4,264,580,500
</TABLE>
(1) Plus accrued interest from May 19, 1997.
(2) The Corporation has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Corporation, estimated at
$3,100,000.
The Notes are offered, subject to prior sale, when, as and if accepted by the
Underwriters and subject to approval of certain legal matters by Skadden, Arps,
Slate, Meagher & Flom LLP, counsel for the Underwriters. It is expected that
delivery of the Notes will be made on or about May 19, 1997 through the
facilities of DTC, against payment therefor in same-day funds.
JOINT BOOKRUNNERS
Merrill Lynch & Co. J.P. Morgan & Co.
CO-MANAGERS
PaineWebber Incorporated Donaldson, Lufkin & Jenrette
<PAGE>
Securities Corporation
May 14, 1997
<PAGE>
[MAP]
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF NOTES TO STABILIZE THEIR PRICE, THE
PURCHASE OF NOTES TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF
PENALTY BIDS. FOR A DESCRIPTION OF THOSE ACTIVITIES, SEE "UNDERWRITING."
No person is authorized to give any information or to make any
representations not contained or incorporated by reference in this Prospectus
Supplement or the accompanying Prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Corporation or any Underwriter. Neither this Prospectus Supplement nor
the accompanying Prospectus constitutes an offer to sell or a solicitation of an
offer to buy any securities in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to any person to whom it is unlawful
to make such offer or solicitation.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
The Corporation............................................................................................ S-4
Recent Developments........................................................................................ S-7
Use of Proceeds............................................................................................ S-10
Capitalization............................................................................................. S-11
Ratio of Earnings to Fixed Charges and Selected Financial Ratios........................................... S-12
Summary of Historical Financial Information of the Corporation............................................. S-13
Summary of Historical Financial Information of Conrail..................................................... S-15
Selected Pro Forma Financial Statements.................................................................... S-17
Description of Notes....................................................................................... S-23
Underwriting............................................................................................... S-31
Legal Matters.............................................................................................. S-32
PROSPECTUS
Available Information...................................................................................... 2
Incorporation of Certain Documents by Reference............................................................ 2
Norfolk Southern Corporation............................................................................... 3
Use of Proceeds............................................................................................ 7
Ratios of Earnings to Fixed Charges........................................................................ 7
Description of Debt Securities............................................................................. 8
Description of Capital Stock............................................................................... 15
Plan of Distribution....................................................................................... 24
Legal Matters.............................................................................................. 24
Experts.................................................................................................... 24
</TABLE>
S-3
<PAGE>
THE CORPORATION
The Corporation is a Virginia-based holding company that owns all the common
stock of and controls a major operating railroad, Norfolk Southern Railway
Company ("NS Railway"), and a diversified motor carrier, North American Van
Lines, Inc. ("NAVL"). The Corporation also owns Pocahontas Land Corporation, a
natural resources company. In 1996, railroad operations contributed $4.1
billion, or 82%, of transportation (IE., NS Railway and NAVL combined) operating
revenues and $1.2 billion, or 97%, of operating income.
On April 8, 1997, the Corporation entered into an agreement (the
"Agreement") with CSX Corporation ("CSX") providing for a joint acquisition of
Conrail Inc. ("Conrail"), pursuant to which the Corporation and CSX jointly will
acquire all of Conrail's outstanding Common Stock and Series A ESOP Convertible
Junior Preferred Stock, including in each case, any associated Common Stock
Purchase Rights (collectively the "Conrail Shares") not already owned by them
for $115 per share in cash. See "Recent Developments--Conrail Acquisition"
below.
RAILROAD OPERATIONS. The Corporation's rail subsidiaries form a single
interterritorial system extending, at December 31, 1996, over approximately
14,300 miles of road in 20 states in the Southeast and Midwest and in the
Province of Ontario, Canada. Of this total, 12,094 miles are owned, with the
balance operated under lease or trackage rights; most of this total are main
line track. In addition, the Corporation's railroads operate 10,800 miles of
passing, industrial, yard and side tracks.
The Corporation's lines carry raw materials, intermediate products and
finished goods primarily in the Southeast and Midwest and to and from the rest
of the United States and parts of Canada. These lines also transport overseas
freight through several Atlantic and Gulf Coast ports. Atlantic ports served by
the Corporation include Norfolk, Virginia; Morehead City, North Carolina;
Charleston, South Carolina; Savannah and Brunswick, Georgia; and Jacksonville,
Florida. Gulf Coast ports served include Mobile, Alabama, and New Orleans,
Louisiana.
The lines of the Corporation's railroads reach most of the larger industrial
and trading centers of the Southeast and Midwest, with the exception of those in
central and southern Florida. Atlanta, Birmingham, New Orleans, Memphis, St.
Louis, Kansas City (Missouri), Chicago, Detroit, Cincinnati, Buffalo, Norfolk,
Charleston, Savannah and Jacksonville are among the leading centers originating
and terminating freight traffic on the system. In addition, a haulage
arrangement with the Florida East Coast Railway allows the Corporation's
railroads to provide single-line service to and from south Florida, including
the port cities of Miami, West Palm Beach and Fort Lauderdale. The system's
lines also reach many individual industries, mines (in western Virginia, eastern
Kentucky and southern West Virginia) and businesses located in smaller
communities in its service area. The traffic corridors carrying the heaviest
volumes of freight include those from the Appalachian coal fields of Virginia,
West Virginia and Kentucky to Norfolk and Sandusky, Ohio; Buffalo to Chicago and
Kansas City; Chicago to Jacksonville (via Cincinnati, Chattanooga and Atlanta);
and Washington, D.C./Hagerstown, Maryland, to New Orleans (via Atlanta and
Birmingham).
Buffalo, Chicago, Hagerstown, Jacksonville, Kansas City, Memphis, New
Orleans and St. Louis are major gateways for interterritorial system traffic.
S-4
<PAGE>
TRANSPORTATION OPERATING REVENUES. The Corporation's total transportation
operating revenues were $5.0 billion in 1996. Revenues, shipments and revenue
yield per shipment by principal transportation operating revenue sources for the
past five years are set forth in the following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<CAPTION>
(REVENUES IN MILLIONS, SHIPMENTS IN THOUSANDS,
REVENUE YIELD IN DOLLARS PER SHIPMENT)
<S> <C> <C> <C> <C> <C>
COAL
Revenues........................................ $ 1,304.7 $ 1,267.8 $ 1,290.2 $ 1,239.2 $ 1,324.1
% of total revenues........................... 25.9% 25.8% 26.8% 26.4% 27.3%
Shipments....................................... 1,309.6 1,266.8 1,274.2 1,208.7 1,291.9
% of total shipments.......................... 26.5% 26.2% 27.2% 26.4% 28.2%
Revenue yield................................... $ 966 $ 1,001 $ 1,013 $ 1,025 $ 1,025
CHEMICALS
Revenues........................................ $ 555.9 $ 536.5 $ 534.7 $ 499.0 $ 498.9
% of total revenues........................... 11.1% 10.9% 11.1% 10.6% 10.3%
Shipments....................................... 378.6 368.3 370.7 341.6 327.4
% of total shipments.......................... 7.7% 7.6% 7.9% 7.5% 7.1%
Revenue yield................................... $ 1,468 $ 1,457 $ 1,442 $ 1,461 $ 1,524
PAPER/FOREST
Revenues........................................ $ 513.0 $ 537.3 $ 521.8 $ 522.2 $ 517.2
% of total revenues........................... 10.2% 11.0% 10.9% 11.1% 10.7%
Shipments....................................... 438.2 459.1 464.2 466.3 465.4
% of total shipments.......................... 8.9% 9.5% 9.9% 10.2% 10.1%
Revenue yield................................... $ 1,171 $ 1,170 $ 1,124 $ 1,120 $ 1,111
AUTOMOTIVE
Revenues........................................ $ 488.7 $ 449.1 $ 429.0 $ 425.8 $ 391.6
% of total revenues........................... 9.7% 9.2% 8.9% 9.1% 8.1%
Shipments....................................... 354.3 328.4 317.2 317.8 287.7
% of total shipments.......................... 7.2% 6.8% 6.8% 6.9% 6.3%
Revenue yield................................... $ 1,379 $ 1,368 $ 1,352 $ 1,340 $ 1,361
AGRICULTURE
Revenues........................................ $ 393.3 $ 393.7 $ 379.5 $ 357.0 $ 344.4
% of total revenues........................... 7.8% 8.0% 7.9% 7.6% 7.1%
Shipments....................................... 376.3 391.1 382.5 359.1 352.4
% of total shipments.......................... 7.6% 8.1% 8.2% 7.9% 7.7%
Revenue yield................................... $ 1,045 $ 1,007 $ 992 $ 994 $ 977
METALS/CONSTRUCTION
Revenues........................................ $ 358.0 $ 353.1 $ 334.2 $ 310.9 $ 289.4
% of total revenues........................... 7.1% 7.2% 7.0% 6.6% 6.0%
Shipments....................................... 364.9 372.3 371.3 339.6 312.8
% of total shipments.......................... 7.4% 7.7% 7.9% 7.4% 6.8%
Revenue yield................................... $ 981 $ 948 $ 900 $ 915 $ 925
INTERMODAL
(Trailers, Containers and Roadrailers)
Revenues........................................ $ 487.4 $ 474.3 $ 428.7 $ 373.6 $ 343.5
% of total revenues........................... 9.7% 9.7% 8.9% 7.9% 7.1%
Shipments....................................... 1,331.0 1,262.6 1,127.3 994.7 916.2
% of total shipments.......................... 27.0% 26.2% 24.0% 21.7% 20.0%
Revenue yield................................... $ 366 $ 376 $ 380 $ 376 $ 375
</TABLE>
S-5
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(REVENUES IN MILLIONS, SHIPMENTS IN THOUSANDS,
REVENUE YIELD IN DOLLARS PER SHIPMENT)
<S> <C> <C> <C> <C> <C>
OTHER INTERMODAL RELATED
Revenues........................................ $ -- $ -- $ -- $ 18.2 $ 67.9
% of total revenues........................... -- -- -- 0.4% 1.4%
TOTAL RAILWAY OPERATING REVENUES.................. $ 4,101.0 $ 4,011.8 $ 3,918.1 $ 3,745.9 $ 3,777.0
% of total revenues........................... 81.5% 81.8% 81.5% 79.7% 78.0%
TOTAL RAILWAY SHIPMENTS........................... 4,552.9 4,448.6 4,307.4 4,027.8 3,953.8
% of total shipments.......................... 92.3% 92.1% 91.9% 88.0% 86.2%
MOTOR CARRIER
Revenues........................................ $ 930.2 $ 895.5 $ 891.4 $ 951.9 $ 1,066.6
% of total revenues........................... 18.5% 18.2% 18.5% 20.3% 22.0%
Shipments (domestic)............................ 383.1 381.1 379.3 550.2 631.0
% of total shipments.......................... 7.7% 7.9% 8.1% 12.0% 13.8%
Revenue yield................................... $ 2,428 $ 2,350 $ 2,350 $ 1,730 $ 1,690
--------- --------- --------- --------- ---------
TOTAL TRANSPORTATION OPERATING
REVENUES........................................ $ 5,031.2 $ 4,907.3 $ 4,809.5 $ 4,697.8 $ 4,843.6
TOTAL SHIPMENTS................................... 4,936.0 4,829.7 4,686.7 4,578.0 4,584.8
</TABLE>
- - ------------------------
Note:Shipments include general merchandise and coal rail carloads, intermodal
rail and RoadRailer-Registered Trademark- units, and domestic motor carrier
shipments.
Motor carrier revenues have been reclassified to conform to a change in
presentation, made in the first quarter of 1997, from a net basis to a
gross basis. Certain motor carrier expenses that were previously reported
net in revenue have been reclassified to motor carrier expenses to conform
with recent industry reporting practices. Motor carrier operating income is
not affected by this change. All previous periods presented have been
reclassified to conform with the first quarter of 1997 presentation.
MOTOR CARRIER OPERATIONS. NAVL's principal transportation activity is the
domestic, irregular route common and contract carriage of used households goods
and special commodities between points in the United States. NAVL also operates
as an intrastate carrier of property in 29 states at December 31, 1996. During
1996, its Relocation Services and High Value Products divisions conducted
operations through a network of over 400 agents at approximately 680 locations
in the United States. Agents are local moving and storage companies that provide
NAVL with such services as solicitation, packing and warehousing in connection
with the movement of household goods and specialized products. Foreign
operations are conducted through these two divisions and through foreign
subsidiaries, including North American Van Lines Canada, Ltd. NAVL's
international operations consist primarily of forwarding used household goods to
and from the United States and between foreign countries through a network of
approximately 360 foreign agents and representatives.
S-6
<PAGE>
RECENT DEVELOPMENTS
FIRST QUARTER RESULTS
The Corporation's net income for the three month period ended March 31, 1997
(the "First Quarter") was $177.5 million before, and $127.8 million after, a
one-time charge of $77.2 million ($49.7 million after tax) to write off the
costs of establishing and maintaining a $13 billion credit facility related to
its tender offer for all outstanding Conrail Shares. Earnings per share were
$1.42 before, and $1.02 after, the charge. Following the Corporation's agreement
with CSX concerning the joint acquisition of Conrail, as described below under
"-- Conrail Acquisition," the Corporation has terminated all but $1.65 billion
of that credit facility. The Corporation is, however, in the process of
establishing a new credit facility of $7.0 billion. Excluding the one-time
charge, net income and earnings per share both set first-quarter records.
Railway operating revenues for the First Quarter were $1.05 billion, up 3%
from 1996 and an all-time record for the Corporation for any quarter. Motor
carrier operating revenues also increased by 3%, to $203.7 million. Total
transportation operating revenues set a first-quarter record of $1.25 billion,
up 3% from the corresponding period in 1996.
First Quarter railway operating expenses of $764.5 million were 1% higher
than in the corresponding period in 1996. Motor carrier operating expenses of
$199.6 million were relatively unchanged. Total transportation operating
expenses of $964.1 million were up 1% as compared to the corresponding period in
1996.
Income from operations of $285.6 million, up 9%, and railway operating
income of $281.5 million, up 7%, both were first-quarter records.
The Corporation also set a new first-quarter record railway operating ratio
(the percentage of revenues that go into operating the railroad) of 73.1% in
1997, as compared to 74.2% in the corresponding 1996 period.
CONRAIL ACQUISITION
TRANSACTION OVERVIEW. On April 8, 1997, the Corporation entered into the
Agreement with CSX providing for a joint acquisition (the "Joint Offer") of
Conrail, pursuant to which the Corporation and CSX jointly will acquire all
outstanding Conrail Shares not already owned by them for $115 in cash per share.
A copy of the Agreement is filed as an exhibit to the Corporation's Current
Report on Form 8-K dated April 8, 1997, which is incorporated herein by
reference and by reference to the full text of which all related statements
herein are qualified.
The estimated total purchase price of (i) the Conrail Shares to be acquired
pursuant to the Joint Offer and (ii) the Conrail Shares already acquired by the
Corporation and by CSX is approximately $10.2 billion, excluding the transaction
expenses of each of the parties. Pursuant to the Agreement, the Corporation will
bear 58% of that total purchase price (or approximately $5.9 billion, of which
$943 million has been expended previously to purchase the 8.2 million Conrail
Shares that the Corporation now owns) to acquire Conrail Shares and CSX will
bear 42% of such purchase price, in each case taking into consideration amounts
previously paid by each of them to acquire Conrail Shares. In addition, the
Agreement provides that, upon consummation of the Joint Offer and completion of
the second-step merger specified in the Agreement, and subject to regulatory
approval, specified assets and liabilities of Conrail will be allocated between
the Corporation and CSX pursuant to leasing, operating, partnership or other
arrangements to be negotiated and implemented between the Corporation and CSX,
and the remaining assets and liabilities of Conrail will be pooled and either
shared or allocated between the Corporation and CSX on a ratable basis in
accordance with the percentage of the total consideration paid (including
liabilities assumed) by the Corporation and CSX, 58% and 42%, respectively (such
acquisition by the Corporation of, or of the right to use, the assets allocated
to or shared by the Corporation pursuant to the Agreement and the assumption
S-7
<PAGE>
by the Corporation of the obligations relating to liabilities allocated to or
shared by it pursuant to the Agreement, the "Transaction").
The Corporation and CSX intend to file a joint application with the Surface
Transportation Board (the "STB") in June of 1997 seeking approval of the
proposed acquisition and division of Conrail. Conrail Shares purchased
previously by the Corporation and CSX, and Conrail Shares purchased in the Joint
Offer, will be placed in a joint voting trust pending STB approval. The approval
of the STB, while expected, cannot be assumed and is not likely to be obtained
prior to April 1, 1998. Following consummation of the Joint Offer, the
Corporation expects to use the equity method of accounting for its investment in
Conrail.
The accounting treatment for the Corporation's investment in Conrail after
STB approval is received will be determined based upon the extent of control
that the Corporation and CSX will individually have over specific Conrail assets
and is expected to be resolved after completion of the more detailed, definitive
documentation to be negotiated between the Corporation and CSX. See "Norfolk
Southern Corporation" in the attached Prospectus and "Selected Pro Forma
Financial Statements" in this Prospectus Supplement.
After STB approval, it is anticipated that Conrail will continue to exist
and that it will be staffed principally by administrative personnel who will be
responsible for various functions, including payment of Conrail's debt
obligations. The Corporation and CSX, through cash contributions, lease
arrangements or otherwise, intend to make payments to the entity that will own
Conrail reflecting their relative economic interests and in amounts sufficient
for such purposes. The following chart illustrates the proposed joint
acquisition and ownership structure:
[LOGO]
FINANCING OF THE TRANSACTION. To finance the remaining portion of the
Transaction, the Corporation plans to access both public and private markets by
issuing commercial paper and term debt. Debt service payments on the estimated
aggregate $6.0 billion of indebtedness incurred or to be incurred by the
Corporation in connection with the Transaction, including the Notes offered
hereby, is substantial and may impair the Corporation's operating flexibility
and its ability to respond to adverse market conditions. The Corporation's
transportation business is also heavily dependent on the strength of the
industries and of the
S-8
<PAGE>
economy in the areas in which it operates. However, as a result of anticipated
enhanced cash flows generated by the Transaction and prudent cash management,
the Corporation plans to begin aggressively repaying debt, thereby increasing
its financial flexibility. Various sources of funds, including, but not limited
to, receivables, credit agreements, the public and private debt and equity
capital markets and free cash flow also will contribute to financial
flexibility.
CONRAIL. Conrail is the holding company that owns and controls Consolidated
Rail Corporation, a major freight railroad which provides freight transportation
services within the Northeast and Midwest. Following the acquisition of the
Conrail Shares and receipt of all required regulatory approvals, most of the
assets and liabilities of Conrail are expected to be allocated between the
Corporation and CSX, as described herein. Information set forth herein
concerning the business and assets of Conrail is derived solely from Conrail's
Annual Report on Form 10-K for the year ended December 31, 1996, as filed with
the Securities and Exchange Commission (the "Commission").
Conrail provides freight transportation services within the Northeast and
Midwest and interchanges freight with other United States and Canadian
railroads, including those owned and controlled by the Corporation, for
transport to destinations within and outside its service region. Conrail
operates no significant line of business other than the freight railroad
business and does not provide common carrier passenger or commuter train
service.
Conrail serves a heavily industrial region that is marked by dense
population centers which constitute a substantial market for consumer durable
and non-durable goods, and a market for raw materials used in manufacturing and
by electric utilities. Its traffic levels are substantially affected by its
ability to compete with trucks and other railroads, the economic strength of the
industries and metropolitan areas that produce and consume the freight it hauls,
and the traffic generated by interconnected railroads. Conrail is dependent on
non-bulk traffic, which tends to generate higher revenues than bulk commodities,
but also involves higher costs and is more vulnerable to truck competition.
As of December 31, 1996, Conrail maintained 16,970 miles of track on its
10,543 mile route system. Of total route miles, 8,459 were owned, 87 leased or
operated under contract and 1,997 were operated under trackage rights.
EFFECTS OF THE TRANSACTION. Under the Agreement, the Corporation and CSX
will divide all of Conrail's principal routes, which form an "X" crossing in
Ohio, with each railroad operating two of the four legs of the "X." The
Corporation will obtain the right to use lines and facilities that generated
approximately 58% of Conrail's 1995 revenues. The Corporation will operate legs
of the "X" between Chicago and Cleveland (a former New York Central mainline)
and the Conrail line between Cleveland and northern New Jersey via Pittsburgh
and Harrisburg. In addition, the Corporation will operate the Conrail line
serving the metropolitan New York area between northern New Jersey and Buffalo
through Binghamton, New York and another between Buffalo and Harrisburg,
Pennsylvania. The Corporation also will operate most Conrail lines in Michigan,
Maryland, Delaware and Pennsylvania and will operate the routes between Toledo
and Detroit, between Columbus and Cincinnati and between Columbus and
Charleston, West Virginia. See the map on the inside front cover page of this
Prospectus Supplement.
The Corporation and CSX jointly will operate certain Conrail assets in major
terminal areas such as Detroit and northern and southern New Jersey. The two
companies will also share access to certain lines in Philadelphia and
Indianapolis, and to the rail lines serving the Monongahela coal fields in
southwestern Pennsylvania.
The corporation believes that the implementation of the Agreement will
create balanced competition in the East, restore rail competition in certain
regions now served only by Conrail and improve service to customers. The result
is expected to be two strong competitors each of which will provide single-line
service between the New York metropolitan area and Chicago, between New York and
St. Louis and between the New York area and markets to the south and southwest.
Implementation also is expected to bring new business and new jobs to the rail
industry and the regions now served by both companies.
S-9
<PAGE>
The Corporation has identified a number of synergies related to the
Transaction which its management believes can be achieved and that are estimated
to yield operating income in nominal dollars of approximately $71 million in
1998, $236 million in 1999 and $399 million by the year 2000. For 1996, the
Corporation's and Conrail's most recent full year combined operating income,
reflecting 58% of Conrail's operating income adjusted for non-recurring charges,
was $1.6 billion. These synergy estimates reflect anticipated operating expense
savings and revenue enhancements. Expense savings are expected to result from,
among other things, reduced general and administrative expenses, improved
equipment utilization and maintenance, improved use of rail yards and routes,
more efficient purchasing of material and equipment coupled with
maintenance-of-way efficiencies, and more efficient transportation operations.
Revenue enhancements are expected to result from net new business (single-line
service, new coal traffic and the diversion of truck traffic to rail). The
Corporation anticipates the synergies from the Transaction will result in
accretion in the Corporation's earnings per share of about 6% in 1999, 15% in
2000 and more than 17% per year thereafter. The Corporation expects the
acquisition to be dilutive to earnings per share by approximately 2% in 1997 and
3% in 1998. The preliminary calculation of the purchase price allocation
reflects approximately $200 million of goodwill in accounting for the
Transaction. This estimate will vary as additional information in the form of
appraisals, actuarial reports and other valuations are made. However, whether
the excess of purchase price over the book value of Conrail's net assets is
assigned to physical assets or goodwill is not expected to have a significant
effect on net income since railroad assets are typically long-lived and goodwill
is amortized over periods of up to 40 years. See "Selected Pro Forma Financial
Statements." The foregoing is more completely described in the Corporation's
Current Report on Form 8-K, dated April 23, 1997, which is incorporated herein
by reference and by which all related statements herein are qualified.
The foregoing estimates of cost savings, synergies, projected earnings per
share and pro forma financial information are "forward-looking" and inherently
subject to significant uncertainties and contingencies, many of which are beyond
the control of the Corporation, including: (a) future economic conditions in the
markets in which the Corporation and Conrail operate; (b) financial market
conditions; (c) inflation rates; (d) changing competition and the effects of new
and increased competition in the areas served by the Corporation and Conrail;
(e) changes in the economic regulatory climate in the United States railroad
industry; (f) the Corporation's ability to eliminate or reduce duplicative
administrative and other functions and facilities following the Transaction; (g)
labor uncertainties and the Corporation's ability to implement anticipated labor
savings; (h) unanticipated environmental and other situations relating to
Conrail assets; (i) the Corporation's ability to integrate certain Conrail
assets, including its information technology systems, within the Corporation's
systems; and (j) adverse changes in applicable laws, regulations or rules
governing environmental, tax or accounting matters. There can be no assurance
that the estimated savings, revenue increases, synergies, projected earnings per
share and pro forma financial information will be achieved; actual savings,
revenues increases, synergies, projected earnings per share and pro forma
financial information may vary materially from those estimated. The inclusion of
such estimates herein should not be regarded as an indication or affirmation
that the Corporation or any other party considers such estimates an accurate
prediction of future events.
USE OF PROCEEDS
The net proceeds to the Corporation from the sale of the Notes offered
hereby, after payment of expenses related to the offering and underwriting
discounts and commissions, are estimated to be $4.26 billion. The Corporation
expects to use such proceeds to acquire, either directly or indirectly, a
portion of the Conrail Shares. See "Recent Developments--Conrail Acquisition."
Prior to such use, the Corporation plans to invest the proceeds from the
offering in short-term, investment-grade, interest-bearing securities.
S-10
<PAGE>
CAPITALIZATION
The following table sets forth the debt and total capitalization of the
Corporation at March 31, 1997, and as adjusted to give effect to the sale of the
Notes offered hereby and the application of the net proceeds therefrom as
described under "Use of Proceeds." This table should be read in conjunction with
"Use of Proceeds," "Summary of Historical Financial Information of the
Corporation," and the consolidated financial statements of the Corporation
appearing elsewhere, or incorporated by reference, in this Prospectus
Supplement.
<TABLE>
<CAPTION>
HISTORICAL:
MARCH 31, 1997 ADJUSTMENTS PRO FORMA
-------------- ----------- ----------
($ IN MILLIONS)
<S> <C> <C> <C>
CURRENT DEBT:
Short-term debt.................................................... $ 27.2 $ $ 27.2
Current maturities of long-term debt............................... 56.0 56.0
-------------- ----------
Total current debt............................................... 83.2 83.2
LONG-TERM DEBT:
Railway equipment obligations...................................... 349.5 349.5
Notes.............................................................. 700.0 4,300.0 5,000.0
Commercial paper................................................... 1,510.5 768.4 2,278.9
Capitalized leases................................................. 223.9 223.9
Other.............................................................. 59.7 59.7
-------------- ----------- ----------
Total long-term debt............................................. 2,843.6 5,068.4 7,912.0
STOCKHOLDERS' EQUITY:
Common stock, $1.00 per share par value, 450,000,000 shares
authorized; 132,685,789 shares issued............................ 132.7 132.7
Other capital...................................................... 488.1 488.1
Retained income.................................................... 4,444.8 4,444.8
Treasury stock, at cost, 7,252,634 shares.......................... (20.6) (20.6)
-------------- ----------
Total stockholders' equity....................................... 5,045.0 5,045.0
-------------- ----------
Total capitalization............................................. $ 7,971.8 $ 5,068.4 $ 13,040.2
-------------- ----------- ----------
-------------- ----------- ----------
TOTAL DEBT TO TOTAL CAPITALIZATION................................... 36.7% 61.3%
-------------- ----------
-------------- ----------
</TABLE>
- - ------------------------
Note: Historical capitalization amounts include $943 million of commercial paper
issued in February 1997 to fund the purchase of 8.2 million Conrail
Shares.
S-11
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES AND SELECTED FINANCIAL RATIOS
For purposes of computing the ratios of earnings to fixed charges, earnings
represent income before income taxes, plus interest expenses (including a
portion of rental expenses representing an interest factor) and subsidiaries'
preferred dividend requirements, less the equity in undistributed earnings of
20%-49% owned companies. Fixed charges represent interest expenses (including a
portion of rental expense representing an interest factor) plus capitalized
interest and subsidiaries' preferred dividend requirements on a pre-tax basis.
The following table sets forth the ratio of earnings to fixed charges and
selected financial ratios for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
YEAR ENDED DECEMBER 31,
--------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997(1) 1996 1996 1995 1994 1993 1992
------- ----- ----- ----- ----- ---- ----
Ratio of earnings to fixed charges.......................... 4.24 6.33 6.85 6.70 6.66 5.67 5.67
EBIT/Interest (2)........................................... 4.82 7.51 8.12 7.93 7.82 6.52 6.36
EBITDA/Interest (3)......................................... 6.92 10.12 10.69 10.53 10.49 9.07 8.84
Total debt to total capitalization.......................... 36.7% 26.5% 27.6% 25.9% 26.2% 27.4% 29.8%
</TABLE>
- - ------------------------
(1) Earnings for the three months ended March 31, 1997, include a $77.2 million
charge for the direct costs, principally loan commitment fees, of having
secured and maintained certain now-terminated commitments under a February
credit agreement that would have provided financing for the Corporation's
then-proposed acquisition of all Conrail Shares. Earnings for the three
months ended March 31, 1997, also include $7.1 million of interest expense
on $1 billion of additional commercial paper issued in February to fund the
purchase of 8.2 million Conrail Shares and to pay fees and expenses.
Excluding the effects of the charge and the additional commercial paper, the
ratio of earnings to fixed charges would have been 6.26; EBIT/interest would
have been 7.34; EBITDA/interest would have been 9.79; and total debt to
total capitalization would have been 27.5%.
(2) For purposes of computing EBIT/interest, EBIT represents earnings before
income taxes plus interest expense on indebtedness. Interest in the
denominator includes interest on indebtedness, whether expensed or
capitalized.
(3) For purposes of computing EBITDA/interest, EBITDA represents earnings before
income taxes plus interest expense on indebtedness, plus depreciation and
amortization. Interest in the denominator includes interest on indebtedness,
whether expensed or capitalized. The Corporation has presented EBITDA
because it is commonly used by investors to analyze and compare companies on
the basis of operating performance. The Corporation believes EBITDA is
helpful in understanding cash flow generated from operations that is
available for debt service, taxes and capital expenditures. EBITDA should
not be considered in isolation or as substitute for net income or other
consolidated statement of operations or cash flow data prepared in
accordance with generally accepted accounting principles as a measure of the
profitability or liquidity of the Corporation.
S-12
<PAGE>
SUMMARY OF HISTORICAL FINANCIAL INFORMATION OF THE CORPORATION
The following table sets forth summary consolidated financial information of
the Corporation. The financial information for the five years ended December 31,
1996, contained in the table under the headings "Operating Results", "Per Share
Data", and "Financial Position" has been derived from the annual consolidated
financial statements of the Corporation and its subsidiaries, audited by KPMG
Peat Marwick LLP, independent auditors. Such information at or for the three
months ended March 31, 1997 and 1996, are derived from unaudited consolidated
financial statements. In management's opinion, the Corporation's unaudited
consolidated financial statements at or for the three months ended March 31,
1997 and 1996, include all adjustments (consisting only of normally recurring
adjustments) necessary for a fair presentation. The operating results for the
three months ended March 31, 1997, are not necessarily indicative of the results
for the entire year or for any other interim period.
The following table should be read in conjunction with the audited
consolidated financial statements and notes thereto of the Corporation and the
related "Management's Discussion and Analysis of Financial Condition and Results
of Operations" contained in the Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, which is incorporated by reference herein.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997(1) 1996 1996 1995 1994 1993(2) 1992
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED) ($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Transportation operating revenues:
Railway operating revenues......... $1,046.0 $1,016.7 $4,101.0 $4,011.8 $3,918.1 $3,745.9 $3,777.0
Motor carrier operating
revenue(3)....................... 203.7 198.3 930.2 895.5 891.4 951.9 1,066.6
--------- --------- --------- --------- --------- --------- ---------
Total transportation operating
revenues....................... 1,249.7 1,215.0 5,031.2 4,907.3 4,809.5 4,697.8 4,843.6
Transportation operating expenses:
Railway operating expenses......... 764.5 754.8 2,936.1 2,950.0 2,874.8 2,830.6 2,850.8
Motor carrier operating expenses... 199.6 199.2 898.1 871.0 869.3 1,006.8 1,106.3
--------- --------- --------- --------- --------- --------- ---------
Total transportation operating
expenses....................... 964.1 954.0 3,834.2 3,821.0 3,744.1 3,837.4 3,957.1
--------- --------- --------- --------- --------- --------- ---------
Income from operations............... 285.6 261.0 1,197.0 1,086.3 1,065.4 860.4 886.5
Other income--net.................... 28.5 33.4 115.6 141.8 85.2 136.8 97.8
Charge for credit facility costs
(1)................................ 77.2 -- -- -- -- -- --
Interest expense on debt............. 38.4 27.6 115.7 113.4 101.6 98.6 109.0
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes........... 198.5 266.8 1,196.9 1,114.7 1,049.0 898.6 875.3
Provision for income taxes........... 70.7 98.7 426.5 402.0 381.2 349.9 317.6
--------- --------- --------- --------- --------- --------- ---------
Income before accounting changes..... 127.8 168.1 770.4 712.7 667.8 548.7 557.7
Cumulative effect of accounting
changes............................ -- -- -- -- -- 223.3 --
--------- --------- --------- --------- --------- --------- ---------
Net income........................... $127.8 $168.1 $770.4 $712.7 $667.8 $772.0 $557.7
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PER SHARE DATA:
Earnings............................. $1.02 $1.31 $6.09 $5.44 $4.90 $5.54 $3.94
Dividends............................ $0.60 $0.56 $2.24 $2.08 $1.92 $1.86 $1.80
Stockholders' equity at period end... $40.22 $37.80 $39.79 $37.42 $35.19 $33.36 $30.16
FINANCIAL POSITION:
Total assets......................... $12,432.3 $11,055.2 $11,416.4 $10,904.8 $10,587.8 $10,519.8 $10,400.5
Total long-term debt, including
current maturities................. $2,899.6 $1,700.7 $1,856.3 $1,639.0 $1,619.8 $1,595.2 $1,648.9
Stockholders' equity................. $5,045.0 $4,838.2 $4,977.6 $4,829.0 $4,684.8 $4,620.7 $4,232.6
OTHER DATA:
Capital expenditures................. $259.5 $237.4 $796.0 $763.4 $712.9 $669.2 $716.1
Average number of shares outstanding
(thousands)........................ 125,255 128,215 126,457 130,996 136,301 139,414 141,459
Number of stockholders at period
end................................ 53,378 55,283 50,748 53,401 52,442 51,884 51,200
</TABLE>
S-13
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997(1) 1996 1996 1995 1994 1993(2) 1992
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED) ($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Average number of employees:
Rail................................. 23,340 23,558 23,361 24,488 24,710 25,531 25,650
Nonrail.............................. 2,498 2,455 2,469 2,456 2,458 3,773 4,485
--------- --------- --------- --------- --------- --------- ---------
Total................................ 25,838 26,013 25,830 26,944 27,168 29,304 30,135
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
- - ------------------------
(1) The Corporation recorded a $77.2 million pretax charge in the first quarter
of 1997 for the direct costs, principally loan commitment fees, of having
secured and maintained certain now-terminated commitments under a credit
agreement entered into in February that would have provided financing for
the Corporation's then-proposed acquisition of all Conrail Shares. This
charge reduced first quarter net income by $49.7 million, or $0.40 per
share. Excluding the charge, net income and earnings per share would have
been $177.5 million, and $1.42, respectively.
(2) 1993 results include a $54 million increase in the provision for income
taxes, reflecting a 1% increase in the federal income tax rate, which
reduced net income by $54 million, or $0.39 per share. 1993 motor carrier
expenses include a $50 million restructuring charge for the disposition of
two NAVL businesses. The cumulative effect of accounting changes increased
1993 earnings by $223 million, or $1.60 per share. The change in accounting
for income taxes increased net income by $467 million, with a corresponding
reduction in deferred taxes. The changes in accounting for postretirement
and postemployment benefits decreased net income by $244 million.
(3) Motor carrier revenues have been reclassified to conform to a change in
presentation, made in the first quarter of 1997, from a net basis to a gross
basis. Certain motor carrier expenses previously reported net in revenue
have been reclassified to motor carrier expenses to conform with recent
industry reporting practices. Motor carrier operating income is not affected
by this change. All previous periods presented have been reclassified to
conform with the first quarter 1996 presentation.
S-14
<PAGE>
SUMMARY OF HISTORICAL FINANCIAL INFORMATION OF CONRAIL
The following table sets forth summary consolidated financial information of
Conrail. The financial information has been derived from the audited annual
consolidated financial statements of Conrail and its subsidiaries, included in
Conrail's Annual Reports on Form 10-K for the fiscal years ended December 31,
1996, 1995, 1994 and 1993 as filed with the Commission. The table should be read
in conjunction with the audited consolidated financial statements and notes
thereto of Conrail and the related "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in the aforementioned
Annual Reports on Form 10-K of Conrail. Reports on Form 10-K for years prior to
1993 were filed by Consolidated Rail Corporation, Conrail's only significant
subsidiary and primary asset, for those time periods, and 1992 historic data
presented herein are with respect to such corporation.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<CAPTION>
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES................................................................ $3,714 $3,686 $3,733 $3,453 $3,345
--------- --------- --------- --------- ---------
OPERATING EXPENSES:
Way and structures.................................................... 462 485 499 492 465
Equipment............................................................. 803 766 815 703 692
Transportation........................................................ 1,385 1,324 1,379 1,283 1,306
General and administrative............................................ 328 370 350 384 348
Voluntary separation programs......................................... 135 -- -- -- --
Asset disposition charge.............................................. -- 285 -- -- --
Early retirement program.............................................. -- -- 84 -- --
--------- --------- --------- --------- ---------
Total operating expenses............................................ $3,113 $3,230 $3,127 $2,862 $2,811
--------- --------- --------- --------- ---------
Income from operations.................................................. 601 456 606 591 534
Interest expense........................................................ (182) (194) (192) (185) (172)
Loss on disposition of subsidiary....................................... -- -- -- (80) --
Other income, net....................................................... 112 130 118 114 98
--------- --------- --------- --------- ---------
Income before income taxes and the cumulative effect of changes in
accounting principles................................................. 531 392 532 440 460
Income taxes............................................................ 189 128 208 206 178
--------- --------- --------- --------- ---------
Income before the cumulative effect of changes in accounting
principles............................................................ $342 $264 $324 $234 $282
Cumulative effect of changes in accounting principles................... -- -- -- (74) --
--------- --------- --------- --------- ---------
Net income.............................................................. $342 $264 $324 $160 $282
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income per common share before the cumulative effect of changes in
accounting principles:
Primary............................................................... $4.25 $3.19 $3.90 $2.74 $3.28
Fully diluted......................................................... 3.89 2.94 3.56 2.51 2.99
Cumulative effect of changes in accounting principles per common share:
Primary............................................................... -- -- -- (.92) --
Fully Diluted......................................................... -- -- -- (.81) --
Net income per common share:
Primary............................................................... $4.25 $3.19 $3.90 $1.82 $3.28
Fully diluted......................................................... 3.89 2.94 3.56 1.70 2.99
Ratio of earnings to fixed charges...................................... 3.19 2.51 3.19 2.98 3.33
</TABLE>
S-15
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
ASSETS:
Current assets.......................................................... $1,117 $1,206 $1,125 $1,062 $790
Property and equipment, net............................................. 6,590 6,408 6,498 6,313 6,013
Other assets............................................................ 695 810 699 573 512
--------- --------- --------- --------- ---------
Total assets........................................................ $8,402 $8,424 $8,322 $7,948 $7,315
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities..................................................... $1,092 $1,170 $1,201 $1,075 $1,279
Long-term debt.......................................................... 1,876 1,911 1,940 1,959 1,577
Casualty reserves....................................................... 190 217 212 132 153
Deferred income tax..................................................... 1,478 1,393 1,203 1,081 644
Special income tax obligation........................................... 346 440 513 575 569
Other liabilities....................................................... 313 316 328 342 345
--------- --------- --------- --------- ---------
Total liabilities............................................... $5,295 $5,447 $5,397 $5,164 $4,567
--------- --------- --------- --------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock (no par value; 15,000,000 shares authorized; no shares
issued) -- -- -- -- --
Series A ESOP convertible junior preferred stock (no par value;
10,000,000 shares authorized; 7,303,920 and 9,770,993 shares issued
and outstanding, respectively)...................................... 211 282 283 286 287
Unearned ESOP compensation............................................ (222) (233) (243) (253) (263)
Common stock ($1 par value; 250,000,000 shares authorized; 87,768,428
and $85,392,392 shares issued, respectively; 82,244,973 and
82,094,675 shares outstanding, respectively)........................ 88 85 80 80 83
Additional paid-in capital............................................ 2,404 2,187 1,848 1,819 1,888
Employee benefits trust, at market (3,394,988 and 4,706,665 shares,
respectively)....................................................... (384) (329) -- -- --
Retained earnings..................................................... 1,357 1,176 1,056 857 903
--------- --------- --------- --------- ---------
3,454 3,168 3,024 2,789 2,898
Treasury stock at cost (5,523,455 and 3,297,717 shares,
respectively)....................................................... (347) (191) (99) (5) (150)
--------- --------- --------- --------- ---------
Total stockholders' equity.......................................... 3,107 2,977 2,925 2,784 2,748
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity.......................... $8,402 $8,424 $8,322 $7,948 $7,315
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
S-16
<PAGE>
SELECTED PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma financial statements included herein present the
Corporation's historical balance sheet and income statement for 1996 adjusted to
reflect its acquisition of an interest in Conrail, accounted for under the
equity method. See "Recent Developments--Conrail Acquisition."
The Corporation intends to use the equity method of accounting for its
interest in Conrail following consummation of the Joint Offer and during the
period Conrail Shares are held in a voting trust--a period that will extend at
least until the effective date of the STB's decision approving the transactions
contemplated by the Agreement (if such approval is obtained). The Corporation
and CSX have requested a 255-day review period. However, other interested
parties have requested either a 365-day review period or the maximum period
permitted under the statute--16 months. The Corporation and CSX intend to file a
joint application with the STB in June; therefore, even under the accelerated
schedule requested by the Corporation and CSX, an STB decision is not likely
prior to March 1, 1998, and could be delayed until as late as October 1998 if
the maximum statutory period is used.
The Corporation and CSX will have, respectively, a 58 percent and a 42
percent economic interest in--and each will exercise a 50 percent voting
interest in--the entity formed to acquire Conrail Shares. Under the Agreement
subject to STB approval, the Corporation will operate routes and assets (or
rights therein or thereto) that generated approximately 58 percent of Conrail's
1995 revenues, pursuant to leasing, operating, partnership or other arrangements
to be negotiated and implemented between the Corporation and CSX. Each of the
Corporation and CSX will have the right to appoint 50 percent of that entity's
directors and will be entitled to appoint full-time Co-Chief Executive Officers.
The equity method will be used for the investment in Conrail until the
transaction has been approved by the STB and the voting trust is dissolved. The
method of accounting for the investment in Conrail subsequent to the voting
trust being dissolved will depend on the ownership arrangement that is
ultimately negotiated between the Corporation and CSX, and approved by the STB,
and the determination of whether and how controlling financial interests will be
established for selected assets, liabilities and operations of Conrail.
Additionally, the terms of leases, operating partnerships and other
arrangements, yet to be negotiated, will impact the accounting. It is also
expected that some of the assets and operations of Conrail will remain subject
to joint control by the Corporation and CSX and thus will continue to be
accounted for using the equity method of accounting post STB approval.
The Joint Offer for Conrail Shares expires on May 23, 1997, unless extended,
and the tendered shares will be paid for soon thereafter. As required by
Accounting Principles Board Opinion No. 18, "The Equity Method of Accounting for
Investments in Common Stock." (APB No. 18), the excess of the Corporation's
purchase price over the underlying net assets acquired will be amortized over
appropriate periods based on a preliminary analysis of the underlying net assets
of Conrail. To the extent specific assets and liabilities are allocated to
Conrail entities over which the Corporation will have a controlling financial
interest, the allocation will be redesignated to follow the method in which the
investment is accounted for subsequent to the approval of such by the STB.
The unaudited pro forma financial statements do not reflect synergies, and
accordingly, do not account for any potential increases in operating income, any
estimated cost savings, any adjustments to conform accounting practices or any
one-time costs incurred by either the Corporation or Conrail to achieve such
improvements. THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS ARE PREPARED FOR
ILLUSTRATIVE PURPOSES ONLY AND ARE NOT NECESSARILY INDICATIVE OF THE FINANCIAL
POSITION OR RESULTS OF OPERATIONS THAT MIGHT HAVE OCCURRED HAD THE APPLICABLE
TRANSACTIONS ACTUALLY TAKEN PLACE ON THE DATE INDICATED, OR OF FUTURE RESULTS OF
OPERATIONS OR FINANCIAL POSITION OF THE STAND ALONE OR COMBINED ENTITIES.
Consummation of the Joint Offer by the Corporation and CSX is conditioned upon,
among other things, that prior to the expiration of the Joint Offer, there shall
have been validly tendered and not withdrawn such number of Conrail Shares
which, together with the Conrail Shares already beneficially owned by the
Corporation and
S-17
<PAGE>
CSX, constitutes at least a majority of outstanding Conrail Shares on a fully
diluted basis. Consummation of the Transaction is conditioned upon, among other
things, approval of the STB.
The acquisition is reflected in the pro forma balance sheet as if it had
occurred on December 31, 1996, and in the statement of income as if it had
occurred on January 1, 1996. The financial information for Conrail used in the
preparation hereof was for the year ended December 31, 1996, and was excerpted
from Conrail's Annual Report on Form 10-K for the year ended December 31, 1996.
Conrail's 1996 results include a special charge of $135 million (pre-tax) for
voluntary separation programs.
The unaudited pro forma financial statements are based on the historical
consolidated financial statements of the Corporation and Conrail and should be
read in conjunction with such historical financial statements and the notes
thereto.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET OF THE CORPORATION
AS OF DECEMBER 31, 1996
UNAUDITED
($ IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
WITH
PRO FORMA CONRAIL
HISTORICAL ADJUSTMENTS INVESTMENT
----------- ------------- -----------
<S> <C> <C> <C>
Assets
Current assets......................................................... $ 1,457 $ $ 1,457
Investments............................................................ 274 6,011(1) 6,285
Property and equipment, net............................................ 9,529 9,529
Other assets........................................................... 156 156
----------- ------ -----------
Total assets......................................................... $ 11,416 $ 6,011 $ 17,427
----------- ------ -----------
----------- ------ -----------
Liabilities and Equity
Current liabilities.................................................... $ 1,190 1,190
Long-term debt......................................................... 1,800 6,011(2) 7,811
Other liabilities...................................................... 1,037 1,037
Deferred income taxes.................................................. 2,412 2,412
----------- ------ -----------
Total liabilities.................................................... $ 6,439 $ 6,011 $ 12,450
Stockholders' equity
Common stock........................................................... 132 132
Additional paid in capital............................................. 462 462
Retained earnings...................................................... 4,404 4,404
Treasury stock......................................................... (21) (21)
----------- ------ -----------
Total stockholders' equity........................................... 4,977 4,977
----------- ------ -----------
$ 11,416 $ 6,011 $ 17,427
----------- ------ -----------
----------- ------ -----------
</TABLE>
See accompanying Notes to Pro Forma Financial Statements.
S-18
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME OF THE CORPORATION
YEAR ENDED DECEMBER 31, 1996
UNAUDITED
($ IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA WITH CONRAIL
HISTORICAL ADJUSTMENTS INVESTMENT(3)
----------- ----------- -------------
<S> <C> <C> <C>
Transportation operating revenues........................................ $ 5,031 $ $ 5,031
Transportation operating expenses........................................ 3,834 3,834
----------- -------------
Income from operations................................................. 1,197 1,197
Other income--net........................................................ 116 122(4) 238
Interest expense on debt................................................. (116) (415)(2) (531)
----------- ----------- -------------
Income before income taxes............................................. 1,197 (293) 904
Provision for income taxes............................................... 427 (154)(5) 273
----------- ----------- -------------
Net income............................................................. $ 770 $ (139) $ 631
----------- ----------- -------------
----------- ----------- -------------
Earnings per share....................................................... $ 6.09 $ 4.99
Average number of shares (in thousands).................................. 126,457 126,457
</TABLE>
See accompanying Notes to Pro Forma Financial Statements.
S-19
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(1) Pursuant to the Agreement, the Corporation will invest approximately $5.9
billion (including $943 million already expended) to acquire control over
various Conrail routes and assets or rights thereto. The acquisition is
expected to be financed with a combination of notes and commercial paper.
The Purchase Price has been preliminarily calculated as follows:
<TABLE>
<CAPTION>
($ IN MILLIONS,
EXCEPT PER SHARE
PRELIMINARY CALCULATION OF PURCHASE PRICE DATA)
- - ----------------------------------------------------------------------------------
<S> <C>
Conrail Shares outstanding December 31, 1996...................................... 89,549
Less: Conrail Shares acquired pursuant to CSX's first tender offer................ (17,775)
Conrail Shares acquired pursuant to the Corporation's first tender offer..... (8,200)
-------
63,574
Joint tender offer price per Conrail Share........................................ $ 115
-------
Cost of Conrail Shares to be acquired pursuant to the Joint Offer............ 7,311
Plus: Cost of Conrail Shares acquired pursuant to CSX's first tender offer........ 1,955
Cost of Conrail Shares acquired pursuant to the Corporation's first tender
offer...................................................................... 943
-------
10,209
The Corporation's allocation...................................................... 58%
-------
5,921
Estimated Transaction fees payable by the Corporation............................. 90
-------
Purchase Price payable by the Corporation.................................... $ 6,011
-------
-------
</TABLE>
(2) Long-term debt has been increased by $6.0 billion to reflect the financing
of the acquisition and the transaction costs. The Pro Forma Statement of
Income reflects the estimated increase in interest expense, at an estimated
6.9% which represents the Corporations best estimate of the weighted average
rates on commercial paper and term notes to be incurred in connection with
the transaction. If interest rates vary by one-eighth of one percent from
that assumed, interest expense would change by $8 million annually.
(3) As described in Note 4 below, pro forma amounts reflected in the Pro Forma
Condensed Consolidated Statement of Income were calculated and presented in
accordance with the equity method of accounting. Excluding the effects of
58% of Conrail's one-time after-tax charge of $83 million related to
voluntary separation programs and after-tax merger-related costs of $10
million, pro forma net income and pro forma earnings per share for 1996
would have been $681 million and $5.39, respectively.
(4) The equity method of accounting will be applied to the Corporation's
investment in Conrail during the pendency of the voting trust in accordance
with APB No. 18, "The Equity Method of Accounting for Investments in Common
Stock." Accordingly, the Pro Forma Statement of Income includes 58% of
Conrail's 1996 historical net income, adjusted for amortization, net of tax,
of the difference between the Corporation's investment in Conrail and
Conrail's underlying equity in net assets. The difference is primarily
attributable to the estimated fair value of property and equipment, net of
the related deferred taxes and includes approximately $200 million in
goodwill. This adjustment is based
S-20
<PAGE>
on preliminary estimates of fair values and will change as additional
information in the form of appraisals, actuarial reports and other
valuations are made.
<TABLE>
<CAPTION>
PRELIMINARY ALLOCATION OF PURCHASE PRICE ($ IN MILLIONS)
- - -----------------------------------------------------------------------------------------
<S> <C>
Net assets of Conrail Inc. at December 31, 1996.......................................... $ 3,107
The Corporation's economic interest...................................................... x 58%
------
$ 1,802
Fair value adjustments, principally property and equipment............................... 6,482
Transaction fees......................................................................... 90
Deferred taxes on fair value adjustments and transaction fees at 39%..................... (2,563)
Goodwill................................................................................. 200
------
Purchase price payable by the Corporation............................................ $ 6,011
------
------
</TABLE>
This allocation is based on preliminary estimates of fair values and it is
likely to change after the agreements are finalized and regulatory approvals
are obtained. An appraisal of the assets is underway and is expected to be
completed by the end of June 1997. To the extent that specific assets and
liabilities are allocated to Conrail entities over which the Corporation
will have a controlling financial interest, the allocation will be
redesignated to follow the method in which the investment is accounted for
subsequent to the approval by the STB. The Corporation intends to amortize
any goodwill resulting from the purchase over a period of 40 years, the
maximum allowable period under generally accepted accounting principles,
which is less than the expected life of the business acquired. The effect of
changes to the final purchase price allocation are not expected to be
material to the results of operations. Whether the excess of the purchase
price over the book value of Conrail's net assets is assigned to physical
assets or goodwill is not expected to have a significant effect on net
income, since railroad assets are typically long-lived and the goodwill is
expected to be amortized over a period of 40 years.
<TABLE>
<CAPTION>
DETAIL OF PRO FORMA ADJUSTMENT #4 ($ IN MILLIONS)
- - -----------------------------------------------------------------------------------------
<S> <C>
Conrail Inc. 1996 net income............................................................. $ 342
The Corporation's economic interest...................................................... x58%
---
$ 198
Estimated additional depreciation........................................................ (115)
Estimated amortization of goodwill (40-year life)........................................ (5)
Estimated amortization of debt origination costs......................................... (2)
Tax benefit on the additional depreciation and amortization at 39%....................... 46
---
Other income -- net pro forma adjustment............................................. $ 122
---
---
</TABLE>
(5) The pro forma income statement includes the tax effect of the additional
interest expense (see Note 2 above) and an additional tax effect related to
equity income.
<TABLE>
<CAPTION>
($ IN MILLIONS)
<S> <C>
Tax benefit from additional interest expense at 39%...................................... $ (162)
Additonal tax effect on equity income.................................................... 8
-----
Provision for income taxes pro forma adjustment...................................... $ (154)
-----
-----
</TABLE>
S-21
<PAGE>
(6) Summarized Consolidated Conrail Financial Information--Because of the
numerous agreements that must be negotiated and completed, it is not
possible to present some or most of the Corporation's investment in Conrail
based on separate assets, liabilities and operations. However, the
Corporation will have a 58% interest in the entity formed to acquire Conrail
Shares. It is expected that in some form, yet to be determined, the
Corporation will have a primary operating interest in the routes and
facilities as described more fully in "Recent Developments". The following
historical Conrail financial information, as of and for the year ended
December 31, 1996, is presented to facilitate the estimation of the
Corporation's ultimate economic interest in Conrail:
CONRAIL INC.
<TABLE>
<CAPTION>
Summarized Consolidated Statement of Income
($ in millions)
<S> <C>
Year Ended
December 31, 1996
Revenues........................................................ $ 3,714
Operating expenses.............................................. 3,113*
------
Income from operations...................................... 601
Interest expense................................................ (182)
Other income - net.............................................. 112
------
Income before income taxes.................................. 531
Income taxes.................................................... 189
------
Net income.................................................. $ 342
------
------
</TABLE>
* Operating expenses include a $135 million charge for voluntary separation
programs.
CONRAIL INC.
<TABLE>
<CAPTION>
Summarized Consolidated Balance Sheet
($ in millions)
<S> <C>
As of
December 31, 1996
ASSETS:
Current assets................................................ $ 1,117
Property and equipment........................................ 6,590
Other assets.................................................. 695
------
Total assets................................................ $ 8,402
------
------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities........................................... $ 1,092
Long-term debt................................................ 1,876
Other long-term liabilities................................... 2,327
------
Total liabilities........................................... 5,295
Stockholders' equity.......................................... 3,107
------
Total liabilities and stockholders' equity.................. $ 8,402
------
------
</TABLE>
S-22
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The 2000 Notes, the 2001 Notes, the 2002 Notes, the 2007 Notes, the 2017
Notes, the 2027 Notes, the 2037 Notes and the 2097 Notes will be issued as
separate series of Senior Debt Securities under a supplement to an Indenture,
dated as of January 15, 1991, as amended or supplemented from time to time (the
"Senior Indenture"), between the Corporation and First Trust of New York,
National Association, as successor trustee. The provisions of the Senior
Indenture are more fully described under "Description of Debt Securities" in the
accompanying Prospectus, to which reference is hereby made. Capitalized terms
not otherwise defined herein shall have the meanings given to them in the
accompanying Prospectus and the Senior Indenture. As of the date of this
Prospectus Supplement, $700 million aggregate principal amount of Senior Debt
Securities has been issued under the Senior Indenture, all of which remains
outstanding.
The 2000 Notes will be limited to $400 million in aggregate principal
amount, the 2001 Notes will be limited to $200 million in aggregate principal
amount, the 2002 Notes will be limited to $500 million in aggregate principal
amount, the 2007 Notes will be limited to $750 million in aggregate principal
amount, the 2017 Notes will be limited to $550 million in aggregate principal
amount, the 2027 Notes will be limited to $800 million in aggregate principal
amount, the 2037 Notes will be limited to $750 million in aggregate principal
amount and the 2097 Notes will be limited to $350 million in aggregate principal
amount. The Notes are unsecured obligations of the Corporation and rank equally
with all other unsecured and unsubordinated indebtedness of the Corporation.
Reference is made to the accompanying Prospectus for a more detailed summary of
additional provisions of the Notes. The 2000 Notes, the 2001 Notes, the 2002
Notes and the 2037 Notes will bear interest at the rate per annum set forth on
the cover of this Prospectus Supplement, in each case from May 19, 1997, or from
the most recent Interest Payment Date to which interest has been paid or duly
provided for, payable semi-annually in arrears on May 1 and November 1 of each
year, commencing November 1, 1997, to the persons in whose names such Notes are
registered at the close of business on April 15 or October 15, as the case may
be, next preceding such Interest Payment Date. The 2007 Notes, the 2017 Notes,
the 2027 Notes and the 2097 Notes will bear interest at the rate per annum set
forth on the cover of this Prospectus Supplement, in each case from May 19,
1997, or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, payable semi-annually in arrears on May 15 and
November 15 of each year, commencing November 15, 1997, to the persons in whose
names such Notes are registered at the close of business on May 1 or November 1,
as the case may be, next preceding such Interest Payment Date. The Notes will be
issued in registered form in denominations of $1,000 and integral multiples
thereof. Interest will be calculated on the basis of a 360-day year of twelve
30-day months. If any Interest Payment Date or a Maturity Date falls on a day
that is not a Business Day, the required payment shall be made on the next
Business Day as if it were made on the date such payment was due, and no
interest shall accrue on the amount so payable for the period from and after
such Interest Payment Date or such Maturity Date, as the case may be. "Business
Day" means any day, other than a Saturday or Sunday, on which banking
institutions in the City of New York are open for business.
The Notes are not subject to any sinking fund. The 2000 Notes will mature on
May 1, 2000. The 2001 Notes will mature on May 1, 2001. The 2002 Notes will
mature on May 1, 2002. The 2007 Notes will mature on May 15, 2007. The 2017
Notes will mature on May 15, 2017. The 2027 Notes will mature on May 15, 2027.
The 2037 Notes will mature on May 1, 2037. The 2097 Notes will mature on May 15,
2097. The 2000 Notes, the 2001 Notes, the 2002 Notes and the 2007 Notes are not
redeemable prior to maturity.
OPTIONAL REDEMPTION OF 2017, 2027, 2037 AND 2097 NOTES
The 2017 Notes, 2027 Notes and 2097 Notes will be redeemable in whole or in
part, at the option of the Corporation, upon not less than 30 nor more than 60
days prior written notice, at any time, at a redemption price equal to the
greater of (i) 100% of their principal amount or (ii) the sum of the present
S-23
<PAGE>
values of the remaining scheduled payments of principal and interest thereon
discounted, on a semi-annual basis, at the Treasury Yield plus 20 basis points,
together with accrued interest to the date of redemption; provided, however,
that interest installments due on an Interest Payment Date which is on or prior
to the date of redemption will be payable to holders who are holders of record
of such 2017 Notes, 2027 Notes or 2097 Notes, as the case may be (or one or more
predecessor 2017 Notes, 2027 Notes or 2097 Notes, as the case may be) as of the
close of business on the Regular Record Date preceding such Interest Payment
Date. After May 1, 2004, the 2037 Notes shall be redeemable at any time at the
option of the Corporation in the same manner as the 2017 Notes, 2027 Notes and
2097 Notes.
"Treasury Yield" means, with respect to any redemption date, the rate per
annum equal to the semi-annual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price of the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Independent Investment Banker as having a maturity most
comparable to the remaining term of the 2017 Notes, the 2027 Notes, the 2037
Notes or the 2097 Notes, as the case may be, that would be utilized, at the time
of selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining term
of the 2017 Notes, the 2027 Notes, the 2037 Notes or the 2097 Notes as the case
may be.
"Independent Investment Banker" means J.P. Morgan Securities Inc. or Merrill
Lynch, Pierce, Fenner & Smith Incorporated or, if either such firm is unwilling
or unable to select the Comparable Treasury Issue, an independent investment
banking institution of national standing in the United States appointed by the
Senior Trustee after consultation with the Corporation.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for US
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such business day, the average of
the Reference Treasury Dealer Quotations for such redemption date. "Reference
Treasury Dealer Quotations" means, with respect to each Reference Treasury
Dealer and any redemption date, the average, as determined by the Trustee, of
the bid and asked prices for the Comparable Treasury Issue (expressed in each
case as a percentage of its principal amount) quoted in writing to the Trustee
by such Reference Treasury Dealer at 5:00 p.m., New York, New York time, on the
third business day preceding such redemption date.
"Reference Treasury Dealer" means each of J.P. Morgan Securities Inc. and
Merrill Lynch Government Securities Inc. and their respective successors;
PROVIDED, HOWEVER, that if one of the foregoing ceases to be a primary U.S.
Government securities dealer in New York, New York (a "Primary Treasury Dealer")
or otherwise fails to provide a Reference Treasury Dealer Quotation, the
Corporation will substitute therefor another Primary Treasury Dealer.
REDEMPTION AT THE OPTION OF HOLDERS OF 2037 NOTES ON MAY 1, 2004
On May 1, 2004, or if such date is not a business day, then the next
succeeding business day (the "Redemption Date"), each holder of 2037 Notes (a
"Holder") will have the right (the "Redemption Right") to require the
Corporation to redeem all or any part (equal to $1,000 or an integral multiple
thereof) of such Holder's 2037 Notes for cash at a purchase price equal to 100%
of the aggregate principal amount thereof plus accrued and unpaid interest
thereon to the Redemption Date.
On or prior to February 15, 2004, the Corporation will mail a notice to each
Holder stating that (a) in order for a Holder to exercise the Redemption Right,
the Holder must surrender the 2037 Notes in respect
S-24
<PAGE>
of which the Redemption Rights is being exercised, together with the form
entitled "Option of Holder to Elect Redemption on May 1, 2004" on the reverse of
the 2037 Notes, duly completed, or transfer such 2037 Notes by book-entry, to
the Trustee during the period from March 1, 2004 and prior to 5:00 p.m., New
York, New York time on April 1, 2004 (or if such date is not a business day,
then the next succeeding business day), (b) any election on the part of a Holder
to exercise the Redemption Right effected in accordance with the foregoing shall
be irrevocable on the part of the Holder and may not be withdrawn, (c) Holders
whose 2037 Notes are being redeemed only in part will be issued new 2037 Notes
equal in principal amount to the unredeemed portion of the 2037 Notes
surrendered, which unredeemed portion must be equal to $1,000 in principal
amount or an integral multiple thereof, and (d) unless the Corporation defaults
in the payment of principal and accrued interest on the 2037 Notes to be
redeemed on the Redemption Date, interest on such 2037 Notes will cease to
accrue on the Redemption Date. The Corporation will comply with the requirements
of Rule 14e-1 under the Securities Exchange Act of 1934, as amended, and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable to the redemption of the 2037 Notes pursuant to the
Redemption Right.
On the Redemption Date, the Corporation will, to the extent lawful, deposit
with the Trustee an amount sufficient to redeem all 2037 Notes or portions
thereof being redeemed (together with accrued interest). Failure by the
Corporation to redeem the 2037 Notes on the Redemption Date will result in an
Event of Default under the Senior Indenture.
Because the 2037 Notes will be represented by Global Notes (as defined
below), a Holder must exercise the Redemption Right through the Depositary's
nominee. In order to ensure that the Depositary's nominee will exercise in a
timely manner the Redemption Right with respect to a particular 2037 Note, the
beneficial owner of an interest therein must instruct the broker or other direct
or indirect participant through which it holds an interest in such 2037 Note to
notify the Depositary of its desire to exercise the Redemption Right. Different
firms have different cut-off times for accepting instructions from their
customers and, accordingly, each such beneficial owner should consult the broker
or other direct or indirect participant through which it holds an interest in a
Global Note in order to ascertain the cut-off time by which such an instruction
must be given in order for timely notice to be delivered to the Depositary.
All questions regarding the validity, form, eligibility (including time of
receipt) and acceptance of any 2037 Note for redemption will be determined by
the Corporation, whose determination will be final and binding.
CONDITIONAL RIGHT TO SHORTEN MATURITY
The Corporation intends to deduct interest paid on the 2097 Notes for United
States federal income tax purposes. The Clinton Administration's budget proposal
for Fiscal Year 1998, however, which was released on February 6, 1997, contains
a series of proposed tax law changes that, if enacted, would prohibit an issuer
from deducting interest payments on debt instruments that have a maturity of
more than 40 years, such as the 2097 Notes described herein. The
Administration's proposal specifies that the changes would be effective for debt
instruments issued on or after the date of first Congressional committee action.
There can be no assurance that legislation affecting the Corporation's ability
to deduct interest paid on the 2097 Notes will not be enacted in the future or
that any such legislation would not be effective retroactively.
Upon the occurrence of a Tax Event (as defined below), the Corporation will
have the right, without the consent of the holders of the 2097 Notes, to shorten
the maturity of the 2097 Notes to the minimum extent required, in the opinion of
nationally recognized independent tax counsel, such that, after the shortening
of the maturity, interest paid on the 2097 Notes will be deductible for United
States federal income tax purposes or, if such counsel is unable to opine
definitively as to such minimum period, the minimum extent so required as
determined in good faith by the Board of Directors of the Corporation,
S-25
<PAGE>
after receipt of an opinion of such counsel regarding the applicable legal
standards. There can be no assurance that the Corporation would not exercise its
right to shorten the maturity of the 2097 Notes upon the occurrence of such a
Tax Event and no assurance as to the period by which such maturity would be
shortened. In the event that the Corporation elects to exercise its right to
shorten the maturity of the 2097 Notes upon the occurrence of a Tax Event, the
Corporation will mail a notice of shortened maturity to each holder of the 2097
Notes by first-class mail not more than 60 days after the occurrence of such Tax
Event, stating the new maturity date of the 2097 Notes. Such notice shall be
effective immediately upon mailing.
The Corporation believes that the 2097 Notes should constitute indebtedness
for United States federal income tax purposes under current law and, in that
case, an exercise of its right to shorten the maturity of the 2097 Notes would
not be a taxable event to holders for such purposes. Prospective investors
should be aware, however, that the Corporation's exercise of its right to
shorten the maturity of the 2097 Notes would be a taxable event to holders for
United States federal income tax purposes if the 2097 Notes are treated as
equity for such purposes before the maturity is shortened and the 2097 Notes of
shortened maturity are treated as debt for such purposes.
"Tax Event" means that the Corporation shall have received an opinion of
nationally recognized independent tax counsel to the effect that, as a result of
(a) any amendment to, clarification of, or change (including any announced
prospective amendment, clarification or change) in any law, or any regulation
thereunder, of the United States, (b) any judicial decision, official
administrative pronouncement, ruling, regulatory procedure or regulation,
including any notice or announcement of intent to adopt or promulgate any
ruling, regulatory procedure or regulation (any of the foregoing, an
"Administrative or Judicial Action"), or (c) any amendment to, clarification of,
or change in any official position with respect to, or any interpretation of, an
Administrative or Judicial Action or a law or regulation of the United States
that differs from the theretofore generally accepted position or interpretation,
in each case, occurring on or after May 19, 1997, there is more than an
insubstantial increase in the risk that interest paid by the Corporation on the
2097 Notes is not, or will not be, deductible, in whole or in part, by the
Corporation for United States federal income tax purposes.
COVENANTS
The Senior Indenture will be supplemented to contain the covenants
summarized below, which will be applicable (unless waived or amended) so long as
any of the Notes offered hereby are outstanding.
LIMITATION ON LIENS ON STOCK OR INDEBTEDNESS OF PRINCIPAL SUBSIDIARIES. The
Senior Indenture provides that the Corporation will not, nor will it permit any
Subsidiary to, create, assume, incur or suffer to exist any mortgage, pledge,
lien, encumbrance, charge or security interest of any kind, other than a
Purchase Money Lien, upon any stock or indebtedness, whether owned on the date
any Notes are first issued or thereafter acquired, of any Principal Subsidiary,
to secure any Obligation (other than the Notes) of the Corporation, any
Subsidiary or any other person, without in any such case making effective
provision whereby all of the outstanding Notes shall be directly secured equally
and ratably with such Obligation. This restriction does not apply to any
mortgage, pledge, lien, encumbrance, charge or security interest on any stock or
indebtedness of a corporation existing at the time such corporation becomes a
Subsidiary. This provision does not restrict any other property of the
Corporation or its Subsidiaries. "Obligation" is defined as indebtedness for
money borrowed or indebtedness evidenced by a bond, note, debenture or other
evidence of indebtedness. "Purchase Money Lien" is defined as any mortgage,
pledge, lien, encumbrance, charge or security interest of any kind upon any
stock or indebtedness of any Principal Subsidiary acquired after the date any
Notes are first issued if such Purchase Money Lien is for the purpose of
financing, and does not exceed, the cost to the Corporation or any Subsidiary of
acquiring the indebtedness of such Principal Subsidiary and such financing is
effected concurrently with, or within 180 days after, the date of such
acquisition. "Principal Subsidiary" is defined as NS Railway and NAVL.
"Subsidiary" is defined as an entity a majority of the outstanding voting stock
of which is owned, directly or indirectly, by the Corporation or one or more
Subsidiaries, but does not include Conrail. The Senior
S-26
<PAGE>
Indenture does not prohibit the sale by the Corporation or any Subsidiary of any
stock or indebtedness of any Subsidiary.
LIMITATIONS ON FUNDED DEBT. The Senior Indenture provides that the
Corporation will not permit any Restricted Subsidiary to incur, issue, guarantee
or create any Funded Debt unless, after giving effect thereto, the sum of the
aggregate amount of all outstanding Funded Debt of the Restricted Subsidiaries
would not exceed an amount equal to 15% of Consolidated Net Tangible Assets.
The limitation on Funded Debt will not apply to , and there will be excluded
from Funded Debt in any computation under such restriction, Funded Debt secured
by: (i) Liens on real or physical property of any corporation existing at the
time such corporation becomes a Subsidiary; (ii) Liens on real or physical
property existing at the time of acquisition thereof incurred within 180 days of
the time of acquisition thereof (including, without limitation, acquisition
through merger or consolidation) by the Corporation or any Restricted
Subsidiary; (iii) Liens on real or physical property thereafter acquired (or
constructed) by the Corporation or any Restricted Subsidiary and created prior
to, at the time of, or within 270 days after such acquisition (including,
without limitation, acquisition through merger or consolidation) (or the
completion of such construction or commencement of commercial operation of such
property, whichever is later) to secure or provide for the payment of all or any
part of the purchase price (or the construction price) thereof; (iv) Liens in
favor of the Corporation or any Restricted Subsidiary; (v) Liens in favor of the
United States of America, any State thereof or the District of Columbia, or any
agency, department or other instrumentality thereof, to secure partial,
progress, advance or other payments pursuant to any contract or provisions of
any statute, (vi) Liens incurred or assumed in connection with the issuance of
revenue bonds the interest on which is exempt from Federal Income taxation
pursuant to Section 103(b) of the Internal Revenue Code of 1954, as amended;
(vii) Liens securing the performance of any contract or undertaking not directly
or indirectly in connection with the borrowing of money, the obtaining of
advances or credit or the securing of Funded Debt, if made and continuing in the
ordinary course of business; (viii) Liens incurred (no matter when created) in
connection with the Corporation's or a Restricted Subsidiary's engaging in
leveraged or single-investor lease transaction; provided, however, that the
instrument creating or evidencing any borrowings secured by such Lien will
provide that such borrowings are payable solely out of the income and proceeds
of the property subject to such Lien and are not a general obligation of the
Corporation or such Restricted Subsidiary; (ix) Liens under workers'
compensation laws, unemployment insurance laws or similar legislation, or good
faith deposits in connection with bids, tenders, contracts or deposits to secure
public or statutory obligations of the Corporation or any Restricted Subsidiary,
or deposits of cash or obligations of the United States of America to secure
surety, repletion and appeal bonds to which the Corporation or any Restricted
Subsidiary is a party or in lieu of such bonds, or pledges or deposits for
similar purposes in the ordinary course of business, or Liens imposed by law,
such as laborers' or other employees', carriers', warehousemen's, mechanics',
materialmen's and vendors' Liens and Liens arising out of judgments or awards
against the Corporation or any Restricted Subsidiary with respect to which the
Corporation or such Restricted Subsidiary at the time shall be prosecuting an
appeal or proceedings for review and with respect to which it shall have secured
a stay of execution pending such appeal or proceedings for review, or Liens for
taxes not yet subject to penalties for nonpayment or the amount or validity of
which is being in good faith contested by appropriate proceedings by the
Corporation or any Restricted Subsidiary, as the case may be, or minor survey
exceptions, minor encumbrances, easement or reservations of , or rights of
others for, rights of-way, sewers, electric lines, telegraph and telephone lines
and other similar purposes, or zoning or other restrictions or Liens as the use
of real properties, which Liens, exceptions, encumbrances easements,
reservations, rights and restrictions do not, in the opinion of the Corporation,
in the aggregate materially detract from he value of said properties or material
impair their use in the operation of the business of the Corporation and its
Restricted Subsidiaries; (x) Liens incurred to finance construction, alteration
or repair of any real or physical property and improvements thereto prior to or
within 270 days after completion of such construction, alteration or repair;
(xi) Liens incurred (no matter when created) in connection with a Securitization
Transaction; (xii) Liens on property (or any Receivable arising in connection
with the lease
S-27
<PAGE>
thereof) acquired by the Corporation or a Restricted Subsidiary through
repossession, foreclosure or liens proceeding and existing at the time of the
repossession, foreclosure, or like proceeding; (xiii) Liens on deposits of the
Corporation or a Restricted Security with banks (in the aggregate, not exceeding
$50 million), in accordance with customary banking practice. In connection with
the providing by the Corporation or a Restricted Subsidiary of financial
accommodations to any Person in the ordinary course of business; or (xiv) any
extension, renewal, refunding or replacement of the foregoing.
The following definitions apply only to the foregoing limitations on Funded
Debt.
"Consolidated Net Tangible Assets" means, at any date, the total assets
appearing on the most recent consolidated balance sheet of the Corporation and
Restricted Subsidiaries as at the end of the fiscal quarter of the Corporation
ending not more than 135 days prior to such date, prepared in accordance with
generally accepted accounting principles, less (i) all current liabilities (due
within one year) as shown on such balance sheet, (ii) applicable reserves, (iii)
investments in and advances to Securitization Subsidiaries and Subsidiaries of
Securitization Subsidiaries that are consolidated on the consolidated balance
sheet of the Corporation and its Subsidiaries, and (iv) Intangible Assets and
liabilities relating thereto.
"Funded Debt" means (i) any indebtedness of a Restricted Subsidiary maturing
more than 12 months after the time of computation thereof, (ii) guarantees by a
Restricted Subsidiary of Funded Debt or of dividends of others (except
guarantees in connection with the sale or discount of accounts receivable, trade
acceptances and other paper arising in the ordinary course of business), (iii)
all preferred stock of such Restricted Subsidiary, and (iv) all Capital Lease
Obligations (as defined in the Senior Indenture) of a Restricted Subsidiary.
"Indebtedness" means, at any date, without duplication, (i) all obligations
for borrowed money of a Restricted Subsidiary or any other indebtedness of a
Restricted Subsidiary, evidenced by bonds, debentures, notes or other similar
instruments, and (ii) Funded Debt, except such obligations and other
indebtedness of a Restricted Subsidiary and Funded Debt, if any, incurred as a
part of a Securitization Transaction.
"Intangible Assets" means at any date, the value (net of any applicable
reserves) as shown on or reflected in the most recent consolidated balance sheet
of the Corporation and the Restricted Subsidiaries as at the end of the fiscal
quarter of the Corporation ending not more than 135 days prior to such date,
prepared in accordance with generally accepted accounting principles, of: (i)
all trade names, trademarks, licenses, patents, copyrights, service marks,
goodwill and other like intangibles; (ii) organizational and development costs;
(iii) deferred charges (other than prepaid items, such as insurance, taxes,
interest, commissions, rents, deferred interest waiver, compensation and similar
items and tangible assets being amortized); and (iv) unamortized debt discount
and expense, less unamortized premium.
"Liens" means such pledges, mortgages, security interests and other liens,
including purchase money liens, on property of the Corporation or any Restricted
Subsidiary which secure Funded Debt.
"Receivables" mean any right of payment from or on behalf of any obligor,
whether constituting an account, chattel paper, instrument, general intangible
or otherwise, arising, either directly or indirectly, from the financing by the
Corporation or any Subsidiary of the Corporation of property or services, monies
due thereunder, security interests in the property and services financed thereby
and any and all other related rights.
"Restricted Subsidiary" means each Subsidiary of the Corporation other than
Securitization Subsidiaries and Subsidiaries of Securitization Subsidiaries.
"Securitization Subsidiary" means a Subsidiary of the Corporation (i) which
is formed for the purpose of effecting one or more Securitization Transactions
and engaging in other activities reasonably related thereto and (ii) as to which
no portion of the Indebtedness (as defined in the Senior Indenture) or any other
obligations of which (a) is guaranteed by any Restricted Subsidiary, or (b)
subjects any property or
S-28
<PAGE>
assets of any Restricted Subsidiary, directly or indirectly, contingently or
otherwise, to any lien, other than pursuant to representations, warranties and
covenants (including those related to servicing) entered into in the ordinary
course of business in connection with a Securitization Transaction and
intercompany notes and other forms of capital or credit support relating to the
transfer or sale of Receivables or asset-backed securities to such
Securitization Subsidiary and customarily necessary or desirable in connection
with such transactions.
"Securitization Transaction" means any transaction or series of transactions
that have been or may be entered into by the Corporation or any of its
Subsidiaries in connection with or reasonably related to a transaction or series
of transactions in which the Corporation or any of its Subsidiaries may sell,
convey or otherwise transfer to (i) a Securitization Subsidiary or (ii) any
other Person, or may grant a security interest in, any Receivables or
asset-backed securities or interest therein (whether such Receivables or
securities are then existing or arising in the future) of the Corporation or any
of its Subsidiaries, and any assets related thereto, including, without
limitation, all security interests in the property or services financed thereby,
the proceeds of such Receivables or asset-backed securities and any other assets
which are sold in respect of which security interests are granted in connection
with securitization transactions involving such assets.
BOOK-ENTRY SYSTEM
The following are summaries of certain rules and operating procedures of DTC
that affect the payment of principal and interest and transfers of interests in
the Global Notes. Upon issuance, each series of Notes will only be issued in the
form of a Global Note which will be deposited with, or on behalf of, DTC and
registered in the name of Cede & Co., as nominee of DTC. Unless and until it is
exchanged in whole or in part for Notes in definitive form under the limited
circumstances described below, a Global Note may not be transferred except as a
whole (i) by DTC to a nominee, (ii) by a nominee of DTC to DTC or another
nominee of DTC or (iii) by DTC or any such nominee to a successor of DTC or a
nominee of such successor.
Ownership of beneficial interests in a Global Note will be limited to
persons that have accounts with DTC for such Global Note ("participants") or
persons that may hold interests through Participants. Upon the issuance of a
Global Note, DTC will credit, on its book- entry registration and transfer
system, the participants' accounts with the respective principal amounts of the
Notes represented by such Global Note beneficially owned by such participants.
Ownership of beneficial interests in the Global Notes will be shown on, and the
transfer of such ownership interests will be effected only through, records
maintained by DTC (with respect to interests of participants) and on the records
of participants (with respect to interests of persons holding through
participants). The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may limit or impair the ability to own, transfer or pledge beneficial
interests in the Global Notes.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or its nominee, as the case may be, will be considered the sole owner or Holder
of the Notes represented by such Global Note for all purposes under the
Indenture. Except as set forth below, owners of beneficial interests in a Global
Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of such Notes in certificated form and will not be considered the
registered owners or Holders thereof under the Indenture. Accordingly, each
person owning a beneficial interest in a Global Note must rely on the procedures
of DTC and, if such person is not a participant, on the procedures of the
participant through which such person owns its interest, to exercise any rights
of a Holder under the Indenture. The Corporation understands that under existing
industry practices, if the Corporation requests any action of Holders or if an
owner of a beneficial interest in a Global Note desires to give or take any
action that a Holder is entitled to give or take under the Indenture, DTC would
authorize the participants holding the relevant beneficial interests to give or
take such action,
S-29
<PAGE>
and such participants would authorize beneficial owners owning through such
participants to give or take such action or would otherwise act upon the
instructions of beneficial owners holding through them.
Principal and interest payments on interests represented by a Global Note
will be made to DTC or its nominee, as the case may be, as the registered owner
of such Global Note. None of the Corporation, the Trustee or any other agent of
the Corporation or agent of the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership of interests in the Global Notes or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests. The Corporation expects that DTC, upon receipt of any payment of
principal or interest in respect of a Global Note, will immediately credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in such Global Note as shown on the records of
DTC. The Corporation also expects that payments by participants to owners of
beneficial interests in the Global Notes held through such participants will be
governed by standing customer instructions and customary practice, as is now the
case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such
participants.
If DTC is at any time unwilling or unable to continue as depository for the
Notes and the Corporation fails to appoint a successor depository registered as
a clearing agency under the Exchange Act within 90 days, the Corporation will
issue the Notes in definitive form in exchange for the respective Global Notes.
Any Notes issued in definitive form in exchange for the Global Notes will be
registered in such name or names, and will be issued in denominations of $1,000
and such integral multiples thereof, as DTC shall instruct the Trustee. It is
expected that such instructions will be based upon directions received by DTC
from participants with respect to ownership of beneficial interests in the
Global Notes.
DTC is a limited-purpose trust company organized under the Banking Law of
the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold the securities of its participants and to
facilitate the clearance and settlement of transactions among its participants
in such securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC's participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations, some of
which (and/or their representatives) own DTC. Access to the DTC book-entry
system is also available to others, such as banks, brokers and dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters (as defined
herein) in immediately available funds. All payments of principal and interest
in respect of the Notes will be made by the Corporation in immediately available
funds.
The Notes will trade in DTC's Same-Day Funds Settlement System until
maturity and secondary market trading activity in the Notes will settle in
immediately available funds. No assurance can be given as to the effect, if any,
of settlement in immediately available funds on trading activity in the Notes.
S-30
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in an Underwriting Agreement,
dated May 14, 1997 (the "Underwriting Agreement"), the Corporation has agreed to
sell to Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
J.P. Morgan Securities Inc. ("J.P. Morgan"), PaineWebber Incorporated
("PaineWebber") and Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"),
and the additional underwriters, if any, named in the Underwriting Agreement
(collectively, the "Underwriters"), and the Underwriters have severally agreed
to purchase, the respective principal amount of Notes set forth opposite their
names below. The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, and that the
Underwriters will be obligated to purchase all of the Notes if any are
purchased.
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
2000 2001 2002 2007 2017 2027 2037
UNDERWRITERS NOTES NOTES NOTES NOTES NOTES NOTES NOTES
- - ------------------------------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Merrill Lynch, Pierce, Fenner
& Smith Incorporated........ $152,000,000 $76,000,000 $190,000,000 $285,000,000 $209,000,000 $304,000,000 $285,000,000
J.P. Morgan Securities
Inc. ....................... 152,000,000 76,000,000 190,000,000 285,000,000 209,000,000 304,000,000 285,000,000
PaineWebber Incorporated...... 64,000,000 32,000,000 80,000,000 120,000,000 88,000,000 128,000,000 120,000,000
Donaldson, Lufkin & Jenrette
Securities Corporation...... 32,000,000 16,000,000 40,000,000 60,000,000 44,000,000 64,000,000 60,000,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total....................... $400,000,000 $200,000,000 $500,000,000 $750,000,000 $550,000,000 $800,000,000 $750,000,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
PRINCIPAL
AMOUNT OF
2097
UNDERWRITERS NOTES
- - ------------------------------ -----------
<S> <C>
Merrill Lynch, Pierce, Fenner
& Smith Incorporated........ $133,000,000
J.P. Morgan Securities
Inc. ....................... 133,000,000
PaineWebber Incorporated...... 56,000,000
Donaldson, Lufkin & Jenrette
Securities Corporation...... 28,000,000
-----------
Total....................... $350,000,000
-----------
-----------
</TABLE>
The Underwriters have advised the Corporation that they propose initially to
offer the Notes to the public at the public offering prices set forth on the
cover page of this Prospectus Supplement, and to certain dealers at such price
less a concession not in excess of .20% of the principal amount of the 2000
Notes, .25% of the principal amount of the 2001 Notes, .35% of the principal
amount of the 2002 Notes, .40% of the principal amount of the 2007 Notes, .50%
of the principal amount of the 2017 Notes, .50% of the principal amount of the
2027 Notes, .375% of the principal amount of the 2037 Notes and .675% of the
principal amount of the 2097 Notes. The Underwriters may allow, and such dealers
may reallow, a discount not in excess of .10% of the principal amount of the
2000 Notes, .125% of the principal amount of the 2001 Notes, .15% of the
principal amount of the 2002 Notes, .25% of the principal amount of the 2007
Notes, .25% of the principal amount of the 2017 Notes, .25% of the principal
amount of the 2027 Notes, .20% of the principal amount of the 2037 Notes and
.375% of the principal amount of the 2097 Notes to other brokers and dealers.
After the initial public offering, the public offering price, concession and
discount may be changed.
In the Underwriting Agreement, the Corporation has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the
Underwriters may be required to make in respect thereof. Each series of Notes is
a new issue of securities with no established trading market. The Corporation
does not intend to apply for listing of any series of the Notes on any national
securities exchange. The Corporation has been advised by the Underwriters that
the Underwriters intend to make a market in the Notes. However, the Underwriters
are not obligated to do so and may discontinue market-making at any time without
notice. No assurance can be given as to the liquidity of the trading market for
the Notes.
In connection with the offerings of the Notes, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Underwriters may overallot in connection with the
offerings of the Notes, creating a syndicate short position. In addition, the
Underwriters may bid for, and purchase, Notes in the open market to cover
syndicate shorts or to stabilize the price of the Notes. Finally, the
underwriting syndicate may reclaim selling concessions allowed for distributing
the Notes in the offerings of the Notes, if the syndicate repurchases previously
distributed Notes in syndicate covering transactions, stabilization transactions
or otherwise. Any of these activities may stabilize or maintain the market price
of the Notes above independent market levels. The Underwriters are not required
to engage in any of these activities, and may end any of them at any time.
S-31
<PAGE>
Each of Merrill Lynch, J.P. Morgan, PaineWebber and DLJ and/or their
affiliates from time to time provides commercial banking and/or investment
banking and financial advisory services to the Corporation. Both Merrill Lynch
and J.P. Morgan are acting as financial advisors to the Corporation with respect
to the acquisition of Conrail and as Dealer Managers with respect to the Joint
Offer.
LEGAL MATTERS
The validity of the Notes will be passed upon for the Corporation by William
A. Noell, Jr., Esq., Corporate Counsel for the Corporation, Norfolk, Virginia
(or by such other senior corporate counsel as may be designated by the
Corporation). Mr. Noell, in his capacity as Corporate Counsel for the
Corporation, is a participant in various employee benefit and incentive plans,
including stock option plans, offered to employees of the Corporation. Certain
legal matters relating to the offering of the Notes will be passed upon for the
Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
Skadden, Arps, Slate, Meagher & Flom LLP will rely as to certain matters of
Virginia law on the opinion of William A. Noell, Jr., Esq., Corporate Counsel
for the Corporation (or such other senior corporate counsel as may be designated
by the Corporation) . Skadden, Arps, Slate, Meagher & Flom LLP has from time to
time provided legal advice and services to the Corporation. Skadden, Arps,
Slate, Meagher & Flom LLP is acting as legal advisor to the Corporation with
respect to the acquisition of Conrail.
S-32
<PAGE>
PROSPECTUS
[LOGO]
U.S. $4,300,000,000
NORFOLK SOUTHERN CORPORATION
DEBT SECURITIES, PREFERRED STOCK, DEPOSITARY SHARES
AND COMMON STOCK
--------------
Norfolk Southern Corporation (the "Corporation") directly, through agents
designated from time to time or through dealers or underwriters also to be
designated, may offer and issue from time to time (i) debt securities (the "Debt
Securities"), which may be either senior debt securities (the "Senior Debt
Securities") or subordinated debt securities (the "Subordinated Debt
Securities"), in one or more series; (ii) Preferred Stock, without par value
(the "Preferred Stock"), in one or more series, which may be issued in the form
of depositary shares (the "Depositary Shares") evidenced by depositary receipts
and (iii) Common Stock, par value $1.00 per share (the "Common Stock"), on terms
to be determined at the time of sale. The Common Stock is listed on the New York
Stock Exchange under the symbol "NSC." The Debt Securities, the Preferred Stock,
the Depositary Shares and the Common Stock are hereinafter collectively referred
to as the "Securities." The Securities that may be offered pursuant to this
Prospectus will be limited to an aggregate initial public offering price of up
to $4,300,000,000 or the equivalent thereof in one or more foreign currencies,
currency units or composite currencies.
The accompanying Prospectus Supplement will set forth specific terms of the
Securities, including (i) in the case of Debt Securities, specific designation
and denomination (which may be in United States dollars, or in any other
currency or currencies, currency unit or units or composite currency or
currencies), aggregate principal amount, rank, maturity, interest rate (or the
manner of calculation thereof), if any, and time of payment of interest,
purchase price, any terms for redemption, sinking funds, conversion or exchange
and any other specific terms of the Debt Securities; (ii) in the case of a
particular series of Preferred Stock, specific designation, aggregate number of
shares offered, dividend rate (or manner of calculation thereof), dividend
periods (or manner of calculation thereof), liquidation preference, voting
rights, any terms for redemption, whether and on what terms the shares of such
series may be converted into Common Stock at the option of the holder, whether
Depositary Shares representing shares of such series of Preferred Stock will be
offered and, if so, the fraction of a share of Preferred Stock represented by
each depositary share, listing, if any, on a securities exchange and any other
specific terms of such series of Preferred Stock; and (iii) in the case of
Common Stock, the number of shares offered and the purchase price therefor.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-------------------
If an agent of the Corporation or a dealer or underwriter is involved in the
sale of the Securities in respect of which this Prospectus is being delivered,
that agent's commission, dealer's purchase price or underwriter's discount is
set forth in, or may be calculated from, the accompanying Prospectus Supplement,
and the net proceeds to the Corporation from such sale will be the purchase
price of such Securities less such commission in the case of an agent, the
purchase price of such securities in the case of a dealer or the public offering
price less such discount in the case of an underwriter, and less, in each case,
the other related issuance expenses. The Corporation reserves the sole right to
accept and, together with its agents from time to time, to reject, in whole or
in part, any proposed purchase of Securities to be made directly or through
agents. Any underwriters, dealers or agents participating in an offering may be
deemed "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Act"). See "Plan of Distribution" for possible indemnification
arrangements for any agents, dealers or underwriters.
-------------------
The date of this Prospectus is May 14, 1997.
<PAGE>
AVAILABLE INFORMATION
The Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Corporation can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549; Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661; and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material can be obtained by mail
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed fees. The Commission also maintains a
website that contains reports, proxy and information statements and other
information. The website address is http://www.sec.gov. Reports, proxy
statements and other information concerning the Corporation also may be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005, where the Corporation's Common Stock is listed.
The Corporation has filed with the Commission a registration statement on
Form S-3 under the Act which relates to the Securities (the "Registration
Statement"). As permitted by the rules and regulations promulgated by the
Commission, this Prospectus does not contain all the information set forth in
the Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Corporation and the Securities, reference hereby
is made to the Registration Statement and to the exhibits and schedules filed
therewith. The Registration Statement may be inspected without charge by anyone
at the office of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and copies of all or any part thereof may be obtained from the Commission
upon payment of the prescribed fees. Statements contained in this Prospectus as
to the contents of any agreement, instrument or other document referred to
herein are not necessarily complete, and in each instance reference is made to
the full text of the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by reference to the full text of each
such agreement, instrument or document.
-------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Corporation (File
No. 1-8339) are incorporated in this Prospectus by reference: (1) Annual Report
on Form 10-K for the fiscal year ended December 31, 1996, filed on March 27,
1997; (2) Current Report on Form 8-K dated February 5, 1997 and filed on
February 15, 1997; (3) Current Report on Form 8-K dated April 8, 1997 and filed
on April 10, 1997, as amended by Current Report on Form 8-K/A dated and filed on
May 1, 1997, and further amended by Current Report on Form 8-K/A dated and filed
on May 12, 1997; and (4) Current Report on Form 8-K dated and filed on April 23,
1997.
All documents filed by the Corporation pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Securities shall be deemed to be
incorporated by reference in this Prospectus from the respective dates of filing
such documents. Any statement contained in this Prospectus or in a document all
or a portion of which is incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated herein
by reference modifies or supersedes such statement. Any statement so modified
shall not be deemed to constitute a part hereof except as so modified, and any
statement so superseded shall not be deemed to constitute a part hereof.
The Corporation will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written request of any such person, a copy of any or all of the foregoing
documents incorporated by reference herein, other than certain exhibits to such
documents. Requests should be directed to: NORFOLK SOUTHERN CORPORATION, THREE
COMMERCIAL PLACE, NORFOLK, VIRGINIA 23510-2191, ATTENTION: CORPORATE SECRETARY
(TELEPHONE NUMBER: (757) 629-2680).
2
<PAGE>
NORFOLK SOUTHERN CORPORATION
Norfolk Southern Corporation (the "Corporation") is a Virginia-based holding
company that owns all the common stock of and controls a major operating
railroad, Norfolk Southern Railway Company, and a diversified motor carrier,
North American Van Lines, Inc. ("NAVL"). The Corporation was incorporated in
July 1980 in the Commonwealth of Virginia. In June 1982, the Corporation
acquired control of Norfolk and Western Railway Company ("NW") and Southern
Railway Company ("Southern"). On December 31, 1990, all the common stock of NW
was transferred to Southern and Southern changed its name to Norfolk Southern
Railway Company ("NS Railway"). NS Railway controls NW. On June 21, 1985, the
Corporation acquired control of NAVL.
The Corporation's rail subsidiaries form a single interterritorial system,
extending over approximately 14,300 miles of road in twenty states, primarily in
the Southeast and Midwest, and the Province of Ontario, Canada. NAVL provides
household moving and specialized handling freight services in the United States
and Canada, and offers certain motor carrier services worldwide.
On April 8, 1997, the Corporation entered into an agreement (the
"Agreement") with CSX Corporation ("CSX") providing for a joint acquisition (the
"Joint Offer") of Conrail Inc. ("Conrail"), pursuant to which the Corporation
and CSX jointly will acquire all outstanding Conrail Shares (as defined below)
not already owned by them for $115 in cash per share. Following the acquisition
of the Conrail Shares and receipt of all required regulatory approvals, most of
the assets and liabilities of Conrail are expected to be allocated between the
Corporation and CSX as described below. A copy of the Agreement is filed as an
exhibit to the Corporation's Current Report on Form 8-K dated April 8, 1997,
which is incorporated by reference herein. The Agreement followed several months
of attempts by each of the Corporation and CSX to acquire all of Conrail.
Conrail is the holding company that owns and controls Consolidated Rail
Corporation, a major freight railroad which provides freight transportation
services within the Northeast and Midwest.
On October 24, 1996, in response to the October 15, 1996 announcement that
Conrail had entered into a merger agreement with CSX, a wholly-owned subsidiary
of the Corporation commenced an all-cash tender offer for all outstanding shares
of Conrail's Common Stock and Series A ESOP Convertible Junior Preferred Stock
(collectively, the "Conrail Shares"), including in each case the associated
Common Stock Purchase Rights.
On February 10, 1997, the Corporation notified Conrail, pursuant to the
requirements of Conrail's By-laws, of its intention to conduct a proxy contest
in connection with Conrail's 1997 Annual Meeting of shareholders, currently
scheduled for December 19, 1997, seeking, among other things, to remove certain
of the current members of the Conrail Board and to elect a new slate of nominees
designated by the Corporation.
On February 11, 1997, pursuant to its tender offer as then amended, the
Corporation purchased 8,200,000 Conrail Shares (approximately 9.9 percent of the
then outstanding Conrail Shares), representing the approximate maximum number of
Conrail Shares that the Corporation could buy without triggering Conrail's
anti-takeover defenses, at a price of $115 per share, or $943 million in the
aggregate. The purchase was financed through issuance of commercial paper backed
by a portion of the revolving debt capacity under the credit facility obtained
in connection with the Corporation's proposed acquisition of Conrail.
On February 12, 1997, the Corporation commenced a second tender offer for
all of the remaining Conrail Shares at a price of $115 per share in cash.
Pursuant to an amendment to the merger agreement between CSX and Conrail
announced on March 7, 1997, CSX offered to purchase all Conrail Shares for $115
per share in cash and CSX was permitted to enter into negotiations with other
parties, including the Corporation, concerning the acquisition of the securities
or assets, or concessions relating to the assets or operations, of Conrail. The
3
<PAGE>
Corporation and CSX undertook negotiations with a view towards reaching a
comprehensive resolution of the issues confronting the eastern railroads based
on the proposal submitted by the Corporation to both CSX and Conrail on February
24, 1997.
On April 8, 1997, the Corporation and CSX issued a press release announcing
that they had entered into the Agreement providing for the joint acquisition of
Conrail. Under the terms of the Agreement, the Corporation and CSX jointly will
acquire all outstanding Conrail Shares not already owned by them for $115 in
cash per share. In connection therewith, the Corporation's tender offer to
acquire Conrail Shares was terminated and CSX's tender offer to acquire Conrail
Shares was amended, among other things, to include the Corporation as co-bidder
and to extend its expiration date to May 23, 1997. The Agreement and a number of
ancillary agreements must be approved by the Surface Transportation Board (the
"STB").
The estimated total purchase price of (i) the Conrail Shares to be acquired
pursuant to the Joint Offer and (ii) the Conrail Shares already acquired by the
Corporation and by CSX is approximately $10.2 billion, before the transaction
expenses of each of the parties. Pursuant to the Agreement, the Corporation will
bear 58% of that total purchase price (or approximately $5.9 billion, of which
$943 million has been expended previously to purchase the 8.2 million Conrail
Shares that the Corporation now owns) to acquire Conrail Shares and CSX will
bear 42% of such purchase price, in each case taking into consideration amounts
previously paid by each of them to acquire Conrail Shares. In addition, the
Agreement provides that, upon consummation of the Joint Offer and completion of
the second-step merger specified in the Agreement, and subject to regulatory
approval, specified assets and liabilities of Conrail will be allocated between
the Corporation and CSX pursuant to leasing, operating, partnership or other
arrangements to be negotiated and implemented between the Corporation and CSX,
and the remaining assets and liabilities of Conrail will be pooled and either
shared or allocated between the Corporation and CSX on a ratable basis in
accordance with the percentage of the total consideration paid (including
liabilities assumed) by the Corporation and CSX, 58% and 42%, respectively (such
acquisition by the Corporation of, or of the right to use, the assets allocated
to or shared by the Corporation pursuant to the Agreement and the assumption by
the Corporation of the obligations relating to liabilities allocated to or
shared by it pursuant to the Agreement, the "Transaction").
The Corporation and CSX intend to file a joint application with the STB in
June of 1997 seeking approval of the proposed acquisition and division of
Conrail. Conrail Shares purchased previously by the Corporation and CSX have
been, and Conrail Shares purchased in the Joint Offer will be, placed in a joint
voting trust pending STB approval. The approval of the STB, while expected,
cannot be assumed and is not likely to be obtained prior to April 1, 1998.
Following consummation of the Joint Offer, the Corporation expects to use the
equity method of accounting for its investment in Conrail.
The accounting treatment for the Corporation's investment in Conrail
subsequent to STB approval will be determined based upon the extent of control
that the Corporation and CSX will individually have over specific Conrail assets
and is expected to be resolved after completion of the more detailed definitive
documentation to be negotiated between the Corporation and CSX.
Also pending STB approval, each of the Corporation and CSX will have and may
exercise a 50% voting interest in the joint subsidiary formed to effect the
acquisition of the Conrail Shares ("Acquisition Sub"). Each of the parties will
have the right to appoint 50% of Acquisition Sub's directors and each will be
entitled to appoint a full time co-chief executive officer. All Acquisition Sub
executive appointments will be subject to approval by its board of directors. In
addition, the parties are in the process of establishing a protocol for the
management of Acquisition Sub as well as a list of those items that will require
board approval. These provisions will continue to apply following STB approval
in order to effectuate the transactions contemplated by the Agreement and other
documents.
In the Agreement, the parties agreed that following the merger of Conrail
and Acquisition Sub or a subsidiary thereof, (i) the surviving corporation of
such merger will be preserved, (ii) the division of
4
<PAGE>
assets and assumption of liabilities of Conrail will be specified in more detail
in definitive documentation and (iii) the allocation of assets and liabilities,
pursuant to long-term operating agreements, leases, one or more partnerships
and/or limited liability companies and indemnity arrangements, will be set forth
in the definitive documentation.
The parties further agreed that, prior to STB approval, neither company at
any time will operate or exercise operational control over any of the routes or
assets related thereto or facilities of Conrail. Allocations of rolling stock,
locomotives and work equipment are to be made generally in proportion to the
respective percentages of each of the companies and are to be set forth in a
further agreement of the parties. Reference is made to the Agreement for a
further description of the allocations of various assets and the assumption of
liabilities, the terms of which are subject to further agreements.
The Corporation has identified a number of synergies related to the
Transaction which its management believes can be achieved and that are estimated
to yield operating income in nominal dollars of approximately $71 million in
1998, $236 million in 1999 and $399 million by the year 2000 For 1996, the
Corporation's and Conrail's most recent full fiscal year, combined operating
income, reflecting 58% of Conrail's operating income, adjusted for non-recurring
charges, was $1.6 billion. These synergy estimates reflect anticipated operating
expense savings and revenue enhancements. Expense savings are expected to result
from, among other things, reduced general and administrative expenses, improved
equipment utilization and maintenance, improved use of rail yards and routes,
more efficient purchasing of material and equipment, coupled with
maintenance-of-way efficiencies, and more efficient transportation operations.
Revenue enhancements are expected to result from net new business (single-line
service, new coal traffic and the diversion of truck traffic to rail). The
Corporation anticipates the synergies from the Transaction will result in
accretion in the Corporation's earnings per share of about 6% in 1999, 15% in
2000 and more than 17% per year thereafter. The Corporation expects the
acquisition to be dilutive to earnings per share by approximately 2% in 1997 and
3% in 1998. The Corporation currently expects to book approximately $200 million
of goodwill in accounting for the Transaction. This estimate will vary as
additional information in the form of appraisals, actuarial reports and other
valuations are made. However, whether the excess of purchase price over the book
value of Conrail's net assets is assigned to physical assets or goodwill is not
expected to have a significant effect on net income since railroad assets are
typically long-lived and goodwill is amortized over periods of up to 40 years.
The foregoing is more completely described in the Corporation's Current Report
on Form 8-K, dated April 23, 1997, which is incorporated herein by reference and
by which all related statements herein are qualified.
The foregoing estimates of cost savings, synergies, projected earnings per
share and pro forma financial information are "forward-looking" and inherently
subject to significant uncertainties and contingencies, many of which are beyond
the control of the Corporation, including: (a) future economic conditions in the
markets in which the Corporation and Conrail operate; (b) financial market
conditions; (c) inflation rates; (d) changing competition and the effects of new
and increased competition in the areas served by the Corporation and Conrail;
(e) changes in the economic regulatory climate in the United States railroad
industry; (f) the Corporation's ability to eliminate or reduce duplicative
administrative and other functions and facilities following the Transaction; (g)
labor uncertainties and the Corporation's ability to implement anticipated labor
savings; (h) unanticipated environmental and other situations relating to
Conrail assets; (i) the Corporation's ability to integrate certain Conrail
assets, including its information technology systems, within the Corporation's
systems; and (j) adverse changes in applicable laws, regulations or rules
governing environmental, tax or accounting matters. There can be no assurance
that the estimated savings, revenue increases, synergies, projected earnings per
share and pro forma financial information will be achieved; actual savings,
revenues increases, synergies, projected earnings per share and pro forma
financial information may vary materially from those estimated. The inclusion of
such estimates herein should not be regarded as in indication or affirmation
that the Corporation or any other party considers such estimates an accurate
prediction of future events.
5
<PAGE>
In addition, certain of management's estimates of future costs, expenses and
liabilities, such as environmental matters discussed in the Corporation's Annual
Report on Form 10K for the fiscal year ended December 31, 1996, are based on
facts and circumstances known to management after consultation with those who
have access to such information including, in the case of such environmental
matters, numerous engineers and counsel, both in-house and outside the
Corporation. Nevertheless, management assesses the probable costs for those
matters and makes the assessment as to the likelihood of identified matters
having a material adverse effect on the Corporation's financial position,
results of operations or liquidity based on all the known facts and
circumstances and other available factors, only one of which consists of the
advice of engineers and counsel.
The Corporation's executive offices are located at Three Commercial Place,
Norfolk, Virginia 23510-2191 (telephone number: (757) 629-2600). Unless the
context indicates otherwise, references herein to the Corporation are to Norfolk
Southern Corporation and its consolidated subsidiaries.
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USE OF PROCEEDS
Except as may be otherwise set forth in an accompanying Prospectus
Supplement, the Corporation intends to use the net proceeds from the sale of the
Securities primarily to fund the purchase of its portion of the purchase price
for the Conrail Shares pursuant to the Joint Offer. The Corporation intends to
use the balance, if any, of the net proceeds (i) to purchase shares of its
Common Stock from time to time in open market transactions pursuant to an
ongoing share purchase program commenced by the Corporation in 1987 but which is
currently suspended, (ii) to retire all or a portion of the Corporation's
short-term indebtedness, (iii) to acquire new or used property, including
without limitation locomotives and rolling stock, (iv) to meet general corporate
purposes and (v) to accomplish any other purpose approved by a duly authorized
officer of the Corporation.
RATIOS OF EARNINGS TO FIXED CHARGES
For purposes of computing the ratios of earnings to fixed charges, earnings
represent income before income taxes, plus interest expenses (including a
portion of rental expenses representing an interest factor) and subsidiaries'
preferred dividend requirements, less the equity in undistributed earnings of
20%-49% owned companies. Fixed charges represent interest expenses (including a
portion of rental expense representing an interest factor) plus capitalized
interest and subsidiaries' preferred dividend requirements on a pre-tax basis.
The following table sets forth the ratio of earnings to fixed charges of the
Corporation for each period indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- - -------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 1995 1994 1993(1,2) 1992
- - ------------- --------- --------- ------------- ---------
6.85 6.70 6.66 5.67 5.67
</TABLE>
- - ------------------------------
(1) 1993 results include a $54 million increase in the provision for income
taxes reflecting a 1% increase in the federal income tax rate, which reduced
net income by $54 million, or $0.39 per share. 1993 transportation operating
expenses include a $50 million restructuring charge for the disposition of
two NAVL trucking businesses. 1993 also includes the cumulative effect of
certain required accounting changes (see Note 2 below), which increased 1993
earnings by $223 million, or $1.60 per share.
(2) Effective January 1, 1993, the Corporation adopted SFAS 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions," SFAS 109
"Accounting for Income Taxes," and SFAS 112 "Employers' Accounting for
Postemployment Benefits." The Corporation recognized these accounting
changes on the immediate recognition basis. Therefore, the cumulative effect
on years prior to 1993 of adopting these new accounting standards was as
follows: SFAS 106 and 112 increased pretax expenses by $392 million ($243.5
million after-tax) and reduced earnings per share by $1.74; and SFAS 109
increased net income by $466.8 million and increased earnings per share by
$3.34.
Because the Corporation has no outstanding Preferred Stock, the ratio of
earnings to the sum of fixed charges and preferred stock dividends is the same
as the ratio of earnings to fixed charges.
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DESCRIPTION OF DEBT SECURITIES
The Debt Securities may be issued from time to time in one or more series.
The particular terms of each series of Debt Securities offered (the "Offered
Debt Securities") by any Prospectus Supplement or Prospectus Supplements will be
described therein. The Senior Debt Securities will be issued under an indenture,
dated as of January 15, 1991 (the "Senior Indenture"), between the Corporation
and First Trust of New York, National Association, as successor trustee (the
"Senior Trustee"), a copy of the form of which Senior Indenture is filed as an
exhibit to the Registration Statement. The Subordinated Debt Securities are to
be issued under a separate Indenture (the "Subordinated Indenture") between the
Company and First Trust of New York, National Association, as Trustee (the
"Subordinated Trustee"), a copy of the form of which Subordinated Indenture is
filed as an exhibit to the Registration Statement. The Senior Indenture and the
Subordinated Indenture are sometimes referred to collectively as the
"Indentures" and the Senior Trustee and the Subordinated Trustee are sometimes
referred to collectively as the "Trustees."
The following summaries of certain provisions of the Indentures do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all the provisions of the Indentures, including the definitions
therein of certain terms. Wherever particular sections or defined terms of the
Indentures are referred to, it is intended that such sections or defined terms
shall be incorporated herein by reference. Capitalized terms not otherwise
defined herein shall have the meanings given to them in the Indentures. The
following sets forth certain general terms and provisions of the Senior Debt
Securities and the Subordinated Debt Securities. Further terms of any Offered
Debt Securities will be set forth in the applicable Prospectus Supplement.
Because the Corporation is a holding company, its rights and the rights of
its creditors, including the Holders of the Debt Securities offered hereby, to
participate in any distribution of the assets of any subsidiary upon the
liquidation or recapitalization of such subsidiary will be subject to the prior
claims of that subsidiary's creditors except to the extent that the Corporation
itself may be a creditor with recognized prior claims against that subsidiary.
Because the Corporation is a holding company, its rights and the rights of
its creditors, including the Holders of the Debt Securities offered hereby, to
participate in any distribution of the assets of any subsidiary upon the
liquidation or recapitalization of such subsidiary will be subject to the prior
claims of that subsidiary's creditors except to the extent that the Corporation
itself may be a creditor with recognized prior claims against that subsidiary.
The Indentures do not limit the aggregate principal amount of Debt Securities
that may be issued thereunder and provide that Debt Securities may be issued
from time to time in series. Unless otherwise specified in the applicable
Prospectus Supplement, the Debt Securities will be unsecured obligations of the
Corporation. Unless otherwise specified in the Prospectus Supplement, the Senior
Debt Securities when issued will rank on a parity with all other unsecured and
unsubordinated indebtedness of the Corporation. The Subordinated Debt Securities
when issued will be subordinated in right of payment to the prior payment in
full of all Senior Indebtedness (as defined in the applicable supplemental
Subordinated Indenture) of the Corporation as described below under "--
Subordination of Subordinated Debt Securities" and in the applicable Prospectus
Supplement.
The applicable Prospectus Supplement will also describe the following terms
of any Offered Debt Securities: (1) the title of Offered Debt Securities; (2)
any limit on the aggregate principal amount of Offered Debt Securities; (3) the
date or dates on which Offered Debt Securities will mature; (4) the rate or
rates per annum at which Offered Debt Securities will bear interest, if any, or
the formula or provision pursuant to which such rate or rates are determined and
the date from which such interest, if any, will accrue; (5) the dates on which
such interest, if any, on Offered Debt Securities will be payable and the
Regular Record Dates for such Interest Payment Dates; (6) any mandatory or
optional sinking fund or analogous provisions; (7) the date, if any, after
which, and the price or prices at which, Offered Debt Securities may, pursuant
to any optional or mandatory redemption provisions, be redeemed and the other
detailed terms and provisions of any such optional or mandatory redemption
provisions; (8) the
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<PAGE>
currency or currencies of payment of principal, premium, if any, and/or
interest, if any, on Offered Debt Securities; (9) whether Offered Debt
Securities are to be issued in whole or part in the form of a Global Note or
Notes and, if so, the identity of the Depositary for such Global Note or Notes;
(10) the terms and conditions, if any, upon which a Global Note or Notes may be
exchanged in whole or in part for other definitive Offered Debt Securities; (11)
any index used to determine the amount of payments of principal, premium, if
any, and/or interest, if any, on Offered Debt Securities; (12) the applicability
of any provisions described under "Satisfaction and Discharge of Indenture";
(13) any covenants applicable to such Debt Securities; (14) the terms and
conditions, if any, pursuant to which Offered Debt Securities are or may be
convertible or exchangeable into Preferred Stock, Depositary Shares, Common
Stock or other securities of the Corporation; and (15) any other terms of the
series of Offered Debt Securities.
Unless otherwise provided in the applicable Prospectus Supplement,
principal, premium, if any, and/or interest, if any, on Offered Debt Securities
will be payable, and the transfer of Offered Debt Securities will be
registrable, at the office of the applicable Trustee, except that, at the option
of the Corporation, interest may be paid by mailing a check to the address of
the person entitled thereto as such address appears on the Security Register.
Offered Debt Securities may be issuable in whole or in part in the form of
one or more Global Notes, as described below under "Global Notes." Unless
otherwise indicated in the Prospectus Supplement, Debt Securities will be issued
only in fully registered form without coupons and in minimum denominations of
$100,000 or any integral multiples of $1,000 in excess thereof. One or more
Global Notes will be issued in a denomination or aggregate denominations equal
to the aggregate principal amount of Outstanding Debt Securities of the series
to be represented by such Global Note or Notes. The Prospectus Supplement
relating to a series of Offered Debt Securities denominated in a foreign or
composite currency will specify the denomination thereof. No service charge will
be made for any transfer or exchange of Debt Securities, but the Corporation may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
Debt Securities may be issued as Original Issue Discount Securities to be
sold at a substantial discount below their principal amount. Special federal
income tax and other considerations applicable thereto will be described in the
applicable Prospectus Supplement.
GLOBAL NOTES
Debt Securities of a series may be issued in whole or in part in the form of
one or more Global Notes that will be deposited with, or on behalf of, a
depositary (the "Depositary") identified in the applicable Prospectus
Supplement, which also shall describe the specific terms of the depositary
arrangement. The Corporation anticipates that the following provisions will
apply to all depositary arrangements.
Upon the issuance of a Global Note, the Depositary for such Global Note will
credit, on its book-entry registration and transfer system, the respective
principal amounts of Debt Securities represented by such Global Note to the
accounts of institutions that have accounts with such Depositary
("Participants"). The accounts to be credited shall be designated by the
underwriters or agents of such Debt Securities or, if such Debt Securities are
offered and sold directly by the Corporation, by the Corporation. Ownership of
beneficial interests in a Global Note will be limited to Participants or persons
that may hold interests through Participants. Ownership of beneficial interests
in such Global Note will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the Depositary for such Global Note
(with respect to interests of Participants) or by Participants or persons that
hold through Participants (with respect to interests of persons other than
Participants). For such purposes, the laws of some states may require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to own,
transfer or pledge beneficial interests in a Global Note.
9
<PAGE>
So long as the Depositary for a Global Note, or its nominee, is the
registered owner of such Global Note, such Depositary or such nominee, as the
case may be, will be considered the sole owner or Holder of Debt Securities
represented by such Global Note for all purposes under the Indenture. Except as
set forth below, owners of beneficial interests in a Global Note will not be
entitled to have Debt Securities of the series represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Debt Securities of such series in definitive form and will not be
considered the owners or holders thereof under the Indenture. Accordingly, each
person owning a beneficial interest in the Global Note must rely on the
procedures of the Depositary and, if such person is not a Participant, on the
procedures of the Participant through which such person owns its interest, to
exercise any rights of a Holder under the applicable Indenture. The Indentures
provide that the Depositary may grant proxies and otherwise authorize
Participants to take any action a Holder is entitled to take under the
applicable Indenture. The Corporation understands that under existing industry
practice, in the event that the Corporation requests any action of Holders or a
beneficial owner desires to take any action a Holder is entitled to take, the
Depositary would authorize the Participants to take such action and that the
Participants would authorize beneficial owners owning through such Participants
to take such action or would otherwise act upon the instructions of beneficial
owners owning through such Participants.
Payment of principal, premium, if any, and/or interest, if any, on Debt
Securities registered in the name of or held by a Depositary or its nominee will
be made to the Depositary or its nominee, as the case may be, as the registered
owner or the Holder of the Global Note representing such Debt Securities. None
of the Corporation, the Trustees, any Paying Agent or the Registrar for such
Debt Securities will have any responsibility or liability with respect to the
records relating to or payments made on account of beneficial ownership
interests in a Global Note for such Debt Securities or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Corporation expects that the Depositary for Debt Securities of a series,
upon receipt of any payment of principal, premium, if any, and/or interest, if
any, in respect of a Global Note, will immediately credit Participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of such Global Note as shown on the records of such
Depositary. The Corporation also expects that payments by Participants to owners
of beneficial interests in such Global Note held through such Participants will
be governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or registered
in "street name," and will be the responsibility of such Participants.
A Global Note may not be transferred except as a whole by the Depositary for
such Global Note to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary. A Global
Note is exchangeable for Debt Securities registered in the names of persons
other than the Depositary with respect to such Global Note or its nominee only
if (1) such Depositary notifies the Corporation that it is unwilling or unable
to continue as Depositary for such Global Note or if at any time such Depositary
ceases to be a clearing agency registered under the Exchange Act and, in either
case, a successor Depositary is not appointed by the Corporation within 90 days,
(2) the Corporation executes and delivers to the applicable Trustee a Company
Order that all such Global Notes shall be exchangeable or (3) there shall have
occurred and be continuing an Event of Default or an event which, with the
giving of notice or lapse of time, or both, would constitute an Event of Default
with respect to those Debt Securities. Any Global Note that is exchangeable
pursuant to the preceding sentence shall be exchangeable for Debt Securities
registered in such names as the Depositary with respect to such Global Note
shall direct.
If a Depositary for Notes of a series is at any time unwilling or unable to
continue as depositary, or if at any time such Depositary ceases to be a
clearing agency registered under the Exchange Act, and, in either case, a
successor Depositary is not appointed by the Corporation within 90 days or if
there shall have occurred and be continuing an Event of Default or an event
which, with the giving of notice or lapse of time, or both, would constitute an
Event of Default with respect to such Notes, then the Corporation
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<PAGE>
will issue Notes of such series in definitive form in exchange for all Global
Notes representing the Notes of such series. In addition, the Corporation may at
any time and in its sole discretion determine not to have the Notes of a series
represented by Global Notes and in such event, will issue Notes of such series
in definitive form in exchange for all Global Notes representing such Notes. In
any such instance, an owner of a beneficial interest in a Global Note will be
entitled to physical delivery in definitive form of Notes of the series
represented by such Global Note equal in principal amount to such beneficial
interest and to have such Notes registered in its name.
EVENTS OF DEFAULT
The Indentures define an Event of Default with respect to Debt Securities of
any series as any of the following events: (1) failure to pay principal of or
any premium on any Debt Security of that series when due; (2) failure to pay any
interest on any Debt Security of that series when due, continued for 30 days;
(3) failure to pay any sinking fund installment with respect to any Debt
Security of that series when due; (4) failure to perform any other covenant of
the Corporation in the applicable Indenture (other than a covenant included in
the applicable Indenture solely for the benefit of a series of Debt Securities
other than that series), continued for 90 days after written notice as provided
in the Indenture; (5) acceleration of Debt Securities or any other indebtedness
for borrowed money, in an aggregate principal amount exceeding $30,000,000, of
the Corporation or any Significant Subsidiary (within the meaning of the federal
securities laws) under the terms of the instrument or instruments under which
such indebtedness is issued or secured, if such acceleration is not annulled, or
such indebtedness is not discharged, or a sum of money sufficient to discharge
in full such indebtedness is not deposited in trust, within 10 days after
written notice as provided in the Indenture; (6) certain events of bankruptcy,
insolvency or reorganization; and (7) any other Event of Default provided with
respect to Debt Securities of that series.
If an Event of Default with respect to Debt Securities of any series at the
time Outstanding occurs and is continuing, either the applicable Trustee or the
Holders of at least 25% in aggregate principal amount of the Outstanding
Securities of that series by notice as provided in the applicable Indenture may
declare the principal amount (or, if the Debt Securities of that series are
Original Issue Discount Notes, such portion of the principal amount as may be
specified in the terms of that series) of all Debt Securities of that series to
be due and payable immediately. At any time after a declaration of acceleration
with respect to Debt Securities of any series has been made, but before a
judgment or decree for payment of money has been obtained by the Trustee with
respect to that series, the Holders of a majority in aggregate principal amount
of Outstanding Securities of that series may, under certain circumstances,
rescind and annul such acceleration.
The Indentures provide that the applicable Trustee will not be under any
obligation to exercise any of its rights or powers under the Indenture at the
request or direction of any of the Holders, unless such Holders shall have
offered to such Trustee reasonable indemnity. Subject to such provisions for the
indemnification of the Trustees, the Holders of a majority in aggregate
principal amount of the Outstanding Securities of any series will have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or of exercising any trust or power conferred on the
Trustee, with respect to the Debt Securities of that series.
The Corporation is required to furnish to the applicable Trustee annually a
statement as to the performance by the Corporation of certain of its obligations
under the appropriate Indenture and as to any default in such performance.
CONVERSION OR EXCHANGE OF DEBT SECURITIES
If so indicated in the applicable Prospectus Supplement with respect to a
particular series of Offered Debt Securities, such series will be convertible or
exchangeable into Preferred Stock, Depositary Shares or Common Stock or other
securities of the Corporation registered hereby on the terms and conditions set
forth therein. Such terms will include provisions as to whether conversion is
mandatory, at the option
11
<PAGE>
of the Holder or at the option of the Corporation, and may include provisions
pursuant to which the number of shares of Preferred Stock or Common Stock or
other securities of the Corporation to be received by the holders of such Debt
Securities will be calculated according to the market price of the Preferred
Stock, Depositary Shares, Common Stock or other securities of the Corporation as
of the time stated in the applicable Prospectus Supplement. See "Description of
Capital Stock."
SUBORDINATION OF SUBORDINATED DEBT SECURITIES
The Subordinated Debt Securities will be direct, unsecured obligations of
the Corporation, subordinate in right of payment to the extent set forth in the
Subordinated Indenture and the applicable supplemental Subordinated Indenture to
all Senior Indebtedness including all Senior Debt Securities (in each case as
defined in the applicable supplemental Subordinated Indenture). Except to the
extent otherwise set forth in the applicable Prospectus Supplement and
supplemental Subordinated Indenture, the Subordinated Indenture does not contain
any restriction on the amount of Senior Indebtedness that the Corporation may
incur.
The terms of the subordination of a series of Subordinated Debt Securities,
together with the definition of Senior Indebtedness related thereto, will be as
set forth in the applicable supplemental Subordinated Indenture and Prospectus
Supplement.
The Subordinated Debt Securities will not be subordinated to indebtedness of
the Corporation that is not Senior Indebtedness, and the creditors of the
Corporation who do not hold Senior Indebtedness will not benefit from the
subordination provisions described herein. In the event of the bankruptcy or
insolvency of the Corporation before or after maturity of the Subordinated Debt
Securities, such other creditors would rank PARI PASSU with holders of the
Subordinated Debt Securities, subject, however, to the broad equity powers of
the federal bankruptcy court pursuant to which such court may, among other
things, reclassify the claims of any series of Subordinated Debt Securities into
a class of claims having a different relative priority with respect to the
claims of such other creditors or any other claims against the Corporation.
SATISFACTION AND DISCHARGE OF INDENTURE
The Indentures provide generally that the Corporation may terminate its
obligations under the applicable Indenture with respect to Debt Securities of
any series if all the Debt Securities of such series previously authenticated
and delivered (other than lost, destroyed or stolen Debt Securities of such
series that have been replaced or paid) have been delivered to the Trustee for
cancellation and the Corporation has paid all sums payable by it thereunder, or
if the Corporation irrevocably deposits with the applicable Trustee (1)
sufficient funds in the currency in which Debt Securities of such series are
denominated to pay the principal, premium, if any, and/or interest, if any, to
Stated Maturity (or redemption) on Debt Securities of such series and/or (2)
such amount of direct obligations of, or obligations the principal of and
interest, if any, on which are fully guaranteed by, the government which issued
the currency in which the Debt Securities are denominated, and which are not
subject to prepayment, redemption or call, as will, through the payment of
principal and interest, if any, thereon in accordance with their terms, be
sufficient to pay when due, the principal, premium, if any, and/or interest, if
any, to Stated Maturity (or redemption) on, Debt Securities of such series. As a
condition to defeasance, the Corporation must deliver to the applicable Trustee
an Opinion of Counsel to the effect that the Holders of such Debt Securities
will not recognize gain or loss on such Debt Securities for federal income tax
purposes solely as a result of such defeasance and will be subject to federal
income tax in the same amounts and at the same times as would have been the case
if such defeasance had not occurred. In the event of any such defeasance,
Holders of Debt Securities must look to the deposited money for payment.
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MODIFICATION AND WAIVER
Modifications and amendments of the applicable Indenture may be made by the
Corporation and the applicable Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Outstanding Securities of each
series affected by such modification or amendment; PROVIDED, HOWEVER, that no
such modification or amendment may, without the consent of the Holder of each
Outstanding Security affected thereby, (1) change the stated maturity date of
the principal of, or any installment of principal of, premium, if any, or
interest, if any, on, any Debt Security, (2) reduce the principal, premium, if
any, and/or interest, if any, on any Debt Security, (3) reduce the amount of
principal of an Original Issue Discount Debt Security payable upon acceleration
of the maturity thereof, (4) change the place or currency of payment of
principal, premium, if any, and/or interest, if any, on any Debt Security, (5)
impair the right to institute suit for the enforcement of any payment on or with
respect to any Debt Security, (6) reduce the percentage in principal amount of
Outstanding Securities of any series, the consent of the Holders of which is
required for modification or amendment of the Indenture or for waiver of
compliance with certain provisions of the applicable Indenture or for waiver of
certain defaults, (7) modify the conversion provisions applicable to convertible
Debt Securities in a manner adverse to the Holders thereof or (8) modify the
subordination provisions applicable to any series of Debt Securities in a manner
adverse to the Holders thereof.
The Holders of a majority in aggregate principal amount of the Outstanding
Securities of each series may, on behalf of all Holders of Debt Securities of
that series, waive, insofar as that series is concerned, compliance by the
Corporation with certain restrictive provisions of the Indenture. The Holders of
a majority in aggregate principal amount of the Outstanding Securities of each
series may, on behalf of all Holders of Debt Securities of that series, waive
any past default under the applicable Indenture with respect to Debt Securities
of that series, except (1) a default in the payment of principal, premium, if
any, and/or interest, if any, on any Debt Security of such series and (2) in
respect of a covenant or provision of the Indenture which cannot be modified or
amended without the consent of the Holder of each Outstanding Security of such
series affected.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Corporation, without the consent of the Holders of a majority in
aggregate principal amount of the Outstanding Securities under the Indentures,
may not consolidate with or merge into, or transfer or lease its assets
substantially as an entirety to, any corporation (which, as defined in the
applicable Indenture, includes corporations, associations, companies and
business trusts), unless (1) the successor corporation is a corporation
organized and existing under the laws of the United States of America or a state
thereof or the District of Columbia and assumes the Corporation's obligations on
the Debt Securities and under the Indentures, (2) after giving effect to the
transaction no Event of Default, and no event which, after notice or lapse of
time, would become an Event of Default, shall have occurred and be continuing
and (3) the successor corporation executes supplemental indentures satisfactory
to the Trustees evidencing its assumption of the Indentures and delivers
opinions and certificates as to compliance with such requirements. The
Indentures do not contain any provisions that limit the Corporation's ability to
incur indebtedness. Holders of Debt Securities will not have the benefit of any
specific covenants or provisions in the applicable Indenture or Debt Securities
that would protect them in the event the Corporation engages in or becomes the
subject of a merger, takeover, other highly leveraged transaction or a change in
control, other than any covenants described in any applicable Prospectus
Supplement, and the limitations on consolidation, merger and sale of assets
substantially as an entirety to any person as described above. Any such
covenants could not be waived or modified by the Corporation or its Board of
Directors, although holders of Debt Securities could waive or modify such
covenants as more fully described above under "--Modification and Waiver."
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CONCERNING THE TRUSTEE
First Trust of New York, National Association, is the Trustee under each of
the Indentures and has been appointed by the Corporation as Security Registrar
and Paying Agent with regard to the Debt Securities.
The holders of a majority in principal amount of the Outstanding Debt
Securities of any series will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
applicable Trustee, subject to certain exceptions. Each Indenture provides that
if an Event of Default occurs (and is not cured) with respect to a series of
Debt Securities, the applicable Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, no Trustee will be under any obligation to
exercise any of its rights or powers under the Indentures at the request of any
Holder of Debt Securities of such series, unless such Holder first shall have
offered to such Trustee security and indemnity satisfactory to such Trustee
against any loss, liability or expense and then only to the extent required by
the terms of the applicable Indenture.
GOVERNING LAW
Each Indenture provides that it and the Debt Securities will be governed by,
and construed in accordance with, the laws of the State of New York.
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DESCRIPTION OF CAPITAL STOCK
The Corporation's Restated Articles of Incorporation (the "Articles of
Incorporation") authorize issuance of up to 450,000,000 shares of Common Stock,
par value $1.00 per share, and up to 25,000,000 shares of Preferred Stock,
without par value. As of December 31, 1996, 125,097,374 shares of Common Stock
were outstanding and no shares of Preferred Stock had been issued.
The Board of Directors of the Corporation has the power, without further
action by the stockholders unless action is required at the time by applicable
laws or regulations or by the terms of any outstanding Preferred Stock, to issue
Preferred Stock in one or more series and to fix the designations, preferences
and voting rights, and relative, participating, optional and other special
rights, and the qualifications, limitations and restrictions applicable thereto.
The rights of Holders of any Preferred Stock offered hereby (the "Offered
Preferred Stock") will be subject to, and may be affected adversely by, the
rights of Holders of any Preferred Stock that may be issued in the future.
Issuance of shares of Preferred Stock by the Corporation may have the effect,
under certain circumstances, alone or in combination with certain of the
provisions (described below) of the Articles of Incorporation, of rendering more
difficult or discouraging an acquisition of the Corporation deemed undesirable
or not in the best interests of the Corporation by the Board of Directors even
when such transaction is favored by a majority of the Corporation's
shareholders.
OFFERED PREFERRED STOCK
The following is a description of certain general terms and provisions of
Offered Preferred Stock. The particular terms and provisions of any series of
Offered Preferred Stock will be described in the applicable Prospectus
Supplement. If so indicated in a Prospectus Supplement, the terms and provisions
of any such series may differ from the terms set forth below. The summary of
terms and provisions of Offered Preferred Stock contained in this Prospectus and
any applicable Prospectus Supplement will describe all the material provisions
thereof but does not purport to be complete and is subject to, and qualified in
its entirety by, the provisions of the Articles of Incorporation and the
Certificate of Amendment relating to a specific series of the Offered Preferred
Stock (the "Certificate of Amendment"), which will be in the form filed as an
exhibit to or incorporated by reference into the Registration Statement of which
this Prospectus is a part at or prior to the time of issuance of such series of
Offered Preferred Stock.
The Board of Directors is authorized to determine for each series of Offered
Preferred Stock, and the Prospectus Supplement shall set forth with respect to
such series: (1) the number of shares that constitute such series, (2) the
dividend rate (or the method of calculation thereof) on the shares of such
series, (3) the dividend periods (or the method of calculation thereof), (4) the
voting rights of the shares, (5) the liquidation preference and any other rights
of the shares of such series upon any liquidation or winding-up of the
Corporation, (6) whether or not and on what terms the shares of such series will
be subject to redemption at the option of the Corporation, (7) whether and on
what terms the shares of such series will be convertible into shares of Common
Stock of the Corporation, (8) whether Depositary Shares representing shares of
such series of Preferred Stock will be offered and, if so, the fraction of a
share of such series of Offered Preferred Stock represented by each Depositary
Share (see "Depositary Shares" below), (9) whether the shares of such series of
Offered Preferred Stock will be listed on a securities exchange and (10) any
other rights and privileges and any qualifications, limitations or restrictions
of such rights or privileges of such series.
DIVIDENDS
Except as otherwise set forth in the applicable Certificate of Amendment and
Prospectus Supplement, Holders of shares of Offered Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds of the Corporation legally available therefor, a cash dividend
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payable at such dates and at such rates per share per annum as are set forth in
the applicable Prospectus Supplement.
Unless otherwise set forth in the applicable Prospectus Supplement, each
series of Offered Preferred Stock will be junior as to dividends to any
Preferred Stock that may be issued in the future that is expressly senior as to
dividends to such Offered Preferred Stock. If at any time the Corporation has
failed to pay accrued dividends upon any such outstanding senior Preferred Stock
at the time such dividends are payable, the Corporation may not pay any dividend
on the Offered Preferred Stock or redeem or otherwise repurchase shares of such
Offered Preferred Stock until such accumulated but unpaid dividends on such
senior Preferred Stock have been paid or set aside for payment in full by the
Corporation.
No dividends may be declared or paid or set apart for payment on any
Preferred Stock ranking on parity as to dividends with outstanding Offered
Preferred Stock unless there shall also be or have been declared and paid or set
apart for payment on the outstanding shares of Offered Preferred Stock dividends
for all dividend payment periods of the Offered Preferred Stock ending on or
before the dividend payment date of such parity Preferred Stock, ratably in
proportion to the respective amounts of dividends, (i) accumulated and unpaid or
payable on such parity Preferred Stock, on the one hand, and (ii) accumulated
and unpaid or payable through the dividend payment period of the Offered
Preferred Stock next preceding such dividend payment date, on the other hand.
Except as set forth above, dividends (other than in Common Stock) may not be
paid or declared and set aside for payment and no other distributions may be
made upon the Common Stock or on any other Preferred Stock of the Corporation
ranking junior to or on parity as to dividends with outstanding Offered
Preferred Stock, nor may any Common Stock or such other Preferred Stock of the
Corporation be redeemed, purchased or otherwise acquired by the Corporation for
any consideration, or any payment be made to or available for a sinking fund for
the redemption of any shares of such stock; PROVIDED, HOWEVER, that any monies
theretofore deposited in any sinking fund with respect to any Preferred Stock in
compliance with the provisions of such sinking fund may thereafter be applied to
the purchase or redemption of such Preferred Stock in accordance with the terms
of such sinking fund, regardless of whether at the time of such applications
full cumulative dividends upon shares of the Offered Preferred Stock outstanding
on the last dividend payment date shall have been paid or declared and set apart
for payment; and PROVIDED, FURTHER,that any such junior or parity Preferred
Stock or Common Stock may be converted into or exchanged for stock of the
Corporation ranking junior to the Offered Preferred Stock as to dividends.
The amount of dividends payable for the initial dividend period or any
period shorter than a full dividend period shall be computed on the basis of a
360-day year of twelve 30-day months. Accrued but unpaid dividends will not bear
interest.
CONVERTIBILITY
No series of Offered Preferred Stock will be convertible into, or
exchangeable for, other securities or property except such securities registered
hereby as may be set forth in the applicable Certificate of Amendment and
Prospectus Supplement.
REDEMPTION AND SINKING FUND
No series of Offered Preferred Stock will be redeemable or receive the
benefit of a sinking fund except as set forth in the applicable Certificate of
Amendment and Prospectus Supplement.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution or winding-up of the
Corporation, the holders of shares of each series of Offered Preferred Stock are
entitled to receive out of assets of the Corporation available for distribution
to stockholders, before any distribution of assets is made to Holders of (1) any
other
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shares of Preferred Stock ranking junior to such series of Offered Preferred
Stock as to rights upon liquidation, dissolution or winding-up and (2) Common
Stock, liquidating distributions per share in the amount of the liquidation
preference specified in the applicable Certificate of Amendment and Prospectus
Supplement for such series of Offered Preferred Stock, plus dividends accrued
and accumulated but unpaid to the date of final distribution; but the Holders of
each series of Offered Preferred Stock will not be entitled to receive the
liquidating distribution of, plus such dividends on, such shares until the
liquidation preference of any shares of the Corporation's capital stock ranking
senior to such series of Offered Preferred Stock as to the rights upon
liquidation, dissolution or winding-up shall have been paid (or a sum set aside
therefor sufficient to provide for payment) in full. If upon any liquidation,
dissolution or winding-up of the Corporation, the amounts payable in respect of
Offered Preferred Stock and any other Preferred Stock ranking as to any such
distribution on a parity with Offered Preferred Stock are not paid in full, the
Holders of Offered Preferred Stock and such other parity Preferred Stock will
share ratably in any such distribution of assets in proportion to the full
respective preferential amount to which they are entitled. Unless otherwise
specified in the applicable Certificate of Amendment and Prospectus Supplement
for a series of Offered Preferred Stock, after payment of the full amount of the
liquidating distribution to which they are entitled, the Holders of shares of
Offered Preferred Stock will not be entitled to any further participation in any
distribution of assets by the Corporation. Neither a consolidation or merger of
the Corporation with another corporation or other entity nor a sale of
securities shall be considered a liquidation, dissolution or winding-up of the
Corporation.
VOTING RIGHTS
Holders of Offered Preferred Stock will not have any voting rights except as
set forth below or in the applicable Certificate of Amendment and Prospectus
Supplement or as otherwise from time to time required by law. Whenever dividends
on a series of Offered Preferred Stock or any other class or series of stock
ranking on a parity with such series of Offered Preferred Stock with respect to
the payment of dividends shall be in arrears for dividend periods, whether or
not consecutive, containing in the aggregate a number of days equivalent to six
calendar quarters, the Holders of shares of such series of Offered Preferred
Stock (voting separately as a class with all other series of Preferred Stock
upon which like voting rights have been conferred and are exercisable) will be
entitled to vote for the election of two of the authorized number of directors
of the Corporation at the next annual meeting of stockholders and at each
subsequent meeting until all dividends accumulated on such series of Offered
Preferred Stock shall have been fully paid or set apart for payment. The term of
office of all directors elected by the holders of such Offered Preferred Stock
shall terminate immediately upon the termination of the rights of the Holders of
such Offered Preferred Stock to vote for directors. Unless otherwise set forth
in the applicable Certificate of Amendment and Prospectus Supplement, Holders of
shares of Offered Preferred Stock will have one vote for each share held.
So long as any shares of any series of Offered Preferred Stock remain
outstanding, the Corporation shall not, without the consent of Holders of at
least two thirds of the shares of such series of Offered Preferred Stock
outstanding at the time (voting separately as a class with all other series of
Preferred Stock upon which like voting rights have been conferred and are
exercisable) amend, alter or repeal the provisions of the Articles of
Incorporation or of the resolutions contained in the Certificate of Amendment
relating to such series of Offered Preferred Stock, whether by merger,
consolidation or otherwise, so as materially adversely to affect any power,
preference or special right of such series of Offered Preferred Stock or the
Holders thereof; PROVIDED, HOWEVER, that any increase in the amount of the
authorized Common Stock or authorized Preferred Stock or any increase or
decrease in the number of shares of any series of Preferred Stock or the
creation and issuance of other series of Common Stock or Preferred Stock ranking
senior to, on a parity with or junior to Preferred Stock as to dividends and
upon liquidation, dissolution or winding-up shall not be deemed materially
adversely to affect such powers, preferences or special rights.
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MISCELLANEOUS
The Holders of Offered Preferred Stock will have no preemptive rights.
Offered Preferred Stock, upon issuance against full payment of the purchase
price therefor, will be fully paid and nonassessable. Shares of Offered
Preferred Stock redeemed or otherwise reacquired by the Corporation shall resume
the status of authorized and unissued shares of Preferred Stock undesignated as
to series and shall be available for subsequent issuance. There are no
restrictions on repurchase or redemption of Offered Preferred Stock while there
is any arrearage on sinking fund installments except as may be set forth in an
applicable Certificate of Amendment and Prospectus Supplement. The liquidation
preference is not necessarily indicative of the price at which the Offered
Preferred Stock actually will trade on or after the date of issuance. Payment of
dividends on any series of Offered Preferred Stock may be restricted by loan
agreements, indentures and other transactions heretofore or hereafter entered
into by the Corporation. The accompanying Prospectus Supplement or information
incorporated by reference will describe any material contractual restrictions on
dividend payments.
NO OTHER RIGHTS
The shares of a series of Offered Preferred Stock will have only those
preferences, voting powers and relative, participating, optional or other
special rights as are set forth above or in the applicable Certificate of
Amendment and Prospectus Supplement, the Articles of Incorporation or as
otherwise required by law.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for each series of Offered Preferred Stock
will be designated in the applicable Prospectus Supplement.
DEPOSITARY SHARES
GENERAL
The Corporation may, at its option, elect to offer fractional shares of
Offered Preferred Stock (the "Depositary Shares"), rather than full shares of
Offered Preferred Stock. As described below, in the event such election is made,
the Corporation will issue receipts for Depositary Shares, each of which will
represent a fraction of a share of a particular series of Offered Preferred
Stock as set forth in the applicable Prospectus Supplement.
The shares of any series of Offered Preferred Stock represented by
Depositary Shares will be deposited under a Deposit Agreement (the "Deposit
Agreement") among the Corporation, a depositary to be named in the applicable
Prospectus Supplement (the "Preferred Stock Depositary") and the Holders from
time to time of depositary receipts evidencing Depositary Shares issued pursuant
to the Deposit Agreement (the "Depositary Receipts"). Subject to the terms of
the Deposit Agreement, each Holder of a Depositary Share will be entitled, in
proportion to the applicable fraction of a share of Offered Preferred Stock
represented by such Depositary Share, to all the rights and preferences of
Offered Preferred Stock represented thereby (including without limitation,
dividend, voting, redemption, conversion and liquidation rights).
Depositary Receipts will be distributed to those persons purchasing the
fractional shares of the related series of Offered Preferred Stock. The forms of
Deposit Agreement and Depositary Receipt will be filed as exhibits to or
incorporated by reference into the Registration Statement of which this
Prospectus is a part at or prior to the time of issuance of such Depository
Receipts. Immediately following the issuance of shares of a series of Offered
Preferred Stock by the Corporation, the Corporation will deposit such shares
with the Preferred Stock Depositary, which will then issue and deliver
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Depositary Receipts to the purchasers thereof. Depositary Receipts will be
issued evidencing only whole Depositary Shares and each may evidence any number
of whole Depositary Shares.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions received in respect of the related series of Offered
Preferred Stock to the record holders of Depositary Shares relating to such
series of Offered Preferred Stock in proportion to the number of such Depositary
Shares owned by such Holders.
The Preferred Stock Depositary will distribute any non-cash distribution
received by it to the record Holders of Depositary Shares entitled thereto in
proportion to the number of Depositary Shares owned by such holders, unless the
Preferred Stock Depositary determines that such distribution cannot be made
proportionately among such Holders or that it is not feasible to make such
distributions, in which case the Preferred Stock Depositary may, with the
approval of the Corporation, adopt such method as it deems equitable and
practicable for the purpose of effecting such distribution, including the sale
(at public or private sale) of the securities or other property thus received,
or any part thereof, at such place or places and upon such terms as it may deem
proper.
The amounts distributed in any of the foregoing cases will be reduced by any
amounts required to be withheld by the Corporation or the Preferred Stock
Depositary on account of taxes or other governmental charges.
REDEMPTION OF DEPOSITARY SHARES
If a series of Offered Preferred Stock underlying the Depositary Shares is
subject to redemption, the Depositary Shares will be redeemed from the proceeds
received by the Preferred Stock Depositary resulting from any redemption, in
whole or in part, of such series of Preferred Stock held by the Preferred Stock
Depositary. The redemption price per Depositary Share will be equal to the
applicable fraction of the redemption price per share payable with respect to
such series of Offered Preferred Stock. If the Corporation redeems shares of a
series of Offered Preferred Stock held by the Preferred Stock Depositary, the
Preferred Stock Depositary will redeem as of the same redemption date the number
of Depositary Shares representing the shares of Offered Preferred Stock so
redeemed. If less than all the Depositary Shares are to be redeemed, the
Depositary Shares to be redeemed will be selected by lot or substantially
equivalent method determined by the Preferred Stock Depositary.
After the date fixed for redemption, the Depositary Shares called for
redemption no longer will be deemed to be outstanding, and all rights of the
Holders of the Depositary Shares will cease, except the right to receive the
money or other property payable upon such redemption and any money or other
property to which the Holders of such Depositary Shares were entitled upon such
redemption, upon surrender to the Preferred Stock Depositary of the Depositary
Receipts evidencing such Depositary Shares. Any funds deposited by the
Corporation with the Preferred Stock Depositary for any Depositary Shares that
the Holders thereof fail to redeem will be returned to the Corporation after a
period of two years from the date such funds are so deposited.
VOTING THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the Holders of any series of
Offered Preferred Stock are entitled to vote, the Preferred Stock Depositary
will mail the information contained in such notice of meeting to the record
Holders of the Depositary Shares relating to such series of Offered Preferred
Stock. Each record Holder of such Depositary Shares on the record date (which
will be the same date as the record date for the related series of Offered
Preferred Stock) will be entitled to instruct the Preferred Stock Depositary as
to the exercise of the voting rights pertaining to the number of shares of the
series of
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Offered Preferred Stock represented by such Holder's Depositary Shares. The
Preferred Stock Depositary will endeavor, insofar as practicable, to vote or
cause to be voted the number of shares of Offered Preferred Stock represented by
such Depositary Shares in accordance with such instructions, provided the
Preferred Stock Depositary receives such instructions sufficiently in advance of
such meeting to enable it to so vote or cause to be voted the shares of Offered
Preferred Stock, and the Corporation will agree to take all reasonable action
that may be deemed necessary by the Preferred Stock Depositary in order to
enable the Preferred Stock Depositary to do so. The Preferred Stock Depositary
will abstain from voting shares of Offered Preferred Stock to the extent it does
not receive specific instructions from the Holders of Depositary Shares
representing such Offered Preferred Stock.
WITHDRAWAL OF PREFERRED STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Stock Depositary and upon payment of the taxes, charges and fees,
if any, provided for in the Deposit Agreement and subject to the terms thereof,
the Holder of the Depositary Shares evidenced thereby will be entitled to
delivery at such office, to or upon such Holder's order, of the number of whole
shares of the related series of Offered Preferred Stock and any money or other
property, if any, represented by such Depositary Shares. Holders of Depositary
Shares will be entitled to receive whole shares of the related series of Offered
Preferred Stock, but Holders of such whole shares of Offered Preferred Stock
will not be entitled thereafter to deposit such shares of Offered Preferred
Stock with the Preferred Stock Depositary or to receive Depositary Shares
therefor. If the Depositary Receipts delivered by the Holder evidence a number
of Depositary Shares in excess of the number of Depositary Shares representing
the number of whole shares of the related series of Offered Preferred Stock to
be withdrawn, the Preferred Stock Depositary will deliver to such Holder or upon
such Holder's order at the same time a new Depositary Receipt evidencing such
excess number of Depositary Shares.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares and any
provisions of the Deposit Agreement may at any time and from time to time be
amended by agreement between the Corporation and the Preferred Stock Depositary.
However, any amendment that materially adversely affects the rights of the
Holders of Depositary Shares will not be effective unless such amendment has
been approved by the Holders of at least a majority of the Depositary Shares
then outstanding. Every Holder of a Depositary Receipt at the time such
amendment becomes effective will be deemed, by continuing to hold such
Depositary Receipt, to be bound by the Deposit Agreement as so amended.
Notwithstanding the foregoing, in no event may any amendment impair the right of
any Holder of any Depositary Shares, upon surrender of the Depositary Receipts
evidencing such Depositary Shares and subject to any conditions specified in the
Deposit Agreement, to receive shares of the related series of Offered Preferred
Stock and any money or other property, if any, represented thereby, except in
order to comply with mandatory provisions of applicable law. The Deposit
Agreement may be terminated by the Corporation at any time upon not less than 60
days' prior written notice to the Preferred Stock Depositary, in which case, on
a date that is not later than 30 days after the date of such notice to the
Preferred Stock Depositary shall deliver or make available for delivery to
Holders of Depositary Shares, upon surrender of the Depositary Receipts
evidencing such Depositary Shares, such number of whole or fractional shares of
the related series of Offered Preferred Stock as are represented by such
Depositary Shares. The Deposit Agreement shall terminate automatically after all
outstanding Depositary Shares have been redeemed or there has been a final
distribution in respect of the related series of Offered Preferred Stock in
connection with any liquidation, dissolution or winding-up of the Corporation
and such final distribution has been distributed to the Holders of Depositary
Shares.
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CHARGES OF DEPOSITARY
The Corporation will pay all transfer and other taxes and the governmental
charges arising solely from the existence of the depositary arrangements. The
Corporation will pay the charges of the Preferred Stock Depositary, including
charges in connection with the initial deposit of the related series of Offered
Preferred Stock and the initial issuance of the Depositary Shares and all
withdrawals of shares of the related series of Offered Preferred Stock, except
that Holders of Depositary Shares will pay transfer and other taxes and
governmental charges and such other charges as are expressly provided in the
Deposit Agreement to be for their accounts.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Stock Depositary may resign at any time by delivering to the
Corporation written notice of its election to do so, and the Corporation may at
any time remove the Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Stock Depositary, which successor
Preferred Stock Depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust corporation
having its principal office in the United States and having a combined capital
and surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Stock Depositary will forward to the Holders of Depositary
Shares all reports and communications from the Corporation that are delivered to
the Preferred Stock Depositary and which the Corporation is required to furnish
to the Holders of the Offered Preferred Stock.
Neither the Preferred Stock Depositary nor the Corporation will be liable if
it is prevented or delayed by law or any circumstance beyond its control in
performing its obligations under the Deposit Agreement. The obligations of the
Corporation and the Preferred Stock Depositary under the Deposit Agreement will
be limited to performance with best judgment and in the good faith of their
duties thereunder, except that they are liable for gross negligence and willful
misconduct in the performance of their duties thereunder, and they will not be
obligated to appear in, prosecute or defend any legal proceeding in respect of
any Depositary Receipts, Depositary Shares or series of Offered Preferred Stock
unless indemnity, satisfactory in their sole discretion is furnished. The
Preferred Stock Depositary and the Corporation may rely on advice of legal
counsel or accountants of their choice, or information provided by persons
presenting Preferred Stock for deposit, Holders of Depositary Shares or other
persons believed in good faith to be competent and on documents believed to be
genuine.
The Preferred Stock Depositary's corporate trust office will be identified
in the applicable Prospectus Supplement and unless otherwise set forth in the
applicable Prospectus Supplement will act as transfer agent and registrar for
Depositary Receipts; if shares of a series of Offered Preferred Stock are
redeemable, the Preferred Stock Depositary also will act as redemption agent for
the corresponding Depositary Receipts.
COMMON STOCK
Except as otherwise provided by law, the holders of Common Stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of stockholders. There are no cumulative voting rights with respect to the
election of directors. Holders of Common Stock are entitled to receive ratably
such dividends as may be declared by the Board of Directors out of legally
available funds. In the event of dissolution of the Corporation, they will be
entitled to share ratably in all assets remaining after payment of liabilities
and amounts owed in respect of outstanding Offered Preferred Stock. Holders of
Common Stock have no preemptive rights and have no right to convert their Common
Stock into any other securities.
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The transfer agent and registrar for the Common Stock is The Bank of New
York.
CERTAIN PROVISIONS OF ARTICLES OF INCORPORATION AND VIRGINIA LAW
The Articles of Incorporation contains certain provisions that may have an
effect of delaying, deferring or preventing a change of control of the
Corporation. These provisions, together with any provisions in the terms of any
Preferred Stock which may be issued in the future which make an acquisition of
the Corporation more difficult, could also have the effect of causing the
Corporation's Common Stock to trade at a lower price in the open market than it
would if such provisions did not exist. The Articles of Incorporation provide
that the Board shall consist of three classes of directors, each such class
serving a three-year term ending in a successive year. This provision may make
it more difficult to effect a takeover of the Corporation because it generally
would take two annual meetings of stockholders for an acquiring party to elect a
majority of the Board. As a result, the classified Board may discourage proxy
contests for the election of directors or purchases of a substantial block of
stock because such classification could operate to prevent obtaining control of
the Board in a relatively short period of time.
In addition, the Virginia Stock Corporation Act (the "Virginia SCA")
restricts transactions between a corporation and certain affiliates and
potential acquirors. The summary of those material provisions thereof set forth
below is necessarily general and is not intended to be a complete description of
all the features and consequences of those provisions, and it is qualified in
its entirety by reference to the statutory provisions contained in the Virginia
SCA.
AFFILIATED TRANSACTIONS
Sections 13.1-725-727.1 of the Virginia SCA govern "Affiliated
Transactions." Affiliated Transactions include certain mergers and share
exchanges, certain material dispositions of corporate assets not in the ordinary
course of business, any dissolution of a corporation proposed by or on behalf of
an Interested Shareholder (defined as any beneficial owner of more than 10% of
any class of the voting securities of a Virginia corporation) and
reclassifications, including reverse stock splits, recapitalizations or mergers
of a corporation with its subsidiaries, or distributions or other transactions
that have the effect of increasing the percentage of voting shares beneficially
owned by an Interested Shareholder by more than 5%.
Subject to certain exceptions discussed below, the provisions governing
Affiliated Transactions require that, during three years following the date upon
which any stockholder becomes an Interested Shareholder, any Affiliated
Transaction must be approved by the affirmative vote of holders of two thirds of
the outstanding shares of the corporation entitled to vote, other than the
shares beneficially owned by the Interested Shareholder, and by a majority (but
not less than two) of the Disinterested Directors. A Disinterested Director is
defined as a member of a corporation's board of directors who (i) was a member
before the later of (a) January 1, 1988 and (b) the date on which an Interested
Shareholder became an Interested Shareholder and (ii) was recommended for
election by, or was elected to fill a vacancy and received the affirmative vote
of, a majority of the Disinterested Directors then on such corporation's board
of directors.
At the expiration of the three-year period after a stockholder becomes an
Interested Shareholder, an Affiliated Transaction generally must be approved by
the affirmative vote of the holders of two thirds of the outstanding shares of
the corporation entitled to vote, other than those beneficially owned by the
Interested Shareholder. The principal exceptions to this voting requirement are
either that the transaction be approved by a majority of the corporation's
Disinterested Directors or that the transaction satisfy certain fair price
requirements of the statute. In general, the fair price requirements provide
that the stockholders must receive the highest per share price for their shares
that was paid by the Interested Shareholder for its shares or the fair market
value of the shares. The fair price requirements also
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mandate that, during the three years preceding the announcement of the proposed
Affiliated Transaction, all required dividends have been paid and no special
financial accommodations have been accorded the Interested Shareholder, unless
approved by a majority of the Disinterested Directors.
None of the foregoing limitations and special voting requirements applies,
INTER ALIA, to a transaction with an Interested Shareholder who has been an
Interested Shareholder continuously since January 26, 1988 or who became an
Interested Shareholder by gift or inheritance from such a person or whose
acquisition of shares making such person an Interested Shareholder was approved
by a majority of the Disinterested Directors of the corporation.
These provisions were designed to deter certain takeovers of Virginia
corporations. In addition, the Virginia SCA provides that, by affirmative vote
of the majority of the voting shares other than shares owned by an Interested
Shareholder, a corporation may adopt, by meeting certain voting requirements, an
amendment to its articles of incorporation or bylaws providing that the
Affiliated Transactions provisions shall not apply to the corporation. The
Corporation has not adopted such an amendment.
Currently, no stockholder of the Corporation owns or controls 10% or more of
the Corporation's Common Stock, and there are no Interested Shareholders as
defined by the Virginia SCA.
CONTROL SHARE ACQUISITIONS
Sections 13.1-728-728.8 of the Virginia SCA governing Control Share
Acquisitions also is designed to afford stockholders of a public corporation
incorporated in Virginia protection against certain types of non-negotiated
acquisitions in which a person, entity or group ("Acquiring Person") seeks to
gain voting control of that corporation. With certain enumerated exceptions, the
statute applies to acquisitions of shares of a corporation that would result in
an Acquiring Person's ownership of the corporation's shares entitled to vote in
the election of directors falling within any one of the following ranges: 20% to
33-1/3%, 33-1/3% to 50% or 50% or more (each, a "Control Share Acquisition").
Shares that are the subject of a Control Share Acquisition ("Control Shares")
will not be entitled to voting rights unless the holders of a majority of the
"Disinterested Shares" vote at an annual or special meeting of stockholders of
the corporation to give Control Shares voting rights. Disinterested Shares do
not include shares owned by the Acquiring Person or by officers and inside
directors of the target corporation.
Under certain circumstances, the statute permits an Acquiring Person to
require the directors to call a special stockholders' meeting for the purpose of
considering granting voting rights to Control Shares. As a condition to having
this matter considered at either an annual or special meeting, the Acquiring
Person must provide stockholders with detailed disclosures about its identity,
the method and financing of the Control Share Acquisition and any plans to
engage in certain transactions with, or to make fundamental changes to, the
corporation, its management or business. Under certain circumstances, the
statute grants dissenters' rights to stockholders who vote against granting
voting rights to Control Shares. The Virginia Control Share Acquisitions statute
also enables a corporation to make provisions for redemption of Control Shares
with no voting rights.
Among the acquisitions specifically excluded from the statute are
acquisitions that are part of certain negotiated transactions to which the
corporation is a party and that, in the case of mergers or share exchanges, have
been approved by the corporation's stockholders under other provisions of the
Virginia SCA.
A corporation may opt-out of the statute, which the Corporation has not
done, by so providing in its articles of incorporation or bylaws.
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PLAN OF DISTRIBUTION
The Corporation may sell Securities to one or more underwriters for public
offering and sale by them or may sell Securities to investors directly or
through agents. Any such underwriter or agent involved in the offer and sale of
the Securities will be named in the Prospectus Supplement.
Underwriters may offer and sell Securities at a fixed price or prices, which
may be changed, or from time to time at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. The Corporation also may offer and sell Securities in exchange for one
or more of its outstanding issues of debt. The Corporation from time to time
also may authorize underwriters acting as the Corporation's agents to offer and
sell Securities upon terms and conditions set forth in any Prospectus
Supplement. In connection with the sale of Securities, underwriters may be
deemed to have received compensation from the Corporation in the form of
underwriting discounts or commissions and also may receive commissions from
purchasers of Securities for whom they may act as agent. Underwriters may sell
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agent.
Any underwriting compensation paid by the Corporation to underwriters or
agents in connection with the offering of Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of Securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the Securities may be deemed to be underwriting
discounts and commissions under the Act.
Underwriters, dealers and agents may be entitled, under agreements entered
into with the Corporation, to indemnification against and contribution toward
certain civil liabilities, including liabilities under the Act.
LEGAL MATTERS
The validity of the Securities will be passed upon for the Corporation by
William A. Noell, Jr., Esq., Corporate Counsel for the Corporation, Norfolk,
Virginia, (or by such other senior corporate counsel as may be designated by the
Corporation) and for any underwriters by counsel named in the applicable
Prospectus Supplement. Mr. Noell, in his capacity as Corporate Counsel for the
Corporation, is a participant in various employee benefit and incentive plans,
including stock option plans, offered to employees of the Corporation.
EXPERTS
The consolidated financial statements and schedule of the Corporation as of
December 31, 1996 and 1995, and for each of the three years in the three-year
period ended December 31, 1996, have been incorporated by reference herein and
in the Registration Statement in reliance upon the report incorporated by
reference herein of KPMG Peat Marwick LLP, independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing. The consolidated financial statements of Conrail as of December 31,
1996 and 1995, and for each of the years in the three-year period ended December
31, 1996, have been incorporated by reference herein and in the Registration
Statement in reliance upon the report of Price Waterhouse LLP, independent
accountants, given upon the authority of said firm as experts in accounting and
auditing.
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