SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1996
or --------------
( ) Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
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Commission file number 1-12184
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CONRAIL INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2728514
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 Market Street, Philadelphia, Pennsylvania 19101
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(Address of principal executive offices)
(Zip Code)
(215) 209-4000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Number of shares of common stock outstanding (as of April 30, 1996)
81,595,476.
<PAGE>
CONRAIL INC.
INDEX
Page Number
PART I. FINANCIAL INFORMATION -----------
Item 1. Financial Statements:
Condensed Consolidated Statements
of Income - Quarters ended
March 31, 1996 and 1995 3
Condensed Consolidated Balance
Sheets - March 31, 1996 and
December 31, 1995 4
Condensed Consolidated Statements
of Cash Flows - Quarters ended
March 31, 1996 and 1995 5
Notes to Condensed Consolidated
Financial Statements 6
Report of Independent Accountants 7
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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<PAGE>
PART I. FINANCIAL INFORMATION
CONRAIL INC.
Item 1. Financial Statements.
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
[CAPTION]
($ In Millions Except Per Share Data)
Quarters ended
March 31,
---------------
1996 1995
----- -----
[S] [C] [C]
Revenues $ 889 $ 889
----- -----
Operating expenses
Way and structures 140 134
Equipment 219 201
Transportation 362 343
General and administrative 99 97
----- -----
Total operating expenses 820 775
----- -----
Income from operations 69 114
Interest expense (47) (48)
Other income, net 28 25
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Income before income taxes 50 91
Income taxes 19 36
----- -----
Net income $ 31 $ 55
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Net income per common share
Primary $ .36 $ .66
Fully diluted .35 .61
Dividends per common share $.425 $.375
Weighted average number of shares used in
computing earnings per share (thousands)
Primary 78,002 79,095
Fully diluted 87,759 88,966
Ratio of earnings to fixed charges 1.75x 2.39x
See accompanying notes.
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<PAGE>
CONRAIL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
[CAPTION]
($ In Millions)
March 31, December 31,
1996 1995
--------- ------------
[S] [C] [C]
ASSETS
Current assets
Cash and cash equivalents $ 27 $ 73
Accounts receivable 664 614
Deferred tax assets 335 333
Material and supplies 157 158
Other current assets 30 28
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Total current assets 1,213 1,206
Property and equipment, net 6,384 6,408
Other assets 835 810
------ ------
Total assets $8,432 $8,424
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings 134 89
Current maturities of long-term debt 150 181
Accounts payable 169 113
Wages and employee benefits 172 183
Casualty reserves 111 110
Accrued and other current liabilities 515 494
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Total current liabilities 1,251 1,170
Long-term debt 1,873 1,911
Casualty reserves 215 217
Deferred income taxes 1,428 1,393
Special income tax obligation 417 440
Other liabilities 304 316
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Total liabilities 5,488 5,447
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Stockholders' equity
Series A ESOP convertible junior
preferred stock 281 282
Unearned ESOP compensation (229) (233)
Common stock 86 85
Additional paid-in capital 2,202 2,187
Employee benefits trust (333) (329)
Retained earnings 1,169 1,176
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3,176 3,168
Treasury stock (232) (191)
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Total stockholders' equity 2,944 2,977
------ ------
Total liabilities and
stockholders' equity $8,432 $8,424
====== ======
See accompanying notes.
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<PAGE>
CONRAIL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
[CAPTION]
($ In Millions)
March 31,
---------------
1996 1995
----- -----
[S] [C] [C]
Cash flows from operating activities $ 121 $ 137
----- -----
Cash flows from investing activities
Property and equipment acquisitions (18) (85)
Other (16) (41)
----- -----
Net cash used in investing activities (34) (126)
----- -----
Cash flows from financing activities
Repurchase of common stock (41) (22)
Net proceeds from short-term borrowings 45 67
Payment of long-term debt (97) (22)
Dividends paid on common stock (35) (30)
Dividends paid on preferred stock (10) (10)
Other 5 (1)
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Net cash used in financing activities (133) (18)
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Decrease in cash and cash equivalents (46) (7)
Cash and cash equivalents
Beginning of period 73 43
----- -----
End of period $ 27 $ 36
===== =====
See accompanying notes.
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<PAGE>
CONRAIL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The unaudited financial statements contained herein present
the consolidated financial position of Conrail Inc. (the
"Company") as of March 31, 1996 and December 31, 1995, and the
consolidated results of operations and cash flows for the three-
month periods ended March 31, 1996 and 1995. In the opinion of
management, these financial statements include all adjustments,
consisting of normal recurring adjustments, necessary to present
fairly the results for the interim periods included.
The rules and regulations of the Securities and Exchange
Commission permit certain information and footnote disclosures,
ordinarily required by generally accepted accounting principles,
to be condensed or omitted from interim financial reports.
Accordingly, the financial statements included herein should be
read in conjunction with the audited financial statements and
notes for the year ended December 31, 1995, presented in the
Company's Annual Report on Form 10-K.
2. On February 21, 1996, the Board of Directors approved a
voluntary early retirement program and voluntary separation
program for eligible members of the non-union workforce. Eligible
employees had until April 23, 1996 to apply for the programs. A
total of 879 applications have been accepted under both programs.
The Company estimates that the costs of the programs will be
approximately $100 million and will be recorded in the second
quarter of 1996. The majority of the costs of these programs will
be paid from the Company's overfunded pension plan.
3. In April 1995, the Board of Directors approved a $250 million
multi-year stock repurchase program. During the first quarter of
1996, the Company acquired 560,308 shares for approximately $41
million under this program, and at March 31, 1996, approximately
$208 million remained available from this authorization.
4. Information regarding contingent liabilities and litigation
was included in Note 12 to Consolidated Financial Statements and
Part I, Item 3 - Legal Proceedings in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995. There have
been no material developments with respect to these matters during
the first three months of 1996, except as disclosed in the Annual
Report on Form 10-K or elsewhere herein.
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Stockholders and Board of Directors of
Conrail Inc.
We have reviewed the accompanying condensed consolidated balance
sheet of Conrail Inc. and its subsidiaries (the "Company") as of
March 31, 1996 and the related condensed consolidated statements of
income and cash flows for the three months ended March 31, 1996 and
March 31, 1995. This financial information is the responsibility of
the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying interim financial informa
tion for it to be in conformity with generally accepted accounting
principles.
We previously audited in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1995,
and the related consolidated statements of income, of stockholders'
equity and of cash flows for the year then ended (not presented
herein), and in our report dated January 22, 1996, except as to
paragraphs five and six of Note 12 to the consolidated financial
statements which are as of February 21, 1996, we expressed an
unqualified opinion on those consolidated financial statements and
included an explanatory paragraph describing the Company's change in
methods of accounting for income taxes and postretirement benefits
other than pensions in 1993. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of
December 31, 1995, is fairly stated in all material respects in
relation to the consolidated balance sheet from which it has been
derived.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, PA 19103
April 17, 1996
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<PAGE>
CONRAIL INC.
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations.
-----------------------------------
Results of Operations
---------------------
Overview
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Net income for Conrail Inc. ("Conrail" or "the Company") for the
first quarter of 1996 was $31 million ($.36 per share, primary and
$.35 per share fully diluted basis) compared with net income of
$55 million ($.66 per share, primary and $.61 per share, fully
diluted basis) for the first quarter of 1995.
Traffic volume decreased 2.7%, and total revenues for the first
quarter of 1996 were the same as those for the first quarter of
1995. Difficult operating conditions caused by severe weather
experienced over most of the Company's service area during the
quarter were partly responsible for an increase in operating
expenses of $45 million, or 5.8%, during the first quarter of
1996 as compared with those incurred during the first quarter of
1995.
Conrail has revised its projection of 1996 line-haul revenue
growth to between 3.0% and 4.0% from between 3.5% and 4.5%.
The slightly lower revenue projections for the year and higher operating
expenses for the first quarter of 1996 will make it difficult to achieve
the Company's operating ratio (operating expenses as a percent of revenues)
goal of 77.5% for 1996.
On February 21, 1996, the Board of Directors approved a voluntary
early retirement program and voluntary separation program for
eligible members of the non-union workforce. The Company
estimates that the costs of the programs will be approximately
$100 million and will be recorded in the second quarter of 1996.
The majority of the costs of these programs will be paid from the
Company's overfunded pension plan.
First Quarter 1996 compared with First Quarter 1995
---------------------------------------------------
Net income for the first quarter of 1996 was $31 million
compared with a net income for the first quarter of 1995 of $55
million.
Operating revenues (primarily freight and line-haul revenues,
but also including switching, demurrage and incidental revenues)
remained unchanged at $889 million. A 2.7% decrease in traffic
volume in units (freight cars and intermodal trailers and
containers) resulted in a $23 million decrease in revenues.
Average revenue per unit increased for the quarter, resulting
from increases in average rates, $22 million, partially offset
- 8 -
<PAGE>
by an unfavorable traffic mix, $6 million. Other revenues
increased $7 million.
Operating expenses increased $45 million, or 5.8%, from $775
million in the first quarter of 1995 to $820 million in the
first quarter of 1996. The following table sets forth the
operating expenses for the two periods:
First Quarter
-------------
Increase
($ In Millions) 1996 1995 (Decrease)
---- ---- ----------
Compensation and benefits $344 $332 $12
Fuel 50 46 4
Material and supplies 60 56 4
Equipment rents 98 85 13
Depreciation and amortization 71 73 (2)
Casualties and insurance 48 39 9
Other 149 144 5
---- ---- ----
$820 $775 $45
==== ==== ====
Compensation and benefits as a percent of revenues was 38.7% in
the first quarter of 1996 as compared with 37.4% in the first
quarter of 1995. The increased labor costs of $12 million, or
3.6%, were primarily a result of increased wage rates, increased
train crew costs and the overtime caused by the adverse weather
conditions experienced during the quarter, which were partially
offset by fewer employees in the first quarter of 1996.
Fuel costs increased $4 million, or 8.7%, as a result of higher
average fuel prices during the first quarter of 1996 as compared
with the same quarter of 1995, and these higher prices are
expected to continue in 1996.
The increase of $13 million, or 15.3%, in equipment rents was
primarily caused by the declines in equipment utilization
reflecting the adverse weather conditions experienced during the
quarter, as well as a decrease in locomotives temporarily leased
to other railroads.
Casualties and insurance costs increased $9 million, or 23.1%,
primarily due to an increase in the cost and number of
occupational health claims and to damage to equipment and
property owned by others resulting from several derailments
during the quarter. Employee injuries were about the same in
both quarters.
The Company's operating ratio was 92.3% for the first quarter of
1996 compared with 87.2% for the first quarter of 1995.
Liquidity and Capital Resources
-------------------------------
The Company's cash and cash equivalents decreased $46 million in
the first quarter of 1996, from $73 million at December 31, 1995
to $27 million at March 31, 1996. Cash generated from
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<PAGE>
operations, primarily from its wholly-owned subsidiary,
Consolidated Rail Corporation, and borrowings have been the
Company's principal sources of liquidity and are used primarily
for capital expenditures, debt service and dividends. In the
first quarter of 1996, operating activities provided cash of
$121 million and net short-term borrowings provided $45 million.
The principal uses of cash during the quarter were for: payment
of long-term debt, $97 million; cash dividends on common and
preferred stock, $45 million; repurchase of common stock, $41
million; and property and equipment acquisitions, $18 million.
A working capital (current assets less current liabilities)
deficiency of $38 million existed at March 31, 1996 as compared
with working capital of $36 million at December 31, 1995.
Management believes that the Company's financial position allows
it sufficient access to credit sources on investment grade
terms, and, if necessary, additional intermediate or long-term
debt could be obtained for working capital requirements.
In April 1995, the Board of Directors approved a $250 million
multi-year stock repurchase program. During the first quarter of
1996, the Company acquired 560,308 shares for approximately $41
million under this program, and at March 31, 1996, approximately
$208 million remained available from this authorization.
During the first quarter of 1996, Consolidated Rail Corporation
issued $45 million of commercial paper. At March 31, 1996, $234
million of commercial paper remained outstanding, of which $100
million is classified as long-term debt since it is expected to
be refinanced through subsequent issuances of commercial paper
and is supported by a long-term credit facility.
Other Matters
-------------
Consolidated Rail Corporation, through the National Carriers'
Conference Committee, is in various stages of negotiations with
the labor organizations representing its unionized workforce.
On May 8, 1996, the President appointed an Emergency Board to
investigate disputes between the railroads and the
Transportation Communications International Union ("TCU"), who
otherwise would have been entitled to strike. Conrail cannot
predict the outcome of the labor negotiations with the TCU or
its other unions at this time.
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<PAGE>
PART II. OTHER INFORMATION
CONRAIL INC.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
3.1 Amended Articles of Incorporation of Conrail Inc.
11 Statement of earnings per share
computations.
12 Computations of the ratio of
earnings to fixed charges.
15 Letter re unaudited interim
financial information from Price Waterhouse
LLP.
27 Financial data schedule.
(b) Reports on Form 8-K
On February 21, 1996, the Company filed a report
on Form 8-K reporting the following under "Item 5.
Other Events,": On February 21, 1996, the Company
issued a press release announcing early
retirement and voluntary separation programs to be
undertaken by its wholly-owned subsidiary,
Consolidated Rail Corporation, and commenting on the
effect of severe winter weather and sluggish economic
conditions on first quarter performance.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CONRAIL INC.
Registrant
/s/ Bruce B. Wilson
--------------------------------
Bruce B. Wilson
Senior Vice President - Law
/s/ Timothy T. O'Toole
-------------------------------
Timothy T. O'Toole
Senior Vice President - Finance
(Principal Financial Officer)
Date: May 13, 1996
EXHIBIT INDEX
-------------
Exhibit
No.
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3.1 Amended Articles of
Incorporation of Conrail Inc.
11 Statement of earnings per share
computations.
12 Computations of the ratio of
earnings to fixed charges.
15 Letter re unaudited interim
financial information from
Price Waterhouse LLP.
27 Financial data schedule.
<PAGE>
Exhibit 3.1
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DOCKETING STATEMENT DSCB:15-134A (Rev. 90) BUREAU USE ONLY:
DEPARTMENTS OF STATE AND REVENUE Dept. of State Entity Number
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Revenue Box Number
------------------
Filing Fee: None Filing Period Date 3 4 5
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SIC_______Report Code_______________
This form (file in triplicate) and all accompanying documents shall be
mailed to:
COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF STATE
CORPORATION BUREAU
308 NORTH OFFICE BUILDING
HARRISBURG, PA 17120-0029
Check proper box:
X Pa.Business-stock Pa.Business-nonstock Pa.Business-Management Pa.Professional
---- ---- ---- ----
Pa.Business-statutory close Pa.Business-cooperative Pa.Nonprofit-stock Pa.Nonprofit-nonstock
---- ---- ---- ----
Foreign-business Foreign-nonprofit Motor Vehicle for Hire
---- ---- ----
Foreign-Certificate of Authority to D/B/A
---- ---------------------------------------------------------------------------
Corporation registering as a result of (check box):
X Incorporation (Pa.) Domestication Consolidation
---- ---- ----
Authorization of a foreign corporation Division Summary of Record
---- ---- ----
1. Name of corporation: CONRAIL INC.
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2. Location of (a) initial registered office in Pa. or (b) the name and
county of the commercial registered office provider:
(a) Two Commerce Square, 2001 Market Street, Philadelphia, PA 19101 Philadelphia
-----------------------------------------------------------------------------------
Number and Street/P.O. Number and Box City State Zip County
(b) c/o:
--------------------------------------------------------------------------------
Name of commercial registered office provider County
3. State or Country of Incorporation: Pennsylvania 4. Specified effective date, if applicable: N/A
------------ ---
5. Federal Identification Number: Applied for
-----------
6. Describe principal Pa. activity to be engaged in, within one year of
this application date:
---------------------------
Holding Company for railroad and all lawful business for which corporations may be incorporated in Pennsylvania.
----------------------------------------------------------------------------------------------------------------
7. Names, residences and social security numbers of the chief executive
officer, secretary and treasurer:
Name Address Title Social Security #
---- ------- ----- -----------------
David M. LeVan 245 Pine Street CEO ###-##-####
Philadelphia, PA 19106
Allan Schimmel 1511 S. 13th Street Secretary ###-##-####
Philadelphia, PA 19147
Timothy T. O'Toole 149 Golfview Road Treasurer ###-##-####
Ardmore, PA 19003
<PAGE>
DSCB:15-134A (Rev. 90)-2
If professional corporation, include officer's professional license
numbers with the respective Pennsylvania
Professional Board. N/A
8. Location of principal place of business:
Two Commerce Square, 2001 Market Street, Philadelphia, PA 19101 Philadelphia
-----------------------------------------------------------------------------------
Number and Street/P.O. Number and Box City State Zip Code
9. Mailing address if different than #8 (Location where correspondence,
tax report form, etc. are to be sent):
N/A
----------------------------------------------------------------------
Number and Street/P.O. Number and Box City State Zip Code
10. Act of General Assembly or authority under which you are organized or
incorporated (Full citation of statute or other
authority; attach a separate sheet if more space is required): Act of Dec. 21, 1988 (PL 1444) (1988 BCL)
-------------------------------------------
11. Date and state of Incorporation or organization (foreign corporation only): N/A
---
12. Date business started in Pa. (foreign corporation only): N/A
---
13. Is the corporation authorized to issue capital stock? X YES NO
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14. Corporation's fiscal year ends: April 30
--------
This statement shall be deemed to have been executed by the individual
who executed the accompanying submittal. See 18 Pa. C.S. 4904 (relating
to unsworn falsification to authorities).
Instructions for Completion of Form:
A. A separate completed set of copies of this form shall be
submitted for each entity or registration resulting from the
transaction.
B. The Bureau of Corporation Taxes in the Pa. Department of Revenue
should be notified of any address changes.
Notification should be sent to the Processing Division, Bureau
of Corporation Taxes, Pa. Department of Revenue,
Dept. 280705, Harrisburg, PA 17128-0705.
C. All Pa. corporate tax reports, except those for motor vehicle for
hire, must be filed with the Commonwealth on the
same fiscal basis as filed with the U.S. government. Motor
vehicle for hire, i.e., gross receipts tax reports, must be
filed on a calendar year basis only.
<PAGE>
Exhibit 3.1
</TABLE>
<TABLE>
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Microfilm Number Filed with the Department of State on
----- -------------------
Entry Number ---------------------------------------------------------
--------- Secretary of the Commonwealth
ARTICLES OF INCORPORATION-FOR PROFIT
DSCB:15-1306/2102/2303/2702/2903/7102a (Rev 90)
Indicate type of domestic corporation (check one):
X Business-stock (15 Pa. C.S. 1306) Management (15 Pa. C.S. 2702)
--- ---
Business-nonstock (15 Pa. C.S. 2102) Professional (15 Pa. C.S. 2903)
--- ---
Business-statutory close (15 Pa. C.S. 2303) Cooperative (15 Pa. C.S. 7102A)
--- ---
In compliance with the requirements of the applicable provisions of 15
Pa. C.S. (relating to corporations and unincorporated associations) the
undersigned, desiring to incorporate a corporation for profit hereby
state(s) that:
1. The name of the corporation is CONRAIL INC.
------------
2. The (a) address of the corporation's initial registered office in this
Commonwealth or (b) name of its commercial registered office provider and
the county of venue is:
(a) Two Commerce Square, 2001 Market Street, Philadelphia, PA 19101 Philadelphia
-------------------------------------------------------------------------------
Number and Street City State Zip County
(b) c/o:
---------------------------------------------------------------------------
Name of Commercial Registered Office Provider County
For a corporation represented by a commercial registered office
provider, the county in (b) shall be deemed the county in which the corporation is located
for venue and official publication purposes.
3. The corporation is incorporated under the provision of the Business
Corporation Law of 1988.
(See Attached)
4. The aggregate number of shares authorized is: 275,000,000 (other provisions, if any, attach 8 1/2 x 11 sheet)
-----------
(See Attached)
5. The name and address, including street and number, if any, of each incorporator is:
Name Address
Consolidated Rail Corporation Two Commerce Square, Philadelphia, PA 19101
----------------------------- -------------------------------------------
6. The specific effective date, if any, is
-----------------------------------------
month day year hour, if any
7. Any additional provisions of the articles, if any, attach an 8 1/2 x 11 sheet. (See Attached)
8. Statutory close corporation only: Neither the corporation nor any
shareholder shall make an offering of any of its shares of
any class that would constitute a "public offering" within the
meaning of the Securities Act of 1933
(15 U.S.C. 77a et seq.). N/A
(PA. - 432 - 10/2/92)
<PAGE>
DSCB:15-1306/2102/2303/2702/2903/7102a (Rev 90)-2
9. Cooperative corporations only: (Complete and strike out inapplicable term) The common bond of membership among its
members/shareholders is N/A
-------------------------------
IN TESTIMONY WHEREOF, the incorporators(s) has (have) signed these
Articles of Incorporation this 11th day of February, 1993.
---- --------------
CONSOLIDATED RAIL CORPORATION
Kathleen M. Turner By: /s/ Timothy T. O'Toole
- ------------------ ----------------------
(Signature) (Signature)
Notary Title: Vice President and General Counsel
----------------------------------
<PAGE>
ARTICLES OF INCORPORATION
OF
CONRAIL INC.
ARTICLE THREE
The purpose of purposes of the Corporation are to engage in
and do any lawful act concerning any or all lawful business for
which corporations may be incorporated under the provisions of
the Pennsylvania Business Corporation Law, Act of December 21,
1988 (P.L. 1444), as amended under which the Corporation is
incorporated, and the Corporation shall have unlimited power to
engage in and do any such lawful act. The term of the
Corporation's existence is perpetual.
ARTICLE FOUR
1. The total number of shares of capital stock which the
Corporation shall have authority to issue is two hundred and
seventy-five million (275,000,000) shares, of which two hundred
fifty million (250,000,000) shares shall be Common Stock, par
value $1 per share, and twenty-five million (25,000,000) shares
shall be preferred stock, no par value.
2. The Board of Directors shall have the authority to
divide the preferred stock into series and to fix and determine
the relative rights and preferences of any series so established,
including without limitation rates of dividends and whether fixed
or not and whether cumulative or non-cumulative, conversion
rights, if any, and conversion prices, preferences upon
liquidation, redemption rights, if any, and redemption prices,
and voting rights; provided, however, that the affirmative vote
of the holders of any class or series of preferred stock, as a
<PAGE>
class or series, shall not be required for any merger or other
transaction involving a change in control of the Corporation, nor
shall any share of preferred stock entitle the holder thereof to
more than one vote with respect to any merger or such other
transaction or in the election of directors of the Corporation.
The Board of Directors shall have the authority to provide for
the issuance of any such class or series of preferred stock.
3. The holders of the Common Stock shall be entitled to
receive dividends in such amounts and when, as and if lawfully
declared by the Board of Directors from time to time.
4. The holders of the Common Stock shall be entitled to
receive in voluntary or involuntary liquidation of the
Corporation all assets of the Corporation after payment or
satisfaction of any preferences in liquidation on any outstanding
preferred stock of the Corporation and all debts and obligations
of the Corporation, including costs of liquidation.
5. No holder of any class or series of the Corporation's
capital stock, now or hereafter authorized, shall have any
preemptive rights to purchase or receive any shares of any class
or series of capital stock, or any securities convertible into or
exchangeable for such shares, or any rights, warrants or options
to subscribe for, purchase or receive such shares or convertible
or exchangeable securities, which may at any time be issued, sold
or offered for sale by the Corporation.
6. Holders of the Common Stock shall be entitled to cast
one vote for each share held on all matters presented upon which
the holders are entitled to vote. No holder of any class or
<PAGE>
series of the Corporation's capital stock, now or hereafter
authorized, shall be entitled to vote cumulatively in the
election of directors.
7. Exhibit A hereto is incorporated herein in its
entirety.
ARTICLE SEVEN
The number of directors of the Corporation shall be as
stated in the Bylaws of the Corporation.
ARTICLE EIGHT
The Bylaws of the corporation may be amended or repealed by a
majority vote of' the shareholders entitled to vote thereon at
any regular or special meeting duly convened after notice to such
holders of that purpose. The Bylaws of the Corporation may also
be amended or repealed by a majority of the members of the Board
of Directors at any regular or special meeting duly convened,
subject always to the power of the shareholders to change such
action.
ARTICLE NINE
From time to time any provision of these Articles of
Incorporation may be amended or repealed, or any provision may be
added to or inserted in these Articles, provided that such
amendment, repeal, addition or insertion is consistent with law
and is accomplished in the manner prescribed by law and these
Articles, and all rights at any time conferred upon the
shareholders of the Corporation are granted subject to the
provision of this Article.
<PAGE>
ARTICLE TEN
Subchapter G and Subchapter H of Chapter 25 of Title 15 of
the Pennsylvania Consolidated Statutes shall not be applicable to
the Corporation.
ARTICLE ELEVEN
The entire Board of Directors, or a class of the Board where
the Board is classified with respect to the power to elect
directors, or any individual director may be removed from office
without assigning any cause by the vote of shareholders entitled
to cast at least a majority of the votes which all shareholders
would be entitled to cast at any annual election of directors or
of such class of directors.
<PAGE>
EXHIBIT A
RESOLVED, that pursuant to the authority
granted to and vested in the Board of Directors of this
Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the
provisions of the Amended and Restated Articles of
Incorporation and the authority granted to and vested
in the ESOP Committee of the Board of Directors
pursuant to Section 1731(c) of the Pennsylvania
Business Corporation Law, the ESOP Committee of the
Board of Directors hereby creates a series of Preferred
Stock, without par value (the "Preferred Stock"), of
the Corporation and hereby states the designation and
number of shares, and fixes the relative rights,
preferences and limitations thereof as follows:
Section 1. Designation and Amount: Special Purpose
----------------------------------------
Restricted Transfer Issue.
- -------------------------
(A) The shares of such series shall be designated as
"Series A ESOP Convertible Junior Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the
Series A Preferred Stock shall be 10,000,000. Such number may be
increased or decreased by resolution of the Board of Directors;
<PAGE>
provided, that no decrease shall reduce the number of shares of
- --------
Series A Preferred Stock to a number less than the number of such
shares then outstanding plus the number of such shares, if any,
reserved for issuance upon the exercise of outstanding options,
rights or warrants issued by the Corporation to acquire Series A
Preferred Stock, or upon the conversion of any outstanding
securities issued by the Corporation convertible into Series A
Preferred Stock.
(B) Shares of Series A Preferred Stock shall be issued
(whether upon original issuance or upon transfer) only to a
trustee or trustees (or to any successor trustee or trustees)
(collectively, a "Trustee") acting under one or more trust
agreements for the benefit of participants in one or more
employee stock ownership plans of the Corporation (any such
plan, a "Plan"). In the event of a sale, distribution or other
transfer (any such sale, distribution or other transfer, a
"Transfer") of any shares of Series A Preferred Stock to any
person or entity other than the Corporation or a Trustee, the
Shares of Series A Preferred Stock which are the subject of a
Transfer (the "Transferred Shares') shall be automatically
converted into shares of the Corporation's Common Stock, par
value $1 per share ("Common Stock), at the conversion rate
provided in Section 5(A) hereof; provided, however, that in the
-----------------
event of a foreclosure or other realization upon shares of
Series A Preferred Stock pledged as collateral by or pursuant to
2
<PAGE>
any credit agreement, indenture or other document or instrument
for the financing or refinancing of the initial purchase of the
Series A Preferred Stock by a Plan, the Transferred Shares shall
be automatically converted into shares of Common Stock at the
conversion rate provided in Section 5(B) hereof. In each such
case conversion will occur immediately upon such Transfer or any
foreclosure or other realization, as the case may be, and
without any further action by the Corporation or the holder of
the Transferred Shares, and thereafter (i) any certificates for
Transferred Shares shall be deemed to represent the shares of
Common Stock into which such Transferred Shares have been so
converted, (ii) no holder of such Transferred Shares shall have
any of the voting powers, preferences and relative,
participating, optional or special rights of a holder of shares
of Series A Preferred Stock, but, rather, only the powers and
rights of a holder of the Common Stock into which such shares of
Series A Preferred Stock shall be so converted and (iii) the
holder of such Transferred Shares shall be treated for all
purposes as the holder of the shares of Common Stock into which
such shares of Series A Preferred Stock have been automatically
converted as of the date of such Transfer. The pledge of Series
A Preferred Stock as collateral by or pursuant to any credit
agreement, indenture or other document or instrument for the
financing or refinancing of the initial purchase of the Series A
Preferred Stock by a Plan shall not constitute a Transfer for
purposes of this Section l(B), but the foreclosure or other
realization upon such pledged shares shall constitute a
3
<PAGE>
Transfer. Certificates representing shares of Series A
Preferred Stock shall be legended to reflect the restrictions on
transfer set forth in this Section l(B). Notwithstanding the
foregoing provisions of this Section l(B), shares of Series A
Preferred Stock (i) may be converted into shares of Common Stock
pursuant to Section 5 or 6 hereof at any time prior to a
Transfer and the shares of Common Stock issued or delivered upon
such conversion will not be subject to any of the restrictions
of this Section l(B) and (ii) shall be redeemable by the
Corporation upon the terms and conditions provided by Sections 7
and 8 hereof.
Section 2. Dividends and Distributions.
---------------------------
(A) Subject to the rights of the holders of any shares of
any series of Preferred Stock (or any similar stock) ranking
prior and superior to the Series A Preferred Stock with respect
to dividends, the holders of shares of Series A Preferred Stock,
in preference to the holders of Common Stock and of any other
Junior Stock (as defined in Section 2(D) hereof), shall be
entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available for the purpose,
cumulative cash dividends payable in an amount equal to $2.165
per share per annum and no more (such amount being referred to
herein as the "Dividend Amount"), payable quarterly in arrears,
one quarter on the last day of each March, June, September and
December in each year commencing June 30, 1990 (each such date
being referred to herein as a "Dividend Payment Date"),
commencing on the first Dividend Payment Date after the first
4
<PAGE>
issuance of a share of Series A Preferred Stock. In the event
that any Dividend Payment Date shall occur on any day other than
a "Business Day" (as defined in Section 9(F) hereof), the
dividend payment due on such Dividend Payment Date shall be paid
on the next Business Day after such Dividend Payment Date. The
Board of Directors may fix a record date for the determination of
holders of shares of Series A Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon,
which record date shall be not more than 90 days prior to the
date fixed for the payment thereof.
(B) Dividends shall begin to accrue on outstanding
shares of Series A Preferred Stock from the date of issue of such
shares and shall accrue on a daily basis whether or not declared
and whether or not the Corporation shall have the authority under
Section 1551 (or any successor section) of the Pennsylvania
Business Corporation Law to declare and pay such dividends at the
time. Dividends accrued on the shares of Series A Preferred
Stock for any period less than a full quarterly period between
Dividend Payment Dates shall be computed on the basis of a 360
day year of 30-day months. Accrued but unpaid dividends shall
cumulate as of the Dividend Payment Date on which they first
become payable, but no interest shall accrue on accrued or
accumulated but unpaid dividends.
(C) Dividends paid on the shares of Series A Preferred
Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be allocated
5
<PAGE>
pro rata on a share-by-share basis among all such shares at the
time outstanding.
(D) So long as any Series A Preferred Stock
shall be outstanding, no dividend shall be declared and paid or
set apart for payment on any other series of stock ranking on a
parity with the Series A Preferred Stock as to dividends ("Parity
Stock"), unless there shall also be or have been declared and
paid or set apart for payment dividends on the Series A Preferred
Stock for all Dividend Payment Dates of the Series A Preferred
Stock occurring on or before the dividend payment date of such
Parity Stock, ratably in proportion to the respective amounts of
dividends on the Series A Preferred Stock accumulated and unpaid
through the most recent such Dividend Payment Date, and dividends
accumulated and unpaid on such Parity Stock through the dividend
payment period on such Parity Stock ending on the dividend
payment date for such Parity Stock. So long as any Series A
Preferred Stock shall be outstanding, in the event that full
cumulative dividends on the Series A Preferred Stock have not
been declared and paid or set apart for payment when due, the
Corporation shall not declare and pay or set apart for payment
any dividends or make any other distributions on, or make any
payment on account of the purchase, redemption or other
retirement of, Common Stock or any other class of stock or series
thereof of the Corporation ranking, as to dividends or as to
distributions in the event of a liquidation, dissolution or
winding-up of the Corporation, junior to the Series A Preferred
Stock (collectively, "Junior Stock") until full cumulative and
6
<PAGE>
unpaid dividends on the Series A Preferred Stock shall have been
paid or declared and set apart for payment; provided however,
--------
that the foregoing shall not apply to (i) any dividend payable
solely in any shares of any Junior Stock, or (ii) the acquisition
of shares of any Junior Stock either (x) pursuant to any employee
or director incentive or benefit plan or arrangement of-the
Corporation or any subsidiary of the Corporation heretofore or
hereafter adopted or (y) in exchange solely for shares of any
other Junior Stock. Subject to the foregoing provisions of this
Section 2(D), the Board of Directors may declare and the
Corporation may pay or set apart for payment dividends and other
distributions on any other Junior Stock or Parity Stock, and may
purchase or otherwise redeem or retire any of the Junior Stock or
Parity Stock or any warrants, rights, or options or other
securities exercisable for or convertible into any of the Junior
Stock or Parity Stock and the holders of shares of the Series A
Preferred Stock shall not be entitled to share therein.
Section 3. Voting Rights. The holders of shares of Series
-------------
A Preferred stock shall have the following voting rights:
(A) Each share of Series A Preferred Stock shall entitle
the holder thereof to one vote on all matters submitted to a vote
of the stockholders of the Corporation; it being understood that
whenever the "Conversion Ratio" (as defined in Section 5(A)
hereof) is adjusted as provided in Section 9 hereof, the number
of votes per share of Series A Preferred Stock shall also be
similarly adjusted. Notwithstanding the foregoing, the number of
votes per share of Series A Preferred Stock shall at no time
7
<PAGE>
exceed the highest number then permitted by the Amended and
Restated Articles of Incorporation of the Corporation as then in
effect or by applicable rules and regulations of the Securities
and Exchange Commission or the New York Stock Exchange. In the
event that the number of votes per share of Series A Preferred
Stock is not adjusted upon an adjustment to the Conversion Ratio
as a result of the immediately preceding sentence, then the Board
of Directors shall promptly take such action as may be necessary
to equitably adjust for such adjustment to the Conversion Ratio,
including without limitation, subdividing outstanding shares of
Series A Preferred Stock (by declaring a stock dividend or
otherwise) to the extent the Corporation has authorized shares of
Series A Preferred Stock which are not then outstanding, or
designating and issuing additional shares of Series A Preferred
Stock to the extent the Corporation has authorized shares of
Preferred Stock which are not then outstanding and are
undesignated as to series; provided, however, no such action on
-----------------
the part of the Board of Directors shall adjust or Change the
aggregate economic terms assigned to the outstanding shares of
Series A Preferred Stock.
(B) Except as otherwise provided herein, in any other
Statement With Respect To Shares creating a series of Preferred
Stock or any similar stock, or in any bylaw of the Corporation,
the holders of shares of Series A Preferred Stock and the holders
of shares of Common Stock and any other capital stock of the
Corporation having general voting rights shall vote together as
8
<PAGE>
one class on all matters submitted to a vote of stockholders of
the Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special
voting rights and their consent shall not be required (except to
the extent they are entitled to vote with holders of Common Stock
as set forth herein) for taking any corporate action; provided,
---------
however, that the vote of at least 66-2/3% of the outstanding
- -------
shares of Series A Preferred Stock, voting separately as a
series, shall be necessary to adopt any alteration, amendment or
repeal of any provision of the Amended and Restated Certificate
of Incorporation of the Corporation, or this Resolution
(including any such alteration, amendment or repeal effected by
any merger or consolidation in which the Corporation is the
surviving or resulting corporation), if such amendment,
alteration or repeal would alter or change the powers,
preferences, or special rights of the shares of Series A
Preferred Stock so as to effect them adversely. Neither an
increase or decrease in the Series A Preferred Stock (but not
below the number of shares thereof then outstanding) nor the
creation of any series of Preferred Stock ranking, as to
dividends or as to distributions, in the event of a liquidation,
dissolution or winding up of the Corporation, senior to the
Series A Preferred Stock shall be deemed to make any change in
the preferences, limitations or special rights of the shares of
Series A Preferred Stock adverse to such shares and no class vote
9
<PAGE>
shall be required to authorize such increase, decrease or
creation of any such series.
Section 4. Liquidation; Dissolution.
------------------------
(A) Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (i) to the holders of
shares of stock ranking junior with respect to rights to receive
distributions upon liquidation, dissolution or winding up to the
Series A Preferred Stock unless, prior thereto, the holders of
shares of Series A Preferred Stock shall-have received an amount
in cash of $28.84375 per share (such amount being referred to
herein as the "Liquidation Preference"), plus an amount in cash
equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, up to the date of such payment, or (ii)
to the holders of shares of stock ranking on a parity with
respect to the right to receive distributions upon liquidation,
dissolution or winding up with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock
and all such parity stock in proportion to the total amount to
which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. After payment of the
full amount to which they are entitled as provided by the
foregoing provisions of this Section 4(A), the holders of shares
of Series A Preferred Stock shall not be entitled to any further
right or claim to any of the remaining assets of the Corporation.
(B) Neither the merger or consolidation of the Corporation
with or into any other corporation or other entity, nor the
merger or consolidation of any other corporation or other entity
10
<PAGE>
with or into the Corporation, nor the sale, transfer or lease of
all or any portion of the assets of the Corporation, shall be
deemed to be a liquidation, dissolution or winding up of the
Corporation for purposes of this Section 4, and the holders of
Series A Preferred Stock shall nevertheless be entitled in the
event of any such merger or consolidation to the rights provided
by Section 8 hereof.
(C) Written notice of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation,
stating the payment date or dates when, and the place or places
where, the amount distributable to holders of Series A Preferred
Stock in such circumstances shall be payable, shall be given by
hand delivery, by courier, charges prepaid, by telegram (with
messenger service specified), telex or TWX (with answerback
received), or by first-class or express mail, postage prepaid,
delivered, sent or mailed (as the case may be) not less then
twenty (20) days prior to any payment date stated therein, to the
holders of Series A Preferred Stock, at their respective
addresses shown on the books of the Corporation; provided,
--------
however, that a failure to give notice as provided above or any
- -------
defect therein shall not affect the Corporation's ability to
consummate a voluntary or involuntary liquidation, dissolution or
winding up of the Corporation.
11
<PAGE>
Section 5: Conversion into Common Stock.
----------------------------
(A) A holder of shares of Series A Preferred Stock shall be
entitled, at any time prior to the close of business on the date
fixed for redemption of such shares pursuant to Section 7 or 8
hereof, to cause any or all of such shares to be converted into
validly issued, fully paid and nonassessable shares of Common
Stock, initially at a conversion rate equal to the ratio of one
share of Common Stock for each one share of Series A Preferred
Stock, which conversion rate shall be adjusted as hereinafter
provided (and, as so adjusted, rounded to the nearest ten-
thousandth, is hereinafter sometimes referred to as the
"Conversion Ratio").
(B) Notwithstanding Section 5(A), in the event of an
automatic conversion pursuant to Section l(B) hereof due to a
foreclosure or other realization upon shares of Series A
Preferred Stock pledged as collateral in connection with the
financing or refinancing of the initial purchase of the Series A
Preferred Stock by a Plan, shares of Series A Preferred Stock
shall be converted into validly issued, fully paid and
nonassessable shares of Common Stock at a conversion rate,
expressed as a ratio of shares of Common Stock per share of
Series A Preferred Stock, equal to the greatest of: (i) the
Conversion Ratio, (ii) a fraction, the numerator of which shall
be the "Fair Market Value" (as defined in Section 9(F) hereof) of
12
<PAGE>
one share of Series A Preferred Stock, assuming the Series A
Preferred Stock is not then being converted into Common Stock
(plus an amount equal to accrued and unpaid dividends thereon, if
such dividends have not already been taken into account in
determining the Fair Market Value), and the denominator of which
shall be the Fair Market Value of one share of Common Stock, both
computed as of the date of conversion, or (iii) a fraction, the
numerator of which shall be the Liquidation Preference plus an
amount equal to accrued and unpaid dividends thereon and the
denominator of which shall be the Fair Market Value of one share
of Common Stock on the date of conversion.
(C) Any holder of shares of Series A Preferred Stock
desiring to convert such shares into shares of Common Stock shall
surrender the certificate or certificates representing the shares
of Series A Preferred Stock being converted, duly assigned or
endorsed for transfer to the Corporation (or accompanied by duly
executed stock powers relating thereto), at the principal
executive office of the Corporation, accompanied by written
notice of conversion. Such notice of conversion shall specify
(i) the number of shares of Series A Preferred Stock to be
converted and the name or names in which such holder wishes the
certificate or certificates for Common Stock to be issued or
delivered (subject to compliance with applicable legal
requirements if any of said certificates are to be issued in a
name other than the name of the holder), and (ii) the address to
which such holder wishes delivery to be made of such new
certificates upon such conversion.
13
<PAGE>
(D) Upon surrender of a certificate representing a share or
shares of Series A Preferred Stock for conversion, the
Corporation shall, as promptly as practicable after such
surrender, deliver to the holder thereof or to such holder's
designee, at the address designated by such holder, a certificate
or certificates for the number of shares of Common Stock to which
such holder shall be entitled upon conversion together with any
cash adjustment of any fraction of a share as hereinafter
provided. In the event that there shall have been surrendered a
certificate or certificates representing shares of Series A
Preferred Stock only part of which are to be converted, the
Corporation shall deliver to the Trustee a new certificate or
certificates representing the number of shares of Series A
Preferred Stock which shall not have been converted.
(E) A conversion of shares of Series A Preferred Stock into
shares of Common Stock shall be effective (i) if made at the
option of the holder thereof, as of the close of business on the
day on which the Corporation receives written notice of
conversion pursuant to Section 5(c) or (ii) if made pursuant to
Section l(B) hereof, at the time of Transfer. On and after the
effective date of conversion, the shares of Series A Preferred so
converted shall no longer be deemed to be outstanding for any
purpose, and the person or persons entitled to receive the Common
Stock upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock, but
no allowance or adjustment shall be made in respect of dividends
payable to holders of Common Stock of record on any date prior to
14
<PAGE>
such effective date. The Corporation shall not be obligated to
pay any dividends which shall have been declared and shall be
payable to holders of shares of Series A Preferred Stock on a
Dividend Payment Date if such Dividend Payment Date for such
dividend shall be on or subsequent to the effective date of
conversion of such shares, unless such declared dividends have
been set aside for payment prior to the effective date of
conversion of such shares, which dividends shall be paid on the
applicable Dividend Payment Date.
(F) Whenever the Corporation shall deliver shares of Common
Stock upon conversion of shares of Series A Preferred Stock as
contemplated by this Section 5, the Corporation shall deliver
together with each such share of Common Stock one right to
purchase Common Stock (or other securities in lieu thereof)
pursuant to the Rights Agreement dated as of July 19, 1989
between the Corporation and First Chicago Trust Company of New
York, as Rights Agent, as such agreement may from time to time be
amended (such Agreement, as so amended, is hereinafter referred
to as the "Rights Agreement"), or any rights issued to holders of
Common Stock in addition thereto or in replacement therefor,
whether or not such rights shall be exercisable at such time, but
only if such rights are issued and outstanding and held by other
holders of Common Stock at such time and have not expired or been
redeemed.
(G) The Corporation shall not be obligated to deliver to
holders of Series A Preferred Stock any fractional share or
shares of Common Stock issuable upon any conversion of such
15
<PAGE>
shares of Series A Preferred Stock, but in lieu thereof may make
a cash payment in respect thereof in any manner permitted by law.
(H) The Corporation shall at all times reserve and keep
available out of its authorized and unissued Common Stock, solely
for issuance upon the conversion of shares of Series A Preferred
Stock as herein provided, free from any preemptive rights, such
number of shares of Common Stock as shall from time to time be
issuable upon the conversion of all the shares of Series A
Preferred Stock then outstanding. Nothing contained herein shall
preclude the Corporation from delivering issued but not
outstanding shares of Common Stock owned by the Corporation upon
the conversion of shares of Series A Preferred Stock into Common
Stock pursuant to the terms hereof. The Corporation shall
prepare and shall use its best efforts to obtain and keep in
force such governmental or regulatory permits or other
authorizations as may be required by law, and shall comply with
all requirements as to registration or qualification of the
Common Stock, in order to enable the Corporation lawfully to
issue and deliver to each holder of record of Series A Preferred
Stock such number of shares of its Common Stock as shall from
time to time be sufficient to effect the conversion of all shares
of Series A Preferred Stock then outstanding and convertible into
shares of Common Stock.
16
<PAGE>
Section 6. Other Conversion Rights. In addition to the
-----------------------
conversion rights provided in Section 5(A) and 5(B) hereof,
shares of Series A Preferred Stock may be converted into shares
of Common Stock at the option of the holder at any time and from
time to time upon written notice received by the Corporation not
less than five (5) Business Days prior to the date fixed by the
holder in such notice for such conversion,
(A) when and to the extent necessary for such holder to
provide for distributions to participants required to be made
under, or to satisfy an investment election provided to
participants in accordance with, a Plan, at a conversion rate,
expressed as a ratio of shares of Common Stock per share of
Series A Preferred Stock, equal to the greater of (i) a fraction,
the numerator of which shall be the Fair Market Value of one
share of Series A Preferred Stock, assuming the Series A
Preferred Stock is not then being converted into Common Stock
(plus accrued and unpaid dividends thereon to the date of
conversion if such dividends have not already been taken into
account in determining Fair Market Value), and the denominator of
which shall be the Fair Market Value of one share of Common
Stock, both computed as of the date of conversion, or (ii) the
Conversion Ratio; provided, however, that the Corporation, at its
17
<PAGE>
option, may, in lieu of such conversion, pay to the holder of
such shares of Series A Preferred Stock in cash the Fair Market
Value, as of the date of conversion, of any or all of the shares
of Common Stock into which such shares of Series A Preferred
Stock may be converted, or
(B) in the event that the Plan is determined by the
Internal Revenue Service not to be qualified within the meaning
of Section 4975(e)(7) of the Internal Revenue Code of 1986, as
amended (the "Code"), at a conversion rate, expressed as a ratio
of shares of Common Stock per share of Series A Preferred Stock,
equal to the greater of (i) a fraction, the numerator of which
shall be the Fair Market Value of one share of Series A Preferred
Stock, assuming the Series A Preferred Stock is not then being
converted into Common Stock (plus accrued and unpaid dividends
thereon to the date of conversion if such dividends have not
already been taken into account in determining Fair Market
Value), and the denominator of which shall be the Fair Market
Value of one share of Common Stock, both computed as of the date
of conversion, or (ii) a fraction, the numerator of which shall
be the Liquidation Preference plus accrued but unpaid dividends
thereon to the date of conversion and the denominator of which
shall be the Fair Market Value of one Share of Common Stock on
the date of conversion.
Section 7. Redemption At the Option of the Corporation.
-------------------------------------------
18
<PAGE>
(A) The Series A Preferred Stock shall be redeemable, in
whole or in part, at the option of the Corporation, out of funds
legally available therefor, at any time after April 1, 2000 at
the Liquidation Preference, plus an amount equal to all accrued
and unpaid dividends thereon to the date fixed for redemption.
Payment of the redemption price shall be made by the Corporation
in cash or shares of Common Stock, or a combination thereof, as
permitted by Section 7(E). From and after the close of business
on the date fixed for redemption, dividends on shares of Series A
Preferred Stock called for redemption will cease to accrue, such
shares will no longer be deemed to be outstanding and all rights
in respect of such shares of the Corporation shall cease, except
the right to receive the redemption price; provided that shares
of Series A Preferred Stock may be converted pursuant to Section
5 or, if applicable, Section 6 hereof at any time prior to the
close of business on the date fixed for redemption of such shares
pursuant to Section 7 or 8 hereof. No interest shall accrue on
the redemption price after the date fixed for redemption. If
less than all of the outstanding shares of Series A Preferred
Stock are to be redeemed, the Corporation shall elect the shares
to be redeemed in the manner determined by the Board of Directors
of the Corporation.
19
<PAGE>
(B) Unless otherwise required by law, notice of redemption
with respect to a redemption pursuant to paragraphs (A), (C) or
(D) of this Section 7 will be sent to the holders of Series A
Preferred Stock at their addresses as shown on the books of the
Corporation by any manner described in Section 4(C), delivered,
sent or mailed (as the case may be) not less than twenty (20)
days nor more than sixty (60) days prior to the redemption date.
Each such notice shall state: (i) the redemption date; (ii) the
total number of shares of the Series A Preferred Stock to be
redeemed and, if fewer than all the shares held by such holder
are to be redeemed, the number of the shares to be redeemed from
such holder; (iii) the redemption price and method of payment
therefor; (iv) the place or places where certificates for such
shares are to be surrendered for payment of the redemption price;
(v) that dividends on the shares to be redeemed will cease to
accrue on such redemption date; and (vi) the conversion rights of
the shares to be redeemed, the period within which conversion
rights may be exercised, and the Conversion Ratio in effect at
the time. Upon surrender of the certificates for any shares
called for redemption pursuant to the provisions of this Section
7 or the provisions of Section 8 hereof, which shares have not
previously been converted, such shares shall be redeemed by the
20
<PAGE>
Corporation at the date fixed for redemption and at the
applicable redemption price set forth in this Section 7 or in
Section 8 hereof.
(C) In the event (i) of a change in the federal tax law of
the United States of America or a determination by a court of
competent jurisdiction, which, in either case, has the effect of
precluding the Corporation from claiming any portion of the tax
deductions for dividends paid on the Series A Preferred Stock
when such dividends are used as provided under Section 404(k)(2)
of the Code in effect on the date shares of Series A Preferred
Stock are initially issued or (ii) at any time the Plan is
determined by the Internal Revenue Service not to be qualified
within the meaning of Section 4975(e)(7) of the Code, the
Corporation may, in its sole discretion and notwithstanding
anything to the contrary in Section 7(A), elect to redeem such
shares, out of funds legally available therefor, at the
conversion rate specified in clause (B) of Section 6, and
otherwise on the terms and conditions set-forth in Sections 7(A)
and 7(B). In addition, in the event it is necessary to provide
for distributions to participants required to be made under, or
to satisfy an investment election provided to Participants in
accordance with, a Plan, the Company may, in its sole discretion
21
<PAGE>
and notwithstanding anything to the contrary in Section 7(A),
elect to redeem such shares, out of funds legally available
therefor, at the conversion rate specified in clause (A) of
Section 6, and otherwise on the terms and conditions set forth in
Sections 7 (A) and 7 (B).
(D) Notwithstanding anything to the contrary in Section
7(A), the Corporation shall redeem all of the shares of Series A
Preferred Stock held by a Plan upon termination by the
Corporation of such Plan out of funds legally available therefor,
at the conversion rate specified in clause (B) of Section 6, and
otherwise on the terms and conditions set forth in Sections 7(A)
and 7(B).
(E) The Corporation, at its option, may make payment of the
redemption price required upon redemption of shares of Series A
Preferred Stock in cash or in shares of Common Stock, or in a
combination of such shares and cash, any such shares to be valued
for such purpose at their Fair Market Value as of the date of
redemption.
Section 8. Consolidation, Combination, Merger, Etc. (A) In
----------------------------------------
the event that the Corporation shall consummate any exchange
offer, liquidation, tender offer, consolidation, merger,
combination, reclassification, recapitalization or other
22
<PAGE>
transaction pursuant to which the outstanding shares of Common
Stock are by operation of law exchanged solely for or changed,
reclassified or converted solely into, stock of any successor or
resulting company (including the Corporation) that, with respect
to a holder of Series A Preferred Stock, constitutes both
"employer securities" within the meaning of Section 409(l) of the
Code and "qualifying employer securities" within the meaning of
Section 407(d)(5) of the Employee Retirement Income Security Act
of 1974, as amended, or any successor provisions of law
(together, if applicable, with a cash payment in lieu of
fractional shares), the shares of Series A Preferred Stock of
such holder shall in connection therewith be assumed by and shall
become preferred stock of such successor or resulting company,
having in respect of such company insofar as possible the same
powers, preferences and relative, participating, optional or
other special rights (including the rights provided by Sections 7
and 8 hereof), and the qualifications, limitations or
restrictions thereon, that the Series A Preferred Stock had
immediately prior to such transaction, except that after such
transaction each share of the Series A Preferred Stock shall be
convertible, otherwise on the terms and conditions provided by
Sections 5 and 6 hereof, into the number and kind of qualifying
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<PAGE>
employer securities so receivable by a holder of the number of
shares of Common Stock into which such shares of Series A
Preferred Stock could have been converted pursuant to Section
5(A) hereof immediately prior to such transaction; provided,
--------
however, that if by virtue of the structure of such transaction,
a holder of Common Stock is required to make an election with
respect to the nature and kind of consideration to be received in
such transaction, which election cannot practicably be made by
the holders of the Series A Preferred Stock, then such election
shall be deemed to be solely for "qualifying employer securities"
(together, if applicable, with a cash payment in lieu of
fractional shares) with the effect provided above on the basis of
the number and kind of qualifying employer securities receivable
by a holder of the number of shares of Common Stock into which
the shares of Series A Preferred Stock could have been converted
pursuant to Section 5(A) hereof immediately prior to such
transaction (it being understood that if the kind or amount of
qualifying employer securities receivable in respect of each
share of Common stock upon such transaction is not the same for
each such share, then the kind and amount of qualifying employer
securities deemed to be receivable in respect of each share of
Common Stock for purposes of this proviso shall be the kind and
24
<PAGE>
amount so receivable per share of Common Stock by a plurality of
such shares). The rights of the Series A Preferred Stock as
preferred stock of such successor or resulting company shall
successively be subject to adjustments pursuant to Section 9
hereof after any such transaction as nearly equivalent as
practicable to the adjustments provided for by such Section prior
to such transaction. The Corporation shall not consummate any
such merger, consolidation or similar transaction unless all then
outstanding shares of the Series A Preferred Stock shall be
assumed and authorized by the successor or resulting company
pursuant to this Section 8(A).
(B) In the event that the Corporation shall consummate any
exchange offer, liquidation, tender offer, consolidation, merger,
combination, reclassification, recapitalization or other
transaction, pursuant to which the outstanding shares of Common
Stock are by operation of law exchanged for or changed,
reclassified or converted into other stock or securities or cash
or any other property, or any combination thereof, other than any
such consideration which is constituted solely of qualifying
employer securities (as referred to in Section 8(A)) and cash
payments, if applicable, in lieu of fractional shares,
outstanding shares of Series A Preferred Stock shall, without any
action on the part of the Corporation or any holder thereof (but
subject to Section 8(C)), be automatically converted by virtue of
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<PAGE>
such merger, consolidation, combination or similar business
combination transaction immediately prior to its consummation
into the number of shares of Common Stock into which such shares
of Series A Preferred stock could have been converted at such
time so that each share of Series A Preferred Stock, shall, by
virtue of such transaction and on the same terms as apply to the
holders of Common Stock, be converted into or exchanged for the
aggregate amount of stock, securities, cash or other property
(payable in like kind) receivable by a holder of the number of
shares of Common Stock into which such shares of Series A
Preferred Stock could have been converted pursuant to Section
5(A) hereof immediately prior to such transaction; provided,
--------
however, that if by virtue of the structure of such transaction a
- -------
holder of Common Stock is required to make an election with
respect to the nature and kind of consideration to be received in
such transaction, which election cannot practicably be made by
the holders of the Series A Preferred Stock, then the shares of
Series A Preferred Stock shall, by virtue of such transaction and
on the same terms as apply to the holders of Common Stock, be
converted into or exchanged for the aggregate amount of such
stock, securities, cash or other property (payable in kind)
receivable by a holder of the number of shares of Common Stock
into which such shares of Series A Preferred Stock could have
been converted immediately prior to such transaction if such
holder of Common Stock failed to exercise any rights of election
as to the kind or amount of stock, securities, cash or other
property receivable upon such transaction (provided that if the
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<PAGE>
kind or amount of stock, securities, cash or other property
receivable upon such transaction is not the same for each
nonelecting share, then the kind and amount of stock, securities,
cash or other property receivable upon such transaction for each
non-electing share shall be the kind and amount so receivable per
share by a plurality of the non-electing shares).
(C) In the event the Corporation shall enter into any
agreement providing for any exchange offer, liquidation, tender
offer, consolidation, merger, combination, reclassification,
recapitalization or other transaction, described in Section 8(B),
then the Corporation shall as soon as practicable thereafter (and
in any event at least ten (10) Business Days before consummation
of such transaction) give notice, in any manner described in
Section 4(C), of such agreement and the material terms thereof to
each holder of Series A Preferred Stock and each such holder
shall have the right to elect, by written notice to the
Corporation, to receive, upon consummation of such transaction
(if and when such transaction is consummated), out of funds
legally available therefor, from the Corporation or the successor
of the Corporation, in redemption and retirement of such Series A
Preferred Stock, a cash payment equal to the Liquidation
Preference plus an amount equal to all accrued and unpaid
dividends. No such notice of redemption shall be effective
unless given to the Corporation prior to the close of business on
the Business Day prior to consummation of such transaction,
unless the Corporation or the successor of the Corporation shall
waive such prior notice, but any notice of redemption so given
27
<PAGE>
prior to such time may be withdrawn by notice of withdrawal given
to the Corporation prior to the close of business on the Business
Day prior to consummation of such transaction.
Section 9. Anti-dilution Adjustments.
(A)(i) Subject to the provisions of Section 9(D) and 9(E)
hereof, in the event the Corporation shall, at any time or from
time to time while any of the shares of the Series A Preferred
Stock are outstanding, (x) pay a dividend or make a distribution
in respect of the Common Stock in shares of Common Stock or (y)
subdivide the outstanding shares of Common Stock into a greater
number of shares, in each case whether by reclassification of
shares, recapitalization of the Corporation, a recapitalization
or reclassification effected by a merger, consolidation or other
transaction to which Section 8 hereof applies or otherwise, then,
in such event, the Board of Directors shall, to the extent
legally permissible, declare a dividend in respect of the Series
A Preferred Stock in shares of Series A Preferred Stock (a
"Special Dividend") in such a manner that the holder of each
share of Series A Preferred Stock will become the holder of that
number of shares of Series A Preferred Stock equal to the product
of the number of such shares held prior to such event times a
fraction (the "Sec. 9(A) Non-Dilutive Share Fraction"), the
numerator of which is the number of shares of Common Stock
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<PAGE>
outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock outstanding
immediately before such event. A Special Dividend declared
pursuant to this paragraph 9(A)(i) shall be effective on the
record date for such dividend or distribution in respect of the
Common Stock and in the case of a subdivision shall become
effective immediately as of the effective date thereof.
Concurrently with the declaration of a Special Dividend pursuant
this paragraph 9(A)(i), the Liquidation Preference and the
Dividend Rate of all shares of Series A Preferred Stock shall be
adjusted by dividing the Liquidation Preference and the Dividend
Rate, respectively, in effect immediately before such event by
the Sec. 9(A) Non-Dilutive Share Fraction.
(ii) The Corporation and the Board of Directors shall each
use its best efforts to take all necessary steps or to take all
actions as are reasonably necessary or appropriate for
declaration of the Special Dividend provided in paragraph 9(A)(i)
but shall not be required to call a special meeting of
stockholders in order to implement the provisions thereof. If for
any reason the Board of Directors is precluded from giving full
effect to the Special Dividend provided for in paragraph 9(A)(i),
then no such Special Dividend shall be declared, but instead the
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<PAGE>
Conversion Ratio shall automatically be adjusted by multiplying
the Conversion Ratio in effect immediately before the event by
the Sec. 9(A) Non-Dilutive Share Fraction, and the Liquidation
Preference and the Dividend Rate will not be adjusted. An
adjustment to the Conversion Ratio made pursuant to this
paragraph 9(A)(ii) shall be given effect upon payment of such a
dividend or distribution as of the record date for the
determination of holders entitled to receive such dividend or
distribution (on a retroactive basis) and in the case of a
subdivision shall become effective immediately as of the
effective date thereof. If subsequently the Board of Directors
is able to give full effect to the Special Dividend as provided
in paragraph 9(a)(i), then such Special Dividend will be declared
in accordance with the provisions of paragraph 9(a)(i) and the
adjustment in the Conversion Ratio as provided in this paragraph
9(A)(ii) will automatically be reversed and nullified
prospectively.
(iii) Subject to the provisions of Sections 9(D) and 9(E)
hereof, in the event the Corporation shall, at any time or from
time to time while any of the shares of the Series A Preferred
Stock are outstanding, combine the outstanding shares of Common
Stock into a lesser number of shares, whether by reclassification
30
<PAGE>
of shares, recapitalization of the Corporation, a
recapitalization or reclassification effected by a merger,
consolidation or other transaction to which Section 8 hereof
applies or otherwise, then, in such event, the Conversion Ratio
shall automatically be adjusted by multiplying the Conversion
Ratio in effect immediately before such event by the Sec. 9(A)
Non-Dilutive Share Fraction, and the Liquidation Preference and
the Dividend Rate will not be adjusted. An adjustment to the
Conversion Ratio made pursuant to this paragraph 9(A)(iii) shall
be given effect immediately as of the effective date of such
combination.
(B)(i) subject to the provisions of Sections 9(D) and (E)
hereof, in the event the Corporation shall, at any time or from
time to time while any of the shares of Series A Preferred Stock
are outstanding, issue, sell or exchange shares of Common Stock
(other than pursuant to (x) any right or warrant to purchase or
acquire shares of Common Stock (including as such a right or
warrant to purchase or acquire any security convertible into or
exchangeable for shares of Common Stock), (y) the Rights
Agreement or (z) any employee or director incentive, compensation
or benefit plan or arrangement of the Corporation or any
subsidiary of the Corporation heretofore or hereafter adopted)
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<PAGE>
for a consideration having a Fair Market Value on the date of
issuance, sale or exchange less than the Fair Market Value of
such shares on the date of issuance, sale or exchange, then, in
such event, the Board of Directors shall, to the extent legally
permissible, declare a Special Dividend in such a manner that the
holder of each share of Series A Preferred Stock will become the
holder of that number of shares of Series A Preferred Stock equal
to the product of the number of such shares held prior to such
event times a fraction (the "Sec. 9(B)(i) Non-Dilutive Share
Fraction"), the numerator of which is the number of shares of
Common Stock outstanding immediately before the public
announcement of such issuance, sale or exchange plus the number
of shares of Common Stock so issued, sold or exchanged by the
Corporation and the denominator of which is the number of shares
of Common Stock outstanding immediately before the public
announcement of such issuance, sale or exchange plus the number
of shares of Common Stock which could be purchased at the Fair
Market Value of the consideration received by the Corporation in
respect of such issuance, sale or exchange. Concurrently with
the declaration of a Special Dividend pursuant to this paragraph
9(B)(i), the Liquidation Preference and the Dividend Rate of all
shares of Series A Preferred Stock shall be adjusted by dividing
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<PAGE>
the Liquidation Preference and the Dividend Rate, respectively,
in effect immediately before such issuance, sale or exchange by
the Sec. 9(B)(i) Non-Dilutive Share Fraction.
(ii) Subject to the provisions of Sections 9(D) and 9(E)
hereof, in the event the Corporation shall, at any time or from
time to time while any shares of Series A Preferred Stock are
outstanding, issue, sell or exchange any right or warrant to
purchase or acquire shares of Common Stock (including as such a
right or warrant any security convertible into or exchangeable
for shares of Common Stock and rights issued under the Rights
Agreement), other than any such issuance to holders of shares of
Common Stock as a dividend or distribution (including by way of a
reclassification of shares or a recapitalization of the
Corporation) and other than pursuant to any employee or director
incentive, compensation or benefit plan or arrangement of the
Corporation or any subsidiary of the Corporation heretofore or
hereafter adopted, exercisable for a consideration having a Fair
Market Value per share of Common Stock on the date of such
issuance, sale or exchange less than the Sec. 9(F) Non-Dilutive
Amount (as defined in Section 9(F)(vi)), then in such event, the
Board of Directors shall, to the extent legally permissible,
declare a Special Dividend in such a manner that the holder of
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<PAGE>
each share of Series A Preferred Stock will become the holder of
that number of shares of Series A Preferred Stock equal to the
product of the number of such shares held prior to such event
times a fraction (the "Sec. 9(B)(ii) Non-Dilutive Share
Fraction"), the numerator of which is the number of shares of
Common Stock outstanding immediately before such issuance of
rights or warrants plus the maximum number of shares of Common
Stock that could be acquired upon exercise in full of all such
rights and warrants and the denominator of which is the number of
shares of Common Stock outstanding immediately before such
issuance of rights or warrants plus the number of shares of
Common Stock which could be purchased at the Fair Market Value of
a share of Common Stock at the time of such issuance for the
maximum aggregate consideration payable upon exercise in full of
all such rights or warrants and any other amounts paid in
connection with such issuance of rights or warrants. A Special
Dividend declared pursuant to this paragraph 9(B)(ii) shall be
effective upon such issuance, sale or exchange. Concurrently
----
with the declaration of the Special Dividend pursuant to this
paragraph 9(B)(ii), the Liquidation Preference and the Dividend
Rate of all shares of Series B Preferred Stock shall be adjusted
by dividing the Liquidation Preference and the Dividend Rate,
34
<PAGE>
respectively, in effect immediately before such issuance of
rights or warrants by the Sec. 9(B)(ii) Non-Dilutive Share
Fraction.
(iii) The Corporation and the Board of Directors shall each
use its best efforts to take all necessary steps or to take all
actions as are reasonably necessary or appropriate for
declaration of the Special Dividend provided in paragraphs
9(B)(i) and (ii) but shall not be required to call a special
meeting of stockholders in order to implement the provisions
hereof. In the event for any reason the Board of Directors is
precluded from giving full effect to the Special Dividend
provided in paragraph 9(B)(i) or 9(B)(ii), then no such Special
Dividend shall be declared, but instead the Conversion Ratio
shall automatically be adjusted by multiplying the Conversion
Ratio in effect immediately before such issuance of shares,
rights or warrants by the Sec. 9(B)(i) or 9(B)(ii) Non-Dilutive
Share Fraction, as the case may be, and the Liquidation
Preference and Dividend Rate will not be adjusted. If
subsequently the Board of Directors is able to give full effect
to the Special Dividend as provided in paragraph 9(B)(i) or
9(B)(ii), then such Special Dividend will be declared in
accordance with the provisions of paragraph 9(B)(i) or 9(B)(ii),
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<PAGE>
as the case may be, and the adjustment in the Conversion Ratio as
provided in this paragraph 9(B)(iii) will automatically be
reversed and nullified prospectively.
(C)(i) Subject to the provisions of Sections 9(D) and 9(E)
hereof, in the event the Corporation shall, at any time or from
time to time while any of the shares of Series A Preferred Stock
are outstanding, make an Extraordinary Distribution (as
hereinafter defined) in respect of the Common Stock, whether by
dividend, distribution, reclassification of shares or
recapitalization of the Corporation (including a recapitalization
or reclassification effected by a transaction to which Section 8
hereof does not apply) or effect a Pro Rata Repurchase (as
hereinafter defined) of Common Stock, then, in such event, the
Board of Directors shall, to the extent legally permissible,
declare a Special Dividend in such a manner that the holder of
each share of Series A Preferred Stock will become the holder of
that number of shares of Series A Preferred Stock equal to the
product of the number of such shares held prior to such event
times a fraction (the "Sec. 9(C) Non-Dilutive Share Fraction"),
the numerator of which is the product of (x) the number of shares
of Common Stock outstanding immediately before such Extraordinary
Distribution or Pro Rata Repurchase minus, in the case of a Pro
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<PAGE>
Rata Repurchase, the number of shares of Common Stock repurchased
by the Corporation multiplied by (y) the Fair Market Value of a
share of Common Stock on the Valuation Date (as defined in
Section 9(F)(viii)) with respect to an Extraordinary Distribution
or on the expiration date (including all extensions thereof) of
any tender offer which is a Pro Rata Repurchase or on the date of
purchase with respect to any Pro Rata Repurchase which is not a
tender offer, as the case may be, and the denominator of which is
(x) the product of (I) the number of shares of Common Stock
outstanding immediately before such Extraordinary Distribution or
Pro Rata Repurchase multiplied by (II) the Fair Market Value of a
share of Common Stock on the Valuation Date with respect to an
Extraordinary Distribution, or on the expiration date (including
all extensions thereof) of any tender offer which is a Pro Rata
Repurchase, or on the date of purchase with respect of any Pro
Rata Repurchase which is not a tender offer, as the case may be,
minus (y) the Fair Market Value of the Extraordinary Distribution
or the aggregate purchase price of the Pro Rata Repurchase, as
the case may be. The Corporation shall send each holder of
Series A Preferred Stock, in any manner described in Section
4(C), (x) notice of its intent to make any Extraordinary
Distribution and (y) notice of any offer by the Corporation to
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<PAGE>
make a Pro Rata Repurchase, in each case at the same time as, or
as soon as practicable after, such offer is first communicated to
holders of Common Stock or the record date for such dividend is
announced in accordance with the rules of any stock exchange on
which the Common Stock is listed or admitted to trading, as the
case may be. Such notice shall indicate the intended record date
and the amount and nature of such dividend or distribution, or
the number of shares subject to such offer for a Pro Rata
Repurchase and the purchase price payable by the Corporation
pursuant to such offer, as well as the Conversion Ratio. A
Special Dividend declared pursuant to this Section 9(C)(i) shall
be effective on the day after the record date for any
Extraordinary Distribution, the day after the expiration date
(including all extension thereof) of any tender offer which is a
Pro Rata Repurchase or on the day after the date of purchase with
respect to any Pro Rata Repurchase which is not a tender offer,
as the case may be. Concurrently with the declaration of the
Special Dividend pursuant to this Section 9(C)(i), the
Liquidation Preference and the Dividend Rate of all shares of
Series A Preferred Stock shall be adjusted by dividing the
Liquidation Preference and the Dividend Rate, respectively, in
38
<PAGE>
effect immediately before such Extraordinary Distribution or Pro
Rata Repurchase by the Sec. 9(C) Non-Dilutive Share Fraction.
(ii) The Corporation and the Board of Directors shall each
use its best efforts to take all reasonably necessary steps or to
take all actions as are necessary or appropriate for the
declaration of the Special Dividend provided in Section 9(C)(i)
but shall not be required to call a special meeting of
stockholders in order to implement the provisions hereof. In the
event for any reason the Board of Directors is precluded from
giving full effect to the Special Dividend provided in Section
9(C)(i), then no such Special Dividend shall be declared, but
instead the Conversion Ratio shall automatically be adjusted by
multiplying the Conversion Ratio in effect immediately before
such Extraordinary Distribution or Pro Rata Repurchase by the
Sec. 9(C) Non-Dilutive Share Fraction, and the Liquidation
Preference and the Dividend Rate will not be adjusted. If
subsequently the Board of Directors is able to give full effect
to the Special Dividend as provided in Section 9(C)(i), then such
Special Dividend will be declared in accordance with the
provisions of Section 9(C)(i) and the adjustment in the
Conversion Price as provided in this Section (C)(ii) will
automatically be reversed and nullified prospectively.
39
<PAGE>
(D) Notwithstanding any other provisions of this Section 9,
the Corporation shall not be required to make any adjustment of
the Conversion Ratio unless such adjustment would require an
increase or decrease equal to at least one percent (1%) in the
Conversion Ratio prior to such adjustment. Any lesser adjustment
shall be carried forward and shall be made no later than the time
of, and together with, the next subsequent adjustment which,
together with any adjustment or adjustments so carried forward,
shall amount to an increase or decrease of at least one percent
(1%) in the Conversion Ratio. All calculations under this
Section 9 shall be made to the nearest one-hundredth of a cent or
the nearest one-ten thousandth of a share, as the case may be.
(E) If the Corporation shall make any dividend or
distribution of the Common Stock or issue any Common Stock, other
capital stock or other equity security of the Corporation or any
rights or warrants to purchase or acquire any such security, or
shall enter into any other transaction related to or having an
impact upon its Common Stock or the Series A Preferred Stock,
which transaction does not result in an adjustment to the
Conversion Ratio pursuant to the foregoing provisions of this
Section 9, the Board of Directors of the Corporation shall
consider whether such action is of such a nature that it
40
<PAGE>
adversely affects the holders of the Series A Preferred Stock and
that an adjustment to the Conversion Ratio or a subdivision or
combination of the outstanding shares of Series A Preferred Stock
into a greater or lesser number of such shares should equitably
be made in respect of such transaction. If in such case the
Board of Directors of the Corporation in its sole discretion
determines that an adjustment to the Conversion Ratio or a
subdivision or combination of the outstanding shares of Series A
Preferred Stock into a greater or lesser number of such shares
should be made, such adjustment, subdivision or combination shall
be made effective as of such date as determined by the Board of
Directors of the Corporation. The determination of the Board of
Directors of the Corporation as to whether an adjustment to the
Conversion Ratio or a subdivision or combination of the
outstanding shares of Series A Preferred Stock into a greater or
lesser number of such shares should be made pursuant to the
foregoing provisions of this Section 9(E), and, if so, as to what
adjustment, subdivision or combination should be made and when,
shall be final and binding on the Corporation and all
stockholders of the Corporation. The Corporation shall be
entitled to make such additional adjustment in the Conversion
Ratio, and in addition to those required by the foregoing
41
<PAGE>
provisions of this Section 9, as shall be necessary in order that
any dividend or distribution in shares of capital stock of the
Corporation, subdivision, reclassification or combination of
shares of stock of the Corporation or any recapitalization of the
Corporation shall not be taxable to holders of the Common Stock.
(F) For purposes of this resolution, the following
definitions shall apply:
(i) "Business Day" shall mean each day that is not a
Saturday, Sunday or a date on which federally or state chartered
banking institutions in Philadelphia, Pennsylvania or New York,
New York are required or authorized to be closed.
(ii) "Extraordinary Distribution" shall mean any
dividend or other distribution (effected while any of the shares
of Series A Preferred Stock are outstanding) of (x) cash, where
the aggregate amount of such cash dividend or distribution
together with the amount of all cash dividends and distributions
made during the preceding 12 months, when combined with the
aggregate amount of all Pro Rata Repurchases (for this purpose,
including only that portion of the aggregate purchase price of
each such Pro Rata Repurchase which is in excess of the Fair
Market Value of the Common Stock repurchased as determined in
accordance with Section 9(C)(i)), exceeds ten percent (10%) of
the aggregate Fair Market Value of all shares of Common Stock
outstanding on the record date for determining the shareholders
entitled to receive such Extraordinary Distribution and/or (y)
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<PAGE>
any shares of capital stock of the Corporation (other than shares
of Common Stock), other securities of the Corporation, evidences
of indebtedness of the Corporation or any other person or any
other property (including shares of any subsidiary of the
Corporation), or any combination thereof. The Fair Market Value
of an Extraordinary Distribution for purposes of Section 9(C)
shall be equal to the sum of the Fair Market Value of such
Extraordinary Distribution plus the amount of any cash dividends
(other than regularly scheduled quarterly dividends not exceeding
100% of the aggregate quarterly dividends for the preceding
period of 12 months) which are not Extraordinary Distributions
made during such 12-month period and not previously included in
the calculation of an adjustment pursuant to paragraph (C) of
this Section 9.
(iii) "Fair Market Value" shall mean, as to shares of
Common Stock or any other class of capital stock or securities of
the Corporation or any other issuer which are publicly traded,
the average of the "Current Market Prices" of such shares or such
securities for each day of the "Adjustment Period". The "Fair
Market Value" of any security which is not publicly traded or of
any other property shall mean the fair value thereof as
determined by an independent investment banking or appraisal firm
experienced in the valuation of such securities or property
selected in good faith by the Board of Directors of the
Corporation or a committee thereof (which may be the independent
appraiser engaged by any Plan) based on principles consistently
applied, or, if no such investment banking or appraisal firm is
43
<PAGE>
in the good faith judgment of the Board of Directors or such
committee available to make such determination, as determined in
good faith by the Board of Directors of the Corporation or such
committee.
(iv) "Current Market Price" of publicly traded shares
of Common Stock or any other class of capital stock or other
security of the Corporation or any other issuer for any day shall
mean the last reported sales price, regular way, or, in case no
such reported sale takes place on such day, the average of the
reported closing bid and asked prices, regular way, in either
case as reported on the New York Stock Exchange Composite Tape,
or, if such security is not listed or admitted to trading on such
Exchange, on the principal national securities exchange on which
such security is listed or admitted to trading, or if not listed
or admitted to trading on any national securities exchange, on
the National Association of Securities Dealers Automated
Quotations National Market System, or, if such security is not
listed or admitted to trading on any national securities exchange
or quoted on such National Market System, the average of the
closing bid and asked prices in the over-the-counter market as
furnished by any New York Stock Exchange member firm selected
from time to time by the Board of Directors or a committee
44
<PAGE>
thereof for such purpose, in each case, on each trading day
during the Adjustment Period.
(v) "Adjustment Period" shall mean the period of five
(5) consecutive trading days immediately preceding the date as of
which the Fair Market Value of a security is to be determined.
(vi) "Sec. 9(F) Non-Dilutive Amount" in respect of an
issuance, sale or exchange by the Corporation of any right or
warrant to purchase or acquire shares of Common Stock (including
any security convertible into or exchangeable for shares of
Common Stock) shall mean (x) the product of (I) the Fair Market
Value of a share of Common Stock on the trading day immediately
preceding the first public announcement of such issuance, sale or
exchange and (II) the maximum number of shares of Common Stock
which could be acquired on such date upon the exercise in full of
such rights and warrants (including upon the conversion or
exchange of all such convertible or exchangeable securities),
whether or not exercisable (or convertible or exchangeable) at
such date, minus (y) the aggregate amount payable pursuant to
such right or warrant to purchase or acquire such maximum number
of shares of Common Stock; provided, however, that in no event
shall the Sec. 9(F) Non-Dilutive Amount be less than zero. For
purposes of the next preceding sentence, in the case of a
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<PAGE>
security convertible into or exchangeable for shares of Common
Stock, the amount payable pursuant to a right or warrant to
purchase or acquire shares of Common Stock shall be the Fair
Market Value of such security on the date of the issuance, sale
or exchange of such security by the Corporation.
(vii) "Pro Rata Repurchase" shall mean any purchase of
shares of Common Stock by the Corporation or any subsidiary
thereof, whether for cash, shares of capital stock of the
Corporation, other securities of the Corporation, evidences of
indebtedness of the Corporation or any other person or any other
property (including shares of a subsidiary of the Corporation),
or any combination thereof, effected while any of the shares of
Series A Preferred Stock are outstanding, pursuant to any tender
offer or exchange offer subject to Section 13(e) of the Exchange
Act, or any successor provision of law, or pursuant to any other
offer available to substantially all holders of Common Stock;
provided, however, that no purchase of shares by the Corporation
- -----------------
or any subsidiary thereof made in open market transactions shall
be deemed a Pro Rata Repurchase. For purposes of this Section
9(F)(Vii), shares shall be deemed to have been purchased by the
Corporation or any subsidiary thereof "in open market
transactions" if they have been purchased substantially in
46
<PAGE>
accordance with the requirements of Rule 10b-18 as in effect
under the Securities Exchange Act of 1934, as amended, on the
date shares of Series A Preferred Stock are initially issued by
the Corporation or on such other terms and conditions as the
Board of Directors of the Corporation or a committee thereof
shall have determined are reasonably designed to prevent such
purchases from having a material effect on the trading market for
the Common Stock.
(viii) "Valuation Date" shall mean (i) the date
preceding the ex-dividend date with respect to an Extraordinary
Distribution in cash or (ii) the date of distribution with
respect to a non-cash Extraordinary Distribution.
Section 10. Retirement of Shares. Any shares of Series A
--------------------
Preferred Stock acquired by the Corporation by reason of the
conversion or redemption of such shares as provided hereby, or
otherwise so acquired, shall be cancelled as shares of Series A
Preferred Stock and restored to the status of authorized but
unissued shares of Preferred Stock of the Corporation,
undesignated as to series, and may thereafter be reissued as part
of a new series of Preferred Stock as permitted by law.
Section 11. Miscellaneous.
-------------
(A) All notices referred to herein shall be in writing, and
all notices hereunder shall be deemed to have been given upon the
earlier of receipt thereof or three (3) Business Day after the
47
<PAGE>
mailing thereof if sent by registered mail (unless first-class
mail shall be specifically permitted for such notice under the
terms of this Certificate) with postage prepaid, addressed: (i)
if to the Corporation, to its office at 2001 Market Street,
Philadelphia, Pennsylvania 19103 (Attention: Vice President -
Law) or other agent of the Corporation designated as permitted by
this Certificate or (ii) if to any holder of the Series A
Preferred Stock or Common Stock, as the case may be, to such
holder at the address of such holder as listed in the stock
record books of the Corporation (which may include the records of
any transfer agent for the Common Stock, as the case may be) or
(iii) to such other address as the Corporation or any such
holder, as the case may be, shall have designated by notice
similarly given.
(B) In the event that, at any time as a result of an
adjustment made pursuant to Section 9, the holder of any shares
of Series A Preferred Stock upon surrendering such shares for
conversion shall become entitled to receive any shares or other
securities of the Corporation other than shares of Common Stock,
the Conversion Ratio in respect of such other shares or
securities so receivable upon conversion of shares of Series A
Preferred Stock shall thereafter be adjusted, and shall be
subject to further adjustment from time to time, in a manner and
on terms as nearly equivalent as practicable to the provisions
with respect to Common Stock contained in Section 9 hereof, and
the provisions of each of the other Sections hereof with respect
48
<PAGE>
to the Common Stock shall apply on like or similar terms to any
such other shares or securities.
(C) The Corporation shall pay any and all stock transfer
and documentary stamp taxes that may be payable in respect of any
issuance or delivery of shares of Series A Preferred Stock or
shares of Common Stock or other securities issued on account of
Series A Preferred Stock pursuant hereto or certificates
representing such shares or securities. The Corporation shall
not, however, be required to pay any such tax which may be
payable in respect of any transfer involved in the issuance or
delivery of shares of Series A Preferred Stock or Common Stock or
other securities in a name other than that in which the shares of
Series A Preferred Stock with respect to which such shares or
other securities are issued or delivered were registered, or in
respect of any payment to any person with respect to any such
shares or securities other than a payment to the registered
holder thereof, and shall not be required to make any such
issuance, delivery or payment unless and until the person
otherwise entitled to such issuance, delivery or payment has paid
to the Corporation the amount of any such tax or has established,
to the satisfaction of the Corporation, that such tax has been
paid or is not payable.
49
<PAGE>
(D) In the event that a holder of shares of Series A
Preferred Stock shall not by written notice designate the name in
which shares of Common Stock to be delivered upon conversion of
such shares should be registered or to whom payment upon
redemption of shares of Series A Preferred Stock should be made
or the address to which the certificate or certificates
representing such shares, or such payment, should be sent, the
Corporation shall be entitled to register such shares, and make
such payment, in the name of the holder of such Series A
Preferred Stock as shown on the records of the Corporation and to
send the certificate or certificates representing such shares, or
such payment, to the address of such holder shown on the records
of the Corporation.
(E) Unless otherwise provided in this Statement with
Respect to Shares as the same may be amended, all payments in the
form of dividends, distributions on voluntary or involuntary
dissolution, liquidation or winding-up or otherwise made upon the
shares of Series A Preferred Stock and any other stock ranking on
a parity with the Series A Preferred Stock with respect to such
dividends or distributions shall be made pro rata, so that
amounts paid per share on the Series A Preferred Stock and such
other stock shall in all cases bear to each other the same ratio
that the required dividends, distributions or payments, as the
50
<PAGE>
case may be, then payable per share on the shares of the Series A
Preferred Stock and such other stock bear to each other.
51
<PAGE>
</TABLE>
<TABLE>
<S> <C>
Microfilm Number Filed with the Department of State on January 26, 1996
----- ----------------
Entity Number
----- ----/s/----------------------
Secretary of the Commonwealth
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DSCB:15-1915 (Rev 90)
In compliance with the requirements of 15 Pa. C.S. 1915 (relating to
articles of amendment), the undersigned business corporation, desiring to
amend its Articles, hereby states that:
1. The name of the corporation is: CONRAIL INC.
------------
2. The (a) address of this corporation's current registered office in
this Commonwealth or (b) name of its commercial registered office provider
and the county of venue is (the Department is hereby authorized to correct
the following information to conform to the records of the Department):
(a) 2001 Market Street, Two Commerce Square, Philadelphia PA 19101 Philadelphia
---------------------------------------------------------------------------
Number and Street City State Zip County
(b) c/o:
-----------------------------------------------------------------------
Name of Commercial Registered Office Provider County
For a corporation represented by a commercial registered office provider,
the county in (b) shall be deemed the county in which the corporation is
located for venue and official publication purposes.
3. The statute by or under which it was incorporated is: Pa. Bus.Corp. Law Act of Dec. 21, 1988 (P.L. 1444)
--------------------------------------------------
4. The date of its incorporation is: February 12, 1993
-----------------
5. (Check, and if appropriate complete, one of the following):
The amendment shall be effective upon filing these Articles
of Amendment in the Department of State.
------
X The amendment shall be effective on: 1/18/96 at 12:01 am (for accounting purposes)
----- ---------------------------------------------
Date Hour
6. (Check one of the following):
The amendment was adopted by the shareholders (or members) pursuant to 15 Pa. C.S. 1914(a) and (b).
-----
X The amendment was adopted by the board of directors pursuant to 15 Pa. C.S. 1914(c).
-----
7. (Check, and if appropriate complete, one of the following):
X The amendment adopted by the corporation, set forth in full, is as follows:
-----
ARTICLE FOUR OF THE CORPORATION'S ARTICLES OF INCORPORATION IS HEREBY
AMENDED TO ADD THE FOLLOWING NEW PARAGRAPH 8:
"8. Any or all classes and series or shares of capital stock of
the corporation, or any part thereof, may be uncertificated shares."
The amendment adopted by the corporation as set forth in
full in Exhibit A attached hereto and made a part hereof.
-----
<PAGE>
DSCB:15-1915 (Rev 90)-2
8. (Check if the amendment restates the Articles):
The restated Articles of Incorporation supersede the original Articles and all amendments thereto.
------
IN TESTIMONY WHEREOF, the undersigned corporation has caused these
Articles of Amendment to be signed by a duly authorized officer thereof
this day of , 1996.
------------ -------------------
CONRAIL INC.
---------------------
(Name of Corporation)
By: /s/ B.B. Wilson
---------------
Title: Sr. Vice President - Law
------------------------
</TABLE>
<PAGE>
<TABLE>
Exhibit 11
----------
CONRAIL INC.
-----------
EARNINGS PER SHARE COMPUTATIONS
-------------------------------
<CAPTION>
($ In Millions Except Per Share)
Quarters ended
March 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Net income
----------
Primary
Net income $ 31 $ 55
Dividends declared on Series A
ESOP convertible junior preferred
stock (ESOP Stock), net of
tax benefits (3) (3)
---- ----
$ 28 $ 52
==== ====
Fully diluted
Income 31 55
Nondiscretionary adjustment (1) (1) (1)
---- ----
$ 30 $ 54
==== ====
Weighted average number of shares (2)
---------------------------------
Primary
Weighted average number of
common shares outstanding 77,286,233 78,598,669
Effect of shares issuable under
employee stock compensation plans 716,213 496,599
---------- ----------
78,002,446 79,095,268
========== ==========
Fully diluted
Weighted average number of
common shares outstanding 77,286,233 78,598,669
Series A ESOP convertible
junior preferred 9,756,470 9,821,354
Effect of shares issuable under
employee stock compensation plans 716,213 545,607
---------- ----------
87,758,916 88,965,630
========== ==========
Net income per common share
Primary $ .36 $ .66
Fully diluted .35 .61
</TABLE>
Page 1 of 2
<PAGE>
Exhibit 11
----------
CONRAIL INC.
------------
EARNINGS PER SHARE COMPUTATIONS
-------------------------------
Notes: 1. Represents the increase, net of income tax benefits,
in ESOP-related expenses assuming conversion of all
ESOP Stock to common stock.
2. Shares held by the Employee Benefits Trust (the
("Trust") are not considered outstanding for earnings
per share computations until issued by the trust.
Page 2 of 2
<PAGE>
<TABLE>
Exhibit 12
----------
CONRAIL INC.
-----------
COMPUTATIONS OF THE RATIO OF EARNINGS TO FIXED CHARGES
------------------------------------------------------
($ In Millions)
<CAPTION>
Quarters ended
March 31,
--------------
1996 1995
---- ----
<S> <C> <C>
Earnings
--------
Pre-tax income $ 50 $ 91
Add:
Interest expense 47 48
Rental expense interest factor 14 14
Less equity in undistributed earnings
of 20-50% owned companies (4) (5)
---- ----
Earnings available for fixed charges 107 148
==== ====
Fixed charges
-------------
Interest expense 47 48
Rental expense interest factor 14 14
---- ----
Fixed charges $ 61 $ 62
==== ====
Ratio of earnings to fixed charges 1.75x 2.39x
<FN>
For purposes of computing the ratio of earnings to fixed
charges, earnings represent income before income taxes plus
fixed charges, less equity in undistributed earnings of 20% to
50% owned companies. Fixed charges represent interest expense
together with interest capitalized and a portion of rent under
long-term operating leases representative of an interest factor.
</FN>
</TABLE>
Exhibit 15
----------
May 13, 1996
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Dear Sirs:
We are aware that Conrail Inc. has incorporated
by reference our report dated April 17, 1996
(issued pursuant to the provisions of Statement
on Auditing Standards No. 71) in the following
documents:
* Registration Statement on Form S-8 No. 33-19155
* Registration Statement on Form S-8 No. 33-44140
* Registration Statement on Form S-8 No. 33-57717
* Registration Statement on Form S-8 No. 33-60445
* Prospectus constituting part of Registration
Statement on Form S-3 No. 33-64670
* Prospectus constituting part of Registration
Statement on Form S-3 No. 33-62929.
We are also aware of our responsibilities under
the Securities Act of 1933 and that pursuant to
Rule 436(c) our report dated April 17, 1996 shall
not be considered part of a registration
statement prepared or certified by us or a report
prepared or certified by us within the meaning of
Sections 7 and 11 of the Securities Act of 1933.
Yours very truly,
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, PA 19103
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
----------
CONRAIL INC.
FINANCIAL DATA SCHEDULE
($ In Millions Except Per Share)
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-Q AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
<MULTIPLIER> 1,000,000
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<PERIOD-TYPE> 3-MOS
<CASH> 27
<SECURITIES> 0
<RECEIVABLES> 664
<ALLOWANCES> 0
<INVENTORY> 157
<CURRENT-ASSETS> 1,213
<PP&E> 6,384
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,432
<CURRENT-LIABILITIES> 1,251
<BONDS> 1,873
0
281
<COMMON> 86
<OTHER-SE> 2,577
<TOTAL-LIABILITY-AND-EQUITY> 8,432
<SALES> 0
<TOTAL-REVENUES> 889
<CGS> 0
<TOTAL-COSTS> 820
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47
<INCOME-PRETAX> 50
<INCOME-TAX> 19
<INCOME-CONTINUING> 31
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31
<EPS-PRIMARY> .36
<EPS-DILUTED> .35
<PAGE>
</TABLE>
