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2/14/2008



Rail News: Rail Industry Trends

CSX board fires back at TCI's bylaw amendment criticisms


CSX Corp.'s recent bylaw amendments reflect the board's commitment to high corporate governance standards and enable 15 percent of the Class I's shareholders to request special meetings, well below the 25 percent to 33 percent level in similar bylaw provisions recently implemented by a number of other public companies.

That's part of CSX board members' response to the Children's Investment Fund Management L.L.P. (TCI) letter they received last week. In the letter dated Feb. 7, TCI partner Snehal Amin called CSX's bylaw amendments allowing shareholders to request a special meeting a "disingenuous effort" to appear to be shareholder friendly while preventing stockholders from nominating directors at such a meeting.

"The bylaw amendments say that special meetings may not be called to address issues that were on the agenda at an annual meeting in the past 12 months or will be on the agenda at an annual meeting in the next 90 days," Amin wrote. "Since the election of directors is on the agenda at every annual meeting, this means directors can never be proposed at a special meeting."

In a response letter dated today, CSX Presiding Director Edward Kelly III, writing on behalf of all the railroad's board members, said every director stands for election each year and is subject to a majority voting standard that empowers shareholders to "vote out" a director, even in an uncontested election year.

"As the term implies, 'special' meetings are the place for shareholders to consider extraordinary matters, not the regular annual business of director elections," Kelly wrote. "The recent bylaw amendments avoid the disruption and diversion of resources associated with the potential for multiple director elections each year."

The amendments strike an appropriate balance between giving a small minority of shareholders the ability to request special meetings and protecting all shareholders' interests, CSX board members believe.

"Against this background, TCI's criticism of the bylaw amendments is both unwarranted and disingenuous," Kelly wrote. "Under the guise of providing shareholders with a voice, TCI seeks to undermine the functioning of the CSX board in furtherance of TCI's own purposes. TCI wants the ability to initiate a perpetual 'recall' contest through special meetings as a tool to pressure the board to implement TCI's proposals, regardless of their merit."

Since last fall, TCI has been openly critical of CSX's management, performance and corporate governance. Late last year, TCI — which owns 17.8 million, or 4.1 percent, of CSX shares — teamed up with 3G Capital Partners Ltd. to form a group owning about 11.8 percent of the Class I's outstanding shares. The group plans to nominate five directors with railroad experience to CSX's board at the 2008 annual shareholders meeting. TCI also plans to propose a bylaw amendment that would permit one or more shareholders that together hold at least 15 percent of all the shares to request a special shareholders meeting to address any issue, including the election of directors. In addition, TCI will seek to repeal all bylaw amendments enacted since Jan. 1, 2008, including the recent amendments.

"Taken together with [their] nomination of candidates to fill five of CSX's 12 board seats, TCI's criticism of the bylaw amendments makes it clear that TCI's interest is not in good corporate governance, but in achieving effective control of the company notwithstanding its ownership of only 4 percent of the shares," Kelly wrote.


Contact Progressive Railroading editorial staff.

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