<PAGE>
[LOGO OF NORFOLK SOUTHERN CORPORATION APPEARS HERE]
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NOTICE AND PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
NORFOLK SOUTHERN CORPORATION
THREE COMMERCIAL PLACE, NORFOLK, VIRGINIA 23510-2191
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD ON
THURSDAY, MAY 11, 1995
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The Annual Meeting of Stockholders of Norfolk Southern Corporation will be
held at The Hotel Roanoke & Conference Center, 110 Shenandoah Avenue, Roanoke,
Virginia, on Thursday, May 11, 1995, at 10:00 A.M., Eastern Daylight Time, for
the following purposes:
1. Election of four directors to the class whose term will expire in
1998.
2. Approval of the Norfolk Southern Corporation Long-Term Incentive
Plan, as amended, all as more fully set forth in the accompanying
Proxy Statement.
3. Approval of the Norfolk Southern Corporation Executive Management
Incentive Plan, all as more fully set forth in the accompanying
Proxy Statement.
4. Ratification of the appointment of independent public accountants as
auditors.
5. Transaction of such other business as may properly come before the
meeting.
Stockholders of record at the close of business on March 3, 1995, will be
entitled to vote at such meeting.
By order of the Board of Directors,
DONALD E. MIDDLETON,
Corporate Secretary.
Dated: March 31, 1995
IF YOU DO NOT EXPECT TO ATTEND THE MEETING, YOU ARE URGED TO MARK, DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ACCOMPANYING ENVELOPE.
<PAGE>
Norfolk Southern Corporation
Three Commercial Place
Norfolk, Virginia 23510-2191
March 31, 1995
PROXY STATEMENT
This statement and the accompanying proxy will be mailed to stockholders of
Norfolk Southern Corporation on or about April 3, 1995. The Corporation's
Annual Report for 1994 was mailed under separate cover beginning March 16,
1995. The proxy is solicited by the Board of Directors of the Corporation for
use at the Annual Meeting of Stockholders to be held May 11, 1995. The cost of
soliciting proxies will be paid by the Corporation, including the
reimbursement, upon request, of brokerage firms, banks and other institutions,
nominees and trustees for their reasonable expenses in forwarding proxy
material to beneficial owners. In addition to solicitation by mail, officers
and regular employees of the Corporation may solicit proxies by telephone,
telegram or personal interview at no additional compensation.
Policies are in place to safeguard the confidentiality of proxies and
ballots. The Bank of New York, New York, N.Y., which has been retained at an
estimated cost of $23,300 to assist in soliciting proxies directly or through
others and to tabulate all proxies and ballots cast at the Annual Meeting, is
contractually bound to maintain the confidentiality of the voting process. Each
Inspector of Election will have taken the oath required by Virginia law to
execute duties faithfully and impartially. Members of the Board of Directors
and employees of the Corporation do not have access to the proxies or ballots
and therefore do not know how individual stockholders vote on any matter.
However, when a stockholder writes a question or comment on the proxy card or
ballot, or when there is need to determine the validity of a proxy or ballot,
Management and/or its representatives may be involved in providing the answer
to the question or in determining such validity.
If the enclosed proxy is properly signed and returned to The Bank of New
York, the shares represented thereby will be voted in accordance with its
terms. Any stockholder who has executed and returned a proxy and for any reason
wishes to revoke it may do so at any time before the proxy is voted by giving
prior notice of revocation in any manner to the Corporation, or by executing
and delivering a subsequent proxy or by attending the meeting and voting in
person.
The record date for stockholders entitled to vote at the Annual Meeting is
March 3, 1995. As of February 28, 1995, the Corporation had issued and
outstanding 139,954,266 shares of Common Stock, of which 132,693,937 shares
were entitled to one vote per share.
ELECTION OF DIRECTORS
The terms of L. E. Coleman, T. Marshall Hahn, Jr., Landon Hilliard and Jane
Margaret O'Brien expire at the Annual Meeting on May 11, 1995.
Unless otherwise instructed on the enclosed proxy, such proxy will be voted
in favor of the reelection of Messrs. Coleman, Hahn and Hilliard and of Ms.
O'Brien to serve in the class whose term will expire in 1998. If any nominee
becomes unable to serve, an event which is not anticipated, the proxy will be
voted for a substitute nominee to be designated by the Board of Directors, or
the total number of directors will be reduced.
<PAGE>
Under Virginia law and under the Corporation's Articles of Incorporation and
Bylaws, directors are elected by a plurality of the votes cast by the shares
entitled to vote in the election at a meeting at which a quorum is present.
Votes that are withheld or shares that are not voted, such as those held by a
broker or other nominee who does not vote in person or return a proxy, are not
"cast" for this purpose.
The following information relates to the nominees and the directors whose
terms of office will continue after the stockholders' meeting. There are no
family relationships among any of the nominees or directors--or among any of
the nominees or directors and any officer--nor is there any arrangement or
understanding between any nominee or director and any other person, pursuant to
which the nominee or director was selected.
NOMINEES
(FOR TERM EXPIRING IN 1998)
[PHOTO APPEARS Mr. Coleman, 64, Wickliffe, Ohio, has been a director
HERE] since 1982. He has been Chairman and Chief Executive
Officer of The Lubrizol Corporation, a diversified
specialty chemical company, since April 1982. He is also
a director of Harris Corporation.
L. E. Coleman
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[PHOTO APPEARS Mr. Hahn, 68, Atlanta, Ga., has been a director since
HERE] 1985. He has been Honorary Chairman of the Board of
Georgia-Pacific Corporation, a manufacturer and
distributor of building products, pulp and paper products
and chemicals, since December 1993, having previously
become Chairman of the Board in May 1993, and having
served prior thereto as Chairman of the Board and Chief
Executive Officer. He is also a director of Coca-Cola
Enterprises, SunTrust Banks, Inc. and Trust Company of
Georgia.
T. Marshall Hahn, Jr.
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[PHOTO APPEARS Mr. Hilliard, 55, New York, N. Y., has been a director
HERE] since 1992. He has been a partner in Brown Brothers
Harriman & Co., a private bank in New York City, since
January 1979. He is also a director of Owens-Corning
Fiberglas Corporation.
Landon Hilliard
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(See information under the "Certain Relationships"
caption on page 9.)
2
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NOMINEES (CONTINUED)
[PHOTO APPEARS Ms. O'Brien, 41, Roanoke, Va., has been a director since
HERE] 1994. She has been President of Hollins College since
July 1991, having served prior thereto as Dean of the
Faculty at Middlebury College, Vt. She is also a director
of Landmark Communications, Inc.
Jane Margaret O'Brien
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DIRECTORS WHOSE TERM EXPIRES IN 1996
[PHOTO APPEARS Mr. Baliles, 54, Richmond, Va., has been a director since
HERE] 1990. He has been a partner in the law firm of Hunton &
Williams, a business law firm with offices in several
major U. S. cities and international offices in Brussels,
Belgium, Warsaw, Poland, and Hong Kong, since 1990,
having served prior thereto as Governor of Virginia. He
is also a director of Dibrell Brothers, Inc.
Gerald L. Baliles
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[PHOTO APPEARS Mr. Carter, 55, Alexandria, Va., has been a director
HERE] since 1992. He has been Executive Director of the
Association for Supervision and Curriculum Development,
among the world's largest international education
associations, since July 1992, having served prior
thereto as Superintendent of Schools in Norfolk, Va.
Gene R. Carter
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(See information under the "Certain Relationships"
caption on page 9.)
[PHOTO APPEARS Mr. Leisenring, 69, Philadelphia, Pa., has been a
HERE] director since 1982. He was Chairman and Chief Executive
Officer of Penn Virginia Corporation, a natural resources
holding and development company, until his retirement in
1992, having served prior thereto as Chairman of the
Board and Chief Executive Officer. He is a director of
Westmoreland Coal Company. Mr. Leisenring is also a
director of Fidelity Bank, N.A. (a wholly owned
subsidiary of First Fidelity Bancorporation), PICO
Products, Inc. and SKF USA Inc. (a controlled subsidiary
of Aktiebolaget SKF, a Swedish corporation).
E. B. Leisenring, Jr.
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3
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DIRECTORS (CONTINUED)
[PHOTO APPEARS Mr. McKinnon, 67, Norfolk, Va., has been a director since
HERE] 1986. He was Chairman and Chief Executive Officer of
Norfolk Southern Corporation until his retirement in
1992, having served prior thereto as Chairman, President
and Chief Executive Officer.
Arnold B. McKinnon
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DIRECTORS WHOSE TERM EXPIRES IN 1997
[PHOTO APPEARS Mr. Goode, 54, Norfolk, Va., has been a director since
HERE] 1992. He has been Chairman, President and Chief Executive
Officer of the Corporation since September 1992, having
previously become President in October 1991, and
Executive Vice President-Administration in January 1991,
and having served prior thereto as Vice President-
Taxation. He is also a director of Caterpillar, Inc.,
Georgia-Pacific Corporation and TRINOVA Corporation.
David R. Goode
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[PHOTO APPEARS Mr. McNair, 71, Columbia, S. C., has been a director
HERE] since 1987. He has been Chairman of the law firm McNair &
Sanford, P.A., since January 1971. Mr. McNair is also a
director of Georgia-Pacific Corporation.
Robert E. McNair
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(See information under the "Compensation Committee
Interlocks" caption on page 9.)
[PHOTO APPEARS Mr. Pote, 48, New York, N.Y., has been a director since
HERE] 1988. He has been a partner of The Beacon Group, a
private investment partnership, since April 1993; he also
has served as President of PBS Properties, Inc., since
November 1990, having served prior thereto as President
and Chief Executive Officer of First Fidelity
Bancorporation. Mr. Pote is also a director of Turecamo
Maritime, Inc.
Harold W. Pote
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4
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BENEFICIAL OWNERSHIP OF STOCK
To the knowledge of the Corporation, no person beneficially owns more than
5% of its Common Stock.
The following table sets forth as of February 28, 1995, the beneficial
ownership of the Corporation's Common Stock by each director, including the
Chief Executive Officer, and nominee, each of the other five most highly
compensated executive officers and all executive officers and directors of the
Corporation as a group. Each individual and all executive officers and
directors as a group own less than 1% of the total outstanding shares of the
Corporation's Common Stock and, unless otherwise indicated, all shares are
held with sole voting and investment powers. Unless otherwise noted, no
director or executive officer beneficially owns any equity securities of the
Corporation or its subsidiaries other than the Corporation's Common Stock.
<TABLE>
<CAPTION>
SHARES OF
NAME COMMON STOCK
- ---- ------------
<S> <C>
Gerald L. Baliles 1,200/1/
Gene R. Carter 1,050/1/
L. E. Coleman 4,112/1/,/2/
David R. Goode 151,281/3/
T. Marshall Hahn, Jr. 2,200/1/
Landon Hilliard 2,000/1/
E. B. Leisenring, Jr. 6,805/1/,/4/
Arnold B. McKinnon 252,483/1/,/5/
</TABLE>
<TABLE>
<CAPTION>
SHARES OF
NAME COMMON STOCK
- ---- ------------
<S> <C>
Robert E. McNair 2,100/1/,/6/
Jane Margaret O'Brien 1,000/1/
Harold W. Pote 1,500/1/
John R. Turbyfill 176,099/7/
John S. Shannon 123,624/8/
Stephen C. Tobias 43,293/9/
D. Henry Watts 103,838/10/
Henry C. Wolf 46,995/11/
</TABLE>
39 Executive Officers and Directors as a group (including the persons named
above)/12/ 1,562,212/13/
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/1/Includes 1,000 shares awarded non-employee directors pursuant to the
Directors' Restricted Stock Plan over which shares the director possesses
voting power but has no investment power until the shares are distributed (see
information under the "Board of Directors" caption on page 7).
/2/Includes 112 shares owned by Mr. Coleman's wife, in which he disclaims
beneficial ownership.
/3/Includes 2,853 shares credited to Mr. Goode's account in the
Corporation's Thrift and Investment Plan. Includes 7,624 shares held by the
Corporation under share retention agreements pursuant to the Corporation's
Long-Term Incentive Plan and over which Mr. Goode possesses voting power but
has no investment power until the shares are distributed. Also includes
125,821 shares subject to stock options granted pursuant to the Corporation's
Long-Term Incentive Plan and with respect to which Mr. Goode has the right to
acquire beneficial ownership within 60 days.
/4/Includes 2,205 shares owned by Mr. Leisenring's wife, in which he
disclaims beneficial ownership.
/5/Includes 141,364 shares subject to stock options granted pursuant to the
Corporation's Long-Term Incentive Plan and with respect to which Mr. McKinnon
has the right to acquire beneficial ownership within 60 days.
/6/Includes 100 shares held pursuant to an investment trust. Mr. McNair has
sole voting power and shared investment power over these shares. Also includes
1,000 shares owned by Mr. McNair's wife, in which he disclaims beneficial
ownership.
/7/Includes 8,594 shares credited to Mr. Turbyfill's account in the
Corporation's Thrift and Investment Plan. Includes 15,973 shares held by the
Corporation under share retention agreements pursuant to the Corporation's
Long-Term Incentive Plan and over which Mr. Turbyfill possesses voting power
but has no investment power until the shares are distributed. Includes 126,709
shares subject to stock options granted pursuant to the Corporation's Long-
Term Incentive Plan and with respect to which Mr. Turbyfill
5
<PAGE>
has the right to acquire beneficial ownership within 60 days. Also includes
1,893 shares owned by Mr. Turbyfill's wife, in which he disclaims beneficial
ownership.
/8/Includes 2,245 shares credited to Mr. Shannon's account in the
Corporation's Thrift and Investment Plan. Includes 14,213 shares held by the
Corporation under share retention agreements pursuant to the Corporation's
Long-Term Incentive Plan and over which Mr. Shannon possesses voting power but
has no investment power until the shares are distributed. Includes 73,320
shares subject to stock options granted pursuant to the Corporation's Long-
Term Incentive Plan and with respect to which Mr. Shannon has the right to
acquire beneficial ownership within 60 days.
/9/Includes 3,358 shares credited to Mr. Tobias' account in the
Corporation's Thrift and Investment Plan. Includes 3,622 shares held by the
Corporation under share retention agreements pursuant to the Corporation's
Long-Term Incentive Plan and over which Mr. Tobias possesses voting power but
has no investment power until the shares are distributed. Includes 30,837
shares subject to stock options granted pursuant to the Corporation's Long-
Term Incentive Plan and with respect to which Mr. Tobias has the right to
acquire beneficial ownership within 60 days.
/10/Includes 3,599 shares credited to Mr. Watts' account in the
Corporation's Thrift and Investment Plan. Includes 13,950 shares held by the
Corporation under share retention agreements pursuant to the Corporation's
Long-Term Incentive Plan and over which Mr. Watts possesses voting power but
has no investment power until the shares are distributed. Includes 72,942
shares subject to stock options granted pursuant to the Corporation's Long-
Term Incentive Plan and with respect to which Mr. Watts has the right to
acquire beneficial ownership within 60 days. Also includes 13,347 shares owned
by Mr. Watts' wife, in which he disclaims beneficial ownership.
/11/Includes 2,803 shares credited to Mr. Wolf's account in the
Corporation's Thrift and Investment Plan. Includes 3,081 shares held by the
Corporation under share retention agreements pursuant to the Corporation's
Long-Term Incentive Plan and over which Mr. Wolf possesses voting power but
has no investment power until the shares are distributed. Includes 37,184
shares subject to stock options granted pursuant to the Corporation's Long-
Term Incentive Plan and with respect to which Mr. Wolf has the right to
acquire beneficial ownership within 60 days.
/12/The spouse of one executive officer owns 70 shares of Norfolk Southern
Railway Company Preferred Stock, Series A, in which shares the officer
disclaims beneficial ownership.
/13/Includes 80,928 shares credited to officers' individual accounts under
the Corporation's Thrift and Investment Plan. Includes 100,170 shares held by
the Corporation for officers under share retention agreements pursuant to the
Corporation's Long-Term Incentive Plan, over which the individual possesses
voting power but no investment power until the shares are distributed, and
932,837 shares subject to stock options granted to officers pursuant to the
Corporation's Long-Term Incentive Plan, with respect to which the optionee has
the right to acquire beneficial ownership within 60 days. Also includes 15,535
shares in which beneficial ownership is disclaimed.
- --------
Section 16 of the Securities Exchange Act of 1934 requires the Corporation's
directors and executive officers, and any persons beneficially owning more
than 10 percent of a class of the Corporation's stock, to file certain reports
of beneficial ownership and changes in beneficial ownership (Forms 3, 4 and 5)
with the Securities and Exchange Commission and the New York Stock Exchange.
For 1994, based solely on its review of copies of Forms 3, 4 and 5 available
to it, or written representations that no Forms 5 were required, the
Corporation believes that all required Forms were filed on time.
6
<PAGE>
BOARD OF DIRECTORS
The Board of Directors of the Corporation consists of eleven members and is
divided into three classes, each elected for a term of three years, with each
class containing as nearly as possible one third of the total number of
directors. Under the Corporation's retirement policy for directors, a director
who attains the age of 72 shall resign effective the date of the next annual
meeting unless that director's term of office expires on such date, in which
event he shall refrain from becoming a candidate for reelection. The Board met
a total of seven times in 1994. Each director attended not less than 75% of the
aggregate number of meetings of the Board and meetings of all committees on
which such director served.
COMPENSATION OF DIRECTORS
Each member of the Board of Directors who is not also an officer of the
Corporation received compensation for services during 1994 of $32,000 a year as
a retainer and, in addition, a fee of $1,800 for each attendance at a meeting
of the Board or of any committee of the Board, plus expenses in connection with
attendance at such meetings. Officers who also serve as directors receive no
additional compensation. A director who has served for at least five years
while not serving simultaneously as an officer of the Corporation, or one of
its subsidiaries, and who retires from the Board under the Corporation's
retirement policy for directors, shall receive annually for life the annual
retainer in effect for directors at the time of retirement.
A director may elect to receive all or a portion of compensation on a
deferred basis under the Corporation's Directors' Deferred Fee Plan. The amount
received on a deferred basis is credited to a separate memorandum account,
together with interest on the amount credited to the account at the beginning
of each quarter, at a rate for 1994 and later years determined on the basis of
the director's age at the time of the deferral: under age 45, 7%; age 45-54,
10%; age 55-60, 11%; and over age 60, 12%. The total amount so credited
(including amounts deferred in prior years and interest earned thereon) is
distributed in ten annual installments beginning with the year following the
year in which the participant ceases to be a director. The Corporation's
commitment to accrue and pay interest on amounts deferred is facilitated by the
purchase of corporate owned life insurance on the lives of directors. If the
Board of Directors determines at any time that changes in the law affect the
Corporation's ability to recover the cost of providing the benefits payable
under the Plan, the Board, in its discretion, may reduce the interest credited
on deferrals to a rate not less than one half the rate otherwise provided for
in the Plan. Six current directors are participants.
Effective January 1, 1994, the Board approved the Directors' Restricted Stock
Plan pursuant to which each current non-employee director was awarded a grant
of 1,000 shares of the Corporation's Common Stock (Restricted Shares). Any
person who is not and never has been an employee of the Corporation and who is
first elected to the Board after January 1, 1994, also will receive a 1,000
share grant on the date of election. Restricted Shares are registered in the
name of the director, who has all rights of ownership (including the right to
vote the shares and receive dividends), subject to certain restrictions. The
Restricted Shares awarded under this Plan may not be sold, pledged or otherwise
encumbered during a restriction period which (a) begins when the Restricted
Shares are granted and (b) ends on the earlier of (i) the date the director
dies or (ii) six months after the director becomes disabled or retires. For
purposes of the Plan, a director "retires" when service as a director
terminates because (a) the director is ineligible to continue serving under the
retirement policy for directors or (b) the director has served for at least two
consecutive years and such termination is due to (i) taking a position with or
providing
7
<PAGE>
services to a governmental, charitable or educational institution whose
policies prohibit continued service as a director or (ii) the fact that
continued service as a director would be a violation of law.
COMMITTEES
Each year, not later than its organization meeting, the Board of Directors
appoints the Audit Committee, Executive Committee, Compensation and Nominating
Committee and Pension Committee.
The Audit Committee recommends to the Board of Directors the engagement of,
and the fee to be paid to, the independent public accountants; reviews with the
independent accountants the annual audit plan; receives, reviews and transmits
to the Board the annual report and financial statements of the Corporation and
its consolidated subsidiaries; and reviews, in consultation with the
independent accountants and the Corporation's internal audit staff, as deemed
necessary, the Corporation's accounting policies, conflict of interest policy,
internal control systems and financial operations and reporting. This Committee
met four times in 1994, and its members are L. E. Coleman, Chairman, Gerald L.
Baliles, Gene R. Carter, Landon Hilliard and Harold W. Pote.
The Compensation and Nominating Committee makes recommendations to the Board
of Directors concerning executive compensation; adoption and administration of
any management incentive bonus plan, deferred compensation plan or other
similar plans of the Corporation; individuals to be elected as officers of the
Corporation; and nominees for election to the Board. The Committee will
consider Board nominees recommended by stockholders. Recommendations by
stockholders must be in writing addressed to the Corporate Secretary, Norfolk
Southern Corporation, Three Commercial Place, Norfolk, Virginia 23510-2191, and
shall include sufficient background material to enable the Committee to
consider fully the qualifications of the individual and any potential conflict
of interest or legal restrictions concerning the person's service in the
proposed capacity. This Committee met six times in 1994, and its members are E.
B. Leisenring, Jr., Chairman, L. E. Coleman, T. Marshall Hahn, Jr. and Robert
E. McNair.
The Executive Committee is empowered to exercise all the authority of the
Board of Directors to the extent permitted by Virginia law when the Board is
not in session, including the declaration of a quarterly dividend upon the
Common Stock of the Corporation at the rate of the quarterly dividend most
recently declared by the Board. All actions taken by the Committee are to be
reported to the Board at its meeting next succeeding such action and are
subject to revision or alteration by the Board. This Committee met three times
in 1994, and its members are Arnold B. McKinnon, Chairman, David R. Goode,
T. Marshall Hahn, Jr. and E. B. Leisenring, Jr.
The Pension Committee makes recommendations to the Board of Directors
concerning an annual investment policy for investment of the assets of the
Corporation's pension fund and the engagement of, and the fees to be paid to,
firms of investment managers to manage designated portions of such assets
within the framework of the investment policy; reviews the performance of the
investment managers; and receives, reviews and transmits to the Board the
annual reports, financial statements and actuarial valuations of the pension
plans. This Committee met five times in 1994, and its members are
T. Marshall Hahn, Jr., Chairman, E. B. Leisenring, Jr., Robert E. McNair, Jane
Margaret O'Brien and Harold W. Pote.
8
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Norfolk Southern maintains various banking relationships with Brown Brothers
Harriman & Co. ("Brown Brothers"), in which Mr. Hilliard is a partner, on bases
that are consistent with normal financial and banking practices. All
transactions are entered into in the ordinary course of business on
substantially the same terms as those prevailing at the time for comparable
transactions with other banks. Also, in 1994, Brown Brothers was paid
approximately $78,000 in fees for managing a portion of the assets of the
Corporation's pension fund.
In 1994, the Corporation paid approximately $23,000 for legal services to the
law firm of Hunton & Williams, in which Mr. Baliles is a partner.
Kathryn B. McQuade is Vice President-Internal Audit of the Corporation. Ms.
McQuade's spouse is one of approximately 6,100 partners worldwide in KPMG Peat
Marwick LLP ("KPMG"), a firm of independent public accountants that has acted
as auditors for the Corporation or its subsidiary, Norfolk and Western Railway
Company, since 1969. Ms. McQuade's spouse does not participate in, or have
access to, KPMG's work for the Corporation. The Corporation paid KPMG
approximately $1.7 million for all services rendered during 1994.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following identifies any reportable business relationships between the
Corporation and Messrs. Leisenring, Coleman, Hahn or McNair, the members of the
Compensation and Nominating Committee.
In 1994, the Corporation paid approximately $335,000 to McNair & Sanford,
P.A., of which Mr. McNair is Chairman, for legal and consulting services.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the cash compensation paid, as well as certain
other compensation accrued or paid, to the Chief Executive Officer and to each
of the other five most highly compensated executive officers of the Corporation
for service in all capacities to the Corporation and its subsidiaries for the
fiscal years ending December 31, 1994, 1993 and 1992.
9
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- -----------------------
AWARDS PAYOUTS
----------- -----------
OTHER SECURITIES
ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY /1/ BONUS /1/ COMPENSATION /2/ OPTIONS /3/ PAYOUTS /4/ COMPENSATION /5/
POSITION YEAR ($) ($) ($) (#) ($) ($)
- ------------------ ---- ---------- --------- ---------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
David R. Goode 1994 585,000 497,250 154,4726 40,000 /7/ 4,500
Chairman, President 1993 535,000 376,480 300,309 40,000 217,011 50,480
and Chief Executive Of-
ficer 1992 418,333 297,634 133,057 20,000 81,567 31,778
John R. Turbyfill 1994 425,000 340,000 187,957 20,000 /7/ 4,500
Vice Chairman 1993 414,583 273,086 331,359 12,500 217,011 36,924
1992 390,000 270,738 317,988 12,500 208,435 28,895
John S. Shannon 1994 370,000 277,500 68,570 12,500 /7/ 4,500
Executive Vice 1993 360,000 237,132 233,296 12,500 217,011 30,681
President-Law 1992 340,000 236,028 204,483 12,500 180,250 25,973
Stephen C. Tobias 1994 267,500 200,625 43,654 5,000 /7/ 4,500
Executive Vice 1993 223,750 147,384 99,425 5,000 86,818 22,910
President-Operations 1992 201,250 139,714 83,308 5,000 72,278 20,235
D. Henry Watts 1994 370,000 277,500 220,252 12,500 /7/ 4,500
Executive Vice 1993 360,000 237,132 377,009 12,500 217,011 33,444
President-Marketing 1992 350,000 242,970 317,355 12,500 180,250 30,384
Henry C. Wolf 1994 267,500 200,625 46,537 12,500 /7/ 4,500
Executive Vice 1993 204,167 134,485 101,053 5,000 86,818 27,269
President-Finance 1992 160,000 111,072 56,893 5,000 33,912 19,390
</TABLE>
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/1/Includes portion of any salary or bonus award elected to be received on a
deferred basis.
/2/Includes cash payment of dividend equivalents in an amount equal to, and
commensurate with, dividends paid on the Common Stock on performance share
units awarded through 1992 pursuant to the Corporation's Long-Term Incentive
Plan (dividend equivalents are not paid on performance share units awarded
after 1992). Includes amounts reimbursed for the payment of taxes on personal
benefits. Does not include a tax absorption payment, which was not
determinable in time to be reported, under the Long-Term Incentive Plan for
the 1994 award of performance shares. Also includes the amount by which the
interest accrued on salary and bonuses deferred under the Officers' Deferred
Compensation Plan exceeds 120% of the applicable Federal long-term rate
provided under Section 1274(d) of the Internal Revenue Code; for 1994, these
amounts were: for Mr. Goode, $30,525; Mr.Turbyfill, $161,921; Mr. Shannon,
$46,304; Mr. Tobias, $23,009; Mr. Watts, $195,798; and Mr. Wolf, $26,321.
/3/Options were granted without tandem SARs.
/4/Represents market value, as of the date of award, of Common Stock earned
pursuant to the performance share feature of the Corporation's Long-Term
Incentive Plan for periods ended December 31, 1993 and 1992 (for 1992,
performance shares were awarded for achievements in the three-year period
1990-1992 and for 1993, performance shares were awarded for achievements in
the three-year period 1991-1993). For 1994, the award of performance shares
for achievements in the three-year period 1992-1994 had not been approved in
time to be reported.
/5/Includes for 1994 contributions of $4,500 to the Corporation's 401(k)
plan on behalf of each named executive officer.
/6/Includes personal use, as directed by resolution of the Board of
Directors, of the Corporation's aircraft valued at $55,328, calculated on the
basis of the aggregate incremental cost of such use to the Corporation.
/7/For 1994, the award of performance shares for achievements in the three-
year period 1992-1994 had not been approved in time to be reported.
10
<PAGE>
LONG-TERM INCENTIVE PLAN
The Corporation's Long-Term Incentive Plan, as amended by the stockholders
in 1989, provides for the award of incentive stock options, non-qualified
stock options, stock appreciation rights, restricted stock and performance
share units to officers and other key employees of the Corporation and certain
of its subsidiaries. The Compensation and Nominating Committee of the Board of
Directors ("Committee") is charged with administration of the Plan and has the
sole discretion, subject to certain limitations, to interpret the Plan; to
select Plan participants; to determine the type, size, terms and conditions of
awards under the Plan; to authorize the grant of such awards; and to adopt,
amend and rescind rules relating to the Plan.
STOCK OPTIONS
The following table sets forth certain information concerning the grant in
1994 of stock options under the Corporation's Long-Term Incentive Plan to each
named executive officer:
OPTION/SAR* GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
GRANT DATE
INDIVIDUAL GRANTS VALUE
- ----------------------------------------------------------------- ----------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANT DATE
OPTIONS GRANTED TO EXERCISE OR PRESENT
GRANTED/1/ EMPLOYEES IN BASE PRICE/2/ EXPIRATION VALUE/3/
NAME # FISCAL YEAR ($ PER SHARE) DATE ($)
- ---- ---------- ------------ ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
D. R. Goode 40,000 5.68% 72.9375 1/30/2004 787,600
J. R. Turbyfill 20,000 2.84% 72.9375 1/30/2004 393,800
J. S. Shannon 12,500 1.77% 72.9375 1/30/2004 246,125
S. C. Tobias 5,000 .71% 72.9375 1/30/2004 98,450
D. H. Watts 12,500 1.77% 72.9375 1/30/2004 246,125
H. C. Wolf 12,500 1.77% 72.9375 1/30/2004 246,125
</TABLE>
*No SARs were granted in 1994
- --------
/1/Options were granted effective January 31, 1994, exercisable one year
after the date of grant. Dividend equivalents are paid in cash on these
options in an amount equal to, and commensurate with, dividends paid on the
Common Stock.
/2/The exercise price (fair market value on the date of grant) may be paid
in cash or in shares of Common Stock (previously owned by the optionee for at
least one year next preceding the date of exercise) valued at fair market
value on the date of exercise.
/3/In accordance with regulations of the Securities and Exchange Commission,
the present value of the option grant at the date of grant was determined
using the Black-Scholes statistical model. The actual amount, if any, an
executive officer may realize depends on the stock price on the date the
option is exercised; consequently, there is no assurance the amount realized
by an executive officer will be at or near the monetary value determined by
using this statistical model.
11
<PAGE>
The model assumes:
(a) a stock volatility factor of 0.2309: volatility was determined by an
independent compensation consultant using monthly data averaged over the
60-month period January 1, 1989, through December 31, 1993;
(b) a dividend yield of 3.43%: yield was determined monthly and averaged
over the 60-month period January 1, 1989, through December 31, 1993; and
(c) a 1993 risk-free rate of return of 6%: this represents the return on
a comparatively "risk-free" investment in 1993, the year prior to the
issuance of these options.
These assumptions produce a Black-Scholes factor of 0.27 and a resulting
present value for the 1994 option grant of $19.69 per share. The factor
computed under the Black-Scholes formula was not adjusted to reflect that the
options cannot be exercised during the first year of their ten-year term, nor
does it reflect that dividend equivalents are paid on unexercised options.
The following table sets forth certain information concerning the exercise
of options and/or SARs by each named executive officer during 1994 and the
unexercised options and SARs held by each as of the end of 1994:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
SHARES FY-END AT FY-END/1/
ACQUIRED ON VALUE (#) ($)
EXERCISE REALIZED -------------------------------------- ----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE/2/ UNEXERCISABLE/2/
- ---- ----------- -------- ---------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
D.R. Goode 4,731 205,008 85,821/3/ 40,000 676,615/3/ 0
J. R.Turbyfill 3,227 179,436 108,909/4/ 20,000 2,661,048/4/ 0
J. S.Shannon 0 0 60,820 12,500 876,958 0
S.C. Tobias 0 0 25,837 5,000 409,788 0
D.H. Watts 0 0 60,442 12,500 866,444 0
H.C. Wolf 1,318 65,708 24,684 12,500 386,910 0
</TABLE>
- --------
/1/Equal to the mean ($60.875) of the high and low trading prices on the New
York Stock Exchange-Composite Transactions of the Common Stock on December 31,
1994, less the exercise prices of the options, multiplied by the number of
options.
/2/Because the market price of the Common Stock at the end of 1994 was below
the exercise price of options granted in 1993 ($63.25 per share) and in 1994
($72.9375 per share), such options are out-of-the-money and are not includable
in the reported value of in-the-money options at year end, whether or not
exercisable.
/3/Includes 3,300 tandem SARs with a value of $105,874.
/4/Includes 44,386 tandem SARs with a value of $1,689,486.
PERFORMANCE SHARE UNITS ("PSUS")
The following table sets forth certain information concerning the grant in
1994 of PSUs under the Corporation's Long-Term Incentive Plan to each named
executive officer. These PSU grants entitle a
12
<PAGE>
recipient to "earn out" or receive performance shares (shares of the
Corporation's Common Stock) at the end of a three-year performance cycle (1994-
1996) based on the Corporation's performance during this three-year period.
Under the 1994 award, corporate performance will be measured using three
predetermined and equally weighted standards; that is, each of the following
performance areas will serve as the basis for "earning out" up to one third of
the total number of PSUs granted: (1) three-year average earnings per share
("EPS") growth over the prior three-year base period, (2) three-year average
return on average invested capital ("ROAIC") and (3) three-year average annual
operating ratio measured both absolutely and in relation to average industry
performance for six major rail carriers. A more detailed discussion of these
performance criteria can be found in the Report of the Compensation and
Nominating Committee, beginning on page 15.
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER
SHARES, OR OTHER NON-STOCK PRICE-BASED PLANS
UNITS OR PERIOD UNTIL --------------------------------
OTHER RIGHTS/1/ MATURATION THRESHOLD TARGET/2/ MAXIMUM
NAME (#) OR PAYOUT (#) (#) (#)
- ---- --------------- ------------ --------- --------- -------
<S> <C> <C> <C> <C> <C>
D. R. Goode 20,000 01/01/94- 0 10,280 20,000
12/31/96
J. R. Turbyfill 10,000 01/01/94- 0 5,140 10,000
12/31/96
J. S. Shannon 6,250 01/01/94- 0 3,212 6,250
12/31/96
S. C. Tobias 2,500 01/01/94- 0 1,285 2,500
12/31/96
D. H. Watts 6,250 01/01/94- 0 3,212 6,250
12/31/96
H. C. Wolf 6,250 01/01/94- 0 3,212 6,250
12/31/96
</TABLE>
- --------
/1/Performance shares, when earned out, will be held by the Corporation for
up to 60 months pursuant to a share retention agreement unless such requirement
is waived by the Committee in its sole discretion. Since all performance shares
earned under the 1994 award will be subject to a share retention agreement, a
tax absorption payment in cash or as additional withholding taxes, equal to any
Federal and state income taxes imposed, will be made to or on behalf of an
executive officer as the result of this "earn out."
/2/The Long-Term Incentive Plan does not provide a performance target;
consequently, this column represents 51.4% of the maximum "earn out," which, in
accordance with applicable rules of the Securities and Exchange Commission, is
based on the percentage of the previous fiscal year's actual "earn out" under
the Plan.
PENSION PLANS
The following table sets forth the estimated annual retirement benefits
payable on a qualified joint-and-survivor-annuity basis in specified
remuneration and years of creditable service classifications under the
Corporation's qualified defined benefit pension plans, as well as nonqualified
supplemental pension plans that provide benefits otherwise denied participants
because of certain Internal Revenue Code limitations on qualified plan
benefits. It is assumed, for purposes of the table, that an individual retired
in
13
<PAGE>
1994 at age 65 (normal retirement age) with the maximum allowable Railroad
Retirement Act annuity. The benefits shown are in addition to amounts payable
under the Railroad Retirement Act.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF CREDITABLE SERVICE
-----------------------------------------------------------------------------
REMUNERATION 25 30 35 40
- ------------ -- -- -- --
<S> <C> <C> <C> <C>
$ 200,000 $ 60,722 $ 74,279 $ 87,879 $101,831
300,000 98,222 119,279 140,379 161,831
400,000 135,722 164,279 192,879 221,831
500,000 173,222 209,279 245,379 281,831
600,000 210,722 254,279 297,879 341,831
700,000 248,222 299,279 350,379 401,831
800,000 285,722 344,279 402,879 461,831
900,000 323,222 389,279 455,379 521,831
1,000,000 360,722 434,279 507,879 581,831
1,100,000 398,222 479,279 560,379 641,831
1,200,000 435,722 524,279 612,879 701,831
</TABLE>
Under the pension plans, covered compensation includes salary and bonus; each
officer can expect to receive an annual retirement benefit equal to average
annual compensation for the five most highly compensated consecutive years out
of the last ten years of creditable service multiplied by the number that is
equal to 1.5% times total years of creditable service, but not in excess of 60%
of such average compensation, less an offset for the annual Railroad Retirement
Act annuity.
The respective last five-year average compensation and approximate years of
creditable service, as of January 1, 1995, for each executive officer named in
the Summary Compensation Table were: Mr. Goode, $612,648 and 29 years; Mr.
Turbyfill, $660,595 and 34 years; Mr. Shannon, $573,438 and 38 years;
Mr. Tobias, $322,716 and 25 years; Mr. Watts, $576,937 and 40 years; Mr. Wolf,
$276,895 and 22 years.
CHANGE-IN-CONTROL ARRANGEMENTS
In 1994, the Compensation and Nominating Committee recommended, and the Board
of Directors approved, the Corporation's entering into change-in-control
compensation agreements ("Agreements") with each officer named in the Summary
Compensation Table (and with other key employees). These Agreements provide for
certain economic protections in the event of an involuntary or other specified
Termination (each term with an initial capital letter is defined in the
Agreements) of a covered individual during a period of twenty-four months next
following a Change in Control of the Corporation. This action was based on an
analysis of U.S. corporations' practices in this area conducted by an outside
consultant (that also advises the Compensation and Nominating Committee
concerning the competitiveness and structure of compensation for executive
officers) engaged by the Committee to advise it on these matters. Based on its
research, the consultant suggested the type and scope of coverage that would be
appropriate and in line with the practices of other U.S. corporations.
These Agreements, terminable by either the Corporation or the named executive
officer (or other key employee) on twenty-four months' notice, provide
generally for severance compensation payments (not continued employment) equal,
in the case of officers named in the Summary Compensation Table, to three times
the sum of their Base Pay and Incentive Pay and for the redemption of
outstanding, but exercisable, options (subject to restrictions in the case of
persons, such as the officers named in the Summary Compensation Table, imposed
under Section 16 of the Securities Exchange Act of 1934) and
14
<PAGE>
of certain outstanding Performance Share Units. Covered individuals also are
eligible for certain continued Benefits coverage (principally medical,
insurance and death benefits) for two years following a covered Termination and
for additional service credit under the Corporation's retirement plans; in the
case of an officer named in the Summary Compensation Table, such additional
service credit may not exceed the creditable service such officer would have
had upon reaching mandatory retirement age. The Agreements also provide for
payment of any Federal excise tax (not income tax) that may be imposed on
payments made pursuant to these Agreements.
COMPENSATION AND NOMINATING COMMITTEE REPORT CONCERNING
THE 1994 COMPENSATION OF CERTAIN EXECUTIVE OFFICERS
This Report describes Norfolk Southern Corporation's officer compensation
strategy, the components of its compensation program and the manner in which
1994 compensation determinations were made for the Corporation's Chairman,
President and Chief Executive Officer, David R. Goode, and the other officers
(collectively, including Mr. Goode, referred to as the "Executive Officers")
whose 1994 compensation is disclosed in the Summary Compensation Table of this
Proxy Statement.
Among other things, the Compensation and Nominating Committee of the Board of
Directors ("Committee") is responsible for: (1) recommending to the Board the
salaries of corporate officers and (2) administering the Corporation's
Management Incentive Plan ("MIP"), as adopted by the Board of Directors, and
its Long-Term Incentive Plan ("LTIP"), as last amended and approved by
stockholders in 1989. Included in the LTIP, and more particularly described
below, are awards of stock options and performance share units. The Committee
is composed entirely of non-employee directors and met six times during 1994.
BASE SALARY: While the Committee believes that a substantial portion of
each Executive Officer's total compensation should be "performance-based,"
the Committee seeks to assure that the base salaries of Executive Officers
are generally competitive with those earned by individuals in comparable
positions.
Specifically, the Committee compares Mr. Goode's base salary with those
paid to the chief executive officers of all other holding companies of
Class I railroads (the same companies comprising the S&P Railroad Index
included in the Stock Performance Graph) and of other American corporations
of comparable revenue size. The base salaries of the other Executive
Officers--as well as all officers of the Corporation--are evaluated,
principally by Mr. Goode, relative to survey data of base salaries for
comparable positions at a large number of American corporations of
comparable revenue size, including but not limited to those identified in
the Stock Performance Graph. This information is compiled by the
Corporation's Personnel Department and by an outside consultant. The
Committee's general intention is to set the base salaries of Executive
Officers between the 50th and 75th percentiles of their peers in the
respective groups with which they are compared.
Mr. Goode discusses with the Committee the specific contributions and
performance of each of the Executive Officers. Based on such subjective
evaluations, comparative salary data and each Executive Officer's length of
service in current position, Mr. Goode makes base salary recommendations
which are submitted for Committee and Board approval.
Mr. Goode makes no recommendations concerning, nor does he play any role in
determining, his base salary (or other compensation), which is set by the
Board. As noted, the Committee customarily
15
<PAGE>
seeks to set the Chairman's base salary between the 50th and 75th
percentiles of the base salaries paid to chairmen of other American
corporations of comparable revenue size and competitively (within the mid-
range of compensation practice) with those of the chairmen of the other
holding companies of Class I railroads. Since Mr. Goode became Chairman of
the Corporation in 1992, his base salary in 1994 was below the 50th
percentile; the base salary of other Executive Officers in 1994
approximated the 50th percentile.
For 1994, Mr. Goode's salary was increased by $50,000, or 9.3%. This 1994
increase, not tied to or reflecting application of any specific formula,
reflects both the Corporation's total operating revenues and net income in
1993, despite an uncertain economy and reduced coal traffic, and the
Board's confidence in Mr. Goode's leadership. The Committee recommended and
the Board approved average increases of 2.8% for Messrs. Turbyfill,
Shannon, Tobias, Watts and Wolf; these increases were based on Mr. Goode's
recommendations and the Corporation's 1993 performance. Mr. Tobias was
elected Executive Vice President-Operations at midyear (succeeding
Mr. P. R. Rudder who retired), and the Board set his salary using the same
criteria and considerations applicable to the other Executive Officers.
MANAGEMENT INCENTIVE PLAN ("MIP"): The Corporation's MIP is designed and
administered to ensure that a significant portion of each Executive
Officer's total annual cash compensation is based on the Corporation's
annual profitability. MIP awards to Executive Officers and other MIP
participants are paid from an annual incentive fund equal to a percentage
(from 0.75% to 1.5%) of the Corporation's adjusted pretax net income when
the Corporation's annual return on average invested capital ("ROAIC")
equals or exceeds 10%.
Base salaries of the Corporation's Executive Officers have tended to be
lower than at comparable organizations, and their incentive pay
opportunities have tended to be higher. When the Corporation achieves MIP
profitability goals, the Executive Officers' base salaries and MIP awards
are competitive with the total annual cash compensation paid by comparable
organizations. In years in which those goals are not realized, the
Executive Officers will receive less (or no) incentive pay.
Specifically, incentive pay opportunities for Mr. Goode are determined
annually by the Committee by comparing Mr. Goode's incentive pay with that
paid to the chief executive officers of all other holding companies of
Class I railroads (the same companies comprising the S&P Railroad Index
included in the Stock Performance Graph) and of other American corporations
of comparable revenue size. Incentive pay opportunities for the other
Executive Officers are determined annually by the Committee based on its
review of the annual cash compensation of comparable positions at a large
number of American companies of comparable revenue size, including but not
limited to those identified in the Stock Performance Graph.
Using those criteria, in November of 1993, the Committee set Mr. Goode's
maximum 1994 incentive opportunity at 85% of 1994 salary, the Vice
Chairman's at 80% of 1994 salary, and the other Executive Officers' at 75%
of 1994 salary. Actual payments, if any, are based on the total amount in
the annual incentive fund. For 1994, 296 key employees, including the
Executive Officers, earned MIP awards. In light of the Corporation's 1994
performance, the related MIP payments earned by Mr. Goode and the other
Executive Officers were equal to the maximum amount of their respective
16
<PAGE>
incentive opportunities. The 1994 MIP award paid to Mr. Goode fell below
the 50th percentile with respect to 1993 bonuses (the most current data
available when decisions concerning his incentive opportunity were made)
earned by chief executive officers in his peer group. The 1994 MIP awards
paid to the other Executive Officers also fell below the 50th percentile
with respect to 1993 bonuses earned by individuals in similar positions in
their respective peer group.
LONG-TERM INCENTIVE PLAN ("LTIP"): The Committee believes that a
substantial component of the Executive Officers' total compensation should
be based on and reflect the Corporation's longer-term earnings growth, its
profitability and the total returns (stock price appreciation and
dividends) to the Corporation's stockholders. This is achieved by making
annual grants of stock options and performance share units and through
share retention agreements entered into with the Executive Officers. These
LTIP arrangements are intended to ensure that the longer-term financial
interests of the Executive Officers are directly aligned with those of the
Corporation's stockholders and to provide the Executive Officers with the
opportunity to acquire a meaningful beneficial stock ownership position in
the Corporation.
In determining current LTIP awards, the size of prior grants is analyzed
within a current total compensation framework predicated on a review of
both the long-term awards and the total compensation (base salary, bonus
and long-term awards) of comparable positions at a number of U.S.
companies. The mix of options and performance share units may vary from
year to year to reflect an analysis of the relative value of each type of
award. Since the inception of the Plan, this analysis has resulted in a
general practice of granting options to performance share units in a ratio
of 2 to 1.
Specifically, the Committee compares Mr. Goode's total compensation to that
of the chief executive officers of all other holding companies of Class I
railroads (the same companies comprising the S&P Railroad Index included in
the Stock Performance Graph) and of other American corporations of
comparable revenue size. The total compensation of the other Executive
Officers is evaluated relative to survey data for comparable positions at
American corporations of comparable revenue size, including but not limited
to those identified in the Stock Performance Graph. Based on this review,
the number of stock options and performance share units granted is fixed
(assuming that all performance share units actually are earned--which has
not happened to date) so as to place the total compensation of Mr. Goode
and the other Executive Officers above the 75th percentile of total
compensation for their respective peer groups. These award opportunities
and the resultant total compensation will be attained only if future
corporate performance warrants.
At its January 1994 meeting, the Committee granted stock options to each of
the six Executive Officers and to 300 other key employees at an exercise
price equal to the market value of the shares on the date of grant. These
options are exercisable during a ten-year period following the date of
grant, after a one-year period has elapsed.
The 1994 grants of performance share units provide the Executive Officers,
and other recipients, with the opportunity to earn shares of the
Corporation's Common Stock during the first quarter of 1997. The number of
performance share units, and equivalent common shares, that are earned by
recipients is based on the Corporation's three-year (i.e., 1994-1996)
earnings per share growth, three-year average ROAIC and three-year average
operating ratio evaluated relative to pre-established performance criteria
set out in the schedules below. One third of the performance share units
granted in 1994 are available to be earned based on each of the three
performance criteria.
17
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------- ---------------------------------------------------
EARNINGS PER SHARE ROAIC
- ---------------------------------------------- ---------------------------------------------------
PERCENTAGE OF PERCENTAGE OF
THREE-YEAR PERFORMANCE THREE-YEAR PERFORMANCE
AVERAGE EPS SHARE UNITS AVERAGE SHARE UNITS
GROWTH EARNED ROAIC EARNED
- ---------------------------------------------- ---------------------------------------------------
<S> <C> <C> <C>
40% 100% 20% 100%
35% 90% 19% 90%
30% 80% 18% 80%
25% 60% 17% 70%
20% 40% 16% 60%
15% 20% 15% 50%
Below 15% 0% 14% 40%
13% 20%
Below 13% 0%
- ---------------------------------------------- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
3-YEAR AVERAGE OPERATING RATIO ("OPR")
- ------------------------------------------------------------------------------------------
AVERAGE OF A AND B = PERCENTAGE OF PERFORMANCE SHARE UNITS
EARNED UNDER OPERATING RATIO CRITERIA
- ------------------------------------------------------------------------------------------
A B
- ------------------------------------------------------------------------------------------
PERCENTAGE OF 3-YEAR AVERAGE PERCENTAGE OF
PERFORMANCE NS OPR BELOW PERFORMANCE
NS 3-YEAR SHARE UNITS INDUSTRY OPR SHARE UNITS
OPR AVERAGE EARNED AVERAGE EARNED
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
70% 100% 15.0+ 100%
75% 90% 10.0 80%
80% 80% 7.5 70%
85% 60% 5.0 60%
90% 40% 2.5 30%
Greater than 0% 0.0 0%
90%
- ------------------------------------------------------------------------------------------
</TABLE>
All stock options and performance share units granted in 1994 to Executive
Officers were subject to the following terms. During the period that the
stock options remain outstanding (i.e., until such time as they are
exercised by the Executive Officer), the Corporation pays cash dividend
equivalents on such options to the Executive Officers. At the time
performance share units are earned, the Corporation makes a cash payment so
the Executive Officers can pay taxes due on the value of such performance
shares. In exchange for these cash payments, the Executive Officers have
entered into share retention agreements with the Corporation whereby they
have agreed to have the Corporation hold performance shares for a period of
five years following the date such performance shares are earned.
In 1994, Mr. Goode was granted options on 40,000 shares of common stock and
20,000 performance share units. The other Executive Officers as a group
were awarded options on 62,500 shares of common stock and 31,250
performance share units.
18
<PAGE>
In sum, the Committee believes that compensation of the Executive Officers
is competitive with that of similar positions at comparable American
corporations. More importantly, the Committee believes Executive Officer
compensation has been appropriately structured and administered so that a
substantial component of total compensation is dependent upon, and directly
related to, the Corporation's annual and longer-term earnings growth, its
profitability and the total returns to the Corporation's stockholders.
Regulations of the Securities and Exchange Commission require the Committee
to report to stockholders on the Committee's policy concerning the Revenue
Reconciliation Act of 1993 which amended Section 162 of the Internal Revenue
Code to eliminate the deductibility of certain compensation over $1 million
paid to executive officers. Because it appeared that this new legislation (in
light of interpretive regulations and transition rules) would not affect the
deductibility of amounts paid to Executive Officers under the Corporation's
1994 compensation arrangements, the Committee concluded it was not necessary to
formulate a policy with respect to the new tax provision. However, the
Committee has continued to monitor developments affecting the tax deductibility
of compensation of Executive Officers, including the December 1994 amendments
to the proposed regulations, and has made recommendations to the Board, that
are more fully described under the caption "Stockholder Approval of Certain
Incentive Plans," beginning on page 21, and in Appendix A and Appendix B, to
permit the Corporation both to offer competitive compensation in a suitable
package and to take related tax deductions.
E. B. Leisenring, Jr., Chairman
L. E. Coleman, Member
T. M. Hahn, Jr., Member
R. E. McNair, Member
19
<PAGE>
PERFORMANCE GRAPH*
Set forth below is a line graph comparing the yearly percentage change in the
cumulative total stockholder return on the Corporation's Common Stock, the
cumulative total return of the S&P Composite-500 Stock Price Index and the S&P
Railroad Stock Price Index for the five-year period commencing December 31,
1989, and ending December 31, 1994.
[GRAPH APPEARS HERE]
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG NORFOLK SOUTHERN CORP.,
S&P 500 INDEX AND RAILROADS
<TABLE>
<CAPTION>
NORFOLK
Measurement Period SOUTHERN S&P
(Fiscal Year Covered) CORP. 500 INDEX RAILROADS
- --------------------- --------------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-12/31/1989 $100.00 $100.00 $100.00
FYE 12/31/1990 $107.23 $ 96.90 $ 95.56
FYE 12/31/1991 $157.43 $126.42 $155.97
FYE 12/31/1992 $167.28 $136.05 $175.14
FYE 12/31/1993 $198.03 $149.76 $217.05
FYE 12/31/1994 $175.31 $151.74 $187.51
</TABLE>
- --------
*Assumes that the value of the investment in the Corporation's Common Stock
and each index was $100 on December 31, 1989, and that all dividends were
reinvested.
20
<PAGE>
STOCKHOLDER APPROVAL OF CERTAIN INCENTIVE PLANS
Subject to stockholder approval at this meeting, the Board of Directors
("Board") at its regular meeting on January 24, 1995, unanimously:
adopted the Norfolk Southern Corporation Long-Term Incentive Plan ("LTIP"),
as amended ("Amended LTIP"), including (1) the 162(m) Amendments
(hereinafter defined), (2) the reservation for issuance under the Amended
LTIP of up to an additional 6,000,000 shares of the Corporation's
authorized but unissued Common Stock and (3) certain other amendments in
the interest of clarity and administrative flexibility; and
adopted the Norfolk Southern Corporation Executive Management Incentive
Plan ("EMIP"), to be effective for fiscal years of the Corporation
beginning after December 31, 1995.
The Board unanimously recommends stockholder approval of both the Amended
LTIP and the EMIP. Under Virginia law, such approval requires the affirmative
vote, at a meeting at which a quorum is present, of a majority of the votes
cast by the shares entitled to vote. Votes that are withheld or shares that are
not voted, such as those held by a broker or other nominee who does not vote in
person or return a proxy, are not "cast" for this purpose.
THE FULL TEXTS OF BOTH THE AMENDED LTIP AND THE EMIP ARE ATTACHED TO THIS
PROXY STATEMENT AS APPENDIX A AND APPENDIX B, RESPECTIVELY. THE SUMMARIES OF
THE MATERIAL FEATURES OF THE AMENDED LTIP AND THE EMIP AS SET FORTH BELOW UNDER
THE APPROPRIATE CAPTIONS NECESSARILY ARE INCOMPLETE AND SELECTIVE; ACCORDINGLY,
EACH SUCH SUMMARY IS QUALIFIED IN ITS ENTIRETY AND IN ALL RESPECTS BY THE
DETAILED INFORMATION IN THE RELATED APPENDIX. CAPITALIZED TERMS, IF ANY, USED
IN EACH SUCH SUMMARY HAVE THE MEANINGS ATTRIBUTED TO THEM IN THE RELATED PLAN.
Purpose of the Amended LTIP and the EMIP
For a number of years, officers and certain other key employees of the
Corporation and certain of its subsidiary companies have been eligible to
participate (1) in an existing cash incentive plan offering annual incentives
on terms and conditions approved by the Board (Management Incentive Plan) and
(2) in the LTIP offering longer-term incentives on terms and conditions last
approved by the stockholders at their Annual Meeting in 1989. Information about
both the Management Incentive Plan and the LTIP is provided in the Report of
the Compensation and Nominating Committee ("Committee"), beginning on page 15
of this Proxy Statement.
The Amended LTIP and the EMIP are designed principally to accommodate certain
provisions in the Revenue Reconciliation Act of 1993, which added Section
162(m) to the Internal Revenue Code of 1986, as amended. Section 162(m) may
limit in any given year the Corporation's right to deduct all or a portion of
the incentive compensation paid to the individuals named that year in the
Summary Compensation Table.
However, "performance based" compensation, as defined in Section 162(m) and
related regulations, is not subject to the limitation on deductibility.
Stockholder approval of the Amended LTIP and the EMIP is intended to assure
that each plan provides participants with "performance based" compensation,
fully deductible under current tax rules and regulations.
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<PAGE>
A. THE NORFOLK SOUTHERN CORPORATION LONG-TERM INCENTIVE PLAN, AS AMENDED
("AMENDED LTIP")
On January 24, 1995, the Board of Directors adopted the Amended LTIP, subject
to stockholder approval at this meeting:
(1) to qualify awards and payments under that plan as "performance based"
and thus not subject to the previously described limitation on tax
deductibility ("162(m) Amendments");
(2) to reserve for issuance under the Amended LTIP up to an additional
6,000,000 shares of the Corporation's authorized but unissued Common Stock;
and
(3) to make specific the authority of the Committee concerning certain
administrative matters.
(1) "162(m) Amendments"
(a) Cap on Awards to Any One Individual
For awards under the LTIP to qualify as "performance based" compensation, the
Internal Revenue Service requires that the plan specify the maximum number of
shares that may be awarded to any one participant when grants are made.
The Amended LTIP establishes that limit (not a goal or target) at 250,000
shares (whether under any one or any combination of grant features permitted
under the Amended LTIP). The Committee has no present intention to award one
participant a grant of that size.
(b) Performance Criteria Applicable to Performance Share Units ("PSUs")
For awards under the PSU feature of the LTIP to qualify as "performance
based" compensation, the Internal Revenue Service requires that the plan
specify the performance criterion or criteria the Committee will use to
determine each participant's right to earn out shares and to receive payments.
No change is required or anticipated in the practice of using a three-year
performance period over which to assess performance against each criterion.
The Amended LTIP establishes three equally weighted performance criteria,
pursuant to which earnouts and payments under the PSU feature of the Amended
LTIP will be determined: (1) Return on Average Invested Capital ("ROAIC"); (2)
the NS Operating Ratio; and (3) total Return to NS Stockholders as compared
with the total return on all stocks comprising the S&P 500 Composite Stock
Price Index. The Committee has had (see, for example, the PSU table that
appears on page 18, as part of the "Compensation and Nominating Committee
Report Concerning the 1994 Compensation of Certain Executive Officers") and
will retain authority under the Amended LTIP to determine the percentage of
each PSU grant that will be earned at specific predetermined levels of
achievement within each performance criterion.
(2) Authority to Issue under the Amended LTIP an Additional 6,000,000 Shares of
the Corporation's Common Stock
Under the LTIP, last approved by stockholders at their May 11, 1989, Annual
Meeting, a total of 2,060,796 shares of the Corporation's authorized but
unissued Common Stock remained available for future grants as of February 28,
1995. If shares that are subject to grants made at the January 1995 meeting of
the Committee (such grants, made to 313 individuals, are expressly contingent
upon
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<PAGE>
stockholder approval of the Amended LTIP) are taken into account, the number of
shares that remain available as of February 28, 1995, for future grants would
be 1,090,046.
Unless the number of shares available for grant under the LTIP is increased,
further grants under that plan probably cannot be made after the 1997 grant
year. It is believed that continuing to offer long-term incentives under the
Amended LTIP enhances the ability of the Corporation to offer its officers and
other key employees a compensation package that is appropriately balanced, both
between base salary and incentive opportunity and between annual and long-term
incentives.
Under the Amended LTIP, up to an additional 6,000,000 shares of the
Corporation's authorized but unissued Common Stock may be issued under one or
more features of the Amended LTIP.
(3) Other Amendments to the LTIP to Provide Administrative Flexibility
(a) Dividend Equivalents
LTIP currently permits, but does not require, the Committee to pay a
Participant amounts equal to and commensurate with dividends declared on the
Corporation's Common Stock (Dividend Equivalents) on the number of shares of
stock (including shares represented by PSUs) underlying LTIP grants.
The Amended LTIP makes clear that the Committee in its sole discretion (a)
may provide for payment of Dividend Equivalents on fewer than all the shares of
stock represented by rights awarded under one or more features of the LTIP to
any Participant and (b) may provide that Dividend Equivalents will be paid for
a period that is or may be less than the period during which one or more such
rights may be exercised or earned by any Participant.
(b) Share Retention Agreements and Tax Absorption Payments
The LTIP currently permits, but does not require, the Committee to cause one
or more Participants to enter into Share Retention Agreements pursuant to which
certain shares may be retained by the Corporation for a period of up to five
years. In general, during the retention period, the Participant enjoys all the
benefits of ownership, save the right to sell, alienate, pledge or otherwise
encumber the shares. If the Committee requires such agreements of any
Participant, the LTIP now requires that the Corporation make a related Tax
Absorption Payment in an amount equal to the state and Federal taxes imposed on
the Participant as a result of becoming entitled to the shares to which the
agreement applies.
The Amended LTIP delinks Share Retention Agreements and Tax Absorption
Payments; such agreements may be imposed without incurring a related obligation
to make a Tax Absorption Payment, and the reverse.
(c) Satisfaction of PSUs
The PSU feature of the LTIP, as currently administered and as proposed to be
amended to comply with Section 162(m) (see discussion under the caption, "The
162(m) Amendments"), permits Participants to earn varying amounts, based on the
extent to which certain predetermined performance criteria are achieved during
a three-year performance cycle (the Committee retains authority to determine in
advance what earnouts will occur at certain levels of achievement with respect
to each such stockholder-approved criterion).
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<PAGE>
The Amended LTIP makes clear that the Board has authority to determine, at
the beginning of a performance cycle, the extent to which such PSUs that are
earned out will be satisfied in shares of the Corporation's Common Stock
(amounts not satisfied in stock will be satisfied in cash, based on the Fair
Market Value of the stock on the date the earnouts are determined). Both the
mode of payment and the date for determining earnouts are subject to the sole
discretion of members of the Committee, no member of which is eligible to be
awarded PSUs or to receive any payment related thereto.
Overview of the Amended LTIP and Summary of Certain Features
Established on June 28, 1983, and approved by the stockholders at their
Annual Meeting on May 10, 1984, the LTIP was adopted to promote the success of
the Corporation by providing an opportunity for officers and other key
employees to acquire a proprietary interest in the Corporation. Originally,
6,750,000 shares of authorized but unissued Common Stock (2,250,000 shares
prior to the March 6, 1987, 3-for-1 Common Stock split) were reserved for
issuance under the plan; an amended plan, which included the reservation for
issuance of an additional 4,925,000 shares of authorized but unissued Common
Stock, was adopted by the Board to be effective January 24, 1989, and was
approved by the stockholders on May 11, 1989.
Summary of the Important Features of the Amended LTIP:
ADMINISTRATION
The Amended LTIP is administered by the Committee, each member of which must
be "disinterested" within the meaning of Section 16 of the Securities Exchange
Act of 1934 and related regulations, and thus is ineligible to receive Awards
under the Amended LTIP. The Committee has the sole discretion, subject to
certain limitations, to interpret the Amended LTIP; to select Participants in
the Amended LTIP; to determine the type, size, terms and conditions of Awards
under the Amended LTIP; to authorize the grant of such Awards; and to adopt,
amend and rescind rules relating to the Amended LTIP. All determinations of the
Committee are conclusive.
ELIGIBILITY
Only officers and other key employees of the Corporation or its subsidiaries
are eligible for selection by the Committee to participate in the Amended LTIP.
A director of the Corporation who is not also a full-time salaried officer is
ineligible to participate.
SHARES AVAILABLE
Subject to the provisions of the Amended LTIP regarding Capital Adjustments,
no more than the number of shares available for future grant on February 28,
1995, plus the additional 6,000,000 shares of the Corporation's authorized but
unissued Common Stock to be approved at this Annual Meeting, may be issued
pursuant to the Amended LTIP. Cash payments of Stock Appreciation Rights, if
any, no longer will be applied against the maximum number of shares issuable
under the Amended LTIP. Any shares of Common Stock subject to an Option, Stock
Appreciation Right or Performance Share Unit which are not issued prior to the
expiration of such Award will again be available for award under the Amended
LTIP.
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<PAGE>
INCENTIVE STOCK OPTIONS
The Committee may authorize the grant of Incentive Stock Options, as defined
under Section 422 of the Internal Revenue Code of 1986, as amended, which are
subject to the following terms and conditions: (1) the option price per share
will be determined by the Committee but will not, in any event, be less than
100% of the Fair Market Value of the Common Stock on the date the Option is
granted; (2) the terms of the Option will be fixed by the Committee but will
not, in any event, exceed ten years from the date the Option is granted; (3)
Options will not be transferable other than by will or the laws of descent and
distribution; (4) Options will not be exercisable before one year after the
date of grant, or such longer period as the Committee may determine; (5) the
purchase price of Common Stock upon exercise of an Option will be paid in full
to the Corporation at the time of the exercise of the Option in cash, or at the
discretion of the Committee, by surrender to the Corporation of shares of
previously acquired Common Stock which have been held by the Optionee for at
least one year next preceding the date of exercise and which will be valued at
Fair Market Value on the date of the Option exercise; (6) an Option will expire
upon the earliest of (i) the expiration of the term for which it was granted,
(ii) 36 months after termination of an Optionee's employment due to Retirement,
Disability or death, (iii) the last day of active service of an Optionee whose
employment is terminated for any reason other than Retirement, Disability or
death or (iv) with the Optionee's consent, the grant of a new Award to replace
the Option; (7) the aggregate Fair Market Value (determined on the date of
grant) of the stock with respect to which Incentive Stock Options (granted on
or before January 1, 1987) are exercisable for the first time by the Optionee
during any calendar year shall not exceed $100,000; and (8) Incentive Stock
Options granted prior to January 1, 1987, will not be exercisable by an
Optionee while there is outstanding any Incentive Stock Option previously
granted to such Optionee by the Corporation.
NON-QUALIFIED STOCK OPTIONS
The Committee may authorize the grant of Non-qualified Stock Options subject
to the same terms, conditions and restrictions previously set forth in numbered
clauses (1) and (3) through (6) regarding Incentive Stock Options.
STOCK APPRECIATION RIGHTS
The Committee may grant a Stock Appreciation Right in tandem with an Option,
or portion thereof, which can be exercised at such times, to such extent, and
by such persons, as the Option to which it relates. Each such Right will
entitle the Optionee to surrender to the Corporation, unexercised, the related
Option, or any portion thereof, and to receive in exchange therefor Exercise
Gain Shares equal to the number of shares of Common Stock that have an
aggregate Fair Market Value on the exercise date equal to the amount by which
the Fair Market Value of one share of Common Stock exceeds the option price per
share of the related Option, multiplied by the number of shares of the related
Option, or portion thereof, being surrendered. At the discretion of the
Committee, all or part of the payment in respect of a Stock Appreciation Right
may be in cash in lieu of Common Stock. If such cash payment is available, a
Stock Appreciation Right may be exercised one year from its date of grant on a
date which is at least three but no more than twelve business days after
release of the Corporation's most recent quarterly or annual financial
statements. A Stock Appreciation Right granted in tandem with an Incentive
Stock Option cannot, in any event, be exercised on any date on which the Fair
Market Value of a share of Common Stock is less than or equal to the option
price per share under the related Incentive Stock Option.
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<PAGE>
RESTRICTED SHARES
The Committee may authorize the grant of Restricted Shares to a Participant.
Such shares will be restricted for a period of not less than 24 nor more than
60 months as determined by the Committee. During the Restriction Period, a
Participant will be entitled to beneficial ownership of the Restricted Shares,
including the right to receive dividends and the right to vote the shares, but
will not be entitled to certificates representing the Restricted Shares or to
sell, transfer, assign, pledge or otherwise dispose of the shares. The
Restricted Shares will be forfeited immediately if the Participant leaves the
continuous employment of the Corporation before the end of the Restriction
Period, unless such Participant's employment is terminated by reason of
Retirement, Disability or death. In such a case, the number of Restricted
Shares distributed to a Participant or his beneficiary will be reduced by the
proportion of the Restriction Period remaining after the Participant's
termination of employment. The Committee, in its sole discretion, may waive any
or all restrictions with respect to Restricted Shares awarded under the Amended
LTIP.
PERFORMANCE SHARES
The Committee may authorize the grant of Performance Share Units which
entitle the Participant to receive shares of Common Stock (Performance Shares)
or cash or any combination of Performance Shares and cash, as may be determined
from time to time in the sole discretion of the Committee, upon achievement of
certain Committee-established standards directly related to the performance
criteria (ROAIC, Operating Ratio, and Total Return to Stockholders) noted at
the outset of this discussion of the Amended LTIP and presented for stockholder
approval at this meeting. When the Committee determines that such goals have
been met, it will authorize the issuance of Common Stock to the Participant
subject to the provisions of any required Share Retention Agreement. If a
Participant's employment with the Corporation or a Subsidiary Company is
terminated before the end of the period of time designated by the Committee
over which Performance Shares may be earned (Performance Cycle) for any reason
other than Retirement, Disability or death, the Participant shall forfeit all
rights with respect to any Performance Shares that were being earned during the
Performance Cycle. The Committee, in its sole discretion, may establish
guidelines providing that, if a Participant's employment is terminated before
the end of a Performance Cycle by reason of Disability or death, the
Participant will be entitled to a prorated payment with respect to any
Performance Shares that were being earned during the Performance Cycle. This
prorated payment may be paid in cash or Common Stock at the discretion of the
Committee. If the Participant's employment is terminated before the end of a
Performance Cycle by reason of Retirement, the Participant's rights with
respect to any Performance Shares being earned during the Performance Cycle
shall continue as if the Participant's employment had continued through the end
of the Performance Cycle.
SHARE RETENTION AGREEMENTS
The Committee may require as a condition of an Award of an Option, Stock
Appreciation Right or Performance Share Unit that the Participant and the
Corporation enter into a Share Retention Agreement to provide that the
certificate or certificates representing any Exercise Gain Shares or
Performance Shares, when issued, will be held by the Corporation and such
shares cannot be sold, transferred, assigned, pledged, conveyed or otherwise
disposed of for not less than 24 nor more than 60 months. If a Participant
leaves the continuous employment of the Corporation before the end of the
retention period for any reason other than Retirement, Disability or death, the
Exercise Gain Shares or Performance Shares will continue to be held pursuant to
the Share Retention Agreement until the expiration of the
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applicable retention period. If a Participant's employment is terminated by
reason of Retirement or Disability, any shares subject to a Share Retention
Agreement are released upon the earliest of (i) expiration of the applicable
retention period, (ii) expiration of 2 years from the date of such termination
or (iii) the Participant's attainment of age 65. A Share Retention Agreement
expires immediately at the time of death. Also, any retention period specified
by a Share Retention Agreement ceases upon a Change in Control. Generally, a
Change in Control occurs if: (a) any person becomes the beneficial owner of 20%
or more of the Corporation's Common Stock, (b) the stockholders approve any
consolidation or merger where the Corporation is not the surviving corporation
or approve any sale or lease of substantially all the Corporation's assets, or
(c) within any period of two consecutive years a majority of the directors of
the Corporation changes and the new directors were not elected or nominated by
at least two thirds of the directors then in office who were directors at the
beginning of such period. If the expiration of a Share Retention Agreement
occasioned by a Change in Control, as defined in the Amended LTIP, results in
the imposition of an excise tax on a Participant, the Corporation will pay the
tax. The Committee in its sole discretion may waive any or all retention
periods or other restrictions in a Share Retention Agreement.
DIVIDEND EQUIVALENT PAYMENTS
The Committee may authorize, for any period that is equal to or less than the
duration of the related grant of options or Performance Share Units, the
payment in cash or in stock of dividend equivalents on one or more shares of
Common Stock covered by Options or Performance Share Units granted after
January 1, 1989, in an amount equal to, and commensurate with, dividends paid
on the Common Stock.
TAX ABSORPTION PAYMENTS
The Committee, in its sole discretion, may authorize a cash payment either
directly to the Participant or on the Participant's behalf, in an amount the
Committee estimates to be equal (after taking into account any Federal and
state income taxes that may be applicable to such cash payment) to any
additional Federal and state income taxes that are imposed upon the Participant
as a result of the issuance of any Exercise Gain Shares or Performance Shares.
Under current Federal regulations, if a Tax Absorption Payment is made with
respect to Options or Stock Appreciation Rights, such Options and Stock
Appreciation Rights may be exercised by an officer only on a date which is at
least three but no more than twelve business days after release of the
Corporation's most recent quarterly or annual financial statements.
AMENDMENT OR TERMINATION
The Board of Directors may at any time further amend the Amended LTIP
provided that no change in any Awards previously granted to a Participant can
be made which would impair the rights of a Participant without that
Participant's consent and provided further that no alteration or amendment may
be made without stockholder approval if such approval is necessary to comply
with the requirements of any rule(s) promulgated under Section 16 of the
Securities Exchange Act of 1934 or such other Federal or state laws or
regulations as may be applicable.
TAX STATUS
Under current Federal income tax laws, the principal Federal tax consequences
to Participants and the Corporation of the grant and exercise of Incentive
Stock Options, Non-qualified Stock Options and Stock Appreciation Rights, of
the grant of Performance Share Units and Performance Shares, and of the
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<PAGE>
grant of Restricted Shares and the lapse of restrictions thereon, pursuant to
the provisions of the Amended LTIP, are summarized below:
Incentive Stock Options. No income results to an Optionee upon the grant or
exercise of an Incentive Stock Option, provided that (1) there is no
disqualifying disposition of option stock within one year after the
transfer of such option stock to the Optionee; and (2) the Optionee is an
employee of the Corporation or a Subsidiary Company at all times during the
period commencing on the date of grant and ending on the date three months
(or twelve months in the case of an Optionee who is totally and permanently
disabled) prior to the date of exercise. In the event of a disposition of
option stock following the expiration of one year after the transfer of
such stock to the Optionee, any gain or loss, equal to the difference
between the amount realized upon such disposition and the option price,
generally will be taxable as long-term capital gain or loss. In the event
of a disqualifying disposition of option stock prior to the expiration of
the one year holding period, the Optionee will recognize ordinary income
equal to the excess of the Fair Market Value of the option stock at the
time of exercise (or the amount realized upon such disposition, if less)
over the option price. If the amount realized upon the disqualifying
disposition exceeds the Fair Market Value of the option stock at the time
of exercise, the excess will be taxable as short-term capital gain. If the
amount realized upon the disqualifying disposition is less than the option
price, the Optionee will not recognize the ordinary income and will
recognize a short-term capital loss equal to the excess of the option price
over the amount realized.
No deduction is allowable to the Corporation or any Subsidiary Company upon
the grant or exercise of an Incentive Stock Option. In the event that an
Optionee recognizes ordinary income as a result of a disqualifying
disposition of the option stock, the Corporation or a Subsidiary Company
generally will be entitled to a deduction in an amount equal to the
ordinary income recognized by the Optionee.
Non-qualified Stock Options. No income is recognized upon the grant of a
Non-qualified Stock Option to an Optionee. The Optionee recognizes ordinary
income upon exercise of the Non-qualified Stock Option equal to the excess
of the Fair Market Value of the option stock on the date of exercise over
the option price. If the Optionee is subject to the provisions of Section
16(b) of the Securities Exchange Act of 1934 regarding short-swing
purchases and sales, the Optionee may not be required to recognize income
upon the exercise of the Non-qualified Stock Option, but generally may
recognize ordinary income six months thereafter in an amount equal to the
excess of the Fair Market Value of the option stock at that time over the
option price.
Stock Appreciation Rights. A Participant realizes ordinary income upon
exercise of a Stock Appreciation Right in an amount equal to cash received
and the Fair Market Value of Common Stock received. If the Participant is
subject to the provisions of Section 16(b) of the Securities Exchange Act
of 1934 regarding short-swing purchases and sales, the Participant may not
be required to recognize income upon receipt of Common Stock following the
exercise of a Stock Appreciation Right, but generally may recognize
ordinary income six months thereafter in an amount equal to the Fair Market
Value of the Common Stock at that time.
Restricted Shares. A Participant generally will not recognize taxable
income upon the grant of Restricted Shares, and the recognition of any
income will be postponed until the time that the restrictions on the shares
lapse, at which time the Participant will recognize ordinary income equal
to the Fair Market Value of the Restricted Shares at the time that such
restrictions lapse. A Participant may elect to be taxed at the time of the
grant of Restricted Shares and, if this election is made, the
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Participant will recognize ordinary income equal to the Fair Market Value
of the Restricted Shares at the time of grant determined without regard to
any of the restrictions thereon.
Performance Share Units. No income is recognized upon the grant of
Performance Share Units.
Performance Shares. When Performance Shares are issued, a Participant will
realize ordinary income equal to the Fair Market Value of the Performance
Shares, even if such Performance Shares are subject to a Share Retention
Agreement. If a Participant is subject to the provisions of Section 16(b)
of the Securities Exchange Act of 1934 regarding short-swing purchases and
sales, the Participant may not be required to recognize income upon receipt
of Performance Shares, but generally may recognize ordinary income six
months thereafter in an amount equal to the Fair Market Value of the
Performance Shares at that time.
Dividend Equivalents. A Participant realizes ordinary income upon the
receipt of dividend equivalents in an amount equal to any cash received and
the Fair Market Value of any Common Stock received. If the Participant is
subject to the provisions of Section 16(b) of the Securities Exchange Act
of 1934 regarding short-swing purchases and sales, the Participant may not
be required to recognize income upon receipt of Common Stock received as a
dividend equivalent, but generally may recognize ordinary income six months
thereafter in an amount equal to the Fair Market Value of the Common Stock
at that time.
Tax Absorption Payments. A Participant realizes ordinary income when a Tax
Absorption Payment is made to the Participant or on the Participant's
behalf.
The Corporation or a Subsidiary Company generally will be entitled to a
deduction equal to the ordinary income recognized by the Participant in the
same taxable year in which the Participant recognizes ordinary income with
respect to Non-qualified Stock Options, Stock Appreciation Rights,
Restricted Shares, Performance Shares, Tax Absorption Payments and dividend
equivalent payments.
AWARDS
The following table sets forth for each individual named in the Summary
Compensation Table, for all other executive officers as a group and for all
other Participants as a group, the number of Non-qualified Stock Options
awarded, the exercise price (equal to the Fair Market Value on the date of
grant--January 30, 1995) and the number of PSUs awarded. The Committee awarded
no Incentive Stock Options, tandem SARs or Restricted Shares. Each of the
grants referenced in the following table was made, subject to stockholder
approval at this meeting. The closing price of a share of the Corporation's
Common Stock on the New York Stock Exchange on February 28, 1995, was $66.125.
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TABLE OF OPTIONS AND PSUS GRANTED
AS OF JANUARY 30, 1995,
TO BE EFFECTIVE FOLLOWING
STOCKHOLDER APPROVAL OF THE AMENDED LTIP
<TABLE>
<CAPTION>
OPTIONS (#)
[AT AN EXERCISE
NAME AND POSITION PRICE OF $62.50] PSUS (#)
- ----------------- ---------------- --------
<S> <C> <C>
D. R. Goode, CEO..................................... 50,000 32,000
J. R. Turbyfill, Vice Chairman....................... 20,000 16,000
J. S. Shannon, EVP-Law............................... 12,500 10,000
S. C. Tobias, EVP-Operations......................... 12,500 10,000
D. H. Watts, EVP-Marketing........................... 12,500 10,000
H. C. Wolf, EVP-Finance.............................. 12,500 10,000
All other executive officers......................... 117,500 94,000
(22 individuals)
All other Participants............................... 480,750 70,500
</TABLE>
(285 such individuals were granted options;
47 such individuals were granted PSUs)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE NORFOLK SOUTHERN
CORPORATION LONG-TERM INCENTIVE PLAN, AS AMENDED.
APPROVAL OF THIS PLAN REQUIRES, UNDER VIRGINIA LAW, THE AFFIRMATIVE VOTE, AT A
MEETING AT WHICH A QUORUM IS PRESENT, OF A MAJORITY OF VOTES CAST BY THE SHARES
ENTITLED TO VOTE. VOTES THAT ARE WITHHELD OR SHARES THAT ARE NOT VOTED, SUCH AS
THOSE HELD BY A BROKER OR OTHER NOMINEE WHO DOES NOT VOTE IN PERSON OR RETURN A
PROXY, ARE NOT "CAST" FOR THIS PURPOSE.
B. NORFOLK SOUTHERN CORPORATION EXECUTIVE MANAGEMENT INCENTIVE PLAN ("EMIP")
The EMIP is to be effective for fiscal years of the Corporation beginning
after December 31, 1995; consequently, only those incentive awards, if any,
made to participants because of results achieved in fiscal 1996 (January 1
through December 31, 1996) and in subsequent fiscal years will be made pursuant
to the EMIP.
The existing Management Incentive Plan affords officers and certain other key
employees the opportunity to earn an annual cash bonus. If the EMIP is
approved, effective January 1, 1996, Board-appointed officers with the rank of
vice president and above (now, 27 individuals) no longer would be eligible to
participate in the Management Incentive Plan; rather, the EMIP will provide
them bonus award opportunities, equivalent to those now available to them under
that plan, that should be fully tax-deductible to the Corporation.
As under the Management Incentive Plan, the amount of any EMIP award for an
incentive year to a given participant would equal a particular percentage (not
to exceed a maximum determined by the Board of Directors) of the participant's
total incentive-year salary and is paid, if at all, from a bonus fund (in which
other key, non-officer personnel participating in the existing plan also may
share), the total amount of which is equal to a percentage (from 0.75% to 1.5%)
of the Corporation's pre-tax net income for an
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incentive year when the return on average invested capital for that year equals
or exceeds 10%. In addition, the EMIP provides specifically that no participant
may receive an award that exceeds 50% of the bonus fund.
In accordance with the prior election of each participant in the EMIP, awards
either will be paid 100% in cash or will be credited in increments of 25% to
the Corporation's Officers' Deferred Compensation Plan, with the remainder, if
any, paid in cash to the participant on or before March 1 of the year following
an incentive year.
Tax Status
Under current Federal income tax laws and regulations (the EMIP first will be
effective for tax years beginning after December 31, 1995), the principal tax
consequences to participants and to the Corporation of the award of incentive
pay under the EMIP would be as follows:
Participants will recognize ordinary income to the extent of the portion,
if any, of the incentive award paid in cash or deemed to be paid in cash.
The portion, if any, of the award deferred at the election of the
participant will not be regarded as ordinary income at the time of such
deferral; however, later payments of such deferred amounts, with interest
credited thereon in accordance with the terms of the plan under which the
deferrals occur, should result in the participant's recognition of ordinary
income in the tax year(s) in which such payments are received or deemed to
be received.
Because the EMIP is designed to meet the requirements of Section 162(m) for
"performance based" compensation, amounts actually paid to participants
pursuant to the EMIP should be deductible by the Corporation. As to amounts
deferred at the election of the participant, later payments to participants
(who at the time of payment will not be employees of the Corporation) of
such deferred amounts, with interest credited thereon in accordance with
the terms of the plan under which the deferrals occur, should be deductible
by the Corporation in the tax year(s) in which such payments are paid or
deemed to have been paid.
Benefits under the New Plan
Since the Board will not set the named and other officers' 1996 base salaries
and their related incentive opportunities (which are a percentage, determined
in the discretion of the Committee, of each officer's base salary) until
November 1995, it is not possible at this time to state with precision the
dollar value either of the related incentive opportunity or of the actual
amount of incentive pay that will be available (a determination that in any
event cannot be made until the close of the year in which the right to receive
such pay, if any, will have been earned).
However, the Summary Compensation Table included in this Proxy Statement
indicates the amounts paid to named executive officers based on 1994 results--a
year in which the full amount of each such officer's incentive opportunity was
earned--and the table below sets forth the maximum amount each such officer and
all other persons currently eligible to participate in the EMIP could earn,
assuming full funding of the bonus pool, (i.e., satisfaction during 1995 of the
financial standards established by the Board under the existing plan). Such
amounts reflect the maximum 1995 incentive opportunities approved by the Board
for each named and other officer: Mr. Goode, 90%; Mr. Turbyfill, 80%; each
Executive Vice President and each of the other eligible Board-appointed
officers, 75%.
The Board has under the existing plan--and under the EMIP retains--full
discretion to alter these percentages in future years in accordance with the
directors' assessment of the best interests of
31
<PAGE>
stockholders, considering without limitation the other components of each
participant's compensation package, competitive exigencies and other
circumstances at the time known to the Board.
NEW PLAN BENEFITS* TABLE
NORFOLK SOUTHERN CORPORATION
EXECUTIVE MANAGEMENT INCENTIVE PLAN
[INDICATES MAXIMUM BENEFITS (COMPENSATION) THAT COULD
BE EARNED IN 1995 UNDER THE EXISTING PLAN, WHICH
THE EMIP, EFFECTIVE FOR YEARS BEGINNING AFTER 12/31/95,
ESSENTIALLY REPLICATES]
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR AMOUNT**
- ----------------- ---------------
<S> <C>
D. R. Goode, CEO................................................ $ 616,500
J. R. Turbyfill, Vice Chairman.................................. $ 348,000
J. S. Shannon, EVP-Law.......................................... $ 281,250
S. C. Tobias, EVP-Operations.................................... $ 228,750
D. H. Watts, EVP-Marketing...................................... $ 281,250
H. C. Wolf, EVP-Finance......................................... $ 228,750
All other participants as a group............................... $2,868,750
</TABLE>
- ----------
* The benefits (compensation) that will be available under the EMIP are not
new; rather, the benefits that the Board heretofore has had authority to offer,
and has offered, participants under the existing Management Incentive Plan are
proposed to be made available under a new plan intended, under current Federal
income tax rules and regulations, to qualify such compensation as "performance
based."
** Dollar amounts are illustrative only and are based on participants' 1995
base salaries and their related maximum cash incentive opportunities, all of
which were determined by the Board at its November 1994 meeting. Of course,
there can be no assurance what amount of bonus award, if any, actually will be
made. No decisions have been made concerning any participant's 1996 base salary
or related incentive opportunity.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE NORFOLK SOUTHERN
CORPORATION EXECUTIVE MANAGEMENT INCENTIVE PLAN.
APPROVAL OF THIS PLAN REQUIRES, UNDER VIRGINIA LAW, THE AFFIRMATIVE VOTE, AT A
MEETING AT WHICH A QUORUM IS PRESENT, OF A MAJORITY OF VOTES CAST BY THE SHARES
ENTITLED TO VOTE. VOTES THAT ARE WITHHELD OR SHARES THAT ARE NOT VOTED, SUCH AS
THOSE HELD BY A BROKER OR OTHER NOMINEE WHO DOES NOT VOTE IN PERSON OR RETURN A
PROXY, ARE NOT "CAST" FOR THIS PURPOSE.
32
<PAGE>
RATIFICATION OF APPOINTMENT OF INDEPENDENT
PUBLIC ACCOUNTANTS
The Board of Directors, upon the recommendation of its Audit Committee, has
appointed the firm of KPMG Peat Marwick LLP, independent public accountants, to
audit the books, records and accounts of the Corporation for the year 1995.
This firm has acted as auditors for the Corporation or its subsidiary, Norfolk
and Western Railway Company, since 1969, and the Board of Directors recommends
that its appointment be ratified by the stockholders.
Under Virginia law and under the Corporation's Articles of Incorporation and
Bylaws, actions such as the ratification of the appointment of auditors are
approved, so long as a quorum exists, if the votes cast favoring the action
exceed the votes cast opposing the action. Abstentions or shares that are not
voted, such as those held by a broker or other nominee who does not vote in
person or return a proxy, are not "cast" for this purpose.
With respect to 1994, KPMG Peat Marwick LLP performed audit services which
consisted of the annual audit of the consolidated financial statements of the
Corporation and its subsidiaries, including annual reports of the Corporation
to the stockholders and the Securities and Exchange Commission, audits of the
financial statements of various subsidiaries, audits of the financial
statements of various employee benefit plans, limited reviews of quarterly
financial statements and review of internal controls not directly related to
the audit of the financial statements.
All services rendered by KPMG Peat Marwick LLP to the Corporation in 1994
were approved in advance or ratified by the Audit Committee of the Board of
Directors, and this Committee determined that none jeopardized the auditing
firm's independence. (See the "Certain Relationships and Related Transactions"
caption on page 9.) KPMG Peat Marwick LLP has represented to the Audit
Committee that its fees are customary and that no agreement exists to limit
current or future years' audit fees.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
Annual Meeting of Stockholders with the opportunity to make a statement if they
so desire and available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Stockholders are entitled to submit proposals on matters appropriate for
stockholder action consistent with regulations of the Securities and Exchange
Commission. In order for a stockholder proposal for the 1996 Annual Meeting of
Stockholders to be eligible for inclusion in the Corporation's proxy statement
and form of proxy, it must be received by the Corporate Secretary, Norfolk
Southern Corporation, Three Commercial Place, Norfolk, Virginia 23510-2191, no
later than December 4, 1995.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented at the
Annual Meeting other than as set forth above. However, if any other matters
come before the meeting, the proxies received pursuant to this solicitation
will be voted thereon in accordance with the judgment of the person or persons
acting under the proxies.
By order of the Board of Directors,
DONALD E. MIDDLETON,
Corporate Secretary.
33
<PAGE>
APPENDIX A
NORFOLK SOUTHERN CORPORATION
LONG-TERM INCENTIVE PLAN AS
AMENDED EFFECTIVE JANUARY 24, 1995
SECTION 1. PURPOSE
The purpose of the Long-Term Incentive Plan, as amended (the "Plan"), is to
promote the success of Norfolk Southern Corporation (the "Corporation") and to
provide an opportunity for officers and other key employees of the Corporation
and its Subsidiary Companies (as hereinafter defined) to acquire or increase a
proprietary interest in the Corporation and thereby to provide an additional
incentive to officers and other key employees to devote their maximum efforts
and skills to the advancement, betterment, and prosperity of the Corporation
and its shareholders. The Plan provides for the grant of incentive stock
options, non-qualified stock options, stock appreciation rights, performance
share units, performance shares, and shares of the Corporation's common stock
(restricted pursuant to the provisions of Section 9 of the Plan), in accordance
with the terms and conditions set forth below.
SECTION 2. DEFINITIONS
The terms used herein shall have the following meanings unless otherwise
specified or unless a different meaning is clearly required by the context:
<TABLE>
<C> <S>
Award Any one or more of the following: Incentive
Stock Option; Non-qualified Stock Option; Stock
Appreciation Right; Restricted Shares;
Performance Share Units; and Performance
Shares.
Beneficiary The person or persons designated in writing by
the Participant as his Beneficiary in respect
of Awards or, in the absence of such a
designation or if the designated person or
persons predecease the Participant, the person
or persons who shall acquire the Participant's
rights in respect of Awards by bequest or
inheritance in accordance with the applicable
laws of descent and distribution. In order to
be effective, a Participant's designation of a
Beneficiary must be on file with the
Corporation before the Participant's death. Any
such designation may be revoked and a new
designation substituted therefor by the
Participant at any time before his death
without the consent of the previously
designated Beneficiary.
Board of Directors The Board of Directors of the Corporation.
Code The Internal Revenue Code of 1986, as amended
from time to time.
Committee The Compensation and Nominating Committee of the
Board of Directors.
Common Stock The Common Stock of the Corporation.
Disability A disability that enables the Participant to be
eligible for and receive a disability benefit
under the Long-Term Disability Plan of the
Corporation or a long-term disability plan of a
Subsidiary Company (whichever is applicable),
as amended from time to time.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
Exercise Gain Shares With respect to a Stock Appreciation Right, all
of the shares of Common Stock received upon
exercise of the Stock Appreciation Right.
With respect to an Option, the portion of the
shares of Common Stock received upon exercise
of the Option equal to the excess of the Fair
Market Value, as of the exercise date, over the
Option price, multiplied by the number of
shares purchased under the Option on the
exercise date, divided by such Fair Market
Value, and rounded down to the nearest whole
number of shares.
Fair Market Value The value of Common Stock on a particular date
as measured by the mean of the high and low
prices at which it is traded on such date as
reported in the Composite Transactions for such
date by The Wall Street Journal, or, if Common
Stock was not traded on such date, on the next
preceding day on which Common Stock was traded.
Incentive Stock Option An Option that complies with the terms and
conditions set forth in Section 422(b) of the
Code and is designated by the Committee as an
Incentive Stock Option.
Non-qualified Stock Option An Option granted under the Plan other than an
Incentive Stock Option.
Option Any option to purchase Common Stock granted
pursuant to the provisions of Section 6 or
Section 7 of the Plan.
Optionee A Participant who is the holder of an Option.
Participant Any officer or key employee of the Corporation
or a Subsidiary Company selected by the
Committee to participate in the Plan.
Performance Cycle The period of time, designated by the Committee,
over which Performance Shares may be earned.
Performance Shares Shares of Common Stock granted pursuant to
Section 10 of the Plan, which may be made
subject to the restrictions and other terms and
conditions prescribed in Section 11 of the
Plan.
Performance Share Units Contingent rights to receive Performance Shares
pursuant to Section 10 of the Plan.
Restricted Shares Shares of Common Stock granted pursuant to
Section 9 of the Plan and subject to the
restrictions and other terms and conditions set
forth therein.
Restriction Period A period of time not less than twenty-four (24)
nor more than sixty (60) months, to be
determined within those limits by the Committee
in its sole discretion, commencing on the date
as of which Restricted Shares are granted,
during which the restrictions imposed by
paragraph (b) of Section 9 of the Plan shall
apply. The Committee shall determine the length
of the Restriction Period at the time that the
Restricted Shares are granted.
</TABLE>
A-2
<PAGE>
<TABLE>
<C> <S>
Retirement Retirement from the Corporation or a Subsidiary
Company pursuant to the provisions of the
Retirement Plan of the Corporation or a
retirement plan of a Subsidiary Company
(whichever is applicable), as amended from time
to time.
Share Retention Agreement An agreement entered into pursuant to Section 11
of the Plan.
Stock Appreciation Right The right, granted pursuant to the provisions of
Section 8 of the Plan, to receive a payment
equal to the excess of the Fair Market Value of
Common Stock over the Option price of such
Common Stock, as specified in Section 8 of the
Plan.
Subsidiary Company A corporation of which at least eighty percent
(80%) of the total combined voting power of all
classes of stock entitled to vote is owned,
directly or indirectly, by the Corporation.
</TABLE>
SECTION 3. ADMINISTRATION
The Plan shall be administered by the Committee, which, subject to the
limitations set forth herein, shall have the full and complete authority and
sole discretion from time to time to construe and interpret the Plan; to select
the officers and other key employees who shall be granted Awards under the
Plan; to determine the type, size, terms, and conditions of the Award or Awards
to be granted to each such Participant; to authorize the grant of such Awards
pursuant to the Plan; to give a Participant an election to surrender an Award
in exchange for the grant of a new Award; to adopt, amend and rescind rules and
regulations relating to the Plan; and to make all other determinations and take
all other action it may deem necessary or advisable for the implementation and
administration of the Plan. The Committee may authorize the grant of more than
one type of Award, and Awards subject to differing terms and conditions, to any
eligible employee. The Committee's decision to authorize the grant of an Award
to an employee at any time shall not require the Committee to authorize the
grant of an Award to that employee at any other time or to any other employee
at any time; nor shall its determination with respect to the size, type, or
terms and conditions of the Award to be granted to an employee at any time
require it to authorize the grant of an Award of the same type or size or with
the same terms and conditions to that employee at any other time or to any
other employee at any time. The Committee shall not be precluded from
authorizing the grant of an Award to any eligible employee solely because the
employee previously may have been granted an Award of any kind under the Plan.
All determinations of the Committee shall be by a majority of its members and
shall be final, conclusive and binding. Each member of the Committee, while
serving as such, shall be considered to be acting in his capacity as a director
of the Corporation, and no member of the Committee shall be liable for any
action taken or decision made in good faith with respect to the implementation
or administration of the Plan.
SECTION 4. ELIGIBILITY
To be eligible for selection by the Committee to participate in the Plan, an
individual must be a full-time salaried officer or key employee of the
Corporation, or of a Subsidiary Company, on the date on which the Committee
authorizes the grant to such individual of an Award. A director of the
Corporation shall not be eligible to participate in the Plan unless he is a
full-time salaried officer of the Corporation or a Subsidiary Company.
A-3
<PAGE>
SECTION 5. SHARES AVAILABLE
Subject to the provisions of Section 13 of the Plan, no more than an
aggregate of 17,675,000 shares of Common Stock may be issued pursuant to the
Plan. Such shares shall be provided from shares of Common Stock authorized but
not issued. Any shares of Common Stock which were subject to an Option, a Stock
Appreciation Right, or a Performance Share Unit, and which were not issued
prior to the expiration of the Award shall thereafter again be available for
award under the Plan. Upon the forfeiture of any Restricted Shares, the
forfeited shares of Common Stock shall thereafter be available for award under
the Plan. Notwithstanding any other provision to the contrary, no Participant
may be awarded a grant in any one year, which, when added to any other grant of
Options, Restricted Shares, and Performance Share Units in the same year, shall
exceed 250,000 shares of Common Stock. If an Option is canceled, the canceled
Option continues to count against the maximum number of shares for which
Options may be granted to a Participant in any year.
SECTION 6. INCENTIVE STOCK OPTIONS
(a) General--The Committee may authorize the grant of Incentive Stock Options
subject to the terms and conditions set forth in this Section 6. The grant of
an Incentive Stock Option shall be evidenced by a written Incentive Stock
Option Agreement between the Corporation and the Optionee, setting forth the
number of shares of Common Stock subject to the Incentive Stock Option
evidenced thereby and the terms, conditions, and restrictions applicable
thereto. The issuance of shares of Common Stock pursuant to an Incentive Stock
Option also shall be subject to the provisions of any Share Retention Agreement
that may be required by the Committee under Section 11 of the Plan.
(b) Option Price--The Committee shall determine the Option price for each
share of Common Stock purchased under an Option, but, subject to the provisions
of Section 13 of the Plan, in no event shall the Option price be less than one
hundred percent (100%) of the Fair Market Value of the Common Stock on the date
the Option is granted.
(c) Duration of Options--The Committee shall fix the term or duration of
Options, provided that such term shall not exceed ten (10) years from the date
the Option is granted, and that such term shall be subject to earlier
termination pursuant to the provisions of paragraph (g) of this Section 6 or
paragraph (e) of Section 8 of the Plan.
(d) Non-transferability of Options--Options are not transferable other than
by will or the applicable laws of descent and distribution following the death
of the Optionee. Options may be exercised during the lifetime of the Optionee
only by him, and following his death only by his Beneficiary.
(e) Exercise of Options--The Committee shall determine the time or times at
which Options may be exercised; provided that such time or times shall not
occur before the latest of:
(i) the first anniversary of the date on which the Option was granted;
(ii) approval of the Plan, as hereby amended, by the stockholders of the
Corporation in the manner provided under Section 15(a) of the Plan; and
(iii) the effectiveness of any registration statement required to be
filed under the Securities Act of 1933 for the registration of the Common
Stock to be issued upon exercise of the Option.
A-4
<PAGE>
(f) Payment of Option Price--The purchase price of Common Stock upon exercise
of an Option shall be paid in full to the Corporation at the time of the
exercise of the Option in cash or, at the discretion of the Committee and
subject to any limitations or requirements that the Committee may adopt, by the
surrender to the Corporation of shares of previously acquired Common Stock,
which have been held by the Optionee for at least twelve (12) months and which
shall be valued at Fair Market Value on the date that the Option is exercised,
or, at the discretion of the Committee, by a combination of cash and such
Common Stock.
(g) Termination of Options--No Option shall be exercisable after it expires.
Each Option shall expire upon the earliest of:
(i) the expiration of the term for which the Option was granted;
(ii) (A) in the case of an Optionee whose employment with the Corporation
or a Subsidiary Company is terminated due to Retirement, Disability or
death, the expiration of thirty-six (36) months after such termination of
employment, or
(B) in the case of an Optionee whose employment with the Corporation or a
Subsidiary Company is terminated for any reason other than Retirement,
Disability, or death, at the close of business on the last day of active
service by the Optionee with the Corporation or a Subsidiary Company; or
(iii) with the Optionee's consent, the grant of a new Award to replace
the Option.
(h) Limitation on Exercisability--The aggregate Fair Market Value (determined
as of the time the Incentive Stock Option is granted) of the Common Stock with
respect to which Incentive Stock Options (granted on or after January 1, 1987)
are exercisable for the first time by the Optionee during any calendar year
shall not exceed $100,000.
(i) Order of Exercise--An Incentive Stock Option granted prior to January 1,
1987, shall not be exercisable while there is outstanding any Incentive Stock
Option which was granted to the Optionee before the grant of the first-
mentioned Incentive Stock Option. For this purpose, an Incentive Stock Option
shall be treated as outstanding until it is exercised in full or expires in
accordance with paragraph (c) of this Section 6.
As used in paragraphs (h) and (i) of this Section 6, the term Incentive Stock
Option shall mean an option to purchase stock which is granted pursuant to the
provisions of this Plan or of any other plan of the Corporation or of a parent
or subsidiary corporation (as defined by Section 424(f) of the Code) and which
complies with the terms and conditions set forth in Section 422(b) of the Code.
SECTION 7. NON-QUALIFIED STOCK OPTIONS
The Committee may authorize the grant of Non-qualified Stock Options subject
to the terms and conditions specified in this Section 7. The grant of a Non-
qualified Stock Option shall be evidenced by a written Non-qualified Stock
Option Agreement between the Corporation and the Optionee, setting forth the
number of shares of Common Stock subject to the Non-qualified Stock Option
evidenced thereby and the terms, conditions, and restrictions applicable
thereto. Non-qualified Stock Options granted pursuant to the provisions of this
Section 7 shall be subject to the terms, conditions, and restrictions set forth
in paragraphs (b) and (d) through (g) of Section 6 of the Plan. The limitations
set forth in paragraphs
A-5
<PAGE>
(c), (h) and (i) of Section 6 of the Plan shall not apply to Non-qualified
Stock Options. The issuance of shares of Common Stock pursuant to a Non-
qualified Stock Option also shall be subject to the provisions of any Share
Retention Agreement that may be required by the Committee under Section 11 of
the Plan.
SECTION 8. STOCK APPRECIATION RIGHTS
(a) General--The Committee may grant a Stock Appreciation Right to a
Participant in connection with an Option, or portion thereof as determined by
the Committee, subject to the terms and conditions set forth in this Section 8.
The Stock Appreciation Right may be granted at the time of grant of the related
Option and shall be subject to the same terms and conditions as the related
Option, except as this Section 8 may otherwise provide. The grant of a Stock
Appreciation Right shall be evidenced either by provisions in the Option
agreement evidencing the related Option or by a written Stock Appreciation
Right Agreement between the Corporation and the Optionee, identifying the
related Option, specifying the number of shares of Common Stock subject
thereto, and setting forth the terms and conditions applicable to the Stock
Appreciation Right.
(b) Exercise--A Stock Appreciation Right shall be exercisable only at such
time or times, to such extent, and by such persons, as the Option to which it
relates shall be exercisable; provided that:
(i) if the Committee determines that all or part of a payment in respect
of a Stock Appreciation Right shall be made in cash, the Stock Appreciation
Right shall not be exercised before the expiration of one (1) year from the
date on which it was granted; provided, however, that this subparagraph
(i) shall not apply if the death or Disability of the Optionee occurs
within one (1) year after the grant of the Stock Appreciation Right;
(ii) if the Committee determines that all or part of a payment in respect
of a Stock Appreciation Right shall be made in cash, such exercise may
occur only on a day that is at least three (3) and no more than twelve (12)
business days after the date on which the Corporation first made publicly
available its most recent regular quarterly or annual financial statements;
and
(iii) a Stock Appreciation Right granted in connection with an Incentive
Stock Option may not be exercised on any date on which the Fair Market
Value of a share of Common Stock is less than or equal to the Option price
per share under the related Incentive Stock Option.
A Stock Appreciation Right shall be exercised by surrendering the related
Option, or the portion thereof pertaining to the shares with respect to which
the Stock Appreciation Right is exercised, and providing the Corporation with a
written notice in such form and containing such information (including the
number of shares of Common Stock with respect to which the Stock Appreciation
Right is being exercised) as the Committee may specify. The date on which the
Corporation receives such notice shall be the date on which the related Option,
or portion thereof, shall be deemed surrendered and the Stock Appreciation
Right shall be deemed exercised.
(c) Payment--Upon exercise of a Stock Appreciation Right in the manner
provided in paragraph (b) of this Section 8, the Optionee shall be entitled to
receive Exercise Gain Shares equal to the number of shares of Common Stock that
have an aggregate Fair Market Value on the exercise date equal to the amount by
which the Fair Market Value of a share of Common Stock on the exercise date
exceeds the Option price per share of the related Option, multiplied by the
number of shares covered by the related Option, or portion thereof, surrendered
in connection with the exercise of the Stock Appreciation Right.
A-6
<PAGE>
The Exercise Gain Shares shall be subject to the provisions of any Share
Retention Agreement that may be required by the Committee under Section 11 of
the Plan. In the sole discretion of the Committee, all or part of the payment
in respect of a Stock Appreciation Right may be made in cash in lieu of
Exercise Gain Shares.
(d) Termination of Right--A Stock Appreciation Right shall expire, unless
previously exercised or canceled, upon the expiration of the Option to which it
relates.
(e) Effect of Exercise--A Stock Appreciation Right shall be canceled when,
and to the extent that, the related Option is exercised, and an Option shall be
canceled when, and to the extent that, the Option is surrendered to the
Corporation upon the exercise of a related Stock Appreciation Right.
SECTION 9. RESTRICTED SHARES
(a) General--The Committee, in its sole discretion, may from time to time
authorize the grant of Restricted Shares to a Participant. A certificate or
certificates representing the number of Restricted Shares granted shall be
registered in the name of the Participant. Until the expiration of the
Restriction Period or the lapse of restrictions in the manner provided in
paragraph (d) or paragraph (e) of this Section 9, the certificate or
certificates shall be held by the Corporation for the account of the
Participant, and the Participant shall have beneficial ownership of the
Restricted Shares, including the right to receive dividends on, and the right
to vote, the Restricted Shares.
(b) Restrictions--Until the expiration of the Restriction Period or the lapse
of restrictions in the manner provided in paragraph (d) or paragraph (e) of
this Section 9, Restricted Shares shall be subject to the following
restrictions and any additional restrictions that the Committee, in its sole
discretion, may from time to time deem desirable in furtherance of the
objectives of the Plan:
(i) the Participant shall not be entitled to receive the certificate or
certificates representing the Restricted Shares;
(ii) the Restricted Shares may not be sold, transferred, assigned,
pledged, conveyed, hypothecated, or otherwise disposed of; and
(iii) the Restricted Shares may be forfeited immediately as provided in
paragraph (d) of this Section 9.
(c) Distribution of Restricted Shares--If a Participant to whom Restricted
Shares have been granted remains in the continuous employment of the
Corporation or a Subsidiary Company during the entire Restriction Period, upon
the expiration of the Restriction Period all restrictions applicable to the
Restricted Shares shall lapse, and the certificate or certificates representing
the shares of Common Stock that were granted to the Participant in the form of
Restricted Shares shall be delivered to the Participant.
(d) Termination of Employment--If the employment of a Participant is
terminated for any reason other than the Retirement, Disability, or death of
the Participant in service before the expiration of the Restriction Period, the
Restricted Shares shall be forfeited immediately and all rights of the
Participant to such shares shall terminate immediately without further
obligation on the part of the Corporation or any Subsidiary Company. If the
Participant's employment is terminated by reason of the Retirement, Disability,
or death of the Participant in service before the expiration of the Restriction
Period, the number of Restricted Shares held by the Corporation for the
Participant's account shall be reduced by the proportion of the
A-7
<PAGE>
Restriction Period remaining after the Participant's termination of employment;
the restrictions on the balance of such Restricted Shares shall lapse on the
date the Participant's employment terminated; and the certificate or
certificates representing the shares of Common Stock upon which the
restrictions have lapsed shall be delivered to the Participant (or, in the
event of the Participant's death, to his Beneficiary).
(e) Waiver of Restrictions--The Committee, in its sole discretion, may waive
any or all restrictions with respect to Restricted Shares.
SECTION 10. PERFORMANCE SHARES
The Committee, in its sole discretion, may from time to time authorize the
grant of Performance Share Units to a Participant. Performance Share Units
shall entitle the Participant to Performance Shares (or cash in lieu thereof)
upon the achievement of such performance goals as may be established by the
Committee at the time of grant for three equally weighted performance criteria:
(a) the Corporation's total stockholder return as compared to the S&P 500
Index; (b) the Corporation's operating ratio; and (c) the Corporation's return
on average capital invested. At such time as it is certified by the Committee
that the performance goals established by the Committee have been attained or
otherwise satisfied, the Committee shall authorize the payment of cash in lieu
of Performance Shares or the issuance of Performance Shares registered in the
name of the Participant, subject to the provisions of any Share Retention
Agreement that may be required by the Committee under Section 11 of the Plan,
or both.
If the Participant's employment with the Corporation or a Subsidiary Company
is terminated before the end of a Performance Cycle for any reason other than
Retirement, Disability, or death, the Participant shall forfeit all rights with
respect to any Performance Shares that were being earned during the Performance
Cycle. The Committee, in its sole discretion, may establish guidelines
providing that if a Participant's employment is terminated before the end of a
Performance Cycle by reason of Disability, or death, the Participant shall be
entitled to a prorated payment with respect to any Performance Shares that were
being earned during the Performance Cycle. If the Participant's employment is
terminated before the end of a Performance Cycle by reason of Retirement, the
Participant's rights with respect to any Performance Shares being earned during
the Performance Cycle shall, subject to the other provisions of this Section
10, continue as if the Participant's employment had continued through the end
of the Performance Cycle.
SECTION 11. SHARE RETENTION AGREEMENTS
(a) General--The Committee, in its sole discretion, may require as a
condition of an Award of an Option, Stock Appreciation Right, or Performance
Share Unit that the Participant and the Corporation enter into a Share
Retention Agreement, which shall provide that the certificate or certificates
representing any Exercise Gain Shares or Performance Shares, when issued, shall
be held by the Secretary of the Corporation for the benefit of the Participant
until such time as the retention period specified by the Share Retention
Agreement has expired or has been waived by the Committee, whichever occurs
first. Each Share Retention Agreement may include some or all of the terms,
conditions and restrictions set forth in paragraphs (b) through (g) of this
Section 11.
(b) Retention Period--Exercise Gain Shares and Performance Shares that are
subject to the Share Retention Agreement may not be sold, transferred,
assigned, pledged, conveyed, hypothecated or otherwise disposed of within such
period of time, of not less than twenty-four (24) months and not more than
sixty (60) months following the date of exercise (in the case of Exercise Gain
Shares) or the date of issuance (in the case of Performance Shares), as shall
be prescribed by the Committee.
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(c) Tax Absorption Payment--The Corporation may make a cash payment, either
directly to the Participant or on the Participant's behalf, in an amount that
the Committee estimates to be equal (after taking into account any Federal and
state taxes that the Committee estimates to be applicable to such cash
payment) to any additional Federal and state income taxes that are imposed
upon the Participant as a result of the issuance of the Exercise Gain Shares
or Performance Shares that are subject to the Share Retention Agreement. In
determining the amount to be paid pursuant to this paragraph (c), the
Committee may adopt such methods and assumptions as it considers appropriate,
and it shall not be required to examine the individual tax liability of each
Participant who has entered into a Share Retention Agreement.
(d) Termination of Employment--If a Participant's employment with the
Corporation or a Subsidiary Company is terminated for any reason other than
Retirement, Disability, or death, Exercise Gain Shares or Performance Shares
subject to the Share Retention Agreement shall continue to be held, following
the Participant's termination of employment, until the expiration of the
retention period specified by the Share Retention Agreement. If the
Participant's employment is terminated by reason of Retirement or Disability,
Exercise Gain Shares and Performance Shares then held subject to the Share
Retention Agreement shall continue to be held until the expiration of the
applicable retention period following termination of employment, but any such
retention period shall cease upon the earlier of the Participant's attainment
of age 65 or the expiration of two (2) years after the Participant's
Retirement or Disability, if either of those events occurs before the
expiration of the applicable retention period. If the Participant dies while
Exercise Gain Shares or Performance Shares are subject to a retention period
under the Share Retention Agreement, such retention period shall expire
immediately at the time of death.
(e) Change in Control--Upon a Change in Control, the retention periods
specified by all Share Retention Agreements shall immediately expire.
A Change in Control shall occur if:
(i) any person, other than the Corporation or a Subsidiary Company or any
employee benefit plan sponsored by the Corporation or a Subsidiary Company,
shall become the beneficial owner of, or obtain voting control over, 20% or
more of the Corporation's outstanding Common Stock;
(ii) the stockholders of the Corporation shall approve (A) any
consolidation or merger of the Corporation in which the Corporation is not
the continuing or surviving corporation or pursuant to which shares of
Common Stock would be converted into cash, securities, or other property,
other than a merger of the Corporation in which holders of Common Stock
immediately prior to the merger have the same proportionate ownership of
common stock of the surviving corporation immediately after the merger as
immediately before, or (B) any sale, lease, exchange, or other transfer (in
one transaction or a series of related transactions) of all or
substantially all the assets of the Corporation; or
(iii) there shall have been a change in the composition of the Board of
Directors such that within any period of two (2) consecutive years or less
individuals who at the beginning of such period constituted such Board,
together with any new directors whose election, or nomination for election
by the Corporation's stockholders, was approved by a vote of at least two-
thirds of the directors then in office who were directors at the beginning
of such period, shall for any reason no longer constitute a majority of the
directors of the Corporation.
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If the expiration of a Share Retention Agreement pursuant to this paragraph
(e) causes a Participant to be subject to an excise tax under Section 4999 of
the Code, or any successor provision thereto (the "Excise Tax"), the
Corporation shall make a cash payment, either directly to the Participant or on
the Participant's behalf, in an amount that the Committee estimates to be equal
(after taking into account any Federal and state taxes, including interest and
penalties, that the Committee estimates to be applicable to the additional cash
payment) to the additional Excise Tax imposed on the Participant as a result of
the expiration of the Share Retention Agreement. In determining the amount to
be paid pursuant to this subparagraph, the Committee may adopt such methods and
assumptions as it considers appropriate, and it shall not be required to
examine the individual tax liability of each Participant to whom this
subparagraph applies.
(f) Waiver of Requirements--The Committee, in its sole discretion, may waive
any or all retention periods or other restrictions in the Share Retention
Agreement.
(g) Distribution of Shares--The Secretary of the Corporation shall promptly
distribute the certificate or certificates representing the Exercise Gain
Shares or Performance Shares subject to a Share Retention Agreement upon
expiration of the retention period or other termination or waiver of the
restrictions under this Section 11.
SECTION 12. DIVIDEND EQUIVALENT PAYMENTS
The Committee may authorize the payment of dividend equivalents on some or
all of the shares of Common Stock covered by Options or Performance Share Units
granted after January 1, 1989, in an amount equal to, and commensurate with,
dividends declared by the Board of Directors and paid on Common Stock. Dividend
equivalents payable on Option shares or on Performance Share Units under this
Section 12 may be paid in cash or in Common Stock at the discretion of the
Committee. The Committee may authorize the automatic payment of dividend
equivalents under this Section 12 with respect to any Option for all or some
portion of its term by including a specific provision, authorizing such
automatic payment, in the Incentive Stock Option Agreement required under
Section 6(a) of the Plan or the Non-qualified Stock Option Agreement required
under Section 7 of the Plan. The Committee may authorize the automatic payment
of dividend equivalents under this Section 12 with respect to any Performance
Share Unit for all or some portion of its term as a term and condition of the
Performance Share Unit grant.
SECTION 13. CAPITAL ADJUSTMENTS
In the event of a recapitalization, stock split, stock dividend, exchange,
combination, or reclassification of shares, merger, consolidation,
reorganization, or other change in or affecting the capital structure or
capital stock of the Corporation, the Board of Directors, upon the
recommendation of the Committee, may make appropriate adjustments in the number
of shares of Common Stock authorized for the Plan and in the annual limitation
imposed by Section 5 of this Plan; and the Committee may make appropriate
adjustments in the number of shares subject to outstanding Options, Stock
Appreciation Rights, Restricted Stock, or Performance Share Unit grants, and in
the Option price of any then outstanding Options, as it deems equitable, in its
absolute discretion, to prevent dilution or enlargement of the rights of
Participants.
SECTION 14. REGULATORY APPROVALS
The exercise of each Option and Stock Appreciation Right, and the grant or
distribution of Restricted Shares and Performance Shares, shall be subject to
the condition that if at any time the Corporation shall
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determine in its discretion that the satisfaction of withholding tax or other
tax liabilities, or the listing, registration, or qualification of any shares
of Common Stock upon any securities exchange or under any Federal or state law,
or the consent or approval of any regulatory body, is necessary or desirable as
a condition of, or in connection with, such exercise, grant, or distribution,
then in any such event such exercise, grant, or distribution shall not be
effective unless such liabilities have been satisfied or such listing,
registration, qualification, consent, or approval shall have been effected or
obtained free of any conditions not acceptable to the Corporation.
SECTION 15. EFFECTIVE DATE AND TERM OF THE PLAN
(a) Effective Date--The Plan, as hereby amended, shall be effective when
approved by the Board of Directors, and Options, Stock Appreciation Rights, and
Performance Share Units may be granted immediately thereafter; provided, that
no Option or Stock Appreciation Right may be exercised and no Restricted Shares
or Performance Shares may be granted under the Plan unless and until the Plan,
as hereby amended, is approved by the vote of the holders of a majority of the
shares of Common Stock present or represented and entitled to vote at a meeting
of the stockholders of the Corporation, at which a quorum is present, held
within twelve (12) months after the date of adoption of the Plan, as hereby
amended, by the Board of Directors.
(b) Term of the Plan--Awards may be granted from time to time under the terms
and conditions of the Plan, but no Incentive Stock Option may be granted after
the expiration of ten (10) years from the date of adoption of the Plan, as
hereby amended, by the Board of Directors; provided, that any future amendment
to the Plan that is approved by the stockholders of the Corporation in the
manner provided under paragraph (a) of this Section 15 shall be regarded as
creating a new Plan, and an Incentive Stock Option may be granted under such
new Plan until the expiration of ten (10) years from the earlier of the
approval by the Board of Directors, or the approval by the stockholders of the
Corporation, of such new Plan. Incentive Stock Options theretofore granted may
extend beyond the expiration of that ten-year period, and the terms and
conditions of the Plan shall continue to apply thereto and to shares of Common
Stock acquired upon the subsequent exercise of an Incentive Stock Option or
related Stock Appreciation Right.
SECTION 16. AMENDMENT OR TERMINATION OF THE PLAN
The Board of Directors may at any time and from time to time alter or amend,
in whole or in part, any or all of the provisions of the Plan, or may at any
time suspend or terminate the Plan, provided that no change in any Awards
theretofore granted to any Participant may be made which would impair or
diminish the rights of the Participant without the Participant's consent, and
provided further, that no alteration or amendment may be made without the
approval of the holders of a majority of the Common Stock then outstanding and
entitled to vote if such stockholder approval is necessary to comply with the
requirements of any rules promulgated under Section 16 of the Securities
Exchange Act of 1934 or such other Federal or state laws or regulations as may
be applicable.
SECTION 17. MISCELLANEOUS
(a) Fractional Shares--The Corporation shall not be required to issue or
deliver any fractional share of Common Stock upon the exercise of an Option or
Stock Appreciation Right, the award of Performance Shares, or the payment of a
dividend equivalent in Common Stock pursuant to Section 12 of the Plan, but may
pay, in lieu thereof, an amount in cash equal to the Fair Market Value of such
fractional share.
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<PAGE>
(b) Withholding--The Corporation and its Subsidiary Companies shall have the
right, to the extent permitted by law, to deduct from any payment of any kind
otherwise due to a Participant any Federal, state or local taxes of any kind
required by law to be withheld with respect to Awards under the Plan, and to
the extent any such withholding requirements are not satisfied, each
Participant shall pay to the Corporation any Federal, state or local taxes of
any kind required by law to be withheld with respect to Awards under the Plan.
(c) Stockholder Rights--No person shall have any rights of a stockholder by
virtue of an Option, Stock Appreciation Right, or Performance Share Unit except
with respect to shares of Common Stock actually issued to him, and the issuance
of shares of Common Stock shall confer no retroactive right to dividends.
(d) No Contract of Employment--This Plan shall not be deemed to be an
employment contract between the Corporation or any Subsidiary Company and any
Participant or other employee. Nothing contained herein, or in any agreement,
certificate or other document evidencing, providing for, or setting forth the
terms and conditions applicable to any Awards shall be deemed to confer upon
any Participant or other employee a right to continue in the employment of the
Corporation or any Subsidiary Company, or to interfere with the right of the
Corporation or any Subsidiary Company to terminate the employment of such
Participant or employee at any time.
(e) Unfunded Plan--Except as may otherwise be provided in the Plan, the Plan
shall be unfunded. Neither the Corporation nor any Subsidiary Company shall be
required to segregate any assets that may be represented by Options, Stock
Appreciation Rights, or Performance Share Units, and neither the Corporation
nor any Subsidiary Company shall be deemed to be a trustee of any amounts to be
paid under an Option, Stock Appreciation Right, or Performance Share Unit. Any
liability of the Corporation to pay any Participant or Beneficiary with respect
to an Option, Stock Appreciation Right, or Performance Share Unit shall be
based solely upon any contractual obligations created pursuant to the
provisions of the Plan; no such obligation shall be deemed to be secured by any
pledge or encumbrance on any property of the Corporation or a Subsidiary
Company.
(f) Applicable Law--The Plan, its validity, interpretation, and
administration, and the rights and obligations of all persons having an
interest therein, shall be governed by and construed in accordance with the
laws of the Commonwealth of Virginia, except to the extent that such laws may
be preempted by Federal law.
(g) Gender and Number--Wherever used in the Plan, words in the masculine form
shall be deemed to refer to females as well as to males, and words in the
singular or plural shall be deemed to refer also to the plural or singular,
respectively, as the context may require.
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<PAGE>
APPENDIX B
NORFOLK SOUTHERN CORPORATION
EXECUTIVE MANAGEMENT INCENTIVE PLAN
EFFECTIVE JANUARY 1, 1996
I.PURPOSE OF THE PLAN
It is the purpose of the Norfolk Southern Corporation Executive Management
Incentive Plan (Plan) to enhance increased profitability for Norfolk Southern
Corporation by rewarding certain officers elected by the Board of Directors of
Norfolk Southern Corporation and its affiliates with a bonus for collectively
striving to attain and surpass profit objectives.
II.ADMINISTRATION OF THE PLAN
The Compensation and Nominating Committee of the Board of Directors of
Norfolk Southern Corporation shall administer and interpret this Plan and, from
time to time, adopt such rules and regulations and make such recommendations to
the Board of Directors concerning Plan changes as are deemed necessary to
insure effective implementation of this Plan.
No executive may simultaneously participate in more than one Norfolk Southern
Corporation Incentive Group.
III.RECOMMENDATION TO THE BOARD OF DIRECTORS
The Compensation and Nominating Committee shall recommend to the Board of
Directors:
A. The Incentive Groups for the incentive year, which Groups shall consist
of Board-elected officers at the level of Vice President and above, and
B. The maximum bonus level for each Incentive Group for the incentive year.
IV.TYPE OF INCENTIVE BONUS
By December 22 of the year prior to the incentive year, each participant must
elect to receive any incentive bonus which may be awarded to him or her for the
incentive year either 100% cash or deferred in whole or in part. A participant
shall be permitted to defer only 25%, 50%, 75% or 100% of the bonus for any
incentive year. If the participant elects to receive 100% cash, the entire
amount of the bonus for the incentive year shall be distributed to the
participant, or his or her beneficiary, as hereinafter defined on or before
March 1 of the year following the incentive year. If deferred in whole or in
part, the amount deferred shall be allocated to the Norfolk Southern
Corporation Officers' Deferred Compensation Plan (and such deferrals will be
governed by the provisions of that plan) on or before March 1 of the year
following the incentive year and the remainder, if any, shall be distributed in
cash to the participant or his or her beneficiary on or before March 2 of the
year following the incentive year.
Failure on the part of the participant to elect a deferral by December 22 of
the year prior to the incentive year, either in whole or in part for the
incentive year, shall be deemed to constitute an election by such participant
to receive the entire incentive bonus for the incentive year as a cash bonus.
<PAGE>
The Board of Directors shall have the right to reject all deferral elections
if, in its sole discretion, it shall determine prior to the close of an
incentive year that deferral has become inadvisable, and, if such right shall
be exercised, all incentive bonuses earned under the Plan for such year shall
be payable in cash, as provided for in the third sentence of this Article IV.
V.INCENTIVE BONUS FUND
A single bonus fund representing a combined fund for both this Plan and the
Management Incentive Plan shall be determined and made available annually for
each incentive year equal to 0.75% of Pre-tax Net Income (Norfolk Southern's
income before state and federal income taxes as reported in the annual
consolidated financial statements for the incentive year plus interest expense
on debt due after one year) when the return on Average Invested Capital (the
average of Norfolk Southern stockholders' equity plus debt due after one year
at the beginning and end of the incentive year) equals 10%, and 1.5% of Pre-tax
Net Income when the return on Average Invested Capital equals or exceeds 20%.
At any intermediate level of return on Average Invested Capital between 10% and
20%, the bonus fund shall be calculated at an interpolated percentage of Pre-
tax Net Income between the 0.75% minimum and 1.5% maximum levels. In computing
Pre-tax Net Income, special charges and restructuring charges, and unusual or
infrequent accounting adjustments which are significant, and restatements or
reclassifications, all as determined in accordance with Generally Accepted
Accounting Principles, which would have the effect of reducing Pre-tax Net
Income, shall be excluded, but such Pre-tax Net Income shall be adjusted for
any expenses attributable to bonuses paid or accrued under this Plan and the
Management Incentive Plan. The Compensation and Nominating Committee of the
Board of Directors shall have the right to reduce the bonus fund for all or any
portion of such excluded accounting adjustments, restatements or
reclassifications, or by any other amount the Compensation and Nominating
Committee deems appropriate.
The portion of the total bonus fund available to be awarded under this Plan
for the incentive year shall be determined by multiplying the total bonus fund
by a fraction whose numerator is the sum of the maximum bonus payable to all
Plan participants eligible to receive a bonus award and whose denominator is
the sum of the maximum bonus payable to all employees eligible to receive a
bonus award under this Plan or the Management Incentive Plan.
VI.BONUS AWARDS
The portion of the total bonus fund available to be awarded under this Plan
for the incentive year pursuant to the formula set forth in Article V shall be
divided among each Incentive Group under this Plan in proportion to the maximum
bonus payable for that Incentive Group, and the percentage bonus allocable to
each Incentive Group participant in this Plan shall be determined by
multiplying the bonus fund allocated to that Incentive Group by the ratio of
the participant's total salary paid during the incentive year to the total
salaries paid to all participants in that Incentive Group. However, no
participant may be awarded a bonus which exceeds 50% of the bonus fund. The
Compensation and Nominating Committee of the Board may review the performance
of the Plan participants and may, at its discretion, reduce the bonus award of
any such participant between 0% and 100% , based on the individual's
performance.
If the employment of a participant who is employed by Norfolk Southern
Corporation or its affiliates during the incentive year terminates prior to the
end of such year by reason of (1) death, or (2) normal retirement, early
retirement or total disability under applicable Norfolk Southern Corporation
plans and
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<PAGE>
policies, then the phrase "total salary paid during the incentive year" means
base salary paid to the participant during that portion of such year of
employment prior to his or her termination and through the end of the calendar
month in which employment terminates but excludes any cash paid with respect to
such participant's unused vacation. No incentive bonus for any incentive year
shall be awarded or paid to any participant whose employment with Norfolk
Southern Corporation and all its affiliates terminates before the end of such
incentive year for a reason other than one of those specifically stated in the
preceding sentence.
If a participant becomes eligible for the Plan during the year or becomes
eligible for a different Incentive Group, then the amount of the award shall be
adjusted proportionally to reflect such changes.
VII.DESIGNATION OF BENEFICIARY
For the purpose of this Plan, a beneficiary shall be either (1) the named
beneficiary or beneficiaries designated as hereinafter provided for by the
participant, or (2) in the absence of any such designation, including absence
by revocation of any previous designation, a legal representative of the
participant, duly appointed in the case of incompetency or death of the
participant. A participant may designate both primary and contingent named
beneficiaries. A participant may revoke or change any designation. To be
effective, the designation of a named beneficiary or beneficiaries, or any
change in or revocation of any designation, must be on a form provided by
Norfolk Southern Corporation signed by the participant and filed with the
Office of the Vice President-Personnel, Norfolk Southern Corporation, prior to
the death of such participant. Any such designation, change or revocation shall
be ineffective to invalidate any cash payment made or other action taken by
Norfolk Southern Corporation pursuant to this Plan prior to the receipt of same
by Norfolk Southern Corporation. The determination by Norfolk Southern
Corporation of a beneficiary or beneficiaries, or the identity thereof, or the
rights of same, based on proof by affidavit or other written evidence
satisfactory to Norfolk Southern Corporation shall be conclusive as to the
liability of Norfolk Southern Corporation and any payment made in accordance
therewith shall discharge Norfolk Southern Corporation of its obligation under
this Plan for such payment.
VIII. NO GUARANTEE OF CONTINUANCE OF EMPLOYMENT
Nothing contained in this Plan or in any designation of a participant
hereunder shall constitute or be deemed to constitute any evidence of an
agreement or obligation on the part of Norfolk Southern Corporation or its
affiliates to continue to employ any such participant for any period
whatsoever.
IX.AMENDMENT TO AND TERMINATION OF PLAN
Norfolk Southern Corporation reserves the right at any time by a resolution
duly adopted by its Board of Directors to amend this Plan in any manner or to
terminate it at any time, except that no such amendment or termination shall
deprive a participant or beneficiary of any rights hereunder theretofore
legally accrued, and no such termination shall be effective for the year in
which such resolution is adopted.
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LOGO
NORFOLK SOUTHERN CORPORATION
THREE COMMERCIAL PLACE, NORFOLK, VIRGINIA 23510-2191
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Gerald L. Baliles, Arnold B. McKinnon or Robert
E. McNair, and each or any of them, proxy for the undersigned, with power of
substitution, to vote with the same force and effect as the undersigned at the
annual meeting of stockholders of Norfolk Southern Corporation to be held at
The Hotel Roanoke & Conference Center, 110 Shenandoah Avenue, Roanoke,
Virginia, on Thursday, May 11, 1995, and any adjournments thereof, upon the
matters more fully set forth in the Proxy Statement and to transact such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED ON THE
OTHER SIDE BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR ITEMS (2), (3), AND (4).
(Continued, and to be MARKED, DATED AND SIGNED on the other side)
<PAGE>
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PLEASE MARK BOXES [ ] OR [X] IN BLUE OR BLACK INK.
-
(1) Election of Directors FOR all nominees listed WITHHOLD AUTHORITY to
below, except as marked vote for all nominees
to the contrary listed below. [_]
(see instruction). [_]
L. E. Coleman T. Marshall Hahn, Jr. Landon Hilliard Jane Margaret O'Brien
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THAT NOMINEE'S NAME IN THE LIST ABOVE.)
(2) Approval of the Norfolk Southern Corporation Long-Term Incentive Plan, as
amended. (The Board of Directors recommends a vote FOR)
FOR [_] AGAINST [_] ABSTAIN [_]
(3) Approval of the Norfolk Southern Corporation Executive Management
Incentive Plan. (The Board of Directors recommends a vote FOR)
FOR [_] AGAINST [_] ABSTAIN [_]
(4) Ratification of the appointment of KPMG Peat Marwick LLP, independent
public accountants. (The Board of Directors recommends a vote FOR)
FOR [_] AGAINST [_] ABSTAIN [_]
Address Change and/or
Comments Mark Here [_]
SIGN EXACTLY AS NAME
APPEARS HEREON. ATTORNEYS-
IN-FACT, EXECUTORS,
TRUSTEES, GUARDIANS,
CORPORATE OFFICERS, ETC.,
SHOULD GIVE FULL TITLE.
Dated:_______________, 1995
___________________________
(SIGNATURE)
___________________________
(SIGNATURE)
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY PROMPTLY
