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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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CONRAIL INC.
(NAME OF SUBJECT COMPANY)
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CONRAIL INC.
(NAME OF PERSON(S) FILING STATEMENT)
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COMMON STOCK, PAR VALUE $1.00 PER SHARE
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
(TITLE OF CLASS OF SECURITIES)
208368 10 0
(CUSIP NUMBER OF CLASS OF SECURITIES)
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SERIES A ESOP CONVERTIBLE JUNIOR PREFERRED STOCK, WITHOUT PAR VALUE
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
(TITLE OF CLASS OF SECURITIES)
N/A
(CUSIP NUMBER OF CLASS OF SECURITIES)
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JAMES D. MCGEEHAN
CORPORATE SECRETARY
CONRAIL INC.
2001 MARKET STREET
TWO COMMERCE SQUARE
PHILADELPHIA, PENNSYLVANIA 19101
(215) 209-4000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
With a copy to:
ROBERT A. KINDLER, ESQ.
CRAVATH, SWAINE & MOORE
WORLDWIDE PLAZA
825 EIGHTH AVENUE
NEW YORK, NEW YORK 10019
(212) 474-1000
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INTRODUCTION
This Solicitation/Recommendation Statement on Schedule 14D-9 (this
"Schedule 14D-9") relates to an offer by Green Acquisition Corp., a Pennsylvania
corporation ("Purchaser") and a wholly owned subsidiary of CSX Corporation, a
Virginia corporation ("CSX"), to purchase a portion of the Shares (as defined
below) of Conrail Inc., a Pennsylvania corporation ("Conrail").
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name and address of the principal executive offices of Conrail is
Conrail Inc., 2001 Market Street, Two Commerce Square, Philadelphia,
Pennsylvania 19101. This Schedule 14D-9 relates to Conrail's Common Stock, par
value $1.00 per share (including the associated Common Stock Purchase Rights)
(the "Common Stock"), and Conrail's Series A ESOP Convertible Junior Preferred
Stock, without par value (including the associated Common Stock Purchase Rights)
(the "Preferred Stock", and together with the Common Stock, the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Schedule 14D-9 relates to the tender offer made by Purchaser,
disclosed in a Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1")
dated October 16, 1996, to purchase an aggregate of 17,860,124 of the
outstanding Shares at $92.50 per Share (the "Offer Price"), net to the seller in
cash and without interest (the "Offer"), upon the terms and subject to the
conditions set forth in the Offer to Purchase dated October 16, 1996, a copy of
which is filed as Exhibit (a)(1) hereto (the "Offer to Purchase"), and the
related Letter of Transmittal, copies of which are filed as Exhibits (a)(1) and
(a)(2) hereto, respectively.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of October 14, 1996, among Conrail, Purchaser and CSX (the "Merger
Agreement"), which provides for the making of the Offer by Purchaser, subject to
the conditions and upon the terms of the Merger Agreement, and for the
subsequent merger of Conrail with and into Purchaser (the "Merger"), with
Purchaser continuing as the surviving corporation (the "Surviving Corporation").
In the Merger, each share of Common Stock outstanding at the Effective Time (as
defined in the Merger Agreement) (other than shares of Common Stock held in the
treasury of Conrail or held by CSX or any subsidiary of CSX or Conrail) will, by
virtue of the Merger and without any action by the holder thereof, be converted
into the right to receive shares of Common Stock, par value $1.00 per share, of
CSX ("CSX Stock") at a fixed exchange ratio (the "Exchange Ratio") of 1.85619
shares of CSX Stock for each share of Common Stock. Each share of Preferred
Stock will, immediately prior to the Effective Time, pursuant to the terms of
Conrail's Articles of Incorporation and the Merger Agreement and without any
action by the holder thereof, automatically convert into Common Stock and in the
Merger will be converted into the right to receive shares of CSX Stock at the
Exchange Ratio. In the event that Conrail is unable to obtain the Company
Pennsylvania Shareholder Approval (as defined below) and the Merger is
consummated, the Common Stock will be converted into the right to receive cash
and CSX Stock in the Merger, as more fully described in the Merger Agreement and
the Offer to Purchase. The Merger Agreement, a copy of which is filed as Exhibit
(c)(1) hereto, is summarized in Section 13 of the Offer to Purchase.
Conrail will also be soliciting proxies in connection with a vote of
Conrail's shareholders to amend Conrail's Articles of Incorporation to opt out
of Subchapter E of Chapter 25 ("Subchapter E") of the Pennsylvania Business
Corporation Law of 1988, as amended ("PBCL"). Subchapter E provides generally
that, unless a corporation has elected to opt out of the requirements of
Subchapter E through the adoption of a provision in the corporation's charter
and/or bylaws, upon the acquisition by a person or a group (a "Control Person")
of voting power over voting shares of the corporation that would entitle the
holders thereof to cast at least 20% of the votes that all shareholders would be
entitled to cast in an election of directors of the corporation, any holder of
voting shares of the corporation may require the Control Person to pay to such
holder a certain sum in respect of such shares calculated in accordance with the
terms of Subchapter E (which in this instance would equal or exceed the Offer
Price). The Offer is currently structured as an offer to purchase 19.9% of
Conrail's issued and outstanding Shares, the maximum percentage permissible
without
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triggering the provisions of Subchapter E. If, prior to the expiration of the
Offer, the shareholders of Conrail approve the amendment to Conrail's Articles
of Incorporation to render Subchapter E no longer applicable to Conrail (the
"Company Pennsylvania Shareholder Approval"), Purchaser may, depending on the
circumstances, increase the maximum number of Shares that will be accepted in
the Offer to a number of Shares which, when added to the aggregate number of
Shares then owned beneficially by CSX (other than pursuant to the Stock Option
Agreement dated as of October 14, 1996 between Conrail and CSX (the "Conrail
Stock Option Agreement")), would equal 40% of the fully diluted Shares.
Alternatively, Purchaser may elect to purchase Shares pursuant to the Offer and
commence, after the conclusion of the Offer, a separate tender offer for a
number of additional Shares which, when added to the aggregate number of Shares
then owned beneficially by CSX (other than pursuant to the Conrail Stock Option
Agreement), would equal 40% of the fully diluted Shares. Conrail has agreed in
the Merger Agreement to seek the Company Pennsylvania Shareholder Approval as
soon as practicable after execution of the Merger Agreement.
The Merger Agreement provides that, at any time following the Company
Pennsylvania Shareholder Approval, if CSX and its subsidiaries do not already
own 40% of the fully diluted Shares (excluding Shares that would be outstanding
upon exercise of the Conrail Stock Option Agreement described in the Offer to
Purchase), CSX may, and at the written request of Conrail is required to,
commence an offer (the "Second Offer") to purchase up to that number of Shares
which, when added to the aggregate number of Shares then beneficially owned by
CSX (other than pursuant to the Conrail Stock Option Agreement), would equal 40%
of such Shares, at a price not less than the Offer Price. The Second Offer, if
it occurs, will be on terms no less favorable to the shareholders of Conrail
than the Offer.
The Schedule 14D-1 states that the principal executive offices of Purchaser
and CSX are located at 901 East Cary Street, Richmond, Virginia 23219.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of Conrail, which is the person filing
this statement, are set forth in Item 1 above.
(b) (1) General. The information contained under the caption "MERGER
AGREEMENT; OTHER AGREEMENTS" of the Offer to Purchase is incorporated herein by
reference. Reference is hereby made to the information contained under the
captions "OWNERSHIP BY MANAGEMENT OF EQUITY SECURITIES", and "COMPENSATION OF
DIRECTORS AND EXECUTIVE OFFICERS", in Conrail's proxy statement dated April 3,
1996 relating to Conrail's Annual Meeting of Shareholders. The relevant pages
thereof are filed as Exhibit (c)(7) hereto.
(2) Certain Executive Compensation and Other Employee-Related Matters in
Connection with the Merger.
Employment Agreements. Prior to the execution of the Merger Agreement,
Conrail and CSX (the "Companies") and each of their respective executive
officers were parties to change in control/severance agreements which provide
for, among other things, the payment of severance amounts and benefits upon
certain terminations of employment in connection with a change in control of the
respective Companies. The Chief Executive Officers of each of the Companies have
entered into new employment agreements with CSX which will also become effective
at the Effective Time. In addition, the Chief Executive Officer of Conrail has
entered into a new change in control agreement with CSX, which will also become
effective as of the Effective Time, in replacement of his existing change in
control agreement with Conrail. If the Merger Agreement is terminated prior to
the Effective Time, neither of the new employment agreements or the new change
in control agreement will take effect, and the corresponding existing change in
control/severance agreements for each Chief Executive Officer will continue in
effect. Set forth below are descriptions of the new agreements.
CHIEF EXECUTIVE OFFICER OF PARENT. The new employment agreement for John
W. Snow (the "Snow Agreement"), presently the Chairman of the Board and Chief
Executive Officer of CSX, provides that, as of the consummation of the Merger at
the Effective Time, Mr. Snow will become Chairman of the Board and Chief
Executive Officer of CSX, which will be renamed ("Parent"). The Snow Agreement
provides for a
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term as Chief Executive Officer of Parent beginning at the Effective Time and
terminating on the second anniversary of the Effective Time (the "CEO Employment
Term"). During the CEO Employment Term, Mr. Snow will receive annual base salary
at not less than the level in effect immediately prior to the Effective Time. At
the conclusion of the CEO Employment Term, Mr. Snow will continue as Chairman of
the Board of Parent for two additional years and will serve as Chairman Emeritus
of Parent for one additional year thereafter at the same rate of base salary as
in effect immediately prior to the expiration of the CEO Employment Term.
If Mr. Snow is involuntarily terminated without "cause," or he voluntarily
terminates for "good reason," his termination benefits will include (i) a lump
sum payment equal to the greater of (x) and (y) where (x) equals the sum of (a)
his annual base salary and (b) highest annual bonus paid in the three preceding
years ("Recent Bonus") times (c) the number of years (prorated for partial
years) then remaining in the five-year term of the Snow Agreement, and where (y)
equals three times the sum of (a) his annual base salary and (b) his Recent
Bonus, (ii) a lump sum payment equal to the additional amount he would have
accrued under Parent's qualified and nonqualified pension plans had he been
credited with three years of additional service, (iii) welfare benefit
continuation for three years, and (iv) outplacement services. The Snow Agreement
also provides that Mr. Snow will receive a "gross-up" payment to reimburse him,
on an after-tax basis, for excise taxes that may be imposed upon him under
Section 4999 of the Code on account of the payment of any "excess parachute
payments," as defined in Section 280G of the Code ("Excise Taxes").
The Snow Agreement defines "cause" as a finding by 75% or more of the Board
of Directors of Parent of Mr. Snow's (i) continued failure to substantially
perform his duties, (ii) his willful engagement in illegal conduct or gross
misconduct which is materially and demonstrably injurious to Parent, (iii) his
conviction of a felony or entering of a guilty or nolo contendere plea, or (iv)
his breach of certain confidentiality covenants. The Snow Agreement defines
"good reason" as (a) a material diminution in his position, authority, duties or
responsibilities, (b) a breach by Parent of a material provision of the
employment agreement, (c) the required relocation of Mr. Snow, without his
consent, more than 35 miles from his employment location at the Effective Time,
(d) any purported termination by Parent of Mr. Snow not in accordance with the
Snow Agreement, and (e) a successor to Parent failing to assume any liabilities
under the Snow Agreement.
CHIEF OPERATING OFFICER OF PARENT. The new employment agreement of David
M. LeVan (the "LeVan Agreement"), presently the Chairman of the Board, President
and Chief Executive Officer of Conrail, provides that, as of the Effective Time,
Mr. LeVan will become the Chief Operating Officer and President of Parent and
Chief Executive Officer and President of each of Parent's railroad businesses.
Upon expiration of Mr. Snow's CEO Employment Term no later than the second
anniversary of the Effective Time, the LeVan Agreement provides that Mr. LeVan
will become Chief Executive Officer of Parent, and will become Chairman of the
Board of Parent following Mr. Snow's departure from that position no later than
two years thereafter. The initial term of the LeVan Agreement is five years and
it will be automatically renewed, subject to any prior termination, for
successive one-year periods on the fifth anniversary of the Effective Time and
each anniversary thereafter unless either party gives at least three months'
prior notice of non-renewal. The other terms of the LeVan Agreement are
substantially the same as those in the Snow Agreement, except that the LeVan
Agreement (i) provides, prior to Mr. LeVan becoming Chief Executive Officer of
Parent, for a minimum base salary equal to the greater of 90% of Mr. Snow's
annual base salary and $810,000, and a minimum bonus equal to 100% of base
salary, but not less than 90% of the bonus paid or awarded to Mr. Snow and not
less (as a percentage of base salary) than any bonus paid or awarded to any
other senior executive of Parent, (ii) provides, upon Mr. LeVan becoming Chief
Executive Officer of Parent, for a minimum annual base salary of not less than
the annual base salary then being paid to Mr. Snow and not less than $900,000,
and long-term incentive (including stock award) opportunities not less than
those afforded any other senior executives of Parent and not less than 90% of
Mr. Snow's long-term incentive opportunities, (iii) does not provide for Mr.
LeVan's continuing services as Chairman of the Board of Parent following his
termination of employment and (iv) provides that "good reason" includes a
failure to elect Mr. LeVan as Chief Executive Officer of Parent by the second
anniversary of the Effective Time, a failure to elect Mr. LeVan as Chairman of
the Board of Parent by the fourth anniversary of the Effective Time and the
removal of Mr. LeVan as a
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director or from any of his specified employment positions. A copy of the LeVan
Agreement is filed as Exhibit (c)(4) hereto.
Change in Control Agreements. The new change in control agreement of Mr.
LeVan is substantially similar to Mr. Snow's change in control agreement. Under
such agreements, if either executive is involuntarily terminated or terminates
for "good reason" within three years following a change in control (for purposes
of Mr. Snow's and Mr. LeVan's respective agreements, the transactions
contemplated by the Merger Agreement will not constitute a change in control
thereunder), he will be paid an amount equal to three times the sum of (i) his
annual base salary and (ii) the highest bonus paid within the three years
preceding such termination, three years' deemed additional service under
Parent's qualified and nonqualified pension plans, three years' welfare benefit
continuation and outplacement services. The agreements also provide for a
gross-up for any Excise Taxes payable by the executive. Compensation and
benefits payable or provided under the change in control agreements will be
offset by any comparable compensation and benefits paid, respectively, under the
Snow Agreement and the LeVan Agreement.
Effect of the Merger on Employee Benefit and Stock Plans. In addition to
the provisions relating to employment agreements described above, the Merger
Agreement contemplates that certain additional actions will be taken in respect
of employee benefit and stock plans in which executive officers of the Companies
or Parent or the Surviving Corporation are eligible to participate. CSX shall
cause the Surviving Corporation to honor all obligations under employment
agreements and employee benefit plans, programs, policies and arrangements of
Conrail and CSX in accordance with the terms of the Merger Agreement. The
Surviving Corporation will provide, or cause its subsidiaries to provide,
benefits to Conrail employees on a basis no less favorable in the aggregate to
those provided to similarly-situated employees of CSX. For a two-year period
following the Effective Time, CSX shall, or shall cause the Surviving
Corporation, to establish and maintain a plan to provide severance and
termination benefits to all non-union employees of Conrail and CSX terminated as
a result of, or in connection with, the Merger, which benefits shall be
determined consistent with industry standards and taking into account those
benefits provided in recent similar transactions in the industry.
In accordance with the Merger Agreement and the terms of the outstanding
employee stock options granted under Conrail's and CSX's respective stock option
plans, as of the Effective Time, all such options will be deemed to constitute
an option to acquire (on the same terms and conditions as were applicable under
such option, including vesting) the same number of shares of CSX Stock as the
holder of such option would have been entitled to receive pursuant to the Merger
Agreement had such holder exercised such option in full immediately prior to the
Effective Time, at a price per share of CSX Stock equal to (i) the aggregate
exercise price for the shares of Conrail Common Stock otherwise purchasable
pursuant to such Conrail option, divided by (ii) the aggregate number of shares
of CSX Stock deemed purchasable pursuant to such option.
In addition, the transactions contemplated by the Merger Agreement will
constitute a "change in control" for purposes of certain Conrail and CSX
executive compensation arrangements which include change in control provisions.
As a result, (i) all outstanding options will immediately become vested and
exercisable or payable and the restrictions on all restricted and phantom stock
awards will vest and outstanding performance shares will be deemed accrued and
the shares will become immediately deliverable, and (ii) all change in control
severance agreements will be triggered, thereby entitling executives and other
key employees covered thereunder to be entitled to the severance benefits
provided under such agreements if their employment is subsequently terminated
involuntarily or the employee terminates for "good reason" within specified
periods. The consummation of the Offer will constitute a "change in control" for
purposes of Conrail's plans, agreements and arrangements.
Except as set forth above or incorporated herein by reference, there are no
contracts, agreements, arrangements or understandings or any actual or potential
conflicts of interest between Conrail or its affiliates and (i) Conrail, its
executive officers, directors or affiliates or (ii) the Purchaser, its executive
officers, directors or affiliates.
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ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendations of the Board of Directors
At a meeting held on October 14, 1996, the Board of Directors of Conrail
unanimously (i) determined that the terms of the Offer and the Merger are in the
best interest of Conrail; (ii) approved the terms of the Merger Agreement and
the Option Agreements (as defined in the Merger Agreement) and authorized the
execution and delivery thereof; and (iii) recommended that the shareholders of
Conrail accept the Offer and tender their Shares pursuant to the Offer.
Accordingly, the Board of Directors of Conrail unanimously recommends that the
shareholders of Conrail tender their Shares pursuant to the Offer. Copies of a
press release announcing the Merger Agreement and the transactions contemplated
thereby, and a letter to the shareholders of Conrail communicating the Board's
recommendation are filed as Exhibits (a)(3) and (a)(4) hereto, respectively, and
are included herein by reference.
(b)(1) Background.
As part of its long-term planning process, Conrail has been involved in an
ongoing review of its commercial and strategic alternatives, which has included
analyses of potential acquisitions of and combinations with other railroads.
Recent industry consolidations confirm that railroads must offer their customers
broad market reach via efficient, single-line service. This has required Conrail
to reassess its position in the industry, resulting in Conrail's consideration
of a possible combination with CSX. Conrail's analysis has demonstrated that a
potential merger with CSX offers the needed combination of synergies, public
benefits (including network efficiencies) and shareholder value.
From time to time since August 1994, CSX has conveyed to senior managers of
Conrail CSX's continuing interest in discussing a business combination and CSX's
views as to the desirability of such a transaction. These contacts by CSX led to
a discussion in July 1996 between David M. LeVan, Chairman, President and Chief
Executive Officer of Conrail, and John W. Snow, Chairman, President and Chief
Executive Office of CSX, generally regarding the consolidation in the railroad
industry and the regulatory environment with respect to such consolidation.
Following such discussion, each of the parties independently analyzed its
strategic opportunities, including potential business combination transactions.
Shortly following preliminary discussions between Mr. Snow and Mr. LeVan, on
October 6, 1996, Mr. Snow and Mr. LeVan met to discuss the possibility for and
the terms of a business combination between CSX and Conrail. Following that
meeting, senior management of both companies, together with their financial and
legal advisors, independently undertook to examine a possible transaction and to
conduct detailed business reviews. On October 8, 1996, CSX and Conrail entered
into a confidentiality agreement in connection with their discussions. Such
discussions led to the negotiation of the Merger Agreement and the Option
Agreements, which were executed on October 14, 1996.
(2) Reasons for Recommendation.
In making the determinations and recommendations set forth in subparagraph
(a) above the Board of Directors considered a number of factors, including,
without limitation, the following:
(i) the historical and recent market prices of the Shares and the fact
that the Offer and the Merger will enable the holders of Conrail's Shares
to realize a significant premium over the prices at which the Shares traded
prior to the execution of the Merger Agreement;
(ii) the structure of the Offer and the use of a voting trust which
allows holders of Shares to receive cash without waiting for approval of
the Merger by the Surface Transportation Board;
(iii) the opinions of Lazard Freres & Co. LLC ("Lazard Freres") and
Morgan Stanley & Co. Incorporated ("Morgan Stanley") to the effect that the
consideration to be received by Conrail's shareholders in the Offer and the
Merger, taken together, is fair to such shareholders from a financial point
of view (copies of such opinions setting forth assumptions made and matters
considered by Lazard Freres and Morgan Stanley are filed as Exhibits (a)(6)
and (a)(7), respectively, and should be read in their entirety);
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(iv) the Board's duties under Pennsylvania law to act in the best
interest of Conrail, and that under such law the Board may consider (a) the
interests of all constituencies, including shareholders, employees,
suppliers, customers and creditors, as well as communities in which Conrail
has operations, (b) the short-term and long-term interests of Conrail and
(c) all other pertinent factors;
(v) the Board's view that the transactions contemplated by the Merger
Agreement would result in significant efficiencies, operating benefits and
commercial and other synergies that would benefit Conrail and its customers
and be in the public interest, and that Conrail's shareholders would also
benefit greatly from such efficiencies, benefits and synergies through
their significant continued interest in the combined company;
(vi) the Board's view that the benefits, efficiencies and synergies in
the Merger better meet the needs of Conrail's constituencies than would
other combinations with other railroads;
(vii) the benefits that the Merger would provide to the customers of
Conrail and CSX, including by providing them with the benefits of efficient
high-quality service from a more comprehensive rail system with more points
of origin and more new single-line and integrated transportation services,
and with a rail company with the financial strength to support substantial
capital investment in the railroad system;
(viii) the benefits that the Merger would provide to the public
through increased public safety and improved air quality due to, among
other things, the resulting improvements in the principal alternative to
truck movement over heavily-congested highways;
(ix) the benefits provided generally to the communities served by
Conrail, and particularly to local communities in Pennsylvania, including
through maintaining the headquarters of the combined company in
Philadelphia;
(x) the fact that the Merger, while providing a significant premium to
Conrail's shareholders, is being structured as a true merger-of-equals
transaction in which 50% of the Board, and each Board committee, of Parent
would be designated by Conrail;
(xi) Mr. LeVan being named as the President and Chief Operating
Officer of Parent and President and Chief Executive Officer of the
railroads, and the fact that he is to become Chief Executive Officer of
Parent two years after the consummation of the Merger;
(xii) the intended treatment of the Merger as a tax-free
reorganization for Federal income tax purposes; and
(xiii) information with regard to the financial condition, results of
operations, business and prospects of Conrail, the regulatory approvals
required to consummate the Merger as well as current economic and market
conditions (including current conditions in the industry in which Conrail
is engaged).
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Lazard Freres has been retained by the Board of Directors of Conrail to act
as a financial advisor to Conrail with respect to the transactions contemplated
by the Merger Agreement. Pursuant to an engagement letter with Lazard Freres,
Conrail has agreed to pay Lazard Freres for its services a cash fee equal to
.17% of the aggregate consideration received by the holders of Shares,
$2,750,000 of which is payable upon the execution of the Merger Agreement,
$3,750,000 of which is payable upon the receipt of the requisite approvals of
the shareholders of Conrail and CSX and the balance of which is payable at
Closing (as defined in the Merger Agreement). Conrail has also agreed to pay
Lazard Freres for its usual and customary expenses, including the fees of
counsel, and to indemnify Lazard Freres against certain liabilities.
In addition, Conrail has engaged Morgan Stanley to provide an opinion as to
the fairness, from a financial point of view, of the consideration payable under
the Merger Agreement. Pursuant to an engagement letter with Morgan Stanley,
Conrail has agreed to pay Morgan Stanley a fee of $2,000,000, payable upon
delivery of the opinion and an additional fee of $1,000,000 payable upon the
receipt of the requisite approval of
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shareholders of Conrail. Conrail has also agreed to pay Morgan Stanley for its
usual and customary expenses, including the fees of counsel, and to indemnify
Morgan Stanley against certain liabilities.
Neither Conrail nor any person acting on its behalf currently intends to
employ, retain or compensate any other person to make solicitations or
recommendations to shareholders on its behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) During the past 60 days, neither Conrail nor any subsidiary of Conrail
nor, to the best of Conrail's knowledge, any executive officer, director or
affiliate of Conrail has effected a transaction in the Shares except that (i) on
August 20, 1996, John P. Sammon, Senior Vice President -- CORE Service Group,
exercised 17,375 options, selling 13,030 of the resulting Shares in a cashless
exercise and retaining the remaining 4,345 Shares and (ii) 2,779 shares of
Preferred Stock were allocated to the ESOP accounts of certain executive
officers as of September 30, 1996. In addition, during the past 60 days, Conrail
has repurchased 497,800 shares of Common Stock pursuant to its long-standing
share repurchase program.
(b) To the best of Conrail's knowledge, its executive officers and
directors currently intend to tender their Shares to Purchaser pursuant to the
Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Other than as set forth or referenced in Items 3(b) or 4, no
negotiation is being undertaken or is underway by Conrail in response to the
Offer which relates to or would result in:
(1) an extraordinary transaction such as a merger or reorganization,
involving Conrail or any subsidiary of Conrail;
(2) a purchase, sale or transfer of a material amount of assets by
Conrail or any subsidiary of Conrail;
(3) a tender offer for or other acquisition of securities by or of
Conrail; or
(4) any material change in the present capitalization or dividend
policy of Conrail.
(b) Except as described above or in Item 3(b), there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the Offer which relate or would result in one or more of the matters referred to
in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Reference is hereby made to the Offer to Purchase and the related Letter of
Transmittal which are attached as Exhibits (a)(1) and (a)(2), respectively, and
are incorporated herein by reference in their entirety.
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ITEM 9. MATERIALS TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C> <C>
*+(a)(1) Offer to Purchase dated October 16, 1996.
*+(a)(2) Letter of Transmittal.
(a)(3) Text of press release issued by Conrail, dated October 15, 1996.
*(a)(4) Letter to shareholders of Conrail dated October 16, 1996.
+(a)(5) Form of Summary Advertisement dated October 16, 1996.
*(a)(6) Opinion of Lazard Freres & Co. LLC.
*(a)(7) Opinion of Morgan Stanley & Co. Incorporated.
(b) Not applicable.
+(c)(1) Agreement and Plan of Merger dated as of October 14, 1996.
+(c)(2) Conrail Stock Option Agreement dated as of October 14, 1996.
+(c)(3) CSX Stock Option Agreement dated as of October 14, 1996.
+(c)(4) Form of Voting Trust Agreement.
(c)(5) Employment Agreement of Mr. LeVan dated as of October 14, 1996.
(c)(6) Change of Control Agreement of Mr. LeVan dated as of October 14, 1996.
(c)(7) Pages 4-5, and 9-14 of Conrail's Proxy Statement dated April 3, 1996.
</TABLE>
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* Included in materials delivered to shareholders of Conrail.
+ Filed as an exhibit to Purchaser's Tender Offer Statement on Schedule 14D-1
dated October 16, 1996, and incorporated herein by reference.
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
CONRAIL INC.
By /s/ DAVID M. LEVAN
--------------------------------------
Name: David M. LeVan
Title: Chairman, President and
Chief Executive Officer
Dated as of October 16, 1996
9
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
-------- -------------------------------------------------------------------------- --------
<S> <C> <C> <C>
*+(a)(1) Offer to Purchase dated October 16, 1996..................................
*+(a)(2) Letter of Transmittal.....................................................
(a)(3) Text of press release issued by Conrail, dated October 15, 1996...........
*(a)(4) Letter to shareholders of Conrail dated October 16, 1996..................
+(a)(5) Form of Summary Advertisement dated October 16, 1996......................
*(a)(6) Opinion of Lazard Freres & Co. LLC........................................
*(a)(7) Opinion of Morgan Stanley & Co. Incorporated..............................
(b) Not applicable............................................................
+(c)(1) Agreement and Plan of Merger dated as of October 14, 1996.................
+(c)(2) Conrail Stock Option Agreement, dated as of October 14, 1996..............
+(c)(3) CSX Stock Option Agreement dated as of October 14, 1996...................
+(c)(4) Form of Voting Trust Agreement............................................
(c)(5) Employment Agreement of Mr. LeVan dated as of October 14, 1996............
(c)(6) Change of Control Agreement of Mr. LeVan dated as of October 14, 1996.....
(c)(7) Pages 4-5, and 9-14 of Conrail's Proxy Statement dated April 3, 1996......
</TABLE>
- ---------------
* Included in materials delivered to shareholders of Conrail.
+ Filed as an exhibit to Purchaser's Tender Offer Statement on Schedule 14D-1
dated October 16, 1996, and incorporated herein by reference.
10
<PAGE> 1
EXHIBIT (a)(3)
CONTACTS: CSX Corporation Conrail Inc.
Thomas E. Hoppin Craig R. MacQueen
(804) 782-1450 (215) 209-4594
FOR IMMEDIATE RELEASE
CSX AND CONRAIL TO COMBINE
IN PRO-COMPETITIVE, STRATEGIC MERGER
RICHMOND AND PHILADELPHIA -- Oct. 15, 1996 -- CSX Corporation (CSX)
(NYSE: CSX) and Conrail Inc. (Conrail) (NYSE: CRR), leading transportation
companies with complementary eastern rail routes, announced today they have
agreed to a strategic merger. The merger agreement calls for Conrail
shareholders to receive a combination of cash and CSX shares valued at
approximately $8.4 billion, or $92.50 per Conrail share, based on the recent
trading prices for CSX's common stock. The parties will propose a schedule that
contemplates completion of the transaction in late 1997.
The merger will create the leading freight transportation and logistics
company in the world with annual revenues of more than $14 billion, offering
domestic and international customers rail, container-shipping, barge,
intermodal and contract logistics services. The newly created transportation
system will offer much more extensive single-line rail service opportunities to
shippers and receivers in 22 states and will have a 29,645 mile system,
covering a territory from Chicago, Boston and New York to Miami and New
Orleans.
John W. Snow, chairman, president and chief executive officer of CSX,
said, "This merger of equals represents a strategic combination that will
provide excellent value for our customers and our shareholders, and is
consistent with sound public policy. This is the right merger at the right time
between the right companies.
"This dynamic combination is a 'win-win' transaction for the
shareholders of both companies, our customers and the communities we both
serve. We will have the financial strength to make substantial infrastructure
investments and service improvements. The transaction will have an immediate,
positive effect on cash flow and will be accretive to earnings per share in the
second year. Together, the companies will have stronger revenue, cash flow and
earnings growth than they would have had on their own. The merged company will
be the premier freight transportation company in North America and, as such, we
should command a premium price/earnings multiple -- thus creating greater value
for our shareholders," Snow said.
<PAGE> 2
"Our new company will provide new single-line rail service to major
markets east of the Mississippi and will greatly benefit shippers, the
communities served and the nation as a whole. The merger will extend our
customers' market reach, speeding service and enhancing their competitive
positions at home and abroad. It makes the most efficient use of existing
transportation infrastructure, thereby lowering the total cost of transporting
American products," Snow said.
"Moreover," Snow said, "this transaction offers an opportunity to
improve passenger safety and service and to begin to address the need to
separate freight and passenger service in high-density commuter and Amtrak
corridors, including Philadelphia, Baltimore and Washington, D.C. We hope to
consolidate much of our freight service on the CSX line between Philadelphia
and Washington, thereby reducing freight operations on Amtrak's northeast
corridor south of Philadelphia. Additionally, the contemplated ability to
reroute some freight trains from other routes should free up capacity on other
CSX lines, such as the Harper's Ferry-Washington line used by Maryland commuter
trains. Such improvements can be addressed only through this transaction."
"We are delighted to be merging with our ideal partner," said David M.
LeVan, Conrail's chairman, president, and chief executive officer. "Conrail
today is a strong railroad, but recent changes in industry structure and in
U.S. patterns of distribution require a broader market reach. The new company
we are creating will be more competitive with trucks and other modes of
transportation. Where new, single-line services are possible, we will provide
our customers one point of contact, and eliminate the costs and delays now
layered over every step in the service process.
"Our customers will enjoy significantly improved, more competitive
freight transportation service that will result in greater service innovation
and competitive pricing. The merger will allow us to build on the coal,
merchandise, intermodal and logistics strengths of both companies. Importantly,
our companies share an uncompromising commitment to safety, operating
excellence and superior service and have compatible cultures that will expedite
realization of the benefits of the merger," LeVan said.
Under the terms of the transaction, 40 percent of the fully diluted
shares of Conrail's common stock and ESOP preferred stock will be acquired for
cash at $92.50 per share, and the remaining 60 percent will be acquired for
stock at an exchange ratio of 1.85619 CSX shares for each Conrail share.
CSX will promptly commence a cash tender offer at $92.50 per Conrail
share for an aggregate of about 17.9 million shares of Conrail common stock and
ESOP preferred stock, or approximately 19.9 percent of the Conrail outstanding
voting stock. The offer will be subject to the usual conditions, including
Surface Transportation Board (STB) informal approval of a customary voting
trust and obtaining the necessary financing.
2
<PAGE> 3
A Pennsylvania statute effectively precludes CSX from acquiring 20
percent or more of Conrail's voting shares in the tender offer, unless the
Conrail shareholders vote to opt-out of the statute by a majority of the Conrail
shares voting at a meeting. A meeting to vote on the opt-out is expected to be
held prior to the expiration of the tender offer. Following approval, the Merger
Agreement effectively provides that an aggregate of 40 percent of the fully
diluted shares will be purchased for cash in this tender offer or in another
offer that may be made. If approval is not obtained, the cash not paid in the
offer would be paid in the subsequent merger.
The companies also have granted each other an option to purchase 19.9
percent of the other's common shares under certain conditions. The 19.9 percent
option held by CSX also would be exercisable if it purchases shares in the
offer.
Following STB approval of the merger, and after other conditions have
been met, the companies will complete their merger through an expected tax-free
exchange of stock at an exchange ratio of 1.85619 CSX shares for each remaining
Conrail share. The application for STB approval of the transaction is expected
to be filed in early 1997, and the parties will propose a schedule that
contemplates a decision toward that year's end. Pending STB review, the shares
purchased will be placed in the voting trust.
Total benefits from the merger will be about $550 million annually,
based on the realization of cost savings from operating efficiencies, facility
consolidations, overhead rationalization, and other activities, and new traffic
volumes earned by enhanced service. The combined company will make investments
to support revenue growth, and will create a streamlined organization that
incorporates the best of both companies while combining facilities and
realizing economies of scale. The companies stated they expect there will be
some job losses as a result of consolidations and the elimination of
redundancies, but these will be offset over time by new employment
opportunities resulting from growth of the business.
The merger will yield new, competitive services that neither railroad
can now offer on its own. The new system will have faster schedules, more
frequent and reliable service, with shorter routes and improved equipment
supply and utilization. The new system will create major, new single-line
service routes between north-south markets. Moreover, the creation of a
single-line route along the Atlantic corridor will provide a much needed,
cost-effective and environmentally superior intermodal alternative to truck
traffic now being hauled over I-95 and other north-south interstate highways.
Many shippers will be attracted from the heavily congested highways and urban
centers by the quality of service offered by the combined company.
"The ability to compete more effectively for truck traffic is an
exciting growth opportunity that offers significant public benefits including
the reduction of highway traffic, improved environmental conditions and greater
safety," LeVan said.
3
<PAGE> 4
In rail corridors where CSX and Conrail both have routes, there will be
significant operating benefits and, in many cases, major reductions in length
of haul. Where their routes are end to end, there will be extensive new
single-line service for shippers. Integrating the entire network, moreover,
will produce significant additional benefits in traffic handling and marketing,
and in facility and equipment utilization.
As a result of these many service and efficiency benefits, competition
will be enhanced. Where CSX and Conrail are now the only rail competitors, the
merger partners are willing to agree to grant competitive access. There,
shippers will continue to enjoy two-railroad competition, and will receive the
competitive benefits of a more efficient CSX/Conrail system and single-line
routes to many new destinations.
Snow will become chairman and chief executive officer of the new holding
company. LeVan will become the new holding company's president and chief
operating officer. The board of directors will be composed of an equal number of
members from the boards of CSX and Conrail. Upon consummation of the
transaction, LeVan will be president and chief executive officer of the two
railroads. LeVan will succeed Snow as chief executive officer of the new company
two years after consummation of the merger, and Snow will serve as chairman of
the corporation for the two years thereafter.
The new holding company will be headquartered in Philadelphia, with a
significant presence in Richmond. Operating headquarters for the two railroads
will remain in Philadelphia and Jacksonville for the foreseeable future. A new
name for the combined company will be announced at a later time.
The transaction has been unanimously approved by the boards of
directors of both companies. It is subject to the approval of shareholders of
both companies and STB approval. Under the terms of the agreement, CSX or
Conrail is each entitled, under certain circumstances, to receive a termination
fee of $300 million from the other in the event the merger is not completed
because of a competing offer for the other company.
CSX is being advised on the transaction by Wasserstein Perella & Co.,
which has also provided a fairness opinion. Salomon Brothers Inc. has also been
retained to advise CSX on post-transaction financing matters. Conrail is being
advised by and has received fairness opinions from Lazard Freres & Co. LLC and
Morgan Stanley Incorporated.
CSX Corporation, headquartered in Richmond, VA, is an International
transportation company offering a variety of rail, container-shipping,
intermodal, trucking, barge, and contract logistics services.
4
<PAGE> 5
Conrail, with corporate headquarters in Philadelphia, PA, operates an
11,000-mile rail freight network in 12 northeastern and midwestern states, the
District of Columbia, and the Province of Quebec.
Additional information regarding this announcement can be found on the
companies' Web sites on the Internet. CSX's home page can be reached at
http://www.CSX.com. Conrail's home page can be reached at
http://www.CONRAIL.com.
NOTE TO BROADCAST EDITORS:
A live satellite feed of B-roll from both CSX and Conrail will be available:
Tuesday, October 15 from 10:00 a.m. to 10:30 a.m. (EDT) -- coordinates are
C-Band Telstar 401, Transponder 5
Tuesday, October 15 from 1:30 p.m. to 2:00 p.m. (EDT) -- coordinates are C-Band
Telstar 402, Transponder 18
# # #
5
<PAGE> 1
LOGO
Exhibit (a)(4)
CONRAIL INC.
2001 Market Street
Two Commerce Square
Philadelphia, Pennsylvania 19101-1417
October 16, 1996
Dear Shareholders:
I am pleased to inform you that Conrail Inc. and CSX Corporation have
entered into a Merger Agreement providing for a merger of equals of our
companies, creating the leading freight transportation and logistics company in
the world. In the transaction, 40% of the shares of Conrail common stock and
ESOP preferred stock would be acquired for cash at $92.50 per share, and the
remaining 60% would be acquired for CSX stock at an exchange ratio of 1.85619
CSX shares for each Conrail share.
Pursuant to the Merger Agreement, a subsidiary of CSX has commenced a
tender offer to purchase 19.9% of the outstanding shares of Conrail common stock
and ESOP preferred stock. A Pennsylvania statute effectively precludes CSX from
acquiring 20% or more of Conrail's shares in the tender offer or otherwise,
unless the Conrail shareholders vote to amend the Conrail Articles of
Incorporation to opt out of such statute. Conrail intends to call a special
meeting of shareholders to seek approval of such amendment. If such approval is
obtained, CSX would be able either to increase the number of shares subject to
the tender offer, or commence a new tender offer, in each case so as to purchase
40% of the shares for cash.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE TENDER OFFER AND
MERGER AND RECOMMENDS THAT CONRAIL SHAREHOLDERS ACCEPT THE TENDER OFFER AND
TENDER THEIR SHARES.
The enclosed Offer to Purchase and related Letter of Transmittal set forth
in detail the terms and conditions of the tender offer and provide instructions
on how to tender your shares. Attached is a copy of the Schedule 14D-9 filed by
Conrail with the Securities and Exchange Commission. The Schedule 14D-9
describes in more detail the reasons for the Board's conclusions and contains
other important information relating to the tender offer. I urge you to consider
the enclosed information carefully.
Sincerely,
/s/ David M. LeVan
David M. LeVan
Chairman, President and
Chief Executive Officer
<PAGE> 1
EXHIBIT (a)(6)
[Letterhead of Lazard Freres & Co. LLC]
October 14, 1996
The Board of Directors
Conrail Inc.
2001 Market Street
Philadelphia, PA 19103
Dear Members of the Board:
You have requested our opinion as to the fairness, from a
financial point of view, to the holders of shares of Common Stock, par value $1
per share ("Common Stock"), and of Series A ESOP Convertible Preferred Stock
(such Preferred Stock together with the Common Stock is referred to as the
"Shares") of Conrail Inc. (the "Company") of the consideration to be received
in a series of transactions (collectively, the "Transactions") pursuant to the
Agreement and Plan of Merger to be entered into among the Company, CSX
Corporation ("CSX") and Green Acquisition Corp. ("Tender Sub"), dated as of
October 14, 1996 (the "Merger Agreement"). The terms of the Merger Agreement
provide, among other things, that (i) Tender Sub promptly will offer to
purchase (the "Offer") up to 19.9% of the outstanding Shares at a price of
$92.50 per share net in cash (the "Offer Consideration"); provided that if
certain conditions are satisfied, the Offer would be increased to up to a
number of Shares (the "Designated Number") equal to 40% of the fully diluted
Shares excluding the Option Shares referred to below (the "Fully Diluted
Shares") and (ii) following the consummation of the Offer, subject to, among
other things, the favorable required vote of holders of Shares, Tender Sub will
merge (the "Merger") with the Company, and each remaining outstanding Share
(other than Shares owned by the Company as treasury stock or owned by CSX,
Tender Sub or any other subsidiary of CSX and other than Shares held by holders
who properly exercise and perfect dissenter's rights, if any) will be converted
into the right to receive (the "Merger Consideration") 1.85619 shares (the
"Exchange Shares") of Common Stock of CSX, par value $1.00 per share ("CSX
Common Stock"); provided that if less than the Designated Number of Shares is
purchased pursuant to the Offer, the Merger Consideration will be adjusted so
that when taken together with the Offer, 60 percent of the Fully Diluted Shares
will each have been converted into the right to receive the Exchange Shares and
40 percent of the Fully Diluted Shares will have received or been converted
into the right to receive an amount of cash equal to the Offer Consideration.
The Offer Consideration and the Merger Consideration are collectively referred
to herein as the "Consideration."
<PAGE> 2
2
In connection with the rendering of this opinion, we have:
(i) Reviewed the terms and conditions of the Merger
Agreement and the financial terms of the Transactions, all as set
forth in the Merger Agreement, and the option agreement between
Company and CSX pursuant to which CSX shall be granted the right to
purchase shares of Common Stock (the "Option Shares") and the option
agreement between CSX and the Company pursuant to which the Company
shall be granted the right to purchase shares of CSX Common Stock,
each dated October 14, 1996 (collectively, the "Option Agreements");
(ii) Analyzed certain historical business and
financial information relating to the Company and CSX;
(iii) Reviewed certain financial forecasts and other
data provided to us by the Company and CSX relating to the businesses
of the Company and CSX, respectively, including the most recent
business plan for the Company prepared by the Company's senior
management, in the form furnished to us;
(iv) Conducted discussions with members of the senior
managements of the Company and CSX with respect to the businesses and
prospects of the Company and CSX, respectively, the strategic
objectives of each and possible benefits which might be realized
following the Merger;
(v) Reviewed public information with respect to
certain other companies in the lines of businesses we believe to be
generally comparable in whole or in part to the businesses of the
Company and CSX and reviewed the financial terms of certain other
business combinations involving companies in lines of businesses we
believe to be generally comparable in whole or in part to the
businesses of the Company and CSX that have recently been effected;
(vi) Reviewed the historical stock prices and trading
volumes of Common Stock and CSX Common Stock; and
(vii) Conducted such other financial studies, analyses
and investigations as we deemed appropriate.
We have relied upon the accuracy and completeness of the
foregoing financial and other information and have not assumed any
responsibility for independent verification of such information or any
independent valuation or appraisal of any of the assets of the Company or CSX
nor have we been furnished with any such appraisals. With respect to financial
forecasts, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of managements
of the Company and CSX as to the future financial performance of the Company
and CSX, respectively. We assume no responsibility for and express no view as
to such forecasts or the assumptions on which they are based.
<PAGE> 3
3
Our opinion is necessarily based on economic, monetary, market
and other conditions as in effect on, and the information made available to us
as of, the date hereof.
In rendering our opinion, we have assumed that (i) the
Transactions will be consummated substantially on the terms described in the
Merger Agreement, without any waiver of any material terms or conditions by any
party thereto, and that obtaining the necessary regulatory approvals for the
Transactions will not have an adverse effect on CSX or the Company or on the
trading value of CSX Common Stock and (ii) the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended. We were not requested to, and did not, solicit third
party offers to acquire all or any part of the Company.
We are acting as financial advisor to the Company's Board of
Directors in connection with the Transactions and will receive fees for such
services, a substantial portion of which fees are contingent upon the
consummation of the Transactions. Our Firm has in the past provided and is
currently providing investment banking and financial advisory services to the
Company and has received customary fees for rendering such services. Our Firm
has in the past also provided investment banking and financial advisory
services to CSX and has received customary fees for rendering such services.
Our engagement and the opinion expressed herein are for the
benefit of the Company's Board of Directors and our opinion is rendered in
connection with its consideration of the Transactions. This opinion is not
intended to and does not constitute a recommendation to any holder of Shares as
to whether such holder should tender Shares pursuant to the Offer or vote to
approve the Merger Agreement and the transactions contemplated thereby. It is
understood that, except for inclusion of this letter in its entirety in a proxy
statement or tender offer recommendation statement on Schedule 14D-9 from the
Company to holders of Shares relating to the Transactions, this letter may not
be disclosed or otherwise referred to without our prior written consent, except
as may otherwise be required by law or by a court of competent jurisdiction.
<PAGE> 4
4
Based on and subject to the foregoing, we are of the opinion
that, as of the date hereof, the Consideration to be received by the holders of
Shares pursuant to the Offer and the Merger, when taken together, is fair to
such holders (other than CSX, Tender Sub or any other subsidiary of CSX), from
a financial point of view.
Very truly yours,
LAZARD FRERES & CO. LLC
By /s/ J. Robert Lovejoy
-----------------------------
Managing Director
<PAGE> 1
EXHIBIT (a)(7)
[Letterhead of Morgan Stanley & Co. Incorporated]
October 14, 1996
Board of Directors
Conrail Inc.
2001 Market Street
Philadelphia, PA 19101-1422.
Gentlemen and Madam:
We understand that Conrail Inc. (the "Company"), CSX Corporation ("CSX") and
Green Acquisition Corp., a wholly owned subsidiary of CSX ("Acquisition Sub"),
have entered into an Agreement and Plan of Merger, dated as of October 14, 1996
(the "Merger Agreement"), which provides, among other things, for (i) the
commencement by Acquisition Sub of a tender offer (the "Offer") for 19.9% of
the issued and outstanding shares of common stock, par value $1 per share (the
"Company Common Stock"), and Series A ESOP Convertible Junior Preferred Stock
(together with the Company Common Stock, the "Shares") of the Company, for
$92.50 per share net to the seller in cash (the "Offer Consideration"),
provided that if certain conditions are satisfied, the Offer would be increased
to up to a number of Shares (the "Designated Number") equal to 40% of the fully
diluted Shares, excluding the Option Shares referred to below (the "Fully
Diluted Shares") and (ii) upon the receipt of certain shareholder and
regulatory approvals, the subsequent merger (the "Merger") of the Company with
and into Acquisition Sub. Pursuant to the Merger, the Company will become a
wholly owned subsidiary of CSX and each outstanding share of the Company Common
Stock, other than shares held in treasury or held by CSX or its subsidiaries,
will be converted into the right to receive 1.85619 shares of common stock, par
value $1.00 per share (the "CSX Common Stock") of CSX (the "Stock
Consideration" and together with the Offer Consideration, the "Consideration"),
provided that if less than the Designated Number of Shares are purchased
pursuant to the Offer, the Merger Consideration will be adjusted so that when
taken together with the Offer, 60% of the Fully Diluted Shares will each have
been converted into the right to receive the Stock Consideration and 40% of the
Fully Diluted Shares will have received or been converted into the right to
receive an amount of cash equal to the Offer
<PAGE> 2
2
Consideration. The terms and conditions of the Offer and the Merger are more
fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Consideration to be received
by the holders of Shares pursuant to the Offer and the Merger, taken together,
is fair from a financial point of view to such holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements
and other information of the Company and CSX,
respectively;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company and
CSX prepared by the managements of the Company and CSX,
respectively;
(iii) reviewed certain financial projections for CSX prepared
by the management of CSX;
(iv) reviewed certain financial projections, including
estimates of certain potential benefits of the proposed
business combination, prepared by the management of the
Company;
(v) discussed, on a limited basis, the past and current
operations and financial condition and the prospects of
the Company and CSX with senior executives of the Company
and CSX, respectively;
(vi) reviewed the reported prices and trading activity for the
Company Common Stock and the CSX Common Stock;
(vii) compared the financial performance of the Company and CSX
and the prices and trading activity of the Company Common
Stock and the CSX Common Stock with that of certain other
comparable publicly-traded companies and their
securities;
(viii) reviewed the financial terms, to the extent publicly
available, of certain comparable acquisition
transactions;
<PAGE> 3
3
(ix) participated in discussions among representatives of the
Company, CSX and their financial and legal advisors;
(x) reviewed the Merger Agreement and certain related
documents; and
(xi) performed such other analyses and considered such other
factors as we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, including estimates of
certain potential benefits of the proposed business combination, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the future financial performance
of the Company and CSX, respectively. We have not made any independent
valuation or appraisal of the assets or liabilities of the Company or CSX, nor
have we been furnished with any such appraisals. In arriving at our opinion,
we have assumed (i) that the Merger will qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended and
(ii) that obtaining all the necessary regulatory and governmental approvals for
the Merger will not have an adverse effect on the Company, CSX or on the
trading value of the CSX Common Stock. We have assumed that the Offer and the
Merger will be consummated substantially in accordance with the terms set forth
in the Merger Agreement, without any waiver of any material terms or conditions
by any party thereto. Our opinion is necessarily based on economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof. In arriving at our opinion, we were not authorized to
solicit, and did not solicit, interest from any party with respect to the
acquisition of the Company or any of its assets.
We have been engaged to provide this opinion to the Board of Directors of the
Company in connection with this transaction and will receive a fee for our
services. In the past, Morgan Stanley & Co. Incorporated and its affiliates
have provided financial advisory and financing services for the Company and CSX
and have received fees for the rendering of these services.
<PAGE> 4
4
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company with the Securities and Exchange Commission
with respect to the Offer and the Merger. In addition, we express no opinion
and make no recommendation as to whether the holders of the Company Common
Stock should tender such shares pursuant to the Offer or vote at the
stockholders' meeting held in connection with the Merger.
Based on the foregoing, we are of the opinion on the date hereof that the
Consideration to be received by the holders of Shares pursuant to the Offer and
the Merger, taken together, is fair from a financial point of view to such
holders (other than CSX, Acquisition Sub or any other subsidiary of CSX).
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Mahmoud A. Mamdani
-------------------------------
Mahmoud A. Mamdani
Managing Director
<PAGE> 1
EXHIBIT (C)(5)
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between Conrail Inc., a Pennsylvania corporation
("Conrail"), CSX Corporation, a Virginia corporation (the "Company"), and David
M. LeVan (the "Executive"), dated as of the 14th day of October, 1996.
The Board of Directors of Conrail (the "Conrail Board") and the Board of
Directors of the Company, has determined that it is in the best interests of
Conrail and its shareholders to assure that Conrail will have the continued
dedication of the Executive pending the merger of Conrail and the Company (the
"Merger") pursuant to the Agreement and Plan of Merger dated as of October 14,
1996 and to provide the surviving corporation after the Merger with continuity
of management. Therefore, in order to accomplish these objectives, the Company's
Board and the Conrail Board have caused the Company and Conrail, respectively to
enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. EFFECTIVE DATE. The "Effective Date" shall mean the date on which the
Effective Time of the Merger (as defined in the Merger Agreement) occurs.
2. EMPLOYMENT PERIOD. The Company hereby agrees to employ the Executive,
and the Executive hereby agrees to accept employment with and remain in the
employ of the Company subject to the terms and conditions of this Agreement, for
the period commencing on the Effective Date and ending on the fifth anniversary
of the Effective Date (the "Employment Period"). Notwithstanding the previous
sentence, commencing on the fifth anniversary of the Effective Date, and on each
anniversary date thereafter, this Agreement and the Executive's employment
hereunder will be automatically renewed and the term extended for successive
one-year periods upon the terms and conditions set forth herein unless either
party to this Agreement gives the other party written notice (in accordance with
Section 11(b)) of such party's intention to terminate this Agreement at least
three months prior to the end of such initial or extended term. For purposes of
this Agreement, any reference to the "Employment Period" will include the
original term and any extension thereof.
<PAGE> 2
The Employment Period shall, for the purposes of this agreement, be divided into
a period beginning on the Effective Date and ending on the second anniversary
thereof, or if earlier, upon the termination of employment of the Chairman and
Chief Executive Officer of the Company as of the date hereof or of his status as
Chief Executive Officer (the "First Employment Segment"); a period beginning
immediately after the First Employment Segment and ending on the fourth
anniversary of the Effective Date or if earlier, upon the termination of
employment of the Chairman and Chief Executive Officer of the Company as of the
date hereof or of his status as Chairman of the Board of the Company (the
"Second Employment Segment"); and a third period commencing immediately after
the Second Employment Segment or, if earlier upon the termination of the current
Chairman's status as Chairman of the Board of the Company (the "Third Employment
Segment").
3. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) (A) During the First
Employment Segment, the Executive shall serve as Chief Operating Officer and
President of the Company and as Chief Executive Officer and President of
railroad businesses of Conrail and the Company (the "Railroad Companies"), with
such authority, duties and responsibilities as are commensurate with such
position and as may be consistent with such position as may be assigned to him
by the Board of Directors of the Company (the "Board"); (B) during the Second
Employment Segment, the Executive shall in addition to the titles listed in (A)
above, serve as Chief Executive Officer of the Company, with such authority,
duties and responsibilities as are commensurate with such position and as may be
consistent with such position as may be assigned to him by the Board; (C) during
the Third Employment Segment, the Executive Officer shall serve additionally as
Chairman of the Board of the Company, with such authority, duties and
responsibilities as are commensurate with such position; (D) the Executive's
services shall be performed at Philadelphia, Pennsylvania or such other location
the Executive shall select; provided, however, the location of the Executive's
employment shall not be determinative of the location of the Railroad Companies.
Notwithstanding the foregoing, the Company will use its best efforts to cause
the Executive to be elected as a director of the Company and to remain as such
throughout the Employment Period and shall appoint the Executive as (i) Chief
Executive Officer of the Company and (ii) Chairman of the Board immediately upon
vacancy of such position by the individual
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previously serving as such, but in no event later than the applicable dates
specified above.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote substantially all of his attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation. (i) Base Salary. (A) During the First Employment Segment,
the Executive shall receive an annual base salary ("Annual Base Salary") which
shall be paid at a monthly rate at least equal to 90% of the monthly base salary
paid or payable, including any base salary which has been earned but deferred,
to the Chief Executive Officer of the Company but not less than $810,000 per
annum; (B) during the Second and Third Employment Segments, the Executive shall
receive an Annual Base Salary which shall be paid at a monthly rate at least
equal to twelve times the highest monthly base salary paid or payable, including
any base salary which has been earned but deferred, by the Company to the Chief
Executive Officer of the Company during the First Employment Segment in respect
of such period but not less than $900,000 per annum. During the Employment
Period, the Annual Base Salary shall be reviewed no more than 12 months after
the last salary increase awarded to the Executive prior to the Effective Date
and thereafter at least annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other
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obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased. As used in
this Agreement, the term "affiliated companies" shall include any company
controlled by, controlling or under common control with the Company.
(ii) Incentive Compensation. During the Employment Period, the
Executive shall participate in all annual and long-term incentive plans,
practices, policies and programs applicable to any other senior executives of
the Company and its affiliated companies, provided that the Executive shall have
an annual bonus opportunity of no less than 100% of his Annual Base Salary for
achieving targeted performance or if greater, during the First Employment
Segment, 90% of the annual bonus opportunity of the Chief Executive Officer of
the Company. During the Employment Period the Executive shall receive, as a
percentage of Annual Base Salary, annual bonus and long-term incentive
opportunities (including stock based awards) of no less than that provided to
any other senior executives of the Company and its affiliated companies, and
during the First Employment Segment, such opportunities shall be no less than
90% of that provided to the Chief Executive Officer of the Company.
(iii) Savings and Retirement Plans. During the Employment Period, the
Executive shall be entitled to participate in all savings and retirement plans,
practices, policies and programs on a basis no less favorable than that
applicable to any other senior executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) on a basis no less favorable than that applicable
to any other senior executives of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for
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all reasonable expenses incurred by the Executive in accordance with the
Company's policies.
(vi) Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation, payment of
club dues, and, if applicable, use of an automobile and payment of related
expenses, on a basis no less favorable than that applicable to any other senior
executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments as provided generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies.
(viii) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the plans, policies, programs and
practices of the Company and its affiliated companies on a basis no less
favorable than that applicable to any other senior executives of the Company and
its affiliated companies but in any event no less than four weeks vacation per
annum during the Employment Period.
(ix) Service Credit. Executive shall be provided full service credit
for his years of service at Conrail for purposes of eligibility, vesting and
benefit accrual under each employee benefit plan, program or arrangement of the
Company and its affiliates in which Executive participates during the Employment
Period (with an offset for benefit accrual purposes for any benefit accrued
under a defined benefit pension plan of Conrail prior to becoming a participant
in a Company defined benefit pension plan).
4. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Disability of the Executive has occurred during the
Employment Period (pursuant to the definition of Disability set forth below),
the Company may give to the Executive written notice in accordance with Section
11(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
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terminate effective on the 60th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 60 days
after such receipt, the Executive shall not have returned to substantially
full-time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by an independent physician selected by the Company or its
insurers and acceptable to the Executive or the Executive's legal
representative.
(b) Cause. The Company may terminate the Executive's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the continued failure of the Executive to perform substantially
the Executive's duties with the Company or one of its affiliates (other than any
such failure resulting from incapacity due to physical or mental illness), after
a written demand for substantial performance is delivered to the Executive by
the Board or the Chief Executive Officer of the Company which specifically
identifies the manner in which the Board or Chief Executive Officer believes
that the Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company, or
(iii) conviction of a felony (which through lapse of time or otherwise
is not subject to appeal) or guilty or nolo contendere plea by the Executive
with respect thereto, or
(iv) a material willful breach of the covenants contained in Section
9.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
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adopted by the Board or, during the First Employment Segment, upon the
instructions of the Chief Executive Officer of the Company or based upon the
advice of counsel for the Company shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the best interests of
the Company. The cessation of employment of the Executive shall not be deemed to
be for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i)
through (iv) above, and specifying the particulars thereof in detail and that in
the case of the conduct described in subparagraphs (i) and (iv) above, Executive
failed to cure such conduct within 30 days of his receipt of written notice from
the Company detailing such conduct.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for or without Good Reason. For purposes of this Agreement, "Good
Reason" shall mean in the absence of a written consent of the Executive:
(i) the failure of the Company to appoint the Executive as Chief
Executive Officer of the Company as provided in Section 3(a);
(ii) the failure of the Company to appoint the Executive as a director
on the Effective Date and as Chairman of the Board of the Company as provided in
Section 3(a);
(iii) the removal of the Executive during the Employment Period as a
director or from any of the positions described in Section 3(a) or the
assignment to the Executive of any duties inconsistent in any material respect
with the Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by Section
3(a) of this Agreement, or any other action by the Company which results in a
material diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent
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action not taken in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
(iv) any material failure by the Company to comply with any of the
provisions of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(v) the Company's requiring the Executive without his consent to be
based at any office or location more than 35 miles from that provided in Section
3(a)(i)(D) hereof or the Company's requiring the Executive to travel on Company
business to a substantially greater extent than required immediately prior to
the Effective Date;
(vi) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(vii) any failure by the Company to comply with and satisfy Section
10(c) of this Agreement.
For purposes of this Section 3(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause, or by
the Executive for Good Reason, shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 11(b) of this Agreement.
For purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than thirty days after the
giving of such notice). The failure by the Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively,
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hereunder or preclude the Executive or the Company, respectively, from asserting
such fact or circumstance in enforcing the Executive's or the Company's rights
hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the Executive's
employment is terminated by the Company for Cause, or by the Executive for Good
Reason, the date of receipt of the Notice of Termination or any later date
specified therein within 30 days of such notice, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
5. Obligations of the Company Upon Termination. (a) Good Reason; Other Than
For Cause, Death or Disability. If, during the Employment Period, the Company
shall terminate the Executive's employment other than for Cause or Disability or
the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date
of Termination to the extent not theretofore paid, (2) the product of (x)
the highest annual bonus paid to the Executive for any of the three years
prior to the Date of Termination (the "Recent Annual Bonus") and (y) a
fraction, the numerator of which is the number of days in the fiscal year
in which the Date of Termination occurs through the Date of Termination,
and the denominator of which is 365 and (3) any compensation previously
deferred (other than pursuant to a qualified plan) by the Executive
(together with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid (the sum of
the amounts described in clauses (1), (2), and (3) shall be hereinafter
referred to as the "Accrued Obligations"); and
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B. the greater of (1) the amount equal to the product of (i) the
number of months remaining in the Employment Period on the Date of
Termination (the "Continuation Period"), divided by twelve and (ii) the sum
of (x) the Executive's Annual Base Salary and (y) the Recent Annual Bonus,
and (2) the amount equal to the product of (i) three and (ii) the sum of
(x) the Executive's Annual Base Salary and (y) the Recent Annual Bonus;
provided, however, if the Date of Termination occurs during the First
Employment Segment, then for purposes of the preceding clauses of this
paragraph in determining the weighted average of the Executive's Annual
Base Salary and Recent Annual Bonus, (i) the Executive's "Annual Base
Salary" payable in respect of the 36 months representing the Second
Employment Segment and the Third Employment Segment shall be the higher of
his Annual Base Salary or the annual base salary of the current Chief
Executive Officer of the Company and (ii) the Executive's "Recent Annual
Bonus" payable in respect of the 36 months representing the Second
Employment Segment and the Third Employment Segment shall be the higher of
his Recent Annual Bonus and the most recent annual bonus paid or awarded to
the Chief Executive Officer of the Company; and
C. an amount equal to the excess of (a) the actuarial equivalent of
the benefit under the Company's qualified defined benefit retirement plan
(the "Retirement Plan") (utilizing actuarial assumptions no less favorable
to the Executive than those in effect under the Company's Retirement Plan
immediately prior to the Effective Date), and any excess or supplemental
retirement plan in which the Executive participates (together, the "SERP")
which the Executive would receive if the Executive's employment continued
for three years after the Date of Termination or, if longer, for the
Continuation Period, assuming for this purpose that all accrued benefits
are fully vested, and, assuming that the Executive's compensation in each
such year is that required by Section 3(b)(i) and assuming an annual bonus
equal to the Recent Annual Bonus, over (b) the actuarial equivalent of the
Executive's actual benefit (paid or payable), if any, under the Retirement
Plan and the SERP as of the Date of Termination;
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(ii) for three years after the Executive's Date of Termination or, if
longer, for the Continuation Period, or such longer period as may be provided by
the terms of the appropriate plan, program, practice or policy, the Company
shall continue benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 3(b)(iv) of this
Agreement if the Executive's employment had not been terminated or, if more
favorable to the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies and
their families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive for
retiree benefits pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until three years after
the Date of Termination, or if longer, for the Continuation Period, and to have
retired on the last day of such period; and
(iii) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to receive
under any plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies, including any amount which (i) is earned
by, but has not been paid to, the Executive and (ii) would have been paid or
vested in the calendar year in which the Executive's termination of employment
occurs (such other amounts and benefits shall be hereinafter referred to as the
"Other Benefits").
(iv) all stock-based awards shall become immediately vested and, in
the case of stock options or other exercisable awards, shall remain exercisable
for at least 90 days following the Date of Termination or such longer period as
may be provided in any applicable plan or award agreement.
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(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 5(b) shall include
death benefits as in effect on the date of the Executive's death with respect to
other peer executives of the Company and its affiliated companies and their
beneficiaries. In addition, all stock based awards that would have vested by the
end of the fiscal year in which such termination occurs shall become immediately
vested and, in the case of stock options and other exercisable awards, shall
remain exercisable for at least 90 days following the date of such termination
or such longer period as may be provided in any applicable plan or award
agreement.
(c) Disability. If the Executive's employment is terminated by reason of
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 5(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits as in effect at any time thereafter
generally with respect to other peer executives of the Company and its
affiliated companies and their families. In addition, all stock based awards
that would have vested by the end of the fiscal year in which such termination
occurs shall become immediately vested and, in the case of stock options and
other exercisable awards, shall remain exercisable for at least 90 days
following the date of such termination or such longer period as may be provided
in any applicable plan or award agreement.
(d) Cause; Other Than For Good Reason. If the Executive's employment shall
be terminated for Cause or the Executive terminates his employment without Good
Reason during
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the Employment Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the Executive
(x) his Annual Base Salary through the Date of Termination, (y) the amount of
any compensation previously deferred by the Executive (other than pursuant to a
qualified plan), and (z) Other Benefits, in each case to the extent theretofore
unpaid.
6. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 11(f), shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
7. Full Settlement. The Company's obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement and, except as provided
in Section 5(a)(ii), such amounts shall not be reduced whether or not the
Executive obtains other employment. The Company agrees to pay as incurred, to
the full extent permitted by law, all legal fees and expenses which the
Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at
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the applicable Federal rate provided for in Section 7872(f)(2)(A) of the
Internal Revenue Code of 1986, as amended (the "Code").
8. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this
Agreement to the contrary notwithstanding and except as set forth below, in the
event it shall be determined that any payment or distribution by Conrail, in
connection with the Merger, or by the Company to or for the benefit of the
Executive (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 8) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income and employment taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
(b) Subject to the provisions of Section 8(c), all determinations required
to be made under this Section 8, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by Ernst and Young LLP
or such other certified public accounting firm reasonably acceptable to the
Company as may be designated by the Executive (the "Accounting Firm") which
shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. All fees and expenses of the Accounting Firm shall be borne solely by
the Company. Any Gross-Up Payment, as determined pursuant to this Section 8,
shall be paid by the Company to the Executive within five days of (i) the later
of the due date for the payment of any Excise Tax, and (ii) the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Company
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and the Executive. As a result of the uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 8(c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
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provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 8(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 8(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 8(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 8(c), a determination is made that
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the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
9. Confidential Information. (a) The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process or in order to enforce his
rights under this Agreement or as necessary to defend himself against a claim
asserted directly or indirectly by the Company or its affiliates, communicate or
divulge any such information, knowledge or data that is not otherwise publicly
available to anyone other than the Company and those designated by it. In no
event shall an asserted violation of the provisions of this Section 9 constitute
a basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
(b) In the event of a breach or threatened breach of this Section 9, the
Executive agrees that the Company shall be entitled to injunctive relief in a
court of appropriate jurisdiction to remedy any such breach or threatened
breach, the Executive acknowledges that damages would be inadequate and
insufficient.
(c) Any termination of the Executive's employment or of this Agreement
shall have no effect on the continuing operation of this Section 9.
10. SUCCESSORS. (a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will
17
<PAGE> 18
or the laws of descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
11. Miscellaneous. (a) This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
--------------------
David M. LeVan
117 Queen Street
Philadelphia, PA 19147
If to Green:
------------
2001 Market Street
Philadelphia, PA 19103
18
<PAGE> 19
Attention: General Counsel
If to the Company:
------------------
One James Center
901 East Cary Street
Richmond, VA 23219
Attention: Executive Vice President -
Law & Public Affairs
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 4(c)(i)-(ix) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and Conrail acknowledge that effective on the Effective
Date the agreement between the Executive and Conrail dated as of August 1, 1995
will be superseded by this Agreement, and that the terms and conditions of this
Agreement shall be controlling during the Employment Period. The Change of
Control Agreement between the Executive and the Company dated as of October 14,
1996 (the "Severance Agreement") shall become effective in the event of any
Change of Control (as defined in
19
<PAGE> 20
the Severance Agreement) subsequent to the consummation of the Merger.
(g) The Company shall indemnify and hold the Executive and his legal
representatives harmless to the fullest extent permitted by applicable law, from
and against all judgements, fines, penalties, excise taxes, amounts paid in
settlement, losses, expenses, costs, liabilities and legal fees if the Executive
is made, or threatened to be made a party to any threatened or pending or
completed action, suit, proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Company or its
affiliates to procure a judgement in its favor, by reason of the fact that the
Executive is or was serving as a director or officer of the Company or its
affiliates or in any capacity at the request of the Company or its affiliates
for any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise. The right to indemnification provide in this paragraph
(g) shall not be deemed exclusive of any other rights to which Executive may
have or hereafter be entitled under any law or the charter or by-laws of the
Company or its affiliates or otherwise, both as to action in Executive's
official capacity and as to action in another capacity while holding such
office, and shall continue after Executive has ceased to be a director or
officer and shall inure to the benefit of Executive's heirs, executors and
administrators. Any reimbursement obligation arising hereunder shall be
satisfied on an as incurred basis. In addition, the Company agrees to continue
to maintain customary and appropriate directors and liability insurance during
the Employment Period and the Executive shall be entitled to the protection of
any such insurance policies on no less favorable a basis than is provided to any
other officer or director of the Company or its affiliates.
(h) To the extent the provisions of this Agreement operate to amend the
terms of or awards outstanding under certain benefit or incentive award plans,
and the terms of such plans or awards require approval of such amendment by the
Company or its affiliated companies, or an authorized representative thereof,
and/or the Executives consent thereto (including the Executive's consent to
amend the terms of outstanding awards, if any), (i) the offering of this
Agreement pursuant to the direction of the Board shall constitute the express
authorization of the Company
20
<PAGE> 21
and its affiliated companies and their approval of the amendment of such plan or
award in the manner set forth herein, and (ii) the Executive's consent to the
terms hereof shall signify his consent to the amendment of such plan or award,
as required, as of the date hereof.
21
<PAGE> 22
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
/s/ David M. LeVan
-----------------------------------
David M. LeVan
CONRAIL INC.
By /s/ Timothy T. O'Toole
---------------------------------
CSX CORPORATION
By /s/ John W. Snow
---------------------------------
22
<PAGE> 1
EXHIBIT (C)(6)
CHANGE OF CONTROL AGREEMENT
---------------------------
AGREEMENT by and between CSX Corporation, a Virginia corporation (the
"Company"), and David M. LeVan (the "Executive"), dated as of the 14th day of
October, 1996.
The Board of Directors of the Company (the "Board"), has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS.
a. The "EFFECTIVE DATE" shall mean the first date during the Term (as
defined in Section 1(b)) on which a Change of Control (as defined in
Section 2) occurs. Anything in this Agreement to the contrary
notwithstanding, if the Executive's employment with the Company is
terminated by the Company without Cause prior to the date on which the
Change of Control occurs or the Executive ceases to be an officer of the
Company, and if it is reasonably demonstrated by the Executive that such
termination of employment or cessation of status as an officer (i) was at
the request of a third party who has taken steps reasonably calculated to
effect a Change of Control or (ii) otherwise arose in connection with or
anticipation of a Change of Control, then, in each such case, for all
purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment or
cessation of status as an officer.
b. The "TERM" shall mean the period commencing on the date of the
consummation of the merger (the "Merger Date") between the Company and
Conrail Inc., a Pennsylvania corporation, pursuant to the Agreement and
Plan of Merger dated as of October 14, 1996, and ending on the earlier to
occur of (i) the third anniversary of such date or (ii) the first day of
the month next following the Employee's normal retirement date ("Normal
Retirement Date") under the principal pension plan in which the Executive
participates (the "Retirement Plan"); PROVIDED, HOWEVER, that commencing on
the date one year after the Merger Date, and on each annual
<PAGE> 2
anniversary of such date (such date and each annual anniversary thereof
shall be hereinafter referred to as the "Renewal Date", unless previously
terminated, the Term shall be automatically extended so as to terminate
three years from such Renewal Date, unless at least 60 days prior to the
Renewal Date the Company shall give notice to the Executive that the Term
shall not be so extended.
2. CHANGE OF CONTROL. For the purpose of this Agreement, a "CHANGE OF
CONTROL" shall mean:
a. STOCK ACQUISITION. The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either (i) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock") or
(ii) the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); PROVIDED, HOWEVER, that for
purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (iv) any
acquisition by any corporation pursuant to a transaction which complies
with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
b. BOARD COMPOSITION. Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs a result of an actual
or threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board; or
c. BUSINESS COMBINATION. Approval by the shareholders of the Company
of a reorganization, merger, or consolidation or sale or other disposition
of all or substantially all of the assets of the Company or its principal
subsidiary (a "Business Combination") that is not subject, as a matter of
law or contract, to approval by the Interstate Commerce Commission or any
successor agency or regulatory body having jurisdiction over such
transactions (the "Agency"), in each case, UNLESS, following such Business
Combination:
(i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company
<PAGE> 3
Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns
the Company or its principal subsidiary or all or substantially all of
the assets of the Company or its principal subsidiary either directly
or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be;
(ii) no Person (excluding any corporation resulting from such
Business Combination or any employee benefit plan (or related trust)
of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more
of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination; and
(iii) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination
were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for
such Business Combination; or
d. REGULATED BUSINESS COMBINATION. Approval by the shareholders of the
Company of a Business Combination that is subject, as a matter of law or
contract, to approval by the Agency (a "Regulated Business Combination")
unless such Business Combination complies with clauses (i), (ii) and (iii)
of subsection (c) of this Section 2; or
e. LIQUIDATION OR DISSOLUTION. Approval by the shareholders of the
Company of a complete liquidation or dissolution of the Company or its
principal subsidiary.
If any Change of Control is a Regulated Business Combination, but its
implementation involves another "Change of Control" that is not a Regulated
Business Combination within the meaning of this Section 2, then for all purposes
of this Agreement, such Change of Control shall not be deemed to be a Regulated
Business Combination, the provisions governing a Regulated Business Combination
shall not apply, and the provisions governing such other Change in Control shall
apply.
3. EMPLOYMENT PERIOD.
<PAGE> 4
a. GENERALLY. Subject to Section 3(b) and Section 5, the Company
hereby agrees to continue the Executive in its employ, and the Executive
hereby agrees to remain in the employ of the Company subject to the terms
and conditions of this Agreement, for the period commencing on the
Effective Date and ending on the third anniversary of such date (the
"Employment Period").
b. REGULATED BUSINESS COMBINATION. Notwithstanding the foregoing, in
the case of a Change of Control that is a Regulated Business Combination,
then for all purposes of this Agreement, the "Employment Period" shall mean
the longer of (i) the period commencing on the Effective Date and ending on
the third anniversary of such date or (ii) the period commencing on the
Effective Date and ending thirteen months from the effective date of a
final decision by the Agency on the proposed Regulated Business Combination
("Final Regulatory Action"), PROVIDED, HOWEVER, that (x) if the Final
Regulatory Action is a denial of the Regulated Business Combination then
for all purposes of this Agreement the "Employment Period" shall end upon
the sixtieth (60th) day following such Final Regulatory Action and (y) if
the Final Regulatory Action is an approval of the Regulated Business
Combination, but the Regulated Business Combination is not consummated by
the first anniversary of the Final Regulatory Action, then for all purposes
of this Agreement the "Employment Period" shall end upon such first
anniversary of the Final Regulatory Action.
4. TERMS OF EMPLOYMENT.
a. POSITION AND DUTIES. (i) During the Employment Period: (A) the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with those set forth in any
applicable employment agreement then in effect between the Executive and
the Company (an "Existing Agreement"), or if there shall be no Existing
Agreement, with the most significant of those held, exercised and assigned
at any time during the 120-day period immediately preceding the Effective
Date, and (B) the Executive's services shall be performed at the location
where the Executive was employed immediately preceding the Effective Date
or any office or location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal
business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for
the Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational
<PAGE> 5
institutions and (C) manage personal investments, so long as such
activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood and agreed
that to the extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of such
activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date shall not thereafter be
deemed to interfere with the performance of the Executive's
responsibilities to the Company.
b. COMPENSATION. (i) BASE SALARY. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to the GREATER OF, the
Annual Base Salary provided for in any Existing Agreement and twelve times
the highest monthly base salary paid or payable, including any base salary
which has been earned but deferred, to the Executive by the Company and its
affiliated companies in respect of the twelve-month period immediately
preceding the month in which the Effective Date occurs. During the
Employment Period, the Annual Base Salary shall be reviewed no more than 12
months after the last salary increase awarded to the Executive prior to the
Effective Date and thereafter at least annually. Any increase in Annual
Base Salary shall not serve to limit or reduce any other obligation to the
Executive under this Agreement. Annual Base Salary shall not be reduced
after any such increase, and the term Annual Base Salary as utilized in
this Agreement shall refer to Annual Base Salary as so increased. As used
in this Agreement, the term "affiliated companies" shall include any
company controlled by, controlling or under common control with the
Company.
(ii) ANNUAL BONUS. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the "Annual Bonus") in cash at
least equal to the GREATER OF, the bonus provided for in any Existing
Agreement and the Executive's highest cash bonus under the Company's
annual incentive plans, or any comparable bonus under any predecessor
or successor plan, for the last three full fiscal years prior to the
Effective Date (annualized in the event that the Executive was not
employed by the Company for the whole of such fiscal year) (the
"Recent Annual Bonus"). Each such Annual Bonus shall be paid no later
than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the
Employment Period, the Executive
<PAGE> 6
shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs, applicable to
other senior executives of the Company and its affiliated companies on
a basis no less favorable than provided for in any Existing Agreement,
but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with
respect to both regular and special incentive opportunities, to the
extent, if any, that such distinction is applicable), savings
opportunities and retirement benefit opportunities, in each case, less
favorable, in the aggregate, than the most favorable of those provided
by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time
during the 120-day period immediately preceding the Effective Date or
if more favorable to the Executive, those provided generally at any
time after the Effective Date to other peer executives of the Company
and its affiliated companies.
(iv) WELFARE BENEFIT PLANS. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by
the Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, employee life,
group life, accidental death and travel accident insurance plans and
programs) to the extent applicable to other senior executives of the
Company and its affiliated companies on a basis no less favorable than
provided for in any Existing Agreement, but in no event shall such
plans, practices, policies and programs provide the Executive with
benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect
for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive,
those provided generally at any time after the Effective Date to other
peer executives of the Company and its affiliated companies.
(v) EXPENSES. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive on a basis no less favorable than
provided for in any Existing Agreement and in accordance with the most
favorable policies, practices and procedures of the Company and its
affiliated companies in effect for the Executive at any time during
the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and
its affiliated Companies.
(vi) FRINGE BENEFITS. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation,
tax and fi-
<PAGE> 7
nancial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, on a basis no
less favorable than provided for in any Existing Agreement and in
accordance with the most favorable plans, practices, programs and
policies of the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(vii) OFFICE AND SUPPORT STAFF. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal
secretarial and other assistance, on a basis no less favorable than
provided for in any Existing Agreement and at least equal to the most
favorable of the foregoing provided to the Executive by the Company
and its affiliated companies at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as provided generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies.
(viii) VACATION. During the Employment Period, the Executive
shall be entitled to paid vacation on a basis no less favorable than
provided for in any Existing Agreement and in accordance with the most
favorable plans, policies, programs and practices of the Company and
its affiliated companies as in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies.
5. TERMINATION OF EMPLOYMENT.
a. DEATH OR DISABILITY. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If
the Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to
the Executive written notice in accordance with Section 12(b) of this
Agreement of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate
effective on the 60th day after receipt of such notice by the Executive
(the "Disability Effective Date"), provided that, within the 60 days after
such receipt, the Executive shall not have returned to substantially
full-time performance of the Executive's duties. For purposes of this
Agreement, "Disability" shall mean the absence of the Executive from the
Executive's duties with the Company on
<PAGE> 8
a full-time basis for 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined to be
total and permanent by an independent physician selected by the Company or
its insurers and acceptable to the Executive or the Executive's legal
representative.
b. CAUSE. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or
one of its affiliates (other than any such failure resulting from
incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the Executive
by the Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Executive has not
substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this provision, no act or failure to act, on the
part of the Executive, shall be considered "willful" unless it is
done, or omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executive's action or omission
was in the best interests of the Company. Any act, or failure to
act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to
be done, by the Executive in good faith and in the best interests
of the Company. The cessation of employment of the Executive
shall not be deemed to be for Cause unless and until there shall
have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is
provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the
Executive is guilty of the conduct described in subparagraph (i)
or (ii) above, and specifying the particulars thereof in detail
and that in the case of the conduct specified in subparagraph
(i), Executive shall have failed to cure such conduct within 30
days of his receipt of written notice from the Company detailing
such conduct.
c. GOOD REASON. The Executive's employment may
<PAGE> 9
be terminated by the Executive during the Employment Period for Good
Reason. For purposes of this Section 5(c), any good faith
determination of "Good Reason" made by the Executive shall be
conclusive. For purposes of this Agreement, "Good Reason" shall mean
any event constituting "Good Reason" under any Existing Agreement and:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position
(including status, offices, titles and reporting
requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any other
action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding
for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by
the Executive;
(ii) any failure by the Company to comply with any of the
provisions of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith
and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at
any office or location other than as provided in Section
4(a)(i)(B) hereof or the Company's requiring the Executive to
travel on Company business to a substantially greater extent than
required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by
this Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
Anything in this Agreement to the contrary notwithstanding, a
termination by the Executive for any reason shall be deemed to be a
termination for Good Reason for all purposes of this Agreement if such
termination occurs (i) in the case of a Change of Control that is not
a Regulated Business Combination, during the 30-day period immediately
following the first anniversary of the Effective Date, (ii) in the
case of a Change of Control that is a Regulated Business Combination
consummated pursuant to Final Regulatory Action, during the 30-day
period immediately following the first anniversary of the Final
Regulatory Action (it being understood that the Executive will have no
rights under this paragraph in the case of a Change of Control that is
a Regulated Business Combination (x) denied by the Agency or (y) for
any other reason not consummated within one year of Final Regulatory
Action).
<PAGE> 10
d. REGULATED BUSINESS COMBINATION. Notwithstanding the foregoing,
in the case of a Change of Control that is a Regulated Business
Combination, then for all purposes of this Agreement, during that
portion of the Employment Period prior to Final Regulatory Action, the
Executive may not exercise his rights to terminate his employment
under this Agreement for "Good Reason." The Executive may only
terminate his employment under this Agreement if he is "Constructively
Terminated" by the Company. Moreover, except to the extent expressly
set forth in the definition of "Constructive Termination," the
Executive shall have no remedy for any breach by the Company of the
provisions of Section 4; PROVIDED, HOWEVER, that any failure of the
Company to comply in any material respect with the provisions of
Section 4 shall create a rebuttable presumption that a Constructive
Termination has occurred.
For purposes of this Agreement, a "Constructive Termination shall
mean:
(i) substantial diminution of the Executive's duties or
responsibilities as contemplated by Section 4(a) of this
Agreement, excluding for this purpose an isolated, insubstantial
and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(ii) either (x) a reduction in the Executive's cash
compensation (which shall mean his Annual Base Salary or Annual
Bonus) or (y) a discriminatory reduction in the Executive's other
incentive opportunities, benefits or perquisites described in
Section 4(b);
(iii) the Company's requiring the Executive to be based at
any office or location other than as provided in Section
4(a)(i)(B) hereof; or
(iv) any purported termination by the Company of the
Executive's employment otherwise than for Cause.
During that portion of the Employment Period after Final
Regulatory Action, the Executive may terminate his
Employment under this Agreement for "Good Reason."
e. NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive for Good Reason or Constructive
Termination, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination"
means a written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, and (iii) if
the Date of Termination (as defined below) is other than the date of
receipt of such notice,
<PAGE> 11
specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason, Cause or Constructive
Termination shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
f. DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason or Constructive Termination, the date of receipt
of the Notice of Termination or any later date specified therein, as the
case may be, (ii) if the Executive's employment is terminated by the
Company other than for Cause or Disability, the Date of Termination shall
be the date on which the Company notifies the Executive of such termination
and (iii) if the Executive's employment is terminated by reason of death or
Disability, the Date of Termination shall be the date of death of the
Executive or the Disability Effective Date, as the case may be.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
a. GOOD REASON OR CONSTRUCTIVE TERMINATION; OTHER THAN FOR CAUSE,
DEATH OR DISABILITY. If, during the Employment Period, the Company shall
terminate the Executive's employment other than for Cause or Disability or
the Executive shall terminate employment for Good Reason or Constructive
Termination:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the higher of (I)
the highest annual bonus paid to the Executive for any of
the three years prior to the Date of Termination (the
"Recent Annual Bonus") and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has
been earned but deferred (and annualized for any fiscal year
consisting of less than twelve full months or during which
the Executive was employed for less than twelve full
months), for the most recently completed fiscal year during
the Employment Period, if any (such higher amount being
referred to as the "Highest Annual Bonus") and (y) a
<PAGE> 12
fraction, the numerator of which is the number of days in
the current fiscal year through the Date of Termination, and
the denominator of which is 365 and (3) any compensation
previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore
paid (the sum of the amounts described in clauses (1), (2),
and (3) shall be hereinafter referred to as the "Accrued
Obligations"); and
B. the amount equal to the product of (1) three and (2) the
sum of (x) the Executive's Annual Base Salary and (y) the Highest
Annual Bonus; and
C. an amount equal to the excess of (a) the actuarial
equivalent of the benefit under the Company's qualified defined
benefit retirement plan (the "Retirement Plan") (utilizing
actuarial assumptions no less favorable to the Executive than
those in effect under the Company's Retirement Plan immediately
prior to the Effective Date), and any excess or supplemental
retirement plan in which the Executive participates (together,
the "SERP") which the Executive would receive if the Executive's
employment continued for three years after the Date of
Termination assuming for this purpose that all accrued benefits
are fully vested, and, assuming that the Executive's compensation
in each of the three years is that required by Section 4(b)(i)
and Section 4(b)(ii), over (b) the actuarial equivalent of the
Executive's actual benefit (paid or payable), if any, under the
Retirement Plan and the SERP as of the Date of Termination;
(ii) for three years after the Executive's Date of
Termination, or such longer period as may be provided by the
terms of the appropriate plan, program, practice or policy,
the Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which would
have been provided to them in accordance with the plans,
programs, practices and policies described in Section
4(b)(iv) of this Agreement if the Executive's employment had
not been terminated or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated
companies and their families, PROVIDED, HOWEVER, that if the
Executive becomes reemployed with another employer and is
eligible to receive medical or other welfare benefits under
another employer
<PAGE> 13
provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under
such other plan during such applicable period of
eligibility. For purposes of determining eligibility (but
not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices,
programs and policies, the Executive shall be considered to
have remained employed until three years after the Date of
Termination and to have retired on the last day of such
period;
(iii) the Company shall, at its sole expense as incurred,
provide the Executive with outplacement services the scope and
provider of which shall be selected by the Executive in his sole
discretion; and
(iv) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other
amounts or benefits required to be paid or provided or which the
Executive is eligible to receive under any plan, program, policy
or practice or contract or agreement of the Company and its
affiliated companies, including earned but unpaid stock and
similar compensation (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
b. DEATH. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall
terminate without further Obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of other Benefits, the term
Other Benefits as utilized in this Section 6(b) shall include, without
limitation, and the Executive's estate and/or beneficiaries shall be
entitled to receive, benefits at least equal to the most favorable benefits
provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated
companies under such plans, programs, practices and policies relating to
death benefits, if any, as in effect with respect to other peer executives
and their beneficiaries at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive's
estate and/or the Executive's beneficiaries, as in effect on the date of
the Executive's death with respect to other peer executives of the Company
and its affiliated companies and their beneficiaries.
c. DISABILITY. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement
shall terminate
<PAGE> 14
without further obligations to the Executive, other than for payment of
Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to
the most favorable of those generally provided by the Company and its
affiliated companies to disabled executives and/or their families in
accordance with such plans, programs, practices and policies relating to
disability, if any, as in effect generally with respect to other peer
executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as in effect at any time
thereafter generally with respect to other peer executives of the Company
and its affiliated companies and their families.
d. CAUSE; OTHER THAN FOR GOOD REASON OR CONSTRUCTIVE TERMINATION. If
the Executive's employment shall be terminated for Cause during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the Date of Termination, (y)
the amount of any compensation previously deferred by the Executive, and
(z) other Benefits, in each case to the extent theretofore unpaid. If the
Executive voluntarily terminates employment during the Employment Period,
excluding a termination for Good Reason or Constructive Termination, this
Agreement shall terminate without further obligations to the Executive,
other than for Accrued Obligations and the timely payment or provision of
Other Benefits. In such case, all Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination.
7. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 12(f), shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
8. FULL SETTLEMENT. The Company's obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the
Executive under any of the
<PAGE> 15
provisions of this Agreement and such amounts shall not be reduced whether or
not the Executive obtains other employment. The Company agrees to pay as
incurred, to the full extent permitted by law, all legal fees and expenses which
the Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code").
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
a. Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the
Executive (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise, but determined without regard
to any additional payments required under this Section 9) (a "Payment")
would be subject to the excise tax imposed by Section 4999 of the Code or
any interest or penalties are incurred by the Executive with respect to
such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive
of all taxes (including any interest or penalties imposed with respect to
such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding
the foregoing provisions of this Section 9(a), if it shall be determined
that the Executive is entitled to a Gross-Up Payment, but that the
Executive, after taking into account the Payments and the Gross-Up Payment,
would not receive a net after-tax benefit of at least $50,000 (taking into
account both income taxes and any Excise Tax) as compared to the net
after-tax proceeds to the Executive resulting from an Elimination of the
Gross-Up Payment and a reduction of the Payments, in the aggregate, to an
amount (the "Reduced Amount") such that the receipt of Payments would not
give rise to any Excise Tax, then no Gross-Up Payment shall be made to the
Executive and the Payments, in the aggregate, shall be reduced to the
Reduced Amount.
b. Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be
made by Ernst & Young or such other certified public accounting firm as may
be designated by the
<PAGE> 16
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days
of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change of Control, the Executive shall
appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 9, shall be paid by the Company to
the Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have
been made ("Underpayment"), consistent with the calculations required to be
made hereunder. In the event that the Company exhausts its remedies
pursuant to Section 9(c) and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
c. The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that it desires
to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
<PAGE> 17
PROVIDED, HOWEVER, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions Of this Section 9(c), the Company
shall control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; PROVIDED, HOWEVER, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for
the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder
and the Executive shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
d. If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by the Company pursuant to Section
9(c), a determination is made that the Executive shall not be entitled to
any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior
to the expiration of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of
such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
10. CONFIDENTIAL INFORMATION. The Executive shall
<PAGE> 18
hold in a fiduciary capacity for the benefit of the Company all secret, or
confidential information, knowledge or data relating to the Company or any of
its affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the Executive's
employment with the Company, the Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it, except (x) otherwise publicly
available information, or (y) as may be necessary to enforce his rights under
this Agreement or necessary to defend himself against a claim asserted directly
or indirectly by the Company or its affiliates. In no event shall an asserted
violation of the provisions of this Section 10 constitute a basis for deferring
or withholding any amounts otherwise payable to the Executive under this
Agreement.
11. SUCCESSORS.
a. This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
b. This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
c. The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company to assume expressly and
agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had
taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation
of law, or otherwise.
12. MISCELLANEOUS.
a. This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Virginia, without reference to
principles of conflict of laws. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect. This Agreement
may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
b. All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
<PAGE> 19
If to the Executive:
--------------------
David M. LeVan
117 Queen Street
Philadelphia, PA 19147
If to the Company:
------------------
One James Center
901 East Cary Street
Richmond, VA 23219
Attention: Executive Vice President -
Law and Public Affairs
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
c. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
d. The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
e. The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including,
without limitation, the right of the Executive to terminate employment for
Good Reason or Constructive Termination pursuant to Section 5 of this
Agreement, shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement.
f. The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the
Executive and the Company specifically including without limitation any
Existing Agreement, the employment of the Executive by the Company is "at
will" and, subject to Section 1(a) hereof and the terms of any Existing
Agreement or other written agreement, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either
the Executive or the Company at any time prior to the Effective Date, in
which case the Executive shall have no further rights under this Agreement.
In the event any compensation or benefits become due to the Executive
hereunder as a result of the Executive's termination of employment, the amount
of compensation and/or benefits to be paid or provided to the Executive
hereunder shall be reduced to the extent, and only to the extent (e.g., dollar
for dollar and benefit for benefit), the Executive is paid compensation or
provided such benefits under any Existing Agreement or other agreement with the
Company as a result of such termination of employment. Subject to the previous
sentence, it
<PAGE> 20
is expressly agreed that the execution and performance of the parties'
respective obligations under this Agreement shall be without prejudice to any of
the Executive's rights or entitlement to compensation or benefits under any
Existing Agreements or other agreement with the Company or its affiliates.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ David M. LeVan
-------------------------------
David M. LeVan
CSX CORPORATION
By /s/ John W. Snow
-----------------------------
<PAGE> 1
EXHIBIT (c)(7)
OWNERSHIP BY MANAGEMENT OF EQUITY SECURITIES. The following
table sets forth the beneficial ownership, as of March 1, 1996, of
Conrail Common Stock and Conrail Preferred Stock of each director
and nominee, each of the executive officers named in the Summary
Compensation Table and all directors and executive officers as a
group. Unless otherwise indicated, each such person has sole voting
and investment power with respect to such shares of Conrail Common
Stock and sole voting power with respect to such shares of Conrail
Preferred Stock. The ESOP Trustee holds sole investment power with
respect to all shares of Conrail Preferred Stock. As of March 1,
1996, all Conrail directors and officers as a group owned less than
one percent (1%) of the aggregate outstanding Conrail Common Stock
and Conrail Preferred Stock.
Amount and Nature
Name and Title of Beneficial
Title of Class of Beneficial Owner Ownership
- --------------------- ------------------------ ------------------
Conrail Common Stock James A. Hagen 63,753(1)
Chairman of the Board of
Directors
H. Furlong Baldwin 2,000
Director
Claude S. Brinegar 1,000
Director and Nominee
Daniel B. Burke 2,000
Director and Nominee
Kathleen Foley Feldstein 700
Director
Roger S. Hillas 2,362
Director and Nominee
E. Bradley Jones 1,000
Director and Nominee
David B. Lewis 1,200
Director
John C. Marous 800
Director
Raymond T. Schuler 7,788
Director
David H. Swanson 441
Director
4
<PAGE> 2
Amount and Nature
Name and Title of Beneficial
Title of Class of Beneficial Owner Ownership
- --------------------- ------------------------ ------------------
David M. LeVan 86,107(1)
Director, President and
Chief Executive Officer
H. William Brown 87,137(1)
Senior Vice President -
Finance and Administration
Bruce B. Wilson 55,118(1)
Senior Vice President - Law
Ronald J. Conway 16,689(1)
Senior Vice President-
Operations
George P. Turner 26,101(1)
Senior Vice President-
Automotive Service Group
All Directors and Executive 658,828(2)
Officers as a group(3)
- ---------
(1) For Messrs. Hagen, LeVan, Brown, Wilson, Conway, and
Turner, respectively, includes options exercisable within 60 days to
acquire 0, 33,691, 55,639, 42,905, 9,250 and 16,107 shares of
Conrail Common Stock and 2,004, 2,080, 2,061, 2,052, 2,002 and 1,737
shares of Conrail Preferred Stock allocated to the accounts of the
named officers pursuant to the ESOP. Shares of Conrail Preferred
Stock are convertible into shares of Conrail Common Stock at any
time on a share-for-share basis, subject to certain antidilution
adjustments. As a result, ownership of shares of Conrail Preferred
Stock is deemed to be ownership of an equal number of shares of
Conrail Common Stock.
(2) Includes options exercisable within 60 days to acquire
341,897 shares of Conrail Common Stock and 45,621 shares of Conrail
Preferred Stock allocated to the accounts of individual officers
pursuant to the ESOP. This number also includes shares held by all
officers of Consolidated Rail Corporation.
(3) Section 16(a) of the Exchange Act and the rules and
regulations promulgated thereunder require that certain officers,
directors and 10% beneficial owners of Conrail Common Stock file
with the Securities and Exchange Commission, within specified time
periods, reports concerning transactions in Conrail securities.
Based on its review of the filed forms or written representations
that, in certain instances, no filing is required, Conrail believes
that all Section 16(a) filing requirements during 1995 were complied
with, except that one timely report by each of L. M. Passa and G. P.
Turner failed to include certain shares acquired through dividend
reinvestment, and one report reflecting the sale of shares by each
of G. H. Kuhn and G. M. Williams after their respective status as
Conrail officers ceased was not timely filed.
5
<PAGE> 3
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS' COMPENSATION. Directors who are not officers of
Conrail receive an annual fee of $25,000 and a fee of $1,000 for
each Board and Board committee meeting they attend. Each such
director who is a chairman of a Board Committee receives an
additional annual fee of $2,000, except the chairman of the Audit
Committee who receives an additional annual fee of $2,500. Directors
who are officers of Conrail are not paid any fees for service on the
Board or on any Board Committees.
Conrail maintains a Retirement Plan for Non-Employee Directors
that provides each director who is not an employee or former
employee of Conrail with a retirement benefit equal to the product
of (1) one-twelfth of his or her annual retainer fee from Conrail in
effect at the time the director ceases to serve as a member of the
Board and (2) the number of full months, up to 120, he or she served
on the Board, including service on the Board of Consolidated Rail
Corporation prior to July 1, 1993.
Benefits are payable in cash, from Conrail's general assets, in
equal monthly installments over the ten-year period beginning with
the month following the later of (1) the month in which the director
ceases to serve on the Board or (2) the month in which the director
attains age 65. Notwithstanding the foregoing, (1) the benefits of
directors who cease to serve on the Board on account of disability
commence with the month following the month in which the director
ceases to serve on the Board, and (2) after a director's death, his
or her benefits shall be paid to the director's designated
beneficiary, or in the absence of a written designation, to the
director's estate, in a lump sum, as soon as practicable following
the director's death.
Benefits are forfeited in the event the director, before he or
she attains age 65, is removed from the Board for cause or
voluntarily resigns from the Board, unless the resignation is
approved by the Board on account of a conflict between the interests
of the director and the interests of Conrail.
Conrail also maintains a Board of Directors Charitable
Contributions Program pursuant to which Conrail has purchased life
insurance policies of $1 million on the life of each director. Upon
the death of an individual director, Conrail will donate $1 million
in five annual installments of $200,000 each to one or more
qualifying educational or charitable organizations designated by the
director, and will be reimbursed by the life insurance proceeds.
Individual directors derive no financial benefit from the program;
all charitable deductions accrue solely to Conrail. In 1995, a
donation of $200,000 was made under the program on behalf of the
late Ann F. Friedlaender.
COMPENSATION OF EXECUTIVE OFFICERS. The following table
provides certain summary information concerning compensation awarded
to, earned by or paid in 1995 to Conrail's Chairman and former Chief
Executive Officer, James A. Hagen, Conrail's current President and
Chief Executive Officer, David M. LeVan, and each of the four other
most highly compensated executive officers of Conrail (determined as
of the end of the last fiscal year (December 31, 1995) and hereafter
referred to as the "named executive officers") for all services
rendered in all capacities to Conrail and its subsidiaries during
the fiscal years ended December 31, 1993, 1994 and 1995.
9
<PAGE> 4
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
Long-Term Compensation Awards
----------------------------- ------------------------------
(a) (b) (c) (d) (f) (g) (i)
Securities
Name and Restricted Underlying All Other
Principal Salary Bonus Stock Award(s) Options/SARS Compensation
Position Year ($) ($) ($) (#) ($) (1)
- ------------ ---- -------- -------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
J. A. Hagen .......... 1995 $202,044 $173,798 $ 0(2) 33,000 $9,000
Chairman & Former CEO 1994 647,985 85,000 630,000(3) 10,697
1993 646,899 19,500 615,576(4) 15,434
D. M. LeVan .......... 1995 514,519 24,759 509,976(2) 30,746 9,000
President & CEO
H. W. Brown .......... 1995 290,761 13,946 203,294(2) 9,000 9,000
Sr. Vice President - 1994 280,150 14,000 189,000(3) 9,000
Finance & Admin. 1993 264,995 7,990 189,163(4) 8,994
B. B. Wilson ......... 1995 253,026 114,792 27,425(2) 9,000 9,000
Sr. Vice President -Law 1994 245,040 122,500 0(3) 9,000
1993 243,075 77,028 55,742(4) 8,994
R. J. Conway ......... 1995 223,889 101,367 27,425(2) 9,000 9,000
Sr. Vice President - 1994 166,940 88,023 0(3) 9,000
Operations 1993 146,715 4,467 76,458(4) 8,994
G. P. Turner ......... 1995 198,881 9,578 148,214(2) 9,000 9,000
Sr. Vice President - 1994 150,460 65,178 0(3) 9,000
Automotive Sv. Grp. 1993 122,613 3,735 73,756(4) 8,994
- ------
<FN>
(1) These amounts represent Conrail's matching contribution in the
form of Conrail Preferred Stock of amounts deferred by the
named executive officers through a 401(k) plan during 1995,
1994 and 1993. The shares are allocated based on the per share
price set at the time the shares were purchased by the plan.
With respect to Mr. Hagen, an additional $1,697 was contributed
in 1994 and $6,440 in 1993 for his annual supplemental term
life insurance premium.
(2) This figure represents the following: (i) the full market
value as of the January 31, 1996 grant date of restricted
shares of Conrail Common Stock awarded to the named executive
officer as a result of a 1995 bonus deferral, and is composed
of the amount of the 1995 bonus that such officer elected to
defer ($277,546, $117,246 and $80,526, for Messrs. LeVan, Brown
and Turner respectively) plus a matching contribution by
Conrail in the amount of 50% for Messrs. LeVan, Brown and
Turner (each determined by the length of the deferral period
elected by such named executive officer); and (ii) the value
of shares of Conrail Common Stock awarded on January 22, 1996
in settlement of performance shares granted on January 1, 1995
based on Conrail's having met certain predetermined financial
performance goals (computed at a fair market value of
$68.5625). The number of shares of restricted stock was
determined by the fair market value of Conrail Common Stock on
January 31, 1996 ($70.3125). Dividends are paid on all
restricted shares.
As of December 31, 1995, Messrs. LeVan, Brown, Wilson, Conway,
and Turner held, respectively, 9,352, 9,958, 2,134, 2,061, and
1,706 restricted shares of Conrail Common Stock worth $351,024,
$444,823, $102,928, $85,456 and $70,250, respectively, net of
the payments which such officers would have been entitled to
receive absent their elections to take restricted shares
instead of cash bonuses. Valuation is based on the closing
price of Conrail Common Stock on December 31, 1995 ($70.00).
These numbers exclude shares received in January 1996 pursuant
to such officers' 1995 bonus deferrals, if any, and shares
previously acquired through bonus deferrals as to which
restrictions lapsed prior to December 31, 1995.
</FN>
</TABLE>
10
<PAGE> 5
(3) This figure represents the full market value as of the January
31, 1995 grant date of restricted shares of Conrail Common
Stock awarded to the named executive officer as a result of a
1994 bonus deferral, and is composed of the amount of the 1994
bonus which such officer elected to defer ($420,000 and
$126,000 for Messrs. Hagen and Brown, respectively) plus a
matching contribution by Conrail in the amount of 50%. The
number of shares of restricted stock was determined by the fair
market value of Conrail Common Stock on January 31, 1995
($52.875).
(4) This figure represents the full market value as of the
February 7, 1994 grant date of restricted shares of Conrail
Common Stock awarded to the named executive officer as a result
of a 1993 bonus deferral, and is composed of the amount of the
1993 bonus which such officer elected to defer ($410,800,
$126,237, $46,452, $58,814 and $49,171 for Messrs. Hagen,
Brown, Wilson, Conway and Turner, respectively) plus a matching
contribution by Conrail in the amount of 50% for Messrs. Hagen
and Brown, and a matching contribution by Conrail in the amount
of 20% and 30%, respectively, for Messrs. Wilson and Conway
(each as determined by the length of the deferral period
elected by such named executive officer). The number of shares
of restricted stock was determined by the fair market value of
Conrail Common Stock on February 7, 1994 ($61.6875).
904 shares of restricted stock held by Mr. Wilson vested on
February 7, 1996, two years from the date of the award, and
1,239 shares of restricted stock held by Mr. Conway will vest
on February 7, 1997, three years from the date of the award.
The following table contains information concerning the grant of
stock options made to the named executive officers during the fiscal
year ended December 31, 1995.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Grant Date
Individual Grant Value
- -------------------------------------------------------------------------------------- -------------
(a) (b) (c) (d) (e) (f)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or Grant Date
Options/SARs Employees in Base Price Present Value
Name Granted(#) Fiscal Year ($/sh) Expiration Date ($)(4)
- ------------- ------------- ------------ ----------- --------------- -------------
<S> <C> <C> <C> <C> <C>
J. A. Hagen ...... 33,000 6.4% $50.6875 (1) $458,370
D. M. LeVan ...... 6,500(2) 1.3% $50.6875 January 1, 2005 90,285
13,000(3) 2.5% $50.6875 January 1, 2005 180,570
3,749(2) 0.7% $54.1250 January 1, 2005 50,124
7,497(3) 1.5% $54.1250 January 1, 2005 100,235
H. W. Brown ...... 3,000(2) 0.6% $50.6875 January 1, 2005 41,670
6,000(3) 1.2% $50.6875 January 1, 2005 83,340
B. B. Wilson ..... 3,000(2) 0.6% $50.6875 January 1, 2005 41,670
6,000(3) 1.2% $50.6875 January 1, 2005 83,340
R. J. Conway ..... 3,000(2) 0.6% $50.6875 January 1, 2005 41,670
6,000(3) 1.2% $50.6875 January 1, 2005 83,340
G. P. Turner ..... 3,000(2) 0.6% $50.6875 January 1, 2005 41,670
6,000(3) 1.2% $50.6875 January 1, 2005 83,340
- -------
<FN>
(1) These options were forfeited on Mr. Hagen's retirement in March 1995.
(2) Exerciseable as of January 22, 1996, based on Conrail's
achievement of a pre-established 1995 cash flow goal.
</FN>
</TABLE>
11
<PAGE> 6
(3) Exerciseable in two increments based on Conrail's achievement
of pre-established cash flow goals for 1997 and 1998, or
proportionately in 1998, based on Conrail's achievement of a pre-
established three-year, cumulative cash flow goal. If none
of the foregoing goals is met, the options become exerciseable
in total on January 1, 2000, and expire June 30, 2000.
(4) Based on modified Black-Scholes option pricing model assuming a
five-year term and that dividends are compounded quarterly and
risk-free rates are compounded continuously over the expected
option term. Dividend yield for the $50.6875 and $54.125
options are 3.35% and 3.14%, respectively, and risk free rates
of return are 7.82% and 5.85%, respectively, using daily
volatility rates of 26.45% and 26.69%, respectively.
The following table provides information concerning the
exercise of stock options during the fiscal year ended December 31,
1995, by each of the named executive officers and the value of
unexercised stock options held by each such officer as of December
31, 1995.
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
------------- ----------------
Shares Acquired Exercisable/ Exercisable/
Name On Exercise (#) Value Realized ($) Unexercisable Unexercisable(1)
- ----------------- --------------- ------------------ ------------- -----------------
<S> <C> <C> <C> <C>
J. A. Hagen...... 40,000 $1,483,750 E 31,250 E $ 851,563
U 0 U 0
D. M. LeVan...... 0 0 E 33,691 E 822,532
U 32,205 U 591,767
H. W. Brown...... 0 0 E 55,639 E 2,292,200
U 13,811 U 327,975
B. B. Wilson.... 0 0 E 42,905 E 1,586,782
U 13,811 U 327,975
R. J. Conway.... 0 0 E 9,250 E 227,875
U 9,125 U 200,281
G. P. Turner.... 0 0 E 16,107 E 515,622
U 9,125 U 200,281
- ----------
<FN>
(1) This valuation is based on the fair market value of Conrail
Common Stock on December 31, 1995 ($69.8765).
</FN>
</TABLE>
12
<PAGE> 7
Long-Term Incentive Plans - Awards in Last Fiscal Year
<TABLE>
<CAPTION>
Estimated Future Payouts
under Non-Stock Price-Based Plans
----------------------------------
(a) (b) (c) (d) (e) (f)
Number of
Shares, Performance
Units or or Other
Other Period Until
Number of Maturation
Name Rights(#)(1) or Payout Threshold(#) Target(#) Maximum(#)
------------------- -------------- --------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
J. A. Hagen(2)..... 2,948 Jan. 1997 -1998 0 0 0
D. M. LeVan........ 2,746 Jan. 1997 -1998 2,471 2,746 2,746
H. W. Brown........ 800 Jan. 1997 -1998 720 800 800
B. B. Wilson....... 800 Jan. 1997 -1998 720 800 800
R. J. Conway....... 800 Jan. 1997 -1998 720 800 800
G. P. Turner....... 800 Jan. 1997 -1998 720 800 800
- ---------
<FN>
(1) Represents two-thirds of the performance shares granted to
the named executive officers in 1995. The performance
shares potentially vest in two successive increments,
based on Conrail's performance as measured against annual
cash flow goals in each of 1996 and 1997. At the end of
1997, unvested performance shares will have an opportunity
to vest proportionately if Conrail has met 90% or more of
a three-year, cumulative cash flow goal. Performance
shares not vested under one of the foregoing scenarios
will be forfeited. The first third, which vested based on
Conrail's performance during 1995, was paid to recipients
on January 22, 1996, and the value of that award is
included in column (f) of the Summary Compensation Table.
(2) Upon his retirement in March 1995, Mr. Hagen forfeited
2,948 performance shares granted on January 1, 1995, that
would have qualified as Long-Term Incentive Compensation.
The value of performance shares vesting and paid to Mr.
Hagen in January 1996 is included in column (f) of the
Summary Compensation Table.
</FN>
</TABLE>
Pension Plan Table and Related Disclosure
The following table shows estimated annual retirement benefits
payable under the Supplemental Pension Plan of Consolidated Rail
Corporation.
Years of Service
------------------------------------------
Remuneration 15 YRS 20 YRS 25 YRS 30 YRS 35 YRS
- ------------ ------ ------- ------- ------- -------
$ 125,000 20,928 27,905 34,881 41,857 48,833
150,000 26,178 34,905 43,631 52,357 61,083
175,000 31,428 41,905 52,381 62,857 73,333
200,000 36,678 48,905 61,131 73,357 85,583
225,000 41,928 55,905 69,881 83,857 97,833
250,000 47,178 62,905 78,631 94,357 110,083
300,000 57,678 76,905 96,131 115,357 134,583
400,000 78,678 104,905 131,631 157,357 183,583
450,000 89,178 118,905 148,631 178,357 208,083
500,000 99,678 132,905 166,131 199,357 232,583
600,000 120,678 160,905 201,131 241,357 281,583
700,000 141,678 188,905 236,131 283,357 330,583
750,000 152,178 202,905 253,631 304,357 355,083
1,250,000 257,178 342,905 428,631 514,357 600,083
1,500,000 309,678 412,905 516,131 619,357 722,583
1,750,000 362,178 482,905 603,631 724,357 845,083
2,000,000 414,678 552,905 691,131 829,357 967,583
13
<PAGE> 8
Messrs. Hagen, LeVan, Brown, Wilson, Conway and Turner have 15,
18, 17, 16, 26 and 35 years of credited service, respectively.
Compensation covered by the Pension Plan consists of an employee's
wages for federal income tax purposes (see column (c) to the Summary
Compensation Table plus any bonus paid in 1995; column (d) reflects
bonuses earned in the stated year, but not paid in such year),
excluding reimbursements, fringe benefits, gains from the exercise
of employee stock options, and contributions to deferred
compensation plans other than employee deferrals under Conrail's
Matched Savings Plan. In 1995, the covered compensation of Messrs.
Hagen, LeVan, Brown, Wilson, Conway and Turner was $1,612,709,
$596,388, $455,443, $289,714, $282,349 and $322,246, respectively.
The table above shows estimated annual retirement benefits, after
application of the Pension Plan's railroad retirement offset,
payable to participants as a straight life annuity under the Pension
Plan upon normal retirement at age 65 based upon final average
compensation and years of Conrail service. The table does not
reflect statutory limits on benefits under tax-qualified plans.
Employment Agreements and Termination of Employment and
Change in Control Arrangements
Conrail entered into an employment agreement with Mr. Hagen in
connection with his employment as Conrail's Chairman and Chief
Executive Officer. Mr. Hagen also serves as a member of the Board,
subject to shareholder approval. The employment agreement terminated
upon Mr. Hagen's retirement, effective March 31, 1995. Under the
agreement, Mr. Hagen receives supplemental retirement benefits equal
to any difference between (a) the estimated retirement benefits to
which he would have been entitled from CSX Distribution Services,
Inc. ("CSX") if he had continued his employment with CSX throughout
the time employed by Conrail, and (b) his actual retirement benefits
from Conrail and CSX. Mr. Hagen's annual supplemental retirement
benefits under the referenced provisions are approximately $300,000.
These supplemental retirement benefits are paid from Conrail's
general assets in the form of an annuity for the life of Mr. Hagen,
and do not reflect the pre- and post-retirement survivor protections
elected by Mr. Hagen.
To ensure that Conrail will have the continued dedicated
service of certain executives notwithstanding the possibility,
threat or occurrence of changes in control, Conrail has entered into
severance agreements with the officers named in the Summary
Compensation Table, other than Mr. Hagen. The agreements generally
provide that if the executive is Terminated other than for Cause
within three years after a Change in Control, or within two years of
regulatory approval of such Change in Control, each as defined in
the agreement, such executive is entitled to receive severance
benefits. Such benefits would be equal to a lump sum payment equal
to all previously accrued cash compensation, three times the sum of
the then-current base salary and highest annual bonus earned within
the previous three calendar years, together with certain other
payments and benefits, including continuation of employee welfare
benefits and an additional payment to compensate the executive for
certain excise taxes imposed upon payments under such agreements.
In addition, such Termination would result in the acceleration of
vesting or lapse of restricted periods on previously granted stock-
based incentive awards.
14
