-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FVNZyoXY/pJUgGzzCDj7ogeqbh3ZgWfhTtrDqVYuwG1/fbLc+cYNqXdhR3h/nXzw y1ozGGKOaZZ9rGmjBaBakA== 0000950123-96-005722.txt : 19961017 0000950123-96-005722.hdr.sgml : 19961017 ACCESSION NUMBER: 0000950123-96-005722 CONFORMED SUBMISSION TYPE: SC 14D9 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19961016 SROS: NYSE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CONRAIL INC CENTRAL INDEX KEY: 0000897732 STANDARD INDUSTRIAL CLASSIFICATION: RAILROADS, LINE-HAUL OPERATING [4011] IRS NUMBER: 232728514 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 SEC ACT: 1934 Act SEC FILE NUMBER: 005-42777 FILM NUMBER: 96644410 BUSINESS ADDRESS: STREET 1: TWO COMMERCE SQ STREET 2: P O BOX 41417 CITY: PHILADELPHIA STATE: PA ZIP: 19101-1417 BUSINESS PHONE: 2152094434 MAIL ADDRESS: STREET 1: P.O. BOX 41429 STREET 2: 2001 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19101-1429 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CONRAIL INC CENTRAL INDEX KEY: 0000897732 STANDARD INDUSTRIAL CLASSIFICATION: RAILROADS, LINE-HAUL OPERATING [4011] IRS NUMBER: 232728514 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 BUSINESS ADDRESS: STREET 1: TWO COMMERCE SQ STREET 2: P O BOX 41417 CITY: PHILADELPHIA STATE: PA ZIP: 19101-1417 BUSINESS PHONE: 2152094434 MAIL ADDRESS: STREET 1: P.O. BOX 41429 STREET 2: 2001 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19101-1429 SC 14D9 1 CONRAIL INC. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ SCHEDULE 14D-9 SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------ CONRAIL INC. (NAME OF SUBJECT COMPANY) ------------------------ CONRAIL INC. (NAME OF PERSON(S) FILING STATEMENT) ------------------------ 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) ------------------------ 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) ------------------------ 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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 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 3 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 2 4 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 3 5 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. 4 6 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); 5 7 (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 6 8 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. 7 9 ITEM 9. MATERIALS TO BE FILED AS EXHIBITS. *+(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.
- --------------- * 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. 8 10 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 11 EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE NO. -------- -------------------------------------------------------------------------- -------- *+(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......
- --------------- * 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 EX-99.A3 2 TEXT OF PRESS RELEASE 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. 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 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 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 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 EX-99.A4 3 LETTER TO SHAREHOLDERS 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 EX-99.A6 4 OPINION OF LAZARD FRERES & CO. LLC 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." 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. 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. 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 EX-99.A7 5 OPINION OF MORGAN STANLEY & CO. INCORPORATED 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 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; 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. 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 EX-99.C5 6 EMPLOYMENT AGREEMENT OF MR. LEVAN 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. 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 2 3 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 3 4 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 4 5 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 5 6 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 6 7 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 7 8 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, 8 9 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 9 10 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; 10 11 (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. 11 12 (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 12 13 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 13 14 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 14 15 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; 15 16 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 16 17 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 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 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 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 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 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 EX-99.C6 7 CHANGE OF CONTROL AGREEMENT OF MR. LEVAN 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 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 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. 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 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 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- 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 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 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). 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, 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 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 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 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 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 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; 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 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: 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 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 ----------------------------- EX-99.C7 8 PAGES 4-5, AND 9-14 OF CONRAIL'S PROXY STATEMENT 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 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 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 $200,000 was made under the program on behalf of the late Ann F. Friedlaender. COMPENSATION OF EXECUTIVE OFFICERS. The following table provides certain summary information concerning compensation awarded to, earned by or paid in 1995 to Conrail's Chairman and former Chief Executive Officer, James A. Hagen, Conrail's current President and Chief Executive Officer, David M. LeVan, and each of the four other most highly compensated executive officers of Conrail (determined as of the end of the last fiscal year (December 31, 1995) and hereafter referred to as the "named executive officers") for all services rendered in all capacities to Conrail and its subsidiaries during the fiscal years ended December 31, 1993, 1994 and 1995. 9 4
SUMMARY COMPENSATION TABLE Annual Compensation Long-Term Compensation Awards ----------------------------- ------------------------------ (a) (b) (c) (d) (f) (g) (i) Securities Name and Restricted Underlying All Other Principal Salary Bonus Stock Award(s) Options/SARS Compensation Position Year ($) ($) ($) (#) ($) (1) - ------------ ---- -------- -------- -------------- ------------ ------------ 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 - ------ (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.
10 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 ($61.6875). 904 shares of restricted stock held by Mr. Wilson vested on February 7, 1996, two years from the date of the award, and 1,239 shares of restricted stock held by Mr. Conway will vest on February 7, 1997, three years from the date of the award. The following table contains information concerning the grant of stock options made to the named executive officers during the fiscal year ended December 31, 1995.
Option/SAR Grants in Last Fiscal Year Grant Date Individual Grant Value - -------------------------------------------------------------------------------------- ------------- (a) (b) (c) (d) (e) (f) Number of % of Total Securities Options/SARs Underlying Granted to Exercise or Grant Date Options/SARs Employees in Base Price Present Value Name Granted(#) Fiscal Year ($/sh) Expiration Date ($)(4) - ------------- ------------- ------------ ----------- --------------- ------------- 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 - ------- (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.
11 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 $54.125 options are 3.35% and 3.14%, respectively, and risk free rates of return are 7.82% and 5.85%, respectively, using daily volatility rates of 26.45% and 26.69%, respectively. The following table provides information concerning the exercise of stock options during the fiscal year ended December 31, 1995, by each of the named executive officers and the value of unexercised stock options held by each such officer as of December 31, 1995. Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values
(a) (b) (c) (d) (e) Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options/SARs Options/SARs at FY-End (#) at FY-End ($) ------------- ---------------- Shares Acquired Exercisable/ Exercisable/ Name On Exercise (#) Value Realized ($) Unexercisable Unexercisable(1) - ----------------- --------------- ------------------ ------------- ----------------- 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 - ---------- (1) This valuation is based on the fair market value of Conrail Common Stock on December 31, 1995 ($69.8765).
12 7 Long-Term Incentive Plans - Awards in Last Fiscal Year
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(#) ------------------- -------------- --------------- ------------ --------- ---------- 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 - --------- (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.
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 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 -----END PRIVACY-ENHANCED MESSAGE-----