Summary
CSX Corporation (CSX) filed an 8-K on January 5, 2005, to report on new change of control agreements entered into with certain executive officers on December 30, 2004. These agreements replace previous ones and are effective only upon a "change of control" event. Key modifications include changing the definition of a change of control from shareholder approval to consummation, eliminating the Black-Scholes cash-out of options, and allowing for reductions in salary/bonus due to business necessity or company performance. In the event of a change of control, these new agreements generally provide for a minimum three-year term of employment with specific compensation and benefits. If an executive is terminated without cause or disability, or resigns for good reason or constructive termination, they are entitled to significant severance, including three times their annual salary and bonus, plus three additional years of service credit for pension plans. The company also adopted a "Policy Regarding Shareholder Approval of Severance Agreements" effective January 1, 2005, which requires shareholder approval for severance agreements exceeding 2.99 times the sum of annual base salary and the highest bonus of the prior three years for Section 16 officers.
Key Highlights
- 1CSX entered into new change of control agreements with key executive officers on December 30, 2004, replacing prior agreements.
- 2Definition of 'Change of Control' shifted from shareholder approval to consummation of a transaction.
- 3Agreements eliminate Black-Scholes cash-out of stock options.
- 4Severance packages under these new agreements include a cash payment of three times the executive's annual salary and bonus.
- 5Executives are also entitled to an amount equal to three additional years of service under the company's pension plans upon certain terminations post-change of control.
- 6A new 'Policy Regarding Shareholder Approval of Severance Agreements' was adopted, effective January 1, 2005.
- 7The new policy requires shareholder approval for severance exceeding 2.99 times the sum of annual base salary and the highest bonus of the prior three years for Section 16 officers.