CSX said March 6 that E. Hunter Harrison has been named CEO of the Class 1. Michael Ward, who was originally scheduled to retire from the top job at the end of May, will become a consultant to the railroad; both are effective immediately.
In addition to gaining a new CEO, CSX reached an agreement with Mantle Ridge LP, an investment firm formed by Paul Hilal that saw the appointment of five new directors to CSX’s Board of Directors, mutually agreed upon by CSX and Mantel Ridge. CSX’s board now grows to 13 with three incumbent directors intending to complete their service for the board and the appointments of Harrison, Hilal, Dennis Reilley, Linda Riefler and Johnn Zillmer. CSX’s current Presiding Director Edward J. Kelly, III, will become chairman of the board and Hilal will become vice chairman.
Harrison, said, “I am proud to join the dedicated and talented railroaders at CSX. Together, we will implement Precision Scheduled Railroading – a model proven to improve safety, create better service for customers, produce a proud and winning culture for employees and generate exceptional, lasting value for shareholders.”
Paul Hilal, added, “I thank every CSX director, including those leaving the board, for their constructive and skillful engagement that enabled this terrific outcome for CSX. The board is united behind a shared goal – creating value for shareholders and all stakeholders by implementing the Precision Scheduled Railroading model at CSX. Together, we have created the conditions for success. Now the real work begins.”
The parties also agreed to a portion of Harrison’s compensation to receive an award of incentive options to purchase nine million shares of CSX stock at its current trading price, eight million of which will be granted as an inducement award under the Nasdaq listing rules. The options will vest over four years with half of the options vesting based on service and half vesting based on the achievement of designated performance goals over the four-year period.
However, not all loose ends have been tied up with the agreement and CSX is seeking shareholder input on the following proposals:
- The requested payment of the $84 million of the amount of compensation and benefits forfeited by Mr. Harrison as a result of his separation from Canadian Pacific Railway Limited. To facilitate Mr. Harrison’s separation from CP on terms that would permit him to work at CSX, Mantle Ridge agreed to protect Mr. Harrison on an interim basis with respect to this $84 million.
- The requested assumption of a related tax indemnity.
Harrison has informed CSX that his acceptance of the CEO position was subject to CSX ultimately providing this replacement protection initially offered by Mantle Ridge upon his departure from Canadian Pacific. Harrison has indicated that he will resign after the 2017 annual meeting if the reimbursement and tax indemnity are not provided by CSX and return to Mantle Ridge to protect his reimbursements.
CSX will submit these matters to CSX shareholders for an advisory vote at the 2017 Annual Meeting of Shareholders.