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**AMENDMENT NO. 3 TOTRANSACTION AGREEMENT**

           

**AMENDMENT NO. 3 TO THETRANSACTION AGREEMENT** (this "Amendment"), dated and effective as of June 1,1999, by and among CSX CORPORATION, a Virginia corporation, CSX TRANSPORTATION,INC., a Virginia corporation, for itself and on behalf of its controlledSubsidiaries (collectively, "CSXT"), NORFOLK SOUTHERN CORPORATION, aVirginia corporation, NORFOLK SOUTHERN RAILWAY COMPANY, a Virginia corporation,for itself and on behalf of its controlled Subsidiaries (collectively,"NSR"), CONRAIL INC., a Pennsylvania corporation, for itself and onbehalf of its controlled Subsidiaries, CONSOLIDATED RAIL CORPORATION, aPennsylvania corporation ("CRC"), and CRR HOLDINGS LLC, a Delawarelimited liability company ("CRR Parent");

**WHEREAS**, the partieshave previously entered into that certain Transaction Agreement, dated as ofJune 10, 1997, as amended by Amendment No. 1 to Transaction Agreement, dated asof August 22, 1998, and by Amendment No. 2 to Transaction Agreement, dated as ofJune 1, 1999 (collectively, the "Transaction Agreement");

**WHEREAS,** the partieshave identified certain provisions of the Transaction Agreement for which theparties desire to clarify their understandings and intentions;

**WHEREAS**, the partieshave determined that it is in their respective best interests to amend theTransaction Agreement as set forth in this Amendment;

**WHEREAS**, it is theintent of the parties that, except as expressly amended hereby, the TransactionAgreement shall remain unamended and in full force and effect;

**NOW, THEREFORE**, theparties hereby amend the Transaction Agreement as follows:

**SECTION A. References. **Unless otherwise specifically defined in thisAmendment, each term used in this Amendment that is defined in the TransactionAgreement has the meaning assigned to such term in the TransactionAgreement.  Each reference to "hereof", "hereunder", "herein" and "hereby"and each reference to "this Agreement" and each other similar referencecontained in the Transaction Agreement shall from and after the effective dateof this Amendment No. 3 refer to the Transaction Agreement as amended by thisAmendment.

**SECTION B.  RevisedDefinitions. **Section 1.1 of the Transaction Agreement is herebyamended by inserting the following new definitions:

"CRC EnvironmentalLiabilities" means Environmental Liabilities that (a) arise in whole or in partprior to the Closing Date (including without limitation NYC Assets HistoricEnvironmental Liabilities and PRR Assets Historic Environmental Liabilities), or(b) do not relate predominantly to either the NYC Allocated Assets or the PRRAllocated Assets (regardless of whether such Environmental Liabilities ariseprior to the Closing Date) including those arising on Retained Assets that causeEnvironmental Liabilities to arise on either NYC or PRR Allocated Assets afterthe Closing Date.

"CRC Insurance Recovery" meansa recovery under a policy or policies of insurance carried by CRR Parent, CRC ortheir respective Affiliates on or prior to the Closing Date.

"CRC Insurance Recovery Costs"means the costs (including attorneys' and experts' fees and expenses) of seekinga CRC Insurance Recovery.

"Environmental Defense Costs"means the costs (including attorneys' and experts' fees and expenses, butexcluding any remediation costs, judgments, fines, penalties, or amounts paid insettlement) incurred in defending against any Environmental Liability addressedin Section 2.8(b).

"NYC Advances" has the meaningascribed thereto in Section 2.8(b)(iii)(A).

"NYC Assets HistoricEnvironmental Liabilities" means CRC Environmental Liabilities that relatepredominantly to NYC Allocated Assets.

"NYC EnvironmentalLiabilities" means Environmental Liabilities that (a) arise exclusively on orafter the Closing Date, and (b) relate predominantly to NYC Allocated Assets,including those Liabilities arising from the NYC Allocated Assets that causeEnvironmental Liabilities to arise on PRR Allocated Assets or RetainedAssets.

"PRP Recovery" means arecovery from a Potentially Responsible Party (as that term is used in 42 U.S.C.§ 9601 *et seq.*and its associated regulations) or from any other thirdparty potentially liable under the Environmental Laws for all or a portion ofEnvironmental Liabilities addressed in Section 2.8(b).

"PRP Recovery Costs" means thecosts (including attorneys' and experts' fees and expenses) of seeking a PRPRecovery.

"PRR Advances" has the meaningascribed thereto in Section 2.8(b)(iii)(B).

"PRR Assets HistoricEnvironmental Liabilities" means CRC Environmental Liabilities that relatepredominantly to PRR Allocated Assets.

"PRR EnvironmentalLiabilities" means Environmental Liabilities that (a) arise exclusively on orafter the Closing Date, and (b) relate predominantly to PRR Allocated Assets,including those Liabilities arising from the PRR Allocated Assets that causeEnvironmental Liabilities to arise on NYC Allocated Assets or RetainedAssets.

**SECTION C. Environmental Liabilities. **Sections 2.8(b) and 8.15 of theTransaction Agreement are hereby amended as follows: 

(1)        Section 2.8(b) is amended in its entirety by deleting the existing provision andinserting the following:

(b)Environmental Liabilitiesexpressly allocated to any Person pursuant to any Ancillary Agreement shall beallocated in accordance with the terms of the relevant AncillaryAgreement.  All other Environmental Liabilities shall be designated asfollows:

(i)                  NYC Environmental Liabilities shall be NYC Allocated Liabilities.  NYCshall be solely responsible to pay, perform and discharge NYC EnvironmentalLiabilities and all costs associated therewith, as and when they come due.

(ii)                PRR Environmental Liabilities shall be PRR Allocated Liabilities.  PRRshall be solely responsible to pay, perform and discharge PRR EnvironmentalLiabilities and all costs associated therewith, as and when they come due.

(iii)               CRC Environmental Liabilities shall be Corporate Level Liabilities.  CRCshall continue to be solely responsible for CRC Environmental Liabilities andfor all costs associated therewith, and shall fund its responsibilities asfollows:

(A)             From and after the Closing Date:  (1) Subject to clause (2) below, CRCshall pay for the performance and/or discharge of the NYC Assets HistoricEnvironmental Liabilities, as and when due, until CRC has paid a cumulativetotal of $4,915,321 on account thereof.  Thereafter, CRC shall continue tobe responsible for  the NYC Assets Historic Environmental Liabilities, butNYC shall make  advances (together with interest thereon as hereinafterprovided, "NYC Advances") to CRC of 100% of all amounts necessary to permit CRCto pay for the NYC Assets Historic Environmental Liabilities.  (2) CRCshall be responsible for Environmental Defense Costs, PRP Recovery Costs and CRCInsurance Recovery Costs associated with the NYC Assets Historic EnvironmentalLiabilities, but NYC shall make NYC Advances of 100% of all amounts necessary topermit CRC to pay Environmental Defense Costs and PRP Recovery Costs. Unless otherwise agreed, NYC Advances for Environmental Defense Costs and PRPRecovery Costs shall be made directly to defense counsel or othersuppliers.  (3) The NYC Advances shall accrue interest each month at theshort-term applicable federal rate (with monthly compounding) determined forsuch month by the Internal Revenue Service under section 1274(d) of the InternalRevenue Code of 1986, as amended. 

(B)              From and after the Closing Date:  (1) Subject to clause (2) below, CRCshall pay for the performance and/or discharge of the PRR Assets HistoricEnvironmental Liabilities, as and when due, until CRC has paid a cumulativetotal of $11,110,312 on account thereof.  Thereafter, CRC shall continue tobe responsible for the PRR Assets Historic Environmental Liabilities, but PRRshall make  advances (together with interest thereon as hereinafterprovided,"PRR Advances") to CRC of 100% of all amounts necessary to permit CRCto pay for the PRR Assets Historic Environmental Liabilities.  (2) CRCshall be responsible for Environmental Defense Costs, PRP Recovery Costs and CRCInsurance Recovery Costs associated with the PRR Assets Historic EnvironmentalLiabilities, but PRR shall make PRR Advances of 100% of all amounts necessary topermit CRC to pay Environmental Defense Costs and PRP Recovery Costs. Unless otherwise agreed, PRR Advances for Environmental Defense Costs and PRPRecovery Costs shall be made directly to defense counsel or other suppliers. (3)The PRR Advances shall accrue interest each month at the short-term applicablefederal rate (with monthly compounding) determined for such month by theInternal Revenue Service under section 1274(d) of the Internal Revenue Code of1986, as amended. 

(C)CRCshall be solely responsible to pay, perform and discharge all other CRCEnvironmental Liabilities and all costs associated therewith, as and when theycome due.

(iv)              NYC and PRR shall assist CRC in securing CRC Insurance Recoveries and PRPRecoveries associated with the  NYC Assets Historic EnvironmentalLiabilities and the PRR Assets Historic Environmental Liabilities, respectively,and all such Recoveries shall initially be paid to CRC.  CRC, NYC and PRRwill allocate the amounts of any CRC Insurance Recoveries or PRP Recoveriesamong the NYC Assets Historic Environmental Liabilities, the PRR Assets HistoricEnvironmental Liabilities, and all other CRC Environmental Liabilities,consistent with Section 2.11 as amended.  The PRR Advances and the NYCAdvances shall be non-recourse loans payable only as provided herein. The PRRAdvances and the NYC Advances (a) shall be recorded and reported for all taxpurposes as loans by the parties hereto and (b) may be contributed, in whole orin part, to the capital of CRC at such time as NSR, in the case of the PRRAdvances, and CSXT, in the case of the NYC Advances, shall determine.  

(v)                CRC shall repay PRR Advances to the extent of the sum of (a) CRC InsuranceRecoveries and PRP Recoveries allocated to the PRR Assets Historic EnvironmentalLiabilities and (b) the tax benefits realized by the consolidated group of whichCRC is a member, after taking into account the income, if any, reported by suchconsolidated group with respect to the amounts referred to in clause (a) of thissentence, in respect of (1) the PRR Assets Historic Environmental Liabilities,(2) the PRP Recovery Costs and CRC Insurance Recovery Costs associated with thePRR Assets Historic Environmental Liabilities and (3) accrued interest on thePRR Advances. 

(vi)              CRC shall repay NYC Advances to the extent of the sum of (a) CRC InsuranceRecoveries and PRP Recoveries allocated to the NYC Assets Historic EnvironmentalLiabilities and (b) the tax benefits realized by the consolidated group of whichCRC is a member, after taking into account the income, if any, reported by suchconsolidated group with respect to the amounts referred to in clause (a) of thissentence, in respect of (1) the NYC Assets Historic Environmental Liabilities,(2) the PRP Recovery Costs and CRC Insurance Recovery Costs associated with theNYC Assets Historic Environmental Liabilities and (3) the accrued interest onthe NYC Advances.  

(vii)             The tax benefits referred to in (v)(b) and (vi)(b) above shall be determined bythe parent of the consolidated group of which CRC is a member and shall becomputed on a with, and without, basis for this purpose treating all itemsgiving rise to tax benefits pari passu without regard to year in which suchamounts were accrued for federal tax purposes and determined on an annualbasis.   

(viii)           Effective as of the Closing Date, (A) CRC has delegated to NYC exclusiveauthority and control over the investigation, prosecution, defense and appeal ofall Actions (other than Actions seeking CRC Insurance Recoveries) relating tothe NYC Assets Historic Environmental Liabilities, but NYC and CRC shallcooperate in the investigation, prosecution, defense, settlement and appeal ofany such Action as appropriate; and (B) CRC has delegated to PRR exclusiveauthority and control over the investigation, prosecution, defense and appeal ofall Actions (other than Actions seeking CRC Insurance Recoveries) relating tothe PRR Assets Historic Environmental Liabilities, but PRR and CRC shallcooperate in the investigation, prosecution, defense, settlement and appeal ofany such Action as appropriate.  No settlement or consent judgment thatwould result in CRC Environmental Liabilities shall be agreed upon without theprior consent of CRC, which consent shall not be unreasonably withheld.

(ix)              All references to NYC and PRR in this Section 2.8(b) shall be deemed to includetheir successors and assigns if they should cease to exist.

(2)        Section 8.15 is amended by inserting the phrase "Except as otherwise provided inSection 2.8(b)(viii)," at the start of the section.  In all other respectsSection 8.15 shall remain in effect.

**SECTION D.  NoForfeiture of Insurance Rights**.  Section 2.11 of the TransactionAgreement is hereby amended by adding the following to the end of the existingprovision:

For theavoidance of doubt, the parties hereto intend to preserve all rights, remediesand claims under any policy or policies of insurance that would have beenavailable to CRR Parent, CRC or their respective Affiliates in the absence ofthe Merger Agreement, this Agreement or any other related agreement.  Ifany Liability covered by a policy of insurance carried by CRR Parent, CRC ortheir respective Affiliates on or prior to the Closing Date is held to have beentransferred to another Person, then the original insureds under such policy ofinsurance shall be deemed to have assigned to that Person their rights ofrecovery under such policy solely to the extent necessary to preserve allinsurance-related rights, remedies and claims relating to such Liability; andthat Person in turn shall be deemed to have authorized CRC as its sole agent toenforce any such assigned rights of recovery on its behalf.  Nothing in theMerger Agreement, this Agreement or any other related agreement shall beconstrued to waive or in any way to effect a forfeiture of any insurance-relatedrights, remedies or claims that would have been available to CRR Parent, CRC ortheir respective Affiliates in the absence of such agreements. 

**SECTION E. Confirmation of Transaction Agreement. **In all respects notinconsistent with the terms and provisions of this Amendment, the TransactionAgreement is hereby ratified, adopted, approved and confirmed.

**SECTION F. Miscellaneous. **This Amendment is not intended to confer anyrights or privileges upon third parties, and no third party is intended to be athird-party beneficiary of this Amendment. 

**IN WITNESS WHEREOF**, theparties hereto have caused this Amendment to be duly executed, with effect as ofthe date first above written.

 

                   CSX CORPORATION

 

                                   /s/ Ellen M.Fitzsimmons