-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, HU2sQ2tKiKTl9KC3xVHZhRaH67CR7if7KH8V8iKm16wORvf7YVEmBUYppTP8oHtF 4Mmzbw6FroOrsQcZP/lYnQ== 0000277948-94-000004.txt : 19940314 0000277948-94-000004.hdr.sgml : 19940314 ACCESSION NUMBER: 0000277948-94-000004 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940311 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CSX CORP CENTRAL INDEX KEY: 0000277948 STANDARD INDUSTRIAL CLASSIFICATION: 4011 IRS NUMBER: 621051971 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 34 SEC FILE NUMBER: 001-08022 FILM NUMBER: 94515540 BUSINESS ADDRESS: STREET 1: ONE JAMES CNTR STREET 2: 901 E CARY ST CITY: RICHMOND STATE: VA ZIP: 23219 BUSINESS PHONE: 8047821400 DEF 14A 1 CSX CORPORATION 1994 PROXY STATEMENT PAGE 1 SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 CSX Corporation (Name of Registrant as Specified In Its Charter) Alan A. Rudnick, Vice President - General Counsel and Corporate Secretary (Name of Person(s) Filing Proxy Statement) Payment of Filing Fee (Check the appropriate box): [X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2) [ ] $500 per each party to the controversy pursuant to Exhange Act Rule 14a- 6(i)(3) [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11 PROXY RULES 1) Title of each class of securities to which transaction applies: _________________________________________________________________________ 2) Aggregate number of securities to which transaction applies: _________________________________________________________________________ 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11: _________________________________________________________________________ 4) Proposed maximum aggregate value of transaction: _________________________________________________________________________ - 1 - PAGE 2 [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: ________________________________________________________________________ 2) Form, Schedule or Registration Statement No.: ________________________________________________________________________ 3) Filing Party: ________________________________________________________________________ 4) Date Filed: ________________________________________________________________________ - 2 - PAGE 3 March 11, 1994 Dear CSX Shareholder: You are cordially invited to attend our Annual Meeting of Shareholders on Tuesday, May 3, 1994, at 10:00 a.m. (EDT), at The Greenbrier, White Sulphur Springs, West Virginia. If you plan to attend the meeting, please complete and mail the form containing information about The Greenbrier as soon as possible. An admission card will be sent to you about two weeks prior to the meeting date. Whether or not you are able to attend the meeting, it is important that your shares be represented, no matter how many shares you own. Therefore, you are urged to mark, sign, date and mail your proxy promptly in the envelope provided. John W. Snow Chairman of the Board, President and Chief Executive Officer - 3 - PAGE 4 Notice of Annual Meeting of Shareholders Richmond, Virginia March 11, 1994 To Our Shareholders: The Annual Meeting of Shareholders of CSX Corporation will be held at The Greenbrier, White Sulphur Springs, West Virginia, on Tuesday, May 3, 1994, at 10:00 a.m. (EDT), for the purpose of considering and acting upon the following matters: 1. Election of fourteen directors; 2. Appointment of Ernst & Young as independent certified public accountants for 1994; 3. Approval of amendments to the 1987 Long-Term Performance Stock Plan; 4. Approval of the 1994 Senior Management Incentive Compensation Plan; and 5. Such other matters as may properly come before the meeting. The above matters are described in the Proxy Statement. You are urged, after reading the Proxy Statement, to mark, sign, date and return the Proxy to assure that your shares are represented at the meeting. Only shareholders of record at the close of business on March 4, 1994, will be entitled to vote at the meeting, either in person or by proxy. This Proxy Statement is being mailed to those shareholders on or about March 11, 1994. By Order of the Board of Directors Alan A. Rudnick Vice President - General Counsel and Corporate Secretary - 4 - PAGE 5 PROXY STATEMENT General Information The enclosed Proxy is solicited by the Board of Directors of CSX Corporation ("CSX" or the "Company"). A Proxy may be revoked by a shareholder at any time before it is voted by notice in writing delivered to the Corporate Secretary, by submission of another proxy bearing a later date or by voting in person at the Annual Meeting. CSX is the parent of CSX Transportation, Inc. ("CSXT"); Sea-Land Service, Inc. ("Sea-Land"); American Commercial Lines, Inc.; CSX Intermodal, Inc.; Customized Transportation, Inc.; and The Greenbrier Resort Management Company. The address of CSX's principal executive offices is One James Center, 901 East Cary Street, Richmond, Virginia 23219-4031. Shares Outstanding and Voting Rights CSX had outstanding as of March 4, 1994, 104,648,925 shares of common stock entitled to one vote per share. A majority of the shares entitled to vote, represented in person or by proxy, will constitute a quorum for the transaction of business. Only shareholders of record at the close of business on March 4, 1994, will be entitled to vote. CSX is not aware of any matters to come before the meeting other than those set forth in the accompanying Notice and this Proxy Statement. 1. ELECTION OF DIRECTORS Fourteen directors are to be elected to hold office until the next Annual Meeting of Shareholders is held and their successors are elected, except that the term of any director who is also a CSX officer ends if he or she ceases to be an employee of the Company. Votes will be cast, unless otherwise specified, for the election of those named below. If, at the time of the meeting, any nominee should be unable to serve as a director, such votes will be cast for such substitute nominee as may be nominated by the Board of Directors. All of the nominees listed below, except John R. Hall and Frank S. Royal, were previously elected directors by the shareholders. As of the date of this Proxy Statement, the Board of Directors has no reason to believe that any of the nominees named below will be unable or unwilling to serve. There are no family relationships among any of these nominees or among any of these nominees and any officer, nor any arrangement or understanding between any nominee and any other person pursuant to which the nominee was selected. In the election of directors, those receiving the greatest number of votes shall be elected, even if such votes do not constitute a majority. Certain information regarding each nominee is set forth below. Each nominee has consented to being named in the Proxy Statement and to serve if elected. - 5 - PAGE 6 Edward L. Addison, 64, is Chairman and Chief Executive Officer of The Southern Company, an electric utility holding company. He is a director of Alabama Power Company; Georgia Power Company; Phelps Dodge Corporation; Protective Life Corporation; Wachovia Bank of Georgia, NA; and Wachovia Corporation of Georgia. Mr. Addison has been a director of CSX since March 1987, and is Chairman of the Board's Organization and Corporate Responsibility Committee and a member of the Executive Committee. Elizabeth E. Bailey, 55, is the John C. Hower Professor of Public Policy and Management, The Wharton School of the University of Pennsylvania. Prior to July 1991, she was Visiting Research Scholar, Yale School of Organization and Management, and Professor, Graduate School of Industrial Administration, Carnegie Mellon University; prior to 1991, she was Dean of the Graduate School of Management at Carnegie Mellon University. She is a director of Honeywell, Inc.; College Retirement Equities Fund; Philip Morris Companies, Inc.; and National Westminster Bancorp, Inc. Dr. Bailey has been a director of CSX since November 1989, and is a member of the Board's Audit Committee. Robert L. Burrus, Jr., 59, is Chairman of McGuire, Woods, Battle & Boothe, a law firm of which he has been a partner since prior to 1989. He was elected Chairman of the firm in 1990. Mr. Burrus is a director of Heilig-Meyers Company; S & K Famous Brands, Inc.; and Concepts Direct, Inc. Mr. Burrus has been a director since April 1993, and is a member of the Board's Organization and Corporate Responsibility Committee. Bruce C. Gottwald, 60, is Chairman and Chief Executive Officer of Ethyl Corporation, a worldwide producer of petroleum additives. He is a director of Albemarle Corporation; Dominion Resources, Inc.; First Colony Corporation; James River Corporation; and Tredegar Industries, Inc. Mr. Gottwald has been a director of CSX since April 1988, and is a member of the Board's Organization and Corporate Responsibility Committee. John R. Hall, 61, is Chairman and Chief Executive Officer of Ashland Oil, Inc, a diversified energy company with operations in petroleum refining and marketing, chemicals, highway construction, oil and gas exploration and coal. He is a director of Banc One Corporation; The Canada Life Assurance Company; Humana Inc.; and Reynolds Metals Company. Robert D. Kunisch, 52, is Chairman, President and Chief Executive Officer of PHH Corporation ("PHH"), a provider of integrated business services, including vehicle management services, relocation and real estate services and mortgage banking services. He is a director of Mercantile Bankshares Corporation and GenCorp. Mr. Kunisch has been a director of CSX since October 1990, and is a member of the Board's Compensation and Pension Committee. Hugh L. McColl, Jr., 58, is Chairman and Chief Executive Officer of NationsBank Corporation, a bank holding company. Previously, Mr. McColl was Chairman and Chief Executive Officer of NCNB Corporation, a bank holding company and a predecessor of NationsBank Corporation. He is a director of Jefferson-Pilot Corporation; Ruddick Corporation; and Sonoco Products Co. Mr. McColl has been a director of CSX since February 1992, and is a member of the Board's Audit Committee. - 6 - PAGE 7 James W. McGlothlin, 53, is Chairman and Chief Executive Officer of The United Company, a diversified energy company. He is a director of Bassett Furniture Industries, Inc. He has been a director of CSX since November 1989, and is a member of the Board's Organization and Corporate Responsibility Committee. Southwood J. Morcott, 55, is Chairman, President and Chief Executive Officer of Dana Corporation, a manufacturer of automotive and truck parts and provider of commercial credit. From August 1989 to February 1990, Mr. Morcott was Chief Executive Officer, President and Chief Operating Officer and, prior to August 1989, he was President and Chief Operating Officer of Dana Corporation. He is a director of Johnson Controls, Inc., and Phelps Dodge Corporation. Mr. Morcott has been a director of CSX since July 1990, and is a member of the Board's Compensation and Pension Committee. Charles E. Rice, 58, is Chairman and Chief Executive Officer of Barnett Banks, Inc., a bank holding company. He is a director of Sprint Corporation. Mr. Rice has been a director of CSX since April 1990, and is a member of the Board's Audit Committee. William C. Richardson, 53, is President of The Johns Hopkins University. Prior to 1990, Dr. Richardson was Executive Vice President of The Pennsylvania State University. He is a director of Mercantile Bankshares Corporation and Mercantile Safe Deposit & Trust Company. Dr. Richardson has been a director of CSX since December 1992, and is a member of the Board's Compensation and Pension Committee. Frank S. Royal, M.D., 54, is a physician in private practice in Richmond, Va. and a health care expert. He is a director of Best Products Company, Inc.; Columbia/HCA Healthcare Corporation; Crestar Financial Corporation; and Chesapeake Corporation. Dr. Royal has been a director of CSX since January 1, 1994, and is a member of the Board's Compensation and Pension Committee. John W. Snow, 54, became Chairman of the Board, President and Chief Executive Officer of CSX on February 1, 1991. From April 1989 to February 1991, Mr. Snow was President and Chief Executive Officer of CSX and from April 1988 to April 1989, he was President and Chief Operating Officer. Mr. Snow is a director of NationsBank Corporation; Bassett Furniture Industries, Inc.; Dominion Resources, Inc.; and Textron, Inc. Mr. Snow has been a director of CSX since April 1988, and is a member of the Board's Executive Committee. William B. Sturgill, 69, is President of East Kentucky Investment Co., an investment holding company, and Chairman of the Board of Central Rock Mineral Company, Inc., engaged in the production and sale of limestone. Mr. Sturgill is President of Reading & Bates Coal Company and Golden Oak Mining Co., both of which are engaged in the production and sale of coal. He is a director of Bank One, Lexington, NA. Mr. Sturgill has been a director of CSX since November 1980, and is Chairman of the Board's Compensation and Pension Committee and a member of the Executive Committee. During 1993, there were six meetings of the Board of Directors of CSX. Mr. McColl attended eight of the 11 meetings of the Board of Directors and the Audit Committee which were held during 1993. Each other director of the Company attended more than 75 percent of the meetings of the Board of Directors and committees on which he or she served during the period he or she was a director. - 7 - PAGE 8 Committees of the Board CSX's Board of Directors has the following committees to assist it in the discharge of its responsibilities. The biographical information in the section "Election of Directors" includes committee memberships currently held by each nominee. The Audit Committee's basic functions are to approve and recommend to the shareholders management's selection of independent auditors and to satisfy itself on behalf of the Board that the Company's internal control structure, policies and procedures and external and internal auditing activities assure reliable and informative accounting and financial reporting. Specifically, the committee, through meetings with management, the auditors, or both, reviews the scope of the auditors' examination, audit reports and CSX's internal auditing procedures, reviews and monitors policies established to prohibit unethical, questionable or illegal activities by those associated with CSX, and reviews the compensation paid to the auditors for annual audit and non- audit services and the effect of such compensation and services on the independence of the auditors. The Audit Committee has four members, none of whom are Company employees. It held five meetings in 1993. The primary functions of the Compensation and Pension Committee are to establish the Company's compensation philosophy and to review and approve compensation and compensation plans, including certain fringe benefits, for employees at certain salary grade levels (as determined by this committee from time to time), to recommend to the Board such compensation, plans and benefits for certain senior officers of the Company and its subsidiaries, to establish performance objectives for certain executives, and to certify the attainment of those objectives in connection with the payment of performance-based compensation within the meaning of Section 162(m) of the Internal Revenue Code. The Compensation and Pension Committee also considers developments in human resource and affirmative action matters. In addition, it monitors the administration and funding of all retirement plans and is responsible for administration of certain employee compensation programs. With Dr. Royal's election to the committee on February 9, 1994, it has five members, none of whom are Company employees. It held four meetings in 1993. The Executive Committee meets only on call and has authority to act for the Board on most matters during the intervals between Board meetings. The Executive Committee has four members. It held one meeting in 1993. The Organization and Corporate Responsibility Committee of the Board recommends candidates for election to the Board and also reviews and recommends changes in board composition, qualifications, compensation and retirement. In fulfilling this responsibility, the committee will review recommendations as to possible nominees received from shareholders and other qualified sources. (Shareholder recommendations must be in writing addressed to the Chairman of the Organization and Corporate Responsibility Committee, c/o Corporate Secretary, CSX Corporation, P. O. Box 85629, Richmond, Virginia 23285-5629 or One James Center, 901 East Cary Street, Richmond, Virginia 23219-4031, and should include a statement setting forth the qualifications and experience of the proposed candidate and basis for nomination.) This committee also reviews changes in corporate structure, succession in top management and other internal matters of broad corporate significance. In - 8 - PAGE 9 addition, this committee reviews CSX's relationship to the broader social environment in which CSX operates and legal aspects of CSX's operations, including litigation, legislation and other governmental actions that could affect CSX. The committee has four members, none of whom are Company employees. It held five meetings during 1993. Directors' Compensation For services rendered during a year, directors, other than employees, receive a retainer fee of $30,000 per year, a portion of which is paid in CSX stock as described below. Chairmen of Board committees receive an additional annual retainer fee of $5,000. Retainers are prorated for service of less than a full year. Each non-employee director also receives $1,000 for each Board and committee meeting attended and is reimbursed for expenses incurred in connection with services as a director. CSX directors participate in the CSX Stock Plan for Directors (the "Plan"). Pursuant to the Plan, directors are paid not less than 40 percent of their annual retainer in CSX common stock (the "Designated Percentage"), issued to them immediately following the Company's Annual Meeting of Shareholders. In addition, directors can annually elect to increase the Designated Percentage up to as much as 100 percent. Any election to increase or to decrease the Designated Percentage cannot take effect until six months plus one day following the last business day of the month in which the Annual Meeting of Shareholders occurs. Payments made in stock pursuant to the Plan can also be deferred for income tax purposes into a trust established for that purpose. Directors, other than employees, who have served on the Board of CSX or a predecessor company for 10 years or more, or whose years of service plus their age total at least 75, will receive for life, upon retirement, an annual payment equal to one-half of the total compensation received during the last year of service on the Board pursuant to the Special Retirement Plan for CSX Directors (the "Retirement Plan"). If a director has served less than 10 years, or if his or her years of service plus age do not total at least 75, payments computed in the same manner will be paid upon retirement for a period equal to the number of years of service on the Board. A director may elect to participate in a Corporate Director Deferred Compensation Plan (the "Deferred Compensation Plan"), under which he or she can defer all or a portion of compensation paid by CSX until he or she ceases to be a director or has attained age 65, after which he or she will be paid in installments over a period not to exceed 15 years. The Deferred Compensation Plan also provides for payment to a designated beneficiary in the event of death prior to receipt of the full amount due. Amounts so deferred may be designated by the director to be credited to an Interest Account, a CSX Phantom Stock Account, or a combination of both. The Interest Account accrues interest, compounded quarterly, at rates that are reviewed and adjusted from time to time. An Enhanced Interest Account, to which deferrals could be directed in 1986, 1987, 1989 and 1990, accrues interest at a higher than market rate compounded annually. The rate may be adjusted from time to time. Amounts deferred to the Phantom Stock Account are treated as if they had been used to purchase CSX stock at the closing price on the date the fees would otherwise have been paid to the director. Participants in the Enhanced - 9 - PAGE 10 Interest Account are also covered by an additional $10,000 death benefit. Messrs. Addison and Morcott have caused deferred compensation to be invested in the Phantom Stock Account where they had, as of December 31, 1993, accumulated the equivalent, respectively, of 1,323 and 780 shares. The Directors' Retirement Plan and the Deferred Compensation Plan provide that if the Board determines that a change of control of CSX has occurred, plan participants will be entitled to receive, within seven days of such determination, a lump sum cash payment equal to the present value of accrued benefits in the case of the Retirement Plan or a lump sum cash payment equal to the balance credited to directors' accounts in the case of the Deferred Compensation Plan. CSX directors participate in the CSX Directors' Charitable Gift Plan ("Gift Plan"). Participation in the Gift Plan begins when an individual has completed five consecutive years of service as a CSX director. Under the Gift Plan, the Company will make on behalf of each participant contributions totalling $1 million to charitable institutions designated by that participant. Contributions to designated charities are made in installments, with $100,000 payable upon the director's retirement and the balance payable in installments of $100,000 per year, commencing at the time of the participant's death. The Company is reimbursed for the charitable contributions as beneficiary under policies of insurance on the lives of certain participants. Premiums on the life insurance policies are paid by the Company. The directors who, as of the date of this Proxy Statement, have completed five years of consecutive service and thus are eligible to participate in the Gift Plan are Messrs. Addison, Gottwald, Snow and Sturgill. Directors also can participate in a CSX Directors' Matching Gift Program. Directors' contributions to colleges and universities and to certain organizations providing support to such institutions are matched on a one to one basis, up to $5,000 per year, per institution. The maximum amount which can be matched in any year is $25,000 per director. Directors who participated in the Matching Gift Program during 1993 and the amounts matched by the Company for contributions made by these directors in 1993 are as follows: Edward L. Addison - $2,500; Elizabeth E. Bailey - $500; Robert L. Burrus, Jr. - $7,431; Clifford M. Kirtland, Jr. - $300; Hugh L. McColl, Jr. - $25,000; Southwood J. Morcott - $2,000; Charles E. Rice - $8,900; William C. Richardson - $2,500; John W. Snow - $15,500; and William B. Sturgill - $5,000. Certain Relationships and Related Transactions Hugh L. McColl, Jr., a director of the Company, is also Chairman and Chief Executive Officer of NationsBank Corporation. The Company has a $100 million credit facility with NationsBank Corporation. Charles E. Rice, a director of the Company, is also Chairman and Chief Executive Officer of Barnett Banks, Inc. The Company has a $20 million credit facility shared by two bank subsidiaries of Barnett Banks, Inc. In addition, in January 1992 an affiliate of Barnett Banks, Inc., purchased the stock of CSX Commercial Services, Inc., from the Company for approximately $7.5 million in cash, subject to subsequent balance sheet adjustments. CSX Commercial Services, Inc., which after its sale was renamed BTI Services, Inc., is headquartered in Jacksonville, Fla., and is engaged in the business - 10 - PAGE 11 of servicing student loans. The Company agreed, as part of the sale, to indemnify the Barnett affiliate against certain contingent liabilities. In 1987, prior to the time of James W. McGlothlin's election as a director of CSX, The United Company, of which Mr. McGlothlin is Chairman and Chief Executive Officer, purchased from a wholly owned subsidiary of the Company a used Gulfstream aircraft at a cost of $6 million, with down payment in the amount of $1.2 million and an additional $800,000 which was paid upon delivery. The balance of $4 million, in the form of a promissory note bearing interest at the prime rate set by NationsBank, Charlotte, North Carolina, was payable in 10 consecutive annual installments beginning December 31, 1988. As of December 31, 1993, the total outstanding indebtedness was $1.6 million. McGuire, Woods, Battle & Boothe, the law firm in which Robert L. Burrus, Jr. is a partner and of which he is Chairman, regularly provides legal services to the Company and its subsidiaries. Contractual Obligations The Board of Directors has determined that it is in the best interests of CSX and its shareholders to assure that the Company will have the continued dedicated services of its executive officers, notwithstanding the possibility, threat or occurrence of certain changes in control. Therefore, agreements were entered into with Messrs. Snow, Carpenter, Clancey and Ermer that relate to the officers' employment following certain changes of control. For Messrs. Snow, Carpenter and Ermer, the agreements were entered into in 1988. For Mr. Clancey, the agreement was entered into in 1994, and it supersedes an earlier agreement entered into in 1985. The term of each agreement is extended for an additional one-year period on the anniversary date of the agreement unless 60 days prior to any anniversary date CSX gives notice that the term will not be extended. Each agreement provides for the officer's continued employment until the earlier of either three years following a change of control event or normal retirement age as defined under CSX's retirement plans (the "Employment Period"). During the Employment Period, the officer will be entitled to a minimum annual salary and bonus in an amount equal to the annualized highest monthly salary and average annualized bonus paid during the 12 months immediately preceding the change of control event. The officer also will be entitled to participate in incentive, savings and other benefit programs on terms at least as favorable as those in effect during the 90 days preceding the change of control event. The agreements generally provide certain benefits if, following a change in control event, an officer's employment is terminated by the Company or its successor other than for cause, death or disability, or if the officer resigns for "good reason" such as a reduction in responsibilities. In such event, the Company will be obligated to pay to the executive through the date of termination the executive's annual base salary, a pro rata portion of the executive's annual bonus, an amount equal to three times the executive's annual salary and highest annual bonus within the 12 months preceding the change of control, all amounts of previously deferred compensation not yet paid by the Company and a lump sum retirement benefit equal to the difference between the present value of benefits receivable under CSX's retirement plans - 11 - PAGE 12 (assuming such officer had continued to be employed for the Employment Period) and the actual present value of benefits to be received under such plans. CSX also will pay any excise tax or any interest or penalties incurred with respect to such an excise tax which may be imposed pursuant to Section 4999 of the Internal Revenue Code with respect to these lump sum payments. Pursuant to a June 1989 letter agreement with Mr. Davis, Executive Vice President and Chief Operating Officer of CSXT, upon completion of 10 years of service with CSXT, the years of Mr. Davis' prior service with the Union Pacific Corporation will be included in the calculation of his CSX pension. Any benefits payable by CSX pension plans will be reduced by benefits paid by Union Pacific Corporation. In April 1990, pursuant to the 1987 Long-Term Performance Stock Plan ("1987 Plan"), the Company entered into Special Stock Award Agreements with Messrs. Carpenter and Davis. Under the terms of the Agreements, 20,000 shares of CSX common stock were awarded, conditioned on continued employment, to each of Messrs. Carpenter and Davis, one-half of the shares to be issued on the fifth anniversary, and the balance to be issued on the tenth anniversary of each agreement. In February 1994, the Company entered into a similar agreement with Mr. Clancey pursuant to which 10,000 shares of CSX common stock were awarded, conditioned on continued employment, with one-half of the shares to be issued on the fifth anniversary of the agreement, and the balance to be issued on the tenth anniversary of the agreement. In the case of all three agreements, the value of all dividends declared and payable during the period between award and issuance will be paid at the time the share awards are payable. All three agreements will be accelerated in the event of a change of control. On February 9, 1994, the Company entered into an agreement with Mr. Snow awarding him 500,000 non-qualified employee stock options with an exercise price of $89.875 per share. The options were awarded pursuant to the Company's 1987 Plan. The agreement will be accelerated in the event of a change of control. The options were granted in three tranches, each of which has restrictions which do not permit their exercise earlier than (a) passage of a vesting period, and (b) the price of CSX common stock achieving certain threshold levels for a period of 10 consecutive business days ("Price Threshold"). The first tranche of 100,000 options has a vesting period of three years and a Price Threshold of $100 per share; the second tranche of 150,000 options has a vesting period of four years and a Price Threshold of $110 per share; and the third tranche of 250,000 options has a vesting period of five years and a Price Threshold of $120 per share. As to each tranche, if Mr. Snow terminates employment for any reason other than death or disability prior to the satisfaction of the vesting periods and Price Thresholds, the options granted as part of that tranche are forfeited. The agreement includes restrictions on Mr. Snow's ability to sell any shares realized through exercises of options granted pursuant to the agreement. Those restrictions terminate in the event of Mr. Snow's death or disability or in the event of a change of control. - 12 - PAGE 13 Security Ownership of Directors, Nominees and Executive Officers
Amount and Nature of Beneficial Ownership (Note 1) Shares for Which Beneficial Stock Ownership Purchase Other can be Total Percent and Shares Acquired within Beneficial of Name of Loan Plan Beneficially 60 Days Ownership Class Title of Class Beneficial Owner (Note 2) Owned (Note 3) (Note 4) (Note 4) CSX Corp. Edward L. Addison N/A 1,904 N/A 1,904 * Common Stock Elizabeth E. Bailey N/A 1,862 N/A 1,862 * $1 Par Value Robert L. Burrus, Jr. N/A 651 N/A 651 * Bruce C. Gottwald N/A 6,052 N/A 6,052 * John R. Hall N/A 1,000 N/A 1,000 * Clifford M. Kirtland, Jr. N/A 2,161 N/A 2,161 * (Note 5) Robert D. Kunisch N/A 1,366 N/A 1,366 * Hugh L. McColl, Jr. N/A 1,362 N/A 1,362 * James W. McGlothlin (Note 6) N/A 53,864 N/A 53,864 * Southwood J. Morcott N/A 1,606 N/A 1,606 * Charles E. Rice N/A 2,064 N/A 2,064 * William C. Richardson N/A 264 N/A 264 * Frank S. Royal N/A 500 N/A 500 * William B. Sturgill N/A 2,455 N/A 2,455 * John W. Snow 131,960 123,467 381,365 636,792 * Alvin R. Carpenter 52,207 53,922 24,000 130,129 * Jerry R. Davis 40,870 40,214 16,600 97,684 * John P. Clancey 40,870 29,533 16,600 87,003 * James Ermer 31,581 56,084 81,132 168,797 * Executive officers as a group (17 persons, including those named above) and all directors and nominees 548,030 611,849 977,146 2,137,025 1.97 FMR Corp. (Note 7) 82 Devonshire Street, Boston, MA 02109 N/A 9,860,766 N/A 9,860,766 9.10
Notes to Security Ownership of Directors, Nominees and Executive Officers Note 1 Except as otherwise noted, the persons listed have sole voting power as to all shares listed, including shares held in trust under certain deferred compensation plans, and have investment power except with respect to all shares held in trust under deferred compensation plans, investment of which is governed by the terms of the trust. Ownership information is as of March 4, 1994. Note 2 This column reflects grants under the 1991 Stock Purchase and Loan Plan ("SPLP"). There were separate offerings under the SPLP in 1991 and 1992. There were no awards or stock issuances under the SPLP during 1993. Pursuant to the SPLP, the Board's Compensation and Pension Committee, as administrator, granted purchase awards to each participant. Each participant could subscribe to all, a portion, or none of the purchase award offered. Upon subscription to the purchase award, the participant was required to tender to the Company 5 percent of the purchase price of the shares, which could be borrowed from the - 13 - PAGE 14 Company (the "Downpayment Loan"). The participant was required to borrow the remaining balance of 95 percent of the purchase price through a loan from the Company (the "Purchase Loan"). The purchase price for shares purchased pursuant to the SPLP in 1991 was $48.325 per share, and the purchase price for shares issued in 1992 was $64.325 per share. These prices were, for each of the two offerings, the average of the closing price on the New York Stock Exchange for the five business days preceding commencement of the period during which any employee's commitment to purchase had to be made. In the case of the 1991 offering, each Purchase Loan has a term of five years, but can be prepaid without penalty after three years. The loans bear interest at the rate of 7.87 percent per annum, compounded semiannually. Purchase Loans for shares offered in July 1992 have terms of four years, but are prepayable without penalty after two years. At the request of the borrower, the Purchase Loans can be extended one additional year. These loans bear interest at the rate of 6.74 percent per annum. Purchase Loans are non-recourse to the borrower, and each is secured by all of the shares of stock purchased. Dividends paid on shares held as security under the Purchase Loans are applied against accrued and unpaid interest. The terms of the Downpayment Loans parallel those of the Purchase Loans except that the Downpayment Loans are recourse loans and are secured by shares of CSX stock provided by the borrower. Under the terms of the SPLP, as of August 1, 1993, the principal balance and interest under each Purchase Loan was subject to various adjustments as a result of the market price of the common stock having equalled or exceeded certain threshold levels for a period of 10 consecutive business days. These adjustments on the Purchase Loans consisted of forgiveness of the Interest Spread (the difference between accrued interest on the Downpayment Loan and any dividends on the shares purchased) and a reduction of 25 percent of the purchase price. The table below reflects Purchase Loan balances both before and after such adjustments. The benefits of the adjustments described are not available to participants exiting the SPLP prior to August 1, 1994. Dividends on the stock held as collateral under Downpayment Loans are paid directly to the borrower. Interest on the down payment notes was forgiven as a result of the market price of the CSX common stock having equalled or exceeded certain threshold levels for a period of 10 consecutive business days after August 1, 1993. The table below reflects Downpayment Loan balances both before and after adjustments are made. For Messrs. Snow, Carpenter, Davis, Clancey and Ermer, the number of shares purchased pursuant to the SPLP, the purchase price for those shares, and the aggregate loan balances as of December 31, 1993, both with and without the adjustments described above, are indicated in the following table. Messrs. Snow, Carpenter, Davis, Clancey and Ermer all took Downpayment Loans for 5 percent of the purchase price of shares. - 14 - PAGE 15
Unadjusted Unadjusted Adjusted Adjusted Number of Purchase Loan Down Payment Purchase Loan Downpayment Shares Purchase Balances Loan Balances Balances Loan Balances Name Purchased Price 12/31/93(i) 12/31/93(ii) 12/31/93(iii) 12/31/93(iv) J.W. Snow 131,960 $ 6,376,967 $ 6,704,916 $ 379,491 $ 4,463,877 $ 318,848 A.R. Carpenter 52,207 2,704,295 2,809,025 157,478 1,893,007 135,215 J.R. Davis 40,870 1,975,043 2,076,613 117,534 1,382,530 98,752 J.P. Clancey 40,870 2,253,843 2,316,963 128,817 1,577,690 112,692 J. Ermer 31,581 1,526,152 1,604,637 90,821 1,068,306 76,308 All executive officers as a group (17 persons, including those named above) 548,030 $27,162,270 $28,430,637 $1,603,494 $19,013,589 $1,358,113
(i) Unadjusted Purchase Loan balances include principal equal to 95 percent of the actual cost of the common stock and accrued interest net of dividends applied. (ii) Unadjusted Downpayment Loan balances include principal equal to 5 percent of the actual cost of the common stock and accrued interest. (iii) Adjusted Purchase Loan Balances reflect reduction of the Unadjusted Purchase Loan Balance by the Interest Spread and 25 percent of the Purchase Price, as a result of achievement of the thresholds discussed above. (iv) Adjusted Downpayment Loan Balances reflect reduction of the Unadjusted Downpayment Loan Balance by the accrued interest on the Downpayment Loan as a result of achievement of the thresholds discussed above. Note 3 Represents shares under options or stock appreciation rights exercisable within 60 days, based on the market price of CSX common stock on March 4, 1994. Note 4 Based on number of shares outstanding of 108,365,812 on March 4, 1994, including 3,716,887 shares deemed outstanding for which beneficial ownership can be acquired within 60 days. An asterisk (*) indicates that ownership is less than one percent of class. Note 5 Mr. Kirtland will retire as a director on May 3, 1994. Note 6 Mr. McGlothlin's ownership includes 51,000 shares of common stock as a result of stock holdings by affiliates of Mr. McGlothlin in which he shares voting and investment power. Note 7 Information reported is derived from a Schedule 13G of FMR Corporation dated February 11, 1994, and filed with the Securities and Exchange Commission. As reported in the Schedule 13G, the person filing the statement has the sole power to vote or to direct the vote of 773,887 shares, and has the sole power to dispose or to direct the disposition of 9,860,766 shares. Shares outstanding as of March 4, 1994 have been used to determine percent of class. - 15 - PAGE 16 Executive Compensation The individuals named below (the "Named Executives") include the Company's Chief Executive Officer and the other four executive officers of the Company who were the most highly compensated executive officers of the Company as of the end of the fiscal year ending December 31, 1993. Information is provided for the fiscal years ending on December 31 of the years shown. Summary Compensation Table
Annual Compensation Long-Term Compensation (Note 2) Awards Payouts Other Securities Annual Underlying LTIP All Other Compensation Options/ Payouts Compensation Name and ($) SARs (#) ($) ($) Principal Position Year Salary ($) Bonus ($) (Note 1) (Note 3) (Note 4) (Note 5) John W. Snow 1993 $746,758 $850,894 $56,146 76,200 $1,585,395 $98,605 Chairman, President 1992 746,758 700,060 50,070 76,200 842,100 85,004 & CEO 1991 669,504 565,698 N/A 66,700 396,694 N/A Alvin R. Carpenter 1993 432,475 417,094 N/A 24,000 647,280 18,986 President & CEO, 1992 380,988 367,140 N/A 24,000 312,554 16,367 CSXT 1991 321,360 197,590 N/A 15,898 217,905 N/A Jerry R. Davis 1993 360,566 347,642 N/A 16,600 587,064 19,993 Executive Vice 1992 360,471 313,406 N/A 16,600 297,291 17,235 President & COO, 1991 321,360 197,590 N/A 15,898 175,555 N/A CSXT John P. Clancey 1993 382,450 254,142 N/A 16,600 614,296 0 President & CEO, 1992 369,004 244,546 N/A 16,600 256,089 0 Sea-Land 1991 253,959 158,933 N/A 8,096 157,086 N/A James Ermer 1993 309,012 254,134 N/A 12,900 505,817 6,298 Senior Vice 1992 309,012 205,958 N/A 12,900 268,645 5,429 President - Finance 1991 283,254 169,870 N/A 11,714 194,460 N/A
Notes to Summary Compensation Table Note 1 In 1993, the only perquisites or other personal benefits exceeding 25 percent of the total perquisites and other personal benefits afforded to a named officer were, in the case of Mr. Snow, premiums for life insurance of $31,657. In 1992, the only such perquisites or other personal benefits for Mr. Snow were premiums for life insurance of $24,369. Note 2 During 1993, no restricted stock was outstanding, therefore, no "Restricted Stock Award" column has been included. Note 3 Represents number of employee stock options granted. Stock appreciation rights ("SARs") were not granted in 1991, 1992 or 1993. Note 4 LTIP (Long-Term Incentive Plan) payouts for 1993 represent the fair market value of $89.875 per share of performance shares awarded pursuant to 1987 Long-Term Performance Stock Plan on February 9, 1994, the date of the award. Tax valuation may differ. (See also, the - 16 - PAGE 17 Long-Term Incentive Plans - Awards in Last Fiscal Year table on page 18 and Note 2 to the Security Ownership of Directors, Nominees and Executive Officers table on page 13, regarding the Company's 1991 Stock Purchase and Loan Plan and awards made pursuant to it.) Note 5 Amounts shown are comprised of the above-market portion of earnings on a deferred compensation program available to executives only during 1985, 1986, 1988 and 1989. Option/SAR Grants in Last Fiscal Year (Note 1)
Grant Date Individual Grants Value Number of Securities Percent of Total Underlying Options/SARs Options/SARs Granted to Grant Date Granted Employees in Exercise or Present (#) Fiscal Year Base Price Expiration Value Name (Note 2) (Note 3) ($/Share) Date (Note 4) John W. Snow 76,200 6.8% $73.375 4/27/03 $2,143,506 Alvin R. Carpenter 24,000 2.1 73.375 4/27/03 675,120 Jerry R. Davis 16,600 1.5 73.375 4/27/03 466,958 John P. Clancey 16,600 1.5 73.375 4/27/03 466,958 James Ermer 12,900 1.2 73.375 4/27/03 362,877
Notes to Option/SAR Grants Table Note 1 SARs were not granted during 1993. Note 2 Stock options granted to employees on April 27, 1993, were granted at the fair market value as of the date of the grant. In addition, the options are subject to an exercisability restriction, becoming exercisable in three tranches, each of which equals one-third of the total grant, at such time as the mean daily price of CSX common stock has remained for 10 consecutive business days at a price per share, for each tranche respectively, of $78.375, $83.375 and $88.375. However, regardless of whether the stock price-related exercisability restrictions are satisfied, the options may not be exercised until one year after the date of the grant. Note 3 A total of 1,116,900 employee stock options was granted on April 27, 1993. Note 4 The present value of options granted has been reported using the Black-Scholes option pricing model. These values assume: grant date - April 27, 1993; exercise price - $73.375 (mean price on grant date); closing price on grant date - $72.625; assumed exercise date - April 26, 2003; risk free rate of return - 6.0% (10-year U.S. Treasury note yield on April 27, 1993); dividend at time of grant - $0.38 per share per quarter; volatility assumption - 25%. - 17 - PAGE 18 Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
Value of Unexercised Number of Securities In-the-Money Underlying Unexercised Options/SARs at FY-End Options/SARs at FY-End (Note 2) Shares Value Acquired on Realized ($) Exercisable Unexercisable Exercisable Unexercisable Name Exercise (#) (Note 1) (#) (#) ($) ($) John W. Snow 50,000 $2,246,875 327,480 76,200 $13,784,267 $714,375 Alvin R. Carpenter 24,000 420,000 0 24,000 0 225,000 Jerry R. Davis 15,898 523,640 16,600 16,600 335,113 155,625 John P. Clancey 26,407 1,067,488 16,600 16,600 335,113 155,625 James Ermer 0 0 74,094 12,900 3,309,792 120,937
Notes to Aggregated Option/SAR Exercise Table Note 1 Value realized represents the difference between the exercise price of the option or SAR and the fair market value of CSX common stock on the date of exercise. Note 2 Value of unexercised options/SARs at fiscal year-end represents the difference between the exercise price of any outstanding option/SAR grants and $82.75, the mean value of CSX common stock on December 31, 1993. Long-Term Incentive Plans -- Awards in Last Fiscal Year
Estimated Future Payouts Under Non-Stock Price-Based Plans Number of Shares, Performance or Units or Other Other Period Until Threshold Target Maximum Name Rights (#)(Note 1) Maturation or Payout (#) (#) (#) John W. Snow 19,000 3 years 2,470 12,730 19,000 Alvin R. Carpenter 7,400 3 years 962 4,958 7,400 Jerry R. Davis 6,300 3 years 819 4,221 6,300 John P. Clancey 6,300 3 years 819 4,221 6,300 James Ermer 5,700 3 years 741 3,819 5,700
Notes to Long-Term Incentive Plan Table Note 1 Represents the number of performance shares granted on April 27, 1993, pursuant to the 1987 Long-Term Performance Stock Plan. The final payouts in CSX stock are based on the financial performance of the participant's business unit over a three-year period. Performance is measured by the business unit's return on invested capital. The estimated threshold payout was calculated at 13% of the performance shares granted and represents the number of shares of CSX stock that would be awarded if a specified minimum level of financial performance is achieved by the participant's business unit. The estimated target payout was calculated at 67% of the performance shares granted and represents the number of shares of CSX stock that would be awarded if a specified interim level of financial - 18 - PAGE 19 performance is achieved by the participant's business unit. The maximum equals 100% of the performance shares granted on April 27, 1993. The levels of financial performance that must be achieved are established at the beginning of each year of the three-year performance cycle based on performance during the prior year. No awards were made under the 1991 Stock Purchase and Loan Plan during 1993. Pension Plan Table
Average Compensation Gross Annual Pension Payable Before Offset During Five Consecutive for Railroad Retirement of Social Security Years of Highest Pay Annuity Based on Creditable Years of Service of: 15 Years 20 Years 25 Years 30 Years 35 Years 40 Years 44 Years $ 400,000 90,000 120,000 150,000 180,000 210,000 240,000 264,000 600,000 135,000 180,000 225,000 270,000 315,000 360,000 396,000 800,000 180,000 240,000 300,000 360,000 420,000 480,000 528,000 1,000,000 225,000 300,000 375,000 450,000 525,000 600,000 660,000 1,200,000 270,000 360,000 450,000 540,000 630,000 720,000 792,000 1,400,000 315,000 420,000 525,000 630,000 735,000 840,000 924,000 1,600,000 360,000 480,000 600,000 720,000 840,000 960,000 1,056,000 1,800,000 405,000 540,000 675,000 810,000 945,000 1,080,000 1,188,000
Retirement benefits under funded and unfunded non-contributory pension plans ("Pension Plans") of CSX and certain of its subsidiaries are based on both length of service and compensation. The compensation covered by the Pension Plans is compensation paid by CSX or its subsidiaries to a participant on a regular monthly or annual salary basis, including bonuses or similar awards for personal services rendered in a position that is not under the scope of a labor agreement. (Compensation items listed in the Summary Compensation Table on page 16 covered by the Pension Plans are Base Salary and Bonus.) The benefits are computed at the time of retirement under a defined benefit formula based on years of service and average compensation for the highest 60 consecutive months of service. The formula also takes into account retirement benefits under the Social Security Act or Railroad Retirement Act attributable to service by the participant for the employer. The Pension Plans provide for normal retirement at age 65, and, subject to certain eligibility requirements, early retirement beginning at age 55 is permitted with reduced pension payments. Certain participants in the Pension Plans may be eligible to receive an additional year of unfunded credit for each year of actual service beginning at age 45 and, in certain instances, such credit for periods prior to employment by CSX or its subsidiaries, with a 44-year maximum on total service. The above table sets forth the estimated annual benefits payable, before offset for the Social Security or Railroad Retirement annuity, by CSX and certain of its subsidiaries to any officer or salaried employee upon retirement at the normal retirement age after selected periods of service and in specified compensation groups. As of December 31, 1993, the individuals named in the Summary Compensation Table had the following credited years of service: Mr. Snow, 26.0 years; Mr. Carpenter, 36.5 years; Mr. Davis, 4.5 years; Mr. Clancey, 26.8 years; and Mr. Ermer, 31.1 years. The Internal Revenue Code imposes certain limitations on compensation and benefits payable from tax qualified pension plans. Pension amounts in excess of such limitations are payable from the non-qualified Special and Supplemental Plans which are not funded. - 19 - PAGE 20 Report of the Compensation and Pension Committee Concerning Executive Compensation Administration of Compensation Programs The Compensation and Pension Committee ("Committee") reviews and approves compensation for senior executives of CSX, including the Chief Executive Officer and the other executives whose compensation is described in this Proxy Statement. The Committee is composed entirely of outside directors. Compensation Philosophy The Committee and the Board of Directors of CSX believe that shareholder value depends upon closely aligning the financial interests of shareholders with those of the Company's employees, including its senior executives. The Company relies heavily on incentive compensation programs to motivate employees. These programs are variable and tied to business unit and individual performance. Paid in cash and in stock, these plans place "at risk" a major portion of senior executives' compensation to encourage sharp and continuing focus on building shareholder value. The Company expects executives to acquire and hold significant amounts of stock and, in part, the Company's compensation programs are designed to accomplish that objective. Components of the Compensation Program The Committee believes that competitive compensation packages help the Company attract and retain highly motivated and effective executives. The compensation package for senior executives is composed of base salary, annual bonus and long-term incentives, including stock options and performance shares. The Committee compares the value of total compensation paid to senior executives to that paid by companies of similar size. Specifically, the Committee considers compensation paid at companies with revenues of $6 to $10 billion annually, in transportation and other industries. Those approximately 70 companies participate in surveys conducted by nationally recognized outside consultants and are identified by such consultants as companies with which CSX may compete for executive talent. The comparison companies are not identical to those included in the Dow Jones Transportation Average described in the Performance Graph. When analyzing the components of compensation, the Committee generally seeks to provide overall compensation for senior executives up to the 85th percentile of the comparison companies if business unit financial and strategic objectives are fully met. Base Salary. Base salaries are targeted around the 50th percentile of salaries paid for similar positions at the comparison companies. When determining salary adjustments, the Committee also considers the objective measures of the Company's performance described elsewhere in this report, such as return on invested capital and the subjective evaluation of the senior executive's contribution to that performance. Annual Bonus. Under the Management Incentive Compensation Plan ("MICP"), annual incentive bonuses are payable in cash based on business unit performance. If the proposed Senior Management Incentive Compensation Plan - 20 - PAGE 21 described in this Proxy Statement (the "SMICP") is adopted, future bonuses will be paid to the Chief Executive Officer and the other executives whose compensation is described in this Proxy Statement under the SMICP. Under either the MICP or SMICP, total annual cash compensation (salary plus bonus) generally would be targeted at the 75th percentile of the comparison companies if the business unit and individual objectives were met. Each position has a bonus award formula which sets forth opportunities (expressed as a percentage of base salary) that a senior executive may receive. Awards depend upon the financial and strategic performance of the business unit against measures established prior to the beginning of each year. Under the MICP, two thirds of bonus awards are determined by objective financial measures, specifically, a business unit's return on invested capital earned for the year, compared to the Company's cost of capital. The balance of the bonus award is determined by accomplishment of strategic objectives, including increased free cash flow, shareholder value created, capital market access, successful investor relations and safety improvements. For any bonus paid under the proposed SMICP, all of the award would be determined entirely by objective measures. Long-term Incentives. Long-term incentives paid under the Long-Term Performance Stock Plan generally take the form of stock option grants and performance share awards. The ultimate value of these long-term incentives depends entirely on the value of the Company's stock and, consequently, the creation of shareholder value. Stock option grants in 1993 were targeted, based on grant date value, at the 75th percentile of the comparison companies. Those options vest within one year but are only exercisable if the stock price reaches certain threshold levels that are established at the time of the option grant. Performance share grants are established at the beginning of three- year cycles. When establishing grant levels, the Committee considers historical grants, stock price and business unit financial objectives. The actual award is made at the conclusion of the three-year cycle based on financial performance of each business unit as determined by the average return on invested capital earned during the period. Tax Considerations In 1993 Congress enacted legislation that eliminated federal income tax deductions for certain compensation over $1 million paid to the Chief Executive Officer and the other four most highly compensated executives required to be named in the annual Proxy Statement. Beginning in 1994, the new law generally eliminates such deductions unless compensation is awarded under plans meeting a number of requirements based upon objective performance standards and advance shareholder approval. The Company's compensation program for senior executives has both objective and discretionary elements. The Committee wishes to maximize deductibility of compensation payments and, to that end, is seeking shareholder approval of the SMICP and qualifying amendments to the 1987 Plan, which is the plan under which long-term incentive payments are made. However, the Committee does not believe the new tax law requirements are fully - 21 - PAGE 22 consistent with sound senior executive compensation policy. Specifically, to achieve full tax deductibility, the tax law requirements do not afford companies flexibility to respond to changing market conditions, to reflect subjective performance factors or to reward extraordinary performance of an unforeseen type. To ensure such flexibility, the Committee reserves the right to make additional incentive payments that may not qualify for deduction if the recipient's compensation exceeds the $1 million limit. CEO Compensation In 1993, the most highly compensated officer was Mr. Snow. His base salary was slightly below the median of the comparison companies, which reflects the Committee's focus on pay for performance and the desire to motivate employees, particularly the Chief Executive Officer, through variable, versus fixed, compensation. Mr. Snow's 1993 base salary was unchanged from the year before. Mr. Snow's 1993 annual bonus was based on a review of his and the Company's financial and strategic accomplishments. The Committee was very pleased with the progress of the Company during that period and granted Mr. Snow an award equal to 117 percent of his base salary during 1993. In awarding the bonus, the Committee considered financial and strategic performance. Most notably, the Company achieved its key financial objective of having each of its major operating units meet or exceed its cost of capital. In addition, the Company's 1993 consolidated operating revenue was higher than 1992, despite external difficulties such as declines in export coal, a prolonged coal strike, major storms in the Southeast, and disruptive Midwest flooding. The Company's 1993 consolidated operating expense was lower than 1992, reflecting a sharp focus on cost controls and expense reductions to offset revenue losses resulting from the extraordinary external events mentioned. Furthermore, a major strategic accomplishment was successful completion of reduced crew consist agreements with rail labor, which will yield measurable cost savings in future years. The Committee believes these 1993 successes can largely be attributed to Mr. Snow's focus on customers, core businesses and management accountability. The largest portion of Mr. Snow's 1993 compensation was in the form of long-term incentives (performance shares and stock options). His 1993 performance share and stock option grants were approximately at the 75th percentile of the comparison companies based on grant date value. The actual long-term value of these grants depends upon the creation of future shareholder value. During Mr. Snow's approximately three-year tenure as Chairman and Chief Executive Officer, the Company's stock price has reached record highs, increasing by more than 130 percent, from around $35.50 to $81.88 per share at the end of 1993. During his three-year tenure, the Company's average annual return to shareholders, including dividends, was 43 percent, while the average annual return of the Company's peer group described in the Performance Graph was 26 percent, and the S&P 500 index average annual return was 15 percent. This performance added $6.1 billion to shareholder value during this three- year period. Moreover, in 1993, the Company increased its dividend by about 16%, reflecting success in achieving another key financial objective, the generation of free cash flow. - 22 - PAGE 23 In addition to meeting financial and strategic objectives, the Committee believes Mr. Snow has strengthened the Company's relationships with the investment community, has generated confidence and enthusiasm among the Company's employees and has demonstrated leadership in the U.S. business community through his activities in government projects and key business groups. Compensation and Pension Committee William B. Sturgill, Chairman Robert L. Kunisch Southwood J. Morcott William C. Richardson, the entire Committee Richmond, Virginia February 8, 1994 - 23 - PAGE 24 2. APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As recommended by the Audit Committee, the Board of Directors designated, subject to ratification by the shareholders, the firm of Ernst & Young as independent auditors to audit and report on CSX's financial statements for the year 1994. Action by shareholders is not required by law in the appointment of independent auditors, but their appointment is submitted by the Board in order to give the shareholders the final choice in the designation of independent auditors. Ernst & Young has no direct or indirect financial interest in CSX or in any of its subsidiaries, nor has it had any connection with CSX or any of its subsidiaries in the capacity of promoter, underwriter, voting trustee, director, officer or employee. Representatives of Ernst & Young will be present at the meeting of shareholders and will be afforded an opportunity to make a statement if they desire to do so. It is also expected that they will be available to respond to appropriate questions. The Board of Directors recommends a vote FOR this proposal. 3. APPROVAL OF AMENDMENTS TO AND RESTATEMENT OF THE 1987 LONG-TERM PERFORMANCE STOCK PLAN On February 9, 1994, the Board of Directors, acting on the recommendation of the Compensation and Pension Committee, amended and restated the 1987 Long-Term Performance Stock Plan (the "1987 Plan") effective as of May 3, 1994, and directed that the restated 1987 Plan be submitted to the shareholders for their approval. As approved by the shareholders in 1987 and amended with their approval in 1991, the 1987 Plan presently sets a maximum authorization of 11,000,000 shares of common stock that may be issued with respect to options and awards. At present, there are approximately 874,000 of these shares remaining available for future grants. The Board of Directors believes that the 1987 Plan has been effective in helping the Company to attract and retain outstanding individuals as officers and key employees and to furnish motivation for the achievement of long-term objectives through opportunities to acquire CSX common stock or monetary payments based on the value of such stock or the financial performance of CSX, or both. In addition, the Board also believes that certain amendments to the Plan are advisable for administrative purposes and to permit the Company to continue to take certain deductions for executive compensation in excess of $1 million pursuant to the Omnibus Budget Reconciliation Act of 1993 (the "1993 Tax Act"). Accordingly, the Board of Directors on February 9, 1994, adopted amendments to the 1987 Plan, subject to shareholder approval, to increase the number of shares available for issuance under the 1987 Plan by an additional 5,000,000; to clarify the rights of participants in the 1987 Plan upon termination or separation from employment; to eliminate Limited Stock Appreciation Rights from the Plan; and to extend the termination date of the Plan from December 10, 1996, to May 2, 1999. - 24 - PAGE 25 The principal features of the proposed amendment to the 1987 Plan are summarized below. The summary is qualified by reference to the complete text of the 1987 Plan, as amended and restated, which is attached as Appendix A. Incentive Opportunities The 1987 Plan provides for the grant to officers and key employees of CSX and of its subsidiaries selected by the Committee of incentive opportunities (Incentives) in any one or a combination of forms, consisting of Incentive Stock Options (ISOs), Non-Qualified Stock Options (NQSOs), Stock Appreciation Rights (SARs), Performance Share Awards, Performance Unit Awards, or Restricted Stock Awards. It is intended that the Incentives provided under the 1987 Plan will be treated as qualified performance-based compensation under Section 162(m) of the Internal Revenue Code. As amended, the 1987 Plan also specifies the maximum number of shares of CSX common stock with respect to which Incentives can be granted during any plan year. The number and type of awards that may be granted in the future under the 1987 Plan, as well as the number of eligible employees who may be granted such awards, are not determinable at this time. Currently, there are approximately 340 active employees who are participants in the 1987 Plan. The awards made under the 1987 Plan during the year 1993 are shown on the "Option/SAR Grants in Last Fiscal Year" table on page 17, the "Long-Term Incentive Plans - Awards in Last Fiscal Year" table on page 18 and the "New Plan Benefits" table on page 28. Additional Shares Authorization Since the 1987 Plan's inception, approximately 5.3 million shares of CSX common stock, par value $1.00 per share have been issued and approximately 4.8 million shares are presently reserved for issuance under authorized grants. There are currently approximately 874,000 shares available for future grants. The amendment would increase this number by 5,000,000 shares and would allow shares surrendered in connection with the exercise of Incentives to be available for future grant, with certain limitations relevant to executive officers subject to the Securities Exchange Act of 1934. Terms of Incentives The 1987 Plan provides that the exercise price of any ISO or NQSO shall be not less than the fair market value of the common shares on the date that the option is granted. Payment of the purchase price for option stock can be made in cash or by delivery of other common shares of CSX, or a combination of both. Under the proposed amendments the Committee would be authorized to adopt programs and procedures for loans to be made by CSX to any option holder to acquire or carry options shares. The Committee is not presently contemplating any such loan program. The period of any option will be determined by the Committee, but no options granted may be exercised earlier than one year after the date of grant nor later than 10 years after the date of grant. The Committee may add restrictions or conditions on the exercise of options in addition to the one- year holding requirement. The proposed amendments to the 1987 Plan provide special rules covering the time and exercise of options in cases of death, - 25 - PAGE 26 disability, retirement or other termination of employment. The 1987 Plan also provides that, notwithstanding any other provision, upon the occurrence of a Change in Control (as defined in the 1987 Plan), all Incentives, whether or not then exercisable, will be accelerated. Termination Provisions The 1987 Plan currently provides that it will terminate, if not sooner terminated, on December 10, 1996. In order to make the benefits of the 1987 Plan available to the Company for a longer period, the proposed amendments will extend the automatic termination date to May 2, 1999. Incentives granted under the 1987 Plan are exercisable only by a participant during lifetime and are non-assignable and non-transferable, except that upon a participant's death Incentives may be exercised by the person to whom such right passes by will or by the laws of descent and distribution. The proposed amendments would permit the Incentives to be exercised by a beneficiary designated by a participant or by the executor of the participant's estate. Federal Income Tax Consequences Under existing law and regulations, the grant of NQSOs and SARs will not result in income taxable to the employee or provide a deduction to CSX. However, the exercise of a NQSO or an SAR results in taxable income to the employee and CSX is entitled to a corresponding deduction. At the time of the exercise of a NQSO, the amount so taxable and so deductible will be the excess of the fair market value of the shares purchased over their option price. Upon the exercise of an SAR, the participant will be taxed at ordinary income tax rates on the amount of the cash and the fair market value of the shares received, and CSX will be entitled to a corresponding deduction. If ISO shares are held two years from the date of grant and one year from the date of exercise, then a sale will result in any increment in value from the date of grant being treated as capital gains for federal income tax purposes. If ISO shares are sold prior to expiration of the above period, then any increment in value will be treated as ordinary income to the individual and CSX will be entitled to a deduction for all amounts included in the employee's federal taxable income as a consequence of such disqualifying disposition. There is a $100,000 per employee limitation on the value of ISOs exercisable in any one calendar year. An employee who is granted a Restricted Stock Award will not be taxed upon the acquisition of such shares so long as the interest in such shares is subject to a "substantial risk of forfeiture" within the meaning of Section 83 of the Internal Revenue Code. Upon lapse or release of the restrictions, the participant will be taxed at ordinary income tax rates on an amount equal to either the current fair market value of the shares (in the case of lapse or termination) or the sale price (in case of a sale). CSX will be entitled to a corresponding tax deduction. A participant will realize ordinary income as a result of Performance Share Awards and Performance Unit Awards at the time common shares are transferred or cash is paid in an amount equal to the value of the shares - 26 - PAGE 27 delivered plus the cash paid. CSX will be entitled to a corresponding tax deduction. Effect on Earnings Currently, neither the grant nor the exercise of an ISO or a NQSO under the 1987 Plan will result in any charge to pretax earnings. Grants of restricted stock result in a charge to pretax earnings upon issuance of the stock. All other incentive opportunities provided by the 1987 Plan will require a pretax charge to earnings accrued over an appropriate period of time, based on the difference between fair market value of the shares or award and the grant price. Vote Required The affirmative vote of the majority of shares represented at the meeting and entitled to vote thereon will be required for adoption of the Amendments to the 1987 Long-Term Performance Stock Plan. For this purpose, abstentions will be treated as "no" votes, and broker "non-votes" will not be counted. The Board of Directors recommends a vote FOR the proposal to amend the 1987 Long-Term Performance Stock Plan. 4. APPROVAL OF 1994 SENIOR MANAGEMENT INCENTIVE COMPENSATION PLAN On February 9, 1994, the Board of Directors, acting on the recommendation of the Compensation and Pension Committee, approved and adopted the CSX Corporation Senior Management Incentive Compensation Plan (the "SMICP") effective as of January 1, 1994, and directed that it be submitted to the shareholders for their approval. The Board of Directors believes that the SMICP is important to encourage the senior management of CSX Corporation to achieve planned financial goals in order to increase shareholder value. It is intended that awards under the SMICP based solely on the achievement of financial objectives will be treated as performance-based compensation within the meaning of Section 162(m) of the Internal Revenue Code that will qualify for exclusion from the $1 million limitation on deductibility of executive compensation under the Omnibus Budget Reconciliation Act of 1993. Awards under the SMICP will constitute a portion of annual bonus for employees covered by the plan. The following summary description of the SMICP is qualified in its entirety by reference to the full text of the SMICP, which is attached to this Proxy Statement as Appendix B. Administration of the SMICP The SMICP will be administered by a Committee (the "Committee") comprised of members of the Board of Directors who are "outside directors" within the meaning of Section 162(m) of the Internal Revenue Code, and who are not eligible to participate or to receive any benefits pursuant to the SMICP. Awards under the SMICP will be paid in cash only. Only those employees whose compensation is anticipated to be subject to the provisions of Section 162(m) - 27 - PAGE 28 of the Internal Revenue Code that relate to deductibility of executive compensation and who are designated by the Committee prior to the beginning of the plan year will be covered employees for purposes of the SMICP. At the end of each plan year, the Committee will approve incentive awards based on the achievement of the previously approved financial performance objectives. Vote Required The affirmative vote of the majority of shares represented at the meeting and entitled to vote thereon will be required for adoption of the SMICP. Other Information Because the amount to be earned and paid to participants in the SMICP for 1994 and future years is dependent on the financial performance of the participant's business unit, it is impossible to calculate the future awards to each participant. However, had the SMICP been in effect for calendar year 1993, the following amounts would have been paid under the SMICP, based on the levels of financial performance measures and award opportunities that have been established for 1994. New Plan Benefits
SMICP Awards During 1993 Under 1987 Plan Stock Options Performance Shares ---------------------------- ------------------------- Dollar Value ($) Grant Date Value Name (Note 1) (#) $(Note 2) #(Note 3) $(Note 4) John W. Snow $650,329 76,200 $2,143,506 19,000 $1,585,395 Alvin R. Carpenter 318,780 24,000 675,120 7,400 647,280 Jerry R. Davis 265,699 16,600 466,958 6,300 587,064 John P. Clancey 224,247 16,600 466,958 6,300 614,296 James Ermer 194,108 12,900 362,877 5,700 505,817 Executive officers as a group (17 persons, including those named above) $1,653,163 238,400 $6,706,192 82,400 $7,907,742 Non-executive officer employee group N/A 878,500 $24,712,205 47,000 $33,468,820
Notes to New Benefits Plans Table Note 1 Represents value of awards that would have been paid had the SMICP been in effect for calendar year 1993, based on the levels of financial performance measures and award opportunities that have been established for 1994. Note 2 This is a hypothetical valuation using a modified Black-Scholes valuation formula. See Note 4 to the Option Grant table on page 17 for an explanation of the assumptions used in determining this valuation. - 28 - PAGE 29 Note 3 Represents the number of performance shares granted on April 27, 1993. See Note 1 to the Long-Term Incentive Plan table on page 18 for a detailed description of these awards. Note 4.Represents the fair market value of $89.875 per share of performance shares awarded on February 9, 1994, for the 1991-92-93 performance cycle. The Board of Directors recommends a vote FOR the proposal to approve the 1994 Senior Management Incentive Compensation Plan. ADDITIONAL INFORMATION Voting Procedures Votes are tabulated by three Inspectors of Election. Except as noted with respect to the 1987 Plan, abstentions and broker "non-votes" are not considered to be voting "for" or "against" any proposal or any person nominated for director. The Company's by-laws provide that a majority of the outstanding shares of stock entitled to vote constitute a quorum at any meeting of shareholders. In accordance with the law of Virginia, the Company's state of incorporation, directors are elected by a plurality of votes cast by the shares entitled to vote at a meeting at which a quorum is present. Date for Receipt of Shareholder Proposals Shareholder proposals for inclusion in the Proxy Statement for the 1995 Annual Meeting of Shareholders must be received at the principal executive offices of CSX on or before November 10, 1994. Solicitation of Proxies The cost of soliciting proxies is being paid by CSX. In addition to solicitation by mail, officers and regular employees of CSX, at no additional compensation, may request the return of proxies by personal conversations or by telephone, telecopy or telegraph. It is also expected that, for a fee of $10,000 plus reimbursement of certain expenses, additional solicitation will be made by personal interview, telephone, telecopy and telegraph under the direction of the proxy solicitation firm of D. F. King & Co., 77 Water Street, New York, New York 10005. March 11, 1994 By Order of the Board of Directors Alan A. Rudnick Vice President-General Counsel and Corporate Secretary - 29 - PAGE 30 [LOGO] This proxy is Solicited on Behalf of the Board of Directors for the Annual Meeting on May 3, 1994 The undersigned hereby appoints John W. Snow, Mark G. Aron and Alan A. Rudnick, or any one of them, with the power of substitution in each, proxies to vote all stock of the undersigned on the following proposals and, in their discretion, upon such other matters as may properly come before the Annual Meeting of Shareholders to be held at The Greenbrier, White Sulphur Springs, WV, on May 3, 1994, and at all adjournments thereof. Please sign and date on the reverse and return promptly in the enclosed postage paid envelope.(over) (Continued from other side) The Board of Directors of CSX Corporation recommends a vote FOR Items 1, 2, 3 and 4. Shares will be so voted unless you otherwise indicate. 1. Election of Directors. [ ] FOR all nominees listed below, except as marked to the contrary (see instruction): E.L.Addison; E.E. Bailey; R.L. Burrus Jr.; B.C. Gottwald; C.M. Kirtland Jr.; R.D. Kunisch; H.L. McColl Jr.; J.W. McGlothlin; S.J. Morcott; C.E. Rice; W.C. Richardson; F.S. Royal, MD.; J.W. Snow; W.B. Sturgill. (INSTRUCTION: To withhold authority to vote for any individual nominee, strike a line through nominee's name in list above.) [ ] WITHHOLD AUTHORITY to vote for all nominees listed above. 2. Appointment of Ernst & Young as independent certified public accountants. [ ] FOR [ ] AGAINST [ ] ABSTAIN 3. Approval of amendments to 1987 Long-Term Performance Stock Plan. [ ] FOR [ ] AGAINST [ ] ABSTAIN 4. Approval of 1994 Senior Management Incentive Compensation Plan. [ ] FOR [ ] AGAINST [ ] ABSTAIN Date: ____________________________________ Please Sign: _____________________________ ------------------------------------------ Note: Please sign exactly as your name appears on this Card. Joint owners should each sign personally. Corporation Proxies should be signed by an authorized officer. Executors, Administrators, trustees, etc., - 30 - EX-99 2 INDEX TO EXHIBITS PAGE 1 CSX CORPORATION INDEX TO EXHIBITS Description Value - ----------- ----- 1987 Long-Term Performance Stock Plan EX-10.1 Senior Management Incentive Compensation Plan EX-10.2 Appendix Describing Graphic Materials EX-99 - E-1 - EX-10.1 3 1987 LONG-TERM PERFORMANCE STOCK PLAN PAGE 1 Exhibit 10.1 Appendix A CSX CORPORATION 1987 Long-Term Performance Stock Plan as Amended and Restated May 3, 1994 1. Purpose The purpose of the CSX Corporation Long-Term Performance Stock Plan is to attract and retain outstanding individuals as officers and key employees of CSX Corporation and its subsidiaries, to furnish motivation for the achievement of long-term performance objectives by providing such persons opportunities to acquire ownership of common shares of the Company, monetary payments based on the value of such shares or the financial performance of the Company, or both, on terms as herein provided. It is intended that the Incentives provided under this Plan will be treated as qualified performance- based compensation within the meaning of Section 162(m) of the Code. 2. Definitions Whenever the following words are capitalized and used in the Plan, they shall have the respective meanings set forth below, unless a different meaning is expressly provided. Unless the context clearly indicates to the contrary, in reading this document the singular shall include the plural and the masculine shall include the feminine. a. "Beneficiary": The term Beneficiary shall mean the person designated by the Participant, on a form provided by the Company, to exercise the Participant's rights in accordance with Section 14 of the Plan in the event of his death. b. "Board of Directors": The term Board of Directors or Board means the Board of Directors of CSX Corporation. c. "Cause": The term Cause means (i) an act or acts of personal dishonesty of a Participant intended to result in substantial personal enrichment of the Participant at the expense of the Company or any of its subsidiaries, (ii) violation of the management responsibilities by the Participant which is demonstrably willful and deliberate on the Participant's part and which is not remedied in a reasonable period of time after receipt of written notice from the Company or a subsidiary, or (iii) the conviction of the Participant of a felony involving moral turpitude. d. "Change in Control": The term Change in Control is defined in Section 19. e. "Code": The term Code means the Internal Revenue Code of 1986, as amended. f. "Committee": The term Committee means a committee appointed from time to time by the Board of Directors to administer the Plan. - 1 - PAGE 2 g. "Company": The term Company means CSX Corporation and/or its subsidiary companies. h. "Completed Month": The term Completed Month shall mean a period beginning on the monthly anniversary date of a grant of an Incentive and ending on the day before the next monthly anniversary. i. "Covered Employee": The term Covered Employee shall mean the chief executive officer of the Company or any other individual who is among the four (4) highest compensated officers or who is otherwise a "covered employee" within the meaning of Section 162(m) of the Code, as determined by the Committee. j. "Disability": The term Disability means long-term disability as determined under the Company's Salary Continuance and Long-Term Disability Plan. k. "Exchange Act": The term Exchange Act means the Securities Exchange Act of 1934, as amended. l. "Exercisability Requirements": The term Exercisability Requirements used with respect to any grant of options means such restrictions or conditions on the exercise of such options that the Committee may, in its discretion, add to the one-year holding requirement contained in Sections 7 and 8. m. "Fair Market Value": The term Fair Market Value shall be deemed to be the mean between the highest and lowest quoted selling prices of the stock per share as reported under New York Stock Exchange- Composite Transactions on the day of reference to any event to which the term is pertinent, or, if there is no sale that day, on the last previous day on which any such sale occurred. n. "Incentive": The term Incentive means any incentive under the Plan described in Section 6. o. "Objective Standard": The term Objective Standard means a formula or standard by which a third party, having knowledge of the relevant performance results, could calculate the amount to be paid to a Participant. Such formula or standard shall specify the individual employees or class of employees to which it applies, and shall preclude discretion to increase the amount payable that would otherwise be due upon attainment of the objective. p. "Participant": The term Participant means an individual designated by the Committee as a Participant pursuant to Section 5. q. "Performance Objective": The term Performance Objective shall mean a performance objective established in writing by the Committee prior to the commencement of the Performance Period to which the performance objective relates and at a time when the outcome of such objective is substantially uncertain. Each Performance Objective shall be established in such a way that a third party - 2 - PAGE 3 having knowledge of the relevant facts could determine whether the objective is met. A Performance Objective may be based on one or more business criteria that apply to the individual Participant, a business unit or the Company as a whole, and shall state, in terms of an Objective Standard, the method of computing the amount payable to the Participant if the Performance Objective is attained. With respect to Incentives granted to Covered Employees, the material terms of the Performance Objective shall be disclosed to, and must be subsequently approved by, a vote of the shareholders of the Company, consistent with the requirements of Section 162(m) of the Code and the regulations thereunder. The Performance Objectives for any Performance Period shall be based on one or more of the following measures, as determined by the Committee in writing prior to the beginning of the Performance Period: 1. The achievement by the Company or business unit of specific levels of Return on Invested Capital ("ROIC"). ROIC for the Company or business unit means its results of operations divided by its capital. 2. The generation by the Company or business unit of free cash flow. 3. The creation by the Company or business unit of specific levels of Economic Value Added ("EVA"). EVA for the Company or business unit means its ROIC less its cost of capital multiplied by its capital. r. "Performance Period": The term Performance Period means a fixed period of time, established by the Committee, during which a Participant performs service for the Company and during which Performance Objectives may be achieved. s. "Plan": The term Plan means this CSX Corporation 1987 Long-Term Performance Stock Plan as amended or restated from time to time. t. "Retirement": The term Retirement means termination of employment with immediate commencement of retirement benefits under the Company's defined benefit pension plan. u. "Separation From Employment": The term Separation From Employment means an employee's separation from employment with the Company as a result of Retirement, death, Disability, or termination of employment (voluntarily or involuntarily). A Participant in receipt of periodic severance payments shall be considered separated from employment on the day preceding the day such severance payments commenced. - 3 - PAGE 4 3. Number of Shares Subject to the provisions of Section 16 of this Plan, the maximum number of shares which may be issued pursuant to the Incentives shall be 16,000,000 shares of the Company's common stock, par value $1.00 per share. Such shares shall be authorized and unissued shares of the Company's common stock. Subject to the provisions of Section 16, if any Incentive granted under the Plan shall terminate or expire for any reason without having been exercised in full, the unissued shares subject thereto shall again be available for the purposes of the Plan. Similarly, shares which have been issued, but which the Company retains or which the Participant tenders to the Company in satisfaction of income and payroll tax withholding obligations or in satisfaction of the exercise price of any option shall remain authorized and shall again be available for the purposes of the Plan, provided, however, that any such previously issued shares shall not be the subject of any grant under the Plan to any officer of the Company who, at the time of such grant, is subject to the short-swing trading provisions of Section 16 of the Exchange Act. 4. Administration The Plan shall be administered by the Committee. The Committee shall consist of three or more members of the Board of Directors. No member of the Committee shall be eligible to receive any Incentives under the Plan while a member of the Committee. A majority of the Committee shall constitute a quorum. The Committee shall recommend to the Board individuals to receive Incentives, including the type and amount thereof, unless the Board shall have delegated to the Committee the authority and power to select persons to whom Incentives may be granted, to establish the type and amount thereof, and to make such grants. Subject to the express provisions of the Plan, the Committee shall have authority to construe any agreements entered into with any person in respect of any Incentive or Incentives, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the terms and provisions of any such agreements and to make all other determinations necessary or advisable for administering the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any agreement under the Plan in the manner and to the extent it shall deem expedient to carry it into effect, and it shall be the sole and final judge of such expedience. Any determination of the Committee under the Plan may be made without notice of meeting of the Committee by a writing signed by a majority of the Committee members. The determinations of the Committee on the matters referred to in this Section 4 shall be conclusive. 5. Eligibility and Participation Incentives may be granted only to officers and key employees of the Company and of its subsidiaries at the time of such grant as the Committee in its sole discretion may designate from time to time to receive an Incentive or Incentives. An officer or key employee who is so designated shall become a Participant. A director of the Company or of a subsidiary who is not also an officer or employee of the Company or of such subsidiary will not be eligible to receive an Incentive. - 4 - PAGE 5 The Committee's designation of an individual to receive an Incentive at any time shall not require the Committee to designate such person to receive an Incentive at any other time. The Committee shall consider such factors as it deems pertinent in selecting Participants and in determining the type and amount of their respective Incentives, including without limitation (a) the financial condition of the Company, (b) anticipated financial results for the current or future years, including return on invested capital, (c) the contribution by the Participant to the profitability and development of the Company through achievement of established strategic objectives, and (d) other compensation provided to Participants. 6. Incentives Incentives may be granted in any one or a combination of (a) Incentive Stock Options; (b) Non-Qualified Stock Options; (c) Stock Appreciation Rights; (d) Performance Shares; (e) Performance Units; and (f) Restricted Stock, all as described below and pursuant to the terms set forth in Sections 7-11 hereof. With respect to Items (a)-(c), the maximum number of shares of common stock of the Company with respect to which these Incentives may be granted any Plan Year to any Participant will be 750,000. With respect to Items (d)-(f), the maximum number of shares of common stock of the Company with respect to which these Incentives may be granted during any Plan Year to any Participant will be 150,000. 7. Incentive Stock Options Incentive Stock Options (ISOs) will consist of options to purchase shares of the Company's common stock at purchase prices not less than 100 percent of the Fair Market Value of such common stock on the date of grant. ISOs will be exercisable upon the date or dates specified in an option agreement entered into with a Participant but not earlier than one year after the date of grant of the options and not later than 10 years after the date of grant of the options; provided, however, that whether or not the one-year holding requirement is satisfied, any Exercisability Requirements must be satisfied. For options granted after December 31, 1986, the aggregate Fair Market Value, determined at the date of grant, of shares for which ISOs are exercisable for the first time by a Participant during any calendar year shall not exceed $100,000. Notwithstanding the provisions of Section 5 of this Plan, no individual will be eligible for or granted an ISO if that individual owns stock of the Company possessing more than 10 percent of the total combined voting power of all classes of the stock of the Company or its subsidiaries. Any Participant who is an option holder may exercise his option to purchase stock in whole or in part upon the date or dates specified in the option agreement offered to him. In no case may an option be exercised for a fraction of a share. Except as set forth in this Section 7 and in Sections 12 through 15, no option holder may exercise an option unless at the time of exercise he has been in the continuous employ of the Company or one of its subsidiaries since the grant of such option. An option holder under this Plan shall have no rights as a shareholder with respect to any shares subject to such option until such shares have been issued. - 5 - PAGE 6 For purposes of this Section 7, written notice of exercise must be received by the Corporate Secretary of the Company not less than one year nor more than 10 years after the option is granted. Such notice must state the number of shares being exercised and must be accompanied by payment of the full purchase price of such shares. Payment for the shares for which an option is exercised may be made by (1) a personal check or money order payable to CSX Corporation; (2) a tender by the employee (in accordance with procedures established by the Company) of shares of the Company's common stock having a Fair Market Value on the date of tender equaling the purchase price of the shares for which the option is being exercised; or (3) any combination of (1) and (2). 8. Non-Qualified Stock Options Non-Qualified Stock Options (NQSOs) will consist of options to purchase shares of the Company's common stock at purchase prices not less than 100 percent of the Fair Market Value of such common stock on the date of grant. NQSOs will be exercisable upon the date or dates specified in an option agreement entered into with a Participant but not earlier than one year after the date of grant of the options and not later than 10 years after the date of grant of the options; provided, however, that whether or not the one- year holding requirement is satisfied, any Exercisability Requirements must be satisfied. Any Participant may exercise an option to purchase stock upon the date or dates specified in the option agreement offered to him. In no case may an option be exercised for a fraction of a share. Except as set forth in this Section 8 and in Sections 12 through 15, no option holder may exercise an option unless at the time of exercise he has been in the continuous employ of the Company or one of its subsidiaries since the grant of his option. An option holder under this Plan shall have no rights as a shareholder with respect to any shares subject to such option until such shares have been issued. For purposes of this Section 8, written notice of exercise must be received by the Corporate Secretary of the Company, not earlier than one year nor later than 10 years after the option is granted. Such notice must state the number of shares being exercised and must be accompanied by payment of the full purchase price of such shares. Payment for the shares for which an option is exercised may be made by (1) a personal check or money order payable to CSX Corporation; (2) a tender by the employee (in accordance with procedures established by the Company) of shares of the Company's common stock having a Fair Market Value on the date of tender equaling the purchase price of the shares for which the option is being exercised; (3) the delivery of a properly executed exercise notice, together with irrevocable instructions to a broker to promptly deliver to the Company either sale proceeds of shares sold to pay the purchase price or the amount loaned by the broker to pay the purchase price; or (4) any combination of (1), (2) and (3). - 6 - PAGE 7 9. Stock Appreciation Rights Any option granted under the Plan may include a stock appreciation right (SAR) by which the participant may surrender to the Company all or a portion of the option to the extent exercisable at the time of surrender and receive in exchange a payment equal to the excess of the Fair Market Value of the shares covered by the option portion surrendered over the aggregate option price of such shares. Such payment shall be made in shares of Company common stock, in cash, or partly in shares and partly in cash, as the Committee in its sole discretion shall determine, but in no event shall the number of shares of common stock delivered upon a surrender exceed the number the option holder could then purchase upon exercise of the option. Such rights may be granted by the Committee concurrently with the option or thereafter by amendment upon such terms and conditions as the Committee may determine. The Committee may also grant, in addition to, or in lieu of options to purchase stock, SARs which will entitle the Participant to receive a payment upon surrender of that right, or portion of that right in accordance with the provisions of the Plan, equaling the difference between the Fair Market Value of a stated number of shares of Company common stock on the date of the grant and the Fair Market Value of a comparable number of shares of Company common stock on the day of surrender, adjusted for stock dividends declared between the time of the grant of the SAR and its surrender. The Committee shall have the right to limit the amount of appreciation with respect to any or all of the SARs granted. Payment made upon the exercise of the SARs may be in cash or shares of Company common stock, or partly in shares and partly in cash, as the Committee in its sole discretion shall determine. For purposes of this Section 9, written notice must be received by the Corporate Secretary of the Company not earlier than one year nor later than 10 years after the SAR is granted. Such notice must state the number of SARs being surrendered and the method of settlement desired within the guidelines established from time to time by the Committee. The SAR holder will receive settlement based on the Fair Market Value on the day the written request is received by the Corporate Secretary of the Company. In certain situations as determined by the Committee, for purposes of this Section 9, written notice must be received by the Corporate Secretary of the Company between the third and twelfth business days after the public release of the Company's quarterly earnings report, or between such other, different period as may hereinafter be established by the Securities and Exchange Commission. For such settlements, a Participant subject to a restricted exercise period shall receive settlement based on the highest Fair Market Value during the period described in the foregoing sentence. The Committee may not grant an SAR or other rights under this Section 9 in connection with an incentive stock option if such grant would cause the option or the Plan not to qualify under Section 422A of the Code or if it is prohibited by such section or Treasury regulations issued thereunder. Any grant of an SAR or other rights which would disqualify either the option as an ISO or the Plan, or which is prohibited by Section 422A of the Code or Treasury regulations issued thereunder, is and will be considered as void and vesting no rights in the grantee. It is a condition for eligibility for the benefits of the option and of the Plan that the Participant agree that in the event an SAR or other right granted should be determined to be void as - 7 - PAGE 8 provided by the foregoing, the Participant has no right or cause of action against the Company. 10. Performance Unit Awards and Performance Share Awards. The Committee may grant Performance Unit Awards (PUAs) and Performance Share Awards (PSAs) under which payment shall be made in shares of the Company's common stock, in cash, or partly in shares and partly in cash, as the Committee in its sole discretion shall determine. The Committee shall establish in writing and communicate to Participants at the time of grant of each PUA or PSA, Performance Objectives to be achieved during the Performance Period. Awards of PUAs and PSAs may be determined by the average level of attainment of Performance Objectives over multiple Performance periods. Prior to the payment of PUAs and PSAs, the Committee shall determine the extent to which Performance Objectives have been attained during the Performance Period or Performance Periods in order to determine the level of payment to be made, if any, and shall record such results in the minutes of the meeting of the Committee. In no instance will payment be made if the Performance Objectives are not attained. Payment, if any, shall be made in a lump sum or in installments, in cash or shares of Company common stock, as determined by the Committee, commencing as promptly as feasible following the end of the Performance Period, except that (a) payments to be made in cash may be deferred subject to such terms and conditions as may be prescribed by the Committee, and (b) payments to be made in Company common stock may be deferred pursuant to an election filed on forms prescribed and provided by and filed with the Committee. A Participant may elect annually to defer to a date certain, or the occurrence of an event, as provided in the form, the receipt of all or any part of shares of Company common stock he may subsequently become entitled to receive. On forms provided by and filed with the Committee, the Participant shall also specify whether, when the deferral period expires or the restrictions specified below lapse, payment will be in a lump sum or installments over a period not exceeding twenty years. The Committee shall prescribe the time periods during which the election must be filed in order to be effective. Elections to defer are irrevocable. Changes regarding the date of payment, the period over which payments are to be made and the method of payment are subject to substantial penalties. Shares of Company common stock with respect to which a Participant has made an effective election shall be transferred to a trust and shall remain subject to the claims of the Company's creditors and restricted and may not be sold, hypothecated or transferred (including, without limitation, transfer by gift or donation), except that such shares shall be distributed to Participants and such restrictions shall lapse upon: a. the death of the Participant; b. the Disability of the Participant c. the Participant's termination of employment with the Company or a subsidiary of the Company, subject to the Participant's deferral election; or d. a Change in Control. - 8 - PAGE 9 11. Restricted Stock A Restricted Stock Award (RSA) shall entitle the Participant, subject to his continued employment during the restriction period determined by the Committee and his complete satisfaction of any other conditions, restrictions and limitations imposed in accordance with the Plan, to the unconditional ownership of the shares of the Company's common stock covered by the grant without payment therefor. The Committee may grant RSAs at any time or from time to time to a Participant selected by the Committee in its sole discretion. The Committee shall establish at the time of grant of each RSA a Performance Period and Performance Objectives to be achieved during the Performance Period. At the time of grant, the Performance Period and Performance Objectives shall be set forth either in agreements or in guidelines communicated to the Participant in such form consistent with this Plan as the Committee shall approve from time to time. Following the conclusion of each Performance Period and prior to payment, the Committee shall determine the extent to which Performance Objectives have been attained or a degree of achievement between maximum and minimum Performance Objectives during the Performance Period in order to determine the level of payment to be made, if any, and shall record such results in the minutes of the meeting of the Committee. In no instance will payment be made if the Performance Objectives are not attained. At the time that an RSA is granted, the Committee shall establish in the written agreement a restriction period applicable to all shares covered by such grant. Subject to the provisions of the next following paragraph, the Participant shall have all of the rights of a stockholder of record with respect to the shares covered by the grant to receive dividends or other distributions in respect of such shares (provided, however, that any shares of stock of the Company distributed with respect to such shares shall be subject to all of the restrictions applicable to such shares) and to vote such shares on all matters submitted to the stockholders of the Company, but such shares shall not be sold, exchanged, pledged, hypothecated or otherwise disposed of at any time prior to the expiration of the restriction period, including by operation of law, and any purported disposition, including by operation of law, shall result in automatic forfeiture of any such shares. Except as hereinafter provided, if, during the restriction period applicable to such grant, a Separation From Employment of a Participant occurs for any reason other than death, Disability or Retirement, all shares covered by such grant shall be forfeited to the Company automatically. If the Participant's Separation From Employment is because of Retirement or death, or in the event of Disability, the Participant or his successor in interest shall be entitled to unconditional ownership of a fraction of the total number of shares covered by such grant of which the numerator is the number of whole calendar months in the period commencing with the first whole calendar month following the date of grant and ending with the whole calendar month including the date of death, Disability or Retirement, and of which the denominator is the number of whole calendar months in the applicable restriction period. Any fractional shares shall be disregarded. - 9 - PAGE 10 The Committee may, at the time of granting any RSA, impose such other conditions, restrictions or limitations upon the rights of the Participants during the restriction period or upon the Participant's right to acquire unconditional ownership of shares as the Committee may, in its discretion, determine and set forth in the written agreement. At the time of grant of an RSA, the Company shall cause to be issued and registered in the name of the Participant a stock certificate representing the full number of shares covered thereby, which certificate shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such grant, and the grantee shall execute and deliver to the Company a stock power endorsed in blank covering such shares. Such stock certificate and stock power shall be held by the Company or its designee until the expiration of the restriction period, at which time the same shall be delivered to the Participant or his designee if all of the conditions and restrictions of the grant have been satisfied, or until the forfeiture of such shares, at which time the same shall be cancelled and the shares shall be returned to the status of unissued shares. 12. Separation From Employment If the Participant's Separation From Employment is because of Disability or death, the right of the Participant or his successor in interest to exercise an ISO, NQSO or SAR shall terminate not later than five years after the date of such Disability or death, but in no event later than 10 years from the date of grant; provided, however, that if such Participant is eligible to retire with the ability to begin immediately receiving retirement benefits under the Company's pension plan, his or his successor in interest's right to exercise any ISOs, NQSOs or SARs shall be determined as if his Separation From Employment was because of Retirement. If the Participant's Separation From Employment is because of his Retirement, the right of the Participant or his successor in interest to exercise an ISO, NQSO or SAR shall terminate not later than 10 years from the date of grant. Unless the Committee deems it necessary in individual cases (except with respect to Covered Employees) to extend a Participant's exercise period, if a Participant's Separation From Employment is for any reason other than Retirement, Disability or death, the right of the Participant to exercise an ISO, NQSO or SAR shall terminate not later than one year from the date of Separation From Employment, but in no event later than 10 years after the date of grant. At the time of his Separation From Employment for any reason other than Cause, a Participant shall vest in a portion of any Incentives granted under sections 7 (ISOs), 8 (NQSOs) or 9 (SARs) that he has held for less than one year from the date of the grant. The portion of such Incentives in which the Participants shall vest shall be determined by multiplying all shares subject to such Incentives by a fraction, the numerator of which shall be the number of Completed Months of employment following the date of grant and the denominator of which shall be twelve. A Participant who vests in any Incentives under the preceding paragraph may not exercise such Incentives prior to the satisfaction of the - 10 - PAGE 11 one-year holding requirement and the Exercisability Requirements pertaining to such Incentives. Any Incentives vested under the preceding paragraph must be exercised within one year from the date of the Participant's Separation From Employment. As to PUAs or PSAs, in the event of a Participant's Separation From Employment by Retirement, Disability or death prior to the end of the applicable Performance Period, payment, if any, to the extent earned under the applicable Performance Objectives and awarded by the Committee, shall be payable at the end of the Performance Period in proportion to the active service of the Participant during the Performance Period, as determined by the Committee. If the Separation From Employment is for any other reason, the Participant's participation in Section 10 of the Plan shall immediately terminate, his agreement shall become void and the PUA or PSA shall be cancelled. 13. Incentives Non-assignable and Non-transferable Any Incentive granted under this Plan shall be non-assignable and non-transferable other than as provided in Section 14 and shall be exercisable (including any action of surrender and exercise of rights under Section 9) during the Participant's lifetime only by the Participant who is the holder of the Incentive or by his guardian or legal representative. 14. Death of Option Holder In the event of the death of a Participant who is an Incentive holder under the Plan while employed by the Company or one of its subsidiaries or prior to exercise of all rights under an Incentive, the Incentive theretofore granted may be exercised (including any action of surrender and exercise of rights under Section 9) by the Participant's Beneficiary or, if no Beneficiary is designated, by the executor or executrix of the Participant's estate or by the person or persons to whom rights under the Incentive shall pass by will or the laws of descent and distribution in accordance with the provisions of the Plan and of the option and to the same extent as though the Participant were then living. 15. No Right to Continued Employment Notwithstanding any other provisions of this Plan to the contrary, it is a condition for eligibility for any benefit or right under this Plan that each individual agrees that his or her designation as a Participant and any grant made under the Plan may be rescinded and determined to be void and forfeited entirely in the absolute and sole discretion of the Committee in the event that such individual is discharged for Cause. Incentives granted under the Plan shall not be affected by any change of employment so long as the Incentive holder has not suffered a Separation From Employment. A leave of absence granted by the Company or one of its subsidiaries shall not constitute Separation From Employment unless so determined by the Committee. Nothing in the Plan or in any Incentive granted pursuant to the Plan shall confer on any individual any right to continue in the employ of the Company or one of its subsidiaries or interfere in any way with the right of the Company or such subsidiary to terminate employment at any time. - 11 - PAGE 12 16. Adjustment of Shares In the event of any change (through recapitalization, merger, consolidation, stock dividend, split-up, combination or exchanges of shares or otherwise) in the character or amount of the Company's common stock prior to exercise of any Incentive granted under this Plan, the Incentives, to the extent not exercised, shall entitle the Participant who is the holder to such number and kind of securities as he would have been entitled to had he actually owned the stock subject to the Incentives at the time of the occurrence of such change. If any such event should occur, prior to exercise of an Incentive granted hereunder, which shall increase or decrease the amount of common stock outstanding and which the Committee, in its sole discretion, shall determine equitably requires an adjustment in the number of shares which the Incentive holder should be permitted to acquire, such adjustment as the Committee shall determine may be made, and when so made shall be effective and binding for all purposes of the Plan. Incentives may also be granted having terms and provisions which vary from those specified in the Plan provided that any Incentives granted pursuant to this paragraph are granted in substitution for, or in connection with the assumption of, then existing Incentives granted by another corporation and assumed or otherwise agreed to be provided for by the Company pursuant to or by reason of a transaction involving a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation to which the Company or a subsidiary corporation is a party. 17. Loans to Option Holders The Committee may adopt programs and procedures pursuant to which the Company may lend money to any Participant who is an Incentive holder for the purpose of assisting the Participant to acquire or carry shares of common stock issued upon the exercise of Incentives granted under the Plan. 18. Termination and Amendment of Plan Unless the Plan shall have been previously terminated as hereinafter provided, the Plan shall terminate on May 2, 1999, and no Incentives under it shall be granted thereafter. The Board of Directors, without further approval of the Company's shareholders, may at any time prior to that date terminate the Plan, and thereafter no further Incentives may be granted under the Plan. However, Incentives previously granted thereunder may continue to be exercised in accordance with the terms thereof. The Board of Directors, without further approval of the shareholders, may amend the Plan from time to time in such respects as the Board may deem advisable; provided, however, that no amendment shall become effective without prior approval of the shareholders which would: (i) increase (except in accordance with Section 16) the maximum number of shares for which Incentives may be granted under the Plan; (ii) reduce (except in accordance with Section 16) the Incentive price below the Fair Market Value of the Company's common stock on the date of grant of the Incentive; (iii) extend the term of the Plan beyond May 2, 1999; (iv) change the standards of eligibility prescribed by Section 5; or (v) increase the maximum awards identified in Sections 7, 8, 9, 10 and 11. - 12 - PAGE 13 No termination or amendment of the Plan may, without the consent of a Participant who is a holder of an Incentive then existing, terminate his or her Incentive or materially and adversely affect his or her rights under the Incentive. 19. Change in Control a. Notwithstanding any provision of this Plan to the contrary, upon the occurrence of a Change in Control as set forth in subsection b., below: (i) all stock options then outstanding under this Plan shall become fully exercisable as of the date of the Change in Control, whether or not then otherwise exercisable; (ii) all SARs which have been outstanding for at least six months shall become fully exercisable as of the date of the Change in Control, whether or not then otherwise exercisable: (iii) all terms and conditions of RSAs then outstanding shall be deemed satisfied as of the date of the Change in Control; and (iv) all PUAs and PSAs then outstanding shall be deemed to have been fully earned and to be immediately payable in cash as of the date of the Change in Control. b. A "Change in Control" shall be deemed to have occurred on the earliest of the following dates: (i) the acquisition, other than from the Company, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either the then outstanding shares of common stock of the Company or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors, but excluding, for this purpose, any such acquisition by the Company or any of its subsidiaries, or any employee benefit plan (or related trust) of the Company or its subsidiaries, or any corporation with respect to which, following such acquisition, more than 50 percent of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by the individuals and entities who were the beneficial owners, respectively, of the common stock and voting securities of the Company immediately prior to such acquisition in substantially the same proportion as their ownership, immediately prior to such acquisition, of the then outstanding shares of common stock of the Company or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors, as the case may be; or (ii) Individuals who, as of this date hereof, constitute the Board (as of the date hereof the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided 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 - 13 - PAGE 14 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 is in connection with an actual or threatened election contest relating to the election of the directors of the Company (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or (iii)Approval by the stockholders of the Company of a reorganization, merger or consolidation, in each case, with respect to which the individuals and entities who were the respective beneficial owners of the common stock and voting securities of the Company immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 50 percent 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 reorganization, merger or consolidation, or a complete liquidation or dissolution of the Company or of the sale or other disposition of all or substantially all of the assets of the Company. 20. Compliance with Regulatory Authorities Any shares purchased or distributed pursuant to any Incentives granted under this Plan must be held for investment and not with a view to the distribution or resale thereof. Each person who shall exercise an Incentive granted under this Plan may be required to give satisfactory assurances to such effect to the Company as a condition to the issuance to him or to her of shares pursuant to such exercise; provided, however, that the Company may waive such condition if it shall determine that such resale or distribution may be otherwise lawfully made without registration under the Securities Act of 1933, or if satisfactory arrangements for such registration are made. Each Incentive granted under this Plan is further subject to the condition that if at any time the Board shall in its sole discretion determine that the listing, registration or qualification of the shares covered by such Incentive upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of or in connection with the granting of such Incentives or the purchase or transfer of shares thereunder, the delivery of any or all shares of stock pursuant to exercise of the Incentive may be withheld unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board. - 14 - PAGE 15 21. Withholding Tax Whenever the Company proposes or is required to issue or transfer shares of common stock under the Plan, a Participant shall remit to the Company an amount sufficient to satisfy any federal, state or local income and payroll tax withholding liability prior to the delivery of any certificate or certificates for such shares. Alternatively, in the sole discretion of the Company, to the extent permitted by applicable laws including regulations promulgated under the Exchange Act, such federal, state or local income and payroll tax withholding liability may be satisfied prior to the delivery of any certificate or certificates for the shares by an adjustment, equal in value to such liability, in the number of shares to be transferred to the Participant. Whenever under the Plan payments are to be made in cash, such payments shall be net of an amount sufficient to satisfy any federal, state or local income and payroll tax withholding liability. 22. Non-Uniform Determinations Determinations by the Committee under the Plan, including, without limitation, determinations of the persons to receive Incentives and the form, amount and timing of such Incentives, and the terms and provisions of such Incentives and the agreements evidencing the same need not be uniform, and may be made by the Committee selectively among persons who receive, or are eligible to receive, Incentives under the Plan, whether or not such persons are similarly situated. Without amending the Plan, Incentives may be granted to eligible employees who are foreign nationals or who are employed outside the United States or both, on such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to further the purposes of the Plan. Such different terms and conditions may be reflected in Addenda to the Plan. - 15 - EX-10.2 4 SENIOR MANAGEMENT INCENTIVE COMPENSATION PLAN PAGE 1 Exhibit 10.2 Appendix B CSX CORPORATION Senior Management Incentive Compensation Plan 1. Purpose The purpose of the Senior Management Incentive Compensation Plan (SMICP) is to encourage senior management of CSX Corporation and its subsidiary companies to achieve and exceed planned financial goals so as to increase shareholder value. The SMICP shall be effective as of January 1, 1994. It is intended that awards under the SMICP generally will be treated as qualified performance-based compensation within the meaning of Section 162(m) of the Internal Revenue Code of 1986 related to the deductibility of executive compensation. 2. Definitions Whenever the following words are used in the SMICP, they shall have the meaning set forth below: "Base Salary": The term base salary means a Covered Employee's annual base salary as of the beginning of the Plan Year, exclusive of any incentive or stock-based compensation. "Board of Directors": The term Board of Directors or Board means the Board of Directors of CSX Corporation. "Cause": The term Cause means (a) an act or acts of personal dishonesty of a Covered Employee intended to result in substantial personal enrichment of the Covered Employee at the expense of the Company or any of its subsidiaries, (b) violation of the management responsibilities by the Covered Employee which is demonstrably willful and deliberate on the Covered Employee's part and which are not remedied in a reasonable period of time after receipt of written notice from the Company or any of its subsidiaries, or (c) the conviction of the Covered Employee of a felony involving moral turpitude. "Code": The term Code means the Internal Revenue Code of 1986, as amended. "Committee": The term Committee means a committee comprised solely of outside directors within the meaning of Section 162(m) of the Code, appointed from time to time by the Board of Directors to administer the Plan. "Company": The term Company means CSX Corporation and/or its subsidiary companies. "Cost of Capital" (COC): The term Cost of Capital (COC) means the cost to the Company of securing funds and shall be determined by the weighted cost of debt and equity within the Company's capital structure. - 1 - PAGE 2 "Covered Employee": The term Covered Employee means the chief executive officer of the Company or any other individual who is among the four (4) highest compensated officers or who is otherwise a "covered employee" within the meaning of Section 162(m) of the Code, as determined by the Committee. "Disability": The term Disability means long-term disability as determined under the Company's Salary Continuance and Long-Term Disability Plan. "Plan Year": The term Plan Year means the annual accounting period for the Company. "Retirement": The term Retirement means termination of employment with immediate commencement of retirement benefits under the Company's pension plan. "Return On Invested Capital" (ROIC): The term Return On Invested Capital (ROIC) means for the Company or any business unit its Results of Operations divided by its Capital. These values are defined as follows: a. "Results of Operations": The term Results of Operations means operating income, adjusted for special charges and increased by the interest portion of lease payments, plus other income exclusive of interest income, less the related cash income taxes. b. "Capital": The term Capital means short- and long-term debt, the present value of all leases with a term exceeding one year, and factored accounts receivable, plus shareholders' equity adjusted for special charges and accounting changes, and any other debt or equity instruments, less cash, cash equivalents, and short-term investments. The ROIC calculation excludes any non-routine one-of-a-kind gains or losses, including gains or losses which result from a change in accounting. 3. Administration The Committee shall be responsible for administering the SMICP and shall have the power to construe and to interpret the SMICP. The Committee may appoint such agents, who need not be members of the Committee, as it may deem necessary for the effective performance of its duties, and may delegate to such agents such powers and duties as the Committee may deem appropriate and that are not inconsistent with the intent of the SMICP. A decision of the Committee shall be final and conclusive on all persons, except to the extent otherwise provided by law. Prior to the beginning of each Plan Year, (or in the case of the 1994 Plan Year, prior to April 1, 1994), the Committee shall: a. determine the Covered Employees for the Plan Year; b. establish four specific ROIC Levels, each of which shall be expressed as a percentage of the Company's Cost of Capital for the Plan Year; and - 2 - PAGE 3 c. establish the award opportunity at each specific ROIC Level, expressed as a percentage of base salary at the beginning of the Plan Year, for each Covered Employee. Award opportunities shall be interpolated for performance which falls between the ROIC Levels. Furthermore, if a business unit exceeds all performance objectives established by the Committee, the calculated award payable to the Covered Employee will be increased by the percentage that the business unit exceeds the highest ROIC Level, however, such increase shall not exceed 25 percent of the calculated award. Notwithstanding the above, the maximum per person award opportunity under the SMICP shall be 150 percent of Base Salary at the beginning of the Plan Year. At the conclusion of the Plan Year, in accordance with Section 162(m)(4)(C)(iii) of the Code, prior to the payment of any award under the SMICP, the Committee shall certify in the Committee's internal meeting minutes the attainment of the financial objectives for the Plan Year and the calculation of the award. Awards generally shall be reviewed and approved by the Committee during the first Board of Directors meeting held after the end of the Plan Year. Once initial shareholder approval of the material terms of the performance criteria is obtained, no shareholder action shall be required for awards made under the SMICP unless such criteria are changed or such action is required under Section 162(m) of the Code. A Covered Employee's calculated award may be reduced or eliminated at the discretion of the Committee. In the event the Committee reduces an award otherwise payable to a Covered Employee for a Plan Year, the amount of such reduction shall not be paid to other Covered Employees. The existence of the SMICP does not constitute a contract for continued employment between a Covered Employee and the Company. The Company reserves the right to terminate a Covered Employee for any reason and at any time notwithstanding the existence of the SMICP. If the employment of a Covered Employee is terminated during the Plan Year due to Retirement, Disability, or death, or is involuntarily terminated for reasons other than Cause, any award payable under this SMICP will be prorated for the number of full months during which the Covered Employee was actively employed during the Plan Year. If employment terminates for any other reason during the Plan Year, no award will be payable under the SMICP. 4. Shareholder Approval Notwithstanding any of the foregoing, no awards will be paid under the SMICP unless the material terms of the performance criteria have been disclosed to the shareholders and subsequently approved by a vote of the shareholders of the Company. Once the material terms of the performance criteria are disclosed to and approved by shareholders, no additional disclosure or approval is required until such time as the Committee changes the material terms of the performance criteria, or until otherwise required by Section 162(m) of the Code. - 3 - PAGE 4 The SMICP may be amended or terminated by action of the Committee, approved by the Company's Board of Directors, except insofar as approval by the Company's shareholders may be required pursuant to Section 162(m) (4)(C)(i) of the Code. - 4 - EX-99 5 FORM OF PROXY PAGE 1 Exhibit 99 CSX CORPORATION Appendix Describing Graphic Materials Deleted From Electronic Transmission of 1994 Proxy Statement Page Numbers Description - ------- ----------- 6-7 A photograph of each director nominee precedes his or her biographical information. 23 The performance line graph required by Regulation S-K, Section 229.402(1), immediately follows the Report of the Compensation and Pension Committee Concerning Executive Compensation. A copy of the graph has been filed with the Commission with a Form SE dated March 8, 1994. - 1 - -----END PRIVACY-ENHANCED MESSAGE-----