-----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, raP9NYyV5NPowuBZdIQJVGwJHbYi20dnphTofGDQp0yQI53b5cCvdjz6d4f63f1U RfOPm9ieSLnbqoJ03ckHBA== 0000277948-95-000003.txt : 19950609 0000277948-95-000003.hdr.sgml : 19950609 ACCESSION NUMBER: 0000277948-95-000003 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19941230 FILED AS OF DATE: 19950303 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CSX CORP CENTRAL INDEX KEY: 0000277948 STANDARD INDUSTRIAL CLASSIFICATION: RAILROADS, LINE-HAUL OPERATING [4011] IRS NUMBER: 621051971 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 002-63273 FILM NUMBER: 95518449 BUSINESS ADDRESS: STREET 1: ONE JAMES CNTR STREET 2: 901 E CARY ST CITY: RICHMOND STATE: VA ZIP: 23219 BUSINESS PHONE: 8047821400 10-K405 1 PAGE 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 30, 1994 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------- --------------- Commission file number 1-8022 ------ CSX CORPORATION (Exact name of registrant as specified in its charter) Virginia 62-1051971 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 901 East Cary Street, Richmond, VA. 23219-4031 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (804) 782-1400 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered - ------------------------------- ----------------------------- Common Stock, $1 Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) On January 27, 1995, the aggregate market value of the Registrant's voting stock held by nonaffiliates was $7.4 billion. On January 27, 1995, there were 104,734,016 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE The Proxy Statement for the annual meeting of security holders on April 25, 1995, for Part III (Items 11, 12 and 13) is incorporated by reference. - 1 - PAGE 2 CSX CORPORATION EDGAR Index - Form 10-K Annual Report Item No. Page & Note Reference - -------- --------------------- PART I 1. Business 4-7, 17-35 and Note 18 to Consolidated Financial Statements 2. Properties 4, 17-35 and Notes 7 and 10 to Consolidated Financial Statements 3. Legal Proceedings Note 15 to Consolidated Financial Statements 4. Not Applicable PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters 77-81 6. Selected Financial Data 6-7 7. Management's Discussion and 17-35, and Notes 2, 3, Analysis of Financial Condition 4, 6, 10, 13, 14, and Results of Operations and 18 to Consolidated Financial Statements 8. Financial Statements and Supplementary Data The response to this item is submitted in Item 14. 9. Not Applicable PART III 10. Directors and Executive Officers 72-76 of the Registrant 11. Executive Compensation (a) 12. Security Ownership of Certain (a) Beneficial Owners and Management 13. Certain Relationships and Related (a) Transactions - 2 - PAGE 3 CSX CORPORATION EDGAR Index - Form 10-K Report Item No. Page & Note Reference - -------- --------------------- PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K a. Consolidated Statement of Earnings for the Years Ended Dec. 30, 1994, Dec. 31, 1993 and 1992 36 Consolidated Statement of Cash Flows for the Years Ended Dec. 30, 1994, Dec. 31, 1993 and 1992 37-38 Consolidated Statement of Financial Position at Dec. 30, 1994, Dec. 31, 1993 and 1992 39 Notes to Consolidated Financial Statements for the Years Ended Dec. 30, 1994, Dec. 31, 1993 and 1992 40-70 Report of Independent Auditors 71 Index to Exhibits E-1 b. Reports on Form 8-K None. (a) Items Number 11, 12 and 13 will be incorporated by reference from the registrant's 1995 Proxy Statement pursuant to instructions G(1) and G(3) of the General Instructions to Form 10-K. - 3 - PAGE 4 CSX CORPORATE PROFILE CSX Corporation is an international transportation company offering a variety of rail, container-shipping, intermodal, trucking, barging, contract logistics and related services worldwide. In 1994, the company earned $9.6 billion of operating revenue and $1.2 billion of operating income. CSX Transportation Inc. (CSXT) provides rail transportation and distribution services over 18,759 route miles and 32,462 track miles in 20 states in the East, Midwest and South; the District of Columbia; and Ontario, Canada. CSXT is the largest hauler of coal in the United States and handles one-third of all automobiles manufactured domestically. CSXT accounted for 48% of CSX's 1994 operating revenue and 75% of operating income. Sea-Land Service Inc. (Sea-Land) is a worldwide leader in container-shipping transportation and related trade services. Sea-Land operates a fleet of 93 container ships and approximately 188,000 containers in U.S. and foreign trade and serves 120 ports in 80 countries and territories. Sea-Land contributed 36% of CSX's 1994 operating revenue and 15% of operating income. CSX Intermodal Inc. (CSXI), the nation's only full-service, coast-to- coast intermodal transportation company, operates a network of dedicated intermodal terminals across North America. The company also offers comprehensive trucking and chassis management and leasing services. CSXI provided 9% of CSX's 1994 operating revenue and 5% of operating income. American Commercial Lines Inc. (ACL) is a leader in barge transportation, operating 117 towboats and approximately 3,300 barges on both U.S. and foreign waterways. Additionally, ACL operates marine construction facilities, river terminals and communication services. ACL accounted for 5% of CSX's 1994 operating revenue and 5% of operating income. Customized Transportation Inc. (CTI) is a premier provider of dedicated contract logistics services. The company offers an array of premium supply chain management services including distribution, warehousing, processing and assembly, contract carriage and just-in-time delivery. CTI provided 2% of CSX's 1994 operating revenue and 1% of operating income. Non-Transportation: Resort holdings include The Greenbrier in White Sulphur Springs, W.Va., and the Grand Teton Lodge Company in Moran, Wyo. CSX Real Property Inc. is responsible for development, sales and leasing of CSX- owned properties. CSX holds a majority interest in Yukon Pacific Corporation, which is promoting construction of the Trans-Alaska Gas System (TAGS) to transport Alaska's North Slope natural gas to Valdez for export to Asian markets. - 4 - PAGE 5 1994 HIGHLIGHTS CSX Corporation - Generated return on invested capital in excess of cost of capital for second consecutive year. - Produced record free cash flow. - Posted record financial results in revenue, operating income and earnings. - Increased annual dividend payout for 14th consecutive year. CSX Transportation Inc. - Achieved historic low operating ratio of 79.9%. - Posted record operating income and free cash flow. - Ranked No. 1 among Class I railroads with the lowest occurrence of train accidents per million train miles. - Won Chrysler Corporation Gold Pentastar quality service award for second consecutive year. Sea-Land Service Inc. - Posted record earnings in third and fourth quarters. - Increased loads 9%, to highest level ever. - Completed major customer-service initiatives in the Asia-Middle East and South America trades. - Won Chrysler Corporation Gold Pentastar quality service award. CSX Intermodal Inc. - Achieved record volume of 1.3 million loads. - Posted 15% increase in operating income. - Initiated direct service between Chicago and New York. - Completed initial track testing of Iron Highway train concept. American Commercial Lines Inc. - Increased operating income 40%, rebounding from 1993's floods. - Posted record fourth-quarter earnings. - Achieved record year in safety, reducing injury incident rate 25%. - Improved northbound shipment volumes. Customized Transportation Inc. - Increased revenue 26%. - Expanded services into new and non-traditional markets. - Enhanced supply chain management capability through new software development. Non-Transportation - The Greenbrier retained Mobil Five-Star rating for the 34th consecutive year and the AAA Five-Diamond rating since its inception 19 years ago. - The Greenbrier hosted the 1994 Solheim Cup Matches. - 5 - PAGE 6 CSX CORPORATION AND SUBSIDIARIES FINANCIAL HIGHLIGHTS (Millions of Dollars, Except Per Share Amounts) 1994(a) 1993(c) 1992 1991(d) 1990 ------- ------- ------- ------- ------- SUMMARY OF OPERATIONS Operating Revenue $ 9,608 $ 8,940 $ 8,734 $ 8,636 $ 8,205 ------- ------- ------- ------- ------- Operating Expense 8,376 7,934 7,769 7,782 7,337 Productivity/Restructuring Charge (b) --- 93 699 755 53 ------- ------- ------- ------- ------- Total Operating Expense 8,376 8,027 8,468 8,537 7,390 ------- ------- ------- ------- ------- Operating Income $ 1,232 $ 913 $ 266 $ 99 $ 815 ------- ------- ------- ------- ------- Earnings (Loss) From Continuing Operations $ 652 $ 359 $ 20 $ (76) $ 365 ======= ======= ======= ======= ======= PER COMMON SHARE Earnings (Loss) From Continuing Operations $ 6.23 $ 3.46 $ .19 $ (.75) $ 3.63 ======= ======= ======= ======= ======= Cash Dividends $ 1.76 $ 1.58 $ 1.52 $ 1.43 $ 1.40 ======= ======= ======= ======= ======= Market Price - High $ 92.38 $ 88.13 $ 73.63 $ 58.00 $ 38.13 - Low $ 63.13 $ 66.38 $ 54.50 $ 29.75 $ 26.00 ======= ======= ======= ======= ======= PERCENTAGE CHANGE FROM PRIOR YEAR Operating Revenue 7.5% 2.4% 1.1% 5.3% 5.9% ======= ======= ======= ======= ======= Operating Expense 4.3% (5.2)% (.8)% 15.5% 7.5% ======= ======= ======= ======= ======= Operating Expense, excluding Productivity/ Restructuring Charge 5.6% 2.1% (.2)% 6.1% 6.7% ======= ======= ======= ======= ======= Cash Dividends Per Common Share 11.4% 3.9% 6.3% 2.1% 9.4% ======= ======= ======= ======= ======= SUMMARY OF FINANCIAL POSITION Cash, Cash Equivalents and Short-Term Investments $ 535 $ 499 $ 530 $ 465 $ 609 ======= ======= ======= ======= ======= Working Capital (Deficit) $ (840) $ (704) $ (859) $ (942) $ (578) ======= ======= ======= ======= ======= Total Assets $13,724 $13,420 $13,049 $12,798 $12,804 ======= ======= ======= ======= ======= Long-Term Debt $ 2,618 $ 3,133 $ 3,245 $ 2,804 $ 3,025 ======= ======= ======= ======= ======= Shareholders' Equity $ 3,731 $ 3,180 $ 2,975 $ 3,182 $ 3,541 ======= ======= ======= ======= ======= Book Value Per Common Share $ 35.63 $ 30.53 $ 28.75 $ 31.08 $ 35.93 ======= ======= ======= ======= ======= - 6 - PAGE 7 CSX CORPORATION AND SUBSIDIARIES FINANCIAL HIGHLIGHTS, CONTINUED 1994(a) 1993(c) 1992 1991(d) 1990 ------- ------- ------- ------- ------- EMPLOYEE COUNT (e) Rail 28,773 29,216 30,916 33,239 35,672 Other 17,974 17,847 16,681 16,644 15,259 ------- ------- ------- ------- ------- Total 46,747 47,063 47,597 49,883 50,931 ======= ======= ======= ======= ======= See Notes 1, 2 and 4 to Consolidated Financial Statements (a) In 1994, the state of Florida elected to satisfy its remaining unfunded obligation issued in 1988 to consummate the purchase of 80 miles of track and right of way. The transaction resulted in an accelerated pretax gain of $69 million and increased net earnings by $42 million, 40 cents per share. (b) In 1993, the company recorded a $93 million pretax charge to recognize the estimated costs of restructuring certain operations and functions at its container-shipping unit. The restructuring charge reduced net earnings by $61 million, 59 cents per share. In 1992, the company recorded a charge to recognize the estimated costs of buying out certain trip-based compensation elements paid to train crews. The pretax charge amounted to $699 million and reduced net earnings for 1992 by $450 million, $4.38 per share. In 1991, the company recorded a charge to provide for the estimated costs of implementing work-force reductions, improvements in productivity and other cost reductions at its major transportation units. The pretax charge amounted to $755 million and reduced 1991 net earnings by $490 million, $4.88 per share. In 1990, the company recorded a $53 million restructuring charge related to its container-shipping unit. On an after-tax basis, the restructuring charge was $36 million, 37 cents per share. (c) The company revised its estimated annual effective tax rate in 1993 to reflect the change in the federal statutory income tax rate from 34 to 35 percent. The effect of this change was to increase income tax expense for 1993 by $56 million, 54 cents per share. Of this amount, $51 million, 48 cents per share, related to applying the newly enacted statutory income tax rates to deferred tax balances as of January 1, 1993. (d) During 1991, the company consummated the sale of a one-third interest in Sea-Land Orient Terminals Ltd., the sale of the stock of RF&P Corporation and other investment transactions. After taxes and minority interest, the transactions resulted in a net gain of $32 million, 32 cents per share. (e) Employee count based on annual averages. - 7 - PAGE 8 CHAIRMAN'S MESSAGE By most measures, 1994 was an excellent year for CSX. The company generated $9.6 billion in operating revenue, $1.2 billion in operating income and $652 million in net earnings - all records and all contributing to CSX exceeding its cost of capital for the second consecutive year and producing a record $486 million in free cash flow. Furthermore, each of the company's core transportation businesses strengthened its competitive position and its long- term fundamental earning power. From the standpoint of stock performance, however, 1994 was a disappointment. After climbing to an all-time high of $92.375 per share in February, CSX stock finished the year at $69.625, down 15 percent from its 1993 close. We believe external forces - especially rising interest rates and investor concerns about potential inflation - were largely responsible for the poor performance of CSX's stock and that of transportation and cyclical stocks in general. In addition, uncertainty over possible mergers in the rail industry contributed to the 17 percent average decline in the stock price of the six largest U.S. railroad companies (excluding CSX). Even with 1994's price decline, CSX's stock performance for the past 3- and 5-year periods easily exceeded that of the S&P 500 and other broad market indexes. In fact, CSX's market value has more than doubled over the past five years, from $3.5 billion at the end of 1989 to nearly $7.3 billion at the end of 1994. While disappointed in the performance of CSX stock in 1994, we believe it is just a matter of time before the company's improving financial strength and earnings outlook are more fully reflected in its stock price. Indeed, we have more confidence than ever in CSX's ability to provide superior shareholder returns over the long term. Five years of progress The past year marked the successful completion of a five-year plan to improve the strength and profitability of our individual business units and, consequently, the core earning power of CSX. Each of our units made great strides by re-engineering processes, cutting costs, enhancing service reliability and improving quality and safety. This progress has enabled CSX to produce strong, sustainable earnings and free cash flows. Most important, for the past two years CSX earned in excess of its cost of capital, which we view as critical to the creation of shareholder value. Having made great progress in improving the performance of our individual units, CSX now is beginning to reap the fruits of our efforts to promote and coordinate cross-unit activities. Increasingly, we are working across units to reduce costs, improve safety, use technology more effectively, share market knowledge and pursue opportunities beyond the means of any single one of our businesses. Much remains to be done before CSX realizes its full potential, but we are encouraged by the progress our units are making to more fully leverage the combined strengths of CSX. Key to our ability to serve customers and create value is the human element - the vast range of talent, expertise and ingenuity that make this - 8 - PAGE 9 company special. With that in mind, CSX is making a concerted effort to broaden the professional development of our work force. We are committed to creating within CSX a unique learning environment to enhance the individual skills and competencies of our people. We have the resources, knowledge and vision to establish CSX as the premier provider of global transportation services, a company recognized worldwide for its ability to create value for its customers, shareholders and employees. We are determined - indeed, eager - to demonstrate the true potential of this company. The achievements made by CSX's business units during 1994 certainly laid a solid foundation for further improvements. Record results at CSXT Our railroad, CSX Transportation Inc. (CSXT), recorded the best performance in its history by continuing to control costs while setting records in operating income and free cash flow. Cross-functional performance improvement teams continued to scrutinize virtually every aspect of the railroad's operation. These teams have eliminated over $350 million in excess costs over the past three years, and they are targeting more than $100 million in further cost reductions in 1995. For the year, CSXT posted an operating ratio slightly below 80 percent, which means that the railroad produced more than 20 cents in operating income for every dollar of revenue it generated. Though pleased with its success in improving operating efficiency, CSXT's management team views its achievement of a record-low operating ratio as merely a milepost along the path to a significantly better performance in 1995 and beyond. The railroad undertook a major effort to improve service in 1994 and began re-engineering key components of its operation to meet customer needs. By improving the performance and reliability of its locomotive fleet and reducing cycle times for its car fleet, CSXT continues to enhance asset utilization and reduce capital spending requirements. The result is a greater return on invested capital and the ability to meet market needs with smaller equipment fleets and at less cost. A strong finish for Sea-Land At our ocean container-shipping unit, Sea-Land Service Inc. (Sea- Land), strong traffic across all major trade lanes helped offset the severe consequences of a second-quarter strike by the Teamsters Union. Absent the strike, Sea-Land would have posted its best annual earnings ever. The company ended the year on a particularly strong note, reporting record earnings in both the third and fourth quarters. Sea-Land continued to make significant progress reducing costs and improving profitability during 1994. The company has eliminated over $350 million of expense since the beginning of 1992 and is committed to strengthening its competitive advantage by further reducing its cost base. - 9 - PAGE 10 In 1994, Sea-Land took steps to improve the efficiency of its vessel operations and inland transportation. The company implemented an automation process that enhances productivity at its terminals and expanded the coverage of a dynamic yield management system that identifies optimum cargo selection. Sea-Land also announced plans to relocate its corporate headquarters to Charlotte, N.C., and to consolidate divisional functions there by this summer. In addition to streamlining administration, this centrally managed approach will enable Sea-Land to respond more effectively to customer needs on a global basis. Intermodal strength continues CSX Intermodal Inc. (CSXI) continued its eight-year record of improved results, with operating income rising 15 percent to $61 million. CSXI completed improvements to many of its terminals, initiated direct service between Chicago and New York City and continued to forge partnerships with motor carriers, railroads and distributors. In 1995, CSXI will continue improving and expanding its national service network to pave the way for future growth. CSXI also plans to begin field testing its "Iron Highway" integrated train concept, which holds great promise for making intermodal transportation competitive for distances of 700 miles or less. Barge line bounces back Our barge unit, American Commercial Lines Inc. (ACL), rebounded from 1993's flood-impacted downturn to post strong 1994 results. Operating income rose 40 percent to $63 million on the strength of a robust U.S. economy and bumper grain harvest. ACL continued to re-engineer its work processes and to explore river transportation opportunities abroad, similar to its successful barge operation on the Orinoco River in Venezuela. CTI aggressively pursues growth Customized Transportation Inc. (CTI), a logistics company specializing in supply-chain management, leveraged its reputation as a leading supplier of contract logistics for the automotive industry to expand its presence in non-automotive markets. Though the youngest and smallest of CSX's transportation units, CTI is pursuing aggressive growth targets that are expected to double its size in five years. - 10 - PAGE 11 Pro Forma Net Earnings --------------------------------------------- (Millions of Dollars, Except Per Share Amounts) 1994 1993 1992 ----------- ----------- ----------- Per Per Per Description (All After Tax) Amt. Share Amt. Share Amt. Share --------------------------- ---- ----- ---- ----- ---- ----- Net Earnings as Reported $652 $6.23 $359 $3.46 $ 20 $ .19 Accelerated Gain on So. Florida Track Sale (42) (.40) --- --- --- --- Statutory Tax Rate Adjustment --- --- 51 .48 --- --- Restructuring/Productivity Charge --- --- 61 .59 450 4.38 ---- ----- ---- ----- ---- ----- Pro Forma Total $610 $5.83 $471 $4.53 $470 $4.57 ==== ===== ==== ===== ==== ===== Non-transportation units Finally, our non-transportation units continued to add value to the company. Our resorts unit, which includes The Greenbrier in West Virginia and the Grand Teton Lodge Company in Wyoming, produced strong earnings while upholding its reputation for unsurpassed quality and service. Meanwhile, our realty group continued its efforts to obtain the best value for property not needed for other operations. Consolidated results Together, all units enabled CSX to produce record earnings of $652 million, or $6.23 a share. Earnings for 1994 include an after-tax gain of $42 million resulting from an accelerated payment to CSXT by the state of Florida for track purchased in 1988. The prior year's earnings were impacted by a restructuring charge and the effect of retroactively applying an increase in income tax rates. Excluding these items, 1994 earnings rose 30 percent over the prior year. We are pleased with the record-breaking results CSX delivered in 1994, and we are confident we will achieve further progress in 1995 and beyond. Favorable business climate For the near term, we see a favorable business climate both in the United States and abroad. We expect the domestic economy to remain strong, which would benefit all of our business units, especially our rail, intermodal and barge operations. We also anticipate that strengthening economic conditions overseas will aid all of our transportation units, particularly Sea-Land, which operates in some 80 countries. We are encouraged by the recent trend by countries all over the world to reduce government regulation and liberalize trade policies, as is discussed further in the "Public Policy" section of this report. We are especially enthusiastic about the North American Free Trade Agreement (NAFTA) and the - 11 - PAGE 12 General Agreement on Tariffs and Trade (GATT), which promise to reduce trade barriers and boost economic growth. CSX is well situated to take advantage of this favorable trend toward increased world trade. Through our container-shipping unit, CSX is involved in many of the fastest-growing regions of the world, including China, Central and Southeast Asia and Latin America. Also, our rail and barge units move bulk commodities such as coal, grain and fertilizer bound for export markets, and much of our intermodal company's business involves moving double-stack trains of international cargo across North America. The next five years For the next five years, the efforts of our individual units will continue to be guided by their overriding commitment to be the best in their respective industries. Each is focused on meeting customer requirements by delivering the highest level of service at the lowest possible cost. And each is committed to exceeding its cost of capital and providing superior returns. To reach these objectives, CSX will target increasingly difficult performance improvement goals. We will continue our relentless efforts to reduce costs wherever possible, to allocate capital judiciously, to utilize assets intelligently and to improve safety and service reliability. Continued success in these areas should enable us to meet our financial targets and to create as much, if not more, shareholder value in the next five years as we have over the past five years. All of our business units operate in challenging environments; competition is fierce, customer expectations are increasing, and the cost of capital is rising. But as Winston Churchill said, "Kites rise highest against the wind - not with it." We welcome the winds of change and the turbulence of competition; such an unsettled environment inspires our company to soar to new heights. Sincerely, /s/ JOHN W. SNOW - ---------------- John W. Snow Chairman and Chief Executive Officer - 12 - PAGE 13 PUBLIC POLICY STATEMENT The 1994 elections were a milestone in American history. The revolt of the voters against big government sent a new pro-business majority to Congress with a bold program for reducing the size of government, lowering tax burdens and lessening the effects of regulation. A similar change also occurred in many states. For the business community at large and for CSX in particular, the most encouraging aspect of this political transformation is the move against excessive regulation. In recent years the system of federally imposed economic and environmental regulation has grown at an alarming rate, under both Republican and Democratic administrations. Some regulations have been proposed without any showing of need or any realistic relationship to the risks they seek to prevent. The new political climate in Washington and in the states offers a historic opportunity for change. The imperative to reduce the cost of government to balance the federal budget has forced a re-examination of the need for regulatory agencies like the Interstate Commerce Commission (ICC), which regulates railroads, and the Federal Maritime Commission (FMC), which regulates ocean shipping. For railroads, already freed from much economic regulation by the Staggers Act of 1980, the ICC has increasingly become an anachronism. The renaissance of the railroad industry proves what can be done when excessive regulation is eliminated; a healthy and competitive rail industry should now be treated like any other business except in those increasingly rare situations where there is a strong public purpose for some safety net of regulatory review. Maritime Reform In contrast to the railroads, which operate entirely within the United States, where they and their competitors are covered by the same laws and respond to the same economic incentives, the liner carriers operate in international commerce, where their competitors play by the rules of many different nations and often are driven by non-economic considerations. Many who attack the FMC and the current conference system ignore these differences. While CSX supports a reduction of maritime regulation, we should not act rashly in a way that would put U.S.-flag carriers at a competitive disadvantage. Their foreign competitors are often state-owned enterprises or work in close cooperation with their national governments. If U.S. laws are made more stringent, the U.S.-flag carriers will obey them, but we can not expect the same cooperation from foreign carriers. CSX continues to support a program for maritime reform that either provides for reasonable payments to help offset the higher costs of operating under the U.S. flag or allows carriers to reflag vessels with the understanding that the vessels would be made available to the federal government for defense purposes in the event of a national emergency. Authority for five such reflaggings was granted as this report went to press. That action is encouraging, but it is inconceivable to us that the United - 13 - PAGE 14 States would jeopardize its ability to meet its national defense requirements by refusing to support a U.S. merchant marine. Clearly, U.S. support of private, U.S.-flag merchant ships would be a far more efficient use of federal funds than would investing billions of dollars in government-owned vessels. Rail Passenger Service The deficit-reduction imperative will force the Congress and the administration to take a hard look at the need for heavily subsidized rail passenger service. CSX is required by law to play a somewhat reluctant host to more Amtrak trains than any other railroad except Conrail. Many are not justified by public demand, yet they constrict rail capacity or force track maintenance standards that exceed those needed for freight operations. In effect, we are obligated by law to subsidize indirectly Amtrak's passenger service - whose yearly government subsidy now totals nearly a billion dollars. We hope the new era will bring about a restructuring of Amtrak so that it operates economically on fewer routes. The system of excessive regulation also has spilled over into our judicial system, which has become clogged with litigation. Tort reforms would lessen the incentive to turn to the courts to solve every dispute. Congressional review of the Federal Employers' Liability Act (FELA), the antiquated system under which rail employees are compensated when injured on the job, could at long last give railroads and their employees the opportunity to move from this costly, adversarial system of dealing with employee injuries to the no-fault system of workers compensation used by every other industry. Finally, CSX plans to work with other businesses to seek a fairer and less intrusive system of regulation. Fundamentally, we believe there needs to be dramatic change in the entire approach of government to regulation, so that regulations are imposed only when a compelling need exists and where the likely benefits exceed the costs. We support pending legislation that would require performance standards and realistic cost-benefit assessments of the real risks involved in perceived environmental hazards or threats to safety. One message the voters sent to Congress and to their state legislatures in November is that they agree with Thomas Jefferson: "That government is best which governs the least." That is a principle that should direct our approach to government and its regulatory role. - 14 - PAGE 15 CSX CORPORATION AND SUBSIDIARIES FINANCIAL SECTION A Message to Shareholders on CSX'S Financial Principles The management of CSX Corporation is dedicated to reporting the company's financial condition and results of operations in an accurate, timely and conservative manner in order to give shareholders all the information they need to make decisions about investment in the company. CSX management also strives to present to shareholders a clear picture of the company's financial objectives and the principles that guide its employees in achieving those goals. In this section, financial information is presented to assist you in understanding the sources of earnings and financial resources of the company and the contributions of the major business units. In addition, certain information needed to meet the Securities and Exchange Commission's Form 10-K requirements has been included in the Notes to Consolidated Financial Statements. The key objective of CSX is to increase shareholder value by improving the return on capital invested in its businesses and maximizing free cash flow. The company defines "free cash flow" as the amount of cash available for debt service and other purposes generated by operating activities after deducting capital expenditures, present value of new leases and cash dividends. To achieve these goals, managers utilize the following guidelines in conducting the financial activities of the company: Capital expenditures -- CSX business units are expected to earn returns on capital expenditures in excess of the CSX cost of capital, unless such expenditures are necessary to meet safety, environmental or other regulatory requirements. Business units that do not earn above the CSX cost of capital and do not generate an adequate level of free cash flow over an appropriate period of time will be evaluated for sale or other disposition. Taxes -- CSX will pursue all available opportunities to pay the lowest possible federal, state and foreign taxes, consistent with applicable laws and regulations and the company's obligation to carry a fair share of the cost of government. CSX also works through the legislative process to keep effective tax rates as low as possible. Debt ratings -- The company will strive to maintain its investment grade debt ratings, which allow cost-effective access to major financial markets worldwide. The company will work to manage its business operations in a manner consistent with meeting this objective, including monitoring its debt levels and the amount of fixed charges it incurs. Financial instruments -- From time to time the company may employ financial instruments as part of its risk management program. The objective would be to manage specific risks and exposures and not to actively trade financial instruments for profit or loss. - 15 - PAGE 16 Dividends -- Every quarter, the cash dividend will be reviewed in light of the current rate of inflation and competitive dividend yields. The dividend may be increased periodically if cash flow projections show the higher payout level could be adequately maintained. Management's Responsibility for Financial Reporting The consolidated financial statements of CSX Corporation have been prepared by management, which is responsible for their content and accuracy. The statements present the results of operations, cash flows and financial position of the company in conformity with generally accepted accounting principles and, accordingly, include amounts based on management's judgments and estimates. CSX and its subsidiaries maintain an internal control structure designed to provide reasonable assurance that assets are safeguarded and that transactions are properly authorized by management and recorded in conformance with generally accepted accounting principles. This structure includes accounting controls, written policies and procedures and a code of corporate conduct that stresses the highest ethical standards and is routinely communicated to all employees. This structure also includes an internal audit staff to monitor the compliance with and effectiveness of established policies and procedures. The Audit Committee of the board of directors, which is composed solely of outside directors, meets periodically with management, internal auditors and the independent auditors to review audit findings, adherence to corporate policies and other financial matters. The firm of Ernst & Young LLP, independent auditors, has been engaged to audit and report on the company's consolidated financial statements. Its audit was conducted in accordance with generally accepted auditing standards and included a review of internal accounting controls to the extent deemed necessary for the purpose of its report, which appears on page 71. - 16 - PAGE 17 ANALYSIS OF OPERATIONS Through its business units, CSX Corporation operates a unique global freight transportation network offering rail, container-shipping, intermodal and inland barge transportation. CSX also provides a range of related services, including logistics management, warehousing, distribution and inland marine construction and repair. CSX units enjoy a major presence in their respective industries, which gives them the financial stability and market strength to withstand economic downturns and domestic and international competition. Management focus is on increasing shareholder returns and generating "economic value added" (EVA). The EVA concept holds that companies create wealth only when they generate returns above their cost of capital. Using EVA to measure financial performance, CSX has reduced costs, utilized assets more effectively, conserved capital, increased productivity and improved service. Each unit of CSX is charged with meeting stretch targets for return on invested capital, operating income and free cash flow. Their efforts to improve the core earning power of their businesses yielded record results for CSX in 1994 - generating returns greater than the company's cost of capital. Discussion of Earnings Net earnings totaled $652 million, $6.23 per share in 1994, compared with $359 million, $3.46 per share in 1993, and $20 million, 19 cents per share, in 1992. Earnings for 1994 included the accelerated recognition of an after-tax gain of $42 million, 40 cents per share, on a 1988 sale of track in south Florida. Excluding this gain, earnings for 1994 would have been $610 million, $5.83 per share. The 1993 results included the effect of a $93 million pretax restructuring charge to recognize the expense associated with reorganizing and downsizing the container-shipping unit's European and North American operations. After taxes, this charge was $61 million, 59 cents per share. Also in 1993, CSX recognized $51 million, 48 cents per share, of income tax expense related to applying the newly enacted statutory income tax rate to deferred tax balances as of Jan. 1, 1993. Earnings for 1992 included a charge principally to recognize the estimated costs of buying out certain trip-based compensation paid to train crews. The pretax charge amounted to $699 million and reduced net earnings for 1992 by $450 million, $4.38 per share. Excluding the above-mentioned charges and the impact of the tax-rate change, earnings for 1993 and 1992 would have been $471 million, $4.53 per share, and $470 million, $4.57 per share, respectively. On a comparable basis, annual earnings per share in 1994 were $1.30 higher than in 1993 and $1.26 higher than in 1992. - 17 - PAGE 18 PRODUCTIVITY/RESTRUCTURING CHARGES ---------------------------------- (Millions of Dollars) ------------------- 1993 1992 1991 ---- ---- ---- Provision: Severance Costs $32 $669 $634 Exit, Settlement and Other Costs 61 30 121 --- ---- ---- Total Provision 93 699 755 --- ---- ---- Payments and Other Reductions: Severance Costs (24) (293) (634) Exit, Settlement and Other Costs (42) (30) (121) --- ---- ---- Balance Dec. 30, 1994 $27 $376 $--- === ==== ==== Consolidated operating revenue increased to $9.6 billion, 7% higher than 1993 and 10% above 1992. The higher 1994 revenue was led by the rail unit's improvement in merchandise traffic and the rebound of coal loadings from 1993's levels, which were affected adversely by a strike against selected eastern coal producers. Strong volume at the container-shipping and intermodal units and a solid second half of the year for the barge company supported revenue increases across all transportation units. Compared with 1992, all CSX transportation units generated higher revenue. These increases were driven by improved economic activity and market share gains achieved through service improvements. Consolidated operating expense was $8.4 billion, compared with $8 billion in 1993 and $8.5 billion in 1992. Operating expense in 1993 included the container-shipping unit's $93 million pretax restructuring charge, while 1992 operating expense included the $699 million pretax productivity charge. Excluding the restructuring and productivity charges, 1994 operating expense would have been 6% higher than 1993's expense of $7.9 billion and 8% higher than 1992's $7.8 billion. Concerted cost-reduction efforts by all CSX units enabled the company to contain much of the expense associated with supporting the increased revenue and the effects of inflation. In particular, significant expense reductions were achieved by Performance Improvement Teams at the rail and container-shipping units. Consolidated operating income for 1994 was $1.2 billion. This compared with $913 million in 1993 and $266 million in 1992, including the restructuring and productivity charges recorded in both years. Excluding those charges, operating income would have been $1 billion in 1993 and $965 million in 1992. The year-to-year comparisons include the impact of 1993's coal strike and midwest flooding on rail and barge operations, respectively. - 18 - PAGE 19 Other income totaled $55 million, compared with $18 million in 1993 and $3 million in 1992. Other income for 1994 reflected the accelerated $69 million net pretax gain on the south Florida track sale, partially offset by higher fees related to accounts receivable sold and premium payments related to retiring $300 million of long-term debt. The gain recognition was the result of the state of Florida prepaying its unfunded obligation to the company. Interest expense for 1994 was $281 million, $17 million below 1993's level. A $312 million net decrease in outstanding debt and lower interest rates on equipment obligations contributed to the reduced expense compared with 1993. Discussion of Cash Flows Cash provided by operating activities totaled $1.3 billion in 1994. This compares with $962 million in 1993 and $939 million in 1992. Cash provided by operating activities, together with proceeds from disposition of properties, was adequate to fund property additions and cash dividends in 1994 and 1993, as well as to allow a significant reduction of long-term debt in 1994. Payments related to the 1992 and 1991 productivity charges to implement two-member crew agreements on the rail system impacted cash provided by operations in all three years. These agreements, which were successfully negotiated by the end of 1993, provided for two-member train crews on through- freight and yard assignments, the buyout of excess positions and buyouts for productivity fund and short-crew allowances. The company has paid $760 million related to its 1992 and 1991 productivity charges to date, largely due to the implementation of these agreements. The rail unit is realizing the efficiencies and savings anticipated as a result of reducing train crew sizes. Payments also were made in conjunction with the container-shipping unit's European and North American restructuring as well as other rail unit severance programs. Consistent with its original estimates, CSX expects a significant decrease in the level of future cash payments for those productivity and restructuring costs. In management's opinion, existing reserves are adequate for these payments. Property additions totaled $875 million for the year, compared with $768 million in 1993 and $1 billion in 1992, which included $137 million for the barge company's acquisition of the Valley Line assets. Efforts to reduce expenses, improve asset utilization and enhance productivity, such as through Performance Improvement Teams and increased equipment turn times, have helped hold the line on capital spending in a period of increasing business activity. CSX committed additional capital in the form of new and renewed operating leases. The present value of future payments on these additional equipment and facility leases totaled $116 million in 1994, $108 million in 1993 and $17 million in 1992. New capital investment totaled $991 million in 1994, compared with $876 million in 1993 and $1 billion in 1992. - 19 - PAGE 20 Cash dividends per common share rose to $1.76, compared with $1.58 in 1993 and $1.52 in 1992. The annualized dividend rate increased 11% from 1993's level and 16% from 1992's level. The number of CSX outstanding shares rose slightly, to 104.7 million, as a result of stock issued under the provisions of incentive, benefit and dividend reinvestment plans. In 1995, CSX anticipates continued strong cash flows from core transportation operations sufficient to meet future operating and capital needs as well as cash dividends and debt repayments. The company also plans to continue its successful record of extracting cash value from disposition or lease of rights of way, real estate and other non-core asset holdings. CSX expects to have access to financial markets, as necessary, to fund operations, working capital and other requirements. Discussion of Financial Position Cash, cash equivalents and short-term investments totaled $535 million at Dec. 30, 1994. This compares with $499 million and $530 million at year-end 1993 and 1992, respectively. The working capital deficit increased $136 million during 1994, primarily due to higher current maturities of long-term debt. The company had year-end working capital deficits of $840 million in 1994, $704 million in 1993 and $859 million in 1992. A working capital deficit is not unusual for CSX and does not indicate a lack of liquidity. CSX maintains adequate resources to satisfy current liabilities when they are due and has sufficient financial capacity to manage its day-to-day cash requirements. In 1993, working capital was affected by the reclassification of current deferred income taxes. Under Statement of Financial Accounting Standards No. 109, CSX reclassified $108 million of its long-term deferred income tax balances to a current account during 1993 to match the life of this deferred benefit with the underlying components that gave rise to the deferred income taxes. Long-term debt declined $515 million to $2.6 billion in 1994, reflecting a higher level of scheduled maturities and use of the company's increased cash flow to reduce outstanding debt. This compared with long-term debt of $3.1 billion in 1993 and $3.2 billion in 1992. The company issued debt in 1992 to finance productivity payments and property acquisitions. The ratio of debt-to-total capitalization was 40.8% at year-end 1994, compared with 49.2% for 1993 and 51.7% for 1992. Cash provided by operations, property dispositions and proceeds from the prepayment of its unfunded obligation by the state of Florida generated the cash available to reduce the outstanding long-term debt. CSX anticipates using excess cash to continue to reduce long-term debt over the next two to three years. - 20 - PAGE 21 Other Matters CSX accepts the challenge of addressing its environmental responsibilities and managing related expenditures. Environmental management is an important part of CSX's strategic planning. As a result, there is an active focus on finding the most efficient, cost-effective solutions for dealing responsibly with waste materials generated from past and present business operations. These solutions range from simple recycling and cleanup efforts to high-tech remediation initiatives. The company is a party to numerous regulatory proceedings and private actions. These arise from laws governing the remediation of contaminated property, such as the federal Superfund statute, hazardous waste and underground storage tank laws, and similar state laws. The rail unit has been identified, together with other parties, as a potentially responsible party in a number of governmental investigations and actions relating to environmentally impaired sites. Such sites frequently involve other waste generators and disposal companies to whom costs associated with site investigation and cleanup may be allocated or from whom such costs may be recovered. Due to the number of parties involved at many of these sites, the wide range of costs of the possible remediation alternatives, changing cleanup technology, the length of time over which these matters develop and evolving governmental standards, it is not always possible to estimate precisely the company's liability for the costs associated with the assessment and remediation of contaminated sites. The rail unit maintained reserves for 106 environmental sites at year-end 1994. The company periodically reviews its environmental reserves as new developments arise to determine whether additional provisions are necessary. Based on current information, the company believes its reserves are adequate to meet remedial actions to comply with present laws and regulations. Although CSX's financial results could be significantly affected in any quarterly reporting period in which the company incurred substantial remedial expenses at a number of these and other sites, CSX believes the ultimate liability for these matters will not materially affect its overall results of operations and financial condition. Total expenditures associated with protecting the environment and remedial environmental cleanup efforts amounted to $39 million in 1994. This compares with $42 million in 1993 and $27 million in 1992. CSX employs risk management strategies to address business and financial market risks. However, CSX currently has no significant hedging or derivative financial instruments in place as part of its risk management programs. The company may change this position to respond to evolving business and market conditions, particularly as such conditions influence interest rates, fuel costs and foreign currency exposure. The company monitors the interest rate sensitivity of its portfolio of investments and borrowings, and from time to time may use financial instruments to manage the net interest exposure. - 21 - PAGE 22 Similarly, CSX monitors fuel oil price volatility and fluctuations in the value of the U.S. dollar in foreign exchange markets. While the company is not currently hedging these risks with financial instruments, on occasion it may do so. CSX's objective in employing such strategies would be to manage those risks and exposures, not to actively trade financial instruments for profit or loss. RESOURCES AVAILABLE DECEMBER 30, 1994 ------------------------------------- (Millions of Dollars) ------------------- Cash, Cash Equivalents and Short-Term Investments $ 535 Total Credit Lines Available 880 Outstanding Borrowings: Commercial Paper (501) ----- Total Liquidity $ 914 ----- Working Capital (Deficit) $(840) ===== Rail Results CSX Transportation Inc. (CSXT) posted three consecutive quarters of record operating income in 1994. These results were due to strong traffic across virtually all merchandise commodities and continued success in cost reductions. CSXT also rebounded from the 1993 coal strikes to yield notable increases in domestic coal tonnage. These results were achieved in spite of lower export coal loadings. Rail operating income in 1994 totaled $929 million, $183 million above 1993's $746 million and $189 million above 1992's comparable $740 million. This latter figure excludes a net productivity charge of $619 million associated with labor reductions. Including this charge, rail operating income was $121 million in 1992. CSXT also achieved an operating ratio, which is the ratio of operating expense to operating revenue, of 79.9% in 1994, surpassing a major performance goal of 80% set in 1991. The operating ratio was 83% in 1993 and 83.3% in 1992, excluding the productivity charge. Operating revenue rose to $4.63 billion, a 6% increase from 1993 and a 4% increase over 1992, driven primarily by a rebound in domestic coal tonnage and exceptional merchandise traffic. Rail revenue totaled $4.38 billion in 1993 and $4.43 billion in 1992. CSXT overcame severe winter conditions in early 1994 and weaker- than-expected export coal traffic to increase coal tonnage to 153.7 million tons vs. 144.1 million tons in 1993. Domestic coal shipments rose 8% as utility demand, driven by the need to rebuild stockpiles depleted from the 1993 strikes and the harsh winter weather, surged during the year. CSXT's export shipments faced a number of market obstacles, including decreased demand and increased foreign competition. In 1994, export coal shipments decreased to 16 million tons from 16.7 million tons in 1993. - 22 - PAGE 23 CSXT anticipates a modest recovery in the U.S. export coal market and slightly better domestic coal loadings in 1995. The implementation of Phase I of the Clean Air Act in 1995 is expected to provide a net tonnage gain for CSXT, as an increase in the production of high-quality, low-sulfur coal at CSXT-served mines should more than offset any displacement caused by the Act. Total rail merchandise carloads and revenue increased 6% and 5%, respectively, over 1993 levels, reflecting the strength of the U.S. economy and successful efforts to expand market share. These same figures both rose 10% vs. 1992's volume and revenue. CSXT's automotive carloads increased 9% from a strong 1993 traffic base. This growth, driven by increased U.S. auto production, soaring consumer demand and improved service, pushed automotive revenue up 7% in 1994. Demand for plastic products from the auto industry, housing construction and the consumer goods market helped spur a 4% carload growth in the chemicals market. Bulk Intermodal Distribution (BIDS) terminals, where customers transfer and store bulk chemicals, gave CSXT a significant competitive advantage in this market. The customer response to this service is reflected in the 5% increase in chemicals revenue for 1994. Minerals traffic and revenue for the year improved 12% and 10%, respectively, propelled by growth in highway construction and demand for sand for auto castings. Shipments in the food and consumer category, which includes government traffic and consumer durables, increased 6%, reflecting strong industrial production, particularly in appliances. Agricultural products experienced a surge in export grain traffic late in the year, but it was not enough to offset the devastating effect of the 1993 floods that caused a short supply of grain through the first three quarters of 1994. Strong domestic feed grain loadings to the Southeast poultry farms provided a solid base of traffic during the year. Carloads declined 7%, while revenue decreased only 3% as a result of favorable yield and mix changes. The metals industry enjoyed one of its best years ever, as strong demand from steel mini-mills led to a 13% carload increase in 1994. New service packages offered by CSXT improved market share and contributed to a 17% gain in revenue. Forest products traffic, which includes lumber, paper and construction materials, improved 2% due to continued housing demand and steady recovery of the paper business. CSXT's market position in lumber was aided by the addition of several new lumber distribution centers. The phosphates and fertilizer category experienced an 11% growth in traffic as export loads rose with increased foreign demand. The distance CSXT hauls export shipments of phosphate from Florida's Bone Valley to the Port of Tampa is far less than that for domestic moves to the U.S. Midwest, leading to lower revenue-per-carload comparisons. - 23 - PAGE 24 Although merchandise traffic experienced significant gains in 1994, CSXT anticipates continued strength in the principal markets it serves in the U.S. industrial sector in 1995. Combined with selective price increases, a modest improvement is expected in merchandise traffic and revenue in 1995. The rail unit undertook an effort to re-engineer key components of its service delivery to meet customer needs better and enhance service reliability in 1994. In the future, the unit hopes to strengthen traffic levels in the various commodity groups by further satisfying customers through improved performance. Rail operating expense for 1994 was $3.7 billion, a 2% increase over 1993 and level with 1992, excluding the previously mentioned 1992 productivity charge. These results reflect the continuing efforts of the rail unit to reduce expense and control cost while retaining its customer focus. Labor and fringe benefits expense increased 2% to $1.83 billion, vs. $1.8 billion in both 1993 and 1992. Despite the increased traffic levels, which required a greater number of crew starts, and the impact of a 4% wage increase, CSXT controlled labor and fringe benefits expense. The company will continue to implement work-force reductions over the next few years. As the implementation of two-member crews extends throughout the rail system, the average crew size continues to fall. At year-end 1994, the average crew size was 2.5 members. In the next few years, reductions in yard and local crews will result in an average crew size of 2.25 members. CSXT, as a participant in national bargaining, is actively engaged in contract negotiations with rail labor organizations. CSXT seeks to improve the future competitiveness of its labor force through these negotiations. CSXT continued to reduce accidents and injuries in 1994, and it remains one of the safest railroads in the industry. Reportable injuries to employees were reduced 20% and train accidents fell 21% by year-end, helping CSXT maintain one of the highest rankings among Class I railroads. The company's progress in safety not only continues to save lives, but increases the quality and reliability of rail service while driving out unnecessary expense. - 24 - PAGE 25 CSX CORPORATION AND SUBSIDIARIES -------------------------------- (All Tables in Millions of Dollars) Table 1. TRANSPORTATION OPERATING RESULTS 1994 ---- Container Elim/ Total Rail Shipping Intermodal Barge Other ------ ------ --------- ---------- ------ ----- Operating Revenue $9,410 $4,625 $3,492 $ 902 $ 449 $ (58) ------ ------ ------ ----- ----- ----- Operating Expense Labor and Fringe Benefits 3,006 1,828 859 89 104 126 Materials, Supplies and Other (a) 2,314 918 919 120 191 166 Building and Equipment Rents 1,088 374 600 67 19 28 Inland Transportation 839 --- 676 553 --- (390) Depreciation 564 352 132 11 32 37 Fuel 421 224 119 1 40 37 ------ ------ ------ ----- ----- ----- Total 8,232 3,696 3,305 841 386 4 ------ ------ ------ ----- ----- ----- Operating Income (Loss) $1,178 $ 929 $ 187 $ 61 $ 63 $ (62) ====== ====== ====== ===== ===== ===== Operating Income (Loss)(b) $1,178 $ 929 $ 187 $ 61 $ 63 $ (62) ====== ====== ====== ===== ===== ===== Operating Ratio(b) 79.9% 94.6% 93.2% 86.0% ====== ====== ===== ===== Average Employment 28,773 9,437 1,626 2,644 ====== ====== ===== ===== Property Additions and Present Value of New Operating Leases $ 958 $ 675 $ 199 $ 50 $ 15 $ 19 ====== ====== ====== ===== ===== ===== - 25 - PAGE 26 1993 ---- Container Elim/ Total Rail Shipping Intermodal Barge Other ------ ------ --------- ---------- ------ ----- Operating Revenue $8,767 $4,380 $3,246 $ 793 $ 417 $ (69) ------ ------ ------ ----- ----- ----- Operating Expense Labor and Fringe Benefits 2,922 1,797 822 81 107 115 Materials, Supplies and Other (a) 2,158 891 828 108 175 156 Building and Equipment Rents 1,034 369 559 64 19 23 Inland Transportation 721 --- 608 475 --- (362) Depreciation 558 352 127 11 29 39 Fuel 413 225 109 1 42 36 Productivity/ Restructuring Charge 93 --- 93 --- --- --- ------ ------ ------ ----- ----- ----- Total 7,899 3,634 3,146 740 372 7 ------ ------ ------ ----- ----- ----- Operating Income (Loss) $ 868 $ 746 $ 100 $ 53 $ 45 $ (76) ====== ====== ====== ===== ===== ===== Operating Income (Loss)(b) $ 961 $ 746 $ 193 $ 53 $ 45 $ (76) ====== ====== ====== ===== ===== ===== Operating Ratio(b) 83.0% 94.1% 93.3% 89.2% ====== ====== ===== ===== Average Employment 29,216 9,440 1,510 2,747 ====== ====== ===== ===== Property Additions and Present Value of New Operating Leases $ 818 $ 576 $ 172 $ 50 $ 13 $ 7 ====== ====== ====== ===== ===== ===== - 26 - PAGE 27 1992 ---- Container Elim/ Total Rail Shipping Intermodal Barge Other ------ ------ --------- ---------- ------ ----- Operating Revenue $8,550 $4,434 $3,148 $ 739 $ 443 $(214) ------ ------ ------ ----- ----- ----- Operating Expense Labor and Fringe Benefits 2,853 1,814 795 70 114 60 Materials, Supplies and Other (a) 2,165 939 807 110 174 135 Building and Equipment Rents 1,011 374 558 54 25 --- Inland Transportation 678 --- 605 454 --- (381) Depreciation 513 332 117 11 23 30 Fuel 424 235 115 1 47 26 Productivity/ Restructuring Charge 681 619 17 45 --- --- ------ ------ ------ ----- ----- ----- Total 8,325 4,313 3,014 745 383 (130) ------ ------ ------ ----- ----- ----- Operating Income (Loss) $ 225 $ 121 $ 134 $ (6) $ 60 $ (84) ====== ====== ====== ===== ===== ===== Operating Income (Loss)(b) $ 906 $ 740 $ 151 $ 39 $ 60 $ (84) ====== ====== ====== ===== ===== ===== Operating Ratio(b) 83.3% 95.2% 94.7% 86.5% ====== ====== ===== ===== Average Employment 30,916 9,495 1,382 2,905 ====== ====== ===== ===== Property Additions and Present Value of New Operating Leases $ 986 $ 570 $ 236 $ 28 $ 152 $ --- ====== ====== ====== ===== ===== ===== (a) A portion of intercompany interest income received from the CSX parent company has been classified as a reduction of materials, supplies and other, by the container shipping unit. This amount was $64 million in 1994, 1993 and 1992, respectively, and the corresponding charge is included in eliminations and other. (b) Excludes productivity/restructuring charges. Performance Improvement Team initiatives reduced expenses by more than $350 million from 1991 through 1994. Besides shrinking the cost base, this program has helped conserve capital as improvements are realized in reliability, performance and efficiency throughout the system. All areas of rail operations and administration - from repair and maintenance of locomotives and freight cars to purchases of office supplies - were targeted. Further savings of more than $100 million have been targeted by CSXT for each of the next three years. CSXT will continue to lower its cost base in 1995 and beyond through increased asset utilization, crew-size reductions, improved safety and continued Performance Improvement Team savings. - 27 - PAGE 28 Rail capital additions for 1994 increased to $675 million from 1993's $576 million and 1992's $570 million. These figures include the present value of new operating leases. Capital expenditures for roadway improvements, including track, terminals, technology and other equipment, totaled $401 million, or 59% of the total. CSXT's maintenance-of-way program installed or replaced 289 miles of rail in 1994, compared with 400 miles in both 1993 and 1992. The remaining rail property additions included $131 million for locomotives and $143 million for the car fleet. Table 2. RAIL COMMODITIES BY CARLOADS AND REVENUE Market Share (a) Carloads Revenue (Percent) (Thousands) (Millions of Dollars) --------- -------------------- ---------------------- 1994 1994 1993 1992 1994 1993 1992 ---- ----- ----- ----- ----- ------ ------ Automotive 28 354 326 288 $ 493 $ 461 $ 413 Chemicals 39 386 371 356 685 652 619 Minerals 38 419 374 345 365 332 310 Food and Consumer 33 176 166 161 204 196 196 Agricultural Products 28 263 284 264 318 327 297 Metals 28 292 258 225 285 243 219 Forest Products 33 442 435 441 444 442 448 Phosphates and Fertilizer 76 470 423 457 254 256 268 Coal 40 1,678 1,566 1,760 1,465 1,363 1,565 ----- ----- ----- ------ ------ ------ Total 4,480 4,203 4,297 4,513 4,272 4,335 ===== ===== ===== ------ ------ ------ Other Revenue 112 108 99 ------ ------ ------ Total Operating Revenue $4,625 $4,380 $4,434 ====== ====== ====== (a) Market Share is defined as CSX carloads versus carloads handled by all major Eastern railroads. CSXT reduced its locomotive fleet size by 1% to 2,785 in 1994. Eighty new locomotives were added to the fleet, including 30 alternating-current (AC) locomotives. This new AC technology, which provides substantially better tractive effort, or pulling power, will allow CSXT to replace an average of two older units in its existing fleet with each new unit. These AC locomotives are the first of 250 fuel-efficient units to be delivered to CSXT through 1997. - 28 - PAGE 29 Rail Assets (Owned or leased as of December 30, 1994) ----------------------------------------- Freight Cars Boxcars 14,718 Open-top hoppers 35,609 Covered hoppers 18,789 Gondolas 20,623 Other cars 15,092 ------- Total 104,831 ======= Locomotives 2,785 Track Route miles 18,759 Track miles 32,462 In late 1994, CSXT resumed repairing and rebuilding freight cars at its Raceland Car Shop in Kentucky. The facility plans to refurbish or rebuild 4,000 coal hopper cars in 1995. Notwithstanding this program, enhanced utilization through improved car turn times will yield a net reduction in the overall car fleet. CSXT is engaged in preliminary negotiations to obtain all its telecommunication services from AT&T. The goal of this transaction would be to provide CSXT with the strategic opportunity to obtain state-of-the-art technology, equipment and services from AT&T, without diverting CSXT's capital and management resources from its core business. The arrangement, if consummated, would enable CSXT to leverage technological enhancements as they become available in the rapidly changing telecommunications industry. The transaction could result in a significant future charge to cover the writedown of certain telecommunications assets and labor separation costs. In 1995, CSXT expects to improve equipment utilization further and increase capital expenditures by approximately 10%, the majority of which will go to the Raceland car program. Container-Shipping Results Volume at Sea-Land Service Inc. surged to record levels in 1994 despite a three-week nationwide Teamsters strike in April that closed Sea- Land's West Coast operations and disrupted shipments to and from Alaska, Hawaii and Asia. Although the strike interrupted a solid first half of the year, Sea-Land finished the year with heavy volume in the third and fourth quarters. The unit's ongoing expense reductions, coupled with efficiencies gained from its Performance Improvement Team efforts and its 1993 Atlantic restructuring, were tempered by the strike impact on earnings of approximately $45 million. - 29 - PAGE 30 Despite the strike, Sea-Land delivered $187 million of operating income. This compares with $193 million in 1993, excluding the $93 million pretax restructuring charge, and $151 million in 1992, excluding a $17 million pretax productivity charge. Record earnings were posted in the third and fourth quarters as strengthening economies in Europe, Japan, China and the Middle East helped revive commercial traffic. Including charges, operating income was $100 million in 1993 and $134 million in 1992. Container-shipping operating revenue rose to $3.5 billion, an 8% improvement over 1993's revenue of $3.25 billion and 11% better than 1992's $3.15 billion. Double-digit volume gains over 1993 levels were recorded in the Pacific, Americas and Asia/Middle East/Europe (AME) trade lanes, while overall volume increased 9%. Average revenue per container slipped 3% as competition increased and cargo mix varied from prior years. Sea-Land anticipates a more favorable supply/demand ratio in its markets in 1995 as added capacity in most trade lanes will be offset by significant market growth. Container volumes in both eastbound and westbound Pacific lanes increased significantly. Eastbound traffic was driven by increasing consumer demand in the United States, while westbound gains resulted primarily from a resurgence in commercial cargoes and increasing military traffic. Sea-Land expects continued strong volumes during 1995 in the Pacific, propelled by solid U.S. demand for imports from southeast Asia, China and Hong Kong and exports to these countries. An increase in traffic from Central and South America, along with continued solid U.S. exports, drove the Americas volume up sharply in 1994. Sea-Land anticipates continued growth in this trade in 1995, especially with the continuing expansion of the North American Free Trade Agreement (NAFTA). Strong shipments in the AME service reflected growing trade between Asia and Europe, and the Middle East and Indian subcontinent. In all of Sea-Land's markets, rates continue to reflect an intensely competitive environment. The conference system, which helps to stabilize pricing in most major trade lanes, is under review by U.S. and international regulatory authorities. The recent passage of the General Agreement on Tariffs and Trade (GATT) will encourage higher levels of international trade. Serving customers through a global infrastructure, Sea-Land is well positioned to capitalize on the opportunities presented by GATT and NAFTA. Sea-Land's operating expense increased 8% to $3.3 billion, compared with $3.05 billion in 1993 and $3 billion in 1992, excluding restructuring and productivity charges. Sea-Land's efforts to reroute containers and ships during the April strike and the post-strike repositioning of equipment for normal operations, along with the higher traffic volume, resulted in increased expense in 1994. Including restructuring and productivity charges, total operating expense was $3.15 billion in 1993 and $3.01 billion in 1992. - 30 - PAGE 31 Container-Shipping Assets (Owned or leased as of December 30, 1994) Containers 40- and 20-foot dry vans 155,648 45-foot dry vans 9,265 Refrigeration vans 17,467 Other specialized equipment 5,310 ------- Total 187,690 ======= Container ships 93 Terminals Exclusive-use 8 Preferred berthing rights 15 The increase in the cost of bunker fuel during the summer led to a 9% rise in fuel expense. In addition, severe winter weather in the northeastern United States led to higher-than-expected fuel costs in the first quarter of 1994. Sea-Land's ongoing commitment to lower its cost base by re- engineering operations resulted in more than $100 million of reduced expense in 1994, bringing the three-year total to more than $350 million. These reductions were achieved in terminal operations, maintenance, overhead and, through the efforts of Performance Improvement Teams, in areas such as parts inventories, equipment and accounts receivable. Sea-Land plans expense savings of approximately $100 million in 1995 in areas such as terminal efficiency, inventory reduction and labor. Productivity improvement efforts were hampered by the strike as the percentage of on-time vessel arrivals and lifts per hour declined. Sea-Land expects these figures to bounce back in 1995. Overall terminal efficiency is expected to improve with the implementation of Sea-Land's Terminal Automation System (TAS) over the next few years. This system tracks cargo in the terminal and is designed to decrease terminal throughput time. In February 1995, Sea-Land received approval from the Maritime Administration (MARAD) to reflag five U.S.-flag vessels to the registry of the Marshall Islands. The unit estimates that this reflagging will result in a net reduction in annual operating expense of approximately $2.5 million per ship. Applications to reflag eight more Sea-Land vessels are pending at MARAD. Sea- Land remains hopeful that Congress will approve legislation authorizing payments to reimburse or compensate for the additional cost of operating and maintaining U.S.-flag ships. Capital additions for 1994 totaled $199 million, including $134 million in expenditures and $65 million in present value of new long-term operating leases. The total compares with $172 million in 1993 and $236 million in 1992. In 1994, Sea-Land contracted for the construction of five high- performance, fuel-efficient container vessels and the modification of three - 31 - PAGE 32 Atlantic Class Vessels (ACVs) in its fleet. The three ACV modifications were completed in 1994; two of the new ships will be delivered late in 1995 and three in 1996. Approximately $57 million of capital was spent in 1994 on the first phase of this $315 million vessel program. The five new vessels will replace capacity in the trans-Pacific trade while the modified ACVs, which serve the AME trade, will have increased speed and efficiency with the same effective capacity. These new and refurbished ships will enable Sea-Land to replace older, higher-cost assets while gaining efficiency and improving service. Sea-Land spent $44 million of capital to enhance its rolling stock of containers and $24 million to upgrade and refurbish terminal facilities. The remaining portion of capital was dedicated to technology and other areas. In the fourth quarter of 1994, Sea-Land announced a global integration program, including a relocation of its corporate headquarters from Liberty Corner, N.J., to Charlotte, N.C. While the unit's estimate of the total cost is not yet finalized, it is expected to be approximately $50 million. Sea-Land will consolidate in Charlotte senior management functions now performed at its Seattle, Rotterdam and New Jersey offices. This will allow Sea-Land to streamline much of its administration and increase customer responsiveness. Sea-Land plans to begin operations in Charlotte during the summer of 1995. The earthquake that struck Japan in January 1995 caused considerable property damage and business disruption to Sea-Land's operation at the Port of Kobe. Sea-Land responded quickly, becoming the first carrier to resume limited operations out of Kobe in late February. Sea-Land also started a supplemental service into the neighboring Port of Osaka and is making greater use of its terminals in Yokohama, Nagoya and Tokyo. Company officials estimate that the port will be fully operational by the fall of 1995. Currently, Sea-Land expects strong traffic in the Pacific trade to largely offset the earthquake's impact on operations. Intermodal Results Operating income at CSX Intermodal Inc. (CSXI) surged to $61 million in 1994, 15% ahead of 1993's $53 million and 56% better than 1992's $39 million, excluding a productivity charge. Domestic and international traffic segments both experienced record volume and revenue growth in 1994. In 1992, CSXT transferred to CSXI $45 million of the productivity charge related to locomotive-crew buyouts. Including this charge, CSXI recorded an operating loss of $6 million in 1992. CSXI launched several new service initiatives in 1994 that increased its competitiveness and improved customer service. The most notable was the inauguration in August of daily direct intermodal service between the New York City area and Chicago. - 32 - PAGE 33 Operating revenue totaled $902 million, 14% higher than 1993 and 22% more than 1992. Domestic loads increased 11% over 1993 levels as a result of growing shipments from distributors, truckline partners and direct shippers. International traffic, reflecting increased volumes from ocean carriers, rose 14%. Intermodal Assets (Owned or leased as of December 30, 1994) Equipment Domestic Containers 3,386 Rail Trailers 9,584 Facilities CSX Intermodal Terminals 33 Motor Carrier Operations Terminals 28 CSX Services Facilities 18 CSXI forecasts continued volume growth and service expansions during 1995 as customers look for cost-effective transportation solutions. Also, initiatives are already under way to develop and expand new geographic markets and service options in 1995. In 1994, operating expense was $841 million, compared with $740 million in 1993 and $700 million in 1992, excluding the previously mentioned 1992 charge. The higher volumes and initial costs associated with the market expansion contributed to the increase. Including the 1992 charge, operating expense was $745 million. CSXI spent $50 million on capital expenditures in 1994, flat with 1993 and $22 million more than 1992. Improvements in terminals, equipment and technology were the major focus of spending. Plans for 1995 call for several major terminal expansions as well as the addition of new terminals at strategic locations. These projects and others that support CSXI's rapid growth, such as terminal automation and fleet expansion, are expected to boost capital spending to almost $70 million in 1995. CSXI also will continue developing and begin field testing its Iron Highway intermodal train concept in 1995. This concept employs a continuous platform with a split-ramp design that allows for rapid drive-on/drive-off loading, thereby reducing terminal costs and providing a highly reliable, cost-efficient service. The project made major strides in 1994, including the completion of track testing and the announcement of line-of-road testing in two corridors during 1995. The Iron Highway holds great promise for making intermodal competitive for motor carrier traffic in both short- and medium-haul corridors. Traditional intermodal rail economics have not provided this opportunity. - 33 - PAGE 34 Barge Results Operating income at American Commercial Lines Inc. (ACL) rebounded to $63 million as a result of northbound traffic growth, cost containment and an increase in grain traffic and rates late in the year. This income compares with $45 million in 1993 and $60 million in 1992. Grain, one of the barge unit's key commodities, was devastated by the flooding along the Mississippi River system in 1993. The resulting weak grain market, along with the severe winter weather, created an operating challenge for the barge line in early 1994. Given this environment, ACL successfully refocused on non-grain commodities, such as import steel and raw materials for steel mini-mills. Total operating revenue at ACL increased 8% to $449 million as a result of these efforts. This compared with $417 million and $443 million in 1993 and 1992, respectively. Total volume rose over weak prior-year figures as barge ton miles totaled 51 billion, an increase of 6 billion over 1993 and 3 billion more than 1992. Coal tonnage and revenue increased slightly during the year as world demand languished. ACL expects moderate growth in export coal in 1995 as world demand strengthens with improved economies in Europe and Japan. In 1995, the barge unit anticipates increased loadings on the continued strength of the northbound markets. Also, the record harvest is expected to push export demand for corn over 2 billion bushels, an increase of nearly 50% over 1994. Operating expense increased 4% to $386 million, driven by improved traffic volumes and higher repair costs. However, 1994's expenses vs. 1992's were nearly equivalent as the company offset costs associated with increased volume by improving operating efficiencies. This expense level also reflects ACL's ongoing re-engineering efforts. The higher level of barging activity in 1994 increased fuel consumption 9% while expense declined 5% due to lower prices. Compared with 1992, consumption rose 1% while expense decreased 15%. Like the rail unit, the barge company has focused considerable attention on employee safety awareness. In 1994, the incident rate of reportable injuries to employees improved 25% over 1993. Capital additions at ACL in 1994 totaled $15 million, compared with $13 million in 1993 and $152 million in 1992, which included $137 million for the acquisition of the Valley Line assets. Spending in 1994 focused primarily on terminal expansions and tanker barges. ACL's capital expenditures in 1995 are expected to increase modestly as the company renews a covered hopper construction program while continuing to upgrade its chemical tanker fleet. - 34 - PAGE 35 Barging Assets (Owned or leased as of December 30, 1994) Towboats 117 Barges Covered/open-top hoppers 3,055 Tankers 240 ----- Total 3,295 ===== Marine Services River terminals 11 Fleeting operations 15 Shipyards 2 CTI Results Customized Transportation Inc. (CTI) joined CSX in early 1993 with a 10-year reputation as a leading supplier of contract logistics primarily for the automotive industry. Operating income at CTI was $10 million in 1994, compared with $6 million in 1993. CTI generated operating revenue of $182 million in 1994 vs. $145 million in 1993. Approximately 71% of 1994 revenue was generated from automotive-related markets. Revenue is expected to grow aggressively over the next five years as CTI diversifies its customer base to include more non- automotive clients. Consolidated Outlook CSX enters 1995 with confidence and an optimistic outlook. Following the healthy growth of 1994, world economic expansion is expected to continue throughout 1995, led by the United States and improved prospects in Japan and Europe. With the capabilities provided by its global infrastructure, CSX stands ready to capitalize on the continued economic momentum, and the company expects to improve its earnings in 1995. CSX will continue to improve its performance, even though some of its units are subject to such unpredictable external factors as adverse weather conditions, work stoppages at major customer facilities and shifting economic conditions in the U.S. and foreign economies. CSX, like many other U.S. industrial-based companies, is concerned about the economic impact of higher interest rates. However, the company's base of non-economically sensitive commodities, such as coal and agricultural products, coupled with expense control efforts of its Performance Improvement Teams, helps CSX weather economic fluctuations. CSX units are committed to meeting their 1995 stretch targets to improve operating ratios and returns on invested capital - thus enhancing their core earning power and increasing shareholder returns. Equally important, CSX management and employees are committed to continually improving service for CSX customers worldwide. - 35 - PAGE 36 CSX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (Millions of Dollars, Except Per Share Amounts) Fiscal Year Ended --------------------------------- Dec. 30, Dec. 31, Dec. 31, 1994 1993 1992 ------ ------ ------ OPERATING REVENUE Transportation $9,410 $8,767 $8,550 Non-Transportation 198 173 184 ------ ------ ------ Total 9,608 8,940 8,734 ------ ------ ------ OPERATING EXPENSE Transportation 8,232 7,806 7,644 Non-Transportation 144 128 125 Productivity/Restructuring Charge --- 93 699 ------ ------ ------ Total 8,376 8,027 8,468 ------ ------ ------ OPERATING INCOME 1,232 913 266 Other Income 55 18 3 Interest Expense 281 298 276 ------ ------ ------ EARNINGS (LOSS) BEFORE INCOME TAXES 1,006 633 (7) Income Tax Expense (Benefit) 354 274 (27) ------ ------ ------ NET EARNINGS $ 652 $ 359 $ 20 ====== ====== ====== EARNINGS PER SHARE $ 6.23 $ 3.46 $ .19 ======= ======= ======= AVERAGE COMMON SHARES OUTSTANDING (THOUSANDS) 104,652 103,915 102,907 ======= ======= ======= COMMON SHARES OUTSTANDING AT END OF YEAR (THOUSANDS) 104,722 104,143 103,476 ======= ======= ======= CASH DIVIDENDS PAID PER COMMON SHARE $ 1.76 $ 1.58 $ 1.52 ======= ======= ======= See accompanying Notes to Consolidated Financial Statements. - 36 - PAGE 37 CSX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Millions of Dollars) Fiscal Year Ended --------------------------- Dec. 30, Dec. 31, Dec. 31, 1994 1993 1992 ------- ------- ------- OPERATING ACTIVITIES Net Earnings $ 652 $ 359 $ 20 Adjustments to Reconcile Net Earnings to Cash Provided Depreciation 577 572 527 Deferred Income Taxes 176 181 (72) Productivity/Restructuring Charge - Provision --- 93 699 - Payments (159) (293) (445) Other Operating Activities 56 35 67 Changes in Operating Assets and Liabilities Accounts Receivable (60) (15) 145 Materials and Supplies (12) (10) 18 Other Current Assets 32 3 35 Accounts Payable and Other Current Liabilities 64 37 (55) ----- ----- ------ Cash Provided by Operating Activities 1,326 962 939 ----- ----- ------ INVESTING ACTIVITIES Property Additions (875) (768) (1,041) Proceeds from Property Dispositions 170 85 75 Short-Term Investments - Net (69) (45) 8 Purchases of Long-Term Marketable Securities (66) (137) --- Other Investing Activities (21) (5) (27) ----- ----- ------ Cash Used by Investing Activities (861) (870) (985) ----- ----- ------ - 37 - PAGE 38 CSX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED (Millions of Dollars) Fiscal Year Ended --------------------------- Dec. 30, Dec. 31, Dec. 31, 1994 1993 1992 ------- ------- ------- FINANCING ACTIVITIES Short-Term Debt-Net 37 150 (154) Long-Term Debt Issued 92 81 664 Long-Term Debt Repaid (447) (249) (260) Cash Dividends Paid (184) (164) (157) Other Financing Activities 4 14 37 ----- ----- ------- Cash (Used) Provided by Financing Activities (498) (168) 130 ----- ----- ------- CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS (Decrease) Increase in Cash and Cash Equivalents (33) (76) 84 Cash and Cash Equivalents at Beginning of Year 298 374 290 ----- ----- ------- Cash and Cash Equivalents at End of Year 265 298 374 Short-Term Investments 270 201 156 ----- ----- ------- Cash, Cash Equivalents and Short-Term Investments at End of Year $ 535 $ 499 $ 530 ===== ===== ======= See accompanying Notes to Consolidated Financial Statements. - 38 - PAGE 39 CSX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Millions of Dollars) Dec. 30, Dec. 31, Dec. 31, 1994 1993 1992 ------- ------- ------- ASSETS Current Assets Cash, Cash Equivalents and Short-Term Investments $ 535 $ 499 $ 530 Accounts Receivable 706 668 605 Materials and Supplies 211 199 189 Deferred Income Taxes 151 108 --- Other Current Assets 62 97 97 ------- ------- ------- Total Current Assets 1,665 1,571 1,421 ------- ------- ------- Properties and Other Assets Properties-Net 11,044 10,788 10,636 Affiliates and Other Companies 302 268 264 Other Assets 713 793 728 ------- ------- ------- Total Properties and Other Assets 12,059 11,849 11,628 ------- ------- ------- Total Assets $13,724 $13,420 $13,049 ======= ======= ======= LIABILITIES Current Liabilities Accounts Payable and Other Current Liabilities $ 1,992 $ 1,965 $ 2,066 Current Maturities of Long-Term Debt 312 146 200 Short-Term Debt 201 164 14 ------- ------- ------- Total Current Liabilities 2,505 2,275 2,280 ------- ------- ------- Long-Term Debt 2,618 3,133 3,245 ------- ------- ------- Deferred Income Taxes 2,570 2,341 2,082 ------- ------- ------- Long-Term Liabilities and Deferred Gains 2,300 2,491 2,467 ------- ------- ------- SHAREHOLDERS' EQUITY Common Stock, $1 Par Value 105 104 103 Other Capital 1,368 1,307 1,250 Retained Earnings 2,391 1,927 1,729 Minimum Pension Liability Adjustment (133) (158) (107) ------- ------- ------- Total Shareholders' Equity 3,731 3,180 2,975 ------- ------- ------- Total Liabilities and Shareholders' Equity $13,724 $13,420 $13,049 ======= ======= ======= See accompanying Notes to Consolidated Financial Statements. - 39 - PAGE 40 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 1. SIGNIFICANT ACCOUNTING POLICIES. Principles of Consolidation The Consolidated Financial Statements reflect the results of operations, cash flows and financial position of CSX and its majority-owned subsidiaries as a single entity. All significant intercompany accounts and transactions have been eliminated. Investments in companies that are not majority-owned are carried at either cost or equity, depending on the extent of control. Change in Fiscal Year Effective January 1, 1994, the company changed its fiscal reporting period from a calendar year to a fiscal year ending on the last Friday in December. The financial statements presented are for the fiscal years ended December 30, 1994, and December 31, 1993 and 1992. Cash, Cash Equivalents and Short-Term Investments Cash in excess of current operating requirements is invested in various short-term instruments carried at cost that approximates market value. Those short-term investments having a maturity of three months or less at the date of acquisition are classified as cash equivalents. Cash and cash equivalents are net of outstanding checks that are funded daily from cash receipts and maturing short-term investments. Accounts Receivable During 1993, a special purpose subsidiary of the company filed a registration statement with the Securities and Exchange Commission covering $250 million of Trade Receivable Participation Certificates ("Certificates") evidencing undivided interests in a trade accounts receivable master trust. The master trust assets include an ownership interest in a revolving portfolio of rail freight accounts receivable. Subsequently, the company issued $200 million of Certificates, at 5.05%, due September 1998. The Certificates are collateralized by $234 million of accounts receivable held in the master trust. The proceeds from the issuance of the Certificates were used to reduce the amount of accounts receivable sold under a previous agreement. In addition, the company has a five-year revolving agreement with a financial institution to sell with recourse on a monthly basis an undivided percentage ownership interest in a designated pool of accounts receivable up to a maximum of $200 million. CSX has retained the collection responsibility with respect to accounts receivable held in trust or sold. - 40 - PAGE 41 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 1. SIGNIFICANT ACCOUNTING POLICIES, Continued Accounts Receivable, Continued At December 30, 1994, and December 31, 1993 and 1992, accounts receivable have been reduced by $372 million, $380 million and $400 million, respectively, representing Certificates and receivables sold. The company maintains an allowance for doubtful accounts based upon the expected collectibility of accounts receivable, including receivables collateralizing Certificates and receivables sold. Allowances for doubtful accounts of $84 million, $87 million and $96 million have been applied as a reduction of accounts receivable at December 30, 1994, and December 31, 1993 and 1992, respectively. Materials and Supplies Materials and supplies are carried at average cost. Properties Properties are carried principally at cost. Provisions for depreciation of rail property and equipment are based on estimated useful service lives of seven to 42 years, computed primarily on the straight-line composite method. Under this method, ordinary gains and losses on dispositions are recorded to accumulated depreciation. Provisions for depreciation of non-rail property and equipment are based on estimated useful service lives of three to 45 years, computed on the straight-line unit basis method, and gains and losses on dispositions are recorded in earnings as incurred. Environmental Costs Environmental costs that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to remediating an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when CSX's responsibility for environmental remedial efforts is deemed probable, and the costs can be reasonably estimated. Generally, the timing of these accruals coincides with the completion of a feasibility study or the company's commitment to a formal plan of action. Financial Instruments Derivative financial instruments may be used from time to time by the company in the management of its interest, foreign currency and commodity exposures, and are accounted for on an accrual basis. Income and expense are recorded in the same category as that of the underlying asset or liability. There were no significant derivative financial instruments outstanding at December 30, 1994. - 41 - PAGE 42 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 1. SIGNIFICANT ACCOUNTING POLICIES, Continued Gains and losses related to hedges of existing assets or liabilities are deferred and recognized over the expected remaining life of the related asset or liability. Gains and losses related to hedges of anticipated transactions are also deferred and recognized in income in the same period as the hedged transaction. Earnings Per Share Earnings per share are based on the weighted average of common shares outstanding. Dilution, which could result if all outstanding common stock equivalents were exercised, is not significant. Prior-Year Data Certain prior-year data have been reclassified to conform to the 1994 presentation. NOTE 2. PRODUCTIVITY AND RESTRUCTURING CHARGES. 1993 Restructuring Charge The company recorded a $93 million pretax charge in the first quarter of 1993 to recognize the estimated costs of restructuring certain operations and functions at its container-shipping unit. Of the total charge, $32 million provided for employee separations and the remaining $61 million related to various exit and settlement costs. The restructuring charge reduced net earnings for 1993 by $61 million, 59 cents per share. As of December 30, 1994, payments totaling $63 million have been recorded as a reduction of the liability for the restructuring charge. 1992/1991 Productivity Charges In the fourth quarter of 1991, the company recorded a charge to provide for the estimated costs of implementing work force reductions, improvements in productivity and other cost reductions at its major transportation units. The charge amounted to $755 million on a pretax basis and reduced 1991 net earnings by $490 million, $4.88 per share. In the second quarter of 1992, the company recorded a charge principally to recognize the estimated additional costs of buying out certain trip-based compensation paid to train crews. The additional pretax charge amounted to $699 million and reduced net earnings for 1992 by $450 million, $4.38 per share. Of the combined charges, $1.3 billion was provided for negotiated employee separations and associated liabilities and $151 million related to various exit costs and claims expected to result from consolidation of terminal operations and other negotiated settlements. The $1.3 billion portion of the combined charges attributable to CSX Transportation Inc. ("CSXT"), the company's rail unit, includes $1.2 billion for reductions from three-to-two person train crews and for buying out productivity funds and short-crew allowances. CSXT has reached labor - 42 - PAGE 43 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 2. PRODUCTIVITY AND RESTRUCTURING CHARGES, Continued agreements across all portions of its rail system where it is allowed to operate trains with two-member crews. As of December 30, 1994, payments totaling $760 million have been recorded as a reduction of the aggregate liabilities for the productivity charges. The remaining liability consists of $376 million for employee separations and associated costs. NOTE 3. OPERATING EXPENSE. 1994 1993 1992 ------- ------- ------- Labor and Fringe Benefits $ 3,154 $ 3,055 $ 2,986 Materials, Supplies and Other 2,137 1,977 1,992 Building and Equipment Rent 1,136 1,087 1,062 Inland Transportation 839 721 678 Depreciation 577 572 527 Fuel 421 413 424 Taxes Other Than Income and Payroll Taxes 112 109 100 Productivity/Restructuring Charge --- 93 699 ------- ------- ------- Total $ 8,376 $ 8,027 $ 8,468 ======= ======= ======= Selling, General and Administrative Expense Included in Above Items $ 1,299 $ 1,202 $ 1,134 ======= ======= ======= NOTE 4. OTHER INCOME. 1994 1993 1992 ---- ---- ---- Interest Income $ 57 $ 52 $ 43 Gain on South Florida Track Sale(a) 91 20 7 Net Costs for Accounts Receivable Sold (29) (15) (17) Minority Interest (21) (14) (15) Loss on Redemption of Debt (13) --- --- Equity Earnings of Other Affiliates (10) (7) 2 Miscellaneous (20) (18) (17) ----- ----- ----- Total $ 55 $ 18 $ 3 ===== ===== ===== (a) On December 1, 1994, the state of Florida elected to satisfy its remaining unfunded obligation issued in 1988 to consummate the purchase of 80 miles of track and right of way. The transaction resulted in cash proceeds of $102 million and an accelerated pretax gain of $69 million. The scheduled payment resulted in a $22 million gain in 1994. - 43 - PAGE 44 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 5. INCOME TAXES. Effective January 1, 1993, the company adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS No. 109 superseded SFAS No. 96, "Accounting for Income Taxes," which the company adopted in 1987. SFAS No. 109 requires that deferred income tax assets and liabilities be classified as current or non-current based upon the classification of the related asset or liability for financial reporting. Net earnings for 1993 were not impacted by the adoption of SFAS No. 109. As permitted under the new rules, prior-year financial statements have not been restated. Earnings from domestic and foreign operations and related income tax expense are as follows: 1994 1993 1992 ----- ----- ----- Earnings (Loss) Before Income Taxes: - Domestic $ 893 $ 570 $ (67) - Foreign 113 63 60 ------ ----- ----- Total $1,006 $ 633 $ (7) ====== ===== ===== Income Tax Expense (Benefit): Current - Federal $ 144 $ 71 $ 27 - Foreign 20 18 15 - State 14 4 3 ------ ----- ----- Total Current 178 93 45 ------ ----- ----- Deferred - Federal 165 160 (72) - Foreign 2 1 2 - State 9 20 (2) ------ ----- ----- Total Deferred 176 181 (72) ------ ----- ----- Total Expense (Benefit) $ 354 $ 274 $ (27) ====== ===== ===== - 44 - PAGE 45 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 5. INCOME TAXES, Continued Income tax expense reconciled to the tax computed at statutory rates is as follows: 1994 1993 1992 ---- ---- ---- ---- ---- ---- Tax at Statutory Rates $352 35% $222 35% $ (2) (34)% State Income Taxes 15 1 16 2 1 (a) Increase in Statutory Rate(b) --- --- 51 8 --- --- Prior Years' Income Taxes (10) (1) (15) (2) (14) (a) Other Items (3) --- --- --- (12) (a) ---- ---- ---- ---- ---- ---- Total Expense (Benefit) $354 35% $274 43% $(27) (a)% ==== ==== ==== ==== ==== ==== (a) Percentage is not meaningful. (b) The company revised its annual effective tax rate in 1993 to reflect the change in the federal statutory rate from 34 to 35 percent. The effect of this change was to increase income tax expense by $51 million related to applying the newly enacted statutory income tax rate to deferred tax balances as of January 1, 1993. - 45 - PAGE 46 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 5. INCOME TAXES, Continued The significant components of deferred tax assets and liabilities after considering the adoption of SFAS No. 109 include: Dec. 30, Dec. 31, Jan. 1, 1994 1993 1993 -------- -------- ------- Deferred Tax Assets Productivity/Restructuring Charge $ 246 $ 299 $ 375 Employee Benefit Plans 336 351 282 Deferred Gains and Related Rents 166 162 159 Other 330 312 283 ------ ------ ------ Total 1,078 1,124 1,099 ------ ------ ------ Deferred Tax Liabilities Accelerated Depreciation 3,045 2,979 2,799 Other 452 378 382 ------ ------ ------ Total 3,497 3,357 3,181 ------ ------ ------ Net Deferred Tax Liabilities $2,419 $2,233 $2,082 ====== ====== ====== In addition to the annual provision for deferred income tax expense, the change in the year-end net deferred income tax liability balances included the income tax effect of the minimum pension liability adjustments in 1994, 1993 and 1992. The company has not recorded domestic deferred or additional foreign income taxes applicable to undistributed earnings of foreign subsidiaries that are reinvested. Such earnings amounted to $257 million, $213 million and $188 million at December 30, 1994, and December 31, 1993 and 1992, respectively. These amounts could become taxable upon their remittance as dividends or upon the sale or liquidation of these foreign subsidiaries. It is not practical to determine the amount of net additional income tax that would be payable if such earnings were repatriated. Income tax payments during 1994, 1993 and 1992 totaled $175 million, $92 million and $71 million, respectively. The company files a consolidated federal income tax return, which includes its principal domestic subsidiaries. Examinations of the federal income tax returns of CSX have been completed through 1987. Returns for 1988- 1990 are currently under examination. Management believes adequate provision has been made for any adjustments that might be assessed. - 46 - PAGE 47 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 6. CHANGES IN SHAREHOLDERS' EQUITY. Common Shares Minimum Outstanding Common Other Retained Pension (Thousands) Stock Capital Earnings Liability ------------- ------ ------- -------- --------- Balance December 31, 1991 102,362 $102 $1,217 $1,866 $ (3) Net Earnings --- --- --- 20 --- Dividends - Common --- --- --- (157) --- Common Stock - Stock Purchase and Loan Plan Stock Issued - Net 103 --- 8 --- --- Purchase Loans - Net --- --- (3) --- --- Other Stock Issued - Net 1,011 1 28 --- --- Minimum Pension Liability --- --- --- --- (104) ------- ---- ------ ------ ----- Balance December 31, 1992 103,476 103 1,250 1,729 (107) Net Earnings --- --- --- 359 --- Dividends - Common --- --- --- (164) --- Common Stock - Stock Purchase and Loan Plan Stock Issued - Net (82) --- (4) --- --- Purchase Loans - Net --- --- 19 --- --- Other Stock Issued - Net 749 1 42 --- --- Minimum Pension Liability --- --- --- --- (51) Other - Net --- --- --- 3 --- ------- ---- ------ ------ ----- Balance December 31, 1993 104,143 104 1,307 1,927 (158) Net Earnings --- --- --- 652 --- Dividends - Common --- --- --- (184) --- Common Stock - Stock Purchase and Loan Plan Stock Canceled (68) --- (4) --- --- Purchase Loans - Net --- --- 9 --- --- Other Stock Issued - Net 647 1 56 --- --- Minimum Pension Liability --- --- --- --- 25 Other - Net --- --- --- (4) --- ------- ---- ------ ------ ----- Balance December 30, 1994 104,722 $105 $1,368 $2,391 $(133) ======= ==== ====== ====== ===== - 47 - PAGE 48 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 7. PROPERTIES. Balance Retirements, Balance at Beginning Sales and at End of Year Additions Other Changes of Year ------------ --------- ------------- ------- 1994 Property: Transportation $15,450 $ 846 $(412) $15,884 Non-Transportation 403 29 (1) 431 ------- ------ ----- ------- Total $15,853 $ 875 $(413) $16,315 ======= ====== ===== ======= Accumulated Depreciation: Transportation $ 4,961 $ 564 $(364) $ 5,161 Non-Transportation 104 13 (7) 110 ------- ------ ----- ------- Total $ 5,065 $ 577 $(371) $ 5,271 ======= ====== ===== ======= Properties - December 30, 1994 $11,044 ======= Balance Retirements, Balance at Beginning Sales and at End of Year Additions Other Changes of Year ------------ --------- ------------- ------- 1993 Property: Transportation $15,312 $ 747 $(609) $15,450 Non-Transportation 390 21 (8) 403 ------- ------ ----- ------- Total $15,702 $ 768 $(617) $15,853 ======= ====== ===== ======= Accumulated Depreciation: Transportation $ 4,973 $ 560 $(572) $ 4,961 Non-Transportation 93 12 (1) 104 ------- ------ ----- ------- Total $ 5,066 $ 572 $(573) $ 5,065 ======= ====== ===== ======= Properties - December 31, 1993 $10,788 ======= - 48 - PAGE 49 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 7. PROPERTIES, Continued Balance Retirement, Balance at Beginning Sales and at End of Year Additions Other Changes of Year ------------ --------- ------------- ------- 1992 Property: Transportation $14,783 $1,016 $(487) $15,312 Non-Transportation 393 25 (28) 390 ------- ------ ----- ------- Total $15,176 $1,041 $(515) $15,702 ======= ====== ===== ======= Accumulated Depreciation: Transportation $ 4,916 $ 513 $(456) $ 4,973 Non-Transportation 83 14 (4) 93 ------- ------ ----- ------- Total $ 4,999 $ 527 $(460) $ 5,066 ======= ====== ===== ======= Properties - December 31, 1992 $10,636 ======= NOTE 8. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES. Dec. 30, Dec. 31, Dec. 31, 1994 1993 1992 ------ ------ ------ Trade Accounts Payable $ 926 $ 917 $ 901 Labor and Fringe Benefits(a) 543 523 727 Income Taxes and Other 337 332 278 Casualty Reserves 186 193 160 ------ ------ ------ Total $1,992 $1,965 $2,066 ====== ====== ====== (a) Labor and Fringe Benefits includes separation liabilities of $22 million for 1994, $46 million for 1993 and $238 million for 1992. - 49 - PAGE 50 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 9. CASUALTY AND OTHER RESERVES, SEPARATION LIABILITIES AND DEFERRED GAINS. Long-term liabilities and deferred gains totaled $2.3 billion, $2.49 billion and $2.47 billion at year-end 1994, 1993 and 1992, respectively, and included casualty reserves; deferred gains; pension and other post-retirement obligations; productivity/restructuring charge liabilities; and other liabilities. Activity related to casualty and other reserves, separation liabilities and deferred gains is as follows: Deferred Gains Casualty ----------------------------- and Other Separation Sale-Leaseback South Florida Reserves(a) Liabilities(a) Transactions(c) Track Sale(d) ----------- -------------- --------------- ------------- Balance 12/31/91 $ 489 $ 701 $ 347 $ 129 Charged to Expense and Other Additions 355 669 --- --- Payments and Other Reductions (336) (439)(b) (23) (7) ----- ----- ----- ----- Balance 12/31/92 508 931 324 122 Charged to Expense and Other Additions 331 32 --- --- Payments and Other Reductions (275) (321)(b) (24) (20) ----- ----- ----- ----- Balance 12/31/93 564 642 300 102 Charged to Expense and Other Additions 282 --- --- --- Payments and Other Reductions (302) (248)(b) (21) (102) ----- ----- ----- ----- Balance 12/30/94 $ 544 $ 394 $ 279 $ --- ===== ===== ===== ===== (a) Balances include current portions of casualty and other reserves and separation liabilities, respectively, of $216 million and $22 million at December 30, 1994; $223 million and $46 million at December 31, 1993; and $190 million and $238 million at December 31, 1992. (b) Includes reallocation of $156 million in 1994, $95 million in 1993 and $62 million in 1992 to claims and other negotiated settlements. (c) Deferred gains on sale-leaseback transactions are being amortized over periods ranging from 2 to 21 years. - 50 - PAGE 51 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 9. CASUALTY AND OTHER RESERVES, SEPARATION LIABILITIES AND DEFERRED GAINS, Continued. (d) On December 1, 1994, the state of Florida elected to satisfy its remaining unfunded obligation issued in 1988 to consummate the purchase of 80 miles of track and right of way. The transaction resulted in cash proceeds of $102 million and an accelerated pretax gain of $69 million. The scheduled payment resulted in a $22 million gain in 1994. NOTE 10. DEBT AND CREDIT AGREEMENTS. Type Average (Maturity Dates) Interest Rates 1994 1993 1992 - ---------------- -------------- ------ ------ ------ Notes Payable (1995-2021) 9% $1,122 $1,162 $1,242 Debentures (1997-2022) 9% 649 945 945 Equipment Obligations (1995-2010) 8% 594 644 672 Commercial Paper 4% 300 300 300 Mortgage Bonds (1998-2003) 3% 78 84 137 Other Obligations (1995-2011) 7% 187 144 149 ------ ------ ------ Total 8% 2,930 3,279 3,445 Less Debt Due Within One Year 312 146 200 ------ ------ ------ Total Long-Term Debt $2,618 $3,133 $3,245 ====== ====== ====== - 51 - PAGE 52 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 10. DEBT AND CREDIT AGREEMENTS, Continued During 1994, the company redeemed $300 million of 9.5%, 11.625% and 11.875% Sinking Fund Debentures. The redemption premium, unamortized debt discount and issuance costs totaling $18 million were charged to expense. In 1992, CSX issued $200 million of 8.625% debentures due 2022 under a June 1991 shelf registration to provide for the issuance of up to $250 million of debt securities. In September 1992, the company filed a shelf registration with the Securities and Exchange Commission to provide for the issuance, from time to time, of up to $450 million of senior debt securities, warrants to purchase debt securities or currency warrants. As of December 30, 1994, CSX had issued $250 million of debt under this registration, including $100 million, 7% notes due 2002 and $150 million, 8.10% debentures due 2022. The proceeds from the issuance of long-term debt securities in 1992 were primarily used for the purchase of the assets of the Valley Line companies, costs for implementation of work force reductions and costs related to productivity improvements. The company maintains revolving credit agreements with domestic and foreign banks (aggregating $880 million) under which there were no borrowings as of December 30, 1994. Substantially all of these agreements have underlying debt maturities greater than 12 months. These agreements support $501 million of privately placed commercial paper outstanding at December 30, 1994, of which $300 million has been classified as long-term debt based upon the company's ability and intention to maintain this debt outstanding for at least one year. Excluding long-term commercial paper, the company has long-term debt maturities during the next five years aggregating $312 million in 1995, $487 million in 1996, $79 million in 1997, $119 million in 1998 and $76 million in 1999. Substantially all of the company's rail unit properties are pledged as security for various rail-related, long-term debt issues. Commercial paper classified as short-term debt was $201 million at December 30, 1994, $164 million at December 31, 1993, and $4 million at December 31, 1992. The average interest rate for the short-term commercial paper outstanding at year-end was 6% for 1994, 3% for 1993 and 4% for 1992. The average amount of short-term commercial paper outstanding (average monthly interest rate) during 1994, 1993 and 1992 was $293 million (4%), $172 million (3%), and $60 million (4%), respectively. The maximum amount of short-term commercial paper outstanding was $449 million for 1994, $391 million for 1993 and $201 million for 1992. Interest payments, net of amounts capitalized, totaled $306 million, $304 million and $279 million, respectively, for 1994, 1993 and 1992. - 52 - PAGE 53 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 11. PREFERRED STOCK. The company has total authorized preferred stock of 25 million shares, of which 250,000 shares of Series A have been reserved for issuance, and 3 million shares of Series B have been reserved for issuance under the Shareholder Rights Plan. No shares have been issued as of December 30, 1994. All preferred shares rank senior to common shares both as to dividends and liquidation preference. NOTE 12. COMMON STOCK. The company has a single class of common stock, $1 par value, of which 300 million shares are authorized. Each share is entitled to one vote in all matters requiring a vote. The most recent quarterly dividend, paid in December 1994, was 44 cents per share. For the years ended December 30, 1994, and December 31, 1993 and 1992, respectively, dividends were paid at the rate of $1.76, $1.58 and $1.52 per share. Stock Purchase and Loan Plan The 1991 Stock Purchase and Loan Plan provided for the issuance of grants to 153 eligible officers and key employees at December 30, 1994. The plan allowed for the purchase of common stock and related rights and also entitled those employees to obtain loans with respect to those shares of common stock. In July 1991, 2.2 million shares of common stock and related rights were reserved for issuance under this Plan. Shares were granted in 1991 and 1992 at market price on date of grant. The shares were purchased with a 5% down payment in the form of cash or recourse loans. The remaining 95% of the purchase price was in the form of non-recourse loans secured by the shares issued. The loans bear interest at rates set on the award date and are due on July 31, 1996. The Plan is intended to further the long-term stability and financial success of the company by providing a method for eligible employees to significantly increase their ownership of common stock. These loans were subject to certain adjustments after a vesting period if the market price of CSX common stock equaled or exceeded certain thresholds for a period of 10 consecutive business days. As of December 30, 1994, all interest (less dividends applied to accrued interest) and 25% of each participant's loan balance has been forgiven. - 53 - PAGE 54 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 12. COMMON STOCK, Continued Transactions involving the 1991 Stock Purchase and Loan Plan are summarized as follows: Shares Average (000's) Price ------- ------- Outstanding at 12/31/91 2,007 $48.33 Granted 213 $64.33 Canceled (110) $48.33 ----- ------ Outstanding at 12/31/92 2,110 $49.76 Canceled (82) $48.72 ----- ------ Outstanding at 12/31/93 2,028 $40.43 Canceled (68) $65.59 ----- ------ Outstanding at 12/30/94 1,960 $36.74 ===== ====== 1994 1993 1992 ---- ---- ---- 5% Down Payment Loans Outstanding $ 4 $ 5 $ 5 95% Purchase Loans Outstanding $ 68 $ 77 $100 Average Interest Rate 7.72% 7.72% 7.72% Compensation Expense for the Year $ 4 $ 48 $ 22 Stock Purchase and Dividend Reinvestment Plans The 1991 Employees Stock Purchase and Dividend Reinvestment Plan provides a method and incentive for eligible employees to purchase shares of common stock at market value by payroll deductions. Officers and key employees who qualify for the 1991 Stock Purchase and Loan Plan are not eligible to participate in this Plan. To encourage ownership of the company's stock, employees receive a 17.65% matching payment on their contributions in the form of additional stock purchased by the company. Each matching payment of stock is subject to a two-year holding period. Sale of stock prior to the completion of the holding period will result in forfeiture of the matching stock purchase and dividends thereon. At December 30, 1994, there were 409,784 shares of common stock available for issuance under this Plan. Under the terms of the company's Dividend Reinvestment and Stock Purchase Plans adopted in 1981, all employees and shareholders may purchase CSX common stock at the average of daily high and low sale prices for the five trading days ending on the day of purchase. To encourage ownership of the company's stock, employees receive a 5% discount on all purchases under this program. At December 30, 1994, there were 2,914,164 shares reserved for issuance under these Plans. - 54 - PAGE 55 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 12. COMMON STOCK, Continued Shareholder Rights Plan In June 1988, the board of directors of the company adopted a Shareholder Rights Plan and declared a dividend of one preferred share purchase right ("right") for each outstanding share of CSX common stock held as of June 8, 1988. The Shareholder Rights Plan was amended in 1990. Each right entitles shareholders of record to purchase from the company, until the earlier of June 8, 1998, or the redemption of the rights, one one-hundredth of a share of Series B preferred stock at an exercise price of $100, subject to certain adjustments or, under certain circumstances, to obtain additional shares of common stock of the company in exchange for the rights. The rights will not be exercisable or transferable apart from the CSX common stock until the earlier of 10 days following the public announcement that a person or affiliated group has acquired or obtained the right to acquire 20% or more of CSX's common stock; or 10 days following the commencement or announcement of an intention to make a tender offer or exchange offer, the consummation of which would result in the ownership by a person or group of 20% or more of the company's outstanding common stock. The board of directors may redeem the rights at a price of one cent per right at any time prior to the acquisition by a person of 20% or more of the outstanding CSX common stock. 1987 Long-Term Performance Stock Plan The CSX Corporation 1987 Long-Term Performance Stock Plan, which superseded the 1980 and 1981 stock option plans, provides for awards to a group of 357 officers and employees. The awards are based on increases in the current market value of CSX common stock over the market value at date of grant or the financial performance of CSX, or both. During 1994, 5 million additional shares of common stock were reserved for issuance under this Plan. At December 30, 1994, a total of 10,738,768 shares were reserved for issuance, of which 4,794,498 were available for new grants (1,200,578 at December 31, 1993). The remaining shares are assigned to outstanding stock options, Stock Appreciation Rights (SARs) and Performance Share Awards (PSAs). Transactions involving stock options and SARs are summarized as follows: - 55 - PAGE 56 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 12. COMMON STOCK, Continued Options SARs -------------------- ------------------- Shares Average Units Average (000s) Price (000s) Price ------ ------- ----- ------- Outstanding at 12/31/93 3,695 $53.59 284 $31.58 Granted 1,606 $79.97 --- --- Canceled or Expired (34) $65.62 (4) $29.64 Exercised (164) $49.83 (28) $31.26 ----- ------ ----- ------ Outstanding at 12/30/94 5,103 $61.93 252 $31.65 ===== ====== ===== ====== Exercisable at 12/30/94 3,507 $53.70 252 $31.65 ===== ====== ===== ====== Exercised in 1993 671 $40.05 54 $31.22 ===== ====== ===== ====== Exercised in 1992 1,002 $33.18 77 $31.13 ===== ====== ===== ====== The value of PSAs is contingent on achievement of performance goals and completion of certain continuing employment requirements over a three-year period. Each PSA earned will equal the fair market value of one share of CSX common stock on the date of payment. At December 30, 1994, there were 588,850 shares reserved for outstanding PSAs. Stock Award Plan In 1990, the company implemented a Stock Award Plan whereby all officers and employees of the company are eligible to receive shares of CSX common stock as an incentive award. All awards of common stock shall be issued based on terms and conditions approved by the Compensation Committee of the company's board of directors. At December 30, 1994, there were 990,208 shares reserved for issuance under the Plan, of which 664,710 were available for new grants. Directors' Stock Plan In 1992, the board of directors of the company adopted a stock plan for directors that changes the manner in which fees and retainers are paid. A minimum of 40% of the retainer fees must be paid in common stock of the company. In addition to the basic level of payment in stock, each director may elect to receive up to 100% of the remaining retainer and fees in the form of common stock of the company. The Plan permits each director to elect to transfer stock into a trust that will hold the shares until the participant's death, disability, retirement as a director, other cessation of services as a director, or change in control of the company. At December 30, 1994, there were 489,808 shares of common stock reserved for issuance under this Plan. - 56 - PAGE 57 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS. The following table presents the carrying amounts and estimated fair values of financial instruments as required by SFAS No. 107, "Disclosures about Fair Value of Financial Instruments." SFAS 107 defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. 1994 1993 1992 Carrying Fair Carrying Fair Carrying Fair Amount Value Amount Value Amount Value -------- ----- -------- ----- --------- ----- Assets: Cash, Cash Equivalents and Short-Term Investments $ 535 $ 535 $ 499 $ 499 $ 530 $ 530 Accounts Receivable 706 706 668 668 605 605 Long-Term Marketable Securities 119 119 115 115 --- --- Liabilities: Accounts Payable 926 926 917 917 901 901 Short-Term Debt 201 201 164 164 14 14 Long-Term Debt 2,930 2,914 3,279 3,585 3,445 3,587 The following methods and assumptions were used by the company in estimating fair values for financial instruments: Cash, Cash Equivalents and Short-Term Investments The carrying amounts approximate fair value because of the short-term maturity of the instruments. Current Assets and Current Liabilities The carrying amounts reported in the statement of financial position for current assets and current liabilities qualifying as financial instruments approximate their fair values. Long-Term Marketable Securities The fair values of long-term marketable securities were based on the quoted market prices as of the respective year-end dates. Long-Term Debt and Short-Term Debt The carrying amounts of the company's borrowings under its short-term debt arrangements approximate their fair value. The fair values of the company's long-term debt have been estimated using discounted cash flow analyses based upon the company's current incremental borrowing rates for similar types of borrowing arrangements. - 57 - PAGE 58 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued Futures and Options Contracts The company had no significant hedging of derivative financial instruments employed at December 30, 1994, and December 31, 1993 and 1992. NOTE 14. EMPLOYEE BENEFIT PLANS. Pension Plans CSX and its subsidiaries have defined benefit pension plans, principally for salaried personnel. The plans provide for eligible employees to receive benefits based principally on years of service with the company and compensation rates near retirement. Contributions to the plans are made on the basis of not less than the minimum funding standards set forth in the Employee Retirement Income Security Act of 1974, as amended. Plan assets consist primarily of common stocks, corporate bonds and cash and cash equivalents. Pension costs for these plans include the following components: 1994 1993 1992 ----- ----- ----- Service Cost $ 36 $ 28 $ 24 Interest Cost on Projected Benefit Obligation 89 88 86 Actual Return on Plan Assets (10) (95) (24) Net Amortization and Deferral (45) 26 (70) Foreign Pension Expense 4 4 4 ----- ----- ----- Pension Expense $ 74 $ 51 $ 20 ===== ===== ===== - 58 - PAGE 59 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 14. EMPLOYEE BENEFIT PLANS, Continued The funded status of the plans and the amounts reflected in the accompanying statement of financial position at year-end are as follows: 1994 ------------------- Assets Benefits Exceed Exceed Benefits Assets Assets and Obligations - -------- -------- Vested Benefits $ 19 $ 994 Non-Vested Benefits 1 58 ------ ------ Accumulated Benefit Obligation 20 1,052 Effect of Anticipated Future Salary Increases 1 125 ------ ------ Projected Benefit Obligation 21 1,177 Fair Value of Plan Assets 33 822 ------ ------ Funded Status 12 (355) Unrecognized Initial Net Obligation (Asset) (3) 31 Unrecognized Prior Service Cost 1 15 Unrecognized Net Loss 6 316 Recognition of Minimum Liability --- (252) ------ ------ Net Pension Asset (Obligation) $ 16 $ (245) ====== ====== - 59 - PAGE 60 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 14. EMPLOYEE BENEFIT PLANS, Continued Pension Plans, Continued 1993 ------------------- Assets Benefits Exceed Exceed Benefits Assets Assets and Obligations - -------- -------- Vested Benefits $ 20 $1,048 Non-Vested Benefits 1 44 ------ ------ Accumulated Benefit Obligation 21 1,092 Effect of Anticipated Future Salary Increases 1 166 ------ ------ Projected Benefit Obligation 22 1,258 Fair Value of Plan Assets 33 862 ------ ------ Funded Status 11 (396) Unrecognized Initial Net Obligation (Asset) (4) 28 Unrecognized Prior Service Cost 1 10 Unrecognized Net Loss 6 398 Recognition of Minimum Liability --- (287) ------ ------ Net Pension Asset (Obligation) $ 14 $ (247) ====== ====== 1992 ------------------- Assets Benefits Exceed Exceed Benefits Assets Assets and Obligations - -------- -------- Vested Benefits $ 17 $ 911 Non-Vested Benefits 1 37 ------ ------ Accumulated Benefit Obligation 18 948 Effect of Anticipated Future Salary Increases 1 124 ------ ------ Projected Benefit Obligation 19 1,072 Fair Value of Plan Assets 30 793 ------ ------ Funded Status 11 (279) Unrecognized Initial Net Obligation (Asset) (4) 32 Unrecognized Prior Service Cost 1 11 Unrecognized Net Loss 5 287 Recognition of Minimum Liability --- (229) ------ ------ Net Pension Asset (Obligation) $ 13 $ (178) ====== ====== - 60 - PAGE 61 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 14. EMPLOYEE BENEFIT PLANS, Continued Pension Plans, Continued The projected benefit obligations were determined using assumed discount rates of 8.25% for 1994, 7.25% for 1993 and 8.25% for 1992; and an estimated long-term salary increase rate of 5% for 1994, 1993, and 1992. Net pension cost was determined using expected long-term rates of return on assets of 8.75% for 1994, 9.75% for 1993 and 10.5% for 1992. The effect of adjusting the assumed discount rate for 1994, 1993 and 1992 changed the relative funded status of a major plan and resulted in the recognition of an aggregate additional minimum pension liability. Savings Plans The company has established savings plans for virtually all full-time salaried employees and certain employees covered by collective bargaining agreements of CSX and subsidiary companies. Eligible employees may contribute from 1% to 15% of their annual compensation in 1% multiples to these plans. CSX matches eligible employees' contributions in an amount equal to the lesser of 50% of each participating employee's contributions or 3% of their annual compensation. In addition, CSX contributes fixed amounts for each participating employee covered by a collective bargaining agreement. Expense for these plans for 1994, 1993 and 1992 was $31 million, $32 million and $29 million, respectively. Other Post-Retirement Benefit Plans In addition to the company's defined benefit pension plans, CSX has three defined benefit post-retirement plans covering most full-time salaried employees. Two plans provide medical benefits and another plan provides life insurance benefits. The post-retirement health care plans are contributory, with retiree contributions adjusted annually, and contain other cost-sharing features such as deductibles and coinsurance. The accounting for the health care plans anticipates future cost-sharing changes to the written plans that are consistent with the company's expressed intent to increase the retiree contribution rate annually for the expected medical inflation rate for that year. The life insurance plan is non-contributory. - 61 - PAGE 62 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 14. EMPLOYEE BENEFIT PLANS, Continued Other Post-retirement Benefit Plans, Continued The company's current policy is to fund the cost of the post-retirement health care and life insurance benefits on a pay-as-you-go basis, as in prior years. The amounts recognized for the combined plans in the company's statement of financial position at December 30, 1994, and December 31, 1993 and 1992 are as follows: 1994 -------------------- Life Medical Insurance Plans Plan ---- ---- Accumulated Post-Retirement Benefit Obligation: Retirees $172 $66 Fully Eligible Active Participants 26 3 Other Active Participants 39 3 ---- --- Accumulated Post-Retirement Benefit Obligation 237 72 Unrecognized Prior Service Cost 23 6 Unrecognized Net Loss (25) (7) ---- --- Net Post-Retirement Benefit Obligation $235 $71 ==== === 1993 -------------------- Life Medical Insurance Plans Plan ---- ---- Accumulated Post-Retirement Benefit Obligation: Retirees $181 $73 Fully Eligible Active Participants 27 3 Other Active Participants 42 3 ---- --- Accumulated Post-Retirement Benefit Obligation 250 79 Unrecognized Prior Service Cost 29 7 Unrecognized Net Loss (50) (14) ---- --- Net Post-Retirement Benefit Obligation $229 $72 ==== === - 62 - PAGE 63 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 14. EMPLOYEE BENEFIT PLANS, Continued Other Post-retirement Benefit Plans, Continued 1992 -------------------- Life Medical Insurance Plans Plan ---- ---- Accumulated Post-Retirement Benefit Obligation: Retirees $149 $65 Fully Eligible Active Participants 24 3 Other Active Participants 32 2 ---- --- Accumulated Post-Retirement Benefit Obligation 205 70 Unrecognized Prior Service Cost 36 7 Unrecognized Net Loss (13) (4) ---- --- Net Post-Retirement Benefit Obligation $228 $73 ==== === Net periodic post-retirement benefit expense for 1994, 1993 and 1992 was $29 million, $23 million and $29 million, respectively. The weighted-average annual assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) for the medical plans is 11% for 1994-1995 and is assumed to decrease gradually to 5.5% by 2005 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated post-retirement benefit obligation for the medical plans as of December 30, 1994, by 9%, and net periodic post-retirement benefit expense for 1994 by $3 million. The weighted-average discount rate used in determining the accumulated post-retirement benefit obligation was 8.25% for 1994, 7.25% for 1993 and 8.25% for 1992. Other Plans Under collective bargaining agreements, the company participates in a number of union-sponsored, multi-employer benefit plans. Payments to these plans are made as part of aggregate assessments generally based on number of employees covered, hours worked, tonnage moved or a combination thereof. The administrators of the multi-employer plans generally allocate funds received from participating companies to various health and welfare benefit plans and pension plans. Current information regarding such allocations has not been provided by the administrators. Total contributions of $209 million, $211 million and $194 million, respectively, were made to these plans in 1994, 1993 and 1992. - 63 - PAGE 64 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 15. SUMMARY OF COMMITMENTS AND CONTINGENCIES. Lease Commitments CSX leases equipment under agreements with terms up to 21 years. Non-cancelable, long-term leases generally include options to purchase at fair value and to extend the terms. At December 30, 1994, minimum building and equipment rentals under non-cancelable operating leases totaled approximately $405 million for 1995, $378 million for 1996, $371 million for 1997, $347 million for 1998, $302 million for 1999 and $2.6 billion thereafter. Rent expense on operating leases, including net daily rental charges on railroad operating equipment of $258 million, $247 million and $205 million in 1994, 1993 and 1992, respectively, amounted to $1.1 billion in 1994, 1993 and 1992. Deferred gains arising from sale-leaseback transactions are being amortized from 2 to 21 years and have reduced rent expense by $21 million, $24 million and $23 million, in 1994, 1993 and 1992, respectively. Purchase Commitments CSXT entered into an agreement during 1993 to purchase 300 locomotives. This large single order covers CSXT's normal locomotive replacement needs for 1994 through 1997. This purchase agreement will introduce alternating current traction technology to CSXT's locomotive fleet. CSXT took delivery of 50 direct current and 30 alternating current locomotives in 1994, and the remaining 220 alternating current units will be delivered during 1995-1997. Sea-Land Service, Inc. ("Sea-Land"), the container-shipping unit of CSX, has entered into agreements for the construction of five high- performance, fuel-efficient container vessels. Estimated capital expenditures for these vessels are $278 million, of which $20 million was expended in 1994, with the remaining $258 million expected to be incurred over the next two to three years. Contingent Liabilities The company and its subsidiaries are contingently liable individually and jointly with others as guarantors of long-term debt and obligations principally relating to leased equipment, joint ventures and joint facilities. These contingent obligations amounted to approximately $81 million at December 30, 1994. - 64 - PAGE 65 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 15. SUMMARY OF COMMITMENTS AND CONTINGENCIES, Continued Although the company obtains substantial amounts of commercial insurance for potential losses for third-party liability and property damage, reasonable levels of risk are retained on a self-insurance basis. A substantial portion of the insurance coverage, up to $100 million per occurrence from rail and certain other operations, is provided by companies owned or partially owned by CSX. CSXT is a party to various proceedings brought both by private parties and regulatory agencies related to environmental issues. CSXT has been identified as a potentially responsible party in a number of governmental investigations and actions relating to environmentally impaired sites that are or may be subject to remedial action under the Federal Superfund statute ("Superfund") or corresponding state statutes. The majority of these proceedings are based on allegations that CSXT, or its railroad predecessors, sent hazardous substances to the facilities in question for disposal. Such proceedings arising under Superfund typically involve numerous other waste generators and disposal companies and seek to allocate or recover costs associated with site investigation and cleanup, which could be substantial. The assessment of the required response and remedial costs associated with these sites is extremely complex. Cost estimates are based on information available for each site, financial viability of other potentially responsible parties, and existing technology, laws and regulations. CSXT frequently reviews its role, if any, with respect to each such location, giving consideration to the nature of CSXT's alleged connection to the location (e.g., generator, owner or operator), the extent of CSXT's alleged connection (e.g., volume of waste sent to the location and other relevant factors), the accuracy and strength of evidence connecting CSXT to the location, and the number, connection and financial position of other named and unnamed potentially responsible parties at the location. Further, CSXT periodically reviews its exposure in all non-Superfund environmental proceedings with which it is involved. Based upon such reviews and updates of the sites with which it is involved, CSXT has recorded, and periodically reviews for adequacy, reserves to cover estimated contingent future environmental costs with respect to such sites. The recorded liabilities for estimated future environmental costs at December 30, 1994, and December 31, 1993 and 1992, were $140 million, $131 million and $77 million, respectively. The liability has been accrued for future costs for all sites where the company's obligation is probable and where such costs can be reasonably estimated. The liability includes future costs for remediation and restoration of sites as well as for ongoing monitoring costs, but excludes any anticipated insurance recoveries. The majority of the December 30, 1994 environmental liability is expected to be paid out over the next five years, funded by cash generated from operations. - 65 - PAGE 66 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 15. SUMMARY OF COMMITMENTS AND CONTINGENCIES, Continued The company does not currently possess sufficient information to reasonably estimate the amounts of additional liabilities, if any, on some sites until completion of future environmental studies. Based upon information currently available, however, the company believes that its environmental reserves are adequate to accomplish remedial actions to comply with present laws and regulations. The company believes that the ultimate liability for these matters will not materially affect its overall results of operations and financial condition. Legal Proceedings A number of legal actions, other than environmental, are pending against CSX and certain subsidiaries in which claims are made in substantial amounts. While the ultimate results of environmental investigations, lawsuits and claims involving the company cannot be predicted with certainty, management does not currently expect that these matters will have a material adverse effect on the consolidated financial position, results of operations and cash flows of the company. NOTE 16. QUARTERLY DATA (Unaudited). 1994(a) 1st 2nd 3rd 4th(b) ------ ------ ------ ------ Operating Revenue $2,227 $2,371 $2,470 $2,540 ====== ====== ====== ====== Operating Income $ 186 $ 304 $ 350 $ 392 ====== ====== ====== ====== Net Earnings $ 74 $ 162 $ 177 $ 239 ====== ====== ====== ====== Earnings Per Share $ .71 $ 1.55 $ 1.68 $ 2.29 ====== ====== ====== ====== 1993 1st(c) 2nd 3rd(d) 4th ------ ------ ------ ------ Operating Revenue $2,123 $2,264 $2,238 $2,315 ====== ====== ====== ====== Operating Income $ 63 $ 278 $ 252 $ 320 ====== ====== ====== ====== Net Earnings (Loss) $ (9) $ 154 $ 63 $ 151 ====== ====== ====== ====== Earnings (Loss) Per Share $ (.09) $ 1.48 $ .61 $ 1.46 ====== ====== ====== ====== - 66 - PAGE 67 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 16. QUARTERLY DATA (Unaudited), Continued 1992 1st 2nd(e) 3rd 4th(f) ------ ------ ------ ------ Operating Revenue $2,086 $2,189 $2,214 $2,245 ====== ====== ====== ====== Operating Income (Loss) $ 157 $ (445) $ 262 $ 292 ====== ====== ====== ====== Net Earnings (Loss) $ 62 $ (322) $ 128 $ 152 ====== ====== ====== ====== Earnings (Loss) Per Share $ .60 $(3.13) $ 1.25 $ 1.47 ====== ====== ====== ====== (a) Effective January 1, 1994, the company changed its fiscal reporting periods from four calendar quarters to four 13-week quarters. Fiscal 1994 began on January 1, 1994, and included 52 weeks. The four 13- week quarters ended on April 1, July 1, September 30 and December 30, 1994. (b) On December 1, 1994, the state of Florida elected to satisfy its remaining unfunded obligation issued in 1988 to consummate the purchase of 80 miles of track and right of way. The transaction resulted in cash proceeds of $102 million, an accelerated pretax gain of $69 million, and increased net earnings by $42 million, 40 cents per share. (c) The company recorded a $93 million pretax charge in the first quarter of 1993 to recognize the estimated costs of restructuring certain operations and functions at its container-shipping unit. The restructuring charge reduced net earnings by $61 million, 59 cents per share. (d) The company revised its estimated annual effective tax rate in the third quarter of 1993 to reflect the change in the federal statutory rate from 34 to 35 percent. The effect of this change was to increase income tax expense for the third quarter of 1993 by $54 million, 52 cents per share. Of this amount, $51 million, 48 cents per share, related to applying the newly enacted statutory income tax rate to deferred tax balances as of January 1, 1993. (e) Includes impact of $699 million pretax productivity charge, $450 million after-tax, $4.38 per share, to reflect the estimated costs of implementing work-force reductions. (f) In the fourth quarter of 1992, the company adjusted its estimate of the annual effective tax rate, which increased fourth-quarter earnings by $5 million, 5 cents per share. - 67 - PAGE 68 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 17. SUMMARIZED FINANCIAL DATA - SEA-LAND SERVICE INC. During 1987, Sea-Land entered into agreements to sell and lease back by charter three new U.S.-built, U.S.-flag, D-7 class container ships. CSX has guaranteed the obligations of Sea-Land pursuant to the related charters which, along with the container ships, serve as collateral for debt securities registered with the Securities and Exchange Commission ("SEC"). In accordance with SEC disclosure requirements, summarized financial information for Sea-Land and its consolidated subsidiaries is as follows: Summary of Operations: 1994 1993 1992 --------------------- -------- -------- ------- Operating Revenue $3,492 $3,246 $3,148 Operating Expense - Public 3,101 2,972 2,843 - Affiliated (a) 235 202 188 ------ ------ ------ Operating Income $ 156 $ 72 $ 117 ====== ====== ====== Net Earnings $ 73 $ 12 $ 17 ====== ====== ====== Summary of Financial Position: 1994 1993 1992 ------------------------------ ------ ------ ------ Current Assets - Public $ 584 $ 515 $ 429 - Affiliated (a) 16 24 24 Other Assets - Public 1,527 1,497 1,492 - Affiliated (a) 101 115 123 Current Liabilities - Public 515 574 477 - Affiliated (a) 266 149 78 Other Liabilities - Public 671 673 722 - Affiliated (a) 75 113 141 Equity 701 642 650 (a) Amounts represent activity with CSX affiliated companies. - 68 - PAGE 69 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 17. SUMMARIZED FINANCIAL DATA - SEA-LAND SERVICE INC., Continued SL Alaska Trade Company ("SLATCO") is a special purpose, unconsolidated subsidiary of Sea-Land with assets of $116 million in a trust account securing $106 million of debt maturing on October 1, 2015. The assets of SLATCO are not available to creditors of Sea-Land or its subsidiaries, nor are the SLATCO notes guaranteed by Sea-Land or any of its subsidiaries. NOTE 18. BUSINESS SEGMENTS. Operating Revenue Operating Income -------------------------- ------------------------- Years Ended Years Ended -------------------------- -------------------------- Dec. 30, Dec. 31, Dec. 31, Dec. 30, Dec. 31, Dec. 31, 1994 1993 1992 1994 1993 1992 ------ ------ ------ ------ ------ ------ Transportation $9,410 $8,767 $8,550 $1,178 $ 868 $ 225 Non-Transportation 198 173 184 54 45 41 ------ ------ ------ ------ ------ ------ Total $9,608 $8,940 $8,734 1,232 913 266 ====== ====== ====== ------ ------ ------ Other Income 55 18 3 Interest Expense 281 298 276 ------ ------ ------ Earnings (Loss) before Income Taxes $1,006 $ 633 $ (7) ====== ====== ====== Identifiable Assets --------------------------- Dec. 30, Dec. 31, Dec. 31, 1994 1993 1992 ------- ------- ------- Transportation $12,974 $12,511 $12,138 Non-Transportation 750 909 911 ------- ------- ------- Total $13,724 $13,420 $13,049 ======= ======= ======= - 69 - PAGE 70 CSX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 18. BUSINESS SEGMENTS, Continued The principal components of the business segments are: Transportation - Rail, international container-shipping, intermodal, barge and contract logistics operations. The container-shipping operation reported revenue of $3.5 billion for 1994, $3.2 billion for 1993 and $3.1 billion for 1992. Approximate revenue allocation by port of origin for 1994, 1993 and 1992 was: North America - 41%; Asia - 34%; Europe - 17%; and Other - 8%. Non-Transportation - Real estate sales and rentals, resort management and operations, integrated computer services and eliminations of intersegment sales and corporate-related items. - 70 - PAGE 71 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Shareholders and Board of Directors of CSX Corporation We have audited the accompanying consolidated statement of financial position of CSX Corporation and subsidiaries as of December 30, 1994, and December 31, 1993 and 1992, and the related consolidated statements of earnings and cash flows for the years then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above (appearing on pages 36-70) present fairly, in all material respects, the consolidated financial position of CSX Corporation and subsidiaries at December 30, 1994, and December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP --------------------- Ernst & Young LLP Richmond, Virginia January 27, 1995 - 71 - PAGE 72 BOARD OF DIRECTORS - ------------------ Edward L. Addison (1,3,5) Chairman and CEO The Southern Company, Atlanta, Ga. Elizabeth E. Bailey (2,4) John C. Hower Professor of Public Policy and Management The Wharton School University of Pennsylvania, Philadelphia, Pa. Robert L. Burrus, Jr. (4,5) Partner and Chairman McGuire, Woods, Battle & Boothe Richmond, Va. Bruce C. Gottwald (4,5) Chairman and CEO Ethyl Corporation, Richmond, Va. John R. Hall (2) Chairman and CEO Ashland Oil Inc., Ashland, Ky. Robert D. Kunisch (1,3) Chairman, President and CEO PHH Corporation, Hunt Valley, Md. Hugh L. McColl, Jr. (2,4) Chairman and CEO NationsBank Corp., Charlotte, N.C. James W. McGlothlin (1,5) Chairman and CEO The United Company, Bristol, Va. Southwood J. Morcott (1,2,4) Chairman, President and CEO Dana Corporation, Toledo, Oh. Charles E. Rice (1,2,3) Chairman and CEO Barnett Banks Inc., Jacksonville, Fla. William C. Richardson (3) President The Johns Hopkins University Baltimore, Md. Frank S. Royal, M.D. (3) Physician Richmond, Va. - 72 - PAGE 73 BOARD OF DIRECTORS, CONTINUED - ----------------------------- John W. Snow (1) Chairman, President and CEO CSX Corporation, Richmond, Va. William B. Sturgill (1,5) President East Kentucky Investment Company, Lexington, Ky. Sir Denis Thatcher, Bt MBE TD Counsellor to the Board London, England KEY TO COMMITTEES OF THE BOARD - ------------------------------ 1 - Executive 2 - Audit 3 - Compensation 4 - Pension 5 - Organization & Corporate Responsibility - 73 - PAGE 74 CSX CORPORATION OFFICERS - ------------------------ John W. Snow, 55 * Chairman, President and CEO elected February 1991 Mark G. Aron, 52 * Senior Vice President-Law and Public Affairs elected January 1986 James Ermer, 52 * Senior Vice President-Finance elected April 1985 Andrew B. Fogarty, 49 Vice President-Audit and Advisory Services elected March 1995 Thomas E. Hoppin, 53 Vice President-Corporate Communications elected July 1986 Richard H. Klem, 50 * Vice President-Corporate Strategy elected May 1992 Jesse R. Mohorovic, 52 * Vice President-Executive Department elected February 1995 James P. Peter, 43 Vice President-Taxes elected June 1993 Woodruff M. Price, 59 Corporate Vice President-Federal Affairs elected May 1988 Alan A. Rudnick, 47 Vice President-General Counsel and Corporate Secretary elected June 1991 Micheal J. Ruehling, 47 Vice President-State Relations elected January 1995 James A. Searle Jr., 48 Vice President-Special Projects elected August 1989 Peter J. Shudtz, 46 General Counsel elected September 1991 - 74 - PAGE 75 CSX CORPORATION OFFICERS, CONTINUED - ----------------------------------- William H. Sparrow, 51 * Vice President-Capital Planning and Budgeting elected May 1994 Gregory R. Weber, 49 * Vice President, Controller and Treasurer elected April 1989 CSX UNIT OFFICERS - ----------------- CSX Transportation Inc. 500 Water Street Jacksonville, FL 32202 (904) 359-3100 Alvin R. (Pete) Carpenter, 53 * President and CEO since January 1992 Donald D. Davis, 55 * Senior Vice President-Employee Relations since April 1992 Paul R. Goodwin, 52 * Executive Vice President-Finance and Administration since February 1995 Gerald L. Nichols, 59 * Executive Vice President and COO since February 1995 Sea-Land Service Inc. 150 Allen Road Liberty Corner, NJ 07938 (908) 558-6000 John P. Clancey, 50 * President and CEO since August 1991 Robert J. Grassi, 48 * Senior Vice President-Finance and Planning since October 1991 Wilford W. Middleton Jr., 56 * Executive Vice President since January 1990 - 75 - PAGE 76 CSX UNIT OFFICERS, CONTINUED - ---------------------------- Charles G. Raymond, 51 * Senior Vice President-Operations since September 1988 CSX Intermodal Inc. 200 International Circle Hunt Valley, MD 21030 (410) 584-0100 M. McNeil Porter, 61 * President and CEO since September 1987 American Commercial Lines Inc. 1701 E. Market Street Jeffersonville, IN 47130 (812) 288-0100 Michael C. Hagan, 48 * President and CEO since May 1992 Customized Transportation Inc. 10407 Centurion Parkway, N., Ste. 400 Jacksonville, FL 32256 (904) 928-1400 David G. Kulik, 46 President and CEO since December 1994 The Greenbrier White Sulphur Springs, WV 24986 (304) 536-1110 Ted J. Kleisner, 50 President and Managing Director since January 1989 Yukon Pacific Corporation 1049 W. 5th Avenue Anchorage, AK 99501 (907) 265-3100 Jeff B. Lowenfels, 46 President and CEO since February 1995 * Executive officers of the corporation - 76 - PAGE 77 CORPORATE INFORMATION Headquarters One James Center 901 East Cary Street Richmond, VA 23219-4031 (804) 782-1400 Market Information CSX's common stock is listed on the New York, London and Swiss stock exchanges and trades with unlisted privileges on the Midwest, Boston, Cincinnati, Pacific and Philadelphia stock exchanges. The official trading symbol is "CSX." Description of Common and Preferred Stock A total of 300 million shares of common stock is authorized, of which 104,721,988 shares were outstanding as of Dec. 30, 1994. Each share is entitled to one vote in all matters requiring a vote of shareholders. There are no pre-emptive rights. A total of 25 million shares of preferred stock is authorized. Series A consists of 250,000 shares of $7.00 Cumulative Convertible Preferred Stock. All outstanding shares of Series A Preferred Stock were redeemed as of July 31, 1992. Series B consists of 3 million shares of Junior Participating Preferred Stock, none of which has been issued. These shares will become issuable only and when the rights distributed to holders of common stock under the Preferred Share Rights Plan adopted by CSX on June 8, 1988, become exercisable. Common Stock Shares Outstanding, Number of Registered Shareholders 1994 1993 1992 1991 1990 ------ ------ ------ ------ ------ Number of Shareholders: 57,355 59,714 62,820 66,032 66,658 ====== ====== ====== ====== ====== Shares Outstanding as of Jan. 27, 1995: 104,734,016 Common Stock Shareholders as of Jan. 27, 1995: 57,267 - 77 - PAGE 78 Common Stock Price Range and Dividends Per Share Year 1994 ---- Quarter 1st 2nd 3rd 4th --- --- --- --- Market Price High $92.38 $83.25 $79.13 $74.50 Low $79.88 $71.00 $66.00 $63.13 Dividends Per Share $.44 $.44 $.44 $.44 Year 1993 ---- Quarter 1st 2nd 3rd 4th --- --- --- --- Market Price High $79.75 $78.13 $80.25 $88.13 Low $67.13 $66.38 $67.88 $74.88 Dividends Per Share $.38 $.38 $.38 $.44 Year 1992 ---- Quarter 1st 2nd 3rd 4th --- --- --- --- Market Price High $62.00 $67.50 $67.75 $73.63 Low $54.88 $55.50 $56.63 $54.50 Dividends Per Share $.38 $.38 $.38 $.38 Year 1991 ---- Quarter 1st 2nd 3rd 4th --- --- --- --- Market Price High $39.00 $47.88 $52.63 $58.00 Low $29.75 $36.50 $44.25 $47.75 Dividends Per Share $.35 $.35 $.35 $.38 Year 1990 ---- Quarter 1st 2nd 3rd 4th --- --- --- --- Market Price High $38.13 $36.00 $36.88 $31.88 Low $31.25 $31.38 $26.00 $26.13 Dividends Per Share $.35 $.35 $.35 $.35 - 78 - PAGE 79 SHAREHOLDER INFORMATION Shareholder Services Shareholders with questions about their accounts should write to the transfer agent at the address below or call (800) 521-5571. Illinois residents should call (312) 461-5545. General questions about CSX or information contained in company publications should be directed to corporate communications at the address or telephone number shown below. Security analysts, portfolio managers or other investment community representatives should contact investor relations at the address or telephone number shown below. Transfer Agent, Registrar and Dividend Disbursing Agent Harris Trust Company P.O. Box A3309 Chicago, IL 60690 (800) 521-5571 (312) 461-5545, in Illinois Shareholder Relations Anne B. Taylor Administrator-Shareholder Services CSX Corporation P.O. Box 85629 Richmond, VA 23285-5629 (804) 782-1465 Corporate Communications Suzanne S. Walston Mgr.-Corporate Communications CSX Corporation P.O. Box 85629 Richmond, VA 23285-5629 (804) 782-1406 Investor Relations Katherine E. Wilson Director-Financial Planning CSX Corporation P.O. Box 85629 Richmond, VA 23285-5629 (804) 782-1553 - 79 - PAGE 80 SHAREHOLDER INFORMATION, Continued Stock Held in Brokerage Accounts When a broker holds your stock, it is usually registered in the broker's name, or "street name." We do not know the identity of individual shareholders who hold stock in this manner. We know only that a broker holds a certain number of shares that may be for any number of customers. If your stock is in a street-name account, you are not eligible to participate in the company's Dividend Reinvestment Plan. Also, you will receive your dividend payments, annual reports and proxy materials through your broker. You should notify your broker, not Harris Trust, if you wish to eliminate unwanted, duplicate mailings and improve the timeliness on the delivery of these materials and your dividend payments. Lost or Stolen Stock Certificates If your stock certificates are lost, stolen or in some way destroyed, you should notify Harris Trust in writing immediately. Multiple Dividend Checks and Duplicate Mailings Some shareholders hold their stock on CSX records in similar but different names (e.g. John A. Smith and J.A. Smith). When this occurs, we are required to create separate accounts for each name. Although the mailing addresses are the same, we are required to mail separate dividend checks to each account. Duplicate mailings of annual reports can be eliminated if you send the labels or copies of the labels from a CSX mailing to Harris Trust. You should mark the labels to indicate names to be kept on the mailing list and names to be deleted. However, this action will affect mailings of financial materials only. Dividend checks and proxy materials will continue to be sent to each account. Consolidating Accounts If you want to consolidate separate accounts into one account, you should contact Harris Trust for the necessary forms and instructions. When accounts are consolidated, it may be necessary to reissue the stock certificates. Dividends CSX pays quarterly dividends on its common stock on or about the 15th of March, June, September and December, when declared by the board of directors, to shareholders of record approximately three weeks earlier. CSX now offers direct deposit of dividends to shareholders who request it. If you are interested, please contact Harris Trust at the address or phone number shown above. Replacing Dividend Checks If you do not receive your dividend check within 10 business days after the payment date or if your check is lost or destroyed, you should notify Harris Trust so payment on the check can be stopped and a replacement issued. - 80 - PAGE 81 SHAREHOLDER INFORMATION, Continued Dividend Reinvestment CSX provides dividend reinvestment and stock purchase plans for shareholders of record and employees as a convenient method of acquiring additional CSX shares by reinvestment of dividends or by optional cash payments, or both. The Shareholders Dividend Reinvestment Plan permits automatic reinvestment of common stock dividends without payment of any brokerage commission or service charge. In fact, under the plan, you may elect to continue receiving dividend payments while making cash payments of up to $1,500 per month for investment in additional CSX shares without any fee. For a prospectus or other information on the plan, write or call the Harris Trust Dividend Reinvestment Department at the address or telephone number shown on page 79. Proxy and Financial Supplement to the Annual Report Proxy materials are forwarded to shareholders with this annual report, and shareholders are urged to vote, sign and return their Proxy promptly. Copies of the Financial Supplement to the Annual Report will be available to shareholders at the annual meeting, or may be reserved by contacting Katherine E. Wilson at the address shown on page 79. The Financial Supplement is not automatically mailed to shareholders. - 81 - PAGE 82 CSX CORPORATION FORM 10-K SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 3rd day of March 1995. CSX CORPORATION By: /s/ GREGORY R. WEBER ---------------------------------------- Gregory R. Weber Vice President, Controller and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signatures Title ---------- ----- John W. Snow Chairman of the Board, President, Chief Executive Officer and Director (Principal Executive Officer)(a) James Ermer Senior Vice President-Finance (Principal Financial Officer)(a) Edward L. Addison Director(a) Elizabeth E. Bailey Director(a) Robert L. Burrus Jr. Director(a) Bruce C. Gottwald Director(a) John R. Hall Director(a) Robert D. Kunisch Director(a) Hugh L. McColl Jr. Director(a) James W. McGlothlin Director(a) Southwood J. Morcott Director(a) Charles E. Rice Director(a) William C. Richardson Director(a) Frank S. Royal, M.D. Director(a) William B. Sturgill Director(a) (a) /s/ PETER J. SHUDTZ --------------------------------- Peter J. Shudtz, Attorney-in-Fact March 3, 1995 - 82 - PAGE 83 CSX CORPORATION Statement of Differences 1. The pages in the electronic filing do not correspond to the pages in the printed document because there is more material on each page of the printed document. There are, therefore, fewer printed pages. The printed Annual Report and Form 10-K also contains numerous charts, graphs and pictures not incorporated into the electronic Form 10-K. 2. Page references in the electronic Form 10-K refer to pages in the electronic filing, while page references in the printed document refer to pages in that document. The information on pages 32 and 33 of the printed document, i.e. the 10-K cover sheet and index, has been repositioned on pages 1 and 2 of the electronic document with the page references changed as discussed above. - 83 - EX-99 2 PAGE 1 CSX CORPORATION INDEX TO EXHIBITS Description Value - ----------- ----- Articles of Incorporation, incorporated by reference (filed with Commission as an Exhibit under Form SE dated February 20, 1991) EX-3.1 Bylaws, incorporated by reference (filed with Commission as an Exhibit under Form S-8 dated December 22, 1994) EX-3.2 CSX Stock Plan for Directors (a) EX-10.1 Special Retirement Plan for CSX Directors (a) EX-10.2 Corporate Director Deferred Compensation Plan (a) EX-10.3 CSX Directors' Charitable Gift Plan, incorporated by reference (a) (filed with Commission as an Exhibit under Form 10-K dated March 4, 1994) EX-10.4 CSX Directors' Matching Gift Program, incorporated by reference (a) (filed with Commission as an Exhibit under Form 10-K dated March 4, 1994) EX-10.5 Form of Agreement with J.W. Snow, A.R. Carpenter, J.P. Clancey, and J.R. Davis and J. Ermer (a) EX-10.6 June 1989 Letter Agreement with J.R. Davis, incorporated by reference (a) (filed with Commission as an Exhibit under Form 10-K dated March 4, 1994) EX-10.7 Form of Retention Agreement with A.R. Carpenter, J.P. Clancey and J.R. Davis, incorporated by reference (a) (filed with Commission as an Exhibit under Form SE dated February 26, 1992) EX-10.8 Agreement with J.W. Snow, incorporated by reference (a) (filed with Commission as an Exhibit under Form 10-K dated March 4, 1994) EX-10.9 1991 Stock Purchase and Loan Plan (a) EX-10.10 1987 Long-Term Performance Stock Plan (a) EX-10.11 1985 Deferred Compensation Program for Executives of CSX Corporation and Affiliated Companies (a) EX-10.12 - E-1 - PAGE 2 CSX CORPORATION INDEX TO EXHIBITS Description Value - ----------- ----- Supplementary Savings Plan and Incentive Award Deferral Plan for Eligible Executives of CSX Corporation and Affiliated Companies (a) EX-10.13 Special Retirement Plan of CSX Corporation and Affiliated Companies (a) EX-10.14 Supplemental Retirement Plan of CSX Corporation and Affiliated Companies (a) EX-10.15 1994 Senior Management Incentive Compensation Plan (a) EX-10.16 Subsidiaries of the Registrant EX-21 Consent of Independent Auditors EX-23 Financial Data Schedule - Schedule II (a) EX-27 (a) Management contract or compensation plan or arrangement. (b) No other schedules are required to be filed. - E-2 - EX-10 3 PAGE 1 Exhibit 10.1 CSX CORPORATION STOCK PLAN FOR DIRECTORS 1. Name of Plan. This plan shall be known as the "CSX Corporation Stock Plan for Directors" and is hereinafter referred to as the "Plan". 2. Purpose of Plan. The purpose of the Plan is to enable CSX Corporation, a Virginia corporation (the "Company"), to attract and retain persons of exceptional ability to serve as directors and to solidify the common interests of its directors and shareholders in enhancing the value of the Company's common stock ("Common Stock"). The Plan provides for payment in Common Stock of a portion of the annual retainer paid to each director. 3. Effective Date and Term. The Plan shall be effective as of the date it is adopted by the Board of Directors (the "Board") of the Company, subject however to approval by at least a majority of the outstanding shares of Common Stock present or represented and entitled to vote at a meeting of shareholders of the Company not later than May 1, 1992, and shall remain in effect until amended or terminated by action of the Board. 4. Eligible Participants. Each member of the Board from time to time who is not a full-time employee of the Company or any of its subsidiaries shall be a participant ("Participant") in the Plan. 5. Shares. (a) Commencing May 1, 1992, the annual retainer payable to each Participant for service on the Board shall be payable in part in shares of Common Stock subject to any applicable restrictions set forth in Section 6 hereof. Subject to paragraphs (b) and (c) below, each Participant shall be paid 40 percent of the annual retainer payable to each Participant for service on the Board (the "Designated Percentage") in shares of Common Stock. Such shares of Common Stock shall be payable immediately following the Company's Annual Meeting of Shareholders. The shares shall be deducted at their Fair Market Value (as hereinafter defined), determined as of the business day immediately preceding the date of the Company's Annual Meeting of Shareholders, from the Participant's annual retainer. (b) Any person who becomes a non-employee director following the Company's Annual Meeting of Shareholders, whether by appointment or election as a director or by change in status from a full-time employee, shall receive shares of Common Stock as a portion of the compensation to be paid to such Participant until the next Annual Meeting of Shareholders. The number of shares of Common Stock issued to such Participant shall be determined by dividing the product of the pro rata portion of the annual retainer to be paid to such director and the Designated Percentage by the Fair Market Value on the day such person becomes a Participant. (c) Each Participant may also elect annually (the "Annual Election") to receive (i) any or all of the remaining balance of his or her annual retainer for service on the Board, (ii) any or all of his or her annual retainer for service as a chairman of a committee of the Board, or (iii) any or all other fees earned as a director of the Company in the form of shares of Common Stock (the "Elective Grant"), subject to any applicable restrictions - 1 - PAGE 2 set forth in Section 6 hereof. The Annual Election must be in writing and shall be delivered to the Corporate Secretary of the Company no later than the last business day of the month during which the Annual Meeting of Shareholders is held. The Annual Election shall be irrevocable in respect of the year to which it pertains and shall specify the applicable percentage of the annual retainer above the Designated Percentage that such Participant wishes to receive in shares of Common Stock. The balance of the annual retainer to be paid pursuant to the Elective Grant shall be paid on the first business day (the "Elective Payment Date") that is at least six months and one day following the last business day of the month during which the Annual Meeting of Shareholders is held, and the number of shares of Common Stock to be included in such Elective Grant shall be determined with reference to the Fair Market Value of the Common Stock on the Elective Payment Date. All other retainers and fees which are to be paid pursuant to the Elective Grant shall be paid once every three months, commencing on the Elective Payment Date, and the number of shares of Common Stock to be included in such Elective Grant payment shall be determined with reference to the Fair Market Value of the Common Stock on such payment date. 6. Restrictions on Shares. The shares issued under Section 5 shall, at the Participant's election (which election must be in writing and shall be delivered to the Corporate Secretary of the Company no later than the last business day of the year prior to the year for which the election is to be effective), 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) Death of the Participant; (b) Disability of the Participant preventing continued service on the Board; (c) Retirement of the Participant from service as a Director of the Company in accordance with the policy on retirement of non-employee Directors then in effect; (d) Cessation of service as a Director for any reason other than those specified in Subsections 6(a), (b) and (c); or (e) A Change in Control (as hereinafter defined). The Participant's right to receive the shares issued under Section 5 shall not be affected by a termination of the trust described herein. 7. Share Certificates, Voting and Other Rights. The certificates for shares issued hereunder shall be issued in the name of the Participant or the trustee of the trust described in Section 6, as the case may be, and shall be held by such Participant or such trustee in trust for the Participants; provided, however, that each Participant shall be entitled to all rights of a shareholder with respect to Common Stock for all such shares issued in his name, including the right to vote the shares and the Participant or the trustee, as the case may be, shall receive all dividends and other distributions paid or made with respect thereto. - 2 - PAGE 3 8. Fair Market Value. "Fair Market Value" means, as of any given date, the closing price of the stock in the New York Stock Exchange Composite Transactions on such date as reported in the Wall Street Journal (or, if there is no reported sale on such date, on the last preceding date on which any reported sale occurred). 9. Fractions of Shares. The Company shall not issue fractions of shares. Whenever under the terms of the Plan a fractional share would otherwise be required to be issued, the Participant shall be paid in cash for such fractional share based upon the same Fair Market Value which was utilized to determine the number of shares to be issued on the relevant payment date. 10. Change in Control. "Change in Control" shall mean any of the following: (a) Stock Acquisition. The acquisition, by any individual, entity or group [within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")] (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock"), or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company; (ii) any acquisition by the Company; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 10; or (b) Board Composition. Individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or (c) Business Combination. Approval by the shareholders of the Company of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company or its principal subsidiary that is not subject, as a matter of law or contract, to approval by the Interstate Commerce Commission or any successor agency or regulatory body having jurisdiction over such transactions (the "Agency") (a "Business Combination"), in each case, unless, following such Business Combination: - 3 - PAGE 4 (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or its principal subsidiary or all or substantially all of the assets of the Company or its principal subsidiary either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of directors resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or (iv) Regulated Business Combination. Approval by the shareholders of the Company of a Business Combination that is subject, as a matter of law or contract, to approval by the Agency (a "Regulated Business Combination") unless such Business Combination complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 10; or (v) Liquidation or Dissolution. Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company or its principal subsidiary. - 4 - EX-10 4 PAGE 1 Exhibit 10.2 SPECIAL RETIREMENT PLAN FOR CSX DIRECTORS [As amended and restated January 1, 1995] 1. Purpose. In order to attract and retain the services of Directors of the highest caliber, to reward them for their services to the Company when they cease to be active Directors, and to retain for the Company the value of their advice and consultation, the Board of Directors adopted a special retirement plan for Directors on April 21, 1981. The Plan, as amended November 14, 1984, is further amended and restated to provide as follows: 2. Definitions. Whenever used in the Plan, the following terms shall have the meanings set forth below unless the context clearly requires a different meaning: (a) Board. The Company's Board of Directors. (b) Change of Control. A "Change of Control" shall mean any of the following: (i) Stock Acquisition. The acquisition, by any individual, entity or group [within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")] (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock"), or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company; (B) any acquisition by the Company; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (C) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 2(b); or (ii) Board Composition. Individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, - 1 - PAGE 2 for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or (iii) Business Combination. Approval by the shareholders of the Company of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company or its principal subsidiary that is not subject, as a matter of law or contract, to approval by the Interstate Commerce Commission or any successor agency or regulatory body having jurisdiction over such transactions (the "Agency") (a "Business Combination"), in each case, unless, following such Business Combination: (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or its principal subsidiary or all or substantially all of the assets of the Company or its principal subsidiary either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and (C) at least a majority of the members of the board of directors resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action - 2 - PAGE 3 of the Board of Directors, providing for such Business Combination; or (iv) Regulated Business Combination. Approval by the shareholders of the Company of a Business Combination that is subject, as a matter of law or contract, to approval by the Agency (a "Regulated Business Combination") unless such Business Combination complies with clauses (A), (B) and (C) of subsection (iii) of this Section 2(b); or (v) Liquidation or Dissolution. Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company or its principal subsidiary. (c) Committee. The Executive Committee of the Board (d) Company. CSX Corporation. (e) Director. A person duly elected or appointed to, and serving as an active member of, the Board. (f) Director's Fees. The basic annual retainer fee paid to an active Outside Director for his services, plus meeting fees, special fees for serving as Chairman of a committee, but excluding travel expenses or any other extraordinary form of compensation. (g) Effective Date. April 21, 1981. The effective date of the amendment and restatement is January 1, 1995. A Participant receiving Retirement Payments on the date of the restatement will continue to receive payments in accordance with the terms of the Plan as restated to the extent not inconsistent with the terms of the Plan prior to the date of the restatement. (h) Eligible Service. The period of service with the Company or any of its predecessor companies as an active Outside Director, measured in years and months beginning with the day of the month in which the person first becomes or performs services as an Outside Director and ending with the month in which he ceases to be, or no longer performs services as, an Outside Director. Service which need not be continuous. (i) Employee Director. A person who serves or has served as an active Director during a period when he or she is a salaried employee with the Company or a subsidiary company. (j) Outside Director. A Director who, with respect to any period of service as an active Director taken into account under the Plan, is not an Employee Director. (k) Participant. An Outside Director or former Outside Director who has met or can be expected to meet the requirements for and become eligible for Retirement Payments under the Plan as determined under Section 3. The term includes Outside Directors who on the Effective Date of the amendment and restatement are receiving Retirement Payments under the Plan. An Employee Director shall not be entitled to become a Participant in the Plan with - 3 - PAGE 4 respect to any period of service as a Director while an employee of the Company or a predecessor company. (l) Plan. The Special Retirement Plan for CSX Directors. (m) Payment Date. The last day of each calendar quarter beginning with the last day of the calendar quarter in which the Participant becomes entitled to receive Retirement Payments and ending with the payment for the last calendar quarter for the calendar year in which the Participant ceases to be eligible for Retirement Payments under Section 3. (n) Retirement Payment. An annual amount equal to 50% of the Director's Fees paid during the Outside Director's final twelve months of service as a Director with the Company payable in quarterly installments on each Payment Date. (o) Rule of 75. Any combination of age and year as of Eligible Service that totals 75 or more. (p) Trust. A grantor trust established by the Company which will substantially conform to the terms of the Internal Revenue Service model trust as described in Revenue Procedure 92-64, 1992-2 D.B. 422. Except as provided in Section 4, the Company is not obligated to make any contribution to the Trust. (q) Valuation Date. The last day of each calendar year and such other dates as the Committee deems necessary or appropriate to value the Participants' benefits under this Plan. 3. Eligibility for Retirement Payments. (a) An Outside Director who no longer serves as a Director (for any reason other than death) and has (i) attained the age of 68, or (ii) has met the Rule of 75, shall be entitled to receive Retirement Payments. A Participant who ceases to serve as a Director before attaining the age of 68 will be entitled to receive Retirement Payments when the Participant attains the age of 68 or meets the Rule of 75, whichever event shall first occur. In consideration of the receipt of Retirement Payments under the Plan, a Participant agrees to be available for advice and consultation as requested by the Board. (b) A Participant entitled to compensation under (a) shall receive Retirement Payments on each Payment Date as hereinafter provided. A Participant who has completed 10 or more years of Eligible Service or has met the Rule of 75, will be entitled to Retirement Payments for life. A Participant who has not completed 10 years of Eligible Service and has not met the Rule of 75, will be entitled to receive Retirement Payments for a period equal to the lesser of (i) the Participant's life and (ii) the Participant's period of Eligible Service. A Participant's right to compensation shall terminate as of the last day of the calendar year in which his or her death occurs, or, if the Participant has less than 10 years of Eligible Service and has not met the Rule of 75, as of the end of the calendar year in which falls the date that is the anniversary of the date the Participant's last period of Eligible Service began. - 4 - PAGE 5 (c) Any retirement payment due after the death of a Participant shall be paid to the Participant's surviving spouse, or, if no spouse survives, to the Participant's personal representative. 4. Change of Control. (a) If a Change of Control has occurred, the Committee shall cause the Company to contribute to the Trust within seven (7) days of such Change of Control, a lump sum contribution equal to the greater of: (i) the aggregate value of the amount each Participant would be eligible to receive under (b), below; or (ii) the present value of accumulated Plan benefits based on the assumptions the Company's independent actuary deems reasonable for this purpose as of the Valuation Date, coinciding with or next preceding the date of Change of Control, to the extent such amounts are not already in the Trust; provided, however, amounts relating to those Participants who receive a lump sum payment under subsection (b), below, shall be excluded from the aggregate value determination under (i) or (ii). The aggregate value of the amount of the lump sum to be contributed to the Trust pursuant to this Section 4 shall be determined by the Company's independent actuaries. Thereafter, the Company's independent actuaries shall annually determine as of a Valuation Date for each Participant not receiving a lump sum payment pursuant to subsection (b), below, the greater of: (A) the amount such Participant would have received under subsection (b) had such Participant not made the election under subsection (c) below, if applicable; and (B) the present value of accumulated benefits based on assumptions the actuary deems reasonable for this purpose. To the extent that the value of the assets held in the Trust relating to this Plan does not equal the amount described in the preceding sentence, at the time of the valuation, the Company shall make a lump sum contribution to the Trust equal to the difference. (b) In the event a Change of Control has occurred, each Participant not making an election under subsection (c), below, shall receive, and the Committee shall cause the Company to pay within seven (7) days of such Change of Control, a lump sum payment equal to the present value of the Retirement Payments the Participant is entitled to receive from the Company pursuant to the terms of the Plan assuming when applicable for each Participant as of the date of Change of Control that (i) the Participant will complete his current term as a Director, (ii) the Participant will survive during the period of his normal life expectancy, and (iii) the age requirement for retirement and receipt of Retirement Payments is the age of the Participant on the Change of Control date. Present value shall be determined by using a discount rate equal to the applicable Federal rate provided for in - 5 - PAGE 6 Section 7872(f)(2) of the Internal Revenue Code of 1986, as amended. The amount of each Participant's lump sum payment shall be determined by the Company's actuaries. (c) Each Participant may elect in a time and manner determined by the Committee but, for current Participants, in no event later than September 1, 1995, or the occurrence of a Change of Control, if earlier, to have amounts and benefits determined and payable under the terms of this Plan as if a Change of Control had not occurred. (d) Notwithstanding anything in this Plan to the contrary, each Participant who has made an election under (c), above, may elect within 90 days following a Change of Control, in a time and manner determined by the Committee, to receive a lump sum payment calculated under the provisions of subsection (b), above, determined as of the Valuation Date next preceding such payment, except that such amount shall be reduced by 5% and such reduction shall be irrevocably forfeited to the Company by the Participant. Furthermore, as a result of such election, the Participant shall no longer be eligible to participate or otherwise benefit under the Plan. Payments under this subsection (d) shall be made not later than seven (7) days following receipt by the Company of the Participant's election. The Committee shall, no later than seven (7) days after a Change of Control has occurred, cause written notification to be given to each Participant eligible to make an election under this subsection (d), that a Change of Control has occurred and informing such Participant of the availability of the election. 5. Committee Powers. The Committee shall have full power and authority to interpret, construe and administer this Plan, and all actions of the Committee under the Plan shall be binding and conclusive on all persons for all purposes. 6. Successors. The Plan shall be binding upon and inure to the benefit of Participants. If the Company becomes a party to any merger, consolidation, reorganization or in the event of a sale of substantially all the assets of the Company, the Plan shall remain in full force and effect as an obligation of the Company or its successor in interest. 7. Amendment and Termination. The Board reserves the right to amend or terminate the Plan at any time without the consent of any Participant, but no amendment or termination shall deprive any Participant of the right to continue to receive payment under Section 3 once payments have begun. Notwithstanding the foregoing, if a Change of Control occurs, each Participant, regardless of age or Eligible Service shall be eligible for benefits under the Plan, and the Plan may not be terminated and no amendment may be made that would adversely affect the right of such any Participant to receive Retirement Payments or Accelerated Retirement Payments under the Plan. 8. Construction. The Plan shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia. The masculine pronoun shall mean the feminine wherever appropriate. The captions inserted herein are inserted as a matter of convenience and shall not affect the construction of the Plan. - 6 - EX-10 5 PAGE 1 Exhibit 10.3 CSX CORPORATION CORPORATE DIRECTOR DEFERRED COMPENSATION PLAN EFFECTIVE NOVEMBER 1, 1990 As Amended and Restated Effective January 1, 1995 1. Purpose The purpose of this Plan is to permit members of the Board of Directors of CSX Corporation to elect deferred receipt of director's fees. This Plan is intended to constitute a deferred compensation plan for corporate director's fees in accordance with Revenue Ruling 71-419, Cumulative Bulletin 1971-2, page 220. 2. Definitions The following words or terms used herein shall have the following meanings: (a) "Administrator" -- means CSX Corporation (b) "Board" -- Board of Directors of CSX (c) "Change of Control" -- shall mean any of the following: (i) Stock Acquisition. The acquisition, by any individual, entity or group [within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")] (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of the Corporation (the "Outstanding Corporation Common Stock"), or (B) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Corporation Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Corporation; (B) any acquisition by the Corporation; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation; or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 2(c); or (ii) Board Composition. Individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then - 1 - PAGE 2 comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or (iii) Business Combination. Approval by the shareholders of the Corporation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Corporation or its principal subsidiary that is not subject, as a matter of law or contract, to approval by the Interstate Commerce Commission or any successor agency or regulatory body having jurisdiction over such transactions (the "Agency") (a "Business Combination"), in each case, unless, following such Business Combination: (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or its principal subsidiary or all or substantially all of the assets of the Corporation or its principal subsidiary either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities, as the case may be; (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and - 2 - PAGE 3 (C) at least a majority of the members of the board of directors resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or (iv) Regulated Business Combination. Approval by the shareholders of the Corporation of a Business Combination that is subject, as a matter of law or contract, to approval by the Agency (a "Regulated Business Combination") unless such Business Combination complies with clauses (A), (B) and (C) of subsection (iii) of this Section 2(c); or (v) Liquidation or Dissolution. Approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation or its principal subsidiary. (d) "CSX" or "Corporation" -- CSX Corporation (e) "Director's Fees" -- any compensation, whether for Board meetings or for Committee meetings or otherwise, earned by a Member for services rendered as a Member during a particular calendar year in which he has elected to be a Participant (f) "Member" -- any person duly elected to the Board (g) "Participant" -- any Member who elects to participate in the Plan (h) "Plan" -- Corporate Director Deferred Compensation Plan (i) "Secretary" -- the Corporate Secretary of CSX (j) "Trust" -- shall mean a grantor trust established by CSX which will substantially conform to the terms of the Internal Revenue Service model trust as described in Revenue Procedure 92-64, 1992-2 C.B. 422. Except as provided in Section 10, CSX is not obligated to make any contribution to the Trust (k) "Valuation Date" -- the last day of each calendar quarter and such other dates as the Administrator deems necessary or appropriate to value the Participants' benefits under this Plan (l) In any instance in which the male gender is used herein, it shall also include persons of the female gender in appropriate circumstances. - 3 - PAGE 4 3. Merger Provisions Any person who was a Participant under the Chessie System, Inc. Corporate Director Deferred Compensation Plan or who was a director and had made an election under the Seaboard Coast Line Industries, Inc. Nonfunded Deferred Compensation Plan for Directors shall automatically become a Participant under this Plan effective upon the merger of Chessie System, Inc. and Seaboard Coast Line Industries, Inc. into the Corporation, provided that such a person shall be a Member as defined in this Plan. Director's Fees deferred previously under the terms of the aforesaid director deferred compensation plans of Chessie System, Inc. and Seaboard Coast Line Industries, Inc. shall remain subject to the terms and conditions respectively provided therein, and the terms of this Plan shall only govern as to Director's Fees earned on and after the date of merger into the Corporation. 4. Participation A Member may become a Participant for any calendar year by filing a written Election to Participate in the Plan with the Secretary not later than December 31 immediately prior to the year in which Director's Fees are to be earned. An Election to Participate may be made with respect to all or any part of Director's Fees to be earned for any year or years to which such Election to Participate may relate. An Election to Participate, once filed, shall apply to Director's Fees earned in subsequent years in which a Participant shall serve as a Member, unless amended or revoked by written request to the Secretary. Any person who becomes a Member and who was not a Member on the preceding December 31 may file an Election to Participate before his term as a Member begins. 5. Deferral of Director's Fees CSX shall, during any year in which a Participant has an Election to Participate on file with the Secretary, withhold and defer payment of all or any specified part of Participant's Director's Fees in accordance with his Election to Participate. Prior to the beginning of any year, a Participant can elect to have all or any portion of the amounts withheld, including all earnings thereon, or to be withheld, credited to an interest-accruing account ("Interest Account") and/or to an enhanced interest-accruing account for calendar years 1986, 1987, 1989 and 1990 ("Enhanced Interest Account"), and/or to a CSX phantom stock account ("Stock Account"). Such deferral election can be made or changed before the beginning of any year. Interest shall accrue on the Interest Account from the date the deferred Director's Fee would otherwise have been paid to the Participant until it is actually paid, such interest to be credited to the Participant's account and compounded quarterly at the end of each calendar quarter. The rate of interest will be reviewed periodically. - 4 - PAGE 5 Interest shall accrue on the Enhanced Interest Account from the first day of the month following the deferral and shall compound thereafter at an annual rate of 16% until all amounts are finally paid to the Participant. Credits to the Stock Account shall be in full and fractional units based on the closing price for CSX common stock as reported on the New York Stock Exchange - Composite Listing ("NYSE") on the date the fees would otherwise have been paid to the Participant. Dividends shall be credited in full and fractional units to the account based on the number of units in the account on the record date and calculated based on the closing price for CSX common stock on the dividend payment date. A Participant, while a Member, may elect prior to the beginning of any year to transfer all or any portion of amounts deferred, including all earnings thereon, to an Enhanced Interest Account, an Interest Account and/or a Stock Account, provided, however, that no transfer may be made out of an Enhanced Interest Account. 6. Distribution of Deferred Director's Fees Amounts deferred under the Plan and credited to an Interest Account or Stock Account shall be distributed to a Participant from the account(s) maintained in respect of his account in a lump sum at the beginning of the year following the year in which a Participant ceases to be a Member, unless he shall elect installments as provided below. Amounts deferred and credited to an Enhanced Interest Account shall be distributed over an installment period elected by the Participant. The value of a Participant's Interest Account shall be the sum of amounts deferred and all interest accrued thereon. The value of an Enhanced Interest Account shall be the sum of amounts deferred and all interest accrued thereon. The value of a Stock Account shall be the value of the units in a Participant's account based on the closing price for CSX common stock as reported on the NYSE on the last business day of the year in which a Participant ceases to be a Member, unless he shall elect annual or quarterly installments as provided below. The value of a Stock Account will fluctuate in value in line with the fluctuation in the price of CSX common stock. There can be no assurance on the market value of the phantom units either at the time of acquisition or at any time during the distribution period, nor can there be any assurance as to the continuation of dividends. Distribution of Deferred amounts shall begin with either the first day of the calendar year immediately following the year in which a Participant shall cease to be a Member for any reason other than death, or the first day of the calendar year immediately following the year in which a Participant shall cease to be a Member and shall have attained age 65, as the Member may elect. If installment payments are elected for Interest or Stock Accounts, payments shall be made, as the Participant may elect, for either (a) five years, (b) ten years, or (c) any other designated period which shall be not less than the period he was a Participant nor exceed ten years. For Enhanced Interest Accounts, the Participant may elect to receive payments over (a) five years, (b) ten years, or (c) fifteen years. - 5 - PAGE 6 For Interest Accounts and Stock Accounts, installments shall be on an annual or quarterly basis as the member may elect. The amount of each installment shall be determined by multiplying the value of the Participant's account at the end of the calendar quarter immediately preceding the installment date by a fraction, the numerator of which shall be one (1) and the denominator of which shall be the number of installment payments over which payment of such amount is to be made, less the number of installment payments theretofore made. For Enhanced Interest Accounts, payments shall be in level installments on a monthly basis over the number of years (five, ten, or fifteen) as elected by the Member. The elections provided in this Section 6 shall be made in writing in a Participant's Election to Participate and shall be subject to all other provisions of the Plan relating thereto and to the deferral of receipt of Director's Fees. In the event a Participant shall die while he is a Member, the amount appearing as the credit balance of his account, or the value of the units in his Stock Account, shall be paid in either a lump sum or installments (consistent with the election made by the Participant as described in this Section 6) to his Designated Beneficiary. Each Participant may file with the Secretary a Designation of Beneficiary for this purpose. In the event a Participant shall die after he ceases to be a Member and before he has received complete distribution from his account, any credit balance of his account, including interest, or the value of the units in his Stock Account, shall be paid to his Designated Beneficiary consistent with the election made by the Participant as described in this Section 6. In the event a Participant shall not file a Designation of Beneficiary, or his Designated Beneficiary is not living at the Participant's death, the balance credited to his account, including interest, shall be paid in full to his estate not later than the tenth day of the calendar year following his date of death. 7. Death Benefit For Participants electing to have deferred Director's Fees credited to an Enhanced Interest Account who die while a Member, a death benefit equal to the greater of three times the amount of Director's Fees deferred or the amount of Director's Fees deferred plus accumulated interest will be paid to the Member's Designated Beneficiary. For Participants in an Enhanced Interest Account who die after ceasing to be a Member, a lump sum death benefit of $10,000 will be paid to the Designated Beneficiary. This death benefit shall apply only to Director's Fees deferred after December 31, 1985 and which have been credited to an Enhanced Interest Account. This death benefit shall not apply to any amounts credited to an Enhanced Interest Account by reason of transfer from an Interest Account and/or a Stock Account. In the event a Participant shall not file a Designation of Beneficiary, or the Designated Beneficiary is not living at the Participant's death, the death benefit shall be paid to the Participant's estate. - 6 - PAGE 7 8. Amendment or Termination of Election to Participate A Participant may amend or terminate his Election to Participate by written request to the Secretary, which shall become effective for the calendar year following the year in which his request is made; provided, however, that no amendment shall be made to contravene the deferral of Director's Fees previously made under the provisions of this Plan. In the event a Participant amends or terminates his Election to Participate and remains a Member, he shall not be entitled to receive any distribution from his account until he ceases to be a Member, and distributions shall be made only as provided in Section 6 of this Plan. 9. Obligation of CSX This Plan shall be unfunded and credits to the memorandum account(s) of each Participant shall not be set apart for him nor otherwise made available so that he may draw upon it at any time, except as provided in this Plan. Neither any Participant nor his Designated Beneficiary shall have any right, title, or interest in such credits or any claim against them. Payments may only be made at such times and in the manner expressly provided in this Plan. CSX's contractual obligation is to make the payments when due. No notes or security for the payment of any Participant's account shall be issued by CSX. 10. Change of Control 10.1 If a Change of Control has occurred, the Administrator shall cause CSX to contribute to the Trust, within 7 days of such Change of Control, a lump sum payment equal to the aggregate value of the amount each Participant would be eligible to receive (determined under 10.2 below) as of the latest Valuation Date coinciding with or preceding the date of Change of Control to the extent such amounts are not already in the Trust; provided, however, amounts relating to those Participants who receive a lump sum payment under 10.2 below shall be excluded from the aggregate value determination. The aggregate value of the amount of the lump sum to be contributed to the Trust pursuant to this Section 10 shall be determined by CSX's accountants after consultation with the entity then maintaining the Plan's records. Thereafter, CSX's accountants shall annually determine as of a Valuation Date for each Participant not receiving a lump sum payment pursuant to section 10.2, below, the amounts which would be payable under such subsection were a Change of Control to occur at the date of such determination. To the extent that the value of the assets held in the Trust relating to this Plan do not equal the aggregate amount described in the preceding sentence, at the time of the valuation, as determined by CSX's accountants, CSX shall make a lump sum contribution to the Trust equal to the difference. 10.2 In the event a Change of Control has occurred, each Participant not making an election under section 10.3, below, shall receive, and the Administrator shall cause CSX to pay, within 7 days of such Change of Control, a lump sum payment equal to the amount the Participant would have been entitled to receive determined under Section 6 had he ceased to be a Member and selected an immediate lump sum payment. The amount of each Participant's lump sum payment shall be determined by CSX's accountants after consultation with the entity then maintaining the Plan's records. - 7 - PAGE 8 10.3 Each Participant may elect in a time and manner determined by the Administrator but in no event later than September 1, 1995, or the occurrence of a Change of Control, if earlier, to have amounts and benefits determined and payable under the terms of the Plan as if a Change of Control had not occurred. New Participants in the Plan may elect in a time and manner determined by the Administrator but in no event later than a Change of Control to have amounts and benefits determined and payable under the terms of the Plan as if a Change of Control had not occurred. 10.4 Notwithstanding anything in the Plan to the contrary, each Participant who has made an election under section 10.3, above, may elect within 90 days following a Change of Control, in a time and manner determined by the Administrator, to receive a lump sum payment calculated under the provisions of 10.3, above, determined as of the Valuation Date next preceding such payment, except that such calculated amount shall be reduced by 5% and such reduction shall be irrevocably forfeited to CSX by the Participant. Furthermore, as a result of such election, the Participant shall no longer be eligible to participate or otherwise benefit from the Plan. Payments under this section 10.4 shall be made not later than 7 days following receipt by CSX of the Participant's election. The Administrator shall, no later than 7 days after a Change of Control has occurred, give written notification to each Participant eligible to make an election under this section 10.4, that a Change of Control has occurred and informing such Participant of the availability of the election. 11. Claims Against Participant's Account No credits to the account of any Participant under this Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to do so shall be void. Nor shall any credit be subject to attachment or legal process for debts or other obligations. Nothing contained in this Plan shall give any Participant any interest, lien, or claim against any specific asset of CSX. No Participant or his Designated Beneficiary shall have any rights other than as a general creditor of CSX. 12. Competition by Participant In the event a Participant ceases to be a Member and becomes a proprietor, officer, partner, employee, director, or otherwise becomes affiliated with any business that is in competition with the Corporation, the entire balance credited to his account, including interest, or the value of the units in his Stock Account, may, if directed by the Board in its sole discretion, be paid immediately to him in a lump sum. 13. Payment of Credit Balance to Participant's Account Notwithstanding anything herein to the contrary, the Board may, in its sole discretion, direct payment in a lump sum, of any or all of the credit balance appearing at the time in the account of a Participant, and/or of the value of the units in his Stock Account. - 8 - PAGE 9 14. Amendment or Termination This Plan may be altered, amended, suspended, or terminated at any time by the Board; provided, however, that no alteration, amendment, suspension, or termination shall be made to this Plan which would result in the distribution of amounts credited to the accounts of all Participants in any manner other than is provided in this Plan without the consent of all Participants. - 9 - EX-10 6 PAGE 1 Exhibit 10.6 FORM EMPLOYMENT AGREEMENT AGREEMENT by and between CSX CORPORATION, a Virginia corporation (the "Company"), and [Executive] (the "Executive"), dated as of the first day of February, 1995. The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. a. The "Effective Date" shall mean the first date during the Term (as defined in Section 1(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if the Executive's employment with the Company is terminated by the Company without Cause prior to the date on which the Change of Control occurs or the Executive ceases to be an officer of the Company, and if it is reasonably demonstrated by the Executive that such termination of employment or cessation of status as an officer (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then, in each such case, for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment or cessation of status as an officer. b. The "Term" shall mean the period commencing on the date hereof and ending on the earlier to occur of (i) the third anniversary of such date or (ii) the first day of the month next following the Employee's normal retirement date ("Normal Retirement Date") under the principal pension plan in which the Executive participates (the "Retirement Plan"); provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal - 1 - PAGE 2 Date"), unless previously terminated, the Term shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Term shall not be so extended. 2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: a. Stock Acquisition. The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or b. Board Composition. Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or c. Business Combination. Approval by the shareholders of the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or its principal subsidiary (a "Business Combination") that is not subject, as a matter of law or contract, to approval by the Interstate Commerce Commission or any successor agency or regulatory body having jurisdiction over such transactions (the "Agency"), in each case, unless, following such Business Combination: (i) all 8or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination - 2 - PAGE 3 beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or its principal subsidiary or all or substantially all of the assets of the Company or its principal subsidiary either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or d. Regulated Business Combination. Approval by the shareholders of the Company of a Business Combination that is subject, as a matter of law or contract, to approval by the Agency (a "Regulated Business Combination") unless such Business Combination complies with clauses (i), (ii) and (iii) of subsection(c) of this Section 2; or e. Liquidation or Dissolution. Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company or its principal subsidiary. If any Change of Control is a Regulated Business Combination, but its implementation involves another "Change of Control" that is not a Regulated Business Combination within the meaning of this Section 2, then for all purposes of this Agreement, such Change of Control shall not be deemed to be a Regulated Business Combination, the provisions governing a Regulated Business Combination shall not apply, and the provisions governing such other Change in Control shall apply. - 3 - PAGE 4 3. Employment Period. a. Generally. Subject to Section 3(b), the Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of such date (the "Employment Period"). b. Regulated Business Combination. Notwithstanding the foregoing, in the case of a Change of Control that is a Regulated Business Combination, then for all purposes of this Agreement, the "Employment Period" shall mean the longer of (i) the period commencing on the Effective Date and ending on the third anniversary of such date or (ii) the period commencing on the Effective Date and ending thirteen months from the effective date of a final decision by the Agency on the proposed Regulated Business Combination ("Final Regulatory Action"), provided, however, that (x) if the Final Regulatory Action is a denial of the Regulated Business Combination then for all purposes of this Agreement the "Employment Period" shall end upon the sixtieth (60th) day following such Final Regulatory Action and (y) if the Final Regulatory Action is an approval of the Regulated Business Combination, but the Regulated Business Combination is not consummated by the first anniversary of the Final Regulatory Action, then for all purposes of this Agreement the "Employment Period" shall end upon such first anniversary of the Final Regulatory Action. 4. Terms of Employment. a. Position and Duties. (i) During the Employment Period: (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date, and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not6 significantly interfere with the performance of - 4 - PAGE 5 the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. b. Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase, and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the Executive's highest cash bonus under the Company's annual incentive plans, or any comparable bonus under any predecessor or successor plan, for the last three full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the - 5 - PAGE 6 Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date - 6 - PAGE 7 or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. 5. Termination of Employment. a. Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. b. Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. - 7 - PAGE 8 For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. c. Good Reason. The Executive's employment may be terminated by the Executive during the Employment Period for Good Reason. For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or - 8 - PAGE 9 (vi) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason shall be deemed to be a termination for Good Reason for all purposes of this Agreement if such termination occurs (i) in the case of a Change of Control that is not a Regulated Business Combination, during the 30-day period immediately following the first anniversary of the Effective Date, (ii) in the case of a Change of Control that is a Regulated Business Combination consummated pursuant to Final Regulatory Action, during the 30-day period immediately following the first anniversary of the Final Regulatory Action (it being understood that the Executive will have no rights under this paragraph in the case of a Change of Control that is a Regulated Business Combination (x) denied by the Agency or (y) for any other reason not consummated within one year of Final Regulatory Action). d. Regulated Business Combination. Notwithstanding the foregoing, in the case of a Change of Control that is a Regulated Business Combination, then for all purposes of this Agreement, during that portion of the Employment Period prior to Final Regulatory Action, the Executive may not exercise his rights to terminate his employment under this Agreement for "Good Reason." The Executive may only terminate his employment under this Agreement if he is "Constructively Terminated" by the Company. Moreover, except to the extent expressly set forth in the definition of "Constructive Termination," the Executive shall have no remedy for any breach by the Company of the provisions of Section 4; provided, however, that any failure of the Company to comply in any material respect with the provisions of Section 4 shall create a rebuttable presumption that a Constructive Termination has occurred. For purposes of this Agreement, a "Constructive Termination shall mean: (i) substantial diminution of the Executive's duties or responsibilities as contemplated by Section 4(a) of this Agreement, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) either (x) a reduction in the Executive's cash compensation (which shall mean his Annual Base Salary or Annual Bonus) or (y) a discriminatory reduction in the Executive's other incentive opportunities, benefits or perquisites described in Section 4(b); (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof; or (iv) any purported termination by the Company of the Executive's employment otherwise than for Cause. - 9 - PAGE 10 During that portion of the Employment Period after Final Regulatory Action, the Executive may terminate his Employment under this Agreement for "Good Reason. e. Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason or Constructive Termination, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason, Cause or Constructive Termination shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. f. Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason or Constructive Termination, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 6. Obligations of the Company upon Termination. a. Good Reason or Constructive Termination; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason or Constructive Termination: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or payable, including any bonus or portion thereof which has - 10 - PAGE 11 been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which the Executive was employed for less than twelve full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount equal to the product of (1) three and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus; and C. an amount equal to the excess of (a) the actuarial equivalent of the benefit under the Company's qualified defined benefit retirement plan (the "Retirement Plan") (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Company's Retirement Plan immediately prior to the Effective Date), and any excess or supplemental retirement plan in which the Executive participates (together, the "SERP") which the Executive would receive if the Executive's employment continued for three years after the Date of Termination assuming for this purpose that all accrued benefits are fully vested, and, assuming that the Executive's compensation in each of the three years is that required by Section 4(b)(i) and Section 4(b)(ii), over (b) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP as of the Date of Termination; (ii) for three years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period - 11 - PAGE 12 of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period; (iii) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in his sole discretion; and (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies, including earned but unpaid stock and similar compensation (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). b. Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries. c. Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by - 12 - PAGE 13 the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. d. Cause; Other than for Good Reason or Constructive Termination. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason or Constructive Termination, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 8. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in - 13 - PAGE 14 each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 9. Certain Additional Payments by the Company. a. Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 9(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Executive, after taking into account the Payments and the Gross-Up Payment, would not receive a net after-tax benefit of at least $50,000 (taking into account both income taxes and any Excise Tax) as compared to the net after-tax proceeds to the Executive resulting from an elimination of the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount (the "Reduced Amount") such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. b. Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Ernst & Young or such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as - 14 - PAGE 15 determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. c. The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and - 15 - PAGE 16 conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. d. If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. - 16 - PAGE 17 11. Successors. a. This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. b. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. c. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. Miscellaneous. a. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. b. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: If to the Company: CSX Corporation One James Center Richmond, Virginia 23219 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. - 17 - PAGE 18 c. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. d. The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. e. The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason or Constructive Termination pursuant to Section 5 of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. f. The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(a) hereof, prior to the Effective Date, the Executive's employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. -------------------- [Executive] CSX CORPORATION By _______________________ - 18 - EX-10 7 PAGE 1 Exhibit 10.10 CSX CORPORATION 1991 Stock Purchase and Loan Plan 1. Purpose The purpose of this 1991 Stock Purchase and Loan Plan (the "Plan") is to further the long-term stability and financial success of CSX Corporation (the "Company") by providing a method for employees to significantly increase their ownership of Company Stock (as hereinafter defined). The Company believes that ownership of Company Stock will stimulate the efforts of those employees upon whose judgement and interest the Company is and will be largely dependent for the successful conduct of its business and will further the identification of those employees' interests with those of the Company's shareholders. 2. Definitions As used in the Plan, the following terms have the meanings indicated: (a) "Applied Dividends" means dividends paid on pledged Company Stock applied to reduce Interest as provided in Section 6(e). (b) "Board" means the Board of Directors of the Company. (c) "Business Day" means, if relevant to a determination of the value of Company Stock, a day on which shares of Company Stock are or could be traded on the New York Stock Exchange (or other national stock exchange, or if not so listed, could be traded over-the-counter). In all other cases, the term means a day on which the offices of the Company are open for the conduct of business in the normal course. (d) "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 and any of its Subsidiaries, (ii) repeated violations by the Participant of the Participant's executive responsibilities which are demonstrably willful and deliberate on the Participant's part and which are not remedied in a reasonable period of time after receipt of written notice from the Company or the Subsidiary or (iii) the conviction of the Participant of a felony involving moral turpitude. "Change of Control" shall mean any of the following: (i) Stock Acquisition. The acquisition, by any individual, entity or group [within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")] (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then - 1 - PAGE 2 outstanding shares of common stock of the Company (the "Outstanding Company Common Stock"), or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company; (B) any acquisition by the Company; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 2(e); or (ii) Board Composition. Individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or (iii) Business Combination. Approval by the shareholders of the Company of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company or its principal subsidiary that is not subject, as a matter of law or contract, to approval by the Interstate Commerce Commission or any successor agency or regulatory body having jurisdiction over such transactions (the "Agency") (a "Business Combination"), in each case, unless, following such Business Combination: (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a - 2 - PAGE 3 corporation which as a result of such transaction owns the Company or its principal subsidiary or all or substantially all of the assets of the Company or its principal subsidiary either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and (C) at least a majority of the members of the board of directors resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or (iv) Regulated Business Combination. Approval by the shareholders of the Company of a Business Combination that is subject, as a matter of law or contract, to approval by the Agency (a "Regulated Business Combination") unless such Business Combination complies with clauses (A), (B) and (C) of subsection (iii) of this Section 2(e); or (v) Liquidation or Dissolution. Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company or its principal subsidiary. (f) "Commitment Date" means a date fixed by the Committee which shall be the first day of the Commitment Period. (g) "Commitment Period" means a period of twenty (20) Business Days beginning with the Commitment Date during which a Participant who has been granted a Purchase Award must purchase the Company Stock. (h) "Committee" means the Committee of the Board appointed to administer the Plan as provided in Section 10. (i) "Company" means CSX Corporation, a Virginia corporation. - 3 - PAGE 4 (j) "Company Stock" means the Common Stock of the Company and rights, options or warrants for the purchase of securities of the Company which may be issued with shares of Common Stock pursuant, and subject, to plans or agreements adopted or entered into from time to time by the Company. If the par value of the Company Stock is changed, or in the event of a change in the capital structure of the Company (as provided in Section 9), the shares resulting from such a change shall be deemed to be the Company Stock within the meaning of the Plan. (k) "Disability" means the inability to perform the services for which the Participant was employed as determined by the Committee, and such determination shall be conclusive. (l) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (m) "Insider" means (a) any person subject to Section 16(b) of the Exchange Act, and (b) any person deemed to be an insider by the Company. (n) "Interest" means the Applicable Federal Rate, as determined for purposes of IRC 1274(d). (o) "Interest Spread" means, at the time of determination, Interest accrued on the Purchase Loan reduced by Applied Dividends. (p) "IRC" means the Internal Revenue Code of 1986, as amended. (q) "Market Price" means the fair market value of a share of Company Stock based upon the closing price of the Company Stock on the New York Stock Exchange (or other national stock exchange, or if not so listed, the average of the highest and lowest reported sales prices [or bid and asked prices if there have been no sales] on the NASDAQ National Issues Transactions Tape), as reported in the Wall Street Journal. (r) "Participant" means an employee of the Company who is designated by the Committee as eligible to be a Participant who receives a Purchase Award under the Plan. (s) "Purchase Award" means an award to an employee to purchase a specified number of shares of Company Stock with Purchase Loan rights. (t) "Purchase Loan" means an extension of credit to the Participant by the Company evidenced by a non-recourse promissory note for 95% of the Purchase Price of Company Stock awarded to the Participant under the Plan, bearing Interest, and secured by a pledge of the shares of Company Stock purchased by the Participant. - 4 - PAGE 5 (u) "Purchase Note" means a promissory note evidencing the Purchase Loan for the balance of the Purchase Price without recourse rights against the maker and with other terms and conditions consistent with the Plan. (v) "Purchase Price" means the average of the Market Price for the five (5) consecutive Business Days immediately preceding the day which the Committee fixes as the Commitment Date. (w) "Retirement" means termination of employment (for reasons other than Cause) on or after a Participant's 65th birthday. (x) "Subsidiary" means, with respect to any corporation, a corporation more than 50% of whose voting shares are owned directly or indirectly by the Company. 3. Company Stock Subject to Section 9 of the Plan (concerning changes in the capital structure of the Company), there shall be reserved for issuance under the Plan an aggregate of 2,200,000 shares of Company Stock, which shall be authorized but unissued shares. Shares that have been awarded under the Plan but not issued, or shares that have been issued but for whatever reason are returned to the Company, may again be awarded under the Plan. 4. Eligible Employees All present and future employees who hold positions Grade 22 (or equivalent) or higher with the Company (or any Subsidiary of the Company, whether now existing or hereafter created or acquired) shall be eligible to receive a Purchase Award with Purchase Loan rights under the Plan. The Committee shall have the power and complete discretion, as provided in Sections 5 and 10, to select among eligible employees to receive a Purchase Award and to authorize a Purchase Loan to such Participant for the purchase of Company Stock. The grant of a Purchase Award and Purchase Loan shall not obligate the Company or any Subsidiary of the Company to pay the Participant any particular amount of remuneration, to continue the employment of the Participant after the grant or to make further grants to the Participant at any time thereafter. 5. Stock Purchase Awards (a) On or as soon as practicable after the Commitment Date, the Committee shall give notice to the Participant (or to the class of Participants) eligible for an award stating (i) the number of shares of Company Stock covered by each such Purchase Award or a formula for determining the number of shares of Company Stock covered by each such Purchase Award, and (ii) the price, other terms and, if any, conditions pertaining to each such Purchase Award and Purchase Loan that must be satisfied by a Participant in order to exercise the Purchase Award. - 5 - PAGE 6 (b) A Participant shall exercise a Purchase Award and Purchase Loan rights by delivering to the Company during the Commitment Period (i) a notice stating the amount or percentage of his down payment (which shall be 5% of the Purchase Price) and his intention to deliver a Purchase Note for the balance of the Purchase Price, and (ii) the down payment and the Purchase Note. 6. Purchase Loans The Company shall, subject to paragraph (i) below, upon the Committee's recommendation, extend a Purchase Loan to a Participant upon exercise of a Purchase Award subject to the following terms and conditions: (a) The original principal amount of the Purchase Loan shall be the difference between the Participant's down payment (which shall be 5% of the Purchase Price) and the Purchase Price. The down payment shall be in cash, or, if authorized by the Committee (i) by delivery of shares of Company Stock having a Market Price equal to the required down payment on date of transfer to the Company, or (ii) by delivery to the Company of a promissory note with terms and conditions fixed by the Committee and with full recourse rights against the maker. (b) The Purchase Loan shall be due and payable as provided in the provisions of the Purchase Note executed by the Participant. The term of the Purchase Note shall not exceed a period of five (5) years. At the request of a Participant, the time for repayment of the Purchase Loan and Purchase Note shall be extended for up to one (1) year. The Purchase Note may be prepaid without penalty at any time after the third anniversary date of the Purchase Note (or second anniversary date of the Purchase Note if the initial term of the Purchase Note is four (4) years or less). (c) The Purchase Loan shall be without recourse to the Participant, shall be evidenced by the Participant's Purchase Note and shall bear Interest. The Purchase Note shall be in the form approved by the Committee and shall contain such terms and conditions, which are not inconsistent with the Plan, as the Committee shall determine in its sole and absolute discretion, and the Purchase Note shall be subject to the terms of the Plan even though not set forth in the Purchase Note. (d) Payment of the Purchase Note shall be secured by a pledge of all the shares of Company Stock acquired by the Participant upon the exercise of the Purchase Award to which the Purchase Loan relates. The Participant shall effect such pledge by delivering to the Company (i) the certificate or certificates for the acquired shares of Company Stock, accompanied by a duly executed stock power in blank, and (ii) a properly executed stock pledge agreement in such form as approved by the Committee. - 6 - PAGE 7 (e) Dividends paid on shares of Company Stock pledged as security for a Purchase Loan shall be first applied by the Company to pay Interest accrued and unpaid on the Participant's Purchase Note and then to repayment of the Purchase Note. (f) Within ten (10) Business Days after the maturity date of the Purchase Loan, or on the date as of which the Participant elects to prepay the Purchase Loan and Purchase Note as provided in Section 6(b), the Participant shall repay in full the then unpaid principal balance of the Purchase Note, accrued and unpaid Interest, applicable federal and state withholding taxes, and costs associated with the Purchase Loan. If not fully paid when due, Participant agrees to sell his pledged Company Stock to the Company at the Market Price on the maturity date, if a Business Day (or at the Market Price on the Business Day immediately preceding the maturity date if the maturity date is not a Business Day). The Participant agrees to sell to the Company, or the Company may sell on the open market (except as hereinafter provided), the number of shares of Company Stock pledged as collateral necessary to repay in full the Purchase Note, accrued and unpaid Interest, applicable federal and state withholding taxes, and costs associated with the Purchase Loan. If the pledged shares are sold on the open market, the Company shall receive and apply the sale proceeds (net of brokerage fees, collection fees and federal or state withholding taxes on income applicable to the transaction) realized from such sale toward repayment of the Purchase Note, accrued and unpaid Interest, applicable federal and state withholding taxes, and costs associated with the Purchase Loan. If, pursuant to procedures established by the Company for compliance with securities laws, the Company believes that the purchase of pledged shares by the Company in repayment of the Purchase Note, or the sale by the Company of pledged shares of Company Stock on the open market to repay the Purchase Note, would violate any provision of applicable securities laws or cause the Participant to incur a liability under Section 16(b) of the Exchange Act, the maturity date may be extended by the Committee until the first day the purchase by the Company of the pledged shares or a sale of the pledged shares on the open market can be made without violating such securities laws or incurring such liability under Section 16(b). Subject to the agreements of participants as provided in Sections 7(c) and (d) below, any shares of Company Stock remaining after repayment of the Purchase Note, accrued and unpaid Interest, applicable federal and state withholding taxes, and costs associated with the Purchase Loan, shall be transferred to the Participant. - 7 - PAGE 8 (g) The Purchase Price and the principal amount of a Participant's Purchase Loan and Purchase Note, plus accrued and unpaid Interest, shall be adjusted as follows if at any time after the second anniversary date of the Purchase Note (or first anniversary date if the initial term of the Purchase Note is four (4) years or less) the Market Price of Company Stock equals or exceeds the Purchase Price of the Participant's Company Stock by the amount specified below for a period of ten (10) consecutive Business Days: Interest Purchase Price/ Reduction Note Reduction Purchase Price + $5 Interest Spread 0 Purchase Price + $10 Interest Spread 5% Purchase Price + $15 Interest Spread 15% Purchase Price + $20 Interest Spread 25% The provisions of this paragraph and any applicable adjustments to Interest and the Purchase Note shall be applied at the time of repayment of the Purchase Note. Decreases in the Market Price of Company Stock subsequent to the completion of a measuring period shall be disregarded for purposes of the adjustments authorized by this paragraph. (h) In the event of a change in capital structure involving the transfer of any of the pledged shares of Company Stock, as provided in Section 9, such newly-acquired shares shall be pledged to the Company as substitute or additional security. (i) Notwithstanding anything in this Section 6 to the contrary, the Company shall not be required to make a Purchase Loan to a Participant if making such Purchase Loan will (i) cause the Company to violate any covenant or other similar provision in any indenture, loan agreement, or other agreement, or (ii) violate any applicable federal, state or local law. (j) Upon exercise of a Purchase Award, the delivery of the consideration to the Company for the exercise of the Purchase Award and issuance by the Company of Company Stock purchased pursuant to the Purchase Award, the Participant shall be deemed a shareholder of the Company and (subject to the terms of the Plan, the Purchase Loan, the Purchase Note and related documents) shall be entitled (i) to dividends on such Company Stock owned or pledged, and (ii) to exercise all voting rights with respect to the Company Stock purchased. 7. Termination of Employment; Change of Control; Prepayment of Purchase Loan If before the Purchase Note is repaid a Participant's employment terminates, a Change of Control occurs, or the Committee authorizes repayment of the Purchase Loan, the following provisions shall apply notwithstanding any terms in the Purchase Note to the contrary: - 8 - PAGE 9 (a) If the termination of employment is the result of death, Disability or Retirement, or if a Change of Control occurs, or with the consent of the Committee, the Participant (or the Participant's estate or personal representative in the event of death or incapacity) may either (i) prepay the Purchase Note, or (ii) continue to participate in the Plan until the maturity date of the Purchase Note. (b) If the termination of employment is the result of a mutual agreement between the Participant and the Company or is involuntary for reasons other than Cause, or if the Participant's employer ceases to be a Subsidiary in a divisive transaction involving a sale of shares or substantially all of the assets of the Subsidiary, the maturity date of the Purchase Note shall be accelerated without further action of the Committee or the Company to the date of termination of employment, and (i) Section 6(g) shall not apply, and (ii) the Participant agrees to sell his pledged Company Stock to the Company at the greater of (x) the Market Price on the date of termination of employment, and (y) an amount equal to his down payment paid to the Company pursuant to Section 6(a). (c) If the termination of employment is voluntary by the Participant or involuntary by the Company for Cause, the maturity date of the Purchase Note shall accelerate without further action of the Committee or the Company to the date of termination of employment, Section 6(g) shall not apply, and the Participant agrees to sell his pledged Company Stock to the Company at the lesser of (i) the down payment paid to the Company pursuant to Section 6(a), and (ii) the Market Price on the date of termination of employment, and the Company shall have the right to retain any excess Market Price. (d) A Participant may, with the consent of the Committee, prepay the Purchase Loan before the third anniversary date of the Purchase Note (or second anniversary date if the initial term of the Purchase Note is four (4) years or less). In such case Section 6(g) shall not apply and the Participant agrees to sell the pledged Company Stock to the Company for the lesser of (i) the down payment paid to the Company pursuant to Section 6(a), and (ii) the Market Price on the prepayment date fixed by the Committee, and the Company shall have the right to retain any excess Market Price. (e) If a Change of Control occurs, a Participant can elect to prepay his or her Purchase Note at any time before the maturity date and paragraph (d) shall not apply, and paragraphs (b) and (c) shall not apply to a termination of employment that occurs subsequent to a Change of Control. 8. Nontransferability of Purchase Awards Purchase Awards shall not be transferable. - 9 - PAGE 10 9. Change in Capital Structure (a) If the number of outstanding shares of Company Stock is increased or decreased as a result of a subdivision or consolidation of shares, the payment of a stock dividend, stock split, or any other change in capitalization effected without receipt of consideration by the Company (including, but not limited to, the creation or issuance to shareholders generally of rights, options or warrants for the purchase of common or preferred stock of the Company), the number and kind of shares of stock or securities of the Company to be subject to the Plan, the maximum number of shares or securities which may be delivered under the Plan, and other relevant provisions shall be appropriately adjusted by the Committee, whose determination shall be binding and conclusive on all persons. (b) If the Company is a party to a consolidation or a merger in which the Company is not the surviving corporation, a transaction that results in the acquisition of substantially all of the Company's outstanding stock by a single person or entity, or a sale or transfer of substantially all of the Company's assets, the Committee may take such actions with respect to outstanding unexercised Purchase Awards as the Committee deems appropriate. (c) Notwithstanding anything in the Plan to the contrary, the Committee may take the foregoing actions without the consent of any Participant, and the Committee's determination shall be conclusive and binding on all persons for all purposes. 10. Administration of the Plan The Plan shall be administered by the Committee, consisting of not less than three Directors of the Company appointed by the Board. Subject to paragraph (d) below, the Committee shall be the Compensation and Pension Committee of the Board unless the Board shall appoint another committee to administer the Plan. The Committee shall have general authority to impose any limitation or condition upon a Purchase Award the Committee deems appropriate to achieve the objectives of the Purchase Award and the Plan, and in addition, and without limitation and in addition to powers set forth elsewhere in the Plan, shall have the following specific authority: (a) The Committee shall have the power and complete discretion to determine (i) which eligible employees shall receive a Purchase Award with Purchase Loan rights, (ii) the number of shares of Company Stock to be covered by each Purchase Award, (iii) the fair market value of Company Stock, (iv) the time or times when a Purchase Award shall be granted, (v) whether a Disability exists, (vi) the manner in which payment will be made upon the exercise of a Purchase Award, and (vii) any additional requirements relating to Purchase Awards that the Committee deems appropriate. - 10 - PAGE 11 (b) The Committee may adopt rules and regulations for carrying out the Plan and for the sale or other disposition of Company Stock acquired pursuant to the Plan. The interpretation and construction of any provision of the Plan by the Committee shall be final and conclusive. The Committee may consult with counsel, who may be counsel to the Company, and shall not incur any liability for any action taken in good faith in reliance upon the advice of counsel. (c) A majority of the members of the Committee shall constitute a quorum, and all actions of the Committee shall be taken by a majority of the members present. Any action may be taken by a written instrument signed by all of the members, and any action so taken shall be fully effective as if it had been taken at a meeting. (d) The Board from time to time may appoint members previously appointed and may fill vacancies, however caused, in the Committee. Insofar as it is necessary to satisfy the requirements of Section 16(b) of the Exchange Act and Rule 16b-3 thereunder, no member of the Committee shall be eligible to participate in the Plan or in any other plan of the Company or any Parent or Subsidiary of the Company that entitles participants to acquire stock, stock options or stock appreciation rights of the Company or any Parent or Subsidiary of the Company, and no person shall become a member of the Committee if, within the preceding one-year period, the person shall have been eligible to participate in such a plan. 11. Effective Date of the Plan This Plan shall be effective as of December 12, 1990 and shall be submitted to the shareholders of the Company for approval. Until (a) the Plan has been approved by the Company's shareholders, (b) the shares issuable under the Plan have been registered with the Securities and Exchange Commission, (c) if the Company's common stock is otherwise so listed, accepted for listing on the New York Stock Exchange (or other national stock exchange) upon notice of issuance, and (d) the requirements of any applicable state securities laws have been met, no Purchase Award shall be granted or Purchase Loan authorized by the Committee. 12. Termination, Modification If not sooner terminated by the Board, this Plan shall terminate at the close of business on December 12, 2000. No Purchase Awards shall be made under this Plan after termination. The Board may terminate the Plan or may amend the Plan in such respects as it shall deem advisable; provided, however, that, if necessary to satisfy the requirements of Section 16(b) of the Exchange Act, the New York Stock Exchange or applicable state law, the shareholders of the Company must approve any amendment that would (a) materially increase the benefits accruing to Participants under the Plan, (b) materially increase the number of shares of Company Stock that may be issued - 11 - PAGE 12 under the Plan, or (c) materially modify the requirements of eligibility for participation in the Plan. A termination or amendment of the Plan shall not, without the consent of the Participant, affect a Participant's rights under a Purchase Award previously granted to him. 13. Notice All notices and other communications required or permitted to be given under this Plan shall be in writing and shall be deemed to have been duly given if delivered personally or mailed first class, postage prepaid, as follows: (a) if to the Company - at its principal business address to the attention of the Secretary; (b) if to any Participant - at the last address of the Participant known to the sender at the time the notice or other communication is sent. 14. Governing Law The terms of this Plan shall be governed by the laws of the Commonwealth of Virginia. - 12 - EX-10 8 PAGE 1 Exhibit 10.11 Appendix A CSX CORPORATION 1987 Long-Term Performance Stock Plan as Amended and Restated December 14, 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 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 - 2 - PAGE 3 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 are disclosed in Addendum I. 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. 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 - 3 - PAGE 4 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. 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. - 4 - PAGE 5 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. 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. - 5 - PAGE 6 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 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; (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). 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. - 6 - PAGE 7 For purposes of this section 9, written notice must be received by the Corporate Secretary of the Company between the beginning of the second year and the end of the tenth year 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 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 - 7 - PAGE 8 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 to 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. 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. - 8 - PAGE 9 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. 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 - 9 - PAGE 10 eligible to retire with the ability to immediately begin 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 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 his guardian or legal representative. - 10 - PAGE 11 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. 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 - 11 - PAGE 12 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. 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. - 12 - PAGE 13 b. "Change of Control" -- shall mean any of the following: (i) Stock Acquisition. The acquisition, by any individual, entity or group [within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")] (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock"), or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company; (B) any acquisition by the Company; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 19(b); or (ii) Board Composition. Individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or (iii) Business Combination. Approval by the shareholders of the Company of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company or its principal subsidiary that is not subject, as a matter of law or contract, to approval by the Interstate Commerce Commission or any successor agency or regulatory body having jurisdiction over such transactions (the "Agency") (a "Business Combination"), in each case, unless, following such Business Combination: (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or its principal subsidiary or all or substantially all of the assets of the Company or its principal subsidiary either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; - 13 - PAGE 14 (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and (C) at least a majority of the members of the board of directors resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or (iv) Regulated Business Combination. Approval by the shareholders of the Company of a Business Combination that is subject, as a matter of law or contract, to approval by the Agency (a "Regulated Business Combination") unless such Business Combination complies with clauses (A), (B) and (C) of subsection (iii) of this Section 19(b); or (v) Liquidation or Dissolution. Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company or its principal subsidiary. 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. Addendum I 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. - 15 - EX-10 9 PAGE 1 Exhibit 10.12 DEFERRED COMPENSATION PROGRAM FOR EXECUTIVES OF CSX CORPORATION AND AFFILIATED COMPANIES AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1995 1. Purpose The purpose of this Program is to provide eligible executives with an opportunity to supplement their retirement income. This Program is intended to benefit a select group of management or highly compensated employees. 2. Definitions 2.1 "Administrator" shall mean the Corporation. 2.2 "Affiliated Company" shall mean the Corporation and any company or corporation directly or indirectly controlled by the Corporation which the Committee designates for participation in this Program in accordance with Section 13.2. 2.3 "Award" shall mean, for any year, the amount awarded to an employee of an Affiliated Company for that year and, in the absence of a Deferral Agreement with respect to such amount, payable to him in the succeeding year under the MICP, including any special incentive award. 2.4 "Board" shall mean the Board of Directors of the Corporation. 2.5 "Change of Control" shall mean any of the following: (a) Stock Acquisition. The acquisition, by any individual, entity or group [within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")] (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Corporation (the "Outstanding Corporation Common Stock"), or (ii) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Corporation Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Corporation; (ii) any acquisition by the Corporation; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation; or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section XI(5); or (b) Board Composition. Individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such - 1 - PAGE 2 individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or (c) Business Combination. Approval by the shareholders of the Corporation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Corporation or its principal subsidiary that is not subject, as a matter of law or contract, to approval by the Interstate Commerce Commission or any successor agency or regulatory body having jurisdiction over such transactions (the "Agency") (a "Business Combination"), in each case, unless, following such Business Combination: (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or its principal subsidiary or all or substantially all of the assets of the Corporation or its principal subsidiary either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities, as the case may be; (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of directors resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or - 2 - PAGE 3 (d) Regulated Business Combination. Approval by the shareholders of the Corporation of a Business Combination that is subject, as a matter of law or contract, to approval by the Agency (a "Regulated Business Combination") unless such Business Combination complies with clauses (i), (ii) and (iii) of subsection (c) of this Section XI(5); or (e) Liquidation or Dissolution. Approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation or its principal subsidiary. 2.6 "Committee" shall mean the committee appointed pursuant to Section 13.1 to administer the Program 2.7 "Corporation" shall mean CSX Corporation, a Virginia corporation, and any successor thereto by merger, purchase or otherwise. 2.8 "Deferral Agreement" shall mean a completed agreement, including any attachments and appendices thereto, in the form determined by the Committee, between an Eligible Executive and the Affiliated Company of which he is an employee, under which the Eligible Executive agrees to defer all or a portion of his Award in accordance with the provisions of Section 3. 2.9 "Deferral Date" shall mean, with respect to any Deferral Agreement entered into by an Eligible Executive, the first day of the month in which the Award subject to the Deferral Agreement would be payable to the Eligible Executive in the absence of such Deferral Agreement. 2.10 "Eligible Executive" shall mean, for any year, an employee of an Affiliated Company who is in salary grades 22 through 40 as of (a) December 30th of such year or (b) for calendar years beginning on or after January 1, 1986, the date in such year he retired from the Affiliated Companies or terminated on account of disability, as determined by the Committee, provided, however, that the Committee, in its sole discretion, may designate any other employee of an Affiliated Company as an Eligible Executive for such year. 2.11 "Equivalent" shall mean of equal present or accumulated value based on the interest rates set forth in the applicable Deferral Agreements. In determining Equivalent values, only the value of benefits for which the eligibility requirements have been met shall be included. 2.12 "MICP" shall mean the Affiliated Companies' Management Incentive Compensation Plans, as from time to time in effect. 2.13 "Normal Retirement Date" for a Participant shall mean the later of: (a) the last day of the month in which his 62nd birthday occurs, or (b) the earlier of (i) the last day of the month preceding the 2nd anniversary of the Participant's earliest Deferral Date or (ii) the last day of the month in which is 65th birthday occurs. 2.14 "Participant" shall mean an Eligible Executive who elects to defer a portion of his Award in accordance with the provisions of Section 3. 2.15 "Program" shall mean this Deferred Compensation Program for Executives of CSX Corporation and Affiliated Companies. 2.16 "Service" shall mean an employee's months of continuous employment with the Affiliated Companies. In the event the employee has a break in his continuous employment, his period of employment prior to the break shall be credited to the employee in accordance with the rules governing breaks in service under the CSX Corporation Pension Plan. - 3 - PAGE 4 2.17 "Trust" shall mean the CSX Corporation Nonqualified Plan Trust or such other trust which will substantially conform to the terms of the Internal Revenue Service model trust as described in Revenue Procedure 92-64, 1992-2 C.B.422. Except as provided in Section 16, the Corporation is not obligated to make any contribution to the Trust. 2.18 "Valuation Date" shall mean the last day of each calendar quarter and such other dates as the Administrator deems necessary or appropriate to value the Participants' benefits under this Program. 3. Deferral of Awards 3.1 At any time prior to the close of business on December 30 in any calendar year, an Eligible Executive may elect to defer all or a portion of his Award, if any, for that year. Such election shall be made by filing a Deferral Agreement with the Committee on or before the close of business on December 30 of the calendar year for which the Award is made. In the event that December 30 does not fall on a weekday, such filing must be made by the close of business on the last prior business day. 3.2 Subject to the provisions of Sections 3.3 and 3.4: (a) an Eligible Executive in 1985 may elect to defer up to 100% of his 1985 Award; (b) an Eligible Executive in 1986 may elect to defer up to 100% of his 1986 Award; (c) an Eligible Executive in 1988 may elect to defer up to 100% of his 1988 Award; and (d) an Eligible Executive in 1989 may elect to defer up to 100% of his 1989 Award. 3.3 The minimum amount which an Eligible Executive may defer in any year shall be the lesser of $5,000 or the maximum amount determined under Section 3.2. If an Eligible Executive elects to defer less than this amount, his election shall not be effective. 3.4 In its sole discretion, the Committee may, at any time, impose additional limits on the maximum amount which an Eligible Executive may elect to defer under this Program in any year or may impose additional requirements on the Eligible Executive's right to defer the maximum amount under this Program in any year. 3.5 An Eligible Executive's election to defer all or a portion of his Award shall be effective on the last day such deferral may be elected, under Section 3.1, for the year for which the Award is made. An Eligible Executive may revoke or change his election to defer all or a portion of his Award at any time prior to the date the election becomes effective. Any such revocation or change shall be made in a form and manner determined by the Committee. 4. Normal Retirement Benefit A Participant who retires from employment with the Affiliated Companies on his Normal Retirement Date shall receive a benefit Equivalent to the sum of the amounts set forth in the Participant's Deferral Agreement(s) plus accrued interest. The benefit shall be paid in 180 equal monthly installments commencing on the first day of the month next following the Participant's retirement date, but in no event prior to the first day of the month next following the Participant's last Deferral Date, unless the Participant elects to receive his benefit in accordance with Section 9 of this Program. - 4 - PAGE 5 5. Delayed Retirement Benefit A Participant who retires or otherwise terminates his employment with the Affiliated Companies after his Normal Retirement Date shall receive a benefit equal to the benefit he would have received under Section 4 had his benefit commenced on his Normal Retirement Date, increased by 5/6 of 1% for each complete calendar month between his Normal Retirement Date and the date his benefit commences. The benefit shall be paid in 180 equal monthly installments commencing on the first day of the month next following the Participant's termination of employment, but in no event prior to the first day of the month next following the Participant's last Deferral Date, unless the Participant elects to receive his benefit in accordance with Section 9 of this Program. 6. Early Retirement Benefit A Participant who has attained age 55, has completed 120 months of Service and terminates his employment with the Affiliated Companies prior to his Normal Retirement Date shall receive a benefit commencing on the first day of the month following his Normal Retirement Date but in no event prior to the first day of the month following the Participant's last Deferral Date. The Participant's benefit shall be equal to the benefit the Participant would have received under Section 4 had he terminated his employment on his Normal Retirement Date. However, the Participant may elect a lump sum under Section 9 or may elect, in a time and manner determined by the Committee, to have payment of his benefit commence on the first day of any month preceding his Normal Retirement Date, and following the latest of (i) his termination of employment, (ii) 24 months after his earliest Deferral Date and (iii) the first of the month following his last Deferral Date, in which event the amount of his benefit shall be reduced by 5/6 of 1% for each complete calendar month between the date his benefit commences and the first day of the month next following his Normal Retirement Date. However, in no event shall the monthly benefit be less than an amount Equivalent to the Participant's deferrals with accrued interest. Benefits under this Section 6 shall be paid in 180 equal monthly installments, unless the Participant elects to receive his benefit in accordance with Section 9 of this Program. 7. Separation Benefit 7.1 A Participant who terminates his employment with the Affiliated Companies prior to being eligible for a benefit under Sections 4 or 6, but after having completed 120 months of Service, shall receive a monthly benefit commencing on the first day of the month next following his Normal Retirement Date; provided, however, that a Participant shall not be eligible for a benefit under this Section 7.1 if the Participant terminates employment without the consent of the Affiliated Companies. The benefit shall be equal to the monthly benefit the Participant would have received under Section 4 had he terminated employment on his Normal Retirement Date. However, the Participant may elect a lump sum pursuant to Section 9, or may elect, in a time and manner determined by the Committee, to have monthly benefits commence on the first day of any month, prior to his Normal Retirement Date, and following the latest of (i) his termination of employment with the Affiliated Companies, (ii) his 55th birthday or (iii) the last day of the month prior to the 2nd anniversary of his earliest Deferral Date, in which event the amount of his benefit shall be reduced by 5/6 of 1% for each complete calendar month between the date his benefit commences and the first day of the month next following his Normal Retirement Date. However, in no event shall the monthly - 5 - PAGE 6 benefit be less than an amount Equivalent to the Participant's deferred amounts with accrued interest. Monthly benefits under this Section 7.1 shall be paid in 180 equal monthly installments. 7.2 A Participant who terminates his employment with the Affiliated Companies, other than on account of death, and is not eligible for a benefit under Section 7.1 shall receive a single sum payment equal to the sum of the amounts the Participant deferred under his Deferral Agreements plus accrued interest. However, if the Participant terminates his employment with the Affiliated Companies on account of a disability within the meaning of Section 8.1, he shall receive a benefit under this Section 7.2 only if the Participant elects, in a time and manner determined by the Committee, to receive such benefit and to cease accruing Service under Section 8.1. The single sum payment shall be made on the first day of the month next following the Participant's termination of employment, or as soon as practicable thereafter. The Participant shall not receive any other benefits under this Program. 8. Disability 8.1 A Participant who, in the sole judgment of the Committee, becomes totally and permanently disabled prior to his termination of employment with the Affiliated Companies, and does not make an election under Section 7.2 to receive a benefit under such Section, shall continue to accrue Service during his period of disability as if he remained an active employee. Such a Participant shall be eligible to receive a benefit under Sections 4, 6 or 7.1 when he meets the age and Service requirements for such a benefit. 8.2 The Committee may, in its sole discretion, require a Participant to submit to a medical examination by a physician approved by the Committee, or present other evidence satisfactory to the Committee, to establish the existence or continuance of his disability. The Committee may require such medical examination or other evidence not more than once per year. A Participant who refuses to submit to any required medical examination or to present any other required evidence under this Section 8.2 shall not be disabled for purposes of this Program and shall only be eligible to receive the benefit he would have received under the Program had he terminated his employment with the Affiliated Companies immediately prior to the date of such request. 9. Single Sum Payments A Participant who is eligible to receive a benefit under Sections 4, 5, 6, 7.1 or 8.1 of the Program but whose benefits hereunder have not yet commenced may, with the consent of the Administrator, elect, in a time and manner determined by the Administrator, to receive his benefit in the form of a single sum. The single sum shall be in the amount of the Participant's deferred amounts plus accrued interest, provided that, in the case of a Participant then eligible for immediate commencement of monthly benefits, such single sum shall not be less than an amount Equivalent to the value of such monthly benefits. Such single sum shall be paid on the first day of the fourth month following the later of (i) the Participant's termination of employment with the Affiliated Companies, or (ii) the date such election is received by the Committee. Notwithstanding any other provision hereof, such amount shall be determined as of a date three months prior to the date of payment and shall not accrue interest beyond such earlier date. - 6 - PAGE 7 10. Hardship Withdrawal 10.1 While employed by the Affiliated Companies, a Participant may, in the event of a severe financial hardship, request a withdrawal of an amount which does not exceed the single sum amount determined in Section 9. The withdrawal shall be made in a time and manner determined by the Administrator, and shall not be for a greater amount than the amount required to meet the financial hardship, and shall be subject to approval by the Administrator. 10.2 For purposes of this Section 10, financial hardship shall include: (a) Education of a dependent child where the Participant can show that without the withdrawal under this Section 10 the education would be unavailable to the child; (b) Illness of the Participant or his dependents, resulting in severe financial hardship to the Participant; (c) The loss of the Participant's home or it contents, to the extent not reimbursable by insurance or otherwise, if such loss results in a severe financial hardship to the Participant; and (d) Any other extraordinary circumstances of the Participant approved by the Committee if such circumstances would result in a present or impending critical financial need which the Participant is unable to satisfy with funds reasonably available from other sources. 10.3 If a Participant makes a withdrawal under this Section 10, any other benefit which he may be entitled to under this Program on his termination of employment shall be appropriately adjusted to take into account the amount the Participant received under this Section 10. 11. Death Benefits 11.1 Except as provided in Section 11.10(b), if a Participant dies while employed by an Affiliated Company, his beneficiary shall be eligible to receive a single sum benefit equal to the greatest of: (a) three times the sum of the amount(s) the Participant deferred under his Deferral Agreement(s); (b) the amounts the Participant deferred under his Deferral Agreement(s) plus accrued interest; or (c) an amount Equivalent to the monthly benefit the Participant could have received under the Program, if any, had he terminated his employment with the Affiliated Companies on the day immediately preceding his death and elected to begin receiving the benefit on the first day of the following month. The benefit is payable on the first day of the month next following the date of the Participant's death, and shall be in lieu of all other benefits payable under this Program, other than any benefit payable under Section 11.6. 11.2 If a Participant who has terminated his employment with the Affiliated Companies after becoming eligible for a benefit under Sections 4, 5 or 6, dies prior to the commencement of any benefit under this Program, his beneficiary shall receive a benefit under Section 11.1 11.3 If a Participant who is totally and permanently disabled under Section 8.1 dies prior to receiving a benefit under this Program, his beneficiary shall receive a benefit under Section 11.1 - 7 - PAGE 8 11.4 If a Participant who is eligible for a benefit under Section 7.1 dies prior to receiving a benefit, his beneficiary will receive a benefit based on the greater of the amounts determined under Sections 11.1(b) and 11.1(c). 11.5 If a Participant dies after commencing to receive a benefit, other than a benefit under Section 7.2, but prior to receiving all remaining benefits due, the remaining benefits shall be paid to the Participant's beneficiary or contingent beneficiary, whichever is applicable. 11.6 In addition to any other benefit payable under this Section 11, in the case of a Participant (i) who dies while employed by an Affiliated Company after becoming eligible for benefits under Sections 4, 5, or 6 hereof, or (ii) who terminates employment while eligible for a benefit under Section 4, 5 or 6 of the Program and then dies, his beneficiary shall be eligible to receive a benefit of $10,000, payable in a single sum. This benefit shall be payable as soon as practicable following the presentation to the Administrator, and the Administrator's examination and approval of, any information or material, including proof of death of the Participant, the Administrator may request. Notwithstanding anything to the contrary, a benefit shall not be payable on account of the death of a Participant who received a single sum benefit under Sections 12 or 14 of the Program. 11.7 A Participant may, in a time and manner determined by the Administrator, designate a beneficiary and one or more contingent beneficiaries (which may include the Participant's estate) to receive any benefits which may be payable under this Section 11. If the Participant fails to designate a beneficiary or contingent beneficiary, or if the beneficiary and the contingent beneficiaries fail to survive the Participant, such benefits shall be paid to the Participant's estate. The Participant may also designate a remainder beneficiary to receive any benefits which may be payable under Section 11.9. 11.8 A Participant may revoke or change any designation made under Section 11.7 in a time and manner determined by the Administrator. 11.9 If, pursuant to Section 11.7, payments commence to a beneficiary or contingent beneficiary and if such beneficiary or contingent beneficiary dies prior to receiving all payments due under this Plan, any remaining payments shall be made to the Participant's remainder beneficiary. If, at the date of such death, there is no surviving remainder beneficiary, the remaining benefits hereunder shall be paid to the estate of the beneficiary or contingent beneficiary previously in receipt of benefits hereunder. 11.10 (a) If any benefits are payable under this Section 11 to an individual other than the Participant's spouse or child under age 21 (or child under age 25 who is a full-time student at an accredited institution of higher education), the benefit shall be paid in the form of a single sum. (b) If benefits become payable to the Participant's spouse or his child under age 21 (or his child under age 25 who is a full- time student at an accredited institute of higher education), such benefits (other than benefits under Section 11.6) shall be payable in 180 monthly installments Equivalent to the single sum amount determined under Section 11.1 through 11.5 hereof, as applicable. Monthly benefits shall commence on the first day of the month following the Participant's death. The Participant may elect, in a time and manner determined by the Administrator to have any amounts which may be payable under the Program paid in accordance with Section 11.10(a). - 8 - PAGE 9 (c) Notwithstanding anything to the contrary in this Program, if a Participant's child under age 21 (or child under age 25 who is a full-time student at an accredited institute of higher education) is receiving a benefit under this Program in the form of installment payments, upon his attaining age 21 (or age 25 or ceasing to be a full-time student at an accredited institute of higher education) he shall receive a single sum Equivalent to his remaining installments in lieu of receiving such remaining installments. 12. Special Distribution Rules 12.1 Notwithstanding anything to the contrary in this Program, if (a) a Participant becomes the owner, director or employee of a competitor of the Affiliated Companies, (b) his employment is terminated by an Affiliated Company on account of actions by the Participant which are detrimental to the interests of any Affiliated Company, or (c) he engages in conduct subsequent to the termination of his employment with the Affiliated Companies which the Committee determines to be detrimental to the interests of an Affiliated Company, then the Committee may, in its sole discretion, pay a Participant a single sum payment equal to the sum of the amounts the Participant deferred under his Deferral Agreements plus accrued interest, reduced by an amount Equivalent to any payments the Participant may already have received under this Program. However, if the Participant is receiving a benefit under the Program, or could be receiving an immediate benefit under the Program, the single sum shall not be less than an amount Equivalent to the remaining monthly benefit the Participant is, or could be, receiving. The single sum payment shall be made as soon as practicable following the Participant's becoming an owner, director or employee of a competitor, his termination of employment or the Committee's determination of detrimental conduct, as the case may be, and shall be in lieu of all other benefits which may be payable to the Participant under this Program. 12.2 Notwithstanding anything to the contrary contained herein, the Corporation may delay payment of a benefit under this Program to any Participant who is determined to be among the top five most highly paid executives for the year the benefit under this Program would otherwise be paid; provided, however, if a Participant's payment is delayed, the benefit to which he is entitled will not decrease after the date it would otherwise be distributed. 13. Administration 13.1 This Program shall be administered by the Compensation Committee of the Board. Certain administrative functions, as set forth in this Program, shall be the responsibility of the Administrator. The Committee shall interpret the Program, establish regulations to further the purposes of the Program and take any other action necessary to the proper operation of the Program. 13.2 The Board, in its sole discretion and upon such terms as it may prescribe, may permit any company or corporation directly or indirectly controlled by the Corporation to participate in the Program for such periods as the Committee may determine. 13.3 The Committee shall provide adequate notice in writing to any Participant, beneficiary, contingent beneficiary or remainder beneficiary whose claim for benefits under this Program has been denied, setting forth the specific reasons for such denial. A reasonable opportunity shall be afforded - 9 - PAGE 10 to any such Participant, beneficiary, contingent beneficiary or remainder beneficiary for a full and fair review by the Committee of its decision denying the claim. The Committee's decision on any such review shall be final and binding on the Participant, beneficiary, contingent beneficiary, remainder beneficiary and all other interested persons. 13.4 All acts and decisions of the Committee shall be final and binding upon all Participants and employees of the Affiliated Companies. 14. Termination and Amendment of the Program 14.1 The Board may, in its sole discretion, terminate this Program and the related Deferral Agreement(s) at any time. In the event the Program and related Deferral Agreement(s) are terminated, Participants shall receive a single sum payment equal to the sum of the amounts they deferred under their Deferral Agreements plus accrued interest, reduced by an amount Equivalent to any payments the Participant may already have received under this Program. However, if the Participant is receiving a benefit under the Program, or could be receiving an immediate benefit under the Program, the single sum shall not be less than an amount Equivalent to the monthly benefit the Participant is, or could be, receiving. The single sum payment shall be made as soon as practicable following the date the Program is terminated and shall be in lieu of any other benefit which may be payable to the Participant under this Program. 14.2 The Board, in its sole discretion, may amend this Program and the related Deferral Agreements in any way on thirty (30) days prior notice to the Participants. If any amendment to this Program or to the Deferral Agreements shall adversely affect the rights of a Participant, the Participant must consent in writing to such amendment prior to its effective date. If the Participant does not consent to the amendment, the Program, shall be deemed to be terminated with respect to the Participant and he shall receive a single sum payment in accordance with Section 14.1. 14.3 Notwithstanding anything to the contrary in this Section 14, the Board must act to terminate or amend the Program or the Deferral Agreements in a uniform and nondiscriminatory manner. 15. Miscellaneous 15.1 The existence of this Program or a Deferral Agreement does not constitute a contract for continued employment between an Eligible Executive or a Participant and an Affiliated Company. The Affiliated Companies reserve the right to modify an Eligible Executive's or Participant's compensation and to terminate an Eligible Executive or a Participant for any reason and at any time, notwithstanding the existence of this Program or of a Deferral Agreement. The Affiliated Companies reserve the right not to grant Awards to Eligible Executives and Participants for any reason. 15.2 A Participant's rights to benefit payments under the Plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of the Participant, his beneficiary, contingent beneficiaries, remainder beneficiary, heirs or personal representative. 15.3 Except for Section 16 herein, nothing contained in this Program or in a Deferral Agreement shall require the Affiliated Companies to segregate any monies from their general funds, or to create any trusts, or to make any special deposits for any amounts to be paid to any Participant, beneficiary, contingent beneficiary or remainder beneficiary. Neither the Participant, his beneficiary, contingent beneficiaries, remainder beneficiary, - 10 - PAGE 11 heirs or personal representatives shall have any right, title or interest in or to any funds of the Affiliated Companies on account of this Program or on account of having completed a Deferral Agreement. 15.4 All payments under this Program shall be net of an amount sufficient to satisfy any federal, state or local withholding tax requirements. 15.5 Prior to paying any benefit under this Program, the Committee may require the Participant, beneficiary, contingent beneficiary or remainder beneficiary to provide such information or material as the Committee, in its sole discretion, shall deem necessary for it to make any determination it may be required to make under this Program. The Committee may withhold payment of any benefit under this Program until it receives all such information and material and is reasonably satisfied of its correctness and genuineness. 15.6 Each Participant shall have the status of a general unsecured creditor of the Affiliated Companies, and this Program constitutes a mere promise by the Affiliated Companies to make benefit payments in the future. 15.7 The Program is intended to be unfunded for tax purposes and for purposes of Title I of ERISA. 15.8 The masculine pronoun shall mean the feminine pronoun and all singular shall include the plural wherever appropriate. 15.9 The terms of this Program and any Deferral Agreement shall be governed by the laws of the Commonwealth of Virginia. 15.10 The invalidity or unenforceability of any provision of this Program or of a Deferral Agreement shall in no way affect the validity or enforceability of any other provision. 16. Change of Control 16.1 If a Change of Control has occurred, the Committee shall cause the Corporation to contribute to the Trust, within 7 days of such Change of Control, a lump sum payment equal to the aggregate value of the amount each Participant would be eligible to receive (determined under 16.2 below) as of a Valuation Date coinciding with or next preceding the date of Change of Control to the extent such amounts are not already in the Trust; provided, however, amounts relating to those Participants who receive a lump sum payment under 16.2 below shall be excluded from the aggregate value determination. The aggregate value of the amount of the lump sum to be contributed to the Trust pursuant to this Section 16 shall be determined by the Corporation's accountants after consultation with the entity then maintaining the Program's records. Thereafter, the Corporation's accountants shall annually determine for each Participant not receiving a lump sum payment pursuant to subsection 16.2 below the amount which would be payable under such subsection were a Change of Control to occur at the date of such determination. To the extent that the value of the assets held in the Trust relating to this Program do not equal the amount described in the preceding sentence, at the time of the valuation, as determined by the Corporation's accountants, the Corporation shall make a lump sum contribution to the Trust equal to the difference. 16.2 In the event a Change of Control has occurred, each Participant not making an election under 16.3 below shall receive, and the Committee shall cause the Corporation to pay within 7 days of such Change of Control, a lump sum payment equal to the amount the Participant would have been entitled to receive determined under Section 6 had he retired early and selected a lump sum payment. The amount of each Participant's lump sum - 11 - PAGE 12 payment shall be determined by the Corporation's accountants after consultation with the entity then maintaining the Program's records. 16.3 Each Participant in a manner determined by the Committee may elect by September 1, 1995, but in no event later than a Change of Control if earlier, to have amounts and benefits determined and payable under the terms of the Program as if a Change of Control had not occurred. New Participants of the Program may elect in a time and manner determined by the Committee but in no event later than a Change of Control to have amounts and benefits determined and payable under the terms of the Plan as if a Change of Control had not occurred. 16.4 Notwithstanding anything in this Program to the contrary, each Participant who has made an election under 16.3 above may elect within 90 days following a Change of Control, in a time and manner determined by the Committee, to receive a lump sum payment calculated under the provisions of 16.2 above, except that such calculated amount shall be reduced by 5% and such reduction shall be irrevocably forfeited to the Corporation by the Participant. Furthermore, as a result of such election, the Participant shall no longer be eligible to participate or otherwise benefit from the Program. Payments under this subsection 16.4 shall be made not later than 7 days following receipt by the Corporation of the Participant's election. The Committee shall, no later than 7 days after a Change of Control has occurred, give written notification to each Participant eligible to make an election under this subsection 16.4, that a Change of Control has occurred and informing such Participant of the availability of the election. - 12 - EX-10 10 PAGE 1 Exhibit 10.13 SUPPLEMENTARY SAVINGS AND INCENTIVE AWARD DEFERRAL PLAN FOR ELIGIBLE EXECUTIVES OF CSX CORPORATION AND AFFILIATED COMPANIES As Amended and Restated January 1, 1995 TABLE OF CONTENTS Page ARTICLE 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 1 1.1 Account. . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Administrator. . . . . . . . . . . . . . . . . . . . . . 1 1.3 Affiliated Company . . . . . . . . . . . . . . . . . . . 1 1.4 Award. . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.5 Award Deferral Agreement . . . . . . . . . . . . . . . . 1 1.6 Board of Directors . . . . . . . . . . . . . . . . . . . 1 1.7 Change of Control. . . . . . . . . . . . . . . . . . . . 1 1.8 Code . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.9 Committee. . . . . . . . . . . . . . . . . . . . . . . . 4 1.10 Compensation . . . . . . . . . . . . . . . . . . . . . . 4 1.11 Corporation. . . . . . . . . . . . . . . . . . . . . . . 4 1.12 Deferral Agreement . . . . . . . . . . . . . . . . . . . 4 1.13 Distribution Option(s) . . . . . . . . . . . . . . . . . 5 1.14 Effective Date . . . . . . . . . . . . . . . . . . . . . 5 1.15 Eligible Executive . . . . . . . . . . . . . . . . . . . 5 1.16 Matching Credits . . . . . . . . . . . . . . . . . . . . 6 1.17 Member . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.18 MICP . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.19 Participating Company. . . . . . . . . . . . . . . . . . 6 1.20 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.21 Salary Deferrals . . . . . . . . . . . . . . . . . . . . 6 1.22 Salary Deferral Agreement. . . . . . . . . . . . . . . . 6 1.23 Salary Deferral Percentage . . . . . . . . . . . . . . . 6 1.24 SMICP. . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.25 Tax Savings Thrift Plan. . . . . . . . . . . . . . . . . 6 1.27 Valuation Date . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE 2. MEMBERSHIP AND DEFERRAL AGREEMENTS. . . . . . . . . . 8 2.1 In General . . . . . . . . . . . . . . . . . . . . . . . 8 2.2 Modification of Initial Deferral Agreement . . . . . . . 8 2.3 Termination of Membership; Re-employment . . . . . . . . 9 2.4 Change in Status . . . . . . . . . . . . . . . . . . . . 10 ARTICLE 3. AWARD DEFERRAL PROGRAM. . . . . . . . . . . . . . . . 11 3.1 Filing Requirements. . . . . . . . . . . . . . . . . . . 11 3.2 Amount of Deferral . . . . . . . . . . . . . . . . . . . 12 3.3 Crediting to Account . . . . . . . . . . . . . . . . . . 12 - 1- PAGE 2 ARTICLE 4. SALARY DEFERRAL PROGRAM . . . . . . . . . . . . . . . 13 4.1 Filing Requirements. . . . . . . . . . . . . . . . . . . 13 4.2 Salary Deferral Agreement. . . . . . . . . . . . . . . . 13 4.3 Amount of Salary Deferrals . . . . . . . . . . . . . . . 13 4.4 Changing Salary Deferrals. . . . . . . . . . . . . . . . 15 4.5 Certain Additional Credits . . . . . . . . . . . . . . . 15 ARTICLE 5. MAINTENANCE OF ACCOUNTS . . . . . . . . . . . . . . . 17 5.1 Adjustment of Account. . . . . . . . . . . . . . . . . . 17 5.2 Investment Performance Elections . . . . . . . . . . . . 18 5.3 Changing Investment Elections. . . . . . . . . . . . . . 18 5.4 Vesting of Account . . . . . . . . . . . . . . . . . . . 19 5.5 Individual Accounts. . . . . . . . . . . . . . . . . . . 19 ARTICLE 6. PAYMENT OF BENEFITS . . . . . . . . . . . . . . . . . 20 6.1 Commencement of Payment. . . . . . . . . . . . . . . . . 20 6.2 Method of Payment. . . . . . . . . . . . . . . . . . . . 22 6.3 Applicability. . . . . . . . . . . . . . . . . . . . . . 25 6.4 Hardship Withdrawal. . . . . . . . . . . . . . . . . . . 25 6.5 Designation of Beneficiary . . . . . . . . . . . . . . . 25 6.6 Special Distribution Rules . . . . . . . . . . . . . . . 26 6.7 Status of Account Pending Distribution . . . . . . . . . 26 6.8 Installments and Withdrawals Pro-Rata. . . . . . . . . . 27 6.9 Change of Control. . . . . . . . . . . . . . . . . . . . 27 ARTICLE 7. AMENDMENT OR TERMINATION. . . . . . . . . . . . . . . 30 7.1 Right to Terminate . . . . . . . . . . . . . . . . . . . 30 7.2 Right to Amend . . . . . . . . . . . . . . . . . . . . . 30 7.3 Uniform Action . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE 8. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . 31 8.1 No Funding . . . . . . . . . . . . . . . . . . . . . . . 31 8.2 No Contract of Employment. . . . . . . . . . . . . . . . 31 8.3 Withholding Taxes. . . . . . . . . . . . . . . . . . . . 31 8.4 Nonalienation. . . . . . . . . . . . . . . . . . . . . . 31 8.5 Administration . . . . . . . . . . . . . . . . . . . . . 31 8.6 Construction . . . . . . . . . . . . . . . . . . . . . . 32 ARTICLE 9. POST-SECONDARY EDUCATION SUB-ACCOUNTS . . . . . . . . 34 9.1 Post-Secondary Education Sub-accounts. . . . . . . . . . 34 9.2 Distribution of Post-Secondary Education Sub- accounts . . . . . . . . . . . . . . . . . . . . . . . . 35 9.3 Construction . . . . . . . . . . . . . . . . . . . . . . 36 - 2 - PAGE 3 INTRODUCTION This Supplementary Savings and Incentive Award Deferral Plan for Eligible Executives of CSX Corporation and Affiliated Companies (the "Plan") is effective October 1, 1987. This restatement of the Plan is effective January 1, 1995. This Plan is generally intended to provide certain executives eligible to participate in the Tax Savings Thrift Plan for Employees of CSX Corporation and Affiliated Companies (the "Savings Plan") with an opportunity to defer a portion of their salary, and/or award(s) under the Management Incentive Compensation Program ("MICP") and/or the Senior Management Incentive Compensation Program ("SMICP") until their retirement or other termination of employment and to restore employer matching contributions lost under the Savings Plan because of the application of Sections 401(a)(17), 401(k), 401(m) and 415 of the Internal Revenue Code of 1986, as amended. Commencing with respect to MICP awards paid and salary earned after 1990, eligible executives may, if they so elect, designate all or a portion of such deferrals to be used for payment of post-secondary education expenses for one or more members of their families. The Plan is unfunded and is maintained by CSX Corporation and Affiliated Companies primarily for the purpose of providing deferred compensation for a select group of management or highly- compensated employees. The Plan as restated effective January 1, 1995 reads as hereinafter set forth. - 3 - PAGE 4 ARTICLE 1. DEFINITIONS 1.1 Account shall mean the book-keeping account maintained for each Member to record his Salary Deferrals, Matching Credits and the amount of Awards he has elected to defer, as adjusted pursuant to Article 5. The Account shall consist of the "Post-Secondary Education Sub-accounts", if any, established pursuant to Article 9 and all amounts not in those accounts shall be allocated to one or more "Retirement Sub-accounts". The Committee may determine the maximum number of "Retirement Sub-accounts" which a Member may have at any time. The Administrator may establish such other sub-accounts within a Member's Account as it deems necessary to implement the provisions of the Plan. 1.2 Administrator shall mean the Corporation. The duties of the Administrator shall be performed by a person or persons designated by the Chief Executive Officer of the Corporation to perform such duties. 1.3 Affiliated Company shall mean the Corporation and any company or corporation directly or indirectly controlled by the Corporation. 1.4 Award shall mean, for any year, the amount awarded to an employee of an Affiliated Company for that year (including any special incentive award) and, in the absence of an Award Deferral Agreement with respect to such amount, payable to him in the succeeding year under the MICP and/or SMICP or other incentive award otherwise payable in cash as determined by the Committee. 1.5 Award Deferral Agreement shall mean a Deferral Agreement filed in accordance with the award deferral program described in Article 3. 1.6 Board of Directors or "Board" shall mean the Board of Directors of the Corporation. 1.7 Change of Control shall mean any of the following: (a) Stock Acquisition. The acquisition, by any individual, entity or group [within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")] (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Corporation (the "Outstanding Corporation Common Stock"), or (ii) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Corporation Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Corporation; (ii) any acquisition by the Corporation; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation; or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section XI(5); or (b) Board Composition. Individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent - 4 - PAGE 5 Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or (c) Business Combination. Approval by the shareholders of the Corporation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Corporation or its principal subsidiary that is not subject, as a matter of law or contract, to approval by the Interstate Commerce Commission or any successor agency or regulatory body having jurisdiction over such transactions (the "Agency") (a "Business Combination"), in each case, unless, following such Business Combination: (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or its principal subsidiary or all or substantially all of the assets of the Corporation or its principal subsidiary either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities, as the case may be; (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of directors resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or - 5 - PAGE 6 (d) Regulated Business Combination. Approval by the shareholders of the Corporation of a Business Combination that is subject, as a matter of law or contract, to approval by the Agency (a "Regulated Business Combination") unless such Business Combination complies with clauses (i), (ii) and (iii) of subsection (c) of this Section XI(5); or (e) Liquidation or Dissolution. Approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation or its principal subsidiary. 1.8 Code shall mean the Internal Revenue Code of 1986, as amended from time to time. 1.9 Committee shall mean the Compensation Committee of the Board of Directors of CSX Corporation. 1.10 Compensation shall mean the "Base Compensation" of an Eligible Executive as defined in the Tax Savings Thrift Plan, determined prior to: (a) any Salary Deferrals under Article 4; and (b) any limit on compensation imposed by Section 401(a)(17) of the Code. 1.11 Corporation shall mean CSX Corporation, a Virginia corporation, and any successor thereto by merger, purchase or otherwise. 1.12 Deferral Agreement shall mean either an Award Deferral Agreement or a Salary Deferral Agreement, or both if the context so requires. A Deferral Agreement shall be a completed agreement between an Eligible Executive and a Participating Company of which he is an employee under which the Eligible Executive agrees to defer an Award or make Salary Deferrals under the Plan, as the case may be. The Deferral Agreement shall be on a form prescribed by the Committee and shall include any amendments, attachments or appendices. 1.13 Distribution Option(s) shall mean, with respect to each sub-account under the Plan, the election by the Member of (i) the event triggering the commencement of distribution, and (ii) the form of payment. Distribution Option elections are made on the initial Deferral Agreement with respect to any sub-account. 1.14 Effective Date shall mean October 1, 1987 or with respect to the Eligible Executives of a company which adopts the Plan, the date such company becomes a Participating Company. 1.15 Eligible Executive shall mean an employee of a Participating Company, provided that: (a) prior to January 1, 1995, for purposes of the award deferral described in Article 3, such employee is employed by a Participating Company in salary grades 21 through 40 inclusive, as of December 30 of the calendar year in question; or (b) on and after January 1, 1995, for purposes of the award deferral program described in Article 3, such employee: (i) is employed by a Participating Company and is receiving Compensation of one hundred thousand dollars ($100,000) or more per year; or (ii) retired from the Participating Companies or terminated employment with the Participating Companies on account of disability, as determined by the Committee, and was receiving Compensation of one hundred thousand dollars ($100,000) or more per year at the time of such retirement or termination; or (c) prior to January 1, 1995, for purposes of the salary deferral program described in Article 4, such employee is eligible for membership in the Tax Savings Thrift Plan and is employed in salary grades 21 through 40 inclusive; or - 6 - PAGE 7 (d) on and after January 1, 1995 for purposes of the salary deferral program described in Article 4, such employee is eligible for membership in the Tax Savings Thrift Plan and is receiving Compensation of one hundred thousand dollars ($100,000) or more per year; or (e) the Chief Executive Officer of the Corporation or his designee may designate any other employee or former employee of an Affiliated Company as an Eligible Executive; provided, however, only those employees or former employees considered to be a select group of management or highly compensated may be designated as Eligible Executives under this Plan. 1.16 Matching Credits shall mean amounts credited to the Account of a Member pursuant to Section 4.5. 1.17 Member shall mean, except as otherwise provided in Article 2, each Eligible Executive who has executed an initial Deferral Agreement as described in Section 2.1. 1.18 MICP shall mean the Participating Companies' Management Incentive Compensation Program. 1.19 Participating Company shall mean the Corporation and any company or corporation directly or indirectly controlled by the Corporation, which the Board designates for participation in the Plan in accordance with Section 8.5(b). 1.20 Plan shall mean this Supplementary Savings and Incentive Award Deferral Plan for Eligible Executives of CSX Corporation and Affiliated Companies, as amended from time to time. 1.21 Salary Deferrals shall mean the amounts credited to a Member's Account under Section 4.3. 1.22 Salary Deferral Agreement shall mean a Deferral Agreement filed in accordance with the salary deferral program described in Article 4. 1.23 Salary Deferral Percentage shall mean a percentage of an Eligible Executive's Base Compensation elected in a Salary Deferral Agreement, pursuant to Section 4.1 hereof, and shall be an integral percentage not in excess of fifty (50%) percent. 1.24 SMICP shall mean the Participating Companies' Senior Management Incentive Compensation Program. 1.25 Tax Savings Thrift Plan shall mean the Tax Savings Thrift Plan for Employees of CSX Corporation and Affiliated Companies, as amended from time to time. 1.26 Trust shall mean the CSX Corporation Nonqualified Plan Trust or such other trust which will substantially conform to the terms of the Internal Revenue Service model trust as described in Revenue Procedure 92-64, 1992-2 C.B.422. 1.27 Valuation Date shall mean the last business day of each calendar month following the Effective Date. ARTICLE 2. MEMBERSHIP AND DEFERRAL AGREEMENTS 2.1 In General: (a) An Eligible Executive shall become a Member as of the date he files his initial Deferral Agreement with the Administrator. However, such Deferral Agreement shall be effective for purposes of deferring an Award or making Salary Deferrals only as provided in Articles 3 and 4. - 7 - PAGE 8 (b) A Deferral Agreement shall be in writing and properly completed upon a form approved by the Administrator, which shall be the sole judge of the proper completion thereof. Except as provided in Section 4.1(d), such Agreement shall provide for the deferral of an Award or for Salary Deferrals, shall specify the Distribution Options, and may include such other provisions as the Administrator deems appropriate. A Deferral Agreement shall not be revoked or modified with respect to the allocation of prior deferrals except pursuant to the establishment of a Post-Secondary Education Sub- account as provided in Article 9. Distribution Options elected may not be modified or revoked except as provided in Section 6.1 or 6.2. (c) As a condition for membership the Administrator may require such other information as it deems appropriate. 2.2 Modification of Initial Deferral Agreement (a) A Member may elect to change, modify or revoke a Deferral Agreement as follows: (i) A Member may change the amount of Award he elects to defer on an Award Deferral Agreement prior to the Agreement's effective date as provided in Article 3. (ii) A Member may change the rate of his Salary Deferrals, or suspend his Salary Deferrals on account of severe financial hardship, as provided in Article 4. (iii) A Member may change the event entitling him to distribution, as designated on his election of Distribution Options, as provided in Section 6.1(c)(i). (iv) A Member may change the event entitling him to distribution as designated on his election of Distribution Options, subject to the five percent (5%) penalty described in Section 6.1(c)(ii). (v) A Member may change the form of payment, as designated on his election of Distribution Options, as provided in Section 6.2(c)(i). (vi) A Member may change the form of payment as designated on his election of Distribution Options, subject to the five percent (5%) penalty described in Section 6.2(c)(ii). (b) Notwithstanding any provision in Section 2.2(a) to the contrary, the establishment of a Post-Secondary Education Sub-account with respect to future Salary Deferrals and Awards as provided in Article 9 shall not be deemed a change for the purposes of Section 2.2(a). 2.3 Termination of Membership; Re-employment: (a) Membership shall cease, subject to Section 2.4, upon a Member's termination of employment; provided that if a former Eligible Executive is receiving severance payments under a Participating Company's severance pay program or is eligible to defer an Award under Article 3, he shall not be deemed to have terminated employment until the later of the date the severance payments cease or the date the Award would have been paid. Membership shall be continued during a leave of absence approved by the Participating Companies. - 8 - PAGE 9 (b) Upon re-employment as an Eligible Executive, a former Member may become a Member again as follows: (i) in the case of a former Member who prior to re- employment received the balance in his Account, by executing a Deferral Agreement under Section 2.1 as though for all purposes of the Plan the Affiliated Companies had never employed the former Member; (ii) in the case of a former Member who prior to re- employment did not receive the balance in his Account, by executing a Deferral Agreement under Section 2.1; provided his Distribution Options and beneficiary designation shall remain in effect. 2.4 Change in Status: (a) In the event that a Member ceases to be an Eligible Executive with respect to Salary Deferrals but continues to be employed by an Affiliated Company, his Salary Deferrals and Matching Credits shall thereupon be suspended until such time as he shall once again become an Eligible Executive. All other provisions of his Salary Deferral Agreement shall remain in force and he shall continue to be a Member of the Plan. (b) In the event that a Member ceases to be an Eligible Executive with respect to the deferral of Awards hereunder but continues to be employed by an Affiliated Company, he shall continue to be a Member of the Plan but shall not be eligible to defer any portion of any future Awards until such time as he shall once again become an Eligible Executive. ARTICLE 3. AWARD DEFERRAL PROGRAM 3.1 Filing Requirements: (a) At such time as the Administrator may prescribe prior to the close of business on December 30 in any calendar year an Eligible Executive may elect to defer all or a portion of his Award, if any, for that year. Such election shall be made by filing an Award Deferral Agreement with the Administrator on or before the close of business on December 30 of the calendar year for which the Award is made. In the event that December 30 does not fall on a weekday, such filing must be made by the close of business on the last prior business day. (b) Notwithstanding Section 3.1(a), an individual who becomes an Eligible Executive after the calendar year for which an Award is made, but prior to the first day of the month in which such Award is determined including required action by the Board, may elect to defer all or a portion of that Award in accordance with this Section 3.1(b). Such election shall be made by filing an Award Deferral Agreement during the 30 day or shorter period beginning on the date the individual becomes an Eligible Executive and ending no later than the last day of the month preceding the month in which the Award is determined. - 9 - PAGE 10 (c) An Eligible Executive's election to defer all or a portion of his Award shall be effective on the last day that such deferral may be elected under Section 3.1(a) or 3.1(b) and shall be effective only for the Award in question. An Eligible Executive may revoke or change his election to defer all or a portion of his Award at any time prior to the date the election becomes effective, as described in the preceding sentence. Any such revocation or change shall be made in a form and manner determined by the Administrator. (d) An Eligible Executive shall not be entitled to defer an Award on or after attaining the age, if any, which he has designated under Section 6.1(c) or 6.1(d) for the purpose of commencing distribution of his Account (or, if applicable, his Retirement Sub-account). In the event a Member establishes a Post- Secondary Education Sub-account pursuant to Article 9, he shall not be entitled to defer all or any portion of an Award into such a Sub- account after attaining the age which he has designated for the purpose of commencing distribution from that Sub-account. (e) An Eligible Executive shall not be entitled to defer an Award if he is eligible to defer his award under another nonqualified program of deferred compensation maintained by an Affiliated Company. 3.2 Amount of Deferral: (a) In its sole discretion, the Committee may establish such maximum limit on the amount of Award an Eligible Executive may defer for a calendar year as the Committee deems appropriate. Such maximum limit shall appear on the Eligible Executive's Award Deferral Agreement for the year. (b) The minimum amount which an Eligible Executive may defer in any year shall be the lesser of $5,000 or the maximum amount determined under Section 3.2(a) above. If an Eligible Executive elects to defer less than this amount, his election shall not be effective. 3.3 Crediting to Account: (a) The amount of Award which an Eligible Executive has elected to defer for a calendar year shall be credited to his Account as of the Valuation Date coincident with or next following the date the Award would have been paid to the Eligible Executive. (b) An additional credit shall be made to the Account as of the Valuation Date described in Section 3.3(a) above, determined as if the amount of Award deferred had earned the same rate of return as the CSX Cash Pool Earnings Rate from the date the Award would have been paid until the Valuation Date it is credited to the Eligible Executive's Account. In lieu of the CSX Corporation Cash Pool Earnings Rate, the Committee may designate, from time to time, such other indices of investment performance or investment funds as the measure of investment performance under this Section 3.3(b). ARTICLE 4. SALARY DEFERRAL PROGRAM 4.1 Filing Requirements: (a) An individual who is an Eligible Executive immediately prior to the Effective Date may file a Salary Deferral Agreement with the Administrator, within such period prior to the Effective Date and in such manner as the Administrator may prescribe. - 10 - PAGE 11 (b) An individual who becomes an Eligible Executive on or after the Effective Date may file a Salary Deferral Agreement with the Administrator during the calendar month he becomes an Eligible Executive, in such manner as the Committee may prescribe. (c) An Eligible Executive who fails to file a Salary Deferral Agreement with the Administrator as provided in Sections 4.1(a) and 4.1(b) may file a Salary Deferral Agreement in any subsequent month of December. (d) An Eligible Executive who has not otherwise filed a Deferral Agreement shall file a Salary Deferral Agreement under Sections 4.1(a) or 4.1(b), whichever applies, in order to receive the Matching Credits described in Section 4.5, provided that such agreement need not provide for Salary Deferrals. 4.2 Salary Deferral Agreement: An Eligible Executive's Salary Deferral Agreement shall authorize a reduction in his base pay with respect to his Salary Deferrals under the Plan. The Agreement shall be effective for payroll periods beginning on or after the later of: (a) the Effective Date; or (b) the first day of the month following the date the Salary Deferral Agreement is filed with the Administrator in accordance with Section 4.1. Paychecks applicable to said payroll periods shall be reduced accordingly. 4.3 Amount of Salary Deferrals: (a) On each Valuation Date following the effective date of an Eligible Executive's Salary Deferral Agreement, his Sub-accounts shall be credited with an amount of Salary Deferral, if any, for the payroll period ending thereon, as he elects in his Salary Deferral Agreement. Such Salary Deferral for any payroll period shall be determined as the sum of his Basic Salary Deferral for such payroll period determined under subparagraph (i) and his Additional Salary Deferral for such month, determined under subparagraph (ii) as follows: (i) An Eligible Executive's Basic Salary Deferral shall be determined by multiplying his Compensation for a payroll period by the excess of his Salary Deferral Percentage over the percentage determined in subparagraph (ii) below (ii) An Eligible Executive's Additional Salary Deferral shall be determined by multiplying his Compensation for a payroll period by a percentage determined as (A) the excess of his Salary Deferral Percentage over 15%, divided by (B) .85. provided, however, that no Basic Salary Deferral shall be made under this Plan for any payroll period unless the Eligible Executive is prevented from making elective deferrals under the Tax Savings Thrift Plan for such payroll period as a result of Section 402(g) of the Code, and provided further that, for the payroll period in which such Basic Salary Deferral is first made, it shall be limited to the excess of the amount otherwise determined for such payroll period under Section 4.3(a)(i) over the Eligible Executive's elective deferrals under the Tax Savings Thrift Plan for such payroll period. If applicable, Additional Salary Deferrals shall be made for each payroll period of the year to which the Salary Deferral Agreement applies, without regard to whether the Eligible Executive makes elective deferrals under the Tax Savings Thrift Plan and without regard to any Basic Salary Deferrals under this Plan. - 11 - PAGE 12 (b) An Eligible Executive shall not be entitled to make Salary Deferrals on or after attaining the age, if any, which he has designated under Section 6.1(c) or 6.1(d) for the purpose of commencing distribution of his Account (or, if applicable, his Retirement Sub-account). In the event a Member establishes a Post- Secondary Education Sub-account pursuant to Article 9, he shall not be entitled to make Salary Deferrals into such Sub-account after attaining the age which he has designated for the purpose of commencing distribution from that Sub-account. 4.4 Changing Salary Deferrals: (a) An Eligible Executive's election on his Salary Deferral Agreement of the rate at which he authorizes Salary Deferrals under the Plan shall remain in effect in subsequent calendar years unless he files with the Administrator an amendment to his Salary Deferral Agreement modifying or revoking such election. The amendment shall be filed by December 30 and shall be effective for payroll periods beginning on or after the following January 1. (b) Notwithstanding Section 4.4(a), an Eligible Executive may, in the event of a severe financial hardship, request a suspension of his Salary Deferrals under the Plan. The request shall be made in a time and manner determined by the Administrator, and shall be effective as of such date as the Administrator prescribes. The Administrator shall apply standards, to the extent applicable, identical to those described in Section 6.3 in making its determination. The Eligible Executive may apply to the Administrator to resume his Salary Deferrals with respect to payroll periods beginning on or after the January 1 following the date of suspension, in a time and manner determined by the Administrator; provided, that the Administrator shall approve such resumption only if the Administrator determines that the Eligible Executive is no longer incurring such hardship. 4.5 Certain Additional Credits: On each Valuation Date, there shall be credited Matching Credits to the Retirement Sub-account(s) of an Eligible Executive determined as follows: (a) For payroll periods prior to the inception of Basic Salary Deferrals hereunder, the greater of (i) or (ii) (b) For payroll periods during which Basic Salary Deferrals are effective, the greater of (i) or (iii), minus (iv), where '(i)' is the employer matching contributions the Eligible Executive would have received under the Tax Savings Thrift Plan if the provisions of Sections 401(k)(3), 401(m)(9) and 415 of the Code had not applied to the Tax Savings Thrift Plan; and '(ii)' is an amount determined as 3% of the Eligible Executive's additional Salary Deferrals; and '(iv)' is the employer matching contributions the Eligible Executive would have received under the Tax Savings Thrift Plan if his deferrals under this Plan had been contributed to the Tax Savings Thrift Plan (in addition to those amounts actually - 12 - PAGE 13 contributed to that Plan), based on "Compensation" as defined in this Plan and as if the provisions of Sections 401(a)(17), 401(k)(3), 401(m)(2), 401(m)(9) and 415 of the Code had not applied to the Tax Savings Thrift Plan; and '(iv)' is the employer matching contributions made on his behalf for the applicable period to the Tax Savings Thrift Plan; and No Matching Credits shall be credited to a Member's Post-Secondary Education Sub-account. ARTICLE 5. MAINTENANCE OF ACCOUNTS 5.1 Adjustment of Account: (a) As of each Valuation Date each Account (and, if applicable, each Sub-account) shall be credited or debited with the amount of earnings or losses with which such Sub-account would have been credited or debited, assuming it had been invested in one or more investment funds, or earned the rate of return of one or more indices of investment performance, designated by the Committee and, if applicable, elected by the Member or former Member, for purposes of measuring the investment performance of his Sub-accounts. (b) The Committee shall designate at least one investment fund or index of investment performance and may designate other investment funds or investment indices to be used to measure the investment performance of Accounts. The designation of any such investment funds or indices shall not require the Affiliated Companies to invest or earmark their general assets in any specific manner. The Committee may change the designation of investment funds or indices from time to time, in its sole discretion, and any such change shall not be deemed to be an amendment affecting Members' or former Members' rights under Section 7.2. (c) For purposes of Section 5.1(a), the portion of a Member's Retirement Sub-accounts attributable to Matching Credits shall be credited or debited with earnings or losses based upon the performance of "Fund E" (CSX Stock Fund) under the Tax Savings Thrift Plan. (d) As of February 1, 1989, there shall be credited to the Account of each Eligible Executive who participated in the Supplemental Benefit Plan of Sea-Land Corporation and Affiliated Companies the amount of deferred compensation under that plan as of January 31, 1989 attributable to amounts credited under that plan for the purpose of restoring contributions to a defined contribution plan which were limited by Section 415 of the Code. Such amounts shall be treated as Salary Deferrals under the Plan, and unless transferred pursuant to Section 5.3(a), shall earn the same rate of return as the CSX Cash Pool Earnings Rate. 5.2 Investment Performance Elections: (a) In the event the Committee designates more than one investment fund or index of investment performance under Section 5.1, each Member and, if applicable, former Member, shall file an initial investment election with the Administrator with respect to the - 13 - PAGE 14 investment of his Salary Deferrals within such time period and on such form as the Administrator may prescribe. The election shall designate the investment fund or funds or index or indices of investment performance which shall be used to measure the investment performance of the Member's Salary Deferrals. The election shall be effective as of the beginning of the payroll period next following the date the election is filed. The election shall be in increments of 1%. (b) In the event the Committee designates more than one investment fund or index under Section 5.1, each Member shall file an initial investment election each calendar year in which he defers an Award with respect to the amount deferred. The election shall be made within such time period and on such form as the Administrator prescribes and shall be in increments of 1% of the amount deferred. The election shall be effective on the Valuation Date on which the amount determined is credited to the Member's Account. (c) A Member may not elect separate investment funds or indices of investment performance with respect to each Sub-account. 5.3 Changing Investment Elections: (a) A Member may change his election in Section 5.2(a) with respect to his future Salary Deferrals, no more than once each calendar quarter, by filing an appropriate written notice with the Administrator. The notice shall be effective as of the beginning of the first payroll period following the date the notice is filed with the Administrator. (b) A Member or, if applicable, former Member may reallocate the current balance of his Retirement and/or Post- Secondary Education Sub-accounts, thereby changing the investment fund or funds or index or indices of investment performance used to measure the future investment performance of his existing Account balance, by filing an appropriate written notice with the Administrator. Each Retirement or Post-Secondary Education Sub- account may be reallocated separately. The election shall be effective as of the last business day of the calendar quarter following the month in which the notice is filed. No election under this Section 5.3(b) shall apply to the portion of a Member's Account attributable to Matching Credits. 5.4 Vesting of Account: Each Member shall be fully vested in his Account. 5.5 Individual Accounts: The Administrator shall maintain, or cause to be maintained, records showing the individual balances of each Account and each Sub-account. At least once a year, each Member and, if applicable, former Member shall be furnished with a statement setting forth the value of his Account and his Sub-accounts. ARTICLE 6. PAYMENT OF BENEFITS 6.1 Commencement of Payment: (a) The distribution of the Member's or former Member's Account shall commence, pursuant to Section 6.2, on or after the occurrence of (i), (ii), (iii) or (iv) below, as designated by the Member as a Distribution Option election: (i) the Member's termination of employment with the Affiliated Companies, - 14 - PAGE 15 (ii) attainment of a designated age not earlier than age 59-1/2 (on or after January 1, 1995 age 50) nor later than age 70-1/2, (iii) the earlier of (i) or (ii) above, or (iv) the later of (i) or (ii) above. In the event a Member elects either (ii) or (iii) above, he may not elect an age less than three (3) years subsequent to his current age. A Member or former Member shall not change his Distribution Option election of the designation of the event which entitles him to distribution of his Account, except as provided in Section 6.1(c) below. (b) Effective January 1, 1995, a Member or former Member shall, pursuant to Section 6.9, be eligible to make a Distribution Option election of the designation of the event which entitles him to distribution of his Account in the event of a Change of Control. (c) A Member or former Member may change his Distribution Option election of the designation of the events which entitle him to distribution of his Account under Section 6.1(a) and Section 6.1(b), as follows: (i) A Member or former Member may make a one-time request to the Administrator to defer the Member's designated distribution event under Section 6.1(a). The requests must be filed in writing with the Administrator at least one year prior to when distribution would commence based on the current designation. The deferral requests must specify a distribution event described in Section 6.1(a), shall be subject to approval of the Administrator and, if approved, shall be effective as of the date that is one year after the request is filed with the Administrator. If the Member's current distribution event will occur upon his termination of employment and the Member's employment terminates within one year after the deferral request is made, the deferral request shall not be effective. A deferral request under this Section 6.1(c)(i) shall not result in a forfeiture of the Member's or former Member's Account. (ii) Notwithstanding Section 6.1(c)(i), a Member or former Member may change his designated distribution event under Section 6.1(a) or 6.1(b), no more frequently than once in any calendar year, by filing with the Administrator an amendment to his Distribution Option election on or before December 30 (or the last preceding business day id December 30 is not a weekday). The change shall be limited to those events entitling a Member to a distribution that are described in Section 6.1(a), shall be subject to approval of the Administrator and, if approved, shall be effective as of the last Valuation Date of the calendar year in which the change is filed. Unless the election complies with the - 15 - PAGE 16 requirements for a one-time deferral request under Section 6.1(c)(i), or unless the provisions of Section 6.1(e) apply, an election under this Section 6.1(c)(ii) shall result in the forfeiture of five percent (5%) of the Member's or former Member's Account, determined as of the Valuation Date upon which the election is effective. A forfeiture under this Section 6.1(c)(ii) shall be in addition to a forfeiture incurred by the Member, if any, under Section 6.2(c)(ii). (d) Notwithstanding anything in this Section 6.1 or Article 9 to the contrary, a Member's Account shall be distributed upon his death. (e) A Member may not change the designation of the event which entitles him to distribution of one or more Post-Secondary Education Sub-accounts, except that a Member may transfer the entire amount in any Post-Secondary Education Sub-account to one or more other Post-Secondary Education Sub-accounts and one or more of his Retirement Sub-accounts, or any combination thereof, subject to forfeiture of five percent (5%) of the Sub-account so transferred, as provided in Article 9. (f) Notwithstanding the foregoing, the Corporation may delay payment of a benefit under this Plan to any Member who is determined to be among the top five most highly paid executives for the year the benefit under this Plan would otherwise be paid; provided, however, if a Member's payment is delayed, the benefit to which he is entitled will not decrease after the date it would otherwise be distributed. 6.2 Method of Payment: (a) A Member's or former Member's Retirement Sub- account(s) shall be distributed to him, or in the event of his death to his Beneficiary, in a cash single sum payment as soon as administratively practicable following the January 1 coincident with or next following the date the Member incurs the Distribution Option elected under Section 6.1 or his date of death, as the case may be. Matching Credits earned in respect to periods following the date of such distributable event shall be paid directly to the Member in cash as soon as practical. Notwithstanding the foregoing, a Member or former Member may make a Distribution Option election to receive distribution of his Account in semi-annual installments over a period not to exceed twenty (20) years. Installments shall be determined as of each June 30 and December 31 and shall be paid as soon as administratively practicable thereafter. Installments shall commence as of the July 1 or January 1 coincident with or next following the date the Member incurs the distributable event elected as a Distribution Option under Section 6.1, or as soon as administratively practicable thereafter. The amount of each installment shall equal the balance in the Account as of the Valuation Date of determination, divided by the number of remaining installments (including the installment being determined). The Distribution Option election shall be irrevocable except as provided in Section 6.2(c) below. If a Member or former Member dies before payment of the entire balance of his Account, the remaining balance shall be paid in a single sum to his Beneficiary as soon as administratively practicable following the January 1 coincident with or next following his date of death. - 16 - PAGE 17 (b) Effective January 1, 1995, a Member or former Member shall, pursuant to Section 6.9, be eligible to make a separate Distribution Option election of the form of payment of his Account in the event of a Change of Control. (c) Notwithstanding Section 6.2(a) and Section 6.2(b), a Member or former Member may change the Distribution Option election of the form in which his Account is distributed, as follows: (i) A Member or former Member may make a one-time request to the Administrator to change the form in which his Account is to be distributed under Section 6.2(a). A Member or former Member may also make a one-time request to change the form in which his Account is to be distributed under Seciton 6.2(b). The request must be filed in writing with the Administrator at least one year prior to when distribution would commence based on the current designation. The requests must specify a form of distribution described in Section 6.2(a), shall be subject to approval of the Administrator and, if approved, shall be effective as of the date that is one year after the request is filed with the Administrator. If the Member's distribution event will occur upon his termination of employment and the Member's employment terminates within one year after the request is filed, the request shall not be effective. A request under this Section 6.2(c)(i) shall not result in a forfeiture of the Member's or former Member's Account. (ii) Notwithstanding Section 6.2(c)(i), a Member or former Member may change the form in which his Account is to be distributed under Section 6.2(a) or 6.2(b), no more frequently than once in any calendar year, by filing with the Administrator an amendment to his Distribution Option election on or before December 30 (or the last preceding business day if December 30 is not a weekday). The change shall be limited to those forms of distribution described in paragraph 6.2(a), shall be subject to approval of the Administrator and, if approved, shall be effective as of the last Valuation Date of the calendar year in which it is filed. Unless the election complies with the requirements for a one-time request under Section 6.2(c)(i), or unless the provisions of Section 6.2(d) apply, an election under this Section 6.2(c)(ii) shall result in the forfeiture of five percent (5%) of the Member's or former Member's Account, determined as of the Valuation Date upon which the election is effective. A forfeiture under this Section 6.2(c)(ii) shall be in addition to a forfeiture incurred by the Member, if any, under Section 6.1(c)(ii). - 17 - PAGE 18 (d) In the event the Member's Account consists of one or more Retirement Sub-accounts and one or more Post-Secondary Education Sub-accounts, the provisions of this Section 6.2 shall apply exclusively to the Member's Retirement Sub-accounts. A Member may not change the form in which his Post-Secondary Education Sub- accounts are distributed, except that a Member may transfer the entire amount in any Post-Secondary Education Sub-account to one or more other Post-Secondary Education Sub-accounts and one or more Retirement Sub-accounts, or any combination thereof, subject to forfeiture of five percent (5%) of the Sub-account so transferred, as provided in Article 9. 6.3 Applicability: In the event the Member's Account consists of one or more Retirement Sub-accounts and one or more Post-Secondary Education Sub-accounts, the provisions of Sections 6.1(a) and 6.1(c) and 6.2 shall apply exclusively to the Member's Retirement Sub-accounts. 6.4 Hardship Withdrawal (a) While employed by the Participating Companies, a Member or former Member may, in the event of a severe financial hardship, request a withdrawal from his Account. The request shall be made in a time and manner determined by the Administrator, shall not be for a greater amount than the amount required to meet the financial hardship, and shall be subject to approval by the Administrator. (b) For purposes of this Section 6.3 financial hardship shall include: (i) education of a dependent child where the Member or former Member shows that without the withdrawal under this Section the education would be unavailable to the child; (ii) illness of the Member or former Member or his dependents, resulting in severe financial hardship to the Member or former Member; (iii) the loss of the Member's or former Member's home or its contents, to the extent not reimbursable by insurance or otherwise, if such loss results in a severe financial hardship to the Member or former Member; (iv) any other extraordinary circumstances of the Member or former Member approved by the Administrator if such circumstances would result in a present or impending critical financial need which the Member or former Member is unable to satisfy with funds reasonably available from other sources. 6.5 Designation of Beneficiary: A Member or former Member may, in a time and manner determined by the Administrator, designate a beneficiary and one or more contingent beneficiaries (which may include the Member's or former Member's estate) to receive any benefits which may be payable under this Plan upon his death. If the Member or former Member fails to designate a beneficiary or contingent beneficiary, or if the beneficiary and the contingent beneficiaries fail to survive the Member or former Member, such benefits shall be paid to the Member's or former Member's estate. A Member or former Member may revoke or change any designation made under this Section 6.4 in a time and manner determined by the Administrator. - 18 - PAGE 19 6.6 Special Distribution Rules: Notwithstanding anything to the contrary in this Plan, if (a) a Member or former Member becomes the owner, director or employee of a competitor of the Affiliated Companies, (b) his employment is terminated by an Affiliated Company on account of actions by the Member which are detrimental to the interests of the Affiliated Company, or (c) he engages in conduct subsequent to the termination of his employment with the Affiliated Companies which the Administrator determines to be detrimental to the interests of an Affiliated Company, then the Administrator may, in its sole discretion, pay the Member or former Member a single sum payment equal to the balance in his Account. The single sum payment shall be made as soon as practicable following the date the Member or former Member becomes an owner, director or employee of a competitor, his termination of employment or the Administrator's determination of detrimental conduct, as the case may be, and shall be in lieu of all other benefits which may be payable to the Member or former Member under this Plan. 6.7 Status of Account Pending Distribution: Pending distribution, a former Member's Account (and, if applicable, a former Member's Sub-accounts) shall continue to be credited with earnings and losses as provided in Section 5.1. The former Member shall be entitled to change his investment elections under Section 5.3 or apply for Hardship withdrawals under Section 6.3 to the same extent as if he were a Member of the Plan. In the event of the death of a Member or former Member, his Sub-accounts shall be credited with earnings and losses as if the Sub-accounts had earned the same rate of return as the CSX Corporation Cash Pool Earnings Rate or, in the sole discretion of the Committee, the rate of return of such other index of investment performance or investment fund which may be designated by the Committee as a measure for investment performance of Members' or former Members' Accounts (and, if applicable, their Sub-accounts), commencing with the Valuation Date coincident with or next following the Member's or former Member's date of death. 6.8 Installments and Withdrawals Pro-Rata: In the event of an installment payment or hardship withdrawal, such payment or withdrawal shall be made on a pro-rata basis from the portions of the Member's or former Member's existing Account balance which are subject to different measures of investment performance. In the event of a hardship withdrawal, the withdrawal shall be made on a pro-rata basis from all of the Member's or former Member's Sub-accounts. 6.9 Change of Control: (a) If a Change of Control has occurred, the Committee shall cause the Corporation to contribute to the Trust within 7 days of such Change of Control, a lump sum payment equal to the aggregate value of the amount each Member or former Member would be eligible to receive (determined under (b) below) as of the latest Valuation Date coinciding with or preceding the date of Change of Control to the extent such amounts are not already in the Trust; provided, however, amounts relating to those Members who receive a lump sum payment under (b) below shall be excluded from the aggregate value determination. The aggregate value of the amount of the lump sum to be contributed to the Trust pursuant to this Section 6.9 shall be determined by the Corporation's accountants after consultation with the entity then maintaining the Plan's records, and shall be projected, if necessary, to such Valuation Date from the last valuation of Members' or former Members' Accounts for which information is readily available. Thereafter, the Corporation's - 19 - PAGE 20 accountants shall annually determine as of a Valuation Date for each Member or former Member not receiving a lump sum payment pursuant to subsection (b) below the value of each Member or former Member's Accounts. To the extent that the value of the assets held in the Trust relating to this Plan do not equal the aggregate amount described in the preceding sentence, at the time of the valuation, as determined by the Corporation's accountants, the Corporation shall make a lump sum contribution to the trust equal to the difference. (b) In the event a Change of Control has occurred, each Member or former Member not making an election under (c) below shall receive, and the Committee shall cause the Corporation to pay within 7 days of such Change of Control, a lump sum payment equal to the value of the Member's or former Member's Accounts (determined under Article 5) as of the Valuation Date coinciding with or next preceding the date of such Change of Control. The amount of each Member's or former Member's lump sum payment shall be determined by the Corporation's accountants after consultation with the entity then maintaining the Plan's records, and shall be projected, if necessary, to such Valuation Date from the last valuation of Member's or former Member's accounts for which information is readily available. (c) Each Member or former Member may elect in a time and manner determined by the Committee but in no event later than September 1, 1995, or the occurrence of a Change of Control, if earlier, to have amounts and benefits determined and payable under the terms of the Plan as if a Change of Control had not occurred. New Members of the Plan may elect in a time and manner determined by the Committee but in no event later than a Change of Control to have amounts and benefits determined and payable under the terms of the Plan as if a Change of Control had not occurred. (d) Notwithstanding anything in the Plan to the contrary, each Member or former Member who has made an election under (c) above may elect within 90 days following a Change of Control, in a time and manner determined by the Committee, to receive a lump sum payment calculated under the provisions of 3 above determined as of the Valuation Date next preceding such payment, except that such calculated amount shall be reduced by 5% and such reduction shall be irrevocably forfeited to the Corporation by the Member or former Member. Furthermore, as a result of such election, the Member or former Member shall no longer be eligible to participate or otherwise benefit from the Plan. Payments under this subsection (d) shall be made not later than 7 days following receipt by the Corporation of a Member's or former Member's election. The Committee shall no later than 7 days after a Change of Control has occurred give written notification to each Member or former Member eligible to make an election under this subsection (d), that a Change of Control has occurred and informing such Member or former Member of the availability of the election. - 20 - PAGE 21 ARTICLE 7. AMENDMENT OR TERMINATION 7.1 Right to Terminate: The Board may, in its sole discretion, terminate this Plan and the related Deferral Agreements at any time. In the event the Plan and related Deferral Agreements are terminated, each Member, former Member and Beneficiary shall receive a single sum payment equal to the balance in his Account. The single sum payment shall be made as soon as practicable following the date the Plan is terminated and shall be in lieu of any other benefit which may be payable to the Member, former Member or Beneficiary under this Plan. 7.2 Right to Amend: The Board may, in its sole discretion, amend this Plan and the related Deferral Agreements on 30 days prior notice to the Members and, where applicable, former Members. If any amendment to this Plan or to the Deferral Agreements shall adversely affect the rights of a Member or former Member, such individual must consent in writing to such amendment prior to its effective date. If such individual does not consent to the amendment, the Plan and related Deferral Agreements shall be deemed to be terminated with respect to such individual and he shall receive a single sum payment of his Account as soon thereafter as is practicable. Notwithstanding the foregoing, the Committee's change in any investment funds or investment index under Section 5.1(b) or the restriction of future deferrals under the salary deferral program or award deferral program shall not be deemed to adversely affect any Member's or former Member's rights. 7.3 Uniform Action: Notwithstanding anything in the Plan to the contrary, any action to amend or terminate the Plan or the Deferral Agreements must be taken in a uniform and nondiscriminatory manner. ARTICLE 8. GENERAL PROVISIONS 8.1 No Funding: Nothing contained in this Plan or in a Deferral Agreement shall cause this Plan to be a funded retirement plan. Neither the Member, former Member, his beneficiary, contingent beneficiaries, heirs or personal representatives shall have any right, title or interest in or to any funds of the Trust or the Affiliated Companies on account of this Plan or on account of having completed a Deferral Agreement. The assets held in the Trust shall be subject to the claims of creditors of the Corporation, and the Trust's assets shall be used to discharge said claims in the event of the Corporation's insolvency. Each Member or former Member shall have the status of a general unsecured creditor of the Affiliated Companies and this Plan constitutes a mere promise by the Affiliated Companies to make benefit payments in the future. 8.2 No Contract of Employment: The existence of this Plan or of a Deferral Agreement does not constitute a contract for continued employment between an Eligible Executive or a Member and an Affiliated Company. The Affiliated Companies reserve the right to modify an Eligible Executive's or Member's remuneration and to terminate an Eligible Executive or a Member for any reason and at any time, notwithstanding the existence of this Plan or of a Deferral Agreement. 8.3 Withholding Taxes: All payments under this Plan shall be net of an amount sufficient to satisfy any federal, state or local withholding tax requirements. - 21 - PAGE 22 8.4 Nonalienation: The right to receive any benefit under this Plan may not be transferred, assigned, pledged or encumbered by a Member, former Member, beneficiary or contingent beneficiary in any manner and any attempt to do so shall be void. No such benefit shall be subject to garnishment, attachment or other legal or equitable process without the prior written consent of the Affiliated Companies. 8.5 Administration: (a) This Plan shall be administered by the Committee. Certain administrative functions, as set forth in the Plan, shall be the responsibility of the Administrator. The Administrator shall interpret the Plan, establish regulations to further the purposes of the Plan and take any other action necessary to the proper operation of the Plan in accordance with guidelines established by the Committee or, if there are no such guidelines, consistent with furthering the purpose of the Plan. (b) The Board, in its sole discretion and upon such terms as it may prescribe, may permit any company or corporation directly or indirectly controlled by the Corporation to participate in the Plan. (c) Prior to paying any benefit under this Plan, the Administrator may require the Member, former Member, beneficiary or contingent beneficiary to provide such information or material as the Administrator, in its sole discretion, shall deem necessary for it to make any determination it may be required to make under this Plan. The Administrator may withhold payment of any benefit under this Plan until it receives all such information and material and is reasonably satisfied of its correctness and genuineness. (d) The Administrator shall provide adequate notice in writing to any Member, former Member, beneficiary or contingent beneficiary whose claim for benefits under this Plan has been denied, setting forth the specific reasons for such denial. A reasonable opportunity shall be afforded to any such Member, former Member, beneficiary or contingent beneficiary for a full and fair review by the Administrator of its decision denying the claim. The Administrator's decision on any such review shall be final and binding on the Member, former Member, beneficiary or contingent beneficiary and all other interested persons. (e) All acts and decisions of the Administrator shall be final and binding upon all Members, former Members, beneficiaries, contingent beneficiaries and employees of the Affiliated Companies. 8.6 Construction (a) The Plan is intended to constitute an unfunded deferred compensation arrangement for a select group of management or highly compensated employees and all rights hereunder shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia to the extent not preempted by federal law. (b) The masculine pronoun shall mean the feminine wherever appropriate. (c) The captions inserted herein are inserted as a matter of convenience and shall not affect the construction of the Plan. - 22 - PAGE 23 ARTICLE 9. POST-SECONDARY EDUCATION SUB-ACCOUNTS 9.1 Post-Secondary Education Sub-accounts: (a) Notwithstanding any provision of this Plan to the contrary, with respect to amounts deferred under Salary Deferral Agreements and Award Deferral Agreements effective on or after December 31, 1990, a Member may direct the Administrator to establish a separate sub-account in the name of one or more of: (i) each of the Member's children, (ii) each of the Member's brothers, sisters, their spouses, the Member's spouse, or (iii) each of the foregoing's lineal descendants, for the payment of their expenses directly or indirectly arising from enrollment in a college, university, or any other post-secondary institution of higher learning. Each sub- account established pursuant to this Section 9.1(a) shall be referred to as a "Post-Secondary Education Sub-account." (b) The Member may instruct the Administrator to allocate all or a portion of any amount deferred under an Award Deferral Agreement in respect to an Award granted after December 31, 1990 to one or more of the Post-Secondary Education Sub-accounts established pursuant to Section 9.1(a). (c) A Member may instruct the Administrator to allocate all or any portion of the amount he defers for periods commencing after December31, 1990 pursuant to his Salary Deferral Agreement to one or more of the Post-Secondary Education Sub-accounts established pursuant to Section 9.1(a). (d) Any elections pursuant to Sections 9.1(a) and 9.1(b) shall be made in whole percentages. (e) No Matching Credits shall be allocated to any Post- Secondary Education Sub-account. 9.2 Distribution of Post-Secondary Education Sub-accounts: (a) Amounts allocated to one or more of a Member's Post- Secondary Education Sub-accounts shall be distributed to the Member upon the attainment of the certain age of the Member, specifically designated by the Member for this purpose with regard to that Sub- account. (b) A Member or former Member may transfer the entire amount but not less than that amount in any Post-Secondary Education Sub-account to one or more other Post-Secondary Education Sub- accounts, a Retirement Sub-account, or any combination thereof, by filing the appropriate form or forms with the Administrator not later than the last business day of the calendar year preceding the year in which distribution of that Post-Secondary Education Sub-account was to begin. A transfer under this Section 9.2(b) shall result in the forfeiture of five percent (5%) of the Member's or former Member's Sub-account so transferred, determined as of the Valuation Date upon which the transfer is effective. In no event may a Member transfer all or any portion of the amount in a Retirement Sub-account to his Post-Secondary Education Sub-accounts. Except as provided in this Section 9.2(b) or 9.2(c) below, a Member or former Member may not - 23 - PAGE 24 change the time or form of distribution of his Post-Secondary Education Sub-accounts. (c) In the event that the individual for whom a Post- Secondary Education Sub-account is established dies while funds remain in that Sub-account, a Member or former Member may transfer without penalty the entire amount but not less than that amount in that Sub-account in accordance with the provisions of (i) or (ii) below: (i) to one or more existing Post-Secondary Education Sub-accounts and/or a new Post-Secondary Education Sub-account established in accordance with the provisions of Section 9.1 hereof; or (ii) to a Retirement Sub-account. If a Member or former Member elects to transfer funds in accordance with (ii) and he has not previously established a Retirement Sub- account, such a Sub-account shall be established automatically and the Member or former Member promptly thereafter will be required to execute an amendment to his Deferral Agreement which shall specify the option under Section 6.1(a) which will entitle him to distribution of the Retirement Sub-account and the form of distribution under Section 6.2(a). (d) A Member's or former Member's Post-Secondary Education Sub-accounts shall be distributed to him, or in the event of his death to his Beneficiary, in a cash single sum payment as soon as administratively practicable following the January 1 coincident with or next following the date the Member incurs the distributable event or events elected under Section 9.2(a) or his date of death, as the case may be. Notwithstanding the foregoing, a Member or former Member may elect to receive distribution of one or more of his Post- Secondary Education Sub-accounts in semi-annual installments over a period not to exceed six (6) years. Installments shall be determined as of each June 30 and December 31 and shall be paid as soon as administratively practicable thereafter. Installments shall commence as of the June 30 or December 31 coincident with or next following the date the Member incurs the distributable event elected under Section 9.2(a) with regard to a Sub-account, or as soon as administratively practicable thereafter. The amount of each installment shall equal the balance in the applicable Post-Secondary Education Sub-account as of the Valuation Date of determination, divided by the number of remaining installments (including the installment being determined). If a Member or former Member dies before payment of the entire balance of all of his Post-Secondary Education Sub-accounts, the remaining balance or balances, as the case may be, shall be paid in a single sum to his Beneficiary as soon as administratively practicable following the January 1 coincident with or next following his date of death. 9.3 Construction: To the extent any provision in this Article 9 is inconsistent with any other provision of this Plan, the provisions in Article 9 shall govern. - 24 - EX-10 11 PAGE 1 Exhibit 10.14 SPECIAL RETIREMENT PLAN OF CSX CORPORATION AND AFFILIATED CORPORATIONS AS AMENDED AND RESTATED JANUARY 1, 1995 TABLE OF CONTENTS Section I - INTRODUCTION . . . . . . . . . . . . . . . . . . 1 Section II - PARTICIPATION. . . . . . . . . . . . . . . . . . 3 Section III - CREDITABLE SERVICE . . . . . . . . . . . . . . . 3 Section IV - COMPENSATION AND AVERAGE COMPENSATION. . . . . . 6 Section V - SPECIAL RETIREMENT ALLOWANCES. . . . . . . . . . 7 Section VI - FUNDING METHOD . . . . . . . . . . . . . . . . . 13 Section VII - ADMINISTRATION OF SPECIAL PLAN . . . . . . . . . 15 Section VIII - MODIFICATION, AMENDMENT AND TERMINATION . . . . 15 Section IX - NON-ALIENATION OF BENEFITS . . . . . . . . . . . 18 Section X - MISCELLANEOUS PROVISIONS . . . . . . . . . . . . 19 Section XI - CHANGE OF CONTROL. . . . . . . . . . . . . . . . 20 Section XII - CONSTRUCTION . . . . . . . . . . . . . . . . . . 28 - 1 - PAGE 2 Special Retirement Plan of CSX Corporation and Affiliated Corporations As Amended and Restated January 1, 1995 Section I - INTRODUCTION 1. The purpose of this retirement plan, hereinafter called the "Special Plan," is to provide an incentive for corporate officers comprising a select group of management or highly compensated employees to exert maximum efforts for the Company's success and to remain in the service of the Company until retirement. 2. The Special Plan as provided herein shall be effective as of March 1, 1983, and supersedes the Employees' Special Pension Plan of The Chesapeake and Ohio Railway Company and the Plan for Additional Annuities for Qualifying Members under the Supplemental Pension Plan of The Baltimore and Ohio Railroad Company, hereinafter called the "Former Plans." 3. The "Company" as used herein shall refer to CSX Corporation and such other of its affiliated corporations as shall adopt this Special Plan by action of their Boards of Directors for the benefit of corporate officers who are covered or may become covered by the Special Plan. The term "Compensation Committee" shall refer to the Compensation Committee of the Board of Directors of CSX Corporation (the "Board of Directors"). 4. The incentives under the Special Plan shall consist of special retirement allowances provided by the Company at retirement to certain employees, hereinafter referred to as "Participants," who shall participate as provided herein (eligibility for participation is set forth in Section II). 5. The Special Plan shall, where appropriate, refer to and have meanings consistent with all of the relevant terms of any other regularly maintained pension plan which currently provides or did provide immediately prior to March 1, 1983, retirement benefits for non-contract employees of the Company and is or was maintained by CSX Corporation or any of its affiliated corporations whose officers participate in the Special Plan. Such existing regularly maintained pension plans which provided benefits immediately prior to March 1, 1983 for employees of the Company, and covered periods of service granted in paragraphs 4(a) and 4(b) of Section V, or those which may be established hereafter, as amended from time to time, shall be referred to herein as the "Pension Plans." Accordingly, regardless of formal differences which may exist between the Special Plan and the Pension Plans in the use of terminology, the definitions and principles which are set forth in the Pension Plans with respect to compensation, average compensation, credited service, and similar terms shall be applied and construed hereunder in a manner consistent with the purposes of the Special Plan and the Pension Plans. In any instance in which the male gender is used herein, it shall also include persons of the female gender in appropriate circumstances. Section II - PARTICIPATION 1. Every person who was a Participant in the Former Plans as in effect immediately prior to March 1, 1983, shall continue as a Participant in the Special Plan on and after such date for the purpose of any applicable provisions hereof. 2. On and after March 1, 1983, Participants shall include any employees who participate in the Pension Plans and who are entitled to benefits provided under Section V, Subsection 8 hereof; provided, however, that the only benefit that such employees shall be eligible to receive under this Special Plan shall be the benefit provided in accordance with such - 2 - PAGE 3 Subsection unless they are otherwise entitled to benefits under other provisions of this Special Plan. 3. On and after March 1, 1983, additional persons eligible to be Participants shall be those specified in Section V, Subsection 4(c). Section III - CREDITABLE SERVICE 1. Creditable service under the Special Plan shall have the same meaning and apply in the same manner as creditable service under the Pension Plans, except that it shall also include any additional creditable service which may have been or which may be granted to a Participant in accordance with the provisions of Section V, Subsections 3 and/or 4 hereof. Provided, however, notwithstanding any provisions of the Pension Plans to the contrary, a Participant in the Special Plan who is in the employ of the Company and who does not receive compensation in any calendar month due to amounts deferred under the Company's Deferred Compensation Program, Supplementary Savings and Incentive Award Deferral Plan, and any other amounts of compensation deferred under any other arrangement approved by the Compensation Committee nevertheless shall receive creditable service under the Special Plan. 2. Notwithstanding any other provisions of this Special Plan or the Pensions Plans to the contrary, effective January 1, 1989: (a) Prior to January 1, 1992, a Participant must have been continuously employed by the Company for a period of not less than 10 years to become entitled upon retirement to receive payment of a special retirement allowance from this Special Plan in respect of any additional creditable service, pension supplement, pension or benefit granted under Section V, Subsections 3(a) or 3(b) of this Special Plan. After December 31, 1991, this Subsection (a) shall only apply to Section V, Subsection 3(b); and, (b) Prior to January 1, 1992, a Participant must have been continuously employed by the Company for a period of not less than 5 years to become entitled to receive payment of a special retirement allowance from this Special Plan in respect of any additional creditable service granted under Section V, Subsection 4(d), of this Special Plan; provided, however, a person who has already attained age 60 and then first becomes employed by the Company, and who also becomes and continuously remains a Participant from that date of first employment until attainment of age 65, shall become entitled upon retirement to receive payment of a special retirement allowance from this Special Plan in respect of any additional creditable service granted under Section V, Subsection 4(d) of this Special Plan; and (c) After December 31, 1991, a Participant must have been continuously employed by the Company for a period of not less than 10 years and must have attained age 55 to become entitled to receive a special retirement allowance from this Special Plan in respect to any additional creditable service accrued after December 31, 1991, granted under Section V, Subsection 4(d), of this Special Plan or a pension or benefit granted after December 31, 1991 under Section V, Subsection 3(a) of this Special Plan; provided, however, a Participant who has at least 5 years of continuous service and who dies while actively employed shall be entitled to - 3 - PAGE 4 the additional creditable service accrued after December 31, 1991; and provided, further, a Participant who terminates employment with the consent of the Chief Executive Officer of CSX Corporation ("Chief Executive Officer") prior to age 55 with 10 years of continuous service shall be entitled to the additional creditable service accrued after December 31, 1991. (d) In no event shall a Participant be eligible to receive a payment in respect of any benefits granted under Section V, Subsections 3(a), 3(b) or 4(d) of this Special Plan before such date as the Participant attains the earliest retirement age specified in the particular Pension Plan in which the Participant also participates, unless an earlier payment from the Special Plan is specifically authorized by the Compensation Committee. The Compensation Committee shall have full authority and sole discretion to interpret and administer the foregoing rules, and any decision made by such Committee shall be final and binding. Section IV - COMPENSATION AND AVERAGE COMPENSATION Compensation and average compensation under the Special Plan shall have the same meanings and apply in the same manner as those terms do under the Pension Plans, except as provided in Section V, Subsection 3(b) hereof; provided, however, that amounts deferred under the Company's Deferred Compensation Program, Supplementary Savings and Incentive Award Deferral Plan, and any other amounts of compensation deferred under any other arrangement approved by the Compensation Committee shall be included in the determination of compensation and average compensation; and further provided, that compensation and average compensation hereunder shall not be limited to the amount of $150,000, or such other amount as adjusted by regulation, as imposed by Sections 401(a)(17) and 415(d) of the Internal Revenue Code. Section V - SPECIAL RETIREMENT ALLOWANCES 1. All of the provisions, conditions, and requirements set forth in the Pension Plans with respect to the granting and payment of retirement benefits thereunder shall be equally applicable to the granting of the special retirement allowances hereunder to Participants in the Special Plan and to the payment thereof from the Company's general assets or from the Trust (which is defined and discussed in Section VI, subsection (3)). Except as otherwise may be provided in this Special Plan, whenever a Participant's rights under the Special Plan are to be determined, appropriate reference shall be made to the particular Pension Plan in which such person is also a participant. Notwithstanding the preceding sentence, if a special retirement allowance under the Special Plan shall be paid to a surviving spouse in conformance with the provisions of the Pension Plans, the final installment payment hereunder shall be made only to the estate of such surviving spouse and shall not be otherwise paid, regardless of any different provision for such payment which may be prescribed in the Pension Plans. 2. All special retirement allowances being paid on March 1, 1983, under the Former Plans as they existed immediately prior to such date shall be continued and be paid hereunder, and, persons participating under the Former Plans shall continue to participate hereunder in accordance with the terms and conditions of the Former Plans and any applicable provisions of this Special Plan. - 4 - PAGE 5 3. The Compensation Committee, upon the recommendation of the Chief Executive Officer, may grant to an officer of the Company the following benefits under the Special Plan: (a) Additional creditable service, pensions or benefits hereunder other than as provided in the Pension Plan, in recognition of previous service deemed to be of special value to the Company. (b) A pension supplement hereunder in a particular instance as determined by the Compensation Committee, to be calculated on the basis of specific instructions which may depart only for such purpose from any of the terms, conditions or requirements of the Pension Plans, notwithstanding the provisions of Section I, Subsection 5, and Section V, Subsection 1, hereof. 4. The following additional creditable service under the Special Plan shall be granted by the Company at retirement under the Pension Plans: (a) To those Participants of the "Former Plans," creditable service equal to that accrued under Section V, Subsection 4 of The Employees' Special Plan of The Chesapeake and Ohio Railway Company or under paragraphs 1, 2 and 3 of the Plan for Additional Annuities for Qualifying Members Under the Supplemental Pension Plan of the Baltimore and Ohio Railroad Company, provided that, effective upon a Participant's retirement on or after March 1, 1983, creditable service under the Special Plan and Pension Plans shall not exceed 44 years. (b) To those Participants in the Special Plan who are listed in Appendix I, and who are also participants in the Pension Plans, additional creditable service under the Special Plan will be granted as indicated for each individual as shown in Appendix I, provided that additional creditable service under the Special Plan and credited service under the Pension Plans at retirement shall not exceed 44 years. (c) On and after March 1, 1983, new admissions into the class of persons who may become Participants in the Special Plan to receive additional creditable service hereunder shall only include participants in the Pension Plans who are appointed by the Chief Executive Officer or his designee. (d) In addition to the additional creditable service granted to Participants under (a) or (b) above, beginning March 1, 1983, one year of additional creditable service shall be granted for each year of actual service (with allowances for months less than twelve) between ages 45 and 65 during which a person is a Participant. Those who become qualified as provided in (c) above shall have one year of additional credited service granted, beginning no earlier than the date they are both a Participant and at least age 45, for each year of actual service (with allowances made for months less than twelve) during which they remain a Participant, but only up to age 65. Additional creditable service granted under the Special Plan shall be combined with credited service under the Pension Plan (but only if credited service under the Pension Plans does not exceed 44 years), to result in total credited service and additional creditable service - 5 - PAGE 6 under the Pension Plans and the Special Plan which shall not exceed a maximum of 44 years. The position, compensation, and other conditions upon which a non-contract employee's participation herein is based shall be determined from time to time in the absolute discretion of the Compensation Committee. Effective December 31, 1993, there shall be no new admissions into the class of persons who may receive additional benefits pursuant to this subsection 4(d); provided, however, the Chief Executive Officer may, by express agreement, offer the additional benefits pursuant to this subsection 4(d) to selected individuals. (e) Anything to the contrary notwithstanding, any Participant in the Special Plan receiving additional creditable service under this Subsection 4, and whose responsibilities and compensation are reduced, may, in the discretion of the Compensation Committee or the Chief Executive Officer, cease to receive any further additional creditable service hereunder. (f) A Participant's accrual of additional creditable service as provided herein shall not be subject to termination except as provided in subparagraph (e) above, or upon retirement or termination of employment. (g) Prior to January 1, 1992, a Participant who receives benefits under a Salary Continuance and Long-Term Disability Plan of the Company shall continue to accrue additional creditable service hereunder subject to the same rules that are applicable in such instances under the Pension Plans. (h) It is the intent of this Section V that, for the purpose of the Special Plan, the additional creditable service provided hereunder when added to credited service under the Pension Plans or otherwise, shall not in any case exceed 44 years in the aggregate. (i) To those Participants who become qualified as provided in (a), (b) or (c) above, a special retirement allowance shall be payable under the Special Plan to such Participants or their surviving spouses equal to any amount due under the Pension Plans which is not paid in full under the Pension Plans. 5. The Company shall accrue and pay under this Special Plan as an additional supplemental benefit any annual pension benefits that would have been payable under the Pension Plans as in effect on September 1, 1974, or thereafter, if Sections 415(b) and 401(a)(17) of the Internal Revenue Code, and any other relevant provisions of law that impose limitations or have the effect of limiting the accrual of benefits under the Pension Plans, had not been enacted into law, unless such additional supplemental benefit is provided by the Company through another plan created for that purpose. 6. The Company shall accrue reserves to the credit of the Special Plan in advance to cover the costs of any additional creditable service, pensions or benefits granted under Subsections 3 and 4 hereof, and such pensions or benefits or special retirement allowances reflecting such credit shall be paid under the Special Plan. Where additional creditable service is granted, upon retirement in accordance with the provisions of the Pension Plans, the Participant shall receive a special retirement allowance equal to the difference between the retirement allowance computed under the Pension - 6 - PAGE 7 Plans and the amount which would be payable if the additional credit granted hereunder had been included with the actual credited service in the computation of the retirement allowance payable under the Pension Plans. Where a pension or other benefit is granted to a Participant, such pension or benefit shall be payable as a special retirement allowance from the Special Plan. 7. In the event any Participant in the Special Plan receives as a participant in the Pension Plans, a pension or retirement benefit payable in a form other than a straight life annuity in accordance with the provisions of the Pension Plans, his special retirement allowance under this Section V shall also be payable in a similar form. 8. The Company shall accrue and pay under this Special Plan any annual pension benefit which otherwise would have been payable under the Pension Plans but for the Participant's deferral of compensation under the Company's Deferred Compensation Program, Supplementary Savings and Incentive Award Deferral Plan, or under any other deferred compensation arrangement approved by the Compensation Committee. Section VI - FUNDING METHOD 1. The benefits provided under the Special Plan shall be financed by the Company and no contribution shall be required of Participants. The Company shall accrue reserves on its books as follows: (a) As of March 1, 1983, an amount shall be calculated with respect to the Former Plans which shall be the actuarially determined present value as of that date of all special retirement allowances payable under the Former Plans and, under a schedule approved by the Company's independent accountant, the reserve previously accrued will be adjusted. (b) As of March 1, 1983, the actuarially determined present value as of that date of all special retirement allowances payable under Section V, Subsection 4(b) shall be calculated and, under a schedule approved by the Company's independent accountant, a reserve equal to that amount established. (c) During the year 1983, there shall be accrued the amount required to allow regular interest on the adjusted reserve provided in (a) and (b) above. Each year thereafter there shall be accrued the amount required to allow regular interest on the average reserves standing to the credit of the Special Plan during the preceding year. (d) Each year the reserves shall be adjusted to reflect the payment of special retirement allowances during the year. (e) Such additional reserves shall be accrued from time to time as may be required in accordance with Section V, Subsections 3 and 4, on account of grants thereunder made after March 1, 1983. (f) There shall be accrued from time to time, as required, additional reserves on account of benefits pursuant to Section V, Subsection 6. (g) At such times as the Plan Administrator shall recommend, the reserves accrued to the credit of the Special Plan shall be adjusted on the basis of actuarial valuations to reflect the experience under the Special Plan, or amendments thereto, or changes in the rate of regular interest, or any other actuarial assumptions. - 7 - PAGE 8 2. The Company shall provide all funds required for the administration expenses of the Special Plan. 3. The Company will establish the CSX Corporation Nonqualified Plan Trust or such other trust which will substantially conform to the terms of the Internal Revenue Service model trust as described in Revenue Procedure 92-64, 1992-2C.B.422 ("Trust"). Except as provided in Section XI, the Company is not obligated to make any contribution to the Trust. 4. The Special Plan is intended to be unfunded for tax purposes for purposes of Title I of ERISA. Participants in the Special Plan have the status of general unsecured creditors of the Company, and the Special Plan constitutes a mere promise by the participating employer to make benefit payments in the future. Section VII - ADMINISTRATION OF SPECIAL PLAN The Plan Administrator under ERISA for the Pension Plans of CSX Corporation or of any affiliated corporation which shall adopt this Special Plan and whose officers participate in the Special Plan shall be responsible for the general administration of the Special Plan and for carrying out its provisions. Section VIII - MODIFICATION, AMENDMENT AND TERMINATION The Special Plan represents a contractual obligation heretofore entered into by the Company in consideration of services rendered and to be rendered by Participants covered under the Special Plan. The Company reserves the right at any time and from time to time to modify or amend in whole or in part any or all of the provisions of this Special Plan, or to terminate this Special Plan; provided, however, prior to December 1, 1991, no modification or amendment shall be made to this Special Plan unless there have been modifications or amendments to correlative provisions of the Pension Plans, and any modifications or amendments to this Special Plan shall coincide with the modifications or amendments of the Pension Plans (except nonconforming revisions to administrative provisions shall be permitted); and provided, further, that this Special Plan shall only be terminated if the Pension Plans are terminated, subject to the following limitations: 1. In the event any modification or amendment adversely affects the benefits to be received by a retired Participant and the designated surviving spouse of a retired Participant, they shall be entitled to receive for life the special retirement allowance they would have received had the Special Plan not been modified or amended, and each designated surviving spouse of a retired Participant shall become entitled to receive for life the special retirement allowance that such designated surviving spouse would have received had the Special Plan not been modified or amended. 2. In the event of the termination of this Special Plan, each retired Participant and designated surviving spouse of a retired Participant shall be entitled to receive for life the special retirement allowance they would have received had the Special Plan not been terminated, and each designated surviving spouse of a retired Participant shall become entitled to receive for life the special retirement allowance that such designated surviving spouse would have received had the Special Plan not been terminated. - 8 - PAGE 9 3. In the event any modification or amendment adversely affects the benefit which an active Participant would have been entitled to receive if such amendment or modification had not been made, such active Participant shall, so long as he remains in the active service of the Company, only continue to accrue creditable service and benefits prospectively in accordance with the provisions of the Special Plan as so modified or amended, unless the Participant shall earlier cease to receive any additional creditable service as provided in Section V, Subsection 4(e). 4. In the event this Special Plan is terminated, each active Participant, in consideration of his continued service to the Company until the date of his termination from active employment by retirement or otherwise, shall be entitled to retain his accrued additional service, or pension or benefits as granted hereunder to such Participant, in accordance with the provisions of this Special Plan in effect on the day prior to the date of termination, unless the Participant shall earlier cease to receive any additional creditable service as provided in Section V, Subsection 4(e). 5. In lieu of paying special retirement allowances in accordance with the foregoing provisions, the Plan Administrator, at its election, may direct the discharge of all obligations to retired Participants, designated spouses of retired Participants, and active Participants by cash payments of equivalent actuarial value or through the provision of immediate or deferred annuities or other periodic payments of equivalent actuarial value, as it shall in its sole discretion determine. Section IX - NON-ALIENATION OF BENEFITS No benefit under the Special Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to do so shall be void, except as specifically provided in the Special Plan, nor shall any benefit be in any manner liable for or subject to the debt, contracts, liabilities, engagements, or torts of the person entitled to such benefit; and in the event that the Plan Administrator shall find that any active or retired Participant or designated spouse or spouse under the Special Plan has become bankrupt or that any attempt has been made to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge any of his benefits under the Special Plan, except as specifically provided in the Special Plan, then such benefits shall cease to accrue and shall be determined, and in that event, the Plan Administrator shall hold or apply the same to or for the benefit of such active or retired Participant or spouse, in such manner as the Plan Administrator may deem proper. Section X - MISCELLANEOUS PROVISIONS 1. Anything in the Special Plan to the contrary notwithstanding, if the Plan Administrator finds that any retired Participant or spouse is engaged in acts detrimental to the Company or is engaged or employed in any occupation which is in competition with the Company, and if after due notice such retired Participant or spouse continues to be so engaged or employed, the Plan Administrator shall suspend the special retirement allowance of such person, which suspension shall continue until removed by notice from the Plan Administrator; provided, however, that if such suspension has continued for one year, the Plan Administrator shall forthwith cancel such Participant's or spouse's special retirement allowance. Furthermore, if the Plan Administrator finds that any Participant has been discharged for having performed acts - 9 - PAGE 10 detrimental to the Company, then regardless of any other provision in the Special Plan, no benefit shall be payable to or on account of any such Participant's coverage under this Special Plan. 2. The establishment of the Special Plan shall not be construed as conferring any legal rights upon any employee for a continuation of employment, nor shall it interfere with the rights of the Company to discharge any employee and to treat him without regard to the effect which such treatment might have upon him as a Participant in the Special Plan. Section XI - CHANGE OF CONTROL 1. If a Change of Control has occurred, the Compensation Committee shall cause the Company to contribute to the Trust within 7 days of such Change of Control, a lump sum contribution equal to the greater of: (a) the aggregate value of the amount each Participant would be eligible to receive under subsection (2), below; or (b) the present value of accumulated Plan benefits based on the assumptions the Company's independent actuary deems reasonable for this purpose, as of a Valuation Date, as defined in subsection (6), below, coinciding with or next preceding the date of Change of Control, to the extent such amounts are not already in the Trust; provided, however, amounts relating to those Participants who receive a lump sum payment under subsection (2), below, shall be excluded from the aggregate value determination under (a) or (b). The aggregate value of the amount of the lump sum to be contributed to the Trust pursuant to this Section XI shall be determined by the Company's independent actuaries. Thereafter, the Company's independent actuaries shall annually determine as of a Valuation Date for each Participant not receiving a lump sum payment pursuant to subsection (2), below, the greater of: (i) the amount such Participant would have received under subsection (2) had such Participant not made the election under subsection (3), below, if applicable; and (ii) the present value of accumulated benefits based on assumptions the actuary deems reasonable for this purpose. To the extent that the value of the assets held in the Trust relating to this Special Plan does not equal the amount described in the preceding sentence, at the time of the valuation, the Company shall make a lump sum contribution to the Trust equal to the difference. 2. In the event a Change of Control has occurred, each Participant not making an election under subsection (3), below, shall receive, and the Compensation Committee shall cause the Company to pay within 7 days of such Change of Control, a lump sum payment equal to the actuarial present value of the aggregate special retirement allowance each Participant (or any beneficiary of a Participant) has accrued as of the Valuation Date preceding the date of such Change of Control pursuant to the terms of Section V of this Special Plan. If a Participant's benefit has not commenced as of such date, such lump sum shall be determined assuming that: - 10 - PAGE 11 (a) The Participant's benefit would commence at the earliest date he would qualify for early or normal retirement under the Plan, were his employment with the Company to continue, but in no event earlier than the later of age 55 or the date of such Change on Control. (b) The Participant would qualify for an early (or normal) retirement benefit as of the date determined in (a). (c) If married, the Participant would receive his benefit under the 50% Joint and Survivor form of payment with the spouse as beneficiary; if not married, the benefit would be payable in the form of a single life annuity. The actuarial present value shall be determined on the basis of the UP 1984 Mortality Table, set back one year, and a discount rate equal to the interest rate promulgated by the Pension Benefit Guaranty Corporation for use in determining the sufficiency of single employer defined benefit pension plans terminating on the date of such Change in Control. 3. Each Participant may elect in a time and manner determined by the Compensation Committee but, for current Participants, in no event later than September 1, 1995, or the occurrence of a Change of Control, if earlier, to have amounts and benefits determined and payable under the terms of this Special Plan as if a Change of Control had not occurred. 4. Notwithstanding anything in this Special Plan to the contrary, each Participant who has made an election under subsection (3), above, may elect within 90 days following a Change of Control, in a time and manner determined by the Compensation Committee, to receive a lump sum payment calculated under the provisions of subsection (2), above, determined as of the Valuation Date next preceding such payment, except that such amount shall be reduced by 5% and such reduction shall be irrevocably forfeited to the Company by the Participant. Furthermore, as a result of such election, the Participant shall no longer be eligible to participate or otherwise benefit under the Special Plan. Payments under this subsection (4) shall be made not later than 7 days following receipt by the Company of the Participant's election. The Compensation Committee shall, no later than 7 days after a Change of Control has occurred, cause written notification to be given to each Participant eligible to make an election under this subsection (4), that a Change of Control has occurred and informing such Participant of the availability of the election. 5. As used in this Section XI the term "Change of Control" shall mean: (a) Stock Acquisition. The acquisition, by any individual, entity or group [within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")] (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock"), or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company; (ii) any acquisition by the Company; (iii) any acquisition - 11 - PAGE 12 by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section XI(5); or (b) Board Composition. Individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or (c) Business Combination. Approval by the shareholders of the Company of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company or its principal subsidiary that is not subject, as a matter of law or contract, to approval by the Interstate Commerce Commission or any successor agency or regulatory body having jurisdiction over such transactions (the "Agency") (a "Business Combination"), in each case, unless, following such Business Combination: (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or its principal subsidiary or all or substantially all of the assets of the Company or its principal subsidiary either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; - 12 - PAGE 13 (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of directors resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or (d) Regulated Business Combination. Approval by the shareholders of the Company of a Business Combination that is subject, as a matter of law or contract, to approval by the Agency (a "Regulated Business Combination") unless such Business Combination complies with clauses (i), (ii) and (iii) of subsection (c) of this Section XI(5); or (e) Liquidation or Dissolution. Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company or its principal subsidiary. 6. For purposes of this Section XI, the term "Valuation Date" means the last day of each calendar year and such other dates as the Plan Administrator deems necessary or appropriate to value the Participants' benefits under this Special Plan. Section XII - CONSTRUCTION The Special Plan and the rights and obligations of the parties hereunder shall be construed in accordance with the laws of the Commonwealth of Virginia. - 13 - EX-10 12 PAGE 1 Exhibit 10.15 Supplemental Retirement Benefit Plan of CSX Corporation and Affiliated Corporations As Amended and Restated Effective January 1, 1995 Section I - INTRODUCTION 1. The purpose of this plan, hereinafter called the "Supplemental Plan", is to provide benefit payments to individuals who are participants (or members, as the case may be) in funded, tax-qualified retirement benefit plans maintained by CSX Corporation (the "Company") and certain of its affiliated corporations (whose participation in the Supplemental Plan as a participating employer is approved by the Board of Directors of any such affiliated corporation and by the Compensation Committee of the Board of Directors of CSX Corporation ("Compensation Committee")) and whose benefits would otherwise be reduced by Section 415 of the Internal Revenue Code ("Code") of 1986, as amended ("Code") which imposes limitations on benefits ("Code Limitations"). 2. Notwithstanding the limitations on benefits imposed by Code Limitations, supplemental benefits shall be provided under this Supplemental Plan equal to the reduction of benefits which shall occur as a result of the application of limitations included in a defined contribution plan or in a defined benefit plan in accordance with Code Limitations. 3. This Supplemental Plan preserves and continues in effect all provisions for accruals based upon limitations of benefits imposed by Code Limitations, heretofore credited to Participants under Section V, paragraph (subsection) 5, of the Special Retirement Plan of CSX Corporation and Affiliated Corporations ("Special Plan"), the Supplemental Benefits Plan of Sea-Land Corporation and Participating Companies, and the American Commercial Lines Benefit Restoration Plan ("Predecessor Plans"). Section II - DEFINITIONS 1. Supplemental Benefit means the benefit described in Section IV of this Supplemental Plan. 2. The Supplemental Plan shall, where appropriate, refer to and have meanings consistent with all of the relevant terms of the CSX Pension Plan and any other regularly maintained funded, tax-qualified pension plan of any other corporation affiliated with the Company whose participation in the Supplemental Plan as a participating employer is approved by the Board of Directors of any such affiliated corporation and by the Compensation Committee. Such existing regularly maintained pension plans which provided benefits for employees of the Company or its affiliates prior to the Effective Date of this Supplemental Plan document, or those which may be established hereafter, as amended from time to time, shall be referred to herein as the "Pension Plan." - 1 - PAGE 2 3. Regardless of formal differences which may exist between the Supplemental Plan and the Pension Plan or the Predecessor Plans in the use of terminology, the definitions and principles which are set forth in the Pension Plan or the Predecessor Plans with respect to compensation, average compensation, credited service and similar terms shall be construed and applied hereunder in a manner consistent with the purposes of this Supplemental Plan and the Pension Plan or the Predecessor Plans. In any instance in which the male gender is used herein, it shall also include persons of the female gender in appropriate circumstances. Section III - MEMBERSHIP 1. Every person who was a Participant in the Predecessor Plans for the purpose of accruals of supplemental benefits heretofore notwithstanding limitations of benefits imposed by Code Limitations, shall be a Participant in this Supplemental Plan on and after the Effective Date. 2. Each employee who is a Participant in a Pension Plan on or after the Effective Date shall participate in this Supplemental Plan to the extent of the benefits provided herein. 3. A Participant's participation in this Supplemental Plan shall terminate coincident with the termination of such individual's participation in one of the Pension Plans; provided, however, in the event that the Participant shall be reassigned or transferred into the employ of the Company or any of its affiliates which also is a participating employer in this Supplemental Plan, the Participant's participation shall be continued to the extent of the benefits provided herein. Section IV - SUPPLEMENTAL BENEFITS 1. All of the provisions, conditions and requirements set forth in the Pension Plan with respect to the granting and payment of retirement benefits thereunder shall be equally applicable to the payment of supplemental benefits hereunder to Participants in the Supplemental Plan and to the payment thereof from the employer's general assets. Whenever an individual Participant's rights under the Supplemental Plan are to be determined, appropriate reference shall be made to the particular Pension Plan in which such person is also a participant. Notwithstanding the preceding sentence, if a supplemental benefit under this Supplemental Plan shall be paid to a surviving spouse or other surviving designated beneficiary in conformance with the provisions of the Pension Plans, the final installment payment hereunder shall be made to the estate of the surviving spouse or other surviving designated beneficiary. 2. Each Participant shall receive a Supplemental Benefit under this Supplemental Plan in an amount equal to the difference, if any, between (i) the Participant's monthly retirement income benefit under the provisions of the particular Pension Plan in which such person is also a participant calculated before the application of any Code Limitations and (ii) the Participant's monthly retirement income benefit determined after application of the Code Limitations. - 2 - PAGE 3 3. Notwithstanding any other provision of this Supplemental Plan to the contrary, a Supplemental Benefit shall not be determined or paid which would duplicate a payment of benefit provided to a Participant under the Pension Plan, the Predecessor Plans or any other unfunded or funded retirement plan of the Company or any of its affiliated corporations. 4. A Supplemental Benefit payable under the provisions of this Supplemental Plan shall be paid in such forms and at such times as shall be consistent with the payment of the Participant's retirement income benefit under the particular Pension Plan in which such person is also a participant. Notwithstanding the foregoing, the Company may delay payment of a Supplemental Benefit under the Supplemental Plan to any Participant who is determined to be among the top five most highly paid executives for the year that the Supplemental Benefit payment would otherwise be paid; provided, however, if a Participant's payment is delayed, that will not decrease the total Supplemental Benefit to which he is entitled. Section V - FUNDING METHOD 1. The Supplemental Benefit shall be paid exclusively from the general assets of the employers participating in the Supplemental Plan or from the CSX Corporation Nonqualified Plan Trust or such other trust which will substantially conform to the terms of the model trust as described in Revenue Procedure 92-64, 1992-2 C.B.422, established by CSX Corporation to secure the obligations created herein ("Trust"). No Participant or other person shall have any rights or claims against the assets of the employers or against the Trust which are superior to or different from the right or claim of a general, unsecured creditor of any participating employer. 2. The Supplemental Plan is intended to be unfunded for tax purposes and for purposes of Title I of ERISA, and constitutes a mere promise by the participating employer to make benefit payments in the future. 3. The employers participating in the Supplemental Plan shall provide all funds required for the administrative expenses of the Supplemental Plan. Section VI - ADMINISTRATION OF PLAN 1. The Plan Administrator of the CSX Pension Plan shall be the "Plan Administrator" of this Supplemental Plan and shall be responsible for the general administration of the Supplemental Plan and for carrying out its provisions. Administration of this Supplemental Plan shall be carried out consistent with the terms and conditions of the Pension Plan and the Supplemental Plan and the decision of the Plan Administrator shall be binding and conclusive on Participants, their beneficiaries, heirs and assigns. Section VII - CERTAIN RIGHTS AND OBLIGATIONS 1. The Compensation Committee may terminate the Supplemental Plan only upon the occurrence of conditions which require the termination of one or more of the Pension Plans. The Board of Directors of CSX Corporation may terminate an affiliated corporation from participation as a participating employer for any reason at any time. The Board of Directors of any affiliated corporation may terminate that corporation's participation as a participating employer for any reason at any time. - 3 - PAGE 4 2. The participating employers agree in the event that the Supplemental Plan is terminated: (a) Each retired Participant, surviving spouse of a retired Participant or surviving designated beneficiary of a retired Participant shall be entitled to receive for life the Supplemental Benefit they would have received had the Supplemental Plan not been terminated, and each surviving spouse or surviving designated beneficiary of a deceased Participant shall become entitled to receive for life the Supplemental Benefit that such surviving spouse or surviving designated beneficiary would have received had the Supplemental Plan not been terminated; and (b) Each active Participant shall be entitled to receive for life the Supplemental Benefit he or she would have received had the Supplemental Plan not been terminated, calculated on the basis of the Supplemental Benefit which had accrued at the time of termination; provided, however, that the Participant shall become entitled to such Supplemental Benefit only at the time and in accordance with the provisions of the Supplemental Plan had it continued in effect. (c) In lieu of paying a Supplemental Benefit in accordance with the foregoing provisions, the Plan Administrator, at its election, may direct the discharge of all obligations to retired Participants, surviving spouses or surviving designated beneficiaries of deceased Participants, and active Participants by cash payment of equivalent actuarial value or through the provision of immediate or deferred annuities or such other periodic payments of equivalent actuarial value, as it shall in its sole discretion determine. 3. Anything in the Supplemental Plan to the contrary notwithstanding, if the Plan Administrator finds that any Participant, retired Participant or spouse is engaged in acts detrimental to the Company or any of its affiliated corporations, and if after due notice such Participant, the retired Participant or spouse continues to be so engaged or employed, the Plan Administrator shall suspend the Supplemental Benefit of such person, which suspension shall continue until removed by notice from the Plan Administrator; provided, however, that if such suspension has continued for one year, the Plan Administrator shall forthwith cancel such Participant's or spouse's Supplemental Benefit. Furthermore, if the Plan Administrator finds that any Participant had been discharged for having performed acts detrimental to the Company or any of its affiliated corporations, then regardless of any other provision in the Pension Plan or the Supplemental Plan, no benefit shall be payable to or on account of any such Participant's coverage under this Supplemental Plan. - 4 - PAGE 5 4. The establishment of the Supplemental Plan shall not be construed as conferring any legal rights upon any employee for a continuation of employment, nor shall it interfere with the rights of an employing corporation to discharge any employee and to treat him without regard to the effect which such treatment might have upon him as a Participant in the Supplemental Plan. Section VIII - NON-ALIENATION OF BENEFITS To the extent permitted by applicable law, no benefit under the Supplemental Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt so to do shall be void, except as specifically provided in the Supplemental Plan, nor shall any benefit be in any manner liable for or subject to the debts, contracts, liabilities, engagements, or torts of the person entitled to such benefits; and in the event that the Plan Administrator shall find that any active or retired Participant, surviving spouse or surviving designated beneficiary under the Supplemental Plan has become bankrupt or that any attempt has been made to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge any of his benefits under the Supplemental Plan, expect as specifically provided in the Supplemental Plan, then such benefits shall cease, and in that event, the Plan Administrator shall hold or apply the same to or for the benefit of such active or retired Participant, surviving spouse or surviving designated beneficiary, in such manner as the Plan Administrator may deem proper. Section IX - AMENDMENTS The Supplemental Plan represents a contractual obligation entered into by a participating employer in consideration of services rendered and to be rendered by Participants covered under the Supplemental Plan, and 1. Any Participant in this Supplemental Plan who remains in the active service of a participating employer shall not be deprived of his or her participation or benefit which shall accrue under the Supplemental Plan except as provided hereunder. 2. No modification or amendment may be made which shall deprive any Participant, the surviving spouse of a Participant or the surviving designated beneficiary of a Participant, without the consent of such Participant, surviving spouse of a Participant or the surviving designated beneficiary of a Participant, of any Supplemental Benefit under the Supplemental Plan to which he or she would otherwise be entitled by reason of the Supplemental Benefit standing to his or her credit to the date of such modification or amendment, and in the event of any modification or amendment which adversely affects such Supplemental Benefit, the amount of all reserves required to be accrued on the books of a participating employer shall thereupon be determined and accrued, if the same has not already been done, and such Supplemental Benefit shall become and remain a fixed liability of the participating employers for the payment of such benefits accrued to the date of such modification or amendments. 3. Subject to the foregoing, the Compensation Committee reserves the right at any time and from time to time to modify or amend in whole or in part any or all of the provisions of this Plan. - 5 - PAGE 6 Section X - CHANGE OF CONTROL 1. If a Change of Control has occurred, the Compensation Committee shall cause the Company to contribute to the Trust within 7 days of such Change of Control, a lump sum contribution equal to the greater of: (a) the aggregate value of the amount each Participant would be eligible to receive, under Subsection (2), below; or (b) the present value of accumulated Plan benefits based on the assumptions the Company's independent actuary deems reasonable for this purpose, as of the Valuation Date, as defined in subsection (6), below, coinciding with or next preceding the date of Change of Control, to the extent such amounts are not already in the Trust; provided, however, amounts relating to those Participants who receive a lump sum payment under subsection (2), below, shall be excluded from the aggregate value determination under (a) or (b). The aggregate value of the amount of the lump sum to be contributed to the Trust pursuant to this Section X shall be determined by the Company's independent actuaries. Thereafter, the Company's independent actuaries shall annually determine as of a Valuation Date for each Participant not receiving a lump sum payment pursuant to subsection (2), below, the greater of: (i) the amount such Participant would have received under subsection (2) had such Participant not made the election under subsection (3), below, if applicable; and (ii) the present value of accumulated benefits based on 8assumptions the actuary deems reasonable for this purpose. To the extent that the value of the assets held in the Trust relating to this Supplemental Plan does not equal the amount described in the preceding sentence, at the time of the valuation, the Company shall make a lump sum contribution to the Trust equal to the difference. 2. In the event a Change of Control has occurred, each Participant not making an election under subsection (3), below, shall receive, and the Compensation Committee shall cause the Company to pay within 7 days of such Change of Control, a lump sum payment equal to the actuarial present value of the aggregate supplemental benefit each Participant (or any beneficiary of a Participant) has accrued as of the Valuation Date preceding the date of such Change of Control. If a Participant's benefit has not commenced as of such date, such lump sum shall be determined assuming that: (a) The Participant's benefit would commence at the earliest date he would qualify for early or normal retirement under the Plan, were his employment with the Company to continue, but in no event earlier than the later of age 55 or the date of such Change of Control. (b) The Participant would qualify for an early (or normal) retirement benefit as of the date determined in (a). - 6 - PAGE 7 (c) If married, the Participant would receive his benefit under the 50% Joint and Survivor form of payment with the spouse as beneficiary; if not married, the benefit would be payable in the form of a single life annuity. The actuarial present value shall be determined on the basis of the UP 1984 Mortality Table, set back one year, and a discount rate equal to the interest rate promulgated by the Pension Benefit Guaranty Corporation for use in determining the sufficiency of single employer defined benefit pension plans terminating on the date of such Change in Control. 3. Each Participant may elect in a time and manner determined by the Compensation Committee but, for current Participants, in no event later than September 1, 1995, or the occurrence of a Change of Control, if earlier, to have amounts and benefits determined and payable under the terms of this Supplemental Plan as if a Change of Control had not occurred. 4. Notwithstanding anything in this Supplemental Plan to the contrary, each Participant who has made an election under subsection (3), above, may elect within 90 days following a Change of Control, in a time and manner determined by the Compensation Committee, to receive a lump sum payment calculated under the provisions of subsection (2), above, determined as of the Valuation Date next preceding such payment, except that such amount shall be reduced by 5% and such reduction shall be irrevocably forfeited to the Company by the Participant. Furthermore, as a result of such election, the Participant shall no longer be eligible to participate or otherwise benefit under the Supplemental Plan. Payments under this subsection (4) shall be made not later than 7 days following receipt by the Company of the Participant's election. The Compensation Committee shall, no later than 7 days after a Change of Control has occurred, cause written notification to be given to each Participant eligible to make an election under this subsection (4), that a Change of Control has occurred and informing such Participant of the availability of the election. 5. As used in this Section X, a "Change of Control" shall mean: (a) Stock Acquisition. The acquisition by any individual, entity or group [within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")] (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock"), or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company; (ii) any acquisition by the Company; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (iv) any acquisition by any corporation - 7 - PAGE 8 pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section X(5); or (b) Board Composition. Individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individuals whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or (c) Business Combination. Approval by the shareholders of the Company of a reorganization, merger or consolidation, or sale or other disposition of all or substantially all of the assets of the Company or its principal subsidiary that is not subject, as a matter of law or contract, to approval by the Interstate Commerce Commission or any successor agency or regulatory body having jurisdiction over such transactions (the "Agency") (a "Business Combination"), in each case, unless, following such Business Combination: (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or its principal subsidiary or all or substantially all of the assets of the Company or its principal subsidiary either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly 20% or more of, respectively, the then - 8 - PAGE 9 outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of directors resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors providing for such Business Combination; or (d) Regulated Business Combination. Approval by the shareholders of the Company of a Business Combination that is subject, as a matter of law or contract, to approval by the Agency (a "Regulated Business Combination") unless such Business Combination complies with clauses (i), (ii) and (iii) of subsection (c) of this Section X(5); or (e) Liquidation or Dissolution. Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company or its principal subsidiary. 6. For purposes of this Section X, the term "Valuation Date" means the last day of each calendar year and such other dates as the Plan Administrator deems necessary or appropriate to value the Participants' benefits under this Special Plan. Section XI - CONSTRUCTION The Supplemental Plan and the rights and obligations of the parties hereunder shall be construed in accordance with the laws of the Commonwealth of Virginia. Section XII - EFFECTIVE DATE The Effective Date of this Supplemental Benefit Plan shall be January 1, 1989. - 9 - EX-10 13 PAGE 1 Exhibit 10.16 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-21 14 PAGE 1 Exhibit 21 CSX CORPORATION SUBSIDIARIES OF THE REGISTRANT As of December 30, 1994, registrant was the beneficial owner of 100 percent of the Common Stock of CSX Transportation Inc. (a Virginia corporation). As of December 30, 1994, registrant was the beneficial owner of 100 percent of the Common Stock of Sea-Land Service Inc. (a Delaware corporation). As of December 30, 1994, registrant was the beneficial owner of 100 percent of the Common Stock of CSX Intermodal Inc. (a Delaware corporation). As of December 30, 1994, registrant was the beneficial owner of 100 percent of the Common Stock of American Commercial Lines Inc. (a Delaware corporation). As of December 30, 1994, the other subsidiaries included in registrant's consolidated financial statements, and all other subsidiaries considered in the aggregate as a single subsidiary, did not constitute a significant subsidiary. - 1 - EX-23 15 PAGE 1 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the following Registration Statements of our report dated January 27, 1995, with respect to the consolidated financial statements of CSX Corporation and subsidiaries included in its Annual Report (Form 10-K) for the year ended December 30, 1994: Registration Statement Number Description - ---------------------- ------------------------- 33-2083 Post-Effective Amendment No. 1 to Form S-3 33-2084 Post-Effective Amendment No. 1 to Form S-3 33-16230 Form S-8 33-25537 Form S-8 33-29136 Form S-8 33-37449 Form S-8 33-41236 Form S-3 33-41498 Form S-8 33-41499 Form S-8 33-41735 Form S-8 33-41736 Form S-8 33-48841 Form S-3 33-49767 Form S-8 33-57029 Form S-8 /s/ ERNST & YOUNG LLP --------------------- Ernst & Young LLP Richmond, Virginia February 27, 1995 - 1 - EX-27 16
5 EPS are based on the weighted average of common shares outstanding for the twelve months ended December 30, 1994. 1,000,000 12-MOS DEC-30-1994 DEC-30-1994 265 270 706 0 211 1,665 16,315 5,271 13,724 2,505 2,618 105 0 0 3,626 13,724 0 9,608 0 0 8,376 0 281 1,006 354 652 0 0 0 652 6.23 0
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