-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H5POZBpLhuB/mNPJnODho6jhbU69xDoT/mspQJTTDw+QHpH+9x+0/M1Kibic4eKC tQth/ynnW8+8pWTqfsfAgQ== 0000277948-97-000004.txt : 19970317 0000277948-97-000004.hdr.sgml : 19970317 ACCESSION NUMBER: 0000277948-97-000004 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19961227 FILED AS OF DATE: 19970314 SROS: NYSE 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: 97556896 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 FORM 10-K 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 27, 1996 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 ( ) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) On January 24, 1997, the aggregate market value of the Registrant's voting stock held by nonaffiliates (using the New York Stock Exchange closing price) was $10.3 billion. On January 24, 1997, there were 216,898,817 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE The Proxy Statement for the annual meeting of security holders on April 17, 1997), is incorporated by reference for Part III. Item Captions and Index--Form 10-K Annual Report Item No. Page Part I 1. Business..............................................1, 8-18 2. Properties.......................................8-18, 24, 30 3. Legal Proceedings.......................................38-40 4. Submission of Matters to a Vote of Security Holders.......N/A 4a. Executive Officers of the Registrant.......................43 Part II 5. Market for the Registrant's Common Equity and Related Stockholder Matters.........................45,46 6. Selected Financial Data.....................................1 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............8-18 8. Financial Statements and Supplementary Data.......See Item 14 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................N/A Part III 10. Directors and Executive Officers of the Registrant........(a) 11. Executive Compensation....................................(a) 12. Security Ownership of Certain Beneficial Owners and Management............................................(a) 13. Certain Relationships and Related Transactions............(a) Part IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K a. Consolidated Statement of Earnings for the Fiscal Years Ended Dec. 27, 1996, Dec. 29, 1995, and Dec. 30, 1994 ......................................19 Consolidated Statement of Cash Flows for the Fiscal Years Ended Dec. 27, 1996, Dec. 29, 1995, and Dec. 30, 1994.......................................20 Consolidated Statement of Financial Position at Dec. 27, 1996, and Dec. 29, 1995........................21 Consolidated Statement of Changes in Shareholders' Equity for the Fiscal Years Ended Dec. 27, 1996, Dec. 29, 1995, and Dec. 30, 1994........................22 Notes to Consolidated Financial Statements for the Fiscal Years Ended Dec. 27, 1996, Dec. 29, 1995, and Dec. 30, 1994 ...................................23-42 Report of Independent Auditors..........................42 b. Reports on Form 8-K A report was filed on Oct. 17, 1996, reporting Item 5, Other Events -- Agreement and Plan of Merger with Conrail Inc., and Item 7, Financial Information and Exhibits -- Documents related to Agreement and Plan of Merger with Conrail Inc. filed as exhibits. (a) Part III will be incorporated by reference from the registrant's 1997 Proxy Statement pursuant to instructions G(1) and G(3) of the General Instructions to Form 10-K. Financial Highlights
(Millions of Dollars, Except Per Share Amounts) 1996 1995(b) 1994(c) 1993(d) 1992 ---------- --------- ---------- --------- --------- Summary of Operations(a) Operating Revenue $10,536 $10,304 $ 9,409 $ 8,766 $ 8,549 Operating Expense 9,014 8,921 8,227 7,792 7,636 Productivity/Restructuring Charge(e) -- 257 -- 93 699 -------- ------- --------- -------- -------- Total Operating Expense 9,014 9,178 8,227 7,885 8,335 -------- ------- --------- -------- -------- Operating Income $ 1,522 $ 1,126 $ 1,182 $ 881 $ 214 -------- ------- --------- -------- -------- Net Earnings $ 855 $ 618 $ 652 $ 359 $ 20 ======== ======= ======== ======== ======== Per Common Share(f) Net Earnings $ 4.00 $ 2.94 $ 3.12 $ 1.73 $ .10 Cash Dividends $ 1.04 $ .92 $ .88 $ .79 $ .76 Market Price--High $ 53.13 $ 46.13 $ 46.19 $ 44.07 $ 36.82 --Low $ 42.25 $ 34.63 $ 31.57 $ 33.19 $ 27.25 ======== ======= ======== ======== ======== Percentage Change from Prior Year(a) Operating Revenue 2.3 % 9.5% 7.3% 2.5 % 1.6 % Operating Expense (1.8)% 11.6% 4.3% (5.4)% (.7)% Operating Expense, Excluding Productivity/Restructuring Charge 1.0 % 8.4% 5.6% 2.0 % -- % Cash Dividends Per Common Share 13.0 % 4.5% 11.4% 3.9 % 6.3 % ========== ======== ========= ========= ========= Summary of Financial Position Cash, Cash Equivalents and Short-Term Investments $ 682 $ 660 $ 535 $ 499 $ 530 Working Capital (Deficit) $ (685) $(1,056) $ (840) $ (704) $ (859) Total Assets $ 16,965 $14,282 $ 13,724 $ 13,420 $ 13,049 Long-Term Debt $ 4,331 $ 2,222 $ 2,618 $ 3,133 $ 3,245 Shareholders' Equity $ 4,995 $ 4,242 $ 3,731 $ 3,180 $ 2,975 Book Value Per Common Share(f) $ 23.04 $ 20.15 $ 17.81 $ 15.27 $ 14.37 ======== ======= ======== ======== ======== Employee Count(g) Rail 28,559 29,537 29,729 30,461 30,916 Other 18,755 18,428 17,974 17,847 16,681 -------- ------- -------- --------- -------- Total 47,314 47,965 47,703 48,308 47,597 ======== ======= ======== ========= ========
See accompanying Notes to Consolidated Financial Statements. (a) In 1996, the company changed its earnings presentation to exclude non-transportation activities from operating revenue and expense. These activities, principally real estate and resort operations, are now included in other income in the consolidated statement of earnings. Prior-year amounts have been restated to conform to the 1996 presentation. (b) In 1995, the company recognized a net investment gain of $77 million, $51 million after tax, 24 cents per share, on the issuance of an equity interest in a Sea-Land terminal and related operations in Asia and the write-down of various investments. (c) 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, 20 cents per share. (d) 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, 26 cents per share. Of this amount, $51 million, 24 cents per share, related to applying the newly enacted statutory income tax rate to deferred tax balances as of Jan. 1, 1993. (e) In 1995, the company recorded a $257 million pretax charge to recognize the estimated costs of initiatives to revise, restructure and consolidate specific operations and administrative functions at its rail and container-shipping units. The restructuring charge reduced net earnings by $160 million, 76 cents per share. 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, 30 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, $2.19 per share. (f) Amounts per common share for 1992 through 1995 have been restated to reflect the 2-for-1 common stock split distributed to shareholders in December 1995. (g) Employee counts based on annual averages. 1 Chairman's Message 1996 was a momentous year for CSX. We achieved record financial performance. We also took ground-breaking steps to enhance the company's competitiveness, satisfy customer requirements, develop long-term growth prospects, and provide superior shareholder value. [Photo] Before discussing the company's financial results and the performance of our respective transportation units, let me review the proposed CSX/Conrail merger - - the event that made 1996 the most important year since the company's creation in 1980 from the merger of the Chessie and Seaboard rail systems. To better understand the rationale for our strategic merger agreement, it's important to consider the impact consolidation has had on the rail industry in recent years. Over the last two decades, deregulation and consolidation of the nation's railroads into strong, efficient networks has nurtured a rail renaissance that has greatly benefited customers, shareholders and the broader public interest in efficient transportation. More recently, that process accelerated, with the 1995 merger of the Burlington Northern and Santa Fe railroads, and last year's merger of the Union Pacific and Southern Pacific systems. Thus, the number of major rail carriers serving the Western half of the country went from four to two in less than a year. These mergers unavoidably set in motion efforts to consolidate the three major Eastern rail systems - CSX, Norfolk Southern and Conrail - into two networks. Naturally, each of the Eastern carriers was concerned it might be left without a partner should transcontinental mergers occur. Well aware that Norfolk Southern had attempted to acquire Conrail in its entirety on several occasions in recent years and was determined to do so again, CSX moved decisively to protect its vital interests. On Oct. 14, 1996, we entered into a strategic merger agreement with Conrail that called for CSX to acquire all outstanding shares of Conrail stock in a combined cash-stock transaction. We knew that Norfolk Southern would fight the merger. We also recognized that concessions would have to be made because of Conrail's unique market position in the Northeast, a situation created by the government out of necessity more than 20 years ago. Nevertheless, the logic for joining forces with Conrail was compelling. Conrail and CSX have complementary rail networks and business mixes. CSX routes, located mainly in the Southeast and Midwest, complement Conrail's routes in the Midwest and Northeast. 2 Chairman's Message Consolidating the two rail systems would create a more efficient rail network, enabling the combined company to improve service quality, reduce costs and attract new business. Expanded rail operations also would benefit other CSX business units that exchange traffic with the railroad, just as the broad scope of CSX's multimodal transportation services would strengthen our expanded rail operations and open up new markets to rail customers. As expected, Norfolk Southern vigorously contested the merger agreement and initiated a hostile, competing bid for Conrail. Initial efforts to reach a compromise with Norfolk Southern were unsuccessful. By mid-January 1997, we were at a virtual stalemate - with CSX having acquired just under 20% of Conrail stock and Norfolk Southern purchasing just under 10% of the company. Further complicating matters, Conrail shareholders had rejected a proposal necessary to put the proposed merger with CSX into effect. Search for Resolution Then, in late-January, Surface Transportation Board (STB) Chairwoman Linda Morgan made public statements noting the regulatory board's preference for a negotiated and balanced settlement of competitive issues in rail mergers. On Jan. 31, CSX, Conrail and Norfolk Southern began discussions aimed at preserving and enhancing competition and best serving the public interest. Norfolk Southern then sent CSX and Conrail a proposal that would in essence equally divide Conrail between Norfolk Southern and CSX. On March 7, CSX and Conrail amended their merger agreement to increase the price CSX will pay for each remaining share of Conrail to $115, payable in cash to Conrail shareholders by June 2, 1997. The amended agreement also allowed CSX to enter into negotiations with Norfolk Southern to craft a compromise. We expect those discussions will lead to an agreement between CSX and Norfolk Southern for a joint purchase of Conrail and a roughly even division of its routes and assets. This would enable CSX and Norfolk Southern to file a joint application before the STB, with the ultimate goal being two exceptional rail systems in the East. This likely outcome is one we have long sought and is consistent with our own position since the mid-1980's when we successfully opposed the acquisition of Conrail by Norfolk Southern. It will result in a stronger, more comprehensive and competitive CSX rail system that will produce tremendous advantages for all of CSX's constituencies. Our customers will benefit from faster, more reliable service, more direct single-line routings, an improved cost structure, and better equipment supply and utilization. Our employees will benefit from greater employment and advancement opportunities that flow from a stronger, growing enterprise. Our shareholders will benefit from ownership of an expanded international transportation company with a scale and efficiency to compete more effectively at home and abroad. The public and the communities we serve also will benefit from lower transportation costs, reduced reliance on truck-clogged local and interstate highways, and an overall improvement in the safety, efficiency and reliability of the U.S. transportation system. In addition, restoring competitive balance to the Northeast will help to ensure that the regulatory reforms that we all worked so dilligently to accomplish in the 1980s will be preserved. As this process unfolds, I want to assure you that we remain committed to two absolute objectives. First, we will make every effort to protect your investment and generate superior returns over the long term. Second, we will continue to aggressively pursue our long-term strategy to maximize the performance of each of our business units, in terms of operating income, return on invested capital and free cash flow. Record 1996 Results All of CSX's major transportation units turned in strong performances in 1996, resulting in record consolidated results for operating revenue, operating income and net earnings. CSX earned $855 million, or $4.00 per share, in 1996, compared with $618 million, or $2.94 per share, last year. Excluding a restructuring charge and one-time gain recorded in 1995, earnings per share rose nearly 16% in 1996 from 1995's pro forma figure of $3.46. Uncertainty surrounding the CSX/Conrail merger agreement and the competing bid from Norfolk Southern took its toll on the performance of CSX stock in 1996. After reaching a new high of 53 1/8 in May, CSX stock closed the year at 42 1/4, down 7.4% from last year's close. While disappointed by the stock's performance in 1996, we are already seeing improvement as the Conrail situation is becoming clearer. We expect CSX stock, over time, will more accurately reflect the company's enhanced core earning power. We remain committed to our previously stated goal of doubling the market value of CSX stock over the five-year period that began in 1995. Pro Forma Net Earnings (Millions of Dollars, Except Per Share Amounts*) 1996 1995 1994 ----------- ------------- ------------ Per Per Per Description (All After Tax) Amt. Share Amt. Share Amt. Share Net Earnings as Reported $855 $4.00 $618 $2.94 $652 $3.12 Net Gains From Investment Transactions -- -- (51) (.24) (42) (.20) Restructuring Charge -- -- 160 .76 -- -- ---- ----- ---- ----- ---- ----- Pro Forma Net Earnings $855 $4.00 $727 $3.46 $610 $2.92 ==== ===== ==== ===== ==== ===== * Per-share amounts for 1995 and 1994 reflect stock split in December 1995. 3 Chairman's Message Rail Results Our rail unit, CSX Transportation Inc. (CSXT), turned in another excellent year, achieving record financial results and reducing its operating ratio by nearly a full point. CSXT stepped up the pace of its campaign to boost service reliability by intensifying its efforts in three key areas: terminal improvements, industrial switching and network operations. Progress in all three areas is critical to the railroad's commitment to achieve operational excellence, which in turn will allow CSXT to aggressively pursue growth opportunities. The service reliability process produced remarkable results in 1996. For example, the terminal improvement plan initially called for upgrading the performance of one terminal in 1996, but the results were so impressive that the process was rolled out to 30 terminals by year-end. Shippers are recognizing the railroad's service reliability improvements, and prospects for profitable growth are brighter today than ever. Without in any way diminishing its intensive focus on reducing costs, CSXT will continue to improve its operational performance and service levels in 1997, while seeking to maximize revenue growth and profitability. These efforts put CSXT on track for another record year in 1997. I am pleased to report that CSXT and the other major U.S. freight railroads successfully negotiated five-year labor agreements in 1996. The landmark labor contracts were reached without work stoppage or government intervention, a departure from recent national bargaining rounds and an encouraging sign of improved labor-management relations throughout the rail industry. Safety continues to be a top priority at the railroad. In 1996, CSXT continued to reduce its train accident rate, and the latest figures from the Federal Railroad Administration place CSXT as the safest Class I railroad in the nation in terms of train accidents. Despite dramatic improvements in safety over the past seven years, the railroad recognizes that much work remains to be done to further reduce accidents and employee injuries. Container-shipping Results Our container-shipping unit, Sea-Land Service Inc. (Sea-Land), produced record results despite rate weakness in key trade lanes and higher fuel costs. Sea-Land capitalized on strong demand for containerized cargo and increased its market share in every major trade lane while holding the line on expenses. As a result, the company increased operating income 34% to $318 million, excluding the 1995 restructuring charge. During 1996, Sea-Land and Maersk Lines made considerable progress implementing their global alliance, which will be fully operational by the end of this year. The alliance optimizes the resources of two of the world's largest and most respected shipping lines, allowing both companies to reduce costs and improve service across their global network. After years of debate, the U.S. Congress passed legislation that bolsters the U.S. merchant marine. The Maritime Security Act establishes a program to provide participating carriers operating assistance to partially offset the higher costs of operating under the U.S. flag. Sea-Land has enrolled 15 vessels in the program and will receive $2.1 million a year for each participating vessel. 4 Chairman's Message The outlook for the container-shipping industry is improving, with further consolidation and government deregulation providing encouraging signs that the business is responding more directly to rational market forces. We believe the over-capacity that eroded the industry's profitability during 1996 will peak in 1997, and we see the business fundamentals improving thereafter. We are encouraged by Sea-Land's 1996 results, because they demonstrate the company's ability to increase earnings substantially, even in a difficult rate environment. Sea-Land came through this tough year with flying colors, showing the company stands at the pinnacle of its industry, as the low-cost carrier and leader in innovative technology and customer service. We are eager to show the kind of break-out results Sea-Land can produce in a more favorable environment. Other Transportation Results American Commercial Lines Inc. (ACL), CSX's barge unit, turned in another strong performance in 1996. The unit produced record operating income, up 6% from last year's excellent performance, reflecting the increased size of ACL's barge fleet and robust demand for export grain and other bulk commodities. Higher demand for steel products and expanded operations in South America also contributed to the strong performance. CSX Intermodal Inc. (CSXI) responded aggressively to stiff truck competition that has exerted downward pressure on intermodal rates since 1995. The company consolidated its headquarters in Jacksonville, Fla., and reduced administrative and overhead costs significantly. CSXI also redesigned its service network, concentrating its efforts and resources in markets that produce the best returns and growth opportunities, while reducing or eliminating service in lower-margin freight lanes. These steps enabled CSXI to increase operating income 17% over last year's results and helped position the company to achieve significant service improvements and higher profits in 1997. Customized Transportation Inc. (CTI), our fast-growing contract logistics management company, continued to diversify its customer base, both in the United States and abroad. Building upon its already strong reputation as a leading provider of supply-chain management for the automotive industry, CTI expanded its presence in non-automotive markets, including the electronics, retail and chemical industries. Operating revenues rose 32% and operating income rose 36%, both to record levels. Looking to the Future In 1997, each of CSX's transportation units expects to build upon its solid 1996 performance, and the result should be another record year for the corporation. We expect a continuation of the favorable economic environment we experienced last year--with modest economic growth and robust demand for transportation services. As global commerce continues to evolve, we believe the increasingly complex distribution requirements of our customers will create significant opportunities for CSX. Our transportation units, while continuing to focus on improving the fundamentals of their business, are working together to identify segments of the transportation market where our collective capabilities can produce exceptional value for our customers and attractive returns for our shareholders. The results we achieved in 1996 by integrating services for certain global customers are encouraging. We will expand this integrated account approach in 1997, positioning CSX to meet the widest possible range of customers' global transportation service needs. We are confident about the outlook for our business. We remain focused on controlling costs, maximizing returns on invested capital and generating strong free cash flow. At the same time, we will pursue creative strategies to enhance CSX's ability to meet customer requirements and achieve profitable growth. As always, our efforts are guided by our overriding commitment to produce superior shareholder value over the long term. Sincerely, /s/ John W. Snow John W. Snow Chairman and Chief Executive Officer 5 Public Policy Statement The need for business and government to become more efficient as we prepare for the 21st century was a key factor in public policy debates in 1996. While we expect these considerations to remain in 1997, we also anticipate renewed challenges to decisions favorable to business and economic opportunity. In 1996 there were two events of major significance to the transportation enterprises of CSX. The Congress and the Administration agreed on a bipartisan basis to create a public-private partnership that will maintain and strengthen a fleet of merchant ships operating under U.S. flag with U.S. crews. To maintain strategic sealift capability, ships enrolled in the Maritime Security Program will receive an annual payment that will enable them to compete with foreign-flagged ships. Sea-Land has 15 ships signed up for the program and will receive annual payments of $31.5 million for making its highly efficient maritime logistics network available to the U.S. government in times of emergency. The Surface Transportation Board, the successor to the Interstate Commerce Commission, handed down a landmark decision in the Union Pacific-Southern Pacific merger case, whose principles made it possible for CSX and Conrail to enter into agreement on a strategic, friendly merger. The Board's decision affirmed the goals of the Staggers Rail Act of 1980, which sought to free the railroads from the stranglehold of regulation and to operate as other businesses do. This matter is discussed more extensively in the Chairman's message. The relation of government to the maritime industry will be a central transportation issue in the 105th Congress. In 1995, an important step toward less regulation of ocean shipping was taken when the Congress directed the Coast Guard to reduce regulations that today place American carriers at a competitive disadvantage to foreign carriers. With this new authority, the Coast Guard will be able to conform U.S.-vessel standards to the same international standards by which the vessels of other nations are evaluated. CSX and Sea-Land have supported a staged reduction in the economic regulation of U.S. container-shipping lines and pressed for reform of the Shipping Act of 1984. While Congress is expected to take up these needed changes again, they have aroused strong opposition from some ports, foreign shipping lines and labor unions. At the same time, advocates for foreign carriers may use the goal of "deregulation" to further their efforts to gain access to America's domestic waterborne commerce by seeking repeal of the Jones Act. U.S.-flag carriers, which serve U.S. ports under the terms of the Jones Act, should not be forced to compete with foreign carriers that enjoy similar protection in their countries and do not have to comply with the basic wage, tax, safety and health laws of the United States. A new attempt will be made in this Congress to enact legislation to carry out the provisions of an international agreement ending ship subsidies by foreign governments to their national shipyards. An important element of the agreement is the ending of the 50% duty U.S. ships must pay on repairs done in overseas shipyards. We support efforts to make U.S. shipyards competitive in the world marketplace and to eliminate unfair burdens on U.S. ships. While the central rail issue for CSX in 1997 will obviously be resolving issues surrounding Conrail, other pressing issues will affect the entire rail industry. Mergers may well be used as an excuse by shipper groups and others to seek new regulation of railroads and to roll back the regulatory freedoms that have brought about the renaissance of railroads. This effort may include seeking to require railroads to allow other carriers to operate over their lines. To allow railroads access to the rail lines of their competitors would require a whole new set of regulatory actions to establish the terms and conditions and the rates for this use. The safety of railroads, already tightly regulated by the federal government, may again become an issue when the Congress takes up the reauthorization of the Rail Safety Act. A series of highly publicized train accidents at the beginning of 1996 cast a shadow over the industry's excellent record of improving safety. CSX continues to believe that requiring railroads to meet performance standards for safety brings more positive results than the current command and control system. The most serious safety problem for the rail industry and the public remains rail-highway grade crossings. CSX will join with the rest of the industry in seeking the cooperation of federal, state and local governments to solve this persistent problem. As an international transportation company, CSX will continue to support decisions by the Congress and the administration that will foster greater economic growth and greater freedom from regulation in the domestic and the world marketplace. We remain committed to fair and open trade, to a balanced federal budget, to a more equitable and simpler tax system and to the goal of a smaller, more efficient government. 6 Financial Policy 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 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 objectives. 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 - CSX business units are expected to earn returns on capital in excess of the CSX cost of capital. 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 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 for lower tax rates. 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 trade financial instruments actively for profit or loss. Dividends - The cash dividend is reviewed regularly in the context of inflation and competitive dividend yields. The dividend may be increased periodically if cash flow projections and reinvestment opportunities show the higher payout level will best benefit shareholders. The company cannot always guarantee that its goals will be met, despite its best efforts. For example, revenue and operating expenses are affected by the state of the economy both in general and in the industries it serves, and changes in regulatory policy can drastically change the cost and feasibility of certain company operations. The impact of factors such as these, along with the uncertainty inherently involved in predicting future events, should be carefully borne in mind when reading company projections or other forward-looking statements in this report. 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 internal controls designed to provide reasonable assurance that assets are safeguarded and that transactions are properly authorized by management and recorded in conformity with generally accepted accounting principles. Controls include accounting tests, written policies and procedures and a code of corporate conduct routinely communicated to all employees. An internal audit staff monitors compliance with and the 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 42. 7 Analysis of Operations CSX Corporation is a leader in providing multimodal freight transportation and contract logistics services around the world. The company's focus, advanced at each of its business units, is on providing customers with efficient, competitive transportation and related trade services and delivering superior value to CSX shareholders. Average Return on Equity (Percent) [GRAPH] '92 '93 '94 '95 '96 0.7 11.7 18.6 15.5 18.9 *Excluding after-tax productivity/restructuring charges and the impact of the 1993 tax-rate increase, return on equity in 1992, 1993 and 1995 would have been 13.3%, 14.0% and 19.1%, respectively. CSX Transportation Inc. CSXT is a major eastern railroad, providing rail freight transportation and distribution services over 18,504 route miles of track in 20 states in the East, Midwest and South; and in Ontario, Canada. CSXT accounted for 47% of CSX's operating revenue, 74% of operating income and 63% of invested capital in 1996. Sea-Land Service Inc. Sea-Land is a worldwide leader in container-shipping transportation and logistics services. The carrier operates a fleet of 99 container ships and approximately 208,000 containers in U.S. and foreign trade and serves 120 ports. In addition, Sea-Land operates 28 marine terminal facilities across its global network. Sea-Land accounted for 38% of CSX's operating revenue, 21% of operating income and 19% of invested capital in 1996. American Commercial Lines Inc. ACL is the nation's leader in barge transportation, operating 137 towboats and more than 3,700 barges on U.S. and South American waterways. ACL accounted for 6% of CSX's operating revenue, 7% of operating income and 4% of invested capital in 1996. CSX Intermodal Inc. CSXI provides transcontinental intermodal transportation services and operates a network of dedicated intermodal facilities across North America. CSXI contributed 6% of CSX's operating revenue and 2% of operating income in 1996. Customized Transportation Inc. CTI is a provider of contract logistics, distribution, warehousing, assembly and just-in-time delivery services. In 1996, CTI provided 3% of CSX's operating revenue and 1% of operating income. Non-transportation Resort holdings include the Mobil Five-Star and AAA Five-Diamond hotel, The Greenbrier in White Sulphur Springs, W.Va., and the Grand Teton Lodge Company in Moran, Wyo. CSX Real Property Inc. is responsible for sales, leasing and development of CSX-owned properties. CSX holds a majority interest in Yukon Pacific Corporation, which is promoting construction of the Trans-Alaska Gas System to transport Alaska's North Slope natural gas to Valdez for export to Asian markets. 8 Analysis of Operations Average Return on Assets (Percent) [GRAPH] '92 '93 '94 '95 '96 0.2 2.7 4.8 4.4 5.9 *Excluding after-tax productivity/restructuring charges and the impact of the 1993 tax-rate increase, return on assets in 1992, 1993 and 1995 would have been 3.6%, 3.6% and 5.6%, respectively. Cash Provided by Operations (Millions of Dollars) [GRAPH] '92 '93 '94 '95 '96 $939 $962 $1,326 $1,567 $1,440 Fixed Charge Coverage [GRAPH] '92 '93 '94 '95 '96 1.0 2.3 3.1 3.2 4.0 *Excluding after-tax productivity/restructuring charges, fixed charge coverage in 1992, 1993 and 1995 would have been 2.5x, 2.5x and 3.7x, respectively. CSX had excellent results in 1996. The company posted another record year while overcoming several challenges, including: severe winter conditions, which affected first-quarter rail operations; rate pressures in several of Sea-Land's major trade lanes; and higher-than- expected fuel prices experienced by all units. Modest revenue gains, combined with continued cost-control efforts, contributed to a 10% increase in operating income, excluding the 1995 restructuring charge. The railroad controlled costs while benefiting from strength in several commodities and selective price increases. Sea-Land achieved record results by offsetting rate pressures with cost-cutting measures and market-share gains. Discussion of Earnings Net earnings in 1996 totaled $855 million, $4.00 per share, compared with $618 million, $2.94 per share, in 1995, and $652 million, $3.12 per share, in 1994. The 1995 net earnings included the effect of a second-quarter restructuring charge to recognize CSXT's write-down of obsolete telecommunications assets and related employee-separation costs. The charge also included the cost of reflagging five Sea-Land vessels and the consolidation of its corporate and divisional headquarters in Charlotte, N.C. The 1995 results included a gain from the issuance of an equity interest in a Sea-Land terminal and related operations in Asia. Earnings for 1994 included the accelerated recognition of the remaining gain on a 1988 sale of track in south Florida. Consolidated operating revenue increased $232 million, 2% above 1995. CSXT contributed $90 million of the additional revenue, largely resulting from strong performances by its coal and auto business units. Sea-Land generated $43 million of the revenue increase, due to higher volumes in major trade lanes. ACL produced $68 million in additional revenue, primarily due to continued strong demand for export grain and the acquisition of Conti-Carriers & Terminals Inc. In 1995, operating revenue increased $895 million, or 10%, over 1994's results. Sea-Land contributed $516 million of the additional revenue, resulting from higher volumes in its major trade lanes and moderate rate increases. CSXT generated $194 million of the revenue increase, due to improved pricing and merchandise traffic mix. ACL produced $105 million in additional revenue, capitalizing on strong international demand for U.S. grain. All 1995 and 1994 per-share amounts in the text have been adjusted to reflect the 2-for-1 stock split that occured in the fourth quarter of 1995. 9 Analysis of Operations In 1996, all CSX units continued their efforts to control costs through performance improvement initiatives. Consolidated operating expense in 1996 decreased $164 million from 1995, which included the $257 million pretax restructuring charge incurred by CSXT and Sea-Land. Operating expense in 1995 was $951 million higher than the 1994 level, primarily due to the restructuring charge and higher volumes. Consolidated operating income for 1996 was $1.5 billion, compared with $1.1 billion in 1995 and $1.2 billion in 1994. Absent the restructuring charge, 1995 operating income would have been $1.4 billion. Other income totaled $43 million, compared with $118 million in 1995 and $105 million in 1994. In 1995, other income included a $77 million pretax net investment gain, primarily from the issuance of an equity interest in a Sea-Land terminal facility and related operations in Asia. In 1994, other income included the $69 million accelerated pretax gain on the sale of track in south Florida. Discussion of Cash Flows Cash provided by operating activities totaled $1.4 billion in 1996, compared with $1.6 billion in 1995 and $1.3 billion in 1994. Cash provided by operating activities was adequate to fund net property investments and cash dividends in 1996, 1995 and 1994. In addition, CSX funded scheduled long-term debt payments of $486 million, $343 million and $447 million in 1996, 1995 and 1994, respectively. Payments related to the 1991/92 productivity charge covering labor agreements providing for two-member train crews and payments provided for in the 1995 restructuring charge affected cash provided by operations. The company has paid $940 million related to these productivity and restructuring charges to date, $88 million of which was in 1996. CSX continues to emphasize asset utilization and capital productivity. Capital investments were $1.2 billion in 1996 and 1995, and $875 million in 1994.
Operating Results (Millions of Dollars) 1996 ---------------------------------------------------------------- Container Inter- Contract Elim./ Total Rail Shipping modal Barge Logistics Other ---------------------------------------------------------------- Operating Revenue $10,536 $4,909 $4,051 $674 $622 $316 $ (36) ---------------------------------------------------------------- Operating Expense Labor and Fringe Benefits 3,161 1,881 900 63 138 124 55 Materials, Supplies and Other(a) 2,530 867 1,126 92 242 49 154 Building and Equipment Rent 1,143 365 630 73 35 40 -- Inland Transportation 995 -- 750 395 -- 64 (214) Depreciation 611 394 135 15 36 9 22 Fuel 574 275 192 1 59 13 34 Restructuring Charge -- -- -- -- -- -- -- ---------------------------------------------------------------- Total Expense 9,014 3,782 3,733 639 510 299 51 ---------------------------------------------------------------- Operating Income (Loss) $ 1,522 $1,127 $ 318 $ 35 $112 $ 17 $(87) ---------------------------------------------------------------- Pro Forma Operating Income (Loss)(b) $ 1,522 $1,127 $ 318 $ 35 $112 $ 17 $(87) ---------------------------------------------------------------- Operating Ratio(b) 77.0% 92.1% 94.8% 82.0% 94.5% ---------------------------------------------------------------- Average Employment 28,559 8,982 1,090 3,418 2,120 ---------------------------------------------------------------- Property Additions $ 764 $ 307 $ 24 $ 91 $ 15 ---------------------------------------------------------------- 1995 ------------------------------------------------------------- Container Inter- Contract Elim./ Total Rail Shipping modal(c) Barge Logistics Other ------------------------------------------------------------- Operating Revenue $10,304 $4,819 $4,008 $707 $554 $240 $(24) ------------------------------------------------------------- Operating Expense Labor and Fringe Benefits 3,133 1,847 934 85 122 92 53 Materials, Supplies and Other(a) 2,622 941 1,166 94 232 46 143 Building and Equipment Rent 1,134 373 636 72 20 33 -- Inland Transportation 970 -- 730 411 -- 41 (212) Depreciation 588 367 139 14 32 6 30 Fuel 474 227 165 1 42 10 29 Restructuring Charge 257 196 61 -- -- -- -- ------------------------------------------------------------- Total Expense 9,178 3,951 3,831 677 448 228 43 ------------------------------------------------------------- Operating Income (Loss) $ 1,126 $ 868 $ 177 $ 30 $ 106 $ 12 $ (67) ------------------------------------------------------------- Pro Forma Operating Income (Loss)(b) $ 1,383 $ 1,064 $ 238 $ 30 $ 106 $ 12 $ (67) ------------------------------------------------------------- Operating Ratio(b) 77.9% 94.1% 95.8% 80.9% 94.7% ------------------------------------------------------------- Average Employment 29,537 9,168 1,434 2,914 1,853 ------------------------------------------------------------- Property Additions $ 765 $ 269 $ 57 $ 33 $ 8 ------------------------------------------------------------- 1994 ---------------------------------------------------------------- Container Inter- Contract Elim./ Total Rail Shipping modal(c) Barge Logistics Other ---------------------------------------------------------------- Operating Revenue $9,409 $4,625 $3,492 $684 $449 $182 $ (23) ---------------------------------------------------------------- Operating Expense Labor and Fringe Benefits 3,005 1,828 859 89 104 71 54 Materials, Supplies and Other(a) 2,311 918 919 83 191 44 156 Building and Equipment Rent 1,087 374 600 67 19 27 -- Inland Transportation 839 -- 676 372 -- 14 (223) Depreciation 564 352 132 11 32 6 31 Fuel 421 224 119 1 40 10 27 Restructuring Charge -- -- -- -- -- -- -- ---------------------------------------------------------------- Total Expense 8,227 3,696 3,305 623 386 172 45 ---------------------------------------------------------------- Operating Income (Loss) $1,182 $ 929 $ 187 $ 61 $ 63 $ 10 $ (68) ---------------------------------------------------------------- Pro Forma Operating Income (Loss)(b) $1,182 $ 929 $ 187 $ 61 $ 63 $ 10 $ (68) ---------------------------------------------------------------- Operating Ratio(b) 79.9% 94.6% 91.1% 86.0% 94.5% ---------------------------------------------------------------- Average Employment 29,729 9,437 1,626 2,644 1,475 ---------------------------------------------------------------- Property Additions $ 641 $ 133 $ 50 $ 12 $ 7 ----------------------------------------------------------------
(a) A portion of intercompany interest income received from the CSX parent company has been classified as a reduction of Materials, Supplies & Other by the container-shipping unit. This amount was $64 million, $65 million and $64 million in 1996, 1995 and 1994, respectively, and the corresponding charge is included in Eliminations/Other. (b) Excludes restructuring charge. (c) Intermodal results for 1995 and 1994 were restated to conform to the 1996 presentation. Beginning in 1996, the container-shipping unit assumed primary responsibility for direct purchase of transportation from non-affiliated rail carriers. Prior to 1996, the intermodal unit purchased these services for the container-shipping unit. 10 Analysis of Operations Cash dividends per common share were $1.04, compared with 92 cents in 1995 and 88 cents in 1994. In 1997, the company expects its operations to continue generating significant cash flow to fund working capital requirements, capital expenditures, debt repayment and dividends. Cash flow for 1997 also will be affected by the proposed Conrail Acquisition (see right column). Discussion of Financial Position Cash, cash equivalents and short-term investments totaled $682 million at Dec. 27, 1996, vs. $660 million at Dec. 29, 1995. The working capital deficit decreased $371 million during 1996, primarily due to lower current maturities of long-term debt. The company had a year-end working capital deficit of $685 million in 1996, compared with $1.06 billion in 1995. 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. Long-term debt increased $2.1 billion from 1995 to $4.3 billion at Dec. 27, 1996, primarily due to borrowings to finance the company's acquisition of approximately 19.9% of Conrail's outstanding shares in November. (See "Conrail Acquisition," right column.) The 1996 ratio of debt-to-total capitalization increased to 46% from 34% in 1995. Conrail Acquisition CSX is negotiating the final details of a transaction to combine key components of the current Conrail Inc. operations into the CSX system. Discussions with Norfolk Southern Corporation are expected to lead to a roughly equal division of the Conrail system between the two remaining major rail carriers in the East. The broad increase in geographic scope the acquisition will bring will be a significant advantage to CSX, creating the ability to enhance revenues through improved service and efficiency following operational integration. The final terms of the acquisition will remain subject to a number of conditions and approvals, including approval by the Surface Transportation Board (STB), which has the authority to modify contract terms and impose additional conditions. As a result, the assumptions made in this analysis of operations concerning key items such as the definitive form of the transaction, its likely timing, and the future operations of the combined system all involve forecasts and estimates about future events. These forecasts and estimates are subject not only to the usual uncertainty involved in predicting the effects of future economic conditions, but also the outcome of the current negotiations and extensive regulatory proceedings. 11 Prior to the current negotiations, CSX and Conrail had agreed on Oct. 14, 1996, to a strategic merger in which a good deal of Conrail assets would have been retained in the combined CSX/Conrail entity, although CSX believed concessions would have to be made. This combination, not unexpectedly, was challenged by customers and others, including Norfolk Southern, which announced a conditional all-cash offer for Conrail shares at a price that eventually rose to $115 per share. As a first step toward completion of that proposed merger, CSX consummated a tender offer for 19.9% of the outstanding Conrail stock on Nov. 20, 1996, for $110 in cash per share, or about $2 billion. On Dec. 6, 1996, CSX commenced a second offer, also at $110 cash per share, which would have brought its total holdings to 40% of the outstanding Conrail shares. This second offer was conditioned on a vote by Conrail shareholders to allow Conrail to opt out of a Pennsylvania statute that would otherwise preclude CSX from holding 20% or more of its outstanding shares. On Jan. 17, 1997, Conrail's shareholders voted against the opt-out, preventing CSX from acquiring the additional shares. This event, along with public comments on competition and the preference for a negotiated settlement of competitive issues from the Chairwoman of the STB, prompted CSX, Conrail and Norfolk Southern to commence discussions aimed at resolving those issues. Those discussions led to the current proposed structure, in which all of the outstanding shares of Conrail will be acquired for cash at $115 per share, with roughly half of the system to be shared with Norfolk Southern. This will result in both CSX and Norfolk Southern having vital access to markets in the Northeast, and will achieve the goal of maintaining a balanced competitive rail market in the East. The exercise of actual control over Conrail or any of its rail operations by either CSX or Norfolk Southern is not legally permitted until an order is issued by the STB. In the meantime, the shares of Conrail will be held in a voting trust. CSX arranged a five-year, $4.8 billion bank credit facility in November 1996 to finance the Conrail transaction and meet general working capital needs. This credit facility is expected to be modified once the final form of the Conrail acquisition is determined. A significant portion of the related commercial paper and other borrowings used to purchase Conrail shares in 1996 is intended to be replaced with long-term debt once the acquisition is completed. At the end of 1996, CSX held 19.9% of Conrail stock purchased through the first tender offer. Under applicable accounting rules, this minority interest was accounted for under the cost method as an investment in an unconsolidated subsidiary. The method of accounting applicable to CSX holdings of Conrail stock for future periods may differ, based on the timing and final structure of the related transactions. Management believes that approval and completion of the combination will result in growth of the rail revenue base through expansion of single-line service, and the company's ability to compete more effectively on certain routes along which large quantities of goods are now transported by truck. Single-line service is preferred by shippers over joint-line service because of lower transaction costs, reduced delays, less damage from interchange operations and single-carrier accountability. The addition of Conrail lines to the CSX network also will improve operational efficiency through better asset utilization. Optimization of train sizes, increased length of haul, shorter routes to many destinations and reduced empty movements all could be expected to drive cost reductions for the combined rail networks. Because of the time needed to obtain needed regulatory and other approvals, the company does not expect integrated operations of the two companies to have an effect on fiscal periods before 1998. The primary impact of the proposed transaction prior to the integration of operations is likely to be the after-tax effect on both earnings and cash flows of interest on debt used to acquire and hold Conrail shares, partially offset by Conrail dividends. The average interest rate on this debt in 1996 was approximately 6%. The degree of negative impact during 1997 will depend on the specific timing of related transactions. 12 ANALYSIS OF OPERATIONS Other Matters Environmental management is an important part of CSX's business planning. CSX focuses on finding the most efficient, cost-effective solutions for dealing responsibly with waste materials generated from past and present business operations. The solutions range from simple recycling to sophisticated remediation. 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 and local statutes. 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 that may pay some or all of such costs associated with site investigation and cleanup or from whom such costs may be recovered. The wide range of costs of possible remediation alternatives, changing cleanup technology, the length of time over which these matters develop and evolving governmental standards make it impossible to estimate precisely the company's potential liability for the costs associated with the assessment and remediation of contaminated sites. The rail unit has identified and maintains reserves for approximately 270 sites at which the company is or may be liable for remediation costs. The company reviews its environmental reserves at least quarterly to determine whether additional provisions are necessary. Based on current information, the company believes its reserves are adequate to meet remedial actions and 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 and monitoring efforts amounted to $44 million in 1996. This compares with $43 million in 1995 and $39 million in 1994. During 1997, the company expects to incur remedial environmental expenditures in the range of $40 to $50 million. The company and its subsidiaries are subject to a number of legal proceedings and potential actions in addition to those related to environmental issues. Based upon information currently available, these actions are not expected to have a materially adverse impact on results of operations or financial condition of the company. CSX employs risk management strategies to address business and financial market risks, but there are no significant hedging or derivative financial instruments used in its risk management program. The company may alter this position in response to evolving business and market conditions. Financial management periodically assesses the interest rate sensitivity of its portfolio of investments and borrowings, and may use financial instruments to manage the net interest exposure. Management monitors fuel oil prices for volatility. It also monitors 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 operating risks and exposures, not to trade financial instruments actively. Rail Results CSX Transportation Inc. (CSXT) posted record operating income in 1996, up 6% from 1995 and 21% from 1994, excluding the charge in 1995. The results are primarily due to strong performances by the coal and auto business units, continued selective rate increases and ongoing cost-control efforts. Improved pricing and volume strength combined to produce operating revenue of $4.9 billion, a 2% increase over 1995 and a 6% increase over 1994. Shipments of coal, CSXT's major commodity, remained strong in 1996, with total coal volume increasing to 163.6 million tons vs. 158.5 million tons in 1995 and 153.7 million tons in 1994. RAIL OPERATING REVENUE (Millions of Dollars) [GRAPH] '92 '93 '94 '95 '96 $4,434 $4,380 $4,625 $4,819 $4,909 13 ANALYSIS OF OPERATIONS Total merchandise traffic of 2.9 million carloads remained level with 1995 and increased 4% over 1994. Chemical traffic remained strong, due to steady demand for plastic production. Traffic remained steady with 1995's level and increased 6% over 1994. Driven by strong demand for trucks and sport utility vehicles, the automotive market experienced a 3% increase in carloads and a like increase in revenues in 1996. A late harvest caused grain shipments to be less robust than in the prior year. This resulted in a 9% decrease in carloads and a 4% decrease in revenues for agricultural products. Compared with 1994, carloads in 1996 decreased 3%, while revenue rose 2%. Demand for phosphates and fertilizer remained solid. Carloads were level with 1995, while revenue decreased 1%. This compares with a 9% increase in carloads and a 10% increase in revenue over 1994. Rail Commodities by Carload Carloads Revenue (Thousands) (Millions of Dollars) --------------------- ------------------------- 1996 1995 1994 1996 1995 1994 --------------------- ------------------------- Automobiles 367 357 354 $ 520 $ 503 $ 493 Chemicals 408 406 386 719 700 685 Minerals 428 414 419 379 375 365 Food & Consumer 167 179 176 199 207 204 Agricultural Products 254 280 263 323 336 318 Metals 277 301 292 290 291 285 Forest Products 443 456 442 472 464 444 Phosphates & Fertilizer 511 512 470 279 282 254 Coal 1,711 1,678 1,678 1,584 1,523 1,465 ---------------------- ----------------------- Total 4,566 4,583 4,480 4,765 4,681 4,513 ====================== Other Revenue 144 138 112 ------------------------ Total Operating Revenue $4,909 $4,819 $4,625 ======================== Throughout the year, CSXT continued its emphasis on cost control. Despite bad weather earlier in the first quarter and a 20% rise in the average price of diesel fuel, rail operating expense rose only 1% over 1995, excluding the 1995 second-quarter charge, and 2% over 1994. On that basis, the railroad lowered its operating ratio (the ratio of operating expense to operating revenue) from 77.9% to 77.0% -- a record for the unit. The ongoing efforts of the unit's Performance Improvement Teams (PITs) resulted in cost savings of more than $106 million. PIT initiatives also resulted in more cost-effective procedures for locomotive and car repair, as well as maintenance of way. Labor and fringe benefits expense increased 2% to $1.88 billion, vs. $1.85 billion in 1995 and $1.83 billion in 1994. Rail management successfully negotiated, without a strike, a union contract that provides for competitive increases in labor and fringe benefits over the next five years. Rail Assets Owned or leased units as of Dec. 27, 1996 Freight Cars Box Cars 14,872 Open-Top Hoppers 24,760 Covered Hoppers 18,248 Gondolas 24,533 Other Cars 15,379 ------ Total 97,792 ====== Locomotives 2,781 Track Route Miles 18,504 Track Miles 31,365 Safety continues to be a top priority at CSXT. During 1996, the railroad reduced train accidents 3% over 1995, and the latest published figures from the Federal Railroad Administration place CSXT as the safest Class I freight railroad in the nation. Employee safety performance in 1996 dipped slightly compared with 1995's record year. While zero injuries continues to be the ultimate goal, employees have made tremendous gains by reducing personal injuries by 79% over the past seven years. Of equal importance is CSXT's emphasis on public safety. In 1996, the railroad continued its industry leadership in the area of rail-highway grade crossing safety, where the number of collisions dropped 23%. This dramatic improvement is attributed to two factors: public education and the elimination of unneeded crossings. CSXT employees delivered hundreds of presentations during 1996 to raise the motoring public's awareness of crossing safety. 14 ANALYSIS OF OPERATIONS RAIL OPERATING EXPENSE (Millions of Dollars) [GRAPH] '92 '93 '94 '95 '96 $4,313 $3,634 $3,696 $3,951 $3,782 Productivity/restructuring charges in 1992 and 1995 were $619 million and $196 million, respectively. These public education efforts touched thousands of lives throughout CSXT's 20-state system, ranging from school children to school bus and commercial truck drivers. In addition, more than 500 redundant or unneeded crossings were eliminated last year. Greater asset utilization in 1996 enhanced CSXT's continued efforts to constrain capital expenditures. Rail capital additions were $764 million in 1996 vs. $765 million in 1995 and $641 million in 1994. In 1996, CSXT took delivery of 138 new fuel-efficient 4,400-horsepower AC locomotives, each of which has the power of two older units. CSXT became the first railroad in North America to place into service the new 6,000-horsepower AC model, the world's most powerful single-engine locomotive. The company is presently testing three AC6000s in anticipation of taking delivery of 50 more in 1997. As of year-end 1996, CSXT's fleet of approximately 2,800 locomotives included 255 AC units. CSXT expects continued earnings growth in 1997, with modest volume and revenue increases across its major lines of business. The unit will continue its focus on becoming a High Performance Organization, which involves process re-engineering of core operations. In particular, the railroad will continue improving terminal throughput to optimize asset utilization and on-time performance. Thirty terminals were re-engineered in 1996, and 24 are scheduled to be completed by mid-1997. In addition, the unit will continue its emphasis on cutting costs and achieving profitable growth. Container-shipping Results Intensified rate competition in major trade lanes and short-term over-capacity made 1996 a challenging year for the container-shipping industry. In spite of a difficult pricing environment, Sea-Land Service Inc. (Sea-Land) capitalized on increasing global demand for containerized cargo and grew its market share in every major trade lane while improving its cargo mix. The carrier also enjoyed one of the best utilization rates in the container- shipping industry. Sea-Land generated $318 million of operating income in 1996, vs. $238 million in 1995, excluding its portion of the 1995 second-quarter restructuring charge. In 1994, Sea-Land generated $187 million in operating income. Volume increased to 1.5 million loads, 7% over 1995's level, driven by continued strong demand and market share gains in virtually all major trade lanes. In 1994, volume totaled 1.3 million loads. Total operating revenue increased to $4.1 billion, a 1% increase over 1995's revenue and 16% higher than in 1994. Average revenue per container fell 5%, reflecting higher capacity in major trade lanes, particularly Asia-Middle East-Europe and Eastbound Pacific. However, Sea-Land was more than able to mitigate the effects of a difficult rate environment through increased volume and effective cost-cutting measures. Sea-Land's operating expense declined to $3.7 billion from $3.8 billion in 1995, excluding that year's restructuring charge. In 1994, operating expense totaled $3.3 billion. The unit improved its operating ratio through its continued emphasis on cost containment and productivity improvement. In 1996, Sea-Land eliminated operating expenses of $136 million through the efforts of its cost-intervention teams, which targeted improvements in terminal and vessel operations, inland transportation and network management. The teams' recommendations include both short-term tactical considerations and long-term strategic goals. The intervention teams expect to achieve productivity improvements of similar magnitude in 1997. CONTAINER-SHIPPING OPERATING REVENUE (Millions of Dollars) [GRAPH] '92 '93 '94 '95 '96 $3,148 $3,246 $3,492 $4,008 $4,051 15 ANALYSIS OF OPERATIONS After six years of discussion and debate, the U.S. Congress passed the Maritime Security Act by an overwhelming margin. This shipping bill establishes a program to provide participating carriers with $1 billion in operating assistance over 10 years to help offset the higher environmental, safety and wage costs of operating as a U.S.-flag carrier. Sea-Land has applied to the program, and the government has accepted 15 of its ships. Sea-Land will receive $2.1 million a year for each ship participating in the program. Implementation of the global alliance with the Danish shipping line Maersk began in the third quarter of 1996. A revised vessel network plan, incorporating 163 vessels and 348,000 TEUs (20-foot equivalent units) of container capacity, provides improved frequency and scope of service within the major sectors of Sea-Land's global network. Several million dollars of cost-reduction benefits have been realized as a result of terminal and equipment rationalization programs. Other cost-reduction opportunities have been identified and targeted for implementation in 1997 and beyond. CONTAINER-SHIPPING LOAD VOLUME (Thousands) [GRAPH] '92 '93 '94 '95 '96 1,150 1,180 1,288 1,442 1,541 Container-shipping Assets Owned or leased units as of Dec. 27, 1996 Containers 40- and 20-foot Dry Vans 174,941 45-foot Dry Vans 10,505 Refrigerated Vans 18,495 Other Specialized Equipment 4,460 ------- Total 208,401 ======= Chassis 70,075 Container Ships 99 Terminals Exclusive-Use 14 Preferential Berthing Rights 14 Capital expenditures in 1996 included $252 million for new asset deployments and $55 million for containers formerly leased. The new deployments included vessels, terminal property and equipment and systems enhancements. The 1996 expenditures compare with $269 million in 1995 and $133 million in 1994. In 1997, the growth in global trade is expected to continue at a healthy rate, although a difficult rate environment is expected to persist. Overall capacity is anticipated to increase at a pace slightly ahead of market growth. Within the competitive arena, it is anticipated that a realignment of existing alliances between various shipping lines will occur. Additional mergers within the industry also remain a possibility. Sea-Land will continue meeting the challenges of a difficult rate environment with continued emphasis on controlling costs through its intervention teams and performance improvement initiatives. The unit also will continue its efforts to gain market share in the more profitable market segments by focusing on the changing needs of shippers. Improving the mix of higher margin freight will remain an ongoing priority. Barge Results The 1996 operating income of $112 million at American Commercial Lines Inc. (ACL) topped last year's record by 6%. The 1996 results were 78% higher than 1994's operating income. Key factors for 1996's excellent performance were continued strong demand for export grain and other bulk commodities and the acquisition of the marine assets of Conti-Carriers & Terminals Inc. (CCTI), which increased ACL's fleet size by 400 barges and eight towboats. Total operating revenue at ACL increased 12% to $622 million, compared with $554 million in 1995 and $449 million in 1994. Barge ton miles totaled 55.8 billion, an increase of 3.6 billion over 1995 and 4.5 billion over 1994. Barge Operating Revenue (Millions of Dollars) [GRAPH] '92 '93 '94 '95 '96 $433 $417 $449 $554 $622 16 Analysis of Operations Barge Assets Owned or leased units as of Dec. 27, 1996 Towboats 137 Barges Covered/Open-Top Hoppers 3,481 Tankers 237 ----- Total 3,718 ===== Marine Services River Terminals 11 Fleet Operations 17 Shipyards 2 The CCTI acquisition, completed in January 1996, has been successfully integrated into ACL's operations, delivering higher revenues to ACL and savings to customers. This acquisition is an excellent example of a customer outsourcing its barging functions, creating a "win-win" situation for both ACL and the customer. Demand for non-grain commodities, such as import steel and raw materials for steel mini-mills, remained strong, resulting in better backhaul opportunities from the Gulf of Mexico. Coal tonnage and revenue decreased during the year as the company continued to shift equipment into higher-margin markets. Operating expense increased 14% to $510 million, primarily due to additional volumes and higher fuel prices. Fuel price per gallon increased 24%, representing an additional $11 million in expense over 1995. ACL remains focused on continuous improvement to reduce operating costs through the quality improvement process. Performance Improvement Team initiatives generated approximately $4 million in annualized savings in 1996 and have targeted additional savings for 1997. Safety remains a high priority. ACL reduced its incident rate by 10% during the year, reflecting a safer work environment overall and resulting in accident-related cost reductions of $1.5 million. Capital additions at ACL in 1996 totaled $91 million, compared with $33 million in 1995 and $12 million in 1994. Spending in 1996 included $21 million for the acquisition of CCTI, $31 million for new domestic marine equipment and $26 million for expansion in South America. ACL enters 1997 with a positive outlook. The 1996 fall harvests of corn and soybean crops were among the largest in U.S. history, indicating traffic levels for these commodities should be strong. Coal should remain a solid base business for the barge line, although an existing long-term coal contract may be restructured. ACL also anticipates continued strong demand for liquid commodities and steel feedstock for mini-mills. Intermodal Results With the implementation of aggressive measures to counter severe competition from the trucking industry, CSX Intermodal Inc. (CSXI) experienced a steady turnaround in 1996. Operating income increased 17% to $35 million in 1996 from $30 million in 1995. In 1994, operating income was $61 million. Revenue decreased 5% to $674 million, while volume totaled 980,000 trailers and containers, level with 1995. In 1994, operating revenue was $684 million, and volume was 986,000 trailers and containers. Intermodal Assets Owned or leased units as of Dec. 27, 1996 Equipment Domestic Containers 4,002 Rail Trailers 5,124 Facilities CSX Intermodal Terminals 33 Motor Carrier Operations Terminals 28 Intermodal Operating Revenue (Millions of Dollars) [GRAPH] '92 '93 '94 '95 '96 $535 $599 $684 $707 $674 CSXI has responded aggressively to the stiff competition caused by an over- capacity of trucks. In July, the unit consolidated its headquarters in Jacksonville, Fla., and reduced headcount by 30%. CSXI also implemented comprehensive service changes throughout its nationwide network to enhance service reliability, transit times and train capacity. The network redesign is aimed at achieving better cost controls and productivity gains from CSXI's operations while expanding services in key markets with the greatest growth potential. Capital expenditures totaled $24 million in 1996 vs. $57 million in 1995 and $50 million in 1994. During 1996, CSXI acquired property for a new terminal in Atlanta and expanded terminal facilities at its gateway New Orleans terminal. In 1997, CSXI will focus on containing costs and growing its business in key lanes. The unit expects substantial improvement in operating income. 17 Analysis of Operations Contract Logistics Results Customized Transportation Inc. (CTI) achieved record revenue and operating income during 1996. Revenue rose to $316 million, 32% over 1995 and 73% over 1994. Operating income increased to $17 million, 36% over 1995 and 73% above 1994. CTI continues as a leading logistics provider of materials management, transportation, warehousing and staging activities. In 1996, the unit improved its position with current customers and developed business in new industries, such as electronics, retail and chemical. It executed 48 million transactions for its customers at an error-free rate of 99.9745% in 1996. In 1997, CTI will maintain an emphasis on the redesign and re-engineering of supply chain processes for its customers and will follow its customers as they expand internationally. Growth rates and financial performance are anticipated to remain strong in the coming year. Contract Logistics Operating Revenue (Millions of Dollars) [GRAPH] '93 '94 '95 '96 $145 $182 $240 $316 Consolidated Outlook CSX enters 1997 with confidence and an optimistic outlook. Modest economic growth and low inflation are expected to continue in the United States and Europe. Economic growth in Japan, following a sluggish 1996, should begin to improve gradually. The price of diesel fuel, which was unusually high in 1996, is expected to return to more normal levels as Iraqi oil re-enters the market on a limited basis. The railroad will capitalize on anticipated steady growth in the U.S. economy to improve its overall performance, while maintaining its focus on cost control. The continued growth in global demand for containerized cargo bodes well for Sea-Land, although some concerns remain about rate pressures continuing, possibly until mid-year. CSX anticipates its 1997 capital spending to be less than 1996 levels, while it will continue to reinvest in core business assets. CSXT will fund equipment and track programs at nearly comparable levels, including delivery of 75 alternating current locomotives. Sea-Land will continue toward completion of its Champion Class vessel program with three vessels to be delivered in 1997 and the last one in the first quarter of 1998. CSX units are committed to achieving their stretch targets, even though some units are subject to such unpredictable external factors as adverse weather conditions, work stoppages at major customer facilities and shifting economic conditions in the United States and abroad. Continued emphasis will be placed on controlling costs, enhancing core earning power and increasing shareholder returns. 18
Fiscal Years Ended Consolidated Statement of Earnings Dec. 27, Dec. 29, Dec. 30, (Millions of Dollars, Except Per Share Amounts) 1996 1995 1994 -------- ------- -------- Operating Income Operating Revenue $10,536 $10,304 $ 9,409 Operating Expense 9,014 8,921 8,227 Restructuring Charge -- 257 -- ------ ------ ------- Total Operating Expense 9,014 9,178 8,227 ------ ------ -------- Operating Income 1,522 1,126 1,182 Other Income and Expense Other Income 43 118 105 Interest Expense 249 270 281 ------ ------ ------ Earnings Earnings Before Income Taxes 1,316 974 1,006 Income Tax Expense 461 356 354 ------ ------ ------ Net Earnings $ 855 $ 618 $ 652 ====== ====== ====== Per Common Share Earnings Per Share $ 4.00 $ 2.94 $ 3.12 ====== ====== ====== Average Common Shares Outstanding (Thousands) 213,633 210,270 209,303 ======= ======= ======= Cash Dividends Paid Per Common Share $ 1.04 $ .92 $ .88 ======= ======= =======
See accompanying Notes to Consolidated Financial Statements. 19
Consolidated Statement of Cash Flows Fiscal Years Ended Dec. 27, Dec. 29, Dec. 30, (Millions of Dollars) 1996 1995 1994 -------- -------- -------- Operating Activities Net Earnings $ 855 $ 618 $ 652 Adjustments to Reconcile Net Earnings to Net Cash Provided Depreciation 620 600 577 Deferred Income Taxes 166 (26) 176 Restructuring Charge Provision -- 257 -- Productivity/Restructuring Charge Payments (88) (155) (159) Other Operating Activities 12 10 56 Changes in Operating Assets and Liabilities Accounts Receivable (67) (82) (60) Other Current Assets (65) (22) 20 Accounts Payable 84 170 9 Other Current Liabilities (77) 197 55 ------- ----- ----- Net Cash Provided by Operating Activities 1,440 1,567 1,326 ------- ----- ----- Investing Activities Property Additions (1,223) (1,156) (875) Proceeds from Property Dispositions 84 97 170 Acquisition of Conrail Common Stock (1,965) -- -- Purchases of Long-Term Marketable Securities (45) (114) (66) Proceeds from Sales of Long-Term Marketable Securities 137 97 54 Other Investing Activities 25 22 (144) ------- ------ ----- Net Cash Used by Investing Activities (2,987) (1,054) (861) ------- ------ ----- Financing Activities Short-Term Debt -- Net 187 (53) 37 Long-Term Debt Issued 2,118 121 92 Long-Term Debt Repaid (486) (343) (447) Cash Dividends Paid (223) (194) (184) Other Financing Activities (1) 11 4 ------- ------ ----- Net Cash Provided (Used) by Financing Activities 1,595 (458) (498) ------- ------ ----- Net Increase (Decrease) in Cash and Cash Equivalents 48 55 (33) Cash, Cash Equivalents and Short-Term Investments Cash and Cash Equivalents at Beginning of Year 320 265 298 ------- ----- ----- Cash and Cash Equivalents at End of Year 368 320 265 Short-Term Investments at End of Year 314 340 270 ------- ----- ----- Cash, Cash Equivalents and Short-Term Investments at End of Year $682 $ 660 $ 535 ======= ===== ===== Supplemental Cash Flow Information Interest Paid -- Net of Amounts Capitalized $ 265 $ 275 $ 306 ======= ===== ===== Income Taxes Paid $ 381 $ 253 $ 175 ======= ===== =====
See accompanying Notes to Consolidated Financial Statements. 20
Consolidated Statement of Financial Position Dec. 27, Dec. 29, (Millions of Dollars) 1996 1995 -------- -------- Assets Current Assets Cash, Cash Equivalents and Short-Term Investments $ 682 $ 660 Accounts Receivable 894 832 Materials and Supplies 229 220 Deferred Income Taxes 139 148 Other Current Assets 128 75 ------- ------- Total Current Assets 2,072 1,935 Properties -- Net 11,906 11,297 Investment in Conrail 1,965 -- Affiliates and Other Companies 345 312 Other Long-Term Assets 677 738 ------- ------- Total Assets $16,965 $14,282 ======= ======= Liabilities Current Liabilities Accounts Payable $ 1,189 $ 1,121 Labor and Fringe Benefits Payable 499 526 Casualty, Environmental and Other Reserves 306 298 Current Maturities of Long-Term Debt 101 486 Short-Term Debt 335 148 Other Current Liabilities 327 412 ----- ----- Total Current Liabilities 2,757 2,991 Casualty, Environmental and Other Reserves 715 813 Long-Term Debt 4,331 2,222 Deferred Income Taxes 2,720 2,560 Other Long-Term Liabilities 1,447 1,454 ------ ------ Total Liabilities 11,970 10,040 ------ ------ Shareholders' Equity Common Stock, $1 Par Value 217 210 Other Capital 1,433 1,319 Retained Earnings 3,452 2,822 Minimum Pension Liability (107) (109) ------- ------ Total Shareholders' Equity 4,995 4,242 ------- ------ Total Liabilities and Shareholders' Equity $16,965 $14,282 ======= ======
See accompanying Notes to Consolidated Financial Statements. 21
Consolidated Statement of Changes in Shareholders' Equity Common Shares Minimum Outstanding Common Other Retained Pension (Millions of Dollars, Except Shares) (Thousands) Stock Capital Earnings Liability Total -------------- ------ ------- -------- --------- ------ Balance Dec. 31, 1993 104,143 $104 $1,307 $1,927 $(158) $3,180 Net Earnings -- -- -- 652 -- 652 Dividends -- Common -- -- -- (184) -- (184) Common Stock-- Stock Purchase and Loan Plan Stock Canceled (68) -- (4) -- -- (4) Purchase Loans -- Net -- -- 9 -- -- 9 Other Stock Issued -- Net 647 1 56 -- -- 57 Minimum Pension Liability -- -- -- -- 25 25 Other -- Net -- -- -- (4) -- (4) ------- ------ ------ ------ ------ ------ Balance Dec. 30, 1994 104,722 105 1,368 2,391 (133) 3,731 Net Earnings -- -- -- 618 -- 618 Dividends -- Common -- -- -- (194) -- (194) Common Stock-- Stock Purchase and Loan Plan Stock Canceled (155) (1) (11) -- -- (12) Purchase Loans -- Net -- -- 12 -- -- 12 Other Stock Issued -- Net 716 1 55 -- -- 56 Minimum Pension Liability -- -- -- -- 24 24 2-for-1 Stock Split 105,212 105 (105) -- -- -- Other -- Net -- -- -- 7 -- 7 ------- ------ ------ ------ ------ ------ Balance Dec. 29, 1995 210,495 210 1,319 2,822 (109) 4,242 Net Earnings -- -- -- 855 -- 855 Dividends -- Common -- -- -- (223) -- (223) Common Stock-- Stock Purchase and Loan Plan Stock Issued 7,652 8 356 -- -- 364 Stock Canceled and Exchanged (2,786) (3) (67) -- -- (70) Purchase Loans -- Net -- -- (240) -- -- (240) Other Stock Issued -- Net 1,524 2 65 -- -- 67 Minimum Pension Liability -- -- -- -- 2 2 Other -- Net -- -- -- (2) -- (2) ------- ------ ------ ------ ------ ------ Balance Dec. 27, 1996 216,885 $217 $1,433 $3,452 $(107) $4,995 ======= ====== ====== ====== ====== ======
See accompanying Notes to Consolidated Financial Statements. 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 1. SIGNIFICANT ACCOUNTING POLICIES. Nature of Operations CSX Corporation (CSX) is a global freight transportation company with principal business units providing rail, container-shipping, intermodal, barging and contract logistics services. Rail transportation services are provided principally throughout the eastern United States and account for nearly half of the company's operating revenue, with coal, bulk products and manufactured products each contributing a relatively equal share of rail revenue. Coal shipments primarily supply domestic utility and export markets. Container-shipping services are provided in the United States and more than 80 countries and territories throughout the world and account for more than one-third of the company's operating revenue. Intermodal, barging and contract logistics services are provided principally within the United States and together account for the company's remaining operating revenue. Principles of Consolidation The Consolidated Financial Statements include CSX and its majority-owned subsidiaries. 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. Fiscal Year The company's fiscal reporting period ends on the last Friday in December. The financial statements presented are for the fiscal periods ended Dec. 27, 1996, Dec. 29, 1995, and Dec. 30, 1994. Each fiscal year consists of four 13-week quarters. Common Stock Split On Oct. 11, 1995, the company's board of directors declared a 2-for-1 common stock split distributed on Dec. 21, 1995, to shareholders of record at the close of business on Dec. 4, 1995. In the accompanying Consolidated Statement of Earnings and Notes to the Consolidated Financial Statements, all references to shares of common stock and per share amounts for periods prior to the stock split have been restated. 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 The company has sold, directly and through Trade Receivables Participation Certificates (Certificates), ownership interests in designated pools of accounts receivable originated by CSX Transportation Inc. (CSXT), its rail unit. During 1993, $200 million of Certificates were issued at 5.05%, due September 1998. The Certificates represent undivided interests in a master trust holding an ownership interest in a revolving pool of rail freight accounts receivable. The proceeds from the issuance of the Certificates were used to reduce the amount of accounts receivable sold under a previous agreement. At Dec. 27, 1996, the Certificates were collateralized by $248 million of accounts receivable held in the master trust. The company has the ability to issue $50 million in additional Certificates through September 1998 at prevailing market terms. In addition, the company has a revolving agreement with a financial institution to sell with recourse on a monthly basis an undivided percentage ownership interest in designated pools of freight and other accounts receivable. The agreement provides for the sale of up to $200 million in accounts receivable and expires in September 1998. The company has retained the responsibility for servicing and collecting accounts receivable held in trust or sold. At Dec. 27, 1996, and Dec. 29, 1995, accounts receivable have been reduced by $372 million, representing Certificates and accounts receivable sold. The net costs associated with sales of Certificates and receivables were $30 million, $32 million and $29 million in 1996, 1995 and 1994, respectively. 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All Tables in Millions of Dollars, Except Per Share Amounts) 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 $97 million and $88 million have been applied as a reduction of accounts receivable at Dec. 27, 1996, and Dec. 29, 1995, respectively. Materials and Supplies Materials and supplies consist primarily of fuel and items for maintenance of property and equipment, and are carried at average cost. Properties Main line track on the rail system is depreciated on a group basis using a unit-of-property method. All other property and equipment is depreciated on a straight-line basis over estimated useful lives of three to 50 years. Regulations maintained by the Surface Transportation Board (STB) of the U.S. Department of Transportation require periodic formal studies of ultimate service lives for all railroad assets. Resulting service life estimates are subject to review and approval by the STB. Significant premature retirements for all properties, which would include major casualty losses, abandonments, sales and obsolescence of assets, are recorded as gains or losses at the time of their occurrence. Expenditures that significantly increase asset values or extend useful lives are capitalized. Repair and maintenance expenditures are charged to operating expense when the work is performed. All properties are stated at cost. Properties and other long-lived assets are reviewed for impairment whenever events or business conditions indicate the carrying amount of such assets may not be fully recoverable. Initial assessments of recoverability are based on estimates of undiscounted future net cash flows associated with an asset or a group of assets. Where impairment is indicated, the assets are evaluated for sale or other disposition, and their carrying amount is reduced to fair value based on discounted net cash flows or other estimates of fair value. Revenue Recognition Transportation revenue is recognized proportionately as shipments move from origin to destination. Environmental Costs Environmental costs relating to current operations are expensed or capitalized as appropriate. Expenditures relating to remediating an existing condition caused by past operations, and that 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. Derivative 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. 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 also are deferred and recognized in income in the same period as the hedged transaction. There were no significant derivative financial instruments outstanding at Dec. 27, 1996. 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. Weighted average shares and earnings per share for 1995 and 1994 have been restated to reflect the 2-for-1 common stock split distributed to shareholders in December 1995. 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All Tables in Millions of Dollars, Except Per Share Amounts) Stock-Based Compensation The company records expense for stock-based compensation in accordance with the provisions of APB Opinion No. 25 "Accounting for Stock Issued to Employees" and related Interpretations. Disclosures required with respect to the alternative fair value measurement and recognition methods prescribed by Financial Accounting Standards Board (FASB) Statement No. 123 "Accounting for Stock-Based Compensation" are presented in Note 11 -- Stock Plans. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires that management make estimates in reporting the amounts of certain revenues and expenses for each fiscal year and certain assets and liabilities at the end of each fiscal year. Actual results may differ from those estimates. Prior-Year Data Certain prior-year data have been reclassified to conform to the 1996 presentation. Accounting Pronouncements The FASB has issued Statement No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which establishes new guidelines for accounting and disclosure related to transfers of trade accounts receivable and other financial assets. In addition, the American Institute of Certified Public Accountants has issued Statement of Position No. 96-1 "Environmental Remediation Liabilities," which provides revised guidance on accounting and disclosure relative to environmental obligations. The company will adopt both pronouncements in 1997 and does not expect either pronouncement to have a material impact on its financial statements. NOTE 2. MERGER AGREEMENT. On Oct. 14, 1996, CSX entered into an agreement with Conrail, Inc. (Conrail) pursuant to which the companies would combine in a strategic merger transaction. The terms of the agreement provided for CSX to acquire 40% of the outstanding Conrail Common Stock and ESOP Preferred Stock (the Conrail shares) for cash and the remaining 60% in exchange for CSX common stock. Norfolk Southern Corporation (Norfolk Southern) challenged the CSX/Conrail merger agreement and announced an all-cash competing offer to acquire Conrail at a price which was ultimately increased to $115 per share. CSX and Conrail subsequently negotiated several amendments to the merger agreement, generally to provide increased consideration to Conrail shareholders in exchange for their shares. On Nov. 20, 1996, CSX completed an initial cash tender offer for approximately 19.9% of the Conrail shares at $110 per share, acquiring approximately 17.9 million of the shares at a total cost of $1.965 billion. The shares were placed in a voting trust as provided for in the merger agreement. Borrowings in connection with a $4.8 billion bank credit facility negotiated by CSX subsequent to the announcement of the merger were used to finance the initial cash tender offer. CSX initiated a second conditional cash tender offer for an additional 20.1% of the Conrail shares, but was prevented from completing this or subsequent steps of the merger transaction when a Jan. 17, 1997 vote by Conrail shareholders defeated a proposal to opt out of the Pennsylvania Control Transaction Law (the Pennsylvania statute). A favorable vote on the opt-out proposal would have removed restrictions limiting CSX's ownership to less than 20% of the Conrail shares under the terms contemplated by the merger agreement. The outcome of the Conrail shareholder vote coupled with public comments by the Chairwoman of the STB favoring a negotiated settlement of competitive issues surrounding the proposed merger prompted joint discussions between CSX, Conrail, and Norfolk Southern. These discussions, which began in late January, led to the negotiation of an amendment to the CSX/Conrail merger agreement on March 7, 1997. The amended agreement provides for the acquisition of the remaining Conrail shares for cash at $115 per share and, among other things, allows CSX to unilaterally enter into negotiations with Norfolk Southern. It is anticipated that when these negotiations are completed, CSX and Norfolk Southern will share, roughly equally, the Conrail rail system. 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All Tables in Millions of Dollars, Except Per Share Amounts) CSX will reflect the terms of the amended merger agreement in a revised tender offer. Since the revised offer provides cash consideration for all Conrail shares, it is no longer subject to a vote by Conrail shareholders to opt out of the Pennsylvania statute. The revised tender offer is expected to be completed no later than June 2, 1997. The transactions ultimately agreed to by the three companies are subject to regulatory approval by the STB. The Conrail shares currently held by CSX and the shares to be acquired pursuant to the revised merger agreement will be held in the voting trust until such time as a regulatory decision is rendered. CSX's financing arrangements will be revised or renegotiated to accommodate the final structure agreed to by the companies. At Dec. 27, 1996, CSX has accounted for its 19.9% investment in Conrail using the cost method. Dividends totaling $8 million received on those shares in 1996 are reported in other income in the consolidated statement of earnings. The method of accounting applicable to CSX holdings of Conrail shares for future periods may differ, depending on the timing and final structure of the related transactions. NOTE 3. 1995 RESTRUCTURING CHARGE. In the second quarter of 1995, the company recorded a $257 million pretax restructuring charge to recognize the estimated costs of specific initiatives at CSXT and at Sea-Land Service Inc. (Sea-Land), its container-shipping unit. The charge reduced 1995 net earnings by $160 million, 76 cents per share. CSXT Initiative CSXT recorded its $196 million portion of the pretax restructuring charge to recognize the costs associated with a contractual agreement with a major telecommunications vendor to replace, manage and technologically enhance its existing private telecommunications network. The initiative resulted in a write-down of assets rendered technologically obsolete and a provision for separation and labor protection payments to affected employees. The agreement, which originally was to expire in May 2005, provided for the vendor to supply and manage new technology to replace CSXT's existing telecommunications system, thereby rendering it commercially obsolete. These assets, comprising CSXT's internal companywide telecommunications network including existing microwave and fiber optic communications systems, have no alternative use and their net realizable value is not significant. As a result of the agreement, the net book value of the assets to be replaced was reduced by $163 million. During 1996, CSXT and the vendor amended the agreement to change the termination date to June 30, 1998, to increase the payments required over the revised service period, and to relieve the vendor's obligations to replace certain technology. CSXT is currently evaluating options for proceeding with further telecommunications initiatives. Sea-Land Initiatives The restructuring initiatives at Sea-Land represented $61 million of the total charge and included its global integration program and the reflagging of five U.S.-flag vessels to the registry of the Marshall Islands in accordance with approval from the Maritime Administration. Sea-Land's global integration program resulted in the consolidation of worldwide senior management functions, the relocation of the corporate headquarters to Charlotte, N.C., and the integration of information technologies. The vessel reflagging initiative primarily involves crew separations on the five vessels. 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All Tables in Millions of Dollars, Except Per Share Amounts) Summary The 1995 restructuring charge and related activity through Dec. 27, 1996, is as follows: Separation Lease and and Labor Facility Obsolete Protection Exit Assets Costs Costs Total ---- ---- --- ---- Restructuring Charge $163 $80 $14 $257 Amounts Utilized through Dec. 27, 1996 163 28 8 199 ---- ---- --- ---- Remaining Reserve as of Dec. 27, 1996 $ -- $ 52 $ 6 $ 58 ==== ==== === ==== The total provision for separation and labor protection payments relates to approximately 800 affected employees and was based on existing collective bargaining agreements with members of clerical, electrical, and signal crafts and seafarer trades. Through Dec. 27, 1996, approximately 530 employee separations have been finalized. The company expects the remaining affected employees to be impacted within the next four years. NOTE 4. OPERATING EXPENSE. 1996 1995 1994 ------ ------ ------ Labor and Fringe Benefits $3,161 $3,133 $3,005 Materials, Supplies and Other 2,530 2,622 2,311 Building and Equipment Rent 1,143 1,134 1,087 Inland Transportation 995 970 839 Depreciation 611 588 564 Fuel 574 474 421 Restructuring Charge -- 257 -- ------ ------ ------ Total $9,014 $9,178 $8,227 ====== ====== ====== Selling, General and Administrative Expense Included in Above Items $1,297 $1,351 $1,265 ====== ====== ====== 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 5. OTHER INCOME. 1996 1995 1994 ---- ---- ---- Interest Income $48 $ 62 $ 57 Income from Real Estate and Resort Operations(a) 62 54 58 Net Gain (Loss) on Investment Transactions(b) (4) 77 -- Gain on South Florida Track Sale(c) -- -- 91 Net Costs for Accounts Receivable Sold (30) (32) (29) Minority Interest (42) (32) (21) Loss on Redemption of Debt -- -- (13) Equity Earnings (Losses) of Other Affiliates 6 (3) (10) Dividend Income 9 1 1 Miscellaneous (6) (9) (29) --- ---- ---- Total $43 $118 $105 === ==== ==== (a) Gross revenue from real estate and resort operations was $186 million, $178 million and $190 million in 1996, 1995 and 1994, respectively. (b) In December 1995, the company recognized a net investment gain of $77 million on the issuance of an equity interest in a Sea-Land terminal and related operations in Asia and the write-down of various investments. The equity interest portion of the transaction resulted in proceeds of $105 million and a pretax gain of $93 million, $61 million after-tax, 29 cents per share. Sea-Land's interest in the terminal operations was reduced from approximately 67% to 57%. (c) In December 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, $42 million after-tax, 20 cents per share. The scheduled payment resulted in a $22 million gain in 1994. NOTE 6. INCOME TAXES. Earnings from domestic and foreign operations and related income tax expense are as follows: 1996 1995 1994 ------ ---- ------ Earnings Before Income Taxes: -- Domestic $1,158 $765 $ 893 -- Foreign 158 209 113 ------ ---- ------ Total $1,316 $974 $1,006 ====== ==== ====== Income Tax Expense (Benefit): Current -- Federal $ 250 $337 $ 144 -- Foreign 30 26 20 -- State 15 19 14 ------ ---- ------ Total Current 295 382 178 ------ ---- ------ Deferred-- Federal 166 (26) 165 -- Foreign -- -- 2 -- State -- -- 9 ------ ---- ------ Total Deferred 166 (26) 176 ------ ---- ------ Total Expense $ 461 $356 $ 354 ====== ==== ====== 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All Tables in Millions of Dollars, Except Per Share Amounts) Income tax expense reconciled to the tax computed at statutory rates is as follows: 1996 1995 1994 ----------- ----------- ------------ Tax at Statutory Rates $461 35% $341 35% $352 35% State Income Taxes 10 1 12 1 15 1 Prior Years' Income Taxes (27) (2) -- -- (10) (1) Other Items 17 1 3 1 (3) -- ---- --- ---- --- ---- --- Total Expense $461 35% $356 37% $354 35% ==== === ==== === ==== === The significant components of deferred tax assets and liabilities include: Dec. 27, Dec. 29, 1996 1995 -------- -------- Deferred Tax Assets Productivity/Restructuring Charges $ 171 $ 178 Employee Benefit Plans 434 417 Deferred Gains and Related Rents 195 166 Other 252 300 ------ ------ Total 1,052 1,061 ------ ------ Deferred Tax Liabilities Accelerated Depreciation 3,095 3,042 Other 538 431 ------ ------ Total 3,633 3,473 ------ ------ Net Deferred Tax Liabilities $2,581 $2,412 ====== ====== 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 changes in the minimum pension liability in 1996 and 1995. The company has not recorded domestic deferred or additional foreign income taxes applicable to undistributed earnings of foreign subsidiaries that are considered to be indefinitely reinvested. Such earnings amounted to $279 million and $314 million at Dec. 27, 1996, and Dec. 29, 1995, respectively. These amounts may become taxable upon their remittance as dividends or upon the sale or liquidation of these foreign subsidiaries. It is not practicable to determine the amount of net additional income tax that may be payable if such earnings were repatriated. 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 1990. Returns for 1991 through 1993 are currently under examination. Management believes adequate provision has been made for any adjustments that might be assessed. 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 7. PROPERTIES.
Dec. 27, 1996 Dec. 29, 1995 ---------------------------- ------------------------------ Accumulated Accumulated Cost Depreciation Net Cost Depreciation Net ------ ------------ ------- ----- ------------ ------- Rail: Road $ 9,308 $2,619 $ 6,689 $ 9,157 $2,620 $ 6,537 Equipment 4,220 1,427 2,793 3,829 1,417 2,412 ------- ------ ------- ------- ------ ------- Total Rail 13,528 4,046 9,482 12,986 4,037 8,949 Container-shipping 2,437 1,017 1,420 2,175 906 1,269 Other 1,455 451 1,004 1,512 433 1,079 ------- ------ ------- ------- ------ ------- Total $17,420 $5,514 $11,906 $16,673 $5,376 $11,297 ======= ====== ======= ======= ====== =======
NOTE 8. CASUALTY, ENVIRONMENTAL AND OTHER RESERVES. Activity related to casualty, environmental and other reserves is as follows:
Casualty and Environmental Separation Other Reserves(a)(b) Reserves(a) Liabilities(a)(c) Total ----- ---- ----- ------- Balance Dec. 31, 1993 $604 $131 $642 $1,377 Charged to Expense and Other Additions 247 32 -- 279 Payments and Other Reductions (272) (23) (d)(248) (543) ---- ---- ---- ------ Balance Dec. 30, 1994 579 140 394 1,113 Charged to Expense and Other Additions 279 22 80 381 Payments and Other Reductions (288) (25) (70) (383) ---- ---- ---- ------ Balance Dec. 29, 1995 570 137 404 1,111 Charged to Expense and Other Additions 254 16 -- 270 Payments and Other Reductions (290) (36) (34) (360) ---- ---- ---- ------ Balance Dec. 27, 1996 $534 $117 $370 $1,021 ==== ==== ==== ======
(a) Balances include current portions of casualty and other, environmental and separation reserves, respectively, of $234 million, $20 million and $52 million at Dec. 27, 1996; $241 million, $20 million and $37 million at Dec. 29, 1995; and $234 million, $20 million and $22 million at Dec. 30, 1994. (b) Casualty reserves are estimated based upon the first reporting of an accident or personal injury to an employee. Liabilities for accidents are based upon field reports and liabilities for personal injuries are based upon the type and severity of the injury and the use of current trends and historical data. (c) Separation liabilities include $318 million at Dec. 27, 1996, $344 million at Dec. 29, 1995, and $376 million at Dec. 30, 1994, related to productivity charges recorded in 1991 and 1992 to provide for the estimated costs of implementing work-force reductions, improvements in productivity and other cost reductions at the company's major transportation units. The remaining liabilities are expected to be paid out over the next 20 to 25 years. (d) Includes the transfer of $156 million in 1994 to a separation-related pension obligation, representing the future cost of pensions for certain train crew employees impacted by the buyout of trip-based compensation provided for in the 1992 productivity charge. 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 9. DEBT AND CREDIT AGREEMENTS.
Average Interest Rates Dec. 27, Dec. 29, Type and Maturity Dates at Dec. 27, 1996 1996 1995 ----- ------ ------- Commercial Paper and Borrowings Under Bank Credit Agreement 6% $2,300 $ 300 Notes Payable (1999-2021) 8% 498 895 Debentures (2000-2022) 9% 650 649 Equipment Obligations (1997-2011) 8% 739 606 Mortgage Bonds (1998-2003) 4% 76 76 Other Obligations, including Capital Leases (1997-2021) 7% 169 182 ----- ------ ------ Total 7% 4,432 2,708 ===== Less Debt Due Within One Year 101 486 ------ ------ Total Long-Term Debt $4,331 $2,222 ====== ======
To provide financing for its acquisition of Conrail shares and to accommodate working capital needs, the company entered into a $4.8 billion bank credit agreement in November 1996. Under the agreement, the company may borrow directly from the participating banks or utilize the credit facility to support the issuance of commercial paper. Direct borrowings from the participating banks can be obtained, at the company's option, under a competitive bid process among the banks or under a revolving credit arrangement with interest either at LIBOR plus a margin determined by the company's credit ratings or at an alternate base rate, as defined in the agreement. The terms of the agreement provided for $800 million to become available immediately to replace existing credit agreements totaling $880 million, which supported the company's outstanding commercial paper. The remaining $4 billion of credit under the facility is available for the purchase of Conrail shares, of which $1.965 billion was used to acquire approximately 19.9% of Conrail's outstanding shares in November 1996. At Dec. 27, 1996, the company had borrowings related to the credit facility of $2.635 billion ($300 million direct borrowings and $2.335 billion commercial paper outstanding), of which $2.3 billion has been classified as long-term debt based upon the company's ability and intention to maintain this debt outstanding for more than one year. The company pays annual fees to the participating banks that may range from .06% to .15% of the total commitment, depending upon its credit ratings. The credit agreement, which expires in November 2001, also includes certain covenants and restrictions, such as limitations on debt as a percentage of total capitalization and restrictions on the sale or disposition of certain assets. Commercial paper classified as short-term debt was $335 million at Dec. 27, 1996, and $148 million at Dec. 29, 1995. The weighted-average interest rate for the short-term commercial paper outstanding at year-end was 6% for 1996 and 1995. In September 1992, the company filed a shelf registration statement with the Securities and Exchange Commission to provide for the issuance of up to $450 million in senior debt securities, warrants to purchase debt securities or currency warrants. This shelf registration included a combined prospectus covering amounts remaining to be issued as debt securities under a previous shelf registration. As of Dec. 27, 1996, an aggregate of $250 million of debt is available for issuance under the company's shelf registration statement and combined prospectus. 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. Excluding long-term commercial paper, the company has long-term debt maturities for 1997 through 2001 aggregating $101 million, $145 million, $95 million, $328 million and $65 million, respectively. A portion of the company's rail unit properties are pledged as security for various rail-related, long-term debt issues. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 10. COMMON AND PREFERRED 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. In December 1995, shareholders received one additional share of common stock for each share held, pursuant to a 2-for-1 stock split approved by the board of directors. At Dec. 27, 1996, common shares issued and outstanding totaled 216,885,140. The company also 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 discussed below. All preferred shares rank senior to common shares both as to dividends and liquidation preference. No preferred shares were outstanding at Dec. 27, 1996. Pursuant to a Shareholder Rights Plan adopted by the board of directors in 1988 and amended in 1990, each outstanding share of common stock also evidences one preferred share purchase right ("right"). 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 in exchange for the rights. The rights are not exercisable or transferable apart from the related common shares 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 the company's outstanding 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 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 or group of 20% or more of the outstanding common stock. NOTE 11. STOCK PLANS. The company maintains several stock plans designed to encourage ownership of its stock and provide incentives for employees to contribute to its success. Compensation expense for stock-based awards under these plans is determined by the awards' intrinsic value accounted for under the principles of APB Opinion No. 25 and related Interpretations. Compensation expense recognized for stock-based awards in 1996 was $36 million. Had compensation expense been determined based upon fair values at the date of grant for awards under these plans, consistent with the methods of FASB Statement No. 123, the company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: 1996 1995 ----- ----- Net Income As Reported $ 855 $ 618 Pro Forma $ 832 $ 610 Earnings Per Share As Reported $4.00 $2.94 Pro Forma $3.90 $2.90 The pro forma fair value method of accounting was applied only to stock-based awards granted after Dec. 30, 1994. Because all stock-based compensation expense for 1996 and 1995 was not restated and because stock-based awards granted may vary from year to year, the resulting pro forma compensation cost may not be representative of that to be expected in future years. Stock Purchase and Loan Plan The Stock Purchase and Loan Plan provides for the purchase of common stock and related rights by eligible officers and key employees of the company and entitles them to obtain loans with respect to the shares purchased. The Plan, which originated in 1991, is intended to further the long-term stability and financial success of the company by providing a method for eligible employees to increase significantly their ownership of common stock. Amendments to the Plan were approved by the company's shareholders and implemented in 1996, providing for continuation of the Plan through February 2006, and increasing the common stock reserved for issuance from 4.4 million to 9 million shares. 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All Tables in Millions of Dollars, Except Per Share Amounts) Under the revised Plan, upon maturity of purchase loans issued in 1991 and 1992, existing participants either withdrew shares from the Plan, applied all or part of their equity in shares purchased in the original Plan as a down payment to acquire additional shares, or extended their participation at existing levels for up to one year. In addition, shares were offered to certain employees who were not previously eligible to participate in the Plan. In connection with the Plan amendments, from Aug. 1, 1996, through Dec. 27, 1996, 72,497 shares were withdrawn from the Plan, 2,630,727 shares were exchanged and canceled, and 7,651,970 new shares were sold to participants at an average market price of $47.52 per share. In consideration for the shares purchased, participants have provided down payments of not less than 5% nor more than 25% of the purchase price in the form of cash, recourse notes or equity earned in the original Plan. The remaining purchase price is in the form of non-recourse loans secured by the shares issued. All non-recourse loans under the Plan are or were subject to certain adjustments after a vesting period based upon targeted increases in the market price of CSX common stock. The market price thresholds for loans to employees who extended their participation in the original plan have been met in prior years and, upon maturity at July 31, 1997, or earlier repayment, all interest (less dividends applied to accrued interest) will be forgiven and the loan balances will be reduced by 25% of the purchase price. Loans to participants who exchanged shares or entered the Plan in 1996 are due July 31, 2001, and also are subject to forgiveness of a portion of the principal and accrued interest balances; however, at Dec. 27, 1996, none of the related market price thresholds had been met. At Dec. 27, 1996, there were 187 participants in the Plan. Transactions involving the Plan are as follows: Shares Average (000's) Price(a) ------- -------- Outstanding at Dec. 30, 1994 3,869 $18.67 Canceled or Withdrawn (446) $19.25 ------- -------- Outstanding at Dec. 29, 1995 3,423 $18.64 Issued 7,652 $47.52 Exchanged, Canceled or Withdrawn (2,964) $18.73 ------- -------- Outstanding at Dec. 27, 1996 8,111 $46.26 ======= ======== 1996 1995 1994 ------- -------- ------- Down Payment (Recourse) Loans Outstanding $ 7 $ 4 $ 4 Purchase (Non-Recourse) Loans Outstanding $ 296 $ 60 $ 68 Average Interest Rate 6.64% 7.75% 7.75% Compensation Expense for the Year $ 13 $ 26 $ 4 ====== ======= ======= (a) Represents average cost to participants, net of cumulative note forgiveness. The weighted-average fair value benefit to participants for a share issued in 1996 under the Stock Purchase and Loan Plan was $15.65, and was estimated as of the date of grant using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 6.5%; dividend yield of 2.4%; volatility factor of 21.5%; and an expected life of 6 years. 1987 Long-Term Performance Stock Plan The CSX Corporation 1987 Long-Term Performance Stock Plan provides for awards in the form of stock options, Stock Appreciation Rights (SARs), Performance Share Awards (PSAs) and Incentive Compensation Program shares (ICPs) to eligible officers and employees. Awards granted under the Plan are determined by the board of directors based on the financial performance of the company. At Dec. 27, 1996, there were 440 current or former employees with outstanding grants under the Plan. A total of 19,661,492 shares were reserved for issuance, of which 5,396,274 were available for new grants (7,503,922 at Dec. 29, 1995). The remaining shares are assigned to outstanding stock options, SARs and PSAs. 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All Tables in Millions of Dollars, Except Per Share Amounts) All stock options have been granted with 10-year terms and vest at the end of one year of continued employment. The exercise price for options granted equals the market price of the underlying stock on the date of grant. Options under recent grants become exercisable based on the achievement of performance goals. A summary of the company's stock option activity, and related information for the fiscal years ended Dec. 27, 1996, Dec. 29, 1995, and Dec. 30, 1994, follows:
1996 1995 1994 ----------------------- ----------------------- ----------------------- Shares Weighted-Avg. Shares Weighted-Avg. Shares Weighted-Avg. (000s) Exercise Price (000s) Exercise Price (000s) Exercise Price -------- ------ ----------------------- ------- --------- Outstanding at Beginning of Year 11,881 $32.76 10,206 $30.97 7,390 $26.80 Granted 1,978 $51.43 2,165 $40.25 3,212 $39.99 Canceled or Expired (42) $27.69 (57) $38.95 (68) $32.81 Exercised (715) $42.08 (433) $27.18 (328) $24.92 ------- ------ ------ Outstanding at End of Year 13,102 $35.82 11,881 $32.76 10,206 $30.97 ======= ====== ====== ====== ====== ====== Exercisable at End of Year 10,139 $31.90 8,017 $28.79 7,014 $26.85 ======= ====== ====== ====== ====== ====== Weighted-Average Fair Value of Options Granted $ 13.78 $11.33 ======= ======
The following table summarizes information about stock options outstanding at Dec. 27, 1996:
Options Outstanding Options Exercisable ----------------------------------------- ----------------------- Weighted-Avg. Number Remaining Weighted-Avg. Number Weighted-Avg. Range of Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price ------ --- ------ ------ ------ $15 to $20 2,584 3.1 $17.40 2,584 $17.40 $30 to $39 5,453 6.5 $35.55 5,453 $35.55 $40 to $52 5,065 8.5 $45.51 2,102 $40.25 ------ ------ $15 to $52 13,102 6.6 $35.82 10,139 $31.90 ====== === ====== ====== ======
The fair value of options granted in 1996 and 1995 was estimated as of the dates of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1996 and 1995, respectively: risk-free interest rates of 6.3% and 6.8% and volatility factors of 22% and 23%. Dividend yields of 2.4% and expected lives of 6 years were used in both years. The value of PSAs is contingent on the 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 Dec. 27, 1996, there were 728,600 shares reserved for outstanding PSAs. In 1996 and 1995, respectively, 110,600 and 122,200 PSAs were granted to employees. The weighted-average fair value of those shares was $44.44 for 1996 and $32.56 for 1995. At Dec. 27, 1996, there were 435,073 SARs outstanding with a weighted-average exercise price of $15.85. In 1996 and 1994, respectively, 69,494 and 56,740 SARs were exercised at weighted-average exercise prices of $15.68 and $15.63; there were no exercises in 1995. There were no grants of SARs in 1996, 1995 or 1994. 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All Tables in Millions of Dollars, Except Per Share Amounts) Stock Award Plan Under the 1990 Stock Award Plan, all officers and employees of the company are eligible to receive shares of CSX common stock as an incentive award and certain key employees are eligible to receive them as a deferral award. All awards of common stock are issued based on terms and conditions approved by the company's board of directors. At Dec. 27, 1996, there were 1,340,369 shares reserved for issuance under this Plan, of which 513,369 were available for new grants. In 1996 and 1995, respectively, 633,587 shares and 348,278 shares were granted under the Plan. The weighted-average fair value of those shares was $45.63 for 1996 and $35.78 for 1995. 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 the company's common stock at market value by payroll deductions. To encourage stock ownership, 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. Sales of stock prior to the completion of the holding period result in forfeiture of the matching stock purchase. Officers and key employees who qualify for the Stock Purchase and Loan Plan are not eligible to participate in this Plan. At Dec. 27, 1996, there were 706,899 shares of common stock available for purchase under this Plan. Employees purchased 40,985 shares in 1996 and 46,224 shares in 1995 under the plan at weighted-average market prices of $47.39 and $40.31 for 1996 and 1995, respectively. The company also maintains the Employees Stock Purchase and Dividend Reinvestment Plan and the Shareholders Dividend Reinvestment Plan, adopted in 1981, under which 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 stock ownership, employees receive a 5% discount on all purchases under this program. At Dec. 27, 1996, there were 5,128,605 shares reserved for issuance under these Plans. Stock Plan for Directors The Stock Plan for Directors, approved by the shareholders in 1992, governs in part the manner in which directors' fees and retainers are paid. A minimum of 40% of the retainer fees must be paid in common stock of the company. In addition, 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 Dec. 27, 1996, there were 959,236 shares of common stock reserved for issuance under this Plan. NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS. Fair values of the company's financial instruments are estimated by reference to quoted prices from market sources and financial institutions, as well as other valuation techniques. Long-term debt and the company's investment in Conrail common stock are the only financial instruments of the company with fair values significantly different from their carrying amounts. At Dec. 27, 1996, the fair value of long-term debt, including current maturities, was $4.56 billion, compared with a carrying amount of $4.43 billion. At Dec. 29, 1995, the fair value of long-term debt, including current maturities, was $2.94 billion, compared with a carrying amount of $2.71 billion. The fair value of long-term debt has been estimated using discounted cash flow analyses based upon the company's current incremental borrowing rates for similar types of financing arrangements. The company's investment in approximately 17.9 million shares of Conrail common stock was acquired at a price of $110 per share, resulting in an aggregate carrying amount of $1.965 billion. At Dec. 27, 1996, the closing market price of Conrail common stock was $100 per share, resulting in an aggregate market value of $1.786 billion. As of Dec. 27, 1996, the terms of the voting trust agreement under which the shares were held prohibited the company from selling any of the Conrail shares without Conrail's written approval prior to the earlier of Dec. 31, 1998, or a regulatory decision by the STB that denies completion of the company's merger with Conrail under the terms contemplated at that date. The company had no significant hedging or derivative financial instruments employed at Dec. 27, 1996, or Dec. 29, 1995. 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 13. EMPLOYEE BENEFIT PLANS. Pension Plans The company sponsors defined benefit pension plans, principally for salaried personnel. The plans provide eligible employees with retirement benefits based principally on years of service and compensation rates near retirement. Annual contributions to the plans are sufficient to meet 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: 1996 1995 1994 ---- ---- ---- Service Cost $ 37 $ 28 $ 36 Interest Cost on Projected Benefit Obligation 93 91 89 Actual Return on Plan Assets (89) (190) (10) Net Amortization and Deferral 18 117 (45) Foreign Plans 4 4 4 ---- ----- ---- Pension Expense $63 $ 50 $ 74 ==== ===== ==== The funded status of the plans and the amounts reflected in the accompanying statement of financial position at year-end are:
Assets Exceed Benefits Benefits Exceed Assets (at Valuation Date) (at Valuation Date) Sept. 30, Dec. 29, Sept. 30, Dec. 29, 1996 1995 1996 1995 --------- -------- --------- -------- Assets and Obligations -- Vested Benefits $44 $24 $1,161 $1,086 Non-Vested Benefits 1 1 59 69 --- --- ------ ------ Accumulated Benefit Obligation 45 25 1,220 1,155 Effect of Anticipated Future Salary Increases 1 1 105 122 --- --- ------ ------ Projected Benefit Obligation 46 26 1,325 1,277 Fair Value of Plan Assets 63 39 1,047 957 --- --- ------ ------ Funded Status 17 13 (278) (320) Unrecognized Initial Net Obligation (Asset) -- (3) 18 25 Unrecognized Prior Service Cost 1 2 (3) 11 Unrecognized Net Loss 6 4 257 276 Recognition of Minimum Liability -- -- (176) (200) Cash Contributions, Oct. 1 through Year-End -- * 2 * --- --- ------ ------ Net Pension Asset (Obligation) at Year-End $24 $16 $ (180) $ (208) === === ====== =======
* In 1996, the company changed the measurement date for pension assets and liabilities from the end of the fiscal year to Sept. 30. The change in measurement date had no effect on 1996 or prior years' pension expense. 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All Tables in Millions of Dollars, Except Per Share Amounts) Pension expense is determined based upon an actuarial valuation as of the beginning of each year. The following actuarial assumptions were used in determining net pension expense and projected benefit obligations:
1996 1995 1994 ---- ---- ---- Discount Rate at Valuation Date 7.50% 7.50% 8.25% Estimated Long-Term Rate of Salary Increases at Valuation Date 5.00% 5.00% 5.00% Expected Long-Term Rate of Return on Assets During the Period 9.50% 9.75% 8.75%
The aggregate minimum pension liability was reduced by $24 million in 1996, primarily due to the increase in fair value of plan assets. Savings Plans The company maintains savings plans for virtually all full-time salaried employees and certain employees covered by collective bargaining agreements. Eligible employees may contribute from 1% to 15% of their annual compensation in 1% multiples to these plans. The company 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, the company contributes fixed amounts for each participating employee covered by certain collective bargaining agreements. Expense associated with these plans was $23 million, $29 million and $31 million for 1996, 1995 and 1994, respectively. Other Post-Retirement Benefit Plans In addition to the defined benefit pension plans, the company sponsors three plans that provide medical and life insurance benefits to most full-time salaried employees upon their retirement. The post-retirement medical plans are contributory, with retiree contributions adjusted annually, and contain other cost-sharing features such as deductibles and coinsurance. The net benefit obligation for medical plans anticipates future cost-sharing changes consistent with the company's expressed intent to increase retiree contribution rates annually in line with expected medical cost inflation rates. The life insurance plan is non-contributory. The company's current policy is to fund the cost of the post-retirement medical and life insurance benefits on a pay-as-you-go basis, as in prior years. The amounts recorded for the combined plans in the company's statement of financial position at Dec. 27, 1996, and Dec. 29, 1995, are as follows:
Medical Life Insurance (At Valuation Date) (At Valuation Date) Sept. 30, Dec. 29, Sept. 30, Dec. 29, 1996 1995 1996 1995 --------- -------- --------- -------- Accumulated Post-Retirement Benefit Obligation: Retirees $214 $188 $60 $69 Fully Eligible Active Participants 34 30 3 3 Other Active Participants 38 45 2 3 ---- ---- --- --- Accumulated Post-Retirement Benefit Obligation 286 263 65 75 Unrecognized Prior Service Cost 10 17 4 5 Unrecognized Net (Loss) Gain (48) (41) 1 (11) Claim Payments, Oct. 1 through Year-End (6) * (1) * ---- ---- --- --- Net Post-Retirement Benefit Obligation at Year-End $242 $239 $69 $69 ==== ==== === ===
* In 1996, the company changed the measurement date for valuing its post-retirement benefit obligation to Sept. 30. The change in measurement date had no effect on 1996 or prior years' net expense for post-retirement benefits. 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All Tables in Millions of Dollars, Except Per Share Amounts) Net expense for post-retirement benefits was $30 million, $27 million and $29 million for 1996, 1995 and 1994, respectively. The net post-retirement benefit obligation was determined using the assumption that the health care cost trend rate for medical plans was 10% for 1996-1997, decreasing gradually to 5.5% by 2005 and remaining at that level thereafter. A 1% increase in the assumed health care cost trend rate would increase the accumulated post-retirement benefit obligation for medical plans as of Dec. 27, 1996, by $21 million and net post-retirement benefit expense for 1996 by $3 million. The discount rate used in determining the accumulated post-retirement benefit obligation was 7.50% for 1996 and 1995, and 8.25% for 1994. Other Plans Under collective bargaining agreements, the company participates in a number of union-sponsored, multiemployer 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 multiemployer 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 $224 million, $239 million and $209 million, respectively, were made to these plans in 1996, 1995 and 1994. NOTE 14. COMMITMENTS AND CONTINGENCIES. Lease Commitments The company 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 Dec. 27, 1996, minimum building and equipment rentals under non-cancelable operating leases totaled approximately $418 million for 1997, $390 million for 1998, $337 million for 1999, $286 million for 2000, $272 million for 2001 and $2.2 billion thereafter. Rent expense on operating leases, including net daily rental charges on railroad operating equipment of $245 million, $257 million and $258 million in 1996, 1995 and 1994, respectively, amounted to $1.2 billion in 1996 and 1995, and $1.1 billion in 1994. Purchase Commitments CSXT entered into agreements during 1993 and 1996 to purchase 380 locomotives. These large orders cover normal locomotive replacement needs for 1994 through 1997 and introduced alternating current traction technology to the locomotive fleet. CSXT has taken delivery of 50 direct current and 255 alternating-current locomotives through Dec. 27, 1996. The remaining 75 alternating-current units will be delivered in 1997. During 1994 and 1995, Sea-Land entered into agreements for the construction of nine high-performance, fuel-efficient container vessels. Estimated capital expenditures for these vessels total $525 million, of which $312 million has been expended through Dec. 27, 1996, with the remaining $213 million expected to be incurred over the next two years. Five of the vessels have been delivered through Dec. 27, 1996. Other Commitments During 1995, CSXT entered into an agreement with a major telecommunications vendor to supply and manage its telecommunications needs through May 2005. As discussed in Note 3 - Restructuring Charge, the agreement was amended in 1996 to significantly reduce the service period, increase contractual payment amounts over the revised service period, and relieve the vendor of obligations to replace certain telecommunications technology. The amended agreement provides for a revised termination date of June 30, 1998, and requires minimum payments totaling $56 million over the remaining service period. 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All Tables in Millions of Dollars, Except Per Share Amounts) 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 were immaterial to the company's results of operations and financial position at Dec. 27, 1996. The company has been advised that activities of a subsidiary that administered student loans and that was sold by the company in 1992 are under review to determine whether, and to what extent, damages should be asserted against the company for government insurance payments on uncollected loans related to alleged processing deficiencies or errors that may have occurred prior to the time the subsidiary was sold. The company believes it has no material liability for any claim that might be asserted, but the final outcome of the review and the amount of potential damages are not yet reasonably estimable. Based upon information currently available to the company, it is believed any adverse outcome will not be material to the company's results of operations or financial position. 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 portion of the insurance coverage, $25 million limit above $25 million per occurrence from rail and certain other operations, is provided by a company partially owned by CSX. CSXT is a party to various proceedings involving private parties and regulatory agencies related to environmental issues. CSXT has been identified as a potentially responsible party (PRP) at approximately 105 environmentally impaired sites that are or may be subject to remedial action under the Federal Superfund statute (Superfund) or similar state statutes. A number of these proceedings are based on allegations that CSXT, or its predecessor railroads, sent hazardous substances to the facilities in question for disposal. Such proceedings arising under Superfund or similar state statutes can 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. CSXT is involved in a number of administrative and judicial proceedings and other clean-up efforts at approximately 270 sites, including the sites addressed under the Federal Superfund statute or similar state statutes, at which it is participating in the study and/or clean-up of alleged environmental contamination. The assessment of the required response and remedial costs associated with most sites is extremely complex. Cost estimates are based on information available for each site, financial viability of other PRPs, where available, and existing technology, laws and regulations. CSXT's best estimates of the allocation method and percentage of liability when other PRPs are involved are based on assessments by consultants, agreements among PRPs, or determinations by the U.S. Environmental Protection Agency or other regulatory agencies. At least once each quarter, CSXT 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 PRPs at the location. The ultimate liability for remediation can be difficult to determine with certainty because of the number and creditworthiness of PRPs involved. Through the assessment process, CSXT monitors the creditworthiness of such PRPs in determining ultimate liability. Based upon such reviews and updates of the sites with which it is involved, CSXT has recorded, and reviews at least quarterly for adequacy, reserves to cover estimated contingent future environmental costs with respect to such sites. The recorded liabilities for estimated future environmental costs at Dec. 27, 1996, and Dec. 29, 1995, were $117 million and $137 million, respectively. These recorded liabilities include amounts representing CSXT's estimate of unasserted claims, which CSXT believes to be immaterial. 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 any significant ongoing monitoring costs, but excludes any anticipated insurance recoveries. The majority of the Dec. 27, 1996, environmental liability is expected to be paid out over the next five to seven years, funded by cash generated from operations. 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. In addition, latent conditions at any given location could result in exposure, the amount and materiality of which cannot presently be reliably estimated. 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, and that the ultimate liability for these matters will not materially affect its overall results of operations and financial condition. 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All Tables in Millions of Dollars, Except Per Share Amounts) 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 15. 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: 1996 1995(b) 1994(b) ------ ------- ------- Operating Revenue $4,051 $4,008 $3,492 Operating Expense-- Public 3,648 3,755 3,279 -- Affiliated (a) 122 107 57 ------ ------- ------ Operating Income $ 281 $ 146 $ 156 ====== ====== ====== Net Earnings $ 84 $ 86 $ 73 ====== ====== ====== Dec. 27, Dec. 29, Summary of Financial Position: 1996 1995 -------- -------- Current Assets -- Public $ 747 $ 713 -- Affiliated (a) 1 2 Other Assets -- Public 1,829 1,674 -- Affiliated (a) 14 -- Current Liabilities -- Public 725 684 -- Affiliated (a) 115 48 Other Liabilities -- Public 756 718 -- Affiliated (a) 347 200 Equity 648 739 ======== ======= (a) Amounts represent activity with CSX affiliated companies. (b) Beginning in 1996, Sea-Land assumed primary responsibility for direct purchase of transportation from non-affiliated rail carriers. These services were previously purchased through a CSX-affiliated company. Operating expense for 1995 and 1994 has been restated to report this activity as public expense. SL Alaska Trade Company (SLATCO) is a special purpose, unconsolidated subsidiary of Sea-Land with trust-related assets of $117 million securing $106 million of debt maturing on Oct. 1, 2005. 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. 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 16. BUSINESS SEGMENTS.
Operating Revenue Operating Income Fiscal Years Ended Fiscal Years Ended Identifiable Assets -------------------------------- ------------------------------- --------------------- Dec. 27, Dec. 29, Dec. 30, Dec. 27, Dec. 29, Dec. 30, Dec. 27, Dec. 29, 1996 1995 1994 1996 1995 1994 1996 1995 -------- -------- -------- -------- --------- -------- -------- --------- Transportation $10,536 $10,304 $9,409 $1,522 $1,126 $1,182 $16,071 $13,304 ======= ======= ====== ====== ====== ====== ======= ======= Non-Transportation Segment $ 220 $ 200 $ 199 43 46 50 $ 894 $ 978 ======= ======= ====== ======= ======= Other (Net) -- 72 55 ------ ------ ------ Total Other Income 43 118 105 Interest Expense 249 270 281 ------ ------ ------ Earnings Before Income Taxes $1,316 $ 974 $1,006 ====== ======= ======
The principal components of the business segments are: Transportation - Rail, container-shipping, barge, intermodal and contract logistics operations. The container-shipping operation reported revenue of $4.1 billion for 1996, $4.0 billion for 1995 and $3.5 billion for 1994. Approximate revenue allocation by port of origin for 1996, 1995 and 1994 was: North America - -- 43%; Asia -- 32%; Europe -- 17%; and Other -- 8%. Foreign business activities outside the container-shipping operation do not contribute materially to the company's financial results. Non-Transportation - Real estate sales and rentals, resort management and resort operations. NOTE 17. QUARTERLY DATA (Unaudited). 1996 ----------------------------------- 1st 2nd(a) 3rd 4th ------ ------ ------ ------ Operating Revenue $2,514 $2,672 $2,647 $2,703 ====== ====== ====== ====== Operating Income $ 296 $ 408 $ 392 $ 426 ====== ====== ====== ====== Net Earnings $ 146 $ 234 $ 222 $ 253 ====== ====== ====== ====== Earnings Per Share $ .69 $ 1.11 $ 1.04 $ 1.17 ====== ====== ====== ====== 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All Tables in Millions of Dollars, Except Per Share Amounts) 1995 ------------------------------------ 1st 2nd(c) 3rd 4th(d) ------ ------ ------ ------ Operating Revenue $2,444 $2,549 $2,601 $2,710 ====== ====== ====== ====== Operating Income $ 276 $ 84 $ 369 $ 397 ====== ====== ====== ====== Net Earnings $ 121 $ 19 $ 202 $ 276 ====== ====== ====== ====== Earnings Per Share(b) $ .58 $ .09 $ .96 $ 1.31 ====== ====== ====== ====== (a) In the second quarter of 1996, the company changed its earnings presentation to exclude non-transportation activities from operating revenue and expense. These activities, principally real estate and resort operations, are now included in other income in the consolidated statement of earnings. Amounts for prior quarters have been restated to conform to the new presentation. (b) Earnings per share amounts for 1995 have been restated to reflect the 2-for-1 stock split distributed to shareholders in December 1995. (c) The company recorded a $257 million pretax restructuring charge in the second quarter of 1995 to recognize the estimated costs of initiatives at its rail and container-shipping units to revise, restructure and consolidate specific operations and administrative functions. The charge included a write-down of technologically obsolete telecommunications assets and provisions for employee separations and exit obligations. The restructuring charge reduced net earnings by $160 million, 76 cents per share. (d) In December 1995, the company recognized a net investment gain of $77 million on the issuance of an equity interest in a Sea-Land terminal and related operations in Asia and the write-down of various investments. The equity interest portion of the transaction resulted in proceeds of $105 million, a pretax gain of $93 million, and increased net earnings by $61 million, 29 cents per share. REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Shareholders and Board of Directors of CSX Corporation We have audited the accompanying consolidated statements of financial position of CSX Corporation and subsidiaries as of December 27, 1996 and December 29, 1995, and the related consolidated statements of earnings, cash flows, and changes in shareholders' equity for each of the three fiscal years in the period ended December 27, 1996. 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 19-42) present fairly, in all material respects, the consolidated financial position of CSX Corporation and subsidiaries at December 27, 1996 and December 29, 1995, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended December 27, 1996, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP --------------------- Ernst & Young LLP Richmond, Virginia January 31, 1997, except for Note 2, as to which the date is March 7, 1997 42 BOARD OF DIRECTORS AND CORPORATE OFFICERS BOARD OF DIRECTORS Elizabeth E. Bailey(b,d) John C. Hower Professor of Public Policy and Management The Wharton School, University of Pennsylvania, Philadelphia, Pa. Robert L. Burrus Jr.(d,e) Partner and Chairman McGuire, Woods, Battle & Boothe, Richmond, Va. Bruce C. Gottwald(d,e) Chairman and CEO Ethyl Corporation, Richmond, Va. John R. Hall(b,c) Retired Chairman and CEO Ashland Inc., Ashland, Ky. Robert D. Kunisch(a,c) Chairman, President and CEO PHH Corporation, Hunt Valley, Md. Hugh L. McColl Jr.(b,d) CEO NationsBank Corp., Charlotte, N.C. James W. McGlothlin(a,e) Chairman and CEO The United Company, Bristol, Va. Southwood J. Morcott(a,b,d) Chairman and CEO Dana Corporation, Toledo, Ohio Charles E. Rice(a,b,c) Chairman and CEO Barnett Banks Inc., Jacksonville, Fla. William C. Richardson(c,e) President and CEO W.K. Kellogg Foundation, Battle Creek, Mich. Frank S. Royal, M.D.(c) Physician and Health Care Authority, Richmond, Va. John W. Snow(a) Chairman, President and CEO CSX Corporation, Richmond, Va. Key to committees of the board a - Executive b - Audit c - Compensation d - Pension e - Organization & Corporate Responsibility CSX CORPORATE OFFICERS John W. Snow, 57* Chairman, President and CEO, elected February 1991 Mark G. Aron, 54* Executive Vice President-Law and Public Affairs, elected April 1995(1) Paul R. Goodwin, 54* Executive Vice President-Finance and Chief Financial Officer, elected April 1995(2) Arnold I. Havens, 49 Vice President-Federal Affairs, elected February 1997 Thomas E. Hoppin, 55 Vice President-Corporate Communications, elected July 1986 Richard H. Klem, 52* Vice President-Corporate Strategy, elected May 1992(3) William F. Miller, 54 Vice President-Audit and Advisory Services, elected September 1996 Jesse R. Mohorovic, 54* Vice President-Executive Department, elected February 1995(4) James P. Peter, 46 Vice President-Taxes, elected June 1993 Woodruff M. Price, 61 Vice President-Public Policy, elected February 1997 James L. Ross, 58* Vice President and Controller, elected May 1996(5) Alan A. Rudnick, 49 Vice President-General Counsel and Corporate Secretary, elected June 1991 Michael J. Ruehling, 49 Vice President-State Relations, elected January 1995 James A. Searle Jr., 50 Vice President-Administration, elected April 1996 Peter J. Shudtz, 48 General Counsel, elected September 1991 William H. Sparrow, 53* Vice President-Financial Planning, elected February 1996(6) Gregory R. Weber, 51* Vice President and Treasurer, elected May 1996(7) 43 UNIT OFFICERS CSX TRANSPORTATION INC. Alvin R. (Pete) Carpenter, 55* President and CEO, since January 1992 John Q. Anderson, 45* Executive Vice President-Sales & Marketing, since May 1996(8) Donald D. Davis, 57* Senior Vice President-Employee Relations, since November 1990 Gerald L. Nichols, 61* Executive Vice President and COO, since February 1995(9) Michael J. Ward, 46* Executive Vice President-Finance and CFO, since June 1996(10) SEA-LAND SERVICE INC. John P. Clancey, 52* President and CEO, since August 1991 Andrew B. Fogarty, 51* Senior Vice President-Finance and Planning, since June 1996(11) Robert J. Grassi, 50* Senior Vice President-Atlantic, AME Services, since June 1996(12) Richard E. Murphy, 52* Senior Vice President-Corporate Marketing, since June 1996(13) Charles G. Raymond, 53* Senior Vice President and Chief Transportation Officer, since May 1995(14) CSX INTERMODAL INC. Ronald T. Sorrow, 50* Chairman, President and CEO, since January 1997(15) AMERICAN COMMERCIAL LINES INC. Michael C. Hagan, 50* President and CEO, since May 1992(16) CUSTOMIZED TRANSPORTATION INC. David G. Kulik, 48 President and CEO, since December 1994 THE GREENBRIER Ted J. Kleisner, 52 President and Managing Director, since January 1989 YUKON PACIFIC CORPORATION Jeff B. Lowenfels, 48 President and CEO, since February 1995 * Executive officers of the corporation. Executive officers of CSX Corporation are elected by the CSX board of directors and hold office until the next annual election of officers. Officers of CSX business units are elected annually by the respective boards of directors of the business units. There are no family relationships or any arrangement or understanding between any officer an any other person pursuant to which such officer was selected. All of the executive officers listed have held their current positions for at least 5 years except as noted below: 1) Prior to April 1995, Mr. Aron served as Sr. VP-Law and Public Affairs. 2) Prior to April 1995, Mr. Goodwin served as an officer of CSXT as Exec. VP-Finance and Administration from February 1995 to April 1995; as Sr. VP-Finance from April 1992 to February 1995; and prior thereto as Sr. VP-Finance. 3) Prior to May 1992, Mr. Klem served as VP-Economic Analysis and Corporate Strategy. 4) Prior to February 1995, Mr. Mohorovic served as VP-Corporate Communications, CSXT, from April 1994 to February 1995, and prior thereto as VP-Corporate Communications, Sea-Land. 5) Prior to May 1996, Mr. Ross served as CSX VP-Special Projects from October 1995 to May 1996, and prior thereto as a Partner with Ernst & Young, LLP. 6) Prior to February 1996, Mr. Sparrow served as VP-Capital Planning and Budgeting from May 1994 to February 1996 and prior thereto as VP and Treasurer. 7) Prior to May 1996, Mr. Weber served as VP, Controller and Treasurer, from May 1994 to May 1996, and prior thereto as VP and Controller. 8) Prior to May 1996, Mr. Anderson served as Sr. VP for Burlington Northern Santa Fe Railway from 1995 to May 1996 and prior thereto as Executive VP of Burlington Northern Railroad. 9) Prior to February 1995, Mr. Nichols served as Sr. VP-Administration of CSXT. 10) Prior to June 1996, Mr. Ward served as an officer of CSXT as Sr. VP-Finance from April 1995 to June 1996; General Manager-C&O Business Unit from 1994 to April 1995; and prior thereto as VP-Coal. 11) Prior to June 1996, Mr. Fogarty served as CSX VP-Audit and Advisory Services from March 1995 to June 1996, and prior thereto as CSX VP-Executive Department. 12) Prior to June 1996, Mr. Grassi served as Sea-Land Sr. VP-Finance and Planning. 13) Prior to June 1996, Mr. Murphy served as Sea-Land VP-Atlantic and AME from 1995 to June 1996; Sr. VP-Pacific Services from 1993 to 1995; and prior thereto as VP-Pacific Services. 14) Prior to May 1995, Mr. Raymond served as Sea-Land Sr. VP-Operations and Inland Transportation. 15) Prior to January 1997, Mr. Sorrow served as CSXI President and CEO from January 1996 to January 1997 and prior thereto as VP-Sales and Marketing of CSXI. 16) Prior to May 1992, Mr. Hagan served as President and COO of ACL. 44 CORPORATE INFORMATION Headquarters One James Center 901 East Cary Street Richmond, VA 23219-4031 (804) 782-1400 (http://www.csx.com) 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 Stocks A total of 300 million shares of common stock is authorized, of which 216,885,140 shares were outstanding as of Dec. 27, 1996. 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 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. Closing Price of Common Stock at Fiscal Year-End (Dollars) [GRAPH] '92 '93 '94 '95 '96 $34.38 $40.94 $34.82 $45.63 $42.88 Common Stock Price Range and Dividends Per Share Fiscal Year 1996 --------------------------------------- Quarter 1st 2nd 3rd 4th --------------------------------------- Market Price High $48.50 $53.13 $53.00 $52.38 Low $42.25 $44.13 $42.25 $42.50 Dividends Per Share $ .26 $ .26 $ .26 $ .26 ======================================= Fiscal Year 1995 --------------------------------------- Quarter 1st 2nd 3rd 4th Market Price --------------------------------------- High $39.88 $41.00 $44.63 $46.13 Low $34.63 $36.00 $37.44 $39.06 Dividends Per Share $ .22 $ .22 $ .22 $ .26 ======================================= Fiscal Year 1994 -------------------------------------- Quarter 1st 2nd 3rd 4th Market Price -------------------------------------- High $46.19 $41.63 $39.57 $37.25 Low $39.94 $35.50 $33.00 $31.57 Dividends Per Share $ .22 $ .22 $ .22 $ .22 ======================================= Fiscal Year 1993 --------------------------------------- Quarter 1st 2nd 3rd 4th Market Price --------------------------------------- High $39.98 $39.07 $40.13 $44.07 Low $33.57 $33.19 $33.94 $37.44 Dividends Per Share $ .19 $ .19 $ .19 $ .22 ======================================= Fiscal Year 1992 -------------------------------------- Quarter 1st 2nd 3rd 4th Market Price -------------------------------------- High $31.00 $33.75 $33.88 $36.82 Low $27.44 $27.75 $28.32 $27.25 Dividends Per Share $ .19 $ .19 $ .19 $ .19 ======================================= (All data adjusted for 2-for-1 split of common stock effective Dec. 21, 1995.) Common Stock Shares Outstanding, Number of Registered Shareholders
1996 1995 1994 1993 1992 ------- ------- ------- ------- ------- Number of shareholders: 55,176 55,528 57,355 59,714 62,820 ======= ======= ======= ======= =======
Shares Outstanding as of Jan. 24, 1997: 216,898,817 Common Stock Shareholders as of Jan. 24, 1997: 55,074 45 SHAREHOLDER INFORMATION Shareholder Services Shareholders with questions about their accounts should contact the transfer agent at the address or telephone number shown below. 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 A3504 Chicago, IL 60690 (800) 521-5571 (312) 461-4061, 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 Elisabeth Gabrynowicz Director-Corporate Communications P.O. Box 85629 Richmond, VA 23285-5629 (804) 782-6775 Investor Relations Joseph C. Wilkinson Director-Investor Relations CSX Corporation P.O. Box 85629 Richmond, VA 23285-5629 (804) 782-1553 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. 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 above. 46 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 14th day of March 1997. CSX Corporation By: /s/ JAMES L. ROSS ------------------------------------- James L. Ross Vice President and Controller 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)* Paul R. Goodwin Executive Vice President-Finance (Principal Financial Officer)* Elizabeth E. Bailey Director* Robert L. Burrus Jr. Director* Bruce C. Gottwald Director* John R. Hall Director* Robert D. Kunisch Director* Hugh L. McColl Jr. Director* James W. McGlothlin Director* Southwood J. Morcott Director* Charles E. Rice Director* William C. Richardson Director* Frank S. Royal, M.D. Director* /s/ PETER J. SHUDTZ - ----------------------------------- * Peter J. Shudtz, Attorney-in-Fact March 14, 1997 47 CSX CORPORATION Statement of Differences 1. The printed Annual Report and Form 10-K contains numerous graphs and photographs not incorporated into the electronic Form 10-K. 2. The 10-K cover sheet and index, presented on pages 43 and 44 of the printed document, have been repositioned to the front of the electronic document. 48 Index to Exhibits Description (3.1) Articles of Incorporation (incorporated by reference as Exhibit 3 to Form 10-K dated Feb. 15, 1991) (3.2) Bylaws (10.1) CSX Stock Plan for Directors* (10.2) Special Retirement Plan for CSX Directors* (10.3) Corporate Director Deferred Compensation Plan* (10.4) CSX Directors' Charitable Gift Plan* (incorporated by reference to Exhibit 10.4 to Form 10-K dated March 4, 1994) (10.5) CSX Directors' Matching Gift Plan* (10.6) Form of Agreement with J.W. Snow, A.R. Carpenter, J.P. Clancey, P.R. Goodwin and G.L. Nichols* (incorporated by reference to Exhibit 10.6 to Form 10-K dated March 3, 1995) (10.7) Form of Amendment to Agreement with A.R. Carpenter, P.R. Goodwin and G.L. Nichols* (10.8) Form of Amendment to Agreement with J.P. Clancey* (10.9) Form of Retention Agreement with A.R. Carpenter and J.P. Clancey* (incorporated by reference to Exhibit 10.3 to Form 10-K dated Feb. 28, 1992) (10.10) Agreement with J.W. Snow* (incorporated by reference to Exhibit 10.9 to Form 10-K dated March 4, 1994) (10.11) Amendment to Agreement with J.W. Snow* (10.12) Agreement with J.W. Snow* (10.13) Loan Agreement with A.R. Carpenter* (incorporated by reference to Exhibit 10.9 to Form 10-K dated March 1, 1996) (10.14) Stock Purchase and Loan Plan* (incorporated by reference to Exhibit 99 to Form S-8 dated July 31, 1996) (10.15) 1987 Long-Term Performance Stock Plan* (10.16) 1985 Deferred Compensation Program for Executives of CSX Corporation and Affiliated Companies* (10.17) Supplementary Savings Plan and Incentive Award Deferral Plan for Eligible Executives of CSX Corporation and Affiliated Companies* (10.18) Special Retirement Plan of CSX Corporation and Affiliated Companies* (10.19) Supplemental Retirement Plan of CSX Corporation and Affiliated Companies* (10.20) 1994 Senior Management Incentive Compensation Plan* (incorporated by reference to Exhibit 10.16 to Form 10-K dated March 3, 1995) (21) Subsidiaries of the Registrant (23) Consent of Independent Auditors (27) Financial Data Schedule -- Schedule II * Management Contract or Compensatory Plan or Arrangement. EX-3.2 2 BYLAWS Exhibit 3.2 BY-LAWS OF CSX CORPORATION (Amended as of April 25, 1996) -------------------- ARTICLE I. Stockholders' Meetings. SECTION 1. Annual Meeting. The annual meeting of the stockholders of the Corporation shall be held on such date in March, April, May or June as the Board of Directors may designate, either within or without the State of Virginia. SECTION 2. Special Meetings. Special meetings of the stockholders may be called from time to time by the Board of Directors or the Chief Executive Officer of the Corporation. Special meetings shall be held solely for the purposes specified in the notice of meeting. SECTION 3. Time and Place. The time and place of each meeting of the stockholders shall be stated in the notice of the meeting. SECTION 4. Quorum. The holders of a majority of the outstanding shares of Capital Stock entitled to vote shall constitute a quorum at any meeting of the stockholders. Less than a quorum may adjourn the meeting to a fixed time and place, no further notice of any adjourned meeting being required. Each stockholder shall be entitled to one vote in person or by proxy for each share entitled to vote then outstanding and registered in his name on the books of the Corporation. SECTION 5. Notice of Meeting and Record Date. Notice shall be delivered by the Corporation not less than ten (10) days nor more than sixty (60) days before the date of the meeting, either personally or by mail, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail with postage thereon prepaid, addressed to the stockholder at his address as it appears on the stock transfer books of the Corporation. Such further notice shall be given as may be required by law. Notice of meetings may be waived in accordance with law. Any previously scheduled meeting of the stockholders may be postponed, by resolution of the Board of Directors at any time prior to the time previously scheduled for such meeting of stockholders. The Board of Directors may fix in advance a date to determine shareholders entitled to notice or to vote at any meeting of shareholders, to receive any dividend, or for any purpose, such date to be not more than 70 days before the meeting or action requiring a determination of shareholders. SECTION 6. Conduct of Meeting. The Chairman of the Board shall preside over all meetings of the stockholders and prescribe rules of procedure therefor. If he is not present, or if there is none in office, the President shall preside. If the Chairman of the Board and the President are not present, a Vice President shall preside, or, if none be present, a Chairman shall be elected by the meeting. The Secretary of the Corporation shall act as Secretary of the meeting, if he is present. If he is not present, the Chairman shall appoint a Secretary of the meeting. The Chairman of the meeting shall appoint one or more inspectors of election who shall determine the qualification of voters, the validity of proxies, and the results of ballots. The Chairman of the meeting or a majority of the shares so represented may adjourn the meeting from time to time, whether or not there is a quorum, and may determine the date, time and place that a meeting so adjourned is to reconvene. The Chairman of the meeting shall determine the time reasonably allotted to each speaker at the meeting. SECTION 7. Notice of Stockholder Business. At an annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who complies with the notice procedures set forth in this Section 7. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than 30 days nor more than 60 days prior to the meeting; provided, however, that in the event that less than 40 days' notice or prior public disclosure of the date of the meeting is given or made to the stockholders, notice by the stockholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder and (d) any material interest of the stockholder in such business. Notwithstanding anything in the By-laws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 7. The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 7, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. ARTICLE II. Board of Directors. SECTION 1. Number, term and election. The Board of Directors shall be elected at the annual meeting of the stockholders or at any special meeting held in lieu thereof. The number of Directors shall be twelve. This number may be increased or decreased at any time by amendment of these By-laws, but shall always be a number of not less than four. No person shall be eligible for election as a Director, nor shall any Director be eligible for reelection, if he shall have attained the age of 70 years at the time of such election, except that the Board, in its sole discretion, may waive such ineligibility for a period not to exceed one year. Inside Directors, including Chief Executive Officers, shall retire from the Board immediately upon leaving active service, or age 65, whichever is first. Further, only CSX senior corporate officers shall be eligible for election as Director. Outside Directors shall hold office until removed or until the next annual meeting of the stockholders is held and their successors are elected. SECTION 2. Notice of Stockholder Nominees. Only persons who are nominated in accordance with the procedures set forth in the By-laws shall be eligible for election as Directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Section 2. Nominations by stockholders shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 30 days nor more than 60 days prior to the meeting; provided, however, that in the event that less than 40 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, 2 notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a Director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such stockholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such stockholder. At the request of the Board of Directors any person nominated by the Board of Directors for election as a Director shall furnish to the Secretary of the Corporation that information required to be set forth in the stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as Director of the Corporation unless nominated in accordance with the procedures set forth in the By-laws. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the By-laws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. SECTION 3. Quorum. A majority of the Directors shall constitute a quorum. Less than a quorum may adjourn the meeting to a fixed time and place, no further notice of any adjourned meeting being required. SECTION 4. Removal and vacancies. The stockholders at any meeting, by a vote of the holders of a majority of all the shares of Capital Stock at the time outstanding and having voting power, may remove any Director and fill any vacancy. Vacancies arising among the Directors, including a vacancy resulting from an increase by the Board of Directors in the number of directors, so long as the increase so created is not more than two, may be filled by the remaining Directors, though less than a quorum of the Board, unless sooner filled by the stockholders. Vacancies filled by the Directors may be subject to such rules, regulations, and criteria as the Board may from time to time prescribe. SECTION 5. Meetings and notices. Regular meetings of the Board of Directors shall be held each month, unless cancelled by the Board of Directors, at such place and at such time as the Board of Directors may from time to time designate. Special meetings of the Board of Directors may be held at any place and at any time upon the call of the Chairman of the Board or of any three members of the Board of Directors. Notice of any meetings shall be given by mailing or delivering such notice to each Director at his residence or business address or by telephoning or telegraphing it to him at least twenty-four hours before the meeting. Any such notice shall state the time and place of the meeting. Meetings may be held without notice if all of the Directors are present or those not present waive notice before or after the meeting. Any action required to be taken at a meeting of the Board may be taken without a meeting if a consent in writing setting forth the action so to be taken, shall be signed by all the Directors and filed with the Secretary. Such consent shall have the same force and effect as a unanimous vote. Any action required to be taken at a meeting of the Board may be taken by means of a conference telephone or similar communications equipment whereby all persons participating in the meeting can hear each other, and participation by such means shall constitute presence in person at such meeting. When such meeting is conducted, a written record shall be made of the action taken at such meeting. ARTICLE III. Executive Committee. SECTION 1. Number and Chairman. The Board of Directors shall by vote of a majority of the whole number herein fixed designate an Executive Committee, consisting of the Chairman of the Board, the President of the Corporation, the Chairman of each of the Committees of the Board, and, for a period determined by the Board of Directors not to exceed 12 months from 3 termination of his or her service as Chairman of a Committee, any current member of the Board of Directors who had been Chairman of a Committee of the Board. The Chairman of the Board of Directors shall be the Chairman of the Committee. SECTION 2. Authority and quorum. The Committee, when the Board of Directors is not in session, shall have and may exercise all the authority of the Board of Directors, except as may be prohibited by Section 13.1-40 of the Code of Virginia, as it may from time to time be amended. A majority of the Committee shall constitute a quorum for the transaction of business, and the affirmative vote of the majority of those present shall be necessary for any action by the Committee. The Committee shall cause to be kept a full and accurate record of its proceedings at each meeting and report the same at the next meeting of the Board. In the absence of the Chairman of the Committee, a temporary chairman shall be designated by the Committee to preside at such meeting. SECTION 3. Meetings and notices. Meetings of the Committee may be called at any time by the Chairman of the Board or any three members of the Committee and shall be held at such time and place as shall be stated in the notice of the meeting. Notice of any meeting of the Committee shall be given by delivering or mailing such notice to each member of his residence or business address or by telephoning or telegraphing it to him not less than twenty-four hours before the meeting. Any such notice shall state the time and place of the meeting. Meetings may be held without notice if all of the members of the Committee are present or those not present waive notice before or after the meeting. Action may be taken by the Executive Committee without a meeting in the manner provided by Section 4 of Article II. SECTION 4. Removal. Members of the Committee may be removed as members thereof and replaced by the affirmative vote of a majority of the Directors in office at any regular or special meeting of the Board of Directors. ARTICLE IV. Committees of the Board. (other than the Executive Committee) The Board of Directors shall by vote of a majority of the whole number herein fixed establish an Audit Committee, a Compensation Committee, an Organization and Corporate Responsibility Committee, and a Pension Committee, each committee consisting of at least two directors whose designation and terms of office shall be by resolution of the Board. The Board may also create from time to time such additional committees as it may deem appropriate. The committees shall meet and perform such duties and functions as the Board may prescribe. ARTICLE V. Officers. At the first meeting of the Board of Directors held after the annual meeting of the stockholders, the Board of Directors shall elect officers of the Corporation as follows: A Chairman of the Board, who shall be the Chief Executive Officer, 4 A President, who shall be the Chief Operating Officer, A Vice Chairman, One or more Vice Presidents, any of whom may be designated as an Executive Vice President, a Senior Vice President or a Vice President with a functional title, A General Counsel, A Secretary, and A Treasurer All officers elected by the Board of Directors shall, unless removed by the Board of Directors as hereinafter set forth, hold office until the first meeting of the Board of Directors after the next annual meeting of the stockholders and until their successors are elected. Any two or more offices may be held by the same person, except the offices of President and Secretary. The Chairman of the Board may appoint such additional subordinate officers as he may deem necessary for the efficient conduct of the affairs of the Corporation. The powers, duties, and responsibilities of officers and employees of the Corporation not prescribed in these By-laws shall be established from time to time by the Board of Directors or by the Chairman of the Board. Any officer shall be subject to removal at any time if elected by the Board of Directors, by the affirmative vote of a majority of all of the members of the Board of Directors, or, if appointed by the Chairman of the Board, by the Chairman of the Board. ARTICLE VI. Chairman of the Board. The Chairman of the Board of Directors shall be elected from among the Directors. He shall preside at all meetings of the Board of Directors. Subject to the direction of the Board of Directors, he shall have general charge, control, and supervision of all the business and operations of the Corporation. The Board of Directors may elect a Vice Chairman of the Board from among the members thereof. He shall have such powers, duties and responsibilities as may be assigned to him by the Board of Directors or the Chairman of the Board. ARTICLE VII. President. The President shall be elected from among the Directors. He shall have such powers, duties, and responsibilities as may be assigned to him by the Board of Directors or the Chairman of the Board. ARTICLE VIII. Vice Presidents. 5 The powers, duties, and responsibilities of the Vice Presidents shall be fixed by the Chairman of the Board with the approval of the Board of Directors. From time to time, the Board of Directors may assign to a Vice President the duty of acting for the President in case of his absence or inability to act. ARTICLE IX. General Counsel. The General Counsel shall have general charge of the legal affairs of the Corporation, and shall cause to be kept adequate records of all suits or actions of every nature to which the Corporation may be a party or in which it has an interest, with sufficient data to show the nature of the case and proceedings therein. He shall prepare or cause to be prepared legal opinions on any subject necessary for the affairs of the Corporation, and shall perform such other duties as the Board of Directors, the Chairman of the Board, or the Senior Vice President-Corporate Services may designate. ARTICLE X. Secretary. SECTION 1. The Secretary shall attend all meetings of the stockholders, the Board of Directors, and the Executive Committee and record their proceedings, unless a temporary secretary be appointed. He shall give due notice as required of all meetings of the stockholders, Directors, and Executive Committee. He shall keep or cause to be kept at a place or places required by law a record of the stockholders of the Corporation, giving the names and addresses of all stockholders and the number, class, and series of the shares held by each. He shall be custodian of the seal of the Corporation, and of all records, contracts, leases, and other papers and documents of the Corporation, unless otherwise directed by the Board of Directors, and shall perform such other duties as may be assigned to him by the Board of Directors, the Chairman of the Board, or the Senior Vice President-Corporate Services. SECTION 2. In case of the Secretary's absence or incapacity, the Chairman of the Board shall designate an appropriate officer to perform the duties of the Secretary. ARTICLE XI. Treasurer. SECTION 1. The Treasurer shall receive, keep and disburse all moneys belonging or coming to the Corporation, shall keep regular, true and full accounts of all receipts and disbursements and make detailed reports thereof. He shall also perform such other duties in connection with the administration of the financial affairs of the Corporation as the Senior Vice President-Finance shall assign to him. SECTION 2. In case of the Treasurer's absence or incapacity, the Senior Vice President-Finance shall designate an appropriate officer to perform the duties of the Treasurer. 6 ARTICLE XII. Compensation. The compensation of the officers elected by the Board of Directors shall be fixed by the Board of Directors. The compensation of all other officers shall be fixed by the Chairman of the Board or the President or heads of departments subject to the control of the Chairman of the Board. No salary of more than a maximum level, fixed from time to time by the Board of Directors, shall be established except with approval of the Board of Directors. ARTICLE XIII. Depositaries. The money and negotiable instruments of the Corporation shall be kept in such bank or banks as the Senior Vice President-Finance or the Vice President and Treasurer shall from time to time direct or approve. All checks and other instruments for the disbursement of funds shall be executed manually or by facsimile by such officers or agents of the Corporation as may be authorized by the Board of Directors. ARTICLE XIV. Seal. The seal of the Corporation, of which there may be any number of counterparts, shall be circular in form and shall have inscribed thereon the name of the Corporation, the year of its organization and the words, "Corporate Seal Virginia." The Board may also authorize to be used, as the seal of the Corporation, any facsimile thereof. ARTICLE XV. Fiscal Year. The fiscal year of the Corporation shall begin immediately after midnight of the last Friday of December, and shall end at midnight on the last Friday of December of each calendar year. ARTICLE XVI. Amendments to By-laws. These By-laws may be amended or repealed at any regular or special meeting of the Board of Directors by the vote of a majority of the Directors present. They may also be repealed or changed, and new By-laws made, by the stockholders, provided notice of the proposal to take such action shall have been given in the notice of the meeting. The stockholders may prescribe that any By-law made by them shall not be altered, amended or repealed by the Board of Directors. * * * * * * * * * * 7 Richmond, VA April 25, 1996 8 I, RACHEL E. GEIERSBACH, Assistant Corporate Secretary of CSX CORPORATION, do hereby certify that the foregoing is a true and correct copy of the CSX By-Laws, as amended at a meeting of the Board of Directors of CSX Corporation held in the City of White Sulphur Springs, West Virginia, on the 25th day of April, 1995, at which a quorum was present and voted, and that such By-Laws have not been rescinded, amended, or modified, and are in full force and effect on the date hereof. IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the corporate seal. Assistant Corporate Secretary of CSX CORPORATION (SEAL) Richmond, VA October 4, 1995 9 EX-10.1 3 CSX STOCK PLAN FOR DIRECTORS Exhibit 10.1 CSX CORPORATION STOCK PLAN FOR DIRECTORS (As Amended through December 11, 1996) 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 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), except that a Participant may elect that shares which would be distributed to him or her upon a Change of Control may continue to be held in trust for distribution in accordance with elections made by the Participant in accordance with subsections (c) and (d) of this Section 6. 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. 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 of Control. "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 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 2 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: (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 (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 10; 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. 3 11. General Restrictions. The issuance of shares or the delivery of certificates for such shares to Participants hereunder shall be subject to the requirement that, if at any time the General Counsel of the Company shall reasonably determine, in his discretion, that the listing, registration or qualification of such shares upon any securities exchange or under any state or federal law, or the consent or approval of any governmental body, is necessary or desirable as a condition of, or in connection with, such issuance or delivery thereunder, such issuance or delivery shall not take place unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not reasonably acceptable to the General Counsel. 12. Shares Available. Shares of Common Stock issuable under the Plan shall be taken from authorized but unissued or treasury shares of the Company as shall from time to time be necessary for issuance pursuant to the Plan. 13. Change in Capital Structure. In the event of any change in the Common Stock by reason of any stock dividend, split, combination of shares, exchange of shares, warrants or rights offering to purchase Common Stock at a price below its fair market value, reclassification, recapitalization, merger, consolidation or other change in capitalization, appropriate adjustment shall be made by the Committee (as defined in Section 14 below) in the number and kind of shares subject to the Plan and any other relevant provisions of the Plan, whose determination shall be binding and conclusive on all persons. 14. Administration. The Plan shall be administered by the Compensation and Pension Committee of the Board, unless the Board shall appoint another committee of the Board to administer the Plan (the "Committee"), which shall have full authority to construe and interpret the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to take all such actions and make all such determinations in connection with the Plan as it may deem necessary or desirable. The Board may from time to time make such amendments to the Plan as it may deem proper and in the best interest of the Company without further approval of the Company's shareholders, provided that to the extent required to qualify transactions under the Plan for exemption under Rule 16b-3 promulgated under the Securities Exchange Act of 1934 ("Rule 16b-3") no amendment to the Plan shall be adopted without further approval of the Company's shareholders in the manner prescribed in Section 3 hereof and, provided further, that if and to the extent required for the Plan to comply with Rule 16b-3, no amendment to the Plan shall be made more than once in any six-month period that would change the amount, price or timing of the grants of Common Stock hereunder other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder. 15. Governing Law. The Plan and all actions taken thereunder shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia. 4 EX-10.2 4 SPECIAL RETIREMENT PLAN FOR CSX DIRECTORS Exhibit 10.2 SPECIAL RETIREMENT PLAN FOR CSX DIRECTORS As Amended and Restated January 1, 1995 (As Amended through December 11, 1996) 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" means 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 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, 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 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. 2 (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 of 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 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 years 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. 3 (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. (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 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 a Valuation Date coinciding with nor next preceding the date of Change of Control, to the extent such amounts are not already in the Trust. 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 such 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, the trustee of the Trust shall, within 45 days of such Change of Control, pay to each Participant not making an election under subsection (c), 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 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 4 provided for in 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 in no event later than December 31, 1996, 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. New Participants in the Plan may elect in a time and manner determined by the Committee, but in no event later than 90 days after becoming a Participant, to have amounts and benefits determined and payable under the terms of the Plan as if a Change of Control had not occurred. A Participant who has made an election, as set forth in the two preceding sentences, may, at any time and from time to time, change that election ; provided, however, a change of election that is made within one year of a Change of Control shall be invalid. (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 any such 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. 5 EX-10.3 5 CORPORATE DIRECTOR DEFERRED COMP. PLAN Exhibit 10.3 CSX CORPORATION CORPORATE DIRECTOR DEFERRED COMPENSATION PLAN EFFECTIVE NOVEMBER 1, 1980 As Amended and Restated Effective January 1, 1995 (As Amended through December 11, 1996) 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 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 (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. 2 (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. 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. 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. 3 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. 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 4 (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. 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. 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 5 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, the trustee of the Trust shall, within 45 days of such Change of Control, pay to each Participant not making an election under 10.3 below, 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. 10.3 Each Participant may elect in a time and manner determined by the Administrator but in no event later than December 31, 1996, 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 90 days after becoming a Participant, to have amounts and benefits determined and payable under the terms of the Plan as if a Change of Control had not occurred. A Participant who has made an election, as set forth in the two preceding sentences, may, at any time and from time to time, change that election; provided, however, a change of election that is made within one year of a Change of Control shall be invalid. 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. 6 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. 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. 7 EX-10.5 6 CSX DIRECTORS' MATCHING GIFT PLAN Exhibit 10.5 o DIRECTORS' MATCHING GIFT PROGRAM CSX Corporation Directors' Matching Gift Program ("Program") reflects CSX's commitment to the communities in which the Company and its subsidiaries operate. As part of its program of corporate philanthropy, the Company contributes through the Program to education, civic, cultural, and health and human service programs. o FOR CURRENT DIRECTORS OF THE COMPANY CSX will match Director contributions from a minimum of $25 to an aggregate maximum of $25,000 annually to civic, cultural, educational, and health and human services institutions on a two-for-one basis subject to certain restrictions. The contributions to be matched must be personal gifts from the Director's own funds, paid in cash or securities. Pledges do not qualify for matches. The Program is available to all active Directors of the Company. Individuals who have retired from service as Directors of the Company may participate in this program through the sixth anniversary of their retirement. Gifts by participants may be made jointly with their spouses. o ELIGIBLE ORGANIZATIONS Gifts are eligible for match only if they fall within the guidelines for CSX Corporation's charitable contributions. To be eligible to receive a match, an organization or institution must qualify as exempt from taxation pursuant to Section 501(c)(3) of the Internal Revenue Code. Certain restrictions apply to organizations which qualify for matching gifts. The following do not fall within the CSX Corporation guidelines for charitable contributions: o Gifts to organizations which discriminate in violation of law in provision of benefits on the basis of race, religion, national origin, gender, or physical disability. o Gifts to schools below college level. o Gifts to educational institutions principally for the support of sports and other non-academic activities. o Gifts to organizations whose principal purpose is sectarian in nature or whose beneficiaries are determined on sectarian considerations. o Political contributions of any nature. o Activities forbidden by law. CSX Corporation reserves the right to determine whether gifts to organizations fall within guidelines for CSX Corporation's charitable contributions. PROGRAM ADMINISTRATION The Program is administered by the CSX Corporation Corporate Secretary and the Board of Directors of CSX Corporation and may be suspended, revoked, terminated or amended at any time. Determination of eligibility of any organization or institution to receive matching funds under this program will be made by CSX Corporation under authority of the Board of Directors. Questions as to interpretation, application, administration or other aspects of the program, including eligibility, should be addressed to Mr. Alan A. Rudnick, Vice President-General Counsel and Corporate Secretary, CSX Corporation, 901 East Cary Street, Richmond VA 23219, phone (804) 782-1525, fax (804) 783-1356. INSTRUCTIONS Part A of the Application in this folder should be completed by the Director and the entire folder should accompany the Director's gift to an eligible organization or institution. The qualifying organization or institution, upon receipt of the gift and this folder, should complete Part B of the Application and return the entire original folder to the Administrator of Corporate Contributions at the address below. Upon request, the beneficiary organization or institution will provide evidence of its tax exempt status under Section 501(c)(3) of the Internal Revenue Code. All applications for matching gifts received during any calendar year will be paid when administratively convenient but not less than semi-annually. Additional Matching Gift forms may be secured from the Administrator of Corporate Contributions. Requests for information and all correspondence relating to the Directors' Matching Gift Program should be addressed to: Ms. Anita H. Hill Administrator - Corporate Contributions CSX Corporation P. O. Box 85629 Richmond, Virginia 23285-5629 Part A -- Director's Section (To be completed by Director, who is to send this entire pamphlet, together with gift, to charitable institution) Date _____________________ Enclosed is my personal donation of $_________________ to ____________________________________________________ Name of Charitable Institution ______________________________________________________________________________________________________________ Address of Charitable Institution I hereby authorize the institution named above to report this gift to the Administrator - Corporate Contributions of CSX Corporation, for the purpose of qualifying for a contribution in accordance with the provisions of the Company's Matching Gift Program. Name _______________________________________________ Social Security No. ______________________________ Street Address _____________________________________ City ______________________ State ________ Zip _______ Director's Signature __________________________________________________________________ Part B -- Beneficiary's Section (To be completed by an appropriate financial officer of the charitable institution, and returned to the Administrator - Corporate Contributions; P.O. Box 85629, Richmond, VA 23285-5629.) I hereby certify that a donation of $________________ was received on _____________________________________,19___, from ______________________________ ________________________________ in favor of this institution; Name of Donor And I further certify that this institution meets all the requirements for eligibility as set forth in CSX Corporation's Matching Gift program. Contributions to the beneficiary institution shown are tax deductible by CSX Corporation pursuant to Section 501(c)(3) of the Internal Revenue Code, and that the beneficiary institution will provide evidence of this status upon request. ___________________________________________________ ___________________________________________ Name of Charitable Institution Signature _____________________________________________________ ___________________________________________ Address of Charitable Institution (Name (print or type in full) ____________________________________________________ Title _______________________________________ ____________________________________________________ Date _______________________________________
EX-10.7 7 FORM OF AMENDMENT TO AGREEMENT Exhibit 10.7 AMENDMENT TO EMPLOYMENT AGREEMENT AMENDMENT, dated this 14th day of January, 1997, by and between CSX CORPORATION, a Virginia corporation (the "Company") and FirstName LastName (the "Executive"). WHEREAS the Company and the Executive are parties to an Employment Agreement dated as of the first day of February, 1995 (the "Agreement"); WHEREAS the Company and the Executive desire to amend the Agreement to deal appropriately with the transactions contemplated by the Agreement and Plan of Merger by and among Conrail, Inc., a Pennsylvania corporation, Green Acquisition Corp., a Pennsylvania corporation, and the Company dated as of October 14, 1996, as subsequently amended. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Section 2 of the Agreement is amended by adding a new clause f. at the end thereof to read in its entirety as follows: "f. Final Regulatory Action (as defined in Section 3.b.) approving the merger (the "Conrail Merger") contemplated by the Agreement and Plan of Merger by and among Conrail, Inc., a Pennsylvania corporation, Green Acquisition Corporation, a Pennsylvania corporation, and the Company dated as of October 14, 1996, as subsequently amended." 2. Section 5.c. of the Agreement is amended so that clause (iii) shall read in its entirety as follows: "other than in the case of the Conrail Merger, 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;" 3. Section 5.c. of the Agreement is further amended by adding a new clause (iii) at the end of the final paragraph thereof, and such final paragraph of Section 5.c. shall read in its entirety as follows: "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 1 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, or (iii) in the case of the Conrail Merger, during the 30-day period immediately following the second anniversary of the Final Regulatory Action approving the Conrail Merger." 4. The Agreement shall remain in full force and effect in all other respects. The Executive acknowledges that this Amendment does not alter the Executive's rights under any other plan, policy or program of the Company, and the Conrail Merger shall not constitute a Change of Control under any such plan, program or policy. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company as caused these presents to be executed in its name and on its behalf, all as of the day and year first above written. ----------------------------------------- FirstName LastName CSX CORPORATION By: -------------------------------------- John W. Snow Chairman, President and Chief Executive Officer 2 EX-10.8 8 FORM OF AMENDMENT TO AGREEMENT Exhibit 10.8 AMENDMENT TO EMPLOYMENT AGREEMENT AMENDMENT, dated this 14th day of January, 1997, by and between CSX CORPORATION, a Virginia corporation (the "Company") and FirstName LastName (the "Executive"). WHEREAS the Company and the Executive are parties to an Employment Agreement dated as of the first day of February, 1995 (the "Agreement"); WHEREAS the Company and the Executive desire to amend the Agreement to deal appropriately with the transactions contemplated by the Agreement and Plan of Merger by and among Conrail, Inc., a Pennsylvania corporation, Green Acquisition Corp., a Pennsylvania corporation, and the Company dated as of October 14, 1996, as subsequently amended. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Section 2 of the Agreement is amended by adding a new clause f. at the end thereof to read in its entirety as follows: "f. Final Regulatory Action (as defined in Section 3.b.) approving the merger (the "Conrail Merger") contemplated by the Agreement and Plan of Merger by and among Conrail, Inc., a Pennsylvania corporation, Green Acquisition Corporation, a Pennsylvania corporation, and the Company dated as of October 14, 1996, as subsequently amended." 2. Section 5.c. of the Agreement is amended so that clause (iii) shall read in its entirety as follows: "other than in the case of the Conrail Merger, 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;" 3. The Agreement shall remain in full force and effect in all other respects. The Executive acknowledges that this Amendment does not alter the Executive's rights under any other plan, policy or program of the Company, and the Conrail Merger shall not constitute a Change of Control under any such plan, program or policy. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company as caused these presents to be executed in its name and on its behalf, all as of the day and year first above written. ----------------------------------------- FirstName LastName 1 CSX CORPORATION By: -------------------------------------- John W. Snow Chairman, President and Chief Executive Officer 2 EX-10.11 9 FORM OF AMENDMENT TO AGREEMENT Exhibit 10.11 AMENDMENT TO THE AGREEMENT dated as of February 9, 1994 between CSX CORPORATION and JOHN W. SNOW THIS AMENDMENT (this "Amendment") is dated as of the thirteenth day of October, 1996 and is between CSX CORPORATION a Virginia corporation ("CSX") and JOHN W. SNOW (the "Executive"). WHEREAS, CSX and the Executive have entered into an incentive agreement to award the Executive certain non-qualified employee stock options, subject to certain vesting restrictions and forfeiture provisions; WHEREAS, the Board of Directors of CSX on February 14, 1996 determined to amend certain of CSX's existing incentive agreements, including that the Agreement, to, among other things, achieve uniformity in such agreements and to clarify that certain excise tax gross-up provisions would apply to payments under such agreements; WHEREAS, CSX and Executive have determined to amend the Agreement as set forth herein. Accordingly, CSX and the Executive agree as follows: SECTION 1. Definitions. Capitalized terms used in this Amendment and not defined herein shall have the meanings assigned to such terms in the Agreement. SECTION 2. Amendments of the Agreement. The Agreement is hereby amended pursuant to and in compliance with the Agreement as follows: a. The last sentence of Section 4 shall be deleted in its entirety, and the following substituted therefor: "The foregoing restrictions shall immediately terminate and be of no further force or effect in the event of the Executive's death or his Separation from Employment due to Disability as described in the Plan." b. The following new Section 5 shall be added following existing Section 4, and all subsequent subsections shall be renumbered accordingly. "5. Change of Control. In the event and at such time as a Change of Control (as defined in the Employment Agreement between Executive and CSX dated as of February 1, 1995) occurs, (i) the restrictions contained in this Agreement shall immediately terminate and be of no further force or effect and (ii) the Executive's right to receive any and all benefits not yet received pursuant to this Agreement shall be accelerated to the date of such Change of Control." SECTION 3. Effectiveness. This Amendment shall become effective as of the date hereof. SECTION 4. Integration; Confirmation. On and after the Amendment Date, each reference in the Agreement to "this Agreement," "herein," "hereunder" or words of similar import, and each reference in any other document delivered in connection with the Agreement shall be deemed to be a reference to the Agreement as amended by this Amendment, and the Agreement as so amended shall be read as a single integrated document. Except as specifically amended by this Amendment, all other terms and provisions of the Agreement shall continue in full force and effect and unchanged and are hereby confirmed in all respects. 1 SECTION 5. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 6. Governing Law. This Amendment shall be construed in accordance with and governed by the law of the Commonwealth of Virginia. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the day and year first above written. CSX CORPORATION By: -------------------------------------- Mark G. Aron Title: Executive Vice President Law and Public Affairs JOHN W. SNOW ----------------------------------------- 2 EX-10.12 10 AGREEMENT WITH J. W. SNOW Exhibit 10.12 EMPLOYMENT AGREEMENT AGREEMENT by and between CSX Corporation, a Virginia corporation (the "Company") and John W. Snow (the "Executive"), dated as of the 14th day of October, 1996. 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 pending the merger of the Company and Conrail Inc., a Pennsylvania corporation (the "Merger") pursuant to the Agreement and Plan of Merger dated as of October 14, 1996 and to provide the surviving corporation after the Merger with continuity of management. 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. Effective Date. The "Effective Date" shall mean the date on which the Effective Time of the Merger (as defined in the Merger Agreement) occurs. 2. Employment Period. 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 fifth anniversary of the Effective Date (the "Employment Period"). The Employment Period shall, for the purposes of this agreement, be divided into a period beginning on the Effective Date and ending on the second anniversary thereof (the "First Employment Segment"), a period beginning on the second anniversary of the Effective Date and ending on the fourth anniversary thereof (the "Second Employment Segment") and a period beginning on the fourth anniversary of the Effective Date and ending on the fifth anniversary thereof (the "Third Employment Segment"). 3. Terms of Employment. (a) Position and Duties. (i) (A) During the First Employment Segment, the Executive shall serve as Chairman of the Board, and Chief Executive Officer of the Company, with such authority, duties and responsibilities as are commensurate with such position and as may be consistent with such position as may be assigned to him by the Board; (B) during the second Employment Segment, the Executive shall serve as Chairman of the Board, with such authority, duties and responsibilities as are commensurate with such position; (C) during the Third Employment Segment, the Executive shall serve as Chairman Emeritus; and (D) the Executive's services shall be performed at the Company's headquarters during the Employment Period. (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 substantially all of his 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 not significantly interfere with the performance of 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. (A) During the First Employment Segment, 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 in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs; (B) during the Second Employment Segment and Third Employment Segment, the Executive shall receive an Annual Base Salary in an amount no less than the base salary paid or payable, including any base salary which has been earned but deferred, by the Company to the Chief Executive Officer of the Company during the Second Employment Segment in respect of such period. 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 2 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) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all bonus, 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 during the Second Employment Segment and the Third Employment Segment shall the Executive receive an amount in connection with any such plan, practice, policy or program less than the amount received in connection with such plan, practice, policy or program by the Company's Chief Executive Officer. (iii) 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 to other senior executives of the Company and its affiliated companies, but in no event during the Second Employment Segment and the Third Employment Segment to a lesser extent than the Company's Chief Executive Officer and/or such executive's family, as the case may be. (iv) 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 Company's policies. (v) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, to the extent applicable to other senior executives of the Company and its affiliated companies, but in no event to a lesser extent than, during the Second Employment Segment and the Third Employment Segment than the Company's Chief Executive Officer. (vi) 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 as provided generally at any time 3 thereafter with respect to other senior executives of the Company and its affiliated companies. (vii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the plans, policies, programs and practices of the Company and its affiliated companies as in effect generally at any time with respect to other senior executives of the Company and its affiliated companies but in any event not less than four weeks per annum during the Employment Period. (viii) Post-Employment Benefits. Following the termination of the Employment Period, the Executive shall be provided for life with an office and administrative assistance and other benefits and perquisites as is the practice of the Company to provide to its ex-Chairman as of the date hereof. 4. 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 11(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 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 4 (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company, or (iii) conviction of a felony (which through lapse of time or otherwise is not subject to appeal) or guilty or nolo contendere plea by the Executive with respect thereto, or (iv) a material willful breach of the covenants contained in Section 9. 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 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) through (iv) above, and specifying the particulars thereof in detail and that in the case of the conduct described in subparagraphs (i) and (iv) above, Executive failed to cure such conduct within 30 days of his receipt of written notice from the Company detailing such conduct. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean in the absence of a written consent of the Executive: (i) the removal of the Executive during the Employment Period from any of the positions described in Section 3(a) except as specifically contemplated by Section 3(a) or the assignment to the Executive of any duties inconsistent in any material respect with the Executive's position (including status, offices, titles and reporting requirements), authority, 5 duties or responsibilities as contemplated by Section 3(a) of this Agreement, or any other action by the Company which results in a material 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 material failure by the Company to comply with any of the provisions of Section 3(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 more than 35 miles from that provided in Section 3(a)(i)(C) 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 (v) any failure by the Company to comply with and satisfy Section 10(c) of this Agreement. For purposes of this Section 3(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(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 or Cause shall not waive any right of 6 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. (e) 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, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, 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. 5. Obligations of the Company upon Termination. (a) Good Reason; 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: (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 highest annual bonus paid to the Executive for any of the three years prior to the Date of Termination (the "Recent Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred (other than pursuant to a qualified plan) 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 greater of (1) the amount equal to the product of (i) the number of months remaining in the Employment Period on the Date of Termination (the "Continuation Period"), divided 7 by twelve and (ii) the sum of (x) the Executive's Annual Base Salary and (y) the Recent Annual Bonus, and (2) the amount equal to the product of (i) three and (ii) the sum of (x) the Executive's Annual Base Salary and (y) the Recent 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 or, if longer, for the Continuation Period, assuming for this purpose that all accrued benefits are fully vested, and, assuming that the Executive's compensation in each such year is that required by Section 3(b)(i) and assuming an annual bonus equal to the Recent Annual Bonus, 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, if longer, if the Continuation Period, 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 3(b)(iii) 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 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 or, if longer, for the Continuation Period, and to have retired on the last day of such period; 8 (iii) 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 any amount which (i) is earned by, but has not been paid to, the Executive and (ii) would have been paid or vested in the calendar year in which the Executive's termination of employment occurs (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (iv) all stock-based awards shall become immediately vested and in the case of stock options, or other exercisable awards, shall remain exercisable for at least 90 days following the Date of Termination or such longer period as may be provided in any applicable plan or award agreement. (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 5(b) shall include death benefits 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. In addition, all stock based awards that would have vested by the end of the fiscal year in which such termination occurs shall become immediately vested and, in the case of stock options and other exercisable awards, shall remain exercisable for at least 90 days following the date of such termination or such longer period as may be provided in any applicable plan or award agreement. (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 5(c) 9 shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. In addition, all stock based awards that would have vested by the end of the fiscal year in which such termination occurs shall become immediately vested and, in the case of stock options and other exercisable awards, shall remain exercisable for at least 90 days following the date of such termination or such longer period as may be provided in any applicable plan or award agreement. (d) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause or the Executive terminates his employment without Good Reason 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 (other than pursuant to a qualified plan), and (z) Other Benefits, in each case to the extent theretofore unpaid, except in the event that the Executive gives notice of termination without good reason within thirty (30) days of the fourth anniversary of the Effective Date. 6. 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 11(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. 7. 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, except as 10 provided in Section 5(a)(ii), 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 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"). 8. 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 8) (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 and employment 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. (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, 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 and Young LLP or such other certified public accounting firm reasonably acceptable to the Company 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. All fees and expenses of the Accounting Firm shall be borne solely 11 by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within five days of (i) the later of the due date for the payment of any Excise Tax, and (ii) 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 8(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; 12 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 8(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 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 8(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 8(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 8(c), a determination is made that the Executive shall not be entitled to any refund 13 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. 9. Confidential Information. (a) 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 or in order to enforce his rights under this Agreement or as necessary to defend himself against a claim asserted directly or indirectly by the Company or its affiliates, 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 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (b) In the event of a breach or threatened breach of this Section 9, the Executive agrees that the Company shall be entitled to injunctive relief in a court of appropriate jurisdiction to remedy any such breach or threatened breach, the Executive acknowledges that damages would be inadequate and insufficient. (c) Any termination of the Executive's employment or of this Agreement shall have no effect on the continuing operation of this Section 9. 10. 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 14 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. 11. 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: John W. Snow 122 Tempsford Lane Richmond, VA 23226 If to the Company: One James Center 901 East Cary Street Richmond, VA 23219 Attention: Executive Vice President - Law & Public Affairs 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. 15 (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 pursuant to Section 4(c)(i)-(v) 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, notwithstanding the terms and conditions of the agreement between the Executive and the Company dated as of February 1, 1995 (the "Severance Agreement") the terms and conditions of this Agreement shall be controlling during the Employment Period and the Merger shall not constitute a Change of Control for purposes of the Severance Agreement; provided, however, that the Severance Agreement shall become effective in the event of any Change of Control (as defined in the Severance Agreement) subsequent to the consummation of the Merger. (g) The Company shall indemnify and hold the Executive and his legal representatives harmless to the fullest extent permitted by applicable law, from and against all judgements, fines, penalties, excise taxes, amounts paid in settlement, losses, expenses, costs, liabilities and legal fees if the Executive is made, or threatened to be made a party to any threatened or pending or completed action, suit, proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Company or its affiliates to procure a judgement in its favor, by reason of the fact that the Executive is or was serving as a director or officer of the Company or its affiliates or in any capacity at the request of the Company or its affiliates for any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise. The right to indemnification provide in this paragraph (g) shall not be deemed exclusive of any other rights to which Executive may 16 have or hereafter be entitled under any law or the charter or by-laws of the Company or its affiliates or otherwise, both as to action in Executive's official capacity and as to action in another capacity while holding such office, and shall continue after Executive has ceased to be a director or officer and shall inure to the benefit of Executive's heirs, executors and administrators. Any reimbursement obligation arising hereunder shall be satisfied on an as incurred basis. In addition, the Company agrees to continue to maintain customary and appropriate directors and liability insurance during the Employment Period and the Executive shall be entitled to the protection of any such insurance policies on no less favorable a basis than is provided to any other officer or director of the Company or its affiliates. (h) To the extent the provisions of this Agreement operate to amend the terms of or awards outstanding under certain benefit or incentive award plans, and the terms of such plans or awards require approval of such amendment by the Company or its affiliated companies, or an authorized representative thereof, and/or the Executives consent thereto (including the Executive's consent to amend the terms of outstanding awards, if any), (i) the offering of this Agreement pursuant to the direction of the Board shall constitute the express authorization of the Company and its affiliated companies and their approval of the amendment of such plan or award in the manner set forth herein, and (ii) the Executive's consent to the terms hereof shall signify his consent to the amendment of such plan or award, as required, as of the date hereof. 17 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. --------------------------------- JOHN W. SNOW CSX CORPORATION By______________________________ FIRST AMENDMENT TO EMPLOYMENT AGREEMENT WHEREAS, John W. Snow (the "Executive") entered into an employment agreement with CSX Corporation, a Virginia corporation ("CSX"), dated as of October 14, 1996 which is effective as of the effective date of the merger of Conrail Inc., a Pennsylvania corporation ("Conrail"), and CSX pursuant to an Agreement and Plan of Merger dated as of October 14, 1996 (the "Employment Agreement") between Conrail, Green Acquisition Corp., a Pennsylvania corporation, and CSX (the "Merger Agreement"); and WHEREAS, the parties to the Employment Agreement wish to modify the Employment Agreement in certain respects; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Section 1 of the Employment Agreement shall be amended to provide that the "Effective Date" shall mean the "Control Date" (as such term is defined in the Second Amendment to the Merger Agreement). 2. Except as hereinabove provided, the Employment Agreement shall continue in full force and effect. IN WITNESS WHEREOF, the parties have executed this First Amendment to the Employment Agreement as of the 18th day of December, 1996. ------------------------------ John W. Snow CSX Corporation By____________________________ Name: Title: EX-10.15 11 1987 LONG-TERM PERFORMANCE STOCK PLAN Exhibit 10.15 CSX CORPORATION 1987 Long-Term Performance Stock Plan As Amended and Restated Effective April 25, 1996 (As Amended through December 11, 1996) 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 20. 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. g. "Company": The term Company means CSX Corporation. 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 1 "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. "Functional Group": The term Functional Group means a group of employees, identified by the Compensation Committee, in its sole discretion, to be subject to a common set of Performance Objectives. o. "Incentive": The term Incentive means any incentive under the Plan described in Section 6. p. "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. q. "Participant": The term Participant means an individual designated by the Committee as a Participant pursuant to Section 5. r. "Performance Objective": The term Performance Objective shall mean a performance objective established in writing by the Committee within ninety (90) days of 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 Performance Objective is attained. With respect to Incentives granted to Covered Employees, the material terms of the Performance Objective shall be disclosed to, and must be subsequently approved by, a vote of the shareholders of the Company, consistent with the requirements of Section 162(m) of the Code and the regulations thereunder. The Performance Objectives for any Performance Period shall be based on one or more of the following measures, as determined by the Committee in writing within ninety (90) days of the commencement 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 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. 4. The creation by the Company of specific levels of Total Shareholder Return ("TSR"). TSR for the Company means total return to shareholders as measured by stock price appreciation plus dividends. s. "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. t. "Plan": The term Plan means this CSX Corporation 1987 Long-Term Performance Stock Plan as amended or restated from time to time. u. "Retirement": The term Retirement means termination of employment with immediate commencement of retirement benefits under the Company's defined benefit pension plan. v. "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. w. "Trust": The term Trust means the CSX Corporation Executive Stock 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. 3. Number of Shares Subject to the provisions of Section 16 of this Plan, the maximum number of shares which may be issued pursuant to the Incentives shall be 16,000,000 shares of the Company's common stock, par value $1.00 per share. Such shares shall be authorized and unissued shares of the Company's common stock. Subject to the provisions of Section 16, if any Incentive granted under the Plan shall terminate or expire for any reason without having been exercised in full, the unissued shares subject thereto shall again be available for the purposes of the Plan. Similarly, shares which have been issued, but which the Company retains or which the Participant tenders to the Company in satisfaction of income and payroll tax withholding obligations or in satisfaction of the exercise price of any option shall remain authorized and shall again be available for the purposes of the Plan, provided, however, that any such previously issued shares shall not be the subject of any grant under the Plan to any officer of the Company who, at the time of such grant, is subject to the short-swing trading provisions of Section 16 of the Exchange Act. 4. Administration The Plan shall be administered by the Committee. The Committee shall consist of three or more members of the Board of Directors. No member of the Committee shall be eligible to receive any Incentives under the Plan while a member of the Committee. A majority of the Committee shall constitute a quorum. The Committee shall recommend to the Board individuals to receive Incentives, including the type and amount thereof, unless the Board shall have delegated to the Committee the authority and power to select persons to whom Incentives may be granted, to establish the type and amount thereof, and to make such grants. Subject to the express provisions of the Plan, the Committee shall have authority to construe any agreements entered into with any person in respect of any Incentive or Incentives, to prescribe, amend and rescind rules and 3 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; (f) Restricted Stock; and (g) Incentive Compensation Program Shares, all as described below and pursuant to the terms set forth in Sections 7-12 hereof. With respect to Items (a)-(c), the maximum number of shares of common stock of the Company with respect to which these Incentives may be granted any Plan Year to any Participant will be 750,000. With respect to Items (d)-(f), the maximum number of shares of common stock of the Company with respect to which these Incentives may be granted during any Plan Year to any Participant will be 150,000. 7. Incentive Stock Options Incentive Stock Options (ISOs) will consist of options to purchase shares of the Company's common stock at purchase prices not less than 100 percent of the Fair Market Value of such common stock on the date of grant. ISOs will be exercisable upon the date or dates specified in an option agreement entered into with a Participant but not earlier than one year after the date of grant of the options and not later than 10 years after the date of grant of the options; provided, however, that whether or not the one-year holding requirement is satisfied, any Exercisability Requirements must be satisfied. For options granted after December 31, 1986, the aggregate Fair Market Value, determined at the date of grant, of shares for which ISOs are exercisable for the first time by a Participant during any calendar year shall not exceed $100,000. Notwithstanding the provisions of Section 5 of this Plan, no individual will be eligible for or granted an ISO if that individual owns stock of the Company possessing more than 10 percent of the total combined voting power of all classes of the stock of the Company or its subsidiaries. Any Participant who is an option holder may exercise his option to purchase stock in whole or in part upon the date or dates specified in the option agreement offered to him. In no case may an option be exercised for a fraction of a share. Except as set forth in this Section 7 and in Sections 12 through 15, no option holder may exercise an option unless at the time of 4 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. 8. Non-Qualified Stock Options Non-Qualified Stock Options (NQSOs) will consist of options to purchase shares of the Company's common stock at purchase prices not less than 100 percent of the Fair Market Value of such common stock on the date of grant. NQSOs will be exercisable upon the date or dates specified in an option agreement entered into with a Participant but not earlier than one year after the date of grant of the options and not later than 10 years after the date of grant of the options; provided, however, that whether or not the one-year holding requirement is satisfied, any Exercisability Requirements must be satisfied. Any Participant may exercise an option to purchase stock upon the date or dates specified in the option agreement offered to him. In no case may an option be exercised for a fraction of a share. Except as set forth in this Section 8 and in Sections 12 through 15, no option holder may exercise an option unless at the time of exercise he has been in the continuous employ of the Company or one of its subsidiaries since the grant of his option. An option holder under this Plan shall have no rights as a shareholder with respect to any shares subject to such option until such shares have been issued. For purposes of this Section 8, written notice of exercise must be received by the Corporate Secretary of the Company, not earlier than one year nor later than 10 years after the option is granted. Such notice must state the number of shares being exercised and must be accompanied by payment of the full purchase price of such shares. Payment for the shares for which an option is exercised may be made by (1) a personal check or money order payable to CSX Corporation; (2) a tender by the employee (in accordance with procedures established by the Company) of shares of the Company's common stock having a Fair Market Value on the date of tender equaling the purchase price of the shares for which the option is being exercised; (3) the delivery of a properly executed exercise notice, together with irrevocable instructions to a broker to promptly deliver to the Company either sale proceeds of shares sold to pay the purchase price or the amount loaned by the broker to pay the purchase price; or (4) any combination of (1), (2) and (3). 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. 5 The Committee may also grant, in addition to, or in lieu of options to purchase stock, SARs which will entitle the Participant to receive a payment upon surrender of that right, or portion of that right in accordance with the provisions of the Plan, equaling the difference between the Fair Market Value of a stated number of shares of Company common stock on the date of the grant and the Fair Market Value of a comparable number of shares of Company common stock on the day of surrender, adjusted for stock dividends declared between the time of the grant of the SAR and its surrender. The Committee shall have the right to limit the amount of appreciation with respect to any or all of the SARs granted. Payment made upon the exercise of the SARs may be in cash or shares of Company common stock, or partly in shares and partly in cash, as the Committee in its sole discretion shall determine. For purposes of this Section 9, written notice must be received by the Corporate Secretary of the Company not earlier than one year nor later than 10 years after the SAR is granted. Such notice must state the number of SARs being surrendered and the method of settlement desired within the guidelines established from time to time by the Committee. The SAR holder will receive settlement based on the Fair Market Value on the day the written request is received by the Corporate Secretary of the Company. In certain situations as determined by the Committee, for purposes of this Section 9, written notice must be received by the Corporate Secretary of the Company between the third and twelfth business days after the public release of the Company's quarterly earnings report, or between such other, different period as may hereinafter be established by the Securities and Exchange Commission. For such settlements, a Participant subject to a restricted exercise period shall receive settlement based on the highest Fair Market Value during the period described in the foregoing sentence. The Committee may not grant an SAR or other rights under this Section 9 in connection with an incentive stock option if such grant would cause the option or the Plan not to qualify under Section 422A of the Code or if it is prohibited by such section or Treasury regulations issued thereunder. Any grant of an SAR or other rights which would disqualify either the option as an ISO or the Plan, or which is prohibited by Section 422A of the Code or Treasury regulations issued thereunder, is and will be considered as void and vesting no rights in the grantee. It is a condition for eligibility for the benefits of the option and of the Plan that the Participant agree that in the event an SAR or other right granted should be determined to be void as 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. PUAs and PSAs may be awarded to individual Participants or to a Functional Group. Awards to a Functional Group shall be subject to distribution by the Chief Executive Officer of the Company, or by his designees, to individuals within such group. At the time of the grant, the Committee shall establish in writing and communicate to Participants, and to members of a Functional Group who can be identified, 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 Company, and (b) payments to be made in Company common stock may be deferred pursuant to an election filed on forms prescribed and provided by and filed with the Company. 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 6 may subsequently become entitled to receive. On forms provided by and filed with the Company, the Participant shall also specify whether, when the deferral period expires or when the restrictions below lapse, payment will be in a lump sum or installments over a period not exceeding twenty (20) years. The Committee shall prescribe the time periods during which the election must be filed in order to be effective. Elections to defer, once effective, are irrevocable. Changes regarding the date of payment, the period over which payments are to be made and the method of payment are subject to substantial penalties. However, a One-Time Change of Distribution Election may be made to change the timing or the form of payment without penalty. Any such election which changes a distribution election specified "termination of employment" or "the earlier of termination or a specified age" shall be void in the event the Participant's employment terminates within twelve (12) months following the date of the election. If a Participant has made an effective election to defer the payment of shares of common stock, the Company shall, within a reasonable period of time after the deferral election is made, transfer shares of common stock or other assets equal in value to the number of shares as to which payment is deferred to the Trust to secure the Company's obligation to pay shares of common stock to the Participant in the future. However, in any event, the Company shall make any previously deferred payment of shares to the Participant 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 therefore. The Committee may grant RSAs at any time or from time to time to a Participant selected by the Committee in its sole discretion. The Committee shall establish at the time of grant of each RSA a Performance Period and Performance Objectives to be achieved during the Performance Period. At the time of grant, the Performance Period and Performance Objectives shall be set forth either in agreements or in guidelines communicated to the Participant in such form consistent with this Plan as the Committee shall approve from time to time. Following the conclusion of each Performance Period and prior to payment, the Committee shall determine the extent to which Performance Objectives have been attained or a degree of achievement between maximum and minimum Performance Objectives during the Performance Period in order to determine the level of payment to be made, if any, and shall record such results in the minutes of the meeting of the Committee. In no instance will payment be made if the Performance Objectives are not attained. At the time that an RSA is granted, the Committee shall establish in the written agreement a restriction period applicable to all shares covered by such grant. Subject to the provisions of the next following paragraph, the Participant shall have all of the rights of a stockholder of record with respect to the shares covered by the grant to receive dividends or other distributions in respect of such shares (provided, however, that any shares of stock of the Company distributed with respect to such shares shall be subject to all of the restrictions applicable to such shares) and to vote such shares on all matters 7 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. Incentive Compensation Program Shares A Participant who receives base compensation in excess of a dollar level to be determined by the Committee and who is eligible to receive an award under the Company's Incentive Compensation Program ("ICP") may elect, by filing the prescribed election form with the Company in accordance with rules established by the Committee, to receive all or part of his annual ICP award in shares of the Company's common stock, rather than cash; provided, however, the Participant must agree that his receipt of the stock will be deferred until his retirement or termination of employment, with a minimum deferral period of three (3) years. Elections to defer are irrevocable. A Participant who makes such election shall, at the time that the stock is deferred, receive an additional award of stock equal to a percentage, established by the Committee from time to time, of the amount that he elected to have deferred, but not to exceed 25% (the "Stock Premium"). The Participant's election to defer shall also apply to the Stock Premium. If a Participant made an effective election to defer the payment of shares of common stock and receive the Stock Premium, the Company shall, within a reasonable period of time after the deferral election is made, transfer shares of common stock or other assets equal in value to the number of shares as to which payment is deferred to the Trust to secure the Company's obligation to pay shares of common stock to the Participant in the future. However, in any event, the Company shall make any previously deferred payment of shares to the Participant 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 and the three (3) year deferral requirement; or 8 d. a Change in Control." 13. Separation From Employment If the Participant's Separation From Employment is because of Disability or death, the right of the Participant or his successor in interest to exercise an ISO, NQSO or SAR shall terminate not later than five years after the date of such Disability or death, but in no event later than 10 years from the date of grant; provided, however, that if such Participant is eligible to retire with the ability to begin immediately receiving retirement benefits under the Company's pension plan, his or his successor in interest's right to exercise any ISOs, NQSOs or SARs shall be determined as if his Separation From Employment was because of Retirement. If the Participant's Separation From Employment is because of his Retirement, the right of the Participant or his successor in interest to exercise an ISO, NQSO or SAR shall terminate not later than 10 years from the date of grant. Unless the Committee deems it necessary in individual cases (except with respect to Covered Employees) to extend a Participant's exercise period, if a Participant's Separation From Employment is for any reason other than Retirement, Disability or death, the right of the Participant to exercise an ISO, NQSO or SAR shall terminate not later than one year from the date of Separation From Employment, but in no event later than 10 years after the date of grant. At the time of his Separation From Employment for any reason other than Cause, a Participant shall vest in a portion of any Incentives granted under sections 7 (ISOs), 8 (NQSOs) or 9 (SARs) that he has held for less than one year from the date of the grant. The portion of such Incentives in which the Participants shall vest shall be determined by multiplying all shares subject to such Incentives by a fraction, the numerator of which shall be the number of Completed Months of employment following the date of grant and the denominator of which shall be twelve. A Participant who vests in any Incentives under the preceding paragraph may not exercise such Incentives prior to the satisfaction of the 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 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 prior to the end of the Performance Period 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 canceled. Notwithstanding anything to the contrary in this Plan, if a Participant or former Participant (a) becomes the owner, director or employee of a competitor of the Company or its subsidiaries, (b) has his employment terminated by the Company or one of its subsidiaries on account of actions by the Participant which are detrimental to the interests of the Company or its subsidiaries, or (c) engages in conduct subsequent to the termination of his employment with the Company or its subsidiaries which the Committee determines to be detrimental to the interests of the Company or its subsidiaries then the Committee may, in its sole discretion, pay the Participant or former Participant a single sum payment equal to the amount of his unpaid benefits which were awarded and deferred under Sections 10 or 12 of the Plan; provided, however, if the deferral has been for less than three (3) years under Section 12, the Participant shall not be eligible to receive the Stock Premium. The single sum payment shall be made as soon as practicable following the date the Participant or former Participant becomes an owner, director or employee of a competitor, 9 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 or former Participant under this Plan. 14. 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 15 and shall be exercisable (including any action of surrender and exercise of rights under Section 9) during the Participant's lifetime only by the Participant who is the holder of the Incentive or by his guardian or legal representative. 15. 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. 16. 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. 17. Adjustment of Shares In the event of any change (through recapitalization, merger, consolidation, stock dividend, split-up, combination or exchanges of shares or otherwise) in the character or amount of the Company's common stock prior to exercise of any Incentive granted under this Plan, the Incentives, to the extent not exercised, shall entitle the Participant who is the holder to such number and kind of securities as he would have been entitled to had he actually owned the stock subject to the Incentives at the time of the occurrence of such change. If any such event should occur, prior to exercise of an Incentive granted hereunder, which shall increase or decrease the amount of common stock outstanding and which the Committee, in its sole discretion, shall determine equitably requires an adjustment in the number of shares which the Incentive holder should be permitted to acquire, such adjustment as the Committee shall determine may be made, and when so made shall be effective and binding for all purposes of the Plan. Incentives may also be granted having terms and provisions which vary from those specified in the Plan provided that any Incentives granted pursuant to this paragraph are granted in substitution for, or in connection with the assumption of, then existing Incentives granted by another corporation and assumed or otherwise agreed to be provided for by the Company pursuant to or by reason of a transaction involving a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation to which the Company or a subsidiary corporation is a party. 10 18. 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. 19. 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 17) 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. 20. 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; (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 of Control, however, Participants may defer those case payments, as stock, into the Trust, consistent with the deferral provisions of Section 10; and (v) the three (3) year holding requirement of the Stock Premium for deferred ICP shall be deemed satisfied. b. A "Change in 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 20(b); or 11 (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; (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 20(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. Each Participant who has elected to defer the payment of PSAs pursuant to Section 10 or an ICP award pursuant to Section 12, may elect in a time and manner determined by the Committee, but in no event 12 later than December 31, 1996 or the occurrence of a Change in Control, if earlier, to have amounts and benefits currently deferred, and to be deferred, under the Plan determined and payable under the terms of the Plan as if a Change in Control had not occurred. New Participants in the Plan may elect in a time and manner determined by the Committee, but in no event later than ninety (90) days after becoming a Participant, to have amounts and benefits currently deferred, and to be deferred, under the Plan determined and payable under the terms of the Plan as if a Change in Control had not occurred. A Participant who has made an election, as set forth in the two preceding sentences, may at any time and from time to time, change that election; provided, however, a change of election that is made within one year of a Change in Control shall be invalid. d. If a Change in Control has occurred, the Committee shall cause the Company to contribute to the Trust, within seven (7) days of such Change in Control, a lump sum payment equal to the aggregate value of the amount each Participant deferred pursuant to Sections 10 and 12 (including the Stock Premium under Section 12) to the extent such amounts are not already in the Trust. 21. 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. 22. 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, to the extent permitted by applicable laws, 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. 23. 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. 13 EX-10.16 12 1985 DEFERRED COMP PROGRAM FOR EXECS OF CSX Exhibit 10.16 DEFERRED COMPENSATION PROGRAM FOR EXECUTIVES OF CSX CORPORATION AND AFFILIATED COMPANIES As Amended and Restated January 1, 1995 (As Amended through December 11, 1996) 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 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 (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 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. 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 3 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. 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 4 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 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 5 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. 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); 6 (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 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 7 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). (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. 8 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 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, 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. 9 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 Section 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. 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, the trustee of the Trust shall, within 45 days of such Change of Control, pay to each Participant not making an election under 16.3 below, 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 payment shall be determined by the Corporation's accountants after consultation with the entity then maintaining the Program's records. 16.3 Each Participant may elect in a time and manner determined by the Committee, but in no event later than December 31, 1996, or the occurrence of 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 in the Program may elect in a time and manner determined by the Committee, but in no event later than 90 days after becoming a Participant, to have amounts and benefits determined and payable under the terms of the Program as if a Change of Control had not occurred. A Participant who has made an election, as set forth in the two preceding sentences, may, at any time 10 and from time to time, change that election; provided, however, a change of election that is made within one year of a Change of Control shall be invalid. 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. 11 EX-10.17 13 SUPP. SAVINGS PLAN & INCENTIVE AWARD PLAN Exhibit 10.17 SUPPLEMENTARY SAVINGS AND INCENTIVE AWARD DEFERRAL PLAN FOR ELIGIBLE EXECUTIVES OF CSX CORPORATION AND AFFILIATED COMPANIES As Amended and Restated January 1, 1995 (As Amended through December 11, 1996)
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 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
ii 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. ARTICLE I. 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 "PostSecondary 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 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 (d) Regulated Business Combination. Approval by the shareholders of the Corporation of a Business Combination that is subject, as a matter of law or 2 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 3 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 (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 4 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. (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 PostSecondary 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). 5 (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. (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. 6 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. (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. 7 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. (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. 8 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. (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. 9 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 (iii) 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 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 10 No Matching Credits shall be credited to a Member's Post-Secondary Education Subaccount. ARTICLE 5. MAINTENANCE OF ACCOUNTS 5.1 Adjustment of Account: (a) As of each Valuation Date each Account (and, if applicable, each Subaccount) 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 Subaccounts 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 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%. 11 (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, 12 (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 if 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 requirements for a one-time deferral request under Section 6.1(c)(i), or unless the 13 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. (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 14 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 Section 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). (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 Subaccounts and one or more Retirement Sub-accounts, or any combination thereof, 15 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. 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 16 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. 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 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. 17 (b) In the event a Change of Control has occurred, the trustee of the Trust shall, within 45 days of such Change of Control, pay to each Member or former Member not making an election under (c) below, 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 December 31, 1996, 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 90 days after becoming a Member, to have amounts and benefits determined and payable under the terms of the Plan as if a Change of Control had not occurred. A Member or former Member who has made an election, as set forth in the two preceding sentences, may, at any time and from time to time, change that election; provided, however, a change of election that is made within one year of a Change of Control shall be invalid. (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. 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. 18 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. 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 19 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. 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 20 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 Subaccount." (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 Subaccounts 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 December 31, 1990 pursuant to his Salary Deferral Agreement to one or more of the Post-Secondary Education Subaccounts 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 PostSecondary Education Sub-accounts. Except as provided in this Section 9.2(b) or 9.2(c) below, a Member or former Member may not change the time or form of distribution of his Post-Secondary Education Sub-accounts. 21 (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 Subaccounts, 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. 22 EX-10.18 14 SPECIAL RETIREMENT PLAN OF CSX & AFFILIATED CO Exhibit 10.18 SPECIAL RETIREMENT PLAN OF CSX CORPORATION AND AFFILIATED CORPORATIONS As Amended and Restated January 1, 1995 (As Amended through December 11, 1996) 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 APPENDIX I PARTICIPANTS GRANTED ADDITIONAL CREDITABLE SERVICE PURSUANT TO SECTION V(4)(b) Special Retirement Plan of CSX Corporation and Affiliated Corporations As Amended and Restated January 1, 1995 (As Amended through December 11, 1996) 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 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 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. (e) In the event of a Change of Control, as defined in Section XI, the age 55 and length of service requirements contained in Section III, Subsection (2)(c), shall be waived for those Participants who are employed by the Company at the time of the Change of Control. 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. 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 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 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. 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. 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 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. 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, the trustee of the Trust shall, within 45 days of such Change of Control, pay to each Participant not making an election under subsection (3), 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: (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 in no event later than December 31, 1996, 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. New Participants in the Plan may elect in a time and manner determined by the Compensation Committee, but in no event later than 90 days after becoming a Participant, to have amounts and benefits determined and payable under the terms of this Special Plan as if a Change of Control had not occurred. A Participant who has made an election, as set forth in the two preceding sentences, may, at any time and from time to time, change that election; provided, however, a change of election that is made within one year of a Change of Control shall be invalid. 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 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; (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. APPENDIX I PARTICIPANTS GRANTED ADDITIONAL CREDITABLE SERVICE PURSUANT TO SECTION V(4)(b) (Named Individually) EX-10.19 15 SUPP. RETIREMENT PLAN OF CSX & AFFILIATED COS. Exhibit 10.19 Supplemental Retirement Benefit Plan of CSX Corporation and Affiliated Corporations As Amended and Restated January 1, 1995 (As Amended through December 11, 1996) 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." 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. 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, 2 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. 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 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. 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 4 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. 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. 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 assumptions 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, the trustee of the Trust shall, within 45 days of such Change of Control, page to each Participant not making an election under subsection (3), 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). (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 5 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, in no event later than December 31, 1996, 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. New Participants in the Plan may elect in a time and manner determined by the Compensation Committee, but in no event later than 90 days after becoming a Participant, to have amounts and benefits determined and payable under the terms of this Supplemental Plan as if a Change of Control had not occurred. A Participant who has made an election, as set forth in the two preceding sentences, may, at any time and from time to time, change that election; provided, however, a change of election that is made within one year of a Change of Control shall be invalid. 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 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 6 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 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 Supplemental Plan. 7 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. EX-21 16 SUBSIDIARIES OF THE REGISTRANT Subsidiaries of the Registrant Exhibit 21 As of Dec. 27, 1996, Registrant was the beneficial owner of 100% of the common stock the following significant subsidiaries: CSX Transportation Inc. (a Virginia corporation), Sea-Land Service Inc. (a Delaware corporation), CSX Intermodal Inc. (a Delaware corporation) and American Commercial Lines Inc. (a Delaware corporation). As of Dec. 27, 1996, 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. EX-23 17 CONSENT OF INDEPENDENT AUDITORS Consent of Independent Auditors Exhibit 23 We consent to the incorporation by reference in the following Registration Statements of our report dated January 31, 1997 (except for Note 2, as to which the date is March 7, 1997), 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 27, 1996: 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-8 333-09213 Form S-8 333-19523 Form S-4 /s/ ERNST & YOUNG LLP ---------------------- Ernst & Young LLP Richmond, Virginia March 12, 1997 EX-27 18 FINANCIAL DATA SCHEDULE
5 1,000,000 YEAR DEC-27-1996 DEC-27-1996 682 0 991 97 229 2,072 17,420 5,514 16,965 2,757 4,331 0 0 217 4,778 16,965 0 10,536 0 9,014 0 0 249 1,316 461 855 0 0 0 855 4.00 0
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