[CSX LOGO]
March 17, 1998
Dear CSX Shareholder:
You are cordially invited to attend our Annual Meeting of Shareholders on
Tuesday, April 28, 1998, at 10:00 a.m. (EDT), at The Greenbrier, White Sulphur
Springs, West Virginia. Your Board of Directors and management look forward to
greeting those shareholders able to attend.
The proposals to be acted upon at the Meeting include the election of eleven
directors, appointment of independent auditors, and approval of an amendment
adding additional shares to and extending the expiration date of the 1987
Long-Term Performance Stock Plan. The Board of Directors believes that these
proposals are in the best interests of the Company and its shareholders and
recommends a vote for each of these proposals.
Also to be acted upon at the Meeting is one shareholder proposal regarding
the Company's Shareholder Rights Plan. The Board of Directors believes that this
proposal is not in the best interests of the Company and its shareholders and
recommends a vote against this proposal.
If you plan to attend the Meeting, please complete and mail the form
included in the brochure containing information about the Meeting and The
Greenbrier. An admission card will be sent to you about one week prior to the
Meeting date.
Whether or not you are able to attend the Meeting, it is important that your
shares be represented, no matter how many shares you own. Therefore, you are
urged to mark, sign, date and mail your Proxy promptly in the envelope provided.
/s/ John W. Snow
----------------------------
John W. Snow
Chairman of the Board,
President and Chief Executive Officer
Notice of Annual Meeting of Shareholders
Richmond, Virginia
March 17, 1998
To Our Shareholders:
The Annual Meeting of Shareholders of CSX Corporation will be held at The
Greenbrier, White Sulphur Springs, West Virginia, on Tuesday, April 28, 1998, at
10:00 a.m. (EDT), for the purpose of considering and acting upon the following
matters:
1. Election of 11 directors;
2. Appointment of Ernst & Young LLP as independent certified public
accountants for 1998;
3. Approval of amendment to the 1987 Long-Term Performance Stock
Plan;
4. Shareholder proposal regarding Shareholder Rights Plan; and
5. Such other matters as may properly come before the Meeting.
The above matters are described in the Proxy Statement. You are urged, after
reading the Proxy Statement, to mark, sign, date and return the Proxy to assure
that your shares are represented at the Meeting.
Only shareholders of record at the close of business on February 27, 1998,
will be entitled to vote at the Meeting, either in person or by proxy. This
Proxy Statement is being mailed to those shareholders on or about March 17,
1998.
By Order of the Board of Directors
/s/ Alan A. Rudnick
----------------------------------
Alan A. Rudnick
Vice President - General Counsel
and Corporate Secretary
PROXY STATEMENT
General Information
The enclosed Proxy is solicited by the Board of Directors of CSX Corporation
("CSX" or the "Company"). A Proxy may be revoked by a shareholder at any time
before it is voted by notice in writing delivered to the Corporate Secretary, by
submission of another proxy bearing a later date, or by voting in person at the
Annual Meeting.
CSX is the parent of CSX Transportation, Inc. ("CSXT"); Sea-Land Service,
Inc. ("Sea-Land"); American Commercial Lines, Inc.; CSX Intermodal, Inc.;
Customized Transportation, Inc.; and The Greenbrier Resort Management Company.
The address of CSX's principal executive offices is One James Center, 901 East
Cary Street, Richmond, Virginia 23219-4031.
Shares Outstanding and Voting Rights
As of February 27, 1998, CSX had outstanding 218,964,242 shares of common
stock entitled to one vote per share. A majority of the shares entitled to vote,
represented in person or by proxy, will constitute a quorum for the transaction
of business. Only shareholders of record at the close of business on February
27, 1998, will be entitled to vote. CSX is not aware of any matters to come
before the meeting other than those set forth in the accompanying Notice and
this Proxy Statement.
1. ELECTION OF DIRECTORS
Eleven directors are to be elected to hold office until the next Annual
Meeting of Shareholders is held and their successors are elected, except that
the term of any director who is also a CSX officer ends if he or she ceases to
be an employee of the Company. Votes will be cast, unless otherwise specified,
for the election of those named below. If, at the time of the meeting, any
nominee should be unable to serve as a director, such votes will be cast for
such substitute nominee as may be nominated by the Board of Directors. All of
the nominees listed were previously elected directors by the shareholders.
As of the date of this Proxy Statement, the Board of Directors has no reason
to believe that any of the nominees named will be unable or unwilling to serve.
There are no family relationships among any of these nominees or among any of
these nominees and any officer, nor any arrangement or understanding between any
nominee and any other person pursuant to which the nominee was selected.
In the election of directors, those receiving the greatest number of votes
shall be elected, even if such votes do not constitute a majority. Certain
information regarding each nominee follows. Each nominee has consented to being
named in the Proxy Statement and to serve if elected.
2
[photo]
Elizabeth E. Bailey, 59, is the John C. Hower Professor of Public Policy and
Management, The Wharton School of the University of Pennsylvania. She is a
director of Honeywell, Inc.; Philip Morris Companies, Inc.; and Teachers
Insurance and Annuity Association-College Retirement Equities Fund. Dr. Bailey
has been a director of CSX since November 1989 and is a member of the Board's
Audit Committee and Pension Committee.
[photo]
Robert L. Burrus, Jr., 63, is a partner in and Chairman of McGuire, Woods,
Battle & Boothe, LLP, a law firm. Mr. Burrus is a director of Concepts Direct,
Inc.; Heilig-Meyers Company; O'Sullivan Corporation; S&K Famous Brands, Inc.;
and Smithfield Foods, Inc. Mr. Burrus has been a director of CSX since April
1993 and is a member of the Board's Organization and Corporate Responsibility
Committee and Pension Committee.
[photo]
Bruce C. Gottwald, 64, is Chairman and Chief Executive Officer of Ethyl
Corporation, a worldwide producer of petroleum additives. He is a director of
James River Corporation. Mr. Gottwald has been a director of CSX since April
1988 and is a member of the Board's Organization and Corporate Responsibility
Committee and Pension Committee.
[photo]
John R. Hall, 65, has been Chairman of Arch Coal, Inc., a coal mining company,
since July 1997. Prior to his retirement at the end of January 1997, he was
Chairman and Chief Executive Officer of Ashland Inc., a diversified energy
company with operations in petroleum refining and marketing, chemicals, highway
construction, oil and gas exploration and coal. He is a director of Banc One
Corporation; The Canada Life Assurance Company; Humana Inc.; Reynolds Metals
Company; and UCAR International Inc. He is also President of the Board of Trust
of Vanderbilt University. Mr. Hall has been a director of CSX since May 1994 and
is a member of the Board's Compensation Committee and Organization and Corporate
Responsibility Committee.
[photo]
Robert D. Kunisch, 56, has been Vice Chairman of Cendant Corporation, a global
provider of consumer and business services primarily in the membership, travel
and real estate services segments, since December 1997. Previously, he was
Chairman, President and Chief Executive Officer of PHH Corporation, a provider
of value-added business services, including vehicle management, real estate, and
mortgage banking services. He is a director of Mercantile Bankshares Corporation
and GenCorp. Mr. Kunisch has been a director of CSX since October 1990 and is
Chairman of the Board's Compensation Committee and a member of the Executive
Committee.
[photo]
James W. McGlothlin, 57, is Chairman and Chief Executive Officer of The United
Company, a diversified energy company. He is a director of Bassett Furniture
Industries, Inc. He has been a director of CSX since November 1989 and is
Chairman of the Board's Organization and Corporate Responsibility Committee and
a member of the Executive Committee.
3
[photo]
Southwood J. Morcott, 59, is Chairman and Chief Executive Officer of Dana
Corporation, a manufacturer of automotive and truck parts and provider of
commercial credit. Previously, Mr. Morcott was Chairman, President and Chief
Executive Officer of Dana Corporation. He is a director of Johnson Controls,
Inc., and Phelps Dodge Corporation. Mr. Morcott has been a director of CSX since
July 1990 and is Chairman of the Board's Pension Committee and a member of the
Audit Committee and the Executive Committee.
[photo]
Charles E. Rice, 62, is the former Chairman and Chief Executive Officer of
Barnett Banks, Inc., a bank holding company. He is a director of NationsBank
Corporation; Post Properties, Inc.; and Sprint Corporation. Mr. Rice has been a
director of CSX since April 1990 and is Chairman of the Board's Audit Committee
and a member of the Compensation Committee and the Executive Committee.
[photo]
William C. Richardson, 57, is President and Chief Executive Officer of the W.K.
Kellogg Foundation, a major philanthropic institution, a position he has held
since 1995. Previously, he was President of The Johns Hopkins University. He is
a director of The Kellogg Company; Mercantile Bankshares Corporation; and
Mercantile Safe Deposit & Trust Company. Dr. Richardson has been a director of
CSX since December 1992 and is a member of the Board's Compensation Committee
and Organization and Corporate Responsibility Committee.
[photo]
Frank S. Royal, M.D., 58, is a physician in private practice in Richmond, Va.,
and a health care expert. He is a director of Columbia/HCA Healthcare
Corporation; Crestar Financial Corporation; Chesapeake Corporation; and Dominion
Resources, Inc. Dr. Royal has been a director of CSX since January 1994 and is a
member of the Board's Audit Committee and Compensation Committee.
[photo]
John W. Snow, 58, is Chairman of the Board, President and Chief Executive
Officer of CSX. Mr. Snow is a director of Circuit City Stores, Inc.; Textron,
Inc.; and USX Corporation. Mr. Snow has been a director of CSX since April 1988
and is Chairman of the Board's Executive Committee.
During 1997, there were seven meetings of the CSX Board of Directors. Each
director of the Company attended more than 75 percent of the meetings of the
Board of Directors and committees on which he or she served during the period he
or she was a director.
4
Corporate Governance
The CSX Board of Directors is committed to governance principles and
practices that permit the Board to fulfill its fiduciary duties to shareholders
and to the Company. Much of the Board's work is conducted through committees as
described below. The role and jurisdiction of each committee is carefully
articulated, and the appropriateness of the committee structure is reviewed
regularly. The Board has established and maintains qualification guidelines for
candidates for director. Reviews of each director's performance and continuing
qualification for Board membership and the Board's performance as a working
group are conducted on a regular basis.
Committees of the Board
CSX's Board of Directors has the following committees to assist it in the
discharge of its responsibilities. The biographical information in the section
entitled "Election of Directors" includes committee memberships currently held
by each nominee.
The Executive Committee meets only on call and has authority to act for the
Board on most matters during the intervals between Board meetings. The Executive
Committee has five members. It held no meetings in 1997.
The Audit Committee's primary functions are to approve and to recommend to
the Board and to the shareholders independent auditors and to satisfy itself on
behalf of the Board that the Company's internal control structure, policies,
procedures and external and internal auditing activities assure reliable and
informative accounting and financial reporting. Specifically, the Committee,
through meetings with management, the auditors, or both, reviews the scope of
the auditors' examination, audit reports and CSX's internal auditing procedures;
reviews and monitors policies established to prohibit unethical, questionable or
illegal activities by those associated with CSX; and reviews the compensation
paid to the auditors for annual audit and non-audit services and the effect of
such compensation and services on the independence of the auditors. The Audit
Committee has five members, none of whom is a Company employee. It held three
meetings in 1997.
The primary functions of the Compensation Committee are to establish the
Company's compensation philosophy and to review and approve or recommend
approval of compensation and compensation plans, including certain fringe
benefits, for employees at certain organizational levels (as determined by this
Committee from time to time), to establish performance objectives for certain
executives, and to certify the attainment of those objectives in connection with
the payment of performance-based compensation within the meaning of Internal
Revenue Code Section 162(m). In addition, the Committee monitors the
administration of certain executive compensation and benefit programs. The
Compensation Committee has five members, none of whom is a Company employee and
all of whom are "outside directors" within the meaning of regulations
promulgated pursuant to Internal Revenue Code Section 162(m). It held five
meetings in 1997.
The Pension Committee monitors funding and administration of certain
tax-qualified benefit plans of the Company. The Committee recommends amendments
to certain tax-qualified plans to the Board. The Pension Committee has five
members and held two meetings in 1997.
The Organization and Corporate Responsibility Committee of the Board
recommends candidates for election to the Board and reviews and recommends
changes in board composition, committee structure, director qualification, and
director compensation and retirement. This Committee recommends and monitors
appropriate corporate governance practices and also conducts regular evaluations
of director performance and of the effectiveness of the Board as a working
group. In fulfilling its responsibility for making nominations to the Board of
Directors, the Committee will review recommendations as to possible nominees
received from shareholders and other qualified sources. Shareholder
recommendations must be in writing addressed to the Chairman of the Organization
and Corporate Responsibility Committee, c/o Corporate Secretary, CSX
Corporation, One James Center, 901 East Cary Street, Richmond, Virginia
23219-4031 and should include a statement setting forth the qualifications and
experience of the proposed candidate and basis for nomination. This Committee
also reviews changes in corporate structure, succession in top management and
other internal matters of broad corporate significance. In addition, this
Committee reviews CSX's relationship to the broader social environment in which
the Company operates and legal aspects of CSX's operations, including
litigation, legislation and other governmental actions that could affect CSX.
The Committee has four members, none of whom is a Company employee. It held four
meetings in 1997.
5
Directors' Compensation
For services rendered during a year, non-employee directors receive a
retainer fee of $35,000 per year, a portion of which is paid in CSX stock as
described below. Chairmen of Board committees receive an additional annual
retainer fee of $5,000. Retainers are prorated for service of less than a full
year. Each non-employee director also receives $1,000 for each Board and
committee meeting attended and is reimbursed for expenses incurred in connection
with services as a director.
CSX directors must participate in the CSX Corporation Stock Plan for
Directors (the "Stock Plan"). Pursuant to the Stock Plan, directors are paid not
less than 40 percent of their annual retainer in CSX common stock. In addition,
directors can annually elect to receive up to 100 percent of the remaining
portion of their retainers and meeting fees in stock. Payments made in stock
pursuant to the Stock Plan also can be deferred for income tax purposes into the
CSX Directors' Stock Trust ("Directors' Trust"), a trust established for that
purpose. The Directors' Trust is subject to the claims of creditors of CSX
Corporation. In 1997, each director also received a stock grant of 300 shares of
CSX common stock with a market value on date of grant of $46.5625 per share, the
average between the high and low prices reported on the New York Stock Exchange
on April 17, 1997. Receipt of these shares and the income tax thereon were
deferred for all directors, and the stock was issued to the Directors' Trust.
In 1997, the Special Retirement Plan for CSX Directors (the "Retirement
Plan"), which provided compensation for non-employee directors following their
retirement from the Board, was amended to exclude from coverage current and
future directors. For current non-employee members of the Board, compensation
for benefits accrued from service to date, but which were lost as a result of
amendments to the Retirement Plan, was calculated based on advice from an
outside consultant. Directors were compensated for the value of such foregone
benefits through payments made in Company stock. Each director received the
following value payment, paid in shares of CSX common stock with a market value
of $46.5625 per share: Dr. Bailey - $78,700 (1,690 shares); Mr. Burrus - $72,500
(1,557 shares); Mr. Gottwald - $91,100 (1,957 shares); Mr. Hall - $72,500 (1,557
shares); Mr. Kunisch - $78,700 (1,690 shares); Mr. McColl - $72,500 (1,557
shares); Mr. McGlothlin - $78,700 (1,690 shares); Mr. Morcott - $78,700; (1,690
shares); Mr. Rice - $78,700 (1,690 shares); Dr. Richardson - $72,500 (1,557
shares); and Dr. Royal - $72,500 (1,557 shares). Receipt of these shares and the
income tax thereon were deferred, and the stock was issued to the Directors'
Trust.
A director may elect to participate in a Corporate Director Deferred
Compensation Plan (the "Deferred Compensation Plan"), under which he or she can
defer all or a portion of cash compensation paid by CSX until he or she ceases
to be a director and has reached age 65, after which he or she will be paid in
installments over a period not to exceed 15 years. Amounts so deferred may be
designated by the director to be credited to an Interest Account, a CSX Phantom
Stock Account, or a combination. The Interest Account accrues interest,
compounded quarterly, at rates that are reviewed and adjusted from time to time.
An Enhanced Interest Account, to which deferrals could be directed in 1986,
1987, 1989 and 1990, accrues interest at a higher than market rate compounded
annually. The rate may be adjusted from time to time. Participants in the
Enhanced Interest Account also are covered by an additional $10,000 death
benefit. The balances in the Phantom Stock Accounts represent cash balances
equal to the value of such CSX stock, including reinvested dividends, which
would have been in the account had the deferred cash compensation actually been
used to purchase CSX stock. Mr. Morcott and Dr. Royal have directed deferred
cash compensation to be invested in the Phantom Stock Account where the cash
balances accumulated as of December 26, 1997, represent the equivalent of 1,702
shares and 351 shares of CSX stock, respectively.
The Deferred Compensation Plan provides that if the Board determines that a
change of control of CSX has occurred, as defined in the Plan, Plan participants
will receive, within seven days of such determination, a lump sum cash payment
equal to the balance credited to directors' accounts. The Stock Plan provides
that upon a change of control, shares, the receipt of which was deferred and
held in trust, will be distributed unless the Participant has elected to remain
in the Plan. Upon a change of control of CSX, amounts sufficient to pay any
undistributed payments pursuant to the Deferred Compensation Plan and the Stock
Plan will be put into a trust until distribution under the terms of the plans
and the distribution elections which participants have made. The trust will be
subject to claims of creditors of CSX Corporation. Directors may elect, within a
specified period of time prior to any change of control event, to continue
participation in the Deferred Compensation Plan and the Stock Plan as if a
change of control had not occurred. Once such an election has been made and a
change of control occurs, the election can be revoked, subject to a 5 percent
penalty on distribution.
6
In 1997, in recognition that the Deferred Compensation Plan is a
non-qualified benefit plan and is an unfunded obligation of CSX, CSX reimbursed
directors for the premium cost of an individual insurance policy. The policy,
named "Executive Edge Deferred Income Insurance" ("EDII"), provides security
against repudiation of benefit payments. The policy would not, however, make
payments in the event that CSX fails to meet its obligations due to bankruptcy.
The insurance policy is owned by the director and has a five-year term,
renewable each year for an additional year of coverage. CSX also has paid the
directors for the federal, state and Medicare taxes incurred as a result of the
premium reimbursement. Total amounts reimbursed in 1997 to each director who
elected to renew his EDII policy were as follows: Mr. McGlothlin - $2,518; and
Mr. Morcott - $735. In addition, in 1997 the Company provided personal excess
liability insurance, an "umbrella" policy, to directors who elected to
participate. Messrs. Burrus, Gottwald, Hall, Kunisch, McColl, Morcott, and Rice
and Dr. Richardson and Dr. Royal all enrolled for coverage for which imputed
income of $1,556 was realized by each participating director.
CSX directors participate in the CSX Directors' Charitable Gift Plan ("Gift
Plan"). Participation in the Gift Plan begins when an individual has completed
five consecutive years of service as a CSX director. Under the Gift Plan, the
Company will make, on behalf of each participant, contributions totaling $1
million to charitable institutions designated by that participant. Contributions
to designated charities are made in installments, with $100,000 payable upon the
director's retirement and the balance payable in installments of $100,000 per
year, commencing at the time of the participant's death. The Company funds the
charitable contributions through company-owned life insurance on the lives of
certain participants. Premiums on the life insurance policies are paid by the
Company. The directors who, as of the date of this Proxy Statement, have
completed five years of consecutive service and thus are eligible to participate
in the Gift Plan are: Dr. Bailey, Dr. Richardson, and Messrs. Gottwald, Kunisch,
McColl, McGlothlin, Morcott, Rice, and Snow.
Directors also can participate in a CSX Directors' Matching Gift Program.
Directors' contributions to organizations exempt from taxation pursuant to
Section 501(c)(3) of the Internal Revenue Code, and which qualify for support
under internal guidelines for CSX charitable contributions, are matched on a
two-for-one basis. The maximum amount of contributions that can be matched in
any year is $25,000 per director. Directors who participated in the Matching
Gift Program during 1997 and the amounts paid by the Company for contributions
made by these directors in 1997 are: Dr. Bailey - $8,000; Mr. Burrus - $46,370;
Mr. Hall - $50,000; Mr. Kunisch - $27,500; Mr. McColl - $50,000; Mr. McGlothlin
- - $500; Mr. Morcott - $8,000; Mr. Rice - $50,000; Dr. Richardson - $39,382; Dr.
Royal - $39,400; and Mr. Snow - $50,000.
Certain Relationships and Related Transactions
Hugh L. McColl, Jr., a director of the Company through April 28, 1998, is
Chief Executive Officer of NationsBank Corporation. Through an affiliate,
NationsBank, N.A. was a co-syndication agent for a $4.8 billion Revolving Credit
and Competitive Advance Facility entered into by CSX Corporation. NationsBank's
portion of this facility was $250 million. In May 1997, the Revolving Credit
Facility was reduced to $2.5 billion with NationsBank's portion of the
commitment being reduced to $130.2 million. NationsBank also participated in a
syndicated credit facility to a joint venture in which a subsidiary of the
Company is a party. NationsBank's portion of this facility is $40 million. An
affiliate of NationsBank acted as co-manager of a $2.5 billion multi-tranche
debt underwriting and is a co-agent to place the Company's commercial paper to
assist the Company in raising funds in conjunction with the proposed acquisition
by the Company of Conrail Inc. and related transactions (the "Conrail
Transaction.") During 1997, CSX completed equipment lease financings with a
subsidiary of NationsBank, Inc. totaling $35.5 million. NationsBank subsequently
transferred its economic interest in the lease transactions to another party,
but remained as a servicing agent for administrative purposes, for which it
realizes an annual fee of approximately $60,400.
Charles E. Rice, a director of the Company, is former Chairman and Chief
Executive Officer of Barnett Banks, Inc. During 1996, an affiliate of Barnett
Banks, Inc. participated to the extent of $100 million in the $4.8 billion
Revolving Credit and Competitive Advance Facility entered into by CSX
Corporation. In May 1997, this commitment was reduced to $52.1 million. In
addition, in January 1992, an affiliate of Barnett Banks, Inc., purchased the
stock of CSX Commercial Services, Inc., from the Company for approximately $7.5
million in cash, subject to subsequent balance sheet adjustments. CSX Commercial
Services, Inc., which is no longer owned by a Barnett affiliate and has changed
its name to InTuition, Inc., is headquartered in Jacksonville, Fla., and is
engaged in the business of servicing student loans. The Company agreed, as part
of the sale, to indemnify the Barnett affiliate against certain contingent
liabilities.
7
In 1987, prior to the election of James W. McGlothlin as a director of CSX,
The United Company, of which Mr. McGlothlin is Chairman and Chief Executive
Officer, purchased a used Gulfstream aircraft from a wholly owned subsidiary of
the Company at a cost of $6 million, with a down payment in the amount of $1.2
million and an additional $800,000 that was paid upon delivery. The balance of
$4 million, in the form of a promissory note bearing interest at the prime rate
set by NationsBank of North Carolina, N.A., was payable in 10 consecutive annual
installments beginning December 31, 1988. As of December 26, 1997, the total
outstanding indebtedness was $400,000.
Robert D. Kunisch, a director of the Company, is the Vice Chairman of
Cendant Corporation. During 1997, a subsidiary of CSX paid approximately
$162,000 to affiliates of Cendant for the purchase of business travel-related
services.
Robert L. Burrus, Jr., a director of the Company, is a partner in and
Chairman of McGuire, Woods, Battle & Boothe, LLP, a law firm that regularly
provides legal services to the Company and its subsidiaries.
Compensation Committee Interlocks and Insider Participation
During 1997, Mr. Snow was a member of the Compensation Committee of
NationsBank Corporation of which Mr. McColl, a director of the Company through
April 28, 1998, is Chief Executive Officer.
Alvin R. Carpenter, President and Chief Executive Officer of CSXT, is an
executive officer of CSX for proxy reporting purposes. During 1997, Mr.
Carpenter was a director of Barnett Banks, Inc., and Charles E. Rice, a director
of the Company and a member of the Compensation Committee, was Chairman and
Chief Executive Officer of Barnett Banks, Inc.
Relationships between the Company and Mr. Rice and between the Company and
Mr. Kunisch, a director of the Company and the Chairman of the Compensation
Committee, that require disclosure are described under "Certain Relationships
and Related Transactions" above.
Contractual Obligations
To ensure that the Company will have the continued dedicated service of
certain executives notwithstanding the possibility, threat or occurrence of
changes in control, the Company has entered into change of control employment
agreements ("Employment Agreements") with certain executives, including those
named in the Summary Compensation Table. The Employment Agreements generally
provide that if the executive is terminated other than for cause within three
years after a change of control of the Company, or if the executive terminates
employment for good reason within such three-year period or voluntarily during
the 30-day period following the first anniversary of the change of control, the
executive is entitled to receive "severance benefits." Severance benefits
include a lump sum severance payment equal to three times the sum of the
executive's base salary and highest annual bonus, together with certain other
payments and benefits, including continuation of employee welfare benefits and
an additional payment to compensate the executive for certain excise taxes
imposed on certain change of control payments.
The agreements also provide that in certain change of control transactions
subject to regulatory review by the Surface Transportation Board, or any
successor regulatory body, the Employment Agreements generally provide somewhat
different treatment. During the period of regulatory review, the executive would
only be entitled to severance benefits if he or she is constructively terminated
by the Company. If a transaction were to receive regulatory approval, then the
executive generally would be entitled to severance benefits if he or she is
terminated other than for cause within one year after the regulatory approval or
if the executive terminates his or her employment for good reason within such
one-year period or voluntarily during the 30-day period following the first
anniversary of these regulatory approval.
In early 1997, in contemplation of the proposed transaction with Conrail
Inc., which was a planned merger of equals, the Employment Agreements, including
those for the officers named in the Summary Compensation Table, as well as
certain other executive officers, were amended to provide change of control
payments substantially described above in the event of consummation of that
transaction. Because the structure of the Conrail transaction ultimately changed
significantly from that originally contemplated, the Company has taken the
position that these amendments are inoperative.
8
In April 1990, the Company entered into a Special Stock Award Agreement with
Mr. Carpenter. Under the terms of the Agreement, 40,000 shares of CSX common
stock (as adjusted following the December 1995 stock split) were awarded to Mr.
Carpenter, conditioned on continued employment, one-half of the shares issued on
the fifth anniversary, and the balance to be issued on the 10th anniversary of
the Agreement. In April 1995, 20,000 shares were issued to Mr. Carpenter
pursuant to that Agreement. To assist Mr. Carpenter in paying the income tax
obligations associated with the award in April 1995, CSX made an interest-free
loan to Mr. Carpenter of $377,200, which was repaid in March 1997. Mr. Carpenter
was compensated for taxes associated with the interest-free character of the
loan.
In June 1995, CSXT entered into an agreement with Mr. Nichols. Upon CSXT's
reaching certain performance goals specified in the agreement by December 31,
1997, CSXT agreed to pay to Mr. Nichols 10,000 shares of CSX common stock (as
adjusted for the 1995 stock split). In fulfillment of this agreement, 5,000
shares were issued to Mr. Nichols in February 1998. Mr. Nichols also received a
cash payment representing the value of all dividends declared and payable on the
5,000 shares during the term of the agreement.
In February 1994, the Company entered into an incentive agreement with Mr.
Snow awarding him 1,000,000 non-qualified employee stock options (as adjusted
for the December 1995 stock split) with an exercise price of $44.9375 per share,
the fair market value as of the date of the grant. The options are subject to
vesting and sale restrictions and are conditioned upon the Company's common
stock achieving certain threshold levels ranging from $50 to $60 per share. The
options may be forfeited in whole or in part at the time of termination of
employment. In October 1996, the incentive agreement was amended to clarify that
the vesting and sale restrictions terminate upon a change of control.
In February 1994, the Company entered into a Special Stock Award Agreement
with Mr. Clancey pursuant to which 20,000 shares of CSX common stock (as
adjusted following the December 1995 stock split) were awarded, conditioned on
continued employment, with one-half of the shares to be issued on the fifth
anniversary of the Agreement, and the balance to be issued on the 10th
anniversary of the Agreement.
In the case of the Special Stock Award Agreements with both Messrs.
Carpenter and Clancey, the value of all dividends declared and payable during
the period between award and issuance will be paid at the time the share awards
are payable. In the event of certain changes of control, the awards under the
agreements with Messrs. Snow, Carpenter and Clancey will be accelerated and the
recipients will be entitled to compensation for certain excise taxes imposed on
certain change of control payments.
In December 1996, the Company made a $300,000 interest-free loan to Donald
D. Davis, an executive officer of the Company, because he was unable to exercise
Company stock appreciation rights and stock options as a result of trading
restrictions imposed by the Company in connection with the Conrail transaction.
The loan was repaid in January 1997. CSX compensated Mr. Davis for taxes
associated with the interest-free character of the loan.
Section 16(a) Beneficial Ownership Reporting Compliance
The Securities Exchange Act of 1934 requires the Company's executive
officers and directors, and any persons owning more than 10 percent of a class
of the Company's stock, to file certain reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Based solely on
its review of the copies of Forms 3, 4 and 5 received by it, the Company
believes that with two exceptions the Company's executive officers and directors
complied with the SEC's requirements with respect to transactions during the
last fiscal year. In one transaction during 1996, 180 shares held in a Uniform
Gift to Minors account maintained for Mr. Clancey's minor child were sold, and
the transaction was reported on a late filed amendment to his Form 5 for 1996.
During 1997, William H. Sparrow, an executive officer of the Company, made two
gifts of stock totaling 200 shares to his adult son who resides in his home. The
indirect ownership of this stock, for which Mr. Sparrow disclaims beneficial
ownership, was reported on a late filed amendment to Mr. Sparrow's Form 5 for
1997.
9
Security Ownership of Certain Beneficial Owners, Directors,
and Executive Officers
Amount and Nature of Beneficial Ownership
------------------------------------------------
Shares for which
Stock Beneficial
Purchase Ownership can Percent
and Other Shares be Acquired Total of
Name of Loan Plan Beneficially within 60 Days Beneficial Class
Title of Class Beneficial Owner (Note 1) (Note 2) Owned (Note 3) Ownership (Note 4)
- ---------------------------------------------------------------------------------------------------------------------------
CSX Corp. Elizabeth E. Bailey N/A 7,049 N/A 7,049 *
Common Stock Robert L. Burrus, Jr. N/A 7,025 N/A 7,025 *
$1 Par Value Bruce C. Gottwald N/A 18,454 N/A 18,454 *
John R. Hall N/A 12,390 N/A 12,390 *
Robert D. Kunisch N/A 9,549 N/A 9,549 *
Hugh L. McColl, Jr. N/A 5,946 N/A 5,946 *
James W. McGlothlin (Note 5) N/A 224,280 N/A 224,280 *
Southwood J. Morcott N/A 8,557 N/A 8,557 *
Charles E. Rice N/A 11,021 N/A 11,021 *
William C. Richardson N/A 3,680 N/A 3,680 *
Frank S. Royal N/A 5,652 N/A 5,652 *
John W. Snow 679,775 516,546 1,797,598 2,993,919 1.3%
Alvin R. Carpenter 308,245 219,605 294,000 821,850 *
Gerald L. Nichols 120,774 109,981 170,000 400,755 *
Paul R. Goodwin 162,685 121,420 184,828 468,933 *
John P. Clancey 219,102 112,373 141,200 472,675 *
Executive officers as a
group (21 persons, including
those named above) and
all directors 2,784,625 2,253,304 4,128,985 9,166,914 3.9%
FMR Corp. (Note 6)
82 Devonshire Street
Boston, MA 02109 N/A 23,316,103 N/A 23,316,103 10.0%
- ---------------------------------------------------------------------------------------------------------------------------
Notes to Security Ownership of Certain Beneficial Owners, Directors,
and Executive Officers
- -------------------------------------------------------------------------------
Note 1 Except as otherwise noted, the persons listed have sole voting power
as to all shares listed, including shares held in trust under certain
deferred compensation plans, and have investment power, except with
respect to all shares held in trust under deferred compensation plans,
investment of which is governed by the terms of the trust. Ownership
information is as of March 6, 1998.
Note 2 This column reflects grants made and stock purchased under the CSX
Corporation Stock Purchase and Loan Plan ("SPLP") as of August 1, 1996.
Twenty of the 21 current Executive Officers were participants in this
offering. Pursuant to the SPLP, the Board's Compensation Committee as
administrator granted Purchase Awards or Exchange Awards as defined in
the SPLP to each participant. Each participant could subscribe to all, a
portion, or none of the Purchase Award or Exchange Award offered. The
purchase price for shares offered on August 1, 1996, was $47.50 per
share, the Market Price on that date as defined under the SPLP.
Under the terms of the SPLP, each participant must provide a down
payment for the shares purchased, with the balance of the purchase price
paid with loans provided by the Company ("Purchase Loans"). The down
payment remains at risk until the Purchase Loans have been paid in full.
For Purchase Awards, down payment obligations may be satisfied with a
full recourse loan provided by the Company ("Down Payment Loan"). For
Exchange Awards, the down payment obligation must be satisfied by using
equity from earlier offerings as explained below. Dividend equivalents
are paid by the Company on the number of shares represented by the
equity used as a down payment for an Exchange Award.
Exchange Awards offered on August 1, 1996, permitted officers who
participated in offerings under the SPLP in 1991 and/or 1992 to use the
equity they had earned under those offerings ("Equity") as the down
payment for shares offered pursuant to the Exchange Award. The Equity
used for down payments represented the value as of August 1, 1996, of
shares acquired pursuant to 1991 and/or
10
1992 offerings under the SPLP, less outstanding balances on the Purchase
Loans made pursuant to the same offerings. Participants could then elect
to make a down payment representing 25%, 20%, 15%, or 10% of the value
of shares purchased as of August 1, 1996. Any down payment of less than
25% would have resulted in a participant's purchase of proportionately
fewer shares than the maximum number offered in the Exchange Award.
Eighteen of the current Executive Officers were participants in the 1991
and/or 1992 SPLP offerings, each was offered an Exchange Award, and each
elected to use equity earned through the 1991 and/or 1992 offerings as a
25% down payment.
Upon exercise of Exchange Awards, each participant executed new Down
Payment Loans and new Purchase Loans covering purchase of the shares
acquired in the 1991 and/or 1992 offerings, as well as additional shares
offered on August 1, 1996. The new Down Payment Loans extend the term of
the original Down Payment Loans to be coextensive with that of the new
Purchase Loans. The principal balance of the new Down Payment Loans
remains unchanged from that of the original Down Payment Loans and
reflects amounts which are 5% of the purchase price of shares purchased
in 1991 and/or 1992. In the case of Exchange Awards, the new Purchase
Loans are for the balance of the purchase price of shares purchased upon
exercise of the Exchange Award. In the case of each Executive Officer,
the new Purchase Loans for Exchange Awards are for 75% of the purchase
price. As a result of the exchange feature, the number of shares
purchased as indicated in the table below includes shares purchased in
1991 and/or 1992. The Purchase Loan is collateralized by all such shares
purchased pursuant to the Exchange Award. Interest accrues on the
Purchase Loans at the Applicable Federal Rate. The Board's Compensation
Committee has authority to release from the Purchase Loan's lien shares
whose value is in excess of the Purchase Loan balance.
Purchase Awards were offered to Executive Officers who did not
participate in the 1991 and/or 1992 offerings. In addition, Purchase
Awards were offered to nine Executive Officers for shares in addition to
those which these participants could purchase using Exchange Awards. For
this group of nine Executive Officers, the Purchase Awards reflected
enhanced responsibilities over those the same participants had at the
time of the 1991 and/or 1992 offerings. Except in the cases of Messrs.
Carpenter and Clancey, Executive Officers receiving Purchase Awards were
required to make down payments of 5% of the value of the award. In the
cases of Messrs. Carpenter and Clancey, the down payment was agreed to
be 10% of the value of the Purchase Award.
Each new Purchase Loan has a term of five years. The participant can
extend the Purchase Loan to six years. The Compensation Committee can
require extension of Purchase Loans for up to two years. In no event can
Purchase Loans be for a period greater than seven years.
The principal balance and interest under the Purchase Loans are subject
to various adjustments after the first anniversary of the Purchase
Loans. These adjustments occur only when the price of CSX stock has
reached levels specified in the following table in excess of the
purchase price and has remained at such levels for at least 10
consecutive business days. The Purchase Loans cannot be prepaid except
pursuant to conditions specified by the SPLP involving termination of
employment from CSX or change in control of CSX.
Interest on the Down Payment Loans of Executive Officers participating
in the 1991 and/or 1992 offerings under the SPLP was forgiven as a
result of CSX stock having equaled or exceeded certain threshold levels
for a period of 10 consecutive business days following August 1, 1993.
Dividends paid on shares purchased upon exercise of Purchase Awards and
Exchange Awards are applied against interest accrued on the Purchase
Loans. Interest accrued on a Purchase Loan in excess of dividends
applied is defined in the SPLP and loan documents as "Interest Spread."
The Interest Spread on the new Purchase Loans will be forgiven, and, as
amended, the Purchase Price with respect to 50 percent of the shares
purchased by each participant will be reduced according to the following
schedule, if and when at any time after the first anniversary of the
Purchase Loan the price of CSX common stock achieves the levels
indicated in the schedule below and holds them for 10 consecutive
business days.
Forgiveness of Interest & Reduction of
Stock Price Purchase Price of 50 Percent of Shares
-----------------------------------------------------------------------------
Purchase Price + 10% Interest Spread + Interest on down payment loan
Purchase Price + 20% Interest Spread + 10% + Interest on down payment loan
Purchase Price + 30% Interest Spread + 20% + Interest on down payment loan
Purchase Price + 40% Interest Spread + 30% + Interest on down payment loan
Purchase Price + 50% Interest Spread + 40% + Interest on down payment loan
Purchase Price + 60% Interest Spread + 50% + Interest on down payment loan
Purchase Price + 70% Interest Spread + 60% + Interest on down payment loan
Purchase Price + 80% Interest Spread + 70% + Interest on down payment loan
Purchase Price + 90% Interest Spread + 80% + Interest on down payment loan
Purchase Price + 100% Interest Spread + 100% + Interest on down payment loan
The Purchase Price reductions will not apply to the remaining 50 percent
of shares purchased by participants.
11
For the executives named below, the number of shares purchased pursuant
to the SPLP and the aggregate loan balances as of December 26, 1997, are
indicated in the following table:
1996 1996 1996 1996 1991 & 1992
Unadjusted Unadjusted Adjusted Adjusted Down
1996 1996 1996 Purchase Down Payment Purchase Down Payment Payment
Exchange Purchase Total Loan Loan Loan Loan Loan
Award Award Purchase Balances Balances Balances Balances Balances
Name (#Shares)(i) (#Shares) Price 12/26/97(ii) 12/26/97(iii) 12/26/97(iv) 12/26/97(v) 12/26/97(vi)
- ------------------------------------------------------------------------------------------------------------------------------------
John W. Snow 679,775 $ 32,289,313 $ 25,440,233 $22,602,524 $318,848
Alvin R. Carpenter 258,245 50,000 (vii) 14,641,638 11,926,919 $260,671 10,819,147 $237,500 135,215
Gerald L. Nichols 120,774 5,736,765 4,519,905 4,015,737 56,649
Paul R. Goodwin 162,685 7,727,538 6,088,403 5,409,272 76,308
John P. Clancey 194,102 25,000 (vii) 10,407,345 8,395,284 130,336 7,570,143 118,750 112,692
All executive 2,509,625 275,000(viii) $132,269,688 $106,885,042 $912,349 $95,023,141 $831,250 $1,248,092
officers as a group
(21 persons,
including those
named above)(ix)
(i) All shares purchased with Exchange Awards, using a 25% Down Payment.
(ii) 1996 Unadjusted Purchase Loan Balances include principal and accrued
interest net of dividends.
(iii) 1996 Unadjusted Down Payment Loan Balances include principal and
accrued interest.
(iv) 1996 Adjusted Purchase Loan Balances reflect reduction of the
Unadjusted Purchase Loan Balances by the Interest Spread and 10% of the
Purchase Price of one-half of the purchased shares as a result of
achievement of the second threshold discussed above.
(v) 1996 Adjusted Down Payment Loan Balances reflect reduction of the
Unadjusted Purchase Loan Balances by the accrued interest on the
Down Payment Loan as a result of achievement of the first threshold
discussed above.
(vi) 1991 and 1992 Down Payment Loan Balances represent loans extended from
the initial offerings in 1991 and 1992 pursuant to the Note.
(vii) Shares purchased in addition to those available using Exchange Awards
and purchased as indicated by Messrs. Carpenter and Clancey with a 10%
Down Payment pursuant to agreement.
(viii) Shares purchased in addition to those available using Exchange Awards
and purchased with a 5% Down Payment, including shares purchased by
Messrs. Carpenter and Clancey as explained above.
(ix) One of the 21 Executive Officers is not a participant in the Plan.
Note 3 Represents shares under options or stock appreciation rights exercisable
within 60 days, based on the market price of CSX common stock on March 6,
1998, expressed as the average of the high and low prices reported on the
New York Stock Exchange, which was $56.0313.
Note 4 Based on number of shares outstanding of 232,551,938 on March 6, 1998,
including 13,587,696 shares deemed outstanding for which beneficial
ownership can be acquired within 60 days. An asterisk (*) indicates that
ownership is less than 1 percent of class.
Note 5 Mr. McGlothlin's ownership includes 202,000 shares of common stock as
a result of stock holdings by affiliates of Mr. McGlothlin in which he
shares voting and investment power.
Note 6 Information reported is derived from a Schedule 13G of FMR Corporation
dated February 14, 1998, and filed with the Securities and Exchange
Commission. As reported in the Schedule 13G, the person filing the
statement has the sole power to vote or to direct the vote of 1,575,087
shares, and has the sole power to dispose or to direct the disposition
of 23,316,103 shares.
12
Executive Compensation
The individuals named below (the "Named Executives") include the Company's
Chief Executive Officer and the other four executive officers of the Company who
were the most highly compensated executive officers of the Company as of the
last day of the fiscal year ending December 26, 1997. Information is provided
for the fiscal years ending on December 26, 1997; December 27, 1996; and
December 29, 1995.
Summary Compensation Table
Long-Term Compensation
Annual Compensation Awards Payouts
Other Securities
Annual Restricted Underlying LTIP All Other
Compensation Stock Options/ Payouts Compensation
Name and Bonus ($) ($) Award(s)($) SARs (#) ($) ($)
Principal Position Year Salary (Note 1) (Note 2) (Note 1) (Note 3) (Note 4) (Note 5)
- ---------------------------------------------------------------------------------------------------------------------------
John W. Snow 1997 $1,000,008 $ 0 $245,608 $1,875,000 852,400 $1,969,875 $208,537
Chairman, President 1996 933,336 0 359,840 1,526,625 152,400 1,570,375 181,911
& CEO 1995 869,697 0 488,577 1,687,500 152,400 1,786,000 158,682
Alvin R. Carpenter 1997 700,008 0 221,545 956,250 450,000 753,189 55,377
President & CEO, 1996 588,179 0 214,155 811,250 50,000 600,438 48,323
CSXT 1995 506,672 55,504 242,215 885,008 48,000 1,515,600 40,748
Gerald L. Nichols 1997 412,504 375,000 134,020 0 60,000 955,969 18,101
Vice Chairman, 1996 333,340 375,000 87,938 0 28,000 531,156 15,914
CSXT 1995 311,674 390,578 94,612 0 28,000 535,800 14,706
Paul R. Goodwin 1997 389,174 375,000 62,393 0 178,000 579,375 23,066
Executive Vice 1996 311,668 0 84,638 470,000 28,000 461,875 19,170
President- 1995 281,668 36,751 85,956 376,250 28,000 535,800 16,778
Finance and CFO
John P. Clancey 1997 475,000 0 138,820 343,750 36,000 695,250 12,949
President & CEO, 1996 442,822 410,000 139,879 0 36,000 554,250 13,316
Sea-Land 1995 397,945 211,600 101,410 264,500 36,000 592,200 11,938
- ---------------------------------------------------------------------------------------------------------------------------
Notes to Summary Compensation Table
- -------------------------------------------------------------------------------
Note 1 For service during 1995, 1996, and 1997, management employees whose
annual cash bonuses were paid pursuant to CSX's Management Incentive
Compensation Plan or the Senior Management Incentive Compensation Plan
were permitted to elect to receive all or a portion of their bonuses in
CSX stock. Employees who received their bonuses in stock and deferred
them for tax purposes received a 25 percent premium to be paid in stock.
Such stock was issued to the CSX Executives Stock Trust ("Executives
Trust") and is restricted from sale until such time as employment with
CSX is terminated, but not before a minimum of three years has passed
following the stock issuance except in cases of death, disability, or
change of control. The amounts shown in the Restricted Stock Award(s)
column reflect the cash value of such bonuses paid in stock for Messrs.
Snow, Carpenter, Goodwin, and Clancey. The amounts shown in the
Restricted Stock Award(s) column are pre-tax and do not reflect amounts
that have been withheld to satisfy Medicare and related tax withholding
liabilities. Employees who defer their bonuses in the form of stock into
the Executives Trust receive cash dividend equivalent payments or may
elect to have dividends reinvested by the Executives Trust in CSX stock.
As of December 26, 1997, restricted stock balances and their
corresponding values, based on the closing price of CSX stock on the
NYSE on that date were: Mr. Snow - 69,604 shares ($3,558,525); Mr.
Carpenter - 36,951 shares ($1,889,138); Mr. Goodwin - 8,320 shares
($936,629); Mr. Clancey - 5,868 shares ($300,009).
Cash bonuses shown for Messrs. Carpenter, Nichols, and Goodwin in 1995
include payment of a special bonus to management employees of CSXT for
achievement and maintenance of an operating ratio of 80 percent or less
for an entire year. These special bonuses, although paid in 1995,
reflected achievement over a period of years until the target operating
ratio was reached and sustained. The amounts of such bonuses for Messrs.
Carpenter, Goodwin, and Nichols were $55,504, $32,400 and $36,751,
respectively.
13
Note 2 The perquisites or other personal benefits exceeding 25 percent of the
total perquisites and other personal benefits afforded to named officers
were for the years and in the cases of individuals as follows: (a)
during 1997, for Mr. Snow, $35,793 for life insurance premiums; for Mr.
Carpenter, $33,244 for Executive Edge Deferred Income Insurance
("EDII"); for Mr. Nichols, $18,645 for life insurance premiums and
$18,295 for EDII; for Mr. Clancey, $17,508 for EDII (Because of
increased limitations on the extent to which benefits may be paid from
qualified plans, CSX agreed to provide reimbursement for premiums paid
by executives for EDII for payment of unfunded benefit obligations.
Executives paid the insurance premiums and were then reimbursed by the
Company for premiums and compensation taxes incurred. The amounts so
paid are indicated.); (b) during 1996, for Mr. Snow, $98,934 for EDII;
for Mr. Nichols, $15,877 for life insurance premiums; for Mr. Goodwin,
$19,768 for club dues and $14,889 for EDII; for Mr. Clancey, $31,264 for
EDII. (c) during 1995, for Mr. Snow, $421,145 for EDII; for Mr.
Carpenter, $110,514 for EDII and $77,800 for dividend equivalent
payments pursuant to his Special Stock Award Agreement (see page 9); for
Mr. Nichols, $43,126 for EDII; for Mr. Goodwin, $58,599 for EDII; for
Mr. Clancey, $38,599 for club dues.
Note 3 This column represents the number of employee stock options granted.
(See Option/SAR Grants table on page 14 for description of individual
grants.) Stock appreciation rights ("SARs") were not granted in 1997,
1996, or 1995.
Note 4 LTIP ("Long-Term Incentive Plan") payouts for 1997 represent the fair
market value of $57.9375 per share of performance shares awarded for the
1995-1997 performance cycle on February 11, 1998, pursuant to the 1987
Long-Term Performance Stock Plan ("1987 Plan"). (See the Long-Term
Incentive Plans--Awards in Last Fiscal Year table on page 16 and Note 2
to the Security Ownership of Certain Beneficial Owners, Directors, and
Executive Officers table on page 10, regarding the SPLP and awards made
pursuant to it.) Mr. Nichol's LTIP payouts for 1997 include $289,688,
representing payment of stock pursuant to his agreement with CSXT
described on page 9. Mr. Carpenter's LTIP payouts for 1995 included
$820,000 representing payment of stock pursuant to his Special Stock
Award Agreement with CSX. (See description of agreement and distribution
on page 9.)
Note 5 Amounts shown include the above-market portion of earnings on a
deferred compensation program available to executives only during 1985,
1986, 1988, and 1989. For 1997, these amounts are: for Mr. Snow,
$178,537; for Mr. Carpenter, $34,377; for Mr. Nichols, $7,476; for Mr.
Goodwin, $11,391. Amounts shown also include the Company's matching
contributions made in conjunction with deferrals of salary or bonuses to
the CSX Tax Savings Thrift Plan and the CSX Supplementary Savings and
Incentive Award Deferral Plan. The amounts contributed for 1997 are: for
Mr. Snow, $30,000; for Mr. Carpenter, $21,000; for Mr. Nichols, $10,625;
for Mr. Goodwin, $11,675; for Mr. Clancey, $12,949.
Option/SAR Grants in Last Fiscal Year (Note 1)
Individual Grants Grant Date Value
- ---------------------------------------------------------------------------------------------------------------------------
Percent of Total
Options/SARs Granted
Number of Securities to Employees in Exercise or
Underlying Options/SARs Fiscal Year Base Price Expiration Grant Date
Name Granted (#) (Note 2) ($/Share) Date Present Value ($)
- ---------------------------------------------------------------------------------------------------------------------------
John W. Snow 152,400 (Note 3) 3.64% $46.5625 4/16/07 $ 2,685,288 (Note 3)
700,000 (Note 4) 16.74% 57.0000 9/9/07 13,853,000 (Note 4)
Alvin R. Carpenter 50,000 (Note 3) 1.20% 46.5625 4/16/07 881,000 (Note 3)
50,000 (Note 5) 1.20% 46.5625 4/16/07 881,000 (Note 5)
350,000 (Note 4) 8.37% 57.0000 9/9/07 6,926,500 (Note 4)
Gerald L. Nichols 30,000 (Note 3) .72% 46.5625 4/16/07 528,600 (Note 3)
30,000 (Note 5) .72% 46.5625 4/16/07 528,600 (Note 5)
Paul R. Goodwin 28,000 (Note 3) .67% 46.5625 4/16/07 493,360 (Note 3)
150,000 (Note 4) 3.59% 57.0000 9/9/07 2,968,500 (Note 4)
John P. Clancey 36,000 (Note 3) .86% 46.5625 4/16/07 634,320 (Note 3)
- ---------------------------------------------------------------------------------------------------------------------------
Notes to Option/SAR Grants Table
- -------------------------------------------------------------------------------
Note 1 SARs were not granted during 1997.
Note 2 A total of 4,181,520 employee stock options were granted during 1997.
14
Note 3 Stock options granted to employees on April 17, 1997, pursuant to the
1987 Plan, at an exercise price of $46.5625, which was the fair market
value as of the date of the grant. The options are subject to an
exercisability restriction, becoming exercisable in three equal tranches,
at such time as the mean daily price of CSX common stock remains at a
price per share at or above, for each tranche respectively, $51.5625,
$56.5625 and $61.5625 for 10 consecutive business days. However,
regardless of whether the stock price-related exercisability restrictions
are satisfied, the options may not be exercised until one year after the
date of the grant. The exercisability restrictions lapse after nine years
regardless of whether the stock price thresholds have been satisfied. The
present value of options granted on April 17, 1997, has been reported
using the Black-Scholes option pricing model. The values presented are
based on the following assumptions: exercise price - $46.5625 (mean price
on grant date); market price on grant date - $46.5625; assumed exercise
date - April 16, 2007; risk-free rate of return - 6.85 percent (10-year
U.S. Treasury bond rate); dividend yield - 2.2 percent (5-year quarterly
average); volatility assumption - 25.8 percent.
Note 4 Pursuant to the 1987 Plan, special stock options were granted on
September 10, 1997, to certain executives, including nine executive
officers, at an exercise price of $57.00, which was the fair market value
as of the date of the grant. These options reflect the anticipated annual
stock option grant for 1998 through 2000 for each recipient, and it is
not anticipated that recipients of these special stock options will
receive stock option grants which would as a general rule be awarded to
them in years 1998 through 2000. During the first five years following
the September 10, 1997, grant date, these options become exercisable in
tranches of one-third of the total original grant after the later of (1)
four years or (2) the time at which the average daily price of CSX common
stock reaches $62.00, $67.00, and $72.00, respectively, and is sustained
at each level for 10 consecutive business days. As amended, if these
price hurdles have not been met by the fifth anniversary, the $62.00,
$67.00, and $72.00 price hurdles are increased to $82.00, $87.00, and
$92.00, respectively. These prices must be achieved and sustained for 10
consecutive business days for the options to become exercisable between
the fifth and ninth anniversary of the grant. The options are exercisable
after nine years regardless of the stock price. As a retention incentive,
the options are forfeited if, prior to their fourth anniversary, (a) the
executive terminates employment with the Company for any reason other
than death or disability, or (b) the executive is terminated for Cause,
as defined in the 1987 Plan. The present value of the special options
granted on September 10, 1997, has been reported using the Black-Scholes
options pricing model. The values presented are based on the following
assumptions: exercise price - $57.00 (mean price on grant date); market
price on grant date - $57.00; assumed exercise date - September 9, 2007;
risk-free rate of return - 6.37 percent (10-year U.S. Treasury bond
rate); dividend yield - 2.20 percent (5-year quarterly average);
volatility assumption - 23.10 percent.
Note 5 Special stock options granted to certain executives, including seven
executive officers, on April 17, 1997, pursuant to the 1987 Plan, at an
exercise price of $46.5625, which was the fair market value as of the
date of the grant. The options are subject to an exercisability
restriction, becoming exercisable during the first five years of the
grant term only if the mean daily price of CSX common stock reaches
$75.00 and is sustained at that level for 10 consecutive business days.
However, regardless of whether the stock price-related exercisability
restriction is satisfied, the options may not be exercised until one year
after the date of the grant. The exercisability restriction lapses after
five years regardless of whether the stock price threshold has been
satisfied. The present value of the special stock options granted on
April 17, 1997, has been reported using the Black-Scholes options pricing
model. The values presented are based on the following assumptions:
exercise price - $46.5625 (mean price on grant date); market price on
grant date - $46.5625; assumed exercise date - April 16, 2007; risk-free
rate of return - 6.85 percent (10-year U.S. Treasury bond rate); dividend
yield - 2.2 percent (5-year quarterly average); volatility assumption -
25.8 percent.
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
Value of Unexercised
Number of Securities In-The-Money
Underlying Unexercised Options/SARs at FY-End
Options/SARs at FY-End (#) ($)(Note 1)
- ---------------------------------------------------------------------------------------------------------------------------
Shares Acquired
Name on Exercise (#) Value Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------------
John W. Snow 55,000 $2,543,169 1,207,560 1,754,000 $24,247,536 $5,883,425
Alvin R. Carpenter 0 0 160,668 483,332 1,893,000 481,250
Gerald L. Nichols 0 0 91,334 78,666 1,182,812 288,750
Paul R. Goodwin 20,370 894,369 138,162 196,666 2,477,299 134,750
John P. Clancey 36,000 833,627 81,200 60,000 888,125 173,250
- ---------------------------------------------------------------------------------------------------------------------------
Notes to Aggregated Option/SAR Exercise Table
- -------------------------------------------------------------------------------
Note 1 Value of unexercised options/SARs at fiscal year-end represents the
difference between the exercise price of any outstanding in-the-money
option/SAR grants and $51.375, the mean value of CSX common stock on
December 26, 1997.
15
Long-Term Incentive Plans - Awards in Last Fiscal Year
Number of Performance or Estimated Future Payouts
Shares, Units Other Period Until Under Non-Stock Price-Based Plans
or Other Maturation or Threshold Target Maximum
Name Rights (#) (Note 1) Payout (#) (#) (#)
- ---------------------------------------------------------------------------------------------------------------------------
John W. Snow 40,000 3 years 5,200 26,800 40,000
Alvin R. Carpenter 20,000 3 years 2,600 13,400 20,000
Gerald L. Nichols 10,000 3 years 1,300 6,700 10,000
Paul R. Goodwin 13,000 3 years 1,690 8,710 13,000
John P. Clancey 15,000 3 years 1,950 10,050 15,000
- ---------------------------------------------------------------------------------------------------------------------------
Notes to Long-Term Incentive Plan Table
- ---------------------------------------
Note 1 Represents the number of performance shares granted on December 9,
1997, pursuant to the 1987 Long-Term Performance Stock Plan for the
1998-2000 cycle. The final payouts in CSX stock will be based on the
participant's business unit's Return on Invested Capital as a percentage
of the Company's Cost of Capital over the three-year period. The
estimated threshold payout was calculated at 13 percent of the
performance shares granted on December 9, 1997, and assumes a specified
minimum level of financial performance by the participant's business
unit. The estimated target payout was calculated at 67 percent of the
performance shares granted and represents the number of shares that
would be awarded if a specified intermediate level of financial
performance is achieved by the participant's business unit. The max imum
equals 100 percent of the performance shares granted on December 9,
1997.
Pension Plan Table
Average Compensation Gross Annual Pension Payable Before Offset for Railroad Retirement or Social Security
During Five Consecutive Annuity Based on Creditable Years of Service of:
Years of Highest Pay 15 Years 20 Years 25 Years 30 Years 35 Years 40 Years 44 Years
- ---------------------------------------------------------------------------------------------------------------------------
$ 600,000 135,000 180,000 225,000 270,000 315,000 360,000 396,000
800,000 180,000 240,000 300,000 360,000 420,000 480,000 528,000
1,000,000 225,000 300,000 375,000 450,000 525,000 600,000 660,000
1,200,000 270,000 360,000 450,000 540,000 630,000 720,000 792,000
1,400,000 315,000 420,000 525,000 630,000 735,000 840,000 924,000
1,600,000 360,000 480,000 600,000 720,000 840,000 960,000 1,056,000
1,800,000 405,000 540,000 675,000 810,000 945,000 1,080,000 1,188,000
2,000,000 450,000 600,000 750,000 900,000 1,050,000 1,200,000 1,320,000
2,200,000 495,000 660,000 825,000 990,000 1,155,000 1,320,000 1,452,000
2,400,000 540,000 720,000 900,000 1,080,000 1,260,000 1,440,000 1,584,000
2,600,000 585,000 780,000 975,000 1,170,000 1,365,000 1,560,000 1,716,000
2,800,000 630,000 840,000 1,050,000 1,260,000 1,470,000 1,680,000 1,848,000
3,000,000 675,000 900,000 1,125,000 1,350,000 1,575,000 1,800,000 1,980,000
3,200,000 720,000 960,000 1,200,000 1,440,000 1,680,000 1,920,000 2,112,000
3,400,000 765,000 1,020,000 1,275,000 1,530,000 1,785,000 2,040,000 2,244,000
3,600,000 810,000 1,080,000 1,350,000 1,620,000 1,890,000 2,160,000 2,376,000
3,800,000 855,000 1,140,000 1,425,000 1,710,000 1,995,000 2,280,000 2,508,000
4,000,000 900,000 1,200,000 1,500,000 1,800,000 2,100,000 2,400,000 2,640,000
- ---------------------------------------------------------------------------------------------------------------------------
16
Retirement benefits from funded and unfunded non-contributory pension plans
("Pension Plans") of CSX and certain of its subsidiaries are based on both
length of service and compensation. The compensation covered by the Pension
Plans is compensation paid by CSX or its subsidiaries to a participant on a
regular monthly or annual salary basis, including bonuses or similar awards for
personal services rendered in a position that is not under the scope of a labor
agreement. Compensation items listed in the Summary Compensation Table on page
13 covered by the Pension Plans are Base Salary and Bonus. (In the case of
employees who took their Bonus in Company Stock, as explained in Note 1 to the
Summary Compensation Table on page 13, the amount of the Bonus for Pension Plan
computations is the cash value of the Bonus prior to addition of the premium for
receipt of Bonus in stock.) The benefits are computed at the time of retirement
under a defined benefit formula based on years of service and average salary and
bonus for the highest 60 consecutive months of service, computed without regard
to additional payments in stock as described in Note 1 to the Summary
Compensation Table. The formula also takes into account retirement benefits
under the Social Security Act or Railroad Retirement Act attributable to service
by the participant for the employer. The Pension Plans provide for normal
retirement at age 65, and, subject to certain eligibility requirements, early
retirement beginning at age 55 is permitted with reduced pension payments.
Certain participants in the Pension Plans may be eligible to receive an
additional year of unfunded credit for each year of actual service beginning at
age 45 and, in certain instances, such credit for periods prior to employment by
CSX or its subsidiaries, with a 44-year maximum on total service.
The above table sets forth the estimated annual benefits payable, before
offset for the Social Security or Railroad Retirement annuity, by CSX and
certain of its subsidiaries to any officer or salaried employee upon retirement
at the normal retirement age after selected periods of service and in specified
compensation groups. In October 1996, as part of a number of retention
incentives related to the Conrail Transaction, the Board of Directors awarded to
Mr. Snow maximum benefits under the Pension Plans so that Mr. Snow now has 44
years of credited service. As of December 26, 1997, the other individuals named
in the Summary Compensation Table had the following credited years of service:
Mr. Carpenter, 44 years; Mr. Nichols, 44 years; Mr. Goodwin, 41.42 years; and
Mr. Clancey, 34.83 years.
The Internal Revenue Code imposes certain limitations on compensation and
benefits payable from tax-qualified pension plans. Pension amounts in excess of
such limitations are payable from the non-qualified Special and Supplemental
Plans, which are not funded.
17
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
Administration of Compensation Programs
The Compensation Committee (the "Committee") of the CSX Corporation Board of
Directors, composed entirely of non-employee directors, is responsible for the
review and approval of compensation for senior executives of CSX. The Committee
recommends to the Board the compensation of the Chief Executive Officer and
reviews and approves compensation for the other four most highly compensated
executives named in the 1998 Proxy Statement.
Compensation Philosophy
The Committee and the Board of Directors of CSX believe that the creation of
long-term shareholder value depends upon the alignment of the financial
interests of the Company's employees, including its senior executives, with
those of the Company's shareholders. CSX has established variable incentive
compensation programs, tied to business unit and individual performance, to
motivate its employees. These programs, which place a significant part of each
senior executive's annual and long-term compensation at risk, encourage a
dedicated focus on building value for the shareholder. Compensation under these
programs is paid in the form of cash and stock.
The Company expects executives to acquire and hold significant amounts of
stock, and it has designed its compensation programs to facilitate the
accomplishment of that objective. In keeping with its belief that tying the
interests of CSX executives to those of the shareholder will result in enhanced
shareholder value over the long term, CSX has communicated to each executive
target levels of stock ownership which must be achieved and maintained. These
guidelines, which require ownership as a multiple of base salary ranging between
3.5 and, in the case of the Chief Executive Officer, 15 times an executive's
salary, are substantially greater than those of comparable U.S. companies.
Components of Compensation
The Committee considers it essential that the total compensation opportunity
for senior executives remain competitive with similar companies in order to
attract and retain highly motivated and effective executives, particularly at
this critical time in the Company's history. In establishing the Company's
executive compensation program, the Committee takes into account current market
data and compensation trends for comparable companies, gauges achievement
against corporate, business unit, and individual objectives and ensures the
overall effectiveness of the program in measuring and rewarding attainment of
desired performance levels.
In making 1997 compensation decisions, the Committee utilized information
from a general industry survey of 78 companies with revenues ranging from $7
billion to $20 billion. The 78 companies in this comparison group participate in
surveys conducted by nationally recognized independent consultants. The
comparison group includes four companies which also form part of the Dow Jones
Transportation Average (described in the Performance Graph on page 22 of the
Proxy Statement), a group with which CSX can expect to compete for investors.
While CSX may also expect to compete with this group to attract and retain
executive talent, this competition is more broadly based, and therefore
reflected in a broader compensation comparison group.
When establishing compensation levels, the Committee generally seeks to
provide a total compensation package for its senior executives ranging up to the
85th percentile of the comparison companies if financial, strategic and
individual objectives are met. The compensation package for senior executives is
composed of base salary, annual bonus, and long-term incentives, including stock
options and performance shares.
Base Salary. Base salaries are targeted around the 50th percentile of
salaries paid for similar positions at the comparison companies. In determining
salary adjustments, the Committee considers market data for comparable positions
at those companies as well as each individual's performance and contribution to
the objective measures of the Company's performance described elsewhere in this
report, such as Return on Invested Capital ("ROIC"). Base salaries of the senior
executives are reviewed every 15 to 24 months to determine whether an increase
is appropriate.
18
Annual Bonus. Under the Senior Management Incentive Compensation Plan
("SMICP"), annual incentive bonuses are payable in cash to certain senior
executives as designated by the Committee. A participant's award opportunity for
specific levels of performance is expressed as a percentage of the individual's
base salary at the beginning of the performance period. These opportunities are
established to provide total annual cash compensation (base salary plus annual
bonus) at approximately the 75th percentile of the comparison companies if
corporate and business unit objectives are met.
Financial performance objectives under the SMICP are set each year by the
Compensation Committee. For the corporate staff, financial goals are based on
the Company's overall ROIC compared to its Cost of Capital ("COC"). Similarly,
financial goals are established for each business unit based on its ROIC
compared to the Company's COC. Bonuses paid under the SMICP are based entirely
on these objective measures. During 1997, CSX Corporation and CSX Transportation
successfully exceeded their respective financial objectives. Each senior
executive listed in the Summary Compensation Table on page 13 of this Proxy
Statement received an award under the SMICP, calculated on the basis of achieved
financial results.
In addition to the potential annual bonus award under the SMICP, senior
executives may receive an additional cash bonus for exceptional contributions.
When determining these awards for 1997, the Committee considered such factors as
increased free cash flow, improved operating income and operating ratios, and
service reliability.
Long-term Incentives. Long-term incentives are paid under the 1987 Long-Term
Performance Stock Plan (the "1987 Plan"). These incentives are established with
the objective of bringing total direct compensation (base salary, annual bonus,
and long-term incentives) to approximately the 85th percentile of the comparison
companies. For 1997, the Committee approved grants of stock options and
performance shares. The ultimate value of these grants depends upon the price of
CSX stock and, consequently, the creation of shareholder value.
An April 1997 grant of stock options was made on the basis of historic grant
levels and the Company's stock price. These options vest within one year but may
only be exercised prior to the ninth anniversary of the grant if the stock price
reaches certain threshold levels established at the time of the option grant.
The Compensation Committee approved two additional grants of stock options
during 1997 to certain senior executives who are considered to play a critical
role in achieving a successful integration of operations between CSX and
Conrail, should the Surface Transportation Board approve the transaction.
The first of such grants, which was also made in April, becomes exercisable
prior to the fifth anniversary of the grant only if the stock price reaches a
certain level established at the time of the option grant. In September, another
grant was made for the reasons described above and also to serve as a vehicle
for retaining the services of selected senior executives for the next four
years, which is viewed as a highly critical transition period. During the first
five years of the term of this option grant, the options vest at the later of
(a) the achievement of certain stock price hurdles established at the time of
the option grant or (b) the fourth anniversary of the grant. If these price
hurdles have not been met by the fifth anniversary date, the hurdles are
increased and the granted options, as amended, vest upon attainment of these
increased hurdles or upon the ninth anniversary of the grant date. In exchange
for the September grant, the recipients agreed to forego grants for the next
three years unless the Company sees the need for an interim grant and seeks
approval from the Board of Directors.
The Committee also approved awards of performance shares for the 1995-1997
performance period. Grants of performance shares are established at the
beginning of each three-year cycle after considering historic grant levels,
competitive practice, stock price and corporate and business unit financial
objectives. The actual award made at the conclusion of each three-year cycle
depends upon corporate and business unit financial performance determined by the
average ROIC during the cycle. For the 1995-1997 performance cycle, the Company
and its major business units achieved the targeted ROIC levels which permitted
payment of 100 percent of the performance shares granted for the cycle.
19
Tax Considerations
Present tax law limits the Company's deduction to $1 million each for
compensation paid to the Chief Executive Officer and the other four most highly
compensated executives unless compensation is awarded under plans meeting
certain requirements to qualify as performance based. The Company's compensation
program for senior executives has both objective and discretionary elements.
Generally, the Committee wishes to maximize deductibility of compensation
elements and has structured the major compensation elements to achieve
deductibility. The Committee does, however, believe in retaining flexibility to
recognize evolving business needs and an executive officer's contribution beyond
the deductibility limits if this serves the best interests of the Company and
its shareholders.
1997 Compensation for the Chief Executive Officer
For 1997, the Company's most highly compensated executive was Mr. Snow, the
Chairman, President, and Chief Executive Officer. The Committee has an
established objective to pay base salaries at the 50th percentile of the
comparison companies, and Mr. Snow's base salary was reviewed against reported
base salary information for the chief executive officers of the comparison
companies. For 1997, Mr. Snow's base salary remained at $1,000,000.
The portion of Mr. Snow's 1997 annual bonus representing financial
performance, which was paid under the shareholder approved SMICP, was calculated
according to a formula that compares the Company's financial performance against
pre-established targets for ROIC as a percentage of its COC. During 1997, CSX
achieved a ROIC of 12.5 percent, substantially in excess of the Company's COC
and representing an increase over prior years' accomplishments. Under the SMICP,
the Committee can establish an award up to but not in excess of the award
determined using the formula.
In determining the final amount of Mr. Snow's bonus, the Committee
considered the Company's financial achievements such as free cash flow, control
of capital expenditures, and total shareholder return. It specifically noted Mr.
Snow's success in improving rail operating results while facing the immense
challenges of the Conrail transaction. The Committee also noted the continued
focus on financial discipline and cost-management in the face of rate and
competitive challenges experienced at the other business units.
The Committee also considered the success of Mr. Snow's long-term strategic
efforts on behalf of the Company, especially his conclusion of an historic
agreement with Norfolk Southern to acquire jointly Conrail Inc. and to allocate
the assets. Through that agreement, he significantly enhanced the Company's
prospects for growth and profitability. He also oversaw the completion of major
steps toward implementing a long-term strategy to address legal and regulatory
challenges related to the transaction, to integrate Conrail operations without
compromising safety or customer service, and to build depth in management
talent. All this was achieved while the Company continued to be responsive to
its existing customer base, employees, and communities.
Having reviewed the maximum award payable utilizing the formula under the
SMICP and Mr. Snow's financial and strategic leadership initiatives, the
Committee established an award of $1,288,000 to be paid under the SMICP for
1997. In addition, the Committee awarded $212,000 to Mr. Snow for his strategic
leadership and to recognize the Company's financial success during a critical
transition period.
Under a deferral program available to executives of the Company, Mr. Snow
elected to receive 100 percent of this bonus in stock and deferred receipt of
this income for the period he remains employed by the Company. By deferring his
bonus into stock, Mr. Snow received additional stock valued at 25 percent of the
deferred amount. This deferral program is available to the other four most
highly compensated executives participating in the Senior Management Incentive
Compensation Plan.
The largest portion of Mr. Snow's 1997 compensation was in the form of
long-term incentives, including grants of stock options and an award of
performance shares for the 1995-1997 performance cycle. Stock options and
performance shares are granted under the shareholder-approved 1987 Plan, with
the objective of positioning total compensation at approximately the 85th
percentile of the comparison companies. The actual long-term value of these
grants depends upon the creation of shareholder value through stock price
appreciation.
20
During 1997, Mr. Snow received two stock option grants. The first grant for
152,400 options was made in April 1997. In September, a grant of 700,000 options
was made to replace any potential grants during 1998, 1999, and 2000, again for
the purpose of retaining Mr. Snow's efforts on behalf of CSX shareholders over
the next four years--a transition period that industry experience has shown to
be vital.
The Committee approved payment of an award to Mr. Snow of 34,000 performance
shares, for performance during the 1995-1997 performance cycle, in recognition
of the Company's achievement against its ROIC targets during that cycle. This
represents 100 percent of the performance shares originally granted. In
addition, it granted 40,000 performance shares for the 1998-2000 performance
cycle prior to the beginning of the cycle. As with the 1997-1999 period, the
Company continues to face increased pressures to conserve cash and capital as a
result of the proposed transaction with Conrail Inc. Therefore, the Committee
established ROIC compared to the Company's COC as the measurement to determine
the subsequent award of these performance shares. Mr. Snow's receipt of such
shares ultimately will depend upon this financial performance. It is crucial
that the Company successfully and safely integrate Conrail operations,
accomplish its growth strategy, and deliver in a timely and efficient manner the
goods for customers utilizing all of the Company's transportation modes.
During 1997, Mr. Snow demonstrated outstanding leadership from both a
current financial and future strategic perspective. Under his leadership, the
Company had a strong financial year despite expenses incurred in the Conrail
transaction and economic challenges encountered by some of the Company's
business units. In addition, the Committee recognizes and appreciates Mr. Snow's
service as Chairman of the Association of American Railroads and the leadership
he provided for the Business Roundtable and the Business Council. The Committee
believes Mr. Snow's involvement has contributed to the development of balanced
governmental policies for business and has enhanced the reputation of CSX as a
leading U.S. company.
For the reasons outlined in this report, the Committee feels Mr. Snow's
accomplishments have been appropriately recognized through the compensation paid
to him in 1997.
Compensation Committee
Robert D. Kunisch, Chairman
John R. Hall
Charles E. Rice
William C. Richardson
Frank S. Royal,
the entire Committee
Richmond, Virginia
February 10, 1998
21
Comparison of Five-Year Cumulative Total Return*
CSX Corporation, S&P 500, Dow Jones Transportation Average
[GRAPH]
12/92 12/93 12/94 12/95 12/96 12/97
----- ----- ----- ----- ----- -----
CSX Corporation 100 122 106 142 134 175
S&P 500 100 110 112 153 189 252
Dow Jones
Transportation Average 100 123 103 144 165 244
* $100 Invested on December 31, 1992 in stock or index--including reinvestment
of dividends. The graph depicts prices for years ending December 31 for CSX
Corporation, rather than the Company's fiscal year-end, in order to be
consistent with the S&P 500 and Dow Jones Transportation Average year-end
valuations.
Source: Research Data Group, Inc.
2. APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As recommended by the Audit Committee, the Board of Directors designated,
subject to ratification by the shareholders, the firm of Ernst & Young LLP as
independent auditors to audit and report on CSX's financial statements for the
fiscal year 1998. Action by shareholders is not required by law in the
appointment of independent auditors, but their appointment is submitted by the
Board in order to give shareholders the final choice in the designation of
independent auditors.
Ernst & Young LLP has no direct or indirect financial interest in CSX or in
any of its subsidiaries, nor has it had any connection with CSX or any of its
subsidiaries in the capacity of promoter, underwriter, voting trustee, director,
officer or employee. Representatives of Ernst & Young LLP will be present at the
meeting of shareholders and will be afforded an opportunity to make a statement
if they desire to do so. It also is expected they will be available to respond
to appropriate questions.
The Board of Directors recommends a vote FOR this proposal.
22
3. AMENDMENT OF THE 1987 LONG-TERM PERFORMANCE STOCK PLAN
The Board of Directors proposes to amend the 1987 Long-Term Performance
Stock Plan (the "1987 Plan") (a) to add an additional 5.0 million shares to be
used for long-term incentive awards, of which not more than 1.5 million can be
used in the aggregate for Performance Shares, Performance Units, Restricted
Stock, and Incentive Compensation Program Shares, all as defined in the 1987
Plan, and (b) to extend the expiration date of the 1987 Plan from May 2, 1999,
to April 27, 2000.
The 1987 Plan is a shareholder-approved plan. It authorizes the Board of
Directors to award stock options, Performance Shares, and other stock-based
incentive compensation to the Company's managers. Awards under the 1987 Plan
have been made to approximately 400 active employees of the Company and its
subsidiaries. Approximately 45,000 shares remain available for future grants.
Addition of the shares as described above and extension of the expiration date
will provide sufficient shares for incentive awards over approximately a
two-year period.
The 1987 Plan provides a vitally important tool for creating long-term
management incentives by aligning managers' personal financial situations with
those of other shareholders. The full value of incentives granted under the 1987
Plan can only be realized through stock price appreciation. Thus, managers'
personal financial rewards are tied directly to increases in stock price and
shareholder returns. The awards under the 1987 Plan provide a strong spur for
long-term performance results.
In addition, the Company is currently preparing for the integration,
following transaction approval by the federal Surface Transportation Board, of
lines of rail and other facilities from Conrail Inc. The need to attract or
retain experienced managers and to provide incentives to effect the merger
successfully is paramount. The Board of Directors believes that additional
shares are required under the 1987 Plan to insure the availability of adequate
incentive awards both for current senior managers and for additional managers
who will be hired as a result of the Conrail Inc. integration.
The Board of Directors recommends a vote FOR this proposal.
4. SHAREHOLDER PROPOSAL REGARDING SHAREHOLDER APPROVAL OF SHAREHOLDER RIGHTS
PLAN
Mr. Dewey B. Garland, 1834 Thompson Station Road West, Thompson Station, TN
37179, owner of 647 shares of common stock, has informed the Company that he
intends to present the following proposal at the Annual Meeting of Shareholders:
"BE IT RESOLVED: That the shareholders of the CSX Corporation request the
Board of Directors to redeem the shareholder rights previously issued pursuant
to the "Shareholder Rights Plan" unless such issuance is approved by the
affirmative vote of shareholders, to be held as soon as practicable.
23
SUPPORTING STATEMENT
"We strongly believe that the Company's financial performance is closely
linked to its corporate governance procedures and practices, and the level of
management accountability they impose. This is why for a second consecutive year
this proposal has been submitted for our Company's Annual Meeting of
Shareholders. At the April 17, 1997, Annual Meeting, this proposal received more
than 105 million votes for its passage, opposed to only 53 million votes
against. Nonetheless, the Company decided to ignore the wishes of the
shareholders and did not act on the vote. Therefore, we feel it is imperative
that the proposal be submitted once more.
"We think the Company already has a variety of measures in place that
protect the incumbency of sitting directors and senior executives, thus reducing
their accountability to shareholders. Those measures include the Shareholder
Rights Plan, commonly referred to as a `poison pill,' which is an anti-takeover
device frequently adopted by corporate boards of directors to prevent
shareholders from acting directly on offers for their shares. Poison pills are
designed to severely dilute the ownership interests of shareholders whom
management deems to be `unfriendly.' This threat of dilution forces investors to
negotiate potential acquisitions with management, instead of making their offer
directly to shareholders.
"A poison pill discourages potential acquirers from making offers to
purchase a controlling interest of the Company, thereby denying shareholders the
opportunity to evaluate the merits of a bid for their shares independent of
management. Poison pills can pose such an obstacle to a takeover that management
becomes entrenched. We believe that the entrenchment of management, and the lack
of accountability that results, can adversely affect shareholder value.
Therefore, as shareholders concerned about the value of our investment, we are
very disturbed by the Company's adoption of a Shareholder Rights Plan without
the approval of a majority of the shareholders.
"We strongly believe that it is the shareholders (who are the owners of the
Company), not the directors and managers, who should have the right to decide
what is or is not a fair price for their shareholdings. The Company's Board
unilaterally adopted a poison pill in June 1988 which transferred this decision
from the owners of the Company to the agents of the owners. In order to restore
management accountability to the shareholders, we believe the Shareholder Rights
Plan should either be redeemed or voted on by the shareholders as soon as
possible.
"Again, this proposal would not have had to be submitted for a second time
had the Company not ignored the 105 million shares which voted FOR this proposal
in 1997. We truly hope the Company abides by the shareholders' decision in
1998."
"We urge you to VOTE FOR this proposal."
MANAGEMENT RESPONSE
The Company adopted a Shareholder Rights Plan ("Rights Plan") in 1988 and
amended the Rights Plan in 1990. The Board of Directors believed in adopting the
Rights Plan and continues to believe that the Rights Plan would provide an
important tool to enable the Board to maximize shareholder value in the event of
an acquisition of control of the Company. The 1988 Rights Plan expires later in
1998, and it is the Board's intention to consider, in consultation with its
advisors, adoption of a new successor rights plan to take effect upon such
expiration.
Rights plans give corporations and their shareholders more time to make
decisions respecting a sale of control and more power to negotiate effectively
on behalf of shareholders. Thus, a rights plan strengthens the ability of the
Company's directors to fulfill their duties under Virginia law. Further, a
rights plan deters coercive takeover tactics and self-dealing transactions that
may not be in the best interests of a company and its shareholders. A rights
plan is not intended to, and will not, interfere with negotiated transactions,
nor preclude unsolicited takeovers.
24
Since the introduction of rights plans in 1984, economists and market
analysts have debated the economic impact of rights plans on the market price of
a company's stock, as well as on takeovers and takeover premiums. A 1994 study
by University of Rochester economists Robert Comment and G. William Schwert
replicated the analysis of an earlier SEC study using a database that was four
times the size of the database of the 1986 SEC study and concluded that
adoptions of rights plans have no meaningful price effect on adopting companies.
Significantly, they found that rights plans "are reliably associated with higher
premiums for selling shareholders, both unconditionally and conditional on a
successful takeover... Antitakeover measures increase the bargaining position of
target firms..." In addition, a 1997 study prepared by Jamil Aboumeri of the
Georgeson and Company Research Department determined that companies with poison
pills received $13 billion in additional takeover premiums during the period
from 1992-1996, and shareholders of companies without pills may have given up
$14.5 billion in value. Virtually every major investment banking firm that has
studied the subject has concluded that adoption of a rights plan has no effect
on the stock prices of companies that are not the subject of takeover
speculation. Thus, the evidence suggests that rights plans serve their principal
objectives--protection against inadequate offers and abusive tactics and
increased bargaining power resulting in higher value for shareholders.
For the foregoing reasons the Board recommends that shareholders vote
AGAINST Proposal No. 4.
The Board of Directors recommends a vote AGAINST this proposal.
ADDITIONAL INFORMATION
New Plan Benefits
Awards During 1997 Under 1987 Plan
--------------------------------------------------------------------------------------------
Incentive Compensation
Stock Options Performance Shares Program Shares
---------------- ---------------------- Grant Date Value
Name # $(Note 1) # (Note 2) $(Note 3) #(Note 4)
- ---------------------------------------------------------------------------------------------------------------------------
John W. Snow 852,400 $16,538,288 40,000 $1,969,875 31,653
Alvin R. Carpenter 450,000 8,688,500 20,000 753,188 16,238
Gerald L. Nichols 60,000 1,057,200 10,000 666,281 0
Paul R. Goodwin 178,000 3,461,860 13,000 579,375 0
John P. Clancey 36,000 634,320 15,000 695,250 5,801
Executive Officers as a
group (21 persons, including
those named above) 2,616,400 50,158,868 (Note 5) 9,742,192 79,208
Non-executive officer
employee group 1,565,120 27,761,864 (Note 5) 16,135,246 97,714
- ---------------------------------------------------------------------------------------------------------------------------
Notes to New Plan Benefits Table
- ----------------------------------
Note 1 This is a hypothetical valuation using a modified Black-Scholes
valuation formula. See Notes 3 through 5 to the Option/SAR Grants table
on page 15 for a detailed description of these awards.
Note 2 Represents the number of performance shares granted on December 9,
1997 for the 1998-2000 performance period. See Note 1 to the Long-Term
Incentive Plan table on page 16 for a detailed description of these
awards.
Note 3 Represents the fair market value of $57.9375 per share of performance
shares awarded on February 11, 1998, for the 1995-1997 performance
period.
Note 4 Represents the number of shares awarded under the 1987 Plan for
eligible employees who made an election to defer all or a portion of
their ICP awards for 1997 in Company stock based on a fair market value
of $57.9375 per share on February 11, 1998, the date that the ICP awards
were approved by the Board of Directors.
Note 5 In December 1997, 160,600 performance shares were granted pursuant to
the 1987 Plan to twelve executive officers for the 1998-2000 performance
period. Performance shares that may be payable to other officers for the
1998-2000 performance period have not yet been reserved.
25
Voting Procedures
Votes are tabulated by three Inspectors of Election. The affirmative vote of
the majority of shares represented at the meeting and entitled to vote therein
will be required for adoption of the amendment of the 1987 Long-Term Performance
Stock Plan. For these purposes, abstentions will be treated as "no" votes, and
broker "non-votes" will not be counted.
The Company's by-laws provide that a majority of the outstanding shares of
stock entitled to vote constitute a quorum at any meeting of shareholders. In
accordance with the law of Virginia, the Company's state of incorporation, and
the Company's by-laws, directors are elected by a plurality of votes cast by the
shares entitled to vote at a meeting at which a quorum is present. For all other
proposals, abstentions and broker "non-votes" are not considered to be voting
"for" or "against" any proposal or any person nominated for director.
Date for Receipt of Shareholder Proposals
Shareholder proposals for inclusion in the Proxy Statement for the 1999
Annual Meeting of Shareholders must be received at the principal executive
offices of CSX on or before November 17, 1998.
Solicitation of Proxies
The cost of soliciting proxies is being paid by CSX. In addition to
solicitation by mail, officers and regular employees of CSX, for no additional
compensation, may request the return of proxies by personal conversations or by
telephone or telecopy. It also is expected that, for a fee of $15,000 plus
reimbursement of certain out-of-pocket expenses, additional solicitation will be
made by personal interview, telephone or telecopy under the direction of the
proxy solicitation firm of MacKenzie Partners, Inc., 156 Fifth Avenue, New York,
New York 10010.
March 17, 1998.
By Order of the Board of Directors
Alan A. Rudnick
Vice President-General Counsel and Corporate Secretary
26
PROXY
CSX CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING ON APRIL 28, 1998.
The undersigned hereby appoints John W. Snow, Mark G. Aron, and Alan A.
Rudnick, or any one of them, with the power of substitution in each, or the
designated Trustee of any applicable employee benefit plan, proxies to vote all
stock of the undersigned on the following proposals and, in their discretion,
upon such other matters as may properly come before the Annual Meeting of
Shareholders to be held at The Greenbrier, White Sulphur Springs, WV, on April
28, 1998, and at all adjournments thereof.
PLEASE SIGN AND DATE ON THE REVERSE AND RETURN PROMPTLY IN THE ENCLOSED POSTAGE
PAID ENVELOPE.
(continued and to be signed on reverse side.)
CSX CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
[ ]
The Board of Directors of CSX Corporation recommends a vote FOR Items 1, 2, and
3, and AGAINST Item 4. Shares will be so voted unless you otherwise indicate.
1. Election of Directors For All
Nominees: E.E. Bailey; R.L. Burrus, Jr.; For Withheld Except
B.C. Gottwald; J.R. Hall; R.D. Kunisch; [ ] [ ] [ ]
J. W. McGlothlin; S.J. Morcott; C.E. Rice;
W.C. Richardson; F.S. Royal, M.D.; J.W. Snow.
To withhold authority to vote for any individual
nominee(s), write the name(s) on the line below.
____________________________________
Nominee Exception
2. Appointment of Ernst & Young LLP as For Against Abstain
independent certified public accountants; [ ] [ ] [ ]
3. Approval of Amendment to the For Against Abstain
1987 Long-Term Performance Stock Plan; [ ] [ ] [ ]
4. Shareholder proposal concerning For Against Abstain
Shareholder Rights Plan. [ ] [ ] [ ]
Date:_________________________________
Please Sign:__________________________
Please Sign:__________________________
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME APPEARS
ON THIS CARD. JOINT OWNERS SHOULD EACH SIGN
PERSONALLY. CORPORATION PROXIES SHOULD BE
SIGNED BY AN AUTHORIZED OFFICER. EXECUTORS,
ADMINISTRATORS, TRUSTEES, ETC., SHOULD SO
INDICATE.
DETACH PROXY CARD HERE
To Our Shareholders:
Whether or not you are able to attend the Annual Meeting of
shareholders, it is important that your shares be represented,
no matter how many shares you own. Accordingly, please
complete and sign the proxy printed above, tear at the
perforation, and mail the above proxy in the enclosed postage
paid envelope addressed to CSX in Rockford, Illinois.
If you are planning to attend the Annual Meeting and Luncheon,
please fill out and return the reservation form addressed to
Office of Corporate Secretary at CSX Corporation. When folded
and sealed as directed, no separate mailing envelope is
required. Your ticket(s) to the Annual Meeting and Luncheon
will be mailed directly to you.
If you are planning to stay at The Greenbrier, you will need
to make your reservations directly with The Greenbrier.
Shareholder House party information and rates are included on
the brochure enclosed herein.
Please note that in order to reduce the number of duplicative
mailings of proxy materials, CSX has consolidated on a single
proxy or voting instruction card all of your holdings in CSX
common stock registered in the identically registered name and
tax identification number, including ownership that may be
attributed to you through various employee benefit plans.