<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8159
BURLINGTON NORTHERN INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1400580
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3800 Continental Plaza, 777 Main St.
Fort Worth, Texas 76102-5384
(Address of principal executive offices) (Zip Code)
(817) 333-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding
----- -----------
Common stock, without par value
as of June 30, 1994 89,215,188 shares
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
----
Item 1. Financial Statements . . . . . . . . . . . . . . . . . 1
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . 5
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 18
(i)
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Millions, Except Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues.............................. $1,192 $1,142 $2,402 $2,312
Costs and expenses:
Compensation and benefits........... 426 416 873 857
Fuel................................ 89 89 172 177
Materials........................... 70 74 155 154
Equipment rents..................... 111 96 217 188
Purchased services.................. 115 117 232 222
Depreciation........................ 89 86 176 172
Other............................... 114 116 217 226
------ ------ ------ ------
Total costs and expenses.......... 1,014 994 2,042 1,996
------ ------ ------ ------
Operating income...................... 178 148 360 316
Interest expense...................... 39 36 78 69
Other income (expense), net........... (5) 3 (6) -
------ ------ ------ ------
Income before income taxes and
cumulative effect of change in
accounting method................... 134 115 276 247
Income tax expense.................... 52 43 107 93
------ ------ ------ ------
Income before cumulative effect of
change in accounting method......... 82 72 169 154
Cumulative effect of change in
accounting method, net of tax....... - - (10) -
------ ------ ------ ------
Net income............................ $ 82 $ 72 $ 159 $ 154
====== ====== ====== ======
Earnings (loss) per common share:
Income before cumulative effect of
change in accounting method....... $ .85 $ .74 $ 1.75 $ 1.60
Cumulative effect of change in
accounting method................. - - (.11) -
------ ------ ------ ------
Earnings per common share............. $ .85 $ .74 $ 1.64 $ 1.60
====== ====== ====== ======
Number of shares used in computation
of earnings (loss) per common share
(in thousands)...................... 90,244 89,709 90,286 89,439
Dividends declared per common share... $ .30 $ .30 $ .60 $ .60
</TABLE>
See accompanying notes to consolidated financial statements.
-1-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Millions)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1994 1993
------ ------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................. $ 18 $ 17
Accounts receivable, net................... 569 589
Materials and supplies..................... 117 91
Current portion of deferred income taxes... 170 167
Other current assets....................... 162 27
------ ------
Total current assets..................... 1,036 891
Property and equipment, net.................. 6,074 5,909
Other assets................................. 284 245
------ ------
Total assets............................. $7,394 $7,045
====== ======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable........................... $ 509 $ 492
Casualty and environmental reserves........ 274 286
Compensation and benefits payable.......... 254 271
Taxes payable.............................. 138 123
Accrued interest........................... 46 44
Other current liabilities.................. 79 102
Current portion of long-term debt.......... 36 185
Commercial paper........................... 204 26
------ ------
Total current liabilities................ 1,540 1,529
Long-term debt............................... 1,694 1,526
Deferred income taxes........................ 1,388 1,342
Casualty and environmental reserves.......... 410 426
Other liabilities............................ 332 303
------ ------
Total liabilities........................ 5,364 5,126
------ ------
Stockholders' equity:
Convertible preferred stock, no par value,
$345 liquidation value; 25,000,000 shares
authorized; 6,900,000 shares issued...... 337 337
Common stock, without par value, at stated
value, 300,000,000 shares authorized;
89,311,412 shares and 88,881,675 shares
issued, respectively..................... 1 1
Additional paid-in capital................. 1,442 1,420
Retained earnings.......................... 293 198
Treasury stock, at cost, 96,224 shares and
85,536 shares, respectively.............. (5) (4)
Other...................................... (38) (33)
------ ------
Total stockholders' equity............... 2,030 1,919
------ ------
Total liabilities and stockholders'
equity................................. $7,394 $7,045
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Millions)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1994 1993
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 159 $ 154
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of change in accounting
method...................................... 10 -
Depreciation.................................. 176 172
Deferred income taxes......................... 50 43
Changes in current assets and liabilities:
Accounts receivable, net.................... 20 15
Materials and supplies...................... (27) 1
Other current assets........................ (135) (26)
Accounts payable............................ 17 (13)
Casualty and environmental reserves......... (12) 17
Compensation and benefits payable........... (15) (27)
Taxes payable............................... 17 16
Accrued interest............................ 2 4
Other current liabilities................... (23) (23)
Changes in long-term casualty and
environmental reserves...................... (16) (25)
Other, net.................................... (23) (29)
------ ------
Net cash provided by operating activities........... 200 279
------ ------
Cash flows from investing activities:
Additions to property and equipment............... (294) (283)
Proceeds from property and equipment dispositions 22 15
Other, net........................................ (13) (16)
------ ------
Net cash used in investing activities............... (285) (284)
------ ------
Cash flows from financing activities:
Net increase in commercial paper.................. 178 98
Proceeds from issuance of long-term debt.......... 149 -
Payments on long-term debt........................ (181) (72)
Dividends paid.................................... (64) (62)
Proceeds from exercise of common stock options.... 5 9
Other, net........................................ (1) -
------ ------
Net cash provided by (used in) financing activities. 86 (27)
------ ------
Increase (decrease) in cash and cash equivalents.... 1 (32)
Cash and cash equivalents:
Beginning of period............................... 17 57
------ ------
End of period..................................... $ 18 $ 25
====== ======
Supplemental cash flow information:
Interest paid, net of amounts capitalized......... $ 74 $ 70
Income taxes paid, net of refunds................. 39 46
Supplemental noncash investing and financing
activities information:
Assets financed through a capital lease obligation $ 50 $ -
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Accounting policies
The 1993 Annual Report on Form 10-K for Burlington Northern Inc. (BNI) and
its majority-owned subsidiaries (collectively BN) includes a summary of
significant accounting policies and should be read in conjunction with
this Form 10-Q. The principal subsidiary is Burlington Northern Railroad
Company (Railroad). The statements for the periods presented are
condensed and do not contain all information required by generally
accepted accounting principles to be included in a full set of financial
statements. In the opinion of management, all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly BN's
financial position as of June 30, 1994 and December 31, 1993 and the
results of operations for the three-month and six-month periods ended June
30, 1994 and 1993 and cash flows for the six-month periods ended June 30,
1994 and 1993 have been included. The results of operations for any
interim period are not necessarily indicative of the results of operations
to be expected for the entire year.
2. Other income (expense), net
Other income (expense), net includes the following (in millions):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1994 1993 1994 1993
------ ------ ------- ------
<S> <C> <C> <C> <C>
Gain (loss) on property dispositions $ (1) $ 4 $ 1 $ 4
Loss on sale of receivables......... (2) (2) (4) (5)
Interest income..................... - - 1 1
Miscellaneous, net.................. (2) 1 (4) -
------ ------ ------- ------
Total............................... $ (5) $ 3 $ (6) $ -
====== ====== ======= ======
</TABLE>
3. Accounting change
Effective January 1, 1994, BN adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits."
The cumulative effect, net of $7 million income tax benefit, of this
change in accounting attributable to years prior to 1994, at the time of
adoption, was to decrease 1994 income by $10 million, or $.11 per common
share.
-4-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's discussion and analysis relates to the financial condition and
results of operations of Burlington Northern Inc. (BNI) and its majority-owned
subsidiaries (collectively BN). The principal subsidiary is Burlington
Northern Railroad Company (Railroad).
Capital Resources and Liquidity
- - -------------------------------
Cash from operations and other resources
Cash generated from operations is BN's primary source of liquidity and is
primarily used for dividends and capital expenditures. For the first six
months of 1994, cash provided by operating activities decreased $79 million
when compared with the first six months of 1993. This decrease was primarily
attributable to a $97 million increase in the purchase of assets held in
"Other current assets" pending final financing arrangements and an increase of
$14 million in incentive compensation paid. These items were partially offset
by a $42 million decrease in labor-related payments and a $14 million decline
in the level of accounts receivables sold during the six months ended June 30,
1993. While current year cash from operations was sufficient to fund
dividends, it was not sufficient to completely fund capital expenditures;
therefore, the balance was financed with debt. Available sources for
financing needs are discussed below.
In 1993, BN entered into an agreement to acquire 350 new-technology
alternating current traction motor locomotives. To date, BN has accepted
delivery of 63 locomotives and anticipates additional deliveries of
approximately 45 units in 1994 as well as deliveries of between approximately
60 and 100 units each year from 1995 through 1997. Future cash from
operations during this strategic investment period may not, at times, be
sufficient to completely fund dividends as well as capital expenditures and
strategic investments. Therefore, these requirements will likely be financed
using a combination of sources including, but not limited to, cash from
operations, operating leases, debt issuances and other miscellaneous sources.
Each financing decision will be based upon the most appropriate alternative
available.
In May 1994, BNI issued $150 million of 7.4 percent notes due May 15, 1999 and
used the proceeds to retire $150 million aggregate principal amount of
Railroad Consolidated Mortgage Bonds, 8 7/8 percent, Series I, due May 30,
1994. The 7.4 percent notes were the initial offering under an effective
registration statement on Form S-3 covering the issuance, from time to time,
of up to $500 million aggregate principal amount of debt securities. This
issuance reduced the amount available for future issuance to $350 million.
Railroad maintains an effective program for the issuance, from time to time,
of commercial paper. These borrowings are supported by Railroad's bank credit
agreements. Outstanding commercial paper balances are considered as reducing
available borrowings under these agreements. The bank credit agreements allow
borrowings of up to $300 million on a short-term basis and $500 million on a
long-term basis. Annual facility fees are 0.125 and 0.1875 percent,
respectively. At Railroad's option, borrowing rates are based on prime,
certificate of deposit or London Interbank Offered rates. The agreements are
-5-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
currently scheduled to expire on May 5, 1995 and May 6, 1999, respectively.
The maturity value of commercial paper outstanding at June 30, 1994 was $205
million, leaving a total of $95 million of the short-term credit agreement
available and $500 million of the long-term credit agreement available. The
maturity value of commercial paper outstanding at December 31, 1993 was $27
million.
Railroad has an agreement to sell, on a revolving basis, an undivided
percentage ownership interest in a designated pool of accounts receivable with
limited recourse. As of June 30, 1994, the agreement allowed for the sale of
accounts receivable up to a maximum of $175 million. The agreement expires
not later than December 1994. At both June 30, 1994 and December 31, 1993,
accounts receivable were net of $100 million representing receivables sold.
Capital expenditures and resources
A breakdown of capital expenditures is set forth in the following table (in
millions):
<TABLE>
<CAPTION>
Six months ended June 30, 1994 1993
- - --------------------------------------------------------------------------
<S> <C> <C>
Road, roadway structures and real estate.......... $228 $200
Equipment......................................... 116 83
---- ----
Total............................................. $344 $283
==== ====
</TABLE>
During the current year BN will continue to reinvest in its business through
capital expenditures. Capital spending should remain at a level comparable to
1993. The above capital expenditures for equipment includes $50 million of
equipment acquired using a capital lease arrangement. As discussed in "Cash
from operations and other resources," BN has a commitment to acquire 350
new-technology alternating current traction motor locomotives through 1997.
Also, BN will continue its implementation of several strategic initiatives for
transportation network management using information systems technology which
will require additional capital expenditures.
In addition to capital expenditures, BN continues to utilize operating leases
to fulfill certain equipment requirements. BN had $111 million of equipment
held in "Other current assets" at June 30, 1994 pending final financing
arrangements which may include a sale and lease-back. Also, depending upon
current market conditions and other factors, a portion of the locomotives
discussed above may be obtained through operating leases rather than
purchases. In the first six months of 1994, BN renewed leases primarily for
locomotives and covered hoppers, while in the first six months of 1993,
renewals were primarily for containers and locomotives.
Dividends
Common stock dividends declared for the first six months of 1994 and 1993 were
$.60 per common share. Dividends paid on common and preferred stock were $64
million compared with $62 million during the prior year. BNI expects to
continue its current policy of paying regular quarterly dividends on its
common and preferred stock; however, dividends are declared by the Board of
Directors based on profitability, capital expenditure requirements, debt
service and other factors.
-6-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Capital structure
BN's ratio of total debt to total capital was 49 percent at June 30, 1994
compared to 48 percent at December 31, 1993.
Results of Operations
- - --------------------
Three months ended June 30, 1994 compared with three months ended June 30, 1993
BN recorded net income of $82 million, or $.85 per common share, on 90.2
million shares for the second quarter of 1994 compared with net income of $72
million, or $.74 per common share, on 89.7 million shares for the same period
in 1993.
Revenues
The following table presents BN's revenue information by Railroad business
unit:
<TABLE>
<CAPTION>
Revenues Per
Revenues Revenue Ton Miles Revenue Ton Mile
--------------- ----------------- -----------------
Three months ended June 30, 1994 1993 1994 1993 1994 1993
- - -------------------------------------------------------------------------------------------------
(In Millions) (In Millions) (In Cents)
<S> <C> <C> <C> <C> <C> <C>
Coal.............................. $ 417 $ 373 35,030 29,950 1.19 1.25
Agricultural Commodities.......... 158 163 6,332 7,094 2.50 2.30
Intermodal........................ 172 181 5,784 5,813 2.97 3.11
Forest Products................... 126 119 5,310 4,788 2.37 2.49
Chemicals......................... 107 106 3,824 3,799 2.80 2.79
Consumer Products................. 64 61 2,231 2,105 2.87 2.90
Minerals Processors............... 52 50 2,067 2,023 2.52 2.47
Iron & Steel...................... 44 45 2,009 2,123 2.19 2.12
Vehicles & Machinery.............. 50 49 665 651 7.52 7.53
Aluminum, Nonferrous Metals & Ores 25 26 942 1,032 2.65 2.52
Shortlines and other.............. (23) (31) (2,054) (2,404) - -
------ ------ ------ ------
Total............................. $1,192 $1,142 62,140 56,974 1.92 2.00
====== ====== ====== ======
</TABLE>
Total revenues for the second quarter of 1994 were $1,192 million compared
with revenues of $1,142 million for the same period in 1993, an improvement of
$50 million. This increase was primarily due to improved Coal revenues.
Coal revenues for the second quarter of 1994 improved $44 million compared
with the same period in 1993. This increase was primarily caused by a rise in
the demand for electricity as well as the need for utilities to replenish coal
stockpiles which were partially depleted during the 1993 summer flooding.
Partially offsetting the 17 percent increase in traffic was a decline in
revenues per revenue ton mile. Lower yields resulted from continuing
competitive pricing pressures in contract renegotiations and declining cost
indices.
Revenues from the transportation of Agricultural Commodities during the second
quarter of 1994 were $5 million less than the second quarter of 1993. This
-7-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
decrease was principally caused by a $12 million decline in corn revenues.
This volume related decline was largely attributable to reduced crop
production and lower export demand. Partially offsetting the decline in corn
revenues was an improvement in barley revenues. This improvement resulted
from strong domestic demand caused by favorable market conditions during the
second quarter of 1994. The impact of an overall volume decline was reduced
by an increase in yield which is a product of traffic mix, price and length of
haul.
Intermodal revenues for the second quarter of 1994 were $9 million less than
the second quarter of 1993. This decrease reflects BN's decision to close two
intermodal hub centers in Texas. BN has estimated lost revenues in excess of
$25 million during the second quarter of 1994 relating to the closure of these
hubs. Withdrawal from the Texas market, however, has helped improve operating
performance in BN's key intermodal lanes, boosting revenues from existing
customers and offsetting a portion of the lost revenues. Also offsetting lost
revenues was an increase in international-intermodal traffic which benefited
from escalated demand from a few of BN's large customers.
Forest Products revenues for the current quarter improved by $7 million when
compared with the same period in 1993. This improvement was due to an $8
million increase in lumber revenues caused by an increase in housing starts
during the current year.
Second quarter revenues for Chemicals, Consumer Products, Minerals Processors,
Iron & Steel, Vehicles & Machinery and Aluminum, Nonferrous Metals & Ores were
relatively flat when compared with the second quarter of 1993.
Second quarter revenues also benefited from an $8 million reduction in
Shortlines and other. This reduction was primarily due to additional haulage
agreement revenues of $5 million.
Expenses
Total operating expenses for the second quarter of 1994 were $1,014 million
compared with expenses of $994 million for the same period in 1993. The
operating ratio was 85 percent, an improvement of 2 percentage points compared
with the second quarter of 1993.
Compensation and benefits expenses were $10 million greater compared with the
second quarter of 1993. Higher traffic volumes during 1994 and the three
percent basic wage increase for union represented employees, effective July
1993, caused an increase in excess of $9 million to wages and related payroll
taxes. Increases in salaries and pension expense, due to a reduction in the
discount rate used in determining the projected benefit obligation, also
contributed to higher compensation and benefits expenses. These increases
were partially offset by a decrease of $7 million caused by reduced crew sizes
in the Northern tier, decreases for cost of living allowances and decreases in
railroad unemployment and annuity taxes.
Fuel expenses for the quarter were flat compared with 1993. The average price
paid for diesel fuel decreased to 57.6 cents per gallon in the second quarter
of 1994 from 63.0 cents per gallon in the second quarter of 1993 despite the
-8-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
4.3 cents per gallon increase in the federal fuel tax, effective October 1,
1993, enacted as part of the Omnibus Budget Reconciliation Act of 1993. The
resulting favorable price variance of $9 million was offset by increased
consumption due to higher traffic volumes and a larger fleet size. BN has a
program to hedge against fluctuations in the price of its diesel fuel
purchases. This program includes forward purchases for delivery at fueling
facilities and petroleum futures contracts.
Materials expenses for the second quarter of 1994 decreased by $4 million
compared with the second quarter of 1993. Increased track material costs
resulting from higher maintenance levels were more than offset by a reduction
in expenditures for safety and protective equipment deployed in 1993 and
increased scrap sales.
Equipment rents expenses for the second quarter of 1994 were $15 million
greater when compared with the second quarter of 1993 principally due to
payments of $7 million for failure to achieve service commitments under
various transportation agreements. A 9 percent increase in traffic volumes
during 1994 resulted in a larger fleet of leased locomotives and rail cars on
a short-term basis, causing an increase in lease expenses.
Purchased services decreased $2 million from the second quarter of 1993. The
most significant contributing factor were payments received from The Atchison,
Topeka and Santa Fe Railway Company (ATSF) to reimburse BN for operating
services provided to ATSF. This decrease was partially offset by increases in
intermodal and automotive traffic-related costs and derailment-related costs.
Depreciation expense for the second quarter of 1994 increased $3 million when
compared to the second quarter of 1993, primarily due to higher traffic levels
and an increase in the asset base.
Other operating expenses were $2 million lower compared with the second
quarter of 1993. A $12 million decrease in costs associated with personal
injury claims was substantially offset by increases in derailment-related
expenses of approximately $6 million.
Interest expense for the quarter increased $3 million compared with the second
quarter in 1993, due to a higher average outstanding debt balance in 1994.
Other expense, net of income, increased $8 million from the second quarter of
1993 primarily due to a net loss on property dispositions occuring in the
second quarter of 1994 as compared with a net gain in 1993.
The effective tax rate was 38.7 percent for the second quarter of 1994
compared with 37.6 percent for the second quarter of 1993. This increase
resulted primarily from the 1 percent increase in the corporate federal income
tax rate as a part of the Omnibus Budget Reconciliation Act of 1993. This
rate change was enacted in the third quarter of 1993 with retroactive
application. Previously issued financial statements were not adjusted.
-9-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Six months ended June 30, 1994 compared with six months ended June 30, 1993
BN had net income of $159 million, or $1.64 per common share, on 90.3 million
shares for the first six months of 1994 compared with net income of $154
million, or $1.60 per common share, on 89.4 million shares for the same period
in 1993.
Revenues
The following table presents BN's revenue information by Railroad business
unit:
<TABLE>
<CAPTION>
Revenues Per
Revenues Revenue Ton Miles Revenue Ton Mile
--------------- ----------------- -----------------
Six months ended June 30, 1994 1993 1994 1993 1994 1993
- - -------------------------------------------------------------------------------------------------
(In Millions) (In Millions) (In Cents)
<S> <C> <C> <C> <C> <C> <C>
Coal............................... $ 835 $ 754 67,532 59,042 1.24 1.28
Agricultural Commodities........... 354 380 14,296 17,502 2.48 2.17
Intermodal......................... 350 357 11,681 11,537 3.00 3.09
Forest Products.................... 248 241 10,363 9,904 2.39 2.43
Chemicals.......................... 206 205 7,346 7,432 2.80 2.76
Consumer Products.................. 129 126 4,509 4,349 2.86 2.90
Minerals Processors................ 98 92 3,967 3,752 2.47 2.45
Iron & Steel...................... 84 87 3,994 4,048 2.10 2.15
Vehicles & Machinery............... 97 94 1,293 1,223 7.50 7.69
Aluminum, Nonferrous Metals & Ores 51 53 1,941 2,047 2.63 2.59
Shortlines and other............... (50) (77) (4,277) (5,468) - -
------ ------ ------- -------
Total.............................. $2,402 $2,312 122,645 115,368 1.96 2.00
====== ====== ======= =======
</TABLE>
Total revenues for the first six months of 1994 were $2,402 million compared
with revenues of $2,312 million for the same period in 1993. The $90 million
improvement was primarily attributable to Coal revenues. Lower Agricultural
Commodities revenues were offset by reduced Shortlines and other.
Coal revenues improved $81 million during the first six months of 1994 as a
result of increased traffic. This increase was primarily caused by a rise in
the demand for electricity as well as the need for utilities to replenish coal
stockpiles which were partially depleted during the 1993 summer flooding.
Partially offsetting the increase in traffic was a decline in revenues per
revenue ton mile. Lower yields resulted from continuing competitive pricing
pressures in contract renegotiations and declining cost indices.
Revenues from the transportation of Agricultural Commodities during 1994 were
$26 million less than the first six months of 1993, primarily as a result of a
decline in volumes. This decrease was principally caused by corn and soybean
revenues which were less than prior year revenues by $31 million and $10
million, respectively. These volume related declines were largely
attributable to reduced crop production and lower export demand. A $13
million improvement in barley revenues, caused by favorable market conditions
during the first six months of 1994 partially offset corn and soybean
results. The impact of the overall volume decline was reduced by an increase
in yield which is a product of traffic mix, price and length of haul.
-10-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Revenues for Intermodal decreased $7 million, for the year, while Forest
Products and Minerals Processors revenues increased $7 million and $6 million,
respectively, when compared with the same period in 1993. Intermodal
revenues reflect BN's decision to close two intermodal hub centers in Texas
beginning in the second quarter of this year. BN has estimated lost revenues
in excess of $25 million for the first six months of 1994 relating to the
closure of these hubs. Withdrawal from the Texas market, however, has helped
improve operating performance in BN's key intermodal lanes, boosting revenues
from existing customers and offsetting a portion of the lost revenues.
Increased housing starts during the current year contributed to a $10 million
improvement in lumber revenues within Forest Products revenues, while improved
Minerals Processors revenues resulted from stronger clays and aggregates
traffic caused by an increase in export demand.
Current year revenues for Chemicals, Consumer Products, Iron & Steel, Vehicles
& Machinery and Aluminum, Nonferrous Metals & Ores were relatively flat
compared with the same period in 1993.
Total current year revenues also benefited from a $27 million reduction in
Shortlines and other. This decline was partially due to a decrease in amounts
due to shortline railroads caused by less BN traffic on their lines,
additional haulage agreement revenues and increased miscellaneous revenues.
Expenses
Total operating expenses for the first six months of 1994 were $2,042 million
compared with expenses of $1,996 million for the same period in 1993. The
operating ratio for the six months ended June 30, 1994 was 85 percent compared
with 86 percent for the same period in 1993.
Compensation and benefits expenses for the first six months of 1994 were $16
million greater when compared with 1993. The combination of higher traffic
volumes in 1994, the three percent basic wage increase for union represented
employees, effective July 1993, and severe winter weather in January and
February of 1994 caused an increase in excess of $18 million to wages and
related payroll taxes. Increases in salaries, related payroll taxes and
pension expense, due to a reduction in the discount rate used in determining
the projected benefit obligation, also contributed to higher compensation and
benefits expenses. These increases were partially offset by a $14 million
decrease due to reduced crew sizes in the Northern tier, decreases for cost of
living allowances and decreases in railroad unemployment and annuity taxes.
Fuel expenses for the first six months of 1994 were $5 million lower compared
with 1993 primarily due to a favorable price variance of $16 million. The
average price paid for diesel fuel decreased to 56.6 cents per gallon in 1994
from 61.7 cents per gallon in 1993 despite the 4.3 cents per gallon increase
in the federal fuel tax, effective October 1, 1993, enacted as part of the
Omnibus Budget Reconciliation Act of 1993. These savings were partially
offset by increased consumption due to higher traffic volumes and severe
weather experienced in January and February of 1994. BN has a program
-11-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
to hedge against fluctuations in the price of its diesel fuel purchases. This
program includes forward purchases for delivery at fueling facilities and
petroleum futures contracts.
Materials expenses for the first six months of 1994 increased $1 million
compared with 1993, primarily due to higher track and locomotive materials
costs resulting from higher maintenance levels and severe winter weather
experienced in January and February of 1994. These costs were partially
offset by increased scrap sales due to the higher maintenance levels and a
reduction in expenditures for safety and protective equipment deployed in 1993.
Equipment rents expenses for the first six months of 1994 were $29 million
higher than the first six months of 1993. A significant factor was payments
of $11 million for failure to achieve service commitments under various
transportation agreements. Also contributing to the increase were higher
lease rentals, for both rail cars and locomotives, and higher car-hire
expenses. These increases were attributable to traffic volume growth coupled
with decreased train velocity. Slower performance resulted from severe
weather operating conditions in January and February of 1994 and general
equipment congestion caused by the additional rail cars in service.
Year-to-date purchased services expenses increased $10 million compared with
the same period in 1993. The most significant contributing factors were
higher intermodal and automotive traffic-related costs. These increases were
partially offset by payments received from the ATSF for the reimbursement of
operating services provided by BN to ATSF.
Depreciation expense for the first six months of 1994 was $4 million higher
than the same period in 1993, due to higher traffic levels and an increase in
BN's asset base.
Other operating expenses were $9 million less compared with the first six
months of 1993. A $23 million decrease in costs associated with personal
injury claims was substantially offset by an increase in derailment-related
expenses of approximately $10 million and higher property taxes.
Interest expense for the year increased $9 million compared with 1993, due to
a higher average outstanding debt balance in 1994 and a favorable court ruling
in 1993 which reduced interest expense for the 1993 period.
Other expense, net of income, was $6 million higher in 1994 compared with the
same period in 1993. This primarily resulted from lower net gains on property
dispositions occurring in 1994 as compared with 1993.
The effective tax rate was 38.7 percent for the first six months of 1994
compared with 37.6 percent for the same period in 1993. This increase
resulted primarily from the 1 percent increase in the corporate federal income
tax rate as a part of the Omnibus Budget Reconciliation Act of 1993. This
rate change was enacted in the third quarter of 1993 with retroactive
application. Previously issued financial statements were not adjusted.
-12-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Other Matters
- - -------------
Environmental issues
BN's operations, as well as those of its competitors, are subject to extensive
federal, state and local environmental regulation. In order to comply with
such regulation and to be consistent with BN's corporate environmental policy,
BN's operating procedures include practices to protect the environment.
Amounts expended relating to such practices are inextricably contained in the
normal day-to-day costs of BN's business operations.
Under the requirements of the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (Superfund) and certain other laws, BN
is potentially liable for the cost of clean-up of various contaminated sites
identified by the U.S. Environmental Protection Agency and other agencies. BN
has been notified that it is a potentially responsible party (PRP) for study
and clean-up costs at a number of sites and, in many instances, is one of
several PRPs. BN generally participates in the clean-up of these sites
through cost-sharing agreements with terms that vary from site to site. Costs
are typically allocated based on relative volumetric contribution of material,
the amount of time the site was owned or operated, and/or the portion of the
total site owned or operated by each PRP. However, under Superfund and
certain other laws, as a PRP, BN can be held jointly and severally liable for
all environmental costs associated with a site.
Environmental costs include initial site surveys and environmental studies of
potentially contaminated sites as well as costs for remediation and
restoration of sites determined to be contaminated. Liabilities for
environmental clean-up costs are initially recorded when BN's liability for
environmental clean-up is both probable and a reasonable estimate of
associated costs can be made. Adjustments to initial estimates are recorded
as necessary based upon additional information developed in subsequent
periods. BN conducts an ongoing environmental contingency analysis, which
considers a combination of factors, including independent consulting reports,
site visits, legal reviews, analysis of the likelihood of participation in and
ability to pay for clean-up by other PRPs, and historical trend analysis.
BN is involved in a number of administrative and judicial proceedings in which
it is being asked to participate in the clean-up of sites contaminated by
material discharged into the environment. BN paid approximately $9 million
during the six months ended June 30, 1994 relating to mandatory clean-up
efforts, including amounts expended under federal and state voluntary clean-up
programs. At this time, BN expects to spend approximately $110 million in
future years to remediate and restore these sites.
Liabilities for environmental costs represent BN's best estimates for
remediation and restoration of these sites and include asserted and unasserted
claims. BN's best estimate of unasserted claims was approximately $5 million
as of June 30, 1994. Although recorded liabilities include BN's best
estimates of all costs, without reduction for anticipated recovery from
insurance, BN's total clean-up costs at these sites cannot be predicted with
certainty due to various factors such as the extent of corrective actions that
may be required, evolving environmental laws and regulations, advances in
environmental technology, the extent of other PRPs participation in clean-up
-13-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
efforts, developments in ongoing environmental analyses related to sites
determined to be contaminated, and developments in environmental surveys and
studies of potentially contaminated sites. As a result, charges to income for
environmental liabilities could possibly have a significant effect on results
of operations in a particular quarter or fiscal year as individual site
studies and remediation and restoration efforts proceed or as new sites
arise. However, expenditures associated with such liabilities are typically
paid out over a long period, in some cases up to 40 years, and are therefore
not expected to have a material adverse effect on BN's consolidated financial
position, cash flow or liquidity.
Proposed merger
As of June 29, 1994, BNI and Santa Fe Pacific Corporation (Santa Fe) entered
into an Agreement and Plan of Merger (the Agreement) pursuant to which, on the
terms and conditions set forth in the Agreement, Santa Fe will merge (the
Merger) with and into BNI, and BNI will be the surviving corporation. On June
30, 1994, BNI and Santa Fe issued a joint press release announcing, among
other things, the execution of the Agreement and describing the conversion of
each Santa Fe share into 0.27 of a share of BNI common stock to be effected
upon consummation of the proposed Merger. Consummation of the Merger is
subject to approval by the stockholders of BNI and Santa Fe, approval by the
Interstate Commerce Commission, approval under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, and other customary conditions. As is typical in
the context of a merger, upon stockholder approval, certain benefits of BN
officers and employees will vest. In particular, restrictions placed upon
certain BNI stock grants will lapse and the previously unearned compensation
relating to such restricted stock, included in BNI stockholders' equity, will
then be a non-cash charge to compensation and benefits expense. As of June
30, 1994 such unearned compensation relating to restricted stock was
approximately $27 million. BN is currently evaluating alternatives pursuant
to which such restrictions would continue to remain in effect by the voluntary
action of certain BN officers and employees and accordingly, may delay the
timing of recognition of the unearned compensation as expense and the amount
thereof. While BN expects to incur additional costs related to the merger, it
is anticipated that the combined company will realize significant business and
economic advantages not available to either company on a stand alone basis.
-14-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Wheat and Barley Transportation Rates
In September 1980 a class action lawsuit was filed against Railroad in United
States District Court for the District of Montana ("District Court")
challenging the reasonableness of Railroad's export wheat and barley rates.
The class consists of Montana grain producers and elevators. The plaintiffs
sought a finding that Railroad's single car export wheat and barley rates for
shipments moving from Montana to the Pacific Northwest were unreasonably high
and requested damages in the amount of $64 million. In March 1981 the District
Court referred the rate reasonableness issue to the Interstate Commerce
Commission ("ICC"). Subsequently, the State of Montana filed a complaint at
the ICC challenging Railroad's multiple car rates for Montana wheat and barley
movements occurring after October 1, 1980.
The ICC issued a series of decisions in this case from 1988 to 1991. Under
these decisions, the ICC applied a revenue to variable cost test to the rates
and determined that Railroad owed $9,685,918 in reparations plus interest. In
its last decision, dated November 26, 1991, the ICC found Railroad's total
reparations exposure to be $16,559,012 through July 1, 1991. The ICC also
found that Railroad's current rates were below a reasonable maximum and vacated
its earlier rate prescription order.
Railroad appealed to the United States Court of Appeals for the District of
Columbia Circuit ("D.C. Circuit") those portions of the ICC's decisions
concerning the post-October 1, 1980 rate levels. Railroad's primary contention
on appeal was that the ICC erred in using the revenue to variable cost rate
standard to judge the rates instead of Constrained Market Pricing/Stand Alone
Cost principles. The limited portions of decisions that cover pre-October 1,
1980 rates were appealed to the Montana District Court.
On March 24, 1992, the Montana District Court dismissed plaintiffs' case as to
all aspects other than those relating to pre-October 1, 1980 rates. On
February 9, 1993, the D.C. Circuit served its decision regarding the appeal of
the several ICC decisions in this case. The Court held that the ICC did not
adequately justify its use of the revenue to variable cost standard as Railroad
had argued and remanded the case to the ICC for further administrative
proceedings.
On July 22, 1993, the ICC served an order in response to the D.C. Circuits'
February 9, 1993 decision. In its order, the ICC stated it would use the
Constrained Market Pricing/Stand Alone Cost Standards in assessing the
reasonableness of BN wheat and barley rates moving from Montana to Pacific
Coast ports from 1978 forward. The ICC assigned the case to the Office of
Hearings to develop a procedural schedule. The parties are now engaged in
discovery.
Environmental Proceeding
On May 25, 1994, the United States Department of Justice ("Department") filed
suit on behalf of the United States Environmental Protection Agency ("EPA")
against Railroad in United States District Court for the Eastern District of
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<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
PART II OTHER INFORMATION
Wisconsin for the release of oil and hazardous substances into navigable waters
of the United States in the course of three derailments. Specifically
referenced are (1) the alleged release of hazardous substances into the Nemadji
River and its shoreline near Superior, Wisconsin, on June 30, 1992, (2) the
alleged release of oil into the North Platte River and its shoreline near
Guernsey, Wyoming, on January 9, 1993, and (3) the alleged release of oil into
a tributary of the Bighorn River near Worland, Wyoming, on May 6, 1993. The
suit claims that pursuant to 33 U.S.C. Section 1321(b)(7), Railroad is liable
to the United States for civil penalties of up to $25,000 per day of violation
or $1,000 per barrel of oil or per reportable quantity of each hazardous
substance discharged. The EPA calculates the statutory maximum penalty
associated with these three spills to be $10,137,000. Railroad's answer in the
suit is not yet due.
Under the applicable water pollution statutes it appears that some fine against
Railroad is likely. However, such statutes, specifically 33 U.S.C. Section
1321(b)(8), provide that penalties shall be mitigated based upon factors such
as the seriousness of the violation, the economic benefit to the violator, the
degree of culpability, the history of violation and the response of the
violator to minimize or mitigate the adverse effects of the spill.
Furthermore, issues concerning whether the Worland spill occurred in navigable
waters of the United States and whether the EPA's calculations for the Nemadji
spill are proper significantly affect the amount of any fine. Based upon the
facts of these spills and Railroad's conduct, all of the above-referenced
mitigation factors favor a substantially lower fine than that calculated by the
EPA and the Department.
Settlement meetings with the Department have involved discussions of the basis
for the Department's claims and penalty calculations, and Railroad has
presented mitigating factors in the context of the allegations. Progress
toward settlement has been achieved and the Railroad has made a settlement
proposal. The Department has visited the spill site, and the Railroad is
awaiting the government's settlement response. If a compromise is not reached,
however, Railroad believes that it has substantial defenses to, and evidence to
mitigate the severity of any fines which could be imposed. Railroad believes
it can demonstrate that the amounts claimed by the government are out of
proportion to any reasonable assessment. Accordingly, in litigation, Railroad
believes it should be successful in significantly reducing the amount of any
fine from the above calculated statutory maximum.
Merger-Related Litigation
Subsequent to the recent announcement of the Merger by BNI and Santa Fe, BNI
has been named as a defendant in four lawsuits filed in the Court of Chancery
of the State of Delaware entitled Miller v. Santa Fe Pacific Corporation, et
------------------------------------------
al., C.A. No. 13587 (filed June 30, 1994); Cosentino v. Santa Fe Pacific
- - --- -----------------------------
Corporation, et al., C.A. No. 13588 (filed June 30, 1994); Fielding v. Santa Fe
- - ------------------- --------------------
Pacific Corporation, et al., C.A. No. 13591 (filed June 30, 1994) and Wadsworth
- - --------------------------- ---------
v. Santa Fe Pacific Corporation, et al., C.A. No. 13597 (filed July 1, 1994)
- - ---------------------------------------
(collectively, the "Delaware Actions"). Each of the Delaware Actions purports
to be brought as a class action on behalf of stockholders of Santa Fe, and each
names as defendants Santa Fe, Santa Fe's directors, and BNI. The Delaware
Actions each allege, in essence, (1) that the members of the Board of Directors
-16-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
PART II OTHER INFORMATION
of Santa Fe breached fiduciary duties owed to the purported class of
stockholders of Santa Fe by approving the Merger, (2) that the consideration to
be paid to Santa Fe's stockholders in the Merger does not fairly compensate
them for the shares they will be surrendering in the Merger, and (3) that Santa
Fe's directors agreed to the Merger without taking adequate steps to evaluate
Santa Fe and to achieve the best possible price available. In addition,
certain of the Delaware Actions allege that defendants have failed to disclose
all pertinent information concerning the Merger. The Miller and Fielding cases
------ --------
further allege that the proposed merger is unfairly timed and structured and,
if consummated, would allegedly unfairly deprive Santa Fe stockholders of
standing to pursue certain pending shareholder derivative litigation. The
Delaware actions allege that BNI aided and abetted the claimed breaches of
fiduciary duty by Santa Fe's directors. BNI considers the allegation meritless
and intends to vigorously contest this claim. The Delaware Actions seek, among
other things, to enjoin the Merger, to rescind the Merger if it is consummated,
unspecified monetary damages and attorneys' fees.
None of the defendants has yet responded to the complaints in the Delaware
Actions. Plaintiffs in the Delaware Actions have moved to consolidate the
Delaware Actions.
-17-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
The following exhibits are filed as part of this report:
Designation Nature of Exhibit
----------- -----------------
2 Agreement and Plan of Merger, dated as of
June 29, 1994 between Burlington Northern
Inc. and Santa Fe Pacific Corporation
(schedules thereto omitted, but available
to the Securities and Exchange Commission
upon request) and related letter agreements.
4 BN has either previously filed with the
Securities and Exchange Commission or upon
request will furnish a copy of any
instrument with respect to long-term debt
of BN.
11 Computation of earnings per common share.
12 Computation of ratio of earnings to fixed
charges.
B. Reports on Form 8-K
During the period, a report on Form 8-K, dated May 24, 1994, was
filed containing an Underwriting Agreement dated May 17, 1994,
between Burlington Northern Inc., Morgan Stanley & Co. Incorporated,
Kidder, Peabody & Co. Incorporated and Salomon Brothers Inc and an
Officers' Certificate pursuant to Section 301 of the Indenture dated
as of February 14, 1992, between Burlington Northern Inc. and the
First National Bank of Chicago, as Trustee, and a specimen form of
global note.
During the period, a report on Form 8-K, dated June 29, 1994, was
filed attaching a press release announcing the execution of an
Agreement and Plan of Merger, dated as of June 29, 1994, between
Burlington Northern Inc. and Santa Fe Pacific Corporation, describing
the conversion of Santa Fe shares to be effected upon consummation of
the proposed Merger and setting forth certain conditions upon which
the proposed Merger is contingent.
Items 2, 3, 4 and 5 of Part II were not applicable and have been
omitted.
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BURLINGTON NORTHERN INC.
(Registrant)
By: /s/ David C. Anderson
--------------------------------------
Executive Vice President,
Chief Financial Officer and
Chief Accounting Officer
Date: August 4, 1994
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<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
Exhibit Index
Sequentially
Exhibit Numbered
Number Description Page
- - ------- ----------- ------------
2 Agreement and Plan of Merger,
dated as of June 29, 1994,
between Burlington Northern Inc.
and Santa Fe Pacific Corporation
(schedules thereto omitted, but
available to the Securities and
Exchange Commission upon request)
and related letter agreements.
11 Computation of earnings per
common share
12 Computation of ratio of
earnings to fixed charges
<PAGE>
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
dated as of
June 29, 1994
between
BURLINGTON NORTHERN INC.
and
SANTA FE PACIFIC CORPORATION
<PAGE>
TABLE OF CONTENTS/1/
Page
----
ARTICLE I
THE MERGER
1.1. The Merger.......................................................... 2
1.2. Conversion of Shares................................................ 2
1.3. Surrender and Payment............................................... 3
1.4. Stock Options....................................................... 4
1.5. Adjustments......................................................... 5
1.6. Closing............................................................. 5
1.7. Fractional Shares................................................... 6
ARTICLE II
CERTAIN MATTERS RELATING TO BNI
AND THE SURVIVING CORPORATION
2.1. Directors of the Surviving Corporation.............................. 6
2.2. Certificate of Incorporation and Bylaws of the
Surviving Corporation............................................. 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SFP
3.1. Corporate Existence and Power....................................... 7
3.2. Corporate Authorization............................................. 7
3.3. Governmental Authorization.......................................... 8
3.4. Non-Contravention................................................... 8
3.5. Capitalization...................................................... 8
3.6. Material Subsidiaries............................................... 9
3.7. SEC Filings......................................................... 10
3.8. Financial Statements................................................ 11
3.9. Disclosure Documents................................................ 11
3.10. Information Supplied................................................ 12
3.11. No Material Adverse Changes......................................... 13
3.12. Undisclosed Material Liabilities.................................... 13
3.13. Litigation.......................................................... 13
3.14. Taxes............................................................... 14
3.15. ERISA............................................................... 14
3.16. Finders' Fees....................................................... 17
3.17. Environmental Matters............................................... 17
3.18. Takeover Statutes................................................... 18
3.19. Compliance With Laws................................................ 18
- - --------------------
/1/The Table of Contents is not a part of this Agreement.
<PAGE>
3.20. Spinoff Dividend.................................................... 18
3.21. Private Letter Ruling............................................... 19
3.22. Excess Loss Accounts................................................ 19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BNI
4.1. Corporate Existence and Power....................................... 19
4.2. Corporate Authorization............................................. 19
4.3. Governmental Authorization.......................................... 20
4.4. Non-Contravention................................................... 20
4.5. Capitalization...................................................... 20
4.6. Material Subsidiaries............................................... 21
4.7. SEC Filings......................................................... 22
4.8. Financial Statements................................................ 23
4.9. Disclosure Documents................................................ 23
4.10. Information Supplied................................................ 24
4.11. No Material Adverse Changes......................................... 24
4.12. Undisclosed Material Liabilities.................................... 24
4.13. Litigation.......................................................... 25
4.14. Taxes............................................................... 25
4.15. ERISA............................................................... 26
4.16. Finders' Fees....................................................... 29
4.17. Environmental Matters............................................... 29
4.18. Takeover Statutes................................................... 29
4.19. Compliance with Laws................................................ 29
4.20. BNI Rights Agreement................................................ 29
ARTICLE V
COVENANTS OF SFP
5.1. Conduct of SFP...................................................... 30
5.2. Stockholder Meeting................................................. 32
5.3. Access to Information............................................... 32
5.4. Notices of Certain Events........................................... 33
5.5. Tax Matters......................................................... 33
5.6. Rule 145 Affiliates................................................. 34
5.7. The Spinoff......................................................... 34
5.8. No Solicitations.................................................... 34
ARTICLE VI
COVENANTS OF BNI
6.1. Conduct of BNI...................................................... 35
6.2. Stockholder Meeting................................................. 37
6.3. Access to Information............................................... 38
6.4. Notices of Certain Events........................................... 38
6.5. Tax Matters......................................................... 38
-ii-
<PAGE>
6.6. Director and Officer Liability...................................... 39
6.7. No Solicitations.................................................... 40
ARTICLE VII
COVENANTS OF BNI AND SFP
7.1. Reasonable Best Efforts............................................. 40
7.2. ICC Approval........................................................ 40
7.3. Certain Filings; Proxy Materials.................................... 41
7.4. Public Announcements................................................ 41
7.5. Further Assurances.................................................. 42
7.6. Antitakeover Statutes............................................... 42
7.7. Cooperation......................................................... 42
7.8. Dividends........................................................... 43
ARTICLE VIII
[Intentionally Omitted]
ARTICLE IX
CONDITIONS TO THE MERGER
9.1. Conditions to the Obligations of Each Party......................... 43
9.2. Conditions to the Obligations of BNI................................ 44
9.3. Conditions to the Obligations of SFP................................ 44
ARTICLE X
TERMINATION
10.1. Termination......................................................... 45
10.2. Effect of Termination............................................... 46
ARTICLE XI
MISCELLANEOUS
11.1. Notices............................................................. 47
11.2. Entire Agreement; Survival of Representations and
Warranties........................................................ 47
11.3. Amendments; No Waivers.............................................. 48
11.4. Expenses............................................................ 48
11.5. Successors and Assigns.............................................. 49
11.6. Governing Law....................................................... 49
11.7. Jurisdiction........................................................ 49
11.8. Counterparts; Effectiveness......................................... 49
-iii-
<PAGE>
TABLE OF DEFINITIONS
Term Section
- - ---- -------
1933 Act............................................................. 1.4(c)
1933 Act Affiliates.................................................. 5.6
6- 1/4% Convertible Preferred Stock.................................. 4.5(a)
Agreement............................................................ Recitals
Acquiring Person..................................................... 4.20
Balance Sheet Date................................................... 3.8
BNI.................................................................. Recitals
BNI Balance Sheet.................................................... 4.8
BNI Benefit Arrangements............................................. 4.16(e)
BNI Common Stock..................................................... 1.2(a)
BNI Disclosure Documents............................................. 4.9
BNI Employee Plans................................................... 4.15(a)
BNI Form 10-K........................................................ 4.7(a)
BNI Form 10-Q........................................................ 4.7(a)
BNI Material Subsidiary.............................................. 4.6(a)
BNI Option........................................................... 1.4(a)
BNI Pension Plans.................................................... 4.16(b)
BNI Post-Signing Returns............................................. 6.5
BNI Proxy Statement.................................................. 4.9
BNI Returns.......................................................... 4.14
BNI Rights Agreement................................................. 4.20
BNI Securities....................................................... 4.5(a)
BNI Stockholder Meeting.............................................. 6.2
BNI Subsidiary Securities............................................ 4.6(b)
BNI Voting Debt...................................................... 4.5(b)
Class A Preferred Stock.............................................. 4.5(a)
Closing.............................................................. 1.6
Closing Date......................................................... 1.6
Code................................................................. Recitals
Common Shares Trust.................................................. 1.7
Confidentiality Agreement............................................ 11.2
Customary Action..................................................... 5.1
Distribution Date.................................................... 4.20
DGCL................................................................. 3.18
Effective Time....................................................... 1.1(b)
Environmental Laws................................................... 3.17(b)
Environmental Liabilities............................................ 3.17(b)
ERISA................................................................ 3.15(a)
ERISA Affiliate...................................................... 3.15(a)
Excess Shares........................................................ 1.7
Exchange Act......................................................... 1.2(d)
Exchange Agent....................................................... 1.3(a)
Exchange Ratio....................................................... 1.2(a)
Form 10.............................................................. 3.9(b)
Form S-1............................................................. 3.9(b)
Form S-4............................................................. 7.3(a)
Hazardous Substances................................................. 3.17(b)
-iv-
<PAGE>
Term Section
- - ---- -------
HSR Act.............................................................. 3.3
ICC.................................................................. 3.3
Indemnified Parties.................................................. 6.6
Indemnity Agreements................................................. 6.6
Lien................................................................. 3.4
Liquidation.......................................................... 3.21
Material............................................................. 3.1
Material Adverse Effect.............................................. 3.1
Merger............................................................... 1.1(a)
Merger Consideration................................................. 1.2(b)
Multiemployer Plan................................................... 3.16(b)
NYSE................................................................. 1.4(c)
PBGC................................................................. 3.16(b)
Person............................................................... 1.2(d)
Private Letter Ruling................................................ 3.21
Properties........................................................... 3.21
SEC.................................................................. 1.4(c)
SFP.................................................................. Recitals
SFP Balance Sheet.................................................... 3.8
SFP Common Stock..................................................... 1.2(a)
SFP Disclosure Documents............................................. 3.9(a)
SFP Employee Plans................................................... 3.15(a)
SFP Form 10-K........................................................ 3.7(a)
SFP Form 10-Q........................................................ 3.7(a)
SFP Material Subsidiary.............................................. 3.6(a)
SFP Pension Plans.................................................... 3.15(b)
SFP Post-Signing Returns............................................. 5.5
SFP Preferred Stock.................................................. 3.5(a)
SFP Proxy Statement.................................................. 3.9(a)
SFP Properties....................................................... 5.2
SFP Returns.......................................................... 3.14(i)
SFP Securities....................................................... 3.5(a)
SFP Stock Option..................................................... 1.4(a)
SFP Stockholder Meeting.............................................. 5.2
SFP Subsidiary Securities............................................ 3.6(b)
SFP Voting Debt...................................................... 3.5(b)
Share................................................................ 1.2(a)
Shares............................................................... 1.2(a)
Spinoff.............................................................. Recitals
Spinoff Company...................................................... Recitals
Spinoff Dividend..................................................... Recitals
Spinoff Registration Documents....................................... 3.9(b)
Stock Acquisition Date............................................... 4.20
Subsidiary........................................................... 1.2(c)
Surviving Corporation................................................ 1.1(a)
Takeover Proposal.................................................... 5.8
Takeover Statute..................................................... 3.18
-v-
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER dated as of June 29, 1994 (this "Agreement")
between Burlington Northern Inc., a Delaware corporation ("BNI"), and Santa Fe
Pacific Corporation, a Delaware corporation ("SFP").
WHEREAS, the respective Boards of Directors of BNI and SFP have determined
that it is in the best interests of their respective stockholders to consummate
the merger provided for herein;
WHEREAS, the respective Boards of Directors of BNI and SFP have determined
that this Agreement is in the best interests of BNI or SFP, as the case may be,
and its respective stockholders and have duly approved this Agreement and
authorized its execution and delivery;
WHEREAS, the respective Boards of Directors of BNI and SFP have received
the opinions of Lazard Freres & Co. and Goldman, Sachs & Co., respectively, that
the Exchange Ratio (as defined in Section 1.2(a)(i)) is fair to their respective
stockholders from a financial point of view;
WHEREAS, BNI has been informed that (a) as a result of an initial public
offering of shares of common stock of SFP Gold Corporation (the "Spinoff
Company"), SFP presently owns approximately 85% of the outstanding capital stock
of the Spinoff Company, (b) the Board of Directors of SFP has declared, pursuant
to resolutions substantially in the form provided to BNI prior to the date
hereof, a dividend (the "Spinoff Dividend") of the stock of the Spinoff Company
owned by SFP, to be issued on September 30, 1994 to SFP shareholders of record
as of September 12, 1994 (the issuance of the Spinoff Dividend shall be referred
to as the "Spinoff"), and (c) SFP has received a private letter ruling from the
Internal Revenue Service to the effect that the Spinoff qualifies as a tax-free
distribution within the meaning of Section 355 of the Internal Revenue Code of
1986, as amended (the "Code"); and
WHEREAS, it is the intention of the parties to this Agreement that for
Federal income tax purposes the Merger shall qualify as a "reorganization"
within the meaning of Section 368 of the Code.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
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ARTICLE I
THE MERGER
SECTION 1.1. The Merger. (a) At the Effective Time (as defined in
----------
Section 1.1(b), SFP shall be merged with and into BNI in accordance with
Delaware Law (the "Merger"), whereupon the separate existence of SFP shall
cease, and BNI shall be the surviving corporation (the "Surviving Corporation").
(b) The Merger shall become effective at such time as the
certificate of merger is duly filed with the Secretary of State of the State
of Delaware or at such later time as is specified in the certificate of merger
(the "Effective Time"); such filing shall be made as soon as practicable after
the Closing, as defined in Section 1.6 of this Agreement.
(c) From and after the Effective Time, the Surviving Corporation
shall possess all the rights, privileges, powers and franchises and be subject
to all of the restrictions, disabilities and duties of SFP and BNI, all as
provided under Delaware Law.
SECTION 1.2. Conversion of Shares. (a) At the Effective Time:
--------------------
(i) each share (a "Share" and, collectively, the "Shares") of SFP
common stock, par value $1.00 per share (the "SFP Common Stock"),
outstanding immediately prior to the Effective Time shall, except as
otherwise provided in Section 1.2(a)(ii) below, be converted into 0.27
shares of the common stock, no par value (the "BNI Common Stock"), of BNI
(0.27 being defined herein as the "Exchange Ratio"); and
(ii) each Share held by SFP as treasury stock or owned by BNI or any
Subsidiary (as defined in Section 1.2(c)) of BNI immediately prior to the
Effective Time shall be canceled, and no payment shall be made with respect
thereto.
(b) The BNI Common Stock (accompanied by rights issued pursuant to
the BNI Rights Agreement (as defined in Section 4.20)) to be received as
consideration pursuant to the Merger by each holder of Shares is referred to
herein as the "Merger Consideration".
(c) For purposes of this Agreement, the word "Subsidiary" when used
with respect to any Person means any corporation or other organization,
whether incorporated or unincorporated, of which (i) at least a majority of
the securities or other interests having by their terms ordinary voting power
to elect a majority of the board of directors or
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others performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such Person or by
any one or more of its Subsidiaries or (ii) such Person or any other Subsidiary
of such Person is a general partner, it being understood that representations
and warranties of a Person concerning any former Subsidiary of such Person shall
be deemed to relate only to the periods during which such former Subsidiary was
a Subsidiary of such Person.
(d) For purposes of this Agreement, the word "Person" means an
individual, a corporation, a partnership, an association, a trust or any other
entity or organization, including a government or political subdivision or any
agency or instrumentality thereof, or any affiliate (as that term is defined
in the Securities Exchange Act of 1934 and the rules and regulations
promulgated thereunder (the "Exchange Act")) of any of the foregoing.
SECTION 1.3. Surrender and Payment. (a) Prior to the Effective Time,
---------------------
BNI shall appoint an agent reasonably satisfactory to SFP (the "Exchange
Agent") for the purpose of exchanging certificates representing Shares as
provided in Section 1.2(a)(i). At the Effective Time, BNI will deposit with
the Exchange Agent certificates representing the aggregate Merger
Consideration to be paid in respect of the Shares. Promptly after the
Effective Time, BNI will send, or will cause the Exchange Agent to send, to
each holder of Shares at the Effective Time a letter of transmittal for use in
such exchange (which shall specify that the delivery shall be effected, and
risk of loss and title shall pass, only upon proper delivery of the
certificates representing Shares to the Exchange Agent).
(b) Each holder of Shares that have been converted into a right to
receive the Merger Consideration, upon surrender to the Exchange Agent of a
certificate or certificates representing such Shares, together with a properly
completed letter of transmittal covering such Shares, will be entitled to
receive the Merger Consideration payable in respect of such Shares. Until so
surrendered, each such certificate shall, after the Effective Time, represent
for all purposes only the right to receive such Merger Consideration.
(c) If any portion of the Merger Consideration is to be paid to a
Person other than the registered holder of the Shares represented by the
certificate or certificates surrendered in exchange therefor, it shall be a
condition to such payment that the certificate or certificates so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and that
the Person requesting such payment shall pay to the Exchange Agent any transfer
or other taxes required as a result of such
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payment to a Person other than the registered holder of such Shares or establish
to the satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(d) After the Effective Time, there shall be no further registration
of transfers of Shares. If, after the Effective Time, certificates
representing Shares are presented to the Surviving Corporation, they shall be
canceled and exchanged for the Merger Consideration in accordance with the
procedures set forth in this Article I.
(e) Any portion of the Merger Consideration deposited with the
Exchange Agent pursuant to Section 1.3(a), and any portion of the Common
Shares Trust (as defined in Section 1.7) that remains unclaimed by the holders
of Shares twelve months after the Effective Time shall be returned to BNI,
upon demand, and any such holder who has not exchanged his Shares for the
Merger Consideration in accordance with this Article I prior to that time
shall thereafter look only to BNI for his claim for BNI Common Stock, any cash
in lieu of fractional shares of BNI Common Stock and any dividends or
distributions with respect to BNI Common Stock. Notwithstanding the foregoing,
BNI shall not be liable to any holder of Shares for any amount paid to a
public official pursuant to applicable abandoned property laws.
(f) No dividends or other distributions with respect to the BNI Common
Stock constituting part of the Merger Consideration shall be paid to the holder
of any unsurrendered certificates representing Shares until such certificates
are surrendered as provided in this Section 1.3. Upon such surrender, there
shall be paid, without interest, to the person in whose name the certificates
representing the BNI Common Stock into which such Shares were converted are
registered, (1) all dividends and other distributions in respect of BNI Common
Stock that are payable on a date subsequent to, and the record date for which
occurs after, the Effective Time and (2) all dividends or other distributions in
respect of Shares that are payable on a date subsequent to, and the record date
for which occurs before, the Effective Time.
SECTION 1.4. Stock Options. (a) At the Effective Time, each
-------------
outstanding option to purchase shares of SFP Common Stock (a "SFP Stock
Option") granted under any employee stock option or compensation plan or
arrangement of SFP shall be canceled and substituted with an option (a "BNI
Option") to acquire BNI Common Stock. Such cancellation and substitution shall
comply in all respects with, and shall be performed in accordance with, the
methodology prescribed by the provisions of Section 424(a) of the Code and the
regulations thereunder, and each BNI Option shall provide the option holder
with rights and
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benefits that are no less favorable to him than were provided under the SFP
Stock Option for which it was substituted.
(b) At or as soon as practicable after the Effective Time, BNI shall
issue to each holder of an SFP Stock Option which is cancelled pursuant to
Section 1.4(a) an agreement that accurately reflects the terms of the BNI
Option substituted therefor as contemplated by Section 1.4(a).
(c) BNI shall take all corporate actions necessary to reserve for
issuance such number of shares of BNI Common Stock as will be necessary to
satisfy exercises in full of all BNI Options after the Effective Time. With
respect to such BNI Common Stock, BNI shall (i) as soon as practicable after
the Effective Time file with the Securities and Exchange Commission ("SEC") a
Registration Statement on Form S-8 and use its reasonable best efforts to have
such registration statement become and remain continuously effective under the
Securities Act of 1933, as amended (the "1933 Act") and (ii) file with the New
York Stock Exchange, Inc. (the "NYSE") a listing application and use its
reasonable best efforts to have such shares admitted to trading thereon upon
exercises of BNI Options. BNI shall also use its reasonable best efforts to
ensure that all incentive stock options within the meaning of the Code
continue to qualify as such at all times after the Effective Time.
SECTION 1.5. Adjustments. If, prior to the Effective Time, BNI or
-----------
SFP (as the case may be) should split or combine the BNI Common Stock or the
SFP Common Stock, or pay a stock dividend or other stock distribution in BNI
Common Stock or SFP Common Stock, or otherwise change the BNI Common Stock or
SFP Common Stock into any other securities, or make any other dividend or
distribution in respect of the BNI Common Stock or the SFP Common Stock (other
than the Spinoff, stock options permitted or contemplated by this Agreement,
and normal dividends as the same may be adjusted from time to time in
accordance with this Agreement), then the Exchange Ratio will be appropriately
adjusted to reflect such split, combination, dividend or other distribution or
change.
SECTION 1.6. Closing. The closing of the Merger (the "Closing")
-------
shall take place (i) at the offices of Davis Polk & Wardwell, 450 Lexington
Avenue, New York, New York, at 10:00 A.M. on the second business day after all
the conditions set forth in Article IX (other than those that are waived by
the party or parties for whose benefit such conditions exist) are satisfied or
(ii) at such other place and/or time and/or on such other date as the parties
may agree. The date upon which the Closing shall occur is herein called the
"Closing Date".
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<PAGE>
SECTION 1.7. Fractional Shares. No certificates or scrip
-----------------
representing fractional shares of BNI Common Stock will be issued in the
Merger, but in lieu thereof each holder of Shares otherwise entitled to a
fractional share of BNI Common Stock will be entitled to receive, from the
Exchange Agent in accordance with the provisions of this Section 1.7, a cash
payment in lieu of such fractional shares of BNI Common Stock representing
such holder's proportionate interest in the net proceeds from the sale by the
Exchange Agent in one or more transactions (which sale transactions shall be
made at such times, in such manner and on such terms as the Exchange Agent
shall determine in its reasonable discretion) on behalf of all such holders of
the aggregate of the fractional shares of BNI Common Stock which would
otherwise have been issued (the "Excess Shares"). The sale of the Excess
Shares by the Exchange Agent shall be executed on the NYSE through one or more
member firms of the NYSE and shall be executed in round lots to the extent
practicable. Until the net proceeds of such sale or sales have been
distributed to the holders of Shares, the Exchange Agent will hold such
proceeds in trust (the "Common Shares Trust") for the holders of the Shares.
BNI shall pay all commissions, transfer taxes and other out-of-pocket
transaction costs, including the expenses and compensation of the Exchange
Agent, incurred in connection with this sale of the Excess Shares. The
Exchange Agent shall determine the portion of the Common Shares Trust to which
each holder of Shares shall be entitled, if any, by multiplying the amount of
the aggregate net proceeds comprising the Common Shares Trust by a fraction
the numerator of which is the amount of the fractional BNI Common Stock
Interest to which such holder of Shares is entitled and the denominator of
which is the aggregate amount of fractional share interests to which all
holders of Shares are entitled. As soon as practicable after the determination
of the amount of cash, if any, to be paid to holders of Shares in lieu of any
fractional shares of BNI Common Stock, the Exchange Agent shall make available
such amounts to such holders of Shares without interest.
ARTICLE II
CERTAIN MATTERS RELATING TO BNI
AND THE SURVIVING CORPORATION
SECTION 2.1. Directors of the Surviving Corporation. The board of
--------------------------------------
directors of the Surviving Corporation will be constituted as follows: two-
thirds of the directors will be designated by BNI, and one-third of the
directors will be designated by SFP.
SECTION 2.2. Certificate of Incorporation and Bylaws of the Surviving
--------------------------------------------------------
Corporation. (a) The certificate of
- - -----------
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incorporation of BNI in effect at the Effective Time shall be the certificate of
incorporation of the Surviving Corporation until amended in accordance with
applicable law.
(b) The bylaws of BNI in effect at the Effective Time shall be the
bylaws of the Surviving Corporation until amended in accordance with
applicable law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SFP
SFP represents and warrants to BNI that, except as disclosed in
Schedule III hereto:
SECTION 3.1. Corporate Existence and Power. SFP is a corporation
-----------------------------
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted. SFP is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character
of the property owned or leased by it or the nature of its activities makes
such qualification necessary, except for those jurisdictions where the failure
to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect on SFP. SFP has heretofore delivered to BNI true and
complete copies of SFP's certificate of incorporation and bylaws as currently
in effect. For purposes of this Agreement, a "Material Adverse Effect" means,
with respect to any Person, a material adverse effect, whether existing or
prospective, on the financial condition, business or properties of such Person
and its Subsidiaries taken as a whole or on the ability of such Person to
perform its obligations hereunder. For purposes of this Agreement, any
reference to any event, change or effect being "material" with respect to any
Person means an event, change or effect, whether existing or prospective,
which is material in relation to the financial condition, business or
properties of such Person and its Subsidiaries taken as a whole or on the
ability of such Person to perform its obligations hereunder.
SECTION 3.2. Corporate Authorization. The execution, delivery and
-----------------------
performance by SFP of this Agreement and the consummation by SFP of the
transactions contemplated hereby are within SFP's corporate powers and, except
as set forth in the next sentence, have been duly authorized by all necessary
corporate action. The affirmative vote of the holders of a majority of the
outstanding shares of SFP Common Stock entitled to vote thereon is the only vote
of any class or series of SFP
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<PAGE>
capital stock necessary to approve this Agreement and the transactions
contemplated hereby. This Agreement constitutes a valid and binding agreement
of SFP.
SECTION 3.3. Governmental Authorization. The execution, delivery and
--------------------------
performance by SFP of this Agreement and the consummation of the Merger by SFP
require no action by or in respect of, or filing with, any governmental body,
agency, official or authority other than (i) the filing of a certificate of
merger in accordance with Delaware Law; (ii) compliance with any applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"); (iii) compliance with any applicable requirements relating to
approval of the Merger by the Interstate Commerce Commission (the "ICC"); (iv)
compliance with any applicable requirements of the Exchange Act; (v) compliance
with any applicable requirements of the 1933 Act; (vi) compliance with any
applicable foreign or state securities or Blue Sky Laws; and (vii) immaterial
actions or filings relating to ordinary operational matters.
SECTION 3.4. Non-Contravention. The execution, delivery and
-----------------
performance by SFP of this Agreement and the consummation by SFP of the
transactions contemplated hereby do not and will not (except in the case of
clauses (ii), (iii) and (iv) of this Section 3.4, for any such matters that
singly or in the aggregate have not had, and would not reasonably be expected
to have, a Material Adverse Effect on SFP) (i) contravene or conflict with the
certificate of incorporation or bylaws of SFP, (ii) assuming compliance with
the matters referred to in Section 3.3. contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to SFP or any of its
Subsidiaries, (iii) constitute a default under or give rise to a right of
termination, cancellation or acceleration of any right or obligation of SFP or
any of its Subsidiaries or to a loss of any benefit to which SFP or any of its
Subsidiaries is entitled under any provision of any agreement, contract or
other instrument binding upon SFP or any of its Subsidiaries or any license,
franchise, permit or other similar authorization held by SFP or any of its
Subsidiaries, or (iv) result in the creation or imposition of any Lien on any
asset of SFP or any of its Subsidiaries. For purposes of this Agreement,
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset.
SECTION 3.5. Capitalization. (a) The authorized capital stock of SFP
--------------
consists of six hundred million (600,000,000) shares of SFP Common Stock and
two hundred million (200,000,000) shares of preferred stock, $1.00 par value
per share ("SFP Preferred Stock"). As of May 31, 1994, there were
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outstanding (i) 186,391,459 shares of SFP Common Stock, and 12,000,000 shares
were reserved for issuance pursuant to the SFP Long-Term Incentive Stock Plan,
of which 5,281,405 were available for grant and 3,629,728 shares were held in
treasury, (ii) no shares of SFP Preferred Stock and (iii) employee stock options
to purchase an aggregate of 9,953,575 Shares (of which options to purchase an
aggregate of 7,004,884 Shares were exercisable). All outstanding shares of
capital stock of SFP have been duly authorized and validly issued and are fully
paid and nonassessable. Except as set forth in this Section or as contemplated
by Section 5.1 and except for the exercise of employee stock options outstanding
on May 31, 1994 or issued since that date in accordance with Section 5.1, there
are outstanding (x) no shares of capital stock or other voting securities of
SFP, (y) no securities of SFP or any of its Subsidiaries convertible into or
exchangeable for shares of capital stock or voting securities of SFP and (z) no
options or other rights to acquire from SFP or any of its Subsidiaries, and no
obligation of SFP or any of its Subsidiaries to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of SFP (the items in clauses (x), (y) and (z) being referred
to collectively as the "SFP Securities"). There are no outstanding obligations
of SFP or any of its Subsidiaries to repurchase, redeem or otherwise acquire any
SFP Securities.
(b) As of the date hereof, there are no outstanding bonds, debentures,
notes or other indebtedness of SFP having the right to vote (or convertible into
or exercisable for SFP Securities having the right to vote) on any matters upon
which holders of SFP Common Stock may vote (collectively, "SFP Voting Debt").
SECTION 3.6. Material Subsidiaries. (a) Each Subsidiary of SFP as of
---------------------
the date of this Agreement is identified on Schedule 3.6(a). For purposes of
this Agreement, the term "SFP Material Subsidiary" means each Subsidiary of
SFP identified as material on Schedule 3.6(a). Each SFP Material Subsidiary is
either (i) a corporation that is duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation, has all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted and
is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse Effect on
SFP, or (ii) a partnership that is duly formed and in good standing under the
laws of its jurisdiction of formation and has all material
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governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted and is duly qualified to do business and is in
good standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification necessary,
except for those jurisdictions where failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect on SFP.
(b) Except as set forth in the SFP Form 10-K (as defined in Section
3.7), all of the outstanding capital stock of, or other ownership interests
in, each SFP Subsidiary is owned by SFP, directly or indirectly, free and
clear of any Lien and free of any other limitation or restriction (including
any restriction on the right to vote, sell or otherwise dispose of such
capital stock or other ownership interests). Other than the Variable Rate
Exchangeable Debentures Due 2010 issued by SFP Pipeline Holdings, Inc. and
those obligations identified on Schedule 3.6(b), there are no outstanding (i)
securities of SFP or any of its Subsidiaries convertible into or exchangeable
for shares of capital stock or other voting securities or ownership interests
in any Subsidiary of SFP, or (ii) options or other rights to acquire from SFP
or any of its Subsidiaries, and no other obligation of SFP or any of its
Subsidiaries to issue, any capital stock, voting securities or other ownership
interests in, or any securities convertible into or exchangeable for any
capital stock, voting securities or ownership interests in, any SFP Subsidiary
(the capital stock of each Subsidiary of SFP, together with the items in
clauses (i) and (ii), being referred to collectively as the "SFP Subsidiary
Securities"). There are no outstanding obligations of SFP or any Subsidiary of
SFP to repurchase, redeem or otherwise acquire any outstanding SFP Subsidiary
Securities.
SECTION 3.7. SEC Filings. (a) SFP has delivered to BNI (i) its
-----------
annual reports on Form 10-K for its fiscal years ended December 31, 1989,
December 31, 1990, December 31, 1991, December 31, 1992, and December 31, 1993
(this latest Form 10-K being referred to herein as the "SFP Form 10-K"), (ii)
its quarterly report on Form 10-Q for its fiscal quarter ending March 31, 1994
(this Form 10-Q being referred to herein as the "SFP Form 10-Q"), (iii) its
proxy statements (as defined in Regulation 14A issued pursuant to the Exchange
Act) relating to meetings of the stockholders of SFP held since January 1,
1989, (iv) its report on Form 8-K dated June 25, 1993, as amended, and (v) all
other reports, statements, schedules and registration statements filed by SFP
and its Subsidiaries with the SEC since January 1, 1989 and through the date
of this Agreement, but including only such pre-effective amendments to such
registration statements as contain material information not fully reflected in
any subsequent amendment to such registration statements (or to any
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prospectus included therein) delivered to BNI pursuant to this Section 3.7.
(b) As of its filing date, each such report or statement, as
supplemented or amended, if applicable, filed pursuant to the Exchange Act did
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
(c) Each such registration statement, as supplemented or amended, if
applicable, filed pursuant to the 1933 Act as of the date such statement or
amendment became effective did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
SECTION 3.8. Financial Statements. The audited consolidated financial
--------------------
statements and unaudited consolidated interim financial statements of SFP
included in the SFP Form 10-K and the SFP Form 10-Q fairly present, in
conformity with generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes thereto), the
consolidated financial position of SFP and its consolidated Subsidiaries as of
the dates thereof, their consolidated results of operations and cash flows for
the periods then ended (subject to normal year-end adjustments in the case of
the unaudited consolidated interim financial statements) and, in the case of
the SFP Form 10-K, stockholders' equity. For purposes of this Agreement, "SFP
Balance Sheet" means the Consolidated Balance Sheet of SFP as of December 31,
1993 set forth in the SFP Form 10-K, and "Balance Sheet Date" means December
31, 1993.
SECTION 3.9. Disclosure Documents. (a) Each document required to be
--------------------
filed by SFP with the SEC in connection with the transactions contemplated by
this Agreement (the "SFP Disclosure Documents"), including, without limitation,
the definitive proxy statement of SFP (the "SFP Proxy Statement") to be filed
with the SEC in connection with the Merger, and any amendments or supplements
thereto, will, when filed, comply as to form in all material respects with the
applicable requirements of the Exchange Act. At the time the SFP Proxy
Statement or any amendment or supplement thereto is first mailed to stockholders
of SFP and at the time such stockholders vote on adoption of this Agreement, the
SFP Proxy Statement, as supplemented or amended, if applicable, will not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. At the time of the
filing of any SFP Disclosure Document other than the SFP Proxy Statement and at
the time of any distribution thereof,
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such SFP Disclosure Document will not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. The representations and warranties contained in this Section 3.9(a)
will not apply to statements or omissions included in SFP Disclosure Documents
based upon information furnished to SFP in writing by BNI specifically for use
therein.
(b) The registration statements on Form S-1 (the "Form S-1") and the
registration statement on Form 10 (the "Form 10") filed by SFP in connection
with the Spinoff, and any amendments or supplements thereto, or other
appropriate filings made to register the stock of the Spinoff Company under the
1933 Act or the Exchange Act, as amended and supplemented (the "Spinoff
Registration Documents"), when they became effective, complied as to form in all
material respects with the applicable requirements of the 1933 Act and the
Exchange Act. At the time of the effectiveness and at the time that the sale of
securities pursuant to the Spinoff Registration Documents was consummated, the
Spinoff Registration Documents did not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The representations and warranties contained in this
Section 3.9(b) shall not apply to statements or omissions included in the
Spinoff Registration Documents based upon information furnished to SFP in
writing by BNI specifically for use therein.
SECTION 3.10. Information Supplied. The information supplied or to
--------------------
be supplied by SFP for inclusion or incorporation by reference in (i) the BNI
Proxy Statement (as defined in Section 4.9) or any amendment or supplement
thereto will not, at the time the BNI Proxy Statement is first mailed to
stockholders of BNI and at the time such stockholders vote on adoption of this
Agreement, contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading, (ii)
any BNI Disclosure Document (as defined in Section 4.9) (other than the BNI
Proxy Statement will not, at the time of effectiveness of such BNI Disclosure
Document and at the time of any distribution thereof contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading, and (iii) the Form S-4 (as defined in
Section 7.3(a)) will not, at the time the Form S-4 becomes effective under the
1933 Act and at the Effective Time, contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements made
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therein, in light of the circumstances under which they were made, not
misleading.
SECTION 3.11. No Material Adverse Changes. Except as contemplated by
---------------------------
this Agreement or as publicly disclosed prior to the date of this Agreement,
and except as set forth in Schedule 3.11, since the Balance Sheet Date, SFP
and the SFP Material Subsidiaries have conducted their business in the
ordinary course consistent with past practice and there has not been:
(a) any event, occurrence or development of a state of circumstances
or facts which has had or reasonably could be expected to have a Material
Adverse Effect on SFP (other than as a result of (i) changes in conditions,
including economic or political developments, applicable to the railroad
industry generally and (ii) the Spinoff); or
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of SFP capital stock (other than
(x) aggregate cash dividends on the Shares not in excess of $0.10 per Share
in 1994, $0.18 per Share in 1995, $0.20 per Share in 1996 and $0.22 per
Share in 1997, in each case having record and payment dates determined in
accordance with Section 7.8 and (y) the Spinoff).
SECTION 3.12. Undisclosed Material Liabilities. Except for (i)
--------------------------------
liabilities reflected in the SEC Reports listed in Section 3.7 and (ii)
liabilities incurred in the ordinary course of business of SFP and its
Subsidiaries consistent with past practice subsequent to the Balance Sheet Date,
SFP and its Subsidiaries have no liabilities that are material to SFP and there
is no existing condition or set of circumstances which would reasonably be
expected to result in such a liability; provided, however, that this
-------- -------
representation does not cover, and shall not be deemed to be breached as a
result of, any such liability that results primarily from a Customary Action (as
defined in Section 5.1 below).
SECTION 3.13. Litigation. Except as set forth in the SFP Form 10-K
----------
or the SFP Form 10-Q (i) there is no action, suit, investigation or proceeding
(or any basis therefor) pending against, or to the knowledge of SFP threatened
against or affecting, SFP or any of its Subsidiaries or any of their
respective properties before any court or arbitrator or any governmental body,
agency or official where there is a reasonable probability of a determination
adverse to SFP or any of its Subsidiaries which could reasonably be expected
to have a Material Adverse Effect on SFP and (ii) as of the date of this
Agreement, there is no such action, suit, investigation or proceeding which in
any manner challenges or seeks to prevent,
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enjoin, alter or materially delay the Merger, the Spinoff or any of the other
transactions contemplated hereby.
SECTION 3.14. Taxes. Except as set forth in the SFP Balance Sheet
-----
(including the notes thereto) or on Schedule 3.14, (i) all material tax returns,
statements, reports and forms (collectively, the "SFP Returns") required to be
filed with any taxing authority as of the date hereof by, or with respect to,
SFP and its Subsidiaries have been filed in accordance with all applicable laws;
(ii) SFP and its Subsidiaries have timely paid all taxes shown as due and
payable on the SFP Returns that have been so filed and as of the time of filing
the SFP Returns correctly reflected the facts regarding the income, business,
assets, operations, activities and the status of SFP and its Subsidiaries in all
material respects; (iii) SFP and its Subsidiaries have made provision for all
material taxes payable by SFP and its Subsidiaries for which no Return has yet
been filed or in respect of which a final determination has been made; (iv) the
charges, accruals and reserves for taxes with respect to SFP and its
Subsidiaries reflected in the SFP Balance Sheet are adequate under generally
accepted accounting principles to cover the tax liabilities accruing through the
date thereof; and (v) as of the date of this Agreement, there is no action,
suit, proceeding, investigation, audit or claim now proposed or pending against
or with respect to SFP or any of its Subsidiaries in respect of any tax where
there is a reasonable possibility of a determination or decision against SFP or
any of its Subsidiaries which would reasonably be expected to have a Material
Adverse Effect on SFP.
SECTION 3.15. ERISA. (a) Schedule III identifies (i) each "employee
-----
benefit plan", as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA") (other than multiemployer plans (as defined in
Section 3(37) of ERISA)), and (ii) each employment, severance or other similar
contract, arrangement or policy and each retirement or deferred compensation
plan, stock plan, incentive compensation plan, vacation pay, severance pay,
bonus or benefit arrangement, insurance (including self-insured arrangements) or
hospitalization program, workers' compensation program, disability program,
supplemental unemployment program or fringe benefit arrangement, whether
maintained pursuant to contract or informal understanding, which does not
constitute an "employee benefit plan" (as defined in Section 3(3) of ERISA),
which, in the case of items described in both clauses (i) and (ii), is
maintained, administered or contributed to by SFP or any of its ERISA Affiliates
(as defined below), and covers any employee or former employee of SFP or any of
its Subsidiaries or with respect to which SFP or any of its ERISA Affiliates has
any liability (collectively, the "SFP Employee Plans"). True and correct copies
of each of the SFP Employee Plans, all amendments thereto,
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any written interpretations thereof distributed to employees, and all contracts
relating thereto or the funding thereof, including, without limitation, all
trust agreements, insurance contracts, administration contracts, investment
management agreements, subscription and participation agreements, recordkeeping
agreements and summary plan descriptions, all as currently in effect, have been
furnished or made available to BNI. SFP has supplied or made available to BNI
an accurate description of any SFP Employee Plan that is not in written form.
To the extent applicable, true and correct copies of the three most recent
annual reports (Form 5500 including, if applicable, Schedule B thereto) prepared
in connection with any SFP Employee Plan and the most recent actuarial valuation
report prepared in connection with any such plan have been furnished or made
available to BNI. For purposes of this Agreement, "ERISA Affiliate" of any
Person means any other Person which, together with such Person, would be treated
as a single employer under Section 414 of the Code. SFP has made available to
BNI with complete age, salary, service and related data as of the most recent
practical date for employees and former employees of SFP and any of its
Subsidiaries covered under the SFP Employee Plans.
(b) The only SFP Employee Plans that are subject to Title IV of
ERISA (the "SFP Pension Plans") are identified in the list of such plans
provided or made available to BNI by SFP in accordance with Section 3.15(a).
As of the most recent valuation date of each SFP Pension Plan, the present
value of all benefits accrued under each SFP Pension Plan determined on a
termination basis using the assumptions established by the Pension Benefit
Guaranty Corporation (the "PBGC") as in effect on such date was exceeded by
the fair market value of the assets of such SFP Pension Plan (excluding for
these purposes any accrued but unpaid contributions). No "accumulated funding
deficiency", as defined in Section 412 of the Code, has been incurred with
respect to any SFP Pension Plan, whether or not waived. SFP knows of no
"reportable event", within the meaning of Section 4043 of ERISA and the
regulations promulgated thereunder, and no event described in Section 4041
(other than a standard termination), 4042, 4062 or 4063 of ERISA has occurred
in connection with any SFP Pension Plan, other than a "reportable event" that
will not have a Material Adverse Effect on SFP. No condition exists and no
event has occurred that could constitute grounds for termination of or the
appointment of a trustee to administer any SFP Pension Plan under Section 4042
of ERISA and, to SFP's knowledge, neither SFP nor any of its ERISA Affiliates
has engaged in, or is a successor or parent corporation to an entity that has
engaged in, a transaction for which SFP or any of its ERISA Affiliates would
have liability under Section 4069 or 4212(c) of ERISA. To SFP's knowledge,
nothing done or omitted to be done and no transaction or holding of any asset
under or in connection with any SFP Employee Plan has or will make SFP or any
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of its ERISA Affiliates or any officer or director of SFP or any of its ERISA
Affiliates subject to any liability under Title I or Section 4071 of ERISA or
liable for any tax pursuant to Section 4975 or Chapters 43, 47, or 68 of the
Code that could have a Material Adverse Effect.
(c) Each SFP Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified during
the period from its adoption to date, and each trust forming a part thereof is
exempt from tax pursuant to Section 501(a) of the Code. SFP has furnished or
made available to BNI copies of the most recent Internal Revenue Service
determination letters with respect to each such SFP Employee Plan. Each SFP
Employee Plan has been maintained in substantial compliance with its terms and
with the requirements prescribed by any and all statutes, orders, rules and
regulations, including but not limited to ERISA and the Code, which are
applicable to such SFP Employee Plan.
(d) None of the payments contemplated by the contracts, plans or
arrangements covering any employee or former employee of SFP or any of its ERISA
Affiliates and arising solely as a result of the transactions contemplated
hereby would, in the aggregate, constitute excess parachute payments as defined
in Section 280G of the Code (without regard to subsection (b)(4) thereof).
(e) Except for obligations arising pursuant to any collective
bargaining agreements, no condition exists that would prevent SFP or any of
its Subsidiaries from amending or terminating any SFP Employee Plan providing
health or medical benefits in respect of any active or former employees of SFP
and its Subsidiaries.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by SFP or any of its ERISA Affiliates
relating to, or change in employee participation or coverage under, any SFP
Employee Plan which would increase materially the expense of maintaining such
SFP Employee Plan above the level of the expense incurred in respect thereof
for the fiscal year ended on the Balance Sheet Date.
(g) To the extent applicable, each SFP Employee Plan which
constitutes a "group health plan" (as defined in Section 607(1) of ERISA or
Section 4980B(g)(2) of the Code), including any plans of current or former
affiliates which must be taken into account under Sections 4980B and 414(t) of
the Code or Section 601 of ERISA, has been operated in substantial compliance
with applicable law, including the group health plan continuation coverage
requirements of Section 4980B of the Code and Section 601 of ERISA.
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<PAGE>
(h) There are no actions, suits or claims (other than routine claims
for benefits) pending or, to SFP's knowledge, threatened involving any SFP
Employee Plan or the assets thereof and no facts exist with could give rise to
any such actions, suits or claims (other than routine claims for benefits).
(i) SFP has provided or will promptly provide BNI with a list of each
employee pension benefit plan (as defined in Section 3(2) of ERISA) which is a
multiemployer plan with respect to which SFP or any of its ERISA Affiliates may
have any liability (including any liability attributable to a current or former
member of SFP's or any of its ERISA Affiliates' "controlled group" (as defined
in Section 4001(a)(14) of ERISA)) and the maximum amount of such liability
(determined as if a complete withdrawal occurred with respect to each such plan
immediately after the Effective Time). With respect to each such plan, (i) all
contributions have been made as required by the terms of the plans, the terms of
any collective bargaining agreements and applicable law, (ii) neither SFP nor
any of its ERISA Affiliates has withdrawn, partially withdrawn or received any
notice of any claim or demand for withdrawal liability or partial withdrawal
liability that would have a Material Adverse Effect, and (iii) neither SFP nor
any of its ERISA Affiliates has received any notice that any such plan is in
reorganization, that increased contributions may be required to avoid a
reduction in plan benefits or the imposition of any excise tax, that any such
plan is or has been funded at a rate less than that required under Section 412
of the Code or that any plan is or may become insolvent.
(j) As of the Balance Sheet Date, the Expected Postretirement Benefit
Obligation (as defined in Statement of Financial Accounting Standards No. 106)
in respect of postretirement health and medical benefits for current and former
employees of SFP or any of its Subsidiaries calculated by SFP's actuary using
reasonable actuarial assumptions was $291,200,000.
SECTION 3.16. Finders' Fees. Except for Goldman, Sachs & Co., a copy
-------------
of whose engagement agreement has been or will be provided to BNI, there is no
investment banker, broker, finder or other intermediary which has been
retained by or is authorized to act on behalf of SFP or any of its
Subsidiaries who might be entitled to any fee or commission from BNI or any of
its affiliates upon consummation of the transactions contemplated by this
Agreement.
SECTION 3.17. Environmental Matters. (a) Except as set forth in the
---------------------
SFP Form 10-K or otherwise previously disclosed in writing by SFP to BNI,
there are no Environmental Liabilities (as defined below) of SFP that,
individually or in the aggregate,
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have had or would reasonably be expected to have a Material Adverse Effect on
SFP.
(b) As used in this Agreement, "Environmental Laws" means any and
all federal, state, local and foreign statutes, laws, judicial decisions,
regulations, ordinances, rules, judgments, orders, decrees, codes, plans,
injunctions, permits, concessions, grants, franchises, licenses, agreements
and governmental restrictions, whether now or hereafter in effect, relating to
human health, the environment or to emissions, discharges or releases of
pollutants, contaminants, Hazardous Substances or wastes into the environment,
including without limitation ambient air, surface water, ground water or land,
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants, Hazardous Substances or wastes or the clean-up or other
remediation thereof. "Environmental Liabilities" with respect to any Person
means any and all liabilities of or relating to such Person or any of its
Subsidiaries (including any entity which is, in whole or in part, a
predecessor of such Person or any of its Subsidiaries), whether vested or
unvested, contingent or fixed, actual or potential, known or unknown, which
(i) arise under or relate to matters covered by Environmental Laws and (ii)
relate to actions occurring or conditions existing on or prior to the Closing
Date. "Hazardous Substances" means any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives, by-
products and other hydrocarbons, or any substance having any constituent
elements displaying any of the foregoing characteristics, including, without
limitation, any substance regulated under Environmental Laws.
SECTION 3.18. Takeover Statutes. No "fair price", "moratorium",
-----------------
"control share acquisition" or other similar antitakeover statute or
regulation enacted under state or federal laws in the United States (each a
"Takeover Statute"), including, without limitation, Section 203 of the
Delaware General Corporation Law (the "DGCL"), applicable to SFP or any of its
Subsidiaries is applicable to the Merger or the other transactions
contemplated hereby.
SECTION 3.19. Compliance With Laws. Except as publicly disclosed,
--------------------
and except for any matter that would not reasonably be expected to have a
Material Adverse Effect on SFP, neither SFP nor any of its Subsidiaries is in
violation of, or has violated, any applicable provisions of any laws,
statutes, ordinances or regulations.
SECTION 3.20. Spinoff Dividend. The board of directors of SFP has
----------------
declared the Spinoff Dividend, and the Liquidation of Properties (as those
terms are defined in Section 3.21 below) has
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occurred prior to the date of this Agreement in conformity with the Private
Letter Ruling (as defined below).
SECTION 3.21. Private Letter Ruling. SFP has received from the
---------------------
Internal Revenue Service a valid and effective private letter ruling dated
February 16, 1994 (and supplemented on May 18, 1994) (the "Private Letter
Ruling") to the effect that (i) the Spinoff qualifies as a tax-free
distribution under Section 355 of the Code and (ii) the merger of SFP
Properties, Inc. ("Properties") with and into SFP (the "Liquidation") will be
treated as a distribution by Properties to SFP in complete liquidation of
Properties within the meaning of Section 322 of the Code. A copy of the
Private Letter Ruling has been provided to BNI.
SECTION 3.22. Excess Loss Accounts. The income that will be
--------------------
recognized, for federal income tax purposes, upon the Spinoff arising from
excess loss accounts in the stock of the Spinoff Company and its subsidiaries
will be approximately $30 million.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BNI
BNI represents and warrants to SFP that, except as disclosed in Schedule IV
hereto:
SECTION 4.1. Corporate Existence and Power. BNI is a corporation
-----------------------------
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to
carry on its business as now conducted. BNI is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction where
the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except for those jurisdictions
where the failure to be so qualified would not, individually or in the
aggregate, have a Material Adverse Effect on BNI. BNI has heretofore delivered
to SFP true and complete copies of the certificates of incorporation and
bylaws of BNI as currently in effect.
SECTION 4.2. Corporate Authorization. The execution, delivery and
-----------------------
performance by BNI of this Agreement and the consummation by BNI of the
transactions contemplated hereby are within the corporate powers of BNI and,
except as set forth in the next sentence, have been duly authorized by all
necessary corporate action. The affirmative vote of the holders of a majority
of the outstanding shares of BNI Common Stock entitled
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to vote thereon is the only vote of any class or series of BNI capital stock
necessary to approve this Agreement and the transactions contemplated hereby.
This Agreement constitutes a valid and binding agreement of BNI.
SECTION 4.3. Governmental Authorization. The execution, delivery and
--------------------------
performance by BNI of this Agreement and the consummation of the Merger by BNI
require no action by or in respect of, or filing with, any governmental body,
agency, official or authority other than (i) the filing of a certificate of
merger in accordance with Delaware Law; (ii) compliance with any applicable
requirements of the HSR Act; (iii) compliance with any applicable requirements
relating to approval of the Merger by the ICC; (iv) compliance with any
applicable requirements of the Exchange Act; (v) compliance with the applicable
requirements of the 1933 Act; (vi) compliance with any applicable foreign or
state securities or Blue Sky laws; and (vii) immaterial actions or filings
relating to ordinary operational matters.
SECTION 4.4. Non-Contravention. The execution, delivery and
-----------------
performance by BNI of this Agreement and the consummation by BNI of the
transactions contemplated hereby do not and will not (except, in the case of
clauses (ii), (iii) and (iv) of this Section 4.4, for any such matters that
singly or in the aggregate have not had, and would not reasonably be expected
to have, a Material Adverse Effect on BNI) (i) contravene or conflict with the
certificate of incorporation or bylaws of BNI, (ii) assuming compliance with
the matters referred to in Section 4.3, contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to BNI or any
Subsidiary of BNI, (iii) constitute a default under or give rise to any right
of termination, cancellation or acceleration of any right or obligation of BNI
or any of its Subsidiaries or to a loss of any benefit to which BNI or any of
its Subsidiaries is entitled under any agreement, contract or other instrument
binding upon BNI or any of its Subsidiaries or any license, franchise, permit
or other similar authorization held by BNI or any of its Subsidiaries, or (iv)
result in the creation or imposition of any Lien on any asset of BNI or any
Subsidiary of BNI.
SECTION 4.5. Capitalization. (a) The authorized capital stock of BNI
--------------
consists of three hundred million (300,000,000) shares of BNI Common Stock and
twenty-five million (25,000,000) shares of No Par Value Preferred Stock,
including six million nine hundred thousand (6,900,000) shares of 6- 1/4%
Cumulative Convertible Preferred Stock, Series A No Par Value ("6- 1/4%
Convertible Preferred Stock") and fifty million (50,000,000) shares of Class A
Preferred Stock, No Par Value ("Class A Preferred Stock"). As of May 31, 1994
there were outstanding (i) 89,208,870 shares of BNI Common Stock (including
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7,800 shares issued after May 31, 1994 with effect prior to such date),
15,104,280 shares were reserved for issuance pursuant to stock option plans,
303,532 shares were reserved for issuance pursuant to "restricted stock" plans
and 94,572 shares were held in the treasury, (ii) six million nine hundred
thousand (6,900,000) shares of 6- 1/4% Convertible Preferred Stock, (iii) no
shares of Class A Preferred Stock, and (iv) employee stock options to purchase
an aggregate of 4,170,536 shares of BNI Common Stock (of which options to
purchase an aggregate of 2,925,611 shares were exercisable). All outstanding
shares of capital stock of BNI have been duly authorized and validly issued and
are fully paid and nonassessable. Except as set forth in this Section or as
contemplated by Section 6.1, except for the exercise of employee stock options
outstanding on May 31, 1994 or issued since that date in accordance with Section
6.1 and except for changes since that date resulting from the conversion of
shares of the 6- 1/4% Convertible Preferred Stock, there are outstanding (x) no
shares of capital stock or other voting securities of BNI, (y) no securities of
BNI or any of its Subsidiaries convertible into or exchangeable for shares of
capital stock or voting securities of BNI and (z) no options or other rights to
acquire from BNI or any of its Subsidiaries, and no obligation of BNI or any of
its Subsidiaries to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of BNI
(the items in clauses (x), (y) and (z) being referred to collectively as the
"BNI Securities"). There are no outstanding obligations of BNI or any
Subsidiary of BNI to repurchase, redeem or otherwise acquire any BNI Securities.
(b) As of the date hereof, there are no outstanding bonds, debentures,
notes or other indebtedness of BNI having the right to vote (or convertible into
or exercisable for BNI Securities having the right to vote) on any matters on
which holders of BNI Common Stock may vote (collectively, "BNI Voting Debt").
SECTION 4.6. Material Subsidiaries. (a) Each Subsidiary of BNI is
---------------------
identified on Schedule 4.6(a). For purposes of this Agreement, the term "BNI
Material Subsidiary" means each Subsidiary of BNI identified as material on
Schedule 4.6(a). Each BNI Material Subsidiary is either (i) a corporation that
is duly incorporated, validly existing and in good standing under the laws of
its jurisdiction of incorporation, has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted and is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where failure
to be so qualified would not,
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individually or in the aggregate, have a Material Adverse Effect on BNI, or (ii)
a partnership that is duly formed and in good standing under the laws of its
jurisdiction of formation and has all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted and is duly qualified to do business and is in good standing in each
jurisdiction where the character of the property owned or leased by it or the
nature of its activities makes such qualification necessary, except for those
jurisdictions where failure to be so qualified would not, individually or in the
aggregate, have a Material Adverse Effect on BNI.
(b) Except as set forth in the BNI Form 10-K (as defined in Section
4.7(a)), all of the outstanding capital stock of, or other ownership interests
in, each BNI Subsidiary, is owned by BNI, directly or indirectly, free and clear
of any Lien and free of any other limitation or restriction (including any
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests). Other than those obligations identified on
Schedule 4.6(b), there are no outstanding (i) securities of BNI or any of its
Subsidiaries convertible into or exchangeable for shares of capital stock or
other voting securities or ownership interests in any Subsidiary of BNI, and
(ii) options or other rights to acquire from BNI or any of its Subsidiaries, and
no other obligation of BNI or any of its Subsidiaries to issue, any capital
stock, voting securities or other ownership interests in, or any securities
convertible into or exchangeable for any capital stock, voting securities or
ownership interests in, any Subsidiary of BNI (the capital stock of each
Subsidiary of BNI, together with the items in clauses (i) and (ii), being
referred to collectively as the "BNI Subsidiary Securities"). There are no
outstanding obligations of BNI or any Subsidiary of BNI to repurchase, redeem or
otherwise acquire any outstanding BNI Subsidiary Securities.
SECTION 4.7. SEC Filings. (a) BNI has delivered to SFP (i) the
-----------
annual reports on Form 10-K for its fiscal years ended December 31, 1989,
December 31, 1990, December 31, 1991, December 31, 1992, and December 31, 1993
(this latest form 10-K being referred to herein as the "BNI Form 10-K"), (ii)
its quarterly report on Form 10-Q for its fiscal quarter ending March 31, 1994
(this Form 10-Q being referred to herein as the "BNI Form 10-Q"), (iii) its
proxy statements (as defined in Regulation 14A issued pursuant to the Exchange
Act) relating to meetings of the stockholders of BNI held since January 1,
1989, and (iv) all other reports, statements, schedules and registration
statements filed by BNI and its Subsidiaries with the SEC since January 1,
1989 and through the date of this Agreement, but including only such pre-
effective amendments and such registration statements as contain material
information not fully reflected in any subsequent amendments to such
registration statements (or any
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prospectus included therein) delivered to SFP pursuant to this Section 4.7.
(b) As of its filing date, each such report or statement, as
supplemented or amended, if applicable, filed pursuant to the Exchange Act did
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
(c) Each such registration statement, as supplemented or amended, if
applicable, filed pursuant to the 1933 Act as of the date such statement or
amendment became effective did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
SECTION 4.8. Financial Statements. The audited consolidated
--------------------
financial statements and unaudited consolidated interim financial statements
of BNI included in the BNI Form 10-K and the BNI Form 10-Q fairly present, in
conformity with generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes thereto), the
consolidated financial position of BNI and its consolidated Subsidiaries as of
the dates thereof, their consolidated results of operations and cash flows for
the periods then ended (subject to normal year-end adjustments in the case of
the unaudited consolidated interim financial statements) and, in the case of
the BNI Form 10-K, stockholders' equity. For purposes of this Agreement, "BNI
Balance Sheet" means the Consolidated Balance Sheet of BNI as of the Balance
Sheet Date set forth in the BNI Form 10-K.
SECTION 4.9. Disclosure Documents. Each document required to be
--------------------
filed by BNI with the SEC in connection with the transactions contemplated by
this Agreement (the "BNI Disclosure Documents"), including, without limitation
the definitive proxy statement of BNI (the "BNI Proxy Statement") to be filed
with the SEC in connection with the Merger, and any amendments or supplements
thereto, will, when filed, comply as to form in all material respects with the
applicable requirements of the Exchange Act. At the time the BNI Proxy
Statement or any amendment or supplement thereto is first mailed to
stockholders of BNI and at the time such stockholders vote on adoption of this
Agreement, the BNI Proxy Statement, as supplemented or amended, if applicable,
will not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. At the time
of the filing of any BNI Disclosure Document other than the BNI Proxy
Statement and at the time of any distribution thereof,
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such BNI Disclosure Document will not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. The representations and warranties contained in this Section 4.9
will not apply to statements or omissions included in the BNI Disclosure
Documents based upon information furnished to BNI in writing by SFP specifically
for use therein.
SECTION 4.10. Information Supplied. The information supplied or to
--------------------
be supplied by BNI for inclusion or incorporation by reference in (i) the SFP
Proxy Statement or any amendment or supplement thereto will not, at the time
the SFP Proxy Statement is first mailed to stockholders of SFP and at the time
such stockholders vote on adoption of this Agreement contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading, and (ii) any SFP Disclosure Document
(other than the SFP Proxy Statement) will not, at the time of effectiveness of
such SFP Disclosure Document and at the time of any distribution thereof
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
SECTION 4.11. No Material Adverse Changes. Except as contemplated by
---------------------------
this Agreement or as publicly disclosed prior to the date of this Agreement,
and except as set forth in Schedule 4.11, since the Balance Sheet Date, BNI
and the BNI Material Subsidiaries have conducted their business in the
ordinary course consistent with past practice and there has not been:
(a) any event, occurrence or development of a state of circumstances
or facts which has had or reasonably could be expected to have a Material
Adverse Effect on BNI (other than as a result of changes in conditions,
including economic or political developments, applicable to the railroad
industry generally); or
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of BNI Common Stock (other than
aggregate cash dividends not in excess of $1.20 per share in 1994, $1.32
per share in 1995, $1.48 per share in 1996, and $1.64 per share in 1997, in
each case having record and payment dates determined in accordance with
Section 7.8).
SECTION 4.12. Undisclosed Material Liabilities. Except for (i)
--------------------------------
liabilities reflected in the SEC Reports listed in Section 4.7 and (ii)
liabilities incurred in the ordinary course
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<PAGE>
of business of BNI and its Subsidiaries subsequent to the Balance Sheet Date,
BNI and its Subsidiaries have no liabilities that are material to BNI and there
is no existing condition or set of circumstances which could reasonably be
expected to result in such a liability; provided, however, that this
-------- -------
representation does not cover, and shall not be deemed to be breached as a
result of, any such liability that primarily results from a Customary Action (as
defined in Section 5.1 below).
SECTION 4.13. Litigation. Except as set forth in the BNI Form 10-K
----------
or the BNI Form 10-Q, (i) there is no action, suit, investigation or
proceeding (or any basis therefor) pending against, or to the knowledge of BNI
threatened against or affecting, BNI or any of its Subsidiaries or any of
their respective properties before any court or arbitrator or any governmental
body, agency or official where there is a reasonable probability of a
determination adverse to BNI or any of its Subsidiaries which could reasonably
be expected to have a Material Adverse Effect on BNI and (ii) as of the date
of this Agreement, there is no such action, suit, investigation or proceeding
which in any manner challenges or seeks to prevent, enjoin, alter or
materially delay the Merger or any of the other transactions contemplated
hereby.
SECTION 4.14. Taxes. Except as set forth in the BNI Balance Sheet
-----
(including the notes thereto) or on Schedule 4.14, (i) all material tax returns,
statements, reports and forms (collectively, the "BNI Returns") required to be
filed with any taxing authority as of the date hereof by, or with respect to,
BNI and its Subsidiaries have been filed in accordance with all applicable laws;
(ii) BNI and its Subsidiaries have timely paid all taxes shown as due and
payable on the BNI Returns that have been so filed and as of the time of filing
the BNI Returns correctly reflected the facts regarding the income, business,
assets, operations, activities and the status of BNI and its Subsidiaries in all
material respects; (iii) BNI and its Subsidiaries have made provision for all
material taxes payable by BNI and its Subsidiaries for which no Return has yet
been filed or in respect of which a final determination has been made; (iv) the
charges, accruals and reserves for taxes with respect to BNI and its
Subsidiaries reflected on the BNI Balance Sheet are adequate under generally
accepted accounting principles to cover the tax liabilities accruing through the
date thereof; and (v) as of the date of this Agreement there is no action, suit,
proceeding, investigation, audit or claim now proposed or pending against or
with respect to BNI or any of its Subsidiaries in respect of any tax where there
is a reasonable possibility of a determination or decision against BNI or any of
its Subsidiaries which would reasonably be expected to have a Material Adverse
Effect on BNI.
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<PAGE>
SECTION 4.15. ERISA. (a) Schedule IV identifies (i) each "employee
-----
benefit plan", as defined in Section 3(3) of ERISA (other than multiemployer
plans (as defined in Section 3(37) of ERISA)), and (ii) each employment,
severance or other similar contract, arrangement or policy and each retirement
or deferred compensation plan, stock plan, incentive compensation plan, vacation
pay, severance pay, bonus or benefit arrangement, insurance (including self-
insured arrangements) or hospitalization program, workers' compensation program,
disability program, supplemental unemployment program or fringe benefit
arrangement, whether maintained pursuant to contract or informal understanding,
which does not constitute an "employee benefit plan" (as defined in Section 3(3)
of ERISA), which, in the case, of items described in both clauses (i) and (ii)
is maintained, administered or contributed to by BNI or any of its ERISA
Affiliates and covers any employee or former employee of BNI or any of its
Subsidiaries or with respect to which BNI or any of its ERISA Affiliates has any
liability (collectively, the "BNI Employee Plans"). True and correct copies of
each of the BNI Employee Plans, all amendments thereto, any written
interpretations thereof distributed to employees, and all contracts relating
thereto or the funding thereof, including, without limitation, all trust
agreements, insurance contracts, administration contracts, investment management
agreements, subscription and participation agreements, recordkeeping agreements
and summary plan descriptions, all as currently in effect, have been furnished
or made available to SFP. BNI has supplied or made available to SFP an accurate
description of any BNI Employee Plan that is not in written form. To the extent
applicable, true and correct copies of the three most recent annual reports
(Form 5500 including, if applicable, Schedule B thereto) prepared in connection
with any BNI Employee Plan and the most recent actuarial valuation report
prepared in connection with any such plan have been furnished or made available
to SFP. BNI has made available to SFP complete age, salary, service and related
data as of the most recent practical date for employees and former employees of
BNI and any of its Subsidiaries covered under the BNI Employee Plans.
(b) The only BNI Employee Plans that are subject to Title IV of
ERISA (the "BNI Pension Plans") are identified in the list of such Plans
provided or made available to SFP by BNI in accordance with Section 4.15(a).
As of the most recent valuation date of each BNI Pension Plan, the present
value of all benefits accrued under each BNI Pension Plan, determined on a
termination basis using the assumptions established by the PBGC as in effect
on such date was exceeded by the fair market value of the assets of such BNI
Pension Plan, (excluding for these purposes any accrued but unpaid
contributions). No "accumulated funding deficiency", as defined in Section 412
of the Code, has been incurred with respect to any BNI Pension Plan, whether
or not
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<PAGE>
waived. BNI knows of no "reportable event", within the meaning of Section 4043
of ERISA and the regulations promulgated thereunder, and no event described in
Sections 4041 (other than a standard termination), 4042, 4062 or 4063 of ERISA
has occurred in connection with any BNI Pension Plan, other than a "reportable
event" that will not have a Material Adverse Effect on BNI. No condition exists
and no event has occurred that could constitute grounds for termination of or
the appointment of a trustee to administer any BNI Pension Plan under Section
4042 of ERISA and, to BNI's knowledge, neither BNI nor any of its ERISA
Affiliates has engaged in, or is a successor parent corporation to an entity
that has engaged in, a transaction for which BNI or any of its ERISA Affiliates
would have liability under Sections 4069 or 4212(c) of ERISA. To BNI's
knowledge nothing done or omitted to be done and no transaction or holding of
any asset under or in connection with any BNI Employee Plan has or will make BNI
or any of its ERISA Affiliates, any officer or director of BNI or any of its
ERISA Affiliates subject to any liability under Title I or Section 4071 of ERISA
or liable for any tax pursuant to Section 4975 or Chapters 43, 47 or 68 of the
Code that could have a Material Adverse Effect.
(c) Each BNI Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified during
the period from its adoption to date, and each trust forming a part thereof is
exempt from tax pursuant to Section 501(a) of the Code. BNI has furnished or
made available to SFP copies of the most recent Internal Revenue Service
determination letters with respect to each such BNI Employee Plan. Each BNI
Employee Plan has been maintained in substantial compliance with its terms and
with the requirements prescribed by any and all statutes, orders, rules and
regulations, including but not limited to ERISA and the Code, which are
applicable to such BNI Plan.
(d) None of the payments contemplated by the contracts, plans or
arrangements covering any employee or former employee of BNI or any of its ERISA
Affiliates and arising solely as a result of the transactions contemplated
hereby would, in the aggregate, constitute excess parachute payments as defined
in Section 280G of the Code (without regard to subsection (b)(4) thereof).
(e) Except for obligations arising pursuant to any collective
bargaining agreements, no condition exists that would prevent BNI or any of
its Subsidiaries from amending or terminating any BNI Employee Plan providing
health or medical benefits in respect of any active or former employees of BNI
and its Subsidiaries.
-27-
<PAGE>
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by BNI or any of its ERISA Affiliates
relating to, or change in employee participation or coverage under, any BNI
Employee Plan which would increase materially the expense of maintaining such
BNI Employee Plan above the level of the expense incurred in respect thereof
for the fiscal year ended on the Balance Sheet Date.
(g) To the extent applicable, each BNI Employee Plan which
constitutes a "group health plan" (as defined in Section 607(1) of ERISA or
Section 4980B(g)(2) of the Code), including any plans of current or former
affiliates which must be taken into account under Sections 4980B and 414(t) of
the Code or Section 601 of ERISA, has been operated in substantial compliance
with applicable law, including the group health plan continuation coverage
requirements of Section 4980B of the Code and Section 601 of ERISA.
(h) There are no actions, suits or claims (other than routine claims
for benefits) pending or, to BNI's knowledge, threatened involving any BNI
Employee Plan or the assets thereof and no facts exist with could give rise to
any such actions, suits or claims (other than routine claims for benefits).
(i) BNI has provided or will promptly provide SFP with a list of
each employee pension benefit plan (as defined in Section 3(2) of ERISA) which
is a multiemployer plan with respect to which BNI or any of its ERISA
Affiliates may have any liability (including any liability attributable to a
current or former member of BNI's or any of its ERISA Affiliates' "controlled
group" (as defined in Section 4001(a)(14) of ERISA)) and the maximum amount of
such liability (determined as if a complete withdrawal occurred with respect
to each such plan immediately after the Effective Time). With respect to each
such plan, (i) all contributions have been made as required by the terms of
the plans, the terms of any collective bargaining agreements and applicable
law, (ii) neither BNI nor any of its ERISA Affiliates has withdrawn, partially
withdrawn or received any notice of any claim or demand for withdrawal
liability or partial withdrawal liability that would have a Material Adverse
Effect, and (iii) neither BNI nor any of its ERISA Affiliates has received any
notice that any such plan is in reorganization, that increased contributions
may be required to avoid a reduction in plan benefits or the imposition of any
excise tax, that any such plan is or has been funded at a rate less than that
required under Section 412 of the Code or that any plan is or may become
insolvent.
(j) As of the Balance Sheet Date, the Expected Postretirement Benefit
Obligation (as defined in Statement of Financial Accounting Standards No. 106)
in respect of
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<PAGE>
postretirement life, health and medical insurance benefits for current and
former employees of BNI or any of its Subsidiaries calculated by BNI's actuary
using reasonable actuarial assumptions was $17,000,000.
SECTION 4.16. Finders' Fees. Except for Lazard Freres & Co., a copy
-------------
of whose engagement agreement has been or will be provided to SFP and whose
fees will be paid by BNI, there is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on
behalf of BNI, the Surviving Corporation or any Subsidiary of BNI who might be
entitled to any fee or commission from BNI, the Surviving Corporation or any
Subsidiary of BNI upon consummation of the transactions contemplated by this
Agreement.
SECTION 4.17. Environmental Matters. Except as set forth in the BNI
---------------------
Form 10-K or otherwise previously disclosed in writing by BNI to SFP, there
are no Environmental Liabilities of BNI that, individually or in the
aggregate, have had or would reasonably be expected to have a Material Adverse
Effect on BNI.
SECTION 4.18. Takeover Statutes. No Takeover Statute, including,
-----------------
without limitation, Section 203 of the DGCL, applicable to BNI or any of its
Subsidiaries is applicable to the Merger or the other transactions
contemplated hereby.
SECTION 4.19. Compliance with Laws. Except as publicly disclosed,
--------------------
and except for any matter that would not reasonably be expected to have a
Material Adverse Effect on BNI, neither BNI nor any of its Subsidiaries is in
violation of, or has violated, any applicable provisions of any laws,
statutes, ordinances or regulations.
SECTION 4.20. BNI Rights Agreement. Under the Rights Agreement
--------------------
between BNI and The First National Bank of Boston, dated as of July 14, 1986
(the "BNI Rights Agreement"), SFP will not become an "Acquiring Person", no
"Stock Acquisition Date" or "Distribution Date" (as such terms are defined in
the BNI Rights Agreement) will occur, and BNI's shareholders will not be
entitled to receive any benefits under the BNI Rights Agreement as a result of
the approval, execution or delivery of this Agreement or the consummation of
the Merger.
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<PAGE>
ARTICLE V
COVENANTS OF SFP
SFP agrees that:
SECTION 5.1. Conduct of SFP. From the date hereof until the
--------------
Effective Time, except as provided in Schedule V, SFP and the SFP Material
Subsidiaries shall conduct their business in the ordinary course of business
consistent with past practice and shall use their reasonable best efforts to
preserve intact their business organizations and relationships with third
parties; provided that nothing in this Section shall be deemed to prevent SFP
--------
and its Subsidiaries from undertaking any action necessary, proper or
advisable to effectuate the Spinoff and all related transactions in accordance
with and subject to the conditions set forth in this Agreement; and provided
--------
further that nothing in this Section shall be deemed to prevent SFP and its
- - -------
Subsidiaries from taking any action referred to in clauses (b)(ii), (c), (f)
or (g) of this Section 5.1 where the taking of such action is not consistent
with the past practices of SFP and its Subsidiaries if, but only if, such
action is a Customary Action. For purposes of this Agreement, an action shall
be considered a "Customary Action" where such action occurs in the ordinary
course of the relevant Person's business and where the taking of such action
is generally recognized as being customary and prudent for other major
enterprises in such Person's line of business. Without limiting the generality
of the foregoing, from the date hereof until the Effective Time:
(a) SFP will not adopt or propose any change in its certificate of
incorporation or bylaws;
(b) Except for the Merger and the Spinoff, SFP will not, and will not
permit any Subsidiary of SFP, (i) to adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization or (ii) make any acquisition of
any business or other assets, whether by means of merger, consolidation or
otherwise, other than in the ordinary course of business consistent with
past practices and other than acquisitions that are Customary Actions;
(c) SFP will not, and will not permit any Subsidiary of SFP to, sell,
lease, license or otherwise dispose of any material assets or property
except (i) the Spinoff, (ii) pursuant to existing contracts or commitments,
(iii) in the ordinary course of business consistent with past practice and
(iv) any such sale, lease, license or other disposition that is a Customary
Action;
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<PAGE>
(d) SFP will not, and will not permit any Subsidiary of SFP to,
declare, set aside, or pay any dividend or make any other distribution with
respect to any shares of SFP capital stock other than (i) cash dividends on
SFP Common Stock not in excess of the amounts set forth in Section 3.11(b)
and having record and payment dates determined as set forth in Section 7.8,
and (ii) the Spinoff;
(e) Except (i) as expressly permitted by this Section 5.1, Section 5.7
or (ii) pursuant to existing contracts or commitments, SFP will not, and
will not permit any Subsidiary of SFP to, issue, deliver or sell, or
authorize or propose the issuance, delivery or sale of, any SFP Securities,
any SFP Voting Debt, any SFP Subsidiary Securities or any securities
convertible into or exchangeable for, or any rights, warrants or options to
acquire, any SFP Securities, SFP Voting Debt or SFP Subsidiary Securities;
(f) Except for (i) borrowings under existing credit facilities,
replacements therefor and refinancings thereof, (ii) borrowings in the
ordinary course of business consistent with past practice or (iii)
borrowings that are Customary Actions, SFP will not, and will not permit
any Subsidiary of SFP to, incur any indebtedness for borrowed money or
guarantee any such indebtedness;
(g) Except for loans, advances, capital contributions or investments
made in the ordinary course of business consistent with past practice and
except for loans, advances, capital contributions or investments that are
Customary Actions, SFP will not, and will not permit any Subsidiary of SFP
to, make any loans, advances or capital contributions to, or investments
in, any other Person (other than to SFP or any Subsidiary of SFP);
(h) (i) Except for any of the actions referred to in this clause (i)
that is taken in the ordinary course of business consistent in magnitude
and character with past practice and with the terms of severance or
termination arrangements in effect or pending on the date hereof with
respect to individuals with comparable positions or responsibilities, and
except for any of such actions which, in the aggregate, are not material,
as hereinafter defined, SFP will not, and will not permit any of its
Subsidiaries to, grant any severance or termination pay to, or enter into
any termination or severance arrangement with, any of its directors,
executive officers or employees and (ii) except for any of the actions
referred to in this clause (ii) that is taken in the ordinary course of
business consistent in aggregate in magnitude and character with past
practice, and
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<PAGE>
except for any of such actions which in the aggregate are not material, as
hereinafter defined, SFP will not, and will not permit any of its
Subsidiaries to, establish, adopt, enter into, amend or take action to
accelerate any rights or benefits under, or grant awards under, (A) any
plan or arrangement providing for options, stock, performance awards or
other forms of incentive or deferred compensation or (B) any collective
bargaining, bonus, profit sharing, thrift, compensation, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any of its directors, executive officers or employees. For
purposes of this subsection (h), "material" shall mean material in relation
to the overall compensation costs of SFP and its Subsidiaries.
(i) SFP will not, and will not permit any Subsidiary of SFP to, agree
or commit to do any of the actions prohibited by Sections 5.1(a) through
5.1(h).
SECTION 5.2. Stockholder Meeting. SFP shall cause a special meeting
-------------------
of its stockholders (the "SFP Stockholder Meeting") to be duly called and held
as soon as reasonably practicable after the date of this Agreement for the
purpose of voting on the approval and adoption of this Agreement and the
Merger. The board of directors of SFP shall recommend approval and adoption of
this Agreement and the Merger by its stockholders; provided, however, that
-------- -------
prior to the SFP Stockholder Meeting such recommendation may be withdrawn,
modified or amended to the extent that, as a result of the commencement or
receipt of a Takeover Proposal (as defined in Section 5.8) relating to SFP,
the board of directors of SFP deems it necessary to do so in the exercise of
its fiduciary obligations to SFP stockholders after being so advised by
counsel.
SECTION 5.3. Access to Information. Subject to any confidentiality
---------------------
agreements or other confidentiality obligations binding upon SFP or any of its
Subsidiaries, from the date hereof until the Effective Time, SFP will give BNI,
its counsel, financial advisors, auditors and other authorized representatives
full access to the offices, properties, books and records of SFP and its
Subsidiaries, will furnish to BNI, its counsel, financial advisors, auditors and
other authorized representatives such financial and operating data and other
information as such Persons may reasonably request and will instruct SFP's
employees, counsel and financial advisors to cooperate with BNI in its
investigation of the business of SFP and its Subsidiaries; provided that no
investigation pursuant to this Section shall affect any representation or
warranty given by SFP to BNI hereunder; and provided further that access to
certain
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<PAGE>
information will require the entry of a protective order by the ICC, after which
date full access will be granted to such information consistent with this
paragraph and subject to the terms of such order.
SECTION 5.4. Notices of Certain Events. SFP shall promptly notify
-------------------------
BNI of:
(i) any notice or other communication from any person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement including, without limitation, the Spinoff
and the Liquidation; and
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to the best of its knowledge threatened against, relating to
or involving or otherwise affecting SFP or any Subsidiary of SFP which, if
pending on the date of this Agreement, would have been required to have
been disclosed pursuant to Section 3.13 or which relate to the consummation
of the transactions contemplated by this Agreement.
SECTION 5.5. Tax Matters. From the date hereof until the Effective
-----------
Time, (i) SFP and its Subsidiaries will file all significant tax returns,
statements, reports and forms (collectively, the "SFP Post-Signing Returns")
required to be filed with any taxing authority in accordance with all
applicable laws; (ii) SFP and its Subsidiaries will timely pay all taxes shown
as due and payable on the SFP Post-Signing Returns that are so filed and as of
the time of filing, the SFP Post-Signing Returns will correctly reflect the
facts regarding the income, business, assets, operations activities and the
status of SFP and its Subsidiaries in all material respects; (iii) SFP and its
Subsidiaries will make provision for all taxes payable by SFP and its
Subsidiaries for which no SFP Post-Signing Return is due prior to the
Effective Time; and (iv) SFP and its Subsidiaries will promptly notify BNI of
any action, suit, proceeding, investigation, audit or claim pending against or
with respect to SFP or any of its Subsidiaries in respect of any tax where
there is a reasonable possibility of a determination or decision against SFP
which would reasonably be expected to have a significant adverse effect on
SFP's tax liabilities or other tax attributes.
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<PAGE>
SECTION 5.6. Rule 145 Affiliates. At least 40 days prior to the
-------------------
Closing Date, SFP shall deliver to BNI a letter identifying all persons who
are, at the time of the meeting of SFP Stockholders Meeting, deemed to be
"affiliates" of SFP for purposes of Rule 145 under the 1933 Act (the "1933 Act
Affiliates"). SFP shall use its reasonable best efforts to cause each Person
who is identified as a possible 1933 Act Affiliate to deliver to BNI at least
30 days prior to the Closing Date an agreement substantially in the form of
Exhibit A to this Agreement.
SECTION 5.7. The Spinoff. SFP will not, and will not permit any of
-----------
its Subsidiaries (other than the Spinoff Company and its Subsidiaries) to,
enter into or undertake any transaction, arrangement or agreement with the
Spinoff Company or its Subsidiaries except for (i) transactions, arrangements
or agreements that have been entered into on or prior to the date of this
Agreement which have been provided to BNI on or prior to the date hereof, (ii)
the allocation to employees of the Spinoff Company of their share of the SFP
employee benefit plans in accordance with applicable law or (iii) such other
transactions, arrangements or agreements that are consented to by BNI (such
consent not to be unreasonably withheld). Without limiting the generality of
the foregoing, in no event may SFP or any of its Subsidiaries pay any
dividend, or make any distribution, to holders of SFP Common Stock directly or
indirectly in connection with the Spinoff, except for the Spinoff Dividend.
Nothing in this Section 5.7 shall prevent SFP or the Spinoff Company from
taking actions (including, but not limited to filings with and no-action
requests of the SEC, communications with shareholders, and the liquidation of
subsidiaries of the Spinoff Company) reasonably necessary to effectuate the
Spinoff. It shall not be a breach of this Agreement for SFP to pay any taxes
arising from excess loss accounts (not materially greater than the amount
represented in Section 3.22) in the stock of the Spinoff Company or its
subsidiaries. SFP will use its reasonable best efforts to ensure that the
conditions specified in the Private Letter Ruling are satisfied.
SECTION 5.8. No Solicitations. SFP will not, and SFP will use its
----------------
reasonable best efforts to ensure that its officers, directors, employees or
other agents of SFP do not, directly or indirectly: initiate, solicit or
encourage, or take any action to facilitate the making of, any offer or proposal
which constitutes or is reasonably likely to lead to any Takeover Proposal of
SFP, or, in the event of an unsolicited Takeover Proposal of SFP, except to the
extent required by their fiduciary duties under applicable law if so advised by
outside counsel, engage in negotiations or provide any confidential information
or data to any Person relating to any such Takeover Proposal. SFP shall notify
BNI orally and in writing of any such inquiries,
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<PAGE>
offers or proposals (including, without limitation, the terms and conditions of
any such proposal and the identity of the person making it), within 48 hours of
the receipt thereof and shall give BNI five days' advance notice of any
agreement to be entered into with or any information to be supplied to any
Person making such inquiry, offer or proposal. SFP shall immediately cease and
cause to be terminated all existing discussions and negotiations, if any, with
any parties conducted heretofore with respect to any Takeover Proposal of SFP.
As used in this Agreement, "Takeover Proposal" when used in connection with any
Person shall mean any tender or exchange offer, proposal for a merger,
consolidation or other business combination involving such Person or any
Subsidiary of such Person, or any proposal or offer to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets of such
Person or any Subsidiary of such Person, other than pursuant to the transactions
contemplated by this Agreement.
ARTICLE VI
COVENANTS OF BNI
BNI agrees that:
SECTION 6.1. Conduct of BNI. From the date hereof until the
--------------
Effective Time, except as provided in Schedule VI, BNI and the BNI Material
Subsidiaries shall conduct their business in the ordinary course of business
consistent with past practice and shall use their reasonable best efforts to
preserve intact their business organizations and relationships with third
parties; provided that nothing in this Section shall be deemed to prevent BNI
--------
and its Subsidiaries from taking any action referred to in clauses (b)(ii),
(c), (f) or (g) of this Section 6.1 where the taking of such action is not
consistent with the past practices of BNI and its Subsidiaries if, but only
if, such action is a Customary Action. Without limiting the generality of the
foregoing, from the date hereof until the Effective Time:
(a) BNI will not adopt or propose any change in its certificate of
incorporation or bylaws, except for an amendment to its certificate of
incorporation authorizing the issuance of additional shares of Class A
Preferred Stock in connection with the issuance of Rights to former holders
of SFP Common Stock upon consummation of the Merger;
(b) Except for the Merger, BNI will not, and will not permit any
Subsidiary of BNI, (i) to adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization or (ii) make any acquisition, by means of
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<PAGE>
merger, consolidation or otherwise, other than in the ordinary course of
business consistent with past practices and other than acquisitions that
are Customary Actions;
(c) BNI will not, and will not permit any Subsidiary of BNI to, sell,
lease, license or otherwise dispose of any material assets or property
except (i) pursuant to existing contracts or commitments, (ii) in the
ordinary course of business consistent with past practice and (iii) any
such sale, lease, license or other disposition that is a Customary Action;
(d) BNI will not, and will not permit any Subsidiary of BNI to,
declare, set aside, or pay any dividend or make any other distribution with
respect to any shares of BNI capital stock (other than cash dividends on
BNI Common Stock not in excess of the amounts set forth in Section 4.11(b)
and having record and payment dates determined as set forth in Section
7.8);
(e) Except (i) as expressly permitted by this Section 6.1, (ii) as
necessary in connection with the transactions contemplated hereby
(including the issuance of Rights to former holders of SFP Common Stock
upon consummation of the Merger) or (iii) pursuant to existing contracts
and commitments, BNI will not, and will not permit any Subsidiary of BNI
to, issue, deliver or sell, or authorize or propose the issuance, delivery
or sale of, any BNI Securities, any BNI Voting Debt or any securities
convertible into or exchangeable for, or any rights, warrants or options to
acquire, any BNI Securities or BNI Voting Debt;
(f) Except for (i) borrowings under existing credit facilities,
replacements therefor and refinancings thereof (ii) borrowings in the
ordinary course of business consistent with past practice or (iii)
borrowings that are Customary Actions, BNI will not, and will not permit
any Subsidiary of BNI to, incur any indebtedness for borrowed money or
guarantee any such indebtedness;
(g) Except for loans, advances, capital contributions or investments
made in the ordinary course of business consistent with past practice and
except for loans, advances, capital contributions or investments that are
Customary Actions, BNI will not, and will not permit any Subsidiary of BNI
to, make any loans, advances or capital contributions to, or investments
in, any other Person (other than to BNI or any Subsidiary of BNI);
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(h) (i) except for any of the actions referred to in this clause (i)
that is taken in the ordinary course of business consistent in magnitude
and character with past practice and with the terms of severance or
termination arrangements in effect or pending on the date hereof with
respect to individuals with comparable positions or responsibilities, and
except for any of such actions which, in the aggregate, are not material,
as hereinafter defined, BNI will not, and will not permit any of its
Subsidiaries to, grant any severance or termination pay to, or enter into
any termination or severance arrangement with, any of its directors,
executive officers or employees and (ii) except for any of the actions
referred to in this clause (ii) that is taken in the ordinary course of
business consistent in aggregate in magnitude and character with past
practice, and except for any of such actions which in the aggregate are not
material, as hereinafter defined, BNI will not, and will not permit any of
its Subsidiaries to, establish, adopt, enter into, amend or take action to
accelerate any rights or benefits under, or grant awards under, (A) any
plan or arrangement providing for options, stock, performance awards or
other forms of incentive or deferred compensation or (B) any collective
bargaining, bonus, profit sharing, thrift, compensation, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any of its directors, executive officers or employees. For
purposes of this subsection (h), "material" shall mean material in relation
to the overall compensation costs of BNI and its Subsidiaries.
(i) BNI will not, and will not permit any Subsidiary of BNI to, agree
or commit to do any of the actions prohibited by Sections 6.1(a) through
6.1(h).
SECTION 6.2. Stockholder Meeting. BNI shall cause a special meeting
-------------------
of its stockholders (the "BNI Stockholder Meeting") to be duly called and held
as soon as reasonably practicable after the date of this Agreement for the
purpose of voting on the approval and adoption of this Agreement and the
Merger. The board of directors of BNI shall recommend approval and adoption of
this Agreement and the Merger by its stockholders; provided that prior to the
--------
BNI Stockholder Meeting such recommendation may be withdrawn, modified or
amended to the extent that, as a result of the commencement or receipt of a
Takeover Proposal (as defined in Section 5.8) relating to BNI, the board of
directors of BNI deems it necessary to do so in the exercise of its fiduciary
obligations to BNI stockholders after being so advised by counsel.
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SECTION 6.3. Access to Information. Subject to any confidentiality
---------------------
agreements or other confidentiality obligations binding upon BNI or any of its
Subsidiaries, from the date hereof until the Effective Time, BNI will give SFP,
its counsel, financial advisors, auditors and other authorized representatives
full access to the offices, properties, books and records of BNI and its
Subsidiaries, will furnish to SFP, its counsel, financial advisors, auditors and
other authorized representatives such financial and operating data and other
information as such Persons may reasonably request and will instruct BNI's
employees, counsel and financial advisors to cooperate with SFP in its
investigation of the business of BNI and its Subsidiaries; provided that no
investigation pursuant to this Section shall affect any representation or
warranty given by BNI to SFP hereunder; and provided further that access to
certain information will require the entry of a protective order by the ICC,
after which date full access will be granted to such information consistent with
this paragraph and subject to the terms of such order.
SECTION 6.4. Notices of Certain Events. BNI shall promptly notify
-------------------------
SFP of:
(i) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to the best of its knowledge threatened against, relating to
or involving or otherwise affecting BNI or any BNI Material Subsidiary
which, if pending on the date of this Agreement, would have been required
to have been disclosed pursuant to Section 4.13 or which relate to the
consummation of the transactions contemplated by this Agreement.
SECTION 6.5. Tax Matters. From the date hereof until the Effective
-----------
Time, BNI and its Subsidiaries will file all significant tax returns,
statements, reports and forms (collectively, the "BNI Post-Signing Returns")
required to be filed with any taxing authority in accordance with all
applicable laws; (ii) BNI and its Subsidiaries will timely pay all taxes shown
as due and payable on the BNI Post-Signing Returns that are so filed and as of
the time of filing, the BNI Post-Signing Returns will correctly reflect the
facts regarding the income, business, assets, operations, activities and the
status of BNI
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and its Subsidiaries in all material respects; (iii) BNI and its Subsidiaries
will make provision for all taxes payable by BNI and its Subsidiaries for which
no BNI Post-Signing Return has yet been filed; and (iv) BNI and its Subsidiaries
will promptly notify SFP of any action, suit, proceeding, investigation, audit
or claim pending against or with respect to BNI or any of its subsidiaries in
respect of any tax where there is a reasonable possibility of a determination or
decision against BNI which would reasonably be expected to have a significant
adverse effect on BNI's tax liabilities or tax attributes.
SECTION 6.6. Director and Officer Liability. (a) BNI shall indemnify
------------------------------
and hold harmless each person who is, or has been at any time prior to the
date hereof or who becomes prior to the Effective Time, an officer or director
of SFP, in respect of acts or omissions occurring prior to the Effective Time
(the "Indemnified Parties") (including but not limited to the transactions
contemplated by this Agreement) to the extent provided under SFP's certificate
of incorporation, bylaws and (A) indemnity agreements between SFP and any of
its officers or directors ("Indemnity Agreements") in effect on the date
hereof or (B) Indemnity Agreements that may be entered into by SFP from and
after the date hereof and prior to the Effective Time so long as such
Agreements shall contain terms and provisions substantially similar to
Indemnity Agreements in effect as of the date hereof; provided that such
--------
indemnification shall be subject to any limitation imposed from time to time
under applicable law. For six years after the Effective Time, BNI shall
provide, if available, officers' and directors' liability insurance in respect
of acts or omissions occurring prior to the Effective Time, including but not
limited to the transactions contemplated by this Agreement, covering each such
Person currently covered by SFP's officers' and directors' liability insurance
policy, or who becomes covered by such policy prior to the Effective Time, on
terms with respect to coverage and amount no less favorable than those of such
policy in effect on the date hereof, provided that in satisfying its
obligation under this Section, BNI shall not be obligated to pay premiums in
excess of two-hundred percent (200%) of the amount per annum SFP paid in its
last full fiscal year, which amount has been disclosed to BNI but provided
further that BNI shall nevertheless be obligated to provide such coverage as
may be obtained for such amount.
(b) Any determination to be made as to whether any Indemnified Party
has met any standard of conduct imposed by law shall be made by legal counsel
reasonably acceptable to such Indemnified Party and BNI, retained at BNI's
expense.
(c) This Section 6.6 is intended to benefit the Indemnified Parties,
their heirs, executors and personal
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representatives and shall be binding on successors and assigns of BNI.
SECTION 6.7. No Solicitations. BNI will not, and BNI will use its
----------------
reasonable best efforts to ensure that its officers, directors, employees or
other agents of BNI do not, directly or indirectly: initiate, solicit or
encourage, or take any action to facilitate the making of, any offer or proposal
which constitutes or is reasonably likely to lead to any Takeover Proposal of
BNI, or, in the event of an unsolicited Takeover Proposal of BNI, except to the
extent required by their fiduciary duties under applicable law if so advised by
outside counsel, engage in negotiations or provide any confidential information
or data to any Person relating to any such Takeover Proposal. BNI shall notify
SFP orally and in writing of any such inquiries, offers or proposals (including,
without limitation, the terms and conditions of any such proposal and the
identity of the person making it), within 48 hours of the receipt thereof and
shall give SFP five days' advance notice of any agreement to be entered into
with or any information to be supplied to any Person making such inquiry, offer
or proposal. BNI shall immediately cease and cause to be terminated all
existing discussions and negotiations, if any, with any parties conducted
heretofore with respect to any Takeover Proposal of BNI.
ARTICLE VII
COVENANTS OF BNI AND SFP
The parties hereto agree that:
SECTION 7.1. Reasonable Best Efforts. Subject to the terms and
-----------------------
conditions of this Agreement, each party will use its reasonable best efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement.
SECTION 7.2. ICC Approval. BNI and SFP shall, and each shall cause
------------
each of its Subsidiaries to, take all such actions as are necessary to (i)
cooperate with one another to prepare and present to the ICC as soon as
practicable all filings and other presentations in connection with seeking any
ICC approval, exemption or other authorization necessary to consummate the
transactions contemplated by this Agreement (including, without limitation,
the matters contemplated by Sections 5.3 and 6.3), (ii) prosecute such filings
and other presentations with diligence, (iii) diligently oppose any objections
to, appeals from or petitions to reconsider or reopen any such ICC approval by
persons not party to this Agreement, and
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(iv) take all such further action as reasonably may be necessary to obtain a
final order or orders of the ICC approving such transactions consistent with
this Agreement.
SECTION 7.3. Certain Filings; Proxy Materials. (a) BNI (i) will
--------------------------------
promptly prepare and file with the SEC, will use its reasonable best efforts
to have cleared by the SEC and will thereafter mail to its stockholders as
promptly as practicable the BNI Proxy Statement and all other proxy materials
for the BNI Stockholder Meeting, (ii) will use its reasonable best efforts to
obtain the necessary approvals by its stockholders of this Agreement and the
transactions contemplated hereby (provided that prior to the BNI Stockholder
Meeting the BNI Board's recommendation may be withdrawn, modified or amended
to the extent that, as a result of the commencement or receipt of a Takeover
Proposal relating to BNI, the board of directors of BNI deems it necessary to
do so in the exercise of its fiduciary obligations to BNI stockholders after
being so advised by counsel), (iii) will otherwise comply with all legal
requirements applicable to such meeting and (iv) will make all other filings
or recordings required under applicable Delaware law in connection with the
Merger. BNI will prepare and file with the SEC the registration statement on
Form S-4 (the "Form S-4") (in which the BNI Proxy Statement will be included
as a prospectus) and will take any action (other than qualifying to do
business in any jurisdiction in which it is now not so qualified) required to
be taken under any applicable state Blue Sky law in connection with the
issuance of BNI Common Stock.
(b) SFP (i) will promptly prepare and file with the SEC, will use its
reasonable best efforts to have cleared by the SEC and will thereafter mail to
its stockholders as promptly as practicable the SFP Proxy Statement and all
other proxy materials for the SFP Stockholder Meeting, (ii) will use its
reasonable best efforts to obtain the necessary approvals by its stockholders of
this Agreement and the transactions contemplated hereby (provided that prior to
the SFP Stockholder Meeting the SFP Board's recommendation may be withdrawn,
modified or amended to the extent that, as a result of the commencement or
receipt of a Takeover Proposal relating to SFP, the board of directors of SFP
deems it necessary to do so in the exercise of its fiduciary obligations to SFP
stockholders after being so advised by counsel), (iii) will otherwise comply
with all legal requirements applicable to such meeting and (iv) will make all
other filings or recordings required under applicable Delaware law in connection
with the Merger.
SECTION 7.4. Public Announcements. BNI and SFP will consult with
--------------------
each other before issuing any press release with respect to this Agreement and
the transactions contemplated hereby and, except as may be required by
applicable law or any
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listing agreement with any national securities exchange, will not issue any such
press release prior to such consultation.
SECTION 7.5. Further Assurances. At and after the Effective Time,
------------------
the officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of SFP, any deeds, bills of
sale, assignments or assurances and to take and do, in the name and on behalf
of SFP, any other actions and things to vest, perfect or confirm of record or
otherwise in the Surviving Corporation any and all right, title and interest
in, to and under any of the rights, properties or assets of SFP acquired or to
be acquired by the Surviving Corporation as a result of, or in connection
with, the Merger.
SECTION 7.6. Antitakeover Statutes. If any Takeover Statute is or
---------------------
may become applicable to the transactions contemplated hereby, each of BNI and
SFP and the members of their respective Boards of Directors will grant such
approvals and take such actions as are necessary so that the transactions
contemplated by this Agreement may be consummated as promptly as practicable
on the terms contemplated hereby and thereby and otherwise act to eliminate or
minimize the effects of any Takeover Statute on any of the transactions
contemplated by this Agreement.
SECTION 7.7. Cooperation. BNI and SFP shall together, or pursuant to
-----------
an allocation of responsibility to be agreed between them, coordinate and
cooperate (i) with respect to the timing of the BNI Stockholder Meeting and
the SFP Stockholder Meeting and shall use their reasonable best efforts to
hold such meetings on the same day, (ii) in connection with the preparation of
the SFP Disclosure Documents and the BNI Disclosure Documents, (iii) in
determining whether any action by or in respect of, or filing with, any
governmental body, agency, official or authority is required, or any actions,
consents, approvals or waivers are required to be obtained from parties to any
material contracts, in connection with the consummation of the transactions
contemplated by this Agreement, and (iv) in seeking any such actions,
consents, approvals or waivers or making any such filings, furnishing
information required in connection therewith or with the SFP Disclosure
Documents and the BNI Disclosure Documents and timely seeking to obtain any
such actions, consents, approvals or waivers. Subject to the terms and
conditions of this Agreement, BNI and SFP will each use its reasonable best
efforts to have the Form S-4 declared effective under the 1933 Act as promptly
as practicable after the Form S-4 is filed, and (v) shall, subject to
applicable law, confer on a regular and frequent basis with one or more
representatives of one another to report operational matters of significance
to the Merger and the general status of ongoing operations insofar as
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relevant to the Merger, provided that the parties will not confer on any matter
to the extent inconsistent with law.
SECTION 7.8. Dividends. From September 30, 1995 to the Effective
---------
Time, all dividends paid by SFP and BNI to their respective stockholders shall
be paid on a quarterly basis, with identical record and payment dates, in
amounts not exceeding the amounts set forth in Section 5.1(d) or Section
6.1(d), as the case may be.
ARTICLE VIII
[Intentionally Omitted]
ARTICLE IX
CONDITIONS TO THE MERGER
SECTION 9.1. Conditions to the Obligations of Each Party. The
-------------------------------------------
obligations of SFP and BNI to consummate the Merger are subject to the
satisfaction (or waiver by the party for whose benefit such conditions exist)
of the following conditions:
(i) this Agreement shall have been adopted by the stockholders of SFP
and BNI in accordance with Delaware Law;
(ii) any applicable waiting period under the HSR Act relating to the
Merger shall have expired;
(iii) no court, arbitrator or governmental body, agency or official
shall have issued any order, and there shall not be any statute, rule or
regulation, restraining or prohibiting the consummation of the Merger or
the effective operation of the business of BNI, SFP and their respective
Subsidiaries after the Effective Time;
(iv) all actions by or in respect of or filings with any governmental
body, agency, official, or authority required to permit the consummation of
the Merger (other than ICC approval, which is addressed in clause (v)
below) shall have been obtained, but excluding any consent, approval,
clearance or confirmation the failure to obtain which could not reasonably
be expected to have a Material Adverse Effect on the Surviving Corporation
after the Effective Time;
(v) the ICC shall have issued a decision (which decision shall not
have been stayed or enjoined) that (A) constitutes a final order approving,
exempting or otherwise
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authorizing consummation of the Merger and all other transactions
contemplated by this Agreement (or subsequently presented to the ICC by
agreement of BNI and SFP) as may require such authorization and (B) does
not (1) require the inclusion of any other rail carriers or rail properties
material to the parties, (2) change the Exchange Ratio or (3) impose on
BNI, SFP or any of their respective Subsidiaries any other terms or
conditions (including, without limitation, labor protective provisions but
excluding conditions heretofore imposed by the ICC in New York Dock Railway
---------------------
-- Control -- Brooklyn Eastern District, 360 I.C.C. 60 (1979)) that in the
---------------------------------------
reasonable opinion of the board of directors of BNI or of SFP,
respectively, significantly and adversely affect the economic benefits of
the transactions contemplated by this Agreement to BNI and its stockholders
or SFP and its stockholders, as the case may be;
(vi) SFP and BNI shall have obtained an opinion of nationally
recognized tax counsel to the effect that the Merger will be a tax-free
reorganization under Section 368 of the Code and the regulations
thereunder; and
(vii) the Merger shall conform to the requirements set forth in the
Private Letter Ruling, and the Spinoff and the Liquidation shall be tax-
free pursuant to and in conformity with the Private Letter Ruling.
SECTION 9.2. Conditions to the Obligations of BNI. The obligations
------------------------------------
of BNI to consummate the Merger are subject to the satisfaction (or waiver by
BNI) of the following further conditions:
(i) SFP shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time, and the representations and warranties of SFP shall have
been accurate in all material respects both when made and at and as of the
Effective Time as if made at and as of such time, except for the
representations and warranties of SFP contained in Section 3.5(a), which
shall be accurate in all respects both when made and at and as of the
Effective Time as if made at and as of that time;
(ii) all other statutory requirements for the valid consummation by
SFP of the transactions contemplated by this Agreement (including without
limitation the Spinoff and the Liquidation) shall have been fulfilled.
SECTION 9.3. Conditions to the Obligations of SFP. The obligations
------------------------------------
of SFP to consummate the Merger are subject to
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the satisfaction (or waiver by SFP) of the following further conditions:
(i) BNI shall have performed in all material respects all of its
respective obligations hereunder required to be performed by it at or prior
to the Effective Time, and (A) the representations and warranties of BNI
shall have been accurate in all material respects both when made and at and
as of the Effective Time as if made at and as of such time, except for the
representations and warranties of BNI in Section 4.5(a), which shall be
accurate in all respects when made and at and as of the Effective Time as
if made at and as of that time;
(ii) the BNI Common Stock required to be issued hereunder shall have
been approved for listing on the New York Stock Exchange, subject to
official notice of issuance;
(iii) all other statutory requirements for the valid consummation by
SFP of the transactions contemplated by this Agreement shall have been
fulfilled; and
(iv) the Spinoff shall have been consummated.
ARTICLE X
TERMINATION
SECTION 10.1. Termination. This Agreement may be terminated and the
-----------
Merger may be abandoned at any time prior to the Effective Time (notwithstanding
any approval of this Agreement by the stockholders of BNI or SFP):
(i) by mutual written consent of BNI and SFP;
(ii) by either BNI or SFP, if the Merger has not been consummated by
December 31, 1997;
(iii) by either BNI or SFP, if any judgment, injunction, order or
decree enjoining BNI or SFP from consummating the Merger is entered and
such judgment, injunction, order or decree shall become final and
nonappealable;
(iv) by BNI, if the Spinoff has not been completed by December 31,
1994 (it is understood that if BNI does not exercise the right to terminate
pursuant to this Section 10.1(iv) by January 30, 1995 this provision will
be deemed to be waived);
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(v) by BNI, if any Person, entity or "group" (as defined in Section
13(d)(3) of the Exchange Act) other than BNI acquires beneficial ownership
of 50% or more of the outstanding Shares;
(vi) by SFP, if any Person, entity or group acquires beneficial
ownership of 50% or more of the outstanding BNI Common Stock;
(vii) by either BNI or SFP if the approvals of the stockholders of
BNI or SFP contemplated by this Agreement shall not have been obtained by
reason of the failure to obtain the required vote at a duly held meeting of
stockholders or of any adjournment thereof;
(viii) by BNI, if, prior to the SFP Stockholder Meeting, the board of
directors of SFP shall have withdrawn, modified or changed in a manner
adverse to BNI its approval or recommendation of this Agreement or the
Merger;
(ix) by SFP, if, prior to the BNI Stockholder Meeting, the board of
directors of BNI shall have withdrawn, modified or changed in a manner
adverse to SFP its approval or recommendation of this Agreement or the
Merger;
(x) by BNI, upon a breach of any representation, warranty, covenant
or agreement of SFP, or if any representation or warranty of SFP shall
become untrue, in either case such that the conditions set forth in Section
9.2(i) would be incapable of being satisfied by December 31, 1997 (or such
later date extended), provided that a wilful breach shall be deemed to
cause such conditions to be incapable of being satisfied by such date; and
(xi) by SFP, upon a breach of any representation, warranty, covenant
or agreement of BNI, or if any representation or warranty of BNI shall
become untrue, in either case such that the conditions set forth in Section
9.3(i) would be incapable of being satisfied by December 31, 1997 (or as
otherwise extended), provided that a wilful breach shall be deemed to cause
such conditions to be incapable of being satisfied by such date.
SECTION 10.2. Effect of Termination. If this Agreement is terminated
---------------------
pursuant to Section 10.1, this Agreement shall become void and of no effect with
no liability on the part of any party hereto, except that (a) the agreements
contained in Sections 3.16, 4.16 and 11.4 shall survive the termination hereof
and (b) no such termination shall relieve any party of any liability or damages
resulting from any breach by that party of this Agreement.
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ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Notices. All notices, requests and other
-------
communications to any party hereunder shall be in writing (including telecopy
or similar writing) and shall be given,
if to BNI, to:
Burlington Northern Inc.
Attn: Douglas J. Babb, Esq.
3800 Continental Place
777 Main Street
Fort Worth, Texas 76102
Telecopy: (817) 333-2377
with a copy to:
Dennis S. Hersch, Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopy: (212) 450-4800
if to SFP, to:
Santa Fe Pacific Corporation
Attn: Jeffrey R. Moreland
1700 East Golf Road
Schaumburg, Illinois 60173
Telecopy: (708) 995-6847
with a copy to:
Robert A. Helman, Esq.
Mayer, Brown & Platt
190 South La Salle Street
Chicago, Illinois 60603-3441
Telecopy: (312) 701-7711
or such other address or telecopy number as such party may hereafter specify for
the purpose by notice to the other parties hereto. Each such notice, request or
other communication shall be effective (i) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section and the
appropriate confirmation is received or (ii) if given by any other means, when
delivered at the address specified in this Section.
SECTION 11.2. Entire Agreement; Survival of Representations and
-------------------------------------------------
Warranties. (a) This Agreement (and any
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other agreements contemplated hereby or executed by the parties or their
designees as of the date of this Agreement), and the Confidentiality and
Standstill Agreement dated July 28, 1993 between SFP and BNI (the
"Confidentiality Agreement") constitute the entire agreement among the parties
with respect to the subject matter hereof and thereof and supersede all prior
agreements, understandings and negotiations, both written and oral, between the
parties with respect to such subject matter. No representation, inducement,
promise, understanding, condition or warranty not set forth herein has been made
or relied upon by any party hereto. None of this Agreement, the Confidentiality
Agreement or any other agreement contemplated hereby or executed by the parties
or their designees as of the date of this Agreement (or any provision hereof or
thereof) is intended to confer upon any Person other than the parties hereto any
rights or remedies (except that Section 6.6, is intended to confer rights and
remedies on SFP's officers and directors).
(b) The representations and warranties and agreements contained herein
shall not survive the Effective Time or the termination of this Agreement except
for the agreements set forth in Sections 6.6 and 11.4.
SECTION 11.3. Amendments; No Waivers. (a) Any provision of this
----------------------
Agreement may be amended or waived prior to the Effective Time if, and only if,
such amendment or waiver is in writing and signed, in the case of an amendment,
by SFP and BNI or in the case of a waiver, by the party against whom the waiver
is to be effective; provided that after the adoption of this Agreement by the
stockholders of SFP, no such amendment or waiver shall, without the further
approval of such stockholders, alter or change (i) the amount or kind of
consideration to be received in exchange for any shares of capital stock of SFP,
(ii) any term of the certificate of incorporation of the Surviving Corporation
or (iii) any of the terms or conditions of this Agreement if such alteration or
change would adversely affect the holders of any shares of capital stock of SFP.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 11.4. Expenses. Except as otherwise agreed in writing by the
--------
parties, each party shall bear its own expenses, including the fees and expenses
of any attorneys, accountants, investment bankers, brokers, finders or other
intermediaries or
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other Persons engage by it, incurred in connection with this Agreement and the
transactions contemplated hereby.
SECTION 11.5. Successors and Assigns. The provisions of this
----------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, provided that no party may
assign, delegate or otherwise transfer any of its rights or obligations under
this Agreement without the consent of the other parties hereto.
SECTION 11.6. Governing Law. This Agreement shall be construed in
-------------
accordance with and governed by the law of the State of Delaware (without regard
to principles of conflict of laws).
SECTION 11.7. Jurisdiction. Any suit, action or proceeding seeking
------------
to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby may be
brought against any of the parties in the United States District Court for the
District of Delaware or any state court sitting in the City of Wilmington,
Delaware, and each of the parties hereby consents to the exclusive
jurisdiction of such courts (and of the appropriate appellate courts) in any
such suit, action or proceeding and waives any objection to venue laid
therein. Process in any such suit, action or proceeding may be served on any
party anywhere in the world, whether within or without the State of Delaware.
Without limiting the foregoing, each of the parties hereto agrees that service
of process upon such party at the address referred in Section 11.1, together
with written notice of such service to such party, shall be deemed effective
service of process upon such party.
SECTION 11.8. Counterparts; Effectiveness. This Agreement may be
---------------------------
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and
year first above written.
Burlington Northern Inc.
By:/s/ GERALD GRINSTEIN
------------------------------
Title: Chairman and Chief
Executive Officer
Santa Fe Pacific Corporation
By:/s/ ROBERT D. KREBS
------------------------------
Title:
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EXHIBIT A
FORM OF AFFILIATE LETTER
Burlington Northern Inc.
3800 Continental Plaza
777 Main Street
Ft. Worth, Texas 76102
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed to
be an "affiliate" of Santa Fe Pacific Corporation, a Delaware corporation
("SFP"), as the term "affiliate" is defined for purposes of paragraphs (c)
and (d) of Rule 145 of the rules and regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"). Pursuant to the terms of the
Agreement and Plan of Merger dated as of June 29, 1994 (the "Agreement"),
between Burlington Northern Inc., a Delaware corporation ("BN), and SFP, SFP
will be merged with and into BN, with BN to be the survivor in the merger (the
"Merger").
As a result of the Merger, I may receive shares of Common Stock, no par
value, of BN (the "BN Securities") in exchange for shares owned by me of Common
Stock, par value $1.00 per share, of SFP.
I represent, warrant and covenant to BN that in the event I receive any
BN Securities as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of the BN
Securities in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Agreement and discussed the
requirements of such documents and other applicable limitations upon my
ability to sell, transfer or otherwise dispose of the BN Securities to the
extent I felt necessary with my counsel or counsel for SFP.
C. I have been advised that the issuance of BN Securities to me pursuant
to the Merger has been registered with the Commission under the Act on a
Registration Statement of Form S-4. However, I have also been advised that,
since at the time the Merger was submitted for a vote
06023/002/MISC94/X.0
A-1
<PAGE>
of the stockholders of SFP, I may be deemed to have been an affiliate of SFP and
the distribution by me of the BN Securities has not been registered under the
Act, I may not sell, transfer or otherwise dispose of the BN Securities issued
to me in the Merger unless (i) such sale, transfer or other disposition has been
registered under the Act, (ii) such sale, transfer or under other disposition is
made in conformity with Rule 145 promulgated by the Commission under the Act, or
(iii) in the opinion of counsel reasonably acceptable to BN, or a "no action"
letter obtained by the undersigned from the staff of the Commission, such sale,
transfer or other disposition is otherwise exempt from registration under the
Act.
D. I understand that BN is under no obligation to register the sale,
transfer or other disposition of the BN Securities by me or on my behalf under
the Act or to take any other action necessary in order to make compliance with
an exemption from such registration available.
E. I also understand that there will be placed on the certificates
for the BN Securities issued to me, or any substitutions therefor, a legend
stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED
____________ BETWEEN THE REGISTERED HOLDER HEREOF AND BURLINGTON
NORTHERN INC., A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICES OF BURLINGTON NORTHERN INC."
F. I also understand that unless the transfer by me of my BN
Securities has been registered under the Act or is a sale made in conformity
with the provisions of Rule 145, BN reserves the right to put the following
legend on the certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN
ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN
CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED
04023/002/MISC94/4.0
A-2
<PAGE>
EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933."
It is understood and agreed that the legends set forth in paragraphs E
and F above shall be removed by delivery of substitute certificates without such
legend if, in the judgment of BN, such legend is not required for purposes of
the Act or this Agreement.
Execution of this letter should not be considered an admission on my
part that I am an "affiliate" of SFP as described in the first paragraph of this
letter or as a waiver of any rights I may have to object to any claim that I am
such an affiliate on or after the date of this letter.
Very truly yours,
____________________________
Name:
Accepted this ___ day of
_______________, 1994 by
BURLINGTON NORTHERN INC.
By:_______________________
Name:__________________
Title:_________________
06023/002/MISC94/X.0
A-3
<PAGE>
Listing of Schedules
to
Agreement and Plan of Merger
dated as June 29, 1994
between
Burlington Northern Inc.
and
Santa Fe Pacific Corporation
Note: The inclusion of items on these schedules does not mean that they are
"material" to SFP or to BNI.
Schedules furnished in connection with certain representations and warranties
of Santa Fe Pacific Corporation as set forth in Article III
Schedule III, Section 3.4 Non-Contravention
Schedule III, Section 3.6 Material Subsidiaries
Schedule III, Section 3.12 Undisclosed Material Liabilities
Schedule III, Section 3.13 Litigation
Schedule III, Section 3.14 Texas
Schedule III, Section 3.15 ERISA
Schedule III, Section 3.17 Environmental Matters
Schedules furnished in connection with certain covenants of Santa Fe Pacific
Corporation as set forth in Article V
Schedule V, Section 5.1 Conduct of SFP
Schedules furnished in connection with certain representations and warranties
of Burlington Northern Inc. as set forth in Article IV
Schedule IV, Section 4.5 Capitalization
Schedule IV, Section 4.6 Material Subsidiaries
Schedule IV, Section 4.12 Undisclosed Material Liabilities
Schedule IV, Section 4.13 Litigation
Schedule IV, Section 4.15 ERISA
Schedule IV, Section 4.17 Environmental Matters
Schedules furnished in connection with certain covenants of Burlington Northern
Inc. as set forth in Article VI
Schedule VI, Section 6.1 Conduct of BNI
<PAGE>
June 29, 1994
Santa Fe Pacific Corporation
1700 E. Golf Road
Schaumberg, IL 60173
Dear Sirs:
This letter will confirm our mutual agreement regarding the disclosure
schedules contemplated by the Agreement and Plan of merger dated as of June 29,
1994 (the "Merger Agreement") between Burlington Northern Inc. ("BNI") and Santa
Fe Pacific Corporation ("SFP").
Each of BNI and SFP shall deliver to the other its disclosure schedules not
later than July 15, 1994. For the purposes of this letter, (i) the term
"Providing Party" means the party delivering disclosure schedules and (ii) the
term "Recipient Party" means the party receiving such materials.
In the event that a Recipient Party shall conclude in the exercise of its
reasonable business judgement that, on the basis of the information included in
the disclosure schedules, the business of the Providing Party is materially and
adversely different from such Recipient Party's reasonable understanding of the
Providing Party's business based upon information provided to the Recipient
Party prior to the date hereof, the Recipient Party may elect to terminate the
Merger Agreement in the manner set forth below. A party seeking to terminate the
Merger Agreement pursuant to this paragraph must so notify the Providing Party
in writing within five days after receipt of the disclosure schedules from the
Providing Party. A failure to deliver any such notice within such five-day
period shall be deemed a waiver by the Recipient Party of the right to terminate
the Merger Agreement pursuant to this letter.
BNI and SFP represent and warrant to the other that since the Balance Sheet
Date (as defined in the Merger Agreement) there has not been any event,
occurrence or development of a state of circumstances or facts which has had or
reasonably could be expected to have a Material Adverse Effect (as defined in
the Merger Agreement) on BNI or SFP, as the case may be.
04023/002/misc94/side.ltr.disc Draft of: 06/29/94 1:27pm
<PAGE>
BNI and SFP acknowledge that this is an agreement contemplated by the
Merger Agreement between the respective companies.
Sincerely yours,
BURLINGTON NORTHERN INC.
By /s/ Douglas J. Babb
-------------------------
Name: Douglas J. Babb
Title: Vice President and
General Counsel
Agreed and accepted:
SANTA FE PACIFIC CORPORATION
By
-------------------------
Name:
Title:
2
<PAGE>
BNI and SFP acknowledge that this is an agreement contemplated by the
Merger Agreement between the respective companies.
Sincerely yours,
BURLINGTON NORTHERN INC.
By
----------------------------
Name:
Title:
Agreed and accepted:
SANTA FE PACIFIC CORPORATION
By /s/ ROBERT D. KREBS
----------------------------
Name:
Title:
04023/002/MISC94/side.ltr.disc Draft of: 06/29/94 1:27pm
2
<PAGE>
(LETTERHEAD OF BURLINGTON NORTHERN INC. APPEARS HERE)
June 29, 1994
Mr. Robert D. Krebs
Chairman, President and
Chief Executive Officer
Santa Fe Pacific Corporation
1700 E. Golf Road
Schaumberg, IL 60173
Dear Rob:
This letter will confirm our mutual agreement regarding corporate governance
issues after the merger between Burlington Northern Inc. ("BNI") and Santa Fe
Pacific Corporation ("SFP"):
1. The Board of Directors of the merged company will be constituted as follows:
two-thirds of the Directors will be designated by BNI, and one-third of the
Directors will be designated by SFP. These designations will be made before
the merger is consummated.
2. I will serve as Chairman of the Board of the merged company, and you will be
the President and Chief Executive Officer of the merged company.
3. We will thoroughly review who would be best suited to be the officers of the
merged company and its subsidiaries. We will then submit our mutual
recommendations to the Board of Directors of the merged company, which will
be responsible for the careful selection of the officers to be elected or
appointed.
This mutual agreement has been authorized by each of our respective Boards of
Directors at meetings today. We
<PAGE>
Robert D. Krebs -2- June 29, 1994
acknowledge that this is an agreement contemplated by the Merger Agreement
between our respective companies.
Sincerely yours,
/s/ Gerald Grinstein
Gerald Grinstein
for BNI
Agreed and accepted:
- - ---------------------------
Robert D. Krebs
for SFP
<PAGE>
Robert D. Krebs -2- June 29, 1994
acknowledge that this is an agreement contemplated by the Merger Agreement
between our respective companies.
Sincerely yours,
Gerald Grinstein
for BNI
Agreed and accepted:
/s/ Robert D. Krebs
- - ---------------------------
Robert D. Krebs
for SFP
<PAGE>
EXHIBIT 11
BURLINGTON NORTHERN INC. and SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(In Millions, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
------------------ ----------------
1994 1993 1994 1993
------ ------ -------- ------
<S> <C> <C> <C> <C>
Net income
Primary:
Net income.......................... $ 82 $ 72 $ 159 $ 154
Convertible and mandatory redeemable
preferred stock dividends......... (6) (6) (11) (11)
----- ----- ----- -----
$ 76 $ 66 $ 148 $ 143
===== ===== ===== =====
Fully diluted:
Net income available for common
stockholders...................... $ 76 $ 66 $ 148 $ 143
Dividends on convertible preferred
stock, assuming conversion........ 6 6 11 11
----- ----- ----- -----
$ 82 $ 72 $ 159 $ 154
===== ===== ===== =====
Weighted average number of shares
Primary:
Average common shares outstanding... 89.1 88.5 89.1 88.3
Common share equivalents resulting
from assumed exercise of stock
options........................... 1.1 1.2 1.2 1.1
----- ----- ----- -----
90.2 89.7 90.3 89.4
===== ===== ===== =====
Fully diluted:
Average common shares outstanding... 89.1 88.5 89.1 88.3
Common shares resulting from assumed
conversion of convertible preferred
stock.............................. 7.4 7.4 7.4 7.4
Common share equivalents resulting
from assumed exercise of stock
options assuming full dilution..... 1.1 1.2 1.1 1.2
----- ----- ----- -----
97.6 97.1 97.6 96.9
===== ===== ===== =====
Earnings per common share:
Primary................................ $ .85 $ .74 $1.64 $1.60
Fully diluted.......................... .84 .74 1.63 1.59
</TABLE>
Primary earnings per common share are computed by dividing net income, after
deduction of preferred stock dividends, by the weighted average number of
common shares and common share equivalents outstanding. Common share
equivalents are computed using the treasury stock method. Under the treasury
stock method, an average market price is used to determine the number of
common share equivalents for primary earnings per common share. The higher of
the average or end of period market price is used to determine common share
equivalents for fully diluted earnings per common share. In addition, the
if-converted method is used for convertible preferred stock when computing
fully diluted earnings per common share. No redeemable preferred stock was
outstanding during 1994 and the redeemable preferred stock dividends for the
six months ended June 30, 1993 were not significant.
Earnings per common share may not compute due to the level of rounding in this
exhibit.
<PAGE>
EXHIBIT 12
BURLINGTON NORTHERN INC. and SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Millions, Except Ratio Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Earnings:
Pre-tax income..................... $134 $115 $276 $247
Add:
Interest, excluding capitalized
interest....................... 39 36 78 69
Portion of rent under long-term
operating leases representative
of an interest factor.......... 27 25 52 50
---- ---- ---- ----
Total earnings available for
fixed charges.................... $200 $176 $406 $366
==== ==== ==== ====
Fixed charges:
Interest........................... $ 40 $ 36 $ 79 $ 69
Portion of rent under long-term
operating leases representative
of an interest factor............ 27 25 52 50
---- ---- ---- ----
Total fixed charges................ $ 67 $ 61 $131 $119
==== ==== ==== ====
Ratio of earnings to fixed charges... 2.99x 2.89x 3.10x 3.08x
</TABLE>
