<PAGE>
REGISTRATION NO. 33-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
BURLINGTON NORTHERN INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4000 41-1400580
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
3800 CONTINENTAL PLAZA
777 MAIN STREET
FORT WORTH, TEXAS 76102-5384
(817) 333-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
EDMUND W. BURKE, ESQ.
EXECUTIVE VICE PRESIDENT, LAW AND SECRETARY
BURLINGTON NORTHERN INC.
3800 CONTINENTAL PLAZA
777 MAIN STREET
FORT WORTH, TEXAS 76102-5384
(817) 333-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE
OF AGENT FOR SERVICE)
----------------
COPIES TO:
JEFFREY R. MORELAND, SCOTT J. DAVIS, ESQ. DAVID L. CAPLAN, ESQ.
ESQ. MAYER, BROWN & PLATT DAVIS POLK & WARDWELL
SANTA FE PACIFIC 190 SOUTH LASALLE ST. 450 LEXINGTON AVENUE
CORPORATION CHICAGO, ILLINOIS 60603-3441NEW YORK, NEW YORK 10017
1700 EAST GOLF ROAD (312) 782-0600 (212) 450-4000
SCHAUMBURG, ILLINOIS
60173
(708) 995-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the merger of Santa Fe Pacific Corporation with and into
Burlington Northern Inc., pursuant to an Agreement and Plan of Merger dated as
of June 29, 1994, as amended by the Amendment thereto dated as of October 26,
1994, described in the enclosed Supplemental Joint Proxy Statement/Prospectus,
have been satisfied or waived.
<PAGE>
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, no par 14,850,000
value(3)............... shares $41.92 $622,389,712 $214,618
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</TABLE>
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(1) Based upon the assumed number of shares that may be issued in the Merger
described herein. Such assumed number is based upon the number of shares of
common stock, par value $1.00 per share, of Santa Fe Pacific Corporation
(the "SFP Common Stock") currently outstanding or otherwise expected to be
issued on or before the closing date of the Merger multiplied by the
exchange ratio of 0.34 shares of common stock, no par value, of the
Registrant (the "BNI Common Stock") for each share of SFP Common Stock. A
maximum of 73,100,000 shares of BNI Common Stock will be issued in the
Merger. Of this amount, 58,250,000 shares of BNI Common Stock were
registered previously pursuant to the Registrant's earlier Registration
Statement on Form S-4 (Reg. No. 33-56007).
(2) Estimated solely for the purpose of computing the registration fee.
Computed in accordance with Rule 457(f)(1) under the Securities Act of
1933, as amended, on the basis of the average high and low market price of
the SFP Common Stock as reported by the New York Stock Exchange on October
25, 1994.
(3) Includes associated Rights (the "Rights") to purchase the Registrant's
Junior Class A Preferred Stock. Until the occurrence of certain prescribed
events, none of which has occurred, the Rights are not exercisable, are
evidenced by certificates representing the BNI Common Stock, and will be
transferred along with, and only with, the BNI Common Stock. Pursuant to
the Rights Agreement governing the Rights, the Rights will expire on July
24, 1996 unless they are earlier redeemed or unless the term of such Rights
Agreement is extended.
Pursuant to Rule 429 under the Securities Act of 1933, as amended, the
prospectus contained herein constitutes a combined prospectus relating to
Burlington Northern Inc.'s earlier Registration Statement on Form S-4 (Reg. No.
33-56007).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
2
<PAGE>
LOGO
BURLINGTON NORTHERN INC.
3800 CONTINENTAL PLAZA
777 MAIN STREET
FORT WORTH, TEXAS 76102-5384
October 27, 1994
DEAR STOCKHOLDER:
On October 26, 1994, your Board of Directors unanimously approved an increase
in the exchange ratio in the proposed merger of Santa Fe Pacific Corporation
("SFP") with and into Burlington Northern Inc. ("BNI") from 0.27 shares of BNI
common stock per share of SFP common stock to 0.34 shares of BNI common stock
per share of SFP common stock, and BNI and SFP entered into an amendment to our
Merger Agreement reflecting the revised exchange ratio. All other terms of the
proposed BNI-SFP merger remain the same.
The attached Supplemental Joint Proxy Statement/Prospectus includes
information concerning the revised Merger Agreement, describes a number of
recent developments since the date of the Joint Proxy Statement/Prospectus
previously delivered to you (the "Original Joint Proxy Statement/Prospectus")
and includes other important information relating to BNI, SFP and the proposed
merger. This Supplemental Joint Proxy Statement/Prospectus modifies and
supersedes certain information contained in the Original Joint Proxy
Statement/Prospectus and should be read in conjunction with the Original Joint
Proxy Statement/Prospectus. Both documents include important information, and
you are urged to give these documents your careful attention and consideration.
The Special Meeting of Stockholders of BNI at which the merger will be
considered and voted upon will be held at Burlington Northern Railroad Company,
3017 Lou Menk Drive, Fort Worth, Texas 76131-2815, on November 18, 1994 at
10:00 a.m., Fort Worth time.
The merger is contingent upon, among other things, approval by the Interstate
Commerce Commission (the "ICC"). The merger would be consummated shortly after
ICC approval is obtained and other conditions to the merger are satisfied or
waived.
The merger will provide significant benefits to BNI's stockholders. As you
have seen in the Original Joint Proxy Statement/Prospectus, in their
application to the ICC for approval of the merger, BNI and SFP state that the
merger is expected to result in an increase in operating income of
approximately $560 million per year, most of which will be achieved in the
first three years following the merger. The application further states that
when these benefits are realized, this will result in combined operating income
in excess of $1.5 billion per year and a combined operating ratio of 79
percent. There can be no assurance that these potential benefits will be
realized or that the ICC will not impose conditions on the operations of the
merged entity that will affect its ability to fully achieve any one or more of
these benefits. Moreover, in order to achieve the increases in operating
revenue mentioned above, it is expected that certain nonrecurring cash costs
would be incurred, which would include relocation, employee separation and
retraining and capital improvement costs. The ICC application states that those
costs are approximately $350 million, a substantial portion of which will be
incurred during the first year following consummation of the BNI-SFP merger. A
more detailed description of what BNI and SFP have stated in the ICC
application, as well as some important caveats about this information, is
provided at pages 62 through 64 of the Original Joint Proxy
Statement/Prospectus.
<PAGE>
Your Board of Directors believes that the merger is fair to and in the best
interests of BNI and its stockholders, and will create a strong, new rail
carrier with a diversified traffic base and excellent financial prospects. YOUR
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE MERGER.
Approval of the merger requires the affirmative vote of a majority of the
outstanding shares of BNI common stock.
Whether or not you plan to attend the Special Meeting, PLEASE COMPLETE, SIGN
AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE,
WHICH REQUIRES NO POSTAGE. IF YOU HAVE ALREADY SUBMITTED A PROXY CARD, YOU DO
NOT NEED TO SUBMIT THE ACCOMPANYING PROXY CARD UNLESS YOU WISH TO CHANGE YOUR
VOTE. A VOTE INDICATED ON A PREVIOUSLY SUBMITTED PROXY CARD WILL BE DEEMED TO
BE A CORRESPONDING VOTE ON THE MERGER, INCLUDING THE INCREASED EXCHANGE RATIO,
UNLESS YOU SUBMIT A SUBSEQUENT PROXY CARD CHANGING YOUR VOTE. Your prompt
cooperation is greatly appreciated.
If you are present at the Special Meeting, you may, of course, withdraw your
proxy and vote your shares in person.
Very truly yours,
/s/ Gerald Grinstein
Gerald Grinstein
Chairman and
Chief Executive Officer
<PAGE>
LOGO
SANTA FE PACIFIC CORPORATION
1700 EAST GOLF ROAD
SCHAUMBURG, ILLINOIS 60173-5860
October 27, 1994
DEAR STOCKHOLDER:
I am happy to report that the merger agreement between Santa Fe Pacific
Corporation ("Santa Fe") and Burlington Northern Inc. ("Burlington Northern")
has been amended to provide that, in the merger, each share of Santa Fe common
stock will be converted into 0.34 shares of Burlington Northern common stock.
The merger agreement had previously provided that each share of Santa Fe common
stock would be converted into 0.27 shares of Burlington Northern common stock.
All other terms of the merger agreement, pursuant to which Santa Fe will be
merged with and into Burlington Northern and stockholders of Santa Fe will
become stockholders of Burlington Northern, remain the same.
The Special Meeting of Stockholders of Santa Fe at which the merger will be
considered and voted upon will be held at the Hyatt Regency O'Hare, 9300 West
Bryn Mawr Avenue, Rosemont, Illinois, on November 18, 1994 at 3:00 p.m.,
Chicago time.
The attached Supplemental Joint Proxy Statement/Prospectus reflects the
recent amendment to the merger agreement. The Supplemental Joint Proxy
Statement/Prospectus modifies and supersedes certain information in the Joint
Proxy Statement/Prospectus dated October 12, 1994 that was previously sent to
you (the "Original Joint Proxy Statement/Prospectus") and should be read in
conjunction with the Original Joint Proxy Statement/Prospectus. You should
review both the attached Supplemental Joint Proxy Statement/Prospectus and the
Original Joint Proxy Statement/Prospectus carefully.
The merger will provide significant benefits to Santa Fe's stockholders. As
you have seen in the Original Joint Proxy Statement/Prospectus, in their
application to the Interstate Commerce Commission (the "ICC") for approval of
the merger, Burlington Northern and Santa Fe state that the merger is expected
to result in an increase in operating income of approximately $560 million per
year, most of which will be achieved in the first three years following the
merger. The application further states that when these benefits are realized,
this will result in combined operating income in excess of $1.5 billion per
year and a combined operating ratio of 79 percent. There can be no assurance
that these potential benefits will be realized or that the ICC will not impose
conditions on the operations of the merged entity that will affect its ability
to fully achieve any one or more of these benefits. Moreover, in order to
achieve the increases in operating revenue mentioned above, it is expected that
certain nonrecurring cash costs would be incurred, which would include
relocation, employee separation and retraining and capital improvement costs.
The ICC application states that those costs are approximately $350 million, a
substantial portion of which will be incurred during the first year following
consummation of the Burlington Northern-Santa Fe merger. A more detailed
description of what Burlington Northern and Santa Fe have stated in the ICC
application, as well as some important caveats about this information, is
provided at pages 62 through 64 of the Original Joint Proxy
Statement/Prospectus.
The merger is contingent upon, among other things, approval by the ICC. The
merger would be consummated shortly after ICC approval is obtained and other
conditions to the merger are satisfied or waived.
Union Pacific Corporation ("Union Pacific") has made a competing proposal to
acquire Santa Fe (the "Union Pacific Proposal"). Santa Fe's Board of Directors
has rejected the Union Pacific Proposal. The Board based its decision on, among
other things, its conclusion that it is unlikely that a Union Pacific-Santa Fe
<PAGE>
combination would receive ICC approval given the anticompetitive effects that
would be created by the extensive market overlaps between the two railroad
systems and the dominant position of Union Pacific. The Board reviewed material
provided by Union Pacific and, after consultation with its advisors, reaffirmed
its decision.
The Board also perceived that the Union Pacific Proposal appears designed to
prevent the consummation of the Burlington Northern-Santa Fe merger, which
would create a strong competitor to Union Pacific. If the Burlington Northern-
Santa Fe merger agreement is terminated and the Union Pacific Proposal cannot
be consummated, Santa Fe would be left without a strategic combination which is
required to protect and enhance stockholder value.
Your Board of Directors believes that the Burlington Northern-Santa Fe merger
is fair to and in the best interests of Santa Fe and its stockholders, and that
it will create a strong new rail carrier with a diversified traffic base and
excellent financial prospects. YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED
THE BURLINGTON NORTHERN-SANTA FE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE
BURLINGTON NORTHERN-SANTA FE MERGER.
Whether or not you plan to attend the Special Meeting, PLEASE COMPLETE, SIGN
AND DATE THE ACCOMPANYING WHITE PROXY CARD AND RETURN IT IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE. IF YOU HAVE ALREADY SUBMITTED A PROXY
CARD, YOU DO NOT NEED TO SUBMIT THE ACCOMPANYING PROXY CARD UNLESS YOU WISH TO
CHANGE YOUR VOTE. A VOTE INDICATED ON A PREVIOUSLY SUBMITTED PROXY CARD WILL BE
DEEMED TO BE A CORRESPONDING VOTE ON THE MERGER, INCLUDING THE INCREASED
EXCHANGE RATIO, UNLESS YOU SUBMIT A SUBSEQUENT PROXY CARD CHANGING YOUR VOTE.
Your prompt cooperation is greatly appreciated.
If you are present at the Special Meeting, you may, of course, withdraw your
proxy and vote your shares in person.
Very truly yours,
/s/ Robert D. Krebs
Robert D. Krebs
Chairman, President and Chief
Executive Officer
<PAGE>
BURLINGTON NORTHERN INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 18, 1994
TO THE STOCKHOLDERS OF BURLINGTON NORTHERN INC.:
A Special Meeting of the Stockholders of Burlington Northern Inc. ("BNI")
will be held at Burlington Northern Railroad Company, 3017 Lou Menk Drive, Fort
Worth, Texas, 76131-2815, on November 18, 1994, at 10:00 a.m., Fort Worth time,
for the purpose of considering and voting upon the following:
1. The approval and adoption of an Agreement and Plan of Merger dated as
of June 29, 1994 between BNI and Santa Fe Pacific Corporation ("SFP"), as
amended by the Amendment thereto dated as of October 26, 1994 (as so
amended, the "Merger Agreement"). A copy of the Amendment is set forth as
Appendix A to the attached Supplemental Joint Proxy Statement/Prospectus.
Pursuant to the Merger Agreement, among other things, (i) SFP is to merge
with and into BNI (the "Merger"), with BNI to be the surviving corporation
in the Merger, (ii) each share of common stock, par value $1.00 per share,
of SFP outstanding at the effective time of the Merger (other than shares
held by SFP as treasury stock or held by BNI or its subsidiaries) will be
converted into the right to receive 0.34 shares of common stock, no par
value, of BNI and (iii) BNI will issue approximately 73,100,000 shares of
its common stock to SFP stockholders, all as more fully set forth in the
Merger Agreement and described in the attached Supplemental Joint Proxy
Statement/Prospectus and the Joint Proxy Statement/Prospectus of BNI and
SFP dated October 12, 1994 previously distributed to BNI stockholders (the
"Original Joint Proxy Statement/Prospectus"). The Supplemental Joint Proxy
Statement/Prospectus modifies and supersedes certain information in the
Original Joint Proxy Statement/Prospectus and should be read in conjunction
with the Original Joint Proxy Statement/Prospectus.
2. Such other business as may properly come before the Special Meeting or
any adjournment or postponement thereof.
Only stockholders of record at the close of business on October 19, 1994 are
entitled to receive notice of and to vote at the Special Meeting or any
adjournment or postponement thereof.
Whether or not you expect to attend the Special Meeting, please fill in, date
and sign the accompanying proxy card and mail it promptly in the enclosed
prepaid return envelope. If you have already submitted a proxy card, you do not
need to submit the accompanying proxy card unless you wish to change your vote.
A vote indicated on a previously submitted proxy card will be deemed to be a
corresponding vote on the Merger Agreement unless you submit a subsequent proxy
card changing your vote. If you attend the Special Meeting, you may vote in
person if you wish, even if you have previously returned your proxy card.
By Order of the Board of Directors.
/s/ Edmund W. Burke
Edmund W. Burke
Executive Vice President,
Law and Secretary
Fort Worth, Texas
October 27, 1994
<PAGE>
SANTA FE PACIFIC CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 18, 1994
TO THE STOCKHOLDERS OF SANTA FE PACIFIC CORPORATION:
A Special Meeting of Stockholders of Santa Fe Pacific Corporation ("SFP")
will be held at the Hyatt Regency O'Hare, 9300 West Bryn Mawr Avenue, Rosemont,
Illinois on November 18, 1994, at 3:00 p.m., Chicago time, for the purpose of
considering and voting upon the following:
1. The approval and adoption of an Agreement and Plan of Merger dated as
of June 29, 1994 between Burlington Northern Inc. ("BNI") and SFP, as
amended by the Amendment thereto dated as of October 26, 1994 (as so
amended, the "Merger Agreement"). A copy of the Amendment is set forth as
Appendix A to the attached Supplemental Joint Proxy Statement/Prospectus.
Pursuant to the Merger Agreement, among other things, (i) SFP is to merge
with and into BNI (the "Merger"), with BNI to be the surviving corporation
in the Merger, (ii) each share of common stock, par value $1.00 per share,
of SFP outstanding at the effective time of the Merger (other than shares
held by SFP as treasury stock or held by BNI or its subsidiaries) will be
converted into the right to receive 0.34 shares of common stock, no par
value, of BNI and (iii) BNI will issue approximately 73,100,000 shares of
its common stock to SFP stockholders, all as more fully set forth in the
Merger Agreement and described in the attached Supplemental Joint Proxy
Statement/Prospectus and the Joint Proxy Statement/Prospectus of SFP and
BNI dated October 12, 1994 previously distributed to SFP stockholders (the
"Original Joint Proxy Statement/Prospectus"). The Supplemental Joint Proxy
Statement/Prospectus modifies and supersedes certain information in the
Original Joint Proxy Statement/Prospectus and should be read in conjunction
with the Original Joint Proxy Statement/Prospectus.
2. Such other business as may properly come before the Special Meeting or
any adjournment or postponement thereof.
Only stockholders of record at the close of business on October 19, 1994 are
entitled to receive notice of and to vote at the Special Meeting or any
adjournment or postponement thereof.
Whether or not you expect to attend the Special Meeting, please fill in, date
and sign the accompanying WHITE proxy card and mail it promptly in the enclosed
prepaid return envelope. If you have already submitted the previously
distributed proxy card, you do not need to submit the accompanying proxy card
unless you wish to change your vote. A vote indicated on a previously submitted
proxy card will be deemed to be a corresponding vote on the Merger Agreement
unless you submit a subsequent proxy card changing your vote. If you attend the
Special Meeting, you may vote in person if you wish, even if you have
previously returned your proxy card.
By Order of the Board of Directors.
/s/ Marsha K. Morgan
Marsha K. Morgan
Corporate Secretary
Schaumburg, Illinois
October 27, 1994
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
BURLINGTON NORTHERN INC.
AND
SANTA FE PACIFIC CORPORATION
SUPPLEMENTAL JOINT PROXY STATEMENT
FOR SPECIAL MEETINGS OF STOCKHOLDERS
TO BE HELD NOVEMBER 18, 1994
BURLINGTON NORTHERN INC.
PROSPECTUS SUPPLEMENT
COMMON STOCK
This Supplemental Joint Proxy Statement/Prospectus relates to the proposed
merger (the "Merger") of Santa Fe Pacific Corporation, a Delaware corporation
("SFP"), with and into Burlington Northern Inc., a Delaware corporation
("BNI"), pursuant to the Agreement and Plan of Merger dated as of June 29, 1994
between BNI and SFP, as amended by the Amendment thereto dated as of October
26, 1994 (as so amended, the "Merger Agreement"). If the proposed Merger is
consummated, each outstanding share of common stock, par value $1.00 per share,
of SFP ("SFP Common Stock"), other than shares of SFP Common Stock held by SFP
as treasury stock or held by BNI or its subsidiaries (all of which will be
canceled), will be converted into the right to receive 0.34 shares of common
stock, no par value, of BNI ("BNI Common Stock"). The consummation of the
Merger is subject to various conditions, including, among other things,
approval by the stockholders of each of BNI and SFP at their respective Special
Meetings, described herein and in the Original Joint Proxy Statement/Prospectus
referred to below, and approval by the Interstate Commerce Commission (the
"ICC"). This Supplemental Joint Proxy Statement/Prospectus is being furnished
to stockholders of each of BNI and SFP in connection with the solicitation of
proxies to be used at the respective Special Meetings of BNI and SFP to be held
for the purposes described herein and in the Original Joint Proxy
Statement/Prospectus referred to below.
This Supplemental Joint Proxy Statement/Prospectus, together with the
Original Joint Proxy Statement/Prospectus referred to below, also constitutes a
prospectus of BNI with respect to up to 73,100,000 shares of BNI Common Stock
issuable to SFP stockholders in the Merger.
This Supplemental Joint Proxy Statement/Prospectus modifies and supersedes
certain information included in the Joint Proxy Statement/Prospectus dated
October 12, 1994 of BNI and SFP previously distributed to BNI and SFP
stockholders (the "Original Joint Proxy Statement/Prospectus") and should be
read in conjunction with the Original Joint Proxy Statement/Prospectus.
All information herein concerning BNI has been furnished by BNI, and all
information herein concerning SFP has been furnished by SFP. BNI has
represented and warranted to SFP, and SFP has represented and warranted to BNI,
that the particular information so furnished is true and complete.
This Supplemental Joint Proxy Statement/Prospectus and the accompanying forms
of proxy are first being mailed to stockholders of each of BNI and SFP on or
about October 28, 1994.
-----------
THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE MERGER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
SUPPLEMENTAL JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-----------
The date of this Supplemental Joint Proxy Statement/Prospectus is October 27,
1994.
<PAGE>
AVAILABLE INFORMATION
Each of BNI and SFP is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by each of BNI and SFP with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and should be available at the Commission's Regional Offices at 7
World Trade Center, Thirteenth Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
may also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition,
material filed by each of BNI and SFP may be inspected at the offices of the
New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005 and
also at the offices of the Chicago Stock Exchange, Incorporated, 440 South
LaSalle Street, One Financial Place, Chicago, Illinois 60605 and the Pacific
Stock Exchange Incorporated, 301 Pine Street, San Francisco, California 94104.
BNI has filed with the Commission two Registration Statements on Form S-4
(collectively, together with any amendments thereto, the "Registration
Statements") under the Securities Act of 1933, as amended (the "Securities
Act"), relating to the shares of BNI Common Stock offered pursuant to this
Supplemental Joint Proxy Statement/Prospectus and the Original Joint Proxy
Statement/Prospectus. This Supplemental Joint Proxy Statement/Prospectus and
the Original Joint Proxy Statement/Prospectus do not contain all of the
information set forth in the Registration Statements and the exhibits filed by
BNI, certain portions which have been omitted pursuant to the rules and
regulations of the Commission and to which portions reference is hereby made
for further information with respect to BNI, SFP and the securities offered
hereby. The Registration Statements and the exhibits thereto may be inspected
without charge at the offices of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies may be obtained from the Commission at
prescribed rates.
This Supplemental Joint Proxy Statement/Prospectus modifies and supersedes
certain of the information included in the Original Joint Proxy
Statement/Prospectus and should be read in conjunction with the Original Joint
Proxy Statement/Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by BNI pursuant
to the Exchange Act are incorporated by reference in this Supplemental Joint
Proxy Statement/Prospectus:
1. BNI's Annual Report on Form 10-K for the year ended December 31, 1993
(which incorporates by reference certain information from BNI's Proxy
Statement relating to the 1994 Annual Meeting of Stockholders and
includes Amendment No. 1 on Form 10-K/A dated October 5, 1994);
2. BNI's Quarterly Reports on Form 10-Q for the quarters ended March 31 and
June 30, 1994 (including Amendment No. 1 on Form 10-Q/A each dated
October 5, 1994, respectively);
3. BNI's Current Reports on Form 8-K dated June 29, 1994 and October 6,
1994; and
4. BNI's Registration Statement on Form 8-A dated July 15, 1986.
The following documents previously filed with the Commission by SFP pursuant
to the Exchange Act are incorporated by reference in this Supplemental Joint
Proxy Statement/Prospectus:
1.SFP's Annual Report on Form 10-K for the year ended December 31, 1993
(which incorporates by reference certain information from SFP's Proxy
Statement relating to the 1994 Annual Meeting of Stockholders and
includes both Amendment No. 1 and Amendment No. 2 on Form 10-K/A dated
June 29, 1994 and October 5, 1994, respectively);
2
<PAGE>
2.SFP's Quarterly Reports on Form 10-Q for the quarters ended March 31 and
June 30, 1994 (including Amendment No. 1 thereto on Form 10-Q/A each
dated October 5, 1994, respectively);
3.SFP's Current Reports on Form 8-K dated June 29, 1994 (including
Amendment No. 1 thereto on Form 8-K/A dated July 29, 1994), August 3,
1994 (including Amendment No. 1 thereto on Form 8-K/A dated October 5,
1994), October 5, 1994 and October 19, 1994; and
4.SFP's Registration Statement on Form 8-B filed with the Commission on
November 29, 1983 (Item 4 of which incorporates by reference the
description of the SFP Common Stock as set forth under the sections
"Comparison of Certain Provisions of Certificates of Incorporation and
By-Laws of SFSP, Santa Fe and Southern Pacific" and "Description of
Common Stock of SFSP" in the Joint Proxy Statement-Prospectus of SFP and
Southern Pacific Corporation dated November 10, 1983).
----------------
All documents filed by BNI and SFP pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Supplemental Joint Proxy
Statement/Prospectus and prior to the date of the Special Meetings of the
stockholders of BNI and SFP shall be deemed to be incorporated by reference in
this Supplemental Joint Proxy Statement/Prospectus and to be a part hereof from
the dates of filing such documents or reports. Any statement contained herein
or in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Supplemental
Joint Proxy Statement/Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which is also incorporated
or deemed to be incorporated herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Supplemental Joint Proxy
Statement/Prospectus.
----------------
THIS SUPPLEMENTAL JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
(OTHER THAN CERTAIN EXHIBITS TO DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE), AS WELL AS THE ORIGINAL JOINT PROXY
STATEMENT/PROSPECTUS, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON TO WHOM A COPY
OF THIS SUPPLEMENTAL JOINT PROXY STATEMENT/PROSPECTUS HAS BEEN DELIVERED UPON
WRITTEN OR ORAL REQUEST, IN THE CASE OF BNI DOCUMENTS (INCLUDING THE ORIGINAL
JOINT PROXY STATEMENT/PROSPECTUS), TO BURLINGTON NORTHERN INC., 3800
CONTINENTAL PLAZA, 777 MAIN STREET, FORT WORTH, TEXAS 76102-5384, ATTENTION:
CORPORATE SECRETARY, TELEPHONE NUMBER (817) 333-7951, AND, IN THE CASE OF SFP
DOCUMENTS (INCLUDING THE ORIGINAL JOINT PROXY STATEMENT/PROSPECTUS), TO SANTA
FE PACIFIC CORPORATION, 1700 EAST GOLF ROAD, SCHAUMBURG, ILLINOIS 60173-5860,
ATTENTION: CORPORATE SECRETARY, TELEPHONE NUMBER (708) 995-6000. IN ORDER TO
ENSURE DELIVERY PRIOR TO THE SPECIAL MEETINGS, REQUESTS SHOULD BE RECEIVED BY
NOVEMBER 9, 1994.
----------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS SUPPLEMENTAL JOINT PROXY STATEMENT/PROSPECTUS OR THE
ORIGINAL JOINT PROXY STATEMENT/PROSPECTUS IN CONNECTION WITH THE OFFERING AND
THE SOLICITATIONS MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY BNI OR SFP.
THIS SUPPLEMENTAL JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS SUPPLEMENTAL JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THESE SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY INFERENCE THAT THERE HAS NOT BEEN ANY CHANGE IN THE INFORMATION SET
FORTH HEREIN OR IN THE AFFAIRS OF EITHER BNI OR SFP SINCE THE DATE HEREOF.
3
<PAGE>
INTRODUCTION
On June 29, 1994, Burlington Northern Inc. ("BNI") and Santa Fe Pacific
Corporation ("SFP") entered into an Agreement and Plan of Merger (the "Original
Merger Agreement") pursuant to which SFP would be merged with and into BNI and
stockholders of SFP would become stockholders of BNI. Pursuant to the Original
Merger Agreement, each share of common stock, par value $1.00 per share, of SFP
(the "SFP Common Stock") would have been converted into 0.27 shares of common
stock, no par value per share, of BNI (the "BNI Common Stock") upon
consummation of the merger contemplated thereby. Special meetings of the
stockholders of BNI and SFP to consider and approve the Original Merger
Agreement were scheduled for November 18, 1994, and a Joint Proxy
Statement/Prospectus dated October 12, 1994 of BNI and SFP (the "Original Joint
Proxy Statement/Prospectus") was distributed by BNI and SFP to their respective
stockholders.
On October 26, 1994, BNI and SFP entered into an Amendment to the Original
Merger Agreement (as so amended, the "Merger Agreement") to increase the
exchange ratio in the proposed merger from 0.27 shares of BNI Common Stock per
share of SFP Common Stock to 0.34 shares of BNI Common Stock per share of SFP
Common Stock (the "Exchange Ratio"). All other terms of the proposed merger are
identical to those set forth in the Original Merger Agreement and the Original
Joint Proxy Statement/Prospectus. For purposes of this Supplemental Joint Proxy
Statement/Prospectus, the term "Merger" shall refer to the merger of SFP with
and into BNI pursuant to the terms of the Merger Agreement.
This Supplemental Joint Proxy Statement/Prospectus modifies and supersedes
certain information contained in the Original Joint Proxy Statement/Prospectus
to reflect the increase in the exchange ratio and to describe certain
significant recent developments. This Supplemental Joint Proxy
Statement/Prospectus also includes certain additional information relating to
the increase in the exchange ratio, including revised pro forma combined
financial information giving effect to the increase. This Supplemental Joint
Proxy Statement/Prospectus should be read in conjunction with the Original
Joint Proxy Statement/Prospectus.
This Supplemental Joint Proxy Statement/Prospectus is being furnished to
stockholders of BNI in connection with the solicitation of proxies by the BNI
Board of Directors for use at the Special Meeting of Stockholders of BNI (the
"BNI Special Meeting") to be held at Burlington Northern Railroad Company, 3017
Lou Menk Drive, Forth Worth, Texas 76131-2815, on November 18, 1994 at 10:00
a.m., Fort Worth time, and at any adjournment or postponement thereof.
This Supplemental Joint Proxy Statement/Prospectus is also being furnished to
the stockholders of SFP in connection with the solicitation of proxies by the
SFP Board of Directors for use at the Special Meeting of Stockholders of SFP
(the "SFP Special Meeting") to be held at the Hyatt Regency O'Hare, 9300 West
Bryn Mawr Avenue, Rosemont, Illinois on November 18, 1994 at 3:00 p.m., Chicago
time, and at any adjournment or postponement thereof.
At the BNI Special Meeting and the SFP Special Meeting, the common
stockholders of BNI and SFP, respectively, will be asked to adopt and approve
the Merger Agreement between BNI and SFP, pursuant to which SFP is to merge
with and into BNI, with BNI to be the surviving corporation in the Merger. In
the Merger, each holder of SFP Common Stock will receive 0.34 shares of BNI
Common Stock per share of SFP Common Stock.
All information herein concerning BNI has been furnished by BNI, and all
information herein concerning SFP has been furnished by SFP. BNI has
represented and warranted to SFP, and SFP has represented and warranted to BNI,
that the particular information so furnished is true and complete.
Unless otherwise defined in this Supplemental Joint Proxy
Statement/Prospectus, all capitalized terms used herein have the meanings set
forth in the Original Joint Proxy Statement/Prospectus.
This Supplemental Joint Proxy Statement/Prospectus and the accompanying forms
of proxy are first being mailed to stockholders of BNI and SFP on or about
October 28, 1994.
4
<PAGE>
THE SPECIAL MEETINGS
PURPOSE OF THE BNI AND SFP SPECIAL MEETINGS
The purpose of the BNI and SFP Special Meetings is to consider and vote upon
the adoption and approval of the Merger Agreement. Pursuant to the Merger
Agreement, upon consummation of the Merger, SFP will be merged with and into
BNI, with each share of SFP Common Stock to be converted into the right to
receive 0.34 shares of BNI Common Stock. Except for the increase in the
exchange ratio, the terms of the Merger Agreement are identical to those of the
Original Merger Agreement.
EACH OF THE BOARDS OF DIRECTORS OF BNI AND SFP HAS, BY UNANIMOUS VOTE,
APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT ITS STOCKHOLDERS VOTE FOR
APPROVAL OF THE MERGER AGREEMENT.
VOTING AND REVOCATION OF PROXIES
WHITE proxy cards for use at either the BNI Special Meeting or the SFP
Special Meeting, as the case may be, accompany this Supplemental Joint Proxy
Statement/Prospectus. A stockholder may use the appropriate WHITE proxy card if
he or she is unable to attend the meeting in person or wishes to have his or
her shares voted by proxy even if he or she does attend the meeting. If a
stockholder has already submitted a proxy card, he or she does not need to
submit an additional proxy card unless the stockholder wishes to change his or
her vote. A vote indicated on a previously submitted proxy card will be deemed
to be a corresponding vote on the Merger Agreement unless a stockholder submits
a subsequent proxy card changing his or her vote. A proxy may be revoked by the
person giving it at any time before it is exercised by providing written notice
of such revocation to the Secretary of BNI or SFP, as the case may be, by
submitting a proxy having a later date, or by appearing at the meeting and
electing to vote in person. Any proxy validly submitted and not revoked will be
voted in the manner specified therein by the stockholder. IF NO SPECIFICATION
IS MADE, SHARES OF BNI COMMON STOCK OR SFP COMMON STOCK, AS THE CASE MAY BE,
REPRESENTED BY PROXY WILL BE VOTED FOR APPROVAL OF THE MERGER AGREEMENT.
Because approval of the Merger Agreement by BNI stockholders requires the
affirmative vote of a majority of the shares of BNI Common Stock outstanding as
of the Record Date, and approval of the Merger Agreement by SFP stockholders
requires the affirmative vote of a majority of the shares of SFP Common Stock
outstanding as of the Record Date, abstentions and broker non-votes will have
the effect of a vote against approval of the Merger Agreement. Neither BNI's
nor SFP's Board of Directors knows of any other matter that will be presented
for action at either of the Special Meetings. If, however, any other matter
properly comes before either of the Special Meetings, the persons named in the
proxy or their substitutes will vote thereon in accordance with their judgment.
SOLICITATION OF PROXIES
In addition to Kissel-Blake, Inc., Lazard Freres & Co. ("Lazard") will also
assist in the solicitation of proxies by BNI. Lazard will not receive any
additional compensation for such assistance. Lazard's compensation arrangements
with BNI for services rendered in connection with the Merger are described in
"The Merger--Opinions of Financial Advisors--Opinion of Lazard" in the Original
Joint Proxy Statement/Prospectus.
In addition to D.F. King & Co., Inc. and MacKenzie Partners, Inc., Goldman,
Sachs & Co. ("Goldman Sachs") will also assist in the solicitation of proxies
by SFP. Goldman Sachs will not receive any additional compensation for such
assistance. Goldman Sachs' compensation arrangements with SFP for services
rendered in connection with the Merger are described in "The Merger--Opinions
of Financial Advisors--Opinion of Goldman Sachs" in the Original Joint Proxy
Statement/Prospectus.
5
<PAGE>
RECENT DEVELOPMENTS
Set forth below is a description of certain significant developments, which
description should be read in conjunction with the Original Joint Proxy
Statement/Prospectus.
On October 5, 1994, Mr. Drew Lewis, the Chairman and Chief Executive Officer
of Union Pacific Corporation ("UPC"), called Mr. Robert D. Krebs, the Chairman,
President and Chief Executive Officer of SFP, and stated that UPC wished to
acquire SFP and that Mr. Lewis wanted to meet with Mr. Krebs. Mr. Lewis further
stated that he was going to call Mr. Gerald Grinstein, the Chairman and Chief
Executive Officer of BNI, to request a meeting with him as well. Mr. Krebs told
Mr. Lewis that SFP was already a party to a merger agreement, that it was
unlikely that the ICC would permit a merger between SFP and UPC, and that
therefore there was no reason to have a meeting. Mr. Lewis replied that UPC
intended to make public a proposal if no meeting occurred and urged that a
meeting be held. The two men then agreed that Mr. Krebs would consult his
counsel. After doing so, Mr. Krebs called Mr. Lewis back and agreed to a
meeting. During the conversations, Mr. Lewis told Mr. Krebs that UPC had looked
at Southern Pacific and at SFP, and had decided that SFP was the company to
break up. Mr. Lewis also stated that UPC would offer concessions to BNI to
persuade it to acquiesce to UPC's proposal.
Mr. Lewis then called Mr. Grinstein, stated that UPC wanted to acquire SFP
and asked to see Mr. Grinstein. Mr. Grinstein declined to see Mr. Lewis.
Mr. Lewis, Mr. Richard Davidson, President of UPC, Mr. Krebs, and Mr. Robert
A. Helman, SFP's counsel, had a meeting in the late afternoon of October 5. At
the meeting, Mr. Helman stated that SFP is subject to a binding merger
agreement and that it is unlikely that a UPC-SFP combination would be approved
by the ICC. Mr. Helman also stated that UPC had misled SFP because, earlier in
1994, when Mr. Krebs returned an unsolicited telephone call from Mr. Lewis, Mr.
Lewis had stated that if SFP made its deal with BNI, UPC would not oppose it.
Mr. Lewis denied having made that statement, contending that what he had
stated was that UPC would not oppose a BNI-SFP merger subject to an evaluation
of its merits. Mr. Lewis then placed a written proposal (the "UPC Proposal") on
Mr. Krebs' desk and, as Mr. Lewis was leaving, stated that Mr. Krebs was making
a mistake, that UPC would offer more--$20 per share--than the amount provided
for in the UPC Proposal, and that UPC would consider using a voting trust for
the proposed transaction. Mr. Lewis and Mr. Davidson then left SFP's
headquarters, where the meeting had taken place.
In the UPC Proposal, UPC proposed to acquire SFP in a tax-free merger in
which SFP stockholders would receive, for each share of SFP Common Stock, .344
of a share of UPC common stock, having a value of $18 per SFP share based on
the closing price on October 4, 1994 of UPC common stock. On October 26, 1994,
.344 of a share of UPC common stock (based on the closing price on that date)
had a value of $17.03.
The transaction contemplated in the UPC Proposal is subject to ICC approval,
the termination of the BNI-SFP merger agreement, execution of a definitive
agreement and the approval of the Board of Directors and the stockholders of
both SFP and UPC. The UPC Proposal is also conditioned upon the satisfactory
completion of a due diligence review of SFP. UPC offered to facilitate an SFP
due diligence review of UPC.
The UPC Proposal stated that UPC is prepared to grant conditions to Southern
Pacific, BNI or other railroads, including access to points that would
otherwise change from two serving railroads to one, rights to handle service-
sensitive business moving between California, Chicago and the Midwest, and
access to the Kansas and Oklahoma grain markets. The UPC Proposal further
stated that UPC envisions that certain members of the SFP Board would be
invited to serve on UPC's Board. The UPC Proposal further stated that UPC was
prepared to immediately commence negotiation of a definitive merger agreement
containing mutually agreeable terms and conditions.
6
<PAGE>
The SFP Board met to consider the UPC Proposal on October 5 and October 6,
1994. At those meetings, counsel for SFP explained that SFP's directors did not
have the right to terminate the Original Merger Agreement in response to the
UPC Proposal but did have the right, to the extent required by their fiduciary
duties under applicable law if so advised by outside counsel, (i) to engage in
negotiations or provide any confidential information or data to UPC relating to
the UPC Proposal and (ii) to withdraw, modify or amend their recommendation
that SFP's stockholders approve the Original Merger Agreement and the BNI-SFP
merger.
Mr. Krebs reminded the SFP Board of his description at prior Board meetings
of two telephone calls he had had with Mr. Lewis earlier in the year. The
first, on June 7, 1994, occurred when Mr. Krebs returned Mr. Lewis' unsolicited
telephone call made on June 6. Mr. Lewis stated on June 7 that if SFP made its
deal with BNI, UPC would not oppose it and in fact, would welcome it because
UPC liked good competitors. Mr. Lewis went on to say that UPC also would not
object if SFP entered into a transaction to acquire Kansas City Southern
Railway Company. The second telephone call was shortly after the BNI-SFP merger
agreement was announced on June 29, 1994. Mr. Krebs called Mr. Lewis as a
courtesy, and Mr. Lewis stated that he had seen the press release and that UPC
would study the matter.
After discussions at both meetings and consultation with its financial and
legal advisors, the SFP Board unanimously decided to reject the UPC Proposal
and reaffirm its recommendation to SFP's stockholders that they approve the
Original Merger Agreement and the BNI-SFP merger. In reaching its decision, the
SFP Board considered the following factors:
1. Likelihood of ICC Approval. The SFP Board concluded that it is unlikely
that a UPC-SFP combination would receive ICC approval. The SFP Board based its
conclusion in part on its own knowledge, and the view of management, that the
extensive market overlaps between the two railroad systems and the dominant
position of UPC would make such a combination anticompetitive. The SFP Board
also based its conclusion in part on advice of counsel that, given the
anticompetitive effects of a UPC-SFP combination, the ICC was unlikely to
approve such a combination absent concessions by UPC that would make the
transaction untenable and the ICC might well not approve it regardless of any
concessions made by UPC. The SFP Board noted that in the past it had, as part
of management's strategic reviews with the SFP Board, discussed the possibility
of a UPC-SFP combination, but had not pursued this idea because of the
improbability of obtaining ICC approval, given the adverse effect on
competition that such a combination would have.
2. Perception of UPC Proposal. The SFP Board perceived the UPC Proposal as
apparently designed to prevent the consummation of the BNI-SFP merger and the
creation of a strong competitor to UPC. The SFP Board based this perception on
its conclusion that ICC approval of a UPC-SFP combination is unlikely and on
the timing of the UPC Proposal. The SFP Board also took account of the
inconsistency between UPC's present position and Mr. Lewis' earlier statement
to Mr. Krebs that UPC would not oppose a BNI-SFP merger.
3. Opinion of Financial Advisor. Goldman Sachs advised the SFP Board that
under the circumstances described to the SFP Board by SFP's management and
counsel, Goldman Sachs reaffirmed its opinion with respect to the original
exchange ratio contemplated by the BNI-SFP merger. See the full text of the
opinion of Goldman Sachs dated the date of the Original Joint Proxy
Statement/Prospectus (attached as Appendix D to the Original Joint Proxy
Statement/Prospectus), which sets forth certain assumptions made by Goldman
Sachs, including the assumption that under the foregoing circumstances Goldman
Sachs, in analyzing the original exchange ratio, need not take into account the
consideration which might be received under the UPC Proposal.
4. Binding Agreement. The SFP Board noted that SFP has no right to terminate
the Original Merger Agreement and that it is important to avoid breaches of the
Original Merger Agreement, particularly in light of the SFP Board's belief that
consummation of the BNI-SFP merger is in the best interest of SFP's
stockholders because (1) the BNI-SFP merger has significant benefits for SFP
stockholders and (2) if the
7
<PAGE>
Original Merger Agreement is terminated and if the UPC Proposal cannot be
consummated, SFP would be left without a strategic combination which is
required to protect and enhance shareholder value.
The SFP Board also discussed the significance of Mr. Lewis' remarks to Mr.
Krebs regarding the possibility of UPC offering a $20 per share price and
establishing a voting trust. The SFP Board noted that Mr. Lewis' statements
were inconsistent with the UPC Proposal and UPC's press release, which was
issued after Mr. Lewis met with Mr. Krebs. However, the SFP Board decided,
after being advised by outside counsel that its fiduciary duties under
applicable law required such a step, that SFP should communicate to UPC that,
if UPC were to make a proposal at a fair price and with an adequate provision
for a voting trust that would substantially eliminate the regulatory risk for
SFP stockholders, the SFP Board would consider that proposal in light of its
fiduciary duties.
On October 6, 1994, this information, along with the SFP Board's decision to
reject the UPC Proposal, was sent to UPC in a letter from Mr. Krebs to Mr.
Lewis and in a press release issued by SFP. BNI was made aware of, and did not
object to, the contents of the letter and press release before they were sent
or issued.
On October 11, 1994, in a letter addressed to Mr. Krebs, UPC expressed its
dissatisfaction with the SFP Board's prompt rejection of the UPC Proposal. It
emphasized the possible benefits to be attained in accepting the UPC Proposal,
asked the SFP Board to consider UPC's analysis of ICC matters, and urged Mr.
Krebs, along with his advisors, to meet with UPC representatives. UPC concluded
its letter by stating that the proposed purchase price was considered by UPC to
be a "fair price" but that UPC would be prepared to receive information from
SFP that might justify a greater consideration. The SFP Board considered the
October 11 letter, and decided to reaffirm its prior position but requested UPC
to provide SFP with UPC's analysis of ICC matters.
On October 11, 1994, in a letter to Mr. Lewis, Mr. Krebs communicated (i) the
SFP Board's decision to reject the previously made proposal by UPC to acquire
SFP and to reaffirm its recommendation to SFP's stockholders that they approve
the Original Merger Agreement and the Merger contemplated thereby and (ii) the
SFP Board's request that UPC provide SFP with UPC's analysis of ICC matters.
On October , 1994, UPC announced that it would solicit proxies in
opposition to approval of the Original Merger Agreement.
On October 17, 1994, Mr. Lewis sent Mr. Krebs a fourteen page memorandum
prepared by UPC's Vice President of Strategic Planning (the "UPC Memorandum")
dated October 17, 1994, which Mr. Lewis described as a "summary analysis of the
case regarding our merger proposal that we would expect to present to the
Interstate Commerce Commission." The UPC Memorandum described alleged benefits
that would be created by a UPC-SFP merger, acknowledged that such a merger
would have anticompetitive effects, and proposed to deal with these effects
through certain conditions that UPC "might" accept. Mr. Krebs directed SFP's
management, lawyers and other advisors (the "ICC Advisors") to study the UPC
Memorandum in order to advise the SFP Board whether the UPC Memorandum provided
any basis for the SFP Board to change its position with respect to a possible
UPC-SFP merger.
At a meeting on October 20, 1994, the Board of Directors of BNI met to
consider whether any action should be taken with respect to the Original Merger
Agreement and the transactions contemplated thereby. The BNI Board received
presentations from its management and legal advisors concerning various recent
developments as well as a presentation from Lazard analyzing the possibility of
increasing the original exchange ratio. In connection with its presentation,
Lazard considered, among other things, the impact of the anticipated increase
in operating income of the merged entity set forth in the application filed by
BNI and SFP with the ICC in connection with the Merger (the "ICC Application"),
as well as the fact that the proposed merger with SFP would be accounted for
under the "pooling of interests" method of accounting rather than, as had been
expected on June 29, 1994, the "purchase" method of accounting.
On October 24, 1994, Mr. Grinstein spoke with Mr. Krebs concerning the
possibility of increasing the exchange ratio included in the Original Merger
Agreement.
8
<PAGE>
Also on October 24, 1994, UPC sent Mr. Krebs another set of materials (the
"UPC Panel Statement"), in which five experts retained by UPC offered their
views with respect to various issues regarding ICC approval of a UPC-SFP
combination.
The SFP Board met on October 25, 1994. At the meeting, Mr. Krebs advised the
SFP Board of his telephone call with Mr. Grinstein the previous day, and
Goldman Sachs provided the SFP Board with an analysis of the effects of an
increase in the original exchange ratio to various levels, including an
increase to 0.34. The SFP Board discussed the possibility of entering into an
amended merger agreement with BNI.
The SFP Board also received at the meeting oral and written presentations
from the ICC Advisors as to whether the UPC Memorandum or the UPC Panel
Statement warranted a change in the SFP Board's position with respect to a
possible UPC-SFP merger. These presentations examined the benefits that would
be created by, and the likelihood of ICC approval of, a BNI-SFP merger and the
unlikelihood of ICC approval of a UPC-SFP merger. The SFP Board questioned the
ICC Advisors about their presentations and discussed the issues raised, but
took no action with respect to these issues at the October 25 meeting.
At a meeting on October 26, 1994, the Board of Directors of BNI, by
unanimous vote determined that it would be fair to and in the best interests
of BNI and its stockholders to increase the exchange ratio from 0.27 shares of
BNI Common Stock per share of SFP Common Stock to 0.34 shares of BNI Common
Stock per share of SFP Common Stock and approved the Amendment to the Original
Merger Agreement implementing such increase. In reaching this determination,
the BNI Board of Directors considered, among other things, reports from BNI
management and BNI's legal and financial advisors updating the Board on recent
developments; the fact that the Merger would be accounted for under the
"pooling of interests" method of accounting rather than, as had been expected
on June 29, 1994, the "purchase" method of accounting; the financial data,
including the anticipated increase in operating income, set forth in the ICC
Application; and a presentation by Lazard, BNI's financial advisor, as to the
proposed increase in the exchange ratio and the Merger. At that meeting Lazard
rendered to the BNI Board of Directors its oral opinion that, based upon and
subject to various considerations and such other factors as it deemed
relevant, on October 26, 1994, the Exchange Ratio was fair to the holders of
BNI Common Stock from a financial point of view. Lazard has also delivered its
written opinion confirming, as of the date of this Supplemental Joint Proxy
Statement/Prospectus, its oral opinion of October 26, 1994.
In connection with its oral opinion delivered to the BNI Board on October
26, 1994 as well as its subsequent written opinion dated the date of this
Supplemental Joint Proxy Statement/Prospectus, Lazard performed analyses
substantially similar to those described in the Original Joint Proxy
Statement/Prospectus with respect to Lazard's opinion dated June 29, 1994 and,
among other things, updated the pro forma merger consequences analysis, based
on the estimate of benefits included in the ICC Application, which estimate
was developed after the delivery by Lazard of its previous opinions. After
taking into account the potential cost savings and revenue enhancements
anticipated to be realized following the Merger which are included in the ICC
Application, using the pooling of interests method of accounting and without
taking into account certain post-merger non-recurring expenses, Lazard
observed that the Merger would result in the initial accretion in earnings per
share of approximately 3.2% in the first year after the Merger is consummated
(which was assumed to be 1996) from BNI's stockholders' point of view. Lazard
further observed that the Merger would provide earnings per share accretion of
approximately 13.9% and 19.0% in 1997 and 1998, respectively, from BNI's
stockholders' point of view, after taking into account the potential cost
savings and revenue enhancements anticipated to be realized during such years
as included in the ICC Application, without taking into account certain post-
merger non-recurring expenses. In addition, Lazard recalculated the multiples
utilized in the comparable transaction analysis using the Exchange Ratio and
noted that SFP acquisition multiples were 22.3x historical net earnings, 7.4x
historical EBITDA and 11.1x historical EBIT, in each case implied by the
closing price of BNI Common Stock on October 19, 1994. Lazard noted that these
multiples, if calculated based on the closing price of BNI Common Stock on
October 26, 1994, would not change materially.
9
<PAGE>
Lazard also analyzed the hypothetical unaffected trading value of SFP Common
Stock as if the Merger and the UPC Proposal had not been announced. This
analysis was based on the Institutional Brokers Estimate System's estimated
consensus 1994 and 1995 earnings per share for SFP and a price to earnings
ratio range Lazard considered appropriate after taking into consideration such
ratios of comparable publicly traded Class I railroad holding companies. This
analysis indicated a hypothetical unaffected trading value range for the SFP
Common Stock of approximately $11.00 to $13.00 per share. Using the midpoint of
this range, Lazard calculated the premium to be offered to holders of SFP
Common Stock of approximately 38.5% based upon the closing price of BNI Common
Stock on October 19, 1994 and utilizing the Exchange Ratio. Lazard noted that
this premium, if calculated based on the closing price of BNI Common Stock on
October 26, 1994, would be 42.7%.
In addition, Lazard observed that the credit statistics of the combined
company under the pooling of interests method of accounting would remain
largely unchanged compared with those of BNI on a stand-alone basis. Lazard
also noted that by applying the Exchange Ratio, BNI stockholders would receive,
on a projected pro forma fully diluted basis, approximately 60.3% of the
ownership interest in the combined company.
THE FULL TEXT OF THE WRITTEN OPINION OF LAZARD DATED THE DATE OF THIS
SUPPLEMENTAL JOINT PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH ASSUMPTIONS
MADE, MATTERS CONSIDERED AND THE REVIEW UNDERTAKEN WITH REGARD TO SUCH OPINION,
IS ATTACHED AS APPENDIX B TO THIS SUPPLEMENTAL JOINT PROXY
STATEMENT/PROSPECTUS. BNI STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE
OPINION CAREFULLY AND IN ITS ENTIRETY. LAZARD'S OPINION IS DIRECTED ONLY TO THE
EXCHANGE RATIO AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF
BNI AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE SPECIAL MEETING OF
STOCKHOLDERS OF BNI. THE SUMMARY OF THE OPINION OF LAZARD SET FORTH IN THIS
SUPPLEMENTAL JOINT PROXY STATEMENT/PROSPECTUS SHOULD BE READ IN CONJUNCTION
WITH THE SUMMARY OF LAZARD'S OPINION DATED JUNE 29, 1994 SET FORTH IN THE
ORIGINAL JOINT PROXY STATEMENT/PROSPECTUS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF ITS WRITTEN OPINION DATED THE DATE OF THIS
SUPPLEMENTAL JOINT PROXY STATEMENT/PROSPECTUS.
In arriving at its oral and written opinions dated October 26, 1994 and the
date of this Supplemental Joint Proxy Statement/Prospectus, and in discussing
its October 26, 1994 opinion with BNI's Board of Directors, Lazard performed
various financial analyses, portions of which are summarized above. The summary
set forth above does not purport to be a complete description of Lazard's
analyses. Lazard believes that its analyses must be considered as a whole and
that selecting portions of its analyses, without considering all analyses,
could create an incomplete view of the process underlying the opinion. In
performing its analyses, Lazard made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of BNI or SFP. The analyses
performed by Lazard are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than
suggested by such analyses. Additionally, analyses relating to the values of
businesses do not purport to be appraisals or to reflect actual market
valuations or trading ranges, which may vary significantly from amounts set
forth above.
After the October 26 BNI Board of Directors meeting, Mr. Grinstein called Mr.
Krebs and advised him that the BNI Board was willing to amend the Original
Merger Agreement to provide for an exchange ratio of 0.34.
On October 26, after the BNI Board meeting, the SFP Board held a meeting. Mr.
Krebs advised the SFP Board of Mr. Grinstein's telephone call earlier in the
day, and the SFP Board took up the question of whether to enter into an amended
Merger Agreement on the terms proposed by BNI. The SFP Board decided to do so
for a number of reasons, some of which were discussed at the October 26 meeting
and some of which were discussed at the October 25 meeting. The SFP Board noted
that, based on closing stock prices on October 25, 1994, the market price of
0.34 of a BNI common share was slightly more than the market price of 0.344
(the exchange ratio set forth in the UPC Proposal) of a UPC common share.
10
<PAGE>
The SFP Board also noted that the UPC Proposal was not legally binding
because it was subject to a due diligence investigation and the negotiation and
execution of a merger agreement. Thus, SFP's stockholders could have no
assurance that UPC would in fact offer .344 shares of UPC common stock if the
BNI transaction were rejected and the Original Merger Agreement were
terminated. The SFP Board considered the risk of UPC not proceeding with its
proposal if the Original Merger Agreement with BNI were terminated to be
substantial because of the SFP Board's perception that the UPC Proposal was
designed to prevent the consummation of the BNI-SFP merger and the creation of
a strong competitor to UPC. If the Original Merger Agreement were terminated
and no agreement with UPC were reached, the price of SFP's stock might well
drop significantly and SFP would be left without a strategic combination which
is required to protect and enhance shareholder value.
The SFP Board also took account of the substantial long-term benefits that
would accrue to SFP's stockholders. The SFP Board concluded, in part on the
basis of the presentations of the ICC Advisors, that the long-term benefits
from a BNI-SFP merger were likely to be realized because that merger was likely
to receive ICC approval while any long-term benefits from a UPC-SFP merger were
uncertain and unlikely to be realized because the UPC Proposal, as further
described in the UPC Memorandum, was unlikely to receive ICC approval. In
reaching its conclusions about the likelihood of ICC approval of either
transaction, the SFP Board considered the following factors:
BNI-SFP MERGER
1. Benefits. A BNI-SFP combination would create substantial benefits for
shippers and the public, as well as for SFP's stockholders. The combination
would create an integrated rail network capable of reaching most of the key
domestic and export gateways in the western United States, thereby giving
shippers substantially increased opportunities for efficient single-line
service to numerous important markets. The combination would also introduce new
competition in service to shippers needing to reach multiple points (including
all major West Coast and many Gulf Coast ports). Reduced operating and overhead
costs of a consolidated BNI-SFP would result in more efficient service. Given
the predominately end-to-end nature of the merger (i.e., very little overlap),
these benefits would be created without significant adverse effects on
competition.
2. Risks. Although the SFP Board believes that it is likely that the ICC will
approve a BNI-SFP merger, there is a risk that the ICC might find that the
benefits to the public and the applicants from a BNI-SFP merger were outweighed
by the potential harm to the public produced by such a merger, particularly any
reduction in rail competition, harm to essential rail services or other factors
deemed detrimental to the public interest. Opponents of the transaction may
raise a number of challenges to the proposal, including allegations of
diminution in competition, claims of harm to essential rail services,
criticisms of the scale of the benefits claimed by SFP and BNI, complaints
about the fairness of the exchange ratio to the stockholders of the two
companies, concerns about the effect of the transaction on affected employees
of the two companies and similar points. For example, there are some limited
areas where the BNI and SFP systems do overlap--such as in Amarillo and
Lubbock, Texas--and it is probable that objections will be raised during the
ICC proceeding about the reduction in rail competition in those areas. SFP and
BNI have advised the ICC of their willingness to negotiate ameliorative
arrangements to address any such reductions in competition.
UPC-SFP MERGER
1. Adverse Effect on Competition. Because the UPC and SFP rail systems are
substantially parallel, a UPC-SFP combination--which would make the largest
western railroad in terms of revenues even larger--would have a substantial
anticompetitive effect. For example, it would significantly reduce competition
by combining the dominant carrier in the West (UPC) with its major competitor
(SFP) in the very important Chicago-California and Kansas City-California
routes and leave the combined UPC-SFP as an even more dominant competitor on
those routes.
11
<PAGE>
2. Inadequate Conditions. Only three out of the fourteen pages in the UPC
Memorandum discussed the competition issues that a UPC-SFP combination would
raise. The UPC Memorandum proposed to deal with these issues with certain
conditions that UPC "might" accept. The ICC Advisors concluded that UPC had
failed to address a number of significant competition problems, that even where
conditions were suggested they were unlikely to be sufficient, that in any
event UPC had made no commitment to accept those conditions, and that there was
no assurance that any set of conditions would be sufficient to permit an
anticompetitive merger of this magnitude. The ICC Advisors noted that the
authors of the UPC Panel Statement assumed that UPC would agree to sufficient
conditions to permit a UPC-SFP merger to be approved and that it was not in the
best interests of SFP or its stockholders to make such an assumption. They also
noted that, while some of the authors of the UPC Panel Statement stated that
UPC could make a "credible" case for ICC approval of a UPC-SFP merger, none of
them, despite their retention by UPC, stated that such approval was likely.
3. Benefits. The ICC Advisors concluded that the service benefits described
in the UPC Memorandum were unlikely to be persuasive to the ICC because many of
them would be achievable only at the expense of a substantial reduction in
competition. The ICC Advisors also concluded that many of the benefits claimed
by UPC were overstated.
4. Timing. The ICC Advisors indicated that a UPC-SFP merger application would
be highly contested and could be expected to be resolved on a schedule
substantially longer than the ICC schedule for the BNI-SFP application, which
calls for a ruling in the first quarter of 1996. Because of this timing
difference, SFP and its stockholders would be faced with a significantly longer
period of uncertainty while ICC approval was being sought under an agreement
with UPC than they would under the BNI Merger Agreement.
At the October 26 meeting, Goldman Sachs gave the SFP Board an oral opinion
to the effect that, as of October 26, based on various considerations and
assumptions, including the circumstances described to the SFP Board by the ICC
Advisors, the Exchange Ratio was fair to SFP's stockholders. That opinion has
been confirmed in writing and updated to the date hereof. See the full text of
the opinion of Goldman Sachs dated the date hereof, October 26, which opinion
is attached hereto as Appendix C, which sets forth certain assumptions made by
Goldman Sachs, including the assumption that under the foregoing circumstances
Goldman Sachs, in analyzing the Exchange Ratio, need not take into account the
consideration which might be received under the UPC Proposal. In connection
with this opinion, Goldman Sachs relied on updated financial projections
prepared by the management of SFP and updated estimates made by senior
managements of SFP and BNI of the synergies expected to be realized from the
Merger of $336 million in the first year after the Merger is consummated (which
was assumed to be 1996), $476 million in 1997 and $532 million in 1998. Such
revised pro forma merger analysis showed that the Merger, after taking into
account the synergies expected to be realized from the Merger, would result in
the initial accretion of the EPS of BNI by approximately 4.5% in the first year
after the Merger is consummated and that thereafter the Merger would provide
EPS accretion to BNI stockholders of approximately 14.6% and 17.3% in 1997 and
1998, respectively. Furthermore, Goldman Sachs' revised analysis showed that
from the point of view of SFP stockholders the Merger would provide EPS
accretion of approximately 76.0% in the first year after the Merger is
consummated (which was assumed to be 1996) and that thereafter the Merger would
provide EPS accretion to SFP stockholders of approximately 70.9% and 65.4% in
1997 and 1998, respectively. In addition, this analysis showed that SFP
stockholders would receive an additional $0.38 in dividends on a pro forma per
share basis.
The SFP Board voted unanimously to approve the amended Merger Agreement. The
Amendment to the Original Merger Agreement was executed and delivered promptly
by BNI and SFP after such approval. The SFP Board also authorized Mr. Krebs to
communicate to UPC that the UPC Memorandum and the UPC Panel Statement did not
change the SFP Board's views. Mr. Krebs did do promptly.
12
<PAGE>
CERTAIN PENDING LITIGATION
On June 30, 1994, shortly after announcement of the proposed BNI-SFP merger,
two purported stockholder class action suits were filed in the Court of
Chancery of the State of Delaware (Miller v. Santa Fe Pacific Corporation, C.A.
No. 13587; Cosentino v. Santa Fe Pacific Corporation, C.A. No. 13588). On July
1, 1994, two additional purported stockholder class action suits were filed in
the Court of Chancery of the State of Delaware (Fielding v. Santa Fe Pacific
Corporation, C.A. No. 13591; Wadsworth v. Santa Fe Pacific Corporation, C.A.
No. 13597).
The actions name as defendants SFP, the individual members of the SFP Board
of Directors and BNI. In general, the actions variously allege that SFP's
directors breached their fiduciary duties to the stockholders by agreeing to
the proposed merger for allegedly "grossly inadequate" consideration in light
of recent operating results of SFP, recent trading prices of SFP's common stock
and other alleged factors, by allegedly failing to take all necessary steps to
ensure that stockholders will receive the maximum value realizable for their
shares (including allegedly failing to actively pursue the acquisition of SFP
by other companies or conducting an adequate "market check") and by allegedly
failing to disclose to stockholders the full extent of the future earnings
potential of SFP, as well as the current value of its assets. The Miller and
Fielding cases further allege that the proposed BNI-SFP merger is unfairly
timed and structured and, if consummated, would allegedly unfairly deprive the
stockholders of standing to pursue certain pending stockholder derivative
litigation. Plaintiffs also have alleged that BNI is responsible for aiding and
abetting the alleged breach of fiduciary duty committed by the SFP Board. The
actions seek certification of a class action on behalf of SFP's stockholders.
In addition, the actions seek injunctive relief against consummation of the
merger and, in the event that the merger is consummated, the rescission of the
merger, an award of compensatory or rescissory damages and other damages,
including court costs and attorneys' fees, an accounting by defendants of all
profits realized by them as a result of the merger and various other forms of
relief.
On October 6, 1994, shortly after UPC issued a press release in which it
announced the UPC Proposal, plaintiffs in the four lawsuits described above
filed in the Court of Chancery of the State of Delaware a Consolidated Amended
Complaint. (Miller v. Santa Fe Pacific Corporation, C.A. No. 13587). In their
Consolidated Amended Complaint, plaintiffs repeat the allegations contained in
their earlier lawsuits and further allege that, in light of the UPC Proposal,
SFP's directors have breached their fiduciary duties by failing to fully inform
themselves about and to adequately explore available alternatives to the merger
with BNI, including the alternative of a merger transaction with UPC, and by
failing to fully inform themselves about the value of SFP. The Consolidated
Amended Complaint seeks the same relief sought in plaintiffs' earlier lawsuits
and, in addition, requests that SFP's directors be ordered to explore
alternative transactions and to negotiate in good faith with all interested
persons, including UPC.
Also on October 6, 1994, UPC filed in the Court of Chancery of the State of
Delaware a lawsuit against SFP, SFP's directors and BNI (Union Pacific
Corporation v. Santa Fe Pacific Corporation, C.A. No. 13778). In its Complaint,
UPC alleges that SFP's management purportedly rejected the UPC Proposal "out-
of-hand" without regard to the facts of the UPC Proposal, and that SFP's
directors have breached their fiduciary duties by purportedly refusing to
negotiate with UPC regarding the UPC Proposal, by refusing to terminate the
Merger Agreement and by failing to include in the Merger Agreement a provision
allowing SFP to terminate the Merger Agreement in order to enter an agreement
with UPC. UPC seeks injunctive relief mandating SFP to negotiate with UPC
regarding the UPC Proposal, a declaration that UPC has not tortiously
interfered with defendants' contractual or other legal rights, an injunction
against defendants from bringing or maintaining any action against UPC alleging
that UPC has tortiously interfered with defendants' contractual or other legal
rights, a declaration that the Original Merger Agreement with BNI permits SFP
to terminate the Original Merger Agreement in order to accept the UPC Proposal
or, in the alternative, that the Original Merger Agreement with BNI is invalid
and unenforceable for failing to include such a provision, and an award of
UPC's costs in bringing its lawsuit, including reasonable attorneys' fees.
13
<PAGE>
Also on October 6, 1994, five additional purported stockholder class action
suits relating to SFP's proposed participation in the merger with BNI were
filed in the Court of Chancery of the State of Delaware (Weiss v. Santa Fe
Pacific Corporation, C.A. No. 13779; Lifshitz v. Krebs, C.A. No 13780; Stein v.
Santa Fe Pacific Corporation, C.A. No. 13782; Lewis v. Santa Fe Pacific
Corporation, C.A. No. 13783; Abramson v. Lindig, C.A. No. 13784). On October 7,
1994, three more purported stockholder class action suits relating to SFP's
proposed participation in the merger with BNI were filed in the Court of
Chancery of the State of Delaware (Graulich v. Santa Fe Pacific Corporation,
C.A. No. 13786; Anderson v. Santa Fe Pacific Corporation, C.A. No. 13787; Green
v. Santa Fe Pacific Corporation, C.A. No. 13788). All of these lawsuits name as
defendants SFP and the individual members of the SFP Board of Directors; the
Lifshitz case further names BNI as a defendant. In general, these actions
variously allege that, in light of SFP's recent operating results and the UPC
merger proposal, SFP's directors have breached their fiduciary duties to
stockholders by purportedly not taking the necessary steps to ensure that SFP's
stockholders will receive "maximum value" for their shares of SFP stock,
including purportedly refusing to negotiate with UPC or to "seriously consider"
the UPC Proposal and failing to announce any active auction or open bidding
procedures. The actions generally seek relief that is materially identical to
the relief sought in the Miller case, and in addition seek entry of an order
requiring SFP's directors to immediately undertake an evaluation of SFP's worth
as a merger/acquisition candidate and to establish a process designed to obtain
the highest possible price for SFP, including taking steps to "effectively
expose" SFP to the marketplace in an effort to create an "active auction" in
SFP. The Weiss case further seeks entry of an order enjoining SFP's directors
from implementing any poison pill or other device designed to thwart UPC's
merger proposal or any other person's proposal to acquire SFP.
The Anderson lawsuit was subsequently withdrawn. On October 14, 1994, the
Chancery Court entered an order consolidating the remaining eleven purported
stockholder class action suits under the heading In Re Santa Fe Pacific
Corporation Shareholder Litigation, C.A. No. 13587.
Also on October 14, 1994, plaintiffs in the consolidated case filed a
Consolidated and Amended Complaint, which supersedes the previously filed
stockholder complaints. The Consolidated and Amended Complaint generally
repeats the allegations of, and requests the same relief as, the plaintiffs'
earlier complaints and, in addition, alleges that SFP's directors have breached
their fiduciary duties by approving and recommending to SFP stockholders the
BNI-SFP Merger, by failing to fully inform themselves about, or to provide
information to, possible alternative merger candidates such as UPC, and by
issuing the Original Joint Proxy Statement/Prospectus, which purportedly fails
to disclose all material information relevant to SFP stockholders'
consideration of the proposed BNI-SFP merger, including failure to disclose
that SFP's directors purportedly have an implied right to terminate the Merger
Agreement as a result of the allegedly superior UPC Proposal, failure to
disclose the facts considered by SFP's directors in allegedly determining that
the UPC Proposal does not represent a fair price, failure to disclose
sufficient facts relating to, and the relative risks of obtaining, ICC approval
of a BNI-SFP merger and a UPC-SFP merger to enable SFP stockholders to weigh
and compare the likelihood of obtaining ICC approval of those transactions,
failure to disclose the substance of negotiations in late June 1994 between BNI
and SFP leading to the Merger Agreement, failure to disclose advice provided to
SFP's directors regarding the background of negotiations between BNI and SFP
that had occurred since 1993 and the significance of that advice to the
directors' approval of the BNI-SFP Merger Agreement, failure to disclose facts
regarding the SFP directors' consideration of a possible combination
transaction with Kansas City Southern Industries, Inc. ("KCSI"), including the
anticipated terms and potential value and benefits to SFP of such a transaction
and the reasons why SFP concluded that the BNI transaction was superior and
withdrew its bid submitted to KCSI in late June 1994, and failure to disclose
that SFP did not provide any confidential information to UPC in response to an
October 11, 1994 letter from Drew Lewis, UPC's Chairman and CEO, to Mr. Krebs.
The Consolidated and Amended Complaint seeks, in addition to the relief
requested in the prior stockholder complaints, an order requiring SFP to
provide access to information concerning SFP or the Merger to any bona fide
bidder, including UPC.
14
<PAGE>
On October 18, 1994, the Chancery Court entered an order denying two motions,
one filed by UPC and one filed by the stockholder plaintiffs seeking the
establishment of an expedited schedule that would have included a preliminary
injunction hearing prior to the scheduled November 18, 1994 meeting of SFP
stockholders. The Chancery Court concluded that an expedited schedule was
unnecessary because, if plaintiffs prevailed on their claims, it could
subsequently enter appropriate relief after SFP stockholder approval but before
consummation of the Merger.
On October 19, 1994, UPC filed an Amended and Supplemental Complaint. In
addition to repeating the allegations and requested relief of UPC's earlier
Complaint, the Amended and Supplemental Complaint adds James A. Shattuck as an
additional plaintiff, alleges that SFP has made purportedly false and
misleading statements in the Original Joint Proxy Statement/Prospectus and
elsewhere regarding the UPC Proposal and the BNI-SFP merger, including
statements denying that SFP's directors have the purported right to terminate
the BNI-SFP Merger Agreement in order to enter into a merger agreement with UPC
based upon the UPC Proposal and denying that the BNI-SFP Merger Agreement is
allegedly void for failing to include such a right, statements failing to
disclose the purportedly preclusive effect of the BNI-SFP Merger Agreement on
the SFP directors' consideration of other combination proposals, including the
UPC Proposal, statements allegedly suggesting that the UPC Proposal does not
represent a fair price, and statements allegedly misrepresenting UPC's
objectives in proposing a UPC-SFP merger and the likelihood of obtaining ICC
approval of such a merger. The Amended and Supplemental Complaint seeks, in
addition to the relief requested in UPC's original Complaint, further
declaratory and injunctive relief consisting of a declaration that the Original
Joint Proxy Statement/Prospectus is false and misleading, an injunction
preventing SFP from making any further allegedly materially false and
misleading statements regarding the UPC Proposal or the BNI-SFP merger and an
injunction against the November 18, 1994 SFP stockholder meeting.
Defendants believe that all of these lawsuits are meritless and intend to
oppose them vigorously.
ADDITIONAL MATTERS RELATING TO ICC APPROVAL
Although each of SFP and BNI believe that it is likely that the ICC will
approve the Merger, there can be no assurance that it will do so. For a
description of the objections that may be made to ICC approval of the Merger,
see "Recent Developments."
15
<PAGE>
UNAUDITED SELECTED PRO FORMA FINANCIAL DATA
The following unaudited selected pro forma financial data give effect to the
exchange of 0.34 shares of BNI Common Stock for each share of SFP Common Stock
pursuant to the Merger Agreement, with the Merger accounted for under the
pooling of interests method, and are identical to the unaudited selected pro
forma financial data set forth in the Original Joint Proxy Statement/Prospectus
except for changes relating to the increased exchange ratio. The unaudited pro
forma balance sheet data as of June 30, 1994 give effect to the Merger as if it
had occurred on that date, and the unaudited pro forma income statement data
give effect to the Merger as if it had occurred on January 1, 1991. The
unaudited selected pro forma financial data set forth below do not reflect any
potential increases in operating income which may arise from the Merger or
adjustments to conform the accounting practices of BNI and SFP and should be
read in conjunction with the respective audited and unaudited consolidated
historical financial statements of BNI and SFP, including the respective notes
thereto, which are incorporated by reference in this Supplemental Joint Proxy
Statement/Prospectus and the unaudited pro forma combined financial statements,
including the notes thereto, appearing elsewhere in this Supplemental Joint
Proxy Statement/Prospectus. See "Incorporation of Certain Documents by
Reference" and "Unaudited Pro Forma Combined Financial Statements." The
unaudited selected pro forma financial data are prepared for illustrative
purposes only and are not necessarily indicative of the financial position or
results of operations that might have occurred had the Merger actually taken
place on the dates indicated, or of future results of operations or financial
position of the combined company.
<TABLE>
<CAPTION>
AT OR FOR SIX AT OR FOR
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------- --------------------
1994 1993 1993 1992 1991
------- ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
COMBINED PRO FORMA BASIS
INCOME STATEMENT DATA
Revenues................................ $ 3,692 $3,504 $7,108 $6,882 $6,713
Income (loss) from continuing opera-
tions.................................. 272 289 473 320 (244)
BALANCE SHEET DATA
Total assets............................ $12,607 (a) (a) (a) (a)
Total debt, including current portion... 3,039 (a) (a) (a) (a)
Stockholders' equity.................... 3,156 (a) (a) (a) (a)
</TABLE>
- --------
(a)Not required.
16
<PAGE>
UNAUDITED COMPARATIVE PER SHARE DATA
The following table sets forth for BNI Common Stock and SFP Common Stock
certain historical combined pro forma and pro forma equivalent per share data
for the six months ended June 30, 1994 and 1993 and for each of the three years
ended December 31, 1993. The data set forth in the following table are
identical to the corresponding data set forth in the Original Joint Proxy
Statement/Prospectus except for changes relating to the increased exchange
ratio. The information presented herein should be read in conjunction with the
unaudited selected pro forma financial data appearing elsewhere in this
Supplemental Joint Proxy Statement/Prospectus and the selected historical
financial data included in the Original Joint Proxy Statement/Prospectus. See
"Unaudited Selected Pro Forma Financial Data." See also "Summary--Selected
Historical Financial Data" in the Original Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
AT OR FOR SIX AT OR FOR
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------- ----------------------
1994 1993 1993 1992 1991
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
BNI COMMON STOCK
Income (loss) from continuing
operations per share:
Historical.......................... $ 1.75 $ 1.60 $ 3.06 $ 3.35 $ (3.96)
Combined pro forma (a).............. 1.69 1.82 2.94 2.09 (1.77)
Book value per share:
Historical.......................... 18.89 (b) 17.73 15.61 13.64
Combined pro forma.................. 18.42 (b) 18.51 (b) (b)
Cash dividends per share:
Historical.......................... .60 .60 1.20 1.20 1.20
Combined pro forma (c).............. .60 .60 1.20 1.20 1.20
SFP COMMON STOCK
Income (loss) from continuing
operations per share:
Historical (a)...................... $ .54 $ .72 $ .95 $ .11 $ .35
Pro forma equivalent (a)(d)......... .57 .62 1.00 .71 (.60)
Book value per share:
Historical.......................... 6.20 (b) 6.83 5.11 5.77
Pro forma equivalent (d)............ 6.26 (b) 6.29 (b) (b)
Cash dividends per share:
Historical.......................... -- -- .10 .10 .10
Pro forma equivalent (c)(d)......... .20 .20 .41 .41 .41
</TABLE>
- --------
(a) Income (loss) from continuing operations of certain periods includes the
impact of special items as set forth in "Selected Historical Financial
Data." Earnings (loss) per share from continuing operations (which are
before discontinued operations, extraordinary items and cumulative effect
of changes in accounting methods) adjusted to exclude these special items
were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
----------- -----------------
1994 1993 1993 1992 1991
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Adjusted combined pro forma basis.......... $1.49 $1.26 $2.76 $2.26 $1.43
SFP-Adjusted historical basis.............. .37 .26 .64 .50 .35
SFP-Adjusted pro forma equivalent basis
(d)....................................... .51 .43 .94 .77 .49
</TABLE>
(b) Not required.
(c) Cash dividends declared are assumed to be the same as those paid by BNI on
an historical basis.
(d) Calculated by multiplying combined pro forma amounts by the exchange ratio
of 0.34.
17
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect
to the exchange of 0.34 shares of BNI Common Stock for each share of SFP Common
Stock pursuant to the Merger Agreement, with the Merger accounted for under the
pooling of interests method, and are identical to the unaudited pro forma
combined financial statements set forth in the Original Joint Proxy
Statement/Prospectus except for changes relating to the exchange ratio. The pro
forma adjustments do not reflect any potential increases in operating income
which may arise from the Merger or adjustments to conform BNI and SFP
accounting practices. See Note 3--Conforming accounting practices. See also
"Other Matters--Additional Financial Considerations" in the Original Joint
Proxy Statement/Prospectus.
The unaudited pro forma combined balance sheet as of June 30, 1994 combines
the historical consolidated balance sheets of BNI and SFP giving effect to the
Merger as if it had been consummated on that date. The unaudited pro forma
combined statements of operations for the six months ended June 30, 1994 and
1993, and for each of the three years in the period ended December 31, 1993,
combine the historical consolidated statements of operations of BNI and SFP
giving effect to the Merger as if it had been consummated on January 1, 1991.
The unaudited pro forma combined financial statements are prepared for
illustrative purposes only and are not necessarily indicative of the financial
position or results of operations that might have occurred had the Merger
actually taken place on the date indicated, or of future results of operations
or financial position of the combined company. Consummation of the Merger is
conditioned upon, among other things, approval of both BNI and SFP stockholders
and the approval of the ICC. See "Other Matters--ICC Approval" and "The Merger
Agreement--Conditions to the Consummation of the Merger" included in the
Original Joint Proxy Statement/Prospectus.
The unaudited pro forma combined financial statements are based on the
historical consolidated financial statements of BNI and SFP and should be read
in conjunction with (i) such historical financial statements and the notes
thereto, which are incorporated by reference in this Supplemental Joint Proxy
Statement/Prospectus, (ii) the unaudited selected pro forma financial data,
including the notes thereto, appearing elsewhere in this Supplemental Joint
Proxy Statement/Prospectus and (iii) the selected historical financial data
included in the Original Joint Proxy Statement/Prospectus. See "Incorporation
of Certain Documents by Reference" and "Unaudited Selected Pro Forma Financial
Data." See "Selected Historical Financial Data" in the Original Joint Proxy
Statement/Prospectus.
18
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1994
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS
---------------------- BURLINGTON NORTHERN
BURLINGTON SANTA FE PRO FORMA SANTA FE
NORTHERN PACIFIC ADJUSTMENTS CORPORATION
INC. CORPORATION (NOTE 2) PRO FORMA
---------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash
equivalents.......... $ 18 $ 15 $ -- $ 33
Accounts receivable,
net.................. 569 94 -- 663
Net assets of
discontinued
operations........... -- 504 (504)(A) --
Other current assets.. 449 292 -- 741
------ ------ ----- -------
Total current
assets............. 1,036 905 (504) 1,437
Property and equipment,
net.................... 6,074 4,542 -- 10,616
Other assets............ 284 270 -- 554
------ ------ ----- -------
Total assets........ $7,394 $5,717 $(504) $12,607
====== ====== ===== =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Accounts payable...... $ 509 $ 266 $ 48 (C) $ 823
Dividend payable--gold
distribution......... -- 504 (504)(A) --
Other current
liabilities.......... 791 431 (23)(C) 1,199
Current portion of
long-term debt and
commercial paper..... 240 173 -- 413
------ ------ ----- -------
Total current
liabilities........ 1,540 1,374 (479) 2,435
Long-term debt.......... 1,694 932 -- 2,626
Deferred income taxes... 1,388 1,148 5 (C) 2,541
Other liabilities....... 742 1,107 -- 1,849
------ ------ ----- -------
Total liabilities... 5,364 4,561 (474) 9,451
------ ------ ----- -------
Stockholders' equity
Convertible preferred
stock................ 337 -- -- 337
Common stock.......... 1 190 (189)(B) 2
Paid-in capital....... 1,442 858 91 (B),(C) 2,391
Retained earnings..... 293 212 (61)(C) 444
Treasury stock........ (5) (104) 104 (B) (5)
Other................. (38) -- 25 (C) (13)
------ ------ ----- -------
Total stockholders'
equity............... 2,030 1,156 (30) 3,156
------ ------ ----- -------
Total liabilities
and stockholders'
equity............. $7,394 $5,717 $(504) $12,607
====== ====== ===== =======
</TABLE>
(See accompanying notes to unaudited pro forma combined financial statements)
19
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1994
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS
---------------------- BURLINGTON NORTHERN
BURLINGTON SANTA FE SANTA FE
NORTHERN PACIFIC CORPORATION
INC. CORPORATION PRO FORMA
---------- ----------- -------------------
<S> <C> <C> <C>
Revenues...................... $2,402 $1,290 $3,692
Operating expenses
Compensation and benefits... 873 417 1,290
Fuel........................ 172 120 292
Materials................... 155 65 220
Equipment rents............. 217 122 339
Purchased services.......... 232 178 410
Depreciation................ 176 99 275
Other....................... 217 101 318
------ ------- -------
Total operating expenses.. 2,042 1,102 3,144
------ ------- -------
Operating income.............. 360 188 548
Interest expense.............. 78 60 138
Other income (expense), net... (6) 50 44
------ ------- -------
Income before income taxes.... 276 178 454
Income tax expense............ 107 75 182
------ ------- -------
Income from continuing
operations................... $ 169 $ 103 $ 272
====== ======= =======
Earnings per common share
Income from continuing
operations................. $ 1.75 $ .54 $ 1.69 Note 2 (D)
====== ======= =======
Number of shares used in
computation of earnings per
common share (in thousands).. 90,286 189,800 154,818 Note 2 (D)
</TABLE>
(See accompanying notes to unaudited pro forma combined financial statements)
20
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1993
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS
---------------------- BURLINGTON NORTHERN
BURLINGTON SANTA FE SANTA FE
NORTHERN PACIFIC CORPORATION
INC. CORPORATION PRO FORMA
---------- ----------- -------------------
<S> <C> <C> <C>
Revenues...................... $2,312 $1,192 $3,504
Operating expenses
Compensation and benefits... 857 405 1,262
Fuel........................ 177 119 296
Materials................... 154 64 218
Equipment rents............. 188 105 293
Purchased services.......... 222 154 376
Depreciation................ 172 93 265
Other....................... 226 99 325
------ ------- -------
Total operating expenses.. 1,996 1,039 3,035
------ ------- -------
Operating income.............. 316 153 469
Interest expense.............. 69 70 139
Gain on sale of California
lines........................ -- 145 145
Other income, net............. -- 2 2
------ ------- -------
Income before income taxes.... 247 230 477
Income tax expense............ 93 95 188
------ ------- -------
Income from continuing
operations................... $ 154 $ 135 $ 289
====== ======= =======
Earnings per common share
Income from continuing
operations................. $ 1.60 $ .72 $ 1.82 Note 2 (D)
====== ======= =======
Number of shares used in
computation of earnings per
common share (in thousands).. 89,439 186,300 152,781 Note 2 (D)
</TABLE>
(See accompanying notes to unaudited pro forma combined financial statements)
21
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS
---------------------- BURLINGTON NORTHERN
BURLINGTON SANTA FE SANTA FE
NORTHERN PACIFIC CORPORATION
INC. CORPORATION PRO FORMA
---------- ----------- -------------------
<S> <C> <C> <C>
Revenues...................... $4,699 $ 2,409 $ 7,108
Operating expenses
Compensation and benefits... 1,709 800 2,509
Fuel........................ 362 239 601
Materials................... 300 128 428
Equipment rents............. 395 229 624
Purchased services.......... 457 322 779
Depreciation................ 352 188 540
Other....................... 463 185 648
------ ------- -------
Total operating expenses.. 4,038 2,091 6,129
------ ------- -------
Operating income.............. 661 318 979
Interest expense.............. 145 133 278
Gain on sale of California
lines........................ -- 145 145
Other income, net............. 5 24 29
------ ------- -------
Income before income taxes.... 521 354 875
Income tax expense............ 225 177 402
------ ------- -------
Income from continuing
operations................... $ 296 $ 177 $ 473
====== ======= =======
Earnings per common share
Income from continuing
operations................. $ 3.06 $ .95 $ 2.94 Note 2 (D)
====== ======= =======
Number of shares used in
computation of earnings per
common share (in thousands).. 89,672 187,200 153,320 Note 2 (D)
</TABLE>
(See accompanying notes to unaudited pro forma combined financial statements)
22
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1992
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS
----------------------
BURLINGTON NORTHERN
BURLINGTON SANTA FE SANTA FE
NORTHERN PACIFIC CORPORATION
INC. CORPORATION PRO FORMA
---------- ----------- -------------------
<S> <C> <C> <C>
Revenues...................... $4,630 $ 2,252 $ 6,882
Operating expenses
Compensation and benefits... 1,709 799 2,508
Fuel........................ 348 206 554
Materials................... 295 128 423
Equipment rents............. 389 186 575
Purchased services.......... 449 277 726
Depreciation................ 338 181 519
Other....................... 505 178 683
Special charge.............. -- 320 320
------ ------- -------
Total operating expenses.. 4,033 2,275 6,308
------ ------- -------
Operating income (loss)....... 597 (23) 574
Interest expense.............. 186 165 351
Gain on sale of California
lines........................ -- 205 205
Other income, net............. 41 24 65
------ ------- -------
Income before income taxes.... 452 41 493
Income tax expense............ 153 20 173
------ ------- -------
Income from continuing
operations................... $ 299 $ 21 $ 320
====== ======= =======
Earnings per common share
Income from continuing
operations................. $ 3.35 $ .11 $ 2.09 Note 2 (D)
====== ======= =======
Number of shares used in
computation of earnings per
common share (in thousands).. 88,617 184,800 151,449 Note 2 (D)
</TABLE>
(See accompanying notes to unaudited pro forma combined financial statements)
23
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1991
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS
----------------------
BURLINGTON NORTHERN
BURLINGTON SANTA FE SANTA FE
NORTHERN PACIFIC CORPORATION
INC. CORPORATION PRO FORMA
---------- ----------- -------------------
<S> <C> <C> <C>
Revenues...................................... $4,559 $ 2,154 $ 6,713
Operating expenses
Compensation and benefits................... 1,756 782 2,538
Fuel........................................ 368 207 575
Materials................................... 283 135 418
Equipment rents............................. 401 162 563
Purchased services.......................... 442 232 674
Depreciation................................ 347 184 531
Other....................................... 493 197 690
Special charge.............................. 708 -- 708
------ ------- -------
Total operating expenses.................. 4,798 1,899 6,697
------ ------- -------
Operating income (loss)....................... (239) 255 16
Interest expense.............................. 226 209 435
Other income (expense), net................... (25) 53 28
------ ------- -------
Income (loss) before income taxes............. (490) 99 (391)
Income tax expense (benefit).................. (184) 37 (147)
------ ------- -------
Income (loss) from continuing operations...... $ (306) $ 62 $ (244)
====== ======= =======
Earnings (loss) per common share
Income (loss) from continuing operations.... $(3.96) $ .35 $ (1.77) Note 2 (D)
====== ======= =======
Number of shares used in computation of
earnings
(loss) per common share (in thousands)....... 77,462 178,000 137,982 Note 2 (D)
</TABLE>
(See accompanying notes to unaudited pro forma combined financial statements)
24
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
Pursuant to the Merger Agreement, each share of SFP Common Stock outstanding
at the Effective Time will be converted into 0.34 shares of BNI Common Stock.
The Merger will be accounted for under the pooling of interests method.
Accordingly, recorded assets and liabilities are carried forward to the
combined company at their historical values.
The accompanying unaudited pro forma combined financial statements are
presented for illustrative purposes only and do not give effect to any
potential increases in operating income which may arise from the Merger. See
"Other Matters--Additional Financial Considerations" in the Original Joint
Proxy Statement/Prospectus. Additionally, the unaudited pro forma combined
financial statements exclude the nonrecurring costs and expenses associated
with integrating the operations of the businesses. Such nonrecurring costs are
expected to relate to the elimination of duplicate facilities, computer systems
and other assets, as well as employee related payments. Additionally, no
provision has been made for any make-whole premium payable in connection with
certain of SFP's debt securities upon consummation of the Merger. See "Other
Matters--Acceleration of Certain Debt Obligations of SFP" in the Original Joint
Proxy Statement/Prospectus.
For consistency of presentation, certain amounts in the historical financial
statements have been reclassified in the unaudited pro forma combined financial
statements.
NOTE 2. PRO FORMA ADJUSTMENTS
(A) Discontinued operations
Net assets of discontinued operations and dividend payable--gold distribution
have been eliminated to reflect SFP's distribution of SFP Gold's common stock
to SFP stockholders, effective September 30, 1994.
(B) Stockholders' equity
Common stock has been reduced by $189 million, paid-in capital has been
increased by $85 million and treasury stock has been decreased by $104 million
to reflect the combination of BNI and SFP through the exchange of approximately
65 million shares of BNI Common Stock for all outstanding shares of SFP Common
Stock at an exchange ratio of 0.34 shares of BNI Common Stock for each share of
SFP Common Stock.
(C) Costs of the Merger and accelerated vesting of restricted stock
Accounts payable have been increased by $48 million for the cost of the
Merger as if they have been accrued. Additionally, paid-in capital and other
equity have been increased by $6 million and $25 million, respectively, as if
compensation expense totaling $31 million had been recorded for the lapse of
restrictions on restricted stock of BNI and SFP. Deferred income taxes and
current tax liabilities have been adjusted by $18 million for the tax effects
of these entries. The result is a net reduction in retained earnings of $61
million.
Compensation expense related to restricted stock, as well as certain other
costs of the Merger, will be charged to operations upon stockholder approval of
the Merger. Other costs of the Merger will be recorded periodically as charges
to operations between stockholder approval and the consummation of the Merger.
(D) Earnings (loss) per common share
Pro forma weighted average shares outstanding represent the conversion at an
exchange ratio of 0.34 of SFP common shares to BNI common shares. Earnings
(loss) per common share are determined by dividing income (loss) from
continuing operations, after deduction of preferred stock dividends, by the
weighted average number of common shares outstanding and common share
equivalents.
NOTE 3. CONFORMING ACCOUNTING PRACTICES
No adjustments to conform the accounting practices of BNI and SFP have been
made in these unaudited pro forma combined financial statements for
capitalization of assets, depreciation and other areas. The effects of these
changes are not presently determinable but will be recorded after the
consummation date.
25
<PAGE>
MARKET PRICES
On October 25, 1994, the closing prices of BNI Common Stock and SFP Common
Stock as reported in The Wall Street Journal on October 26, 1994, were $50 3/8
per share and $14 3/8 per share, respectively.
On October 25, 1994, 0.34 of a share of BNI Common Stock (based on the
closing price as reported by The Wall Street Journal on October 26, 1994) had a
value of $17.13.
BNI AND SFP STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
THE BNI COMMON STOCK AND THE SFP COMMON STOCK IN CONNECTION WITH VOTING THEIR
SHARES.
EXPERTS
The consolidated financial statements of BNI as of December 31, 1993 and 1992
and for each of the three years in the period ended December 31, 1993,
incorporated by reference in this Supplemental Joint Proxy
Statement/Prospectus, have been incorporated herein by reference in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The consolidated financial statements of SFP as of December 31, 1993 and 1992
and for each of the three years in the period ended December 31, 1993,
incorporated by reference in this Supplemental Joint Proxy Statement/Prospectus
to SFP's Form 8-K/A dated October 5, 1994, have been so incorporated in
reliance on the reports of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the BNI Common Stock offered hereby and pursuant to the
Original Joint Proxy Statement/Prospectus will be passed upon by Francis T.
Kelly, Esq., Securities and Finance Counsel of BNI. Mr. Kelly owns 4,030 shares
of BNI Common Stock (2,788 shares subject to risk of forfeiture) and holds
options to purchase 7,381 shares of BNI Common Stock.
Under the Merger Agreement, SFP's Board will not, after approval of the
Merger by SFP's stockholders, have any ability to encourage the termination of
the Merger Agreement so that SFP may accept a better offer for a business
combination. BNI's Board is subject to the same restrictions after approval of
the Merger by its stockholders. The Chancery Court has noted that it retains
the power to grant any relief sought by any of the plaintiffs, regardless of
SFP stockholder approval at the SFP Special Meeting. See "Recent Developments--
Certain Pending Litigation." However, SFP believes that a fully-informed
stockholder vote in favor of the Merger may preclude relief for the plaintiffs.
OTHER BUSINESS AT THE SPECIAL MEETINGS;
STOCKHOLDER PROPOSALS
UPC has announced that it intends to disseminate proxy materials soliciting
proxies from SFP stockholders in opposition to the Merger. Other than UPC's
action at the SFP Special Meeting, BNI management and SFP management know of no
other matters that may properly be, or which are likely to be, brought before
the BNI Special Meeting or the SFP Special Meeting, respectively. However, if
any other matters are properly brought before such Special Meetings, the
persons named in the enclosed proxy or their substitutes will vote the proxies
in accordance with the recommendations of management.
26
<PAGE>
APPENDIX A
AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
<PAGE>
AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
AMENDMENT dated as of October 26, 1994 (this "Amendment") between Burlington
Northern Inc., a Delaware corporation ("BNI"), and Santa Fe Pacific
Corporation, a Delaware Corporation ("SFP").
WHEREAS, BNI and SFP have previously entered into that certain Agreement and
Plan of Merger dated as of June 29, 1994 between BNI and SFP (the "Merger
Agreement"); and
WHEREAS, the respective Boards of Directors of BNI and SFP have determined
that it is in the best interests of BNI or SFP, as the case may be, and its
respective stockholders to amend the Merger Agreement as hereinafter set forth
and have duly approved this Amendment and authorized its execution and
delivery.
NOW, THEREFORE, the parties hereto agree as follows:
1. All capitalized terms used herein, unless otherwise defined herein,
shall have the meanings given them in the Merger Agreement, and each
reference in the Merger Agreement to "this Agreement", "hereof", "herein",
"hereunder" or "hereby" and each other similar reference shall be deemed to
refer to the Merger Agreement as amended hereby. All references to the
Merger Agreement in any other agreement between BNI and SFP relating to the
transactions contemplated by the Merger Agreement shall be deemed to refer
to the Merger Agreement as amended hereby.
2. Section 1.2(a)(i) of the Merger Agreement is hereby amended by
deleting the number "0.27" wherever such number appears therein and
inserting in its place the number "0.34".
3. This Amendment shall be construed in accordance with and governed by
the law of the State of Delaware (without regard to principles of conflict
of laws).
4. This Amendment may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument. This Amendment shall
become effective when each party hereto shall have received counterparts
hereof signed by all of the other parties hereto.
5. Except as expressly amended hereby, the Merger Agreement shall remain
in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed by their respective authorized officers as of the day and year first
above written.
Burlington Northern Inc.
/s/ Gerald Grinstein
By __________________________________
Title: Chairman and Chief
Executive Officer
Santa Fe Pacific Corporation
/s/ Robert D. Krebs
By __________________________________
Title: Chairman, President and
Chief Executive Officer
<PAGE>
APPENDIX B
OPINION OF LAZARD FRERES & CO.
<PAGE>
[LAZARD FRERES & CO. LETTERHEAD]
October 27, 1994
The Board of Directors
Burlington Northern Inc.
3800 Continental Plaza
777 Main Street
Fort Worth, Texas 76102
Dear Members of the Board:
We understand that Burlington Northern Inc. ("BN") and Santa Fe Pacific
Corporation ("SF") have entered into an Agreement and Plan of Merger dated as
of June 29, 1994, as amended by the Amendment thereto dated as of October 26,
1994, (as so amended the "Agreement"), pursuant to which, among other things,
SF shall be merged with and into BN, with BN as the surviving corporation (the
"Merger"). Under the terms of the Agreement, upon consummation of the Merger,
each share of Common Stock, par value $1.00 per share (the "SF Common Stock"),
of SF outstanding immediately prior to the effective time of the Merger shall
be converted into .34 of a share of Common Stock, no par value (the "BN Common
Stock"), of BN (the "Exchange Ratio"). We further understand that the board of
directors of SF has declared a special dividend of the stock of Santa Fe
Pacific Gold Corporation owned by SF which was distributed on September 30,
1994 to SF shareholders (the "Spinoff") and that SF 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 terms and conditions of the
Merger are more fully set forth in the Agreement.
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of BN Common Stock of the Exchange Ratio pursuant to the
Agreement.
Lazard Freres & Co. has acted as financial advisor to BN in connection with
this transaction and will receive a fee for our services, a substantial portion
of which is contingent upon closing of the transaction. In connection with this
opinion, we have:
(i) reviewed the terms and conditions of the Agreement;
(ii) analyzed certain historical business and financial information
relating to BN and SF, including the Annual Reports to Stockholders and
Annual Reports on Form 10-K of BN and SF for each of the fiscal years ended
December 31, 1989 through 1993 (and any amendments thereto), Quarterly
Reports on Form 10-Q of BN and SF for the quarters ended March 31, June 30
and September 30 for each of the same fiscal years and for the quarters
ended March 31, and June 30 1994 (and any amendments thereto), Current
Reports on Form 8-K of BN dated June 29 and October 6, 1994 and Current
Reports on Form 8-K of SF dated June 29, August 3 and October 5, 1994 (and
any amendments thereto);
(iii) reviewed certain financial forecasts and other data provided to us
by BN and SF relating to their respective businesses;
(iv) held discussions with members of the senior management of BN and SF
with respect to the businesses and prospects of BN and SF, respectively,
the strategic objectives of each, and possible benefits which might be
realized following the Merger;
(v) reviewed public information with respect to certain other companies
in lines of businesses we believe to be comparable to the businesses of BN
and SF;
B-1
<PAGE>
(vi) reviewed the financial terms of certain recent business combinations
involving companies in lines of businesses we believe to be comparable to
those of BN and SF, and in other industries generally;
(vii) analyzed the pro forma financial impact of the Merger on BN and SF;
(viii) reviewed the historical stock prices and trading volumes of the BN
Common Stock and SF Common Stock;
(ix) reviewed the Joint Proxy Statement/Prospectus dated October 12, 1994
and the Supplemental Joint Proxy Statement/Prospectus dated the date
hereof; and
(x) conducted such other financial studies, analyses and investigations
as we deemed appropriate.
We have relied upon the accuracy and completeness of the financial and other
information provided by BN and SF to us and have not assumed any responsibility
for independent verification of such information or any independent valuation
or appraisal of any of the assets of BN or SF. With respect to the financial
forecasts referred to above, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the respective managements of BN and SF as to the future financial
performance of their businesses. Further, our opinion is necessarily based on
economic, monetary, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
In rendering our opinion, we have also assumed that obtaining the necessary
regulatory and governmental approvals for the Merger, including approval of the
Interstate Commerce Commission, may significantly delay the consummation of the
Merger, and that, in the course of obtaining such approvals, no restriction
will be imposed that will have a material adverse effect on the contemplated
benefits of the Merger to BN.
Our engagement and the opinion expressed herein are solely for the benefit of
BN's Board of Directors and are not on behalf of, and are not intended to
confer rights or remedies upon, SF, any stockholders of BN or SF or any other
person other than BN's Board of Directors. It is understood that, except for
inclusion in a proxy statement relating to the Merger, this letter may not be
disclosed or otherwise referred to without our prior written consent, except as
may otherwise be required by law or by a court of competent jurisdiction.
Based on and subject to the foregoing and such other factors as we deem
relevant, we are of the opinion that, as of the date hereof, the Exchange Ratio
is fair to the holders of BN Common Stock from a financial point of view.
Very truly yours,
/s/ Lazard Freres & Co.
LAZARD FRERES & CO.
B-2
<PAGE>
APPENDIX C
OPINION OF GOLDMAN, SACHS & CO.
<PAGE>
PERSONAL AND CONFIDENTIAL
October 27, 1994
Board of Directors
Santa Fe Pacific Corporation
1700 East Golf Road
Schaumburg, Illinois 60173-5860
Gentlemen and Madame:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of common stock, par value $1.00 per share (the "Common
Stock"), of Santa Fe Pacific Corporation (the "Company") of the exchange ratio
of 0.34 shares of common stock, with no par value, of Burlington Northern, Inc.
("BNI Common Stock") to be received for each share of Common Stock (the
"Exchange Ratio") pursuant to the Agreement and Plan of Merger, dated as of
June 29, 1994, as amended on October 26, 1994, among Burlington Northern, Inc.
("BNI") and the Company (the "Agreement") in connection with the merger of the
Company with and into BNI (the "Merger").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having performed various investment banking services
for the Company from time to time, including having acted as managing and co-
managing underwriter of public offerings of Common Stock of the Company in
October 1991 and June 1992, respectively, having acted as financial advisor on
the asset exchange between the Company and Hanson Natural Resources Company in
June 1993, having acted as managing underwriter of a public offering of Common
Stock of Santa Fe Pacific Gold Corporation, a subsidiary of the Company, in
June of 1994 as well as having acted as the Company's financial advisor in
connection with, and having participated in certain of the negotiations leading
to, the Agreement. We also have provided certain investment banking services to
BNI from time to time, including acting as co-managing underwriter of a public
offering of BNI Common Stock in November 1991, acting as managing underwriter
of a public offering of 6 1/4% Cumulative Convertible Preferred Stock in
November 1992, and acting as a co-managing underwriter in a public offering of
7 1/2% Debentures due 2002 in July 1993, and we may provide investment banking
services to BNI in the future.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Joint Proxy Statement/Prospectus; the Supplemental Joint Proxy
Statement/Prospectus; Annual Reports to Stockholders and Annual Reports on Form
10-K of the Company and BNI for the five years ended December 31, 1993 (and any
amendments thereto); certain interim reports to stockholders and Quarterly
Reports on Form 10-Q of the Company and BNI (and any amendments thereto);
certain other communications from the Company and BNI to their respective
stockholders; certain Current Reports on Form 8-K of the Company and BNI; and
certain internal financial analyses and forecasts for the Company and BNI
prepared by their respective managements. We also have held discussions with
members of the senior management of the Company and BNI regarding the past and
current business operations, financial condition and future prospects of their
respective companies. Furthermore, we have considered the views of the senior
management of the Company regarding the strategic importance of, and potential
synergies expected to be realized from, the Merger. In addition, we have
reviewed the reported price and trading activity for the Common Stock and BNI
Common Stock, compared certain financial and stock market information for the
Company and BNI with similar information for certain other companies the
securities of which are publicly traded, reviewed the financial terms of
certain recent business combinations in the railroad industry specifically and
in other industries generally and performed such other studies and analyses as
we considered appropriate.
C-1
<PAGE>
Santa Fee Pacific Corporation
October 27, 1994
Page Two
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In addition, we have not made an independent
evaluation or appraisal of the assets and liabilities of the Company or BNI or
any of their respective subsidiaries and we have not been furnished with any
such evaluation or appraisal. We have assumed with your consent that the Merger
will be accounted for as a pooling of interests under generally accepted
accounting principles and that the transaction will receive regulatory approval
in the manner contemplated by the Agreement.
Management of the Company has advised us that in its opinion there are
significant contingencies associated with the proposal, dated October 5, 1994,
from Union Pacific Corporation (the "UPC Proposal") and counsel to the Company
has advised the Company's Board of Directors and management that there are
significant legal uncertainties relating to the consummation of such proposal.
We have assumed with your consent that this advice was correct and that in
analyzing the Exchange Ratio we need not take into account the consideration
which might be received under the UPC Proposal.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair to the holders of outstanding shares of
Common Stock.
Very truly yours,
GOLDMAN, SACHS & CO.
C-2
<PAGE>
BURLINGTON NORTHERN INC.
SPECIAL MEETING OF STOCKHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS
OCTOBER 27, 1994
The undersigned hereby appoints Gerald Grinstein and Edmund W. Burke, and
each of them, with power of substitution, proxies for the undersigned and
authorizes them to represent and vote, as designated, all of the shares of
stock of the Company which the undersigned may be entitled to vote at the
Special Meeting of Stockholders to be held at Burlington Northern Railroad
Company, 3017 Lou Menk Drive, Fort Worth, Texas on November 18, 1994, at 10:00
a.m. Fort Worth time and at any adjournment or postponement of such meeting for
the following purposes and with discretionary authority as to any other matters
that may properly come before the meeting, in accordance with and as described
in the Notice of Special Meeting of Stockholders and Supplemental Joint Proxy
Statement/Prospectus. If no direction is given, this proxy will be voted FOR
the Merger referred to in the proposal. A vote indicated on a previously
submitted proxy card will be deemed to be a corresponding vote on the Merger
unless you submit a subsequent proxy card changing your vote.
PLEASE SIGN ON REVERSE SIDE
[X] Please mark your 0444
votes as in this ----
example.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE MERGER.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE MERGER.
- --------------------------------------------------------------------------------
A proposal to approve and adopt
the Agreement and Plan of Merger FOR AGAINST ABSTAIN
between Burlington Northern Inc. [_] [_] [_]
and Santa Fe Pacific Corporation
and any amendments thereto.
MARK HERE
FOR
ADDRESS [_]
CHANGE
AND NOTE
AT LEFT
Please sign exactly as your name ap-
pears. If acting as attorney, execu-
tor, trustee or in other representa-
tive capacity, sign name and title.
--------------------------------------
--------------------------------------
SIGNATURE(S) DATE
<PAGE>
SANTA FE PACIFIC CORPORATION
1700 EAST GOLF ROAD, SCHAUMBURG, IL 60173
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Denis E. Springer and Marsha K. Morgan, and
each of them, proxy for the undersigned, with power of substitution, to vote as
specified herein, all Common Stock held by the undersigned, with the same force
and effect as the undersigned would be entitled to vote if personally present,
at the special meeting of stockholders of the Company to be held in the Hyatt
Regency O'Hare, 9300 West Bryn Mawr Avenue, Rosemont, IL, on Friday, November
18, 1994, at 3:00 P.M. and at any adjournment or postponement thereof. In their
discretion, the proxies are authorized to vote upon such other business as is
properly brought before the meeting.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOX.
SEE REVERSE SIDE. YOU NEED NOT MARK ANY BOX IF YOU WISH TO VOTE IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATION. THE PROXY COMMITTEE CANNOT VOTE
YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD. THIS PROXY, WHEN PROPERLY
EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTIONS ARE
MADE, THIS PROXY WILL BE VOTED "FOR" THE MERGER. A VOTE INDICATED ON A
PREVIOUSLY SUBMITTED PROXY CARD WILL BE DEEMED TO BE A CORRESPONDING VOTE ON
THE MERGER UNLESS YOU SUBMIT A SUBSEQUENT PROXY CARD CHANGING YOUR VOTE.
PLEASE SIGN ON REVERSE SIDE
8664
[X] Please mark your vote as in this example. -----
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE MERGER.
- --------------------------------------------------------------------------------
Approval and Adoption of the
Agreement and Plan of Merger dated FOR AGAINST ABSTAIN
as of June 29, 1994 between [_] [_] [_]
Burlington Northern Inc. and Santa
Fe Pacific Corporation and any
amendments thereto.
Please sign exactly as name appears
hereon. Joint owners should each
sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such. This Proxy votes all shares
held in all capacities.
-------------------------------------
DATE
-------------------------------------
SIGNATURE
-------------------------------------
SIGNATURE(S) (IF HELD JOINTLY)
-------------------------------------
TITLE OR AUTHORITY
<PAGE>
BURLINGTON
NORTHERN
INC.
- --------------------------------------------------------------------------------
NOTICE OF
YOUR VOTE IS IMPORTANT SPECIAL MEETING
YOUR MANAGEMENT WILL APPRECIATE THE OF STOCKHOLDERS
PROMPT RETURN OF YOUR SIGNED PROXY SO AND
THE SHARES YOU OWN WILL BE REPRESENTED PROXY STATEMENT
AT THE SPECIAL MEETING OF STOCKHOLDERS.
- --------------------------------------------------------------------------------
TO BE HELD AT
BURLINGTON NORTHERN RAILROAD COMPANY
3017 LOU MENK DRIVE
FORT WORTH, TEXAS
NOVEMBER 18, 1994
10:00 A.M. FORT WORTH TIME
<PAGE>
SANTA FE
PACIFIC
CORPORATION
- --------------------------------------------------------------------------------
NOTICE OF
YOUR VOTE IS IMPORTANT SPECIAL MEETING
YOUR MANAGEMENT WILL APPRECIATE THE OF STOCKHOLDERS
PROMPT RETURN OF YOUR SIGNED PROXY SO AND
THE SHARES YOU OWN WILL BE REPRESENTED PROXY STATEMENT
AT THE SPECIAL MEETING OF STOCKHOLDERS.
- --------------------------------------------------------------------------------
TO BE HELD AT
HYATT REGENCY O"HARE
9300 WEST BRYN MAWR AVENUE
ROSEMONT, ILLINOIS
NOVEMBER 18, 1994
3:00 P.M. CHICAGO TIME
<PAGE>
BURLINGTON NORTHERN INC.
AND
SANTA FE PACIFIC CORPORATION
JOINT PROXY STATEMENT
FOR SPECIAL MEETINGS OF STOCKHOLDERS
TO BE HELD NOVEMBER 18, 1994
BURLINGTON NORTHERN INC.
PROSPECTUS
COMMON STOCK
This Joint Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of Santa Fe Pacific Corporation, a Delaware corporation ("SFP"), with
and into Burlington Northern Inc., a Delaware corporation ("BNI"), pursuant to
the Agreement and Plan of Merger dated as of June 29, 1994 (the "Merger
Agreement") between BNI and SFP. If the proposed merger is consummated, each
outstanding share of common stock, par value $1.00 per share, of SFP ("SFP
Common Stock"), other than shares of SFP Common Stock held by SFP as treasury
stock or held by BNI or its subsidiaries (all of which will be canceled), will
be converted into the right to receive 0.27 shares of common stock, no par
value, of BNI ("BNI Common Stock"). The consummation of the Merger is subject
to various conditions, including, among other things, approval by the
stockholders of each of BNI and SFP at their respective Special Meetings,
described herein, and approval by the Interstate Commerce Commission (the
"ICC"). This Joint Proxy Statement/Prospectus is being furnished to
stockholders of each of BNI and SFP in connection with the solicitation of
proxies to be used at the respective Special Meetings of BNI and SFP to be held
for the purposes described herein.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of BNI
with respect to up to 58,250,000 shares of BNI Common Stock issuable to SFP
stockholders in the Merger. It is a condition to SFP's obligation to consummate
the Merger that such shares of BNI Common Stock be listed on the New York Stock
Exchange ("NYSE") at the effective time of the Merger. To the extent BNI Rights
(as defined below) are then outstanding, each share of BNI Common Stock issued
in the Merger will be accompanied by one BNI Right to purchase Junior Class A
Preferred Stock of BNI on the terms and subject to the conditions set forth in
the BNI Rights Agreement (as defined below). Pursuant to the BNI Rights
Agreement, the BNI Rights will expire on July 24, 1996 unless they are earlier
redeemed or the term of the BNI Rights Agreement is extended. For a description
of the BNI Common Stock and the BNI Rights, see "Description of BNI Capital
Stock" and "Comparison of Rights of Stockholders of BNI and SFP."
All information herein concerning BNI has been furnished by BNI, and all
information herein concerning SFP has been furnished by SFP. BNI has
represented and warranted to SFP, and SFP has represented and warranted to BNI,
that the particular information so furnished is true and complete.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to stockholders of each of BNI and SFP on or about October
13, 1994.
----------------
THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE MERGER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------
The date of this Joint Proxy Statement/Prospectus is October 12, 1994.
<PAGE>
AVAILABLE INFORMATION
Each of BNI and SFP is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by each of BNI and SFP with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and should be available at the Commission's Regional Offices at 7
World Trade Center, Thirteenth Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
may also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition,
material filed by each of BNI and SFP may be inspected at the offices of the
New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005 and
also at the offices of the Chicago Stock Exchange, Incorporated, 440 South
LaSalle Street, One Financial Place, Chicago, Illinois 60605 and the Pacific
Stock Exchange Incorporated, 301 Pine Street, San Francisco, California 94104.
BNI has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
shares of BNI Common Stock offered hereby. This Joint Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto filed by BNI, certain portions
which have been omitted pursuant to the rules and regulations of the Commission
and to which portions reference is hereby made for further information with
respect to BNI, SFP and the securities offered hereby. The Registration
Statement and the exhibits thereto may be inspected without charge at the
offices of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies may be obtained from the Commission at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by BNI pursuant
to the Exchange Act are incorporated by reference in this Joint Proxy
Statement/Prospectus:
1. BNI's Annual Report on Form 10-K for the year ended December 31, 1993
(which incorporates by reference certain information from BNI's Proxy
Statement relating to the 1994 Annual Meeting of Stockholders and
includes Amendment No. 1 on Form 10-K/A dated October 5, 1994);
2. BNI's Quarterly Reports on Form 10-Q for the quarters ended March 31 and
June 30, 1994 (including Amendment No. 1 on Form 10-Q/A each dated
October 5, 1994, respectively);
3. BNI's Current Reports on Form 8-K dated June 29, 1994 and October 6,
1994; and
4. BNI's Registration Statement on Form 8-A dated July 15, 1986.
The following documents previously filed with the Commission by SFP pursuant
to the Exchange Act are incorporated by reference in this Joint Proxy
Statement/Prospectus:
1. SFP's Annual Report on Form 10-K for the year ended December 31, 1993
(which incorporates by reference certain information from SFP's Proxy
Statement relating to the 1994 Annual Meeting of Stockholders and
includes both Amendment No. 1 and Amendment No. 2 on Form 10-K/A dated
June 29, 1994 and October 5, 1994, respectively);
2. SFP's Quarterly Reports on Form 10-Q for the quarters ended March 31 and
June 30, 1994 (including Amendment No. 1 thereto on Form 10-Q/A each
dated October 5, 1994, respectively);
3. SFP's Current Reports on Form 8-K dated June 29, 1994 (including
Amendment No. 1 thereto on Form 8-K/A dated July 29, 1994), August 3,
1994 (including Amendment No. 1 thereto on Form 8-K/A dated October 5,
1994) and October 5, 1994; and
4. SFP's Registration Statement on Form 8-B filed with the Commission on
November 29, 1983 (Item 4 of which incorporates by reference the
description of the SFP Common Stock as set forth under the sections
"Comparison of Certain Provisions of Certificates of Incorporation and
By-Laws of SFSP, Santa Fe and Southern Pacific" and "Description of
Common Stock of SFSP" in the Joint Proxy Statement-Prospectus of SFP and
Southern Pacific Corporation dated November 10, 1983).
----------------
2
<PAGE>
All documents filed by BNI and SFP pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the date of the Special Meetings of the
stockholders of BNI and SFP shall be deemed to be incorporated by reference in
this Joint Proxy Statement/Prospectus and to be a part hereof from the dates of
filing such documents or reports. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Joint Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which is also incorporated or deemed to be
incorporated herein modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Joint Proxy Statement/Prospectus.
----------------
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER
THAN CERTAIN EXHIBITS TO DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE) ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON TO WHOM A
COPY OF THIS JOINT PROXY STATEMENT/PROSPECTUS HAS BEEN DELIVERED UPON WRITTEN
OR ORAL REQUEST, IN THE CASE OF BNI DOCUMENTS, TO BURLINGTON NORTHERN INC.,
3800 CONTINENTAL PLAZA, 777 MAIN STREET, FORT WORTH, TEXAS 76102-5384,
ATTENTION: CORPORATE SECRETARY, TELEPHONE NUMBER (817) 333-7951, AND, IN THE
CASE OF SFP DOCUMENTS, TO SANTA FE PACIFIC CORPORATION, 1700 EAST GOLF ROAD,
SCHAUMBURG, ILLINOIS 60173-5860, ATTENTION: CORPORATE SECRETARY, TELEPHONE
NUMBER (708) 995-6000. IN ORDER TO ENSURE DELIVERY PRIOR TO THE SPECIAL
MEETINGS, REQUESTS SHOULD BE RECEIVED BY NOVEMBER 9, 1994.
----------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS IN CONNECTION WITH THE
OFFERING AND THE SOLICITATIONS MADE HEREBY AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY BNI OR SFP. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES, OR
THE SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THESE
SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY INFERENCE
THAT THERE HAS NOT BEEN ANY CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN
THE AFFAIRS OF EITHER BNI OR SFP SINCE THE DATE HEREOF.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 2
SUMMARY................................................................... 6
The Parties............................................................. 6
Burlington Northern Inc............................................... 6
Santa Fe Pacific Corporation.......................................... 6
Change of Name........................................................ 6
The Special Meetings and Votes Required................................. 6
Time, Date and Place.................................................. 6
Matters to be Considered at the Special Meetings...................... 6
Required Vote......................................................... 7
Recommendations of the Boards of Directors............................ 7
Opinions of Financial Advisors........................................ 7
Record Date; Shares Outstanding and Entitled to Vote.................. 7
Security Ownership of Management...................................... 8
The Merger.............................................................. 8
General............................................................... 8
Effect on SFP Stockholders............................................ 8
Effect on BNI Stockholders............................................ 8
ICC Approval; Effective Time.......................................... 8
Benefits of Merger Described in ICC Application....................... 9
Conditions to the Merger; Termination................................. 9
Board of Directors after the Merger................................... 9
Interests of Certain Persons in the Merger; Management after the
Merger............................................................... 9
No Appraisal Rights................................................... 9
NYSE Listing.......................................................... 10
Accounting Treatment.................................................. 10
Tax Consequences...................................................... 10
SFP Stock Options..................................................... 10
Recent Developments................................................... 10
Market Prices........................................................... 13
Selected Historical Financial Data...................................... 14
Unaudited Selected Pro Forma Financial Data............................. 18
Unaudited Comparative Per Share Data.................................... 19
INTRODUCTION.............................................................. 20
THE COMPANIES............................................................. 20
Burlington Northern Inc................................................. 20
Santa Fe Pacific Corporation............................................ 21
THE SPECIAL MEETINGS...................................................... 22
Purpose of the BNI and SFP Special Meetings............................. 22
Date, Place and Time.................................................... 22
Record Dates............................................................ 22
Required Vote........................................................... 22
Voting and Revocation of Proxies........................................ 23
Solicitation of Proxies................................................. 23
THE MERGER................................................................ 23
Background of the Merger................................................ 23
Factors for Consideration of the Merger................................. 25
Recommendations of the Boards of Directors and Reasons for the Merger... 25
Opinions of Financial Advisors.......................................... 26
Merger Consideration.................................................... 34
Effective Time.......................................................... 34
Conversion of Shares; Procedures for Exchange of Certificates;
Dividends; No Fractional Shares........................................ 34
Name of Surviving Entity................................................ 35
NYSE Listing............................................................ 35
Expenses................................................................ 35
Interests of Certain Persons in the Merger.............................. 36
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Accounting Treatment.................................................... 41
Certain Federal Income Tax Consequences................................. 41
Management and Director Stock Options................................... 42
No Appraisal Rights..................................................... 42
RECENT DEVELOPMENTS....................................................... 43
BOARD OF DIRECTORS AND MANAGEMENT AFTER THE MERGER........................ 45
THE MERGER AGREEMENT...................................................... 45
The Merger.............................................................. 45
Representations and Warranties.......................................... 46
Covenants............................................................... 47
Conduct of Business Pending the Merger................................ 47
Stockholder Meetings.................................................. 48
Access to Information................................................. 48
Notice of Certain Events.............................................. 48
Tax Matters........................................................... 48
No Solicitations...................................................... 49
Additional SFP Covenants.............................................. 49
Additional BNI Covenants.............................................. 49
Joint Covenants of SFP and BNI........................................ 50
Conditions to the Consummation of the Merger............................ 50
Termination............................................................. 51
Survival of Representations and Warranties.............................. 52
Amendments; No Waivers.................................................. 52
Expenses................................................................ 52
Governing Law........................................................... 52
Jurisdiction............................................................ 52
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS......................... 53
OTHER MATTERS............................................................. 61
ICC Approval............................................................ 61
Other Regulatory Approvals.............................................. 62
Additional Financial Considerations..................................... 62
Acceleration of Certain Debt Obligations of SFP......................... 64
The Gold Spinoff........................................................ 64
Certain Pending Litigation.............................................. 64
DESCRIPTION OF BNI CAPITAL STOCK.......................................... 66
BNI Common Stock........................................................ 66
6 1/4% Convertible Preferred Stock...................................... 66
Additional Classes of Preferred Stock................................... 68
BNI Rights; Junior Class A Preferred Stock.............................. 68
COMPARISON OF RIGHTS OF STOCKHOLDERS OF BNI AND SFP....................... 68
Board of Directors...................................................... 69
Special Meetings of Stockholders........................................ 69
No Stockholder Action by Written Consent................................ 70
Advance Notice Provisions for Stockholder Proposals..................... 70
Vote Required for Certain Business Combinations......................... 70
Indemnification of Directors and Officers............................... 71
Rights Plans............................................................ 72
EXPERTS................................................................... 75
LEGAL MATTERS............................................................. 75
OTHER BUSINESS AT THE SPECIAL MEETINGS; STOCKHOLDER PROPOSALS............. 75
APPENDIX A--AGREEMENT AND PLAN OF MERGER.................................. A-1
APPENDIX B--LETTER AGREEMENT BETWEEN BURLINGTON NORTHERN INC. AND SANTA FE
PACIFIC CORPORATION...................................................... B-1
APPENDIX C--OPINION OF LAZARD FRERES & CO................................. C-1
APPENDIX D--OPINION OF GOLDMAN, SACHS & CO................................ D-1
</TABLE>
5
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Joint Proxy Statement/Prospectus. This summary is qualified in its entirety by
reference to the more detailed information contained elsewhere in this Joint
Proxy Statement/Prospectus, the Appendices hereto and the documents referred to
herein. Stockholders are urged to review carefully this Joint Proxy
Statement/Prospectus, the Merger Agreement attached as Appendix A and the other
appendices attached hereto.
THE PARTIES
Burlington Northern Burlington Northern Inc., a Delaware corporation
Inc..................... ("BNI"), is a holding company primarily engaged in
the rail transportation business. BNI's principal
subsidiary, Burlington Northern Railroad Company,
operates the largest railroad system in the United
States based on miles of road and second main
track, with approximately 24,500 total miles at
December 31, 1993, covering 25 states and two
Canadian provinces. See "The Companies--
Burlington Northern Inc."
Santa Fe Pacific Santa Fe Pacific Corporation, a Delaware
Corporation............. corporation ("SFP"), is a holding company
primarily engaged in (i) rail transportation and
(ii) operation of a refined petroleum products
pipeline system. SFP's equity interest in Santa Fe
Pacific Gold Corporation ("SFP Gold") was
distributed to SFP's stockholders on September 30,
1994 (the "Gold Spinoff"). Primarily through its
subsidiary, The Atchison, Topeka and Santa Fe
Railway Company, SFP operates a rail system of
approximately 8,500 total miles (excluding, among
other things, second main track) at December 31,
1993, covering twelve states. See "The Companies--
Santa Fe Pacific Corporation."
Change of Name.......... Upon consummation of the Merger (as defined below),
BNI will change its name to Burlington Northern
Santa Fe Corporation.
THE SPECIAL MEETINGS AND
VOTES REQUIRED
Time, Date and Place.... A Special Meeting (the "BNI Special Meeting") of
stockholders of BNI will be held at Burlington
Northern Railroad Company, 3017 Lou Menk Drive,
Fort Worth, Texas 76131-2815 on November 18, 1994
at 10:00 a.m., Fort Worth time.
A Special Meeting (the "SFP Special Meeting") of
stockholders of SFP will be held at the Hyatt
Regency O'Hare, 9300 West Bryn Mawr Avenue,
Rosemont, Illinois, on November 18, 1994 at 3:00
p.m., Chicago time.
Matters to be
Considered at the
Special Meetings.......
At the BNI and SFP Special Meetings, the
stockholders of BNI and SFP, respectively, will be
asked to consider and vote upon a proposal to
approve and adopt an Agreement and Plan of Merger
dated as of June 29, 1994 (the "Merger Agreement")
between BNI and SFP providing for the merger of
SFP with and into BNI (the "Merger") and the
issuance by BNI of its common stock, no par value
(the "BNI Common Stock"), in connection with the
Merger.
6
<PAGE>
Required Vote........... The approval and adoption of the Merger Agreement
require the affirmative vote of a majority of the
outstanding shares of BNI Common Stock.
The approval and adoption of the Merger Agreement
require the affirmative vote of a majority of the
outstanding shares of common stock, par value
$1.00 per share, of SFP (the "SFP Common Stock").
See "The Special Meetings--Required Vote."
Recommendations of the
Boards of Directors....
The Boards of Directors of BNI and SFP believe that
the terms of the Merger are fair to and in the
best interest of their respective stockholders and
each has, by unanimous vote, approved the Merger
Agreement and each unanimously recommends that its
stockholders vote FOR approval of the Merger
Agreement. Each of the BNI and SFP Boards of
Directors believes that a BNI-SFP combination,
which will create a rail system with broad
geographic coverage, should, among other things,
provide shippers with efficient single-line rail
service, diversify each railroad's traffic base,
generate significant operating efficiencies and
create a financially strong, more effective
competitor. See "The Merger--Recommendations of
the Boards of Directors and Reasons for the
Merger."
Opinions of Financial Lazard Freres & Co. ("Lazard") has delivered its
Advisors................ written opinion to the Board of Directors of BNI
to the effect that, based upon and subject to
various considerations and assumptions set forth
therein and based upon such other matters as
Lazard considered relevant, the Exchange Ratio (as
defined below) is fair to the stockholders of BNI.
Goldman, Sachs & Co. ("Goldman Sachs") has
delivered its written opinion to the Board of
Directors of SFP to the effect that, based upon
and subject to various considerations and
assumptions set forth therein and based upon such
other matters as Goldman Sachs considered
relevant, the Exchange Ratio is fair to the
stockholders of SFP.
For information on the assumptions made, matters
considered and limits of the reviews by Lazard and
Goldman Sachs, see "The Merger--Opinions of
Financial Advisors." Holders of BNI Common Stock
and SFP Common Stock are urged to, and should,
read in their entirety the opinions of Lazard and
Goldman Sachs dated the date of this Joint Proxy
Statement/Prospectus, copies of which are attached
hereto as Appendices C and D, respectively, to
this Joint Proxy Statement/Prospectus.
Record Date; Shares
Outstanding and
Entitled to Vote....... The record date (the "Record Date") for each of the
BNI Special Meeting and the SFP Special Meeting is
October 19, 1994. As of October 10, 1994, there
were outstanding 89,224,101 shares of BNI Common
Stock and 186,996,400 shares of SFP Common Stock.
Only holders of record of BNI Common Stock on the
7
<PAGE>
Record Date are entitled to vote at the BNI
Special Meeting. Only holders of record of SFP
Common Stock on the Record Date are entitled to
vote at the SFP Special Meeting.
Security Ownership of
Management.............
As of October 10, 1994, directors and executive
officers of BNI and their affiliates were
beneficial owners of an aggregate of 1,917,056
shares of BNI Common Stock (approximately 2.0% of
the shares of BNI Common Stock then outstanding).
As of October 10, 1994, directors and executive
officers of SFP and their affiliates were
beneficial owners of an aggregate of 2,572,978
shares of SFP Common Stock (approximately 1.4% of
the shares of SFP Common Stock then outstanding).
THE MERGER
General................. At the effective time of the Merger (the "Effective
Time"), SFP will be merged with and into BNI,
which will be the surviving corporation in the
Merger.
Effect on SFP At the Effective Time, each issued and outstanding
Stockholders............ share of SFP Common Stock (other than shares of
SFP Common Stock held by SFP as treasury stock or
shares held by BNI or its subsidiaries, all of
which will be canceled) will be converted into the
right to receive 0.27 shares of BNI Common Stock
(the "Exchange Ratio"), with cash being paid in
lieu of fractional shares of BNI Common Stock. To
the extent BNI Rights (as defined below) are then
outstanding, each share of BNI Common Stock issued
in the Merger will be accompanied by one right (a
"BNI Right") to purchase Junior Class A Preferred
Stock of BNI on the terms and subject to the
conditions of the Rights Agreement dated July 14,
1986 (the "Rights Agreement") between BNI and The
First National Bank of Boston, as Rights Agent.
The BNI Rights will be evidenced by the
certificate for the BNI Common Stock issued in the
Merger. Pursuant to the Rights Agreement, the BNI
Rights will expire on July 24, 1996 unless they
are earlier redeemed or the term of the BNI Rights
Agreement is extended.
Effect on BNI At the Effective Time, each share of BNI Common
Stockholders............ Stock then issued and outstanding will continue as
one share of BNI Common Stock and, to the extent
that BNI Rights are then outstanding, will
continue to be accompanied by one BNI Right.
ICC Approval; Effective The approval of the Interstate Commerce Commission
Time.................... (the "ICC") is required to consummate the Merger.
Under existing law, the ICC is required to enter a
final order with respect to the Merger within 31
months after the application for such approval is
filed by BNI and SFP. On October 5, 1994 the ICC
served an order establishing a schedule that would
result in a final ICC decision
8
<PAGE>
within 535 days from the filing of the
application. The parties are filing their
application on October 13, 1994. There can be no
assurance that the ICC will issue a decision any
sooner than the 31 month period permitted the ICC
by law. In addition, if the decision of the ICC is
appealed to the courts, and if that decision
should be stayed by the ICC or the courts, more
time could elapse before the Merger could be
consummated. Accordingly, the actual consummation
of the Merger may not occur for two or more years
in the future. See "Other Matters--ICC Approval."
Benefits of Merger
Described in ICC
Application............ The application to the ICC filed by the parties
describes certain estimates of the anticipated
benefits relating to the Merger. See "Other
Matters--Additional Financial Considerations" for
a discussion of the estimates, assumptions,
methods of calculation and caveats applied to the
ICC application.
Conditions to the
Merger; Termination....
The obligations of BNI and SFP to consummate the
Merger are subject to various conditions,
including obtaining requisite stockholder
approvals, the approval of the ICC, the
termination or expiration of any applicable
waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended,
the absence of any order or other legal restraint
or prohibition preventing the consummation of the
Merger, receipt of an opinion of counsel in
respect of certain Federal income tax consequences
of the Merger and compliance with the terms of an
Internal Revenue Service private letter ruling, as
supplemented, previously received by SFP in
connection with the Gold Spinoff.
The Merger Agreement may be terminated, and the
Merger abandoned, at any time prior to the
Effective Time, whether or not stockholder
approvals have been obtained, (i) by mutual
consent of BNI and SFP, (ii) by either BNI or SFP
(a) if the Merger is not consummated on or before
December 31, 1997, (b) if any non- appealable
judgment, injunction, order or decree is entered
enjoining BNI or SFP from consummating the Merger
or (c) if the required stockholder approvals are
not obtained, and (iii) by BNI or SFP in certain
other situations.
Board of Directors
after the Merger.......
The board of directors of the merged entity
initially 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.
Interests of Certain
Persons in the Merger;
Management after the
Merger.................
Pursuant to a letter agreement between BNI and SFP,
attached hereto as Appendix B, Gerald Grinstein,
Chairman and Chief Executive Officer of BNI, is to
become Chairman of the merged entity, and Robert
D. Krebs, Chairman, President and Chief Executive
Officer of SFP, is to become President and Chief
Executive Officer of the merged entity. Other
senior officers of the merged entity will be
selected by the merged entity's board of directors
based upon, among other things, the
recommendations of Mr. Grinstein and Mr. Krebs.
No Appraisal Rights.....
Under Delaware law, neither holders of BNI Common
Stock nor holders of SFP Common Stock are entitled
to appraisal rights in connection with the Merger.
See "The Merger--No Appraisal Rights."
9
<PAGE>
NYSE Listing............ It is a condition to SFP's obligation to consummate
the Merger that the BNI Common Stock to be issued
to SFP stockholders in the Merger be approved for
listing on the New York Stock Exchange.
Accounting Treatment.... The Merger will be accounted for under the "pooling
of interests" method of accounting. See "The
Merger--Accounting Treatment."
Tax Consequences........ Consummation of the Merger is conditioned upon
receipt by SFP and BNI of an opinion of nationally
recognized tax counsel to the effect that the
Merger will be a tax-free reorganization within
the meaning of section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"). If
the Merger constitutes a "reorganization" within
the meaning of the Code, no gain or loss will be
recognized by stockholders of SFP Common Stock,
except to the extent of cash received in lieu of
fractional shares of BNI Common Stock. All SFP
stockholders are urged to read the discussion
under "The Merger--Certain Federal Income Tax
Consequences" below and to consult their own tax
advisors as to the particular Federal, state,
local and foreign tax consequences to them of the
Merger.
SFP Stock Options....... At the Effective Time, each outstanding option to
purchase shares of SFP Common Stock granted under
any employee stock option or compensation plan or
arrangement of SFP will be canceled and replaced
by an option (an "Adjusted BNI Option") to acquire
shares of BNI Common Stock. Each Adjusted BNI
Option will provide the option holder with rights
and benefits that are no less favorable to the
holder than were provided under the SFP stock
option for which the Adjusted BNI Option was
substituted. See "The Merger--Management and
Director Stock Options."
RECENT DEVELOPMENTS
On October 5, 1994, Mr. Drew Lewis, the Chairman and Chief Executive Officer
of Union Pacific Corporation ("UPC"), called Mr. Robert D. Krebs, the Chairman,
President and Chief Executive Officer of SFP, and stated that UPC wished to
acquire SFP and that Mr. Lewis wanted to meet with Mr. Krebs. Mr. Lewis further
stated that he was going to call Mr. Gerald Grinstein, the Chairman and Chief
Executive Officer of BNI, to request a meeting with him as well. Mr. Krebs told
Mr. Lewis that SFP was already a party to a merger agreement, that it was
unlikely that the ICC would permit a merger between SFP and UPC, and that
therefore there was no reason to have a meeting. Mr. Lewis replied that UPC
intended to make public a proposal if no meeting occurred and urged that a
meeting be held. The two men then agreed that Mr. Krebs would consult his
counsel. After doing so, Mr. Krebs called Mr. Lewis back and agreed to a
meeting. During the conversations, Mr. Lewis told Mr. Krebs that UPC had looked
at Southern Pacific and at SFP, and had decided that SFP was the company to
break up. Mr. Lewis also stated that UPC would offer concessions to BNI to
persuade it to acquiesce to UPC's proposal.
Mr. Lewis then called Mr. Grinstein, stated that UPC wanted to acquire SFP
and asked to see Mr. Grinstein. Mr. Grinstein declined to see Mr. Lewis.
Mr. Lewis, Mr. Richard Davidson, President of UPC, Mr. Krebs, and Mr. Robert
A. Helman, SFP's counsel, had a meeting in the late afternoon of October 5. At
the meeting, Mr. Helman stated that SFP is subject to a binding Merger
Agreement and that it is unlikely that a UPC-SFP combination would be approved
by the ICC. Mr. Helman also stated that UPC had misled SFP because, earlier in
1994, when Mr. Krebs returned an unsolicited telephone call from Mr. Lewis, Mr.
Lewis had stated that if SFP made its deal with BNI, UPC would not oppose it.
Mr. Lewis denied having made that statement, contending that what he had
stated was that UPC would not oppose a BNI-SFP merger subject to an evaluation
of its merits. Mr. Lewis then placed a written proposal (the "UPC Proposal") on
Mr. Krebs' desk and, as Mr. Lewis was leaving, stated that Mr. Krebs was making
10
<PAGE>
a mistake, that UPC would offer more--$20 per share--than the amount provided
for in the UPC Proposal, and that UPC would consider using a voting trust for
the proposed transaction. Mr. Lewis and Mr. Davidson then left SFP's
headquarters, where the meeting had taken place.
In the UPC Proposal, UPC proposed to acquire SFP in a tax-free merger in
which SFP stockholders would receive, for each share of SFP Common Stock, .344
of a share of UPC common stock, having a value of $18 per SFP share based on
the closing price on October 4, 1994 of UPC common stock. On October 10, 1994,
.344 of a share of UPC common stock (based on the closing price on that date)
had a value of $17.24.
The transaction contemplated in the UPC Proposal is subject to ICC approval,
the termination of the BNI-SFP Merger Agreement, execution of a definitive
agreement and the approval of the Board of Directors and the stockholders of
both SFP and UPC. The UPC Proposal is also conditioned upon the satisfactory
completion of a due diligence review of SFP. UPC offered to facilitate an SFP
due diligence review of UPC.
The UPC Proposal stated that UPC is prepared to grant conditions to Southern
Pacific, BNI or other railroads, including access to points that would
otherwise change from two serving railroads to one, rights to handle service-
sensitive business moving between California, Chicago and the Midwest, and
access to the Kansas and Oklahoma grain markets. The UPC Proposal further
stated that UPC envisions that certain members of the SFP Board would be
invited to serve on UPC's Board. The UPC Proposal further stated that UPC was
prepared to immediately commence negotiation of a definitive merger agreement
containing mutually agreeable terms and conditions.
The SFP Board met to consider the UPC Proposal on October 5 and October 6,
1994. At those meetings, counsel for SFP explained that SFP's directors did not
have the right to terminate the Merger Agreement in response to the UPC
Proposal but did have the right, to the extent required by their fiduciary
duties under applicable law if so advised by outside counsel, (i) to engage in
negotiations or provide any confidential information or data to UPC relating to
the UPC Proposal and (ii) to withdraw, modify or amend their recommendation
that SFP's stockholders approve the Merger Agreement and the Merger.
Mr. Krebs reminded the SFP Board of his description at prior Board meetings
of two telephone calls he had had with Mr. Lewis earlier in the year. The
first, on June 7, 1994, occurred when Mr. Krebs returned Mr. Lewis' unsolicited
telephone call made on June 6. Mr. Lewis stated on June 7 that if SFP made its
deal with BNI, UPC would not oppose it and in fact would welcome it because UPC
liked good competitors. Mr. Lewis went on to say that UPC also would not object
if SFP entered into a transaction to acquire Kansas City Southern Railway
Company. The second telephone call was shortly after the BNI-SFP Merger
Agreement was announced on June 29, 1994. Mr. Krebs called Mr. Lewis as a
courtesy, and Mr. Lewis stated that he had seen the press release and that UPC
would study the matter.
After discussions at both meetings and consultation with its financial and
legal advisors, the SFP Board unanimously decided to reject the UPC Proposal
and reaffirm its recommendation to SFP's stockholders that they approve the
Merger Agreement and the Merger. In reaching its decision, the SFP Board
considered the following factors:
1. Likelihood of ICC Approval. The SFP Board concluded that it is unlikely
that a UPC-SFP combination would receive ICC approval. The SFP Board based its
conclusion in part on its own knowledge, and the view of management, that the
extensive market overlaps between the two railroad systems and the dominant
position of UPC would make such a combination anticompetitive. The SFP Board
also based its conclusion in part on advice of counsel that, given the
anticompetitive effects of a UPC-SFP combination, the ICC was unlikely to
approve such a combination absent concessions by UPC that would make the
transaction untenable
11
<PAGE>
and the ICC might well not approve it regardless of any concessions made by
UPC. The SFP Board noted that in the past it had, as part of management's
strategic reviews with the SFP Board, discussed the possibility of a UPC-SFP
combination, but had not pursued this idea because of the improbability of
obtaining ICC approval, given the adverse effect on competition that such a
combination would have.
2. Perception of UPC Proposal. The SFP Board perceived the UPC Proposal as
apparently designed to prevent the consummation of the BNI-SFP Merger and the
creation of a strong competitor to UPC. The SFP Board based this perception on
its conclusion that ICC approval of a UPC-SFP combination is unlikely and on
the timing of the UPC Proposal. The SFP Board also took account of the
inconsistency between UPC's present position and Mr. Lewis' earlier statement
to Mr. Krebs that UPC would not oppose a BNI-SFP Merger.
3. Opinion of Financial Advisor. Goldman Sachs advised the SFP Board that
under the circumstances described to the SFP Board by SFP's management and
counsel, Goldman Sachs reaffirmed its opinion with respect to the Exchange
Ratio contemplated by the BNI-SFP Merger. See the full text of the opinion of
Goldman Sachs dated the date hereof, which sets forth certain assumptions made
by Goldman Sachs, including the assumption that under the foregoing
circumstances Goldman Sachs, in analyzing the Exchange Ratio, need not take
into account the consideration which might be received under the UPC Proposal.
4. Binding Agreement. The SFP Board noted that SFP has no right to terminate
the Merger Agreement and that it is important to avoid breaches of the Merger
Agreement, particularly in light of the SFP Board's belief that consummation of
the BNI-SFP Merger is in the best interest of SFP's stockholders because (1)
the BNI-SFP Merger has significant benefits for SFP stockholders and (2) if the
Merger Agreement is terminated and if the UPC Proposal cannot be consummated,
SFP would be left without a strategic combination which is required to protect
and enhance shareholder value.
The SFP Board also discussed the significance of Mr. Lewis' remarks to Mr.
Krebs regarding the possibility of UPC offering a $20 per share price and
establishing a voting trust. The SFP Board noted that Mr. Lewis' statements
were inconsistent with the UPC Proposal and UPC's press release, which was
issued after Mr. Lewis met with Mr. Krebs. However, the SFP Board decided,
after being advised by outside counsel that its fiduciary duties under
applicable law required such a step, that SFP should communicate to UPC that,
if UPC were to make a proposal at a fair price and with an adequate provision
for a voting trust that would substantially eliminate the regulatory risk for
SFP stockholders, the SFP Board would consider that proposal in light of its
fiduciary duties.
On October 6, 1994, this information, along with the SFP Board's decision to
reject the UPC Proposal, was sent to UPC in a letter from Mr. Krebs to Mr.
Lewis and in a press release issued by SFP. BNI was made aware of, and did not
object to, the contents of the letter and press release before they were sent
or issued.
On October 11, 1994, in a letter addressed to Mr. Krebs, UPC expressed its
dissatisfaction with the SFP Board's prompt rejection of the UPC Proposal. It
emphasized the possible benefits to be attained in accepting the UPC Proposal,
asked the SFP Board to consider UPC's analysis of ICC matters, and urged Mr.
Krebs, along with his advisors, to meet with UPC representatives. UPC concluded
its letter by stating that the proposed purchase price was considered by UPC to
be a "fair price" but that UPC would be prepared to receive information from
SFP that might justify a greater consideration. The SFP Board considered the
October 11 letter, and decided to reaffirm its prior position but requested UPC
to provide SFP with UPC's analysis of ICC matters.
12
<PAGE>
MARKET PRICES
The BNI Common Stock and SFP Common Stock are both listed and traded on the
New York Stock Exchange ("NYSE"), the Chicago Stock Exchange ("CSE") and the
Pacific Stock Exchange. The following table sets forth the high and low closing
prices per share of the BNI Common Stock and the SFP Common Stock as reported
in The Wall Street Journal for the periods indicated.
<TABLE>
<CAPTION>
BNI COMMON SFP COMMON
STOCK STOCK
--------------- ---------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
1992
First Quarter.................................. $44 3/4 $33 1/8 $14 1/8 $11 1/8
Second Quarter................................. 47 1/4 36 1/8 13 3/8 11
Third Quarter.................................. 39 5/8 33 1/2 12 7/8 10 7/8
Fourth Quarter................................. 43 7/8 35 7/8 13 7/8 10 5/8
1993
First Quarter.................................. 52 42 1/4 15 5/8 12 3/4
Second Quarter................................. 58 5/8 50 18 3/8 14 1/2
Third Quarter.................................. 57 1/2 51 1/8 19 1/8 16 3/4
Fourth Quarter................................. 58 48 3/4 22 1/2 18
1994
First Quarter.................................. 66 56 3/4 26 1/8 22 3/8
Second Quarter................................. 60 1/8 52 1/2 24 1/4 20
Third Quarter.................................. 53 5/8 48 1/4 23 18 1/2
</TABLE>
On June 29, 1994, the last trading day before public announcement of
execution of the Merger Agreement, the closing prices of BNI Common Stock and
SFP Common Stock as reported in The Wall Street Journal were $53 1/2 per share
and $20 3/8 per share, respectively.
SFP's gold operations have been conducted through SFP Gold. On June 23, 1994,
SFP Gold, previously a wholly owned subsidiary of SFP, sold to the public 19.2
million newly issued shares of its common stock at a price of $14.00 per share.
SFP Gold has been listed and traded on the NYSE and the CSE since June 16,
1994. The high and low closing prices per share of SFP Gold common stock from
June 16, 1994 through October 3, 1994 as reported in The Wall Street Journal
were $17 7/8 per share and $13 1/2 per share, respectively, and the closing
prices on June 29, 1994 and October 3, 1994 were $13 7/8 per share and $16 7/8
per share, respectively. On June 29, 1994, the Board of Directors of SFP
approved the Gold Spinoff, which was effected through the distribution on
September 30, 1994 of approximately 0.60 of a share of common stock of SFP Gold
for each share of SFP Common Stock held of record on September 12, 1994 (or one
share of SFP Gold common stock for approximately each 1.67 shares of SFP Common
Stock). SFP Common Stock traded both on a "Regular Way" and an "Ex-
Distribution" (i.e., giving effect to the Gold Spinoff) basis from September 6
through September 30, 1994.
On October 10, 1994, the closing prices of BNI Common Stock and SFP Common
Stock as reported in The Wall Street Journal were $48 1/4 per share and $14 1/2
per share, respectively.
BNI AND SFP STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
THE BNI COMMON STOCK AND THE SFP COMMON STOCK IN CONNECTION WITH VOTING THEIR
SHARES.
13
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth selected historical financial data of BNI and
SFP for each of the last five years and selected unaudited historical financial
data for the interim periods ended June 30, 1994 and 1993. The selected
historical financial data of each of BNI and SFP have been derived from and
should be read in conjunction with the annual audited consolidated financial
statements of BNI or SFP, as the case may be, including the notes thereto, and
the unaudited interim consolidated financial statements of BNI or SFP, as the
case may be, including the notes thereto, which are incorporated by reference
in this Joint Proxy Statement/Prospectus. See "Incorporation of Certain
Documents by Reference." The BNI income statement data and per share data for
the six months ended June 30, 1994 and 1993 and the balance sheet data at June
30, 1994 include, in the opinion of BNI's management, all adjustments necessary
to present fairly the information for such periods. Such adjustments consist
only of normal recurring adjustments. The SFP income statement data and per
share data for the six months ended June 30, 1994 and 1993 and the balance
sheet data at June 30, 1994 include, in the opinion of SFP's management, all
adjustments necessary to present fairly the information for such periods. Such
adjustments consist only of normal recurring adjustments. The results for
certain periods for which selected historical financial data are provided
include the impact of various special items. The affected periods, together
with a description of the nature and financial impact of such special items,
are set forth after each table (per share amounts are net of tax). These
historical data are not necessarily indicative of results to be expected after
the Merger is consummated.
SELECTED HISTORICAL FINANCIAL DATA FOR BURLINGTON NORTHERN INC.
<TABLE>
<CAPTION>
AT OR FOR SIX
MONTHS ENDED
JUNE 30, AT OR FOR YEAR ENDED DECEMBER 31,
-------------- ------------------------------------
1994 1993 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues................. $2,402 $2,312 $4,699 $4,630 $4,559 $4,674 $4,606
Income (loss) before
extraordinary items and
cumulative effect of
changes in accounting
methods................. 169 154 296 299 (306) 222 243
Extraordinary
items/cumulative effect
of changes in accounting
methods................. (10) -- -- (21) (14) 14 --
Net income (loss)........ 159 154 296 278 (320) 236 243
PER SHARE DATA
Income (loss) before
extraordinary items and
cumulative effect of
changes in accounting
methods................. $ 1.75 $ 1.60 $ 3.06 $ 3.35 $(3.96) $ 2.89 $ 3.19
Extraordinary
items/cumulative effect
of changes in accounting
methods................. (.11) -- -- (.24) (.18) .18 --
Net income (loss)........ 1.64 1.60 3.06 3.11 (4.14) 3.07 3.19
Book value............... 18.89 (a) 17.73 15.61 13.64 16.13 14.15
Cash dividends declared.. .60 .60 1.20 1.20 1.20 1.20 1.20
BALANCE SHEET DATA
Total assets............. $7,394 (a) $7,045 $6,563 $6,324 $6,061 $6,144
Total debt, including
current portion and
commercial paper........ 1,934 (a) 1,737 1,567 1,982 2,133 2,333
Redeemable preferred
stock................... -- (a) -- 9 11 12 14
Stockholders' equity..... 2,030 (a) 1,919 1,728 1,202 1,241 1,080
</TABLE>
- --------
(a) Not required.
14
<PAGE>
SIX MONTHS ENDED JUNE 30,
1994--BNI adopted Statement of Financial Accounting Standards ("SFAS") 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
income by $10 million, or $.11 per common share.
YEAR ENDED DECEMBER 31,
1993--Results include the effects of the Omnibus Budget Reconciliation Act of
1993 (the "Act") which was signed into law on August 10, 1993. The Act
increased the corporate federal income tax rate by 1 percent, effective January
1, 1993, which reduced net income by $29 million, or $.32 per common share,
through the date of enactment.
1992--Results include a settlement agreement relating to the reimbursement of
attorneys' fees and costs incurred by BNI in conjunction with litigation filed
by Energy Transportation Systems, Inc. ("ETSI"), and others, and reimbursement
of a portion of the amount paid in prior years by BNI in settlement of that
action. Under the terms of the settlement, BNI received approximately $50
million, before $3 million in legal fees, for a net amount of $47 million. The
after-tax effect of the settlement increased net income by $31 million, or $.35
per common share.
BNI received notification that an Appeals Division settlement of the Internal
Revenue Service audits for the years 1981 through 1985 had been approved by the
Joint Committee on Taxation. This action settled all unagreed issues for those
years. The tax effect of the settlement was included in the 1992 tax provision
and resulted in an increase in net income of $17 million, or $.19 per common
share.
Results reflect the cumulative effect of the change in accounting method for
revenue recognition and the cumulative effect of the implementation of the
accounting standard for postretirement benefits (SFAS No. 106). The cumulative
effect of the change in accounting method for revenue recognition decreased
1992 net income by $11 million, or $.13 per common share. The cumulative effect
of the change in accounting method for postretirement benefits decreased 1992
net income by $10 million, or $.11 per common share. Neither change had an
effect on cash flows.
1991--Results include a $708 million pre-tax special charge which related to
(i) restructuring costs for reducing surplus crew positions and a management
separation pay program, (ii) increases in estimated personal injury costs and
(iii) increases in estimated environmental clean-up costs. The after-tax effect
of the charge decreased net income by $442 million, or $5.79 per common share.
BNI extinguished debt through an early redemption resulting in an
extraordinary loss, net of income taxes, of $14 million, or $.18 per common
share.
Beginning in November 1991, shares used in computation of earnings (loss) per
common share reflect a November 1991 public offering of 10,350,000 shares.
1990--Results include the extinguishment of debt through note exchange
agreements and the purchase of certain debentures. The net income for the year
ended December 31, 1990 includes a resulting extraordinary gain, net of income
taxes, of $14 million, or $.18 per common share.
15
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA FOR SANTA FE PACIFIC CORPORATION
<TABLE>
<CAPTION>
AT OR FOR SIX
MONTHS ENDED
JUNE 30, AT OR FOR YEAR ENDED DECEMBER 31,
------------- ------------------------------------
1994 1993 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues................. $1,290 $1,192 $2,409 $2,252 $2,154 $2,112 $2,202
Income (loss) from
continuing operations... 103 135 177 21 62 (245) (316)
Income from discontinued
operations, net of tax.. 23 140 162 42 34 162 170
Extraordinary
items/cumulative effect
of changes in accounting
methods................. -- -- -- (168) -- (29) 161
Net income (loss)........ 126 275 339 (105) 96 (112) 15
PER SHARE DATA
Income (loss) from
continuing operations... $ .54 $ .72 $ .95 $ .11 $ .35 $(1.51) $(1.99)
Income from discontinued
operations, net of tax.. .12 .75 .86 .23 .19 1.00 1.07
Extraordinary
items/cumulative effect
of changes in accounting
methods................. -- -- -- (.91) -- (.18) 1.01
Net income (loss)........ .66 1.47 1.81 (.57) .54 (.69) .09
Book value............... 6.20 (a) 6.83 5.11 5.77 5.27 5.39
Cash dividends declared.. -- -- .10 .10 .10 .10 .10
BALANCE SHEET DATA
Total assets............. $5,717 (a) $5,374 $4,946 $4,812 $4,710 $5,087
Total debt, including
current portion......... 1,105 (a) 1,176 1,307 1,702 1,791 2,067
Stockholders' equity..... 1,156 (a) 1,268 929 1,037 912 852
</TABLE>
- --------
(a) Not required.
SIX MONTHS ENDED JUNE 30,
1994--Income from continuing operations includes pre-tax gains of $24 million
related to the sale of an investment and $29 million resulting from a change in
eligibility requirements for postretirement medical benefits. The after-tax
effect of the gains increased net income by $31 million, or $.17 per common
share.
1993--Income from continuing operations includes a pre-tax gain of $145
million related to the sale of rail lines in southern California. The after-tax
effect of the gain increased net income by $85 million, or $.46 per common
share.
Discontinued operations includes an after-tax gain of $108 million, or $.58
per common share, related to the exchange of mineral assets.
YEAR ENDED DECEMBER 31,
1993--Income from continuing operations includes the gain on sale of rail
lines in southern California discussed above and a $28 million increase in
income tax expense related to the retroactive impact from the date of enactment
of the increase in the corporate Federal income tax rate by one percent. The
net effect of the above items was to increase net income by $57 million, or
$.31 per common share.
16
<PAGE>
Discontinued operations in 1993 includes the after-tax gain discussed above.
1992--Income from continuing operations includes a pre-tax gain of $205
million for the sale of rail lines in southern California and a pre-tax special
charge of $320 million at The Atchison, Topeka and Santa Fe Railway Company
("SFP Rail") related to a new labor agreement, operations centralization and
environmental accruals. The net effect of the above items was to decrease net
income by $73 million, or $.39 per common share.
Net income includes a noncash reduction of $163 million, or $.88 per common
share, related to the cumulative effect of adopting SFAS No. 106, and a $5
million, or $.03 per common share, reduction for an extraordinary charge on the
early retirement of debt.
1990--Income from continuing operations includes a $342 million pre-tax
charge related to the settlement of litigation with ETSI and a pre-tax credit
of $51 million related to favorable property tax settlements. The net after-tax
effect of the above items was to reduce net income by $188 million, or $1.16
per share.
Income from discontinued operations includes an after-tax gain of $102
million, or $.63 per common share, related to a litigation settlement.
Net income includes a reduction of $29 million, or $.18 per common share, for
an extraordinary charge on the early retirement of debt.
1989--Income from continuing operations includes a $442 million SFP Rail pre-
tax special charge related to restructuring and an increase in accruals for
personal injury costs. The after-tax effect of the charge reduced net income by
$272 million, or $1.71 per common share.
Net income includes a credit of $161 million, or $1.01 per common share,
related to the cumulative effect of a change in accounting for income taxes.
17
<PAGE>
UNAUDITED SELECTED PRO FORMA FINANCIAL DATA
The following unaudited selected pro forma financial data give effect to the
exchange of 0.27 shares of BNI Common Stock for each share of SFP Common Stock
pursuant to the Merger Agreement, with the Merger accounted for under the
pooling of interests method. The unaudited pro forma balance sheet data as of
June 30, 1994, give effect to the Merger as if it had occurred on that date,
and the unaudited pro forma income statement data give effect to the Merger as
if it had occurred on January 1, 1991. The unaudited selected pro forma
financial data set forth below do not reflect any potential increases in
operating income which may arise from the Merger or adjustments to conform the
accounting practices of BNI and SFP and should be read in conjunction with the
respective audited and unaudited consolidated historical financial statements
of BNI and SFP, including the respective notes thereto, which are incorporated
by reference in this Joint Proxy Statement/Prospectus and the unaudited pro
forma combined financial statements, including the notes thereto, appearing
elsewhere in this Joint Proxy Statement/Prospectus. See "Incorporation of
Certain Documents by Reference" and "Unaudited Pro Forma Combined Financial
Statements." The unaudited selected pro forma financial data are prepared for
illustrative purposes only and are not necessarily indicative of the financial
position or results of operations that might have occurred had the Merger
actually taken place on the dates indicated, or of future results of operations
or financial position of the combined company.
<TABLE>
<CAPTION>
AT OR FOR SIX AT OR FOR
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------- --------------------
1994 1993 1993 1992 1991
------- ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
COMBINED PRO FORMA BASIS
INCOME STATEMENT DATA
Revenues................................ $ 3,692 $3,504 $7,108 $6,882 $6,713
Income (loss) from continuing opera-
tions.................................. 272 289 473 320 (244)
BALANCE SHEET DATA
Total assets............................ $12,607 (a) (a) (a) (a)
Total debt, including current portion... 3,039 (a) (a) (a) (a)
Stockholders' equity.................... 3,156 (a) (a) (a) (a)
</TABLE>
- --------
(a)Not required.
18
<PAGE>
UNAUDITED COMPARATIVE PER SHARE DATA
The following table sets forth for BNI Common Stock and SFP Common Stock
certain historical combined pro forma and pro forma equivalent per share data
for the six months ended June 30, 1994 and 1993 and for each of the three years
ended December 31, 1993. The information presented herein should be read in
conjunction with the selected historical financial data and the unaudited
selected pro forma financial data appearing elsewhere in this Joint Proxy
Statement/Prospectus. See "Selected Historical Financial Data" and "Unaudited
Selected Pro Forma Financial Data."
<TABLE>
<CAPTION>
AT OR FOR SIX AT OR FOR
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------- ----------------------
1994 1993 1993 1992 1991
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
BNI COMMON STOCK
Income (loss) from continuing
operations per share:
Historical.......................... $ 1.75 $ 1.60 $ 3.06 $ 3.35 $ (3.96)
Combined pro forma (a).............. 1.85 1.99 3.22 2.29 (1.95)
Book value per share:
Historical.......................... 18.89 (b) 17.73 15.61 13.64
Combined pro forma.................. 20.14 (b) 20.24 (b) (b)
Cash dividends per share:
Historical.......................... .60 .60 1.20 1.20 1.20
Combined pro forma (c).............. .60 .60 1.20 1.20 1.20
SFP COMMON STOCK
Income (loss) from continuing
operations per share:
Historical (a)...................... $ .54 $ .72 $ .95 $ .11 $ .35
Pro forma equivalent (a)(d)......... .50 .54 .87 .62 (.53)
Book value per share:
Historical.......................... 6.20 (b) 6.83 5.11 5.77
Pro forma equivalent (d)............ 5.44 (b) 5.46 (b) (b)
Cash dividends per share:
Historical.......................... -- -- .10 .10 .10
Pro forma equivalent (c)(d)......... .16 .16 .32 .32 .32
</TABLE>
- --------
(a) Income (loss) from continuing operations of certain periods includes the
impact of special items as set forth in "Selected Historical Financial
Data." Earnings (loss) per share from continuing operations (which are
before discontinued operations, extraordinary items and cumulative effect
of changes in accounting methods) adjusted to exclude these special items
were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
----------- -----------------
1994 1993 1993 1992 1991
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Adjusted combined pro forma basis.......... $1.63 $1.38 $3.02 $2.47 $1.57
SFP-Adjusted historical basis.............. .37 .26 .64 .50 .35
SFP-Adjusted pro forma equivalent basis
(d)....................................... .44 .37 .82 .67 .42
</TABLE>
(b) Not required.
(c) Cash dividends declared are assumed to be the same as those paid by BNI on
an historical basis.
(d) Calculated by multiplying combined pro forma amounts by the exchange ratio
of 0.27.
19
<PAGE>
INTRODUCTION
This Joint Proxy Statement/Prospectus is being furnished to stockholders of
Burlington Northern Inc., a Delaware corporation ("BNI"), in connection with
the solicitation of proxies by the BNI Board of Directors for use at the
Special Meeting of Stockholders of BNI (the "BNI Special Meeting") to be held
at Burlington Northern Railroad Company, 3017 Lou Menk Drive, Fort Worth, Texas
76131-2815, on November 18, 1994 at 10:00 a.m., Fort Worth time, and at any
adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus is also being furnished to the
stockholders of Santa Fe Pacific Corporation, a Delaware corporation ("SFP"),
in connection with the solicitation of proxies by the SFP Board of Directors
for use at the Special Meeting of Stockholders of SFP (the "SFP Special
Meeting") to be held at the Hyatt Regency O'Hare, 9300 Bryn Mawr Avenue,
Rosemont, Illinois on November 18, 1994 at 3:00 p.m., Chicago time, and at any
adjournment or postponement thereof.
At the BNI Special Meeting and the SFP Special Meeting, the common
stockholders of BNI and SFP, respectively, will be asked to adopt and approve
the Agreement and Plan of Merger dated as of June 29, 1994 (the "Merger
Agreement") between BNI and SFP, pursuant to which SFP is to merge with and
into BNI, with BNI to be the surviving corporation in the merger (the
"Merger").
This Joint Proxy Statement/Prospectus also constitutes a prospectus of BNI
with respect to up to 58,250,000 shares of common stock, no par value, of BNI
(the "BNI Common Stock") issuable to SFP stockholders in connection with the
Merger. Unless the context otherwise requires, all references in this Joint
Proxy Statement/Prospectus to BNI Common Stock include the associated rights
(the "BNI Rights") to purchase Junior Class A Preferred Stock of BNI issued
pursuant to the Rights Agreement dated as of July 14, 1986 between BNI and The
First National Bank of Boston, as Rights Agent (the "Rights Agreement"). To the
extent BNI Rights are then outstanding, each share of BNI Common Stock to be
issued in the Merger will be accompanied by one BNI Right, which will be
evidenced by the certificate of BNI Common Stock. Pursuant to the Rights
Agreement, the BNI Rights will expire on July 24, 1996 unless they are earlier
redeemed or the term of the BNI Rights Agreement is extended.
All information herein concerning BNI has been furnished by BNI, and all
information herein concerning SFP has been furnished by SFP. BNI has
represented and warranted to SFP, and SFP has represented and warranted to BNI,
that the particular information so furnished is true and complete.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to stockholders of BNI and SFP on or about October 13, 1994.
THE COMPANIES
BURLINGTON NORTHERN INC.
BNI was incorporated in the State of Delaware in 1981 as part of a holding
company reorganization. BNI and its majority-owned subsidiaries are primarily
engaged in the rail transportation business. BNI's principal subsidiary is
Burlington Northern Railroad Company ("BN Railroad"). BN Leasing Corporation, a
wholly owned subsidiary of BNI, was formed in 1989 to acquire railroad rolling
stock and other equipment necessary for the transportation and other business
affairs of BNI.
BN Railroad operates the largest railroad system in the United States based
on miles of road and second main track, with approximately 24,500 total miles
at December 31, 1993. The principal cities served include Chicago, Minneapolis-
St. Paul, Fargo-Moorhead, Billings, Spokane, Seattle, Portland, St. Louis,
Kansas City, Des Moines, Omaha, Lincoln, Cheyenne, Denver, Fort Worth, Dallas,
Houston, Galveston, Tulsa, Wichita, Springfield (Missouri), Memphis,
Birmingham, Mobile and Pensacola.
20
<PAGE>
The transportation of coal is BN Railroad's single largest source of
revenues, accounting for approximately one-third of the total. Based on
carloadings and tons hauled, BN Railroad is the largest transporter of western
low-sulfur coal in the United States. Based on the same criteria, BN Railroad
is also the largest rail transporter of grain in North America. Other
significant aspects of BN Railroad's business include intermodal transportation
and the transportation of forest products, chemicals, consumer products,
minerals processors, iron and steel, vehicles and machinery and aluminum, non-
ferrous metals and ores.
The principal executive offices of BNI are located at 3800 Continental Plaza,
777 Main Street, Fort Worth, Texas 76102-5384. BNI's telephone number is (817)
333-2000.
SANTA FE PACIFIC CORPORATION
SFP was incorporated in the State of Delaware in 1983. A holding company, SFP
owns subsidiaries engaged in two businesses: Rail, consisting principally of
The Atchison, Topeka and Santa Fe Railway Company ("SFP Rail"), a major Class I
railroad operating in twelve midwestern, western and southwestern states; and
Pipeline, reflecting SFP's interest in a refined petroleum products pipeline
system operating in six western and southwestern states. Prior to the
consummation of the Gold Spinoff (as defined below) on September 30, 1994, SFP
was also engaged in the exploration for and development of gold properties and
the mining and processing of gold ores through Santa Fe Pacific Gold
Corporation ("SFP Gold") and its subsidiaries.
One of the nation's major freight railroads, SFP Rail operated as of December
31, 1993 approximately 8,500 route miles of track (excluding, among other
things, second main track) extending from Chicago to the Gulf of Mexico and the
West Coast and operated related facilities in twelve midwestern, western and
southwestern states. Major markets served directly by SFP Rail include
Albuquerque, Chicago, Dallas, Denver, Houston, Kansas City, Los Angeles,
Phoenix, the San Francisco Bay area and the United States/Mexico crossings of
El Paso and San Diego.
In serving the midwestern, western and southwestern regions of the country,
SFP Rail transports a broad range of commodities derived from manufacturing,
agricultural and natural resource industries. Intermodal transportation
constitutes the single largest source of freight revenues for SFP Rail, which
also transports, among other things, chemicals and petroleum, coal, vehicles
and parts, whole grain, minerals and ores, forest products, consumer products,
grain products and primary metals.
Santa Fe Pacific Pipelines, Inc. ("SFP Pipelines"), an indirect, wholly owned
subsidiary of SFP, serves as the general partner of Santa Fe Pacific Pipeline
Partners, L.P. (the "Partnership"), a publicly traded Delaware master limited
partnership formed in 1988 to acquire and operate the refined petroleum
products pipeline business of SFP. SFP Pipelines owns a two percent interest in
the Partnership as the Partnership's general partner and approximately 42
percent as a limited partner. The Partnership is one of the largest independent
pipeline common carriers of refined petroleum products in the United States,
and the largest in the western United States, in terms of product deliveries,
barrel miles, and pipeline mileage, with approximately 3,300 miles of pipeline
and fourteen truck loading terminals serving six states.
SFP Gold is engaged in the exploration for and the development of gold
properties and the mining and processing of gold ores. On June 23, 1994, SFP
Gold effected an initial public offering of 19.2 million shares of common stock
or approximately 14.6% of its outstanding shares at a price of $14.00 per
share. On June 29, 1994, the SFP Board declared a special dividend to holders
of SFP Common Stock as of September 12, 1994, consisting of a pro-rata
distribution of its interests in SFP Gold (the "Gold Spinoff"). The
distribution became effective on September 30, 1994.
The principal executive offices of SFP are located at 1700 East Golf Road,
Schaumburg, Illinois 60173-5860. SFP's telephone number is (708) 995-6000.
21
<PAGE>
THE SPECIAL MEETINGS
PURPOSE OF THE BNI AND SFP SPECIAL MEETINGS
The purpose of the BNI and SFP Special Meetings is to consider and vote upon
the adoption and approval of the Merger Agreement.
EACH OF THE BOARDS OF DIRECTORS OF BNI AND SFP HAS, BY UNANIMOUS VOTE,
APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT ITS STOCKHOLDERS VOTE FOR
APPROVAL OF THE MERGER AGREEMENT.
DATE, PLACE AND TIME
BNI. The BNI Special Meeting will be held at Burlington Northern Railroad
Company, 3017 Lou Menk Drive, Fort Worth, Texas 76131-2815 on November 18,
1994, commencing at 10:00 a.m., Fort Worth time.
SFP. The SFP Special Meeting will be held at the Hyatt Regency O'Hare, 9300
West Bryn Mawr Avenue, Rosemont, Illinois on November 18, 1994, commencing at
3:00 p.m., Chicago time.
RECORD DATES
BNI. The Board of Directors of BNI has fixed the close of business on October
19, 1994 as the record date for the determination of stockholders entitled to
notice of and to vote at the BNI Special Meeting. As of October 10, 1994, there
were issued and outstanding 89,224,101 shares of BNI Common Stock. Only holders
of record of BNI Common Stock on the Record Date are entitled to vote.
SFP. The Board of Directors of SFP has fixed the close of business on October
19, 1994 as the record date for the determination of stockholders entitled to
notice of and to vote at the SFP Special Meeting. As of October 10, 1994, there
were issued and outstanding 186,996,400 shares of SFP Common Stock. Only
holders of record of SFP Common Stock on the Record Date are entitled to vote.
October 19, 1994 is referred to in this Joint Proxy Statement/Prospectus as
the "Record Date."
REQUIRED VOTE
BNI. The affirmative vote of a majority of the shares of BNI Common Stock
outstanding on the Record Date is required to approve the Merger Agreement.
Each share of BNI Common Stock is entitled to one vote on each matter on which
the respective holders of such shares are entitled to vote as set forth above
in the BNI Special Meeting. Holders of BNI's 6 1/4% Cumulative Convertible
Preferred Stock, Series A No Par Value are not entitled to vote on the Merger.
See "Description of BNI Capital Stock--6 1/4% Convertible Preferred Stock."
As of October 10, 1994, directors and executive officers of BNI and their
affiliates were beneficial owners of an aggregate of 1,917,056 shares of BNI
Common Stock (approximately 2.0% of the shares then outstanding). The directors
and executive officers of BNI have indicated that they intend to vote their
shares of BNI Common Stock in favor of approval of the Merger Agreement.
SFP. The affirmative vote of a majority of the shares of SFP Common Stock
outstanding on the Record Date is required to approve the Merger Agreement.
Each share of SFP Common Stock is entitled to one vote on each matter on which
the respective holders of such shares are entitled to vote as set forth above
in the SFP Special Meeting.
As of October 10, 1994, directors and executive officers of SFP and their
affiliates were beneficial owners of an aggregate of 2,572,978 shares of SFP
Common Stock (approximately 1.4% of the shares then outstanding). The directors
and executive officers of SFP have indicated that they intend to vote their
shares of SFP Common Stock in favor of the approval of the Merger Agreement.
22
<PAGE>
VOTING AND REVOCATION OF PROXIES
Proxy cards for use at either the BNI Special Meeting or the SFP Special
Meeting, as the case may be, accompany this Joint Proxy Statement/Prospectus. A
stockholder may use the appropriate proxy card if he or she is unable to attend
the meeting in person or wishes to have his or her shares voted by proxy even
if he or she does attend the meeting. A proxy may be revoked by the person
giving it at any time before it is exercised by providing written notice of
such revocation to the Secretary of BNI or SFP, as the case may be, by
submitting a proxy having a later date, or by appearing at the meeting and
electing to vote in person. Any proxy validly submitted and not revoked will be
voted in the manner specified therein by the stockholder. IF NO SPECIFICATION
IS MADE, SHARES OF BNI COMMON STOCK OR SFP COMMON STOCK, AS THE CASE MAY BE,
REPRESENTED BY PROXY WILL BE VOTED FOR APPROVAL OF THE MERGER AGREEMENT.
Because approval of the Merger Agreement by BNI stockholders requires the
affirmative vote of a majority of the shares of BNI Common Stock outstanding as
of the Record Date, and approval of the Merger Agreement by SFP stockholders
requires the affirmative vote of a majority of the shares of SFP Common Stock
outstanding as of the Record Date, abstentions and broker non-votes will have
the effect of a vote against approval of the Merger Agreement. Neither BNI's
nor SFP's Board of Directors knows of any other matter that will be presented
for action at either of the Special Meetings. If, however, any other matter
properly comes before either of the Special Meetings, the persons named in the
proxy or their substitutes will vote thereon in accordance with their judgment.
SOLICITATION OF PROXIES
BNI and SFP each will bear the cost of the solicitation of proxies from its
own stockholders, except that BNI and SFP will share equally the cost of
printing and mailing this Joint Proxy Statement/Prospectus. In addition to
solicitation by mail, the directors, officers and employees of BNI and SFP and
their subsidiaries may solicit proxies from stockholders of the relevant
corporation by telephone or telegram or in person. Such directors, officers and
employees will not be additionally compensated for such solicitation but may be
reimbursed for out-of-pocket expenses in connection therewith. Arrangements
will also be made with brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation materials to the beneficial
owners of shares held of record by such persons, and BNI and SFP will reimburse
such custodians, nominees and fiduciaries for their reasonable out-of-pocket
expenses in connection therewith.
Kissel-Blake, Inc. will assist in the solicitation of proxies by BNI for a
fee of $9,000 plus reasonable out-of-pocket expenses.
D. F. King & Co., Inc. and MacKenzie Partners, Inc. will assist in the
solicitation of proxies by SFP for an aggregate anticipated fee of $150,000
plus reasonable out-of-pocket expenses.
THE MERGER
BACKGROUND OF THE MERGER
The possibility of a business combination between BNI and SFP was first
discussed on July 16, 1993 in a meeting between Mr. Gerald Grinstein, Chairman
and Chief Executive Officer of BNI, and Mr. Robert D. Krebs, Chairman,
President and Chief Executive Officer of SFP. Following that meeting, senior
members of management of both companies, together with their legal and
financial advisors, undertook to examine, on a preliminary basis, a possible
transaction. On the basis of that investigation, both companies concluded that
a BNI-SFP merger presented significant strategic and financial opportunities.
The two companies then agreed to investigate further a possible stock merger
transaction, executed a confidentiality agreement on or about July 28, 1993 and
exchanged confidential information.
From August through November 1993, each company undertook a detailed due
diligence investigation of the other. Beginning in October 1993,
representatives of BNI and SFP, and their financial and legal advisors, met on
a number of occasions and held numerous additional discussions to attempt to
negotiate the
23
<PAGE>
terms of a merger transaction, including the terms of a merger agreement. A
number of difficult issues were raised during the course of these discussions.
Of particular importance were the parties' views as to an appropriate exchange
ratio.
At meetings during this period, each of the SFP Board and BNI Board
separately received information about a possible BNI-SFP merger, discussed the
possibility of such a merger and was briefed by its management on the merger
negotiations.
On November 29, 1993, BNI and SFP separately concluded that they could not
reach an agreement on an exchange ratio. In addition, BNI had concerns with
respect to certain tax issues and several matters relating to the planned Gold
Spinoff. Thereafter, each company independently decided to discontinue merger
negotiations.
On January 31, 1994, Mr. Grinstein and Mr. Krebs met to discuss the
possibility of resuming merger negotiations, but reached no conclusion as to
whether to do so.
On or about February 15, 1994, CS First Boston informed representatives of
BNI and SFP that Kansas City Southern Industries, Inc. ("KCSI") intended to
explore strategic transactions involving its wholly owned railroad subsidiary,
The Kansas City Southern Railway Company and related transportation businesses
("KCSR").
During the period January 1994 through June 1994, the SFP Board was kept
informed of and discussed the possibility of resuming merger negotiations with
BNI. At its May 24, 1994 board meeting, SFP management reported to the SFP
Board on both the status of the potential BNI transaction and a possible KCSR
transaction, and stated its view that, although each of these potential
transactions would have advantages, a BNI transaction would be superior for SFP
and its stockholders.
On several occasions in June 1994, representatives of BNI and SFP discussed
whether to resume merger negotiations in light of, among other things, the fact
that KCSI had informed potential bidders that it would establish in the near
future a deadline for bids to acquire KCSR and that the KCSI Board would meet,
and might select the winning bidder for KCSR, on June 30, 1994.
On June 24, 1994, the SFP Board, in light of the fact that merger
negotiations with BNI had not resumed, authorized SFP management to make a bid
for KCSR. That bid was communicated to KCSI on June 24, 1994.
On June 24, 1994, the BNI Board authorized BNI management to make a bid for
KCSR. That bid was communicated to KCSI on June 24, 1994. At that meeting and
following presentations from BNI's management and financial and legal advisors,
the Board of Directors of BNI also authorized management, together with its
financial and legal advisors, to attempt to negotiate a merger agreement with
SFP. The Board noted that, among other things, some of its prior concerns had
been alleviated by SFP's progress in effecting the Gold Spinoff.
On June 24, 1994, after the SFP Board had met, a representative of BNI
informed a representative of SFP that BNI was interested in resuming merger
negotiations with SFP. From shortly after that time through June 29, 1994,
representatives of BNI, SFP and their financial and legal advisors resumed
negotiations, which resulted in a definitive merger agreement, subject to BNI
and SFP Board approval.
On June 29, 1994, the Boards of Directors of SFP and BNI each met separately
to consider a BNI-SFP merger. Each Board separately received presentations from
its management and financial and legal advisors about a BNI-SFP merger. Each
Board then resumed the discussions in which it had engaged at earlier meetings
about whether to pursue such a merger. Following these discussions, each Board
approved the terms of the agreement negotiated by their respective managements
and advisors and the Merger Agreement was executed and delivered promptly after
receipt of such approval. Upon approval of the Merger, each of the SFP and the
BNI Boards authorized SFP management and BNI management, respectively, to
withdraw their bids for KCSR. The KCSR bids were withdrawn shortly thereafter.
24
<PAGE>
FACTORS FOR CONSIDERATION OF THE MERGER
Each of the BNI and SFP Boards of Directors believes that a BNI-SFP
combination, which will create a rail system with broad geographic coverage,
should, among other things, provide shippers with efficient single-line rail
service, diversify each railroad's traffic base, generate significant operating
efficiencies and create a financially strong, more effective competitor. See
"--Recommendations of the Boards of Directors and Reasons for the Merger."
However, there can be no assurances that these potential benefits will be
realized or that the ICC will not impose conditions on the operation of the
merged entity that will affect its ability to fully achieve any one or more of
such benefits. See "Other Matters--Additional Financial Considerations." In
addition, if the Merger cannot be consummated because the ICC does not give its
approval, each of BNI and SFP will have incurred expenses without a
corresponding benefit.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS AND REASONS FOR THE MERGER
BNI. At a meeting on June 29, 1994, the Board of Directors of BNI, by
unanimous vote, determined that the terms of the Merger are fair to and in the
best interests of BNI and its stockholders and approved the Merger Agreement
and the transactions contemplated thereby. In reaching these determinations,
the BNI Board of Directors considered, among other things, the negotiations
that had occurred during 1993; advice as to the background of the negotiations
since that time; financial and strategic factors relating to the proposed
merger; the results of due diligence; financial assessments by Lazard Freres &
Co. ("Lazard"), BNI's financial advisor, and BNI management of (x) SFP, (y) BNI
and (z) the combined company; legal and regulatory considerations with respect
to the proposed merger, including issues relating to the Directors' fiduciary
duties and issues relating to the ICC approval process; and the terms and
conditions of the Merger Agreement. The Board also was given a presentation by
Lazard concerning the Merger and Lazard's written opinion to the effect that
the Exchange Ratio was fair to BNI's stockholders from a financial point of
view. See "The Merger--Opinions of Financial Advisors--Opinion of Lazard."
SFP. At a meeting on June 29, 1994, the Board of Directors of SFP, by
unanimous vote, determined that the terms of the Merger are fair to and in the
best interests of SFP and its stockholders and approved the Merger Agreement
and the transactions contemplated thereby. In reaching these determinations,
the SFP Board of Directors considered, among other things, the negotiations
that had occurred during 1993; advice as to the background of the negotiations
since that time; financial and strategic factors relating to the proposed
merger; the results of due diligence; financial assessments by Goldman Sachs,
SFP's financial advisor, of (x) BNI, (y) SFP and (z) the combined company;
legal, tax and regulatory considerations with respect to the proposed merger,
including issues relating to the Directors' fiduciary duties and issues
relating to the ICC approval process; and the terms and conditions of the
Merger Agreement. The Board also was given a presentation by Goldman Sachs
concerning the Merger and Goldman Sachs' oral opinion (which has subsequently
been confirmed in writing) to the effect that, based on various considerations
and assumptions, the Exchange Ratio was fair to SFP's stockholders. See "The
Merger--Opinions of Financial Advisors--Opinion of Goldman Sachs."
The strategic factors considered independently by the BNI and SFP Boards of
Directors in approving the Merger included:
1. Geographic Coverage. The merged entity should provide substantial
opportunities for revenue and earnings growth by linking all principal West
Coast and Gulf Coast ports, major midwestern and southeastern markets and
Canada and Mexico. A BNI-SFP combination will create an expanded rail network,
with far broader geographic coverage than either of the carriers' existing
systems, and should increase opportunities for intermodal partnerships between
the combined company and trucking companies, provide access to better routing
opportunities and increase traffic densities.
2. Single-Line Rail Service. A BNI-SFP combination should provide shippers
with more efficient and cost-effective single-line service. The extensive
single-line service should position the carriers to attract and serve customers
more effectively by eliminating costs and delays of interchanges, improving
productivity and enhancing the combined company's ability to respond to
customer needs.
25
<PAGE>
3. Diversified Traffic Base. The Merger should serve to balance SFP's
strength in intermodal traffic with BNI's strength in coal and grain
operations. The resulting diversification of the combined company's traffic
base should reduce the impact of fluctuations in demand for particular
commodities and therefore reduce the volatility of the combined company's
financial results.
4. Operating Efficiencies. The Merger should increase operating efficiencies
and create substantial cost savings through reductions in general and
administrative costs, operations and transportation savings, reduced costs and
delays of interchange and maintenance of way and equipment savings.
5. Increased Competitiveness and Financial Strength. Based on the expanded
geographic coverage, single-line service, diversified traffic base and
operating efficiencies, the Merger should create a strong, new rail system that
is able to compete more effectively with other major western rail carriers. In
addition, the combination of two financially sound entities should create a
stronger company providing enhanced stockholder value, greater financial
strength and improved credit quality.
In addition, the BNI Board separately concluded that a BNI-SFP merger should
provide an opportunity to strengthen and deepen the management team of the
combined entity by integrating the BNI and SFP management teams. The SFP Board
separately concluded that, because SFP is smaller than a number of its
competitors, its ability to grow and compete effectively should be enhanced by
the economies of scale that a BNI-SFP merger makes possible.
OPINIONS OF FINANCIAL ADVISORS
Opinion of Lazard
Lazard has rendered to the BNI Board of Directors its written opinion dated
June 29, 1994, that, based upon and subject to various considerations set forth
in the opinion and such other factors as it deemed relevant, on June 29, 1994,
the Exchange Ratio was fair to the holders of BNI Common Stock from a financial
point of view. Lazard has also delivered to the BNI Board of Directors a
substantially identical opinion, dated the date of this Joint Proxy
Statement/Prospectus, to the effect that based upon and subject to various
considerations set forth in the opinion and such other factors as it deemed
relevant, on the date hereof, the Exchange Ratio was fair to the holders of BNI
Common Stock from a financial point of view.
THE FULL TEXT OF THE WRITTEN OPINION OF LAZARD DATED THE DATE OF THIS JOINT
PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS
CONSIDERED AND THE REVIEW UNDERTAKEN WITH REGARD TO SUCH OPINION, IS ATTACHED
AS APPENDIX C TO THIS JOINT PROXY STATEMENT/PROSPECTUS. BNI STOCKHOLDERS ARE
URGED TO, AND SHOULD, READ THE OPINION CAREFULLY AND IN ITS ENTIRETY. LAZARD'S
OPINION IS DIRECTED ONLY TO THE EXCHANGE RATIO AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER OF BNI AS TO HOW SUCH STOCKHOLDER SHOULD VOTE
AT THE SPECIAL MEETING OF STOCKHOLDERS OF BNI. THE SUMMARY OF THE OPINION OF
LAZARD SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In rendering its opinions, Lazard, among other things: (i) reviewed the terms
and conditions of the Merger Agreement; (ii) analyzed certain historical
business and financial information relating to BNI and SFP, including the
Annual Reports to Stockholders and Annual Reports on Form 10-K of BNI and SFP
for each of the fiscal years ended December 31, 1989 through 1993 (and any
amendments thereto), and Quarterly Reports on Form 10-Q of BNI and SFP for the
quarters ended March 31, June 30 and September 30 for each of the same fiscal
years and for the quarters ended March 31 and, solely with respect to its
opinion dated the date hereof, June 30, 1994 (and any amendments thereto);
(iii) solely with respect to its opinion dated the date hereof, certain Current
Reports on Form 8-K of BNI and SFP; (iv) reviewed certain financial forecasts
and other data provided to Lazard by BNI and SFP relating to their respective
businesses; (v) held discussions with members of the senior management of BNI
and SFP with respect to the businesses and prospects of BNI and SFP,
respectively, the strategic objectives of each, and possible benefits that
might be realized following the Merger; (vi) reviewed public information with
respect to certain other companies in
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lines of businesses Lazard believed to be comparable to the businesses of BNI
and SFP; (vii) reviewed the financial terms of certain recent business
combinations involving companies in lines of businesses Lazard believed to be
comparable to those of BNI and SFP, and in other industries generally; (viii)
analyzed the pro forma financial impact of the Merger on BNI and SFP; (ix)
reviewed the historical stock prices and trading volumes of the BNI Common
Stock and SFP Common Stock; and (x) conducted such other financial studies,
analyses and investigations as Lazard deemed appropriate. In addition, solely
with respect to its opinion dated the date hereof, Lazard also reviewed this
Joint Proxy Statement/Prospectus.
In connection with its review, Lazard relied upon the accuracy and
completeness of the financial and other information provided by BNI and SFP to
it and did not undertake any independent verification of such information or
any independent valuation or appraisal of any of the assets of BNI or SFP. With
respect to the financial forecasts, Lazard assumed that they had been
reasonably prepared on bases reflecting the best then currently available
estimates and judgments of the respective managements of BNI and SFP as to the
future financial performance of their businesses. Further, Lazard assumed that
obtaining the necessary regulatory and governmental approvals for the Merger,
including approval of the ICC, may significantly delay the consummation of the
Merger, and that, in the course of obtaining such approvals, no restriction
will be imposed that will have a material adverse effect on the contemplated
benefits of the Merger to BNI. Lazard's opinions stated that they were also
based on economic, monetary, market and other conditions as in effect on, and
the information made available to Lazard as of, the dates of such opinions.
The following is a brief summary of the analyses performed by Lazard in
connection with rendering its June 29, 1994 opinion and discussed with BNI's
Board of Directors at its meeting on June 29, 1994.
Relative Contribution Analysis. Lazard analyzed the pro forma contributions
from each of BNI and SFP to the combined company if the Merger were to be
consummated as set forth in the Merger Agreement. Among the various income and
cash flow statement items analyzed were the relative contribution to the pro
forma company of each of BNI's and SFP's revenues, earnings before interest,
taxes, depreciation and amortization ("EBITDA") and net income available to
common stockholders for the years ended December 31, 1993 and 1994 (projected).
The 1994 projections were based on estimates of each of BNI's and SFP's
managements. In addition, SFP's financial information was adjusted throughout
Lazard's analyses to reflect the Gold Spinoff, which was assumed to be
consummated on September 30, 1994. (For these purposes, Lazard defined the rail
and pipeline businesses of SFP as "SFP Rail" and used such definition
throughout its analyses to refer to the entity which would be remaining
following the Gold Spinoff.) The relative contribution analysis showed that BNI
would contribute between 64.5% and 66.2% of the revenues, between 66.7% and
67.6% of the EBITDA and between 69.3% and 72.8% of the net income available to
common stockholders to the combined company, before taking into account any of
the possible benefits that may be realized following the Merger. Lazard
observed that SFP Rail's net income available to common stockholders was
reduced by various non-operating factors, including the relatively high
interest rate on certain of its debt. These contribution ratios may be compared
with the projected pro forma fully diluted ownership interest of 65.8% that BNI
stockholders would receive if the Merger were to be consummated.
Reconciliation of Theoretical SFP Rail Trading Value. Lazard analyzed the
theoretical trading value of SFP Rail reflected in the then current trading
value of SFP Common Stock based on the trading values of SFP Common Stock and
SFP Gold common stock. Lazard explained that, based on the number of shares of
SFP Common Stock outstanding and the number of shares of SFP Gold common stock
held by SFP and the fact that SFP had publicly stated its intention to
consummate the Gold Spinoff, each share of SFP Common Stock theoretically
contained approximately 0.6 of a share of SFP Gold common stock. This
methodology suggested the theoretical trading value of SFP Rail of $12.43 and
$12.05 based on closing prices of SFP Common Stock and SFP Gold common stock as
of June 27 and 29, 1994, respectively. These values were used in connection
with certain of the analyses described below.
Comparable Publicly Traded Company Analysis. Lazard analyzed certain
financial and stock market data for SFP Rail based on the theoretical trading
value of SFP Rail as described above and SFP Rail's historical and projected
financial information provided by SFP's management. Lazard then compared the
results
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calculated for SFP Rail with that of selected publicly traded Class I railroad
holding companies that have operations primarily in the western part of the
United States, including BNI, Southern Pacific Rail Corporation ("Southern
Pacific"), and Union Pacific Corporation ("Union Pacific"). In performing these
comparisons, Lazard made certain adjustments with respect to the estimated net
present value of the cash proceeds from expected sales of excess real estate of
Southern Pacific. This analysis was performed in order to examine whether the
theoretical SFP Rail trading value described in the immediately preceding
analysis appeared to reasonably reflect SFP Rail's operations and its future
prospects in a manner consistent with such other publicly traded railroad
holding companies. Although Lazard calculated various financial ratios, it
focused on and discussed with BNI's Board of Directors the relationship of
market price to earnings per share estimates for 1994 and 1995 which, for SFP
Rail were 14.6x and 12.4x, respectively, as of June 27, 1994. Earnings per
share estimates for the comparable companies, including that for BNI for the
purposes of this comparable company analysis, were based on Institutional
Brokers Estimate System ("IBES") estimates as of June 23, 1994. IBES is a data
service that monitors and publishes a compilation of earnings estimates
produced by selected research analysts regarding companies of interest to
institutional investors. This analysis showed that as of June 27, 1994, BNI
traded at 11.8x and 9.9x forecasted earnings per share for 1994 and 1995,
respectively, Southern Pacific at 18.7x and 12.6x forecasted earnings per share
for 1994 and 1995, respectively, after taking into account the real estate
related adjustments described above, and Union Pacific at 13.3x and 11.8x
forecasted earnings per share for 1994 and 1995, respectively. Lazard noted
that these multiples, if calculated based upon closing prices of June 29, 1994,
would not change materially.
Comparable Transaction Analysis. Lazard reviewed certain financial aspects of
selected mergers and acquisitions transactions in the U.S. railroad industry,
including Kansas City Southern Industries' acquisition of MidSouth Corporation,
the acquisition of CNW Corporation by an investor group led by Blackstone
Capital Partners, Prospect Group's acquisition of Illinois Central
Transportation Corporation, Rio Grande Industries' acquisition of Southern
Pacific Transportation Company, Union Pacific's acquisition of Missouri-Kansas-
Texas Railroad Company, Anschutz Corporation's acquisition of Rio Grande
Industries, and Union Pacific's acquisition of Missouri Pacific (collectively,
the "Comparable Transactions"). Of the Comparable Transactions listed above,
Lazard noted that the first three transactions (involving MidSouth, CNW and
Illinois Central as the acquired companies) were announced within the past six
years (collectively, the "Recent Comparable Transactions"). Among the ratios
reviewed by Lazard were the equity purchase prices as a multiple of, among
other things, historical net earnings, and the transaction values as a multiple
of, among other things, historical EBITDA and earnings before interest and
taxes ("EBIT"). The historical net earnings multiples of the Comparable
Transactions and Recent Comparable Transactions ranged from 6.5x to 33.2x and
18.5x to 24.1x, respectively. The historical EBITDA multiples of the Comparable
Transactions and Recent Comparable Transactions ranged from 4.0x to 10.3x and
6.2x to 9.2x, respectively. The historical EBIT multiples of the Comparable
Transactions and Recent Comparable Transactions ranged from 6.7x to 20.3x and
12.1x to 12.3x, respectively. These multiples may be compared with the SFP Rail
multiples of 18.7x historical net earnings, 7.1x historical EBITDA and 10.8x
historical EBIT, in each case implied by the closing price of BNI Common Stock
as of June 27, 1994, and the Exchange Ratio. Lazard noted that these multiples,
if calculated based upon closing price of June 29, 1994, would not change
materially.
In addition, Lazard analyzed the premiums paid over the pre-announcement
share price for each of the Comparable Transactions and for certain selected
recently announced stock-for-stock mergers in industries other than railroads,
including the mergers between Columbia Healthcare and Medical Care America,
Adobe Systems and Aldus Corp., United Healthcare and Ramsay HMO, BankAmerica
and Continental Bank, Mellon Bank and Dreyfus, Bell Atlantic and Tele-
Communications (which was subsequently canceled), Columbia Healthcare and HCA-
Hospital Corp. of America, Society Corp. and KeyCorp., Mattel Inc. and Fisher-
Price, AT&T and McCaw Cellular, and Merck and Medco Containment (collectively,
the "Recent Large Stock Swaps"). The premiums paid ranged from 6.4% to 90.7% in
the Comparable Transactions, from 63.3% to 90.7% in the Recent Comparable
Transactions and from -0.9% to 75.8% in the Recent Large Stock Swaps. Lazard
noted that, of the Recent Large Stock Swaps, if the merger between Society
Corp. and KeyCorp. were to be excluded, the range would be from 20.2% to 75.8%.
These premiums may be compared with the implied SFP Rail premium of
approximately 16.5% based upon closing prices of June 27, 1994.
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Lazard noted that the implied premium, if calculated based upon closing prices
of June 29, 1994, would be approximately 19.9%.
No company or transaction used in the comparable analyses is identical to SFP
Rail or the Merger. Accordingly, an analysis of the results of the foregoing is
not entirely mathematical; rather it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the comparable companies and mergers and acquisitions transactions and other
factors that could affect the acquisition or public trading values of the
companies analyzed.
Pro Forma Merger Consequences Analysis. Lazard analyzed certain pro forma
effects of the Merger on the earnings and capitalization of the combined
company based on the projections provided by the managements of each of BNI and
SFP regarding the financial performance of BNI and SFP, respectively, as well
as the estimates by the management of BNI of the possible benefits (in the form
of cost savings and revenue enhancements) that might be realized following the
Merger. The BNI management estimates of the possible benefits used by Lazard
were as follows: approximately $118 million benefit during the first year
following the Merger, approximately $241 million benefit during the second year
following the Merger and approximately $266 million benefit during the third
year following the Merger. Lazard expressed no view on whether these possible
benefits could be realized. In addition, Lazard assumed, after consultation
with BNI management, that the Merger, among other things, (i) would be
accounted for under the purchase method of accounting and (ii) would be
consummated on December 31, 1995, after obtaining the approval of the ICC.
Based on various assumptions including those described above, Lazard observed
that the Merger would result in the initial dilution in earnings per share of
approximately 7.0% in the first year after the Merger is consummated (which was
assumed to be 1996) from BNI's stockholders' point of view, after taking into
account the possible benefits anticipated by BNI management at that time to be
realized during such year. Lazard further observed that the Merger would
provide earnings per share accretion of approximately 4.8% and 9.8% in 1997 and
1998, respectively, from BNI's stockholders' point of view, after taking into
account the possible benefits anticipated to be realized during such years. In
addition, Lazard analyzed certain pro forma credit statistics of the combined
company and observed that the credit statistics of the combined company would
either slightly improve or remain largely unchanged compared with those of BNI
on a stand-alone basis.
Other Factors and Analyses. In rendering its opinions, Lazard considered
various other factors and conducted certain additional analyses, including,
among other things, a review of (i) the history of trading prices and volume
for BNI Common Stock and SFP Common Stock and the relationship between
movements of such securities and movements in the S&P Railroad Index and the
S&P Industrials Index and (ii) the recent developments concerning the initial
public offering of shares of SFP Gold common stock and the Gold Spinoff.
In connection with its opinion dated the date of this Joint Proxy
Statement/Prospectus, Lazard confirmed the appropriateness of its reliance on
the analyses used to render its June 29, 1994 opinion by performing procedures
to update certain of such analyses and by reviewing the assumptions on which
such analyses were based and the factors considered in connection therewith.
With respect to updating the pro forma merger consequences analysis, Lazard
assumed, based upon the advice of the BNI management, that the Merger would be
accounted for under the pooling of interests method of accounting (instead of
the purchase method of accounting which was assumed in the same analysis in
connection with the June 29, 1994 opinion). Except for the change in the
accounting method, Lazard used the same set of projections and other
assumptions as used in the pro forma merger consequences analysis in connection
with the June 29, 1994 opinion. Based on the pooling of interests method of
accounting and without taking into account certain post-Merger restructuring-
related expenses which would be recognized as non-recurring charges, Lazard
observed that the Merger would result in the initial dilution in earnings per
share of approximately 1.6% in the first year after the Merger is consummated
(which was assumed to be 1996) from BNI's stockholders' point of view, after
taking into account the potential cost savings and operating efficiencies
anticipated at that time by BNI management to be realized during such year.
Lazard further observed that the Merger
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would provide earnings per share accretions of approximately 9.8% and 14.4% in
1997 and 1998, respectively, from BNI's stockholders' point of view, after
taking into account the potential cost savings and operating efficiencies
anticipated to be realized during such years. In addition, Lazard observed that
the credit statistics of the combined company under the pooling of interests
method of accounting would remain largely unchanged compared with those of BNI
on a stand-alone basis.
In arriving at its written opinions dated June 29, 1994 and the date of this
Joint Proxy Statement/Prospectus, and in discussing its June 29, 1994 opinion
with BNI's Board of Directors, Lazard performed various financial analyses,
portions of which are summarized above. The summary set forth above does not
purport to be a complete description of Lazard's analyses. Lazard believes that
its analyses must be considered as a whole and that selecting portions of its
analyses, without considering all analyses, could create an incomplete view of
the process underlying the opinion. In performing its analyses, Lazard made
numerous assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
BNI or SFP. The analyses performed by Lazard are not necessarily indicative of
actual values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Additionally, analyses relating to
the values of businesses do not purport to be appraisals or to reflect actual
market valuations or trading ranges, which may vary significantly from amounts
set forth above.
BNI retained Lazard to act as its exclusive financial advisor in connection
with the Merger and related matters based upon its qualifications, expertise,
and reputation in investment banking in general and mergers and acquisitions
specifically. Lazard is an internationally recognized investment banking firm
and is regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and for other purposes.
In consideration for Lazard's services in connection with the Merger, BNI has
agreed to pay Lazard fees as follows: (i) $1.5 million upon public announcement
of the Agreement, which has been paid; (ii) an additional fee of $3.0 million
upon receipt of the approvals of both BNI's and SFP's stockholders; and (iii)
an additional fee of $4.5 million upon consummation of the Merger. In addition,
BNI has agreed to reimburse Lazard for its out-of-pocket expenses and to
indemnify Lazard and its affiliates, and their respective partners, directors,
officers, employees, agents and controlling persons against certain expenses
and liabilities, including liabilities under the Federal securities laws.
Opinion of Goldman Sachs
Goldman Sachs delivered its oral opinion to the SFP Board of Directors on
June 29, 1994 that, as of the date of such opinion, the Exchange Ratio was fair
to the holders of SFP Common Stock. Goldman Sachs subsequently confirmed its
June 29, 1994 opinion by delivery of its written opinion, dated as of the date
hereof, that, as of the date hereof, the Exchange Ratio was fair to the holders
of SFP Common Stock.
THE FULL TEXT OF THE OPINION OF GOLDMAN SACHS DATED THE DATE HEREOF, WHICH
SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW
UNDERTAKEN, IS ATTACHED HERETO AS APPENDIX D TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. SUCH OPINION
STATES THAT GOLDMAN SACHS HAVE ASSUMED, WITH THE CONSENT OF THE SFP BOARD, THAT
IN ANALYZING THE EXCHANGE RATIO, GOLDMAN SACHS NEED NOT TAKE INTO ACCOUNT THE
CONSIDERATION WHICH MIGHT BE RECEIVED UNDER THE UPC PROPOSAL. STOCKHOLDERS OF
SFP ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Merger Agreement; (ii) the Joint Proxy Statement/Prospectus; (iii) the
Annual Reports to Stockholders and Annual Reports on Form 10-K of SFP and BNI
for the five years ended December 31, 1993 (and any amendments thereto);
(iv) certain interim reports to stockholders and Quarterly Reports on Form 10-Q
of SFP and BNI (and any amendments thereto); (v) certain other communications
from SFP and BNI to their respective stockholders; (vi) certain Current Reports
on Form 8-K of SFP and BNI; and (vii) certain internal financial analyses and
forecasts for SFP and BNI prepared by their respective managements. Goldman
Sachs also held discussions with members of the senior management of SFP and
BNI regarding the past and current business operations, financial condition,
and future prospects of their respective companies. Furthermore, Goldman Sachs
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considered the views of the senior management of SFP regarding the strategic
importance of, and potential synergies in the form of cost savings expected to
be realized from, the Merger. In addition, Goldman Sachs reviewed the reported
price and trading activity for the SFP Common Stock and the BNI Common Stock,
compared certain financial and stock market information for SFP and BNI with
similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the railroad industry specifically and in other industries
generally and performed such other studies and analyses as it considered
appropriate.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it for
purposes of its opinion. In addition, Goldman Sachs has not made an independent
evaluation or appraisal of the assets and liabilities of SFP or BNI or any of
their respective subsidiaries and Goldman Sachs has not been furnished with any
such evaluation or appraisal.
Set forth below is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its oral opinion to SFP's Board of
Directors on June 29, 1994. Goldman Sachs utilized substantially the same types
of financial analyses in preparing its written opinion dated the date hereof.
(i) Pro Forma Merger Analysis. Goldman Sachs prepared pro forma analyses
of the financial impact of the Merger relying on financial projections
prepared by the managements of SFP and BNI, respectively, and estimates
made at that time by senior management of SFP of the synergies in the form
of cost savings expected to be realized from the Merger of $150 million in
the first year after the Merger is consummated (which was assumed to be
1996) and $300 million in each of 1997 and 1998. Goldman Sachs compared the
earnings per share ("EPS") of BNI Common Stock on a stand alone basis to
the EPS of the common stock of the combined company on a pro forma basis.
Goldman Sachs also compared the EPS of SFP Common Stock on a stand alone
basis to the EPS of the common stock of the combined company on a pro forma
basis. Such analyses were prepared for the years 1996, 1997 and 1998 since
Goldman Sachs had assumed, after consulting with SFP management, that
approval of the ICC of the transaction might not be received until late
1995. Goldman Sachs further assumed that the Merger would be accounted for
using purchase accounting. These analyses showed that the Merger would
initially dilute the EPS of BNI by approximately 4.1% but thereafter
provide EPS accretion of approximately 7.2% and 7.9% in 1997 and 1998,
respectively, after taking into account the synergies in the form of cost
savings expected to be realized from the Merger in each year. Furthermore,
Goldman Sachs' analyses showed that from the point of view of SFP
stockholders the Merger would provide EPS accretion of approximately 38.3%,
42.1% and 35.2% for the years 1996, 1997 and 1998, respectively, after
taking into account the synergies in the form of cost savings expected to
be realized from the Merger in each year.
In addition, this analysis showed that SFP stockholders would receive an
additional $0.28 in dividends on a pro forma per share basis.
In connection with its written opinion, dated as of the date of this
Joint Proxy Statement/Prospectus, Goldman Sachs confirmed the
appropriateness of its reliance on the analyses used to render its June 29,
1994 oral opinion by updating certain of such analyses and by reviewing the
assumptions on which such analyses were based and the factors considered in
connection therewith. In updating the pro forma merger analysis, Goldman
Sachs assumed, based upon the advice of SFP management, that the Merger
would be accounted for as a pooling of interests (instead of being
accounted for using purchase accounting as was assumed in connection with
Goldman Sachs' June 29, 1994 oral opinion). With the exception of the
change in accounting method, Goldman Sachs used the same set of projections
and assumptions as had been used in its June 29, 1994 oral opinion. Such
revised pro forma merger analysis showed that the Merger, after taking into
account the synergies in the form of cost savings expected to be realized,
would result in the initial dilution of the EPS of BNI by approximately
0.3% in the first year after the Merger is consummated (which was assumed
to be 1996), but that thereafter the Merger would provide EPS accretion to
BNI stockholders of approximately 10.7% and 11.2% in 1997 and 1998,
respectively. Furthermore, Goldman Sachs' revised analyses showed that from
the view of SFP stockholders the Merger would provide EPS accretion of
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approximately 43.6% in the first year after the Merger is consummated
(which was assumed to be 1996) and that thereafter the Merger would provide
EPS accretion to SFP stockholders of approximately 46.7% and 39.2% in 1997
and 1998, respectively.
(ii) SFP Rail Stock Analysis. Goldman Sachs analyzed the indicated
trading value of SFP Rail reflected in the then current trading value of
SFP Common Stock based on estimated 1994 earnings per share for SFP Rail
and an appropriate price earnings ratio for SFP Rail taking into
consideration such ratios for the Selected Companies (as defined below).
This analysis indicated an estimated trading value of SFP Rail of
approximately $13.00 per share. Using this indicated price, Goldman Sachs
analyzed the premium to be received by holders of SFP Common Stock pursuant
to the Merger Agreement. This analysis showed that the price per share of
SFP Common Stock to be paid pursuant to the Merger Agreement represented a
premium of 12.2% based on an assumed price of $54.00 per share for BNI.
Based on a range of historical average prices of BNI Common Stock, this
analysis further showed that the price per share of SFP Common Stock to be
paid pursuant to the Merger Agreement represented a premium ranging from
12% to 24%. In addition, Goldman Sachs, as an alternative approach to
determining the premium received by SFP stockholders in the Merger,
analyzed the implied trading value of SFP Rail reflected in the then
current public trading value of SFP Common Stock and SFP Gold common stock.
This methodology suggested a trading value of SFP Rail of $11.87 based on
closing prices of SFP Common Stock and SFP Gold common stock (assuming a 1
for 1.7 share spin-off ratio) on June 28, 1994. Based on such implied
trading value and an assumed price of $54.00 per share for BNI Common
Stock, the price per share of SFP Common Stock to be paid pursuant to the
Merger Agreement represented a premium of 22.9%.
(iii) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information relating to SFP to corresponding financial
information, ratios and public market multiples for nine publicly traded
corporations: Consolidated Rail Corporation ("Conrail"), Chicago and North
Western Holdings Corp., CSX Corporation, Illinois Central Corporation,
Norfolk Southern Corporation, Southern Pacific Rail Corporation, Union
Pacific Corporation, Kansas City Southern Industries, Inc. and Canadian
Pacific Limited (the "Selected Companies"). The Selected Companies were
chosen because they are publicly-traded companies with operations that for
purposes of analysis may be considered similar to the operations of SFP.
This analysis showed, among other things, that the price earnings ratio
using estimated 1994 earnings (based on mean estimates from First Call as
of June 17, 1994) for the Selected Companies ranged from a low of 11.6 to a
high of 21.7, as compared to a ratio for SFP (including SFP Gold) of 17.0
and 11.7 for BNI and the price earnings ratio using estimated 1995 earnings
(based on mean estimates from First Call as of June 17, 1994) for the
Selected Companies ranged from a low of 10.0 to a high of 14.2, as compared
to a ratio for SFP of 14.4 (including SFP Gold) and 9.9 for BNI. First Call
is a data service which monitors and publishes a compilation of earnings
estimates produced by selected research analysts on companies of interest
to investors.
(iv) Contribution Analysis. Goldman Sachs reviewed certain historical and
estimated future operating and financial information (including, among
other things, revenue, EBITDA (defined below), operating income, net
income, operating cash flow and free cash flow) for SFP, BNI and the pro
forma combined entity resulting from the Merger based on SFP and BNI
managements' financial forecasts for each of SFP and BNI and the pro forma
combined entity. The analysis indicated that the SFP stockholders would
receive 34.5% of the outstanding common equity of the combined companies
after the Merger. Based on financial data provided to Goldman Sachs by SFP
and BNI managements, Goldman Sachs also analyzed the relative income
statement contribution of SFP and BNI to the combined companies on a pro
forma basis before taking into account any of the possible benefits that
may be realized following the Merger. This analysis indicated that for the
years 1994 through 1998, SFP would have contributed (i) 35.8%, 36.4%,
37.2%, 38.2% and 39.0%, respectively, to combined revenues; (ii) 33.6%,
33.2%, 33.7%, 34.5% and 35.2%, respectively, to combined earnings before
interest, taxes, and depreciation ("EBITDA"); (iii) 33.0%, 32.4%, 32.9%,
34.0% and 34.7%, respectively, to combined operating income before interest
and special charges; and (iv) 27.2%, 27.0%, 26.8%, 28.6% and 29.8%,
respectively, to combined net income (excluding extraordinary
gains/losses).
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(v) Historical Stock Trading Analysis. Goldman Sachs reviewed the
historical trading prices and volumes for the BNI Common Stock and the
relationship between movements of such common stock and movements in (i)
SFP Common Stock (including SFP Gold), (ii) the S&P 400, and a composite
index of certain railroad companies (the "Composite Index"). The Composite
Index is composed of the following companies: Burlington Northern Inc.,
Conrail, Chicago and North Western Holdings Corp., CSX Corporation,
Illinois Central Corporation, Norfolk Southern Corporation and Union
Pacific Corporation. This analysis showed that the SFP Common Stock
(including SFP Gold) outperformed the BNI Common Stock, the S&P 400 and the
Composite Index from the period of August 1, 1993 through June 1, 1994.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analysis as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is identical to SFP or
BNI or the contemplated transaction. The analyses were prepared solely for
purposes of Goldman Sachs' providing its opinion to the SFP Board of Directors
as to the fairness of the Exchange Ratio to the holders of SFP Common Stock and
do not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based upon forecasts of
future results are not necessarily indicative of actual future results, which
may be significantly more or less favorable than suggested by such analyses. As
described above, Goldman Sachs' opinion and presentation to the SFP Board of
Directors was one of many factors taken into consideration by the SFP Board of
Directors in making its determination to approve the Merger Agreement. The
foregoing summary does not purport to be a complete description of the analysis
performed by Goldman Sachs and is qualified by reference to the written opinion
of Goldman Sachs set forth in Appendix D hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with SFP, having performed various investment banking services for SFP
from time to time, including having acted as managing and co-managing
underwriter of public offerings of SFP Common Stock in October 1991 and June
1992, respectively, having acted as financial advisor on the asset exchange
between SFP and Hanson Natural Resources Company in June 1993, having acted as
managing underwriter of a public offering of common stock of SFP Gold in June
1994, and having acted as SFP's financial advisor in connection with, and
having participated in certain of the negotiations leading to, the Merger
Agreement. Goldman Sachs has also provided certain investment banking services
to BNI from time to time, including acting as co-managing underwriter of a
public offering of BNI Common Stock in November 1991, acting as managing
underwriter of a public offering of 6 1/4% Cumulative Convertible Preferred
Stock, Series A No Par Value in November 1992 and acting as a co-managing
underwriter in a public offering of 7 1/2% Debentures due 2002 in July 1993,
and may provide investment banking services to BNI in the future. SFP selected
Goldman Sachs as its financial advisor because it is a nationally recognized
investment banking firm that has substantial experience in transactions similar
to the Merger.
Pursuant to a letter agreement dated October 21, 1993 (the "Engagement
Letter"), SFP engaged Goldman Sachs to act as its financial advisor in
connection with the possible merger with, or sale of stock or assets to, BNI.
Pursuant to the terms of the Engagement Letter, if the merger with, or sale of
stock or assets to, BNI is accomplished in one or a series of transactions, SFP
will pay Goldman Sachs upon consummation of the Merger a transaction fee of
0.45% of the aggregate consideration paid in such transaction or series of
transactions, with a maximum transaction fee of $15 million. As part of this
fee, SFP will pay Goldman Sachs $5 million upon approval of the transaction by
the stockholders of SFP and BNI (which will be credited towards the total
transaction fee). SFP has agreed to reimburse Goldman Sachs for its reasonable
out-of-pocket expenses, including attorney's fees, and to indemnify Goldman
Sachs against certain liabilities, including certain liabilities under the
Federal securities laws.
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MERGER CONSIDERATION
Pursuant to the Merger Agreement, each share of SFP Common Stock outstanding
immediately prior to the Effective Time (as defined below) and not held by SFP
as treasury stock or owned by BNI or any of its subsidiaries, will be
converted into the right to receive 0.27 shares of BNI Common Stock, with cash
being paid in lieu of fractional shares of BNI Common Stock. To the extent BNI
Rights are then outstanding, each share of BNI Common Stock issued in the
Merger will be accompanied by one BNI Right, which will be evidenced by the
certificate of BNI Common Stock issued in the Merger. The shares of BNI Common
Stock, together with the associated BNI Rights, if then outstanding, are
referred to as the "Merger Consideration." Shares of SFP Common Stock held by
SFP as treasury stock or owned by BNI or any of its subsidiaries immediately
prior to the Effective Time will be canceled, and no payment will be made with
respect thereto. See "The Merger Agreement--The Merger."
EFFECTIVE TIME
The Merger will become effective upon the filing of a certificate of merger
with, and acceptance by, 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"). At the Effective Time, the separate existence of SFP will cease, and
BNI will continue as the surviving corporation. The filing of a certificate of
merger will occur promptly after the satisfaction or waiver of all conditions
to BNI's and SFP's obligation to effect the Merger. The Merger Agreement
provides that either party may terminate the Agreement if the Merger is not
consummated by December 31, 1997.
The approval of the ICC is required to consummate the Merger. Under existing
law, the ICC is required to enter a final order with respect to the Merger
within 31 months after the application for such approval is filed by BNI and
SFP. On October 5, 1994, the ICC served an order establishing a schedule that
would result in a final ICC decision within 535 days from the filing of the
application. The parties are filing the application on October 13, 1994. There
can be no assurance that the ICC will issue a decision any sooner than the 31-
month period permitted the ICC by law. An ICC approval order may be appealed
by certain persons and the effectiveness of the order might be stayed by the
ICC or by an appellate court while such an appeal is pending. Any appeals from
the ICC order might not be resolved for a substantial period of time after the
entry of the order by the ICC. ICC approval is not automatically stayed if a
party seeks judicial review of the decision; however, it is possible that the
approval could be stayed by the ICC or a reviewing court. If the approval is
stayed, consummation of the Merger would be delayed. Consummation of the
Merger, which will occur after stockholder approval, receipt of required
regulatory approvals and satisfaction or waiver of all of the other conditions
set forth in the Merger Agreement, may not occur for two or more years in the
future. See "Other Matters--ICC Approval."
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; DIVIDENDS; NO
FRACTIONAL SHARES
Upon consummation of the Merger, each share of SFP Common Stock outstanding
immediately prior to the Effective Date (other than shares of SFP Common Stock
owned by SFP as treasury stock or owned by BNI or any subsidiary of BNI
immediately prior to the Effective Time, all of which will be canceled) will
be converted into the right to receive 0.27 shares of BNI Common Stock, and
will cease to be outstanding. As of October 10, 1994, the value of 0.27 shares
of BNI Common Stock was $13.03 based on the closing price of BNI Common Stock
on the NYSE on such date. Based upon the shares outstanding of BNI and SFP as
of October 10, 1994 and the Exchange Ratio, it is expected that the
stockholders of SFP immediately prior to the consummation of the Merger will
own approximately 36.1% of the outstanding shares of BNI Common Stock
immediately after the consummation of the Merger.
If any holder of shares of SFP Common Stock would be entitled to receive a
number of shares of BNI Common Stock that includes a fraction, then, in lieu
of a fractional share, such holder will be entitled to receive a cash payment
representing such holder's proportionate interest in the net proceeds from the
sale by
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an agent appointed by BNI and reasonably satisfactory to SFP (the "Exchange
Agent") in one or more transactions (made at such times, in such manner and on
such terms as the Exchange Agent will determine in its reasonable discretion)
on behalf of all holders of the aggregate of fractional shares of BNI Common
Stock which would otherwise have been issued. The sale of such aggregate of
fractional shares of BNI Common Stock by the Exchange Agent will be executed
on the NYSE through one or more member firms of the NYSE and will be executed
in round lots to the extent possible.
At the Effective Time, BNI will deposit with the Exchange Agent certificates
representing the aggregate Merger Consideration to be paid in respect of
shares of SFP Common Stock. Promptly after the Effective Time, BNI will send,
or will cause the Exchange Agent to send, to each holder of record of SFP
Common Stock a letter of transmittal to be used in forwarding his or her
certificates evidencing such shares of SFP Common Stock to the Exchange Agent
for surrender and exchange for certificates evidencing the Merger
Consideration to which he or she has become entitled and, if applicable, cash
in lieu of a fractional share of BNI Common Stock. Such letter of transmittal
will specify that the delivery shall be effected, and the risk of loss and
title shall pass, only upon proper delivery to the Exchange Agent of the
certificates representing such holder's shares of SFP Common Stock. Upon
surrender to the Exchange Agent of a certificate or certificates representing
a holder's shares of SFP Common Stock, such holder will be entitled to receive
the Merger Consideration and, if applicable, cash in lieu of a fractional
share of BNI Common Stock in respect thereof.
Any portion of the Merger Consideration deposited with the Exchange Agent
and any portion of the net proceeds from the sale of the aggregate of
fractional shares by the Exchange Agent that remains unclaimed for a period of
twelve months after the Effective Time by the stockholders of SFP will, upon
demand, be returned to BNI, and any such holder who has not exchanged his
shares of SFP Common Stock for the Merger Consideration after such period will
thereafter only look to BNI for his or her claim for BNI Common Stock, any
cash in lieu of fractional shares of BNI Common Stock and any dividends or
distributions in respect of BNI Common Stock, subject to applicable abandoned
property laws.
After the Effective Time, each certificate evidencing shares of SFP Common
Stock, until so surrendered and exchanged, will be deemed, for all purposes,
to evidence only the right to receive the Merger Consideration which the
holder of such certificate is entitled to receive and the right to receive any
cash payment in lieu of a fractional share of BNI Common Stock. The holder of
such unexchanged certificate will not be entitled to receive any dividends or
other distributions until such certificate is surrendered. 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 of
SFP Common Stock 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 of SFP
Common Stock that are payable on a date subsequent to, and the record date for
which occurs before, the Effective Time.
NAME OF SURVIVING ENTITY
Upon consummation of the Merger, BNI will change its name to Burlington
Northern Santa Fe Corporation.
NYSE LISTING
It is a condition to SFP's obligation to effect the Merger that the shares
of BNI Common Stock issuable pursuant to the Merger Agreement shall have been
approved for listing on the NYSE, subject to official notice of issuance.
EXPENSES
Except as otherwise agreed in writing by SFP and BNI, and except for
expenses in connection with the printing and mailing of this Joint Proxy
Statement/Prospectus and the related Registration Statement on Form S-4 and
experts hired jointly in connection with proceedings before the ICC, which
will be shared
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equally by BNI and SFP, each party shall bear its own expenses, including the
fees and expenses of any
attorneys, accountants, investment bankers, brokers, finders or other
intermediaries or other Persons engaged by it, incurred in connection with the
Merger Agreement and the transactions contemplated thereby.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Directors and Officers of the Merged Entity
The Merger Agreement provides that two-thirds of the initial members of the
board of directors of the merged company will be designated by BNI, and one-
third of the members of the board will be designated by SFP. Further, the
parties have agreed that Mr. Gerald Grinstein, Chairman and Chief Executive
Officer of BNI, will serve as Chairman of the merged company and Mr. Robert D.
Krebs, Chairman, President and Chief Executive Officer of SFP, will serve as
President and Chief Executive Officer of the merged company. Other senior
officers of the merged entity will be selected by the merged entity's board of
directors based upon, among other things, the recommendations of Mr. Grinstein
and Mr. Krebs.
SFP
Directors and Officers Generally. Officers and directors of SFP owning SFP
Common Stock will receive the same consideration in the Merger as other SFP
stockholders. In the Merger Agreement, BNI has agreed that it will indemnify
and hold harmless each person who is, or has been at any time prior to the
date of the Merger Agreement, 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 the Merger 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 of the Merger Agreement or (B) indemnity agreements that
may be entered into by SFP from and after the date of the Merger Agreement 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 of the Merger Agreement; 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 will 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 the Merger Agreement, covering each such officer or director
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 of the Merger Agreement, provided that, in
satisfying such obligation, BNI will not be obligated to pay premiums in
excess of 200% of the amount per annum SFP paid in 1993, but provided further
that BNI will nevertheless be obligated to provide such coverage as may be
obtained for such amount.
Severance Agreements. SFP has entered into thirty-one severance agreements,
including individual executive severance agreements with each of Carol
Beerbaum, Russell Hagberg, Thomas Hund, Steven Marlier, Donald McInnes,
Jeffrey Moreland, Marsha Morgan, Patrick Ottensmeyer, Denis Springer, Daniel
Westerbeck and Catherine Westphal. Such individuals are not eligible for
duplicate salary replacement benefits under both the individual agreements and
The Atchison, Topeka and Santa Fe Railway Company Severance Program (the "ATSF
Severance Program") discussed below. Stockholder approval of the Merger will
constitute a "change in control" for purposes of the individual agreements.
The agreements generally provide that if the executive's employment is
terminated (for any reason other than disability, death or termination by SFP
for cause) or if the executive terminates his or her employment as the result
of certain specified actions taken by SFP or its successors, after a change in
control and prior to the expiration of the agreement, the executive will be
entitled to certain severance benefits. The agreements will expire on the
latest of (a) 36 months after the change in control, (b) the effective date of
ICC approval of the Merger or, if later, the first anniversary of the
consummation of the Merger (or if SFP determines that it will not consummate
the Merger, the date of that determination), or (c) the date on which the ICC
determines that it will not approve the Merger.
The maximum severance benefits to which the executives will be entitled
under the individual agreements (assuming the conditions described in the
preceding paragraph are met) are: (i) payment of full base salary through the
date of termination, all amounts otherwise due the executive under the terms
of any SFP
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compensation plan and, at the executive's election, a lump sum payment of
amounts deferred (and earnings thereon) under the Santa Fe Pacific Supplemental
Retirement and Savings Plan (or any similar plan), (ii) severance payments
equal to, as elected by the executive, the sum of (A) 200% of the executive's
annual salary or the amount of salary replacement payments the executive would
otherwise receive under the ATSF Severance Program, and (B) 200% of the maximum
incentive award payable to the executive under the Annual Incentive
Compensation Plan of SFP (or its affiliates) for the year in which the
executive's employment terminates, and in either case, if the executive
terminates for certain specified reasons, an additional payment necessary to
provide such benefits on an after-tax basis, (iii) payment of outstanding
performance awards, calculated as though all relevant performance goals have
been met, (iv) a cash payment in settlement of all outstanding stock options,
which options will be canceled, (v) payment of all legal fees incurred by the
executive as a result of his termination, (vi) continuing life, disability,
accident and group health insurance benefits for a period of 24 months after
termination of employment, and (vii) payment of outplacement services for a
period of twelve months following termination.
Certain limitations apply to the amount of benefits payable under the
agreements. In particular, exercisability of options and rights shall not be
accelerated and no payment or benefit shall be accelerated under agreements to
the extent that such acceleration of exercisability, payment or benefit, when
aggregated with other payments or benefits to the affected individual, would
result in "excess parachute payments" equal to or greater than three times the
"base amount" (as defined in section 280G of the Code). The term "excess
parachute payments" for purposes of the agreements means "parachute payments"
(as defined in section 280G of the Code) other than (i) health and life
insurance benefits, and (ii) payments attributable to any award, benefit or
other compensation plan or program based upon the number of full or fractional
months of any restricted period relating thereto which has elapsed prior to the
date of the change in control. In addition, payments or benefits under the
agreements shall be reduced to the extent necessary so that no portion thereof
shall be subject to the excise tax imposed by section 4999 of the Code, but
only if, by reason of such reduction, the executive's net after-tax benefits
(as defined under the SFP Long Term Incentive Stock Plan (the "Incentive
Plan")) shall exceed the net after-tax benefit if such reduction were not made.
SFP Pipelines has entered into an individual executive severance agreement
with Mr. Toole. Mr. Toole is not eligible for duplicate salary replacement
benefits under both the individual agreement and the Santa Fe Pacific
Pipelines, Inc. Severance Program (the "Pipelines Severance Program").
Stockholder approval of the Merger will constitute a "change in control" for
purposes of Mr. Toole's agreement. That agreement generally provides for the
same benefits as the individual severance agreements previously described. Mr.
Toole's agreement, however, will expire 24 months after the change in control.
In addition, the maximum severance payments payable to Mr. Toole under his
agreement are equal to, as elected by the executive, the sum of (A) two times
his annual salary or the amount of salary replacement payments the executive
would otherwise receive under the Pipelines Severance Program, (B) the maximum
incentive award payable to the executive under the Annual Incentive
Compensation Plan of SFP Pipelines for the year in which Mr. Toole's employment
terminates and (C) a cash payment attributable to the cash out of Partnership
phantom units.
The Pipelines Severance Program must remain in effect for a period of at
least 24 months following a change in control. Stockholder approval of the
Merger will constitute a "change in control" for purposes of the Pipelines
Severance Program. The executive officers of SFP other than Mr. Toole are not
eligible for benefits under the Pipelines Severance Program. Mr. Toole,
however, may elect salary replacement benefits under the Pipelines Severance
Program in lieu of those provided under his individual severance agreement. The
applicable benefits under the Pipelines Severance Program are generally the
same as those provided under the ATSF Severance Program.
If payments under the individual agreements are triggered following a change
in control, the estimated amounts (based on current compensation levels and
assuming terminations occurring during 1994) payable to SFP's five most highly
compensated executive officers (including Mr. Krebs, who does not have an
individual severance agreement) are as follows: Mr. Springer, $1,664,188; Mr.
McInnes, $1,239,377; Mr. Marlier, $914,483; and Mr. Hagberg, $1,517,895. The
estimated amounts (based on current compensation levels) payable to SFP's other
executive officers in such circumstances range from $251,977 to
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$1,177,975, and the aggregate amount that would be paid to all of SFP's
executive officers in such circumstances would be approximately $11,463,857. In
addition, each SFP executive officer would receive non-cash and non-stock
benefits of approximately $42,000. As of October 1, 1994, there are thirteen
SFP executive officers. The foregoing information (i) includes certain bonus
payments to be made in respect of restricted stock (calculated without giving
effect to the limitations relating to section 280G of the Code described above)
and (ii) does not include the value of stock options or restricted stock
discussed below.
SFP and its subsidiaries maintain the ATSF Severance Program for all full-
time salaried employees, including Mr. Krebs, who are terminated by their
respective companies other than for cause as defined in the severance programs.
A participant is generally entitled to an amount up to one year's pay based
upon a participant's age, length of service and current salary, or in certain
circumstances, supplemental payments provided that the aggregate does not
exceed two years' pay. The ATSF Severance Program further provides that in the
event of a change in control (which is similar to the definition used in the
individual agreements), the program will be maintained for a 24-month period.
Benefits under the ATSF Severance Program will not be paid if a participant
received payments under individual agreements. Upon a covered termination
occurring in 1994, Mr. Krebs would be entitled to a cash payment of
approximately $760,000 and non-cash benefits with a value of approximately
$42,000.
SFP executives who have individual severance agreements with SFP may elect to
receive salary replacement payments under the ATSF Severance Program instead of
the severance payments provided by their individual severance agreements. The
amounts payable under the ATSF Severance Program are less than the amounts
payable under the individual severance agreements. The applicable salary
replacement benefits under the ATSF Severance Program generally are based on
the executive's benefit under the SFP Retirement Plan (as defined below).
Because Mr. Krebs does not have an individual severance agreement, his only
source of severance payments would be the ATSF Severance Program.
If the Santa Fe Pacific Retirement Plan (the "SFP Retirement Plan") is
terminated within three years following a "change in control," any assets
remaining after satisfaction of all benefit liabilities to participants will be
applied (to the extent permitted under applicable law) to the payment of
retiree medical and life insurance benefits payable to participants and their
beneficiaries. Any assets still remaining would be used to increase the
retirement benefits payable to participants and their beneficiaries (to the
extent permitted under applicable law). For purposes of the SFP Retirement
Plan, stockholder approval of the Merger will not constitute a change in
control. A subsequent change in the composition of the Board of Directors as a
result of the Merger (as discussed above), however, may constitute a "change in
control" for purposes of the plan.
Stock Options and Other Stock-Based Awards. Stockholder approval of the
Merger by the SFP stockholders will constitute a "change in control"
accelerating the vesting of or lapse of restrictions, restricted periods and
performance periods applicable to most outstanding stock options, restricted
stock awards, stock appreciation rights, performance units, performance shares
and limited stock appreciation rights under the Incentive Plan and the SFP
Incentive Stock Compensation Plan (collectively, the "Stock Plans").
Acceleration of awards under the Stock Plans are subject to the same
limitations relating to section 280G of the Code as apply with respect to
payments under the severance agreements.
The following indicates the number of shares of restricted stock awarded to
SFP's five most highly compensated executive officers, and the approximate
value thereof (determined using a stock price of $13.00 per SFP share trading
on a when issued basis as of September 15, 1994) with respect to which vesting
will be accelerated upon stockholder approval of the Merger: Mr. Krebs, 36,920
($479,960), Mr. Springer, 13,841 ($179,933), Mr. Marlier, 10,222 ($132,886),
Mr. McInnes, 10,619 ($138,047), and Mr. Hagberg, 10,829 ($140,777). The
aggregate number of shares awarded to all of SFP's executive officers which
will vest upon stockholder approval of the Merger is 137,666 shares, which have
an aggregate value of approximately $1,789,658 (determined based on a stock
price of $13.00 per SFP share trading on a when issued basis as of September
15, 1994). With respect to executive officers, no other benefits under the
stock plans will be accelerated upon stockholder approval of the Merger (other
than stock options which are discussed below).
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Assuming that the Merger is approved by SFP stockholders in the fourth
quarter of 1994, the total amount of compensation expense that will be charged
to operations in the fourth quarter of 1994 due to accelerated vesting of
unearned compensation relating to restricted stock will be approximately $6
million.
The following indicates the number of options granted to the five most highly
compensated executive officers, and the approximate value thereof (assuming a
stock price of $22.50 per share as of September 15, 1994), which are unvested
as of September 30, 1994 and which would vest upon SFP stockholder approval of
the Merger: Mr. Krebs, 332,334 ($1,006,859), Mr. Springer, 50,000 ($268,000),
Mr. Marlier, 60,000 ($214,800), Mr. McInnes, 60,000 ($214,800), and Mr.
Hagberg, 41,063 ($217,319). The aggregate number of options granted to all SFP
executive officers which are unvested as of September 30, 1994 is 716,777 and
the aggregate value of such options (assuming a stock price of $22.50 per share
as of September 15, 1994) is approximately $2,808,544.
The foregoing information uses a price of $13.00 to value restricted stock
and $22.50 to value options. The $13.00 per share stock price used to value
restricted stock is intended to reflect the value of SFP Common Stock after the
distribution to stockholders on September 30, 1994 in connection with the Gold
Spinoff. The $22.50 per share stock price was used to value options because the
options following the Gold Spinoff will continue to retain the pre-Gold Spinoff
value (due to adjustments to the option price and number of shares subject to
the options).
BNI
Severance Arrangements. BNI has entered into certain change in control
severance agreements (the "Severance Agreements") with approximately seventy
employees of BNI and/or its subsidiaries, including all of its executive
officers other than Mr. Grinstein. These Severance Agreements provide for
certain severance benefits if the individual's employment with BNI is
terminated for certain reasons subsequent to a change in control of BNI. A
"change in control" takes place if (i) a person acquires 20% voting power of
BNI's stock, (ii) during any two-year period individuals who constitute the
Board of Directors at the beginning of such period cease to constitute a
majority thereof or (iii) BNI's stockholders approve a merger, consolidation or
sale of substantially all BNI's assets or a plan of liquidation or dissolution
of BNI. If the employment of a person covered by a Severance Agreement is
terminated during the period commencing on the date of the BNI stockholders'
approval of the Merger and ending on the second anniversary of the Effective
Time for reasons other than death or permanent disability, cause or mandatory
retirement or is terminated by the employee for Good Reason (as defined below),
then the employee shall be entitled to receive the following benefits: payments
of base compensation (annual salary rate and maximum bonus target) through the
date of termination and all amounts otherwise owed the executive under the
terms of any BNI compensation plan, three times the individual's base
compensation, an amount equal to the retirement benefits and BNI's Thrift and
Profit Sharing Plan employer contributions payable (assuming the individual
remained an employee for three more years or until mandatory retirement, both
based on base compensation increasing 8% per year), certain insurance benefits
for 18 months after termination, waiver of any restricted periods on, and the
vesting of, any outstanding awards of restricted stock or stock options, any
legal fees incurred in enforcing the Severance Agreement and payment of any
Federal excise taxes on certain amounts paid. For purposes of the Severance
Agreements, "Good Reason" means the occurrence of any of the following
circumstances: (a) the assignment of any duties inconsistent with and inferior
to those held immediately prior to the change in control; (b) a reduction in
the individual's base compensation; (c) the relocation of BNI's principal
executive offices to a location outside the Fort Worth, Texas Metropolitan
Area, requiring the individual to be based anywhere other than BNI's principal
executive offices or where the individual was located immediately prior to such
change in control; (d) the failure by BNI to pay to the individual any portion
of the individual's current or deferred compensation or other benefits when
due; (e) the failure by BNI to continue in effect any material compensation
plan in which the individual participated immediately prior to the change in
control or the failure by BNI to continue the individual's participation
therein on a basis not materially less favorable, as existed at the time of the
change in control of BNI; (f) the failure to continue to provide benefits at a
cost substantially similar to the cost of those enjoyed under any of BNI's life
insurance, medical, health and accident, or disability plans in which the
individual was participating at the
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time of the change in control of BNI, or the material reduction of such
benefits; (g) any purported termination of the individual's employment that is
not effected pursuant to the terms of the Severance Agreement; and (h) any
material breach by BNI of any provision of the Severance Agreement. Prior to a
change in control, the Severance Agreements impose no obligation on BNI to
retain an individual as an employee or to make payment of any of the benefits
mentioned therein.
Approval of the Merger by BNI stockholders will constitute a "change in
control" under the Severance Agreements. If payments under the Severance
Agreements are triggered following a "change in control," the estimated cash
amounts (based on current compensation levels and assuming termination
occurring during 1994) payable to BNI's five most highly compensated executive
officers (including Mr. Grinstein, who does not have a Severance Agreement) are
as follows: Mr. D.C. Anderson, $3,208,386; Mr. J.Q. Anderson, $2,602,826; Mr.
E.W. Burke, $2,669,638; and Mr. J.T. Chain, $2,873,989. The estimated cash
amounts (based on current compensation levels) payable to BNI's other executive
officers in such circumstances range from $795,169 to $2,494,772. The maximum
aggregate cash amount that could be paid pursuant to the Severance Agreements
to all executive officers of BNI (based on current compensation levels),
assuming all executive officers are terminated, in the circumstances outlined
above is approximately $33,672,291. In addition, each BNI executive officer
would receive non-cash benefits ranging from $11,000 to $15,000 with an
estimated non-cash total of up to $242,000. The foregoing information does not
include the value of stock options or other stock-based awards, which are
discussed below.
BNI anticipates that, subject to board approval, it will establish a
severance program for all full-time salaried employees of BNI and Burlington
Northern Railroad Company (the "Proposed Severance Program") who are terminated
by their respective companies other than for cause. The current proposal
contemplates that participants would be generally entitled to an amount up to
one year's salary based upon a participant's age, length of service and current
salary, or in certain circumstances, supplemental payments provided that the
aggregate would not exceed two years' salary. The Proposed Severance Program
would further provide that in the event of a change in control (which
definition would be similar to that used in the Severance Agreements) the
Proposed Severance Program would be maintained for a 24-month period. Benefits
under the Proposed Severance Program would not be paid if a participant
received payments under the Severance Agreements discussed above. Mr.
Grinstein, who does not have a Severance Agreement and who would accordingly be
entitled to participate in the Proposed Severance Program, has elected not to
be a participant.
Stock Options and Other Stock-Based Awards. Approval of the Merger by the BNI
stockholders will constitute a "change in control" accelerating the vesting of
or lapse of restrictions, restricted periods and performance periods applicable
to all outstanding stock options, restricted stock awards, stock appreciation
rights, performance units, performance shares and limited stock appreciation
rights under various stock-based plans for officers and directors and certain
other employees of BNI.
Vesting will be accelerated upon stockholder approval of the Merger with
respect to an aggregate of 294,281 shares of restricted BNI Common Stock with
an aggregate value of approximately $15,412,967 (determined based on a stock
price of $52.375 per share) awarded to the following five highest compensated
officers of BNI, all other executive officers of BNI and all other directors as
a group as of September 15, 1994: Mr. G. Grinstein, 67,816 ($3,551,863); Mr.
D.C. Anderson, 36,600 ($1,916,925); Mr. E.W. Burke, 23,866 ($1,249,982); Mr.
J.T. Chain, 23,832 ($1,248,201); Mr. J.Q. Anderson, 17,299 ($906,035); all
other executive officers as a group, 120,871 ($6,330,619); and all other
directors as a group, 3,997 ($209,343).
The following indicates the number of options granted to the five highest
compensated officers of BNI, all other executive officers of BNI as a group and
all other directors as a group with an approximate aggregate value of
$4,953,354 (assuming a stock price of $52.375 per share), which will vest early
upon stockholder approval of the Merger, as of September 15, 1994: Mr. G.
Grinstein, 135,868 ($1,940,476); Mr. D.C. Anderson, 28,085 ($108,603); Mr. E.W.
Burke, 36,908 ($482,742); Mr. J.T. Chain, 27,250 ($120,344); Mr. J.Q. Anderson,
19,975 ($120,844); all other executive officers as a group, 199,045
($2,180,346); and all other directors as a group, 8,000 ($0).
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Assuming that the Merger is approved by BNI stockholders in the fourth
quarter of 1994, the total amount of compensation expense that will be charged
to operations in the fourth quarter of 1994 due to the accelerated vesting of
unearned compensation relating to restricted stock will be approximately $25
million.
Employment Agreement with Certain Persons. Since the date of its most recent
Proxy Statement, BNI has entered into employment agreements with the following
executive officers:
Mr. Ronald A. Rittenmeyer is employed pursuant to an employment agreement
commencing April 22, 1994 and terminating on May 29, 1996, providing for a
minimum annual salary of $250,000 with further increases as determined by the
Board of Directors from time to time. In February 1995, Mr. Rittenmeyer will
receive a one-time lump sum bonus payment of a minimum of $160,000. Effective
January 1, 1995, he will become a regular participant in BNI's annual bonus
program. On Mr. Rittenmeyer's commencement date, he received an award of 7,800
shares of restricted stock under the Burlington Northern Inc. Restricted Stock
Incentive Plan and an initial award of 11,700 stock options under the
Burlington Northern Inc. Stock Option Incentive Plan, to vest in accordance
with said plans. If employed through the fifth anniversary of his employment,
or if his termination prior thereto was caused by death, permanent disability
or by BNI without cause, his pension benefits will be based upon his years of
service with BNI plus those with his prior employer, such benefits to be offset
by those received from his prior employer.
Mr. Gregory T. Swienton is employed pursuant to an employment agreement
commencing June 11, 1994 and terminating June 11, 1996, providing for a minimum
annual salary of $230,000 with further increases as determined by the Board of
Directors from time to time. In January 1995, Mr. Swienton will receive an
incentive bonus of a minimum of $68,000. Effective January 1, 1995, Mr.
Swienton will participate in BNI's annual bonus program. On Mr. Swienton's
commencement date, he was granted an award of 2,800 shares of restricted stock
under the Burlington Northern Inc. Restricted Stock Incentive Plan and 11,700
stock options under the Burlington Northern Inc. Stock Option Incentive Plan,
to vest in accordance with said plans.
Additional information relating to executive compensation and various benefit
arrangements of BNI and SFP is set forth in, and incorporated herein by
reference to, BNI's and SFP's respective Annual Reports on Form 10-K. See
"Available Information" and "Incorporation of Certain Documents by Reference."
ACCOUNTING TREATMENT
The Merger will be accounted for under the "pooling of interests" method of
accounting. Based on the most current information then available, at the time
of the execution of the Merger Agreement BNI and SFP evaluated the Merger
assuming that the "purchase" method of accounting would apply.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain material United States Federal income
tax consequences of the Merger to BNI, SFP and the SFP stockholders. The
summary is based upon the Internal Revenue Code of 1986, as amended to the date
hereof (the "Code"), administrative pronouncements, judicial decisions and
Treasury regulations, subsequent changes to any of which may affect the tax
consequences described herein. The summary only applies to holders that hold
shares of SFP Common Stock as capital assets and does not
address tax considerations which may affect the treatment of certain special
status taxpayers such as financial institutions, broker-dealers, life insurance
companies, tax-exempt organizations, investment companies, foreign taxpayers,
and persons who acquired SFP stock pursuant to employee stock options or plans.
SFP stockholders are urged to consult their own tax advisors as to the
particular United States Federal income tax consequences to them of the Merger
and as to the foreign, state, local and other tax consequences of the Merger.
The Merger has been structured to qualify as a tax-free reorganization under
section 368 of the Code. The obligation of either BNI or SFP to consummate the
Merger is conditioned on receipt of an opinion of nationally recognized tax
counsel that the Merger so qualifies. Assuming the Merger so qualifies, the
material tax consequences are as follows: (i) except with respect to cash
received in lieu of fractional shares, as
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discussed below, SFP stockholders will not recognize gain, income or loss upon
the receipt of shares of BNI Common Stock in exchange for their shares of SFP
Common Stock; (ii) no gain, income or loss will be recognized by BNI or SFP
pursuant to the Merger; (iii) the tax basis of the shares of BNI Common Stock
received by SFP stockholders will be the same as the tax basis of the shares of
SFP Common Stock exchanged therefor (as previously reduced pursuant to the Gold
Spinoff); (iv) the holding period of the shares of BNI Common Stock received by
SFP stockholders will be the same as the holding period of the shares of SFP
Common Stock surrendered therefor; and (v) the payment of cash in lieu of
fractional shares will be treated as if the fractional shares were received in
the Merger and then sold, with an SFP stockholder recognizing gain or loss to
the extent of the difference between the cash received and the basis of the
fractional share (as calculated pursuant to clause (iii) above).
MANAGEMENT AND DIRECTOR STOCK OPTIONS
SFP. As of October 10, 1994, there were 15,834,422 unexercised options
outstanding under various employee stock option plans of SFP to purchase shares
of SFP Common Stock at prices ranging from $2.61 to $14.29 per share. As of
that date, 10,538,916 options to purchase shares of SFP Common Stock were
exercisable and 5,295,506 options were not exercisable.
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 will be canceled and replaced by an
option (an "Adjusted BNI Option") to acquire BNI Common Stock. The number of
BNI shares subject to the Adjusted BNI Option shall be determined by applying
the Exchange Ratio to the number of SFP shares subject to the SFP Stock Option,
and the aggregate exercise price of the options shall remain the same. In
addition, each Adjusted BNI Option will provide the option holder with rights
and benefits that are no less favorable to such holder than were provided under
the SFP Stock Option for which it was substituted. At or as soon as practicable
after the Effective Time, BNI will issue to each holder of an SFP Stock Option
which is canceled an agreement that accurately reflects the terms of the
Adjusted BNI Option substituted therefor.
In addition, BNI will 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 Adjusted BNI Options after the Effective Time,
including: (i) as soon as practicable after the Effective Time filing with the
Commission a Registration Statement on Form S-8 and using its reasonable best
efforts to have such registration statement remain continuously effective under
the Securities Act and (ii) filing with the NYSE a listing application and
using its reasonable best efforts to have such shares admitted to trading
thereon upon exercises of Adjusted BNI Options. BNI will also use its
reasonable best efforts to ensure that all Adjusted BNI Options that are issued
in substitution for SFP Stock Options that were incentive stock options (within
the meaning of the Code) will qualify as such at all times after the Effective
Time.
BNI. BNI management and director stock options and other stock-based awards
that are outstanding at the Effective Time will remain in effect in accordance
with their terms.
See "The Merger--Interests of Certain Persons in the Merger" for information
concerning the vesting and acceleration of certain SFP and BNI stock options
and other stock-based awards upon SFP or BNI stockholder approval of the
Merger, as the case may be.
NO APPRAISAL RIGHTS
Under Delaware law, neither holders of BNI Common Stock nor holders of SFP
Common Stock are entitled to appraisal rights in connection with the Merger.
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RECENT DEVELOPMENTS
On October 5, 1994, Mr. Drew Lewis, the Chairman and Chief Executive Officer
of Union Pacific Corporation ("UPC"), called Mr. Robert D. Krebs, the Chairman,
President and Chief Executive Officer of SFP, and stated that UPC wished to
acquire SFP and that Mr. Lewis wanted to meet with Mr. Krebs. Mr. Lewis further
stated that he was going to call Mr. Gerald Grinstein, the Chairman and Chief
Executive Officer of BNI, to request a meeting with him as well. Mr. Krebs told
Mr. Lewis that SFP was already a party to a Merger Agreement, that it was
unlikely that the ICC would permit a merger between SFP and UPC, and that
therefore there was no reason to have a meeting. Mr. Lewis replied that UPC
intended to make public a proposal if no meeting occurred and urged that a
meeting be held. The two men then agreed that Mr. Krebs would consult his
counsel. After doing so, Mr. Krebs called Mr. Lewis back and agreed to a
meeting. During the conversations, Mr. Lewis told Mr. Krebs that UPC had looked
at Southern Pacific and at SFP, and had decided that SFP was the company to
break up. Mr. Lewis also stated that UPC would offer concessions to BNI to
persuade it to acquiesce to UPC's proposal.
Mr. Lewis then called Mr. Grinstein, stated that UPC wanted to acquire SFP
and asked to see Mr. Grinstein. Mr. Grinstein declined to see Mr. Lewis.
Mr. Lewis, Mr. Richard Davidson, President of UPC, Mr. Krebs, and Mr. Robert
A. Helman, SFP's counsel, had a meeting in the late afternoon of October 5. At
the meeting, Mr. Helman stated that SFP is subject to a binding Merger
Agreement and that it is unlikely that a UPC-SFP combination would be approved
by the ICC. Mr. Helman also stated that UPC had misled SFP because, earlier in
1994, when Mr. Krebs returned an unsolicited telephone call from Mr. Lewis, Mr.
Lewis had stated that if SFP made its deal with BNI, UPC would not oppose it.
Mr. Lewis denied having made that statement, contending that what he had
stated was that UPC would not oppose a BNI-SFP merger subject to an evaluation
of its merits. Mr. Lewis then placed a written proposal (the "UPC Proposal") on
Mr. Krebs' desk and, as Mr. Lewis was leaving, stated that Mr. Krebs was making
a mistake, that UPC would offer more--$20 per share--than the amount provided
for in the UPC Proposal, and that UPC would consider using a voting trust for
the proposed transaction. Mr. Lewis and Mr. Davidson then left SFP's
headquarters, where the meeting had taken place.
In the UPC Proposal, UPC proposed to acquire SFP in a tax-free merger in
which SFP stockholders would receive, for each share of SFP Common Stock, .344
of a share of UPC common stock, having a value of $18 per SFP share based on
the closing price on October 4, 1994 of UPC common stock. On October 10, 1994,
.344 of a share of UPC common stock (based on the closing price on that date)
had a value of $17.24.
The transaction contemplated in the UPC Proposal is subject to ICC approval,
the termination of the BNI-SFP Merger Agreement, execution of a definitive
agreement and the approval of the Board of Directors and the stockholders of
both SFP and UPC. The UPC Proposal is also conditioned upon the satisfactory
completion of a due diligence review of SFP. UPC offered to facilitate an SFP
due diligence review of UPC.
The UPC Proposal stated that UPC is prepared to grant conditions to Southern
Pacific, BNI or other railroads, including access to points that would
otherwise change from two serving railroads to one, rights to handle service-
sensitive business moving between California, Chicago and the Midwest, and
access to the Kansas and Oklahoma grain markets. The UPC Proposal further
stated that UPC envisions that certain members of the SFP Board would be
invited to serve on UPC's Board. The UPC Proposal further stated that UPC was
prepared to immediately commence negotiation of a definitive merger agreement
containing mutually agreeable terms and conditions.
The SFP Board met to consider the UPC Proposal on October 5 and October 6,
1994. At those meetings, counsel for SFP explained that SFP's directors did not
have the right to terminate the Merger Agreement in response to the UPC
Proposal but did have the right, to the extent required by their fiduciary
duties under applicable law if so advised by outside counsel, (i) to engage in
negotiations or provide any confidential information or data to UPC relating to
the UPC Proposal and (ii) to withdraw, modify or amend their recommendation
that SFP's stockholders approve the Merger Agreement and the Merger.
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Mr. Krebs reminded the SFP Board of his description at prior Board meetings
of two telephone calls he had had with Mr. Lewis earlier in the year. The
first, on June 7, 1994, occurred when Mr. Krebs returned Mr. Lewis' unsolicited
telephone call made on June 6. Mr. Lewis stated on June 7 that if SFP made its
deal with BNI, UPC would not oppose it and in fact, would welcome it because
UPC liked good competitors. Mr. Lewis went on to say that UPC also would not
object if SFP entered into a transaction to acquire Kansas City Southern
Railway Company. The second telephone call was shortly after the BNI-SFP Merger
Agreement was announced on June 29, 1994. Mr. Krebs called Mr. Lewis as a
courtesy, and Mr. Lewis stated that he had seen the press release and that UPC
would study the matter.
After discussions at both meetings and consultation with its financial and
legal advisors, the SFP Board unanimously decided to reject the UPC Proposal
and reaffirm its recommendation to SFP's stockholders that they approve the
Merger Agreement and the Merger. In reaching its decision, the SFP Board
considered the following factors:
1. Likelihood of ICC Approval. The SFP Board concluded that it is unlikely
that a UPC-SFP combination would receive ICC approval. The SFP Board based its
conclusion in part on its own knowledge, and the view of management, that the
extensive market overlaps between the two railroad systems and the dominant
position of UPC would make such a combination anticompetitive. The SFP Board
also based its conclusion in part on advice of counsel that, given the
anticompetitive effects of a UPC-SFP combination, the ICC was unlikely to
approve such a combination absent concessions by UPC that would make the
transaction untenable and the ICC might well not approve it regardless of any
concessions made by UPC. The SFP Board noted that in the past it had, as part
of management's strategic reviews with the SFP Board, discussed the possibility
of a UPC-SFP combination, but had not pursued this idea because of the
improbability of obtaining ICC approval, given the adverse effect on
competition that such a combination would have.
2. Perception of UPC Proposal. The SFP Board perceived the UPC Proposal as
apparently designed to prevent the consummation of the BNI-SFP Merger and the
creation of a strong competitor to UPC. The SFP Board based this perception on
its conclusion that ICC approval of a UPC-SFP combination is unlikely and on
the timing of the UPC Proposal. The SFP Board also took account of the
inconsistency between UPC's present position and Mr. Lewis' earlier statement
to Mr. Krebs that UPC would not oppose a BNI-SFP Merger.
3. Opinion of Financial Advisor. Goldman Sachs advised the SFP Board that
under the circumstances described to the SFP Board by SFP's management and
counsel, Goldman Sachs reaffirmed its opinion with respect to the Exchange
Ratio contemplated by the BNI-SFP Merger. See the full text of the opinion of
Goldman Sachs dated the date hereof, which sets forth certain assumptions made
by Goldman Sachs, including the assumption that under the foregoing
circumstances Goldman Sachs, in analyzing the Exchange Ratio, need not take
into account the consideration which might be received under the UPC Proposal.
4. Binding Agreement. The SFP Board noted that SFP has no right to terminate
the Merger Agreement and that it is important to avoid breaches of the Merger
Agreement, particularly in light of the SFP Board's belief that consummation of
the BNI-SFP Merger is in the best interest of SFP's stockholders because (1)
the BNI-SFP Merger has significant benefits for SFP stockholders and (2) if the
Merger Agreement is terminated and if the UPC Proposal cannot be consummated,
SFP would be left without a strategic combination which is required to protect
and enhance shareholder value.
The SFP Board also discussed the significance of Mr. Lewis' remarks to Mr.
Krebs regarding the possibility of UPC offering a $20 per share price and
establishing a voting trust. The SFP Board noted that Mr. Lewis' statements
were inconsistent with the UPC Proposal and UPC's press release, which was
issued after Mr. Lewis met with Mr. Krebs. However, the SFP Board decided,
after being advised by outside counsel that its fiduciary duties under
applicable law required such a step, that SFP should communicate to UPC that,
if UPC were to make a proposal at a fair price and with an adequate provision
for a voting trust that
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would substantially eliminate the regulatory risk for SFP stockholders, the SFP
Board would consider that proposal in light of its fiduciary duties.
On October 6, 1994, this information, along with the SFP Board's decision to
reject the UPC Proposal, was sent to UPC in a letter from Mr. Krebs to Mr.
Lewis and in a press release issued by SFP. BNI was made aware of, and did not
object to, the contents of the letter and press release before they were sent
or issued.
On October 11, 1994, in a letter addressed to Mr. Krebs, UPC expressed its
dissatisfaction with the SFP Board's prompt rejection of the UPC Proposal. It
emphasized the possible benefits to be attained in accepting the UPC Proposal,
asked the SFP Board to consider UPC's analysis of ICC matters, and urged Mr.
Krebs, along with his advisors, to meet with UPC representatives. UPC concluded
its letter by stating that the proposed purchase price was considered by UPC to
be a "fair price" but that UPC would be prepared to receive information from
SFP that might justify a greater consideration. The SFP Board considered the
October 11 letter, and decided to reaffirm its prior position but requested UPC
to provide SFP with UPC's analysis of ICC matters.
BOARD OF DIRECTORS AND MANAGEMENT AFTER THE MERGER
Pursuant to a letter agreement dated June 29, 1994, a copy of which is
attached hereto as Appendix B, between Gerald Grinstein, Chairman and Chief
Executive Officer of BNI and Robert D. Krebs, Chairman, President and Chief
Executive Officer of SFP, the board of directors of the merged entity initially
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. Mr. Grinstein
will serve as Chairman of the merged entity and Mr. Krebs will serve as
President and Chief Executive Officer of the merged entity. Additional officers
of the merged entity will be selected by the merged entity's board of directors
based upon, among other things, the recommendations of Mr. Grinstein and Mr.
Krebs.
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached as Appendix A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. This summary does
not purport to be complete and is qualified in its entirety by reference to the
Merger Agreement. ALL STOCKHOLDERS OF BNI AND SFP ARE URGED TO READ THE MERGER
AGREEMENT IN ITS ENTIRETY. Capitalized terms not defined herein shall have the
meanings set forth in the Merger Agreement.
THE MERGER
The Merger Agreement provides that, following its approval and adoption by
the stockholders of each of BNI and SFP, receipt of all necessary material
regulatory approvals, including ICC approval, and the satisfaction or waiver of
the other conditions to the Merger, SFP will be merged with and into BNI, and
the separate existence of SFP will cease with BNI continuing as the surviving
corporation.
After satisfaction or waiver of the conditions to the Merger, the parties
will file with the Secretary of State of the State of Delaware a duly executed
certificate of merger, and the Merger will become effective upon the filing and
acceptance thereof or at such time thereafter as is provided in the certificate
of merger (the "Effective Time").
Upon consummation of the Merger, each share of SFP Common Stock outstanding
immediately prior to the Effective Time (other than shares of SFP Common Stock
owned by SFP as treasury stock or owned by BNI or any Subsidiary of BNI
immediately prior to the Effective Time, all of which will be canceled) will be
converted into 0.27 shares of BNI Common Stock, and will cease to be
outstanding.
If any holder of shares of SFP Common Stock would be entitled to receive a
number of shares of BNI Common Stock that includes a fraction, then, in lieu of
a fractional share, such holder will be entitled to
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receive a cash payment representing such holder's proportionate interest in the
net proceeds from the sale by the Exchange Agent in one or more transactions
(made at such times, in such manner and on such terms as the Exchange Agent
will determine in its reasonable discretion) on behalf of all holders of the
aggregate of fractional shares of BNI Common Stock which would otherwise have
been issued. The sale of such aggregate of fractional shares of BNI Common
Stock by the Exchange Agent will be executed on the NYSE through one or more
member firms of the NYSE and will be executed in round lots to the extent
possible.
At the Effective Time, BNI will deposit with the Exchange Agent certificates
representing the aggregate Merger Consideration to be paid in respect of shares
of SFP Common Stock. Promptly after the Effective Time, BNI will send, or will
cause the Exchange Agent to send, to each holder of record of SFP Common Stock
a letter of transmittal to be used in forwarding his or her certificates
evidencing such shares of SFP Common Stock to the Exchange Agent for surrender
and exchange for certificates evidencing the Merger Consideration to which he
or she has become entitled and, if applicable, cash in lieu of a fractional
share of BNI Common Stock. Such letter of transmittal will specify that the
delivery shall be effected, and the risk of loss and title shall pass, only
upon proper delivery to the Exchange Agent of the certificates representing
such holder's shares of SFP Common Stock. Upon surrender to the Exchange Agent
of a certificate or certificates representing a holder's shares of SFP Common
Stock, such holder will be entitled to receive the Merger Consideration in
respect thereof.
Any portion of the Merger Consideration deposited with the Exchange Agent and
any portion of the net proceeds from the sale of the aggregate of fractional
shares by the Exchange Agent that remains unclaimed for a period of twelve
months after the Effective Time by the stockholders of SFP will, upon demand,
be returned to BNI, and any such holder who has not exchanged shares of SFP
Common Stock for the Merger Consideration after such period will thereafter
only look to BNI for such holder's claim for BNI Common Stock, any cash in lieu
of fractional shares of BNI Common Stock and any dividends or distributions in
respect of BNI Common Stock, subject to any amount paid to a public official
pursuant to applicable abandoned property laws.
After the Effective Time, each certificate evidencing shares of SFP Common
Stock, until so surrendered and exchanged, will be deemed, for all purposes, to
evidence only the right to receive the Merger Consideration which the holder of
such certificate is entitled to receive and the right to receive any cash
payment in lieu of a fractional share of BNI Common Stock. The holder of such
unexchanged certificate will not be entitled to receive any dividends or other
distributions with respect to the BNI Common Stock constituting part of the
Merger Consideration until such certificate is surrendered. 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 of
SFP Common Stock 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 of SFP Common
Stock that are payable on a date subsequent to, and the record date for which
occurs before, the Effective Time.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties of SFP
relating, with respect to SFP and its Subsidiaries, to, among other things, (a)
organization, standing and similar corporate matters; (b) government
authorization; (c) capital structure; (d) the authorization, execution,
delivery, performance and enforceability of the Merger Agreement and related
matters; (e) the non-contravention of the Merger Agreement and related
transactions with (i) SFP and its Subsidiaries' certificates of incorporation
or by-laws or (ii) law, regulation, judgment, injunction, order or decree
applicable to SFP or any of its Subsidiaries; (f) the compliance as to form of
the documents filed by SFP and its Subsidiaries with the Commission in
connection with the Merger Agreement and related transactions and the accuracy
of information contained therein and the absence of undisclosed liabilities;
(g) the accuracy of information supplied by SFP in connection with this Joint
Proxy Statement/Prospectus; (h) the absence of any material adverse effect,
whether existing or prospective, on the financial condition, business or
properties of SFP and its Subsidiaries
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taken as a whole or on the ability of SFP to perform its obligations under the
Merger Agreement (a "Material Adverse Effect"), since the date of the most
recent audited financial statements of SFP filed with the Commission; (i) the
absence of pending or threatened litigation which could reasonably be expected
to have a Material Adverse Effect on SFP; (j) benefit plans and other matters
relating to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"); (k) the filing of tax returns and payment of taxes; (l) the
inapplicability of any antitakeover statute or regulation enacted under state
or Federal laws; (m) the absence of Environmental Liabilities that would
reasonably be expected to have a Material Adverse Effect on SFP; and (n)
brokers' fees and expenses. In addition, SFP has made representations and
warranties in regard to the Gold Spinoff and receipt of a private letter ruling
from the Internal Revenue Service (the "IRS") with respect to the Gold Spinoff.
See "Other Matters--The Gold Spinoff."
The Merger Agreement also contains customary representations and warranties
of BNI with respect to BNI and its Subsidiaries substantially identical, where
applicable, to those of SFP set forth above. BNI also represents and warrants
that no benefits will be received by BNI's stockholders pursuant to the BNI
Rights Agreement as a result of the execution of the Merger Agreement or the
consummation of the Merger.
COVENANTS
Conduct of Business Pending the Merger
The Merger Agreement contains certain reciprocal restrictions on the conduct
of the respective businesses of SFP and BNI from the date of the Merger
Agreement to the Effective Time. Each of SFP and BNI has agreed that, during
such period, except as permitted by the Merger Agreement, each of SFP, BNI and
their respective Subsidiaries shall conduct their businesses 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 and (a) will not adopt or propose any change to their
respective certificates of incorporation or bylaws, except that BNI will adopt
an amendment to its certificate of incorporation authorizing the issuance of
additional shares of Junior Class A Preferred Stock in connection with the
issuance of BNI Rights to former holders of SFP Common Stock; (b) except for
the Merger and, in the case of SFP, the Gold Spinoff, will not (i) adopt a plan
of liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization or (ii) make any acquisition of any
business or other assets by means of merger, consolidation or otherwise other
than in the ordinary course of business and other than such acquisitions that
are Customary Actions (as defined below); (c) will not 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,
(iii) for any such transaction that is a Customary Action and (iv) in the case
of SFP, the Gold Spinoff; (d) will not declare, set aside or pay any dividend
or make any other distribution with respect to any shares of capital stock
other than (i) aggregate cash dividends, in the case of SFP, not in excess of
$0.10, $0.18, $0.20 and $0.22 per share of SFP Common Stock in 1994, 1995, 1996
and 1997, respectively, and, in the case of BNI, not in excess of $1.20, $1.32,
$1.48 and $1.64 per share of BNI Common Stock in 1994, 1995, 1996 and 1997,
respectively, and (ii) in the case of SFP, the Gold Spinoff; (e) will not
authorize or propose the issuance, delivery or sale of capital stock or voting
debt or any securities convertible into or exchangeable for, or any rights,
warrants or options to acquire any capital stock or voting debt except as
otherwise permitted in the Merger Agreement; (f) will not incur any
indebtedness for borrowed money or guarantee any such indebtedness except
borrowings in the ordinary course of business consistent with past practice,
borrowings that are Customary Actions or as otherwise permitted in the Merger
Agreement; (g) will not make any loans, advances or capital contributions to,
or investments in, any other Person except in the ordinary course of business
consistent with past practice or in transactions that are Customary Actions;
(h) (i) except for any of the actions that are 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
of the Merger Agreement with respect to individuals with comparable positions
or responsibilities, and except for any of such actions which, in the
aggregate, are not material, will not grant any severance or termination pay
to, or enter into any termination or severance arrangement with, any of their
respective directors, executive officers or employees and (ii) except for any
of the actions that are taken in the ordinary course of business consistent in
magnitude and character with past practice, and except for any of such actions
which in the aggregate are not material, will not establish, adopt,
47
<PAGE>
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 their respective directors, executive
officers or employees. For purposes of the Merger Agreement, an action will be
considered a "Customary Action" where such action occurs in the ordinary course
of a 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.
Stockholder Meetings
Each of SFP and BNI shall cause a special meeting of their stockholders to be
called as soon as reasonably practicable after the date of the Merger Agreement
to vote on the approval and adoption of the Merger Agreement and the Merger,
with the Boards of Directors of SFP and BNI to recommend such approval and
adoption; provided that prior to such special meetings, such recommendation may
be withdrawn, modified or amended as necessary in accordance with fiduciary
duties under applicable law following receipt of a Takeover Proposal. The term
"Takeover Proposal," when used in connection with BNI or SFP, means any tender
or exchange offer, proposal for a merger, consolidation or other business
combination involving BNI or SFP or any Subsidiary of BNI or SFP, or any
proposal or offer to acquire in any manner a substantial equity interest in, or
a substantial portion of the assets of BNI or SFP or any Subsidiary of BNI or
SFP, other than pursuant to the Merger.
Access to Information
Subject to any confidentiality agreements or other confidentiality
obligations binding upon SFP, BNI or any of their respective Subsidiaries, from
the date of the Merger Agreement until the Effective Time, SFP and BNI will
give each other, their counsel, financial advisors, auditors and other
authorized representatives full access to their offices, properties, books and
records, will furnish such financial and operating data and other information
as such Persons may reasonably request and will instruct employees, counsel and
financial advisors to cooperate with an investigation of their respective
businesses; provided that no investigation pursuant to the Merger Agreement
shall affect any representation or warranty given by SFP or BNI and provided
further that access to certain information will require compliance with the
protective order entered by the ICC on July 15, 1994; full access will be
granted to such information consistent with the Merger Agreement and subject to
the terms of such order.
Notice of Certain Events
SFP and BNI shall promptly notify each other 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 the Merger
Agreement; (ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by the Merger Agreement including, with respect to SFP, the Gold Spinoff and
the merger of SFP Properties, Inc. with and into SFP (the "Liquidation"); and
(iii) any actions, suits, claims, investigations or proceedings commenced or,
to the best of their knowledge threatened against, relating to or involving or
otherwise affecting SFP, BNI or any of their respective Subsidiaries which, if
pending on the date of the Merger Agreement, would have been required to have
been disclosed or which relate to the consummation of the transactions
contemplated by the Merger Agreement.
Tax Matters
From the date of the Merger Agreement until the Effective Time, SFP, BNI and
their respective Subsidiaries will (i) file all significant tax returns,
statements, reports and forms (collectively, the "Post-Signing Returns")
required to be filed with any taxing authority in accordance with all
applicable laws; (ii) timely pay all taxes shown as due and payable on the
Post-Signing Returns that are so filed and as of the
48
<PAGE>
time of filing and, in addition, the Post-Signing Returns will correctly
reflect the facts regarding their income, business, assets, operations,
activities and status in all material respects; (iii) make provision for all
taxes payable for which no Post-Signing Return has yet been filed; and (iv)
promptly notify each other of any action, suit, proceeding, investigation,
audit or claim pending against or with respect to either party or any of their
Subsidiaries in respect of any tax where there is a reasonable possibility of a
determination or decision against either party which would reasonably be
expected to have a significant adverse effect on tax liabilities or other tax
attributes.
No Solicitations
SFP and BNI will not, and SFP and BNI will use their reasonable best efforts
to ensure that their officers, directors, employees or other agents 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 either party, or, in the
event of an unsolicited Takeover Proposal of either party, 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 and BNI shall
notify each other 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 each other 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.
Additional SFP Covenants
SFP (i) shall, at least forty days prior to the Closing Date, deliver to BNI
a letter identifying all Persons who are, at the time of the special meeting of
SFP stockholders, deemed to be "affiliates" of SFP for purposes of Rule 145
under the Securities Act and SFP shall use its best efforts to cause each such
Person to deliver an affiliate letter agreement in a form attached to the
Merger Agreement at least thirty days prior to the Closing Date and (ii) will
not, and will not permit any of its Subsidiaries (other than SFP Gold and its
Subsidiaries) to, enter into or undertake any transaction, arrangement or
agreement with SFP Gold or its Subsidiaries except for (x) transactions,
arrangements or agreements that have been entered into on or prior to the date
of the Merger Agreement which have been provided to BNI on or prior to such
date, (y) the allocation to employees of SFP Gold of their share of the SFP
employee benefit plans in accordance with applicable law or (z) such other
transactions, arrangements or agreements that are consented to by BNI (such
consent not to be unreasonably withheld), provided that 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 Gold Spinoff, except for the distribution
of SFP Gold common stock pursuant to the Gold Spinoff.
Additional BNI Covenants
BNI shall indemnify and hold harmless each person who is, or has been at any
time prior to the date of the Merger Agreement, 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 the Merger 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 of the Merger Agreement or (B)
Indemnity Agreements that may be entered into by SFP from and after the date of
the Merger Agreement 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 of the Merger Agreement; 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 the Merger 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 of the Merger
49
<PAGE>
Agreement, provided that in satisfying its obligation, BNI shall not be
obligated to pay premiums in excess of 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.
Joint Covenants of SFP and BNI
In addition to the aforementioned reciprocal and individual covenants, SFP
and BNI have agreed to (a) use their reasonable best efforts to do, or cause to
be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate the transactions contemplated by the Merger
Agreement, (b) take all such actions as are necessary to (i) cooperate with
each other 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
the Merger Agreement, (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 the
Merger Agreement, and (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 the Merger Agreement, (c) promptly prepare and
file with the Commission, using their reasonable best efforts to have cleared
by the Commission and thereafter mail to their stockholders as promptly as
practicable the respective Proxy Statements and all other proxy materials for
the respective stockholder meetings, and use their reasonable best efforts to
obtain the necessary approvals by their stockholders of the Merger Agreement
and the transactions contemplated thereby (provided that, prior to the
respective stockholder meetings, the respective boards of directors'
recommendations 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 or
BNI, the respective boards of directors deem it necessary to do so in the
exercise of their fiduciary obligations to their respective stockholders after
being so advised by counsel), and will otherwise comply with all legal
requirements applicable to such meeting and make all other filings or
recordings required under applicable Delaware law in connection with the Merger
and, in the case of BNI, prepare and file with the Commission the registration
statement on Form S-4 and take any action required to be taken under any
applicable state Blue Sky law in connection with the issuance of BNI Common
Stock, (d) consult with each other before issuing any press release with
respect to the Merger Agreement and the transactions contemplated thereby, (e)
authorize the officers and directors of the Surviving Corporation to execute
and deliver, in the name and on behalf of SFP, any deeds, bills of sale,
assignments or assurances and to take or do 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 properties or assets of SFP acquired
or to be acquired by the Surviving Corporation, (f) grant such approvals and
take such actions as are necessary so that the transactions contemplated by the
Merger Agreement may be consummated as promptly as practicable and otherwise
act to eliminate or minimize the effects of any Takeover Statute, (g)
coordinate and cooperate (i) with respect to the timing of their respective
stockholder meetings to use their reasonable best efforts to hold such meetings
on the same day, (ii) in connection with the preparation of each document
required to be filed with the Commission in connection with the transactions
contemplated by the Merger Agreement (the "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, and (iv) in seeking any such actions, consents, approvals
or waivers or making any such filings, furnishing information required in
connection therewith or with their respective Disclosure Documents and timely
seeking to obtain any such actions, consents, approvals or waivers, and (h)
from September 30, 1995 to the Effective Time, pay all dividends declared by
SFP and BNI to their respective stockholders on a quarterly basis, with
identical record and payment dates, in amounts not exceeding the amounts set
forth in the Merger Agreement.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Each party's obligation to effect the Merger is subject to the satisfaction
or waiver of various conditions which include the following:
50
<PAGE>
(a) the Merger Agreement shall have been adopted by the requisite vote of
stockholders of SFP and BNI;
(b) the waiting period (and any extension thereof) applicable to the
Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended ("HSR Act"), shall have expired;
(c) no court, arbitrator or governmental body or 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
operation of the businesses of SFP, BNI and their respective Subsidiaries
after the Effective Time;
(d) 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 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;
(e) 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 authorizing consummation of the Merger and all other
transactions contemplated by the Merger Agreement (as may require ICC
authorization) and (B) does not (i) require the inclusion of any other rail
carriers or material rail properties, (ii) change the Exchange Ratio or
(iii) impose any other terms or conditions that significantly and adversely
affect the economic benefit of the transactions contemplated by the Merger
Agreement;
(f) 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 Internal Revenue Code and the regulations
thereunder;
(g) the Merger shall conform to the requirements set forth in the private
letter ruling previously received by SFP in connection with the Gold
Spinoff, and the Gold Spinoff and the Liquidation shall be tax-free
pursuant to and in conformity with such private letter ruling;
(h) each of SFP and BNI shall have performed in all material respects all
of their obligations required to be performed at or prior to the Effective
Time, and the representations and warranties of SFP and BNI shall have been
accurate in all material respects both when made and at and as of the
Effective Time except as otherwise provided in the Merger Agreement; and
(i) all other statutory requirements for the valid consummation by SFP
and BNI of the transactions contemplated by the Merger Agreement shall have
been fulfilled.
In addition to the aforementioned reciprocal conditions to the consummation
of the Merger, SFP's obligation to consummate the Merger is subject to the
satisfaction or waiver of the following additional conditions:
(a) the BNI Common Stock required to be issued pursuant to the Merger
Agreement shall have been approved for listing on the NYSE, subject to
official notice of issuance; and
(b) the Gold Spinoff and the Liquidation shall have been consummated.
TERMINATION
Notwithstanding any approval of the Merger Agreement by the stockholders of
BNI or SFP, the Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time (a) by mutual written consent
of BNI and SFP; (b) by either BNI or SFP (i) if the Merger shall not have been
consummated by December 31, 1997; (ii) 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; or
(iii) if the approvals of the stockholders of BNI or SFP contemplated by the
Merger Agreement shall not have been obtained by reason of the failure to
obtain the required vote at a duly held
51
<PAGE>
meeting of stockholders or of any adjournment thereof; (c) by BNI, if the Gold
Spinoff has not occurred by December 31, 1994; (d) 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 fifty percent or more of the
outstanding SFP Common Stock; (e) 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 the Merger
Agreement or the Merger; (f) 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 certain conditions would be
incapable of being satisfied by December 31, 1997 (or such later date
extended), provided that a willful breach shall be deemed to cause such
conditions to be incapable of being satisfied by such date; (g) by SFP, if any
Person, entity or group acquires beneficial ownership of fifty percent or more
of the outstanding BNI Common Stock; (h) 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 the Merger Agreement or the Merger; and (i) 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
certain conditions would be incapable of being satisfied by December 31, 1997
(or as otherwise extended), provided that a willful breach shall be deemed to
cause such conditions to be incapable of being satisfied by such date.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations and warranties and agreements contained in the Merger
Agreement shall not survive the Effective Time or the termination of the Merger
Agreement, except that certain agreements set forth in the Merger Agreement
will survive a termination of the Merger Agreement.
AMENDMENTS; NO WAIVERS
Any provision of the Merger 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 the Merger 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 the Merger Agreement if such alteration or change would
adversely affect the holders of any shares of capital stock of SFP.
EXPENSES
Except as otherwise agreed in writing by SFP and BNI, each party shall bear
its own expenses, including the fees and expenses of any attorneys,
accountants, investment bankers, brokers, finders or other intermediaries or
other Persons engaged by it, incurred in connection with the Merger Agreement
and the transactions contemplated thereby. See "The Merger--Expenses," for
information concerning the expenses shared by BNI and SFP.
GOVERNING LAW
The Merger 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).
JURISDICTION
Any suit, action or proceeding seeking to enforce any provision of, or based
on any matter arising out of or in connection with, the Merger Agreement or the
transactions contemplated thereby 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 has
consented to the exclusive jurisdiction of such courts (and of the appropriate
appellate courts) in any such suit, action or proceeding and has waived 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.
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<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect
to the exchange of 0.27 shares of BNI Common Stock for each share of SFP Common
Stock pursuant to the Merger Agreement, with the Merger accounted for under the
pooling of interests method. The pro forma adjustments do not reflect any
potential increases in operating income which may arise from the Merger or
adjustments to conform BNI and SFP accounting practices. See Note 3--Conforming
accounting practices and "Other Matters--Additional Financial Considerations."
The unaudited pro forma combined balance sheet as of June 30, 1994 combines
the historical consolidated balance sheets of BNI and SFP giving effect to the
Merger as if it had been consummated on that date. The unaudited pro forma
combined statements of operations for the six months ended June 30, 1994 and
1993, and for each of the three years in the period ended December 31, 1993,
combine the historical consolidated statements of operations of BNI and SFP
giving effect to the Merger as if it had been consummated on January 1, 1991.
The unaudited pro forma combined financial statements are prepared for
illustrative purposes only and are not necessarily indicative of the financial
position or results of operations that might have occurred had the Merger
actually taken place on the dates indicated, or of future results of operations
or financial position of the combined company. Consummation of the Merger is
conditioned upon, among other things, approval of both BNI and SFP stockholders
and the approval of the ICC. See "Other Matters--ICC Approval" and "The Merger
Agreement--Conditions to the Consummation of the Merger."
The unaudited pro forma combined financial statements are based on the
historical consolidated financial statements of BNI and SFP and should be read
in conjunction with such historical financial statements and the notes thereto,
which are incorporated by reference in this Joint Proxy Statement/Prospectus,
and in conjunction with the selected historical financial data and unaudited
selected pro forma financial data, including the notes thereto, appearing
elsewhere in this Joint Proxy Statement/Prospectus. See "Incorporation of
Certain Documents by Reference," "Selected Historical Financial Data," and
"Unaudited Selected Pro Forma Financial Data."
53
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1994
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS
---------------------- BURLINGTON NORTHERN
BURLINGTON SANTA FE PRO FORMA SANTA FE
NORTHERN PACIFIC ADJUSTMENTS CORPORATION
INC. CORPORATION (NOTE 2) PRO FORMA
---------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash
equivalents.......... $ 18 $ 15 $ -- $ 33
Accounts receivable,
net.................. 569 94 -- 663
Net assets of
discontinued
operations........... -- 504 (504)(A) --
Other current assets.. 449 292 -- 741
------ ------ ----- -------
Total current
assets............. 1,036 905 (504) 1,437
Property and equipment,
net.................... 6,074 4,542 -- 10,616
Other assets............ 284 270 -- 554
------ ------ ----- -------
Total assets........ $7,394 $5,717 $(504) $12,607
====== ====== ===== =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Accounts payable...... $ 509 $ 266 $ 48 (C) $ 823
Dividend payable--gold
distribution......... -- 504 (504)(A) --
Other current
liabilities.......... 791 431 (23)(C) 1,199
Current portion of
long-term debt and
commercial paper..... 240 173 -- 413
------ ------ ----- -------
Total current
liabilities........ 1,540 1,374 (479) 2,435
Long-term debt.......... 1,694 932 -- 2,626
Deferred income taxes... 1,388 1,148 5 (C) 2,541
Other liabilities....... 742 1,107 -- 1,849
------ ------ ----- -------
Total liabilities... 5,364 4,561 (474) 9,451
------ ------ ----- -------
Stockholders' equity
Convertible preferred
stock................ 337 -- -- 337
Common stock.......... 1 190 (190)(B) 1
Paid-in capital....... 1,442 858 92 (B),(C) 2,392
Retained earnings..... 293 212 (61)(C) 444
Treasury stock........ (5) (104) 104 (B) (5)
Other................. (38) -- 25 (C) (13)
------ ------ ----- -------
Total stockholders'
equity............... 2,030 1,156 (30) 3,156
------ ------ ----- -------
Total liabilities
and stockholders'
equity............. $7,394 $5,717 $(504) $12,607
====== ====== ===== =======
</TABLE>
(See accompanying notes to unaudited pro forma combined financial statements)
54
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1994
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS
---------------------- BURLINGTON NORTHERN
BURLINGTON SANTA FE SANTA FE
NORTHERN PACIFIC CORPORATION
INC. CORPORATION PRO FORMA
---------- ----------- -------------------
<S> <C> <C> <C>
Revenues...................... $2,402 $1,290 $3,692
Operating expenses
Compensation and benefits... 873 417 1,290
Fuel........................ 172 120 292
Materials................... 155 65 220
Equipment rents............. 217 122 339
Purchased services.......... 232 178 410
Depreciation................ 176 99 275
Other....................... 217 101 318
------ ------- -------
Total operating expenses.. 2,042 1,102 3,144
------ ------- -------
Operating income.............. 360 188 548
Interest expense.............. 78 60 138
Other income (expense), net... (6) 50 44
------ ------- -------
Income before income taxes.... 276 178 454
Income tax expense............ 107 75 182
------ ------- -------
Income from continuing
operations................... $ 169 $ 103 $ 272
====== ======= =======
Earnings per common share
Income from continuing
operations................. $ 1.75 $ .54 $ 1.85 Note 2 (D)
====== ======= =======
Number of shares used in
computation of earnings per
common share (in thousands).. 90,286 189,800 141,532 Note 2 (D)
</TABLE>
(See accompanying notes to unaudited pro forma combined financial statements)
55
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1993
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS
---------------------- BURLINGTON NORTHERN
BURLINGTON SANTA FE SANTA FE
NORTHERN PACIFIC CORPORATION
INC. CORPORATION PRO FORMA
---------- ----------- -------------------
<S> <C> <C> <C>
Revenues...................... $2,312 $1,192 $3,504
Operating expenses
Compensation and benefits... 857 405 1,262
Fuel........................ 177 119 296
Materials................... 154 64 218
Equipment rents............. 188 105 293
Purchased services.......... 222 154 376
Depreciation................ 172 93 265
Other....................... 226 99 325
------ ------- -------
Total operating expenses.. 1,996 1,039 3,035
------ ------- -------
Operating income.............. 316 153 469
Interest expense.............. 69 70 139
Gain on sale of California
lines........................ -- 145 145
Other income, net............. -- 2 2
------ ------- -------
Income before income taxes.... 247 230 477
Income tax expense............ 93 95 188
------ ------- -------
Income from continuing
operations................... $ 154 $ 135 $ 289
====== ======= =======
Earnings per common share
Income from continuing
operations................. $ 1.60 $ .72 $ 1.99 Note 2 (D)
====== ======= =======
Number of shares used in
computation of earnings per
common share (in thousands).. 89,439 186,300 139,740 Note 2 (D)
</TABLE>
(See accompanying notes to unaudited pro forma combined financial statements)
56
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS
---------------------- BURLINGTON NORTHERN
BURLINGTON SANTA FE SANTA FE
NORTHERN PACIFIC CORPORATION
INC. CORPORATION PRO FORMA
---------- ----------- -------------------
<S> <C> <C> <C>
Revenues...................... $4,699 $ 2,409 $ 7,108
Operating expenses
Compensation and benefits... 1,709 800 2,509
Fuel........................ 362 239 601
Materials................... 300 128 428
Equipment rents............. 395 229 624
Purchased services.......... 457 322 779
Depreciation................ 352 188 540
Other....................... 463 185 648
------ ------- -------
Total operating expenses.. 4,038 2,091 6,129
------ ------- -------
Operating income.............. 661 318 979
Interest expense.............. 145 133 278
Gain on sale of California
lines........................ -- 145 145
Other income, net............. 5 24 29
------ ------- -------
Income before income taxes.... 521 354 875
Income tax expense............ 225 177 402
------ ------- -------
Income from continuing
operations................... $ 296 $ 177 $ 473
====== ======= =======
Earnings per common share
Income from continuing
operations................. $ 3.06 $ .95 $ 3.22 Note 2 (D)
====== ======= =======
Number of shares used in
computation of earnings per
common share (in thousands).. 89,672 187,200 140,216 Note 2 (D)
</TABLE>
(See accompanying notes to unaudited pro forma combined financial statements)
57
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1992
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS
----------------------
BURLINGTON NORTHERN
BURLINGTON SANTA FE SANTA FE
NORTHERN PACIFIC CORPORATION
INC. CORPORATION PRO FORMA
---------- ----------- -------------------
<S> <C> <C> <C>
Revenues...................... $4,630 $ 2,252 $ 6,882
Operating expenses
Compensation and benefits... 1,709 799 2,508
Fuel........................ 348 206 554
Materials................... 295 128 423
Equipment rents............. 389 186 575
Purchased services.......... 449 277 726
Depreciation................ 338 181 519
Other....................... 505 178 683
Special charge.............. -- 320 320
------ ------- -------
Total operating expenses.. 4,033 2,275 6,308
------ ------- -------
Operating income (loss)....... 597 (23) 574
Interest expense.............. 186 165 351
Gain on sale of California
lines........................ -- 205 205
Other income, net............. 41 24 65
------ ------- -------
Income before income taxes.... 452 41 493
Income tax expense............ 153 20 173
------ ------- -------
Income from continuing
operations................... $ 299 $ 21 $ 320
====== ======= =======
Earnings per common share
Income from continuing
operations................. $ 3.35 $ .11 $ 2.29 Note 2 (D)
====== ======= =======
Number of shares used in
computation of earnings per
common share (in thousands).. 88,617 184,800 138,513 Note 2 (D)
</TABLE>
(See accompanying notes to unaudited pro forma combined financial statements)
58
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1991
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS
----------------------
BURLINGTON NORTHERN
BURLINGTON SANTA FE SANTA FE
NORTHERN PACIFIC CORPORATION
INC. CORPORATION PRO FORMA
---------- ----------- -------------------
<S> <C> <C> <C>
Revenues...................................... $4,559 $ 2,154 $ 6,713
Operating expenses
Compensation and benefits................... 1,756 782 2,538
Fuel........................................ 368 207 575
Materials................................... 283 135 418
Equipment rents............................. 401 162 563
Purchased services.......................... 442 232 674
Depreciation................................ 347 184 531
Other....................................... 493 197 690
Special charge.............................. 708 -- 708
------ ------- -------
Total operating expenses.................. 4,798 1,899 6,697
------ ------- -------
Operating income (loss)....................... (239) 255 16
Interest expense.............................. 226 209 435
Other income (expense), net................... (25) 53 28
------ ------- -------
Income (loss) before income taxes............. (490) 99 (391)
Income tax expense (benefit).................. (184) 37 (147)
------ ------- -------
Income (loss) from continuing operations...... $ (306) $ 62 $ (244)
====== ======= =======
Earnings (loss) per common share
Income (loss) from continuing operations.... $(3.96) $ .35 $ (1.95) Note 2 (D)
====== ======= =======
Number of shares used in computation of
earnings
(loss) per common share (in thousands)....... 77,462 178,000 125,522 Note 2 (D)
</TABLE>
(See accompanying notes to unaudited pro forma combined financial statements)
59
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
Pursuant to the Merger Agreement, each share of SFP Common Stock outstanding
at the Effective Time will be converted into 0.27 shares of BNI Common Stock.
The Merger will be accounted for under the pooling of interests method.
Accordingly, recorded assets and liabilities are carried forward to the
combined company at their historical values.
The accompanying unaudited pro forma combined financial statements are
presented for illustrative purposes only and do not give effect to any
potential increases in operating income which may arise from the Merger. See
"Other Matters--Additional Financial Considerations." Additionally, the
unaudited pro forma combined financial statements exclude the nonrecurring
costs and expenses associated with integrating the operations of the
businesses. Such nonrecurring costs are expected to relate to the elimination
of duplicate facilities, computer systems and other assets, as well as employee
related payments. Additionally, no provision has been made for any make-whole
premium payable in connection with certain of SFP's debt securities upon
consummation of the Merger. See "Other Matters--Acceleration of Certain Debt
Obligations of SFP."
For consistency of presentation, certain amounts in the historical financial
statements have been reclassified in the unaudited pro forma combined financial
statements.
NOTE 2. PRO FORMA ADJUSTMENTS
(A) Discontinued operations
Net assets of discontinued operations and dividend payable--gold distribution
have been eliminated to reflect SFP's distribution of SFP Gold's common stock
to SFP stockholders, effective September 30, 1994.
(B) Stockholders' equity
Common stock has been reduced by $190 million, paid-in capital has been
increased by $86 million and treasury stock has been decreased by $104 million
to reflect the combination of BNI and SFP through the exchange of approximately
50 million shares of BNI Common Stock for all outstanding shares of SFP Common
Stock at an exchange ratio of 0.27 shares of BNI Common Stock for each share of
SFP Common Stock.
(C) Costs of the Merger and accelerated vesting of restricted stock
Accounts payable have been increased by $48 million for the cost of the
Merger as if they have been accrued. Additionally, paid-in capital and other
equity have been increased by $6 million and $25 million, respectively, as if
compensation expense totaling $31 million had been recorded for the lapse of
restrictions on restricted stock of BNI and SFP. Deferred income taxes and
current tax liabilities have been adjusted by $18 million for the tax effects
of these entries. The result is a net reduction in retained earnings of $61
million.
Compensation expense related to restricted stock, as well as certain other
costs of the Merger, will be charged to operations upon stockholder approval of
the Merger. Other costs of the Merger will be recorded periodically as charges
to operations between stockholder approval and the consummation of the Merger.
(D) Earnings (loss) per common share
Pro forma weighted average shares outstanding represent the conversion at an
exchange ratio of 0.27 of SFP common shares to BNI common shares. Earnings
(loss) per common share are determined by dividing income (loss) from
continuing operations, after deduction of preferred stock dividends, by the
weighted average number of common shares outstanding and common share
equivalents.
NOTE 3. CONFORMING ACCOUNTING PRACTICES
No adjustments to conform the accounting practices of BNI and SFP have been
made in these unaudited pro forma combined financial statements for
capitalization of assets, depreciation and other areas. The effects of these
changes are not presently determinable but will be recorded after the
consummation date.
60
<PAGE>
OTHER MATTERS
ICC APPROVAL
The approval of the ICC on several issues must be obtained to consummate the
Merger. Under the Interstate Commerce Act, the ICC is required to approve the
Merger if it finds that the Merger is consistent with the public interest. In
making that determination, the ICC must consider at least the following
factors:
(A) the effect of the proposed transaction on the adequacy of
transportation to the public;
(B) the effect on the public interest of including, or failing to
include, other rail carriers in the area involved in the proposed
transaction;
(C) the total fixed charges that result from the proposed transaction;
(D) the interest of carrier employees affected by the proposed
transaction; and
(E) whether the proposed transaction would have an adverse effect on
competition among rail carriers in the affected region.
The ICC is required to enter a final order with respect to the Merger within
31 months after the application for such approval is filed by BNI and SFP.
However, BNI and SFP have requested the ICC to decide the case on an expedited
basis and the parties expect that the final ICC decision will be made on a time
frame significantly shorter than the 31-month period required by law. On
October 5, 1994, the ICC served an order establishing a schedule that would
result in a final ICC decision within 535 days from the filing of the
application. The parties are filing the application on October 13, 1994.
Notwithstanding this schedule, there can be no assurance that the ICC will
issue a decision any sooner than the 31-month period permitted the ICC by law.
Interested parties, including other railroads, shippers, state and federal
agencies, and BNI or SFP stockholders may seek to participate in the ICC
proceeding on the Merger, consistent with applicable ICC rules, regulations,
decisions and orders, and may participate to support, oppose, or seek to have
conditions imposed on the transaction or, in the case of other railroads, to be
included in the Merger. Under applicable statutory provisions, interested
parties have 45 days from the date on which the ICC publishes its notice of
acceptance of the application in the Federal Register to submit their comments
in order to participate in the ICC proceeding. An ICC approval order exempts
the parties from Federal, state and local law, including laws governing
contract rights, as necessary to permit them to carry out the transaction.
An ICC approval order may be appealed by certain persons and the
effectiveness of the order could be stayed by the ICC or by an appellate court
while such an appeal is pending. Any appeals from the ICC order might not be
resolved for a substantial period of time after the entry of the order by the
ICC. ICC approval is not automatically stayed if a party seeks judicial review
of the decision; however, it is possible that the approval could be stayed by
the ICC or a reviewing court. If the approval is stayed, consummation of the
Merger would be delayed. Consummation of the Merger, which will occur after
stockholder approval, receipt of required regulatory approvals and satisfaction
or waiver of all of the other conditions set forth in the Merger Agreement, may
not occur for two or more years in the future.
Either BNI or SFP may terminate the Agreement if the ICC disapproves the
Merger, changes the Exchange Ratio, requires the inclusion of other rail
carriers or properties, or imposes other terms and conditions, including, but
not limited to, employee protective conditions other than those which are now
61
<PAGE>
currently standard, that, in the reasonable opinion of either BNI or SFP,
significantly and adversely affect the economic benefits of the Merger.
OTHER REGULATORY APPROVALS
The consummation of the Merger, as it relates to SFP's pipeline operations,
is also subject to the expiration or termination of any applicable waiting
period under the HSR Act.
Certain aspects of the Merger will require notification to, and filings with,
various securities and other authorities in certain states, including
jurisdictions where SFP and BNI currently operate.
ADDITIONAL FINANCIAL CONSIDERATIONS
BNI and SFP are filing an application for approval of the Merger with the ICC
on October 13, 1994. See "Other Matters--ICC Approval." As part of that
application, BNI and SFP indicate to the ICC that, in their views, the Merger
will yield a significant increase in operating income. This anticipated
increase in operating income from the Merger is expected to result from both
operating efficiencies and increased revenues. The application to the ICC
states that the expected annual increase in operating income will be
approximately $560 million per year. This increase is expected to be achieved
over a number of years, with substantially all of the increase to be achieved
in the first three years following consummation of the Merger.
The ICC application also states that significant savings will be achieved in
the general and administrative, overhead and support functions of the merged
company by eliminating duplicative activities and improving productivity
through rationalization and specialization of functions. The application
identifies approximately $350 million annually in savings in traditional
general and administrative functions primarily located in the corporate and
administrative headquarters of each of BNI and SFP, as well as field management
of certain operating, maintenance and other departments.
The ICC application also states that a number of opportunities for
significant reduction in operating costs exist. These operating efficiencies
are expected to be achieved through operations and transportation savings,
reduced costs and delays at interchange, maintenance of way and equipment
savings, and shorter routing of cars. The ICC application indicates that these
operational savings will be in excess of $100 million annually.
The ICC application also states that freight revenues will increase as a
result of the Merger. Studies in support of the ICC application demonstrate
significant opportunities for increased traffic that the new system expects to
attract from shippers currently using other railroads and from trucks. The ICC
application also projects increased traffic as a result of extending the hauls
of shippers currently using either SFP Rail or BN Railroad. It is expected that
the increased traffic will result in increased revenues of more than $300
million annually for the new system, which are expected to increase operating
income by over $100 million annually.
In order to achieve these increases in operating revenue, it is expected that
certain nonrecurring cash costs would be incurred, which would include
relocation, employee separation and retraining and capital improvement costs.
The ICC application states that such costs are approximately $350 million, a
substantial portion of which will be incurred during the first year following
consummation of the Merger.
The ICC application utilizes a base year of 1993, adjusted to reflect the
impact of the above cost efficiencies and reductions as well as the increase in
revenues. This information shows that when these benefits are realized, the
combined operating income will exceed $1.5 billion per year and the combined
operating ratio will be approximately 79%.
The ICC application projections do not include normal business and other
revenue growth occurring after the 1993 base year not related to the Merger,
cost initiatives which each of BNI and SFP anticipates to achieve not related
to the Merger, and future general economic conditions. If these items were
included, BNI and SFP believe further improvements in operating income and the
operating ratio would result.
62
<PAGE>
The material assumptions underlying the projected savings in operating costs
are the following. Operating savings would result from the changes described in
the operating plan as set forth in the ICC application (the "Operating Plan")
for the merged entity. The Operating Plan describes the anticipated internal
rerouting of rail traffic, consolidation of common point facilities and
rationalization of system facilities. The Operating Plan also describes the
savings expected to be achieved through these operational changes, reduced
costs and delays at interchange, maintenance of way and equipment savings, and
shorter routing of cars. The Operating Plan indicates a savings of 34 million
car miles, 2 billion gross ton miles, 1.7 million locomotive unit miles and 1.5
million switches. The total estimated operational savings are in excess of $100
million annually.
The material assumptions underlying the savings to be achieved in general and
administrative, overhead and support functions are the following: estimates of
cost reductions that are projected by eliminating duplicative activity,
improvements in productivity through rationalization, centralization or the
specialization of functions, including executive offices, transportation
overheads, maintenance of way and equipment support, purchasing functions,
operating support, management information systems, general business unit
overheads, as well as other general and administrative functions. It is
projected that savings in this category will amount to approximately $350
million.
The material assumptions underlying the projected revenue increases are the
following. Traffic will increase because the combined BN Railroad/SFP Rail
system would provide new single-line service and related efficiencies that
would attract both rail and intermodal truck traffic to the combined system.
BNI and SFP have conducted three traffic studies that estimate the traffic
gains and resulting revenues that could be achieved by the combined BN
Railroad/SFP Rail system. A study was conducted by BNI and SFP marketing
personnel to determine whether a combined BN Railroad/SFP Rail system could
extend its haul on interline movements in which they participated in 1993. A
second study was conducted to determine whether a combined BN Railroad/SFP Rail
system, with its expanded single-line service and other improvements resulting
from the consolidation, could attract rail traffic that moved over other
carriers in 1993. A third study was conducted to identify intermodal traffic
that could be diverted to rail from truck. The total estimated increase in
traffic that could be drawn to the new combined system from these three sources
represents more than $300 million in additional revenue. After deducting the
costs associated with handling the increased traffic, this additional revenue
represents more than $100 million in net contribution to the merged system.
The ICC application is available for public inspection at the ICC Records
Control Branch, Room 1221, 12th Street and Constitution Avenue, N.W.,
Washington, D.C. 20423.
NEITHER BNI NOR SFP AS A MATTER OF COURSE PUBLICLY DISCLOSES ITS EXPECTATIONS
OF ITS FUTURE PERFORMANCE OR OF THE PERFORMANCE OF ANY PARTICULAR TRANSACTION
IT MAY UNDERTAKE. THE ESTIMATES SUBMITTED TO THE ICC ARE BASED UPON A VARIETY
OF ASSUMPTIONS INVOLVING JUDGMENTS WITH RESPECT TO, AMONG OTHER THINGS, FUTURE
ECONOMIC, FINANCIAL, COMPETITIVE AND REGULATORY CONDITIONS, ALL OF WHICH ARE
BEYOND THE CONTROL OF BNI AND SFP. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT
THE INCREASE IN OPERATING INCOME REFERRED TO ABOVE WILL BE REALIZED, AND THE
ACTUAL INCREASE IN OPERATING INCOME, IF ANY, REALIZED FROM THE MERGER MAY VARY
MATERIALLY FROM THE ESTIMATES SHOWN ABOVE. SIMILARLY, THERE CAN BE NO ASSURANCE
THAT THE NONRECURRING CASH COSTS REFERRED TO ABOVE WILL NOT EXCEED THE
FOREGOING ESTIMATES. FURTHERMORE, THERE CAN BE NO ASSURANCE THAT THE ESTIMATED
INCREASE IN OPERATING INCOME SET FORTH ABOVE WILL BE ACCEPTED BY THE ICC OR
THAT THE ICC WILL NOT IMPOSE CONDITIONS ON THE OPERATION OF THE MERGED COMPANY
THAT WILL AFFECT THE ABILITY OF THE COMPANY TO REALIZE THE ACTUAL INCREASE IN
OPERATING INCOME OR WILL IMPOSE ADDITIONAL CASH COSTS ON THE MERGED COMPANY. IN
LIGHT OF THE UNCERTAINTIES INHERENT IN ESTIMATES OF THIS TYPE, THE INCLUSION OF
SUCH
63
<PAGE>
ESTIMATES HEREIN SHOULD NOT BE REGARDED AS A REPRESENTATION BY BNI, SFP OR ANY
OTHER PERSON THAT SUCH INCREASE IN OPERATING INCOME WILL BE ACHIEVED OR THAT
NONRECURRING CASH COSTS WILL NOT EXCEED THE FOREGOING ESTIMATES. INVESTORS ARE
ADVISED NOT TO PLACE UNDUE RELIANCE ON THESE ESTIMATES.
The estimated increase in operating income and the estimated nonrecurring
cash costs submitted to the ICC has been calculated in accordance with ICC
regulations and not in accordance with the public guidelines of the Securities
and Exchange Commission for estimates of this type. Neither SFP nor BNI intends
publicly to update or otherwise publicly revise the estimates set forth above
(except as part of the ICC application process) even if experience or future
changes make it clear that the expected increase in operating income will not
be realized or that the actual costs to be incurred will exceed the foregoing
estimates.
ACCELERATION OF CERTAIN DEBT OBLIGATIONS OF SFP
The consummation of the Merger will be a "change in control event" within the
meaning of the indenture relating to SFP's $200 million 12.65% Senior Notes due
October 1, 2000 (the "Notes"). Upon the occurrence of a change in control
event, SFP must offer to prepay all the outstanding Notes in full, together
with accrued interest and a make-whole premium based on market interest rates
at the time of the Merger and the then-remaining weighted average life of the
Notes. Each holder of Notes has the right to accept or reject SFP's offer,
without regard to whether any other Noteholder accepts or rejects the offer.
It is not possible at this time to calculate the amount of the make-whole
premium or to determine whether any of the Noteholders will accept SFP's offer
to prepay the Notes. However, based upon the assumptions that the Merger occurs
December 31, 1995, all Noteholders accept the prepayment offer and interest
rates do not change until the Merger, the amount SFP would be required to pay
under the terms of the indenture would be approximately $35 million.
THE GOLD SPINOFF
The obligation of SFP to consummate the Merger is subject to, among other
things, the consummation of the Gold Spinoff. Under the terms of the Merger
Agreement and prior to the Effective Time, BNI may terminate the Merger
Agreement and abandon the Merger if the Gold Spinoff has not been completed by
December 31, 1994. The SFP Board has declared and set September 30, 1994 as the
distribution date of the dividend to holders of record of SFP Common Stock as
of September 12, 1994. The Gold Spinoff was completed as planned on September
30, 1994.
CERTAIN PENDING LITIGATION
Four purported stockholder class action suits have been filed arising out of
SFP's proposed participation in the Merger with BNI. On June 30, 1994, shortly
after announcement of the proposed merger, two purported stockholder class
action suits were filed in the Court of Chancery of the State of Delaware
(Miller v. Santa Fe Pacific Corporation, C.A. No. 13587; Cosentino v. Santa Fe
Pacific Corporation, C.A. No. 13588). On July 1, 1994, two additional purported
stockholder class action suits were filed in the Court of Chancery of the State
of Delaware (Fielding v. Santa Fe Pacific Corporation, C.A. No. 13591;
Wadsworth v. Santa Fe Pacific Corporation, C.A. No. 13597).
The actions name as defendants SFP, the individual members of the SFP Board
of Directors and BNI. In general, the actions variously allege that SFP's
directors breached their fiduciary duties to the stockholders by agreeing to
the proposed merger for allegedly "grossly inadequate" consideration in light
of recent operating results of SFP, recent trading prices of SFP's common stock
and other alleged factors, by allegedly failing to take all necessary steps to
ensure that stockholders will receive the maximum value realizable for their
shares (including allegedly failing to actively pursue the acquisition of SFP
by other companies or conducting an adequate "market check") and by allegedly
failing to disclose to stockholders the full extent of the future earnings
potential of SFP, as well as the current value of its assets. The Miller and
Fielding cases further allege that the proposed merger is unfairly timed and
structured and, if consummated, would allegedly unfairly deprive the
stockholders of standing to pursue certain pending stockholder derivative
litigation.
64
<PAGE>
Plaintiffs also have alleged that BNI is responsible for aiding and abetting
the alleged breach of fiduciary duty committed by the SFP Board. The actions
seek certification of a class action on behalf of SFP's stockholders. In
addition, the actions seek injunctive relief against consummation of the Merger
and, in the event that the Merger is consummated, the rescission of the Merger,
an award of compensatory or rescissory damages and other damages, including
court costs and attorneys' fees, an accounting by defendants of all profits
realized by them as a result of the Merger and various other forms of relief.
On October 6, 1994, shortly after UPC issued a press release in which it
announced the UPC Proposal, plaintiffs in the four lawsuits described above
filed in the Court of Chancery of the State of Delaware a Consolidated Amended
Complaint. (Miller v. Santa Fe Pacific Corporation, C.A. No. 13587). In their
Consolidated Amended Complaint, plaintiffs repeat the allegations contained in
their earlier lawsuits and further allege that, in light of the UPC Proposal,
SFP's directors have breached their fiduciary duties by failing to fully inform
themselves about available alternatives to the Merger with BNI, including the
alternative of a merger transaction with UPC, and by failing to fully inform
themselves about the value of SFP. The Consolidated Amended Complaint seeks the
same relief sought in plaintiffs' earlier lawsuits and, in addition, requests
that SFP's directors be ordered to explore alternative transactions and to
negotiate in good faith with all interested persons, including UPC.
Also on October 6, 1994, UPC filed in the Court of Chancery of the State of
Delaware a lawsuit against SFP, SFP's directors and BNI (Union Pacific
Corporation v. Santa Fe Pacific Corporation, C.A. No. 13778). In its Complaint,
UPC alleges that SFP's management purportedly rejected the UPC Proposal "out-
of-hand" without regard to the facts of the UPC Proposal, and that SFP's
directors have breached their fiduciary duties by purportedly refusing to
negotiate with UPC regarding the UPC Proposal. UPC seeks injunctive relief
mandating SFP to negotiate with UPC regarding the UPC Proposal, a declaration
that UPC has not tortiously interfered with defendants' contractual or other
legal rights, an injunction against defendants from bringing or maintaining any
action against UPC alleging that UPC has tortiously interfered with defendants'
contractual or other legal rights, a declaration that the Merger Agreement with
BNI permits SFP to terminate the Merger Agreement in order to accept the UPC
Proposal or, in the alternative, that the Merger Agreement with BNI is invalid
and unenforceable for failing to include such a provision, and an award of
UPC's costs in bringing its lawsuit, including reasonable attorneys' fees.
Also, on October 6, 1994, five additional purported stockholder class action
suits relating to SFP's proposed participation in the Merger with BNI were
filed in the Court of Chancery of the State of Delaware (Weiss v. Santa Fe
Pacific Corporation, C.A. No. 13779; Lifshitz v. Krebs, C.A. No 13780; Stein v.
Santa Fe Pacific Corporation, C.A. No. 13782; Lewis v. Santa Fe Pacific
Corporation, C.A. No. 13783; Abramson v. Lindig, C.A. No. 13784). On October 7,
1994, three more purported stockholder class action suits relating to SFP's
proposed participation in the Merger with BNI were filed in the Court of
Chancery of the State of Delaware (Graulich v. Santa Fe Pacific Corporation,
C.A. No. 13786; Anderson v. Santa Fe Pacific Corporation, C.A. No. 13787; Green
v. Santa Fe Pacific Corporation, C.A. No. 13788). All of these lawsuits name as
defendants SFP and the individual members of the SFP Board of Directors; the
Lifshitz case further names BNI as a defendant. In general, these actions
variously allege that, in light of SFP's recent operating results and the UPC
merger proposal, SFP's directors have breached their fiduciary duties to
shareholders by purportedly not taking the necessary steps to ensure that SFP's
stockholders will receive "maximum value" for their shares of SFP stock,
including purportedly refusing to negotiate with UPC or to "seriously consider"
the UPC merger proposal and failing to announce any active auction or open
bidding procedures. The actions generally seek relief that is materially
identical to the relief sought in the Miller case, and in addition seek entry
of an order requiring SFP's directors to immediately undertake an evaluation of
SFP's worth as a merger/acquisition candidate and to establish a process
designed to obtain the highest possible price for SFP, including taking steps
to "effectively expose" SFP to the marketplace in an effort to create an
"active auction" in SFP. The Weiss case further seeks entry of an order
enjoining SFP's directors from implementing any poison pill or other device
designed to thwart UPC's merger proposal or any other person's proposal to
acquire SFP.
Defendants believe that all of these lawsuits are meritless and intend to
oppose them vigorously.
65
<PAGE>
DESCRIPTION OF BNI CAPITAL STOCK
The authorized capital stock of BNI consists of 300,000,000 shares of BNI
Common Stock, 25,000,000 shares of No Par Value Preferred Stock ("No Par Value
Preferred"), including 6,900,000 shares of BNI's 6 1/4% Cumulative Convertible
Preferred Stock, Series A No Par Value ("6 1/4% Convertible Preferred Stock"),
and 50,000,000 shares of Class A Preferred Stock, No Par Value (the "Class A
Preferred Stock"), including 800,000 shares of Series A Junior Participating
Class A Preferred Stock, No Par Value (the "Junior Class A Preferred Stock").
The following description of BNI's capital stock does not purport to be
complete and is qualified in its entirety by reference to the General
Corporation Law of the State of Delaware (the "Delaware Corporation Law") and
BNI's Certificate of Incorporation (including the Certificate of Designation
for the 6 1/4% Convertible Preferred Stock).
BNI COMMON STOCK
At October 10, 1994, there were 89,224,101 shares of BNI Common Stock
outstanding. All of the outstanding shares of BNI Common Stock are fully paid
and nonassessable, and the shares of BNI Common Stock to be issued in the
Merger, when issued pursuant to the Merger Agreement, will be fully paid and
nonassessable. Each holder of BNI Common Stock is entitled to one vote per
share in the election of directors and on all other matters submitted to a vote
of stockholders. Subject to the rights and preferences of BNI's preferred
stock, each share of BNI Common Stock is entitled to receive dividends as may
be declared by the Board of Directors out of funds legally available therefor
and to share ratably in all assets available for distribution to stockholders
upon dissolution or liquidation. No holder of BNI Common Stock has any
preemptive right to subscribe for any securities of BNI.
6 1/4% CONVERTIBLE PREFERRED STOCK
As of October 10, 1994, 6,900,000 shares of 6 1/4% Convertible Preferred
Stock were outstanding.
Rank
The 6 1/4% Convertible Preferred Stock has a liquidation preference of $50
per share and ranks, as to dividends and liquidation, prior to the BNI Common
Stock. Without the requisite vote of holders of the 6 1/4% Convertible
Preferred Stock as described below, no class or series of capital stock can be
created ranking senior to the 6 1/4% Convertible Preferred Stock as to dividend
rights, liquidation preference or voting rights. However, BNI may create
additional classes of preferred stock, increase the authorized number of shares
of preferred stock or issue series of preferred stock ranking on a parity with
the 6 1/4% Convertible Preferred Stock with respect, in each case, to the
payment of dividends and amounts upon liquidation, dissolution and winding up
and voting rights without the consent of any holder of 6 1/4% Convertible
Preferred Stock.
Dividend Rights
The holders of the 6 1/4% Convertible Preferred Stock are entitled to
receive, when, as and if declared by BNI's Board of Directors, cumulative cash
dividends at the rate of 6 1/4% per annum per share, payable quarterly.
With limited exceptions, unless full cumulative dividends on the 6 1/4%
Convertible Preferred Stock have been paid or declared in full and sums set
aside for the payment thereof, no dividends (other than dividends in BNI Common
Stock or other shares of the BNI's capital stock ranking junior to the 6 1/4%
Convertible Preferred Stock as to dividends) may be paid or declared and set
aside for the payment or other distribution made upon the BNI Common Stock or,
except as provided above, on any other capital stock of BNI ranking junior to
or on a parity with the 6 1/4% Convertible Preferred Stock as to dividends, nor
may any BNI Common Stock or any other capital stock ranking junior to or on a
parity with the 6 1/4% Convertible Preferred Stock as to dividends be redeemed,
purchased or otherwise acquired for any consideration by BNI or any subsidiary
of BNI (except by conversion into or exchange for capital stock of BNI ranking
junior to the 6 1/4% Convertible Preferred Stock as to dividends).
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Conversion Rights
Holders of the 6 1/4% Convertible Preferred Stock have the right, exercisable
at any time and from time to time, to convert all or any 6 1/4% Convertible
Preferred Stock into such number of whole shares of BNI Common Stock as is
equal to the aggregate liquidation preference amount of the shares of 6 1/4%
Convertible Preferred Stock surrendered for conversion divided by the
conversion price of $47 per share of BNI Common Stock (equivalent to a
conversion rate of approximately 1.064 shares of BNI Common Stock per share of
6 1/4% Convertible Preferred Stock). The conversion rate is subject to
adjustment upon the occurrence of certain events.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the affairs of
BNI, whether voluntary or otherwise, after payment or provision for payment of
BNI's debts and other liabilities, the holders of the 6 1/4% Convertible
Preferred Stock will be entitled to receive, out of the remaining net assets of
BNI, the amount of $50 in cash for each share of 6 1/4% Convertible Preferred
Stock, plus an amount in cash equal to all dividends accrued and unpaid on each
such share up to the date fixed for distribution, before any distribution is
made to the holders of BNI Common Stock or any other capital stock of BNI
ranking (as to any such distribution) junior to the 6 1/4% Convertible
Preferred Stock. If upon any liquidation, dissolution or winding up of BNI, the
assets distributable among the holders of shares of 6 1/4% Convertible
Preferred Stock and all other classes and series of preferred stock ranking (as
to any such distribution) on a parity with the 6 1/4% Convertible Preferred
Stock are insufficient to permit the payment in full to the holders of all such
shares of all preferential amounts payable to all such holders, then the entire
assets of BNI thus distributable will be distributed ratably among the holders
of the 6 1/4% Convertible Preferred Stock and of all classes and series of
preferred stock ranking (as to any such distribution) on a parity with the 6
1/4% Convertible Preferred Stock.
For purposes of the foregoing, a distribution of assets in any dissolution,
winding up or liquidation will not include (i) any consolidation or merger of
BNI with or into any other corporation or (ii) a sale or other disposition of
all or substantially all of BNI's assets to another corporation.
Optional Redemption
The 6 1/4% Convertible Preferred Stock is not redeemable prior to December
26, 1995. On and after such date, the 6 1/4% Convertible Preferred Stock is
redeemable at the option of BNI, in whole or in part, at specified redemption
prices for specified periods, plus, in each case, all accrued and unpaid
dividends up to the date fixed for redemption.
Voting Rights
Except as set forth below or required under the Delaware Corporation Law, the
holders of the 6 1/4% Convertible Preferred Stock are not entitled to vote on
any question or in any proceedings or to be represented at or to receive notice
of any meeting of stockholders of BNI; provided that the holders of the 6 1/4%
Convertible Preferred Stock will have voting rights (i) as provided under
"Limitations" below and (ii) in the event BNI shall have failed to declare and
pay or set apart for payment in full the preferential dividends accumulated on
the outstanding 6 1/4% Convertible Preferred Stock for any six quarterly
dividend payment periods, whether or not consecutive (a "Dividend Non-
Payment"). Except as required by law, the holders of 6 1/4% Convertible
Preferred Stock will not be entitled to vote on any merger or consolidation
involving BNI or a sale of all or substantially all of the assets of BNI.
Consequently, these holders are not entitled to vote on the Merger. In the
event of a Dividend Non-Payment, the number of directors of BNI will be
increased by two and the holders of the outstanding 6 1/4% Convertible
Preferred Stock, voting together as a class with all other series of No Par
Value Preferred ranking on a parity with the 6 1/4% Convertible Preferred Stock
with respect to dividends or distribution of assets upon liquidation and then
entitled to vote on the election
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of such additional directors, will be entitled to elect, as a single class
separately from the holders of any other class of stock of BNI, such two
additional directors until the full dividends accumulated on all outstanding 6
1/4% Convertible Preferred Stock shall have been declared and paid or set apart
for payment.
Limitations
In addition to any other rights provided by applicable law, so long as any
shares of the 6 1/4% Convertible Preferred Stock are outstanding, BNI will not,
without the affirmative vote of the holders of at least two-thirds of the
outstanding shares of the 6 1/4% Convertible Preferred Stock, voting as a
single class:
(a) authorize or issue any class or series of, or rights to subscribe to
or any security convertible into, capital stock ranking senior to the 6
1/4% Convertible Preferred Stock as to payment of dividends, in
distribution of assets upon liquidation or in voting rights; or
(b) change the preferences, rights or powers with respect to the 6 1/4%
Convertible Preferred Stock so as to affect such capital stock adversely.
Except as may otherwise be required by applicable law, such a class vote or
consent is not required (i) in connection with any increase in the total number
of authorized shares of BNI Common Stock, or (ii) in connection with the
authorization or increase of any class or series of shares ranking, as to
dividends and distribution of assets upon liquidation, pari passu with or
junior to the 6 1/4% Convertible Preferred Stock. BNI may issue its presently
authorized but unissued shares of capital stock, or bonds, notes, mortgages,
debentures, and other obligations, and incur indebtedness to banks and to other
lenders, without such consent or class vote.
Preemptive Rights
No holder of the 6 1/4% Convertible Preferred Stock will have preemptive
rights to subscribe for any securities of BNI.
ADDITIONAL CLASSES OF PREFERRED STOCK
No additional No Par Value Preferred or Class A Preferred is outstanding.
Under BNI's Certificate of Incorporation, BNI's Board of Directors has the
authority to issue up to the authorized number of such classes of preferred
stock in one or more series, to fix the number of shares of each series and to
fix the designations, rights and powers of each series. Any series of either
class of preferred stock may be issued without stockholder approval. However,
pursuant to the Merger Agreement, BNI may not authorize or propose the
issuance, delivery or sale of any BNI capital stock except in connection with
the issuance of BNI Rights to SFP stockholders in the Merger.
BNI RIGHTS; JUNIOR CLASS A PREFERRED STOCK
See "Comparison of Rights of Stockholders of BNI and SFP--Rights Plans" for a
description of the BNI Rights and BNI's Junior Class A Preferred Stock.
COMPARISON OF RIGHTS OF STOCKHOLDERS OF BNI AND SFP
Upon the consummation of the Merger, stockholders of SFP will become
stockholders of BNI whose rights will be governed by the Delaware Corporation
Law and BNI's Certificate of Incorporation and Bylaws.
The following is a summary of the material differences of the rights of
stockholders of SFP, on the one hand, and stockholders of BNI, on the other
hand. As both BNI and SFP are Delaware corporations, these differences arise
principally from provisions of the certificate of incorporation and bylaws of
each of BNI and SFP, as well as the existence of BNI's Rights Agreement.
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The following summaries do not purport to be complete statements of the
rights of SFP stockholders under SFP's Certificate of Incorporation and Bylaws
as compared with the rights of BNI stockholders under BNI's Certificate of
Incorporation, Bylaws and Rights Agreement or a complete description of the
specific provisions referred to herein. The identification of specific
differences is not meant to indicate that other equally or more significant
differences do not exist. These summaries are qualified in their entirety by
reference to the Delaware Corporation Law and the governing corporate
instruments of BNI and SFP, to which stockholders are referred. The terms of
BNI's capital stock are described under "Description of BNI Capital Stock."
BOARD OF DIRECTORS
Classified Board
The board of directors of BNI is elected by the BNI stockholders at each
annual meeting of stockholders for a term of one year. BNI's entire board of
directors stands for election at each annual meeting.
The SFP Board is divided into three classes. Each class is to consist, as
nearly as possible, of one-third of the total number of SFP Directors. At each
annual meeting of SFP stockholders, successors to the class of directors whose
term expired as of the annual meeting are elected for a three-year term.
Classification of directors has the effect of making it more difficult for
stockholders to change the composition of the SFP Board. At least two annual
meetings, rather than one, will generally be required to effect a change in the
majority of the SFP Board.
Removal of Directors
Any BNI Director may be removed, with or without cause, at any special
meeting of stockholders called for that purpose, by the affirmative vote of the
holders of a majority in number of shares of BNI entitled to vote for the
election of directors, and the vacancy in the board caused by any such removal
may be filled by the stockholders at such a meeting.
SFP's Certificate of Incorporation and Bylaws make no provision for the
removal of directors. However, Section 141(k) of the Delaware Corporation Law
provides that, in the case of a corporation whose board is classified,
stockholders may effect a removal only for cause.
Number of Directors
The BNI Board is to consist of not less than three nor more than 21
directors. A majority of the BNI Board may fix from time to time the precise
number of directors on the board. BNI's Board of Directors currently consists
of nine members.
The SFP Board is to consist of not less than three nor more than 36
directors. A majority of the SFP Board may fix from time to time the precise
number of directors on the board. The SFP Board currently consists of ten
members.
For information concerning the composition of the board of directors of the
entity surviving the Merger, see "The Merger--Interests of Certain Persons in
the Merger."
SPECIAL MEETINGS OF STOCKHOLDERS
Special meetings of the stockholders of BNI may be called for any purpose at
any time by a majority of the board of directors or by the chairman of the
board and shall be called by the secretary of BNI at the request of the holders
of not less than fifty-one percent of all issued and outstanding shares of BNI
entitled to vote at the meeting.
Special meetings of the stockholders of SFP may be called only by the board
of directors or the executive committee thereof, or the chairman or a vice
chairman of the board or the president of SFP.
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NO STOCKHOLDER ACTION BY WRITTEN CONSENT
Article SEVENTH of BNI's Certificate of Incorporation prohibits BNI
stockholders from acting by written consent in lieu of a meeting; provided that
the provisions of Article SEVENTH may be amended with the affirmative vote of
not less than 51% of the BNI Voting Stock, excluding any BNI Voting Stock held
by an "Interested Stockholder." The term "BNI Voting Stock" means all stock of
BNI entitled to vote for the election of directors. The term "Interested
Stockholder" is defined as a person other than BNI who is (i) the beneficial
owner of ten percent or more of the BNI Voting Stock or (ii) an affiliate of
BNI and (A) at any time within a two-year period prior to the record date to
vote on a Business Combination to which it is a party (as defined below) was
the beneficial owner of ten percent or more of the BNI Voting Stock or (B) at
the completion of the Business Combination will be the beneficial owner of ten
percent or more of the BNI Voting Stock.
Article SIXTH of SFP's Certificate of Incorporation prohibits SFP
stockholders from acting by written consent in lieu of a meeting; provided that
the provisions of Article SIXTH may be amended with the affirmative vote of the
holders of 80% or more of the aggregate voting power of all outstanding shares
of capital stock entitled to vote generally for the election of directors.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS
BNI's Bylaws do not contain any provisions requiring advance notification of
proposals to be brought before stockholder meetings.
SFP's Bylaws provide that, for business to be properly brought before an
annual meeting by a stockholder, a stockholder's notice (setting forth certain
specified information) must be delivered to SFP not less than 50 days nor more
than 75 days prior to the meeting; provided that in the event that less than 65
days' notice or public disclosure of the date of the meeting is given or made
to stockholders, notice by the stockholder to be timely must be so received not
later than fifteen days following the date on which notice of the annual
meeting was mailed or such public disclosure was made, whichever first occurs.
VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS
The affirmative vote of not less than 51% of the BNI Voting Stock, excluding
the Voting Stock of an Interested Stockholder who is a party to the Business
Combination, shall be required for the adoption or authorization of a Business
Combination, unless the Disinterested Directors determine that (a) the
Interested Stockholder is the beneficial owner of not less than eighty percent
of the BNI Voting Stock and has declared its intention to vote in favor of or
approve such Business Combination; or (b)(i) the fair market value of the
consideration per share to be received or retained by the holders of each class
or series of stock of BNI in a Business Combination is equal to or greater than
the consideration per share (including brokerage commissions and soliciting
dealer's fees) paid by such Interested Stockholder in acquiring the largest
number of shares of such class of stock previously acquired in any one
transaction or series of related transactions, whether before or after the
Interested Stockholder became an Interested Stockholder and (ii) the Interested
Stockholder shall not have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances, guarantees, pledges
or other financial assistance provided by BNI, whether in anticipation of or in
connection with such Business Combination or otherwise.
For purposes of the foregoing the following terms have the following
meanings:
"Disinterested Director" means a member of the board of directors of BNI
(other than the Interested Stockholder) who was director prior to the time the
Interested Stockholder became an Interested Stockholder, or any director who
was recommended for election by the Disinterested Directors. Any action to be
taken by the Disinterested Directors shall require the affirmative vote of at
least two-thirds of the Disinterested Directors.
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"Business Combination" means (i) a merger or consolidation of BNI or any of
its subsidiaries with an Interested Stockholder; (ii) the sale, lease,
exchange, pledge, transfer or other disposition (A) by BNI or any of its
subsidiaries of all or a Substantial Part of the corporation's Assets to an
Interested Stockholder, or (B) by an Interested Stockholder of any of its
assets, except in the ordinary course of business, to BNI or any of its
subsidiaries; (iii) the issuance of stock or other securities of BNI or any of
its subsidiaries to an Interested Stockholder, other than on a pro rata basis
to all holders of Voting Stock of the same class held by the Interested
Stockholder pursuant to a stock split, stock dividend or distribution of
warrants or rights; (iv) the adoption of any plan or proposal for the
liquidation or dissolution of BNI proposed by or on behalf of an Interested
Stockholder; (v) any reclassification of securities, recapitalization, merger
or consolidation or other transaction which has the effect, directly or
indirectly, of increasing the proportionate share of any Voting Stock
beneficially owned by an Interested Stockholder; or (vi) any agreement,
contract or other arrangement providing for any of the foregoing transactions.
"Substantial Part of the corporation's Assets" means assets of BNI or any of
its subsidiaries in an amount equal to 20 percent or more of the fair market
value, as determined by the Disinterested Directors, of the total consolidated
assets of BNI and its subsidiaries taken as a whole as of the end of its most
recent fiscal year ended prior to the time the determination is made.
There are no provisions in SFP's Certificate of Incorporation or Bylaws
addressing the stockholder voting requirements for business combinations.
Section 251(c) of the Delaware Corporation Law requires that the affirmative
vote of a majority of the outstanding stock of the corporation entitled to vote
thereon is necessary for the adoption of a business combination.
In addition, the provisions of section 203 of the Delaware Corporation Law
are applicable to both BNI and SFP. Section 203 provides that, subject to
certain exceptions specified therein, a corporation shall not engage in any
business combination with any "interested stockholder" for a three-year period
following the date that such stockholder becomes an interested stockholder
unless (i) prior to such date, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder, (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
shares held by directors who are also officers and employee stock purchase
plans in which employee participants do not have the right to determine
confidentially whether plan shares will be tendered in a tender or exchange
offer) or (iii) on or subsequent to such date, the business combination is
approved by the board of directors of the corporation and by the affirmative
vote at an annual or special meeting, and not by written consent, of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. Except as specified in section 203 of the Delaware Corporation
Law, an interested stockholder is defined to include (a) any person that is the
owner of fifteen percent or more of the outstanding voting stock of the
corporation or is an affiliate or associate of the corporation and was the
owner of fifteen percent or more of the outstanding voting stock of the
corporation at any time within three years immediately prior to the relevant
date and (b) the affiliates and associates of any such person.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The BNI Bylaws provide that BNI shall indemnify any officer or director to
whom, and to the extent, indemnification may be granted pursuant to the
Delaware Corporation Law and further provides that a person who was or is made
a party to, or is involved in any action, suit or proceeding by reason of the
fact that he is or was a director, officer or employee of BNI will be
indemnified by BNI against all expenses and liabilities, including counsel
fees, reasonably incurred by or imposed upon such person. The BNI Bylaws also
provide that the foregoing right of indemnification shall be in addition to and
not exclusive of all other rights to which such director, officer or employee
may be entitled. The SFP Bylaws contain substantially similar provisions with
respect to indemnification.
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RIGHTS PLANS
SFP does not have a rights plan.
The following is a summary of BNI's rights plan. The BNI rights plan will not
be triggered by the Merger. The summary does not purport to be complete and is
qualified in its entirety to BNI's Registration Statement on Form 8-A dated
July 15, 1986, including the Rights Agreement included as an exhibit thereto.
On July 10, 1986, the Board of Directors of BNI declared a dividend
distribution of one BNI Right for each outstanding share of BNI Common Stock to
stockholders of record at the close of business on July 24, 1986 (the "Rights
Record Date"). Except as set forth below, each BNI Right, when exercisable,
entitles the registered holder to purchase from BNI one one-hundredth of a
share of Junior Class A Preferred Stock at a price of $190 per one one-
hundredth of a share (the "Purchase Price"), subject to adjustment.
Initially, the BNI Rights will be attached to all BNI Common Stock
certificates representing shares then outstanding, and no separate BNI Rights
certificates will be distributed. Until the earlier to occur of (i) ten days
following a public announcement that, without the prior consent of BNI, a
person or group of affiliated or associated persons (an "Acquiring Person") has
acquired, or obtained the right to acquire, beneficial ownership of securities
having twenty percent or more of the voting power of all outstanding voting
securities of BNI (the "Stock Acquisition Date"), or (ii) ten days following
the commencement of (or a public announcement of an intention to make) a tender
offer or exchange offer which would result in any person or group and related
persons having beneficial ownership of securities having twenty percent or more
of such voting power, without the prior consent of BNI (the earlier of such
dates being called the "Distribution Date"), the BNI Rights will be evidenced,
with respect to any of the BNI Common Stock certificates outstanding as of the
Rights Record Date, by such BNI Common Stock certificate. The Rights Agreement
provides that, until the Distribution Date, the Rights will be transferred with
and only with BNI Common Stock certificates. From as soon as practicable after
the Rights Record Date and until the Distribution Date (or earlier redemption
or expiration of the BNI Rights), new BNI Common Stock certificates issued
after the Rights Record Date upon transfer or new issuance of the BNI Common
Stock will contain a notation incorporating the Rights Agreement by reference.
Until the Distribution Date (or earlier redemption or expiration of the
Rights), the surrender for transfer of any certificates for BNI Common Stock
outstanding as of the Rights Record Date will also constitute the transfer of
the BNI Rights associated with the BNI Common Stock represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the BNI Rights ("Rights Certificates") will be mailed
to holders of record of the BNI Common Stock as of the close of business on the
Distribution Date, and the separate Rights Certificates alone will evidence the
BNI Rights.
The BNI Rights are not exercisable until the Distribution Date. The BNI
Rights will expire on July 24, 1996, unless earlier redeemed or the term of the
BNI Rights Agreement is extended by BNI as described below.
The Purchase Price payable, and the number of shares of the Junior Class A
Preferred Stock or other securities or property issuable, upon exercise of the
BNI Rights are subject to adjustment from time to time to prevent dilution (i)
in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Junior Class A Preferred Stock, (ii) upon the grant to
holders of the Junior Class A Preferred Stock of certain rights or warrants to
subscribe for Junior Class A Preferred Stock, certain convertible securities or
securities having the same or more favorable rights, privileges and preferences
as the Junior Class A Preferred Stock at less than the current market price of
the Junior Class A Preferred Stock or (iii) upon the distribution to holders of
the Junior Class A Preferred Stock of evidences of indebtedness or assets
(excluding regular quarterly cash dividends out of earnings or retained
earnings and dividends payable in Junior Class A Preferred Stock) or of
subscription rights or warrants (other than those referred to above).
In the event that BNI is acquired in a merger or other business combination
transaction where BNI is not the surviving corporation or where the BNI Common
Stock is exchanged or changed or fifty percent or more of its assets or earning
power are sold (in one transaction or a series of transactions), proper
provision shall be made so that each holder of a BNI Right shall thereafter
have the right to receive, upon the exercise
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thereof at the then current exercise price of the BNI Right, that number of
shares of common stock of the acquiring company (or, in the event there is more
than one acquiring company, the acquiring company receiving the greatest
portion of the assets or earning power transferred) which at the time of such
transaction would have a market value of two times the exercise price of the
BNI Right (such right being called the "Merger Right"). In the event that BNI
is the surviving corporation in a merger and the BNI Common Stock is not
changed or exchanged, or in the event that an Acquiring Person engages in one
of a number of self-dealing transactions specified in the Rights Agreement, or
an Acquiring Person becomes the beneficial owner of securities having 25% or
more of the voting power of all then outstanding voting securities of BNI
(unless pursuant to an all-cash tender offer for all outstanding shares of BNI
Common Stock), proper provision shall be made so that each holder of a BNI
Right will for a 60-day period thereafter have the right to receive upon
exercise that number of shares (or fractional shares) of Junior Class A
Preferred Stock having a market value of two times the exercise price of the
BNI Right, subject to the availability of a sufficient number of treasury
shares on authorized but unissued shares (such right being called the
"Subscription Right"). The holder of a BNI Right will continue to have the
Merger Right whether or not such holder exercises the Subscription Right. Upon
the occurrence of any of the events giving rise to the exercisability of the
Subscription Right or the Merger Right, any BNI Rights that are or were at any
time owned by an Acquiring Person engaging in any of such transactions or
receiving the benefits thereof on or after the time the Acquiring Person
becomes such shall become void insofar as they relate to the Subscription Right
or the Merger Right.
With certain exceptions, no adjustments in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least one
percent in such Purchase Price. No fractions of shares (other than fractional
shares of Junior Class A Preferred Stock that are integral multiples of one
one-hundredth of a share) will be issued and, in lieu thereof, an adjustment in
cash will be made based on the market price of the Junior Class A Preferred
Stock on the last trading date prior to the date of exercise.
At any time prior to the earlier to occur of (i) the close of business on the
Stock Acquisition Date or (ii) the expiration of the BNI Rights, BNI may redeem
the BNI Rights in whole, but not in part, at a price of $.05 per BNI Right (the
"Redemption Price"), which redemption shall be effective upon the action of the
BNI Board of Directors. Additionally, BNI may thereafter redeem the then
outstanding BNI Rights in whole, but not in part, at the Redemption Price,
provided that such redemption is incidental to a merger or other business
combination transaction or series of transactions involving BNI but not
involving an Acquiring Person or any person who was an Acquiring Person or
following an event giving rise to, and the expiration of the exercise period
for, the Subscription Right if and for as long as an Acquiring Person
beneficially owns securities representing less than twenty percent of the
voting power of BNI's voting securities. BNI's right to redeem the BNI Rights
may be reinstated if an Acquiring Person reduces his beneficial ownership of
securities to those having less than five percent of the voting power of all
then outstanding voting securities of BNI in a transaction or series of
transactions not involving BNI. The redemption of BNI Rights described in the
two preceding sentences shall be effective only as of such time when the
Subscription Right is not exercisable, and in any event, only after ten
business days prior notice. Upon the effective date of the redemption of the
BNI Rights, the right to exercise the BNI Rights will terminate and the only
right of the holders of BNI Rights will be to receive the Redemption Price.
The Junior Class A Preferred Stock purchasable upon exercise of the BNI
Rights will be nonredeemable and junior to any other series of preferred stock
BNI may issue (unless otherwise provided in the terms of such stock). Each
share of Junior Class A Preferred Stock will have a preferential quarterly
dividend in an amount equal to the greater of $10.00 and 100 times the dividend
declared on each share of BNI Common Stock. In the event of liquidation, the
holders of Junior Class A Preferred Stock will receive a preferred liquidation
payment equal to the greater of $19,000 and 100 times the payment made per
share of BNI Common Stock. Each share of Junior Class A Preferred Stock will
have 100 votes, voting together with the shares of BNI Common Stock. In the
event of any merger, consolidation or other transaction in which shares of BNI
Common Stock are exchanged, each share of Junior Class A Preferred Stock will
be entitled to receive
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100 times the amount and type of consideration received per share of BNI Common
Stock. The rights of the Junior Class A Preferred Stock as to dividends,
liquidation and voting, and in the event of merger and consolidations, are
protected by customary anti-dilution provisions. Fractional shares of Junior
Class A Preferred Stock in integral multiples of one one-hundredth of a share
of Junior Class A Preferred Stock will be issuable; however, BNI may elect to
distribute depositary receipts in lieu of such fractional shares. In lieu of
fractional shares other than fractions that are integral multiples of one one-
hundredth of a share, an adjustment in cash will be made based on the market
price of the Junior Class A Preferred Stock on the last trading date prior to
the date of exercise.
Until a BNI Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of BNI, including, without limitation, the right to
vote or to receive dividends.
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EXPERTS
The consolidated financial statements of BNI as of December 31, 1993 and 1992
and for each of the three years in the period ended December 31, 1993,
incorporated by reference in this Joint Proxy Statement/Prospectus, have been
incorporated herein by reference in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
The consolidated financial statements of SFP as of December 31, 1993 and 1992
and for each of the three years in the period ended December 31, 1993,
incorporated by reference in this Joint Proxy Statement/Prospectus to SFP's
Form 8-K/A dated October 5, 1994, have been so incorporated in reliance on the
reports of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
Representatives of Coopers & Lybrand L.L.P. are expected to be present at the
BNI Special Meeting and representatives of Price Waterhouse LLP are expected to
be present at the SFP Special Meeting, where they will have the opportunity to
make a statement if they desire to do so and will be available to respond to
appropriate questions.
LEGAL MATTERS
The validity of the BNI Common Stock offered hereby will be passed upon by
Francis T. Kelly, Esq., Securities and Finance Counsel of BNI. Mr. Kelly owns
4,030 shares of BNI Common Stock (2,788 shares subject to risk of forfeiture)
and holds options to purchase 7,381 shares of BNI Common Stock.
OTHER BUSINESS AT THE SPECIAL MEETINGS;
STOCKHOLDER PROPOSALS
BNI management and SFP management know of no other matters that may properly
be, or which are likely to be, brought before the BNI Special Meeting or the
SFP Special Meeting, respectively. However, if any other matters are properly
brought before such Special Meetings, the persons named in the enclosed proxy
or their substitutes will vote the proxies in accordance with the
recommendations of management.
In order to be considered for inclusion in the proxy statement for the next
annual meeting of stockholders of BNI, any stockholder proposal intended to be
presented at the meeting must have been received by BNI at its executive
offices on or before November 19, 1994.
In order to be considered for inclusion in the proxy statement for the 1995
annual meeting of stockholders of SFP, any stockholder proposal intended to be
presented at the meeting must have been received by SFP at its executive
offices no later than November 15, 1994.
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APPENDIX A
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............................................................ A-1
1.2.Conversion of Shares.................................................. A-1
1.3.Surrender and Payment................................................. A-2
1.4.Stock Options......................................................... A-3
1.5.Adjustments........................................................... A-3
1.6.Closing............................................................... A-3
1.7.Fractional Shares..................................................... A-4
ARTICLE II
CERTAIN MATTERS RELATING TO BNI
AND THE SURVIVING CORPORATION
2.1.Directors of the Surviving Corporation................................ A-4
2.2.Certificate of Incorporation and Bylaws of the Surviving Corporation.. A-4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SFP
3.1.Corporate Existence and Power......................................... A-4
3.2.Corporate Authorization............................................... A-5
3.3.Governmental Authorization............................................ A-5
3.4.Non-Contravention..................................................... A-5
3.5.Capitalization........................................................ A-5
3.6.Material Subsidiaries................................................. A-6
3.7.SEC Filings........................................................... A-6
3.8.Financial Statements.................................................. A-7
3.9.Disclosure Documents.................................................. A-7
3.10. Information Supplied................................................ A-8
3.11.No Material Adverse Changes.......................................... A-8
3.12.Undisclosed Material Liabilities..................................... A-8
3.13.Litigation........................................................... A-8
3.14.Taxes................................................................ A-8
3.15. ERISA............................................................... A-9
3.16. Finders' Fees...................................................... A-11
3.17. Environmental Matters.............................................. A-11
3.18. Takeover Statutes.................................................. A-11
3.19. Compliance With Laws............................................... A-11
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(/1/)The Table of Contents is not a part of this Agreement.
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3.20. Spinoff Dividend................................................... A-11
3.21. Private Letter Ruling.............................................. A-11
3.22. Excess Loss Accounts............................................... A-12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BNI
4.1. Corporate Existence and Power....................................... A-12
4.2. Corporate Authorization............................................. A-12
4.3. Governmental Authorization.......................................... A-12
4.4. Non-Contravention................................................... A-12
4.5. Capitalization...................................................... A-13
4.6. Material Subsidiaries............................................... A-13
4.7. SEC Filings......................................................... A-14
4.8. Financial Statements................................................ A-14
4.9. Disclosure Documents................................................ A-14
4.10. Information Supplied............................................... A-15
4.11. No Material Adverse Changes........................................ A-15
4.12. Undisclosed Material Liabilities................................... A-15
4.13. Litigation......................................................... A-15
4.14. Taxes.............................................................. A-15
4.15. ERISA.............................................................. A-16
4.16. Finders' Fees...................................................... A-18
4.17. Environmental Matters.............................................. A-18
4.18. Takeover Statutes.................................................. A-18
4.19. Compliance with Laws............................................... A-18
4.20. BNI Rights Agreement............................................... A-18
ARTICLE V
COVENANTS OF SFP
5.1. Conduct of SFP...................................................... A-18
5.2. Stockholder Meeting................................................. A-19
5.3. Access to Information............................................... A-20
5.4. Notices of Certain Events........................................... A-20
5.5. Tax Matters......................................................... A-20
5.6. Rule 145 Affiliates................................................. A-20
5.7. The Spinoff......................................................... A-20
5.8. No Solicitations.................................................... A-21
ARTICLE VI
COVENANTS OF BNI
6.1. Conduct of BNI...................................................... A-21
6.2. Stockholder Meeting................................................. A-23
6.3. Access to Information............................................... A-23
6.4. Notices of Certain Events........................................... A-23
6.5. Tax Matters......................................................... A-23
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6.6. Director and Officer Liability...................................... A-23
6.7. No Solicitations.................................................... A-24
ARTICLE VII
COVENANTS OF BNI AND SFP
7.1. Reasonable Best Efforts............................................. A-24
7.2. ICC Approval........................................................ A-24
7.3. Certain Filings; Proxy Materials.................................... A-25
7.4. Public Announcements................................................ A-25
7.5. Further Assurances.................................................. A-25
7.6. Antitakeover Statutes............................................... A-25
7.7. Cooperation......................................................... A-25
7.8. Dividends........................................................... A-26
ARTICLE VIII
[INTENTIONALLY OMITTED]
ARTICLE IX
CONDITIONS TO THE MERGER
9.1. Conditions to the Obligations of Each Party......................... A-26
9.2. Conditions to the Obligations of BNI................................ A-27
9.3. Conditions to the Obligations of SFP................................ A-27
ARTICLE X
TERMINATION
10.1. Termination......................................................... A-27
10.2. Effect of Termination............................................... A-28
ARTICLE XI
MISCELLANEOUS
11.1. Notices............................................................. A-29
11.2. Entire Agreement; Survival of Representations and Warranties......... A-29
11.3. Amendments; No Waivers.............................................. A-30
11.4. Expenses............................................................ A-30
11.5. Successors and Assigns.............................................. A-30
11.6. Governing Law....................................................... A-30
11.7. Jurisdiction........................................................ A-30
11.8. Counterparts; Effectiveness......................................... A-31
iii
<PAGE>
TABLE OF DEFINITIONS
<TABLE>
<CAPTION>
TERM SECTION
- ---- --------
<S> <C>
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...................................................... 4.15(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)
</TABLE>
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<TABLE>
<CAPTION>
TERM SECTION
- ---- --------
<S> <C>
HSR Act................................................................ 3.3
ICC.................................................................... 3.3
Indemnified Parties.................................................... 6.6
Indemnity Agreements................................................... 6.6
Lien................................................................... 3.4
Liquidation............................................................ 3.21
Material............................................................... 6.1(h)
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
</TABLE>
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:
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
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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 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 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
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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
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
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<PAGE>
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".
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 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
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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 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 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
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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 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
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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 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, 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
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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 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, 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")
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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, 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
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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
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.
(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
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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, 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 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
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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 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
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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 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, 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
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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 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, 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
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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 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
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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.
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 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
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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.
(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 which 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 postretirement life, health and medical
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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.
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,
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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;
(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 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
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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 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.
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
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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, 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;
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(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 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);
(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).
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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.
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 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
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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 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 (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.
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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 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
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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 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 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
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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 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;
A-27
<PAGE>
(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);
(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.
A-28
<PAGE>
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 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).
A-29
<PAGE>
(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 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.
A-30
<PAGE>
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.
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.
/s/ Gerald Grinstein
By: _________________________________
Title: Chairman and Chief
Executive Officer
Santa Fe Pacific Corporation
/s/ Robert D. Krebs
By: _________________________________
Title: Chairman, President and
Chief Executive Officer
A-31
<PAGE>
APPENDIX B
LETTER AGREEMENT
BETWEEN
BURLINGTON NORTHERN INC.
AND
SANTA FE PACIFIC CORPORATION
<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
Schaumburg, 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 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:
/s/ Robert D. Krebs
- -------------------------------------
Robert D. Krebs
for SFP
B-1
<PAGE>
APPENDIX C
OPINION OF LAZARD FRERES & CO.
<PAGE>
October 12, 1994
The Board of Directors
Burlington Northern Inc.
3800 Continental Plaza
777 Main Street
Fort Worth, Texas 76102
Dear Members of the Board:
We understand that Burlington Northern Inc. ("BN") and Santa Fe Pacific
Corporation ("SF") have entered into an Agreement and Plan of Merger dated as
of June 29, 1994 (the "Agreement"), pursuant to which, among other things, SF
shall be merged with and into BN, with BN as the surviving corporation (the
"Merger"). Under the terms of the Agreement, upon consummation of the Merger,
each share of Common Stock, par value $1.00 per share (the "SF Common Stock"),
of SF, outstanding immediately prior to the effective time of the Merger, shall
be converted into .27 of a share of Common Stock, no par value (the "BN Common
Stock"), of BN (the "Exchange Ratio"). We further understand that the board of
directors of SF has declared a special dividend of the stock of Santa Fe
Pacific Gold Corporation owned by SF which was distributed on September 30,
1994 to SF shareholders (the "Spinoff") and that SF 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 terms and conditions of the
Merger are more fully set forth in the Agreement.
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of BN Common Stock, of the Exchange Ratio pursuant to the
Agreement.
Lazard Freres & Co. has acted as financial advisor to BN in connection with
this transaction and will receive a fee for our services, a portion of which is
contingent upon closing of the transaction. In connection with this opinion, we
have, among other things:
(i) reviewed the terms and conditions of the Agreement;
(ii) analyzed certain historical business and financial information
relating to BN and SF, including the Annual Reports to Stockholders and
Annual Reports on Form 10-K of BN and SF for each of the fiscal years ended
December 31, 1989 through 1993 (and any amendments thereto), Quarterly
Reports on Form 10-Q of BN and SF for the quarters ended March 31, June 30
and September 30 for each of the same fiscal years and for the quarters
ended March 31 and June 30, 1994 (and any amendments thereto), Current
Reports on Form 8-K of BN dated June 29 and October 6, 1994 and Current
Reports on Form 8-K of SF dated June 29, August 3 and October 5, 1994 (and
any amendments thereto);
(iii) reviewed certain financial forecasts and other data provided to us
by BN and SF relating to their respective businesses;
(iv) held discussions with members of the senior management of BN and SF
with respect to the businesses and prospects of BN and SF, respectively,
the strategic objectives of each, and possible benefits which might be
realized following the Merger;
(v) reviewed public information with respect to certain other companies
in lines of businesses we believe to be comparable to the businesses of BN
and SF;
C-1
<PAGE>
(vi) reviewed the financial terms of certain recent business combinations
involving companies in lines of businesses we believe to be comparable to
those of BN and SF, and in other industries generally;
(vii) analyzed the pro forma financial impact of the Merger on BN and SF;
(viii) reviewed the historical stock prices and trading volumes of the BN
Common Stock and SF Common Stock; and
(ix) reviewed the Joint Proxy Statement/Prospectus dated the date hereof;
and
(x) conducted such other financial studies, analyses and investigations
as we deemed appropriate.
We have relied upon the accuracy and completeness of the financial and other
information provided by BN and SF to us and have not assumed any responsibility
for independent verification of such information or any independent valuation
or appraisal of any of the assets of BN or SF. With respect to the financial
forecasts referred to above, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the respective managements of BN and SF as to the future financial
performance of their businesses. Further, our opinion is necessarily based on
economic, monetary, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
In rendering our opinion, we have also assumed that obtaining the necessary
regulatory and governmental approvals for the Merger, including approval of the
Interstate Commerce Commission, may significantly delay the consummation of the
Merger, and that, in the course of obtaining such approvals, no restriction
will be imposed that will have a material adverse effect on the contemplated
benefits of the Merger to BN.
Our engagement and the opinion expressed herein are solely for the benefit of
BN's Board of Directors and are not on behalf of, and are not intended to
confer rights or remedies upon, SF, any stockholders of BN of SF or any other
person other than BN's Board of Directors. It is understood that, except for
inclusion in a proxy statement relating to the Merger, this letter may not be
disclosed or otherwise referred to without our prior written consent, except as
may otherwise be required by law or by a court of competent jurisdiction.
Based on and subject to the foregoing and such other factors as we deem
relevant, we are of the opinion that, as of the date hereof, the Exchange Ratio
is fair to the holders of BN Common Stock from a financial point of view.
Very truly yours,
LAZARD FRERES & CO.
C-2
<PAGE>
APPENDIX D
OPINION OF GOLDMAN, SACHS & CO.
<PAGE>
PERSONAL AND CONFIDENTIAL
October 12, 1994
Board of Directors
Santa Fe Pacific Corporation
1700 East Golf Road
Schaumburg, Illinois 60173-5860
Gentlemen and Madame:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of common stock, par value $1.00 per share (the "Common
Stock"), of Santa Fe Pacific Corporation (the "Company") of the exchange ratio
of 0.27 shares of common stock, with no par value, of Burlington Northern, Inc.
("BNI Common Stock") to be received for each share of Common Stock (the
"Exchange Ratio") pursuant to the Agreement and Plan of Merger, dated as of
June 29, 1994, among Burlington Northern, Inc. ("BNI") and the Company (the
"Agreement") in connection with the merger of the Company with and into BNI
(the "Merger").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having performed various investment banking services
for the Company from time to time, including having acted as managing and co-
managing underwriter of public offerings of Common Stock of the Company in
October 1991 and June 1992, respectively, having acted as financial advisor on
the asset exchange between the Company and Hanson Natural Resources Company in
June 1993, having acted as managing underwriter of a public offering of Common
Stock of Santa Fe Pacific Gold Corporation, a subsidiary of the Company, in
June of 1994 as well as having acted as the Company's financial advisor in
connection with, and having participated in certain of the negotiations leading
to, the Agreement. We also have provided certain investment banking services to
BNI from time to time, including acting as co-managing underwriter of a public
offering of BNI Common Stock in November 1991, acting as managing underwriter
of a public offering of 6 1/4% Cumulative Convertible Preferred Stock in
November 1992, acting as a co-managing underwriter in a public offering of 7
1/2% Debentures due 2002 in July 1993 and may provide investment banking
services to BNI in the future.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Joint Proxy Statement/Prospectus; Annual Reports to Stockholders
and Annual Reports on Form 10-K of the Company and BNI for the five years ended
December 31, 1993 (and any amendments thereto); certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of the Company and BNI (and any
amendments thereto); certain other communications from the Company and BNI to
their respective stockholders; certain Current Reports on Form 8-K of the
Company and BNI; and certain internal financial analyses and forecasts for the
Company and BNI prepared by their respective managements. We also have held
discussions with members of the senior management of the Company and BNI
regarding the past and current business operations, financial condition and
future prospects of their respective companies. Furthermore, we have considered
the views of the senior management of the Company regarding the strategic
importance of, and potential synergies in the form of cost savings expected to
be realized from, the Merger. In addition, we have reviewed the reported price
and trading activity for the Common Stock and BNI Common Stock, compared
certain financial and stock market information for the Company and BNI with
similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the railroad industry specifically and in other industries
generally and performed such other studies and analyses as we considered
appropriate.
D-1
<PAGE>
Santa Fe Pacific Corporation
October 12, 1994
Page Two
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In addition, we have not made an independent
evaluation or appraisal of the assets and liabilities of the Company or BNI or
any of their respective subsidiaries and we have not been furnished with any
such evaluation or appraisal. We have assumed with your consent that the Merger
will be accounted for as a pooling of interests under generally accepted
accounting principles and that the transaction will receive regulatory approval
in the manner contemplated by the Agreement.
Management of the Company has advised us that in its opinion there are
significant contingencies associated with the proposal, dated October 5, 1994,
from Union Pacific Corporation (the "UPC Proposal") and counsel to the Company
has advised the Company's Board of Directors and management that there are
significant legal uncertainties relating to the consummation of such proposal.
We have assumed with your consent that this advice was correct and that in
analyzing the Exchange Ratio we need not take into account the consideration
which might be received under the UPC Proposal.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair to the holders of outstanding shares of
Common Stock.
Very truly yours,
LOGO
GOLDMAN, SACHS & CO.
D-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As authorized by Section 145 of the General Corporation Law of the State of
Delaware ("Delaware Corporation Law"), BNI may indemnify directors, officers,
employees and certain other individuals against expenses (including attorneys'
fees), judgments, fines, and amounts paid in settlement actually and reasonably
incurred in connection with the defense or settlement of any threatened,
pending, or completed legal proceeding (other than an action by or in the right
of BNI) in which they are involved by reason of the fact that they are or were
a director, officer, employee, or other qualified individual if they acted in
good faith and in a manner that they reasonably believed to be in, or not
opposed to, the best interests of BNI, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe that their conduct was
unlawful. If the legal proceeding is by or in the right of BNI directors,
officers, employees, or other qualified individuals may not be indemnified in
respect of any claim, issue, or matter as to which they have been adjudged to
be liable to BNI unless a Delaware Court of Chancery determines otherwise.
Article EIGHTH of BNI's Certificate of Incorporation and Article X of the By-
Laws of BNI provide for indemnification of BNI's directors, officers,
employees, and certain other individuals to the full extent authorized by the
Delaware Corporation Law.
Pursuant to Section 102(b)(7) of the Delaware Corporation Law, Article EIGHTH
of BNI's Certificate of Incorporation provides that the directors of BNI,
individually or collectively, shall not be held personally liable to BNI or its
stockholders for monetary damages for breach of fiduciary duty as directors,
except that any director shall remain liable (i) for any breach of the
director's fiduciary duty of loyalty to BNI or its stockholders, (ii) for acts
or omissions not in good faith or involving intentional misconduct or a knowing
violation of the law, (iii) under Section 174 of the Delaware Corporation Law,
or (iv) for any transaction from which the director derived an improper
personal benefit.
BNI maintains officers' and directors' liability insurance, which insures
against liabilities that the officers and directors may incur in such
capacities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger dated as of June 29, 1994, between
Burlington Northern Inc. and Santa Fe Pacific Corporation as
amended by Amendment No. 1 thereto dated as of October 26, 1994,
(schedules thereto omitted but available to the Securities and
Exchange Commission upon request) and related letter agreements
(June 30, 1994 Form 10-Q, filed August 1994).*
3.1 Certificate of Incorporation of Burlington Northern Inc. as
Amended through February 28, 1992 (1993 Form 10-K, filed February
1994).**
3.2 Certificate of Increase of Number of Shares of Series A Junior
Participating Class A Preferred Stock of Burlington Northern
Inc., dated January 9, 1992 (1991 Form 10-K, filed February
1992).**
3.3 By-Laws of Burlington Northern Inc. as Amended through July 17,
1991 (1993 Form 10-K, filed February 1994).**
4.1 Form of Rights Agreement dated as of July 14, 1986, between Bur-
lington Northern Inc. and The First National Bank of Boston which
includes, as Exhibit A thereto, the Form of Certificate of Desig-
nation specifying the terms of the Preferred Stock and as Exhib-
it B thereto, the form of Rights Certificate (Form 8-A, No. 1-
8159, filed July 1986). Burlington Northern Inc. and its subsidi-
aries either have previously filed with the Securities and Ex-
change Commission or upon request will furnish a copy of any in-
strument with respect to long-term debt of Burlington Northern
Inc. and its subsidiaries.**
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.2 Certificate of Designation of 6 1/4% Cumulative Convertible Pre-
ferred Stock, Series A, No Par Value of Burlington Northern Inc.,
dated November 24, 1992 (1992 Form 10-K, filed February 1993).**
5.1 Opinion of counsel as to the legality of the securities being
registered.*
10.1 Form of Tax Sharing Agreement between Burlington Northern Inc. and
Burlington Resources Inc. (1988 Form 10-K Amendment No. 1, filed
March 1989).**
10.2 1987 Burlington Northern Inc. Stock Option Incentive Plan as filed
on Form S-8
No. 33-18082.**
10.3 1982 Burlington Northern Inc. Stock Option Incentive Plan as filed
on Form S-8
No. 2-80478.**
10.4 Burlington Northern Inc. Incentive Compensation Plan as filed on
Form S-8
No. 33-25806.**
10.5 Burlington Northern Inc. Senior Executive Survivor Benefit Plan as
of April 1, 1986 (1987 Form 10-K Amendment No. 1, filed March
1988).**
10.6 Burlington Northern Inc. Deferred Compensation Plan as of January
1, 1988 (1987 Form 10-K Amendment No. 1, filed March 1988).**
10.7 Burlington Northern Inc. Performance Share Unit Plan (1981) as of
January 1, 1988 (1987 Form 10-K Amendment No. 1, filed March
1988).**
10.8 Burlington Northern Inc. 1987 Performance Share Unit Plan as of
January 1, 1988 (1987 Form 10-K Amendment No. 1, filed March
1988).**
10.9 Burlington Northern Inc. Supplemental Benefits Plan as of January
1987 (1987 Form 10-K Amendment No. 1, filed March 1988).**
10.10 1989 Burlington Northern Inc. Restricted Stock Incentive Plan
(1990 Form 10-K, filed March 1991).**
10.11 1990 Burlington Northern Inc. Directors Stock Option Plan (1990
Form 10-K, filed March 1991).**
10.12 1990 Burlington Northern Inc. Directors Restricted Stock Plan
(1990 Form 10-K, filed March 1991).**
10.13 1992 Burlington Northern Inc. Stock Option Incentive Plan (1992
Form 10-K, filed February 1993).**
10.14 1993 Burlington Northern Inc. Employee Stock Purchase Plan (1992
Form 10-K, filed February 1993).**
10.15 Employment Agreement, dated as of December 20, 1988, by and be-
tween Burlington Northern Inc. and Mr. Gerald Grinstein (1988
Form 10-K Amendment No. 1, filed March 1989).**
10.17 Employment Agreement, dated as of April 27, 1992, by and between
Burlington
Northern Inc. and Mr. Gerald Grinstein (1992 Form 10-K, filed
February 1993).**
10.19 Employment Agreement, dated as of August 21, 1991, by and between
Burlington Northern Inc. and Mr. David C. Anderson (1991 Form 10-
K, filed February 1992).**
10.22 Form of Severance Agreements.*
11.1 Computation of Earnings per Common Share.*
21.1 Subsidiaries of Burlington Northern Inc.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
23.1 Consent of Coopers & Lybrand L.L.P.*
23.2 Consent of Price Waterhouse LLP.*
23.3 Consent of Lazard Freres & Co.*
23.4 Consent of Goldman, Sachs & Co.*
23.5 Consent of Francis T. Kelly, Esq. (included in his opinion filed
as Exhibit 5).*
24.1 Power of Attorney (included on the signature page II-5).*
99.1 October 5, 1994 letter from Drew Lewis, Chairman, Union Pacific
Corporation to
Robert D. Krebs, Chairman, President and Chief Executive Offi-
cer, Santa Fe
Pacific Corporation.*
99.2 October 6, 1994 letter from Robert D. Krebs to Drew Lewis.*
99.3 October 11, 1994 letter from Drew Lewis to Robert D. Krebs.*
99.4 October 11, 1994 letter from Robert D. Krebs to Drew Lewis.*
99.5 October 12, 1994 letter from Drew Lewis to Rober D. Krebs.*
99.6 October 17, 1994 memorandum prepared by UPC's Vice President of
Strategic Planning.*
99.7 October 24, 1994 UPC Panel Statement.
</TABLE>
- --------
*Exhibit is being filed herewith.
**Exhibit is being incorporated by reference as indicated.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes as follows:
(1) Prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this Registration Statement, by
any person or party which is deemed to be an underwriter within the meaning of
Rule 145(c), such reoffering prospectus will contain the information called for
by the applicable registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) Every prospectus (i) that is filed pursuant to paragraph (1) immediately
preceding, or (ii) that purports to meet the requirements of Section 10(a)(3)
of the Act and is used in connection with an offering of securities subject to
Rule 415, will be filed as a part of an amendment to the Registration Statement
and will not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act of 1933, as amended, each
such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-3
<PAGE>
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request. The undersigned Registrant hereby
further undertakes to supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired involved
therein, that was not the subject of or included in the Registration Statement
when it became effective.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT WORTH, STATE OF
TEXAS, ON OCTOBER 27, 1994.
Burlington Northern Inc.
/s/ Edmund W. Burke
BY: ________________________________
EDMUND W. BURKE,EXECUTIVE VICE
PRESIDENT, LAW AND SECRETARY
POWER OF ATTORNEY
EACH PERSON WHOSE SIGNATURE APPEARS BELOW CONSTITUTES AND APPOINTS EDMUND W.
BURKE, ESQ. AND DOUGLAS J. BABB, ESQ. HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-
FACT AND AGENT, EACH ACTING ALONE, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION, FOR HIM OR HER AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY
AND ALL CAPACITIES, TO SIGN ANY OR ALL AMENDMENTS (INCLUDING POST-EFFECTIVE
AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO FILE THE SAME, WITH ALL
EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND
AGENTS, EACH ACTING ALONE, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND
EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE
PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR COULD DO
IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS, EACH ACTING ALONE, OR HIS OR HER SUBSTITUTE OR SUBSTITUTES, MAY
LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURES TITLE DATE
/s/ Gerald Grinstein Chairman, Chief October 27,
- ------------------------------------- Executive Officer 1994
GERALD GRINSTEIN and Director
/s/ David C. Anderson Executive Vice October 27,
- ------------------------------------- President, Chief 1994
DAVID C. ANDERSON Financial Officer
and Chief
Accounting Officer
/s/ Jack S. Blanton Director October 27,
- ------------------------------------- 1994
JACK S. BLANTON
/s/ Daniel P. Davison Director October 27,
- ------------------------------------- 1994
DANIEL P. DAVISON
II-5
<PAGE>
SIGNATURES TITLE DATE
/s/ Daniel J. Evans Director October 27,
- ------------------------------------- 1994
DANIEL J. EVANS
/s/ Barbara C. Jordan Director October 27,
- ------------------------------------- 1994
BARBARA C. JORDAN
/s/ Ben F. Love Director October 27,
- ------------------------------------- 1994
BEN F. LOVE
/s/ Arnold R. Weber Director October 27,
- ------------------------------------- 1994
ARNOLD R. WEBER
/s/ Edward E. Whitacre, Jr. Director October 27,
- ------------------------------------- 1994
EDWARD E. WHITACRE, JR.
/s/ Michael B. Yanney Director October 27,
- ------------------------------------- 1994
MICHAEL B. YANNEY
II-6
<PAGE>
LIST OF EXHIBITS
The following exhibits are filed as part of this report.
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<C> <S> <C>
2.1 Agreement and Plan of Merger dated as of June 29, 1994, be-
tween Burlington Northern Inc. and Santa Fe Pacific Corpora-
tion as amended by Amendment No. 1 thereto dated as of Octo-
ber 26, 1994, (schedules thereto omitted but available to
the Securities and Exchange Commission upon request) and re-
lated letter agreements (June 30, 1994 Form 10-Q, filed Au-
gust 1994).*
3.1 Certificate of Incorporation of Burlington Northern Inc. as
Amended through February 28, 1992 (1993 Form 10-K, filed
February 1994).**
3.2 Certificate of Increase of Number of Shares of Series A Ju-
nior Participating Class A Preferred Stock of Burlington
Northern Inc., dated January 9, 1992 (1991 Form 10-K, filed
February 1992).**
3.3 By-Laws of Burlington Northern Inc. as Amended through July
17, 1991 (1993 Form 10-K, filed February 1994).**
4.1 Form of Rights Agreement dated as of July 14, 1986, between
Burlington Northern Inc. and The First National Bank of Bos-
ton which includes, as Exhibit A thereto, the Form of Cer-
tificate of Designation specifying the terms of the Pre-
ferred Stock and as Exhibit B thereto, the form of Rights
Certificate (Form 8-A, No. 1-8159, filed July 1986). Bur-
lington Northern Inc. and its subsidiaries either have pre-
viously filed with the Securities and Exchange Commission or
upon request will furnish a copy of any instrument with re-
spect to long-term debt of Burlington Northern Inc. and its
subsidiaries.**
4.2 Certificate of Designation of 6 1/4% Cumulative Convertible
Preferred Stock, Series A, No Par Value of Burlington North-
ern Inc., dated November 24, 1992 (1992 Form 10-K, filed
February 1993).**
5.1 Opinion of counsel as to the legality of the securities being
registered.*
10.1 Form of Tax Sharing Agreement between Burlington Northern
Inc. and Burlington Resources Inc. (1988 Form 10-K Amendment
No. 1, filed March 1989).**
10.2 1987 Burlington Northern Inc. Stock Option Incentive Plan as
filed on Form S-8
No. 33-18082.**
10.3 1982 Burlington Northern Inc. Stock Option Incentive Plan as
filed on Form S-8
No. 2-80478.**
10.4 Burlington Northern Inc. Incentive Compensation Plan as filed
on Form S-8
No. 33-25806.**
10.5 Burlington Northern Inc. Senior Executive Survivor Benefit
Plan as of April 1, 1986 (1987 Form 10-K Amendment No. 1,
filed March 1988).**
10.6 Burlington Northern Inc. Deferred Compensation Plan as of
January 1, 1988 (1987 Form 10-K Amendment No. 1, filed March
1988).**
10.7 Burlington Northern Inc. Performance Share Unit Plan (1981)
as of January 1, 1988 (1987 Form 10-K Amendment No. 1, filed
March 1988).**
10.8 Burlington Northern Inc. 1987 Performance Share Unit Plan as
of January 1, 1988 (1987 Form 10-K Amendment No. 1, filed
March 1988).**
10.9 Burlington Northern Inc. Supplemental Benefits Plan as of
January 1987 (1987 Form 10-K Amendment No. 1, filed March
1988).**
10.10 1989 Burlington Northern Inc. Restricted Stock Incentive Plan
(1990 Form 10-K, filed March 1991).**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<C> <S> <C>
10.11 1990 Burlington Northern Inc. Directors Stock Option Plan
(1990 Form 10-K, filed March 1991).**
10.12 1990 Burlington Northern Inc. Directors Restricted Stock Plan
(1990 Form 10-K, filed March 1991).**
10.13 1992 Burlington Northern Inc. Stock Option Incentive Plan
(1992 Form 10-K, filed February 1993).**
10.14 1993 Burlington Northern Inc. Employee Stock Purchase Plan
(1992 Form 10-K, filed February 1993).**
10.15 Employment Agreement, dated as of December 20, 1988, by and
between Burlington Northern Inc. and Mr. Gerald Grinstein
(1988 Form 10-K Amendment No. 1, filed March 1989).**
10.17 Employment Agreement, dated as of April 27, 1992, by and be-
tween Burlington Northern Inc. and Mr. Gerald Grinstein
(1992 Form 10-K, filed February 1993).**
10.19 Employment Agreement, dated as of August 21, 1991, by and be-
tween Burlington Northern Inc. and Mr. David C. Anderson
(1991 Form 10-K, filed February 1992).**
10.22 Form of Severance Agreements.*
11.1 Computation of Earnings per Common Share.*
21.1 Subsidiaries of Burlington Northern Inc.*
23.1 Consent of Coopers & Lybrand L.L.P.*
23.2 Consent of Price Waterhouse LLP.*
23.3 Consent of Lazard Freres & Co.*
23.4 Consent of Goldman, Sachs & Co.*
23.5 Consent of Francis T. Kelly, Esq. (included in his opinion
filed as Exhibit 5).*
24.1 Power of Attorney (included on the signature page II-5).*
99.1 October 5, 1994 letter from Drew Lewis, Chairman, Union Pa-
cific Corporation to Robert D. Krebs, Chairman, President
and Chief Executive Officer, Santa Fe Pacific Corporation.*
99.2 October 6, 1994 letter from Robert D. Krebs to Drew Lewis.*
99.3 October 11, 1994 letter from Drew Lewis to Robert D. Krebs.*
99.4 October 11, 1994 letter from Robert D. Krebs to Drew Lewis.*
99.5 October 12, 1994 letter from Drew Lewis to Robert D. Krebs.*
99.6 October 17, 1994 memorandum prepared by UPC's Vice President
of Strategic Planning.*
99.7 October 24, 1994 UPC Panel Statement.
</TABLE>
- --------
*Exhibit is being filed herewith.
**Exhibit is being incorporated by reference as indicated.
2
<PAGE>
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............................................................ A-1
1.2.Conversion of Shares.................................................. A-1
1.3.Surrender and Payment................................................. A-2
1.4.Stock Options......................................................... A-3
1.5.Adjustments........................................................... A-3
1.6.Closing............................................................... A-3
1.7.Fractional Shares..................................................... A-4
ARTICLE II
CERTAIN MATTERS RELATING TO BNI
AND THE SURVIVING CORPORATION
2.1.Directors of the Surviving Corporation................................ A-4
2.2.Certificate of Incorporation and Bylaws of the Surviving Corporation.. A-4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SFP
3.1.Corporate Existence and Power......................................... A-4
3.2.Corporate Authorization............................................... A-5
3.3.Governmental Authorization............................................ A-5
3.4.Non-Contravention..................................................... A-5
3.5.Capitalization........................................................ A-5
3.6.Material Subsidiaries................................................. A-6
3.7.SEC Filings........................................................... A-6
3.8.Financial Statements.................................................. A-7
3.9.Disclosure Documents.................................................. A-7
3.10. Information Supplied................................................ A-8
3.11.No Material Adverse Changes.......................................... A-8
3.12.Undisclosed Material Liabilities..................................... A-8
3.13.Litigation........................................................... A-8
3.14.Taxes................................................................ A-8
3.15. ERISA............................................................... A-9
3.16. Finders' Fees...................................................... A-11
3.17. Environmental Matters.............................................. A-11
3.18. Takeover Statutes.................................................. A-11
3.19. Compliance With Laws............................................... A-11
- --------
(/1/)The Table of Contents is not a part of this Agreement.
i
<PAGE>
3.20. Spinoff Dividend................................................... A-11
3.21. Private Letter Ruling.............................................. A-11
3.22. Excess Loss Accounts............................................... A-12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BNI
4.1. Corporate Existence and Power....................................... A-12
4.2. Corporate Authorization............................................. A-12
4.3. Governmental Authorization.......................................... A-12
4.4. Non-Contravention................................................... A-12
4.5. Capitalization...................................................... A-13
4.6. Material Subsidiaries............................................... A-13
4.7. SEC Filings......................................................... A-14
4.8. Financial Statements................................................ A-14
4.9. Disclosure Documents................................................ A-14
4.10. Information Supplied............................................... A-15
4.11. No Material Adverse Changes........................................ A-15
4.12. Undisclosed Material Liabilities................................... A-15
4.13. Litigation......................................................... A-15
4.14. Taxes.............................................................. A-15
4.15. ERISA.............................................................. A-16
4.16. Finders' Fees...................................................... A-18
4.17. Environmental Matters.............................................. A-18
4.18. Takeover Statutes.................................................. A-18
4.19. Compliance with Laws............................................... A-18
4.20. BNI Rights Agreement............................................... A-18
ARTICLE V
COVENANTS OF SFP
5.1. Conduct of SFP...................................................... A-18
5.2. Stockholder Meeting................................................. A-19
5.3. Access to Information............................................... A-20
5.4. Notices of Certain Events........................................... A-20
5.5. Tax Matters......................................................... A-20
5.6. Rule 145 Affiliates................................................. A-20
5.7. The Spinoff......................................................... A-20
5.8. No Solicitations.................................................... A-21
ARTICLE VI
COVENANTS OF BNI
6.1. Conduct of BNI...................................................... A-21
6.2. Stockholder Meeting................................................. A-23
6.3. Access to Information............................................... A-23
6.4. Notices of Certain Events........................................... A-23
6.5. Tax Matters......................................................... A-23
ii
<PAGE>
6.6. Director and Officer Liability...................................... A-23
6.7. No Solicitations.................................................... A-24
ARTICLE VII
COVENANTS OF BNI AND SFP
7.1. Reasonable Best Efforts............................................. A-24
7.2. ICC Approval........................................................ A-24
7.3. Certain Filings; Proxy Materials.................................... A-25
7.4. Public Announcements................................................ A-25
7.5. Further Assurances.................................................. A-25
7.6. Antitakeover Statutes............................................... A-25
7.7. Cooperation......................................................... A-25
7.8. Dividends........................................................... A-26
ARTICLE VIII
[INTENTIONALLY OMITTED]
ARTICLE IX
CONDITIONS TO THE MERGER
9.1. Conditions to the Obligations of Each Party......................... A-26
9.2. Conditions to the Obligations of BNI................................ A-27
9.3. Conditions to the Obligations of SFP................................ A-27
ARTICLE X
TERMINATION
10.1. Termination......................................................... A-27
10.2. Effect of Termination............................................... A-28
ARTICLE XI
MISCELLANEOUS
11.1. Notices............................................................. A-29
11.2. Entire Agreement; Survival of Representations and Warranties......... A-29
11.3. Amendments; No Waivers.............................................. A-30
11.4. Expenses............................................................ A-30
11.5. Successors and Assigns.............................................. A-30
11.6. Governing Law....................................................... A-30
11.7. Jurisdiction........................................................ A-30
11.8. Counterparts; Effectiveness......................................... A-31
iii
<PAGE>
TABLE OF DEFINITIONS
<TABLE>
<CAPTION>
TERM SECTION
- ---- --------
<S> <C>
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...................................................... 4.15(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)
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
- ---- --------
<S> <C>
HSR Act................................................................ 3.3
ICC.................................................................... 3.3
Indemnified Parties.................................................... 6.6
Indemnity Agreements................................................... 6.6
Lien................................................................... 3.4
Liquidation............................................................ 3.21
Material............................................................... 6.1(h)
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
</TABLE>
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:
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
1
<PAGE>
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 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 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
2
<PAGE>
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
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
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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".
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 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
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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 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 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
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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 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
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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 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, 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
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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 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, 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")
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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, 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
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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
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.
(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
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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, 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 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
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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 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
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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 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, 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
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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 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, 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
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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 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
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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.
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 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
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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.
(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 which 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 postretirement life, health and medical
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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.
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,
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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;
(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 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
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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 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.
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
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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, 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;
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(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 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);
(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).
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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.
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 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
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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 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 (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.
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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 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
25
<PAGE>
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 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 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
26
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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 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;
27
<PAGE>
(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);
(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.
28
<PAGE>
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 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).
29
<PAGE>
(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 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.
30
<PAGE>
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.
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.
/s/ Gerald Grinstein
By: _________________________________
Title: Chairman and Chief
Executive Officer
Santa Fe Pacific Corporation
/s/ Robert D. Krebs
By: _________________________________
Title: Chairman, President and
Chief Executive Officer
31
<PAGE>
AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
AMENDMENT dated as of October 26, 1994 (this "Amendment") between Burlington
Northern Inc., a Delaware corporation ("BNI"), and Santa Fe Pacific
Corporation, a Delaware Corporation ("SFP").
WHEREAS, BNI and SFP have previously entered into that certain Agreement and
Plan of Merger dated as of June 29, 1994 between BNI and SFP (the "Merger
Agreement"); and
WHEREAS, the respective Boards of Directors of BNI and SFP have determined
that it is in the best interests of BNI or SFP, as the case may be, and its
respective stockholders to amend the Merger Agreement as hereinafter set forth
and have duly approved this Amendment and authorized its execution and
delivery.
NOW, THEREFORE, the parties hereto agree as follows:
1. All capitalized terms used herein, unless otherwise defined herein,
shall have the meanings given them in the Merger Agreement, and each
reference in the Merger Agreement to "this Agreement", "hereof", "herein",
"hereunder" or "hereby" and each other similar reference shall be deemed to
refer to the Merger Agreement as amended hereby. All references to the
Merger Agreement in any other agreement between BNI and SFP relating to the
transactions contemplated by the Merger Agreement shall be deemed to refer
to the Merger Agreement as amended hereby.
2. Section 1.2(a)(i) of the Merger Agreement is hereby amended by
deleting the number "0.27" wherever such number appears therein and
inserting in its place the number "0.34".
3. This Amendment shall be construed in accordance with and governed by
the law of the State of Delaware (without regard to principles of conflict
of laws).
4. This Amendment may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument. This Amendment shall
become effective when each party hereto shall have received counterparts
hereof signed by all of the other parties hereto.
5. Except as expressly amended hereby, the Merger Agreement shall remain
in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed by their respective authorized officers as of the day and year first
above written.
Burlington Northern Inc.
/s/ Gerald Grinstein
By __________________________________
Title: Chairman and Chief
Executive Officer
Santa Fe Pacific Corporation
/s/ Robert D. Krebs
By __________________________________
Title: Chairman, President and
Chief Executive Officer
<PAGE>
LETTER AGREEMENT
BETWEEN
BURLINGTON NORTHERN INC.
AND
SANTA FE PACIFIC CORPORATION
<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
Schaumburg, 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 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:
/s/ Robert D. Krebs
- -------------------------------------
Robert D. Krebs
for SFP
B-1
<PAGE>
BURLINGTON NORTHERN INC.
777 MAIN STREET
FT. WORTH, TEXAS 76102
October 27, 1994
Burlington Northern Inc.
3800 Continental Plaza
777 Main Street
Fort Worth, TX 76102-5384
Re: Burlington Northern Inc. Registration Statement on Form S-4
Ladies and Gentlemen:
In connection with the registration of shares of Common Stock, par value $1
per share (the "Common Stock") of Burlington Northern Inc. (the "Company"), a
Delaware corporation, under the Securities Act of 1933, as amended, with
respect to the Company's Registration Statement on Form S-4 filed with the
Securities and Exchange Commission on October 27, 1994 (the "Registration
Statement"), you have requested my opinion with respect to the matter set forth
below.
I have made such legal and factual examinations and inquiries, including an
examination of originals or copies of such documents, corporate records, and
instruments, certified or otherwise identified to my satisfaction, as I have
deemed appropriate for purposes of this opinion.
Subject to the foregoing, it is my opinion that the shares of Common Stock
have been duly authorized and, upon the issuance, delivery, and exchange
thereof in the manner contemplated by the Registration Statement, will be
validly issued, fully paid, and non-assessable.
I hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the
statement made in reference to me under the caption "Legal Matters" in the
Registration Statement.
Very truly yours,
Francis T. Kelly
Securities and Finance Counsel
<PAGE>
[LOGO OF BURLINGTON NORTHERN RAILROAD]
3800 Continental Plaza
777 Main Street
Fort Worth, Texas 76102-5384
(Date)
(Name and Address)
Dear (Name):
Burlington Northern Inc. (the "Company") considers it essential to the best
interests of its stockholders to foster the continuous employment of key
management personnel. In this connection, the Board of Directors of the Company
(the "Board") recognizes that, as is the case with many publicly held
corporations, the possibility of a change in control of the Company may exist
and that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the company and its stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including you, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the Company.
In order to induce you to remain in the employ of the Company, the Company
agrees that you shall receive the severance benefits set forth in this letter
agreement (the "Agreement") in the event your employment with the Company is
terminated under the circumstances described below subsequent to a Change in
Control of the Company (as defined in Section 3).
<PAGE>
1. Definitions. Unless the context shall otherwise require, capitalized
terms used herein shall have the following meanings (such definitions to be
equally applicable to both the singular and plural forms of the terms used):
"Agreement" shall mean this letter agreement.
"Base Amount" shall have the meaning attributed to that term in Section
280G of the Code.
"Base Compensation" shall mean the maximum amount that the Company pays you
as wages from time to time including, without limitation, the target bonus
payable to you under the Company's current Incentive Compensation Plan, as if
the Company attains a performance rating of "I", or such other maximum target
bonus as may hereafter be implemented.
"Basic Contribution" shall have the meaning attributed to that term in the
Burlington Northern Inc. Thrift and Profit Sharing Plan, as amended from time to
time, or any successor plan.
"Board" shall mean the Board of Directors of the Company.
"Cause" shall have the meaning attributed to that term in Section 4(iii) of
the Agreement.
"Change in Control" shall have the meaning attributed to that term in
Section 3 of the Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Shares" shall mean shares of common stock of the Company.
2
<PAGE>
"Company" shall mean Burlington Northern Inc. or its subsidiary, the
Burlington Northern Railroad Company.
"Contract Payments" shall mean any payment or benefit received or to be
received by you pursuant to the terms of this Agreement.
"Cost" shall mean the amount paid by the Company for certain benefits
immediately prior to a Change in Control of the Company, as adjusted as of
January 1 of each calendar year thereafter to an amount equal to the product of
the Index Multiplier for such calendar year times the amount paid by the Company
for certain benefits as so adjusted for the preceding calendar year.
"Date of Termination" shall have the meaning attributed to that term in
Section 4 (vi) of the Agreement.
"Excess Parachute Payments" shall mean those Parachute Payments which when
added to other Parachute Payments under this or any other agreement or plan
would be equal to or greater than that amount which would subject Parachute
Payments to the excise tax imposed by Section 4999 of the Code.
"Exchange Act" shall mean the Securities Exchange Act of 1934.
"Good Reason" shall have the meaning attributed to that term in Section 4
(iv) of the Agreement.
"Index" shall mean the Seasonally Adjusted Consumer Price Index for All
Urban Consumers as presently issued monthly by the Council of Economic Advisers
for the Joint Economic Committee of Congress in a publication entitled "Economic
Indicators" published by the Government Printing Office, or, if said historical
index is no longer available or is converted to a different standard reference
base or is otherwise revised,
3
<PAGE>
such historical index as the Company may reasonably select that measures all
goods and services in the economy adjusted for real price change.
"Index Multiplier" shall mean, for any calendar year, the algebraic sum of
(a) the Inflation Factor for the calendar year immediately preceding such
calendar year and (b) 1.0.
"Inflation Factor" shall mean, for any calendar year (the "test year"), the
quotient obtained by dividing (a) the Index for the test year minus the Index
for the calendar year immediately preceding the test year by (b) the Index for
the calendar year immediately preceding the test year.
"Long Term Disability Plan" shall mean the Burlington Northern Inc. Long
Term Disability Plan, as amended from time to time, or any successor plan.
"Matching Contribution" shall have the meaning attributed to that term in
the Burlington Northern Inc. Thrift and Profit Sharing Plan, as amended from
time to time, or any successor plan.
"Memorandum Account" shall have the meaning attributed to that term in the
Burlington Northern Inc. Deferred Compensation Plan or Burlington Northern Inc.
Incentive Compensation Plan or both as applicable, including such plans as
amended from time to time or any successor plans.
"Normal Retirement Date" shall have the meaning attributed to that term in
the Pension Plan, as amended from time to time, or any successor plan.
"Notice of Termination" shall mean a written notice pursuant to which the
Company notifies you of its intent or you notify the Company of your intent to
terminate your employment and that (a) indicates the specific termination
provision in this Agreement relied upon, (b) sets forth in reasonable detail the
facts and circumstances claimed to
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provide a basis for termination of your employment under the provision so
indicated and (c) designates a Date of Termination.
"Options" shall mean any options to purchase Company securities granted to
you under the 1987 Burlington Northern Inc. Stock Option Incentive Plan, as
amended from time to time, or any predecessor or successor plan, including,
without limitation, the 1977, 1982 and 1992 Burlington Northern Inc. Stock
Option Incentive Plans.
"Parachute Payment" shall have the meaning attributed to that term in
Section 280G of the Code.
"Pension Plan" shall mean the Burlington Northern Inc. Pension Plan, as
amended from time to time, or any successor plan.
"Permanent Disability" shall mean such disability as would qualify you to
receive benefits under the Long Term Disability Plan, after satisfying the
elimination period therein.
"Person" shall have the meaning attributed to that term in Sections 13(d)
and 14(d) of the Exchange Act; provided, however, that it shall not include the
Company, any trustee or other fiduciary holding securities under an employee
benefit plan of the Company, or any corporation owned, directly or indirectly,
by the stockholders of the Company in substantially the same proportions as
their ownership of the Company.
"Subsidiary" shall mean an entity that is a corporation (or other form of
business association that is treated as a corporation for tax purposes) of which
shares (or other ownership interest) having more than 50 percent of the voting
power are owned or controlled, directly or indirectly, by the Company so as to
qualify as a "subsidiary corporation" (within the meaning of Code section 425
(f)).
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"Total Payments" shall mean the sum of Contract Payments and any other
payment or benefit received or receivable by you in connection with a Change in
Control of the Company or the termination of your employment under any other
plan, arrangement or agreement with the Company.
2. Term of Agreement. This Agreement shall commence on (Date), (the
"Commencement Date") and shall terminate on the third anniversary of the
Commencement Date; provided, however, that the Agreement shall continue in
effect for successive terms of one (1) year each, each term beginning on the
anniversary of the Commencement Date, unless written notice of termination is
provided to you by the Company at least ninety (90) days prior to the expiration
of any such one (1) year term; provided, further, that the Agreement shall no
longer be subject to termination by the Company following a Change in Control.
In no event, however, shall the term of this Agreement extend beyond the date on
which you are otherwise subject to mandatory retirement, if applicable, pursuant
to the Pension Plan or applicable state or federal law.
3. Change in Control. No benefits shall be payable hereunder unless there
shall have been a Change in Control of the Company, as set forth below. For
purposes of this Agreement, a Change in Control of the Company shall be deemed
to have occurred:
(i) if any person is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 20 percent or more of the combined voting power of the
Company's then outstanding securities; provided, however, that no Change in
Control shall be deemed to have occurred for purposes of this Agreement by
virtue of any transaction which results in you, or a group of Persons which
includes either you or the President of the Company and at least 25 percent of
the individuals covered by agreements substantially identical to this Agreement
prior to the Change in Control, acquiring, directly or indirectly, 20 percent or
more of the combined voting power of the Company's voting securities.
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(ii) if, during any period of two (2) consecutive years (not including any
period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board, and any new director (other than
a director designated by a Person who had entered into an agreement with the
Company to effect a transaction described in clause (i) or (iii) of this
Section) whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved, cease for
any reason to constitute at least a majority thereof; or
(iii) if the stockholders of the Company approve a merger or consolidation,
a sale or disposition of all or substantially all of the Company's assets or a
plan of liquidation or dissolution of the Company.
4. Termination Following Change in Control.
(i) General. If any of the events described constituting a Change in
Control of the Company shall have occurred, you shall be entitled by the
benefits provided in Section 5 (iii) upon the subsequent termination of your
employment within two (2) years after the Change in Control, unless such
termination is (a) because of your death or Permanent Disability, (b) by the
Company for Cause or as a result of your mandatory retirement, if applicable,
pursuant to Section 2, or (c) by you other than for Good Reason. If your
employment with the Company is terminated for any reason, and subsequently a
Change in Control of the Company shall have occurred, you shall not be entitled
to any benefits hereunder.
(ii) Permanent Disability. You may be terminated by the Company for
Permanent Disability. Notwithstanding any provision of this Agreement, your
rights, if any, under the Long Term Disability Plan shall not be affected by
this Agreement.
(iii) Cause. You may be terminated by the Company for Cause where Cause
shall mean (a) the willful and continued gross failure by you to substantially
perform your
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duties with the Company (other than any such failure resulting from your
incapacity due to injury or disease or any such actual or anticipated failure
after the issuance of a Notice of Termination by you for Good Reason) which
failure continues for a period of at least thirty (30) days after a written
demand for substantial performance is delivered to you by the Board, which
demand specifically identifies the manner in which the Board believes that you
have not substantially performed your duties, or (b) the willful engaging by you
in conduct which is demonstrably and materially injurious to the Company,
monetarily or otherwise. For purposes of this Subsection, no act, or failure to
act, on your part shall be deemed "willful" unless done, or omitted to be done,
by you not in good faith and without reasonable belief that your action or
omission was in the best interest of the Company. Notwithstanding the
foregoing, you shall not be deemed to have been terminated for Cause unless and
until there shall have been delivered to you a copy of a resolution duly adopted
by the affirmative vote of not less than two-thirds of the entire membership of
the Board at a meeting of the Board called and held for such purpose (after
reasonable notice to you and an opportunity for you, together with your counsel,
to be heard before the Board), finding that in the good faith opinion of the
Board you were guilty of conduct set forth above in this Subsection and
specifying the particulars thereof in detail.
(iv) Good Reason. You shall be entitled to terminate your employment for
Good Reason. For purposes of this Agreement, Good Reason shall mean, without
your express written consent, the occurrence after a Change in Control of the
Company of any of the following circumstances unless, in the case of paragraphs
(a), (b), (d), (e), (f), (g), or (h), such circumstances are fully corrected
prior to the Date of Termination specified in the Notice of Termination given in
respect thereof:
(a) the assignment to you of any duties inconsistent with and inferior
to the position in the Company that you held immediately prior to the Change in
Control of the Company, or a significant adverse alteration in the nature of
your
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responsibilities or the conditions of your employment from those in
effect immediately prior to such Change in Control;
(b) a reduction by the Company in your Base Compensation;
(c) the relocation of the Company's principal executive offices to a
location outside the Fort Worth, Texas Metropolitan Area (or, if different,
the metropolitan area in which such offices are located immediately prior to
the Change in Control of the Company) or the Company's requiring you to be
based anywhere other than the Company's principal executive offices or where
you are located immediately prior to such Change in Control, except for
required travel on the Company's business to an extent substantially
consistent with your present business travel obligations, or as agreed to by
you and the Company;
(d) the failure by the Company to pay to you any portion of your
current compensation or to pay to you any deferred compensation under any
deferred compensation program of the Company or any other benefits or
additional amounts of compensation under any plan within thirty (30) days
of the date such compensation is due;
(e) the failure by the Company to continue in effect any compensation
plan in which you participate immediately prior to the Change in Control of
the Company that is material to your total compensation, including but not
limited to the Company's 1987 Stock Option Incentive Plan, the 1989
Burlington Northern Inc. Restricted Stock Incentive Plan, the 1989
Burlington Northern Inc. Restricted Stock Award Plan for Management
Employees, Pension Plan, Supplemental Benefits Plan, Incentive Compensation
Plan, Deferred Compensation Plan, Thrift and Profit Sharing Plan, or any
substitute plans adopted prior to the Change in Control of the Company,
unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the failure
by the Company to continue your participation therein (or in such
substitute or alternative
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<PAGE>
plan) on a basis not materially less favorable, both in terms of the
amount of benefits provided and the level of your participation
relative to other participants as existed at the time of the Change
in Control of the Company;
(f) the failure by the Company to continue to provide you with
benefits at a Cost to the Company substantially similar to the Cost of
those enjoyed by you under any of the Company's life insurance, medical,
health and accident, or disability plans in which you were participating
at the time of the Change in Control of the Company, the taking of any
action by the Company which would directly or indirectly materially
reduce any of such benefits or deprive you of any material fringe
benefit enjoyed by you at the time of the Change in Control of the Company,
or the failure by the Company to provide you with the number of paid
vacation days to which you are entitled in accordance with the Company's
normal vacation policy in effect at the time of the Change in Control of
the Company; provided, however, that the Company may modify such benefits
to the extent that it is required to do so by applicable law, including,
without limitation, the Employee Retirement Income Security Act of 1974,
as amended, the Code, and other Federal or state employment, tax, or
benefit laws, regulations, interpretations, ordinances, judgments,
decrees, injunctions, writs, decisions and orders of any Governmental
Authority;
(g) the failure of the Company to obtain a satisfactory agreement from
any successor or purchaser of a Subsidiary to assume and agree to perform
this Agreement, as contemplated in Section 6 hereof;
(h) any purported termination of your employment that is not effected
pursuant to a Notice of Termination satisfying the requirements of
Subsection (v) hereof (and, if applicable, the requirements of Subsection
(iii) hereof), which purported termination shall not be effective for
purposes of this Agreement; or
(i) any material breach by the Company of any provision of this
Agreement.
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Your right to terminate your employment pursuant to this
Subsection shall not be affected by your incapacity to perform your
duties as a result of injury or disease, to the extent your employment
has not already been terminated pursuant to Section 4 (ii). Your
continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstances constituting Good Reason
hereunder.
(v) Notice of Termination. Any purported termination of your
employment by the Company or by you shall be communicated by written
Notice of Termination to the other party hereto in accordance with
Section 7.
(vi) Date of Termination, Etc. Date of Termination shall mean (a) if
your employment is terminated for Permanent Disability, the date specified
in the Notice of Termination, but in no event less than thirty (30) days
after Notice of Termination is given (provided that you shall not have
returned to the full-time performance of your duties during such thirty (30)
day period), or (b) if your employment is terminated pursuant to
Subsection (iii) or (iv) hereof or for any other reason (other than
Disability), the date specified in the Notice of Termination (which in the
case of a termination for Cause shall not be less than thirty (30) days from
the date such Notice of Termination is given and in the case of a
termination for Good Reason shall not be less than fifteen (15) nor more
than sixty (60) days from the date such Notice of Termination is given);
provided, however, that if within fifteen (15) days after any Notice of
Termination is given, or, if later, prior to the Date of Termination (as
determined without regard to this proviso), the party receiving such Notice
of Termination notifies the other party in writing that a dispute exists
concerning the termination, then the Date of Termination shall be the date
on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction which is not
appealable or with respect to which the time for appeal therefrom has
expired and no appeal has been perfected; provided, further, that the Date
of Termination shall be extended by a notice of dispute only if such notice
is given in good faith and the party giving such notice pursues the
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resolution of such dispute with reasonable diligence. Notwithstanding the
pendency of any such dispute, the Company will continue to pay you your
full compensation in effect when the notice giving rise to the dispute was
given or immediately prior to the Change in Control of the Company,
whichever is greater (including, but not limited to, Base Compensation) and
continue you as a participant in all compensation, benefit and insurance
plans in which you were participating when the notice giving rise to the
dispute was given, until the dispute is finally resolved in accordance with
this Subsection. Amounts paid under this Subsection are in addition to all
other amounts due under this Agreement, and shall not be offset against or
reduce any other amounts due under this Agreement and shall not be reduced
by any compensation earned by you as the result of employment by another
employer.
5. Compensation Upon Termination
Following a Change in Control of the Company, you shall be entitled
to the following benefits upon termination of your employment, provided
that such termination occurs during the term of this Agreement and within
two (2) years following a Change in Control:
(i) No supplemental benefits shall be payable under this agreement if
your employment is terminated by reason of your Permanent Disability or
death. Instead, your benefits shall be determined under the Company's
retirement, insurance and other compensation programs then in effect in
accordance with the terms of such programs; provided, however, the Company
will provide you the benefits you would otherwise be entitled to under the
Long Term Disability Plan as if you had not been terminated under this
Agreement pursuant to Section 4 (ii), until this Agreement is terminated
pursuant to Section 2.
(ii) If your employment shall be terminated by the Company for Cause or
by you other than for Good Reason, the Company shall pay you your full Base
Compensation through the Date of Termination at the rate in effect at the
time Notice of Termination is
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given, plus all other amounts to which you are entitled under any
compensation or benefit plan of the Company at the time such payments
are due, and the Company shall have no further obligations to you
under this Agreement.
(iii) If your employment by the Company shall be terminated within
two (2) years following a Change in Control by you for Good Reason or
by the Company other than for Cause or Permanent Disability, then you
shall be entitled to the benefits provided below:
(a) the Company (1) shall pay to you, no later than the fifth (5th)
day following the Date of Termination, your full Base Compensation
through the Date of Termination at the rate in effect at the time Notice
of Termination is given, plus all other amounts to which you are entitled
under any compensation plan of the Company, at the time such payments are
due and (2) shall pay to you, when due, all amounts credited to your
Memorandum Account under the Burlington Northern Inc. Deferred Compensation
Plan or the Burlington Northern Inc. Incentive Compensation Plan or any
other similar plan or arrangement, in accordance with the provisions of
such plans as in existence prior to the Change in Control.
(b) in lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay as severance
pay to you, no later than the thirtieth (30th) day following the Date of
Termination, a lump sum severance payment equal to three (3) times your
Base Compensation as in effect as of the Date of Termination or
immediately prior to the Change in Control of the Company, whichever is
greater; provided, however, that in no event shall such amount exceed the
amount of Base Compensation, on an undiscounted basis, which you would
have received had you remained in the employ of the Company until the date
on which you are otherwise subject to mandatory retirement, if applicable,
pursuant to the Pension Plan or applicable state or federal law;
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(c) in addition to the benefits to which you are otherwise entitled
under the Pension Plan and the Burlington Northern Inc. Supplemental
Benefits Plan or any successor plans in effect on the Date of Termination,
you shall be entitled to an amount equal to the difference between (1) the
benefits that would be payable under those plans at Normal Retirement Age
had you remained in the employ of the Company until the earlier of three (3)
years beyond your Date of Termination or until your mandatory retirement
date, assuming an increase in compensation, as defined in the Pension Plan,
of 8 percent per year (taking into account for purposes of the Pension Plan
only those amounts permitted under Code section 401(a)(17)), and (2) the
benefits payable under the terms of those plans at Normal Retirement Age,
based upon the termination of your employment on the Date of Termination;
(d) you shall be entitled to receive a payment in the amount of the
Company contributions you would have received under the Burlington Northern
Inc. Thrift and Profit Sharing Plan had you remained in the employ of the
Company until the earlier of three (3) years beyond your Date of Termination
or until your mandatory retirement date, and made the maximum Basic
Contribution and received the maximum Matching Contribution permitted under
such plan during that period, based upon a level of compensation, as defined
in the Thrift and Profit Sharing Plan, which is assumed to increase at a
rate of 8 percent per year (taking into account only those amounts permitted
under Code section 401(a)(17));
(e) the Company's obligation under Subparagraphs (c) and (d) shall be
satisfied by paying to you, no later than the thirtieth (30th) day following
the Date of Termination, (1) a lump sum amount, in cash, equal to the
present value of the amounts described in Subparagraphs (c) and (d) using
a discount rate no greater than the rate that may be used to determine lump
sums under the Supplemental Benefits Plan plus (2) an amount sufficient to
gross you up for the federal income taxes attributable to such amount based
upon the maximum marginal rate in effect at that time;
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(f) for an eighteen (18) month period after such termination, the
Company shall arrange to provide you at the Company's expense with life,
survivor benefit, disability, accident and group health insurance
coverage and benefits at a Cost to the Company substantially similar to
the Cost of those benefits which you were receiving immediately prior to
the Notice of Termination. Coverage and benefits otherwise receivable
by you pursuant to this paragraph (f) shall be reduced to the extent
comparable coverage and benefits are actually received by you during the
eighteen (18) month period following your termination, and any such
coverage or benefits actually received by you shall be reported to the
Company. The provision of continued benefits under this paragraph shall
not deprive you of any independent statutory right you may have to
continue benefits coverage under Code Section 4980B;
(g) the Company shall pay to you all legal fees and expenses incurred
by you as a result of such termination (including all such fees and
expenses, if any, incurred in contesting or disputing any such termination
or in seeking to obtain or enforce any right or benefit provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of the Code to any payment
or benefit provided hereunder); and
(h) the Company shall transfer to you all right, title or other
ownership interest it may have in any automobile that the Company has
provided to you for your personal use in connection with your work for
the Company as of the Date of Termination.
(iv) If the amounts required to be paid pursuant to Section 5 (iii)
cannot be finally determined on or before the date when payment is due, the
Company shall pay to you on such day an estimate, as determined in good
faith by the Company, of the minimum amount of such payments and shall
pay the remainder of such payments (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code) as soon as the amount
thereof can be determined but in no event later than the sixtieth (60th)
day after
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the Date of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to you, payable on
the thirtieth (30th) day after demand by the Company (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code).
(v) Except as provided in Subsection (iii)(f) hereof, you shall not
be required to mitigate the amount of any payment provided for in this
Section 5 by seeking other employment or otherwise, nor shall the amount
of any payment or benefit provided for in this Section 5 be reduced by
any compensation earned by you as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed
to be owed by you to the Company, as otherwise.
(vi) If your Total Payments would be subject to the excise tax
imposed by Section 4999 of the Code (or any successor statutory provision)
or any interest or penalties with respect to such excise tax (such excise
tax, together with any such interest and penalties, are collectively
referred to as the "Excise Tax"), then you shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after
payment by you or withholding by the Company by such Excise Tax, including
any Excise Tax imposed upon the Gross-Up Payment, you shall be in the same
after-tax position under this Agreement that you would have been in if
Code Section 4999 (or any successor provision) did not apply.
(a) All determinations required to be made under this Subsection (vi),
including whether a Gross-Up Payment is required and the amount of such
Gross-Up Payment, shall be made by the independent accounting firm
retained by the Company on the date of Change in Control (the "Accounting
Firm"), which shall provide detailed supporting calculations both to the
Company and to you within 15 business days of the date of termination, if
applicable, or such earlier time as is requested by the Company. If the
Accounting Firm determines that a Gross-Up
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Payment is required, the Company shall increase the benefits payable
to you under the Agreement by the amount of such Gross-Up Payment and
shall withhold from your Contract Payment an amount sufficient to
satisfy the Excise Tax. If the Accounting Firm determines that no
Gross-Up Payment is payable, it shall furnish you with an option that
you have substantial authority not to report any Excise Tax for federal
tax purposes. Any determination by the Accounting Firm shall be binding
upon the Company and you. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should
have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts
its remedies pursuant to Subsection (vi)(b) or fails to contest an IRS
claim of Underpayment, and you thereafter are required to make a payment
of any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred, including any Excise Tax that will be
imposed upon the Underpayment, and any such Underpayment shall be
promptly paid by the Company to you or for your benefit.
(b) You shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment
by the Company of a Gross-Up Payment in addition to any payment previously
made in accordance with Subsection (vi)(a). Such notification shall be
given as soon as practicable but no later than ten business days after
you know of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. You shall
not pay such claim prior to the expiration of the thirty-day period
following the date on which you give such notice to the Company (or such
shorter period ending on the date five days before any payment of taxes
with respect to such claim is due). If the Company notifies you in writing
prior to the expiration of such period that it desires to contest such
claim, you shall: (1) give the Company any information reasonably
requested by the Company relating to such claim; (2)
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take such action in connection with contesting such claim as the Company
shall reasonably request in writing from time to time, including, without
limitation, accepting legal representation with respect to such claim by an
attorney reasonably selected by the Company; (3) cooperate with the Company
in good faith in order to effectively contest such claim; and (4) permit
the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold you harmless, on
an after-tax basis, for any Excise Tax or income tax, including interest
and penalties with respect thereto, imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Subsection (iv) (b), the Company shall control
all proceedings taken in connection with such contest and, at its sole
option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct you to pay the tax
claimed and sue for a refund, or contest the claim in any permissible
manner, and you agree to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one
or more appellate courts, as the Company shall determine; provided,
however, that if the Company directs you to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to you, on an
interest-free basis, and shall indemnify and hold you harmless, on an
after-tax basis, from any Excise Tax or income tax, including interest or
penalties with respect thereto, imposed with respect to such advance or
with respect to any imputed income with respect to such advance; and
provided, further, that any extension of the statute of limitations
relating to payment of taxes for your taxable year with respect to which
such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall
be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and you shall be entitled to settle or
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contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(c) If, after payment of any Gross-Up Payment by the Company pursuant
to this Subsection (vi), you become entitled to receive any refund with
respect to such amounts, you shall (subject to the Company's complying with
the requirements of Subsection (vi)(b)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto).
6. Successors; Binding Agreement.
(i) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
In addition, in the event that one or more Subsidiaries (or part thereof) are
sold, divested, or otherwise disposed of by the Company subsequent to a Change
in Control, the Company shall require such purchaser or acquirer, as a condition
precedent to such purchase or acquisition, to assume and agree to perform the
Company's obligations, if any, under the Agreement, with respect to the
employees of such Subsidiaries, in the same manner and to the same extent that
the Company would be required to perform if no such acquisition or purchase had
taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle you to compensation from the Company in the same
amount and on the same terms to which you would be entitled hereunder if you
terminate your employment for Good Reason following a Change in Control of the
Company, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination.
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(ii) This Agreement shall inure to the benefit of and be enforceable
by you and your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die
while any amount would still be payable to you hereunder had you continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to your devisee, legatee or other
designee or, if there is no such designee, to your estate.
7. Notices. All communications and notices under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered by hand or
mailed, postage prepaid, by registered or certified mail, return receipt
requested, or by Express Mail, return receipt requested, or received by telex,
telefacsimile or other wire transmission (with request for assurance of receipt
in a manner customary for communications of such respective type) to the
appropriate following addresses:
If to the Company:
Executive Vice President--Employee Relations
Burlington Northern Inc.
3000 Continental Plaza
777 Main Street
Fort Worth, Texas 76102-5384
FAX Number: (817) 333-3011
Subject: Executive Severance Agreement
If to you, at the address listed on the first page of this agreement; or
at such address as either party may designate by notice to the other party
hereto in accordance with this Section.
8. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such modification, waiver or discharge is agreed to in
writing and signed by you and such officer as may be specifically designated by
the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or
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compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. THIS AGREEMENT WAS
NEGOTIATED AND EXECUTED IN THE STATE OF TEXAS AND THE VALIDITY, INTERPRETATION,
CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF TEXAS. All references to sections of the exchange act or the
Code shall be deemed also to refer to any successor provisions to such sections.
Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law, including withholding
required pursuant to Code Section 4999. The obligations of the Company under
Section 5 shall survive the expiration of the term of this Agreement.
9. Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
10. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
11. Employment Status. Prior to a Change in Control of the Company, this
Agreement imposes no obligations on the Company to retain you as an employee,
to maintain or change the status of your employment as an employee or to pay
you any benefits in the event that your employment with the Company is
terminated. Following a Change in Control, this Agreement imposes no obligations
on the Company to retain you as an employee or to maintain or change the status
of your employment as an employee. However, in the event of your termination
following a Change in Control, this Agreement will govern the Contract Payments
to which you are entitled, if any, by reason of your termination.
21
<PAGE>
12. Choice of Forum. To the extent permitted by law, any legal suit,
action, or proceeding arising out of or relating to this Agreement may be
instituted in any state or federal court of competent jurisdiction located
in the State of Texas, in addition to any other appropriate forum.
13. Amendment. The Agreement may be amended in any respect by resolution
adopted by two-thirds of the Board; provided, however, that no such amendment
of the Agreement may be made if such amendment would adversely affect any right
you have under the Agreement prior to the later of (a) the date of adoption of
any such amendment or (b) the effective date of any such amendment; provided,
further, that the Agreement shall no longer be subject to amendment, change,
substitution, deletion or revocation in any respect whatsoever following a
Change in Control.
14. Termination Upon Mandatory Retirement. The Company and you acknowledge
that the purpose of this Agreement is to provide income to replace the
employment income that you would otherwise receive if your employment were not
terminated and that such replaced employment income would have been terminated
upon your mandatory retirement, if applicable, in any event and have been
replaced by retirement income. Accordingly, the terms of this Agreement and the
benefits payable hereunder shall not extend beyond your mandatory retirement
date, if applicable, pursuant to the Pension Plan, or to the extent permitted
by law. You acknowledge that this Agreement entitled you to payments and
benefits which you would not otherwise have received and, in consideration
thereof, you waive any claim that might arise out of or relate to the subject
matter of this Agreement pursuant to employment discrimination laws, including
without limitation the Age Discrimination in Employment Act; provided, however,
that nothing contained herein shall affect your right to challenge any action
of the Company, to the extent that you are terminated prior to a Change in
Control.
22
<PAGE>
15. General Release and Covenant Not to Sue. You agree that as a condition
of receiving benefits under this Agreement, you shall execute the attached
General Release and Covenant Not to Sue within thirty (30) days following your
Date of Termination.
16. Entire Agreement. This Agreement sets forth the entire agreement of the
parties hereto in respect of the subject matter contained herein and supersedes
all prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or otherwise, express or implied, by
any officer, employee or representative of any party hereto, and any prior
agreement, promise, covenant, arrangement, communication, representation or
warranty of the parties hereto in respect of the subject matter contained
herein is hereby terminated and cancelled.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter, which
will then constitute the Agreement between you and the Company on this subject.
Very truly yours,
Burlington Northern Inc.
By: _________________________________________
Edmund W. Burke, Executive Vice President
Law and Government Affairs
Agreed to this _____ day of ____________, 1994.
_______________________
(Executive)
23
<PAGE>
GENERAL RELEASE AND COVENANT NOT TO SUE
For and in consideration of the terms of the Agreement between Burlington
Northern Inc. and dated , ("Agreement"), the
undersigned does hereby fully waive, release, remit and forever discharge
Burlington Northern Inc. and any and all of its parents, divisions,
subsidiaries, officers, directors, stockholders, agents, advisors and
employees from any and all claims, demands or causes of action, including any
claims for merger protection benefits pursuant to the Interstate Commerce
Commission decision in the Northern Lines or Frisco merger proceedings, claims
arising under Title VII of the Civil Rights Act of 1964, as amended, 42
U.S.C.(S) 2000 (e), et seq., the Civil Rights Act of 1866, 42 U.S.C.(S) 1981,
the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C.(S) 621,
et seq., the Federal Employers' Liability Act, and any other federal, state or
local law, order, regulation, common law, contract or collective bargaining
agreement, which relates to my employment or cessation of employment by
Burlington Northern Inc.; provided however, that the undersigned does not waive
enforcement of rights to any benefits provided or extended pursuant to the terms
of the Agreement. The undersigned specifically waives all claims, whether past
or present, known or unknown, and whether or not litigation, which I, or acting
on my behalf, my heirs, successors, executors, administrators or assigns, may
have based on any action, omission or event occurring prior to this date.
Included in this Release are any and all claims for future damages allegedly
arising from the alleged continuation of the effects of any past action,
omission or event.
24
<PAGE>
This General Release and Covenant Not to Sue is executed willingly and
voluntarily, for adequate consideration, and after having the opportunity to
consult with counsel. This General Release and Convenant Not to Sue is
irrevocable and binding upon the undersigned.
(Type Name Here)
______________________________ ____________________________
Date Name
____________________________
Signature
25
<PAGE>
[BURLINGTON LOGO AND LETTERHEAD]
3000 Continental Plaza
777 Main Street
Fort Worth, Texas 76102-5384
September 30, 1994
With reference to the Letter Agreement between you and Burlington Northern Inc.
(the "Company") regarding Change in Control, the Company has recently entered
into the Agreement and Plan of Merger (the "Merger Agreement") dated as of
June 29, 1994, between the Company and Santa Fe Pacific Corporation ("SFP"),
pursuant to which the Company has agreed to merge with SFP (the "Merger") in
accordance with the terms set forth therein. The Company expects to call for
special vote of stockholders to approve the Merger later this year; however,
consummation of the Merger is subject to regulatory approval, which is not
expected in the near future.
The Company believes that, as a result of the particular facts surrounding
the Merger and the stockholder and regulatory approvals it requires, and in
order to provide an incentive to you to remain in the Company's employ during
the period that the Merger is pending regulatory approval, it is in the
interests of both parties to the above-mentioned Change in Control Letter
Agreement (the "Letter Agreement") to amend such Agreement as set forth below.
Capitalized terms used and not otherwise defined herein shall have the same
meanings as in the Letter Agreement.
1. A Change in Control, for purposes of the Letter Agreement, shall
occur on the date that the Company's stockholders approve the
Merger. This event shall be the only event relating to the Merger
that will constitute a Change in Control, for purposes of the
Letter Agreement.
2. For purposes of Sections 4(i) and 5 of the Letter Agreement, the
period during which your termination of employment will entitle
you to the benefits provided in Section 5(iii) shall begin on
the date of the stockholder vote approving the Merger and shall
expire on the latest of (a) the second anniversary of the
Effective Time of the Merger as defined by the Merger Agreement
(or if the Company determines that it will not consummate the
Merger, the date of that determination), or (b) the date on which
the Interstate Commerce Commission determines that it will not
approve the Merger. Termination of your employment (i) as a result
of your death or Permanent Disability, (ii) by the Company for
Cause or as a result of mandatory retirement, if applicable, and
(iii) by you other than for Good Reason, shall not be affected
by this Amendment.
<PAGE>
3. In the event that your employment is terminated within the
period specified in paragraph 2 above and under circumstances
entitling you to receive the benefits provided for in
Section 5(iii) of the Letter Agreement, all outstanding awards
granted under the Company's 1992 Burlington Northern Inc.
Stock Option Incentive Plan, the 1989 Burlington Northern Inc.
Restricted Stock Award Plan for Management Employees, the 1989
Burlington Northern Inc. Restricted Stock Incentive Plan, after
the date hereof shall immediately become vested or exercisable
in full, and the Restriction Period, as defined in any such Plan,
relating to any such award shall thereupon terminate.
4. Section 12 of the Letter Agreement is deleted and the following
paragraph shall be substituted for Section 12 of the Letter
Agreement:
Any disputes relating to or arising out of the Letter Agreement
including any amendments shall be resolved in arbitration
pursuant to Burlington Northern Railroad Company's dispute
resolution procedures.
5. Except as and to the extent amended hereby, the provisions of
the Letter Agreement and the terms of any award referred to in
Section 3 of this Amendment shall remain in full force and effect.
6. THIS AMENDMENT WAS NEGOTIATED AND EXECUTED IN THE STATE OF TEXAS
AND THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE
OF THIS AMENDMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
TEXAS, EXCEPT PARAGRAPH 4 RELATING TO ARBITRATION, WHICH IS
GOVERNED BY THE FEDERAL ARBITRATION ACT.
7. This Amendment may be executed in several counterparts, each of
which shall be deemed to be original but all of which together
will constitute one and the same instrument.
Please sign below to indicate your acceptance of the terms of this Amendment.
Very truly yours, Agreed and Accepted
BURLINGTON NORTHERN INC.
By: _______________________ ___________________________
James B. Dagnon Executive
Executive Vice President ___________________________
Employee Relations Date
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1994 1993
---------- ------------
<S> <C> <C>
Net income
Primary:
Net income......................................... $ 159 $ 296
Convertible and mandatory redeemable preferred
stock dividends................................... (11) (22)
----- -----
Net income available for common shareholders....... $ 148 $ 274
===== =====
Fully diluted:
Net income available for common shareholders....... $ 148 $ 274
Dividends on convertible preferred stock, assuming
conversion........................................ 11 22
----- -----
$ 159 $ 296
===== =====
Weighted average number of shares
Primary:
Average common shares outstanding.................. 89.1 88.6
Common share equivalents resulting from assumed
exercise of stock options......................... 1.2 1.1
----- -----
90.3 89.7
===== =====
Fully diluted:
Average common shares outstanding.................. 89.1 88.6
Common share equivalents resulting from assumed
conversion of convertible preferred stock......... 7.4 7.4
Common share equivalents resulting from assumed
exercise of stock options assuming full dilution.. 1.1 1.2
----- -----
97.6 97.2
===== =====
Earnings per common share:
Primary.............................................. $1.64 $3.06
Fully diluted........................................ 1.63 3.04
</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
year ended December 31, 1993 were not significant.
Earnings per common share may not compute due to the level of rounding in
this exhibit.
<PAGE>
BURLINGTON NORTHERN INC.
SUBSIDIARIES OF THE REGISTRANT
The following is a list of the subsidiaries of Burlington Northern Inc.
showing the place of incorporation and the percentage of voting securities
owned.
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
SECURITIES OWNED
DIRECTLY OR
JURISDICTION OF INDIRECTLY BY
NAME OF COMPANY INCORPORATION IMMEDIATE PARENT
--------------- --------------- --------------------
<S> <C> <C>
Burlington Northern Railroad Company...... Delaware 100%
</TABLE>
The names of certain subsidiaries are omitted as such subsidiaries,
considered as a single subsidiary, would not constitute a significant
subsidiary.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
on Form S-4 of our report dated January 17, 1994, on our audits of the
consolidated financial statements and the financial statement schedules of
Burlington Northern Inc. and Subsidiaries as of December 31, 1993 and 1992, and
for the years ended December 31, 1993, 1992 and 1991. We also consent to the
reference to our firm under the caption "Experts".
COOPERS & LYBRAND L.L.P.
October 27, 1994
Fort Worth, Texas
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Supplemental Joint
Proxy Statement/Prospectus constituting part of this Registration Statement on
Form S-4 of Burlington Northern Inc. of our report dated February 4, 1994,
except for the retroactive restatement described in Note 2 of the notes to
consolidated financial statements, as to which the date is June 29, 1994,
appearing on page 11 of Santa Fe Pacific Corporation's Form 8-K/A dated October
5, 1994. We also consent to the incorporation by reference of our report on the
Consolidated Financial Statement Schedules, which appears on page 38 of Santa
Fe Pacific Corporation's Form 8-K dated August 3, 1994. We also consent to the
references to us under the heading "Experts" in such Supplemental Joint Proxy
Statement/Prospectus.
PRICE WATERHOUSE LLP
Kansas City, Missouri
October 27, 1994
<PAGE>
EXHIBIT 23.3
Lazard Freres & Co.
One Rockefeller Plaza
New York, N.Y. 10020
----
Telephone (212) 632-6000 New York
Facsimile (212) 632-6060
October 27, 1994
Board of Directors
Burlington Northern Inc.
3800 Continental Plaza
777 Main Street
Fort Worth, TX 76102-5384
RE: REGISTRATION STATEMENT ON FORM S-4 CONTAINING THE
SUPPLEMENTAL JOINT PROXY STATEMENT/PROSPECTUS OF
BURLINGTON NORTHERN INC. AND SANTA FE PACIFIC
CORPORATION
Gentlemen and Madame:
Attached is our opinion letter dated October 27, 1994 with respect to the
proposed merger of Burlington Northern Inc. and Sante Fe Pacific Corporation.
The foregoing opinion letter has been furnished for the information and
assistance of the Board of Directors of Burlington Northern Inc. in connection
with its consideration of the transaction contemplated therein and is not to be
used, circulated, quoted or otherwise referred to for any other purpose, nor is
it to be filed with, included in or referred to in whole or in part of any
registration statement, proxy statement or any other document, except in
accordance with our prior written consent.
In that regard, we hereby consent to the reference to the opinion of our Firm
under the caption "Recent Developments" and to the inclusion of the foregoing
opinion in the above-mentioned Registration Statement. In giving such consent,
we do not thereby admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933 or the rules
and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Lazard Freres & Co.
LAZARD FRERES & CO.
<PAGE>
[GOLDMAN, SACHS & CO. LETTERHEAD WITH LOGO]
PERSONAL AND CONFIDENTIAL
October 27, 1994
Board of Directors
Santa Fe Pacific Corporation
1700 East Golf Road
Schaumburg, Illinois 60173-5860
Re: Registration Statement of Burlington Northern, Inc. dated October 27, 1994
including the Supplemental Joint Proxy Statement/Prospectus of Burlington
Northern, Inc. and Santa Fe Pacific Corporation included therein.
Gentlemen and Madame:
Attached is our opinion letter dated October 27, 1994 with respect to the
proposed merger of Santa Fe Pacific Corporation and Burlington Northern, Inc.
The foregoing opinion letter has been furnished for the information and
assistance of the Board of Directors of Santa Fe Pacific Corporation in
connection with its consideration of the transaction contemplated therein and
is not to be used, circulated, quoted or otherwise referred to for any other
purpose, nor is it to be filed with, included in or referred to in whole or in
part in any registration statement, proxy statement or any other document,
except in accordance with our prior written consent.
In that regard, we hereby consent to the reference to the opinion of our Firm
under the caption "Recent Developments" and to the inclusion of the foregoing
opinion in the Supplemental Joint Proxy Statement/Prospectus included in the
above-mentioned Registration Statement. In giving such consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
GOLDMAN, SACHS & CO.
<PAGE>
UNION PACIFIC CORPORATION
[LOGO -- UNION PACIFIC]
DREW LEWIS
CHAIRMAN October 5, 1994
Mr. Robert D. Krebs
Chairman, President & CEO
Santa Fe Pacific Corporation
1700 E. Golf Road
Schaumburg, IL 60173
Dear Rob:
I would like to thank you for meeting with Dick and me earlier today to
discuss a possible combination of our two companies. We have long admired Santa
Fe and your excellent management and work force. As we discussed, we at Union
Pacific believe that combining the strengths of Santa Fe and Union Pacific
represents an extraordinary opportunity for our two companies, our respective
shareholders, customers and employees, and the railroad industry.
I was disappointed by your unwillingness to consider our proposal. As I
mentioned, we view this transaction as a strategic imperative. Accordingly, I
am writing to submit the following proposal to combine our companies. Because
of the very significant benefits that it would provide to your Company, your
shareholders and other constituencies, we ask that you and your Board of
Directors give careful consideration to our proposal.
TERMS
We propose that Union Pacific acquire Santa Fe in a merger in which Santa Fe
shareholders would receive, for each of their shares, .344 of a share of Union
Pacific common stock, having a value of $18 per Santa Fe share based on
yesterday's closing price of Union Pacific stock.
This price represents a premium of 38% over yesterday's closing price of
Santa Fe common stock. Our proposed price also represents a premium of 33% over
the current value of the Burlington Northern transaction, which was endorsed by
your financial advisors as fair to your shareholders.
In addition to receiving a substantial premium, your shareholders would be
able to participate in an exceptional opportunity for growth and increased
value through their ongoing interest in what we believe would be the preeminent
railroad company in the country.
Our proposed transaction would be tax-free to both our companies and to your
shareholders. This would allow your shareholders to defer paying tax, or
recognizing gain or loss on their shares, until they sell their shares at a
time of their choice.
BENEFITS OF TRANSACTION
In addition to providing superior benefits for your shareholders, we believe
our transaction will provide greater benefits to the shipping public and will
do more to strengthen rail competition in the west than the Burlington Northern
transaction. A Union Pacific-Santa Fe combination will produce service
breakthroughs that a Burlington Northern-Santa Fe merger cannot, including more
new single-line service and greater
<PAGE>
savings and efficiencies. To insure that our transaction will strengthen rail
competition in all affected markets, we are prepared to grant conditions to
Southern Pacific, Burlington Northern or other railroads, including access to
points that would otherwise change from two serving railroads to one, rights to
handle service-sensitive business moving between California, Chicago and the
Midwest, and access to the Kansas and Oklahoma grain markets.
CONTINUITY OF MANAGEMENT
We have great respect for your management and employees and believe they
would make important contributions to our combined company. We envision that
certain members of the Santa Fe Board would be invited to serve on Union
Pacific's Board. This participation would facilitate the integration and growth
of the two companies.
PROCESS
Our Board of Directors strongly supports the proposed transaction and has
authorized management to pursue this proposal with you. We are prepared to
immediately commence negotiation of a definitive merger agreement containing
mutually agreeable terms and conditions.
We have conducted an extensive analysis of Santa Fe based on publicly
available information. While our proposal is necessarily subject to
confirmation, through appropriate due diligence, that our understanding of
Santa Fe based on publicly available information is accurate, we expect that
such due diligence will confirm our view of Santa Fe and its prospects. We
recognize that you will need to conduct a due diligence review of Union Pacific
and its operations, and we are ready to facilitate that process.
Our transaction, like the proposed Burlington Northern merger, is contingent
upon ICC approval. Although this is a significant matter for either
transaction, we believe that, working together, we can present strong arguments
to the Commission as to the benefits of our transaction to customers and the
industry.
Our proposal also would be subject to termination of your merger agreement
with Burlington Northern in accordance with the terms of that agreement,
approval of a mutually satisfactory merger agreement by our respective Boards
of Directors, and approval of our respective shareholders.
Along with our financial advisor, CS First Boston Corporation, and our legal
advisor, Skadden, Arps, Slate, Meagher & Flom, we look forward to meeting with
you and your advisors to discuss our proposal and to working to implement this
transaction. We have the opportunity to build the best railroad in the country
and to provide significant immediate and long-term benefits for your
shareholders.
I am hopeful your Board will conclude that your shareholders should not be
denied the opportunity to consider this offer. We at Union Pacific are
determined to take every appropriate action to pursue this transaction. In view
of the importance of this matter, time is of the essence and we await your
earliest possible response.
Please call me as soon as possible so we can get together to discuss this
matter in detail.
Sincerely,
/s/ Drew Lewis
<PAGE>
[LETTERHEAD OF SANTA FE PACIFIC]
OCTOBER 6, 1994
Mr. Drew Lewis
Chairman and Chief Executive Officer
Union Pacific Corporation
Martin Tower
Eighth and Eaton Avenues
Bethlehem, Pennsylvania 18018
Dear Mr. Lewis:
The Board of Directors of Santa Fe Pacific Corporation ("SFP") has authorized
me to reject, on behalf of SFP, the proposal of Union Pacific Corporation
("UP") dated October 5, 1994, to acquire SFP. You stated at our meeting
yesterday that UP might be willing to offer more--$20 per share--and would
consider using a voting trust for UP's proposed transaction. These statements
are inconsistent with UP's proposal and its press release.
If UP makes a proposal at a fair price and with an adequate provision for a
voting trust that would substantially eliminate the regulatory risk for SFP
shareholders, the Board would consider that proposal in light of its fiduciary
duties.
Sincerely,
/s/ Robert D. Krebs
<PAGE>
[LETTERHEAD UNION PACIFIC CORPORATION]
October 11, 1994
Drew Lewis
Chairman
Mr. Robert D. Krebs
Chairman, President and CEO
Santa Fe Pacific Corporation
1700 East Golf Road
Schaumburg, IL 60173
Dear Rob:
I am in receipt of your October 6 letter.
In light of your Board's fiduciary obligations, we were disappointed by your
failure to give careful consideration to our proposal or to meet with us to
discuss our transaction. We remain convinced that our proposal is a superior
alternative to your proposed transaction with Burlington Northern, providing a
premium price to your shareholders as well as significant benefits for shippers
and the rail industry.
We believe it is a disservice to your shareholders for you to publicly
speculate, inaccurately, as to the motivation for our proposal rather than
giving us an opportunity to respond to your concerns. We do not understand how
you, your Board and advisors could pass judgment on complex matters, including
the unprecedented public benefits that would result from the UP-Santa Fe
transaction and the conditions we are prepared to grant to other railroads to
strengthen rail competition in the West.
If you and your advisors agree to discuss our proposal in the exercise of
your fiduciary duties in accordance with the terms of your merger agreement
with Burlington Northern, we can present compelling reasons to convince you
that our proposal is superior and in the best interests of your shareholders,
and address your stated concerns regarding regulatory approvals.
As to your stated willingness to consider a "fair price," our current
proposed purchase price represents a significant premium over the value of the
Burlington Northern transaction, which your financial advisors have already
endorsed as fair to your shareholders. We would be prepared to receive
information from you that might justify a greater consideration.
I again call upon you and your Board to give careful consideration to our
proposal and to exercise your fiduciary obligations to meet with us and our
advisors at the earliest possible time. Your shareholders should not be denied
the opportunity to consider our proposal.
Sincerely,
/S/ DREW
DL/ss
cc: Board of Directors
Santa Fe Pacific Corporation
<PAGE>
[LETTERHEAD OF SANTA FE PACIFIC]
October 11, 1994
Mr. Drew Lewis
Chairman
Union Pacific Corporation
Martin Tower
Eighth and Eaton Avenues
Bethlehem, Pennsylvania 18018
Dear Mr. Lewis:
Your October 11, 1994 letter has been reviewed by the Santa Fe Pacific board.
The board has concluded that your October 11 letter really adds nothing to your
October 5 letter. However, the board has authorized me to ask you to provide us
promptly with Union Pacific's "analysis of ICC matters," as referenced in your
letter. Unless and until we receive something to change the position set forth
in my October 6, 1994 letter to you, that position still stands.
Sincerely,
/s/ Robert D. Krebs
<PAGE>
[LETTERHEAD OF UNION PACIFIC CORPORATION]
October 12, 1994
Mr. Robert D. Krebs
Chairman, President and CEO
Santa Fe Pacific Corporation
1700 East Golf Road
Schaumburg, IL 60173
Dear Rob:
We are encouraged by your October 11 response indicating a willingness to
consider our analysis of regulatory matters relating to our proposed
transaction. We will provide materials and would welcome the opportunity, in
accordance with your existing merger agreement, to sit down with you and your
advisors to address your concerns.
We will be in contact with you shortly to arrange the delivery of materials.
Sincerely,
/s/ Drew
DL/ss
cc: Board of Directors
Santa Fe Pacific Corporation
ART
<PAGE>
UNION PACIFIC CORPORATION
LOGO OF UNION PACIFIC
DREW LEWIS
CHAIRMAN
October 17, 1994
Mr. Robert D. Krebs
Chairman, President and CEO
Santa Fe Pacific Corporation
1700 East Golf Road
Schaumburg, IL 60173
Dear Rob:
Enclosed is a summary analysis of the case regarding our merger proposal that
we would expect to present to the Interstate Commerce Commission. We suggest
that you review this with your Board and your ICC counsel.
We are confident that after a review you will see that we have a strong case
for ICC approval. If you have any questions or desire any additional
information, please feel free to contact me.
We look forward to meeting with you to discuss the analysis and our proposal,
in accordance with the terms of your merger agreement with Burlington Northern
Inc.
Sincerely,
/s/ Drew
DL/ss
Enclosure
cc: Board of Directors
Santa Fe Pacific Corporation
MARTIN TOWER, EIGHTH AND EATON AVENUES, BETHLEHEM, PA _____ -- ___ _323
<PAGE>
October 17, 1994
MEMORANDUM
Re: UP/Santa Fe Merger
This memorandum will summarize the key elements of the factual case that would
be included in Union Pacific's application to the ICC for approval of a UP/Santa
Fe merger. First, it will address the benefits that will flow from the merger.
Second, it will discuss the competitive issues and related conditions that we
are prepared to address.
Our study to date has been conducted without the benefit of access to internal
Santa Fe information or the opportunity for UP and Santa Fe personnel to explore
opportunities for additional benefits. ICC merger applications are generally
prepared by the merging railroads jointly, based on a thorough study of relevant
traffic and operating data. The merging railroads work together to prepare
competitive analyses, traffic studies, an operating plan for the merged entity,
and pro forma financial statements. Once a UPC/SFP merger agreement is reached,
UP and Santa Fe personnel will be able to work together in this way to prepare a
comprehensive merger application, and to identify and quantify still other
benefits of the transaction.
BENEFITS
--------
A UP/Santa Fe merger will have major benefits similar to those presented in
our past merger applications but of a much greater order of magnitude. These
benefits will be in three major areas:
<PAGE>
. New single-line service
. Very significant service benefits--indeed unprecedented in many respects--
from using the best of UP's and Santa Fe's routes and facilities and
combining UP and Santa Fe traffic volumes
. Cost savings and efficiencies
Single-Line Service
-------------------
Single-line service is strongly preferred by shippers over joint-line service
because it allows more flexible and competitive pricing, lower transaction
costs, reduced delays and damage from interchange operations, and accountability
by a single carrier for the entire through movement.
A UP/Santa Fe merger will yield greatly expanded single-line service for both
UP and Santa Fe shippers. A UP/Santa Fe merger will provide shippers with new
single-line routes in a variety of important markets, including, among others,
the following:
1. The Southern Corridor. A UP/Santa Fe merger will create direct new
---------------------
single-line routes via the Southern Corridor for traffic moving between
California, Arizona and New Mexico, on the one hand, and Memphis, New Orleans,
Laredo (the premier Mexican gateway), San Antonio, Little Rock, and many other
points in the South Central region, including a large portion of the Gulf Coast
chemical industry, on the other hand. Today, only SP offers Southern Corridor
single-line service between most of these important traffic centers.
2. UP Grain to Santa Fe Feeder Markets. UP/Santa Fe will create new
-----------------------------------
single-line service from UP grain origins in Nebraska, Kansas and other states
to major feeder
-2-
<PAGE>
markets, including California's San Joaquin Valley, the Texas panhandle, and
Arizona.
3. Santa Fe Grain to UP Export Markets. Wheat shippers located along Santa
----------------------------------
Fe and tributary short lines in Kansas and Oklahoma will gain access to Pacific
Northwest ports, all major Gulf Coast ports, and the burgeoning Mexico market,
greatly expanding their marketing opportunities.
4. Gulf Ports. Santa Fe shippers will have single-line access for the first
----------
time to important Gulf ports served by UP, such as New Orleans, Baton Rouge,
Lake Charles, Brownsville and Corpus Christi.
5. The Intermountain Region. UP shippers in the Intermountain region - Utah,
------------------------
Colorado, Wyoming and southern Idaho - will gain new single-line access to Santa
Fe points in the Southwest for such commodities as food products, soda ash,
copper, steel and fertilizer.
6. The Pacific Northwest. UP shippers of lumber, paper and food products in
---------------------
the Pacific Northwest will gain single-line access to Santa Fe destinations.
7. Mexico. Shippers located on the Santa Fe system will enjoy new single-
------
line access to the principal eastern Mexico gateways of Laredo and Brownsville.
Santa Fe accesses Mexico only at El Paso, which is an efficient crossing only
for limited segments of northern Mexican traffic.
Initial reactions from customers has confirmed our view that these benefits
will be very attractive to the shipping public. Based upon those reactions, we
believe customers will find a UP/Santa Fe merger to be very attractive. While a
BN/Santa Fe combination would also create various new single-line routes, it
cannot match the level
- 3 -
<PAGE>
of new single-line service available through a UP/Santa Fe merger. Though BN
and Santa Fe are largely physically end-to-end on a map, the extent to which
they fit together in traffic terms is more limited than might appear. For
example, while combining BN and Santa Fe theoretically creates a single-line
route between the Pacific Northwest and Southern California via Colorado, little
if any traffic would move on such a circuitous route. And while UP/Santa Fe will
provide new, direct single-line service between Mexico's major traffic centers
and California (as well as Santa Fe points in the Midwest and the South Central
region), a BN/Santa Fe system would reach Mexico only at El Paso, which is not
well-situated for the bulk of the rapidly-growing volumes of rail traffic to and
from Mexico.
New Service Benefits
--------------------
In the last five years, the railroad industry has come face-to-face with a
major problem that no one could have predicted two decades ago, when railroads
were in bankruptcy from the Atlantic Coast to the Midwest. Today, railroads are
running out of capacity. Segments of UP's Central Corridor are strained to the
limits. Unlike BN/Santa Fe, a UP/Santa Fe merger provides a one-time opportunity
to make better use of scarce railroad capacity and resources all the way from
the Midwest to the Pacific. We expect that combining UP and Santa Fe will
dissolve many of these capacity constraints and provide an opportunity to
accommodate substantial future growth. Both railroads today mix high-speed
intermodal trains with slower manifest and bulk commodity trains, a mix that
causes delays to both types of trains and absorbs capacity. By separating faster
from
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<PAGE>
slower trains on different routes so that trains on each line can run at a more
uniform speed, as well as bypassing chokepoints such as Kansas City, UP/Santa Fe
can simultaneously improve service and use expensive capacity more efficiently.
Integration of Santa Fe and UP will allow the merged carrier to provide
shippers with a variety of new -- and in many instances unprecedented -- service
benefits, surpassing those of any of UP's earlier mergers (Missouri Pacific,
Western Pacific and Katy). The UP and Santa Fe organizations are very
compatible. Both have industry-leading commitments to service quality and
customer responsiveness. We believe that UP and Santa Fe are the best-managed
major rail carriers in the West. A combination of these two carriers will lead
to a quantum leap into the 21st Century in both transporation capability and
customer service.
The specific benefits that UPC expects to demonstrate include:
1. Service Improvements for Intermodal Traffic.
-------------------------------------------
We are entering a new "age of intermodalism." Intermodal rail service has been
booming, but the rail industry has enormous untapped opportunities to serve new
segments of the transportation market. Rail intermodal revenues will exceed $7
billion this year, but motor carrier revenues will exceed $150 billion. A
combined UP/Santa Fe could complete for much more of that business.
. Between Chicago and Southern California, UP and Santa Fe will be able to
provide round-the-clock intermodal departures, approximately every four
hours. By increasing service frequency, UP/Santa Fe can more closely match
the ability of truckload motor carriers to leave when the shipper is ready,
not when the railroad is able, and thereby take traffic (including trailers
owned by truck lines) off the highways. The result will be to use
transportion resources more efficiently and
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<PAGE>
to reduce environmentally-damaging emissions. We believe that greater service
frequency will also provide opportunities to significantly improve trailer,
container and railcar utilization.
. Between Chicago and Northern California, UP/Santa Fe will increase service
frequency as well. While the Santa Fe's UPS service to Northern California
will continue to operate through the Southern Corridor, most other trains
will operate via the Central Corridor, freeing capacity on the Santa Fe
route.
. Between Chicago and Texas (Dallas/Fort Worth, Houston, and the Laredo
gateway), train frequency will be increased to every six hours or less.
Except for one train in each direction via Oklahoma City, UP/Santa Fe will
use the current, efficient UP route to and from Texas.
. UP/Santa Fe will improve intermodal service between St. Louis and
California compared to service provided by either railroad today. UP's
route to Southern California via Salt Lake City is comparatively slow
because of circuity, and Santa Fe traffic uses the circuitous and slower
Gateway Western between Kansas City and St. Louis. UP/Santa Fe will use the
UP line between St. Louis and Kansas City and the Santa Fe line between
Kansas City and Southern California to offer through St. Louis-California
service with substantial transit-time savings.
. Between the New Orleans gateway and California, UP/Santa Fe will provide
new through service via Sweetwater, UP/Santa Fe service will shave several
hours off any existing SP service and at least half a day from the KCS-
Santa Fe route.
. UP's and Santa Fe's Chicago, Southern California and Texas intermodal
terminals can be used more efficiently. Although details must await
completion of joint studies with Santa Fe, UP/Santa Fe should be able to
redeploy terminal capacity to reduce drayage costs and distances for
shippers.
2. Service Improvements for Automotive Traffic.
-------------------------------------------
UP/Santa Fe will provide much improved service for automotive industry shippers
by combining the traffic of the two railroads. As a result, automotive traffic
will enjoy reduced transit time and shippers will realize major savings in
inventory costs. Importantly for automotive shippers, UP/Santa Fe will be able
to use "bypass blocking" -- blocking of through traffic to avoid intermediate
switching at freight yards -- which
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<PAGE>
greatly reduces the risk of damage and theft.
For auto and auto parts shippers:
. Solid unit trains will operate from the Great Lakes to facilities in
Southern California, including Long Beach (for export/import traffic).
Transit time will be reduced by up to 24 hours.
. UP/Santa Fe will improve service by 24 hours between California and
automotive facilities located on UP in Texas and Louisiana.
. By combining traffic flows and using bypass blocking, transit time will be
reduced for other automotive shipments as well.
3. Service Improvements for Manifest Freight.
-----------------------------------------
UP/Santa Fe will provide reduced transit time and reduced intermediate switching
throughout the merged system by combining traffic volumes to provide more
frequent service and increased use of bypass blocking. Reduced intermediate
switching is especially important to petrochemical shippers, who are very
concerned about safety risks associated with switching activities. Specific
service improvements will include:
. Gulf Coast-California/Arizona service will be improved by one to five days,
compared to current routings. UP and Santa Fe have not worked together
effectively as joint-line partners over Sweetwater, TX. A merged UP/Santa
Fe system will offer new through freight service on this route with much
faster transit times.
. Southeast-California/Arizona service will be improved. UP's new Livonia
Yard in Louisiana will preblock traffic to and from eastern carriers for
run-through service via New Orleans. Westbound, new trains will carry
traffic blocked for California points. Transit time will be substantially
reduced in both directions.
. East-West traffic via Chicago will enjoy substantially improved service as
a result of combining traffic volumes for run-through service with Conrail,
CSXT, GTW and Norfolk Southern. Rather than duplicating blocks, as they
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<PAGE>
presently do, UP/Santa Fe will prepare and receive more refined blocks in
run-though train service. For example, depending on the results of traffic
studies, UP/Santa Fe should be able to receive through blocks of Southern
California traffic from eastern carriers and assemble through blocks to
major East Coast locations.
. St. Louis-Southern California manifest service, like intermodal service in
that corridor, will be improved for shippers on both railroads by using UP
between St. Louis and Kansas City and Santa Fe between Kansas City and
Southern California, both of which are the fastest routes.
. Memphis gateway-California traffic will be routed via Sweetwater, improving
service as compared to UP's Central Corridor route. Little Rock will be
used as a distribution point for traffic on run-through trains to CSXT and
NS at Memphis.
. Texas-Pacific Northwest service will be improved by using the shorter Santa
Fe route via Denver or a new Topeka Bypass.
4. Service Improvements for Bulk Traffic
-------------------------------------
UP/Santa Fe will provide improved reach and service for shippers of all bulk
commodities, and especially for grain and coal customers. By separating bulk
traffic from expedited traffic to the maximum extent possible, UP/Santa Fe will
expedite both types of shipments. Bulk movements will spend less time in sidings
waiting for faster trains to pass. When congestion arises, UP/Santa Fe will have
alternative routes in most corridors to relieve the pressure.
Specific service improvements will include:
. UP/Santa Fe will create a new Topeka Bypass route, which will allow Powder
River Basin coal trains to avoid the Kansas City terminal area, a major
capacity choke point. Coal traffic can then be shifted among alternative
routes between Topeka and Texas to avoid congestion. Coal shippers located
on Santa Fe will gain single-line service from the Powder River Basin.
-8-
<PAGE>
. Reduced transit time and increased reliability will translate into faster
cycle times and major savings in private car costs for coal-fired
utilities, which have hundreds of millions of dollars invested in their car
fleets.
. A UP/Santa Fe combination will have the effect of greatly expanding the
availability of covered hoppers for grain transportation. The staggered
timing of the wheat harvest, primarily on Santa Fe lines, and the corn and
soybean harvests, primarily on UP lines, will permit the entire UP and
Santa Fe covered hopper fleet to be deployed for both sets of harvests.
. Sweep-train operations along UP/Santa Fe routes and short-line tributaries
in the Midwest will provide much more efficient equipment utilization.
UP/Santa Fe will cut two to four days from car cycle times.
5. Fewer Delays From Blocking, Switching and Interchange.
-----------------------------------------------------
Combining UP and Santa Fe traffic volumes will allow increased preblocking of
traffic, reduced intermediate switching requirements, and avoidance of
interchange delays. This in turn will speed shipments, generate major inventory
cost savings for customers, and reduce damage.
6. Faster Equipment Turnaround.
---------------------------
A UP/Santa Fe system will achieve significantly reduced turnaround times for all
types of freight cars, both shipper-owned and railroad-owned, resulting in major
savings for customers and the ability to make more railroad-owned cars available
to shippers when and where they need them.
We do not believe that BN/Santa Fe can match these dramatic service
improvements, which depend in significant part on the complementary nature of UP
and Santa Fe traffic and facilities.
-9-
<PAGE>
Savings and Efficiencies
------------------------
1. Capital Savings. A UP/Santa Fe merger will reduce the need for investments
---------------
in new capacity that the two railroads would otherwise have to make separately
(and that would have to be made in the event of a BN/Santa Fe merger). Both UP
and Santa Fe are facing capacity constraints as railroad traffic volumes
continue to rise. Combining the two systems will yield routing flexibilities and
efficiencies that will translate into greater capacity and avoided or deferred
capital costs.
2. Mileage Savings. Following a UP/Santa Fe merger, large volumes of traffic
---------------
will move over shorter routes. Combining the lines of the two systems will yield
substantial mileage savings for traffic now moving via UP, Santa Fe or both in
the California-Memphis, California-St. Louis, California-Kansas City,
Chicago-Texas, Chicago-Los Angeles, Chicago-Oakland and Chicago-Kansas City
Corridors. Mileage savings mean lower fuel costs, crew costs and equipment
costs.
3. Consolidation Savings. There will be large savings from facility
---------------------
consolidations, elimination of operating and administrative overheads, and joint
management of the two railroads' locomotive and maintenance-of-way fleets.
4. Technologies and Systems. Major efficiencies will be realized by using the
------------------------
most efficient technologies and information systems of each railroad on the
combined system.
5. Freight Car Savings. Significant savings will be realized from the combined
-------------------
management of the two railroads' freight car fleets. Joint management of the
fleets will, as already noted, allow UP and Santa Fe to take advantage of
different patterns of seasonal use of their equipment, and will also allow
the combined system to triangulate
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<PAGE>
equipment (including repositioning of UP cars within California) and to exploit
new backhaul opportunities.
COMPETITION
-----------
We have considered the parallel aspects of a UP/Santa Fe combination. This is
not the first parallel merger to be presented to or approved by ICC. Union
Pacific's Katy merger was largely parallel as was Wisconsin Central's
acquisition of the Fox River Valley and Green Bay & Western Railroads, Soo's
acquisition of the core assets of the Milwaukee Road, the merger of the Norfolk
& Western and the Southern to form Norfolk Southern, the merger of the Chessie
and Family Lines systems to form CSX, the merger of the Illinois Central and
Gulf, Mobile & Ohio to form ICG, the merger of the Great Northern and the
Northern Pacific to form Burlington Northern, the merger of the Seaboard Air
Line and Atlantic Coast Line to form the Seaboard Coast Line, and the
acquisition of the Central of Georgia by the Southern. Indeed, most of the rail
mergers approved by the ICC over the past twenty-five years have involved a
significant degree of parallelism. In fact, efficiency savings are typically
greater in parallel mergers. Nevertheless, UP has always been willing to
address legitimate competition issues, and we would need to do so in this
transaction as well.
The service improvements and efficiencies that we expect will result from
combining the UP and Santa Fe railroads will greatly strengthen rail and
transportation competition. The UP/Santa Fe system will reach a new level of
competitiveness yielding large savings for customers and attracting traffic from
trucks. The stronger competitive
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<PAGE>
challenge from UP/Santa Fe will spur our rail competitors to improve their own
service to shippers.
Even without the grant of competition-enhancing conditions, there are other
strong, competitive railroads in all corridors that are served by both UP and
Santa Fe. For example, SP provides strong competition between California and
Chicago, and a number of railroads, including BN, SP, CP Rail/Soo Line, and
Kansas City Southern provide vigorous competition in the Chicago-Kansas
City-Texas Corridor. Unlike the failed SFSP merger, this merger will not reduce
the number of railroads from two to one in any major corridor.
Nonetheless, to ensure competition in all affected markets, we believe UP can
grant conditions that will address all legitimate competitive issues and
actually heighten competition. These conditions would focus on rail competition
in the Kansas and Oklahoma grain market and for service-sensitive business
moving in the California-Midwest Corridor. Although BN and other railroads serve
the Kansas and Oklahoma grain market, UP/Santa Fe would have a combined position
in this market that would arguably raise competitive concerns. Similarly,
although SP provides single-line service in the California-Midwest Corridor and
has recently been the growth leader in intermodal business, UP and Santa Fe
would have a combined position in California-Midwest intermodal and automotive
flows that also would arguably raise competitive concerns. Examples of the
conditions we might accept would be a sale or lease of UP's former OKT line
through Kansas and Oklahoma to Texas, and a grant of trackage rights or other
conditions that wold significantly strengthen SP's already-competitive
California-
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<PAGE>
Midwest routes.
We would also offer access to other railroads at every one of the relatively
few stations involving only a small percentage of total UP/Santa Fe business--
where UP and Santa Fe are the only two serving railroads, such as Longview and
Bay City, TX, Shawnee, OK, Abilene, KS and San Bernardino, CA.
In all other affected markets, we believe that rail, modal and source
competition will be so strong, postmerger, that no legitimate competitive
concerns should be raised. The crucial point is that the benefits of this
merger of two efficient, high-quality, high-service railroads are so great that
conditions are compatible with the transaction. This is therefore a "win-win
transaction in terms of both public benefits and competition.
Erroneous comparisons have been drawn between a UP/Santa Fe combination and
the failed SFSP merger. SFSP was the only rail merger to be disapproved by ICC
in recent times. The Commission's rejection of the SFSP merger was principally
driven by the fact the applicants in that case refused to acknowledge any
competitive problems and announced at the start - as BN has effectively done in
this case -that no conditions would be considered appropriate. In the SPSP case,
that position was particularly remarkable given the fact that SFSP involved the
complete elimination of rail competition in a major rail corridor. Our position
is the diametric opposite. We recognize there are competitive issues and are
prepared to remedy them through conditions designed to ensure the continuation
and intensification of rail competition.
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<PAGE>
CONCLUSION
----------
We believe that the benefits of UP/Santa Fe merger are substantial--and in
some instances unprecedented--and that this merger, coupled with conditions to
address competition issues, will lead to a highly effective transportation
system that will produce major benefits for the merging carriers and the
shipping public.
John H. Rebensdorf
Strategic Planning Department
Union Pacific Railroad Company
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<PAGE>
EXHIBIT 99.7
[LETTERHEAD OF UNION PACIFIC CORPORATION]
October 24, 1994
Mr. Robert D. Krebs
Chairman, President & CEO
Santa Fe Pacific Corporation
1700 East Golf Road
Schaumburg, IL 60173
Dear Mr. Krebs:
Drew has asked me to inform you that we have retained a panel of experts
on Interstate Commerce Commission and transportation matters and asked them to
review the case for a possible Union Pacific/Santa Fe combination. I am pleased
to enclose their conclusions and individual reports.
These experts reviewed the report we previously delivered to you and the
Santa Fe Board regarding the factual case we would present to the ICC. Their
conclusions include:
1. Union Pacific has outlined a strong case for ICC approval that
warrants favorable consideration by the ICC.
2. A Union Pacific/Santa Fe combination should have good prospects
of obtaining ICC approval.
These experts bring an independent perspective to our ICC case. No
member of the panel has ever represented Union Pacific before the ICC or on any
other matter, except that Dr. C. John Langley, Jr., our transportation expert,
has in the past done limited consulting for us.
Please contact us so that we can arrange a meeting of our advisors to
discuss these materials or any questions or concerns you may have regarding our
ICC position.
Sincerely,
/s/ Carl W. von Bernuth
CvB/ko
cc: Santa Fe Board of Directors
<PAGE>
STATEMENT OF PANEL OF ICC AND TRANSPORTATION EXPERTS
----------------------------------------------------
The undersigned were retained by Union Pacific Corporation to review
Interstate Commerce Commission and transportation issues relating to a possible
combination of Union Pacific and Santa Fe Pacific Corporation.
We have reviewed a memorandum, dated October 17, 1994, prepared by Mr.
John H. Rebensdorf of Union Pacific Railroad Company. Such memorandum
summarizes the key elements of the factual case that Union Pacific would expect
to make to the ICC for approval of a combination with Santa Fe.
The memorandum describes the substantial rail service improvements and
other benefits that Union Pacific believes would result from a Union
Pacific/Santa Fe combination. The benefits include those in three major areas:
new single-line service, other significant service benefits, and cost savings
and efficiencies. The memorandum also discusses the possible conditions, such
as the right of other railroads to provide competitive services over the
consolidated system's lines and the sale or lease of lines to other railroads,
that Union Pacific would be prepared to grant to other railroads in order to
address competitive issues relating to a combination with Santa Fe.
Based on our review of this report, including the benefits and
competition-preserving conditions described therein, discussions among members
of the panel and our own analysis and experience in this area, we conclude the
following:
Messrs. DePodesta, Kharasch and Sterrett, ICC experts:
. Union Pacific has outlined a strong case for ICC approval of a
combination with Santa Fe that warrants favorable consideration
by the ICC.
. A Union Pacific/Santa Fe combination should have good prospects
of obtaining ICC approval.
Mr. McCormick, transportation expert:
. The Department of Transportation is unlikely to oppose, and may
well support, a Union Pacific/Santa Fe combination.
<PAGE>
Dr. Langley, logistics/transportation expert:
. A Union Pacific/Santa Fe combination would provide major benefits for
the shipping public as well as U.S. industry in general. A combined
Union Pacific/Santa Fe will become more cost and service competitive in
their markets to the benefit of rail industry customers. These
significant public benefits would be difficult to achieve otherwise.
We note that ICC approval is a long and complex process which can take two
years or longer. At this stage, one cannot predict with certainty the outcome
of ICC review of either a Union Pacific or a Burlington Northern combination
with Santa Fe.
UNION PACIFIC PANEL OF EXPERTS
JOHN F. DEPODESTA,
attorney who has represented numerous rail
carriers and public bodies in proceedings
before the ICC; former General Counsel of
Consolidated Rail Corporation.
ROBERT N. KHARASCH,
Washington, D.C. attorney for more than 40
years who specialized in transportation
law; coordinating counsel for railroad
opponents to the unsuccessful Santa Fe-
Southern Pacific merger.
MALCOLM M.B. STERRETT,
attorney with extensive rail
transportation experience and former ICC
Commissioner.
WALTER B. MCCORMICK, JR.,
Partner, Bryan Cave, Washington, D.C.
(attorneys), and former General Counsel of
the U.S. Department of Transportation.
C. JOHN LANGLEY, JR., PH.D.,
John H. "Red" Dove Distinguished Professor
of Logistics and Transportation,
University of Tennessee.
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<PAGE>
STATEMENT OF JOHN F. DEPODESTA
------------------------------
My name is John F. DePodesta and I am currently Of Counsel to the law
firm of Pepper, Hamilton & Scheetz in Washington, D.C., specializing in
regulated industries and corporate restructurings. I have represented numerous
rail carriers and public bodies in proceedings before the Interstate Commerce
Commission. Prior to entering private law practice in 1979, I had served as
General Counsel for Consolidated Rail Corporation (1976-1979) and General
Counsel - Reorganization for the Trustees of Penn Central Transportation Company
(1971-1976). I am a graduate of Harvard College and the University of
Pennsylvania Law School.
I have been asked by the Union Pacific Railroad Company ("UP") to assess
whether a proposed merger between the UP and Santa Fe railroads could be
favorably considered by the Interstate Commerce Commission ("ICC" or
"Commission"). In this regard, I am aware of public contentions made by Santa Fe
that ICC approval of the proposed merger of Burlington Northern and Santa Fe is
"likely" and that ICC approval of a proposed UP/Santa Fe merger is "unlikely."
In my judgment, such predictions are ill-advised.
To inform the analysis, it is useful to summarize the statutory and
regulatory standards which govern ICC consideration of rail merger proposals.
Under the basic statutory standard, the ICC is required to approve a transaction
if it is "consistent with the public interest." 49 U.S.C. (Section) 11344; See
---
Union Pacific
- -------------
<PAGE>
Corp. - Control - Missouri Pacific Corp. (hereinafter UP), 366
- ---------------------------------------- --
I.C.C. 459 (1982).
In determining whether a proposed consolidation is consistent with the
public interest, the ICC must consider the following factors:
(1) the effect of the proposed transaction on the adequacy of
transportation to the public;
(2) the effect on the public interest of including, or failing to include,
other rail carriers in the area involved in the proposed transaction;
(3) the total fixed charges that result from the proposed transaction;
(4) the interest of carrier employees affected by the proposed
transaction; and
(5) whether the proposed transaction would have an adverse effect on
competition among rail carriers in the affected region.
49 U.S.C. (Section) 11344(b).
Under the public interest standard, the Commission performs a
balancing test weighing "the potential benefits to applicants and the public
against the potential harm to the public." 49 C.F.R. 1180.1(c). The ICC must
balance any anticompetitive effects of the proposed consolidation against
anticipated transportation benefits. UP, 366 I.C.C. at 485; Santa Fe Southern
-- -----------------
Pacific Corp. - Control - Southern Pacific Transp. Co. (hereinafter Santa Fe),
- ------------------------------------------------------ --------
2 I.C.C.2d 709, 723 (1986)./1/
- ----------
1. The Commission, however, does not sit as an antitrust court to determine
compliance with antitrust laws. UP, 366 I.C.C. at 485. "The Commission's
--
statutory obligation under the public interest standard requires that any
anticompetitive effects of a consolidation be balanced against its benefits.
The Commission
(continued...)
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<PAGE>
The fact that a proposed merger may have anticompetitive effects is, in itself,
not a barrier to approval of the transaction, provided that corrective
conditions can be imposed to mitigate potential harms. Santa Fe, 2 I.C.C.2d
--------
714. Indeed, the Commission has broad authority -- which it has frequently
exercised -- to impose conditions on consolidations, including those that might
ameliorate potential anticompetitive effects of a consolidation. 49 U.S.C.
(Section) 11344(c).
In UP, the Commission set out the criteria for imposing conditions to
--
remedy anticompetitive effects. In particular, the Commission stated that it
would not impose public interest conditions unless it found that the
consolidation might produce effects harmful to the public interest, that the
conditions to be imposed would ameliorate or eliminate the harmful effects,
that the conditions would be operationally feasible, and that the conditions
would produce public benefits outweighing their harm to the merger. UP, 366
--
I.C.C. at 562; Rail Consolidation Procedures, 363 I.C.C. 784, 792 (1981).
-----------------------------
The Commission has applied these standards in merger proceedings that
involved "end-to-end" as well as "parallel" configurations. The precedents
inform us that "end-to-end" combinations are not assured of unconditional
regulatory
- ----------
1. (...continued)
is empowered to disapprove consolidations which would not violate the antitrust
laws and to approve consolidations even if they otherwise would violate the
antitrust laws." Santa Fe, 2 I.C.C.2d, 723.
--------
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<PAGE>
approval; conversely, "parallel" mergers are not treated as illegal per se.
--- --
Indeed, many rail mergers approved by the ICC have involved a significant degree
of parallelism. The important point is that, notwithstanding the configuration
or characteristics of a particular merger proposal, the ICC is bound to weigh
the public benefits and detriments, and, where potential detriments exist,
impose appropriate conditions to ameliorate or eliminate the competitive harm.
The ultimate determination by the ICC is made only after a full evidentiary
record has been developed and all interested parties have had an opportunity to
participate. Under these circumstances, it is presumptuous to predict a
probable regulatory outcome before a proceeding has even commenced. Advocates
of the ill-fated Santa Fe/Southern Pacific merger can attest to that
observation.
One of course cannot predict at this time whether a contemplated
UP/Santa Fe merger would meet with ultimate regulatory approval. The details of
the merger have not yet been arranged; necessary studies have not been
conducted; interested parties have not been heard from. It is a different
matter, however, to assess whether UP could develop a credible merger proposal
involving Santa Fe that would warrant ICC review under existing statutory and
regulatory standards. In my judgment, UP has presented such a credible
proposal.
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<PAGE>
I have had the opportunity to review a memorandum prepared by UP
officials/2/ describing public benefits from service improvements, savings and
efficiencies that would flow from a UP/Santa Fe merger. That memorandum also
identifies markets where competition could be adversely affected by the proposed
merger and states UP's willingness to offer and/or accept conditions where
competitive problems are demonstrated or conceded to exist. What, in my view,
is significant about this memorandum is the candid -- and realistic -- approach
adopted by UP. Notwithstanding substantial public benefits that may flow from a
UP/Santa Fe merger -- certain of them uniquely available as a consequence of
parallel characteristics -- the effect on rail competition will admittedly be
material. UP acknowledges that adverse effects on rate and service competition
will have to be resolved and is prepared to accept remedial conditions. This
approach is in marked contrast to the proponents of the only rail merger
proposal in recent history that was denied by the Commission -- the proposed
Santa Fe/Southern Pacific merger. Denial of that proposal was, in large part,
attributable to the failure of proponents to even acknowledge, let alone deal
with, anti-competitive effects. In the circumstances which UP presents, the
ICC's task is to determine whether appropriate conditions can be fashioned
adequately to cure the competitive harm without unduly eroding the public
benefits that would accrue
- ----------
2. I understand that a copy of this memorandum has been furnished to Santa Fe.
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<PAGE>
from the proposed merger. And that task is properly and routinely performed by
the ICC after the record in the merger proceeding is completed, not by opponents
before an application is filed.
It is also important to recognize that merger proposals are not reviewed
by the Commission in a vacuum. Not only is the "public interest" standard
appropriately broad, but the Commission is also guided by national
transportation policy. The dominant theme of that Congressional policy is to
"ensure the development and continuation of a sound rail transportation system
with effective competition among rail carriers and with other modes." 49 U.S.C.
(Section) 10101a(4); UP, 366 I.C.C. at 484.
--
Over the last twenty years the rail industry has undergone fundamental
change. The 1970's found over one-third of the industry mired in bankruptcy.
Spurred by passage of the Staggers Act, the 1980's witnessed a revitalization
and relative stability. Productivity improved markedly due largely to shedding
surplus labor, equipment and plant that were the residual of the regulated era.
However, some fundamental problems persisted. Railroads continued to lose
market share, particularly to trucks, which highlights the fact that even with
the productivity gains rail offered more costly and less reliable service than
its competitors. The rail industry also continues to fall uncomfortably short
of even earning a return equivalent to its cost of capital. These impediments
exist at a time when market forces are presenting the industry with an
opportunity to
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<PAGE>
gain back market share. With its physical capacity strained and capital in
short supply, the rail industry must devise novel solutions to improve its
utilization of assets to respond to this unprecedented market challenge.
It is in this context that I believe the Commission would consider the
proposed UP/Santa Fe merger. The proposed merger -- particularly its parallel
characteristics -- presents an innovative approach to the industry's capacity
and service problems. As explained in the UP memorandum, a combined UP and
Santa Fe could dedicate one of its main corridors to expedited traffic and solid
unit trains that are time sensitive; alternate corridors can be utilized by
trains that have less need for expedition. Currently, for both railroads, both
types of shipments have to be handled over the same route with resulting delays
and inefficiencies to the detriment of the railroads, shippers and competition.
Thus, a proposed UP/Santa Fe merger would present the Commission with a unique
opportunity to assess whether the rail industry can resolve its capacity and
capital shortfall problems through combination.
In conclusion, the nature and extent of the potential public benefits
that could result from and UP/Santa Fe merger, together with UP's commitment to
ameliorate anticompetitive effects, enables the UP to advance a credible merger
proposal that warrants favorable consideration by the ICC.
Date: October 21, 1994 /s/ John F. DePodesta
---------------------
John F. DePodesta
-7-
<PAGE>
STATEMENT OF ROBERT N. KHARASCH
Professional Qualifications and Experience.
My name is Robert N. Kharasch; my address is P.O. Box 1375, Anguilla,
B.W.I. From July, 1951 through December, 1992, I practiced law in Washington,
DC, specializing in transportation law and international transactions. I was a
founder of the Washington Law Firm of Galland, Kharasch, Morse & Garfinkle,
P.C., located at 1054 31st Street, N.W., and was its Senior Partner for a number
of years. I have appeared before the United States Supreme Court, the Federal
Courts of Appeal and District Courts, the Interstate Commerce Commission, the
Federal Maritime Commission, the Department of Transportation and the former
C.A.B., and many State courts, representing carriers by all modes, including
railroads, steamship lines, airlines, freight forwarders, NVOs, as well as major
shippers by rail, truck, sea, and air. I was appointed coordinating counsel for
the opponents of the proposed Santa Fe-Southern Pacific rail merger, and
appeared in that case for the MKT. I also represented MKT in the proceedings in
which it was acquired by the UP. I hold degrees of Ph.B. and B.S. from the
University of Chicago, and the degree of J.D. from the University of Chicago Law
School.
Neither I nor Galland, Kharasch, Morse & Garfinkle, P.C. is representing Union
Pacific Corporation or the Union Pacific Railroad Company [UP] or any other
party with respect to the proposed UP-Santa Fe merger, nor have the firm or I
ever represented UP.
Purpose of this Statement.
Counsel for the UP have requested me to give my opinion on the
likelihood of an Interstate Commerce Commission [ICC] approval of a merger
between UP and the Santa Fe Pacific Corporation [SF, or the Santa Fe], as
proposed in a letter of October 5, 1994 from Drew Lewis of the UP to Robert D.
Krebs of the Santa Fe. Also, I understand that UP has asked similar opinions
from former Commissioner Malcolm Sterrett and from John F. DePodesta, Esq. Such
opinions at this stage of the matter must, of course, rest on a number of
assumptions, all of which remain to be tested against the evidence to be
produced by the proponents and the opponents in formal ICC proceedings.
Statement of Robert N. Kharasch
Page 1 of 6 Pages
<PAGE>
Assumptions for the purposes of this Statement.
The assumptions made for the purposes of this statement are as follows:
(1) UP has supplied me with a copy of a fourteen-page "Memorandum"
dated October 17, 1994 signed by John H. Rebensdorf of the
Strategic Planning Department of the UP. For present purposes, I
have assumed that the statements of Mr. Rebensdorf as to service
improvements, savings and efficiencies flowing from a UP-SF merger
will be supported by the evidence in a hearing on the UP-SF merger.
For reasons stated below, it is highly probable that a UP-SF merger
will produce major savings and service improvements.
(2) In addition, I have assumed that the UP, as it states, will agree
to conditions that preserve or enhance active and effective rail
competition in all rail markets where there would otherwise be a
significant reduction in rail competition as a result of a UP-SF
merger. This is a highly important, and indeed critical assumption,
for reasons discussed below.
(3) Finally, I have assumed that the ICC will give weight, among other
benefits of a UP-SF merger, to two public interest factors that
have recently become of greater national significance, and to one
private-interest factor. The first public interest factor is the
stimulation of international trade with Mexico, now a part of
national policy as a result of the adoption of NAFTA. The second
public factor is the growing national need to stimulate exports,
including agricultural exports. The private interest factor is the
payment of fair value to the present stockholders of Santa Fe.
Legal and Regulatory Background.
The proponents of a merger of parallel railroads bear a very considerable
burden of proof, since by law and regulation a major emphasis in the ICC's
balancing test is on preserving, not curtailing, competition. In one sense, this
regulatory burden is somewhat paradoxical, since, while both parallel and end-
to-end mergers can promise improved single-line service, there are
efficiencies of service and savings
Statement of Rober N. Kharasch
Page 2 of 6 Pages
<PAGE>
that are only available in mergers of parallel lines. Thus, the job of the
Applicants for a parallel merger is not just to demonstrate the possible
transportation benefits flowing from the merger. This is the easier part of the
task, for there should indeed be efficiencies in service, and overhead and
operational savings. Because the Applicants in a parallel merger can select the
shortest and most suitable lines for their new single line services, it is to be
expected that mileage, service, and speed improvements will result. Here, the
Rebensdorf statement lists the UP service improvements flowing from the optimal
use of UP and SF facilities.
Repairing Any Significant Loss of Competition.
The more difficult job for the Applicants in a parallel merger case is
to assure the Commission and the shipping public that they have taken steps to
repair any significant loss of rail competition caused by the merger. This task
is, I believe, absolutely essential to success of a parallel merger, both as a
matter of economic theory and of ICC doctrine and precedent.
The failed Santa Fe-Southern Pacific merger case [the SFSP Merger]
offers an instructive example. In this case, the two proponents took some
startling positions. First, they asserted that intermodal competition was so
great that rail-to-rail competition was no longer of public importance. Second,
the top management of Santa Fe determined at the outset that, as a matter of
policy, the Santa Fe would not agree to any competition-restoring conditions.
Although the opponents sought to initiate negotiations for a group of conditions
that would permit Applicants and opponents to make a joint recommendation to the
Commission, these efforts were rejected by the then top management at the Santa
Fe. Finally, in support of their hard-line position, the SF and SP presented a
case that was neither internally consistent nor based on real-world competitive
conditions. The Applicants' exhibits and methodology designed to prove that rail
competition is of no importance simply did not hold water. As a result, the ICC
rejected the merger, despite staff recommendations to the contrary.
A UP-SF merger, of course, would not have the effect of creating only
one carrier in any major corridor. While there would be effects on rail
competition, the UP, according to Mr. Rebensdorf's statement, stands ready to
"...grant conditions that will address all legitimate competitive issues and
actually heighten
Statement of Robert N. Kharasch
Page 3 of 6 Pages
<PAGE>
competition...." This is a refreshing difference from the SF-SP position. While
there are complex negotiations involved in designing and agreeing on conditions,
the process must begin with a recognition by the Applicants that when a merger
has serious anti-competitive effects, the damage must the repaired by providing
replacement competition. The Santa Fe refused to do this in the SF-SP case, but
the UP appears ready to do so in a UP-SF merger. This is a critical difference.
The conditions creating replacement competition must be such that the
railroads that will provide competition can actually compete successfully. Such
conditions must include the ability to reach the shippers and the ability to
reach the receivers, the ability to operate competitively direct routes, and the
ability to operate competitively fast and regular service.
Major shippers dependent on rail service (such as those in the paper
industry) have expended much effort in locating their plants where they can
obtain competitive rail services, and I have participated in some of the lengthy
negotiations to assure long-term rail service to new plants. In any rail merger
case, such shippers will ask the Commission to protect their competitive access
to more than one railroad, and their pleas will have merit. With the advent of
Contract Rates, and the demise of the old industry-set conference rates,
competitive access is more important than ever to shippers of large quantities
of heavy cargo. The UP, if it permits effective competitive access in those
corridors where there will be a significant reduction of competition, has a good
chance of obtaining shipper support for a merger that promises better service. A
merger that provides better service and maintains rail competition is a net plus
for shippers. A merger that promises better service, but does not maintain
competition, like the SF-SP merger, can be seen by shippers as no net benefit.
Many writers, and many ICC Commissioners, have recognized that the
hundred or hundred-and-fifty-year old rail map is by no means the ideally
efficient map for today's traffic flows, nor is the present trackage ownership
by individual railroads ideal. These same writers and Commissioners have
recognized that the process of ICC approval or disapproval of such rail mergers
as are bought to the Commission is not a process well-suited for the design of a
optimum rail network.
Statement of Robert N. Kharasch
Page 4 of 6 Pages
<PAGE>
Yet, in a curious way, a parallel rail merger accompanied by realistic
new competitive opportunities may go a long way toward optimizing rail service
and efficiencies, for two reasons. First, the parallel merger automatically
provides opportunities for the merged railroad to provide the best routes and
the best service from the merged network. Second, if rail competition is
preserved by conditions, there may be opportunities for the services created by
competition to provide still more benefits to shippers, by offering new routings
and new one-carrier services that did not exist before the merger.
To be quite clear on this point, suppose Railroad A and Railroad B
merge, and the merged AB offers conditions allowing Railroad X to offer new
direct services over a route involving trackage of (former) A, and (former) B
lines. These new A-B-X routings may offer speed, mileage, and other new shipper
benefits and public benefits that should be counted in the balance in addition
to the A-B merger benefits.
Because of this double opportunity to provide better rail service, I
believe the Commission would be receptive to a UP-SF merger that promises not
only better service over the UP and SF lines, but also better service over newly
created competitive routings. With such a willingness on the part of UP, the
merger application stands a good chance of Commission approval. Without such
careful attention to competitive impacts and shippers' needs for competition,
any parallel merger risks the fate of the SF-SP merger.
Other Potential Public Benefits.
Without the full traffic data, one can only speculate on the potential
benefits of a UP-SF merger on traffic to and from Mexico. In the SF-SP case it
did appear that the SF access to Mexico at El Paso is not the ideal for most
traffic. Judging from preliminary enthusiastic reports on the burgeoning
Mexican economy, and the national policy embodied in NAFTA, improved service to
Mexico could be a substantial public benefit.
Similarly, the general growth of World trade, and the increasing
importance of U.S. exports, including agricultural exports, argues for the
public importance of improving rail services for export commodities. Again,
there is every reason to believe that the Commission will be sensitive to these
benefits.
Statement of Robert N. Kharasch
Page 5 of 6 Pages
<PAGE>
Stockholder Benefits.
There is a striking feature in the Lewis-Krebs exchange of letters dated
October 5, 6, and 11, 1994. What is striking is the absence of any discussion by
Mr. Krebs of the possible rewards to stockholders of Santa Fe in at least
considering the UP offer. The abrupt Krebs reply of October 6 does not appear on
its face to be an attempt to maximize shareholder values. Again, this is not an
issue to be prejudged, but it does appear that the UP offer may be more
rewarding to SF stockholders. Thus, in my view, there was no basis for the Santa
Fe to dismiss the UP offer out of hand. Stockholders' representatives are quite
proper parties to an ICC merger proceeding, and are entitled to be heard.
Conclusion.
It is surely early times to attempt to prophesy whether the ICC will
approve a UP-SF merger proposal. It is not too early, though, to say that the UP
proposal is not the same as the failed SF-SP proposal, in that the UP
recognizes, and promises to correct, losses of competitive services. If
conditions adequate to preserve rail competition are granted, then there may be
dual benefits from a merger: the parellel merger benefits, and the benefits from
the newly-created competitive services. In this way, the public benefits of a
UP-SF merger would merit Commission approval.
In my opinion, the UP proposal has good prospects of success.
/s/ Robert N. Kharasch
Robert N. Kharasch
Friday, 21 October, 1994
Statement of Robert N. Kharasch
Page 6 of 6 Pages
<PAGE>
My name is Malcolm M. B. Sterrett and I am an attorney with extensive
experience in rail transportation matters in both private practice and in the
public sector, inlcuding a term as a Commissioner at the Interstate Commerce
Commission. While at the ICC during the 1980's, I considered and voted on
several rail merger proposals, most notably the successful application of the
Union Pacific/Western Pacific/Missouri Pacific and the application of Santa
Fe/Southern Pacific, which was denied. I have been asked by the Union Pacific
Corporation to examine materials relating to its offer to acquire the Santa Fe
and, based on my experience, to provide an assessment of the proposal from a
regulatory perspective. I have concluded that the Union Pacific can indeed make
a strong case for approval by the ICC and that it is simply wrong at this point
to dismiss the proposal out of hand on the ground that it is substantially less
likely to receive ultimate ICC approval than the proposal of the Burlington
Northern.
In reaching this conclusion, I have reviewed a memorandum prepared by
the Union Pacific analyzing the case that the UP is prepared to present to the
ICC in support of its application as well as materials relating to the
Burlington Northern proposal and ICC merger decisions. I wish to emphasize that
the ultimate decision on either the Union Pacific or the Burlington Northern
merger application will be made by the Commission only after a full evidentiary
record has been
<PAGE>
developed with input from numerous affected parties and that at this point it is
not possible for anyone to know which parties will actively appear, exactly what
positions they will adopt, or what evidence will be addressed.
In considering any merger proposal, the ICC must approve the application
if it finds that the transaction is consistent with the public interest. This
public interest standard requires the Commission to consider whether on balance
the transaction would produce public transportation benefits that outweigh any
anti-competitive effects, principally with respect to rail competition, that
would result from the proposed transaction. In authorizing a merger, the
Commission is empowered to impose appropriate conditions to ameliorate or
eliminate any anti-competitive effects of the transaction. The imposition of
such conditions has permitted the ICC to approve various rail mergers that
otherwise would have materially reduced competition in key geographic areas.
The memorandum outlining the case that the Union Pacific is prepared to
advance at the ICC sets forth very substantial public benefits that would result
from the proposed Union Pacific/Santa Fe merger. These benefits include new
single-line service between a number of key markets, substantial service
improvements in several important areas, including the intermodal, automotive,
chemical and energy markets, and significant operating efficiencies that result
in more effective utilization of existing facilities and increased capacity.
These
<PAGE>
benefits compare favorably with benefits resulting from other mergers approved
by the ICC.
The Commission will have to weigh the balance of these benefits with any
anti-competitive effects that have been demonstrated in the evidentiary record.
Union Pacific clearly recognizes that the UP and Santa Fe systems are parallel
in certain geographic areas such as between California and the Midwest and in
the corridor linking Midwest grain producers with Gulf Coast ports and that
these parallel aspects may well have substantial anti-competitive impacts.
In my view, the key to the success of the Union Pacific's case at the
ICC will be the ability to fashion conditions to respond to whatever legitimate
competitive concerns are proven to be inherent in the proposed merger. While
those concerns may prove to be more, or less, extensive than what has been
identified in the UP memorandum, there is no reason to believe that such
concerns cannot be met by the imposition of appropriate conditions. The Union
Pacific has preliminarily identified in its memorandum examples of conditions
which it would accept to meet potential competitive issues. It is not necessary
for the specifics of such pro-competitive conditions to be agreed to at this
stage. The record has not been developed as to what competitive issues should be
addressed and, most importantly, there has not been an opportunity for shippers,
who have the most at stake with regard to these issues, to have an input as to
how best to resolve competitive concerns.
-3-
<PAGE>
The most recent merger of comparable size (Santa Fe/Southern Pacific)
was turned down by the ICC in 1986. Since there were similar competitive
concerns/1/ with that proposal as will undoubtedly be raised with the UP's
proposal to acquire the Santa Fe, I believe it is important to note that there
is a critical distinction between the two proposals. Most observers, including
myself, believe that the SFSP application was "winnable" at the Commission if
the applicants at the outset had acknowledged that their proposal had certain
anti-competitive aspects and had been willing to work with affected parties and
the Commission to fashion conditions to mitigate those aspects. Faced with
applicants' all or nothing posture and lacking a record sufficient to provide
confidence in the consequences and practicality of possible pro-competitive
solutions, the Commission denied the application. While the applicants in that
proceeding subsequently negotiated numerous conditions with other railroads and
sought reconsideration by the Commission, the ICC was, as a matter of policy,
essentially unwilling to give applicants two bites of the apple. In marked
contrast to the unsuccessful litigation strategy employed in the Santa
Fe/Southern Pacific proceeding, the Union Pacific is proposing to recognize and
address the competition issues that proved to be the stumbling block for
regulatory approval of the SFSP merger.
- ----------
1. The SFSP proposal involved the reduction of the number of railroads from two
to one in a major corridor, while the UP proposal involves no similar reduction
in any major corridor.
-4-
<PAGE>
While it is clearly premature to predict the ICC's ultimate judgement
regarding a Union Pacific/Santa Fe merger application, in my opinion the Union
Pacific has outlined a strong and credible case for approval. There certainly is
no reason to believe at this juncture that such an application would meet the
same fate as the Santa Fe/Southern Pacific proposal.
/s/ Malcolm M. B. Sterrett
- ------------------------
Malcolm M. B. Sterrett
October 21, 1994
-5-
<PAGE>
[LETTERHEAD OF BRYAN CAVE]
October 21, 1994
James V. Dolan
Vice President-Law
Union Pacific Railroad
1416 Dodge Street
Omaha, NE 68179
Re: Union Pacific's Proposed Acquisition of Santa Fe
------------------------------------------------
Dear Jim:
You have asked for our assessment of the likely position DOT would take
concerning Union Pacific Corporation's recently proposed acquisition of Santa Fe
Pacific Corporation. In particular, you asked whether the public statements of
Burlington Northern, Inc. ("BN") and Santa Fe officials that a Union
Pacific/Santa Fe combination is unlikely to be approved because of competitive
concerns are supported by the positions DOT has previously taken concerning
mergers in the railroad industry.
At this stage, our assessment is necessarily preliminary. DOT typically
does not take a position on a railroad merger until a full factual record is
developed before the Interstate Commerce Commission ("ICC"), which, of course,
is yet to be done. Our assessment, therefore, is based principally on the
information Union Pacific has provided us regarding the competitive issues that
its proposed acquisition might raise and our review of DOT's past positions./1/
Because of the limited nature of the factual record available now, it is not
possible to identify, or to assess fully, all possible competitive questions the
proposed acquisition might raise.
Based on the information available to us and our review of DOT's past
positions, however, we believe it would be unlikely that DOT would oppose Union
Pacific's proposed acquisition of Santa Fe. Although the proposed acquisition
appears to raise certain competitive issues, we understand that Union Pacific
intends to propose conditions that will ameliorate those competitive concerns
which DOT or others reasonably might have. In addition, Union Pacific has
identified substantial public benefits which will result from the
- ----------
/1/ In this regard, DOT most recently took a position on a major railroad merger
in Union Pacific Corporation - Control - Missouri-Kansas-Texas Railroad Co.,
------------------------------------------------------------------------
Finance Docket No. 30800 (1988).
<PAGE>
[LETTERHEAD OF BRYAN CAVE]
James V. Dolan
October 21, 1994
Page 2
proposed acquisition. It appears these public benefits should outweigh any
legitimate competitive concerns which remain.
DISCUSSION
----------
Since passage of the Staggers Act in 1980, there have been nine
proceedings before the ICC dealing with mergers or acquisitions of Class I
railroads reviewed under the "public interest" standard. DOT participated in all
but one of these proceedings. In that time, the Department of Transportation has
never opposed a merger application, although in at least four cases it urged
that conditions be imposed -- or negotiated -- to ameliorate potential
anticompetitive effects. Only one application -- that of Santa Fe Southern
Pacific in 1986 -- has been denied by the ICC in the last 14 years./2/
In Union Pacific's application to acquire control of Katy -- the most
recent proceeding involving a merger of Class I railroads -- and in all the
other applications in which the DOT has participated since 1980, it has
consistently taken the position that it "believes that a transaction that offers
public benefits should be approved by the Commission if it would not
significantly reduce the level of competition or, alternatively, if workable
conditions can be imposed to ameliorate the identified anticompetitive effects
without destroying the potential benefits as well."/3/ Thus, for the DOT, a
"critical" factor in these proceedings "is the effect of the proposed
transaction on competition, as reflected in the ability of shippers to continue
to receive competitive rates and services."/4/
In analyzing the competitive effects of a proposed merger, DOT first
identifies the relevant geographic and product or service markets which will be
affected. It then examines in detail what anticompetitive effects the merger
might have in any of these relevant markets. Finally, DOT seeks to determine
whether, and what, conditions will ameliorate the perceived anticompetitive
effects.
In making its analysis, DOT focuses on traffic corridors in which the
proposed transaction will reduce available options to shippers to choose among
competing railroads because of the elimination of competing parallel rail lines.
Probably the principal competitive objections to the proposed Union
Pacific/Santa Fe merger will center on the
- ----------
/2/ In general, it appears to us that Union Pacific's proposed acquisition
raises fewer and less problematic competitive questions than the Santa Fe
Southern Pacific application.
/3/ See, e.g., DOT brief in Union Pacific Corporation - Control -
--- -------------------------------------
Missouri-Kansas-Texas Railroad Co., Finance Docket No. 30800 (1988).
- ----------------------------------
/4/ Id.
--
<PAGE>
[LETTERHEAD OF BRYAN CAVE]
James V. Dolan
October 21, 1994
Page 3
parallel nature of Union Pacific and Santa Fe rail lines in the Midwest
North-South Corridor and in the Chicago/Midwest to California Corridor. In this
regard, DOT has regarded as potentially troubling aspects of rail consolidations
in those corridors in which the number of rail competitors is reduced from three
to two, or from two to one.
The parallel aspects of the proposed transaction in the Midwest
North-South Corridor probably will not cause DOT to have substantial concerns.
Both DOT and the ICC in the UP/MKT proceeding found that significant competition
------
exists in this corridor from numerous railroads, such as BN, Southern Pacific,
CP Rail/Soo Line, and Kansas City Southern, and from stiff trucking competition.
This significant competition will still exist after the proposed Union
Pacific/Santa Fe merger. In this corridor the number of rail competitors will
not be reduced from three to two or from two to one.
Further, we understand that Union Pacific intends to propose conditions
to ameliorate anticompetitive effects which arguably might occur in this
corridor. Specifically, it intends to offer to sell or to lease its OKT line, or
to accept some other appropriate condition, in order to ensure strong rail
competition for shipments of Kansas and Oklahoma grain. Because of the number of
remaining railroads in this corridor and the conditions Union Pacific intends to
prospose, DOT is unlikely to oppose a Union Pacific/Santa Fe consolidation based
on the parallel aspects of the Midwest North-South Corridor./5/
The parallel nature of Union Pacific and Santa Fe rail lines in the
Chicago to California Corridor may be more problematic for DOT. Rail competitors
would be reduced from three to two. Union Pacific's argument that the remaining
two railroads -- the Union Pacific and the Southern Pacific -- would be even
more competitive than the existing structure may not be sufficient to ease DOT's
concerns about competition in this corridor. But, it is our understanding that
Union Pacific intends to address these concerns either by providing trackage
rights into California to BN, or by granting rights to Southern Pacific that
will significantly strengthen its California-Midwest routes. In the past, DOT
has been receptive to these types of proposals. These proposed conditions might
well eliminate any competitive concerns DOT would have regarding this corridor,
or ameliorate them sufficiently so they are outweighed by the public benefits of
the combination.
The proposed Union Pacific/Santa Fe merger would also reduce some other,
smaller locations from three to two or two to one serving railroads. Some of
these situations might draw objections from other railroads and shippers, and
would thus have to be at least considered by DOT. These competitive concerns,
however, do not appear sufficiently significant to warrant a DOT recommendation
of disapproval of the proposed transaction.
- ----------
/5/ It should be noted that the proposed BN/Santa Fe merger would face the
same parallelism problem in the Midwest North-South Corridor.
<PAGE>
[LETTERHEAD OF BRYAN CAVE]
James V. Dolan
October 21, 1994
Page 4
Any concerns should be eased by Union Pacific's proposal to put another railroad
at each of these two to one points, and to sell or lease the OKT line where some
of the three to two points are located.
In the event any competitive concerns are not fully ameliorated by Union
Pacific's proposed conditions, DOT still will weigh, under the "public interest"
standard, the public benefits of the proposed acquisitions against these
remaining concerns. Union Pacific has already identified a lengthy list of
potential public benefits from its proposed acquisition of Santa Fe including
significant service benefits, increased capacity over existing lines, cost
savings and efficiencies. Since Union Pacific has not yet had access to Santa Fe
information, all of the public benefits probably have not yet been identified or
fully quantified. Regardless, it appears that these benefits could be quite
substantial.
DOT may be particularly receptive to the specific public benefits
identified by the Union Pacific because they further some of the principal goals
of the Clinton Administration's transportation policy.
In January 1994, Transportation Secretary Federico Pena established a
strategic plan for DOT which has as its primary goal to "Tie America Together"
through an effective intermodal transportation system./6/ This effort is to
address what was described by the Department as "fragmented transportation
options" available to shippers and the inability to move products easily from
one form of transportation to another./7/ In June 1994, Secretary Pena set forth
the DOT's framework for developing a National Transportation System that
"emphasizes connections, choices and coordination of services."/8/ Indeed, DOT's
Framework for Strategic Transportation Development says that:
"America's need for a well maintained, uncongested, seamless
transportation system that serves the present and opens the
future, requires that we make a bold step and shift from
nurturing individual transportation needs and fragmented
projects to enhancing the effectiveness of the Nation's
transportation system as a whole."/9/
- ----------
/6/ U.S. Department of Transportation Strategic Plan, January 1994.
/7/ Id.
/8/ The National Transportation System: A Framework For Strategic Transportation
Development, U.S. Department of Transportation, June 1994, pg. 3.
/9/ Id., at pg. 3.
<PAGE>
[LETTERHEAD OF BRYAN CAVE]
James V. Dolan
October 21, 1994
Page 5
The creation of new single-line routes, the improved transit times, the
reduction in intermediate switching, the more effective utilization of
congested rail infrastructure, the coordinated use of technologies and
information systems, and the resulting impact on safety and emissions which
Union Pacific says will flow from a merger between it and the Santa Fe are
precisely the type of objectives which DOT seems to be interested in furthering.
Finding new ways to increase capacity of existing transportation
infrastructure is a key goal of DOT not only in its National Transportation
System initiative, but also through its Intelligent Vehicle Highway System
Program. For Fiscal Year 1995, DOT has received funding of $227.5 million to
pursue technologies and programs which will enhance the capacity, efficiency and
safety of the highway system, and enhance efforts to attain air quality goals,
in ways other than the addition of new physical highway capacity. By increasing
railroad shipping capacity, Union Pacific's proposed acquisition of Santa Fe
could be considered to advance the goals of this massive program -- at no cost
to the federal taxpayer.
CONCLUSION
----------
Based on the foregoing, we believe that DOT is unlikely to oppose, and
may well support, Union Pacific's proposed acquisition of Santa Fe with
conditions along the lines Union Pacific intends to propose. In our view,
statements suggesting that federal regulatory approval is unlikely are plainly
premature and are not soundly based.
Sincerely yours,
/s/ Walter B. McCormick, Jr.
Walter B. McCormick, Jr.
<PAGE>
[LETTERHEAD OF BRYAN CAVE]
WALTER B. MCCORMICK, JR.
Biography
Walter B. McCormick, Jr. is a partner with the international law firm of
Bryan Cave. He has an extensive background in transportation law and policy.
Mr. McCormick is a former General Counsel of the U.S. Department of
Transportation. In this capacity, he served as the Department's chief legal
officer, and as its third ranking official after the Secretary and Deputy
Secretary. He supervised a legal staff of more than 600 lawyers in nine federal
agencies, including the Federal Railroad Administration, the Federal Transit
Administration and the Federal Highway Administration.
Mr. McCormick's background also includes more than a decade of
experience on the senior staff of the United States Senate. He was General
Counsel of the Committee on Commerce, Science and Transportation in the 99th
Congress, serving as the principal legal advisor to the Committee during
Congress' privatization of Conrail. Mr. McCormick was Minority Chief Counsel and
Staff Director of the Committee in the 100th, 101st and 102nd Congresses. In
this capacity, he supervised program authorization and Congressional staff
oversight of more than 20 federal agencies, including the U.S. Department of
Transportation, the Interstate Commerce Commission and the National
Transportation Safety Board. He was deeply involved in federal policy
development, and supervised the drafting of many transportation laws. During
his tenure with the Congress, Mr. McCormick was identified by Roll Call magazine
---------
as one of the 50 most influential staffers on Capitol Hill, out of more than
15,000 who work there.
Mr. McCormick holds degrees in journalism and law from the University of
Missouri. He has studied economics and political science at Georgetown
University and has completed the program for senior managers in government at
Harvard University's John F. Kennedy School of Government. He is a member of the
Transportation Law Section of the Federal Bar Association.
Bryan Cave is based in St. Louis, Missouri. It has more than 400
lawyers in nine U.S. cities and three foreign countries. The Washington office,
where Mr. McCormick is resident, has 60 lawyers.
<PAGE>
[LETTERHEAD OF UNIVERSITY OF TENNESSEE KNOXVILLE]
October 21, 1994
Mr. James V. Dolan
Vice President - Law
Union Pacific Railroad
1416 Dodge Street
Omaha, NE 68179
RE: Proposed Merger of Union Pacific and Santa Fe
---------------------------------------------
Dear Jim:
As you requested, this letter outlines my assessment of the likely impacts on
customers of the proposed UP/Santa Fe merger. Overall, I feel there are
numerous ways in which the shipping public, as well as U.S. industry in
general, will gain from such a merger, and for this reason I agree that the
combination of Union Pacific and Santa Fe will produce significant benefits.
Based on my academic and research background as it relates to the transportation
and logistics industries, and on my involvement with research projects dealing
with transportation industry customers and their business needs, I feel that I
am well-qualified to offer the information and opinions which follow. A more
detailed statement of my professional qualifications is included as Exhibit B to
this letter. You have asked for my independent assessment of these matters. As
you are aware, I have never testified for Union Pacific in any ICC case, and
have not been retained by Union Pacific to testify in a UP/Santa Fe merger
proceeding. My only prior connection with Union Pacific is that I have performed
some very limited consulting assignments for Union Pacific during the past two
years.
The U.S. railroad industry has been undergoing significant change -- future
priorities will require the development of new and improved ways to create
additional value for the shipping public. The U.S. rail industry of the future
must strive for and achieve excellence in a number of key areas of customer
needs.
<PAGE>
page two
Mr. James V. Dolan
October 21, 1994
Included are the following:
. Service Quality
. Leveraging Information Technology
. Cost
. Productivity and Asset Utilization
. Risk Reduction
. Simplify/Strengthen Supplier Relationships
. Competitive Advantage for Customers through
Transportation/Logistics
Essentially, these are the principal areas in which the U.S. rail industry must
excel. Superior performance will not only help the railroads to meet and exceed
the requirements of their customers, but will permit these customers to be more
competitive in their markets as well.
Attached to this letter is Exhibit A which identifies how the UP/Santa Fe merger
will facilitate progress in the seven areas of customer needs identified above.
Based on my understanding of the proposed UP/Santa Fe merger, it is my opinion
that this combination will be a significant factor in helping to meet the needs
which are outlined, and to create additional value for the shipping public. The
following paragraphs provide a commentary relating to the several types of
customer needs identified in Exhibit A.
Service Quality
- ---------------
The issue of greatest importance to rail customers today is improvement of
service quality. The UP/Santa Fe merger will provide rail customers with
consistently superior, high-quality levels of service which they need to satisfy
their own customers' needs. Enhancements in single-line service and "seamless"
operations will be of value to customers moving service-sensitive freight
through their logistics networks. Operational improvements such as more
frequent train departures will translate into improved consistency, flexibility
and responsiveness to customers' needs. This will attract new customers to the
rail industry and accelerate the growth of truck-rail intermodal operations.
<PAGE>
page three
Mr. James V. Dolan
October 21, 1994
The magnitude of service quality improvements achievable in a merger of UP and
Santa Fe are impressive. Both railroads are viewed as high-quality service
providers, and the combination will further enhance overall levels of service.
Leverage Information Technology
- -------------------------------
It is my opinion that there will be a direct correlation between responsiveness
of the railroads to customer needs and the extent to which the individual
railroads are able to manage information and information technology
successfully. Currently, there are areas in which the availability of timely,
accurate information is essential to meet customers' service objectives. In the
future, management of information technologies in providing transportation and
logistics services will distinguish superior transportation companies.
UP and Santa Fe are among the best in the industry in terms of managing customer
information resources. Among the synergistic effects of the UP/Santa Fe merger
would be the opportunity to leverage the information technologies of these two
firms into a world-class standard.
Cost
- ----
The UP/Santa Fe merger will be accompanied by significant opportunities for cost
reduction and greater efficiency of operations. Essentially, the merger of two
lines which have parallel operations in certain areas will enable the merged
system to experience operating and cost savings, and overall increased
efficiency.
The merged UP/Santa Fe system will generate significant cost efficiencies. Use
of shorter routes and more consistent transit times will enable customers to
experience significant reductions in terms of total logistics costs. The
reduction of customer needs for pipeline and warehouse/plant inventories, for
example, will represent a key area of cost savings for customers.
Productivity and Asset Utilization
- ----------------------------------
Merger of UP and Santa Fe will lead to productivity improvements and greater
opportunities for improved asset utilization. Improved service quality will lead
to better equipment utilization for the UP/Santa Fe, as well as for customers
who own or lease equipment. These postive effects on car supply will increase
productivity and reduce working capital requirements.
<PAGE>
page four
Mr. James V. Dolan
October 21, 1994
Of critical importance is that the UP/Santa Fe merger will facilitate a
"reengineering" of two major Western rail operations, thereby creating capacity
and providing improved levels of service and equipment turnaround times for the
shipping public. In effect, the UP/Santa Fe merger will increase available
capacity of the U.S. rail industry.
Risk Reduction
- --------------
Largely through the availability of improved levels of service, rail industry
customers will be more confident that shipments will arrive when needed, and
thus they will enjoy an overall reduction in the risk associated with shipping
by rail. Since reduced risk translates into reduced cost, this would be an
added benefit to UP/Santa Fe customers.
Simplify/Strengthen Supplier Relationships
- ------------------------------------------
One of the more prevalent trends in the transportation industry today is the
move by customers to "core carrier" programs, and the development of
"shipper-carrier partnerships." These are evidence that fundamental change is
occurring in the way that customers are structuring their business relationships
with suppliers of all types, including providers of transportation/logistics
services. While each customer certainly has specific interests which need to be
protected, there is general agreement that the development of meaningful
relationships with a fewer number of suppliers will lead to improved service and
reduced cost.
A major benefit to customers resulting from the UP/Santa Fe merger will be
single-firm accountability for a large part of, and in many cases all of, the
through movement. While recent rail initiatives have been aimed at improving
the "connectedness" of interline rail operations, the greater breadth of
single-line service provided by a combined UP/Santa Fe operation will help
greatly to achieve this objective.
Competitive Advantage for Customers through Transportation/Logistics
- --------------------------------------------------------------------
Sometimes it is easy to forget that rail industry customers are in business to
serve customers of their own, and that the availability of higher-quality, more
efficient rail services can result in increased business for the customers who
utilize rail services.
<PAGE>
page five
Mr. James V. Dolan
October 21, 1994
In addition to the fact that the UP/Santa Fe will be a significant influence on
the growth of intermodal traffic, customers of the merged operation will enjoy
greater access to Mexican gateways and port areas. The UP/Santa Fe merger will
attract additional traffic from non-rail sources through inproved and greater
service offerings.
Conclusion
- ----------
Although the preceding sections have identified a number of ways in which the
UP/Santa Fe merger will facilitate the accomplishment of key customer needs,
there are several of these ways in which the UP/Santa Fe represents a
distinctly superior alternative to a Burlington Northern/Santa Fe merger.
Included would be the following:
. Significant improvement in service reliability and asset and
equipment utilization as a result of using the best routes and
facilities of each carrier;
. Greater access by U.S. manufacturers to Mexican markets through a
relatively large number of key gateway points -- This will greatly
help to further the objectives of NAFTA;
. UP/Santa Fe will attract increased intermodal volumes, and be a
preferred alternative for auto train movements; and
. The merger will enable a well-intentioned "reengineering" of the
joint operations of two premier Western roads. The end result will be
improved efficiency and effectiveness of rail operations in the areas
served.
<PAGE>
page six
Mr. James V. Dolan
October 21, 1994
Overall, the bottom line is that UP/Santa Fe and rail industry customers will
become more cost and service competitive in their markets. These represent
significant public benefits which would be difficult to achieve otherwise. As
stated previously, I feel that there are numerous ways in which the shipping
public, as well as U.S. industry in general will gain from such a merger, and
for this reason I conclude that the combination of Union Pacific and Santa Fe
will produce significant shipper benefits and will be in the best interest of
the shipping community.
Sincerely,
/s/ C. John Langley Jr.
C. John Langley Jr., Ph.D.
John H. "Red" Dove Distinguished Professor
of Logistics and Transportation
Exhibits attached.
<PAGE>
Exhibit A
---------
CUSTOMER NEEDS IN THE
---------------------
FUTURE (RAIL) TRANSPORTATION MARKETPLACE
----------------------------------------
Customer Needs How Facilitated by UP/Santa Fe Merger
Service Quality -- Single-line service to move service-sensitive
freight more efficiently through customer
logistics networks
-- Faster, more consistent transit times lead to
greater satisfaction of customers' customers
-- Superior, high-quality customer service needed
to succeed in today's/future
transportation/logistics marketplace
-- UP/Santa Fe more frequent train departures
will increase available shipping options
-- Shippers desire "seamless" alternatives from
the rail industry
Leverage Information -- Information technology regarded as the key
Technology to future rail industry operating, cost, and
customer service improvements
-- UP/Santa Fe will rationalize and improve
information systems which already are superior
in the industry
Cost -- Operating and capital cost savings are
significant in a merger of parallel lines such
as UP/Santa Fe
-- Improved service quality will reduce
customers' needs for pipeline and
warehouse/plant inventories
-- UP/Santa Fe merger will produce overall
transportation efficiencies and lead to
reduced total logistics costs
<PAGE>
Productivity and Asset -- Operating efficiencies of UP/Santa Fe will
Utilization increase capacity of overall rail network
-- "Reengineering" of UP/Santa Fe rail network
will produce significant operating cost
and capital savings
-- Improved service quality will permit better
equipment utilization for both UP/Santa Fe
and shipper-owned equipment
-- Positive impacts on car supply will increase
productivity and reduce capital needs
Risk Reduction -- Service quality improvements will enable
customers to reduce overall business risk
-- Enhanced flexibility reduces business risk for
shipper customers
-- Reduced risk translates into reduced cost
Simplify/Strengthen Supplier -- UP/Santa Fe consistent with shippers' moves
Relationships toward "core carrier" strategy
-- Customers benefit from greater accountability
for all or a large part of the through
movement
-- Improves overall ease of doing business
through single point of contact for matters
such as rate/contract negotiation, requests
for car tracing, freight claims, and
invoicing and billing
-- Development of meaningful shipper-carrier
partnerships facilitate service improvements
and cost reductions
Competitive Advantage Through -- Strength of UP/Santa Fe will draw additional
Transportation/Logistics traffic to rail/intermodal service
-- Overall threshold levels of rail industry
service will rise as a result of UP/Santa Fe
-- Additional gateways, ports, and border
crossings in merged UP/Santa Fe operations
will facilitate North American and global
commerce
-- UP/Santa Fe customers will become more cost
and service competitive in their markets
<PAGE>
10/21/94
Exhibit B
---------
C. JOHN LANGLEY JR., Ph.D.
--------------------------
Biographical Sketch
C. John Langley Jr. is the John H. "Red" Dove Distinguished Professor of
Logistics and Transportation, in the Department of Marketing, Logistics and
Transportation at the University of Tennessee. Degrees include the B.S.
(Mathematics), M.B.A. (Finance), and Ph.D. (Business Logistics and
Transportation), all of which were completed at Penn State University.
Teaching interests include logistics systems and strategy, transportation
strategies, and customer-driven marketing systems. Research interests are in
logistics quality, supply chain strategies, and transportation marketing and
pricing issues. Recent publications have appeared in journals such as the
Journal of Business Logistics, the International Journal of Physical
- ----------------------------- ---------------------------------
Distribution and Materials Management, and the Transportation Journal, and
- ------------------------------------- ----------------------
Transportation Executive Update.
- -------------------------------
Also, he is a co-author of two recently-published textbooks: The Management of
-----------------
Business Logistics, and Traffic Management: Planning, Operations, and Control.
- ------------------ -----------------------------------------------------
He participates as a faculty member in various executive and management programs
at the University of Tennessee, Northwestern University, University of South
Florida, Syracuse University, University of Miami, and Penn State University.
Dr. Langley served on the Executive Committee of the Council of Logistics
Management from 1984-1992, and was President of the national organization for
1990-1991. Also, he is a member of the American Marketing Association and the
Warehousing Education and Research Council.
Has been actively involved with industry as an Associate Engineer with Raytheon
Corporation, and has been involved in significant consultancies and/or executive
development with a number of major U.S. corporations. Current research projects
are related to logistics quality, network design, and transportation strategy
and economics. Recently returned from logistics and transportation-related
visits to Japan, China, Europe, Middle East, and Africa.
Dr. Langley was recently selected as a Faculty Scholar of the University of
Tennessee College of Business Administration, and in 1989 was honored as
Outstanding Alumnus of the Penn State Business Logistics program. In 1993 he
was the recipient of the Council of Logistics Management's Distinguished Service
Award.
