<PAGE>
Rule 424(b)(3)
Registration Nos. 33-56183,
33-57069
LOGO
BURLINGTON NORTHERN INC.
3800 CONTINENTAL PLAZA
777 MAIN STREET
FORT WORTH, TEXAS 76102-5384
January 13, 1995
DEAR STOCKHOLDER:
You are cordially invited to attend a Special Meeting of Stockholders of
Burlington Northern Inc. ("BNI") to be held at Burlington Northern Railroad
Company, 3017 Lou Menk Drive, Fort Worth, Texas 76131-2815, on February 7, 1995
at 10:00 a.m., Fort Worth time.
At this important meeting you are being asked to consider and vote upon a
proposed merger of BNI and Santa Fe Pacific Corporation ("SFP"), pursuant to
which SFP will be merged with and into BNI and stockholders of SFP will become
stockholders of BNI. In the merger, each share of SFP common stock will be
converted into 0.40 shares of BNI common stock. BNI will be the surviving
corporation in the merger and, upon completion of the merger, will change its
name to Burlington Northern Santa Fe Corporation. Each share of BNI common
stock will remain outstanding and will be unchanged as a result of the merger.
In addition, pursuant to the Merger Agreement between BNI and SFP, BNI and SFP
have commenced tender offers for an aggregate of 63 million shares of SFP
common stock at a price of $20 per share. The tender offers, which are
conditioned on BNI and SFP stockholder approval of the merger and certain other
matters, are currently scheduled to expire on February 8, 1995.
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 the other conditions to the merger are satisfied
or waived. The tender offers are not conditioned on ICC approval of the merger.
The merger will provide significant benefits to BNI's stockholders. Those
benefits are explained in the attached Joint Proxy Statement/Prospectus, which
you should review carefully. As you will see in the 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 88 through 90 of the Joint Proxy Statement/Prospectus.
Two-thirds of the 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. I will serve as Chairman of the Board 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.
<PAGE>
Attached is a Joint Proxy Statement/Prospectus which will provide you with a
detailed description of the merger, the tender offers and other important
information relating to BNI and SFP. Please give this information your careful
attention and consideration.
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 HAS UNANIMOUSLY APPROVED THE MERGER AND 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. 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>
[ARTWORK APPEARS HERE CONSISTING OF A COMBINED
SYSTEM ROUTE MAP OF THE BURLINGTON NORTHERN
RAILROAD COMPANY AND THE ATCHISON, TOPEKA AND
SANTA FE RAILWAY COMPANY, WITH BURLINGTON NORTHERN
RAILROAD COMPANY ROUTES INDICATED IN GREEN, ATCHISON
TOPEKA AND SANTA FE RAILWAY COMPANY ROUTES INDICATED
IN BLUE AND BURLINGTON NORTHERN SHORT LINE
ROUTES INDICATED IN RED]
<PAGE>
BURLINGTON NORTHERN INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 7, 1995
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 February 7, 1995, 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, as amended by an Amendment thereto dated as of October
26, 1994 and Amendment No. 2 thereto dated as of December 18, 1994 (such
Merger Agreement prior to such Amendments, the "Original Merger Agreement,"
and, as so amended, the "Merger Agreement") between BNI and Santa Fe
Pacific Corporation ("SFP"), a copy of which is set forth as Appendix A to
the attached 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 0.40 shares of common stock, no par value, of BNI and
(iii) BNI will issue approximately 63 million shares of its common stock to
SFP stockholders, all as more fully set forth in the Merger Agreement and
described in the attached 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 December 27, 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 CREAM proxy card with a blue stripe 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/ Edmund W. Burke
Edmund W. Burke
Executive Vice President,
Law and Secretary
Fort Worth, Texas
January 13, 1995
<PAGE>
BURLINGTON NORTHERN INC.
AND
SANTA FE PACIFIC CORPORATION
JOINT PROXY STATEMENT
FOR SPECIAL MEETINGS OF STOCKHOLDERS
TO BE HELD FEBRUARY 7, 1995
BURLINGTON NORTHERN INC.
BNSF CORPORATION
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, as
amended by an Amendment thereto dated as of October 26, 1994 and Amendment No.
2 thereto dated as of December 18, 1994 (such Merger Agreement prior to such
Amendments, the "Original Merger Agreement," and, as so amended, 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 0.40 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, the consummation of the
tender offers referred to below, 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.
On December 23, 1994, BNI and SFP commenced tender offers for 63 million
shares of SFP Common Stock (together, the "Offer"). The consummation of the
Offer is subject to, among other things, the approval of the Merger by the
stockholders of each of BNI and SFP. The Offer is currently scheduled to
expire on February 8, 1995. Consummation of the Offer is not subject to ICC
approval of the Merger. See "Other Considerations" and "The Merger Agreement--
The Offer."
This Joint Proxy Statement/Prospectus also constitutes a prospectus of BNI
with respect to up to 63 million 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."
This Joint Proxy Statement/Prospectus also constitutes a prospectus of BNSF
Corporation ("Holdings") with respect to up to 170 million shares of common
stock, par value $.01 per share ("Holdings Common Stock"), that would be
issued in the event that either BNI or SFP elect to effect the Merger through
the use of a holding company structure (the "Alternative Merger") pursuant to
the Merger Agreement. The parties intend to effectuate the Alternative Merger
if necessary or prudent to ensure that a BNI-SFP merger is tax-free for
federal income tax purposes to BNI, SFP and their respective stockholders. The
Alternative Merger would have the same economic effect on stockholders of BNI
and SFP as the Merger in its current structure. See "The Merger Agreement--
Alternative Transaction Structure." The issuance of the BNI Common Stock in
the Merger or the Holdings Common Stock in the Alternative Merger is at the
option of BNI and SFP, and not their respective stockholders. A vote in favor
of the adoption of the Merger Agreement is, therefore, a vote in favor of both
the Merger and the Alternative Merger.
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
January 15, 1995.
----------------
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 January 13, 1995.
<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
(together with any amendments thereto, the "BNI Registration Statements") under
the Securities Act of 1933, as amended (the "Securities Act"), relating to the
shares of BNI Common Stock offered hereby and Holdings has filed with the
Commission a Registration Statement on Form S-4 (together with any amendments
thereto, the "Holdings Registration Statement," and, together with the BNI
Registration Statements, the "Registration Statements") under the Securities
Act relating to the shares of Holdings Common Stock that may be offered hereby.
This Joint Proxy Statement/Prospectus does not contain all of the information
set forth in the Registration Statements and the exhibits thereto filed by BNI
and Holdings, certain portions of 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, Holdings, 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.
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) and September 30, 1994;
3. BNI's Current Reports on Form 8-K dated June 29, 1994, October 6, 1994,
October 26, 1994, November 18, 1994 and December 18, 1994;
4. BNI's Registration Statement on Form 8-A dated July 15, 1986; and
5. BNI's Tender Offer Statement on Form 14D-1 dated December 23, 1994.
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) and the quarter ended September 30,
1994;
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
2
<PAGE>
8-K/A dated October 5, 1994), October 5, 1994, October 19, 1994, October
28, 1994, November 2, 1994 and November 28, 1994;
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);
5. SFP's Registration Statement on Form 8-A dated November 28, 1994;
6. SFP's Issuer Tender Offer Statement on Form 13E-4 dated December 23,
1994 (including Amendment No. 1 thereto on Form 13E-4/A dated January 5,
1995) including exhibits thereto; and
7. SFP's Solicitation/Recommendation Statement on Schedule 14D-9 dated
December 23, 1994 (including Amendment No. 1 thereto on Schedule 14D-9/A
dated January 5, 1995).
----------------
All documents filed by BNI, Holdings 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 JANUARY 27, 1995.
----------------
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, SFP OR HOLDINGS. 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 BNI, SFP OR HOLDINGS SINCE THE DATE HEREOF.
3
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<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.................. 8
Security Ownership of Management...................................... 8
Other Considerations.................................................. 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; Break-Up Fee................... 9
Board of Directors after the Merger................................... 10
Interests of Certain Persons in the Merger; Management after the
Merger............................................................... 10
No Appraisal Rights................................................... 10
NYSE Listing.......................................................... 10
Accounting Treatment.................................................. 10
Tax Consequences...................................................... 10
SFP Stock Options..................................................... 10
Alternative Transaction Structure..................................... 11
The Offer............................................................... 11
The Offer............................................................. 11
Conditions to the Offer............................................... 11
Recommendation of SFP Board of Directors.............................. 11
Market Prices........................................................... 12
Selected Historical Financial Data...................................... 13
Unaudited Selected Pro Forma Financial Data............................. 17
Unaudited Comparative Per Share Data.................................... 18
INTRODUCTION.............................................................. 19
THE COMPANIES............................................................. 19
Burlington Northern Inc................................................. 19
Santa Fe Pacific Corporation............................................ 20
BNSF Corporation........................................................ 21
THE SPECIAL MEETINGS...................................................... 21
Purpose of the BNI and SFP Special Meetings............................. 21
Date, Place and Time.................................................... 21
Record Dates............................................................ 21
Required Vote........................................................... 21
Voting and Revocation of Proxies........................................ 22
Solicitation of Proxies................................................. 22
OTHER CONSIDERATIONS...................................................... 23
Effect of Failure to Achieve Expected Benefits and Regulatory Approval.. 23
Increase in Leverage.................................................... 23
Dividends............................................................... 24
Proration............................................................... 24
The SFP Rights Plan..................................................... 24
THE MERGER................................................................ 24
Background of the Merger and the Offer.................................. 24
Recommendations of the Boards of Directors and Reasons for the Merger... 40
Opinions of Financial Advisors.......................................... 42
Merger Consideration.................................................... 49
Effective Time.......................................................... 49
Conversion of Shares; Procedures for Exchange of Certificates;
Dividends; No Fractional Shares........................................ 50
Name of Surviving Entity................................................ 51
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4
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NYSE Listing............................................................ 51
Expenses................................................................ 51
Interests of Certain Persons in the Merger.............................. 52
Accounting Treatment.................................................... 57
Certain Federal Income Tax Consequences................................. 58
Management and Director Stock Options................................... 59
No Appraisal Rights..................................................... 59
THE OFFER................................................................. 59
BOARD OF DIRECTORS AND MANAGEMENT AFTER THE MERGER........................ 60
THE MERGER AGREEMENT...................................................... 60
The Merger.............................................................. 60
Representations and Warranties.......................................... 62
Covenants............................................................... 62
Conduct of Business Pending the Merger................................ 62
Stockholder Meetings.................................................. 63
Access to Information................................................. 63
Notice of Certain Events.............................................. 64
Tax Matters........................................................... 64
No Solicitations...................................................... 64
Additional SFP Covenants.............................................. 64
Additional BNI Covenants.............................................. 65
Joint Covenants of SFP and BNI........................................ 65
Registration Rights..................................................... 66
The Offer............................................................... 66
Conditions to the Consummation of the Merger............................ 67
Termination............................................................. 68
Survival of Representations and Warranties.............................. 68
Amendments; No Waivers.................................................. 69
Alternative Transaction Structure....................................... 69
Expenses................................................................ 70
Governing Law........................................................... 70
Jurisdiction............................................................ 70
UNAUDITED PRO FORMA FINANCIAL STATEMENTS.................................. 71
OTHER MATTERS............................................................. 87
ICC Approval............................................................ 87
Other Regulatory Approvals.............................................. 88
Additional Financial Considerations..................................... 88
Recent Developments Related to UPC's Voting Trust Proposal.............. 90
The Gold Spinoff........................................................ 92
Certain Pending Litigation.............................................. 93
DESCRIPTION OF BNI CAPITAL STOCK.......................................... 96
BNI Common Stock........................................................ 96
6 1/4% Convertible Preferred Stock...................................... 96
Additional Classes of Preferred Stock................................... 98
BNI Rights; Junior Class A Preferred Stock.............................. 99
COMPARISON OF RIGHTS OF STOCKHOLDERS OF BNI AND SFP....................... 99
Board of Directors...................................................... 99
Special Meetings of Stockholders........................................ 100
No Stockholder Action by Written Consent................................ 100
Advance Notice Provisions for Stockholder Proposals..................... 100
Vote Required for Certain Business Combinations......................... 100
Indemnification of Directors and Officers............................... 102
Rights Plans............................................................ 102
CERTAIN ADDITIONAL INFORMATION CONCERNING HOLDINGS........................ 106
Description of Capital Stock............................................ 106
Rights of Holdings Stockholders......................................... 107
EXPERTS................................................................... 107
LEGAL MATTERS............................................................. 108
OTHER BUSINESS AT THE SPECIAL MEETINGS; STOCKHOLDER PROPOSALS............. 108
REPORT OF INDEPENDENT ACCOUNTANTS......................................... F-1
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." See also "--The Merger--
Alternative Transaction Structure."
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." See also "--The
Merger--Alternative Transaction Structure."
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 February 7, 1995
at 10:00 a.m., Fort Worth time.
A Special Meeting (the "SFP Special Meeting") of
stockholders of SFP will be held at the Arlington
Park Hilton Conference Center, 3400 West Euclid
Avenue, Arlington Heights, Illinois, on February
7, 1995 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, as amended by an
Amendment thereto dated as of October 26, 1994 and
Amendment No. 2 thereto dated
6
<PAGE>
as of December 18, 1994 (such Merger Agreement
prior to such Amendments, the "Original Merger
Agreement," and, as so amended, 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. A vote in favor of the Merger will
also constitute a vote in favor of the Alternative
Merger. See "The Special Meetings--Voting and
Revocation of Proxies" and "The Merger Agreement--
Alternative Transaction Structure."
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 transactions contemplated by the Merger
Agreement (including the Offer referred to below)
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), together with the consideration to
be paid to SFP stockholders in the Offer, taken as
a whole, 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 as of the date
thereof, based upon and subject to various
considerations and assumptions set forth therein
and based upon such other matters as Goldman Sachs
considered relevant, the aggregate of the cash and
stock consideration to be received by all of the
holders of the outstanding shares of SFP Common
Stock pursuant to the Offer and the Merger,
considered as a unitary transaction, is fair to
such holders.
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
7
<PAGE>
dated the date of this Joint Proxy
Statement/Prospectus, copies of which are attached
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
December 27, 1994. As of December 31, 1994, there
were outstanding 89,223,821 shares of BNI Common
Stock. As of December 31, 1994, there were
outstanding 188,301,537 shares of SFP Common
Stock. Only holders of record of BNI Common Stock
on the 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 December 31, 1994, directors and executive
officers of BNI and their affiliates were
beneficial owners of an aggregate of 1,917,706
shares of BNI Common Stock (approximately 2% of
the shares of BNI Common Stock then outstanding).
As of December 31, 1994, directors and executive
officers of SFP and their affiliates were
beneficial owners of an aggregate of 2,924,595
shares of SFP Common Stock (approximately 1.6% of
the shares of SFP Common Stock then outstanding).
Other Considerations.... For a discussion of certain factors relating to the
Offer and Merger, see "Other Considerations."
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 0.40 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
8
<PAGE>
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 filed their application
on October 13, 1994. Thereafter, in response to
requests by several parties to the merger
proceeding, the ICC on December 5, 1994 issued an
order holding the procedural schedule in abeyance
until such time as an SFP stockholder vote on the
Merger occurs. The December 5 order further stated
that upon approval of the proposed Merger by SFP
stockholders, the ICC would immediately issue a
new schedule requiring the first comments,
originally due on December 27, 1994, to be filed
30 days from the service date of the new schedule
and adjusting other schedule dates accordingly.
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. In addition to
such benefits, the incurrence of indebtedness in
connection with the Offer (as defined below) will
result, among other things, in additional interest
costs to BNI and SFP. See "Other Matters--
Additional Financial Considerations" for a
discussion of the estimates, assumptions, methods
of calculation and caveats applied to the ICC
application and "The Merger--Factors for
Consideration of the Merger" for a discussion of
certain of the effects of such indebtedness.
Conditions to the
Merger; Termination;
Break-up Fee........... The obligations of BNI and SFP to consummate the
Merger are subject to various conditions,
including the consummation of the Offer, 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 and receipt of an
opinion of counsel in respect of certain Federal
income tax consequences of the Merger.
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.
SFP has agreed that if the Merger Agreement is
terminated, under certain circumstances, it will
pay BNI an amount equal to
9
<PAGE>
$50,000,000 plus all out-of-pocket expenses, not
to exceed $10,000,000 incurred by BNI in
connection with the Merger Agreement, the Offer
and all related transactions. See "The Merger
Agreement--Expenses."
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.
Under Delaware law, neither holders of BNI Common
No Appraisal Rights..... Stock nor holders of SFP Common Stock are entitled
to appraisal rights in connection with the Merger.
See "The Merger--No Appraisal Rights."
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
"purchase" 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 constitute a tax-free transaction for
federal income tax purposes. If the Merger so
qualifies, no gain or loss will be recognized by
stockholders of SFP Common Stock or BNI Common
Stock, except to the extent of cash received in
lieu of fractional shares by SFP stockholders. If
necessary or prudent to ensure satisfaction of
this condition, either BNI or SFP may elect to
restructure the Merger in the manner described in
"Alternative Transaction Structure" below. All
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."
10
<PAGE>
Alternative Transaction
Structure..............
In the Merger Agreement, BNI and SFP have agreed
that either BNI or SFP may elect to effect the
Merger through the use of a holding company as
described below and have established BNSF
Corporation, a Delaware corporation ("Holdings"),
for such purpose. In this structure (the
"Alternative Merger"), (x) Holdings would create
two new wholly owned subsidiaries, cause one of
such subsidiaries to merge into BNI and cause the
other such subsidiary to merge into SFP, (y) each
holder of BNI Common Stock would receive one share
of common stock, par value $.01 per share
("Holdings Common Stock"), for each share of BNI
Common Stock and (z) each holder of SFP Common
Stock would receive 0.40 shares of Holdings Common
Stock for each share of SFP Common Stock. The
rights of a stockholder of Holdings will be
substantially identical to the rights of a
stockholder of BNI, and the Alternative Merger
would otherwise have the same economic effect on
the stockholders of BNI and SFP as the Merger in
its current structure. The parties intend to
effectuate the Alternative Merger if necessary or
prudent to ensure that a BNI-SFP merger is tax-
free for federal income tax purposes to BNI, SFP
and their respective stockholders. See "The Merger
Agreement--Alternative Transaction Structure."
THE OFFER
The Offer............... On December 23, 1994, SFP and BNI commenced
separate offers (together, the "Offer") to
purchase up to 63,000,000 shares of SFP Common
Stock in the aggregate (together with the
associated preferred share purchase rights issued
under the Rights Agreement dated as of November
28, 1994 between SFP and First Chicago Trust
Company of New York, as Rights Agent), at a price
of $20 per share, net to the seller in cash, with
SFP severally obligated to purchase up to
38,000,000 shares of SFP Common Stock accepted for
payment under the Offer and BNI severally
obligated to purchase up to 25,000,000 shares of
SFP Common Stock accepted for payment under the
Offer. See "The Offer."
Conditions to the The several obligations of BNI and SFP under the
Offer.................. Offer are conditioned on, among other things, (i)
at least 63,000,000 shares of SFP Common Stock
being validly tendered and not withdrawn before
the expiration of the Offer (the "Minimum
Condition"), (ii) SFP and BNI having obtained
sufficient financing on terms satisfactory to them
to purchase 63,000,000 shares of SFP Common Stock
pursuant to the Offer and to effect certain other
transactions and (iii) the approval of the Merger
Agreement by the stockholders of SFP and BNI. The
Offer is not conditioned on ICC approval of the
Merger. See "The Offer."
Recommendation of SFP
Board of Directors.....
SFP's Board of Directors unanimously recommended
that those of its stockholders who wish to receive
cash for a portion of their shares of SFP Common
Stock accept the Offer. Up to 63,000,000 shares of
SFP Common Stock are to be purchased in the Offer;
any shares tendered in response to the Offer over
and above such amount would be subject to
proration in accordance with the terms of the
Offer. Proration may result in SFP stockholders
receiving cash for only a portion of any shares
tendered, with the remaining consideration to be
received in the form of BNI Common Stock pursuant
to the Merger after the receipt of ICC approval
and satisfaction or waiver of the other conditions
to the Merger.
11
<PAGE>
MARKET PRICES
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 BNI Common Stock and 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 $13 7/8 $11 1/4
Second Quarter................................. 47 1/4 36 1/8 13 3/8 11 3/8
Third Quarter.................................. 39 5/8 33 1/2 12 3/4 11
Fourth Quarter................................. 43 7/8 35 7/8 13 7/8 11 1/4
1993
First Quarter.................................. 52 42 1/4 15 3/8 12 7/8
Second Quarter................................. 58 5/8 50 18 3/8 14 3/4
Third Quarter.................................. 57 1/2 51 1/8 18 7/8 17
Fourth Quarter................................. 58 48 3/4 22 1/4 18 1/2
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
Fourth Quarter................................. 51 5/8 46 5/8 17 5/8 12 5/8
1995
First Quarter (through January 12, 1995)....... 52 47 7/8 17 3/4 17 1/2
</TABLE>
On June 29, 1994, the last trading day before public announcement of
execution of the Original 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. 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 January 12, 1995, the closing prices of BNI Common Stock and SFP Common
Stock as reported in The Wall Street Journal were $51 3/8 per share and $17 1/2
per share, respectively. On December 16, 1994, the closing prices of BNI Common
Stock and SFP Common Stock as reported in The Wall Street Journal were $51 1/2
per share and $16 7/8 per share, respectively. The market value of 0.40 of a
share of BNI Common Stock (the equivalent per share value of the SFP Common
Stock to be exchanged in the Merger) on December 16, 1994 was $20.60 per share.
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.
12
<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 nine months ended September 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 nine months 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 nine months ended September 30, 1994 and 1993 and the balance
sheet data at September 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 nine months ended September 30, 1994
and 1993 and the Balance Sheet Data at September 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. The data presented is not necessarily indicative of results to
be expected in the future.
SELECTED HISTORICAL FINANCIAL DATA FOR BURLINGTON NORTHERN INC.
<TABLE>
<CAPTION>
AT OR FOR
NINE MONTHS
ENDED
SEPTEMBER 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................. $3,651 $3,453 $4,699 $4,630 $4,559 $4,674 $4,606
Income (loss) before
extraordinary items and
cumulative effect of
changes in accounting
methods................. 284 178 296 299 (306) 222 243
Extraordinary
items/cumulative effect
of changes in accounting
methods................. (10) -- -- (21) (14) 14 --
Net income (loss)........ 274 178 296 278 (320) 236 243
PER SHARE DATA
Income (loss) before
extraordinary items and
cumulative effect of
changes in accounting
methods................. $ 2.97 $ 1.81 $ 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)........ 2.86 1.81 3.06 3.11 (4.14) 3.07 3.19
Book value............... 19.85 (a) 17.73 15.61 13.64 16.13 14.15
Cash dividends declared.. .90 .90 1.20 1.20 1.20 1.20 1.20
BALANCE SHEET DATA
Total assets............. $7,536 (a) $7,045 $6,563 $6,324 $6,061 $6,144
Total debt, including
current portion and com-
mercial paper........... 1,791 (a) 1,737 1,567 1,982 2,133 2,333
Redeemable preferred
stock................... -- (a) -- 9 11 12 14
Stockholders' equity..... 2,116 (a) 1,919 1,728 1,202 1,241 1,080
</TABLE>
- --------
(a) Not required.
13
<PAGE>
NINE MONTHS ENDED SEPTEMBER 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.
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.
YEAR ENDED DECEMBER 31,
1993
--Results include the effects of the Act as discussed above.
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 relates 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.
14
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA FOR SANTA FE PACIFIC CORPORATION
<TABLE>
<CAPTION>
AT OR FOR
NINE MONTHS
ENDED
SEPTEMBER 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................. $1,970 $1,778 $2,409 $2,252 $2,154 $2,112 $2,202
Income (loss) from con-
tinuing
operations.............. 153 124 177 21 62 (245) (316)
Income from discontinued
operations, net of tax.. 23 148 162 42 34 162 170
Extraordinary
items/cumulative effect
of changes in accounting
methods................. -- -- -- (168) -- (29) 161
Net income (loss)........ 176 272 339 (105) 96 (112) 15
PER SHARE DATA
Income (loss) from con-
tinuing
operations.............. $ .81 $ .67 $ .95 $ .11 $ .35 $(1.51) $(1.99)
Income from discontinued
operations, net of tax.. .12 .79 .86 .23 .19 1.00 1.07
Extraordinary
items/cumulative effect
of changes in accounting
methods................. -- -- -- (.91) -- (.18) 1.01
Net income (loss)........ .93 1.46 1.81 (.57) .54 (.69) .09
Book value............... 6.46 (a) 6.83 5.11 5.77 5.27 5.39
Cash dividends declared.. -- .10 .10 .10 .10 .10 .10
BALANCE SHEET DATA
Total assets............. $5,316 (a) $5,374 $4,946 $4,812 $4,710 $5,087
Total debt, including
current portion......... 1,082 (a) 1,176 1,307 1,702 1,791 2,067
Stockholders' equity..... 1,208 (a) 1,268 929 1,037 912 852
</TABLE>
- --------
(a) Not required
NINE MONTHS ENDED SEPTEMBER 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 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 1 percent. The net effect of the above items was to increase net income
by $57 million, or $.31 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 California
lines and the increase in income tax expense discussed above.
Discontinued operations in 1993 include the after-tax gain discussed
above.
15
<PAGE>
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 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 loss includes a noncash reduction of $163 million, or $.88 per common
share, related to the cumulative effect of adopting SFAS No.'s 106 and
112, and a $5 million, or $.03 per common share, reduction for an
extraordinary charge on the early retirement of debt.
1990
--Loss from continuing operations includes a $342 million pre-tax charge
related to 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 common share.
Income from discontinued operations includes an after-tax gain of $102
million, or $.63 per common share, related to a litigation settlement.
Net loss includes a reduction of $29 million, or $.18 per common share,
for an extraordinary charge on the early retirement of debt.
1989
--Loss from continuing operations includes a $442 million 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.
16
<PAGE>
UNAUDITED SELECTED PRO FORMA FINANCIAL DATA
The following unaudited selected pro forma financial data gives effect to the
cash tender offers and the related borrowings of Santa Fe Pacific Corporation
(SFP) and Burlington Northern Inc. (BNI) for 38 million and 25 million shares,
respectively (approximately 20 percent and 13 percent, respectively) of the
shares outstanding of SFP Common Stock. In addition, the combined pro forma
financial statements include the exchange of 0.40 shares of BNI Common Stock
for each share of SFP Common Stock pursuant to the Merger Agreement, with the
Merger accounted for under the purchase method. The unaudited pro forma balance
sheet data as of September 30, 1994 gives effect to the Merger as if it had
occurred on that date, and the unaudited pro forma income statement data gives
effect to the Merger as if it had occurred on January 1, 1993. The unaudited
selected pro forma financial data set forth below does not reflect any
potential increases in operating income, or one-time costs to achieve such
increases, 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 Financial Statements."
The unaudited selected pro forma financial data is prepared for illustrative
purposes only and is 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. The unaudited selected pro forma financial
data for the Merger, if consummated using the Alternative Merger structure,
would be identical to the financial data set forth below. See "The Merger
Agreement--Alternative Transaction Structure."
<TABLE>
<CAPTION>
AT OR FOR NINE AT OR FOR YEAR
MONTHS ENDED ENDED
SEPTEMBER 30, 1994 DECEMBER 31, 1993
------------------ ------------------
(IN MILLIONS)
<S> <C> <C>
COMBINED PRO FORMA BASIS
INCOME STATEMENT DATA
Revenues.......................... $ 5,621 $7,108
Income from continuing operations
(b).............................. 341 347
BALANCE SHEET DATA
Total assets (b).................. $16,771 (a)
Total debt, including current por-
tion and commercial paper........ 4,279 (a)
Stockholders' equity (b).......... 4,802 (a)
</TABLE>
- --------
(a) Not required.
(b) In accordance with Securities and Exchange Commission (the "SEC") guidance,
for purposes of calculating the purchase price, the value of the BNI Common
Stock issued in the Merger is measured at or about the time of the
consummation of the Merger. A $1 increase in the value of BNI Common Stock
would result in an approximately $50 million increase in purchase price and
goodwill and a $1 million decrease in income from continuing operations. A
$1 decrease in the value of BNI Common Stock would have the opposite
effect.
17
<PAGE>
UNAUDITED COMPARATIVE PER SHARE DATA
The following table sets forth for BNI Common Stock and SFP Common Stock
certain historical, pro forma and pro forma equivalent per share data for the
nine months ended September 30, 1994 and for the year 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 "Unaudited Selected Pro Forma Financial Data" and "Selected Historical
Financial Data." The unaudited comparative per share data for the Merger, if
consummated using the Alternative Merger structure, would be identical to the
financial data set forth below. See "The Merger Agreement--Alternative
Transaction Structure."
<TABLE>
<CAPTION>
AT OR FOR AT OR FOR
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1994 DECEMBER 31, 1993
------------------ -----------------
<S> <C> <C>
BNI COMMON STOCK
Income from continuing operations per
share:
Historical.............................. $ 2.97 $3.06
Investment in SFP pro forma (a)......... 2.78 2.82
Combined pro forma (e).................. 2.30 2.33
Book value per share:
Historical.............................. 19.85 17.73
Investment in SFP pro forma (a)......... 20.02 17.89
Combined pro forma (e).................. 32.11 30.91
Cash dividends per share:
Historical.............................. .90 1.20
Investment in SFP pro forma (b)......... .90 1.20
Combined pro forma (b).................. .90 1.20
SFP COMMON STOCK
Income from continuing operations per
share:
Historical.............................. $ .81 $ .95
Pro forma for SFP recapitalization (c).. .77 .88
Pro forma equivalent (d)(e)............. .92 .93
Book value per share:
Historical.............................. 6.46 6.83
Pro forma for SFP recapitalization (c).. 2.78 3.21
Pro forma equivalent (d)(e)............. 12.84 12.36
Cash dividends per share:
Historical.............................. -- .10
Pro forma for SFP recapitalization ..... -- .10
Pro forma equivalent (b)(d)............. .36 .48
</TABLE>
- --------
(a) Income from continuing operations and book value per share include pro
forma adjustments to reflect BNI's investment in SFP which includes
borrowing $500 million to be used to finance the purchase of 25 million
shares of outstanding SFP Common Stock. In addition, book value per share
includes BNI vesting of restricted stock. See "Unaudited Pro Forma Financial
Statements" for further discussion.
(b) Cash dividends declared are assumed to be the same as those paid by BNI on
an historical basis.
(c) Income from continuing operations and book value per share include pro
forma adjustments to reflect SFP's recapitalization plan which includes
borrowing $1,075 million to be used to finance the purchase of 38 million
shares of outstanding SFP Common Stock and the retirement of outstanding
senior indebtedness. See "Unaudited Pro Forma Financial Statements" for
further discussion.
(d) Calculated by multiplying combined pro forma amounts by the exchange ratio
of 0.40.
(e) In accordance with SEC guidance, the value of the BNI Common Stock issued
in the Merger is measured at or about the time of the consummation of the
Merger. A $1 increase in the value of BNI Common Stock would result in a $.36
increase in book value per share and a $.01 decrease in earnings per common
share on a combined pro forma basis. A $1 decrease in the value of BNI Common
Stock would have the opposite effect.
18
<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 February 7, 1995 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 Arlington Park Hilton Conference Center, 3400 West
Euclid Avenue, Arlington Heights, Illinois on February 7, 1995 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, as amended by an
Amendment thereto dated as of October 26, 1994 and Amendment No. 2 thereto
dated as of December 18, 1994 thereto (such Merger Agreement prior to such
Amendments, the "Original Merger Agreement," and, as so amended, 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 63 million 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 "BNI 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 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.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of BNSF
Corporation, a Delaware corporation ("Holdings"), with respect to up to 170
million shares of common stock, par value $.01 per share, of Holdings (the
"Holdings Common Stock"), that may be issued in the event that either BNI or
SFP elects to restructure the Merger as described below. See "The Merger
Agreement--Alternative Transaction Structure."
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 January 15, 1995.
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.
19
<PAGE>
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.
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,
nonferrous 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" or "ATSF"), 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.
20
<PAGE>
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.
BNSF CORPORATION
Holdings was incorporated under the laws of the State of Delaware on December
16, 1994 for the purpose of effectuating the Alternative Merger (as defined
below) if either BNI or SFP shall elect to do so pursuant to the Merger
Agreement. The parties intend to effectuate the Alternative Merger if necessary
or prudent to ensure that a BNI-SFP merger is tax-free for federal income tax
purposes to BNI, SFP and their respective stockholders. Holdings is jointly
owned by each of BNI and SFP and has not engaged in any activity since its
formation other than activities related to the transactions contemplated by the
Merger Agreement. Pursuant to the Merger Agreement, SFP and BNI have agreed not
to permit Holdings to take any actions or undertake any operations except as
may be necessary in connection with the consummation of the Alternative Merger
and the transactions contemplated by the Merger Agreement.
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 February 7, 1995,
commencing at 10:00 a.m., Fort Worth time.
SFP. The SFP Special Meeting will be held at the Arlington Park Hilton
Conference Center, 3400 West Euclid Avenue, Arlington Heights, Illinois on
February 7, 1995, commencing at 3:00 p.m., Chicago time.
RECORD DATES
BNI. The Board of Directors of BNI has fixed the close of business on
December 27, 1994 as the record date for the determination of stockholders
entitled to notice of and to vote at the BNI Special Meeting. As of December
31, 1994, there were issued and outstanding 89,223,821 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
December 27, 1994 as the record date for the determination of stockholders
entitled to notice of and to vote at the SFP Special Meeting. As of December
31, 1994, there were issued and outstanding 188,301,537 shares of SFP Common
Stock. Only holders of record of SFP Common Stock on the Record Date are
entitled to vote.
December 27, 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 December 31, 1994, directors and executive officers of BNI and their
affiliates were beneficial owners of an aggregate of 1,917,706 shares of BNI
Common Stock (approximately 2% 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.
21
<PAGE>
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 December 31, 1994, directors and executive officers of SFP and their
affiliates were beneficial owners of an aggregate of 2,924,595 shares of SFP
Common Stock (approximately 1.6% 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.
VOTING AND REVOCATION OF PROXIES
A CREAM PROXY CARD WITH A BLUE STRIPE for use at the BNI Special Meeting or a
WHITE PROXY CARD WITH A BLUE STRIPE for use at the SFP Special Meeting, as the
case may be, accompany this Joint Proxy Statement/Prospectus. A stockholder may
use the appropriate CREAM PROXY CARD WITH A BLUE STRIPE or WHITE PROXY CARD
WITH A BLUE STRIPE, as the case may be, 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 A PROXY IS SUBMITTED BUT NO
SPECIFICATION IS MADE THEREIN, 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. If you have already submitted a 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. 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,
failures to submit a proxy, 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.
The issuance of the BNI Common Stock in the Merger or the Holdings Common
Stock in the Alternative Merger is at the option of BNI and SFP, and not their
respective stockholders. A vote in favor of the adoption of the Merger
Agreement is, therefore, a vote in favor of both the Merger and the Alternative
Merger.
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 $625,000 plus reasonable out-of-pocket expenses. In addition to Kissel-
Blake Inc., 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."
22
<PAGE>
D. F. King & Co., Inc. and MacKenzie Partners, Inc. will assist in the
solicitation of proxies by SFP for an aggregate anticipated fee of $600,000
plus reasonable out-of-pocket expenses. In addition to D.F. King & Co., Inc.
and MacKenzie Partners, Inc., 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". Furthermore,
SFP has asked BNI and Lazard to assist SFP in its solicitation of proxies. Such
assistance may include, among other things, discussions with SFP stockholders.
Neither BNI nor Lazard will receive any compensation for providing such
assistance.
OTHER CONSIDERATIONS
EFFECT OF FAILURE TO ACHIEVE EXPECTED BENEFITS AND REGULATORY APPROVAL
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." 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. In particular, BNI may be disadvantaged by having spent
$500 million in the Offer if the Merger can not be consummated.
INCREASE IN LEVERAGE
SFP anticipates borrowing up to $1.31 billion (of which approximately $400
million will be to replace existing debt) in connection with the Offer and
related matters from a syndicate of banks under a new credit agreement. In
addition, the new credit agreement will provide for a $250 million revolving
credit facility for general corporate purposes. The anticipated terms of such
financings are summarized in BNI's Tender Offer Statement on Form 14D-1 and
SFP's Issuer Tender Offer Statement on Form 13E-4, both of which documents are
incorporated herein by reference. See "Incorporation of Certain Documents by
Reference" and "Available Information." SFP anticipates that its ability to
borrow additional funds will be restricted by the terms of the new credit
agreement. SFP's credit rating status was placed under review with direction
uncertain by Moody's Investors Service and on Credit Watch with developing
implications by Standard & Poor's prior to announcement of the Offer and
continues in that status. It is possible that SFP's credit ratings would be
downgraded upon completion of the Offer. SFP does not expect that any ratings
downgrade, should one occur, would impair its ability to maintain adequate
liquidity to meet its ongoing obligations.
The interest expense on SFP's anticipated borrowings would reduce SFP's net
income. Principal and interest on the debt being used by SFP to finance the
Offer, as well as other operating expenses and liquidity needs of SFP, are
expected to be funded by SFP during the period prior to the ICC's decision on
the Merger from net cash generated before borrowings, currently available cash
balances and borrowings in excess of requirements in connection with the Offer.
Should the ICC not approve the Merger, SFP believes that, on a stand-alone
basis, it will be able to fund the debt service attributable to the debt
incurred in connection with the Offer through a combination of net cash
generated before borrowings and refinancings in the capital markets. In either
case, SFP will have access to the $250 million revolving credit facility for
general corporate purposes, if required. Although the SFP Board believes that
SFP's proposed borrowing is prudent, it is possible that the need to repay the
debt incurred in its borrowing will have a detrimental effect on SFP, either
before the Merger or if the Merger cannot be consummated.
BNI intends to finance its purchase of SFP Common Stock pursuant to the Offer
with funds borrowed from a syndicate of banks pursuant to a new $500 million
credit agreement. The anticipated terms of such borrowings are summarized in
BNI's Tender Offer Statement on Form 14D-1 and SFP's Issuer Tender Offer
Statement on Form 13E-4, both of which documents are incorporated herein by
reference. See "Incorporation of Certain Documents by Reference" and "Available
Information." BNI's existing credit agreements will not
23
<PAGE>
be affected by the Offer and consequently its ability to borrow under these
agreements and maintain its liquidity should not be materially adversely
affected by consummation of the Offer. BNI's credit ratings are under review
for possible downgrade by Moody's Investors Service and are on Credit Watch
with negative implications by Standard & Poor's. BNI does not expect that any
ratings downgrade, should one occur, would materially impact its ability to
borrow money or maintain adequate liquidity to meet its ongoing obligations.
The interest expense related to the new credit agreement is expected to be paid
from net cash generated before borrowings and would reduce BNI's net income.
Following consummation of the Merger, the combined company is expected to
fund debt service related to the Offer and liquidity requirements of ongoing
operations from net cash generated before borrowings and financing in the
capital markets.
DIVIDENDS
SFP paid annual cash dividends of ten cents ($.10) per share of SFP Common
Stock for each of the years ending December 31, 1992, 1993 and 1994. The terms
of SFP's new borrowings are anticipated to limit SFP's ability to pay
dividends, and SFP currently does not plan to pay dividends for the foreseeable
future if the Offer is consummated.
BNI does not anticipate that the borrowings in connection with the Offer or
transaction costs associated with the Offer or the Merger will affect its
currently existing dividend policy.
PRORATION
Up to 63,000,000 shares of SFP Common Stock are to be purchased in the Offer;
any shares tendered in response to the Offer over and above such amount would
be subject to proration in accordance with the terms of the Offer. Proration
may result in SFP stockholders receiving cash for only a portion of any shares
tendered, with the remaining consideration to be received in the form of BNI
Common Stock pursuant to the Merger after the receipt of ICC approval and
satisfaction or waiver of the other conditions to the Merger.
THE SFP RIGHTS PLAN
On November 28, 1994, SFP's Board of Directors adopted a Shareholders Rights
Plan. See "Comparison of Rights of Stockholders of BNI and SFP--Rights Plans."
The SFP Rights Plan could have the effect of deterring a change of control of
SFP without the approval of the Board of Directors of SFP.
THE MERGER
BACKGROUND OF THE MERGER AND THE OFFER
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 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.
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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.
Lazard 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 of 0.27 shares of BNI Common Stock per share of SFP Common Stock
(the "Original Exchange Ratio") was fair to the holders of BNI Common Stock
from a financial point of view.
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 Original Exchange Ratio
was fair to the holders of SFP Common Stock. That opinion was subsequently
confirmed in writing. See the full text of the opinion of Goldman Sachs dated
the date of the Joint Proxy Statement/Prospectus dated October 12, 1994
(attached as Appendix D to such Joint Proxy Statement/Prospectus dated October
12, 1994), 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 (as defined
below).
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
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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.
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 have received, for each share of SFP Common Stock,
0.344 of a share of UPC common stock.
The transaction contemplated in the UPC Proposal was 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
SFP. The UPC Proposal was 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 was 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 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
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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.
4. Binding Agreement. The SFP Board noted that SFP had no right to terminate
the Original Merger Agreement and that it was 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 Original Merger Agreement were terminated and if
the UPC Proposal could not 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
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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 12, 1994, SFP and BNI commenced solicitation of proxies from their
respective stockholders for approval of the Original Merger Agreement.
On October 13, 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 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.
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 in support of UPC's position 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 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 likelihood of ICC approval of a BNI-SFP merger and a
UPC-SFP merger. The Board heard from SFP's management, its lawyers and Mr. Paul
Lamboley, a former ICC Commissioner, and was provided with a written statement
prepared by Mr. Barry C. Harris, a Principal and Senior Vice-President of
Economists Incorporated, a Washington, D.C.-based consulting firm. Mr. Harris
served as Deputy Assistant Attorney General and Chief Economist in the
Antitrust Division of the United States Department of Justice ("DOJ") from
October 1992 until mid-January 1993 and testified on behalf of the DOJ against
the proposed merger between SFP and Southern Pacific Company ("Southern
Pacific"). Both Mr. Lamboley and Mr. Harris have been retained by SFP to serve
as expert advisors to the SFP Board. In particular, Mr. Lamboley has been
retained by SFP to advise and assist
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it in connection with the pending Delaware litigation arising out of the
proposed BNI-SFP merger and related matters concerning the likelihood of ICC
approval of a UPC-SFP combination.
Mr. Lamboley provided the SFP Board with an overview on merger cases since
the late 1970's before the ICC, outlined the statutory criteria and analytical
approach the ICC typically uses in reviewing proposed railroad mergers and
described how the ICC would most likely review a UPC-SFP merger proposal,
focusing on competitive impact. He opined that it is unlikely that the ICC
would approve the UPC-SFP merger, as proposed, absent imposition of
substantial conditions to ameliorate the significant competitive concerns,
which conditions could make the transaction untenable. He noted, however, that
the ICC will generally not use its conditioning authority to substantially
restructure a transaction beyond the scope proposed. Because a detailed
analysis of the corridors and commodities would be needed to determine the
competitive impact and the level of conditions necessary, the proceedings
would be protracted--likely to require the full 31-month statutory period--
with the outcome uncertain. (The SFP Board was aware that the ICC had at that
time adopted a schedule for the BNI-SFP application that would have resulted
in a final decision in the first quarter of 1996.) Mr. Lamboley characterized
the UPC-SFP merger proposal as being largely parallel, with potentially
significant anticompetitive effects, observing that the ICC had rejected a
parallel merger (SFP-Southern Pacific) involving similar markets. Mr. Lamboley
opined that the DOJ, as it did in the SFP-Southern Pacific case, would likely
actively oppose the UPC-SFP combination because of its substantial competitive
impact and, although not binding, antitrust principles would provide guidance
for ICC evaluation of competition. Mr. Lamboley stated that, in his view, the
benefits claimed by UPC for the proposed combination were on balance unlikely
to overcome the combination's competitive effects, distinguishing private
benefits from public benefits. By way of contrast, Mr. Lamboley stated that in
his view the BNI-SFP merger could provide significant public benefits and thus
was more likely to receive ICC approval without imposition of substantial
conditions.
In his written statement, Mr. Harris opined, based on his professional
knowledge and experience and his review of Mr. Lewis' October 5, 1994 letter
proposal, the UPC Memorandum and other publicly available information, that
the DOJ would subject a UPC-SFP combination to intense scrutiny and very
likely would vigorously oppose such a combination. Mr. Harris noted that,
while a complete DOJ analysis would include a review of confidential traffic
data, the DOJ likely would have serious concerns about competitive problems,
including diminished competition in the important Midwest-California corridor,
the Midwest-Texas corridor and U.S.-Mexico traffic, likely to result from such
a combination. Mr. Harris also opined that the DOJ likely would conclude that
the conditions that UPC indicated in the UPC Memorandum that UPC might accept
would be inadequate to address the competitive problems raised by a UPC-SFP
combination. In addition, Mr. Harris stated his view that, from an economic
perspective, there were serious questions regarding the benefits that UPC
asserted in the UPC Memorandum would result from such a combination and that
the DOJ was unlikely to be persuaded by those asserted benefits. Mr. Harris
did not discuss the likelihood of ICC approval of a BNI-SFP merger. Except as
stated in this paragraph and the immediately preceding paragraph, neither Mr.
Lamboley nor Mr. Harris made any assumptions or qualifications in providing
their advice to the SFP Board.
The SFP Board questioned SFP's management, its lawyers and Mr. Lamboley
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 (the "Revised Exchange Ratio") 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 Revised Exchange Ratio was fair to the holders of BNI
Common Stock from a financial point of view. That opinion was subsequently
confirmed in writing.
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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 share of BNI Common Stock was slightly more than the
market price of 0.344 (the exchange ratio set forth in the UPC Proposal) of a
share of UPC common stock.
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 0.344 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
apparently 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 Common
Stock might well drop significantly and SFP would be left without a strategic
combination which is required to protect and enhance stockholder value.
The SFP Board also took account of the substantial long-term benefits that
might accrue to SFP's stockholders from a merger. The SFP Board concluded, in
part on the basis of the presentations of SFP's management, its lawyers and
Mr. Lamboley, 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 conclusion 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 BN Railroad--SFP Rail would result in
more efficient service. Given the predominantly 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 BN Railroad and SFP Rail 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.
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UPC-SFP MERGER
1. Adverse Effect on Competition. Because the UPC and SFP rail systems are
substantially parallel and SFP Rail and the railroad subsidiaries of UPC ("UP
Rail") are currently major competitors on many routes, a UPC-SFP combination
would have a substantial anticompetitive effect. It would significantly reduce
competition by combining the dominant carrier in the West (UP Rail) with its
major competitor (SFP Rail) in the very important Chicago-California and Kansas
City-California routes and leave the combined UP Rail-SFP Rail as an even more
dominant competitor on those routes. In light of the coverage of both SFP and
UPC in Kansas, and their common connections with major regional carriers, a UP
Rail-SFP Rail combination would present significant competitive impacts on
Kansas grain shippers. Wheat and feed grains moving from Southern Colorado to
either California or the Gulf of Mexico would present another competitive
issue. There would also be a competitive issue raised by a reduction in the
number of carriers serving the ports of Houston and Los Angeles/Long Beach. A
UP Rail-SFP Rail merger would also eliminate competition between SFP Rail
service to Mexico through El Paso and UP Rail service to Mexico through Laredo;
UP Rail's overwhelming post-merger share of all U.S. traffic to Mexico would
cause competitive concerns.
A UPC-SFP merger would create major competitive problems with respect to
specific commodities as well. Precise market share data by corridors are not
readily available, but the combined share of western railroad movements handled
by UP Rail and SFP Rail in major categories would be substantial and more than
70% in the important Midwest-Southern California intermodal domestic flow. On a
combined basis, UP Rail and SFP Rail would originate more than 70% of
automotive movements in the West. Eliminating competition between UP Rail and
SFP Rail would end a fierce rivalry. In 1990, for example, UP Rail succeeded in
underbidding SFP Rail on a contract (valued in the tens of millions of dollars)
to carry all Ford traffic from Kansas City to California.
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. SFP's management, its lawyers and Mr.
Lamboley noted that UPC had not identified and proposed specific solutions for
all of the significant competition problems that a UPC-SFP merger would create.
SFP's management, its lawyers and Mr. Lamboley concluded that, even where UPC
had suggested conditions, they were unlikely to be sufficient. For example, as
to the most severe competitive problem--reduced competition among railroads
serving the routes between California and the Upper Midwest and a combined UP
Rail-SFP Rail's dominant position on those routes--UPC proposed only that it
might accept a grant to Southern Pacific, the other carrier that currently does
compete in the California-Upper Midwest corridor, of trackage rights or other
conditions. SFP's management, its lawyers and Mr. Lamboley doubted the value of
conditions that would only benefit a carrier already serving the routes in
question, concluding that such conditions were unlikely to be sufficient to
compensate for a substantial diminution in competition on one of the nation's
most important railroad routes.
SFP's management, its lawyers and Mr. Lamboley also noted that UPC had made
no commitment to accept the conditions it had proposed. They also advised the
SFP Board that there is no precedent for the extent of conditions that would
address the various competitive issues and level of concentration that would
arise in a UPC-SFP combination and that, even on the dubious assumption that
complex conditions could be crafted to solve all the competitive problems in
such a combination, such conditions would not necessarily lead to approval
because the ICC might be concerned about whether such conditions would work and
whether the agency could adequately supervise them. Such conditions would also
be economically costly, potentially depressing the value of the UPC stock that
SFP's stockholders would receive in a merger. SFP's management, its lawyers and
Mr. Lamboley also advised the SFP Board that opponents of the transaction might
argue that the history of conditions demonstrates that such conditions have
often been found ineffective in providing long-term competitive alternatives.
The conditions granted the Milwaukee Road in the Northern Lines case, the
trackage rights granted Southern Pacific between Kansas City and St. Louis in
the MP-UPC, and the long-term validity of the so-called "DT&I" conditions
granted in many early mergers have all been criticized as ineffective.
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SFP's management, its lawyers and Mr. Lamboley 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 unwise for 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 "strong" or
"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. SFP's management, its lawyers and Mr. Lamboley 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. SFP's management, its
lawyers and Mr. Lamboley also concluded that many of the benefits claimed by
UPC were overstated. For example, what UPC describes as new single-line service
is often, in reality, nothing more than a different route between an origin and
a destination that UP Rail already serves. Many of the service improvements
claimed by UPC appear based on a misunderstanding of SFP Rail's current
operations. For intermodal traffic, SFP Rail already has frequent departures
between Chicago and California, approximately every four hours--the same
frequency UPC proposes; SFP Rail already offers service between Chicago and
Northern California every six hours; and with respect to automotive traffic,
SFP Rail already offers solid unit trains to California.
4. Timing. SFP's management, its lawyers and Mr. Lamboley indicated that a
UPC-SFP merger application would be highly contested and would be likely to
require the full 31 months permitted by statute to resolve. This would result
in a schedule that was substantially longer than the ICC schedule for the BNI-
SFP application, which at the time called 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 SFP's
management, its lawyers and Mr. Lamboley, the Revised Exchange Ratio was fair
to SFP's stockholders. That opinion was subsequently confirmed in writing. See
the full text of the Opinion of Goldman Sachs dated the date of the
Supplemental Joint Proxy Statement/Prospectus dated October 28, 1994 (attached
as Appendix C to such Supplemental Joint Proxy Statement/Prospectus dated
October 28, 1994), which sets forth certain assumptions made by Goldman Sachs,
including the assumption that under the foregoing circumstances Goldman Sachs,
in analyzing the Revised Exchange Ratio, need not take into account the
consideration which might be received under the UPC Proposal.
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 so promptly.
On October 30, 1994, UPC announced that it was revising the UPC Proposal to
provide for an exchange ratio of 0.407 of a share of UPC common stock for each
share of SFP Common Stock outstanding.
On November 8, 1994, UPC announced that, subject to the approval of the staff
of the ICC, it would establish a voting trust to acquire SFP and would commence
a partial cash tender offer for SFP Common Stock. A voting trust would permit
SFP's stockholders to receive the consideration UPC was offering them without
the need to wait for the ICC to decide whether to approve a UPC-SFP
combination.
On November 9, 1994, UP Acquisition Corporation, a Utah corporation ("UP
Acquisition"), a wholly owned subsidiary of UPC, commenced a tender offer (the
"UP Tender Offer") for 115,903,127 shares of SFP
Common Stock, or such greater number of shares as equals 57.1% of the shares of
SFP Common Stock outstanding on a fully diluted basis, at $17.50 per share, net
to the tendering shareholder in cash upon the terms and subject to the
conditions set forth in the Offer to Purchase dated November 9, 1994 (the "UP
Offer to Purchase").
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According to the UP Tender Offer, UP Acquisition proposed to acquire the
remaining shares of SFP Common Stock in a "back-end" merger in which the
holders of each remaining share of SFP Common Stock would receive 0.354 of a
share of UPC common stock. As of January 12, 1995, 0.354 of a share of UPC
common stock had a value of $17.17 based on the closing market price of UPC
common stock on that date as reported in The Wall Street Journal. Also on
November 9, 1994, UPC stated that it would still be willing to pursue its
earlier proposal to acquire SFP in a tax-free, all stock merger transaction
with an exchange ratio of 0.407 of a share of UPC common stock for each share
of SFP Common Stock, but with no provision for a voting trust. As of January
12, 1995, 0.407 of a share of UPC common stock had a value of $19.74 based on
the closing market price of UPC common stock as reported in The Wall Street
Journal.
On November 11, 1994, SFP requested that BNI consider restructuring the
Merger in response to UPC's announcement that it would establish a voting
trust. BNI did not make a substantive response to this request.
On November 14, 1994, Alleghany Corporation ("Alleghany"), the holder of
approximately 7% of SFP Common Stock, sent a letter to SFP in which it
indicated that it would be interested in providing equity financing for a
recapitalization of SFP designed to permit SFP to remain as an independent
company. Alleghany stated, by way of illustration, that such a recapitalization
might be financed through SFP borrowings and a purchase by Alleghany of up to
$300 million of convertible preferred stock of SFP.
Also on November 14, SFP and BNI each postponed its respective stockholders
meeting to vote on the Merger Agreement to December 2, 1994.
On November 22, 1994, SFP's Board of Directors recommended that SFP
stockholders not tender their shares to UPC at that time, noting that the
Board's recommendation was subject to change as events unfolded that would
clarify whether a transaction with UPC was in their best interest. SFP noted
that (i) the UP Tender Offer was subject to the condition that the staff of the
ICC issue an informal, non-binding opinion, acceptable to UPC, that the use of
the voting trust submitted by UPC was consistent with applicable ICC policies
and (ii) it was unclear as of November 22 whether or when such a favorable ICC
staff opinion would be issued or whether the ICC might prevent UPC from using a
voting trust. SFP also pointed out that the transaction proposed in the UP
Offer to Purchase was taxable, whereas the transaction contemplated by the BNI-
SFP Merger Agreement is tax-free, that SFP believed that UPC should improve the
financial terms of its latest proposal, and that the UPC proposal was subject
to a number of other conditions which suggested that the proposal was too
uncertain to be considered a firm alternative to the BNI-SFP Merger Agreement
at that time.
On November 28, 1994, UPC announced that it had received an informal non-
binding opinion from the staff of the ICC that UPC's proposed voting trust was
consistent with applicable ICC policies. Also on November 28, SFP's Board of
Directors adopted a Shareholder Rights Plan and authorized SFP's
management to meet with UPC in order to clarify and improve UPC's offer. Both
of these events were announced on November 29, 1994. Also on November 29, SFP
and BNI each postponed its respective stockholders meeting to vote on the
Merger Agreement to December 16, 1994.
On December 1, 1994, SFP announced that its Board of Directors continued to
recommend that stockholders not tender their shares into the UP Tender Offer at
that time. SFP noted that, while UPC had received an opinion from ICC staff
with respect to a voting trust, there were other areas of concern with the UPC
offer, including SFP's belief that UPC should act promptly to improve the
financial terms of its offer and the fact that the UP Tender Offer was still
subject to a number of conditions. SFP also noted that it had agreed to meet
with UPC to help determine what course of action was in the best interest of
SFP's stockholders.
Beginning on December 1, 1994, counsel for SFP and counsel for UPC discussed
the non-financial terms of a possible merger agreement between SFP and UPC.
Between December 2, 1994 and December 8, 1994, representatives of UPC and its
counsel, advisors and consultants (collectively, the "UPC Group") were given
access to various financial, legal and other
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information relating to SFP. After appropriate provisions had been agreed to
limiting UPC's access to certain commercially sensitive information, UPC's
counsel, advisors and consultants were allowed to review certain additional
information on December 3, 1994. Certain members of the UPC Group were invited
to SFP's offices in Schaumburg, Illinois on December 4, 1994, where
representatives of SFP presented certain financial information regarding SFP
and representatives of UPC presented certain financial information regarding
UPC. The UPC Group was also given the opportunity to request additional
information.
Between December 1 and December 17, 1994, representatives of SFP repeatedly
suggested to representatives of UPC that UPC should act promptly to make an
improved offer to acquire SFP if UPC was willing to do so. SFP's
representatives did not insist that an improved UPC offer have any specific
value, but when they were asked by UPC's representatives for guidance, SFP's
representatives told UPC's representatives that they should consider the $20
per share figure that Drew Lewis had mentioned to Robert Krebs on October 5,
1994.
On December 2, 1994, SFP asked BNI to consider revising the Merger Agreement
to provide for a higher exchange ratio combined with tender offers by BNI and
SFP for SFP Common Stock and open market repurchases by SFP of its own common
stock after the tender offer and prior to the consummation of the Merger, in
each case contingent on stockholder approval of the Merger. SFP advised BNI
that, based on discussions with some of SFP's large stockholders, such a
revision might draw the support of those stockholders. BNI made no substantive
response to this request.
On December 7, 1994, UPC announced that it had extended the UP Tender Offer
to December 23, 1994.
On December 13, 1994, representatives of BNI informed representatives of SFP
that BNI might be willing, subject to BNI Board approval, to combine an
increase in the exchange ratio for the Merger with a tender offer by both BNI
and SFP for SFP Common Stock and possible repurchases by SFP of its common
stock in the open market after the tender offer and prior to the consummation
of the Merger, in each case contingent on stockholder approval of the Merger.
Representatives of BNI advised SFP that any such revision would also be
conditioned upon payment of a break-up fee to BNI under certain circumstances.
Representatives of BNI and representatives of SFP then discussed the possible
terms such a transaction might include. Both companies recognized that pooling
of interests accounting treatment of the Merger would no longer be possible
under this revised structure.
On or about December 14, 1994, SFP and BNI each postponed its respective
stockholders meeting to vote on the Merger Agreement to January 27, 1995, and
changed the record date for that meeting to December 27, 1994. Also on December
14, representatives of BNI and representatives of SFP continued the discussions
they had conducted the previous day.
Also on December 14, Mr. Lewis sent the following letter to Mr. Krebs:
December 14, 1994
Mr. Robert D. Krebs
Chairman, President and CEO
Santa Fe Pacific Corporation
1700 East Golf Road
Schaumburg, IL 60173
Dear Rob:
I am writing to advise you, as requested by your advisors, of our
position concerning our merger proposal.
Our response at this stage is a function of Santa Fe's having pursued
a flawed sale process. Your advisors have repeatedly demanded that we
improve our proposal while refusing to establish any procedures for
considering competing proposals on a fair and equal basis. In fact,
your advisors have frequently told us you will not negotiate with Union
Pacific unless we agree to pay at least $20 per Santa Fe share. This
position is clearly inconsistent with your negotiating and recommending
several transactions with Burlington Northern at prices well below $20.
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We believe our current proposal is an extremely attractive one and in
the best interests of Santa Fe and its shareholders and customers.
Despite this, you have continued to pursue a process that favors any
result other than a transaction with Union Pacific. We are prepared to
continue discussions with you, but we urge you to establish a fair and
open sale process.
Sincerely,
/s/ Drew
DL/ss
On December 15, 1994, Mr. Krebs sent the following letter to Mr. Lewis:
December 15, 1994
Mr. Drew Lewis, Chairman
Union Pacific Corporation
Martin Tower
Eighth and Eaton Avenues
Bethlehem, Pennsylvania 18018
Dear Drew:
This is in response to your letter dated December 14, 1994 concerning
the process that Santa Fe is currently pursuing. Your letter assumes
that Santa Fe is conducting an auction. In fact, however, the Board of
Santa Fe has never put the company up for sale. Instead, subject to
shareholder approval, the Board agreed to a strategic combination with
the Burlington Northern, which is designed to achieve significant long-
term growth for Santa Fe's shareholders far beyond the current value of
the Burlington Northern stock that is to be exchanged in the merger.
After that agreement was announced, Union Pacific made an unsolicited
merger proposal to Santa Fe.
As you know, under our contract with Burlington Northern, Santa Fe
could not provide confidential information to or negotiate with any
other potential merger partner unless the Board was advised by counsel
that it had a fiduciary duty to do so. After Union Pacific improved its
offer and obtained the ICC staff's approval of its proposed voting
trust, we were advised by our counsel that we did have a fiduciary duty
to provide information and to negotiate with Union Pacific. In the past
two weeks, we have made available to Union Pacific all of the
information that was given to Burlington Northern, and more. In fact at
a meeting in our office on December 4, 1994, your Executive Vice
President-Finance, L. White Matthews III, told a group of our senior
officers that the amount of information Union Pacific had received from
Santa Fe was more than they "dreamed" of obtaining. In addition, we
have negotiated in good faith the terms of Union Pacific's proposed
merger agreement and tender offer.
Throughout our discussions over the past two weeks we have
continually emphasized the need for Union Pacific to improve its offer
as soon as possible. We have also been negotiating with Burlington
Northern with a view toward improving the existing merger agreement. In
all of these discussions, our goal has been to achieve the best result
for our shareholders, taking into account both short-term and long-term
objectives.
I believe that we have done everything we can to enable Union Pacific
to improve its offer, and, as our financial advisors have been telling
your financial advisors for many days, we hope you will do so promptly.
The process we have followed is designed to promote the best interests
of our shareholders.
Sincerely,
/s/ Rob
Also on December 15, UPC announced that it was extending the UPC
Tender Offer to January 19, 1995.
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At a meeting on December 15, 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 effect the Offer and to increase the exchange
ratio from 0.34 of BNI Common Stock per share of SFP Common Stock to 0.40 share
of BNI Common Stock per share of SFP Common Stock (the "Exchange Ratio"), and
the Board approved the proposed terms of Amendment No. 2 to the Original Merger
Agreement and the transactions contemplated thereby, including possible
repurchases by SFP of SFP Common Stock in the open market after the tender
offer and prior to the consummation of the Merger. In reaching these
determinations, 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 financial impact of SFP's willingness to
incur substantial leverage in order to repurchase a significant percentage of
the shares of outstanding SFP Common Stock; and a presentation of Lazard, BNI's
financial advisor, as to the financial aspects of the Offer and the proposed
increase in the Exchange Ratio. 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 December 15,
1994, the Exchange Ratio, together with the consideration to be paid by BNI
pursuant to the Offer, was fair to the holders of BNI Common Stock from a
financial point of view.
In connection with its approval of Amendment No. 2 to the Original Merger
Agreement, the BNI Board instructed BNI's management to request that SFP use
its best efforts to obtain written commitments from certain of SFP's large
stockholders to support the revised Merger and indicated that its approval of
Amendment No. 2 was conditioned on the receipt of a $50 to $75 million break-up
fee and expense reimbursement. BNI's representatives then communicated the BNI
Board's decisions to representatives of SFP.
Also on December 15, BNI announced that its Board of Directors had approved
BNI's continued discussions with SFP concerning possible revisions to the
Merger Agreement.
Also on December 15, the SFP Board met and heard a presentation from SFP's
management and financial and legal advisors about BNI's proposal. The SFP Board
authorized its representatives to negotiate with BNI's representatives to
attempt to reach a definitive agreement that would be presented to the SFP
Board for its approval.
Beginning on December 16, 1994, representatives of SFP and BNI met to discuss
whether a definitive agreement could be reached. In addition, representatives
of SFP had discussions with some of SFP's large stockholders to determine
whether or under what circumstances they would make written commitments to
support the revised Merger.
Also on December 16, 1994, Mr. Lewis sent Mr. Krebs the following letter:
December 16, 1994
Mr. Robert D. Krebs
Chairman, President and CEO
Santa Fe Pacific Corporation
1700 East Golf Road
Schaumburg, IL 60173
Dear Rob:
I have read your December 15 letter, and can only conclude that you
have not been kept fully apprised of the actions of your management and
advisors.
Your characterization of Santa Fe's process for considering bids, or
lack of such a process, is inaccurate and distorted. Most importantly,
you have not, as you assert, done everything you can to enable Union
Pacific to revise its proposal. On the contrary, Santa Fe has pursued a
process that favors any outcome other than a transaction with Union
Pacific.
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We are extremely disappointed with the flawed and biased sale process
being pursued by Santa Fe. Our financial advisor, CS First Boston,
expressed our concerns to your financial advisor, Goldman Sachs, on
December 14. On December 15, before you sent me your letter, our
counsel expressed these concerns in a letter to your counsel, a copy of
which is enclosed.
And now, in light of your letter, I will tell you directly of our
concerns.
Here are the facts:
1. Your advisors have said you will not even consider a proposal
from us at less than $20 per share, although you negotiated and
recommended several transactions with Burlington Northern at prices
well below $20 per share. Your insistence on such a high minimum
price as a condition to a transaction with Union Pacific discourages
any transaction with Union Pacific while you pursue a variety of
alternative transactions with Burlington Northern at a lower value
level.
2. Santa Fe has refused to establish any procedures that would
permit us to compete on an equal basis with Burlington Northern.
While you obviously have continued to engage in serious, substantive
negotiations with Burlington Northern, you have simply sought
"clarifications" from us while repeatedly asking us to improve what
for many weeks has been the most attractive proposal on the table.
You are using Union Pacific as a stalking horse for an improved
Burlington Northern bid. Based on your agreement with Burlington
Northern, we must assume that Santa Fe is using information obtained
in its discussions with Union Pacific to assist Burlington Northern
in its efforts to improve its bid.
3. Santa Fe has discussed alternative acquisition structures with
Burlington Northern, but, despite our stated willingness to consider
alternative structures and revisions to our current proposal, you
have not given us any indication of what alternative structures
would be acceptable to Santa Fe.
4. Santa Fe, in its recent Schedule 14D-9 filing, stated that our
proposal "is subject to a number of conditions that are of concern
to [Santa Fe]." But, the fact is, Union Pacific's proposal contains
fewer conditions, and provides greater certainty for your
shareholders, than the transaction you willingly agreed to with
Burlington Northern.
5. Santa Fe's Board of Directors unilaterally adopted a "poison
pill" rights plan that specifically exempts Burlington Northern but
is applicable to our proposal.
6. Santa Fe has stood silently by while Burlington Northern, your
preferred suitor, has tried unsuccessfully to block ICC approval of
our voting trust. This is the voting trust that you specifically
asked us to establish more than two months ago and that provides
speed and certainty for your shareholders.
7. Santa Fe apparently never asked its financial advisor to
express its opinion as to the fairness of our proposal, but, as you
know, Santa Fe previously requested and received a fairness opinion
on the Burlington Northern merger which, at the time, based on the
then current market price, valued Santa Fe shares at approximately
$13.50.
This listing is by no means exhaustive but is illustrative of the
flawed and biased sale process undertaken by Santa Fe. In light of
this, the assertion that Santa Fe's goal has been to achieve the best
results for its shareholders rings hollow.
Let me be very clear. By your actions you have put Santa Fe up for
sale and Union Pacific is a very interested buyer. We want to acquire
Santa Fe by competing on an equal basis with Burlington Northern and
any other potential bidders. If Santa Fe establishes a fair and open
process, we would be eager to participate, and would be willing to
consider and discuss revisions to our proposal.
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<PAGE>
Santa Fe has stated that it is considering alternative structures. If
you and your Board truly desire a fair process, it is incumbent upon
you to inform us promptly of each alternative under consideration, to
state the minimum bidding level (if any) applicable to all interested
parties, and to give us the opportunity to consider and respond to each
alternative. In addition, you should instruct your management and
advisors to establish immediately a fair and unbiased sale process. If
you would like our specific suggestions concerning establishing a fair
process, our advisors would be pleased to provide them.
Santa Fe has not necessarily received Union Pacific's best proposal.
I await your response.
Sincerely,
/s/Drew
DL/ss
On December 17, 1994, the negotiations between the BNI and SFP
representatives continued, with no agreement being been reached.
Also on December 17, Mr. Krebs sent Mr. Lewis the following letter:
Mr. Drew Lewis
Chairman
Union Pacific Corporation
Martin Tower
8th & Eaton Avenues
Bethlehem, PA 18018
Dear Drew:
I am not sure that continuing to trade letters on "process" issues
serves any useful function. However, let me briefly reiterate Santa
Fe's position. Contrary to the statement in your December 16 letter,
the Santa Fe board has not put the company up for sale, and it is not
conducting an auction. We entered into a contract for a strategic
combination with Burlington Northern -- a combination that promises
significant long-term growth. We are now negotiating with Burlington
Northern in order to improve that agreement.
At the same time, however, we have provided Union Pacific with all of
the information about Santa Fe it needs in order to make its best
alternative proposal. If you are willing and able to improve your
proposal, I suggest that you do so without delay.
Sincerely,
/s/Rob
On December 18, 1994, the BNI and SFP representatives reached an agreement on
the terms of the revised Merger Agreement. Because they could not agree on the
terms and conditions governing open market stock repurchases by SFP after the
tender offer and prior to consummation of the Merger and could not obtain
binding commitments from certain large SFP stockholders to support the
transaction, both of these concepts were dropped. SFP's representatives
attempted to eliminate the break-up fee, but were advised that such a fee was
an absolute prerequisite to BNI's willingness to enter into a revised Merger
Agreement. However, SFP's representatives succeeded in reducing the amount of
the break-up fee from $75 million to $50 million plus reimbursement of expenses
up to $10 million and limiting the circumstances under which it would be paid
to those involving a new competing offer or an acquisition of more than 50
percent of the outstanding shares of SFP Common Stock.
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Later on December 18, the SFP Board met to consider whether to approve the
revised Merger Agreement. After hearing presentations from SFP's management and
financial and legal advisors, including the oral opinion of Goldman Sachs that
as of the date thereof, and based upon and subject to the various
considerations and assumptions set forth therein, the aggregate cash and stock
consideration to be received by all of SFP's stockholders pursuant to the Offer
and Merger, considered as a unitary transaction, is fair to such holders, the
Board determined, by unanimous vote, to approve the revised Merger Agreement.
In doing so, the Board noted the continuing validity of its prior conclusions
that a BNI-SFP combination was an excellent strategic fit, presented
substantial long-term benefits and was likely to receive ICC approval. The
Board also noted that the Offer allows stockholders who wish to do so to
receive cash without waiting for ICC approval. At the same time, the revised
transaction structure allows shareholders to participate in the ownership of
the combined company. The Board also concluded that the revised Merger
Agreement was superior to the UPC Offer, especially on a long-term basis. In
addition, while the Board was reluctant to grant BNI a break-up fee, it decided
to do so because BNI had made it clear that a break-up fee was necessary in
order to induce BNI to enter into the revised Merger Agreement. Shortly after
the SFP Board meeting, BNI and SFP entered into the revised Merger Agreement.
The full text of the opinion of Goldman Sachs dated the date of this Joint
Proxy Statement/Prospectus, 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 SFP has been advised that there are
significant legal uncertainties relating to whether or under what circumstances
regulatory authorities would permit a combination of SFP and UPC and that
Goldman Sachs has assumed with the consent of the SFP Board of Directors that
the advice was correct. The opinion further states that the effect upon the
common stock of UPC resulting from the failure to consummate the combination of
SFP and UPC or from the conditions which UPC may be required to accept in order
to consummate such a combination is uncertain and that such uncertainties
concerning the UPC Proposal limits Goldman Sachs' ability to compare the
aggregate consideration to be received pursuant to the UPC Proposal with the
aggregate of the cash and stock consideration to be received by all of the
holders of the outstanding shares of SFP Common Stock pursuant to the Offer and
the Merger, considered as a unitary transaction. Stockholders of SFP are urged
to, and should, read such opinion in its entirety. See also "--Opinions of
Financial Advisors--Opinion of Goldman Sachs."
Also on December 18, Mr. Lewis sent Mr. Krebs the following letter:
December 18, 1994
Mr. Robert Krebs
Chairman, President and CEO
Santa Fe Pacific Corporation
1700 East Golf Road
Schaumburg, IL 60173
Dear Rob:
I understand that you sent a letter to my office Saturday.
We continue to be troubled by Santa Fe's refusal to address in any
way our concerns about your process for considering acquisition
proposals.
As we have repeatedly stated, and said to your advisors yesterday, we
want to be in a position to make an improved proposal. We see no reason
why you cannot address our concerns, and hope you will give
consideration the specific suggestions made by our advisors.
Sincerely,
/s/Drew
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On December 20, 1994, Mr. Lewis sent Mr. Krebs the following letter:
December 20, 1994
Mr. Robert D. Krebs
Chairman, President and CEO
Santa Fe Pacific Corporation
1700 East Golf Road
Schaumburg, IL 60173
Dear Rob:
The recent actions of Santa Fe are but a continuation of Santa Fe's
ongoing efforts to pursue its sale to Burlington Northern, and to
prevent a transaction with Union Pacific, at all costs.
We object to Santa Fe's grant of "lock-ups" to Burlington Northern to
deter competing bids, and to Santa Fe's repeated refusal to address our
objections to its flawed sales process.
With regard to Santa Fe's efforts to deter competing bids, we note
with interest that a Burlington Northern representative, who would
speak only on the condition of anonymity, was quoted today in the press
as stating: "This is a carefully crafted plan designed to accomplish
the merger and to make it prohibitively expensive for UP to top."
As we have announced, we will be reviewing our options concerning our
acquisition proposal.
Sincerely,
/s/ Drew
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS AND REASONS FOR THE MERGER
BNI. At a meeting on December 15, 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 effect the Offer and to increase the Exchange
Ratio from 0.34 of BNI Common Stock per share of SFP Common Stock to 0.40 share
of BNI Common Stock per share of SFP Common Stock, and the Board approved
Amendment No. 2 to the Original Merger Agreement and the transactions
contemplated thereby. In reaching these determinations, 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
financial impact of SFP's willingness to incur substantial leverage in order to
repurchase a significant percentage of the shares of outstanding SFP Common
Stock; and a presentation of Lazard, BNI's financial advisor as to the
financial aspects of the Offer and the proposed increase in the Exchange Ratio.
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 December 15, 1994, the Exchange Ratio, together with
the consideration to be paid by BNI pursuant to the Offer, when taken as a
whole, 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 Joint Proxy Statement/Prospectus, its oral opinion of December 15,
1994.
In considering and approving the Original Merger Agreement in June 1994, 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, 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
Original Merger Agreement.
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SFP. At a meeting on December 18, 1994, the Board of Directors of SFP, by
unanimous vote, approved Amendment No. 2 to the Original Merger Agreement and
the transactions contemplated thereby, including the Offer and the Merger. The
Board reached these determinations after hearing presentations from SFP's
management and financial and legal advisors, including the oral opinion of
Goldman Sachs that as of the date thereof, and based upon and subject to the
various considerations and assumptions set forth therein, the aggregate cash
and stock consideration to be received by all of SFP's stockholders pursuant to
the Offer and Merger, considered as a unitary transaction, is fair to such
holders. In doing so, the Board noted the continuing validity of its prior
conclusions that a BNI-SFP combination was an excellent strategic fit,
presented substantial long-term benefits and was likely to receive ICC
approval. The Board also noted that the Offer allows stockholders who wish to
do so to receive cash without waiting for ICC approval. At the same time, the
revised transaction structure allows shareholders to participate in the
ownership of the combined company. The Board also concluded that the revised
Merger Agreement was superior to the UPC Offer, especially on a long-term
basis. The Board's reasons for reaching this conclusion included: (1) the Board
believed that a BNI-SFP merger is likely to receive ICC approval and, because
of anticipated increases in operating income from the Merger (which are
expected to result from both operating efficiencies and increased revenues, see
"Other Matters--Additional Financial Considerations"), the Merger will have
significant long-term benefits for SFP stockholders; (2) the Board believed
that the long-term value of the UPC stock that SFP stockholders would receive
in a UPC-SFP merger is uncertain because a combination of the UPC and SFP
railroads is unlikely to receive ICC approval and, even if ICC approval could
be obtained, it would probably require UPC to make substantial concessions to
competing railroads; (3) the $20 per share that SFP stockholders will receive
pursuant to the Offer is greater than the $17.50 per share available in UPC's
tender offer; and (4) as of December 18, 1994, the market value of 0.40 of a
BNI common share (the exchange ratio in the Merger) exceeded the market value
of 0.354 of a UPC common share (the exchange ratio proposed by UPC).
In addition, while the Board was reluctant to grant BNI a break-up fee, it
decided to do so because BNI had made it clear that a break-up fee was
necessary in order to induce BNI to enter into the revised Merger Agreement.
Goldman Sachs has also delivered its written opinion confirming, as of the date
of this Joint Proxy Statement/Prospectus, its oral opinion of December 18,
1994. The full text of the opinion of Goldman Sachs dated the date of this
Joint Proxy Statement/Prospectus, 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. See also "--Opinions of Financial Advisors--Opinion of Goldman
Sachs."
In considering and approving the Original Merger Agreement in June 1994, 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 Original Merger
Agreement.
The strategic factors considered independently by the BNI and SFP Boards of
Directors in approving the Original Merger Agreement 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
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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.
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 oral opinion dated
December 15, 1994, as well as its subsequent written opinion dated the date of
this Joint Proxy Statement/Prospectus, that, based upon and subject to various
considerations set forth in the opinion and such other factors as it deemed
relevant, as of such date the Exchange Ratio pursuant to the terms of the
Merger Agreement and the consideration to be paid by BNI pursuant to the terms
of the Offer to Purchase dated December 23, 1994 (the "Offer to Purchase"),
when taken as a whole, 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 FAIRNESS OF THE EXCHANGE RATIO AND
CONSIDERATION TO BE PAID BY BNI IN THE OFFER, WHEN TAKEN AS A WHOLE, 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, DATED THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS.
In rendering its opinion, Lazard, among other things: (i) reviewed the terms
and conditions of the Merger Agreement, of the Offer to Purchase and the
supplement thereto with respect to the Offer; (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, June 30 and September 30, 1994 (and
any amendments thereto); (iii) reviewed
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certain Current Reports on Form 8-K of BNI dated June 29, October 6, October
26, November 18 and December 18, 1994 and Current Reports on Form 8-K of SFP
dated June 29, August 3, October 5, October 19, October 28, November 2 and
November 28, 1994 (and any amendments thereto); (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 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 Offer and the Merger on BNI and SFP; (ix) reviewed the historical stock
prices and trading volumes of the BNI Common Stock and SFP Common Stock; (x)
reviewed the Joint Proxy Statement/Prospectus dated October 12, 1994, the
Supplemental Joint Proxy Statement/Prospectus dated October 28, 1994 and this
Joint Proxy Statement/Prospectus; and (xi) conducted such other financial
studies, analyses and investigations as Lazard deemed appropriate.
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 assume responsibility for 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 opinion
stated that it also was based on economic, monetary, market and other
conditions as in effect on, and the information made available to Lazard as of,
the date of such opinion.
In connection with its oral opinion delivered to the BNI Board of Directors
on December 15, 1994, as well as its subsequent written opinion dated the date
of this Joint Proxy Statement/Prospectus, Lazard performed certain analyses
which involved the following:
Current Blended Value Analysis. Lazard calculated the current blended value
to be paid per share of SFP Common Stock based on the consideration to be paid
in the Offer and the application of the Exchange Ratio, when taken as a whole.
Based on a BNI Common Stock price of $48 per share, which was slightly below
the closing price of BNI's Common Stock on December 15, 1994, Lazard noted that
the current blended value to be paid per share of SFP Common Stock would be
$19.51.
Comparable Transaction Analysis. Lazard reviewed certain financial aspects of
selected mergers and acquisitions transactions in the U.S. railroad industry,
including Illinois Central Corporation's letter of intent to acquire Kansas
City Southern Railway and certain related assets (which was ultimately
terminated), Kansas City Southern Industries' acquisition of MidSouth
Corporation, the acquisition of CNW Corporation by an investor group led by
Blackstone Capital Partners and Prospect Group's acquisition of Illinois
Central Transportation Corporation (collectively, the "Comparable
Transactions"). Lazard noted that these transactions were announced within the
past six years. Among the ratios reviewed by Lazard in connection with this
analysis were the total transaction values as a multiple of historical earnings
before interest and taxes ("EBIT"). The historical EBIT multiples of the
Comparable Transactions ranged from 12.1x to 12.6x. These multiples were
compared with the SFP multiple of 12.3x historical EBIT based on a BNI Common
Stock price of $48 per share, which was slightly below the closing price of
BNI's Common Stock on December 15, 1994, and adjusting for the effect of the
Offer and the application of the Exchange Ratio.
In addition, Lazard analyzed the premiums paid over the pre-announcement
share price for each of the Comparable Transactions. The premiums ranged from
63.3% to 90.7% in the Comparable Transactions. To
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determine the premium being paid to the holders of SFP Common Stock, Lazard
analyzed the hypothetical unaffected trading value of SFP Common Stock as if
the Offer, 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 to $13 per share. Using the high point of
this range, Lazard calculated the premium to be offered to holders of SFP
Common Stock of approximately 50.1% based on a BNI Common Stock price of $48
per share, which was slightly below the closing price of BNI's Common Stock on
December 15, 1994, and adjusting for the effect of the Offer and the
application of the Exchange Ratio.
No company or transaction used in the comparable analyses is identical to SFP
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 Offer and Merger on the earnings and capitalization of the
combined company. After taking into account the potential cost savings and
revenue enhancements anticipated to be realized following the Merger (which
Lazard assumed for purposes of its analyses would occur January 1, 1997), the
taking into account of certain operating and capital expenditure assumptions
included in the BNI and SFP business plans, the use of the purchase method of
accounting for the Merger, the taking into account of the Offer and without
taking into account certain post-merger non-recurring expenses, Lazard observed
that as a result of, among other things, certain costs and expenses related to
the Offer, BNI's earnings per share will be diluted by approximately 5.3% in
1995 and 4.6% in 1996. Lazard further observed that assuming the Merger is
consummated on January 1, 1997, the Merger would provide, from BNI
stockholders' point of view, pro forma earnings per share accretions of
approximately 2.8% in 1997, 12.2% in 1998 and 16.8% in 1999. In addition,
Lazard analyzed certain pro forma credit statistics of the combined company
giving effect to both the Offer and the Merger and noted that the pro forma
debt to capitalization ratios of the combined company would have been 48.6% at
September 30, 1994, and will be 46.1% at December 31, 1995, 42.4% at December
31, 1996, 34.8% at December 31, 1997 and 24.5% at December 31, 1998, compared
to a ratio of 45.8% at September 30, 1994 for BNI without taking into account
any of the effects of the Offer and Merger. Lazard also noted that the pro
forma debt to capitalization ratios for BNI, adjusting only for the Offer,
would have been 52.0% at September 30, 1994 and will be 48.1% at December 31,
1995. Also Lazard noted the pro forma ratio of EBIT to interest expense of the
combined company after taking into account the effects of the Offer but not the
Merger in 1995 and 1996 and after taking into account the effect of the Offer
and the Merger in 1997 and 1998. Such ratios were calculated to be 5.1x, 6.1x,
5.7x and 7.4x in each of 1995, 1996, 1997 and 1998, respectively.
In addition, Lazard also noted that after the effects of the Offer and the
Merger, BNI stockholders would receive, on a projected pro forma fully diluted
basis, approximately 66% of the ownership interest in the combined company.
Blended Value Analysis. Lazard also calculated the blended value of the
consideration to be paid in the Offer and the application of the Exchange
Ratio, when taken as a whole, to holders of SFP Common Stock based on the net
present value of a future hypothetical trading value of the combined company's
stock. Lazard calculated January 1997 hypothetical trading values based on
price to earnings multiples Lazard considered appropriate after taking into
consideration such ratios of comparable publicly traded Class I railroad
holding companies and using the projected pro forma 1997 earnings per share of
the combined company, after adjusting for the effects of the Offer and the
Merger and the expected operating assumptions which are described above in "Pro
Forma Merger Consequences Analysis." Lazard noted the hypothetical trading
values in January 1997 to be between $67.61 to $81.14. Lazard then discounted
these values at a
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range of discount rates over a two-year period to arrive at the net present
values of the hypothetical trading values. Lazard noted the net present values
of the hypothetical trading values of the combined company's stock to be
between $46.95 to $61.35. Using these net present values, Lazard then
calculated the blended values to holders of SFP Common Stock after adjusting
for the consideration to be paid in the Offer and the application of the
Exchange Ratio. Lazard noted that the blended value to holders of SFP Common
Stock to be between $19.25 to $22.81 per share.
Other Factors and Analyses. In rendering its opinions, Lazard considered
various other factors and conducted certain additional analyses, including,
among other things, (i) a review of 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 impact of the Offer on BNI and the potential
of BNI not receiving ICC approval for the Merger. In addition, at the time
Lazard prepared its analyses, it was contemplated that as part of the
transactions, SFP would agree to undertake an open market purchase program of
5% of its Common Stock. Such an open market purchase program is not part of the
Merger Agreement. The effect of such a program not being undertaken is not
material to the results of Lazard's analyses described herein.
In arriving at its written opinion dated the date of this Joint Proxy
Statement/Prospectus, and in discussing its December 15, 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 also acting as a dealer manager in the Offer. Lazard is
an internationally recognized investment banking firm and is regularly engaged
in the valuations of businesses and their securities in connection with mergers
and acquisitions and for other purposes.
In consideration for Lazard's services, BNI has agreed to pay Lazard fees as
follows: (i) $1.5 million upon public announcement of the Original Merger
Agreement, which has been paid; (ii) an additional fee of $1.0 million upon the
commencement of the Offer; (iii) an additional fee of $0.75 million upon the
closing of the Offer; (iv) an additional fee of $3.0 million upon receipt of
the approvals of both BNI's and SFP's stockholders and (v) an additional fee of
$2.75 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
December 18, 1994 that, as of the date of such opinion, the aggregate of the
cash and stock consideration to be received by all of the holders of the
outstanding shares of SFP Common Stock pursuant to the Offer and the Merger,
considered as a unitary transaction (the "Aggregate Consideration"), is fair to
such holders. Goldman Sachs subsequently confirmed its December 18, 1994
opinion by delivery of its written opinion, dated the date of this Joint Proxy
Statement/Prospectus, that as of the date thereof the Aggregate Consideration
to be received is fair to the holders of SFP Common Stock.
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The full text of the opinion of Goldman Sachs dated the date of this Joint
Proxy Statement/Prospectus, 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 SFP has been advised that there are
significant legal uncertainties relating to whether or under what circumstances
regulatory authorities would permit a combination of SFP and UPC and that
Goldman Sachs has assumed with the consent of the SFP Board of Directors that
the advice was correct. The opinion further states that the effect upon the
common stock of UPC resulting from the failure to consummate the combination of
SFP and UPC or from the conditions which UPC may be required to accept in order
to consummate such a combination is uncertain and that such uncertainties
concerning the UPC Proposal limits Goldman Sachs' ability to compare the
aggregate consideration to be received pursuant to the UPC Proposal with the
Aggregate Consideration to be received pursuant to the Offer and the Merger.
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 Offer to Purchase dated December 23, 1994 of
SFP and BNI; (iii) the Joint Proxy Statement/Prospectus dated October 12, 1994,
as amended and supplemented to the date of Goldman Sachs' opinion; (iv) 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); (v)
certain interim reports to stockholders and Quarterly Reports on Form 10-Q of
SFP and BNI (and any amendments thereto); (vi) certain other communications
from SFP and BNI to their respective stockholders; (vii) certain Current
Reports on Form 8-K of SFP and BNI; and (viii) certain internal financial
analyses and forecasts for SFP and BNI prepared by their respective
managements. Goldman Sachs also reviewed the Proxy Statement, dated October 28,
1994, as amended and supplemented to the date of Goldman Sachs' opinion, of
UPC, which solicits proxies in opposition to the Merger and the Offer to
Purchase dated November 9, 1994 of UPC, as amended and supplemented to the date
of Goldman Sachs' opinion, which sets forth the proposal of UPC to acquire the
outstanding shares of Common Stock of SFP by means of a cash tender offer and
merger. 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 considered the views of the senior management of SFP
regarding the strategic importance of, and potential synergies 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. Goldman Sachs assumed, with the consent of the
SFP Board, that the Merger will receive regulatory approval in the manner
contemplated by SFP.
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 December 18, 1994. Goldman Sachs utilized substantially the same
types of financial analyses in preparing its written opinion.
(i) Evaluation of BNI and UPC Proposals. Based upon a BNI share price of
$51.50 (closing price on December 16, 1994), Goldman Sachs calculated the
nominal value of the BNI Proposal to be $20.40 per share, consisting of
$20.00 per share in cash for 33.2% of SFP Common Stock ($6.64) and 0.40 BNI
shares of Common Stock per share of SFP Common Stock for 66.8% of SFP
Common Stock ($13.76). Based on the foregoing, the analysis indicated that
the BNI Proposal represented a 20.9% premium over
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the closing price of SFP Common Stock on December 16, 1994. Based upon a
UPC share price of $47.50 (the closing price on December 16, 1994), Goldman
Sachs calculated the nominal value of the UPC Proposal to be $17.21 per
share, consisting of $17.50 per share in cash for 57% of SFP Common Stock
($9.98) and 0.354 UPC shares of common stock per share of SFP Common Stock
for 43% of SFP Common Stock ($7.23). Based upon a BNI share price ranging
from $44.00 to $52.00, Goldman Sachs calculated the per share nominal value
of the BNI Proposal to range from $18.40 to $20.53 and, based upon a UPC
share price ranging from $42.00 to $50.00, calculated the per share nominal
value of the UPC proposal to range from $16.37 to $17.59.
(ii) Pro Forma Merger Analysis. Goldman Sachs prepared pro forma
analyses of the financial impact of the Merger (assuming completion of a
joint tender offer for 33.2% of SFP Common Stock with a back-end merger
exchange ratio of 0.40), 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 expected to be realized from
the Merger of $336 million in 1997, $476 million in 1998 and $532 million
in 1999. Based on the December 16, 1994 closing prices of BNI Common Stock
($51.50) and SFP Common Stock ($16.875), Goldman Sachs determined that SFP
shareholders would own approximately 35% of the pro forma combined entity
after the Merger. In addition, 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. Such analyses
were prepared for the years 1997, 1998 and 1999. These analyses showed that
the Merger would provide EPS accretion to holders of BNI Common Stock of
approximately 3.6%, 13.5% and 18.2% for the years 1997, 1998 and 1999,
respectively, after taking into account the synergies expected to be
realized from the Merger in each year.
(iii) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information relating to SFP, BNI and UPC to corresponding
financial information, ratios and public market multiples for five
publicly-traded corporations: Consolidated Rail Corporation ("Conrail"),
Chicago and North Western Holdings Corp., CSX Corporation, Norfolk Southern
Corporation and Southern Pacific Rail Corporation (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 to earnings ratio using estimated 1994
earnings (based on mean estimates from First Call as of December 16, 1994)
for the Selected Companies ranged from a low of 10.3 to a high of 20.5, as
compared to a ratio of 18.0 for SFP, 11.8 for BNI and 11.7 for UPC, the
price to earnings ratio using estimated 1995 earnings (based on mean
estimates from First Call as of December 16, 1994) for the Selected
Companies ranged from a low of 8.9 to a high of 13.5, as compared to a
ratio of 15.2 for SFP, 9.7 for BNI and 10.3 for UPC. 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. Such analysis also indicated that market price as a multiple of
latest twelve-month ("LTM") earnings before interest, taxes, depreciation
and amortization ("EBITDA") and earnings before interest and taxes ("EBIT")
ranged from 5.7x to 9.4x and 8.1x to 13.9x, respectively, for the Selected
Companies, as compared to corresponding multiples of 6.8x and 10.0x for
SFP, 5.4x and 7.8x for BNI, and 5.5x and 8.9x for UPC.
(iv) Historical Stock Trading Analysis. Goldman Sachs reviewed the
historical trading prices and volumes for SFP Common Stock, BNI Common
Stock and the common stock of UPC and the relationship between movements of
such common stock and movements in a composite index of certain railroad
companies (the "Composite Index"). The Composite Index is composed of the
following companies: Conrail, Chicago and North Western Holdings Corp., CSX
Corporation, Norfolk Southern Corporation and Southern Pacific Rail
Corporation. This analysis showed that the BNI Common Stock slightly
outperformed the Composite Index from the period of June 29, 1994 through
December 15, 1994, that the common stock of UPC underperformed the
Composite Index from the period of June 29, 1994 through December 15, 1994,
and that the SFP Common Stock outperformed the Composite Index, the BNI
Common Stock and the UPC Common Stock from the period of June 29, 1994 to
September 30,
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1994 (no comparison was made for the period after September 30, 1994 due to
the distorting effects of the spin-off of SFP Gold on that date).
(v) Impact of Additional Debt to be Incurred by SFP and BNI. Goldman
Sachs also considered the debt to be incurred by SFP and BNI in connection
with the Offer and Merger. Taking into account the incremental incurrence
of debt by SFP and BNI to finance the Offer and Merger, Goldman Sachs
prepared pro forma analyses of the impact of the Offer on SFP on a stand
alone basis and the Offer and Merger on the combined post-merger company
based upon financial information and projections furnished by the
managements of SFP and BNI. These analyses showed, among other things, that
(i) the ratio of total net debt to total capital for SFP on a stand alone
basis as of year end 1995, 1996, 1997 and 1998 would be 75.4%, 68.3%,
60.3%, and 52.8%, respectively, and for the combined company as of year end
1996, 1997 and 1998 would be 39.8%, 32.9% and 25.7%, respectively; (ii)
EBIT as a multiple of interest expense for SFP on a stand alone basis for
the years 1995 through 1998 would be 2.6x, 3.1x, 3.6x and 4.2x,
respectively, and for the combined company for the years 1997 and 1998
would be 5.9x and 7.3x, respectively; and (iii) the ratio of cash flow to
total net debt for SFP on a stand alone basis for the years 1995 through
1998 would be 22.1%, 26.7%, 33.0% and 36.9%, respectively, and for the
combined company for the years 1997 and 1998 would be 54.2% and 69.3%,
respectively. For the purpose of these analyses cash flow is defined as net
income plus deferred taxes plus depreciation. These analyses also showed
that in the years 1995, 1996 and 1997, the EPS for SFP on a stand alone
basis after giving effect to the Offer would be $1.07, $1.35 and $1.68 per
share, respectively. Goldman Sachs also considered certain pro forma income
statement and balance sheet items for the years 1995, 1996, 1997 and 1998
for SFP on a stand alone basis and for the years 1997 and 1998 for the
combined company.
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, BNI
or UPC or the contemplated transactions. 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 Aggregate Consideration 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 to 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 public offerings of 8 3/8% Notes due 2001 and 8 5/8%
Notes due 2004 of SFP in January 1994, as well as 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 and one of its
affiliates also have committed to participate as co-arranger and arranging
agent, respectively, on SFP's bank financing and Goldman Sachs has committed to
act as one of the co-dealer
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managers in connection with the Offer. 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% of Debentures due
2002 in July 1993, and may provide investment banking services to BNI in the
future. Goldman Sachs has also provided certain investment banking services to
UPC from time to time, including having acted as co-managing underwriter of a
public offering of 7 7/8% Notes due 2002 in February 1992, a public offering of
8 5/8% Sinking Fund Debentures due 2022 in May 1992, a public offering of 6%
Notes due 2003 in August 1993, a public offering of 7% Notes due 2000 in June
1994, a public offering of 6 1/8% Notes due 2004 in January 1994, and as sole
managing underwriter of a public offering of 6.12% Equipment Trust Certificates
due February 1, 2004 in January 1994. 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 and as amended on
November 22, 1994 (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 or UPC. Pursuant to the terms of the Engagement
Letter, if the merger with, or sale of stock or assets to, BNI or UPC 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 $12.5 million. As part of this fee, SFP will pay
Goldman Sachs $5 million upon stockholder approval of any such transaction
(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. Goldman Sachs
has also been retained to act as dealer managers in the Offer. The fee
described above will cover Goldman Sachs' activity for serving as dealer
managers, however, it has been agreed that the shares purchased pursuant to the
Offer will be deemed part of the "aggregate consideration" (as defined in the
Engagement Letter). Goldman Sachs is a full service securities firm and in the
course of its normal trading activities may from time to time effect
transactions and hold positions in the securities of SFP, BNI and/or UPC for
its own account and for the account of customers. As of January 5, 1995,
Goldman Sachs held for its own account a net short position in SFP Common
Stock, BNI Common Stock and UPC common stock of 95,734 shares, 43,764 shares
and 114,848 shares, respectively, and held $34,500,000 principal amount of SFP
8 5/8% Notes due 2004 and $6,085,000 principal amount of UPC 6 1/8% Notes due
2004.
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 0.40 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
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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 filed the application on October 13, 1994. Thereafter,
in response to requests by several parties to the merger proceeding, the ICC on
December 5, 1994 issued an order holding the procedural schedule in abeyance
until such time as an SFP stockholder vote on the Merger occurs. The December 5
order further stated that upon approval of the proposed BNI/SFP Merger by SFP
stockholders, it would immediately issue a new schedule requiring the first
comments, originally due on December 27, 1994, to be filed 30 days from the
service date of the new schedule and adjusting other schedule dates
accordingly. 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 0.40 shares of BNI Common Stock, and will
cease to be outstanding. As of December 30, 1994, the value of 63 million
shares of BNI Common Stock was $3,031,875,000 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 December 31, 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% 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 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
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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 stated below or otherwise agreed in writing by SFP and BNI, and
except for expenses in connection with the filing, printing and mailing of this
Joint Proxy Statement/Prospectus and the related Registration Statements on
Form S-4 and experts hired jointly in connection with proceedings before the
ICC, which will be shared 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.
In the Merger Agreement, SFP has agreed to reimburse up to $10 million of
expenses incurred by BNI in connection with the Merger Agreement and the
transactions contemplated thereby in the event that the Merger Agreement is
terminated under certain circumstances. See "The Merger Agreement--Expenses."
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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 or her 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 had occurred on or before December 31, 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,
$1,684,595; Mr. McInnes,
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$1,245,633; 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 $256,142 to $1,247,244, and the
aggregate amount that would be paid to all of SFP's executive officers in such
circumstances would be approximately $11,626,672. In addition, each SFP
executive officer would receive non-cash and non-stock benefits of
approximately $42,000. As of December 31, 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. Assuming a covered termination
had occurred on or before December 31, 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 $17.44 per SFP share as of
December 30, 1994) with respect to which vesting will be accelerated upon
stockholder approval of the Merger: Mr. Krebs, 36,920 ($643,885), Mr. Springer,
13,841 ($241,387), Mr. Marlier, 10,222 ($178,272), Mr. McInnes, 10,619
($185,195), and Mr. Hagberg, 10,829 ($188,858). 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 $2,400,895 (determined based on a stock
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price of $17.44 per SFP share as of December 30, 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).
Assuming that the Merger is approved by SFP stockholders in the first quarter
of 1995, the total amount of compensation expense that would be charged to
operations in the first quarter of 1995 due to accelerated vesting of unearned
compensation relating to restricted stock will be approximately $10 million,
based upon the stock price at December 30, 1994.
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 $17.44 per share as of December 30, 1994), which are unvested as
of December 31, 1994 and which would vest upon SFP stockholder approval of the
Merger: Mr. Krebs, 574,073 ($3,541,673), Mr. Springer, 86,370 ($649,502), Mr.
Marlier, 103,644 ($628,428), Mr. McInnes, 103,644 ($628,428), and Mr. Hagberg,
70,932 ($530,232). The aggregate number of options granted to all SFP executive
officers which are unvested as of December 31, 1994 is 1,245,176 and the
aggregate value of such options (assuming a stock price of $17.44 per share as
of December 30, 1994) is approximately $8,208,264.
The foregoing information reflects the adjustments for the Gold Spinoff. The
adjustments include revisions to both the option exercise price and the 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 with amendments
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) 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 stockholders'
approval of the Merger and ending on the second anniversary of the Effective
Time of the Merger, the date BNI decides not to consummate the Merger or the
date the ICC disapproves the Merger 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
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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 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 stockholders of both BNI and SFP will constitute a
"change in control" under the Severance Agreements. If payments under the
Severance Agreements are triggered following both a "change in control" and
termination of employment the estimated cash amounts (based on current
compensation levels) 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 $33,700,000. 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 $226,000. The foregoing information does not
include the value of stock options or other stock-based awards, which are
discussed below.
BNI anticipates that 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 may be similar to
that used in the Severance Agreements or Stock Plans) 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
stockholders of both BNI and SFP 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 approval of the Merger by the stockholders
of both BNI and SFP with respect to an aggregate of 282,281 shares of
restricted BNI Common Stock with an aggregate value of approximately
$13,584,773 (determined based on a stock price of $48.125 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 December 31, 1994: Mr.
G. Grinstein, 67,816 ($3,263,645); Mr. D.C. Anderson, 31,600 ($1,520,750); Mr.
E.W. Burke, 20,533 ($988,151); Mr. J.T. Chain, 23,832 ($1,146,915); Mr. J.Q.
Anderson, 17,299 ($832,514); all other executive officers as a group, 117,204
($5,640,443); and all other directors as a group, 3,997 ($192,356).
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
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value of $4,009,285 (assuming a stock price of $48.125 per share), which will
vest early upon stockholder approval of the Merger, as of December 31, 1994:
Mr. G. Grinstein, 135,868 ($1,617,187); Mr. D.C. Anderson, 28,085 ($74,241);
Mr. E.W. Burke, 36,908 ($398,983); Mr. J.T. Chain, 27,250 ($89,531); Mr. J.Q.
Anderson, 15,475 ($13,594); all other executive officers as a group, 199,018
($1,815,749); and all other directors as a group, 8,000 ($0).
Assuming that the Merger is approved by both BNI and SFP stockholders in the
first quarter of 1995, the total amount of compensation expense that will be
charged to operations in the first quarter of 1995 due to the accelerated
vesting of unearned compensation relating to restricted stock will be
approximately $22 million.
Employment Agreement with Certain Persons. Since the date of the Proxy
Statement relating to its 1994 Annual Meeting of Stockholders, 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.
The Honorable Al Swift will be employed pursuant to an employment agreement
commencing January 5, 1995, and terminating January 5, 2000, providing for a
minimum annual salary of $225,000 with further increases as determined by the
Board of Directors from time to time. Effective January 5, 1995, Mr. Swift will
participate in BNI's annual bonus program. Mr. Swift's employment agreement
provides for the grant of 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.
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 "purchase" method of accounting.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain material United States Federal income
tax consequences of the Merger and the Alternative Merger to BNI, SFP, the SFP
stockholders and the BNI 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 or BNI Common Stock, as applicable, 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 or BNI stock, as applicable, pursuant to
employee stock options or plans. SFP and BNI stockholders are urged to consult
their tax advisors as to the particular United States Federal income tax
consequences to them of the Merger and the Alternative Merger and as to the
foreign, state, local and other tax consequences of the Merger and the
Alternative Merger.
The Merger or the Alternative Merger, as applicable, has been structured to
qualify as a tax-free transaction for United States Federal income tax
purposes. The obligation of either BNI or SFP to consummate the Merger or the
Alternative Merger is conditioned on receipt of an opinion of nationally
recognized tax counsel to the effect that the Merger or the Alternative Merger,
as applicable, so qualifies. Assuming the Merger or the Alternative Merger, as
applicable, so qualifies, the material tax consequences are as follows: (i)
except with respect to cash received in lieu of fractional shares, as discussed
below, SFP stockholders will not recognize gain, income or loss upon the
receipt of shares of BNI Common Stock in the Merger or shares of Holdings
Common Stock in the Alternative Merger, as applicable, in exchange for their
shares of SFP Common Stock; (ii) if applicable, BNI stockholders will not
recognize gain, income or loss upon the receipt of shares of Holdings Common
Stock in exchange for their shares of BNI Common Stock in the Alternative
Merger; (iii) no gain, income or loss will be recognized by BNI or SFP pursuant
to the Merger or the Alternative Merger; (iv) the tax basis of the shares of
BNI Common Stock or Holdings Common Stock, as applicable, received by SFP
stockholders will be the same as the tax basis of the shares of SFP Common
Stock exchanged therefor; (v) if applicable, the tax basis of the shares of
Holdings Common Stock received by BNI stockholders will be the same as the tax
basis of the shares of BNI Common Stock exchanged therefore in the Alternative
Merger; (vi) the holding period of the shares of BNI Common Stock or of
Holdings Common Stock, as applicable, received by SFP stockholders will be the
same as the holding period of the shares of SFP Common Stock surrendered
therefor; (vii) if applicable, the holding period of the shares of Holdings
Common Stock received by the BNI stockholders will be the same as the holding
period of the shares of BNI Common Stock surrendered therefore in the
Alternative Merger; and (viii) the payment of cash in lieu of fractional shares
will be treated as if the fractional shares were received in the Merger or
Alternative Merger, as the case may be, 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 (iv) above).
It is possible that the IRS might assert that SFP stockholders who both (i)
participate in the Merger or, if applicable, the Alternative Merger and (ii)
sell SFP Common Stock pursuant to the Offer, should be treated as participating
in a single integrated transaction for federal income tax purposes. If so
treated, the federal income tax consequences to an SFP stockholder resulting
from the receipt of cash pursuant to the Offer may, depending on such
stockholder's particular circumstances, be less favorable than the consequences
absent integration. However, integration would not cause the receipt of stock
contemplated by the Merger Agreement to be a taxable exchange. In reporting the
transactions to the IRS, SFP will not treat the stock purchases pursuant to the
Offer as integrated with the Merger, or, if applicable, the Alternative Merger.
Each stockholder who tenders shares pursuant to the Offer is urged to consult
its tax advisor with respect to the tax consequences to the stockholder that
would arise if the Offer were integrated with the Merger or, if applicable, the
Alternative Merger.
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MANAGEMENT AND DIRECTOR STOCK OPTIONS
SFP. As of December 31, 1994, there were 14,470,071 unexercised options
outstanding under various employee stock option plans of SFP to purchase shares
of SFP Common Stock at prices ranging from $3.04 to $14.29 per share. As of
that date, 9,182,971 options to purchase shares of SFP Common Stock were
exercisable and 5,287,100 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.
THE OFFER
On December 23, 1994, SFP and BNI commenced separate offers (together, the
"Offer") to purchase up to 63 million shares of SFP Common Stock in the
aggregate (together with the associated rights issued under the SFP Rights
Agreement), at a price of $20.00 per share, net to the seller in cash, with SFP
severally obligated to purchase up to 38 million shares of SFP Common Stock
accepted for payment pursuant to the Offer and BNI severally obligated to
purchase up to 25 million shares of SFP Common Stock accepted for payment
pursuant to the Offer. No term of the Offer may be amended or modified without
the written consent of both SFP and BNI. The several obligations of BNI and SFP
under the Offer are conditioned on, among other things, (i) at least 63 million
shares of SFP Common Stock being validly tendered and not withdrawn prior to
the expiration date of the Offer, (ii) SFP and BNI having obtained sufficient
financing on terms satisfactory to them to purchase 63 million shares of SFP
Common Stock pursuant to the Offer and to effect certain other transactions and
(iii) the approval of the Merger Agreement by the stockholders of SFP and BNI.
Each of SFP and BNI has the right to determine, in its sole reasonable
discretion, whether the conditions to its obligations under the Offer have been
satisfied. The Offer will expire at 12:00 midnight, New
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York City time, on Wednesday, February 8, 1995, unless the Offer is extended.
See BNI's Tender Offer Statement on Schedule 14D-1, SFP's Issuer Tender Offer
Statement on Form 13E-4 and SFP's Solicitation/Recommendation Statement on
Schedule 14D-9, each as amended, which are incorporated by reference herein,
for more detailed information concerning the Offer. See "Available Information"
and "Incorporation of Certain Documents by Reference."
SFP's Board of Directors unanimously recommended that those of its
stockholders who wish to receive cash for a portion of their shares of SFP
Common Stock accept the Offer. In doing so, the Board considered the impact of
the increase in SFP debt that the Offer would require and concluded that
incurring such debt was prudent in light of SFP's ability to repay it and the
benefits of the Offer and the Merger for SFP's stockholders. See "The Merger--
Factors for Consideration of the Merger." Up to 63,000,000 shares of SFP Common
Stock are to be purchased in the Offer; any shares tendered in response to the
Offer over and above such amount would be subject to proration in accordance
with the terms of the Offer. Proration may result in SFP stockholders receiving
cash for only a portion of any shares tendered, with the remaining
consideration to be received in the form of BNI Common Stock pursuant to the
Merger after the receipt of ICC approval and satisfaction or waiver of the
other conditions to the Merger.
Consummation of the Offer is not subject to ICC approval of the Merger or the
satisfaction or waiver of any other conditions to the obligation of BNI or SFP
to consummate the Merger, and, therefore, there can be no assurance that the
Merger will be consummated even if shares of SFP Common Stock are purchased
under the Offer. Accordingly, it is possible that the Merger will not be
consummated and BNI will continue to hold the shares of SFP Common Stock
purchased by it in the Offer. Pursuant to the Merger Agreement, SFP has granted
certain registration rights to BNI in the event BNI continues to own shares of
SFP Common Stock purchased in the Offer and the Merger is not consummated. See
"The Merger Agreement--Registration Rights."
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. It is anticipated
that Mr. Krebs will be designated by SFP as a member of the initial board of
directors 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 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, consummation of the Offer, 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.
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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 0.40 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 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.
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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 Offer, 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
the Offer and 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 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; (n) brokers' fees and expenses; and (o) that
no benefits will be received by SFP's stockholders pursuant to the SFP Rights
Agreement as a result of the execution of the Merger Agreement, the
commencement or consummation of the Offer or the consummation of the Merger. 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.
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 Offer, 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
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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 and except (i) in the case of SFP,
borrowings not to exceed $1.75 billion in the aggregate under credit facilities
in form and substance reasonable satisfactory to BNI to finance the Offer, to
refinance SFP's currently outstanding 12.65% Senior Notes due October 1, 2000,
8 3/8% Notes due November 1, 2001 and 8 5/8% Notes due November 1, 2004, to pay
penalties, premiums and make-whole payments required in connection with such
refinancing and for working capital and other corporate purposes, and (ii) in
the case of BNI, borrowings not to exceed $500 million in the aggregate under
credit facilities in form and substance reasonable satisfactory to SFP to
finance the Offer; (g) will not make any loans, advances or capital
contributions to, or investments in, any other Person, other than the Offer
(with respect to BNI) 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, 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, 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, or any proposal or offer with respect to any recapitalization or
restructuring with respect to BNI or SFP or any Subsidiary of BNI or SFP, or
any transaction similar to any of the foregoing 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
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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 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
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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, (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, and (iii)
grants to BNI the registration rights described below under "--Registration
Rights".
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 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
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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.
REGISTRATION RIGHTS
Pursuant to the terms of the Merger Agreement, in the event that the Merger
Agreement is terminated for any reason after the consummation of the Offer, BNI
will be able to require SFP to file up to two registration statements
registering the shares of SFP Common Stock purchased by BNI pursuant to the
Offer. In addition, the Merger Agreement will also entitle BNI to include such
shares of SFP Common Stock in any public offering of shares of SFP Common Stock
by SFP (other than pursuant to a registration statement on Form S-4 or Form S-8
of the Securities Act, and subject to certain limitations on the number of
shares included in such registration, as determined by the underwriters of such
offering, if any). Once effective, these registration rights continue
indefinitely until their exercise. Subject to certain limitations, SFP is
obligated to bear all costs of any registration, other than underwriting fees,
discounts or commissions, attorneys' fees and any out-of-pocket expenses of
BNI, if any.
THE OFFER
The Merger Agreement severally obligates each of SFP and BNI to commence
separate offers to purchase 63 million shares of SFP common stock in the
aggregate (together with the associated rights issued under the SFP Rights
Agreement), at a price of $20 per share, net to the seller in cash, with SFP
severally obligated to purchase 0.60317, and BNI severally obligated to
purchase 0.39683, of any shares of SFP Common Stock accepted for payment
pursuant to the Offer from any SFP stockholder. No term of the Offer may be
amended or modified without the written consent of both SFP and BNI. The
several obligations of BNI and SFP under the Offer are subject to the
conditions that (i) there shall be validly tendered in accordance with the
terms of the Offer prior to the expiration date of the Offer and not withdrawn
at least 63
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million shares of SFP Common Stock (the "Minimum Condition"), (ii) SFP and BNI
having obtained sufficient financing on terms satisfactory to them to purchase
63 million shares of SFP Common Stock pursuant to the Offer and to effect
certain other transactions and (iii) the approval of the Merger Agreement by
the stockholders of SFP and BNI, as well as certain additional conditions such
as that each of SFP (as to BNI) and BNI (as to SFP) shall have accepted for
payment (or shall concurrently accept for payment) shares of SFP Common Stock
under the Offer, the HSR Act, the fact that no governmental authority shall
have taken any action that would prohibit or restrict the consummation of the
Offer or the Merger, absence of any breach of any covenant or representation
and warranty of either SFP or BNI contained in the Merger Agreement and the
absence of any termination of the Merger Agreement. Each of SFP and BNI have
the right to determine, in its sole reasonable discretion, whether the
conditions to its obligations under the Offer have been satisfied.
The Merger Agreement requires, as soon as practicable on the date of
commencement of the Offer, (a) SFP to file an Issuer Tender Offer Statement on
Schedule 13E-4 with respect to the Offer and a Solicitation/Recommendation
Statement on Schedule 14D-9 which shall reflect the recommendations of the
SFP's Board of Directors with respect to the Offer, and (b) BNI to file a
Tender Offer Statement on Schedule 14D-1 with respect to the Offer. SFP and BNI
also agreed to take all steps necessary to cause the offer to purchase and form
of the related letter of transmittal to be disseminated to holders of shares of
SFP Common Stock as and to the extent required by applicable federal securities
laws.
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 (except that the condition set forth in clause
(g) below may not be waived) which include the following:
(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 tax-free to BNI, SFP and
their respective stockholders for federal income tax purposes;
(g) SFP and BNI shall have purchased shares of SFP Common Stock pursuant
to the Offer;
(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
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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 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; (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; (j) by
SFP, upon payment to BNI of the fee described under "Expenses" below, if prior
to the purchase of shares of SFP Common Stock pursuant to the Offer, (i) the
board of directors of SFP shall have withdrawn or modified in a manner adverse
to BNI its approval or recommendation of the Offer, the Merger Agreement or the
Merger in order to permit SFP to execute a definitive agreement in connection
with a Takeover Proposal or in order to approve another tender offer for shares
of SFP Common Stock, in either case, as determined by the board of directors of
SFP, on terms more favorable to SFP's stockholders than the transactions
contemplated hereby, or (ii) the board of directors of SFP shall have
recommended any other Takeover Proposal or (k) by either BNI or SFP, if the
Offer is terminated and SFP and BNI shall not have purchased shares of SFP
Common Stock pursuant to the Offer.
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.
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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.
ALTERNATIVE TRANSACTION STRUCTURE
In the Merger Agreement, BNI and SFP have agreed that, upon notice to the
other party, either BNI or SFP may elect to effect the Merger through the use
of a holding company structure as set forth below. In order to permit the
Alternative Merger, Holdings was incorporated in Delaware on December 16, 1994.
Holdings is jointly owned by BNI and SFP and has not engaged in any activity
since its formation other than activities related to the Merger Agreement.
Pursuant to the Merger Agreement, SFP and BNI have agreed not to permit
Holdings to take any actions or undertake any operations except as may be
necessary in connection with the consummation of the Alternative Merger and the
transactions contemplated by the Merger Agreement. BNI and SFP have included
the option of effecting the Alternative Merger in order to ensure that the
transactions contemplated by the Merger Agreement qualify as tax-free
transactions for United States federal income tax purposes.
In the event either BNI or SFP elects to effect the Alternative Merger, prior
to the consummation of the Alternative Merger BNI and SFP will cause Holdings
to form two new wholly owned subsidiaries ("BNI Merger Sub" and "SFP Merger
Sub") under Delaware law and Holdings will become party to the Merger
Agreement, assume all the obligations of BNI thereunder with respect to
consummating the Merger and make certain representations and warranties to each
of BNI and SFP. Upon the effectiveness of the Alternative Merger, (i) BNI
Merger Sub will be merged with and into BNI, with BNI being the surviving
corporation, and (ii) SFP Merger Sub will be merged with and into SFP, with SFP
being the surviving corporation. In the Alternative Merger, (i) each
outstanding share of BNI Common Stock (other than BNI Common Stock held by BNI
as treasury stock or owned by BNI, SFP or any Subsidiary of either of them)
will be converted into one newly-issued share of Holdings Common Stock, (ii)
each outstanding share of SFP Common Stock (other than SFP Common Stock held by
SFP as treasury stock or owned by SFP or BNI or any Subsidiary of either of
them) will be converted into 0.40 newly-issued share of Holdings Common Stock,
and (iii) each outstanding share of BNI Common Stock or SFP Common Stock then
held as treasury stock by either of BNI or SFP, as the case may be, or owned by
BNI and SFP (other than shares of SFP Common Stock owned by BNI, which shall
remain outstanding) will be canceled.
No fractional shares of Holdings Common Stock will be issued in the
Alternative Merger, but in lieu thereof, any holder of SFP Common Stock that
would otherwise be entitled to such fractional share will instead receive a
cash payment representing such holder's proportionate interest in the net
proceeds received from the sale by the Exchange Agent who shall be appointed in
the same manner as in the Merger and who shall effect such sales as described
above under "--The Merger". In addition, each outstanding option to purchase
either BNI Common Stock or SFP Common Stock will be canceled and substituted
with an equivalent option to purchase Holdings Common Stock.
In the event either BNI or SFP shall elect to effect the Alternative Merger,
an additional condition to the consummation of the Alternative Merger is that
the shares of Holdings Common Stock to be issued in the Alternative Merger be
listed on the NYSE. The Merger Agreement provides that all other conditions to
closing, covenants of BNI and SFP and other provisions (with the exception of
the mechanics of the Merger) will remain in full force and effect in the event
of the Alternative Merger. BNI and SFP have also agreed that any other
appropriate adjustments necessary to the Merger Agreement to reflect the
Alternative Merger shall be made in the event either elects to effect the
Alternative Merger, with a view to ensuring that BNI, SFP and their respective
stockholders are placed in a position that is as close as possible to the
position they would have been in pursuant to the Merger.
69
<PAGE>
EXPENSES
Except as stated below or 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.
SFP has agreed that if the Merger Agreement shall be terminated due to (a)
the acquisition by any Person, entity or "group" other than BNI of more than
50% or more of the outstanding SFP Common Stock, (b) the approvals of the
stockholders of SFP and BNI having not have been obtained, (c) the Board of
Directors of SFP, prior to the meeting of stockholders of SFP, having
withdrawn, modified or changed in a manner adverse to BNI, its approval or
recommendation of the Merger Agreement or the Merger, (d) the board of
directors of SFP having withdrawn or modified in a manner adverse to BNI its
approval or recommendation of the Offer, the Merger Agreement or the Merger in
order to permit SFP to execute a definitive agreement in connection with a
Takeover Proposal or in order to approve another tender offer for shares of SFP
Common Stock or the board of directors of SFP shall have recommended any other
Takeover Proposal, or (e) if the Offer is terminated and SFP and BNI shall not
have purchased shares of SFP Common Stock pursuant to the Offer, then it will
pay BNI an amount equal to $50,000,000 plus all out-of-pocket expenses, not to
exceed $10,000,000 incurred by BNI in connection with the Merger Agreement, the
Offer and all related transactions by wire transfer of immediately available
funds promptly, but in no event later then two business days, after such
termination, provided that no such payment will be required if the Merger
Agreement is terminated pursuant to clause (b), (c) or (e) above unless, after
December 18, 1994, a new Takeover Proposal involving SFP has been announced or
made (it being understood that any modification of UPC's Takeover Proposal as
in existence on December 18, 1994 shall be deemed a new Takeover Proposal). SFP
has also agreed that if the Merger Agreement shall be terminated pursuant to
clause (b), (c) or (e) above and no payment is required by it in the manner
contemplated above, it will reimburse BNI for all out-of-pocket expenses
incurred by BNI in connection with the Merger Agreement, the Merger, the Offer
and all related transactions. Such payment shall be made by wire transfer of
immediately available funds promptly, but in no later event than two business
days, after receipt by SFP from BNI of documentation of such expenses.
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.
70
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma financial statements included herein have been
prepared to display three events: (i) the effect of the BNI tender offer for
25 million shares of SFP Common Stock at $20 per share and the related
borrowings ("BNI Investment"); (ii) the SFP tender offer for 38 million shares
of SFP Common Stock at $20 per share and related borrowings and debt
repayments ("SFP Recapitalization"); and (iii) the exchange of 0.40 shares of
BNI Common Stock for each share of SFP Common Stock remaining outstanding
after the BNI Investment and SFP Recapitalization. The applicable transactions
are reflected in the pro forma balance sheets as if they occurred on September
30, 1994 and in the statements of operations as if they occurred on January 1,
1993.
The Merger will be accounted for under the purchase method. The pro forma
combined adjustments do not reflect any potential increases in operating
income, or one-time costs to achieve such increases, which may arise from the
Merger, or adjustments to conform BNI and SFP accounting practices. See "Notes
to Pro Forma Combined Financial Statements" and "Other Matters--Additional
Financial Considerations." The unaudited pro forma financial statements for
the Merger, if consummated using the Alternative Merger structure, would be
identical to the financial data set forth below, except that using the
Alternative Merger structure, BNI's treasury stock would be cancelled and the
pro forma combined paid-in capital would be reduced by the amount of BNI
treasury stock ($5 million as of September 30, 1994).
The unaudited pro forma 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 applicable transactions
actually taken place on the dates indicated, or of future results of
operations or financial position of the stand alone or combined entities.
Consummation of the Offer by BNI and SFP is conditioned upon, among other
things, approval of both BNI and SFP stockholders of the proposed Merger.
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 this Joint Proxy Statement/Prospectus.
The unaudited pro forma 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 Joint Proxy
Statement/Prospectus, (ii) the unaudited selected pro forma financial data and
unaudited comparative per share data, including the notes thereto, appearing
elsewhere in this Joint Proxy Statement/Prospectus and (iii) the selected
historical financial data appearing elsewhere in this Joint Proxy
Statement/Prospectus. See "Incorporation of Certain Documents by Reference",
"Unaudited Selected Pro Forma Financial Data," "Unaudited Comparative Per
Share Data" and "Selected Historical Financial Data."
71
<PAGE>
PRO FORMA BNI WITH SFP INVESTMENT BALANCE SHEET
AS OF SEPTEMBER 30, 1994
UNAUDITED
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
BURLINGTON
BURLINGTON BNI NORTHERN INC.
NORTHERN INC. TENDER OFFER WITH SFP
HISTORICAL ADJUSTMENTS INVESTMENT
------------- ------------ -------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents......... $ 17 $-- $ 17
Accounts receivable, net.......... 609 -- 609
Other current assets.............. 426 -- 426
------ ---- ------
Total current assets............ 1,052 -- 1,052
Investment in SFP................... -- 500 (I.1) 500
Property and equipment, net......... 6,203 -- 6,203
Other assets........................ 281 -- 281
------ ---- ------
Total assets.................... $7,536 $500 $8,036
====== ==== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.................. $ 579 $-- $ 579
Other current liabilities......... 866 (20)(I.3) 846
Current portion of long-term debt
and commercial paper............. 103 -- 103
------ ---- ------
Total current liabilities....... 1,548 (20) 1,528
Long-term debt...................... 1,688 500 (I.2) 2,188
Deferred income taxes............... 1,422 5 (I.3) 1,427
Other liabilities................... 762 -- 762
------ ---- ------
Total liabilities............... 5,420 485 5,905
------ ---- ------
Stockholders' equity
Convertible preferred stock....... 337 -- 337
Common stock...................... 1 -- 1
Paid-in capital................... 1,443 -- 1,443
Retained earnings................. 376 (10)(I.3) 366
Treasury stock.................... (5) -- (5)
Other............................. (36) 25 (I.3) (11)
------ ---- ------
Total stockholders' equity...... 2,116 15 2,131
------ ---- ------
Total liabilities and
stockholders' equity......... $7,536 $500 $8,036
====== ==== ======
</TABLE>
(See accompanying Notes to Pro Forma BNI Investment Financial Statements)
72
<PAGE>
PRO FORMA BNI WITH SFP INVESTMENT STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1994
UNAUDITED
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BURLINGTON
BURLINGTON BNI NORTHERN INC.
NORTHERN INC. TENDER OFFER WITH SFP
HISTORICAL ADJUSTMENTS INVESTMENT
------------- ------------ -------------
<S> <C> <C> <C>
Revenues.......................... $ 3,651 $ -- $ 3,651
Operating expenses
Compensation and benefits....... 1,310 1,310
Fuel............................ 267 -- 267
Materials....................... 225 -- 225
Equipment rents................. 314 -- 314
Purchased services.............. 352 -- 352
Depreciation.................... 267 -- 267
Other........................... 327 -- 327
------- ----- -------
Total operating expenses...... 3,062 -- 3,062
------- ----- -------
Operating income.................. 589 -- 589
Interest expense.................. 118 28 (I.2) 146
Other income (expense), net....... (7) -- (I.1) (7)
------- ----- -------
Income before income taxes........ 464 (28) 436
Income tax expense................ 180 (11)(I.4) 169
------- ----- -------
Income from continuing operations. $ 284 $ (17) $ 267
======= ===== =======
Earnings per common share
Income from continuing $ 2.97 $ 2.78(I.5)
operations..................... ======= =======
Number of shares used in
computation of earnings per
common share (in thousands)...... 90,230 90,230
</TABLE>
(See accompanying Notes to Pro Forma BNI Investment Financial Statements)
73
<PAGE>
PRO FORMA BNI WITH SFP INVESTMENT STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
UNAUDITED
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BURLINGTON
NORTHERN
BURLINGTON BNI TENDER INC. WITH
NORTHERN INC. OFFER SFP
HISTORICAL ADJUSTMENTS INVESTMENT
------------- ----------- ----------
<S> <C> <C> <C>
Revenues............................ $4,699 $ -- $4,699
Operating expenses
Compensation and benefits......... 1,709 -- 1,709
Fuel.............................. 362 -- 362
Materials......................... 300 -- 300
Equipment rents................... 395 -- 395
Purchased services................ 457 -- 457
Depreciation...................... 352 -- 352
Other............................. 463 -- 463
------ ----- ------
Total operating expenses........ 4,038 -- 4,038
------ ----- ------
Operating income.................... 661 -- 661
Interest expense.................... 145 38(I.2) 183
Other income (expense), net......... 5 3(I.1) 8
------ ----- ------
Income before income taxes.......... 521 (35) 486
Income tax expense.................. 225 (14)(I.4) 211
------ ----- ------
Income from continuing operations... $ 296 $ (21) $ 275
====== ===== ======
Earnings per common share
Income from continuing operations. $ 3.06 $ 2.82(I.5)
====== ======
Number of shares used in computation
of earnings per common share (in
thou sands)........................ 89,672 89,672
</TABLE>
(See accompanying Notes to Pro Forma BNI Investment Financial Statements)
74
<PAGE>
PRO FORMA SFP RECAPITALIZED BALANCE SHEET
AS OF SEPTEMBER 30, 1994
UNAUDITED
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SANTA FE SANTA FE
PACIFIC SFP PACIFIC
CORPORATION RECAPITALIZATION CORPORATION
HISTORICAL ADJUSTMENTS RECAPITALIZED
----------- ---------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents......... $ 17 $-- $ 17
Accounts receivable, net.......... 98 -- 98
Other current assets.............. 246 -- 246
------ ---- ------
Total current assets............ 361 -- 361
Property and equipment, net......... 4,684 -- 4,684
Other assets........................ 271 27 (R.1) 298
------ ---- ------
Total assets.................... $5,316 $ 27 $5,343
====== ==== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.................. $ 253 $-- $ 253
Other current liabilities......... 449 -- 449
Current portion of long-term debt
and commercial paper............. 192 -- 192
------ ---- ------
Total current liabilities....... 894 -- 894
Long-term debt...................... 890 843 (R.2) 1,733
Deferred income taxes............... 1,167 (19)(R.3) 1,148
Other liabilities................... 1,157 (3)(R.4) 1,154
------ ---- ------
Total liabilities............... 4,108 821 4,929
------ ---- ------
Stockholders' equity
Common stock...................... 190 -- 190
Paid-in capital................... 842 15 (R.4) 857
Retained earnings................. 263 (49)(R.4) 214
Treasury stock.................... (87) (760)(R.4) (847)
------ ---- ------
Total stockholders' equity...... 1,208 (794) 414
------ ---- ------
Total liabilities and stock-
holders' equity.............. $5,316 $ 27 $5,343
====== ==== ======
</TABLE>
(See accompanying Notes to Pro Forma SFP Recapitalized Financial Statements)
75
<PAGE>
PRO FORMA SFP RECAPITALIZED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1994
UNAUDITED
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SANTA FE SANTA FE
PACIFIC SFP PACIFIC
CORPORATION RECAPITALIZATION CORPORATION
HISTORICAL ADJUSTMENTS RECAPITALIZED
----------- ---------------- -------------
<S> <C> <C> <C>
Revenues......................... $ 1,970 $-- $ 1,970
Operating expenses
Compensation and benefits...... 625 -- 625
Fuel........................... 183 -- 183
Materials...................... 92 -- 92
Equipment rents................ 185 -- 185
Purchased services............. 282 -- 282
Depreciation................... 150 -- 150
Other.......................... 147 -- 147
------- ---- -------
Total operating expenses..... 1,664 -- 1,664
------- ---- -------
Operating income................. 306 -- 306
Interest expense................. 90 57 (R.5) 147
Other income (expense), net...... 49 -- 49
------- ---- -------
Income before income taxes....... 265 (57) 208
Income tax expense............... 112 (22)(R.6) 90
------- ---- -------
Income from continuing opera-
tions........................... $ 153 $(35) $ 118
Earnings per common share ======= ==== =======
Income from continuing opera-
tions......................... $ .81 $ .77(R.7)
======= =======
Number of shares used in computa-
tion of earnings per common
share (in thousands)............ 189,700 152,400(R.7)
</TABLE>
(See accompanying Notes to Pro Forma SFP Recapitalized Financial Statements)
76
<PAGE>
PRO FORMA SFP RECAPITALIZED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
UNAUDITED
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SANTA FE SANTA FE
PACIFIC SFP PACIFIC
CORPORATION RECAPITALIZATION CORPORATION
HISTORICAL ADJUSTMENTS RECAPITALIZED
----------- ---------------- -------------
<S> <C> <C> <C>
Revenues........................ $ 2,409 $ -- $ 2,409
Operating expenses
Compensation and benefits..... 800 800
Fuel.......................... 239 -- 239
Materials..................... 128 -- 128
Equipment rents............... 229 -- 229
Purchased services............ 322 -- 322
Depreciation.................. 188 -- 188
Other......................... 185 -- 185
------- ----- -------
Total operating expenses.... 2,091 -- 2,091
------- ----- -------
Operating income................ 318 -- 318
Interest expense................ 133 73 (R.5) 206
Gain on sale of California
lines.......................... 145 -- 145
Other income (expense), net..... 24 -- 24
------- ----- -------
Income before income taxes...... 354 (73) 281
Income tax expense.............. 177 (28)(R.6) 149
------- ----- -------
Income from continuing
operations..................... $ 177 $ (45) $ 132
Earnings per common share ======= ===== =======
Income from continuing
operations................... $ .95 $ .88(R.7)
======= =======
Number of shares used in
computation of earnings per
common share (in thousands).... 187,200 149,900(R.7)
</TABLE>
(See accompanying Notes to Pro Forma SFP Recapitalized Financial Statements)
77
<PAGE>
PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1994
UNAUDITED
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
BURLINGTON SANTA FE
NORTHERN INC. PACIFIC BURLINGTON NORTHERN
WITH SFP CORPORATION SANTA FE
INVESTMENT RECAPITALIZED PRO FORMA CORPORATION
(SEE PAGE 72) (SEE PAGE 75) ADJUSTMENTS PRO FORMA
------------- ------------- ----------- -------------------
<S> <C> <C> <C> <C>
ASSETS
------
Current assets
Cash and cash equiva-
lents................ $ 17 $ 17 $ -- $ 34
Accounts receivable,
net.................. 609 98 -- 707
Other current assets.. 426 246 -- 672
------ ------ ------ -------
Total current as-
sets............... 1,052 361 -- 1,413
Investment in SFP....... 500 -- (500)(C.1) --
Property and equipment,
net.................... 6,203 4,684 2,542 (C.2) 13,429
Other assets............ 281 298 238 (C.3) 817
Goodwill................ -- -- 1,112 (C.4)(C.12) 1,112
------ ------ ------ -------
Total assets........ $8,036 $5,343 $3,392 $16,771
====== ====== ====== =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
Current liabilities
Accounts payable...... $ 579 $ 253 $ -- $ 832
Other current liabili-
ties................. 846 449 38 (C.9) 1,333
Current portion of
long-term debt and 103 192 -- 295
commercial paper..... ------ ------ ------ -------
Total current lia-
bilities........... 1,528 894 38 2,460
Long-term debt.......... 2,188 1,733 63 (C.5) 3,984
Deferred income taxes... 1,427 1,148 1,071 (C.6) 3,646
Other liabilities....... 762 1,154 (37)(C.7) 1,879
------ ------ ------ -------
Total liabilities... 5,905 4,929 1,135 11,969
------ ------ ------ -------
Stockholders' equity
Convertible preferred
stock................ 337 -- -- 337
Common stock.......... 1 190 (190)(C.8) 1
Paid-in capital....... 1,443 857 1,814 (C.8) 4,114
Retained earnings..... 366 214 (214)(C.8)(C.9) 366
Treasury stock........ (5) (847) 847 (C.8) (5)
Other................. (11) -- -- (11)
------ ------ ------ -------
Total stockholders'
equity............. 2,131 414 2,257 (C.12) 4,802
Total liabilities ------ ------ ------ -------
and stockholders'
equity........... $8,036 $5,343 $3,392 $16,771
====== ====== ====== =======
</TABLE>
(See accompanying Notes to Pro Forma Combined Financial Statements)
78
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1994
UNAUDITED
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
BURLINGTON SANTA FE
NORTHERN INC. PACIFIC BURLINGTON NORTHERN
WITH SFP CORPORATION SANTA FE
INVESTMENT RECAPITALIZED PRO FORMA CORPORATION
(SEE PAGE 73) (SEE PAGE 76) ADJUSTMENTS PRO FORMA
------------- ------------- ----------- -------------------
<S> <C> <C> <C> <C>
Revenues............................ $3,651 $ 1,970 $-- $ 5,621
Operating expenses
Compensation and benefits......... 1,310 625 4 (C.7) 1,939
Fuel.............................. 267 183 -- 450
Materials......................... 225 92 -- 317
Equipment rents................... 314 185 -- 499
Purchased services................ 352 282 -- 634
Depreciation...................... 267 150 38 (C.2) 455
Other............................. 327 147 21 (C.4)(C.12) 495
------ ------- ---- -------
Total operating expenses........ 3,062 1,664 63 4,789
------ ------- ---- -------
Operating income.................... 589 306 (63) 832
Interest expense.................... 146 147 (6)(C.5) 287
Other income (expense), net......... (7) 49 (2)(C.3) 40
------ ------- ---- -------
Income before income taxes.......... 436 208 (59) 585
Income tax expense.................. 169 90 (15)(C.10) 244
------ ------- ---- -------
Income from continuing operations... $ 267 $ 118 $(44) $ 341
====== ======= ==== =======
Earnings per common share
Income from continuing operations. $ 2.78 $ .77 $ 2.30(C.11)(C.12)
====== ======= =======
Number of shares used in computation
of earnings per common share (in
thousands)......................... 90,230 152,400 141,190(C.11)
</TABLE>
(See accompanying Notes to Pro Forma Combined Financial Statements)
79
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
UNAUDITED
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
BURLINGTON SANTA FE
NORTHERN INC. PACIFIC BURLINGTON NORTHERN
WITH SFP CORPORATION SANTA FE
INVESTMENT RECAPITALIZED PRO FORMA CORPORATION
(SEE PAGE 74) (SEE PAGE 77) ADJUSTMENTS PRO FORMA
------------- ------------- ----------- -------------------
<S> <C> <C> <C> <C>
Revenues.................... $4,699 $ 2,409 $-- $ 7,108
Operating expenses
Compensation and benefits. 1,709 800 5 (C.7) 2,514
Fuel...................... 362 239 -- 601
Materials................. 300 128 -- 428
Equipment rents........... 395 229 -- 624
Purchased services........ 457 322 -- 779
Depreciation.............. 352 188 50 (C.2) 590
Other..................... 463 185 28 (C.4)(C.12) 676
------ ------- ---- -------
Total operating ex-
penses................. 4,038 2,091 83 6,212
------ ------- ---- -------
Operating income............ 661 318 (83) 896
Interest expense............ 183 206 (10)(C.5) 379
Gain on sale of California
lines...................... -- 145 -- 145
Other income (expense), net. 8 24 (7)(C.1)(C.3) 25
------ ------- ---- -------
Income before income taxes.. 486 281 (80) 687
Income tax expense.......... 211 149 (20)(C.10) 340
------ ------- ---- -------
Income from continuing oper-
ations..................... $ 275 $ 132 $(60) $ 347
====== ======= ==== =======
Earnings per common share
Income from continuing op-
erations................. $ 2.82 $ .88 $ 2.33(C.11)(C.12)
====== ======= =======
Number of shares used in
computation of earnings per
common share (in
thousands)................. 89,672 149,900 139,632(C.11)
</TABLE>
(See accompanying Notes to Pro Forma Combined Financial Statements)
80
<PAGE>
NOTES TO PRO FORMA BNI INVESTMENT FINANCIAL STATEMENTS
BNI's investment in SFP includes BNI borrowing $500 million at an assumed
average interest rate of 7.5 percent with the proceeds used to finance the
purchase of 25 million shares of outstanding SFP Common Stock at a price of $20
per share or $500 million in total. See "The Offer" included in this Joint
Proxy Statement/Prospectus for further discussion.
Additionally, upon approval of the Merger by BNI and SFP stockholders, BNI
will incur additional costs, including the accelerated vesting of restricted
stock and other Merger transaction costs.
I.1 INVESTMENT IN SFP
An investment in SFP of $500 million, which will be accounted for under the
cost method of accounting until merger consummation, has been recorded in the
pro forma BNI Investment balance sheet to reflect the completion of BNI's cash
tender offer for 25 million shares of SFP Common Stock. The aggregate fair
value of this investment, assuming a SFP market value of $17 per share, would
be $425 million. The difference between the cost and fair value of the
investment represents an unrealized holding loss that will fluctuate with
changes in the market value of SFP Common Stock. The unaudited pro forma
statements of operations for BNI's investment in SFP give effect to dividend
income of $3 million for the year ended December 31, 1993. No dividend income
is included for the nine months ended September 30, 1994 as SFP did not pay any
dividends during this period.
I.2 LONG-TERM DEBT
Long-term debt has been increased by $500 million to reflect the financing of
BNI's cash tender offer to purchase 25 million shares of SFP Common Stock.
Interest expense has been increased to give effect to this additional debt by
$28 million for the nine months ended September 30, 1994 and $38 million for
the year ended December 31, 1993. BNI's aggregate long-term debt scheduled
maturities for 1995 through 1999 would be $32 million, $27 million, $253
million, $27 million and $174 million, respectively. The $500 million of
additional BNI debt related to its tender offer will mature five years from the
date of issuance in 1995.
I.3 ACCELERATED VESTING OF RESTRICTED STOCK
BNI's retained earnings have been reduced by $10 million, other equity has
been increased by $25 million, deferred taxes have been increased by $5 million
and other current liabilities have been decreased by $20 million to give effect
to the accelerated vesting of restricted stock upon shareholder approval of the
Merger. Compensation and benefits expense will be increased and reduce results
of operations in the period that the restrictions actually lapse.
I.4 INCOME TAX EXPENSE
Income tax expense reflects the effect of pro forma adjustments at an
estimated rate of 39 percent.
I.5 EARNINGS PER COMMON SHARE
BNI historical earnings per common share have been reduced to reflect a
decrease in income from continuing operations due to additional interest
expense discussed in I.2 above. In addition, results for the year ended
December 31, 1993 were adjusted to reflect dividend income discussed in I.1
above.
81
<PAGE>
NOTES TO PRO FORMA SFP RECAPITALIZED FINANCIAL STATEMENTS
The SFP Recapitalization plan reflected in the Pro Forma SFP Recapitalized
Financial Statements includes SFP borrowing $1,075 million of $1,560 million in
available bank commitments, at an assumed average interest rate of 9 percent
with the proceeds principally used for (i) financing the repurchase of 38
million shares of its outstanding common stock at a price of $20 per share or
$760 million in total, (ii) the early retirement of $200 million of SFP's
outstanding senior indebtedness, and (iii) repayment of short-term borrowings
and payment of refinancing transaction costs.
Additionally, SFP will incur Merger transaction costs, including the
accelerated vesting of restricted stock and certain other transaction costs,
upon stockholder approval of the Merger.
R.1 OTHER ASSETS
Represents estimated debt issuance costs to be paid in connection with the
SFP Recapitalization, net of debt issue costs expensed in conjunction with the
retirement of debt.
R.2 LONG-TERM DEBT
Reflects the $1,075 million SFP Recapitalization borrowing less (i) the early
retirement of outstanding senior debt of $200 million and (ii) the repayment of
$32 million short-term borrowings which were outstanding at September 30, 1994.
After the SFP Recapitalization, projected principal repayments during the five
years 1995 through 1999 would be $203 million, $97 million, $218 million, $144
million and $187 million, respectively.
R.3 DEFERRED INCOME TAXES
Deferred income taxes have been reduced for the tax benefit of the costs of
retiring debt and the accelerated vesting of SFP's restricted stock described
in R.4 below at a rate of 39 percent.
R.4 STOCKHOLDERS' EQUITY
Paid-in capital has been increased by $15 million representing the fair value
of approximately 760,000 shares of restricted stock at an assumed $20 per
share, which vests upon shareholder approval.
Retained earnings has been reduced by $49 million to reflect costs, net of
taxes and costs accrued, associated with the SFP Recapitalization and the
Merger including expenses for early retirement of debt, accelerated vesting of
restricted stock, and estimated legal, investment banking and other transaction
costs. Costs of $22 million after taxes for the early retirement of debt will
be expensed as an extraordinary charge in the period the debt is retired. Costs
for the accelerated vesting of restricted stock of $7 million after taxes
(which is net of amounts already accrued) will be expensed in the period that
restrictions lapse. Merger transaction costs of $20 million will be expensed in
the period incurred.
Treasury stock has been increased by $760 million to reflect the purchase of
38 million shares of SFP Common Stock acquired through SFP's tender offer.
R.5 INTEREST EXPENSE
Reflects the estimated net increase in interest expense associated with debt
borrowings/repayments discussed in R.2 above.
R.6 INCOME TAX EXPENSE
Income tax expense reflects the effect of pro forma adjustments at an
estimated rate of 39 percent.
R.7 EARNINGS PER COMMON SHARE
SFP weighted average shares outstanding have been reduced for SFP's cash
tender offer, net of restricted stock which will vest upon stockholder approval
of the Merger. SFP historical earnings per common share have been reduced to
reflect a decrease in income from continuing operations due to additional
interest expense discussed in R.5 above.
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NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
Pursuant to the Merger Agreement, SFP will make a cash tender offer at $20
per share to acquire 38 million shares (approximately 20 percent) of the
outstanding SFP Common Stock for a total consideration of $760 million. BNI
will make a cash tender offer at $20 per share to acquire 25 million shares
(approximately 13 percent) of the outstanding SFP Common Stock for a total
consideration of $500 million. In addition, each remaining share of SFP common
stock outstanding at the Effective Time will be converted into 0.40 of a share
of BNI Common Stock. The pro forma financial statements have been prepared
assuming that the value for BNI Common Stock to be issued in connection with
the Merger is $2,480 million (calculated as shown in the table below) based on
the approximate fair value of BNI Common Stock ($50 per share) considering the
daily closing price of BNI Common Stock as reported in The Wall Street Journal
for the ten trading days in the two week period ended December 23, 1994.
Additionally, the estimated market value of unexercised SFP stock options
increases the pro forma purchase price by $191 million.
The following summarizes the pro forma purchase price (dollars in millions,
except per share data, and shares in thousands):
<TABLE>
<S> <C> <C>
Cost of SFP shares purchased pursuant to BNI cash tender
offer.................................................. $ 500
Shares of SFP Common Stock outstanding at September 30,
1994................................................... 186,996
. less SFP shares purchased pursuant to SFP cash tender
offer.................................................. (38,000)
. less SFP shares purchased pursuant to BNI cash tender (25,000)
offer.................................................. -------
Remaining SFP shares outstanding........................ 123,996
Conversion ratio...................................... .40
-------
Shares of BNI Common Stock to be issued................. 49,598
Per share value of BNI Common Stock..................... $ 50
-------
Total value of BNI Common Stock to be issued............ $2,480
Unexercised SFP stock options........................... $ 191
Estimated BNI legal, investment banking and issuance $ 30
costs.................................................. ------
Pro forma purchase price................................ $3,201
======
</TABLE>
In accordance with SEC guidance, the value of the BNI Common Stock issued in
the Merger is measured at or about the time of the consummation of the Merger.
A $1 increase in the value of BNI Common Stock would result in an approximately
$50 million increase in purchase price and goodwill. A $1 decrease in the value
of BNI Common Stock would have the opposite effect.
The Merger will be accounted for by BNI under the purchase method of
accounting in accordance with Accounting Principles Board Opinion (APB) No. 16,
"Business Combinations," and Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." Accordingly, these methods have been
applied in the unaudited pro forma combined financial statements. Under APB No.
16, the purchase price will be allocated to assets acquired and liabilities
assumed based on their estimated fair values. Within the unaudited pro forma
combined financial statements, estimates of the fair values of SFP's assets and
liabilities, including the effect of SFP's recapitalization, as of September
30, 1994 have been combined with the recorded September 30, 1994 values of the
assets and liabilities of BNI adjusted for its investment in SFP Common Stock.
In addition, purchase accounting adjustment amounts included in these unaudited
pro forma combined financial statements will change as additional information
becomes available. If the final allocation of the purchase price differs from
that included in these pro forma financial statements, BNI and SFP do not
believe pro forma results of operations will be materially affected because the
majority of the purchase price will be attributed to either long-lived assets
or goodwill.
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The preliminary pro forma purchase price has been allocated as shown in the
table below (in millions):
<TABLE>
<S> <C>
Net assets of SFP at September 30, 1994 after recapitalization. $ 414
SFP transaction costs upon merger consummation................. (8)
Increase (decrease) to SFP's net asset value at September 30,
1994 after recapitalization as a result of estimated fair
value adjustments:
Property and equipment, net................................. 2,542
Other assets................................................ 238
Long-term debt.............................................. (63)
Deferred income taxes....................................... (1,071)
Other liabilities........................................... 37
-------
Total allocation of pro forma purchase price as a result of
estimated fair value adjustments.......................... 2,089
Goodwill...................................................... 1,112
-------
Pro forma purchase price.................................. $ 3,201
=======
</TABLE>
Each of the allocations in the table above is described in more detail below.
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. The effect of any ultimate adjustment related to the
disposition of SFP assets would be to reduce the recorded value of the
respective asset to net realizable value. Any necessary adjustment to the
recorded values of BNI's assets to be disposed of will be recognized in the
merged company's statement of operations and not as a component of purchase
accounting.
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.
Certain amounts in the historical financial statements of SFP have been
reclassified in the unaudited pro forma combined financial statements to
conform to BNI's historical financial statement presentation.
C.1 INVESTMENT IN SFP
The investment in SFP and related dividend income is eliminated in the
unaudited pro forma combined financial statements to reflect the consummation
of the Merger.
C.2 PROPERTY AND EQUIPMENT, NET
SFP's property and equipment, net has been adjusted to its estimated fair
value as of September 30, 1994. A significant portion of the estimated fair
value adjustment has been allocated to long-lived track structures as well as
land used for transportation purposes. The increase in the fair value of
depreciable assets has been depreciated under the straight-line method over the
remaining estimated useful lives of the property. Depreciation expense of $38
million for the nine months ended September 30, 1994 and $50 million for the
year ended December 31, 1993 related to the increase in fair value has been
included in the unaudited pro forma combined statements of operations.
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C.3 OTHER ASSETS
Other assets have been adjusted to fair value as follows (in millions):
<TABLE>
<S> <C>
Investments......................................................... $261
Pension assets...................................................... (11)
Other............................................................... (12)
----
Total............................................................. $238
====
</TABLE>
Certain investments, primarily SFP's pipeline investment, have been adjusted
to their estimated fair values as of September 30, 1994. The related
amortization of $2 million for the nine months ended September 30, 1994 and $4
million for the year ended December 31, 1993 related to the increase in fair
value has been included in the unaudited pro forma combined statements of
operations.
SFP's pension assets and other miscellaneous assets have been adjusted to
estimate their fair value as of September 30, 1994 based upon current actuarial
and other estimates. The impact on earnings related to these assets, which
would increase pro forma income, was immaterial and has not been included in
the unaudited pro forma combined statements of operations.
C.4 GOODWILL
As calculated above goodwill is $1,112 million; however, purchase accounting
adjustments will change as additional information becomes available, which will
have an effect on the ultimate allocation of the purchase price. If the final
allocation of the purchase price differs from that included in these pro forma
financial statements, BNI and SFP do not believe pro forma results of
operations will be materially affected because the majority of the purchase
price will be attributed to either long-lived assets or goodwill. Amortization
expense related to goodwill of $21 million for the nine months ended September
30, 1994 and $28 million for the year ended December 31, 1993 has been included
in the unaudited pro forma combined statements of operations.
C.5 LONG-TERM DEBT
SFP's remaining long-term debt after the recapitalization has been adjusted
to its estimated fair value as of September 30, 1994 based on interest rates as
of that date. The estimated fair value adjustment of $63 million has been
amortized to offset interest expense over the estimated lives of the
instruments. Amortization of $6 million for the nine months ended September 30,
1994 and $10 million for the year ended December 31, 1993 related to the fair
value adjustment has been included in the unaudited pro forma combined
statements of operations. The aggregate long-term debt scheduled maturities on
a pro forma combined basis for Burlington Northern Santa Fe Corporation for
1995 through 1999 would be $235 million, $124 million, $471 million, $171
million and $361 million, respectively. The $500 million of additional BNI debt
related to its tender offer will mature five years from the date of issuance in
1995.
C.6 DEFERRED INCOME TAXES
Deferred income taxes of $1,071 million have been provided for temporary
differences caused by book and tax differences after the allocation of the pro
forma purchase price because the Merger results in BNI assuming SFP's tax basis
in SFP's assets and liabilities. No deferred income taxes have been provided
for goodwill because it is not expected to be tax deductible as the Merger is
anticipated to be a tax-free transaction under Section 368 of the Internal
Revenue Code. Also, the Alternative Merger is anticipated to be a tax-free
transaction under Section 351 of the Internal Revenue Code.
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The following pro forma adjustments to the deferred income tax liability were
required for estimated book and tax basis differences caused by the allocation
of the pro forma purchase price (in millions):
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENT
INCREASE (DECREASE)
TO DEFERRED INCOME
CATEGORY OF TEMPORARY DIFFERENCE TAX LIABILITY
-------------------------------- --------------------
<S> <C>
Property and equipment, net........................... $ 991
Other assets.......................................... 93
Long-term debt........................................ (25)
Other liabilities..................................... 15
Current liabilities................................... (3)
------
Total............................................... $1,071
======
</TABLE>
C.7 OTHER LIABILITIES
The reduction in other liabilities reflects an adjustment of $37 million to
SFP's postretirement benefits liability based upon current actuarial estimates.
Compensation and benefits expense was increased $4 million and $5 million for
the nine months ended September 30, 1994 and year ended December 31, 1993,
respectively.
C.8 STOCKHOLDERS' EQUITY
SFP's stockholders' equity balances have been eliminated. Stockholders'
equity has been increased for the excess of the preliminary pro forma purchase
price, excluding the BNI transaction costs, over SFP's recapitalized
stockholders' equity.
C.9 COSTS OF THE MERGER
BNI--Estimated legal, investment banking and stock issuance costs of $30
million incurred by BNI have been included in the pro forma purchase price.
SFP--SFP will pay $8 million in investment banking fees upon consummation of
the Merger which have been shown as a reduction of equity in the unaudited pro
forma combined balance sheet. These costs will actually be charged to the
results of operations of SFP when incurred.
C.10 INCOME TAX EXPENSE
Income tax expense reflects the effect of pro forma adjustments, other than
amortization of goodwill, at an estimated rate of 39 percent.
C.11 EARNINGS PER COMMON SHARE
Pro forma weighted average shares outstanding represent the conversion at an
exchange ratio of 0.40 shares of BNI Common Stock for each share of SFP Common
Stock remaining after reduction for the cash tender offers by SFP and BNI, net
of restricted stock which will vest upon stockholder approval of the Merger.
Earnings per common share are determined by dividing income from continuing
operations, after deduction of preferred stock dividends, by the weighted
average number of common shares outstanding and common share equivalents.
C.12 CHANGES IN VALUE OF BNI COMMON STOCK
In accordance with SEC guidance, the value of the BNI Common Stock issued in
the Merger is measured at or about the time of the consummation of the Merger.
A $1 increase in the value of BNI Common Stock would result in an approximately
$50 million increase in purchase price and goodwill, a $1 million decrease in
income from continuing operations and a $.01 decrease in earnings per common
share. A $1 decrease in the value of BNI Common Stock would have the opposite
effect.
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OTHER MATTERS
ICC APPROVAL
ICC approval 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.
BNI and SFP filed their application for ICC approval of the proposed Merger
on October 13, 1994. 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. BNI and SFP requested the ICC to decide the case on an expedited
basis. 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. Thereafter, in response to requests by several parties to the
merger proceeding, the ICC on December 5, 1994 issued an order holding the
procedural schedule in abeyance until such time as an SFP stockholder vote on
the Merger occurs. The December 5 order further stated that upon approval of
the proposed BNI/SFP Merger by SFP stockholders, it would immediately issue a
new schedule requiring the first comments, originally due on December 27, 1994,
to be filed 30 days from the service date of the new schedule and adjusting
other schedule dates accordingly. Notwithstanding these scheduling orders,
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. As noted above, this comment
period has been extended by the ICC until 30 days after the issuance of a new
schedule immediately after the SFP shareholders approve the Merger. 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
currently
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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 filed 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 indicated to the ICC that, in their view, 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. This expected
increase in operating income does not include the noncash effects of applying
purchase accounting as shown on the pro forma combined statements of
operations.
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%. These results do not include the
noncash effects of applying purchase accounting as shown on the pro forma
combined statements of operations.
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
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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.
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.
Although BNI and SFP believe 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, criticisms of the effect of fixed charges on the 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 BN
Railroad and SFP Rail systems 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. BNI and SFP indicated
in the ICC application that they are willing to negotiate ameliorative
arrangements to address any such reduction in competition.
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.
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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 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.
RECENT DEVELOPMENTS RELATED TO UPC'S VOTING TRUST PROPOSAL
Under the terms of the UP Tender Offer, promptly upon the purchase of at
least a majority of the outstanding shares of SFP Common Stock, UPC would place
the shares into an independent voting trust. The voting trust mechanism is
designed to insulate UPC from coming into control of SFP Rail without ICC
approval, which would constitute a violation of the Interstate Commerce Act.
The UP Tender Offer was conditioned upon the issuance of a non-binding,
informal opinion from the staff of the ICC indicating that the use of the
particular voting trust proposed by UPC would be consistent with ICC policies
governing the use of voting trusts.
On November 10, 1994, UPC, Union Pacific Railroad Company and Missouri
Pacific Railroad Company (collectively, "Union Pacific") submitted a proposed
voting trust agreement (designating the Southwest Bank of St. Louis as the
trustee) to the ICC for review and an informal staff opinion. In an
accompanying letter, Union Pacific argued that its proposed acquisition of SFP
Common Stock and the placement of that stock in a voting trust would not
constitute unauthorized control of SFP prohibited by the Interstate Commerce
Act. In response to Union Pacific's submission, the ICC instituted Finance
Docket No. 32619 (Union Pacific Corporation, et al. -- Request for Informal
Opinion -- Voting Trust Agreement).
On November 16, 1994, BN Railroad filed a petition in Finance Docket No.
32619 requesting that the ICC institute an investigation into Union Pacific's
proposed voting trust arrangement. In that petition, BN Railroad argued that
UPC's proposal to hold SFP and SFP Rail in a voting trust during the pendency
of an ICC proceeding on the acquisition of SFP Rail raised serious issues
affecting the public interest, including whether UPC's placing of SFP in a
voting trust would constitute a form of unlawful negative control by
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inhibiting SFP Rail from competing effectively against UPC's railroad
subsidiaries. Additional petitions and letters requesting the ICC to
investigate Union Pacific's voting trust were filed by the Colorado Department
of Transportation ("CODOT") on November 17, 1994, the Kansas City Southern
Railway Company ("KCSR") on November 21, 1994, and the Allied Rail Unions (the
"Unions") on November 23, 1994. Other comments in support of the petitions and
letters calling for the ICC to investigate Union Pacific's voting trust
proposal were filed by interested persons and numerous state and municipal
officials. Union Pacific submitted an amended proposed voting trust agreement
for Commission review and an informal, non-binding staff opinion on November
17, 1994. Union Pacific stated that the amended proposal addressed concerns
that petitioning parties had raised about its original voting trust proposal.
By initial decision served November 28, 1994, Chairman McDonald of the ICC
denied the requests to investigate the Union Pacific voting trust that had been
filed by BN Railroad, CODOT, KCSR, and the Unions. The decision stated that
"[a]t this time, the Commission will not depart from its usual procedures which
provide an informal staff review of voting trust agreements." On the same day,
the Secretary of the Commission released a letter to counsel for Union Pacific
setting forth the staff's informal, non-binding opinion that the proposed
voting trust would effectively insulate Union Pacific from any violation of the
Interstate Commerce Act as a result of its acquisition of SFP Common Stock.
On December 1, 1994, BN Railroad appealed the Chairman's initial decision to
the full Commission and requested that the Commission withdraw the staff's
informal opinion letter. In light of UPC's December 8, 1994 tender offer
deadline, BN Railroad requested that the Commission act on its appeal and
request for withdrawal of the informal staff opinion letter on or before
December 5, 1994. Appeals were also filed by the Unions and KCSR.
On December 6, 1994, the ICC served a decision denying the requests on BN
Railroad and the other parties for withdrawal of the Secretary's informal
opinion letter. That decision did not resolve the pending appeals from the
Chairman's initial decision refusing to institute an investigation into the
proposed voting trust. Although the decision did not address the merits of BN
Railroad's appeal, the Commission did state that it would issue a decision
disposing of the pending appeals shortly. One Commissioner added a separate
comment, stating that while he agreed with the Commission's decision not to
withdraw the Secretary's informal opinion letter, in hindsight he believed it
would have been a better course for the full Commission to have reviewed the
proposed voting trust agreement.
On December 7, 1994, the day before Union Pacific's tender offer was
originally to expire, BN Railroad filed a petition to review the ICC's December
6, 1994 decision refusing to withdraw the informal staff opinion in the United
States Court of Appeals for the Third Circuit (Burlington Northern Railroad
Company v. Interstate Commerce Commission and United States, No. 94-3669). At
the same time, BN Railroad filed an emergency petition under the All Writs Act
seeking an injunction against UPC and UP Acquisition forbidding them from
placing any shares of SFP Common Stock in the voting trust (Burlington Northern
Railroad Company v. Union Pacific Corporation; UP Acquisition Corporation, No.
94-3670). BN Railroad argued that the injunction was needed to preserve the
Court's appellate jurisdiction to review the ICC decision. BN Railroad
contended that it was likely to prevail on the merits of its claim that the
voting trust would constitute unlawful control by inflicting competitive injury
to SFP Rail during the pendency of the trust. BN Railroad also contended that
it would be irreparably injured in the absence of an injunction because it
would lose the opportunity to merge with the competitively vigorous SFP Rail
that was the subject of its merger agreement if SFP Rail were placed in a
voting trust.
On the morning of December 7, 1994, shortly after BN Railroad filed the Third
Circuit actions, counsel for BN Railroad in those actions was notified that
Union Pacific had extended the expiration for its tender offer from midnight
December 8, 1994 to midnight December 23, 1994. BN Railroad immediately
notified the Court that, in light of this subsequent development, BN Railroad
was modifying its request that the Court issue an injunction against UPC and UP
Acquisition on or before December 8, 1994 to on or before December
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23, 1994. By order communicated to the parties by telephone, the Court ordered
UPC and UP Acquisition to file a response to BN Railroad's emergency petition
on December 12, 1994, with BN Railroad to file a reply to UPC's response on
December 14, 1994.
On December 12, 1994, UPC filed a response to BN Railroad's action in No. 94-
3670. Also on that date, the ICC filed a response in No. 94-3669 which stated
that the ICC would issue a decision disposing of the merits of the BN Railroad
and other appeals pending at the ICC on or before December 23, 1994. Also on
December 12, 1994, the American Train Dispatchers Division/BLE filed a motion
to intervene in No. 94-3669, a petition under the All Writs Act for an order
requiring the ICC to comply with and enforce the Interstate Commerce Act
(American Train Dispatchers Division/BLE et al. v. Interstate Commerce
Commission, No. 94-3679), and a petition under the All Writs Act for an order
requiring UPC to refrain from acting in violation of the Interstate Commerce
Act (American Train Dispatchers Division/BLE et al. v. Union Pacific
Corporation and UP Acquisition Corporation, No. 94-3680).
On December 14, 1994, BN Railroad filed its reply to UPC's response in
No. 94-3670. On the same date, UPC filed a motion to intervene in No. 94-3679.
By telephone communication from the clerk's office, the Court indicated that it
was scheduling oral argument for the actions on December 21, 1994 at 11:30 a.m.
in Philadelphia, Pennsylvania. Subsequently, on December 16, 1994, the ICC
filed a memorandum in No. 94-3679 stating that it would issue its opinion
addressing the appeals pending at the Commission on or before December 20,
1994, and that the ICC would notify the Court and all parties by facsimile as
soon as its decision is available.
On December 19, 1994, counsel for BN Railroad in the Third Circuit actions
was notified that UPC had extended the expiration for its tender offer from
midnight December 23, 1994 to midnight January 19, 1995. BN Railroad
immediately notified the Court that, in light of this further development, BN
Railroad was now requesting that the Court issue an injunction against UPC and
UP Acquisition on or before January 19, 1995. By order communicated to the
parties by telephone, the Court postponed oral argument from December 21, 1994
to a later date.
On December 20, 1994, the ICC issued a decision denying the appeals of BN
Railroad and others from the Chairman's initial decision and approving the UPC
voting trust subject to a modification of one of its terms. One Commissioner
dissented, stating that he would have initiated an investigation of the
proposed voting trust and solicited public comments on an expedited basis. The
same day the ICC filed a motion with the Third Circuit to dismiss the appeals
of BN Railroad and others from the December 6, 1994 decision refusing to
withdraw the Secretary's informal opinion letter. On December 28, 1994, BN
Railroad filed a response to the ICC's motion, stating that BN Railroad agreed
that the petition for review of the December 6 decision is now moot since the
ICC itself has now approved Union Pacific's voting trust and the refusal to
withdraw the informal opinion has no practical significance.
On December 21, 1994, BN Railroad filed a petition to review the ICC's
December 20, 1994 decision in the United States Court of Appeals for the Third
Circuit (Burlington Northern Railroad v. Interstate Commerce Commission and
United States, No. 94-3705). The same day BN Railroad filed a petition with the
ICC requesting a stay of the December 20, 1994 decision pending judicial review
and a temporary cease and desist order to prohibit implementation of the Union
Pacific voting trust pending judicial review. On January 6, 1995, the ICC
issued a decision denying BN Railroad's petition for a stay and request for a
temporary cease and desist order pending judicial review. On January 11, 1995,
BN Railroad filed a petition with the Third Circuit requesting a stay of the
ICC's December 20, 1994 decision pending judicial review. On January 13, 1995,
the Third Circuit denied BN Railroad's petition for a stay of the ICC's
December 20, 1994 decision pending judicial review. The Third Circuit also
denied BN Railroad's petition under the All Writs Act seeking an injunction
against UPC and UP Acquisition forbidding them from placing any shares of SFP
Common Stock in the voting trust.
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
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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
Numerous complaints have been filed arising out of SFP's and BNI's proposed
participation in the Merger. 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
Original Merger Agreement and by failing to include in the Original Merger
Agreement a provision allowing SFP to terminate the Original 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
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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.
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.
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
Original 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 Original 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 Original Merger
Agreement, failure to disclose facts regarding the SFP directors' consideration
of a possible combination transaction with 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
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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.
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 Joint Proxy Statement/Prospectus originally sent
to stockholders on or about October 12, 1994 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 Original Merger Agreement
in order to enter into a merger agreement with UPC based upon the UPC Proposal
and denying that the Original Merger Agreement is allegedly void for failing to
include such a right, statements failing to disclose the purportedly preclusive
effect to the Original 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.
On October 26, 1994, BNI moved pursuant to Delaware Chancery Court Rule 12(b)
(6) to dismiss the Consolidated and Amended Complaint against it on the grounds
that the Complaint fails to state a claim against it upon which relief can be
granted.
On October 26, 1994, SFP and the SFP Directors filed their answer to the
Amended and Supplemental Complaint of UPC and requested that the court dismiss
UPC's complaint with prejudice.
On November 2, 1994, BNI moved pursuant to Chancery Court Rule 12(b)(6) to
dismiss the First Amended and Supplemental Complaint filed by Union Pacific and
James Shattuck on the grounds that the Complaint fails to state a claim against
BNI upon which relief can be granted.
On November 3, 1994, SFP and the SFP directors filed their answer to the
shareholder plaintiffs' Consolidated and Amended Complaint and requested that
the Court dismiss the Consolidated and Amended Complaint with prejudice.
On November 21, 1994, SFP and the SFP directors filed a motion to stay
discovery in the UPC action pending resolution of a case-dispositive motion to
be filed by the SFP and the SFP directors seeking dismissal of UPC's complaint.
On November 4, 1994, a purported stockholder class action suit relating to
the proposed Merger was filed in the Chancery Division of the Circuit Court of
Cook County of the State of Illinois (Rubin v. Santa Fe Pacific Corporation,
No. 94 CH 10022). The action names as defendants SFP and the individual members
of SFP's Board of Directors. The action alleges that SFP's directors breached
their fiduciary duties to
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shareholders by rejecting UPC's October 30, 1994 revised merger proposal, which
incorporated a revised proposed exchange ratio of .407 shares of UPC common
stock for each share of SFP Common Stock, and that, as a result, SFP's
stockholders have been deprived of the increase in the market value of their
SFP Common Stock that allegedly would have occurred if SFP's directors had
accepted UPC's October 30, 1994 proposal. The action seeks certification of a
class action on behalf of SFP's stockholders, an injunction preventing SFP and
the SFP directors from taking any further action towards accepting the Merger,
an award of unspecified general and special damages, appointment of a trustee
to supervise the requested relief, establishment of a common fund on behalf of
the class and an award of court costs, reasonable attorneys' fees and any other
relief deemed appropriate by the Court. On December 12, 1994, SFP and its
directors filed a motion to dismiss the Rubin case on the ground that the
consolidated shareholder action previously filed in the Delaware court is a
prior pending action between the same parties for the same cause. The motion to
dismiss the Rubin case is currently pending before the Illinois court.
Defendants believe that all of these lawsuits are meritless and intend to
oppose them vigorously.
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 3,000,000 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 December 31, 1994, there were 89,223,821 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 December 31, 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.
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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).
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.
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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 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.
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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 SFP's and BNI's Rights
Agreements.
The following summaries do not purport to be complete statements of the
rights of SFP stockholders under SFP's Certificate of Incorporation, Bylaws and
Rights Agreement 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.
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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.
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
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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.
"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
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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.
RIGHTS PLANS
BNI Rights Plan
The following is a summary of BNI's rights plan. The BNI rights plan will not
be triggered by the Offer or 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 (the "BNI Rights Agreement").
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 "BNI
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 "BNI 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 (a "BNI 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 "BNI 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 "BNI Distribution Date"), the BNI
Rights will be evidenced, with respect to any of the BNI Common Stock
certificates outstanding as of the BNI Rights Record Date, by such BNI Common
Stock certificate. The BNI Rights Agreement provides that, until the BNI
Distribution Date, the BNI Rights will be transferred with and only with BNI
Common Stock certificates. From as soon as practicable after the BNI Rights
Record Date and until the BNI Distribution Date (or earlier redemption or
expiration of the BNI Rights), new BNI Common Stock certificates issued after
the BNI Rights Record Date upon transfer or new issuance of the BNI Common
Stock will contain a notation incorporating the BNI Rights Agreement by
reference. Until the BNI Distribution Date (or earlier redemption or expiration
of the BNI Rights), the surrender for transfer of any certificates for BNI
Common Stock outstanding as of the BNI Rights Record Date will also constitute
the transfer of the BNI Rights associated with the BNI Common Stock represented
by such certificate. As soon
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as practicable following the BNI 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 BNI
Distribution Date, and the separate BNI Rights Certificates alone will evidence
the BNI Rights.
The BNI Rights are not exercisable until the BNI 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 BNI 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 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 "BNI 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 a BNI Acquiring Person engages in one of a number of self-dealing
transactions specified in the BNI Rights Agreement, or a BNI 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 a BNI Acquiring Person engaging in any of
such transactions or receiving the benefits thereof on or after the time the
BNI 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 BNI Purchase Price will be
required until cumulative adjustments require an adjustment of at least one
percent in such BNI 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
BNI 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 "BNI 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
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Rights in whole, but not in part, at the BNI 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 a BNI
Acquiring Person or any person who was a BNI Acquiring Person or following an
event giving rise to, and the expiration of the exercise period for, the BNI
Subscription Right if and for as long as a BNI 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 a BNI 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 BNI 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 BNI 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 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.
SFP Rights Plan
The following is a summary of SFP's rights plan. The SFP rights plan does not
apply to any acquisition of shares of SFP Common Stock by BNI pursuant to the
terms of the Merger Agreement and consequently the provisions described below
with respect to the effects of the commencement of a tender offer or the
acquisition of more than 10% of the outstanding SFP Common Stock would not
apply to the Offer or the Merger. The summary does not purport to be complete
and is qualified in its entirety by the Rights Agreement, dated as of November
28, 1994, between SFP and First Chicago Trust Company of New York, as Rights
Agent (the "SFP Rights Agreement"), which is included as an exhibit to SFP's
Registration Statement on Form 8-A dated November 29, 1994.
On November 28, 1994, the Board of Directors of SFP declared a dividend
distribution of one SFP Right for each outstanding share of SFP Common Stock to
stockholders of record at the close of business on December 9, 1994 (the "SFP
Rights Record Date"). Except as described below, each SFP Right, when
exercisable, entitles the registered holder to purchase from SFP one one-
hundredth of a share of Series A Junior Participating Preferred Stock, par
value $1.00 per share (the "SFP Preferred Stock"), at a price of $50.00 per one
one-hundredth share (the "SFP Purchase Price"), subject to adjustment.
Initially, the SFP Rights will be attached to all SFP Common Stock
certificates representing shares then outstanding, and no separate SFP Right
certificates will be distributed. Until the earlier to occur of (i) 10
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days following a public announcement that a person or group of affiliated or
associated persons (an "SFP Acquiring Person") has acquired, or obtained the
right to acquire, beneficial ownership of 10% or more of the outstanding shares
of SFP Common Stock (the "SFP Shares Acquisition Date") or (ii) 15 business
days (or such later date as may be determined by action of the Board of
Directors of SFP prior to the time that any person becomes an SFP Acquiring
Person) following the commencement of (or public announcement of an intention
to make) a tender or exchange offer if, upon consummation thereof, such person
or group would be the beneficial owner of 10% or more of such outstanding
shares of SFP Common Stock (the earlier of such dates being called the "SFP
Distribution Date"), the SFP Rights will be evidenced by the SFP Common Stock
certificates together with a copy of the Summary of Rights Plan and not by
separate certificates.
The SFP Rights Agreement also provides that, until the SFP Distribution Date,
the SFP Rights will be transferred with and only with the SFP Common Stock.
Until the SFP Distribution Date (or earlier redemption, expiration or
termination of the SFP Rights), the transfer of any certificates for SFP Common
Stock, with or without a copy of the Summary of Rights Plan, will also
constitute the transfer of the SFP Rights associated with the SFP Common Stock
represented by such certificates. As soon as practicable following the SFP
Distribution Date, separate certificates evidencing the SFP Rights ("SFP Right
Certificates") will be mailed to holders of record of the SFP Common Stock as
of the close of business on the SFP Distribution Date and, thereafter, such
separate SFP Right Certificates alone will evidence the SFP Rights.
Under the SFP Rights Agreement, the SFP Board of Directors has the right, in
its sole discretion, to delay the SFP Distribution Date prior to the time any
person becomes an SFP Acquiring Person. The Board of Directors of SFP has
postponed the occurrence of the SFP Distribution Date, which would have
occurred as a result of the commencement of UPC's tender offer, to January 31,
1994 and has the right to further delay the SFP Distribution Date.
The SFP Rights are not exercisable until the SFP Distribution Date and will
expire at the earliest of (i) December 9, 2004 (the "SFP Final Expiration
Date"), (ii) the redemption of the Rights by SFP as described below, (iii) the
time immediately prior to the effectiveness of the merger of SFP with and into
BNI pursuant to the Merger Agreement, and (iv) the exchange of all SFP Rights
for SFP Common Stock as described below.
In the event that any person (other than SFP, its affiliates or any person
receiving newly-issued shares of SFP Common Stock directly from SFP) becomes
the beneficial owner of 10% or more of the then outstanding shares of SFP
Common Stock, each holder of an SFP Right will thereafter have the right to
receive, upon exercise at the then current exercise price of the SFP Right, SFP
Common Stock (or, in certain circumstances, cash, property or other securities
of SFP) having a value equal to two times the exercise price of the SFP Right.
The SFP Rights Agreement contains an exemption for any issuance of SFP Common
Stock by SFP directly to any person (for example, in a private placement or an
acquisition by SFP in which SFP Common Stock is used as consideration), even if
that person would become the beneficial owner of 10% or more of the SFP Common
Stock, provided that such person does not acquire any additional shares of SFP
Common Stock.
In the event that, at any time following the SFP Shares Acquisition Date, SFP
is acquired in a merger or other business combination transaction or 50% or
more of SFP's assets or earning power are sold, proper provision will be made
so that each holder of an SFP Right will thereafter have the right to receive,
upon exercise at the then current exercise price of the SFP Right, common stock
of the acquiring or surviving company having a value equal to two times the
exercise price of the SFP Right.
Notwithstanding the foregoing, following the occurrence of any of the events
set forth in the preceding two paragraphs (the "SFP Triggering Events"), any
SFP Rights that are, or (under certain circumstances specified in the SFP
Rights Agreement) were, beneficially owned by any SFP Acquiring Person will
immediately become null and void.
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The SFP Purchase Price payable, and the number of shares of SFP Preferred
Stock or other securities or property issuable, upon exercise of the SFP
Rights, are subject to adjustment from time to time to prevent dilution, among
other circumstances, in the event of a stock dividend on, or a subdivision,
split, combination, consolidation or reclassification of, the SFP Preferred
Stock or the SFP Common Stock, or a reverse split of the outstanding shares of
SFP Preferred Stock or the SFP Common Stock.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 10% or more of the outstanding
SFP Common Stock and prior to the acquisition by such person or group of 50% or
more of the outstanding SFP Common Stock, the Board of Directors of SFP may
exchange the SFP Rights (other than SFP Rights owned by such person or group,
which have become void), in whole or in part, at an exchange ratio of one share
of SFP Common Stock per SFP Right (subject to adjustment).
With certain exceptions, no adjustments in the SFP Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
the SFP Purchase Price. SFP will not be required to issue fractional shares of
SFP Preferred Stock or SFP Common Stock (other than fractions in multiples of
one one-hundredths of a share of SFP Preferred Stock) and, in lieu thereof, an
adjustment in cash may be made based on the market price of the SFP Preferred
Stock or SFP Common Stock on the last trading date prior to the date of
exercise.
At any time after the date of the SFP Rights Agreement until the time that a
person becomes an SFP Acquiring Person, the Board of Directors of SFP may
redeem the SFP Rights in whole, but not in part, at a price of $.01 per SFP
Right (the "SFP Redemption Price"), which may (at the option of SFP) be paid in
cash, shares of SFP Common Stock or other consideration deemed appropriate by
the Board of Directors of SFP. Upon the effectiveness of any action of the
Board of Directors of SFP ordering redemption of the SFP Rights, the SFP Rights
will terminate and the only right of the holders of SFP Rights will be to
receive the SFP Redemption Price.
Until an SFP Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of SFP, including, without limitation, the right to
vote or to receive dividends.
The provisions of the SFP Rights Agreement may be amended by SFP, except that
any amendment adopted after the time that a person becomes an SFP Acquiring
Person may not adversely affect the interests of holders of SFP Rights.
Two million five hundred thousand (2,500,000) shares of SFP Preferred Stock
have been reserved for issuance in the event of exercise of the SFP Rights.
The SFP Rights have certain anti-takeover effects. The SFP Rights will cause
substantial dilution to a person or group that attempts to acquire SFP without
conditioning the offer on the SFP Rights being redeemed or a substantial number
of SFP Rights being acquired, and under certain circumstances the SFP Rights
beneficially owned by such a person or group may become void. The SFP Rights
should not interfere with any merger or other business combination approved by
the Board of Directors of SFP because, if the SFP Rights would become
exercisable as a result of such merger or business combination, the Board of
Directors of SFP may, at its option, at any time prior to the time that any
Person becomes an SFP Acquiring Person, redeem all (but not less than all) of
the then outstanding SFP Rights at the SFP Redemption Price.
CERTAIN ADDITIONAL INFORMATION CONCERNING HOLDINGS
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Holdings consists of 300,000,000 shares of
Holdings Common Stock, 25,000,000 shares of Preferred Stock, par value $.01 per
share ("Holdings Preferred Stock") and 50,000,000 shares of Class A Preferred
Stock, par value $.01 per share ("Holdings Class A Preferred Stock"). The
following description of Holdings' capital stock does not purport to be
complete and is qualified in its entirety by reference to the Delaware
Corporation Law and Holdings' Certificate of Incorporation.
106
<PAGE>
Holdings Common Stock
At December 22, 1994, there were 1,000 shares of Holdings Common Stock
outstanding. All of the outstanding shares of Holdings Common Stock are fully
paid and nonassessable, and the shares of Holdings Common Stock, if any, to be
issued in the Alternative Merger, when issued pursuant to the Merger Agreement,
will be fully paid and nonassessable. Each holder of Holdings 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 any of Holdings' preferred stock, each share of Holdings 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 Holdings Common Stock has any preemptive right to
subscribe for any securities of Holdings.
Holdings Preferred Stock
No Holdings Preferred Stock or Holdings Class A Preferred Stock is
outstanding. Under Holdings' Certificate of Incorporation, Holdings' 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, SFP and BNI have agreed
not to permit Holdings to take any actions or undertake any operations except
as may be necessary in connection with the consummation of the Alternative
Merger and the transactions contemplated by the Merger Agreement.
RIGHTS OF HOLDINGS STOCKHOLDERS
The Certificate of Incorporation and Bylaws of Holdings are substantially
identical to those of BNI except that Holdings has no outstanding shares of
preferred stock. In addition, Holdings does not have a rights plan.
Accordingly, except for the foregoing, the rights of a holder of Holdings
Common Stock are identical to those of a holder of BNI Common Stock. See
"Comparison of Rights of Stockholders of BNI and SFP."
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 balance sheet of Holdings as of December 22, 1994, has been included in
this Joint Proxy Statement/Prospectus 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.
107
<PAGE>
LEGAL MATTERS
The validity of the BNI Common Stock and the Holdings Common Stock offered
hereby will be passed upon by Davis Polk & Wardwell, special counsel to BNI and
Holdings.
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.
108
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Stockholders
BNSF Corporation
We have audited the accompanying balance sheet of BNSF Corporation as of
December 22, 1994. This balance sheet is the responsibility of BNSF
Corporation's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of BNSF Corporation at December 22,
1994, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Fort Worth, Texas
December 22, 1994
F-1
<PAGE>
BNSF CORPORATION
BALANCE SHEET
DECEMBER 22, 1994
<TABLE>
<S> <C>
Assets:
Cash.................................................................. $1,000
------
Total assets........................................................ $1,000
======
Stockholders' equity:
Common stock, par value $.01 per share, 1,000 shares issued and out-
standing............................................................. $ 10
Additional paid-in capital............................................ 990
------
Total stockholders' equity.......................................... $1,000
======
</TABLE>
The accompanying notes are an integral part of the balance sheet.
F-2
<PAGE>
BNSF CORPORATION
NOTES TO BALANCE SHEET
1. BACKGROUND OF ORGANIZATION:
BNSF Corporation was incorporated under the Delaware General Corporation Law
on December 16, 1994 for the purpose of effectuating the combination of
Burlington Northern Inc. (BNI) and Santa Fe Pacific Corporation (SFP) in
accordance with the terms of the Merger Agreement dated as of June 29, 1994, as
amended by an Amendment thereto dated as of October 26, 1994 and Amendment No.
2 thereto dated as of December 18, 1994, if so elected by the parties thereto.
BNSF Corporation is jointly owned by BNI and SFP and has not engaged in any
other activity since its formation.
2. BASIS OF ACCOUNTING:
The accompanying balance sheet includes all of the relevant assets and
liabilities attributable to BNSF Corporation.
3. STOCKHOLDERS' EQUITY:
The authorized capital stock of BNSF consists of 300,000,000 shares of BNSF
Common Stock, par value $.01 per share, 25,000,000 shares of Preferred Stock,
par value $.01 per share and 50,000,000 shares of Class A Preferred Stock, par
value $.01 per share. The following summarizes the equity of the two
stockholders:
<TABLE>
<S> <C>
Burlington Northern Inc.......................................... $ 500
Santa Fe Pacific Corporation..................................... 500
------
$1,000
======
</TABLE>
F-3
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF
JUNE 29, 1994,
AS AMENDED AS OF OCTOBER 26, 1994
AND AS OF DECEMBER 18, 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
1.8.Alternative Transaction Structure ................................... A-4
ARTICLE II
CERTAIN MATTERS RELATING TO BNI
AND THE SURVIVING CORPORATION
2.1.Directors of the Surviving Corporation............................... A-7
2.2.Certificate of Incorporation and Bylaws of the Surviving Corporation.. A-7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SFP
3.1. Corporate Existence and Power...................................... A-7
3.2. Corporate Authorization............................................ A-8
3.3. Governmental Authorization......................................... A-8
3.4. Non-Contravention.................................................. A-8
3.5. Capitalization..................................................... A-8
3.6. Material Subsidiaries.............................................. A-9
3.7. SEC Filings........................................................ A-9
3.8. Financial Statements............................................... A-10
3.9. Disclosure Documents............................................... A-10
3.10. Information Supplied............................................... A-11
3.11. No Material Adverse Changes........................................ A-11
3.12. Undisclosed Material Liabilities................................... A-11
3.13. Litigation......................................................... A-11
3.14. Taxes.............................................................. A-12
3.15. ERISA.............................................................. A-12
3.16. Finders' Fees...................................................... A-14
3.17. Environmental Matters.............................................. A-14
3.18. Takeover Statutes.................................................. A-14
3.19. Compliance With Laws.............................................. A-14
- --------
(/1/)The Table of Contents is not a part of this Agreement.
i
<PAGE>
3.20. Spinoff Dividend................................................... A-14
3.21. Private Letter Ruling.............................................. A-15
3.22. Excess Loss Accounts............................................... A-15
3.23. SFP Rights Agreement............................................... A-15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BNI
4.1. Corporate Existence and Power....................................... A-15
4.2. Corporate Authorization............................................. A-15
4.3. Governmental Authorization.......................................... A-15
4.4. Non-Contravention................................................... A-15
4.5. Capitalization...................................................... A-16
4.6. Material Subsidiaries............................................... A-16
4.7. SEC Filings......................................................... A-17
4.8. Financial Statements................................................ A-17
4.9. Disclosure Documents................................................ A-17
4.10. Information Supplied............................................... A-18
4.11. No Material Adverse Changes........................................ A-18
4.12. Undisclosed Material Liabilities................................... A-18
4.13. Litigation......................................................... A-19
4.14. Taxes.............................................................. A-19
4.15. ERISA.............................................................. A-19
4.16. Finders' Fees...................................................... A-21
4.17. Environmental Matters.............................................. A-21
4.18. Takeover Statutes.................................................. A-21
4.19. Compliance with Laws............................................... A-21
4.20. BNI Rights Agreement............................................... A-21
ARTICLE V
COVENANTS OF SFP
5.1. Conduct of SFP...................................................... A-22
5.2. Stockholder Meeting................................................. A-23
5.3. Access to Information............................................... A-23
5.4. Notices of Certain Events........................................... A-23
5.5. Tax Matters......................................................... A-24
5.6. Rule 145 Affiliates................................................. A-24
5.7. The Spinoff......................................................... A-24
5.8. No Solicitations.................................................... A-24
5.9. Registration Rights................................................. A-25
ARTICLE VI
COVENANTS OF BNI
6.1. Conduct of BNI...................................................... A-25
6.2. Stockholder Meeting................................................. A-26
6.3. Access to Information............................................... A-26
6.4. Notices of Certain Events........................................... A-27
6.5. Tax Matters......................................................... A-27
ii
<PAGE>
6.6. Director and Officer Liability...................................... A-27
6.7. No Solicitations.................................................... A-28
ARTICLE VII
COVENANTS OF BNI AND SFP
7.1. Reasonable Best Efforts............................................. A-28
7.2. ICC Approval........................................................ A-28
7.3. Certain Filings; Proxy Materials.................................... A-28
7.4. Public Announcements................................................ A-29
7.5. Further Assurances.................................................. A-29
7.6. Antitakeover Statutes............................................... A-29
7.7. Cooperation......................................................... A-29
7.8. Dividends........................................................... A-29
ARTICLE VIII
THE OFFER
8.1 The Offer............................................................ A-30
8.2. Action by SFP and BNI............................................... A-30
ARTICLE IX
CONDITIONS TO THE MERGER
9.1. Conditions to the Obligations of Each Party......................... A-31
9.2. Conditions to the Obligations of BNI................................ A-31
9.3. Conditions to the Obligations of SFP................................ A-32
ARTICLE X
TERMINATION
10.1. Termination......................................................... A-32
10.2. Effect of Termination............................................... A-33
ARTICLE XI
MISCELLANEOUS
11.1. Notices............................................................. A-33
11.2. Entire Agreement; Survival of Representations and Warranties......... A-34
11.3. Amendments; No Waivers.............................................. A-34
11.4. Expenses............................................................ A-34
11.5. Successors and Assigns.............................................. A-35
11.6. Governing Law....................................................... A-35
11.7. Jurisdiction........................................................ A-35
11.8. Counterparts; Effectiveness......................................... A-35
EXHIBIT A Form of Affiliate Letter
ANNEX I Conditions to the Offer
ANNEX II Registration Rights
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 Offer Documents.................................................... 8.1(d)
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)
Offer.................................................................. 8.1(a)
PBGC................................................................... 3.16(b)
Person................................................................. 1.2(d)
Private Letter Ruling.................................................. 3.21
Properties............................................................. 3.21
Schedule 14D-9......................................................... 8.2(b)
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 Offer Documents.................................................... 8.1(c)
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 Rights Agreement................................................... 3.23
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, as amended as of
October 26, 1994 and as of December 18, 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
A-1
<PAGE>
as otherwise provided in Section 1.2(a)(ii) below, be converted into 0.40
shares of the common stock, no par value (the "BNI Common Stock"), of BNI
(0.40 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
A-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.
SECTION 1.8. Alternative Transaction Structure. (a) At any time prior to the
Effective Time, either BNI or SFP, in its sole discretion, may notify the other
party (the "Alternative Merger Notice") that it has determined to restructure
the transaction in the manner contemplated by this Section 1.8. Upon delivery
of the Alternative Merger Notice in the manner set forth in Section 11.1 hereof
(the "Alternative Election"), the Merger contemplated by Section 1.1 of this
Agreement shall be restructured in the manner set forth in this Section 1.8. In
such event, all references to the term "Merger" in this Agreement shall be
deemed references to the transactions contemplated by this Section 1.8, all
references to the term "Surviving Corporation" shall be deemed references to
BNSF Corporation, a Delaware corporation ("BNSF"), all references to the term
"Effective Time" in this Agreement shall be deemed references to the time at
which the certificates of merger are 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) with respect to the Merger as restructured in the manner
contemplated by this Section 1.8 and Sections 1.2(a), 1.2(b), 1.4 and 1.7 shall
no longer be of any force or effect and the provisions of this Section 1.8
shall govern the terms of the Merger. Prior to the Effective Time, BNSF will be
controlled equally by BNI and SFP. The Merger, restructured as contemplated by
this Section 1.8, is sometimes referred to as the "Alternative Merger".
(b) Prior to the Effective Time, BNSF will be controlled equally by BNI and
SFP. Prior to the Effective Time of the Alternative Merger, BNI and SFP will
cause BNSF to incorporate two wholly owned subsidiaries as Delaware
corporations ("BNI Merger Sub" and "SFP Merger Sub"). At the Effective Time of
the Alternative Merger, (i) BNI Merger Sub will be merged with and into BNI in
accordance with Delaware Law, whereupon the separate existence of BNI Merger
Sub shall cease, and BNI shall be the surviving corporation, and (ii) SFP
Merger Sub will be merged with and into SFP in accordance with Delaware Law,
whereupon the separate existence of SFP Merger Sub shall cease, and SFP shall
be the surviving corporation.
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(c) At the Effective Time of the Alternative Merger, (i) each share of SFP
Common Stock outstanding immediately prior to such Effective Time shall, except
as otherwise provided in Section 1.8(d) below, be converted into 0.40 shares of
the common stock of BNSF, no par value (the "BNSF Common Stock"), and (ii) each
share of BNI Common Stock outstanding immediately prior to such Effective Time
shall, except as otherwise provided in Section 1.8(d) below, be converted into
1.0 share of BNSF Common Stock.
(d) Each share of BNI Common Stock or SFP Common Stock (other than the SFP
Common Stock owned by BNI, which shall remain outstanding) held by either of
BNI or SFP as treasury stock or owned by BNI, SFP or any Subsidiary of either
of them immediately prior to the Effective Time of the Alternative Merger shall
be cancelled and no payments shall be made with respect thereto.
(e) The BNSF Common Stock to be received as consideration in the Alternative
Merger by holders of BNI Common Stock or SFP Common Stock is referred to herein
as the "Merger Consideration".
(f) (i) At the Effective Time of the Alternative Merger, each outstanding
option to purchase shares of SFP Common Stock (a "SFP Stock Option") or BNI
Common Stock (or "BNI Stock Option") granted under any employee stock option or
compensation plan or arrangement of SFP or BNI, as the case may be, shall be
cancelled and substituted with an option (a "BNSF Option") to acquire BNSF
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 BNSF 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
or BNI Stock Option for which it was substituted.
(ii) At or as soon as possible after the Effective Time of the Alternative
Merger, BNSF shall issue to each holder of an SFP Stock Option or BNI Stock
Option which is cancelled pursuant to Section 1.8(f)(i) an agreement that
accurately reflects the terms of the BNSF Option substituted therefor as
contemplated by Section 1.8(f)(i).
(iii) BNSF shall take all corporate actions necessary to reserve such number
of shares of BNSF Common Stock as will be necessary to satisfy exercises in
full of all BNSF Options after the Effective Time. With respect to such BNSF
Common Stock, BNSF shall (i) as soon as practicable after the Effective Time of
the Alternative Merger file with the 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 1933 Act and (ii) file with the
NYSE a listing application and use its reasonable best efforts to have such
shares admitted to trading thereon upon exercises of BNSF Options. BNSF 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
such Effective Time.
(g) No certificates or scrip representing fractional shares of BNSF Common
Stock will be issued in the Alternative Merger, but in lieu thereof each holder
of SFP Common Stock otherwise entitled to a fractional share of BNSF Common
Stock will be entitled to receive, from the Exchange Agent in accordance with
the provisions of this Section 1.8 , a cash payment in lieu of such fractional
shares of BNSF 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 SFP Common Stock, the Exchange
Agent will hold such proceeds in trust (the "Common Shares Trust") for the
holders of the SFP Common Stock. BNSF 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 SFP Common Stock 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 BNSF Common Stock interest to which such holder of SFP Common Stock
is entitled and the denominator of which is the aggregate amount of fractional
share
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interests to which such holder of SFP Common Stock is entitled. As soon as
practicable after the determination of the amount of cash, if any, to be paid
to holders of SFP Common Stock in lieu of any fractional shares of BNSF Common
Stock, the Exchange Agent shall make available such amounts to such holders of
SFP Common Stock without interest.
(h) Immediately prior to the Effective Time of the Alternative Merger, BNSF
will become a party to this Agreement, assume all obligations of BNI hereunder
in its capacity as the Surviving Corporation and make the following
representations and warranties to each of BNI and SFP:
(i) Corporate Existence and Power. At the Effective Time, BNSF will be a
corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation and will have all corporate
powers and all material governmental licenses, authorizations, consents and
approvals required to carry on the businesses of BNI and SFP as such
business are now conducted. At the Effective Time, BNSF will be duly
qualified to do business as a foreign corporation and will be 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 BNSF.
(ii) Corporate Authorization. At the Effective Time, the execution,
delivery and performance by BNSF of this Agreement and the consummation by
BNSF of the transactions contemplated hereby will be within the corporate
powers of BNSF and will have duly authorized by all necessary corporate
action on the part of BNSF. At the Effective Time, this Agreement will
constitute a valid and binding agreement of BNSF.
(iii) Governmental Authorization. At the Effective Time, the execution,
delivery and performance by BNSF of this Agreement and the consummation of
the Merger by BNSF will 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 Exchange Act; (iii)
compliance with the applicable requirements of the 1933 Act; (iv)
compliance with any applicable foreign or state securities or Blue Sky
laws; (v) immaterial actions or filings relating to ordinary operational
matters; and (vi) actions that have theretofore been taken or filings that
have theretofore been made.
(iv) Non-Contravention. At the Effective Time, the execution, delivery
and performance by BNSF of this Agreement and the consummation by BNSF of
the transactions contemplated hereby will not (except, in the case of
clauses (B), (C) and (D) of this Section 1.8(h)(iv), for any such matters
that singly or in the aggregate have not had, and would not reasonably by
expected to have, a Material Adverse Effect on BNSF (A) contravene or
conflict with the certificate of incorporation or bylaws of BNSF, (B)
assuming compliance with the matters referred to in Section 1.8(h)(iii),
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 BNSF or any Subsidiary of BNSF, (C) constitute a default
under or give rise to any right of termination, cancellation or
acceleration of any right or obligation of BNSF or any of its Subsidiaries
or to a loss of any benefit to which BNSF or any of its Subsidiaries is
entitled under any agreement, contract or other instrument binding upon
BNSF or any of its Subsidiaries or any license, franchise, permit or other
similar authorization held by BNSF or any of its Subsidiaries or (D) result
in the creation or imposition of any Lien on any asset of BNSF or any
Subsidiary of BNSF.
(i) Prior to the Effective Time of the Alternative Merger, BNI and SFP shall
ensure that BNSF, BNI Merger Sub and SFP Merger Sub take no actions and
undertake no operations except as may be necessary in connection with the
consummation of the Merger and the transactions contemplated hereby.
(j) At the time of the Alternative Election, and without any further action
on the part of either SFP or BNI, this Agreement shall be deemed to have been
amended as follows:
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(i) The phrase "BNSF," will be added (x) between the phrase "operation of
the business of" and the phrase "BNI, SFP and their" in Section 9.1(iii)
and (y) between the phrase "impose on" and "BNI, SFP or any" in clause (3)
of Section 9.1(v).
(ii) A new Section 9.2(iii) and 9.3(v) will be added as follows:
BNSF 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 BNSF shall
have been accurate in all material respects at and as of the Effective
Time.
(iii) Section 9.3(ii) shall be amended to read in its entirety as
follows:
(ii) the BNSF Common Stock required to be issued hereunder shall have
been approved for listing on the NYSE, subject to official notice of
issuance.
(k) BNI and SFP agree that in the event of the Alternative Election, any
other appropriate adjustments shall be made to the other terms and conditions
of this Agreement to reflect the transactions contemplated by this Section 1.8
with a view to ensuring that the parties hereto and their stockholders are
placed in a position that is as close as possible to the position they would
have been in but for such restructuring.
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 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
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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 Offer and 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 3,629,728 shares were held in
treasury, (ii) no shares of SFP Preferred Stock and (iii) employee stock
options to purchase an aggregate of 9,953,575 Shares (of which options to
purchase an aggregate of 7,004,884 Shares were exercisable). As of May 31,
1994, a total of 12,000,000 shares of SFP Common Stock were approved for awards
under the SFP Long-Term Incentive Stock Plan, of which 5,281,405 remain
available for grant. 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").
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There are no outstanding obligations of SFP or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any SFP Securities, except for the
Offer.
(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 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
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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, (i)
the SFP Offer Documents to be filed with the SEC in connection with the Offer
and (ii) 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
offer to purchase and form of related letter of transmittal contained in the
SFP Offer Documents or any amendment or supplement thereto are first mailed to
stockholders of SFP and at the time of consummation of the Offer, the SFP Offer
Documents, as supplemented or amended, if applicable, will not contain any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading. 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 Offer Documents and
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 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.
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SECTION 3.10. Information Supplied. The information supplied or to be
supplied by SFP for inclusion or incorporation by reference in (i) the BNI
Offer Documents or any amendment or supplement thereto will not, at the time
the offer to purchase and form of related letter of transmittal contained in
the BNI Offer Documents or any amendment or supplement thereto are first mailed
to stockholders of SFP and at the time of the consummation of the Offer,
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) the BNI Proxy
Statement 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, (iii) any BNI Disclosure Document (other than
the BNI Offer Documents and 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
(iv) 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, and except as set forth in the Joint Proxy Statement/Prospectus of
SFP and BNI dated October 12, 1994 and the Supplemental Joint Proxy
Statement/Prospectus thereto dated October 28, 1994, (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.
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SECTION 3.14. Taxes. Except as set forth in the SFP Balance Sheet (including
the notes thereto) or on Schedule 3.14, (i) all material tax returns,
statements, reports and forms (collectively, the "SFP Returns") required to be
filed with any taxing authority as of the date hereof by, or with respect to,
SFP and its Subsidiaries have been filed in accordance with all applicable
laws; (ii) SFP and its Subsidiaries have timely paid all taxes shown as due and
payable on the SFP Returns that have been so filed and as of the time of filing
the SFP Returns correctly reflected the facts regarding the income, business,
assets, operations, activities and the status of SFP and its Subsidiaries in
all material respects; (iii) SFP and its Subsidiaries have made provision for
all material taxes payable by SFP and its Subsidiaries for which no Return has
yet been filed or in respect of which a final determination has been made; (iv)
the charges, accruals and reserves for taxes with respect to SFP and its
Subsidiaries reflected in the SFP Balance Sheet are adequate under generally
accepted accounting principles to cover the tax liabilities accruing through
the date thereof; and (v) as of the date of this Agreement, there is no action,
suit, proceeding, investigation, audit or claim now proposed or pending against
or with respect to SFP or any of its Subsidiaries in respect of any tax where
there is a reasonable possibility of a determination or decision against SFP or
any of its Subsidiaries which would reasonably be expected to have a Material
Adverse Effect on SFP.
SECTION 3.15. ERISA. (a) Schedule III identifies (i) each "employee benefit
plan", as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974 ("ERISA") (other than multiemployer plans (as defined in Section
3(37) of ERISA)), and (ii) each employment, severance or other similar
contract, arrangement or policy and each retirement or deferred compensation
plan, stock plan, incentive compensation plan, vacation pay, severance pay,
bonus or benefit arrangement, insurance (including self-insured arrangements)
or hospitalization program, workers' compensation program, disability program,
supplemental unemployment program or fringe benefit arrangement, whether
maintained pursuant to contract or informal understanding, which does not
constitute an "employee benefit plan" (as defined in Section 3(3) of ERISA),
which, in the case of items described in both clauses (i) and (ii), is
maintained, administered or contributed to by SFP or any of its ERISA
Affiliates (as defined below), and covers any employee or former employee of
SFP or any of its Subsidiaries or with respect to which SFP or any of its ERISA
Affiliates has any liability (collectively, the "SFP Employee Plans"). True and
correct copies of each of the SFP Employee Plans, all amendments thereto, 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
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with any SFP Pension Plan, other than a "reportable event" that will not have a
Material Adverse Effect on SFP. No condition exists and no event has occurred
that could constitute grounds for termination of or the appointment of a
trustee to administer any SFP Pension Plan under Section 4042 of ERISA and, to
SFP's knowledge, neither SFP nor any of its ERISA Affiliates has engaged in, or
is a successor or parent corporation to an entity that has engaged in, a
transaction for which SFP or any of its ERISA Affiliates would have liability
under Section 4069 or 4212(c) of ERISA. To SFP's knowledge, nothing done or
omitted to be done and no transaction or holding of any asset under or in
connection with any SFP Employee Plan has or will make SFP or any 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
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have a Material Adverse Effect, and (iii) neither SFP nor any of its ERISA
Affiliates has received any notice that any such plan is in reorganization,
that increased contributions may be required to avoid a reduction in plan
benefits or the imposition of any excise tax, that any such plan is or has been
funded at a rate less than that required under Section 412 of the Code or that
any plan is or may become insolvent.
(j) As of the Balance Sheet Date, the Expected Postretirement Benefit
Obligation (as defined in Statement of Financial Accounting Standards No. 106)
in respect of postretirement health and medical benefits for current and former
employees of SFP or any of its Subsidiaries calculated by SFP's actuary using
reasonable actuarial assumptions was $291,200,000.
SECTION 3.16. Finders' Fees. Except for Goldman, Sachs & Co., a copy of whose
engagement agreement has been or will be provided to BNI, there is no
investment banker, broker, finder or other intermediary which has been retained
by or is authorized to act on behalf of SFP or any of its Subsidiaries who
might be entitled to any fee or commission from BNI or any of its affiliates
upon consummation of the transactions contemplated by this Agreement.
SECTION 3.17. Environmental Matters. (a) Except as set forth in the SFP Form
10-K or otherwise previously disclosed in writing by SFP to BNI, there are no
Environmental Liabilities (as defined below) of SFP that, individually or in
the aggregate, 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).
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SECTION 3.21. Private Letter Ruling. SFP has received from the Internal
Revenue Service a valid and effective private letter ruling dated February 16,
1994 (and supplemented on May 18, 1994) (the "Private Letter Ruling") to the
effect that (i) the Spinoff qualifies as a tax-free distribution under Section
355 of the Code and (ii) the merger of SFP Properties, Inc. ("Properties") with
and into SFP (the "Liquidation") will be treated as a distribution by
Properties to SFP in complete liquidation of Properties within the meaning of
Section 322 of the Code. A copy of the Private Letter Ruling has been provided
to BNI.
SECTION 3.22. Excess Loss Accounts. The income that will be recognized, for
federal income tax purposes, upon the Spinoff arising from excess loss accounts
in the stock of the Spinoff Company and its subsidiaries will be approximately
$30 million.
SECTION 3.23. SFP Rights Agreement. Under the Rights Agreement between SFP
and First Chicago Trust Company of New York as Rights Agent, dated as of
November 28, 1994 (the "SFP Rights Agreement"), BNI will not become an
"Acquiring Person", no "Shares Acquisition Date" or "Distribution Date" (as
such terms are defined in the SFP Rights Agreement) will occur, and SFP's
shareholders will not be entitled to receive any benefits under the SFP Rights
Agreement as a result of the approval, execution or delivery of this Agreement,
the commencement or consummation of the Offer or the consummation of the
Merger.
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 Offer and 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
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(except, in the case of clauses (ii), (iii) and (iv) of this Section 4.4, for
any such matters that singly or in the aggregate have not had, and would not
reasonably be expected to have, a Material Adverse Effect on BNI) (i)
contravene or conflict with the certificate of incorporation or bylaws of BNI,
(ii) assuming compliance with the matters referred to in Section 4.3,
contravene or conflict with or constitute a violation of any provision of any
law, regulation, judgment, injunction, order or decree binding upon or
applicable to BNI or any Subsidiary of BNI, (iii) constitute a default under or
give rise to any right of termination, cancellation or acceleration of any
right or obligation of BNI or any of its Subsidiaries or to a loss of any
benefit to which BNI or any of its Subsidiaries is entitled under any
agreement, contract or other instrument binding upon BNI or any of its
Subsidiaries or any license, franchise, permit or other similar authorization
held by BNI or any of its Subsidiaries, or (iv) result in the creation or
imposition of any Lien on any asset of BNI or any Subsidiary of BNI.
SECTION 4.5. Capitalization. (a) The authorized capital stock of BNI consists
of three hundred million (300,000,000) shares of BNI Common Stock and twenty-
five million (25,000,000) shares of No Par Value Preferred Stock, including six
million nine hundred thousand (6,900,000) shares of 6 1/4% Cumulative
Convertible Preferred Stock, Series A No Par Value ("6 1/4% Convertible
Preferred Stock") and fifty million (50,000,000) shares of Class A Preferred
Stock, No Par Value ("Class A Preferred Stock"). As of May 31, 1994 there were
outstanding (i) 89,208,870 shares of BNI Common Stock (including 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
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for those jurisdictions where failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect on BNI.
(b) Except as set forth in the BNI Form 10-K (as defined in Section 4.7(a)),
all of the outstanding capital stock of, or other ownership interests in, each
BNI Subsidiary, is owned by BNI, directly or indirectly, free and clear of any
Lien and free of any other limitation or restriction (including any restriction
on the right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). Other than those obligations identified on Schedule
4.6(b), there are no outstanding (i) securities of BNI or any of its
Subsidiaries convertible into or exchangeable for shares of capital stock or
other voting securities or ownership interests in any Subsidiary of BNI, and
(ii) options or other rights to acquire from BNI or any of its Subsidiaries,
and no other obligation of BNI or any of its Subsidiaries to issue, any capital
stock, voting securities or other ownership interests in, or any securities
convertible into or exchangeable for any capital stock, voting securities or
ownership interests in, any Subsidiary of BNI (the capital stock of each
Subsidiary of BNI, together with the items in clauses (i) and (ii), being
referred to collectively as the "BNI Subsidiary Securities"). There are no
outstanding obligations of BNI or any Subsidiary of BNI to repurchase, redeem
or otherwise acquire any outstanding BNI Subsidiary Securities.
SECTION 4.7. SEC Filings. (a) BNI has delivered to SFP (i) the annual reports
on Form 10-K for its fiscal years ended December 31, 1989, December 31, 1990,
December 31, 1991, December 31, 1992, and December 31, 1993 (this latest form
10-K being referred to herein as the "BNI Form 10-K"), (ii) its quarterly
report on Form 10-Q for its fiscal quarter ending March 31, 1994 (this Form 10-
Q being referred to herein as the "BNI Form 10-Q"), (iii) its proxy statements
(as defined in Regulation 14A issued pursuant to the Exchange Act) relating to
meetings of the stockholders of BNI held since January 1, 1989, and (iv) all
other reports, statements, schedules and registration statements filed by BNI
and its Subsidiaries with the SEC since January 1, 1989 and through the date of
this Agreement, but including only such pre-effective amendments and such
registration statements as contain material information not fully reflected in
any subsequent amendments to such registration statements (or any 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, (i) the BNI
Offer Documents to be filed with the SEC in connection with the Offer and (ii)
the definitive proxy statement of BNI (the "BNI Proxy Statement") to be filed
with the SEC in
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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 offer to purchase and form of
related letter of transmittal contained in the BNI Offer Documents or any
amendment or supplement thereto are first mailed to stockholders of SFP and at
the time of consummation of the Offer, the BNI Offer Documents, as supplemented
or amended, if applicable, will not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. 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 Offer Documents and 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 misleading. The representations
and warranties contained in this Section 4.9 will not apply to statements or
omissions included in 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
Offer Documents or any amendment or supplement thereto will not, at the time
the offer to purchase and form of related letter of transmittal contained in
the SFP Offer Documents or any amendment or supplement thereto are first mailed
to stockholders of SFP and at the time of the consummation of the Offer,
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) 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 (iii) any SFP Disclosure Document (other
than the SFP Offer Documents and 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
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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, and except as set forth in the Joint Proxy Statement/Prospectus of
SFP and BNI dated October 12, 1994 and the Supplemental Joint Proxy
Statement/Prospectus thereto dated October 28, 1994, (i) there is no action,
suit, investigation or proceeding (or any basis therefor) pending against, or
to the knowledge of BNI threatened against or affecting, BNI or any of its
Subsidiaries or any of their respective properties before any court or
arbitrator or any governmental body, agency or official where there is a
reasonable probability of a determination adverse to BNI or any of its
Subsidiaries which could reasonably be expected to have a Material Adverse
Effect on BNI and (ii) as of the date of this Agreement, there is no such
action, suit, investigation or proceeding which in any manner challenges or
seeks to prevent, enjoin, alter or materially delay the Merger or any of the
other transactions contemplated hereby.
SECTION 4.14. Taxes. Except as set forth in the BNI Balance Sheet (including
the notes thereto) or on Schedule 4.14, (i) all material tax returns,
statements, reports and forms (collectively, the "BNI Returns") required to be
filed with any taxing authority as of the date hereof by, or with respect to,
BNI and its Subsidiaries have been filed in accordance with all applicable
laws; (ii) BNI and its Subsidiaries have timely paid all taxes shown as due and
payable on the BNI Returns that have been so filed and as of the time of filing
the BNI Returns correctly reflected the facts regarding the income, business,
assets, operations, activities and the status of BNI and its Subsidiaries in
all material respects; (iii) BNI and its Subsidiaries have made provision for
all material taxes payable by BNI and its Subsidiaries for which no Return has
yet been filed or in respect of which a final determination has been made; (iv)
the charges, accruals and reserves for taxes with respect to BNI and its
Subsidiaries reflected on the BNI Balance Sheet are adequate under generally
accepted accounting principles to cover the tax liabilities accruing through
the date thereof; and (v) as of the date of this Agreement there is no action,
suit, proceeding, investigation, audit or claim now proposed or pending against
or with respect to BNI or any of its Subsidiaries in respect of any tax where
there is a reasonable possibility of a determination or decision against BNI or
any of its Subsidiaries which would reasonably be expected to have a Material
Adverse Effect on BNI.
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
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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 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.
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(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 insurance benefits for
current and former employees of BNI or any of its Subsidiaries calculated by
BNI's actuary using reasonable actuarial assumptions was $17,000,000.
SECTION 4.16. Finders' Fees. Except for Lazard Freres & Co., a copy of whose
engagement agreement has been or will be provided to SFP and whose fees will be
paid by BNI, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of
BNI, the Surviving Corporation or any Subsidiary of BNI who might be entitled
to any fee or commission from BNI, the Surviving Corporation or any Subsidiary
of BNI upon consummation of the transactions contemplated by this Agreement.
SECTION 4.17. Environmental Matters. Except as set forth in the BNI Form 10-K
or otherwise previously disclosed in writing by BNI to SFP, there are no
Environmental Liabilities of BNI that, individually or in the aggregate, have
had or would reasonably be expected to have a Material Adverse Effect on BNI.
SECTION 4.18. Takeover Statutes. No Takeover Statute, including, without
limitation, Section 203 of the DGCL, applicable to BNI or any of its
Subsidiaries is applicable to the Merger or the other transactions contemplated
hereby.
SECTION 4.19. Compliance with Laws. Except as publicly disclosed, and except
for any matter that would not reasonably be expected to have a Material Adverse
Effect on BNI, neither BNI nor any of its Subsidiaries is in violation of, or
has violated, any applicable provisions of any laws, statutes, ordinances or
regulations.
SECTION 4.20. BNI Rights Agreement. Under the Rights Agreement between BNI
and The First National Bank of Boston, dated as of July 14, 1986 (the "BNI
Rights Agreement"), SFP will not become an "Acquiring Person", no "Stock
Acquisition Date" or "Distribution Date" (as such terms are defined in the BNI
Rights Agreement) will occur, and BNI's shareholders will not be entitled to
receive any benefits under the BNI Rights Agreement as a result of the
approval, execution or delivery of this Agreement or the consummation of the
Merger.
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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 Offer, the Merger and the Spinoff, SFP will not, and
will not permit any Subsidiary of SFP, (i) to adopt a plan of complete or
partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization or (ii) make any acquisition of
any business or other assets, whether by means of merger, consolidation or
otherwise, other than in the ordinary course of business consistent with
past practices and other than acquisitions that are Customary Actions;
(c) SFP will not, and will not permit any Subsidiary of SFP to, sell,
lease, license or otherwise dispose of any material assets or property
except (i) the Spinoff, (ii) pursuant to existing contracts or commitments,
(iii) in the ordinary course of business consistent with past practice and
(iv) any such sale, lease, license or other disposition that is a Customary
Action;
(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 not to
exceed $1.75 billion in the aggregate under credit facilities in form and
substance reasonably satisfactory to BNI to finance the Offer, to refinance
SFP's currently outstanding 12.65% Senior Notes due October 1, 2000, 8 3/8%
Notes due November 1, 2001 and 8 5/8% Notes due November 1, 2004, to pay
penalties, premiums and make-whole payments required in connection with
such refinancing and for working capital and other corporate purposes,
(iii) borrowings in the ordinary course of business consistent with past
practice or (iv) 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
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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 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
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(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 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
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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 involving such Person, any proposal for
a merger, consolidation or other business combination involving such Person or
any Subsidiary of such Person, 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, any proposal or offer with respect to
any recapitalization or restructuring with respect to such Person or any
Subsidiary of such Person or any proposal or offer with respect to any other
transaction similar to any of the foregoing with respect to such Person or any
Subsidiary of such Person other than pursuant to the transactions to be
effected pursuant to this Agreement.
SECTION 5.9. Registration Rights. SFP hereby grants BNI the registration and
other rights set forth in Annex II hereto, which rights shall become effective
without any action by any Person in the event that this Agreement is terminated
for any reason after consummation of the Offer.
ARTICLE VI
COVENANTS OF BNI
BNI AGREES THAT:
SECTION 6.1. Conduct of BNI. From the date hereof until the Effective Time,
except as provided in Schedule VI, BNI and the BNI Material Subsidiaries shall
conduct their business in the ordinary course of business consistent with past
practice and shall use their reasonable best efforts to preserve intact their
business organizations and relationships with third parties; provided that
nothing in this Section shall be deemed to prevent BNI and its Subsidiaries
from taking any action referred to in clauses (b)(ii), (c), (f) or (g) of this
Section 6.1 where the taking of such action is not consistent with the past
practices of BNI and its Subsidiaries if, but only if, such action is a
Customary Action. Without limiting the generality of the foregoing, from the
date hereof until the Effective Time:
(a) BNI will not adopt or propose any change in its certificate of
incorporation or bylaws, except for an amendment to its certificate of
incorporation authorizing the issuance of additional shares of Class A
Preferred Stock in connection with the issuance of Rights to former holders
of SFP Common Stock upon consummation of the Merger;
(b) Except for the Offer and 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
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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 not to
exceed $500 million in the aggregate under credit facilities in form and
substance reasonably satisfactory to SFP to finance the Offer (iii)
borrowings in the ordinary course of business consistent with past practice
or (iv) 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, except
for loans, advances, capital contributions or investments that are
Customary Actions and, except for loans, advances, capital contributions or
investments for the purchase of shares of SFP Common Stock pursuant to the
Offer, 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).
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
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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 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.
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(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.
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
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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 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.
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ARTICLE VIII
THE OFFER
SECTION 8.1. The Offer. (a) Provided that nothing shall have occurred that
would result in a failure to satisfy any of the conditions set forth in Annex I
hereto, SFP and BNI shall, as promptly as practicable, but in no event later
than December 23, 1994, commence separate tender offers (together, the "Offer")
to purchase, in the case of SFP, up to 38,000,000 shares of SFP Common Stock
and, in the case of BNI, up to 25,000,000 shares of SFP Common Stock (in each
case, together with the associated rights under the SFP Rights Plan), at a
price of $20.00 per share, net to the seller in cash, with SFP to be severally
obligated to purchase 0.60317 of any shares of SFP Common Stock accepted for
payment pursuant to the Offer and BNI severally obligated to purchase 0.39683
of any shares of SFP Common Stock accepted for payment pursuant to the Offer.
Notwithstanding any provision of this Agreement (or any Annex hereto) to the
contrary, no term of the Offer may be amended or modified without the written
consent of both parties hereto.
(b) The several obligations of BNI and SFP under the Offer shall be subject
to the condition that there shall be validly tendered in accordance with the
terms of the Offer prior to the expiration date of the Offer and not withdrawn
63,000,000 shares of SFP Common Stock and to the other conditions set forth in
Annex I hereto. Each of SFP and BNI expressly reserves the right to waive any
of the conditions to its obligation under the Offer, except that the Minimum
Condition may not be waived without the consent of each of SFP and BNI.
Furthermore, each of SFP and BNI shall have the right to determine, in its sole
reasonable discretion, whether the conditions to its obligations under the
Offer have been satisfied.
(c) As soon as practicable on the date of commencement of the Offer, SFP
shall file with the SEC an Issuer Tender Offer Statement on Schedule 13E-4 with
respect to the Offer which will contain the offer to purchase and form of the
related letter of transmittal (together with any supplements or amendments
thereto, collectively the "SFP Offer Documents"). SFP and BNI each agrees
promptly to correct any information provided by it for use in the SFP Offer
Documents if and to the extent that it shall have become false or misleading in
any material respect. BNI and its counsel shall be given an opportunity to
review and comment on the Schedule 13E-4 prior to its being filed with the SEC.
(d) As soon as practicable on the date of commencement of the Offer, BNI
shall file with the SEC a Tender Offer Statement on Schedule 14D-1 with respect
to the Offer which will contain the offer to purchase and form of the related
letter of transmittal (together with any supplements or amendments thereto,
collectively the "BNI Offer Documents"). BNI and SFP each agrees promptly to
correct any information provided by it for use in the BNI Offer Documents if
and to the extent that it shall have become false or misleading in any material
respect. SFP and its counsel shall be given an opportunity to review and
comment on the Schedule 14D-1 prior to its being filed with the SEC.
(e) Upon satisfaction (or, where permitted, waiver) of the conditions to the
Offer, BNI and SFP shall purchase shares of SFP Common Stock pursuant to the
Offer as set forth in Section 8.1(a) above, provided, however, that BNI shall
not be obligated to purchase more than 25,000,000 shares of SFP Common Stock,
and SFP shall not be obligated to purchase more than 38,000,000 shares of SFP
Common Stock.
SECTION 8.2. Action by SFP and BNI. (a) SFP represents that its Board of
Directors at a meeting duly called and held unanimously resolved to recommend
acceptance of the Offer by those of its stockholders who wish to receive cash
for a portion of their shares of SFP Common Stock. SFP and BNI agree to take
all steps necessary to cause the offer to purchase and form of the related
letter of transmittal to be disseminated to holders of shares of SFP Common
Stock as and to the extent required by applicable federal securities laws.
(b) As soon as practicable on the day that the Offer is commenced, SFP will
file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9") which shall reflect the recommendations of SFP's Board
of Directors with respect to the Offer described in Section 8.2(a). SFP and
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BNI each agree promptly to correct any information provided by it for use in
the Schedule 14D-9 if and to the extent that it shall have become false or
misleading in any material respect. SFP agrees to take all steps necessary to
cause the Schedule 14D-9 as so corrected to be filed with the SEC and to be
disseminated to holders of shares of SFP Common Stock, in each case as and to
the extent required by applicable federal securities laws. BNI and its counsel
shall be given an opportunity to review and comment on the Schedule 14D-9 prior
to its being filed with the SEC.
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 except that the condition
set forth in clause (vii) may not be waived) 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
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 tax-free to BNI, SFP and
their respective stockholders for federal income tax purposes;
(vii) SFP and BNI shall have purchased shares of SFP Common Stock
pursuant to the Offer.
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
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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;
(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;
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<PAGE>
(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;
(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;
(xii) by SFP, upon payment to BNI of the fee described in Section
11.4(b), if prior to the purchase of shares of SFP Common Stock pursuant to
the Offer, (A) the board of directors of SFP shall have withdrawn or
modified in a manner adverse to BNI its approval or recommendation of the
Offer, this Agreement or the Merger in order to permit SFP to execute a
definitive agreement in connection with a Takeover Proposal or in order to
approve another tender offer for shares of SFP Common Stock, in either
case, as determined by the board of directors of SFP, on terms more
favorable to SFP's stockholders than the transactions contemplated hereby,
or (B) the board of directors of SFP shall have recommended any other
Takeover Proposal; and
(xiii) by either BNI or SFP, if the Offer is terminated and SFP and BNI
shall not have purchased shares of SFP Common Stock pursuant to the Offer.
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, 5.9 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.
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
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<PAGE>
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).
(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; Certain Payments. (a) Except as otherwise provided in
this Section or 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
engaged by it, incurred in connection with this Agreement and the transactions
contemplated hereby.
(b) SFP agrees that if this Agreement shall be terminated pursuant to Section
10.1(v), (vii), (viii), (xii) or (xiii), it will pay BNI an amount equal to
$50,000,000 plus all out-of-pocket expenses, not to exceed $10,000,000,
incurred by BNI in connection with this Agreement, the Merger, the Offer and
all related transactions by wire transfer of immediately available funds
promptly, but in no event later than two business days, after such termination;
provided that no payment will be required pursuant to this Section 11.4(b) if
this Agreement is terminated pursuant to Section 10.1(vii), (viii) or (xiii)
unless, after December 18, 1994, a
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<PAGE>
new Takeover Proposal involving SFP has been announced or made (it being
understood that any modification of Union Pacific Corporation's Takeover
Proposal in existence on December 18, 1994 shall be deemed a new Takeover
Proposal).
(c) SFP agrees that if this Agreement shall be terminated pursuant to Section
10.1(vii), (viii) or (xiii) and no payment is required by it pursuant to
Section 11.4(b), it will reimburse BNI for all out-of-pocket expenses incurred
by BNI in connection with this Agreement, the Merger, the Offer and all related
transactions. Such payment shall be made by wire transfer of immediately
available funds promptly, but in no event later than two business days, after
receipt by SFP from BNI of documentation of such expenses.
SECTION 11.5. Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto.
SECTION 11.6. Governing Law. This Agreement shall be construed in accordance
with and governed by the law of the State of Delaware (without regard to
principles of conflict of laws).
SECTION 11.7. Jurisdiction. Any suit, action or proceeding seeking to enforce
any provision of, or based on any matter arising out of or in connection with,
this Agreement or the transactions contemplated hereby may be brought against
any of the parties in the United States District Court for the District of
Delaware or any state court sitting in the City of Wilmington, Delaware, and
each of the parties hereby consents to the exclusive jurisdiction of such
courts (and of the appropriate appellate courts) in any such suit, action or
proceeding and waives any objection to venue laid therein. Process in any such
suit, action or proceeding may be served on any party anywhere in the world,
whether within or without the State of Delaware. Without limiting the
foregoing, each of the parties hereto agrees that service of process upon such
party at the address referred in Section 11.1, together with written notice of
such service to such party, shall be deemed effective service of process upon
such party.
SECTION 11.8. Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have
received counterparts hereof signed by all of the other parties hereto.
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
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<PAGE>
EXHIBIT A
FORM OF AFFILIATE LETTER
Burlington Northern Inc.
3800 Continental Plaza
777 Main Street
Ft. Worth, Texas 76102
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed to be
an "affiliate" of Santa Fe Pacific Corporation, a Delaware corporation ("SFP"),
as the term "affiliate" is defined for purposes of paragraphs (c) and (d) of
Rule 145 of the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"). Pursuant to the terms of the Agreement and
Plan of Merger dated as of June 29, 1994 (the "Agreement"), between Burlington
Northern Inc., a Delaware corporation ("BN"), and SFP, SFP will be merged with
and into BN, with BN to be the survivor in the merger (the "Merger").
As a result of the Merger, I may receive shares of Common Stock, no par
value, of BN (the "BN Securities") in exchange for shares owned by me of Common
Stock, par value $1.00 per share, of SFP.
I represent, warrant and covenant to BN that in the event I receive any BN
Securities as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of the BN
Securities in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Agreement and discussed the
requirements of such documents and other applicable limitations upon my
ability to sell, transfer or otherwise dispose of the BN Securities to the
extent I felt necessary with my counsel or counsel for SFP.
C. I have been advised that the issuance of BN Securities to me pursuant
to the Merger has been registered with the Commission under the Act on a
Registration Statement on Form S-4. However, I have also been advised that,
since at the time the Merger was submitted for a vote of the stockholders
of SFP, I may be deemed to have been an affiliate of SFP and the
distribution by me of the BN Securities has not been registered under the
Act, I may not sell, transfer or otherwise dispose of the BN Securities
issued to me in the Merger unless (i) such sale, transfer or other
disposition has been registered under the Act, (ii) such sale, transfer or
other disposition is made in conformity with Rule 145 promulgated by the
Commission under the Act, or (iii) in the opinion of counsel reasonably
acceptable to BN, or a "no action" letter obtained by the undersigned from
the staff of the Commission, such sale, transfer or other disposition is
otherwise exempt from registration under the Act.
D. I understand that BN is under no obligation to register the sale,
transfer or other disposition of the BN Securities by me or on my behalf
under the Act or to take any other action necessary in order to make
compliance with an exemption from such registration available.
E. I also understand that there will be placed on the certificates for
the BN Securities issued to me, or any substitutions therefor, a legend
stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED
BETWEEN THE REGISTERED HOLDER HEREOF AND BURLINGTON NORTHERN INC., A
COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF
BURLINGTON NORTHERN INC."
<PAGE>
F. I also understand that unless the transfer by me of my BN Securities
has been registered under the Act or is a sale made in conformity with the
provisions of Rule 145, BN reserves the right to put the following legend
on the certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED
BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN
ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933."
It is understood and agreed that the legends set forth in paragraphs E and F
above shall be removed by delivery of substitute certificates without such
legend if, in the judgment of BN, such legend is not required for purposes of
the Act or this Agreement.
Execution of this letter should not be considered an admission on my part
that I am an "affiliate" of SFP as described in the first paragraph of this
letter or as a waiver of any rights I may have to object to any claim that I am
such an affiliate on or after the date of this letter.
Very truly yours,
_____________________________________
Name:
Accepted this day of , 1994 by
BURLINGTON NORTHERN INC.
By: _________________________________
Name: _____________________________
Title: ____________________________
<PAGE>
ANNEX I
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, neither SFP nor BNI shall
be required to accept for payment or pay for any shares of SFP Common Stock,
and may terminate or amend its obligation to purchase shares of SFP Common
Stock under the Offer or may postpone the acceptance for payment of and payment
for shares of SFP Common Stock, if (i) at least 63,000,000 shares of SFP Common
Stock shall not have been tendered and not withdrawn pursuant to the Offer (the
"Minimum Condition"), (ii) this Agreement shall not have been adopted by the
stockholders of SFP and BNI in accordance with Delaware Law, (iii) the
applicable waiting period under the HSR Act shall not have expired or been
terminated, (iv) BNI (in the case of SFP) and SFP (in the case of BNI) shall
not have accepted (or shall not concurrently accept) shares of SFP Common Stock
for payment under the Offer or (v) at any time on or after the date of this
Agreement and prior to the acceptance for payment of shares of SFP Common
Stock, any of the following conditions exist:
(a) any court, arbitrator or governmental body, agency or official shall have
issued any order, or there shall be any statute, rule or regulation,
restraining or prohibiting the consummation of the Offer or the Merger or the
effective operation of the business of BNI, SFP and their respective
Subsidiaries after the Effective Time; or
(b) any actions by or in respect of or filings with any governmental body,
agency, official, or authority required to permit the consummation of the Offer
(other than with respect to the HSR Act) or the Merger (other than ICC
approval) shall not 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; or
(c) SFP (in the case of BNI) or BNI (in the case of SFP) shall have failed to
perform in any material respect any of its respective obligations under this
Agreement required to be performed by it at or prior to the consummation of the
Offer, or the representations and warranties of SFP (in the case of BNI) or BNI
(in the case of SFP) shall not have been accurate in all material respects both
when made and at and as of any time prior to the consummation of the Offer as
if made at and as of such time, except for the representations and warranties
of SFP and BNI in Sections 3.5(a) and 4.5(a), respectively, of the Agreement,
which shall be accurate in all respects when made and at and as of any time
prior to the consummation of the Offer as if made at and as of that time; or
(d) the Agreement shall have been terminated in accordance with its terms; or
(e) (i) SFP shall not be satisfied, in its sole discretion, that it has
obtained sufficient financing to enable it to satisfy its obligations under the
Offer and to effect the other transactions referred to in Section 5.1(f)(ii),
or (ii) BNI shall not be satisfied, in its sole discretion, that it has
obtained sufficient financing to enable it to satisfy its obligations under the
Offer (it being understood that each of SFP and BNI will use its reasonable
best efforts to ensure that this condition to its obligations under the Offer
is satisfied no later than December 31, 1994).
which, in the sole judgment of SFP or BNI in any such case, and regardless of
the circumstances (including any action or omission by SFP or BNI) giving rise
to any such condition, makes it inadvisable to proceed with such acceptance for
payment or payment; provided that the Minimum Condition may be waived only with
the consent of each of BNI and SFP.
A-I-1
<PAGE>
ANNEX II
REGISTRATION RIGHTS
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein, have the
following meanings:
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under common control with such Person. For the
purposes of this definition, "control" when used with respect to any Person,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Demand Registration" means a Demand Registration as defined in Section 2.2.
"Piggy-Back Registration" means a Piggy-Back Registration as defined in
Section 2.3.
"Registrable Securities" means the shares of SFP Common Stock purchased by
BNI pursuant to the Offer until (i) a registration statement covering such SFP
Common Stock has been declared effective by the Commission and it has been
disposed of pursuant to such effective registration statement, (ii) such SFP
Common Stock is sold under circumstances in which all of the applicable
conditions of Rule 144 (or any similar provisions then in force) under the 1933
Act are met, (iii) such SFP Common Stock may be sold without registration
pursuant to Rule 144(k) or (iv) such SFP Common Stock has been otherwise
transferred, SFP has delivered a new certificate or other evidence of ownership
for such SFP Common Stock not bearing the legend required pursuant to this
Agreement and such SFP Common Stock may be resold without subsequent
registration under the 1933 Act.
"Underwriter" means a securities dealer who purchases any Registrable
Securities as principal and not as part of such dealer's market-making
activities.
ARTICLE II
REGISTRATION RIGHTS
SECTION 2.1. Demand Registration. (a) Request for Registration. At any time
or from time to time after the termination of the Agreement, BNI may make a
written request for registration under the 1933 Act of all or part of its
Registrable Securities (a "Demand Registration"); provided, that the SFP shall
not be obligated to effect more than two Demand Registrations in total with
respect to such issue of Registrable Securities. Such request will specify the
number of shares of Registrable Securities proposed to be sold and will also
specify the intended method of disposition thereof.
(b) Effective Registration. A registration will not count as a Demand
Registration until it has become effective.
(c) Managing Underwriting; Additional Demand Registrations. If BNI shall so
elect, the offering of such Registrable Securities pursuant to such Demand
Registration shall be in the form of an underwritten offering. BNI shall select
the book-running managing Underwriter in connection with such offering and any
additional investment bankers and managers to be used in connection with the
offering; provided that such managing Underwriter and additional investment
bankers and managers must be reasonably satisfactory to SFP. To the extent
Registrable Securities so requested to be registered are excluded from the
offering in accordance with Section 2.3, BNI shall have the right to one
additional Demand Registration under this Section with respect to such
Registrable Securities.
A-II-1
<PAGE>
SECTION 2.2. Piggy-Back Registration. If at any time SFP proposes to file a
registration statement under the 1933 Act with respect to an offering by SFP
for its own account or for the account of any of its respective securityholders
of any class of security (other than a registration statement on Form S-4 or S-
8 (or any substitute form that may be adopted by the Commission or a
registration filed), or filed in connection with an exchange offer or offering
of securities solely to SFP's existing securityholders) then SFP shall give
written notice of such proposed filing to BNI as soon as practicable (but in no
event less than 10 days before the anticipated filing date), and such notice
shall offer BNI the opportunity to register such number of shares of
Registrable Securities as BNI may request (a "Piggy-Back Registration"). SFP
shall use its reasonable best efforts to cause the managing Underwriter or
Underwriters of a proposed underwritten offering to permit the Registrable
Securities requested to be included in a Piggy-Back Registration to be included
on the same terms and conditions as any similar securities of SFP included
therein.
SECTION 2.3. Reduction of Offering. Notwithstanding anything contained
herein, if the managing Underwriter or Underwriters of an offering described in
Section 2.1 or 2.2 deliver a written opinion to BNI that the size of the
offering that is intended to be made is such that the success of the offering
would be materially and adversely affected by inclusion of all of the
Registrable Securities requested to be included, then the amount of securities
to be offered for the account of BNI shall be reduced to the extent necessary
to reduce the total amount of securities to be included in such offering to the
amount recommended by such managing Underwriter or Underwriters; provided that,
in the case of a Piggy-Back Registration, if securities are being offered for
the account of other persons or entities as well as SFP, then with respect to
the Registrable Securities intended to be offered by BNI, the proportion by
which the amount of such class of securities intended to be offered by BNI is
reduced shall not exceed the proportion by which the amount of such class of
securities intended to be offered by such other persons or entities is reduced.
ARTICLE III
REGISTRATION PROCEDURES
SECTION 3.1. Filings; Information. Whenever BNI requests that any Registrable
Securities be registered pursuant to Section 2.1 hereof, SFP will use its
reasonable best efforts to effect the registration of such Registrable
Securities in accordance with the intended method of disposition thereof as
quickly as practicable, and in connection with any such request:
(a) SFP will as expeditiously as reasonably practicable prepare and file
with the SEC a registration statement on any form for which SFP then qualifies
or which counsel for SFP shall deem appropriate and which form shall be
available for the sale of the Registrable Securities to be registered
thereunder in accordance with the intended method of distribution thereof, and
use its reasonable best efforts to cause such filed registration statement to
become and remain effective for a period of not less than 270 days; provided
that if SFP shall furnish to BNI a certificate signed by either its Chairman or
the Vice Chairman stating that in his good faith judgment it would be
significantly disadvantageous to SFP or its shareholders for such a
registration statement to be filed as expeditiously as reasonably practicable,
SFP shall have a period of not more than 90 days within which to file such
registration statement measured from the date of receipt of the request in
accordance with Section 2.1.
(b) SFP will, if requested, prior to filing a registration statement or
prospectus or any amendment or supplement thereto, furnish to BNI and each
Underwriter, if any, of the Registrable Securities covered by such registration
statement copies of such registration statement as proposed to be filed, and
thereafter furnish to BNI and such Underwriter, if any, such number of copies
of such registration statement, each amendment and supplement thereto (in each
case including all exhibits thereto and documents incorporated by reference
therein), the prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as BNI or such
Underwriter may reasonably request in order to facilitate the disposition of
the Registrable Securities owned by BNI.
A-II-2
<PAGE>
(c) After the filing of the registration statement, SFP will promptly notify
BNI of any stop order issued or threatened by the SEC and take all reasonable
actions required to prevent the entry of such stop order or to remove it if
entered.
(d) SFP will use its reasonable best efforts to (i) register or qualify the
Registrable Securities under such other securities or blue sky laws of such
jurisdictions in the United States as BNI reasonably (in light of BNI's
intended plan of distribution) requests and (ii) cause such Registrable
Securities to be registered with or approved by such other governmental
agencies or authorities in the United States as may be necessary by virtue of
the business and operations of SFP and do any and all other acts and things
that may be reasonably necessary or advisable to enable BNI to consummate the
disposition of the Registrable Securities owned by BNI; provided that SFP will
not be required to (A) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this paragraph (d),
(B) subject itself to taxation in any such jurisdiction or (C) consent to
general service of process in any such jurisdiction.
(e) SFP will immediately notify BNI, at any time when a prospectus relating
thereto is required to be delivered under the 1933 Act, of the occurrence of an
event requiring the preparation of a supplement or amendment to such prospectus
so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus will not contain an 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 and promptly make
available to BNI any such supplement or amendment.
(f) SFP will enter into customary agreements (including an underwriting
agreement in form customary for SFP) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of such
Registrable Securities.
(h) Subject, in the case of BNI, to the Confidentiality Agreement between BNI
and SFP dated as of July 28, 1993 or, in the case of any Underwriter or
Inspector retained by any Underwriter, customary confidentiality obligations,
SFP will make available for inspection by BNI, any Underwriter participating in
any disposition pursuant to such registration statement and any attorney,
accountant or other professional retained by BNI or such Underwriter
(collectively, the "Inspectors"), all financial and other records, pertinent
corporate documents and properties of SFP (collectively, the "Records") as
shall be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause SFP's officers, directors and employees to supply all
information reasonably requested by any Inspectors in connection with such
registration statement.
(i) SFP will furnish to BNI and to each Underwriter, if any, a signed
counterpart, addressed to BNI or such Underwriter, of (i) an opinion or
opinions of counsel to SFP and (ii) a comfort letter or comfort letters from
SFP's independent public accountants, each in form customary in primary
offerings by SFP form and covering such matters of the type customarily covered
by opinions or comfort letters, as the case may be, as BNI or the managing
Underwriter reasonably requests.
(j) SFP will otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
security-holders, as soon as reasonably practicable, its most recent quarterly
earnings statement beginning with the first full quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the 1933 Act and Rule 158 under the 1933 Act.
(k) SFP will use its reasonable best efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar securities
of the same class issued by SFP are then listed.
SFP may require BNI to promptly furnish in writing to SFP such information
regarding the distribution of the Registrable Securities as SFP may from time
to time reasonably request and such other information as may be legally
required in connection with such registration.
A-II-3
<PAGE>
BNI agrees that, upon receipt of any notice from SFP of the happening of any
event of the kind described in Section 3.1(e) hereof, BNI will forthwith
discontinue disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until BNI's receipt of the
copies of the supplemented or amended prospectus contemplated by Section 3.1(e)
hereof, and, if so directed by SFP, BNI will deliver to SFP all copies, other
than permanent file copies then in BNI's possession, of the most recent
prospectus covering such Registrable Securities at the time of receipt of such
notice. In the event SFP shall give such notice, SFP shall extend the period
during which such registration statement shall be maintained effective
(including the period referred to in Section 3.1(a) hereof) by the number of
days during the period from and including the date of the giving of notice
pursuant to Section 3.1(e) hereof to the date when SFP shall make available to
BNI a prospectus supplemented or amended to conform with the requirements of
Section 3.1(e) hereof.
SECTION 3.2. Registration Expenses. In connection with any registration
statement required to be filed hereunder, SFP shall pay the following
registration expenses incurred in connection with the registration hereunder
(the "Registration Expenses"): (i) all registration and filing fees, (ii) fees
and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (iii) printing expenses, (iv)
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), (v) the fees
and expenses incurred in connection with the listing of the Registrable
Securities, (vi) reasonable fees and disbursements of counsel for SFP and
customary fees and expenses for independent certified public accountants
retained by SFP (including the expenses of any comfort letters or costs
associated with the delivery by independent certified public accountants of a
comfort letter or comfort letters requested pursuant to Section 3.1(h) hereof),
and (vii) the reasonable fees and expenses of any special experts retained by
SFP in connection with such registration. SFP shall have no obligation to pay
any underwriting fees, discounts or commissions attributable to the sale of
Registrable Securities, or any out-of-pocket expenses of BNI or its
Underwriters (or the agents who manage their accounts).
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1. Indemnification by SFP. SFP agrees to indemnify and hold
harmless BNI, its officers, directors and agents, and each Person, if any, who
controls BNI within the meaning of Section 15 of the 1933 Act or Section 20 of
the Exchange Act from and against any and all losses, claims, damages and
liabilities caused by any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus relating to
the Registrable Securities (as amended or supplemented if SFP shall have
furnished any amendments or supplements thereto) or any preliminary prospectus,
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information furnished in writing to SFP by BNI or on BNI's
behalf expressly for use therein; provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of BNI, its officers, directors and agents, and each Person, if
any, who controls BNI within the meaning of Section 15 of the 1933 Act or
Section 20 of the Exchange Act if it is determined that it was the
responsibility of BNI to provide such person with a current copy of the
prospectus and such current copy of the prospectus would have cured the defect
giving rise to such loss, claim, damage or liability. SFP also agrees to
indemnify any Underwriters of the Registrable Securities, their officers and
directors and each person who controls such underwriters on substantially the
same basis as that of the indemnification of BNI provided in this Section 4.1.
SECTION 4.2. Indemnification by BNI. BNI agrees to indemnify and hold
harmless SFP, its officers, directors and agents and each Person, if any, who
controls SFP within the meaning of either Section 15 of the 1933 Act or Section
20 of the Exchange Act to the same extent as the foregoing indemnity from
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<PAGE>
SFP to BNI, but only with reference to information relating to BNI furnished in
writing by BNI or on BNI's behalf expressly for use in any registration
statement or prospectus relating to the Registrable Securities, or any
amendment or supplement thereto, or any preliminary prospectus. In case any
action or proceeding shall be brought against SFP or its officers, directors or
agents or any such controlling person, in respect of which indemnity may be
sought against BNI, BNI shall have the rights and duties given to SFP, and SFP
or its officers, directors or agents or such controlling person shall have the
rights and duties given to BNI, by the preceding paragraph. BNI also agrees to
indemnify and hold harmless Underwriters of the Registrable Securities, their
officers and directors and each person who controls such Underwriters on
substantially the same basis as that of the indemnification of SFP provided in
this Section 4.2.
SECTION 4.3. Conduct of Indemnification Proceedings. In case any proceeding
(including any governmental investigation) shall be instituted involving any
person in respect of which indemnity may be sought pursuant to Section 4.1 or
4.2, such person (an "Indemnified Party") shall promptly notify the person
against whom such indemnity may be sought "Indemnifying Party") in writing and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Party, and
shall assume the payment of all fees and expenses. In any such proceeding, any
Indemnified Party shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
unless (i) the Indemnifying Party and the Indemnified Party shall have mutually
agreed to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the Indemnified Party
and the Indemnifying Party and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them. It is understood that the Indemnifying Party shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the reasonable fees and expenses of more than one separate firm
of attorneys (in addition to any local counsel) at any time for all such
Indemnified Parties, and that all such fees and expenses shall be reimbursed as
they are incurred. In the case of any such separate firm for the Indemnified
Parties, such firm shall be designated in writing by the Indemnified Parties.
The Indemnifying Party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent, or if
there be a final judgment for the plaintiff, the Indemnifying Party shall
indemnify and hold harmless such Indemnified Parties from and against any loss
or liability (to the extent stated above) by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the indemnified
party for fees and expenses of counsel as contemplated by the third sentence of
this paragraph, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 business days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such request
prior to the date of such settlement. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is
or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability arising out of such
proceeding.
SECTION 4.4. Contribution. If the indemnification provided for in this
Article 4 is unavailable to the Indemnified Parties in respect of any losses,
claims, damages or liabilities referred to herein, then each such Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such losses,
claims, damages or liabilities (i) as between SFP and BNI on the one hand and
the Underwriters on the other, in such proportion as is appropriate to reflect
the relative benefits received by SFP and BNI on the one hand and the
Underwriters on the other from the offering of the securities, or if such
allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits but also the relative
fault of SFP and BNI on the one hand and of the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations and (ii) as between SFP on the one hand and BNI on the other, in
such proportion as is appropriate to reflect the relative
A-II-5
<PAGE>
fault of SFP and of BNI in connection with such statements or omissions, as
well as any other relevant equitable considerations. The relative benefits
received by SFP and BNI on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total proceeds from the offering
(net of underwriting discounts and commissions but before deducting expenses)
received by SFP and BNI bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the prospectus. The relative fault of SFP and BNI on
the one hand and of the Underwriters on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by SFP and BNI or by the
Underwriters. The relative fault of SFP on the one hand and of BNI on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by such party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
SFP and BNI agree that it would not be just and equitable if contribution
pursuant to this Section 4.4 were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Party as a result of the losses, claims,
damages or liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 4.4, no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the
securities underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission, and BNI shall not be required to contribute any
amount in excess of the amount by which the total price at which BNI's
securities were offered to the public exceeds the amount of any damages which
BNI has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Participation in Underwritten Registrations. No Person may
participate in any underwritten registration filed pursuant to Section 2.1
hereunder unless such Person (a) agrees to sell such Person's securities on the
basis provided in any underwriting arrangements approved by the Persons
entitled hereunder to approve such arrangements and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents reasonably required under the terms of such underwriting
arrangements and these registration rights.
SECTION 5.2. Rule 144. SFP covenants that it will file any reports required
to be filed by it under the Exchange Act and that it will take such further
action as BNI may reasonably request, all to the extent required from time to
time to enable BNI to sell Registrable Securities without registration under
the 1933 Act within the limitation of the exemptions provided by (a) Rule 144
under the 1933 Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC. Upon the request of
BNI, SFP will deliver to BNI a written statement as to whether it has complied
with such requirements.
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<PAGE>
SECTION 5.3. Holdback Agreements. (a) Restrictions on Public Sale by BNI. To
the extent not inconsistent with applicable law, when BNI's securities are
included in a registration statement, BNI agrees not to effect any public sale
or distribution of SFP Common Stock, or any securities convertible into or
exchangeable or exercisable for such securities, including a sale pursuant to
Rule 144 under the 1933 Act, during the 14 days prior to, and during the 90-day
period beginning on, the effective date of such registration statement (except
as part of such registration), if and to the extent requested by SFP in the
case of a non-underwritten public offering or if and to the extent requested by
the managing Underwriter or Underwriters in the case of an underwritten public
offering.
(b) Restrictions on Public Sale by SFP and Others. SFP agrees not to effect
any public sale or distribution of any securities of the class being registered
in accordance with Section 2.1 hereof, or any securities convertible into or
exchangeable or exercisable for such securities, during the 14 days prior to,
and during the 90-day period beginning on, the effective date of any
registration statement (except as part of such registration statement where BNI
consents) or the commencement of a public distribution of Registrable
Securities, including a sale pursuant to Rule 144 under the 1933 Act (except as
part of any such registration, if permitted); provided, however, that the
provisions of this paragraph (b) shall not prevent the conversion or exchange
of any securities pursuant to their terms into or for other securities or sales
or distributions pursuant to any dividend or interest reinvestment plan or
director or employer compensation plan.
A-II-7
<PAGE>
APPENDIX B
LETTER AGREEMENT
BETWEEN
BURLINGTON NORTHERN INC.
AND
SANTA FE PACIFIC CORPORATION
<PAGE>
LOGO
BURLINGTON NORTHERN INC.
3800 CONTINENTAL PLAZA
777 MAIN STREET
FORT WORTH, TEXAS 76102-5384
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>
Lazard Freres & Co.
One Rockefeller Plaza
New York, N.Y. 10020
----
Telephone (212) 632-6000
Facsimile (212) 632-6060
New York
January 13, 1995
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 and the Amendment thereto dated as of December 18, 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 .40 of a share of common stock, no par value (the "BN Common
Stock"), of BN (the "Exchange Ratio"). The Agreement also requires that
promptly after the execution of the Amendment dated as of December 18, 1994,
each of SF and BN will commence tender offers (the "Tender Offers") at $20 per
share for an aggregate of 63 million of the outstanding shares of SF Common
Stock, with SF tendering for 38 million such shares and BN tendering for 25
million such shares (the "BN Tender Offer"). The Tender Offers are being made
pursuant to an Offer to Purchase dated December 23, 1994 (the "Offer to
Purchase"). We understand that the closing of the Tender Offers by BN and SF
are conditioned on BN's and SF's stockholders approval of the Merger. The
terms and conditions of the Merger are more fully set forth in the Agreement
and the terms and conditions of the Tender Offers are more fully set forth in
the Offer to Purchase.
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 and the
consideration to be paid in the BN Tender Offer, when taken as a whole.
Lazard Freres & Co. has acted as financial advisor to BN in connection with
this transaction (including acting as the dealer manager in the BN Tender
Offer) and will receive a fee for our services, a substantial portion of which
is contingent upon the closing of the transaction. In connection with this
opinion, we have:
(i) reviewed the terms and conditions of the Agreement, of the Offer to
Purchase and the supplement thereto;
(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, June 30 and September 30, 1994 (and any amendments
thereto), Current Reports on Form 8-K of BN dated June 29, October 6,
October 26, November 18 and December 18, 1994 and Current Reports on Form
8-K of SF dated June 29, August 3, October 5, October 19, October 28,
November 2 and November 28, 1994 (and any amendments thereto);
C-1
<PAGE>
(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;
(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 Tender Offers and
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 October 28,
1994 and 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 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
and the consideration to be paid by BN in the BN Tender Offer, when taken as a
whole, 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.
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<PAGE>
APPENDIX D
OPINION OF GOLDMAN, SACHS & CO.
<PAGE>
Goldman, Sachs & Co. 85 Broad Street New York, New York 10004
Tel: 212-902-1000
Goldman
Sachs
PERSONAL AND CONFIDENTIAL
January 13, 1995
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 Aggregate
Consideration (as defined below) to be received pursuant to the Agreement and
Plan of Merger, dated as of June 29, 1994, as amended to January 13, 1995,
among Burlington Northern Inc. ("BNI") and the Company (the "Agreement") in
connection with the merger of the Company with and into BNI (the "Merger").
The Agreement provides for a joint tender offer (the "Joint Tender Offer")
pursuant to which the Company and BNI will pay $20 per share for an aggregate
of 63 million shares of Common Stock. The Agreement further provides that
following completion of the Joint Tender Offer and the appropriate regulatory
approvals, the Company will be merged with and into BNI and each outstanding
Share (other than Shares already owned by BNI) will be exchanged for 0.40
shares of common stock, with no par value, of Burlington Northern Inc. ("BNI
Common Stock"). The aggregate of the cash and stock consideration to be
received by all of the holders of outstanding shares of Common Stock of the
Company pursuant to the Joint Tender Offer and Merger is herein referred to as
the "Aggregate Consideration".
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, having acted as co-managing underwriter of public offerings of 8
3/8% Notes due 2001 and 8 5/8% Notes due 2004 of the Company in January 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 committed to participate as co-arranger and arranging
agent on the Company's bank financing and co-dealer managers in connection with
the Joint Tender Offer. 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. We have also provided certain
investment banking services to Union Pacific Corporation ("UPC") from time to
time, including having acted as co-managing underwriter of a public offering of
7 7/8% Notes due 2002 in February 1992, a public offering of 8 5/8% Sinking
Fund Debentures due 2022 in May 1992, a public offering of 6% Notes due 2003 in
August 1993, a public offering of 7% Notes due 2000 in June 1994, a public
offering
D-1
<PAGE>
of 6 1/8% Notes due 2004 in January 1994, and as sole managing underwriter of a
public offering of 6.12% Equipment Trust Certificates due February 1, 2004 in
January 1994.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Offer to Purchase dated December 23, 1994 of SFP and BNI; the
Joint Proxy Statement/Prospectus dated October 12, 1994, as amended and
supplemented to the date hereof; 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 reviewed the Proxy
Statement, dated October 28, 1994, as amended and supplemented to the date
hereof, of UPC, which solicits proxies in opposition to the Merger and the
Offer to Purchase, dated November 9, 1994 of UPC, as amended and supplemented
to the date hereof, which sets forth the proposal of UPC to acquire the
outstanding shares of Common Stock of the Company by means of a cash tender
offer and merger (the "UPC Proposal"). 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.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes for 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
transaction will receive regulatory approval in the manner contemplated by the
Company.
Management of the Company has advised us that in its opinion there are
significant contingencies associated with 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 whether or under what
circumstances regulatory authorities would permit a combination of the Company
and UPC. We have assumed with your consent that this advice was correct. We
believe that the effect upon the common stock of UPC resulting from the failure
to consummate the combination of the Company and UPC or from the conditions
which UPC may be required to accept in order to consummate such a combination
is uncertain. This uncertainty limits our ability to compare the aggregate
consideration to be received by the holders of the Common Stock of the Company
pursuant to the UPC Proposal with the Aggregate Consideration to be received
pursuant to the Joint Tender Offer and the Merger.
Based upon and subject to the foregoing and based upon such other matters as we
considered relevant, it is our opinion that as of the date hereof the Aggregate
Consideration to be received by all of the holders of
the outstanding shares of Common Stock of the Company pursuant to the Joint
Tender Offer and the Merger, considered as a unitary transaction, is fair to
such stockholders.
Very truly yours,
/s/ Goldman, Sachs & Co.
Goldman, Sachs & Co.
D-2
<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
FEBRUARY 7, 1995
10:00 A.M. FORT WORTH TIME
<PAGE>
Rule 424(b)(3)
Registration Nos. 33-57069,
33-56183
LOGO
SANTA FE PACIFIC CORPORATION
1700 EAST GOLF ROAD
SCHAUMBURG, ILLINOIS 60173-5860
January 13, 1995
DEAR STOCKHOLDER:
You are cordially invited to attend a Special Meeting of Stockholders of
Santa Fe Pacific Corporation ("Santa Fe") to be held at the Arlington Park
Hilton Conference Center, 3400 West Euclid Avenue, Arlington Heights, Illinois
on February 7, 1995 at 3:00 p.m., Chicago time.
At this important meeting you are being asked to consider and vote upon a
proposed merger of Santa Fe and Burlington Northern Inc. ("Burlington
Northern"), pursuant to which Santa Fe will be merged with and into Burlington
Northern and stockholders of Santa Fe will become stockholders of Burlington
Northern. In the merger, each share of Santa Fe common stock will be converted
into 0.40 shares of Burlington Northern common stock. On January 12, 1995, the
value of 0.40 of a share of Burlington Northern common stock had a value of
$20.55, based on the closing price on that day.
In addition, pursuant to the Merger Agreement between BNI and SFP, BNI and
SFP have commenced tender offers for an aggregate of 63 million shares of SFP
common stock at a price of $20 per share. The tender offers, which are
conditioned on BNI and SFP stockholder approval of the merger and certain other
matters, are currently scheduled to expire on February 8, 1995.
The merger is contingent upon, among other things, approval by the Interstate
Commerce Commission (the "ICC"), which the Santa Fe Board of Directors believes
is likely to occur. The merger would be consummated shortly after ICC approval
is obtained. The tender offer is not conditioned on ICC approval of the merger.
The merger will provide significant benefits to Santa Fe's stockholders.
Those benefits are explained in the attached Joint Proxy Statement/Prospectus,
which you should review carefully. As you will see in the Joint Proxy
Statement/Prospectus, in their application to 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 88 through 90 of the Joint Proxy Statement/Prospectus.
As you are probably aware, Union Pacific Corporation ("Union Pacific") has
made an offer (which includes a tender offer) to acquire Santa Fe. Santa Fe's
Board of Directors has concluded that the new agreement with Burlington
Northern is superior, especially on a long-term basis, to Union Pacific's
offer. For this reason, Santa Fe's Board recommends that you do not tender your
shares to Union Pacific in response to its tender offer.
<PAGE>
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 PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE,
WHICH REQUIRES NO POSTAGE. Your prompt cooperation is greatly appreciated.
Very truly yours,
/s/ Robert D. Krebs
Robert D. Krebs
Chairman, President and
Chief Executive Officer
<PAGE>
[ARTWORK APPEARS HERE CONSISTING OF A COMBINED
SYSTEM ROUTE MAP OF THE BURLINGTON NORTHERN
RAILROAD COMPANY AND THE ATCHISON, TOPEKA AND
SANTA FE RAILWAY COMPANY, WITH BURLINGTON NORTHERN
RAILROAD COMPANY ROUTES INDICATED IN GREEN, ATCHISON
TOPEKA AND SANTA FE RAILWAY COMPANY ROUTES INDICATED
IN BLUE AND BURLINGTON NORTHERN SHORT LINE
ROUTES INDICATED IN RED]
<PAGE>
SANTA FE PACIFIC CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 7, 1995
TO THE STOCKHOLDERS OF SANTA FE PACIFIC CORPORATION:
A Special Meeting of Stockholders of Santa Fe Pacific Corporation ("SFP")
will be held at the Arlington Park Hilton Conference Center, 3400 West Euclid
Avenue, Arlington Heights, Illinois on February 7, 1995, 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, as amended by an Amendment thereto dated as of October
26, 1994 and Amendment No. 2 thereto dated as of December 18, 1994 (such
Merger Agreement prior to such Amendments, the "Original Merger Agreement,"
and, as so amended, the "Merger Agreement") between Burlington Northern
Inc. ("BNI") and SFP, a copy of which is set forth as Appendix A to the
attached 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 0.40 shares of common stock, no par value, of BNI and
(iii) BNI will issue approximately 63 million shares of its common stock to
SFP stockholders, all as more fully set forth in the Merger Agreement and
described in the attached 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 December 27, 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 with a blue stripe 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
January 13, 1995
<PAGE>
BURLINGTON NORTHERN INC.
AND
SANTA FE PACIFIC CORPORATION
JOINT PROXY STATEMENT
FOR SPECIAL MEETINGS OF STOCKHOLDERS
TO BE HELD FEBRUARY 7, 1995
BURLINGTON NORTHERN INC.
BNSF CORPORATION
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, as
amended by an Amendment thereto dated as of October 26, 1994 and Amendment No.
2 thereto dated as of December 18, 1994 (such Merger Agreement prior to such
Amendments, the "Original Merger Agreement," and, as so amended, 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 0.40 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, the consummation of the
tender offers referred to below, 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.
On December 23, 1994, BNI and SFP commenced tender offers for 63 million
shares of SFP Common Stock (together, the "Offer"). The consummation of the
Offer is subject to, among other things, the approval of the Merger by the
stockholders of each of BNI and SFP. The Offer is currently scheduled to
expire on February 8, 1995. Consummation of the Offer is not subject to ICC
approval of the Merger. See "Other Considerations" and "The Merger Agreement--
The Offer."
This Joint Proxy Statement/Prospectus also constitutes a prospectus of BNI
with respect to up to 63 million 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."
This Joint Proxy Statement/Prospectus also constitutes a prospectus of BNSF
Corporation ("Holdings") with respect to up to 170 million shares of common
stock, par value $.01 per share ("Holdings Common Stock"), that would be
issued in the event that either BNI or SFP elect to effect the Merger through
the use of a holding company structure (the "Alternative Merger") pursuant to
the Merger Agreement. The parties intend to effectuate the Alternative Merger
if necessary or prudent to ensure that a BNI-SFP merger is tax-free for
federal income tax purposes to BNI, SFP and their respective stockholders. The
Alternative Merger would have the same economic effect on stockholders of BNI
and SFP as the Merger in its current structure. See "The Merger Agreement--
Alternative Transaction Structure." The issuance of the BNI Common Stock in
the Merger or the Holdings Common Stock in the Alternative Merger is at the
option of BNI and SFP, and not their respective stockholders. A vote in favor
of the adoption of the Merger Agreement is, therefore, a vote in favor of both
the Merger and the Alternative Merger.
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
January 15, 1995.
----------------
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 January 13, 1995.
<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
(together with any amendments thereto, the "BNI Registration Statements") under
the Securities Act of 1933, as amended (the "Securities Act"), relating to the
shares of BNI Common Stock offered hereby and Holdings has filed with the
Commission a Registration Statement on Form S-4 (together with any amendments
thereto, the "Holdings Registration Statement," and, together with the BNI
Registration Statements, the "Registration Statements") under the Securities
Act relating to the shares of Holdings Common Stock that may be offered hereby.
This Joint Proxy Statement/Prospectus does not contain all of the information
set forth in the Registration Statements and the exhibits thereto filed by BNI
and Holdings, certain portions of 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, Holdings, 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.
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) and September 30, 1994;
3. BNI's Current Reports on Form 8-K dated June 29, 1994, October 6, 1994,
October 26, 1994, November 18, 1994 and December 18, 1994;
4. BNI's Registration Statement on Form 8-A dated July 15, 1986; and
5. BNI's Tender Offer Statement on Form 14D-1 dated December 23, 1994.
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) and the quarter ended September 30,
1994;
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
2
<PAGE>
8-K/A dated October 5, 1994), October 5, 1994, October 19, 1994, October
28, 1994, November 2, 1994 and November 28, 1994;
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);
5. SFP's Registration Statement on Form 8-A dated November 28, 1994;
6. SFP's Issuer Tender Offer Statement on Form 13E-4 dated December 23,
1994 (including Amendment No. 1 thereto on Form 13E-4/A dated January 5,
1995) including exhibits thereto; and
7. SFP's Solicitation/Recommendation Statement on Schedule 14D-9 dated
December 23, 1994 (including Amendment No. 1 thereto on Schedule 14D-9/A
dated January 5, 1995).
----------------
All documents filed by BNI, Holdings 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 JANUARY 27, 1995.
----------------
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, SFP OR HOLDINGS. 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 BNI, SFP OR HOLDINGS 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.................. 8
Security Ownership of Management...................................... 8
Other Considerations.................................................. 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; Break-Up Fee................... 9
Board of Directors after the Merger................................... 10
Interests of Certain Persons in the Merger; Management after the
Merger............................................................... 10
No Appraisal Rights................................................... 10
NYSE Listing.......................................................... 10
Accounting Treatment.................................................. 10
Tax Consequences...................................................... 10
SFP Stock Options..................................................... 10
Alternative Transaction Structure..................................... 11
The Offer............................................................... 11
The Offer............................................................. 11
Conditions to the Offer............................................... 11
Recommendation of SFP Board of Directors.............................. 11
Market Prices........................................................... 12
Selected Historical Financial Data...................................... 13
Unaudited Selected Pro Forma Financial Data............................. 17
Unaudited Comparative Per Share Data.................................... 18
INTRODUCTION.............................................................. 19
THE COMPANIES............................................................. 19
Burlington Northern Inc................................................. 19
Santa Fe Pacific Corporation............................................ 20
BNSF Corporation........................................................ 21
THE SPECIAL MEETINGS...................................................... 21
Purpose of the BNI and SFP Special Meetings............................. 21
Date, Place and Time.................................................... 21
Record Dates............................................................ 21
Required Vote........................................................... 21
Voting and Revocation of Proxies........................................ 22
Solicitation of Proxies................................................. 22
OTHER CONSIDERATIONS...................................................... 23
Effect of Failure to Achieve Expected Benefits and Regulatory Approval.. 23
Increase in Leverage.................................................... 23
Dividends............................................................... 24
Proration............................................................... 24
The SFP Rights Plan..................................................... 24
THE MERGER................................................................ 24
Background of the Merger and the Offer.................................. 24
Recommendations of the Boards of Directors and Reasons for the Merger... 40
Opinions of Financial Advisors.......................................... 42
Merger Consideration.................................................... 49
Effective Time.......................................................... 49
Conversion of Shares; Procedures for Exchange of Certificates;
Dividends; No Fractional Shares........................................ 50
Name of Surviving Entity................................................ 51
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NYSE Listing............................................................ 51
Expenses................................................................ 51
Interests of Certain Persons in the Merger.............................. 52
Accounting Treatment.................................................... 57
Certain Federal Income Tax Consequences................................. 58
Management and Director Stock Options................................... 59
No Appraisal Rights..................................................... 59
THE OFFER................................................................. 59
BOARD OF DIRECTORS AND MANAGEMENT AFTER THE MERGER........................ 60
THE MERGER AGREEMENT...................................................... 60
The Merger.............................................................. 60
Representations and Warranties.......................................... 62
Covenants............................................................... 62
Conduct of Business Pending the Merger................................ 62
Stockholder Meetings.................................................. 63
Access to Information................................................. 63
Notice of Certain Events.............................................. 64
Tax Matters........................................................... 64
No Solicitations...................................................... 64
Additional SFP Covenants.............................................. 64
Additional BNI Covenants.............................................. 65
Joint Covenants of SFP and BNI........................................ 65
Registration Rights..................................................... 66
The Offer............................................................... 66
Conditions to the Consummation of the Merger............................ 67
Termination............................................................. 68
Survival of Representations and Warranties.............................. 68
Amendments; No Waivers.................................................. 69
Alternative Transaction Structure....................................... 69
Expenses................................................................ 70
Governing Law........................................................... 70
Jurisdiction............................................................ 70
UNAUDITED PRO FORMA FINANCIAL STATEMENTS.................................. 71
OTHER MATTERS............................................................. 87
ICC Approval............................................................ 87
Other Regulatory Approvals.............................................. 88
Additional Financial Considerations..................................... 88
Recent Developments Related to UPC's Voting Trust Proposal.............. 90
The Gold Spinoff........................................................ 92
Certain Pending Litigation.............................................. 93
DESCRIPTION OF BNI CAPITAL STOCK.......................................... 96
BNI Common Stock........................................................ 96
6 1/4% Convertible Preferred Stock...................................... 96
Additional Classes of Preferred Stock................................... 98
BNI Rights; Junior Class A Preferred Stock.............................. 99
COMPARISON OF RIGHTS OF STOCKHOLDERS OF BNI AND SFP....................... 99
Board of Directors...................................................... 99
Special Meetings of Stockholders........................................ 100
No Stockholder Action by Written Consent................................ 100
Advance Notice Provisions for Stockholder Proposals..................... 100
Vote Required for Certain Business Combinations......................... 100
Indemnification of Directors and Officers............................... 102
Rights Plans............................................................ 102
CERTAIN ADDITIONAL INFORMATION CONCERNING HOLDINGS........................ 106
Description of Capital Stock............................................ 106
Rights of Holdings Stockholders......................................... 107
EXPERTS................................................................... 107
LEGAL MATTERS............................................................. 108
OTHER BUSINESS AT THE SPECIAL MEETINGS; STOCKHOLDER PROPOSALS............. 108
REPORT OF INDEPENDENT ACCOUNTANTS......................................... F-1
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." See also "--The Merger--
Alternative Transaction Structure."
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." See also "--The
Merger--Alternative Transaction Structure."
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 February 7, 1995
at 10:00 a.m., Fort Worth time.
A Special Meeting (the "SFP Special Meeting") of
stockholders of SFP will be held at the Arlington
Park Hilton Conference Center, 3400 West Euclid
Avenue, Arlington Heights, Illinois, on February
7, 1995 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, as amended by an
Amendment thereto dated as of October 26, 1994 and
Amendment No. 2 thereto dated
6
<PAGE>
as of December 18, 1994 (such Merger Agreement
prior to such Amendments, the "Original Merger
Agreement," and, as so amended, 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. A vote in favor of the Merger will
also constitute a vote in favor of the Alternative
Merger. See "The Special Meetings--Voting and
Revocation of Proxies" and "The Merger Agreement--
Alternative Transaction Structure."
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 transactions contemplated by the Merger
Agreement (including the Offer referred to below)
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), together with the consideration to
be paid to SFP stockholders in the Offer, taken as
a whole, 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 as of the date
thereof, based upon and subject to various
considerations and assumptions set forth therein
and based upon such other matters as Goldman Sachs
considered relevant, the aggregate of the cash and
stock consideration to be received by all of the
holders of the outstanding shares of SFP Common
Stock pursuant to the Offer and the Merger,
considered as a unitary transaction, is fair to
such holders.
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
7
<PAGE>
dated the date of this Joint Proxy
Statement/Prospectus, copies of which are attached
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
December 27, 1994. As of December 31, 1994, there
were outstanding 89,223,821 shares of BNI Common
Stock. As of December 31, 1994, there were
outstanding 188,301,537 shares of SFP Common
Stock. Only holders of record of BNI Common Stock
on the 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 December 31, 1994, directors and executive
officers of BNI and their affiliates were
beneficial owners of an aggregate of 1,917,706
shares of BNI Common Stock (approximately 2% of
the shares of BNI Common Stock then outstanding).
As of December 31, 1994, directors and executive
officers of SFP and their affiliates were
beneficial owners of an aggregate of 2,924,595
shares of SFP Common Stock (approximately 1.6% of
the shares of SFP Common Stock then outstanding).
Other Considerations.... For a discussion of certain factors relating to the
Offer and Merger, see "Other Considerations."
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 0.40 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
8
<PAGE>
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 filed their application
on October 13, 1994. Thereafter, in response to
requests by several parties to the merger
proceeding, the ICC on December 5, 1994 issued an
order holding the procedural schedule in abeyance
until such time as an SFP stockholder vote on the
Merger occurs. The December 5 order further stated
that upon approval of the proposed Merger by SFP
stockholders, the ICC would immediately issue a
new schedule requiring the first comments,
originally due on December 27, 1994, to be filed
30 days from the service date of the new schedule
and adjusting other schedule dates accordingly.
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. In addition to
such benefits, the incurrence of indebtedness in
connection with the Offer (as defined below) will
result, among other things, in additional interest
costs to BNI and SFP. See "Other Matters--
Additional Financial Considerations" for a
discussion of the estimates, assumptions, methods
of calculation and caveats applied to the ICC
application and "The Merger--Factors for
Consideration of the Merger" for a discussion of
certain of the effects of such indebtedness.
Conditions to the
Merger; Termination;
Break-up Fee........... The obligations of BNI and SFP to consummate the
Merger are subject to various conditions,
including the consummation of the Offer, 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 and receipt of an
opinion of counsel in respect of certain Federal
income tax consequences of the Merger.
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.
SFP has agreed that if the Merger Agreement is
terminated, under certain circumstances, it will
pay BNI an amount equal to
9
<PAGE>
$50,000,000 plus all out-of-pocket expenses, not
to exceed $10,000,000 incurred by BNI in
connection with the Merger Agreement, the Offer
and all related transactions. See "The Merger
Agreement--Expenses."
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.
Under Delaware law, neither holders of BNI Common
No Appraisal Rights..... Stock nor holders of SFP Common Stock are entitled
to appraisal rights in connection with the Merger.
See "The Merger--No Appraisal Rights."
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
"purchase" 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 constitute a tax-free transaction for
federal income tax purposes. If the Merger so
qualifies, no gain or loss will be recognized by
stockholders of SFP Common Stock or BNI Common
Stock, except to the extent of cash received in
lieu of fractional shares by SFP stockholders. If
necessary or prudent to ensure satisfaction of
this condition, either BNI or SFP may elect to
restructure the Merger in the manner described in
"Alternative Transaction Structure" below. All
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."
10
<PAGE>
Alternative Transaction
Structure..............
In the Merger Agreement, BNI and SFP have agreed
that either BNI or SFP may elect to effect the
Merger through the use of a holding company as
described below and have established BNSF
Corporation, a Delaware corporation ("Holdings"),
for such purpose. In this structure (the
"Alternative Merger"), (x) Holdings would create
two new wholly owned subsidiaries, cause one of
such subsidiaries to merge into BNI and cause the
other such subsidiary to merge into SFP, (y) each
holder of BNI Common Stock would receive one share
of common stock, par value $.01 per share
("Holdings Common Stock"), for each share of BNI
Common Stock and (z) each holder of SFP Common
Stock would receive 0.40 shares of Holdings Common
Stock for each share of SFP Common Stock. The
rights of a stockholder of Holdings will be
substantially identical to the rights of a
stockholder of BNI, and the Alternative Merger
would otherwise have the same economic effect on
the stockholders of BNI and SFP as the Merger in
its current structure. The parties intend to
effectuate the Alternative Merger if necessary or
prudent to ensure that a BNI-SFP merger is tax-
free for federal income tax purposes to BNI, SFP
and their respective stockholders. See "The Merger
Agreement--Alternative Transaction Structure."
THE OFFER
The Offer............... On December 23, 1994, SFP and BNI commenced
separate offers (together, the "Offer") to
purchase up to 63,000,000 shares of SFP Common
Stock in the aggregate (together with the
associated preferred share purchase rights issued
under the Rights Agreement dated as of November
28, 1994 between SFP and First Chicago Trust
Company of New York, as Rights Agent), at a price
of $20 per share, net to the seller in cash, with
SFP severally obligated to purchase up to
38,000,000 shares of SFP Common Stock accepted for
payment under the Offer and BNI severally
obligated to purchase up to 25,000,000 shares of
SFP Common Stock accepted for payment under the
Offer. See "The Offer."
Conditions to the The several obligations of BNI and SFP under the
Offer.................. Offer are conditioned on, among other things, (i)
at least 63,000,000 shares of SFP Common Stock
being validly tendered and not withdrawn before
the expiration of the Offer (the "Minimum
Condition"), (ii) SFP and BNI having obtained
sufficient financing on terms satisfactory to them
to purchase 63,000,000 shares of SFP Common Stock
pursuant to the Offer and to effect certain other
transactions and (iii) the approval of the Merger
Agreement by the stockholders of SFP and BNI. The
Offer is not conditioned on ICC approval of the
Merger. See "The Offer."
Recommendation of SFP
Board of Directors.....
SFP's Board of Directors unanimously recommended
that those of its stockholders who wish to receive
cash for a portion of their shares of SFP Common
Stock accept the Offer. Up to 63,000,000 shares of
SFP Common Stock are to be purchased in the Offer;
any shares tendered in response to the Offer over
and above such amount would be subject to
proration in accordance with the terms of the
Offer. Proration may result in SFP stockholders
receiving cash for only a portion of any shares
tendered, with the remaining consideration to be
received in the form of BNI Common Stock pursuant
to the Merger after the receipt of ICC approval
and satisfaction or waiver of the other conditions
to the Merger.
11
<PAGE>
MARKET PRICES
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 BNI Common Stock and 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 $13 7/8 $11 1/4
Second Quarter................................. 47 1/4 36 1/8 13 3/8 11 3/8
Third Quarter.................................. 39 5/8 33 1/2 12 3/4 11
Fourth Quarter................................. 43 7/8 35 7/8 13 7/8 11 1/4
1993
First Quarter.................................. 52 42 1/4 15 3/8 12 7/8
Second Quarter................................. 58 5/8 50 18 3/8 14 3/4
Third Quarter.................................. 57 1/2 51 1/8 18 7/8 17
Fourth Quarter................................. 58 48 3/4 22 1/4 18 1/2
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
Fourth Quarter................................. 51 5/8 46 5/8 17 5/8 12 5/8
1995
First Quarter (through January 12, 1995)....... 52 47 7/8 17 3/4 17 1/2
</TABLE>
On June 29, 1994, the last trading day before public announcement of
execution of the Original 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. 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 January 12, 1995, the closing prices of BNI Common Stock and SFP Common
Stock as reported in The Wall Street Journal were $51 3/8 per share and $17 1/2
per share, respectively. On December 16, 1994, the closing prices of BNI Common
Stock and SFP Common Stock as reported in The Wall Street Journal were $51 1/2
per share and $16 7/8 per share, respectively. The market value of 0.40 of a
share of BNI Common Stock (the equivalent per share value of the SFP Common
Stock to be exchanged in the Merger) on December 16, 1994 was $20.60 per share.
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.
12
<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 nine months ended September 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 nine months 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 nine months ended September 30, 1994 and 1993 and the balance
sheet data at September 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 nine months ended September 30, 1994
and 1993 and the Balance Sheet Data at September 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. The data presented is not necessarily indicative of results to
be expected in the future.
SELECTED HISTORICAL FINANCIAL DATA FOR BURLINGTON NORTHERN INC.
<TABLE>
<CAPTION>
AT OR FOR
NINE MONTHS
ENDED
SEPTEMBER 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................. $3,651 $3,453 $4,699 $4,630 $4,559 $4,674 $4,606
Income (loss) before
extraordinary items and
cumulative effect of
changes in accounting
methods................. 284 178 296 299 (306) 222 243
Extraordinary
items/cumulative effect
of changes in accounting
methods................. (10) -- -- (21) (14) 14 --
Net income (loss)........ 274 178 296 278 (320) 236 243
PER SHARE DATA
Income (loss) before
extraordinary items and
cumulative effect of
changes in accounting
methods................. $ 2.97 $ 1.81 $ 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)........ 2.86 1.81 3.06 3.11 (4.14) 3.07 3.19
Book value............... 19.85 (a) 17.73 15.61 13.64 16.13 14.15
Cash dividends declared.. .90 .90 1.20 1.20 1.20 1.20 1.20
BALANCE SHEET DATA
Total assets............. $7,536 (a) $7,045 $6,563 $6,324 $6,061 $6,144
Total debt, including
current portion and com-
mercial paper........... 1,791 (a) 1,737 1,567 1,982 2,133 2,333
Redeemable preferred
stock................... -- (a) -- 9 11 12 14
Stockholders' equity..... 2,116 (a) 1,919 1,728 1,202 1,241 1,080
</TABLE>
- --------
(a) Not required.
13
<PAGE>
NINE MONTHS ENDED SEPTEMBER 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.
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.
YEAR ENDED DECEMBER 31,
1993
--Results include the effects of the Act as discussed above.
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 relates 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.
14
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA FOR SANTA FE PACIFIC CORPORATION
<TABLE>
<CAPTION>
AT OR FOR
NINE MONTHS
ENDED
SEPTEMBER 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................. $1,970 $1,778 $2,409 $2,252 $2,154 $2,112 $2,202
Income (loss) from con-
tinuing
operations.............. 153 124 177 21 62 (245) (316)
Income from discontinued
operations, net of tax.. 23 148 162 42 34 162 170
Extraordinary
items/cumulative effect
of changes in accounting
methods................. -- -- -- (168) -- (29) 161
Net income (loss)........ 176 272 339 (105) 96 (112) 15
PER SHARE DATA
Income (loss) from con-
tinuing
operations.............. $ .81 $ .67 $ .95 $ .11 $ .35 $(1.51) $(1.99)
Income from discontinued
operations, net of tax.. .12 .79 .86 .23 .19 1.00 1.07
Extraordinary
items/cumulative effect
of changes in accounting
methods................. -- -- -- (.91) -- (.18) 1.01
Net income (loss)........ .93 1.46 1.81 (.57) .54 (.69) .09
Book value............... 6.46 (a) 6.83 5.11 5.77 5.27 5.39
Cash dividends declared.. -- .10 .10 .10 .10 .10 .10
BALANCE SHEET DATA
Total assets............. $5,316 (a) $5,374 $4,946 $4,812 $4,710 $5,087
Total debt, including
current portion......... 1,082 (a) 1,176 1,307 1,702 1,791 2,067
Stockholders' equity..... 1,208 (a) 1,268 929 1,037 912 852
</TABLE>
- --------
(a) Not required
NINE MONTHS ENDED SEPTEMBER 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 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 1 percent. The net effect of the above items was to increase net income
by $57 million, or $.31 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 California
lines and the increase in income tax expense discussed above.
Discontinued operations in 1993 include the after-tax gain discussed
above.
15
<PAGE>
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 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 loss includes a noncash reduction of $163 million, or $.88 per common
share, related to the cumulative effect of adopting SFAS No.'s 106 and
112, and a $5 million, or $.03 per common share, reduction for an
extraordinary charge on the early retirement of debt.
1990
--Loss from continuing operations includes a $342 million pre-tax charge
related to 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 common share.
Income from discontinued operations includes an after-tax gain of $102
million, or $.63 per common share, related to a litigation settlement.
Net loss includes a reduction of $29 million, or $.18 per common share,
for an extraordinary charge on the early retirement of debt.
1989
--Loss from continuing operations includes a $442 million 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.
16
<PAGE>
UNAUDITED SELECTED PRO FORMA FINANCIAL DATA
The following unaudited selected pro forma financial data gives effect to the
cash tender offers and the related borrowings of Santa Fe Pacific Corporation
(SFP) and Burlington Northern Inc. (BNI) for 38 million and 25 million shares,
respectively (approximately 20 percent and 13 percent, respectively) of the
shares outstanding of SFP Common Stock. In addition, the combined pro forma
financial statements include the exchange of 0.40 shares of BNI Common Stock
for each share of SFP Common Stock pursuant to the Merger Agreement, with the
Merger accounted for under the purchase method. The unaudited pro forma balance
sheet data as of September 30, 1994 gives effect to the Merger as if it had
occurred on that date, and the unaudited pro forma income statement data gives
effect to the Merger as if it had occurred on January 1, 1993. The unaudited
selected pro forma financial data set forth below does not reflect any
potential increases in operating income, or one-time costs to achieve such
increases, 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 Financial Statements."
The unaudited selected pro forma financial data is prepared for illustrative
purposes only and is 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. The unaudited selected pro forma financial
data for the Merger, if consummated using the Alternative Merger structure,
would be identical to the financial data set forth below. See "The Merger
Agreement--Alternative Transaction Structure."
<TABLE>
<CAPTION>
AT OR FOR NINE AT OR FOR YEAR
MONTHS ENDED ENDED
SEPTEMBER 30, 1994 DECEMBER 31, 1993
------------------ ------------------
(IN MILLIONS)
<S> <C> <C>
COMBINED PRO FORMA BASIS
INCOME STATEMENT DATA
Revenues.......................... $ 5,621 $7,108
Income from continuing operations
(b).............................. 341 347
BALANCE SHEET DATA
Total assets (b).................. $16,771 (a)
Total debt, including current por-
tion and commercial paper........ 4,279 (a)
Stockholders' equity (b).......... 4,802 (a)
</TABLE>
- --------
(a) Not required.
(b) In accordance with Securities and Exchange Commission (the "SEC") guidance,
for purposes of calculating the purchase price, the value of the BNI Common
Stock issued in the Merger is measured at or about the time of the
consummation of the Merger. A $1 increase in the value of BNI Common Stock
would result in an approximately $50 million increase in purchase price and
goodwill and a $1 million decrease in income from continuing operations. A
$1 decrease in the value of BNI Common Stock would have the opposite
effect.
17
<PAGE>
UNAUDITED COMPARATIVE PER SHARE DATA
The following table sets forth for BNI Common Stock and SFP Common Stock
certain historical, pro forma and pro forma equivalent per share data for the
nine months ended September 30, 1994 and for the year 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 "Unaudited Selected Pro Forma Financial Data" and "Selected Historical
Financial Data." The unaudited comparative per share data for the Merger, if
consummated using the Alternative Merger structure, would be identical to the
financial data set forth below. See "The Merger Agreement--Alternative
Transaction Structure."
<TABLE>
<CAPTION>
AT OR FOR AT OR FOR
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1994 DECEMBER 31, 1993
------------------ -----------------
<S> <C> <C>
BNI COMMON STOCK
Income from continuing operations per
share:
Historical.............................. $ 2.97 $3.06
Investment in SFP pro forma (a)......... 2.78 2.82
Combined pro forma (e).................. 2.30 2.33
Book value per share:
Historical.............................. 19.85 17.73
Investment in SFP pro forma (a)......... 20.02 17.89
Combined pro forma (e).................. 32.11 30.91
Cash dividends per share:
Historical.............................. .90 1.20
Investment in SFP pro forma (b)......... .90 1.20
Combined pro forma (b).................. .90 1.20
SFP COMMON STOCK
Income from continuing operations per
share:
Historical.............................. $ .81 $ .95
Pro forma for SFP recapitalization (c).. .77 .88
Pro forma equivalent (d)(e)............. .92 .93
Book value per share:
Historical.............................. 6.46 6.83
Pro forma for SFP recapitalization (c).. 2.78 3.21
Pro forma equivalent (d)(e)............. 12.84 12.36
Cash dividends per share:
Historical.............................. -- .10
Pro forma for SFP recapitalization ..... -- .10
Pro forma equivalent (b)(d)............. .36 .48
</TABLE>
- --------
(a) Income from continuing operations and book value per share include pro
forma adjustments to reflect BNI's investment in SFP which includes
borrowing $500 million to be used to finance the purchase of 25 million
shares of outstanding SFP Common Stock. In addition, book value per share
includes BNI vesting of restricted stock. See "Unaudited Pro Forma Financial
Statements" for further discussion.
(b) Cash dividends declared are assumed to be the same as those paid by BNI on
an historical basis.
(c) Income from continuing operations and book value per share include pro
forma adjustments to reflect SFP's recapitalization plan which includes
borrowing $1,075 million to be used to finance the purchase of 38 million
shares of outstanding SFP Common Stock and the retirement of outstanding
senior indebtedness. See "Unaudited Pro Forma Financial Statements" for
further discussion.
(d) Calculated by multiplying combined pro forma amounts by the exchange ratio
of 0.40.
(e) In accordance with SEC guidance, the value of the BNI Common Stock issued
in the Merger is measured at or about the time of the consummation of the
Merger. A $1 increase in the value of BNI Common Stock would result in a $.36
increase in book value per share and a $.01 decrease in earnings per common
share on a combined pro forma basis. A $1 decrease in the value of BNI Common
Stock would have the opposite effect.
18
<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 February 7, 1995 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 Arlington Park Hilton Conference Center, 3400 West
Euclid Avenue, Arlington Heights, Illinois on February 7, 1995 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, as amended by an
Amendment thereto dated as of October 26, 1994 and Amendment No. 2 thereto
dated as of December 18, 1994 thereto (such Merger Agreement prior to such
Amendments, the "Original Merger Agreement," and, as so amended, 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 63 million 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 "BNI 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 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.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of BNSF
Corporation, a Delaware corporation ("Holdings"), with respect to up to 170
million shares of common stock, par value $.01 per share, of Holdings (the
"Holdings Common Stock"), that may be issued in the event that either BNI or
SFP elects to restructure the Merger as described below. See "The Merger
Agreement--Alternative Transaction Structure."
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 January 15, 1995.
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.
19
<PAGE>
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.
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,
nonferrous 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" or "ATSF"), 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.
20
<PAGE>
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.
BNSF CORPORATION
Holdings was incorporated under the laws of the State of Delaware on December
16, 1994 for the purpose of effectuating the Alternative Merger (as defined
below) if either BNI or SFP shall elect to do so pursuant to the Merger
Agreement. The parties intend to effectuate the Alternative Merger if necessary
or prudent to ensure that a BNI-SFP merger is tax-free for federal income tax
purposes to BNI, SFP and their respective stockholders. Holdings is jointly
owned by each of BNI and SFP and has not engaged in any activity since its
formation other than activities related to the transactions contemplated by the
Merger Agreement. Pursuant to the Merger Agreement, SFP and BNI have agreed not
to permit Holdings to take any actions or undertake any operations except as
may be necessary in connection with the consummation of the Alternative Merger
and the transactions contemplated by the Merger Agreement.
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 February 7, 1995,
commencing at 10:00 a.m., Fort Worth time.
SFP. The SFP Special Meeting will be held at the Arlington Park Hilton
Conference Center, 3400 West Euclid Avenue, Arlington Heights, Illinois on
February 7, 1995, commencing at 3:00 p.m., Chicago time.
RECORD DATES
BNI. The Board of Directors of BNI has fixed the close of business on
December 27, 1994 as the record date for the determination of stockholders
entitled to notice of and to vote at the BNI Special Meeting. As of December
31, 1994, there were issued and outstanding 89,223,821 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
December 27, 1994 as the record date for the determination of stockholders
entitled to notice of and to vote at the SFP Special Meeting. As of December
31, 1994, there were issued and outstanding 188,301,537 shares of SFP Common
Stock. Only holders of record of SFP Common Stock on the Record Date are
entitled to vote.
December 27, 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 December 31, 1994, directors and executive officers of BNI and their
affiliates were beneficial owners of an aggregate of 1,917,706 shares of BNI
Common Stock (approximately 2% 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.
21
<PAGE>
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 December 31, 1994, directors and executive officers of SFP and their
affiliates were beneficial owners of an aggregate of 2,924,595 shares of SFP
Common Stock (approximately 1.6% 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.
VOTING AND REVOCATION OF PROXIES
A CREAM PROXY CARD WITH A BLUE STRIPE for use at the BNI Special Meeting or a
WHITE PROXY CARD WITH A BLUE STRIPE for use at the SFP Special Meeting, as the
case may be, accompany this Joint Proxy Statement/Prospectus. A stockholder may
use the appropriate CREAM PROXY CARD WITH A BLUE STRIPE or WHITE PROXY CARD
WITH A BLUE STRIPE, as the case may be, 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 A PROXY IS SUBMITTED BUT NO
SPECIFICATION IS MADE THEREIN, 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. If you have already submitted a 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. 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,
failures to submit a proxy, 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.
The issuance of the BNI Common Stock in the Merger or the Holdings Common
Stock in the Alternative Merger is at the option of BNI and SFP, and not their
respective stockholders. A vote in favor of the adoption of the Merger
Agreement is, therefore, a vote in favor of both the Merger and the Alternative
Merger.
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 $625,000 plus reasonable out-of-pocket expenses. In addition to Kissel-
Blake Inc., 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."
22
<PAGE>
D. F. King & Co., Inc. and MacKenzie Partners, Inc. will assist in the
solicitation of proxies by SFP for an aggregate anticipated fee of $600,000
plus reasonable out-of-pocket expenses. In addition to D.F. King & Co., Inc.
and MacKenzie Partners, Inc., 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". Furthermore,
SFP has asked BNI and Lazard to assist SFP in its solicitation of proxies. Such
assistance may include, among other things, discussions with SFP stockholders.
Neither BNI nor Lazard will receive any compensation for providing such
assistance.
OTHER CONSIDERATIONS
EFFECT OF FAILURE TO ACHIEVE EXPECTED BENEFITS AND REGULATORY APPROVAL
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." 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. In particular, BNI may be disadvantaged by having spent
$500 million in the Offer if the Merger can not be consummated.
INCREASE IN LEVERAGE
SFP anticipates borrowing up to $1.31 billion (of which approximately $400
million will be to replace existing debt) in connection with the Offer and
related matters from a syndicate of banks under a new credit agreement. In
addition, the new credit agreement will provide for a $250 million revolving
credit facility for general corporate purposes. The anticipated terms of such
financings are summarized in BNI's Tender Offer Statement on Form 14D-1 and
SFP's Issuer Tender Offer Statement on Form 13E-4, both of which documents are
incorporated herein by reference. See "Incorporation of Certain Documents by
Reference" and "Available Information." SFP anticipates that its ability to
borrow additional funds will be restricted by the terms of the new credit
agreement. SFP's credit rating status was placed under review with direction
uncertain by Moody's Investors Service and on Credit Watch with developing
implications by Standard & Poor's prior to announcement of the Offer and
continues in that status. It is possible that SFP's credit ratings would be
downgraded upon completion of the Offer. SFP does not expect that any ratings
downgrade, should one occur, would impair its ability to maintain adequate
liquidity to meet its ongoing obligations.
The interest expense on SFP's anticipated borrowings would reduce SFP's net
income. Principal and interest on the debt being used by SFP to finance the
Offer, as well as other operating expenses and liquidity needs of SFP, are
expected to be funded by SFP during the period prior to the ICC's decision on
the Merger from net cash generated before borrowings, currently available cash
balances and borrowings in excess of requirements in connection with the Offer.
Should the ICC not approve the Merger, SFP believes that, on a stand-alone
basis, it will be able to fund the debt service attributable to the debt
incurred in connection with the Offer through a combination of net cash
generated before borrowings and refinancings in the capital markets. In either
case, SFP will have access to the $250 million revolving credit facility for
general corporate purposes, if required. Although the SFP Board believes that
SFP's proposed borrowing is prudent, it is possible that the need to repay the
debt incurred in its borrowing will have a detrimental effect on SFP, either
before the Merger or if the Merger cannot be consummated.
BNI intends to finance its purchase of SFP Common Stock pursuant to the Offer
with funds borrowed from a syndicate of banks pursuant to a new $500 million
credit agreement. The anticipated terms of such borrowings are summarized in
BNI's Tender Offer Statement on Form 14D-1 and SFP's Issuer Tender Offer
Statement on Form 13E-4, both of which documents are incorporated herein by
reference. See "Incorporation of Certain Documents by Reference" and "Available
Information." BNI's existing credit agreements will not
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be affected by the Offer and consequently its ability to borrow under these
agreements and maintain its liquidity should not be materially adversely
affected by consummation of the Offer. BNI's credit ratings are under review
for possible downgrade by Moody's Investors Service and are on Credit Watch
with negative implications by Standard & Poor's. BNI does not expect that any
ratings downgrade, should one occur, would materially impact its ability to
borrow money or maintain adequate liquidity to meet its ongoing obligations.
The interest expense related to the new credit agreement is expected to be paid
from net cash generated before borrowings and would reduce BNI's net income.
Following consummation of the Merger, the combined company is expected to
fund debt service related to the Offer and liquidity requirements of ongoing
operations from net cash generated before borrowings and financing in the
capital markets.
DIVIDENDS
SFP paid annual cash dividends of ten cents ($.10) per share of SFP Common
Stock for each of the years ending December 31, 1992, 1993 and 1994. The terms
of SFP's new borrowings are anticipated to limit SFP's ability to pay
dividends, and SFP currently does not plan to pay dividends for the foreseeable
future if the Offer is consummated.
BNI does not anticipate that the borrowings in connection with the Offer or
transaction costs associated with the Offer or the Merger will affect its
currently existing dividend policy.
PRORATION
Up to 63,000,000 shares of SFP Common Stock are to be purchased in the Offer;
any shares tendered in response to the Offer over and above such amount would
be subject to proration in accordance with the terms of the Offer. Proration
may result in SFP stockholders receiving cash for only a portion of any shares
tendered, with the remaining consideration to be received in the form of BNI
Common Stock pursuant to the Merger after the receipt of ICC approval and
satisfaction or waiver of the other conditions to the Merger.
THE SFP RIGHTS PLAN
On November 28, 1994, SFP's Board of Directors adopted a Shareholders Rights
Plan. See "Comparison of Rights of Stockholders of BNI and SFP--Rights Plans."
The SFP Rights Plan could have the effect of deterring a change of control of
SFP without the approval of the Board of Directors of SFP.
THE MERGER
BACKGROUND OF THE MERGER AND THE OFFER
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 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.
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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.
Lazard 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 of 0.27 shares of BNI Common Stock per share of SFP Common Stock
(the "Original Exchange Ratio") was fair to the holders of BNI Common Stock
from a financial point of view.
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 Original Exchange Ratio
was fair to the holders of SFP Common Stock. That opinion was subsequently
confirmed in writing. See the full text of the opinion of Goldman Sachs dated
the date of the Joint Proxy Statement/Prospectus dated October 12, 1994
(attached as Appendix D to such Joint Proxy Statement/Prospectus dated October
12, 1994), 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 (as defined
below).
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
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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.
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 have received, for each share of SFP Common Stock,
0.344 of a share of UPC common stock.
The transaction contemplated in the UPC Proposal was 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
SFP. The UPC Proposal was 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 was 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 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
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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.
4. Binding Agreement. The SFP Board noted that SFP had no right to terminate
the Original Merger Agreement and that it was 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 Original Merger Agreement were terminated and if
the UPC Proposal could not 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
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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 12, 1994, SFP and BNI commenced solicitation of proxies from their
respective stockholders for approval of the Original Merger Agreement.
On October 13, 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 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.
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 in support of UPC's position 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 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 likelihood of ICC approval of a BNI-SFP merger and a
UPC-SFP merger. The Board heard from SFP's management, its lawyers and Mr. Paul
Lamboley, a former ICC Commissioner, and was provided with a written statement
prepared by Mr. Barry C. Harris, a Principal and Senior Vice-President of
Economists Incorporated, a Washington, D.C.-based consulting firm. Mr. Harris
served as Deputy Assistant Attorney General and Chief Economist in the
Antitrust Division of the United States Department of Justice ("DOJ") from
October 1992 until mid-January 1993 and testified on behalf of the DOJ against
the proposed merger between SFP and Southern Pacific Company ("Southern
Pacific"). Both Mr. Lamboley and Mr. Harris have been retained by SFP to serve
as expert advisors to the SFP Board. In particular, Mr. Lamboley has been
retained by SFP to advise and assist
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it in connection with the pending Delaware litigation arising out of the
proposed BNI-SFP merger and related matters concerning the likelihood of ICC
approval of a UPC-SFP combination.
Mr. Lamboley provided the SFP Board with an overview on merger cases since
the late 1970's before the ICC, outlined the statutory criteria and analytical
approach the ICC typically uses in reviewing proposed railroad mergers and
described how the ICC would most likely review a UPC-SFP merger proposal,
focusing on competitive impact. He opined that it is unlikely that the ICC
would approve the UPC-SFP merger, as proposed, absent imposition of
substantial conditions to ameliorate the significant competitive concerns,
which conditions could make the transaction untenable. He noted, however, that
the ICC will generally not use its conditioning authority to substantially
restructure a transaction beyond the scope proposed. Because a detailed
analysis of the corridors and commodities would be needed to determine the
competitive impact and the level of conditions necessary, the proceedings
would be protracted--likely to require the full 31-month statutory period--
with the outcome uncertain. (The SFP Board was aware that the ICC had at that
time adopted a schedule for the BNI-SFP application that would have resulted
in a final decision in the first quarter of 1996.) Mr. Lamboley characterized
the UPC-SFP merger proposal as being largely parallel, with potentially
significant anticompetitive effects, observing that the ICC had rejected a
parallel merger (SFP-Southern Pacific) involving similar markets. Mr. Lamboley
opined that the DOJ, as it did in the SFP-Southern Pacific case, would likely
actively oppose the UPC-SFP combination because of its substantial competitive
impact and, although not binding, antitrust principles would provide guidance
for ICC evaluation of competition. Mr. Lamboley stated that, in his view, the
benefits claimed by UPC for the proposed combination were on balance unlikely
to overcome the combination's competitive effects, distinguishing private
benefits from public benefits. By way of contrast, Mr. Lamboley stated that in
his view the BNI-SFP merger could provide significant public benefits and thus
was more likely to receive ICC approval without imposition of substantial
conditions.
In his written statement, Mr. Harris opined, based on his professional
knowledge and experience and his review of Mr. Lewis' October 5, 1994 letter
proposal, the UPC Memorandum and other publicly available information, that
the DOJ would subject a UPC-SFP combination to intense scrutiny and very
likely would vigorously oppose such a combination. Mr. Harris noted that,
while a complete DOJ analysis would include a review of confidential traffic
data, the DOJ likely would have serious concerns about competitive problems,
including diminished competition in the important Midwest-California corridor,
the Midwest-Texas corridor and U.S.-Mexico traffic, likely to result from such
a combination. Mr. Harris also opined that the DOJ likely would conclude that
the conditions that UPC indicated in the UPC Memorandum that UPC might accept
would be inadequate to address the competitive problems raised by a UPC-SFP
combination. In addition, Mr. Harris stated his view that, from an economic
perspective, there were serious questions regarding the benefits that UPC
asserted in the UPC Memorandum would result from such a combination and that
the DOJ was unlikely to be persuaded by those asserted benefits. Mr. Harris
did not discuss the likelihood of ICC approval of a BNI-SFP merger. Except as
stated in this paragraph and the immediately preceding paragraph, neither Mr.
Lamboley nor Mr. Harris made any assumptions or qualifications in providing
their advice to the SFP Board.
The SFP Board questioned SFP's management, its lawyers and Mr. Lamboley
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 (the "Revised Exchange Ratio") 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 Revised Exchange Ratio was fair to the holders of BNI
Common Stock from a financial point of view. That opinion was subsequently
confirmed in writing.
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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 share of BNI Common Stock was slightly more than the
market price of 0.344 (the exchange ratio set forth in the UPC Proposal) of a
share of UPC common stock.
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 0.344 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
apparently 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 Common
Stock might well drop significantly and SFP would be left without a strategic
combination which is required to protect and enhance stockholder value.
The SFP Board also took account of the substantial long-term benefits that
might accrue to SFP's stockholders from a merger. The SFP Board concluded, in
part on the basis of the presentations of SFP's management, its lawyers and
Mr. Lamboley, 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 conclusion 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 BN Railroad--SFP Rail would result in
more efficient service. Given the predominantly 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 BN Railroad and SFP Rail 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.
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UPC-SFP MERGER
1. Adverse Effect on Competition. Because the UPC and SFP rail systems are
substantially parallel and SFP Rail and the railroad subsidiaries of UPC ("UP
Rail") are currently major competitors on many routes, a UPC-SFP combination
would have a substantial anticompetitive effect. It would significantly reduce
competition by combining the dominant carrier in the West (UP Rail) with its
major competitor (SFP Rail) in the very important Chicago-California and Kansas
City-California routes and leave the combined UP Rail-SFP Rail as an even more
dominant competitor on those routes. In light of the coverage of both SFP and
UPC in Kansas, and their common connections with major regional carriers, a UP
Rail-SFP Rail combination would present significant competitive impacts on
Kansas grain shippers. Wheat and feed grains moving from Southern Colorado to
either California or the Gulf of Mexico would present another competitive
issue. There would also be a competitive issue raised by a reduction in the
number of carriers serving the ports of Houston and Los Angeles/Long Beach. A
UP Rail-SFP Rail merger would also eliminate competition between SFP Rail
service to Mexico through El Paso and UP Rail service to Mexico through Laredo;
UP Rail's overwhelming post-merger share of all U.S. traffic to Mexico would
cause competitive concerns.
A UPC-SFP merger would create major competitive problems with respect to
specific commodities as well. Precise market share data by corridors are not
readily available, but the combined share of western railroad movements handled
by UP Rail and SFP Rail in major categories would be substantial and more than
70% in the important Midwest-Southern California intermodal domestic flow. On a
combined basis, UP Rail and SFP Rail would originate more than 70% of
automotive movements in the West. Eliminating competition between UP Rail and
SFP Rail would end a fierce rivalry. In 1990, for example, UP Rail succeeded in
underbidding SFP Rail on a contract (valued in the tens of millions of dollars)
to carry all Ford traffic from Kansas City to California.
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. SFP's management, its lawyers and Mr.
Lamboley noted that UPC had not identified and proposed specific solutions for
all of the significant competition problems that a UPC-SFP merger would create.
SFP's management, its lawyers and Mr. Lamboley concluded that, even where UPC
had suggested conditions, they were unlikely to be sufficient. For example, as
to the most severe competitive problem--reduced competition among railroads
serving the routes between California and the Upper Midwest and a combined UP
Rail-SFP Rail's dominant position on those routes--UPC proposed only that it
might accept a grant to Southern Pacific, the other carrier that currently does
compete in the California-Upper Midwest corridor, of trackage rights or other
conditions. SFP's management, its lawyers and Mr. Lamboley doubted the value of
conditions that would only benefit a carrier already serving the routes in
question, concluding that such conditions were unlikely to be sufficient to
compensate for a substantial diminution in competition on one of the nation's
most important railroad routes.
SFP's management, its lawyers and Mr. Lamboley also noted that UPC had made
no commitment to accept the conditions it had proposed. They also advised the
SFP Board that there is no precedent for the extent of conditions that would
address the various competitive issues and level of concentration that would
arise in a UPC-SFP combination and that, even on the dubious assumption that
complex conditions could be crafted to solve all the competitive problems in
such a combination, such conditions would not necessarily lead to approval
because the ICC might be concerned about whether such conditions would work and
whether the agency could adequately supervise them. Such conditions would also
be economically costly, potentially depressing the value of the UPC stock that
SFP's stockholders would receive in a merger. SFP's management, its lawyers and
Mr. Lamboley also advised the SFP Board that opponents of the transaction might
argue that the history of conditions demonstrates that such conditions have
often been found ineffective in providing long-term competitive alternatives.
The conditions granted the Milwaukee Road in the Northern Lines case, the
trackage rights granted Southern Pacific between Kansas City and St. Louis in
the MP-UPC, and the long-term validity of the so-called "DT&I" conditions
granted in many early mergers have all been criticized as ineffective.
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SFP's management, its lawyers and Mr. Lamboley 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 unwise for 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 "strong" or
"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. SFP's management, its lawyers and Mr. Lamboley 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. SFP's management, its
lawyers and Mr. Lamboley also concluded that many of the benefits claimed by
UPC were overstated. For example, what UPC describes as new single-line service
is often, in reality, nothing more than a different route between an origin and
a destination that UP Rail already serves. Many of the service improvements
claimed by UPC appear based on a misunderstanding of SFP Rail's current
operations. For intermodal traffic, SFP Rail already has frequent departures
between Chicago and California, approximately every four hours--the same
frequency UPC proposes; SFP Rail already offers service between Chicago and
Northern California every six hours; and with respect to automotive traffic,
SFP Rail already offers solid unit trains to California.
4. Timing. SFP's management, its lawyers and Mr. Lamboley indicated that a
UPC-SFP merger application would be highly contested and would be likely to
require the full 31 months permitted by statute to resolve. This would result
in a schedule that was substantially longer than the ICC schedule for the BNI-
SFP application, which at the time called 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 SFP's
management, its lawyers and Mr. Lamboley, the Revised Exchange Ratio was fair
to SFP's stockholders. That opinion was subsequently confirmed in writing. See
the full text of the Opinion of Goldman Sachs dated the date of the
Supplemental Joint Proxy Statement/Prospectus dated October 28, 1994 (attached
as Appendix C to such Supplemental Joint Proxy Statement/Prospectus dated
October 28, 1994), which sets forth certain assumptions made by Goldman Sachs,
including the assumption that under the foregoing circumstances Goldman Sachs,
in analyzing the Revised Exchange Ratio, need not take into account the
consideration which might be received under the UPC Proposal.
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 so promptly.
On October 30, 1994, UPC announced that it was revising the UPC Proposal to
provide for an exchange ratio of 0.407 of a share of UPC common stock for each
share of SFP Common Stock outstanding.
On November 8, 1994, UPC announced that, subject to the approval of the staff
of the ICC, it would establish a voting trust to acquire SFP and would commence
a partial cash tender offer for SFP Common Stock. A voting trust would permit
SFP's stockholders to receive the consideration UPC was offering them without
the need to wait for the ICC to decide whether to approve a UPC-SFP
combination.
On November 9, 1994, UP Acquisition Corporation, a Utah corporation ("UP
Acquisition"), a wholly owned subsidiary of UPC, commenced a tender offer (the
"UP Tender Offer") for 115,903,127 shares of SFP
Common Stock, or such greater number of shares as equals 57.1% of the shares of
SFP Common Stock outstanding on a fully diluted basis, at $17.50 per share, net
to the tendering shareholder in cash upon the terms and subject to the
conditions set forth in the Offer to Purchase dated November 9, 1994 (the "UP
Offer to Purchase").
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According to the UP Tender Offer, UP Acquisition proposed to acquire the
remaining shares of SFP Common Stock in a "back-end" merger in which the
holders of each remaining share of SFP Common Stock would receive 0.354 of a
share of UPC common stock. As of January 12, 1995, 0.354 of a share of UPC
common stock had a value of $17.17 based on the closing market price of UPC
common stock on that date as reported in The Wall Street Journal. Also on
November 9, 1994, UPC stated that it would still be willing to pursue its
earlier proposal to acquire SFP in a tax-free, all stock merger transaction
with an exchange ratio of 0.407 of a share of UPC common stock for each share
of SFP Common Stock, but with no provision for a voting trust. As of January
12, 1995, 0.407 of a share of UPC common stock had a value of $19.74 based on
the closing market price of UPC common stock as reported in The Wall Street
Journal.
On November 11, 1994, SFP requested that BNI consider restructuring the
Merger in response to UPC's announcement that it would establish a voting
trust. BNI did not make a substantive response to this request.
On November 14, 1994, Alleghany Corporation ("Alleghany"), the holder of
approximately 7% of SFP Common Stock, sent a letter to SFP in which it
indicated that it would be interested in providing equity financing for a
recapitalization of SFP designed to permit SFP to remain as an independent
company. Alleghany stated, by way of illustration, that such a recapitalization
might be financed through SFP borrowings and a purchase by Alleghany of up to
$300 million of convertible preferred stock of SFP.
Also on November 14, SFP and BNI each postponed its respective stockholders
meeting to vote on the Merger Agreement to December 2, 1994.
On November 22, 1994, SFP's Board of Directors recommended that SFP
stockholders not tender their shares to UPC at that time, noting that the
Board's recommendation was subject to change as events unfolded that would
clarify whether a transaction with UPC was in their best interest. SFP noted
that (i) the UP Tender Offer was subject to the condition that the staff of the
ICC issue an informal, non-binding opinion, acceptable to UPC, that the use of
the voting trust submitted by UPC was consistent with applicable ICC policies
and (ii) it was unclear as of November 22 whether or when such a favorable ICC
staff opinion would be issued or whether the ICC might prevent UPC from using a
voting trust. SFP also pointed out that the transaction proposed in the UP
Offer to Purchase was taxable, whereas the transaction contemplated by the BNI-
SFP Merger Agreement is tax-free, that SFP believed that UPC should improve the
financial terms of its latest proposal, and that the UPC proposal was subject
to a number of other conditions which suggested that the proposal was too
uncertain to be considered a firm alternative to the BNI-SFP Merger Agreement
at that time.
On November 28, 1994, UPC announced that it had received an informal non-
binding opinion from the staff of the ICC that UPC's proposed voting trust was
consistent with applicable ICC policies. Also on November 28, SFP's Board of
Directors adopted a Shareholder Rights Plan and authorized SFP's
management to meet with UPC in order to clarify and improve UPC's offer. Both
of these events were announced on November 29, 1994. Also on November 29, SFP
and BNI each postponed its respective stockholders meeting to vote on the
Merger Agreement to December 16, 1994.
On December 1, 1994, SFP announced that its Board of Directors continued to
recommend that stockholders not tender their shares into the UP Tender Offer at
that time. SFP noted that, while UPC had received an opinion from ICC staff
with respect to a voting trust, there were other areas of concern with the UPC
offer, including SFP's belief that UPC should act promptly to improve the
financial terms of its offer and the fact that the UP Tender Offer was still
subject to a number of conditions. SFP also noted that it had agreed to meet
with UPC to help determine what course of action was in the best interest of
SFP's stockholders.
Beginning on December 1, 1994, counsel for SFP and counsel for UPC discussed
the non-financial terms of a possible merger agreement between SFP and UPC.
Between December 2, 1994 and December 8, 1994, representatives of UPC and its
counsel, advisors and consultants (collectively, the "UPC Group") were given
access to various financial, legal and other
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information relating to SFP. After appropriate provisions had been agreed to
limiting UPC's access to certain commercially sensitive information, UPC's
counsel, advisors and consultants were allowed to review certain additional
information on December 3, 1994. Certain members of the UPC Group were invited
to SFP's offices in Schaumburg, Illinois on December 4, 1994, where
representatives of SFP presented certain financial information regarding SFP
and representatives of UPC presented certain financial information regarding
UPC. The UPC Group was also given the opportunity to request additional
information.
Between December 1 and December 17, 1994, representatives of SFP repeatedly
suggested to representatives of UPC that UPC should act promptly to make an
improved offer to acquire SFP if UPC was willing to do so. SFP's
representatives did not insist that an improved UPC offer have any specific
value, but when they were asked by UPC's representatives for guidance, SFP's
representatives told UPC's representatives that they should consider the $20
per share figure that Drew Lewis had mentioned to Robert Krebs on October 5,
1994.
On December 2, 1994, SFP asked BNI to consider revising the Merger Agreement
to provide for a higher exchange ratio combined with tender offers by BNI and
SFP for SFP Common Stock and open market repurchases by SFP of its own common
stock after the tender offer and prior to the consummation of the Merger, in
each case contingent on stockholder approval of the Merger. SFP advised BNI
that, based on discussions with some of SFP's large stockholders, such a
revision might draw the support of those stockholders. BNI made no substantive
response to this request.
On December 7, 1994, UPC announced that it had extended the UP Tender Offer
to December 23, 1994.
On December 13, 1994, representatives of BNI informed representatives of SFP
that BNI might be willing, subject to BNI Board approval, to combine an
increase in the exchange ratio for the Merger with a tender offer by both BNI
and SFP for SFP Common Stock and possible repurchases by SFP of its common
stock in the open market after the tender offer and prior to the consummation
of the Merger, in each case contingent on stockholder approval of the Merger.
Representatives of BNI advised SFP that any such revision would also be
conditioned upon payment of a break-up fee to BNI under certain circumstances.
Representatives of BNI and representatives of SFP then discussed the possible
terms such a transaction might include. Both companies recognized that pooling
of interests accounting treatment of the Merger would no longer be possible
under this revised structure.
On or about December 14, 1994, SFP and BNI each postponed its respective
stockholders meeting to vote on the Merger Agreement to January 27, 1995, and
changed the record date for that meeting to December 27, 1994. Also on December
14, representatives of BNI and representatives of SFP continued the discussions
they had conducted the previous day.
Also on December 14, Mr. Lewis sent the following letter to Mr. Krebs:
December 14, 1994
Mr. Robert D. Krebs
Chairman, President and CEO
Santa Fe Pacific Corporation
1700 East Golf Road
Schaumburg, IL 60173
Dear Rob:
I am writing to advise you, as requested by your advisors, of our
position concerning our merger proposal.
Our response at this stage is a function of Santa Fe's having pursued
a flawed sale process. Your advisors have repeatedly demanded that we
improve our proposal while refusing to establish any procedures for
considering competing proposals on a fair and equal basis. In fact,
your advisors have frequently told us you will not negotiate with Union
Pacific unless we agree to pay at least $20 per Santa Fe share. This
position is clearly inconsistent with your negotiating and recommending
several transactions with Burlington Northern at prices well below $20.
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We believe our current proposal is an extremely attractive one and in
the best interests of Santa Fe and its shareholders and customers.
Despite this, you have continued to pursue a process that favors any
result other than a transaction with Union Pacific. We are prepared to
continue discussions with you, but we urge you to establish a fair and
open sale process.
Sincerely,
/s/ Drew
DL/ss
On December 15, 1994, Mr. Krebs sent the following letter to Mr. Lewis:
December 15, 1994
Mr. Drew Lewis, Chairman
Union Pacific Corporation
Martin Tower
Eighth and Eaton Avenues
Bethlehem, Pennsylvania 18018
Dear Drew:
This is in response to your letter dated December 14, 1994 concerning
the process that Santa Fe is currently pursuing. Your letter assumes
that Santa Fe is conducting an auction. In fact, however, the Board of
Santa Fe has never put the company up for sale. Instead, subject to
shareholder approval, the Board agreed to a strategic combination with
the Burlington Northern, which is designed to achieve significant long-
term growth for Santa Fe's shareholders far beyond the current value of
the Burlington Northern stock that is to be exchanged in the merger.
After that agreement was announced, Union Pacific made an unsolicited
merger proposal to Santa Fe.
As you know, under our contract with Burlington Northern, Santa Fe
could not provide confidential information to or negotiate with any
other potential merger partner unless the Board was advised by counsel
that it had a fiduciary duty to do so. After Union Pacific improved its
offer and obtained the ICC staff's approval of its proposed voting
trust, we were advised by our counsel that we did have a fiduciary duty
to provide information and to negotiate with Union Pacific. In the past
two weeks, we have made available to Union Pacific all of the
information that was given to Burlington Northern, and more. In fact at
a meeting in our office on December 4, 1994, your Executive Vice
President-Finance, L. White Matthews III, told a group of our senior
officers that the amount of information Union Pacific had received from
Santa Fe was more than they "dreamed" of obtaining. In addition, we
have negotiated in good faith the terms of Union Pacific's proposed
merger agreement and tender offer.
Throughout our discussions over the past two weeks we have
continually emphasized the need for Union Pacific to improve its offer
as soon as possible. We have also been negotiating with Burlington
Northern with a view toward improving the existing merger agreement. In
all of these discussions, our goal has been to achieve the best result
for our shareholders, taking into account both short-term and long-term
objectives.
I believe that we have done everything we can to enable Union Pacific
to improve its offer, and, as our financial advisors have been telling
your financial advisors for many days, we hope you will do so promptly.
The process we have followed is designed to promote the best interests
of our shareholders.
Sincerely,
/s/ Rob
Also on December 15, UPC announced that it was extending the UPC
Tender Offer to January 19, 1995.
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At a meeting on December 15, 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 effect the Offer and to increase the exchange
ratio from 0.34 of BNI Common Stock per share of SFP Common Stock to 0.40 share
of BNI Common Stock per share of SFP Common Stock (the "Exchange Ratio"), and
the Board approved the proposed terms of Amendment No. 2 to the Original Merger
Agreement and the transactions contemplated thereby, including possible
repurchases by SFP of SFP Common Stock in the open market after the tender
offer and prior to the consummation of the Merger. In reaching these
determinations, 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 financial impact of SFP's willingness to
incur substantial leverage in order to repurchase a significant percentage of
the shares of outstanding SFP Common Stock; and a presentation of Lazard, BNI's
financial advisor, as to the financial aspects of the Offer and the proposed
increase in the Exchange Ratio. 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 December 15,
1994, the Exchange Ratio, together with the consideration to be paid by BNI
pursuant to the Offer, was fair to the holders of BNI Common Stock from a
financial point of view.
In connection with its approval of Amendment No. 2 to the Original Merger
Agreement, the BNI Board instructed BNI's management to request that SFP use
its best efforts to obtain written commitments from certain of SFP's large
stockholders to support the revised Merger and indicated that its approval of
Amendment No. 2 was conditioned on the receipt of a $50 to $75 million break-up
fee and expense reimbursement. BNI's representatives then communicated the BNI
Board's decisions to representatives of SFP.
Also on December 15, BNI announced that its Board of Directors had approved
BNI's continued discussions with SFP concerning possible revisions to the
Merger Agreement.
Also on December 15, the SFP Board met and heard a presentation from SFP's
management and financial and legal advisors about BNI's proposal. The SFP Board
authorized its representatives to negotiate with BNI's representatives to
attempt to reach a definitive agreement that would be presented to the SFP
Board for its approval.
Beginning on December 16, 1994, representatives of SFP and BNI met to discuss
whether a definitive agreement could be reached. In addition, representatives
of SFP had discussions with some of SFP's large stockholders to determine
whether or under what circumstances they would make written commitments to
support the revised Merger.
Also on December 16, 1994, Mr. Lewis sent Mr. Krebs the following letter:
December 16, 1994
Mr. Robert D. Krebs
Chairman, President and CEO
Santa Fe Pacific Corporation
1700 East Golf Road
Schaumburg, IL 60173
Dear Rob:
I have read your December 15 letter, and can only conclude that you
have not been kept fully apprised of the actions of your management and
advisors.
Your characterization of Santa Fe's process for considering bids, or
lack of such a process, is inaccurate and distorted. Most importantly,
you have not, as you assert, done everything you can to enable Union
Pacific to revise its proposal. On the contrary, Santa Fe has pursued a
process that favors any outcome other than a transaction with Union
Pacific.
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We are extremely disappointed with the flawed and biased sale process
being pursued by Santa Fe. Our financial advisor, CS First Boston,
expressed our concerns to your financial advisor, Goldman Sachs, on
December 14. On December 15, before you sent me your letter, our
counsel expressed these concerns in a letter to your counsel, a copy of
which is enclosed.
And now, in light of your letter, I will tell you directly of our
concerns.
Here are the facts:
1. Your advisors have said you will not even consider a proposal
from us at less than $20 per share, although you negotiated and
recommended several transactions with Burlington Northern at prices
well below $20 per share. Your insistence on such a high minimum
price as a condition to a transaction with Union Pacific discourages
any transaction with Union Pacific while you pursue a variety of
alternative transactions with Burlington Northern at a lower value
level.
2. Santa Fe has refused to establish any procedures that would
permit us to compete on an equal basis with Burlington Northern.
While you obviously have continued to engage in serious, substantive
negotiations with Burlington Northern, you have simply sought
"clarifications" from us while repeatedly asking us to improve what
for many weeks has been the most attractive proposal on the table.
You are using Union Pacific as a stalking horse for an improved
Burlington Northern bid. Based on your agreement with Burlington
Northern, we must assume that Santa Fe is using information obtained
in its discussions with Union Pacific to assist Burlington Northern
in its efforts to improve its bid.
3. Santa Fe has discussed alternative acquisition structures with
Burlington Northern, but, despite our stated willingness to consider
alternative structures and revisions to our current proposal, you
have not given us any indication of what alternative structures
would be acceptable to Santa Fe.
4. Santa Fe, in its recent Schedule 14D-9 filing, stated that our
proposal "is subject to a number of conditions that are of concern
to [Santa Fe]." But, the fact is, Union Pacific's proposal contains
fewer conditions, and provides greater certainty for your
shareholders, than the transaction you willingly agreed to with
Burlington Northern.
5. Santa Fe's Board of Directors unilaterally adopted a "poison
pill" rights plan that specifically exempts Burlington Northern but
is applicable to our proposal.
6. Santa Fe has stood silently by while Burlington Northern, your
preferred suitor, has tried unsuccessfully to block ICC approval of
our voting trust. This is the voting trust that you specifically
asked us to establish more than two months ago and that provides
speed and certainty for your shareholders.
7. Santa Fe apparently never asked its financial advisor to
express its opinion as to the fairness of our proposal, but, as you
know, Santa Fe previously requested and received a fairness opinion
on the Burlington Northern merger which, at the time, based on the
then current market price, valued Santa Fe shares at approximately
$13.50.
This listing is by no means exhaustive but is illustrative of the
flawed and biased sale process undertaken by Santa Fe. In light of
this, the assertion that Santa Fe's goal has been to achieve the best
results for its shareholders rings hollow.
Let me be very clear. By your actions you have put Santa Fe up for
sale and Union Pacific is a very interested buyer. We want to acquire
Santa Fe by competing on an equal basis with Burlington Northern and
any other potential bidders. If Santa Fe establishes a fair and open
process, we would be eager to participate, and would be willing to
consider and discuss revisions to our proposal.
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Santa Fe has stated that it is considering alternative structures. If
you and your Board truly desire a fair process, it is incumbent upon
you to inform us promptly of each alternative under consideration, to
state the minimum bidding level (if any) applicable to all interested
parties, and to give us the opportunity to consider and respond to each
alternative. In addition, you should instruct your management and
advisors to establish immediately a fair and unbiased sale process. If
you would like our specific suggestions concerning establishing a fair
process, our advisors would be pleased to provide them.
Santa Fe has not necessarily received Union Pacific's best proposal.
I await your response.
Sincerely,
/s/Drew
DL/ss
On December 17, 1994, the negotiations between the BNI and SFP
representatives continued, with no agreement being been reached.
Also on December 17, Mr. Krebs sent Mr. Lewis the following letter:
Mr. Drew Lewis
Chairman
Union Pacific Corporation
Martin Tower
8th & Eaton Avenues
Bethlehem, PA 18018
Dear Drew:
I am not sure that continuing to trade letters on "process" issues
serves any useful function. However, let me briefly reiterate Santa
Fe's position. Contrary to the statement in your December 16 letter,
the Santa Fe board has not put the company up for sale, and it is not
conducting an auction. We entered into a contract for a strategic
combination with Burlington Northern -- a combination that promises
significant long-term growth. We are now negotiating with Burlington
Northern in order to improve that agreement.
At the same time, however, we have provided Union Pacific with all of
the information about Santa Fe it needs in order to make its best
alternative proposal. If you are willing and able to improve your
proposal, I suggest that you do so without delay.
Sincerely,
/s/Rob
On December 18, 1994, the BNI and SFP representatives reached an agreement on
the terms of the revised Merger Agreement. Because they could not agree on the
terms and conditions governing open market stock repurchases by SFP after the
tender offer and prior to consummation of the Merger and could not obtain
binding commitments from certain large SFP stockholders to support the
transaction, both of these concepts were dropped. SFP's representatives
attempted to eliminate the break-up fee, but were advised that such a fee was
an absolute prerequisite to BNI's willingness to enter into a revised Merger
Agreement. However, SFP's representatives succeeded in reducing the amount of
the break-up fee from $75 million to $50 million plus reimbursement of expenses
up to $10 million and limiting the circumstances under which it would be paid
to those involving a new competing offer or an acquisition of more than 50
percent of the outstanding shares of SFP Common Stock.
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Later on December 18, the SFP Board met to consider whether to approve the
revised Merger Agreement. After hearing presentations from SFP's management and
financial and legal advisors, including the oral opinion of Goldman Sachs that
as of the date thereof, and based upon and subject to the various
considerations and assumptions set forth therein, the aggregate cash and stock
consideration to be received by all of SFP's stockholders pursuant to the Offer
and Merger, considered as a unitary transaction, is fair to such holders, the
Board determined, by unanimous vote, to approve the revised Merger Agreement.
In doing so, the Board noted the continuing validity of its prior conclusions
that a BNI-SFP combination was an excellent strategic fit, presented
substantial long-term benefits and was likely to receive ICC approval. The
Board also noted that the Offer allows stockholders who wish to do so to
receive cash without waiting for ICC approval. At the same time, the revised
transaction structure allows shareholders to participate in the ownership of
the combined company. The Board also concluded that the revised Merger
Agreement was superior to the UPC Offer, especially on a long-term basis. In
addition, while the Board was reluctant to grant BNI a break-up fee, it decided
to do so because BNI had made it clear that a break-up fee was necessary in
order to induce BNI to enter into the revised Merger Agreement. Shortly after
the SFP Board meeting, BNI and SFP entered into the revised Merger Agreement.
The full text of the opinion of Goldman Sachs dated the date of this Joint
Proxy Statement/Prospectus, 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 SFP has been advised that there are
significant legal uncertainties relating to whether or under what circumstances
regulatory authorities would permit a combination of SFP and UPC and that
Goldman Sachs has assumed with the consent of the SFP Board of Directors that
the advice was correct. The opinion further states that the effect upon the
common stock of UPC resulting from the failure to consummate the combination of
SFP and UPC or from the conditions which UPC may be required to accept in order
to consummate such a combination is uncertain and that such uncertainties
concerning the UPC Proposal limits Goldman Sachs' ability to compare the
aggregate consideration to be received pursuant to the UPC Proposal with the
aggregate of the cash and stock consideration to be received by all of the
holders of the outstanding shares of SFP Common Stock pursuant to the Offer and
the Merger, considered as a unitary transaction. Stockholders of SFP are urged
to, and should, read such opinion in its entirety. See also "--Opinions of
Financial Advisors--Opinion of Goldman Sachs."
Also on December 18, Mr. Lewis sent Mr. Krebs the following letter:
December 18, 1994
Mr. Robert Krebs
Chairman, President and CEO
Santa Fe Pacific Corporation
1700 East Golf Road
Schaumburg, IL 60173
Dear Rob:
I understand that you sent a letter to my office Saturday.
We continue to be troubled by Santa Fe's refusal to address in any
way our concerns about your process for considering acquisition
proposals.
As we have repeatedly stated, and said to your advisors yesterday, we
want to be in a position to make an improved proposal. We see no reason
why you cannot address our concerns, and hope you will give
consideration the specific suggestions made by our advisors.
Sincerely,
/s/Drew
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On December 20, 1994, Mr. Lewis sent Mr. Krebs the following letter:
December 20, 1994
Mr. Robert D. Krebs
Chairman, President and CEO
Santa Fe Pacific Corporation
1700 East Golf Road
Schaumburg, IL 60173
Dear Rob:
The recent actions of Santa Fe are but a continuation of Santa Fe's
ongoing efforts to pursue its sale to Burlington Northern, and to
prevent a transaction with Union Pacific, at all costs.
We object to Santa Fe's grant of "lock-ups" to Burlington Northern to
deter competing bids, and to Santa Fe's repeated refusal to address our
objections to its flawed sales process.
With regard to Santa Fe's efforts to deter competing bids, we note
with interest that a Burlington Northern representative, who would
speak only on the condition of anonymity, was quoted today in the press
as stating: "This is a carefully crafted plan designed to accomplish
the merger and to make it prohibitively expensive for UP to top."
As we have announced, we will be reviewing our options concerning our
acquisition proposal.
Sincerely,
/s/ Drew
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS AND REASONS FOR THE MERGER
BNI. At a meeting on December 15, 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 effect the Offer and to increase the Exchange
Ratio from 0.34 of BNI Common Stock per share of SFP Common Stock to 0.40 share
of BNI Common Stock per share of SFP Common Stock, and the Board approved
Amendment No. 2 to the Original Merger Agreement and the transactions
contemplated thereby. In reaching these determinations, 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
financial impact of SFP's willingness to incur substantial leverage in order to
repurchase a significant percentage of the shares of outstanding SFP Common
Stock; and a presentation of Lazard, BNI's financial advisor as to the
financial aspects of the Offer and the proposed increase in the Exchange Ratio.
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 December 15, 1994, the Exchange Ratio, together with
the consideration to be paid by BNI pursuant to the Offer, when taken as a
whole, 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 Joint Proxy Statement/Prospectus, its oral opinion of December 15,
1994.
In considering and approving the Original Merger Agreement in June 1994, 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, 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
Original Merger Agreement.
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SFP. At a meeting on December 18, 1994, the Board of Directors of SFP, by
unanimous vote, approved Amendment No. 2 to the Original Merger Agreement and
the transactions contemplated thereby, including the Offer and the Merger. The
Board reached these determinations after hearing presentations from SFP's
management and financial and legal advisors, including the oral opinion of
Goldman Sachs that as of the date thereof, and based upon and subject to the
various considerations and assumptions set forth therein, the aggregate cash
and stock consideration to be received by all of SFP's stockholders pursuant to
the Offer and Merger, considered as a unitary transaction, is fair to such
holders. In doing so, the Board noted the continuing validity of its prior
conclusions that a BNI-SFP combination was an excellent strategic fit,
presented substantial long-term benefits and was likely to receive ICC
approval. The Board also noted that the Offer allows stockholders who wish to
do so to receive cash without waiting for ICC approval. At the same time, the
revised transaction structure allows shareholders to participate in the
ownership of the combined company. The Board also concluded that the revised
Merger Agreement was superior to the UPC Offer, especially on a long-term
basis. The Board's reasons for reaching this conclusion included: (1) the Board
believed that a BNI-SFP merger is likely to receive ICC approval and, because
of anticipated increases in operating income from the Merger (which are
expected to result from both operating efficiencies and increased revenues, see
"Other Matters--Additional Financial Considerations"), the Merger will have
significant long-term benefits for SFP stockholders; (2) the Board believed
that the long-term value of the UPC stock that SFP stockholders would receive
in a UPC-SFP merger is uncertain because a combination of the UPC and SFP
railroads is unlikely to receive ICC approval and, even if ICC approval could
be obtained, it would probably require UPC to make substantial concessions to
competing railroads; (3) the $20 per share that SFP stockholders will receive
pursuant to the Offer is greater than the $17.50 per share available in UPC's
tender offer; and (4) as of December 18, 1994, the market value of 0.40 of a
BNI common share (the exchange ratio in the Merger) exceeded the market value
of 0.354 of a UPC common share (the exchange ratio proposed by UPC).
In addition, while the Board was reluctant to grant BNI a break-up fee, it
decided to do so because BNI had made it clear that a break-up fee was
necessary in order to induce BNI to enter into the revised Merger Agreement.
Goldman Sachs has also delivered its written opinion confirming, as of the date
of this Joint Proxy Statement/Prospectus, its oral opinion of December 18,
1994. The full text of the opinion of Goldman Sachs dated the date of this
Joint Proxy Statement/Prospectus, 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. See also "--Opinions of Financial Advisors--Opinion of Goldman
Sachs."
In considering and approving the Original Merger Agreement in June 1994, 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 Original Merger
Agreement.
The strategic factors considered independently by the BNI and SFP Boards of
Directors in approving the Original Merger Agreement 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
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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.
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 oral opinion dated
December 15, 1994, as well as its subsequent written opinion dated the date of
this Joint Proxy Statement/Prospectus, that, based upon and subject to various
considerations set forth in the opinion and such other factors as it deemed
relevant, as of such date the Exchange Ratio pursuant to the terms of the
Merger Agreement and the consideration to be paid by BNI pursuant to the terms
of the Offer to Purchase dated December 23, 1994 (the "Offer to Purchase"),
when taken as a whole, 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 FAIRNESS OF THE EXCHANGE RATIO AND
CONSIDERATION TO BE PAID BY BNI IN THE OFFER, WHEN TAKEN AS A WHOLE, 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, DATED THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS.
In rendering its opinion, Lazard, among other things: (i) reviewed the terms
and conditions of the Merger Agreement, of the Offer to Purchase and the
supplement thereto with respect to the Offer; (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, June 30 and September 30, 1994 (and
any amendments thereto); (iii) reviewed
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certain Current Reports on Form 8-K of BNI dated June 29, October 6, October
26, November 18 and December 18, 1994 and Current Reports on Form 8-K of SFP
dated June 29, August 3, October 5, October 19, October 28, November 2 and
November 28, 1994 (and any amendments thereto); (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 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 Offer and the Merger on BNI and SFP; (ix) reviewed the historical stock
prices and trading volumes of the BNI Common Stock and SFP Common Stock; (x)
reviewed the Joint Proxy Statement/Prospectus dated October 12, 1994, the
Supplemental Joint Proxy Statement/Prospectus dated October 28, 1994 and this
Joint Proxy Statement/Prospectus; and (xi) conducted such other financial
studies, analyses and investigations as Lazard deemed appropriate.
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 assume responsibility for 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 opinion
stated that it also was based on economic, monetary, market and other
conditions as in effect on, and the information made available to Lazard as of,
the date of such opinion.
In connection with its oral opinion delivered to the BNI Board of Directors
on December 15, 1994, as well as its subsequent written opinion dated the date
of this Joint Proxy Statement/Prospectus, Lazard performed certain analyses
which involved the following:
Current Blended Value Analysis. Lazard calculated the current blended value
to be paid per share of SFP Common Stock based on the consideration to be paid
in the Offer and the application of the Exchange Ratio, when taken as a whole.
Based on a BNI Common Stock price of $48 per share, which was slightly below
the closing price of BNI's Common Stock on December 15, 1994, Lazard noted that
the current blended value to be paid per share of SFP Common Stock would be
$19.51.
Comparable Transaction Analysis. Lazard reviewed certain financial aspects of
selected mergers and acquisitions transactions in the U.S. railroad industry,
including Illinois Central Corporation's letter of intent to acquire Kansas
City Southern Railway and certain related assets (which was ultimately
terminated), Kansas City Southern Industries' acquisition of MidSouth
Corporation, the acquisition of CNW Corporation by an investor group led by
Blackstone Capital Partners and Prospect Group's acquisition of Illinois
Central Transportation Corporation (collectively, the "Comparable
Transactions"). Lazard noted that these transactions were announced within the
past six years. Among the ratios reviewed by Lazard in connection with this
analysis were the total transaction values as a multiple of historical earnings
before interest and taxes ("EBIT"). The historical EBIT multiples of the
Comparable Transactions ranged from 12.1x to 12.6x. These multiples were
compared with the SFP multiple of 12.3x historical EBIT based on a BNI Common
Stock price of $48 per share, which was slightly below the closing price of
BNI's Common Stock on December 15, 1994, and adjusting for the effect of the
Offer and the application of the Exchange Ratio.
In addition, Lazard analyzed the premiums paid over the pre-announcement
share price for each of the Comparable Transactions. The premiums ranged from
63.3% to 90.7% in the Comparable Transactions. To
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determine the premium being paid to the holders of SFP Common Stock, Lazard
analyzed the hypothetical unaffected trading value of SFP Common Stock as if
the Offer, 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 to $13 per share. Using the high point of
this range, Lazard calculated the premium to be offered to holders of SFP
Common Stock of approximately 50.1% based on a BNI Common Stock price of $48
per share, which was slightly below the closing price of BNI's Common Stock on
December 15, 1994, and adjusting for the effect of the Offer and the
application of the Exchange Ratio.
No company or transaction used in the comparable analyses is identical to SFP
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 Offer and Merger on the earnings and capitalization of the
combined company. After taking into account the potential cost savings and
revenue enhancements anticipated to be realized following the Merger (which
Lazard assumed for purposes of its analyses would occur January 1, 1997), the
taking into account of certain operating and capital expenditure assumptions
included in the BNI and SFP business plans, the use of the purchase method of
accounting for the Merger, the taking into account of the Offer and without
taking into account certain post-merger non-recurring expenses, Lazard observed
that as a result of, among other things, certain costs and expenses related to
the Offer, BNI's earnings per share will be diluted by approximately 5.3% in
1995 and 4.6% in 1996. Lazard further observed that assuming the Merger is
consummated on January 1, 1997, the Merger would provide, from BNI
stockholders' point of view, pro forma earnings per share accretions of
approximately 2.8% in 1997, 12.2% in 1998 and 16.8% in 1999. In addition,
Lazard analyzed certain pro forma credit statistics of the combined company
giving effect to both the Offer and the Merger and noted that the pro forma
debt to capitalization ratios of the combined company would have been 48.6% at
September 30, 1994, and will be 46.1% at December 31, 1995, 42.4% at December
31, 1996, 34.8% at December 31, 1997 and 24.5% at December 31, 1998, compared
to a ratio of 45.8% at September 30, 1994 for BNI without taking into account
any of the effects of the Offer and Merger. Lazard also noted that the pro
forma debt to capitalization ratios for BNI, adjusting only for the Offer,
would have been 52.0% at September 30, 1994 and will be 48.1% at December 31,
1995. Also Lazard noted the pro forma ratio of EBIT to interest expense of the
combined company after taking into account the effects of the Offer but not the
Merger in 1995 and 1996 and after taking into account the effect of the Offer
and the Merger in 1997 and 1998. Such ratios were calculated to be 5.1x, 6.1x,
5.7x and 7.4x in each of 1995, 1996, 1997 and 1998, respectively.
In addition, Lazard also noted that after the effects of the Offer and the
Merger, BNI stockholders would receive, on a projected pro forma fully diluted
basis, approximately 66% of the ownership interest in the combined company.
Blended Value Analysis. Lazard also calculated the blended value of the
consideration to be paid in the Offer and the application of the Exchange
Ratio, when taken as a whole, to holders of SFP Common Stock based on the net
present value of a future hypothetical trading value of the combined company's
stock. Lazard calculated January 1997 hypothetical trading values based on
price to earnings multiples Lazard considered appropriate after taking into
consideration such ratios of comparable publicly traded Class I railroad
holding companies and using the projected pro forma 1997 earnings per share of
the combined company, after adjusting for the effects of the Offer and the
Merger and the expected operating assumptions which are described above in "Pro
Forma Merger Consequences Analysis." Lazard noted the hypothetical trading
values in January 1997 to be between $67.61 to $81.14. Lazard then discounted
these values at a
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range of discount rates over a two-year period to arrive at the net present
values of the hypothetical trading values. Lazard noted the net present values
of the hypothetical trading values of the combined company's stock to be
between $46.95 to $61.35. Using these net present values, Lazard then
calculated the blended values to holders of SFP Common Stock after adjusting
for the consideration to be paid in the Offer and the application of the
Exchange Ratio. Lazard noted that the blended value to holders of SFP Common
Stock to be between $19.25 to $22.81 per share.
Other Factors and Analyses. In rendering its opinions, Lazard considered
various other factors and conducted certain additional analyses, including,
among other things, (i) a review of 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 impact of the Offer on BNI and the potential
of BNI not receiving ICC approval for the Merger. In addition, at the time
Lazard prepared its analyses, it was contemplated that as part of the
transactions, SFP would agree to undertake an open market purchase program of
5% of its Common Stock. Such an open market purchase program is not part of the
Merger Agreement. The effect of such a program not being undertaken is not
material to the results of Lazard's analyses described herein.
In arriving at its written opinion dated the date of this Joint Proxy
Statement/Prospectus, and in discussing its December 15, 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 also acting as a dealer manager in the Offer. Lazard is
an internationally recognized investment banking firm and is regularly engaged
in the valuations of businesses and their securities in connection with mergers
and acquisitions and for other purposes.
In consideration for Lazard's services, BNI has agreed to pay Lazard fees as
follows: (i) $1.5 million upon public announcement of the Original Merger
Agreement, which has been paid; (ii) an additional fee of $1.0 million upon the
commencement of the Offer; (iii) an additional fee of $0.75 million upon the
closing of the Offer; (iv) an additional fee of $3.0 million upon receipt of
the approvals of both BNI's and SFP's stockholders and (v) an additional fee of
$2.75 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
December 18, 1994 that, as of the date of such opinion, the aggregate of the
cash and stock consideration to be received by all of the holders of the
outstanding shares of SFP Common Stock pursuant to the Offer and the Merger,
considered as a unitary transaction (the "Aggregate Consideration"), is fair to
such holders. Goldman Sachs subsequently confirmed its December 18, 1994
opinion by delivery of its written opinion, dated the date of this Joint Proxy
Statement/Prospectus, that as of the date thereof the Aggregate Consideration
to be received is fair to the holders of SFP Common Stock.
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The full text of the opinion of Goldman Sachs dated the date of this Joint
Proxy Statement/Prospectus, 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 SFP has been advised that there are
significant legal uncertainties relating to whether or under what circumstances
regulatory authorities would permit a combination of SFP and UPC and that
Goldman Sachs has assumed with the consent of the SFP Board of Directors that
the advice was correct. The opinion further states that the effect upon the
common stock of UPC resulting from the failure to consummate the combination of
SFP and UPC or from the conditions which UPC may be required to accept in order
to consummate such a combination is uncertain and that such uncertainties
concerning the UPC Proposal limits Goldman Sachs' ability to compare the
aggregate consideration to be received pursuant to the UPC Proposal with the
Aggregate Consideration to be received pursuant to the Offer and the Merger.
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 Offer to Purchase dated December 23, 1994 of
SFP and BNI; (iii) the Joint Proxy Statement/Prospectus dated October 12, 1994,
as amended and supplemented to the date of Goldman Sachs' opinion; (iv) 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); (v)
certain interim reports to stockholders and Quarterly Reports on Form 10-Q of
SFP and BNI (and any amendments thereto); (vi) certain other communications
from SFP and BNI to their respective stockholders; (vii) certain Current
Reports on Form 8-K of SFP and BNI; and (viii) certain internal financial
analyses and forecasts for SFP and BNI prepared by their respective
managements. Goldman Sachs also reviewed the Proxy Statement, dated October 28,
1994, as amended and supplemented to the date of Goldman Sachs' opinion, of
UPC, which solicits proxies in opposition to the Merger and the Offer to
Purchase dated November 9, 1994 of UPC, as amended and supplemented to the date
of Goldman Sachs' opinion, which sets forth the proposal of UPC to acquire the
outstanding shares of Common Stock of SFP by means of a cash tender offer and
merger. 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 considered the views of the senior management of SFP
regarding the strategic importance of, and potential synergies 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. Goldman Sachs assumed, with the consent of the
SFP Board, that the Merger will receive regulatory approval in the manner
contemplated by SFP.
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 December 18, 1994. Goldman Sachs utilized substantially the same
types of financial analyses in preparing its written opinion.
(i) Evaluation of BNI and UPC Proposals. Based upon a BNI share price of
$51.50 (closing price on December 16, 1994), Goldman Sachs calculated the
nominal value of the BNI Proposal to be $20.40 per share, consisting of
$20.00 per share in cash for 33.2% of SFP Common Stock ($6.64) and 0.40 BNI
shares of Common Stock per share of SFP Common Stock for 66.8% of SFP
Common Stock ($13.76). Based on the foregoing, the analysis indicated that
the BNI Proposal represented a 20.9% premium over
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the closing price of SFP Common Stock on December 16, 1994. Based upon a
UPC share price of $47.50 (the closing price on December 16, 1994), Goldman
Sachs calculated the nominal value of the UPC Proposal to be $17.21 per
share, consisting of $17.50 per share in cash for 57% of SFP Common Stock
($9.98) and 0.354 UPC shares of common stock per share of SFP Common Stock
for 43% of SFP Common Stock ($7.23). Based upon a BNI share price ranging
from $44.00 to $52.00, Goldman Sachs calculated the per share nominal value
of the BNI Proposal to range from $18.40 to $20.53 and, based upon a UPC
share price ranging from $42.00 to $50.00, calculated the per share nominal
value of the UPC proposal to range from $16.37 to $17.59.
(ii) Pro Forma Merger Analysis. Goldman Sachs prepared pro forma
analyses of the financial impact of the Merger (assuming completion of a
joint tender offer for 33.2% of SFP Common Stock with a back-end merger
exchange ratio of 0.40), 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 expected to be realized from
the Merger of $336 million in 1997, $476 million in 1998 and $532 million
in 1999. Based on the December 16, 1994 closing prices of BNI Common Stock
($51.50) and SFP Common Stock ($16.875), Goldman Sachs determined that SFP
shareholders would own approximately 35% of the pro forma combined entity
after the Merger. In addition, 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. Such analyses
were prepared for the years 1997, 1998 and 1999. These analyses showed that
the Merger would provide EPS accretion to holders of BNI Common Stock of
approximately 3.6%, 13.5% and 18.2% for the years 1997, 1998 and 1999,
respectively, after taking into account the synergies expected to be
realized from the Merger in each year.
(iii) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information relating to SFP, BNI and UPC to corresponding
financial information, ratios and public market multiples for five
publicly-traded corporations: Consolidated Rail Corporation ("Conrail"),
Chicago and North Western Holdings Corp., CSX Corporation, Norfolk Southern
Corporation and Southern Pacific Rail Corporation (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 to earnings ratio using estimated 1994
earnings (based on mean estimates from First Call as of December 16, 1994)
for the Selected Companies ranged from a low of 10.3 to a high of 20.5, as
compared to a ratio of 18.0 for SFP, 11.8 for BNI and 11.7 for UPC, the
price to earnings ratio using estimated 1995 earnings (based on mean
estimates from First Call as of December 16, 1994) for the Selected
Companies ranged from a low of 8.9 to a high of 13.5, as compared to a
ratio of 15.2 for SFP, 9.7 for BNI and 10.3 for UPC. 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. Such analysis also indicated that market price as a multiple of
latest twelve-month ("LTM") earnings before interest, taxes, depreciation
and amortization ("EBITDA") and earnings before interest and taxes ("EBIT")
ranged from 5.7x to 9.4x and 8.1x to 13.9x, respectively, for the Selected
Companies, as compared to corresponding multiples of 6.8x and 10.0x for
SFP, 5.4x and 7.8x for BNI, and 5.5x and 8.9x for UPC.
(iv) Historical Stock Trading Analysis. Goldman Sachs reviewed the
historical trading prices and volumes for SFP Common Stock, BNI Common
Stock and the common stock of UPC and the relationship between movements of
such common stock and movements in a composite index of certain railroad
companies (the "Composite Index"). The Composite Index is composed of the
following companies: Conrail, Chicago and North Western Holdings Corp., CSX
Corporation, Norfolk Southern Corporation and Southern Pacific Rail
Corporation. This analysis showed that the BNI Common Stock slightly
outperformed the Composite Index from the period of June 29, 1994 through
December 15, 1994, that the common stock of UPC underperformed the
Composite Index from the period of June 29, 1994 through December 15, 1994,
and that the SFP Common Stock outperformed the Composite Index, the BNI
Common Stock and the UPC Common Stock from the period of June 29, 1994 to
September 30,
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1994 (no comparison was made for the period after September 30, 1994 due to
the distorting effects of the spin-off of SFP Gold on that date).
(v) Impact of Additional Debt to be Incurred by SFP and BNI. Goldman
Sachs also considered the debt to be incurred by SFP and BNI in connection
with the Offer and Merger. Taking into account the incremental incurrence
of debt by SFP and BNI to finance the Offer and Merger, Goldman Sachs
prepared pro forma analyses of the impact of the Offer on SFP on a stand
alone basis and the Offer and Merger on the combined post-merger company
based upon financial information and projections furnished by the
managements of SFP and BNI. These analyses showed, among other things, that
(i) the ratio of total net debt to total capital for SFP on a stand alone
basis as of year end 1995, 1996, 1997 and 1998 would be 75.4%, 68.3%,
60.3%, and 52.8%, respectively, and for the combined company as of year end
1996, 1997 and 1998 would be 39.8%, 32.9% and 25.7%, respectively; (ii)
EBIT as a multiple of interest expense for SFP on a stand alone basis for
the years 1995 through 1998 would be 2.6x, 3.1x, 3.6x and 4.2x,
respectively, and for the combined company for the years 1997 and 1998
would be 5.9x and 7.3x, respectively; and (iii) the ratio of cash flow to
total net debt for SFP on a stand alone basis for the years 1995 through
1998 would be 22.1%, 26.7%, 33.0% and 36.9%, respectively, and for the
combined company for the years 1997 and 1998 would be 54.2% and 69.3%,
respectively. For the purpose of these analyses cash flow is defined as net
income plus deferred taxes plus depreciation. These analyses also showed
that in the years 1995, 1996 and 1997, the EPS for SFP on a stand alone
basis after giving effect to the Offer would be $1.07, $1.35 and $1.68 per
share, respectively. Goldman Sachs also considered certain pro forma income
statement and balance sheet items for the years 1995, 1996, 1997 and 1998
for SFP on a stand alone basis and for the years 1997 and 1998 for the
combined company.
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, BNI
or UPC or the contemplated transactions. 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 Aggregate Consideration 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 to 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 public offerings of 8 3/8% Notes due 2001 and 8 5/8%
Notes due 2004 of SFP in January 1994, as well as 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 and one of its
affiliates also have committed to participate as co-arranger and arranging
agent, respectively, on SFP's bank financing and Goldman Sachs has committed to
act as one of the co-dealer
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managers in connection with the Offer. 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% of Debentures due
2002 in July 1993, and may provide investment banking services to BNI in the
future. Goldman Sachs has also provided certain investment banking services to
UPC from time to time, including having acted as co-managing underwriter of a
public offering of 7 7/8% Notes due 2002 in February 1992, a public offering of
8 5/8% Sinking Fund Debentures due 2022 in May 1992, a public offering of 6%
Notes due 2003 in August 1993, a public offering of 7% Notes due 2000 in June
1994, a public offering of 6 1/8% Notes due 2004 in January 1994, and as sole
managing underwriter of a public offering of 6.12% Equipment Trust Certificates
due February 1, 2004 in January 1994. 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 and as amended on
November 22, 1994 (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 or UPC. Pursuant to the terms of the Engagement
Letter, if the merger with, or sale of stock or assets to, BNI or UPC 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 $12.5 million. As part of this fee, SFP will pay
Goldman Sachs $5 million upon stockholder approval of any such transaction
(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. Goldman Sachs
has also been retained to act as dealer managers in the Offer. The fee
described above will cover Goldman Sachs' activity for serving as dealer
managers, however, it has been agreed that the shares purchased pursuant to the
Offer will be deemed part of the "aggregate consideration" (as defined in the
Engagement Letter). Goldman Sachs is a full service securities firm and in the
course of its normal trading activities may from time to time effect
transactions and hold positions in the securities of SFP, BNI and/or UPC for
its own account and for the account of customers. As of January 5, 1995,
Goldman Sachs held for its own account a net short position in SFP Common
Stock, BNI Common Stock and UPC common stock of 95,734 shares, 43,764 shares
and 114,848 shares, respectively, and held $34,500,000 principal amount of SFP
8 5/8% Notes due 2004 and $6,085,000 principal amount of UPC 6 1/8% Notes due
2004.
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 0.40 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
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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 filed the application on October 13, 1994. Thereafter,
in response to requests by several parties to the merger proceeding, the ICC on
December 5, 1994 issued an order holding the procedural schedule in abeyance
until such time as an SFP stockholder vote on the Merger occurs. The December 5
order further stated that upon approval of the proposed BNI/SFP Merger by SFP
stockholders, it would immediately issue a new schedule requiring the first
comments, originally due on December 27, 1994, to be filed 30 days from the
service date of the new schedule and adjusting other schedule dates
accordingly. 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 0.40 shares of BNI Common Stock, and will
cease to be outstanding. As of December 30, 1994, the value of 63 million
shares of BNI Common Stock was $3,031,875,000 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 December 31, 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% 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 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
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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 stated below or otherwise agreed in writing by SFP and BNI, and
except for expenses in connection with the filing, printing and mailing of this
Joint Proxy Statement/Prospectus and the related Registration Statements on
Form S-4 and experts hired jointly in connection with proceedings before the
ICC, which will be shared 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.
In the Merger Agreement, SFP has agreed to reimburse up to $10 million of
expenses incurred by BNI in connection with the Merger Agreement and the
transactions contemplated thereby in the event that the Merger Agreement is
terminated under certain circumstances. See "The Merger Agreement--Expenses."
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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 or her 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 had occurred on or before December 31, 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,
$1,684,595; Mr. McInnes,
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$1,245,633; 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 $256,142 to $1,247,244, and the
aggregate amount that would be paid to all of SFP's executive officers in such
circumstances would be approximately $11,626,672. In addition, each SFP
executive officer would receive non-cash and non-stock benefits of
approximately $42,000. As of December 31, 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. Assuming a covered termination
had occurred on or before December 31, 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 $17.44 per SFP share as of
December 30, 1994) with respect to which vesting will be accelerated upon
stockholder approval of the Merger: Mr. Krebs, 36,920 ($643,885), Mr. Springer,
13,841 ($241,387), Mr. Marlier, 10,222 ($178,272), Mr. McInnes, 10,619
($185,195), and Mr. Hagberg, 10,829 ($188,858). 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 $2,400,895 (determined based on a stock
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price of $17.44 per SFP share as of December 30, 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).
Assuming that the Merger is approved by SFP stockholders in the first quarter
of 1995, the total amount of compensation expense that would be charged to
operations in the first quarter of 1995 due to accelerated vesting of unearned
compensation relating to restricted stock will be approximately $10 million,
based upon the stock price at December 30, 1994.
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 $17.44 per share as of December 30, 1994), which are unvested as
of December 31, 1994 and which would vest upon SFP stockholder approval of the
Merger: Mr. Krebs, 574,073 ($3,541,673), Mr. Springer, 86,370 ($649,502), Mr.
Marlier, 103,644 ($628,428), Mr. McInnes, 103,644 ($628,428), and Mr. Hagberg,
70,932 ($530,232). The aggregate number of options granted to all SFP executive
officers which are unvested as of December 31, 1994 is 1,245,176 and the
aggregate value of such options (assuming a stock price of $17.44 per share as
of December 30, 1994) is approximately $8,208,264.
The foregoing information reflects the adjustments for the Gold Spinoff. The
adjustments include revisions to both the option exercise price and the 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 with amendments
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) 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 stockholders'
approval of the Merger and ending on the second anniversary of the Effective
Time of the Merger, the date BNI decides not to consummate the Merger or the
date the ICC disapproves the Merger 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
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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 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 stockholders of both BNI and SFP will constitute a
"change in control" under the Severance Agreements. If payments under the
Severance Agreements are triggered following both a "change in control" and
termination of employment the estimated cash amounts (based on current
compensation levels) 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 $33,700,000. 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 $226,000. The foregoing information does not
include the value of stock options or other stock-based awards, which are
discussed below.
BNI anticipates that 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 may be similar to
that used in the Severance Agreements or Stock Plans) 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
stockholders of both BNI and SFP 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 approval of the Merger by the stockholders
of both BNI and SFP with respect to an aggregate of 282,281 shares of
restricted BNI Common Stock with an aggregate value of approximately
$13,584,773 (determined based on a stock price of $48.125 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 December 31, 1994: Mr.
G. Grinstein, 67,816 ($3,263,645); Mr. D.C. Anderson, 31,600 ($1,520,750); Mr.
E.W. Burke, 20,533 ($988,151); Mr. J.T. Chain, 23,832 ($1,146,915); Mr. J.Q.
Anderson, 17,299 ($832,514); all other executive officers as a group, 117,204
($5,640,443); and all other directors as a group, 3,997 ($192,356).
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
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value of $4,009,285 (assuming a stock price of $48.125 per share), which will
vest early upon stockholder approval of the Merger, as of December 31, 1994:
Mr. G. Grinstein, 135,868 ($1,617,187); Mr. D.C. Anderson, 28,085 ($74,241);
Mr. E.W. Burke, 36,908 ($398,983); Mr. J.T. Chain, 27,250 ($89,531); Mr. J.Q.
Anderson, 15,475 ($13,594); all other executive officers as a group, 199,018
($1,815,749); and all other directors as a group, 8,000 ($0).
Assuming that the Merger is approved by both BNI and SFP stockholders in the
first quarter of 1995, the total amount of compensation expense that will be
charged to operations in the first quarter of 1995 due to the accelerated
vesting of unearned compensation relating to restricted stock will be
approximately $22 million.
Employment Agreement with Certain Persons. Since the date of the Proxy
Statement relating to its 1994 Annual Meeting of Stockholders, 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.
The Honorable Al Swift will be employed pursuant to an employment agreement
commencing January 5, 1995, and terminating January 5, 2000, providing for a
minimum annual salary of $225,000 with further increases as determined by the
Board of Directors from time to time. Effective January 5, 1995, Mr. Swift will
participate in BNI's annual bonus program. Mr. Swift's employment agreement
provides for the grant of 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.
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 "purchase" method of accounting.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain material United States Federal income
tax consequences of the Merger and the Alternative Merger to BNI, SFP, the SFP
stockholders and the BNI 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 or BNI Common Stock, as applicable, 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 or BNI stock, as applicable, pursuant to
employee stock options or plans. SFP and BNI stockholders are urged to consult
their tax advisors as to the particular United States Federal income tax
consequences to them of the Merger and the Alternative Merger and as to the
foreign, state, local and other tax consequences of the Merger and the
Alternative Merger.
The Merger or the Alternative Merger, as applicable, has been structured to
qualify as a tax-free transaction for United States Federal income tax
purposes. The obligation of either BNI or SFP to consummate the Merger or the
Alternative Merger is conditioned on receipt of an opinion of nationally
recognized tax counsel to the effect that the Merger or the Alternative Merger,
as applicable, so qualifies. Assuming the Merger or the Alternative Merger, as
applicable, so qualifies, the material tax consequences are as follows: (i)
except with respect to cash received in lieu of fractional shares, as discussed
below, SFP stockholders will not recognize gain, income or loss upon the
receipt of shares of BNI Common Stock in the Merger or shares of Holdings
Common Stock in the Alternative Merger, as applicable, in exchange for their
shares of SFP Common Stock; (ii) if applicable, BNI stockholders will not
recognize gain, income or loss upon the receipt of shares of Holdings Common
Stock in exchange for their shares of BNI Common Stock in the Alternative
Merger; (iii) no gain, income or loss will be recognized by BNI or SFP pursuant
to the Merger or the Alternative Merger; (iv) the tax basis of the shares of
BNI Common Stock or Holdings Common Stock, as applicable, received by SFP
stockholders will be the same as the tax basis of the shares of SFP Common
Stock exchanged therefor; (v) if applicable, the tax basis of the shares of
Holdings Common Stock received by BNI stockholders will be the same as the tax
basis of the shares of BNI Common Stock exchanged therefore in the Alternative
Merger; (vi) the holding period of the shares of BNI Common Stock or of
Holdings Common Stock, as applicable, received by SFP stockholders will be the
same as the holding period of the shares of SFP Common Stock surrendered
therefor; (vii) if applicable, the holding period of the shares of Holdings
Common Stock received by the BNI stockholders will be the same as the holding
period of the shares of BNI Common Stock surrendered therefore in the
Alternative Merger; and (viii) the payment of cash in lieu of fractional shares
will be treated as if the fractional shares were received in the Merger or
Alternative Merger, as the case may be, 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 (iv) above).
It is possible that the IRS might assert that SFP stockholders who both (i)
participate in the Merger or, if applicable, the Alternative Merger and (ii)
sell SFP Common Stock pursuant to the Offer, should be treated as participating
in a single integrated transaction for federal income tax purposes. If so
treated, the federal income tax consequences to an SFP stockholder resulting
from the receipt of cash pursuant to the Offer may, depending on such
stockholder's particular circumstances, be less favorable than the consequences
absent integration. However, integration would not cause the receipt of stock
contemplated by the Merger Agreement to be a taxable exchange. In reporting the
transactions to the IRS, SFP will not treat the stock purchases pursuant to the
Offer as integrated with the Merger, or, if applicable, the Alternative Merger.
Each stockholder who tenders shares pursuant to the Offer is urged to consult
its tax advisor with respect to the tax consequences to the stockholder that
would arise if the Offer were integrated with the Merger or, if applicable, the
Alternative Merger.
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MANAGEMENT AND DIRECTOR STOCK OPTIONS
SFP. As of December 31, 1994, there were 14,470,071 unexercised options
outstanding under various employee stock option plans of SFP to purchase shares
of SFP Common Stock at prices ranging from $3.04 to $14.29 per share. As of
that date, 9,182,971 options to purchase shares of SFP Common Stock were
exercisable and 5,287,100 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.
THE OFFER
On December 23, 1994, SFP and BNI commenced separate offers (together, the
"Offer") to purchase up to 63 million shares of SFP Common Stock in the
aggregate (together with the associated rights issued under the SFP Rights
Agreement), at a price of $20.00 per share, net to the seller in cash, with SFP
severally obligated to purchase up to 38 million shares of SFP Common Stock
accepted for payment pursuant to the Offer and BNI severally obligated to
purchase up to 25 million shares of SFP Common Stock accepted for payment
pursuant to the Offer. No term of the Offer may be amended or modified without
the written consent of both SFP and BNI. The several obligations of BNI and SFP
under the Offer are conditioned on, among other things, (i) at least 63 million
shares of SFP Common Stock being validly tendered and not withdrawn prior to
the expiration date of the Offer, (ii) SFP and BNI having obtained sufficient
financing on terms satisfactory to them to purchase 63 million shares of SFP
Common Stock pursuant to the Offer and to effect certain other transactions and
(iii) the approval of the Merger Agreement by the stockholders of SFP and BNI.
Each of SFP and BNI has the right to determine, in its sole reasonable
discretion, whether the conditions to its obligations under the Offer have been
satisfied. The Offer will expire at 12:00 midnight, New
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York City time, on Wednesday, February 8, 1995, unless the Offer is extended.
See BNI's Tender Offer Statement on Schedule 14D-1, SFP's Issuer Tender Offer
Statement on Form 13E-4 and SFP's Solicitation/Recommendation Statement on
Schedule 14D-9, each as amended, which are incorporated by reference herein,
for more detailed information concerning the Offer. See "Available Information"
and "Incorporation of Certain Documents by Reference."
SFP's Board of Directors unanimously recommended that those of its
stockholders who wish to receive cash for a portion of their shares of SFP
Common Stock accept the Offer. In doing so, the Board considered the impact of
the increase in SFP debt that the Offer would require and concluded that
incurring such debt was prudent in light of SFP's ability to repay it and the
benefits of the Offer and the Merger for SFP's stockholders. See "The Merger--
Factors for Consideration of the Merger." Up to 63,000,000 shares of SFP Common
Stock are to be purchased in the Offer; any shares tendered in response to the
Offer over and above such amount would be subject to proration in accordance
with the terms of the Offer. Proration may result in SFP stockholders receiving
cash for only a portion of any shares tendered, with the remaining
consideration to be received in the form of BNI Common Stock pursuant to the
Merger after the receipt of ICC approval and satisfaction or waiver of the
other conditions to the Merger.
Consummation of the Offer is not subject to ICC approval of the Merger or the
satisfaction or waiver of any other conditions to the obligation of BNI or SFP
to consummate the Merger, and, therefore, there can be no assurance that the
Merger will be consummated even if shares of SFP Common Stock are purchased
under the Offer. Accordingly, it is possible that the Merger will not be
consummated and BNI will continue to hold the shares of SFP Common Stock
purchased by it in the Offer. Pursuant to the Merger Agreement, SFP has granted
certain registration rights to BNI in the event BNI continues to own shares of
SFP Common Stock purchased in the Offer and the Merger is not consummated. See
"The Merger Agreement--Registration Rights."
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. It is anticipated
that Mr. Krebs will be designated by SFP as a member of the initial board of
directors 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 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, consummation of the Offer, 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.
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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 0.40 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 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.
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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 Offer, 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
the Offer and 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 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; (n) brokers' fees and expenses; and (o) that
no benefits will be received by SFP's stockholders pursuant to the SFP Rights
Agreement as a result of the execution of the Merger Agreement, the
commencement or consummation of the Offer or the consummation of the Merger. 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.
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 Offer, 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
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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 and except (i) in the case of SFP,
borrowings not to exceed $1.75 billion in the aggregate under credit facilities
in form and substance reasonable satisfactory to BNI to finance the Offer, to
refinance SFP's currently outstanding 12.65% Senior Notes due October 1, 2000,
8 3/8% Notes due November 1, 2001 and 8 5/8% Notes due November 1, 2004, to pay
penalties, premiums and make-whole payments required in connection with such
refinancing and for working capital and other corporate purposes, and (ii) in
the case of BNI, borrowings not to exceed $500 million in the aggregate under
credit facilities in form and substance reasonable satisfactory to SFP to
finance the Offer; (g) will not make any loans, advances or capital
contributions to, or investments in, any other Person, other than the Offer
(with respect to BNI) 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, 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, 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, or any proposal or offer with respect to any recapitalization or
restructuring with respect to BNI or SFP or any Subsidiary of BNI or SFP, or
any transaction similar to any of the foregoing 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
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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 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
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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, (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, and (iii)
grants to BNI the registration rights described below under "--Registration
Rights".
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 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
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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.
REGISTRATION RIGHTS
Pursuant to the terms of the Merger Agreement, in the event that the Merger
Agreement is terminated for any reason after the consummation of the Offer, BNI
will be able to require SFP to file up to two registration statements
registering the shares of SFP Common Stock purchased by BNI pursuant to the
Offer. In addition, the Merger Agreement will also entitle BNI to include such
shares of SFP Common Stock in any public offering of shares of SFP Common Stock
by SFP (other than pursuant to a registration statement on Form S-4 or Form S-8
of the Securities Act, and subject to certain limitations on the number of
shares included in such registration, as determined by the underwriters of such
offering, if any). Once effective, these registration rights continue
indefinitely until their exercise. Subject to certain limitations, SFP is
obligated to bear all costs of any registration, other than underwriting fees,
discounts or commissions, attorneys' fees and any out-of-pocket expenses of
BNI, if any.
THE OFFER
The Merger Agreement severally obligates each of SFP and BNI to commence
separate offers to purchase 63 million shares of SFP common stock in the
aggregate (together with the associated rights issued under the SFP Rights
Agreement), at a price of $20 per share, net to the seller in cash, with SFP
severally obligated to purchase 0.60317, and BNI severally obligated to
purchase 0.39683, of any shares of SFP Common Stock accepted for payment
pursuant to the Offer from any SFP stockholder. No term of the Offer may be
amended or modified without the written consent of both SFP and BNI. The
several obligations of BNI and SFP under the Offer are subject to the
conditions that (i) there shall be validly tendered in accordance with the
terms of the Offer prior to the expiration date of the Offer and not withdrawn
at least 63
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million shares of SFP Common Stock (the "Minimum Condition"), (ii) SFP and BNI
having obtained sufficient financing on terms satisfactory to them to purchase
63 million shares of SFP Common Stock pursuant to the Offer and to effect
certain other transactions and (iii) the approval of the Merger Agreement by
the stockholders of SFP and BNI, as well as certain additional conditions such
as that each of SFP (as to BNI) and BNI (as to SFP) shall have accepted for
payment (or shall concurrently accept for payment) shares of SFP Common Stock
under the Offer, the HSR Act, the fact that no governmental authority shall
have taken any action that would prohibit or restrict the consummation of the
Offer or the Merger, absence of any breach of any covenant or representation
and warranty of either SFP or BNI contained in the Merger Agreement and the
absence of any termination of the Merger Agreement. Each of SFP and BNI have
the right to determine, in its sole reasonable discretion, whether the
conditions to its obligations under the Offer have been satisfied.
The Merger Agreement requires, as soon as practicable on the date of
commencement of the Offer, (a) SFP to file an Issuer Tender Offer Statement on
Schedule 13E-4 with respect to the Offer and a Solicitation/Recommendation
Statement on Schedule 14D-9 which shall reflect the recommendations of the
SFP's Board of Directors with respect to the Offer, and (b) BNI to file a
Tender Offer Statement on Schedule 14D-1 with respect to the Offer. SFP and BNI
also agreed to take all steps necessary to cause the offer to purchase and form
of the related letter of transmittal to be disseminated to holders of shares of
SFP Common Stock as and to the extent required by applicable federal securities
laws.
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 (except that the condition set forth in clause
(g) below may not be waived) which include the following:
(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 tax-free to BNI, SFP and
their respective stockholders for federal income tax purposes;
(g) SFP and BNI shall have purchased shares of SFP Common Stock pursuant
to the Offer;
(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
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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 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; (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; (j) by
SFP, upon payment to BNI of the fee described under "Expenses" below, if prior
to the purchase of shares of SFP Common Stock pursuant to the Offer, (i) the
board of directors of SFP shall have withdrawn or modified in a manner adverse
to BNI its approval or recommendation of the Offer, the Merger Agreement or the
Merger in order to permit SFP to execute a definitive agreement in connection
with a Takeover Proposal or in order to approve another tender offer for shares
of SFP Common Stock, in either case, as determined by the board of directors of
SFP, on terms more favorable to SFP's stockholders than the transactions
contemplated hereby, or (ii) the board of directors of SFP shall have
recommended any other Takeover Proposal or (k) by either BNI or SFP, if the
Offer is terminated and SFP and BNI shall not have purchased shares of SFP
Common Stock pursuant to the Offer.
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.
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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.
ALTERNATIVE TRANSACTION STRUCTURE
In the Merger Agreement, BNI and SFP have agreed that, upon notice to the
other party, either BNI or SFP may elect to effect the Merger through the use
of a holding company structure as set forth below. In order to permit the
Alternative Merger, Holdings was incorporated in Delaware on December 16, 1994.
Holdings is jointly owned by BNI and SFP and has not engaged in any activity
since its formation other than activities related to the Merger Agreement.
Pursuant to the Merger Agreement, SFP and BNI have agreed not to permit
Holdings to take any actions or undertake any operations except as may be
necessary in connection with the consummation of the Alternative Merger and the
transactions contemplated by the Merger Agreement. BNI and SFP have included
the option of effecting the Alternative Merger in order to ensure that the
transactions contemplated by the Merger Agreement qualify as tax-free
transactions for United States federal income tax purposes.
In the event either BNI or SFP elects to effect the Alternative Merger, prior
to the consummation of the Alternative Merger BNI and SFP will cause Holdings
to form two new wholly owned subsidiaries ("BNI Merger Sub" and "SFP Merger
Sub") under Delaware law and Holdings will become party to the Merger
Agreement, assume all the obligations of BNI thereunder with respect to
consummating the Merger and make certain representations and warranties to each
of BNI and SFP. Upon the effectiveness of the Alternative Merger, (i) BNI
Merger Sub will be merged with and into BNI, with BNI being the surviving
corporation, and (ii) SFP Merger Sub will be merged with and into SFP, with SFP
being the surviving corporation. In the Alternative Merger, (i) each
outstanding share of BNI Common Stock (other than BNI Common Stock held by BNI
as treasury stock or owned by BNI, SFP or any Subsidiary of either of them)
will be converted into one newly-issued share of Holdings Common Stock, (ii)
each outstanding share of SFP Common Stock (other than SFP Common Stock held by
SFP as treasury stock or owned by SFP or BNI or any Subsidiary of either of
them) will be converted into 0.40 newly-issued share of Holdings Common Stock,
and (iii) each outstanding share of BNI Common Stock or SFP Common Stock then
held as treasury stock by either of BNI or SFP, as the case may be, or owned by
BNI and SFP (other than shares of SFP Common Stock owned by BNI, which shall
remain outstanding) will be canceled.
No fractional shares of Holdings Common Stock will be issued in the
Alternative Merger, but in lieu thereof, any holder of SFP Common Stock that
would otherwise be entitled to such fractional share will instead receive a
cash payment representing such holder's proportionate interest in the net
proceeds received from the sale by the Exchange Agent who shall be appointed in
the same manner as in the Merger and who shall effect such sales as described
above under "--The Merger". In addition, each outstanding option to purchase
either BNI Common Stock or SFP Common Stock will be canceled and substituted
with an equivalent option to purchase Holdings Common Stock.
In the event either BNI or SFP shall elect to effect the Alternative Merger,
an additional condition to the consummation of the Alternative Merger is that
the shares of Holdings Common Stock to be issued in the Alternative Merger be
listed on the NYSE. The Merger Agreement provides that all other conditions to
closing, covenants of BNI and SFP and other provisions (with the exception of
the mechanics of the Merger) will remain in full force and effect in the event
of the Alternative Merger. BNI and SFP have also agreed that any other
appropriate adjustments necessary to the Merger Agreement to reflect the
Alternative Merger shall be made in the event either elects to effect the
Alternative Merger, with a view to ensuring that BNI, SFP and their respective
stockholders are placed in a position that is as close as possible to the
position they would have been in pursuant to the Merger.
69
<PAGE>
EXPENSES
Except as stated below or 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.
SFP has agreed that if the Merger Agreement shall be terminated due to (a)
the acquisition by any Person, entity or "group" other than BNI of more than
50% or more of the outstanding SFP Common Stock, (b) the approvals of the
stockholders of SFP and BNI having not have been obtained, (c) the Board of
Directors of SFP, prior to the meeting of stockholders of SFP, having
withdrawn, modified or changed in a manner adverse to BNI, its approval or
recommendation of the Merger Agreement or the Merger, (d) the board of
directors of SFP having withdrawn or modified in a manner adverse to BNI its
approval or recommendation of the Offer, the Merger Agreement or the Merger in
order to permit SFP to execute a definitive agreement in connection with a
Takeover Proposal or in order to approve another tender offer for shares of SFP
Common Stock or the board of directors of SFP shall have recommended any other
Takeover Proposal, or (e) if the Offer is terminated and SFP and BNI shall not
have purchased shares of SFP Common Stock pursuant to the Offer, then it will
pay BNI an amount equal to $50,000,000 plus all out-of-pocket expenses, not to
exceed $10,000,000 incurred by BNI in connection with the Merger Agreement, the
Offer and all related transactions by wire transfer of immediately available
funds promptly, but in no event later then two business days, after such
termination, provided that no such payment will be required if the Merger
Agreement is terminated pursuant to clause (b), (c) or (e) above unless, after
December 18, 1994, a new Takeover Proposal involving SFP has been announced or
made (it being understood that any modification of UPC's Takeover Proposal as
in existence on December 18, 1994 shall be deemed a new Takeover Proposal). SFP
has also agreed that if the Merger Agreement shall be terminated pursuant to
clause (b), (c) or (e) above and no payment is required by it in the manner
contemplated above, it will reimburse BNI for all out-of-pocket expenses
incurred by BNI in connection with the Merger Agreement, the Merger, the Offer
and all related transactions. Such payment shall be made by wire transfer of
immediately available funds promptly, but in no later event than two business
days, after receipt by SFP from BNI of documentation of such expenses.
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.
70
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma financial statements included herein have been
prepared to display three events: (i) the effect of the BNI tender offer for
25 million shares of SFP Common Stock at $20 per share and the related
borrowings ("BNI Investment"); (ii) the SFP tender offer for 38 million shares
of SFP Common Stock at $20 per share and related borrowings and debt
repayments ("SFP Recapitalization"); and (iii) the exchange of 0.40 shares of
BNI Common Stock for each share of SFP Common Stock remaining outstanding
after the BNI Investment and SFP Recapitalization. The applicable transactions
are reflected in the pro forma balance sheets as if they occurred on September
30, 1994 and in the statements of operations as if they occurred on January 1,
1993.
The Merger will be accounted for under the purchase method. The pro forma
combined adjustments do not reflect any potential increases in operating
income, or one-time costs to achieve such increases, which may arise from the
Merger, or adjustments to conform BNI and SFP accounting practices. See "Notes
to Pro Forma Combined Financial Statements" and "Other Matters--Additional
Financial Considerations." The unaudited pro forma financial statements for
the Merger, if consummated using the Alternative Merger structure, would be
identical to the financial data set forth below, except that using the
Alternative Merger structure, BNI's treasury stock would be cancelled and the
pro forma combined paid-in capital would be reduced by the amount of BNI
treasury stock ($5 million as of September 30, 1994).
The unaudited pro forma 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 applicable transactions
actually taken place on the dates indicated, or of future results of
operations or financial position of the stand alone or combined entities.
Consummation of the Offer by BNI and SFP is conditioned upon, among other
things, approval of both BNI and SFP stockholders of the proposed Merger.
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 this Joint Proxy Statement/Prospectus.
The unaudited pro forma 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 Joint Proxy
Statement/Prospectus, (ii) the unaudited selected pro forma financial data and
unaudited comparative per share data, including the notes thereto, appearing
elsewhere in this Joint Proxy Statement/Prospectus and (iii) the selected
historical financial data appearing elsewhere in this Joint Proxy
Statement/Prospectus. See "Incorporation of Certain Documents by Reference",
"Unaudited Selected Pro Forma Financial Data," "Unaudited Comparative Per
Share Data" and "Selected Historical Financial Data."
71
<PAGE>
PRO FORMA BNI WITH SFP INVESTMENT BALANCE SHEET
AS OF SEPTEMBER 30, 1994
UNAUDITED
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
BURLINGTON
BURLINGTON BNI NORTHERN INC.
NORTHERN INC. TENDER OFFER WITH SFP
HISTORICAL ADJUSTMENTS INVESTMENT
------------- ------------ -------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents......... $ 17 $-- $ 17
Accounts receivable, net.......... 609 -- 609
Other current assets.............. 426 -- 426
------ ---- ------
Total current assets............ 1,052 -- 1,052
Investment in SFP................... -- 500 (I.1) 500
Property and equipment, net......... 6,203 -- 6,203
Other assets........................ 281 -- 281
------ ---- ------
Total assets.................... $7,536 $500 $8,036
====== ==== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.................. $ 579 $-- $ 579
Other current liabilities......... 866 (20)(I.3) 846
Current portion of long-term debt
and commercial paper............. 103 -- 103
------ ---- ------
Total current liabilities....... 1,548 (20) 1,528
Long-term debt...................... 1,688 500 (I.2) 2,188
Deferred income taxes............... 1,422 5 (I.3) 1,427
Other liabilities................... 762 -- 762
------ ---- ------
Total liabilities............... 5,420 485 5,905
------ ---- ------
Stockholders' equity
Convertible preferred stock....... 337 -- 337
Common stock...................... 1 -- 1
Paid-in capital................... 1,443 -- 1,443
Retained earnings................. 376 (10)(I.3) 366
Treasury stock.................... (5) -- (5)
Other............................. (36) 25 (I.3) (11)
------ ---- ------
Total stockholders' equity...... 2,116 15 2,131
------ ---- ------
Total liabilities and
stockholders' equity......... $7,536 $500 $8,036
====== ==== ======
</TABLE>
(See accompanying Notes to Pro Forma BNI Investment Financial Statements)
72
<PAGE>
PRO FORMA BNI WITH SFP INVESTMENT STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1994
UNAUDITED
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BURLINGTON
BURLINGTON BNI NORTHERN INC.
NORTHERN INC. TENDER OFFER WITH SFP
HISTORICAL ADJUSTMENTS INVESTMENT
------------- ------------ -------------
<S> <C> <C> <C>
Revenues.......................... $ 3,651 $ -- $ 3,651
Operating expenses
Compensation and benefits....... 1,310 1,310
Fuel............................ 267 -- 267
Materials....................... 225 -- 225
Equipment rents................. 314 -- 314
Purchased services.............. 352 -- 352
Depreciation.................... 267 -- 267
Other........................... 327 -- 327
------- ----- -------
Total operating expenses...... 3,062 -- 3,062
------- ----- -------
Operating income.................. 589 -- 589
Interest expense.................. 118 28 (I.2) 146
Other income (expense), net....... (7) -- (I.1) (7)
------- ----- -------
Income before income taxes........ 464 (28) 436
Income tax expense................ 180 (11)(I.4) 169
------- ----- -------
Income from continuing operations. $ 284 $ (17) $ 267
======= ===== =======
Earnings per common share
Income from continuing $ 2.97 $ 2.78(I.5)
operations..................... ======= =======
Number of shares used in
computation of earnings per
common share (in thousands)...... 90,230 90,230
</TABLE>
(See accompanying Notes to Pro Forma BNI Investment Financial Statements)
73
<PAGE>
PRO FORMA BNI WITH SFP INVESTMENT STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
UNAUDITED
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BURLINGTON
NORTHERN
BURLINGTON BNI TENDER INC. WITH
NORTHERN INC. OFFER SFP
HISTORICAL ADJUSTMENTS INVESTMENT
------------- ----------- ----------
<S> <C> <C> <C>
Revenues............................ $4,699 $ -- $4,699
Operating expenses
Compensation and benefits......... 1,709 -- 1,709
Fuel.............................. 362 -- 362
Materials......................... 300 -- 300
Equipment rents................... 395 -- 395
Purchased services................ 457 -- 457
Depreciation...................... 352 -- 352
Other............................. 463 -- 463
------ ----- ------
Total operating expenses........ 4,038 -- 4,038
------ ----- ------
Operating income.................... 661 -- 661
Interest expense.................... 145 38(I.2) 183
Other income (expense), net......... 5 3(I.1) 8
------ ----- ------
Income before income taxes.......... 521 (35) 486
Income tax expense.................. 225 (14)(I.4) 211
------ ----- ------
Income from continuing operations... $ 296 $ (21) $ 275
====== ===== ======
Earnings per common share
Income from continuing operations. $ 3.06 $ 2.82(I.5)
====== ======
Number of shares used in computation
of earnings per common share (in
thou sands)........................ 89,672 89,672
</TABLE>
(See accompanying Notes to Pro Forma BNI Investment Financial Statements)
74
<PAGE>
PRO FORMA SFP RECAPITALIZED BALANCE SHEET
AS OF SEPTEMBER 30, 1994
UNAUDITED
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SANTA FE SANTA FE
PACIFIC SFP PACIFIC
CORPORATION RECAPITALIZATION CORPORATION
HISTORICAL ADJUSTMENTS RECAPITALIZED
----------- ---------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents......... $ 17 $-- $ 17
Accounts receivable, net.......... 98 -- 98
Other current assets.............. 246 -- 246
------ ---- ------
Total current assets............ 361 -- 361
Property and equipment, net......... 4,684 -- 4,684
Other assets........................ 271 27 (R.1) 298
------ ---- ------
Total assets.................... $5,316 $ 27 $5,343
====== ==== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.................. $ 253 $-- $ 253
Other current liabilities......... 449 -- 449
Current portion of long-term debt
and commercial paper............. 192 -- 192
------ ---- ------
Total current liabilities....... 894 -- 894
Long-term debt...................... 890 843 (R.2) 1,733
Deferred income taxes............... 1,167 (19)(R.3) 1,148
Other liabilities................... 1,157 (3)(R.4) 1,154
------ ---- ------
Total liabilities............... 4,108 821 4,929
------ ---- ------
Stockholders' equity
Common stock...................... 190 -- 190
Paid-in capital................... 842 15 (R.4) 857
Retained earnings................. 263 (49)(R.4) 214
Treasury stock.................... (87) (760)(R.4) (847)
------ ---- ------
Total stockholders' equity...... 1,208 (794) 414
------ ---- ------
Total liabilities and stock-
holders' equity.............. $5,316 $ 27 $5,343
====== ==== ======
</TABLE>
(See accompanying Notes to Pro Forma SFP Recapitalized Financial Statements)
75
<PAGE>
PRO FORMA SFP RECAPITALIZED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1994
UNAUDITED
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SANTA FE SANTA FE
PACIFIC SFP PACIFIC
CORPORATION RECAPITALIZATION CORPORATION
HISTORICAL ADJUSTMENTS RECAPITALIZED
----------- ---------------- -------------
<S> <C> <C> <C>
Revenues......................... $ 1,970 $-- $ 1,970
Operating expenses
Compensation and benefits...... 625 -- 625
Fuel........................... 183 -- 183
Materials...................... 92 -- 92
Equipment rents................ 185 -- 185
Purchased services............. 282 -- 282
Depreciation................... 150 -- 150
Other.......................... 147 -- 147
------- ---- -------
Total operating expenses..... 1,664 -- 1,664
------- ---- -------
Operating income................. 306 -- 306
Interest expense................. 90 57 (R.5) 147
Other income (expense), net...... 49 -- 49
------- ---- -------
Income before income taxes....... 265 (57) 208
Income tax expense............... 112 (22)(R.6) 90
------- ---- -------
Income from continuing opera-
tions........................... $ 153 $(35) $ 118
Earnings per common share ======= ==== =======
Income from continuing opera-
tions......................... $ .81 $ .77(R.7)
======= =======
Number of shares used in computa-
tion of earnings per common
share (in thousands)............ 189,700 152,400(R.7)
</TABLE>
(See accompanying Notes to Pro Forma SFP Recapitalized Financial Statements)
76
<PAGE>
PRO FORMA SFP RECAPITALIZED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
UNAUDITED
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SANTA FE SANTA FE
PACIFIC SFP PACIFIC
CORPORATION RECAPITALIZATION CORPORATION
HISTORICAL ADJUSTMENTS RECAPITALIZED
----------- ---------------- -------------
<S> <C> <C> <C>
Revenues........................ $ 2,409 $ -- $ 2,409
Operating expenses
Compensation and benefits..... 800 800
Fuel.......................... 239 -- 239
Materials..................... 128 -- 128
Equipment rents............... 229 -- 229
Purchased services............ 322 -- 322
Depreciation.................. 188 -- 188
Other......................... 185 -- 185
------- ----- -------
Total operating expenses.... 2,091 -- 2,091
------- ----- -------
Operating income................ 318 -- 318
Interest expense................ 133 73 (R.5) 206
Gain on sale of California
lines.......................... 145 -- 145
Other income (expense), net..... 24 -- 24
------- ----- -------
Income before income taxes...... 354 (73) 281
Income tax expense.............. 177 (28)(R.6) 149
------- ----- -------
Income from continuing
operations..................... $ 177 $ (45) $ 132
Earnings per common share ======= ===== =======
Income from continuing
operations................... $ .95 $ .88(R.7)
======= =======
Number of shares used in
computation of earnings per
common share (in thousands).... 187,200 149,900(R.7)
</TABLE>
(See accompanying Notes to Pro Forma SFP Recapitalized Financial Statements)
77
<PAGE>
PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1994
UNAUDITED
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
BURLINGTON SANTA FE
NORTHERN INC. PACIFIC BURLINGTON NORTHERN
WITH SFP CORPORATION SANTA FE
INVESTMENT RECAPITALIZED PRO FORMA CORPORATION
(SEE PAGE 72) (SEE PAGE 75) ADJUSTMENTS PRO FORMA
------------- ------------- ----------- -------------------
<S> <C> <C> <C> <C>
ASSETS
------
Current assets
Cash and cash equiva-
lents................ $ 17 $ 17 $ -- $ 34
Accounts receivable,
net.................. 609 98 -- 707
Other current assets.. 426 246 -- 672
------ ------ ------ -------
Total current as-
sets............... 1,052 361 -- 1,413
Investment in SFP....... 500 -- (500)(C.1) --
Property and equipment,
net.................... 6,203 4,684 2,542 (C.2) 13,429
Other assets............ 281 298 238 (C.3) 817
Goodwill................ -- -- 1,112 (C.4)(C.12) 1,112
------ ------ ------ -------
Total assets........ $8,036 $5,343 $3,392 $16,771
====== ====== ====== =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
Current liabilities
Accounts payable...... $ 579 $ 253 $ -- $ 832
Other current liabili-
ties................. 846 449 38 (C.9) 1,333
Current portion of
long-term debt and 103 192 -- 295
commercial paper..... ------ ------ ------ -------
Total current lia-
bilities........... 1,528 894 38 2,460
Long-term debt.......... 2,188 1,733 63 (C.5) 3,984
Deferred income taxes... 1,427 1,148 1,071 (C.6) 3,646
Other liabilities....... 762 1,154 (37)(C.7) 1,879
------ ------ ------ -------
Total liabilities... 5,905 4,929 1,135 11,969
------ ------ ------ -------
Stockholders' equity
Convertible preferred
stock................ 337 -- -- 337
Common stock.......... 1 190 (190)(C.8) 1
Paid-in capital....... 1,443 857 1,814 (C.8) 4,114
Retained earnings..... 366 214 (214)(C.8)(C.9) 366
Treasury stock........ (5) (847) 847 (C.8) (5)
Other................. (11) -- -- (11)
------ ------ ------ -------
Total stockholders'
equity............. 2,131 414 2,257 (C.12) 4,802
Total liabilities ------ ------ ------ -------
and stockholders'
equity........... $8,036 $5,343 $3,392 $16,771
====== ====== ====== =======
</TABLE>
(See accompanying Notes to Pro Forma Combined Financial Statements)
78
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1994
UNAUDITED
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
BURLINGTON SANTA FE
NORTHERN INC. PACIFIC BURLINGTON NORTHERN
WITH SFP CORPORATION SANTA FE
INVESTMENT RECAPITALIZED PRO FORMA CORPORATION
(SEE PAGE 73) (SEE PAGE 76) ADJUSTMENTS PRO FORMA
------------- ------------- ----------- -------------------
<S> <C> <C> <C> <C>
Revenues............................ $3,651 $ 1,970 $-- $ 5,621
Operating expenses
Compensation and benefits......... 1,310 625 4 (C.7) 1,939
Fuel.............................. 267 183 -- 450
Materials......................... 225 92 -- 317
Equipment rents................... 314 185 -- 499
Purchased services................ 352 282 -- 634
Depreciation...................... 267 150 38 (C.2) 455
Other............................. 327 147 21 (C.4)(C.12) 495
------ ------- ---- -------
Total operating expenses........ 3,062 1,664 63 4,789
------ ------- ---- -------
Operating income.................... 589 306 (63) 832
Interest expense.................... 146 147 (6)(C.5) 287
Other income (expense), net......... (7) 49 (2)(C.3) 40
------ ------- ---- -------
Income before income taxes.......... 436 208 (59) 585
Income tax expense.................. 169 90 (15)(C.10) 244
------ ------- ---- -------
Income from continuing operations... $ 267 $ 118 $(44) $ 341
====== ======= ==== =======
Earnings per common share
Income from continuing operations. $ 2.78 $ .77 $ 2.30(C.11)(C.12)
====== ======= =======
Number of shares used in computation
of earnings per common share (in
thousands)......................... 90,230 152,400 141,190(C.11)
</TABLE>
(See accompanying Notes to Pro Forma Combined Financial Statements)
79
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
UNAUDITED
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
BURLINGTON SANTA FE
NORTHERN INC. PACIFIC BURLINGTON NORTHERN
WITH SFP CORPORATION SANTA FE
INVESTMENT RECAPITALIZED PRO FORMA CORPORATION
(SEE PAGE 74) (SEE PAGE 77) ADJUSTMENTS PRO FORMA
------------- ------------- ----------- -------------------
<S> <C> <C> <C> <C>
Revenues.................... $4,699 $ 2,409 $-- $ 7,108
Operating expenses
Compensation and benefits. 1,709 800 5 (C.7) 2,514
Fuel...................... 362 239 -- 601
Materials................. 300 128 -- 428
Equipment rents........... 395 229 -- 624
Purchased services........ 457 322 -- 779
Depreciation.............. 352 188 50 (C.2) 590
Other..................... 463 185 28 (C.4)(C.12) 676
------ ------- ---- -------
Total operating ex-
penses................. 4,038 2,091 83 6,212
------ ------- ---- -------
Operating income............ 661 318 (83) 896
Interest expense............ 183 206 (10)(C.5) 379
Gain on sale of California
lines...................... -- 145 -- 145
Other income (expense), net. 8 24 (7)(C.1)(C.3) 25
------ ------- ---- -------
Income before income taxes.. 486 281 (80) 687
Income tax expense.......... 211 149 (20)(C.10) 340
------ ------- ---- -------
Income from continuing oper-
ations..................... $ 275 $ 132 $(60) $ 347
====== ======= ==== =======
Earnings per common share
Income from continuing op-
erations................. $ 2.82 $ .88 $ 2.33(C.11)(C.12)
====== ======= =======
Number of shares used in
computation of earnings per
common share (in
thousands)................. 89,672 149,900 139,632(C.11)
</TABLE>
(See accompanying Notes to Pro Forma Combined Financial Statements)
80
<PAGE>
NOTES TO PRO FORMA BNI INVESTMENT FINANCIAL STATEMENTS
BNI's investment in SFP includes BNI borrowing $500 million at an assumed
average interest rate of 7.5 percent with the proceeds used to finance the
purchase of 25 million shares of outstanding SFP Common Stock at a price of $20
per share or $500 million in total. See "The Offer" included in this Joint
Proxy Statement/Prospectus for further discussion.
Additionally, upon approval of the Merger by BNI and SFP stockholders, BNI
will incur additional costs, including the accelerated vesting of restricted
stock and other Merger transaction costs.
I.1 INVESTMENT IN SFP
An investment in SFP of $500 million, which will be accounted for under the
cost method of accounting until merger consummation, has been recorded in the
pro forma BNI Investment balance sheet to reflect the completion of BNI's cash
tender offer for 25 million shares of SFP Common Stock. The aggregate fair
value of this investment, assuming a SFP market value of $17 per share, would
be $425 million. The difference between the cost and fair value of the
investment represents an unrealized holding loss that will fluctuate with
changes in the market value of SFP Common Stock. The unaudited pro forma
statements of operations for BNI's investment in SFP give effect to dividend
income of $3 million for the year ended December 31, 1993. No dividend income
is included for the nine months ended September 30, 1994 as SFP did not pay any
dividends during this period.
I.2 LONG-TERM DEBT
Long-term debt has been increased by $500 million to reflect the financing of
BNI's cash tender offer to purchase 25 million shares of SFP Common Stock.
Interest expense has been increased to give effect to this additional debt by
$28 million for the nine months ended September 30, 1994 and $38 million for
the year ended December 31, 1993. BNI's aggregate long-term debt scheduled
maturities for 1995 through 1999 would be $32 million, $27 million, $253
million, $27 million and $174 million, respectively. The $500 million of
additional BNI debt related to its tender offer will mature five years from the
date of issuance in 1995.
I.3 ACCELERATED VESTING OF RESTRICTED STOCK
BNI's retained earnings have been reduced by $10 million, other equity has
been increased by $25 million, deferred taxes have been increased by $5 million
and other current liabilities have been decreased by $20 million to give effect
to the accelerated vesting of restricted stock upon shareholder approval of the
Merger. Compensation and benefits expense will be increased and reduce results
of operations in the period that the restrictions actually lapse.
I.4 INCOME TAX EXPENSE
Income tax expense reflects the effect of pro forma adjustments at an
estimated rate of 39 percent.
I.5 EARNINGS PER COMMON SHARE
BNI historical earnings per common share have been reduced to reflect a
decrease in income from continuing operations due to additional interest
expense discussed in I.2 above. In addition, results for the year ended
December 31, 1993 were adjusted to reflect dividend income discussed in I.1
above.
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NOTES TO PRO FORMA SFP RECAPITALIZED FINANCIAL STATEMENTS
The SFP Recapitalization plan reflected in the Pro Forma SFP Recapitalized
Financial Statements includes SFP borrowing $1,075 million of $1,560 million in
available bank commitments, at an assumed average interest rate of 9 percent
with the proceeds principally used for (i) financing the repurchase of 38
million shares of its outstanding common stock at a price of $20 per share or
$760 million in total, (ii) the early retirement of $200 million of SFP's
outstanding senior indebtedness, and (iii) repayment of short-term borrowings
and payment of refinancing transaction costs.
Additionally, SFP will incur Merger transaction costs, including the
accelerated vesting of restricted stock and certain other transaction costs,
upon stockholder approval of the Merger.
R.1 OTHER ASSETS
Represents estimated debt issuance costs to be paid in connection with the
SFP Recapitalization, net of debt issue costs expensed in conjunction with the
retirement of debt.
R.2 LONG-TERM DEBT
Reflects the $1,075 million SFP Recapitalization borrowing less (i) the early
retirement of outstanding senior debt of $200 million and (ii) the repayment of
$32 million short-term borrowings which were outstanding at September 30, 1994.
After the SFP Recapitalization, projected principal repayments during the five
years 1995 through 1999 would be $203 million, $97 million, $218 million, $144
million and $187 million, respectively.
R.3 DEFERRED INCOME TAXES
Deferred income taxes have been reduced for the tax benefit of the costs of
retiring debt and the accelerated vesting of SFP's restricted stock described
in R.4 below at a rate of 39 percent.
R.4 STOCKHOLDERS' EQUITY
Paid-in capital has been increased by $15 million representing the fair value
of approximately 760,000 shares of restricted stock at an assumed $20 per
share, which vests upon shareholder approval.
Retained earnings has been reduced by $49 million to reflect costs, net of
taxes and costs accrued, associated with the SFP Recapitalization and the
Merger including expenses for early retirement of debt, accelerated vesting of
restricted stock, and estimated legal, investment banking and other transaction
costs. Costs of $22 million after taxes for the early retirement of debt will
be expensed as an extraordinary charge in the period the debt is retired. Costs
for the accelerated vesting of restricted stock of $7 million after taxes
(which is net of amounts already accrued) will be expensed in the period that
restrictions lapse. Merger transaction costs of $20 million will be expensed in
the period incurred.
Treasury stock has been increased by $760 million to reflect the purchase of
38 million shares of SFP Common Stock acquired through SFP's tender offer.
R.5 INTEREST EXPENSE
Reflects the estimated net increase in interest expense associated with debt
borrowings/repayments discussed in R.2 above.
R.6 INCOME TAX EXPENSE
Income tax expense reflects the effect of pro forma adjustments at an
estimated rate of 39 percent.
R.7 EARNINGS PER COMMON SHARE
SFP weighted average shares outstanding have been reduced for SFP's cash
tender offer, net of restricted stock which will vest upon stockholder approval
of the Merger. SFP historical earnings per common share have been reduced to
reflect a decrease in income from continuing operations due to additional
interest expense discussed in R.5 above.
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NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
Pursuant to the Merger Agreement, SFP will make a cash tender offer at $20
per share to acquire 38 million shares (approximately 20 percent) of the
outstanding SFP Common Stock for a total consideration of $760 million. BNI
will make a cash tender offer at $20 per share to acquire 25 million shares
(approximately 13 percent) of the outstanding SFP Common Stock for a total
consideration of $500 million. In addition, each remaining share of SFP common
stock outstanding at the Effective Time will be converted into 0.40 of a share
of BNI Common Stock. The pro forma financial statements have been prepared
assuming that the value for BNI Common Stock to be issued in connection with
the Merger is $2,480 million (calculated as shown in the table below) based on
the approximate fair value of BNI Common Stock ($50 per share) considering the
daily closing price of BNI Common Stock as reported in The Wall Street Journal
for the ten trading days in the two week period ended December 23, 1994.
Additionally, the estimated market value of unexercised SFP stock options
increases the pro forma purchase price by $191 million.
The following summarizes the pro forma purchase price (dollars in millions,
except per share data, and shares in thousands):
<TABLE>
<S> <C> <C>
Cost of SFP shares purchased pursuant to BNI cash tender
offer.................................................. $ 500
Shares of SFP Common Stock outstanding at September 30,
1994................................................... 186,996
. less SFP shares purchased pursuant to SFP cash tender
offer.................................................. (38,000)
. less SFP shares purchased pursuant to BNI cash tender (25,000)
offer.................................................. -------
Remaining SFP shares outstanding........................ 123,996
Conversion ratio...................................... .40
-------
Shares of BNI Common Stock to be issued................. 49,598
Per share value of BNI Common Stock..................... $ 50
-------
Total value of BNI Common Stock to be issued............ $2,480
Unexercised SFP stock options........................... $ 191
Estimated BNI legal, investment banking and issuance $ 30
costs.................................................. ------
Pro forma purchase price................................ $3,201
======
</TABLE>
In accordance with SEC guidance, the value of the BNI Common Stock issued in
the Merger is measured at or about the time of the consummation of the Merger.
A $1 increase in the value of BNI Common Stock would result in an approximately
$50 million increase in purchase price and goodwill. A $1 decrease in the value
of BNI Common Stock would have the opposite effect.
The Merger will be accounted for by BNI under the purchase method of
accounting in accordance with Accounting Principles Board Opinion (APB) No. 16,
"Business Combinations," and Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." Accordingly, these methods have been
applied in the unaudited pro forma combined financial statements. Under APB No.
16, the purchase price will be allocated to assets acquired and liabilities
assumed based on their estimated fair values. Within the unaudited pro forma
combined financial statements, estimates of the fair values of SFP's assets and
liabilities, including the effect of SFP's recapitalization, as of September
30, 1994 have been combined with the recorded September 30, 1994 values of the
assets and liabilities of BNI adjusted for its investment in SFP Common Stock.
In addition, purchase accounting adjustment amounts included in these unaudited
pro forma combined financial statements will change as additional information
becomes available. If the final allocation of the purchase price differs from
that included in these pro forma financial statements, BNI and SFP do not
believe pro forma results of operations will be materially affected because the
majority of the purchase price will be attributed to either long-lived assets
or goodwill.
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The preliminary pro forma purchase price has been allocated as shown in the
table below (in millions):
<TABLE>
<S> <C>
Net assets of SFP at September 30, 1994 after recapitalization. $ 414
SFP transaction costs upon merger consummation................. (8)
Increase (decrease) to SFP's net asset value at September 30,
1994 after recapitalization as a result of estimated fair
value adjustments:
Property and equipment, net................................. 2,542
Other assets................................................ 238
Long-term debt.............................................. (63)
Deferred income taxes....................................... (1,071)
Other liabilities........................................... 37
-------
Total allocation of pro forma purchase price as a result of
estimated fair value adjustments.......................... 2,089
Goodwill...................................................... 1,112
-------
Pro forma purchase price.................................. $ 3,201
=======
</TABLE>
Each of the allocations in the table above is described in more detail below.
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. The effect of any ultimate adjustment related to the
disposition of SFP assets would be to reduce the recorded value of the
respective asset to net realizable value. Any necessary adjustment to the
recorded values of BNI's assets to be disposed of will be recognized in the
merged company's statement of operations and not as a component of purchase
accounting.
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.
Certain amounts in the historical financial statements of SFP have been
reclassified in the unaudited pro forma combined financial statements to
conform to BNI's historical financial statement presentation.
C.1 INVESTMENT IN SFP
The investment in SFP and related dividend income is eliminated in the
unaudited pro forma combined financial statements to reflect the consummation
of the Merger.
C.2 PROPERTY AND EQUIPMENT, NET
SFP's property and equipment, net has been adjusted to its estimated fair
value as of September 30, 1994. A significant portion of the estimated fair
value adjustment has been allocated to long-lived track structures as well as
land used for transportation purposes. The increase in the fair value of
depreciable assets has been depreciated under the straight-line method over the
remaining estimated useful lives of the property. Depreciation expense of $38
million for the nine months ended September 30, 1994 and $50 million for the
year ended December 31, 1993 related to the increase in fair value has been
included in the unaudited pro forma combined statements of operations.
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C.3 OTHER ASSETS
Other assets have been adjusted to fair value as follows (in millions):
<TABLE>
<S> <C>
Investments......................................................... $261
Pension assets...................................................... (11)
Other............................................................... (12)
----
Total............................................................. $238
====
</TABLE>
Certain investments, primarily SFP's pipeline investment, have been adjusted
to their estimated fair values as of September 30, 1994. The related
amortization of $2 million for the nine months ended September 30, 1994 and $4
million for the year ended December 31, 1993 related to the increase in fair
value has been included in the unaudited pro forma combined statements of
operations.
SFP's pension assets and other miscellaneous assets have been adjusted to
estimate their fair value as of September 30, 1994 based upon current actuarial
and other estimates. The impact on earnings related to these assets, which
would increase pro forma income, was immaterial and has not been included in
the unaudited pro forma combined statements of operations.
C.4 GOODWILL
As calculated above goodwill is $1,112 million; however, purchase accounting
adjustments will change as additional information becomes available, which will
have an effect on the ultimate allocation of the purchase price. If the final
allocation of the purchase price differs from that included in these pro forma
financial statements, BNI and SFP do not believe pro forma results of
operations will be materially affected because the majority of the purchase
price will be attributed to either long-lived assets or goodwill. Amortization
expense related to goodwill of $21 million for the nine months ended September
30, 1994 and $28 million for the year ended December 31, 1993 has been included
in the unaudited pro forma combined statements of operations.
C.5 LONG-TERM DEBT
SFP's remaining long-term debt after the recapitalization has been adjusted
to its estimated fair value as of September 30, 1994 based on interest rates as
of that date. The estimated fair value adjustment of $63 million has been
amortized to offset interest expense over the estimated lives of the
instruments. Amortization of $6 million for the nine months ended September 30,
1994 and $10 million for the year ended December 31, 1993 related to the fair
value adjustment has been included in the unaudited pro forma combined
statements of operations. The aggregate long-term debt scheduled maturities on
a pro forma combined basis for Burlington Northern Santa Fe Corporation for
1995 through 1999 would be $235 million, $124 million, $471 million, $171
million and $361 million, respectively. The $500 million of additional BNI debt
related to its tender offer will mature five years from the date of issuance in
1995.
C.6 DEFERRED INCOME TAXES
Deferred income taxes of $1,071 million have been provided for temporary
differences caused by book and tax differences after the allocation of the pro
forma purchase price because the Merger results in BNI assuming SFP's tax basis
in SFP's assets and liabilities. No deferred income taxes have been provided
for goodwill because it is not expected to be tax deductible as the Merger is
anticipated to be a tax-free transaction under Section 368 of the Internal
Revenue Code. Also, the Alternative Merger is anticipated to be a tax-free
transaction under Section 351 of the Internal Revenue Code.
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The following pro forma adjustments to the deferred income tax liability were
required for estimated book and tax basis differences caused by the allocation
of the pro forma purchase price (in millions):
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENT
INCREASE (DECREASE)
TO DEFERRED INCOME
CATEGORY OF TEMPORARY DIFFERENCE TAX LIABILITY
-------------------------------- --------------------
<S> <C>
Property and equipment, net........................... $ 991
Other assets.......................................... 93
Long-term debt........................................ (25)
Other liabilities..................................... 15
Current liabilities................................... (3)
------
Total............................................... $1,071
======
</TABLE>
C.7 OTHER LIABILITIES
The reduction in other liabilities reflects an adjustment of $37 million to
SFP's postretirement benefits liability based upon current actuarial estimates.
Compensation and benefits expense was increased $4 million and $5 million for
the nine months ended September 30, 1994 and year ended December 31, 1993,
respectively.
C.8 STOCKHOLDERS' EQUITY
SFP's stockholders' equity balances have been eliminated. Stockholders'
equity has been increased for the excess of the preliminary pro forma purchase
price, excluding the BNI transaction costs, over SFP's recapitalized
stockholders' equity.
C.9 COSTS OF THE MERGER
BNI--Estimated legal, investment banking and stock issuance costs of $30
million incurred by BNI have been included in the pro forma purchase price.
SFP--SFP will pay $8 million in investment banking fees upon consummation of
the Merger which have been shown as a reduction of equity in the unaudited pro
forma combined balance sheet. These costs will actually be charged to the
results of operations of SFP when incurred.
C.10 INCOME TAX EXPENSE
Income tax expense reflects the effect of pro forma adjustments, other than
amortization of goodwill, at an estimated rate of 39 percent.
C.11 EARNINGS PER COMMON SHARE
Pro forma weighted average shares outstanding represent the conversion at an
exchange ratio of 0.40 shares of BNI Common Stock for each share of SFP Common
Stock remaining after reduction for the cash tender offers by SFP and BNI, net
of restricted stock which will vest upon stockholder approval of the Merger.
Earnings per common share are determined by dividing income from continuing
operations, after deduction of preferred stock dividends, by the weighted
average number of common shares outstanding and common share equivalents.
C.12 CHANGES IN VALUE OF BNI COMMON STOCK
In accordance with SEC guidance, the value of the BNI Common Stock issued in
the Merger is measured at or about the time of the consummation of the Merger.
A $1 increase in the value of BNI Common Stock would result in an approximately
$50 million increase in purchase price and goodwill, a $1 million decrease in
income from continuing operations and a $.01 decrease in earnings per common
share. A $1 decrease in the value of BNI Common Stock would have the opposite
effect.
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OTHER MATTERS
ICC APPROVAL
ICC approval 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.
BNI and SFP filed their application for ICC approval of the proposed Merger
on October 13, 1994. 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. BNI and SFP requested the ICC to decide the case on an expedited
basis. 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. Thereafter, in response to requests by several parties to the
merger proceeding, the ICC on December 5, 1994 issued an order holding the
procedural schedule in abeyance until such time as an SFP stockholder vote on
the Merger occurs. The December 5 order further stated that upon approval of
the proposed BNI/SFP Merger by SFP stockholders, it would immediately issue a
new schedule requiring the first comments, originally due on December 27, 1994,
to be filed 30 days from the service date of the new schedule and adjusting
other schedule dates accordingly. Notwithstanding these scheduling orders,
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. As noted above, this comment
period has been extended by the ICC until 30 days after the issuance of a new
schedule immediately after the SFP shareholders approve the Merger. 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
currently
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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 filed 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 indicated to the ICC that, in their view, 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. This expected
increase in operating income does not include the noncash effects of applying
purchase accounting as shown on the pro forma combined statements of
operations.
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%. These results do not include the
noncash effects of applying purchase accounting as shown on the pro forma
combined statements of operations.
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
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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.
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.
Although BNI and SFP believe 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, criticisms of the effect of fixed charges on the 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 BN
Railroad and SFP Rail systems 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. BNI and SFP indicated
in the ICC application that they are willing to negotiate ameliorative
arrangements to address any such reduction in competition.
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.
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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 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.
RECENT DEVELOPMENTS RELATED TO UPC'S VOTING TRUST PROPOSAL
Under the terms of the UP Tender Offer, promptly upon the purchase of at
least a majority of the outstanding shares of SFP Common Stock, UPC would place
the shares into an independent voting trust. The voting trust mechanism is
designed to insulate UPC from coming into control of SFP Rail without ICC
approval, which would constitute a violation of the Interstate Commerce Act.
The UP Tender Offer was conditioned upon the issuance of a non-binding,
informal opinion from the staff of the ICC indicating that the use of the
particular voting trust proposed by UPC would be consistent with ICC policies
governing the use of voting trusts.
On November 10, 1994, UPC, Union Pacific Railroad Company and Missouri
Pacific Railroad Company (collectively, "Union Pacific") submitted a proposed
voting trust agreement (designating the Southwest Bank of St. Louis as the
trustee) to the ICC for review and an informal staff opinion. In an
accompanying letter, Union Pacific argued that its proposed acquisition of SFP
Common Stock and the placement of that stock in a voting trust would not
constitute unauthorized control of SFP prohibited by the Interstate Commerce
Act. In response to Union Pacific's submission, the ICC instituted Finance
Docket No. 32619 (Union Pacific Corporation, et al. -- Request for Informal
Opinion -- Voting Trust Agreement).
On November 16, 1994, BN Railroad filed a petition in Finance Docket No.
32619 requesting that the ICC institute an investigation into Union Pacific's
proposed voting trust arrangement. In that petition, BN Railroad argued that
UPC's proposal to hold SFP and SFP Rail in a voting trust during the pendency
of an ICC proceeding on the acquisition of SFP Rail raised serious issues
affecting the public interest, including whether UPC's placing of SFP in a
voting trust would constitute a form of unlawful negative control by
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inhibiting SFP Rail from competing effectively against UPC's railroad
subsidiaries. Additional petitions and letters requesting the ICC to
investigate Union Pacific's voting trust were filed by the Colorado Department
of Transportation ("CODOT") on November 17, 1994, the Kansas City Southern
Railway Company ("KCSR") on November 21, 1994, and the Allied Rail Unions (the
"Unions") on November 23, 1994. Other comments in support of the petitions and
letters calling for the ICC to investigate Union Pacific's voting trust
proposal were filed by interested persons and numerous state and municipal
officials. Union Pacific submitted an amended proposed voting trust agreement
for Commission review and an informal, non-binding staff opinion on November
17, 1994. Union Pacific stated that the amended proposal addressed concerns
that petitioning parties had raised about its original voting trust proposal.
By initial decision served November 28, 1994, Chairman McDonald of the ICC
denied the requests to investigate the Union Pacific voting trust that had been
filed by BN Railroad, CODOT, KCSR, and the Unions. The decision stated that
"[a]t this time, the Commission will not depart from its usual procedures which
provide an informal staff review of voting trust agreements." On the same day,
the Secretary of the Commission released a letter to counsel for Union Pacific
setting forth the staff's informal, non-binding opinion that the proposed
voting trust would effectively insulate Union Pacific from any violation of the
Interstate Commerce Act as a result of its acquisition of SFP Common Stock.
On December 1, 1994, BN Railroad appealed the Chairman's initial decision to
the full Commission and requested that the Commission withdraw the staff's
informal opinion letter. In light of UPC's December 8, 1994 tender offer
deadline, BN Railroad requested that the Commission act on its appeal and
request for withdrawal of the informal staff opinion letter on or before
December 5, 1994. Appeals were also filed by the Unions and KCSR.
On December 6, 1994, the ICC served a decision denying the requests on BN
Railroad and the other parties for withdrawal of the Secretary's informal
opinion letter. That decision did not resolve the pending appeals from the
Chairman's initial decision refusing to institute an investigation into the
proposed voting trust. Although the decision did not address the merits of BN
Railroad's appeal, the Commission did state that it would issue a decision
disposing of the pending appeals shortly. One Commissioner added a separate
comment, stating that while he agreed with the Commission's decision not to
withdraw the Secretary's informal opinion letter, in hindsight he believed it
would have been a better course for the full Commission to have reviewed the
proposed voting trust agreement.
On December 7, 1994, the day before Union Pacific's tender offer was
originally to expire, BN Railroad filed a petition to review the ICC's December
6, 1994 decision refusing to withdraw the informal staff opinion in the United
States Court of Appeals for the Third Circuit (Burlington Northern Railroad
Company v. Interstate Commerce Commission and United States, No. 94-3669). At
the same time, BN Railroad filed an emergency petition under the All Writs Act
seeking an injunction against UPC and UP Acquisition forbidding them from
placing any shares of SFP Common Stock in the voting trust (Burlington Northern
Railroad Company v. Union Pacific Corporation; UP Acquisition Corporation, No.
94-3670). BN Railroad argued that the injunction was needed to preserve the
Court's appellate jurisdiction to review the ICC decision. BN Railroad
contended that it was likely to prevail on the merits of its claim that the
voting trust would constitute unlawful control by inflicting competitive injury
to SFP Rail during the pendency of the trust. BN Railroad also contended that
it would be irreparably injured in the absence of an injunction because it
would lose the opportunity to merge with the competitively vigorous SFP Rail
that was the subject of its merger agreement if SFP Rail were placed in a
voting trust.
On the morning of December 7, 1994, shortly after BN Railroad filed the Third
Circuit actions, counsel for BN Railroad in those actions was notified that
Union Pacific had extended the expiration for its tender offer from midnight
December 8, 1994 to midnight December 23, 1994. BN Railroad immediately
notified the Court that, in light of this subsequent development, BN Railroad
was modifying its request that the Court issue an injunction against UPC and UP
Acquisition on or before December 8, 1994 to on or before December
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23, 1994. By order communicated to the parties by telephone, the Court ordered
UPC and UP Acquisition to file a response to BN Railroad's emergency petition
on December 12, 1994, with BN Railroad to file a reply to UPC's response on
December 14, 1994.
On December 12, 1994, UPC filed a response to BN Railroad's action in No. 94-
3670. Also on that date, the ICC filed a response in No. 94-3669 which stated
that the ICC would issue a decision disposing of the merits of the BN Railroad
and other appeals pending at the ICC on or before December 23, 1994. Also on
December 12, 1994, the American Train Dispatchers Division/BLE filed a motion
to intervene in No. 94-3669, a petition under the All Writs Act for an order
requiring the ICC to comply with and enforce the Interstate Commerce Act
(American Train Dispatchers Division/BLE et al. v. Interstate Commerce
Commission, No. 94-3679), and a petition under the All Writs Act for an order
requiring UPC to refrain from acting in violation of the Interstate Commerce
Act (American Train Dispatchers Division/BLE et al. v. Union Pacific
Corporation and UP Acquisition Corporation, No. 94-3680).
On December 14, 1994, BN Railroad filed its reply to UPC's response in
No. 94-3670. On the same date, UPC filed a motion to intervene in No. 94-3679.
By telephone communication from the clerk's office, the Court indicated that it
was scheduling oral argument for the actions on December 21, 1994 at 11:30 a.m.
in Philadelphia, Pennsylvania. Subsequently, on December 16, 1994, the ICC
filed a memorandum in No. 94-3679 stating that it would issue its opinion
addressing the appeals pending at the Commission on or before December 20,
1994, and that the ICC would notify the Court and all parties by facsimile as
soon as its decision is available.
On December 19, 1994, counsel for BN Railroad in the Third Circuit actions
was notified that UPC had extended the expiration for its tender offer from
midnight December 23, 1994 to midnight January 19, 1995. BN Railroad
immediately notified the Court that, in light of this further development, BN
Railroad was now requesting that the Court issue an injunction against UPC and
UP Acquisition on or before January 19, 1995. By order communicated to the
parties by telephone, the Court postponed oral argument from December 21, 1994
to a later date.
On December 20, 1994, the ICC issued a decision denying the appeals of BN
Railroad and others from the Chairman's initial decision and approving the UPC
voting trust subject to a modification of one of its terms. One Commissioner
dissented, stating that he would have initiated an investigation of the
proposed voting trust and solicited public comments on an expedited basis. The
same day the ICC filed a motion with the Third Circuit to dismiss the appeals
of BN Railroad and others from the December 6, 1994 decision refusing to
withdraw the Secretary's informal opinion letter. On December 28, 1994, BN
Railroad filed a response to the ICC's motion, stating that BN Railroad agreed
that the petition for review of the December 6 decision is now moot since the
ICC itself has now approved Union Pacific's voting trust and the refusal to
withdraw the informal opinion has no practical significance.
On December 21, 1994, BN Railroad filed a petition to review the ICC's
December 20, 1994 decision in the United States Court of Appeals for the Third
Circuit (Burlington Northern Railroad v. Interstate Commerce Commission and
United States, No. 94-3705). The same day BN Railroad filed a petition with the
ICC requesting a stay of the December 20, 1994 decision pending judicial review
and a temporary cease and desist order to prohibit implementation of the Union
Pacific voting trust pending judicial review. On January 6, 1995, the ICC
issued a decision denying BN Railroad's petition for a stay and request for a
temporary cease and desist order pending judicial review. On January 11, 1995,
BN Railroad filed a petition with the Third Circuit requesting a stay of the
ICC's December 20, 1994 decision pending judicial review. On January 13, 1995,
the Third Circuit denied BN Railroad's petition for a stay of the ICC's
December 20, 1994 decision pending judicial review. The Third Circuit also
denied BN Railroad's petition under the All Writs Act seeking an injunction
against UPC and UP Acquisition forbidding them from placing any shares of SFP
Common Stock in the voting trust.
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
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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
Numerous complaints have been filed arising out of SFP's and BNI's proposed
participation in the Merger. 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
Original Merger Agreement and by failing to include in the Original Merger
Agreement a provision allowing SFP to terminate the Original 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
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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.
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.
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
Original 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 Original 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 Original Merger
Agreement, failure to disclose facts regarding the SFP directors' consideration
of a possible combination transaction with 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
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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.
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 Joint Proxy Statement/Prospectus originally sent
to stockholders on or about October 12, 1994 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 Original Merger Agreement
in order to enter into a merger agreement with UPC based upon the UPC Proposal
and denying that the Original Merger Agreement is allegedly void for failing to
include such a right, statements failing to disclose the purportedly preclusive
effect to the Original 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.
On October 26, 1994, BNI moved pursuant to Delaware Chancery Court Rule 12(b)
(6) to dismiss the Consolidated and Amended Complaint against it on the grounds
that the Complaint fails to state a claim against it upon which relief can be
granted.
On October 26, 1994, SFP and the SFP Directors filed their answer to the
Amended and Supplemental Complaint of UPC and requested that the court dismiss
UPC's complaint with prejudice.
On November 2, 1994, BNI moved pursuant to Chancery Court Rule 12(b)(6) to
dismiss the First Amended and Supplemental Complaint filed by Union Pacific and
James Shattuck on the grounds that the Complaint fails to state a claim against
BNI upon which relief can be granted.
On November 3, 1994, SFP and the SFP directors filed their answer to the
shareholder plaintiffs' Consolidated and Amended Complaint and requested that
the Court dismiss the Consolidated and Amended Complaint with prejudice.
On November 21, 1994, SFP and the SFP directors filed a motion to stay
discovery in the UPC action pending resolution of a case-dispositive motion to
be filed by the SFP and the SFP directors seeking dismissal of UPC's complaint.
On November 4, 1994, a purported stockholder class action suit relating to
the proposed Merger was filed in the Chancery Division of the Circuit Court of
Cook County of the State of Illinois (Rubin v. Santa Fe Pacific Corporation,
No. 94 CH 10022). The action names as defendants SFP and the individual members
of SFP's Board of Directors. The action alleges that SFP's directors breached
their fiduciary duties to
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shareholders by rejecting UPC's October 30, 1994 revised merger proposal, which
incorporated a revised proposed exchange ratio of .407 shares of UPC common
stock for each share of SFP Common Stock, and that, as a result, SFP's
stockholders have been deprived of the increase in the market value of their
SFP Common Stock that allegedly would have occurred if SFP's directors had
accepted UPC's October 30, 1994 proposal. The action seeks certification of a
class action on behalf of SFP's stockholders, an injunction preventing SFP and
the SFP directors from taking any further action towards accepting the Merger,
an award of unspecified general and special damages, appointment of a trustee
to supervise the requested relief, establishment of a common fund on behalf of
the class and an award of court costs, reasonable attorneys' fees and any other
relief deemed appropriate by the Court. On December 12, 1994, SFP and its
directors filed a motion to dismiss the Rubin case on the ground that the
consolidated shareholder action previously filed in the Delaware court is a
prior pending action between the same parties for the same cause. The motion to
dismiss the Rubin case is currently pending before the Illinois court.
Defendants believe that all of these lawsuits are meritless and intend to
oppose them vigorously.
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 3,000,000 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 December 31, 1994, there were 89,223,821 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 December 31, 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.
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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).
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.
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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 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.
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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 SFP's and BNI's Rights
Agreements.
The following summaries do not purport to be complete statements of the
rights of SFP stockholders under SFP's Certificate of Incorporation, Bylaws and
Rights Agreement 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.
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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.
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
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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.
"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
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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.
RIGHTS PLANS
BNI Rights Plan
The following is a summary of BNI's rights plan. The BNI rights plan will not
be triggered by the Offer or 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 (the "BNI Rights Agreement").
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 "BNI
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 "BNI 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 (a "BNI 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 "BNI 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 "BNI Distribution Date"), the BNI
Rights will be evidenced, with respect to any of the BNI Common Stock
certificates outstanding as of the BNI Rights Record Date, by such BNI Common
Stock certificate. The BNI Rights Agreement provides that, until the BNI
Distribution Date, the BNI Rights will be transferred with and only with BNI
Common Stock certificates. From as soon as practicable after the BNI Rights
Record Date and until the BNI Distribution Date (or earlier redemption or
expiration of the BNI Rights), new BNI Common Stock certificates issued after
the BNI Rights Record Date upon transfer or new issuance of the BNI Common
Stock will contain a notation incorporating the BNI Rights Agreement by
reference. Until the BNI Distribution Date (or earlier redemption or expiration
of the BNI Rights), the surrender for transfer of any certificates for BNI
Common Stock outstanding as of the BNI Rights Record Date will also constitute
the transfer of the BNI Rights associated with the BNI Common Stock represented
by such certificate. As soon
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as practicable following the BNI 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 BNI
Distribution Date, and the separate BNI Rights Certificates alone will evidence
the BNI Rights.
The BNI Rights are not exercisable until the BNI 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 BNI 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 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 "BNI 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 a BNI Acquiring Person engages in one of a number of self-dealing
transactions specified in the BNI Rights Agreement, or a BNI 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 a BNI Acquiring Person engaging in any of
such transactions or receiving the benefits thereof on or after the time the
BNI 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 BNI Purchase Price will be
required until cumulative adjustments require an adjustment of at least one
percent in such BNI 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
BNI 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 "BNI 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
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Rights in whole, but not in part, at the BNI 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 a BNI
Acquiring Person or any person who was a BNI Acquiring Person or following an
event giving rise to, and the expiration of the exercise period for, the BNI
Subscription Right if and for as long as a BNI 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 a BNI 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 BNI 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 BNI 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 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.
SFP Rights Plan
The following is a summary of SFP's rights plan. The SFP rights plan does not
apply to any acquisition of shares of SFP Common Stock by BNI pursuant to the
terms of the Merger Agreement and consequently the provisions described below
with respect to the effects of the commencement of a tender offer or the
acquisition of more than 10% of the outstanding SFP Common Stock would not
apply to the Offer or the Merger. The summary does not purport to be complete
and is qualified in its entirety by the Rights Agreement, dated as of November
28, 1994, between SFP and First Chicago Trust Company of New York, as Rights
Agent (the "SFP Rights Agreement"), which is included as an exhibit to SFP's
Registration Statement on Form 8-A dated November 29, 1994.
On November 28, 1994, the Board of Directors of SFP declared a dividend
distribution of one SFP Right for each outstanding share of SFP Common Stock to
stockholders of record at the close of business on December 9, 1994 (the "SFP
Rights Record Date"). Except as described below, each SFP Right, when
exercisable, entitles the registered holder to purchase from SFP one one-
hundredth of a share of Series A Junior Participating Preferred Stock, par
value $1.00 per share (the "SFP Preferred Stock"), at a price of $50.00 per one
one-hundredth share (the "SFP Purchase Price"), subject to adjustment.
Initially, the SFP Rights will be attached to all SFP Common Stock
certificates representing shares then outstanding, and no separate SFP Right
certificates will be distributed. Until the earlier to occur of (i) 10
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days following a public announcement that a person or group of affiliated or
associated persons (an "SFP Acquiring Person") has acquired, or obtained the
right to acquire, beneficial ownership of 10% or more of the outstanding shares
of SFP Common Stock (the "SFP Shares Acquisition Date") or (ii) 15 business
days (or such later date as may be determined by action of the Board of
Directors of SFP prior to the time that any person becomes an SFP Acquiring
Person) following the commencement of (or public announcement of an intention
to make) a tender or exchange offer if, upon consummation thereof, such person
or group would be the beneficial owner of 10% or more of such outstanding
shares of SFP Common Stock (the earlier of such dates being called the "SFP
Distribution Date"), the SFP Rights will be evidenced by the SFP Common Stock
certificates together with a copy of the Summary of Rights Plan and not by
separate certificates.
The SFP Rights Agreement also provides that, until the SFP Distribution Date,
the SFP Rights will be transferred with and only with the SFP Common Stock.
Until the SFP Distribution Date (or earlier redemption, expiration or
termination of the SFP Rights), the transfer of any certificates for SFP Common
Stock, with or without a copy of the Summary of Rights Plan, will also
constitute the transfer of the SFP Rights associated with the SFP Common Stock
represented by such certificates. As soon as practicable following the SFP
Distribution Date, separate certificates evidencing the SFP Rights ("SFP Right
Certificates") will be mailed to holders of record of the SFP Common Stock as
of the close of business on the SFP Distribution Date and, thereafter, such
separate SFP Right Certificates alone will evidence the SFP Rights.
Under the SFP Rights Agreement, the SFP Board of Directors has the right, in
its sole discretion, to delay the SFP Distribution Date prior to the time any
person becomes an SFP Acquiring Person. The Board of Directors of SFP has
postponed the occurrence of the SFP Distribution Date, which would have
occurred as a result of the commencement of UPC's tender offer, to January 31,
1994 and has the right to further delay the SFP Distribution Date.
The SFP Rights are not exercisable until the SFP Distribution Date and will
expire at the earliest of (i) December 9, 2004 (the "SFP Final Expiration
Date"), (ii) the redemption of the Rights by SFP as described below, (iii) the
time immediately prior to the effectiveness of the merger of SFP with and into
BNI pursuant to the Merger Agreement, and (iv) the exchange of all SFP Rights
for SFP Common Stock as described below.
In the event that any person (other than SFP, its affiliates or any person
receiving newly-issued shares of SFP Common Stock directly from SFP) becomes
the beneficial owner of 10% or more of the then outstanding shares of SFP
Common Stock, each holder of an SFP Right will thereafter have the right to
receive, upon exercise at the then current exercise price of the SFP Right, SFP
Common Stock (or, in certain circumstances, cash, property or other securities
of SFP) having a value equal to two times the exercise price of the SFP Right.
The SFP Rights Agreement contains an exemption for any issuance of SFP Common
Stock by SFP directly to any person (for example, in a private placement or an
acquisition by SFP in which SFP Common Stock is used as consideration), even if
that person would become the beneficial owner of 10% or more of the SFP Common
Stock, provided that such person does not acquire any additional shares of SFP
Common Stock.
In the event that, at any time following the SFP Shares Acquisition Date, SFP
is acquired in a merger or other business combination transaction or 50% or
more of SFP's assets or earning power are sold, proper provision will be made
so that each holder of an SFP Right will thereafter have the right to receive,
upon exercise at the then current exercise price of the SFP Right, common stock
of the acquiring or surviving company having a value equal to two times the
exercise price of the SFP Right.
Notwithstanding the foregoing, following the occurrence of any of the events
set forth in the preceding two paragraphs (the "SFP Triggering Events"), any
SFP Rights that are, or (under certain circumstances specified in the SFP
Rights Agreement) were, beneficially owned by any SFP Acquiring Person will
immediately become null and void.
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The SFP Purchase Price payable, and the number of shares of SFP Preferred
Stock or other securities or property issuable, upon exercise of the SFP
Rights, are subject to adjustment from time to time to prevent dilution, among
other circumstances, in the event of a stock dividend on, or a subdivision,
split, combination, consolidation or reclassification of, the SFP Preferred
Stock or the SFP Common Stock, or a reverse split of the outstanding shares of
SFP Preferred Stock or the SFP Common Stock.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 10% or more of the outstanding
SFP Common Stock and prior to the acquisition by such person or group of 50% or
more of the outstanding SFP Common Stock, the Board of Directors of SFP may
exchange the SFP Rights (other than SFP Rights owned by such person or group,
which have become void), in whole or in part, at an exchange ratio of one share
of SFP Common Stock per SFP Right (subject to adjustment).
With certain exceptions, no adjustments in the SFP Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
the SFP Purchase Price. SFP will not be required to issue fractional shares of
SFP Preferred Stock or SFP Common Stock (other than fractions in multiples of
one one-hundredths of a share of SFP Preferred Stock) and, in lieu thereof, an
adjustment in cash may be made based on the market price of the SFP Preferred
Stock or SFP Common Stock on the last trading date prior to the date of
exercise.
At any time after the date of the SFP Rights Agreement until the time that a
person becomes an SFP Acquiring Person, the Board of Directors of SFP may
redeem the SFP Rights in whole, but not in part, at a price of $.01 per SFP
Right (the "SFP Redemption Price"), which may (at the option of SFP) be paid in
cash, shares of SFP Common Stock or other consideration deemed appropriate by
the Board of Directors of SFP. Upon the effectiveness of any action of the
Board of Directors of SFP ordering redemption of the SFP Rights, the SFP Rights
will terminate and the only right of the holders of SFP Rights will be to
receive the SFP Redemption Price.
Until an SFP Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of SFP, including, without limitation, the right to
vote or to receive dividends.
The provisions of the SFP Rights Agreement may be amended by SFP, except that
any amendment adopted after the time that a person becomes an SFP Acquiring
Person may not adversely affect the interests of holders of SFP Rights.
Two million five hundred thousand (2,500,000) shares of SFP Preferred Stock
have been reserved for issuance in the event of exercise of the SFP Rights.
The SFP Rights have certain anti-takeover effects. The SFP Rights will cause
substantial dilution to a person or group that attempts to acquire SFP without
conditioning the offer on the SFP Rights being redeemed or a substantial number
of SFP Rights being acquired, and under certain circumstances the SFP Rights
beneficially owned by such a person or group may become void. The SFP Rights
should not interfere with any merger or other business combination approved by
the Board of Directors of SFP because, if the SFP Rights would become
exercisable as a result of such merger or business combination, the Board of
Directors of SFP may, at its option, at any time prior to the time that any
Person becomes an SFP Acquiring Person, redeem all (but not less than all) of
the then outstanding SFP Rights at the SFP Redemption Price.
CERTAIN ADDITIONAL INFORMATION CONCERNING HOLDINGS
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Holdings consists of 300,000,000 shares of
Holdings Common Stock, 25,000,000 shares of Preferred Stock, par value $.01 per
share ("Holdings Preferred Stock") and 50,000,000 shares of Class A Preferred
Stock, par value $.01 per share ("Holdings Class A Preferred Stock"). The
following description of Holdings' capital stock does not purport to be
complete and is qualified in its entirety by reference to the Delaware
Corporation Law and Holdings' Certificate of Incorporation.
106
<PAGE>
Holdings Common Stock
At December 22, 1994, there were 1,000 shares of Holdings Common Stock
outstanding. All of the outstanding shares of Holdings Common Stock are fully
paid and nonassessable, and the shares of Holdings Common Stock, if any, to be
issued in the Alternative Merger, when issued pursuant to the Merger Agreement,
will be fully paid and nonassessable. Each holder of Holdings 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 any of Holdings' preferred stock, each share of Holdings 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 Holdings Common Stock has any preemptive right to
subscribe for any securities of Holdings.
Holdings Preferred Stock
No Holdings Preferred Stock or Holdings Class A Preferred Stock is
outstanding. Under Holdings' Certificate of Incorporation, Holdings' 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, SFP and BNI have agreed
not to permit Holdings to take any actions or undertake any operations except
as may be necessary in connection with the consummation of the Alternative
Merger and the transactions contemplated by the Merger Agreement.
RIGHTS OF HOLDINGS STOCKHOLDERS
The Certificate of Incorporation and Bylaws of Holdings are substantially
identical to those of BNI except that Holdings has no outstanding shares of
preferred stock. In addition, Holdings does not have a rights plan.
Accordingly, except for the foregoing, the rights of a holder of Holdings
Common Stock are identical to those of a holder of BNI Common Stock. See
"Comparison of Rights of Stockholders of BNI and SFP."
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 balance sheet of Holdings as of December 22, 1994, has been included in
this Joint Proxy Statement/Prospectus 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.
107
<PAGE>
LEGAL MATTERS
The validity of the BNI Common Stock and the Holdings Common Stock offered
hereby will be passed upon by Davis Polk & Wardwell, special counsel to BNI and
Holdings.
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.
108
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Stockholders
BNSF Corporation
We have audited the accompanying balance sheet of BNSF Corporation as of
December 22, 1994. This balance sheet is the responsibility of BNSF
Corporation's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of BNSF Corporation at December 22,
1994, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Fort Worth, Texas
December 22, 1994
F-1
<PAGE>
BNSF CORPORATION
BALANCE SHEET
DECEMBER 22, 1994
<TABLE>
<S> <C>
Assets:
Cash.................................................................. $1,000
------
Total assets........................................................ $1,000
======
Stockholders' equity:
Common stock, par value $.01 per share, 1,000 shares issued and out-
standing............................................................. $ 10
Additional paid-in capital............................................ 990
------
Total stockholders' equity.......................................... $1,000
======
</TABLE>
The accompanying notes are an integral part of the balance sheet.
F-2
<PAGE>
BNSF CORPORATION
NOTES TO BALANCE SHEET
1. BACKGROUND OF ORGANIZATION:
BNSF Corporation was incorporated under the Delaware General Corporation Law
on December 16, 1994 for the purpose of effectuating the combination of
Burlington Northern Inc. (BNI) and Santa Fe Pacific Corporation (SFP) in
accordance with the terms of the Merger Agreement dated as of June 29, 1994, as
amended by an Amendment thereto dated as of October 26, 1994 and Amendment No.
2 thereto dated as of December 18, 1994, if so elected by the parties thereto.
BNSF Corporation is jointly owned by BNI and SFP and has not engaged in any
other activity since its formation.
2. BASIS OF ACCOUNTING:
The accompanying balance sheet includes all of the relevant assets and
liabilities attributable to BNSF Corporation.
3. STOCKHOLDERS' EQUITY:
The authorized capital stock of BNSF consists of 300,000,000 shares of BNSF
Common Stock, par value $.01 per share, 25,000,000 shares of Preferred Stock,
par value $.01 per share and 50,000,000 shares of Class A Preferred Stock, par
value $.01 per share. The following summarizes the equity of the two
stockholders:
<TABLE>
<S> <C>
Burlington Northern Inc.......................................... $ 500
Santa Fe Pacific Corporation..................................... 500
------
$1,000
======
</TABLE>
F-3
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF
JUNE 29, 1994,
AS AMENDED AS OF OCTOBER 26, 1994
AND AS OF DECEMBER 18, 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
1.8.Alternative Transaction Structure ................................... A-4
ARTICLE II
CERTAIN MATTERS RELATING TO BNI
AND THE SURVIVING CORPORATION
2.1.Directors of the Surviving Corporation............................... A-7
2.2.Certificate of Incorporation and Bylaws of the Surviving Corporation.. A-7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SFP
3.1. Corporate Existence and Power...................................... A-7
3.2. Corporate Authorization............................................ A-8
3.3. Governmental Authorization......................................... A-8
3.4. Non-Contravention.................................................. A-8
3.5. Capitalization..................................................... A-8
3.6. Material Subsidiaries.............................................. A-9
3.7. SEC Filings........................................................ A-9
3.8. Financial Statements............................................... A-10
3.9. Disclosure Documents............................................... A-10
3.10. Information Supplied............................................... A-11
3.11. No Material Adverse Changes........................................ A-11
3.12. Undisclosed Material Liabilities................................... A-11
3.13. Litigation......................................................... A-11
3.14. Taxes.............................................................. A-12
3.15. ERISA.............................................................. A-12
3.16. Finders' Fees...................................................... A-14
3.17. Environmental Matters.............................................. A-14
3.18. Takeover Statutes.................................................. A-14
3.19. Compliance With Laws.............................................. A-14
- --------
(/1/)The Table of Contents is not a part of this Agreement.
i
<PAGE>
3.20. Spinoff Dividend................................................... A-14
3.21. Private Letter Ruling.............................................. A-15
3.22. Excess Loss Accounts............................................... A-15
3.23. SFP Rights Agreement............................................... A-15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BNI
4.1. Corporate Existence and Power....................................... A-15
4.2. Corporate Authorization............................................. A-15
4.3. Governmental Authorization.......................................... A-15
4.4. Non-Contravention................................................... A-15
4.5. Capitalization...................................................... A-16
4.6. Material Subsidiaries............................................... A-16
4.7. SEC Filings......................................................... A-17
4.8. Financial Statements................................................ A-17
4.9. Disclosure Documents................................................ A-17
4.10. Information Supplied............................................... A-18
4.11. No Material Adverse Changes........................................ A-18
4.12. Undisclosed Material Liabilities................................... A-18
4.13. Litigation......................................................... A-19
4.14. Taxes.............................................................. A-19
4.15. ERISA.............................................................. A-19
4.16. Finders' Fees...................................................... A-21
4.17. Environmental Matters.............................................. A-21
4.18. Takeover Statutes.................................................. A-21
4.19. Compliance with Laws............................................... A-21
4.20. BNI Rights Agreement............................................... A-21
ARTICLE V
COVENANTS OF SFP
5.1. Conduct of SFP...................................................... A-22
5.2. Stockholder Meeting................................................. A-23
5.3. Access to Information............................................... A-23
5.4. Notices of Certain Events........................................... A-23
5.5. Tax Matters......................................................... A-24
5.6. Rule 145 Affiliates................................................. A-24
5.7. The Spinoff......................................................... A-24
5.8. No Solicitations.................................................... A-24
5.9. Registration Rights................................................. A-25
ARTICLE VI
COVENANTS OF BNI
6.1. Conduct of BNI...................................................... A-25
6.2. Stockholder Meeting................................................. A-26
6.3. Access to Information............................................... A-26
6.4. Notices of Certain Events........................................... A-27
6.5. Tax Matters......................................................... A-27
ii
<PAGE>
6.6. Director and Officer Liability...................................... A-27
6.7. No Solicitations.................................................... A-28
ARTICLE VII
COVENANTS OF BNI AND SFP
7.1. Reasonable Best Efforts............................................. A-28
7.2. ICC Approval........................................................ A-28
7.3. Certain Filings; Proxy Materials.................................... A-28
7.4. Public Announcements................................................ A-29
7.5. Further Assurances.................................................. A-29
7.6. Antitakeover Statutes............................................... A-29
7.7. Cooperation......................................................... A-29
7.8. Dividends........................................................... A-29
ARTICLE VIII
THE OFFER
8.1 The Offer............................................................ A-30
8.2. Action by SFP and BNI............................................... A-30
ARTICLE IX
CONDITIONS TO THE MERGER
9.1. Conditions to the Obligations of Each Party......................... A-31
9.2. Conditions to the Obligations of BNI................................ A-31
9.3. Conditions to the Obligations of SFP................................ A-32
ARTICLE X
TERMINATION
10.1. Termination......................................................... A-32
10.2. Effect of Termination............................................... A-33
ARTICLE XI
MISCELLANEOUS
11.1. Notices............................................................. A-33
11.2. Entire Agreement; Survival of Representations and Warranties......... A-34
11.3. Amendments; No Waivers.............................................. A-34
11.4. Expenses............................................................ A-34
11.5. Successors and Assigns.............................................. A-35
11.6. Governing Law....................................................... A-35
11.7. Jurisdiction........................................................ A-35
11.8. Counterparts; Effectiveness......................................... A-35
EXHIBIT A Form of Affiliate Letter
ANNEX I Conditions to the Offer
ANNEX II Registration Rights
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 Offer Documents.................................................... 8.1(d)
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)
Offer.................................................................. 8.1(a)
PBGC................................................................... 3.16(b)
Person................................................................. 1.2(d)
Private Letter Ruling.................................................. 3.21
Properties............................................................. 3.21
Schedule 14D-9......................................................... 8.2(b)
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 Offer Documents.................................................... 8.1(c)
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 Rights Agreement................................................... 3.23
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, as amended as of
October 26, 1994 and as of December 18, 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
A-1
<PAGE>
as otherwise provided in Section 1.2(a)(ii) below, be converted into 0.40
shares of the common stock, no par value (the "BNI Common Stock"), of BNI
(0.40 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
A-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.
SECTION 1.8. Alternative Transaction Structure. (a) At any time prior to the
Effective Time, either BNI or SFP, in its sole discretion, may notify the other
party (the "Alternative Merger Notice") that it has determined to restructure
the transaction in the manner contemplated by this Section 1.8. Upon delivery
of the Alternative Merger Notice in the manner set forth in Section 11.1 hereof
(the "Alternative Election"), the Merger contemplated by Section 1.1 of this
Agreement shall be restructured in the manner set forth in this Section 1.8. In
such event, all references to the term "Merger" in this Agreement shall be
deemed references to the transactions contemplated by this Section 1.8, all
references to the term "Surviving Corporation" shall be deemed references to
BNSF Corporation, a Delaware corporation ("BNSF"), all references to the term
"Effective Time" in this Agreement shall be deemed references to the time at
which the certificates of merger are 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) with respect to the Merger as restructured in the manner
contemplated by this Section 1.8 and Sections 1.2(a), 1.2(b), 1.4 and 1.7 shall
no longer be of any force or effect and the provisions of this Section 1.8
shall govern the terms of the Merger. Prior to the Effective Time, BNSF will be
controlled equally by BNI and SFP. The Merger, restructured as contemplated by
this Section 1.8, is sometimes referred to as the "Alternative Merger".
(b) Prior to the Effective Time, BNSF will be controlled equally by BNI and
SFP. Prior to the Effective Time of the Alternative Merger, BNI and SFP will
cause BNSF to incorporate two wholly owned subsidiaries as Delaware
corporations ("BNI Merger Sub" and "SFP Merger Sub"). At the Effective Time of
the Alternative Merger, (i) BNI Merger Sub will be merged with and into BNI in
accordance with Delaware Law, whereupon the separate existence of BNI Merger
Sub shall cease, and BNI shall be the surviving corporation, and (ii) SFP
Merger Sub will be merged with and into SFP in accordance with Delaware Law,
whereupon the separate existence of SFP Merger Sub shall cease, and SFP shall
be the surviving corporation.
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(c) At the Effective Time of the Alternative Merger, (i) each share of SFP
Common Stock outstanding immediately prior to such Effective Time shall, except
as otherwise provided in Section 1.8(d) below, be converted into 0.40 shares of
the common stock of BNSF, no par value (the "BNSF Common Stock"), and (ii) each
share of BNI Common Stock outstanding immediately prior to such Effective Time
shall, except as otherwise provided in Section 1.8(d) below, be converted into
1.0 share of BNSF Common Stock.
(d) Each share of BNI Common Stock or SFP Common Stock (other than the SFP
Common Stock owned by BNI, which shall remain outstanding) held by either of
BNI or SFP as treasury stock or owned by BNI, SFP or any Subsidiary of either
of them immediately prior to the Effective Time of the Alternative Merger shall
be cancelled and no payments shall be made with respect thereto.
(e) The BNSF Common Stock to be received as consideration in the Alternative
Merger by holders of BNI Common Stock or SFP Common Stock is referred to herein
as the "Merger Consideration".
(f) (i) At the Effective Time of the Alternative Merger, each outstanding
option to purchase shares of SFP Common Stock (a "SFP Stock Option") or BNI
Common Stock (or "BNI Stock Option") granted under any employee stock option or
compensation plan or arrangement of SFP or BNI, as the case may be, shall be
cancelled and substituted with an option (a "BNSF Option") to acquire BNSF
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 BNSF 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
or BNI Stock Option for which it was substituted.
(ii) At or as soon as possible after the Effective Time of the Alternative
Merger, BNSF shall issue to each holder of an SFP Stock Option or BNI Stock
Option which is cancelled pursuant to Section 1.8(f)(i) an agreement that
accurately reflects the terms of the BNSF Option substituted therefor as
contemplated by Section 1.8(f)(i).
(iii) BNSF shall take all corporate actions necessary to reserve such number
of shares of BNSF Common Stock as will be necessary to satisfy exercises in
full of all BNSF Options after the Effective Time. With respect to such BNSF
Common Stock, BNSF shall (i) as soon as practicable after the Effective Time of
the Alternative Merger file with the 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 1933 Act and (ii) file with the
NYSE a listing application and use its reasonable best efforts to have such
shares admitted to trading thereon upon exercises of BNSF Options. BNSF 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
such Effective Time.
(g) No certificates or scrip representing fractional shares of BNSF Common
Stock will be issued in the Alternative Merger, but in lieu thereof each holder
of SFP Common Stock otherwise entitled to a fractional share of BNSF Common
Stock will be entitled to receive, from the Exchange Agent in accordance with
the provisions of this Section 1.8 , a cash payment in lieu of such fractional
shares of BNSF 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 SFP Common Stock, the Exchange
Agent will hold such proceeds in trust (the "Common Shares Trust") for the
holders of the SFP Common Stock. BNSF 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 SFP Common Stock 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 BNSF Common Stock interest to which such holder of SFP Common Stock
is entitled and the denominator of which is the aggregate amount of fractional
share
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interests to which such holder of SFP Common Stock is entitled. As soon as
practicable after the determination of the amount of cash, if any, to be paid
to holders of SFP Common Stock in lieu of any fractional shares of BNSF Common
Stock, the Exchange Agent shall make available such amounts to such holders of
SFP Common Stock without interest.
(h) Immediately prior to the Effective Time of the Alternative Merger, BNSF
will become a party to this Agreement, assume all obligations of BNI hereunder
in its capacity as the Surviving Corporation and make the following
representations and warranties to each of BNI and SFP:
(i) Corporate Existence and Power. At the Effective Time, BNSF will be a
corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation and will have all corporate
powers and all material governmental licenses, authorizations, consents and
approvals required to carry on the businesses of BNI and SFP as such
business are now conducted. At the Effective Time, BNSF will be duly
qualified to do business as a foreign corporation and will be 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 BNSF.
(ii) Corporate Authorization. At the Effective Time, the execution,
delivery and performance by BNSF of this Agreement and the consummation by
BNSF of the transactions contemplated hereby will be within the corporate
powers of BNSF and will have duly authorized by all necessary corporate
action on the part of BNSF. At the Effective Time, this Agreement will
constitute a valid and binding agreement of BNSF.
(iii) Governmental Authorization. At the Effective Time, the execution,
delivery and performance by BNSF of this Agreement and the consummation of
the Merger by BNSF will 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 Exchange Act; (iii)
compliance with the applicable requirements of the 1933 Act; (iv)
compliance with any applicable foreign or state securities or Blue Sky
laws; (v) immaterial actions or filings relating to ordinary operational
matters; and (vi) actions that have theretofore been taken or filings that
have theretofore been made.
(iv) Non-Contravention. At the Effective Time, the execution, delivery
and performance by BNSF of this Agreement and the consummation by BNSF of
the transactions contemplated hereby will not (except, in the case of
clauses (B), (C) and (D) of this Section 1.8(h)(iv), for any such matters
that singly or in the aggregate have not had, and would not reasonably by
expected to have, a Material Adverse Effect on BNSF (A) contravene or
conflict with the certificate of incorporation or bylaws of BNSF, (B)
assuming compliance with the matters referred to in Section 1.8(h)(iii),
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 BNSF or any Subsidiary of BNSF, (C) constitute a default
under or give rise to any right of termination, cancellation or
acceleration of any right or obligation of BNSF or any of its Subsidiaries
or to a loss of any benefit to which BNSF or any of its Subsidiaries is
entitled under any agreement, contract or other instrument binding upon
BNSF or any of its Subsidiaries or any license, franchise, permit or other
similar authorization held by BNSF or any of its Subsidiaries or (D) result
in the creation or imposition of any Lien on any asset of BNSF or any
Subsidiary of BNSF.
(i) Prior to the Effective Time of the Alternative Merger, BNI and SFP shall
ensure that BNSF, BNI Merger Sub and SFP Merger Sub take no actions and
undertake no operations except as may be necessary in connection with the
consummation of the Merger and the transactions contemplated hereby.
(j) At the time of the Alternative Election, and without any further action
on the part of either SFP or BNI, this Agreement shall be deemed to have been
amended as follows:
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(i) The phrase "BNSF," will be added (x) between the phrase "operation of
the business of" and the phrase "BNI, SFP and their" in Section 9.1(iii)
and (y) between the phrase "impose on" and "BNI, SFP or any" in clause (3)
of Section 9.1(v).
(ii) A new Section 9.2(iii) and 9.3(v) will be added as follows:
BNSF 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 BNSF shall
have been accurate in all material respects at and as of the Effective
Time.
(iii) Section 9.3(ii) shall be amended to read in its entirety as
follows:
(ii) the BNSF Common Stock required to be issued hereunder shall have
been approved for listing on the NYSE, subject to official notice of
issuance.
(k) BNI and SFP agree that in the event of the Alternative Election, any
other appropriate adjustments shall be made to the other terms and conditions
of this Agreement to reflect the transactions contemplated by this Section 1.8
with a view to ensuring that the parties hereto and their stockholders are
placed in a position that is as close as possible to the position they would
have been in but for such restructuring.
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 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
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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 Offer and 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 3,629,728 shares were held in
treasury, (ii) no shares of SFP Preferred Stock and (iii) employee stock
options to purchase an aggregate of 9,953,575 Shares (of which options to
purchase an aggregate of 7,004,884 Shares were exercisable). As of May 31,
1994, a total of 12,000,000 shares of SFP Common Stock were approved for awards
under the SFP Long-Term Incentive Stock Plan, of which 5,281,405 remain
available for grant. 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").
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There are no outstanding obligations of SFP or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any SFP Securities, except for the
Offer.
(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 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
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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, (i)
the SFP Offer Documents to be filed with the SEC in connection with the Offer
and (ii) 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
offer to purchase and form of related letter of transmittal contained in the
SFP Offer Documents or any amendment or supplement thereto are first mailed to
stockholders of SFP and at the time of consummation of the Offer, the SFP Offer
Documents, as supplemented or amended, if applicable, will not contain any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading. 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 Offer Documents and
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 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.
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SECTION 3.10. Information Supplied. The information supplied or to be
supplied by SFP for inclusion or incorporation by reference in (i) the BNI
Offer Documents or any amendment or supplement thereto will not, at the time
the offer to purchase and form of related letter of transmittal contained in
the BNI Offer Documents or any amendment or supplement thereto are first mailed
to stockholders of SFP and at the time of the consummation of the Offer,
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) the BNI Proxy
Statement 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, (iii) any BNI Disclosure Document (other than
the BNI Offer Documents and 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
(iv) 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, and except as set forth in the Joint Proxy Statement/Prospectus of
SFP and BNI dated October 12, 1994 and the Supplemental Joint Proxy
Statement/Prospectus thereto dated October 28, 1994, (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.
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SECTION 3.14. Taxes. Except as set forth in the SFP Balance Sheet (including
the notes thereto) or on Schedule 3.14, (i) all material tax returns,
statements, reports and forms (collectively, the "SFP Returns") required to be
filed with any taxing authority as of the date hereof by, or with respect to,
SFP and its Subsidiaries have been filed in accordance with all applicable
laws; (ii) SFP and its Subsidiaries have timely paid all taxes shown as due and
payable on the SFP Returns that have been so filed and as of the time of filing
the SFP Returns correctly reflected the facts regarding the income, business,
assets, operations, activities and the status of SFP and its Subsidiaries in
all material respects; (iii) SFP and its Subsidiaries have made provision for
all material taxes payable by SFP and its Subsidiaries for which no Return has
yet been filed or in respect of which a final determination has been made; (iv)
the charges, accruals and reserves for taxes with respect to SFP and its
Subsidiaries reflected in the SFP Balance Sheet are adequate under generally
accepted accounting principles to cover the tax liabilities accruing through
the date thereof; and (v) as of the date of this Agreement, there is no action,
suit, proceeding, investigation, audit or claim now proposed or pending against
or with respect to SFP or any of its Subsidiaries in respect of any tax where
there is a reasonable possibility of a determination or decision against SFP or
any of its Subsidiaries which would reasonably be expected to have a Material
Adverse Effect on SFP.
SECTION 3.15. ERISA. (a) Schedule III identifies (i) each "employee benefit
plan", as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974 ("ERISA") (other than multiemployer plans (as defined in Section
3(37) of ERISA)), and (ii) each employment, severance or other similar
contract, arrangement or policy and each retirement or deferred compensation
plan, stock plan, incentive compensation plan, vacation pay, severance pay,
bonus or benefit arrangement, insurance (including self-insured arrangements)
or hospitalization program, workers' compensation program, disability program,
supplemental unemployment program or fringe benefit arrangement, whether
maintained pursuant to contract or informal understanding, which does not
constitute an "employee benefit plan" (as defined in Section 3(3) of ERISA),
which, in the case of items described in both clauses (i) and (ii), is
maintained, administered or contributed to by SFP or any of its ERISA
Affiliates (as defined below), and covers any employee or former employee of
SFP or any of its Subsidiaries or with respect to which SFP or any of its ERISA
Affiliates has any liability (collectively, the "SFP Employee Plans"). True and
correct copies of each of the SFP Employee Plans, all amendments thereto, 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
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with any SFP Pension Plan, other than a "reportable event" that will not have a
Material Adverse Effect on SFP. No condition exists and no event has occurred
that could constitute grounds for termination of or the appointment of a
trustee to administer any SFP Pension Plan under Section 4042 of ERISA and, to
SFP's knowledge, neither SFP nor any of its ERISA Affiliates has engaged in, or
is a successor or parent corporation to an entity that has engaged in, a
transaction for which SFP or any of its ERISA Affiliates would have liability
under Section 4069 or 4212(c) of ERISA. To SFP's knowledge, nothing done or
omitted to be done and no transaction or holding of any asset under or in
connection with any SFP Employee Plan has or will make SFP or any 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
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have a Material Adverse Effect, and (iii) neither SFP nor any of its ERISA
Affiliates has received any notice that any such plan is in reorganization,
that increased contributions may be required to avoid a reduction in plan
benefits or the imposition of any excise tax, that any such plan is or has been
funded at a rate less than that required under Section 412 of the Code or that
any plan is or may become insolvent.
(j) As of the Balance Sheet Date, the Expected Postretirement Benefit
Obligation (as defined in Statement of Financial Accounting Standards No. 106)
in respect of postretirement health and medical benefits for current and former
employees of SFP or any of its Subsidiaries calculated by SFP's actuary using
reasonable actuarial assumptions was $291,200,000.
SECTION 3.16. Finders' Fees. Except for Goldman, Sachs & Co., a copy of whose
engagement agreement has been or will be provided to BNI, there is no
investment banker, broker, finder or other intermediary which has been retained
by or is authorized to act on behalf of SFP or any of its Subsidiaries who
might be entitled to any fee or commission from BNI or any of its affiliates
upon consummation of the transactions contemplated by this Agreement.
SECTION 3.17. Environmental Matters. (a) Except as set forth in the SFP Form
10-K or otherwise previously disclosed in writing by SFP to BNI, there are no
Environmental Liabilities (as defined below) of SFP that, individually or in
the aggregate, 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).
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SECTION 3.21. Private Letter Ruling. SFP has received from the Internal
Revenue Service a valid and effective private letter ruling dated February 16,
1994 (and supplemented on May 18, 1994) (the "Private Letter Ruling") to the
effect that (i) the Spinoff qualifies as a tax-free distribution under Section
355 of the Code and (ii) the merger of SFP Properties, Inc. ("Properties") with
and into SFP (the "Liquidation") will be treated as a distribution by
Properties to SFP in complete liquidation of Properties within the meaning of
Section 322 of the Code. A copy of the Private Letter Ruling has been provided
to BNI.
SECTION 3.22. Excess Loss Accounts. The income that will be recognized, for
federal income tax purposes, upon the Spinoff arising from excess loss accounts
in the stock of the Spinoff Company and its subsidiaries will be approximately
$30 million.
SECTION 3.23. SFP Rights Agreement. Under the Rights Agreement between SFP
and First Chicago Trust Company of New York as Rights Agent, dated as of
November 28, 1994 (the "SFP Rights Agreement"), BNI will not become an
"Acquiring Person", no "Shares Acquisition Date" or "Distribution Date" (as
such terms are defined in the SFP Rights Agreement) will occur, and SFP's
shareholders will not be entitled to receive any benefits under the SFP Rights
Agreement as a result of the approval, execution or delivery of this Agreement,
the commencement or consummation of the Offer or the consummation of the
Merger.
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 Offer and 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
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(except, in the case of clauses (ii), (iii) and (iv) of this Section 4.4, for
any such matters that singly or in the aggregate have not had, and would not
reasonably be expected to have, a Material Adverse Effect on BNI) (i)
contravene or conflict with the certificate of incorporation or bylaws of BNI,
(ii) assuming compliance with the matters referred to in Section 4.3,
contravene or conflict with or constitute a violation of any provision of any
law, regulation, judgment, injunction, order or decree binding upon or
applicable to BNI or any Subsidiary of BNI, (iii) constitute a default under or
give rise to any right of termination, cancellation or acceleration of any
right or obligation of BNI or any of its Subsidiaries or to a loss of any
benefit to which BNI or any of its Subsidiaries is entitled under any
agreement, contract or other instrument binding upon BNI or any of its
Subsidiaries or any license, franchise, permit or other similar authorization
held by BNI or any of its Subsidiaries, or (iv) result in the creation or
imposition of any Lien on any asset of BNI or any Subsidiary of BNI.
SECTION 4.5. Capitalization. (a) The authorized capital stock of BNI consists
of three hundred million (300,000,000) shares of BNI Common Stock and twenty-
five million (25,000,000) shares of No Par Value Preferred Stock, including six
million nine hundred thousand (6,900,000) shares of 6 1/4% Cumulative
Convertible Preferred Stock, Series A No Par Value ("6 1/4% Convertible
Preferred Stock") and fifty million (50,000,000) shares of Class A Preferred
Stock, No Par Value ("Class A Preferred Stock"). As of May 31, 1994 there were
outstanding (i) 89,208,870 shares of BNI Common Stock (including 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
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for those jurisdictions where failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect on BNI.
(b) Except as set forth in the BNI Form 10-K (as defined in Section 4.7(a)),
all of the outstanding capital stock of, or other ownership interests in, each
BNI Subsidiary, is owned by BNI, directly or indirectly, free and clear of any
Lien and free of any other limitation or restriction (including any restriction
on the right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). Other than those obligations identified on Schedule
4.6(b), there are no outstanding (i) securities of BNI or any of its
Subsidiaries convertible into or exchangeable for shares of capital stock or
other voting securities or ownership interests in any Subsidiary of BNI, and
(ii) options or other rights to acquire from BNI or any of its Subsidiaries,
and no other obligation of BNI or any of its Subsidiaries to issue, any capital
stock, voting securities or other ownership interests in, or any securities
convertible into or exchangeable for any capital stock, voting securities or
ownership interests in, any Subsidiary of BNI (the capital stock of each
Subsidiary of BNI, together with the items in clauses (i) and (ii), being
referred to collectively as the "BNI Subsidiary Securities"). There are no
outstanding obligations of BNI or any Subsidiary of BNI to repurchase, redeem
or otherwise acquire any outstanding BNI Subsidiary Securities.
SECTION 4.7. SEC Filings. (a) BNI has delivered to SFP (i) the annual reports
on Form 10-K for its fiscal years ended December 31, 1989, December 31, 1990,
December 31, 1991, December 31, 1992, and December 31, 1993 (this latest form
10-K being referred to herein as the "BNI Form 10-K"), (ii) its quarterly
report on Form 10-Q for its fiscal quarter ending March 31, 1994 (this Form 10-
Q being referred to herein as the "BNI Form 10-Q"), (iii) its proxy statements
(as defined in Regulation 14A issued pursuant to the Exchange Act) relating to
meetings of the stockholders of BNI held since January 1, 1989, and (iv) all
other reports, statements, schedules and registration statements filed by BNI
and its Subsidiaries with the SEC since January 1, 1989 and through the date of
this Agreement, but including only such pre-effective amendments and such
registration statements as contain material information not fully reflected in
any subsequent amendments to such registration statements (or any 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, (i) the BNI
Offer Documents to be filed with the SEC in connection with the Offer and (ii)
the definitive proxy statement of BNI (the "BNI Proxy Statement") to be filed
with the SEC in
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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 offer to purchase and form of
related letter of transmittal contained in the BNI Offer Documents or any
amendment or supplement thereto are first mailed to stockholders of SFP and at
the time of consummation of the Offer, the BNI Offer Documents, as supplemented
or amended, if applicable, will not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. 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 Offer Documents and 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 misleading. The representations
and warranties contained in this Section 4.9 will not apply to statements or
omissions included in 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
Offer Documents or any amendment or supplement thereto will not, at the time
the offer to purchase and form of related letter of transmittal contained in
the SFP Offer Documents or any amendment or supplement thereto are first mailed
to stockholders of SFP and at the time of the consummation of the Offer,
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) 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 (iii) any SFP Disclosure Document (other
than the SFP Offer Documents and 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
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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, and except as set forth in the Joint Proxy Statement/Prospectus of
SFP and BNI dated October 12, 1994 and the Supplemental Joint Proxy
Statement/Prospectus thereto dated October 28, 1994, (i) there is no action,
suit, investigation or proceeding (or any basis therefor) pending against, or
to the knowledge of BNI threatened against or affecting, BNI or any of its
Subsidiaries or any of their respective properties before any court or
arbitrator or any governmental body, agency or official where there is a
reasonable probability of a determination adverse to BNI or any of its
Subsidiaries which could reasonably be expected to have a Material Adverse
Effect on BNI and (ii) as of the date of this Agreement, there is no such
action, suit, investigation or proceeding which in any manner challenges or
seeks to prevent, enjoin, alter or materially delay the Merger or any of the
other transactions contemplated hereby.
SECTION 4.14. Taxes. Except as set forth in the BNI Balance Sheet (including
the notes thereto) or on Schedule 4.14, (i) all material tax returns,
statements, reports and forms (collectively, the "BNI Returns") required to be
filed with any taxing authority as of the date hereof by, or with respect to,
BNI and its Subsidiaries have been filed in accordance with all applicable
laws; (ii) BNI and its Subsidiaries have timely paid all taxes shown as due and
payable on the BNI Returns that have been so filed and as of the time of filing
the BNI Returns correctly reflected the facts regarding the income, business,
assets, operations, activities and the status of BNI and its Subsidiaries in
all material respects; (iii) BNI and its Subsidiaries have made provision for
all material taxes payable by BNI and its Subsidiaries for which no Return has
yet been filed or in respect of which a final determination has been made; (iv)
the charges, accruals and reserves for taxes with respect to BNI and its
Subsidiaries reflected on the BNI Balance Sheet are adequate under generally
accepted accounting principles to cover the tax liabilities accruing through
the date thereof; and (v) as of the date of this Agreement there is no action,
suit, proceeding, investigation, audit or claim now proposed or pending against
or with respect to BNI or any of its Subsidiaries in respect of any tax where
there is a reasonable possibility of a determination or decision against BNI or
any of its Subsidiaries which would reasonably be expected to have a Material
Adverse Effect on BNI.
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
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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 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.
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(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 insurance benefits for
current and former employees of BNI or any of its Subsidiaries calculated by
BNI's actuary using reasonable actuarial assumptions was $17,000,000.
SECTION 4.16. Finders' Fees. Except for Lazard Freres & Co., a copy of whose
engagement agreement has been or will be provided to SFP and whose fees will be
paid by BNI, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of
BNI, the Surviving Corporation or any Subsidiary of BNI who might be entitled
to any fee or commission from BNI, the Surviving Corporation or any Subsidiary
of BNI upon consummation of the transactions contemplated by this Agreement.
SECTION 4.17. Environmental Matters. Except as set forth in the BNI Form 10-K
or otherwise previously disclosed in writing by BNI to SFP, there are no
Environmental Liabilities of BNI that, individually or in the aggregate, have
had or would reasonably be expected to have a Material Adverse Effect on BNI.
SECTION 4.18. Takeover Statutes. No Takeover Statute, including, without
limitation, Section 203 of the DGCL, applicable to BNI or any of its
Subsidiaries is applicable to the Merger or the other transactions contemplated
hereby.
SECTION 4.19. Compliance with Laws. Except as publicly disclosed, and except
for any matter that would not reasonably be expected to have a Material Adverse
Effect on BNI, neither BNI nor any of its Subsidiaries is in violation of, or
has violated, any applicable provisions of any laws, statutes, ordinances or
regulations.
SECTION 4.20. BNI Rights Agreement. Under the Rights Agreement between BNI
and The First National Bank of Boston, dated as of July 14, 1986 (the "BNI
Rights Agreement"), SFP will not become an "Acquiring Person", no "Stock
Acquisition Date" or "Distribution Date" (as such terms are defined in the BNI
Rights Agreement) will occur, and BNI's shareholders will not be entitled to
receive any benefits under the BNI Rights Agreement as a result of the
approval, execution or delivery of this Agreement or the consummation of the
Merger.
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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 Offer, the Merger and the Spinoff, SFP will not, and
will not permit any Subsidiary of SFP, (i) to adopt a plan of complete or
partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization or (ii) make any acquisition of
any business or other assets, whether by means of merger, consolidation or
otherwise, other than in the ordinary course of business consistent with
past practices and other than acquisitions that are Customary Actions;
(c) SFP will not, and will not permit any Subsidiary of SFP to, sell,
lease, license or otherwise dispose of any material assets or property
except (i) the Spinoff, (ii) pursuant to existing contracts or commitments,
(iii) in the ordinary course of business consistent with past practice and
(iv) any such sale, lease, license or other disposition that is a Customary
Action;
(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 not to
exceed $1.75 billion in the aggregate under credit facilities in form and
substance reasonably satisfactory to BNI to finance the Offer, to refinance
SFP's currently outstanding 12.65% Senior Notes due October 1, 2000, 8 3/8%
Notes due November 1, 2001 and 8 5/8% Notes due November 1, 2004, to pay
penalties, premiums and make-whole payments required in connection with
such refinancing and for working capital and other corporate purposes,
(iii) borrowings in the ordinary course of business consistent with past
practice or (iv) 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
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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 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
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(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 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
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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 involving such Person, any proposal for
a merger, consolidation or other business combination involving such Person or
any Subsidiary of such Person, 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, any proposal or offer with respect to
any recapitalization or restructuring with respect to such Person or any
Subsidiary of such Person or any proposal or offer with respect to any other
transaction similar to any of the foregoing with respect to such Person or any
Subsidiary of such Person other than pursuant to the transactions to be
effected pursuant to this Agreement.
SECTION 5.9. Registration Rights. SFP hereby grants BNI the registration and
other rights set forth in Annex II hereto, which rights shall become effective
without any action by any Person in the event that this Agreement is terminated
for any reason after consummation of the Offer.
ARTICLE VI
COVENANTS OF BNI
BNI AGREES THAT:
SECTION 6.1. Conduct of BNI. From the date hereof until the Effective Time,
except as provided in Schedule VI, BNI and the BNI Material Subsidiaries shall
conduct their business in the ordinary course of business consistent with past
practice and shall use their reasonable best efforts to preserve intact their
business organizations and relationships with third parties; provided that
nothing in this Section shall be deemed to prevent BNI and its Subsidiaries
from taking any action referred to in clauses (b)(ii), (c), (f) or (g) of this
Section 6.1 where the taking of such action is not consistent with the past
practices of BNI and its Subsidiaries if, but only if, such action is a
Customary Action. Without limiting the generality of the foregoing, from the
date hereof until the Effective Time:
(a) BNI will not adopt or propose any change in its certificate of
incorporation or bylaws, except for an amendment to its certificate of
incorporation authorizing the issuance of additional shares of Class A
Preferred Stock in connection with the issuance of Rights to former holders
of SFP Common Stock upon consummation of the Merger;
(b) Except for the Offer and 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
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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 not to
exceed $500 million in the aggregate under credit facilities in form and
substance reasonably satisfactory to SFP to finance the Offer (iii)
borrowings in the ordinary course of business consistent with past practice
or (iv) 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, except
for loans, advances, capital contributions or investments that are
Customary Actions and, except for loans, advances, capital contributions or
investments for the purchase of shares of SFP Common Stock pursuant to the
Offer, 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).
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
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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 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.
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(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.
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
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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 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.
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ARTICLE VIII
THE OFFER
SECTION 8.1. The Offer. (a) Provided that nothing shall have occurred that
would result in a failure to satisfy any of the conditions set forth in Annex I
hereto, SFP and BNI shall, as promptly as practicable, but in no event later
than December 23, 1994, commence separate tender offers (together, the "Offer")
to purchase, in the case of SFP, up to 38,000,000 shares of SFP Common Stock
and, in the case of BNI, up to 25,000,000 shares of SFP Common Stock (in each
case, together with the associated rights under the SFP Rights Plan), at a
price of $20.00 per share, net to the seller in cash, with SFP to be severally
obligated to purchase 0.60317 of any shares of SFP Common Stock accepted for
payment pursuant to the Offer and BNI severally obligated to purchase 0.39683
of any shares of SFP Common Stock accepted for payment pursuant to the Offer.
Notwithstanding any provision of this Agreement (or any Annex hereto) to the
contrary, no term of the Offer may be amended or modified without the written
consent of both parties hereto.
(b) The several obligations of BNI and SFP under the Offer shall be subject
to the condition that there shall be validly tendered in accordance with the
terms of the Offer prior to the expiration date of the Offer and not withdrawn
63,000,000 shares of SFP Common Stock and to the other conditions set forth in
Annex I hereto. Each of SFP and BNI expressly reserves the right to waive any
of the conditions to its obligation under the Offer, except that the Minimum
Condition may not be waived without the consent of each of SFP and BNI.
Furthermore, each of SFP and BNI shall have the right to determine, in its sole
reasonable discretion, whether the conditions to its obligations under the
Offer have been satisfied.
(c) As soon as practicable on the date of commencement of the Offer, SFP
shall file with the SEC an Issuer Tender Offer Statement on Schedule 13E-4 with
respect to the Offer which will contain the offer to purchase and form of the
related letter of transmittal (together with any supplements or amendments
thereto, collectively the "SFP Offer Documents"). SFP and BNI each agrees
promptly to correct any information provided by it for use in the SFP Offer
Documents if and to the extent that it shall have become false or misleading in
any material respect. BNI and its counsel shall be given an opportunity to
review and comment on the Schedule 13E-4 prior to its being filed with the SEC.
(d) As soon as practicable on the date of commencement of the Offer, BNI
shall file with the SEC a Tender Offer Statement on Schedule 14D-1 with respect
to the Offer which will contain the offer to purchase and form of the related
letter of transmittal (together with any supplements or amendments thereto,
collectively the "BNI Offer Documents"). BNI and SFP each agrees promptly to
correct any information provided by it for use in the BNI Offer Documents if
and to the extent that it shall have become false or misleading in any material
respect. SFP and its counsel shall be given an opportunity to review and
comment on the Schedule 14D-1 prior to its being filed with the SEC.
(e) Upon satisfaction (or, where permitted, waiver) of the conditions to the
Offer, BNI and SFP shall purchase shares of SFP Common Stock pursuant to the
Offer as set forth in Section 8.1(a) above, provided, however, that BNI shall
not be obligated to purchase more than 25,000,000 shares of SFP Common Stock,
and SFP shall not be obligated to purchase more than 38,000,000 shares of SFP
Common Stock.
SECTION 8.2. Action by SFP and BNI. (a) SFP represents that its Board of
Directors at a meeting duly called and held unanimously resolved to recommend
acceptance of the Offer by those of its stockholders who wish to receive cash
for a portion of their shares of SFP Common Stock. SFP and BNI agree to take
all steps necessary to cause the offer to purchase and form of the related
letter of transmittal to be disseminated to holders of shares of SFP Common
Stock as and to the extent required by applicable federal securities laws.
(b) As soon as practicable on the day that the Offer is commenced, SFP will
file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9") which shall reflect the recommendations of SFP's Board
of Directors with respect to the Offer described in Section 8.2(a). SFP and
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BNI each agree promptly to correct any information provided by it for use in
the Schedule 14D-9 if and to the extent that it shall have become false or
misleading in any material respect. SFP agrees to take all steps necessary to
cause the Schedule 14D-9 as so corrected to be filed with the SEC and to be
disseminated to holders of shares of SFP Common Stock, in each case as and to
the extent required by applicable federal securities laws. BNI and its counsel
shall be given an opportunity to review and comment on the Schedule 14D-9 prior
to its being filed with the SEC.
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 except that the condition
set forth in clause (vii) may not be waived) 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
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 tax-free to BNI, SFP and
their respective stockholders for federal income tax purposes;
(vii) SFP and BNI shall have purchased shares of SFP Common Stock
pursuant to the Offer.
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
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<PAGE>
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;
(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;
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<PAGE>
(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;
(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;
(xii) by SFP, upon payment to BNI of the fee described in Section
11.4(b), if prior to the purchase of shares of SFP Common Stock pursuant to
the Offer, (A) the board of directors of SFP shall have withdrawn or
modified in a manner adverse to BNI its approval or recommendation of the
Offer, this Agreement or the Merger in order to permit SFP to execute a
definitive agreement in connection with a Takeover Proposal or in order to
approve another tender offer for shares of SFP Common Stock, in either
case, as determined by the board of directors of SFP, on terms more
favorable to SFP's stockholders than the transactions contemplated hereby,
or (B) the board of directors of SFP shall have recommended any other
Takeover Proposal; and
(xiii) by either BNI or SFP, if the Offer is terminated and SFP and BNI
shall not have purchased shares of SFP Common Stock pursuant to the Offer.
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, 5.9 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.
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
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<PAGE>
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).
(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; Certain Payments. (a) Except as otherwise provided in
this Section or 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
engaged by it, incurred in connection with this Agreement and the transactions
contemplated hereby.
(b) SFP agrees that if this Agreement shall be terminated pursuant to Section
10.1(v), (vii), (viii), (xii) or (xiii), it will pay BNI an amount equal to
$50,000,000 plus all out-of-pocket expenses, not to exceed $10,000,000,
incurred by BNI in connection with this Agreement, the Merger, the Offer and
all related transactions by wire transfer of immediately available funds
promptly, but in no event later than two business days, after such termination;
provided that no payment will be required pursuant to this Section 11.4(b) if
this Agreement is terminated pursuant to Section 10.1(vii), (viii) or (xiii)
unless, after December 18, 1994, a
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<PAGE>
new Takeover Proposal involving SFP has been announced or made (it being
understood that any modification of Union Pacific Corporation's Takeover
Proposal in existence on December 18, 1994 shall be deemed a new Takeover
Proposal).
(c) SFP agrees that if this Agreement shall be terminated pursuant to Section
10.1(vii), (viii) or (xiii) and no payment is required by it pursuant to
Section 11.4(b), it will reimburse BNI for all out-of-pocket expenses incurred
by BNI in connection with this Agreement, the Merger, the Offer and all related
transactions. Such payment shall be made by wire transfer of immediately
available funds promptly, but in no event later than two business days, after
receipt by SFP from BNI of documentation of such expenses.
SECTION 11.5. Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto.
SECTION 11.6. Governing Law. This Agreement shall be construed in accordance
with and governed by the law of the State of Delaware (without regard to
principles of conflict of laws).
SECTION 11.7. Jurisdiction. Any suit, action or proceeding seeking to enforce
any provision of, or based on any matter arising out of or in connection with,
this Agreement or the transactions contemplated hereby may be brought against
any of the parties in the United States District Court for the District of
Delaware or any state court sitting in the City of Wilmington, Delaware, and
each of the parties hereby consents to the exclusive jurisdiction of such
courts (and of the appropriate appellate courts) in any such suit, action or
proceeding and waives any objection to venue laid therein. Process in any such
suit, action or proceeding may be served on any party anywhere in the world,
whether within or without the State of Delaware. Without limiting the
foregoing, each of the parties hereto agrees that service of process upon such
party at the address referred in Section 11.1, together with written notice of
such service to such party, shall be deemed effective service of process upon
such party.
SECTION 11.8. Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have
received counterparts hereof signed by all of the other parties hereto.
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
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<PAGE>
EXHIBIT A
FORM OF AFFILIATE LETTER
Burlington Northern Inc.
3800 Continental Plaza
777 Main Street
Ft. Worth, Texas 76102
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed to be
an "affiliate" of Santa Fe Pacific Corporation, a Delaware corporation ("SFP"),
as the term "affiliate" is defined for purposes of paragraphs (c) and (d) of
Rule 145 of the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"). Pursuant to the terms of the Agreement and
Plan of Merger dated as of June 29, 1994 (the "Agreement"), between Burlington
Northern Inc., a Delaware corporation ("BN"), and SFP, SFP will be merged with
and into BN, with BN to be the survivor in the merger (the "Merger").
As a result of the Merger, I may receive shares of Common Stock, no par
value, of BN (the "BN Securities") in exchange for shares owned by me of Common
Stock, par value $1.00 per share, of SFP.
I represent, warrant and covenant to BN that in the event I receive any BN
Securities as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of the BN
Securities in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Agreement and discussed the
requirements of such documents and other applicable limitations upon my
ability to sell, transfer or otherwise dispose of the BN Securities to the
extent I felt necessary with my counsel or counsel for SFP.
C. I have been advised that the issuance of BN Securities to me pursuant
to the Merger has been registered with the Commission under the Act on a
Registration Statement on Form S-4. However, I have also been advised that,
since at the time the Merger was submitted for a vote of the stockholders
of SFP, I may be deemed to have been an affiliate of SFP and the
distribution by me of the BN Securities has not been registered under the
Act, I may not sell, transfer or otherwise dispose of the BN Securities
issued to me in the Merger unless (i) such sale, transfer or other
disposition has been registered under the Act, (ii) such sale, transfer or
other disposition is made in conformity with Rule 145 promulgated by the
Commission under the Act, or (iii) in the opinion of counsel reasonably
acceptable to BN, or a "no action" letter obtained by the undersigned from
the staff of the Commission, such sale, transfer or other disposition is
otherwise exempt from registration under the Act.
D. I understand that BN is under no obligation to register the sale,
transfer or other disposition of the BN Securities by me or on my behalf
under the Act or to take any other action necessary in order to make
compliance with an exemption from such registration available.
E. I also understand that there will be placed on the certificates for
the BN Securities issued to me, or any substitutions therefor, a legend
stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED
BETWEEN THE REGISTERED HOLDER HEREOF AND BURLINGTON NORTHERN INC., A
COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF
BURLINGTON NORTHERN INC."
<PAGE>
F. I also understand that unless the transfer by me of my BN Securities
has been registered under the Act or is a sale made in conformity with the
provisions of Rule 145, BN reserves the right to put the following legend
on the certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED
BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN
ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933."
It is understood and agreed that the legends set forth in paragraphs E and F
above shall be removed by delivery of substitute certificates without such
legend if, in the judgment of BN, such legend is not required for purposes of
the Act or this Agreement.
Execution of this letter should not be considered an admission on my part
that I am an "affiliate" of SFP as described in the first paragraph of this
letter or as a waiver of any rights I may have to object to any claim that I am
such an affiliate on or after the date of this letter.
Very truly yours,
_____________________________________
Name:
Accepted this day of , 1994 by
BURLINGTON NORTHERN INC.
By: _________________________________
Name: _____________________________
Title: ____________________________
<PAGE>
ANNEX I
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, neither SFP nor BNI shall
be required to accept for payment or pay for any shares of SFP Common Stock,
and may terminate or amend its obligation to purchase shares of SFP Common
Stock under the Offer or may postpone the acceptance for payment of and payment
for shares of SFP Common Stock, if (i) at least 63,000,000 shares of SFP Common
Stock shall not have been tendered and not withdrawn pursuant to the Offer (the
"Minimum Condition"), (ii) this Agreement shall not have been adopted by the
stockholders of SFP and BNI in accordance with Delaware Law, (iii) the
applicable waiting period under the HSR Act shall not have expired or been
terminated, (iv) BNI (in the case of SFP) and SFP (in the case of BNI) shall
not have accepted (or shall not concurrently accept) shares of SFP Common Stock
for payment under the Offer or (v) at any time on or after the date of this
Agreement and prior to the acceptance for payment of shares of SFP Common
Stock, any of the following conditions exist:
(a) any court, arbitrator or governmental body, agency or official shall have
issued any order, or there shall be any statute, rule or regulation,
restraining or prohibiting the consummation of the Offer or the Merger or the
effective operation of the business of BNI, SFP and their respective
Subsidiaries after the Effective Time; or
(b) any actions by or in respect of or filings with any governmental body,
agency, official, or authority required to permit the consummation of the Offer
(other than with respect to the HSR Act) or the Merger (other than ICC
approval) shall not 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; or
(c) SFP (in the case of BNI) or BNI (in the case of SFP) shall have failed to
perform in any material respect any of its respective obligations under this
Agreement required to be performed by it at or prior to the consummation of the
Offer, or the representations and warranties of SFP (in the case of BNI) or BNI
(in the case of SFP) shall not have been accurate in all material respects both
when made and at and as of any time prior to the consummation of the Offer as
if made at and as of such time, except for the representations and warranties
of SFP and BNI in Sections 3.5(a) and 4.5(a), respectively, of the Agreement,
which shall be accurate in all respects when made and at and as of any time
prior to the consummation of the Offer as if made at and as of that time; or
(d) the Agreement shall have been terminated in accordance with its terms; or
(e) (i) SFP shall not be satisfied, in its sole discretion, that it has
obtained sufficient financing to enable it to satisfy its obligations under the
Offer and to effect the other transactions referred to in Section 5.1(f)(ii),
or (ii) BNI shall not be satisfied, in its sole discretion, that it has
obtained sufficient financing to enable it to satisfy its obligations under the
Offer (it being understood that each of SFP and BNI will use its reasonable
best efforts to ensure that this condition to its obligations under the Offer
is satisfied no later than December 31, 1994).
which, in the sole judgment of SFP or BNI in any such case, and regardless of
the circumstances (including any action or omission by SFP or BNI) giving rise
to any such condition, makes it inadvisable to proceed with such acceptance for
payment or payment; provided that the Minimum Condition may be waived only with
the consent of each of BNI and SFP.
A-I-1
<PAGE>
ANNEX II
REGISTRATION RIGHTS
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein, have the
following meanings:
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under common control with such Person. For the
purposes of this definition, "control" when used with respect to any Person,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Demand Registration" means a Demand Registration as defined in Section 2.2.
"Piggy-Back Registration" means a Piggy-Back Registration as defined in
Section 2.3.
"Registrable Securities" means the shares of SFP Common Stock purchased by
BNI pursuant to the Offer until (i) a registration statement covering such SFP
Common Stock has been declared effective by the Commission and it has been
disposed of pursuant to such effective registration statement, (ii) such SFP
Common Stock is sold under circumstances in which all of the applicable
conditions of Rule 144 (or any similar provisions then in force) under the 1933
Act are met, (iii) such SFP Common Stock may be sold without registration
pursuant to Rule 144(k) or (iv) such SFP Common Stock has been otherwise
transferred, SFP has delivered a new certificate or other evidence of ownership
for such SFP Common Stock not bearing the legend required pursuant to this
Agreement and such SFP Common Stock may be resold without subsequent
registration under the 1933 Act.
"Underwriter" means a securities dealer who purchases any Registrable
Securities as principal and not as part of such dealer's market-making
activities.
ARTICLE II
REGISTRATION RIGHTS
SECTION 2.1. Demand Registration. (a) Request for Registration. At any time
or from time to time after the termination of the Agreement, BNI may make a
written request for registration under the 1933 Act of all or part of its
Registrable Securities (a "Demand Registration"); provided, that the SFP shall
not be obligated to effect more than two Demand Registrations in total with
respect to such issue of Registrable Securities. Such request will specify the
number of shares of Registrable Securities proposed to be sold and will also
specify the intended method of disposition thereof.
(b) Effective Registration. A registration will not count as a Demand
Registration until it has become effective.
(c) Managing Underwriting; Additional Demand Registrations. If BNI shall so
elect, the offering of such Registrable Securities pursuant to such Demand
Registration shall be in the form of an underwritten offering. BNI shall select
the book-running managing Underwriter in connection with such offering and any
additional investment bankers and managers to be used in connection with the
offering; provided that such managing Underwriter and additional investment
bankers and managers must be reasonably satisfactory to SFP. To the extent
Registrable Securities so requested to be registered are excluded from the
offering in accordance with Section 2.3, BNI shall have the right to one
additional Demand Registration under this Section with respect to such
Registrable Securities.
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<PAGE>
SECTION 2.2. Piggy-Back Registration. If at any time SFP proposes to file a
registration statement under the 1933 Act with respect to an offering by SFP
for its own account or for the account of any of its respective securityholders
of any class of security (other than a registration statement on Form S-4 or S-
8 (or any substitute form that may be adopted by the Commission or a
registration filed), or filed in connection with an exchange offer or offering
of securities solely to SFP's existing securityholders) then SFP shall give
written notice of such proposed filing to BNI as soon as practicable (but in no
event less than 10 days before the anticipated filing date), and such notice
shall offer BNI the opportunity to register such number of shares of
Registrable Securities as BNI may request (a "Piggy-Back Registration"). SFP
shall use its reasonable best efforts to cause the managing Underwriter or
Underwriters of a proposed underwritten offering to permit the Registrable
Securities requested to be included in a Piggy-Back Registration to be included
on the same terms and conditions as any similar securities of SFP included
therein.
SECTION 2.3. Reduction of Offering. Notwithstanding anything contained
herein, if the managing Underwriter or Underwriters of an offering described in
Section 2.1 or 2.2 deliver a written opinion to BNI that the size of the
offering that is intended to be made is such that the success of the offering
would be materially and adversely affected by inclusion of all of the
Registrable Securities requested to be included, then the amount of securities
to be offered for the account of BNI shall be reduced to the extent necessary
to reduce the total amount of securities to be included in such offering to the
amount recommended by such managing Underwriter or Underwriters; provided that,
in the case of a Piggy-Back Registration, if securities are being offered for
the account of other persons or entities as well as SFP, then with respect to
the Registrable Securities intended to be offered by BNI, the proportion by
which the amount of such class of securities intended to be offered by BNI is
reduced shall not exceed the proportion by which the amount of such class of
securities intended to be offered by such other persons or entities is reduced.
ARTICLE III
REGISTRATION PROCEDURES
SECTION 3.1. Filings; Information. Whenever BNI requests that any Registrable
Securities be registered pursuant to Section 2.1 hereof, SFP will use its
reasonable best efforts to effect the registration of such Registrable
Securities in accordance with the intended method of disposition thereof as
quickly as practicable, and in connection with any such request:
(a) SFP will as expeditiously as reasonably practicable prepare and file
with the SEC a registration statement on any form for which SFP then qualifies
or which counsel for SFP shall deem appropriate and which form shall be
available for the sale of the Registrable Securities to be registered
thereunder in accordance with the intended method of distribution thereof, and
use its reasonable best efforts to cause such filed registration statement to
become and remain effective for a period of not less than 270 days; provided
that if SFP shall furnish to BNI a certificate signed by either its Chairman or
the Vice Chairman stating that in his good faith judgment it would be
significantly disadvantageous to SFP or its shareholders for such a
registration statement to be filed as expeditiously as reasonably practicable,
SFP shall have a period of not more than 90 days within which to file such
registration statement measured from the date of receipt of the request in
accordance with Section 2.1.
(b) SFP will, if requested, prior to filing a registration statement or
prospectus or any amendment or supplement thereto, furnish to BNI and each
Underwriter, if any, of the Registrable Securities covered by such registration
statement copies of such registration statement as proposed to be filed, and
thereafter furnish to BNI and such Underwriter, if any, such number of copies
of such registration statement, each amendment and supplement thereto (in each
case including all exhibits thereto and documents incorporated by reference
therein), the prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as BNI or such
Underwriter may reasonably request in order to facilitate the disposition of
the Registrable Securities owned by BNI.
A-II-2
<PAGE>
(c) After the filing of the registration statement, SFP will promptly notify
BNI of any stop order issued or threatened by the SEC and take all reasonable
actions required to prevent the entry of such stop order or to remove it if
entered.
(d) SFP will use its reasonable best efforts to (i) register or qualify the
Registrable Securities under such other securities or blue sky laws of such
jurisdictions in the United States as BNI reasonably (in light of BNI's
intended plan of distribution) requests and (ii) cause such Registrable
Securities to be registered with or approved by such other governmental
agencies or authorities in the United States as may be necessary by virtue of
the business and operations of SFP and do any and all other acts and things
that may be reasonably necessary or advisable to enable BNI to consummate the
disposition of the Registrable Securities owned by BNI; provided that SFP will
not be required to (A) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this paragraph (d),
(B) subject itself to taxation in any such jurisdiction or (C) consent to
general service of process in any such jurisdiction.
(e) SFP will immediately notify BNI, at any time when a prospectus relating
thereto is required to be delivered under the 1933 Act, of the occurrence of an
event requiring the preparation of a supplement or amendment to such prospectus
so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus will not contain an 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 and promptly make
available to BNI any such supplement or amendment.
(f) SFP will enter into customary agreements (including an underwriting
agreement in form customary for SFP) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of such
Registrable Securities.
(h) Subject, in the case of BNI, to the Confidentiality Agreement between BNI
and SFP dated as of July 28, 1993 or, in the case of any Underwriter or
Inspector retained by any Underwriter, customary confidentiality obligations,
SFP will make available for inspection by BNI, any Underwriter participating in
any disposition pursuant to such registration statement and any attorney,
accountant or other professional retained by BNI or such Underwriter
(collectively, the "Inspectors"), all financial and other records, pertinent
corporate documents and properties of SFP (collectively, the "Records") as
shall be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause SFP's officers, directors and employees to supply all
information reasonably requested by any Inspectors in connection with such
registration statement.
(i) SFP will furnish to BNI and to each Underwriter, if any, a signed
counterpart, addressed to BNI or such Underwriter, of (i) an opinion or
opinions of counsel to SFP and (ii) a comfort letter or comfort letters from
SFP's independent public accountants, each in form customary in primary
offerings by SFP form and covering such matters of the type customarily covered
by opinions or comfort letters, as the case may be, as BNI or the managing
Underwriter reasonably requests.
(j) SFP will otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
security-holders, as soon as reasonably practicable, its most recent quarterly
earnings statement beginning with the first full quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the 1933 Act and Rule 158 under the 1933 Act.
(k) SFP will use its reasonable best efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar securities
of the same class issued by SFP are then listed.
SFP may require BNI to promptly furnish in writing to SFP such information
regarding the distribution of the Registrable Securities as SFP may from time
to time reasonably request and such other information as may be legally
required in connection with such registration.
A-II-3
<PAGE>
BNI agrees that, upon receipt of any notice from SFP of the happening of any
event of the kind described in Section 3.1(e) hereof, BNI will forthwith
discontinue disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until BNI's receipt of the
copies of the supplemented or amended prospectus contemplated by Section 3.1(e)
hereof, and, if so directed by SFP, BNI will deliver to SFP all copies, other
than permanent file copies then in BNI's possession, of the most recent
prospectus covering such Registrable Securities at the time of receipt of such
notice. In the event SFP shall give such notice, SFP shall extend the period
during which such registration statement shall be maintained effective
(including the period referred to in Section 3.1(a) hereof) by the number of
days during the period from and including the date of the giving of notice
pursuant to Section 3.1(e) hereof to the date when SFP shall make available to
BNI a prospectus supplemented or amended to conform with the requirements of
Section 3.1(e) hereof.
SECTION 3.2. Registration Expenses. In connection with any registration
statement required to be filed hereunder, SFP shall pay the following
registration expenses incurred in connection with the registration hereunder
(the "Registration Expenses"): (i) all registration and filing fees, (ii) fees
and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (iii) printing expenses, (iv)
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), (v) the fees
and expenses incurred in connection with the listing of the Registrable
Securities, (vi) reasonable fees and disbursements of counsel for SFP and
customary fees and expenses for independent certified public accountants
retained by SFP (including the expenses of any comfort letters or costs
associated with the delivery by independent certified public accountants of a
comfort letter or comfort letters requested pursuant to Section 3.1(h) hereof),
and (vii) the reasonable fees and expenses of any special experts retained by
SFP in connection with such registration. SFP shall have no obligation to pay
any underwriting fees, discounts or commissions attributable to the sale of
Registrable Securities, or any out-of-pocket expenses of BNI or its
Underwriters (or the agents who manage their accounts).
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1. Indemnification by SFP. SFP agrees to indemnify and hold
harmless BNI, its officers, directors and agents, and each Person, if any, who
controls BNI within the meaning of Section 15 of the 1933 Act or Section 20 of
the Exchange Act from and against any and all losses, claims, damages and
liabilities caused by any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus relating to
the Registrable Securities (as amended or supplemented if SFP shall have
furnished any amendments or supplements thereto) or any preliminary prospectus,
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information furnished in writing to SFP by BNI or on BNI's
behalf expressly for use therein; provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of BNI, its officers, directors and agents, and each Person, if
any, who controls BNI within the meaning of Section 15 of the 1933 Act or
Section 20 of the Exchange Act if it is determined that it was the
responsibility of BNI to provide such person with a current copy of the
prospectus and such current copy of the prospectus would have cured the defect
giving rise to such loss, claim, damage or liability. SFP also agrees to
indemnify any Underwriters of the Registrable Securities, their officers and
directors and each person who controls such underwriters on substantially the
same basis as that of the indemnification of BNI provided in this Section 4.1.
SECTION 4.2. Indemnification by BNI. BNI agrees to indemnify and hold
harmless SFP, its officers, directors and agents and each Person, if any, who
controls SFP within the meaning of either Section 15 of the 1933 Act or Section
20 of the Exchange Act to the same extent as the foregoing indemnity from
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<PAGE>
SFP to BNI, but only with reference to information relating to BNI furnished in
writing by BNI or on BNI's behalf expressly for use in any registration
statement or prospectus relating to the Registrable Securities, or any
amendment or supplement thereto, or any preliminary prospectus. In case any
action or proceeding shall be brought against SFP or its officers, directors or
agents or any such controlling person, in respect of which indemnity may be
sought against BNI, BNI shall have the rights and duties given to SFP, and SFP
or its officers, directors or agents or such controlling person shall have the
rights and duties given to BNI, by the preceding paragraph. BNI also agrees to
indemnify and hold harmless Underwriters of the Registrable Securities, their
officers and directors and each person who controls such Underwriters on
substantially the same basis as that of the indemnification of SFP provided in
this Section 4.2.
SECTION 4.3. Conduct of Indemnification Proceedings. In case any proceeding
(including any governmental investigation) shall be instituted involving any
person in respect of which indemnity may be sought pursuant to Section 4.1 or
4.2, such person (an "Indemnified Party") shall promptly notify the person
against whom such indemnity may be sought "Indemnifying Party") in writing and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Party, and
shall assume the payment of all fees and expenses. In any such proceeding, any
Indemnified Party shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
unless (i) the Indemnifying Party and the Indemnified Party shall have mutually
agreed to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the Indemnified Party
and the Indemnifying Party and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them. It is understood that the Indemnifying Party shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the reasonable fees and expenses of more than one separate firm
of attorneys (in addition to any local counsel) at any time for all such
Indemnified Parties, and that all such fees and expenses shall be reimbursed as
they are incurred. In the case of any such separate firm for the Indemnified
Parties, such firm shall be designated in writing by the Indemnified Parties.
The Indemnifying Party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent, or if
there be a final judgment for the plaintiff, the Indemnifying Party shall
indemnify and hold harmless such Indemnified Parties from and against any loss
or liability (to the extent stated above) by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the indemnified
party for fees and expenses of counsel as contemplated by the third sentence of
this paragraph, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 business days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such request
prior to the date of such settlement. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is
or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability arising out of such
proceeding.
SECTION 4.4. Contribution. If the indemnification provided for in this
Article 4 is unavailable to the Indemnified Parties in respect of any losses,
claims, damages or liabilities referred to herein, then each such Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such losses,
claims, damages or liabilities (i) as between SFP and BNI on the one hand and
the Underwriters on the other, in such proportion as is appropriate to reflect
the relative benefits received by SFP and BNI on the one hand and the
Underwriters on the other from the offering of the securities, or if such
allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits but also the relative
fault of SFP and BNI on the one hand and of the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations and (ii) as between SFP on the one hand and BNI on the other, in
such proportion as is appropriate to reflect the relative
A-II-5
<PAGE>
fault of SFP and of BNI in connection with such statements or omissions, as
well as any other relevant equitable considerations. The relative benefits
received by SFP and BNI on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total proceeds from the offering
(net of underwriting discounts and commissions but before deducting expenses)
received by SFP and BNI bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the prospectus. The relative fault of SFP and BNI on
the one hand and of the Underwriters on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by SFP and BNI or by the
Underwriters. The relative fault of SFP on the one hand and of BNI on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by such party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
SFP and BNI agree that it would not be just and equitable if contribution
pursuant to this Section 4.4 were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Party as a result of the losses, claims,
damages or liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 4.4, no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the
securities underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission, and BNI shall not be required to contribute any
amount in excess of the amount by which the total price at which BNI's
securities were offered to the public exceeds the amount of any damages which
BNI has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Participation in Underwritten Registrations. No Person may
participate in any underwritten registration filed pursuant to Section 2.1
hereunder unless such Person (a) agrees to sell such Person's securities on the
basis provided in any underwriting arrangements approved by the Persons
entitled hereunder to approve such arrangements and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents reasonably required under the terms of such underwriting
arrangements and these registration rights.
SECTION 5.2. Rule 144. SFP covenants that it will file any reports required
to be filed by it under the Exchange Act and that it will take such further
action as BNI may reasonably request, all to the extent required from time to
time to enable BNI to sell Registrable Securities without registration under
the 1933 Act within the limitation of the exemptions provided by (a) Rule 144
under the 1933 Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC. Upon the request of
BNI, SFP will deliver to BNI a written statement as to whether it has complied
with such requirements.
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<PAGE>
SECTION 5.3. Holdback Agreements. (a) Restrictions on Public Sale by BNI. To
the extent not inconsistent with applicable law, when BNI's securities are
included in a registration statement, BNI agrees not to effect any public sale
or distribution of SFP Common Stock, or any securities convertible into or
exchangeable or exercisable for such securities, including a sale pursuant to
Rule 144 under the 1933 Act, during the 14 days prior to, and during the 90-day
period beginning on, the effective date of such registration statement (except
as part of such registration), if and to the extent requested by SFP in the
case of a non-underwritten public offering or if and to the extent requested by
the managing Underwriter or Underwriters in the case of an underwritten public
offering.
(b) Restrictions on Public Sale by SFP and Others. SFP agrees not to effect
any public sale or distribution of any securities of the class being registered
in accordance with Section 2.1 hereof, or any securities convertible into or
exchangeable or exercisable for such securities, during the 14 days prior to,
and during the 90-day period beginning on, the effective date of any
registration statement (except as part of such registration statement where BNI
consents) or the commencement of a public distribution of Registrable
Securities, including a sale pursuant to Rule 144 under the 1933 Act (except as
part of any such registration, if permitted); provided, however, that the
provisions of this paragraph (b) shall not prevent the conversion or exchange
of any securities pursuant to their terms into or for other securities or sales
or distributions pursuant to any dividend or interest reinvestment plan or
director or employer compensation plan.
A-II-7
<PAGE>
APPENDIX B
LETTER AGREEMENT
BETWEEN
BURLINGTON NORTHERN INC.
AND
SANTA FE PACIFIC CORPORATION
<PAGE>
LOGO
BURLINGTON NORTHERN INC.
3800 CONTINENTAL PLAZA
777 MAIN STREET
FORT WORTH, TEXAS 76102-5384
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>
Lazard Freres & Co.
One Rockefeller Plaza
New York, N.Y. 10020
----
Telephone (212) 632-6000
Facsimile (212) 632-6060
New York
January 13, 1995
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 and the Amendment thereto dated as of December 18, 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 .40 of a share of common stock, no par value (the "BN Common
Stock"), of BN (the "Exchange Ratio"). The Agreement also requires that
promptly after the execution of the Amendment dated as of December 18, 1994,
each of SF and BN will commence tender offers (the "Tender Offers") at $20 per
share for an aggregate of 63 million of the outstanding shares of SF Common
Stock, with SF tendering for 38 million such shares and BN tendering for 25
million such shares (the "BN Tender Offer"). The Tender Offers are being made
pursuant to an Offer to Purchase dated December 23, 1994 (the "Offer to
Purchase"). We understand that the closing of the Tender Offers by BN and SF
are conditioned on BN's and SF's stockholders approval of the Merger. The
terms and conditions of the Merger are more fully set forth in the Agreement
and the terms and conditions of the Tender Offers are more fully set forth in
the Offer to Purchase.
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 and the
consideration to be paid in the BN Tender Offer, when taken as a whole.
Lazard Freres & Co. has acted as financial advisor to BN in connection with
this transaction (including acting as the dealer manager in the BN Tender
Offer) and will receive a fee for our services, a substantial portion of which
is contingent upon the closing of the transaction. In connection with this
opinion, we have:
(i) reviewed the terms and conditions of the Agreement, of the Offer to
Purchase and the supplement thereto;
(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, June 30 and September 30, 1994 (and any amendments
thereto), Current Reports on Form 8-K of BN dated June 29, October 6,
October 26, November 18 and December 18, 1994 and Current Reports on Form
8-K of SF dated June 29, August 3, October 5, October 19, October 28,
November 2 and November 28, 1994 (and any amendments thereto);
C-1
<PAGE>
(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;
(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 Tender Offers and
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 October 28,
1994 and 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 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
and the consideration to be paid by BN in the BN Tender Offer, when taken as a
whole, 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.
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<PAGE>
APPENDIX D
OPINION OF GOLDMAN, SACHS & CO.
<PAGE>
Goldman, Sachs & Co. 85 Broad Street New York, New York 10004
Tel: 212-902-1000
Goldman
Sachs
PERSONAL AND CONFIDENTIAL
January 13, 1995
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 Aggregate
Consideration (as defined below) to be received pursuant to the Agreement and
Plan of Merger, dated as of June 29, 1994, as amended to January 13, 1995,
among Burlington Northern Inc. ("BNI") and the Company (the "Agreement") in
connection with the merger of the Company with and into BNI (the "Merger").
The Agreement provides for a joint tender offer (the "Joint Tender Offer")
pursuant to which the Company and BNI will pay $20 per share for an aggregate
of 63 million shares of Common Stock. The Agreement further provides that
following completion of the Joint Tender Offer and the appropriate regulatory
approvals, the Company will be merged with and into BNI and each outstanding
Share (other than Shares already owned by BNI) will be exchanged for 0.40
shares of common stock, with no par value, of Burlington Northern Inc. ("BNI
Common Stock"). The aggregate of the cash and stock consideration to be
received by all of the holders of outstanding shares of Common Stock of the
Company pursuant to the Joint Tender Offer and Merger is herein referred to as
the "Aggregate Consideration".
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, having acted as co-managing underwriter of public offerings of 8
3/8% Notes due 2001 and 8 5/8% Notes due 2004 of the Company in January 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 committed to participate as co-arranger and arranging
agent on the Company's bank financing and co-dealer managers in connection with
the Joint Tender Offer. 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. We have also provided certain
investment banking services to Union Pacific Corporation ("UPC") from time to
time, including having acted as co-managing underwriter of a public offering of
7 7/8% Notes due 2002 in February 1992, a public offering of 8 5/8% Sinking
Fund Debentures due 2022 in May 1992, a public offering of 6% Notes due 2003 in
August 1993, a public offering of 7% Notes due 2000 in June 1994, a public
offering
D-1
<PAGE>
of 6 1/8% Notes due 2004 in January 1994, and as sole managing underwriter of a
public offering of 6.12% Equipment Trust Certificates due February 1, 2004 in
January 1994.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Offer to Purchase dated December 23, 1994 of SFP and BNI; the
Joint Proxy Statement/Prospectus dated October 12, 1994, as amended and
supplemented to the date hereof; 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 reviewed the Proxy
Statement, dated October 28, 1994, as amended and supplemented to the date
hereof, of UPC, which solicits proxies in opposition to the Merger and the
Offer to Purchase, dated November 9, 1994 of UPC, as amended and supplemented
to the date hereof, which sets forth the proposal of UPC to acquire the
outstanding shares of Common Stock of the Company by means of a cash tender
offer and merger (the "UPC Proposal"). 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.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes for 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
transaction will receive regulatory approval in the manner contemplated by the
Company.
Management of the Company has advised us that in its opinion there are
significant contingencies associated with 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 whether or under what
circumstances regulatory authorities would permit a combination of the Company
and UPC. We have assumed with your consent that this advice was correct. We
believe that the effect upon the common stock of UPC resulting from the failure
to consummate the combination of the Company and UPC or from the conditions
which UPC may be required to accept in order to consummate such a combination
is uncertain. This uncertainty limits our ability to compare the aggregate
consideration to be received by the holders of the Common Stock of the Company
pursuant to the UPC Proposal with the Aggregate Consideration to be received
pursuant to the Joint Tender Offer and the Merger.
Based upon and subject to the foregoing and based upon such other matters as we
considered relevant, it is our opinion that as of the date hereof the Aggregate
Consideration to be received by all of the holders of
the outstanding shares of Common Stock of the Company pursuant to the Joint
Tender Offer and the Merger, considered as a unitary transaction, is fair to
such stockholders.
Very truly yours,
/s/ Goldman, Sachs & Co.
Goldman, Sachs & Co.
D-2
<PAGE>
SANTA FE
PACIFIC
CORPORATION
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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
ARLINGTON PARK HILTON CONFERENCE
CENTER
3400 WEST EUCLID AVENUE
ARLINGTON HEIGHTS, ILLINOIS
FEBRUARY 7, 1995
3:00 P.M. CHICAGO TIME
