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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-8159
BURLINGTON NORTHERN INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 41-1400580
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
3800 CONTINENTAL PLAZA
777 MAIN ST.
FORT WORTH, TEXAS 76102-5384
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(817) 333-2000
(REGISTRANT'S TELEPHONE NUMBER)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON
----------- WHICH REGISTERED
----------------
COMMON STOCK, WITHOUT PAR VALUE NEW YORK, CHICAGO AND PACIFIC STOCK
EXCHANGES
6 1/4% CUMULATIVE CONVERTIBLE PREFERRED NEW YORK, CHICAGO AND PACIFIC STOCK
STOCK, SERIES A, NO PAR VALUE EXCHANGES
PREFERRED STOCK PURCHASE RIGHTS NEW YORK, CHICAGO AND PACIFIC STOCK
EXCHANGES
9% DEBENTURES, DUE 2016 NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the common stock on January
31, 1995 was approximately $4,206,401,640.
As of January 31, 1995, the registrant had outstanding 89,226,316 shares of
common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Burlington Northern Inc.'s definitive proxy statement, to be filed not later
than 120 days after the end of the fiscal year covered by this report, is
incorporated by reference into Part III.
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PAGE 1 OF 313 TOTAL PAGES.
EXHIBIT INDEX IS LOCATED ON PAGE 65.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<C> <C> <S> <C>
Part I 1. Business................................................. 1
2. Properties............................................... 1
3. Legal Proceedings........................................ 7
4. Submission of Matters to a Vote of Security Holders...... 11
Executive Officers of the Registrant and Principal
Subsidiary.............................................. 11
Market for Registrant's Common Equity and Related
Part II 5. Stockholder Matters..................................... 15
6. Selected Financial Data.................................. 15
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 16
8. Financial Statements and Supplementary Data.............. 30
9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure..................... 56
Part III 10. Directors and Executive Officers of the Registrant....... 56
11. Executive Compensation................................... 56
Security Ownership of Certain Beneficial Owners and
12. Management.............................................. 56
13. Certain Relationships and Related Transactions........... 56
Exhibits, Financial Statement Schedules and Reports on
Part IV 14. Form 8-K................................................ 56
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
AND
ITEM 2. PROPERTIES
Burlington Northern Inc. (BNI) was incorporated in Delaware in 1981 as part
of a holding company reorganization. BNI and its majority-owned subsidiaries
(collectively BN) are primarily engaged in the rail transportation business.
The principal subsidiary is Burlington Northern Railroad Company (Railroad). BN
Leasing Corporation, a wholly owned subsidiary of BNI, was formed during 1989
to acquire railroad rolling stock and other equipment necessary for the
transportation and other business affairs of BN.
RAILROAD TRANSPORTATION
Railroad operates the largest railroad system in the United States based on
miles of road and second main track, with approximately 24,300 total miles at
December 31, 1994. The principal cities served include Billings, Birmingham,
Cheyenne, Chicago, Denver, Des Moines, Duluth/Superior, Fargo/Moorhead, Fort
Worth/Dallas, Galveston, Houston, Kansas City, Lincoln, Memphis, Mobile, Omaha,
Pensacola, Portland, St. Louis, St. Paul/Minneapolis, Seattle, Spokane,
Springfield (Missouri), Tacoma, Tulsa, Wichita, Vancouver (British Columbia)
and Winnipeg (Manitoba).
The following table presents BN's revenue information by Railroad business
unit and includes certain reclassifications of prior year information to
conform to current year presentation. Percent of revenues was calculated before
consideration of shortline payments and other miscellaneous revenues. The
principal contributors to rail transportation revenues were as follows
(revenues and revenue ton miles in millions, carloadings in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Coal:
Revenues........................................ $ 1,669 $ 1,532 $ 1,520
Percent of revenues............................. 33% 32% 32%
Revenue ton miles............................... 140,934 122,821 117,138
Revenues per revenue ton mile................... 1.18c 1.25c 1.30c
Carloadings..................................... 1,624 1,467 1,448
Agricultural Commodities:
Revenues........................................ $ 830 $ 784 $ 777
Percent of revenues............................. 16% 16% 16%
Revenue ton miles............................... 35,130 35,454 36,831
Revenues per revenue ton mile................... 2.36c 2.21c 2.11c
Carloadings..................................... 436 423 454
Intermodal:
Revenues........................................ $ 772 $ 730 $ 711
Percent of revenues............................. 15% 15% 15%
Revenue ton miles............................... 25,542 23,726 22,749
Revenues per revenue ton mile................... 3.02c 3.08c 3.13c
Carloadings..................................... 1,026 1,003 1,017
Forest Products:
Revenues........................................ $ 498 $ 483 $ 489
Percent of revenues............................. 10% 10% 10%
Revenue ton miles............................... 20,784 19,724 20,030
Revenues per revenue ton mile................... 2.40c 2.45c 2.44c
Carloadings..................................... 284 280 283
</TABLE>
1
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Chemicals:
Revenues........................................... $ 412 $ 406 $ 389
Percent of revenues................................ 8% 8% 8%
Revenue ton miles.................................. 14,853 14,655 14,167
Revenues per revenue ton mile...................... 2.77c 2.77c 2.75c
Carloadings........................................ 291 263 244
Consumer Products:
Revenues........................................... $ 267 $ 257 $ 258
Percent of revenues................................ 5% 5% 5%
Revenue ton miles.................................. 9,477 9,049 9,098
Revenues per revenue ton mile...................... 2.82c 2.84c 2.84c
Carloadings........................................ 150 145 146
Minerals Processors:
Revenues........................................... $ 208 $ 195 $ 180
Percent of revenues................................ 4% 4% 4%
Revenue ton miles.................................. 8,399 7,984 7,409
Revenues per revenue ton mile...................... 2.48c 2.44c 2.43c
Carloadings........................................ 189 179 170
Vehicles & Machinery:
Revenues........................................... $ 190 $ 185 $ 165
Percent of revenues................................ 4% 4% 4%
Revenue ton miles.................................. 2,614 2,386 2,140
Revenues per revenue ton mile...................... 7.27c 7.75c 7.71c
Carloadings........................................ 134 122 101
Iron & Steel:
Revenues........................................... $ 175 $ 173 $ 178
Percent of revenues................................ 3% 4% 4%
Revenue ton miles.................................. 8,270 8,189 8,088
Revenues per revenue ton mile...................... 2.12c 2.11c 2.20c
Carloadings........................................ 230 225 244
Aluminum, Nonferrous Metals & Ores:
Revenues........................................... $ 102 $ 103 $ 108
Percent of revenues................................ 2% 2% 2%
Revenue ton miles.................................. 3,851 3,917 4,180
Revenues per revenue ton mile...................... 2.65c 2.63c 2.58c
Carloadings........................................ 65 68 71
</TABLE>
COAL
The transportation of coal is Railroad's largest source of revenues,
accounting for approximately one-third of the total. Based on carloadings and
tons hauled, Railroad is the largest transporter of Western low-sulfur coal in
the United States. Over 90 percent of Railroad's coal traffic originated in the
Powder River Basin of Montana and Wyoming during the three years ended December
31, 1994. These coal shipments were destined for coal-fired electric generating
stations located primarily in the North Central, South Central and Mountain
regions of the United States with smaller quantities exported.
Railroad also handles increasing amounts of low-sulfur coal from the Powder
River Basin for delivery to markets in the eastern and southeastern portion of
the United States. The low-sulfur coal from the Powder River Basin is abundant,
inexpensive to mine and clean-burning. Since the Clean Air Act of 1990 requires
power plants to reduce harmful emissions either by burning coal with a lower
sulfur content or by installing expensive scrubbing units, opportunities for
increased shipments of this low-sulfur coal still exist.
2
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AGRICULTURAL COMMODITIES
Based on carloadings and tons hauled, Railroad is the largest rail
transporter of grain in North America. Railroad's system is strategically
located to serve the Midwest and Great Plains grain producing regions where
Railroad serves most major terminal, storage, feeding and food-processing
locations. Additionally, Railroad has access to major export markets in the
Pacific Northwest, western Great Lakes and Texas Gulf regions.
INTERMODAL
Intermodal transportation consists of hauling freight containers or truck
trailers by a combination of water, rail and motor carriers. The intermodal
business has become highly service-driven, and in some cases motor carriers and
railroads have begun to jointly market intermodal service. Railroad's
intermodal transportation system integrates the movement of approximately 36
daily trains operating between 32 rail hubs and 27 satellite rail hubs
(Railroad-operated marshalling points for trailer/container movements). These
operations are strategically located across Railroad's rail network and also
serve major distribution centers outside BN's system. Strategic alliances have
been formed to enhance Railroad's market access both with other railroads and
with major truck transportation providers.
FOREST PRODUCTS
The Forest Products business unit is primarily comprised of lumber, plywood,
pulpmill feedstock, wood pulp and paper products. These products primarily come
from the Pacific Northwest, upper Midwest and Southeast areas of the United
States.
CHEMICALS
The Chemicals business unit is comprised of fertilizer, petroleum and
chemical commodities as well as Railroad's environmental logistics business.
Primary origin markets for Railroad include the Gulf Coast, the Pacific
Northwest, and various Canadian ports of entry. Environmental logistics is an
area of significant opportunity as municipalities exhaust their traditional
disposal sources and must increasingly transport their waste over longer
distances.
CONSUMER PRODUCTS
Products included in Railroad's Consumer Products business unit represent a
wide variety of commodities. Some of the major products in this group are food
products, beverages, frozen foods, canned foods, appliances and electronics.
Because this business unit handles a wide variety of consumer goods, the
business unit performance typically mirrors the country's economy.
MINERALS PROCESSORS
Commodities in this group include clays, cements, sands and other minerals
and aggregates. This group services both the oil and construction industries.
VEHICLES & MACHINERY
The Vehicles & Machinery business unit is responsible for both domestic and
international vehicle manufacturers as well as an assortment of primary and
secondary markets for heavy machinery and aerospace products. Through the
development and implementation of using containers to move motor vehicles,
Railroad is redefining transit time and ride quality. Heavy machinery includes
primary markets for aircraft, construction, farm and railroad equipment and
secondary markets for used equipment. The business unit is also responsible for
military and other miscellaneous traffic for the United States government.
3
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IRON & STEEL
The Iron & Steel business unit handles virtually all of the commodities
included in or resulting from the production of steel. Taconite, an iron ore
derivative produced in northern Minnesota, scrap steel and coal coke are the
business unit's primary input products, while finished steel products range
from structural beams and steel coils to wire and nails.
ALUMINUM, NONFERROUS METALS & ORES
The Aluminum, Nonferrous Metals & Ores business unit handles alumina and
aluminum products, petroleum coke and a variety of other metals and ores such
as zinc, copper and lead.
OPERATING FACTORS
Certain significant operating statistics were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Carloadings (in thousands)... 4,429 4,175 4,178 4,149 4,335
Freight revenues per carload. $ 1,101 $ 1,099 $ 1,080 $ 1,071 $ 1,052
Revenue ton miles (in
millions)................... 260,574 237,339 232,799 232,441 234,291
Revenues per revenue ton
mile........................ 1.92c 1.98c 1.99c 1.96c 1.99c
Revenue tons per carload..... 86 83 82 82 79
Revenue tons per train....... 3,397 3,315 3,193 3,188 3,141
Freight train miles (in
millions)................... 77 72 73 73 75
Average length of haul
(miles)..................... 793 778 764 770 766
Gross ton miles, excluding
locomotives
(in millions)............... 443,440 409,808 400,917 402,527 409,991
Operating ratio (excluding
the 1991 special charge).... 83% 86% 87% 90% 87%
Operating expense per gross
ton mile (excluding the 1991
special charge)............. .93c .99c 1.01c 1.02c .99c
Gallons of fuel used (in
millions)................... 631 588 560 562 593
Average fuel price per
gallon...................... 58.4c 61.5c 62.2c 65.5c 69.5c
Gross ton miles per gallon of
fuel used................... 703 697 716 716 691
Revenue ton miles per
employee (in thousands)..... 8,485 7,781 7,461 7,317 7,120
Revenues per employee (in
thousands).................. $ 163 $ 154 $ 148 $ 144 $ 142
</TABLE>
PROPERTIES
In 1994, approximately 96 percent of the total ton miles, both revenue and
non-revenue generating, carried by Railroad were handled on its main lines. At
December 31, 1994, approximately 19,140 miles of Railroad's track consisted of
112-lb. per yard or heavier rail, including approximately 10,738 track miles of
132-lb. per yard or heavier rail. Additions and replacements to properties were
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993 1992 1991 1990
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Track miles of rail additions and replacements:
New............................................ 378 387 461 380 301
Used........................................... 253 356 299 281 299
Track miles surfaced or reballasted.............. 8,183 7,854 7,610 7,710 7,119
Ties inserted (in thousands):
Wood........................................... 1,435 1,914 1,684 1,515 1,331
Concrete....................................... 260 195 500 527 691
</TABLE>
4
<PAGE>
EQUIPMENT
BN owned or leased, under both capital and operating leases, with an initial
lease term in excess of one year, the following units of railroad rolling stock
at December 31, 1994:
<TABLE>
<CAPTION>
NUMBER OF UNITS
--------------------
OWNED LEASED TOTAL
------ ------ ------
<S> <C> <C> <C>
Locomotives:
Freight.................................................. 796 1,206 2,002
Passenger................................................ -- -- --
Multi-purpose............................................ 166 40 206
Switching................................................ 194 -- 194
------ ------ ------
Total locomotives...................................... 1,156 1,246 2,402
====== ====== ======
Freight Cars:
Box-general purpose...................................... 238 2,753 2,991
Box-specially equipped................................... 5,253 669 5,922
Gondola.................................................. 5,985 1,357 7,342
Hopper-open top.......................................... 7,863 277 8,140
Hopper-covered........................................... 17,334 14,694 32,028
Refrigerator............................................. 3,293 9 3,302
Flat..................................................... 3,425 833 4,258
Caboose.................................................. 458 -- 458
Other.................................................... 586 -- 586
------ ------ ------
Total freight cars..................................... 44,435 20,592 65,027
====== ====== ======
Commuter passenger cars.................................... -- 141 141
====== ====== ======
</TABLE>
In addition to the owned and leased locomotives identified above, BN operates
197 freight locomotives under power purchase agreements.
The average age of locomotives and freight cars was 15.0 years and 18.6
years, respectively, at December 31, 1994, compared with 14.5 years and 18.6
years, respectively, at December 31, 1993.
The average percentage of BN's locomotives and freight cars awaiting repairs
during 1994 was 7.7 and 3.1, respectively, compared with 7.7 and 3.3,
respectively, in 1993. The average time between locomotive failures was 71.1
days in 1994 compared with 67.9 days in 1993.
In 1993, BN entered into an agreement to acquire 350 alternating current
traction motor locomotives. In December 1994, the number of locomotives to be
acquired under this agreement was increased to 404. BN anticipates reduced
locomotive operating costs as well as an increase in both horsepower and
traction, meaning fewer locomotives will be needed for many freight operations.
As of January 31, 1995, BN had accepted delivery of 147 locomotives and
anticipates deliveries under this agreement of between approximately 60 and 140
each year from 1995 (including January 1995 deliveries) through 1997.
EMPLOYEES
BN employed an average of 30,711 employees in 1994 compared with 30,502 in
1993 and 31,204 in 1992. BN's payroll and employee benefits costs, including
capitalized labor costs, were approximately $2.0 billion for the year ended
December 31, 1994 and $1.9 billion for each of the years ended December 31,
1993 and 1992. Almost 90 percent of BN's employees are covered by collective
bargaining agreements with 14 different labor organizations.
In December 1994, BN reached an agreement with the Railroad Yardmasters
Division (Yardmasters) of the United Transportation Union which is effective
through 1999 with respect to wages, work rules and all
5
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other matters except health and welfare benefits. Any changes negotiated with
the other unions regarding health and welfare benefits on a national basis will
also apply to the BN Yardmasters. Approximately 250 Yardmasters were affected
by this agreement. Also during 1994, agreements were signed with all of the
unions establishing non-contributory 401(k) plans for union employees.
Labor agreements currently in effect for unions other than Yardmasters
include provisions which prohibited the parties from serving notices to change
wages, benefits, rules and working conditions prior to November 1, 1994. The
next wage adjustment stipulated by the existing agreements is scheduled for
July 1995 unless new agreements are reached by the parties prior to that time.
The adjustment called for by the contract is a base wage increase dependent
upon changes in the Consumer Price Index not to exceed three percent. These
cost of living increases may be offset by increases in the cost of BN's payment
rate for health and welfare benefits costs. BN joined with the other railroads
to negotiate with the unions on a multi-employer basis on November 1, 1994. At
that time, all unions were served proposals for productivity improvements as
well as other changes. The unions also served notices on the railroads which
proposed not only increasing wages and benefits but also restoring many of the
restrictive work rules and practices that were modified or eliminated under the
current agreements. A number of the unions are also challenging the railroads'
right to negotiate nationally on a multi-employer basis and the issue is
currently pending in Federal District Court in Washington, D.C. At this time,
negotiations on the proposals by both the railroads and the unions are in
preliminary stages and the ultimate outcome of these negotiations cannot be
predicted.
In July 1993, the American Train Dispatchers Association ratified an April
1993 agreement which will facilitate the consolidation of all dispatching
functions into a centralized train dispatching office in Fort Worth, Texas by
the end of 1995.
COMPETITION
The general environment in which BN operates remains highly competitive.
Depending on the specific market; deregulated motor carriers, other railroads
and river barges exert pressure on various price and service combinations. The
presence of advanced, high service truck lines with expedited delivery,
subsidized infrastructure and minimal empty mileage continues to impact the
market for non-bulk, time sensitive freight. The potential expansion of long
combination vehicles could further encroach upon markets traditionally served
by railroads. In order to remain competitive, BN and other railroads continue
to develop and implement technologically supported operating efficiencies to
improve productivity.
As railroads streamline, rationalize and otherwise enhance their franchises,
competition among rail carriers intensifies. BN's primary rail competitors in
the western region of the United States consist of The Atchison, Topeka & Santa
Fe Railway Company; Chicago & Northwestern Transportation Company (C&NW); CP
Rail System; Southern Pacific Transportation Company; and Union Pacific
Railroad Company (UP Rail).
Coal, one of BN's primary commodities, has experienced significant pressure
on rates due to competition from the joint effort of C&NW/UP Rail and BN's
efforts to penetrate into new markets. In addition to the railroads discussed
above, numerous regional railroads and motor carriers operate in parts of the
same territory served by BN.
ENVIRONMENTAL
BN's operations, as well as those of its competitors, are subject to
extensive federal, state and local environmental regulation. In order to comply
with such regulation and to be consistent with BN's corporate environmental
policy, BN's operating procedures include practices to protect the environment.
Amounts expended relating to such practices are inextricably contained in the
normal day-to-day costs of BN's business operations.
6
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
WHEAT AND BARLEY TRANSPORTATION RATES
In September 1980 a class action lawsuit was filed against Railroad in United
States District Court for the District of Montana (District Court) challenging
the reasonableness of Railroad's export wheat and barley rates. The class
consists of Montana grain producers and elevators. The plaintiffs sought a
finding that Railroad's single car export wheat and barley rates for shipments
moving from Montana to the Pacific Northwest were unreasonably high and
requested damages in the amount of $64 million. In March 1981 the District
Court referred the rate reasonableness issue to the Interstate Commerce
Commission (ICC). Subsequently, the State of Montana filed a complaint at the
ICC challenging Railroad's multiple car rates for Montana wheat and barley
movements occurring after October 1, 1980.
The ICC issued a series of decisions in this case from 1988 to 1991. Under
these decisions, the ICC applied a revenue to variable cost test to the rates
and determined that Railroad owed $9,685,918 in reparations plus interest. In
its last decision, dated November 26, 1991, the ICC found Railroad's total
reparations exposure to be $16,559,012 through July 1, 1991. The ICC also found
that Railroad's current rates were below a reasonable maximum and vacated its
earlier rate prescription order.
Railroad appealed to the United States Court of Appeals for the District of
Columbia Circuit (D.C. Circuit) those portions of the ICC's decisions
concerning the post-October 1, 1980 rate levels. Railroad's primary contention
on appeal was that the ICC erred in using the revenue to variable cost rate
standard to judge the rates instead of Constrained Market Pricing/Stand Alone
Cost principles. The limited portions of decisions that cover pre-October 1,
1980 rates were appealed to the Montana District Court.
On March 24, 1992, the Montana District Court dismissed plaintiffs' case as
to all aspects other than those relating to pre-October 1, 1980 rates. On
February 9, 1993, the D.C. Circuit served its decision regarding the appeal of
the several ICC decisions in this case. The Court held that the ICC did not
adequately justify its use of the revenue to variable cost standard as Railroad
had argued and remanded the case to the ICC for further administrative
proceedings.
On July 22, 1993, the ICC served an order in response to the D.C. Circuit's
February 9, 1993 decision. In its order, the ICC stated it would use the
Constrained Market Pricing/Stand Alone Cost Standards in assessing the
reasonableness of Railroad's wheat and barley rates moving from Montana to
Pacific Coast ports from 1978 forward. The ICC assigned the case to the Office
of Hearings to develop a procedural schedule. On October 28, 1994, plaintiffs
filed their opening evidence arguing that the revenue received by Railroad
exceeded the stand alone costs of transporting that traffic and that Railroad's
rates were unreasonably high. The ICC has issued a procedural schedule calling
for the receipt of Railroad's evidence on February 27, 1995. Railroad sought
reconsideration of that schedule and the ICC granted Railroad's request to
extend the filing date until March 29, 1995 in a decision served February 13,
1995. On January 19, 1995, Railroad moved to dismiss the case on the basis that
complainants had failed to state a prima facie case. The ICC denied the motion
on February 13, 1995.
COAL TRANSPORTATION CONTRACT LITIGATION
On April 26, 1991, an action was filed against Railroad in the 102nd Judicial
District Court for Bowie County, Texas seeking a reduction of the
transportation rates required to be paid under two contracts (Southwestern
Electric Power Company v. Burlington Northern Railroad Company, No. D-102-CV-
91-0720). The plaintiff, Southwestern Electric Power Company (SWEPCO), was
challenging the contract rates for transportation of coal to its electric
generating facilities at Cason, Texas and Flint Creek, Arkansas. SWEPCO
contended that productivity gains achieved by Railroad constituted unusual
economic conditions giving rise to a "gross inequity" because Railroad's costs
of providing service have been reduced over the contracts' terms. On August 2,
1994, plaintiff filed an amendment to its complaint to further allege that
Railroad had been unjustly enriched by retaining differences between the rates
actually charged and those that should have been charged. SWEPCO sought both
prospective rate relief and recovery of alleged past overcharges.
7
<PAGE>
Railroad's primary contention was that both parties anticipated productivity
gains in the rail industry when negotiating the contracts and agreed that
Railroad would retain most of its productivity gains. Railroad further
contended that there was no agreement that transportation rates paid by SWEPCO
would be based on Railroad's costs of providing service.
On November 18, 1994, the jury rendered a verdict denying plaintiff's request
for prospective rate relief and that plaintiff take nothing on its principal
claims of "gross inequity." However, Railroad was assessed damages
approximating $56 million relating to plaintiff's alternative claim of unjust
enrichment. On January 20, 1995, the trial court rendered a judgment on the
verdict in an amount approximating $74 million, which included attorneys' fees
and interest. The judgment further awarded post judgment interest at 10 percent
per annum and issued declaratory orders pertaining to the two contracts.
Railroad intends to appeal the judgment. In the opinion of outside counsel,
Railroad has a substantial likelihood of prevailing on appeal, although no
assurances can be given due to the uncertainties inherent in litigation.
Railroad plans to file its Notice of Appeal in the case on February 17, 1995
and will post a bond to stay enforcement of the judgment pending prosecution of
all appeals. In the event SWEPCO fails to file a motion for new trial on or
before February 21, 1995, Railroad's appeal will be effective. If such a motion
for new trial were timely filed, the trial court's jurisdiction would extend 75
days from the date of judgment to rule on SWEPCO's motion, and Railroad would
refile its appeal at the appropriate time.
ENVIRONMENTAL PROCEEDING
On May 25, 1994, the United States Department of Justice (Department) filed
suit on behalf of the United States Environmental Protection Agency (EPA)
against Railroad in United States District Court for the Eastern District of
Wisconsin for the release of oil and hazardous substances into navigable waters
of the United States in the course of three derailments. Specifically
referenced are (1) the alleged release of hazardous substances into the Nemadji
River and its shoreline near Superior, Wisconsin, on June 30, 1992, (2) the
alleged release of oil into the North Platte River and its shoreline near
Guernsey, Wyoming, on January 9, 1993, and (3) the alleged release of oil into
a tributary of the Bighorn River near Worland, Wyoming, on May 6, 1993. The
suit claims that pursuant to 33 U.S.C. Section 1321(b)(7), Railroad is liable
to the United States for civil penalties of up to $25,000 per day of violation
or $1,000 per barrel of oil or per reportable quantity of each hazardous
substance discharged. The EPA initially calculated the statutory maximum
penalty associated with these three spills to be $10,137,000. Railroad has
answered the complaint and opposed the penalties sought by the EPA.
On February 13, 1995, Railroad attended a settlement conference with the
Department. The settlement conference was called and conducted by the United
States Judge Magistrate for the Western District of Wisconsin. At the
conference, a settlement in principle was achieved. Pursuant to the compromise,
Railroad will pay $1,500,000 to satisfy all claims by the United States for
fines, penalties, response costs and natural resource damages. Railroad will
also make a $100,000 contribution to a study (jointly approved by Railroad and
the Department) regarding methods or procedures to improve rail safety and
prevent derailments. In return for these payments, the United States will
release Railroad from all claims arising out of the three derailments and
provide Railroad contribution protection against claims by other responsible
parties who may later be pursued by the government for their liability arising
from the derailments.
The settlement is subject to documentation, formal sign-off by various
government officials and court approval. Railroad anticipates that the
settlement will be executed, approved and implemented by March 30, 1995. There
is no reason to believe that formal government and court approval will not be
forthcoming.
MERGER-RELATED LITIGATION
Several complaints have been filed arising out of BNI's proposed merger (the
Merger) with Santa Fe Pacific Corporation (Santa Fe) pursuant to which Santa Fe
would merge with and into BNI, and BNI would be the surviving corporation.
Between June 30, 1994, shortly after announcement of the Merger, and October
14, 1994, twelve purported stockholder class action suits were filed on behalf
of Santa Fe stockholders in the Court of Chancery of the State of Delaware. On
October 14, 1994, plaintiffs filed a class action complaint which consolidated
and superseded all of the pending stockholder complaints (In re Santa Fe
Pacific
8
<PAGE>
Corporation Shareholder Litigation, Consol. C.A. No. 13587). The Consolidated
and Amended Complaint names as defendants Santa Fe, the individual members of
the Board of Directors of Santa Fe, and BNI. Plaintiffs seek certification of a
class action on behalf of stockholders of Santa Fe as of June 30, 1994.
The Consolidated and Amended Complaint, in addition to making allegations
against Santa Fe and Santa Fe's directors, alleges that BNI aided and abetted
Santa Fe's directors in breaches of their fiduciary duties, including their
fiduciary duties of good faith, loyalty, care and disclosure. The Consolidated
and Amended Complaint alleges that BNI aided and abetted various acts or
omissions by Santa Fe's directors in respect of the proposed merger with BNI,
including their allegedly material misrepresentations in and failure to
completely disclose all material information in the joint proxy
statement/prospectus dated October 12, 1994 (the Joint Proxy
Statement/Prospectus).
In the Consolidated and Amended Complaint, plaintiffs ask the court to order
Santa Fe's directors to carry out their fiduciary duties to plaintiffs; enjoin
consummation of the Merger; order the Santa Fe directors to explore alternative
transactions and to negotiate in good faith with all interested persons,
including Union Pacific Corporation (UP); order the Santa Fe directors to
provide access to information concerning Santa Fe or the Merger to any bona
fide bidder, including UP; in the event the Merger is consummated, rescind the
Merger and award rescissory damages; decree that the original merger agreement
between BNI and Santa Fe (the Original Agreement) has an implied right of
termination in response to a superior offer for Santa Fe or, in the
alternative, invalidate the Original Agreement as unlawful for failing to
include such a termination provision; award damages; order an accounting by
defendants of all profits realized by them as a result of these wrongful
actions and to hold these profits in a constructive trust pending the
accounting; and award costs and disbursements including reasonable attorneys'
and experts' fees.
On October 26, 1994, BNI filed a Motion to Dismiss the Consolidated and
Amended Complaint.
On October 6, 1994, UP filed in the Court of Chancery of the State of
Delaware a lawsuit against Santa Fe, Santa Fe's directors and BNI (Union
Pacific Corporation v. Santa Fe Pacific Corporation, C.A. No. 13778). This
complaint alleged that Santa Fe's directors have breached their fiduciary
duties by rejecting UP's merger proposal "out of hand", by refusing to
negotiate with UP, and by threatening to bring suit against UP and its Chief
Executive Officer.
In the October 6, 1994 complaint, UP seeks a declaration that the Original
Agreement permits Santa Fe to terminate the Original Agreement in order to
accept UP's merger proposal or, in the alternative, that the Original Agreement
is invalid and unenforceable for failing to include such a provision;
injunctive relief mandating Santa Fe to negotiate with UP regarding UP's merger
proposal; a declaration that UP has not tortiously interfered with the
contractual or other legal rights of BNI or Santa Fe; an injunction preventing
BNI and Santa Fe from bringing or maintaining any action against UP alleging
that UP has tortiously interfered with defendants' contractual or other legal
rights; and an award of UP's costs in bringing its lawsuit, including
reasonable legal fees.
On October 7, 1994, both UP and the stockholder plaintiffs moved the court
for expedited discovery and an expedited hearing on their motions for a
preliminary injunction on a schedule that would enable the motion to be heard
and decided before Santa Fe's stockholders voted at a stockholders' meeting on
November 18, 1994. On October 18, 1994, after receiving submissions from the
parties, Vice Chancellor Jacobs denied plaintiffs' motion for expedited
proceedings because plaintiffs had "failed to demonstrate a need for this Court
to involve itself in this dispute before Santa Fe's stockholders decide whether
or not to approve the Santa Fe-BNI merger."
On October 19, 1994, UP filed a First Amended and Supplemental Complaint. In
addition to repeating the allegations and requested relief of UP's earlier
Complaint, the First Amended and Supplemental Complaint adds James A. Shattuck
as an additional plaintiff, alleges that Santa Fe has made purportedly false
and misleading statements in the Joint Proxy Statement/Prospectus and elsewhere
regarding the UP
9
<PAGE>
proposal and the Merger, including statements denying that Santa Fe's directors
have the purported right to terminate the Original Agreement in order to enter
into a merger agreement with UP based upon the UP proposal and denying that the
Original Agreement is allegedly void for failing to include such a right,
statements failing to disclose the purportedly preclusive effect to the
Original Agreement on the Santa Fe directors' consideration of other
combination proposals, including the UP proposal, statements allegedly
suggesting that the UP proposal does not represent a fair price, and statements
allegedly misrepresenting UP's objectives in proposing a UP-Santa Fe merger and
the likelihood of obtaining ICC approval of such a merger. The First Amended
and Supplemental Complaint seeks, in addition to the relief requested in UP's
original Complaint, further declaratory and injunctive relief consisting of a
declaration that the Joint Proxy Statement/Prospectus is false and misleading,
an injunction preventing Santa Fe from making any further allegedly materially
false and misleading statements regarding the UP Proposal or the merger and an
injunction against the November 18, 1994 Santa Fe stockholder meeting.
On November 2, 1994, BNI moved pursuant to Chancery Court Rule 12(b)(6) to
dismiss the First Amended and Supplemental Complaint filed by UP and James
Shattuck on the grounds that the First Amended and Supplemental Complaint fails
to state a claim against BNI upon which relief can be granted.
On January 18, 1995, UP filed a Motion for Leave to File a Second Amended and
Supplemental Complaint (the Proposed Complaint). The Proposed Complaint alleges
many of the facts asserted in the First Amended and Supplemental Complaint of
October 19, 1994. In addition, the Proposed Complaint alleges that the last
transaction proposed by UP is superior to that proposed by BNI and that the
Santa Fe Board of Directors has allegedly refused, in breach of its fiduciary
duties, to fairly and equally consider UP's superior bid. The Santa Fe Board of
Directors is instead alleged to have favored BNI through the purported
establishment of an unfair and coercive process that includes 1) the Santa Fe
Board of Director's implementation of a poison pill rights plan; 2) its
approval of a break up fee (including expense reimbursement) that allegedly
favors BNI's proposal; and 3) its alleged public expression of the view that
Santa Fe is not "for sale" despite the protracted bidding contest that is under
way. The Proposed Complaint also alleges that the first step of the BNI-Santa
Fe merger, which involves the purchase of 33 percent of the outstanding stock
of Santa Fe and BNI in exchange for cash, would "irreparably harm Santa Fe's
shareholders by an irreversible restructuring." The Proposed Complaint alleges
1) that the Santa Fe Board of Director defendants breached their fiduciary
duties of loyalty and care; and 2) that BNI aided and abetted the Santa Fe
Board of Directors' breaches of fiduciary duty. In addition to the relief that
UP sought in its October 19, 1994 complaint, the Proposed Complaint seeks,
among other things, 1) an injunction requiring Santa Fe to adopt fair and
equitable procedures for the acceptance and consideration of competing bids for
Santa Fe; 2) an injunction against the operation of the Santa Fe poison pill,
or an injunction requiring the Santa Fe Board of Directors to redeem the poison
pill rights or to otherwise render them inapplicable or unenforceable to the UP
tender offer and merger proposal; and 3) a declaration that the termination fee
and expense reimbursement payments contained in the BNI proposal are invalid
and unenforceable.
On January 26, 1995, the plaintiffs in the Santa Fe stockholder litigation
filed a motion for a preliminary injunction seeking to enjoin Santa Fe's Board
of Directors from taking certain allegedly improper actions, including actions
intended to render Santa Fe's rights plan inapplicable to any proposal to
acquire Santa Fe. The stockholder plaintiffs also filed a motion requesting
expedited proceedings.
On January 26, 1995, UP filed a motion for a preliminary injunction seeking
to require Santa Fe's Board of Directors to render Santa Fe's rights plan
inapplicable to UP's offer to acquire Santa Fe. UP also filed a motion
requesting expedited proceedings.
On January 30, 1995, the Court of Chancery of the State of Delaware issued a
written opinion denying the motions of the plaintiff stockholders and UP for
expedited proceedings and refusing to schedule a hearing on their motions for
preliminary injunctions.
On January 31, 1995, UP withdrew its acquisition proposal for Santa Fe.
The stockholder plaintiffs have indicated that they intend to pursue their
claims. A trial has tentatively been scheduled to commence on June 12, 1995.
BNI believes that these lawsuits are without merit and intends to oppose them
vigorously.
10
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1994, no matters were submitted to a vote of
security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT AND PRINCIPAL SUBSIDIARY
The following information concerning executive officers is as of January 31,
1995:
GERALD GRINSTEIN, 62
Chairman and Chief Executive Officer
Burlington Northern Inc.
July 1991 to Present
Director
October 1985 to Present
Chairman and Chief Executive Officer
Burlington Northern Railroad Company
July 1991 to Present
Chairman, President and Chief Executive Officer, October 1990 to July 1991,
Burlington Northern Inc.; Chairman, President and Chief Executive Officer,
February 1990 to July 1991, Burlington Northern Railroad Company; President and
Chief Executive Officer, January 1989 to October 1990, Burlington Northern
Inc.; Chief Operating Officer, February 1989 to February 1990, Burlington
Northern Railroad Company. Mr. Grinstein is a Director of Delta Air Lines,
Inc., Browning Ferris Industries, Inc., Seafirst Corporation and Sunstrand
Corporation.
DAVID C. ANDERSON, 53
Executive Vice President, Chief Financial Officer and Chief Accounting
Officer
Burlington Northern Inc.
October 1991 to Present
Executive Vice President, Chief Financial Officer
Burlington Northern Railroad Company
October 1991 to Present
Senior Vice President and Chief Financial Officer, July 1983 to September
1991, Federal Express Corporation. Mr. Anderson is a Director of Concord EFS,
Inc.
JOHN Q. ANDERSON, 43
Executive Vice President, Marketing and Sales
Burlington Northern Railroad Company
February 1990 to Present
Principal, January 1982 to January 1990, McKinsey & Company, Inc.
DOUGLAS J. BABB, 42
Vice President and General Counsel
Burlington Northern Railroad Company
December 1986 to Present
EDMUND W. BURKE, 46
Executive Vice President, Law and Secretary
Burlington Northern Inc.
August 1989 to Present
Executive Vice President, Law and Government Affairs
Burlington Northern Railroad Company
February 1990 to Present
Executive Vice President, Law and Government Affairs and Secretary, September
1989 to February 1990, Burlington Northern Railroad Company.
11
<PAGE>
MARK S. CANE, 39
Vice President, Intermodal
Burlington Northern Railroad Company
September 1992 to Present
Vice President, Equipment Management, March 1991 to September 1992; Vice
President, Service Design, December 1989 to March 1991, Burlington Northern
Railroad Company.
JOHN T. CHAIN, JR., 60
Executive Vice President, Safety and Corporate Support
Burlington Northern Railroad Company
March 1993 to Present
Executive Vice President, Operations, February 1991 to February 1993,
Burlington Northern Railroad Company. Commander in Chief of the Strategic Air
Command, June 1986 to January 1991. Mr. Chain is a Director of Kemper
Corporation, Northrop Corporation and R.J.R. Nabisco.
JAMES B. DAGNON, 55
Executive Vice President, Employee Relations
Burlington Northern Inc.
January 1992 to Present
Executive Vice President, Employee Relations
Burlington Northern Railroad Company
January 1992 to Present
Senior Vice President, Human Resources, August 1991 to January 1992; Senior
Vice President, Labor Relations, June 1987 to August 1991, Burlington Northern
Railroad Company.
DONALD W. HENDERSON, 56
Vice President, Network Operations
Burlington Northern Railroad Company
June 1994 to Present
General Manager Central Corridor Operations, May 1993 to June 1994; General
Manager Southern Corridor Operations, August 1992 to May 1993; Vice President
Technology, Engineering & Maintenance, February 1987 to August 1992, Burlington
Northern Railroad Company.
DAVID L. HULL, 47
Vice President, Revenue Management
Burlington Northern Railroad Company
April 1992 to Present
Vice President, Financial Planning, December 1989 to April 1992, Burlington
Northern Railroad Company.
FRANCIS T. KELLY, 47
Securities and Finance Counsel
Burlington Northern Railroad Company
November 1989 to Present
RICHARD L. LEWIS, 54
Senior Vice President, Corporate Development
Burlington Northern Railroad Company
February 1993 to Present
Vice President, Strategic Planning, February 1991 to January 1993; Vice
President, Freight Equipment and Strategic Planning, January 1989 to January
1991, Burlington Northern Railroad Company.
12
<PAGE>
ROBERT F. MCKENNEY, 41
Senior Vice President and Treasurer
Burlington Northern Inc.
October 1991 to Present
Senior Vice President and Treasurer
Burlington Northern Railroad Company
October 1991 to Present
Senior Vice President, Treasurer, Acting Chief Financial Officer and Acting
Chief Accounting Officer, April 1991 to October 1991, Burlington Northern Inc.;
Senior Vice President, Treasurer and Acting Chief Financial Officer, April 1991
to October 1991, Burlington Northern Railroad Company; Vice President and
Treasurer, October 1989 to April 1991, Burlington Northern Inc. and Burlington
Northern Railroad Company.
RONALD A. RITTENMEYER, 47
Executive Vice President, Merchandise Business
Burlington Northern Railroad Company
June 1994 to Present
Vice President, Operations, December 1989 to May 1994, Frito-Lay Unit of
PepsiCo, Inc.
HERBERT D. ROBINSON, 42
Vice President, Network Design
Burlington Northern Railroad Company
June 1994 to Present
Vice President Network Planning and Control, September 1992 to June 1994;
Assistant Vice President Network Planning, December 1990 to September 1992;
General Manager, September 1988 to December 1990, Burlington Northern Railroad
Company.
RICHARD A. RUSSACK, 56
Vice President, Communications
Burlington Northern Railroad Company
October 1991 to Present
Managing Director, October 1989 to September 1991, Ogilvy, Adams & Rinehart,
Inc.
DON S. SNYDER, 46
Vice President, Controller and
Chief Accounting Officer
Burlington Northern Railroad Company
April 1990 to Present
Vice President, Controller, December 1987 to March 1990, Burlington Northern
Railroad Company.
GREGORY T. SWIENTON, 45
Executive Vice President, Intermodal Business
Burlington Northern Railroad Company
June 1994 to Present
Executive Director-Europe and Africa (Brussels), January 1991 to June 1994.
DHL Worldwide Express, Regional Managing Director-Continental Europe
(Brussels), January 1988 to December 1990.
ALLAN B. SWIFT, 59
Vice President, Government Affairs
Burlington Northern Railroad Company
January 1995 to Present
U.S. Congressman for the 20th District, Washington State, January 1978 to
December 1994.
13
<PAGE>
PHILIP F. WEAVER, 54
Vice President, Agricultural Commodities
Burlington Northern Railroad Company
July 1990 to Present
Acting Assistant Vice President, Marketing Resources, December 1989 to July
1990; Assistant Vice President Agricultural Products, August 1987 to July 1990,
Burlington Northern Railroad Company.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
BNI's common stock is traded on the New York, Chicago and Pacific Stock
Exchanges. At January 31, 1995, the number of common stockholders of record was
32,064. Information on quarterly dividends and common stock prices is shown on
page 55.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data shown below should be read in conjunction with
the consolidated financial statements and related notes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
For the year:
Revenues.................. $ 4,995 $ 4,699 $ 4,630 $ 4,559 $ 4,674
Special charge (1)........ -- -- -- (708) --
Operating income (loss)... 853 661 597 (239) 595
Income (loss) before
extraordinary items and
cumulative effect of
changes in accounting
methods.................. 426 296 299 (306) 222
Net income (loss)
(2)(3)(4)(5)............. $ 416 $ 296 $ 278 $ (320) $ 236
Earnings (loss) available
for common stockholders.. $ 394 $ 274 $ 275 $ (321) $ 235
Primary earnings (loss)
per common share:
Before extraordinary
items and cumulative
effect of changes in
accounting methods..... $ 4.48 $ 3.06 $ 3.35 $ (3.96) $ 2.89
Primary earnings (loss)
per common share
(2)(3)(4).............. $ 4.37 $ 3.06 $ 3.11 $ (4.14) $ 3.07
Shares used in
computation (in
thousands) (6)......... 90,187 89,672 88,617 77,462 76,624
Fully diluted earnings
(loss) per common share:
(7)
Before extraordinary
items and cumulative
effect of changes in
accounting methods..... $ 4.38 $ 3.04 $ 3.34 $ (3.96) $ 2.89
Fully diluted earnings
(loss) per common share
(2)(3)(4).............. $ 4.27 $ 3.04 $ 3.10 $ (4.14) $ 3.07
Shares used in
computation (in
thousands) (6)......... 97,528 97,189 89,492 77,462 76,624
Dividends declared per
common share............. $ 1.20 $ 1.20 $ 1.20 $ 1.20 $ 1.20
At year end:
Total assets (8).......... $ 7,592 $ 7,045 $ 6,563 $ 6,324 $ 6,061
Long-term debt, including
current portion and
commercial paper......... 1,819 1,737 1,567 1,982 2,133
Redeemable preferred
stock.................... -- -- 9 11 12
Stockholders' equity...... 2,237 1,919 1,728 1,202 1,241
Other:
Operating ratio (9)....... 83% 86% 87% 90% 87%
Total debt to total
capital, excluding
redeemable preferred
stock.................... 45% 48% 48% 62% 63%
Return on average
stockholders' equity
(10)..................... 21% 16% 22% 10% 19%
</TABLE>
15
<PAGE>
- --------
(1) The 1991 pre-tax special charge related to: (i) restructuring costs for
reducing surplus crew positions and a management separation pay program,
(ii) increases in estimated personal injury costs and (iii) increases in
estimated environmental clean-up costs.
(2) During 1991, BN extinguished debt through an early redemption resulting in
an extraordinary loss, net of income taxes, of $14 million, or $.18 per
common share. During 1990, BN extinguished debt through note exchange
agreements and the purchase of certain debentures. The net income for the
year ended December 31, 1990 included a resulting extraordinary gain, net
of income taxes, of $14 million, or $.18 per common share.
(3) Results for 1994 reflected the cumulative effect of the implementation of
the accounting standard for postemployment benefits (Statement of
Financial Accounting Standards (SFAS) No. 112). The cumulative effect of
the adoption of SFAS No. 112 decreased 1994 net income by $10 million, or
$.11 per common share.
(4) Results for 1992 reflected 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.
(5) Results for 1993 included the effects of the Omnibus Budget Reconciliation
Act of 1993 (the Act) which was signed into law in August 1993. The Act
increased the corporate federal income tax rate by one percent, effective
January 1, 1993, which reduced net income by $29 million, or $.32 per
common share, through the date of enactment.
(6) Beginning in November 1991, shares used in the computation of earnings
(loss) per common share reflect a November 1991 public offering of
10,350,000 shares.
(7) Fully diluted earnings (loss) per common share are computed by dividing
net income (loss) by the weighted average number of common shares and
common share equivalents outstanding. The higher of the average or end-of-
period market price is used to determine common share equivalents for
fully diluted earnings per share under the treasury stock method. In
addition, the if-converted method is used for convertible preferred stock
when computing fully diluted earnings per common share.
(8) During 1993, BN adopted SFAS No. 109, "Accounting for Income Taxes." The
effect of the adoption was to increase the current portion of the deferred
income tax asset with a corresponding increase in the noncurrent deferred
income tax liability of $26 million at January 1, 1993.
(9) The 1991 operating ratio excluded the special charge discussed in note (1)
above.
(10) Net income used to calculate return on average stockholders' equity
excludes, in the year of occurrence, the special charge, extraordinary
items and the cumulative effect of accounting changes.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis relates to the financial condition and
results of operations of Burlington Northern Inc. (BNI) and its majority-owned
subsidiaries (collectively BN). The principal subsidiary is Burlington Northern
Railroad Company (Railroad).
CAPITAL RESOURCES AND LIQUIDITY
Cash from operations and other resources
Cash generated from operations is BN's principal source of liquidity and is
primarily used for dividends and capital expenditures. Operating activities
provided cash of $789 million in 1994, compared with $578 million in 1993 and
$680 million in 1992. The increase in cash from operations in 1994 over 1993
was primarily attributable to a $120 million increase in net income and a $68
million decrease in labor-related payments. The decrease in cash from
operations in 1993 compared with 1992 was primarily attributable to an $81
million increase in labor-related payments, a larger decline in the level of
accounts receivables sold
16
<PAGE>
and a one-time settlement agreement payment received in 1992. These items were
partially offset by a decrease in interest paid during 1993. While operating
cash flows for 1994 and 1993 were sufficient to fund dividends, such cash flows
were not sufficient to also completely fund capital expenditures; therefore,
some capital expenditures were financed with debt and capital leases. In 1992,
operating cash flows were sufficient to fund both dividends and capital
expenditures.
In 1993, BN entered into an agreement to acquire 350 alternating current
traction motor locomotives. In December 1994, the number of locomotives to be
acquired under this agreement was increased to 404. As of January 31, 1995, BN
had accepted delivery of 147 locomotives and anticipates deliveries under this
agreement of between approximately 60 and 140 each year from 1995 (including
January 1995 deliveries) through 1997. Future cash from operations during this
strategic investment period may not, at times, be sufficient to completely fund
dividends as well as capital expenditures and strategic investments. Therefore,
these requirements will likely be financed using a combination of sources
including, but not limited to, cash from operations, operating leases, debt
issuances and other miscellaneous sources. Each financing decision will be
based upon the most appropriate alternative available.
Railroad maintains an effective program for the issuance, from time to time,
of commercial paper. These borrowings are supported by Railroad's bank
revolving credit agreements. Outstanding commercial paper balances are
considered as reducing available borrowings under these agreements. The bank
revolving credit agreements allow borrowings of up to $300 million on a short-
term basis and $500 million on a long-term basis. Annual facility fees are
currently 0.125 and 0.1875 percent, respectively, and are subject to change
based upon changes in Railroad's senior secured debt ratings. At Railroad's
option, borrowings can be obtained through either a competitive bid or a
standby procedure. Rates for borrowings under the standby procedure are, at
Railroad's option, based upon the London Interbank Offered Rate (LIBOR) or
certificate of deposit rate, plus in either case, a spread based upon
Railroad's senior secured debt ratings, or an alternate base rate. The
agreements are currently scheduled to expire on May 5, 1995 and May 6, 1999,
respectively. The maturity value of commercial paper outstanding at December
31, 1994 was $91 million, leaving a total of $209 million of the short-term
revolving credit agreement available and $500 million of the long-term
revolving credit agreement available. The maturity value of commercial paper
outstanding at December 31, 1993 was $27 million. BN contemplates renewing the
short-term credit agreement, or alternatively using the long-term agreement to
support commercial paper issuances.
Railroad's agreement to sell, on a revolving basis, an undivided percentage
ownership interest in a designated pool of accounts receivable with limited
recourse expired in December 1994. At December 31, 1993 and 1992, accounts
receivable were net of $100 million and $189 million, respectively,
representing receivables sold.
In November 1994, Railroad entered into a $150 million three year term loan
facility agreement with a group of commercial banks and used the proceeds to
redeem $150 million aggregate principal amount of Railroad Consolidated
Mortgage Bonds, 10 percent, Series J, due November 1, 1997. The three year term
loans bear interest at rates equal to the selected LIBOR, which may vary during
the term of the loans, plus each lenders' interest rate margin.
In May 1994, BNI issued $150 million of 7.4 percent notes due May 15, 1999
and used the proceeds to retire $150 million aggregate principal amount of
Railroad Consolidated Mortgage Bonds, 8 7/8 percent, Series I, due May 30,
1994. The 7.4 percent notes were the initial offering under an effective
registration statement on Form S-3 covering the issuance, from time to time, of
up to $500 million aggregate principal amount of debt securities. This issuance
reduced the amount available for future issuance to $350 million.
In April 1994, Railroad completed a $50 million cross-border leveraged lease
of equipment which is recorded as a capital lease obligation. The transaction
included the issuance of $40 million of equipment secured debt at a weighted
average yield of 7.27 percent and the receipt of an up front cash benefit. The
up front benefit reduces the effective interest rate on the debt to 6.64
percent.
17
<PAGE>
In December 1993, BNI financed equipment through the issuance of $78 million
of 6.32 percent notes due serially to 2012.
In July 1993, BNI issued $150 million of 7 1/2 percent senior unsecured
debentures due 2023 and used the proceeds for general corporate purposes,
including working capital.
In November 1992, BNI completed a public offering of 6,900,000 shares of 6
1/4 percent cumulative convertible preferred stock at $50 per share. Most of
the $337 million net proceeds from the offering were placed in trust to fund
the redemption of BNI's $300 million 9 5/8 percent notes due 1996. Under the
terms of the indenture, the 9 5/8 percent notes were redeemable at par,
commencing February 1, 1993. The notification for redemption of the 9 5/8
percent notes was issued to holders of the notes in December 1992 with a
redemption date of February 1, 1993. The debt was considered to be extinguished
as of December 31, 1992, because BNI had irrevocably placed assets in trust,
prior to such date, to be used solely to satisfy scheduled payments of both the
interest on and principal of the $300 million 9 5/8 percent notes. The
difference between BNI's redemption price and the net carrying value resulted
in an immaterial loss which was recorded in other income (expense), net in
1992.
In July 1992, BNI issued $150 million of 7 percent senior unsecured notes due
2002. The proceeds were used to retire $100 million of 14 3/4 percent notes due
August 15, 1992 and to reduce outstanding commercial paper balances. In
February 1992, BNI issued $200 million of 8 3/4 percent senior unsecured
debentures due 2022 and used the proceeds to reduce outstanding commercial
paper balances.
Capital expenditures and resources
A breakdown of capital expenditures is set forth in the following table (in
millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Road, roadway structures and real estate............... $ 556 $ 459 $ 403
Equipment.............................................. 197 217 84
------- ------- -------
Total capital expenditures........................... $ 753 $ 676 $ 487
======= ======= =======
</TABLE>
The above capital expenditures for 1994 include $50 million of equipment
acquired under a cross-border capital lease arrangement. Capital roadway
expenditures for 1994 increased compared with 1993 primarily due to spending
related to strategic initiatives for transportation network management and
extensive road improvements. Capital equipment expenditures declined when
compared to 1993 primarily as a result of acquiring more equipment through
operating leases rather than through purchases. The average age of locomotives
and freight cars at year-end 1994 was 15.0 years and 18.6 years, respectively,
compared to 14.5 years and 18.6 years, respectively, at year-end 1993.
Equipment expenditures for 1993 increased compared with 1992 primarily as a
result of acquiring freight cars through purchases rather than through
operating leases and increased information system purchases. Capital roadway
expenditures for 1993 increased compared with 1992 primarily due to spending
related to the severe flooding in the Midwest. Spending for signal and
communication projects and new strategic initiatives for transportation network
management further contributed to this increase.
BN projects 1995 capital spending to remain at a level comparable to 1994. As
discussed in "Cash from operations and other resources," BN has a commitment to
acquire 404 alternating current traction motor locomotives through 1997, of
which 147 have been accepted as of January 31, 1995. Also, BN will continue its
implementation of several strategic initiatives for transportation network
management using information systems technology. These commitments will likely
be financed using a combination of sources including, but not limited to, cash
from operations, operating leases, debt issuances and other miscellaneous
sources. Each financing decision will be based upon the most appropriate
alternative available.
18
<PAGE>
In addition to capital expenditures, BN continues to utilize operating leases
to fulfill certain equipment requirements. The method used to finance equipment
will depend upon current market conditions and other factors. In 1994, BN
financed new equipment through long-term operating leases. The majority of
these leases were for the alternating current traction motor locomotives.
During 1993, the long-term operating leases were primarily for intermodal
doublestack cars.
Dividends
Common stock dividends declared were $1.20 per common share annually for
1994, 1993 and 1992. Dividends paid on common and preferred stock during these
periods were $129 million, $125 million and $106 million, respectively. The
increase in 1993 over 1992 dividends was primarily attributable to the issuance
of 6,900,000 shares of 6 1/4 percent cumulative convertible preferred stock in
November 1992. BNI expects to continue its current policy of paying regular
quarterly dividends on its common and preferred stock, however, dividends are
declared by the Board of Directors based on profitability, capital expenditure
requirements, debt service and other factors.
Capital structure
BN's ratio of total debt to total capital, excluding redeemable preferred
stock, was 45 percent at the end of 1994 compared with 48 percent at the end of
both 1993 and 1992.
RESULTS OF OPERATIONS
Year ended December 31, 1994 compared with year ended December 31, 1993
BN had net income of $416 million ($4.37 per common share, primary, on 90.2
million shares and $4.27 per common share, fully diluted, on 97.5 million
shares) for the year ended December 31, 1994 compared with net income of $296
million ($3.06 per common share, primary, on 89.7 million shares and $3.04 per
common share, fully diluted, on 97.2 million shares) for 1993. Results for 1994
included the cumulative effect of the implementation of Statement of Financial
Accounting Standards (SFAS) No. 112 "Employers' Accounting for Postemployment
Benefits" which decreased 1994 net income by $10 million, or $.11 per common
share. Results for 1993 included the effects of severe flooding in the Midwest,
most notably in the third quarter. The floods slowed and often halted
operations, forced extensive detours, increased car, locomotive and crew costs
and resulted in extensive rebuilding of damaged track and bridges. BN estimated
that the third quarter flooding reduced revenues during 1993 by $44 million and
increased operating expenses by $35 million, for a combined reduction of $79
million or $.55 per common share. Net income for 1993 also included the
retroactive effects of the Omnibus Budget Reconciliation Act of 1993 (the Act),
which was passed into law during August 1993. The Act increased the corporate
federal income tax rate by one percent, effective January 1, 1993, which
reduced BN's net income by $29 million, or $.32 per common share, through the
date of enactment. This included the recognition of a one-time, non-cash charge
of $28 million to income tax expense to adjust deferred taxes as of the
enactment date and a charge of $1 million to current income tax expense.
19
<PAGE>
Revenues
The following table presents BN's revenue information by Railroad business
unit for the years ended December 31, 1994 and 1993 and includes certain
reclassifications of 1993 information to conform to the 1994 presentation:
<TABLE>
<CAPTION>
REVENUES PER
REVENUE
REVENUES REVENUE TON MILES TON MILE
-------------- ------------------ -------------
1994 1993 1994 1993 1994 1993
------ ------ -------- -------- ------ ------
(IN MILLIONS) (IN MILLIONS) (IN CENTS)
<S> <C> <C> <C> <C> <C> <C>
Coal......................... $1,669 $1,532 140,934 122,821 1.18 1.25
Agricultural Commodities..... 830 784 35,130 35,454 2.36 2.21
Intermodal................... 772 730 25,542 23,726 3.02 3.08
Forest Products.............. 498 483 20,784 19,724 2.40 2.45
Chemicals.................... 412 406 14,853 14,655 2.77 2.77
Consumer Products............ 267 257 9,477 9,049 2.82 2.84
Minerals Processors.......... 208 195 8,399 7,984 2.48 2.44
Vehicles & Machinery......... 190 185 2,614 2,386 7.27 7.75
Iron & Steel................. 175 173 8,270 8,189 2.12 2.11
Aluminum, Nonferrous Metals &
Ores........................ 102 103 3,851 3,917 2.65 2.63
Shortlines and other......... (128) (149) (9,280) (10,566) -- --
------ ------ -------- --------
Total...................... $4,995 $4,699 260,574 237,339 1.92 1.98
====== ====== ======== ========
</TABLE>
Total revenues for 1994 were $4,995 million compared with revenues of $4,699
million for 1993. The $296 million improvement was primarily attributable to
improvements in Coal ($137 million), Agricultural Commodities ($46 million) and
Intermodal ($42 million) revenues.
Coal revenues improved $137 million during 1994 as a result of increased
traffic. This increase was primarily caused by a rise in the demand for
electricity as well as the need for utilities to replenish coal stockpiles
during the first half of 1994, which were partially depleted during the 1993
summer flooding. BN estimated lost coal revenues of approximately $35 million
during 1993 as a result of this flooding. Partially offsetting the increase in
1994 traffic was a decline in revenues per revenue ton mile. These lower yields
were largely due to the transportation in 1994 of greater volumes above
contractual minimum tonnage requirements on which customers received lower
rates. Continuing competitive pricing pressures in contract renegotiations also
contributed to lower yields.
Revenues from the transportation of Agricultural Commodities during 1994 were
$46 million higher than 1993. This increase was principally caused by a $31
million improvement in barley revenues, higher wheat revenues and improved
feeds and minor oilseeds revenues. Barley revenues benefited from strong
domestic and export demand caused by favorable market conditions during 1994.
Higher wheat revenues resulted from an increase in yield, which is a product of
commodity mix, price and length of haul. Feeds and minor oilseeds revenues were
favorably impacted by increased domestic feed demand. Partially offsetting
these increases was an early 1994 decrease in corn revenues largely
attributable to reduced crop production and lower export demand.
Intermodal revenues increased $42 million during 1994 when compared with
1993. Intermodal-international revenues accounted for the majority of the
increase with a $37 million improvement over 1993 caused by both new business
and growth in existing business. Additionally, BN AMERICA (BNA) revenues
increased due to BN's focus on traffic in its key intermodal lanes which
resulted in improved yields. The traffic increases in BN's key intermodal lanes
more than offset BN's withdrawal from the Texas market in April 1994.
Forest Products, Consumer Products and Minerals Processors revenues for 1994
increased $15 million, $10 million and $13 million, respectively compared with
1993. The improvement in Forest Products revenues
20
<PAGE>
was largely due to increased housing starts during the year, while Consumer
Products revenues were higher as a result of increased export demand. Minerals
Processors revenues rose as a result of stronger clays and aggregates traffic
caused by increases in both domestic and export demands.
Revenues for Chemicals and Vehicles & Machinery increased $6 million and $5
million, respectively. Increased volumes for environmental logistics, chemicals
and fertilizers contributed to higher Chemicals revenues, offset partially by a
decline in petroleum products revenues. The increase in Vehicles & Machinery
revenues resulted from increased volume in automotive-international traffic.
Current year revenues for Iron & Steel and Aluminum, Nonferrous Metals & Ores
were relatively flat compared with 1993.
Shortlines and other, which are a net reduction of revenue, dropped $21
million compared with 1993 primarily due to additional haulage agreement
revenues and increased miscellaneous revenues.
Expenses
Total operating expenses for 1994 were $4,142 million compared with $4,038
million for 1993. However, the operating ratio improved three percentage points
to 83 percent from 86 percent, as increased revenues more than offset increased
operating expenses.
Compensation and benefits expenses for 1994 were $70 million greater than for
the prior year. Higher traffic volumes during 1994 as well as basic wage
increases for union represented employees, three percent effective July 1993
and four percent effective July 1994, caused an increase in excess of $50
million to wages and related payroll taxes. Increased salaries and a higher
pension expense, due to a reduction in the discount rate used in determining
the net pension cost, also contributed to additional compensation and benefits
expenses.
Fuel expenses were $7 million higher during 1994 as compared with 1993. The
average price paid for diesel fuel decreased 3.1 cents per gallon in 1994 to
58.4 cents despite the 4.3 cents per gallon increase in the federal fuel tax,
effective October 1, 1993, enacted as part of the Omnibus Budget Reconciliation
Act of 1993. These price savings were more than offset by a $30 million
increase in consumption due to higher traffic volumes.
Materials expenses were $5 million higher during 1994 as compared with 1993.
Track and locomotive repair materials costs increased due to higher maintenance
levels and a larger fleet size in 1994. Partially offsetting these increases
were greater scrap sales due to the higher maintenance levels and a reduction
in expenditures for safety and protective equipment deployed in 1993.
Equipment rents expenses were $34 million higher than 1993. This increase was
primarily attributable to higher lease expenses due to a larger fleet of leased
rail cars as well as leasing locomotives to meet power requirements. Also
contributing to the increase were payments for failure to achieve service
commitments in the first half of 1994 under various transportation agreements.
These increases were partially offset by decreased car hire expenses in 1994
compared with 1993, due to the adverse effects of the Midwest flooding in 1993.
Purchased services expenses increased $15 million compared with 1993. Higher
intermodal-related costs, due to increased volumes, and higher third party
locomotive maintenance and repair costs were the most significant contributing
factors to this increase. These increases were partially offset by haulage
agreement-related reimbursements from The Atchison, Topeka and Santa Fe Railway
Company and Southern Pacific Transportation Company (SPTC) for operating
services provided by BN.
Depreciation expense for 1994 was $10 million higher than 1993, due to an
increase in the asset base and higher traffic levels.
21
<PAGE>
Other operating expenses were $37 million less when compared with 1993. A $43
million decrease in costs associated with personal injury claims, excluding
wage continuation payments, and the absence in 1994 of costs associated with
the 1993 third quarter floods were partially offset by increases in derailment-
related expenses and property taxes.
Interest expense for the year increased $10 million compared with 1993,
primarily due to a higher average outstanding debt balance in 1994.
Other income (expense), net was $8 million lower in 1994 compared with 1993.
This resulted primarily from losses related to international ventures.
The effective tax rate was 38.7 percent for 1994 compared with 43.2 percent
for 1993. The higher effective tax rate for 1993 resulted from the retroactive
increase, effective January 1, 1993, in tax rates pursuant to the provisions of
the Omnibus Budget Reconciliation Act of 1993 and the related impact on the
deferred tax liability at January 1, 1993.
Year ended December 31, 1993 compared with year ended December 31, 1992
BN had net income of $296 million ($3.06 per common share, primary, on 89.7
million shares and $3.04 per common share, fully diluted, on 97.2 million
shares) for 1993 compared with net income of $278 million ($3.11 per common
share, primary, on 88.6 million shares and $3.10 per common share, fully
diluted, on 89.5 million shares) for 1992. Results for 1993 included the
effects of severe flooding in the Midwest, most notably in the third quarter.
The floods slowed and often halted operations, forced extensive detours,
increased car, locomotive and crew costs and resulted in extensive rebuilding
of damaged track and bridges. BN estimated that the third quarter flooding
reduced revenues during 1993 by $44 million and increased operating expenses by
$35 million, for a combined reduction of $79 million or $.55 per common share.
Net income for 1993 also included the retroactive effects of the Omnibus Budget
Reconciliation Act of 1993 (the Act), which was passed into law during August
1993. The Act increased the corporate federal income tax rate by one percent,
effective January 1, 1993, which reduced BN's net income by $29 million, or
$.32 per common share, through the date of enactment. This included the
recognition of a one-time, non-cash charge of $28 million to income tax expense
to adjust deferred taxes as of the enactment date and a charge of $1 million to
current income tax expense. Net income for 1992 included settlement payments
received for the reimbursement of attorneys' fees and costs incurred by BN in
connection with litigation filed by Energy Transportation Systems, Inc., and
others, and reimbursement of a portion of the amount paid by BN in settlement
of that action. The pre-tax amount recorded in other income (expense), net was
approximately $47 million. Also during 1992, BN's net income included a $21
million, or $.24 per common share, cumulative effect of changes in accounting
methods and a $17 million, or $.19 per common share, favorable tax settlement
with the Internal Revenue Service (IRS).
22
<PAGE>
Revenues
During 1993, BN refined Railroad's customer oriented business units. The
following table presents BN's revenue information by Railroad business unit for
the years ended December 31, 1993 and 1992 and includes certain
reclassifications of prior year information to conform to the current year
presentation:
<TABLE>
<CAPTION>
REVENUES PER
REVENUE
REVENUES REVENUE TON MILES TON MILE
-------------- ------------------ -------------
1993 1992 1993 1992 1993 1992
------ ------ -------- -------- ------ ------
(IN MILLIONS) (IN MILLIONS) (IN CENTS)
<S> <C> <C> <C> <C> <C> <C>
Coal......................... $1,532 $1,520 122,821 117,138 1.25 1.30
Agricultural Commodities..... 784 777 35,454 36,831 2.21 2.11
Intermodal................... 730 711 23,726 22,749 3.08 3.13
Forest Products.............. 483 489 19,724 20,030 2.45 2.44
Chemicals.................... 406 389 14,655 14,167 2.77 2.75
Consumer Products............ 257 258 9,049 9,098 2.84 2.84
Minerals Processors.......... 195 180 7,984 7,409 2.44 2.43
Vehicles & Machinery......... 185 165 2,386 2,140 7.75 7.71
Iron & Steel................. 173 178 8,189 8,088 2.11 2.20
Aluminum, Nonferrous Metals &
Ores........................ 103 108 3,917 4,180 2.63 2.58
Shortlines and other......... (149) (145) (10,566) (9,031) -- --
------ ------ -------- --------
Total...................... $4,699 $4,630 237,339 232,799 1.98 1.99
====== ====== ======== ========
</TABLE>
Total revenues for 1993 were $4,699 million compared with revenues of $4,630
million for 1992. The $69 million improvement was primarily attributable to
improvements in Vehicles & Machinery ($20 million), Intermodal ($19 million),
Chemicals ($17 million) and Minerals Processors ($15 million) revenues.
Coal revenues for 1993 improved $12 million compared with 1992, primarily as
a result of increased traffic caused by a rise in the demand for electricity.
Higher revenues resulting from volume increases were partially offset by lower
yields arising from competitive pricing pressures in contract renegotiations,
traffic mix and other factors. Additionally, BN estimated lost coal revenues of
approximately $35 million for the third quarter of 1993 as a result of flood-
related problems in July and August which interrupted service to several
utilities.
Agricultural Commodities revenues were $7 million higher in 1993 than 1992 as
stronger yields were partially offset by lower volumes. Improved yields
resulted from a traffic mix with a greater portion of wheat traffic in 1993.
Stronger export demand, for high-quality wheat grown in regions served by BN,
contributed to a $74 million improvement in wheat revenues. Reduced crop
quality and production problems, stemming from poor planting and growing
conditions, resulted in lower corn volumes and produced a year-over-year
decline in corn revenues of $45 million.
Intermodal revenues were $19 million higher in 1993 compared with 1992. BNA
revenues in 1993 surpassed revenues in 1992 as a result of continued escalating
demand for containerized transportation and an increased demand for intermodal
service due generally to a shortage in truck capacity. As import traffic
expanded and shifted from ports in California to ports served by BN in the
Pacific Northwest, intermodal-international revenues increased. Domestic
trailer revenues declined as trailer traffic continued to convert to
containers, partially offsetting other Intermodal increases.
Chemicals revenues for 1993 were $17 million greater than in 1992. Increased
plastics shipments for existing customers led improvements in overall Chemicals
revenues. Environmental logistics and fertilizer traffic in 1993 surpassed 1992
levels, also contributing to the higher revenues for Chemicals.
Revenues for Minerals Processors increased in 1993 by $15 million compared
with 1992. As drilling activity increased, export traffic for clays and
aggregates expanded, contributing to greater revenues in 1993
23
<PAGE>
than in 1992. Glass minerals and cement revenues exceeded 1992 levels. This
increase was due to expanded sand traffic, which also benefited from increased
drilling activity, and increased cement traffic, related to certain highway and
airport construction projects.
Vehicles & Machinery revenues were $20 million greater in 1993 than in 1992.
This improvement was due in part to growth in production and sales of light
vehicles which increased domestic traffic volumes. A rise in demand for heavy
machinery also contributed to greater revenues. Yields increased in 1993
primarily as a result of a decline in the average length of haul.
Forest Products, Iron & Steel and Aluminum, Nonferrous Metals & Ores had
lower revenues in 1993 compared with 1992. Forest Products revenues for 1993
were $6 million less than in 1992 because of reduced lumber traffic, resulting
from a weak timber industry market, which was partially offset by increased
particle and construction board traffic. Iron & Steel revenues declined $5
million compared with 1992, primarily due to lower taconite traffic caused by
labor strikes at two large customers. Aluminum, Nonferrous Metals & Ores
revenues decreased by $5 million as aluminum production declined. Revenues for
Consumer Products during 1993 were relatively flat compared with 1992.
Expenses
Total operating expenses for 1993 were $4,038 million compared with $4,033
million for 1992. Despite the adverse effects of the Midwest flooding on
operating expenses during the third quarter of 1993, BN's 1993 operating ratio
improved one percentage point, to 86 percent, compared with 87 percent for
1992.
Overall compensation and benefits expenses for 1993 remained constant with
1992. Cost of living allowances for union employees were $24 million lower
during 1993 compared with 1992 due to timing differences of vesting periods.
Work force reductions and a decrease in railroad unemployment taxes lowered
expenses in 1993. These savings were offset by increases in incentive
compensation, wages and salaries, and higher costs for union health, welfare
and life insurance benefits. Increased wages were partially caused by a
scheduled three percent basic wage increase effective July 1993 and
inefficiencies associated with the Midwest flooding during 1993.
Fuel expenses were $14 million higher during 1993 compared with 1992,
primarily due to weather-related reductions in fuel efficiency. Increased fuel
consumption due to higher traffic volume was substantially offset by the
decrease in the average price paid for diesel fuel, 61.5 cents per gallon in
1993 compared with 62.2 cents per gallon in 1992. Included in the 1993 average
price per gallon is a 4.3 cents per gallon increase in the federal fuel tax
effective October 1, 1993, as part of the Omnibus Budget Reconciliation Act of
1993. This increased tax added approximately $7 million to expense in the
fourth quarter of 1993.
Materials expenses for 1993 increased $5 million compared with 1992. The
combination of flood-related problems and a larger fleet size increased
materials costs for locomotive repairs. Also, safety and protective equipment
expenditures were higher due to the continued emphasis of BN's safety programs.
Offsetting these increases were lower car materials expenses.
Equipment rents expenses were $6 million higher in 1993 than in 1992 due to
increases in both car-hire expenses and locomotive rentals. A reduction in car-
hire expenses during the first half of 1993, due to improved utilization of
equipment, was more than offset by flood-related inefficiencies which increased
car-hire expenses during the second half of 1993.
Purchased services expenses for 1993 were $8 million greater than in 1992.
Contributing to this increase were cost increases for intermodal logistics,
training, moving and derailments. Lower trackage rights credits, which reduces
purchased services expenses, were received from the SPTC as the floods reduced
SPTC volumes over BN track. These increases were partially offset by decreases
in contracted locomotive repairs and consultant fees.
24
<PAGE>
Depreciation expense for 1993 was $14 million greater than in 1992 primarily
due to an increase in the asset base.
The $42 million decrease in other operating expenses compared with 1992 was
primarily due to a $35 million decline in costs associated with personal injury
claims, excluding wage continuation payments. BN has introduced a number of
programs to improve worker safety and counter increasing personal injury costs.
Reductions in bad debt expense and various other costs were partially offset by
losses on property retired due to flood damages and increased moving expenses.
Interest expense declined $41 million in 1993 compared with 1992. This
decline was mainly due to a lower average long-term debt balance outstanding
during 1993 and the refinancing of higher interest rate debt throughout 1992.
Other income (expense), net was $36 million lower in 1993 than in 1992. The
higher 1992 income was due to a first quarter net gain of $47 million for
payments and reimbursements received for the settlement of prior litigation.
This decline was partially offset by an increase in the net gain on property
dispositions in 1993 compared with 1992.
The effective tax rate was 43.2 percent for 1993 compared with 33.8 percent
for 1992. This increase resulted primarily from the retroactive increase,
effective January 1, 1993, in tax rates as part of the Omnibus Budget
Reconciliation Act of 1993. Excluding the retroactive effect of the tax rate
change on deferred tax balances at January 1, 1993, BN's effective tax rate was
38.2 percent for 1993. Additionally, a favorable tax settlement with the IRS
reduced the 1992 effective tax rate by 3.8 percent.
OTHER MATTERS
Casualty and environmental
Personal injury claims, including work-related injuries to employees, are a
significant expense for the railroad industry. Employees of BN are compensated
for work-related injuries according to the provisions of the Federal Employers'
Liability Act (FELA). FELA's system of requiring finding of fault, coupled with
unscheduled awards and reliance on the jury system, resulted in significant
increases in expense. For several years prior to 1992, the trend of significant
increases in BN's personal injury expense reflected the combined effects of
increasing frequency of claims, rising medical expenses, legal judgments and
settlements. To improve worker safety and counter increasing costs, BN
implemented a number of programs to reduce the number of personal injury claims
and the dollar amount of claim settlements, and reverse the trend of rising
expense. If these efforts continue to be successful, future expenses could be
further reduced. The total amount of personal injury costs (including wage
continuation payments) were $170 million, $216 million and $253 million in
1994, 1993 and 1992, respectively. BN is also working with others, through the
Association of American Railroads, to seek changes in legislation to provide a
more equitable program for injury compensation in the railroad industry.
BN's operations, as well as those of its competitors, are subject to
extensive federal, state and local environmental regulation. In order to comply
with such regulation and to be consistent with BN's corporate environmental
policy, BN's operating procedures include practices to protect the environment.
Amounts expended relating to such practices are inextricably contained in the
normal day-to-day costs of BN's business operations.
Under the requirements of the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (Superfund) and certain other laws, BN
is potentially liable for the cost of clean-up of various contaminated sites
identified by the United States Environmental Protection Agency and other
agencies. BN has been notified that it is a potentially responsible party (PRP)
for study and clean-up costs at approximately 75 sites (the PRP sites) and, in
many instances, is one of several PRPs. BN generally
25
<PAGE>
participates in the clean-up of these sites through cost-sharing agreements
with terms that vary from site to site. Costs are typically allocated based on
relative volumetric contribution of material, the amount of time the site was
owned or operated, and/or the portion of the total site owned or operated by
each PRP. However, under Superfund and certain other laws, as a PRP, BN can be
held jointly and severally liable for all environmental costs associated with a
site.
Environmental costs include initial site surveys and environmental studies of
potentially contaminated sites as well as costs for remediation and restoration
of sites determined to be contaminated. Liabilities for environmental clean-up
costs are initially recorded when BN's liability for environmental clean-up is
both probable and a reasonable estimate of associated costs can be made.
Adjustments to initial estimates are recorded as necessary based upon
additional information developed in subsequent periods. BN conducts an ongoing
environmental contingency analysis, which considers a combination of factors,
including independent consulting reports, site visits, legal reviews, analysis
of the likelihood of participation in and ability to pay for clean-up by other
PRPs, and historical trend analyses.
BN is involved in a number of administrative and judicial proceedings and
other mandatory clean-up efforts at approximately 160 sites, including the PRP
sites, for which it is being asked to participate in the clean-up of sites
contaminated by material discharged into the environment. BN paid approximately
$21 million, $27 million and $20 million during 1994, 1993 and 1992,
respectively, relating to mandatory clean-up efforts, including amounts
expended under federal and state voluntary clean-up programs. At this time, BN
expects to spend approximately $110 million in future years to remediate and
restore all known sites, including $105 million pertaining to mandated sites,
of which approximately $70 million relates to the PRP sites. Of the $110
million, BN expects to spend $33 million during 1995. Also, BN anticipates that
the majority of the $110 million will be paid out over a period of less than
seven years; however, some costs will be paid out over a longer period, in some
cases up to 40 years. At December 31, 1994, 23 sites accounted for
approximately $75 million of the accrual and no individual site was considered
to be material.
Liabilities for environmental costs represent BN's best estimates for
remediation and restoration of these sites and include asserted and unasserted
claims. At December 31, 1994, BN had accrued approximately $110 million for
estimated future environmental costs and believes it is reasonably possible,
although not probable, that actual environmental costs could be lower than the
recorded reserve or as much as 50 percent higher. BN's best estimate of
unasserted claims was approximately $5 million as of December 31, 1994.
Although recorded liabilities include BN's best estimates of all costs, without
reduction for anticipated recovery from insurance, BN's total clean-up costs at
these sites cannot be predicted with certainty due to various factors such as
the extent of corrective actions that may be required, evolving environmental
laws and regulations, advances in environmental technology, the extent of other
PRPs' participation in clean-up efforts, developments in ongoing environmental
analyses related to sites determined to be contaminated, and developments in
environmental surveys and studies of potentially contaminated sites. As a
result, charges to income for environmental liabilities could possibly have a
significant effect on results of operations in a particular quarter or fiscal
year as individual site studies and remediation and restoration efforts proceed
or as new sites arise. However, expenditures associated with such liabilities
are typically paid out over a long period, in some cases up to 40 years, and
are therefore not expected to have a material adverse effect on BN's
consolidated financial position, cash flow or liquidity.
Hedging activities
BN has a program to hedge against fluctuations in the price of its diesel
fuel purchases. This program includes forward purchases for delivery at fueling
facilities and exchange-traded petroleum futures contracts. The futures
contracts are accounted for as hedges which are marked to market with any gains
or losses associated with changes in market value being deferred and recognized
as a component of fuel expense in the period in which the designated fuel is
purchased and used. At December 31, 1994, BN had entered into agreements with
fuel suppliers setting the price of fuel to be obtained by taking physical
delivery directly
26
<PAGE>
from such suppliers at a future date. The average price of the approximately 79
million gallons which BN had committed to purchase was approximately 52 cents
per gallon, exclusive of taxes, certain transportation costs and other charges.
In addition, BN held petroleum futures contracts representing approximately 53
million gallons at an average price of approximately 49 cents per gallon. These
contracts have expiration dates ranging from January to October 1995.
BN's current fuel hedging program is designed to cover no more than 50
percent of projected fuel requirements for the subsequent 12-month period;
therefore, hedge positions will not exceed actual fuel requirements. The
current and future fuel delivery prices are monitored continuously and hedge
positions are adjusted accordingly. In order to reduce risk associated with
market movements, fuel hedging transactions do not extend beyond a 12-month
period. BN purchases petroleum futures contracts only through regulated
exchanges (e.g. New York Mercantile Exchange). In order to effectively monitor
the fuel hedging activities, results of the program are summarized and reported
to senior management on a regular basis.
In the second quarter of 1994, BN entered into a three year interest rate
swap on a notional amount of $50 million to hedge against interest rate
exposure on one of its debt issuances. BN's position in this swap was
subsequently closed during the fourth quarter of the year. Under the terms of
this swap, BN received semiannual fixed-rate payments of 6.33 percent from a
AA-rated counterparty and made semiannual floating rate payments tied to the
six-month LIBOR. The swap was accounted for as a hedge with realized gains or
losses being recognized as a component of interest expense. During 1994, the
resulting decrease in interest expense was not significant.
Proposed merger
As of June 29, 1994, BNI and Santa Fe entered into an Agreement and Plan of
Merger (the Original Agreement) pursuant to which, on the terms and conditions
set forth in the Original Agreement, Santa Fe would merge (the Merger) with and
into BNI, and BNI would be the surviving corporation and each share of Santa Fe
common stock would be converted into 0.27 of a share of BNI common stock. The
Original Agreement was subsequently amended as of October 26, 1994, December
18, 1994 and January 24, 1995. The Original Agreement, as so amended, is
referred to as the Merger Agreement. Pursuant to the Merger Agreement, Santa Fe
is to merge with and into BNI with each share of Santa Fe common stock to be
exchanged for not less than 0.40 and not more than 0.4347 shares of BNI common
stock. The exchange ratio will vary based on the number of shares of Santa Fe
common stock repurchased by Santa Fe in the repurchase program referred to
below (the Repurchase Program). Stockholders of BNI and Santa Fe approved the
Merger Agreement at special stockholders' meetings held on February 7, 1995.
Also pursuant to the Merger Agreement, on December 23, 1994, BNI and Santa Fe
commenced tender offers (together, the Tender Offer) to acquire up to 63
million shares of Santa Fe common stock in the aggregate at $20 per share in
cash (with Santa Fe severally obligated to purchase up to 38 million shares of
Santa Fe common stock in the Tender Offer and BNI severally obligated to
purchase up to 25 million shares of Santa Fe common stock in the Tender Offer).
The Tender Offer expired at midnight, Eastern Standard Time, on February 8,
1995, with approximately 112.6 million shares of Santa Fe common stock tendered
(based on a preliminary count). As 63 million shares of Santa Fe common stock
have been accepted for payment by BNI and Santa Fe, tenders by Santa Fe
stockholders are subject to proration. Payment for tendered shares will be made
promptly after the final proration factor is determined, which determination is
expected to be made on or about February 17, 1995. Santa Fe will purchase 38
million shares of Santa Fe common stock in the Tender Offer, and BNI will
purchase the remaining 25 million shares accepted for payment.
On February 6, 1995, BNI entered into a five-year $500 million unsecured bank
credit facility (the Tender Offer Facility), whereby a group of banks will
finance BNI's obligations to purchase shares of Santa Fe common stock in the
Tender Offer. At BNI's option, borrowings can be obtained either through a
competitive bid or a standby procedure. Rates for borrowing under the standby
procedure are, at BNI's
27
<PAGE>
option, based upon the selected term of LIBOR or certificate of deposit rate,
plus in either case, a spread based upon BNI's senior unsecured debt ratings
and the amount borrowed under the Tender Offer Facility, or an alternative base
rate. Santa Fe anticipates borrowing up to $1,110 million (of which
approximately $200 million will be used to replace existing Santa Fe debt) in
connection with the Santa Fe tender offer and related matters from a syndicate
of financial institutions under a new Santa Fe credit agreement. Santa Fe may
also borrow an additional $200 million under its new credit agreement to retire
$200 million of existing Santa Fe debt.
Under the Repurchase Program as set forth in the Merger Agreement, Santa Fe
is permitted, at its discretion and subject to certain financial and
performance criteria of Santa Fe set forth in its credit agreements and the
Merger Agreement (including minimum cash flows, cash capital expenditures and
maximum total debt), to repurchase up to 10 million shares of Santa Fe common
stock prior to consummation of the Merger. The number of shares of BNI common
stock to be issued in the Merger will not be affected by the number of shares
of Santa Fe common stock repurchased by Santa Fe under the Repurchase Program.
Accordingly, the exchange ratio of BNI common shares to be offered for each
share of outstanding Santa Fe common stock upon consummation of the Merger
would be set at not less than 0.40 and not more than 0.4347 shares.
Pursuant to the Merger Agreement, two possible structures are available to
complete the Merger. Using the current structure, each issued and outstanding
share of Santa Fe common stock (other than shares of Santa Fe common stock held
by Santa Fe as treasury stock or shares held by BNI, all of which will be
cancelled) will be exchanged for not less than 0.40 and not more than 0.4347
shares of BNI common stock depending upon the number of additional shares of
Santa Fe common stock repurchased by Santa Fe under the Repurchase Program. BNI
will be the surviving corporation. The Merger Agreement provides that either
BNI or Santa Fe may elect to effect the Merger through the use of a holding
company (the Alternative Transaction Structure) as described below. BNI and
Santa Fe have established BNSF Corporation (BNSF), a Delaware corporation, for
such purpose. Under the Alternative Transaction Structure, BNSF would create
two subsidiaries and one subsidiary would merge into BNI and one into Santa Fe.
Each holder of BNI common stock would receive one share of BNSF common stock
and each holder of Santa Fe common stock, excluding the Santa Fe common stock
acquired by BNI in the Tender Offer and the Santa Fe common stock held by Santa
Fe as treasury stock, would receive not less than 0.40 and not more than 0.4347
shares of BNSF common stock depending upon the number of shares of Santa Fe
common stock repurchased by Santa Fe under the Repurchase Program. The Santa Fe
common stock acquired by BNI in the Tender Offer would remain outstanding and
the Santa Fe common stock held by Santa Fe as treasury stock would be
cancelled. The rights of each stockholder of BNSF would be substantially
identical to the rights of a stockholder of BNI, and the Alternative
Transaction Structure would have the same economic effect with respect to the
stockholders of BNI and Santa Fe as the Merger in its current structure. The
Merger will be accounted for under the purchase method of accounting upon
consummation, and BNI's $500 million investment will be included in the
purchase price.
As is typical in the context of a merger, certain benefits of officers and
employees vested upon approval of the Merger by the stockholders of BNI and
Santa Fe. In particular, on February 7, 1995, restrictions previously placed
upon certain BNI stock grants lapsed and the previously unearned compensation
relating to such restricted stock, included in BNI stockholders' equity, was
charged to compensation and benefits expense. As of December 31, 1994, such
unearned compensation relating to restricted stock was approximately $23
million. BNI expects to incur other costs related to the Merger some of which
will be included in the determination of the total purchase price.
Consummation of the Merger is subject to approval by the Interstate Commerce
Commission (ICC), approval under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, and other customary conditions. In connection with the ICC
proceedings, on January 27, 1995, BNI and Santa Fe requested the ICC to adopt
an expedited procedural schedule for reviewing the merger, based on a timetable
the ICC has recently
28
<PAGE>
proposed to adopt for all major railroad mergers, and on February 3, 1995, the
ICC issued a notice requesting comments on the proposed schedule by February
21, 1995. That schedule calls for the ICC to issue its decision on the merger
within 165 days from the date on which the ICC publishes a notice formally
advising parties that the BNI and Santa Fe stockholders have voted to approve
the transaction. The ICC has not yet issued a notice regarding stockholder
approval nor taken any further action on the proposed schedule.
On October 5, 1994, Union Pacific Corporation (UP) submitted a proposal to
Santa Fe pursuant to which UP would acquire Santa Fe. UP modified its proposal
on several occasions and, on January 31, 1995, withdrew its acquisition
proposal for Santa Fe.
Other
Since 1935, BN has participated in the national railroad retirement system
which is separate from the national social security system. Under this system,
an independent Railroad Retirement Board administers the determination and
payment of benefits to all railroad workers. Both BN and its employees are
subject to a tax on employee earnings which is above the normal social security
rate assessed to those who are employed outside the railroad industry.
In December 1994, BN reached an agreement with the Railroad Yardmasters
Division (Yardmasters) of the United Transportation Union which is effective
through 1999 with respect to wages, work rules and all other matters except
health and welfare benefits. Any changes negotiated with the other unions
regarding health and welfare benefits on a national basis will also apply to
the BN Yardmasters. Approximately 250 Yardmasters were affected by this
agreement. Also during 1994, agreements were signed with all of the unions
establishing non-contributory 401(k) plans for union employees.
Labor agreements currently in effect for unions other than Yardmasters
include provisions which prohibited the parties from serving notices to change
wages, benefits, rules and working conditions prior to
November 1, 1994. The next wage adjustment stipulated by the existing
agreements is scheduled for July 1995 unless new agreements are reached by the
parties prior to that time. The adjustment called for by the contract is a base
wage increase dependent upon changes in the Consumer Price Index not to exceed
three percent. These cost of living increases may be offset by increases in the
cost of BN's payment rate for health and welfare benefits costs. BN joined with
the other railroads to negotiate with the unions on a multi-employer basis on
November 1, 1994. At that time, all unions were served proposals for
productivity improvements as well as other changes. The unions also served
notices on the railroads which proposed not only increasing wages and benefits
but also restoring many of the restrictive work rules and practices that were
modified or eliminated under the current agreements. A number of the unions are
also challenging the railroads' right to negotiate nationally on a multi-
employer basis and the issue is currently pending in Federal District Court in
Washington, D.C. At this time, negotiations on the proposals by both the
railroads and the unions are in preliminary stages and the ultimate outcome of
these negotiations cannot be predicted.
In July 1993, the American Train Dispatchers Association ratified an April
1993 agreement which will facilitate the consolidation of all dispatching
functions into a centralized train dispatching office in Fort Worth, Texas by
the end of 1995.
29
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Revenues............................................. $ 4,995 $ 4,699 $ 4,630
Costs and expenses:
Compensation and benefits.......................... 1,779 1,709 1,709
Fuel............................................... 369 362 348
Materials.......................................... 305 300 295
Equipment rents.................................... 429 395 389
Purchased services................................. 472 457 449
Depreciation....................................... 362 352 338
Other.............................................. 426 463 505
------- ------- -------
Total costs and expenses......................... 4,142 4,038 4,033
------- ------- -------
Operating income..................................... 853 661 597
Interest expense..................................... 155 145 186
Other income (expense), net.......................... (3) 5 41
------- ------- -------
Income before income taxes and cumulative effect of
changes in accounting methods....................... 695 521 452
Income tax expense................................... 269 225 153
------- ------- -------
Income before cumulative effect of changes in
accounting methods.................................. 426 296 299
Cumulative effect of changes in accounting methods,
net of tax.......................................... (10) -- (21)
------- ------- -------
Net income....................................... $ 416 $ 296 $ 278
======= ======= =======
Primary earnings (loss) per common share:
Income before cumulative effect of changes in
accounting methods................................ $ 4.48 $ 3.06 $ 3.35
Cumulative effect of changes in accounting methods. (.11) -- (.24)
------- ------- -------
Primary earnings per common share................ $ 4.37 $ 3.06 $ 3.11
======= ======= =======
Shares used in computation (in thousands).......... 90,187 89,672 88,617
Fully diluted earnings (loss) per common share:
Income before cumulative effect of changes in
accounting methods................................ $ 4.38 $ 3.04 $ 3.34
Cumulative effect of changes in accounting methods. (.11) -- (.24)
------- ------- -------
Fully diluted earnings per common share.......... $ 4.27 $ 3.04 $ 3.10
======= ======= =======
Shares used in computation (in thousands).......... 97,528 97,189 89,492
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1994 1993
------ ------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 27 $ 17
Accounts receivable, net................................. 697 589
Materials and supplies................................... 100 91
Current portion of deferred income taxes................. 156 167
Other current assets..................................... 32 27
------ ------
Total current assets................................... 1,012 891
Property and equipment, net................................ 6,311 5,909
Other assets............................................... 269 245
------ ------
Total assets......................................... $7,592 $7,045
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 534 $ 492
Compensation and benefits payable........................ 264 271
Casualty and environmental reserves...................... 248 286
Taxes payable............................................ 138 123
Accrued interest......................................... 45 44
Other current liabilities................................ 96 102
Commercial paper......................................... 90 26
Current portion of long-term debt........................ 32 185
------ ------
Total current liabilities.............................. 1,447 1,529
Long-term debt............................................. 1,697 1,526
Deferred income taxes...................................... 1,456 1,342
Casualty and environmental reserves........................ 416 426
Other liabilities.......................................... 339 303
------ ------
Total liabilities...................................... 5,355 5,126
------ ------
Stockholders' equity:
Convertible preferred stock, no par value, $345
liquidation value; 25,000,000 shares authorized;
6,900,000 shares issued................................. 337 337
Common stock, without par value, at stated value,
300,000,000 shares authorized; 89,329,259 shares and
88,881,675 shares issued, respectively.................. 1 1
Additional paid-in capital............................... 1,443 1,420
Retained earnings........................................ 485 198
Treasury stock, at cost, 105,438 shares and 85,536
shares, respectively.................................... (5) (4)
Other.................................................... (24) (33)
------ ------
Total stockholders' equity............................. 2,237 1,919
------ ------
Total liabilities and stockholders' equity........... $7,592 $7,045
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 416 $ 296 $ 278
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of changes in accounting
methods......................................... 10 -- 21
Depreciation..................................... 362 352 338
Deferred income taxes............................ 126 156 56
Changes in current assets and liabilities:
Accounts receivable, net....................... (108) (116) (29)
Materials and supplies......................... (13) 6 2
Other current assets........................... (5) (4) 2
Accounts payable............................... 40 19 6
Compensation and benefits payable.............. (3) (47) 14
Casualty and environmental reserves............ (38) 32 2
Taxes payable.................................. 17 -- 28
Accrued interest............................... 1 3 (14)
Other current liabilities...................... (6) (2) 4
Changes in long-term casualty and environmental
reserves........................................ (10) (57) 16
Other, net....................................... -- (60) (44)
------- ------- -------
Net cash provided by operating activities...... 789 578 680
------- ------- -------
Cash flows from investing activities:
Additions to property and equipment................ (698) (676) (487)
Proceeds from property and equipment dispositions.. 45 35 34
Other, net......................................... (28) (18) (17)
------- ------- -------
Net cash used in investing activities.......... (681) (659) (470)
------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of preferred stock.......... -- -- 337
Net increase (decrease) in commercial paper........ 64 26 (353)
Proceeds from issuance of long-term debt........... 310 224 416
Payments on long-term debt......................... (346) (88) (470)
Dividends paid..................................... (129) (125) (106)
Proceeds from exercise of common stock options..... 6 15 11
Redemption of redeemable preferred stock........... -- (9) (2)
Other, net......................................... (3) (2) (2)
------- ------- -------
Net cash provided by (used in) financing
activities.................................... (98) 41 (169)
------- ------- -------
Increase (decrease) in cash and cash
equivalents................................. 10 (40) 41
Cash and cash equivalents:
Beginning of year.................................. 17 57 16
------- ------- -------
End of year........................................ $ 27 $ 17 $ 57
======= ======= =======
Supplemental cash flow information:
Interest paid, net of amounts capitalized.......... $ 149 $ 144 $ 197
Income taxes paid, net of refunds.................. 128 70 76
Supplemental noncash investing and financing
activities information:
Assets financed through a capital lease obligation. $ 50 $ -- $ --
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE YEARS ENDED DECEMBER 31, 1994
-------------------------------------------------------------------------------
OTHER
-----------------------
UNEARNED
CONVERTIBLE ADDITIONAL RETAINED COMPENSATION, MINIMUM
PREFERRED COMMON PAID-IN EARNINGS TREASURY RESTRICTED PENSION
STOCK STOCK CAPITAL (DEFICIT) STOCK STOCK LIABILITY TOTAL
----------- ------ ---------- --------- -------- ------------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1991................... $ -- $ 1 $1,356 $(140) $(1) $(14) $ -- $1,202
Net income.............. 278 278
Dividends:
Common stock, $1.20 per
share................. (105) (105)
Redeemable preferred
stock, $.55 per share. (1) (1)
Convertible preferred
stock, $3.125 per
share................. (2) (2)
Issuance of convertible
preferred stock
(6,900,000 shares)..... 337 337
Adjustments associated
with unearned
compensation,
restricted stock
(214,475 shares)....... 12 (1) (5) 6
Exercise of stock
options and related tax
benefit (438,139
shares)................ 14 14
Equity adjustment from
minimum pension
liability.............. (4) (4)
Other (15,253 shares)... 3 3
---- --- ------ ----- --- ---- ---- ------
Balance at December 31,
1992................... 337 1 1,385 30 (2) (19) (4) 1,728
Net income.............. 296 296
Dividends:
Common stock, $1.20 per
share................. (106) (106)
Convertible preferred
stock, $3.125 per
share................. (22) (22)
Adjustments associated
with unearned
compensation,
restricted stock
(232,354 shares)....... 12 (2) (4) 6
Exercise of stock
options and related tax
benefit (499,779
shares)................ 20 20
Equity adjustment from
minimum pension
liability.............. (6) (6)
Other (40,117 shares)... 3 3
---- --- ------ ----- --- ---- ---- ------
Balance at December 31,
1993................... 337 1 1,420 198 (4) (23) (10) 1,919
Net income.............. 416 416
Dividends:
Common stock, $1.20 per
share................. (107) (107)
Convertible preferred
stock, $3.125 per
share................. (22) (22)
Adjustments associated
with unearned
compensation,
restricted stock
(177,670 shares)....... 12 (1) 11
Exercise of stock
options and related tax
benefit (184,088
shares)................ 8 8
Equity adjustment from
minimum pension
liability.............. 9 9
Other (65,924 shares)... 3 3
---- --- ------ ----- --- ---- ---- ------
Balance at December 31,
1994................... $337 $ 1 $1,443 $ 485 $(5) $(23) $ (1) $2,237
==== === ====== ===== === ==== ==== ======
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of Burlington
Northern Inc. (BNI) and its majority-owned subsidiaries (collectively BN). The
principal subsidiary is Burlington Northern Railroad Company (Railroad). All
significant intercompany accounts and transactions have been eliminated.
Cash and cash equivalents
All short-term investments with original maturities of less than 90 days are
considered cash equivalents for purposes of disclosure in the consolidated
balance sheets and consolidated statements of cash flows. Cash equivalents are
stated at cost, which approximates market value.
Property and equipment
Main line track is depreciated on a group basis using a units-of-production
method. All other property and equipment are depreciated on a straight-line
basis over their estimated useful lives. Interstate Commerce Commission (ICC)
regulations require periodic formal studies of ultimate service lives for all
railroad assets. Resulting service life estimates are subject to review and
approval by the ICC. An annual review of rates and accumulated depreciation is
performed and appropriate adjustments are recorded. Significant premature
retirements, which would include major casualty losses, abandonments, sales and
obsolescence of assets; are recorded as gains or losses at the time of their
occurrence. Expenditures which significantly increase asset values or extend
useful lives are capitalized. Repair and maintenance expenditures are charged
to operating expense when the work is performed. All properties are stated at
cost.
Materials and supplies
Materials and supplies consist mainly of diesel fuel, repair parts for
equipment and other railroad property and are valued at average cost.
Revenue recognition
Transportation revenues are recognized proportionately as a shipment moves
from origin to destination.
Income taxes
Income taxes are provided based on earnings reported for tax return purposes
in addition to a provision for deferred income taxes. The provision for income
taxes includes deferred tax expense determined by the change in the net
deferred tax liability, which is computed based on the differences between the
financial statement and tax basis of assets and liabilities as measured by
applying enacted tax laws and rates. Investment tax credits were accounted for
under the "flow-through" method.
Earnings per common share
Primary earnings per common share are computed by dividing net income, after
deduction of preferred stock dividends, by the weighted average number of
common shares and common share equivalents outstanding. Fully diluted earnings
per common share are computed by dividing net income by the weighted average
number of common shares and common share equivalents outstanding. Common share
equivalents are computed using the treasury stock method. An average market
price is used to determine the number of common share equivalents for primary
earnings per common share. The higher of the average or end-of-period market
price is used to determine common share equivalents for fully diluted earnings
per common share. In addition, the if-converted method is used for convertible
preferred stock when computing fully diluted earnings per common share.
34
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. ACCOUNTS RECEIVABLE, NET
Railroad's agreement to sell, on a revolving basis, an undivided percentage
ownership interest in a designated pool of accounts receivable with limited
recourse expired in December 1994. At December 31, 1993, accounts receivable
were net of $100 million, representing receivables sold. Average monthly
proceeds from the sale of accounts receivable were $162 million, $182 million
and $190 million in 1994, 1993 and 1992, respectively. Included in other income
(expense), net were expenses of $9 million in 1994 and 1993 and $11 million in
1992, relating to the sale. BN maintains an allowance for doubtful accounts
based upon the expected collectibility of all accounts receivable, which at
December 31, 1993 included receivables sold with recourse. Allowances for
doubtful accounts of $20 million and $17 million have been recorded at December
31, 1994 and 1993, respectively.
3. PROPERTY AND EQUIPMENT, NET
Property and equipment, net was as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1994 1993
------- ------
<S> <C> <C>
Road, roadway structures and real estate..................... $ 7,875 $7,493
Equipment.................................................... 2,304 2,143
------- ------
Total cost................................................. 10,179 9,636
Less accumulated depreciation................................ 3,868 3,727
------- ------
Property and equipment, net................................ $ 6,311 $5,909
======= ======
</TABLE>
The consolidated balance sheets at December 31, 1994 and 1993 included $77
million and $36 million, respectively, of property and equipment under capital
leases. The related depreciation was included in depreciation expense.
Accumulated depreciation for property and equipment under capital leases was
$34 million and $31 million at December 31, 1994 and 1993, respectively.
Main line track is depreciated on a group basis using a units-of-production
method. The accumulated depreciation and annual depreciation accrual rates for
railroad assets other than main line track are calculated using a straight-line
method and statistical group measurement techniques. The group techniques
project depreciation expense and estimated accumulated depreciation utilizing
historical experience and expected future conditions relating to the timing of
asset retirements, cost of removal, salvage proceeds, maintenance practices and
technological changes. The net book value of reported assets reflects estimated
remaining asset utility on a historical cost basis.
Due to the imprecision of annual reviews using statistical group measurement
techniques for long-term asset retirement, replacement and deterioration
patterns, BN adjusts accumulated depreciation for significant differences
between recorded accumulated depreciation and computed requirements.
Differences between recorded accumulated depreciation and computed requirements
are recognized prospectively on a straight-line basis. Under ICC regulations,
BN conducts service life studies on a periodic basis. Results of service life
studies are recorded over the remaining life of the asset group studied. No
service life studies were scheduled for 1994. In future periods, service life
studies will be conducted as required. However, the impact of such studies is
not determinable at this time.
Capitalization of certain software development costs has increased as a
result of new strategic initiatives. Capitalization of software development
costs begins upon establishment of technological feasibility. The establishment
of technological feasibility is based upon completion of planning, design and
other technical performance requirements.
35
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Capitalized software development costs are amortized over a seven-year
estimated useful life using the straight-line method. Amortization expense was
$2 million for the year ended December 31, 1994 and no amortization was
recorded for the year ended December 31, 1993. Unamortized capitalized software
costs were $20 million and $6 million as of December 31, 1994 and 1993,
respectively.
4. DEBT
Debt outstanding was as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1994 1993
------ ------
<S> <C> <C>
BNI:
7 1/2% debentures, due 2023.......................... $ 150 $ 150
8 3/4% debentures, due 2022.......................... 200 200
9% debentures, due 1997 to 2016...................... 156 157
7% notes, due 2002................................... 150 150
7.40% notes, due 1999................................ 150 --
Equipment obligations, weighted average rate of 7.09%
and 7.08%, respectively, due serially to 2013....... 194 191
Railroad:
Consolidated mortgage bonds, 3 1/5% to 9 1/4%, due
serially
to 2045............................................. 321 622
Variable rate term loan facility, weighted average
rate of 6.32%, due 1997............................. 150 --
Equipment and other obligations, weighted average
rate of 8.94% and 9.30%, respectively, due serially
to 2009............................................. 91 113
General mortgage bonds, 3 1/8% and 2 5/8%, due 2000
and 2010, respectively.............................. 62 62
Prior lien railway and land grant bonds, 4%, due
1997................................................ 57 57
General lien railway and land grant bonds, 3%, due
2047................................................ 35 35
First mortgage bonds, series A, 4%, due 1997......... 22 24
Capitalized lease obligations, weighted average rate
of 7.27% and 8.01%, respectively, expiring 1996 and
2008................................................ 46 10
Income debentures, series A, 5%, due 2006............ 8 8
Commercial paper..................................... 90 26
Unamortized discount................................... (63) (68)
------ ------
Total.............................................. 1,819 1,737
Less:
Commercial paper..................................... 90 26
Current portion of long-term debt.................... 32 185
------ ------
Long-term debt..................................... $1,697 $1,526
====== ======
</TABLE>
Railroad maintains an effective program for the issuance, from time to time,
of commercial paper. These borrowings are supported by Railroad's bank
revolving credit agreements. Outstanding commercial paper balances are
considered as reducing available borrowings under these agreements. The bank
revolving credit agreements allow borrowings of up to $300 million on a short-
term basis and $500 million on a long-term basis. Annual facility fees are
currently 0.125 and 0.1875 percent, respectively, and are subject to change
based upon changes in Railroad's senior secured debt ratings. At Railroad's
option, borrowings can be obtained through either a competitive bid or a
standby procedure. Rates for borrowings under the standby
36
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
procedure are, at Railroad's option, based upon the London Interbank Offered
Rate (LIBOR) or certificate of deposit rate, plus in either case, a spread
based upon Railroad's senior secured debt ratings, or an alternate base rate.
The agreements are currently scheduled to expire on May 5, 1995 and May 6,
1999, respectively. The maturity value of commercial paper outstanding at
December 31, 1994 was $91 million, leaving a total of $209 million of the
short-term revolving credit agreement available and $500 million of the long-
term revolving credit agreement available. The maturity value of commercial
paper outstanding at December 31, 1993 was $27 million.
In November 1994, Railroad entered into a $150 million three year term loan
facility agreement with a group of commercial banks and used the proceeds to
redeem $150 million aggregate principal amount of Railroad Consolidated
Mortgage Bonds, 10 percent, Series J, due November 1, 1997. Under the terms of
the indenture, the 10 percent mortgage bonds were redeemable at par, commencing
November 1, 1994. The difference between Railroad's redemption price and the
net carrying value resulted in an insignificant loss. The three year term loans
bear interest at rates equal to the selected LIBOR, which may vary during the
term of the loans, plus each lender's interest rate margin.
The financial covenants of the two bank revolving credit agreements and the
three year term loan facility agreement require that Railroad's consolidated
tangible net worth, as defined in the agreements, be at least $1.7 billion, and
that its debt, as defined in the agreements, cannot exceed the lesser of 140
percent of its consolidated tangible net worth and $3 billion. Each of the
agreements contain an event of default arising out of the occurrence and
continuance of a "Change in Control." A "Change in Control" is generally
defined as the acquisition of more than 50 percent of the voting securities of
BNI which has not been approved by the BNI Board of Directors, a change in the
control relationship between BNI and Railroad, and finally, a "Change in
Control" is deemed to occur when a majority of the seats on the BNI Board of
Directors is occupied by persons who are neither nominated by the BNI Board of
Directors nor appointed by directors so nominated. The proposed merger between
BNI and Santa Fe Pacific Corporation (Santa Fe) will not constitute a "Change
in Control" under such agreements.
In December 1994, BNI entered into an agreement whereby Chemical Bank
(Chemical) and Texas Commerce Bank National Association (TCB) agreed to provide
a five-year $500 million unsecured bank credit facility (the Tender Offer
Facility) for the purpose of funding BNI's tender offer to purchase 25 million
shares of Santa Fe common stock at $20 per share. At BNI's option, borrowings
can be obtained either through a competitive bid or a standby procedure. Rates
for borrowing under the standby procedure are, at BNI's option, based upon the
selected term of LIBOR or certificate of deposit rate, plus in either case, a
spread based upon BNI's senior unsecured debt ratings and the amount borrowed
under the Tender Offer Facility, or an alternative base rate. In February 1995,
a group of banks executed a definitive agreement for the Tender Offer Facility.
In May 1994, BNI issued $150 million of 7.4 percent notes due May 15, 1999
and used the proceeds to retire $150 million aggregate principal amount of
Railroad Consolidated Mortgage Bonds, 8 7/8 percent, Series I, due May 30,
1994. The 7.4 percent notes were the initial offering under an effective
registration statement on Form S-3 covering the issuance, from time to time, of
up to $500 million aggregate principal amount of debt securities. This issuance
reduced the amount available for future issuance to $350 million.
In April 1994, Railroad completed a $50 million cross-border leveraged lease
of equipment which is recorded as a capital lease obligation. The transaction
included the issuance of $40 million of equipment secured debt at a weighted
average yield of 7.27 percent and the receipt of an up front cash benefit. The
up front benefit reduces the effective interest rate on the debt to 6.64
percent.
In December 1993, BNI financed equipment through the issuance of $78 million
of 6.32 percent notes due serially to 2012.
37
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In July 1993, BNI issued $150 million of 7 1/2 percent senior unsecured
debentures due 2023 and used the proceeds for general corporate purposes,
including working capital.
The commercial paper program is further summarized as follows (dollars in
millions):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1994 1993
------ ------
<S> <C> <C>
Balance at year end.......................................... $ 90 $ 26
Weighted average interest rate............................... 6.43% 3.55%
Maximum outstanding during the year.......................... $ 243 $ 179
Average daily amount outstanding during the year............. $ 97 $ 41
Weighted daily average interest rate during the year......... 4.29% 3.27%
</TABLE>
Maturities of commercial paper averaged 7 days and 4 days in 1994 and 1993,
respectively.
Aggregate long-term debt scheduled maturities for 1995 through 1999 and
thereafter are $32 million, $27 million, $253 million, $27 million, $174
million and $1,279 million, respectively.
Substantially all Railroad properties and certain other assets are pledged as
collateral to or are otherwise restricted under the various Railroad long-term
debt agreements. Equipment obligations are secured by the underlying equipment.
5. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of BN's financial instruments at December 31, 1994
and 1993 and the methods and assumptions used to estimate the fair value of
each class of financial instruments held by BN, were as follows:
Cash and cash equivalents
The carrying amount approximated fair value because of the short maturity of
these instruments.
Notes receivable
The fair value of notes receivable was estimated by discounting the
anticipated cash flows. Discount rates of 10.0 percent to 10.8 percent at
December 31, 1994 and 8.7 percent at December 31, 1993, were determined to be
appropriate when considering current United States Treasury rates and the
credit risk associated with these notes.
Marketable securities
Marketable securities, which are pledged to fund liabilities of certain
employee benefit plans, consist of corporate bonds (57 percent of carrying
amount) and United States government or agency issues (43 percent of carrying
amount) and are classified as available for sale. The carrying value of
available for sale securities is adjusted for changes in fair value and any
unrealized gains or losses are recorded as a component of stockholders' equity.
At December 31, 1994, the unrealized gains and losses were immaterial. The fair
value for these securities was based on secondary market indicators. Realized
gains or losses from the sales of marketable securities are based on the
specific identification method and were also immaterial for 1994.
38
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The contract maturities at December 31, 1994 for the securities were as
follows (in millions):
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- -----
<S> <C> <C>
Due in one year or less....................................... $ 7 $ 7
Due after one year through five years......................... 12 12
Due after five years through 10 years......................... -- --
Due after 10 years............................................ 1 1
--- ---
$20 $20
=== ===
</TABLE>
Accrued interest payable
The carrying amount approximated fair value as the majority of interest
payments are made semiannually.
Long-term debt and commercial paper
The fair value of BN's long-term debt, excluding unamortized discount, was
primarily based on secondary market indicators. For those issues not actively
quoted, estimates were based on each obligation's characteristics. Among the
factors considered were the maturity, interest rate, credit rating, collateral,
amortization schedule, liquidity and option features such as optional
redemption or optional sinking funds. These features were compared to other
similar outstanding obligations to determine an appropriate increment or
spread, above United States Treasury rates, at which the cash flows were
discounted to determine the fair value. The carrying amount of commercial paper
approximated fair value because of the short maturity of these instruments.
Recourse liability from sale of receivables
Railroad's agreement to sell, on a revolving basis, an undivided percentage
interest in a designated pool of accounts receivable with limited recourse
expired in December 1994. At December 31, 1993, the carrying value of the
allowance for doubtful accounts on receivables sold approximated the fair value
of the recourse liability related to those receivables.
The carrying amount and estimated fair values of BN's financial instruments
were as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1993
--------------- ---------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents................. $ 27 $ 27 $ 17 $ 17
Notes receivable.......................... 8 8 9 11
Marketable securities..................... 20 20 -- --
Liabilities:
Accrued interest payable.................. 45 45 44 44
Long-term debt and commercial paper....... 1,882 1,742 1,805 1,884
Recourse liability from sale of
receivables.............................. -- -- 4 4
</TABLE>
BN also holds investments in, and has advances to, several unconsolidated
transportation affiliates. It was not practicable to estimate the fair value of
these financial instruments, which were carried at their
39
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
original cost of $16 million and $19 million in the December 31, 1994 and 1993
consolidated balance sheets. There were no quoted market prices available for
the shares held in the affiliated entities, and the cost of obtaining an
independent valuation would have been excessive considering the materiality of
these investments to BN.
In addition, BN has a note receivable, from a shortline railroad, that has
principal payments which are based on traffic volume over a segment of line.
The carrying value of the note was $5 million at December 31, 1994 and 1993. As
it is not practicable to forecast the traffic volume over the remaining life of
the note, it was not included in the notes receivable amount shown above.
6. HEDGING ACTIVITIES
BN has a program to hedge against fluctuations in the price of its diesel
fuel purchases. This program includes forward purchases for delivery at fueling
facilities and exchange-traded petroleum futures contracts. The futures
contracts are accounted for as hedges which are marked to market with any gains
or losses associated with changes in market value being deferred and recognized
as a component of fuel expense in the period in which the designated fuel is
purchased and used. At December 31, 1994, BN had entered into agreements with
fuel suppliers setting the price of fuel to be obtained by taking physical
delivery directly from such suppliers at a future date. The average price of
the approximately 79 million gallons which BN had committed to purchase was
approximately 52 cents per gallon, exclusive of taxes, certain transportation
costs and other charges. In addition, BN held petroleum futures contracts
representing approximately 53 million gallons at an average price of
approximately 49 cents per gallon. These contracts have expiration dates
ranging from January to October 1995.
BN's current fuel hedging program is designed to cover no more than 50
percent of projected fuel requirements for the subsequent 12-month period;
therefore, hedge positions will not exceed actual fuel requirements. The
current and future fuel delivery prices are monitored continuously and hedge
positions are adjusted accordingly. In order to reduce risk associated with
market movements, fuel hedging transactions do not extend beyond a 12-month
period. BN purchases petroleum futures contracts only through regulated
exchanges (e.g. New York Mercantile Exchange). In order to effectively monitor
the fuel hedging activities, results of the program are summarized and reported
to senior management on a regular basis.
In the second quarter of 1994, BN entered into a three year interest rate
swap on a notional amount of $50 million to hedge against interest rate
exposure on one of its debt issuances. BN's position in this swap was
subsequently closed during the fourth quarter of the year. Under the terms of
this swap, BN received semiannual fixed-rate payments of 6.33 percent from a
AA-rated counterparty and made semiannual floating rate payments tied to the
six-month LIBOR. The swap was accounted for as a hedge with realized gains or
losses being recognized as a component of interest expense. During 1994, the
resulting decrease in interest expense was not significant.
7. INCOME TAXES
Effective January 1, 1993, BN adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109 modifies
SFAS No. 96, which established the liability method of accounting for income
taxes and had been adopted by BN effective January 1, 1986. BN adopted SFAS No.
109 consistent with the transitional guidelines of SFAS No. 109. The effect of
the adoption was to increase the current portion of the deferred income tax
asset with a corresponding increase in the noncurrent deferred income tax
liability of $26 million at January 1, 1993. There was no effect on net income,
stockholders' equity or cash flows upon adoption.
40
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income tax expense, excluding the cumulative effect of changes in accounting
methods, was as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Current:
Federal................... $ 124 $ 61 $ 82
State..................... 19 8 15
------- ------- -------
143 69 97
------- ------- -------
Deferred:
Federal................... 109 136 52
State..................... 17 20 4
------- ------- -------
126 156 56
------- ------- -------
Total................... $ 269 $ 225 $ 153
======= ======= =======
</TABLE>
Reconciliation of the federal statutory income tax rate to the effective tax
rate, excluding the cumulative effect of changes in accounting methods, was as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Federal statutory income tax
rate....................... 35.0% 35.0% 34.0%
State income taxes, net of
federal tax benefit........ 3.4 3.4 3.4
Effect of one percent
federal tax rate increase
on deferred tax balances at
January 1, 1993............ -- 5.0 --
Internal Revenue Service
settlement................. -- -- (3.8)
Other, net.................. .3 (.2) .2
------- ------- -------
Effective tax rate........ 38.7% 43.2% 33.8%
======= ======= =======
</TABLE>
The components of deferred tax assets and liabilities were as follows (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1993
------- -------
<S> <C> <C>
Deferred tax liabilities:
Accelerated depreciation and amortization............... $(1,785) $(1,667)
Other................................................... (106) (96)
------- -------
Total deferred tax liabilities........................ (1,891) (1,763)
------- -------
Deferred tax assets:
Casualty and environmental reserves..................... 255 270
Pensions................................................ 49 45
Other................................................... 287 273
------- -------
Total deferred tax assets............................. 591 588
------- -------
Valuation allowance..................................... -- --
------- -------
Net deferred tax liability............................ $(1,300) $(1,175)
======= =======
Noncurrent deferred income tax liability................ $(1,456) $(1,342)
Current deferred income tax asset....................... 156 167
------- -------
Net deferred tax liability............................ $(1,300) $(1,175)
======= =======
</TABLE>
41
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In 1994, tax expense of $6 million related to the adjustment to reduce the
minimum pension liability was allocated directly to stockholders' equity.
In August 1993, the Omnibus Budget Reconciliation Act of 1993 (the Act) was
signed into law. The Act increased the corporate federal income tax rate by one
percent, effective January 1, 1993, which reduced 1993 net income by $29
million, or $.32 per common share, through the date of enactment. A one-time,
non-cash charge of $28 million to income tax expense was recorded as an
adjustment to deferred taxes as of the enactment date and a charge of $1
million to income tax expense was recorded as an adjustment to current income
taxes.
In December 1992, BN 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 as shown below (in millions, except per
share data):
<TABLE>
<CAPTION>
<S> <C>
Current tax expense................................................... $ 2
Deferred tax benefit.................................................. (19)
----
Total tax benefit................................................... $(17)
====
Increase in earnings per common share................................. $.19
====
</TABLE>
8. REDEEMABLE PREFERRED STOCK
In July 1993, BNI redeemed all of the outstanding shares of its $10 Par Value
5 1/2 percent Cumulative Redeemable Preferred Stock. BNI purchased the shares
for $10.067222 per share or for a total of $9 million, representing the
redemption price of $10 per share plus accrued dividends for the period from
June 2, 1993 to July 15, 1993.
Redeemable preferred stock activity was as follows (dollars in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1993 1992
-------------- ----------------
SHARES AMOUNT SHARES AMOUNT
------- ------ --------- ------
<S> <C> <C> <C> <C>
Balance at beginning of year................. 899,009 $ 9 1,076,734 $11
Acquired during year......................... 899,009 9 177,725 2
------- --- --------- ---
Balance at end of year..................... -- $-- 899,009 $ 9
======= === ========= ===
</TABLE>
9. PREFERRED CAPITAL STOCK
No Par Value Preferred Stock, authorized 25,000,000 shares--6,900,000 shares
issued
In November 1992, BNI issued 6,900,000 shares of 6 1/4 percent Cumulative
Convertible Preferred Stock, Series A No Par Value. The convertible preferred
stock is not redeemable prior to December 26, 1995. Thereafter, the shares may
be redeemed at BNI's option, in whole or in part, during the twelve months
beginning November 24 of each year except for 1995 which commences December 26,
at the following redemption prices per share: $52.1875 in 1995, $51.875 in
1996, $51.5625 in 1997, $51.25 in 1998, $50.9375 in 1999, $50.625 in 2000,
$50.3125 in 2001, and $50 in 2002 and thereafter. The convertible preferred
stock may be converted, at the option of the holder at any time, into the
number of shares of BNI's common stock equal to the liquidation preference of
each share of convertible preferred stock, $50, divided by the conversion
42
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
price of $47 per share of common stock. The convertible preferred stockholders
have no voting rights unless six quarterly dividend payments are in default. In
a default, such stockholders may vote separately as a class with all other
series of the No Par Value Preferred Stock to elect two additional directors.
Voting rights will continue until all arrearages have been paid. As of December
31, 1994, there had been no such defaults.
Class A Preferred Stock Without Par Value, authorized 50,000,000 shares--
unissued
At December 31, 1994, BNI had available for issuance 50,000,000 shares of
Class A Preferred Stock Without Par Value. The Board of Directors has the
authority to issue such stock in one or more series, to fix the number of
shares and to fix the designations and the powers. On July 10, 1986, the Board
of Directors designated a series of 800,000 shares of Class A Preferred Stock
Without Par Value as Series A Junior Participating Class A Preferred Stock. On
December 19, 1991, the Board of Directors increased the Series A Junior
Participating Class A Preferred Stock designation to 3,000,000 shares. Each one
one-hundredth of a share will have dividend and voting rights approximately
equal to those of one share of common stock of BNI. In addition, on July 10,
1986, the Board of Directors declared a dividend distribution of one right for
each outstanding share of common stock of BNI. The rights become exercisable
if, without BNI's prior consent, a person or group acquires securities having
20 percent or more of the voting power of all of BNI's voting securities or
announces a tender offer which would result in such ownership. Each right, when
exercisable, entitles the registered holder to purchase from BNI one one-
hundredth of a share of Series A Junior Participating Class A Preferred Stock
at a price of $190 per one one-hundredth of a share, subject to adjustment. If,
after the rights become exercisable, BNI were to be acquired through a merger,
each right would permit the holder to purchase, for the exercise price, stock
of the acquiring company having a value of twice the exercise price. In
addition, if any person acquires 25 percent or more of BNI (other than as a
result of a cash offer for all shares), each right not owned by the holder of
such 25 percent would permit the purchase, for the exercise price, of stock of
BNI having a value of twice the exercise price. The rights may be redeemed by
BNI under certain circumstances until their expiration date for $.05 per right.
10. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
BNI is authorized to issue 300,000,000 shares of Common Stock Without Par
Value. At December 31, 1994, there were 89,223,821 shares of common stock
outstanding. Each holder of common stock is entitled to one vote per share in
the election of directors and on all matters submitted to a vote of
stockholders. Subject to the rights and preferences of the convertible
preferred stock and any future issuance of additional preferred stock, each
share of common stock is entitled to receive dividends as may be declared by
the Board of Directors out of funds legally available and to share ratably in
all assets available for distribution to stockholders upon dissolution or
liquidation. No holder of common stock has any preemptive right to subscribe
for any securities of BNI.
11. STOCK OPTIONS AND OTHER CAPITAL STOCK
Stock options
Under BN's stock option plans, options may be granted to officers and key
salaried employees at fair market value on the date of grant. All options
expire within ten years after the date of grant. BN may also grant stock
appreciation rights (SARs) in tandem with stock options which would be
exercisable during the same period as the options. SARs entitle an option
holder to receive a payment equal to the difference between the option price
and the fair market value of the common stock at the date of exercise of the
SAR. To the extent the SAR is exercised, the related option is cancelled and to
the extent the option is exercised the related SAR is cancelled. Any change in
the current market value over the SAR's exercise price would be recognized at
such time as an adjustment to compensation expense.
43
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Activity in stock option plans was as follows:
<TABLE>
<CAPTION>
EXERCISE
OPTIONS SARS PRICE PER SHARE
--------- ------- ----------------
<S> <C> <C> <C>
Balance at December 31, 1991.......... 2,902,820 54,226 $ 6.48 to $39.88
Granted............................. 984,515 -- 40.88 to 44.24
Exercised........................... (438,500) (54,226) 6.48 to 34.88
Cancelled........................... (197,511) -- 20.48 to 44.24
--------- -------
Balance at December 31, 1992.......... 3,251,324 -- 10.32 to 44.24
Granted............................. 947,125 -- 55.56 to 55.94
Exercised........................... (508,476) -- 10.32 to 44.24
Cancelled........................... (54,882) -- 22.50 to 55.94
--------- -------
Balance at December 31, 1993.......... 3,635,091 -- 12.49 to 55.94
Granted............................. 752,690 -- 53.69 to 55.94
Exercised........................... (184,088) -- 12.49 to 55.94
Cancelled........................... (83,962) -- 20.48 to 55.94
--------- -------
Balance at December 31, 1994.......... 4,119,731 -- 15.26 to 55.94
Exercisable at December 31:
1994................................ 2,950,427 -- $15.26 to $55.94
1993................................ 2,153,170 -- 12.49 to 44.24
1992................................ 1,711,726 -- 10.32 to 44.24
Available for future grants at
December 31:
1994................................ 4,464,447
1993................................ 5,151,315
1992................................ 5,995,545
</TABLE>
Shares issued upon exercise of options may be issued from treasury shares or
from authorized but unissued shares.
All outstanding stock options became exercisable upon the February 7, 1995
approval by the stockholders of both BNI and Santa Fe of the proposed merger
with Santa Fe.
Other capital stock
BN has restricted stock award plans under which up to 1,700,000 common
shares may be awarded to eligible employees and directors of BN. No cash
payment is required by the individual. Shares awarded under the plan may not
be sold, transferred or used as collateral by the holder until the shares
awarded become free of the restrictions, generally by one-thirds on the third,
fourth and fifth anniversaries of the date of grant. All shares still subject
to restrictions are generally forfeited and returned to the plan if the
employee or director's relationship with BN is terminated. If the employee or
director retires, becomes disabled or dies, the restrictions will lapse at
that time. The compensation expense resulting from the award of restricted
stock is valued at the average of the high and low market prices of BNI common
stock on the date of the award, recorded as a reduction of stockholders'
equity, and charged to expense evenly over the service period. Restricted
stock awards under these plans, net of forfeitures, were 177,670, 232,354 and
214,475 shares in 1994, 1993 and 1992, respectively. A total of 780,694,
870,525 and 824,877 restricted common shares were outstanding at December 31,
1994, 1993 and 1992, respectively. Compensation expense was not significantly
affected for all periods presented. Upon the February 7, 1995 approval by the
stockholders of both BNI and Santa Fe of the proposed merger with Santa Fe,
the restrictions on the BNI stock grants lapsed and the previously unearned
compensation relating to such restricted stock, included in BNI's
stockholders' equity, was recognized as
44
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
a non-cash charge to compensation and benefits expense. As of December 31,
1994, such unearned compensation relating to restricted stock was approximately
$23 million.
BN also has a stock award plan which provides for grants of shares of BNI's
common stock to full-time employees, excluding officers, based upon
performance. A total of 100,000 shares of common stock has been authorized for
these awards. The shares awarded contain no restrictions and the recipients
have full stockholder rights and privileges. Compensation expense is based upon
the average of the high and low market prices of BNI common stock on the date
of grant. During the years ended December 31, 1994, 1993 and 1992, 3,900,
5,540, and 11,720 shares were awarded under this plan. The related compensation
expense was not significant.
An employee stock purchase plan was adopted in 1992, effective in 1993, as a
means to encourage employee ownership of BNI common stock. A total of 500,000
shares of common stock were authorized for distribution under this plan. The
plan allows eligible BN employees to use the proceeds of incentive compensation
awards to purchase shares of BNI common stock at a discount, as determined by
the BNI Board of Directors, from the market price and may require that the
shares purchased be held for a specific time period as also determined by the
Board of Directors. The difference between the market price and the employees'
purchase price is recorded as additional compensation expense. During the years
ended December 31, 1994 and 1993, 31,832 and 34,629 shares were purchased under
this plan. The related compensation expense was not significant.
12. RETIREMENT PLANS
BN has non-contributory defined benefit pension plans covering substantially
all non-union employees. The benefits are based on years of credited service
and the highest five-year average compensation levels. Contributions to the
plans are based upon the projected unit credit actuarial funding method and are
limited to amounts that are currently deductible for tax purposes.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.
The funded status of BN plans and the net accrued pension cost reflected in
the consolidated balance sheets were as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1994 1993
------ ------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................. $ 481 $ 539
====== ======
Accumulated benefit obligation........................ $ 553 $ 604
====== ======
Projected benefit obligation.......................... $ 628 $ 740
Plan assets, primarily marketable equity and debt
securities, at fair value............................ (467) (490)
------ ------
Projected benefit obligation in excess of plan assets. 161 250
Unrecognized net loss................................. (41) (153)
Unrecognized prior service cost....................... (5) (6)
Unamortized net transition obligation................. (29) (33)
Adjustment required to recognize minimum liability.... 12 56
------ ------
Net accrued pension cost............................ $ 98 $ 114
====== ======
</TABLE>
45
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The discount rate and rate of increase in future compensation levels used in
determining the actuarial present value of the benefit obligations were 9
percent and 5.5 percent at December 31, 1994 and 7 percent and 5.5 percent at
December 31, 1993. The expected long-term rate of return on assets was 9.5
percent for 1994 and 1993 and 10 percent for 1992.
Components of the net pension cost were as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Service cost, benefits earned during the
period..................................... $ 12 $ 9 $ 10
Interest cost on projected benefit
obligation................................. 50 50 52
Actual return on plan assets................ (25) (57) (36)
Net amortization and deferred amounts....... (1) 24 5
------- ------- -------
Net pension cost.......................... $ 36 $ 26 $ 31
======= ======= =======
</TABLE>
Net pension cost, which is based upon a discount rate as of January 1, was
higher for 1994 than 1993 primarily due to a decrease in the discount rate from
8.5 percent at January 1, 1993 to 7 percent at January 1, 1994. The decrease in
net pension cost for 1993 as compared with 1992 was primarily due to a decrease
in the rate of future compensation growth from 6 percent at January 1, 1993 to
5.5 percent at January 1, 1994.
BN sponsors a 401(k) thrift and profit sharing plan which covers
substantially all non-union employees. BN matches 35 percent of the first 6
percent of the employees' contributions, which is subject to certain percentage
limits of the employees' earnings, at the end of each quarter. Depending on
BN's performance, an additional matching contribution of 20 to 40 percent can
be made at the end of the year. BN's expense was $8 million, $6 million and $4
million in 1994, 1993 and 1992, respectively. Effective January 1, 1994, BN
also sponsors a 401(k) retirement savings plan covering substantially all union
employees which is non-contributory on the part of BN.
13. OTHER BENEFIT PLANS
Effective January 1, 1992, BN adopted SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." BN provides certain
postretirement health care benefits, payable until age 65, for a small number
of retirees who were at least 55 years of age and who retired on or before
March 1986.
Both the accumulated postretirement benefits obligation and cost associated
with this plan were insignificant. Life insurance benefits are provided for
eligible non-union employees. BN adopted accrual accounting for the expense of
these plans in 1992 by taking a $16 million cumulative effect charge to income
in order to establish a liability for those benefits. BN pays benefits as
claims are processed.
The following table presents the status of the plans and the accrued
postretirement benefit cost reflected in the consolidated balance sheets (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1993
----------- -----------
HEALTH LIFE HEALTH LIFE
------ ---- ------ ----
<S> <C> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees......................................... $-- $11 $ 1 $13
Fully eligible active participants............... -- 1 -- 2
Other active participants........................ -- 2 -- 1
--- --- --- ---
-- 14 1 16
Unrecognized net gain.............................. -- 4 -- --
--- --- --- ---
Accrued postretirement benefit cost.............. $-- $18 $1 $16
=== === === ===
</TABLE>
46
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Components of the postretirement benefit cost were as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
----------- ----------- -----------
HEALTH LIFE HEALTH LIFE HEALTH LIFE
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Service cost............................. $-- $-- $-- $-- $-- $--
Interest cost............................ -- 1 -- 1 -- 1
--- --- --- --- --- ---
Net postretirement benefit cost........ $-- $ 1 $-- $ 1 $-- $ 1
=== === === === === ===
</TABLE>
The discount rate used in determining the benefit obligation was 9 percent at
December 31, 1994 and 7 percent at December 31, 1993. The health care cost
trend rate is assumed to decrease gradually from 14 percent in 1995 to 6
percent in 2003 and thereafter. Increasing the assumed health care cost trend
rate by one percentage point in each year would have an insignificant effect on
the accumulated postretirement benefit obligation at December 31, 1994 and 1993
as well as the aggregate of the service and interest cost components for the
three years ended December 31, 1994.
Under collective bargaining agreements, Railroad participates in multi-
employer benefit plans which provide certain postretirement health care and
life insurance benefits for eligible union employees. Insurance premiums
attributable to retirees, which are expensed as incurred, were $10 million in
both 1994 and 1993 and $11 million in 1992.
14. COMMITMENTS AND CONTINGENCIES
Agreement to merge and tender offers
As of June 29, 1994, BNI and Santa Fe entered into an Agreement and Plan of
Merger (the Original Agreement) pursuant to which, on the terms and conditions
set forth in the Original Agreement, Santa Fe would merge (the Merger) with and
into BNI, and BNI would be the surviving corporation and each share of Santa Fe
common stock would be converted into 0.27 of a share of BNI common stock. The
Original Agreement was subsequently amended as of October 26, 1994, December
18, 1994 and January 24, 1995. The Original Agreement, as so amended, is
referred to as the Merger Agreement. Pursuant to the Merger Agreement, Santa Fe
is to merge with and into BNI with each share of Santa Fe common stock to be
exchanged for not less than 0.40 and not more than 0.4347 shares of BNI common
stock. The exchange ratio will vary based on the number of shares of Santa Fe
common stock repurchased by Santa Fe in the repurchase program referred to
below (the Repurchase Program). Stockholders of BNI and Santa Fe approved the
Merger Agreement at special stockholders' meetings held on February 7, 1995.
Also pursuant to the Merger Agreement, on December 23, 1994, BNI and Santa Fe
commenced tender offers (together, the Tender Offer) to acquire up to 63
million shares of Santa Fe common stock in the aggregate at $20 per share in
cash (with Santa Fe severally obligated to purchase up to 38 million shares of
Santa Fe common stock in the Tender Offer and BNI severally obligated to
purchase up to 25 million shares of Santa Fe common stock in the Tender Offer
or 20 percent and 13 percent, respectively, of the then outstanding Santa Fe
common stock). Prior to expiration of the Tender Offer on February 8, 1995,
Santa Fe stockholders tendered sufficient shares to complete the Tender Offer.
On February 6, 1995, BNI entered into a five-year $500 million unsecured bank
credit facility (the Tender Offer Facility), whereby a group of banks will
finance BNI's obligations to purchase shares of Santa Fe common stock in the
Tender Offer. At BNI's option, borrowings can be obtained either through a
competitive bid or a standby procedure. Rates for borrowing under the standby
procedure are, at BNI's option, based upon the selected term of LIBOR or
certificate of deposit rate, plus in either case, a spread based upon BNI's
senior unsecured debt ratings and
47
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the amount borrowed under the Tender Offer Facility, or an alternative base
rate. BNI's investment in Santa Fe, which represents approximately 17 percent
of Santa Fe stock outstanding following completion of the Tender Offer, will be
accounted for under the cost method until consummation of the Merger. Santa Fe
anticipates borrowing up to $1,110 million (of which approximately $200 million
will be used to replace existing Santa Fe debt) in connection with the Sante Fe
tender offer and related matters from a syndicate of financial institutions
under a new credit agreement. Santa Fe may also borrow an additional $200
million under its new credit agreement to retire $200 million of existing Santa
Fe debt. Funding of the Tender Offer is expected to be completed on or about
February 21, 1995.
Under the Repurchase Program as set forth in the Merger Agreement, Santa Fe
is permitted, at its discretion and subject to certain financial and
performance criteria of Santa Fe set forth in its credit agreements and the
Merger Agreement (including minimum cash flows, cash capital expenditures and
maximum total debt), to repurchase up to 10 million shares of Santa Fe common
stock prior to consummation of the Merger. The number of shares of BNI common
stock to be issued in the Merger will not be affected by the number of shares
of Santa Fe common stock repurchased by Santa Fe under the Repurchase Program.
Accordingly, the exchange ratio of BNI common shares to be offered for each
share of outstanding Santa Fe common stock upon consummation of the Merger
would be set at not less than 0.40 and not more than 0.4347 shares.
Pursuant to the Merger Agreement, two possible structures are available to
complete the Merger. Using the current structure, each issued and outstanding
share of Santa Fe common stock (other than shares of Santa Fe common stock held
by Santa Fe as treasury stock or shares held by BNI, all of which will be
cancelled) will be exchanged for not less than 0.40 and not more than 0.4347
shares of BNI common stock depending upon the number of shares of Santa Fe
common stock repurchased by Santa Fe under the Repurchase Program. BNI will be
the surviving corporation. The Merger Agreement provides that either BNI or
Santa Fe may elect to effect the Merger through the use of a holding company
(the Alternative Transaction Structure) as described below. BNI and Santa Fe
have established BNSF Corporation (BNSF), a Delaware corporation, for such
purpose. Under the Alternative Transaction Structure, BNSF would create two
subsidiaries and one subsidiary would merge into BNI and one into Santa Fe.
Each holder of one share of BNI common stock would receive one share of BNSF
common stock and each holder of one share of Santa Fe common stock, excluding
the Santa Fe common stock acquired by BNI in the Tender Offer and the Santa Fe
common stock held by Santa Fe as treasury stock, would receive not less than
0.40 and not more than 0.4347 shares of BNSF common stock depending upon the
number of shares of Santa Fe common stock repurchased by Santa Fe as permitted
under the Repurchase Program. The Santa Fe common stock acquired by BNI in the
Tender Offer would remain outstanding and the Santa Fe common stock held by
Santa Fe as treasury stock would be cancelled. The rights of each stockholder
of BNSF would be substantially identical to the rights of a stockholder of BNI,
and the Alternative Transaction Structure would have the same economic effect
with respect to the stockholders of BNI and Santa Fe as the Merger in its
current structure. The Merger will be accounted for under the purchase method
of accounting upon consummation, and BNI's $500 million investment will be
included in the purchase price.
As is typical in the context of a merger, certain benefits of officers and
employees vested upon approval of the Merger by the stockholders of BNI and
Santa Fe. In particular, on February 7, 1995, restrictions previously placed
upon certain BNI stock grants lapsed and the previously unearned compensation
relating to such restricted stock, included in BNI's stockholders' equity, was
charged to compensation and benefits expense. As of December 31, 1994, such
unearned compensation relating to restricted stock was approximately $23
million. BNI expects to incur other costs related to the Merger some of which
will be included in the determination of the total purchase price.
Consummation of the Merger is subject to approval by the ICC, approval under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and other customary
conditions. In connection with the ICC
48
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
proceedings, on January 27, 1995, BNI and Santa Fe requested the ICC to adopt
an expedited procedural schedule for reviewing the merger, based on a timetable
the ICC has recently proposed to adopt for all major railroad mergers, and on
February 3, 1995, the ICC issued a notice requesting comments on the proposed
schedule by February 21, 1995. That schedule calls for the ICC to issue its
decision on the merger within 165 days from the date on which the ICC publishes
a notice formally advising parties that the BNI and Santa Fe stockholders have
voted to approve the transaction. The ICC has not yet issued a notice regarding
stockholder approval nor taken any further action on the proposed schedule.
Casualty and environmental reserves
Casualty reserves consist primarily of personal injury claims, including
work-related injuries to employees. Employees of BN are compensated for work-
related injuries according to the provisions of the Federal Employers'
Liability Act. Liabilities for personal injury claims are estimated through an
actuarial model that considers historical data and trends and is designed to
record those costs in the period of occurrence. BN conducts an ongoing review
and analysis of claims and other information to ensure the continued adequacy
of casualty reserves. To the extent costs may exceed recorded accruals, they
are not anticipated to materially affect BN's financial condition, results of
operations or liquidity.
BN's operations, as well as those of its competitors, are subject to
extensive federal, state and local environmental regulation. In order to comply
with such regulation and to be consistent with BN's corporate environmental
policy, BN's operating procedures include practices to protect the environment.
Amounts expended relating to such practices are inextricably contained in the
normal day-to-day costs of BN's business operations.
Under the requirements of the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (Superfund) and certain other laws, BN
is potentially liable for the cost of clean-up of various contaminated sites
identified by the United States Environmental Protection Agency and other
agencies. BN has been notified that it is a potentially responsible party (PRP)
for study and clean-up costs at approximately 75 sites (the PRP sites) and, in
many instances, is one of several PRPs. BN generally participates in the clean-
up of these sites through cost-sharing agreements with terms that vary from
site to site. Costs are typically allocated based on relative volumetric
contribution of material, the amount of time the site was owned or operated,
and/or the portion of the total site owned or operated by each PRP. However,
under Superfund and certain other laws, as a PRP, BN can be held jointly and
severally liable for all environmental costs associated with a site.
Environmental costs include initial site surveys and environmental studies of
potentially contaminated sites as well as costs for remediation and restoration
of sites determined to be contaminated. Liabilities for environmental clean-up
costs are initially recorded when BN's liability for environmental clean-up is
both probable and a reasonable estimate of associated costs can be made.
Adjustments to initial estimates are recorded as necessary based upon
additional information developed in subsequent periods. BN conducts an ongoing
environmental contingency analysis, which considers a combination of factors,
including independent consulting reports, site visits, legal reviews, analysis
of the likelihood of participation in and ability to pay for clean-up by other
PRPs, and historical trend analyses.
BN is involved in a number of administrative and judicial proceedings and
other mandatory clean-up efforts at approximately 160 sites, including the PRP
sites, for which it is being asked to participate in the clean-up of sites
contaminated by material discharged into the environment. BN paid approximately
$21 million, $27 million and $20 million during 1994, 1993 and 1992,
respectively, relating to mandatory clean-up efforts, including amounts
expended under federal and state voluntary clean-up programs. At this time, BN
expects to spend approximately $110 million in future years to remediate and
restore all known sites,
49
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
including $105 million pertaining to mandated sites, of which approximately $70
million relates to the PRP sites. Of the $110 million, BN expects to spend $33
million during 1995. Also, BN anticipates that the majority of the $110 million
will be paid out over a period of less than seven years; however, some costs
will be paid out over a longer period, in some cases up to 40 years. At
December 31, 1994, 23 sites accounted for approximately $75 million of the
accrual and no individual site was considered to be material.
Liabilities for environmental costs represent BN's best estimates for
remediation and restoration of these sites and include asserted and unasserted
claims. At December 31, 1994, BN had accrued approximately $110 million for
estimated future environmental costs and believes it is reasonably possible,
although not probable, that actual environmental costs could be lower than the
recorded reserve or as much as 50 percent higher. BN's best estimate of
unasserted claims was approximately $5 million as of December 31, 1994.
Although recorded liabilities include BN's best estimates of all costs, without
reduction for anticipated recovery from insurance, BN's total clean-up costs at
these sites cannot be predicted with certainty due to various factors such as
the extent of corrective actions that may be required, evolving environmental
laws and regulations, advances in environmental technology, the extent of other
PRPs' participation in clean-up efforts, developments in ongoing environmental
analyses related to sites determined to be contaminated, and developments in
environmental surveys and studies of potentially contaminated sites. As a
result, charges to income for environmental liabilities could possibly have a
significant effect on results of operations in a particular quarter or fiscal
year as individual site studies and remediation and restoration efforts proceed
or as new sites arise. However, expenditures associated with such liabilities
are typically paid out over a long period, in some cases up to 40 years, and
are therefore not expected to have a material adverse effect on BN's
consolidated financial position, cash flow or liquidity.
Lease commitments
BN has substantial lease commitments for railroad, highway equipment, office
buildings and a taconite dock facility. Most of these leases provide the option
to purchase the equipment at fair market value at the end of the lease.
However, some provide fixed price purchase options.
Lease rental expense for operating leases was $229 million, $194 million and
$189 million for the years ended December 31, 1994, 1993 and 1992,
respectively.
Minimum annual rental commitments were as follows (in millions):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED DECEMBER 31, LEASES LEASES
----------------------- ------- ---------
<S> <C> <C>
1995....................................................... $ 9 $ 175
1996....................................................... 7 161
1997....................................................... 5 136
1998....................................................... 5 122
1999....................................................... 5 113
Thereafter................................................. 37 890
--- ------
Total.................................................... 68 $1,597
======
Less amount representing interest.......................... 22
---
Present value of minimum lease payments.................. $46
===
</TABLE>
In addition to the above, BN also receives and pays rents for railroad
equipment on a per diem basis, which is included in equipment rents.
50
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Other commitments and contingencies
In 1993, BN entered into an agreement to acquire 350 alternating current
traction motor locomotives. In December 1994, the number of locomotives to be
acquired under this agreement was increased to 404. As of January 31, 1995, BN
had accepted delivery of 147 locomotives and anticipates deliveries under this
agreement of between approximately 60 and 140 each year from 1995 (including
January 1995 deliveries) through 1997.
BN has two locomotive electrical power purchase agreements, expiring in 1998
and 2001, that currently involve 197 locomotives. Payments required by the
agreements are based upon the number of megawatt hours of energy consumed,
subject to specified take-or-pay minimums. The rates specified in the two
agreements are renegotiable every two years. BN's 1995 minimum commitment
obligation is $53 million. Based on projected locomotive power requirements,
BN's payments in 1995 are expected to be in excess of the minimum. Payments
under the agreements totaled $47 million, $53 million and $56 million in 1994,
1993 and 1992, respectively. In 1990, BN entered into a letter of credit for
the benefit of a vendor. This letter of credit is a performance guarantee for
up to $15 million in major overhauls to be performed on the power purchase
equipment.
In connection with its program to transfer certain rail lines to independent
operators, BN has agreed to make certain payments for services performed by the
operators in connection with traffic that involves the shortlines and Railroad
as carriers. These payments will vary with such factors as traffic volumes and
shortline costs and are not expected to exceed normal business requirements for
services received. These payments are reflected as reductions to revenue to
conform with reporting to the ICC. Revenues for these joint moves, including
amounts applicable to the independent operator portion of the line haul, are
reflected by BN as revenue from operations.
BN is party to various claims and lawsuits, some of which are for substantial
amounts. While these claims and actions are being contested, the outcome of
individual matters is not certain. Although actual liability on an aggregate
basis is similarly not determinable with certainty, as of December 31, 1994, BN
believes that any liability resulting from these matters, after taking into
consideration BN's insurance coverages and amounts already provided for, should
not have a material adverse effect on BN's financial position.
There are no other commitments or contingent liabilities which BN believes
would have a material adverse effect on the consolidated financial position,
results of operations or liquidity.
15. OTHER INCOME (EXPENSE), NET
Other income (expense), net includes the following (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993 1992
---- ------- --------
<S> <C> <C> <C>
Gain on property disposi-
tions.................... $ 15 $ 17 $ 3
Interest income........... 3 6 4
Loss on sale of receiv-
ables.................... (9) (9) (11)
Litigation settlement
agreement................ -- -- 47
Miscellaneous, net........ (12) (9) (2)
-------- ------- --------
Total................... $ (3) $ 5 $ 41
======== ======= ========
</TABLE>
51
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
Miscellaneous, net includes losses related to international ventures of $15
million and $4 million in 1994 and 1993, respectively.
In the first quarter of 1992, BN entered into a settlement agreement relating
to the reimbursement of attorneys' fees and costs incurred by BN in connection
with litigation filed by Energy Transportation Systems, Inc., and others, and
reimbursement of a portion of the amount paid in prior years by BN in
settlement of that action. Under the terms of the settlement, BN received
approximately $50 million before legal fees.
16. ACCOUNTING CHANGES
Effective January 1, 1994, BN adopted 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 1994 net income by $10 million, or
$.11 per common share.
In 1994, BN adopted SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." The adoption of this standard had no effect on net
income and no material effect on stockholders' equity.
Effective January 1, 1993, BN adopted SFAS No. 109, "Accounting for Income
Taxes." SFAS No. 109 modifies SFAS No. 96, which established the liability
method of accounting for income taxes, and had been adopted by BN effective
January 1, 1986. BN adopted SFAS No. 109 consistent with the transitional
guidelines of SFAS No. 109. The effect of the adoption was to increase the
current portion of the deferred income tax asset with a corresponding increase
in the noncurrent deferred income tax liability of $26 million at January 1,
1993. There was no effect on net income, stockholders' equity or cash flows.
In January 1992, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus that origination of service revenue
recognition was not an acceptable accounting method beginning in 1992 for the
freight services industry. Accordingly, effective January 1, 1992, BN changed
its method of revenue recognition from one which recognized transportation
revenue at the origination point, to a method whereby transportation revenue is
recognized proportionately as a shipment moves from origin to destination. The
cumulative effect, net of a $7 million income tax benefit, of the change on the
prior year's revenue, at the time of adoption, decreased 1992 net income by $11
million, or $.13 per common share.
In the fourth quarter of 1992, effective January 1, 1992, BN adopted SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions,"
and elected immediate recognition of the $16 million transition obligation. The
cumulative effect, net of a $6 million income tax benefit, of the change on
prior years', at the time of adoption, decreased 1992 net income by $10
million, or $.11 per common share.
52
<PAGE>
REPORT OF MANAGEMENT
To the Stockholders and Board of Directors of Burlington Northern Inc. and
Subsidiaries
The accompanying consolidated financial statements have been prepared by
management in conformity with generally accepted accounting principles. The
fairness and integrity of these financial statements, including any judgments
and estimates, are the responsibility of management, as is all other
information presented in this Annual Report on Form 10-K.
In the opinion of management, the financial statements are fairly stated,
and, to that end, BN maintains a system of internal control which: provides
reasonable assurance that transactions are recorded properly for the
preparation of financial statements; safeguards assets against loss or
unauthorized use; maintains accountability for assets; and requires proper
authorization and accounting for all transactions. Management is responsible
for the effectiveness of internal controls. This is accomplished through
accounting and other control systems, policies and procedures, employee
selection and training, appropriate delegation of authority and segregation of
responsibilities, and an established code of ethics for employees. To further
ensure compliance with established standards and related control procedures, BN
conducts a substantial corporate audit program.
Our independent accountants provide an objective independent review through
their audit of BN's financial statements. Their audit includes a review of
internal accounting controls to the extent deemed necessary for the purposes of
their audit.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets regularly with the independent accountants, management and
corporate audit to review the work of each and to ensure that each is properly
discharging its financial reporting and internal control responsibilities. To
ensure complete independence, the independent accountants and the corporate
audit department have full and free access to the Audit Committee to discuss
the results of their audits, the adequacy of internal accounting controls and
the quality of financial reporting.
David C. Anderson
Executive Vice President,
Chief Financial Officer and
Chief Accounting Officer
January 16, 1995
53
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Burlington Northern Inc. and Subsidiaries
We have audited the consolidated financial statements and financial statement
schedule of Burlington Northern Inc. and Subsidiaries listed in Item 14 of this
Form 10-K. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Burlington Northern Inc. and Subsidiaries as of December 31, 1994 and 1993,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
As discussed in Note 16 to the consolidated financial statements, the Company
changed its method of accounting for postemployment benefits and investments in
debt and equity securities in 1994, for income taxes in 1993 and for revenue
recognition and postretirement benefits other than pensions in 1992.
Coopers & Lybrand L.L.P.
Fort Worth, Texas
January 16, 1995
54
<PAGE>
QUARTERLY FINANCIAL DATA-UNAUDITED
<TABLE>
<CAPTION>
QUARTER
----------------------------------------------
FOURTH THIRD SECOND FIRST
----------- ----------- ----------- ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1994
Revenues..................... $ 1,344 $ 1,249 $ 1,192 $ 1,210
Operating income............. 264 229 178 182
Income before cumulative
effect of change in
accounting method......... 142 115 82 87
Cumulative effect of change
in accounting method, net
of tax (1)................ -- -- -- (10)
----------- ----------- ----------- ----------
Net income................... $ 142 $ 115 $ 82 $ 77
=========== =========== =========== ==========
Primary earnings (loss) per
common share: (2)
Income before cumulative
effect of change in
accounting method......... $ 1.51 $ 1.22 $ .85 $ .90
Cumulative effect of change
in accounting method (1).. -- -- -- (.11)
----------- ----------- ----------- ----------
Primary earnings per
common share............ $ 1.51 $ 1.22 $ .85 $ .79
=========== =========== =========== ==========
Fully diluted earnings (loss)
per common share: (2)
Income before cumulative
effect of change in
accounting method......... $ 1.46 $ 1.18 $ .84 $ .90
Cumulative effect of change
in accounting method (1).. -- -- -- (.11)
----------- ----------- ----------- ----------
Fully diluted earnings
per common share........ $ 1.46 $ 1.18 $ .84 $ .79
=========== =========== =========== ==========
Dividends declared per common
share....................... $ .30 $ .30 $ .30 $ .30
Common stock price:
High....................... $ 51 5/8 $ 53 5/8 $ 60 1/8 $ 66
Low........................ 46 5/8 48 1/4 52 1/2 56 3/4
1993
Revenues..................... $ 1,246 $ 1,141 $ 1,142 $ 1,170
Operating income............. 224 121 148 168
Net income (3)............... 118 24 72 82
Primary earnings per common
share (2)................... $ 1.25 $ .21 $ .74 $ .86
Fully diluted earnings per
common share (2)............ 1.21 .21 .74 .85
Dividends declared per common
share....................... .30 .30 .30 .30
Common stock price:
High....................... $ 58 $ 57 1/2 $ 58 5/8 $ 52
Low........................ 48 3/4 51 1/8 50 42 1/4
</TABLE>
- --------
(1) Effective January 1, 1994, BN adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits." The
cumulative effect, net of $7 million income tax benefit, of this change in
accounting attributable to years prior to 1994, at the time of adoption,
was to decrease 1994 net income by $10 million, or $.11 per common share.
(2) Amounts may not total to the annual earnings per share because each quarter
and the year are calculated separately based on average outstanding shares
and common share equivalents during that period.
(3) Results for the third quarter of 1993 included the effects of the Omnibus
Budget Reconciliation Act of 1993 (the Act) which was signed into law in
August 1993. The Act increased the corporate federal income tax rate by one
percent, effective January 1, 1993, which reduced net income by $29
million, or $.32 per common share, primary, through the date of enactment.
Results for the third quarter of 1993 also included the effects of the
severe flooding in the Midwest. BN estimated that the flooding reduced
revenues and operating income during the quarter by $44 million and $79
million, respectively, and reduced net income by $49 million, or $.55 per
common share.
55
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
AND
ITEM 11. EXECUTIVE COMPENSATION
A definitive proxy statement of Burlington Northern Inc. will be filed not
later than 120 days after the end of the fiscal year with the Securities and
Exchange Commission. The information set forth therein under "Election of
Directors" and "Executive Compensation" will be incorporated herein by
reference. Executive Officers of Burlington Northern Inc. and the principal
subsidiary are listed on pages 11-14 of this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required is set forth under the caption "Election of Directors"
in the Proxy Statement for the 1995 Annual Meeting of Stockholders and will be
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required is set forth under the caption "Executive Compensation"
in the Proxy Statement for the 1995 Annual Meeting of Stockholders and will be
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements
Consolidated Statements of Income for the three years ended December 31,
1994................................................................... 30
Consolidated Balance Sheets at December 31, 1994 and 1993............... 31
Consolidated Statements of Cash Flows for the three years ended December
31, 1994............................................................... 32
Consolidated Statements of Changes in Stockholders' Equity for the three
years ended December 31, 1994.......................................... 33
Notes to Consolidated Financial Statements.............................. 34
Report of Management...................................................... 53
Report of Independent Accountants......................................... 54
Quarterly Financial Data-unaudited........................................ 55
Consolidated Financial Statement Schedule for the three years ended Decem-
ber 31, 1994:
Schedule II-Valuation and Qualifying Accounts........................... 62
</TABLE>
Schedules other than those listed above are omitted because they are not
required or not applicable, or the required information is included in the
consolidated financial statements or related notes.
56
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this report.
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of June 29, 1994, *
between Burlington Northern Inc. and Santa Fe Pacific
Corporation (schedules thereto omitted, but available to the
Securities and Exchange Commission upon request) and related
letter agreements (Form 10-Q for the quarter ended June 30,
1994, filed August 1994).
2.2 Amendment, dated as of October 26, 1994, between Burlington *
Northern Inc. (BNI) and Santa Fe Pacific Corporation (Santa
Fe) to Agreement and Plan of Merger, dated as of June 29,
1994, between BNI and Santa Fe (Form 8-K dated October 26,
1994, filed October 1994).
2.3 Amendment No. 2, dated as of December 18, 1994, between *
Burlington Northern Inc. (BNI) and Santa Fe Pacific
Corporation (Santa Fe) to Agreement and Plan of Merger,
dated as of June 29, 1994, between BNI and Santa Fe (Form 8-
K dated December 18, 1994, filed December 1994).
3.1 Certificate of Incorporation of Burlington Northern Inc. as *
Amended Through February 28, 1992 (1993 Form 10-K, filed
February 1994).
3.2 Certificate of Increase of Number of Shares of Series A *
Junior Participating Class A Preferred Stock of Burlington
Northern Inc., dated January 9, 1992 (1991 Form 10-K, filed
February 1992).
3.3 By-Laws of Burlington Northern Inc. as Amended Through July *
17, 1991 (1993 Form 10-K, filed February 1994).
4.1 Form of Rights Agreement dated as of July 14, 1986, between *
Burlington Northern Inc. and The First National Bank of
Boston which includes, as Exhibit A thereto, the Form of
Certificate of Designation specifying the terms of the
Preferred Stock and as Exhibit B thereto, the form of Rights
Certificate (Form 8-A, No. 1-8159, filed July 1986). The
Company and its subsidiaries either have previously filed
with the Securities and Exchange Commission or upon request
will furnish a copy of any instrument with respect to long-
term debt of the Company and its subsidiaries.
4.2 Certificate of Designation of 6 1/4% Cumulative Convertible *
Preferred Stock, Series A, No Par Value of Burlington
Northern Inc., dated November 24, 1992 (1992 Form 10-K,
filed February 1993).
10.1 Form of Tax Sharing Agreement between Burlington Northern *
Inc. and Burlington Resources Inc. (1988 Form 10-K Amendment
No. 1, filed March 1989).
10.2 The 1987 Burlington Northern Inc. Stock Option Incentive Plan *
as filed on Form S-8 No. 33-18082.
10.3 The 1982 Burlington Northern Inc. Stock Option Incentive Plan *
as filed on Form S-8 No. 2-80478.
10.4 Burlington Northern Inc. Incentive Compensation Plan as filed *
on Form S-8 No. 33-25806.
10.5 Burlington Northern Inc. Senior Executive Survivor Benefit *
Plan as of April 1, 1986 (1987 Form 10-K Amendment No. 1,
filed March 1988).
10.6 Burlington Northern Inc. Deferred Compensation Plan as of *
January 1, 1988 (1987 Form 10-K Amendment No. 1, filed March
1988).
10.7 Burlington Northern Inc. Performance Share Unit Plan (1981) *
as of January 1, 1988 (1987 Form 10-K Amendment No. 1, filed
March 1988).
10.8 Burlington Northern Inc. 1987 Performance Share Unit Plan as *
of January 1, 1988 (1987 Form 10-K Amendment No. 1, filed
March 1988).
10.9 Burlington Northern Inc. Supplemental Benefits Plan as of *
January 1987 (1987 Form 10-K Amendment No. 1, filed March
1988).
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<C> <S> <C>
10.10 1989 Burlington Northern Inc. Restricted Stock Incentive Plan *
(1990 Form 10-K, filed March 1991).
10.11 1990 Burlington Northern Inc. Directors Stock Option Plan *
(1990 Form 10-K, filed March 1991).
10.12 1990 Burlington Northern Inc. Directors Restricted Stock Plan *
(1990 Form 10-K, filed March 1991).
10.13 1992 Burlington Northern Inc. Stock Option Incentive Plan *
(1992 Form 10-K, filed February 1993).
10.14 1993 Burlington Northern Inc. Employee Stock Purchase Plan *
(1992 Form 10-K, filed February 1993).
10.15 364-Day Competitive Advance and Revolving Credit Facility **
Agreement, dated as of May 6, 1994, between Burlington
Northern Railroad Company and a consortium of lenders.
10.16 5-Year Competitive Advance and Revolving Credit Facility **
Agreement, dated as of May 6, 1994, between Burlington
Northern Railroad Company and a consortium of lenders.
10.17 3-Year Term Loan Facility Agreement, dated as of November 14, **
1994, between Burlington Northern Railroad Company and a
consortium of lenders.
10.18 Employment Agreement, dated as of December 20, 1988, by and *
between Burlington Northern Inc. and Mr. Gerald Grinstein
(1988 Form 10-K Amendment No. 1, filed March 1989).
10.19 Employment Agreement, dated as of April 27, 1992, by and *
between Burlington Northern Inc. and Mr. Gerald Grinstein
(1992 Form 10-K, filed February 1993).
10.20 Employment Agreement, dated September 4, 1990, by and between **
Burlington Northern Railroad Company and Mr. John T. Chain.
10.21 Employment Agreement, dated as of August 21, 1991, by and *
between Burlington Northern Inc. and Mr. David C. Anderson
(1991 Form 10-K, filed February 1992).
10.22 Employment Agreement, dated September 18, 1991, by and **
between Burlington Northern Railroad Company and Mr. Richard
A. Russack.
10.23 Employment Agreement, dated April 18, 1994, between **
Burlington Northern Railroad Company and Mr. Greg Swienton.
10.24 Employment Agreement, dated April 22, 1994, between **
Burlington Northern Railroad Company and Mr. Ronald A.
Rittenmeyer.
11 Computation of Earnings per Common Share. **
12 Computation of Ratio of Earnings to Fixed Charges. **
21 Subsidiaries of Burlington Northern Inc. **
23 Consent of Independent Accountants. **
27 Financial Data Schedule. **
</TABLE>
- --------
* Exhibit is incorporated by reference as indicated.
** Exhibit is filed with Form 10-K for the year ended December 31, 1994.
58
<PAGE>
REPORTS ON FORM 8-K
During the period, a report on Form 8-K, dated October 6, 1994, was filed
attaching a press release concerning the reaffirmation of the commitment by the
Board of Directors of Burlington Northern Inc. (BNI) to consummate the merger
of BNI and Santa Fe Pacific Corporation (Santa Fe) as announced on
June 30, 1994.
During the period, a report on Form 8-K, dated October 26, 1994, was filed
attaching an Amendment dated as of October 26, 1994 to the Agreement and Plan
of Merger dated as of June 29, 1994 between BNI and Santa Fe and further
attaching the press release of BNI dated October 27, 1994 announcing the
execution of said Amendment.
During the period, a report on Form 8-K, dated November 18, 1994, was filed
concerning a litigation development related to a coal transportation contract.
During the period, a report on Form 8-K, dated December 18, 1994, was filed
attaching Amendment No. 2 dated as of December 18, 1994 to the Agreement and
Plan of Merger dated as of June 29, 1994 between BNI and Santa Fe and further
attaching the press release of BNI dated December 18, 1994 announcing the
execution of said Amendment No. 2.
59
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, BURLINGTON NORTHERN INC. HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THIS
17TH DAY OF FEBRUARY, 1995.
Burlington Northern Inc.
/s/ Gerald Grinstein
By __________________________________
GERALD GRINSTEIN
CHAIRMAN, CHIEF EXECUTIVE
OFFICER AND DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF BURLINGTON
NORTHERN INC. AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Gerald Grinstein Chairman, Chief February 17,
- ------------------------------------- Executive Officer 1995
GERALD GRINSTEIN and Director
/s/ David C. Anderson Executive Vice February 17,
- ------------------------------------- President, Chief 1995
DAVID C. ANDERSON Financial Officer
and Chief
Accounting Officer
/s/ Jack S. Blanton Director February 17,
- ------------------------------------- 1995
JACK S. BLANTON
/s/ Daniel P. Davison Director February 17,
- ------------------------------------- 1995
DANIEL P. DAVISON
/s/ Daniel J. Evans Director February 17,
- ------------------------------------- 1995
DANIEL J. EVANS
/s/ Barbara C. Jordan Director February 17,
- ------------------------------------- 1995
BARBARA C. JORDAN
/s/ Ben F. Love Director February 17,
- ------------------------------------- 1995
BEN F. LOVE
/s/ Arnold R. Weber Director February 17,
- ------------------------------------- 1995
ARNOLD R. WEBER
/s/ Edward E. Whitacre, Jr. Director February 17,
- ------------------------------------- 1995
EDWARD E. WHITACRE, JR.
/s/ Michael B. Yanney Director February 17,
- ------------------------------------- 1995
MICHAEL B. YANNEY
60
<PAGE>
DIRECTORS OF BURLINGTON NORTHERN INC.
Jack S. Blanton (2)(3) Barbara C. Jordan (3) Edward E. Whitacre, Jr.
Chairman and Chief Professor (1)(3)
Executive Officer The Lyndon B. Johnson Chairman and Chief
Houston Endowment, Inc. School Executive Officer
of Public Affairs SBC Communications Inc.
Daniel P. Davison (2)(3) University of Texas at
Retired Chairman and CEO Austin Michael B. Yanney (2)
U.S. Trust Corporation Chairman and Chief
Ben F. Love (2)(3) Executive Officer
Daniel J. Evans (1)(2) Director and Consultant America First Companies
Chairman Retired Chairman and
Daniel J. Evans Chief Executive Committee Assignments
Associates Officer (1972-1989) (1) Audit
Texas Commerce (2) Compensation and
Gerald Grinstein Bancshares, Inc. Nominating
Chairman and Chief
(3) Finance
Executive Officer Arnold R. Weber (1)
Burlington Northern Inc. Chancellor
Chairman and Chief Northwestern University
Executive Officer
Burlington Northern
Railroad Company
CORPORATE INFORMATION
PRINCIPAL CORPORATE STOCK EXCHANGE LISTINGS Additional copies of
OFFICE New York Stock Exchange this
Burlington Northern Inc. Chicago Stock Exchange Annual Report on Form
3800 Continental Plaza Pacific Stock Exchange 10-K
777 Main Street Symbol: BNI are available, without
Fort Worth, Texas charge,
76102-5384 ANNUAL MEETING by writing or calling:
(817) 333-2000 The Annual Meeting of
EDMUND W. BURKE
Stockholders will be in
STOCK TRANSFER AGENT AND Fort Worth, Texas, on Executive Vice
REGISTRAR April 20, 1995. Formal President,
The First National Bank notice of the meeting Law and Secretary
of Boston will Burlington Northern Inc.
Shareholder Services be mailed in advance. 3800 Continental Plaza
P.O. Box 644 777 Main St.
Boston, Massachusetts 02102 Fort Worth, Texas 76102-
(617) 575-2900 5384
(817) 333-7951
61
<PAGE>
SCHEDULE II
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------------- ----------------- ------------- ----------------
BALANCE AT ADDITIONS CHARGED BALANCE AT
DESCRIPTION BEGINNING OF PERIOD TO INCOME DEDUCTIONS(1) END OF PERIOD(2)
----------- ------------------- ----------------- ------------- ----------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994:
Casualty and
environmental
reserves............ $712 $223 $271 $664
==== ==== ==== ====
DECEMBER 31, 1993:
Casualty and
environmental
reserves............ $732 $261 $281 $712
==== ==== ==== ====
DECEMBER 31, 1992:
Casualty and
environmental
reserves............ $714 $312 $294 $732
==== ==== ==== ====
</TABLE>
Notes:
(1) Principally represents cash payments.
(2) Classified in the consolidated balance sheets as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Casualty and environmental reserves (current liabilities).... $248 $286 $249
Casualty and environmental reserves (noncurrent liabilities). 416 426 483
---- ---- ----
$664 $712 $732
==== ==== ====
</TABLE>
62
<PAGE>
Exhibit Index
Sequentially
Exhibit Numbered
Number Description Page
- ------- ----------- ------------
10.15 364-Day Competitive Advance and Revolving Credit
Facility Agreement, dated as of May 6, 1994, between
Burlington Northern Railroad Company and a consortium
of lenders.
10.16 5-Year Competitive Advance and Revolving Credit
Facility Agreement, dated as of May 6, 1994, between
Burlington Northern Railroad Company and a consortium
of lenders.
10.17 3-Year Term Loan Facility Agreement, dated as of
November 14, 1994, between Burlington Northern
Railroad Company and a consortium of lenders.
10.20 Employment Agreement, dated September 4, 1990, by
and between Burlington Northern Railroad Company and
Mr. John T. Chain.
10.22 Employment Agreement, dated September 18, 1991, by
and between Burlington Northern Railroad Company and
Mr. Richard A. Russack.
10.23 Employment Agreement, dated April 18, 1994, between
Burlington Northern Railroad Company and
Mr. Greg Swienton.
10.24 Employment Agreement, dated April 22, 1994, between
Burlington Northern Railroad Company and
Mr. Ronald A. Rittenmeyer.
11 Computation of Earnings per Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of Burlington Northern Inc.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
<PAGE>
EXHIBIT 10.15
================================================================================
364-DAY COMPETITIVE ADVANCE AND REVOLVING CREDIT
FACILITY AGREEMENT
Dated as of May 6, 1994
among
BURLINGTON NORTHERN RAILROAD COMPANY,
THE LENDERS NAMED HEREIN,
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as Administrative Agent
and
CHEMICAL BANK AGENCY SERVICES CORPORATION,
as Competitive Advance Facility Agent
================================================================================
[CS&M Ref. No. 6700-227]
[6700-070(X)RAF/CV08A.WPF/30D/4674W]
<PAGE>
TABLE OF CONTENTS
Article Section Page
- ------- ------- ----
I. DEFINITIONS
1.01 Defined Terms ..................... 1
1.02 Terms Generally ................... 17
II. THE CREDITS
2.01 Commitments ....................... 18
2.02 Loans ............................. 18
2.03 Competitive Bid Procedure ......... 20
2.04 Standby Borrowing Procedure ....... 24
2.05 Refinancings ...................... 24
2.06 Conversion and Continuation of
Standby Borrowings .............. 25
2.07 Fees .............................. 27
2.08 Repayment of Loans ................ 28
2.09 Interest on Loans ................. 29
2.10 Default Interest .................. 30
2.11 Alternate Rate of Interest ........ 30
2.12 Termination and Reduction of
Commitments ..................... 31
2.13 Prepayment ........................ 32
2.14 Reserve Requirements; Change in
Circumstances ................... 33
2.15 Change in Legality ................ 35
2.16 Indemnity ......................... 36
2.17 Pro Rata Treatment ................ 37
2.18 Sharing of Setoffs ................ 37
2.19 Payments .......................... 38
2.20 Taxes ............................. 39
2.21 Termination or Assignment of
Commitments Under Certain
Circumstances ................... 42
III. REPRESENTATIONS AND WARRANTIES 43
IV. CONDITIONS OF LENDING
4.01 Conditions to Effectiveness of
Commitments ..................... 47
4.02 Conditions to All Borrowings ...... 48
[6700-070(X)RAF/CTO8A.wpf/19N/4674]
<PAGE>
Article Section Page
- ------- ------- ----
V. AFFIRMATIVE COVENANTS
5.01 Existence; Businesses and
Properties ...................... 49
5.02 Insurance ......................... 49
5.03 Reporting Requirements ............ 50
5.04 Consolidated Tangible Net Worth ... 53
5.05 Taxes ............................. 53
VI. NEGATIVE COVENANTS
6.01 Debt .............................. 53
6.02 Sale, etc., of Assets ............. 53
6.03 Mergers, etc ...................... 55
6.04 Liens ............................. 55
6.05 Sales of Accounts Receivable ...... 56
VII. EVENTS OF DEFAULT ........................ 56
VIII. THE AGENTS ............................... 60
IX. MISCELLANEOUS
9.01 Notices ........................... 63
9.02 Survival of Agreement ............. 64
9.03 Binding Effect .................... 64
9.04 Successors and Assigns ............ 64
9.05 Expenses; Indemnity ............... 68
9.06 Right of Setoff ................... 70
9.07 Applicable Law .................... 70
9.08 Waivers; Amendment ................ 70
9.09 Interest Rate Limitation .......... 71
9.10 Entire Agreement .................. 71
9.11 Severability ...................... 71
9.12 Counterparts ...................... 72
9.13 Headings .......................... 72
9.14 Jurisdiction; Consent to Service of
Process ......................... 72
Exhibit A-1 Form of Competitive Bid Request
Exhibit A-2 Form of Notice of Competitive Bid Request
Exhibit A-3 Form of Competitive Bid
[6700-070(X)RAF/CT08A.wpf/19N/4674]
<PAGE>
Exhibit A-4 Form of Competitive Bid Accept/Reject Letter
Exhibit A-5 Form of Standby Borrowing Request
Exhibit B Administrative Questionnaire
Exhibit C Form of Assignment and Acceptance
Exhibit D Form of Opinion of Francis T. Kelly, Esq.,
Counsel for the Borrower
Exhibit E Form of Opinion of Douglas J. Babb, Vice
President and General Counsel of the
Borrower
Schedule 2.01 Commitments
Schedule 6.04(a) Existing Liens
[6700-070(X)RAF/CT08A.wpf/19N/4674]
<PAGE>
364-DAY COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY
AGREEMENT dated as of May 6, 1994, among BURLINGTON NORTHERN
RAILROAD COMPANY, a Delaware corporation (the "Borrower"); the
lenders listed in Schedule 2.01 hereto (the "Lenders"); TEXAS
COMMERCE BANK NATIONAL ASSOCIATION, a national banking
association, as administrative agent (in such capacity, the
"Administrative Agent") and CHEMICAL BANK AGENCY SERVICES
CORPORATION, as competitive advance facility agent (in such
capacity, the "CAF Agent").
The Borrower has requested the Lenders to extend credit to the
Borrower in order to enable it to borrow on a standby revolving credit basis on
and after the date hereof and at any time and from time to time prior to the
Termination Date (as herein defined) a principal amount not in excess of
$300,000,000 at any time outstanding. The Borrower has also requested the
Lenders to provide a procedure pursuant to which the Borrower may invite the
Lenders to bid on an uncommitted basis on short-term borrowings by the Borrower.
The proceeds of such borrowings are to be used for general corporate purposes,
including providing backup liquidity for the Borrower's commercial paper program
and for acquisitions of any person approved by the board of directors or other
comparable body of such person. The Lenders are willing to extend such credit
to the Borrower on the terms and subject to the conditions herein set forth.
Accordingly, the Borrower, the Lenders, the Administrative Agent and
the CAF Agent agree as follows:
ARTICLE I. DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the
--------------
following terms shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
-------------
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
2
"ABR Loan" shall mean any Standby Loan bearing interest at a rate
--------
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"Adjusted CD Rate" shall mean, with respect to any CD Borrowing for
----------------
any Interest Period, an interest rate per annum (rounded upwards, if necessary,
to the next 1/100 of 1%) equal to the sum of (a) a rate per annum equal to the
product of (i) the Fixed CD Rate in effect for such Interest Period and (ii)
Statutory Reserves, plus (b) the Assessment Rate. For purposes hereof, the term
"Fixed CD Rate" shall mean the arithmetic average (rounded upwards, if
-------------
necessary, to the next 1/100 of 1%) of the prevailing rates per annum bid at or
about 10:00 a.m., New York City time, to each Reference Bank on the first
Business Day of the Interest Period applicable to such CD Borrowing by three New
York City negotiable certificate of deposit dealers of recognized standing for
the purchase at face value of negotiable certificates of deposit of such
Reference Bank in a principal amount approximately equal to such Reference
Bank's portion of such CD Borrowing and with a maturity comparable to such
Interest Period.
"Administrative Questionnaire" shall mean an Administrative
----------------------------
Questionnaire in the form of Exhibit B hereto.
"Affiliate" shall mean, when used with respect to a specified person,
---------
another person that directly, or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with the person
specified.
"Agent Fees" shall have the meaning given such term in Section
----------
2.07(b).
"Agents" shall mean the CAF Agent and the Administrative Agent.
------
"Alternate Base Rate" shall mean, for any day, a rate per annum
-------------------
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of
(a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such
day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus
1/2 of 1%. For purposes hereof, "Prime Rate" shall mean as of a particular
----------
date, the prime rate most recently announced by the Administrative Agent and
thereafter entered in the minutes of the Administrative
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
3
Agent's Loan and Discount Committee, automatically fluctuating upward and
downward with and at the time specified in each such announcement without notice
to the Borrower or any other person, which prime rate may not necessarily
represent the lowest or best rate actually charged to a customer. "Base CD
-------
Rate" shall mean the sum of (a) the product of (i) the Three-Month Secondary CD
- ----
Rate and (ii) Statutory Reserves and (b) the Assessment Rate. "Three-Month
-----------
Secondary CD Rate" shall mean, for any day, the secondary market rate for three-
- -----------------
month certificates of deposit reported as being in effect on such day (or, if
such day shall not be a Business Day, the next preceding Business Day) by the
Board through the public information telephone line of the Federal Reserve Bank
of New York (which rate will, under the current practices of the Board, be
published in Federal Reserve Statistical Release H.15(519) during the week
following such day), or, if such rate shall not be so reported on such day or
such next preceding Business Day, the average of the secondary market quotations
for three month certificates of deposit of major money center banks in New York
City received at approximately 10:00 a.m., New York City time, on such day (or,
if such day shall not be a Business Day, on the next preceding Business Day) by
the Administrative Agent from three New York City negotiable certificate of
deposit dealers of recognized standing selected by it. "Federal Funds Effective
-----------------------
Rate" shall mean, for any day, the weighted average of the rates on overnight
- ----
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published on the next succeeding Business Day by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for the day of
such transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it. If for any reason the
Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Base CD
Rate or the Federal Funds Effective Rate or both for any reason, including the
inability of the Administrative Agent to obtain sufficient quotations in
accordance with the terms thereof, the Alternate Base Rate shall be determined
without regard to clause (b) or (c), or both, of the first sentence of this
definition, as appropriate, until the circumstances giving rise to such
inability no longer exist. Any change in the Alternate Base Rate due to a
change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate shall be effective on the effective date of
[6700-070(A)RAF/A08A.WPF/30D/467AW]
<PAGE>
4
\such change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal
Funds Effective Rate, respectively.
"Applicable Fee Percentage" shall mean on any date the applicable
-------------------------
percentage set forth below based upon the ratings applicable on such date to
indebtedness outstanding under the Mortgage Indenture or similar senior,
secured, non-credit-enhanced long-term indebtedness of the Borrower (other than
the Northern Pacific 3% General Lien Bonds due 2047 and the St. Louis-San
Francisco 5% Debentures due 2006) for borrowed money ("Index Debt"):
<TABLE>
<CAPTION>
Applicable
Fee
Percentage
-----------
<S> <C>
Category 1
----------
A or higher by S&P; .100%
A2 or higher by Moody's
Category 2
----------
A- by S&P; .100%
A3 by Moody's
Category 3
----------
BBB+ by S&P; .125%
Baa1 by Moody's
Category 4
----------
BBB by S&P; .125%
Baa2 by Moody's
Category 5
----------
BBB- or lower by S&P; .150%
Baa3 or lower by Moody's
</TABLE>
For purposes of the foregoing, (i) if either Moody's or S&P shall not have in
effect a rating for Index Debt (other than because such rating agency shall no
longer be in the business of rating corporate debt obligations), then such
rating agency will be deemed to have established a rating for Index Debt in
Category 5; (ii) if the ratings established or deemed to have been established
by Moody's and S&P shall fall within different
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
5
Categories, the Applicable Fee Percentage shall be determined by reference to
the inferior (or numerically highest) Category, (iii) if any rating established
or deemed to have been established by Moody's or S&P shall be changed (other
than as a result of a change in the rating system of either Moody's or S&P),
such change shall be effective as of the date on which such change is first
announced by the rating agency making such change and (iv) in the event, and for
so long as, the commercial paper rating applicable to the Borrower shall be
lower than A-2 by S&P or lower than P-2 by Moody's or no such rating shall be in
effect from either Moody's or S&P (other than because such rating agency shall
no longer be in the business of rating corporate debt obligations), the
Applicable Fee Percentage shall be determined by reference to Category 5. Each
change in the Applicable Fee Percentage shall apply during the period commencing
on the effective date of such change and ending on the date immediately
preceding the effective date of the next such change. If the rating system of
either Moody's or S&P shall change, or if either such rating agency shall cease
to be in the business of rating corporate debt obligations, the Borrower and the
Lenders shall negotiate in good faith to amend the references to specific
ratings in this definition to reflect such changed rating system or the non-
availability of ratings from such rating agency, and pending agreement on such
amendment, the rating in effect immediately prior to such change or cessation
will be used in determining the Applicable Fee Percentage.
"Applicable Margin" shall mean on any date, with respect to Eurodollar
-----------------
Standby Loans, CD Loans or ABR Loans, as the case may be, the applicable spreads
set forth below based upon the ratings applicable on such date to the Borrower's
Index Debt:
<TABLE>
<CAPTION>
Eurodollar CD Loan ABR Loan
Loan Spread Spread Spread
----------- -------- ---------
<S> <C> <C> <C>
Category 1
- ----------
A or higher by S&P; .200% .325% 0%
Category 2
- ----------
A- by S&P; .225% .350% 0%
A3 by Moody's
</TABLE>
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
6
<TABLE>
<S> <C> <C> <C>
Category 3
- ----------
BBB+ by S&P; .250% .375% 0%
Baa1 by Moody's
Category 4
- ----------
BBB by S&P; .375% .500% 0%
Baa2 by Moody's
Category 5
- ----------
BBB- or lower by S&P .500% .625% 0%
Baa3 or lower by Moody's
</TABLE>
For purposes of the foregoing, (i) if either Moody's or S&P shall not have in
effect a rating for Index Debt (other than because such rating agency shall no
longer be in the business of rating corporate debt obligations), then such
rating agency will be deemed to have established a rating for Index Debt in
Category 5; (ii) if the ratings established or deemed to have been established
by Moody's and S&P shall fall within different Categories, the Applicable Margin
shall be determined by reference to the inferior (or numerically higher)
Category, (iii) if any rating established or deemed to have been established by
Moody's or S&P shall be changed (other than as a result of a change in the
rating system of either Moody's or S&P), such change shall be effective as of
the date on which such change is first announced by the rating agency making
such change and (iv) in the event, and for so long as, the commercial paper
rating applicable to the Borrower shall be lower than A-2 by S&P or lower than
P-2 by Moody's or no such rating shall be in effect from either Moody's or S&P
(other than because such rating agency shall no longer be in the business of
rating corporate debt obligations), the Applicable Margin shall be determined by
reference to Category 5. Each change in the Applicable Margin shall apply to all
Eurodollar Standby Loans, CD Loans and ABR Loans that are outstanding at any
time during the period commencing on the effective date of such change and
ending on the date immediately preceding the effective date of the next such
change. If the rating system of either Moody's or S&P shall change, or if
either such rating agency shall cease to be in the business of rating corporate
debt obligations, the Borrower and the Lenders shall negotiate in good faith to
amend the references to specific ratings in this definition to reflect such
changed rating system or the nonavailability of ratings from such rating agency,
and pending agreement on such amendment, the rating in effect immediately prior
to
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
7
such change or cessation will be used in determining the Applicable Margin.
"Assessment Rate" shall mean for any date the annual rate (rounded
---------------
upwards, if necessary, to the next 1/100 of 1%) most recently estimated by the
Administrative Agent as the then current net annual assessment rate that will be
employed in determining amounts payable by the Administrative Agent to the
Federal Deposit Insurance Corporation (or any successor) for insurance by such
Corporation (or such successor) of time deposits made in dollars at the
Administrative Agent's domestic offices.
"Assignment and Acceptance" shall mean an assignment and acceptance
-------------------------
entered into by a Lender and an assignee, and accepted by the Administrative
Agent, in the form of Exhibit C.
"Board" shall mean the Board of Governors of the Federal Reserve
-----
System of the United States.
"Borrowing" shall mean a group of Loans of a single Type made by the
---------
Lenders (or, in the case of a Competitive Borrowing, by the Lender or Lenders
whose Competitive Bids have been accepted pursuant to Section 2.03) on a single
date and as to which a single Interest Period is in effect.
"Business Day" shall mean any day (other than a day which is a
------------
Saturday, Sunday or legal holiday in the State of Texas or New York) on which
banks are open for business in Houston and New York City; provided, however,
-------- -------
that, when used in connection with a Eurodollar Loan, the term "Business Day"
------------
shall also exclude any day on which banks are not open for dealings in dollar
deposits in the London interbank market.
"CD Borrowing" shall mean a Borrowing comprised of CD Loans.
------------
"CD Loan" shall mean any Standby Loan bearing interest at a rate
-------
determined by reference to the Adjusted CD Rate in accordance with the
provisions of Article II.
A "Change in Control" shall be deemed to have occurred if (a) any
-----------------
person or group (within the meaning of Rule 13d-5 of the Securities and Exchange
Commission as in effect on the date hereof) shall own directly or indirectly,
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
8
beneficially or of record, shares representing more than 50% of the aggregate
ordinary voting power represented by the issued and outstanding capital stock of
the Parent (other than as the result of a transaction approved by the Parent's
Board of Directors), (b) a majority of the seats (other than vacant seats) on
the board of directors of the Parent shall at any time have been occupied by
persons who were neither (i) nominated by the board of directors of the Parent,
nor (ii) appointed by directors so nominated, (c) any person or group shall
otherwise directly or indirectly obtain control of the Parent (other than in a
transaction approved by the Parent's Board of Directors) or (d) the Parent shall
cease to control the Borrower.
"Closing Date" shall mean the date hereof.
------------
"Code" shall mean the Internal Revenue Code of 1986, as the same may
----
be amended from time to time.
"Commitment" shall mean, with respect to each Lender, the commitment
----------
of such Lender hereunder as set forth in Schedule 2.01 hereto, as such Lender's
Commitment may be permanently terminated or reduced from time to time pursuant
to Section 2.12. The Commitments shall automatically and permanently terminate
on the Termination Date.
"Competitive Bid" shall mean an offer by a Lender to make a
---------------
Competitive Loan pursuant to Section 2.03.
"Competitive Bid Accept/Reject Letter" shall mean a notification made
------------------------------------
by the Borrower pursuant to Section 2.03(d) in the form of Exhibit A-4.
"Competitive Bid Rate" shall mean, as to any Competitive Bid made by
--------------------
a Lender pursuant to Section 2.03(b), (i) in the case of a Eurodollar Loan, the
Margin, and (ii) in the case of a Fixed Rate Loan, the fixed rate of interest
offered by the Lender making such Competitive Bid.
"Competitive Bid Request" shall mean a request made pursuant to
-----------------------
Section 2.03 in the form of Exhibit A-1.
"Competitive Borrowing" shall mean a borrowing consisting of a
---------------------
Competitive Loan or concurrent Competitive Loans from the Lender or Lenders
whose Competitive Bids for such Borrowing have been accepted by the Borrower
under the bidding procedure described in Section 2.03.
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
9
"Competitive Loan" shall mean a loan from a Lender to the Borrower
----------------
pursuant to the bidding procedure described in Section 2.03. Each Competitive
Loan shall be a Eurodollar Competitive Loan or a Fixed Rate Loan.
"Consolidated Tangible Net Worth" shall mean preferred stockholder's
-------------------------------
and common stockholder's equity of the Borrower (other than mandatorily
redeemable preferred stock) minus intangible assets of the Borrower and its
consolidated Subsidiaries.
"Debt" shall mean, without duplication, (i) indebtedness for borrowed
----
money or for the deferred purchase price of property or services whether
evidenced by bonds, debentures, notes or similar instruments or otherwise (but
excluding, in any case, liabilities by endorsement of negotiable instruments for
deposit or collection and liabilities with respect to accounts payable incurred
in the ordinary course of business), (ii) obligations as lessee under leases
which shall have been or should be, in accordance with generally accepted
accounting principles, recorded as capital leases and (iii) obligations under
direct or indirect guarantees in respect of, and obligations to purchase or
otherwise acquire, or otherwise to assure a creditor against loss in respect of,
indebtedness on obligations of persons (other than the Borrower and its
consolidated Subsidiaries) of the kinds referred to in clauses (i) and (ii)
above.
"Default" shall mean any event or condition which upon notice, lapse
-------
of time or both would constitute an Event of Default.
"dollars" or "$" shall mean lawful money of the United States of
------- -
America.
"Engagement Letter" shall mean the engagement letter dated April 7,
-----------------
1994, among the Borrower, the Administrative Agent and Chemical Securities Inc.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as the same may be amended from time to time.
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
10
"ERISA Affiliate" shall mean any person who for purposes of Title IV
---------------
of ERISA is a member of the Borrower's controlled group, or is under common
control with the Borrower, within the meaning of Section 414 of the Code and the
regulations promulgated and rulings issued thereunder.
"Eurodollar Borrowing" shall mean a Borrowing comprised of
--------------------
Eurodollar Loans.
"Eurodollar Competitive Borrowing" shall mean a Competitive Borrowing
--------------------------------
comprised of Eurodollar Competitive Loans.
"Eurodollar Competitive Loan" shall mean any Competitive Loan bearing
---------------------------
interest at a rate determined by reference to the LIBO Rate in accordance with
the provisions of Article II.
"Eurodollar Loan" shall mean any Eurodollar Competitive Loan or
---------------
Eurodollar Standby Loan.
"Eurodollar Standby Borrowing" shall mean a Standby Borrowing
----------------------------
comprised of Eurodollar Standby Loans.
"Eurodollar Standby Loan" shall mean any Standby Loan bearing
-----------------------
interest at a rate determined by reference to the LIBO Rate in accordance with
the provisions of Article II.
"Event of Default" shall have the meaning given such term in Article
----------------
VII.
"Existing Facility" shall mean the $500,000,000 Competitive Advance
-----------------
and Revolving Credit Facility Agreement dated as of October 18, 1991, among the
Borrower, the lenders named therein, Texas Commerce Bank National Association,
as administrative agent, and Chemical Bank, as facility agent.
"Existing Liens" shall mean Liens existing on the date hereof and
--------------
described on Schedule 6.04(a) hereto and any Lien arising out of the
refinancing, extension, renewal or refunding of any Debt secured by such Lien,
but only to the extent the amount of such Debt shall not be increased.
"Existing Mortgages" shall mean each security or other agreement of
------------------
whatever nature described within the Burlington Northern Railroad Company Long-
Term Debt Book
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
11
dated December 31, 1993, a copy of which has been delivered by the Borrower
to the Administrative Agent, as such agreements may have been amended or
modified to the date hereof or as they may be amended, supplemented, replaced or
modified from time to time hereafter.
"Facility B Credit Agreement" shall mean the $500,000,000
---------------------------
Competitive Advance and Revolving Credit Facility Agreement dated as of the
date hereof among the Borrower, the lenders named therein, Texas Commerce Bank
National Association, as administrative agent for the lenders, and Chemical Bank
Agency Services Corporation, as CAF Agent.
"Facility Fee" shall have the meaning assigned to such term in Section
------------
2.07(a).
"Federal Funds Effective Rate" shall have the meaning assigned
----------------------------
thereto in the definition of Alternate Base Rate.
"Fees" shall mean the Facility Fee and the Agent Fees.
----
"Fixed Rate Borrowing" shall mean a Borrowing comprised of Fixed
--------------------
Rate Loans.
"Fixed Rate Loan" shall mean any Competitive Loan bearing interest at
---------------
a fixed percentage rate per annum (expressed in the form of a decimal to no
more than four decimal places) specified by the Lender making such Loan in its
Competitive Bid.
"GAAP" shall mean United States generally accepted accounting
----
principles, applied on a basis consistent with the financial statements
referred to in paragraph (e) of Article III hereof.
"Governmental Authority" shall mean any Federal, state, local or
----------------------
foreign court or governmental agency, authority, instrumentality or regulatory
body.
"ICC" shall mean the Interstate Commerce Commission or any successor
---
thereto.
"Index Debt" shall have the meaning assigned thereto in the
----------
definition of Applicable Fee Percentage.
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
12
"Insufficiency" shall mean, with respect to any Plan, the amount, if
-------------
any, by which the present value of the benefit liabilities under such Plan
exceeds the fair market value of the assets of such Plan.
"Interest Payment Date" shall mean, with respect to any Loan, the
---------------------
last day of the Interest Period applicable thereto and, in the case of a
Eurodollar Loan with an Interest Period of more than three months duration or a
Fixed Rate Loan or a CD Loan with an Interest Period of more than 90 days
duration, each day that would have been an Interest Payment Date for such Loan
had successive Interest Periods of three months duration or 90 days duration, as
the case may be, been applicable to such Loan and, in addition, the date of any
refinancing or conversion of such Loan with or to a Loan of a different Type.
"Interest Period" shall mean (a) as to any Eurodollar Borrowing, the
---------------
period commencing on the date of such Borrowing or on the last day of the
immediately preceding Interest Period applicable to such Borrowing, as the case
may be, and ending on the numerically corresponding day (or, if there is no
numerically corresponding day, on the last day) in the calendar month that is
(i) in the case of any Eurodollar Competitive Loan, any whole number of months
(but not more than 12 months) thereafter, as the Borrower may elect and (ii) in
the case of any Eurodollar Standby Loan, 1, 2, 3 or 6 months or, with the
approval of all the Lenders, 9 or 12 months thereafter, as the Borrower may
elect, (b) as to any CD Borrowing, a period of 30, 60, 90, 180, 270 or 360 days
duration, as the Borrower may elect, commencing on the date of such Borrowing,
(c) as to any ABR Borrowing, the period commencing on the date of such Borrowing
and ending on the date 90 days thereafter or, if earlier, on the Maturity Date
or the date of repayment, prepayment or conversion of such Borrowing and (d) as
to any Fixed Rate Borrowing, the period commencing on the date of such Borrowing
and ending on the date specified in the Competitive Bids in which the offer to
make the Fixed Rate Loans comprising such Borrowing were extended, which shall
not be earlier than seven days after the date of such Borrowing or later than
360 days after the date of such Borrowing; provided, however, that if any
-------- -------
Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless, in the case
of Eurodollar Loans only, such next succeeding Business Day would fall in the
next calendar month, in which case such Interest Period shall end on the
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
13
next preceding Business Day. Interest shall accrue from and including the first
day of an Interest Period to but excluding the last day of such Interest Period.
"LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for
---------
any Interest Period, an interest rate per annum equal to the average (rounded
upwards, if necessary, to the next 1/16 of 1%) of the rates per annum at which
dollar deposits for a maturity comparable to such Interest Period are offered by
the principal London offices of the Reference Banks (or, if any Reference Bank
does not at the time maintain a London office, the principal London office of
any Affiliate of such Reference Bank) in immediately available funds in the
London interbank market at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period in amounts approximately
equal to the amount of such Borrowing.
"Lien" shall mean any lien, security interest or other charge or
----
encumbrance, or any assignment of the right to receive income, or any other type
of preferential arrangement, in each case to secure any obligation of any
person.
"Loan" shall mean any Competitive Loan or Standby Loan.
----
"Loan Documents" shall mean this Agreement and the Fee Letter dated
--------------
April 7, 1994 among the Administrative Agent, Chemical Securities Inc. and the
Borrower.
"Margin" shall mean, as to any Eurodollar Competitive Loan, the margin
------
(expressed as a percentage rate per annum in the form of a decimal to no more
than four decimal places) to be added to or subtracted from the LIBO Rate in
order to determine the interest rate applicable to such Loan, as specified in
the Competitive Bid relating to such Loan.
"Margin Stock" shall have the meaning given such term under
------------
Regulation U.
"Material Adverse Effect" shall mean a material adverse effect on the
-----------------------
financial condition or operations of the Borrower and its consolidated
Subsidiaries on a consolidated basis.
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
14
"Material Plan" shall mean any Plan the assets of which exceed
-------------
$50,000,000 or the liabilities of which for unfunded benefit liabilities
exceed $15,000,000.
"Maturity Date" shall mean May 3, 1996.
-------------
"Moody's" shall mean Moody's Investors Service.
-------
"Mortgage Indenture" shall mean the Consolidated Mortgage, dated
------------------
March 2, 1970, by Burlington Northern Inc. (the former name of the Borrower) to
Morgan Guaranty Trust Company of New York and Jacob M. Ford II, as trustees, as
amended to the date hereof and as amended, supplemented or modified from time to
time hereafter.
"Multiemployer Plan" shall mean a multiemployer plan as defined in
------------------
Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate (other
than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
Section 414 of the Code) is making or accruing an obligation to make
contributions, or has within any of the preceding five plan years made or
accrued an obligation to make contributions, such plan being maintained pursuant
to one or more collective bargaining agreements.
"Multiple Employer Plan" shall mean a single employer plan, as
----------------------
defined in Section 4001(a)(15) of ERISA, which (i) is maintained for employees
of the Borrower or an ERISA Affiliate and at least one person other than the
Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of
which the Borrower or an ERISA Affiliate could have liability under Section 4064
or 4069 of ERISA in the event such plan has been or were to be terminated.
"Parent" shall mean Burlington Northern Inc., a Delaware corporation.
------
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred
----
to and defined in ERISA, or any successor thereto.
"person" shall mean any natural person, corporation, business trust,
------
joint venture, association, company, partnership or government, or any agency or
political subdivision thereof.
"Plan" shall mean any pension plan (other than a Multiemployer Plan)
----
subject to the provisions of Title IV of
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
15
ERISA or Section 412 of the Code which is maintained for employees of the
Borrower or any ERISA Affiliate.
"Reference Banks" shall mean Texas Commerce Bank National Association,
---------------
Citibank, N.A. and The First National Bank of Chicago.
"Register" shall have the meaning given such term in Section 9.04(d).
--------
"Regulation D" shall mean Regulation D of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation G" shall mean Regulation G of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation U" shall mean Regulation U of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation X" shall mean Regulation X of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
"Required Lenders" shall mean, at any time, Lenders having
----------------
Commitments representing at least 55% of the Total Commitment or, for purposes
of acceleration pursuant to clause (ii) of Article VII, Lenders holding Loans
representing at least 55% of the aggregate principal amount of the Loans
outstanding.
"Responsible Officer" shall mean with respect to the subject matter
-------------------
of any covenant, agreement, or obligation of the Borrower contained in this
Agreement, the president, any vice president, treasurer, assistant treasurer or
other officer of the Borrower who in the normal performance of his or her
operational responsibility would have knowledge of such subject matter and the
requirements of such covenants, agreements or obligations of the Borrower with
respect thereto.
"S&P" shall mean Standard and Poor's Corporation.
---
"Standby Borrowing" shall mean a borrowing consisting of simultaneous
-----------------
Standby Loans from each of the Lenders.
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
16
"Standby Borrowing Request" shall mean a request made pursuant to
-------------------------
Section 2.04 in the form of Exhibit A-5.
"Standby Loans" shall mean the revolving loans made by the Lenders to
-------------
the Borrower pursuant to Section 2.04. Each Standby Loan shall be a Eurodollar
Standby Loan, a CD Standby Loan or an ABR Standby Loan.
"Statutory Reserves" shall mean a fraction (expressed as a decimal),
------------------
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves), expressed as a decimal
established by the Board and any other banking authority to which the
Administrative Agent is subject for new negotiable nonpersonal time deposits in
dollars of over $100,000 with maturities approximately equal to (i) the
applicable Interest Period, in the case of the Adjusted CD Rate, and (ii) three
months, in the case of the Base CD Rate (as such term is used in the definition
of "Alternate Base Rate"). Statutory Reserves shall be adjusted automatically on
and as of the effective date of any change in any reserve percentage.
"subsidiary" shall mean, with respect to any person (herein referred
----------
to as the "parent"), any corporation, partnership, association or other business
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or more
than 50% of the general partnership interests are, at the time any determination
is being made, owned, controlled or held, or (b) which is, at the time any
determination is made, otherwise controlled, by the parent or one or more
subsidiaries of the parent or by the parent and one or more subsidiaries of the
parent.
"Subsidiary" shall mean any subsidiary of the Borrower.
----------
"Termination Date" shall mean May 5, 1995.
----------------
"Termination Event" shall mean (i) a "reportable event," as such term
-----------------
is described in Section 4043 of ERISA, (ii) the withdrawal of the Borrower or
any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it
was a "substantial employer," as such term is defined in Section 4001(a)(2) of
ERISA, or the incurrence of liability by the Borrower or any ERISA Affiliate
under Section 4064 of
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
17
ERISA upon the termination of a Multiple Employer Plan, (iii) the filing of a
notice of intent to terminate a Plan or the treatment of a Plan amendment as a
termination under Section 4041 of ERISA, (iv) the institution of proceedings to
terminate a Plan by the PBGC under Section 4042 of ERISA, (v) a failure to make
a required installment or other payment (within the meaning of Section 412(n)(1)
of the Code) with respect to any Plan or (vi) any other event or condition which
might constitute grounds under Section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer, any Plan.
"Total Commitment" shall mean at any time the aggregate amount of the
----------------
Lenders' Commitments, as in effect at such time.
"Transfer" shall have the meaning given such term in Section 6.02.
--------
"Type", when used in respect of any Loan or Borrowing, shall refer to
----
the Rate by reference to which interest on such Loan or on the Loans
comprising such Borrowing is determined. For purposes hereof, "Rate" shall
include the LIBO Rate, the Adjusted CD Rate, the Alternate Base Rate and the
Fixed Rate.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan
--------------------
as a result of a complete or partial withdrawal from such Multiemployer Plan,
as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Terms Generally. The definitions in Section 1.01
---------------
shall apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; provided,
--------
however, that, for purposes of determining compliance with any covenant set
- -------
forth in Section 5.04 or Article VI, such terms shall be construed in accordance
with GAAP as in effect on the date of this
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
18
Agreement applied on a basis consistent with the application used in preparing
the Borrower's audited financial statements referred to in paragraph (e) of
Article III.
ARTICLE II. THE CREDITS
SECTION 2.01. Commitments. Subject to the terms and conditions and
-----------
relying upon the representations and warranties herein set forth, each Lender
agrees, severally and not jointly, to make Standby Loans to the Borrower, at any
time and from time to time on and after the date hereof and until the earlier of
the Termination Date and the termination of the Commitment of such Lender, in an
aggregate principal amount at any time outstanding not to exceed such Lender's
Commitment minus the amount by which the Competitive Loans outstanding at such
time shall be deemed to have used such Commitment pursuant to Section 2.17,
subject, however, to the conditions that (a) at no time shall (i) the sum of (x)
the outstanding aggregate principal amount of all Standby Loans made by all
Lenders plus (y) the outstanding aggregate principal amount of all Competitive
Loans made by all Lenders exceed (ii) the Total Commitment and (b) at all times
the outstanding aggregate principal amount of all Standby Loans made by each
Lender shall equal the product of (i) the percentage which its Commitment
represents of the Total Commitment times (ii) the outstanding aggregate
principal amount of all Standby Loans made pursuant to Section 2.04. Each
Lender's Commitment is set forth opposite its respective name in Schedule 2.01.
Such Commitments may be terminated or reduced from time to time pursuant to
Section 2.12. Within the foregoing limits, the Borrower may borrow, pay or
prepay and reborrow hereunder, on and after the Closing Date and prior to the
Termination Date, subject to the terms, conditions and limitations set forth
herein.
SECTION 2.02. Loans. (a) Each Standby Loan shall be made as part
-----
of a Borrowing consisting of Loans made by the Lenders ratably in accordance
with their Commitments; provided, however, that the failure of any Lender to
-------- -------
make any Standby Loan shall not in itself relieve any other Lender of its
obligation to lend hereunder (it being understood, however, that no Lender shall
be responsible for the failure of any other Lender to make any Loan required to
be made by such other Lender). Each Competitive Loan shall be made in accordance
with the procedures set forth in Section 2.03. The Loans comprising
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
19
any Borrowing shall be (i) in the case of Competitive Loans, in an aggregate
principal amount which is an integral multiple of $1,000,000 and not less than
$5,000,000 and (ii) in the case of Standby Loans, in an aggregate principal
amount which is an integral multiple of $1,000,000 and not less than $20,000,000
(or an aggregate principal amount equal to the remaining balance of the
available Commitments).
(b) Each Competitive Borrowing shall be comprised entirely of
Eurodollar Competitive Loans or Fixed Rate Loans and each Standby Borrowing
shall be comprised entirely of Eurodollar Standby Loans, CD Loans or ABR Loans,
as the Borrower may request pursuant to Section 2.03 or 2.04, as applicable.
Each Lender may at its option make any Eurodollar Loan by causing any domestic
or foreign branch or Affiliate of such Lender to make such Loan; provided that
--------
any exercise of such option shall not affect the obligation of the Borrower to
repay such Loan in accordance with the terms of this Agreement. Borrowings of
more than one Type may be outstanding at the same time; provided, however, that
-------- -------
the Borrower shall not be entitled to request any Borrowing which, if made,
would result in an aggregate of more than twelve separate Standby Loans of any
Lender being outstanding hereunder at any one time. For purposes of the
foregoing, Loans having different Interest Periods, regardless of whether they
commence or end on the same date, shall be considered separate Loans.
(c) Subject to Section 2.05, each Lender shall make each Loan to be
made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds to the Administrative Agent in Houston, Texas, not
later than 1:00 p.m., New York City time, and the Administrative Agent shall by
3:00 p.m., New York City time, credit the amounts so received in immediately
available funds to an account designated by the Borrower with the Administrative
Agent or, if a Borrowing shall not occur on such date because any condition
precedent herein specified shall not have been met, return the amounts so
received to the respective Lenders. Competitive Loans shall be made by the
Lender or Lenders whose Competitive Bids therefor are accepted pursuant to
Section 2.03 in the amounts so accepted and Standby Loans shall be made by the
Lenders pro rata in accordance with Section 2.17. Unless the Administrative
Agent shall have received notice from a Lender prior to the date of any
Borrowing (or prior to 12:00 noon on the date of such borrowing, in the case of
an ABR Borrowing) that such
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
20
Lender will not make available to the Administrative Agent such Lender's portion
of such Borrowing, the Administrative Agent may assume that such Lender has made
such portion available to the Administrative Agent on the date of such Borrowing
in accordance with this paragraph (c) and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Lender shall not have made
such portion available to the Administrative Agent, such Lender and the Borrower
severally agree to repay to the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Administrative Agent at (i) in the case of the Borrower, the
interest rate applicable at the time to the Loans comprising such Borrowing and
(ii) in the case of such Lender, the Federal Funds Effective Rate. If such
Lender shall repay to the Administrative Agent such corresponding amount, such
amount shall constitute such Lender's Loan as part of such Borrowing for
purposes of this Agreement.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request any Borrowing if the Interest Period
requested with respect thereto would end after the Termination Date.
SECTION 2.03. Competitive Bid Procedure. (a) In order to request
--------------------------
Competitive Bids, the Borrower shall hand deliver or telecopy (or communicate by
telephone with prompt confirmation by telecopy or in writing) to the CAF Agent
(with a copy to the Administrative Agent) a duly completed Competitive Bid
Request in the form of Exhibit A-1 hereto, to be received by the CAF Agent (and
the Administrative Agent) (i) in the case of a Eurodollar Competitive Borrowing,
not later than 10:30 a.m., New York City time, four Business Days before a
proposed Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing,
not later than 10:30 a.m., New York City time, one Business Day before a
proposed Competitive Borrowing. No CD Loan or ABR Loan shall be requested in,
or made pursuant to, a Competitive Bid Request. A Competitive Bid Request that
does not conform substantially to the format of Exhibit A-1 may be rejected in
the CAF Agent's sole discretion, and the CAF Agent shall promptly notify the
Borrower of such rejection by telecopier (or by telephone with prompt
confirmation by telecopier or in writing). Such request shall in each case
refer to this Agreement and specify (x) whether the
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21
Borrowing then being requested is to be a Eurodollar Borrowing or a Fixed Rate
Borrowing, (y) the date of such Borrowing (which shall be a Business Day) and
the aggregate principal amount thereof which shall be in a minimum principal
amount of $5,000,000 and in an integral multiple of $1,000,000, and (z) the
Interest Period with respect thereto (which may not end after the Termination
Date). Promptly after its receipt of a Competitive Bid Request that is not
rejected as aforesaid, the CAF Agent shall invite by telecopier (in the form set
forth in Exhibit A-2 hereto) the Lenders to bid, on the terms and conditions of
this Agreement, to make Competitive Loans pursuant to the Competitive Bid
Request.
(b) Each Lender may, in its sole discretion, make one or more
Competitive Bids to the Borrower responsive to a Competitive Bid Request. Each
Competitive Bid by a Lender must be received by the CAF Agent via telecopier, in
the form of Exhibit A-3 hereto, (i) in the case of a Eurodollar Competitive
Borrowing, not later than 9:30 a.m., New York City time, three Business Days
before a proposed Competitive Borrowing and (ii) in the case of a Fixed Rate
Borrowing, not later than 9:30 a.m., New York City time, on the day of a
proposed Competitive Borrowing. Multiple bids will be accepted by the CAF Agent.
Competitive Bids that do not conform substantially to the format of Exhibit A-3
may be rejected by the CAF Agent, and the CAF Agent shall notify the Lender
making such nonconforming bid of such rejection as soon as practicable. Each
Competitive Bid shall refer to this Agreement and specify (x) the principal
amount (which shall be in a minimum principal amount of $5,000,000 and in an
integral multiple of $1,000,000 and which may equal the entire principal amount
of the Competitive Borrowing requested by the Borrower) of the Competitive Loan
or Loans that the Lender is willing to make to the Borrower, (y) the Competitive
Bid Rate or Rates at which the Lender is prepared to make the Competitive Loan
or Loans and (z) the Interest Period and the last day thereof. If any Lender
shall elect not to make a Competitive Bid, such Lender shall so notify the CAF
Agent by telecopier (I) in the case of Eurodollar Competitive Loans, not later
than 9:30 a.m., New York City time, three Business Days before a proposed
Competitive Borrowing, and (II) in the case of Fixed Rate Loans, not later than
9:30 a.m., New York City time, on the day of a proposed Competitive Borrowing;
provided, however, that failure by any Lender to give such notice shall not
- -------- -------
cause such Lender to be obligated to make any Competitive Loan as part of such
Competitive Borrowing. A Competitive
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22
Bid submitted by a Lender pursuant to this paragraph (b) shall be irrevocable.
(c) The CAF Agent shall promptly notify the Borrower by telecopier
(or by telephone promptly confirmed by telecopier) of all the Competitive Bids
made, the Competitive Bid Rate and the principal amount of each Competitive Loan
in respect of which a Competitive Bid was made and the identity of the Lender
that made each bid. The CAF Agent shall send a copy of all Competitive Bids to
the Borrower for its records as soon as practicable after completion of the
bidding process set forth in this Section 2.03.
(d) The Borrower may in its sole and absolute discretion, subject
only to the provisions of this paragraph (d), accept or reject any Competitive
Bid referred to in paragraph (c) above. The Borrower shall notify the CAF
Agent by telephone, confirmed by telecopier in the form of a Competitive Bid
Accept/Reject Letter, whether and to what extent it has decided to accept or
reject any of or all the bids referred to in paragraph (c) above, (x) in the
case of a Eurodollar Competitive Borrowing, not later than 10:30 a.m., New York
City time, three Business Days before a proposed Competitive Borrowing, and (y)
in the case of a Fixed Rate Borrowing, not later than 10:30 a.m., New York City
time, on the day of a proposed Competitive Borrowing; provided, however, that
-------- -------
(i) the failure by the Borrower to give such notice shall be deemed
to be a rejection of all the bids referred to in paragraph (c) above, (ii) the
Borrower shall not accept a bid made at a particular Competitive Bid Rate if the
Borrower has decided to reject a bid made at a lower Competitive Bid Rate, (iii)
the aggregate amount of the Competitive Bids accepted by the Borrower shall not
exceed the principal amount specified in the Competitive Bid Request, (iv) if
the Borrower shall accept a bid or bids made at a particular Competitive Bid
Rate but the amount of such bid or bids shall cause the total amount of bids to
be accepted by the Borrower to exceed the amount specified in the Competitive
Bid Request, then the Borrower shall accept a portion of such bid or bids in an
amount equal to the amount specified in the Competitive Bid Request less the
amount of all other Competitive Bids accepted with respect to such Competitive
Bid Request, which acceptance, in the case of multiple bids at such Competitive
Bid Rate, shall be made pro rata in accordance with the amount of each such bid
at such Competitive Bid Rate, and (v) except pursuant to clause (iv)
[6700-070(A)RAF/A08A.WPF/30D/4674W]
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23
above, no bid shall be accepted for a Competitive Loan unless such Competitive
Loan is in a minimum principal amount of $5,000,000 and an integral multiple of
$1,000,000; provided further, however, that if a Competitive Loan must be in an
-------- ------- -------
amount less than $5,000,000 because of the provisions of clause (iv) above, such
Competitive Loan may be for a minimum of $1,000,000 or any integral multiple
thereof, and in calculating the pro rata allocation of acceptances of portions
of multiple bids at a particular Competitive Bid Rate pursuant to clause (iv)
above the amounts shall be rounded to integral multiples of $1,000,000 in a
manner which shall be in the discretion of the Borrower. A notice given by the
Borrower pursuant to this paragraph (d) shall be irrevocable.
(e) The CAF Agent shall promptly notify each bidding Lender whether
or not its Competitive Bid has been accepted (and if so, in what amount and at
what Competitive Bid Rate) by telecopy sent by the CAF Agent, and each
successful bidder will thereupon become bound, subject to the other applicable
conditions hereof, to make the Competitive Loan in respect of which its bid has
been accepted. The CAF Agent shall also promptly notify the Administrative
Agent of the Competitive Bids that have been accepted, the amounts thereof and
the Competitive Bid Rates applicable thereto.
(f) If the CAF Agent shall become a Lender and shall elect to
submit a Competitive Bid in its capacity as a Lender, it shall submit such bid
directly to the Borrower one quarter of an hour earlier than the earliest time
at which the other Lenders are required to submit their bids to the CAF Agent
pursuant to paragraph (b) above. The CAF Agent will in no event disclose the
terms of any Lender's Competitive Bid to any other Lender; provided that
--------
following the acceptance or rejection of Competitive Bids submitted in
response to any Competitive Bid Request, the CAF Agent may at the request of any
Lender disclose information as to the range of the Competitive Bid Rates at
which Competitive Bids were submitted or accepted.
(g) All notices required by this Section 2.03 shall be given in
accordance with Section 9.01. Notwithstanding any other provision contained in
this Section 2.03, the Borrower shall not request any Competitive Bids after the
Termination Date.
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
24
SECTION 2.04. Standby Borrowing Procedure. In order to request a
---------------------------
Standby Borrowing, the Borrower shall hand deliver or telecopy (or communicate
by telephone with prompt confirmation by telecopy or in writing) to the
Administrative Agent a duly completed Standby Borrowing Request in the form of
Exhibit A-5 (a) in the case of a Eurodollar Standby Borrowing, not later than
11:00 a.m., New York City time, three Business Days before a proposed borrowing,
(b) in the case of a CD Borrowing, not later than 11:00 a.m., New York City
time, two Business Days before a proposed borrowing and (c) in the case of an
ABR Borrowing, not later than 11:00 a.m., New York City time, on the day of a
proposed borrowing. No Fixed Rate Loan shall be requested or made pursuant to a
Standby Borrowing Request. Such notice shall be irrevocable and shall in each
case specify (i) whether the Borrowing then being requested is to be a
Eurodollar Borrowing, a CD Borrowing or an ABR Borrowing; (ii) the date of such
Borrowing (which shall be a Business Day) and the amount thereof which shall be
in a minimum principal amount of $20,000,000 and in an integral multiple of
$1,000,000; and (iii) if such Borrowing is to be a Eurodollar Borrowing or CD
Borrowing, the Interest Period with respect thereto. If no election as to the
Type of Borrowing is specified in any such notice, then the requested Borrowing
shall be an ABR Borrowing. If no Interest Period with respect to any Eurodollar
Borrowing or CD Borrowing is specified in any such notice, then the Borrower
shall be deemed to have selected an Interest Period of one month's duration, in
the case of a Eurodollar Borrowing, or 30 days' duration, in the case of a CD
Borrowing. If the Borrower shall not have given notice in accordance with this
Section 2.04 of its election to refinance a Standby Borrowing prior to the end
of the Interest Period in effect for such Borrowing, then the Borrower shall
(unless such Borrowing is repaid at the end of such Interest Period) be deemed
to have given notice of an election to refinance such Borrowing with an ABR
Borrowing. The Administrative Agent shall promptly advise the Lenders of any
notice given pursuant to this Section 2.04 and of each Lender's portion of the
requested Borrowing.
SECTION 2.05. Refinancings. The Borrower may refinance all or any
------------
part of any Competitive Borrowing or Standby Borrowing with a Borrowing of the
same or a different Type made pursuant to Section 2.03 or Section 2.04, subject
to the conditions and limitations set forth herein and elsewhere in this
Agreement, including
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25
refinancings of Competitive Borrowings with Standby Borrowings and Standby
Borrowings with Competitive Borrowings. Any Borrowing or part thereof so
refinanced shall be deemed to be repaid in accordance with Section 2.08 with the
proceeds of a new Borrowing hereunder and the proceeds of the new Borrowing, to
the extent they do not exceed the principal amount of the Borrowing being
refinanced, shall not be paid by the Lenders to the Administrative Agent or by
the Administrative Agent to the Borrower pursuant to Section 2.02(c); provided,
--------
however, that (i) if the principal amount extended by a Lender in a refinancing
- -------
is greater than the principal amount extended by such Lender in the Borrowing
being refinanced, then such Lender shall pay such difference to the
Administrative Agent for distribution to the Lenders described in (ii) below,
(ii) if the principal amount extended by a Lender in the Borrowing being
refinanced is greater than the principal amount being extended by such Lender in
the refinancing, the Administrative Agent shall return the difference to such
Lender out of amounts received pursuant to (i) above, and (iii) to the extent
any Lender fails to pay the Administrative Agent amounts due from it pursuant to
(i) above, any Loan or portion thereof being refinanced with such amounts shall
not be deemed repaid in accordance with Section 2.08 and shall be payable by the
Borrower.
SECTION 2.06. Conversion and Continuation of Standby Borrowings. The
--------------------------------------------------
Borrower shall have the right at any time upon prior irrevocable notice to the
Administrative Agent (i) not later than 11:00 a.m., New York City time, one
Business Day prior to conversion, to convert any Eurodollar Standby Borrowing or
CD Borrowing into an ABR Borrowing, (ii) not later than 11:00 a.m., New York
City time, two Business Days prior to conversion or continuation, to convert any
Eurodollar Standby Borrowing or ABR Borrowing into a CD Borrowing or to continue
any CD Borrowing as a CD Borrowing for an additional Interest Period, (iii) not
later than 11:00 a.m., New York City time, three Business Days prior to
conversion or continuation, to convert any ABR Borrowing or CD Borrowing into a
Eurodollar Standby Borrowing or to continue any Eurodollar Standby Borrowing as
a Eurodollar Standby Borrowing for an additional Interest Period, (iv) not later
than 11:00 a.m., New York City time, three Business Days prior to conversion, to
convert the Interest Period with respect to any Eurodollar Standby Borrowing to
another permissible Interest Period and (v) not later than 11:00 a.m., New York
City time, two Business Days prior to conversion, to convert the Interest Period
with
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
26
respect to any CD Borrowing to another permissible Interest Period, subject in
each case to the following:
(a) each conversion or continuation shall be made pro rata among the
Lenders in accordance with the respective principal amounts of the Loans
comprising the converted or continued Standby Borrowing;
(b) if less than all the outstanding principal amount of any Standby
Borrowing shall be converted or continued, the aggregate principal amount
of such Standby Borrowing converted or continued shall be an integral
multiple of $1,000,000 and not less than $20,000,000;
(c) if any Eurodollar Standby Borrowing or CD Borrowing is converted
at a time other than the end of the Interest Period applicable thereto, the
Borrower shall pay, upon demand, any amounts due to the Lenders pursuant to
Section 2.16;
(d) any portion of a Standby Borrowing maturing or required to be
repaid in less than one month may not be converted into or continued as a
Eurodollar Standby Borrowing;
(e) any portion of a Standby Borrowing maturing or required to be
repaid in less than 30 days may not be converted into or continued as a CD
Borrowing;
(f) any portion of a Eurodollar Standby Borrowing or CD Borrowing
which cannot be converted into or continued as a Eurodollar Standby
Borrowing or a CD Borrowing by reason of clauses (d) and (e) above shall be
automatically converted at the end of the Interest Period in effect for
such Borrowing into an ABR Borrowing; and
(g) no Interest Period may be selected for any Eurodollar Standby
Borrowing or CD Borrowing that would end later than the Maturity Date.
Each notice pursuant to this Section 2.06 shall be by hand delivery
or telecopier (or by telephone with prompt confirmation by telecopier or in
writing) and irrevocable and shall refer to this Agreement and specify (i) the
identity and amount of the Standby Borrowing that the Borrower requests be
converted or continued,
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
27
(ii) whether such Standby Borrowing is to be converted to or continued as a
Eurodollar Standby Borrowing, a CD Borrowing or an ABR Borrowing, (iii) if such
notice requests a conversion, the date of such conversion (which shall be a
Business Day) and (iv) if such Standby Borrowing is to be converted to or
continued as a Eurodollar Standby Borrowing or CD Borrowing, the Interest Period
with respect thereto. If no Interest Period is specified in any such notice
with respect to any conversion to or continuation as a Eurodollar Standby
Borrowing or CD Borrowing, the Borrower shall be deemed to have selected an
Interest Period of one month's duration, in the case of a Eurodollar Standby
Borrowing, or 30 days' duration, in the case of a CD Borrowing. The
Administrative Agent shall advise the other Lenders of any notice given pursuant
to this Section 2.06 and of each Lender's portion of any converted or continued
Standby Borrowing. If the Borrower shall not have given notice in accordance
with this Section 2.06 to continue any Standby Borrowing into a subsequent
Interest Period (and shall not otherwise have given notice in accordance with
this Section 2.06 to convert such Standby Borrowing), such Standby Borrowing
shall, at the end of the Interest Period applicable thereto (unless repaid
pursuant to the terms hereof), automatically be continued into a new Interest
Period as an ABR Borrowing.
SECTION 2.07. Fees. (a) The Borrower agrees to pay to each Lender,
-----
through the Administrative Agent, on each March 31, June 30, September 30 and
December 31 and on the Termination Date or, in the event that Standby Loans are
outstanding on the Termination Date, on the Maturity Date, a facility fee (a
"Facility Fee") equal to the Applicable Fee Percentage on the daily average
amount of the Commitment of such Lender, whether used or unused (and whether or
not the conditions set forth in Section 4.01 shall have been satisfied) and,
after the Termination Date, on the daily average amount of the outstanding Loans
of such Lender, during the preceding quarter (or shorter period commencing with
the date hereof, or ending with the Maturity Date or any date on which the
Commitment of such Lender shall be terminated and all outstanding Loans of such
Lender repaid). All Facility Fees shall be computed on the basis of the actual
number of days elapsed in a year of 365 or 366 days, as appropriate. The
Facility Fee due to each Lender shall commence to accrue on the date of this
Agreement, and shall cease to accrue on the earlier of the Maturity Date and the
date on which the Commitment of such Lender shall have been terminated and all
outstanding Loans of such Lender repaid.
[6700-070(A)RAF/A08A.WPF/30D/4674W]
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28
(b) The Borrower agrees to pay the Agents, through the Administrative
Agent, for the Agents' own accounts, the fees set forth in the Engagement Letter
and in the Fee Letter dated April 7, 1994 among the Administrative Agent,
Chemical Securities Inc. and the Borrower (the "Agent Fees") at the times and in
the amounts set forth therein.
(c) All Fees shall be paid on the dates due, in immediately available
funds, to the Administrative Agent for distribution, if and as appropriate,
among the Lenders. Once paid, none of the Fees (other than fees paid in error
and not required to have been paid under the terms of this Agreement) shall be
refundable under any circumstances.
SECTION 2.08. Repayment of Loans. (a) The Borrower agrees to pay
-------------------
the outstanding principal balance of each Competitive Loan on the last day of
the Interest Period applicable to such Competitive Loan and on the Termination
Date. The Borrower agrees to pay the outstanding principal balance of each
Standby Loan on the last day of the Interest Period applicable to such Standby
Loan, except that each Standby Loan outstanding on the Termination Date shall
become due and payable, and the Borrower agrees to pay the outstanding principal
balance of each such Loan, on the Maturity Date. Each Loan shall bear interest
from the date of the Borrowing of which such Loan is a part on the outstanding
principal balance thereof as set forth in Section 2.09.
(b) Each Lender shall, and is hereby authorized by the Borrower to,
maintain, in accordance with its usual practice, records evidencing the
indebtedness of the Borrower to such Lender hereunder from time to time,
including the amounts and Types of and the Interest Periods applicable to the
Loans made by such Lender from time to time and the amounts of principal and
interest paid to such Lender from time to time in respect of such Loans.
(c) The entries made in the records maintained pursuant to paragraph
(b) of this Section 2.08 and in the Register maintained by the Administrative
Agent pursuant to Section 9.04(d) shall be prima facie evidence of the existence
and amounts of the obligations of the Borrower to which such entries relate;
provided, however, that the failure of any Lender or the Administrative Agent to
- -------- -------
maintain or to make any entry in such records or the Register, as applicable, or
any error therein shall not in
[6700-070(A)RAF/A08A.WPF/30D/4674W]
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29
any manner affect the obligation of the Borrower to repay the Loans in
accordance with the terms of this Agreement.
SECTION 2.09. Interest on Loans. (a) Subject to the provisions of
------------------
Section 2.10, the Loans comprising each Eurodollar Borrowing shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 360
days) at a rate per annum equal to (i) in the case of each Eurodollar Standby
Loan, the LIBO Rate for the Interest Period in effect for such Borrowing plus
the Applicable Margin from time to time in effect and (ii) in the case of each
Eurodollar Competitive Loan, the LIBO Rate for the Interest Period in effect for
such Borrowing plus the Margin offered by the Lender making such Loan and
accepted by the Borrower pursuant to Section 2.03.
(b) Subject to the provisions of Section 2.10, the Loans comprising
each CD Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 360 days) at a rate per annum equal to the
Adjusted CD Rate for the Interest Period in effect for such Borrowing plus the
Applicable Margin from time to time in effect.
(c) Subject to the provisions of Section 2.10, the Loans comprising
each ABR Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 365 or 366 days, as appropriate, when
determined by reference to the Prime Rate and over a year of 360 days at all
other times) at a rate per annum equal to the Alternate Base Rate.
(d) Subject to the provisions of Section 2.10, each Fixed Rate Loan
shall bear interest at a rate per annum (computed on the basis of the actual
number of days elapsed over a year of 360 days) equal to the fixed rate of
interest offered by the Lender making such Loan and accepted by the Borrower
pursuant to Section 2.03.
(e) Interest on each Loan shall be payable in arrears on each
Interest Payment Date applicable to such Loan except as otherwise provided in
this Agreement. The applicable LIBO Rate, Adjusted CD Rate or Alternate Base
Rate for each Interest Period or day within an Interest Period, as the case may
be, shall be determined by the Administrative Agent, and such determination
shall be conclusive absent manifest error. The Administrative Agent
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
30
shall promptly advise the Borrower and each Lender, as appropriate, of such
determination.
SECTION 2.10. Default Interest. If the Borrower shall default in the
-----------------
payment of the principal of or interest on any Loan or any other amount becoming
due hereunder, whether by scheduled maturity, notice of prepayment, acceleration
or otherwise, the Borrower shall on demand from time to time from the
Administrative Agent pay interest, to the extent permitted by law, on such
defaulted amount up to (but not including) the date of actual payment (after as
well as before judgment) at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 365 or 366 days, as appropriate,
when determined by reference to the Prime Rate and over a year of 360 days at
all other times) equal to the Alternate Base Rate plus 1%.
SECTION 2.11. Alternate Rate of Interest. (a) In the event, and on
---------------------------
each occasion, that on the day two Business Days prior to the commencement of
any Interest Period for a Eurodollar Borrowing the Administrative Agent shall
have determined (i) that dollar deposits in the principal amounts of the
Eurodollar Loans comprising such Borrowing are not generally available in the
London interbank market, or (ii) that the rates at which such dollar deposits
are being offered will not adequately and fairly reflect the cost to any Lender
of making or maintaining its Eurodollar Loan during such Interest Period, or
(iii) that reasonable means do not exist for ascertaining the LIBO Rate, the
Administrative Agent shall, as soon as practicable thereafter, give written or
telecopy notice of such determination to the Borrower and the Lenders. In the
event of any such determination, until the Administrative Agent shall have
advised the Borrower and the Lenders that the circumstances giving rise to such
notice no longer exist, (A) in the event the circumstances referred to in (i) or
(iii) above are applicable, any request by the Borrower for a Eurodollar
Competitive Borrowing pursuant to Section 2.03 shall be of no force and effect
and shall be denied by the CAF Agent and (B) any request by the Borrower for a
Eurodollar Standby Borrowing shall be deemed to be a request for an ABR
Borrowing (x) as to all Lenders, in the event the circumstances referred to in
(i) or (iii) above are applicable, or (y) as to each affected Lender, in the
event only the circumstances referred to in (ii) above are applicable. In the
event the circumstances referred to in (ii) above are applicable, all payments
and prepayments of principal which would otherwise have been made on account of
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
31
Eurodollar Loans of the affected Lender shall instead be applied to repay the
ABR Loans made by such Lender in lieu of such Eurodollar Loans. Each
determination by the Administrative Agent hereunder shall be conclusive absent
demonstrable error.
(b) In the event, and on each occasion, that on or before the day on
which the Adjusted CD Rate for a CD Borrowing is to be determined the
Administrative Agent shall have determined (i) that such Adjusted CD Rate cannot
be determined for any reason, including the inability of the Administrative
Agent to obtain sufficient bids in accordance with the terms of the definition
of Fixed CD Rate, or (ii) that the Adjusted CD Rate for such CD Borrowing will
not adequately and fairly reflect the cost to any Lender of making or
maintaining its CD Loan during such Interest Period, the Administrative Agent
shall, as soon as practicable thereafter, give written or telecopy notice of
such determination to the Borrower and the Lenders. In the event of any such
determination, until the Administrative Agent shall have advised the Borrower
and the Lenders that the circumstances giving rise to such notice no longer
exist, any request by the Borrower for a CD Borrowing shall be deemed to be a
request for an ABR Borrowing (i) as to all Lenders, in the event the
circumstances referred to in (i) above are applicable, or (ii) as to each
affected Lender, in the event only the circumstances referred to in (ii) above
are applicable. In the event the circumstances referred to under (ii) above are
applicable, all payments and prepayments of principal which would otherwise have
been made on account of CD Loans of the affected Lender shall instead be applied
to repay the ABR Loans made by such Lender in lieu of such Loans. Each
determination by the Administrative Agent hereunder shall be conclusive absent
demonstrable error.
SECTION 2.12. Termination and Reduction of Commitments. (a) The
-----------------------------------------
Commitments shall be automatically terminated on the Termination Date.
(b) Upon at least three Business Days' prior irrevocable written or
telecopy notice to the Administrative Agent, the Borrower may at any time in
whole permanently terminate, or from time to time in part permanently reduce,
the Total Commitment; provided, however, that (i) each partial reduction of the
-------- -------
Total Commitment shall be in an integral multiple of $1,000,000 and in a minimum
principal amount of $10,000,000 and (ii) no such termination or
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<PAGE>
32
reduction shall be made which would reduce the Total Commitment to an amount
less than the aggregate outstanding principal amount of the Competitive Loans.
(c) Each reduction in the Total Commitment hereunder shall be made
ratably among the Lenders in accordance with their respective Commitments. The
Borrower shall pay to the Administrative Agent for the account of the Lenders,
on the date of each termination or reduction, the Facility Fees on the amount of
the Commitments so terminated or reduced accrued to but not including the date
of such termination or reduction.
SECTION 2.13. Prepayment. (a) The Borrower shall have the right at
-----------
any time and from time to time to prepay any Standby Borrowing, in whole or in
part, upon giving written or telecopy notice (or telephone notice promptly
confirmed by written or telecopy notice) to the Administrative Agent: (i)
before 12:00 noon, New York City time, three Business Days prior to prepayment,
in the case of Eurodollar Loans, (ii) before 12:00 noon, New York City time, two
Business Days prior to prepayment, in the case of CD Loans, and (iii) before
12:00 noon, New York City time, one Business Day prior to prepayment, in the
case of ABR Loans; provided, however, that each partial prepayment shall be in
-------- -------
an amount which is an integral multiple of $1,000,000 and not less than
$10,000,000. The Borrower shall not have the right to prepay any Competitive
Borrowing.
(b) On the date of any termination or reduction of the Commitments
pursuant to Section 2.12, the Borrower shall pay or prepay so much of the
Standby Borrowings as shall be necessary in order that the aggregate principal
amount of the Competitive Loans and Standby Loans outstanding will not exceed
the Total Commitment after giving effect to such termination or reduction.
(c) Each notice of prepayment shall specify the prepayment date and
the principal amount of each Borrowing (or portion thereof) to be prepaid, shall
be irrevocable and shall commit the Borrower to prepay such Borrowing (or
portion thereof) by the amount stated therein on the date stated therein. All
prepayments under this Section 2.13 shall be subject to Section 2.16 but
otherwise without premium or penalty. All prepayments under this Section 2.13
shall be accompanied by accrued interest on the principal amount being prepaid
to the date of payment.
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33
SECTION 2.14. Reserve Requirements; Change in Circumstances. (a)
----------------------------------------------
Notwithstanding any other provision herein, if after the date of this Agreement
any change in applicable law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall change the basis of taxation of payments to any Lender of the
principal of or interest on any Eurodollar Loan, CD Loan or Fixed Rate Loan made
by such Lender or any Fees or other amounts payable hereunder (other than
changes in respect of taxes imposed on the overall net income of such Lender by
the jurisdiction in which such Lender has its principal office or by any
political subdivision or taxing authority therein), or shall impose, modify or
deem applicable any reserve, special deposit or similar requirement against
assets of, deposits with or for the account of or credit extended by such Lender
(except any such reserve requirement which is reflected in the Adjusted CD
Rate), or shall impose on such Lender or the London interbank market any other
condition affecting this Agreement or any Eurodollar Loan, CD Loan or Fixed Rate
Loan made by such Lender, and the result of any of the foregoing shall be to
increase the cost to such Lender of making or maintaining any Eurodollar Loan,
CD Loan or Fixed Rate Loan or to reduce the amount of any sum received or
receivable by such Lender hereunder (whether of principal, interest or
otherwise) by an amount deemed by such Lender to be material, then the Borrower
will pay to such Lender upon demand such additional amount or amounts as will
compensate such Lender for such additional costs incurred or reduction suffered.
Notwithstanding the foregoing, no Lender shall be entitled to request
compensation under this paragraph with respect to any Competitive Loan if it
shall have been aware of the change giving rise to such request at the time of
submission of the Competitive Bid pursuant to which such Competitive Loan shall
have been made.
(b) If any Lender shall have determined that the applicability of any
law, rule, regulation or guideline adopted pursuant to or arising out of the
July 1988 report of the Basle Committee on Banking Regulations and Supervisory
Practices entitled "International Convergence of Capital Measurement and Capital
Standards", or the adoption after the date hereof of any other law, rule,
regulation or guideline regarding capital adequacy, or any change in any of the
foregoing or in the interpretation or administration of any of the foregoing by
any Governmental Authority, central bank or comparable agency charged with the
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<PAGE>
34
interpretation or administration thereof, or compliance by any Lender (or any
lending office of such Lender) or any Lender's holding company with any request
or directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Lender's capital or on the capital
of such Lender's holding company, if any, as a consequence of this Agreement or
the Loans made by such Lender pursuant hereto to a level below that which such
Lender or such Lender's holding company could have achieved but for such
applicability, adoption, change or compliance (taking into consideration such
Lender's policies and the policies of such Lender's holding company with respect
to capital adequacy) by an amount deemed by such Lender to be material, then
from time to time the Borrower shall pay to such Lender such additional amount
or amounts as will compensate such Lender or such Lender's holding company for
any such reduction suffered. It is acknowledged that the Facility Fee provided
for in this Agreement has been determined on the understanding that the Lenders
will not be required to maintain capital against their Commitments under
currently applicable laws, regulations and regulatory guidelines. In the event
the Lenders shall be advised by regulatory authorities or shall otherwise
determine on the basis of pronouncements of regulatory authorities that such
understanding is incorrect, it is agreed that the Lenders will be entitled to
make claims under this paragraph based upon prevailing market requirements for
commitments under comparable credit facilities against which capital is required
to be maintained.
(c) A certificate of a Lender setting forth such amount or amounts as
shall be necessary to compensate such Lender as specified in paragraph (a) or
(b) above, as the case may be, shall be delivered to the Borrower and shall be
conclusive absent demonstrable error. The Borrower shall pay each Lender the
amount shown as due on any such certificate delivered by it within 10 days after
the receipt of the same.
(d) Except as provided in this paragraph, failure on the part of any
Lender to demand compensation for any increased costs or reduction in amounts
received or receivable or reduction in return on capital with respect to any
period shall not constitute a waiver of such Lender's right to demand
compensation with respect to such period or any other period. The protection of
this Section shall be
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<PAGE>
35
available to each Lender regardless of any possible contention of the invalidity
or inapplicability of the law, rule, regulation, guideline or other change or
condition which shall have occurred or been imposed. No Lender shall be
entitled to compensation under this Section 2.14 for any costs incurred or
reductions suffered with respect to any date unless it shall have notified the
Borrower that it will demand compensation for such costs or reductions under
paragraph (c) above not more than 60 days after the later of (i) such date and
(ii) the date on which it shall have become aware of such costs or reductions.
SECTION 2.15. Change in Legality. (a) Notwithstanding any other
-------------------
provision herein, if any change in any law or regulation or in the
interpretation thereof by any governmental authority charged with the
administration or interpretation thereof shall make it unlawful for any Lender
to make or maintain any Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan, then, by written notice
to the Borrower and to the Administrative Agent, such Lender may:
(i) declare that Eurodollar Loans will not thereafter be made by such
Lender hereunder, whereupon such Lender shall not submit a Competitive Bid
in response to a request for Eurodollar Competitive Loans and any request
by the Borrower for a Eurodollar Standby Borrowing shall, as to such Lender
only, be deemed a request for an ABR Borrowing unless such declaration
shall be subsequently withdrawn (and such Lender agrees to withdraw any
such declaration if legally permissible); and
(ii) require that all outstanding Eurodollar Loans made by it be
converted to ABR Loans (or in the case of a Eurodollar Competitive Loan, a
Loan bearing interest at a rate equal to the Alternate Base Rate), as of
the effective date of such notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal which would otherwise have been applied to
repay the Eurodollar Loans that would have been made by such Lender or the
converted Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Loans made by such Lender in lieu of, or resulting from the conversion of,
such Eurodollar Loans.
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
36
(b) For purposes of this Section 2.15, a notice to the Borrower by
any Lender shall be effective as to each Eurodollar Loan, if lawful, on the last
day of the Interest Period currently applicable to such Eurodollar Loan; in all
other cases such notice shall be effective on the date of receipt by the
Borrower.
SECTION 2.16. Indemnity. The Borrower shall indemnify each Lender
----------
against any actual loss or expense which such Lender may sustain or incur as a
consequence of (a) any failure by the Borrower to fulfill on the date of any
borrowing hereunder the applicable conditions set forth in Article IV, (b) any
failure by the Borrower to borrow or to refinance, convert or continue any Loan
hereunder after irrevocable notice of such borrowing, refinancing or
continuation has been given pursuant to Section 2.03, 2.04 or 2.06, (c) any
payment, prepayment or conversion of a Eurodollar Loan, CD Loan or Fixed Rate
Loan required by any other provision of this Agreement or otherwise made or
deemed made, and any assignment of a Loan pursuant to Section 2.21, on a date
other than the last day of the Interest Period applicable thereto, (d) any
default in payment or prepayment of the principal amount of any Loan or any part
thereof or interest accrued thereon, as and when due and payable (at the due
date thereof, whether by scheduled maturity, acceleration, irrevocable notice of
prepayment or otherwise) or (e) the occurrence of any Event of Default,
including, in each such case, any actual loss or reasonable expense sustained or
incurred or to be sustained or incurred in liquidating or employing deposits
from third parties acquired to effect or maintain such Loan or any part thereof
as a Eurodollar Loan, CD Loan or Fixed Rate Loan. Such loss or reasonable
expense shall include an amount equal to the excess, if any, as reasonably
determined by such Lender, of (i) its cost of obtaining the funds for the Loan
being paid, prepaid, converted, not borrowed, not refinanced, not converted, not
continued or assigned (assumed to be the LIBO Rate or Adjusted CD Rate or, in
the case of a Fixed Rate Loan, the fixed rate of interest applicable thereto)
for the period from the date of such payment, prepayment, failure to borrow,
failure to refinance, failure to convert, failure to continue or assignment to
the last day of the Interest Period for such Loan (or, in the case of a failure
to borrow, refinance, convert or continue, the Interest Period for such Loan
which would have commenced on the date of such failure) over (ii) the amount of
interest (as reasonably determined by such Lender) that would be realized by
such Lender in
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37
reemploying the funds so paid, prepaid, not borrowed, not refinanced, not
converted, not continued or assigned for such period or Interest Period, as the
case may be. A certificate of any Lender setting forth any amount or amounts
which such Lender is entitled to receive pursuant to this Section shall be
delivered to the Borrower and shall be conclusive absent demonstrable error.
SECTION 2.17. Pro Rata Treatment. Except as required under Section
-------------------
2.15, each Standby Borrowing, each payment or prepayment of principal of any
Standby Borrowing, each payment of interest on the Standby Loans, each payment
of the Facility Fees, each reduction of the Commitments and each refinancing of
any Borrowing with a Standby Borrowing of any Type, shall be allocated pro rata
among the Lenders in accordance with their respective Commitments (or, if such
Commitments shall have expired or been terminated, in accordance with the
respective principal amounts of their outstanding Standby Loans). Each payment
of principal of any Competitive Borrowing shall be allocated pro rata among the
Lenders participating in such Borrowing in accordance with the respective
principal amounts of their outstanding Competitive Loans comprising such
Borrowing. Each payment of interest on any Competitive Borrowing shall be
allocated pro rata among the Lenders participating in such Borrowing in
accordance with the respective amounts of accrued and unpaid interest on their
outstanding Competitive Loans comprising such Borrowing. For purposes of
determining (i) the aggregate available Commitments of the Lenders at any time
and (ii) the available Commitment of each Lender, each outstanding Competitive
Borrowing shall be deemed to have utilized the Commitments of the Lenders
(including those Lenders which shall not have made Loans as part of such
Competitive Borrowing) pro rata in accordance with such respective Commitments.
Each Lender agrees that in computing such Lender's portion of any Borrowing to
be made hereunder, the Administrative Agent may, in its discretion, round each
Lender's percentage of such Borrowing to the next higher or lower whole dollar
amount.
SECTION 2.18. Sharing of Setoffs. Each Lender agrees that if it
-------------------
shall, through the exercise of a right of banker's lien, setoff or counterclaim
against the Borrower, or pursuant to a secured claim under Section 506 of Title
11 of the United States Code or other security or interest arising from, or in
lieu of, such secured claim, received by such Lender under any applicable
bankruptcy, insolvency or other similar law or otherwise, or by any other means,
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
38
obtain payment (voluntary or involuntary) from the Borrower or its assets in
respect of any Standby Loan or Loans as a result of which the unpaid principal
portion of its Standby Loans shall be proportionately less than the unpaid
principal portion of the Standby Loans of any other Lender, it shall be deemed
simultaneously to have purchased from such other Lender at face value, and shall
promptly pay to such other Lender the purchase price for, a participation in the
Standby Loans of such other Lender, so that the aggregate unpaid principal
amount of the Standby Loans and participations in the Standby Loans held by each
Lender shall be in the same proportion to the aggregate unpaid principal amount
of all Standby Loans then outstanding as the principal amount of its Standby
Loans prior to such exercise of banker's lien, setoff or counterclaim or other
event was to the principal amount of all Standby Loans outstanding prior to such
exercise of banker's lien, setoff or counterclaim or other event; provided,
--------
however, that, if any such purchase or purchases or adjustments shall be made
- -------
pursuant to this Section 2.18 and the payment giving rise thereto shall
thereafter be recovered, such purchase or purchases or adjustments shall be
rescinded to the extent of such recovery and the purchase price or prices or
adjustment restored without interest. The Borrower expressly consents to the
foregoing arrangements and agrees that any Lender holding a participation in a
Standby Loan deemed to have been so purchased may exercise any and all rights of
banker's lien, setoff or counterclaim with respect to any and all moneys owing
by the Borrower to such Lender by reason thereof as fully as if such Lender had
made a Standby Loan directly to the Borrower in the amount of such
participation.
SECTION 2.19. Payments. (a) The Borrower shall make each payment
---------
(including principal of or interest on any Borrowing or any Fees or other
amounts) hereunder and under each other Loan Document not later than 12:00 noon,
New York City time, on the date when due in dollars to the Administrative Agent
at its offices at 712 Main Street, Houston, Texas, in immediately available
funds.
(b) Whenever any payment (including principal of or interest on any
Borrowing or any Fees or other amounts) hereunder or under any other Loan
Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case
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39
be included in the computation of interest or Fees, if applicable.
SECTION 2.20. Taxes. (a) Any and all payments by the Borrower
------
hereunder shall be made, in accordance with Section 2.19, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding taxes, levies, imposts, deductions, charges and withholdings imposed
- ---------
on the Administrative Agent's or any Lender's (or any transferee's or
assignee's, including a participation holder's (any such entity a "Transferee"))
net income and franchise, capital or license taxes imposed on the Administrative
Agent or any Lender (or Transferee) by the United States or any jurisdiction
under the laws of which it is organized, domiciled, resident or doing business
(other than doing business as a result of its participation in the transactions
contemplated by the Loan Documents) or any political subdivision thereof (all
such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to the Lenders (or any Transferee) or the Administrative Agent, (i)
the sum payable shall be increased by the amount necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 2.20) such Lender (or Transferee) or the
Administrative Agent (as the case may be) shall receive an amount equal to the
sum it would have received had no such deductions been made, (ii) the Borrower
(or the Administrative Agent, as applicable) shall make such deductions at the
applicable rate and (iii) the Borrower (or the Administrative Agent, as
applicable) shall pay the full amount deducted to the relevant taxing authority
or other Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "Other Taxes").
(c) The Borrower will indemnify each Lender (or Transferee) and the
Administrative Agent for the full amount
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40
of Taxes and Other Taxes (including any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 2.20) paid by such Lender (or
Transferee) or the Administrative Agent, as the case may be, and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted by the relevant taxing authority or other Governmental Authority. Such
indemnification shall be made within 30 days after the date any Lender (or
Transferee) or the Administrative Agent, as the case may be, makes written
demand therefor; provided, however, that the Borrower shall not have any
-------- -------
obligation to indemnify the Administrative Agent or any Lender (or Transferee)
for interest and penalties that are imposed on the Administrative Agent or such
Lender (or Transferee) with respect to the period after the expiration of the
Notice Period with respect to any Tax if such Administrative Agent or such
Lender fails to give written notice to the Borrower within 45 days of its
receipt of any written assertion by the relevant taxing authority or other
Governmental Authority that such Tax is due with respect to the transactions
contemplated by the Loan Documents (such 45 day period being the "Notice Period"
referred to above). If a Lender (or Transferee) or the Administrative Agent
shall become aware that it is entitled to receive a refund (or a credit against
taxes not indemnifiable hereunder) in respect of Taxes or Other Taxes, it shall
promptly notify the Borrower of the availability of such refund (or credit) and
shall, within 30 days after receipt of a request by the Borrower, apply for such
refund at the Borrower's expense. If any Lender (or Transferee) or the
Administrative Agent receives a refund (or a credit against taxes not
indemnifiable hereunder) in respect of any Taxes or Other Taxes for which such
Lender (or Transferee) or the Administrative Agent has received payment from the
Borrower hereunder it shall promptly notify the Borrower of such refund (or
credit) and shall, within 30 days after receipt of a request by the Borrower (or
promptly upon receipt, if the Borrower has requested application for such refund
(or credit) pursuant hereto), repay such refund (or credit) to the Borrower, net
of all out-of-pocket expenses (including taxes not indemnifiable hereunder, to
the extent that no deduction or credit has previously been claimed and utilized
in connection therewith by such Lender) of such Lender but including interest
received from a taxing authority or other Governmental Authority and fairly
attributable to such refund; provided that the Borrower, upon the request of
--------
such Lender (or Transferee) or the Administrative Agent, agrees
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41
to return such refund (plus penalties, interest or other charges) to such Lender
(or Transferee) or the Administrative Agent in the event such Lender (or
Transferee) or the Administrative Agent is required to repay such refund. Each
of the Administrative Agent, each Lender and each Transferee, with respect to
itself, agrees to indemnify and hold harmless the Borrower (and, in the case of
each Lender and each Transferee, to indemnify and hold harmless the
Administrative Agent) from any taxes, penalties, interest and other expenses,
costs and losses incurred or payable by the Borrower (or the Administrative
Agent, as applicable) as a result of the failure of the Borrower to comply with
clauses (ii) and (iii) of Section 2.20(a) in reliance on any form or certificate
provided to it by such person pursuant to Section 2.20(f).
(d) Within 30 days after the date of any payment of Taxes or Other
Taxes withheld by the Borrower in respect of any payment to any Lender (or
Transferee) or the Administrative Agent, the Borrower will furnish to the
Administrative Agent, at its address referred to in Section 9.01, the original
or a certified copy of a receipt evidencing payment thereof or other customary
evidence of such payment.
(e) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section 2.20
shall survive the payment in full of the principal of and interest on all Loans
made hereunder.
(f) On or prior to the Closing Date (in the case of any Lender and
the Administrative Agent) and on or prior to the date any Transferee becomes a
Transferee hereunder (in the case of any Transferee), and, upon written request
of the Borrower or the Administrative Agent, on or prior to the immediately
following due date of any payment by the Borrower hereunder, each Lender (or
Transferee) which is organized outside the United States shall deliver to the
Borrower such certificates, documents or other evidence, as required by the Code
or Treasury Regulations issued pursuant thereto, including Internal Revenue
Service Form 1001 or Form 4224 and any other certificate or statement of
exemption required by Treasury Regulation Section 1.1441-1(a) or Section 1.1441-
6(c) or any subsequent version thereof, properly completed and duly executed by
such Lender (or Transferee) establishing that such payment is (i) not subject to
withholding under the Code because such payment
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42
is effectively connected with the conduct by such Lender (or Transferee) of a
trade or business in the United States or (ii) totally exempt from United States
tax under a provision of an applicable tax treaty. Unless the Borrower and the
Administrative Agent have received forms or other documents satisfactory to them
indicating that payments hereunder and in respect of the Loans are not subject
to United States withholding tax the Borrower or the Administrative Agent shall
withhold taxes from such payments at the applicable statutory rate in the case
of payments to or for any Lender (or Transferee) organized under the laws of a
jurisdiction outside the United States.
(g) The Borrower shall not be required to pay any additional amounts
to any Lender (or Transferee) in respect of United States withholding tax
pursuant to paragraph (a) above except to the extent such United States
withholding tax (a) results from (i) a change in applicable law, regulation or
official interpretation thereof or (ii) an amendment, modification or revocation
of any applicable tax treaty or a change in official position regarding the
application or interpretation thereof, in each case after the Closing Date (and,
in the case of a Transferee, after the date of assignment or transfer) or (b) in
the case of a Transferee, is imposed at a rate that does not exceed the rate
(determined at the time of transfer or assignment) of United States withholding
tax with respect to which the Borrower was required to pay to such Transferee's
transferor or assignor.
SECTION 2.21. Termination or Assignment of Commitments Under Certain
---------------------------- -------------------------
Circumstances. (a) Any Lender (or Transferee) claiming any additional amounts
- --------------
payable pursuant to Section 2.14 or Section 2.20 shall use reasonable efforts
(consistent with legal and regulatory restrictions) to file any certificate or
document requested by the Borrower or to change the jurisdiction of its
applicable lending office if the making of such a filing or change would avoid
the need for or reduce the amount of any such additional amounts which may
thereafter accrue and would not, in the sole determination of such Lender, be
otherwise disadvantageous to such Lender (or Transferee).
(b) In the event that any Lender shall have delivered a notice or
certificate pursuant to Section 2.14 or 2.15, or the Borrower shall be required
to make additional payments to any Lender under Section 2.20, the Borrower shall
have the right, at its own expense, upon
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43
notice to such Lender and the Administrative Agent, (a) to terminate the
Commitment of such Lender or (b) to require such Lender to transfer and assign
without recourse (in accordance with and subject to the restrictions contained
in Section 9.04) all its interests, rights and obligations under this Agreement
to another financial institution acceptable to the Administrative Agent which
shall assume such obligations; provided that (i) no such termination or
--------
assignment shall conflict with any law, rule or regulation or order of any
Governmental Authority and (ii) the Borrower or the assignee, as the case may
be, shall pay to the affected Lender in immediately available funds on the date
of such termination or assignment the principal of and interest accrued to the
date of payment on the Loans made by it hereunder and all other amounts accrued
for its account or owed to it hereunder.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to each of the Lenders that:
(a) The Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware. The Borrower
possesses all corporate powers and all other authorizations and licenses
necessary to engage in its business and operations as now conducted, the
failure to obtain or maintain which would result in a Material Adverse
Effect.
(b) The execution, delivery and performance by the Borrower of this
Agreement are within the Borrower's corporate powers, have been duly
authorized by all necessary corporate action, and do not contravene (i) the
Borrower's certificate of incorporation or by-laws or (ii) any law or
contractual restriction binding on or affecting the Borrower.
(c) There is no authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority (including, without
limitation, the ICC) required for the due execution, delivery and
performance by the Borrower of this Agreement which has not been obtained
or made, as the case may be.
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44
(d) This Agreement is the legal, valid and binding obligation of the
Borrower enforceable against the Borrower in accordance with its terms
except as enforceability may be limited by applicable bankruptcy,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors' rights generally or by the applicability of equitable
principles.
(e) The consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at December 31, 1993, and the related
consolidated statements of income and cash flows for the fiscal year then
ended, copies of which have been furnished to each Lender, fairly present
the consolidated financial condition of the Borrower and such Subsidiaries
as at such date and the results of their operations for the period ended on
such date, all in accordance with GAAP consistently applied, and since
December 31, 1993, there has been no material adverse change in such
condition or operations.
(f) There is no pending or threatened action or proceeding against or
involving the Borrower before any Governmental Authority or arbitrator
which has a reasonable probability (taking into account the exhaustion of
all appeals) of resulting in a Material Adverse Effect.
(g) The Borrower has duly paid and discharged all taxes, assessments
and governmental charges upon it or against its properties now due and
payable, the failure to pay which would result in a Material Adverse Effect
unless and to the extent only that the same are being contested in good
faith and by appropriate proceedings by the Borrower.
(h) The Borrower has good title to its properties and assets except
for (i) existing or future liens, security interests, mortgages,
conditional sales arrangements and other encumbrances (including, without
limitation, reversionary title interests) either securing Debt or other
liabilities of the Borrower or any of its Subsidiaries or which the
Borrower in its reasonable business judgment determines would not be
reasonably expected to materially interfere with the railroad business or
railroad operations of the Borrower and its Subsidiaries as conducted from
time to time and (ii) irregularities therein which do not
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45
materially interfere with the business or operations of the Borrower and
its Subsidiaries as conducted from time to time.
(i) No Termination Event has occurred or is reasonably expected to
occur with respect to any Plan which, with the giving of notice or lapse of
time, or both, would constitute an Event of Default under paragraph (g) of
Article VII.
(j) The statement of assets and liabilities of each Plan covered by
the report of Coopers & Lybrand referred to below as of December 31, 1993,
and the statements of changes in fund balance and in financial position, or
the statement of changes in net assets available for plan benefits, for the
plan year then ended, reported on by Coopers & Lybrand, copies of which
have been furnished to the Administrative Agent, fairly present the
financial condition of such Plan as at such date and the results of
operations of such Plan for the plan year ended on such date.
(k) Neither the Borrower nor any ERISA Affiliate has incurred, or is
reasonably expected to incur, any Withdrawal Liability to any Multiemployer
Plan which, when aggregated with all other amounts required to be paid to
Multiemployer Plans in connection with Withdrawal Liability (as of the date
of determination), exceeds $50,000,000.
(l) Neither the Borrower nor any ERISA Affiliate has received any
notification that any Multiemployer Plan is in reorganization or has been
terminated, within the meaning of Title IV of ERISA, and no Multiemployer
Plan is reasonably expected to be in reorganization or to be terminated
within the meaning of Title IV of ERISA, the effect of which reorganization
or termination would be the occurrence of an Event of Default under
paragraph (i) of Article VII.
(m) Neither the Borrower nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying Margin Stock.
No part of the proceeds of any Loan will be used, whether directly or
indirectly, and whether immediately, incidentally or ultimately, for any
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<PAGE>
46
purpose which entails a violation of, or which is inconsistent with, the
provisions of the Regulations of the Board, including Regulation G, U or X.
(n) Neither the Borrower nor any Subsidiary is (i) an "investment
company" as defined in, or subject to regulation under, the Investment
Company Act of 1940 or (ii) a "holding company" as defined in, or subject
to regulation under, the Public Utility Holding Company Act of 1935.
(o) The Borrower will use the proceeds of the Loans only for the
purposes specified in the preamble to this Agreement.
(p) Neither the Borrower nor any of its Subsidiaries is, to the best
of its knowledge, in violation of any law or statute, or in default with
respect to any judgment, writ, injunction, decree, rule or regulation of
any court or governmental agency or instrumentality, where such violation
or default would result in a Material Adverse Effect.
(q) On the Closing Date, there has been no material adverse change in
or affecting the business, assets, liabilities or operations of the
Borrower or in the condition (financial or otherwise) or prospects of the
Borrower from those shown in the information furnished to the Lenders prior
to the date hereof.
(r) To the best knowledge of the Borrower, on the Closing Date all
insurable properties of the Borrower and each Subsidiary are adequately
insured as part of an insurance program including risk retention and self
insurance by financially sound and reputable insurers to such extent and
against such risks and liabilities (including liability under Federal,
state, local and other statutes and regulations relating to the environment
or to employee health and safety) as is customary with companies similarly
situated and in the same or similar businesses.
ARTICLE IV. CONDITIONS OF LENDING
The obligations of the Lenders to make Loans hereunder are subject to
(a) the Commitments having become effective as provided in Section 4.01 below
and (b) the
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47
satisfaction of the conditions set forth in Section 4.02 below.
SECTION 4.01. Conditions to Effectiveness of Commitments. The
------------------------------ ------------
Commitments shall become effective at such time as the following conditions
shall have been satisfied:
(a) The Agents shall have received the favorable written opinion of
Francis T. Kelly, Esq., counsel for the Borrower, dated the date hereof and
addressed to the Agents and the Lenders, to the effect set forth in Exhibit
D hereto, and the Borrower hereby instructs such counsel to deliver such
opinion to the Agents.
(b) The Agents shall have received a favorable written opinion of
Douglas J. Babb, Vice President and General Counsel of the Borrower as to
certain ICC regulatory matters, dated the date hereof and addressed to the
Agents and the Lenders, to the effect set forth in Exhibit E hereto, and
the Borrower hereby instructs such counsel to deliver such opinion to the
Agents.
(c) All legal matters incident to this Agreement and the borrowings
hereunder shall be satisfactory to the Lenders and their counsel and to
Cravath, Swaine & Moore, counsel for the Agents.
(d) The Agents shall have received (i) a copy of the certificate or
articles of incorporation, including all amendments thereto, of the
Borrower, certified as of a date shortly before the date hereof by the
Secretary of State of the state of its organization, and a certificate as
to the good standing of the Borrower as of a date shortly before the date
hereof, from such Secretary of State; (ii) a certificate of the Secretary
or Assistant Secretary of the Borrower dated the date hereof and certifying
(A) that attached thereto is a true and complete copy of the by-laws of the
Borrower as in effect on the date hereof and at all times since a date
prior to the date of the resolutions described in clause (B) below, (B)
that attached thereto is a true and complete copy of resolutions duly
adopted by the Board of Directors of the Borrower authorizing the
execution, delivery and performance of the Loan Documents and the
borrowings hereunder, and that such resolutions have not been modified,
rescinded or amended and are in full force and effect, (C) that the
certificate or articles of incorporation of the
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<PAGE>
48
Borrower have not been amended since the date of the last amendment thereto
shown on the certificate of good standing furnished pursuant to clause (i)
above, and (D) as to the incumbency and specimen signature of each officer
executing any Loan Document or any other document delivered in connection
herewith on behalf of the Borrower; (iii) a certificate of another officer
as to the incumbency and specimen signature of the Secretary or Assistant
Secretary executing the certificate pursuant to (ii) above; and (iv) such
other documents as the Lenders or their counsel or Cravath, Swaine & Moore,
counsel for the Agents, may reasonably request.
(e) The Agents shall have received a certificate, dated the date
hereof and signed by the treasurer or the chief financial officer of the
Borrower, confirming compliance with the conditions precedent set forth in
paragraphs (b) and (c) of Section 4.02.
(f) All fees, expenses and other amounts payable pursuant to the
Existing Facility, including all outstanding loans thereunder and accrued
interest thereon, shall have been paid in full, and the commitments of the
lenders thereunder shall have been terminated.
SECTION 4.02. Conditions to All Borrowings. On the date of each
-----------------------------
Borrowing, including each Borrowing in which Loans are refinanced with new Loans
as contemplated by Section 2.05:
(a) The Agents shall have received a notice of such Borrowing as
required by Section 2.03 or Section 2.04, as applicable.
(b) The representations and warranties set forth in Article III
hereof (except, in the case of a refinancing of a Standby Borrowing with a
new Standby Borrowing that does not increase the aggregate principal amount
of the Loans of any Lender outstanding, those contained in paragraphs (e),
(f), (g), (h) and (j) of Article III, and, except in the case of any
Borrowing on a date after the Closing Date, that contained in paragraph (j)
of Article III) shall be true and correct in all material respects on and
as of the date of such Borrowing with the same effect as though made on and
as of such date, except to the
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<PAGE>
49
extent such representations and warranties expressly relate to an earlier
date.
(c) The Borrower shall be in compliance with all the terms and
provisions set forth herein and in each other Loan Document on its part to
be observed or performed, and at the time of and immediately after such
Borrowing no Event of Default or Default shall have occurred and be
continuing.
Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrower on the date of such Borrowing as to the matters specified in
paragraphs (b) and (c) of this Section 4.02.
ARTICLE V. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees with each Lender and the Agents
that, so long as this Agreement shall remain in effect or the principal of or
interest on any Loan, any Fees or any other expenses or amounts payable under
any Loan Document shall be unpaid, unless the Required Lenders shall otherwise
consent in writing, the Borrower will:
SECTION 5.01. Existence; Businesses and Properties. (a) Preserve
-------------------------------------
and maintain its corporate existence, rights (charter and statute) and material
franchises, except as otherwise permitted by Sections 6.03 and 6.04.
(b) Comply in all material respects with all applicable laws, rules,
regulations and orders (including, without limitation, laws requiring payment of
all taxes, assessments and governmental charges imposed upon it or upon its
property except to the extent contested in good faith by appropriate
proceedings) except where the failure to so comply would not have a Material
Adverse Effect.
(c) Maintain and preserve all of its properties which are used in the
conduct of its business in good working order and condition, ordinary wear and
tear excepted, to the extent that any failure to do so would have a Material
Adverse Effect and except for dispositions thereof permitted by Section 6.02;
SECTION 5.02. Insurance. Maintain insurance with responsible and
----------
reputable insurance companies or
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<PAGE>
50
associations in such amounts and covering such risks as is usually carried by
companies engaged in similar businesses and owning similar properties as the
Borrower.
SECTION 5.03. Reporting Requirements. Furnish to the Agents and each
-----------------------
Lender:
(a) within 60 days after the close of each of the first three quarters
of each of the Borrower's fiscal years, a copy of the quarterly report on
Form 10-Q containing the consolidated statement of income of the Borrower
and its consolidated Subsidiaries for the period from the beginning of such
fiscal year to the end of such quarter and the related consolidated balance
sheet of the Borrower and its consolidated Subsidiaries as at the end of
such period, each certified by the chief financial officer of the Borrower
and accompanied by a certificate of such officer stating (i) that such
statement of income and such balance sheet has been prepared in accordance
with GAAP, (ii) whether or not he or she has knowledge of the occurrence of
any Event of Default or Default which is continuing hereunder and, if so,
stating in reasonable detail the facts with respect thereto and (iii) all
relevant facts in reasonable detail to evidence, and the computations as
to, whether or not the Borrower is in compliance with the requirements set
forth in Sections 5.04, 6.01 and 6.02;
(b) within 120 days after the close of each of the Borrower's fiscal
years, a copy of the annual report on Form 10-K of the Borrower and its
consolidated Subsidiaries, including the opinion of independent certified
public accountants of internationally recognized standing, together with
financial statements consisting of the consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as at the end of such year and
the related consolidated statements of income, retained earnings and cash
flows of the Borrower and its consolidated Subsidiaries for the year then
ended and accompanied by an opinion signed by said accountants stating that
(i) such financial statements have been prepared in accordance with GAAP
and (ii) in making the investigations necessary for said opinion they
obtained no knowledge, except as specifically stated, of any Event of
Default or Default which is continuing hereunder;
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<PAGE>
51
(c) within 120 days after the close of each of the Borrower's fiscal
years, a certificate of the chief financial officer of the Borrower stating
(i) whether or not he or she has knowledge of the occurrence of any Event
of Default or Default which is continuing hereunder and, if so, stating in
reasonable detail the facts with respect thereto, and (ii) all relevant
facts in reasonable detail to evidence, and the computations as to, whether
or not the Borrower is in compliance with the requirements set forth in
Sections 5.04, 6.01 and 6.02;
(d) promptly upon their becoming available, all reports on Form 10-K,
10-Q or 8-K, or any successor form, and all proxy statements that the
Borrower or the Parent shall file with the Securities and Exchange
Commission or any national securities exchange;
(e) promptly in writing, notice of all litigation and of all
proceedings before any governmental or regulatory agencies affecting the
Borrower or any Subsidiary, except any litigation or proceeding which is
not likely to have any Material Adverse Effect;
(f) within three Business Days after a Responsible Officer of the
Borrower obtains knowledge of the occurrence of any Event of Default or
Default which is continuing, notice of such occurrence together with a
detailed statement by a Responsible Officer of the Borrower of the steps
being taken by the Borrower or the appropriate Subsidiary to cure the
effect of such event;
(g) as soon as practicable and in any event (i) within 30 days after
the Borrower or any ERISA Affiliate knows or has reason to know that any
Termination Event described in clause (i) of the definition of Termination
Event with respect to any Plan has occurred and (ii) within 10 days after
the Borrower or any ERISA Affiliate knows or has reason to know that any
other Termination Event with respect to any Plan has occurred, a statement
of the treasurer or the chief financial officer of the Borrower describing
such Termination Event and the action, if any, which the Borrower or such
ERISA Affiliate proposes to take with respect thereto;
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<PAGE>
52
(h) promptly and in any event within two Business Days after receipt
thereof by the Borrower or any ERISA Affiliate, copies of each notice
received by the Borrower or any ERISA Affiliate from the PBGC stating its
intention to terminate any Plan or to have a trustee appointed to
administer any Plan;
(i) promptly and in any event within 30 days after the filing thereof
with the Internal Revenue Service, copies of each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) with respect to each
Plan;
(j) promptly and in any event within five Business Days after receipt
thereof by the Borrower or any ERISA Affiliate from the sponsor of a
Multiemployer Plan, a copy of each notice received by the Borrower or any
ERISA Affiliate concerning (i) the imposition of Withdrawal Liability by a
Multiemployer Plan, (ii) the determination that a Multiemployer Plan is, or
is expected to be, in reorganization within the meaning of Title IV of
ERISA, (iii) the termination of a Multiemployer Plan within the meaning of
Title IV of ERISA, or (iv) the amount of liability incurred, or expected to
be incurred, by the Borrower or any ERISA Affiliate in connection with any
event described in clause (i), (ii) or (iii) above;
(k) within 10 days after the due date for filing with the PBGC
pursuant to Section 412(n) of the Code of a notice of failure to make a
required installment or other payment with respect to a Plan, a statement
of the treasurer or the chief financial officer setting forth details as to
such failure and the action proposed to be taken with respect thereto,
together with a copy of such notice given to the PBGC; and
(l) as soon as practicable but in any event within 60 days of any
notice of request therefor, such other information respecting the financial
condition and results of operations of the Borrower as the Agents, or a
Lender through the Agents, may from time to time reasonably request.
Each balance sheet and other financial statement furnished pursuant to
paragraphs (a) and (b) of this Section 5.03 shall contain comparative
information which conforms to the
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<PAGE>
53
presentation required in Form 10-Q and 10-K, as appropriate, under the
Securities Exchange Act of 1934, as amended.
SECTION 5.04. Consolidated Tangible Net Worth. Maintain Consolidated
--------------------------------
Tangible Net Worth of not less than $1,700,000,000.
SECTION 5.05. Taxes. Pay and discharge promptly all material taxes,
-----
assessments and governmental charges or levies, levied or assessed upon it or
upon its income or profits or in respect of its property, before the same shall
become delinquent or in default; provided, however, that such payment and
-------- -------
discharge shall not be required with respect to any such tax, assessment, charge
or levy so long as the validity or amount thereof shall be contested in good
faith by appropriate proceedings.
ARTICLE VI. NEGATIVE COVENANTS
The Borrower covenants and agrees with each Lender and the Agents
that, so long as this Agreement shall remain in effect or the principal of or
interest on any Loan, any Fees or any other expenses or amounts payable under
any Loan Document shall be unpaid, unless the Required Lenders shall otherwise
consent in writing, the Borrower will not:
SECTION 6.01. Debt. Create or suffer to exist, or permit its
-----
Subsidiaries to create or suffer to exist, any Debt if, immediately after giving
effect to such Debt and the receipt and application of any proceeds thereof, the
sum of the aggregate amount of Debt of the Borrower and its consolidated
Subsidiaries on a consolidated basis would exceed 140% of Consolidated Tangible
Net Worth. Notwithstanding anything contained in the foregoing to the contrary,
consolidated Debt of the Borrower and its consolidated Subsidiaries, taken as a
whole, shall not exceed at any time $3,000,000,000.
SECTION 6.02. Sale, etc., of Assets. Sell, lease, dispose of,
----------------------
distribute or otherwise transfer, whether in a single transaction or a series of
transactions (collectively, a "Transfer"), all or any part of the property of
the Borrower, provided that the Borrower may Transfer:
--------
(a) properties (other than properties Transferred pursuant to any
other clause of this Section 6.02)
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<PAGE>
54
having an aggregate net book value for all such Transfers (determined with
respect to each such property based on the net book value reflected on the
most recent consolidated balance sheet of the Borrower delivered pursuant
to Section 5.03 prior to the Transfer thereof, in each case determined
without regard to any writedown in such net book value subsequent to the
date hereof) not in excess of 10% of the total book value of the assets of
the Borrower and its consolidated Subsidiaries (as reflected on the most
recent consolidated balance sheet of the Borrower delivered pursuant to
Section 5.03) less the excess of the net book value of all assets
transferred since the date of such balance sheet over the amount of cash
and the fair market value of all other consideration received in exchange
therefor;
(b) properties to any person, provided that the Borrower or any of its
--------
Subsidiaries or the Borrower and any of its Subsidiaries has the power,
direct or indirect, (i) to vote more than 50% of the securities or
interests having ordinary voting power for the election of directors or
comparable governing persons of such person or (ii) to direct or cause the
direction of the management and policies of such person (whether by
contract or otherwise);
(c) properties abandoned or retired from use in the ordinary course of
business;
(d) properties usable by the Borrower in the operation of its business
as a railroad company including, without limitation, the Transfer of
accounts receivable, provided that the Borrower Transfers such property in
--------
arms-length transactions in exchange for property or cash of substantially
equivalent fair market value usable by the Borrower in the operation of its
business as a railroad company, and provided further that the amount of
-------- -------
property constituting the excess, if any, of (i) the fair market value of
the property Transferred by the Borrower over (ii) the fair market value of
the property received by the Borrower in exchange therefor (in each case,
determined as of the date of such Transfer) may be transferred pursuant to
clause (a) above on and subject to the terms and conditions of such clause
(a); and
(e) property constituting Margin Stock.
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
55
SECTION 6.03. Mergers, etc. Merge or consolidate with any person, or
-------------
permit any of its Subsidiaries to merge or consolidate with any person, except
that (a) any Subsidiary may merge or consolidate with any other Subsidiary or
may merge or liquidate into the Borrower (if the Borrower shall be the
continuing or surviving corporation), (b) the Borrower or any Subsidiary may
merge or consolidate with any other corporation if (i) (A) the surviving
corporation shall be the Borrower or a Subsidiary or (B) the surviving
corporation, if not the Borrower or a Subsidiary, shall be a corporation
organized and existing under the laws of the United States or any state thereof
or the District of Columbia and shall expressly assume by a written assignment
executed and delivered to the Administrative Agent, in form and substance
satisfactory to the Administrative Agent, all of the rights and obligations of
the Borrower under this Agreement, and (ii) after giving effect to such merger
or consolidation no Event of Default or Default shall have occurred and be
continuing and (c) the Borrower and any Subsidiary may merge or consolidate as
required by a valid order of the ICC.
SECTION 6.04. Liens. Create or (in the case of clause (b) or (d)
------
below) suffer to exist, or permit its Subsidiaries to create or (in the case of
clause (b) or (d) below) suffer to exist, any Lien securing (a) Debt of the
Borrower or any of its consolidated Subsidiaries, (b) taxes imposed upon the
Borrower or any of its consolidated Subsidiaries, (c) reimbursement obligations
of the Borrower or any of its consolidated Subsidiaries in respect of letters of
credit or (d) liabilities of the Borrower or any of its consolidated
Subsidiaries asserted in any legal or other proceeding arising under the
Comprehensive Environmental, Response, Compensation and Liability Act of 1980,
as amended from time to time, or other similar Federal or state laws,
regulations or decrees relating to environmental protection or the release of
any hazardous or toxic materials into the environment, in each case, upon or
with respect to all or a portion of the cash or accounts receivable of the
Borrower or any of its consolidated Subsidiaries arising from income from
railroad operations generated in the ordinary course of business (and excluding
in any event cash and accounts receivable constituting the proceeds of the sale
or other disposition of property), except, in each case for Liens (A) in respect
------
of taxes, the nonpayment of which would not constitute a default under Section
5.01(b), (B) arising by operation of law in the ordinary course of business, (C)
on cash or other property
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
56
in any bank's possession arising either in the ordinary course of business and
securing daylight overdrafts and other Debt incurred in favor of such bank in
the ordinary course of the cash management program of the Borrower and its
Subsidiaries, or by operation of law, or contractually in the ordinary course of
establishing and/or maintaining deposit and other accounts, letters of credit
and other banking services (other than the incurrence of indebtedness for
borrowed money), (D) on cash or other property in any Lender's possession
securing (or entitling any Lender to set off against) amounts owing to any
Lender pursuant to this Agreement, (E) securing lessees' obligations under
leases referred to in clause (ii) of the definition of Debt, and (F) Liens in
respect of any liability referred to in clause (d) above which liability does
not have a reasonable probability (taking into account the exhaustion of all
corrective and other appropriate procedures and proceedings and/or all appeals)
of having a Material Adverse Effect; provided, however, that this Section 6.04
-------- -------
shall not restrict the creation or existence of (1) Existing Liens and Liens
under Existing Mortgages and (2) Liens securing Debt outstanding from time to
time under the Mortgage Indenture.
SECTION 6.05. Sales of Accounts Receivable. Sell any accounts
-----------------------------
receivable other than pursuant to the Borrower's receivables sale facilities and
any extensions, renewals or replacements of any thereof, provided that the
--------
aggregate amount of accounts receivable sold pursuant to this Section 6.05 shall
in no event exceed $300,000,000.
ARTICLE VII. EVENTS OF DEFAULT
In case of the happening (and during the continuance) of any of the
following events ("Events of Default"):
(a) The Borrower shall (i) fail to pay any principal of any Loan or
(ii) fail to pay any interest on any Loan or any other amount payable
hereunder or pursuant hereto, in each case referred to in this clause (ii)
within two Business Days after the same shall be due;
(b) Any representation or warranty made by the Borrower herein or by
the Borrower (or any of its officers) in connection with this Agreement
shall prove
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
57
to have been incorrect in any material respect when made or deemed made;
(c) The Borrower shall (i) fail to perform or observe any term,
covenant or agreement contained in Sections 5.04, 6.01, 6.02 or 6.03 of
this Agreement or (ii) fail to perform or observe any other term, covenant
or agreement contained in this Agreement on its part to be performed or
observed and any such failure referred to in this clause (ii) shall remain
unremedied for 30 days after written notice thereof shall have been given
to the Borrower by the Administrative Agent or by any Lender with a copy to
the Administrative Agent;
(d) The Borrower or any Subsidiary shall (i) fail to pay any Debt
(excluding Debt hereunder) of the Borrower or any Subsidiary (as the case
may be) in an aggregate principal amount of $50,000,000 or more, or any
installment of principal thereof or interest or premium thereon, when due
(whether by scheduled maturity, required prepayment, acceleration, demand
or otherwise) and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such
Debt; (ii) default under any agreement or instrument relating to any Debt
(excluding Debt hereunder) in an aggregate principal amount of $25,000,000
or more, or any other event shall occur and shall continue after the
applicable grace period, if any, specified in such agreement or instrument,
if the effect of such default or event is to accelerate the maturity of
such Debt; or (iii) default under any agreement or instrument relating to
any Debt (excluding Debt hereunder) in an aggregate principal amount of
$101,000,000 or more, or any other event shall occur and shall continue
after the applicable grace period, if any, specified in such agreement or
instrument, if the effect of such default or event is to permit the
acceleration of the maturity of such Debt, provided that, notwithstanding
--------
any provision contained in this paragraph (d) to the contrary, to the
extent that pursuant to the terms of any agreement or instrument relating
to any Debt referred to in this paragraph (d), any sale, pledge or disposal
of Margin Stock, or utilization of the proceeds thereof would result in a
breach of any covenant contained therein or otherwise give rise to a
default or event of default thereunder and/or
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
58
acceleration of the maturity of the Debt extended pursuant thereto and as a
result of such terms or of such sale, pledge, disposal, utilization,
breach, default, event of default or acceleration, or the provisions hereof
relating thereto, this Agreement or any Loan hereunder would otherwise be
subject to the margin requirements or any other restriction under
Regulation U, then such breach, default, event of default or acceleration
shall not constitute a Default or Event of Default under this paragraph
(d);
(e) (i) The Borrower or any Subsidiary shall (A) generally not pay
its debts as such debts become due; or (B) admit in writing its inability
to pay its debts generally; or (C) make a general assignment for the
benefit of creditors; (ii) any proceeding shall be instituted or consented
to by the Borrower or any Subsidiary seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under any
law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of
a receiver, trustee, or other similar official for it or for any
substantial part of its property; (iii) any such proceeding shall have been
instituted against the Borrower or any Subsidiary and either (A) such
relief shall have been granted or (B) such proceeding shall have been
pending undismissed for a period of 60 consecutive days; or (iv) the
Borrower or any Subsidiary shall take any corporate action to authorize any
of the actions set forth above in this paragraph (e);
(f) (i) One or more final and non-appealable judgments or orders for
the payment of money in excess of $50,000,000 in the aggregate shall be
rendered against the Borrower and/or one or more Subsidiaries and
enforcement proceedings shall have been commenced by creditors upon such
judgments or orders; or (ii) one or more judgments or orders for the
payment of money in excess of $100,000,000 shall be rendered against the
Borrower and/or one or more Subsidiaries and either (x) enforcement
proceedings shall have been commenced by creditors upon such judgments or
orders or (y) there shall be any period of 20 consecutive days during which
a stay of enforcement of such judgments or orders, by
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<PAGE>
59
reason of a pending appeal or otherwise, shall not be in effect;
(g) Any Termination Event with respect to a Material Plan shall have
occurred and, 30 days after notice thereof shall have been given to the
Borrower by the Administrative Agent, (i) such Termination Event shall
still exist and (ii) the sum (determined as of the date of occurrence of
such Termination Event) of the Insufficiency of such Plan and the
Insufficiency of any and all other Plans with respect to which a
Termination Event shall have occurred and then exist (or in the case of a
Plan with respect to which a Termination Event described in clause (ii) of
the definition of Termination Event shall have occurred and then exist, the
liability related thereto), in each case in respect of which the Borrower
or any ERISA Affiliate has liability, is equal to or greater than
$50,000,000;
(h) The Borrower or any ERISA Affiliate shall have been notified by
the sponsor of a Multiemployer Plan that it has incurred Withdrawal
Liability to such Multiemployer Plan in an amount which, when aggregated
with all other amounts required to be paid to Multiemployer Plans in
connection with Withdrawal Liabilities (determined as of the date of such
notification), exceeds $50,000,000;
(i) The Borrower or any ERISA Affiliate shall have been notified by
the sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or is being terminated, within the meaning of Title IV of
ERISA, if as a result of such reorganization or termination the aggregate
annual contributions of the Borrower and its ERISA Affiliates to all
Multiemployer Plans which are then in reorganization or being terminated
have been or will be increased over the amounts contributed to such
Multiemployer Plans for the respective plan years which include the date
hereof by an amount exceeding $50,000,000; or
(j) There shall have occurred a Change in Control;
then, and in any such event, the Administrative Agent shall, at the request, or
may with the consent, of the Required Lenders, by notice to the Borrower, (i)
declare the Commit-
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ment of each Lender to make Loans to be terminated, whereupon the same shall
forthwith terminate, and (ii) declare the Loans, all interest thereon and all
other amounts payable under this Agreement to be forthwith due and payable,
whereupon the Loans, all such interest and all such amounts shall become and be
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower;
provided, however, that if an Event of Default under paragraph (e) of this
- -------- -------
Article VII (except under clause (i)(A) thereof) shall occur, (A) the Commitment
of each Lender to make Loans shall automatically be terminated and (B) the
Loans, all interest thereon and all other amounts payable under this Agreement
shall automatically become and be forthwith due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Borrower.
ARTICLE VIII. THE AGENTS
In order to expedite the transactions contemplated by this Agreement,
Texas Commerce Bank National Association and Chemical Bank Agency Services
Corporation are hereby appointed to act as Administrative Agent and CAF Agent,
respectively, on behalf of the Lenders. Each of the Lenders hereby irrevocably
authorizes the Agents to take such actions on behalf of such Lender and to
exercise such powers as are specifically delegated to the Agents by the terms
and provisions hereof and of the other Loan Documents, together with such
actions and powers as are reasonably incidental thereto. The Administrative
Agent is hereby expressly authorized by the Lenders, without hereby limiting any
implied authority, (a) to receive on behalf of the Lenders all payments of
principal of and interest on the Loans and all other amounts due to the Lenders
hereunder, and promptly to distribute to each Lender its proper share of each
payment so received; (b) to give notice on behalf of each of the Lenders to the
Borrower of any Event of Default specified in this Agreement of which the
Administrative Agent has actual knowledge acquired in connection with its agency
hereunder; and (c) to distribute to each Lender copies of all notices, financial
statements and other materials delivered by the Borrower pursuant to this
Agreement as received by the Administrative Agent.
Neither the Agents nor any of their directors, officers, employees or
agents shall be liable as such for
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61
any action taken or omitted by any of them except for its, his or her own gross
negligence or wilful misconduct, or be responsible for any warranty or
representation herein or the contents of any document delivered in connection
herewith, or be required to ascertain or to make any inquiry concerning the
performance or observance by the Borrower of any of the terms, conditions,
covenants or agreements contained in any Loan Document other than those
expressly provided for herein. The Agents shall not be responsible to the
Lenders for the due execution, genuineness, validity, enforceability or
effectiveness (other than against the Agents) of this Agreement or any other
Loan Documents or other instruments or agreements. The Agents shall in all
cases be fully protected in acting, or refraining from acting, in accordance
with written instructions signed by the Required Lenders and, except as
otherwise specifically provided herein, such instructions and any action or
inaction pursuant thereto shall be binding on all the Lenders. Each Agent
shall, in the absence of knowledge to the contrary, be entitled to rely on any
instrument or document believed by it in good faith to be genuine and correct
and to have been signed or sent by the proper person or persons. Neither the
Agents nor any of their directors, officers, employees or agents shall have any
responsibility to the Borrower on account of the failure of or delay in
performance or breach by any Lender of any of its obligations hereunder or to
any Lender on account of the failure of or delay in performance or breach by any
other Lender or the Borrower of any of their respective obligations hereunder or
under any other Loan Document or in connection herewith or therewith. The
Agents may execute any and all duties hereunder by or through agents or
employees and shall be entitled to rely upon the advice of legal counsel
reasonably selected by them with respect to all matters arising hereunder and
shall not be liable for any action taken or suffered in good faith by it in
accordance with the advice of such counsel.
The Lenders hereby acknowledge that the Agents shall be under no duty
to take any discretionary action permitted to be taken by it pursuant to the
provisions of this Agreement unless it shall be requested in writing to do so by
the Required Lenders.
Subject to the appointment and acceptance of a successor Agent as
provided below, any Agent may resign at any time by notifying the Lenders and
the Borrower. Upon any such resignation, the Required Lenders shall have the
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62
right to appoint a successor. If no successor shall have been so appointed by
the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Agent gives notice of its resignation, then the retiring
Agent may, on behalf of the Lenders, appoint a successor Agent which shall be a
bank with an office in the United States, having a combined capital and surplus
of at least $50,000,000 or an Affiliate of any such bank. Upon the acceptance
of any appointment as Agent hereunder by a successor bank, such successor shall
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent and the retiring Agent shall be discharged from its
duties and obligations hereunder. After any Agent's resignation hereunder, the
provisions of this Article and Section 9.05 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Agent.
With respect to the Loans made by them hereunder, the Agents in their
individual capacity and not as Agents shall have the same rights and powers as
any other Lender and may exercise the same as though they were not the Agents,
and the Agents and their Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrower or any Subsidiary or
other Affiliate thereof as if they were not the Agents.
Each Lender agrees (i) to reimburse the Agents, on demand, in the
amount of its pro rata share (based on its Commitment hereunder) of any
reasonable expenses incurred for the benefit of the Lenders by the Agents,
including counsel fees and compensation of agents and employees paid for
services rendered on behalf of the Lenders, which shall not have been reimbursed
by the Borrower and (ii) to indemnify and hold harmless the Agents and any of
its directors, officers, employees or agents, on demand, in the amount of such
pro rata share, from and against any and all liabilities, taxes, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on, incurred
by or asserted against them in their capacity as the Agents or any of them in
any way relating to or arising out of this Agreement or any other Loan Document
or any action taken or omitted by it or any of them under this Agreement or any
other Loan Document, to the extent the same shall not have been reimbursed by
the Borrower; provided that no Lender shall be liable to the Agents for any
--------
portion of such liabilities, obligations, losses, damages,
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63
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the gross negligence or wilful misconduct of the Agents or any of their
directors, officers, employees or agents. Each Lender agrees that any
reasonable allocation of expenses or other amounts referred to in this paragraph
between this Agreement and the Facility B Credit Agreement shall be conclusive
and binding for all purposes.
Each Lender acknowledges that it has, independently and without
reliance upon the Agents or any other Lender and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Agents or any other Lender and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement or any other Loan Document, any related
agreement or any document furnished hereunder or thereunder.
ARTICLE IX. MISCELLANEOUS
SECTION 9.01. Notices. Notices and other communications provided for
--------
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed or sent by telecopy by the sending party, as follows:
(a) if to the Borrower, to it at 3200 Continental Plaza, 777 Main
Street, Fort Worth, Texas 76102, Attention of Treasurer (Telecopy No. 817-
333-7484);
(b) if to the Administrative Agent, to it at 712 Main Street, Houston,
Texas 77002, Attention of Syndications Department (Telecopy No. 713-546-
2339); with a copy to Texas Commerce Bank National Association, 201 Main
Street, 3rd Floor, Fort Worth, Texas 76102, Attention of Corporate Banking
(Telecopy No. 817-878-7591);
(c) if to the CAF Agent, to it at 140 East 45th Street, 29th Floor,
New York, NY 10017-3162, Attention of: M. Terri Reilly; and
(d) if to a Lender, to it at its address (or telecopy number) set
forth in Schedule 2.01 or in the
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64
Assignment and Acceptance pursuant to which such Lender shall have become a
party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy, or on the date five Business Days after dispatch by certified or
registered mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 9.01 or in accordance with
the latest unrevoked direction from such party given in accordance with this
Section 9.01.
SECTION 9.02. Survival of Agreement. All covenants, agreements,
----------------------
representations and warranties made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and shall survive the making by the Lenders
of the Loans regardless of any investigation made by the Lenders or on their
behalf, and shall continue in full force and effect as long as the principal of
or any accrued interest on any Loan or any Fee or any other amount payable under
this Agreement or any other Loan Document is outstanding and unpaid and so long
as the Commitments have not been terminated.
SECTION 9.03. Binding Effect. This Agreement shall become effective
---------------
when it shall have been executed by the Borrower and the Agents and when the
Administrative Agent shall have received copies hereof which, when taken
together, bear the signatures of each Lender, and thereafter shall be binding
upon and inure to the benefit of the Borrower, the Agents and each Lender and
their respective successors and assigns, except that the Borrower shall not have
the right to assign its rights hereunder or any interest herein without the
prior consent of all the Lenders.
SECTION 9.04. Successors and Assigns. (a) Whenever in this
-----------------------
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and permitted assigns of such party; and all
covenants, promises and agreements by or on behalf of the Borrower, the Agents
or the Lenders that are contained in this Agreement shall bind and inure to the
benefit of their respective successors and permitted assigns.
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65
(b) Each Lender may assign to one or more assignees all or a portion
of its interests, rights and obligations under this Agreement (including all or
a portion of its Commitment and the Loans at the time owing to it); provided,
--------
however, that (i) except in the case of an assignment to a Lender or an
- -------
Affiliate of such Lender, the Borrower and the Administrative Agent must give
their prior written consent to such assignment (which consent shall not be
unreasonably withheld, taking into account such factors as the financial
responsibility and reputation of a proposed assignee), (ii) each such assignment
shall be of a constant, and not a varying, percentage of all the assigning
Lender's rights and obligations under this Agreement, (iii) the amount of the
Commitment of the assigning Lender subject to each such assignment (determined
as of the date the Assignment and Acceptance with respect to such assignment is
delivered to the Administrative Agent) shall not be less than $10,000,000 (and
integral multiples of $1,000,000) or, if less, the entire amount of the
assigning Lender's Commitment, (iv) the parties to each such assignment shall
execute and deliver to the Administrative Agent an Assignment and Acceptance,
and the assigning Lender shall deliver together therewith a processing and
recordation fee of $2,500 and (v) the assignee, if it shall not be a Lender,
shall deliver to the Administrative Agent and the CAF Agent an Administrative
Questionnaire. Upon acceptance and recording pursuant to paragraph (e) of this
Section 9.04, from and after the effective date specified in each Assignment and
Acceptance, which effective date shall be at least five Business Days after the
execution thereof, (A) the assignee thereunder shall be a party hereto and, to
the extent of the interest assigned by such Assignment and Acceptance, have the
rights and obligations of a Lender under this Agreement, (B) the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such Lender shall cease to be a party hereto (but shall continue to be entitled
to the benefits of Sections 2.14, 2.16, 2.20 and 9.05, as well as to any Fees
accrued for its account hereunder and not yet paid)) and (C) Schedule 2.01 shall
be deemed amended to give affect to such assignment. Not-withstanding the
foregoing, any Lender assigning its rights and obligations under this Agreement
may retain any Competitive Loans made by it outstanding at such time, and in
such case shall retain its rights
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66
hereunder in respect of any Loans so retained until such Loans have been repaid
in full in accordance with this Agreement.
(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and that
its Commitment, and the outstanding balances of its Standby Loans and
Competitive Loans, in each case without giving effect to assignments thereof
which have not become effective, are as set forth in such Assignment and
Acceptance; (ii) except as set forth in (i) above, such assigning Lender makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement, or any other any instrument or document furnished pursuant hereto, or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement, any other Loan Document or any other instrument or
document furnished pursuant hereto or the financial condition of the Borrower or
any Subsidiary or the performance or observance by the Borrower or any
Subsidiary of any of its obligations under this Agreement, any other Loan
Document or any other instrument or document furnished pursuant hereto; (iii)
such assignee represents and warrants that it is legally authorized to enter
into such Assignment and Acceptance; (iv) such assignee confirms that it has
received a copy of this Agreement, together with copies of the most recent
financial statements delivered pursuant to Section 5.03 and such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (v) such assignee will
independently and without reliance upon the Administrative Agent, such assigning
Lender or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (vi) such assignee appoints
and authorizes the Administrative Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement as are delegated to the
Administrative Agent by the terms hereof, together with such powers as are
reasonably incidental thereto; and (vii) such assignee agrees that it will
perform in accordance with
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their terms all the obligations which by the terms of this Agreement are
required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at one of its offices in
The City of Houston a copy of each Assignment and Acceptance delivered to it and
a register for the recordation of the names and addresses of the Lenders, and
the Commitment of, and principal amount of the Loans owing to, each Lender
pursuant to the terms hereof from time to time (the "Register"). The entries in
the Register shall be conclusive in the absence of demonstrable error and the
Borrower, the Agents and the Lenders may treat each person whose name is
recorded in the Register pursuant to the terms hereof as a Lender hereunder for
all purposes of this Agreement. The Register shall be available for inspection
by the Borrower and any Lender, at any reasonable time and from time to time
upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, an Administrative Questionnaire
completed in respect of the assignee (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) above and, if required, the written consent of the Borrower and the
Administrative Agent to such assignment, the Administrative Agent shall (i)
accept such Assignment and Acceptance, (ii) record the information contained
therein in the Register and (iii) give prompt notice thereof to the Lenders.
(f) Each Lender may without the consent of the Borrower or the Agents
sell participations to one or more banks or other entities in all or a portion
of its rights and obligations under this Agreement (including all or a portion
of its Commitment and the Loans owing to it); provided, however, that (i) such
-------- -------
Lender's obligations under this Agreement shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) the participating banks or other entities
shall be entitled to the benefit of the cost protection provisions contained in
Sections 2.14, 2.16 and 2.20 to the same extent as if they were Lenders and (iv)
the Borrower, the Agents and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement, and such Lender shall retain the sole right to
enforce the obligations of the Borrower relating to the Loans and to approve any
amendment, modification
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68
or waiver of any provision of this Agreement (other than amendments,
modifications or waivers decreasing any fees payable hereunder or the amount of
principal of or the rate at which interest is payable on the Loans, extending
any scheduled principal payment date or date fixed for the payment of interest
on the Loans or changing or extending the Commitments).
(g) Any Lender or participant may, in connection with any assignment
or participation or proposed assignment or participation pursuant to this
Section 9.04, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrower furnished to such Lender by
or on behalf of the Borrower; provided that, prior to any such disclosure of
--------
information designated by the Borrower as confidential, each such assignee or
participant or proposed assignee or participant shall execute an agreement
whereby such assignee or participant shall agree (subject to customary
exceptions) to preserve the confidentiality of such confidential information.
It is understood that confidential information relating to the Borrower would
not ordinarily be provided in connection with assignments or participations of
Competitive Loans.
(h) Any Lender may at any time assign all or any portion of its
rights under this Agreement to a Federal Reserve Bank; provided that no such
--------
assignment shall release a Lender from any of its obligations hereunder. In
order to facilitate such an assignment to a Federal Reserve Bank, the Borrower
shall, to the extent permissible without registration under applicable
regulations of the ICC, at the request of the assigning Lender, duly execute and
deliver to the assigning Lender a promissory note or notes evidencing the Loans
made to the Borrower by the assigning Lender hereunder.
(i) The Borrower shall not assign or delegate any of its rights or
duties hereunder without the prior written consent of the Lenders.
SECTION 9.05. Expenses; Indemnity. (a) The Borrower agrees to pay
--------------------
all out-of-pocket expenses incurred by the Agents in connection with the
preparation of this Agreement and the other Loan Documents or in connection with
any amendments, modifications or waivers of the provisions hereof or thereof
(whether or not the transactions hereby contemplated shall be consummated) or
incurred by the Agents or any Lender in connection with the enforcement or
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69
protection of their rights in connection with this Agreement and the other Loan
Documents or in connection with the Loans made hereunder, including the
reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel
for the Agents, and, in connection with any such amendment, modification or
waiver or any such enforcement or protection, the reasonable fees, charges and
disbursements of any other counsel for the Agents or any Lender. The Borrower
further agrees that it shall indemnify the Lenders from and hold them harmless
against any documentary taxes, assessments or charges made by any Governmental
Authority by reason of the execution and delivery of this Agreement or any of
the other Loan Documents.
(b) The Borrower agrees to indemnify the Agents, each Lender and each
of their respective directors, officers, employees and agents (each such person
being called an "Indemnitee") against, and to hold each Indemnitee harmless
from, any and all losses, claims, damages, liabilities and related expenses,
including reasonable counsel fees, charges and disbursements, incurred by or
asserted against any Indemnitee arising out of, in any way connected with, or as
a result of (i) the execution or delivery of this Agreement or any other Loan
Document or any agreement or instrument contemplated thereby, the performance by
the parties thereto of their respective obligations thereunder or the
consummation of the transactions contemplated thereby, (ii) the use of the
proceeds of the Loans or (iii) any claim, litigation, investigation or
proceeding relating to any of the foregoing to which such Indemnitee reasonably
believes that it may become a party, whether or not any Indemnitee is a party
thereto; provided that such indemnity shall not, as to any Indemnitee, be
--------
available to the extent that such losses, claims, damages, liabilities or
related expenses are determined by a court of competent jurisdiction by final
and nonappealable judgment to have resulted from the gross negligence or wilful
misconduct of such Indemnitee.
(c) The provisions of this Section 9.05 shall remain operative and in
full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term or
provision of this Agreement or any other Loan Document, or any investigation
made by or on behalf of the Agents or any Lender. All amounts due under this
Section 9.05 shall be payable on written demand therefor.
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SECTION 9.06. Right of Setoff. If an Event of Default shall have
----------------
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of the Borrower against any of and all the
obligations of the Borrower now or hereafter existing under this Agreement and
other Loan Documents held by such Lender, irrespective of whether or not such
Lender shall have made any demand under this Agreement or such other Loan
Document and although such obligations may be unmatured. Each Lender agrees
promptly to notify the Borrower after any such setoff and application made by
such Lender, provided that the failure to give such notice shall not affect the
--------
validity of such setoff and application. The rights of each Lender under this
Section are in addition to other rights and remedies (including other rights of
setoff) which such Lender may have.
SECTION 9.07. Applicable Law. THIS AGREEMENT AND THE OTHER LOAN
---------------
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK.
SECTION 9.08. Waivers; Amendment. (a) No failure or delay of the
-------------------
Agents or any Lender in exercising any power or right hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Agents and the Lenders
hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies which they would otherwise have. No waiver
of any provision of this Agreement or any other Loan Document or consent to any
departure by the Borrower therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice or demand on the Borrower in any case shall entitle the
Borrower to any other or further notice or demand in similar or other
circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the
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Borrower and the Required Lenders; provided, however, that no such agreement
-------- -------
shall (i) decrease the principal amount of, or extend the maturity of or any
scheduled principal payment date or date for the payment of any interest on, any
Loan, or waive or excuse any such payment or any part thereof, or decrease the
rate of interest on any Loan, without the prior written consent of each Lender
affected thereby, (ii) change or extend the Commitment or decrease the Facility
Fees of any Lender without the prior written consent of such Lender, or (iii)
amend or modify the provisions of Section 2.17, the provisions of this Section,
any provision of this agreement which by its terms requires the consent or
approval of all Lenders or the definition of "Required Lenders", without the
prior written consent of each Lender; provided further that no such agreement
----------------
shall amend, modify or otherwise affect the rights or duties of the Agents
hereunder without the prior written consent of the Agents.
SECTION 9.09. Interest Rate Limitation. Notwithstanding anything
-------------------------
herein to the contrary, if at any time the applicable interest rate, together
with all fees and charges which are treated as interest under applicable law
(collectively the "Charges"), as provided for herein or in any other document
executed in connection herewith, or otherwise contracted for, charged, received,
taken or reserved by any Lender, shall exceed the maximum lawful rate (the
"Maximum Rate") which may be contracted for, charged, taken, received or
reserved by such Lender in accordance with applicable law, the rate of interest
payable on the Loans of such Lender, together with all Charges payable to such
Lender, shall be limited to the Maximum Rate.
SECTION 9.10. Entire Agreement. This Agreement and the other Loan
-----------------
Documents constitute the entire contract between the parties relative to the
subject matter hereof. Any previous agreement among the parties with respect to
the subject matter hereof is superseded by this Agreement and the other Loan
Documents. Nothing in this Agreement or in the other Loan Documents, expressed
or implied, is intended to confer upon any party other than the parties hereto
and thereto any rights, remedies, obligations or liabilities under or by reason
of this Agreement or the other Loan Documents.
SECTION 9.11. Severability. In the event any one or more of the
-------------
provisions contained in this Agreement or in any other Loan Document should be
held invalid, illegal or
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unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 9.12. Counterparts. This Agreement may be executed in two or
-------------
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract, and shall become
effective as provided in Section 9.03.
SECTION 9.13. Headings. Article and Section headings and the Table
---------
of Contents used herein are for convenience of reference only, are not part of
this Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 9.14. Jurisdiction; Consent to Service of Process. (a) The
----------------------------------- --------
Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that any
Lender may otherwise have to bring any action or proceeding relating to this
Agreement or the other Loan Documents against the Borrower or its properties in
the courts of any jurisdiction.
(b) The Borrower hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this agreement or
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
73
the other Loan Documents in any New York State or Federal court sitting in New
York City. Each of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
affect the right of any party to this Agreement to serve process in any other
manner permitted by law.
IN WITNESS WHEREOF, the Borrower, the Lenders, the Administrative
Agent and the CAF Agent have caused this Agreement to be duly executed by their
respective authorized officers as of the day and year first above written.
BURLINGTON NORTHERN RAILROAD
COMPANY,
by
Robert F. McKenney
-------------------------------------
Name: Robert F. McKenney
Title: Senior Vice President
and Treasurer
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, individually and as
Administrative Agent,
by
Loren K. Jensen
-------------------------------------
Name: Loren K. Jensen
Title: Senior Vice President
CHEMICAL BANK AGENCY SERVICES
CORPORATION, as CAF Agent,
by
Janet M. Belden
-------------------------------------
Name: Janet M. Belden
Title: Vice President
ABN-AMRO BANK N.V.,
by by
Lila J. Donehoo Ronald A. Mahle
---------------------- ------------------------------------
Name: Lila J. Donehoo Name: Ronald A. Mahle
Title: Vice President Title: Vice President
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
THE BOATMEN'S NATIONAL BANK OF ST.
LOUIS,
by
Dwight D. Erdbruegger
-------------------------------------
Name: Dwight D. Erdbruegger
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
by
Wayne H. Riess
-------------------------------------
Name: Wayne H. Riess
Title: Vice President
THE BANK OF NEW YORK,
by
Julie E. Brennan
-------------------------------------
Name: Julie E. Brennan
Title: Vice President
THE BANK OF NOVA SCOTIA,
by
A. S. Norsworthy
-------------------------------------
Name: A. S. Norsworthy
Title: Assistant Agent
THE BANK OF TOKYO, LTD., Dallas
Agency,
by
J. Beckwith
-------------------------------------
Name: J. Beckwith
Title: Vice President
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
CAISSE NATIONALE DE CREDIT AGRICOLE,
by
David Bouhl
-------------------------------------
Name: David Bouhl
Title: First Vice President
THE CHASE MANHATTAN BANK, N.A.,
by
Francis M. Cox, III
-------------------------------------
Name: Francis M. Cox, III
Title: Vice President
CIBC, INC.,
by
J. D. Westland
-------------------------------------
Name: J. D. Westland
Title: Vice President
CITIBANK, N.A.,
by
Barbara A. Cohen
-------------------------------------
Name: Barbara A. Cohen
Title: Vice President
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", New York Branch
by
Anita Vogel
-------------------------------------
Name: Anita Vogel
Title: Vice President
by
Ian Reece
------------------------------------
Name: Ian Reece
Title: Vice President and Manager
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
CREDIT LYONNAIS New York Branch
by
Alain Papiasse
-------------------------------------
Name: Alain Papiasse
Title: Senior Vice President,
Deputy General Manager
CREDIT LYONNAIS Cayman Island Branch
by
Alain Papiasse
-------------------------------------
Name: Alain Papiasse
Title: Authorized Signature
THE DAI-ICHI KANGYO BANK, LIMITED,
Los Angeles Agency,
by
Tomohiro Nozaki
-------------------------------------
Name: Tomohiro Nozaki
Title: Senior Vice President
and Joint General
Manager
FIRST BANK NATIONAL ASSOCIATION,
by
Megan G. Mourning
-------------------------------------
Name: Megan G. Mourning
Title: Vice President
FIRST INTERSTATE BANK OF TEXAS N.A.,
by
Todd Robichaux
-------------------------------------
Name: Todd Robichaux
Title: Assistant Vice President
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON,
by
Dexter Freeman
-------------------------------------
Name: Dexter Freeman
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
by
Michael J. Kolosowsky
-------------------------------------
Name: Michael J. Kolosowsky
Title: Assistant Vice President
THE FUJI BANK, LIMITED, Houston
Agency,
by
David Kelley
-------------------------------------
Name: David Kelley
Title: Vice President and
Senior Manager
MELLON BANK, N.A.,
by
V. Charles Jackson
-------------------------------------
Name: V. Charles Jackson
Title: Senior Vice President
MERCANTILE BANK OF ST. LOUIS
NATIONAL ASSOCIATION,
by
Edward A. Cheney
-------------------------------------
Name: Edward A. Cheney
Title: Vice President
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
THE MITSUBISHI BANK, LIMITED, New
York Branch,
by
Paula Mueller
-------------------------------------
Name: Paula Mueller
Title: Vice President
MORGAN GUARANTY TRUST COMPANY OF NEW
YORK,
by
Michael C. Mauer
-------------------------------------
Name: Michael C. Mauer
Title: Vice President
NBD BANK, N.A.,
by
D. Andrew Bateman
-------------------------------------
Name: D. Andrew Bateman
Title: First Vice President
THE NORTHERN TRUST COMPANY,
by
Martin G. Alston
-------------------------------------
Name: Martin G. Alston
Title: Vice President
PNC BANK, National Association,
by
Jeffrey S. Nurkiewicz
-------------------------------------
Name: Jeffrey S. Nurkiewicz
Title: Commercial Banking
Officer
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
THE SANWA BANK, LIMITED,
by
Blake Wright
-------------------------------------
Name: Blake Wright
Title: Assistant Vice President
SOCIETE GENERALE, Southwest Agency,
by
Louis P. LaVille
-------------------------------------
Name: Louis P. LaVille
Title: Vice President
THE SUMITOMO BANK, LIMITED,
by
Hiroshi Amano
-------------------------------------
Name: Hiroshi Amano
Title: General Manager
THE TOKAI BANK, LIMITED,
by
Hitoshi Ozawa
-------------------------------------
Name: Hitoshi Ozawa
Title: Assistant General
Manager
THE TORONTO-DOMINION BANK,
by
Lisa Allison
-------------------------------------
Name: Lisa Allison
Title: Manager, Credit
Administration
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
UNION BANK OF SWITZERLAND, Houston
Agency,
by
Jan Buettgen
-------------------------------------
Name: Jan Buettgen
Title: Assistant Vice President
by
Evans Swann
-------------------------------------
Name: Evans Swann
Title: Vice President
WACHOVIA BANK OF GEORGIA, N.A.,
by
Terry L. Akins
-------------------------------------
Name: Terry L. Akins
Title: Senior Vice President
[6700-070(A)RAF/A08A.WPF/30D/4674W]
<PAGE>
EXHIBIT 10.16
================================================================================
5-YEAR COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY
AGREEMENT
Dated as of May 6, 1994
among
BURLINGTON NORTHERN RAILROAD COMPANY,
THE LENDERS NAMED HEREIN,
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as Administrative Agent
and
CHEMICAL BANK AGENCY SERVICES CORPORATION,
as Competitive Advance Facility Agent
================================================================================
[CS&M Ref. No. 6700-227]
[6700-070(X)RAF/CV08B.WPF/30D/4674W]
<PAGE>
TABLE OF CONTENTS
Article Section Page
- ------- ------- ----
I. DEFINITIONS
1.01 Defined Terms ..................... 1
1.02 Terms Generally ................... 17
II. THE CREDITS
2.01 Commitments ....................... 18
2.02 Loans ............................. 18
2.03 Competitive Bid Procedure ......... 20
2.04 Standby Borrowing Procedure ....... 23
2.05 Refinancings ...................... 24
2.06 Conversion and Continuation of
Standby Borrowings .............. 25
2.07 Fees .............................. 27
2.08 Repayment of Loans ................ 28
2.09 Interest on Loans ................. 28
2.10 Default Interest .................. 29
2.11 Alternate Rate of Interest ........ 29
2.12 Termination and Reduction of
Commitments ..................... 31
2.13 Prepayment ........................ 31
2.14 Reserve Requirements; Change in
Circumstances ................... 32
2.15 Change in Legality ................ 34
2.16 Indemnity ......................... 35
2.17 Pro Rata Treatment ................ 36
2.18 Sharing of Setoffs ................ 37
2.19 Payments .......................... 38
2.20 Taxes ............................. 38
2.21 Termination or Assignment of
Commitments Under Certain
Circumstances ................... 41
III. REPRESENTATIONS AND WARRANTIES ........... 42
IV. CONDITIONS OF LENDING
4.01 Conditions to Effectiveness of
Commitments ..................... 46
4.02 Conditions to All Borrowings ...... 47
[6700-070(X)RAF/CT08B.wpf/19N/4674]
<PAGE>
Article Section Page
- ------- ------- ----
V. AFFIRMATIVE COVENANTS
5.01 Existence; Businesses and
Properties ...................... 48
5.02 Insurance ......................... 49
5.03 Reporting Requirements ............ 49
5.04 Consolidated Tangible Net Worth ... 52
5.05 Taxes ............................. 52
VI. NEGATIVE COVENANTS
6.01 Debt .............................. 52
6.02 Sale, etc., of Assets ............. 53
6.03 Mergers, etc ...................... 54
6.04 Liens ............................. 54
6.05 Sales of Accounts Receivable ...... 55
VII. EVENTS OF DEFAULT ........................ 56
VIII. THE AGENTS ............................... 59
IX. MISCELLANEOUS
9.01 Notices ........................... 62
9.02 Survival of Agreement ............. 63
9.03 Binding Effect .................... 64
9.04 Successors and Assigns ............ 64
9.05 Expenses; Indemnity ............... 68
9.06 Right of Setoff ................... 69
9.07 Applicable Law .................... 69
9.08 Waivers; Amendment ................ 69
9.09 Interest Rate Limitation .......... 70
9.10 Entire Agreement .................. 71
9.11 Severability ...................... 71
9.12 Counterparts ...................... 71
9.13 Headings .......................... 71
9.14 Jurisdiction; Consent to Service of
Process ......................... 71
Exhibit A-1 Form of Competitive Bid Request
Exhibit A-2 Form of Notice of Competitive Bid Request
Exhibit A-3 Form of Competitive Bid
[6700-070(X)RAF/CT08B.wpf/19N/4674]
<PAGE>
Exhibit A-4 Form of Competitive Bid Accept/Reject
Letter
Exhibit A-5 Form of Standby Borrowing Request
Exhibit B Administrative Questionnaire
Exhibit C Form of Assignment and Acceptance
Exhibit D Form of Opinion of Francis T. Kelly, Esq.,
Counsel for the Borrower
Exhibit E Form of Opinion of Douglas J. Babb, Vice
President and General Counsel of the
Borrower
Schedule 2.01 Commitments
Schedule 6.04(a) Existing Liens
[6700-070(X)RAF/CT08B.wpf/19N/4674]
<PAGE>
5-YEAR COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY
AGREEMENT dated as of May 6, 1994, among BURLINGTON NORTHERN
RAILROAD COMPANY, a Delaware corporation (the "Borrower"); the
lenders listed in Schedule 2.01 hereto (the "Lenders"); TEXAS
COMMERCE BANK NATIONAL ASSOCIATION, a national banking
association, as administrative agent (in such capacity, the
"Administrative Agent") and CHEMICAL BANK AGENCY SERVICES
CORPORATION, as competitive advance facility agent (in such
capacity, the "CAF Agent").
The Borrower has requested the Lenders to extend credit to the
Borrower in order to enable it to borrow on a standby revolving credit basis on
and after the date hereof and at any time and from time to time prior to the
Maturity Date (as herein defined) a principal amount not in excess of
$500,000,000 at any time outstanding. The Borrower has also requested the
Lenders to provide a procedure pursuant to which the Borrower may invite the
Lenders to bid on an uncommitted basis on short-term borrowings by the Borrower.
The proceeds of such borrowings are to be used for general corporate purposes,
including providing backup liquidity for the Borrower's commercial paper program
and for acquisitions of any person approved by the board of directors or other
comparable body of such person. The Lenders are willing to extend such credit
to the Borrower on the terms and subject to the conditions herein set forth.
Accordingly, the Borrower, the Lenders, the Administrative Agent and
the CAF Agent agree as follows:
ARTICLE I. DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the
--------------
following terms shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
-------------
"ABR Loan" shall mean any Standby Loan bearing interest at a rate
--------
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
2
"Adjusted CD Rate" shall mean, with respect to any CD Borrowing for
----------------
any Interest Period, an interest rate per annum (rounded upwards, if necessary,
to the next 1/100 of 1%) equal to the sum of (a) a rate per annum equal to the
product of (i) the Fixed CD Rate in effect for such Interest Period and (ii)
Statutory Reserves, plus (b) the Assessment Rate. For purposes hereof, the term
"Fixed CD Rate" shall mean the arithmetic average (rounded upwards, if
-------------
necessary, to the next 1/100 of 1%) of the prevailing rates per annum bid at or
about 10:00 a.m., New York City time, to each Reference Bank on the first
Business Day of the Interest Period applicable to such CD Borrowing by three New
York City negotiable certificate of deposit dealers of recognized standing for
the purchase at face value of negotiable certificates of deposit of such
Reference Bank in a principal amount approximately equal to such Reference
Bank's portion of such CD Borrowing and with a maturity comparable to such
Interest Period.
"Administrative Questionnaire" shall mean an Administrative
----------------------------
Questionnaire in the form of Exhibit B hereto.
"Affiliate" shall mean, when used with respect to a specified person,
---------
another person that directly, or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with the person
specified.
"Agent Fees" shall have the meaning given such term in Section
----------
2.07(b).
"Agents" shall mean the CAF Agent and the Administrative Agent.
------
"Alternate Base Rate" shall mean, for any day, a rate per annum
-------------------
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of
(a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such
day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus
1/2 of 1%. For purposes hereof, "Prime Rate" shall mean as of a particular
----------
date, the prime rate most recently announced by the Administrative Agent and
thereafter entered in the minutes of the Administrative Agent's Loan and
Discount Committee, automatically fluctuating upward and downward with and at
the time specified in each such announcement without notice to the Borrower or
any other person, which prime rate may not
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
3
necessarily represent the lowest or best rate actually charged to a customer.
"Base CD Rate" shall mean the sum of (a) the product of (i) the Three-Month
- -------------
Secondary CD Rate and (ii) Statutory Reserves and (b) the Assessment Rate.
"Three-Month Secondary CD Rate" shall mean, for any day, the secondary market
- ------------------------------
rate for three-month certificates of deposit reported as being in effect on such
day (or, if such day shall not be a Business Day, the next preceding Business
Day) by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day), or, if such rate shall not be so reported on such day
or such next preceding Business Day, the average of the secondary market
quotations for three month certificates of deposit of major money center banks
in New York City received at approximately 10:00 a.m., New York City time, on
such day (or, if such day shall not be a Business Day, on the next preceding
Business Day) by the Administrative Agent from three New York City negotiable
certificate of deposit dealers of recognized standing selected by it. "Federal
-------
Funds Effective Rate" shall mean, for any day, the weighted average of the rates
- --------------------
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published on the next succeeding
Business Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average of the quotations for
the day of such transactions received by the Administrative Agent from three
Federal funds brokers of recognized standing selected by it. If for any reason
the Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Base CD
Rate or the Federal Funds Effective Rate or both for any reason, including the
inability of the Administrative Agent to obtain sufficient quotations in
accordance with the terms thereof, the Alternate Base Rate shall be determined
without regard to clause (b) or (c), or both, of the first sentence of this
definition, as appropriate, until the circumstances giving rise to such
inability no longer exist. Any change in the Alternate Base Rate due to a change
in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate shall be effective on the effective date of such change in the
Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective
Rate, respectively.
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
4
"Applicable Fee Percentage" shall mean on any date the applicable
-------------------------
percentage set forth below based upon the ratings applicable on such date to
indebtedness outstanding under the Mortgage Indenture or similar senior,
secured, non-credit-enhanced long-term indebtedness of the Borrower (other than
the Northern Pacific 3% General Lien Bonds due 2047 and the St. Louis-San
Francisco 5% Debentures due 2006) for borrowed money ("Index Debt"):
<TABLE>
<CAPTION>
Applicable
Fee
Percentage
-----------
<S> <C>
Category 1
----------
A or higher by S&P; .125%
A2 or higher by Moody's
Category 2
----------
A- by S&P; .150%
A3 by Moody's
Category 3
----------
BBB+ by S&P; .1875%
Baa1 by Moody's
Category 4
----------
BBB by S&P; .225%
Baa2 by Moody's
Category 5
----------
BBB- or lower by S&P; .350%
Baa3 or lower by Moody's
</TABLE>
For purposes of the foregoing, (i) if either Moody's or S&P shall not have in
effect a rating for Index Debt (other than because such rating agency shall no
longer be in the business of rating corporate debt obligations), then such
rating agency will be deemed to have established a rating for Index Debt in
Category 5; (ii) if the ratings established or deemed to have been established
by Moody's and S&P shall fall within different Categories, the Applicable Fee
Percentage shall be determined by reference to the inferior (or numerically
highest) Category, (iii) if any rating established or deemed to have been esta-
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
5
blished by Moody's or S&P shall be changed (other than as a result of a change
in the rating system of either Moody's or S&P), such change shall be effective
as of the date on which such change is first announced by the rating agency
making such change and (iv) in the event, and for so long as, the commercial
paper rating applicable to the Borrower shall be lower than A-2 by S&P or lower
than P-2 by Moody's or no such rating shall be in effect from either Moody's or
S&P (other than because such rating agency shall no longer be in the business of
rating corporate debt obligations), the Applicable Fee Percentage shall be
determined by reference to Category 5. Each change in the Applicable Fee
Percentage shall apply during the period commencing on the effective date of
such change and ending on the date immediately preceding the effective date of
the next such change. If the rating system of either Moody's or S&P shall
change, or if either such rating agency shall cease to be in the business of
rating corporate debt obligations, the Borrower and the Lenders shall negotiate
in good faith to amend the references to specific ratings in this definition to
reflect such changed rating system or the non-availability of ratings from such
rating agency, and pending agreement on such amendment, the rating in effect
immediately prior to such change or cessation will be used in determining the
Applicable Fee Percentage.
"Applicable Margin" shall mean on any date, with respect to Eurodollar
-----------------
Standby Loans, CD Loans or ABR Loans, as the case may be, the applicable spreads
set forth below based upon the ratings applicable on such date to the Borrower's
Index Debt:
<TABLE>
<CAPTION>
Eurodollar CD Loan ABR Loan
Loan Spread Spread Spread
------------ -------- ---------
<S> <C> <C> <C>
Category 1
- ----------
A or higher by S&P; .200% .325% 0%
Category 2
- ----------
A- by S&P; .225% .350% 0%
A3 by Moody's
Category 3
- ----------
BBB+ by S&P; .250% .375% 0%
</TABLE>
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
6
<TABLE>
<S> <C> <C> <C>
Category 4
- ----------
BBB by S&P; .375% .500% 0%
Baa2 by Moody's
Category 5
- ----------
BBB- or lower by S&P .500% .625% 0%
Baa3 or lower by Moody's
</TABLE>
For purposes of the foregoing, (i) if either Moody's or S&P shall not have in
effect a rating for Index Debt (other than because such rating agency shall no
longer be in the business of rating corporate debt obligations), then such
rating agency will be deemed to have established a rating for Index Debt in
Category 5; (ii) if the ratings established or deemed to have been established
by Moody's and S&P shall fall within different Categories, the Applicable Margin
shall be determined by reference to the inferior (or numerically higher)
Category, (iii) if any rating established or deemed to have been established by
Moody's or S&P shall be changed (other than as a result of a change in the
rating system of either Moody's or S&P), such change shall be effective as of
the date on which such change is first announced by the rating agency making
such change and (iv) in the event, and for so long as, the commercial paper
rating applicable to the Borrower shall be lower than A-2 by S&P or lower than
P-2 by Moody's or no such rating shall be in effect from either Moody's or S&P
(other than because such rating agency shall no longer be in the business of
rating corporate debt obligations), the Applicable Margin shall be determined by
reference to Category 5. Each change in the Applicable Margin shall apply to all
Eurodollar Standby Loans, CD Loans and ABR Loans that are outstanding at any
time during the period commencing on the effective date of such change and
ending on the date immediately preceding the effective date of the next such
change. If the rating system of either Moody's or S&P shall change, or if
either such rating agency shall cease to be in the business of rating corporate
debt obligations, the Borrower and the Lenders shall negotiate in good faith to
amend the references to specific ratings in this definition to reflect such
changed rating system or the nonavailability of ratings from such rating agency,
and pending agreement on such amendment, the rating in effect immediately prior
to such change or cessation will be used in determining the Applicable Margin.
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
7
"Assessment Rate" shall mean for any date the annual rate (rounded
---------------
upwards, if necessary, to the next 1/100 of 1%) most recently estimated by the
Administrative Agent as the then current net annual assessment rate that will be
employed in determining amounts payable by the Administrative Agent to the
Federal Deposit Insurance Corporation (or any successor) for insurance by such
Corporation (or such successor) of time deposits made in dollars at the
Administrative Agent's domestic offices.
"Assignment and Acceptance" shall mean an assignment and acceptance
-------------------------
entered into by a Lender and an assignee, and accepted by the Administrative
Agent, in the form of Exhibit C.
"Board" shall mean the Board of Governors of the Federal Reserve
-----
System of the United States.
"Borrowing" shall mean a group of Loans of a single Type made by the
---------
Lenders (or, in the case of a Competitive Borrowing, by the Lender or Lenders
whose Competitive Bids have been accepted pursuant to Section 2.03) on a single
date and as to which a single Interest Period is in effect.
"Business Day" shall mean any day (other than a day which is a
------------
Saturday, Sunday or legal holiday in the State of Texas or New York) on which
banks are open for business in Houston and New York City; provided, however,
-------- -------
that, when used in connection with a Eurodollar Loan, the term "Business Day"
-------- ---
shall also exclude any day on which banks are not open for dealings in dollar
deposits in the London interbank market.
"CD Borrowing" shall mean a Borrowing comprised of CD Loans.
------------
"CD Loan" shall mean any Standby Loan bearing interest at a rate
determined by reference to the Adjusted CD Rate in accordance with the
provisions of Article II.
A "Change in Control" shall be deemed to have occurred if (a) any
-----------------
person or group (within the meaning of Rule 13d-5 of the Securities and Exchange
Commission as in effect on the date hereof) shall own directly or indirectly,
beneficially or of record, shares representing more than 50% of the aggregate
ordinary voting power represented by the issued and outstanding capital stock of
the Parent (other than as the result of a transaction approved by the Parent's
Board of Directors), (b) a majority of the seats (other
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
8
than vacant seats) on the board of directors of the Parent shall at any time
have been occupied by persons who were neither (i) nominated by the board of
directors of the Parent, nor (ii) appointed by directors so nominated, (c) any
person or group shall otherwise directly or indirectly obtain control of the
Parent (other than in a transaction approved by the Parent's Board of Directors)
or (d) the Parent shall cease to control the Borrower.
"Closing Date" shall mean the date hereof.
------------
"Code" shall mean the Internal Revenue Code of 1986, as the same may
----
be amended from time to time.
"Commitment" shall mean, with respect to each Lender, the commitment
----------
of such Lender hereunder as set forth in Schedule 2.01 hereto, as such Lender's
Commitment may be permanently terminated or reduced from time to time pursuant
to Section 2.12. The Commitments shall automatically and permanently terminate
on the Maturity Date.
"Competitive Bid" shall mean an offer by a Lender to make a
---------------
Competitive Loan pursuant to Section 2.03.
"Competitive Bid Accept/Reject Letter" shall mean a notification
------------------------------------
made by the Borrower pursuant to Section 2.03(d) in the form of Exhibit A-4.
"Competitive Bid Rate" shall mean, as to any Competitive Bid made by
--------------------
a Lender pursuant to Section 2.03(b), (i) in the case of a Eurodollar Loan, the
Margin, and (ii) in the case of a Fixed Rate Loan, the fixed rate of interest
offered by the Lender making such Competitive Bid.
"Competitive Bid Request" shall mean a request made pursuant to
-----------------------
Section 2.03 in the form of Exhibit A-1.
"Competitive Borrowing" shall mean a borrowing consisting of a
---------------------
Competitive Loan or concurrent Competitive Loans from the Lender or Lenders
whose Competitive Bids for such Borrowing have been accepted by the Borrower
under the bidding procedure described in Section 2.03.
"Competitive Loan" shall mean a loan from a Lender to the Borrower
----------------
pursuant to the bidding procedure described
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
9
in Section 2.03. Each Competitive Loan shall be a Eurodollar Competitive Loan
or a Fixed Rate Loan.
"Consolidated Tangible Net Worth" shall mean preferred stockholder's
-------------------------------
and common stockholder's equity of the Borrower (other than mandatorily
redeemable preferred stock) minus intangible assets of the Borrower and its
consolidated Subsidiaries.
"Debt" shall mean, without duplication, (i) indebtedness for borrowed
----
money or for the deferred purchase price of property or services whether
evidenced by bonds, debentures, notes or similar instruments or otherwise (but
excluding, in any case, liabilities by endorsement of negotiable instruments for
deposit or collection and liabilities with respect to accounts payable incurred
in the ordinary course of business), (ii) obligations as lessee under leases
which shall have been or should be, in accordance with generally accepted
accounting principles, recorded as capital leases and (iii) obligations under
direct or indirect guarantees in respect of, and obligations to purchase or
otherwise acquire, or otherwise to assure a creditor against loss in respect of,
indebtedness on obligations of persons (other than the Borrower and its
consolidated Subsidiaries) of the kinds referred to in clauses (i) and (ii)
above.
"Default" shall mean any event or condition which upon notice, lapse
-------
of time or both would constitute an Event of Default.
"dollars" or "$" shall mean lawful money of the United States of
------- -
America.
"Engagement Letter" shall mean the engagement letter dated April 7,
-----------------
1994, among the Borrower, the Administrative Agent and Chemical Securities Inc.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as the same may be amended from time to time.
"ERISA Affiliate" shall mean any person who for purposes of Title IV
---------------
of ERISA is a member of the Borrower's controlled group, or is under common
control with the Borrower, within the meaning of Section 414 of the Code and the
regulations promulgated and rulings issued thereunder.
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
10
"Eurodollar Borrowing" shall mean a Borrowing comprised of
--------------------
Eurodollar Loans.
"Eurodollar Competitive Borrowing" shall mean a Competitive Borrowing
--------------------------------
comprised of Eurodollar Competitive Loans.
"Eurodollar Competitive Loan" shall mean any Competitive Loan bearing
---------------------------
interest at a rate determined by reference to the LIBO Rate in accordance with
the provisions of Article II.
"Eurodollar Loan" shall mean any Eurodollar Competitive Loan or
---------------
Eurodollar Standby Loan.
"Eurodollar Standby Borrowing" shall mean a Standby Borrowing
----------------------------
comprised of Eurodollar Standby Loans.
"Eurodollar Standby Loan" shall mean any Standby Loan bearing
interest at a rate determined by reference to the LIBO Rate in accordance with
the provisions of Article II.
"Event of Default" shall have the meaning given such term in Article
----------------
VII.
"Existing Facility" shall mean the $500,000,000 Competitive Advance
-----------------
and Revolving Credit Facility Agreement dated as of October 18, 1991, among the
Borrower, the lenders named therein, Texas Commerce Bank National Association,
as administrative agent, and Chemical Bank, as facility agent.
"Existing Liens" shall mean Liens existing on the date hereof and
--------------
described on Schedule 6.04(a) hereto and any Lien arising out of the
refinancing, extension, renewal or refunding of any Debt secured by such Lien,
but only to the extent the amount of such Debt shall not be increased.
"Existing Mortgages" shall mean each security or other agreement of
------------------
whatever nature described within the Burlington Northern Railroad Company Long-
Term Debt Book dated December 31, 1993, a copy of which has been delivered by
the Borrower to the Administrative Agent, as such agreements may have been
amended or modified to the date hereof or as they may be amended, supplemented,
replaced or modified from time to time hereafter.
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
11
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
12
"Facility A Credit Agreement" shall mean the $300,000,000 Competitive
---------------------------
Advance and Revolving Credit Facility Agreement dated as of the date hereof
among the Borrower, the lenders named therein, Texas Commerce Bank National
Association, as administrative agent for the Lenders, and Chemical Bank Agency
Services Corporation, as CAF Agent.
"Facility Fee" shall have the meaning assigned to such term in Section
------------
2.07(a).
"Federal Funds Effective Rate" shall have the meaning assigned
----------------------------
thereto in the definition of Alternate Base Rate.
"Fees" shall mean the Facility Fee and the Agent Fees.
----
"Fixed Rate Borrowing" shall mean a Borrowing comprised of Fixed Rate
--------------------
Loans.
"Fixed Rate Loan" shall mean any Competitive Loan bearing interest at
---------------
a fixed percentage rate per annum (expressed in the form of a decimal to no more
than four decimal places) specified by the Lender making such Loan in its
Competitive Bid.
"GAAP" shall mean United States generally accepted accounting
----
principles, applied on a basis consistent with the financial statements
referred to in paragraph (e) of Article III hereof.
"Governmental Authority" shall mean any Federal, state, local or
----------------------
foreign court or governmental agency, authority, instrumentality or regulatory
body.
"ICC" shall mean the Interstate Commerce Commission or any successor
---
thereto.
"Index Debt" shall have the meaning assigned thereto in the
----------
definition of Applicable Fee Percentage.
"Insufficiency" shall mean, with respect to any Plan, the amount, if
-------------
any, by which the present value of the benefit liabilities under such Plan
exceeds the fair market value of the assets of such Plan.
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
13
"Interest Payment Date" shall mean, with respect to any Loan, the
---------------------
last day of the Interest Period applicable thereto and, in the case of a
Eurodollar Loan with an Interest Period of more than three months duration or a
Fixed Rate Loan or a CD Loan with an Interest Period of more than 90 days
duration, each day that would have been an Interest Payment Date for such Loan
had successive Interest Periods of three months duration or 90 days duration, as
the case may be, been applicable to such Loan and, in addition, the date of any
refinancing or conversion of such Loan with or to a Loan of a different Type.
"Interest Period" shall mean (a) as to any Eurodollar Borrowing, the
---------------
period commencing on the date of such Borrowing or on the last day of the
immediately preceding Interest Period applicable to such Borrowing, as the case
may be, and ending on the numerically corresponding day (or, if there is no
numerically corresponding day, on the last day) in the calendar month that is
(i) in the case of any Eurodollar Competitive Loan, any whole number of months
(but not more than 12 months) thereafter, as the Borrower may elect and (ii) in
the case of any Eurodollar Standby Loan, 1, 2, 3 or 6 months or, with the
approval of all the Lenders, 9 or 12 months thereafter, as the Borrower may
elect, (b) as to any CD Borrowing, a period of 30, 60, 90, 180, 270 or 360 days
duration, as the Borrower may elect, commencing on the date of such Borrowing,
(c) as to any ABR Borrowing, the period commencing on the date of such Borrowing
and ending on the date 90 days thereafter or, if earlier, on the Maturity Date
or the date of repayment, prepayment or conversion of such Borrowing and (d) as
to any Fixed Rate Borrowing, the period commencing on the date of such Borrowing
and ending on the date specified in the Competitive Bids in which the offer to
make the Fixed Rate Loans comprising such Borrowing were extended, which shall
not be earlier than seven days after the date of such Borrowing or later than
360 days after the date of such Borrowing; provided, however, that if any
-------- -------
Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless, in the case
of Eurodollar Loans only, such next succeeding Business Day would fall in the
next calendar month, in which case such Interest Period shall end on the next
preceding Business Day. Interest shall accrue from and including the first day
of an Interest Period to but excluding the last day of such Interest Period.
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
14
"LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for
---------
any Interest Period, an interest rate per annum equal to the average (rounded
upwards, if necessary, to the next 1/16 of 1%) of the rates per annum at which
dollar deposits for a maturity comparable to such Interest Period are offered by
the principal London offices of the Reference Banks (or, if any Reference Bank
does not at the time maintain a London office, the principal London office of
any Affiliate of such Reference Bank) in immediately available funds in the
London interbank market at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period in amounts approximately
equal to the amount of such Borrowing.
"Lien" shall mean any lien, security interest or other charge or
----
encumbrance, or any assignment of the right to receive income, or any other type
of preferential arrangement, in each case to secure any obligation of any
person.
"Loan" shall mean any Competitive Loan or Standby Loan.
----
"Loan Documents" shall mean this Agreement and the Fee Letter dated
--------------
April 7, 1994 among the Administrative Agent, Chemical Securities Inc. and the
Borrower.
"Margin" shall mean, as to any Eurodollar Competitive Loan, the margin
------
(expressed as a percentage rate per annum in the form of a decimal to no more
than four decimal places) to be added to or subtracted from the LIBO Rate in
order to determine the interest rate applicable to such Loan, as specified in
the Competitive Bid relating to such Loan.
"Margin Stock" shall have the meaning given such term under
------------
Regulation U.
"Material Adverse Effect" shall mean a material adverse effect on the
-----------------------
financial condition or operations of the Borrower and its consolidated
Subsidiaries on a consolidated basis.
"Material Plan" shall mean any Plan the assets of which exceed
-------------
$50,000,000 or the liabilities of which for unfunded benefit liabilities exceed
$15,000,000.
"Maturity Date" shall mean May 6, 1999.
-------------
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
15
"Moody's" shall mean Moody's Investors Service.
-------
"Mortgage Indenture" shall mean the Consolidated Mortgage, dated
------------------
March 2, 1970, by Burlington Northern Inc. (the former name of the Borrower) to
Morgan Guaranty Trust Company of New York and Jacob M. Ford II, as trustees, as
amended to the date hereof and as amended, supplemented or modified from time to
time hereafter.
"Multiemployer Plan" shall mean a multiemployer plan as defined in
------------------
Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate (other
than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
Section 414 of the Code) is making or accruing an obligation to make
contributions, or has within any of the preceding five plan years made or
accrued an obligation to make contributions, such plan being maintained pursuant
to one or more collective bargaining agreements.
"Multiple Employer Plan" shall mean a single employer plan, as
----------------------
defined in Section 4001(a)(15) of ERISA, which (i) is maintained for employees
of the Borrower or an ERISA Affiliate and at least one person other than the
Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of
which the Borrower or an ERISA Affiliate could have liability under Section 4064
or 4069 of ERISA in the event such plan has been or were to be terminated.
"Parent" shall mean Burlington Northern Inc., a Delaware corporation.
------
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred
----
to and defined in ERISA, or any successor thereto.
"person" shall mean any natural person, corporation, business trust,
------
joint venture, association, company, partnership or government, or any agency or
political subdivision thereof.
"Plan" shall mean any pension plan (other than a Multiemployer Plan)
----
subject to the provisions of Title IV of ERISA or Section 412 of the Code which
is maintained for employees of the Borrower or any ERISA Affiliate.
"Reference Banks" shall mean Texas Commerce Bank National Association,
---------------
Citibank, N.A. and The First National Bank of Chicago.
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
16
"Register" shall have the meaning given such term in Section 9.04(d).
--------
"Regulation D" shall mean Regulation D of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation G" shall mean Regulation G of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation U" shall mean Regulation U of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation X" shall mean Regulation X of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
"Required Lenders" shall mean, at any time, Lenders having
----------------
Commitments representing at least 55% of the Total Commitment or,
for purposes of acceleration pursuant to clause (ii) of Article VII, Lenders
holding Loans representing at least 55% of the aggregate principal amount of the
Loans outstanding.
"Responsible Officer" shall mean with respect to the subject matter
-------------------
of any covenant, agreement, or obligation of the Borrower contained in this
Agreement, the president, any vice president, treasurer, assistant treasurer or
other officer of the Borrower who in the normal performance of his or her
operational responsibility would have knowledge of such subject matter and the
requirements of such covenants, agreements or obligations of the Borrower with
respect thereto.
"S&P" shall mean Standard and Poor's Corporation.
---
"Standby Borrowing" shall mean a borrowing consisting of simultaneous
-----------------
Standby Loans from each of the Lenders.
"Standby Borrowing Request" shall mean a request made pursuant to
-------------------------
Section 2.04 in the form of Exhibit A-5.
"Standby Loans" shall mean the revolving loans made by the Lenders to
-------------
the Borrower pursuant to
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
17
Section 2.04. Each Standby Loan shall be a Eurodollar Standby Loan, a CD
Standby Loan or an ABR Standby Loan.
"Statutory Reserves" shall mean a fraction (expressed as a decimal),
------------------
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves), expressed as a decimal
established by the Board and any other banking authority to which the
Administrative Agent is subject for new negotiable nonpersonal time deposits in
dollars of over $100,000 with maturities approximately equal to (i) the
applicable Interest Period, in the case of the Adjusted CD Rate, and (ii) three
months, in the case of the Base CD Rate (as such term is used in the definition
of "Alternate Base Rate"). Statutory Reserves shall be adjusted automatically
on and as of the effective date of any change in any reserve percentage.
"subsidiary" shall mean, with respect to any person (herein referred
----------
to as the "parent"), any corporation, partnership, association or other business
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or more
than 50% of the general partnership interests are, at the time any determination
is being made, owned, controlled or held, or (b) which is, at the time any
determination is made, otherwise controlled, by the parent or one or more
subsidiaries of the parent or by the parent and one or more subsidiaries of the
parent.
"Subsidiary" shall mean any subsidiary of the Borrower.
----------
"Termination Event" shall mean (i) a "reportable event," as such term
-----------------
is described in Section 4043 of ERISA, (ii) the withdrawal of the Borrower or
any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it
was a "substantial employer," as such term is defined in Section 4001(a)(2) of
ERISA, or the incurrence of liability by the Borrower or any ERISA Affiliate
under Section 4064 of ERISA upon the termination of a Multiple Employer Plan,
(iii) the filing of a notice of intent to terminate a Plan or the treatment of a
Plan amendment as a termination under Section 4041 of ERISA, (iv) the
institution of proceedings to terminate a Plan by the PBGC under Section 4042 of
ERISA, (v) a failure to make a required installment or other payment (within the
meaning of Section 412(n)(1) of the
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
18
Code) with respect to any Plan or (vi) any other event or condition which might
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan.
"Total Commitment" shall mean at any time the aggregate amount of the
----------------
Lenders' Commitments, as in effect at such time.
"Transfer" shall have the meaning given such term in Section 6.02.
--------
"Type", when used in respect of any Loan or Borrowing, shall refer to
----
the Rate by reference to which interest on such Loan or on the Loans comprising
such Borrowing is determined. For purposes hereof, "Rate" shall include the LIBO
Rate, the Adjusted CD Rate, the Alternate Base Rate and the Fixed Rate.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan
--------------------
as a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Terms Generally. The definitions in Section 1.01
---------------
shall apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; provided,
--------
however, that, for purposes of determining compliance with any covenant set
- -------
forth in Section 5.04 or Article VI, such terms shall be construed in accordance
with GAAP as in effect on the date of this Agreement applied on a basis
consistent with the application used in preparing the Borrower's audited
financial statements referred to in paragraph (e) of Article III.
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
19
ARTICLE II. THE CREDITS
SECTION 2.01. Commitments. Subject to the terms and conditions and
-----------
relying upon the representations and warranties herein set forth, each Lender
agrees, severally and not jointly, to make Standby Loans to the Borrower, at any
time and from time to time on and after the date hereof and until the earlier of
the Maturity Date and the termination of the Commitment of such Lender, in an
aggregate principal amount at any time outstanding not to exceed such Lender's
Commitment minus the amount by which the Competitive Loans outstanding at such
time shall be deemed to have used such Commitment pursuant to Section 2.17,
subject, however, to the conditions that (a) at no time shall (i) the sum of (x)
the outstanding aggregate principal amount of all Standby Loans made by all
Lenders plus (y) the outstanding aggregate principal amount of all Competitive
Loans made by all Lenders exceed (ii) the Total Commitment and (b) at all times
the outstanding aggregate principal amount of all Standby Loans made by each
Lender shall equal the product of (i) the percentage which its Commitment
represents of the Total Commitment times (ii) the outstanding aggregate
principal amount of all Standby Loans made pursuant to Section 2.04. Each
Lender's Commitment is set forth opposite its respective name in Schedule 2.01.
Such Commitments may be terminated or reduced from time to time pursuant to
Section 2.12. Within the foregoing limits, the Borrower may borrow, pay or
prepay and reborrow hereunder, on and after the Closing Date and prior to the
Maturity Date, subject to the terms, conditions and limitations set forth
herein.
SECTION 2.02. Loans. (a) Each Standby Loan shall be made as part
-----
of a Borrowing consisting of Loans made by the Lenders ratably in accordance
with their Commitments; provided, however, that the failure of any Lender to
-------- -------
make any Standby Loan shall not in itself relieve any other Lender of its
obligation to lend hereunder (it being understood, however, that no Lender shall
be responsible for the failure of any other Lender to make any Loan required to
be made by such other Lender). Each Competitive Loan shall be made in accordance
with the procedures set forth in Section 2.03. The Loans comprising any
Borrowing shall be (i) in the case of Competitive Loans, in an aggregate
principal amount which is an integral multiple of $1,000,000 and not less than
$5,000,000 and (ii) in the case of Standby Loans, in an aggregate principal
amount which is an integral multiple of $1,000,000 and not
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
20
less than $20,000,000 (or an aggregate principal amount equal to the remaining
balance of the available Commitments).
(b) Each Competitive Borrowing shall be comprised entirely of
Eurodollar Competitive Loans or Fixed Rate Loans and each Standby Borrowing
shall be comprised entirely of Eurodollar Standby Loans, CD Loans or ABR Loans,
as the Borrower may request pursuant to Section 2.03 or 2.04, as applicable.
Each Lender may at its option make any Eurodollar Loan by causing any domestic
or foreign branch or Affiliate of such Lender to make such Loan; provided that
--------
any exercise of such option shall not affect the obligation of the Borrower to
repay such Loan in accordance with the terms of this Agreement. Borrowings of
more than one Type may be outstanding at the same time; provided, however, that
-------- -------
the Borrower shall not be entitled to request any Borrowing which, if made,
would result in an aggregate of more than twelve separate Standby Loans of any
Lender being outstanding hereunder at any one time. For purposes of the
foregoing, Loans having different Interest Periods, regardless of whether they
commence or end on the same date, shall be considered separate Loans.
(c) Subject to Section 2.05, each Lender shall make each Loan to be
made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds to the Administrative Agent in Houston, Texas, not
later than 1:00 p.m., New York City time, and the Administrative Agent shall by
3:00 p.m., New York City time, credit the amounts so received in immediately
available funds to an account designated by the Borrower with the Administrative
Agent or, if a Borrowing shall not occur on such date because any condition
precedent herein specified shall not have been met, return the amounts so
received to the respective Lenders. Competitive Loans shall be made by the
Lender or Lenders whose Competitive Bids therefor are accepted pursuant to
Section 2.03 in the amounts so accepted and Standby Loans shall be made by the
Lenders pro rata in accordance with Section 2.17. Unless the Administrative
Agent shall have received notice from a Lender prior to the date of any
Borrowing (or prior to 12:00 noon on the date of such borrowing, in the case of
an ABR Borrowing) that such Lender will not make available to the Administrative
Agent such Lender's portion of such Borrowing, the Administrative Agent may
assume that such Lender has made such portion available to the Administrative
Agent on the date of such Borrowing in accordance with this paragraph (c) and
the
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
21
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower on such date a corresponding amount. If and to the extent that
such Lender shall not have made such portion available to the Administrative
Agent, such Lender and the Borrower severally agree to repay to the
Administrative Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date such amount is made available to
the Borrower until the date such amount is repaid to the Administrative Agent at
(i) in the case of the Borrower, the interest rate applicable at the time to the
Loans comprising such Borrowing and (ii) in the case of such Lender, the Federal
Funds Effective Rate. If such Lender shall repay to the Administrative Agent
such corresponding amount, such amount shall constitute such Lender's Loan as
part of such Borrowing for purposes of this Agreement.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request any Borrowing if the Interest Period
requested with respect thereto would end after the Maturity Date.
SECTION 2.03. Competitive Bid Procedure. (a) In order to request
--------------------------
Competitive Bids, the Borrower shall hand deliver or telecopy (or communicate by
telephone with prompt confirmation by telecopy or in writing) to the CAF Agent
(with a copy to the Administrative Agent) a duly completed Competitive Bid
Request in the form of Exhibit A-1 hereto, to be received by the CAF Agent (and
the Administrative Agent) (i) in the case of a Eurodollar Competitive Borrowing,
not later than 10:30 a.m., New York City time, four Business Days before a
proposed Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing,
not later than 10:30 a.m., New York City time, one Business Day before a
proposed Competitive Borrowing. No CD Loan or ABR Loan shall be requested in,
or made pursuant to, a Competitive Bid Request. A Competitive Bid Request that
does not conform substantially to the format of Exhibit A-1 may be rejected in
the CAF Agent's sole discretion, and the CAF Agent shall promptly notify the
Borrower of such rejection by telecopier (or by telephone with prompt
confirmation by telecopier or in writing). Such request shall in each case
refer to this Agreement and specify (x) whether the Borrowing then being
requested is to be a Eurodollar Borrowing or a Fixed Rate Borrowing, (y) the
date of such Borrowing (which shall be a Business Day) and the aggregate
principal amount thereof which shall be in a minimum principal amount of
$5,000,000 and in an integral multiple
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
22
of $1,000,000, and (z) the Interest Period with respect thereto (which may not
end after the Maturity Date). Promptly after its receipt of a Competitive Bid
Request that is not rejected as aforesaid, the CAF Agent shall invite by
telecopier (in the form set forth in Exhibit A-2 hereto) the Lenders to bid, on
the terms and conditions of this Agreement, to make Competitive Loans pursuant
to the Competitive Bid Request.
(b) Each Lender may, in its sole discretion, make one or more
Competitive Bids to the Borrower responsive to a Competitive Bid Request. Each
Competitive Bid by a Lender must be received by the CAF Agent via telecopier, in
the form of Exhibit A-3 hereto, (i) in the case of a Eurodollar Competitive
Borrowing, not later than 9:30 a.m., New York City time, three Business Days
before a proposed Competitive Borrowing and (ii) in the case of a Fixed Rate
Borrowing, not later than 9:30 a.m., New York City time, on the day of a
proposed Competitive Borrowing. Multiple bids will be accepted by the CAF Agent.
Competitive Bids that do not conform substantially to the format of Exhibit A-3
may be rejected by the CAF Agent, and the CAF Agent shall notify the Lender
making such nonconforming bid of such rejection as soon as practicable. Each
Competitive Bid shall refer to this Agreement and specify (x) the principal
amount (which shall be in a minimum principal amount of $5,000,000 and in an
integral multiple of $1,000,000 and which may equal the entire principal amount
of the Competitive Borrowing requested by the Borrower) of the Competitive Loan
or Loans that the Lender is willing to make to the Borrower, (y) the Competitive
Bid Rate or Rates at which the Lender is prepared to make the Competitive Loan
or Loans and (z) the Interest Period and the last day thereof. If any Lender
shall elect not to make a Competitive Bid, such Lender shall so notify the CAF
Agent by telecopier (I) in the case of Eurodollar Competitive Loans, not later
than 9:30 a.m., New York City time, three Business Days before a proposed
Competitive Borrowing, and (II) in the case of Fixed Rate Loans, not later than
9:30 a.m., New York City time, on the day of a proposed Competitive Borrowing;
provided, however, that failure by any Lender to give such notice shall not
- -------- -------
cause such Lender to be obligated to make any Competitive Loan as part of such
Competitive Borrowing. A Competitive Bid submitted by a Lender pursuant to this
paragraph (b) shall be irrevocable.
(c) The CAF Agent shall promptly notify the Borrower by telecopier
(or by telephone promptly confirmed
[6700-070(X)RAF/A08B.WPF/30D/4674W]
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23
by telecopier) of all the Competitive Bids made, the Competitive Bid Rate and
the principal amount of each Competitive Loan in respect of which a Competitive
Bid was made and the identity of the Lender that made each bid. The CAF Agent
shall send a copy of all Competitive Bids to the Borrower for its records as
soon as practicable after completion of the bidding process set forth in this
Section 2.03.
(d) The Borrower may in its sole and absolute discretion, subject
only to the provisions of this paragraph (d), accept or reject any Competitive
Bid referred to in paragraph (c) above. The Borrower shall notify the CAF Agent
by telephone, confirmed by telecopier in the form of a Competitive Bid
Accept/Reject Letter, whether and to what extent it has decided to accept or
reject any of or all the bids referred to in paragraph (c) above, (x) in the
case of a Eurodollar Competitive Borrowing, not later than 10:30 a.m., New York
City time, three Business Days before a proposed Competitive Borrowing, and (y)
in the case of a Fixed Rate Borrowing, not later than 10:30 a.m., New York City
time, on the day of a proposed Competitive Borrowing; provided, however, that
-------- -------
(i) the failure by the Borrower to give such notice shall be deemed to be a
rejection of all the bids referred to in paragraph (c) above, (ii) the Borrower
shall not accept a bid made at a particular Competitive Bid Rate if the Borrower
has decided to reject a bid made at a lower Competitive Bid Rate, (iii) the
aggregate amount of the Competitive Bids accepted by the Borrower shall not
exceed the principal amount specified in the Competitive Bid Request, (iv) if
the Borrower shall accept a bid or bids made at a particular Competitive Bid
Rate but the amount of such bid or bids shall cause the total amount of bids to
be accepted by the Borrower to exceed the amount specified in the Competitive
Bid Request, then the Borrower shall accept a portion of such bid or bids in an
amount equal to the amount specified in the Competitive Bid Request less the
amount of all other Competitive Bids accepted with respect to such Competitive
Bid Request, which acceptance, in the case of multiple bids at such Competitive
Bid Rate, shall be made pro rata in accordance with the amount of each such bid
at such Competitive Bid Rate, and (v) except pursuant to clause (iv) above, no
bid shall be accepted for a Competitive Loan unless such Competitive Loan is in
a minimum principal amount of $5,000,000 and an integral multiple of $1,000,000;
provided further, however, that if a Competitive Loan must be in an amount less
- -------- ------- ------
than $5,000,000 because of the
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
24
provisions of clause (iv) above, such Competitive Loan may be for a minimum of
$1,000,000 or any integral multiple thereof, and in calculating the pro rata
allocation of acceptances of portions of multiple bids at a particular
Competitive Bid Rate pursuant to clause (iv) above the amounts shall be rounded
to integral multiples of $1,000,000 in a manner which shall be in the discretion
of the Borrower. A notice given by the Borrower pursuant to this paragraph (d)
shall be irrevocable.
(e) The CAF Agent shall promptly notify each bidding Lender whether
or not its Competitive Bid has been accepted (and if so, in what amount and at
what Competitive Bid Rate) by telecopy sent by the CAF Agent, and each
successful bidder will thereupon become bound, subject to the other applicable
conditions hereof, to make the Competitive Loan in respect of which its bid has
been accepted. The CAF Agent shall also promptly notify the Administrative Agent
of the Competitive Bids that have been accepted, the amounts thereof and the
Competitive Bid Rates applicable thereto.
(f) If the CAF Agent shall become a Lender and shall elect to submit
a Competitive Bid in its capacity as a Lender, it shall submit such bid directly
to the Borrower one quarter of an hour earlier than the earliest time at which
the other Lenders are required to submit their bids to the CAF Agent pursuant to
paragraph (b) above. The CAF Agent will in no event disclose the terms of any
Lender's Competitive Bid to any other Lender; provided that following the
--------
acceptance or rejection of Competitive Bids submitted in response to any
Competitive Bid Request, the CAF Agent may at the request of any Lender disclose
information as to the range of the Competitive Bid Rates at which Competitive
Bids were submitted or accepted.
(g) All notices required by this Section 2.03 shall be given in
accordance with Section 9.01.
SECTION 2.04. Standby Borrowing Procedure. In order to request a
---------------------------
Standby Borrowing, the Borrower shall hand deliver or telecopy (or communicate
by telephone with prompt confirmation by telecopy or in writing) to the
Administrative Agent a duly completed Standby Borrowing Request in the form of
Exhibit A-5 (a) in the case of a Eurodollar Standby Borrowing, not later than
11:00 a.m., New York City time, three Business Days before a proposed borrowing,
(b) in the case of a CD Borrowing, not later than
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<PAGE>
25
11:00 a.m., New York City time, two Business Days before a proposed borrowing
and (c) in the case of an ABR Borrowing, not later than 11:00 a.m., New York
City time, on the day of a proposed borrowing. No Fixed Rate Loan shall be
requested or made pursuant to a Standby Borrowing Request. Such notice shall be
irrevocable and shall in each case specify (i) whether the Borrowing then being
requested is to be a Eurodollar Borrowing, a CD Borrowing or an ABR Borrowing;
(ii) the date of such Borrowing (which shall be a Business Day) and the amount
thereof which shall be in a minimum principal amount of $20,000,000 and in an
integral multiple of $1,000,000; and (iii) if such Borrowing is to be a
Eurodollar Borrowing or CD Borrowing, the Interest Period with respect thereto.
If no election as to the Type of Borrowing is specified in any such notice, then
the requested Borrowing shall be an ABR Borrowing. If no Interest Period with
respect to any Eurodollar Borrowing or CD Borrowing is specified in any such
notice, then the Borrower shall be deemed to have selected an Interest Period of
one month's duration, in the case of a Eurodollar Borrowing, or 30 days'
duration, in the case of a CD Borrowing. If the Borrower shall not have given
notice in accordance with this Section 2.04 of its election to refinance a
Standby Borrowing prior to the end of the Interest Period in effect for such
Borrowing, then the Borrower shall (unless such Borrowing is repaid at the end
of such Interest Period) be deemed to have given notice of an election to
refinance such Borrowing with an ABR Borrowing. The Administrative Agent shall
promptly advise the Lenders of any notice given pursuant to this Section 2.04
and of each Lender's portion of the requested Borrowing.
SECTION 2.05. Refinancings. The Borrower may refinance all or any
------------
part of any Competitive Borrowing or Standby Borrowing with a Borrowing of the
same or a different Type made pursuant to Section 2.03 or Section 2.04, subject
to the conditions and limitations set forth herein and elsewhere in this
Agreement, including refinancings of Competitive Borrowings with Standby
Borrowings and Standby Borrowings with Competitive Borrowings. Any Borrowing or
part thereof so refinanced shall be deemed to be repaid in accordance with
Section 2.08 with the proceeds of a new Borrowing hereunder and the proceeds of
the new Borrowing, to the extent they do not exceed the principal amount of the
Borrowing being refinanced, shall not be paid by the Lenders to the
Administrative Agent or by the Administrative Agent to the
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<PAGE>
26
Borrower pursuant to Section 2.02(c); provided, however, that (i) if the
-------- -------
principal amount extended by a Lender in a refinancing is greater than the
principal amount extended by such Lender in the Borrowing being refinanced, then
such Lender shall pay such difference to the Administrative Agent for
distribution to the Lenders described in (ii) below, (ii) if the principal
amount extended by a Lender in the Borrowing being refinanced is greater than
the principal amount being extended by such Lender in the refinancing, the
Administrative Agent shall return the difference to such Lender out of amounts
received pursuant to (i) above, and (iii) to the extent any Lender fails to pay
the Administrative Agent amounts due from it pursuant to (i) above, any Loan or
portion thereof being refinanced with such amounts shall not be deemed repaid in
accordance with Section 2.08 and shall be payable by the Borrower.
SECTION 2.06. Conversion and Continuation of Standby Borrowings. The
--------------------------------------------------
Borrower shall have the right at any time upon prior irrevocable notice to the
Administrative Agent (i) not later than 11:00 a.m., New York City time, one
Business Day prior to conversion, to convert any Eurodollar Standby Borrowing or
CD Borrowing into an ABR Borrowing, (ii) not later than 11:00 a.m., New York
City time, two Business Days prior to conversion or continuation, to convert any
Eurodollar Standby Borrowing or ABR Borrowing into a CD Borrowing or to continue
any CD Borrowing as a CD Borrowing for an additional Interest Period, (iii) not
later than 11:00 a.m., New York City time, three Business Days prior to
conversion or continuation, to convert any ABR Borrowing or CD Borrowing into a
Eurodollar Standby Borrowing or to continue any Eurodollar Standby Borrowing as
a Eurodollar Standby Borrowing for an additional Interest Period, (iv) not later
than 11:00 a.m., New York City time, three Business Days prior to conversion, to
convert the Interest Period with respect to any Eurodollar Standby Borrowing to
another permissible Interest Period and (v) not later than 11:00 a.m., New York
City time, two Business Days prior to conversion, to convert the Interest Period
with respect to any CD Borrowing to another permissible Interest Period, subject
in each case to the following:
(a) each conversion or continuation shall be made pro rata among the
Lenders in accordance with the respective principal amounts of the Loans
comprising the converted or continued Standby Borrowing;
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
27
(b) if less than all the outstanding principal amount of any Standby
Borrowing shall be converted or continued, the aggregate principal amount
of such Standby Borrowing converted or continued shall be an integral
multiple of $1,000,000 and not less than $20,000,000;
(c) if any Eurodollar Standby Borrowing or CD Borrowing is converted
at a time other than the end of the Interest Period applicable thereto, the
Borrower shall pay, upon demand, any amounts due to the Lenders pursuant to
Section 2.16;
(d) any portion of a Standby Borrowing maturing or required to be
repaid in less than one month may not be converted into or continued as a
Eurodollar Standby Borrowing;
(e) any portion of a Standby Borrowing maturing or required to be
repaid in less than 30 days may not be converted into or continued as a CD
Borrowing;
(f) any portion of a Eurodollar Standby Borrowing or CD Borrowing
which cannot be converted into or continued as a Eurodollar Standby
Borrowing or a CD Borrowing by reason of clauses (d) and (e) above shall be
automatically converted at the end of the Interest Period in effect for
such Borrowing into an ABR Borrowing; and
(g) no Interest Period may be selected for any Eurodollar Standby
Borrowing or CD Borrowing that would end later than the Maturity Date.
Each notice pursuant to this Section 2.06 shall be by hand delivery
or telecopier (or by telephone with prompt confirmation by telecopier or in
writing) and irrevocable and shall refer to this Agreement and specify (i) the
identity and amount of the Standby Borrowing that the Borrower requests be
converted or continued, (ii) whether such Standby Borrowing is to be converted
to or continued as a Eurodollar Standby Borrowing, a CD Borrowing or an ABR
Borrowing, (iii) if such notice requests a conversion, the date of such
conversion (which shall be a Business Day) and (iv) if such Standby Borrowing is
to be converted to or continued as a Eurodollar Standby Borrowing or CD
Borrowing, the Interest Period with respect thereto. If no Interest Period is
specified in any such notice with
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
28
respect to any conversion to or continuation as a Eurodollar Standby Borrowing
or CD Borrowing, the Borrower shall be deemed to have selected an Interest
Period of one month's duration, in the case of a Eurodollar Standby Borrowing,
or 30 days' duration, in the case of a CD Borrowing. The Administrative Agent
shall advise the other Lenders of any notice given pursuant to this Section 2.06
and of each Lender's portion of any converted or continued Standby Borrowing.
If the Borrower shall not have given notice in accordance with this Section 2.06
to continue any Standby Borrowing into a subsequent Interest Period (and shall
not otherwise have given notice in accordance with this Section 2.06 to convert
such Standby Borrowing), such Standby Borrowing shall, at the end of the
Interest Period applicable thereto (unless repaid pursuant to the terms hereof),
automatically be continued into a new Interest Period as an ABR Borrowing.
SECTION 2.07. Fees. (a) The Borrower agrees to pay to each Lender,
-----
through the Administrative Agent, on each March 31, June 30, September 30 and
December 31 and on the Maturity Date, a facility fee (a "Facility Fee") equal to
the Applicable Fee Percentage on the daily average amount of the Commitment of
such Lender, whether used or unused (and whether or not the conditions set forth
in Section 4.01 shall have been satisfied), during the preceding quarter (or
shorter period commencing with the date hereof, or ending with the Maturity Date
or any date on which the Commitment of such Lender shall be terminated and all
outstanding Loans of such Lender repaid). All Facility Fees shall be computed
on the basis of the actual number of days elapsed in a year of 365 or 366 days,
as appropriate. The Facility Fee due to each Lender shall commence to accrue on
the date of this Agreement, and shall cease to accrue on the earlier of the
Maturity Date and the date on which the Commitment of such Lender shall have
been terminated and all outstanding Loans of such Lender repaid.
(b) The Borrower agrees to pay the Agents, through the Administrative
Agent, for the Agents' own accounts, the fees set forth in the Engagement Letter
and in the Fee Letter dated April 7, 1994 among the Administrative Agent,
Chemical Securities Inc. and the Borrower (the "Agent Fees") at the times and in
the amounts set forth therein.
(c) All Fees shall be paid on the dates due, in immediately available
funds, to the Administrative Agent for distribution, if and as appropriate,
among the Lenders.
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
29
Once paid, none of the Fees (other than fees paid in error and not required to
have been paid under the terms of this Agreement) shall be refundable under any
circumstances.
SECTION 2.08. Repayment of Loans. (a) The Borrower agrees to pay
-------------------
the outstanding principal balance of each Loan on the last day of the Interest
Period applicable to such Loan and on the Maturity Date. Each Loan shall bear
interest from the date of the Borrowing of which such Loan is a part on the
outstanding principal balance thereof as set forth in Section 2.09.
(b) Each Lender shall, and is hereby authorized by the Borrower to,
maintain, in accordance with its usual practice, records evidencing the
indebtedness of the Borrower to such Lender hereunder from time to time,
including the amounts and Types of and the Interest Periods applicable to the
Loans made by such Lender from time to time and the amounts of principal and
interest paid to such Lender from time to time in respect of such Loans.
(c) The entries made in the records maintained pursuant to paragraph
(b) of this Section 2.08 and in the Register maintained by the Administrative
Agent pursuant to Section 9.04(d) shall be prima facie evidence of the existence
and amounts of the obligations of the Borrower to which such entries relate;
provided, however, that the failure of any Lender or the Administrative Agent to
- -------- -------
maintain or to make any entry in such records or the Register, as applicable, or
any error therein shall not in any manner affect the obligation of the Borrower
to repay the Loans in accordance with the terms of this Agreement.
SECTION 2.09. Interest on Loans. (a) Subject to the provisions of
------------------
Section 2.10, the Loans comprising each Eurodollar Borrowing shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 360
days) at a rate per annum equal to (i) in the case of each Eurodollar Standby
Loan, the LIBO Rate for the Interest Period in effect for such Borrowing plus
the Applicable Margin from time to time in effect and (ii) in the case of each
Eurodollar Competitive Loan, the LIBO Rate for the Interest Period in effect for
such Borrowing plus the Margin offered by the Lender making such Loan and
accepted by the Borrower pursuant to Section 2.03.
(b) Subject to the provisions of Section 2.10, the Loans comprising
each CD Borrowing shall bear interest
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
30
(computed on the basis of the actual number of days elapsed over a year of 360
days) at a rate per annum equal to the Adjusted CD Rate for the Interest Period
in effect for such Borrowing plus the Applicable Margin from time to time in
effect.
(c) Subject to the provisions of Section 2.10, the Loans comprising
each ABR Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 365 or 366 days, as appropriate, when
determined by reference to the Prime Rate and over a year of 360 days at all
other times) at a rate per annum equal to the Alternate Base Rate.
(d) Subject to the provisions of Section 2.10, each Fixed Rate Loan
shall bear interest at a rate per annum (computed on the basis of the actual
number of days elapsed over a year of 360 days) equal to the fixed rate of
interest offered by the Lender making such Loan and accepted by the Borrower
pursuant to Section 2.03.
(e) Interest on each Loan shall be payable in arrears on each
Interest Payment Date applicable to such Loan except as otherwise provided in
this Agreement. The applicable LIBO Rate, Adjusted CD Rate or Alternate Base
Rate for each Interest Period or day within an Interest Period, as the case may
be, shall be determined by the Administrative Agent, and such determination
shall be conclusive absent manifest error. The Administrative Agent shall
promptly advise the Borrower and each Lender, as appropriate, of such
determination.
SECTION 2.10. Default Interest. If the Borrower shall default in the
-----------------
payment of the principal of or interest on any Loan or any other amount becoming
due hereunder, whether by scheduled maturity, notice of prepayment, acceleration
or otherwise, the Borrower shall on demand from time to time from the
Administrative Agent pay interest, to the extent permitted by law, on such
defaulted amount up to (but not including) the date of actual payment (after as
well as before judgment) at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 365 or 366 days, as appropriate,
when determined by reference to the Prime Rate and over a year of 360 days at
all other times) equal to the Alternate Base Rate plus 1%.
SECTION 2.11. Alternate Rate of Interest. (a) In the event, and on
---------------------------
each occasion, that on the day two
[6700-070(X)RAF/A08B.WPF/30D/4674W]
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31
Business Days prior to the commencement of any Interest Period for a Eurodollar
Borrowing the Administrative Agent shall have determined (i) that dollar
deposits in the principal amounts of the Eurodollar Loans comprising such
Borrowing are not generally available in the London interbank market, or (ii)
that the rates at which such dollar deposits are being offered will not
adequately and fairly reflect the cost to any Lender of making or maintaining
its Eurodollar Loan during such Interest Period, or (iii) that reasonable means
do not exist for ascertaining the LIBO Rate, the Administrative Agent shall, as
soon as practicable thereafter, give written or telecopy notice of such
determination to the Borrower and the Lenders. In the event of any such
determination, until the Administrative Agent shall have advised the Borrower
and the Lenders that the circumstances giving rise to such notice no longer
exist, (A) in the event the circumstances referred to in (i) or (iii) above are
applicable, any request by the Borrower for a Eurodollar Competitive Borrowing
pursuant to Section 2.03 shall be of no force and effect and shall be denied by
the CAF Agent and (B) any request by the Borrower for a Eurodollar Standby
Borrowing shall be deemed to be a request for an ABR Borrowing (x) as to all
Lenders, in the event the circumstances referred to in (i) or (iii) above are
applicable, or (y) as to each affected Lender, in the event only the
circumstances referred to in (ii) above are applicable. In the event the
circumstances referred to in (ii) above are applicable, all payments and
prepayments of principal which would otherwise have been made on account of
Eurodollar Loans of the affected Lender shall instead be applied to repay the
ABR Loans made by such Lender in lieu of such Eurodollar Loans. Each
determination by the Administrative Agent hereunder shall be conclusive absent
demonstrable error.
(b) In the event, and on each occasion, that on or before the day on
which the Adjusted CD Rate for a CD Borrowing is to be determined the
Administrative Agent shall have determined (i) that such Adjusted CD Rate cannot
be determined for any reason, including the inability of the Administrative
Agent to obtain sufficient bids in accordance with the terms of the definition
of Fixed CD Rate, or (ii) that the Adjusted CD Rate for such CD Borrowing will
not adequately and fairly reflect the cost to any Lender of making or
maintaining its CD Loan during such Interest Period, the Administrative Agent
shall, as soon as practicable thereafter, give written or telecopy notice of
such determination to the Borrower and the Lenders. In the
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<PAGE>
32
event of any such determination, until the Administrative Agent shall have
advised the Borrower and the Lenders that the circumstances giving rise to such
notice no longer exist, any request by the Borrower for a CD Borrowing shall be
deemed to be a request for an ABR Borrowing (i) as to all Lenders, in the event
the circumstances referred to in (i) above are applicable, or (ii) as to each
affected Lender, in the event only the circumstances referred to in (ii) above
are applicable. In the event the circumstances referred to under (ii) above are
applicable, all payments and prepayments of principal which would otherwise have
been made on account of CD Loans of the affected Lender shall instead be applied
to repay the ABR Loans made by such Lender in lieu of such Loans. Each
determination by the Administrative Agent hereunder shall be conclusive absent
demonstrable error.
SECTION 2.12. Termination and Reduction of Commitments. (a) The
-----------------------------------------
Commitments shall be automatically terminated on the Maturity Date.
(b) Upon at least three Business Days' prior irrevocable written or
telecopy notice to the Administrative Agent, the Borrower may at any time in
whole permanently terminate, or from time to time in part permanently reduce,
the Total Commitment; provided, however, that (i) each partial reduction of the
-------- -------
Total Commitment shall be in an integral multiple of $1,000,000 and in a minimum
principal amount of $10,000,000 and (ii) no such termination or reduction shall
be made which would reduce the Total Commitment to an amount less than the
aggregate outstanding principal amount of the Competitive Loans.
(c) Each reduction in the Total Commitment hereunder shall be made
ratably among the Lenders in accordance with their respective Commitments. The
Borrower shall pay to the Administrative Agent for the account of the Lenders,
on the date of each termination or reduction, the Facility Fees on the amount of
the Commitments so terminated or reduced accrued to but not including the date
of such termination or reduction.
SECTION 2.13. Prepayment. (a) The Borrower shall have the right at
-----------
any time and from time to time to prepay any Standby Borrowing, in whole or in
part, upon giving written or telecopy notice (or telephone notice promptly
confirmed by written or telecopy notice) to the Administrative Agent: (i)
before 12:00 noon, New York City
[6700-070(X)RAF/A08B.WPF/30D/4674W]
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33
time, three Business Days prior to prepayment, in the case of Eurodollar Loans,
(ii) before 12:00 noon, New York City time, two Business Days prior to
prepayment, in the case of CD Loans, and (iii) before 12:00 noon, New York City
time, one Business Day prior to prepayment, in the case of ABR Loans; provided,
--------
however, that each partial prepayment shall be in an amount which is an integral
- -------
multiple of $1,000,000 and not less than $10,000,000. The Borrower shall not
have the right to prepay any Competitive Borrowing.
(b) On the date of any termination or reduction of the Commitments
pursuant to Section 2.12, the Borrower shall pay or prepay so much of the
Standby Borrowings as shall be necessary in order that the aggregate principal
amount of the Competitive Loans and Standby Loans outstanding will not exceed
the Total Commitment after giving effect to such termination or reduction.
(c) Each notice of prepayment shall specify the prepayment date and
the principal amount of each Borrowing (or portion thereof) to be prepaid, shall
be irrevocable and shall commit the Borrower to prepay such Borrowing (or
portion thereof) by the amount stated therein on the date stated therein. All
prepayments under this Section 2.13 shall be subject to Section 2.16 but
otherwise without premium or penalty. All prepayments under this Section 2.13
shall be accompanied by accrued interest on the principal amount being prepaid
to the date of payment.
SECTION 2.14. Reserve Requirements; Change in Circumstances. (a)
----------------------------------------------
Notwithstanding any other provision herein, if after the date of this Agreement
any change in applicable law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall change the basis of taxation of payments to any Lender of the
principal of or interest on any Eurodollar Loan, CD Loan or Fixed Rate Loan made
by such Lender or any Fees or other amounts payable hereunder (other than
changes in respect of taxes imposed on the overall net income of such Lender by
the jurisdiction in which such Lender has its principal office or by any
political subdivision or taxing authority therein), or shall impose, modify or
deem applicable any reserve, special deposit or similar requirement against
assets of, deposits with or for the account of or credit extended by such Lender
(except any such reserve requirement which is reflected in the Adjusted CD
Rate), or shall impose on such Lender or the
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
34
London interbank market any other condition affecting this Agreement or any
Eurodollar Loan, CD Loan or Fixed Rate Loan made by such Lender, and the result
of any of the foregoing shall be to increase the cost to such Lender of making
or maintaining any Eurodollar Loan, CD Loan or Fixed Rate Loan or to reduce the
amount of any sum received or receivable by such Lender hereunder (whether of
principal, interest or otherwise) by an amount deemed by such Lender to be
material, then the Borrower will pay to such Lender upon demand such additional
amount or amounts as will compensate such Lender for such additional costs
incurred or reduction suffered. Notwithstanding the foregoing, no Lender shall
be entitled to request compensation under this paragraph with respect to any
Competitive Loan if it shall have been aware of the change giving rise to such
request at the time of submission of the Competitive Bid pursuant to which such
Competitive Loan shall have been made.
(b) If any Lender shall have determined that the applicability of any
law, rule, regulation or guideline adopted pursuant to or arising out of the
July 1988 report of the Basle Committee on Banking Regulations and Supervisory
Practices entitled "International Convergence of Capital Measurement and Capital
Standards", or the adoption after the date hereof of any other law, rule,
regulation or guideline regarding capital adequacy, or any change in any of the
foregoing or in the interpretation or administration of any of the foregoing by
any Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or any
lending office of such Lender) or any Lender's holding company with any request
or directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Lender's capital or on the capital
of such Lender's holding company, if any, as a consequence of this Agreement or
the Loans made by such Lender pursuant hereto to a level below that which such
Lender or such Lender's holding company could have achieved but for such
applicability, adoption, change or compliance (taking into consideration such
Lender's policies and the policies of such Lender's holding company with respect
to capital adequacy) by an amount deemed by such Lender to be material, then
from time to time the Borrower shall pay to such Lender such additional amount
or amounts as will compensate such Lender or such Lender's holding company for
any such reduction suffered.
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35
(c) A certificate of a Lender setting forth such amount or amounts as
shall be necessary to compensate such Lender as specified in paragraph (a) or
(b) above, as the case may be, shall be delivered to the Borrower and shall be
conclusive absent demonstrable error. The Borrower shall pay each Lender the
amount shown as due on any such certificate delivered by it within 10 days after
the receipt of the same.
(d) Except as provided in this paragraph, failure on the part of any
Lender to demand compensation for any increased costs or reduction in amounts
received or receivable or reduction in return on capital with respect to any
period shall not constitute a waiver of such Lender's right to demand
compensation with respect to such period or any other period. The protection of
this Section shall be available to each Lender regardless of any possible
contention of the invalidity or inapplicability of the law, rule, regulation,
guideline or other change or condition which shall have occurred or been
imposed. No Lender shall be entitled to compensation under this Section 2.14
for any costs incurred or reductions suffered with respect to any date unless it
shall have notified the Borrower that it will demand compensation for such costs
or reductions under paragraph (c) above not more than 60 days after the later of
(i) such date and (ii) the date on which it shall have become aware of such
costs or reductions.
SECTION 2.15. Change in Legality. (a) Notwithstanding any other
-------------------
provision herein, if any change in any law or regulation or in the
interpretation thereof by any governmental authority charged with the
administration or interpretation thereof shall make it unlawful for any Lender
to make or maintain any Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan, then, by written notice
to the Borrower and to the Administrative Agent, such Lender may:
(i) declare that Eurodollar Loans will not thereafter be made by such
Lender hereunder, whereupon such Lender shall not submit a Competitive Bid
in response to a request for Eurodollar Competitive Loans and any request
by the Borrower for a Eurodollar Standby Borrowing shall, as to such Lender
only, be deemed a request for an ABR Borrowing unless such declaration
shall be subsequently withdrawn (and such Lender agrees to withdraw any
such declaration if legally permissible); and
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36
(ii) require that all outstanding Eurodollar Loans made by it be
converted to ABR Loans (or in the case of a Eurodollar Competitive Loan, a
Loan bearing interest at a rate equal to the Alternate Base Rate), as of
the effective date of such notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal which would otherwise have been applied to
repay the Eurodollar Loans that would have been made by such Lender or the
converted Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Loans made by such Lender in lieu of, or resulting from the conversion of,
such Eurodollar Loans.
(b) For purposes of this Section 2.15, a notice to the Borrower by
any Lender shall be effective as to each Eurodollar Loan, if lawful, on the last
day of the Interest Period currently applicable to such Eurodollar Loan; in all
other cases such notice shall be effective on the date of receipt by the
Borrower.
SECTION 2.16. Indemnity. The Borrower shall indemnify each Lender
----------
against any actual loss or expense which such Lender may sustain or incur as a
consequence of (a) any failure by the Borrower to fulfill on the date of any
borrowing hereunder the applicable conditions set forth in Article IV, (b) any
failure by the Borrower to borrow or to refinance, convert or continue any Loan
hereunder after irrevocable notice of such borrowing, refinancing or
continuation has been given pursuant to Section 2.03, 2.04 or 2.06, (c) any
payment, prepayment or conversion of a Eurodollar Loan, CD Loan or Fixed Rate
Loan required by any other provision of this Agreement or otherwise made or
deemed made, and any assignment of a Loan pursuant to Section 2.21, on a date
other than the last day of the Interest Period applicable thereto, (d) any
default in payment or prepayment of the principal amount of any Loan or any part
thereof or interest accrued thereon, as and when due and payable (at the due
date thereof, whether by scheduled maturity, acceleration, irrevocable notice of
prepayment or otherwise) or (e) the occurrence of any Event of Default,
including, in each such case, any actual loss or reasonable expense sustained or
incurred or to be sustained or incurred in liquidating or employing deposits
from third parties acquired to effect or maintain such Loan or any part thereof
as a Eurodollar Loan, CD Loan or Fixed Rate Loan.
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37
Such loss or reasonable expense shall include an amount equal to the excess, if
any, as reasonably determined by such Lender, of (i) its cost of obtaining the
funds for the Loan being paid, prepaid, converted, not borrowed, not refinanced,
not converted, not continued or assigned (assumed to be the LIBO Rate or
Adjusted CD Rate or, in the case of a Fixed Rate Loan, the fixed rate of
interest applicable thereto) for the period from the date of such payment,
prepayment, failure to borrow, failure to refinance, failure to convert, failure
to continue or assignment to the last day of the Interest Period for such Loan
(or, in the case of a failure to borrow, refinance, convert or continue, the
Interest Period for such Loan which would have commenced on the date of such
failure) over (ii) the amount of interest (as reasonably determined by such
Lender) that would be realized by such Lender in reemploying the funds so paid,
prepaid, not borrowed, not refinanced, not converted, not continued or assigned
for such period or Interest Period, as the case may be. A certificate of any
Lender setting forth any amount or amounts which such Lender is entitled to
receive pursuant to this Section shall be delivered to the Borrower and shall be
conclusive absent demonstrable error.
SECTION 2.17. Pro Rata Treatment. Except as required under Section
-------------------
2.15, each Standby Borrowing, each payment or prepayment of principal of any
Standby Borrowing, each payment of interest on the Standby Loans, each payment
of the Facility Fees, each reduction of the Commitments and each refinancing of
any Borrowing with a Standby Borrowing of any Type, shall be allocated pro rata
among the Lenders in accordance with their respective Commitments (or, if such
Commitments shall have expired or been terminated, in accordance with the
respective principal amounts of their outstanding Standby Loans). Each payment
of principal of any Competitive Borrowing shall be allocated pro rata among the
Lenders participating in such Borrowing in accordance with the respective
principal amounts of their outstanding Competitive Loans comprising such
Borrowing. Each payment of interest on any Competitive Borrowing shall be
allocated pro rata among the Lenders participating in such Borrowing in
accordance with the respective amounts of accrued and unpaid interest on their
outstanding Competitive Loans comprising such Borrowing. For purposes of
determining (i) the aggregate available Commitments of the Lenders at any time
and (ii) the available Commitment of each Lender, each outstanding Competitive
Borrowing shall be deemed to have utilized the Commitments of the Lenders
(including those
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<PAGE>
38
Lenders which shall not have made Loans as part of such Competitive Borrowing)
pro rata in accordance with such respective Commitments. Each Lender agrees
that in computing such Lender's portion of any Borrowing to be made hereunder,
the Administrative Agent may, in its discretion, round each Lender's percentage
of such Borrowing to the next higher or lower whole dollar amount.
SECTION 2.18. Sharing of Setoffs. Each Lender agrees that if it
-------------------
shall, through the exercise of a right of banker's lien, setoff or counterclaim
against the Borrower, or pursuant to a secured claim under Section 506 of Title
11 of the United States Code or other security or interest arising from, or in
lieu of, such secured claim, received by such Lender under any applicable
bankruptcy, insolvency or other similar law or otherwise, or by any other means,
obtain payment (voluntary or involuntary) from the Borrower or its assets in
respect of any Standby Loan or Loans as a result of which the unpaid principal
portion of its Standby Loans shall be proportionately less than the unpaid
principal portion of the Standby Loans of any other Lender, it shall be deemed
simultaneously to have purchased from such other Lender at face value, and shall
promptly pay to such other Lender the purchase price for, a participation in the
Standby Loans of such other Lender, so that the aggregate unpaid principal
amount of the Standby Loans and participations in the Standby Loans held by each
Lender shall be in the same proportion to the aggregate unpaid principal amount
of all Standby Loans then outstanding as the principal amount of its Standby
Loans prior to such exercise of banker's lien, setoff or counterclaim or other
event was to the principal amount of all Standby Loans outstanding prior to such
exercise of banker's lien, setoff or counterclaim or other event; provided,
--------
however, that, if any such purchase or purchases or adjustments shall be made
- -------
pursuant to this Section 2.18 and the payment giving rise thereto shall
thereafter be recovered, such purchase or purchases or adjustments shall be
rescinded to the extent of such recovery and the purchase price or prices or
adjustment restored without interest. The Borrower expressly consents to the
foregoing arrangements and agrees that any Lender holding a participation in a
Standby Loan deemed to have been so purchased may exercise any and all rights of
banker's lien, setoff or counterclaim with respect to any and all moneys owing
by the Borrower to such Lender by reason thereof as fully as if such Lender had
made a Standby Loan directly to the Borrower in the amount of such
participation.
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
39
SECTION 2.19. Payments. (a) The Borrower shall make each payment
---------
(including principal of or interest on any Borrowing or any Fees or other
amounts) hereunder and under each other Loan Document not later than 12:00 noon,
New York City time, on the date when due in dollars to the Administrative Agent
at its offices at 712 Main Street, Houston, Texas, in immediately available
funds.
(b) Whenever any payment (including principal of or interest on any
Borrowing or any Fees or other amounts) hereunder or under any other Loan
Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of
interest or Fees, if applicable.
SECTION 2.20. Taxes. (a) Any and all payments by the Borrower
------
hereunder shall be made, in accordance with Section 2.19, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding taxes, levies, imposts, deductions, charges and withholdings imposed
- ---------
on the Administrative Agent's or any Lender's (or any transferee's or
assignee's, including a participation holder's (any such entity a "Transferee"))
net income and franchise, capital or license taxes imposed on the Administrative
Agent or any Lender (or Transferee) by the United States or any jurisdiction
under the laws of which it is organized, domiciled, resident or doing business
(other than doing business as a result of its participation in the transactions
contemplated by the Loan Documents) or any political subdivision thereof (all
such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to the Lenders (or any Transferee) or the Administrative Agent, (i)
the sum payable shall be increased by the amount necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 2.20) such Lender (or Transferee) or the
Administrative Agent (as the case may be) shall receive an amount equal to the
sum it would have received had no such deductions been made, (ii) the Borrower
(or the Administrative Agent, as applicable) shall make such deductions at the
applicable rate and (iii) the Borrower (or
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<PAGE>
40
the Administrative Agent, as applicable) shall pay the full amount deducted to
the relevant taxing authority or other Governmental Authority in accordance with
applicable law.
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "Other Taxes").
(c) The Borrower will indemnify each Lender (or Transferee) and the
Administrative Agent for the full amount of Taxes and Other Taxes (including any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 2.20) paid by such Lender (or Transferee) or the Administrative Agent,
as the case may be, and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted by the relevant taxing
authority or other Governmental Authority. Such indemnification shall be made
within 30 days after the date any Lender (or Transferee) or the Administrative
Agent, as the case may be, makes written demand therefor; provided, however,
-------- -------
that the Borrower shall not have any obligation to indemnify the Administrative
Agent or any Lender (or Transferee) for interest and penalties that are imposed
on the Administrative Agent or such Lender (or Transferee) with respect to the
period after the expiration of the Notice Period with respect to any Tax if such
Administrative Agent or such Lender fails to give written notice to the Borrower
within 45 days of its receipt of any written assertion by the relevant taxing
authority or other Governmental Authority that such Tax is due with respect to
the transactions contemplated by the Loan Documents (such 45 day period being
the "Notice Period" referred to above). If a Lender (or Transferee) or the
Administrative Agent shall become aware that it is entitled to receive a refund
(or a credit against taxes not indemnifiable hereunder) in respect of Taxes or
Other Taxes, it shall promptly notify the Borrower of the availability of such
refund (or credit) and shall, within 30 days after receipt of a request by the
Borrower, apply for such refund at the Borrower's expense. If any Lender (or
Transferee) or the Administrative Agent receives a refund (or a credit against
taxes not indemnifiable hereunder) in respect of any Taxes or Other Taxes for
which such Lender (or Transferee) or the
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<PAGE>
41
Administrative Agent has received payment from the Borrower hereunder it shall
promptly notify the Borrower of such refund (or credit) and shall, within 30
days after receipt of a request by the Borrower (or promptly upon receipt, if
the Borrower has requested application for such refund (or credit) pursuant
hereto), repay such refund (or credit) to the Borrower, net of all out-of-pocket
expenses (including taxes not indemnifiable hereunder, to the extent that no
deduction or credit has previously been claimed and utilized in connection
therewith by such Lender) of such Lender but including interest received from a
taxing authority or other Governmental Authority and fairly attributable to such
refund; provided that the Borrower, upon the request of such Lender (or
--------
Transferee) or the Administrative Agent, agrees to return such refund (plus
penalties, interest or other charges) to such Lender (or Transferee) or the
Administrative Agent in the event such Lender (or Transferee) or the
Administrative Agent is required to repay such refund. Each of the
Administrative Agent, each Lender and each Transferee, with respect to itself,
agrees to indemnify and hold harmless the Borrower (and, in the case of each
Lender and each Transferee, to indemnify and hold harmless the Administrative
Agent) from any taxes, penalties, interest and other expenses, costs and losses
incurred or payable by the Borrower (or the Administrative Agent, as applicable)
as a result of the failure of the Borrower to comply with clauses (ii) and (iii)
of Section 2.20(a) in reliance on any form or certificate provided to it by such
person pursuant to Section 2.20(f).
(d) Within 30 days after the date of any payment of Taxes or Other
Taxes withheld by the Borrower in respect of any payment to any Lender (or
Transferee) or the Administrative Agent, the Borrower will furnish to the
Administrative Agent, at its address referred to in Section 9.01, the original
or a certified copy of a receipt evidencing payment thereof or other customary
evidence of such payment.
(e) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section 2.20
shall survive the payment in full of the principal of and interest on all Loans
made hereunder.
(f) On or prior to the Closing Date (in the case of any Lender and
the Administrative Agent) and on or prior to the date any Transferee becomes a
Transferee hereunder
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42
(in the case of any Transferee), and, upon written request of the Borrower or
the Administrative Agent, on or prior to the immediately following due date of
any payment by the Borrower hereunder, each Lender (or Transferee) which is
organized outside the United States shall deliver to the Borrower such
certificates, documents or other evidence, as required by the Code or Treasury
Regulations issued pursuant thereto, including Internal Revenue Service Form
1001 or Form 4224 and any other certificate or statement of exemption required
by Treasury Regulation Section 1.1441-1(a) or Section 1.1441-6(c) or any
subsequent version thereof, properly completed and duly executed by such Lender
(or Transferee) establishing that such payment is (i) not subject to withholding
under the Code because such payment is effectively connected with the conduct by
such Lender (or Transferee) of a trade or business in the United States or (ii)
totally exempt from United States tax under a provision of an applicable tax
treaty. Unless the Borrower and the Administrative Agent have received forms or
other documents satisfactory to them indicating that payments hereunder and in
respect of the Loans are not subject to United States withholding tax the
Borrower or the Administrative Agent shall withhold taxes from such payments at
the applicable statutory rate in the case of payments to or for any Lender (or
Transferee) organized under the laws of a jurisdiction outside the United
States.
(g) The Borrower shall not be required to pay any additional amounts
to any Lender (or Transferee) in respect of United States withholding tax
pursuant to paragraph (a) above except to the extent such United States
withholding tax (a) results from (i) a change in applicable law, regulation or
official interpretation thereof or (ii) an amendment, modification or revocation
of any applicable tax treaty or a change in official position regarding the
application or interpretation thereof, in each case after the Closing Date (and,
in the case of a Transferee, after the date of assignment or transfer) or (b) in
the case of a Transferee, is imposed at a rate that does not exceed the rate
(determined at the time of transfer or assignment) of United States withholding
tax with respect to which the Borrower was required to pay to such Transferee's
transferor or assignor.
SECTION 2.21. Termination or Assignment of Commitments Under Certain
---------------------------- -------------------------
Circumstances. (a) Any Lender (or Transferee) claiming any additional amounts
- --------------
payable pursuant to Section 2.14 or Section 2.20 shall use
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<PAGE>
43
reasonable efforts (consistent with legal and regulatory restrictions) to file
any certificate or document requested by the Borrower or to change the
jurisdiction of its applicable lending office if the making of such a filing or
change would avoid the need for or reduce the amount of any such additional
amounts which may thereafter accrue and would not, in the sole determination of
such Lender, be otherwise disadvantageous to such Lender (or Transferee).
(b) In the event that any Lender shall have delivered a notice or
certificate pursuant to Section 2.14 or 2.15, or the Borrower shall be required
to make additional payments to any Lender under Section 2.20, the Borrower shall
have the right, at its own expense, upon notice to such Lender and the
Administrative Agent, (a) to terminate the Commitment of such Lender or (b) to
require such Lender to transfer and assign without recourse (in accordance with
and subject to the restrictions contained in Section 9.04) all its interests,
rights and obligations under this Agreement to another financial institution
acceptable to the Administrative Agent which shall assume such obligations;
provided that (i) no such termination or assignment shall conflict with any law,
- --------
rule or regulation or order of any Governmental Authority and (ii) the Borrower
or the assignee, as the case may be, shall pay to the affected Lender in
immediately available funds on the date of such termination or assignment the
principal of and interest accrued to the date of payment on the Loans made by it
hereunder and all other amounts accrued for its account or owed to it hereunder.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to each of the Lenders that:
(a) The Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware. The Borrower
possesses all corporate powers and all other authorizations and licenses
necessary to engage in its business and operations as now conducted, the
failure to obtain or maintain which would result in a Material Adverse
Effect.
(b) The execution, delivery and performance by the Borrower of this
Agreement are within the
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44
Borrower's corporate powers, have been duly authorized by all necessary
corporate action, and do not contravene (i) the Borrower's certificate of
incorporation or by-laws or (ii) any law or contractual restriction binding
on or affecting the Borrower.
(c) There is no authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority (including, without
limitation, the ICC) required for the due execution, delivery and
performance by the Borrower of this Agreement which has not been obtained
or made, as the case may be.
(d) This Agreement is the legal, valid and binding obligation of the
Borrower enforceable against the Borrower in accordance with its terms
except as enforceability may be limited by applicable bankruptcy,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors' rights generally or by the applicability of equitable
principles.
(e) The consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at December 31, 1993, and the related
consolidated statements of income and cash flows for the fiscal year then
ended, copies of which have been furnished to each Lender, fairly present
the consolidated financial condition of the Borrower and such Subsidiaries
as at such date and the results of their operations for the period ended on
such date, all in accordance with GAAP consistently applied, and since
December 31, 1993, there has been no material adverse change in such
condition or operations.
(f) There is no pending or threatened action or proceeding against or
involving the Borrower before any Governmental Authority or arbitrator
which has a reasonable probability (taking into account the exhaustion of
all appeals) of resulting in a Material Adverse Effect.
(g) The Borrower has duly paid and discharged all taxes, assessments
and governmental charges upon it or against its properties now due and
payable, the failure to pay which would result in a Material Adverse Effect
unless and to the extent only that the same are being contested in good
faith and by appropriate proceedings by the Borrower.
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45
(h) The Borrower has good title to its properties and assets except for
(i) existing or future liens, security interests, mortgages, conditional
sales arrangements and other encumbrances (including, without limitation,
reversionary title interests) either securing Debt or other liabilities of
the Borrower or any of its Subsidiaries or which the Borrower in its
reasonable business judgment determines would not be reasonably expected to
materially interfere with the railroad business or railroad operations of
the Borrower and its Subsidiaries as conducted from time to time and (ii)
irregularities therein which do not materially interfere with the business
or operations of the Borrower and its Subsidiaries as conducted from time
to time.
(i) No Termination Event has occurred or is reasonably expected to
occur with respect to any Plan which, with the giving of notice or lapse of
time, or both, would constitute an Event of Default under paragraph (g) of
Article VII.
(j) The statement of assets and liabilities of each Plan covered by
the report of Coopers & Lybrand referred to below as of December 31, 1993,
and the statements of changes in fund balance and in financial position, or
the statement of changes in net assets available for plan benefits, for the
plan year then ended, reported on by Coopers & Lybrand, copies of which
have been furnished to the Administrative Agent, fairly present the
financial condition of such Plan as at such date and the results of
operations of such Plan for the plan year ended on such date.
(k) Neither the Borrower nor any ERISA Affiliate has incurred, or is
reasonably expected to incur, any Withdrawal Liability to any Multiemployer
Plan which, when aggregated with all other amounts required to be paid to
Multiemployer Plans in connection with Withdrawal Liability (as of the date
of determination), exceeds $50,000,000.
(l) Neither the Borrower nor any ERISA Affiliate has received any
notification that any Multiemployer Plan is in reorganization or has been
terminated, within the meaning of Title IV of ERISA, and no Multiemployer
Plan is reasonably expected to be in reorganization or to be terminated
within the meaning
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
46
of Title IV of ERISA, the effect of which reorganization or termination
would be the occurrence of an Event of Default under paragraph (i) of
Article VII.
(m) Neither the Borrower nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying Margin Stock.
No part of the proceeds of any Loan will be used, whether directly or
indirectly, and whether immediately, incidentally or ultimately, for any
purpose which entails a violation of, or which is inconsistent with, the
provisions of the Regulations of the Board, including Regulation G, U or X.
(n) Neither the Borrower nor any Subsidiary is (i) an "investment
company" as defined in, or subject to regulation under, the Investment
Company Act of 1940 or (ii) a "holding company" as defined in, or subject
to regulation under, the Public Utility Holding Company Act of 1935.
(o) The Borrower will use the proceeds of the Loans only for the
purposes specified in the preamble to this Agreement.
(p) Neither the Borrower nor any of its Subsidiaries is, to the best
of its knowledge, in violation of any law or statute, or in default with
respect to any judgment, writ, injunction, decree, rule or regulation of
any court or governmental agency or instrumentality, where such violation
or default would result in a Material Adverse Effect.
(q) On the Closing Date, there has been no material adverse change in
or affecting the business, assets, liabilities or operations of the
Borrower or in the condition (financial or otherwise) or prospects of the
Borrower from those shown in the information furnished to the Lenders prior
to the date hereof.
(r) To the best knowledge of the Borrower, on the Closing Date all
insurable properties of the Borrower and each Subsidiary are adequately
insured as part of an insurance program including risk retention and self
insurance by financially sound and reputable insurers to such extent and
against such risks and liabilities
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
47
(including liability under Federal, state, local and other statutes and
regulations relating to the environment or to employee health and safety)
as is customary with companies similarly situated and in the same or
similar businesses.
ARTICLE IV. CONDITIONS OF LENDING
The obligations of the Lenders to make Loans hereunder are subject to
(a) the Commitments having become effective as provided in Section 4.01 below
and (b) the satisfaction of the conditions set forth in Section 4.02 below.
SECTION 4.01. Conditions to Effectiveness of Commitments. The
------------------------------ ------------
Commitments shall become effective at such time as the following conditions
shall have been satisfied:
(a) The Agents shall have received the favorable written opinion of
Francis T. Kelly, Esq., counsel for the Borrower, dated the date hereof and
addressed to the Agents and the Lenders, to the effect set forth in Exhibit
D hereto, and the Borrower hereby instructs such counsel to deliver such
opinion to the Agents.
(b) The Agents shall have received a favorable written opinion of
Douglas J. Babb, Vice President and General Counsel of the Borrower as to
certain ICC regulatory matters, dated the date hereof and addressed to the
Agents and the Lenders, to the effect set forth in Exhibit E hereto, and
the Borrower hereby instructs such counsel to deliver such opinion to the
Agents.
(c) All legal matters incident to this Agreement and the borrowings
hereunder shall be satisfactory to the Lenders and their counsel and to
Cravath, Swaine & Moore, counsel for the Agents.
(d) The Agents shall have received (i) a copy of the certificate or
articles of incorporation, including all amendments thereto, of the
Borrower, certified as of a date shortly before the date hereof by the
Secretary of State of the state of its organization, and a certificate as
to the good standing of the Borrower as of a date shortly before the date
hereof, from such Secretary of State; (ii) a certificate of the Secretary
or Assistant Secretary of the Borrower dated
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48
the date hereof and certifying (A) that attached thereto is a true and
complete copy of the by-laws of the Borrower as in effect on the date
hereof and at all times since a date prior to the date of the resolutions
described in clause (B) below, (B) that attached thereto is a true and
complete copy of resolutions duly adopted by the Board of Directors of the
Borrower authorizing the execution, delivery and performance of the Loan
Documents and the borrowings hereunder, and that such resolutions have not
been modified, rescinded or amended and are in full force and effect, (C)
that the certificate or articles of incorporation of the Borrower have not
been amended since the date of the last amendment thereto shown on the
certificate of good standing furnished pursuant to clause (i) above, and
(D) as to the incumbency and specimen signature of each officer executing
any Loan Document or any other document delivered in connection herewith on
behalf of the Borrower; (iii) a certificate of another officer as to the
incumbency and specimen signature of the Secretary or Assistant Secretary
executing the certificate pursuant to (ii) above; and (iv) such other
documents as the Lenders or their counsel or Cravath, Swaine & Moore,
counsel for the Agents, may reasonably request.
(e) The Agents shall have received a certificate, dated the date
hereof and signed by the treasurer or the chief financial officer of the
Borrower, confirming compliance with the conditions precedent set forth in
paragraphs (b) and (c) of Section 4.02.
(f) All fees, expenses and other amounts payable pursuant to the
Existing Facility, including all outstanding loans thereunder and accrued
interest thereon, shall have been paid in full, and the commitments of the
lenders thereunder shall have been terminated.
SECTION 4.02. Conditions to All Borrowings. On the date of each
-----------------------------
Borrowing, including each Borrowing in which Loans are refinanced with new Loans
as contemplated by Section 2.05:
(a) The Agents shall have received a notice of such Borrowing as
required by Section 2.03 or Section 2.04, as applicable.
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49
(b) The representations and warranties set forth in Article III
hereof (except, in the case of a refinancing of a Standby Borrowing with a
new Standby Borrowing that does not increase the aggregate principal amount
of the Loans of any Lender outstanding, those contained in paragraphs (e),
(f), (g), (h) and (j) of Article III, and, except in the case of any
Borrowing on a date after the Closing Date, that contained in paragraph (j)
of Article III) shall be true and correct in all material respects on and
as of the date of such Borrowing with the same effect as though made on and
as of such date, except to the extent such representations and warranties
expressly relate to an earlier date.
(c) The Borrower shall be in compliance with all the terms and
provisions set forth herein and in each other Loan Document on its part to
be observed or performed, and at the time of and immediately after such
Borrowing no Event of Default or Default shall have occurred and be
continuing.
Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrower on the date of such Borrowing as to the matters specified in
paragraphs (b) and (c) of this Section 4.02.
ARTICLE V. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees with each Lender and the Agents
that, so long as this Agreement shall remain in effect or the principal of or
interest on any Loan, any Fees or any other expenses or amounts payable under
any Loan Document shall be unpaid, unless the Required Lenders shall otherwise
consent in writing, the Borrower will:
SECTION 5.01. Existence; Businesses and Properties. (a) Preserve
-------------------------------------
and maintain its corporate existence, rights (charter and statute) and material
franchises, except as otherwise permitted by Sections 6.03 and 6.04.
(b) Comply in all material respects with all applicable laws, rules,
regulations and orders (including, without limitation, laws requiring payment of
all taxes, assessments and governmental charges imposed upon it or upon its
property except to the extent contested in good faith by
[6700-070(X)RAF/A08B.WPF/30D/4674W]
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50
appropriate proceedings) except where the failure to so comply would not have a
Material Adverse Effect.
(c) Maintain and preserve all of its properties which are used in the
conduct of its business in good working order and condition, ordinary wear and
tear excepted, to the extent that any failure to do so would have a Material
Adverse Effect and except for dispositions thereof permitted by Section 6.02;
SECTION 5.02. Insurance. Maintain insurance with responsible and
----------
reputable insurance companies or associations in such amounts and covering such
risks as is usually carried by companies engaged in similar businesses and
owning similar properties as the Borrower.
SECTION 5.03. Reporting Requirements. Furnish to the Agents and each
-----------------------
Lender:
(a) within 60 days after the close of each of the first three quarters
of each of the Borrower's fiscal years, a copy of the quarterly report on
Form 10-Q containing the consolidated statement of income of the Borrower
and its consolidated Subsidiaries for the period from the beginning of such
fiscal year to the end of such quarter and the related consolidated balance
sheet of the Borrower and its consolidated Subsidiaries as at the end of
such period, each certified by the chief financial officer of the Borrower
and accompanied by a certificate of such officer stating (i) that such
statement of income and such balance sheet has been prepared in accordance
with GAAP, (ii) whether or not he or she has knowledge of the occurrence of
any Event of Default or Default which is continuing hereunder and, if so,
stating in reasonable detail the facts with respect thereto and (iii) all
relevant facts in reasonable detail to evidence, and the computations as
to, whether or not the Borrower is in compliance with the requirements set
forth in Sections 5.04, 6.01 and 6.02;
(b) within 120 days after the close of each of the Borrower's fiscal
years, a copy of the annual report on Form 10-K of the Borrower and its
consolidated Subsidiaries, including the opinion of independent certified
public accountants of internationally recognized standing, together with
financial statements consisting of the consolidated balance sheet of the
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51
Borrower and its consolidated Subsidiaries as at the end of such year and
the related consolidated statements of income, retained earnings and cash
flows of the Borrower and its consolidated Subsidiaries for the year then
ended and accompanied by an opinion signed by said accountants stating that
(i) such financial statements have been prepared in accordance with GAAP
and (ii) in making the investigations necessary for said opinion they
obtained no knowledge, except as specifically stated, of any Event of
Default or Default which is continuing hereunder;
(c) within 120 days after the close of each of the Borrower's fiscal
years, a certificate of the chief financial officer of the Borrower stating
(i) whether or not he or she has knowledge of the occurrence of any Event
of Default or Default which is continuing hereunder and, if so, stating in
reasonable detail the facts with respect thereto, and (ii) all relevant
facts in reasonable detail to evidence, and the computations as to, whether
or not the Borrower is in compliance with the requirements set forth in
Sections 5.04, 6.01 and 6.02;
(d) promptly upon their becoming available, all reports on Form 10-K,
10-Q or 8-K, or any successor form, and all proxy statements that the
Borrower or the Parent shall file with the Securities and Exchange
Commission or any national securities exchange;
(e) promptly in writing, notice of all litigation and of all
proceedings before any governmental or regulatory agencies affecting the
Borrower or any Subsidiary, except any litigation or proceeding which is
not likely to have any Material Adverse Effect;
(f) within three Business Days after a Responsible Officer of the
Borrower obtains knowledge of the occurrence of any Event of Default or
Default which is continuing, notice of such occurrence together with a
detailed statement by a Responsible Officer of the Borrower of the steps
being taken by the Borrower or the appropriate Subsidiary to cure the
effect of such event;
(g) as soon as practicable and in any event (i) within 30 days after
the Borrower or any ERISA Affiliate knows or has reason to know that any
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<PAGE>
52
Termination Event described in clause (i) of the definition of Termination
Event with respect to any Plan has occurred and (ii) within 10 days after
the Borrower or any ERISA Affiliate knows or has reason to know that any
other Termination Event with respect to any Plan has occurred, a statement
of the treasurer or the chief financial officer of the Borrower describing
such Termination Event and the action, if any, which the Borrower or such
ERISA Affiliate proposes to take with respect thereto;
(h) promptly and in any event within two Business Days after receipt
thereof by the Borrower or any ERISA Affiliate, copies of each notice
received by the Borrower or any ERISA Affiliate from the PBGC stating its
intention to terminate any Plan or to have a trustee appointed to
administer any Plan;
(i) promptly and in any event within 30 days after the filing thereof
with the Internal Revenue Service, copies of each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) with respect to each
Plan;
(j) promptly and in any event within five Business Days after receipt
thereof by the Borrower or any ERISA Affiliate from the sponsor of a
Multiemployer Plan, a copy of each notice received by the Borrower or any
ERISA Affiliate concerning (i) the imposition of Withdrawal Liability by a
Multiemployer Plan, (ii) the determination that a Multiemployer Plan is, or
is expected to be, in reorganization within the meaning of Title IV of
ERISA, (iii) the termination of a Multiemployer Plan within the meaning of
Title IV of ERISA, or (iv) the amount of liability incurred, or expected to
be incurred, by the Borrower or any ERISA Affiliate in connection with any
event described in clause (i), (ii) or (iii) above;
(k) within 10 days after the due date for filing with the PBGC
pursuant to Section 412(n) of the Code of a notice of failure to make a
required installment or other payment with respect to a Plan, a statement
of the treasurer or the chief financial officer setting forth details as to
such failure and the action proposed to be taken with respect thereto,
together with a copy of such notice given to the PBGC; and
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<PAGE>
53
(l) as soon as practicable but in any event within 60 days of any
notice of request therefor, such other information respecting the financial
condition and results of operations of the Borrower as the Agents, or a
Lender through the Agents, may from time to time reasonably request.
Each balance sheet and other financial statement furnished pursuant to
paragraphs (a) and (b) of this Section 5.03 shall contain comparative
information which conforms to the presentation required in Form 10-Q and 10-K,
as appropriate, under the Securities Exchange Act of 1934, as amended.
SECTION 5.04. Consolidated Tangible Net Worth. Maintain Consolidated
--------------------------------
Tangible Net Worth of not less than $1,700,000,000.
SECTION 5.05. Taxes. Pay and discharge promptly all material taxes,
-----
assessments and governmental charges or levies, levied or assessed upon it or
upon its income or profits or in respect of its property, before the same shall
become delinquent or in default; provided, however, that such payment and
-------- -------
discharge shall not be required with respect to any such tax, assessment, charge
or levy so long as the validity or amount thereof shall be contested in good
faith by appropriate proceedings.
ARTICLE VI. NEGATIVE COVENANTS
The Borrower covenants and agrees with each Lender and the Agents
that, so long as this Agreement shall remain in effect or the principal of or
interest on any Loan, any Fees or any other expenses or amounts payable under
any Loan Document shall be unpaid, unless the Required Lenders shall otherwise
consent in writing, the Borrower will not:
SECTION 6.01. Debt. Create or suffer to exist, or permit its
-----
Subsidiaries to create or suffer to exist, any Debt if, immediately after giving
effect to such Debt and the receipt and application of any proceeds thereof, the
sum of the aggregate amount of Debt of the Borrower and its consolidated
Subsidiaries on a consolidated basis would exceed 140% of Consolidated Tangible
Net Worth. Notwithstanding anything contained in the foregoing to the contrary,
consolidated Debt of the Borrower and its consolidated Subsidiaries, taken as a
whole, shall not exceed at any time $3,000,000,000.
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
54
SECTION 6.02. Sale, etc., of Assets. Sell, lease, dispose of,
----------------------
distribute or otherwise transfer, whether in a single transaction or a series of
transactions (collectively, a "Transfer"), all or any part of the property of
the Borrower, provided that the Borrower may Transfer:
--------
(a) properties (other than properties Transferred pursuant to any
other clause of this Section 6.02) having an aggregate net book value for
all such Transfers (determined with respect to each such property based on
the net book value reflected on the most recent consolidated balance sheet
of the Borrower delivered pursuant to Section 5.03 prior to the Transfer
thereof, in each case determined without regard to any writedown in such
net book value subsequent to the date hereof) not in excess of 10% of the
total book value of the assets of the Borrower and its consolidated
Subsidiaries (as reflected on the most recent consolidated balance sheet of
the Borrower delivered pursuant to Section 5.03) less the excess of the net
book value of all assets transferred since the date of such balance sheet
over the amount of cash and the fair market value of all other
consideration received in exchange therefor;
(b) properties to any person, provided that the Borrower or any of its
--------
Subsidiaries or the Borrower and any of its Subsidiaries has the power,
direct or indirect, (i) to vote more than 50% of the securities or
interests having ordinary voting power for the election of directors or
comparable governing persons of such person or (ii) to direct or cause the
direction of the management and policies of such person (whether by
contract or otherwise);
(c) properties abandoned or retired from use in the ordinary course of
business;
(d) properties usable by the Borrower in the operation of its business
as a railroad company including, without limitation, the Transfer of
accounts receivable, provided that the Borrower Transfers such property in
--------
arms-length transactions in exchange for property or cash of substantially
equivalent fair market value usable by the Borrower in the operation of its
business as a railroad company, and provided further that the amount of
-------- -------
property constituting the
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
55
excess, if any, of (i) the fair market value of the property Transferred by
the Borrower over (ii) the fair market value of the property received by
the Borrower in exchange therefor (in each case, determined as of the date
of such Transfer) may be transferred pursuant to clause (a) above on and
subject to the terms and conditions of such clause (a); and
(e) property constituting Margin Stock.
SECTION 6.03. Mergers, etc. Merge or consolidate with any person, or
-------------
permit any of its Subsidiaries to merge or consolidate with any person, except
that (a) any Subsidiary may merge or consolidate with any other Subsidiary or
may merge or liquidate into the Borrower (if the Borrower shall be the
continuing or surviving corporation), (b) the Borrower or any Subsidiary may
merge or consolidate with any other corporation if (i) (A) the surviving
corporation shall be the Borrower or a Subsidiary or (B) the surviving
corporation, if not the Borrower or a Subsidiary, shall be a corporation
organized and existing under the laws of the United States or any state thereof
or the District of Columbia and shall expressly assume by a written assignment
executed and delivered to the Administrative Agent, in form and substance
satisfactory to the Administrative Agent, all of the rights and obligations of
the Borrower under this Agreement, and (ii) after giving effect to such merger
or consolidation no Event of Default or Default shall have occurred and be
continuing and (c) the Borrower and any Subsidiary may merge or consolidate as
required by a valid order of the ICC.
SECTION 6.04. Liens. Create or (in the case of clause (b) or (d)
------
below) suffer to exist, or permit its Subsidiaries to create or (in the case of
clause (b) or (d) below) suffer to exist, any Lien securing (a) Debt of the
Borrower or any of its consolidated Subsidiaries, (b) taxes imposed upon the
Borrower or any of its consolidated Subsidiaries, (c) reimbursement obligations
of the Borrower or any of its consolidated Subsidiaries in respect of letters of
credit or (d) liabilities of the Borrower or any of its consolidated
Subsidiaries asserted in any legal or other proceeding arising under the
Comprehensive Environmental, Response, Compensation and Liability Act of 1980,
as amended from time to time, or other similar Federal or state laws,
regulations or decrees relating to environmental protection or the release of
any hazardous or toxic materials into the environment, in each case, upon or
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
56
with respect to all or a portion of the cash or accounts receivable of the
Borrower or any of its consolidated Subsidiaries arising from income from
railroad operations generated in the ordinary course of business (and excluding
in any event cash and accounts receivable constituting the proceeds of the sale
or other disposition of property), except, in each case for Liens (A) in respect
------
of taxes, the nonpayment of which would not constitute a default under Section
5.01(b), (B) arising by operation of law in the ordinary course of business, (C)
on cash or other property in any bank's possession arising either in the
ordinary course of business and securing daylight overdrafts and other Debt
incurred in favor of such bank in the ordinary course of the cash management
program of the Borrower and its Subsidiaries, or by operation of law, or
contractually in the ordinary course of establishing and/or maintaining deposit
and other accounts, letters of credit and other banking services (other than the
incurrence of indebtedness for borrowed money), (D) on cash or other property in
any Lender's possession securing (or entitling any Lender to set off against)
amounts owing to any Lender pursuant to this Agreement, (E) securing lessees'
obligations under leases referred to in clause (ii) of the definition of Debt,
and (F) Liens in respect of any liability referred to in clause (d) above which
liability does not have a reasonable probability (taking into account the
exhaustion of all corrective and other appropriate procedures and proceedings
and/or all appeals) of having a Material Adverse Effect; provided, however, that
-------- -------
this Section 6.04 shall not restrict the creation or existence of (1) Existing
Liens and Liens under Existing Mortgages and (2) Liens securing Debt outstanding
from time to time under the Mortgage Indenture.
SECTION 6.05. Sales of Accounts Receivable. Sell any accounts
-----------------------------
receivable other than pursuant to the Borrower's receivables sale facilities and
any extensions, renewals or replacements of any thereof, provided that the
--------
aggregate amount of accounts receivable sold pursuant to this Section 6.05 shall
in no event exceed $300,000,000.
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
57
ARTICLE VII. EVENTS OF DEFAULT
In case of the happening (and during the continuance) of any of the
following events ("Events of Default"):
(a) The Borrower shall (i) fail to pay any principal of any Loan or
(ii) fail to pay any interest on any Loan or any other amount payable
hereunder or pursuant hereto, in each case referred to in this clause (ii)
within two Business Days after the same shall be due;
(b) Any representation or warranty made by the Borrower herein or by
the Borrower (or any of its officers) in connection with this Agreement
shall prove to have been incorrect in any material respect when made or
deemed made;
(c) The Borrower shall (i) fail to perform or observe any term,
covenant or agreement contained in Sections 5.04, 6.01, 6.02 or 6.03 of
this Agreement or (ii) fail to perform or observe any other term, covenant
or agreement contained in this Agreement on its part to be performed or
observed and any such failure referred to in this clause (ii) shall remain
unremedied for 30 days after written notice thereof shall have been given
to the Borrower by the Administrative Agent or by any Lender with a copy to
the Administrative Agent;
(d) The Borrower or any Subsidiary shall (i) fail to pay any Debt
(excluding Debt hereunder) of the Borrower or any Subsidiary (as the case
may be) in an aggregate principal amount of $50,000,000 or more, or any
installment of principal thereof or interest or premium thereon, when due
(whether by scheduled maturity, required prepayment, acceleration, demand
or otherwise) and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such
Debt; (ii) default under any agreement or instrument relating to any Debt
(excluding Debt hereunder) in an aggregate principal amount of $25,000,000
or more, or any other event shall occur and shall continue after the
applicable grace period, if any, specified in such agreement or instrument,
if the effect of such default or event is to accelerate the maturity of
such Debt; or
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58
(iii) default under any agreement or instrument relating to any Debt
(excluding Debt hereunder) in an aggregate principal amount of $101,000,000
or more, or any other event shall occur and shall continue after the
applicable grace period, if any, specified in such agreement or instrument,
if the effect of such default or event is to permit the acceleration of the
maturity of such Debt, provided that, notwithstanding any provision
--------
contained in this paragraph (d) to the contrary, to the extent that
pursuant to the terms of any agreement or instrument relating to any Debt
referred to in this paragraph (d), any sale, pledge or disposal of Margin
Stock, or utilization of the proceeds thereof would result in a breach of
any covenant contained therein or otherwise give rise to a default or event
of default thereunder and/or acceleration of the maturity of the Debt
extended pursuant thereto and as a result of such terms or of such sale,
pledge, disposal, utilization, breach, default, event of default or
acceleration, or the provisions hereof relating thereto, this Agreement or
any Loan hereunder would otherwise be subject to the margin requirements or
any other restriction under Regulation U, then such breach, default, event
of default or acceleration shall not constitute a Default or Event of
Default under this paragraph (d);
(e) (i) The Borrower or any Subsidiary shall (A) generally not pay
its debts as such debts become due; or (B) admit in writing its inability
to pay its debts generally; or (C) make a general assignment for the
benefit of creditors; (ii) any proceeding shall be instituted or consented
to by the Borrower or any Subsidiary seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under any
law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of
a receiver, trustee, or other similar official for it or for any
substantial part of its property; (iii) any such proceeding shall have been
instituted against the Borrower or any Subsidiary and either (A) such
relief shall have been granted or (B) such proceeding shall have been
pending undismissed for a period of 60 consecutive days; or (iv) the
Borrower or any Subsidiary shall take any
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
59
corporate action to authorize any of the actions set forth above in this
paragraph (e);
(f) (i) One or more final and non-appealable judgments or orders for
the payment of money in excess of $50,000,000 in the aggregate shall be
rendered against the Borrower and/or one or more Subsidiaries and
enforcement proceedings shall have been commenced by creditors upon such
judgments or orders; or (ii) one or more judgments or orders for the
payment of money in excess of $100,000,000 shall be rendered against the
Borrower and/or one or more Subsidiaries and either (x) enforcement
proceedings shall have been commenced by creditors upon such judgments or
orders or (y) there shall be any period of 20 consecutive days during which
a stay of enforcement of such judgments or orders, by reason of a pending
appeal or otherwise, shall not be in effect;
(g) Any Termination Event with respect to a Material Plan shall have
occurred and, 30 days after notice thereof shall have been given to the
Borrower by the Administrative Agent, (i) such Termination Event shall
still exist and (ii) the sum (determined as of the date of occurrence of
such Termination Event) of the Insufficiency of such Plan and the
Insufficiency of any and all other Plans with respect to which a
Termination Event shall have occurred and then exist (or in the case of a
Plan with respect to which a Termination Event described in clause (ii) of
the definition of Termination Event shall have occurred and then exist, the
liability related thereto), in each case in respect of which the Borrower
or any ERISA Affiliate has liability, is equal to or greater than
$50,000,000;
(h) The Borrower or any ERISA Affiliate shall have been notified by
the sponsor of a Multiemployer Plan that it has incurred Withdrawal
Liability to such Multiemployer Plan in an amount which, when aggregated
with all other amounts required to be paid to Multiemployer Plans in
connection with Withdrawal Liabilities (determined as of the date of such
notification), exceeds $50,000,000;
(i) The Borrower or any ERISA Affiliate shall have been notified by
the sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization
[6700-070(X)RAF/A08B.WPF/30D/4674W]
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60
or is being terminated, within the meaning of Title IV of ERISA, if as a
result of such reorganization or termination the aggregate annual
contributions of the Borrower and its ERISA Affiliates to all Multiemployer
Plans which are then in reorganization or being terminated have been or
will be increased over the amounts contributed to such Multiemployer Plans
for the respective plan years which include the date hereof by an amount
exceeding $50,000,000; or
(j) There shall have occurred a Change in Control;
then, and in any such event, the Administrative Agent shall, at the request, or
may with the consent, of the Required Lenders, by notice to the Borrower, (i)
declare the Commitment of each Lender to make Loans to be terminated, whereupon
the same shall forthwith terminate, and (ii) declare the Loans, all interest
thereon and all other amounts payable under this Agreement to be forthwith due
and payable, whereupon the Loans, all such interest and all such amounts shall
become and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Borrower; provided, however, that if an Event of Default under paragraph (e) of
-------- -------
this Article VII (except under clause (i)(A) thereof) shall occur, (A) the
Commitment of each Lender to make Loans shall automatically be terminated and
(B) the Loans, all interest thereon and all other amounts payable under this
Agreement shall automatically become and be forthwith due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Borrower.
ARTICLE VIII. THE AGENTS
In order to expedite the transactions contemplated by this Agreement,
Texas Commerce Bank National Association and Chemical Bank Agency Services
Corporation are hereby appointed to act as Administrative Agent and CAF Agent,
respectively, on behalf of the Lenders. Each of the Lenders hereby irrevocably
authorizes the Agents to take such actions on behalf of such Lender and to
exercise such powers as are specifically delegated to the Agents by the terms
and provisions hereof and of the other Loan Documents, together with such
actions and powers as are reasonably incidental thereto. The Administrative
Agent is hereby expressly
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61
authorized by the Lenders, without hereby limiting any implied authority, (a) to
receive on behalf of the Lenders all payments of principal of and interest on
the Loans and all other amounts due to the Lenders hereunder, and promptly to
distribute to each Lender its proper share of each payment so received; (b) to
give notice on behalf of each of the Lenders to the Borrower of any Event of
Default specified in this Agreement of which the Administrative Agent has actual
knowledge acquired in connection with its agency hereunder; and (c) to
distribute to each Lender copies of all notices, financial statements and other
materials delivered by the Borrower pursuant to this Agreement as received by
the Administrative Agent.
Neither the Agents nor any of their directors, officers, employees or
agents shall be liable as such for any action taken or omitted by any of them
except for its, his or her own gross negligence or wilful misconduct, or be
responsible for any warranty or representation herein or the contents of any
document delivered in connection herewith, or be required to ascertain or to
make any inquiry concerning the performance or observance by the Borrower of any
of the terms, conditions, covenants or agreements contained in any Loan Document
other than those expressly provided for herein. The Agents shall not be
responsible to the Lenders for the due execution, genuineness, validity,
enforceability or effectiveness (other than against the Agents) of this
Agreement or any other Loan Documents or other instruments or agreements. The
Agents shall in all cases be fully protected in acting, or refraining from
acting, in accordance with written instructions signed by the Required Lenders
and, except as otherwise specifically provided herein, such instructions and any
action or inaction pursuant thereto shall be binding on all the Lenders. Each
Agent shall, in the absence of knowledge to the contrary, be entitled to rely on
any instrument or document believed by it in good faith to be genuine and
correct and to have been signed or sent by the proper person or persons.
Neither the Agents nor any of their directors, officers, employees or agents
shall have any responsibility to the Borrower on account of the failure of or
delay in performance or breach by any Lender of any of its obligations hereunder
or to any Lender on account of the failure of or delay in performance or breach
by any other Lender or the Borrower of any of their respective obligations
hereunder or under any other Loan Document or in connection herewith or
therewith. The Agents may execute any and all duties hereunder by or through
agents or
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62
employees and shall be entitled to rely upon the advice of legal counsel
reasonably selected by them with respect to all matters arising hereunder and
shall not be liable for any action taken or suffered in good faith by it in
accordance with the advice of such counsel.
The Lenders hereby acknowledge that the Agents shall be under no duty
to take any discretionary action permitted to be taken by it pursuant to the
provisions of this Agreement unless it shall be requested in writing to do so by
the Required Lenders.
Subject to the appointment and acceptance of a successor Agent as
provided below, any Agent may resign at any time by notifying the Lenders and
the Borrower. Upon any such resignation, the Required Lenders shall have the
right to appoint a successor. If no successor shall have been so appointed by
the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Agent gives notice of its resignation, then the retiring
Agent may, on behalf of the Lenders, appoint a successor Agent which shall be a
bank with an office in the United States, having a combined capital and surplus
of at least $50,000,000 or an Affiliate of any such bank. Upon the acceptance
of any appointment as Agent hereunder by a successor bank, such successor shall
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent and the retiring Agent shall be discharged from its
duties and obligations hereunder. After any Agent's resignation hereunder, the
provisions of this Article and Section 9.05 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Agent.
With respect to the Loans made by them hereunder, the Agents in their
individual capacity and not as Agents shall have the same rights and powers as
any other Lender and may exercise the same as though they were not the Agents,
and the Agents and their Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrower or any Subsidiary or
other Affiliate thereof as if they were not the Agents.
Each Lender agrees (i) to reimburse the Agents, on demand, in the
amount of its pro rata share (based on its Commitment hereunder) of any
reasonable expenses incurred for the benefit of the Lenders by the Agents,
including counsel fees and compensation of agents and employees paid
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63
for services rendered on behalf of the Lenders, which shall not have been
reimbursed by the Borrower and (ii) to indemnify and hold harmless the Agents
and any of its directors, officers, employees or agents, on demand, in the
amount of such pro rata share, from and against any and all liabilities, taxes,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against them in their capacity as the Agents or any
of them in any way relating to or arising out of this Agreement or any other
Loan Document or any action taken or omitted by it or any of them under this
Agreement or any other Loan Document, to the extent the same shall not have been
reimbursed by the Borrower; provided that no Lender shall be liable to the
--------
Agents for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the gross negligence or wilful misconduct of the Agents or any of their
directors, officers, employees or agents. Each Lender agrees that any
reasonable allocation of expenses or other amounts referred to in this paragraph
between this Agreement and the Facility A Credit Agreement shall be conclusive
and binding for all purposes.
Each Lender acknowledges that it has, independently and without
reliance upon the Agents or any other Lender and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Agents or any other Lender and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement or any other Loan Document, any related
agreement or any document furnished hereunder or thereunder.
ARTICLE IX. MISCELLANEOUS
SECTION 9.01. Notices. Notices and other communications provided for
--------
herein shall be in writing and shall
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64
be delivered by hand or overnight courier service, mailed or sent by telecopy by
the sending party, as follows:
(a) if to the Borrower, to it at 3200 Continental Plaza, 777 Main
Street, Fort Worth, Texas 76102, Attention of Treasurer (Telecopy No. 817-
333-7484);
(b) if to the Administrative Agent, to it at 712 Main Street, Houston,
Texas 77002, Attention of Syndications Department (Telecopy No. 713-546-
2339); with a copy to Texas Commerce Bank National Association, 201 Main
Street, 3rd Floor, Fort Worth, Texas 76102, Attention of Corporate Banking
(Telecopy No. 817-878-7591);
(c) if to the CAF Agent, to it at 140 East 45th Street, 29th Floor,
New York, NY 10017-3162, Attention of: M. Terri Reilly; and
(d) if to a Lender, to it at its address (or telecopy number) set
forth in Schedule 2.01 or in the Assignment and Acceptance pursuant to
which such Lender shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy, or on the date five Business Days after dispatch by certified or
registered mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 9.01 or in accordance with
the latest unrevoked direction from such party given in accordance with this
Section 9.01.
SECTION 9.02. Survival of Agreement. All covenants, agreements,
----------------------
representations and warranties made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and shall survive the making by the Lenders
of the Loans regardless of any investigation made by the Lenders or on their
behalf, and shall continue in full force and effect as long as the principal of
or any accrued interest on any Loan or any Fee or any other amount payable under
this Agreement or any other Loan Document is outstanding and unpaid and so long
as the Commitments have not been terminated.
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<PAGE>
65
SECTION 9.03. Binding Effect. This Agreement shall become effective
---------------
when it shall have been executed by the Borrower and the Agents and when the
Administrative Agent shall have received copies hereof which, when taken
together, bear the signatures of each Lender, and thereafter shall be binding
upon and inure to the benefit of the Borrower, the Agents and each Lender and
their respective successors and assigns, except that the Borrower shall not have
the right to assign its rights hereunder or any interest herein without the
prior consent of all the Lenders.
SECTION 9.04. Successors and Assigns. (a) Whenever in this
-----------------------
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and permitted assigns of such party; and all
covenants, promises and agreements by or on behalf of the Borrower, the Agents
or the Lenders that are contained in this Agreement shall bind and inure to the
benefit of their respective successors and permitted assigns.
(b) Each Lender may assign to one or more assignees all or a portion
of its interests, rights and obligations under this Agreement (including all or
a portion of its Commitment and the Loans at the time owing to it); provided,
--------
however, that (i) except in the case of an assignment to a Lender or an
- -------
Affiliate of such Lender, the Borrower and the Administrative Agent must give
their prior written consent to such assignment (which consent shall not be
unreasonably withheld, taking into account such factors as the financial
responsibility and reputation of a proposed assignee), (ii) each such assignment
shall be of a constant, and not a varying, percentage of all the assigning
Lender's rights and obligations under this Agreement, (iii) the amount of the
Commitment of the assigning Lender subject to each such assignment (determined
as of the date the Assignment and Acceptance with respect to such assignment is
delivered to the Administrative Agent) shall not be less than $10,000,000 (and
integral multiples of $1,000,000) or, if less, the entire amount of the
assigning Lender's Commitment, (iv) the parties to each such assignment shall
execute and deliver to the Administrative Agent an Assignment and Acceptance,
and the assigning Lender shall deliver together therewith a processing and
recordation fee of $2,500 and (v) the assignee, if it shall not be a Lender,
shall deliver to the Administrative Agent and the CAF Agent an Administrative
Questionnaire. Upon acceptance and recording pursuant to paragraph (e) of this
Section 9.04, from and after the effective date specified in each
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66
Assignment and Acceptance, which effective date shall be at least five Business
Days after the execution thereof, (A) the assignee thereunder shall be a party
hereto and, to the extent of the interest assigned by such Assignment and
Acceptance, have the rights and obligations of a Lender under this Agreement,
(B) the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Acceptance, be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance covering
all or the remaining portion of an assigning Lender's rights and obligations
under this Agreement, such Lender shall cease to be a party hereto (but shall
continue to be entitled to the benefits of Sections 2.14, 2.16, 2.20 and 9.05,
as well as to any Fees accrued for its account hereunder and not yet paid)) and
(C) Schedule 2.01 shall be deemed amended to give affect to such assignment.
Not-withstanding the foregoing, any Lender assigning its rights and obligations
under this Agreement may retain any Competitive Loans made by it outstanding at
such time, and in such case shall retain its rights hereunder in respect of any
Loans so retained until such Loans have been repaid in full in accordance with
this Agreement.
(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and that
its Commitment, and the outstanding balances of its Standby Loans and
Competitive Loans, in each case without giving effect to assignments thereof
which have not become effective, are as set forth in such Assignment and
Acceptance; (ii) except as set forth in (i) above, such assigning Lender makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement, or any other any instrument or document furnished pursuant hereto, or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement, any other Loan Document or any other instrument or
document furnished pursuant hereto or the financial condition of the Borrower or
any Subsidiary or the performance or observance by the Borrower or any
Subsidiary of any of its obligations under this Agreement, any other Loan
Document or any other instrument or document furnished pursuant hereto; (iii)
such assignee represents
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
67
and warrants that it is legally authorized to enter into such Assignment and
Acceptance; (iv) such assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 5.03 and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into such Assignment and Acceptance; (v) such assignee will independently and
without reliance upon the Administrative Agent, such assigning Lender or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (vi) such assignee appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement as are delegated to the
Administrative Agent by the terms hereof, together with such powers as are
reasonably incidental thereto; and (vii) such assignee agrees that it will
perform in accordance with their terms all the obligations which by the terms of
this Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at one of its offices in
The City of Houston a copy of each Assignment and Acceptance delivered to it and
a register for the recordation of the names and addresses of the Lenders, and
the Commitment of, and principal amount of the Loans owing to, each Lender
pursuant to the terms hereof from time to time (the "Register"). The entries in
the Register shall be conclusive in the absence of demonstrable error and the
Borrower, the Agents and the Lenders may treat each person whose name is
recorded in the Register pursuant to the terms hereof as a Lender hereunder for
all purposes of this Agreement. The Register shall be available for inspection
by the Borrower and any Lender, at any reasonable time and from time to time
upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, an Administrative Questionnaire
completed in respect of the assignee (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) above and, if required, the written consent of the Borrower and the
Administrative Agent to such assignment, the Administrative Agent shall (i)
accept such Assignment and Acceptance, (ii) record the information contained
therein in the Register and (iii) give prompt notice thereof to the Lenders.
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<PAGE>
68
(f) Each Lender may without the consent of the Borrower or the Agents
sell participations to one or more banks or other entities in all or a portion
of its rights and obligations under this Agreement (including all or a portion
of its Commitment and the Loans owing to it); provided, however, that (i) such
-------- -------
Lender's obligations under this Agreement shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) the participating banks or other entities
shall be entitled to the benefit of the cost protection provisions contained in
Sections 2.14, 2.16 and 2.20 to the same extent as if they were Lenders and (iv)
the Borrower, the Agents and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement, and such Lender shall retain the sole right to
enforce the obligations of the Borrower relating to the Loans and to approve any
amendment, modification or waiver of any provision of this Agreement (other than
amendments, modifications or waivers decreasing any fees payable hereunder or
the amount of principal of or the rate at which interest is payable on the
Loans, extending any scheduled principal payment date or date fixed for the
payment of interest on the Loans or changing or extending the Commitments).
(g) Any Lender or participant may, in connection with any assignment
or participation or proposed assignment or participation pursuant to this
Section 9.04, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrower furnished to such Lender by
or on behalf of the Borrower; provided that, prior to any such disclosure of
--------
information designated by the Borrower as confidential, each such assignee or
participant or proposed assignee or participant shall execute an agreement
whereby such assignee or participant shall agree (subject to customary
exceptions) to preserve the confidentiality of such confidential information.
It is understood that confidential information relating to the Borrower would
not ordinarily be provided in connection with assignments or participations of
Competitive Loans.
(h) Any Lender may at any time assign all or any portion of its
rights under this Agreement to a Federal Reserve Bank; provided that no such
--------
assignment shall release a Lender from any of its obligations hereunder. In
order to facilitate such an assignment to a Federal Reserve Bank, the Borrower
shall, to the extent permissible without
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69
registration under applicable regulations of the ICC, at the request of the
assigning Lender, duly execute and deliver to the assigning Lender a promissory
note or notes evidencing the Loans made to the Borrower by the assigning Lender
hereunder.
(i) The Borrower shall not assign or delegate any of its rights or
duties hereunder without the prior written consent of the Lenders.
SECTION 9.05. Expenses; Indemnity. (a) The Borrower agrees to pay
--------------------
all out-of-pocket expenses incurred by the Agents in connection with the
preparation of this Agreement and the other Loan Documents or in connection with
any amendments, modifications or waivers of the provisions hereof or thereof
(whether or not the transactions hereby contemplated shall be consummated) or
incurred by the Agents or any Lender in connection with the enforcement or
protection of their rights in connection with this Agreement and the other Loan
Documents or in connection with the Loans made hereunder, including the
reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel
for the Agents, and, in connection with any such amendment, modification or
waiver or any such enforcement or protection, the reasonable fees, charges and
disbursements of any other counsel for the Agents or any Lender. The Borrower
further agrees that it shall indemnify the Lenders from and hold them harmless
against any documentary taxes, assessments or charges made by any Governmental
Authority by reason of the execution and delivery of this Agreement or any of
the other Loan Documents.
(b) The Borrower agrees to indemnify the Agents, each Lender and each
of their respective directors, officers, employees and agents (each such person
being called an "Indemnitee") against, and to hold each Indemnitee harmless
from, any and all losses, claims, damages, liabilities and related expenses,
including reasonable counsel fees, charges and disbursements, incurred by or
asserted against any Indemnitee arising out of, in any way connected with, or as
a result of (i) the execution or delivery of this Agreement or any other Loan
Document or any agreement or instrument contemplated thereby, the performance by
the parties thereto of their respective obligations thereunder or the
consummation of the transactions contemplated thereby, (ii) the use of the
proceeds of the Loans or (iii) any claim, litigation, investigation or
proceeding relating to any of the foregoing to which such Indemnitee reasonably
believes that it may
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70
become a party, whether or not any Indemnitee is a party thereto; provided that
--------
such indemnity shall not, as to any Indemnitee, be available to the extent that
such losses, claims, damages, liabilities or related expenses are determined by
a court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or wilful misconduct of such Indemnitee.
(c) The provisions of this Section 9.05 shall remain operative and in
full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term or
provision of this Agreement or any other Loan Document, or any investigation
made by or on behalf of the Agents or any Lender. All amounts due under this
Section 9.05 shall be payable on written demand therefor.
SECTION 9.06. Right of Setoff. If an Event of Default shall have
----------------
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of the Borrower against any of and all the
obligations of the Borrower now or hereafter existing under this Agreement and
other Loan Documents held by such Lender, irrespective of whether or not such
Lender shall have made any demand under this Agreement or such other Loan
Document and although such obligations may be unmatured. Each Lender agrees
promptly to notify the Borrower after any such setoff and application made by
such Lender, provided that the failure to give such notice shall not affect the
--------
validity of such setoff and application. The rights of each Lender under this
Section are in addition to other rights and remedies (including other rights of
setoff) which such Lender may have.
SECTION 9.07. Applicable Law. THIS AGREEMENT AND THE OTHER LOAN
---------------
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK.
SECTION 9.08. Waivers; Amendment. (a) No failure or delay of the
-------------------
Agents or any Lender in exercising any power or right hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of
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71
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The rights and remedies of
the Agents and the Lenders hereunder and under the other Loan Documents are
cumulative and are not exclusive of any rights or remedies which they would
otherwise have. No waiver of any provision of this Agreement or any other Loan
Document or consent to any departure by the Borrower therefrom shall in any
event be effective unless the same shall be permitted by paragraph (b) below,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. No notice or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrower and the Required Lenders; provided, however, that
-------- -------
no such agreement shall (i) decrease the principal amount of, or extend the
maturity of or any scheduled principal payment date or date for the payment of
any interest on, any Loan, or waive or excuse any such payment or any part
thereof, or decrease the rate of interest on any Loan, without the prior written
consent of each Lender affected thereby, (ii) change or extend the Commitment or
decrease the Facility Fees of any Lender without the prior written consent of
such Lender, or (iii) amend or modify the provisions of Section 2.17, the
provisions of this Section, any provision of this agreement which by its terms
requires the consent or approval of all Lenders or the definition of "Required
Lenders", without the prior written consent of each Lender; provided further
----------------
that no such agreement shall amend, modify or otherwise affect the rights or
duties of the Agents hereunder without the prior written consent of the Agents.
SECTION 9.09. Interest Rate Limitation. Notwithstanding anything
-------------------------
herein to the contrary, if at any time the applicable interest rate, together
with all fees and charges which are treated as interest under applicable law
(collectively the "Charges"), as provided for herein or in any other document
executed in connection herewith, or otherwise contracted for, charged, received,
taken or reserved by any Lender, shall exceed the maximum lawful rate (the
"Maximum Rate") which may be contracted for, charged, taken, received or
reserved by such Lender in accordance with applicable law, the rate of interest
payable on the Loans of such
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72
Lender, together with all Charges payable to such Lender, shall be limited to
the Maximum Rate.
SECTION 9.10. Entire Agreement. This Agreement and the other Loan
-----------------
Documents constitute the entire contract between the parties relative to the
subject matter hereof. Any previous agreement among the parties with respect to
the subject matter hereof is superseded by this Agreement and the other Loan
Documents. Nothing in this Agreement or in the other Loan Documents, expressed
or implied, is intended to confer upon any party other than the parties hereto
and thereto any rights, remedies, obligations or liabilities under or by reason
of this Agreement or the other Loan Documents.
SECTION 9.11. Severability. In the event any one or more of the
-------------
provisions contained in this Agreement or in any other Loan Document should be
held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby. The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 9.12. Counterparts. This Agreement may be executed in two or
-------------
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract, and shall become
effective as provided in Section 9.03.
SECTION 9.13. Headings. Article and Section headings and the Table
---------
of Contents used herein are for convenience of reference only, are not part of
this Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 9.14. Jurisdiction; Consent to Service of Process. (a) The
----------------------------------- --------
Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto
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<PAGE>
73
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such New York State or,
to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement shall affect any
right that any Lender may otherwise have to bring any action or proceeding
relating to this Agreement or the other Loan Documents against the Borrower or
its properties in the courts of any jurisdiction.
(b) The Borrower hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this agreement or the other Loan
Documents in any New York State or Federal court sitting in New York City. Each
of the parties hereto hereby irrevocably waives, to the fullest extent permitted
by law, the defense of an inconvenient forum to the maintenance of such action
or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will
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<PAGE>
affect the right of any party to this Agreement to serve process in any other
manner permitted by law.
IN WITNESS WHEREOF, the Borrower, the Lenders, the Administrative
Agent and the CAF Agent have caused this Agreement to be duly executed by their
respective authorized officers as of the day and year first above written.
BURLINGTON NORTHERN RAILROAD
COMPANY,
by
Robert F. McKenney
-------------------------------------
Name: Robert F. McKenney
Title: Senior Vice President
and Treasurer
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, individually and as
Administrative Agent,
by
Loren K. Jensen
-------------------------------------
Name: Loren K. Jensen
Title: Senior Vice President
CHEMICAL BANK AGENCY SERVICES
CORPORATION, as CAF Agent,
by
Janet M. Belden
-------------------------------------
Name: Janet M. Belden
Title: Vice President
ABN-AMRO BANK N.V.,
by by
Lila J. Donehoo Ronald A. Mahle
---------------------- ------------------------------------
Name: Lila J. Donehoo Name: Roanld A. Mahle
Title: Vice President Title: Vice President
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
THE BOATMEN'S NATIONAL BANK OF ST.
LOUIS,
by
Dwight D. Erdbruegger
-------------------------------------
Name: Dwight D. Erdbruegger
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
by
Wayne H. Riess
-------------------------------------
Name: Wayne H. Riess
Title: Vice President
THE BANK OF NEW YORK,
by
Julie E. Brennan
-------------------------------------
Name: Julie E. Brennan
Title: Vice President
THE BANK OF NOVA SCOTIA,
by
A. S. Norsworthy
-------------------------------------
Name: A. S. Norsworthy
Title: Assistant Agent
THE BANK OF TOKYO, LTD., Dallas
Agency,
by
J. Beckwith
-------------------------------------
Name: J. Beckwith
Title: Vice President
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<PAGE>
CAISSE NATIONALE DE CREDIT AGRICOLE,
by
David Bouhl
-------------------------------------
Name: David Bouhl
Title: First Vice President
THE CHASE MANHATTAN BANK, N.A.,
by
Francis M. Cox, III
-------------------------------------
Name: Francis M. Cox, III
Title: Vice President
CIBC, INC.,
by
J. D. Westland
--------------------------------------
Name: J. D. Westland
Title: Vice President
CITIBANK, N.A.,
by
Barbara A. Cohen
-------------------------------------
Name: Barbara A. Cohen
Title: Vice President
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", New York Branch
by
Anita Vogel
-------------------------------------
Name: Anita Vogel
Title: Vice President
by
Ian Reece
------------------------------------
Name: Ian Reece
Title: Vice President and Manager
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
CREDIT LYONNAIS New York Branch
by
Alain Papiasse
------------------------------------
Name: Alain Papiasse
Title: Senior Vice President,
Deputy General Manger
CREDIT LYONNAIS Cayman Island Branch
by
Alain Papiasse
-------------------------------------
Name: Alain Papiasse
Title: Authorized Signature
THE DAI-ICHI KANGYO BANK, LIMITED,
Los Angeles Agency,
by
Tomohiro Nozaki
-------------------------------------
Name: Tomohiro Nozaki
Title: Senior Vice President
and Joint General
Manager
FIRST BANK NATIONAL ASSOCIATION,
by
Megan G. Mourning
-------------------------------------
Name: Megan G. Mourning
Title: Vice President
FIRST INTERSTATE BANK OF TEXAS N.A.,
by
Todd Robichaux
-------------------------------------
Name: Todd Robichaux
Title: Assistant Vice President
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON,
by
Dexter Freeman
-------------------------------------
Name: Dexter Freeman
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
by
Michael J. Kolosowsky
-------------------------------------
Name: Michael J. Kolosowsky
Title: Assistant Vice President
THE FUJI BANK, LIMITED, Houston Agency,
by
David Kelley
-------------------------------------
Name: David Kelley
Title: Vice President and
Senior Manager
MELLON BANK, N.A.,
by
V. Charles Jackson
-------------------------------------
Name: V. Charles Jackson
Title: Senior Vice President
MERCANTILE BANK OF ST. LOUIS
NATIONAL ASSOCIATION,
by
Edward A. Cheney
-------------------------------------
Name: Edward A. Cheney
Title: Vice President
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
THE MITSUBISHI BANK, LIMITED, New
York Branch,
by
Paula Mueller
-------------------------------------
Name: Paula Mueller
Title: Vice President
MORGAN GUARANTY TRUST COMPANY OF NEW
YORK,
by
Michael C. Mauer
-------------------------------------
Name: Michael C. Mauer
Title: Vice President
NBD BANK, N.A.,
by
D. Andrew Bateman
-------------------------------------
Name: D. Andrew Bateman
Title: First Vice President
THE NORTHERN TRUST COMPANY,
by
Martin G. Alston
-------------------------------------
Name: Martin G. Alston
Title: Vice President
PNC BANK, National Association,
by
Jeffrey S. Nurkiewicz
-------------------------------------
Name: Jeffrey S. Nurkiewicz
Title: Commercial Banking
Officer
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
THE SANWA BANK, LIMITED,
by
Blake Wright
-------------------------------------
Name: Blake Wright
Title: Assistant Vice President
SOCIETE GENERALE, Southwest Agency,
by
Louis P. LaVille, III
-------------------------------------
Name: Louis P. LaVille
Title: Vice President
THE SUMITOMO BANK, LIMITED,
by
Hiroshi Amano
-------------------------------------
Name: Hiroshi Amano
Title: General Manager
THE TOKAI BANK, LIMITED,
by
Hitoshi Ozawa
-------------------------------------
Name: Hitoshi Ozawa
Title: Assistant General
Manager
THE TORONTO-DOMINION BANK,
by
Lisa Allison
-------------------------------------
Name: Lisa Allison
Title: Manager, Credit
Administration
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
UNION BANK OF SWITZERLAND, Houston Agency,
by
Jan Buettgen
-------------------------------------
Name: Jan Buettgen
Title: Assistant Vice President
by
Evans Swann
-------------------------------------
Name: Evans Swann
Title: Vice President
WACHOVIA BANK OF GEORGIA, N.A.,
by
Terry L. Akins
-------------------------------------
Name: Terry L. Akins
Title: Senior Vice President
[6700-070(X)RAF/A08B.WPF/30D/4674W]
<PAGE>
EXHIBIT 10.17
================================================================================
3-YEAR TERM LOAN
FACILITY AGREEMENT
Dated as of November 14, 1994
among
BURLINGTON NORTHERN RAILROAD COMPANY,
THE LENDERS NAMED HEREIN
and
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as Administrative Agent
================================================================================
[CS&M Ref. No. 6700-227]
<PAGE>
TABLE OF CONTENTS
Article Section Page
- ------- ------- ----
I. DEFINITIONS
1.01 Defined Terms ......................................... 1
1.02 Terms Generally ....................................... 12
II. THE CREDITS
2.01 Commitments ........................................... 12
2.02 Term Loans ............................................ 12
2.03 Fees .................................................. 13
2.04 Repayment of Term Loans ............................... 13
2.05 Interest on Term Loans ................................ 14
2.06 Default Interest ...................................... 15
2.07 Alternate Rate of Interest ............................ 15
2.08 Conversion and Continuation of Borrowings ............. 16
2.09 Prepayment ............................................ 17
2.10 Reserve Requirements; Change in Circumstances ......... 17
2.11 Change in Legality .................................... 19
2.12 Indemnity ............................................. 20
2.13 Pro Rata Treatment .................................... 21
2.14 Sharing of Setoffs .................................... 21
2.15 Payments .............................................. 22
2.16 Taxes ................................................. 23
2.17 Assignment or Prepayment of Term Loans Under
Certain Circumstances .............................. 26
III. REPRESENTATIONS AND WARRANTIES .............................. 27
IV. CONDITIONS OF LENDING ....................................... 31
V. AFFIRMATIVE COVENANTS
5.01 Existence; Businesses and Properties .................. 32
5.02 Insurance ............................................. 33
5.03 Reporting Requirements ................................ 33
5.04 Consolidated Tangible Net Worth ....................... 36
5.05 Taxes ................................................. 36
<PAGE>
Contents, p. 2
Article Section Page
- ------- ------- ----
VI. NEGATIVE COVENANTS
6.01 Debt .................................................. 36
6.02 Sale, etc., of Assets ................................. 37
6.03 Mergers, etc. ......................................... 38
6.04 Liens ................................................. 38
6.05 Sales of Accounts Receivable .......................... 39
VII. EVENTS OF DEFAULT ........................................... 40
VIII. THE AGENT ................................................... 43
IX. MISCELLANEOUS
9.01 Notices ............................................... 46
9.02 Survival of Agreement ................................. 47
9.03 Binding Effect ........................................ 47
9.04 Successors and Assigns ................................ 48
9.05 Expenses; Indemnity ................................... 51
9.06 Right of Setoff ....................................... 52
9.07 Applicable Law ........................................ 53
9.08 Waivers; Amendment .................................... 53
9.09 Interest Rate Limitation .............................. 54
9.10 Entire Agreement ...................................... 54
9.11 Severability .......................................... 54
9.12 Counterparts .......................................... 55
9.13 Headings .............................................. 55
9.14 Jurisdiction; Consent to Service of Process ........... 55
Exhibit A Administrative Questionnaire
Exhibit B Form of Assignment and Acceptance
Exhibit C Form of Opinion of Francis T. Kelly, Esq., Counsel for
the Borrower
Exhibit D Form of Opinion of Douglas J. Babb, Vice President and
General Counsel of the Borrower
Schedule 2.01 Commitments
Schedule 6.04(a) Existing Liens
<PAGE>
3-YEAR TERM LOAN FACILITY AGREEMENT dated as of November
14, 1994, among BURLINGTON NORTHERN RAILROAD COMPANY, a
Delaware corporation (the "Borrower"); the lenders
listed in Schedule 2.01 hereto (the "Lenders"); and
TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national
banking association, as administrative agent (in such
capacity, the "Administrative Agent").
The Borrower has requested the Lenders to extend credit to the Borrower
in order to enable it to borrow on a term basis, on the Funding Date (as defined
below), an aggregate principal amount of $150,000,000. The proceeds of such
borrowing will be used by the Borrower to redeem the Series J Mortgage Bonds (as
defined below) or will be used to reimburse the Borrower for payments made in
connection with the redemption of such Bonds on the Funding Date. The Lenders
are willing to extend such credit to the Borrower on the terms and subject to
the conditions herein set forth.
Accordingly, the Borrower, the Lenders, and the Administrative Agent
agree as follows:
ARTICLE I. DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the following
-------------
terms shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Term Loans.
-------------
"ABR Period" shall mean any period during which the Term Loans
----------
bear interest at the Alternate Base Rate.
"ABR Term Loan" shall mean any Term Loan bearing interest at a rate
-------------
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"Administrative Questionnaire" shall mean an Administrative
----------------------------
Questionnaire in the form of Exhibit A hereto.
"Affiliate" shall mean, when used with respect to a specified
---------
person, another person that directly, or
<PAGE>
2
indirectly through one or more intermediaries, controls or is controlled by or
is under common control with the person specified.
"Agent Fees" shall have the meaning given such term in Section 2.03.
----------
"Agent" shall mean the Administrative Agent.
-----
"Alternate Base Rate" shall mean, for any day, a rate per annum (rounded
-------------------
upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the
Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day
plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2
of 1%. For purposes hereof, "Prime Rate" shall mean as of a particular date, the
----------
prime rate most recently announced by the Administrative Agent and thereafter
entered in the minutes of the Administrative Agent's Loan and Discount
Committee, automatically fluctuating upward and downward with and at the time
specified in each such announcement without notice to the Borrower or any other
person, which prime rate may not necessarily represent the lowest or best rate
actually charged to a customer. "Base CD Rate" shall mean the sum of (a) the
------------
product of (i) the Three-Month Secondary CD Rate and (ii) Statutory Reserves and
(b) the Assessment Rate. "Three-Month Secondary CD Rate" shall mean, for any
-----------------------------
day, the secondary market rate for three-month certificates of deposit reported
as being in effect on such day (or, if such day shall not be a Business Day, the
next preceding Business Day) by the Board through the public information
telephone line of the Federal Reserve Bank of New York (which rate will, under
the current practices of the Board, be published in Federal Reserve Statistical
Release H.15(519) during the week following such day), or, if such rate shall
not be so reported on such day or such next preceding Business Day, the average
of the secondary market quotations for three-month certificates of deposit of
major money center banks in New York City received at approximately 9:00 a.m.,
Houston time, on such day (or, if such day shall not be a Business Day, on the
next preceding Business Day) by the Administrative Agent from three New York
City negotiable certificate of deposit dealers of recognized standing selected
by it. "Federal Funds Effective Rate" shall mean, for any day, the weighted
----------------------------
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published on the
next succeeding Business Day by the Federal
<PAGE>
3
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for the day of such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it. If for any reason the
Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Base CD
Rate or the Federal Funds Effective Rate or both for any reason, including the
inability of the Administrative Agent to obtain sufficient quotations in
accordance with the terms thereof, the Alternate Base Rate shall be determined
without regard to clause (b) or (c), or both, of the first sentence of this
definition, as appropriate, until the circumstances giving rise to such
inability no longer exist. Any change in the Alternate Base Rate due to a change
in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate shall be effective on the effective date of such change in the
Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective
Rate, respectively.
"Assessment Rate" shall mean for any date the annual rate (rounded
---------------
upwards, if necessary, to the next 1/100 of 1%) most recently estimated by the
Administrative agent as the then current net annual assessment rate that will be
employed in determining amounts payable by the Administrative Agent to the
Federal Deposit Insurance Corporation (or any successor) for insurance by such
Corporation (or such successor) of time deposits made in dollars at the
Administrative Agent's domestic offices.
"Assignment and Acceptance" shall mean an assignment and acceptance
-------------------------
entered into by a Lender and an assignee, and accepted by the Administrative
Agent, in the form of Exhibit B hereto.
"Board" shall mean the Board of Governors of the Federal Reserve System
-----
of the United States.
"Borrowing" shall mean a group of Term Loans of a single Type as to
---------
which a single Interest Period is in effect.
"Business Day" shall mean any day (other than a day which is a Saturday,
------------
Sunday or legal holiday in the State of Texas or New York) on which banks are
open for business in Houston and New York City; provided, however, that, when
-------- -------
used in connection with a Eurodollar Term Loan,
<PAGE>
4
the term "Business Day" shall also exclude any day on which banks are not open
------------
for dealings in dollar deposits in the London interbank market.
A "Change in Control" shall be deemed to have occurred if (a) any person
-----------------
or group (within the meaning of Rule 13d-5 of the Securities and Exchange
commission as in effect on the date hereof) shall own directly or indirectly,
beneficially or of record, shares representing more than 50% of the aggregate
ordinary voting power represented by the issued and outstanding capital stock of
the Parent (other than as the result of a transaction approved by the Parent's
Board of Directors), (b) a majority of the seats (other than vacant seats) on
the Board of Directors of the Parent shall at any time have been occupied by
persons who were neither (i) nominated by the Board of Directors of the Parent,
nor (ii) appointed by Directors so nominated, (c) any person or group shall
otherwise directly or indirectly obtain control of the Parent (other than in a
transaction approved by the Parent's Board of Directors) or (d) the Parent shall
cease to control the Borrower.
"Closing Date" shall mean the date hereof.
------------
"Code" shall mean the Internal Revenue Code of 1986, as the same may be
----
amended from time to time.
"Commitment" shall mean, with respect to each Lender, the commitment of
----------
such Lender hereunder as set forth in Schedule 2.01 hereto to make one or more
Term Loans pursuant to Section 2.01. The Commitments shall automatically and
permanently terminate at 5:00 p.m., New York City time, on the Funding Date.
"Consolidated Tangible Net Worth" shall mean preferred stockholder's and
-------------------------------
common stockholder's equity of the Borrower (other than mandatorily redeemable
preferred stock) minus intangible assets of the Borrower and its consolidated
Subsidiaries.
"Debt" shall mean, without duplication, (i) indebtedness for borrowed
----
money or for the deferred purchase price of property or services whether
evidenced by bonds, debentures, notes or similar instruments or otherwise (but
excluding, in any case, liabilities by endorsement of negotiable instruments for
deposit or collection and liabilities with respect to accounts payable incurred
in the ordinary course of business), (ii) obligations as lessee
<PAGE>
5
under leases which shall have been or should be, in accordance with generally
accepted accounting principles, recorded as capital leases and (iii) obligations
under direct or indirect guarantees in respect of, and obligations to purchase
or otherwise acquire, or otherwise to assure a creditor against loss in respect
of, indebtedness on obligations of persons (other than the Borrower and its
consolidated Subsidiaries) of the kinds referred to in clauses (i) and (ii)
above.
"Default" shall mean any event or condition which upon notice, lapse of
-------
time or both would constitute an Event of Default.
"dollars" or "$" shall mean lawful money of the United States of
------- -
America.
"Engagement Letter" shall mean the engagement letter dated November 3,
-----------------
1994, among the Borrower, the Administrative Agent and Chemical Securities Inc.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
-----
as the same may be amended from time to time.
"ERISA Affiliate" shall mean any person who for purposes of Title IV of
---------------
ERISA is a member of the Borrower's controlled group, or is under common control
with the Borrower, within the meaning of Section 414 of the Code and the
regulations promulgated and rulings issued thereunder.
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
--------------------
Term Loans.
"Eurodollar Period" shall mean any period during which the Term Loans
-----------------
bear interest at rates determined by reference to the LIBO Rate.
"Eurodollar Term Loan" shall mean any Term Loan bearing interest at a
--------------------
rate determined by reference to the LIBO Rate in accordance with the provisions
of Article II.
"Event of Default" shall have the meaning given such term in Article
----------------
VII.
"Existing Facility" shall mean the 5-year Competitive Advance and
-----------------
Revolving Credit Facility Agreement dated as of May 6, 1994, and the 364-day
Competitive Advance
<PAGE>
6
and Revolving Credit Facility Agreement dated as of May 6, 1994, both among the
Borrower, the lenders named therein, Texas Commerce Bank National Association,
as administrative agent, and Chemical Bank Agency Services Corporation, as
competitive advance facility agent.
"Existing Liens" shall mean Liens existing on the date hereof and
--------------
described on Schedule 6.04(a) hereto and any Lien arising out of the
refinancing, extension, renewal or refunding of any Debt secured by such Lien,
but only to the extent the amount of such Debt shall not be increased.
"Existing Mortgages" shall mean each security or other agreement of
------------------
whatever nature described within the Burlington Northern Railroad Company
Long-Term Debt Book dated December 31, 1993, a copy of which has been delivered
by the Borrower to the Administrative Agent, as such agreements may have been
amended or modified to the date hereof or as they may be amended, supplemented,
replaced or modified from time to time hereafter.
"Federal Funds Effective Rate" shall have the meaning assigned thereto
----------------------------
in the definition of Alternate Base Rate.
"Fees" shall mean the Agent Fees.
----
"Funding Date" shall mean November 15, 1994.
------------
"GAAP" shall mean United States generally accepted accounting
----
principles, applied on a basis consistent with the financial statements referred
to in paragraph (e) of Article III hereof.
"Governmental Authority" shall mean any Federal, state, local or foreign
----------------------
court or governmental agency, authority, instrumentality or regulatory body.
"ICC" shall mean the Interstate Commerce Commission or any successor
---
thereto.
"Insufficiency" shall mean, with respect to any Plan, the amount, if
-------------
any, by which the present value of the benefit liabilities under such Plan
exceeds the fair market value of the assets of such Plan.
"Interest Payment Date" shall mean, with respect to any Term Loan, the
---------------------
last day of the Interest Period
<PAGE>
7
applicable to the Borrowing of which such Term Loan is part and, in the case
of a Eurodollar Borrowing with an Interest Period of more than three months'
duration, each day that would have been an Interest Payment Date for such
Borrowing had successive Interest Periods of three months' duration been
applicable to such Borrowing and, in addition, the date of any conversion of
such Borrowing with or to a Borrowing of a different Type.
"Interest Period" shall mean (a) as to any Eurodollar Borrowing, the
---------------
period commencing on the date of such Borrowing or on the last day of the
immediately preceding Interest Period applicable to such Borrowing, as the case
may be, and ending on the numerically corresponding day (or, if there is no
numerically corresponding day, on the last day) in the calendar month that is 1,
3 or 6 months thereafter, as the Borrower may elect, and (b) as to any ABR
Borrowing, the period commencing on the date of such Borrowing or on the last
day of the immediately preceding Interest Period applicable to such Borrowing,
as the case may be, and ending on the date 90 days thereafter or, if earlier, on
the Maturity Date or the date of repayment, prepayment or conversion of such
Borrowing; provided, however, that if any Interest Period would end on a day
-------- -------
other than a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such
next succeeding Business Day would fall in the next calendar month, in which
case such Interest Period shall end on the next preceding Business Day.
Interest shall accrue from and including the first day of an Interest Period to
but excluding the last day of such Interest Period.
"Interest Rate Margin" shall mean, with respect to each Term Loan of
--------------------
each Lender, the margin (expressed as a percentage rate per annum in the form of
a decimal to no more than four decimal places), as set forth in a letter dated
the date hereof from the Borrower to each such Lender accepting the Commitment
of such Lender and confirming such margin, to be added to or subtracted from the
LIBO Rate in order to determine the interest rate per annum applicable to such
Term Loan during a Eurodollar Period.
"LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for any
---------
Interest Period, an interest rate per annum equal to the average (rounded
upwards, if necessary, to the next 1/16 of 1%) of the rates per annum at which
dollar deposits for a maturity comparable to such
<PAGE>
8
Interest Period are offered by the principal London offices of the Reference
Banks (or, if any Reference Bank does not at the time maintain a London office,
the principal London office of any Affiliate of such Reference Bank) in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period in amounts approximately equal to the amount of such Borrowing.
"Lien" shall mean any lien, security interest or other charge or
----
encumbrance, or any assignment of the right to receive income, or any other type
of preferential arrangement, in each case to secure any obligation of any
person.
"Loan Documents" shall mean this Agreement and the Fee Letter dated
--------------
November 3, 1994, among the Administrative Agent and the Borrower.
"Margin Stock" shall have the meaning given such term under
------------
Regulation U.
"Material Adverse Effect" shall mean a material adverse effect on the
-----------------------
financial condition or operations of the Borrower and its consolidated
Subsidiaries on a consolidated basis.
"Material Plan" shall mean any Plan the assets of which exceed
-------------
$50,000,000 or the liabilities of which for unfunded benefit liabilities exceed
$15,000,000.
"Maturity Date" shall mean November 15, 1997.
-------------
"Moody's" shall mean Moody's Investors Service.
-------
"Mortgage Indenture" shall mean the Consolidated Mortgage, dated
------------------
March 2, 1970, by Burlington Northern Inc. (the former name of the Borrower)
to Morgan Guaranty Trust Company of New York and Jacob M. Ford II, as trustees,
as amended to the date hereof and as amended, supplemented or modified from
time to time hereafter.
"Multiemployer Plan" shall mean a multiemployer plan as defined in
------------------
Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate (other
than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
Section 414 of the Code) is making or accruing an obligation to make
contributions, or has within any of the preceding
<PAGE>
9
five plan years made or accrued an obligation to make contributions, such plan
being maintained pursuant to one or more collective bargaining agreements.
"Multiple Employer Plan" shall mean a single employer plan, as defined
----------------------
in Section 4001(a)(15) of ERISA, which (i) is maintained for employees of the
Borrower or an ERISA Affiliate and at least one person other than the Borrower
and its ERISA Affiliates or (ii) was so maintained and in respect of which the
Borrower or an ERISA Affiliate could have liability under Section 4064 or 4069
of ERISA in the event such plan has been or were to be terminated.
"Parent" shall mean Burlington Northern Inc., a Delaware corporation.
------
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to
----
and defined in ERISA, or any successor thereto.
"person" shall mean any natural person, corporation, business trust,
------
joint venture, association, company, partnership or government, or any agency or
political subdivision thereof.
"Plan" shall mean any pension plan (other than a Multiemployer Plan)
----
subject to the provisions of Title IV of ERISA or Section 412 of the Code which
is maintained for employees of the Borrower or any ERISA Affiliate.
"Reference Banks" shall mean Texas Commerce Bank National Association,
---------------
Mellon Bank, N.A. and The Sanwa Bank, Limited.
"Register" shall have the meaning given such term in Section 9.04(d).
--------
"Regulation D" shall mean Regulation D of the Board as from time to time
------------
in effect and all official rulings and interpretations thereunder or thereof.
"Regulation G" shall mean Regulation G of the Board as from time to time
------------
in effect and all official rulings and interpretations thereunder or thereof.
"Regulation U" shall mean Regulation U of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
<PAGE>
10
"Regulation X" shall mean Regulation X of the Board as from time to time
------------
in effect and all official rulings and interpretations thereunder or thereof.
"Required Lenders" shall mean, at any time, Lenders having Commitments
----------------
representing at least 55% of the Total Commitment or, after the Commitments
shall have terminated or for purposes of acceleration pursuant to clause (ii) of
Article VII, Lenders holding Term Loans representing at least 55% of the
aggregate principal amount of the Term Loans outstanding.
"Responsible Officer" shall mean with respect to the subject matter of
-------------------
any covenant, agreement, or obligation of the Borrower contained in this
Agreement, the president, any vice president, treasurer, assistant treasurer or
other officer of the Borrower who in the normal performance of his or her
operational responsibility would have knowledge of such subject matter and the
requirements of such covenants, agreements or obligations of the Borrower with
respect thereto.
"Series J Mortgage Bonds" shall mean the outstanding $150,000,000 in
-----------------------
principal amount of 10% Consolidated Mortgage Bonds, Series J, due November 1,
1997, issued by the Borrower.
"Statutory Reserves" shall mean a fraction (expressed as a decimal), the
------------------
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves), expressed as a decimal
established by the Board and any other banking authority to which the
Administrative Agent is subject for new negotiable nonpersonal time deposits in
dollars of over $100,000 with maturities approximately equal to three months, in
the case of the Base CD Rate (as such term is used in the definition of
"Alternate Base Rate"). Statutory Reserves shall be adjusted automatically on
and as of the effective date of any change in any reserve percentage.
"subsidiary" shall mean, with respect to any person (herein referred to
----------
as the "parent"), any corporation, partnership, association or other business
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or more
than 50% of the general
<PAGE>
11
partnership interests are, at the time any determination is being made, owned,
controlled or held, or (b) which is, at the time any determination is made,
otherwise controlled, by the parent or one or more subsidiaries of the parent or
by the parent and one or more subsidiaries of the parent.
"Subsidiary" shall mean any subsidiary of the Borrower.
----------
"Termination Event" shall mean (i) a "reportable event," as such term is
-----------------
described in Section 4043 of ERISA, (ii) the withdrawal of the Borrower or any
ERISA Affiliate from a Multiple Employer Plan during a plan year in which it
was a "substantial employer," as such term is defined in Section 4001(a)(2) of
ERISA, or the incurrence of liability by the Borrower or any ERISA Affiliate
under Section 4064 of ERISA upon the termination of a Multiple Employer Plan,
(iii) the filing of a notice of intent to terminate a Plan or the treatment of a
Plan amendment as a termination under Section 4041 of ERISA, (iv) the
institution of proceedings to terminate a Plan by the PBGC under Section 4042
of ERISA, (v) a failure to make a required installment or other payment
(within the meaning of Section 412(n)(1) of the Code) with respect to any Plan
or (vi) any other event or condition which might constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Plan.
"Term Loans" shall mean term loans made pursuant to Section 2.01. Each
----------
Term Loan shall be either a Eurodollar Term Loan or an ABR Term Loan.
"Total Commitment" shall mean at any time the aggregate amount of the
----------------
Lenders' Commitments, as in effect at such time.
"Transfer" shall have the meaning given such term in Section 6.02.
--------
"Type", when used in respect of any Term Loan or Borrowing, shall refer
----
to the Rate by reference to which interest on such Term Loan or on the Term
Loans comprising such Borrowing is determined. For purposes hereof, "Rate" shall
include the LIBO Rate and the Alternate Base Rate.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan as a
--------------------
result of a complete or partial
<PAGE>
12
withdrawal from such Multiemployer Plan, as such terms are defined in Part I of
Subtitle E of Title IV of ERISA.
SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall
----------------
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; provided,
--------
however, that, for purposes of determining compliance with any covenant set
- -------
forth in Section 5.04 or Article VI, such terms shall be construed in accordance
with GAAP as in effect on the date of this Agreement applied on a basis
consistent with the application used in preparing the Borrower's audited
financial statements referred to in paragraph (e) of Article III.
ARTICLE II. THE CREDITS
SECTION 2.01 Commitments. On the terms, subject to the conditions and
------------
relying upon the representations and warranties herein set forth, each Lender
agrees, severally and not jointly, to make one or more Term Loans which shall
be Eurodollar Term Loans to the Borrower on the Funding Date in an aggregate
principal amount equal to such Lender's Commitment as set forth opposite such
Lender's name on Schedule 2.01 and with an initial Interest Period of 6 months.
Amounts prepaid in respect of Term Loans may not be reborrowed.
SECTION 2.02. Term Loans. (a) Each Term Loan shall be made as part of
-----------
a Borrowing consisting of Term Loans made by the Lenders ratably in accordance
with their respective Commitments; provided, however, that the failure of any
-------- -------
Lender to make any Term Loan shall not in itself relieve any other Lender of its
obligation to lend hereunder (it being understood, however, that no Lender shall
be responsible for the failure of any other Lender to make any Term Loan
required to be made by such other Lender).
<PAGE>
13
(b) Each Lender shall make one or more Term Loans in an aggregate
principal amount equal to its Commitment hereunder on the Funding Date by wire
transfer of immediately available funds to the Administrative Agent in Houston,
Texas, not later than 11:00 a.m., Houston time, and the Administrative Agent
shall by 2:00 p.m., Houston time, credit the amounts so received to the general
deposit account of the Borrower with the Administrative Agent or, if a Borrowing
shall not occur on such date because any condition precedent herein specified
shall not have been met, return the amounts so received to the respective
Lenders. Unless the Administrative Agent shall have received notice from a
Lender prior to the Funding Date that such Lender will not make available to the
Administrative Agent such Lender's portion of the Borrowing, the Administrative
Agent may assume that such Lender has made such portion available to the
Administrative Agent on the date of such Borrowing in accordance with this
paragraph (b) and the Administrative Agent may, in reliance upon such
assumption, make available to the Borrower on such date a corresponding amount.
If and to the extent that such Lender shall not have made such portion available
to the Administrative Agent, such Lender and the Borrower severally agree to
repay to the Administrative Agent forthwith on demand such corresponding amount
together with interest thereon, for each day from the date such amount is made
available to the Borrower until the date such amount is repaid to the
Administrative Agent at (i) in the case of the Borrower, the interest rate that
would have been applicable at the time to such Term Loan or Loans and (ii) in
the case of such Lender, the Federal Funds Effective Rate. If such Lender shall
repay to the Administrative Agent such corresponding amount, such amount shall
constitute such Lender's Term Loan or Loans as part of such Borrowing for
purposes of this Agreement.
SECTION 2.03. Fees. The Borrower agrees to pay the Agent, for the
-----
Agent's own account, the fees set forth in the Engagement Letter dated November
3, 1994, among the Administrative Agent, Chemical Securities Inc. and the
Borrower, and in the Fee Letter dated November 3, 1994, among the Administrative
Agent and the Borrower, at the times and in the amounts set forth therein (the
"Agent Fees").
SECTION 2.04. Repayment of Term Loans. (a) The Borrower agrees to pay
------------------------
the outstanding principal balance of each Term Loan on the Maturity Date. Each
Term Loan shall
<PAGE>
14
bear interest from and including the Funding Date on the outstanding principal
balance thereof as set forth in Section 2.05.
(b) Each Lender shall, and is hereby authorized by the Borrower to,
maintain, in accordance with its usual practice, records evidencing the
indebtedness of the Borrower to such Lender hereunder from time to time,
including the amount and Type at any time of and the Interest Period at any time
applicable to the Term Loan or Loans made by such Lender and the amounts of
principal and interest paid to such Lender from time to time in respect of such
Term Loan or Loans.
(c) The entries made in the records maintained pursuant to paragraph
(b) of this Section 2.04 and in the Register maintained by the Administrative
Agent pursuant to Section 9.04(d) shall be prima facie evidence of the existence
and amounts of the obligations of the Borrower to which such entries relate;
provided, however, that the failure of any Lender or the Administrative Agent to
- -------- -------
maintain or to make any entry in such records or the Register, as applicable, or
any error therein shall not in any manner affect the obligation of the Borrower
to repay the Term Loans in accordance with the terms of this Agreement.
SECTION 2.05. Interest on Term Loans. (a) Subject to the provisions
-----------------------
of Section 2.06, each Term Loan of each Lender shall bear interest (computed on
the basis of the actual number of days elapsed over a year of 360 days) during
any Eurodollar Period at a rate per annum equal to the LIBO Rate for the
Interest Period in effect for such Borrowing plus the Interest Rate Margin
applicable to such Term Loan by such Lender.
(b) Subject to the provisions of Section 2.06, each Term Loan of each
Lender shall bear interest (computed on the basis of the actual number of days
elapsed over a year of 365 or 366 days, as appropriate, when determined by
reference to the Prime Rate and over a year of 360 days at all other times)
during any ABR Period at a rate per annum equal to the Alternate Base Rate.
(c) Interest on each Term Loan shall be payable in arrears on each
Interest Payment Date applicable to such Term Loan except as otherwise provided
in this Agreement. The applicable LIBO Rate or Alternate Base Rate for each
<PAGE>
15
Interest Period or day within an Interest Period, as the case may be, shall be
determined by the Administrative Agent, and such determination shall be
conclusive absent manifest error. The Administrative Agent shall promptly
advise the Borrower and each Lender, as appropriate, of such determination.
SECTION 2.06. Default Interest. If the Borrower shall default in the
-----------------
payment of the principal of or interest on any Term Loan or any other amount
becoming due hereunder, whether by scheduled maturity, notice of prepayment,
acceleration or otherwise, the Borrower shall on demand from time to time from
the Administrative Agent pay interest, to the extent permitted by law, on such
defaulted amount up to (but not including) the date of actual payment (after as
well as before judgment) at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 365 or 366 days, as appropriate,
when determined by reference to the Prime Rate and over a year of 360 days at
all other times) equal to the Alternate Base Rate plus 1%.
SECTION 2.07. Alternate Rate of Interest. In the event, and on each
---------------------------
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing the Administrative Agent shall have
determined (i) that dollar deposits in the principal amounts of the Eurodollar
Term loans comprising such Borrowing are not generally available in the London
interbank market, or (ii) that the rates at which such dollar deposits are being
offered will not adequately and fairly reflect the cost to any Lender of making
or maintaining its Eurodollar Term Loan or Loans during such Interest Period, or
(iii) that reasonable means do not exist for ascertaining the LIBO Rate, the
Administrative Agent shall, as soon as practicable thereafter, give written or
telecopy notice of such determination to the Borrower and the Lenders. In the
event of any such determination, until the Administrative Agent shall have
advised the Borrower and the Lenders that the circumstances giving rise to such
notice no longer exist, any request by the Borrower pursuant to Section 2.08 to
convert the Term Loans into Eurodollar Term Loans or to continue the Term Loans
as Eurodollar Term Loans shall be deemed to be a request for ABR Term Loans (x)
as to all Lenders, in the event the circumstances referred to in (i) or (iii)
above are applicable, or (y) as to each affected Lender, in the event only the
circumstances referred to in (ii) above are applicable. In the event the
circumstances referred to in (ii) above are applicable, all payments and
<PAGE>
16
prepayments of principal which would otherwise have been made on account of the
Eurodollar Term Loan or Loans of the affected Lender shall instead be applied to
repay the ABR Term Loan or Loans made by such Lender in lieu of such Eurodollar
Term Loan or Loans. Each determination by the Administrative Agent hereunder
shall be conclusive absent demonstrable error.
SECTION 2.08. Conversion and Continuation of Borrowings. The Borrower
------------------------------------------
shall have the right at any time (subject to Section 2.07) upon prior
irrevocable notice to the Agent (i) not later than 11:00 a.m., Houston time, one
Business Day prior to conversion, to convert the Term Loans, in whole but not in
part, into ABR Term Loans, (ii) not later than 11:00 a.m., Houston time, three
Business Days prior to conversion or continuation, to convert the Term Loans, in
whole but not in part, into Eurodollar Term Loans or to continue the Term Loans,
in whole but not in part, as Eurodollar Term Loans for an additional Interest
Period and (iii) not later than 11:00 a.m., Houston time, three Business Days
prior to conversion, to convert the Interest Period with respect to the Term
Loans, in whole but not in part, to another permissible Interest Period, subject
in each case to the following:
(a) accrued interest on the Term Loans shall be paid by the
Borrower at the time of any conversion;
(b) if any Eurodollar Borrowing is converted at a time other
than the end of the Interest Period applicable thereto, the Borrower
shall pay, upon demand, any amounts due to the Lenders pursuant to
Section 2.12;
(c) the Term Loans may not be converted into or continued as
Eurodollar Term Loans if the Interest Period with respect thereto would
extend beyond the Maturity Date; and
(d) if the Term Loans cannot be converted into or continued as
Eurodollar Term Loans by reason of subparagraph (c) above they shall be
automatically converted at the end of the Interest Period in effect into
ABR Term Loans.
Each notice pursuant to this Section 2.08 shall be irrevocable and shall
refer to this Agreement and specify (i) whether the Term Loans are to be
converted to or
<PAGE>
17
continued as Eurodollar Term Loans or ABR Term Loans, (ii) if such notice
requests a conversion, the date of such conversion (which shall be a Business
Day) and (iii) if the Term Loans are to be converted to or continued as
Eurodollar Term Loans, the Interest Period with respect thereto. If no Interest
Period is specified in any such notice with respect to any conversion to or
continuation as Eurodollar Term Loans, the Borrower shall be deemed to have
selected an Interest Period of three months' duration. The Agent shall advise
the other Lenders of any notice given pursuant to this Section 2.08. If the
Borrower shall not have given notice in accordance with this Section 2.08 to
continue the Term Loans into a subsequent Interest Period (and shall not
otherwise have given notice in accordance with this Section 2.08 to convert the
Term Loans), the Term Loans shall, at the end of the Interest Period applicable
thereto (unless repaid pursuant to the terms hereof), automatically be
continued into a new Interest Period as ABR Term Loans.
SECTION 2.09. Prepayment. (a) The Borrower shall have the right at
-----------
any time and from time to time to prepay any Borrowing, in whole or in part,
upon giving written or telecopy notice (or telephone notice promptly confirmed
by written or telecopy notice) to the Administrative Agent: (i) before 11:00
a.m., Houston time, three Business Days prior to prepayment, in the case of a
Eurodollar Borrowing, and (ii) before 11:00 a.m., Houston time, one Business Day
prior to prepayment, in the case of an ABR Borrowing; provided, however, that
-------- -------
each partial prepayment shall be in an amount which is an integral multiple of
$1,000,000 and not less than $10,000,000.
(b) Each notice of prepayment shall specify the prepayment date and the
principal amount of the Borrowing to be prepaid, shall be irrevocable and shall
commit the Borrower to prepay such Borrowing by the amount stated therein on the
date stated therein. All prepayments under this Section 2.09 shall be subject
to Section 2.12 but otherwise without premium or penalty. All prepayments under
this Section 2.09 shall be accompanied by accrued interest on the principal
amount being prepaid to the date of payment.
SECTION 2.10. Reserve Requirements; Change in Circumstances.
----------------------------------------------
(a) Notwithstanding any other provision herein, if after the date of
this Agreement any change in applicable law or regulation or in the
interpretation or administration thereof by any Governmental Authority charged
<PAGE>
18
with the interpretation or administration thereof (whether or not having the
force of law) shall change the basis of taxation of payments to any Lender of
the principal of or interest on any Eurodollar Term Loan or Loans made by such
Lender or other amounts payable hereunder (other than changes in respect of
taxes imposed on the overall net income of such Lender by the jurisdiction in
which such Lender has its principal office or by any political subdivision or
taxing authority therein), or shall impose, modify or deem applicable any
reserve, special deposit or similar requirement against assets of, deposits with
or for the account of or credit extended by such lender, or shall impose on such
Lender or the London interbank market any other condition affecting this
Agreement or any Eurodollar Term Loan or Loans made by such Lender, and the
result of any of the foregoing shall be to increase the cost to such Lender of
making or maintaining any Eurodollar Term Loan or Loans or to reduce the amount
of any sum received or receivable by such Lender hereunder (whether of
principal, interest or otherwise) by an amount deemed by such Lender to be
material, then the Borrower will pay to such Lender upon demand such additional
amount or amounts as will compensate such Lender for such additional costs
incurred or reduction suffered. Notwithstanding the foregoing, no Lender shall
be entitled to request compensation under this paragraph with respect to its
Term Loan if such Lender shall have been aware of the change giving rise to such
request at the time it initially submitted its Commitment to make such Term Loan
or Loans pursuant to this Agreement to the Borrower.
(b) If any Lender shall have determined that the applicability of any
law, rule, regulation or guideline adopted pursuant to or arising out of the
July 1988 report of the Basle Committee on Banking Regulations and Supervisory
Practices entitled "International Convergence of Capital Measurement and Capital
Standards", or the adoption after the date hereof of any other law, rule,
regulation or guideline regarding capital adequacy, or any change in any of the
foregoing or in the interpretation or administration of any of the foregoing by
any Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or any
lending office of such Lender) or any Lender's holding company with any request
or directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Lender's capital or on the capital
of such
<PAGE>
19
Lender's holding company, if any, as a consequence of this Agreement or the Term
Loan or Loans made by such Lender pursuant hereto to a level below that which
such Lender or such Lender's holding company could have achieved but for such
applicability, adoption, change or compliance (taking into consideration such
Lender's policies and the policies of such Lender's holding company with respect
to capital adequacy) by an amount deemed by such Lender to be material, then
from time to time the Borrower shall pay to such Lender such additional amount
or amounts as will compensate such Lender or such Lender's holding company for
any such reduction suffered.
(c) A certificate of a Lender setting forth such amount or amounts as
shall be necessary to compensate such Lender as specified in paragraph (a) or
(b) above, as the case may be, shall be delivered to the Borrower and shall be
conclusive absent demonstrable error. The Borrower shall pay each Lender the
amount shown as due on any such certificate delivered by it within 10 days after
the receipt of the same.
(d) Except as provided in this paragraph, failure on the part of any
Lender to demand compensation for any increased costs or reduction in amounts
received or receivable or reduction in return on capital with respect to any
period shall not constitute a waiver of such Lender's right to demand
compensation with respect to such period or any other period. The protection of
this Section shall be available to each Lender regardless of any possible
contention of the invalidity or inapplicability of the law, rule, regulation,
guideline or other change or condition which shall have occurred or been
imposed. No Lender shall be entitled to compensation under this Section 2.10 for
any costs incurred or reductions suffered with respect to any date unless it
shall have notified the Borrower that it will demand compensation for such costs
or reductions under paragraph (c) above not more than 60 days after the later of
(i) such date and (ii) the date on which it shall have become aware of such
costs or reductions.
SECTION 2.11. Change in Legality. (a) Notwithstanding any other
-------------------
provision herein, if any change in any law or regulation or in the
interpretation thereof by any Governmental Authority charged with the
administration or interpretation thereof shall make it unlawful for any Lender
to make or maintain any Eurodollar Term Loan or Loans or to give effect to its
obligations as contemplated hereby with
<PAGE>
20
respect to any Eurodollar Term Loan or Loans, then, by written notice to the
Borrower and to the Administrative Agent, such Lender may:
(i) declare that Eurodollar Term Loans will not thereafter be
made by such Lender hereunder, whereupon any request by the Borrower for
a Eurodollar Borrowing shall, as to such Lender only, be deemed a
request for an ABR Borrowing unless such declaration shall be
subsequently withdrawn (and such Lender agrees to withdraw any such
declaration if legally permissible); and
(ii) require that all outstanding Eurodollar Term Loans made by
it be converted to ABR Term Loans, as of the effective date of such
notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal which would otherwise have been applied to
repay the Eurodollar Term Loan or Loans that would have been made by such Lender
or the converted Eurodollar Term Loan or Loans of such Lender shall instead be
applied to repay the ABR Term Loan or Loans made by such Lender in lieu of, or
resulting from the conversion of, such Eurodollar Term Loan or Loans.
(b) For purposes of this Section 2.11, a notice to the Borrower by any
Lender shall be effective as to such Lender's Eurodollar Term Loan or Loans, if
lawful, on the last day of the Interest Period currently applicable to such
Eurodollar Term Loan or Loans; in all other cases such notice shall be effective
on the date of receipt by the Borrower.
SECTION 2.12. Indemnity. The Borrower shall indemnify each Lender
----------
against any actual loss or expense which such Lender may sustain or incur as a
consequence of (a) any failure by the Borrower to fulfill on the Funding Date
hereunder the applicable conditions set forth in Article IV, (b) any failure by
the Borrower to borrow on the Funding Date or to convert or continue any Term
Loan hereunder after irrevocable notice of such conversion or continuation has
been given pursuant to Section 2.08, (c) any payment, prepayment or conversion
of a Eurodollar Term Loan required by any other provision of this Agreement or
otherwise made or deemed made, and any assignment of a
<PAGE>
21
Term Loan pursuant to Section 2.17, on a date other than the last day of the
Interest Period applicable thereto, (d) any default in payment or prepayment of
the principal amount of any Term Loan or any part thereof or interest accrued
thereon, as and when due and payable (at the due date thereof, whether by
scheduled maturity, acceleration, irrevocable notice of prepayment or otherwise)
or (e) the occurrence of any Event of Default, including, in each such case, any
actual loss or reasonable expense sustained or incurred or to be sustained or
incurred in liquidating or employing deposits from third parties acquired to
effect or maintain such Term Loan or any part thereof as a Eurodollar Term Loan.
Such loss or reasonable expense shall include an amount equal to the excess, if
any, as reasonably determined by such Lender, of (i) its cost of obtaining the
funds for the Term Loan being paid, prepaid, converted, not borrowed, not
refinanced, not converted, not continued or assigned (assumed to be the LIBO
Rate) for the period from the date of such payment, prepayment, failure to
borrow, failure to convert, failure to continue or assignment to the last day of
the Interest Period for such Term Loan (or, in the case of a failure to borrow,
convert or continue, the Interest Period for such Term Loan which would have
commenced on the date of such failure) over (ii) the amount of interest (as
reasonably determined by such Lender) that would be realized by such Lender in
reemploying the funds so paid, prepaid, not borrowed, not refinanced, not
converted, not continued or assigned for such period or Interest Period, as the
case may be. A certificate of any Lender setting forth any amount or amounts
which such Lender is entitled to receive pursuant to this Section shall be
delivered to the Borrower and shall be conclusive absent demonstrable error.
SECTION 2.13. Pro Rata Treatment. Except as required under Section
-------------------
2.11, (a) each Borrowing and each payment or prepayment of principal of any
Borrowing shall be allocated pro rata among the Lenders in accordance with their
respective Commitments (or, if such Commitments shall have expired or been
terminated, in accordance with the respective principal amounts of their
outstanding Term Loans), and (b) each payment of interest on the Term Loans
shall be allocated pro-rata among the Lenders in accordance with the respective
amounts of interest accrued on their Term Loans and not yet paid.
SECTION 2.14. Sharing of Setoffs. Each Lender agrees that if it shall,
-------------------
through the exercise of a right of banker's lien, setoff or counterclaim against
the Borrower,
<PAGE>
22
or pursuant to a secured claim under Section 506 of Title 11 of the United
States Code or other security or interest arising from, or in lieu of, such
secured claim, received by such Lender under any applicable bankruptcy,
insolvency or other similar law or otherwise, or by any other means, obtain
payment (voluntary or involuntary) from the Borrower or its assets in respect of
its Term Loan or Loans as a result of which the unpaid principal portion of its
Term Loan or Loans shall be proportionately less than the unpaid principal
portion of the Term Loans of any other Lender, it shall be deemed simultaneously
to have purchased from such other Lender at face value, and shall promptly pay
to such other Lender the purchase price for, a participation in the Term Loan or
Loans of such other Lender, so that the aggregate unpaid principal amount of the
Term Loan or Loans and participations in the Term Loan or Loans held by each
Lender shall be in the same proportion to the aggregate unpaid principal
amount of all Term Loans then outstanding at the principal amount of its Term
Loan or Loans prior to such exercise of banker's lien, setoff or counterclaim
or other event was to the principal amount of all Term Loans outstanding prior
to such exercise of banker's lien, setoff or counterclaim or other event;
provided, however, that, if any such purchase or purchases or adjustments shall
- -------- -------
be made pursuant to this Section 2.14 and the payment giving rise thereto shall
thereafter be recovered, such purchase or purchases or adjustments shall be
rescinded to the extent of such recovery and the purchase price or prices or
adjustment restored without interest. The Borrower expressly consents to the
foregoing arrangements and agrees that any Lender holding a participation in any
Term Loan or Loans deemed to have been so purchased may exercise any and all
rights of banker's lien, setoff or counterclaim with respect to any and all
moneys owing by the Borrower to such Lender by reason thereof as fully as if
such Lender had made a Term Loan or Loans directly to the Borrower in the amount
of such participation.
SECTION 2.15. Payments. (a) The Borrower shall make each payment
---------
(including principal of or interest on any Borrowing or any Fees or other
amounts) hereunder and under each other Loan Document not later than 11:00 a.m.,
Houston time, on the date when due in dollars to the Administrative Agent at its
offices at 712 Main Street, Houston, Texas, in immediately available funds.
(b) Whenever any payment (including principal of or interest on any
Borrowing or any Fees or other amounts)
<PAGE>
23
hereunder or under any other Loan Document shall become due, or otherwise would
occur, on a day that is not a Business Day, such payment may be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of interest or Fees, if applicable.
SECTION 2.16. Taxes. (a) Any and all payments by the Borrower hereunder
------
shall be made, in accordance with Section 2.15, free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding
---------
taxes, levies, imposts, deductions, charges and withholdings imposed on the
Administrative Agent's or any Lender's (or any transferee's or assignee's,
including a participation holder's (any such entity a "Transferee")) net income
and franchise, capital or license taxes imposed on the Administrative Agent or
any Lender (or Transferee) by the United States or any jurisdiction under the
laws of which it is organized, domiciled, resident or doing business (other than
doing business as a result of its participation in the transactions contemplated
by the Loan Documents) or any political subdivision thereof (all such
nonexcluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to the Lenders (or any Transferee) or the Administrative Agent, (i)
the sum payable shall be increased by the amount necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 2.16) such Lender (or Transferee) or the
Administrative Agent (as the case may be) shall receive an amount equal to the
sum it would have received had no such deductions been made, (ii) the Borrower
(or the Administrative Agent, as applicable) shall make such deductions at the
applicable rate and (iii) the Borrower (or the Administrative Agent, as
applicable) shall pay the full amount deducted to the relevant taxing authority
or other Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to,
<PAGE>
24
this Agreement or any other Loan Document (hereinafter referred to as "Other
Taxes").
(c) The Borrower will indemnify each Lender (or Transferee) and the
Administrative Agent for the full amount of Taxes and Other Taxes (including any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 2.16) paid by such Lender (or Transferee) or the Administrative Agent,
as the case may be, and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted by the relevant taxing
authority or other Governmental Authority. Such indemnification shall be made
within 30 days after the date any Lender (or Transferee) or the Administrative
Agent, as the case may be, makes written demand therefor; provided, however,
-------- -------
that the Borrower shall not have any obligation to indemnify the Administrative
Agent or any Lender (or Transferee) for interest and penalties that are imposed
on the Administrative Agent or such Lender (or Transferee) with respect to the
period after the expiration of the Notice Period with respect to any Tax if such
Administrative Agent or such Lender fails to give written notice to the Borrower
within 45 days of its receipt of any written assertion by the relevant taxing
authority or other Governmental Authority that such Tax is due with respect to
the transactions contemplated by the Loan Documents (such 45 day period being
the "Notice Period" referred to above). If a Lender (or Transferee) or the
Administrative Agent shall become aware that it is entitled to receive a refund
(or a credit against taxes not indemnifiable hereunder) in respect of Taxes or
Other Taxes, it shall promptly notify the Borrower of the availability of such
refund (or credit) and shall, within 30 days after receipt of a request by the
Borrower, apply for such refund at the Borrower's expense. If any Lender (or
Transferee) or the Administrative Agent receives a refund (or a credit against
taxes not indemnifiable hereunder) in respect of any Taxes or Other Taxes for
which such Lender (or Transferee) or the Administrative Agent has received
payment from the Borrower hereunder it shall promptly notify the Borrower of
such refund (or credit) and shall, within 30 days after receipt or a request by
the Borrower (or promptly upon receipt, if the Borrower has requested
application for such refund (or credit) pursuant thereto), repay such refund (or
credit) to the Borrower, net of all out-of-pocket expenses (including taxes not
indemnifiable hereunder, to the extent that no deduction or credit has
previously been claimed and utilized
<PAGE>
25
in connection therewith by such Lender) of such Lender but including interest
received from a taxing authority or other Governmental Authority and fairly
attributable to such refund; provided that the Borrower, upon the request of
--------
such Lender (or Transferee) or the Administrative Agent, agrees to return such
refund (plus penalties, interest or other charges) to such Lender (or
Transferee) or the Administrative Agent in the event such Lender (or Transferee)
or the Administrative Agent is required to repay such refund. Each of the
Administrative Agent, each Lender and each Transferee, with respect to itself,
agrees to indemnify and hold harmless the Borrower (and, in the case of each
Lender and each Transferee, to indemnify and hold harmless the Administrative
Agent) from any taxes, penalties, interest and other expenses, costs and losses
incurred or payable by the Borrower (or the Administrative Agent, as applicable)
as a result of the failure of the Borrower to comply with clauses (ii) and (iii)
of Section 2.16(a) in reliance on any form or certificate provided to it by such
person pursuant to Section 2.16(f).
(d) Within 30 days after the date of any payment of Taxes or Other
Taxes withheld by the Borrower in respect of any payment to any Lender (or
Transferee) or the Administrative Agent, the Borrower will furnish to the
Administrative Agent, at its address referred to in Section 9.01, the original
of a certified copy of a receipt evidencing payment thereof or other customary
evidence of such payment.
(e) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 2.16 shall
survive the payment in full of the principal of and interest on all Term Loans
made hereunder.
(f) On or prior to the Closing Date (in the case of any Lender and the
Administrative Agent) and on or prior to the date any Transferee becomes a
Transferee hereunder (in the case of any Transferee), and, upon written request
of the Borrower or the Administrative Agent, on or prior to the immediately
following due date of any payment by the Borrower hereunder, each Lender (or
Transferee) which is organized outside the United States shall deliver to the
Borrower such certificates, documents or other evidence, as required by the Code
or Treasury Regulations issued pursuant thereto, including Internal Revenue
Service Form 1001 or Form 4224 and any other certificate or statement of
<PAGE>
26
exemption required by Treasury Regulation Section 1.1441-1(a) or Section
1.1441-6(c) or any subsequent version thereof, properly completed and duly
executed by such Lender (or Transferee) establishing that such payment is (i)
not subject to withholding under the Code because such payment is effectively
connected with the conduct by such Lender (or Transferee) of a trade or business
in the United States or (ii) totally exempt from United States tax under a
provision of an applicable tax treaty. Unless the Borrower and the
Administrative Agent have received forms or other documents satisfactory to them
indicating that payments hereunder and in respect of the Term Loans are not
subject to United States withholding tax the Borrower or the Administrative
Agent shall withhold taxes from such payments at the applicable statutory rate
in the case of payments to or for any Lender (or Transferee) organized under the
laws of a jurisdiction outside the United States.
(g) The Borrower shall not be required to pay any additional amounts to
any Lender (or Transferee) in respect of United States withholding tax pursuant
to paragraph (a) above except to the extent such United States withholding tax
(a) results from (i) a change in applicable law, regulation or official
interpretation thereof or (ii) an amendment, modification or revocation of any
applicable tax treaty or a change in official position regarding the application
or interpretation thereof, in each case after the Closing Date (and, in the case
of a Transferee, after the date of assignment or transfer) or (b) in the case of
a Transferee, is imposed at a rate that does not exceed the rate (determined at
the time of transfer or assignment) of United States withholding tax with
respect to which the Borrower was required to pay to such Transferee's
transferor or assignor.
SECTION 2.17. Assignment or Prepayment of Term Loans Under Certain
----------------------------------------------------
Circumstances. (a) Any Lender (or Transferee) claiming any additional amounts
- --------------
payable pursuant to Section 2.10 or Section 2.16 shall use reasonable efforts
(consistent with legal and regulatory restrictions) to file any certificate or
document requested by the Borrower or to change the jurisdiction of its
applicable lending office if the making of such a filing or change would avoid
the need for or reduce the amount of any such additional amounts which may
thereafter accrue and would not, in the sole determination of such Lender, be
otherwise disadvantageous to such Lender (or Transferee).
<PAGE>
27
(b) In the event that any Lender shall have delivered a notice or
certificate pursuant to Section 2.10 or 2.11, or the Borrower shall be required
to make additional payments to any Lender under Section 2.16, the Borrower shall
have the right, at its own expense, upon notice to such Lender and the
Administrative Agent, (a) to prepay the Term Loan or Loans of such Lender or (b)
to require such Lender to transfer and assign without recourse (in accordance
with and subject to the restrictions contained in Section 9.04) all its
interests, rights and obligations under this Agreement to another financial
institution acceptable to the Administrative Agent which shall assume such
obligations; provided that (i) no such prepayment or assignment shall conflict
--------
with any law, rule or regulation or order of any Governmental Authority and (ii)
the Borrower or the assignee, as the case may be, shall pay to the affected
Lender in immediately available funds on the date of such prepayment or
assignment the principal of and interest accrued to the date of payment on the
Term Loan or Loans made by it hereunder and all other amounts accrued for its
account or owed to it hereunder.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to each of the Lenders that:
(a) The Borrower is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware.
The Borrower possesses all corporate powers and all other authorizations
and licenses necessary to engage in its business and operations as now
conducted, the failure to obtain or maintain which would result in a
Material Adverse Effect.
(b) The execution, delivery and performance by the Borrower of
this Agreement are within the Borrower's corporate powers, have been
duly authorized by all necessary corporate action, and do not contravene
(i) the Borrower's certificate of incorporation or by-laws of (ii) any
law or contractual restriction binding on or affecting the Borrower.
(c) There is no authorization or approval or other action by,
and no notice to or filing with, any Governmental Authority (including,
without limitation,
<PAGE>
28
the ICC) required for the due execution, delivery and performance by the
Borrower of this Agreement which has not been obtained or made, as the case may
be.
(d) This Agreement is the legal, valid and binding obligation of the
Borrower enforceable against the Borrower in accordance with its terms except as
enforceability may be limited by applicable bankruptcy, insolvency, moratorium
or other similar laws affecting the enforcement of creditors' rights generally
or by the applicability of equitable principles.
(e) The consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at December 31, 1993, and as at June 30, 1994, and the related
consolidated statements of income and cash flows for the fiscal year then ended,
copies of which have been furnished to each Lender, fairly present the
consolidated financial condition of the Borrower and such Subsidiaries as at
such date and the results of their operations for the period ended on such date,
all in accordance with GAAP consistently applied, and since December 31, 1993,
there has been no material adverse change in such condition or operations.
(f) There is no pending or threatened action or proceeding against or
involving the Borrower before any Governmental Authority or arbitrator which has
a reasonable probability (taking into account the exhaustion of all appeals) of
resulting in a Material Adverse Effect.
(g) The Borrower has duly paid and discharged all taxes, assessments
and governmental charges upon it or against its properties now due and payable,
the failure to pay which would result in a Material Adverse Effect unless and to
the extent only that the same are being contested in good faith and by
appropriate proceedings by the Borrower.
(h) The Borrower has good title to its properties and assets except for
(i) existing or future liens, security interests, mortgages, conditional sales
arrangements and other encumbrances (including, without limitation, reversionary
title interests) either securing Debt or other liabilities of the Borrower or
any of its Subsidiaries or which the Borrower in its reasonable business
judgment determines would not be
<PAGE>
29
reasonably expected to materially interfere with the railroad business or
railroad operations of the Borrower and its Subsidiaries as conducted from time
to time and (ii) irregularities therein which do not materially interfere with
the business or operations of the Borrower and its Subsidiaries as conducted
from time to time.
(i) No Termination Event has occurred or is reasonably expected to
occur with respect to any Plan which, with the giving of notice or lapse of
time, or both, would constitute an Event of Default under paragraph (g) of
Article VII.
(j) The statement of assets and liabilities of each Plan covered by the
report of Coopers & Lybrand referred to below as of December 31, 1993, and the
statements of changes in fund balance and in financial position, or the
statement of changes in net assets available for plan benefits, for the plan
year then ended, reported on by Coopers & Lybrand, copies of which have been
furnished to the Administrative Agent, fairly present the financial condition of
such Plan as at such date and the results of operations of such Plan for the
plan year ended on such date.
(k) Neither the Borrower nor any ERISA Affiliate has incurred, or is
reasonably expected to incur, any Withdrawal Liability to any Multiemployer Plan
which, when aggregated with all other amounts required to be paid to
Multiemployer Plans in connection with Withdrawal Liability (as of the date of
determination), exceeds $50,000,000.
(l) Neither the Borrower nor any ERISA Affiliate has received any
notification that any Multiemployer Plan is in reorganization or has been
terminated, within the meaning of Title IV of ERISA, and no Multiemployer Plan
is reasonably expected to be in reorganization or to be terminated within the
meaning of Title IV of ERISA, the effect of which reorganization or termination
would be the occurrence of an Event of Default under paragraph (i) of
Article VII.
(m) Neither the Borrower nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of extending
<PAGE>
30
credit for the purpose of purchasing or carrying Margin Stock. No part of
the proceeds of any Term Loan will be used, whether directly or indirectly,
and whether immediately, incidentally or ultimately, for any purpose which
entails a violation of, or which is inconsistent with, the provisions of
the Regulations of the Board, including Regulation G, U or X.
(n) Neither the Borrower nor any Subsidiary is (i) an "investment
company" as defined in, or subject to regulation under, the Investment
Company Act of 1940 or (ii) a "holding company" as defined in, or subject
to regulation under, the Public Utility Holding Company Act of 1935.
(o) The Borrower will use the proceeds of the Term Loans only for the
purpose specified in the preamble to this Agreement.
(p) Neither the Borrower nor any of its Subsidiaries is, to the best of
its knowledge, in violation of any law or statute, or in default with
respect to any judgment, writ, injunction, decree, rule or regulation of
any court or governmental agency or instrumentality, where such violation
or default would result in a Material Adverse Effect.
(q) On the Closing Date, there has been no material adverse change in
or affecting the business, assets, liabilities or operations of the
Borrower or in the condition (financial or otherwise) or prospects of the
Borrower from those shown in the information furnished to the Lenders prior
to the date hereof.
(r) To the best knowledge of the Borrower, on the Closing Date all
insurable properties of the Borrower and each Subsidiary are adequately
insured as part of an insurance program including risk retention and self
insurance by financially sound and reputable insurers to such extent and
against such risks and liabilities (including liability under Federal,
state, local and other statutes and regulations relating to the environment
or to employee health and safety) as is customary with companies similarly
situated and in the same or similar businesses.
<PAGE>
31
ARTICLE IV. CONDITIONS OF LENDING
The obligations of the Lenders to make term Loans hereunder are subject
to the satisfaction of the following conditions:
(a) The Agent shall have received the favorable written opinion of
Francis T. Kelly, Esq., counsel for the Borrower, dated the date hereof and
addressed to the Agent and the Lenders, to the effect set forth in Exhibit
C hereto, and the Borrower hereby instructs such counsel to deliver such
opinion to the Agent.
(b) The Agent shall have received a favorable written opinion of Douglas
J. Babb, Vice President and General Counsel of the borrower, as to certain
ICC regulatory matters, dated the date hereof and addressed to the Agent
and the Lenders, to the effect set forth in Exhibit D hereto, and the
Borrower hereby instructs such counsel to deliver such opinion to the
Agent.
(c) All legal matters incident to this Agreement and the borrowings
hereunder shall be satisfactory to the Lenders and their counsel and to
Cravath, Swaine & Moore, counsel for the Agent.
(d) The Agent shall have received (i) a copy of the certificate or
articles of incorporation, including all amendments thereto, of the
Borrower, certified as of a date shortly before the date hereof by the
Secretary of State of the state of its organization, and a certificate as
to the good standing of the Borrower as of a date shortly before the date
hereof, from such Secretary of State; (ii) a certificate of the Secretary
or Assistant Secretary of the Borrower dated the date hereof and certifying
(A) that attached thereto is a true and complete copy of the by-laws of the
Borrower as in effect on the date hereof and at all times since a date
prior to the date of the resolutions described in clause (B) below, (B)
that attached thereto is a true and complete copy of resolutions duly
adopted by the Board of Directors of the Borrower authorizing the
execution, delivery and performance of the Loan Documents and the
borrowings hereunder, and that such resolutions have not been modified,
rescinded or amended and are in full force and effect, (C) that the
certificate or articles of incorporation of the Borrower have not been
amended since the date of the
<PAGE>
32
last amendment thereto shown on the certificate of good standing furnished
pursuant to clause (i) above, and (D) as to the incumbency and specimen
signature of each officer executing any Loan Document or any other document
delivered in connection herewith on behalf of the Borrower; (iii) a
certificate of another officer as to the incumbency and specimen signature
of the Secretary or Assistant Secretary executing the certificate pursuant
to (ii) above; and (iv) such other documents as the Lenders or their
counsel or Cravath, Swaine & Moore, counsel for the Agent, may reasonably
request.
(e) The Agent shall have received a certificate, dated the date hereof
and signed by the treasurer or the chief financial officer of the Borrower,
confirming compliance with the conditions precedent set forth in paragraphs
(f) and (g) of this Article IV.
(f) The representations and warranties set forth in Article III hereof
shall be true and correct in all material respects on and as of the Funding
Date, except to the extent such representations and warranties expressly
relate to an earlier date.
(g) The Borrower shall be in compliance with all the terms and
provisions set forth herein and in each other Loan Document on its part to
be observed or performed, and at the time of and immediately after such
Borrowing no Event of Default or Default shall have occurred and be
continuing.
ARTICLE V. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees with each Lender and the Agent that,
so long as this Agreement shall remain in effect or the principal of or interest
on any Term Loan, any Fees or any other expenses or amounts payable under any
Loan Document shall be unpaid, unless the Required Lenders shall otherwise
consent in writing, the Borrower will:
SECTION 5.01. Existence; Businesses and Properties. (a) Preserve and
-------------------------------------
maintain its corporate existence, rights (charter and statute) and material
franchises, except as otherwise permitted by Sections 6.03 and 6.04.
<PAGE>
33
(b) Comply in all material respects with all applicable laws, rules,
regulations and orders (including, without limitation, laws requiring payment of
all taxes, assessments and governmental charges imposed upon it or upon its
property except to the extent contested in good faith by appropriate
proceedings) except where the failure to so comply would not have a Material
Adverse Effect.
(c) Maintain and preserve all of its properties which are used in the
conduct of its business in good working order and condition, ordinary wear and
tear excepted, to the extent that any failure to do so would have a Material
Adverse Effect and except for dispositions thereof permitted by Section 6.02;
SECTION 5.02. Insurance. Maintain insurance with responsible and
----------
reputable insurance companies or associations in such amounts and covering such
risks as is usually carried by companies engaged in similar businesses and
owning similar properties as the Borrower.
SECTION 5.03. Reporting Requirements. Furnish to the Agent and each
-----------------------
Lender:
(a) within 60 days after the close of each of the first three quarters
of each of the Borrower's fiscal years, a copy of the quarterly report on
Form 10-Q containing the consolidated statement of income of the Borrower
and its consolidated Subsidiaries for the period from the beginning of such
fiscal year to the end of such quarter and the related consolidated balance
sheet of the Borrower and its consolidated Subsidiaries as at the end of
such period, each certified by the chief financial officer of the Borrower
and accompanied by a certificate of such officer stating (i) that such
statement of income and such balance sheet has been prepared in accordance
with GAAP, (ii) whether or not he or she has knowledge of the occurrence of
any Event of Default or Default which is continuing hereunder and, if so,
stating in reasonable detail the facts with respect thereto and (iii) all
relevant facts in reasonable detail to evidence, and the computations as
to, whether or not the Borrower is in compliance with the requirements set
forth in Sections 5.04, 6.01 and 6.02;
(b) within 120 days after the close of each of the Borrower's fiscal
years, a copy of the annual report on
<PAGE>
34
Form 10-K of the Borrower and its consolidated Subsidiaries, including the
opinion of independent certified public accountants of internationally
recognized standing, together with financial statements consisting of the
consolidated balance sheet of the Borrower and its consolidated Subsidiaries as
at the end of such year and the related consolidated statements of income,
retained earnings and cash flows of the Borrower and its consolidated
Subsidiaries for the year then ended and accompanied by an opinion signed by
said accountants stating that (i) such financial statements have been prepared
in accordance with GAAP and (ii) in making the investigations necessary for said
opinion they obtained no knowledge, except as specifically stated, of any Event
of Default or default which is continuing hereunder;
(c) within 120 days after the close of each of the Borrower's fiscal
years, a certificate of the chief financial officer of the Borrower stating
(i) whether or not he or she has knowledge of the occurrence of any Event
of Default or Default which is continuing hereunder and, if so, stating in
reasonable detail the facts with respect thereto, and (ii) all relevant
facts in reasonable detail to evidence, and the computations as to, whether
or not the Borrower is in compliance with the requirements set forth in
Sections 5.04, 6.01 and 6.02;
(d) promptly upon their becoming available, all reports on Form 10-K,
10-Q or 8-K, or any successor form, and all proxy statements that the
Borrower or the Parent shall file with the Securities and Exchange
Commission or any national securities exchange;
(e) promptly in writing, notice of all litigation and of all
proceedings before any governmental or regulatory agencies affecting the
Borrower or any Subsidiary, except any litigation or proceeding which is
not likely to have any Material Adverse Effect;
(f) within three Business Days after a Responsible Officer of the
Borrower obtains knowledge of the occurrence of any Event of Default or
Default which is continuing, notice of such occurrence together with a
detailed statement by a Responsible Officer of the Borrower of the steps
being taken by the Borrower or
<PAGE>
35
the appropriate Subsidiary to cure the effect of such event;
(g) as soon as practicable and in any event (i) within 30 days after the
Borrower or any ERISA Affiliate knows or has reason to know that any
Termination Event described in clause (i) of the definition of Termination
Event with respect to any Plan has occurred and (ii) within 10 days after
the Borrower or any ERISA Affiliate knows or has reason to know that any
other Termination Event with respect to any Plan has occurred, a statement
of the treasurer or the chief financial officer of the Borrower describing
such Termination Event and the action, if any, which the Borrower or such
ERISA Affiliate proposes to take with respect thereto;
(h) promptly and in any event within two Business Days after receipt
thereof by the Borrower or any ERISA Affiliate, copies of each notice
received by the Borrower or any ERISA Affiliate from the PBGC stating its
intention to terminate any Plan or to have a trustee appointed to
administer any Plan;
(i) promptly and in any event within 30 days after the filing thereof
with the Internal Revenue Service copies of each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) with respect to each
Plan;
(j) promptly and in any event within five Business Days after receipt
thereof by the Borrower or any ERISA Affiliate from the sponsor of a
Multiemployer Plan, a copy of each notice received by the Borrower or any
ERISA Affiliate concerning (i) the imposition of Withdrawal Liability by a
Multiemployer Plan, (ii) the determination that a Multiemployer Plan is, or
is expected to be, in reorganization within the meaning of Title IV of
ERISA, (iii) the termination of a Multiemployer Plan within the meaning of
Title IV of ERISA, or (iv) the amount of liability incurred, or expected to
be incurred, by the Borrower or any ERISA Affiliate in connection with any
event described in clause (i), (ii) or (iii) above;
(k) within 10 days after the due date for filing with the PBGC pursuant
to Section 412(n) of the Code of a notice of failure to make a required
installment or
<PAGE>
36
other payment with respect to a Plan, a statement of the treasurer or the
chief financial officer setting forth details as to such failure and the
action proposed to be taken with respect thereto, together with a copy of
such notice given to the PBGC; and
(1) as soon as practicable but in any event within 60 days of any notice
of request therefor, such other information respecting the financial
condition and results of operations of the Borrower as the Agent, or a
Lender through the Agent, may from time to time reasonably request.
Each balance sheet and other financial statement furnished pursuant to
paragraphs (a) and (b) of this Section 5.03 shall contain comparative
information which conforms to the presentation required in Form 10-Q and 10-K,
as appropriate, under the Securities Exchange Act of 1934, as amended.
SECTION 5.04. Consolidated Tangible Net Worth. Maintain Consolidated
--------------------------------
Tangible Net Worth of not less than $1,700,000,000.
SECTION 5.05. Taxes. Pay and discharge promptly all material taxes,
------
assessments and governmental charges or levies, levied or assessed upon it or
upon its upon its income or profits or in respect of its property, before the
same shall become delinquent or in default; provided, however, that such payment
-------- -------
and discharge shall not be required with respect to any such tax, assessment,
charge or levy so long as the validity or amount thereof shall be contested in
good faith by appropriate proceedings.
ARTICLE VI. NEGATIVE COVENANTS
The Borrower covenants and agrees with each Lender and the Agent that,
so long as this Agreement shall remain in effect or the principal of or interest
on any Term Loan, any Fees or any other expenses or amounts payable under any
Loan Document shall be unpaid, unless the Required Lenders shall otherwise
consent in writing, the Borrower will not:
SECTION 6.01. Debt. Create or suffer to exist, or permit its
-----
Subsidiaries to create or suffer to exist, any Debt if, immediately after giving
effect to such Debt and the receipt and application of any proceeds thereof, the
sum of the aggregate amount of Debt of the Borrower and its
<PAGE>
37
consolidated Subsidiaries on a consolidated basis would exceed 140% of
Consolidated Tangible Net Worth. Notwithstanding anything contained in the
foregoing to the contrary, consolidated Debt of the Borrower and its
consolidated Subsidiaries, taken as a whole, shall not exceed at any time
$3,000,000,000.
SECTION 6.02. Sale, etc., of Assets. Sell, lease, dispose of, distribute
----------------------
or otherwise transfer, whether in a single transaction or a series of
transactions (collectively, a "Transfer"), all or any part of the property of
the Borrower, provided that the Borrower may Transfer:
--------
(a) properties (other than properties Transferred pursuant to any
other clause of this Section 6.02) having an aggregate net book value for
all such Transfers (determined with respect to each such property based on
the net book value reflected on the most recent consolidated balance sheet
of the Borrower delivered pursuant to Section 5.03 prior to the Transfer
thereof, in each case determined without regard to any writedown in such
net book value subsequent to the date hereof) not in excess of 10% of the
total book value of the assets of the Borrower and its consolidated
Subsidiaries (as reflected on the most recent consolidated balance sheet of
the Borrower delivered pursuant to Section 5.03) less the excess of the net
book value of all assets transferred since the date of such balance sheet
over the amount of cash and the fair market value of all other
consideration received in exchange therefor;
(b) properties to any person, provided that the Borrower or any of its
--------
Subsidiaries or the Borrower and any of its Subsidiaries has the power,
direct or indirect, (i) to vote more than 50% of the securities or
interests having ordinary voting power for the election of directors or
comparable governing persons of such person or (ii) to direct or cause the
direction of the management and policies of such person (whether by
contract or otherwise);
(c) properties abandoned or retired from use in the ordinary course of
business;
(d) properties usable by the Borrower in the operation of its business
as a railroad company
<PAGE>
38
including, without limitation, the Transfer of accounts receivable,
provided that the Borrower Transfers such property in arms-length
--------
transactions in exchange for property or cash of substantially equivalent
fair market value usable by the Borrower in the operation of its business
as a railroad company, and provided further that the amount of property
----------------
constituting the excess, if any, of (i) the fair market value of the
property Transferred by the Borrower over (ii) the fair market value of
property received by the Borrower in exchange therefor (in each case,
determined as of the date of such Transfer) may be transferred pursuant to
clause (a) above on and subject to the terms and conditions of such clause
(a); and
(e) property constituting Margin Stock.
SECTION 6.03. Mergers, etc. Merge or consolidate with any person, or
-------------
permit any of its Subsidiaries to merge or consolidate with any person, except
that (a) any Subsidiary may merge or consolidate with any other Subsidiary or
may merge or liquidate into the Borrower (if the Borrower shall be the
continuing or surviving corporation), (b) the Borrower or any Subsidiary may
merge or consolidate with any other corporation if (i) (A) the surviving
corporation shall be the Borrower or a Subsidiary of (B) the surviving
corporation, if not the Borrower or a Subsidiary, shall be a corporation
organized and existing under the laws of the United States or any state thereof
or the District of Columbia and shall expressly assume by a written assignment
executed and delivered to the Administrative Agent, in form and substance
satisfactory to the Administrative Agent, all of the rights and obligations of
the Borrower under this Agreement, and (ii) after giving effect to such merger
or consolidation no Event of Default or Default shall have occurred and be
continuing and (c) the Borrower and any Subsidiary may merge or consolidate as
required by a valid order of the ICC.
SECTION 6.04. Liens. Create or (in the case of clause (b) or (d) below)
------
suffer to exist, or permit its Subsidiaries to create or (in the case of clause
(b) or (d) below) suffer to exist, any Lien securing (a) Debt of the Borrower or
any of its consolidated Subsidiaries, (b) taxes imposed upon the Borrower or any
of its consolidated Subsidiaries, (c) reimbursement obligations of the Borrower
or any of its consolidated Subsidiaries in respect of letters of credit of (d)
liabilities of the Borrower or any
<PAGE>
39
of its consolidated Subsidiaries asserted in any legal or other proceeding
arising under the Comprehensive Environmental, Response, Compensation and
Liability Act of 1980, as amended from time to time, or other similar Federal or
state laws, regulations or decrees relating to environmental protection or the
release of any hazardous or toxic materials into the environment, in each case,
upon or with respect to all or a portion of the cash or accounts receivable of
the Borrower or any of its consolidated Subsidiaries arising from income from
railroad operations generated in the ordinary course of business (and excluding
in any event cash and accounts receivable constituting the proceeds of the sale
or other disposition of property), except, in each case for Liens (A) in respect
------
of taxes, the nonpayment of which would not constitute a default under Section
5.01(b), (B) arising by operation of law in the ordinary course of business, (C)
on cash or other property in any bank's possession arising either in the
ordinary course of business and securing daylight overdrafts and other Debt
incurred in favor of such bank in the ordinary course of the cash management
program of the Borrower and its Subsidiaries, or by operation of law, or
contractually in the ordinary course of establishing and/or maintaining deposit
and other accounts, letters of credit and other banking services (other than the
incurrence of indebtedness for borrowed money), (D) on cash or other property in
any Lender's possession securing (or entitling any Lender to set off against)
amounts owing to any Lender pursuant to this Agreement, (E) securing lessees'
obligations under leases referred to in clause (ii) of the definition of Debt,
and (F) Liens in respect of any liability referred to in clause (d) above which
liability does not have a reasonable probability (taking into account the
exhaustion of all corrective and other appropriate procedures and proceedings
and/or all appeals)of having a Material Adverse Effect; provided, however, that
-------- -------
this Section 6.04 shall not restrict the creation or existence of (1) Existing
Liens and Liens under Existing Mortgages and (2) Liens securing Debt outstanding
from time to time under the Mortgage Indenture.
SECTION 6.05. Sales of Accounts Receivable. Sell any accounts
-----------------------------
receivable other than pursuant to the Borrower's receivables sale facilities and
any extensions, renewals or replacements of any thereof, provided that the
--------
aggregate amount of accounts receivable sold pursuant to this Section 6.05 shall
in no event exceed $300,000,000.
<PAGE>
40
ARTICLE VII. EVENTS OF DEFAULT
In case of the happening (and during the continuance) of any of the
following events ("Events of Default"):
(a) The Borrower shall (i) fail to pay any principal of any Term Loan
or (ii) fail to pay any interest on any Term Loan or any other amount
payable hereunder or pursuant hereto, in each case referred to in this
clause (ii) within two Business Days after the same shall be due;
(b) Any representation or warranty made by the Borrower herein or by
the Borrower (or any of its officers) in connection with this Agreement
shall prove to have been incorrect in any material respect when made or
deemed made;
(c) The Borrower shall (i) fail to perform or observe any term,
covenant or agreement contained in Sections 5.04, 6.01, 6.02 or 6.03 of
this Agreement or (ii) fail to perform or observe any other term, covenant
or agreement contained in this Agreement on its part to be performed or
observed and any such failure referred to in this clause (ii) shall remain
unremedied for 30 days after written notice thereof shall have been given
to the Borrower by the Administrative Agent or by any Lender with a copy to
the Administrative Agent;
(d) The Borrower or any Subsidiary shall (i) fail to pay any Debt
(excluding Debt hereunder) of the Borrower or any Subsidiary (as the case
may be) in an aggregate principal amount of $50,000,000 or more, or any
installment of principal thereof or interest or premium thereon, when due
(whether by scheduled maturity, required prepayment, acceleration, demand
or otherwise) and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such
Debt; (ii) default under any agreement or instrument relating to any Debt
(excluding Debt hereunder) in an aggregate principal amount of $25,000,00
or more, or any other event shall occur and shall continue after the
applicable grace period, if any, specified in such agreement or instrument,
if the effect of such default or event is to accelerate the maturity of
such Debt; or
<PAGE>
41
(iii) default under any agreement or instrument relating to any Debt
(excluding Debt hereunder) in an aggregate principal amount of $101,000,000
or more, or any other event shall occur and shall continue after the
applicable grace period, if any, specified in such agreement or instrument,
if the effect of such default or event is to permit the acceleration of the
maturity of such Debt, provided that, notwithstanding any provision
--------
contained in this paragraph (d) to the contrary, to the extent that
pursuant to the terms of any agreement or instrument relating to any Debt
referred to in this paragraph (d), any sale, pledge or disposal of Margin
Stock, or utilization of the proceeds thereof would result in a breach of
any covenant contained therein or otherwise give rise to a default or event
of default thereunder and/or acceleration of the maturity of the Debt
extended pursuant thereto and as a result of such terms or of such sale,
pledge, disposal, utilization, breach, default, event of default or
acceleration, or the provisions hereof relating thereto, this Agreement or
any Term Loan hereunder would otherwise be subject to the margin
requirements or any other restriction under Regulation U, then such breach,
default, event of default or acceleration shall not constitute a Default or
Event of Default under this paragraph (d);
(e) (i) The Borrower or any Subsidiary shall (A) generally not pay its
debts as such debts become due; or (B) admit in writing its inability to
pay its debts generally; or (C) make a general assignment for the benefit
of creditors; (ii) any proceeding shall be instituted or consented to by
the Borrower or any Subsidiary seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under any
law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of
a receiver, trustee, or other similar official for it or for any
substantial part of its property; (iii) any such proceeding shall have been
instituted against the Borrower or any Subsidiary and either (A) such
relief shall have been granted or (B) such proceeding shall have been
pending undismissed for a period of 60 consecutive days; or (iv) the
Borrower or any Subsidiary shall take any
<PAGE>
42
corporate action to authorize any of the actions set forth above in this
paragraph (e);
(f) (i) One or more final and non-appealable judgments or orders for the
payment of money in excess of $50,000,000 in the aggregate shall be
rendered against the Borrower and/or one or more Subsidiaries and
enforcement proceedings shall have been commenced by creditors upon such
judgments or orders; or (ii) one or more judgments or orders for the
payment of money in excess of $100,000,000 shall be rendered against the
Borrower and/or one or more Subsidiaries and either (x) enforcement
proceedings shall have been commenced by creditors upon such judgments or
orders or (y) there shall be any period of 20 consecutive days during which
a stay of enforcement of such judgments or orders, by reason of a pending
appeal or otherwise, shall not be in effect;
(g) Any Termination Event with respect to a Material Plan shall have
occurred and, 30 days after notice thereof shall have been given to the
Borrower by the Administrative Agent, (i) such Termination Event shall
still exist and (ii) the sum (determined as of the date of occurrence of
such Termination Event) of the Insufficiency of such Plan and the
Insufficiency of any and all other Plans with respect to which a
Termination Event shall have occurred and then exist (or in the case of a
Plan with respect to which a Termination Event described in clause (ii) of
the definition of Termination Event shall have occurred and then exist, the
liability related thereto), in each case in respect of which the Borrower
or any ERISA Affiliate has liability, is equal to or greater than
$50,000,000;
(h) The Borrower or any ERISA Affiliate shall have been notified by the
sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability
to such Multiemployer Plan in an amount which, when aggregated with all
other amounts required to be paid to Multiemployer Plans in connection with
Withdrawal Liabilities (determined as of the date of such notification),
exceeds $50,000,000;
(i) The Borrower or any ERISA Affiliate shall have been notified by the
sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization
<PAGE>
43
or is being terminated, within the meaning of Title IV of ERISA, if as a
result of such reorganization or termination the aggregate annual
contributions of the Borrower and its ERISA Affiliates to all Multiemployer
Plans which are then in reorganization or being terminated have been or
will be increased over the amounts contributed to such Multiemployer Plans
for the respective plan years which include the date hereof by an amount
exceeding $50,000,000; or
(j) There shall have occurred a Change in Control:
then, and in any such event, the Administrative Agent shall, at the request, or
may with the consent, of the Required Lenders, by notice to the Borrower, (i)
declare the Commitment of each Lender to make Term Loans to be terminated,
whereupon the same shall forthwith terminate, and (ii) declare the Term Loans,
all interest thereon and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon the Term Loans, all such interest and all
such amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Borrower; provided, however, that if an Event of Default under
-------- -------
paragraph (e) of this Article VII (except under clause (i)(A) thereof) shall
occur, (A) the Commitment of each Lender to make Term Loans shall automatically
be terminated and (B) the Term Loans, all interest thereon and all other amounts
payable under this Agreement shall automatically become and be forthwith due and
payable, without presentment, demand, protest or any notice of any kind, all of
which are hereby expressly waived by the Borrower.
ARTICLE VIII. THE AGENT
In order to expedite the transactions contemplated by this Agreement,
Texas Commerce Bank National Association is hereby appointed to act as
Administrative Agent on behalf of the Lenders. Each of the Lenders hereby
irrevocably authorizes the Agent to take such actions on behalf of such Lender
and to exercise such powers as are specifically delegated to the Agent by the
terms and provisions hereof and of the other Loan Documents, together with such
actions and powers as are reasonably incidental thereto. The Administrative
Agent is hereby expressly authorized by the
<PAGE>
44
Lenders, without hereby limiting any implied authority, (a) to receive on behalf
of the Lenders all payments of principal of and interest on the Term Loans and
all other amounts due to the Lenders hereunder, and promptly to distribute to
each Lender its proper share of each payment so received; (b) to give notice on
behalf of each of the Lenders to the Borrower of any Event of Default specified
in this Agreement of which the Administrative Agent has actual knowledge
acquired in connection with its agency hereunder; and (c) to distribute to each
Lender copies of all notices, financial statements and other materials delivered
by the Borrower pursuant to this Agreement as received by the Administrative
Agent.
Neither the Agent nor any of its directors, officers, employees or
agents shall be liable as such for any action taken or omitted by any of them
except for its, his or her own gross negligence or wilful misconduct, or be
responsible for any warranty or representation herein or the contents of any
document delivered in connection herewith, or be required to ascertain or to
make any inquiry concerning the performance or observance by the Borrower of any
of the terms, conditions, covenants or agreements contained in any Loan
Document other than those expressly provided for herein. The Agent shall not be
responsible to the Lenders for the due execution, genuineness, validity,
enforceability or effectiveness (other than against the Agent) of this Agreement
or any other Loan Documents or other instruments or agreements. The Agent shall
in all cases be fully protected in acting, or refraining from acting, in
accordance with written instructions signed by the Required Lenders and, except
as otherwise specifically provided herein, such instructions and any action or
inaction pursuant thereto shall be binding on all the Lenders. The Agent shall,
in the absence of knowledge to the contrary, be entitled to rely on any
instrument or document believed by it in good faith to be genuine and correct
and to have been signed or sent by the proper person or persons. Neither the
Agent nor any of its directors, officers, employees or agents shall have any
responsibility to the Borrower on account of the failure of or delay in
performance or breach by any Lender of any of its obligations hereunder or to
any Lender on account of the failure of or delay in performance or breach by any
other Lender or Borrower of any of their respective obligations hereunder or
under any other Loan Document or in connection herewith or therewith. The Agent
may execute any and all duties hereunder by or through agents or employees
<PAGE>
45
and shall be entitled to rely upon the advice of legal counsel reasonably
selected by them with respect to all matters arising hereunder and shall not be
liable for any action taken or suffered in good faith by it in accordance with
the advice of such counsel.
The Lenders hereby acknowledge that the Agent shall be under no duty to
take any discretionary action permitted to be taken by it pursuant to the
provisions of this Agreement unless it shall be requested in writing to do so by
the Required Lenders.
Subject to the appointment and acceptance of a successor Agent as
provided below, the Agent may resign at any time by notifying the Lenders and
the Borrower. Upon any such resignation, the Required Lenders shall have the
right to appoint a successor. If no successor shall have been so appointed by
the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Agent may, on behalf of the Lenders, appoint a successor
Agent which shall be a bank with an office in the United States, having a
combined capital and surplus of at least $50,000,000 or an Affiliate of any such
bank. Upon the acceptance of any appointment as Agent hereunder by a successor
bank, such successor shall succeed to and become vested with all the rights,
powers, privileges and duties of the retiring Agent and the retiring Agent shall
be discharged from its duties and obligations hereunder. After the Agent's
resignation hereunder, the provisions of this Article and Section 9.05 shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as Agent.
With respect to the Term Loans made by it hereunder, the Agent in its
individual capacity and not as Agent shall have the same rights and powers as
any other Lender and may exercise the same as though it were not the Agent, and
the Agent and its Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrower or any Subsidiary or
other Affiliate thereof as if it were not the Agent.
Each lender agrees (i) to reimburse the Agent, on demand, in the amount
of its pro rata share (based on its Commitment hereunder) of any reasonable
expenses incurred for the benefit of the Lenders by the Agent, including counsel
fees and compensation of agents and employees paid
<PAGE>
46
for services rendered on behalf of the Lenders, which shall not have been
reimbursed by the Borrower and (ii) to indemnify and hold harmless the Agent and
any of its directors, officers, employees or agents, on demand, in the amount of
such pro rata share, from and against any and all liabilities, taxes,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against it in its capacity as the Agent or any of
them in any way relating to or arising out of this Agreement or any other Loan
Document or any action taken or omitted by it or any of them under this
Agreement or any other Loan Document, to the extent the same shall not have been
reimbursed by the Borrower; provided that no Lender shall be liable to the Agent
--------
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from the
gross negligence or wilful misconduct of the Agent or any of its directors,
officers, employees or agents.
Each Lender acknowledges that it has, independently and without reliance
upon the Agent or any other Lender and based on such documents and information
as it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. Each Lender also acknowledges that it will, independently
and without reliance upon the Agent or any other Lender and based on such
documents, and information as it shall from time to time deem appropriate,
continue to make its own decisions in taking or not taking action under or based
upon this Agreement or any other Loan Document, any related agreement or any
document furnished hereunder or thereunder.
ARTICLE IX. MISCELLANEOUS
SECTION 9.01. Notices. Notices and other communications provided for
--------
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed or sent by telecopy by the sending party, as follows:
(a) if to the Borrower, to it at 3200 Continental Plaza, 777 Main
Street, Fort Worth, Texas 76102, Attention of Treasurer (Telecopy No.
817-333-7484);
(b) if to the Administrative Agent, to it at 1111 Fannin Street,
9th Floor MS46, Houston, Texas 77002,
<PAGE>
47
Attention of Loan Syndication Services (Telecopy No. 713-750-3810); with a
copy to Texas Commerce Bank National Association, 201 Main Street, 3rd
Floor, Fort Worth, Texas 76102, Attention of Corporate Banking (Telecopy
No. 817-878-7591);
(c) if to a Lender, to it at its address (or telecopy number) set forth
in Schedule 2.01 or in the Assignment and Acceptance pursuant to which such
Lender shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy, or on the date five Business Days after dispatch by certified or
registered mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 9.01 or in accordance with
the latest unrevoked direction from such party given in accordance with the
latest unrevoked direction from such party given in accordance with this Section
9.01.
SECTION 9.02. Survival of Agreement. All covenants, agreements,
----------------------
representations and warranties made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and shall survive the making by the Lenders
of the Term Loans regardless of any investigation made by the Lenders or on
their behalf, and shall continue in full force and effect as long as the
principal of or any accrued interest on any Term Loan or any Fee or any other
amount payable under this Agreement or any other Loan Document is outstanding
and unpaid and so long as the Commitments have not been terminated.
SECTION 9.03. Binding Effect. This Agreement shall become effective when
---------------
it shall have been executed by the Borrower and the Administrative Agent and
when the Administrative Agent shall have received copies hereof which, when
taken together, bear the signatures of each Lender, and thereafter shall be
binding upon and inure to the benefit of the Borrower, the Agent and each Lender
and their respective successors and assigns, except that the Borrower shall not
have the right to assign its rights hereunder or any interest herein without the
prior consent of all the Lenders.
<PAGE>
48
SECTION 9.04. Successors and Assigns. (a) Whenever in this Agreement
-----------------------
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and permitted assigns of such party; and all covenants,
promises and agreements by or on behalf of the Borrower, the Agent or the
Lenders that are contained in this Agreement shall bind and inure to the benefit
of their respective successors and permitted assigns.
(b) Each Lender may assign to one or more assignees all or a portion of
its interests, rights and obligations under this Agreement (including all or a
portion of the Term Loan or Loans at the time owing to it); provided, however,
-------- -------
that (i) except in the case of an assignment to a Lender or an Affiliate of such
Lender, the Borrower and the Administrative Agent must give their prior written
consent to such assignment (which consent shall not be unreasonably withheld,
taking into account such factors as the financial responsibility and reputation
of a proposed assignee), (ii) the amount of the Term Loan or Loans of the
assigning Lender subject to each such assignment (determined as of the date the
Assignment and Acceptance with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $10,000,000 (and integral multiples
of $1,000,000) or, if less, the entire amount of the assigning Lender's Term
Loan or Loans, (iii) the parties to each such assignment shall execute and
deliver to the Administrative Agent an Assignment and Acceptance, and the
assigning Lender shall deliver together therewith a processing and recordation
fee of $2,500 and (iv) the assignee, if it shall not be a Lender, shall deliver
to the Administrative Agent and Administrative Questionnaire. Upon acceptance
and recording pursuant to paragraph (e) of this Section 9.04, from and after the
effective date specified in each Assignment and Acceptance, which effective date
shall be at least five Business Days after the execution thereof, (A) the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of a
Lender under this Agreement, (B) the assigning Lender thereunder shall, to the
extent of the interest assigned by such Assignment and Acceptance, be released
from its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto (but shall continue to be entitled to the benefits of Sections 2.10,
2.12, 2.16 and 9.05, as well as to any Fees
<PAGE>
49
accrued for its account hereunder and not yet paid)) and (C) Schedule 2.01 shall
be deemed amended to give affect to such assignment. The Interest Rate Margin
applicable to any assigned portion of a Term Loan shall at all times equal the
Interest Rate Margin applicable to such Term Loan on the Closing Date.
(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and that
the amount of its Term Loan without giving effect to assignments thereof which
have not become effective, is as set forth in such Assignment and Acceptance;
(ii) except as set forth in (i) above, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement, or any other any instrument or document furnished pursuant hereto, or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement, any other Loan Document or any other instrument or
document furnished pursuant hereto or the financial condition of the Borrower or
any Subsidiary or the performance or observance by the Borrower or any
Subsidiary of any of its obligations under this Agreement, any other Loan
Document or any other instrument or document furnished pursuant hereto; (iii)
such assignee represents and warrants that it is legally authorized to enter
into such Assignment and Acceptance; (iv) such assignee confirms that it has
received a copy of this Agreement, together with copies of the most recent
financial statements delivered pursuant to Section 5.03 and such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (v) such assignee will
independently and without reliance upon the Administrative Agent, such assigning
Lender or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (vi) such assignee appoints
and authorizes the Administrative Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement as are delegated to
the Administrative Agent by the terms hereof, together with such powers as are
reasonably incidental thereto; and (vii) such assignee agrees that it
<PAGE>
50
will perform in accordance with their terms all the obligations which by the
terms of this Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at one of its offices in
The City of Houston a copy of each Assignment and Acceptance delivered to it and
a register for the recordation of the names and addresses of the Lenders, and
the principal amount of the Term Loan or Loans owing to each Lender pursuant to
the terms hereof from time to time (the "Register"). The entries in the Register
shall be conclusive in the absence of demonstrable error and the Borrower, the
Agent and the Lenders may treat each person whose name is recorded in the
Register pursuant to the terms hereof as a Lender hereunder for all purposes of
this Agreement. The Register shall be available for inspection by the Borrower
and any Lender, at any reasonable time and from time to time upon reasonable
prior notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, an Administrative Questionnaire
completed in respect of the assignee (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) above and, if required, the written consent of the Borrower and the
Administrative Agent to such assignment, the Administrative Agent shall (i)
accept such Assignment and Acceptance, (ii) record the information contained
therein in the Register and (iii) give prompt notice thereof to the Lenders.
(f) Each Lender may without the consent of the Borrower or the Agent
sell participations to one or more banks or other entities in all or a portion
of its rights and obligations under this Agreement (including all or a portion
of the Term Loan or Loans owing to it); provided, however, that (i) such
-------- -------
Lender's obligations under this Agreement shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) the participating banks or other entities
shall be entitled to the benefit of the cost protection provisions contained in
Sections 2.10, 2.12 and 2.16 to the same extent as if they were Lenders and (iv)
the Borrower, the Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement, and such lender shall retain the sole right to
enforce the obligations of the Borrower relating to the
<PAGE>
51
Term Loans and to approve any amendment, modification or waiver or any provision
of this Agreement (other than amendments, modifications or waivers decreasing
any fees payable hereunder or the amount of principal of or the rate at which
interest is payable on the Term Loans, or extending any scheduled principal
payment date or date fixed for the payment of interest on the Term Loans).
(g) Any Lender or participant may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
9.04, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrower furnished to such Lender by
or on behalf of the Borrower; provided that, prior to any such disclosure of
--------
information designated by the Borrower as confidential, each such assignee or
participant or proposed assignee or participant shall execute an agreement
whereby such assignee or participant shall agree (subject to customary
exceptions) to preserve the confidentiality of such confidential information.
(h) Any Lender may at any time assign all or any portion of its rights
under this Agreement to a Federal Reserve Bank; provided that no such assignment
--------
shall release a Lender from any of its obligations hereunder. In order to
facilitate such an assignment to a Federal Reserve Bank, the Borrower shall, to
the extent permissible without registration under applicable regulations of the
ICC, at the request of the assigning Lender, duly execute and deliver to the
assigning Lender a promissory note or notes evidencing the Term Loan or Loans
made to the Borrower by the assigning Lender hereunder.
(i) The Borrower shall not assign or delegate any of its rights or
duties hereunder without the prior written consent of the Lenders.
SECTION 9.05. Expenses; Indemnity. (a) The Borrower agrees to pay all
--------------------
out-of-pocket expenses incurred by the Agent in connection with the preparation
of this Agreement and the other Loan Documents or in connection with any
amendments, modifications or waivers of the provisions hereof or thereof
(whether or not the transactions hereby contemplated shall be consummated) or
incurred by the Agent or any Lender in connection with the enforcement or
protection of their rights in connection with this Agreement and the other Loan
Document or in connection with the Term Loans made hereunder, including the
reasonable fees, charges
<PAGE>
52
and disbursements of Cravath, Swaine & Moore, counsel for the Agent, and, in
connection with any such amendment, modification or waiver or any such
enforcement or protection, the reasonable fees, charges and disbursements of any
other counsel for the Agent or any Lender. The Borrower further agrees that it
shall indemnify the Lenders from and hold them harmless against any documentary
taxes, assessments or charges made by any Governmental Authority by reason of
the execution and delivery of this Agreement or any of the other Loan Documents.
(b) The Borrower agrees to indemnify the Agent, each Lender and each of
their respective directors, officers, employees and agents (each such person
being called an "Indemnitee") against, and to hold each Indemnitee harmless
from, any and all losses, claims, damages, liabilities and related expenses,
including reasonable counsel fees, charges and disbursements, incurred by or
asserted against any Indemnitee arising out of, in any way connected with, or as
a result of (i) the execution or delivery of this Agreement or any other Loan
Document or any agreement or instrument contemplated thereby, the performance by
the parties thereto of their respective obligations thereunder or the
consummation of the transactions contemplated thereby, (ii) the use of the
proceeds of the Term Loans or (iii) any claim, litigation, investigation or
proceeding relating to any of the foregoing to which such Indemnitee reasonably
believes that it may become a party, whether or not any Indemnitee is a party
thereto; provided that such indemnity shall not, as to any Indemnitee, be
--------
available to the extent that such losses, claims, damages, liabilities or
related expenses are determined by a court of competent jurisdiction by final
and nonappealable judgment to have resulted from the gross negligence or wilful
misconduct of such Indemnitee.
(c) The provisions of this Section 9.05 shall remain operative and in
full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Term Loans, the invalidity or unenforceability of any
term or provision of this Agreement or any other Loan Document, or any
investigation made by or on behalf of the Agent or any Lender. All amounts due
under this Section 9.05 shall be payable on written demand therefor.
SECTION 9.06. Right of Setoff. If an Event of Default shall have
----------------
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, to
<PAGE>
53
the fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Lender to or for the credit or the
account of the Borrower against any of and all the obligations of the Borrower
now or hereafter existing under this Agreement and other Loan Documents held by
such lender, irrespective of whether or not such Lender shall have made any
demand under this Agreement or such other Loan Document and although such
obligations may be unmatured. Each Lender agrees promptly to notify the Borrower
after any such setoff and application made by such lender, provided that the
--------
failure to give such notice shall not affect the validity of such setoff and
application. The rights of each lender under this Section are in addition to
other rights and remedies (including other rights of setoff) which such Lender
may have.
SECTION 9.07. APPLICABLE LAW. THIS AGREEMENT AND THE OTHER LOAN
---------------
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK.
SECTION 9.08. Waivers; Amendment. (a) No failure or delay of the Agent
-------------------
or any lender in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Agent and the Lenders
hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies which they would otherwise have. No waiver
of any provision of this Agreement or any other Loan Document or consent to any
departure by the Borrower therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice or demand on the Borrower in any case shall entitle the
Borrower to any other or further notice or demand in similar or other
circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrower and the Required Lenders; provided, however, that
-------- -------
no such agreement shall (i) decrease the principal amount of, or extend the
maturity of or any scheduled principal
<PAGE>
54
payment date or date for the payment of any interest on, any Term Loan, or waive
or excuse any such payment or any part thereof, or decrease the rate of interest
on any Term Loan, without the prior written consent of each Lender affected
thereby, or (ii) amend or modify the provisions of Section 2.13, the provisions
of this Section, any provision of this agreement which by its terms requires the
consent or approval of all Lenders or the definition of "Required Lenders",
without the prior written consent of each Lender; provided further that no such
----------------
agreement shall amend, modify or otherwise affect the rights or duties of the
Agent hereunder without the prior written consent of the Agent.
SECTION 9.09. Interest Rate Limitation. Notwithstanding anything herein
-------------------------
to the contrary, if at any time the applicable interest rate, together with all
fees and charges which are treated as interest under applicable law
(collectively the "Charges"), as provided for herein or in any other document
executed in connection herewith, or otherwise contracted for, charged, received,
taken or reserved by any Lender, shall exceed the maximum lawful rate (the
"Maximum Rate") which may be contracted for, charged, taken, received or
reserved by such Lender in accordance with applicable law, the rate of interest
payable on the Term Loan or Loans of such Lender, together with all Charges
payable to such Lender, shall be limited to the Maximum Rate.
SECTION 9.10. Entire Agreement. This Agreement and the other Loan
-----------------
Documents constitute the entire contract between the parties relative to the
subject matter hereof. Any previous agreement among the parties with respect to
the subject matter hereof is superseded by this Agreement and the other Loan
Documents. Nothing in this Agreement or in the other Loan Documents, expressed
or implied, is intended to confer upon any party other than the parties hereto
and thereto any rights, remedies, obligations or liabilities under or by reason
of this Agreement or the other Loan Documents.
SECTION 9.11. Severability. In the event any one or more of the
-------------
provisions contained in this Agreement or in any other Loan Document should be
held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby. The parties shall endeavor
in good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of
<PAGE>
55
which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
SECTION 9.12. Counterparts. This Agreement may be executed in two or
-------------
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract, and shall become
effective as provided in Section 9.03.
SECTION 9.13. Headings. Article and Section headings and the Table of
---------
Contents used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 9.14. Jurisdiction; Consent to Service of Process. (a) The
--------------------------------------------
Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that any
Lender may otherwise have to bring any action or proceeding relating to this
Agreement or the other Loan Documents against the Borrower or its properties in
the courts of any jurisdiction.
(b) The Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this agreement or the other Loan Documents in any
New York State or Federal court sitting in New York City. Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted
<PAGE>
56
by law, the defense of an inconvenient forum to the maintenance of such action
or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
IN WITNESS WHEREOF, the Borrower, the Lenders, and the Administrative
Agent have caused this Agreement to be duly executed by their respective
authorized officers as of the day and year first above written.
BURLINGTON NORTHERN RAILROAD COMPANY,
by /s/ ROBERT F. MCKENNEY
----------------------------------
Name: Robert F. McKenney
Title: Senior Vice President
and Treasurer
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, individually and as
Administrative Agent,
by /s/ B. B. WUTHRICH
----------------------------------
Name: B. B. Wuthrich
Title: Vice President
<PAGE>
57
THE BANK OF TOKYO, LTD., Dallas Agency
by /s/ J. BECKWITH
-----------------------------------
Name: J. Beckwith
Title: Vice President
THE DAI-ICHI KANGYO BANK, LIMITED,
Los Angeles Agency,
by /s/ TOMOHIRO NOZAKI
-----------------------------------
Name: Tomohiro Nozaki
Title: Senior Vice President
and Joint General Manager
MELLON BANK, N.A.,
by /s/ PAUL A. BRIGGS
-----------------------------------
Name: Paul A. Briggs
Title: Senior Vice President
THE SANWA BANK, LIMITED,
by /s/ BLAKE WRIGHT
-----------------------------------
Name: Blake Wright
Title: Assistant Vice President
SOCIETE GENERALE, Southwest Agency,
by /s/ CHRISTOPHER J. SPELTZ
-----------------------------------
Name: Christopher J. Speltz
Title: Vice President
<PAGE>
<PAGE>
EXHIBIT 10.20
[BURLINGTON NORTHERN RAILROAD LOGO APPEARS HERE]
GERALD GRINSTEIN 777 Main Street
President and Ft. Worth, Texas 76102
Chief Executive Officer (817) 878-2272
PRIVILEGED AND CONFIDENTIAL
- ---------------------------
September 4, 1990
General John T. Chain, Jr.
Quarters 16
Offutt Air Force Base, NE 68113
Dear Jack:
This letter will confirm the agreement for your employment as Executive Vice
President-Operations of Burlington Northern Railroad (the "Company").
1. Employment and Term. The Company agrees to your employment, and you agree
--------------------
to act as its Executive Vice President-Operations during the period commencing
February 25, 1991, and ending February 28, 1996, unless sooner terminated by
death, disability or agreement of the parties. In the event that your
employment hereunder is terminated because of your death or disability, or by
your voluntary resignation, or is terminated by the Company for your breach of
this Agreement, the base salary provided for in this Agreement will be paid to
and including the end of the month in which such termination of employment
occurs except as noted in Paragraph 9 below. If the Agreement is terminated by
the Company for any other reason, the Company will pay you on the date of
termination a sum of money equal to your then current monthly base salary times
the number of months then remaining until March 1, 1996.
2. Basic Compensation. Commencing February 25, 1991, your minimum base salary
-------------------
shall be $25,000 per month or such higher rate as may be fixed from time to time
by the Board of Directors of the Company in connection with its annual review of
executive compensation.
3. Incentive Bonus. You will be paid an incentive bonus equal to the
----------------
designated percentage of the market rate of a grade D for a level 1 Company
performance for the years 1991 and 1992. These payments will be made in
January 1992 and January 1993 for each respective year's performance. You
will be a regular participant in the Incentive Compensation Plan commencing
January 1, 1993, in accordance with the plan.
<PAGE>
General John T. Chain, Jr.
September 4, 1990
Page 2
4. Restricted Stock. You will be granted an initial award under the
-----------------
Burlington Northern Inc. Restricted Stock Incentive Plan of 10,000 shares
effective February 25, 1991.
5. Stock Options. You will be granted an initial award under the Burlington
--------------
Northern Inc. Stock Option Incentive Plan of 30,000 Basic Options effective
February 25, 1991.
6. Pension Benefits. You shall be designated as a participant under the
-----------------
Burlington Northern Inc. Pension Plan as of February 25, 1991, and shall accrue
credited service for pension benefits while employed by the Company.
In the event you are still employed by the Company at the end of the term
of this agreement, your retirement benefits will be determined by including
periods of service performed on behalf of your previous employers as may be
necessary, taking into account your period of service to the Company, to bring
your period of continuous service to thirty (30) years as of such date.
The payment of these retirement benefits to you or your surviving spouse
will be made from the regular Pension Plan and the Supplemental Pension Plan, as
appropriate. Payments will be subject to offset by any benefits you may receive
or will receive under any pension, profit sharing, executive benefit plan or
similar retirement plan from previous employers.
7. Stock Options, Restricted Stock, Disability and Other Benefits. You will
---------------------------------------------------------------
participate with other senior executives of the Company in plans from time to
time in effect for Stock Options, Stock Appreciation Rights, Restricted Stock,
short-term and long-term disability benefits, change in control protection and
perquisites, including those available under the employee benefit plans of the
Company. See attachment.
8. Relocation Benefits. The Company will be responsible for any costs
--------------------
associated with your relocation to Fort Worth, Texas, in accordance with our
standard policy, which are not provided to you by the United States government.
9. Recall to Military Service. Should you be recalled to military service
---------------------------
due to a national emergency, subject to Company approval, you will be granted
a paid leave of absence with the rate of pay equal to your Basic Compensation
less any amounts you are paid from the United States government. The period
of time you are on such a leave of absence will not count toward your
fulfillment of the five-year term of this Agreement.
<PAGE>
General John T. Chain, Jr.
September 4, 1990
Page 3
This Agreement is contingent upon your passing a physical examination, which
includes a drug screen.
If this correctly sets forth our agreement, please sign the original and return
it to me, and keep the copy for your file.
Very truly yours,
BURLINGTON NORTHERN RAILROAD
By /s/ GERALD GRINSTEIN
---------------------------------
President and
Chief Executive Officer
Accepted this first day of
October, 1990
/s/ JOHN T. CHAIN, JR.
- -------------------------------------
<PAGE>
EXHIBIT 10.22
[BURLINGTON NORTHERN RAILROAD LOGO APPEARS HERE]
James B. Dagnon 3000 Continental Plaza
Senior Vice President 777 Main Street
Human Resources Fort Worth, Texas 76102
Telephone (817) 878-3055
September 18, 1991
PERSONAL AND CONFIDENTIAL
- -------------------------
Mr. Richard A. Russack
P.O. Box 931B
Block Island, Rhode Island 02807
Dear Richard:
This letter will confirm the results of our discussion and is the formal offer
to you for the position of Vice President Communications and Public Affairs with
Burlington Northern Railroad Company (the "Company"), effective November 1,
1991, or earlier if agreed to by both parties.
The major elements of the Company's offer to you are as follows:
Base Salary -- Annual rate of $150,000, payable as earned in installments twice
- -----------
monthly.
Bonus -- You will be a participant in the Company's Incentive Compensation Plan
- -----
effective on your date of employment.
Signing Bonus -- On your first day of employment, you will be paid a lump sum
- -------------
signing bonus of $75,000 to offset accrued benefits and bonus lost due to
terminating your previous employment.
Stock Options -- The Company will grant you a Basic Stock Option under the
- -------------
Burlington Northern Inc. Stock Option Incentive Plan for 3,000 shares of
BNI common stock as determined under the Plan on the date of your employment in
accordance with the grant to be made by the Compensation Committee
(the "Committee") of the Board of Directors. Additionally, under this award, you
will be granted 750 Supplemental Options. This action is scheduled to occur in
October 1991. Future grants will be at the discretion of the Committee.
Restricted Stock -- The Company will grant to you 3,000 shares of Restricted
- ----------------
Stock under the Burlington Northern Inc. Restricted Stock Incentive Plan as
determined under the Plan on the date of your employment in accordance with the
grant to be made by the Committee. This action is scheduled to occur in October
1991. Future grants will be at the discretion of the Committee.
<PAGE>
Mr. Richard A. Russack
September 18, 1991
Page 2
Relocation Benefits -- The Company will reimburse you for all reasonable and
- -------------------
necessary expenses incurred by you in selling your residence and moving you
and your family to the Fort Worth, Texas metropolitan area. The details of the
coverage are contained in the Relocation Policy included with this letter. As
part of this coverage, you will receive a relocation allowance in the net
amount of $15,000.
Other Benefits -- You will be eligible for all benefits and perquisites of a
- --------------
Grade "G" executive. An outline of the benefits has been included with this
letter.
This offer is contingent upon your satisfactorily passing a Company physical
examination, which includes a drug screen.
In consideration of this compensation package, you agree to devote your full
time and effort to the Company, to perform in the capacity of Vice President
Communications & Public Affairs, and to perform to a suitable standard for
such position and compensation, and to abide by all standards to which
Company employees are subject, including those set forth in the Company
Code of Ethics, a copy of which is attached.
This letter sets forth our offer as presented to you. If acceptable, I would
appreciate your signing the original, returning it to me and keeping the copy
for your file.
I hope this is the beginning of a long and challenging career with Burlington
Northern, and I look forward to working with you.
Sincerely,
/s/ JAMES B. DAGNON
-------------------------
James B. Dagnon
Attachments
Accepted this 24th day of September 1991.
-------
/s/ Richard A. Russack
- --------------------------------------------
(Signature)
<PAGE>
EXHIBIT 10.23
[LETTERHEAD OF BURLINGTON NORTHERN RAILROAD APPEARS HERE]
April 18, 1994
PERSONAL AND CONFIDENTIAL
- -------------------------
Mr. Greg Swienton
Rue Colonel Bourg #125
Brussels, Belgium 1140
Dear Greg:
This letter will confirm the agreement for your employment as Executive Vice
President Intermodal Business Group of Burlington Northern Railroad (the
"Company").
1. Employment and Term. The Company agrees to your employment, and you agree to
-------------------
act as its Executive Vice President Intermodal Business Group commencing
June 11, 1994 ("Date of Employment").
2. Basic Compensation. Commencing with your Date of Employment, your base
------------------
salary shall be $230,000 per annum or such rate as may be fixed from time to
time by the Board of Directors of the Company in connection with its annual
review of executive compensation.
3. Incentive Bonus. You will be paid an incentive bonus the minimum amount of
---------------
which will be equal to the designated percentage of the market rate of a
grade E for a level III Company performance for the year 1994. This amount
will be prorated based on your actual service during 1994 commencing with
your Date of Employment. This payment will be made in January 1995. You will
be a regular participant in the Senior Executive Performance Incentive
Compensation Plan commencing January 1, 1995, in accordance with the plan.
4. Restricted Stock. You will be granted an initial award under the Burlington
----------------
Northern Inc. Restricted Stock Incentive Plan of 2,800 shares effective on
your Date of Employment.
5. Stock Options. You will be granted an initial award under the Burlington
-------------
Northern Inc. Stock Option Incentive Plan of 11,700 Basic Options effective
on your Date of Employment.
<PAGE>
Mr. Greg Swienton
April 14, 1994
Page -2-
6. Stock Options, Restricted Stock, Disability and Other Benefits. You will
--------------------------------------------------------------
participate with other senior executives of the Company in plans from time
to time in effect for Stock Options, Limited Stock Appreciation Rights,
Restricted Stock, short-term and long-term disability benefits, change in
control protection and perquisites, including those available under the
employee benefit plans of the Company. See attachment.
7. Relocation Benefits. The Company will be responsible for any normal and
-------------------
reasonable costs associated with your relocation to the Fort Worth, Texas
area, not covered by your present employer, in accordance with our standard
policy for exempt employees. This benefit will include the relocation
allowance equal to $23,000 on a net after-tax basis.
8. Automobile Allowance. The Company will provide you with an automobile
--------------------
allowance consistent with its policy for current grade E executives. This
amount is presently $1,200 per month. You are eligible to have the
automobile of your choice as long as it is suitable for business use.
This Agreement is contingent upon your passing a physical examination, which
includes a drug screen.
In consideration of this compensation package, you agree to devote your full
time and effort to the Company, to perform in a capacity of an Executive Vice
President Intermodal Business Group and to perform to a standard suitable for
such position and compensation and to abide by all standards to which Company
employees are subject including those set forth in the Company Code of Ethics, a
copy of which is attached.
If this correctly sets forth our agreement, please sign the original and return
it to me, and keep the copy for your file.
Greg, we are looking forward to your joining the Burlington Northern team!
Sincerely,
BURLINGTON NORTHERN RAILROAD
By: /s/ James B. Dagnon
-------------------------------------------
James B. Dagnon
Executive Vice President Employee Relations
Accepted this 22nd day of April, 1994
/s/ Gregory T. Swienton
- -----------------------------------------------
<PAGE>
[LETTERHEAD OF BURLINGTON NORTHERN RAILROAD APPEARS HERE]
June 11, 1994
PERSONAL & CONFIDENTIAL
- -----------------------
Mr. Gregory T. Swienton
c/o 3700 Continental Plaza
777 Main Street
Fort Worth, Texas 76102-5384
Dear Greg:
This letter will confirm our discussions and will serve as a supplement to and
is hereby made a part of your employment offer and agreement dated April 18,
1994.
Paragraph 1 is replaced in its entirety with the following:
1. Employment and Term. The Company agrees to your employment, and you agree
-------------------
to act as its Executive Vice President Intermodal Business Group during
the period commencing June 11, 1994 (the "Employment Date") and ending
June 11, 1996 (the second anniversary of the Employment Date), unless
sooner terminated by death, disability or agreement of the parties. In the
event that your employment hereunder is terminated because of your death
or disability, or by your voluntary resignation, or is terminated by the
Company for your breach of this Agreement, the salary provided for in this
Agreement will be paid to and including the end of the month in which such
termination of employment occurs. If the Agreement is terminated by the
Company for any other reason, the Company will pay you on the date of
termination a sum of money equal to your then current monthly salary times
the number of months remaining until June 11, 1996, (the second
anniversary of the Employment Date).
<PAGE>
June 11, 1994
Page -2-
If you agree that this correctly sets forth our agreement, please sign the
original and return it to me, and keep the copy for your file.
Sincerely,
BURLINGTON NORTHERN RAILROAD COMPANY
By: /s/ James B. Dagnon
-----------------------------------
James B. Dagnon
Executive Vice President Employee Relations
Accepted and agreed to this 15th day of July, 1994
---- ----
/s/ Gregory T. Swienton
----------------------------------
Gregory T. Swienton
<PAGE>
EXHIBIT 10.24
[LETTERHEAD OF BURLINGTON NORTHERN RAILROAD APPEARS HERE]
April 22, 1994
PERSONAL AND CONFIDENTIAL
- -------------------------
Mr. Ronald A. Rittenmeyer
4569 Turnberry Court
Plano, Texas 75024
Dear Ron:
This letter will confirm the results of our discussions and represents the
formal offer to you and agreement with you (the "Agreement") for the position of
Executive Vice President Merchandise Business Group with Burlington Northern
Railroad Company (the "Company").
1. Employment and Term. The Company agrees to your employment, and you agree
-------------------
to act as its Executive Vice President Merchandise Business Group during the
period commencing May 29, 1994 (the "Employment Date") and ending May 29,
1996 (the second anniversary of the Employment Date), unless sooner
terminated by death, disability or agreement of the parties. In the event
that your employment hereunder is terminated because of your death or
disability, or by your voluntary resignation, or is terminated by the
Company for your breach of this Agreement, the salary provided for in this
Agreement will be paid to and including the end of the month in which such
termination of employment occurs. If the Agreement is terminated by the
Company for any other reason, the Company will pay you on the date of
termination a sum of money equal to your then current monthly salary times
the number of months remaining until May 29, 1996, (the second anniversary
of the Employment Date).
2. Compensation. Commencing with the date of your employment by the Company,
------------
your minimum salary shall be $250,000 per annum. Your minimum salary shall
remain at $250,000 per annum from and after your Employment Date for the
remainder of the term of the Agreement except to the extent that your
minimum salary is increased from time to time by the Board of Directors of
the Company in connection with its annual review of executive compensation.
In February 1995, the Company will pay you a one-time lump sum bonus payment
of a minimum of $160,000 (gross earnings prior to tax). Effective January 1,
1995, you will become a regular participant in the Company's Senior
Executive Performance Incentive Plan and will be eligible for a bonus
payable in January 1996, and in later years if bonuses are granted, in
accordance with the Plan.
<PAGE>
Mr. Ron Rittenmeyer
April 22, 1994
Page -2-
3. Restricted Stock. The Company will grant to you an initial award of 7,800
----------------
shares of Restricted Stock under the Company's Restricted Stock Incentive
Plan, as determined under the Plan, effective on your Employment Date.
4. Stock Options. The Company will grant you an initial award of 11,700 stock
-------------
options under the Company's Stock Option Incentive Plan, as determined under
the Plan, effective on your Employment Date.
5. Pension Benefits. You shall be designated as a participant under the
----------------
Company's Pension Plan as of the Employment Date and shall accrue credited
service for pension benefits while employed by the Company.
Your retirement benefits will be determined by adding your years of service
with the Company to your years of service with Frito-Lay if: (1) you do not
voluntarily resign and you continue to be employed with the Company through
the fifth anniversary of your Employment Date; or (2) you die or become
permanently disabled after your Employment Date but prior to the fifth
anniversary of your Employment Date; or (3) you are not employed with the
Company through the fifth anniversary of your Employment Date because you
were terminated without cause.
Should you terminate your employment voluntarily after completing the fifth
anniversary of your Employment Date but prior to your 55th birthday, your
pension benefit will be calculated and paid in the form of a vested,
terminated benefit. Should you remain employed until your 55th birthday, you
will be eligible to make elections to commence retirement under the Pension
Plan in accordance with the terms of the plan in effect at that time.
Assuming you meet the eligibility requirements for the retirement benefits
in the preceding paragraph, the payment of such retirement benefits to your
surviving spouse or you will be made from the regular Pension Plan and a
Supplemental Pension Plan as appropriate. Payments will be subject to offset
by any benefits you may receive or will receive under any pension or similar
retirement plan from Frito-Lay.
6. Relocation Expense. The Company will reimburse you for all reasonable and
------------------
necessary expenses you incur in selling your residence and moving from
Plano, Texas to the Fort Worth, Texas, metropolitan area. The details of the
coverage are contained in the Company's relocation guide. It is further
provided that you have until ____________________ to exercise this benefit.
Payment of your lump sum relocation allowance (10% of annual salary grossed
up for income taxes) will be based upon your initial salary of $250,000.
<PAGE>
Mr. Ron Rittenmeyer
April 22, 1994
Page -3-
7. Automobile Allowance. The Company will provide you with an automobile
--------------------
allowance consistent with its policy for current grade E executives. This amount
is presently $1,200 per month. You are eligible to have the automobile of your
choice as long as it is suitable for business use.
8. Medical Coverage. Should you lose medical coverage under your present
----------------
employer's plan prior to your coverage under the Company's plan becoming
effective, the Company will reimburse you for any expenses you incur for
obtaining continuation of your present employer's plan under the COBRA
provisions.
9. Other Benefits. You will be eligible for all benefits and perquisites of
--------------
office, including a change in control agreement, available to senior officers of
the Company in accordance with the summary of total compensation -- Grade E
Schedule accompanying this letter.
This offer of employment is contingent upon your passing a physical examination,
which includes a drug screen.
In consideration of this compensation package, you agree to devote your full
time and effort to the Company, to perform in a capacity of an Executive Vice
President Merchandise Business Group and to perform to a standard suitable for
such position and compensation and to abide by all standards to which Company
employees are subject including those set forth in the Company Code of Ethics, a
copy of which is attached.
If the offer of employment set forth in this letter is acceptable to you, please
execute both originals and return one to me for our records.
Ron, I hope this is the beginning of a long and challenging career with
Burlington Northern. We all look forward to working with you.
Sincerely,
/s/JIM DAGNON
James B. Dagnon
Attachments
Accepted this 1st day of May, 1994.
/s/ RONALD A. RITTENMEYER
<PAGE>
EXHIBIT 11
Burlington Northern Inc. and Subsidiaries
Computation of Earnings per Common Share
(In millions, except per share data)
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income
- ----------
Primary:
Net income..................................... $ 416 $ 296 $ 278
Convertible and mandatory redeemable preferred
stock dividends.............................. (22) (22) (3)
----- ----- -----
Net income available for common shareholders... $ 394 $ 274 $ 275
===== ===== =====
Fully diluted:
Net income available for common shareholders... $ 394 $ 274 $ 275
Dividends on convertible preferred stock,
assuming conversion.......................... 22 22 2
----- ----- -----
$ 416 $ 296 $ 277
===== ===== =====
Weighted average number of shares
- ---------------------------------
Primary:
Average common shares outstanding.............. 89.1 88.6 87.8
Common share equivalents resulting from assumed
exercise of stock options.................... 1.1 1.1 .8
----- ----- -----
90.2 89.7 88.6
===== ===== =====
Fully diluted:
Average common shares outstanding.............. 89.1 88.6 87.8
Common share equivalents resulting from assumed
conversion of convertible preferred stock (1) 7.4 7.4 .7
Common share equivalents resulting from assumed
exercise of stock options assuming full
dilution..................................... 1.0 1.2 1.0
----- ----- -----
97.5 97.2 89.5
===== ===== =====
Earnings per common share:
Primary.......................................... $ 4.37 $ 3.06 $ 3.11
Fully diluted.................................... 4.27 3.04 3.10
</TABLE>
Primary earnings per common share are computed by dividing net income, after
deduction of preferred stock dividends, by the weighted average number of
common shares and common share equivalents outstanding. Fully diluted
earnings per common share are computed by dividing net income by the
weighted average number of common shares and common share equivalents
outstanding. Common share equivalents are computed using the treasury stock
method. An average market price is used to determine the number of common
share equivalents for primary earnings per common share. The higher of the
average or end-of-period market price is used to determine common share
equivalents for fully diluted earnings per common share. In addition, the
if-converted method is used for convertible preferred stock when computing
fully diluted earnings per common share. Redeemable preferred stock
dividends were not significant to any period presented.
Earnings per common share may not compute due to the level of rounding in
this exhibit.
(1) Conversion of the preferred stock was based on a November 1992 issuance
date.
<PAGE>
EXHIBIT 12
Burlington Northern Inc.and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
(In millions, except ratio amounts)
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings:
Pre-tax income......................... $695 $521 $452
Add:
Interest, excluding capitalized
interest......................... 155 145 186
Portion of rent under long-term
operating leases representative
of an interest factor............ 98 92 100
Less: Equity in undistributed income of
20-50% owned companies......... 4 3 -
---- ---- ----
Total earnings available for
fixed charges.................... $944 $755 $738
==== ==== ====
Fixed charges:
Interest............................... $157 $145 $186
Portion of rent under long-term
operating leases representative
of an interest factor............... 98 92 100
---- ---- ----
Total fixed charges.................... $255 $237 $286
==== ==== ====
Ratio of earnings to fixed charges....... 3.70x 3.19x 2.58x
==== ==== ====
</TABLE>
<PAGE>
EXHIBIT 21
Burlington Northern Inc.
Subsidiaries of the registrant
The following is a list of the subsidiaries of Burlington Northern Inc.
showing the place of incorporation and the percentage of voting securities
owned.
<TABLE>
<CAPTION>
Percentage of Voting
Securities Owned
Directly or
Jurisdiction of Indirectly by
Name of Company Incorporation Immediate Parent
--------------- --------------- ---------------------
<S> <C> <C>
Burlington Northern Railroad Company Delaware 100%
</TABLE>
The names of certain subsidiaries are omitted as such subsidiaries, considered
as a single subsidiary, would not constitute a significant subsidiary.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Burlington Northern Inc. and Subsidiaries on Form S-8 (Registration Nos.
2-80478, 33-25806, 33-33825, 33-40348, 33-47537, 33-55196, 33-50969
and 33-56541), Form S-4 (Registration Nos. 33-56007 and 33-56183) and Form
S-3 (Registration No. 33-51705) and in the registration statement of BNSF
Corporation on Form S-4 (Registration No. 33-57069) of our report dated
January 16, 1995 on our audits of the consolidated financial statements and
financial statement schedule of Burlington Northern Inc. and Subsidiaries as
of December 31, 1994, and 1993, and for each of the three years in the
period ended December 31, 1994, which report is included in this Annual Report
on Form 10-K.
COOPERS & LYBRAND L.L.P.
Fort Worth, Texas
February 17, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BURLINGTON
NORTHERN INC.'S CONSOLIDATIED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER
31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFEERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 27
<SECURITIES> 0
<RECEIVABLES> 717
<ALLOWANCES> 20
<INVENTORY> 100
<CURRENT-ASSETS> 1012
<PP&E> 10179
<DEPRECIATION> 3868
<TOTAL-ASSETS> 7592
<CURRENT-LIABILITIES> 1447
<BONDS> 1697
<COMMON> 1
0
337
<OTHER-SE> 1899
<TOTAL-LIABILITY-AND-EQUITY> 7592
<SALES> 0
<TOTAL-REVENUES> 4995
<CGS> 0
<TOTAL-COSTS> 4142
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 155
<INCOME-PRETAX> 695
<INCOME-TAX> 269
<INCOME-CONTINUING> 426
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (10)
<NET-INCOME> 416
<EPS-PRIMARY> 4.37
<EPS-DILUTED> 4.27
</TABLE>
