SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 1-8627
SANTA FE PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3258709
(State of Incorporation) (I.R.S. Employer Identification No.)
1700 East Golf Road, Schaumburg, Illinois 60173-5860
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (708) 995-6000
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Shares Outstanding
Class at September 30, 1994
----------------------------- -------------------------
Common Stock, $1.00 par value 186,996,400 shares
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PART I
FINANCIAL INFORMATION
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(In millions, except per share data)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating Revenues $ 680.2 $ 585.8 $ 1,969.9 $ 1,778.1
---------- ---------- ---------- ----------
Operating Expenses
Compensation and benefits 208.5 195.0 625.3 600.0
Contract services 104.2 85.7 282.3 239.8
Fuel 62.8 53.4 182.9 172.2
Equipment rents 62.9 65.4 185.3 170.1
Depreciation and amortization 50.4 47.6 149.6 140.4
Materials and supplies 26.8 33.9 91.6 98.1
Other 46.8 55.2 147.0 154.6
---------- ---------- ---------- ----------
Total Operating Expenses 562.4 536.2 1,664.0 1,575.2
---------- ---------- ---------- ----------
Operating Income 117.8 49.6 305.9 202.9
Equity in Earnings of Pipeline 9.3 (3.5) 26.3 11.1
Interest Expense 29.6 34.1 89.5 103.7
Gain on Sale of California Lines - - - 145.4
Other Income (Expense)-Net (10.0) 18.8 22.7 4.7
---------- ---------- ---------- ----------
Income From Continuing Operations Before Income Taxes 87.5 30.8 265.4 260.4
Income Taxes 37.0 41.1 112.3 136.1
---------- ---------- ---------- ----------
Income (Loss) From Continuing Operations 50.5 (10.3) 153.1 124.3
Income from Discontinued Operations, Net of Income Taxes - 7.5 23.1 147.5
---------- ---------- ---------- ----------
Net Income (Loss) $ 50.5 $ (2.8) $ 176.2 $ 271.8
========== ========== ========== ==========
Income (Loss) Per Share of Common Stock
Continuing Operations $ 0.27 $ (0.05) $ 0.81 $ 0.67
Discontinued Operations - 0.04 0.12 0.79
---------- ---------- ---------- ----------
Net Income (Loss) $ 0.27 $ (0.01) $ 0.93 $ 1.46
========== ========== ========== ==========
Average Number of Common and Common Equivalent Shares 189.3 187.5 189.7 186.7
========== ========== ========== ==========
<FN>
(See accompanying notes to Consolidated Financial Statements)
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</FN>
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<TABLE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In millions)
<CAPTION>
September 30, December 31,
1994 1993
-------------- --------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents, at cost which approximates market $ 16.5 $ 70.3
Accounts receivable, less allowances 98.3 96.1
Materials and supplies 97.1 92.3
Note receivable - current 36.2 72.5
Current portion of deferred income taxes 103.4 99.3
Other 9.1 27.2
-------------- --------------
Total current assets 360.6 457.7
-------------- --------------
Note Receivable - 36.2
Other Long-Term Assets 322.9 323.3
Properties, Plant and Equipment 6,176.5 5,886.1
Less-accumulated depreciation and amortization 1,544.5 1,577.7
-------------- --------------
Net properties 4,632.0 4,308.4
Net Assets of Discontinued Operations - 248.4
-------------- --------------
Total Assets $ 5,315.5 $ 5,374.0
============== ==============
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities $ 702.0 $ 669.8
Notes payable and current maturities of long-term debt 191.6 184.7
-------------- --------------
Total current liabilities 893.6 854.5
-------------- --------------
Long-Term Debt Due After One Year 890.0 991.1
Postretirement Benefits Liability 257.7 284.7
Restructuring Liability 201.0 257.8
Other Long-Term Liabilities 698.2 601.7
Deferred Income Taxes 1,167.2 1,115.9
-------------- --------------
Total liabilities 4,107.7 4,105.7
-------------- --------------
Shareholders' Equity
Common stock 190.0 190.0
Paid-in capital 842.0 869.7
Retained income 262.9 340.3
Treasury stock, at cost (87.1) (131.7)
-------------- --------------
Total shareholders' equity 1,207.8 1,268.3
-------------- --------------
Total Liabilities and Shareholders' Equity $ 5,315.5 $ 5,374.0
============== ==============
</TABLE>
(See accompanying notes to Consolidated Financial Statements)
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<TABLE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In millions)
<CAPTION>
Nine Months
Ended September 30,
1994 1993
---------- ----------
<S> <C> <C>
Operating Activities
Net income $ 176.2 $ 271.8
Adjustments to reconcile net income to operating cash flows:
Income from discontinued operations, net of income taxes (23.1) (147.5)
Depreciation and amortization 149.6 140.4
Deferred income taxes 52.2 105.1
Rail restructuring costs paid (51.9) (65.4)
Imputed interest expense 15.5 20.6
Gain on sales of property, plant and equipment (3.4) (151.7)
Other-net (55.9) (18.0)
Changes in working capital:
Accounts receivable:
Sale of accounts receivable 40.0 -
Other changes (42.2) (39.4)
Materials and supplies (4.8) (14.2)
Accounts payable and accrued liabilities 32.2 75.8
Other 13.2 (1.9)
---------- ----------
Net Cash Provided By Operating Activities-Continuing Operations 297.6 175.6
Discontinued Operations-Net 54.3 69.9
---------- ----------
Net Cash Provided by Operating Activities 351.9 245.5
---------- ----------
Investing Activities
Cash used for capital expenditures (333.2) (255.4)
Proceeds from the sale of property, plant and equipment 16.2 236.6
Other-net 92.9 72.2
Discontinued Operations-Net (49.4) (85.7)
---------- ----------
Net Cash Used For Investing Activities (273.5) (32.3)
---------- ----------
Financing Activities
Proceeds from long-term borrowings 32.0 6.5
Principal payments on long-term borrowings (183.6) (154.0)
Cash dividends paid - (18.5)
Other-net 10.8 14.4
Discontinued Operations-Net 8.6 (97.4)
---------- ----------
Net Cash Used For Financing Activities (132.2) (249.0)
---------- ----------
Decrease in Cash and Cash Equivalents (53.8) (35.8)
Cash and Cash Equivalents:
Beginning of period 70.3 62.1
---------- ----------
End of period $ 16.5 $ 26.3
========== ==========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest $ 73.5 $ 78.6
Income Taxes $ 48.8 $ 5.3
========== ==========
<FN>
(See accompanying notes to Consolidated Financial Statements)
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</FN>
</TABLE>
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(a) The consolidated financial statements should be read in
conjunction with the Santa Fe Pacific Corporation ("SFP",
"Registrant" or "Company") Annual Report on Form 10-K for the
year ended December 31, 1993 ("1993 Form 10-K"), including those
financial statements and notes thereto incorporated by reference
from the Registrant's 1993 Annual Report to Shareholders and
Amendment No. 1 and Amendment No. 2 on Form 10-K/A dated June 29,
1994 and October 5, 1994, respectively, and the Company's Current
Report on Form 8-K dated August 3, 1994 (as amended by Form 8-K/A
dated October 5, 1994), which restated certain sections of the
1993 Form 10-K to reflect SFP's gold subsidiary, Santa Fe Pacific
Gold Corporation ("SFP Gold"), as a discontinued operation.
(b) In the opinion of SFP management, the consolidated statement of
operations for the three and nine months ended September 30, 1994
and 1993 reflects all adjustments necessary for a fair statement
of the results of operations. Except as otherwise disclosed, all
adjustments are of a normal recurring nature.
(c) The consolidated statement of operations for the three and nine
months ended September 30, 1994 is not necessarily indicative of
the results of operations for the full year 1994.
(d) On June 29, 1994, SFP's Board of Directors approved the
distribution to SFP shareholders of its remaining 85.4% interest
in SFP Gold. Holders of record of SFP common stock as of
September 12, 1994, received a distribution on September 30, 1994
of one share of common stock of SFP Gold for every approximately
1.7 shares of SFP common stock held. Accordingly, certain
current year and comparative prior year amounts in the
consolidated financial statements have been reclassified to
present SFP Gold as a discontinued operation. Under a ruling
obtained from the Internal Revenue Service, the distribution is
tax-free to SFP shareholders.
Through June 30, 1994 the Company had recorded 1994 net income of
$23.1 million from discontinued operations which represented
earnings from first and second quarter operations, and estimated
transaction and other costs related to the distribution partially
offset by estimated earnings prior to the distribution on
September 30, 1994. No adjustments were required to be made to
these estimates in the third quarter of 1994. Income from
discontinued operations for the three months ended September 30,
1993 and the nine months ended September 30, 1993 and 1994 was as
follows:
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Three Months Ended Nine Months Ended
September 30, September 30,
1993 1994 1993
------ ------ ------
(In millions)
Revenues $ 83.2 $273.7 $204.6
------ ------ ------
Income before income taxes 18.4 44.2 277.9
Income taxes 10.9 21.1 130.4
------ ------ ------
Income from discontinued operations $ 7.5 $ 23.1 $147.5
------ ------ ------
In June 1993, SFP Gold completed an asset exchange with Hanson
Natural Resources Company ("Hanson"). SFP Gold received certain
gold assets of Hanson, and Hanson acquired essentially all coal
and aggregate assets of SFP Gold. Income from discontinued
operations for the nine months ended September 30, 1993 includes
an after tax gain on the exchange of $108.3 million or $0.58 per
share.
(e) In June 1994, SFP changed the eligibility requirements for its
postretirement medical benefits, resulting in a pre-tax, non-cash
curtailment gain of $29.5 million related to employees who are no
longer currently eligible for benefits. The Atchison, Topeka and
Santa Fe Railway Company ("Santa Fe Railway") recorded $28.1
million of the gain which is included in Other income (expense)-
net. The remaining $1.4 million is reflected in the Equity in
Earnings of Pipeline.
(f) At September 30, 1994, Santa Fe Railway had entered into various
commodity swap transactions with several counterparties covering
approximately 90 million gallons of diesel fuel in 1994 which is
anticipated to cover approximately 90% of remaining 1994 fuel
purchases and 160 million gallons in 1995 which is anticipated to
cover approximately 40% of 1995 fuel purchases. These swap
arrangements have an average price of 48 cents per gallon. This
price does not include taxes, fuel handling costs and any
differences which may occur from time to time between the prices
of commodities hedged and the purchase price of the Santa Fe
Railway's diesel fuel. The effect of the fuel hedges was to
decrease operating expense by $0.4 million for the three months
ended September 30, 1994 and to increase operating expense by
$2.2 million for the three months ended September 30, 1993, and
to increase operating expense by $3.0 million and $6.5 million
for the nine months ended September 30, 1994 and 1993,
respectively. The fair market value of the Santa Fe Railway's
fuel hedging transactions at September 30, 1994 was an unrealized
gain of $6.1 million.
In addition, at September 30, 1994 the Company had four related
interest rate swap transactions with a total notional principal
amount of $100 million, for the purpose of establishing rates in
anticipation of an expected future debt offering. The swap
transactions called for the payment of a fixed interest rate of
6.2%, which was based upon ten year treasury notes, and the
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receipt of a variable interest rate. The fair value of the swap
transactions at September 30, 1994 was an unrealized gain of
approximately $9.4 million.
In conjunction with a debt offering closed on November 8, 1994,
the Company closed out the swap transactions which resulted in a
gain of $10.9 million. The gain will be amortized as an
adjustment to interest expense over the ten year term of the
borrowing.
(g) As a result of the distribution of common stock of SFP Gold on
September 30, 1994, the number of stock options outstanding
increased by 6.7 million accompanied with a decrease in the
related exercise price, both which complied with regulations
under the Internal Revenue Code. The adjustments resulted from a
provision in existing plans to modify awards to reflect the
impact of the SFP Gold spin-off.
Additionally, the shareholders of SFP and Burlington Northern
Inc. ("BNI") are to each vote on the proposed merger of SFP and
BNI at special shareholder meetings scheduled to be held on
November 18, 1994. The approval by shareholders would constitute
a "change in control" for SFP thereby accelerating the vesting of
or causing a lapse of restrictions applicable to most outstanding
stock options, restricted stock awards, and other awards under
the Santa Fe Pacific Long Term Incentive Stock Plan and the Santa
Fe Pacific Incentive Stock Compensation Plan. Specifically, if
the merger is approved by shareholders, the vesting of restricted
stock awards would result in a net charge of approximately $5
million in the fourth quarter of 1994.
(h) In the first quarter of 1993, Santa Fe Railway completed the
second stage of three scheduled closings on the sale to eight
southern California transportation agencies of certain interests
in approximately 340 miles of rail lines and additional property.
Santa Fe Railway received $166.9 million in cash proceeds
resulting in a pre-tax gain of $145.4 million. The gain
recognized is net of the cost of the properties and other
expenses of the sale. Proceeds of $126 million were used to
retire debt related to discontinued operations. The final
closing occurred in the second quarter of 1993 in which proceeds
of $60 million were received. No gain was recognized under the
final closing as proceeds were offset by the cost of property,
other expenses of the sale and an obligation retained by Santa Fe
Railway, which under certain conditions, requires the repurchase
of a portion of the properties sold for $50 million.
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<PAGE>
(i) SFP is a party to a number of legal actions and claims, various
governmental proceedings and private civil suits arising in the
ordinary course of business, including those related to
environmental exposures and employee injury claims. While the
final outcome of these items cannot be predicted with certainty,
considering among other things, the meritorious legal defenses
available, it is the opinion of SFP management that none of these
items, when finally resolved, will have a material adverse effect
on the annual results of operations, financial position or
liquidity of SFP, although an adverse resolution of a number of
these items in a single year could have a material adverse effect
on the results of operations for that year.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
---------------------
Current Quarter Compared with Same Quarter of Preceding Year
------------------------------------------------------------
SFP reported net income for the third quarter of $50.5 million or
$0.27 per share compared to a net loss of $2.8 million or $0.01 per
share last year. The increase in net income primarily relates to: 1)
higher operating income due to increased traffic levels, continued
operating efficiencies, and the adverse effects of flooding in the
midwest in 1993; 2) a $12.8 million increase in equity in earnings of
Pipeline, which includes a $12.2 million special litigation and
environmental charge in 1993; 3) higher income taxes in 1993 which
reflect a $27.7 million charge for the retroactive effect of an
increase in the federal income tax rate from 34% to 35%; and 4) lower
interest expense. The above improvements are partially offset by a
$28.8 million decrease in other income (expense)-net. Other income
(expense)-net in 1993 included pre-tax credits totaling $21.6 million
related to the favorable outcome of arbitration and litigation
settlements. Income for the third quarter of 1993 also included $7.5
million from the Company's discontinued gold operations. These gold
operations were treated as discontinued as of June 30, 1994 and made
no contribution to 1994 third quarter results.
Net income from continuing operations was $50.5 million or $0.27 per
share in 1994 as compared to adjusted net income from continuing
operations of $12.0 million or $0.07 per share in 1993. This increase
is primarily due to higher operating income and lower interest
expense. Adjustments in the 1993 period include the pipeline
litigation and environmental charge, the retroactive increase in tax
rates, and the favorable arbitration and litigation settlements,
discussed above.
Operating income at Santa Fe Railway for the quarter was $117.8
million, an increase of $68.2 million over the $49.6 million reported
in the third quarter of 1993. Operating revenues of $680.2 million,
which includes revenue from miscellaneous transportation related
items, rose 16% as carloadings increased 11% and average revenue per
car increased 4%. Freight revenues by commodity for the three and
nine months ended September 30, 1994 and 1993 were as follows:
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<PAGE>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
-------- -------- -------- --------
(In millions)
Intermodal
Intermodal Marketing Companies $ 114.2 $ 87.4 $ 326.6 $ 279.7
Direct Marketing 136.1 96.2 376.7 284.8
International 57.9 49.0 162.8 144.9
-------- -------- -------- --------
Total Intermodal 308.2 232.6 866.1 709.4
-------- -------- -------- --------
Carload Commodities
Petroleum 37.1 32.8 108.1 104.9
Chemicals & Plastics 36.1 35.8 106.7 99.9
Consumer/Food Products 31.7 30.0 98.1 94.8
Building Materials & Paper Prod. 31.4 27.5 90.4 79.8
Metals 19.9 19.8 60.3 57.1
-------- -------- -------- --------
Total Carload Commodities 156.2 145.9 463.6 436.5
-------- -------- -------- --------
Bulk Products
Coal 60.2 56.7 178.0 164.3
Minerals, Ores & Other 36.9 36.7 111.3 116.0
Grain 35.9 45.1 95.3 122.8
Grain Products 21.5 18.9 63.2 60.5
-------- -------- -------- --------
Total Bulk Products 154.5 157.4 447.8 463.6
-------- -------- -------- --------
Automotive
Motor Vehicles 42.9 33.1 142.0 117.3
Vehicle Parts 6.1 5.6 19.5 21.0
-------- -------- -------- --------
Total Automotive 49.0 38.7 161.5 138.3
-------- -------- -------- --------
Total Freight Revenue $ 667.9 $ 574.6 $1,939.0 $1,747.8
======== ======== ======== ========
Intermodal revenues increased 33% to $308.2 million, partially because
this was the business area most severely affected by the 1993 flood.
Direct marketing revenues increased 41% primarily due to increased
less-than-truckload, Quantum and UPS shipments. Intermodal marketing
companies revenues increased 31% primarily due to a 24% volume
increase and rate increases on all traffic originating or terminating
in either Texas or Northern California. Carload commodity revenues of
$156.2 million were 7% higher than last year, principally reflecting
increased volumes in building materials & paper products, petroleum
and consumer/food products. Bulk products revenues declined 2% as
lower grain shipments were partially offset by higher volumes in coal
and grain products. Grain revenues were lower due to reduced export
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grain shipments, while coal traffic increased as utilities experienced
increased demand and continued to build inventory levels. Automotive
revenues increased 27% to $49.0 million due to higher volumes and
average revenue per car.
Quarterly operating expenses for Santa Fe Railway were $562.4 million,
an increase of 5% from last year reflecting both volume increases and
inflation. Compensation and benefits expense of $208.5 million
increased 7% as the effects of higher traffic levels were partially
offset by operating efficiencies. Contract services expense increased
$18.5 million due to higher business volumes and increased use of
contracted locomotive maintenance, partially offset by the absence of
expenses incurred as a result of the 1993 flooding. Materials and
supplies expense decreased $7.1 million due to lower locomotive
materials expense. Other expense decreased $8.4 million due in part
to 1993 detour expenses incurred as a result of the floods.
SFP's investment in Santa Fe Pacific Pipeline Partners, L.P.
("Pipeline Partnership") produced equity income of $9.3 million in the
quarter compared to a loss of $3.5 million in the prior year. The
increase in equity income is principally due to a $12.2 million
special litigation and environmental charge recorded in 1993 and an
increase in commercial volumes.
Interest expense decreased $4.5 million reflecting lower debt levels.
Other income (expense)-net decreased $28.8 million due primarily to
credits of $21.6 million related to the favorable outcome of
arbitration and litigation settlements recorded in the third quarter
of 1993 and lower real estate income.
Year to Date 1994 Compared to Year to Date 1993
-----------------------------------------------
SFP reported net income of $176.2 million or $0.93 per share for the
nine months ended September 30, 1994 compared to $271.8 million or
$1.46 per share in 1993. The decrease in net income primarily relates
to a pre-tax gain of $145.4 million recorded in 1993 related to the
sale of rail lines in southern California as discussed in Note (h) and
lower income from discontinued operations, including a $108.3 million
after tax gain on the exchange of mineral assets in 1993. The above
are partially offset by a $103.0 million increase in operating income
due primarily to increased traffic levels, continued operating
efficiencies and the adverse effects of flooding in the midwest in
1993, as well as lower interest expense and higher other income
(expense)-net.
Adjusted net income from continuing operations was $123.5 million or
$0.65 per share in 1994 compared to $61.4 million or $0.33 per share
in 1993. Results of 1994 have been adjusted to exclude a pre-tax
credit of $29.5 million resulting from a change in postretirement
medical benefits eligibility requirements discussed in Note (e), a
$12.3 million pre-tax charge related to an adverse appellate court
decision and pre-tax gains of $34.2 million related to the sale of an
investment and a favorable litigation settlement. Results for 1993
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have been adjusted to exclude the third quarter special items
discussed previously and the gain on the sale of California lines.
Santa Fe Railway's operating income for the first nine months was
$305.9 million compared with $202.9 million a year earlier. Operating
revenues of $1,969.9 million improved 11% as carloadings increased 9%
and average revenue per car increased 2%. Intermodal revenues
increased 22% compared to last year reflecting increased carloadings
in the intermodal marketing company and direct marketing segments, and
higher average revenue per car in intermodal marketing companies.
Carload commodities revenues increased 6% primarily reflecting
increased volumes in building materials & paper products and chemicals
& plastics. Bulk products revenues declined 3% as lower export grain
shipments were partially offset by higher coal revenues. Automotive
revenues increased 17% reflecting higher volumes and average revenue
per car.
Operating expenses at Santa Fe Railway were $1,664.0 million, a 6%
increase over last year. Compensation and benefits expense was $25.3
million or 4% above last year due to higher traffic levels, partially
offset by operating efficiencies. Contract services expense of $282.3
million was 18% above last year principally reflecting higher volumes
and increased use of contract services for locomotive maintenance.
Equipment rents expense of $185.3 million was 9% above last year and
fuel expense of $182.9 million was 6% above last year, both reflecting
increased business volumes.
Income from SFP's equity investment in the Pipeline Partnership of
$26.3 million increased by $15.2 million compared to last year,
primarily due to the absence of the $12.2 million third quarter 1993
special litigation and environmental charge discussed previously, a
$1.4 million credit related to the change in postretirement benefits
eligibility requirements recorded in 1994, and volume increases at the
Pipeline Partnership.
Interest expense of $89.5 million was $14.2 million lower due
principally to lower outstanding debt. Other income (expense)-net
increased $18.0 million and includes the net favorable impacts of 1994
special items including the credit for the change in postretirement
medical benefits eligibility requirements discussed in Note (e), pre-
tax gains of $34.2 million related to the sale of an investment and a
favorable litigation settlement, partially offset by the $12.3 million
charge for an adverse appellate court decision. Other income
(expense)-net in 1993 included credits of $21.6 million related to the
favorable outcome of arbitration and litigation settlements.
Excluding special items in both years, other income (expense)-net
declined $10.4 million from last year, primarily the result of lower
real estate income.
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Financial Condition and Other Matters
-------------------------------------
Year-to-Date Cash Flow
----------------------
For the nine months ended September 30, 1994, net cash provided by
operating activities from continuing operations totaled $297.6
million which includes net income before depreciation and deferred
taxes and a $40 million sale of accounts receivable. Total capital
expenditures for the first nine months of 1994, which include noncash
transactions, were $485.8 million. Noncash transactions of $152.6
million primarily represent directly financed equipment acquisitions
and reimbursable projects. Capital spending principally related to
equipment, new facilities and improvements to track structure and
other road properties and was primarily funded through cash generated
from continuing operations, equipment financings, short-term
borrowings and available cash balances. Total principal payments on
long-term borrowings were $183.6 million for the nine months ended
September 30, 1994. SFP's ratio of total debt to capital was 47% at
September 30, 1994 compared to 48% at December 31, 1993.
Rail Restructuring
------------------
Benefits from the eastern lines crew consist agreement of
approximately $25 million annually and from centralization of certain
transportation functions of approximately $20 million annually are
being realized as expected and as previously disclosed. Restructuring
costs paid of $51.9 million for the first nine months of 1994 are also
being incurred as expected, with annual payments estimated to be
approximately $65 million in 1994.
Merger Activities
-----------------
On June 29, 1994, and as amended on October 27, 1994, SFP and BNI
entered into a definitive Agreement and Plan of Merger ("Merger
Agreement") which calls for SFP to merge with and into BNI, with BNI
being the surviving corporation ("Merger"). Upon consummation of the
Merger, each SFP share outstanding will be converted into the right to
receive 0.34 of a share of BNI stock.
The Merger has been approved by the boards of directors of SFP and
BNI, but is still subject to a number of conditions, including
approval by the shareholders of both BNI and SFP and approval by the
Interstate Commerce Commission ("ICC"). A special meeting of SFP
shareholders is scheduled to be held on November 18, 1994 to vote on
the Merger.
Union Pacific Corporation ("UPC") has submitted various non-binding
proposals to acquire SFP. Additionally, UPC has solicited proxies from
SFP shareholders to vote against the Merger. UPC's latest proposal
dated November 8, 1994 proposes a two-step transaction using a voting
trust, in which UPC would first acquire about 57% of SFP's outstanding
shares through a cash tender offer at a price of $17.50 per share,
with the remaining SFP shares to be exchanged on the basis of 0.354 of
a share of UPC common stock for each share of SFP stock upon merger of
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<PAGE>
the two companies ("the UPC Proposal"). Both the cash and stock
portions of the UPC Proposal would be fully taxable to SFP
shareholders. On November 10, 1994 UPC commenced the tender offer
contemplated by the UPC Proposal.
The UPC Proposal is contingent on a number of conditions including:
there being validly tendered and not withdrawn prior to the expiration
of the proposal, a number of SFP shares which constitutes at least a
majority of the shares outstanding; negotiation of a definitive merger
agreement between SFP and UPC; SFP shareholders not approving the
Merger Agreement with BNI; UPC satisfaction that Section 203 of the
Delaware General Corporation Law has been complied with or is invalid
or otherwise inapplicable; termination of the Merger Agreement with
BNI; receipt of an opinion from the ICC Staff, satisfactory to UPC,
that the voting trust to be used is consistent with the policies of
the ICC; approval of the boards of directors of SFP and UPC; and
approval by SFP shareholders. ICC approval of the proposed merger
would be required; however, such would not effect consideration
received by SFP shareholders due to the voting trust.
As part of the above proposal, UPC also left open its previously
submitted alternative proposal to acquire SFP, which proposed to
exchange 0.407 shares of UPC stock for each share of SFP stock. This
proposal would require, among other things, the termination of the
Merger Agreement with BNI; negotiation of a definitive merger
agreement between SFP and UPC; approval of the boards of directors and
shareholders of SFP and UPC; and ICC approval.
SFP announced on November 11, 1994 that its board of directors is
evaluating the latest UPC proposal.
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings
--------------------------
On June 30, 1994, shortly after announcement of the proposed BNI-SFP
merger, two purported stockholder class action suits were filed in the
Court of Chancery of the State of Delaware (Miller v. Santa Fe Pacific
Corporation, C.A. No. 13587; Cosentino v. Santa Fe Pacific
Corporation, C.A. No. 13588). On July 1, 1994, two additional
purported stockholder class action suits were filed in the Court of
Chancery of the State of Delaware (Fielding v. Santa Fe Pacific
Corporation, C.A. No. 13591; Wadsworth v. Santa Fe Pacific
Corporation, C.A. No. 13597).
The actions name as defendants SFP, the individual members of the SFP
Board of Directors and BNI. In general, the actions variously allege
that SFP's directors breached their fiduciary duties to the
stockholders by agreeing to the proposed merger for allegedly "grossly
inadequate" consideration in light of recent operating results of SFP,
recent trading prices of SFP's common stock and other alleged factors,
by allegedly failing to take all necessary steps to ensure that
stockholders will receive the maximum value realizable for their
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<PAGE>
shares (including allegedly failing to actively pursue the acquisition
of SFP by other companies or conducting an adequate "market check")
and by allegedly failing to disclose to stockholders the full extent
of the future earnings potential of SFP, as well as the current value
of its assets. The Miller and Fielding cases further allege that the
proposed merger is unfairly timed and structured and, if consummated,
would allegedly unfairly deprive the stockholders of standing to
pursue certain pending stockholder derivative litigation. Plaintiffs
also have alleged that BNI is responsible for aiding and abetting the
alleged breach of fiduciary duty committed by the SFP Board. The
actions seek certification of a class action on behalf of SFP's
stockholders. In addition, the actions seek injunctive relief against
consummation of the Merger and, in the event that the Merger is
consummated, the rescission of the Merger, an award of compensatory or
rescissory damages and other damages, including court costs and
attorneys' fees, an accounting by defendants of all profits realized
by them as a result of the Merger and various other forms of relief.
On October 6, 1994, shortly after UPC issued a press release in which
it announced the UPC Proposal, plaintiffs in the four lawsuits
described above filed in the Court of Chancery of the State of
Delaware a Consolidated Amended Complaint (Miller v. Santa Fe
Corporation, C.A. No. 13587). In their Consolidated Amended
Complaint, plaintiffs repeat the allegations contained in their
earlier lawsuits and further allege that, in light of the UPC
Proposal, SFP's directors have breached their fiduciary duties by
failing to fully inform themselves about and to adequately explore
available alternatives to the Merger, including the alternative of a
merger transaction with UPC, and by failing to fully inform themselves
about the value of SFP. The Consolidated Amended Complaint seeks the
same relief sought in plaintiffs' earlier lawsuits and, in addition,
requests that SFP's directors be ordered to explore alternative
transactions and to negotiate in good faith with all interested
persons, including UPC.
Also on October 6, 1994, UPC filed in the Court of Chancery of the
State of Delaware a lawsuit against SFP, SFP's directors and BNI
(Union Pacific Corporation v. Santa Fe Pacific Corporation, C.A. No.
13778). In its Complaint, UPC alleges that SFP's management
purportedly rejected the UPC Proposal "out-of-hand" without regard to
the facts of the UPC Proposal, and that SFP's directors have breached
their fiduciary duties by purportedly refusing to negotiate with UPC
regarding the UPC Proposal, by refusing to terminate the Merger
Agreement and by failing to include in the Merger Agreement a
provision allowing SFP to terminate the Merger Agreement in order to
enter into an agreement with UPC. UPC seeks injunctive relief
mandating SFP to negotiate with UPC regarding the UPC Proposal, a
declaration that UPC has not tortiously interfered with defendants'
contractual or other legal rights, an injunction against defendants
from bringing or maintaining any action against UPC alleging that UPC
has tortiously interfered with defendants' contractual or other legal
rights, a declaration that the Merger Agreement permits SFP to
terminate the Merger Agreement in order to accept the UPC Proposal or,
in the alternative, that the Merger Agreement is invalid and
unenforceable for failing to include such a provision, and an award of
UPC's costs in bringing its lawsuit, including reasonable attorneys'
fees.
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<PAGE>
Also, on October 6, 1994, five additional purported stockholder class
action suits relating to SFP's proposed participation in the Merger
were filed in the Court of Chancery of the State of Delaware (Weiss v.
Santa Fe Pacific Corporation, C.A. No. 13779; Lifshitz v. Krebs, C.A.
No. 13780; Stein v. Santa Fe Pacific Corporation, C.A. No. 13782;
Lewis v. Santa Fe Pacific Corporation, C.A. No. 13783; Abramson v.
Lindig, C.A. No. 13784). On October 7, 1994, three more purported
stockholder class action suits relating to SFP's proposed
participation in the Merger were filed in the Court of Chancery of the
State of Delaware (Graulich v. Santa Fe Pacific Corporation, C.A. No.
13786; Anderson v. Santa Fe Pacific Corporation, C.A. No. 13787; Green
v. Santa Fe Pacific Corporation, C.A. No. 13788). All of these
lawsuits name as defendants SFP and the individual members of the SFP
Board of Directors; the Lifshitz case further names BNI as a
defendant. In general, these actions variously allege that, in light
of SFP's recent operating results and the UPC Proposal, SFP's
directors have breached their fiduciary duties to stockholders by
purportedly not taking the necessary steps to ensure that SFP's
stockholders will receive "maximum value" for their shares of SFP
stock, including purportedly refusing to negotiate with UPC or to
"seriously consider" the UPC Proposal and failing to announce any
active auction or open bidding procedures. The actions generally seek
relief that is materially identical to the relief sought in the Miller
case, and in addition seek entry of an order requiring SFP's directors
to immediately undertake an evaluation of SFP's worth as a
merger/acquisition candidate and to establish a process designed to
obtain the highest possible price for SFP, including taking steps to
"effectively expose" SFP to the marketplace in an effort to create an
"active auction" in SFP. The Weiss case further seeks entry of an
order enjoining SFP's directors from implementing any poison pill or
other device designed to thwart the UPC Proposal or any other person's
proposal to acquire SFP.
The Anderson lawsuit was subsequently withdrawn. On October 14, 1994,
the Chancery Court entered an order consolidating the remaining eleven
purported stockholder class action suits under the heading In Re Santa
Fe Pacific Corporation Shareholder Litigation, C.A. No. 13587.
Also, on October 14, 1994, plaintiffs in the consolidated case filed a
Consolidated and Amended Complaint, which supersedes the previously
filed stockholder complaints. The Consolidated and Amended Complaint
generally repeats the allegations of, and requests the same relief as,
the plaintiffs' earlier complaints and, in addition, alleges that
SFP's directors have breached their fiduciary duties by approving and
recommending to SFP stockholders the Merger, by failing to fully
inform themselves about, or to provide information to, possible
alternative merger candidates such as UPC, and by issuing the Original
Joint Proxy Statement/Prospectus, which purportedly fails to disclose
all material information relevant to SFP stockholders' consideration
of the proposed Merger, including failure to disclose that SFP's
directors purportedly have an implied right to terminate the Merger
Agreement as a result of the allegedly superior UPC Proposal, failure
to disclose the facts considered by SFP's directors in allegedly
determining that the UPC Proposal does not represent a fair price,
failure to disclose sufficient facts relating to, and the relative
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<PAGE>
risks of obtaining, ICC approval of a BNI-SFP Merger and a UPC-SFP
merger to enable SFP stockholders to weigh and compare the likelihood
of obtaining ICC approval of those transactions, failure to disclose
the substance of negotiations in late June 1994 between BNI and SFP
leading to the Merger Agreement, failure to disclose advice provided
to SFP's directors regarding the background of negotiations between
BNI and SFP that had occurred since 1993 and the significance of that
advice to the directors' approval of the Merger Agreement, failure to
disclose facts regarding the SFP directors' consideration of a
possible combination transaction with Kansas City Southern Industries,
Inc. ("KCSI"), including the anticipated terms and potential value and
benefits to SFP of such a transaction and the reasons why SFP
concluded that the BNI transaction was superior and withdrew its bid
submitted to KCSI in late June 1994, and failure to disclose that SFP
did not provide any confidential information to UPC in response to an
October 11, 1994 letter from Drew Lewis, UPC's Chairman and CEO, to
Mr. Krebs. The Consolidated and Amended Complaint seeks, in addition
to the relief requested in the prior stockholder complaints, an order
requiring SFP to provide access to information concerning SFP or the
Merger to any bona fide bidder, including UPC.
On October 18, 1994, the Chancery Court entered an order denying two
motions, one filed by UPC and one filed by the stockholder plaintiffs
seeking the establishment of an expedited schedule that would have
included a preliminary injunction hearing prior to the scheduled
November 18, 1994 meeting of SFP stockholders. The Chancery Court
concluded that an expedited schedule was unnecessary because, if
plaintiffs prevailed on their claims, it could subsequently enter
appropriate relief after SFP stockholder approval but before
consummation of the Merger.
On October 19, 1994, UPC filed an Amended and Supplemental Complaint.
In addition to repeating the allegations and requested relief of UPC's
earlier Complaint, the Amended and Supplemental Complaint adds James
A. Shattuck as an additional plaintiff, alleges that SFP has made
purportedly false and misleading statements in the Original Joint
Proxy Statement/Prospectus and elsewhere regarding the UPC Proposal
and the Merger, including statements denying that SFP's directors have
the purported right to terminate the Merger Agreement in order to
enter into a merger agreement with UPC based upon the UPC Proposal and
denying that the Merger Agreement is allegedly void for failing to
include such a right, statements failing to disclose the purportedly
preclusive effect of the Merger Agreement on the SFP directors'
consideration of other combination proposals, including the UPC
Proposal, statements allegedly suggesting that the UPC Proposal does
not represent a fair price, and statements allegedly misrepresenting
UPC's objectives in proposing a UPC-SFP merger and the likelihood of
obtaining ICC approval of such a merger. The Amended and Supplemental
Complaint seeks, in addition to the relief requested in UPC's original
Complaint, further declaratory and injunctive relief consisting of a
declaration that the Original Joint Proxy Statement/Prospectus is
false and misleading, an injunction preventing SFP from making any
further allegedly materially false and misleading statements regarding
the UPC Proposal or the Merger and an injunction against the November
18, 1994 SFP stockholder meeting.
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<PAGE>
On November 4, 1994, a purported stockholder class action suit
relating to the proposed BNI-SFP merger was filed in the Chancery
Division of the Circuit Court of Cook County of the State of Illinois
(Rubin v. Santa Fe Pacific Corporation, No. 94 CH 10022). The action
names as defendants SFP and the individual members of the SFP Board of
Directors. The action alleges that SFP's directors breached their
fiduciary duties to shareholders by rejecting UPC's October 30, 1994
revised merger proposal, which incorporated a revised proposed
exchange ratio of .407 shares of UPC common stock for each share of
SFP common stock, and that, as a result, SFP's stockholders have been
deprived of the increase in the market value of their SFP common stock
that allegedly would have occurred if SFP's directors had accepted
UPC's October 30, 1994 proposal. The action seeks certification of a
class action on behalf of SFP stockholders, an injunction preventing
SFP and the SFP directors from taking any further action towards
accepting the BNI-SFP merger, an award of unspecified general and
special damages, appointment of a trustee to supervise the requested
relief, establishment of a common fund on behalf of the class and an
award of court costs, reasonable attorneys' fees and any other relief
deemed appropriate by the Court.
The Company believes that all of these lawsuits are meritless and
intends to oppose them vigorously.
Reference is made to the action entitled David Rodriquez, derivatively
on behalf of Santa Fe Pacific Corporation v. John S. Reed, et. al. No.
92 CH 06618 reported in SFP's Annual Report on Form 10-K for the year
ended December 31, 1993. The parties to the derivative action pending
in the Circuit Court of Cook County, Illinois, have entered into a
Stipulation of Settlement which, if approved by the Court, will result
in the termination of that action. On October 17, 1994, the Court
entered an Order giving preliminary approval to the proposed
settlement, approving notice of the proposed settlement to SFP
stockholders, setting December 7, 1994 as the date by which any
written objections to the settlement must be filed, and scheduling a
fairness hearing with respect to the settlement for December 14, 1994.
In substance, the settlement, if approved by the Court, will result in
the payment to the Company of approximately $11,000,000, provided by
certain D&O insurance carriers, net of plaintiff's attorney's fee
award and expenses. The Stipulation of Settlement provides for an
award of fees and expenses for plaintiff's attorney of $2,710,000 and
an incentive award to plaintiff of $40,000.
SFP is a party to a number of other legal actions and claims,
including various governmental proceedings and private civil suits
arising in the ordinary course of business, including those related to
environmental exposures and employee injury claims. While the final
outcome of these items cannot be predicted with certainty, considering
among other things, the meritorious legal defenses available, it is
the opinion of SFP management that none of these items, when finally
resolved, will have a material adverse effect on the annual results of
operations, financial position or liquidity of SFP, although an
adverse resolution of a number of these items in a single year could
have a material adverse effect on the results of operations for that
year.
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<PAGE>
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) See Index to Exhibits on page E-1 for a description of the
exhibits filed as part of this report.
(b) Reports on Form 8-K.
Registrant filed a Current Report on Form 8-K dated August 3,
1994, including Amendment No. 1 thereto on Form 8-K/A dated
October 5, 1994, amending SFP's restated financial information
related to discontinued operations.
Registrant filed a Current Report on Form 8-K dated October 5,
1994, which included merger related press releases from SFP, BNI
and UPC.
Registrant filed a Current Report of Form 8-K dated October 19,
1994, which included SFP's third quarter 1994 earnings press
release.
Registrant filed a Current Report on Form 8-K dated October 28,
1994, related to pro-forma financial information on the proposed
SFP-BNI merger and certain other related information.
Registrant filed a Current Report of Form 8-K dated November 2,
1994, related to SFP's Board of Directors rejection of UPC's
revised, non-binding proposal to acquire SFP through an exchange
of stock, with a 0.407 exchange ratio.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SANTA FE PACIFIC CORPORATION
(Registrant)
/s/ Thomas N. Hund
----------------------------------------
Thomas N. Hund
Vice President & Controller
(On Behalf of the Registrant and as
Principal Accounting Officer)
Schaumburg, Illinois
November 14, 1994
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<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT
NUMBER Description of Exhibit
------- ----------------------
10.1* Santa Fe Pacific Long Term Incentive Stock Plan (as
amended, effective January 26, 1993).
12 Statement regarding computation of ratio of earnings
to fixed charges (as of September 30, 1994 and 1993).
27 Financial Data Schedule (as of September 30, 1994).
* Management contract or compensatory plan or arrangement.
E-1
SANTA FE PACIFIC
LONG TERM INCENTIVE STOCK PLAN
EFFECTIVE DATE January 26, 1993 (as amended)
TERMINATION DATE January 26, 2003
ADMINISTRATION OF Compensation and Benefits Committee of the Board of
PLAN Directors.
MAXIMUM PLAN 13,976,082
AWARD
BASIS OF AWARD In order to further the identity of interest of
employees with the stockholders of SFP, all of the
forms of compensation under the Plan relate to SFP
Common Stock.
1. Options (either ISOs or Non-Qualified Stock Options)
2. Restricted Stock
3. Performance Units
4. Stock Appreciation Rights
5. Performance Shares
6. Limited Stock Appreciation Rights
AMOUNT OF AWARD The Committee shall select those employees to be
granted awards under the Plan. The Committee shall also
determine the terms and provisions of awards, which
need not be identical.
i
<PAGE>
SANTA FE PACIFIC
LONG TERM INCENTIVE STOCK PLAN
Statement of Purpose
The purpose of the Santa Fe Pacific Long Term Incentive Stock Plan
(the "Plan") is to encourage superior performance by salaried
employees, by allowing Santa Fe Pacific Corporation ("SFP") to award
several forms of incentive compensation to employees of the Company.
By providing incentive compensation commensurate and competitive with
that provided by other companies, the Plan should also assist SFP in
attracting and retaining the services of qualified and capable
employees.
In order to further the identity of interest of employees with the
stockholders of SFP, all of the forms of compensation under the Plan
relate to SFP Common Stock. Employees' success in enhancing
stockholder value will translate directly into an enhanced benefit for
the employees.
I. DEFINITIONS
Unless the context indicates otherwise, the following terms have the
meanings set forth below:
"Acceleration Date" means the earliest date on which any of the
following events shall first have occurred: (i) the acquisition
described in clause (a) of the definition of Change in Control
contained in this Section I, (ii) the change in the composition of the
Board described in clause (b) of such definition, or (iii) the
stockholder approval or adoption described in clause (c) or (d) of
such definition.
"Award" means a grant of Options, Restricted Stock, Performance Units,
Performance Shares or Stock Appreciation Rights pursuant to the Plan.
"Board" means the Board of Directors of SFP.
"Cause" means (a) the willful and continued failure by the Participant
to substantially perform his duties with the Company (other than any
such failure resulting from his incapacity due to physical or mental
illness), or (b) the willful engaging by the Participant in conduct
which is demonstrably and materially injurious to the Company,
monetarily or otherwise. For purposes of this definition, no act, or
failure to act, shall be deemed "willful" unless done, or omitted to
be done, by the Participant not in good faith and without reasonable
belief that his action or omission was in the best interest of the
Company.
A "Change in Control" shall be deemed to have occurred if
(a) any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (other than the Company, any trustee or
other fiduciary holding securities under an employee benefit
plan of the Company, or any company owned, directly or
indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of
stock of the Company), is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 25%
or more of the combined voting power of the Company's then
outstanding securities;
(b) during any period of two consecutive years (not including
any period prior to the effective date of this provision),
individuals who at the beginning of such period constitute
the Board, and any new director (other than a director
designated by a person who has entered into an agreement
with the Company to effect a transaction described in clause
(a), (c) or (d) of this definition) whose election by the
Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease
for any reason to constitute at least a majority thereof;
1
<PAGE>
(c) the stockholders of the Company approve a merger or
consolidation of the Company with any other company other
than (i) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) more than 80% of the combined voting
power of the voting securities of the Company (or such
surviving entity) outstanding immediately after such merger
or consolidation, or (ii) a merger or consolidation effected
to implement a recapitalization of the Company (or similar
transaction) in which no "person" (as hereinabove defined)
acquires more than 25% of the combined voting power of the
Company's then outstanding securities; or
(d) the stockholders of the Company adopt a plan of complete
liquidation of the Company or approve an agreement for the
sale or disposition by the Company of all or substantially
all of the Company's assets. For purposes of this clause
(d), the term "the sale or disposition by the Company of all
or substantially all of the Company's assets" shall mean a
sale or other disposition transaction or series of related
transactions involving assets of the Company or of any
direct or indirect subsidiary of the Company (including the
stock of any direct or indirect subsidiary of the Company)
in which the value of the assets or stock being sold or
otherwise disposed of (as measured by the purchase price
being paid therefor or by such other method as the Board of
Directors of the Company determines is appropriate in a case
where there is no readily ascertainable purchase price)
constitutes more than two-thirds of the fair market value of
the Company (as hereinafter defined). For purposes of the
preceding sentence, the "fair market value of the Company"
shall be the aggregate market value of the outstanding
shares of Common Stock (on a fully diluted basis) plus the
aggregate market value of the Company's other outstanding
equity securities. The aggregate market value of the shares
of Common Stock shall be determined by multiplying the
number of shares of Common Stock (on a fully diluted basis)
outstanding on the date of the execution and delivery of a
definitive agreement with respect to the transaction or
series of related transactions (the "Transaction Date") by
the average closing price of the shares of Common Stock for
the ten trading days immediately preceding the Transaction
Date. The aggregate market value of any other equity
securities of the Company shall be determined in a manner
similar to that prescribed in the immediately preceding
sentence for determining the aggregate market value of the
shares of Common Stock or by such other method as the Board
of Directors of the Company shall determine is appropriate.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation and Benefits Committee of the
Board.
"Common Stock" means the common stock, $1.00 par value, of SFP.
"Company" means collectively SFP and all companies in which SFP owns,
directly or indirectly, more than 50% of the voting stock.
"Disability" means the inability of a Participant to continue to
perform duties of employment, as determined by the Board or the
Committee.
"Fair Market Value" of a share of Common Stock on any particular date
is the mean between the highest and lowest quoted sales prices of a
share of Common Stock on the New York Stock Exchange Composite
Transaction Report; provided, that if there were no sales on the
valuation date but there were sales on dates within a reasonable
period both before and after the valuation date, the Fair Market Value
is the weighted average of the means between the highest and lowest
sales on the nearest date before and the nearest date after the
valuation date. The average is to be weighed inversely by the
respective numbers of trading days between the selling dates and the
valuation date.
2
<PAGE>
"Grant Date" as used with respect to a particular Award means the date
as of which such Award is granted by the Committee pursuant to the
Plan.
"Immediate Family" means, with respect to a particular Participant,
the Participant's spouse, children and grandchildren.
"Option" means an option to purchase shares of Common Stock granted by
the Committee pursuant to the Plan, which may be designated as either
an "Incentive Stock Option" or a "Non-Qualified Stock Option".
"Incentive Stock Option" means an option that is intended to qualify
as an Incentive Stock Option as described in Section 422 of the Code.
"Limited Stock Appreciation Right" means a Stock Appreciation Right
that is exercisable only as set forth in Section XV of the Plan.
"Non-Qualified Stock Option" means an option granted pursuant to the
Plan, other than an Incentive Stock Option.
"Participant" means any employee of the Company who has accepted an
Award granted by the Committee. If a Participant has transferred an
Award in accordance with the Plan, references to "Participant" shall
be deemed to refer to the Participant's transferee where the context
indicates it is appropriate.
"Performance Period" means a period of time determined by the
Committee over which the performance goals associated with a
Performance Unit, Restricted Stock or Performance Share are to be
achieved and over which the Performance Unit, Restricted Stock, or
Performance Share is subject to forfeiture if such goals are not
achieved.
"Performance Share(s)" shall mean Common Stock which is subject to the
terms and conditions set forth in an Award agreement and the Plan and
which is granted by the Committee pursuant to the Plan.
"Performance Unit" means a right to money, the amount of which is
measured as a percentage of the Fair Market Value of a share of Common
Stock on the date following the end of a Performance Period.
"Plan" means the Santa Fe Pacific Long Term Incentive Stock Plan as
set forth herein and as may be amended from time to time.
"Predecessor Plan" means the Santa Fe Pacific Incentive Stock
Compensation Plan.
"Restricted Period" means the period of time for which Restricted
Stock is subject to forfeiture pursuant to the Plan or during which
Options and Stock Appreciation Rights are not exercisable.
"Restricted Stock" means Common Stock subject to a Restricted Period
or a Performance Period which is granted by the Committee pursuant to
the Plan.
"Retirement" means a Participant's voluntarily leaving the employment
of the Company after his early retirement date as defined in the
retirement plan, or predecessor plan, under which the Participant is
entitled to have his benefits calculated.
"SFP" means Santa Fe Pacific Corporation.
"Stock Appreciation Right" means the right, granted by the Committee
pursuant to the Plan, to receive a payment equal to the increase in
the Fair Market Value of a share of Common Stock subsequent to the
Grant Date of such Award.
3
<PAGE>
II. STOCK SUBJECT TO THE PLAN
The maximum aggregate number of shares of Common Stock with respect to
which Options, Restricted Stock, Performance Shares and Stock
Appreciation Rights may be granted from time to time under the Plan
shall not exceed the sum of (A) 13,976,082 shares of Common Stock plus
(B) the lesser of (1) 2,266,913 shares of Common Stock or (2) the
number of shares of Common Stock received by the Corporation in
payment of the exercise price under any Option, whether issued under
the Plan or a Predecessor Plan, subject to adjustment as provided in
Section XIV. The Common Stock issued under the Plan may be either
previously authorized but unissued shares or treasury shares acquired
by SFP. In the event that any Award expires, lapses, is forfeited or
otherwise terminates, any shares of Common Stock allocable to the
terminated portion of such Award may again be made subject to an Award
under the Plan.
III. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee, subject to the
authority of the Board as set forth in the Plan. The members of the
Committee shall be directors of SFP who are not employees of the
Company and are not eligible to participate in the Plan. The Committee
shall select from time to time those employees to be granted Awards
under the Plan. The Committee shall determine the terms and provisions
of Awards, which need not be identical. The Committee shall grant all
Awards. The Committee may construe the Plan, prescribe and rescind
rules and regulations relating to the Plan and make all other
determinations deemed necessary or advisable for the administration of
the Plan, subject to the limitations of Section XVIII.
IV. ELIGIBILITY
Subject to the discretion of the Committee, all salaried officers and
other salaried employees of the Company who have responsibility for
the growth and profitability of the Company are eligible to receive
Awards under the Plan.
V. OPTIONS
The Committee may from time to time, subject to the provisions of the
Plan, grant Awards of Options to employees of the Company to purchase
shares of Common Stock. The Committee may grant Options under this
Plan or in respect to awards under a Predecessor Plan, that contain
provisions for the issuance to the Participant upon exercise of such
Option and payment of the exercise price therefrom with previously
acquired shares, of an additional Option for the number of shares so
delivered in payment of the exercise price, having such other terms
and conditions not inconsistent with the Plan as the Committee may
determine; provided that no such additional Option shall be granted
upon the exercise of an Option transferred by a Participant in
accordance with the Plan. Any Options granted may be designated as
either Incentive Stock Options or as Non-Qualified Stock Options, or
the Committee may designate a portion of an Award as "Incentive Stock
Options" and the remaining portion as "Non-Qualified Stock Options."
Any portion of an Award that is not designated as "Incentive Stock
Options" shall be "Non-Qualified Stock Options" and shall not be
subject to the requirements of Section VI of the Plan.
The purchase price of the Common Stock subject to any Option shall be
determined by the Committee. Such price shall be subject to adjustment
as provided in Section XIV of the Plan.
Options granted hereunder shall not be transferable other than by will
or the laws of descent and distribution and during the Participant's
lifetime shall be exercisable only by the Participant or by his
guardian or legal representative; provided, however, that a
Participant who is an employee may (a) in a manner specified by the
Committee, designate in writing a beneficiary to exercise his Option
after the Participant's death, provided that no such designation shall
be effective unless received by the office of the Company designated
for that purpose prior to the Participant's death and (b) if the Award
Agreement expressly permits, transfer an Option (other than an
Incentive Stock Option) for
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no consideration to any (i) member of the Participant's Immediate
Family, (ii) trust solely for the benefit of members of the
Participant's Immediate Family or (iii) partnership whose only
partners are members of the Participant's Immediate Family; provided,
however, that the transferee shall remain subject to all of the terms
and conditions applicable to such Award prior to such transfer.
The period of any Option, which is the time period during which the
Option may be exercised, shall be determined by the Committee and
shall not extend more than ten years after the Grant Date.
Termination of employment shall result in forfeiture of all
outstanding Options, except as set forth below. Termination by the
Company for any reason other than Cause (including terminations
pursuant to formal severance programs sponsored by an affiliated
company), or termination by reason of Death, Disability, or
Retirement, shall result in a lapse on all or a proportion of the
Restricted Period applicable to any outstanding Award as set forth in
Section XII. The provisions of the Plan relating to Options shall
apply to, and govern, existing Option grants made under Predecessor
Plans as if such awards were granted hereunder (except that such
awards shall not count against the share limit set forth in
Section II).
A person electing to exercise an Option shall give written notice of
such election to the Company in such form as the Committee may
require, and shall tender to the Company the full purchase price of
the shares of Common Stock for which the election is made. Payment of
the purchase price shall be made in cash or in such other form as the
Committee may approve, including shares of Common Stock valued at the
Fair Market Value on the date of exercise of the Option.
Notwithstanding any other provision in the Plan, if a Change in
Control occurs while unexercised Options and Stock Appreciation Rights
relating thereto, remain outstanding under the Plan, then from and
after the Acceleration Date, all Options and Stock Appreciation Rights
shall be exercisable in full, whether or not otherwise exercisable;
provided, however, that no Option and Stock Appreciation Right shall
become exercisable by reason of this paragraph to the extent that such
acceleration of exercisability, when aggregated with other payments or
benefits to the Participant, would, as determined by tax counsel
selected by the Company, result in "Excess Parachute Payments" (as
defined below) equal to or greater than three times the "base amount"
as defined in Section 280G of the Code. "Excess Parachute Payments"
shall mean "parachute payments" as defined in Section 280G of the Code
other than (i) health and life insurance benefits and (ii) payments
attributable to any award, benefit or other compensation plan or
program based upon the number of full or fractional months of any
restricted period (relating thereto) which has elapsed prior to the
date of the Change in Control. Furthermore, such payments or benefits
provided to a Participant under this Plan shall be reduced to the
extent necessary so that no portion thereof shall be subject to the
excise tax imposed by Section 4999 of the Code, but only if, by reason
of such reduction, the Participant's net after tax benefit shall
exceed the net after tax benefit if such reduction were not made. "Net
after tax benefit" shall mean the sum of (i) all payments and benefits
which a Participant receives or is then entitled to receive from the
Company and any of its subsidiaries that would constitute a "parachute
payment" within the meaning of Section 280G of the Code, less (ii) the
amount of federal income taxes payable with respect to the payments
and benefits described in (i) above calculated at the maximum marginal
income tax rate for each year in which such payments and benefits
shall be paid to the Participant (based upon the rate in effect for
such year as set forth in the Code at the time of the first payment of
the foregoing), less (iii) the amount of excise taxes imposed with
respect to the payments and benefits described in (i) above by
Section 4999 of the Code.
VI. INCENTIVE STOCK OPTIONS
An Option designated by the Committee as an "Incentive Stock Option"
is intended to qualify as an "incentive stock option" within the
meaning of Subsection (b) of Section 422 of the Code and shall
satisfy, in addition to the conditions of Section V, the conditions
set forth in this Section VI.
The purchase price of the Common Stock subject to an Incentive Stock
Option shall be not less than the Fair Market Value of the Common
Stock on the Grant Date.
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An Incentive Stock Option shall not be granted to an individual who,
on the Grant Date, owns stock possessing more than ten percent of the
total combined voting power of all classes of stock of SFP.
The aggregate Fair Market Value, determined on the Grant Date, of the
shares of Common Stock which any Participant may for the first time
exercise Incentive Stock Options under the Plan in any calendar year
shall not exceed $100,000.
VII. RESTRICTED STOCK
The Committee may from time-to-time, subject to the provisions of the
Plan, grant awards of Restricted Stock to employees of the Company,
with a Restricted Period of generally not less than three years or a
Performance Period of generally not less than one year, and in no
event less than six months.
Each certificate representing Restricted Stock awarded under the Plan
shall be registered in the name of the Participant and, during the
Restricted Period or Performance Period shall be left on deposit with
the Company with a stock power endorsed in blank. Participants shall
have the right to receive dividends paid on their Restricted Stock and
to vote such shares. Restricted Stock may not be sold, pledged,
assigned, transferred or encumbered during the Restricted Period or
Performance Period determined by the Committee.
The Committee shall establish with respect to each Award of Restricted
Stock subject to a Performance Period, certain goals for the Company
and the number of shares that will vest upon achievement of different
levels of performance. Achievement of maximum targets during the
Performance Period shall result in the Participants' receipt of the
full Restricted Stock Award. For achievement of the minimum target but
less than the maximum target the Committee may establish a portion of
the Award which the Participant is entitled to receive.
Any Restricted Stock which is not earned by the end of the Performance
Period shall be forfeited.
Termination of employment shall result in forfeiture of all
outstanding Restricted Stock, except as set forth below. Termination
by the Company for any reason other than Cause (including terminations
pursuant to formal severance programs sponsored by an affiliated
company), or termination by reason of Death, Disability, or
Retirement, shall result in a lapse on all or a proportion of the
Restricted Period applicable to any outstanding Award other than
Restricted Stock subject to a Performance Period as set forth in
Section XII. Termination of employment prior to the end of the
Performance Period for any reason including Death, Disability, and
Retirement shall result in a forfeiture of outstanding Restricted
Stock subject to a Performance Period. However, in lieu of such
forfeiture, the Committee may establish terms and conditions in the
Award Agreement or by such other action that a Participant is entitled
to a portion of his Restricted Stock subject to a Performance Period.
VIII. PERFORMANCE UNITS
The Committee may from time to time, subject to the provisions of the
Plan, grant Awards of Performance Units to employees of the Company at
the same time as, and in number equal to, grants of Restricted Stock.
The Committee shall, at the time Performance Units are granted,
designate certain goals for the performance of the Company and the
Performance Period over which the goals must be achieved. Such
designated goals must be achieved in order for a Participant to
receive the full value of the Performance Units following the end of
the Performance Period. For the achievement of results below the goals
warranting full value of the Performance Units, the Committee may
determine the value of the Performance Units which the Participants
are entitled to receive.
To the extent earned in accordance with this Section, all Performance
Units shall be payable in cash as soon as practicable following the
end of the Performance Period.
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Termination of employment prior to the end of the Performance Period
for any reason including Death, Disability and Retirement shall result
in the forfeiture of all outstanding Performance Units. However, in
lieu of such forfeiture the Committee may determine that a Participant
is entitled to receive a settlement for his Performance Units by
reason of special circumstances.
IX. STOCK APPRECIATION RIGHTS
The Committee may from time to time, subject to the provisions of the
Plan, grant Awards of Stock Appreciation Rights to employees of the
Company subject to the limitation in Section II.
The Committee shall determine at the time of the grant the time period
during which the Stock Appreciation Rights may be exercised which
period may not commence until six months after the Grant Date.
Stock Appreciation Rights shall not be transferable other than by will
or the laws of descent and distribution and during the Participant's
lifetime shall be exercisable only by the Participant or by his
guardian or legal representative; provided, however, that a
Participant who is an employee may (a) in a manner specified by the
Committee, designate in writing a beneficiary to exercise his Stock
Appreciation Right after the Participant's death, provided that no
such designation shall be effective unless received by the office of
the Company designated for that purpose prior to the Participant's
death and (b) if the Award Agreement expressly permits, transfer a
Stock Appreciation Right for no consideration to any (i) member of the
Participant's Immediate Family, (ii) trust solely for the benefit of
members of the Participant's Immediate Family or (iii) partnership
whose only partners are members of the Participant's Immediate Family;
provided, however, that the transferee shall remain subject to all of
the terms and conditions applicable to such Award prior to such
transfer.
Termination of employment shall result in forfeiture of all
outstanding Stock Appreciation Rights, except as set forth below.
Termination by the Company for any reason other than Cause, or
termination by reason of Death, Disability, or Retirement, shall
result in a lapse on all or a proportion of the Restricted Period
applicable to any outstanding Award as set forth in Section XII.
Subject to any restrictions or conditions imposed by the Committee,
upon the exercise of a Stock Appreciation Right, the Company shall pay
the amount, if any, by which the Fair Market Value of a share of
Common Stock on the date of exercise exceeds the Fair Market Value of
a share of Common Stock on the Grant Date.
A person electing to exercise a Stock Appreciation Right shall give
written notice of such election to the Company in such form as the
Committee may require. The exercise of Stock Appreciation Rights or
Options granted in tandem will result in an equal reduction in the
number of corresponding Options or Stock Appreciation Rights which
were granted in tandem with such Stock Appreciation Rights and
Options.
X. PERFORMANCE SHARES
The Committee may from time to time, subject to the provisions of the
Plan, grant Awards of Performance Shares to employees of the Company
provided that the Performance Period shall not be less than six
months.
Each certificate representing Performance Shares awarded under the
Plan shall be registered in the name of the Participant, subject to
forfeiture, and shall be left on deposit with the Company with a stock
power endorsed in blank. Participants shall have the right to receive
dividends paid on their Performance Shares and to vote such shares.
Performance Shares may not be sold, pledged, assigned, transferred or
encumbered, during the Performance Period determined by the Committee.
The Committee shall establish with respect to each Award of
Performance Shares, certain goals for the Company and the number of
shares that will vest upon achievement of different levels of
performance. Achievement of maximum targets during the Performance
Period shall result in the
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Participant's receipt of the full Performance Share Award. For
achievement of the minimum target, but less than maximum targets, the
Committee may establish the portion of the Award which the Participant
is entitled to receive.
Any Performance Shares which are not earned by the end of the
Performance Period shall be forfeited.
Termination of employment prior to the end of the Performance Period
for any reason including Death, Disability and Retirement, shall
result in a forfeiture of all outstanding Performance Shares. However,
the Committee may establish terms and conditions in an Award Agreement
or by such other action that a Participant is entitled to a portion of
his Performance Shares by reason of special circumstances.
If a Change in Control occurs while any shares of Restricted Stock,
any Performance Units related to such Restricted Stock, Stock
Appreciation Rights or Performance Shares remain subject to
restrictions, relating thereto, from and after the Acceleration Date,
(1) all such restrictions and all Restricted Periods and Performance
Periods shall lapse, (2) all defined goals shall be deemed to have
been met and (3) no later than the fifth day following the
Acceleration Date, any Restricted Stock theretofore granted a
Participant, the full value of all Performance Units related to such
Restricted Stock, Stock Appreciation Rights and Performance Shares
shall be paid to the Participant in cash; provided, however, that no
payment or benefit shall be made by reason of this paragraph to the
extent that such payment, when aggregated with other payments or
benefits to the Participant, would, as determined by tax counsel
selected by the Company, result in "Excess Parachute Payments" (as
defined below) equal to or greater than three times the "base amount"
as defined in Section 280G of the Code. "Excess Parachute Payments"
shall mean "parachute payments" as defined in Section 280G of the Code
other than (i) health and life insurance benefits and (ii) payments
attributable to any award, benefit or other compensation plan or
program based upon the number of full or fractional months of any
restricted period (relating thereto) which has elapsed prior to the
date of the Change in Control. Furthermore, such payments or benefits
provided to a Participant under this Plan shall be reduced to the
extent necessary so that no portion thereof shall be subject to the
excise tax imposed by Section 4999 of the Code, but only if, by reason
of such reduction, the Participant's net after tax benefit shall
exceed the net after tax benefit if such reduction were not made. "Net
after tax benefit" shall mean the sum of (i) all payments and benefits
which a Participant receives or is then entitled to receive from the
Company and any of its subsidiaries that would constitute a "parachute
payment" within the meaning of Section 280G of the Code, less (ii) the
amount of federal income taxes payable with respect to the payments
and benefits described in (i) above calculated at the maximum marginal
income tax rate for each year in which such payments and benefits
shall be paid to the Participant (based upon the rate in effect for
such year as set forth in the Code at the time of the first payment of
the foregoing), less (iii) the amount of excise taxes imposed with
respect to the payments and benefits described in (i) above by
Section 4999 of the Code.
XI. CONTINUED EMPLOYMENT
Participation in the Plan shall confer no rights to continued
employment with the Company, nor shall it restrict the rights of the
Company to terminate a Participant's employment relationship at any
time.
XII. TERMINATION OF EMPLOYMENT
In the event of a Participant's termination of employment by reason of
Death, the Restricted Period shall lapse on all of the Participant's
outstanding Awards, except Restricted Stock subject to a Performance
Period, Performance Units and Performance Shares, which are then
subject to a Restricted Period.
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In the event of a Participant's termination of employment by reason of
Disability, Retirement or by the Company for any reason other than
Cause, the Restricted Period shall lapse on a proportion of any
outstanding Awards, (except Restricted Stock subject to a Performance
Period, Performance Units and Performance Shares and except for
Incentive Stock Options unless outstanding for more than a year). The
proportion of an Award upon which the Restricted Period shall lapse
shall be a fraction, the denominator of which is the total number of
months of any Restricted Period applicable to an Award and the
numerator of which is the number of months of such Restricted Period
which elapsed prior to the termination of employment.
Restricted Stock upon which the Restricted Period lapses shall be
issued to the Participant or, in the case of Death, to the
Participant's designated beneficiary, or in the absence of such
designation, to the person to whom the Participant's rights pass by
will or the laws of descent and distribution.
Performance Shares which become payable under the Plan shall be issued
to the Participant or in the case of Death, to the Participant's
designated beneficiary, or in the absence of such designation, to the
person to whom the Participant's rights pass by will or the laws of
descent and distribution.
Options and Stock Appreciation Rights which are or become exercisable
at the time of a Participant's termination of employment by reason of
Disability, Retirement or by the Company for any reason other than
Cause, may be exercised by the Participant within three months
following such termination of employment. Options and Stock
Appreciation Rights which are or become exercisable at the time of a
Participant's termination of employment by reason of Death, may be
exercised by the Participant's designated beneficiary, or in the
absence of such designation, by the person to whom the Participant's
rights pass by will or the laws of descent and distribution at any
time within one year after the Participant's Death but not after the
expiration of the period of the Option or Stock Appreciation Right.
If a Participant's employer ceased to be a part of the Company as
defined in Section I, such Participant shall be deemed to have
terminated employment with the Company as of the date the
Participant's employer so ceased to be a company of which more than
50% of the voting stock is owned directly or indirectly by SFP.
The Committee may determine that termination of employment by reason
of special circumstances shall not terminate an Award or a portion
thereof.
XIII. AWARD AGREEMENT
Each employee granted an Award pursuant to the Plan shall sign an
Award Agreement which signifies the offer of the Award by the Company
and the acceptance of the Award by the employee in accordance with the
terms of the Award and the provisions of the Plan. Each Award
Agreement shall reflect the terms and conditions of the Award.
XIV. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of a change in the capitalization of SFP due to a stock
split, stock dividend, recapitalization, merger, consolidation,
combination, or similar event or as in its sole discretion may deem
appropriate, the aggregate shares subject to the Plan and the terms of
any existing Awards shall be adjusted by the Board to reflect such
change.
XV. LIMITED STOCK APPRECIATION RIGHTS
(a) The Committee shall have authority to grant a Limited Stock
Appreciation Right ("Limited Right") to the holder of any Option
granted under the Plan (referred to herein as the "Related LSAR
Option") with respect to all or some of the shares of Common Stock
covered by such Related LSAR Option. A Limited Right may be granted
either at the time of grant of the Related LSAR Option or any time
thereafter during its term (except as otherwise provided in Section
XVII hereof). A Limited Right may be exercised only during the
sixty-day period beginning on an Acceleration
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Date. Each Limited Right shall be exercisable only if, and to the
extent that, the Related LSAR Option is exercisable and, in the case
of a Limited Right granted in respect of an Incentive Stock Option,
only when the Fair Market Value per share of Common Stock exceeds the
Fair Market Value of a share of Common Stock on the Grant Date (the
"Option Price per share"). Notwithstanding the provisions of the two
immediately preceding sentences, no Limited Right may be exercised by
a holder who is subject to liability under Section 16(b) of the
Exchange Act until the expiration of six (6) months from the date of
grant of the Limited Right unless, prior to the expiration of such six
(6) month period, the holder of such Limited Right ceases to be an
employee of the Company by reason of such holder's death or
Disability. Upon the exercise of a Limited Right, the Related LSAR
Option shall cease to be exercisable to the extent of the shares of
Common Stock with respect to which such Limited Right is exercised,
but shall be considered to have been exercised to that extent for
purposes of determining the number of shares of Common Stock available
for the grant of further Options, Stock Appreciation Rights and
Limited Rights pursuant to this Plan. Upon the exercise or termination
of a Related LSAR Option, the Limited Right with respect to such
Related LSAR Option shall terminate to the extent of the shares of
Common Stock with respect to which the Related LSAR Option was
exercised or terminated.
(b) Upon the exercise of a Limited Right, the holder thereof shall
receive in cash whichever of the following amounts is applicable:
(i) in the case of an exercise of Limited Rights by reason of an
acquisition of Common Stock described in clause (a) of the
definition of Change of Control contained in Section I
hereof, an amount equal to the Acquisition Spread (as
defined in Subsection (d) hereof);
(ii) in the case of an exercise of Limited Rights by reason of
the change in composition of the Board of Directors
described in clause (b) of the definition of Change in
Control contained in Section I hereof, an amount equal to
the Spread (as defined in Subsection (g) hereof); or
(iii) in the case of an exercise of Limited Rights by reason
of stockholder approval of an agreement or adoption of a
plan described in clause (c) or (d) of the definition of
Change in Control contained in Section I hereof, an amount
equal to the Merger Spread (as defined in Subsection (f)
hereof).
Notwithstanding the foregoing provisions of this Section XV(b), (i) in
the case of a Limited Right granted in respect of an Incentive Stock
Option, the holder may not receive an amount in excess of the maximum
amount that will enable such option to continue to qualify as an
Incentive Stock Option, and (ii) no payment shall occur by reason of
this Section XV(b) to the extent that such payment, when aggregated
with other payments or benefits to the Participant, would, as
determined by tax counsel selected by the Company, result in an
"Excess Parachute Payments" (as defined below) equal to or greater
than three times the "base amount" as defined in Section 280G of the
Code. "Excess Parachute Payments" shall mean "parachute payments" as
defined in Section 280G of the Code other than (i) health and life
insurance benefits and (ii) payments attributable to any award,
benefit or other compensation plan or program based upon the number of
full or fractional months of any restricted period (relating thereto)
which have elapsed prior to the date of the Change in Control.
Furthermore, such payments or benefits provided to a Participant under
this Plan shall be reduced to the extent necessary so that no portion
thereof shall be subject to the excise tax imposed by Section 4999 of
the Code, but only if, by reason of such reduction, the Participant's
net after tax benefit shall exceed the net after tax benefit if such
reduction were not made. "Net after tax benefit" shall mean the sum of
(i) all payments and benefits which a Participant receives or is then
entitled to receive from the Company and any of its subsidiaries that
would constitute a "parachute payment" within the meaning of Section
280G of the Code, less (ii) the amount of federal income taxes payable
with respect to the payments and benefits described in (i) above
calculated at the maximum marginal income tax rate for each year in
which such payments and
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benefits shall be paid to the Participant (based upon the rate in
effect for such year as set forth in the Code at the time of the first
payment of the foregoing), less (iii) the amount of excise taxes
imposed with respect to the payments and benefits described in (i)
above by Section 4999 of the Code.
(c) The term "Acquisition Price per Share" as used in this Section XV
shall mean, with respect to the exercise of any Limited Right by
reason of an acquisition of Common Stock described in clause (a) of
the definition of Change in Control contained in Section I hereof, the
highest Fair Market Value per share of Common Stock during the
sixty-day period ending on the date the Limited Right is exercised.
(d) The term "Acquisition Spread" as used in this Section XV shall
mean an amount equal to the product obtained by multiplying (i) the
excess of (A) the Acquisition Price per Share over (B) the Option
Price per share of Common Stock at which the Related LSAR Option is
exercisable, by (ii) the number of shares of Common Stock with respect
to which such Limited Right is being exercised.
(e) The term "Merger Price per Share" as used in this Section XV shall
mean, with respect to the exercise of any Limited Right by reason of
stockholder approval of an agreement or adoption of a plan described
in clause (c) or (d) of the definition of Change in Control contained
in Section I hereof, the greater of (i) the fixed or formula price for
the acquisition of shares of Common Stock specified in such agreement
or adoption, if such fixed or formula price is determinable on the
date on which such Limited Right is exercised, and (ii) the highest
Fair Market Value per share of Common Stock during the sixty-day
period ending on the date on which such Limited Right is exercised.
(f) The term "Merger Spread" as used in this Section XV shall mean an
amount equal to the product obtained by multiplying (i) the excess of
(A) the Merger Price per Share over (B) the Option Price per share of
Common Stock at which the Related LSAR Option is exercisable, by
(ii) the number of shares of Common Stock with respect to which such
Limited Right is being exercised.
(g) The term "Spread" as used in this Section XV shall mean, with
respect to the exercise of any Limited Right by reason of a change in
the composition of the Board described in clause (b) of the definition
of Change in Control contained in Section I hereof, an amount equal to
the product obtained by multiplying (i) the excess of (A) the highest
Fair Market Value per share of Common Stock during the sixty-day
period ending on the date the Limited Right is exercised over (B) the
Option Price per share of Common Stock at which the Related LSAR
Option is exercisable, by (ii) the number of shares of Common Stock
with respect to which the Limited Right is being exercised.
(h) Limited Rights granted hereunder shall not be transferable other
than by will or the laws of descent and distribution and during the
Participant's lifetime shall be exercisable only by the Participant or
by his guardian or legal representative; provided, however, that a
Participant who is an employee may (a) in a manner specified by the
Committee, designate in writing a beneficiary to exercise his Limited
Right after the Participant's death, provided that no such designation
shall be effective unless received by the office of the Company
designated for that purpose prior to the Participant's death and
(b) if the Award Agreement expressly permits, transfer a Limited Right
for no consideration to any (i) member of the Participant's Immediate
Family, (ii) trust solely for the benefit of members of the
Participant's Immediate Family or (iii) partnership whose only
partners are members of the Participant's Immediate Family; provided,
however, that the transferee shall remain subject to all of the terms
and conditions applicable to such Award prior to such transfer.
(i) Each Limited Right shall be granted on such terms and conditions
not inconsistent with the Plan as the Committee may determine.
(j) To exercise a Limited Right, the Participant shall (i) give
written notice thereof to the Committee in form satisfactory to the
Committee specifying the number of shares of Common Stock with respect
to which the Limited Right is being exercised, and (ii) if requested
by the Committee, deliver the option agreement to the Committee, who
shall endorse thereon a notation of such exercise
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and return the option agreement to the Participant. The date of
exercise of a Limited Right that is validly exercised shall be deemed
to be the date on which there shall have been delivered the
instruments referred to in the first sentence of this paragraph (j).
(k) The Company intends that this Section XV shall comply with the
requirements of Rule 16b-3 and any future rules promulgated in
substitution therefor ("the Rule") under the Exchange Act during the
term of the Plan. Should any provision of this Section XV not be
necessary to comply with the requirements of the Rule or should any
additional provisions be necessary for this Section XV to comply with
the requirements of the Rule, the Board may amend the Plan to add to
or modify the provisions of the Plan accordingly.
XVI. WITHHOLDING TAXES
As a condition of delivery of cash or shares of Common Stock upon
exercise or payment of an Award, the Company shall be entitled to
require that the Participant (without regard to whether the
Participant has transferred the Award in accordance with the Plan)
satisfy federal, state and local tax withholding requirements as
follows:
(a) Cash Remittance
Whenever shares of Common Stock are to be issued upon the exercise of
an Option or the occurrence of the distribution or vesting date with
respect to a share of Restricted Stock or Performance Shares, the
Company shall have the right to require the Participant to remit to
the Company in cash an amount sufficient to satisfy federal, state and
local withholding tax requirements, if any, attributable to such
exercise or occurrence, prior to the delivery of any certificate or
certificates for such shares. In addition, upon the exercise of a
Limited Stock Appreciation Right, a Stock Appreciation Right, or
payment of a Performance Unit, the Company shall have the right to
withhold from any cash payment required to be made pursuant thereto an
amount sufficient to satisfy the federal, state and local withholding
tax requirements, if any, attributable to such exercise or grant;
provided, however, that no such amount shall be withheld from any such
cash payment relating to an Award which was transferred by the
Participant in accordance with the Plan.
(b) Stock Withholding or Remittance
In lieu of the remittance required by Section XVI(a) hereof or, if
greater, the participant's estimated federal, state and local tax
obligations associated with an Award hereunder, a Participant who is
granted an Option, Stock Appreciation Right, Restricted Stock,
Performance Shares, or Performance Units under the Plan, subject to
approval by the Committee, may irrevocably elect by written notice to
the Company at the office of the Company designated for that purpose,
to (i) have the Company withhold shares of Common Stock from any Award
hereunder or (ii) deliver other previously owned shares, the Fair
Market Value of which at the tax date is determined to be equal to the
amount to be withheld, if any, rounded down to the nearest whole share
attributable to such exercise, occurrence or grant; provided, however,
that no election to have shares of Common Stock withheld from any
Award shall be effective with respect to an Award which was
transferred by the Participant in accordance with the Plan.
(c) Participants Subject to Section 16(b)
Notwithstanding any other provision herein, a stock withholding
election in connection with the exercise of an Option may be made by a
Participant who is subject to Section 16(b) of the Securities Exchange
Act of 1934 subject to the following additional restrictions: (1) it
may not be made within six months after the grant of an Award (except
in the case of the death or disability of the Participant) and (2) it
must be made either (a) six months or more prior to the date as of
which the amount of tax to be withheld is determined (the "Tax Date")
or (b) within a ten day "window period" preceding the Tax Date
beginning on the third business day following the release of the
Company's quarterly or annual summary statement of sales and earnings.
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XVII. EFFECTIVE DATE AND DURATION OF PLAN
The Plan shall become effective upon its approval by the stockholders
of SFP. Unless previously terminated by the Board, the Plan shall
terminate on the tenth anniversary of its approval by the
stockholders; provided, however, that such termination shall not
terminate any Award then existing.
XVIII. TERMINATION AND AMENDMENT
The Board may suspend, terminate, modify or amend the Plan, provided
that any amendment that would increase the aggregate number of shares
which may be issued under the Plan; materially increase the benefits
accruing to Participants under the Plan; or materially modify the
requirements as to eligibility for participation in the Plan, shall be
subject to the approval of SFP's stockholders, except that any such
increase or modification that may result from adjustments authorized
by Section XIV does not require such approval. No suspension,
termination, modification or amendment of the Plan may terminate a
Participant's existing Award or materially and adversely affect a
Participant's rights under such Award.
Except as expressly amended hereby, the Plan, as amended effective
January 26, 1993, remains in full force and effect.
13
Exhibit 12
Santa Fe Pacific Corporation
Statement of Computation of Ratio of Earnings to Fixed Charges
(as of September 30, 1994 and 1993)
(In millions, except ratio)
Nine Months Ended
September 30,
1994 1993
-------------------
Earnings:
Income from continuing operations
before income taxes $265.4 $260.4
Add (less) income of unconsolidated
subsidiaries greater than distributions (8.8) 7.0
Amortization of capitalized interest 1.6 1.2
Fixed charges before interest
capitalized (see below) 116.8 129.9
------- -------
Total Earnings $375.0 $398.5
======= =======
Fixed Charges:
Interest expense including
amortization of debt discount $ 89.5 $103.7
Portion of rentals representing
an interest factor 27.3 26.2
------- -------
Fixed charges before interest
capitalized 116.8 129.9
Interest capitalized 6.1 4.1
------- -------
Total Fixed Charges $122.9 $134.0
======= =======
Ratio of earnings to fixed charges (1) 3.1 3.0
======= =======
(1) Earnings for the nine months ended September 30, 1993 include a
$145.4 million gain on the sale of rail lines in southern
California by The Atchison, Topeka and Santa Fe Railway Company.
Excluding this gain, the ratio would have been 1.9.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited September 30, 1994 Santa Fe Pacific Corporation and subsidiary
companies consolidated financial statements and accompanying notes and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 17
<SECURITIES> 0
<RECEIVABLES> 115
<ALLOWANCES> (17)
<INVENTORY> 97
<CURRENT-ASSETS> 361
<PP&E> 6,177
<DEPRECIATION> 1,545
<TOTAL-ASSETS> 5,316
<CURRENT-LIABILITIES> 894
<BONDS> 890
<COMMON> 190
0
0
<OTHER-SE> 1,018
<TOTAL-LIABILITY-AND-EQUITY> 5,316
<SALES> 0
<TOTAL-REVENUES> 1,970
<CGS> 0
<TOTAL-COSTS> 1,664
<OTHER-EXPENSES> (49)<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90
<INCOME-PRETAX> 265
<INCOME-TAX> 112
<INCOME-CONTINUING> 153
<DISCONTINUED> 23
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 176
<EPS-PRIMARY> 0.93
<EPS-DILUTED> 0<F2>
<FN>
<F1>Includes equity in earnings of Pipeline of $26 million and other income
(expense)-net of $23 million.
<F2>Not applicable.
</FN>
</TABLE>
