<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 22, 1995
BURLINGTON NORTHERN SANTA FE CORPORATION
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-11535 41-1804964
- ------------------------------ ------------ -------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
3800 Continental Plaza
777 Main Street
Fort Worth, Texas 76102-5384
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 817-333-2000
-------------------
Not Applicable
----------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
------------------------------------
On September 22, 1995, Burlington Northern Inc. ("BNI") and Santa Fe Pacific
Corporation ("SFP") consummated a business combination (the "Merger") pursuant
to which each became a direct or indirect wholly owned subsidiary of a
new publicly-held company, Burlington Northern Santa Fe Corporation ("BNSF").
The Merger was effected pursuant to an Agreement and Plan of Merger between BNI
and SFP dated as of June 29, 1994, as amended (the "Merger Agreement").
In the Merger, (i) each share of BNI common stock, no par value, outstanding as
of the effective time of the Merger (other than shares held by BNI as treasury
stock or held by SFP or its subsidiaries) was converted into the right to
receive one share of BNSF common stock, $.01 par value, (ii) each share of BNI 6
1/4% Cumulative Convertible Preferred Stock, Series A, no par value, outstanding
as of the effective time of the Merger was converted into the right to receive
one share of BNSF 6 1/4% Cumulative Convertible Preferred Stock, Series A, and
(iii) each share of SFP common stock, $1.00 par value, outstanding as of the
effective time of the Merger (other than shares held by SFP as treasury stock or
held by BNI or its subsidiaries) was converted into the right to receive
0.41143945 shares of BNSF common stock. Fractional shares of BNSF common stock
will not be issued in connection with the Merger. Any holder of SFP common
stock otherwise entitled to a fractional share of BNSF common stock will receive
a cash payment representing such holder's proportionate interest in the net
proceeds from the sale on behalf of all holders of the aggregate fractional
shares of BNSF common stock which would otherwise have been issued. The common
and preferred stock of BNSF is traded on the New York Stock Exchange,
Chicago Stock Exchange, and Pacific Stock Exchange under the symbols "BNI" and
"BNI-P", respectively. The common and preferred stock of BNI and the common
stock of SFP are no longer publicly traded.
The businesses of BNSF initially consist of the businesses conducted by BNI and
SFP and their respective subsidiaries immediately prior to the consummation of
the Merger. In this regard, BNSF intends to continue to devote the assets
associated with these businesses to generally the same purposes as these assets
were employed prior to the consummation of the Merger.
The Merger was approved by the stockholders of BNI and SFP at special meetings
held on February 7, 1995, and was approved by the Interstate Commerce Commission
on August 23, 1995 (effective September 22, 1995).
This filing on Form 8-K is made by BNSF. Copies of the Merger Agreement and the
press releases announcing consummation of the Merger, the composition of the
BNSF Board of Directors, and the composition of BNSF senior management are
attached as Exhibits and are incorporated by reference herein. Contemporaneously
with the filing of this Current Report on Form 8-K, BNI and SFP are filing
Current Reports on Form 8-K relating to the consummation of the Merger.
2
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
------------------------------------------------------------------
A. Financial Statements
--------------------
1. Consolidated financial statements for Burlington Northern Inc. and
Subsidiaries. Unaudited financial statements for the quarters and
six-month periods ended June 30, 1995 and 1994. Audited 1994
financial statements.
2. Consolidated financial statements for Santa Fe Pacific Corporation
and Subsidiaries. Unaudited financial statements for the quarters
and six-month periods ended June 30, 1995 and 1994. Audited 1994
financial statements.
B. Pro Forma Financial Information
-------------------------------
In connection with the Merger described in Item 2 of this Form 8-K, BNSF
will file required pro forma financial statements. Because it is
impracticable to file such required pro forma financial statements at this
time, BNSF will file them as soon as practicable but not later than 60 days
after the date of filing of this Form 8-K with the Commission.
C. Exhibits
--------
Exhibit 2.1. Agreement and Plan of Merger dated as of June 29, 1994
between Burlington Northern Inc. and Santa Fe Pacific Corporation as amended by
Amendments 1 and 2 thereto, together with Amendments 3 and 4 thereto. Schedules
have been omitted. Schedules will be furnished supplementally to the
Securities and Exchange Commission upon request.
Exhibit 23.1 Consent of Coopers & Lybrand L.L.P.
Exhibit 23.2 Consent of Price Waterhouse LLP.
Exhibit 99.1. BSNF Press release, dated September 22, 1995.
Exhibit 99.2. BSNF Press release, dated September 22, 1995.
Exhibit 99.3. SFP Press release, dated September 6, 1995.
3
<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 hereunto duly authorized.
BURLINGTON NORTHERN SANTA FE CORPORATION
(Registrant)
Date: October 6, 1995 By: /s/ Jeffrey R. Moreland
____________________________
Name: Jeffrey R. Moreland
Title: Senior Vice President-Law and
General Counsel
4
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
------- -------- ------- --------
<S> <C> <C> <C> <C>
Revenues $ 1,284 $ 1,192 $ 2,631 $ 2,402
Costs and expenses:
Compensation and benefits 451 426 940 873
Fuel 100 89 198 172
Materials 69 70 149 155
Equipment rents 116 111 232 217
Purchased services 110 115 214 232
Depreciation 99 89 198 176
Other 88 114 232 217
------- -------- ------- --------
Total costs and expenses 1,033 1,014 2,163 2,042
------- -------- ------- --------
Operating income 251 178 468 360
Interest expense 50 39 93 78
Other income (expense), net 12 (5) 15 (6)
------- -------- ------- --------
Income before income taxes and
cumulative effect of change in
accounting method 213 134 390 276
Income tax expense 83 52 152 107
------- -------- ------- --------
Income before cumulative effect of
change in accounting method 130 82 238 169
Cumulative effect of change in
accounting method, net of tax - - - (10)
------- -------- ------- --------
Net income $ 130 $ 82 $ 238 $ 159
======= ======== ======= ========
Primary earnings per common share:
Income before cumulative effect of
change in accounting method $ 1.37 $ .85 $ 2.51 $ 1.75
Cumulative effect of change in
accounting method - - - (.11)
------- -------- ------- --------
Primary earnings per common share $ 1.37 $ .85 $ 2.51 $ 1.64
======= ======== ======= ========
Shares used in computation
(in thousands) 90,834 90,244 90,546 90,286
Fully diluted earnings per common
share:
Income before cumulative effect
of change in accounting method $ 1.32 $ .84 $ 2.42 $ 1.74
Cumulative effect of change in
accounting method - - - (.11)
------- -------- ------- --------
Fully diluted earnings per
common share $ 1.32 $ .84 $ 2.42 $ 1.63
======= ======== ======= ========
Shares used in computation
(in thousands) 98,350 97,584 98,198 97,626
Dividends declared per common
share $ .30 $ .30 $ .60 $ .60
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1995 1994
-------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 31 $ 27
Accounts receivable, net 667 697
Materials and supplies 130 100
Current portion of deferred income taxes 151 156
Other current assets 205 32
-------- ---------
Total current assets 1,184 1,012
Investment in Santa Fe Pacific Corporation 638 -
Property and equipment, net 6,493 6,311
Other assets 310 269
-------- ---------
Total assets $ 8,625 $ 7,592
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 539 $ 534
Compensation and benefits payable 282 264
Casualty and environmental reserves 225 248
Taxes payable 169 138
Accrued interest 47 45
Other current liabilities 74 96
Commercial paper 231 90
Current portion of long-term debt 31 32
-------- ---------
Total current liabilities 1,598 1,447
Long-term debt 2,194 1,697
Deferred income taxes 1,543 1,456
Casualty and environmental reserves 422 416
Other liabilities 336 339
-------- ---------
Total liabilities 6,093 5,355
-------- ---------
Stockholders' equity:
Convertible preferred stock, no par value,
$345 liquidation value; 25,000,000 shares
authorized; 6,900,000 shares issued;
6,889,657 shares and 6,900,000 shares
outstanding, respectively 336 337
Common stock, without par value, at stated
value, 300,000,000 shares authorized;
89,806,685 shares and 89,329,259 shares
issued, respectively 1 1
Additional paid-in capital 1,469 1,443
Retained earnings 659 485
Treasury stock, at cost, 64,749 shares
and 105,438 shares, respectively (3) (5)
Other 70 (24)
-------- ---------
Total stockholders' equity 2,532 2,237
-------- ---------
Total liabilities and stockholders'
equity $ 8,625 $ 7,592
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1994
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 238 $ 159
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting method - 10
Depreciation 198 176
Deferred income taxes 39 50
Changes in current assets and liabilities:
Accounts receivable, net 32 20
Materials and supplies (31) (27)
Other current assets (173) (135)
Accounts payable 5 17
Compensation and benefits payable 20 (15)
Casualty and environmental reserves (23) (12)
Taxes payable 33 17
Accrued interest 2 2
Other current liabilities (22) (23)
Changes in long-term casualty and environmental
reserves 6 (16)
Other, net (23) (28)
------- -------
Net cash provided by operating activities 301 195
------- -------
Cash flows from investing activities:
Investment in Santa Fe Pacific Corporation (500) -
Additions to property and equipment (376) (289)
Proceeds from property and equipment dispositions 17 22
Other, net (13) (13)
------- -------
Net cash used in investing activities (872) (280)
------- -------
Cash flows from financing activities:
Net increase in commercial paper 141 178
Proceeds from issuance of long-term debt 522 149
Payments on long-term debt (32) (181)
Dividends paid (64) (64)
Proceeds from exercise of common stock options 8 5
Other, net - (1)
------- -------
Net cash provided by financing activities 575 86
------- -------
Increase in cash and cash equivalents 4 1
Cash and cash equivalents:
Beginning of period 27 17
------- -------
End of period $ 31 $ 18
======= =======
Supplemental cash flow information:
Interest paid, net of amounts capitalized $ 88 $ 74
Income taxes paid, net of refunds 77 39
Supplemental noncash investing and financing
activities information:
Assets financed through capital lease obligations $ 3 $ 50
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Accounting policies
The 1994 Annual Report on Form 10-K for Burlington Northern Inc. (BNI) and its
majority-owned subsidiaries (collectively BN) includes a summary of significant
accounting policies and should be read in conjunction with this Form 10-Q. The
principal subsidiary is Burlington Northern Railroad Company (Railroad). The
statements for the periods presented are condensed and do not contain all
information required by generally accepted accounting principles to be included
in a full set of financial statements. In the opinion of management, all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly BN's financial position as of June 30, 1995 and December 31, 1994
and the results of operations for the three-month and six-month periods ended
June 30, 1995 and 1994 and cash flows for the six-month periods ended June 30,
1995 and 1994 have been included. The results of operations for any interim
period are not necessarily indicative of the results of operations to be
expected for the entire year. Certain prior year data has been reclassified to
conform to the current year presentation.
2. Earnings per common share
Primary earnings per common share are computed by dividing net income, after
deduction of preferred stock dividends, by the weighted average number of common
shares and common share equivalents outstanding. Fully diluted earnings per
common share are computed by dividing net income by the weighted average number
of common shares and common share equivalents outstanding. Common share
equivalents are computed using the treasury stock method. An average market
price is used to determine the number of common share equivalents for primary
earnings per common share. The higher of the average or end-of-period market
price is used to determine common share equivalents for fully diluted earnings
per common share. In addition, the if-converted method is used for convertible
preferred stock when computing fully diluted earnings per common share.
3. Agreement to merge and tender offers
As of June 29, 1994, BNI and Santa Fe Pacific Corporation (Santa Fe) entered
into an Agreement and Plan of Merger (the Original Agreement) pursuant to which,
on the terms and conditions set forth in the Original Agreement, Santa Fe would
merge (effected in the manner set forth below, the Merger) with and into BNI,
and BNI would be the surviving corporation and each share of Santa Fe common
stock would be converted into 0.27 of a share of BNI common stock. The Original
Agreement was subsequently amended as of October 26, 1994, December 18, 1994 and
January 24, 1995. The Original Agreement, as so amended, is referred to as the
Merger Agreement. Stockholders of BNI and Santa Fe approved the Merger Agreement
at special stockholders' meetings held on February 7, 1995.
Pursuant to the Merger Agreement, BNI and Santa Fe were entitled to elect to
consummate the Merger through the use of one of two possible structures: (i) a
merger of Santa Fe with and into BNI and (ii) the holding company structure (the
Holding Company Structure) described below. In order to ensure that the
transaction contemplated by the Merger Agreement qualifies as a tax-free
transaction for United States federal income tax purposes, the parties intend to
utilize the Holding Company Structure.
Under the Holding Company Structure, BNSF Corporation, a Delaware corporation
(BNSF), formed to effect the transaction in this manner, would create two
subsidiaries. One such subsidiary would merge into BNI, and the other such
subsidiary would merge into Santa Fe. Each holder of one share of BNI common
stock would receive one share of BNSF common stock and each holder of one share
of Santa Fe common stock, excluding the Santa Fe common stock acquired by BNI in
the Tender Offer referred to below and the Santa Fe common stock held by Santa
Fe as treasury stock, would receive not less than 0.40 and not more than 0.4347
shares of BNSF common stock depending upon the number of additional shares of
Santa Fe common stock repurchased by Santa Fe as permitted under the Repurchase
Program discussed below. The Santa Fe common stock acquired by BNI in the Tender
Offer would remain outstanding and the Santa Fe common stock held by Santa Fe as
treasury stock would be canceled. The rights of each stockholder of BNSF would
be substantially identical to the rights of a stockholder of BNI, and the
Holding Company Structure would have the same economic effect with respect to
the stockholders of BNI and Santa Fe as would a direct merger of BNI and Santa
Fe. The Merger will be accounted for under the purchase method of accounting
upon consummation, and BNI's investment will be included in the purchase price.
Also pursuant to the Merger Agreement, on December 23, 1994, BNI and Santa Fe
commenced tender offers, (together, the Tender Offer) to acquire 25 million and
38 million shares of Santa Fe common stock, respectively, at $20 per share in
cash representing 13 percent and 20 percent, respectively, of the then
outstanding Santa Fe common stock. On February 6, 1995, BNI entered into a five-
year $500 million unsecured bank credit facility (the Tender Offer Facility),
whereby a group of banks agreed to finance BNI's purchase of shares of Santa Fe
common stock in the Tender Offer. Funding of the Tender Offer was completed on
February 21, 1995. At BNI's option, renewals of borrowings can be obtained
either through a competitive bid or a standby procedure. Rates for borrowing
under the standby procedure are, at BNI's option, based upon the selected term
of the London Interbank Offered Rate (LIBOR) or certificate of deposit rate
plus, in either case, a spread based upon BNI's senior unsecured debt ratings
and the amount borrowed under the Tender Offer Facility, or an alternative base
rate.
4
<PAGE>
As of June 30, 1995, Santa Fe had borrowed $1,033 million from a syndicate of
financial institutions under a new credit agreement, of which $760 million was
used for the Santa Fe tender offer and the remaining borrowings were primarily
used to replace existing Santa Fe debt and pay related expenses.
Under the Repurchase Program as set forth in the Merger Agreement, Santa Fe is
permitted, at its discretion and subject to certain financial and performance
criteria of Santa Fe set forth in its credit agreement and the Merger Agreement
(including minimum cash flows, cash capital expenditures and maximum total
debt), to repurchase up to 10 million shares of Santa Fe common stock prior to
consummation of the Merger. The number of shares of BNSF common stock to be
issued in the Merger will not be affected by the number of additional shares of
Santa Fe common stock repurchased by Santa Fe under the Repurchase Program.
Accordingly, the exchange ratio of BNSF common shares to be offered for each
share of outstanding Santa Fe common stock upon consummation of the Merger would
be set at not less than 0.40 and not more than 0.4347 shares. As of June 30,
1995, Santa Fe had repurchased approximately 2.3 million shares which would
result in an exchange ratio of 0.4073 shares.
As is typical in the context of a merger, certain benefits of officers and
employees vested upon approval of the Merger by the stockholders of BNI and
Santa Fe. In particular, on February 7, 1995, restrictions previously placed
upon certain BNI stock grants lapsed and the previously unearned compensation
relating to such restricted stock, included in BNI's stockholders' equity, was
charged to expense. The unearned compensation relating to restricted stock at
the time of vesting and related payroll taxes were approximately $24 million.
BNI expects to incur other costs related to the Merger, some of which will be
included in the determination of the total purchase price.
Consummation of the Merger is subject to approval by the Interstate Commerce
Commission (ICC) and other customary conditions. In connection with the ICC
proceedings, on January 27, 1995, BNI and Santa Fe requested the ICC to adopt an
expedited procedural schedule for reviewing the merger, based on a timetable the
ICC had proposed to adopt for all major railroad mergers. On March 9, 1995, the
ICC issued a schedule providing for a final decision on the merger application
on or before August 23, 1995. Interested parties, including other railroads,
shippers and state agencies, indicated their intent to participate in the ICC
proceeding on April 10, 1995. Railroad and The Atchison, Topeka and Santa Fe
Railway Company (ATSF) have entered into agreements with Union Pacific Railroad
Company; Southern Pacific Transportation Company, The Denver Rio Grande Western
Railroad Company, St. Louis Southwestern Railway Company and SPCSL Corp.; and
Kansas City Southern Railway Company, among others, whereby those carriers
agreed not to oppose the ICC's approval of the Merger in exchange for grants of
certain trackage rights, haulage arrangements or other such arrangements. On
July 20, 1995, the ICC held a voting conference at which it voted to approve the
Merger, subject to limited conditions primarily regarding other carriers'
operations over Railroad's and ATSF's tracks. Given their limited nature, these
conditions will not impact the anticipated benefits of the Merger. It is
expected the ICC will issue a written decision approving the Merger on or before
August 23, 1995; the effective date of such decision will be set forth therein.
4. Investment in Santa Fe Pacific Corporation
On February 21, 1995, BNI completed the acquisition of 25 million shares of
Santa Fe common stock at $20 per share. The transaction was financed through the
$500 million Tender Offer Facility which had a weighted average interest rate of
6.74 percent at June 30, 1995.
The investment in Santa Fe (Investment), which represents approximately 16
percent of the outstanding common stock of Santa Fe, is accounted for under the
cost method and is classified as available for sale. As such, the carrying value
is adjusted for changes in the fair value, as determined by quoted market
prices, and any unrealized gain or loss is recorded, net of deferred income
taxes, as a component of stockholders' equity. At June 30, 1995, the Investment
was increased by $138 million reflecting an unrealized gain and stockholders'
equity was increased by $85 million after deducting deferred income taxes of $53
million.
5. Environmental reserves and other contingencies
BN's operations, as well as those of its competitors, are subject to extensive
federal, state and local environmental regulation. In order to comply with such
regulation and to be consistent with BN's corporate environmental policy, BN's
operating procedures include practices to protect the environment. Amounts
expended relating to such practices are inextricably contained in the normal
day-to-day costs of BN's business operations.
Under the requirements of the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (Superfund) and certain other laws, BN is
potentially liable for the cost of clean-up of various contaminated sites
identified by the United States Environmental Protection Agency and other
agencies. BN has been notified that it is a potentially responsible party (PRP)
for study and clean-up costs at approximately 85 sites (the PRP sites) and, in
many instances, is one of several PRPs. BN generally participates in the clean-
up of these sites through cost-sharing agreements with terms that vary from site
to site. Costs are typically allocated based on relative volumetric contribution
of material, the amount of time the site was owned or operated, and/or the
portion of the total site owned or operated by each PRP. However, under
Superfund and certain other laws, as a PRP, BN can be held jointly and severally
liable for all environmental costs associated with a site.
5
<PAGE>
Environmental costs include initial site surveys and environmental studies of
potentially contaminated sites as well as costs for remediation and restoration
of sites determined to be contaminated. Liabilities for environmental clean-up
costs are initially recorded when BN's liability for environmental clean-up is
both probable and a reasonable estimate of associated costs can be made.
Adjustments to initial estimates are recorded as necessary based upon additional
information developed in subsequent periods. BN conducts an ongoing
environmental contingency analysis, which considers a combination of factors,
including independent consulting reports, site visits, legal reviews, analysis
of the likelihood of participation in and ability to pay for clean-up by other
PRPs, and historical trend analyses.
BN is involved in a number of administrative and judicial proceedings and other
mandatory clean-up efforts at approximately 170 sites, including the PRP sites,
at which BN is being asked to participate in the clean-up of the sites
contaminated by material discharged into the environment. BN paid approximately
$10 million during the six months ended June 30, 1995 relating to mandatory
clean-up efforts, including amounts expended under federal and state voluntary
clean-up programs. Recoveries received from third parties, net of legal costs
incurred, were approximately $5 million during the six months ended June 30,
1995. At this time, BN estimates that it will spend approximately $110 million
in future years to remediate and restore all known sites, including $105 million
pertaining to mandated sites, of which approximately $75 million relates to the
PRP sites. Of the $110 million, BN estimates that it will spend $18 million
during the remainder of 1995. Also, BN anticipates that the majority of the $110
million will be paid out over a period of less than seven years; however, some
costs will be paid out over a longer period, in some cases up to 40 years. At
June 30, 1995, 24 sites accounted for approximately $75 million of the accrual
and no individual site was considered to be material.
Liabilities for environmental costs represent BN's best estimates for
remediation and restoration of these sites and include both asserted and
unasserted claims. At June 30, 1995, BN had accrued approximately $110 million
for estimated future environmental costs and believes it is reasonably possible,
although not probable, that actual environmental costs could be lower than the
recorded reserve or as much as 50 percent higher. BN's best estimate of
unasserted claims was approximately $5 million as of June 30, 1995. Although
recorded liabilities include BN's best estimates of all costs, without reduction
for anticipated recoveries from third parties, BN's total clean-up costs at
these sites cannot be predicted with certainty due to various factors such as
the extent of corrective actions that may be required, evolving environmental
laws and regulations, advances in environmental technology, the extent of other
PRPs' participation in clean-up efforts, developments in ongoing environmental
analyses related to sites determined to be contaminated, and developments in
environmental surveys and studies of potentially contaminated sites. As a
result, charges to income for environmental liabilities could possibly have a
significant effect on results of operations in a particular quarter or fiscal
year as individual site studies and remediation and restoration efforts proceed
or as new sites arise. However, expenditures associated with such liabilities
are typically paid out over a long period, in some cases up to 40 years, and are
therefore not expected to have a material adverse effect on BN's consolidated
financial position, cash flow or liquidity.
6. Hedging activities
BN has a program to hedge against fluctuations in the price of its diesel fuel
purchases. This program includes forward purchases for delivery at fueling
facilities and exchange-traded petroleum futures contracts. The futures
contracts are accounted for as hedges which are marked to market with any gains
or losses associated with changes in market value being deferred and recognized
as a component of fuel expense in the period in which the designated fuel is
purchased and used. As of June 30, 1995, BN had entered into agreements with
fuel suppliers setting the price of fuel to be obtained by taking physical
delivery directly from such suppliers at a future date. The average price of the
approximately 106 million gallons which BN had committed to purchase was
approximately 50 cents per gallon, exclusive of taxes, certain transportation
costs and other charges. In addition, BN held petroleum futures contracts
representing approximately 68 million gallons at an average price of
approximately 50 cents per gallon. These contracts have expiration dates ranging
from July, 1995 to May, 1996.
BN's current fuel hedging program is designed to cover no more than 50 percent
of projected fuel requirements for the subsequent 12-month period; therefore,
hedge positions will not exceed actual fuel requirements. The current and future
fuel delivery prices are monitored continuously and hedge positions are adjusted
accordingly. In order to reduce risk associated with market movements, fuel
hedging transactions do not extend beyond a 12-month period. BN purchases
petroleum futures contracts only through regulated exchanges (e.g. New York
Mercantile Exchange). In order to effectively monitor the fuel hedging
activities, results of the program are summarized and reported to senior
management on a regular basis.
6
<PAGE>
7. Other income (expense), net
Other income (expense), net includes the following (in millions):
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
1995 1994 1995 1994
----- ------ ----- ------
<S> <C> <C> <C> <C>
Gain (loss) on property dispositions $ 7 $ (1) $ 9 $ 1
Interest income 5 - 6 1
Loss on sale of receivables - (2) - (4)
Miscellaneous, net - (2) - (4)
----- ------ ----- ------
Total $ 12 $ (5) $ 15 $ (6)
===== ====== ===== ======
</TABLE>
7
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Revenues............................................ $ 4,995 $ 4,699 $ 4,630
Costs and expenses:
Compensation and benefits......................... 1,779 1,709 1,709
Fuel.............................................. 369 362 348
Materials......................................... 305 300 295
Equipment rents................................... 429 395 389
Purchased services................................ 472 457 449
Depreciation...................................... 362 352 338
Other............................................. 426 463 505
------- ------- -------
Total costs and expenses........................ 4,142 4,038 4,033
------- ------- -------
Operating income.................................... 853 661 597
Interest expense.................................... 155 145 186
Other income (expense), net......................... (3) 5 41
------- ------- -------
Income before income taxes and cumulative effect of
changes in accounting methods...................... 695 521 452
Income tax expense.................................. 269 225 153
------- ------- -------
Income before cumulative effect of changes in
accounting methods................................. 426 296 299
Cumulative effect of changes in accounting methods,
net of tax......................................... (10) -- (21)
------- ------- -------
Net income...................................... $ 416 $ 296 $ 278
======= ======= =======
Primary earnings (loss) per common share:
Income before cumulative effect of changes in
accounting methods............................... $ 4.48 $ 3.06 $ 3.35
Cumulative effect of changes in accounting
methods.......................................... (.11) -- (.24)
------- ------- -------
Primary earnings per common share............... $ 4.37 $ 3.06 $ 3.11
======= ======= =======
Shares used in computation (in thousands)......... 90,187 89,672 88,617
Fully diluted earnings (loss) per common share:
Income before cumulative effect of changes in
accounting methods............................... $ 4.38 $ 3.04 $ 3.34
Cumulative effect of changes in accounting
methods.......................................... (.11) -- (.24)
------- ------- -------
Fully diluted earnings per common share......... $ 4.27 $ 3.04 $ 3.10
======= ======= =======
Shares used in computation (in thousands)......... 97,528 97,189 89,492
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1994 1993
------ ------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 27 $ 17
Accounts receivable, net................................. 697 589
Materials and supplies................................... 100 91
Current portion of deferred income taxes................. 156 167
Other current assets..................................... 32 27
------ ------
Total current assets................................... 1,012 891
Property and equipment, net................................ 6,311 5,909
Other assets............................................... 269 245
------ ------
Total assets......................................... $7,592 $7,045
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 534 $ 492
Compensation and benefits payable........................ 264 271
Casualty and environmental reserves...................... 248 286
Taxes payable............................................ 138 123
Accrued interest......................................... 45 44
Other current liabilities................................ 96 102
Commercial paper......................................... 90 26
Current portion of long-term debt........................ 32 185
------ ------
Total current liabilities.............................. 1,447 1,529
Long-term debt............................................. 1,697 1,526
Deferred income taxes...................................... 1,456 1,342
Casualty and environmental reserves........................ 416 426
Other liabilities.......................................... 339 303
------ ------
Total liabilities...................................... 5,355 5,126
------ ------
Stockholders' equity:
Convertible preferred stock, no par value, $345
liquidation value; 25,000,000 shares authorized;
6,900,000 shares issued................................. 337 337
Common stock, without par value, at stated value,
300,000,000 shares authorized; 89,329,259 shares and
88,881,675 shares issued, respectively.................. 1 1
Additional paid-in capital............................... 1,443 1,420
Retained earnings........................................ 485 198
Treasury stock, at cost, 105,438 shares and 85,536
shares, respectively.................................... (5) (4)
Other.................................................... (24) (33)
------ ------
Total stockholders' equity............................. 2,237 1,919
------ ------
Total liabilities and stockholders' equity........... $7,592 $7,045
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 416 $ 296 $ 278
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of changes in accounting
methods......................................... 10 -- 21
Depreciation..................................... 362 352 338
Deferred income taxes............................ 126 156 56
Changes in current assets and liabilities:
Accounts receivable, net....................... (108) (116) (29)
Materials and supplies......................... (13) 6 2
Other current assets........................... (5) (4) 2
Accounts payable............................... 40 19 6
Compensation and benefits payable.............. (3) (47) 14
Casualty and environmental reserves............ (38) 32 2
Taxes payable.................................. 17 -- 28
Accrued interest............................... 1 3 (14)
Other current liabilities...................... (6) (2) 4
Changes in long-term casualty and environmental
reserves........................................ (10) (57) 16
Other, net....................................... -- (60) (44)
------- ------- -------
Net cash provided by operating activities...... 789 578 680
------- ------- -------
Cash flows from investing activities:
Additions to property and equipment................ (698) (676) (487)
Proceeds from property and equipment dispositions.. 45 35 34
Other, net......................................... (28) (18) (17)
------- ------- -------
Net cash used in investing activities.......... (681) (659) (470)
------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of preferred stock.......... -- -- 337
Net increase (decrease) in commercial paper........ 64 26 (353)
Proceeds from issuance of long-term debt........... 310 224 416
Payments on long-term debt......................... (346) (88) (470)
Dividends paid..................................... (129) (125) (106)
Proceeds from exercise of common stock options..... 6 15 11
Redemption of redeemable preferred stock........... -- (9) (2)
Other, net......................................... (3) (2) (2)
------- ------- -------
Net cash provided by (used in) financing
activities.................................... (98) 41 (169)
------- ------- -------
Increase (decrease) in cash and cash
equivalents................................. 10 (40) 41
Cash and cash equivalents:
Beginning of year.................................. 17 57 16
------- ------- -------
End of year........................................ $ 27 $ 17 $ 57
======= ======= =======
Supplemental cash flow information:
Interest paid, net of amounts capitalized.......... $ 149 $ 144 $ 197
Income taxes paid, net of refunds.................. 128 70 76
Supplemental noncash investing and financing
activities information:
Assets financed through a capital lease
obligation........................................ $ 50 $ -- $ --
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE YEARS ENDED DECEMBER 31, 1994
-------------------------------------------------------------------------------
OTHER
-----------------------
UNEARNED
CONVERTIBLE ADDITIONAL RETAINED COMPENSATION, MINIMUM
PREFERRED COMMON PAID-IN EARNINGS TREASURY RESTRICTED PENSION
STOCK STOCK CAPITAL (DEFICIT) STOCK STOCK LIABILITY TOTAL
----------- ------ ---------- --------- -------- ------------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1991................... $ -- $ 1 $1,356 $(140) $(1) $(14) $ -- $1,202
Net income.............. 278 278
Dividends:
Common stock, $1.20 per
share................. (105) (105)
Redeemable preferred
stock, $.55 per
share................. (1) (1)
Convertible preferred
stock, $3.125 per
share................. (2) (2)
Issuance of convertible
preferred stock
(6,900,000 shares)..... 337 337
Adjustments associated
with unearned
compensation,
restricted stock
(214,475 shares)....... 12 (1) (5) 6
Exercise of stock
options and related tax
benefit (438,139
shares)................ 14 14
Equity adjustment from
minimum pension
liability.............. (4) (4)
Other (15,253 shares)... 3 3
---- --- ------ ----- --- ---- ---- ------
Balance at December 31,
1992................... 337 1 1,385 30 (2) (19) (4) 1,728
Net income.............. 296 296
Dividends:
Common stock, $1.20 per
share................. (106) (106)
Convertible preferred
stock, $3.125 per
share................. (22) (22)
Adjustments associated
with unearned
compensation,
restricted stock
(232,354 shares)....... 12 (2) (4) 6
Exercise of stock
options and related tax
benefit (499,779
shares)................ 20 20
Equity adjustment from
minimum pension
liability.............. (6) (6)
Other (40,117 shares)... 3 3
---- --- ------ ----- --- ---- ---- ------
Balance at December 31,
1993................... 337 1 1,420 198 (4) (23) (10) 1,919
Net income.............. 416 416
Dividends:
Common stock, $1.20 per
share................. (107) (107)
Convertible preferred
stock, $3.125 per
share................. (22) (22)
Adjustments associated
with unearned
compensation,
restricted stock
(177,670 shares)....... 12 (1) 11
Exercise of stock
options and related tax
benefit (184,088
shares)................ 8 8
Equity adjustment from
minimum pension
liability.............. 9 9
Other (65,924 shares)... 3 3
---- --- ------ ----- --- ---- ---- ------
Balance at December 31,
1994................... $337 $ 1 $1,443 $ 485 $(5) $(23) $ (1) $2,237
==== === ====== ===== === ==== ==== ======
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of Burlington
Northern Inc. (BNI) and its majority-owned subsidiaries (collectively BN). The
principal subsidiary is Burlington Northern Railroad Company (Railroad). All
significant intercompany accounts and transactions have been eliminated.
Cash and cash equivalents
All short-term investments with original maturities of less than 90 days are
considered cash equivalents for purposes of disclosure in the consolidated
balance sheets and consolidated statements of cash flows. Cash equivalents are
stated at cost, which approximates market value.
Property and equipment
Main line track is depreciated on a group basis using a units-of-production
method. All other property and equipment are depreciated on a straight-line
basis over their estimated useful lives. Interstate Commerce Commission (ICC)
regulations require periodic formal studies of ultimate service lives for all
railroad assets. Resulting service life estimates are subject to review and
approval by the ICC. An annual review of rates and accumulated depreciation is
performed and appropriate adjustments are recorded. Significant premature
retirements, which would include major casualty losses, abandonments, sales
and obsolescence of assets; are recorded as gains or losses at the time of
their occurrence. Expenditures which significantly increase asset values or
extend useful lives are capitalized. Repair and maintenance expenditures are
charged to operating expense when the work is performed. All properties are
stated at cost.
Materials and supplies
Materials and supplies consist mainly of diesel fuel, repair parts for
equipment and other railroad property and are valued at average cost.
Revenue recognition
Transportation revenues are recognized proportionately as a shipment moves
from origin to destination.
Income taxes
Income taxes are provided based on earnings reported for tax return purposes
in addition to a provision for deferred income taxes. The provision for income
taxes includes deferred tax expense determined by the change in the net
deferred tax liability, which is computed based on the differences between the
financial statement and tax basis of assets and liabilities as measured by
applying enacted tax laws and rates. Investment tax credits were accounted for
under the "flow-through" method.
Earnings per common share
Primary earnings per common share are computed by dividing net income, after
deduction of preferred stock dividends, by the weighted average number of
common shares and common share equivalents outstanding. Fully diluted earnings
per common share are computed by dividing net income by the weighted average
number of common shares and common share equivalents outstanding. Common share
equivalents are computed using the treasury stock method. An average market
price is used to determine the number of common share equivalents for primary
earnings per common share. The higher of the average or end-of-period market
price is used to determine common share equivalents for fully diluted earnings
per common share. In addition, the if-converted method is used for convertible
preferred stock when computing fully diluted earnings per common share.
12
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. ACCOUNTS RECEIVABLE, NET
Railroad's agreement to sell, on a revolving basis, an undivided percentage
ownership interest in a designated pool of accounts receivable with limited
recourse expired in December 1994. At December 31, 1993, accounts receivable
were net of $100 million, representing receivables sold. Average monthly
proceeds from the sale of accounts receivable were $162 million, $182 million
and $190 million in 1994, 1993 and 1992, respectively. Included in other
income (expense), net were expenses of $9 million in 1994 and 1993 and $11
million in 1992, relating to the sale. BN maintains an allowance for doubtful
accounts based upon the expected collectibility of all accounts receivable,
which at December 31, 1993 included receivables sold with recourse. Allowances
for doubtful accounts of $20 million and $17 million have been recorded at
December 31, 1994 and 1993, respectively.
3. PROPERTY AND EQUIPMENT, NET
Property and equipment, net was as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1994 1993
------- ------
<S> <C> <C>
Road, roadway structures and real estate..................... $ 7,875 $7,493
Equipment.................................................... 2,304 2,143
------- ------
Total cost................................................. 10,179 9,636
Less accumulated depreciation................................ 3,868 3,727
------- ------
Property and equipment, net................................ $ 6,311 $5,909
======= ======
</TABLE>
The consolidated balance sheets at December 31, 1994 and 1993 included $77
million and $36 million, respectively, of property and equipment under capital
leases. The related depreciation was included in depreciation expense.
Accumulated depreciation for property and equipment under capital leases was
$34 million and $31 million at December 31, 1994 and 1993, respectively.
Main line track is depreciated on a group basis using a units-of-production
method. The accumulated depreciation and annual depreciation accrual rates for
railroad assets other than main line track are calculated using a straight-
line method and statistical group measurement techniques. The group techniques
project depreciation expense and estimated accumulated depreciation utilizing
historical experience and expected future conditions relating to the timing of
asset retirements, cost of removal, salvage proceeds, maintenance practices
and technological changes. The net book value of reported assets reflects
estimated remaining asset utility on a historical cost basis.
Due to the imprecision of annual reviews using statistical group measurement
techniques for long-term asset retirement, replacement and deterioration
patterns, BN adjusts accumulated depreciation for significant differences
between recorded accumulated depreciation and computed requirements.
Differences between recorded accumulated depreciation and computed
requirements are recognized prospectively on a straight-line basis. Under ICC
regulations, BN conducts service life studies on a periodic basis. Results of
service life studies are recorded over the remaining life of the asset group
studied. No service life studies were scheduled for 1994. In future periods,
service life studies will be conducted as required. However, the impact of
such studies is not determinable at this time.
Capitalization of certain software development costs has increased as a
result of new strategic initiatives. Capitalization of software development
costs begins upon establishment of technological feasibility. The
establishment of technological feasibility is based upon completion of
planning, design and other technical performance requirements.
13
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Capitalized software development costs are amortized over a seven-year
estimated useful life using the straight-line method. Amortization expense was
$2 million for the year ended December 31, 1994 and no amortization was
recorded for the year ended December 31, 1993. Unamortized capitalized software
costs were $20 million and $6 million as of December 31, 1994 and 1993,
respectively.
4. DEBT
Debt outstanding was as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1994 1993
------ ------
<S> <C> <C>
BNI:
7 1/2% debentures, due 2023.......................... $ 150 $ 150
8 3/4% debentures, due 2022.......................... 200 200
9% debentures, due 1997 to 2016...................... 156 157
7% notes, due 2002................................... 150 150
7.40% notes, due 1999................................ 150 --
Equipment obligations, weighted average rate of 7.09%
and 7.08%, respectively, due serially to 2013....... 194 191
Railroad:
Consolidated mortgage bonds, 3 1/5% to 9 1/4%, due
serially
to 2045............................................. 321 622
Variable rate term loan facility, weighted average
rate of 6.32%, due 1997............................. 150 --
Equipment and other obligations, weighted average
rate of 8.94% and 9.30%, respectively, due serially
to 2009............................................. 91 113
General mortgage bonds, 3 1/8% and 2 5/8%, due 2000
and 2010, respectively.............................. 62 62
Prior lien railway and land grant bonds, 4%, due
1997................................................ 57 57
General lien railway and land grant bonds, 3%, due
2047................................................ 35 35
First mortgage bonds, series A, 4%, due 1997......... 22 24
Capitalized lease obligations, weighted average rate
of 7.27% and 8.01%, respectively, expiring 1996 and
2008................................................ 46 10
Income debentures, series A, 5%, due 2006............ 8 8
Commercial paper..................................... 90 26
Unamortized discount................................... (63) (68)
------ ------
Total.............................................. 1,819 1,737
Less:
Commercial paper..................................... 90 26
Current portion of long-term debt.................... 32 185
------ ------
Long-term debt..................................... $1,697 $1,526
====== ======
</TABLE>
Railroad maintains an effective program for the issuance, from time to time,
of commercial paper. These borrowings are supported by Railroad's bank
revolving credit agreements. Outstanding commercial paper balances are
considered as reducing available borrowings under these agreements. The bank
revolving credit agreements allow borrowings of up to $300 million on a short-
term basis and $500 million on a long-term basis. Annual facility fees are
currently 0.125 and 0.1875 percent, respectively, and are subject to change
based upon changes in Railroad's senior secured debt ratings. At Railroad's
option, borrowings can be obtained through either a competitive bid or a
standby procedure. Rates for borrowings under the standby
14
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
procedure are, at Railroad's option, based upon the London Interbank Offered
Rate (LIBOR) or certificate of deposit rate, plus in either case, a spread
based upon Railroad's senior secured debt ratings, or an alternate base rate.
The agreements are currently scheduled to expire on May 5, 1995 and May 6,
1999, respectively. The maturity value of commercial paper outstanding at
December 31, 1994 was $91 million, leaving a total of $209 million of the
short-term revolving credit agreement available and $500 million of the long-
term revolving credit agreement available. The maturity value of commercial
paper outstanding at December 31, 1993 was $27 million.
In November 1994, Railroad entered into a $150 million three year term loan
facility agreement with a group of commercial banks and used the proceeds to
redeem $150 million aggregate principal amount of Railroad Consolidated
Mortgage Bonds, 10 percent, Series J, due November 1, 1997. Under the terms of
the indenture, the 10 percent mortgage bonds were redeemable at par,
commencing November 1, 1994. The difference between Railroad's redemption
price and the net carrying value resulted in an insignificant loss. The three
year term loans bear interest at rates equal to the selected LIBOR, which may
vary during the term of the loans, plus each lender's interest rate margin.
The financial covenants of the two bank revolving credit agreements and the
three year term loan facility agreement require that Railroad's consolidated
tangible net worth, as defined in the agreements, be at least $1.7 billion,
and that its debt, as defined in the agreements, cannot exceed the lesser of
140 percent of its consolidated tangible net worth and $3 billion. Each of the
agreements contain an event of default arising out of the occurrence and
continuance of a "Change in Control." A "Change in Control" is generally
defined as the acquisition of more than 50 percent of the voting securities of
BNI which has not been approved by the BNI Board of Directors, a change in the
control relationship between BNI and Railroad, and finally, a "Change in
Control" is deemed to occur when a majority of the seats on the BNI Board of
Directors is occupied by persons who are neither nominated by the BNI Board of
Directors nor appointed by directors so nominated. The proposed merger between
BNI and Santa Fe Pacific Corporation (Santa Fe) will not constitute a "Change
in Control" under such agreements.
In December 1994, BNI entered into an agreement whereby Chemical Bank
(Chemical) and Texas Commerce Bank National Association (TCB) agreed to
provide a five-year $500 million unsecured bank credit facility (the Tender
Offer Facility) for the purpose of funding BNI's tender offer to purchase 25
million shares of Santa Fe common stock at $20 per share. At BNI's option,
borrowings can be obtained either through a competitive bid or a standby
procedure. Rates for borrowing under the standby procedure are, at BNI's
option, based upon the selected term of LIBOR or certificate of deposit rate,
plus in either case, a spread based upon BNI's senior unsecured debt ratings
and the amount borrowed under the Tender Offer Facility, or an alternative
base rate. In February 1995, a group of banks executed a definitive agreement
for the Tender Offer Facility.
In May 1994, BNI issued $150 million of 7.4 percent notes due May 15, 1999
and used the proceeds to retire $150 million aggregate principal amount of
Railroad Consolidated Mortgage Bonds, 8 7/8 percent, Series I, due May 30,
1994. The 7.4 percent notes were the initial offering under an effective
registration statement on Form S-3 covering the issuance, from time to time,
of up to $500 million aggregate principal amount of debt securities. This
issuance reduced the amount available for future issuance to $350 million.
In April 1994, Railroad completed a $50 million cross-border leveraged lease
of equipment which is recorded as a capital lease obligation. The transaction
included the issuance of $40 million of equipment secured debt at a weighted
average yield of 7.27 percent and the receipt of an up front cash benefit. The
up front benefit reduces the effective interest rate on the debt to 6.64
percent.
In December 1993, BNI financed equipment through the issuance of $78 million
of 6.32 percent notes due serially to 2012.
15
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In July 1993, BNI issued $150 million of 7 1/2 percent senior unsecured
debentures due 2023 and used the proceeds for general corporate purposes,
including working capital.
The commercial paper program is further summarized as follows (dollars in
millions):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1994 1993
------ ------
<S> <C> <C>
Balance at year end.......................................... $ 90 $ 26
Weighted average interest rate............................... 6.43% 3.55%
Maximum outstanding during the year.......................... $ 243 $ 179
Average daily amount outstanding during the year............. $ 97 $ 41
Weighted daily average interest rate during the year......... 4.29% 3.27%
</TABLE>
Maturities of commercial paper averaged 7 days and 4 days in 1994 and 1993,
respectively.
Aggregate long-term debt scheduled maturities for 1995 through 1999 and
thereafter are $32 million, $27 million, $253 million, $27 million, $174
million and $1,279 million, respectively.
Substantially all Railroad properties and certain other assets are pledged
as collateral to or are otherwise restricted under the various Railroad long-
term debt agreements. Equipment obligations are secured by the underlying
equipment.
5. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of BN's financial instruments at December 31, 1994
and 1993 and the methods and assumptions used to estimate the fair value of
each class of financial instruments held by BN, were as follows:
Cash and cash equivalents
The carrying amount approximated fair value because of the short maturity of
these instruments.
Notes receivable
The fair value of notes receivable was estimated by discounting the
anticipated cash flows. Discount rates of 10.0 percent to 10.8 percent at
December 31, 1994 and 8.7 percent at December 31, 1993, were determined to be
appropriate when considering current United States Treasury rates and the
credit risk associated with these notes.
Marketable securities
Marketable securities, which are pledged to fund liabilities of certain
employee benefit plans, consist of corporate bonds (57 percent of carrying
amount) and United States government or agency issues (43 percent of carrying
amount) and are classified as available for sale. The carrying value of
available for sale securities is adjusted for changes in fair value and any
unrealized gains or losses are recorded as a component of stockholders'
equity. At December 31, 1994, the unrealized gains and losses were immaterial.
The fair value for these securities was based on secondary market indicators.
Realized gains or losses from the sales of marketable securities are based on
the specific identification method and were also immaterial for 1994.
16
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The contract maturities at December 31, 1994 for the securities were as
follows (in millions):
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- -----
<S> <C> <C>
Due in one year or less....................................... $ 7 $ 7
Due after one year through five years......................... 12 12
Due after five years through 10 years......................... -- --
Due after 10 years............................................ 1 1
--- ---
$20 $20
=== ===
</TABLE>
Accrued interest payable
The carrying amount approximated fair value as the majority of interest
payments are made semiannually.
Long-term debt and commercial paper
The fair value of BN's long-term debt, excluding unamortized discount, was
primarily based on secondary market indicators. For those issues not actively
quoted, estimates were based on each obligation's characteristics. Among the
factors considered were the maturity, interest rate, credit rating,
collateral, amortization schedule, liquidity and option features such as
optional redemption or optional sinking funds. These features were compared to
other similar outstanding obligations to determine an appropriate increment or
spread, above United States Treasury rates, at which the cash flows were
discounted to determine the fair value. The carrying amount of commercial
paper approximated fair value because of the short maturity of these
instruments.
Recourse liability from sale of receivables
Railroad's agreement to sell, on a revolving basis, an undivided percentage
interest in a designated pool of accounts receivable with limited recourse
expired in December 1994. At December 31, 1993, the carrying value of the
allowance for doubtful accounts on receivables sold approximated the fair
value of the recourse liability related to those receivables.
The carrying amount and estimated fair values of BN's financial instruments
were as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1993
--------------- ---------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents................ $ 27 $ 27 $ 17 $ 17
Notes receivable......................... 8 8 9 11
Marketable securities.................... 20 20 -- --
Liabilities:
Accrued interest payable................. 45 45 44 44
Long-term debt and commercial paper...... 1,882 1,742 1,805 1,884
Recourse liability from sale of receiv-
ables................................... -- -- 4 4
</TABLE>
BN also holds investments in, and has advances to, several unconsolidated
transportation affiliates. It was not practicable to estimate the fair value
of these financial instruments, which were carried at their
17
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
original cost of $16 million and $19 million in the December 31, 1994 and 1993
consolidated balance sheets. There were no quoted market prices available for
the shares held in the affiliated entities, and the cost of obtaining an
independent valuation would have been excessive considering the materiality of
these investments to BN.
In addition, BN has a note receivable, from a shortline railroad, that has
principal payments which are based on traffic volume over a segment of line.
The carrying value of the note was $5 million at December 31, 1994 and 1993.
As it is not practicable to forecast the traffic volume over the remaining
life of the note, it was not included in the notes receivable amount shown
above.
6. HEDGING ACTIVITIES
BN has a program to hedge against fluctuations in the price of its diesel
fuel purchases. This program includes forward purchases for delivery at
fueling facilities and exchange-traded petroleum futures contracts. The
futures contracts are accounted for as hedges which are marked to market with
any gains or losses associated with changes in market value being deferred and
recognized as a component of fuel expense in the period in which the
designated fuel is purchased and used. At December 31, 1994, BN had entered
into agreements with fuel suppliers setting the price of fuel to be obtained
by taking physical delivery directly from such suppliers at a future date. The
average price of the approximately 79 million gallons which BN had committed
to purchase was approximately 52 cents per gallon, exclusive of taxes, certain
transportation costs and other charges. In addition, BN held petroleum futures
contracts representing approximately 53 million gallons at an average price of
approximately 49 cents per gallon. These contracts have expiration dates
ranging from January to October 1995.
BN's current fuel hedging program is designed to cover no more than 50
percent of projected fuel requirements for the subsequent 12-month period;
therefore, hedge positions will not exceed actual fuel requirements. The
current and future fuel delivery prices are monitored continuously and hedge
positions are adjusted accordingly. In order to reduce risk associated with
market movements, fuel hedging transactions do not extend beyond a 12-month
period. BN purchases petroleum futures contracts only through regulated
exchanges (e.g. New York Mercantile Exchange). In order to effectively monitor
the fuel hedging activities, results of the program are summarized and
reported to senior management on a regular basis.
In the second quarter of 1994, BN entered into a three year interest rate
swap on a notional amount of $50 million to hedge against interest rate
exposure on one of its debt issuances. BN's position in this swap was
subsequently closed during the fourth quarter of the year. Under the terms of
this swap, BN received semiannual fixed-rate payments of 6.33 percent from a
AA-rated counterparty and made semiannual floating rate payments tied to the
six-month LIBOR. The swap was accounted for as a hedge with realized gains or
losses being recognized as a component of interest expense. During 1994, the
resulting decrease in interest expense was not significant.
7. INCOME TAXES
Effective January 1, 1993, BN adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109 modifies
SFAS No. 96, which established the liability method of accounting for income
taxes and had been adopted by BN effective January 1, 1986. BN adopted SFAS
No. 109 consistent with the transitional guidelines of SFAS No. 109. The
effect of the adoption was to increase the current portion of the deferred
income tax asset with a corresponding increase in the noncurrent deferred
income tax liability of $26 million at January 1, 1993. There was no effect on
net income, stockholders' equity or cash flows upon adoption.
18
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income tax expense, excluding the cumulative effect of changes in accounting
methods, was as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Current:
Federal................... $ 124 $ 61 $ 82
State..................... 19 8 15
------- ------- -------
143 69 97
------- ------- -------
Deferred:
Federal................... 109 136 52
State..................... 17 20 4
------- ------- -------
126 156 56
------- ------- -------
Total................... $ 269 $ 225 $ 153
======= ======= =======
</TABLE>
Reconciliation of the federal statutory income tax rate to the effective tax
rate, excluding the cumulative effect of changes in accounting methods, was as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Federal statutory income tax
rate....................... 35.0% 35.0% 34.0%
State income taxes, net of
federal tax benefit........ 3.4 3.4 3.4
Effect of one percent
federal tax rate increase
on deferred tax balances at
January 1, 1993............ -- 5.0 --
Internal Revenue Service
settlement................. -- -- (3.8)
Other, net.................. .3 (.2) .2
------- ------- -------
Effective tax rate........ 38.7% 43.2% 33.8%
======= ======= =======
</TABLE>
The components of deferred tax assets and liabilities were as follows (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1993
------- -------
<S> <C> <C>
Deferred tax liabilities:
Accelerated depreciation and amortization............... $(1,785) $(1,667)
Other................................................... (106) (96)
------- -------
Total deferred tax liabilities........................ (1,891) (1,763)
------- -------
Deferred tax assets:
Casualty and environmental reserves..................... 255 270
Pensions................................................ 49 45
Other................................................... 287 273
------- -------
Total deferred tax assets............................. 591 588
------- -------
Valuation allowance..................................... -- --
------- -------
Net deferred tax liability............................ $(1,300) $(1,175)
======= =======
Noncurrent deferred income tax liability................ $(1,456) $(1,342)
Current deferred income tax asset....................... 156 167
------- -------
Net deferred tax liability............................ $(1,300) $(1,175)
======= =======
</TABLE>
19
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In 1994, tax expense of $6 million related to the adjustment to reduce the
minimum pension liability was allocated directly to stockholders' equity.
In August 1993, the Omnibus Budget Reconciliation Act of 1993 (the Act) was
signed into law. The Act increased the corporate federal income tax rate by one
percent, effective January 1, 1993, which reduced 1993 net income by $29
million, or $.32 per common share, through the date of enactment. A one-time,
non-cash charge of $28 million to income tax expense was recorded as an
adjustment to deferred taxes as of the enactment date and a charge of $1
million to income tax expense was recorded as an adjustment to current income
taxes.
In December 1992, BN received notification that an Appeals Division
settlement of the Internal Revenue Service audits for the years 1981 through
1985 had been approved by the Joint Committee on Taxation. This action settled
all unagreed issues for those years. The tax effect of the settlement was
included in the 1992 tax provision as shown below (in millions, except per
share data):
<TABLE>
<CAPTION>
<S> <C>
Current tax expense................................................... $ 2
Deferred tax benefit.................................................. (19)
----
Total tax benefit................................................... $(17)
====
Increase in earnings per common share................................. $.19
====
</TABLE>
8. REDEEMABLE PREFERRED STOCK
In July 1993, BNI redeemed all of the outstanding shares of its $10 Par Value
5 1/2 percent Cumulative Redeemable Preferred Stock. BNI purchased the shares
for $10.067222 per share or for a total of $9 million, representing the
redemption price of $10 per share plus accrued dividends for the period from
June 2, 1993 to July 15, 1993.
Redeemable preferred stock activity was as follows (dollars in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1993 1992
-------------- ----------------
SHARES AMOUNT SHARES AMOUNT
------- ------ --------- ------
<S> <C> <C> <C> <C>
Balance at beginning of year................. 899,009 $ 9 1,076,734 $11
Acquired during year......................... 899,009 9 177,725 2
------- --- --------- ---
Balance at end of year..................... -- $-- 899,009 $ 9
======= === ========= ===
</TABLE>
9. PREFERRED CAPITAL STOCK
No Par Value Preferred Stock, authorized 25,000,000 shares--6,900,000 shares
issued
In November 1992, BNI issued 6,900,000 shares of 6 1/4 percent Cumulative
Convertible Preferred Stock, Series A No Par Value. The convertible preferred
stock is not redeemable prior to December 26, 1995. Thereafter, the shares may
be redeemed at BNI's option, in whole or in part, during the twelve months
beginning November 24 of each year except for 1995 which commences December 26,
at the following redemption prices per share: $52.1875 in 1995, $51.875 in
1996, $51.5625 in 1997, $51.25 in 1998, $50.9375 in 1999, $50.625 in 2000,
$50.3125 in 2001, and $50 in 2002 and thereafter. The convertible preferred
stock may be converted, at the option of the holder at any time, into the
number of shares of BNI's common stock equal to the liquidation preference of
each share of convertible preferred stock, $50, divided by the conversion
20
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
price of $47 per share of common stock. The convertible preferred stockholders
have no voting rights unless six quarterly dividend payments are in default.
In a default, such stockholders may vote separately as a class with all other
series of the No Par Value Preferred Stock to elect two additional directors.
Voting rights will continue until all arrearages have been paid. As of
December 31, 1994, there had been no such defaults.
Class A Preferred Stock Without Par Value, authorized 50,000,000 shares--
unissued
At December 31, 1994, BNI had available for issuance 50,000,000 shares of
Class A Preferred Stock Without Par Value. The Board of Directors has the
authority to issue such stock in one or more series, to fix the number of
shares and to fix the designations and the powers. On July 10, 1986, the Board
of Directors designated a series of 800,000 shares of Class A Preferred Stock
Without Par Value as Series A Junior Participating Class A Preferred Stock. On
December 19, 1991, the Board of Directors increased the Series A Junior
Participating Class A Preferred Stock designation to 3,000,000 shares. Each
one one-hundredth of a share will have dividend and voting rights
approximately equal to those of one share of common stock of BNI. In addition,
on July 10, 1986, the Board of Directors declared a dividend distribution of
one right for each outstanding share of common stock of BNI. The rights become
exercisable if, without BNI's prior consent, a person or group acquires
securities having 20 percent or more of the voting power of all of BNI's
voting securities or announces a tender offer which would result in such
ownership. Each right, when exercisable, entitles the registered holder to
purchase from BNI one one-hundredth of a share of Series A Junior
Participating Class A Preferred Stock at a price of $190 per one one-hundredth
of a share, subject to adjustment. If, after the rights become exercisable,
BNI were to be acquired through a merger, each right would permit the holder
to purchase, for the exercise price, stock of the acquiring company having a
value of twice the exercise price. In addition, if any person acquires 25
percent or more of BNI (other than as a result of a cash offer for all
shares), each right not owned by the holder of such 25 percent would permit
the purchase, for the exercise price, of stock of BNI having a value of twice
the exercise price. The rights may be redeemed by BNI under certain
circumstances until their expiration date for $.05 per right.
10. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
BNI is authorized to issue 300,000,000 shares of Common Stock Without Par
Value. At December 31, 1994, there were 89,223,821 shares of common stock
outstanding. Each holder of common stock is entitled to one vote per share in
the election of directors and on all matters submitted to a vote of
stockholders. Subject to the rights and preferences of the convertible
preferred stock and any future issuance of additional preferred stock, each
share of common stock is entitled to receive dividends as may be declared by
the Board of Directors out of funds legally available and to share ratably in
all assets available for distribution to stockholders upon dissolution or
liquidation. No holder of common stock has any preemptive right to subscribe
for any securities of BNI.
11. STOCK OPTIONS AND OTHER CAPITAL STOCK
Stock options
Under BN's stock option plans, options may be granted to officers and key
salaried employees at fair market value on the date of grant. All options
expire within ten years after the date of grant. BN may also grant stock
appreciation rights (SARs) in tandem with stock options which would be
exercisable during the same period as the options. SARs entitle an option
holder to receive a payment equal to the difference between the option price
and the fair market value of the common stock at the date of exercise of the
SAR. To the extent the SAR is exercised, the related option is cancelled and
to the extent the option is exercised the related SAR is cancelled. Any change
in the current market value over the SAR's exercise price would be recognized
at such time as an adjustment to compensation expense.
21
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Activity in stock option plans was as follows:
<TABLE>
<CAPTION>
EXERCISE
OPTIONS SARS PRICE PER SHARE
--------- ------- ----------------
<S> <C> <C> <C>
Balance at December 31, 1991.......... 2,902,820 54,226 $ 6.48 to $39.88
Granted............................. 984,515 -- 40.88 to 44.24
Exercised........................... (438,500) (54,226) 6.48 to 34.88
Cancelled........................... (197,511) -- 20.48 to 44.24
--------- -------
Balance at December 31, 1992.......... 3,251,324 -- 10.32 to 44.24
Granted............................. 947,125 -- 55.56 to 55.94
Exercised........................... (508,476) -- 10.32 to 44.24
Cancelled........................... (54,882) -- 22.50 to 55.94
--------- -------
Balance at December 31, 1993.......... 3,635,091 -- 12.49 to 55.94
Granted............................. 752,690 -- 53.69 to 55.94
Exercised........................... (184,088) -- 12.49 to 55.94
Cancelled........................... (83,962) -- 20.48 to 55.94
--------- -------
Balance at December 31, 1994.......... 4,119,731 -- 15.26 to 55.94
Exercisable at December 31:
1994................................ 2,950,427 -- $15.26 to $55.94
1993................................ 2,153,170 -- 12.49 to 44.24
1992................................ 1,711,726 -- 10.32 to 44.24
Available for future grants at Decem-
ber 31:
1994................................ 4,464,447
1993................................ 5,151,315
1992................................ 5,995,545
</TABLE>
Shares issued upon exercise of options may be issued from treasury shares or
from authorized but unissued shares.
All outstanding stock options became exercisable upon the February 7, 1995
approval by the stockholders of both BNI and Santa Fe of the proposed merger
with Santa Fe.
Other capital stock
BN has restricted stock award plans under which up to 1,700,000 common
shares may be awarded to eligible employees and directors of BN. No cash
payment is required by the individual. Shares awarded under the plan may not
be sold, transferred or used as collateral by the holder until the shares
awarded become free of the restrictions, generally by one-thirds on the third,
fourth and fifth anniversaries of the date of grant. All shares still subject
to restrictions are generally forfeited and returned to the plan if the
employee or director's relationship with BN is terminated. If the employee or
director retires, becomes disabled or dies, the restrictions will lapse at
that time. The compensation expense resulting from the award of restricted
stock is valued at the average of the high and low market prices of BNI common
stock on the date of the award, recorded as a reduction of stockholders'
equity, and charged to expense evenly over the service period. Restricted
stock awards under these plans, net of forfeitures, were 177,670, 232,354 and
214,475 shares in 1994, 1993 and 1992, respectively. A total of 780,694,
870,525 and 824,877 restricted common shares were outstanding at December 31,
1994, 1993 and 1992, respectively. Compensation expense was not significantly
affected for all periods presented. Upon the February 7, 1995 approval by the
stockholders of both BNI and Santa Fe of the proposed merger with Santa Fe,
the restrictions on the BNI stock grants lapsed and the previously unearned
compensation relating to such restricted stock, included in BNI's
stockholders' equity, was recognized as
22
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
a non-cash charge to compensation and benefits expense. As of December 31,
1994, such unearned compensation relating to restricted stock was approximately
$23 million.
BN also has a stock award plan which provides for grants of shares of BNI's
common stock to full-time employees, excluding officers, based upon
performance. A total of 100,000 shares of common stock has been authorized for
these awards. The shares awarded contain no restrictions and the recipients
have full stockholder rights and privileges. Compensation expense is based upon
the average of the high and low market prices of BNI common stock on the date
of grant. During the years ended December 31, 1994, 1993 and 1992, 3,900,
5,540, and 11,720 shares were awarded under this plan. The related compensation
expense was not significant.
An employee stock purchase plan was adopted in 1992, effective in 1993, as a
means to encourage employee ownership of BNI common stock. A total of 500,000
shares of common stock were authorized for distribution under this plan. The
plan allows eligible BN employees to use the proceeds of incentive compensation
awards to purchase shares of BNI common stock at a discount, as determined by
the BNI Board of Directors, from the market price and may require that the
shares purchased be held for a specific time period as also determined by the
Board of Directors. The difference between the market price and the employees'
purchase price is recorded as additional compensation expense. During the years
ended December 31, 1994 and 1993, 31,832 and 34,629 shares were purchased under
this plan. The related compensation expense was not significant.
12. RETIREMENT PLANS
BN has non-contributory defined benefit pension plans covering substantially
all non-union employees. The benefits are based on years of credited service
and the highest five-year average compensation levels. Contributions to the
plans are based upon the projected unit credit actuarial funding method and are
limited to amounts that are currently deductible for tax purposes.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.
The funded status of BN plans and the net accrued pension cost reflected in
the consolidated balance sheets were as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1994 1993
------ ------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................. $ 481 $ 539
====== ======
Accumulated benefit obligation........................ $ 553 $ 604
====== ======
Projected benefit obligation.......................... $ 628 $ 740
Plan assets, primarily marketable equity and debt
securities, at fair value............................ (467) (490)
------ ------
Projected benefit obligation in excess of plan assets. 161 250
Unrecognized net loss................................. (41) (153)
Unrecognized prior service cost....................... (5) (6)
Unamortized net transition obligation................. (29) (33)
Adjustment required to recognize minimum liability.... 12 56
------ ------
Net accrued pension cost............................ $ 98 $ 114
====== ======
</TABLE>
23
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The discount rate and rate of increase in future compensation levels used in
determining the actuarial present value of the benefit obligations were 9
percent and 5.5 percent at December 31, 1994 and 7 percent and 5.5 percent at
December 31, 1993. The expected long-term rate of return on assets was 9.5
percent for 1994 and 1993 and 10 percent for 1992.
Components of the net pension cost were as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Service cost, benefits earned during the
period..................................... $ 12 $ 9 $ 10
Interest cost on projected benefit
obligation................................. 50 50 52
Actual return on plan assets................ (25) (57) (36)
Net amortization and deferred amounts....... (1) 24 5
------- ------- -------
Net pension cost.......................... $ 36 $ 26 $ 31
======= ======= =======
</TABLE>
Net pension cost, which is based upon a discount rate as of January 1, was
higher for 1994 than 1993 primarily due to a decrease in the discount rate from
8.5 percent at January 1, 1993 to 7 percent at January 1, 1994. The decrease in
net pension cost for 1993 as compared with 1992 was primarily due to a decrease
in the rate of future compensation growth from 6 percent at January 1, 1993 to
5.5 percent at January 1, 1994.
BN sponsors a 401(k) thrift and profit sharing plan which covers
substantially all non-union employees. BN matches 35 percent of the first 6
percent of the employees' contributions, which is subject to certain percentage
limits of the employees' earnings, at the end of each quarter. Depending on
BN's performance, an additional matching contribution of 20 to 40 percent can
be made at the end of the year. BN's expense was $8 million, $6 million and $4
million in 1994, 1993 and 1992, respectively. Effective January 1, 1994, BN
also sponsors a 401(k) retirement savings plan covering substantially all union
employees which is non-contributory on the part of BN.
13. OTHER BENEFIT PLANS
Effective January 1, 1992, BN adopted SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." BN provides certain
postretirement health care benefits, payable until age 65, for a small number
of retirees who were at least 55 years of age and who retired on or before
March 1986.
Both the accumulated postretirement benefits obligation and cost associated
with this plan were insignificant. Life insurance benefits are provided for
eligible non-union employees. BN adopted accrual accounting for the expense of
these plans in 1992 by taking a $16 million cumulative effect charge to income
in order to establish a liability for those benefits. BN pays benefits as
claims are processed.
The following table presents the status of the plans and the accrued
postretirement benefit cost reflected in the consolidated balance sheets (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1993
----------- -----------
HEALTH LIFE HEALTH LIFE
------ ---- ------ ----
<S> <C> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees......................................... $-- $11 $ 1 $13
Fully eligible active participants............... -- 1 -- 2
Other active participants........................ -- 2 -- 1
--- --- --- ---
-- 14 1 16
Unrecognized net gain.............................. -- 4 -- --
--- --- --- ---
Accrued postretirement benefit cost.............. $-- $18 $1 $16
=== === === ===
</TABLE>
24
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Components of the postretirement benefit cost were as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
----------- ----------- -----------
HEALTH LIFE HEALTH LIFE HEALTH LIFE
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Service cost............................ $-- $-- $-- $-- $-- $--
Interest cost........................... -- 1 -- 1 -- 1
--- --- --- --- --- ---
Net postretirement benefit cost....... $-- $ 1 $-- $ 1 $-- $ 1
=== === === === === ===
</TABLE>
The discount rate used in determining the benefit obligation was 9 percent
at December 31, 1994 and 7 percent at December 31, 1993. The health care cost
trend rate is assumed to decrease gradually from 14 percent in 1995 to 6
percent in 2003 and thereafter. Increasing the assumed health care cost trend
rate by one percentage point in each year would have an insignificant effect
on the accumulated postretirement benefit obligation at December 31, 1994 and
1993 as well as the aggregate of the service and interest cost components for
the three years ended December 31, 1994.
Under collective bargaining agreements, Railroad participates in multi-
employer benefit plans which provide certain postretirement health care and
life insurance benefits for eligible union employees. Insurance premiums
attributable to retirees, which are expensed as incurred, were $10 million in
both 1994 and 1993 and $11 million in 1992.
14. COMMITMENTS AND CONTINGENCIES
Agreement to merge and tender offers
As of June 29, 1994, BNI and Santa Fe entered into an Agreement and Plan of
Merger (the Original Agreement) pursuant to which, on the terms and conditions
set forth in the Original Agreement, Santa Fe would merge (the Merger) with
and into BNI, and BNI would be the surviving corporation and each share of
Santa Fe common stock would be converted into 0.27 of a share of BNI common
stock. The Original Agreement was subsequently amended as of October 26, 1994,
December 18, 1994 and January 24, 1995. The Original Agreement, as so amended,
is referred to as the Merger Agreement. Pursuant to the Merger Agreement,
Santa Fe is to merge with and into BNI with each share of Santa Fe common
stock to be exchanged for not less than 0.40 and not more than 0.4347 shares
of BNI common stock. The exchange ratio will vary based on the number of
shares of Santa Fe common stock repurchased by Santa Fe in the repurchase
program referred to below (the Repurchase Program). Stockholders of BNI and
Santa Fe approved the Merger Agreement at special stockholders' meetings held
on February 7, 1995.
Also pursuant to the Merger Agreement, on December 23, 1994, BNI and Santa
Fe commenced tender offers (together, the Tender Offer) to acquire up to 63
million shares of Santa Fe common stock in the aggregate at $20 per share in
cash (with Santa Fe severally obligated to purchase up to 38 million shares of
Santa Fe common stock in the Tender Offer and BNI severally obligated to
purchase up to 25 million shares of Santa Fe common stock in the Tender Offer
or 20 percent and 13 percent, respectively, of the then outstanding Santa Fe
common stock). Prior to expiration of the Tender Offer on February 8, 1995,
Santa Fe stockholders tendered sufficient shares to complete the Tender Offer.
On February 6, 1995, BNI entered into a five-year $500 million unsecured bank
credit facility (the Tender Offer Facility), whereby a group of banks will
finance BNI's obligations to purchase shares of Santa Fe common stock in the
Tender Offer. At BNI's option, borrowings can be obtained either through a
competitive bid or a standby procedure. Rates for borrowing under the standby
procedure are, at BNI's option, based upon the selected term of LIBOR or
certificate of deposit rate, plus in either case, a spread based upon BNI's
senior unsecured debt ratings and
25
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the amount borrowed under the Tender Offer Facility, or an alternative base
rate. BNI's investment in Santa Fe, which represents approximately 17 percent
of Santa Fe stock outstanding following completion of the Tender Offer, will
be accounted for under the cost method until consummation of the Merger. Santa
Fe anticipates borrowing up to $1,110 million (of which approximately $200
million will be used to replace existing Santa Fe debt) in connection with the
Sante Fe tender offer and related matters from a syndicate of financial
institutions under a new credit agreement. Santa Fe may also borrow an
additional $200 million under its new credit agreement to retire $200 million
of existing Santa Fe debt. Funding of the Tender Offer is expected to be
completed on or about February 21, 1995.
Under the Repurchase Program as set forth in the Merger Agreement, Santa Fe
is permitted, at its discretion and subject to certain financial and
performance criteria of Santa Fe set forth in its credit agreements and the
Merger Agreement (including minimum cash flows, cash capital expenditures and
maximum total debt), to repurchase up to 10 million shares of Santa Fe common
stock prior to consummation of the Merger. The number of shares of BNI common
stock to be issued in the Merger will not be affected by the number of shares
of Santa Fe common stock repurchased by Santa Fe under the Repurchase Program.
Accordingly, the exchange ratio of BNI common shares to be offered for each
share of outstanding Santa Fe common stock upon consummation of the Merger
would be set at not less than 0.40 and not more than 0.4347 shares.
Pursuant to the Merger Agreement, two possible structures are available to
complete the Merger. Using the current structure, each issued and outstanding
share of Santa Fe common stock (other than shares of Santa Fe common stock
held by Santa Fe as treasury stock or shares held by BNI, all of which will be
cancelled) will be exchanged for not less than 0.40 and not more than 0.4347
shares of BNI common stock depending upon the number of shares of Santa Fe
common stock repurchased by Santa Fe under the Repurchase Program. BNI will be
the surviving corporation. The Merger Agreement provides that either BNI or
Santa Fe may elect to effect the Merger through the use of a holding company
(the Alternative Transaction Structure) as described below. BNI and Santa Fe
have established BNSF Corporation (BNSF), a Delaware corporation, for such
purpose. Under the Alternative Transaction Structure, BNSF would create two
subsidiaries and one subsidiary would merge into BNI and one into Santa Fe.
Each holder of one share of BNI common stock would receive one share of BNSF
common stock and each holder of one share of Santa Fe common stock, excluding
the Santa Fe common stock acquired by BNI in the Tender Offer and the Santa Fe
common stock held by Santa Fe as treasury stock, would receive not less than
0.40 and not more than 0.4347 shares of BNSF common stock depending upon the
number of shares of Santa Fe common stock repurchased by Santa Fe as permitted
under the Repurchase Program. The Santa Fe common stock acquired by BNI in the
Tender Offer would remain outstanding and the Santa Fe common stock held by
Santa Fe as treasury stock would be cancelled. The rights of each stockholder
of BNSF would be substantially identical to the rights of a stockholder of
BNI, and the Alternative Transaction Structure would have the same economic
effect with respect to the stockholders of BNI and Santa Fe as the Merger in
its current structure. The Merger will be accounted for under the purchase
method of accounting upon consummation, and BNI's $500 million investment will
be included in the purchase price.
As is typical in the context of a merger, certain benefits of officers and
employees vested upon approval of the Merger by the stockholders of BNI and
Santa Fe. In particular, on February 7, 1995, restrictions previously placed
upon certain BNI stock grants lapsed and the previously unearned compensation
relating to such restricted stock, included in BNI's stockholders' equity, was
charged to compensation and benefits expense. As of December 31, 1994, such
unearned compensation relating to restricted stock was approximately $23
million. BNI expects to incur other costs related to the Merger some of which
will be included in the determination of the total purchase price.
Consummation of the Merger is subject to approval by the ICC, approval under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and other customary
conditions. In connection with the ICC
26
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
proceedings, on January 27, 1995, BNI and Santa Fe requested the ICC to adopt
an expedited procedural schedule for reviewing the merger, based on a
timetable the ICC has recently proposed to adopt for all major railroad
mergers, and on February 3, 1995, the ICC issued a notice requesting comments
on the proposed schedule by February 21, 1995. That schedule calls for the ICC
to issue its decision on the merger within 165 days from the date on which the
ICC publishes a notice formally advising parties that the BNI and Santa Fe
stockholders have voted to approve the transaction. The ICC has not yet issued
a notice regarding stockholder approval nor taken any further action on the
proposed schedule.
Casualty and environmental reserves
Casualty reserves consist primarily of personal injury claims, including
work-related injuries to employees. Employees of BN are compensated for work-
related injuries according to the provisions of the Federal Employers'
Liability Act. Liabilities for personal injury claims are estimated through an
actuarial model that considers historical data and trends and is designed to
record those costs in the period of occurrence. BN conducts an ongoing review
and analysis of claims and other information to ensure the continued adequacy
of casualty reserves. To the extent costs may exceed recorded accruals, they
are not anticipated to materially affect BN's financial condition, results of
operations or liquidity.
BN's operations, as well as those of its competitors, are subject to
extensive federal, state and local environmental regulation. In order to
comply with such regulation and to be consistent with BN's corporate
environmental policy, BN's operating procedures include practices to protect
the environment. Amounts expended relating to such practices are inextricably
contained in the normal day-to-day costs of BN's business operations.
Under the requirements of the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (Superfund) and certain other laws, BN
is potentially liable for the cost of clean-up of various contaminated sites
identified by the United States Environmental Protection Agency and other
agencies. BN has been notified that it is a potentially responsible party
(PRP) for study and clean-up costs at approximately 75 sites (the PRP sites)
and, in many instances, is one of several PRPs. BN generally participates in
the clean-up of these sites through cost-sharing agreements with terms that
vary from site to site. Costs are typically allocated based on relative
volumetric contribution of material, the amount of time the site was owned or
operated, and/or the portion of the total site owned or operated by each PRP.
However, under Superfund and certain other laws, as a PRP, BN can be held
jointly and severally liable for all environmental costs associated with a
site.
Environmental costs include initial site surveys and environmental studies
of potentially contaminated sites as well as costs for remediation and
restoration of sites determined to be contaminated. Liabilities for
environmental clean-up costs are initially recorded when BN's liability for
environmental clean-up is both probable and a reasonable estimate of
associated costs can be made. Adjustments to initial estimates are recorded as
necessary based upon additional information developed in subsequent periods.
BN conducts an ongoing environmental contingency analysis, which considers a
combination of factors, including independent consulting reports, site visits,
legal reviews, analysis of the likelihood of participation in and ability to
pay for clean-up by other PRPs, and historical trend analyses.
BN is involved in a number of administrative and judicial proceedings and
other mandatory clean-up efforts at approximately 160 sites, including the PRP
sites, for which it is being asked to participate in the clean-up of sites
contaminated by material discharged into the environment. BN paid
approximately $21 million, $27 million and $20 million during 1994, 1993 and
1992, respectively, relating to mandatory clean-up efforts, including amounts
expended under federal and state voluntary clean-up programs. At this time, BN
expects to spend approximately $110 million in future years to remediate and
restore all known sites,
27
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
including $105 million pertaining to mandated sites, of which approximately
$70 million relates to the PRP sites. Of the $110 million, BN expects to spend
$33 million during 1995. Also, BN anticipates that the majority of the $110
million will be paid out over a period of less than seven years; however, some
costs will be paid out over a longer period, in some cases up to 40 years. At
December 31, 1994, 23 sites accounted for approximately $75 million of the
accrual and no individual site was considered to be material.
Liabilities for environmental costs represent BN's best estimates for
remediation and restoration of these sites and include asserted and unasserted
claims. At December 31, 1994, BN had accrued approximately $110 million for
estimated future environmental costs and believes it is reasonably possible,
although not probable, that actual environmental costs could be lower than the
recorded reserve or as much as 50 percent higher. BN's best estimate of
unasserted claims was approximately $5 million as of December 31, 1994.
Although recorded liabilities include BN's best estimates of all costs,
without reduction for anticipated recovery from insurance, BN's total clean-up
costs at these sites cannot be predicted with certainty due to various factors
such as the extent of corrective actions that may be required, evolving
environmental laws and regulations, advances in environmental technology, the
extent of other PRPs' participation in clean-up efforts, developments in
ongoing environmental analyses related to sites determined to be contaminated,
and developments in environmental surveys and studies of potentially
contaminated sites. As a result, charges to income for environmental
liabilities could possibly have a significant effect on results of operations
in a particular quarter or fiscal year as individual site studies and
remediation and restoration efforts proceed or as new sites arise. However,
expenditures associated with such liabilities are typically paid out over a
long period, in some cases up to 40 years, and are therefore not expected to
have a material adverse effect on BN's consolidated financial position, cash
flow or liquidity.
Lease commitments
BN has substantial lease commitments for railroad, highway equipment, office
buildings and a taconite dock facility. Most of these leases provide the
option to purchase the equipment at fair market value at the end of the lease.
However, some provide fixed price purchase options.
Lease rental expense for operating leases was $229 million, $194 million and
$189 million for the years ended December 31, 1994, 1993 and 1992,
respectively.
Minimum annual rental commitments were as follows (in millions):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED DECEMBER 31, LEASES LEASES
----------------------- ------- ---------
<S> <C> <C>
1995....................................................... $ 9 $ 175
1996....................................................... 7 161
1997....................................................... 5 136
1998....................................................... 5 122
1999....................................................... 5 113
Thereafter................................................. 37 890
--- ------
Total.................................................... 68 $1,597
======
Less amount representing interest.......................... 22
---
Present value of minimum lease payments.................. $46
===
</TABLE>
In addition to the above, BN also receives and pays rents for railroad
equipment on a per diem basis, which is included in equipment rents.
28
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Other commitments and contingencies
In 1993, BN entered into an agreement to acquire 350 alternating current
traction motor locomotives. In December 1994, the number of locomotives to be
acquired under this agreement was increased to 404. As of January 31, 1995, BN
had accepted delivery of 147 locomotives and anticipates deliveries under this
agreement of between approximately 60 and 140 each year from 1995 (including
January 1995 deliveries) through 1997.
BN has two locomotive electrical power purchase agreements, expiring in 1998
and 2001, that currently involve 197 locomotives. Payments required by the
agreements are based upon the number of megawatt hours of energy consumed,
subject to specified take-or-pay minimums. The rates specified in the two
agreements are renegotiable every two years. BN's 1995 minimum commitment
obligation is $53 million. Based on projected locomotive power requirements,
BN's payments in 1995 are expected to be in excess of the minimum. Payments
under the agreements totaled $47 million, $53 million and $56 million in 1994,
1993 and 1992, respectively. In 1990, BN entered into a letter of credit for
the benefit of a vendor. This letter of credit is a performance guarantee for
up to $15 million in major overhauls to be performed on the power purchase
equipment.
In connection with its program to transfer certain rail lines to independent
operators, BN has agreed to make certain payments for services performed by
the operators in connection with traffic that involves the shortlines and
Railroad as carriers. These payments will vary with such factors as traffic
volumes and shortline costs and are not expected to exceed normal business
requirements for services received. These payments are reflected as reductions
to revenue to conform with reporting to the ICC. Revenues for these joint
moves, including amounts applicable to the independent operator portion of the
line haul, are reflected by BN as revenue from operations.
BN is party to various claims and lawsuits, some of which are for
substantial amounts. While these claims and actions are being contested, the
outcome of individual matters is not certain. Although actual liability on an
aggregate basis is similarly not determinable with certainty, as of December
31, 1994, BN believes that any liability resulting from these matters, after
taking into consideration BN's insurance coverages and amounts already
provided for, should not have a material adverse effect on BN's financial
position.
There are no other commitments or contingent liabilities which BN believes
would have a material adverse effect on the consolidated financial position,
results of operations or liquidity.
15. OTHER INCOME (EXPENSE), NET
Other income (expense), net includes the following (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993 1992
---- ------- --------
<S> <C> <C> <C>
Gain on property disposi-
tions.................... $ 15 $ 17 $ 3
Interest income........... 3 6 4
Loss on sale of receiv-
ables.................... (9) (9) (11)
Litigation settlement
agreement................ -- -- 47
Miscellaneous, net........ (12) (9) (2)
-------- ------- --------
Total................... $ (3) $ 5 $ 41
======== ======= ========
</TABLE>
29
<PAGE>
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
Miscellaneous, net includes losses related to international ventures of $15
million and $4 million in 1994 and 1993, respectively.
In the first quarter of 1992, BN entered into a settlement agreement
relating to the reimbursement of attorneys' fees and costs incurred by BN in
connection with litigation filed by Energy Transportation Systems, Inc., and
others, and reimbursement of a portion of the amount paid in prior years by BN
in settlement of that action. Under the terms of the settlement, BN received
approximately $50 million before legal fees.
16. ACCOUNTING CHANGES
Effective January 1, 1994, BN adopted SFAS No. 112, "Employers' Accounting
for Postemployment Benefits." The cumulative effect, net of $7 million income
tax benefit, of this change in accounting attributable to years prior to 1994,
at the time of adoption, was to decrease 1994 net income by $10 million, or
$.11 per common share.
In 1994, BN adopted SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The adoption of this standard had no effect on
net income and no material effect on stockholders' equity.
Effective January 1, 1993, BN adopted SFAS No. 109, "Accounting for Income
Taxes." SFAS No. 109 modifies SFAS No. 96, which established the liability
method of accounting for income taxes, and had been adopted by BN effective
January 1, 1986. BN adopted SFAS No. 109 consistent with the transitional
guidelines of SFAS No. 109. The effect of the adoption was to increase the
current portion of the deferred income tax asset with a corresponding increase
in the noncurrent deferred income tax liability of $26 million at January 1,
1993. There was no effect on net income, stockholders' equity or cash flows.
In January 1992, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus that origination of service revenue
recognition was not an acceptable accounting method beginning in 1992 for the
freight services industry. Accordingly, effective January 1, 1992, BN changed
its method of revenue recognition from one which recognized transportation
revenue at the origination point, to a method whereby transportation revenue
is recognized proportionately as a shipment moves from origin to destination.
The cumulative effect, net of a $7 million income tax benefit, of the change
on the prior year's revenue, at the time of adoption, decreased 1992 net
income by $11 million, or $.13 per common share.
In the fourth quarter of 1992, effective January 1, 1992, BN adopted SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," and elected immediate recognition of the $16 million transition
obligation. The cumulative effect, net of a $6 million income tax benefit, of
the change on prior years', at the time of adoption, decreased 1992 net income
by $10 million, or $.11 per common share.
30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Burlington Northern Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Burlington
Northern Inc. and Subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Burlington Northern Inc. and Subsidiaries as of December 31, 1994 and 1993,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles.
As discussed in Note 16 to the consolidated financial statements, the
Company changed its method of accounting for postemployment benefits and
investments in debt and equity securities in 1994, for income taxes in 1993
and for revenue recognition and postretirement benefits other than pensions in
1992.
Coopers & Lybrand L.L.P.
Fort Worth, Texas
January 16, 1995
31
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(In millions, except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating Revenues $ 671.9 $ 658.2 $ 1,351.6 $ 1,289.7
---------- ---------- ---------- ----------
Operating Expenses
Compensation and benefits 198.9 209.2 419.4 416.8
Contract services 96.7 90.1 188.8 170.2
Fuel 62.7 61.2 126.5 120.1
Equipment rents 61.9 62.0 121.6 122.4
Depreciation and amortization 52.7 50.1 105.2 99.2
Materials and supplies 25.4 32.3 54.5 64.8
Other 49.1 55.9 106.7 108.1
---------- ---------- ---------- ----------
Total Operating Expenses 547.4 560.8 1,122.7 1,101.6
---------- ---------- ---------- ----------
Operating Income 124.5 97.4 228.9 188.1
Equity in Earnings of Pipeline
Partnership 5.7 10.7 12.4 17.0
Interest Expense 45.4 30.9 85.1 59.9
Other Income (Expense)-Net (6.7) 6.7 (36.5) 32.7
---------- ---------- ---------- ----------
Income From Continuing Operations
Before Income Taxes 78.1 83.9 119.7 177.9
Income Taxes 30.3 35.5 49.6 75.3
---------- ---------- ---------- ----------
Income From Continuing Operations 47.8 48.4 70.1 102.6
Income from Discontinued Operations,
Net of Income Taxes - 9.2 - 23.1
Extraordinary Charge on Early Retirement
of Debt, Net of Income Taxes - - (24.3) -
---------- ---------- ---------- ----------
Net Income $ 47.8 $ 57.6 $ 45.8 $ 125.7
========== ========== ========== ==========
Income (Loss) Per Share
Continuing Operations $ 0.30 $ 0.25 $ 0.41 $ 0.54
Discontinued Operations - 0.05 - 0.12
Extraordinary Charge - - (0.14) -
---------- ---------- ---------- ----------
Net Income $ 0.30 $ 0.30 $ 0.27 $ 0.66
========== ========== ========== ==========
Average Number of Common and
Common Equivalent Shares 159.1 189.7 169.8 189.8
========== ========== ========== ==========
</TABLE>
(See accompanying notes to Consolidated Financial Statements)
-1-
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In millions)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---------- ----------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents, at cost which
approximates market $ 30.1 $ 176.4
Accounts receivable, less allowances 59.0 62.0
Materials and supplies 90.7 95.3
Note receivable - current - 36.2
Current portion of deferred income taxes 104.0 98.6
Other 22.2 25.2
---------- ----------
Total current assets 306.0 493.7
---------- ----------
Other Long-Term Assets 380.9 337.9
Properties, Plant and Equipment 6,391.9 6,291.8
Less-accumulated depreciation and amortization 1,537.0 1,550.5
---------- ----------
Net Properties 4,854.9 4,741.3
---------- ----------
Total Assets $ 5,541.8 $ 5,572.9
========== ==========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities $ 627.5 $ 724.8
Long-term debt due within one year 148.8 203.6
---------- ----------
Total current liabilities 776.3 928.4
---------- ----------
Long-Term Debt Due After One Year 1,884.5 1,067.4
Postretirement Benefits Liability 258.3 258.1
Restructuring Liability 152.3 171.1
Other Long-Term Liabilities 700.6 699.1
Deferred Income Taxes 1,225.0 1,191.9
---------- ----------
Total Liabilities 4,997.0 4,316.0
---------- ----------
Shareholders' Equity
Common stock 190.4 190.0
Paid-in capital 794.1 825.8
Retained income 336.3 290.5
Treasury stock, at cost (776.0) (49.4)
---------- ----------
Total shareholders' equity 544.8 1,256.9
---------- ----------
Total Liabilities and Shareholders' Equity $ 5,541.8 $ 5,572.9
========== ==========
</TABLE>
(See accompanying notes to Consolidated Financial Statements)
-2-
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In millions)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
1995 1994
---------- ----------
<S> <C> <C>
Operating Activities
Net income $ 45.8 $ 125.7
Adjustments to reconcile net income to operating
cash flows:
Income from discontinued operations,
net of income taxes - (23.1)
Extraordinary charge on early retirement of debt,
net of income taxes 24.3 -
Depreciation and amortization 105.2 99.2
Deferred income taxes 38.7 33.7
Rail restructuring costs paid (30.7) (33.8)
Imputed interest expense 8.0 10.4
Other-net (26.0) (49.7)
Changes in working capital:
Accounts receivable 3.0 (3.5)
Materials and supplies 4.6 (22.4)
Accounts payable and accrued liabilities (97.3) 29.0
Other 3.0 13.4
---------- ----------
Net Cash Provided by Operating
Activities-Continuing Operations 78.6 178.9
Discontinued Operations-net - (11.3)
---------- ----------
Net Cash Provided by Operating Activities 78.6 167.6
---------- ----------
Investing Activities
Cash used for capital expenditures (197.5) (205.8)
Other-net 38.4 79.5
Discontinued Operations-net - (29.1)
---------- ----------
Net Cash Used for Investing Activities (159.1) (155.4)
---------- ----------
Financing Activities
Proceeds from borrowings 1,047.0 -
Principal payments on borrowings (285.1) (128.5)
Purchase of SFP common stock (812.2) -
Extraordinary charge on early retirement of debt (24.3) -
Other-net 8.8 7.1
Discontinued Operations-net - 53.9
---------- ----------
Net Cash Used for Financing Activities (65.8) (67.5)
---------- ----------
Decrease in Cash and Cash Equivalents (146.3) (55.3)
Cash and Cash Equivalents:
Beginning of period 176.4 70.3
---------- ----------
End of period $ 30.1 $ 15.0
========== ==========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest $ 75.6 $ 51.4
Income taxes $ 13.6 $ 33.5
========== ==========
</TABLE>
(See accompanying notes to Consolidated Financial Statements)
-3-
<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, 1994 ("1994 Form 10-K"), including those
financial statements and notes thereto incorporated by reference
from the Registrant's 1994 Annual Report to Shareholders.
(b) In the opinion of SFP management, the consolidated statement of
operations for the three and six months ended June 30, 1995 and
1994 reflect 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 six
months ended June 30, 1995 is not necessarily indicative of the
results of operations for the full year 1995.
(d) Certain comparative prior year amounts in the consolidated
financial statements have been reclassified to conform with the
current year presentation.
(e) On June 29, 1994, SFP and Burlington Northern Inc. ("BNI")
entered into a definitive Agreement and Plan of Merger (as
amended, the "Merger Agreement") pursuant to which SFP is to
merge with and into BNI, with BNI being the surviving corporation
(the "Merger"). The Merger was approved by the stockholders of
both SFP and BNI on February 7, 1995. In accordance with the
Merger Agreement, BNI and SFP conducted a joint tender offer in
which SFP purchased 38 million shares and BNI purchased 25
million shares of SFP common stock at a price of $20 per share,
the payment for which shares was made on February 21, 1995 (the
"Tender Offer").
At Merger consummation, each remaining outstanding share of SFP
common stock will be converted into at least 0.40 of a share of
BNI common stock (the "Exchange Ratio") in a tax-free exchange.
Between the Tender Offer and consummation of the Merger, SFP has
the right but not the obligation to repurchase up to an
additional 10 million shares of SFP common stock, subject to
certain financial conditions and limitations of the Merger
Agreement and SFP's bank loan facility ("Credit Facility"). The
Exchange Ratio will depend on the number of SFP shares
repurchased by SFP as well as the number of SFP employee stock
options exercised prior to the consummation of the Merger. The
Merger Agreement provides for a maximum Exchange Ratio of 0.4347
which will not be reached because SFP employee stock options have
been exercised since December 31, 1994 and the anticipated timing
- 4 -
<PAGE>
of the consummation of the Merger will limit the time available
to make repurchases. Through June 30, 1995, SFP has repurchased
approximately 2.3 million shares at an average cost of
approximately $22.40 per share. The effect of these repurchases,
after adjusting for SFP employee stock options exercised since
December 31, 1994, was to increase the Exchange Ratio to 0.4073
of a share of BNI common stock for each outstanding share of SFP
common stock at June 30, 1995. SFP has met certain performance
and financial criteria under the Merger Agreement and Credit
Facility and, therefore, is allowed to repurchase additional
shares up to an aggregate amount of approximately $36 million in
the third quarter. While SFP intends to continue repurchases of
shares during the third quarter, there can be no assurances that
the permitted repurchases will be completed.
The consummation of the Merger is subject to various conditions,
including approval by the Interstate Commerce Commission ("ICC").
At its July 20, 1995, voting conference, the ICC voted to approve
the Merger. In accordance with its procedural schedule, the ICC
is expected to issue its formal, written decision by August 23,
1995. The ICC's written decision will specify the effective date
of the decision. Depending on the effective date of the ICC
decision and the absence of any action to delay or otherwise stay
effectiveness, it is possible that the Merger could be
consummated as early as the end of the third quarter 1995. Based
on the voting conference, the ICC's written decision will place
certain limited conditions on the Merger, primarily relating to
allowing other carriers to operate on specific portions of tracks
of The Atchison, Topeka and Santa Fe Railway Company ("Santa Fe
Railway") or Burlington Northern Railroad Company. Given their
limited nature, these conditions are not expected to have an
adverse effect on the anticipated benefits of the Merger.
As permitted by the Merger Agreement, BNI and SFP intend to
effect the Merger through the use of a holding company and have
established BNSF Corporation ("Holdings") for this purpose.
Holdings is jointly and equally owned by BNI and SFP. Under this
structure (the "Alternative Merger"): (1) Holdings will create
two new wholly owned subsidiaries, cause one of the subsidiaries
to merge into BNI, and cause the other to merge into SFP; (2)
each holder of BNI common stock will receive one share of common
stock, par value $0.01 per share, of Holdings ("Holdings Common
Stock") for each share of BNI common stock; and (3) each holder
of SFP common stock will receive a minimum of 0.40 of a share of
Holdings Common Stock for each share of SFP common stock based on
the Exchange Ratio. The rights of a stockholder of Holdings will
be substantially identical to the rights of a stockholder of BNI,
and the Alternative Merger will have the same economic effect on
the stockholders of SFP and BNI as the Merger of SFP with and
into BNI.
- 5 -
<PAGE>
(f) During the first quarter of 1995, SFP borrowed $1.0 billion under
the Credit Facility. Proceeds of $760 million from the borrowing
were used by SFP to purchase 38 million shares of SFP common
stock pursuant to the terms of the Tender Offer. The repurchased
shares are reflected within treasury stock in the accompanying
consolidated balance sheet. The remaining proceeds were used by
SFP to repay SFP's $200 million 12.65% senior notes maturing
1998-2000 ("Senior Notes"), plus the costs associated with the
retirement. These costs, totaling $40.0 million pre-tax,
included $37.0 million for the premium attributable to the early
retirement of the Senior Notes and $3.0 million for the write-off
of related unamortized debt issue costs. These costs, net of
applicable income tax benefits of $15.7 million, have been
presented in the accompanying consolidated statement of
operations as an extraordinary charge.
During the first quarter, the Credit Facility was amended:
(i) to reduce potential borrowings available to SFP from $1.56
billion to $1.36 billion; (ii) to reduce the interest rates
applicable to borrowings under the Credit Facility by reducing
credit spreads and expanding money market borrowing flexibility
and; (iii) to reduce SFP's hedging requirements for interest rate
protection to a minimum of $400 million of outstanding
borrowings. SFP has outstanding $200 million of fixed-rate debt
which is considered interest rate protection under the Credit
Facility. Additionally, SFP has entered into seven interest rate
swap transactions with a total notional principal amount of $200
million. The interest rate swaps mature from December 1996
through December 1998 and were entered into to match maturities
under the Credit Facility. The interest rate swap transactions
require payment of a fixed interest rate of approximately 7.6%,
and the receipt of a variable interest rate based on LIBOR. The
fair value of the swap transactions at June 30, 1995, was an
unrealized loss of approximately $7.3 million.
At June 30, 1995, SFP had also entered into five interest rate
swap transactions with a total notional principal amount of $150
million, for the purpose of establishing rates in anticipation of
an expected future debt issuance. These swap transactions, which
mature in December 2005, call for payment of a fixed interest
rate of 6.5%, and the receipt of a variable interest rate based
on LIBOR. Any realized gain or loss upon closing of these swap
transactions will be amortized as an adjustment to interest
expense over the term of the related debt. The fair value of the
swap transactions at June 30, 1995, was an unrealized gain of
approximately $1.3 million.
- 6 -
<PAGE>
(g) At June 30, 1995, Santa Fe Railway had entered into various
commodity swap and collar transactions with several
counterparties covering approximately 110 million gallons of
diesel fuel in 1995 which is anticipated to cover approximately
55% of remaining 1995 fuel purchases. Through swap arrangements,
Santa Fe Railway has hedged approximately 80 million gallons at
an average price of 49 cents per gallon. Additionally,
approximately 30 million gallons have been hedged through collar
arrangements which allow the price to float between average floor
and ceiling prices of 45 cents and 50 cents, respectively. These
prices do 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 Santa Fe
Railway's diesel fuel. The fair value of Santa Fe Railway's fuel
hedging transactions at June 30, 1995, was an unrealized loss of
$2.7 million.
The effect of the Company's fuel hedging activities was to
decrease operating expense by $0.7 million for the three months
ended June 30, 1995, and to increase operating expense by $0.5
million for the three months ended June 30, 1994; and increase
operating expense by $0.5 million and $3.4 million for the six
months ended June 30, 1995 and 1994, respectively.
(h) In September 1994, SFP distributed its remaining interest in
Santa Fe Pacific Gold Corporation ("SFP Gold") to SFP
shareholders. SFP Gold operations for 1994 are reflected as
discontinued operations. Revenues from discontinued operations
for the three and six months ended June 30, 1994, were $93.5
million and $177.8 million, respectively.
(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 matters and personal 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.
- 7 -
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders, Chairman and Board of Directors of Santa Fe Pacific
Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of shareholders'
equity present fairly, in all material respects, the financial position of
Santa Fe Pacific Corporation and subsidiary companies at December 31, 1994 and
1993, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Note 18 to the consolidated financial statements includes a description of a
change in the method of accounting for postretirement and postemployment
benefits other than pensions effective January 1, 1992.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Kansas City, Missouri
February 21, 1995
SANTA FE PACIFIC CORPORATION | 19
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
Santa Fe Pacific Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------
(In millions, except per share data) 1994 1993 1992
================================================================================================================
<S> <C> <C> <C>
Operating Revenues $2,680.9 $2,409.2 $2,251.7
- ----------------------------------------------------------------------------------------------------------------
Operating Expenses
Compensation and benefits 835.7 799.8 798.8
Contract services 395.6 321.7 276.9
Fuel 252.7 239.1 205.5
Equipment rents 248.2 229.4 186.0
Depreciation and amortization 200.5 188.4 180.8
Materials and supplies 118.8 127.7 127.5
Other 200.5 185.4 178.6
Rail special charge -- -- 320.4
- ----------------------------------------------------------------------------------------------------------------
Total Operating Expenses 2,252.0 2,091.5 2,274.5
- ----------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 428.9 317.7 (22.8)
Equity in Earnings of Pipeline Partnership 34.6 18.6 24.1
Interest Expense 121.9 133.4 164.5
Gain on Sale of California Lines -- 145.4 204.9
Other Income (Expense)--Net 9.5 5.8 (0.3)
- ----------------------------------------------------------------------------------------------------------------
Income From Continuing Operations Before Income Taxes 351.1 354.1 41.4
Income Taxes 151.7 176.7 20.3
- ----------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 199.4 177.4 21.1
Income from Discontinued Operations, Net of Income Taxes 23.1 161.4 42.4
Extraordinary Charge on Early Retirement of Debt, Net of Income Taxes -- -- (5.0)
Cumulative Effect of a Change in Accounting for Postretirement and
Postemployment Benefits, Net of Income Taxes -- -- (163.0)
- ----------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 222.5 $ 338.8 $ (104.5)
================================================================================================================
Income (Loss) Per Share of Common Stock
Continuing Operations $ 1.05 $ 0.95 $ 0.11
Discontinued Operations 0.12 0.86 0.23
Extraordinary Charge -- -- (0.03)
Cumulative Effect of a Change in Accounting -- -- (0.88)
- ----------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 1.17 $ 1.81 $ (0.57)
================================================================================================================
Average Number of Common and Common Equivalent Shares 190.8 187.2 184.8
================================================================================================================
(See notes to consolidated financial statements)
</TABLE>
20 | SANTA FE PACIFIC CORPORATION
<PAGE>
CONSOLIDATED BALANCE SHEET
Santa Fe Pacific Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
December 31,
-------------------
(In millions) 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents, at cost which approximates market $ 176.4 $ 70.3
Accounts receivable, less allowances 62.0 96.1
Materials and supplies 95.3 92.3
Note receivable--current 36.2 72.5
Current portion of deferred income taxes 98.6 99.3
Other 25.2 27.2
- ----------------------------------------------------------------------------------------------------------
Total current assets 493.7 457.7
- ----------------------------------------------------------------------------------------------------------
Note Receivable -- 36.2
Other Long-Term Assets 337.9 323.3
- ----------------------------------------------------------------------------------------------------------
Properties, Plant and Equipment 6,291.8 5,886.1
Less--accumulated depreciation and amortization 1,550.5 1,577.7
- ----------------------------------------------------------------------------------------------------------
Net properties 4,741.3 4,308.4
- ----------------------------------------------------------------------------------------------------------
Net Assets of Discontinued Operations -- 248.4
- ----------------------------------------------------------------------------------------------------------
Total Assets $5,572.9 $5,374.0
- ----------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities $ 724.8 $ 669.8
Long-term debt due within one year 203.6 184.7
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 928.4 854.5
- ----------------------------------------------------------------------------------------------------------
Long-Term Debt Due After One Year 1,067.4 991.1
Postretirement Benefits Liability 258.1 284.7
Rail Restructuring Liability 171.1 257.8
Other Long-Term Liabilities 699.1 601.7
Deferred Income Taxes 1,191.9 1,115.9
- ----------------------------------------------------------------------------------------------------------
Total Liabilities 4,316.0 4,105.7
- ----------------------------------------------------------------------------------------------------------
Commitments and Contingencies (See Notes 2, 14 and 15)
- ----------------------------------------------------------------------------------------------------------
Shareholders' Equity
Common stock, $1 par value, shares authorized, 600.0 million; 1994 shares issued and
outstanding, 190.0 million and 188.3 million; 1993 shares issued and outstanding,
190.0 million and 185.6 million 190.0 190.0
Paid-in capital 825.8 869.7
Retained income 290.5 340.3
Treasury stock, at cost (49.4) (131.7)
- ----------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,256.9 1,268.3
- ----------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $5,572.9 $5,374.0
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(See notes to consolidated financial statements)
SANTA FE PACIFIC CORPORATION | 21
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Santa Fe Pacific Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
(In millions) 1994 1993 1992
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Operating Activities
Net income (loss) $ 222.5 $ 338.8 $(104.5)
Adjustments to reconcile net income (loss) to operating cash flows:
Income from discontinued operations, net of income taxes (23.1) (161.4) (42.4)
Depreciation and amortization 200.5 188.4 180.8
Deferred income taxes 100.7 139.0 53.0
Cumulative effect of a change in accounting for postretirement and
postemployment benefits, net of income taxes - - 163.0
Rail special charge - - 320.4
Rail restructuring costs paid (64.4) (80.9) (118.9)
Imputed interest expense 20.7 26.6 23.3
Gain on sales of property, plant and equipment (6.2) (156.0) (218.7)
Other--net (57.7) (22.4) (20.0)
Changes in Working Capital:
Accounts receivable:
Sale of accounts receivable--net 50.0 - 12.0
Other changes (15.9) (25.3) (19.5)
Materials and supplies (3.0) (3.6) (11.2)
Accounts payable and accrued liabilities 55.0 51.6 40.0
Other (3.0) 1.3 (6.7)
- -----------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities--Continuing Operations 476.1 296.1 250.6
Discontinued Operations--net 54.3 67.7 79.0
- -----------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 530.4 363.8 329.6
- -----------------------------------------------------------------------------------------------------
Investing Activities
Cash used for capital expenditures (461.5) (381.5) (256.0)
Proceeds from the sale of property, plant and equipment 16.2 247.6 319.0
Other--net 81.0 70.3 43.8
Discontinued Operations--net (49.4) (99.8) (68.2)
- -----------------------------------------------------------------------------------------------------
Net Cash Provided By (Used For) Investing Activities (413.7) (163.4) 38.6
- -----------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from borrowings 232.0 6.5 -
Principal payments on borrowings (255.9) (242.6) (407.5)
Cash dividends paid (18.7) (18.5) (18.2)
Other--net 23.4 20.7 16.0
Discontinued Operations--net 8.6 41.7 (4.6)
- -----------------------------------------------------------------------------------------------------
Net Cash Used For Financing Activities (10.6) (192.2) (414.3)
- -----------------------------------------------------------------------------------------------------
Increase (Decrease) In Cash and Cash Equivalents 106.1 8.2 (46.1)
Cash and Cash Equivalents:
Beginning of year 70.3 62.1 108.2
- -----------------------------------------------------------------------------------------------------
End of year $ 176.4 $ 70.3 $ 62.1
- -----------------------------------------------------------------------------------------------------
(See notes to consolidated financial statements)
</TABLE>
22 | SANTA FE PACIFIC CORPORATION
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Santa Fe Pacific Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Shares of Shares of
Common Treasury Common Treasury Paid-In Retained
(Shares in thousands) (Dollars in millions) Stock Stock Stock Stock Capital Income
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1991 190,021 10,209 $190.0 $(309.2) $1,013.5 $ 142.6
1992 net loss - - - - - (104.5)
Cash dividends declared - - - - - (18.2)
Exercise of stock options - (1,995) - 60.5 (46.4) -
Other - (20) - 0.6 (0.4) -
- --------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1992 190,021 8,194 $190.0 $(248.1) $ 966.7 $ 19.9
1993 net income - - - - - 338.8
Cash dividends declared - - - - - (18.5)
Exercise of stock options - (3,231) - 97.1 (73.8) -
Issuance of restricted stock - (777) - 23.2 (23.2) -
Other - 224 - (3.9) - 0.1
- --------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1993 190,021 4,410 $190.0 $(131.7) $ 869.7 $ 340.3
1994 net income - - - - - 222.5
Cash dividends declared - - - - - (18.7)
Distribution of gold subsidiary - - - - - (253.6)
Exercise of stock options - (2,574) - 78.8 (50.2) -
Other - (116) - 3.5 6.3 -
- --------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1994 190,021 1,720 $190.0 $ (49.4) $ 825.8 $ 290.5
==========================================================================================================================
</TABLE>
Note: SFP has authorized common stock of 600 million shares with a par value of
$1.00. Also authorized are 200 million shares of preferred stock with a par
value of $1.00, none of which was outstanding at December 31, 1994.
(See notes to consolidated financial statements)
SANTA FE PACIFIC CORPORATION | 23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Santa Fe Pacific Corporation and Subsidiary Companies
Note 1: Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Santa Fe Pacific Corporation and subsidiary companies (SFP or Company) that are
majority owned and controlled, directly or indirectly, by SFP. The principal
subsidiary is The Atchison, Topeka and Santa Fe Railway Company (Santa Fe
Railway). All significant intercompany transactions have been eliminated.
Reclassifications
Certain comparative prior year amounts in the consolidated financial
statements and notes have been reclassified to conform with the current year
presentation.
Statement of Cash Flows
SFP considers all highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents. In addition to amounts reported
as "Cash Used for Capital Expenditures", SFP had non-cash capital expenditures
totaling $182.8 million, $157.6 million, and $9.5 million in 1994, 1993, and
1992, respectively. Non-cash capital expenditures consist principally of
directly financed equipment acquisitions and reimbursed projects.
Materials and Supplies
Material and supply inventories are valued at the lower of cost (average or
first-in, first-out) or market.
Note Receivable
The note receivable included in the consolidated balance sheet relates to
the sale of a subsidiary in 1986. Principal payments of $72.5 million were
received in both 1994 and 1993. Remaining proceeds to be received from the note
are $36.2 million in 1995.
Properties, Plant and Equipment
Properties, plant and equipment are stated at cost and include capitalized
interest incurred during construction of $7.3 million in 1994, $8.2 million in
1993 and $3.7 million in 1992. Additions and replacements are capitalized.
Expenditures for maintenance and repairs are charged to income. Upon normal
sale or retirement of depreciable railroad property, cost less net salvage is
charged to accumulated depreciation and no gain or loss is recognized.
Depreciation is computed using the straight-line method over the estimated
service life of the asset. The weighted average annual depreciation rate in
effect at December 31, 1994 was 2.8% for track structure, 5.0% for equipment
and 2.1% for other road properties.
Revenue Recognition
Rail revenue is recognized when freight is received from the shipper with a
corresponding accrual of the direct costs to complete delivery of the
freight-in-transit.
Note 2: Merger Activities
SFP signed an agreement to merge with Burlington Northern Inc. (BNI) (the
Merger) pursuant to an Agreement and Plan of Merger dated June 29, 1994, as
amended (the Merger Agreement). The Merger was approved by SFP and BNI
shareholders on February 7, 1995, and in accordance with the Merger Agreement,
BNI and SFP conducted a tender offer to purchase a total of 63 million shares
of SFP common stock at a price of $20 per share (the Tender Offer). Between the
Tender Offer and consummation of the Merger, SFP has the right to purchase an
additional 10 million shares, subject to certain limitations of the Merger
Agreement and the SFP Credit Facility (defined below). At Merger consummation,
each remaining outstanding share of SFP common stock will be converted into at
least 0.40 of a share of BNI common stock (the Exchange Ratio) in a tax-free
exchange. The Exchange Ratio will depend on the number of shares purchased by
SFP between the Tender Offer and Merger consummation as well as the number of
SFP stock options which are exercised prior to consummation of the Merger. The
Merger Agreement provides for a maximum Exchange Ratio of 0.4347; however, as
SFP stock options have been exercised since December 31, 1994, the Exchange
Ratio will be less than the maximum. The consummation of the Merger is subject
to various conditions, including approval by the Interstate Commerce Commission
(ICC).
Under current law, the ICC has a maximum of 31 months to approve the Merger
after the application is filed; however, the ICC had previously established a
535 day schedule for a final decision from the filing date of the ICC
application, which occurred on October 13, 1994. This schedule was held in
abeyance until the shareholders' vote on the Merger. The ICC recently requested
comments on a proposed 180-day schedule for the review of railroad mergers and
specifically asked for comments on whether the new schedule should apply to the
BNI-SFP merger. BNI and SFP have asked the ICC to apply a 165-day schedule to
the Merger. The ICC has the matter under consideration, and it has not yet
rendered a decision. Currently, there can be no assurance that the ICC will
issue a decision on the Merger any sooner than the 31-month period permitted by
law.
Under the terms of the Tender Offer, SFP purchased 38 million shares of SFP
common stock and BNI purchased 25 million shares of SFP common stock. In
connection with the Tender Offer, SFP has obtained a bank loan facility (Credit
Facility) up to $1.56 billion which consists of a $1 billion term loan, a $310
million revolving credit facility and a $250 million revolving credit facility.
On February 21, 1995, SFP borrowed $760 million under the term loan to purchase
the 38 million shares of SFP common stock. SFP intends to borrow up to an
additional $350 million in 1995, which will be used in part to retire SFP's $200
million 12.65% senior notes maturing 1998-2000, including any costs associated
with such retirement. The debt repayment is expected to result in an after-tax
extraordinary charge for the early retirement of debt of approximately $20
million.
If the Tender Offer and related financing activities had been completed at
December 31, 1994, SFP's long-term debt would have increased by up to $910
million and SFP's stockholders' equity would have decreased by approximately
$780 million. SFP's total debt to total capitalization ratio would have
increased from 50% to approximately 82%.
Borrowings under the Credit Facility are based on variable interest rates
(e.g., LIBOR or prime) plus a credit spread which varies based on the financial
performance of the Company. The variable rate plus the credit spread was
approximately 7.6% on February 21, 1995. Terms of the Credit Facility also
require SFP to enter into interest rate hedging transactions for two-thirds of
outstanding borrowings under the term loan or up to $667 million to protect
against increases in interest rates. As of February 21, 1995 the Company had
entered into various interest rate swap transactions with a total notional
principal amount of $200 million. The interest rate swaps mature from December
1996 through
24 | SANTA FE PACIFIC CORPORATION
<PAGE>
December 1998 and were entered into to match maturities under the term loan. The
interest rate swaps require payment of a fixed interest rate of approximately
7.6% and the receipt of a variable interest rate based on LIBOR. The
transactions will be settled quarterly and will be recognized as a component of
interest expense as incurred.
Repayment terms of outstanding borrowings under the Credit Facility are as
follows: (i) the $1 billion term loan requires repayment of $50 million in 1996,
$100 million in both 1997 and 1998, $150 million in 1999, $200 million in 2000
and $400 million in 2001; (ii) outstanding borrowings under the $310 million
revolving credit facility are payable at the earliest of (a) December 31, 1997,
(b) six months after ICC approval of the Merger or (c) six months after
termination of the Merger Agreement; and (iii) outstanding borrowings under the
$250 million revolving credit facility are payable on December 31, 1999. SFP
pays commitment fees of 0.3% per annum on the unused portion of the revolving
credit facilities. The use of borrowings under the term loan are generally
restricted; however, up to $360 million of the revolving credit facilities can
be used by SFP for working capital needs and other general corporate purposes.
The Credit Facility contains various covenants including: limitations on
indebtedness, dividends and stock repurchases; maintenance of various financial
ratios; and certain restrictions related to the disposition of assets. After the
Tender Offer and related financing activities it is anticipated that SFP will
not pay any cash dividends in the foreseeable future.
Subject to the limitations set forth in the Merger Agreement and the Credit
Facility, repurchases of up to an additional 10 million shares of SFP common
stock after the Tender Offer and before the Merger, including the amount and
timing of any such repurchases, will be in the sole discretion of SFP.
Accordingly, although SFP anticipates that at least $50 million would be
available for repurchases under the terms of the Credit Facility in 1995, there
can be no assurance that SFP will make any repurchases. To have the $50 million
available for repurchases, SFP would have to comply with the minimum capital
expenditure and maximum total debt provisions of the Merger Agreement. If
regulatory approval of the Merger is expedited, as discussed above, it is likely
that the number of shares SFP would repurchase would be less than if regulatory
approval is not expedited.
Note 3: Discontinued Operations
In June 1994, Santa Pacific Gold Corporation (SFP Gold), SFP's gold
subsidiary, completed an initial public offering of 14.6% of its common stock.
Approximately 19 million shares were sold at a price of $14 per share resulting
in net proceeds of $250.3 million, the majority of which was used for the
repayment of outstanding debt at SFP Gold. SFP distributed its remaining 85.4%
interest in SFP Gold to SFP shareholders and SFP Gold became a separate,
independent entity on September 30, 1994. Holders of record of SFP common stock
received a distribution of one share of common stock of SFP Gold for every
approximately 1.7 shares of SFP common stock held. Under a ruling obtained from
the Internal Revenue Service, the distribution was tax-free to SFP shareholders.
Income from discontinued operations in 1994, 1993 and 1992 was as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Year Ended December 31,
------------------------------
(In millions) 1994 1993 1992
- ------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $273.7 $298.6 $220.6
- ------------------------------------------------------------------
Income before income taxes 44.2 296.1 63.1
Income taxes 21.1 134.7 20.7
- ------------------------------------------------------------------
Income from discontinued operations $ 23.1 $161.4 $ 42.4
==================================================================
</TABLE>
Income from discontinued operations in 1994 includes SFP's portion of SFP
Gold's results of operations through September 30, 1994, net of transaction and
other costs related to the distribution. In June 1993, SFP Gold closed 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. The exchange was recorded as a purchase of assets,
and the results from the gold assets were reflected in income prospectively from
the date of closing. Income from discontinued operations for 1993 includes an
after tax gain on the exchange of $108.3 million.
Note 4: Gain on Sale of California Lines
In November 1992, Santa Fe Railway announced it would sell approximately 340
miles of rail lines and property to eight southern California transportation
agencies. Santa Fe Railway received both cash and relief of obligations to
reimburse certain state and county agencies for capital improvements previously
paid for by the agencies and the State of California. Santa Fe Railway retained
all rights necessary for its freight operations in southern California. The
transportation agencies plan to use these facilities for commuter lines.
The sale encompassed three separate closings which occurred in December 1992,
March 1993, and June 1993. Santa Fe Railway received cash proceeds of $226.9
million in 1993 and $255.0 million in 1992, resulting in pre-tax gains of $145.4
million and $204.9 million in 1993 and 1992, respectively. Both of the gains
recognized are net of the cost of the properties and other expenses of the sale.
The 1993 gain is net of an obligation retained by Santa Fe Railway, which under
certain conditions requires the repurchase of a portion of the properties for
$50 million. Proceeds of $126.0 million were used to retire debt related to
discontinued operations in 1993; and proceeds of $201.0 million were used to
retire debt in 1992 (see Note 12: Long-Term Debt).
Note 5: Rail Special Charge
During 1992, Santa Fe Railway recorded a $320.4 million pre-tax special
charge, which included provisions of approximately $253 million for
restructuring and $67 million for environmental (see Note 15: Environmental and
Other Contingencies).
Approximately $149 million of the restructuring charge related to a 1992
eastern lines crew consist agreement and revised estimates related to a previous
agreement. The agreement provided for further reductions in average crew size on
through freight trains, and elimination of productivity payments which were
required when reduced crews were used. This agreement, when combined with a
similar agreement reached earlier with trainmen on the other half of the system,
provides for through trains generally to operate with two person crews.
The agreement covers approximately 2,000 employees. Costs of the agreement
provided for in the charge relate to a signing bonus of $10,000 per employee,
the present value of a $65,000 deferred benefit per employee payable upon
separation or retirement and the present value of reserve board costs. Reserve
board costs represent wages paid to employees rendered excess due to reduced
crews. When on reserve board status, employees are removed from active service
and receive a percentage of their normal wages. Eastern line reserve boards
initially contained approximately 500 members and have declined significantly
over time through attrition, recall to work, and other factors.
The restructuring charge also included approximately $73 million related to
centralization. In 1992, Santa Fe Railway decided to centralize many operating
support functions. Centralization began in late 1992 and by the fall of 1993,
Santa Fe Railway had centralized train
SANTA FE PACIFIC CORPORATION | 25
<PAGE>
dispatching, crew planning and fleet management in Schaumburg, Illinois; crew
management, customer service and mechanical (equipment) administration in
Topeka, Kansas; and other administrative and operating support functions in
Kansas City, Kansas. The charge provided for the cost of approximately 700
relocations, reductions of 600 administrative and clerical positions, and
abandonment of facilities. Most of the costs of centralization have been paid.
Additionally, the restructuring charge included approximately $31 million for
other cost saving initiatives, including an adjustment of accruals established
for other operating craft labor agreements reached in prior periods.
In the fourth quarter of 1994, based upon a review of the adequacy of the
restructuring reserve as well as an actuarial review of Santa Fe Railway's
liability for personal injury claims, the Company reduced the restructuring
reserve by approximately $30 million and increased the personal injury reserve
by approximately $30 million. The restructuring over accrual primarily resulted
from lower than anticipated reserve board levels due to higher business volumes
while the higher personal injury reserve requirement primarily resulted from
greater actuarial loss development partially offset by reduced employee
injuries. At December 31, 1994, the balance of the restructuring liability was
$218.7 million. The majority of the balance represents the present value of
future deferred benefit payments related to the 1992 eastern lines agreement and
similar agreements reached in and accrued for in prior years. Restructuring
costs paid were $64.4 million in 1994, $80.9 million in 1993 and $118.9 million
in 1992. In 1995, the Company expects payments of approximately $50 million.
Future payments will decline over time; however, certain separation benefits
will not be paid until employee retirement. Santa Fe Railway has obtained
letters of credit of approximately $13 million supporting certain of its
obligations under labor agreements.
Note 6: Pipeline Partnership
A wholly owned subsidiary of SFP, SFP Pipeline Holdings, Inc. (Pipeline
Holdings), through its wholly owned subsidiary, holds an aggregate 44% common
unit ownership in Santa Fe Pacific Pipeline Partners, L.P. (Pipeline
Partnership), a Delaware limited partnership. This interest is held through a 2%
general partner interest and a 42% limited partner interest. The Company
accounts for its interest in the partnership under the equity method. Other
long-term assets include $71.7 million and $61.5 million at December 31, 1994
and 1993, respectively, for SFP's investment in the Pipeline Partnership.
Pipeline Holdings also issued the Pipeline Exchangeable Debentures (Pipeline
Debentures) (see Note 12: Long-Term Debt) which are traded on the New York Stock
Exchange and under certain circumstances can be exchanged for common units that
represent SFP's 42% limited partnership interest in the Pipeline Partnership.
Interest on the Pipeline Debentures is paid quarterly and is equal to the
greater of (a) distributions of cash from operations declared by the Pipeline
Partnership for the quarter on the number of common units for which the Pipeline
Debentures are then exchangeable or (b) 2% of the unpaid Pipeline Debentures
principal balance.
SFP, through its wholly owned subsidiaries, received annual cash distributions
from the Pipeline Partnership of $25.1 million in 1994, 1993 and 1992. $22.8
million of these distributions was used in each of these years to pay interest
costs on the Pipeline Debentures.
The following table sets forth selected financial data for the Pipeline
Partnership:
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
- --------------------------------------------------------------------
(In millions, except per unit data)
<S> <C> <C> <C>
Statement of Operations Data
Total revenues $228.1 $219.5 $205.0
Operating income 111.0 78.3(1) 91.4(1)
Interest expense 37.6 37.1 36.9
Income before cumulative
effect of accounting change 76.9 41.6 54.1
Cumulative effect of
accounting change - - (16.4)(2)
Net income 76.9 41.6 37.7
Per Unit Data
Income before accounting
change $ 3.93 $ 2.13 $ 2.77
Cumulative effect of
accounting change - - (.84)(2)
Net income 3.93 2.13 1.93
Cash distributions per unit 2.80 2.80 2.80
<CAPTION>
December 31, 1994 1993
- --------------------------------------------------------------------
<S> <C> <C>
Balance Sheet Data
Total current assets $ 87.8 $ 67.7
Net properties, plant and equipment 613.0 616.6
Total assets 714.8 697.0
Total current liabilities 31.8 35.6
Long-term debt 355.0(3) 355.0(3)
Total partners' capital 288.0 265.9
====================================================================
</TABLE>
(1) 1993 includes a $15 million special environmental charge and a $12 million
special litigation charge. 1992 includes a $10 million special
environmental charge.
(2) Reflects a change in accounting for postretirement and postemployment
benefits.
(3) Pipeline Holdings is contingently liable for $355.0 million of Pipeline
Partnership long-term debt.
Note 7: Other Income (Expense)--Net
Other income (expense)--net consisted of the following:
<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- ----------------------------------------------------------------
<S> <C> <C> <C>
Real estate activities $ 12.1 $ 19.4 $ 23.9
Interest income 5.4 11.7 17.8
Corporate administrative expenses (24.8) (22.4) (22.3)
Accounts receivable fees (12.1) (8.3) (9.4)
Curtailment gain-postretirement
benefits 28.1(1) - -
Gain on sale of investment 23.7 - -
Arbitration/litigation settlements (1.7) 21.6 -
Merger related costs (15.8) - -
Other--net (5.4) (16.2) (10.3)
- ----------------------------------------------------------------
Total $ 9.5 $ 5.8 $ (0.3)
================================================================
</TABLE>
(1) Gain resulting from a change in eligibility requirements related to
postretirement benefits. (See Note 17: Other Postretirement Benefits).
Note 8: Income Taxes
The provision for income taxes applicable to continuing operations
consisted of the following:
<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- ---------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 46.3 $ 33.5 $(32.0)
State 4.7 4.2 (0.7)
- ---------------------------------------------
Total Current 51.0 37.7 (32.7)
- ---------------------------------------------
Deferred:
Federal 84.6 124.6 40.7
State 16.1 14.4 12.3
- ---------------------------------------------
Total Deferred 100.7 139.0 53.0
- ---------------------------------------------
Total $151.7 $176.7 $ 20.3
=============================================
</TABLE>
26 | SANTA FE PACIFIC CORPORATION
<PAGE>
Income taxes from continuing operations as reflected in the consolidated
statement of operations differ from the amounts computed by applying the
statutory federal corporate tax rate to income from continuing operations as
follows:
<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- -------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax at statutory rate
(35% in 1994-1993, 34% in 1992) $122.9 $123.9 $14.1
Increase (decrease) in taxes
resulting from:
State income taxes, net of
federal benefit 13.5 12.1 7.7
1% increase in federal tax rate - 23.5 -
Other 15.3 17.2 (1.5)
- -------------------------------------------------------------
Total $151.7 $176.7 $20.3
- -------------------------------------------------------------
</TABLE>
The Omnibus Budget Reconciliation Act of 1993 resulted in an increase in the
maximum corporate federal income tax rate from 34% to 35%, retroactive to
January 1, 1993. SFP recorded additional income tax expense of $23.5 million,
representing the impact of the 1% rate increase on SFP's net beginning of year
deferred income tax liability.
Principal temporary differences that gave rise to the net deferred tax
liability at December 31, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
(In millions) 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C>
Deferred tax debits:
Accrued liabilities not deductible until paid:
Casualty and environmental $ 131.8 $ 114.8
Postretirement benefits 105.3 110.8
Restructuring 86.0 119.5
Other 109.7 124.2
Non-expiring AMT credit carryforwards 108.6 93.7
Other 12.8 13.5
- ------------------------------------------------------------------------
Subtotal $ 554.2 $ 576.5
- ------------------------------------------------------------------------
Deferred tax credits:
Depreciation $(1,443.6) $(1,267.4)
Condemnation sales (128.2) (211.8)
Other (75.7) (113.9)
- ------------------------------------------------------------------------
Subtotal $(1,647.5) $(1,593.1)
- ------------------------------------------------------------------------
Net deferred tax liability $(1,093.3) $(1,016.6)
- ------------------------------------------------------------------------
</TABLE>
During 1994, 1993 and 1992, SFP made income tax payments, net of refunds, of
$69.4 million, $23.9 million and $8.2 million, respectively.
SFP's federal income tax returns have been examined through 1990. All years
prior to 1981 are closed. Issues relating to the years 1981-1990 are being
contested through various stages of administrative appeal. In addition, SFP and
its subsidiaries have various state income tax returns in the process of
examination, administrative appeal or litigation. Management believes that
adequate provision has been made for any adjustment that might be assessed for
open years through 1994.
Note 9: Accounts Receivable
In December 1994, a special purpose subsidiary of Santa Fe Railway sold, with
limited recourse, variable rate certificates which mature in December 1999
evidencing undivided interests in an accounts receivable master trust. The
master trust's assets include an ownership interest in a revolving portfolio of
Santa Fe Railway's accounts receivable which are used to support the
certificates. At December 31, 1994, $275 million of certificates sold were
outstanding and were supported by receivables in the master trust of $354
million. A maximum of $300 million of certificates can be sold if the master
trust balance is increased by receivables which are eligible for sale. Santa Fe
Railway has retained the collection responsibility with respect to the accounts
receivable held in trust. Santa Fe Railway is exposed to credit loss related to
collection of accounts receivable to the extent that the amount of receivables
in the master trust exceeds the amount of certificates sold.
The proceeds from the sale were used to reduce the amount of accounts
receivable sold under a previous agreement which expired in December 1994. The
amount of accounts receivable sold under the previous agreement was $225 million
at December 31, 1993. Similar to the prior agreement, costs related to the new
agreement vary on a monthly basis and are generally related to certain interest
rates. Costs related to accounts receivable sales, which are included in Other
Income (Expense)--Net, were $12.1 million, $8.3 million and $9.4 million in
1994, 1993 and 1992, respectively.
SFP maintains an allowance for doubtful accounts based upon the estimated
collectibility of all accounts receivable, including accounts receivable sold.
Activity in the allowance for doubtful accounts for the three years ended
December 31, 1994 was as follows:
<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- -----------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $21.6 $17.3 $22.8
Additions charged to expense 7.6 7.8 5.7
Deductions 6.6 3.5 11.2
- -----------------------------------------------------------------
Balance at end of year $22.6 $21.6 $17.3
- -----------------------------------------------------------------
</TABLE>
Note 10: Properties, Plant and Equipment
The major classes of properties, plant and equipment are as follows:
<TABLE>
<CAPTION>
(In millions) 1994 1993
- -----------------------------------------------------------------
<S> <C> <C>
Track structure $ 2,506.3 $ 2,326.8
Equipment 2,015.1 1,952.6
Other road properties 1,640.4 1,478.9
Real estate and other 130.0 127.8
- -----------------------------------------------------------------
Total 6,291.8 5,886.1
Accumulated depreciation and amortization (1,550.5) (1,577.7)
- -----------------------------------------------------------------
Net properties $ 4,741.3 $ 4,308.4
- -----------------------------------------------------------------
</TABLE>
Note 11: Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at December 31, 1994 and 1993 consisted
of the following:
<TABLE>
<CAPTION>
(In millions) 1994 1993
- -----------------------------------------------------------
<S> <C> <C>
Accounts and wages payable $190.3 $141.8
Accrued claims 106.4 90.3
Vacations 51.5 49.8
Rail restructuring 47.6 57.8
Taxes other than income taxes 36.4 34.3
Interest 31.9 28.1
Other 260.7 267.7
- -----------------------------------------------------------
Total $724.8 $669.8
- -----------------------------------------------------------
</TABLE>
SANTA FE PACIFIC CORPORATION | 27
<PAGE>
Note 12: Long-Term Debt
Long-term debt at December 31, 1994 and 1993 consisted of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
(In millions) 1994 1993
======================================================================
<S> <C> <C>
Equipment Obligations, weighted average rate
of 8.6%, maturing from 1995 to 2009 $ 498.9 $ 478.9
Pipeline Exchangeable Debentures, 10.4%
(variable), maturing 2010 219.0 219.0
Senior Notes, 12.65%, maturing from 1998
to 2000 200.0 200.0
Senior Notes, 8.625%, maturing 2004 100.0 -
Senior Notes, 8.375%, maturing 2001 100.0 -
Mortgage Bonds, 4%, maturing 1995 95.8 95.8
Term Loan, 6.3% (variable), maturing 1995 36.2 108.7
Bank Term Loan, (variable) - 50.0
Other Obligations, 10.3%, maturing from
1995-2014 38.0 40.2
Debt discount (16.9) (16.8)
- ----------------------------------------------------------------------
Total long-term debt 1,271.0 1,175.8
Due within one year (203.6) (184.7)
- ----------------------------------------------------------------------
Due after one year $1,067.4 $ 991.1
======================================================================
</TABLE>
In the fourth quarter of 1993, the Company established four related interest
rate swap transactions with a total notional principal amount of $100 million,
for the purpose of establishing rates in anticipation of a debt issuance under a
shelf registration statement. 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 receipt of a variable interest rate. In conjunction with the fourth quarter
1994 issuance of the ten year 8.625% senior notes, the Company closed out the
swap transactions which resulted in a gain of $10.9 million. The gain was
deferred and will be recognized over the term of the borrowing.
During 1994, SFP had a $200 million revolving credit facility for general
corporate purposes, which was replaced with $250 million and $310 million
revolving credit facilities in conjunction with the Tender Offer and related
financing activities (see Note 2: Merger Activities). As of December 31, 1994,
no borrowings were outstanding under the $200 million revolving credit facility.
In December 1992, SFP accelerated the repayment of borrowings related to a
1990 litigation settlement. This early debt retirement resulted in an
extraordinary charge of $5.0 million, net of applicable tax benefits of $3.0
million, reflecting the write off of unamortized debt discount. The repayment
was made using a portion of the 1992 proceeds from Santa Fe Railway's sale of
rail lines in southern California (see Note 4: Gain on Sale of California
Lines).
As of December 31, 1994, projected principal repayments of long-term debt in
1995 through 1999, excluding capital leases, are $201.9 million, $45.5 million,
$41.9 million, $108.7 million and $103.8 million, respectively. SFP paid
interest totaling $102.6 million in 1994, $111.3 million in 1993 and $142.2
million in 1992.
Most railroad property is subject to liens securing Mortgage Bonds or
Equipment Obligations. The payment of cash dividends by SFP is restricted by
various debt covenants. Such restrictions vary with levels of income and other
factors. Certain other debt agreements of the Company and its subsidiaries
include covenants that limit indebtedness and intercompany dividends, require
maintaining various financial ratios, and restrict the disposition of assets.
See Note 2: Merger Activities for a discussion of changes to SFP's long-term
debt structure which occurred subsequent to December 31, 1994.
Note 13: Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments at December 31,
1994 and 1993, and the methods and assumptions used to estimate such fair
values, are as follows:
Cash and short-term investments
The fair value of cash and short-term investments approximates book value
because of the short maturity of those instruments.
Note Receivable
The fair value of the Note Receivable approximates book value since the variable
interest rate on the note approximates current interest rates.
Other Investments
SFP maintains various investments of common stock in nonmarketable securities
which are accounted for under a cost basis. The carrying value of these
investments at December 31, 1994 and 1993 was $45 million and $46 million,
respectively, compared with estimated fair values, based on the underlying net
assets, of $123 million and $117 million, respectively.
Long-Term Debt
The fair value of the Company's long-term debt is estimated based on the quoted
market prices for the same or similar issues, or on the current rates that would
be offered to the Company for debt of the same remaining maturities. The
carrying value of debt at December 31, 1994 and 1993 was $1,271.0 million and
$1,175.8 million, respectively, compared with estimated fair values of
approximately $1,359 million and $1,371 million, respectively.
Note 14: Hedging Activities, Leases and Other
Commitments
Hedging Activities
The Company enters into various commodity swap and collar transactions to manage
exposure against fluctuations in diesel fuel prices. The Company's fuel hedging
transactions are based on commodities established in the futures markets. The
prices of these commodities have historically shown a high degree of correlation
with the Company's diesel fuel prices. Cash settlements on contracts to hedge
fuel prices are made at the end of a quarter and the related gain or loss is
included in fuel expense for that quarter. To the extent the Company hedges
portions of its fuel purchases, it may not fully benefit from decreases in fuel
prices.
At December 31, 1994, the Company had entered into various commodity swap
transactions with several counterparties covering approximately 180 million
gallons of diesel fuel which is anticipated to cover approximately 45% 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 that may occur from time to time between the prices of commodities
hedged and the purchase price of the Company's diesel fuel. The effect of the
Company's fuel hedging activities was to increase operating expense by $4.4
million and $12.4 million in 1994 and 1993, respectively, and to reduce
operating expense by $0.9 million in 1992. The effect of the Company's fuel
hedging activities since the inception of its fuel hedging program in 1990, has
been to increase operating expense by approximately $2 million. The unrealized
gain related to the fair market value of the Company's fuel hedging transactions
at December 31, 1994 was $1.6 million.
From time to time, the Company enters into various interest rate hedging
transactions for the purpose of managing exposure to fluctuation in interest
rates and establishing rates in anticipation of future debt issuances. During
1994, the Company closed out four related interest
28 SANTA FE PACIFIC CORPORATION
<PAGE>
rate swap transactions in conjunction with the issuance of debt (see Note 12:
Long-Term Debt). As of December 31, 1994, the Company had no outstanding hedging
transactions related to interest rates, although, the Company has subsequently
entered into various interest rate transactions in conjunction with the Tender
Offer and related financing activities (see Note 2: Merger Activities).
The Company monitors its hedging positions and the credit ratings of its
counterparties and does not anticipate losses due to counterparty non-
performance.
Leases
SFP leases certain locomotives, freight cars, trailers, data processing
equipment and other property. Future minimum lease payments (which reflect
operating leases having non-cancelable lease terms in excess of one year) as of
December 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------
(In millions)
======================================
<S> <C>
1995 $ 54.6
1996 51.9
1997 40.1
1998 34.1
1999 31.8
Later years 146.4
- --------------------------------------
Total minimum payments $358.9
======================================
</TABLE>
Rental expense for all operating leases related to continuing operations was
$103.6 million in 1994, $94.9 million in 1993 and $72.8 million in 1992.
Contingent rentals and sublease rentals were not significant.
Other Commitments
Santa Fe Railway has entered into agreements with certain locomotive suppliers
to maintain a portion of its locomotive fleet. As of December 31, 1994, these
agreements obligate Santa Fe Railway to make minimum annual payments over
periods ranging from one to eighteen years. Santa Fe Railway has also entered
into haulage agreements with other rail carriers under which it is required to
make minimum payments if specified traffic levels are not met. Together, these
agreements require minimum annual payments of approximately $80 million in 1995,
$76 million in 1996, $75 million in 1997, $74 million in 1998, $73 million in
1999, and $385 million in total thereafter through 2012. Payments under the
agreements totaled approximately $103 million, $68 million and $62 million in
1994, 1993 and 1992, respectively.
In connection with the closing of the sale of rail lines in southern
California, Santa Fe Railway has entered into various shared use agreements with
the agencies, which require Santa Fe Railway to pay the agencies approximately
$6 million annually to maintain track structure and facilities.
Note 15: Environmental and Other Contingencies
Environmental
The Company is subject to extensive regulation under federal, state and local
environmental laws covering, for example, discharges to waters, air emissions,
toxic substances, and the generation, handling, storage, transportation, and
disposal of waste and hazardous materials. These laws and regulations have the
effect of increasing the cost and liabilities associated with the operations of
the Company. Environmental risks are also inherent in railroad operations which
frequently involve transporting chemicals and other hazardous materials.
Santa Fe Railway expects it will become subject to future requirements
regulating air emissions from diesel locomotives that may increase its operating
costs. During 1995, the Environmental Protection Agency (EPA) must issue
regulations applicable to new locomotive engines. It is anticipated that these
regulations will be effective for locomotive engines installed after 1999. Under
some interpretations of federal law, older locomotive engines may be regulated
by states based on standards and procedures which the State of California
ultimately adopts. At this time it is unknown whether California will adopt any
locomotive emission standards.
In addition, many of SFP's land holdings are and have been used for industrial
or transportation related purposes or leased to commercial or industrial
companies whose activities may have resulted in discharges onto the property. As
a result, the Company is now subject and will from time to time continue to be
subject to environmental clean-up and enforcement actions. In particular, the
federal Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA), also known as the "Superfund" law, generally imposes joint and several
liability for clean-up and enforcement costs, without regard to fault or the
legality of the original conduct, on current and former owners and operators of
a site. Accordingly, SFP may be responsible under CERCLA and other federal and
state statutes for all or part of the costs to clean up sites at which certain
substances may have been released by the Company, its current lessees, former
owners or lessees of properties, or other third parties.
At December 31, 1994, SFP had been named a potentially responsible party (PRP)
at seven sites on the EPA's National Priorities List. SFP is also potentially
liable for the cost of clean-up at other sites identified by the EPA and other
agencies. SFP has identified approximately 125 sites where costs exist for
environmental clean-up and monitoring, including some where no claim has been
asserted and no agency is currently involved. These sites include, among other
things: closed facilities, diesel locomotive repair shops, tie treating plants,
fueling facilities and underground storage tanks; property leased or sold to
others; and current operating sites.
Estimates of the Company's ultimate liabilities associated with Superfund and
other environmental sites are difficult to predict with certainty due to, among
other factors, the number of parties involved, possible remediation
alternatives, lengthy time frames, evolving environmental laws and regulations,
and potential recoveries from third parties. Environmental costs include initial
site surveys and environmental studies of potentially contaminated sites, costs
for remediation and restoration of sites determined to be contaminated, as well
as post-closure and ongoing monitoring costs. Estimated costs at sites where SFP
is a PRP are generally based on cost sharing agreements which vary from site to
site. These costs are typically allocated based on the financial condition of
other PRP's, volume of material contributed, the portion of the total site owned
or operated by each PRP, and/or the amount of time the site was owned or
operated.
During 1992, management completed an internal assessment of Santa Fe Railway's
environmental liabilities, including a site-by-site analysis of properties with
potentially significant environmental exposure. As a result of this review and
analysis, an additional accrual of $67 million was recorded as part of the rail
special charge to provide for future costs of this nature (see Note 5: Rail
Special Charge). The Company also monitors accruals for environmental sites that
have been identified, based on additional information developed in subsequent
periods. The additional information is based on a combination of factors
including independent consulting reports, site visits, legal reviews and
historical trend analysis. At December 31, 1994 and 1993, the Company had
accrued liabilities for environmental costs of approximately $126 million and
$125 million, respectively. The Company has not included any reduction in costs
for anticipated recovery from insurance.
Payments recorded against environmental liabilities totaled $20.0 million,
$13.5 million and $6.3 million for the years ended December 31,
SANTA FE PACIFIC CORPORATION | 29
<PAGE>
1994, 1993 and 1992, respectively. The majority of these payments related to
mandatory clean-up efforts. Capital expenditures related to environmental sites
were insignificant during this period. The Company anticipates that
approximately 75% of the accrued costs at December 31, 1994 will be paid over
the next five years, with approximately $25 million of payments occurring in
1995. It is the opinion of SFP management that none of the above 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.
Other Claims and Litigation
SFP is also a party to a number of other legal actions and claims, including
employee injury claims, various governmental proceedings and private civil
suits, arising in the ordinary course of business. While the final outcome of
these other legal actions 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 claims, 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.
Note 16: Pension Plans
SFP and its subsidiaries have two significant defined benefit pension plans: the
trusteed noncontributory Santa Fe Pacific Corporation Retirement Plan
(Retirement Plan) and the Santa Fe Pacific Corporation Supplemental Retirement
Plan (Supplemental Plan).
The Retirement Plan complies with Employee Retirement Income Security Act of
1974 (ERISA) requirements and covers nearly all officers and employees of SFP
and its subsidiaries not covered by collective bargaining agreements. Benefits
payable under the Retirement Plan are based on compensation during the 60
highest paid consecutive months of service during the ten years immediately
preceding retirement, and years of service. SFP's funding policy is to
contribute annually not less than the ERISA minimum, and not more than the
maximum amount deductible for income tax purposes.
The Supplemental Plan is an unfunded plan that provides supplementary
retirement benefits primarily to certain executives.
Components of pension income and expense applicable to continuing operations
relating to the Retirement and Supplemental Plans for 1994, 1993 and 1992 were
as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Retirement Plan
-------------------------
(In millions) 1994 1993 1992
- ---------------------------------------------------------------
<S> <C> <C> <C>
Components of pension
(income) expense
Service cost $ 7.4 $ 6.0 $ 7.1
Interest cost 42.4 41.9 39.1
Actual return on plan assets (10.1) (110.4) (58.5)
Net amortization and deferral (53.0) 46.6 (5.3)
- ---------------------------------------------------------------
Total $(13.3) $ (15.9) $(17.6)
===============================================================
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Supplemental Plan
-------------------------
(In millions) 1994 1993 1992
- ---------------------------------------------------------------
<S> <C> <C> <C>
Components of pension expense
Service cost $0.1 $0.1 $0.1
Interest cost 0.6 0.6 0.7
Net amortization and deferral 0.6 0.5 0.6
- ---------------------------------------------------------------
Total $1.3 $1.2 $1.4
===============================================================
</TABLE>
The following table shows the reconciliation of the funded status of the plans
with amounts recorded at December 31, 1994 and 1993. The Company uses a
September 30 measurement date.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Retirement Plan
-------------------
(In millions) 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C>
Plan assets at fair value, primarily invested in
common stock, and U.S. and corporate bonds $ 626.3 $ 657.3
Actuarial present value of projected
benefit obligation
Accumulated benefit obligation
Vested (484.9) (535.1)
Nonvested (24.9) (30.5)
Provision for future salary increases (30.5) (40.4)
- ----------------------------------------------------------------------
Excess of plan assets over projected benefit
obligation 86.0 51.3
Unrecognized net loss 13.8 33.5
Unrecognized prior service cost 9.8 13.4
Unrecognized net assets being recognized
ratably through 2002 (14.2) (16.1)
- ----------------------------------------------------------------------
Prepaid pension asset $ 95.4 $ 82.1
======================================================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Supplemental Plan
-------------------
(In millions) 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of projected benefit
obligation
Accumulated vested benefit obligation $(7.5) $(8.3)
Provision for future salary increases (2.3) (0.6)
- ----------------------------------------------------------------------
Projected benefit obligation (9.8) (8.9)
Unrecognized net gain (3.0) (0.8)
Unrecognized prior service cost 2.9 -
Unrecognized net transition obligation being
recognized ratably through 2003 5.1 5.6
Adjustment required to recognize minimum
liability (2.7) (4.2)
- ----------------------------------------------------------------------
Accrued pension liability $(7.5) $(8.3)
- ----------------------------------------------------------------------
Major assumptions
(Retirement and Supplemental Plans):
Discount rate 8.5% 7.0%
Rate of increase in compensation levels 4.0% 4.0%
Expected return on market related value of
plan assets 9.75% 9.75%
======================================================================
</TABLE>
Note 17: Other Postretirement Benefits
As of June 1994, salaried employees who have rendered ten years of service after
attaining age 45 are eligible for both medical benefits and life insurance
coverage during retirement. Prior to June 1994, salaried employees who had
attained age 55 and rendered ten years of service were eligible. This change in
eligibility requirements resulted in a $29.5 million pre-tax curtailment gain in
1994 relating to employees who are no longer currently eligible for
postretirement medical benefits, and a negative plan amendment due to a
reduction in the accumulated postretirement benefit obligation related to
remaining eligible active employees. $28.1 million of the curtailment gain was
reflected in Other Income (Expense)-Net with the remaining $1.4 million recorded
in Equity in Earnings of Pipeline Partnership.
The retiree medical plan is contributory and provides benefits to retirees,
their covered dependents and beneficiaries. Retiree contributions are adjusted
annually. The plan also contains fixed deductibles, coinsurance and out-of-
pocket limitations. The life insurance plan is noncontributory and covers
retirees only.
The Company adopted Statement of Financial Accounting Standard (SFAS) No. 106
effective January 1, 1992 (see Note 18: Change in
30 | SANTA FE PACIFIC CORPORATION
<PAGE>
Method of Accounting for Postretirement and Postemployment Benefits). Components
of net periodic postretirement benefit cost applicable to continuing operations
relating to the medical plan and the life insurance plan were as follows:
<TABLE>
<CAPTION>
Medical Plan
------------------
(In millions) 1994 1993
- --------------------------------------------------------------
<S> <C> <C>
Components of net periodic
postretirement benefit cost
Service cost $ 4.0 $ 3.3
Interest cost 14.5 15.1
Net amortization and deferral (4.8) (3.4)
- --------------------------------------------------------------
Total $13.7 $15.0
==============================================================
</TABLE>
<TABLE>
<CAPTION>
Life Insurance Plan
-------------------
(In millions) 1994 1993
- --------------------------------------------------------------
<S> <C> <C>
Components of net periodic
postretirement benefit cost
Service cost $0.2 $0.2
Interest cost 3.4 3.9
- --------------------------------------------------------------
Total $3.6 $4.1
==============================================================
</TABLE>
SFP's policy is to fund benefits payable under the medical and life
insurance plans as they come due. The following table shows the reconciliation
of the plans' obligations to amounts accrued at December 31, 1994 and 1993. The
Company uses a September 30 measurement date.
<TABLE>
<CAPTION>
Medical Plan
------------------
(In millions) 1994 1993
- --------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation
Retirees $114.4 $138.6
Fully eligible active plan participants 13.4 16.1
Other active plan participants 36.8 76.1
- --------------------------------------------------------------
Accumulated postretirement
benefit obligation 164.6 230.8
- --------------------------------------------------------------
Unrecognized prior service credit 42.8 41.3
Unrecognized net gain (loss) 0.2 (40.3)
- --------------------------------------------------------------
Accrued postretirement liability $207.6 $231.8
==============================================================
</TABLE>
<TABLE>
<CAPTION>
Life Insurance Plan
-------------------
(In millions) 1994 1993
- --------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation
Retirees $40.4 $45.8
Fully eligible active plan participants 0.1 0.2
Other active plan participants 3.4 4.9
- --------------------------------------------------------------
Accumulated postretirement
benefit obligation 43.9 50.9
- --------------------------------------------------------------
Unrecognized net loss (1.0) (5.5)
- --------------------------------------------------------------
Accrued postretirement liability $42.9 $45.4
==============================================================
</TABLE>
The unrecognized prior service credit will be amortized straight line over
the average future service to full eligibility of the active participants.
For 1995, the assumed health care cost trend rate for managed care medical
costs is 11% and is assumed to decrease gradually to 5% by 2006 and remain
constant thereafter. For medical costs not in managed care, the assumed health
care cost trend rate is 13% and is assumed to decrease gradually to 5% by 2006
and remain constant thereafter. Increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation for the medical plan by $27.8 million and the
combined service and interest components of net periodic postretirement benefit
cost recognized in 1994 by $2.6 million. In 1994, the assumed health care cost
trend rate for managed care medical costs was 11.5% and was assumed to decrease
gradually to 5% by 2006 and remain constant thereafter. For medical costs not in
managed care, the assumed health care cost trend rate was 14% in 1994 and was
assumed to decrease gradually to 5% by 2006 and remain constant thereafter.
The weighted-average discount rate assumed in determining the accumulated
postretirement benefit obligation was 8.5% and 7% in 1994 and 1993,
respectively. The assumed weighted-average salary increase was 4.0% in 1994 and
1993.
Other Plans
Under collective bargaining agreements, Santa Fe Railway participates in
multiemployer benefit plans which provide certain postretirement health care and
life insurance benefits for eligible union employees. Insurance premiums paid
attributable to retirees, which are generally expensed as incurred, were $3.2
million, $3.3 million and $3.5 million in 1994, 1993 and 1992, respectively.
Note 18: Change in Method of Accounting for Postretirement and Postemployment
Benefits
Effective January 1, 1992, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" and SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." SFAS No. 106 requires that
an actuarial method be used to accrue the expected cost of postretirement health
care and other benefits over employees' years of service. SFAS No. 112 relates
to benefits provided to former or inactive employees after employment but before
retirement. SFAS No. 112 requires these benefits be recognized if they are
vested, and payment is probable and can be reasonably estimated. Before 1992,
the cost of most postretirement and certain postemployment benefits were
expensed when paid. The cumulative effect of this change in accounting
attributable to years prior to 1992 was to decrease 1992 net income by $163.0
million, net of the related income tax benefit of $97.0 million. The impact of
SFAS No. 106 comprises approximately $158 million of the change.
Note 19: Stock Option and Growth Plans
Under various plans, the most significant of which are the Santa Fe Pacific Long
Term Incentive Stock Plan (Long Term Plan) and the Santa Fe Pacific Incentive
Stock Compensation Plan (Incentive Compensation Plan), options have been granted
to employees to purchase common stock of SFP at a price not less than the fair
market value at the date of grant. Options can usually be exercised no earlier
than one year after the date of grant and expire ten years after the date of
grant.
Also, approximately 900,000 shares of restricted stock have been granted
under these plans. The restrictions on a majority of these shares lapse upon
attaining certain corporate performance objectives, completing a required
vesting period, or upon a change in control. Shareholder approval of the Merger
is considered a change in control and accordingly, approximately 750,000 shares
of restricted stock vested in February 1995.
As a result of the distribution of SFP Gold common stock on September 30,
1994, SFP's outstanding stock options were adjusted resulting in a 6.7 million
increase in outstanding options, accompanied with a decrease in the related
exercise price resulting in a decline in average option price. These adjustments
complied with regulations under the Internal Revenue Code and resulted from
adjustment provisions in the
Santa Fe Corporation 31
<PAGE>
respective plans. The maximum number of shares available under these plans
increased by a combined 6.7 million shares. A total of 16.2 million shares,
including additional shares that may be granted in exchange for shares tendered
to the Company to pay for an option exercise is the maximum available under the
Long Term Plan, and a total of 20.8 million shares is the maximum available
under the Incentive Compensation Plan.
The Long Term Plan replaced the Incentive Compensation Plan and no new grants
will be made under the Incentive Compensation Plan. Under these plans, awards
may be granted in the form of (1) options to purchase SFP common stock; (2)
shares of restricted stock, which may be issued in combination with performance
units; (3) performance units; (4) limited stock appreciation rights; and (5)
stock appreciation rights. Aggregate awards of 11.1 million shares under the
Long Term Plan and 16.9 million shares under the Incentive Compensation Plan, of
SFP common stock, net of options surrendered or terminated, have been made in
the form of options, stock appreciation rights, and restricted stock.
Approximately 14.5 million and 4.9 million of outstanding options at December
31, 1994 and 1993, respectively, were exercisable within the next year. Option
activity in all plans during 1994, 1993 and 1992 is summarized below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SFP Average
Shares Price
===============================================================================
<S> <C> <C>
Options outstanding at December 31, 1991 11,045,300 $ 7.23
Granted 70,000 12.31
Exercised 2,114,257 6.93
Surrendered or terminated 750,475 8.43
- -------------------------------------------------------------------------------
Options outstanding at December 31, 1992 8,250,568 $ 7.24
Granted 5,814,770 17.17
Exercised 3,284,947 7.21
Surrendered or terminated 176,544 9.91
- -------------------------------------------------------------------------------
Options outstanding at December 31, 1993 10,603,847 $12.65
Granted 328,795 12.52
Adjustment for spin-off of gold subsidiary 6,666,629
Exercised 2,999,605 7.70
Surrendered or terminated 129,595 12.58
- -------------------------------------------------------------------------------
Options outstanding at December 31, 1994 14,470,071 $ 8.05*
===============================================================================
</TABLE>
* Reflects adjustment to market price of stock subsequent to September 1994
distribution of SFP Gold common stock.
Note 20: Stockholder Rights Plan
On November 28, 1994, SFP declared a dividend distribution of one preferred
stock purchase right for each common share outstanding to stockholders of record
as of December 9, 1994. Pursuant to the Rights Agreement of November 28, 1994 as
amended on January 24, 1995 (the Rights Agreement), each right may under certain
circumstances be exercised to buy one one-hundredth of a newly issued share of
Series A Junior Participating Preferred Stock at a price of $50. The rights may
only be exercised after a person or group acquires ownership of 15% or more of
SFP's common shares or commences a tender or exchange offer which upon
consummation would result in ownership of 15% or more of the common shares. The
rights, which do not have voting rights, expire on December 9, 2004 and may be
redeemed by SFP at a price of $.01 per right at any time until 15 days, subject
to extension, after a public announcement of the acquisition of 15% of SFP's
common stock.
Subject to the terms of the amendment described below, if 15% of SFP's common
stock is acquired by any person or if certain other events occur, then
generally, each right not owned by a 15% -or-more stockholder will entitle the
holder to purchase, at the right's then-current exercise price, shares of SFP
common stock, having a value of twice the right's exercise price. The Board of
Directors of SFP may, at its sole discretion, delay distribution of the rights,
and has done so in regards to the Merger. In addition, if SFP is involved in a
merger or other business combination transaction with another person in which
its common shares are changed or converted, or sells 50% or more of its assets
or earnings power, each right will entitle its holder to purchase shares of
common stock of the surviving corporation having a value of twice the rights'
exercise price.
Note 21: Summarized Quarterly Operating Results (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1994 1993
-----------------------------------------------------------------------------
(In millions, except per share data) First Second Third Fourth First Second Third Fourth
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues $631.5 $658.2 $680.2 $711.0 $583.2 $609.1 $585.8 $631.1
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Income $ 90.7 $ 97.4 $117.8 $123.0 $ 71.2 $ 82.1 $ 49.6 $114.8
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss)
Continuing Operations $ 54.2 $ 48.4 $ 50.5 $ 46.3 $106.4 $ 28.2 $(10.3) $ 53.1
Discontinued Operations, Net of Income Taxes 13.9 9.2 -- -- 20.7 119.3 7.5 13.9
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 68.1 $ 57.6 $ 50.5 $ 46.3 $127.1 $147.5 $ (2.8) $ 67.0
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) Per Common Share
Continuing Operations $ 0.29 $ 0.25 $ 0.27 $ 0.24 $ 0.57 $ 0.15 $(0.05) $ 0.28
Discontinued Operations 0.07 0.05 -- -- 0.11 0.64 0.04 0.08
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) Per Common Share $ 0.36 $ 0.30 $ 0.27 $ 0.24 $ 0.68 $ 0.79 $(0.01) $ 0.36
====================================================================================================================================
</TABLE>
(1) The sum of income per share from discontinued operations and net income
(loss) per share for the four quarters of 1993 does not equal the related
net income (loss) per share for the full year due to incremental shares
resulting from stock options.
32 | SANTA FE PACIFIC CORPORATION
<PAGE>
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
DATED AS OF
JUNE 29, 1994,
AS AMENDED AS OF OCTOBER 26, 1994
AND AS OF DECEMBER 18, 1994,
BETWEEN
BURLINGTON NORTHERN INC.
AND
SANTA FE PACIFIC CORPORATION
<PAGE>
TABLE OF CONTENTS(/1/)
PAGE
ARTICLE I
THE MERGER
1.1.The Merger........................................................... A-1
1.2.Conversion of Shares................................................. A-1
1.3.Surrender and Payment................................................ A-2
1.4.Stock Options........................................................ A-3
1.5.Adjustments.......................................................... A-3
1.6.Closing.............................................................. A-3
1.7.Fractional Shares.................................................... A-4
1.8.Alternative Transaction Structure ................................... A-4
ARTICLE II
CERTAIN MATTERS RELATING TO BNI
AND THE SURVIVING CORPORATION
2.1.Directors of the Surviving Corporation............................... A-7
2.2.Certificate of Incorporation and Bylaws of the Surviving Corporation.. A-7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SFP
3.1. Corporate Existence and Power...................................... A-7
3.2. Corporate Authorization............................................ A-8
3.3. Governmental Authorization......................................... A-8
3.4. Non-Contravention.................................................. A-8
3.5. Capitalization..................................................... A-8
3.6. Material Subsidiaries.............................................. A-9
3.7. SEC Filings........................................................ A-9
3.8. Financial Statements............................................... A-10
3.9. Disclosure Documents............................................... A-10
3.10. Information Supplied............................................... A-11
3.11. No Material Adverse Changes........................................ A-11
3.12. Undisclosed Material Liabilities................................... A-11
3.13. Litigation......................................................... A-11
3.14. Taxes.............................................................. A-12
3.15. ERISA.............................................................. A-12
3.16. Finders' Fees...................................................... A-14
3.17. Environmental Matters.............................................. A-14
3.18. Takeover Statutes.................................................. A-14
3.19. Compliance With Laws.............................................. A-14
- --------
(/1/)The Table of Contents is not a part of this Agreement.
i
<PAGE>
3.20. Spinoff Dividend................................................... A-14
3.21. Private Letter Ruling.............................................. A-15
3.22. Excess Loss Accounts............................................... A-15
3.23. SFP Rights Agreement............................................... A-15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BNI
4.1. Corporate Existence and Power....................................... A-15
4.2. Corporate Authorization............................................. A-15
4.3. Governmental Authorization.......................................... A-15
4.4. Non-Contravention................................................... A-15
4.5. Capitalization...................................................... A-16
4.6. Material Subsidiaries............................................... A-16
4.7. SEC Filings......................................................... A-17
4.8. Financial Statements................................................ A-17
4.9. Disclosure Documents................................................ A-17
4.10. Information Supplied............................................... A-18
4.11. No Material Adverse Changes........................................ A-18
4.12. Undisclosed Material Liabilities................................... A-18
4.13. Litigation......................................................... A-19
4.14. Taxes.............................................................. A-19
4.15. ERISA.............................................................. A-19
4.16. Finders' Fees...................................................... A-21
4.17. Environmental Matters.............................................. A-21
4.18. Takeover Statutes.................................................. A-21
4.19. Compliance with Laws............................................... A-21
4.20. BNI Rights Agreement............................................... A-21
ARTICLE V
COVENANTS OF SFP
5.1. Conduct of SFP...................................................... A-22
5.2. Stockholder Meeting................................................. A-23
5.3. Access to Information............................................... A-23
5.4. Notices of Certain Events........................................... A-23
5.5. Tax Matters......................................................... A-24
5.6. Rule 145 Affiliates................................................. A-24
5.7. The Spinoff......................................................... A-24
5.8. No Solicitations.................................................... A-24
5.9. Registration Rights................................................. A-25
ARTICLE VI
COVENANTS OF BNI
6.1. Conduct of BNI...................................................... A-25
6.2. Stockholder Meeting................................................. A-26
6.3. Access to Information............................................... A-26
6.4. Notices of Certain Events........................................... A-27
6.5. Tax Matters......................................................... A-27
ii
<PAGE>
6.6. Director and Officer Liability...................................... A-27
6.7. No Solicitations.................................................... A-28
ARTICLE VII
COVENANTS OF BNI AND SFP
7.1. Reasonable Best Efforts............................................. A-28
7.2. ICC Approval........................................................ A-28
7.3. Certain Filings; Proxy Materials.................................... A-28
7.4. Public Announcements................................................ A-29
7.5. Further Assurances.................................................. A-29
7.6. Antitakeover Statutes............................................... A-29
7.7. Cooperation......................................................... A-29
7.8. Dividends........................................................... A-29
ARTICLE VIII
THE OFFER
8.1 The Offer............................................................ A-30
8.2. Action by SFP and BNI............................................... A-30
ARTICLE IX
CONDITIONS TO THE MERGER
9.1. Conditions to the Obligations of Each Party......................... A-31
9.2. Conditions to the Obligations of BNI................................ A-31
9.3. Conditions to the Obligations of SFP................................ A-32
ARTICLE X
TERMINATION
10.1. Termination......................................................... A-32
10.2. Effect of Termination............................................... A-33
ARTICLE XI
MISCELLANEOUS
11.1. Notices............................................................. A-33
11.2. Entire Agreement; Survival of Representations and Warranties......... A-34
11.3. Amendments; No Waivers.............................................. A-34
11.4. Expenses............................................................ A-34
11.5. Successors and Assigns.............................................. A-35
11.6. Governing Law....................................................... A-35
11.7. Jurisdiction........................................................ A-35
11.8. Counterparts; Effectiveness......................................... A-35
EXHIBIT A Form of Affiliate Letter
ANNEX I Conditions to the Offer
ANNEX II Registration Rights
iii
<PAGE>
TABLE OF DEFINITIONS
<TABLE>
<CAPTION>
TERM SECTION
- ---- --------
<S> <C>
1933 Act............................................................... 1.4(c)
1933 Act Affiliates.................................................... 5.6
6- 1/4% Convertible Preferred Stock.................................... 4.5(a)
Agreement.............................................................. Recitals
Acquiring Person....................................................... 4.20
Balance Sheet Date..................................................... 3.8
BNI.................................................................... Recitals
BNI Balance Sheet...................................................... 4.8
BNI Benefit Arrangements............................................... 4.16(e)
BNI Common Stock....................................................... 1.2(a)
BNI Disclosure Documents............................................... 4.9
BNI Employee Plans..................................................... 4.15(a)
BNI Form 10-K.......................................................... 4.7(a)
BNI Form 10-Q.......................................................... 4.7(a)
BNI Material Subsidiary................................................ 4.6(a)
BNI Offer Documents.................................................... 8.1(d)
BNI Option............................................................. 1.4(a)
BNI Pension Plans...................................................... 4.15(b)
BNI Post-Signing Returns............................................... 6.5
BNI Proxy Statement.................................................... 4.9
BNI Returns............................................................ 4.14
BNI Rights Agreement................................................... 4.20
BNI Securities......................................................... 4.5(a)
BNI Stockholder Meeting................................................ 6.2
BNI Subsidiary Securities.............................................. 4.6(b)
BNI Voting Debt........................................................ 4.5(b)
Class A Preferred Stock................................................ 4.5(a)
Closing................................................................ 1.6
Closing Date........................................................... 1.6
Code................................................................... Recitals
Common Shares Trust.................................................... 1.7
Confidentiality Agreement.............................................. 11.2
Customary Action....................................................... 5.1
Distribution Date...................................................... 4.20
DGCL................................................................... 3.18
Effective Time......................................................... 1.1(b)
Environmental Laws..................................................... 3.17(b)
Environmental Liabilities.............................................. 3.17(b)
ERISA.................................................................. 3.15(a)
ERISA Affiliate........................................................ 3.15(a)
Excess Shares.......................................................... 1.7
Exchange Act........................................................... 1.2(d)
Exchange Agent......................................................... 1.3(a)
Exchange Ratio......................................................... 1.2(a)
Form 10................................................................ 3.9(b)
Form S-1............................................................... 3.9(b)
Form S-4............................................................... 7.3(a)
Hazardous Substances................................................... 3.17(b)
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
- ---- --------
<S> <C>
HSR Act................................................................ 3.3
ICC.................................................................... 3.3
Indemnified Parties.................................................... 6.6
Indemnity Agreements................................................... 6.6
Lien................................................................... 3.4
Liquidation............................................................ 3.21
Material............................................................... 6.1(h)
Material Adverse Effect................................................ 3.1
Merger................................................................. 1.1(a)
Merger Consideration................................................... 1.2(b)
Multiemployer Plan..................................................... 3.16(b)
NYSE................................................................... 1.4(c)
Offer.................................................................. 8.1(a)
PBGC................................................................... 3.16(b)
Person................................................................. 1.2(d)
Private Letter Ruling.................................................. 3.21
Properties............................................................. 3.21
Schedule 14D-9......................................................... 8.2(b)
SEC.................................................................... 1.4(c)
SFP.................................................................... Recitals
SFP Balance Sheet...................................................... 3.8
SFP Common Stock....................................................... 1.2(a)
SFP Disclosure Documents............................................... 3.9(a)
SFP Employee Plans..................................................... 3.15(a)
SFP Form 10-K.......................................................... 3.7(a)
SFP Form 10-Q.......................................................... 3.7(a)
SFP Material Subsidiary................................................ 3.6(a)
SFP Offer Documents.................................................... 8.1(c)
SFP Pension Plans...................................................... 3.15(b)
SFP Post-Signing Returns............................................... 5.5
SFP Preferred Stock.................................................... 3.5(a)
SFP Proxy Statement.................................................... 3.9(a)
SFP Properties......................................................... 5.2
SFP Returns............................................................ 3.14(i)
SFP Rights Agreement................................................... 3.23
SFP Securities......................................................... 3.5(a)
SFP Stock Option....................................................... 1.4(a)
SFP Stockholder Meeting................................................ 5.2
SFP Subsidiary Securities.............................................. 3.6(b)
SFP Voting Debt........................................................ 3.5(b)
Share.................................................................. 1.2(a)
Shares................................................................. 1.2(a)
Spinoff................................................................ Recitals
Spinoff Company........................................................ Recitals
Spinoff Dividend....................................................... Recitals
Spinoff Registration Documents......................................... 3.9(b)
Stock Acquisition Date................................................. 4.20
Subsidiary............................................................. 1.2(c)
Surviving Corporation.................................................. 1.1(a)
Takeover Proposal...................................................... 5.8
Takeover Statute....................................................... 3.18
</TABLE>
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of June 29, 1994, as amended as of
October 26, 1994 and as of December 18, 1994 (this "Agreement"), between
Burlington Northern Inc., a Delaware corporation ("BNI"), and Santa Fe Pacific
Corporation, a Delaware corporation ("SFP").
WHEREAS, the respective Boards of Directors of BNI and SFP have determined
that it is in the best interests of their respective stockholders to consummate
the merger provided for herein;
WHEREAS, the respective Boards of Directors of BNI and SFP have determined
that this Agreement is in the best interests of BNI or SFP, as the case may be,
and its respective stockholders and have duly approved this Agreement and
authorized its execution and delivery;
WHEREAS, the respective Boards of Directors of BNI and SFP have received the
opinions of Lazard Freres & Co. and Goldman, Sachs & Co., respectively, that
the Exchange Ratio (as defined in Section 1.2(a)(i)) is fair to their
respective stockholders from a financial point of view;
WHEREAS, BNI has been informed that (a) as a result of an initial public
offering of shares of common stock of SFP Gold Corporation (the "Spinoff
Company"), SFP presently owns approximately 85% of the outstanding capital
stock of the Spinoff Company, (b) the Board of Directors of SFP has declared,
pursuant to resolutions substantially in the form provided to BNI prior to the
date hereof, a dividend (the "Spinoff Dividend") of the stock of the Spinoff
Company owned by SFP, to be issued on September 30, 1994 to SFP shareholders of
record as of September 12, 1994 (the issuance of the Spinoff Dividend shall be
referred to as the "Spinoff"), and (c) SFP has received a private letter ruling
from the Internal Revenue Service to the effect that the Spinoff qualifies as a
tax-free distribution within the meaning of Section 355 of the Internal Revenue
Code of 1986, as amended (the "Code"); and
WHEREAS, it is the intention of the parties to this Agreement that for
Federal income tax purposes the Merger shall qualify as a "reorganization"
within the meaning of Section 368 of the Code.
NOW, THEREFORE, in consideration of the premises and of the representations,
warranties, covenants and agreements set forth herein, the parties hereto
hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. The Merger. (a) At the Effective Time (as defined in Section
1.1(b)), SFP shall be merged with and into BNI in accordance with Delaware Law
(the "Merger"), whereupon the separate existence of SFP shall cease, and BNI
shall be the surviving corporation (the "Surviving Corporation").
(b) The Merger shall become effective at such time as the certificate of
merger is duly filed with the Secretary of State of the State of Delaware or at
such later time as is specified in the certificate of merger (the "Effective
Time"); such filing shall be made as soon as practicable after the Closing, as
defined in Section 1.6 of this Agreement.
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, disabilities and duties of SFP and BNI, all as provided
under Delaware Law.
SECTION 1.2. Conversion of Shares. (a) At the Effective Time:
(i) each share (a "Share" and, collectively, the "Shares") of SFP common
stock, par value $1.00 per share (the "SFP Common Stock"), outstanding
immediately prior to the Effective Time shall, except
A-1
<PAGE>
as otherwise provided in Section 1.2(a)(ii) below, be converted into 0.40
shares of the common stock, no par value (the "BNI Common Stock"), of BNI
(0.40 being defined herein as the "Exchange Ratio"); and
(ii) each Share held by SFP as treasury stock or owned by BNI or any
Subsidiary (as defined in Section 1.2(c)) of BNI immediately prior to the
Effective Time shall be canceled, and no payment shall be made with
respect thereto.
(b) The BNI Common Stock (accompanied by rights issued pursuant to the BNI
Rights Agreement (as defined in Section 4.20)) to be received as consideration
pursuant to the Merger by each holder of Shares is referred to herein as the
"Merger Consideration".
(c) For purposes of this Agreement, the word "Subsidiary" when used with
respect to any Person means any corporation or other organization, whether
incorporated or unincorporated, of which (i) at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such Person or by any one or more of its
Subsidiaries or (ii) such Person or any other Subsidiary of such Person is a
general partner, it being understood that representations and warranties of a
Person concerning any former Subsidiary of such Person shall be deemed to
relate only to the periods during which such former Subsidiary was a Subsidiary
of such Person.
(d) For purposes of this Agreement, the word "Person" means an individual, a
corporation, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof, or any affiliate (as that term is defined in the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder (the "Exchange Act")) of any of the foregoing.
SECTION 1.3. Surrender and Payment. (a) Prior to the Effective Time, BNI
shall appoint an agent reasonably satisfactory to SFP (the "Exchange Agent")
for the purpose of exchanging certificates representing Shares as provided in
Section 1.2(a)(i). At the Effective Time, BNI will deposit with the Exchange
Agent certificates representing the aggregate Merger Consideration to be paid
in respect of the Shares. Promptly after the Effective Time, BNI will send, or
will cause the Exchange Agent to send, to each holder of Shares at the
Effective Time a letter of transmittal for use in such exchange (which shall
specify that the delivery shall be effected, and risk of loss and title shall
pass, only upon proper delivery of the certificates representing Shares to the
Exchange Agent).
(b) Each holder of Shares that have been converted into a right to receive
the Merger Consideration, upon surrender to the Exchange Agent of a certificate
or certificates representing such Shares, together with a properly completed
letter of transmittal covering such Shares, will be entitled to receive the
Merger Consideration payable in respect of such Shares. Until so surrendered,
each such certificate shall, after the Effective Time, represent for all
purposes only the right to receive such Merger Consideration.
(c) If any portion of the Merger Consideration is to be paid to a Person
other than the registered holder of the Shares represented by the certificate
or certificates surrendered in exchange therefor, it shall be a condition to
such payment that the certificate or certificates so surrendered shall be
properly endorsed or otherwise be in proper form for transfer and that the
Person requesting such payment shall pay to the Exchange Agent any transfer or
other taxes required as a result of such payment to a Person other than the
registered holder of such Shares or establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
(d) After the Effective Time, there shall be no further registration of
transfers of Shares. If, after the Effective Time, certificates representing
Shares are presented to the Surviving Corporation, they shall be
A-2
<PAGE>
canceled and exchanged for the Merger Consideration in accordance with the
procedures set forth in this Article I.
(e) Any portion of the Merger Consideration deposited with the Exchange Agent
pursuant to Section 1.3(a), and any portion of the Common Shares Trust (as
defined in Section 1.7) that remains unclaimed by the holders of Shares twelve
months after the Effective Time shall be returned to BNI, upon demand, and any
such holder who has not exchanged his Shares for the Merger Consideration in
accordance with this Article I prior to that time shall thereafter look only to
BNI for his claim for BNI Common Stock, any cash in lieu of fractional shares
of BNI Common Stock and any dividends or distributions with respect to BNI
Common Stock. Notwithstanding the foregoing, BNI shall not be liable to any
holder of Shares for any amount paid to a public official pursuant to
applicable abandoned property laws.
(f) No dividends or other distributions with respect to the BNI Common Stock
constituting part of the Merger Consideration shall be paid to the holder of
any unsurrendered certificates representing Shares until such certificates are
surrendered as provided in this Section 1.3. Upon such surrender, there shall
be paid, without interest, to the person in whose name the certificates
representing the BNI Common Stock into which such Shares were converted are
registered, (1) all dividends and other distributions in respect of BNI Common
Stock that are payable on a date subsequent to, and the record date for which
occurs after, the Effective Time and (2) all dividends or other distributions
in respect of Shares that are payable on a date subsequent to, and the record
date for which occurs before, the Effective Time.
SECTION 1.4. Stock Options. (a) At the Effective Time, each outstanding
option to purchase shares of SFP Common Stock (a "SFP Stock Option") granted
under any employee stock option or compensation plan or arrangement of SFP
shall be canceled and substituted with an option (a "BNI Option") to acquire
BNI Common Stock. Such cancellation and substitution shall comply in all
respects with, and shall be performed in accordance with, the methodology
prescribed by the provisions of Section 424(a) of the Code and the regulations
thereunder, and each BNI Option shall provide the option holder with rights and
benefits that are no less favorable to him than were provided under the SFP
Stock Option for which it was substituted.
(b) At or as soon as practicable after the Effective Time, BNI shall issue to
each holder of an SFP Stock Option which is cancelled pursuant to Section
1.4(a) an agreement that accurately reflects the terms of the BNI Option
substituted therefor as contemplated by Section 1.4(a).
(c) BNI shall take all corporate actions necessary to reserve for issuance
such number of shares of BNI Common Stock as will be necessary to satisfy
exercises in full of all BNI Options after the Effective Time. With respect to
such BNI Common Stock, BNI shall (i) as soon as practicable after the Effective
Time file with the Securities and Exchange Commission ("SEC") a Registration
Statement on Form S-8 and use its reasonable best efforts to have such
registration statement become and remain continuously effective under the
Securities Act of 1933, as amended (the "1933 Act") and (ii) file with the New
York Stock Exchange, Inc. (the "NYSE") a listing application and use its
reasonable best efforts to have such shares admitted to trading thereon upon
exercises of BNI Options. BNI shall also use its reasonable best efforts to
ensure that all incentive stock options within the meaning of the Code continue
to qualify as such at all times after the Effective Time.
SECTION 1.5. Adjustments. If, prior to the Effective Time, BNI or SFP (as the
case may be) should split or combine the BNI Common Stock or the SFP Common
Stock, or pay a stock dividend or other stock distribution in BNI Common Stock
or SFP Common Stock, or otherwise change the BNI Common Stock or SFP Common
Stock into any other securities, or make any other dividend or distribution in
respect of the BNI Common Stock or the SFP Common Stock (other than the
Spinoff, stock options permitted or contemplated by this Agreement, and normal
dividends as the same may be adjusted from time to time in accordance with this
Agreement), then the Exchange Ratio will be appropriately adjusted to reflect
such split, combination, dividend or other distribution or change.
SECTION 1.6. Closing. The closing of the Merger (the "Closing") shall take
place (i) at the offices of Davis Polk & Wardwell, 450 Lexington Avenue, New
York, New York, at 10:00 A.M. on the second business
A-3
<PAGE>
day after all the conditions set forth in Article IX (other than those that are
waived by the party or parties for whose benefit such conditions exist) are
satisfied or (ii) at such other place and/or time and/or on such other date as
the parties may agree. The date upon which the Closing shall occur is herein
called the "Closing Date".
SECTION 1.7. Fractional Shares. No certificates or scrip representing
fractional shares of BNI Common Stock will be issued in the Merger, but in lieu
thereof each holder of Shares otherwise entitled to a fractional share of BNI
Common Stock will be entitled to receive, from the Exchange Agent in accordance
with the provisions of this Section 1.7, a cash payment in lieu of such
fractional shares of BNI Common Stock representing such holder's proportionate
interest in the net proceeds from the sale by the Exchange Agent in one or more
transactions (which sale transactions shall be made at such times, in such
manner and on such terms as the Exchange Agent shall determine in its
reasonable discretion) on behalf of all such holders of the aggregate of the
fractional shares of BNI Common Stock which would otherwise have been issued
(the "Excess Shares"). The sale of the Excess Shares by the Exchange Agent
shall be executed on the NYSE through one or more member firms of the NYSE and
shall be executed in round lots to the extent practicable. Until the net
proceeds of such sale or sales have been distributed to the holders of Shares,
the Exchange Agent will hold such proceeds in trust (the "Common Shares Trust")
for the holders of the Shares. BNI shall pay all commissions, transfer taxes
and other out-of-pocket transaction costs, including the expenses and
compensation of the Exchange Agent, incurred in connection with this sale of
the Excess Shares. The Exchange Agent shall determine the portion of the Common
Shares Trust to which each holder of Shares shall be entitled, if any, by
multiplying the amount of the aggregate net proceeds comprising the Common
Shares Trust by a fraction the numerator of which is the amount of the
fractional BNI Common Stock Interest to which such holder of Shares is entitled
and the denominator of which is the aggregate amount of fractional share
interests to which all holders of Shares are entitled. As soon as practicable
after the determination of the amount of cash, if any, to be paid to holders of
Shares in lieu of any fractional shares of BNI Common Stock, the Exchange Agent
shall make available such amounts to such holders of Shares without interest.
SECTION 1.8. Alternative Transaction Structure. (a) At any time prior to the
Effective Time, either BNI or SFP, in its sole discretion, may notify the other
party (the "Alternative Merger Notice") that it has determined to restructure
the transaction in the manner contemplated by this Section 1.8. Upon delivery
of the Alternative Merger Notice in the manner set forth in Section 11.1 hereof
(the "Alternative Election"), the Merger contemplated by Section 1.1 of this
Agreement shall be restructured in the manner set forth in this Section 1.8. In
such event, all references to the term "Merger" in this Agreement shall be
deemed references to the transactions contemplated by this Section 1.8, all
references to the term "Surviving Corporation" shall be deemed references to
BNSF Corporation, a Delaware corporation ("BNSF"), all references to the term
"Effective Time" in this Agreement shall be deemed references to the time at
which the certificates of merger are duly filed with the Secretary of State of
the State of Delaware (or at such later time as is specified in the certificate
of merger) with respect to the Merger as restructured in the manner
contemplated by this Section 1.8 and Sections 1.2(a), 1.2(b), 1.4 and 1.7 shall
no longer be of any force or effect and the provisions of this Section 1.8
shall govern the terms of the Merger. Prior to the Effective Time, BNSF will be
controlled equally by BNI and SFP. The Merger, restructured as contemplated by
this Section 1.8, is sometimes referred to as the "Alternative Merger".
(b) Prior to the Effective Time, BNSF will be controlled equally by BNI and
SFP. Prior to the Effective Time of the Alternative Merger, BNI and SFP will
cause BNSF to incorporate two wholly owned subsidiaries as Delaware
corporations ("BNI Merger Sub" and "SFP Merger Sub"). At the Effective Time of
the Alternative Merger, (i) BNI Merger Sub will be merged with and into BNI in
accordance with Delaware Law, whereupon the separate existence of BNI Merger
Sub shall cease, and BNI shall be the surviving corporation, and (ii) SFP
Merger Sub will be merged with and into SFP in accordance with Delaware Law,
whereupon the separate existence of SFP Merger Sub shall cease, and SFP shall
be the surviving corporation.
A-4
<PAGE>
(c) At the Effective Time of the Alternative Merger, (i) each share of SFP
Common Stock outstanding immediately prior to such Effective Time shall, except
as otherwise provided in Section 1.8(d) below, be converted into 0.40 shares of
the common stock of BNSF, no par value (the "BNSF Common Stock"), and (ii) each
share of BNI Common Stock outstanding immediately prior to such Effective Time
shall, except as otherwise provided in Section 1.8(d) below, be converted into
1.0 share of BNSF Common Stock.
(d) Each share of BNI Common Stock or SFP Common Stock (other than the SFP
Common Stock owned by BNI, which shall remain outstanding) held by either of
BNI or SFP as treasury stock or owned by BNI, SFP or any Subsidiary of either
of them immediately prior to the Effective Time of the Alternative Merger shall
be cancelled and no payments shall be made with respect thereto.
(e) The BNSF Common Stock to be received as consideration in the Alternative
Merger by holders of BNI Common Stock or SFP Common Stock is referred to herein
as the "Merger Consideration".
(f) (i) At the Effective Time of the Alternative Merger, each outstanding
option to purchase shares of SFP Common Stock (a "SFP Stock Option") or BNI
Common Stock (or "BNI Stock Option") granted under any employee stock option or
compensation plan or arrangement of SFP or BNI, as the case may be, shall be
cancelled and substituted with an option (a "BNSF Option") to acquire BNSF
Common Stock. Such cancellation and substitution shall comply in all respects
with, and shall be performed in accordance with, the methodology prescribed by
the provisions of Section 424(a) of the Code and the regulations thereunder,
and each BNSF Option shall provide the option holder with rights and benefits
that are no less favorable to him than were provided under the SFP Stock Option
or BNI Stock Option for which it was substituted.
(ii) At or as soon as possible after the Effective Time of the Alternative
Merger, BNSF shall issue to each holder of an SFP Stock Option or BNI Stock
Option which is cancelled pursuant to Section 1.8(f)(i) an agreement that
accurately reflects the terms of the BNSF Option substituted therefor as
contemplated by Section 1.8(f)(i).
(iii) BNSF shall take all corporate actions necessary to reserve such number
of shares of BNSF Common Stock as will be necessary to satisfy exercises in
full of all BNSF Options after the Effective Time. With respect to such BNSF
Common Stock, BNSF shall (i) as soon as practicable after the Effective Time of
the Alternative Merger file with the SEC a Registration Statement on Form S-8
and use its reasonable best efforts to have such registration statement become
and remain continuously effective under the 1933 Act and (ii) file with the
NYSE a listing application and use its reasonable best efforts to have such
shares admitted to trading thereon upon exercises of BNSF Options. BNSF shall
also use its reasonable best efforts to ensure that all incentive stock options
within the meaning of the Code continue to qualify as such at all times after
such Effective Time.
(g) No certificates or scrip representing fractional shares of BNSF Common
Stock will be issued in the Alternative Merger, but in lieu thereof each holder
of SFP Common Stock otherwise entitled to a fractional share of BNSF Common
Stock will be entitled to receive, from the Exchange Agent in accordance with
the provisions of this Section 1.8 , a cash payment in lieu of such fractional
shares of BNSF Common Stock which would otherwise have been issued (the "Excess
Shares"). The sale of the Excess Shares by the Exchange Agent shall be executed
on the NYSE through one or more member firms of the NYSE and shall be executed
in round lots to the extent practicable. Until the net proceeds of such sale or
sales have been distributed to the holders of SFP Common Stock, the Exchange
Agent will hold such proceeds in trust (the "Common Shares Trust") for the
holders of the SFP Common Stock. BNSF shall pay all commissions, transfer taxes
and other out-of-pocket transaction costs, including the expenses and
compensation of the Exchange Agent, incurred in connection with this sale of
the Excess Shares. The Exchange Agent shall determine the portion of the Common
Shares Trust to which each holder of SFP Common Stock shall be entitled, if
any, by multiplying the amount of the aggregate net proceeds comprising the
Common Shares Trust by a fraction the numerator of which is the amount of the
fractional BNSF Common Stock interest to which such holder of SFP Common Stock
is entitled and the denominator of which is the aggregate amount of fractional
share
A-5
<PAGE>
interests to which such holder of SFP Common Stock is entitled. As soon as
practicable after the determination of the amount of cash, if any, to be paid
to holders of SFP Common Stock in lieu of any fractional shares of BNSF Common
Stock, the Exchange Agent shall make available such amounts to such holders of
SFP Common Stock without interest.
(h) Immediately prior to the Effective Time of the Alternative Merger, BNSF
will become a party to this Agreement, assume all obligations of BNI hereunder
in its capacity as the Surviving Corporation and make the following
representations and warranties to each of BNI and SFP:
(i) Corporate Existence and Power. At the Effective Time, BNSF will be a
corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation and will have all corporate
powers and all material governmental licenses, authorizations, consents and
approvals required to carry on the businesses of BNI and SFP as such
business are now conducted. At the Effective Time, BNSF will be duly
qualified to do business as a foreign corporation and will be in good
standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where the failure to be so
qualified would not, individually or in the aggregate, have a Material
Adverse Effect on BNSF.
(ii) Corporate Authorization. At the Effective Time, the execution,
delivery and performance by BNSF of this Agreement and the consummation by
BNSF of the transactions contemplated hereby will be within the corporate
powers of BNSF and will have duly authorized by all necessary corporate
action on the part of BNSF. At the Effective Time, this Agreement will
constitute a valid and binding agreement of BNSF.
(iii) Governmental Authorization. At the Effective Time, the execution,
delivery and performance by BNSF of this Agreement and the consummation of
the Merger by BNSF will require no action by or in respect of, or filing
with, any governmental body, agency, official or authority other than (i)
the filing of a certificate of merger in accordance with Delaware Law; (ii)
compliance with any applicable requirements of the Exchange Act; (iii)
compliance with the applicable requirements of the 1933 Act; (iv)
compliance with any applicable foreign or state securities or Blue Sky
laws; (v) immaterial actions or filings relating to ordinary operational
matters; and (vi) actions that have theretofore been taken or filings that
have theretofore been made.
(iv) Non-Contravention. At the Effective Time, the execution, delivery
and performance by BNSF of this Agreement and the consummation by BNSF of
the transactions contemplated hereby will not (except, in the case of
clauses (B), (C) and (D) of this Section 1.8(h)(iv), for any such matters
that singly or in the aggregate have not had, and would not reasonably by
expected to have, a Material Adverse Effect on BNSF (A) contravene or
conflict with the certificate of incorporation or bylaws of BNSF, (B)
assuming compliance with the matters referred to in Section 1.8(h)(iii),
contravene or conflict with or constitute a violation of any provision of
any law, regulation, judgment, injunction, order or decree binding upon or
applicable to BNSF or any Subsidiary of BNSF, (C) constitute a default
under or give rise to any right of termination, cancellation or
acceleration of any right or obligation of BNSF or any of its Subsidiaries
or to a loss of any benefit to which BNSF or any of its Subsidiaries is
entitled under any agreement, contract or other instrument binding upon
BNSF or any of its Subsidiaries or any license, franchise, permit or other
similar authorization held by BNSF or any of its Subsidiaries or (D) result
in the creation or imposition of any Lien on any asset of BNSF or any
Subsidiary of BNSF.
(i) Prior to the Effective Time of the Alternative Merger, BNI and SFP shall
ensure that BNSF, BNI Merger Sub and SFP Merger Sub take no actions and
undertake no operations except as may be necessary in connection with the
consummation of the Merger and the transactions contemplated hereby.
(j) At the time of the Alternative Election, and without any further action
on the part of either SFP or BNI, this Agreement shall be deemed to have been
amended as follows:
A-6
<PAGE>
(i) The phrase "BNSF," will be added (x) between the phrase "operation of
the business of" and the phrase "BNI, SFP and their" in Section 9.1(iii)
and (y) between the phrase "impose on" and "BNI, SFP or any" in clause (3)
of Section 9.1(v).
(ii) A new Section 9.2(iii) and 9.3(v) will be added as follows:
BNSF shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time, and the representations and warranties of BNSF shall
have been accurate in all material respects at and as of the Effective
Time.
(iii) Section 9.3(ii) shall be amended to read in its entirety as
follows:
(ii) the BNSF Common Stock required to be issued hereunder shall have
been approved for listing on the NYSE, subject to official notice of
issuance.
(k) BNI and SFP agree that in the event of the Alternative Election, any
other appropriate adjustments shall be made to the other terms and conditions
of this Agreement to reflect the transactions contemplated by this Section 1.8
with a view to ensuring that the parties hereto and their stockholders are
placed in a position that is as close as possible to the position they would
have been in but for such restructuring.
ARTICLE II
CERTAIN MATTERS RELATING TO BNI
AND THE SURVIVING CORPORATION
SECTION 2.1. Directors of the Surviving Corporation. The board of directors
of the Surviving Corporation will be constituted as follows: two-thirds of the
directors will be designated by BNI, and one-third of the directors will be
designated by SFP.
SECTION 2.2. Certificate of Incorporation and Bylaws of the Surviving
Corporation. (a) The certificate of incorporation of BNI in effect at the
Effective Time shall be the certificate of incorporation of the Surviving
Corporation until amended in accordance with applicable law.
(b) The bylaws of BNI in effect at the Effective Time shall be the bylaws of
the Surviving Corporation until amended in accordance with applicable law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SFP
SFP represents and warrants to BNI that, except as disclosed in Schedule III
hereto:
SECTION 3.1. Corporate Existence and Power. SFP is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted. SFP is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not, individually or in the aggregate, have a Material
Adverse Effect on SFP. SFP has heretofore delivered to BNI true and complete
copies of SFP's certificate of incorporation and bylaws as currently in effect.
For purposes of this Agreement, a "Material Adverse Effect" means, with respect
to any Person, a material adverse effect, whether existing or prospective, on
the financial condition, business or properties of such Person and its
Subsidiaries taken as a whole or on the ability of such Person to perform its
obligations hereunder. For purposes of this Agreement, any reference to any
event, change or effect being "material" with respect to any Person means an
event, change or effect, whether existing or prospective, which is material
A-7
<PAGE>
in relation to the financial condition, business or properties of such Person
and its Subsidiaries taken as a whole or on the ability of such Person to
perform its obligations hereunder.
SECTION 3.2. Corporate Authorization. The execution, delivery and performance
by SFP of this Agreement and the consummation by SFP of the transactions
contemplated hereby are within SFP's corporate powers and, except as set forth
in the next sentence, have been duly authorized by all necessary corporate
action. The affirmative vote of the holders of a majority of the outstanding
shares of SFP Common Stock entitled to vote thereon is the only vote of any
class or series of SFP capital stock necessary to approve this Agreement and
the transactions contemplated hereby. This Agreement constitutes a valid and
binding agreement of SFP.
SECTION 3.3. Governmental Authorization. The execution, delivery and
performance by SFP of this Agreement and the consummation of the Offer and the
Merger by SFP require no action by or in respect of, or filing with, any
governmental body, agency, official or authority other than (i) the filing of a
certificate of merger in accordance with Delaware Law; (ii) compliance with any
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act"); (iii) compliance with any applicable requirements
relating to approval of the Merger by the Interstate Commerce Commission (the
"ICC"); (iv) compliance with any applicable requirements of the Exchange Act;
(v) compliance with any applicable requirements of the 1933 Act; (vi)
compliance with any applicable foreign or state securities or Blue Sky Laws;
and (vii) immaterial actions or filings relating to ordinary operational
matters.
SECTION 3.4. Non-Contravention. The execution, delivery and performance by
SFP of this Agreement and the consummation by SFP of the transactions
contemplated hereby do not and will not (except in the case of clauses (ii),
(iii) and (iv) of this Section 3.4, for any such matters that singly or in the
aggregate have not had, and would not reasonably be expected to have, a
Material Adverse Effect on SFP) (i) contravene or conflict with the certificate
of incorporation or bylaws of SFP, (ii) assuming compliance with the matters
referred to in Section 3.3. contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to SFP or any of its Subsidiaries, (iii)
constitute a default under or give rise to a right of termination, cancellation
or acceleration of any right or obligation of SFP or any of its Subsidiaries or
to a loss of any benefit to which SFP or any of its Subsidiaries is entitled
under any provision of any agreement, contract or other instrument binding upon
SFP or any of its Subsidiaries or any license, franchise, permit or other
similar authorization held by SFP or any of its Subsidiaries, or (iv) result in
the creation or imposition of any Lien on any asset of SFP or any of its
Subsidiaries. For purposes of this Agreement, "Lien" means, with respect to any
asset, any mortgage, lien, pledge, charge, security interest or encumbrance of
any kind in respect of such asset.
SECTION 3.5. Capitalization. (a) The authorized capital stock of SFP consists
of six hundred million (600,000,000) shares of SFP Common Stock and two hundred
million (200,000,000) shares of preferred stock, $1.00 par value per share
("SFP Preferred Stock"). As of May 31, 1994, there were outstanding (i)
186,391,459 shares of SFP Common Stock and 3,629,728 shares were held in
treasury, (ii) no shares of SFP Preferred Stock and (iii) employee stock
options to purchase an aggregate of 9,953,575 Shares (of which options to
purchase an aggregate of 7,004,884 Shares were exercisable). As of May 31,
1994, a total of 12,000,000 shares of SFP Common Stock were approved for awards
under the SFP Long-Term Incentive Stock Plan, of which 5,281,405 remain
available for grant. All outstanding shares of capital stock of SFP have been
duly authorized and validly issued and are fully paid and nonassessable. Except
as set forth in this Section or as contemplated by Section 5.1 and except for
the exercise of employee stock options outstanding on May 31, 1994 or issued
since that date in accordance with Section 5.1, there are outstanding (x) no
shares of capital stock or other voting securities of SFP, (y) no securities of
SFP or any of its Subsidiaries convertible into or exchangeable for shares of
capital stock or voting securities of SFP and (z) no options or other rights to
acquire from SFP or any of its Subsidiaries, and no obligation of SFP or any of
its Subsidiaries to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of SFP
(the items in clauses (x), (y) and (z) being referred to collectively as the
"SFP Securities").
A-8
<PAGE>
There are no outstanding obligations of SFP or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any SFP Securities, except for the
Offer.
(b) As of the date hereof, there are no outstanding bonds, debentures, notes
or other indebtedness of SFP having the right to vote (or convertible into or
exercisable for SFP Securities having the right to vote) on any matters upon
which holders of SFP Common Stock may vote (collectively, "SFP Voting Debt").
SECTION 3.6. Material Subsidiaries. (a) Each Subsidiary of SFP as of the date
of this Agreement is identified on Schedule 3.6(a). For purposes of this
Agreement, the term "SFP Material Subsidiary" means each Subsidiary of SFP
identified as material on Schedule 3.6(a). Each SFP Material Subsidiary is
either (i) a corporation that is duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation, has all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted and
is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse Effect on
SFP, or (ii) a partnership that is duly formed and in good standing under the
laws of its jurisdiction of formation and has all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted and is duly qualified to do business and is in good
standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse Effect on
SFP.
(b) Except as set forth in the SFP Form 10-K (as defined in Section 3.7), all
of the outstanding capital stock of, or other ownership interests in, each SFP
Subsidiary is owned by SFP, directly or indirectly, free and clear of any Lien
and free of any other limitation or restriction (including any restriction on
the right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). Other than the Variable Rate Exchangeable Debentures Due
2010 issued by SFP Pipeline Holdings, Inc. and those obligations identified on
Schedule 3.6(b), there are no outstanding (i) securities of SFP or any of its
Subsidiaries convertible into or exchangeable for shares of capital stock or
other voting securities or ownership interests in any Subsidiary of SFP, or
(ii) options or other rights to acquire from SFP or any of its Subsidiaries,
and no other obligation of SFP or any of its Subsidiaries to issue, any capital
stock, voting securities or other ownership interests in, or any securities
convertible into or exchangeable for any capital stock, voting securities or
ownership interests in, any SFP Subsidiary (the capital stock of each
Subsidiary of SFP, together with the items in clauses (i) and (ii), being
referred to collectively as the "SFP Subsidiary Securities"). There are no
outstanding obligations of SFP or any Subsidiary of SFP to repurchase, redeem
or otherwise acquire any outstanding SFP Subsidiary Securities.
SECTION 3.7. SEC Filings. (a) SFP has delivered to BNI (i) its annual reports
on Form 10-K for its fiscal years ended December 31, 1989, December 31, 1990,
December 31, 1991, December 31, 1992, and December 31, 1993 (this latest Form
10-K being referred to herein as the "SFP Form 10-K"), (ii) its quarterly
report on Form 10-Q for its fiscal quarter ending March 31, 1994 (this Form 10-
Q being referred to herein as the "SFP Form 10-Q"), (iii) its proxy statements
(as defined in Regulation 14A issued pursuant to the Exchange Act) relating to
meetings of the stockholders of SFP held since January 1, 1989, (iv) its report
on Form 8-K dated June 25, 1993, as amended, and (v) all other reports,
statements, schedules and registration statements filed by SFP and its
Subsidiaries with the SEC since January 1, 1989 and through the date of this
Agreement, but including only such pre-effective amendments to such
registration statements as contain material information not fully reflected in
any subsequent amendment to such registration statements (or to any prospectus
included therein) delivered to BNI pursuant to this Section 3.7.
(b) As of its filing date, each such report or statement, as supplemented or
amended, if applicable, filed pursuant to the Exchange Act did not contain any
untrue statement of a material fact or omit to state any
A-9
<PAGE>
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
(c) Each such registration statement, as supplemented or amended, if
applicable, filed pursuant to the 1933 Act as of the date such statement or
amendment became effective did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
SECTION 3.8. Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of SFP
included in the SFP Form 10-K and the SFP Form 10-Q fairly present, in
conformity with generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes thereto), the
consolidated financial position of SFP and its consolidated Subsidiaries as of
the dates thereof, their consolidated results of operations and cash flows for
the periods then ended (subject to normal year-end adjustments in the case of
the unaudited consolidated interim financial statements) and, in the case of
the SFP Form 10-K, stockholders' equity. For purposes of this Agreement, "SFP
Balance Sheet" means the Consolidated Balance Sheet of SFP as of December 31,
1993 set forth in the SFP Form 10-K, and "Balance Sheet Date" means December
31, 1993.
SECTION 3.9. Disclosure Documents. (a) Each document required to be filed by
SFP with the SEC in connection with the transactions contemplated by this
Agreement (the "SFP Disclosure Documents"), including, without limitation, (i)
the SFP Offer Documents to be filed with the SEC in connection with the Offer
and (ii) the definitive proxy statement of SFP (the "SFP Proxy Statement") to
be filed with the SEC in connection with the Merger, and any amendments or
supplements thereto, will, when filed, comply as to form in all material
respects with the applicable requirements of the Exchange Act. At the time the
offer to purchase and form of related letter of transmittal contained in the
SFP Offer Documents or any amendment or supplement thereto are first mailed to
stockholders of SFP and at the time of consummation of the Offer, the SFP Offer
Documents, as supplemented or amended, if applicable, will not contain any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading. At the time the SFP Proxy Statement
or any amendment or supplement thereto is first mailed to stockholders of SFP
and at the time such stockholders vote on adoption of this Agreement, the SFP
Proxy Statement, as supplemented or amended, if applicable, will not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. At the time of the
filing of any SFP Disclosure Document other than the SFP Offer Documents and
the SFP Proxy Statement and at the time of any distribution thereof, such SFP
Disclosure Document will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. The representations and warranties contained in this Section 3.9(a)
will not apply to statements or omissions included in SFP Disclosure Documents
based upon information furnished to SFP in writing by BNI specifically for use
therein.
(b) The registration statements on Form S-1 (the "Form S-1") and the
registration statement on Form 10 (the "Form 10") filed by SFP in connection
with the Spinoff, and any amendments or supplements thereto, or other
appropriate filings made to register the stock of the Spinoff Company under the
1933 Act or the Exchange Act, as amended and supplemented (the "Spinoff
Registration Documents"), when they became effective, complied as to form in
all material respects with the applicable requirements of the 1933 Act and the
Exchange Act. At the time of the effectiveness and at the time that the sale of
securities pursuant to the Spinoff Registration Documents was consummated, the
Spinoff Registration Documents did not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The representations and warranties contained in this
Section 3.9(b) shall not apply to statements or omissions included in the
Spinoff Registration Documents based upon information furnished to SFP in
writing by BNI specifically for use therein.
A-10
<PAGE>
SECTION 3.10. Information Supplied. The information supplied or to be
supplied by SFP for inclusion or incorporation by reference in (i) the BNI
Offer Documents or any amendment or supplement thereto will not, at the time
the offer to purchase and form of related letter of transmittal contained in
the BNI Offer Documents or any amendment or supplement thereto are first mailed
to stockholders of SFP and at the time of the consummation of the Offer,
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading, (ii) the BNI Proxy
Statement or any amendment or supplement thereto will not, at the time the BNI
Proxy Statement is first mailed to stockholders of BNI and at the time such
stockholders vote on adoption of this Agreement, contain any untrue statement
of a material fact or omit to state any material fact necessary in order to
make the statements made therein, in light of the circumstances under which
they were made, not misleading, (iii) any BNI Disclosure Document (other than
the BNI Offer Documents and the BNI Proxy Statement) will not, at the time of
effectiveness of such BNI Disclosure Document and at the time of any
distribution thereof contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading, and
(iv) the Form S-4 (as defined in Section 7.3(a)) will not, at the time the Form
S-4 becomes effective under the 1933 Act and at the Effective Time, contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
SECTION 3.11. No Material Adverse Changes. Except as contemplated by this
Agreement or as publicly disclosed prior to the date of this Agreement, and
except as set forth in Schedule 3.11, since the Balance Sheet Date, SFP and the
SFP Material Subsidiaries have conducted their business in the ordinary course
consistent with past practice and there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had or reasonably could be expected to have a Material
Adverse Effect on SFP (other than as a result of (i) changes in conditions,
including economic or political developments, applicable to the railroad
industry generally and (ii) the Spinoff); or
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of SFP capital stock (other than
(x) aggregate cash dividends on the Shares not in excess of $0.10 per Share
in 1994, $0.18 per Share in 1995, $0.20 per Share in 1996 and $0.22 per
Share in 1997, in each case having record and payment dates determined in
accordance with Section 7.8 and (y) the Spinoff).
SECTION 3.12. Undisclosed Material Liabilities. Except for (i) liabilities
reflected in the SEC Reports listed in Section 3.7 and (ii) liabilities
incurred in the ordinary course of business of SFP and its Subsidiaries
consistent with past practice subsequent to the Balance Sheet Date, SFP and its
Subsidiaries have no liabilities that are material to SFP and there is no
existing condition or set of circumstances which would reasonably be expected
to result in such a liability; provided, however, that this representation does
not cover, and shall not be deemed to be breached as a result of, any such
liability that results primarily from a Customary Action (as defined in Section
5.1 below).
SECTION 3.13. Litigation. Except as set forth in the SFP Form 10-K or the SFP
Form 10-Q, and except as set forth in the Joint Proxy Statement/Prospectus of
SFP and BNI dated October 12, 1994 and the Supplemental Joint Proxy
Statement/Prospectus thereto dated October 28, 1994, (i) there is no action,
suit, investigation or proceeding (or any basis therefor) pending against, or
to the knowledge of SFP threatened against or affecting, SFP or any of its
Subsidiaries or any of their respective properties before any court or
arbitrator or any governmental body, agency or official where there is a
reasonable probability of a determination adverse to SFP or any of its
Subsidiaries which could reasonably be expected to have a Material Adverse
Effect on SFP and (ii) as of the date of this Agreement, there is no such
action, suit, investigation or proceeding which in any manner challenges or
seeks to prevent, enjoin, alter or materially delay the Merger, the Spinoff or
any of the other transactions contemplated hereby.
A-11
<PAGE>
SECTION 3.14. Taxes. Except as set forth in the SFP Balance Sheet (including
the notes thereto) or on Schedule 3.14, (i) all material tax returns,
statements, reports and forms (collectively, the "SFP Returns") required to be
filed with any taxing authority as of the date hereof by, or with respect to,
SFP and its Subsidiaries have been filed in accordance with all applicable
laws; (ii) SFP and its Subsidiaries have timely paid all taxes shown as due and
payable on the SFP Returns that have been so filed and as of the time of filing
the SFP Returns correctly reflected the facts regarding the income, business,
assets, operations, activities and the status of SFP and its Subsidiaries in
all material respects; (iii) SFP and its Subsidiaries have made provision for
all material taxes payable by SFP and its Subsidiaries for which no Return has
yet been filed or in respect of which a final determination has been made; (iv)
the charges, accruals and reserves for taxes with respect to SFP and its
Subsidiaries reflected in the SFP Balance Sheet are adequate under generally
accepted accounting principles to cover the tax liabilities accruing through
the date thereof; and (v) as of the date of this Agreement, there is no action,
suit, proceeding, investigation, audit or claim now proposed or pending against
or with respect to SFP or any of its Subsidiaries in respect of any tax where
there is a reasonable possibility of a determination or decision against SFP or
any of its Subsidiaries which would reasonably be expected to have a Material
Adverse Effect on SFP.
SECTION 3.15. ERISA. (a) Schedule III identifies (i) each "employee benefit
plan", as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974 ("ERISA") (other than multiemployer plans (as defined in Section
3(37) of ERISA)), and (ii) each employment, severance or other similar
contract, arrangement or policy and each retirement or deferred compensation
plan, stock plan, incentive compensation plan, vacation pay, severance pay,
bonus or benefit arrangement, insurance (including self-insured arrangements)
or hospitalization program, workers' compensation program, disability program,
supplemental unemployment program or fringe benefit arrangement, whether
maintained pursuant to contract or informal understanding, which does not
constitute an "employee benefit plan" (as defined in Section 3(3) of ERISA),
which, in the case of items described in both clauses (i) and (ii), is
maintained, administered or contributed to by SFP or any of its ERISA
Affiliates (as defined below), and covers any employee or former employee of
SFP or any of its Subsidiaries or with respect to which SFP or any of its ERISA
Affiliates has any liability (collectively, the "SFP Employee Plans"). True and
correct copies of each of the SFP Employee Plans, all amendments thereto, any
written interpretations thereof distributed to employees, and all contracts
relating thereto or the funding thereof, including, without limitation, all
trust agreements, insurance contracts, administration contracts, investment
management agreements, subscription and participation agreements, recordkeeping
agreements and summary plan descriptions, all as currently in effect, have been
furnished or made available to BNI. SFP has supplied or made available to BNI
an accurate description of any SFP Employee Plan that is not in written form.
To the extent applicable, true and correct copies of the three most recent
annual reports (Form 5500 including, if applicable, Schedule B thereto)
prepared in connection with any SFP Employee Plan and the most recent actuarial
valuation report prepared in connection with any such plan have been furnished
or made available to BNI. For purposes of this Agreement, "ERISA Affiliate" of
any Person means any other Person which, together with such Person, would be
treated as a single employer under Section 414 of the Code. SFP has made
available to BNI with complete age, salary, service and related data as of the
most recent practical date for employees and former employees of SFP and any of
its Subsidiaries covered under the SFP Employee Plans.
(b) The only SFP Employee Plans that are subject to Title IV of ERISA (the
"SFP Pension Plans") are identified in the list of such plans provided or made
available to BNI by SFP in accordance with Section 3.15(a). As of the most
recent valuation date of each SFP Pension Plan, the present value of all
benefits accrued under each SFP Pension Plan determined on a termination basis
using the assumptions established by the Pension Benefit Guaranty Corporation
(the "PBGC") as in effect on such date was exceeded by the fair market value of
the assets of such SFP Pension Plan (excluding for these purposes any accrued
but unpaid contributions). No "accumulated funding deficiency", as defined in
Section 412 of the Code, has been incurred with respect to any SFP Pension
Plan, whether or not waived. SFP knows of no "reportable event", within the
meaning of Section 4043 of ERISA and the regulations promulgated thereunder,
and no event described in Section 4041 (other than a standard termination),
4042, 4062 or 4063 of ERISA has occurred in connection
A-12
<PAGE>
with any SFP Pension Plan, other than a "reportable event" that will not have a
Material Adverse Effect on SFP. No condition exists and no event has occurred
that could constitute grounds for termination of or the appointment of a
trustee to administer any SFP Pension Plan under Section 4042 of ERISA and, to
SFP's knowledge, neither SFP nor any of its ERISA Affiliates has engaged in, or
is a successor or parent corporation to an entity that has engaged in, a
transaction for which SFP or any of its ERISA Affiliates would have liability
under Section 4069 or 4212(c) of ERISA. To SFP's knowledge, nothing done or
omitted to be done and no transaction or holding of any asset under or in
connection with any SFP Employee Plan has or will make SFP or any of its ERISA
Affiliates or any officer or director of SFP or any of its ERISA Affiliates
subject to any liability under Title I or Section 4071 of ERISA or liable for
any tax pursuant to Section 4975 or Chapters 43, 47, or 68 of the Code that
could have a Material Adverse Effect.
(c) Each SFP Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the period
from its adoption to date, and each trust forming a part thereof is exempt from
tax pursuant to Section 501(a) of the Code. SFP has furnished or made available
to BNI copies of the most recent Internal Revenue Service determination letters
with respect to each such SFP Employee Plan. Each SFP Employee Plan has been
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations, including
but not limited to ERISA and the Code, which are applicable to such SFP
Employee Plan.
(d) None of the payments contemplated by the contracts, plans or arrangements
covering any employee or former employee of SFP or any of its ERISA Affiliates
and arising solely as a result of the transactions contemplated hereby would,
in the aggregate, constitute excess parachute payments as defined in Section
280G of the Code (without regard to subsection (b)(4) thereof).
(e) Except for obligations arising pursuant to any collective bargaining
agreements, no condition exists that would prevent SFP or any of its
Subsidiaries from amending or terminating any SFP Employee Plan providing
health or medical benefits in respect of any active or former employees of SFP
and its Subsidiaries.
(f) There has been no amendment to, written interpretation or announcement
(whether or not written) by SFP or any of its ERISA Affiliates relating to, or
change in employee participation or coverage under, any SFP Employee Plan which
would increase materially the expense of maintaining such SFP Employee Plan
above the level of the expense incurred in respect thereof for the fiscal year
ended on the Balance Sheet Date.
(g) To the extent applicable, each SFP Employee Plan which constitutes a
"group health plan" (as defined in Section 607(1) of ERISA or Section
4980B(g)(2) of the Code), including any plans of current or former affiliates
which must be taken into account under Sections 4980B and 414(t) of the Code or
Section 601 of ERISA, has been operated in substantial compliance with
applicable law, including the group health plan continuation coverage
requirements of Section 4980B of the Code and Section 601 of ERISA.
(h) There are no actions, suits or claims (other than routine claims for
benefits) pending or, to SFP's knowledge, threatened involving any SFP Employee
Plan or the assets thereof and no facts exist with could give rise to any such
actions, suits or claims (other than routine claims for benefits).
(i) SFP has provided or will promptly provide BNI with a list of each
employee pension benefit plan (as defined in Section 3(2) of ERISA) which is a
multiemployer plan with respect to which SFP or any of its ERISA Affiliates may
have any liability (including any liability attributable to a current or former
member of SFP's or any of its ERISA Affiliates' "controlled group" (as defined
in Section 4001(a)(14) of ERISA)) and the maximum amount of such liability
(determined as if a complete withdrawal occurred with respect to each such plan
immediately after the Effective Time). With respect to each such plan, (i) all
contributions have been made as required by the terms of the plans, the terms
of any collective bargaining agreements and applicable law, (ii) neither SFP
nor any of its ERISA Affiliates has withdrawn, partially withdrawn or received
any notice of any claim or demand for withdrawal liability or partial
withdrawal liability that would
A-13
<PAGE>
have a Material Adverse Effect, and (iii) neither SFP nor any of its ERISA
Affiliates has received any notice that any such plan is in reorganization,
that increased contributions may be required to avoid a reduction in plan
benefits or the imposition of any excise tax, that any such plan is or has been
funded at a rate less than that required under Section 412 of the Code or that
any plan is or may become insolvent.
(j) As of the Balance Sheet Date, the Expected Postretirement Benefit
Obligation (as defined in Statement of Financial Accounting Standards No. 106)
in respect of postretirement health and medical benefits for current and former
employees of SFP or any of its Subsidiaries calculated by SFP's actuary using
reasonable actuarial assumptions was $291,200,000.
SECTION 3.16. Finders' Fees. Except for Goldman, Sachs & Co., a copy of whose
engagement agreement has been or will be provided to BNI, there is no
investment banker, broker, finder or other intermediary which has been retained
by or is authorized to act on behalf of SFP or any of its Subsidiaries who
might be entitled to any fee or commission from BNI or any of its affiliates
upon consummation of the transactions contemplated by this Agreement.
SECTION 3.17. Environmental Matters. (a) Except as set forth in the SFP Form
10-K or otherwise previously disclosed in writing by SFP to BNI, there are no
Environmental Liabilities (as defined below) of SFP that, individually or in
the aggregate, have had or would reasonably be expected to have a Material
Adverse Effect on SFP.
(b) As used in this Agreement, "Environmental Laws" means any and all
federal, state, local and foreign statutes, laws, judicial decisions,
regulations, ordinances, rules, judgments, orders, decrees, codes, plans,
injunctions, permits, concessions, grants, franchises, licenses, agreements and
governmental restrictions, whether now or hereafter in effect, relating to
human health, the environment or to emissions, discharges or releases of
pollutants, contaminants, Hazardous Substances or wastes into the environment,
including without limitation ambient air, surface water, ground water or land,
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants, Hazardous Substances or wastes or the clean-up or other
remediation thereof. "Environmental Liabilities" with respect to any Person
means any and all liabilities of or relating to such Person or any of its
Subsidiaries (including any entity which is, in whole or in part, a predecessor
of such Person or any of its Subsidiaries), whether vested or unvested,
contingent or fixed, actual or potential, known or unknown, which (i) arise
under or relate to matters covered by Environmental Laws and (ii) relate to
actions occurring or conditions existing on or prior to the Closing Date.
"Hazardous Substances" means any toxic, radioactive, caustic or otherwise
hazardous substance, including petroleum, its derivatives, by-products and
other hydrocarbons, or any substance having any constituent elements displaying
any of the foregoing characteristics, including, without limitation, any
substance regulated under Environmental Laws.
SECTION 3.18. Takeover Statutes. No "fair price", "moratorium", "control
share acquisition" or other similar antitakeover statute or regulation enacted
under state or federal laws in the United States (each a "Takeover Statute"),
including, without limitation, Section 203 of the Delaware General Corporation
Law (the "DGCL"), applicable to SFP or any of its Subsidiaries is applicable to
the Merger or the other transactions contemplated hereby.
SECTION 3.19. Compliance With Laws. Except as publicly disclosed, and except
for any matter that would not reasonably be expected to have a Material Adverse
Effect on SFP, neither SFP nor any of its Subsidiaries is in violation of, or
has violated, any applicable provisions of any laws, statutes, ordinances or
regulations.
SECTION 3.20. Spinoff Dividend. The board of directors of SFP has declared
the Spinoff Dividend, and the Liquidation of Properties (as those terms are
defined in Section 3.21 below) has occurred prior to the date of this Agreement
in conformity with the Private Letter Ruling (as defined below).
A-14
<PAGE>
SECTION 3.21. Private Letter Ruling. SFP has received from the Internal
Revenue Service a valid and effective private letter ruling dated February 16,
1994 (and supplemented on May 18, 1994) (the "Private Letter Ruling") to the
effect that (i) the Spinoff qualifies as a tax-free distribution under Section
355 of the Code and (ii) the merger of SFP Properties, Inc. ("Properties") with
and into SFP (the "Liquidation") will be treated as a distribution by
Properties to SFP in complete liquidation of Properties within the meaning of
Section 322 of the Code. A copy of the Private Letter Ruling has been provided
to BNI.
SECTION 3.22. Excess Loss Accounts. The income that will be recognized, for
federal income tax purposes, upon the Spinoff arising from excess loss accounts
in the stock of the Spinoff Company and its subsidiaries will be approximately
$30 million.
SECTION 3.23. SFP Rights Agreement. Under the Rights Agreement between SFP
and First Chicago Trust Company of New York as Rights Agent, dated as of
November 28, 1994 (the "SFP Rights Agreement"), BNI will not become an
"Acquiring Person", no "Shares Acquisition Date" or "Distribution Date" (as
such terms are defined in the SFP Rights Agreement) will occur, and SFP's
shareholders will not be entitled to receive any benefits under the SFP Rights
Agreement as a result of the approval, execution or delivery of this Agreement,
the commencement or consummation of the Offer or the consummation of the
Merger.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BNI
BNI represents and warrants to SFP that, except as disclosed in Schedule IV
hereto:
SECTION 4.1. Corporate Existence and Power. BNI is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted. BNI is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where the
failure to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect on BNI. BNI has heretofore delivered to SFP true and
complete copies of the certificates of incorporation and bylaws of BNI as
currently in effect.
SECTION 4.2. Corporate Authorization. The execution, delivery and performance
by BNI of this Agreement and the consummation by BNI of the transactions
contemplated hereby are within the corporate powers of BNI and, except as set
forth in the next sentence, have been duly authorized by all necessary
corporate action. The affirmative vote of the holders of a majority of the
outstanding shares of BNI Common Stock entitled to vote thereon is the only
vote of any class or series of BNI capital stock necessary to approve this
Agreement and the transactions contemplated hereby. This Agreement constitutes
a valid and binding agreement of BNI.
SECTION 4.3. Governmental Authorization. The execution, delivery and
performance by BNI of this Agreement and the consummation of the Offer and the
Merger by BNI require no action by or in respect of, or filing with, any
governmental body, agency, official or authority other than (i) the filing of a
certificate of merger in accordance with Delaware Law; (ii) compliance with any
applicable requirements of the HSR Act; (iii) compliance with any applicable
requirements relating to approval of the Merger by the ICC; (iv) compliance
with any applicable requirements of the Exchange Act; (v) compliance with the
applicable requirements of the 1933 Act; (vi) compliance with any applicable
foreign or state securities or Blue Sky laws; and (vii) immaterial actions or
filings relating to ordinary operational matters.
SECTION 4.4. Non-Contravention. The execution, delivery and performance by
BNI of this Agreement and the consummation by BNI of the transactions
contemplated hereby do not and will not
A-15
<PAGE>
(except, in the case of clauses (ii), (iii) and (iv) of this Section 4.4, for
any such matters that singly or in the aggregate have not had, and would not
reasonably be expected to have, a Material Adverse Effect on BNI) (i)
contravene or conflict with the certificate of incorporation or bylaws of BNI,
(ii) assuming compliance with the matters referred to in Section 4.3,
contravene or conflict with or constitute a violation of any provision of any
law, regulation, judgment, injunction, order or decree binding upon or
applicable to BNI or any Subsidiary of BNI, (iii) constitute a default under or
give rise to any right of termination, cancellation or acceleration of any
right or obligation of BNI or any of its Subsidiaries or to a loss of any
benefit to which BNI or any of its Subsidiaries is entitled under any
agreement, contract or other instrument binding upon BNI or any of its
Subsidiaries or any license, franchise, permit or other similar authorization
held by BNI or any of its Subsidiaries, or (iv) result in the creation or
imposition of any Lien on any asset of BNI or any Subsidiary of BNI.
SECTION 4.5. Capitalization. (a) The authorized capital stock of BNI consists
of three hundred million (300,000,000) shares of BNI Common Stock and twenty-
five million (25,000,000) shares of No Par Value Preferred Stock, including six
million nine hundred thousand (6,900,000) shares of 6 1/4% Cumulative
Convertible Preferred Stock, Series A No Par Value ("6 1/4% Convertible
Preferred Stock") and fifty million (50,000,000) shares of Class A Preferred
Stock, No Par Value ("Class A Preferred Stock"). As of May 31, 1994 there were
outstanding (i) 89,208,870 shares of BNI Common Stock (including 7,800 shares
issued after May 31, 1994 with effect prior to such date), 15,104,280 shares
were reserved for issuance pursuant to stock option plans, 303,532 shares were
reserved for issuance pursuant to "restricted stock" plans and 94,572 shares
were held in the treasury, (ii) six million nine hundred thousand (6,900,000)
shares of 6 1/4% Convertible Preferred Stock, (iii) no shares of Class A
Preferred Stock, and (iv) employee stock options to purchase an aggregate of
4,170,536 shares of BNI Common Stock (of which options to purchase an aggregate
of 2,925,611 shares were exercisable). All outstanding shares of capital stock
of BNI have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in this Section or as contemplated by
Section 6.1, except for the exercise of employee stock options outstanding on
May 31, 1994 or issued since that date in accordance with Section 6.1 and
except for changes since that date resulting from the conversion of shares of
the 6 1/4% Convertible Preferred Stock, there are outstanding (x) no shares of
capital stock or other voting securities of BNI, (y) no securities of BNI or
any of its Subsidiaries convertible into or exchangeable for shares of capital
stock or voting securities of BNI and (z) no options or other rights to acquire
from BNI or any of its Subsidiaries, and no obligation of BNI or any of its
Subsidiaries to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of BNI
(the items in clauses (x), (y) and (z) being referred to collectively as the
"BNI Securities"). There are no outstanding obligations of BNI or any
Subsidiary of BNI to repurchase, redeem or otherwise acquire any BNI
Securities.
(b) As of the date hereof, there are no outstanding bonds, debentures, notes
or other indebtedness of BNI having the right to vote (or convertible into or
exercisable for BNI Securities having the right to vote) on any matters on
which holders of BNI Common Stock may vote (collectively, "BNI Voting Debt").
SECTION 4.6. Material Subsidiaries. (a) Each Subsidiary of BNI is identified
on Schedule 4.6(a). For purposes of this Agreement, the term "BNI Material
Subsidiary" means each Subsidiary of BNI identified as material on Schedule
4.6(a). Each BNI Material Subsidiary is either (i) a corporation that is duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted and is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where
failure to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect on BNI, or (ii) a partnership that is duly formed and
in good standing under the laws of its jurisdiction of formation and has all
material governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted and is duly qualified to do business
and is in good standing in each jurisdiction where the character of the
property owned or leased by it or the nature of its activities makes such
qualification necessary, except
A-16
<PAGE>
for those jurisdictions where failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect on BNI.
(b) Except as set forth in the BNI Form 10-K (as defined in Section 4.7(a)),
all of the outstanding capital stock of, or other ownership interests in, each
BNI Subsidiary, is owned by BNI, directly or indirectly, free and clear of any
Lien and free of any other limitation or restriction (including any restriction
on the right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). Other than those obligations identified on Schedule
4.6(b), there are no outstanding (i) securities of BNI or any of its
Subsidiaries convertible into or exchangeable for shares of capital stock or
other voting securities or ownership interests in any Subsidiary of BNI, and
(ii) options or other rights to acquire from BNI or any of its Subsidiaries,
and no other obligation of BNI or any of its Subsidiaries to issue, any capital
stock, voting securities or other ownership interests in, or any securities
convertible into or exchangeable for any capital stock, voting securities or
ownership interests in, any Subsidiary of BNI (the capital stock of each
Subsidiary of BNI, together with the items in clauses (i) and (ii), being
referred to collectively as the "BNI Subsidiary Securities"). There are no
outstanding obligations of BNI or any Subsidiary of BNI to repurchase, redeem
or otherwise acquire any outstanding BNI Subsidiary Securities.
SECTION 4.7. SEC Filings. (a) BNI has delivered to SFP (i) the annual reports
on Form 10-K for its fiscal years ended December 31, 1989, December 31, 1990,
December 31, 1991, December 31, 1992, and December 31, 1993 (this latest form
10-K being referred to herein as the "BNI Form 10-K"), (ii) its quarterly
report on Form 10-Q for its fiscal quarter ending March 31, 1994 (this Form 10-
Q being referred to herein as the "BNI Form 10-Q"), (iii) its proxy statements
(as defined in Regulation 14A issued pursuant to the Exchange Act) relating to
meetings of the stockholders of BNI held since January 1, 1989, and (iv) all
other reports, statements, schedules and registration statements filed by BNI
and its Subsidiaries with the SEC since January 1, 1989 and through the date of
this Agreement, but including only such pre-effective amendments and such
registration statements as contain material information not fully reflected in
any subsequent amendments to such registration statements (or any prospectus
included therein) delivered to SFP pursuant to this Section 4.7.
(b) As of its filing date, each such report or statement, as supplemented or
amended, if applicable, filed pursuant to the Exchange Act did not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(c) Each such registration statement, as supplemented or amended, if
applicable, filed pursuant to the 1933 Act as of the date such statement or
amendment became effective did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
SECTION 4.8. Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of BNI
included in the BNI Form 10-K and the BNI Form 10-Q fairly present, in
conformity with generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes thereto), the
consolidated financial position of BNI and its consolidated Subsidiaries as of
the dates thereof, their consolidated results of operations and cash flows for
the periods then ended (subject to normal year-end adjustments in the case of
the unaudited consolidated interim financial statements) and, in the case of
the BNI Form 10-K, stockholders' equity. For purposes of this Agreement, "BNI
Balance Sheet" means the Consolidated Balance Sheet of BNI as of the Balance
Sheet Date set forth in the BNI Form 10-K.
SECTION 4.9. Disclosure Documents. Each document required to be filed by BNI
with the SEC in connection with the transactions contemplated by this Agreement
(the "BNI Disclosure Documents"), including, without limitation, (i) the BNI
Offer Documents to be filed with the SEC in connection with the Offer and (ii)
the definitive proxy statement of BNI (the "BNI Proxy Statement") to be filed
with the SEC in
A-17
<PAGE>
connection with the Merger, and any amendments or supplements thereto, will,
when filed, comply as to form in all material respects with the applicable
requirements of the Exchange Act. At the time the offer to purchase and form of
related letter of transmittal contained in the BNI Offer Documents or any
amendment or supplement thereto are first mailed to stockholders of SFP and at
the time of consummation of the Offer, the BNI Offer Documents, as supplemented
or amended, if applicable, will not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. At the time the BNI Proxy Statement or any amendment or supplement
thereto is first mailed to stockholders of BNI and at the time such
stockholders vote on adoption of this Agreement, the BNI Proxy Statement, as
supplemented or amended, if applicable, will not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to
make the statements made therein, in light of the circumstances under which
they were made, not misleading. At the time of the filing of any BNI Disclosure
Document other than the BNI Offer Documents and the BNI Proxy Statement and at
the time of any distribution thereof, such BNI Disclosure Document will not
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The representations
and warranties contained in this Section 4.9 will not apply to statements or
omissions included in BNI Disclosure Documents based upon information furnished
to BNI in writing by SFP specifically for use therein.
SECTION 4.10. Information Supplied. The information supplied or to be
supplied by BNI for inclusion or incorporation by reference in (i) the SFP
Offer Documents or any amendment or supplement thereto will not, at the time
the offer to purchase and form of related letter of transmittal contained in
the SFP Offer Documents or any amendment or supplement thereto are first mailed
to stockholders of SFP and at the time of the consummation of the Offer,
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading, (ii) the SFP Proxy
Statement or any amendment or supplement thereto will not, at the time the SFP
Proxy Statement is first mailed to stockholders of SFP and at the time such
stockholders vote on adoption of this Agreement, contain any untrue statement
of a material fact or omit to state any material fact necessary in order to
make the statements made therein, in light of the circumstances under which
they were made, not misleading and (iii) any SFP Disclosure Document (other
than the SFP Offer Documents and the SFP Proxy Statement) will not, at the time
of effectiveness of such SFP Disclosure Document and at the time of any
distribution thereof contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
SECTION 4.11. No Material Adverse Changes. Except as contemplated by this
Agreement or as publicly disclosed prior to the date of this Agreement, and
except as set forth in Schedule 4.11, since the Balance Sheet Date, BNI and the
BNI Material Subsidiaries have conducted their business in the ordinary course
consistent with past practice and there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had or reasonably could be expected to have a Material
Adverse Effect on BNI (other than as a result of changes in conditions,
including economic or political developments, applicable to the railroad
industry generally); or
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of BNI Common Stock (other than
aggregate cash dividends not in excess of $1.20 per share in 1994, $1.32
per share in 1995, $1.48 per share in 1996, and $1.64 per share in 1997, in
each case having record and payment dates determined in accordance with
Section 7.8).
SECTION 4.12. Undisclosed Material Liabilities. Except for (i) liabilities
reflected in the SEC Reports listed in Section 4.7 and (ii) liabilities
incurred in the ordinary course of business of BNI and its Subsidiaries
subsequent to the Balance Sheet Date, BNI and its Subsidiaries have no
liabilities that are material to BNI and there is no existing condition or set
of circumstances which could reasonably be expected
A-18
<PAGE>
to result in such a liability; provided, however, that this representation does
not cover, and shall not be deemed to be breached as a result of, any such
liability that primarily results from a Customary Action (as defined in Section
5.1 below).
SECTION 4.13. Litigation. Except as set forth in the BNI Form 10-K or the BNI
Form 10-Q, and except as set forth in the Joint Proxy Statement/Prospectus of
SFP and BNI dated October 12, 1994 and the Supplemental Joint Proxy
Statement/Prospectus thereto dated October 28, 1994, (i) there is no action,
suit, investigation or proceeding (or any basis therefor) pending against, or
to the knowledge of BNI threatened against or affecting, BNI or any of its
Subsidiaries or any of their respective properties before any court or
arbitrator or any governmental body, agency or official where there is a
reasonable probability of a determination adverse to BNI or any of its
Subsidiaries which could reasonably be expected to have a Material Adverse
Effect on BNI and (ii) as of the date of this Agreement, there is no such
action, suit, investigation or proceeding which in any manner challenges or
seeks to prevent, enjoin, alter or materially delay the Merger or any of the
other transactions contemplated hereby.
SECTION 4.14. Taxes. Except as set forth in the BNI Balance Sheet (including
the notes thereto) or on Schedule 4.14, (i) all material tax returns,
statements, reports and forms (collectively, the "BNI Returns") required to be
filed with any taxing authority as of the date hereof by, or with respect to,
BNI and its Subsidiaries have been filed in accordance with all applicable
laws; (ii) BNI and its Subsidiaries have timely paid all taxes shown as due and
payable on the BNI Returns that have been so filed and as of the time of filing
the BNI Returns correctly reflected the facts regarding the income, business,
assets, operations, activities and the status of BNI and its Subsidiaries in
all material respects; (iii) BNI and its Subsidiaries have made provision for
all material taxes payable by BNI and its Subsidiaries for which no Return has
yet been filed or in respect of which a final determination has been made; (iv)
the charges, accruals and reserves for taxes with respect to BNI and its
Subsidiaries reflected on the BNI Balance Sheet are adequate under generally
accepted accounting principles to cover the tax liabilities accruing through
the date thereof; and (v) as of the date of this Agreement there is no action,
suit, proceeding, investigation, audit or claim now proposed or pending against
or with respect to BNI or any of its Subsidiaries in respect of any tax where
there is a reasonable possibility of a determination or decision against BNI or
any of its Subsidiaries which would reasonably be expected to have a Material
Adverse Effect on BNI.
SECTION 4.15. ERISA. (a) Schedule IV identifies (i) each "employee benefit
plan", as defined in Section 3(3) of ERISA (other than multiemployer plans (as
defined in Section 3(37) of ERISA)), and (ii) each employment, severance or
other similar contract, arrangement or policy and each retirement or deferred
compensation plan, stock plan, incentive compensation plan, vacation pay,
severance pay, bonus or benefit arrangement, insurance (including self-insured
arrangements) or hospitalization program, workers' compensation program,
disability program, supplemental unemployment program or fringe benefit
arrangement, whether maintained pursuant to contract or informal understanding,
which does not constitute an "employee benefit plan" (as defined in Section
3(3) of ERISA), which, in the case, of items described in both clauses (i) and
(ii) is maintained, administered or contributed to by BNI or any of its ERISA
Affiliates and covers any employee or former employee of BNI or any of its
Subsidiaries or with respect to which BNI or any of its ERISA Affiliates has
any liability (collectively, the "BNI Employee Plans"). True and correct copies
of each of the BNI Employee Plans, all amendments thereto, any written
interpretations thereof distributed to employees, and all contracts relating
thereto or the funding thereof, including, without limitation, all trust
agreements, insurance contracts, administration contracts, investment
management agreements, subscription and participation agreements, recordkeeping
agreements and summary plan descriptions, all as currently in effect, have been
furnished or made available to SFP. BNI has supplied or made available to SFP
an accurate description of any BNI Employee Plan that is not in written form.
To the extent applicable, true and correct copies of the three most recent
annual reports (Form 5500 including, if applicable, Schedule B thereto)
prepared in connection with any BNI Employee Plan and the most recent actuarial
valuation report prepared in connection with any such plan have been furnished
or made available to SFP. BNI has made available to SFP complete age, salary,
service and related data as of the most recent
A-19
<PAGE>
practical date for employees and former employees of BNI and any of its
Subsidiaries covered under the BNI Employee Plans.
(b) The only BNI Employee Plans that are subject to Title IV of ERISA (the
"BNI Pension Plans") are identified in the list of such Plans provided or made
available to SFP by BNI in accordance with Section 4.15(a). As of the most
recent valuation date of each BNI Pension Plan, the present value of all
benefits accrued under each BNI Pension Plan, determined on a termination basis
using the assumptions established by the PBGC as in effect on such date was
exceeded by the fair market value of the assets of such BNI Pension Plan
(excluding for these purposes any accrued but unpaid contributions). No
"accumulated funding deficiency", as defined in Section 412 of the Code, has
been incurred with respect to any BNI Pension Plan, whether or not waived. BNI
knows of no "reportable event", within the meaning of Section 4043 of ERISA and
the regulations promulgated thereunder, and no event described in Sections 4041
(other than a standard termination), 4042, 4062 or 4063 of ERISA has occurred
in connection with any BNI Pension Plan, other than a "reportable event" that
will not have a Material Adverse Effect on BNI. No condition exists and no
event has occurred that could constitute grounds for termination of or the
appointment of a trustee to administer any BNI Pension Plan under Section 4042
of ERISA and, to BNI's knowledge, neither BNI nor any of its ERISA Affiliates
has engaged in, or is a successor parent corporation to an entity that has
engaged in, a transaction for which BNI or any of its ERISA Affiliates would
have liability under Sections 4069 or 4212(c) of ERISA. To BNI's knowledge
nothing done or omitted to be done and no transaction or holding of any asset
under or in connection with any BNI Employee Plan has or will make BNI or any
of its ERISA Affiliates, any officer or director of BNI or any of its ERISA
Affiliates subject to any liability under Title I or Section 4071 of ERISA or
liable for any tax pursuant to Section 4975 or Chapters 43, 47 or 68 of the
Code that could have a Material Adverse Effect.
(c) Each BNI Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the period
from its adoption to date, and each trust forming a part thereof is exempt from
tax pursuant to Section 501(a) of the Code. BNI has furnished or made available
to SFP copies of the most recent Internal Revenue Service determination letters
with respect to each such BNI Employee Plan. Each BNI Employee Plan has been
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations, including
but not limited to ERISA and the Code, which are applicable to such BNI Plan.
(d) None of the payments contemplated by the contracts, plans or arrangements
covering any employee or former employee of BNI or any of its ERISA Affiliates
and arising solely as a result of the transactions contemplated hereby would,
in the aggregate, constitute excess parachute payments as defined in Section
280G of the Code (without regard to subsection (b)(4) thereof).
(e) Except for obligations arising pursuant to any collective bargaining
agreements, no condition exists that would prevent BNI or any of its
Subsidiaries from amending or terminating any BNI Employee Plan providing
health or medical benefits in respect of any active or former employees of BNI
and its Subsidiaries.
(f) There has been no amendment to, written interpretation or announcement
(whether or not written) by BNI or any of its ERISA Affiliates relating to, or
change in employee participation or coverage under, any BNI Employee Plan which
would increase materially the expense of maintaining such BNI Employee Plan
above the level of the expense incurred in respect thereof for the fiscal year
ended on the Balance Sheet Date.
(g) To the extent applicable, each BNI Employee Plan which constitutes a
"group health plan" (as defined in Section 607(1) of ERISA or Section
4980B(g)(2) of the Code), including any plans of current or former affiliates
which must be taken into account under Sections 4980B and 414(t) of the Code or
Section 601 of ERISA, has been operated in substantial compliance with
applicable law, including the group health plan continuation coverage
requirements of Section 4980B of the Code and Section 601 of ERISA.
A-20
<PAGE>
(h) There are no actions, suits or claims (other than routine claims for
benefits) pending or, to BNI's knowledge, threatened involving any BNI Employee
Plan or the assets thereof and no facts exist which could give rise to any such
actions, suits or claims (other than routine claims for benefits).
(i) BNI has provided or will promptly provide SFP with a list of each
employee pension benefit plan (as defined in Section 3(2) of ERISA) which is a
multiemployer plan with respect to which BNI or any of its ERISA Affiliates may
have any liability (including any liability attributable to a current or former
member of BNI's or any of its ERISA Affiliates' "controlled group" (as defined
in Section 4001(a)(14) of ERISA)) and the maximum amount of such liability
(determined as if a complete withdrawal occurred with respect to each such plan
immediately after the Effective Time). With respect to each such plan, (i) all
contributions have been made as required by the terms of the plans, the terms
of any collective bargaining agreements and applicable law, (ii) neither BNI
nor any of its ERISA Affiliates has withdrawn, partially withdrawn or received
any notice of any claim or demand for withdrawal liability or partial
withdrawal liability that would have a Material Adverse Effect, and (iii)
neither BNI nor any of its ERISA Affiliates has received any notice that any
such plan is in reorganization, that increased contributions may be required to
avoid a reduction in plan benefits or the imposition of any excise tax, that
any such plan is or has been funded at a rate less than that required under
Section 412 of the Code or that any plan is or may become insolvent.
(j) As of the Balance Sheet Date, the Expected Postretirement Benefit
Obligation (as defined in Statement of Financial Accounting Standards No. 106)
in respect of postretirement life, health and medical insurance benefits for
current and former employees of BNI or any of its Subsidiaries calculated by
BNI's actuary using reasonable actuarial assumptions was $17,000,000.
SECTION 4.16. Finders' Fees. Except for Lazard Freres & Co., a copy of whose
engagement agreement has been or will be provided to SFP and whose fees will be
paid by BNI, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of
BNI, the Surviving Corporation or any Subsidiary of BNI who might be entitled
to any fee or commission from BNI, the Surviving Corporation or any Subsidiary
of BNI upon consummation of the transactions contemplated by this Agreement.
SECTION 4.17. Environmental Matters. Except as set forth in the BNI Form 10-K
or otherwise previously disclosed in writing by BNI to SFP, there are no
Environmental Liabilities of BNI that, individually or in the aggregate, have
had or would reasonably be expected to have a Material Adverse Effect on BNI.
SECTION 4.18. Takeover Statutes. No Takeover Statute, including, without
limitation, Section 203 of the DGCL, applicable to BNI or any of its
Subsidiaries is applicable to the Merger or the other transactions contemplated
hereby.
SECTION 4.19. Compliance with Laws. Except as publicly disclosed, and except
for any matter that would not reasonably be expected to have a Material Adverse
Effect on BNI, neither BNI nor any of its Subsidiaries is in violation of, or
has violated, any applicable provisions of any laws, statutes, ordinances or
regulations.
SECTION 4.20. BNI Rights Agreement. Under the Rights Agreement between BNI
and The First National Bank of Boston, dated as of July 14, 1986 (the "BNI
Rights Agreement"), SFP will not become an "Acquiring Person", no "Stock
Acquisition Date" or "Distribution Date" (as such terms are defined in the BNI
Rights Agreement) will occur, and BNI's shareholders will not be entitled to
receive any benefits under the BNI Rights Agreement as a result of the
approval, execution or delivery of this Agreement or the consummation of the
Merger.
A-21
<PAGE>
ARTICLE V
COVENANTS OF SFP
SFP agrees that:
SECTION 5.1. Conduct of SFP. From the date hereof until the Effective Time,
except as provided in Schedule V, SFP and the SFP Material Subsidiaries shall
conduct their business in the ordinary course of business consistent with past
practice and shall use their reasonable best efforts to preserve intact their
business organizations and relationships with third parties; provided that
nothing in this Section shall be deemed to prevent SFP and its Subsidiaries
from undertaking any action necessary, proper or advisable to effectuate the
Spinoff and all related transactions in accordance with and subject to the
conditions set forth in this Agreement; and provided further that nothing in
this Section shall be deemed to prevent SFP and its Subsidiaries from taking
any action referred to in clauses (b)(ii), (c), (f) or (g) of this Section 5.1
where the taking of such action is not consistent with the past practices of
SFP and its Subsidiaries if, but only if, such action is a Customary Action.
For purposes of this Agreement, an action shall be considered a "Customary
Action" where such action occurs in the ordinary course of the relevant
Person's business and where the taking of such action is generally recognized
as being customary and prudent for other major enterprises in such Person's
line of business. Without limiting the generality of the foregoing, from the
date hereof until the Effective Time:
(a) SFP will not adopt or propose any change in its certificate of
incorporation or bylaws;
(b) Except for the Offer, the Merger and the Spinoff, SFP will not, and
will not permit any Subsidiary of SFP, (i) to adopt a plan of complete or
partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization or (ii) make any acquisition of
any business or other assets, whether by means of merger, consolidation or
otherwise, other than in the ordinary course of business consistent with
past practices and other than acquisitions that are Customary Actions;
(c) SFP will not, and will not permit any Subsidiary of SFP to, sell,
lease, license or otherwise dispose of any material assets or property
except (i) the Spinoff, (ii) pursuant to existing contracts or commitments,
(iii) in the ordinary course of business consistent with past practice and
(iv) any such sale, lease, license or other disposition that is a Customary
Action;
(d) SFP will not, and will not permit any Subsidiary of SFP to, declare,
set aside, or pay any dividend or make any other distribution with respect
to any shares of SFP capital stock other than (i) cash dividends on SFP
Common Stock not in excess of the amounts set forth in Section 3.11(b) and
having record and payment dates determined as set forth in Section 7.8, and
(ii) the Spinoff;
(e) Except (i) as expressly permitted by this Section 5.1, Section 5.7 or
(ii) pursuant to existing contracts or commitments, SFP will not, and will
not permit any Subsidiary of SFP to, issue, deliver or sell, or authorize
or propose the issuance, delivery or sale of, any SFP Securities, any SFP
Voting Debt, any SFP Subsidiary Securities or any securities convertible
into or exchangeable for, or any rights, warrants or options to acquire,
any SFP Securities, SFP Voting Debt or SFP Subsidiary Securities;
(f) Except for (i) borrowings under existing credit facilities,
replacements therefor and refinancings thereof, (ii) borrowings not to
exceed $1.75 billion in the aggregate under credit facilities in form and
substance reasonably satisfactory to BNI to finance the Offer, to refinance
SFP's currently outstanding 12.65% Senior Notes due October 1, 2000, 8 3/8%
Notes due November 1, 2001 and 8 5/8% Notes due November 1, 2004, to pay
penalties, premiums and make-whole payments required in connection with
such refinancing and for working capital and other corporate purposes,
(iii) borrowings in the ordinary course of business consistent with past
practice or (iv) borrowings that are Customary Actions, SFP will not, and
will not permit any Subsidiary of SFP to, incur any indebtedness for
borrowed money or guarantee any such indebtedness;
(g) Except for loans, advances, capital contributions or investments made
in the ordinary course of business consistent with past practice and except
for loans, advances, capital contributions or investments
A-22
<PAGE>
that are Customary Actions, SFP will not, and will not permit any
Subsidiary of SFP to, make any loans, advances or capital contributions to,
or investments in, any other Person (other than to SFP or any Subsidiary of
SFP);
(h) (i) Except for any of the actions referred to in this clause (i) that
is taken in the ordinary course of business consistent in magnitude and
character with past practice and with the terms of severance or termination
arrangements in effect or pending on the date hereof with respect to
individuals with comparable positions or responsibilities, and except for
any of such actions which, in the aggregate, are not material, as
hereinafter defined, SFP will not, and will not permit any of its
Subsidiaries to, grant any severance or termination pay to, or enter into
any termination or severance arrangement with, any of its directors,
executive officers or employees and (ii) except for any of the actions
referred to in this clause (ii) that is taken in the ordinary course of
business consistent in aggregate in magnitude and character with past
practice, and except for any of such actions which in the aggregate are not
material, as hereinafter defined, SFP will not, and will not permit any of
its Subsidiaries to, establish, adopt, enter into, amend or take action to
accelerate any rights or benefits under, or grant awards under, (A) any
plan or arrangement providing for options, stock, performance awards or
other forms of incentive or deferred compensation or (B) any collective
bargaining, bonus, profit sharing, thrift, compensation, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any of its directors, executive officers or employees. For
purposes of this subsection (h), "material" shall mean material in relation
to the overall compensation costs of SFP and its Subsidiaries.
(i) SFP will not, and will not permit any Subsidiary of SFP to, agree or
commit to do any of the actions prohibited by Sections 5.1(a) through
5.1(h).
SECTION 5.2. Stockholder Meeting. SFP shall cause a special meeting of its
stockholders (the "SFP Stockholder Meeting") to be duly called and held as soon
as reasonably practicable after the date of this Agreement for the purpose of
voting on the approval and adoption of this Agreement and the Merger. The board
of directors of SFP shall recommend approval and adoption of this Agreement and
the Merger by its stockholders; provided, however, that prior to the SFP
Stockholder Meeting such recommendation may be withdrawn, modified or amended
to the extent that, as a result of the commencement or receipt of a Takeover
Proposal (as defined in Section 5.8) relating to SFP, the board of directors of
SFP deems it necessary to do so in the exercise of its fiduciary obligations to
SFP stockholders after being so advised by counsel.
SECTION 5.3. Access to Information. Subject to any confidentiality agreements
or other confidentiality obligations binding upon SFP or any of its
Subsidiaries, from the date hereof until the Effective Time, SFP will give BNI,
its counsel, financial advisors, auditors and other authorized representatives
full access to the offices, properties, books and records of SFP and its
Subsidiaries, will furnish to BNI, its counsel, financial advisors, auditors
and other authorized representatives such financial and operating data and
other information as such Persons may reasonably request and will instruct
SFP's employees, counsel and financial advisors to cooperate with BNI in its
investigation of the business of SFP and its Subsidiaries; provided that no
investigation pursuant to this Section shall affect any representation or
warranty given by SFP to BNI hereunder; and provided further that access to
certain information will require the entry of a protective order by the ICC,
after which date full access will be granted to such information consistent
with this paragraph and subject to the terms of such order.
SECTION 5.4. Notices of Certain Events. SFP shall promptly notify BNI of:
(i) any notice or other communication from any person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement including, without limitation, the Spinoff
and the Liquidation; and
A-23
<PAGE>
(iii) any actions, suits, claims, investigations or proceedings commenced
or, to the best of its knowledge threatened against, relating to or
involving or otherwise affecting SFP or any Subsidiary of SFP which, if
pending on the date of this Agreement, would have been required to have
been disclosed pursuant to Section 3.13 or which relate to the consummation
of the transactions contemplated by this Agreement.
SECTION 5.5. Tax Matters. From the date hereof until the Effective Time, (i)
SFP and its Subsidiaries will file all significant tax returns, statements,
reports and forms (collectively, the "SFP Post-Signing Returns") required to be
filed with any taxing authority in accordance with all applicable laws; (ii)
SFP and its Subsidiaries will timely pay all taxes shown as due and payable on
the SFP Post-Signing Returns that are so filed and as of the time of filing,
the SFP Post-Signing Returns will correctly reflect the facts regarding the
income, business, assets, operations, activities and the status of SFP and its
Subsidiaries in all material respects; (iii) SFP and its Subsidiaries will make
provision for all taxes payable by SFP and its Subsidiaries for which no SFP
Post-Signing Return is due prior to the Effective Time; and (iv) SFP and its
Subsidiaries will promptly notify BNI of any action, suit, proceeding,
investigation, audit or claim pending against or with respect to SFP or any of
its Subsidiaries in respect of any tax where there is a reasonable possibility
of a determination or decision against SFP which would reasonably be expected
to have a significant adverse effect on SFP's tax liabilities or other tax
attributes.
SECTION 5.6. Rule 145 Affiliates. At least 40 days prior to the Closing Date,
SFP shall deliver to BNI a letter identifying all persons who are, at the time
of the meeting of SFP Stockholders Meeting, deemed to be "affiliates" of SFP
for purposes of Rule 145 under the 1933 Act (the "1933 Act Affiliates"). SFP
shall use its reasonable best efforts to cause each Person who is identified as
a possible 1933 Act Affiliate to deliver to BNI at least 30 days prior to the
Closing Date an agreement substantially in the form of Exhibit A to this
Agreement.
SECTION 5.7. The Spinoff. SFP will not, and will not permit any of its
Subsidiaries (other than the Spinoff Company and its Subsidiaries) to, enter
into or undertake any transaction, arrangement or agreement with the Spinoff
Company or its Subsidiaries except for (i) transactions, arrangements or
agreements that have been entered into on or prior to the date of this
Agreement which have been provided to BNI on or prior to the date hereof, (ii)
the allocation to employees of the Spinoff Company of their share of the SFP
employee benefit plans in accordance with applicable law or (iii) such other
transactions, arrangements or agreements that are consented to by BNI (such
consent not to be unreasonably withheld). Without limiting the generality of
the foregoing, in no event may SFP or any of its Subsidiaries pay any dividend,
or make any distribution, to holders of SFP Common Stock directly or indirectly
in connection with the Spinoff, except for the Spinoff Dividend. Nothing in
this Section 5.7 shall prevent SFP or the Spinoff Company from taking actions
(including, but not limited to filings with and no-action requests of the SEC,
communications with shareholders, and the liquidation of subsidiaries of the
Spinoff Company) reasonably necessary to effectuate the Spinoff. It shall not
be a breach of this Agreement for SFP to pay any taxes arising from excess loss
accounts (not materially greater than the amount represented in Section 3.22)
in the stock of the Spinoff Company or its subsidiaries. SFP will use its
reasonable best efforts to ensure that the conditions specified in the Private
Letter Ruling are satisfied.
SECTION 5.8. No Solicitations. SFP will not, and SFP will use its reasonable
best efforts to ensure that its officers, directors, employees or other agents
of SFP do not, directly or indirectly: initiate, solicit or encourage, or take
any action to facilitate the making of, any offer or proposal which constitutes
or is reasonably likely to lead to any Takeover Proposal of SFP, or, in the
event of an unsolicited Takeover Proposal of SFP, except to the extent required
by their fiduciary duties under applicable law if so advised by outside
counsel, engage in negotiations or provide any confidential information or data
to any Person relating to any such Takeover Proposal. SFP shall notify BNI
orally and in writing of any such inquiries, offers or proposals (including,
without limitation, the terms and conditions of any such proposal and the
identity of the person making it), within 48 hours of the receipt thereof and
shall give BNI five days' advance notice of any agreement to be entered into
with or any information to be supplied to any Person making such
A-24
<PAGE>
inquiry, offer or proposal. SFP shall immediately cease and cause to be
terminated all existing discussions and negotiations, if any, with any parties
conducted heretofore with respect to any Takeover Proposal of SFP. As used in
this Agreement, "Takeover Proposal" when used in connection with any Person
shall mean any tender or exchange offer involving such Person, any proposal for
a merger, consolidation or other business combination involving such Person or
any Subsidiary of such Person, any proposal or offer to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets of, such
Person or any Subsidiary of such Person, any proposal or offer with respect to
any recapitalization or restructuring with respect to such Person or any
Subsidiary of such Person or any proposal or offer with respect to any other
transaction similar to any of the foregoing with respect to such Person or any
Subsidiary of such Person other than pursuant to the transactions to be
effected pursuant to this Agreement.
SECTION 5.9. Registration Rights. SFP hereby grants BNI the registration and
other rights set forth in Annex II hereto, which rights shall become effective
without any action by any Person in the event that this Agreement is terminated
for any reason after consummation of the Offer.
ARTICLE VI
COVENANTS OF BNI
BNI AGREES THAT:
SECTION 6.1. Conduct of BNI. From the date hereof until the Effective Time,
except as provided in Schedule VI, BNI and the BNI Material Subsidiaries shall
conduct their business in the ordinary course of business consistent with past
practice and shall use their reasonable best efforts to preserve intact their
business organizations and relationships with third parties; provided that
nothing in this Section shall be deemed to prevent BNI and its Subsidiaries
from taking any action referred to in clauses (b)(ii), (c), (f) or (g) of this
Section 6.1 where the taking of such action is not consistent with the past
practices of BNI and its Subsidiaries if, but only if, such action is a
Customary Action. Without limiting the generality of the foregoing, from the
date hereof until the Effective Time:
(a) BNI will not adopt or propose any change in its certificate of
incorporation or bylaws, except for an amendment to its certificate of
incorporation authorizing the issuance of additional shares of Class A
Preferred Stock in connection with the issuance of Rights to former holders
of SFP Common Stock upon consummation of the Merger;
(b) Except for the Offer and the Merger, BNI will not, and will not
permit any Subsidiary of BNI, (i) to adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization or (ii) make any acquisition, by
means of merger, consolidation or otherwise, other than in the ordinary
course of business consistent with past practices and other than
acquisitions that are Customary Actions;
(c) BNI will not, and will not permit any Subsidiary of BNI to, sell,
lease, license or otherwise dispose of any material assets or property
except (i) pursuant to existing contracts or commitments, (ii) in the
ordinary course of business consistent with past practice and (iii) any
such sale, lease, license or other disposition that is a Customary Action;
(d) BNI will not, and will not permit any Subsidiary of BNI to, declare,
set aside, or pay any dividend or make any other distribution with respect
to any shares of BNI capital stock (other than cash dividends on BNI Common
Stock not in excess of the amounts set forth in Section 4.11(b) and having
record and payment dates determined as set forth in Section 7.8);
(e) Except (i) as expressly permitted by this Section 6.1, (ii) as
necessary in connection with the transactions contemplated hereby
(including the issuance of Rights to former holders of SFP Common Stock
upon consummation of the Merger) or (iii) pursuant to existing contracts
and commitments, BNI will not, and will not permit any Subsidiary of BNI
to, issue, deliver or sell, or authorize or propose the issuance, delivery
or sale of, any BNI Securities, any BNI Voting Debt or any securities
convertible into
A-25
<PAGE>
or exchangeable for, or any rights, warrants or options to acquire, any BNI
Securities or BNI Voting Debt;
(f) Except for (i) borrowings under existing credit facilities,
replacements therefor and refinancings thereof, (ii) borrowings not to
exceed $500 million in the aggregate under credit facilities in form and
substance reasonably satisfactory to SFP to finance the Offer (iii)
borrowings in the ordinary course of business consistent with past practice
or (iv) borrowings that are Customary Actions, BNI will not, and will not
permit any Subsidiary of BNI to, incur any indebtedness for borrowed money
or guarantee any such indebtedness;
(g) Except for loans, advances, capital contributions or investments made
in the ordinary course of business consistent with past practice, except
for loans, advances, capital contributions or investments that are
Customary Actions and, except for loans, advances, capital contributions or
investments for the purchase of shares of SFP Common Stock pursuant to the
Offer, BNI will not, and will not permit any Subsidiary of BNI to, make any
loans, advances or capital contributions to, or investments in, any other
Person (other than to BNI or any Subsidiary of BNI);
(h) (i) except for any of the actions referred to in this clause (i) that
is taken in the ordinary course of business consistent in magnitude and
character with past practice and with the terms of severance or termination
arrangements in effect or pending on the date hereof with respect to
individuals with comparable positions or responsibilities, and except for
any of such actions which, in the aggregate, are not material, as
hereinafter defined, BNI will not, and will not permit any of its
Subsidiaries to, grant any severance or termination pay to, or enter into
any termination or severance arrangement with, any of its directors,
executive officers or employees and (ii) except for any of the actions
referred to in this clause (ii) that is taken in the ordinary course of
business consistent in aggregate in magnitude and character with past
practice, and except for any of such actions which in the aggregate are not
material, as hereinafter defined, BNI will not, and will not permit any of
its Subsidiaries to, establish, adopt, enter into, amend or take action to
accelerate any rights or benefits under, or grant awards under, (A) any
plan or arrangement providing for options, stock, performance awards or
other forms of incentive or deferred compensation or (B) any collective
bargaining, bonus, profit sharing, thrift, compensation, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any of its directors, executive officers or employees. For
purposes of this subsection (h), "material" shall mean material in relation
to the overall compensation costs of BNI and its Subsidiaries.
(i) BNI will not, and will not permit any Subsidiary of BNI to, agree or
commit to do any of the actions prohibited by Sections 6.1(a) through
6.1(h).
SECTION 6.2. Stockholder Meeting. BNI shall cause a special meeting of its
stockholders (the "BNI Stockholder Meeting") to be duly called and held as soon
as reasonably practicable after the date of this Agreement for the purpose of
voting on the approval and adoption of this Agreement and the Merger. The board
of directors of BNI shall recommend approval and adoption of this Agreement and
the Merger by its stockholders; provided that prior to the BNI Stockholder
Meeting such recommendation may be withdrawn, modified or amended to the extent
that, as a result of the commencement or receipt of a Takeover Proposal (as
defined in Section 5.8) relating to BNI, the board of directors of BNI deems it
necessary to do so in the exercise of its fiduciary obligations to BNI
stockholders after being so advised by counsel.
SECTION 6.3. Access to Information. Subject to any confidentiality agreements
or other confidentiality obligations binding upon BNI or any of its
Subsidiaries, from the date hereof until the Effective Time, BNI will give SFP,
its counsel, financial advisors, auditors and other authorized representatives
full access to the offices, properties, books and records of BNI and its
Subsidiaries, will furnish to SFP, its counsel, financial advisors, auditors
and other authorized representatives such financial and operating data and
other information as such Persons may reasonably request and will instruct
BNI's employees, counsel and financial advisors to cooperate with SFP in its
investigation of the business of BNI and its Subsidiaries; provided that no
investigation pursuant to this Section shall affect any representation or
warranty given by BNI to SFP
A-26
<PAGE>
hereunder; and provided further that access to certain information will require
the entry of a protective order by the ICC, after which date full access will
be granted to such information consistent with this paragraph and subject to
the terms of such order.
SECTION 6.4. Notices of Certain Events. BNI shall promptly notify SFP of:
(i) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings commenced
or, to the best of its knowledge threatened against, relating to or
involving or otherwise affecting BNI or any BNI Material Subsidiary which,
if pending on the date of this Agreement, would have been required to have
been disclosed pursuant to Section 4.13 or which relate to the consummation
of the transactions contemplated by this Agreement.
SECTION 6.5. Tax Matters. From the date hereof until the Effective Time, BNI
and its Subsidiaries will file all significant tax returns, statements, reports
and forms (collectively, the "BNI Post-Signing Returns") required to be filed
with any taxing authority in accordance with all applicable laws; (ii) BNI and
its Subsidiaries will timely pay all taxes shown as due and payable on the BNI
Post-Signing Returns that are so filed and as of the time of filing, the BNI
Post-Signing Returns will correctly reflect the facts regarding the income,
business, assets, operations, activities and the status of BNI and its
Subsidiaries in all material respects; (iii) BNI and its Subsidiaries will make
provision for all taxes payable by BNI and its Subsidiaries for which no BNI
Post-Signing Return has yet been filed; and (iv) BNI and its Subsidiaries will
promptly notify SFP of any action, suit, proceeding, investigation, audit or
claim pending against or with respect to BNI or any of its subsidiaries in
respect of any tax where there is a reasonable possibility of a determination
or decision against BNI which would reasonably be expected to have a
significant adverse effect on BNI's tax liabilities or tax attributes.
SECTION 6.6. Director and Officer Liability. (a) BNI shall indemnify and hold
harmless each person who is, or has been at any time prior to the date hereof
or who becomes prior to the Effective Time, an officer or director of SFP, in
respect of acts or omissions occurring prior to the Effective Time (the
"Indemnified Parties") (including but not limited to the transactions
contemplated by this Agreement) to the extent provided under SFP's certificate
of incorporation, bylaws and (A) indemnity agreements between SFP and any of
its officers or directors ("Indemnity Agreements") in effect on the date hereof
or (B) Indemnity Agreements that may be entered into by SFP from and after the
date hereof and prior to the Effective Time so long as such Agreements shall
contain terms and provisions substantially similar to Indemnity Agreements in
effect as of the date hereof; provided that such indemnification shall be
subject to any limitation imposed from time to time under applicable law. For
six years after the Effective Time, BNI shall provide, if available, officers'
and directors' liability insurance in respect of acts or omissions occurring
prior to the Effective Time, including but not limited to the transactions
contemplated by this Agreement, covering each such Person currently covered by
SFP's officers' and directors' liability insurance policy, or who becomes
covered by such policy prior to the Effective Time, on terms with respect to
coverage and amount no less favorable than those of such policy in effect on
the date hereof, provided that in satisfying its obligation under this Section,
BNI shall not be obligated to pay premiums in excess of two-hundred percent
(200%) of the amount per annum SFP paid in its last full fiscal year, which
amount has been disclosed to BNI but provided further that BNI shall
nevertheless be obligated to provide such coverage as may be obtained for such
amount.
(b) Any determination to be made as to whether any Indemnified Party has met
any standard of conduct imposed by law shall be made by legal counsel
reasonably acceptable to such Indemnified Party and BNI, retained at BNI's
expense.
A-27
<PAGE>
(c) This Section 6.6 is intended to benefit the Indemnified Parties, their
heirs, executors and personal representatives and shall be binding on
successors and assigns of BNI.
SECTION 6.7. No Solicitations. BNI will not, and BNI will use its reasonable
best efforts to ensure that its officers, directors, employees or other agents
of BNI do not, directly or indirectly: initiate, solicit or encourage, or take
any action to facilitate the making of, any offer or proposal which constitutes
or is reasonably likely to lead to any Takeover Proposal of BNI, or, in the
event of an unsolicited Takeover Proposal of BNI, except to the extent required
by their fiduciary duties under applicable law if so advised by outside
counsel, engage in negotiations or provide any confidential information or data
to any Person relating to any such Takeover Proposal. BNI shall notify SFP
orally and in writing of any such inquiries, offers or proposals (including,
without limitation, the terms and conditions of any such proposal and the
identity of the person making it), within 48 hours of the receipt thereof and
shall give SFP five days' advance notice of any agreement to be entered into
with or any information to be supplied to any Person making such inquiry, offer
or proposal. BNI shall immediately cease and cause to be terminated all
existing discussions and negotiations, if any, with any parties conducted
heretofore with respect to any Takeover Proposal of BNI.
ARTICLE VII
COVENANTS OF BNI AND SFP
The parties hereto agree that:
SECTION 7.1. Reasonable Best Efforts. Subject to the terms and conditions of
this Agreement, each party will use its reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement.
SECTION 7.2. ICC Approval. BNI and SFP shall, and each shall cause each of
its Subsidiaries to, take all such actions as are necessary to (i) cooperate
with one another to prepare and present to the ICC as soon as practicable all
filings and other presentations in connection with seeking any ICC approval,
exemption or other authorization necessary to consummate the transactions
contemplated by this Agreement (including, without limitation, the matters
contemplated by Sections 5.3 and 6.3), (ii) prosecute such filings and other
presentations with diligence, (iii) diligently oppose any objections to,
appeals from or petitions to reconsider or reopen any such ICC approval by
persons not party to this Agreement, and (iv) take all such further action as
reasonably may be necessary to obtain a final order or orders of the ICC
approving such transactions consistent with this Agreement.
SECTION 7.3. Certain Filings; Proxy Materials. (a) BNI (i) will promptly
prepare and file with the SEC, will use its reasonable best efforts to have
cleared by the SEC and will thereafter mail to its stockholders as promptly as
practicable the BNI Proxy Statement and all other proxy materials for the BNI
Stockholder Meeting, (ii) will use its reasonable best efforts to obtain the
necessary approvals by its stockholders of this Agreement and the transactions
contemplated hereby (provided that prior to the BNI Stockholder Meeting the BNI
Board's recommendation may be withdrawn, modified or amended to the extent
that, as a result of the commencement or receipt of a Takeover Proposal
relating to BNI, the board of directors of BNI deems it necessary to do so in
the exercise of its fiduciary obligations to BNI stockholders after being so
advised by counsel), (iii) will otherwise comply with all legal requirements
applicable to such meeting and (iv) will make all other filings or recordings
required under applicable Delaware law in connection with the Merger. BNI will
prepare and file with the SEC the registration statement on Form S-4 (the "Form
S-4") (in which the BNI Proxy Statement will be included as a prospectus) and
will take any action (other than qualifying to do business in any jurisdiction
in which it is now not so qualified) required to be taken under any applicable
state Blue Sky law in connection with the issuance of BNI Common Stock.
(b) SFP (i) will promptly prepare and file with the SEC, will use its
reasonable best efforts to have cleared by the SEC and will thereafter mail to
its stockholders as promptly as practicable the SFP Proxy Statement
A-28
<PAGE>
and all other proxy materials for the SFP Stockholder Meeting, (ii) will use
its reasonable best efforts to obtain the necessary approvals by its
stockholders of this Agreement and the transactions contemplated hereby
(provided that prior to the SFP Stockholder Meeting the SFP Board's
recommendation may be withdrawn, modified or amended to the extent that, as a
result of the commencement or receipt of a Takeover Proposal relating to SFP,
the board of directors of SFP deems it necessary to do so in the exercise of
its fiduciary obligations to SFP stockholders after being so advised by
counsel), (iii) will otherwise comply with all legal requirements applicable to
such meeting and (iv) will make all other filings or recordings required under
applicable Delaware law in connection with the Merger.
SECTION 7.4. Public Announcements. BNI and SFP will consult with each other
before issuing any press release with respect to this Agreement and the
transactions contemplated hereby and, except as may be required by applicable
law or any listing agreement with any national securities exchange, will not
issue any such press release prior to such consultation.
SECTION 7.5. Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of SFP, any deeds, bills of
sale, assignments or assurances and to take and do, in the name and on behalf
of SFP, any other actions and things to vest, perfect or confirm of record or
otherwise in the Surviving Corporation any and all right, title and interest
in, to and under any of the rights, properties or assets of SFP acquired or to
be acquired by the Surviving Corporation as a result of, or in connection with,
the Merger.
SECTION 7.6. Antitakeover Statutes. If any Takeover Statute is or may become
applicable to the transactions contemplated hereby, each of BNI and SFP and the
members of their respective Boards of Directors will grant such approvals and
take such actions as are necessary so that the transactions contemplated by
this Agreement may be consummated as promptly as practicable on the terms
contemplated hereby and thereby and otherwise act to eliminate or minimize the
effects of any Takeover Statute on any of the transactions contemplated by this
Agreement.
SECTION 7.7. Cooperation. BNI and SFP shall together, or pursuant to an
allocation of responsibility to be agreed between them, coordinate and
cooperate (i) with respect to the timing of the BNI Stockholder Meeting and the
SFP Stockholder Meeting and shall use their reasonable best efforts to hold
such meetings on the same day, (ii) in connection with the preparation of the
SFP Disclosure Documents and the BNI Disclosure Documents, (iii) in determining
whether any action by or in respect of, or filing with, any governmental body,
agency, official or authority is required, or any actions, consents, approvals
or waivers are required to be obtained from parties to any material contracts,
in connection with the consummation of the transactions contemplated by this
Agreement, and (iv) in seeking any such actions, consents, approvals or waivers
or making any such filings, furnishing information required in connection
therewith or with the SFP Disclosure Documents and the BNI Disclosure Documents
and timely seeking to obtain any such actions, consents, approvals or waivers.
Subject to the terms and conditions of this Agreement, BNI and SFP will each
use its reasonable best efforts to have the Form S-4 declared effective under
the 1933 Act as promptly as practicable after the Form S-4 is filed, and (v)
shall, subject to applicable law, confer on a regular and frequent basis with
one or more representatives of one another to report operational matters of
significance to the Merger and the general status of ongoing operations insofar
as relevant to the Merger, provided that the parties will not confer on any
matter to the extent inconsistent with law.
SECTION 7.8. Dividends. From September 30, 1995 to the Effective Time, all
dividends paid by SFP and BNI to their respective stockholders shall be paid on
a quarterly basis, with identical record and payment dates, in amounts not
exceeding the amounts set forth in Section 5.1(d) or Section 6.1(d), as the
case may be.
A-29
<PAGE>
ARTICLE VIII
THE OFFER
SECTION 8.1. The Offer. (a) Provided that nothing shall have occurred that
would result in a failure to satisfy any of the conditions set forth in Annex I
hereto, SFP and BNI shall, as promptly as practicable, but in no event later
than December 23, 1994, commence separate tender offers (together, the "Offer")
to purchase, in the case of SFP, up to 38,000,000 shares of SFP Common Stock
and, in the case of BNI, up to 25,000,000 shares of SFP Common Stock (in each
case, together with the associated rights under the SFP Rights Plan), at a
price of $20.00 per share, net to the seller in cash, with SFP to be severally
obligated to purchase 0.60317 of any shares of SFP Common Stock accepted for
payment pursuant to the Offer and BNI severally obligated to purchase 0.39683
of any shares of SFP Common Stock accepted for payment pursuant to the Offer.
Notwithstanding any provision of this Agreement (or any Annex hereto) to the
contrary, no term of the Offer may be amended or modified without the written
consent of both parties hereto.
(b) The several obligations of BNI and SFP under the Offer shall be subject
to the condition that there shall be validly tendered in accordance with the
terms of the Offer prior to the expiration date of the Offer and not withdrawn
63,000,000 shares of SFP Common Stock and to the other conditions set forth in
Annex I hereto. Each of SFP and BNI expressly reserves the right to waive any
of the conditions to its obligation under the Offer, except that the Minimum
Condition may not be waived without the consent of each of SFP and BNI.
Furthermore, each of SFP and BNI shall have the right to determine, in its sole
reasonable discretion, whether the conditions to its obligations under the
Offer have been satisfied.
(c) As soon as practicable on the date of commencement of the Offer, SFP
shall file with the SEC an Issuer Tender Offer Statement on Schedule 13E-4 with
respect to the Offer which will contain the offer to purchase and form of the
related letter of transmittal (together with any supplements or amendments
thereto, collectively the "SFP Offer Documents"). SFP and BNI each agrees
promptly to correct any information provided by it for use in the SFP Offer
Documents if and to the extent that it shall have become false or misleading in
any material respect. BNI and its counsel shall be given an opportunity to
review and comment on the Schedule 13E-4 prior to its being filed with the SEC.
(d) As soon as practicable on the date of commencement of the Offer, BNI
shall file with the SEC a Tender Offer Statement on Schedule 14D-1 with respect
to the Offer which will contain the offer to purchase and form of the related
letter of transmittal (together with any supplements or amendments thereto,
collectively the "BNI Offer Documents"). BNI and SFP each agrees promptly to
correct any information provided by it for use in the BNI Offer Documents if
and to the extent that it shall have become false or misleading in any material
respect. SFP and its counsel shall be given an opportunity to review and
comment on the Schedule 14D-1 prior to its being filed with the SEC.
(e) Upon satisfaction (or, where permitted, waiver) of the conditions to the
Offer, BNI and SFP shall purchase shares of SFP Common Stock pursuant to the
Offer as set forth in Section 8.1(a) above, provided, however, that BNI shall
not be obligated to purchase more than 25,000,000 shares of SFP Common Stock,
and SFP shall not be obligated to purchase more than 38,000,000 shares of SFP
Common Stock.
SECTION 8.2. Action by SFP and BNI. (a) SFP represents that its Board of
Directors at a meeting duly called and held unanimously resolved to recommend
acceptance of the Offer by those of its stockholders who wish to receive cash
for a portion of their shares of SFP Common Stock. SFP and BNI agree to take
all steps necessary to cause the offer to purchase and form of the related
letter of transmittal to be disseminated to holders of shares of SFP Common
Stock as and to the extent required by applicable federal securities laws.
(b) As soon as practicable on the day that the Offer is commenced, SFP will
file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9") which shall reflect the recommendations of SFP's Board
of Directors with respect to the Offer described in Section 8.2(a). SFP and
A-30
<PAGE>
BNI each agree promptly to correct any information provided by it for use in
the Schedule 14D-9 if and to the extent that it shall have become false or
misleading in any material respect. SFP agrees to take all steps necessary to
cause the Schedule 14D-9 as so corrected to be filed with the SEC and to be
disseminated to holders of shares of SFP Common Stock, in each case as and to
the extent required by applicable federal securities laws. BNI and its counsel
shall be given an opportunity to review and comment on the Schedule 14D-9 prior
to its being filed with the SEC.
ARTICLE IX
CONDITIONS TO THE MERGER
SECTION 9.1. Conditions to the Obligations of Each Party. The obligations of
SFP and BNI to consummate the Merger are subject to the satisfaction (or waiver
by the party for whose benefit such conditions exist except that the condition
set forth in clause (vii) may not be waived) of the following conditions:
(i) this Agreement shall have been adopted by the stockholders of SFP and
BNI in accordance with Delaware Law;
(ii) any applicable waiting period under the HSR Act relating to the
Merger shall have expired;
(iii) no court, arbitrator or governmental body, agency or official shall
have issued any order, and there shall not be any statute, rule or
regulation, restraining or prohibiting the consummation of the Merger or
the effective operation of the business of BNI, SFP and their respective
Subsidiaries after the Effective Time;
(iv) all actions by or in respect of or filings with any governmental
body, agency, official, or authority required to permit the consummation of
the Merger (other than ICC approval, which is addressed in clause (v)
below) shall have been obtained, but excluding any consent, approval,
clearance or confirmation the failure to obtain which could not reasonably
be expected to have a Material Adverse Effect on the Surviving Corporation
after the Effective Time;
(v) the ICC shall have issued a decision (which decision shall not have
been stayed or enjoined) that (A) constitutes a final order approving,
exempting or otherwise authorizing consummation of the Merger and all other
transactions contemplated by this Agreement (or subsequently presented to
the ICC by agreement of BNI and SFP) as may require such authorization and
(B) does not (1) require the inclusion of any other rail carriers or rail
properties material to the parties, (2) change the Exchange Ratio or (3)
impose on BNI, SFP or any of their respective Subsidiaries any other terms
or conditions (including, without limitation, labor protective provisions
but excluding conditions heretofore imposed
by the ICC in New York Dock Railway--Control--Brooklyn Eastern District,
360 I.C.C. 60 (1979)) that in the reasonable opinion of the board of
directors of BNI or of SFP, respectively, significantly and adversely
affect the economic benefits of the transactions contemplated by this
Agreement to BNI and its stockholders or SFP and its stockholders, as the
case may be;
(vi) SFP and BNI shall have obtained an opinion of nationally recognized
tax counsel to the effect that the Merger will be tax-free to BNI, SFP and
their respective stockholders for federal income tax purposes;
(vii) SFP and BNI shall have purchased shares of SFP Common Stock
pursuant to the Offer.
SECTION 9.2. Conditions to the Obligations of BNI. The obligations of BNI to
consummate the Merger are subject to the satisfaction (or waiver by BNI) of the
following further conditions:
(i) SFP shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time, and the representations and warranties of SFP shall have
been accurate in all material respects both when made and at and as of the
Effective Time as if made at and as of such time, except for the
representations and warranties of SFP contained in Section
A-31
<PAGE>
3.5(a), which shall be accurate in all respects both when made and at and
as of the Effective Time as if made at and as of that time;
(ii) all other statutory requirements for the valid consummation by SFP
of the transactions contemplated by this Agreement (including without
limitation the Spinoff and the Liquidation) shall have been fulfilled.
SECTION 9.3. Conditions to the Obligations of SFP. The obligations of SFP to
consummate the Merger are subject to the satisfaction (or waiver by SFP) of the
following further conditions:
(i) BNI shall have performed in all material respects all of its
respective obligations hereunder required to be performed by it at or prior
to the Effective Time, and (A) the representations and warranties of BNI
shall have been accurate in all material respects both when made and at and
as of the Effective Time as if made at and as of such time, except for the
representations and warranties of BNI in Section 4.5(a), which shall be
accurate in all respects when made and at and as of the Effective Time as
if made at and as of that time;
(ii) the BNI Common Stock required to be issued hereunder shall have been
approved for listing on the New York Stock Exchange, subject to official
notice of issuance;
(iii) all other statutory requirements for the valid consummation by SFP
of the transactions contemplated by this Agreement shall have been
fulfilled; and
(iv) the Spinoff shall have been consummated.
ARTICLE X
TERMINATION
SECTION 10.1. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time (notwithstanding any
approval of this Agreement by the stockholders of BNI or SFP):
(i) by mutual written consent of BNI and SFP;
(ii) by either BNI or SFP, if the Merger has not been consummated by
December 31, 1997;
(iii) by either BNI or SFP, if any judgment, injunction, order or decree
enjoining BNI or SFP from consummating the Merger is entered and such
judgment, injunction, order or decree shall become final and nonappealable;
(iv) by BNI, if the Spinoff has not been completed by December 31, 1994
(it is understood that if BNI does not exercise the right to terminate
pursuant to this Section 10.1(iv) by January 30, 1995 this provision will
be deemed to be waived);
(v) by BNI, if any Person, entity or "group" (as defined in Section
13(d)(3) of the Exchange Act) other than BNI acquires beneficial ownership
of 50% or more of the outstanding Shares;
(vi) by SFP, if any Person, entity or group acquires beneficial ownership
of 50% or more of the outstanding BNI Common Stock;
(vii) by either BNI or SFP if the approvals of the stockholders of BNI or
SFP contemplated by this Agreement shall not have been obtained by reason
of the failure to obtain the required vote at a duly held meeting of
stockholders or of any adjournment thereof;
(viii) by BNI, if, prior to the SFP Stockholder Meeting, the board of
directors of SFP shall have withdrawn, modified or changed in a manner
adverse to BNI its approval or recommendation of this Agreement or the
Merger;
(ix) by SFP, if, prior to the BNI Stockholder Meeting, the board of
directors of BNI shall have withdrawn, modified or changed in a manner
adverse to SFP its approval or recommendation of this Agreement or the
Merger;
A-32
<PAGE>
(x) by BNI, upon a breach of any representation, warranty, covenant or
agreement of SFP, or if any representation or warranty of SFP shall become
untrue, in either case such that the conditions set forth in Section 9.2(i)
would be incapable of being satisfied by December 31, 1997 (or such later
date extended), provided that a wilful breach shall be deemed to cause such
conditions to be incapable of being satisfied by such date;
(xi) by SFP, upon a breach of any representation, warranty, covenant or
agreement of BNI, or if any representation or warranty of BNI shall become
untrue, in either case such that the conditions set forth in Section 9.3(i)
would be incapable of being satisfied by December 31, 1997 (or as otherwise
extended), provided that a wilful breach shall be deemed to cause such
conditions to be incapable of being satisfied by such date;
(xii) by SFP, upon payment to BNI of the fee described in Section
11.4(b), if prior to the purchase of shares of SFP Common Stock pursuant to
the Offer, (A) the board of directors of SFP shall have withdrawn or
modified in a manner adverse to BNI its approval or recommendation of the
Offer, this Agreement or the Merger in order to permit SFP to execute a
definitive agreement in connection with a Takeover Proposal or in order to
approve another tender offer for shares of SFP Common Stock, in either
case, as determined by the board of directors of SFP, on terms more
favorable to SFP's stockholders than the transactions contemplated hereby,
or (B) the board of directors of SFP shall have recommended any other
Takeover Proposal; and
(xiii) by either BNI or SFP, if the Offer is terminated and SFP and BNI
shall not have purchased shares of SFP Common Stock pursuant to the Offer.
SECTION 10.2. Effect of Termination. If this Agreement is terminated pursuant
to Section 10.1, this Agreement shall become void and of no effect with no
liability on the part of any party hereto, except that (a) the agreements
contained in Sections 3.16, 4.16, 5.9 and 11.4 shall survive the termination
hereof and (b) no such termination shall relieve any party of any liability or
damages resulting from any breach by that party of this Agreement.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including telecopy or similar writing) and
shall be given,
if to BNI, to:
Burlington Northern Inc.
Attn: Douglas J. Babb, Esq.
3800 Continental Place
777 Main Street
Fort Worth, Texas 76102
Telecopy: (817) 333-2377
with a copy to:
Dennis S. Hersch, Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopy: (212) 450-4800
if to SFP, to:
Santa Fe Pacific Corporation
Attn: Jeffrey R. Moreland
1700 East Golf Road
Schaumburg, Illinois 60173
Telecopy: (708) 995-6847
A-33
<PAGE>
with a copy to:
Robert A. Helman, Esq.
Mayer, Brown & Platt
190 South La Salle Street
Chicago, Illinois 60603-3441
Telecopy: (312) 701-7711
or such other address or telecopy number as such party may hereafter specify
for the purpose by notice to the other parties hereto. Each such notice,
request or other communication shall be effective (i) if given by telecopy,
when such telecopy is transmitted to the telecopy number specified in this
Section and the appropriate confirmation is received or (ii) if given by any
other means, when delivered at the address specified in this Section.
SECTION 11.2. Entire Agreement; Survival of Representations and
Warranties. (a) This Agreement (and any other agreements contemplated hereby or
executed by the parties or their designees as of the date of this Agreement),
and the Confidentiality and Standstill Agreement dated July 28, 1993 between
SFP and BNI (the "Confidentiality Agreement") constitute the entire agreement
among the parties with respect to the subject matter hereof and thereof and
supersede all prior agreements, understandings and negotiations, both written
and oral, between the parties with respect to such subject matter. No
representation, inducement, promise, understanding, condition or warranty not
set forth herein has been made or relied upon by any party hereto. None of this
Agreement, the Confidentiality Agreement or any other agreement contemplated
hereby or executed by the parties or their designees as of the date of this
Agreement (or any provision hereof or thereof) is intended to confer upon any
Person other than the parties hereto any rights or remedies (except that
Section 6.6, is intended to confer rights and remedies on SFP's officers and
directors).
(b) The representations and warranties and agreements contained herein shall
not survive the Effective Time or the termination of this Agreement except for
the agreements set forth in Sections 6.6 and 11.4.
SECTION 11.3. Amendments; No Waivers. (a) Any provision of this Agreement may
be amended or waived prior to the Effective Time if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
SFP and BNI or in the case of a waiver, by the party against whom the waiver is
to be effective; provided that after the adoption of this Agreement by the
stockholders of SFP, no such amendment or waiver shall, without the further
approval of such stockholders, alter or change (i) the amount or kind of
consideration to be received in exchange for any shares of capital stock of
SFP, (ii) any term of the certificate of incorporation of the Surviving
Corporation or (iii) any of the terms or conditions of this Agreement if such
alteration or change would adversely affect the holders of any shares of
capital stock of SFP.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 11.4. Expenses; Certain Payments. (a) Except as otherwise provided in
this Section or agreed in writing by the parties, each party shall bear its own
expenses, including the fees and expenses of any attorneys, accountants,
investment bankers, brokers, finders or other intermediaries or other Persons
engaged by it, incurred in connection with this Agreement and the transactions
contemplated hereby.
(b) SFP agrees that if this Agreement shall be terminated pursuant to Section
10.1(v), (vii), (viii), (xii) or (xiii), it will pay BNI an amount equal to
$50,000,000 plus all out-of-pocket expenses, not to exceed $10,000,000,
incurred by BNI in connection with this Agreement, the Merger, the Offer and
all related transactions by wire transfer of immediately available funds
promptly, but in no event later than two business days, after such termination;
provided that no payment will be required pursuant to this Section 11.4(b) if
this Agreement is terminated pursuant to Section 10.1(vii), (viii) or (xiii)
unless, after December 18, 1994, a
A-34
<PAGE>
new Takeover Proposal involving SFP has been announced or made (it being
understood that any modification of Union Pacific Corporation's Takeover
Proposal in existence on December 18, 1994 shall be deemed a new Takeover
Proposal).
(c) SFP agrees that if this Agreement shall be terminated pursuant to Section
10.1(vii), (viii) or (xiii) and no payment is required by it pursuant to
Section 11.4(b), it will reimburse BNI for all out-of-pocket expenses incurred
by BNI in connection with this Agreement, the Merger, the Offer and all related
transactions. Such payment shall be made by wire transfer of immediately
available funds promptly, but in no event later than two business days, after
receipt by SFP from BNI of documentation of such expenses.
SECTION 11.5. Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto.
SECTION 11.6. Governing Law. This Agreement shall be construed in accordance
with and governed by the law of the State of Delaware (without regard to
principles of conflict of laws).
SECTION 11.7. Jurisdiction. Any suit, action or proceeding seeking to enforce
any provision of, or based on any matter arising out of or in connection with,
this Agreement or the transactions contemplated hereby may be brought against
any of the parties in the United States District Court for the District of
Delaware or any state court sitting in the City of Wilmington, Delaware, and
each of the parties hereby consents to the exclusive jurisdiction of such
courts (and of the appropriate appellate courts) in any such suit, action or
proceeding and waives any objection to venue laid therein. Process in any such
suit, action or proceeding may be served on any party anywhere in the world,
whether within or without the State of Delaware. Without limiting the
foregoing, each of the parties hereto agrees that service of process upon such
party at the address referred in Section 11.1, together with written notice of
such service to such party, shall be deemed effective service of process upon
such party.
SECTION 11.8. Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have
received counterparts hereof signed by all of the other parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
Burlington Northern Inc.
/s/ Gerald Grinstein
By: _________________________________
Title: Chairman and Chief
Executive Officer
Santa Fe Pacific Corporation
/s/ Robert D. Krebs
By: _________________________________
Title: Chairman, President and
Chief Executive Officer
A-35
<PAGE>
AMENDMENT NO. 3
TO
AGREEMENT AND PLAN OF MERGER
AMENDMENT NO. 3 dated as of January 24, 1995 (this "Amendment") between
Burlington Northern Inc., a Delaware corporation ("BNI"), and Santa Fe Pacific
Corporation, a Delaware corporation ("SFP").
WHEREAS, BNI and SFP have previously entered into that certain Agreement and
Plan of Merger dated as of June 29, 1994 between BNI and SFP, as amended by the
Amendment thereto dated as of October 26, 1994 and Amendment No. 2 thereto
dated as of December 18, 1994 (as amended, the "Merger Agreement"); and
WHEREAS, the respective Boards of Directors of BNI and SFP have determined
that it is in the best interests of BNI or SFP, as the case may be, and its
respective stockholders to amend the Merger Agreement as hereinafter set forth
and have duly approved this Amendment and authorized its execution and
delivery.
NOW, THEREFORE, the parties hereto agree as follows:
1. All capitalized terms used herein, unless otherwise defined herein,
shall have the meanings given them in the Merger Agreement, and each
reference in the Merger Agreement to "this Agreement", "hereof", "herein",
"hereunder" or "hereby" and each other similar reference shall be deemed to
refer to the Merger Agreement as amended hereby. All references to the
Merger Agreement in any other agreement between BNI and SFP relating to the
transactions contemplated by the Merger Agreement shall be deemed to refer
to the Merger Agreement as amended hereby.
2. Section 1.2(a)(i) of the Merger Agreement is hereby amended by
replacing subparagraph (a)(i) of such section in its entirety with the
following:
(a) At the Effective Time:
(i) each share (a "Share" and, collectively, the "Shares") of SFP
Common Stock, par value $1.00 per share (the "SFP Common Stock"),
outstanding immediately prior to the Effective Time shall, except as
otherwise provided in Section 1.2(a)(ii) below, be converted into a
fraction of a share of common stock, no par value (the "BNI Common
Stock"), of BNI (x) the numerator of which is 0.40, and (y) the
denominator of which is equal to (A) the number of shares of SFP
Common Stock outstanding (but excluding treasury stock and SFP
Common Stock beneficially owned by BNI or acquired in the Offer by
BNI) immediately prior to the Effective Time divided by (B) an
amount equal to the sum of (i) the number of shares of SFP Common
Stock outstanding (but excluding treasury stock and SFP Common Stock
beneficially owned by BNI or acquired in the Offer by BNI)
immediately prior to the Effective Time, and (ii) the aggregate
number of shares of SFP Common Stock repurchased by SFP, as
permitted in Section 5.1(j) hereof (such fraction being defined
herein as the "Exchange Ratio"), provided that in no event may the
Exchange Ratio exceed 0.4347; and
3. Section 1.8(c) of the Merger Agreement is hereby amended by replacing
subparagraph (c) of such section in its entirety with the following:
(c) At the Effective Time of the Alternative Merger, (i) each share
of SFP Common Stock outstanding immediately prior to such Effective
Time shall, except as otherwise provided in Section 1.8(d) below, be
converted into a fraction of a share of common stock of BNSF, $.01 par
value per share (the "BNSF Common Stock"), (x) the numerator of which
is 0.40 and (y) the denominator of which is equal to (A) the number of
shares of SFP Common Stock outstanding (but excluding treasury stock
and SFP Common Stock beneficially owned by BNI or acquired in the Offer
by BNI) immediately prior to such Effective Time divided by (B) an
amount equal to the sum of (a) the number of shares of SFP Common Stock
outstanding (but excluding treasury stock and SFP
A-1
<PAGE>
Common Stock beneficially owned by BNI or acquired in the Offer by BNI)
immediately prior to such Effective Time and (b) the aggregate number
of shares of SFP Common Stock repurchased by SFP, as permitted in
Section 5.1(j) hereof, provided that the fraction determined pursuant
to this clause (i) shall not exceed 0.4347, (ii) each share of BNI
Common Stock outstanding immediately prior to such Effective Time
shall, except as otherwise provided in Section 1.8(d) below, be
converted into 1.0 share of BNSF Common Stock, and (iii) each share of
BNSF Common Stock held by BNI or SFP shall be cancelled. The numbers
calculated pursuant to this subparagraph (c) shall be adjusted as
provided in Section 1.5 hereof if any of the events described in
Section 1.5 occur.
4. Section 1.8(g) of the Merger Agreement is hereby amended by replacing
subparagraph (g) of such section in its entirety with the following:
(g) No certificates or scrip representing fractional shares of BNSF
Common Stock will be issued in the Alternative Merger, but in lieu
thereof each holder of SFP Common Stock otherwise entitled to a
fractional share of BNSF Common Stock will be entitled to receive, from
the Exchange Agent in accordance with the provisions of this Section
1.8(g), a cash payment in lieu of such fractional shares of BNSF Common
Stock which would otherwise have been issued (the "Excess Shares"). The
sale of the Excess Shares by the Exchange Agent shall be executed on
the NYSE through one or more member firms of the NYSE and shall be
executed in round lots to the extent practicable. Until the net
proceeds of such sale or sales have been distributed to the holders of
SFP Common Stock, the Exchange Agent will hold such proceeds in trust
(the "Common Shares Trust") for the holders of the SFP Common Stock.
BNSF shall pay all commissions, transfer taxes and other out-of-pocket
transaction costs, including the expenses and compensation of the
Exchange Agent, incurred in connection with this sale of the Excess
Shares. The Exchange Agent shall determine the portion of the Common
Shares Trust to which each holder of SFP Common Stock shall be
entitled, if any, by multiplying the amount of the aggregate net
proceeds comprising the Common Shares Trust by a fraction the numerator
of which is the amount of the fractional BNSF Common Stock interest to
which such holder of SFP Common Stock is entitled and the denominator
of which is the aggregate amount of fractional share interests to which
all holders of SFP Common Stock are entitled. As soon as practicable
after the determination of the amount of cash, if any, to be paid to
holders of SFP Common Stock in lieu of any fractional shares of BNSF
Common Stock the Exchange Agent shall make available such amounts to
such holders of SFP Common Stock without interest.
5. Section 5.1 of the Merger Agreement is hereby amended to add a new
subsection (j), which shall provide as follows:
(j) Notwithstanding anything to the contrary in this Agreement, SFP
will be permitted to repurchase up to 10,000,000 shares of SFP Common
Stock at any time (or from time to time as long as the aggregate of
such shares repurchased does not exceed 10,000,000) between the time
shares of SFP Common Stock are purchased pursuant to the Offer and the
Effective Time, if, but only if, (a) such repurchase is permitted by
the credit agreements referred to in clause (ii) of subparagraph (f)
above entered into by SFP in connection with the Offer, as such
agreements are in effect at the time such Offer is consummated (whether
or not such agreements are in effect at the time of any such repurchase
and without regard to any waiver of any provision thereof) and (b) for
any purchases after March 31, 1995, SFP's total debt (which shall equal
the sum of short-term debt plus current maturities of long-term debt
plus long-term debt, all as shown on the consolidated balance sheet of
SFP and its consolidated subsidiaries in accordance with generally
accepted accounting principles), as of the most recent quarter-end
prior to such repurchase, does not exceed the levels set forth in Annex
A hereto and cash capital expenditures on a cumulative basis from
January 1, 1995, as of the most recent quarter-end prior to such
repurchase, are at least at the level shown in Annex A.
6. This Amendment shall be construed in accordance with and governed by
the law of the State of Delaware (without regard to principles of conflict
of laws).
A-2
<PAGE>
7. This Amendment may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument. This Amendment shall
become effective when each party hereto shall have received counterparts
hereof signed by all of the other parties hereto.
8. Except as expressly amended hereby, the Merger Agreement shall remain
in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed by their respective authorized officers as of the day and year first
above written.
Burlington Northern Inc.
/s/ Gerald Grinstein
By __________________________________
Title: Chairman and
Chief Executive Officer
Santa Fe Pacific Corporation
/s/ Robert D. Krebs
By __________________________________
Title: Chairman, President and
Chief Executive Officer
A-3
<PAGE>
AMENDMENT NO. 4
TO
AGREEMENT AND PLAN OF MERGER
AMENDMENT NO. 4 dated as of September 19, 1995 (this "Amendment")
among Burlington Northern Inc., a Delaware corporation ("BNI"), Santa Fe Pacific
Corporation, a Delaware corporation ("SFP"), and Burlington Northern Santa Fe
Corporation, a Delaware corporation ("BNSF").
WHEREAS, BNI and SFP have previously entered into that certain
Agreement and Plan of Merger dated as of June 29, 1994 between BNI and SFP, as
amended by an Amendment thereto dated as of October 26, 1994, Amendment No. 2
thereto dated as of December 18, 1994 and Amendment No. 3 thereto dated as of
January 24, 1995, (as so amended, the "Merger Agreement");
WHEREAS, BNI and SFP have elected to effect the transaction
contemplated by the Merger Agreement in accordance with Section 1.8 of the
Merger Agreement and each of BNI and SFP has executed an Alternative Merger
Notice;
WHEREAS, the respective Boards of Directors of BNI, SFP and BNSF have
determined that it is in the best interests of each of BNI, SFP and BNSF, as the
case may be, and its respective stockholders to amend the Merger Agreement as
hereinafter set forth and have duly approved this Amendment No. 4 and authorized
its execution and delivery;
NOW, THEREFORE, the parties hereto agree as follows:
1. All capitalized terms used herein, unless otherwise defined
herein, shall have the meanings given them in the Merger Agreement, and each
reference in the Merger Agreement to "this Agreement", "hereof", "herein",
"hereunder" or "hereby" and each other similar reference shall be deemed to
refer to the Merger Agreement as amended hereby. All references to the Merger
Agreement in any other agreement between BNI and SFP relating to the
transactions contemplated by the Merger Agreement shall be deemed to refer to
the Merger Agreement as amended hereby.
2. BNSF hereby becomes a party to the Merger Agreement and assumes
all obligations of BNI, in its
A-1
<PAGE>
capacity as Surviving Corporation, under the Merger Agreement.
3. BNSF hereby represents and warrants to each of BNI and SFP as
follows:
(i) Corporate Existence and Power. At the Effective Time, BNSF will
be a corporation duly incorporated, validly existing and in good standing
under the laws of its jurisdiction of incorporation and will have all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on the businesses of BNI and SFP
as such businesses are now conducted. At the Effective Time, BNSF will be
duly qualified to do business as a foreign corporation and will be in good
standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where the failure to be so
qualified would not, individually or in the aggregate, have a Material
Adverse Effect on BNSF.
(ii) Corporate Authorization. At the Effective Time, the execution,
delivery and performance by BNSF of the Merger Agreement, as amended
hereby, and the consummation by BNSF of the transactions contemplated
hereby and thereby will be within the corporate powers of BNSF and will
have been duly authorized by all necessary corporate action on the part of
BNSF. At the Effective Time, the Merger Agreement, as amended hereby, will
constitute a valid and binding agreement of BNSF.
(iii) Governmental Authorization. At the Effective Time, the
execution, delivery and performance by BNSF of the Merger Agreement, as
amended hereby, and the consummation of the Merger by BNSF will require no
action by or in respect of, or filing with, any governmental body, agency,
official or authority other than (A) the filing of a certificate of merger
in accordance with Delaware Law; (B) compliance with any applicable
requirements of the Exchange Act; (C) compliance with the applicable
requirements of the 1933 Act; (D) compliance with any applicable foreign or
state securities or Blue Sky laws; (E) immaterial actions or filings
relating to ordinary operational matters; and (F) actions that have
theretofore been taken or filings that have theretofore been made.
A-2
<PAGE>
(iv) Non-Contravention. At the Effective Time, the execution,
delivery and performance by BNSF of the Merger Agreement, as amended
hereby, and the consummation by BNSF of the transactions contemplated
hereby and thereby will not (except, in the case of clauses (B), (C) and
(D) of this Section (3)(iv), for any such matters that singly or in the
aggregate have not had, and would not reasonably be expected to have, a
Material Adverse Effect on BNSF) (A) contravene or conflict with the
certificate of incorporation or bylaws of BNSF, (B) assuming compliance
with the matters referred to in Section (3)(iii), contravene or conflict
with or constitute a violation of any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable to BNSF or
any Subsidiary of BNSF, (C) constitute a default under or give rise to any
right of termination, cancellation or acceleration of any right or
obligation of BNSF or any of its Subsidiaries or to a loss of any benefit
to which BNSF or any of its Subsidiaries is entitled under any agreement,
contract or other instrument binding upon BNSF or any of its Subsidiaries
or any license, franchise, permit or other similar authorization held by
BNSF or any of its Subsidiaries or (D) result in the creation or imposition
of any Lien on any asset of BNSF or any Subsidiary of BNSF.
4. This Amendment shall be construed in accordance with and governed
by the law of the State of Delaware (without regard to principles of conflict of
laws).
5. This Amendment may be signed in any number of counterparts, each
of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Amendment shall become effective
when each party hereto shall have received counterparts hereof signed by all of
the other parties hereto.
6. Except as expressly amended hereby, the Merger Agreement shall
remain in full force and effect.
A-3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective authorized officers as of the day and year
first above written.
Burlington Northern Inc.
By: /s/ Gerald Grinstein
------------------------------
Title: Chief Executive Officer
Santa Fe Pacific Corporation
By: /s/ Jeffrey R. Moreland
------------------------------
Title: Vice President
Burlington Northern Santa Fe
Corporation
By: /s/ Douglas R. Babb
------------------------------
Title: President
A-4
<PAGE>
EXHIBIT 23.1
CONSENT ON INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-62823, 33-62829, 33-62831, 33-62839, 33-62833,
33-62825, 33-62835, 33-62827, 33-62837, 33-62841, 33-62943, 33-63247, 33-63249,
33-63253 and 33-63255) of Burlington Northern Santa Fe Corporation of our report
dated January 16, 1995 on our audits of the consolidated financial statements of
Burlington Northern Inc. and Subsidiaries as of December 31, 1994 and 1993 and
for the years ended December 31, 1994, 1993 and 1992, included in Burlington
Northern Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Fort Worth, Texas
October 6, 1995
<PAGE>
EXHIBIT 23.2
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registraton
Statements on Form S-8 (Nos. 33-62823; 33-62829; 33-62831; 33-62839; 33-62833;
33-62825; 33-62835; 33-62827; 33-62837; 33-62841; 33-62943; 33-63247; 33-63249;
33-63253; and 33-63255) of Burlington Northern Santa Fe Corporation of our
report dated February 21, 1995, related to the consolidated financial statements
of Santa Fe Pacific Corporation, which appears on page 19 of the 1994 Annual
Report to Shareholders which is incorporated by reference in Santa Fe Pacific
Corporation's Annual Report on Form 10-K for the year ended December 31, 1994.
Price Waterhouse LLP
Kansas City, Missouri
October 6, 1995
<PAGE>
Exhibit 99.1
BURLINGTON NORTHERN SANTA FE CORPORATION
- --------------------------------------------------------------------------------
Contact: Richard Russack (BN) FOR IMMEDIATE RELEASE
(817) 333-6116
Catherine Westphal (Santa Fe)
(708) 995-6273
BURLINGTON NORTHERN SANTA FE CORPORATION ANNOUNCES
CLOSING OF BUSINESS COMBINATION BETWEEN BURLINGTON
NORTHERN INC. AND SANTA FE PACIFIC CORPORATION
Trading to Commence Today on NYSE under Symbol, BNI Common
Stock Also Will Trade on Chicago and Pacific Stock Exchanges
FORT WORTH, Texas, September 22, 1995 -- Burlington Northern Santa Fe
Corporation (BNSF) announced that the business combination between Burlington
Northern Inc. (BNI) and Santa Fe Pacific Corporation (SFP) became effective at
8:32 a.m. E.D.T. today. BNI and SFP are subsidiaries of BNSF, a new public
company.
As a result, each share of SFP common stock will be exchanged for
0.411,43945 of a share of newly issued BNSF common stock and each share of BNI
stock will be exchanged for one share of BNSF common stock. In addition, each
share of BNI's 6-1/4% Cumulative Convertible Preferred Stock, Series A will
become one share of BNSF preferred stock with substantially identical terms and
will be convertible into BNSF common stock.
The BNSF common and preferred stock will begin trading today, under the
symbol BNI, on the New York Stock Exchange, the Chicago Stock Exchange and the
Pacific Stock Exchange.
On or about Sept. 27, 1995, SFP and BNI registered shareholders will
receive an information package from the Exchange Agent, Transfer Agent and
Registrar for BNSF, First Chicago Trust Company of New York. This package will
include instructions about the certificate exchange process.
Pursuant to the BNI-SFP merger agreement, the exchange ratio for each share
of SFP common stock increased from 0.40 to 0.41143945 shares of BNSF common
stock as a result of the repurchase by Sante Fe Pacific of 3,614,739 shares of
its common stock between Feb. 7, the date of
<PAGE>
shareholder approval, and Sept. 21, 1995. BNSF has approximately 142 million
outstanding shares.
Burlington Northern Santa Fe Corporation owns the largest railroad network
in the United States with more than 31,000 route miles reaching across 27 states
and two Canadian provinces to provide single-line service to shippers. The
network stretches from the Midwest to California and to the Pacific Northwest,
across the Southeast, the Southwest and the Pacific Northwest, and between the
Gulf of Mexico and Canada.
# # #
2
<PAGE>
EXHIBIT 99.2
[Letterhead of Burlington Northern Santa Fe Corporation]
FOR IMMEDIATE RELEASE MEDIA CONTACT: Richard Russack
#49 (BN) (817) 333-6116
Catherine Westphal
(Santa Fe) (708) 995-6273
BURLINGTON NORTHERN SANTA FE CORPORATION ANNOUNCES CLOSING OF
BUSINESS COMBINATION BETWEEN BURLINGTON NORTHERN INC. AND
SANTA FE PACIFIC CORPORATION
Trading to Commence Today on NYSE under Symbol, BNI
Common Stock Also Will Trade on Chicago and Pacific Stock Exchanges
FORT WORTH, Texas, September 22, 1995 - Burlington Northern Santa Fe
Corporation (BNSF) announced that the business combination between Burlington
Northern Inc. (BNI) and Santa Fe Pacific Corporation (SFP) became effective at
8:32 a.m. E.D.T. today. BNI and SFP are subsidiaries of BNSF, a new public
company.
As a result, each share of SFP common stock will be exchanged for
0.41143945 of a share of newly issued BNSF common stock and each share of BNI
stock will be exchanged for one share of BNSF common stock. In addition, each
share of BNI's 6-1/4% Cumulative Convertible Preferred Stock, Series A will
become one share of BNSF preferred stock with substantially identical terms and
will be convertible into BNSF common stock.
The BNSF common and preferred stock will begin trading today, under the
symbol BNI, on the New York Stock Exchange, the Chicago Stock Exchange and the
Pacific Stock Exchange.
On or about Sept. 27, 1995, SFP and BNI registered shareholders will
receive an information package from the Exchange Agent, Transfer Agent and
Registrar for BNSF, First Chicago Trust Company of New York. This package will
include instructions about the certificate exchange process.
Pursuant to the BNI-SFP merger agreement, the exchange ratio for each
share of SFP common stock increased from 0.40 to 0.41143945 shares of BNSF
common stock as a result of the repurchase by Santa Fe Pacific of 3,614,739
shares of its common stock between Feb. 7, the date of shareholder approval, and
Sept. 21, 1995. BNSF has approximately 142 million outstanding shares.
Burlington Northern Santa Fe Corporation owns the largest railroad
network in the United States with more than 31,000 route miles reaching across
27 states and two Canadian provinces to provide single-line service to shippers.
The network stretches from the Midwest to California and to the Pacific
Northwest, across the Southeast, the Southwest and the Pacific Northwest, and
between the Gulf of Mexico and Canada.
###
<PAGE>
[Letterhead of Burlington Northern Santa Fe Corporation]
FOR IMMEDIATE RELEASE MEDIA CONTACT: Richard Russack
#50 (BN) (817) 333-6116
Catherine Westphal
(Santa Fe) (708) 995-6273
BURLINGTON NORTHERN SANTA FE CORPORATION ANNOUNCES
APPOINTMENT OF 19-MEMBER BOARD OF DIRECTORS
Board approves Previously Announced Senior Management Team;
Coopers and Lybrand, L.L.P. Named Independent Accountants
FORT WORTH, TEXAS, Sept. 22, 1995 - The board of directors for Burlington
Northern Santa Fe Corporation (BNSF) held its initial meeting today. The
members of the 19-person board are:
Gerald Grinstein - BNSF Chairman, formerly Chairman and Chief
Executive Officer, Burlington Northern Inc. (BN)
Robert D. Krebs - BNSF President and Chief Executive Officer, formerly
Chairman, President and Chief Executive Officer, Santa
Fe Pacific Corporation (Santa Fe)
Joseph F. Alibrandi - Chairman of Whittaker Corporation and BioWhittaker,
Inc., formerly a Santa Fe director
Jack S. Blanton - Chairman and Chief Executive Officer, Houston
Endowment, Inc., formerly a BN director
John J. Burns, Jr. - President, Chief Executive Officer and Director,
Alleghany Corporation, formerly a Santa Fe director
Daniel P. Davison - Chairman, PPI and retired Chairman and Chief
Executive Officer, U.S. Trust Corporation, formerly a
BN director.
George Deukmejian - Partner, Sidley & Austin, and former Governor of the
State of California, formerly a Santa Fe director
- more -
<PAGE>
Page 2
BNSF
David J. Evans - Chairman, Daniel J. Evans Associates, and former U.S.
Senator and Governor of the State of Washington,
formerly a BN director
Barbara C. Jordan - Professor, Lyndon B. Johnson School of Public
Affairs, University of Texas at Austin, formerly a
BN director
Bill M. Lindig - President, Chief Executive Officer and Director,
SYSCO Corporation, formerly a Santa Fe director
Ben F. Love - Director and Consultant, Retired Chairman and Chief
Executive Officer, Texas Commerce Bancshares, Inc.,
formerly a BN director
Roy S. Roberts - Vice President, General Motors Corporation and
General Manager, GMC Truck Division, formerly a Santa
Fe director
Marc J. Shapiro - Chairman, President and CEO, Texas Commerce Bank and
Management Committee Member, Chemical Banking
Corporation
Arnold R. Weber - Chancellor, Northwestern University and President of
the Civic Committee of the Commercial Club of
Chicago, formerly a BN director
Robert H. West - Chairman and Chief Executive Officer, Butler
Manufacturing Company, formerly a Santa Fe director
J. Steven Whisler - President, Phelps Dodge Mining Company and Senior
Vice President and Senior Management Committee
Member, Phelps Dodge Corporation
Edward F. Whitacre - Chairman and Chief Executive Officer, SBC
Communications Inc., formerly a BN director
Ronald B. Woodard - President, Boeing Commercial Airplane Group
Michael B. Yanney - Chairman and Chief Executive, America First
Companies, formerly a BN director
- more -
<PAGE>
Page 3
BNSF
The BNSF board approved the recommendation of Messrs. Grinstein and
Krebs relating to the appointment of nine senior vice presidents, announced
Sept. 6, who will report to Mr. Krebs. The Board also approved the appointment
of Coopers and Lybrand, L.L.P. as independent accountants.
Burlington Northern Santa Fe Corporation owns the largest railroad
network in the United States with more than 31,000 route miles reaching across
27 states and two Canadian provinces to provide single-line service to shippers.
The network stretches from the Midwest to California and the Pacific Northwest,
across the Southeast, the Southwest and the Pacific Northwest, and between the
Gulf of Mexico and Canada.
###
<PAGE>
EXHIBIT 99.3
[Letterhead of Santa Fe Pacific]
NEWS
FOR IMMEDIATE RELEASE MEDIA CONTACT: Catherine Westphal
#46 Santa Fe (708) 995-6273
Richard A. Russack
BN (817) 333-6116
SENIOR MANAGEMENT TEAM DESIGNATED FOR BURLINGTON NORTHERN SANTA FE
CORPORATION, Fort Worth to be Corporate Headquarters
SCHAUMBURG, ILLINOIS, and FORT WORTH, TEXAS, September 6, 1995 -
Gerald Grinstein, Chairman and Chief Executive Officer of Burlington Northern
Inc., and Robert D. Krebs, Chairman, President and Chief Executive Officer of
Santa Fe Pacific Corporation, today announced the makeup of the senior
management team that they will recommend to the Board of Directors of
Burlington Northern Santa Fe Corporation following the merger of Burlington
Northern and Santa Fe that is expected to take place later this month when the
Interstate Commerce Commission order approving the merger becomes effective.
As previously announced, Mr. Grinstein will be Chairman of Burlington
Northern Santa Fe (BNSF) and Mr. Krebs will be president and chief executive
officer. The senior vice presidents, all of whom will report to Mr. Krebs, will
be as follows:
John Q. Anderson - Senior Vice President-Coal Business Unit
Douglas J. Babb - Senior Vice President and Chief of Staff
James B. Dagnon - Senior Vice President-Employee Relations
Charles Feld - Senior Vice President and Chief Information
Officer
Steven F. Marlier - Senior Vice President-Consumer Business Unit
Donald G. McInnes - Senior Vice President and Chief Operations
Officer
Jeffrey R. Moreland - Senior Vice President-Law and General Counsel
Denis E. Springer - Senior Vice President and Chief Financial
Officer
Gregory T. Swienton - Senior Vice President-Industrial Business Unit
Biographical sketches of these individuals and descriptions of their
responsibilities are attached. The remaining officers will be selected over the
coming weeks.
- more -
<PAGE>
SFP
Page 2
Mr. Krebs stated, "The goal of BNSF is to be a leader in the
transportation industry. Our two great companies have the people and the
resources to achieve this goal, and in the process, to benefit our customers,
our shareholders, our employees and the communities we serve."
Messrs. Grinstein and Krebs also announced that Fort Worth, Texas, will
be corporate headquarters for the newly-formed company. Both the BNSF
operations and marketing functions will be located at BN's James J. Hill Center
in north Fort Worth, while the location of other corporate functions will be
studied and determined at a later date.
Mr. Grinstein said that, "Our Network Operations Center, which opened
earlier this year, provides BNSF with a state-of-the-art facility from which to
manage train operations for the combined 31,000 route-mile system. Rob and I
are convinced that locating both our operations and marketing people at the
Center will ensure we deliver our customers the most consistent service and
provide them with the best real-time information available."
Mr. Krebs said that, "Ronald A. Rittenmeyer, BN's chief operating
officer with responsibility for both marketing and operations, has contributed
significantly to BN's record-setting performance during 1995. A similar
position will not exist in the new organization. Therefore, Ron has decided
that he will leave BN to seek an opportunity to run a company. He deserves to,
and is certainly capable of doing so, and we all wish him success in his
pursuit."
Several other senior executives reporting to either Mr. Grinstein or Mr.
Krebs will not be a part of the new organization, but will remain with their
respective railroads until October 1 to help ensure a smooth transition and to
participate in the selection of people to head key departments. They are:
David C. Anderson, BN Executive Vice President and Chief Financial Officer,
Edmund W. Burke, BN Executive Vice President, Law and Government Affairs; and
Russell E. Hagberg, Santa Fe Senior Vice President and Chief of Staff.
Burlington Northern Santa Fe Corporation will operate the largest
railroad network in the United States with more than 31,000 miles of track
reaching across 27 states and two Canadian provinces to provide single-line
service to shippers between the Midwest and California and the Pacific
Northwest, between the Southeast and the Southwest and Pacific Northwest, and
between the Gulf of Mexico and Canada.
- more -
<PAGE>
SFP
Page 3
JOHN Q. ANDERSON, 44, Senior Vice President-Coal Business Unit. Mr.
Anderson is BN Executive Vice President, Coal Business Group, a position he has
held since 1992. He joined BN in 1990 from McKinsey & Co.'s Los Angeles office,
where he was a consultant on strategy, operations and organization issues for
corporations in the United States, Europe, the Middle East, Latin America and
Asia. Mr. Anderson graduated with honors in 1973 from Stanford University with
a B.S. degree in Mechanical Engineering and received his Master's degree in
Business Administration with honors from Harvard Business School in 1977.
DOUGLAS J. BABB, 43, Senior Vice President and Chief of Staff, with
responsibility for executive support, corporate communications, corporate
secretary, investor relations and asset rationalization. Mr. Babb is BN Vice
President and general counsel. He joined BN in 1978 as an attorney and assumed
his present position in 1986. Prior to joining BN, he worked for the South
Carolina Attorney General's office. He earned a B.A. degree with honors in
pre-law from Mankato State University and a Juris Doctorate degree from the
University of South Carolina.
JAMES B. DAGNON, 55, Senior Vice President-Employee Relations, with
responsibility for salaried compensation and benefits and staffing and labor
relations. Mr. Dagnon is BN Executive Vice President, Employee Relations. He
began his railroad career in 1957 and has held a number of management positions
in Labor Relations and Human Resources. He has held his present position since
1992. Mr. Dagnon received a B.S. degree with honors in Business Administration
from the University of Minnesota.
CHARLES FELD, 53, Senior Vice President and Chief Information Officer.
Mr. Feld is BN's Acting Chief Information Officer, a position he has held since
1992. Previously, he was Vice President of Management Information Systems at
Frito-Lay, Inc., which he joined in 1981 following a 15-year career with IBM
Corp. Mr. Feld is a 1964 graduate of City College of New York City with a B.A.
degree in Economics.
STEVEN F. MARLIER, 49, Senior Vice President-Consumer Business Unit,
which will include intermodal and automotive, food and forest products. Mr.
Marlier is Santa Fe Senior Vice President and Chief Marketing Officer, a
position he has held since 1994. He joined Santa Fe in 1992 as Senior Vice
President-Carload Business Unit, after a 19-year career with IBM Corp. where he
held numerous sales and marketing, finance and strategic planning positions.
Mr. Marlier received his B.S. degree from the United States Air Force Academy in
1968 and his Master of Arts degree from the Fletcher School of Law and Diplomacy
in 1969.
- more -
<PAGE>
SFP
Page 4
DONALD G. McINNES, 54, Senior Vice President and Chief Operations
Officer, who will be responsible for transportation, maintenance, quality and
purchasing. Mr. McInnes has held the same position at Santa Fe since 1994.
Previously, Mr. McInnes was Senior Vice President-Intermodal having formed the
Santa Fe Intermodal Business Unit in 1989. He joined the railroad's operating
department in 1969 and joined the Office of the President as vice president,
Administration in 1989. He received his B.A. degree from Denison University in
1963 and earned a Master of Science degree in Transportation from Northwestern
University in 1965.
JEFFREY R. MORELAND, 51, Senior Vice President-Law and General Counsel,
who will also have responsibility for Government Relations. He is Santa Fe Vice
President-Law and General Counsel, a position he has held since 1994. Mr.
Moreland joined Santa Fe in 1978 as assistant general attorney. Prior to joining
Santa Fe, Mr. Moreland was employed at the Securities and Exchange Commission
(SEC) in positions of increasing responsibility. His last position at the SEC
was Branch Chief in the Division of Corporation Finance. He received his B.S.
degree from Georgetown University, his Juris Doctorate degree from Catholic
University School of Law and a Master's degree in Business Administration from
the University of Chicago.
DENIS E. SPRINGER, 49, Senior Vice President and Chief Financial
Officer, with responsibility for finance, accounting, audit, tax and strategic
planning. He has held the same position at Santa Fe since 1992. Prior to
joining Santa Fe as Director of Finance in 1982, Mr. Springer held a number of
positions with Arthur Anderson & Co., Gould, Inc. and Brown, Boveri Electric,
Inc. He graduated magna cum laude with a B.S. degree in Electrical Engineering
from the University of Notre Dame in 1967, and received a Master's degree in
Business Administration from the University of Chicago in 1969.
GREGORY T. SWIENTON, 45, Senior Vice President-Industrial Business Unit,
which includes agricultural commodities, chemicals, plastics, minerals and ores,
and metals. He is BN Executive Vice President, Intermodal Business Group, a
position he has held since joining BN in 1994. Previously, he was executive
director-Europe and Africa for DHL Worldwide Express in Brussels, Belgium. He
joined DHL in 1982 following an 11-year career with AT&T and Illinois Bell. In
1971, he received a B.B.A. degree in Marketing from Loyola University, Chicago
and in 1979 a Master's degree in Business Administration from the University of
Chicago.
###
